I
103D CONGRESS
1ST SESSION
H. R. 850
To amend the Internal Revenue Code of 1986 to provide tax incentives
for the establishment of tax enterprise zones.
IN THE HOUSE OF REPRESENTATIVES
FEBRUARY 4, 1993
Mr. MOAKLEY (for himself and Mr. STUDDS) introduced the following bill;
which was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
tax incentives for the establishment of tax enterprise zones.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Tax Enterprise Zone Act of 1993’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
SEC. 2. STATEMENT OF PURPOSE.
It is the purpose of this Act to establish a demonstra-
tion program of providing incentives for the creation of
tax enterprise zones in order—
(1) to revitalize economically and physically dis-
tressed areas, primarily by encouraging the forma-
tion of new businesses and the retention and expan-
sion of existing businesses,
(2) to promote meaningful employment for tax
enterprise zone residents, and
(3) to encourage individuals to reside in the tax
enterprise zones in which they are employed.
SEC. 3. DESIGNATION AND TREATMENT OF URBAN TAX
ENTERPRISE ZONES AND RURAL DEVELOP-
MENT INVESTMENT ZONES.
(a) IN GENERAL.—Chapter 1 (relating to normal
taxes and surtaxes) is amended by inserting after sub-
chapter T the following new subchapter:
‘‘Subchapter U—Designation and Treatment
of Tax Enterprise Zones
‘‘Part I. Designation of tax enterprise zones.
‘‘Part II. Incentives for tax enterprise zones.
‘‘PART I—DESIGNATION OF TAX ENTERPRISE
ZONES
‘‘Sec. 1391. Designation procedure.
‘‘Sec. 1392. Eligibility and selection criteria.
‘‘Sec. 1393. Definitions and special rules.
‘‘SEC. 1391. DESIGNATION PROCEDURE.
‘‘(a) IN GENERAL.—For purposes of this title, the
term ‘tax enterprise zone’ means any area which is, under
this part—
‘‘(1) nominated by 1 or more local governments
and the State in which it is located for designation
as a tax enterprise zone, and
‘‘(2) designated by—
‘‘(A) the Secretary of Housing and Urban
Development in the case of an urban tax enter-
prise zone, or
‘‘(B) the Secretary of Agriculture, in con-
sultation with the Secretary of Commerce, in
the case of a rural development investment
zone.
‘‘(b) NUMBER OF DESIGNATIONS.—
‘‘(1) AGGREGATE LIMIT.—The appropriate Sec-
retaries may designate in the aggregate 50 nomi-
nated areas as tax enterprise zones under this sec-
tion, subject to the availability of eligible nominated
areas. Not more than 25 urban tax enterprise zones
may be designated and not more than 25 rural de-
velopment investment zones may be designated.
Such designations may be made only during cal-
endar years after 1992 and before 1998.
‘‘(2) ANNUAL LIMITS.—
‘‘(A) URBAN TAX ENTERPRISE ZONES.—
The number of urban tax enterprise zones des-
ignated under paragraph (1)—
‘‘(i) before 1995 shall not exceed 8,
‘‘(ii) before 1996 shall not exceed 15,
and
‘‘(iii) before 1997 shall not exceed 21.
‘‘(B) RURAL DEVELOPMENT INVESTMENT
ZONES.—The number of rural development in-
vestment zones designated under paragraph
(1)—
‘‘(i) before 1995 shall not exceed 8,
‘‘(ii) before 1996 shall not exceed 15,
and
‘‘(iii) before 1997 shall not exceed 21.
‘‘(3) ADVANCE
DESIGNATIONS
PERMITTED.—
For purposes of this subchapter, a designation dur-
ing any calendar year shall be treated as made on
January 1 of the following calendar year if the ap-
propriate Secretary, in making such designation,
specifies
that
such
designation
is
effective
as
of such January 1.
‘‘(c) LIMITATIONS ON DESIGNATIONS.—The appro-
priate Secretary may not make any designation under sub-
section (a) unless—
‘‘(1) the local governments and the State in
which the nominated area is located have the au-
thority—
‘‘(A) to nominate the area for designation
as a tax enterprise zone, and
‘‘(B) to provide assurances satisfactory to
the appropriate Secretary that the commit-
ments under section 1392(c) will be fulfilled,
‘‘(2) a nomination of the area is submitted
within a reasonable time before the calendar year for
which designation as a tax enterprise zone is sought
(or, if later, a reasonable time after the date of the
enactment of this subchapter),
‘‘(3) the appropriate Secretary determines that
any information furnished is reasonably accurate,
and
‘‘(4) the State and local governments certify
that no portion of the area nominated is already in-
cluded in a tax enterprise zone or in an area other-
wise nominated to be a tax enterprise zone.
‘‘(d) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—
‘‘(1) IN GENERAL.—Any designation of an area
as a tax enterprise zone shall remain in effect during
the period beginning on the date of the designation
and ending on the earliest of—
‘‘(A) December 31 of the 15th calendar
year following the calendar year in which such
date occurs,
‘‘(B) the termination date designated by
the State and local governments as provided for
in their nomination, or
‘‘(C) the date the appropriate Secretary re-
vokes the designation under paragraph (2).
