237
•J. 69–001A
‘‘(2) DENIAL
OF
INTEREST.—Except as pro-
vided in paragraph (3), no interest shall be paid on
claims for payments under section 4448.
‘‘(3) MINIMUM
AMOUNTS
AND
PERIODS.—In
the case of persons who meet such requirements as
the Secretary may prescribe, if—
‘‘(A) a claim for payment is filed under
section 4448 for any period for which more
than $1,000 is payable and which is not less
than 1 week, and
‘‘(B) the Secretary has not paid such claim
within 20 days after the date the claim was
filed,
such claim shall be paid with interest from such date
using the overpayment rate and method under sec-
tion 6621.
‘‘(3) APPLICABLE LAWS.—
‘‘(A) IN GENERAL.—All provisions of law,
including penalties, applicable in respect of the
tax imposed by this subchapter shall, insofar as
applicable and not inconsistent with this sub-
section and section 4448, apply in respect of
payments provided for in section 4448 to the
same extent as if such payments constituted re-
funds of overpayments of the tax so imposed.
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•J. 69–001A
‘‘(B) EXAMINATION OF BOOKS AND WIT-
NESSES.—For the purpose of ascertaining the
correctness of any claim made under section
4448, or the correctness of any payment made
in respect of such claim, the Secretary shall
have the authority granted by paragraphs (1),
(2), and (3) of section 7602(a) (relating to ex-
amination of books and witnesses) as if the
claimant were the person liable for tax.
‘‘(b) PAYMENT OF TAX TO PERSONS REQUIRED TO
COLLECT TAX.—
‘‘(1) IN GENERAL.—In the case of the taxes im-
posed by sections 4441 and 4442 which are required
to be collected by another person, the person liable
for such tax shall remit the tax to such other person
within 30 days after the date of the taxable event.
‘‘(2) RELIEF
FROM
PENALTY
FOR
CERTAIN
FAILURES TO COLLECT TAX.—No penalty shall be
imposed under this title on the failure of any person
to collect the taxes referred to in paragraph (1) if—
‘‘(A) during the 30-day period referred to
in paragraph (1), such person exercises due dili-
gence in attempting to collect such tax, and
‘‘(B) such person notifies the Secretary,
within 15 days after such 30th day, of the fail-
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•J. 69–001A
ure to collect such tax and provides such other
information as the Secretary may require.
‘‘(c) INFORMATION REPORTING.—The Secretary may
require—
‘‘(1) information reporting by each remitter of
tax imposed by this subchapter, and
‘‘(2) information reporting by, and registration
of, such other persons as the Secretary deems nec-
essary to carry out this subchapter.
‘‘SEC. 4454. DEFINITIONS AND SPECIAL RULES.
‘‘(a) DEFINITIONS.—For purposes of this sub-
chapter—
‘‘(1) TAXABLE
ENERGY
SOURCE.—The term
‘taxable energy source’ means any taxable refined
petroleum product, natural gas, coal, and electricity
(within the meaning of such terms under part I).
‘‘(2) FOSSIL
FUEL.—The term ‘fossil fuel’
means crude oil, any petroleum product, natural gas,
any natural gas product, and coal.
‘‘(3) CRUDE OIL.—The term ‘crude oil’ includes
condensates from crude oil.
‘‘(4) COAL.—The term ‘coal’ includes lignite.
‘‘(5) UNITED
STATES.—The term ‘United
States’ means the 50 States, the District of Colum-
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•J. 69–001A
bia, and the foreign trade zones of the United
States.
‘‘(6) PERSON.—The term ‘person’ includes the
United States, any State or political subdivision
thereof, the District of Columbia, and any agency or
instrumentality of any of the foregoing.
‘‘(b) SPECIAL RULES
FOR INDEPENDENT POWER
PRODUCERS SELLING ELECTRICITY UNDER FIXED-PRICE
CONTRACTS.—
‘‘(1) ELECTRICITY GENERATED USING FOSSIL
FUELS.—If electricity is generated by an independ-
ent power producer using any fossil fuel and is sold
pursuant to a qualified fixed-price contract—
‘‘(A) such use of fossil fuel shall be treated
for purposes of this subchapter as an exempt
use (as defined in section 4448), and
‘‘(B) a tax is hereby imposed on the con-
tract purchaser of such electricity equal to the
amount payable under subparagraph (A) on the
fossil fuel used to generate such electricity.
‘‘(2) OTHER ELECTRICITY.—In the case of elec-
tricity generated by an independent power producer
which is subject to the tax imposed by section 4444
and which is sold pursuant to a qualified fixed-price
241
•J. 69–001A
contract, the tax imposed by section 4444(a)(1) shall
be paid by the contract purchaser of the electricity.
‘‘(3) INDEPENDENT
POWER
PRODUCER.—For
purposes of this subsection, electricity shall be treat-
ed as generated by an independent power producer
if such electricity is generated—
‘‘(A) at a facility—
‘‘(i) which is a qualifying small power
production facility or a qualifying cogen-
eration facility (as such terms are defined
under section 3(17) of the Federal Power
Act on the date of the enactment of this
section), and
‘‘(ii) which is exempt from the laws
referred to in section 210(e) of the Public
Utility Regulatory Policies Act of 1978 (as
so in effect), or
‘‘(B) by an exempt wholesale generator (as
defined in section 32(a)(1) of the Public Utility
Holding Company Act of 1935).
‘‘(4) QUALIFIED FIXED-PRICE CONTRACT.—For
purposes of this subsection, the term ‘qualified fixed-
price contract’ means any contract entered into be-
fore the date of the enactment of this section except
to the extent the contract purchaser of the electricity
242
•J. 69–001A
establishes to the satisfaction of the Secretary that
the price paid for electricity is determined under a
formula which directly or indirectly includes the
taxes imposed by this subchapter.
‘‘(5) FUEL
USED
TO
PRODUCE
ELECTRICITY
AND STEAM.—In the case of a facility which pro-
duces both steam and electricity, only the portion of
the fuel allocable to the production of electricity (de-
termined on the basis of the proportionate Btu con-
tent of the electricity and steam) shall be treated as
an exempt use under paragraph (1)(A).
‘‘(c) FRACTIONAL PART OF UNIT.—In the case of a
fraction of a unit, the tax imposed by this subchapter shall
be the same fraction of the amount of such tax imposed
on a whole unit.
‘‘(d) SPECIAL RULES RELATING TO PUERTO RICO
AND THE VIRGIN ISLANDS.—
‘‘(1) LIKE TAX ON ARTICLES BROUGHT INTO
THE UNITED STATES FROM PUERTO RICO OR THE
VIRGIN ISLANDS.—For purposes of this subchapter,
articles brought into the United States from the
Commonwealth of Puerto Rico or the Virgin Islands
shall be treated as entered into the United States at
the time brought into the United States.
243
•J. 69–001A
‘‘(2) DISPOSITION OF REVENUES.—The provi-
sions of subsections (a)(3) and (b)(3) of section
7652 shall not apply to any tax imposed by this sub-
chapter.
‘‘(e) NO EXEMPTION FROM TAX.—No person shall
be exempt from any tax imposed by this subchapter except
to the extent provided in this subchapter or in any provi-
sion of law enacted after the date of the enactment of this
subchapter which grants a specific exemption, by reference
to this subchapter, from a tax imposed by this subchapter.
‘‘(f) NORMALIZATION OF TAX.—For purposes of sec-
tion 168, a taxpayer shall not be treated as using a nor-
malization method of accounting unless—
‘‘(1) not later than the 1st ratemaking order
taking effect after the date of the enactment of this
subchapter, the ratemaking body permits the full
amount of—
‘‘(A) the taxes imposed by this subchapter
on natural gas,
‘‘(B) the taxes imposed by section 4444
and subsection (b) of this section on any elec-
tricity, and
‘‘(C) the taxes imposed by this subchapter
on fuels used to generate electricity,
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•J. 69–001A
to be added to the otherwise permitted rate for the
furnishing or sale of the natural gas or electricity,
and
‘‘(2) any amount of such tax which was not
fully reflected as provided in paragraph (1) by rea-
son of being imposed before the 1st ratemaking
order taking effect after the date of the enactment
of this subchapter is added to the base to which the
taxpayer’s rate of return for ratemaking purposes is
applied in such 1st order.
In determining for purposes of the preceding sentence
whether a ratemaking order is the 1st ratemaking order
referred to therein, there shall be taken into account only
ratemaking orders from proceedings in which the recovery
of tax expense is an issue that may be considered.’’
(b) TECHNICAL AMENDMENTS.—
(1)(A) Subsection (a) of section 6675 is amend-
ed by inserting ‘‘section 4448 (relating to refunds of
Btu tax for certain sales and uses),’’ before ‘‘section
6420’’.
(B) Subsection (b) of section 6675 is amended
by inserting ‘‘4448,’’ before ‘‘6420’’.
(2) Section 6206 is amended—
(A) by inserting ‘‘(a) FUEL TAXES.—’’ be-
fore ‘‘Any portion of’’, and
245
•J. 69–001A
(B) by adding at the end thereof the fol-
lowing new subsection:
‘‘(b) BTU TAXES.—Any portion of a payment made
under section 4448 which constitutes an excessive amount
(as defined in section 6675(b)), and any civil penalty pro-
vided by section 6675, may be assessed and collected as
if it were a tax imposed by subchapter A of chapter 36
and as if the person who made the claim were liable for
such tax. The period for assessing any such portion, and
for assessing any such penalty, shall be 3 years from the
last day prescribed for filing a claim under section 4448.’’
(3)(A) The section heading for section 6206 is
amended by striking ‘‘UNDER SECTIONS 6420, 6421,
and 6427’’ and inserting ‘‘FOR CERTAIN FUELS TAX
REFUNDS AND ENERGY TAX REFUNDS’’.
(B) The item relating to section 6206 in the
table of sections for subchapter A of chapter 63 is
amended by striking ‘‘under sections 6420, 6421,
and 6427’’ and inserting ‘‘for certain fuels tax re-
funds and energy tax refunds’’.
