partnership interests entitled to vote, and 
control over the management of the part-
nership. 
‘‘(D) 15-PERCENT
TEST.—The require-
ments of this subparagraph are satisfied if— 
‘‘(i) with respect to any entity which 
is a corporation— 
‘‘(I) individuals who meet the re-
quirements of paragraph (7) collec-
tively own at least 15 percent in value 
of the outstanding stock of the cor-
poration, and more than 50 percent of 
the total combined voting power of all 
classes of stock entitled to vote of the 
corporation, and 
‘‘(II) no other person owns more 
than 25 percent in value of the out-
standing stock of the corporation, and 
‘‘(ii) with respect to any entity which 
is a partnership— 
‘‘(I) individuals who meet the re-
quirements of paragraph (7) collec-
tively own at least 15 percent of the 
capital interests in the partnership, a 
distributive share of at least 15 per-
cent of each item of the partnership’s 
income, gain, loss, deduction, or cred-
it, more than 50 percent of the total 
combined voting power of all classes 
of partnership interests entitled to 
vote, and control over the manage-
ment of the partnership, and 
‘‘(II) no other person owns more 
than 25 percent of the capital inter-
ests and profits interests in the part-
nership or a distributive share of more 
than 25 percent of any item of the 
partnership’s income, gain, loss, de-
duction, or credit. 
‘‘(E) 
PUBLICLY-TRADED
CORPORATION 
TEST.—The requirements of this subparagraph 
are satisfied if, with respect to a corporation 
the securities of which are traded on an estab-
lished securities market, individuals who meet 
the requirements of paragraph (7) collectively 
own more than 50 percent of the total combined 
voting power of all classes of stock entitled to 
vote of the corporation. 
‘‘(F) RESTRICTIONS ON AGREEMENTS CON-
CERNING VOTING OF STOCK OR PARTNERSHIP
INTERESTS.—For purposes of satisfying the re-
quirements of subparagraph (C), (D), or (E), 
the stock or partnership interest relied upon to 
establish compliance shall not be subject to any 
agreement, 
arrangement, 
or 
understanding 
which provides for, or relates to, the voting of 
the stock or partnership interest in any manner 
by, or at the direction of, any person other than 
an eligible individual who meets the require-
ments of paragraph (7), or the right of any per-
son other than 1 of those individuals to acquire 
the voting power through purchase of shares, 
partnership interests, or otherwise. 
‘‘(G) CONSTRUCTIVE OWNERSHIP.—In ap-
plying subparagraphs (C), (D), (E), and (F), 
the constructive ownership rules of section 318 
shall apply, but only if the interests for which 
constructive ownership is claimed are not 
owned, directly or indirectly, by individuals who 
do not meet the requirements of paragraph (7). 
‘‘(7) INDIVIDUALS.—An individual meets the 
requirements of this paragraph if such individual 
is— 
‘‘(A) a United States citizen, and
‘‘(B) a member of an economically or so-
cially disadvantaged class determined by the 
Secretary to be underrepresented in the owner-
ship of the relevant telecommunications busi-
ness.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Sections 1245(b)(5) and 1250(d)(5) of the 
Internal Revenue Code of 1986 are each amended— 
(A) by inserting ‘‘section 1071 (relating to 
certain sales of telecommunications businesses) 
or’’ before section 1081’’, and 
(B) by inserting ‘‘1071 and’’ before 
‘‘1081’’ in the heading thereof. 
(2) The table of parts for subchapter O of 
chapter 1 of such Code is amended by inserting 
after the item relating to part IV the following new 
item: 
‘‘PART V. CERTAIN SALES OF TELECOMMUNICATIONS BUSINESSES’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to elections made with respect to 
any sale on or after the date of the enactment of this Act. 
SEC. 4. TELECOMMUNICATIONS BUSINESS CREDIT. 
(a) IN GENERAL.—Subpart E of part IV of sub-
chapter A of chapter 1 of the Internal Revenue Code of 
1986 (relating to rules for computing investment credit)
is amended by inserting after section 48 the following new 
section: 
‘‘SEC. 48A. TELECOMMUNICATIONS BUSINESS CREDIT. 
‘‘For purposes of section 46, there is allowed as a 
credit against the tax imposed by this chapter for any tax-
able year an amount equal to 10 percent of the taxable 
income of any taxpayer which at all times during such tax-
able year— 
‘‘(1) is a local exchange carrier (as defined in 
section 3(26) of the Communications Act of 1934 
(47 U.S.C. 153(26))), 
‘‘(2) is not a Bell operating company (as de-
fined in section 3(4) of such Act (47 U.S.C. 
153(4))), and 
‘‘(3) is headquartered in an area designated as 
an empowerment zone by the Secretary of Housing 
and Urban Development.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 46 of the Internal Revenue Code of 
1986 (relating to amount of credit) is amended by 
striking ‘‘and’’ at the end of paragraph (1), by strik-
ing the period at the end of paragraph (2) and in-
serting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph: 
‘‘(3) the telecommunications business credit.’’.
