such corporation qualified as a qualified
area business.
‘‘(B) REDEMPTIONS.—The term ‘qualified
area stock’ shall not include any stock acquired
from a corporation which made a substantial
stock redemption or distribution (without a
bona fide business purpose therefor) in an at-
tempt to avoid the purposes of this section.
‘‘(3) QUALIFIED AREA BUSINESS PROPERTY.—
‘‘(A) IN
GENERAL.—The term ‘qualified
area business property’ means tangible property
if—
‘‘(i) such property was acquired by
the taxpayer by purchase (as defined in
section 179(d)(2)) after the date on which
the designation of the economic recovery
area took effect,
‘‘(ii) the original use of such property
in such an area commences with the tax-
payer, and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such prop-
erty, substantially all of the use of such
property was in an economic recovery area
and in a qualified area business of the tax-
payer.
‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IM-
PROVEMENTS.—The requirements of clauses (i)
and (ii) of subparagraph (A) shall be treated as
satisfied with respect to—
‘‘(i) property which is substantially
improved by the taxpayer, and
‘‘(ii) any land on which such property
is located.
For purposes of the preceding sentence, prop-
erty shall be treated as substantially improved
by the taxpayer if, during any 24-month period
beginning after the date on which the designa-
tion of the economic recovery area took effect,
additions to basis with respect to such property
in the hands of the taxpayer exceed the greater
of (i) an amount equal to the adjusted basis at
the beginning of such 24-month period in the
hands of the taxpayer, or (ii) $5,000.
‘‘(C) LIMITATION
ON
LAND.—The term
‘qualified area business property’ shall not in-
clude land which is not an integral part of a
qualified area business.
‘‘(4) QUALIFIED
AREA
PARTNERSHIP
INTER-
EST.—The term ‘qualified area partnership interest’
means any interest in a partnership if—
‘‘(A) such interest is acquired by the tax-
payer from the partnership solely in exchange
for cash,
‘‘(B) as of the time such interest was ac-
quired, such partnership was a qualified area
business (or, in the case of a new partnership,
such partnership was being organized for pur-
poses of being a qualified area business), and
‘‘(C) during substantially all of the tax-
payer’s holding period for such interest, such
partnership qualified as a qualified area busi-
ness.
A rule similar to the rule of paragraph (2)(B) shall
apply for purposes of this paragraph.
‘‘(5) 
TREATMENT
OF
SUBSEQUENT
PUR-
CHASERS.—The term ‘qualified area investment’ in-
cludes any property which would be a qualified area
investment but for paragraph (2)(A)(i), (3)(A)(ii), or
(4)(A) in the hands of the taxpayer if such property
was a qualified area investment in the hands of any
prior holder.
‘‘(6) 10-YEAR SAFE HARBOR.—If any property
ceases to be a qualified area investment by reason
of paragraph (2)(A)(iii), (3)(A)(iii), or (4)(C) after
the 10-year period beginning on the date the tax-
payer acquired such property, such property shall
continue to be treated as meeting the requirements
of such paragraph; except that the amount of gain
to which subsections (a) and (b) apply on any sale
or exchange of such property shall not exceed the
amount which would be long-term capital gain had
such property been sold on the date of such ces-
sation.
‘‘(7) TREATMENT OF AREA TERMINATIONS.—
The termination of any designation of an area as an
economic recovery area shall be disregarded for pur-
poses of determining whether any property is a
qualified area investment.
‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) QUALIFIED
AREA
BUSINESS.—The term
‘qualified area business’ means any business which
would be an enterprise zone business as defined in
section 1397B if ‘economic recovery area’ were sub-
stituted for ‘empowerment zone’ each place it ap-
pears.
‘‘(2) QUALIFIED BUSINESS.—The term ‘quali-
fied business’ has the meaning given such term by
section 1397B(d), determined by substituting ‘eco-
nomic recovery area’ for ‘empowerment zone’ each
place it appears.
‘‘(3) GAIN ATTRIBUTABLE TO PERIODS AFTER
TERMINATION OF AREA DESIGNATION NOT QUALI-
FIED.—The amount of gain to which subsections (a)
and (b) apply on any sale or exchange of property
shall not include any gain attributable to periods
after the termination of any designation of an area
as an economic recovery area.
‘‘(e) TREATMENT OF PASS-THRU ENTITIES.—
‘‘(1) SALES
AND
EXCHANGES.—Gain on the
sale or exchange of an interest in a pass-thru entity
held by the taxpayer (other than an interest in an
entity which was a qualified area business during
substantially all of the period the taxpayer held such
interest) for more than 5 years shall be treated as
gain on a qualified area investment to the extent
such gain is attributable to amounts which would be
long-term capital gain on qualified area investments
(determined as if such investments had been sold on
the date of the sale or exchange) held by such entity
for more than 5 years and throughout the period the