(4) Subparagraph (B) of section 6724(d)(1) is
amended—
(A) by striking ‘‘or’’ at the end of clause
(xi),
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•J. 69–001A
(B) by striking the period at the end of the
clause (xii) relating to section 4101(d) and in-
serting a comma,
(C) by redesignating the clause (xii) relat-
ing to section 338(h)(10)(C) as clause (xiii) and
by striking the period at the end thereof and in-
serting ‘‘, or’’, and
(D) by inserting after clause (xiii), as so
redesignated, the following new clause:
‘‘(xiv) section 4453(c) (relating to in-
formation reporting with respect to energy
taxes).’’
(5) Sections 7210, section 7603, subsections (b)
and (c)(2) of section 7604, section 7605, and
7610(c) 
are 
each 
amended 
by 
inserting
‘‘4453(a)(3)(B),’’ before ‘‘6420(e)(2)’’ each place it
appears.
(6) Subparagraph (A) of section 9505(c)(3) is
amended by striking ‘‘subchapter A’’ and inserting
‘‘subchapter B’’.
(7) The table of subchapters for chapter 36 is
amended by striking the items relating to sub-
chapters A and B and inserting the following:
‘‘Subchapter A. Energy taxes.
‘‘Subchapter B. Harbor maintenance tax.
‘‘Subchapter C. Transportation by water.’’
247
•J. 69–001A
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on July 1, 1994.
SEC. 2402. EXTENSION OF MOTOR FUEL TAX RATES; IN-
CREASED DEPOSITS INTO HIGHWAY TRUST
FUND.
(a) GASOLINE AND SPECIAL MOTOR FUELS.—
(1) 
IN
GENERAL.—Clause 
(i) 
of 
section
4081(a)(2)(B) is amended by striking ‘‘11.5 cents’’
and inserting ‘‘14 cents’’.
(2) CONFORMING AMENDMENTS.—
(A) 
Subparagraph 
(A) 
of 
section
4081(c)(4) is amended to read as follows:
‘‘(A) IN
GENERAL.—In the case of the
Highway Trust Fund financing rate, the term
‘otherwise applicable rate’ means—
‘‘(i) 8.6 cents a gallon for 10 percent
alcohol,
‘‘(ii) 9.842 cents a gallon for 7.7 per-
cent alcohol,
‘‘(iii) 10.922 cents a gallon for 5.7
percent alcohol.
In the case of gasohol none of the alcohol in which
consists of ethanol, clauses (i), (ii), and (iii) shall be
applied by substituting ‘8.0 cents’ for ‘8.6 cents’,
248
•J. 69–001A
‘9.38 cents’ for ‘9.842 cents’, and ‘10.58 cents’ for
‘10.922’.’’
(B) 
Subparagraph 
(A) 
of 
section
4041(m)(1) is amended to read as follows:
‘‘(A) under subsection (a)(2) the Highway
Trust Fund financing shall be 7 cents per gal-
lon, and’’.
(b) DIESEL FUEL.—
(1) IN
GENERAL.—Paragraph (2) of section
4091(a) is amended by striking ‘‘17.5 cents’’ and in-
serting ‘‘20 cents’’.
(2) FUEL USED IN TRAINS.—Subparagraph (B)
of section 4093(c)(2) is amended—
(A) by striking ‘‘the diesel fuel deficit re-
duction rate’’ and inserting ‘‘2.5 cents per gal-
lon of the Highway Trust Fund financing
rate’’, and
(B) by striking from the subparagraph
heading ‘‘DEFICIT REDUCTION TAX ON’’.
(3) CONFORMING AMENDMENTS.—
(A) Subsection (c) of section 4091 is
amended—
(i) by striking ‘‘12.1 cents’’ each place
it appears and inserting ‘‘14.6 cents’’, and
249
•J. 69–001A
(ii) by striking ‘‘13.44 cents’’ in para-
graph (1)(B) and inserting ‘‘16.22’’.
(B) Paragraph (4) of section 6427(l) is
amended—
(i) by striking ‘‘the diesel fuel deficit
reduction rate’’ and inserting ‘‘2.5 cents
per gallon of the Highway Trust Fund fi-
nancing rate’’, and
(ii) by striking ‘‘DEFICIT REDUCTION
TAX’’ and inserting ‘‘PORTION OF TAX’’.
(C) Subsection (b) of section 9503 is
amended by adding at the end thereof the fol-
lowing new paragraph:
‘‘(6) RETENTION OF CERTAIN TAXES IN GEN-
ERAL FUND.—
‘‘(A) IN
GENERAL.—There shall not be
taken into account under paragraphs (1) and
(2)—
‘‘(i) the tax imposed by section 4091
on diesel fuel used in any train, and
‘‘(ii) so much of the following taxes as
are attributable to 2.5 cents of the High-
way Trust fund financing rate:
‘‘(I) Motorboat fuel taxes (as de-
fined in subsection (c)(4)(D)).
250
•J. 69–001A
‘‘(II) Small-engine fuel taxes (as
defined in subsection (c)(5)(B)).
‘‘(III) Nonhighway recreational
fuel taxes (as defined in subsection
(c)(6)(D)).
‘‘(B) TRANSFERS FROM HIGHWAY TRUST
FUND.—For 
purposes 
of 
determining 
the
amount paid from the Highway Trust Fund
under paragraphs (4), (5), and (6) of sub-
section (c), the Highway Trust Fund financing
rates shall be treated as being 2.5 cents less
than the otherwise applicable rates.’’
(c) INCREASE IN DEPOSITS IN MASS TRANSIT AC-
COUNT.—Paragraph (2) of section 9503(e) is amended by
striking ‘‘1.5 cents’’ and inserting ‘‘2 cents’’.
(d) REPEAL OF EXPIRED PROVISIONS.—
(1) Subparagraph (A) of section 4081(a)(2)
(relating to rate of tax) is amended—
(A) by adding ‘‘and’’ at the end of clause
(i),
(B) by striking ‘‘, and’’ at the end of
clause (ii) and inserting a period, and
(C) by striking clause (iii).
(2) Subparagraph (B) of section 4081(a)(2) is
amended—
251
•J. 69–001A
(A) by adding ‘‘and’’ at the end of clause
(i),
(B) by striking ‘‘, and’’ at the end of
clause (ii) and inserting a period, and
(C) by striking clause (iii).
(3) Subsection (d) of section 4081 is amended
by striking paragraph (3).
(4) Clause (i) of section 4091(b)(1)(A) is
amended by striking ‘‘and the diesel fuel deficit re-
duction rate’’.
(5) Subsection (b) of section 4091 is amended
by striking paragraph (4) and by redesignating
paragraphs (5) and (6) as paragraphs (4) and (5),
respectively.
(6) Paragraph (5) of section 4091(b), as redes-
ignated by paragraph (5), is amended by striking
subparagraph (D).
(7) Paragraphs (1) and (2) of section 4041(a),
and paragraph (3) of section 4041(c), are each
amended by striking ‘‘the sum of the Highway Trust
Fund financing rate and the diesel fuel deficit reduc-
tion rate’’ and by inserting ‘‘the Highway Trust
Fund financing rate’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall take effect October 1, 1995, but the
252
•J. 69–001A
amendment made by subsection (c) shall apply only to
amounts attributable to taxes imposed on or after such
date.
Subtitle E—Compliance Provisions
SEC. 2501. REPORTING REQUIRED FOR CERTAIN PAY-
MENTS TO CORPORATIONS.
(a) SECTION 6041.—Section 6041 (relating to infor-
mation at source) is amended by adding at the end thereof
the following new subsection:
‘‘(f) SPECIAL RULES
FOR PAYMENTS
FOR SERV-
ICES.—No payment for the performance of services shall
be exempt from the requirements of this section merely
because it is a payment to a corporation.’’
(b) SECTION 6041A(a).—Subsection (a) of section
6041A is amended by adding at the end thereof the follow-
ing new sentence: ‘‘A payment shall not be exempt from
the requirements of this subsection merely because it is
a payment to a corporation.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to payments after December 31,
1993.
SEC. 2502. MODIFICATIONS TO SUBSTANTIAL UNDERSTATE-
MENT AND RETURN-PREPARER PENALTIES.
(a) REASONABLE BASIS REQUIRED.—
254
•J. 69–001A
such shelter do not significantly exceed the reasonably an-
ticipated pre-tax economic profit or loss from such invest-
ment’’.
(c) REASONABLE CAUSE EXCEPTION.—Paragraph
(1) of section 6664(c) is revised by striking ‘‘this part’’
and inserting ‘‘section 6662’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to returns the due dates for which
(determined without regard to extensions) are after De-
cember 31, 1993.
Subtitle F—Miscellaneous
Provisions
SEC. 2601. SUBSTANTIATION REQUIREMENT FOR DEDUC-
TION OF CERTAIN CHARITABLE CONTRIBU-
TIONS.
(a) 
SUBSTANTIATION
REQUIREMENT.—Section
170(f) (providing special rules relating to the deduction
of charitable contributions and gifts) is amended by add-
ing at the end the following new paragraph:
‘‘(8) SUBSTANTIATION REQUIREMENT FOR CER-
TAIN CONTRIBUTIONS.—
‘‘(A) GENERAL RULE.—No deduction shall
be allowed under subsection (a) for any con-
tribution of $750 or more unless the taxpayer
substantiates the contribution by a contempora-
255
•J. 69–001A
neous written acknowledgment of the contribu-
tion by the donee organization that meets the
requirements of subparagraph (B).
‘‘(B) CONTENT OF ACKNOWLEDGMENT.—
An acknowledgment meets the requirements of
this subparagraph if it provides information
sufficient to substantiate the amount of the de-
ductible contribution. If the contribution was
made by means of a payment part of which con-
stituted consideration for goods or services pro-
vided by the donee organization, the acknowl-
edgment must provide a good faith estimate of
the value of such goods or services.