(2) The table of sections for subpart E of part 
IV of subchapter A of chapter 1 of such Code is 
amended by inserting after the item relating to sec-
tion 48 the following new item: 
‘‘Sec. 48A. Telecommunications business credit.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after the 
date of the enactment of this Act. 
SEC. 5. EXCLUSION OF 50 PERCENT OF GAIN. 
(a) IN GENERAL.—Section 1202 of the Internal Rev-
enue Code of 1986 (relating to partial exclusion for gain 
from certain small business stock) is amended— 
(1) by adding at the end of subsection (a) the 
following new paragraph: 
‘‘(3) CERTAIN TELECOMMUNICATIONS INVEST-
MENTS BY CORPORATIONS AND INVESTMENT COMPA-
NIES.—Gross income shall not include 50 percent of 
any gain from the sale or exchange of stock in an 
eligible purchaser (as defined in section 1071(f)(1)), 
engaged in a telecommunications business (as de-
fined in section 1071(f)(4)) held for more than 5 
years.’’, 
(2) by striking subparagraphs (A) and (B) of 
subsection (b)(1) and inserting the following new 
subparagraphs:
‘‘(A) in the case of gain from the sale or 
exchange of qualified small business stock held 
for more than 5 years— 
‘‘(i) $10,000,000 reduced by the ag-
gregate amount of eligible gain taken into 
account by the taxpayer under subsection 
(a) for prior taxable years attributable to 
dispositions of stock issued by such cor-
poration, or 
‘‘(ii) 10 times the aggregate adjusted 
bases of qualified small business stock 
issued by such corporation and disposed of 
by the taxpayer during the taxable year, 
and 
‘‘(B) in the case of gain from the sale or 
exchange of stock in an eligible purchaser en-
gaged in a telecommunications business for 
more than 5 years— 
‘‘(i) $20,000,000 reduced by the ag-
gregate amount of eligible gain taken into 
account by the taxpayer under subsection 
(a) for prior taxable years attributable to 
dispositions of stock issued by an eligible 
purchaser engaged in a telecommunications 
business, or
‘‘(ii) 15 times the aggregate adjusted 
bases of stock of an eligible purchaser en-
gaged in a telecommunications business 
issued by such eligible purchaser and dis-
posed of by the taxpayer during the tax-
able year.’’, 
(3) by striking ‘‘subparagraph (B)’’ in the last 
sentence of subsection (b)(1) and inserting ‘‘sub-
paragraphs (A)(ii) and (B)(ii)’’, 
(4) by striking ‘‘years.’’ in subsection (b)(2) 
and inserting ‘‘years or any gain from the sale or ex-
change of stock in an eligible purchaser engaged in 
a telecommunications business held for more than 5 
years.’’, and 
(5) by striking the period at the end of sub-
section (b)(3)(A) and inserting ‘‘, and paragraph 
(1)(B) shall be applied by substituting ‘$10,000,000’ 
for ‘$20,000,000’.’’. 
(b) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales on or after the date of 
the enactment of this Act. 
SEC. 6. TECHNICAL AND CONFORMING AMENDMENTS; REG-
ULATIONS. 
(a) TECHNICAL AND CONFORMING AMENDMENTS.— 
The Secretary of the Treasury shall, not later than 150
days after the date of the enactment of this Act, submit 
to the Committee on Ways and Means of the House of 
Representatives and the Committee on Finance of the 
Senate, a draft of any technical and conforming amend-
ments of the Internal Revenue Code of 1986 which are 
necessary to reflect throughout such Code the amend-
ments made by this Act. 
(b) REGULATIONS.—The Secretary of the Treasury, 
in consultation with the Federal Communications Com-
mission, shall promulgate regulations to implement the 
amendments made by this Act not later than 90 days after 
the date of the enactment of this Act. The regulations 
shall provide for the determination by the Secretary of the 
Treasury as to whether an applicant is an ‘‘eligible pur-
chaser’’ as defined in section 1071(f) of the Internal Rev-
enue Code of 1986 (as added by section 3(a)). The regula-
tions shall further provide that such determinations of eli-
gibility shall be made not later than 45 calendar days after 
an application is filed with the Secretary of the Treasury. 
The regulations implementing section 1071(f)(7) of such 
Code (as added by section 3) shall be updated on an ongo-
ing basis not less frequently than every 5 years. 
SEC. 7. BIENNIAL PROGRAM AUDITS BY GAO. 
Not later than January 1, 2007, and not later than 
2 years thereafter, the Comptroller General of the United
States shall audit the administration of the sections of the 
Internal Revenue Code of 1986 added or amended by this 
Act, and issue a report on the results of that audit. The 
Comptroller General shall include in the report, notwith-
standing any provision of section 6103 of the Internal 
Revenue Code of 1986 to the contrary— 
(1) a list of eligible purchasers (as defined in 
section 1071(f)(1) of such Code) and any other tax-
payer receiving a benefit from the operation of sec-
tion 48A or 1202 of such Code as such section was 
added or amended by this Act, and 
(2) an assessment of the effect the amendments 
made by this Act have on increasing new entry and 
growth in the telecommunications industry by eco-
nomically and socially disadvantaged businesses, and 
the effect of this Act on enhancing the competitive-
ness of the telecommunications industry. 
Æ