(B) for the design and engineering of a 
tribal school; 
(2) to enter into, and make payments under, 
contracts with financial advisors, underwriters, at-
torneys, trustees, and other professionals to provide 
assistance to the Indian tribe in issuing the bonds; 
and 
(3) to carry out other such activities as the Sec-
retary determines to be appropriate. 
(d) BOND TRUSTEE.— 
(1) IN GENERAL.—Notwithstanding any other 
provision of law, any qualified tribal school mod-
ernization bond issued by an Indian tribe under this 
section shall be subject to a trust agreement between 
the Indian tribe and a trustee. 
(2) TRUSTEE.—Any bank or trust company 
that meets the requirements established by the Sec-
retary may serve as a trustee for purposes of para-
graph (1). 
(3) CONTENT OF TRUST AGREEMENT.—A trust 
agreement entered into by an Indian tribe under this 
subsection shall specify that the trustee, with respect 
to any bond issued under this section, shall— 
(A) act as a repository for the proceeds of 
the bond; 
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(B) make payments to bondholders; 
(C) receive, as a condition to the issuance 
of the bond, a transfer of funds from the tribal 
school modernization escrow account under sub-
section (f)(2), or from other funds furnished by 
or on behalf of the Indian tribe, in an amount 
that, together with interest earnings from the 
investment of the funds in obligations of or 
fully guaranteed by the United States, or from 
other investments under subsection (j), will be 
sufficient to pay timely and in full the entire 
principal amount of the bond on the stated ma-
turity date of the bond; 
(D) invest the funds received in accordance 
with subparagraph (C); and 
(E) hold and invest the funds in a seg-
regated fund or account under the agreement, 
to be used solely to pay the costs of activities 
described in subsection (c). 
(4) REQUIREMENTS FOR MAKING DIRECT PAY-
MENTS.— 
(A) IN
GENERAL.—Notwithstanding any 
other provision of law, the trustee shall make 
each payment described in paragraph (3)(E) in 
accordance with such requirements as the In-
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dian tribe may prescribe in the trust agreement 
under paragraph (3). 
(B) PAYMENTS TO CONTRACTORS.—As a 
condition of making a payment to a contractor 
under paragraph (3)(E), the trustee shall re-
quire an inspection of the project of the con-
tractor, to ensure the completion of the project, 
by— 
(i) a local financial institution; or 
(ii) an independent inspecting archi-
tect or engineer. 
(C) CONTRACTS.—Each contract under 
paragraphs (1) and (2) of subsection (c) shall 
require, or be renegotiated to require, that each 
payment under the contract shall be made in 
accordance with this subsection. 
(e) PAYMENTS OF PRINCIPAL AND INTEREST.— 
(1) PRINCIPAL.— 
(A) IN GENERAL.—No principal payment 
on any qualified tribal school modernization 
bond shall be required until the final, stated 
maturity of the bond. 
(B) MATURITY.— 
(i) IN
GENERAL.—The final, stated 
maturity of a qualified tribal school mod-
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ernization bond shall be not later than the 
date that is 15 years after the date of 
issuance of the bond. 
(ii) EXPIRATION.—On expiration of a 
qualified tribal school modernization bond 
under clause (i), the entire outstanding 
principal under the bond shall become due 
and payable. 
(2) INTEREST.—In lieu of interest on a quali-
fied tribal school modernization bond, there shall be 
provided a tax credit under section 1400U of the In-
ternal Revenue Code of 1986. 
(f) BOND GUARANTEES.— 
(1) IN
GENERAL.—Payment of the principal 
portion of a qualified tribal school modernization 
bond issued under this section shall be guaranteed 
solely by amounts deposited with each respective 
bond trustee as described in subsection (d)(3)(C). 
(2) ESCROW ACCOUNT.— 
(A) IN GENERAL.—The Secretary may de-
posit not more than $50,000,000 into a tribal 
school modernization escrow account. 