‘‘(C) CONTEMPORANEOUS.—For purposes
of subparagraph (A), an acknowledgment shall
be considered to be contemporaneous if the tax-
payer obtains the acknowledgment on or before
the earlier of—
‘‘(i) the date on which the taxpayer
files a return for the taxable year in which
the contribution was made, or
‘‘(ii) the due date (including exten-
sions) for filing such return.
‘‘(D) SUBSTANTIATION
NOT
REQUIRED
FOR
CONTRIBUTIONS
REPORTED
BY
THE
256
•J. 69–001A
DONEE
ORGANIZATION.—Subparagraph 
(A)
shall not apply to a contribution if the donee
organization files a return, on such form and in
accordance with such regulations as the Sec-
retary may prescribe, which includes the infor-
mation described in subparagraph (B) with re-
spect to the contribution.
‘‘(E) REGULATIONS.—The Secretary shall
prescribe such regulations as may be necessary
or appropriate to carry out the purposes of this
paragraph, including regulations that may pro-
vide that some or all of the requirements of this
paragraph do not apply in appropriate cases.’’
(b) EFFECTIVE DATE.—The provisions of this sec-
tion shall apply to contributions made on or after January
1, 1994.
SEC. 2602. DISCLOSURE RELATED TO QUID PRO QUO
CONTRIBUTIONS.
(a) DISCLOSURE REQUIREMENT.—Subchapter B of
chapter 61 (relating to information and returns) is amend-
ed by redesignating section 6115 as section 6116 and by
inserting after section 6114 the following new section:
257
•J. 69–001A
‘‘SEC. 6115. DISCLOSURE RELATED TO QUID PRO QUO CON-
TRIBUTIONS.
‘‘(a) DISCLOSURE REQUIREMENT.—If an organiza-
tion described in section 170(c) (other than paragraph (1)
thereof) receives a quid pro quo contribution, the organi-
zation shall, in connection with the solicitation or receipt
of the contribution—
‘‘(1) inform the donor that the amount of the
contribution that is deductible for Federal income
tax purposes is limited to the excess of the amount
of any money and the value of any property other
than money contributed by the donor over the value
of the goods or services provided by the organiza-
tion, and
‘‘(2) provide the donor with a good faith esti-
mate of the value of such goods or services.
‘‘(b) QUID PRO QUO CONTRIBUTION.—For purposes
of this section, the term ‘quid pro quo contribution’ means
a payment made partly as a contribution and partly in
consideration for goods or services provided to the payor
by the donee organization.’’
(b) PENALTY FOR FAILURE TO DISCLOSE.—Part I
of subchapter B of chapter 68 (relating to assessable pen-
alties) is amended by inserting after section 6713 the fol-
lowing new section:
258
•J. 69–001A
‘‘SEC. 6714. FAILURE TO MEET DISCLOSURE REQUIRE-
MENTS APPLICABLE TO QUID PRO QUO CON-
TRIBUTIONS.
‘‘(a) IMPOSITION OF PENALTY.—If an organization
fails to meet the disclosure requirement of section 6115
with respect to a quid pro quo contribution, such organiza-
tion shall pay a penalty of $10 for each contribution in
respect of which the organization fails to make the re-
quired disclosure, except that the total penalty imposed
by this subsection with respect to a particular fundraising
event or mailing shall not exceed $5,000.
‘‘(b) REASONABLE CAUSE EXCEPTION.—No penalty
shall be imposed under this section with respect to any
failure if it is shown that such failure is due to reasonable
cause.’’
(c) CLERICAL AMENDMENTS.—
(1) The table for subchapter B of chapter 61
is amended by striking the item relating to section
6115 and inserting the following new item:
‘‘Sec. 6115. Disclosure related to quid pro quo contributions.
‘‘Sec. 6116. Cross reference.’’
(2) The table for part I of subchapter B of
chapter 68 is amended by inserting after the item
for section 6713 the following new item:
‘‘Sec. 6714. Failure to meet disclosure requirements applicable to
quid pro quo contributions.’’
259
•J. 69–001A
(d) EFFECTIVE DATE.—The provisions of this sec-
tion shall apply to quid pro quo contributions made on
or after January 1, 1994.
SEC. 2603. DISALLOWANCE OF INTEREST ON CERTAIN
OVERPAYMENTS OF TAX.
(a) GENERAL RULE.—Subsection (e) of section 6611
is amended to read as follows:
‘‘(e) DISALLOWANCE
OF INTEREST
ON CERTAIN
OVERPAYMENTS.—
‘‘(1) REFUNDS WITHIN 45 DAYS AFTER RETURN
IS FILED.—If any overpayment of tax imposed by
this title is refunded within 45 days after the last
day prescribed for filing the return of such tax (de-
termined without regard to any extension of time for
filing the return) or, in the case of a return filed
after such last date, is refunded within 45 days after
the date the return is filed, no interest shall be al-
lowed under subsection (a) on such overpayment.
‘‘(2) REFUNDS AFTER CLAIM FOR CREDIT OR
REFUND.—If—
‘‘(A) the taxpayer files a claim for a credit
or refund for any overpayment of tax imposed
by this title, and
‘‘(B) such overpayment is refunded within
45 days after such claim is filed,
260
•J. 69–001A
no interest shall be allowed on such overpayment
from the date the claim is filed until the day the re-
fund is made.
‘‘(3) IRS INITIATED ADJUSTMENTS.—If an ad-
justment initiated by the Secretary, results in a re-
fund or credit of an overpayment, interest on such
overpayment shall be computed by subtracting 45
days from the number of days interest would other-
wise be allowed with respect to such overpayment.’’
(b) EFFECTIVE DATES.—
(1) Paragraph (1) of section 6611(e) of the In-
ternal Revenue Code of 1986 (as amended by sub-
section (a)) shall apply in the case of returns the
due date for which (determined without regard to
extensions) is on or after January 1, 1994.
(2) Paragraph (2) of section 6611(e) of such
Code (as so amended) shall apply in the case of
claims for credit or refund of any overpayment filed
on or after January 1, 1995, regardless of the tax-
able period to which such refund relates.
(3) Paragraph (3) of section 6611(e) of such
Code (as so amended) shall apply in the case of any
refund paid on or after January 1, 1995, regardless
of the taxable period to which such refund relates.
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•J. 69–001A
SEC. 2604. DENIAL OF DEDUCTION RELATING TO TRAVEL
EXPENSES.
(a) IN GENERAL.—Section 274(m) (relating to addi-
tional limitations on travel expenses) is amended by add-
ing at the end thereof the following new paragraph:
‘‘(3) TRAVEL EXPENSES OF SPOUSE, DEPEND-
ENT, OR OTHERS.—No deduction shall be allowed
under this chapter (other than section 217) for trav-
el expenses paid or incurred with respect to a
spouse, dependent, or other individual accompanying
the taxpayer (or an officer or employee of the tax-
payer) on business travel, unless—
‘‘(A) the spouse, dependent, or other indi-
vidual is an employee of the taxpayer,
‘‘(B) the travel of the spouse, dependent,
or other individual is for a bona fide business
purpose, and
‘‘(C) such expenses would otherwise be de-
ductible by the spouse, dependent, or other indi-
vidual.’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to amounts paid or incurred after
December 31, 1993.
262
•J. 69–001A
SEC. 2605. INCREASE IN WITHHOLDING FROM SUPPLE-
MENTAL WAGE PAYMENTS.
If an employer elects under Treasury Regulation
31.3402 (g)–1 to determine the amount to be deducted
and withheld from any supplemental wage payment by
using a flat percentage rate, the rate to be used in deter-
mining the amount to be so deducted and withheld shall
not be less than 28 percent. The preceding sentence shall
apply to payments made after December 31, 1993.
TITLE 
III—EMPOWERMENT
ZONES 
AND 
ENTERPRISE
COMMUNITIES
SEC. 
3101. 
DESIGNATION 
AND 
TREATMENT 
OF
EMPOWERMENT 
ZONES 
AND 
ENTERPRISE
COMMUNITIES.
(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 Empowerment Zones and Enterprise
Communities
‘‘Part I. Designation.
‘‘Part II. Incentives for empowerment zones and enterprise com-
munities.
‘‘Part III. Additional incentives for empowerment zones.
‘‘Part IV. Regulations.
‘‘PART I—DESIGNATION
‘‘Sec. 1391. Designation procedure.
263
•J. 69–001A
‘‘Sec. 1392. Eligibility criteria.
‘‘Sec. 1393. Definitions and special rules.
‘‘SEC. 1391. DESIGNATION PROCEDURE.
‘‘(a) IN GENERAL.—From among the areas nomi-
nated for designation under this section, the appropriate
Secretaries may, in consultation with the Enterprise
Board, designate empowerment zones and enterprise com-
munities.
‘‘(b) NUMBER OF DESIGNATIONS.—
‘‘(1) ENTERPRISE COMMUNITIES.—The appro-
priate Secretaries may designate in the aggregate
100 nominated areas as enterprise communities
under this section, subject to the availability of eligi-
ble nominated areas. Of that number, not more than
65 may be designated in urban areas, not more than
30 may be designated in rural areas, and not more
than 5 may be designated by the Secretary of the
Interior in Indian reservations.
‘‘(2) EMPOWERMENT ZONES.—The appropriate
Secretaries may designate in the aggregate 10 nomi-
nated areas as empowerment zones under this sec-
tion, subject to the availability of eligible nominated
areas. Of that number, not more than 6 may be des-
ignated in urban areas, not more than 3 may be des-
ignated in rural areas, and not more than 1 may be
designated by the Secretary of the Interior in an In-
264
•J. 69–001A
dian reservation. If 6 empowerment zones are des-
ignated in urban areas, no less than 1 shall be des-
ignated in an urban area whose most populous city
has a population of 500,000 or less. The Secretary
of Housing and Urban Development shall designate
empowerment zones located in urban areas in such
a manner that the aggregate population of all such
zones does not exceed 750,000.
‘‘(c) PERIOD DESIGNATIONS MAY BE MADE.—A des-
ignation may be made under this section only after 1993
and before 1996.