‘‘(2) REVOCATION OF DESIGNATION.—
‘‘(A) IN GENERAL.—The appropriate Sec-
retary shall revoke the designation of an area
as a tax enterprise zone if such Secretary deter-
mines that the local government or the State in
which it is located—
‘‘(i) has modified the boundaries of
the area, or
‘‘(ii) is not complying substantially
with the State and local commitments pur-
suant to section 1392(c).
‘‘(B) APPLICABLE PROCEDURES.—A des-
ignation may be revoked by the appropriate
Secretary under subparagraph (A) only after a
hearing on the record involving officials of the
State or local government involved.
‘‘SEC. 1392. ELIGIBILITY AND SELECTION CRITERIA.
‘‘(a) IN GENERAL.—The appropriate Secretary may
make a designation of any nominated area under section
1391 only on the basis of the eligibility and selection cri-
teria set forth in this section.
‘‘(b) ELIGIBILITY CRITERIA.—
‘‘(1) URBAN TAX ENTERPRISE ZONES.—A nom-
inated area which is not a rural area shall be eligible
for designation under section 1391 only if it meets
the following criteria:
‘‘(A) POPULATION.—The nominated area
has a population (as determined by the most re-
cent census data available) of not less than
4,000.
‘‘(B) DISTRESS.—The nominated area is
one of pervasive poverty, unemployment, and
general distress. For purposes of determining
whether any area is an area of general distress,
the factors to be taken into account may in-
clude high crime rates, high vacancy rates, and
designation as a disaster area or high density
drug trafficking area.
‘‘(C) SIZE.—The nominated area—
‘‘(i) does not exceed 20 square miles,
‘‘(ii) has a boundary which is continu-
ous, or consists of not more than 3 non-
contiguous parcels within the same metro-
politan area, and
‘‘(iii) is located entirely within 1
State.
‘‘(D) UNEMPLOYMENT RATE.—The unem-
ployment rate (as determined by the appro-
priate available data) is not less than 1.5 times
the national unemployment rate.
‘‘(E) POVERTY
RATE.—The poverty rate
(as determined by the most recent census data
available) for not less than 90 percent of the
population census tracts (or where not tracted,
the equivalent county divisions as defined by
the Bureau of the Census for the purposes of
defining poverty areas) within the nominated
area is not less than 20 percent.
‘‘(F) COURSE OF ACTION.—There has been
adopted for the nominated area a course of ac-
tion which meets the requirements of subsection
(c).
‘‘(2) 
RURAL
DEVELOPMENT
INVESTMENT
ZONES.—A nominated area which is a rural area
shall be eligible for designation under section 1391
only if it meets the following criteria:
‘‘(A) POPULATION.—The nominated area
has a population (as determined by the most re-
cent census data available) of not less than
1,000.
‘‘(B) DISTRESS.—The nominated area is
one of general distress.
‘‘(C) SIZE.—The nominated area—
‘‘(i) does not exceed 10,000 square
miles,
‘‘(ii) consists of areas within not more
than 4 contiguous counties,
‘‘(iii) has a boundary which is contin-
uous, or consists of not more than 3 non-
contiguous parcels, and
‘‘(iv) is located entirely within 1
State.
‘‘(D) ADDITIONAL
CRITERIA.—Not less
than 2 of the following criteria:
‘‘(i) UNEMPLOYMENT RATE.—The cri-
terion set forth in paragraph (1)(D).
‘‘(ii) POVERTY
RATE.—The criterion
set forth in paragraph (1)(E).
‘‘(iii) JOB
LOSS.—The amount of
wages attributable to employment in the
area, and subject to tax under section
3301 during the preceding calendar year,
is not more than 95 percent of such wages
during the 5th preceding calendar year.
‘‘(iv) 
OUT-MIGRATION.—The 
popu-
lation of the area decreased (as determined
by the most recent census data available)
by 10 percent or more between 1980 and
1990.
‘‘(E) COURSE OF ACTION.—There has been
adopted for the nominated area a course of ac-
tion which meets the requirements of subsection
(c).
‘‘(c) REQUIRED STATE AND LOCAL COURSE OF AC-
TION.—
‘‘(1) IN GENERAL.—No nominated area may be
designated as a tax enterprise zone unless the local
government and the State in which it is located
agree in writing that, during any period during
which the area is a tax enterprise zone, the govern-
ments will follow a specified course of action de-
signed to reduce the various burdens borne by em-
ployers or employees in the area.