(B) ADDITIONAL AMOUNTS.— 
(i) IN GENERAL.—The Secretary may 
accept for transfer into the tribal school 
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modernization escrow account amounts 
from, as the Secretary determines to be 
appropriate— 
(I) other Federal departments 
and agencies (such as amounts made 
available for facility improvement and 
repairs); 
(II) non-Federal public or private 
sources. 
(ii) 
TREATMENT.—Amounts 
trans-
ferred into the escrow account pursuant to 
clause (i) shall not reduce the amount eli-
gible to be deposited into the account 
under subparagraph (A). 
(C) INVESTMENT
OF
CERTAIN
FUNDS.— 
Amounts made available to carry out any 
project included on the list of the Bureau enti-
tled ‘‘Education Facilities Replacement Con-
struction Priorities List as of FY 2004’’ (or 
successor regulations) (69 Fed. Reg. 13870) 
shall— 
(i) be invested in accordance with sub-
section (j); and 
(ii) at the discretion of the Sec-
retary— 
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(I) be used to pay any increase in 
project costs or other facility costs of 
the project for which the amounts are 
made available; or 
(II) be deposited into the tribal 
school modernization escrow account. 
(g) LIMITATIONS.— 
(1) OBLIGATION TO REPAY.— 
(A) IN
GENERAL.—Notwithstanding any 
other provision of law, the principal amount of 
any qualified tribal school modernization bond 
issued under this section shall be repaid only to 
the extent of any escrowed funds provided 
under subsection (d)(3)(C). 
(B) 
TREATMENT.—No 
qualified 
tribal 
school modernization bond issued by an Indian 
tribe shall be an obligation of, and no payment 
of the principal of such a bond shall be guaran-
teed by, the United States, an Indian tribe, or 
a tribal school. 
(2) LAND AND FACILITIES.—No land or facility 
purchased or improved using amounts provided 
under a qualified tribal school modernization bond 
issued under this section shall be mortgaged or used 
as collateral for the bond. 
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(h) SALE OF BONDS.—A qualified tribal school mod-
ernization bond may be sold at a purchase price equal to, 
in excess of, or at a discount from the par amount of the 
bond. 
(i) TREATMENT
OF
TRUST
AGREEMENT
EARN-
INGS.—Amounts earned through the investment of funds 
under the control of a trustee under a trust agreement 
described in subsection (d) shall not be subject to Federal 
income tax. 
(j) INVESTMENT OF SINKING FUNDS.—Any sinking 
fund established for the purpose of the payment of prin-
cipal on a qualified tribal school modernization bond shall 
be invested in— 
(1) obligations issued or guaranteed by the 
United States; or 
(2) such other assets as the Secretary of the 
Treasury may allow, by regulation. 
SEC. 4. EXPANSION OF INCENTIVES FOR TRIBAL SCHOOLS. 
Chapter 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new sub-
chapter: 
‘‘Subchapter Z—Tribal School Modernization 
Provisions 
‘‘Sec. 1400U. Credit to holders of qualified tribal school modernization bonds. 
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‘‘SEC. 1400U. CREDIT TO HOLDERS OF QUALIFIED TRIBAL 
SCHOOL MODERNIZATION BONDS. 
‘‘(a) ALLOWANCE OF CREDIT.—In the case of a tax-
payer who holds a qualified tribal school modernization 
bond on a credit allowance date of such bond which occurs 
during the taxable year, there shall be allowed as a credit 
against the tax imposed by this chapter for such taxable 
year an amount equal to the sum of the credits determined 
under subsection (b) with respect to credit allowance dates 
during such year on which the taxpayer holds such bond. 
‘‘(b) AMOUNT OF CREDIT.— 
‘‘(1) IN GENERAL.—The amount of the credit 
determined under this subsection with respect to any 
credit allowance date for a qualified tribal school 
modernization bond is 25 percent of the annual 
credit determined with respect to such bond. 
