I
107TH CONGRESS
2D SESSION
H. R. 4725
To amend the Internal Revenue Code of 1986 to promote the economic
recovery of the District of Columbia.
IN THE HOUSE OF REPRESENTATIVES
MAY 14, 2002
Ms. NORTON introduced the following bill; which was referred to the Com-
mittee on Ways and Means, and in addition to the Committees on the
Judiciary and Government Reform, for a period to be subsequently deter-
mined by the Speaker, in each case for consideration of such provisions
as fall within the jurisdiction of the committee concerned
A BILL
To amend the Internal Revenue Code of 1986 to promote
the economic recovery of the District of Columbia.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘District of Columbia
Tax Incentives Improvement Act of 2002’’.
SEC. 2. MODIFICATIONS TO ENTERPRISE ZONE BENEFITS
AVAILABLE WITH RESPECT TO THE DISTRICT
OF COLUMBIA.
(a) ENTIRE DISTRICT OF COLUMBIA TREATED AS
EMPOWERMENT ZONE.—
(1) IN
GENERAL.—Subsection (a) of section
1400 of the Internal Revenue Code of 1986 (relating
to establishment of DC Zone) is amended to read as
follows:
‘‘(a) DESIGNATION.—For purposes of this title—
‘‘(1) the District of Columbia—
‘‘(A) is hereby designated as the District
of Columbia Enterprise Zone, and
‘‘(B) shall be treated as an empowerment
zone designated under subchapter U, and
‘‘(2) the terms ‘District of Columbia Enterprise
Zone’ and ‘DC Zone’ mean the District of Colum-
bia.’’
(2) CONFORMING AMENDMENTS.—
(A) Section 1400 of such Code is amended
by striking subsections (b) and (c) and by re-
designating subsections (d), (e), and (f) as sub-
sections (b), (c), and (d), respectively.
(B) Subsection (b) of section 1400 of such
Code, as redesignated by subparagraph (A), is
amended to read as follows:
‘‘(b) SPECIAL RULE FOR APPLICATION OF EMPLOY-
MENT CREDIT.—In the case of the DC Zone, section 1396
(relating to empowerment zone employment credit) shall
be applied by substituting ‘20’ for ‘15’ in the table con-
tained in section 1396(b). The preceding sentence shall
apply only with respect to qualified zone employees, as de-
fined in section 1396(d), determined by treating no area
other than the DC Zone as an empowerment zone or en-
terprise community.’’
(C) Paragraph (2) of section 1400(d) of
such Code, as redesignated by subparagraph
(A), is amended by striking ‘‘the census tracts
referred to in subsection (b)(1) as an enterprise
community’’ and inserting ‘‘the enterprise com-
munity in the District of Columbia’’.
(D) Section 1400B of such Code is amend-
ed by striking subsection (d) and by redesig-
nating subsections (e), (f), and (g) as sub-
sections (d), (e), and (f), respectively.
(E) Paragraph (1) of section 1400B(c) of
such Code is amended by striking ‘‘section
1400(e)’’ and inserting ‘‘section 1400(c)’’.
(b) CAPITAL GAINS EXCLUSION AVAILABLE FOR AS-
SETS HELD MORE THAN 2 YEARS.—
(1) IN
GENERAL.—Subsection (a) of section
1400B of such Code is amended by striking ‘‘5
years’’ and inserting ‘‘2 years’’.
(2) CONFORMING AMENDMENT.—Paragraph (7)
of section 1400B(b) of such Code is amended—
(A) by striking ‘‘5-YEAR’’ in the heading
and inserting ‘‘2-YEAR’’, and
(B) by striking ‘‘5-year’’ in the text and
inserting ‘‘2-year’’.
(c) MODIFICATIONS TO DEFINITION OF DC ZONE
BUSINESS.—Subsection (c) of section 1400B of such Code
is amended to read as follows:
‘‘(c) DC ZONE BUSINESS.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘DC Zone busi-
ness’ means any entity which is an enterprise zone
business 
(as 
defined 
in 
section 
1397B),
determined—
‘‘(A) after the application of section
1400(c),
‘‘(B) without regard to subsections (b)(1)
and (d)(2)(B) of section 1397B, and
‘‘(C) by treating no area other than the
District of Columbia as an empowerment zone
or enterprise community.