‘‘(d) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—
‘‘(1) IN GENERAL.—Any designation under this
section shall remain in effect during the period be-
ginning on the date of the designation and ending
on the earliest of—
‘‘(A) the close of the 10th calendar year
beginning on or after such date of designation,
‘‘(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.
‘‘(2) REVOCATION OF DESIGNATION.—
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•J. 69–001A
‘‘(A) IN GENERAL.—The appropriate Sec-
retary, in consultation with the Enterprise
Board, may revoke the designation under this
section of an area if such Secretary determines
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, or fails to make progress in achieving
the benchmarks set forth in, the strategic
plan under subsection (f)(2).
‘‘(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.
‘‘(e) LIMITATIONS ON DESIGNATIONS.—An area may
be designated under subsection (a) only if—
‘‘(1) the area is nominated by 1 or more local
governments and the State or States in which it is
located for designation under this section,
‘‘(2) such State or States and the local govern-
ments have the authority—
266
•J. 69–001A
‘‘(A) to nominate the area for designation
under this section, and
‘‘(B) to provide the assurances described in
paragraph (3),
‘‘(3) such State or States and the local govern-
ments provide written assurances satisfactory to the
appropriate Secretary that the strategic plan de-
scribed in the application under subsection (f)(2) for
such area will be implemented,
‘‘(4) the appropriate Secretary determines that
any information furnished is reasonably accurate,
and
‘‘(5) such State or States and local govern-
ments certify that no portion of the area nominated
is already included in an empowerment zone or in an
enterprise community or in an area otherwise nomi-
nated to be designated under this section.
‘‘(f) APPLICATION.—An application for designation
as an empowerment zone or as an enterprise community
shall—
‘‘(1) demonstrate that the nominated area sat-
isfies the eligibility criteria described in section
1392,
‘‘(2) include a strategic plan for accomplishing
the purposes of this subchapter that—
267
•J. 69–001A
‘‘(A) describes the coordinated economic,
human, community, and physical development
plan and related activities proposed for the
nominated area,
‘‘(B) describes the process by which the af-
fected community is a full partner in the proc-
ess of developing and implementing the plan
and the extent to which local institutions and
organizations have contributed to the planning
process,
‘‘(C) identifies the amount of State, local,
and private resources that will be available in
the nominated area and the private/public part-
nerships to be used, which may include partici-
pation by, and cooperation with, universities,
medical centers, and other private and public
entities,
‘‘(D) identifies the funding requested
under any Federal program in support of the
proposed economic, human, community, and
physical development and related activities,
‘‘(E) identifies baselines, methods, and
benchmarks for measuring the success of carry-
ing out the strategic plan, including the extent
to which poor persons and families will be em-
268
•J. 69–001A
powered to become economically self-sufficient,
and
‘‘(F) does not include any action to assist
any establishment in relocating from one area
outside the nominated area to the nominated
area, except that assistance for the expansion of
an existing business entity through the estab-
lishment of a new branch, affiliate, or subsidi-
ary is permitted if—
‘‘(i) the establishment of the new
branch, affiliate, or subsidiary will not re-
sult in a decrease in employment 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-
eration, and
269
•J. 69–001A
‘‘(3) include such other information as may be
required by the appropriate Secretary or the Enter-
prise Board.
‘‘SEC. 1392. ELIGIBILITY CRITERIA.
‘‘(a) IN GENERAL.—A nominated area shall be eligi-
ble for designation under section 1391 only if it meets the
following criteria:
‘‘(1) POPULATION.—The nominated area has a
maximum population of—
‘‘(A) in the case of an urban area, the
lesser of—
‘‘(i) 200,000, or
‘‘(ii) the greater of 50,000 or 10 per-
cent of the population of the most popu-
lous city located within the nominated
area, and
‘‘(B) in the case of a rural area, 30,000.
‘‘(2) DISTRESS.—The nominated area is one of
pervasive poverty, unemployment, and general dis-
tress.
‘‘(3) SIZE.—The nominated area—
‘‘(A) does not exceed 20 square miles if an
urban area or 1,000 square miles if a rural
area or an Indian reservation,
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•J. 69–001A
‘‘(B) has a boundary which is continuous,
or, except in the case of a rural area located in
more than 1 State, consists of not more than
3 noncontiguous parcels,
‘‘(C)(i) in the case of an urban area, is lo-
cated entirely within no more than 2 contiguous
States, and
‘‘(ii) in the case of a rural area, is located
entirely within no more than 3 contiguous
States, and
‘‘(D) does not include any portion of a
central business district (as such term is used
for purposes of the most recent Census of Re-
tail Trade) unless the poverty rate for each
population census tract in such district is not
less than 35 percent.
‘‘(4) POVERTY RATE.—The poverty rate—
‘‘(A) for each population census tract with-
in the nominated area is not less than 20 per-
cent,
‘‘(B) for at least 90 percent of the popu-
lation census tracts within the nominated area
is not less than 25 percent, and
271
•J. 69–001A
‘‘(C) for at least 50 percent of the popu-
lation census tracts within the nominated area
is not less than 35 percent.
‘‘(b) SPECIAL RULES RELATING TO DETERMINATION
OF POVERTY RATE.—For purposes of subsection (a)(4)—
‘‘(1) TREATMENT
OF
CENSUS
TRACTS
WITH
SMALL POPULATIONS.—
‘‘(A) TRACTS WITH NO POPULATION.—In
the case of a population census tract with no
population—
‘‘(i) such tract shall be treated as hav-
ing a poverty rate which meets the require-
ments of subparagraphs (A) and (B) of
subsection (a)(4), but
‘‘(ii) such tract shall be treated as
having a zero poverty rate for purposes of
applying subparagraph (C) thereof.
‘‘(B) TRACTS WITH POPULATIONS OF LESS
THAN 2,000.—A population census tract with a
population of less than 2,000 shall be treated as
having a poverty rate which meets the require-
ments of subparagraphs (A) and (B) of sub-
section (a)(4) if more than 75 percent of such
tract is zoned for commercial or industrial use.
272
•J. 69–001A
‘‘(2) 
DISCRETION
TO
ADJUST
REQUIRE-
MENTS.—Where necessary to carry out the purposes
of this subchapter, the appropriate Secretary may
reduce by 5 percentage points one of the following
thresholds for not more than 10 percent of the popu-
lation census tracts (or, if fewer, 5 population cen-
sus tracts) in the nominated area:
‘‘(A) The 20 percent threshold in sub-
section (a)(4)(A).
‘‘(B) The 25 percent threshold in sub-
section (a)(4)(B).
‘‘(C) The 35 percent threshold in sub-
section (a)(4)(C).
‘‘(3) EACH NONCONTIGUOUS AREA MUST SAT-
ISFY POVERTY RATE RULE.—A nominated area may
not include a noncontiguous parcel unless such par-
cel separately meets (subject to paragraphs (1) and
(2)) the criteria set forth in subsection (a)(4).
‘‘(4) AREAS NOT WITHIN CENSUS TRACTS.—In
the case of an area which is not tracted for popu-
lation census tracts, the equivalent county divisions
(as defined by the Bureau of the Census for pur-
poses of defining poverty areas) shall be used for
purposes of determining poverty rates.
273
•J. 69–001A
‘‘(c) FACTORS TO CONSIDER.—From among the
nominated areas eligible for designation under section
1391 by the appropriate Secretary, such appropriate Sec-
retary shall make designations of empowerment zones and
enterprise communities on the basis of—
‘‘(1) the effectiveness of the strategic plan sub-
mitted pursuant to section 1391(f)(2) and the assur-
ances made pursuant to section 1391(e)(3), and
‘‘(2) criteria specified by the Enterprise Board.
‘‘SEC. 1393. DEFINITIONS AND SPECIAL RULES.
‘‘(a) IN
GENERAL.—For purposes of this sub-
chapter—
‘‘(1) APPROPRIATE SECRETARY.—The term ‘ap-
propriate Secretary’ means—
‘‘(A) the Secretary of Housing and Urban
Development in the case of any nominated area
which is located in an urban area,
‘‘(B) the Secretary of Agriculture in the
case of any nominated area which is located in
a rural area, and
‘‘(C) the Secretary of the Interior in the
case of any nominated area which is located in
an Indian reservation.
‘‘(2) ENTERPRISE BOARD.—The term ‘Enter-
prise Board’ means any board hereafter established
274
•J. 69–001A
and designated for purposes of this subchapter as
the ‘Enterprise Board’.
‘‘(3) RURAL
AREA.—The term ‘rural area’
means any area which is—
‘‘(A) outside of a metropolitan statistical
area 
(within 
the 
meaning 
of 
section
143(k)(2)(B)), or
‘‘(B) determined by the Secretary of Agri-
culture, after consultation with the Secretary of
Commerce, to be a rural area.
‘‘(4) URBAN
AREA.—The term ‘urban area’
means an area which is not a rural area.
‘‘(5) INDIAN RESERVATION.—
‘‘(A) IN GENERAL.—The term ‘Indian res-
ervation’ means a reservation as defined in—
‘‘(i) section 3(d) of the Indian Financ-
ing Act of 1974 (25 U.S.C. 1452(d)), or
‘‘(ii) section 4(10) of the Indian Child
Welfare Act of 1978 (25 U.S.C. 1903(10).
‘‘(B) GOVERNMENTS.—In the case of an
area in an Indian reservation, the reservation
governing body (as determined by the Secretary
of the Interior) shall be deemed to be both the
State and local governments with respect to
such area.
275
•J. 69–001A
‘‘(6) LOCAL
GOVERNMENT.—The term ‘local
government’ means—
‘‘(A) any county, city, town, township, par-
ish, village, or other general purpose political
subdivision of a State, and
‘‘(B) any combination of political subdivi-
sions described in subparagraph (A) recognized
by the appropriate Secretary.
‘‘(7) NOMINATED AREA.—The term ‘nominated
area’ means an area which is nominated by 1 or
more local governments and the State or States in
which it is located for designation under section
1391.