‘‘(2) ANNUAL CREDIT.—The annual credit de-
termined with respect to any qualified tribal school 
modernization bond is the product of— 
‘‘(A) the applicable credit rate, multiplied 
by 
‘‘(B) the outstanding face amount of the 
bond. 
‘‘(3) APPLICABLE CREDIT RATE.—For purposes 
of paragraph (1), the applicable credit rate with re-
spect to an issue is the rate equal to an average 
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market yield (as of the date of sale of the issue) on 
outstanding long-term corporate obligations of simi-
lar ratings (as determined by the Secretary). 
‘‘(4) SPECIAL RULE FOR ISSUANCE AND RE-
DEMPTION.—In the case of a bond which is issued 
during the 3-month period ending on a credit allow-
ance date, the amount of the credit determined 
under this subsection with respect to such credit al-
lowance date shall be a ratable portion of the credit 
otherwise determined based on the portion of the 3- 
month period during which the bond is outstanding. 
A similar rule shall apply when the bond is re-
deemed. 
‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.— 
‘‘(1) IN GENERAL.—The credit allowed under 
subsection (a) for any taxable year shall not exceed 
the excess of— 
‘‘(A) the sum of the regular tax liability 
(as defined in section 26(b)) plus the tax im-
posed by section 55, over 
‘‘(B) the sum of the credits allowable 
under part IV of subchapter A (other than sub-
part C thereof, relating to refundable credits). 
‘‘(2) CARRYOVER OF UNUSED CREDIT.—If the 
credit allowable under subsection (a) exceeds the 
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limitation imposed by paragraph (1) for such taxable 
year, such excess shall be carried to the succeeding 
taxable year and added to the credit allowable under 
subsection (a) for such taxable year. 
‘‘(d) QUALIFIED TRIBAL SCHOOL MODERNIZATION 
BOND; OTHER DEFINITIONS.—For purposes of this sec-
tion— 
‘‘(1) QUALIFIED TRIBAL SCHOOL MODERNIZA-
TION BOND.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
tribal school modernization bond’ means, sub-
ject to subparagraph (B), any bond issued as 
part of an issue under section 2(c) of the In-
dian School Construction Act, as in effect on 
the date of enactment of this section, if— 
‘‘(i) 95 percent or more of the pro-
ceeds of such issue are to be used for the 
construction, rehabilitation, or repair of a 
school facility funded by the Bureau of In-
dian Affairs of the Department of the Inte-
rior or for the acquisition of land on which 
such a facility is to be constructed with 
part of the proceeds of such issue, 
‘‘(ii) the bond is issued by an Indian 
tribe, 
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‘‘(iii) the issuer designates such bond 
for purposes of this section, and 
‘‘(iv) the term of each bond which is 
part of such issue does not exceed 15 
years. 
‘‘(B) NATIONAL LIMITATION ON AMOUNT 
OF BONDS DESIGNATED.— 
‘‘(i) NATIONAL LIMITATION.—There is 
a national qualified tribal school mod-
ernization bond limitation for each cal-
endar year. Such limitation is— 
‘‘(I) $200,000,000 for 2007, 
‘‘(II) $200,000,000 for 2008, 
and 
‘‘(III) $200,000,000 for 2009. 
‘‘(ii) ALLOCATION OF LIMITATION.— 
The national qualified tribal school mod-
ernization bond limitation shall be allo-
cated to Indian tribes by the Secretary of 
the Interior subject to the provisions of 
section 2 of the Indian School Construc-
tion Act, as in effect on the date of enact-
ment of this section. 
‘‘(iii) DESIGNATION SUBJECT TO LIMI-
TATION
AMOUNT.—The maximum aggre-
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gate face amount of bonds issued during 
any calendar year which may be designated 
under subsection (d)(1) with respect to any 
Indian tribe shall not exceed the limitation 
amount allocated to such government 
under clause (ii) for such calendar year. 