‘‘(2) SPECIAL RULE FOR BUSINESSES HOLDING
INTANGIBLES.—Paragraph (4) of section 1397B(d)
shall not apply in determining whether a business is
a DC Zone business if—
‘‘(A) at least 30 percent of the employees
of such business are residents of the District of
Columbia, and
‘‘(B) at least 50 percent of the wages (as
defined by section 3401(a)) paid by such busi-
ness are paid to residents of the District of Co-
lumbia.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall take effect as if included in the amend-
ments made by section 701 of the Taxpayer Relief Act
of 1997.
SEC. 3. EXTENSION OF ENTERPRISE ZONE TREATMENT.
(a) EFFECTIVE PERIOD
OF DESIGNATION.—Sub-
section (f) of section 1400 of the Internal Revenue Code
of 1986 is amended by striking ‘‘December 31, 2003’’
each place it appears and inserting ‘‘December 31, 2009’’.
(b) ECONOMIC DEVELOPMENT BONDS.—Subsection
(b) of section 1400A of such Code is amended by striking
‘‘December 31, 2003’’ and inserting ‘‘December 31,
2009’’.
(c) ZERO PERCENT CAPITAL GAINS RATE.—
(1) Paragraphs (2)(A)(i), (3)(A), (4)(A)(i), and
(4)(B)(i)(I) of section 1400B(b) of such Code are
each amended by striking ‘‘January 1, 2004’’ and
inserting ‘‘January 1, 2010’’.
(2) Subsections (e)(2) and (g) of section 1400B
of such Code are each amended by striking ‘‘2008’’
each place it appears and inserting ‘‘2014’’.
SEC. 4. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF
COLUMBIA MADE PERMANENT; OTHER MODI-
FICATIONS.
(a) CREDIT MADE PERMANENT.—Subsection (i) of
section 1400C of the Internal Revenue Code of 1986 (re-
lating to first-time homebuyer credit for District of Co-
lumbia) is amended by striking ‘‘, and before January 1,
2004’’.
(b) TREATMENT
OF PURCHASES IN CONNECTION
WITH DIVORCE.—
(1) IN
GENERAL.—Subsection (c) of section
1400C of such Code is amended by adding at the
end the following new paragraph:
‘‘(4) PURCHASES
IN
CONNECTION
WITH
DI-
VORCE.—Notwithstanding paragraphs (1) and (2),
an individual shall be treated as a first-time home-
buyer with respect to the purchase of any residence
if—
‘‘(A) the sale of the residence is pursuant
to a divorce or separation instrument (as de-
fined in section 71(b)(2)) relating to such indi-
vidual and such individual’s spouse or former
spouse, and
‘‘(B) such residence was the principal resi-
dence of such individual at the time of such sale
or for any period ending not more than a rea-
sonable period before such sale.
The Secretary shall prescribe such regulations as
may be necessary to prevent the abuse of the pur-
poses of this paragraph.’’
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to purchases after the
date of the enactment of this Act.
(c) CREDIT ALLOWED AGAINST REGULAR TAX AND
ALTERNATIVE MINIMUM TAX.—
(1) IN
GENERAL.—Subsection (d) of section
1400C of such Code is amended to read as follows:
‘‘(d) LIMITATION BASED ON AMOUNT OF TAX.—
‘‘(1) IN GENERAL.—The credit allowed under
subsection (a) for the 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 subpart A of part IV of subchapter A
and section 27 for the taxable year.
‘‘(2) CARRYOVER OF CREDIT.—If the credit al-
lowable under subsection (a) exceeds the limitation
imposed by paragraph (1) for such taxable year,
such excess shall be carried to the succeeding tax-
able year and added to the credit allowable under
subsection (a) for such taxable year.’’
(2) 
CONFORMING
AMENDMENT.—Section
1400C of such Code is amended by striking sub-
section (g) and by redesignating subsections (h) and
(i) as subsections (g) and (h), respectively.
(3) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to taxable years begin-
ning after the date of the enactment of this Act.
SEC. 5. EXPANSION OF TAX-EXEMPT ECONOMIC DEVELOP-
MENT BONDS.