‘‘(8) GOVERNMENTS.—If more than 1 State or
local government seeks to nominate an area as a tax
enterprise zone, any reference to, or requirement of,
this subchapter shall apply to all such governments.
‘‘(9) SPECIAL RULE.—An area shall be treated
as nominated by a State and a local government if
it is nominated by such other entity as may be speci-
fied by the Enterprise Board.
‘‘(10) USE OF CENSUS DATA.—Population and
poverty rate shall be determined by the most recent
decennial census data available.
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•J. 69–001A
‘‘(b) EMPOWERMENT ZONE; ENTERPRISE COMMU-
NITY.—For purposes of this title, the terms ‘empowerment
zone’ and ‘enterprise community’ mean areas designated
as such under section 1391.
‘‘PART II—INCENTIVES FOR EMPOWERMENT
ZONES AND ENTERPRISE COMMUNITIES
‘‘Sec. 1394. Zone resident empowerment savings credit.
‘‘Sec. 1395. Additional benefits.
‘‘SEC. 1394. ZONE RESIDENT EMPOWERMENT SAVINGS
CREDIT.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the amount of the zone resident empowerment savings
credit determined under this section with respect to any
employer for any taxable year is 50 percent of the quali-
fied savings contributions for the taxable year.
‘‘(b) QUALIFIED
SAVINGS
CONTRIBUTIONS.—For
purposes of this section—
‘‘(1) IN GENERAL.—The term ‘qualified savings
contribution’ means any contribution by an employer
to a defined contribution plan—
‘‘(A) which is made on behalf of an em-
ployee in connection with services performed by
such employee while such employee is a quali-
fied zone employee, and
‘‘(B) with respect to which the employee
has a nonforfeitable right.
277
•J. 69–001A
‘‘(2) LIMITATION BASED ON COMPENSATION.—
‘‘(A) IN GENERAL.—The qualified savings
contributions taken into account with respect to
any qualified zone employee for any taxable
year shall not exceed an amount equal to 2 per-
cent of so much of the employee’s compensation
(as defined in section 414(s)) as does not
exceed $35,000.
‘‘(B) ZONE DESIGNATION IN EFFECT FOR
PARTIAL YEAR.—If a designation of an area as
an empowerment zone or an enterprise commu-
nity is in effect for less than the entire taxable
year, the $35,000 amount under subparagraph
(A) shall be ratably reduced to reflect the por-
tion of the year such designation is not in
effect.
‘‘(3) CERTAIN
CONTRIBUTIONS
EXCLUDED.—
The term ‘qualified savings contribution’ shall not
include any contribution—
‘‘(A) to a plan subject to the funding re-
quirements of section 412,
‘‘(B) to a tax credit employee stock owner-
ship plan (as defined in section 409(a)) or to an
employee stock ownership plan (as defined in
section 4975(e)(7)),
278
•J. 69–001A
‘‘(C) to a stock bonus plan, or
‘‘(D) which is an elective deferral (within
the meaning of section 402(g)(3)).
‘‘(4) SIMPLIFIED EMPLOYEE PENSION.—A con-
tribution to an individual savings plan pursuant to
a simplified employee pension (as defined in section
408(k)) shall be treated as a contribution to a de-
fined contribution plan.
‘‘(c) EMPLOYER REQUIREMENTS.—This section shall
apply to an employer for any taxable year only if—
‘‘(1) the employer elects the application of this
section, and
‘‘(2) the plan pursuant to which any qualified
savings contribution is made provides that any con-
tribution to such plan (whether or not a qualified
savings contribution) may be withdrawn by a quali-
fied zone employee for the purposes described in sec-
tion 72(t)(2) (B) or (D).
‘‘(d) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED ZONE EMPLOYEE.—The term
‘qualified zone employee’ has the meaning given such
term by section 1396(d), except that the references
to empowerment zones shall be treated as including
references to enterprise communities.
279
•J. 69–001A
‘‘(2) DEFINED
CONTRIBUTION
PLAN.—The
term ‘defined contribution plan’ means a defined
contribution plan (as defined in section 414(i))
which is described in section 401(a) and includes a
trust exempt from tax under section 501(a).
‘‘(e) TREATMENT OF PLANS.—A plan shall not be
treated as failing to meet any requirement of part I of
subchapter D of chapter 1 by reason of permitting with-
drawals for the purposes described in section 72(t)(2) (B)
or (D).
‘‘SEC. 1395. ADDITIONAL BENEFITS.
‘‘(a) INCREASE IN LOW INCOME HOUSING CREDIT.—
For purposes of section 42(d)(5)(C), a building shall be
treated as located in a qualified census tract if—
‘‘(1) such building is located in a census tract
having a poverty rate of at least 30 percent (deter-
mined in accordance with section 1393(a)(10)), and
‘‘(2) 
such 
building 
is 
located 
in 
an
empowerment zone or an enterprise community.
‘‘(b) TAX EXEMPT ENTERPRISE ZONE FACILITY
BONDS.—
‘‘(1) IN GENERAL.—For purposes of part IV of
subchapter B of chapter 1 (relating to tax exemption
requirements for State and local bonds), the term
‘exempt facility bond’ includes any bond issued as
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•J. 69–001A
part of an issue 95 percent or more of the net pro-
ceeds (as defined in section 150(a)(3)) of which are
to be used to provide any enterprise zone facility.
‘‘(2) ENTERPRISE ZONE FACILITY.—For pur-
poses of this subsection—
‘‘(A) IN GENERAL.—The term ‘enterprise
zone facility’ means any qualified zone property
the principal user of which is an enterprise zone
business (as defined in section 1399A), and any
land which is functionally related and subordi-
nated to such property.
‘‘(B) QUALIFIED
ZONE
PROPERTY.—The
term ‘qualified zone property’ has the meaning
given such term by section 1398(c); except
that—
‘‘(i) section 1398(c)(3) shall not
apply, and
‘‘(ii) the references to empowerment
zones shall be treated as including ref-
erences to enterprise communities.
‘‘(3) LIMITATION ON AMOUNT OF BONDS.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to any issue if the aggregate amount
of outstanding enterprise zone facility bonds al-
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•J. 69–001A
locable to any enterprise zone business (taking
into account such issue) exceeds—
‘‘(i) $3,000,000 with respect to any 1
empowerment zone or enterprise commu-
nity, or
‘‘(ii) $20,000,000 with respect to all
empowerment zones and enterprise com-
munities.
‘‘(B) AGGREGATE ENTERPRISE ZONE FA-
CILITY BOND BENEFIT.—For purposes of sub-
paragraph (A), the aggregate amount of out-
standing enterprise zone facility bonds allocable
to any business shall be determined under rules
similar to the rules of section 144(a)(10), tak-
ing into account only bonds to which paragraph
(1) applies.
‘‘(4) ACQUISITION
OF
LAND
AND
EXISTING
PROPERTY PERMITTED.—The requirements of sec-
tions 147(c)(1)(A) and 147(d) shall not apply to any
bond described in paragraph (1).
‘‘(5) PARTIAL
EXEMPTION
FROM
VOLUME
CAP.—Only for purposes of section 146, the term
‘private activity bond’ shall not include 50 percent of
any bond issued as part of an issue described in
paragraph (1).
282
•J. 69–001A
‘‘(6) PENALTY
FOR
CEASING
TO
MEET
RE-
QUIREMENTS.—
‘‘(A) FAILURES
CORRECTED.—An issue
which fails to meet 1 or more of the require-
ments of paragraphs (1) and (2) shall be
treated as meeting such requirements if—
‘‘(i) the issuer and any principal user
in good faith attempted to meet such re-
quirements, and
‘‘(ii) any failure to meet such require-
ments is corrected within a reasonable pe-
riod after such failure is first discovered.
‘‘(B) LOSS OF DEDUCTIONS WHERE FACIL-
ITY CEASES TO BE QUALIFIED.—No deduction
shall be allowed under this chapter for interest
on any financing provided from any bond to
which paragraph (1) applies with respect to any
facility to the extent such interest accrues dur-
ing the period beginning on the first day of the
calendar year which includes the date on
which—
‘‘(i) substantially all of the facility
with respect to which the financing was
provided 
ceases 
to 
be 
used 
in 
an
283
•J. 69–001A
empowerment zone or enterprise commu-
nity, or
‘‘(ii) the principal user of such facility
ceases to be an enterprise zone business
(as defined in section 1399A, but treating
references to empowerment zones as in-
cluding references to enterprise commu-
nities).
‘‘(C) EXCEPTION IF ZONE CEASES.—Sub-
paragraphs (A) and (B) shall not apply solely
by reason of the termination or revocation of a
designation as an empowerment zone or an en-
terprise community.
‘‘(D) EXCEPTION
FOR
BANKRUPTCY.—
Subparagraphs (A) and (B) shall not apply to
any cessation resulting from bankruptcy.
‘‘(c) ENTERPRISE ZONE FACILITY BONDS NOT SUB-
JECT TO INTEREST DEDUCTION LIMITATIONS ON FINAN-
CIAL INSTITUTIONS.—Any tax-exempt bond described in
paragraph (1)—
‘‘(1) shall be treated as acquired before August
8, 1986, for purposes of sections 265(b) and
291(e)(1)(B), and
284
•J. 69–001A
‘‘(2) shall not be taken into account in deter-
mining whether any issuer is a qualified small issuer
for purposes of section 265(b).
‘‘PART III—ADDITIONAL INCENTIVES FOR
EMPOWERMENT ZONES
‘‘SUBPART A. Empowerment zone employment credit.
‘‘SUBPART B. Depreciation and other incentives.
‘‘Subpart A—Empowerment Zone Employment Credit
‘‘Sec. 1396. Empowerment zone employment credit.
‘‘Sec. 1397. Other definitions and special rules.
‘‘SEC. 1396. EMPOWERMENT ZONE EMPLOYMENT CREDIT.
‘‘(a) AMOUNT OF CREDIT.—For purposes of section
38, the amount of the empowerment zone employment
credit determined under this section with respect to any
employer for any taxable year is the applicable percentage
of the qualified zone wages paid or incurred during the
calendar year which ends with or within such taxable year.