‘‘(iv) CARRYOVER OF UNUSED LIMITA-
TION.—If for any calendar year— 
‘‘(I) the limitation amount under 
this subparagraph, exceeds 
‘‘(II) the amount of qualified 
tribal school modernization bonds 
issued during such year, the limitation 
amount under this subparagraph for 
the following calendar year shall be 
increased by the amount of such ex-
cess. The preceding sentence shall not 
apply if such following calendar year 
is after 2010. 
‘‘(2) CREDIT
ALLOWANCE
DATE.—The term 
‘credit allowance date’ means— 
‘‘(A) March 15, 
‘‘(B) June 15, 
‘‘(C) September 15, and 
‘‘(D) December 15. 
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Such term includes the last day on which the bond 
is outstanding. 
‘‘(3) BOND.—The term ‘bond’ includes any ob-
ligation. 
‘‘(4) INDIAN TRIBE.—The term ‘Indian tribe’ 
has the meaning given the term ‘Indian tribal gov-
ernment’ by section 7701(a)(40), including the ap-
plication of section 7871(d). Such term includes any 
consortium of Indian tribes approved by the Sec-
retary of the Interior. 
‘‘(e) CREDIT INCLUDED IN GROSS INCOME.—Gross 
income includes the amount of the credit allowed to the 
taxpayer under this section (determined without regard to 
subsection (c)) and the amount so included shall be treat-
ed as interest income. 
‘‘(f) BONDS HELD
BY REGULATED INVESTMENT 
COMPANIES.—If any qualified tribal school modernization 
bond is held by a regulated investment company, the credit 
determined under subsection (a) shall be allowed to share-
holders of such company under procedures prescribed by 
the Secretary. 
‘‘(g) CREDITS MAY BE STRIPPED.—Under regula-
tions prescribed by the Secretary— 
‘‘(1) IN GENERAL.—There may be a separation 
(including at issuance) of the ownership of a quali-
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fied tribal school modernization bond and the entitle-
ment to the credit under this section with respect to 
such bond. In case of any such separation, the credit 
under this section shall be allowed to the person who 
on the credit allowance date holds the instrument ev-
idencing the entitlement to the credit and not to the 
holder of the bond. 
‘‘(2) CERTAIN RULES TO APPLY.—In the case 
of a separation described in paragraph (1), the rules 
of section 1286 shall apply to the qualified tribal 
school modernization bond as if it were a stripped 
bond and to the credit under this section as if it 
were a stripped coupon. 
‘‘(h) TREATMENT
FOR
ESTIMATED
TAX
PUR-
POSES.—Solely for purposes of sections 6654 and 6655, 
the credit allowed by this section to a taxpayer by reason 
of holding a qualified tribal school modernization bonds 
on a credit allowance date shall be treated as if it were 
a payment of estimated tax made by the taxpayer on such 
date. 
‘‘(i) CREDIT MAY BE TRANSFERRED.—Nothing in 
any law or rule of law shall be construed to limit the trans-
ferability of the credit allowed by this section through sale 
and repurchase agreements. 
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‘‘(j) CREDIT TREATED AS ALLOWED UNDER PART 
IV OF SUBCHAPTER A.—For purposes of subtitle F, the 
credit allowed by this section shall be treated as a credit 
allowable under part IV of subchapter A of this chapter. 
‘‘(k) REPORTING.—Issuers of qualified tribal school 
modernization bonds shall submit reports similar to the 
reports required under section 149(e).’’. 
SEC. 5. ADDITIONAL PROVISIONS. 
(a) SOVEREIGN IMMUNITY.—Nothing in this Act or 
an amendment made by this Act impacts, limits, or other-
wise affects the sovereign immunity of the United States 
or any State or Indian tribal government. 
(b) APPLICATION.—This Act and the amendments 
made by this Act shall take effect on the date of enactment 
of this Act with respect to bonds issued after December 
31, 2006, regardless of the status of regulations promul-
gated pursuant to this Act or an amendment made by this 
Act. 
Æ 
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