(a) IN GENERAL.—Section 1400A of the Internal
Revenue Code of 1986, as amended by section 3, is
amended to read as follows:
‘‘SEC. 
1400A. 
TAX-EXEMPT 
ECONOMIC 
DEVELOPMENT
BONDS.
‘‘(a) IN GENERAL.—In the case of the District of Co-
lumbia Enterprise Zone—
‘‘(1) section 1394(c)(1)(A) (relating to limita-
tion on amount of bonds) shall not apply,
‘‘(2) section 1394(b)(3)(A) shall be applied
without regard to section 1397C(d)(4) (relating to
treatment of businesses holding intangibles), and
‘‘(3) section 1394(b)(3)(B)(iii) shall be applied
without regard to the employee residency require-
ment.
‘‘(b) EXEMPTION FROM VOLUME CAP.—Bonds which
are exempt facility bonds by reason of this section shall
be treated as not being private activity bonds for purposes
of section 146.
‘‘(c) PERIOD OF APPLICABILITY.—This section shall
apply to bonds issued during the period beginning on Jan-
uary 1, 1998, and ending on December 31, 2009.’’
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to bonds issued after the date of
the enactment of this Act.
SEC. 6. BONDS OF DISTRICT OF COLUMBIA EXEMPT FROM
STATE AND LOCAL TAXES.
(a) IN GENERAL.—Section 485 of the District of Co-
lumbia Home Rule Act is amended to read as follows:
‘‘SEC. 485. Bonds and notes issued by the Council
pursuant to this title and the interest thereon shall be ex-
empt from all taxation (except estate, inheritance, and gift
taxes) by the United States, any State or political subdivi-
sion thereof, the District, or any possession of the United
States.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2001.
SEC. 7. ZERO PERCENT WITHHOLDING RATE ON PAYMENTS
MADE WITH RESPECT TO DC ZONE INSUR-
ANCE POLICIES.
(a) IN GENERAL.—Subchapter W of chapter 1 of the
Internal Revenue Code of 1986 is amended by adding at
the end the following new section:
‘‘SEC. 1400D. ZERO PERCENT WITHHOLDING RATE ON PAY-
MENTS MADE WITH RESPECT TO DC ZONE IN-
SURANCE POLICIES.
‘‘(a) IN GENERAL.—The tax and withholding rates
under sections 871, 881, 1441, and 1442 shall be zero
for any payments made by an exempt insurance company
with respect to a DC Zone insurance policy issued by such
company.
‘‘(b) EXEMPT INSURANCE COMPANY.—For purposes
of this section, the term ‘exempt insurance company’
means any insurance company—
‘‘(1) which is subject to tax under subchapter
L, and
‘‘(2) which is a DC Zone business (as defined
in section 1400B(c)) or would be such a business if
subsection (b) of section 1397B were applied with-
out regard to paragraphs (2), (6), and (8) thereof.
‘‘(c) DC ZONE INSURANCE POLICY.—The term ‘DC
Zone insurance policy’ means an insurance or annuity con-
tract, including a contract for amounts held at interest,
issued by (but not reinsured by) an exempt insurance com-
pany in connection with property in, liability arising out
of an activity in, or the lives or health of residents of,
a country other than the United States. For purposes of
this section, the determination of whether a contract is
a life insurance contract or an annuity contract shall be
made without regard to sections 72(s), 101(f), 871(h), and
7702 if—
‘‘(1) such contract is regulated as a life insur-
ance contract or an annuity contract by the Depart-
ment of Insurance and Securities Regulation of the
District of Columbia, and
‘‘(2) no policyholder, insured, annuitant, or
beneficiary with respect to such policy is a United
States person.
‘‘(d) EXCLUSION FROM REPORTING.—No reporting
shall be required under this title from an exempt insurance
company with respect to amounts paid by such company
under a DC Zone insurance policy to a person who is not
a United States person in connection with risks located
outside the United States.’’
(b) CLERICAL AMENDMENT.—The table of sections
for such subchapter W is amended by adding at the end
the following new item:
‘‘Sec. 1400D. Zero percent withholding rate on payments made
with respect to DC Zone insurance policies.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to amounts paid after the date of
the enactment of this Act.
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