‘‘(b) APPLICABLE PERCENTAGE.—For purposes of
this section, the term ‘applicable percentage’ means the
percentage determined in accordance with the following
table:
‘‘In the case of wages paid or
The applicable
incurred during calendar year:
percentage is:
1994 through 2000 ........................................
2001 ...............................................................
2002 ...............................................................
2003 ...............................................................
2004 ...............................................................
‘‘(c) QUALIFIED ZONE WAGES.—
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•J. 69–001A
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘qualified zone wages’ means any
wages paid or incurred by an employer for services
performed by an employee while such employee is a
qualified zone employee.
‘‘(2) ONLY FIRST $20,000 OF WAGES PER YEAR
TAKEN INTO ACCOUNT.—With respect to each quali-
fied zone employee, the amount of qualified zone
wages which may be taken into account for a cal-
endar year shall not exceed $20,000.
‘‘(3) COORDINATION
WITH
TARGETED
JOBS
CREDIT.—
‘‘(A) IN
GENERAL.—The term ‘qualified
zone wages’ shall not include wages attributable
to service rendered during the 1-year period be-
ginning with the day the individual begins work
for the employer if any portion of such wages
is taken into account in determining the credit
under section 51.
‘‘(B) COORDINATION
WITH
PARAGRAPH
(2).—In the case of the calendar year in which
the 1-year period referred to in subparagraph
(A) ends, the $20,000 amount in paragraph (2)
shall be reduced by the amount of wages attrib-
utable to service rendered during the portion of
286
•J. 69–001A
such 1-year period which is within such cal-
endar year.
‘‘(d) QUALIFIED ZONE EMPLOYEE.—For purposes of
this section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘qualified zone em-
ployee’ means, with respect to any period, any em-
ployee of an employer if—
‘‘(A) substantially all of the services per-
formed during such period by such employee for
such 
employer 
are 
performed 
within 
an
empowerment zone in a trade or business of the
employer, and
‘‘(B) the principal place of abode of such
employee while performing such services is
within such empowerment zone.
‘‘(2) CERTAIN INDIVIDUALS NOT ELIGIBLE.—
The term ‘qualified zone employee’ shall not in-
clude—
‘‘(A) any individual described in subpara-
graph (A), (B), or (C) of section 51(i)(1),
‘‘(B) any 5-percent owner (as defined in
section 416(i)(1)(B)),
‘‘(C) any individual employed by the em-
ployer for less than 90 days,
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•J. 69–001A
‘‘(D) any individual employed by the em-
ployer at any facility described in section
144(c)(6)(B), and
‘‘(E) any individual employed by the em-
ployer in a trade or business the principal activ-
ity of which is farming (within the meaning of
subparagraphs 
(A) 
or 
(B) 
of 
section
2032A(e)(5)), but only if, as of the close of the
taxable year, the sum of—
‘‘(i) the aggregate unadjusted bases
(or, if greater, the fair market value) of
the assets owned by the employer which
are used in such a trade or business, and
‘‘(ii) the aggregate value of assets
leased by the employer which are used in
such a trade or business (as determined
under regulations prescribed by the Sec-
retary),
exceeds $500,000.
‘‘(3) SPECIAL
RULES
RELATED
TO
TERMI-
NATION OF EMPLOYMENT.—
‘‘(A) IN
GENERAL.—Paragraph (2)(C)
shall not apply to—
‘‘(i) a termination of employment of
an individual who before the close of the
288
•J. 69–001A
period referred to in paragraph (2)(C) be-
comes disabled to perform the services of
such employment unless such disability is
removed before the close of such period
and the taxpayer fails to offer reemploy-
ment to such individual, or
‘‘(ii) a termination of employment of
an individual if it is determined under the
applicable State unemployment compensa-
tion law that the termination was due to
the misconduct of such individual.
‘‘(B) CHANGES IN FORM OF BUSINESS.—
For purposes of paragraph (2)(C), the employ-
ment relationship between the taxpayer and an
employee shall not be treated as terminated—
‘‘(i) by a transaction to which section
381(a) applies if the employee continues to
be employed by the acquiring corporation,
or
‘‘(ii) by reason of a mere change in
the form of conducting the trade or busi-
ness of the taxpayer if the employee con-
tinues to be employed in such trade or
business and the taxpayer retains a sub-
stantial interest in such trade or business.
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•J. 69–001A
‘‘SEC. 1397. OTHER DEFINITIONS AND SPECIAL RULES.
‘‘(a) WAGES.—For purposes of this subpart—
‘‘(1) IN GENERAL.—The term ‘wages’ has the
same meaning as when used in section 51.
‘‘(2) CERTAIN
TRAINING
AND
EDUCATIONAL
BENEFITS.—
‘‘(A) 
IN
GENERAL.—The 
following
amounts shall be treated as wages paid to an
employee:
‘‘(i) Any amount paid or incurred by
an employer which is excludable from the
gross income of an employee under section
127, but only to the extent paid or in-
curred to a person not related to the em-
ployer.
‘‘(ii) In the case of an employee who
has not attained the age of 19, any
amount paid or incurred by an employer
for any youth training program operated
by such employer in conjunction with local
education officials.
‘‘(B) RELATED PERSON.—A person is re-
lated to any other person if the person bears a
relationship to such other person specified in
section 267(b) or 707(b)(1), or such person and
such other person are engaged in trades or
290
•J. 69–001A
businesses under common control (within the
meaning of subsections (a) and (b) of section
52). For purposes of the preceding sentence, in
applying section 267(b) or 707(b)(1), ‘10 per-
cent’ shall be substituted for ‘50 percent’.
‘‘(b) CONTROLLED GROUPS.—For purposes of this
subpart—
‘‘(1) all employers treated as a single employer
under subsection (a) or (b) of section 52 shall be
treated as a single employer for purposes of this
subpart, and
‘‘(2) the credit (if any) determined under sec-
tion 1396 with respect to each such employer shall
be its proportionate share of the wages giving rise
to such credit.
‘‘(c) CERTAIN OTHER RULES MADE APPLICABLE.—
For purposes of this subpart, rules similar to the rules
of section 51(k) and subsections (c), (d), and (e) of section
52 shall apply.
‘‘(d) NOTICE OF AVAILABILITY OF ADVANCE PAY-
MENT
OF EARNED INCOME CREDIT.—Each employer
shall take reasonable steps to notify all qualified zone em-
ployees of the availability to eligible individuals of receiv-
ing advanced payments of the credit under section 32 (re-
lating to the earned income credit).
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•J. 69–001A
‘‘Subpart B—Depreciation and Other Incentives
‘‘Sec. 1398. Depreciation benefits.
‘‘Sec. 1399. Additional exclusion from volume cap for certain en-
terprise zone facility bonds.
‘‘Sec. 1399A. Enterprise zone business.
‘‘SEC. 1398. DEPRECIATION BENEFITS.
‘‘(a) INCREASE
IN EXPENSING UNDER SECTION
179.—
‘‘(1) IN GENERAL.—In the case of an enterprise
zone business, for purposes of section 179—
‘‘(A) qualified zone property shall be treat-
ed as section 179 property,
‘‘(B) 
the 
limitation 
under 
section
179(b)(1) shall be increased by the lesser of—
‘‘(i) $65,000, or
‘‘(ii) the cost of qualified zone prop-
erty placed in service during the taxable
year, and
‘‘(C) section 179(b)(2) shall be applied by
substituting ‘by one-half of the amount by
which the cost of qualified zone property (other
than real property)’ for ‘by the amount by
which the cost of section 179 property’.
‘‘(b) ACCELERATED DEPRECIATION.—
‘‘(1) IN
GENERAL.—For purposes of section
168(a), with respect to qualified zone property of an
enterprise zone business, the applicable recovery pe-
292
•J. 69–001A
riod shall be determined in accordance with the table
contained in paragraph (2) in lieu of the table con-
tained in section 168(c).
‘‘(2) APPLICABLE
RECOVERY
PERIOD
FOR
QUALIFIED ZONE PROPERTY.—For purposes of para-
graph (1)—
The applicable
‘‘In the case of:
recovery period is:
3-year property ........................................................................
2 years
5-year property ........................................................................
3 years
7-year property ........................................................................
4 years
10-year property ......................................................................
6 years
15-year property ......................................................................
9 years
20-year property ......................................................................
12 years
Nonresidential real property ....................................................
22 years.
‘‘(3) DEDUCTION
ALLOWED
IN
COMPUTING
MINIMUM TAX.—Paragraph (1) shall apply for pur-
poses of determining alternative minimum taxable
income under section 55.
‘‘(4) COORDINATION WITH INVESTMENT CRED-
IT.—This subsection shall not apply to any property
with respect to which a credit is determined under
section 46A or 50A. If the lessee of any property is
treated as the owner of such property for purposes
of such credit, this subsection shall not apply to
such property in the hands of the lessor.
‘‘(c) QUALIFIED ZONE PROPERTY.—For purposes of
this section—
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•J. 69–001A
‘‘(1) IN GENERAL.—The term ‘qualified zone
property’ means any property to which section 168
applies (or would apply but for section 179) if—
‘‘(A) such property was acquired by the
taxpayer by purchase (as defined in section
179(d)(2)) after the date on which the designa-
tion of the empowerment zone took effect,
‘‘(B) the original use of which in an
empowerment zone commences with the tax-
payer, and
‘‘(C) substantially all of the use of which
is in an empowerment zone and is in the active
conduct of a trade or business by the taxpayer
in such zone.
‘‘(2) SPECIAL
RULE
FOR
SUBSTANTIAL
REN-
OVATIONS.—In the case of any property which is
substantially renovated by the taxpayer, the require-
ments of subparagraphs (A) and (B) of paragraph
(1) shall be treated as satisfied. For purposes of the
preceding sentence, property shall be treated as sub-
stantially renovated by the taxpayer if, during any
24-month period beginning after the date on which
the designation of the empowerment zone took ef-
fect, additions to basis with respect to such property
in the hands of the taxpayer exceed the greater of
294
•J. 69–001A
(i) an amount equal to the adjusted basis at the be-
ginning of such 24-month period in the hands of the
taxpayer, or (ii) $5,000.