‘‘(2) COURSE OF ACTION.—The course of action
under paragraph (1) may be implemented by both
governments and private nongovernmental entities,
may not be funded from proceeds of any Federal
program (other than discretionary proceeds), and
may include—
‘‘(A) a certification by the State insurance
commissioner (or similar State official) that
basic commercial property insurance of a type
comparable to that insurance generally in force
in urban or rural areas, whichever is applicable,
throughout the State is available to businesses
within the tax enterprise zone,
‘‘(B) a reduction of tax rates or fees apply-
ing within the tax enterprise zone,
‘‘(C) an increase in the level, or efficiency
of delivery, of local public services within the
tax enterprise zone,
‘‘(D) actions to reduce, remove, simplify,
or streamline government paperwork require-
ments applicable within the tax enterprise zone,
‘‘(E) the involvement in the program by
public authorities or private entities, organiza-
tions, neighborhood associations, and commu-
nity groups, particularly those within the nomi-
nated area, including a written commitment to
provide jobs and job training for, and technical,
financial, or other assistance to, employers, em-
ployees, and residents of the nominated area,
‘‘(F) the giving of special preference to
contractors owned and operated by members of
any socially and economically disadvantaged
group (within the meaning of section 8(a) of
the Small Business Act (15 U.S.C. 637(a)),
‘‘(G) the gift (or sale at below fair market
value) of surplus land in the tax enterprise zone
to neighborhood organizations agreeing to oper-
ate a business on the land,
‘‘(H) the establishment of a program
under which employers within the tax enterprise
zone may purchase health insurance for their
employees on a pooled basis,
‘‘(I) the establishment of a program to en-
courage local financial institutions to satisfy
their obligations under the Community Rein-
vestment Act of 1977 (12 U.S.C. 2901 et seq.)
by making loans to enterprise zone businesses,
with emphasis on startup and other small-busi-
ness concerns (as defined in section 3(a) of the
Small Business Act (15 U.S.C. 632(a)),
‘‘(J) the giving of special preference to
qualified low-income housing projects located in
tax enterprise zones, in the allocation of the
State housing credit ceiling applicable under
section 42, and
‘‘(K) the giving of special preference to fa-
cilities located in tax enterprise zones, in the al-
location of the State ceiling on private activity
bonds applicable under section 146.
‘‘(3) RECOGNITION
OF
PAST
EFFORTS.—In
evaluating courses of action agreed to by any State
or local government, the appropriate Secretary shall
take into account the past efforts of the State or
local government in reducing the various burdens
borne by employers and employees in the area in-
volved.
‘‘(4) PROHIBITION OF ASSISTANCE FOR BUSI-
NESS RELOCATIONS.—
‘‘(A) IN GENERAL.—The course of action
implemented under paragraph (1) may not in-
clude any action to assist any establishment in
relocating from one area to another area.
‘‘(B) EXCEPTION.—The limitation estab-
lished in subparagraph (A) shall not be con-
strued to prohibit assistance for the expansion
of an existing business entity through the estab-
lishment of a new branch, affiliate, or subsidi-
ary if—
‘‘(i) the establishment of the new
branch, affiliate, or subsidiary will not re-
sult in an increase in unemployment in the
area of original location or in any other
area where the existing business entity
conducts business operations, and
‘‘(ii) there is no reason to believe that
the new branch, affiliate, or subsidiary is
being established with the intention of clos-
ing down the operations of the existing
business entity in the area of its original
location or in any other area where the ex-
isting business entity conducts business op-
erations.
‘‘(d) SELECTION CRITERIA.—From among the nomi-
nated areas eligible for designation under subsection (b)
by the appropriate Secretary, such appropriate Secretary
shall make designations of tax enterprise zones on the
basis of the following factors (each of which is to be given
equal weight):
‘‘(1) STATE AND LOCAL COMMITMENTS.—The
strength and quality of the commitments which have
been promised as part of the course of action rel-
ative to the fiscal ability of the nominating State
and local governments.
‘‘(2) IMPLEMENTATION
OF
COURSE
OF
AC-
TION.—The effectiveness and enforceability of the
guarantees that the course of action will actually be
carried out, including the specificity with which the
commitments under paragraph (1) are described in
order that the applicable Secretary will be better
able 
to 
determine 
annually 
under 
section
1391(d)(2)(A)(ii) whether the commitments are
being carried out.
‘‘(3) PRIVATE
COMMITMENTS.—The level of
commitments by private entities of additional re-
sources and contributions to the economy of the
nominated area, including the creation of new or ex-
panded business activities.
‘‘(4) AVERAGE RANKINGS.—The average rank-
ing with respect to—
which was held by the taxpayer on the date
on which such pass-thru entity acquired
such asset and at all times thereafter be-
fore the disposition of such asset by such
pass-thru entity.
‘‘(C) LIMITATION
BASED
ON
INTEREST
ORIGINALLY
HELD
BY
TAXPAYER.—Subpara-
graph (A) shall not apply to any amount to the
extent such amount exceeds the amount to
which subparagraph (A) would have applied if
such amount were determined by reference to
the interest the taxpayer held in the pass-thru
entity on the date the qualified zone asset was
acquired.
‘‘(3) PASS-THRU ENTITY.—For purposes of this
subsection, the term ‘pass-thru entity’ means—
‘‘(A) any partnership,
‘‘(B) any S corporation,
‘‘(C) any regulated investment company,
and
‘‘(D) any common trust fund.
‘‘(e) SALES
AND EXCHANGES
OF INTERESTS
IN
PARTNERSHIPS
AND
S CORPORATIONS
WHICH
ARE
QUALIFIED ZONE BUSINESSES.—In the case of the sale
or exchange of an interest in a partnership, or of stock