‘‘(3) EXCEPTION FOR ALTERNATIVE DEPRECIA-
TION
PROPERTY.—The term ‘qualified zone prop-
erty’ does not include any property to which the al-
ternative depreciation system under section 168(g)
applies, determined—
‘‘(A) without regard to section 168(g)(7)
(relating to election to use alternative deprecia-
tion system), and
‘‘(B) after the application of section
280F(b) (relating to listed property with limited
business use).
‘‘(d) SPECIAL RULES FOR SALE-LEASEBACKS.—For
purposes of subsection (c)(1)(B), if property is sold and
leased back by the taxpayer within 3 months after the date
such property was originally placed in service, such prop-
erty shall be treated as originally placed in service not ear-
lier than the date on which such property is used under
the leaseback.
‘‘(e) RECAPTURE.—Rules similar to the rules under
section 179(d)(10) shall apply with respect to any quali-
fied zone property of any business which ceases to be an
enterprise zone business.
295
•J. 69–001A
‘‘SEC. 1399. ADDITIONAL EXCLUSION FROM VOLUME CAP
FOR CERTAIN ENTERPRISE ZONE FACILITY
BONDS.
‘‘(a) IN GENERAL.—Section 1395(b)(5) shall be ap-
plied by substituting ‘75 percent’ for ‘50 percent’ in the
case of any bond described in section 1395(b)(1) issued
as part of an issue 95 percent or more of the net proceeds
(as defined in section 150(a)(3)) of which are used to pro-
vide qualified zone property the principal user of which
is any enterprise zone business if the ownership require-
ments of subsection (b) are met with respect to such busi-
ness.
‘‘(b) OWNERSHIP REQUIREMENTS.—The ownership
requirements of this subsection are met with respect to
an enterprise zone business if—
‘‘(1) in the case of a sole proprietorship, the
principal place of abode of the proprietor is in an
empowerment zone,
‘‘(2) in the case of a corporation, more than 50
percent of the stock (by vote and value) in the cor-
poration is owned by individuals whose principal
place of abode is in an empowerment zone, and
‘‘(3) in the case of a partnership, more than 50
percent of the capital and profits interests in the
partnership is owned by individuals whose principal
place of abode is in an empowerment zone.
296
•J. 69–001A
‘‘SEC. 1399A. ENTERPRISE ZONE BUSINESS DEFINED.
‘‘(a) IN GENERAL.—For purposes of this subpart, the
term ‘enterprise zone business’ means—
‘‘(1) any qualified business entity, and
‘‘(2) any qualified proprietorship.
‘‘(b) QUALIFIED BUSINESS ENTITY.—For purposes
of this section, the term ‘qualified business entity’ means,
with respect to any taxable year, any corporation or part-
nership if for such year—
‘‘(1) every trade or business of such entity is
the active conduct of a qualified business within an
empowerment zone,
‘‘(2) at least 80 percent of the total gross in-
come of such entity is derived from the active con-
duct of such business,
‘‘(3) substantially all of the use of the tangible
property of such entity (whether owned or leased) is
within an empowerment zone,
‘‘(4) substantially all of the intangible property
of such entity is used in, and exclusively related to,
the active conduct of any such business,
‘‘(5) substantially all of the services performed
for such entity by its employees are performed in an
empowerment zone,
‘‘(6) at least 35 percent of its employees are
residents of an empowerment zone,
297
•J. 69–001A
‘‘(7) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
entity is attributable to collectibles (as defined in
section 408(m)(2)) other than collectibles that are
held primarily for sale to customers in the ordinary
course of such business, and
‘‘(8) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
entity is attributable to nonqualified financial prop-
erty.
‘‘(c) QUALIFIED PROPRIETORSHIP.—For purposes of
this section, the term ‘qualified proprietorship’ means,
with respect to any taxable year, any qualified business
carried on by an individual as a proprietorship if for such
year—
‘‘(1) at least 80 percent of the total gross in-
come of such individual from such business is de-
rived from the active conduct of such business in an
empowerment zone,
‘‘(2) substantially all of the use of the tangible
property of such individual in such business (wheth-
er owned or leased) is within an empowerment zone,
‘‘(3) substantially all of the intangible property
of such business is used in, and exclusively related
to, the active conduct of such business,
298
•J. 69–001A
‘‘(4) substantially all of the services performed
for such individual in such business by employees of
such business are performed in an empowerment
zone,
‘‘(5) at least 35 percent of such employees are
residents of an empowerment zone,
‘‘(6) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
individual which is used in such business is attrib-
utable 
to 
collectibles 
(as 
defined 
in 
section
408(m)(2)) other than collectibles that are held pri-
marily for sale to customers in the ordinary course
of such business, and
‘‘(7) less than 5 percent of the average of the
aggregate unadjusted bases of the property of such
individual which is used in such business is attrib-
utable to nonqualified financial property.
For purposes of this subsection, the term ‘employee’ in-
cludes the proprietor.
‘‘(d) QUALIFIED BUSINESS.—For purposes of this
section—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the term ‘qualified business’
means any trade or business.
299
•J. 69–001A
‘‘(2) RENTAL OF REAL PROPERTY.—The rental
to 
others 
of 
real 
property 
located 
in 
an
empowerment zone shall be treated as a qualified
business if and only if—
‘‘(A) the property is not residential rental
property (as defined in section 168(e)(2)), and
‘‘(B) at least 50 percent of the gross rental
income from the real property is from enter-
prise zone businesses.
‘‘(3) RENTAL OF TANGIBLE PERSONAL PROP-
ERTY.—The rental to others of tangible personal
property shall be treated as a qualified business if
and only if substantially all of the rental of such
property is by enterprise zone businesses or by resi-
dents of an empowerment zone.
‘‘(4) TREATMENT OF BUSINESS HOLDING IN-
TANGIBLES.—The term ‘qualified business’ shall not
include any trade or business consisting predomi-
nantly of the development or holding of intangibles
for sale or license.
‘‘(5) CERTAIN
BUSINESSES
EXCLUDED.—The
term ‘qualified business’ shall not include—
‘‘(A) any trade or business consisting of
the operation of any facility described in section
144(c)(6)(B), and
300
•J. 69–001A
‘‘(B) any trade or business the principal
activity of which is farming (within the meaning
of subparagraphs (A) or (B) of section
2032A(e)(5)), but only if, as of the close of the
preceding taxable year, the sum of—
‘‘(i) the aggregate unadjusted bases
(or, if greater, the fair market value) of
the assets owned by the taxpayer which are
used in such a trade or business, and
‘‘(ii) the aggregate value of assets
leased by the taxpayer which are used in
such a trade or business,
exceeds $500,000.
For purposes of subparagraph (B), rules similar to
the rules of section 1397(b) shall apply.
‘‘(e) NONQUALIFIED FINANCIAL PROPERTY.—For
purposes of this section, the term ‘nonqualified financial
property’ means debt, stock, partnership interests, op-
tions, futures contracts, forward contracts, warrants, no-
tional principal contracts, annuities, and other similar
property specified in regulations; except that such term
shall not include—
‘‘(1) reasonable amounts of working capital
held in cash, cash equivalents, or debt instruments
with a term of 18 months or less, or
301
•J. 69–001A
‘‘(2) debt instruments described in section
1221(4).
‘‘PART IV—REGULATIONS
‘‘Sec. 1399B. Regulations.
‘‘SEC. 1399B. REGULATIONS.
‘‘The Secretary shall prescribe such regulations as
may be necessary or appropriate to carry out the purposes
of parts II and III, including—
‘‘(1) regulations limiting the benefit of parts II
and III in circumstances where such benefits, in
combination with benefits provided under other Fed-
eral programs, would result in an activity being 100
percent or more subsidized by the Federal Govern-
ment,
‘‘(2) regulations preventing abuse of the provi-
sions of parts II and III, and
‘‘(3) regulations dealing with inadvertent fail-
ures of entities to be enterprise zone businesses.’’
(b) CLERICAL AMENDMENT.—The table of sub-
chapters for chapter 1 is amended by inserting after the
item relating to subchapter T the following new item:
‘‘Subchapter U. Designation and treatment of empowerment
zones and enterprise communities.’’
SEC. 3102. EXPANSION OF TARGETED JOBS CREDIT.
(a) 
ALLOWANCE
OF
CREDIT
FOR
HIRING
EMPOWERMENT ZONE RESIDENT.—Paragraph (1) of sec-
302
•J. 69–001A
tion 51(d) (defining members of targeted groups) is
amended by striking ‘‘or’’ at the end of subparagraph (I),
by striking the period at the end of subparagraph (J) and
inserting ‘‘, or’’, and by adding at the end the following
new subparagraph:
‘‘(K) an empowerment zone resident.’’
(b) 
EMPOWERMENT
ZONE
RESIDENT.—Section
51(d) is amended by redesignating paragraphs (13)
through (16) as paragraphs (14) through (17), respec-
tively, and by inserting after paragraph (12) the following
new paragraph:
‘‘(13) EMPOWERMENT
ZONE
RESIDENT.—The
term ‘empowerment zone resident’ means an individ-
ual whose principal place of abode while performing
services for the employer is within an empowerment
zone.’’
(c) CONFORMING AMENDMENT.—Subparagraph (C)
of section 51(d)(12) is amended by striking ‘‘paragraph
(11)’’ and inserting ‘‘paragraph (12)’’.
SEC. 3103. TECHNICAL AND CONFORMING AMENDMENTS.
(a) CERTAIN CREDITS PART OF GENERAL BUSINESS
CREDIT.—
(1) Subsection (b) of section 38 (relating to
current year business credit) is amended by striking
‘‘plus’’ at the end of paragraph (7), by striking the
303
•J. 69–001A
period at the end of paragraph (8) and inserting a
comma, and by adding at the end the following new
paragraphs:
‘‘(9) the zone resident empowerment savings
credit determined under section 1394, plus
‘‘(10) the empowerment zone employment credit
determined under section 1396(a).’’
(2) Subsection (d) of section 39, as amended by
section 1201(e)(2), is amended by adding at the end
the following new paragraph:
‘‘(5) ENTERPRISE ZONE CREDITS.—No portion
of the unused business credit which is attributable to
the credit determined under section 1394 (relating
to zone resident empowerment savings credit) or sec-
tion 1396 (relating to empowerment zone employ-
ment credit) may be carried to any taxable year end-
ing before January 1, 1994.’’
(b) DENIAL OF DEDUCTION FOR PORTION OF WAGES
EQUAL TO EMPOWERMENT ZONE EMPLOYMENT CRED-
IT.—
(1) Subsection (a) of section 280C (relating to
rule for targeted jobs credit) is amended—
(A) by striking ‘‘the amount of the credit
determined for the taxable year under section
51(a)’’ and inserting ‘‘the sum of the credits
304
•J. 69–001A
determined for the taxable year under sections
51(a) and 1396(a)’’, and
(B) by striking ‘‘TARGETED JOBS CRED-
IT’’ in the subsection heading and inserting
‘‘EMPLOYMENT CREDITS’’.
(2) Subsection (c) of section 196 (relating to
deduction for certain unused business credits) is
amended by striking ‘‘and’’ at the end of paragraph
(4), by striking the period at the end of paragraph
(5) and inserting ‘‘, and’’, and by adding at the end
the following new paragraph:
‘‘(6) the empowerment zone employment credit
determined under section 1396(a).’’
(c) EMPLOYMENT AND SAVINGS CREDITS MAY OFF-
SET 25 PERCENT OF MINIMUM TAX.—
(1) Subparagraph (A) of section 38(c)(2), as
added by section 1201(c) of this Act, is amended—
(A) by inserting ‘‘and the empowerment
zone credits’’ after ‘‘the regular investment tax
credit’’ each place it appears, and
(B) by striking ‘‘such credit’’ in clause (ii)
and inserting ‘‘such credits’’.
(2) Paragraph (2) of section 38(c), as so added,
is amended by adding at the end thereof the follow-
ing new subparagraph:
305
•J. 69–001A
‘‘(C) EMPOWERMENT ZONE CREDITS.—For
purposes 
of 
this 
paragraph, 
the 
term
‘empowerment zone credits’ means the portion
of the credit under subsection (a) which is at-
tributable to the credits determined under sec-
tion 
1394 
(relating 
to 
zone 
resident
empowerment savings credit) and section 1396
(relating to empowerment zone employment
credit).’’
(d) CHANGES RELATING TO EMPOWERMENT ZONE
RESIDENT EMPOWERMENT SAVINGS CREDIT.—
(1) DISALLOWANCE
OF
DEDUCTION.—Section
404 (relating to deduction for certain employer con-
tributions) is amended by adding at the end the fol-
lowing new subsection:
‘‘(m) COORDINATION WITH EMPOWERMENT ZONE
CREDIT.—No deduction shall be allowed under this sec-
tion for any qualified employer contribution taken into ac-
count in computing the credit determined under section
1394.’’
(2) PENALTY-FREE DISTRIBUTIONS.—
(A) IN GENERAL.—Paragraph (2) of sec-
tion 72(t) (relating to exceptions to 10-percent
additional tax on early distributions from quali-
fied retirement plans) is amended by adding at
306
•J. 69–001A
the end thereof the following new subpara-
graph:
‘‘(D) 
DISTRIBUTIONS
FROM
CERTAIN
PLANS FOR FIRST HOME PURCHASES OR EDU-
CATIONAL EXPENSES.—
‘‘(i) IN
GENERAL.—Distributions to
an individual from a qualified retirement
plan—
‘‘(I) which are qualified first-time
homebuyer distributions (as defined in
paragraph (6)),
‘‘(II) to the extent such distribu-
tions do not exceed the qualified high-
er education expenses (as defined in
paragraph (7)) of the taxpayer for the
taxable year, or
‘‘(III) to the extent such distribu-
tions do not exceed an amount equal
to the aggregate investment made by
the taxpayer during the taxable year
in any enterprise zone business (as
defined in section 1399A) that meets
the ownership requirements of section
1399(b).
307
•J. 69–001A
‘‘(ii) LIMITATION.—Clause (i) shall
not apply to the extent that the aggregate
amount of the distributions described in
clause (i) are greater than the excess of—
‘‘(I) the qualified retirement con-
tributions (as defined in section
1394(b)) of the taxpayer, and any
earnings thereon, over
‘‘(II) the aggregate amounts to
which clause (i) and the last sentence
of paragraph (3)(A) applied for pre-
ceding taxable years.’’
(B) 
DEFINITIONS.—Section 
72(t) 
is
amended by adding at the end thereof the fol-
lowing new paragraphs:
‘‘(6) QUALIFIED FIRST-TIME HOMEBUYER DIS-
TRIBUTIONS.—For 
purposes 
of 
paragraph
(2)(D)(i)(I)—
‘‘(A) IN
GENERAL.—The term ‘qualified
first-time homebuyer distribution’ means any
payment or distribution received by an individ-
ual to the extent such payment or distribution
is used by the individual before the close of the
60th day after the day on which such payment
or distribution is received to pay qualified ac-
308
•J. 69–001A
quisition costs with respect to a principal resi-
dence of a first-time homebuyer who is such in-
dividual or the spouse of such individual.
‘‘(B) QUALIFIED
ACQUISITION
COSTS.—
For purposes of this paragraph, the term
‘qualified acquisition costs’ means the costs of
acquiring, constructing, or reconstructing a res-
idence. Such term includes any usual or reason-
able settlement, financing, or other closing
costs.
‘‘(C) FIRST-TIME
HOMEBUYER; 
OTHER
DEFINITIONS.—For purposes of this para-
graph—
‘‘(i) FIRST-TIME
HOMEBUYER.—The
term ‘first-time homebuyer’ means any in-
dividual if—
‘‘(I) such individual (and if mar-
ried, such individual’s spouse) had no
present ownership interest in a prin-
cipal residence during the 3-year pe-
riod ending on the date of acquisition
of the principal residence to which
this paragraph applies, and
‘‘(II) subsection (a)(6), (h), or
(k) of section 1034 did not suspend
309
•J. 69–001A
the running of any period of time
specified in section 1034 with respect
to such individual on the day before
the date the distribution is applied
pursuant to subparagraph (A)(ii).
‘‘(ii) 
PRINCIPAL
RESIDENCE.—The
term ‘principal residence’ has the same
meaning as when used in section 1034.
‘‘(iii) DATE
OF
ACQUISITION.—The
term ‘date of acquisition’ means the date—
‘‘(I) on which a binding contract
to acquire the principal residence to
which subparagraph (A) applies is en-
tered into, or
‘‘(II) on which construction or re-
construction of such a principal resi-
dence is commenced.
‘‘(D) SPECIAL RULE WHERE DELAY IN AC-
QUISITION.—If any distribution from any quali-
fied retirement plan fails to meet the require-
ments of subparagraph (A) solely by reason of
a delay or cancellation of the purchase or con-
struction of the residence, the amount of the
distribution may be recontributed to the plan
310
•J. 69–001A
from which it was distributed within 120 days
after the date of such distribution.
‘‘(7) QUALIFIED
HIGHER
EDUCATION
EX-
PENSES.—For 
purposes 
of 
paragraph
(2)(D)(ii)(II)—
‘‘(A) IN
GENERAL.—The term ‘qualified
higher education expenses’ means tuition, fees,
books, supplies, and equipment required for the
enrollment or attendance of—
‘‘(i) the taxpayer,
‘‘(ii) the taxpayer’s spouse, or
‘‘(iii) the taxpayer’s child (as defined
in section 151(c)(3)) or grandchild,
at an eligible educational institution (as defined
in section 135(c)(3)).
‘‘(B) COORDINATION WITH SAVINGS BOND
PROVISIONS.—The amount of qualified higher
education expenses for any taxable year shall be
reduced by any amount excludable from gross
income under section 135.’’
(C) CONFORMING AMENDMENTS.—
(i) Subparagraph (B) of section
72(t)(2) is amended by striking ‘‘or (C)’’
and inserting ‘‘, (C), or (D)’’.
311
•J. 69–001A
(ii) Section 401(k)(2)(B)(i) is amend-
ed by striking ‘‘or’’ at the end of subclause
(III), by striking ‘‘and’’ at the end of
subclause (IV) and inserting ‘‘or’’, and by
inserting after subclause (IV) the following
new subclause:
‘‘(V) subject to the limitation of
section 72(t)(2)(D)(ii), the date on
which qualified first-time homebuyer
distributions (as defined in section
72(t)(6)), distributions for qualified
higher education expenses (as defined
in section 72(t)(7)), or distributions
for investments described in section
72(t)(2)(D)(i)(III) are made, and’’.
(e) AMENDMENT
OF TARGETED JOBS CREDIT.—
Subparagraph (A) of section 51(i)(1) is amended by in-
serting ‘‘, or, if the taxpayer is an entity other than a
corporation, to any individual who owns, directly or indi-
rectly, more than 50 percent of the capital and profits in-
terests in the entity,’’ after ‘‘of the corporation’’.
(f) CARRYOVERS.—Subsection (c) of section 381 (re-
lating to carryovers in certain corporate acquisitions) is
amended by adding at the end the following new para-
graph:
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‘‘(26) ENTERPRISE
ZONE
PROVISIONS.—The
acquiring corporation shall take into account (to the
extent proper to carry out the purposes of this sec-
tion and subchapter U, and under such regulations
as may be prescribed by the Secretary) the items re-
quired to be taken into account for purposes of sub-
chapter U in respect of the distributor or transferor
corporation.’’
SEC. 3104. EFFECTIVE DATE.
The amendments made by this title shall take effect
on the date of the enactment of this Act.
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