I
103D CONGRESS
1ST SESSION
H. R. 2392
To amend the Internal Revenue Code of 1986 to reinstate a 5-percent invest-
ment tax credit, to reduce capital gains taxes, to provide certain tax
incentives for investments on closed defense bases, and to provide for
the use of certain defense funds for the provision of services to certain
dislocated defense workers receiving assistance under the Job Training
Partnership Act.
IN THE HOUSE OF REPRESENTATIVES
JUNE 10, 1993
Mr. ZELIFF (for himself, Mr. BURTON of Indiana, Mr. HUNTER, Mr. SOLO-
MON, and Mr. BALLENGER) introduced the following bill; which was re-
ferred jointly to the Committees on Ways and Means, Education and
Labor, and Armed Services
A BILL
To amend the Internal Revenue Code of 1986 to reinstate
a 5-percent investment tax credit, to reduce capital gains
taxes, to provide certain tax incentives for investments
on closed defense bases, and to provide for the use of
certain defense funds for the provision of services to
certain dislocated defense workers receiving assistance
under the Job Training Partnership Act.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Economic Resurgence and Jobs for America Act’’.
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment
to, or repeal of, a section or other provision, the reference
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986.
TITLE I—INVESTMENT TAX
CREDIT
SEC. 101. REINSTATEMENT OF 5-PERCENT INVESTMENT
TAX CREDIT.
(a) IN GENERAL.—Subpart E of part IV of sub-
chapter A of chapter 1 (relating to rules for computing
credit for investment in certain depreciable property), as
amended by subsection (b)(2), is amended by adding at
the end the following new section:
‘‘SEC. 50. 5-PERCENT REGULAR INVESTMENT CREDIT.
‘‘With respect to any property placed in service after
December 31, 1992—
‘‘(1) section 49 shall not apply, and
‘‘(2) the regular percentage for purposes of this
subpart shall be 5 percent.’’
(b) CONFORMING AMENDMENTS.—
(1) The table of sections for such subpart E is
amended by adding at the end the following new
item:
‘‘Sec. 50. 5-percent regular investment credit.’’
(2) Section 11813 of the Revenue Reconcili-
ation Act of 1990 (Public Law 101–508) is hereby
repealed, and the Internal Revenue Code of 1986
shall be applied and administered as if such section
(and the amendments made by such section) had
never been enacted.
TITLE II—CAPITAL GAINS TAX
REDUCTION
SEC. 201. REDUCTION IN INDIVIDUAL CAPITAL GAINS
RATE.
(a) GENERAL RULE.—Subsection (h) of section 1 (re-
lating to maximum capital gains rate) is amended to read
as follows:
‘‘(h) MAXIMUM CAPITAL GAINS RATE.—If a taxpayer
has a net capital gain for any taxable year, then the tax
imposed by this section shall not exceed the sum of—
‘‘(1) a tax computed at the rates and in the
same manner as if this subsection had not been en-
acted on the taxable income reduced by the net cap-
ital gain, plus
‘‘(2) a tax equal to the sum of—
‘‘(A) 7.5 percent of so much of the net
capital gain as does not exceed—
‘‘(i) the maximum amount of taxable
income to which the 15-percent rate ap-
plies under the table applicable to the tax-
payer, reduced by
‘‘(ii) the taxable income to which
paragraph (1) applies, plus
‘‘(B) 15 percent of the net capital gain in
excess of the net capital gain to which subpara-
graph (A) applies.’’
(b) PHASE-OUT
OF PERSONAL EXEMPTIONS
AND
LIMITATION ON DEDUCTION OF ITEMIZED DEDUCTIONS
NOT TO RESULT FROM NET CAPITAL GAIN.—
(1)(A) Subparagraphs (A) and (B) of section
151(d)(3) (relating to phaseout of exemption
amount) are each amended by inserting ‘‘modified’’
before ‘‘adjusted gross income’’.
(B) Paragraph (3) of section 151(d) of such
Code is amended by redesignating subparagraphs
(D) and (E) as subparagraphs (E) and (F), respec-
tively, and by inserting after subparagraph (C) the
following new subparagraph:
‘‘(D) MODIFIED
ADJUSTED
GROSS
IN-
COME.—For purposes of this paragraph, the
term ‘modified adjusted gross income’ means
adjusted gross income reduced by the net cap-
ital gain.’’
(2) Subsection (a) of section 68 (relating to
overall limitation on itemized deductions) is amend-
ed by inserting ‘‘(reduced by the net capital gain)’’
after ‘‘adjusted gross income’’.
(c) TECHNICAL AMENDMENTS.—
(1) Paragraph (1) of section 170(e) is amended
by striking ‘‘the amount of gain’’ in the material fol-
lowing subparagraph (B)(ii) and inserting ‘‘13/28
(19/34 in the case of a corporation) of the amount
of gain’’.
(2)(A) 
The 
second 
sentence 
of 
section
7518(g)(6)(A) is amended by striking ‘‘28 percent
(34 percent in the case of a corporation)’’ and in-
serting ‘‘15 percent’’.
(B) 
The 
second 
sentence 
of 
section
607(h)(6)(A) of the Merchant Marine Act, 1936, is
amended by striking ‘‘28 percent (34 percent in the
case of a corporation)’’ and inserting ‘‘15 percent’’.
SEC. 202. REDUCTION IN CORPORATE CAPITAL GAINS
RATE.
(a) GENERAL RULE.—Section 1201 (relating to al-
ternative tax for corporations) is amended by striking sub-
section (a) and inserting the following:
‘‘(a) GENERAL RULE.—If for any taxable year a cor-
poration has a net capital gain, then, in lieu of the tax
imposed by section 11, 511, or 831(a) (whichever applies),
there is hereby imposed a tax (if such tax is less than
the tax imposed by such section) which shall consist of
the sum of—
‘‘(1) a tax computed on the taxable income re-
duced by the net capital gain, at the same rates and
in the same manner as if this subsection had not
been enacted, plus
‘‘(2) a tax of 15 percent of the net capital
gain.’’
(b) TECHNICAL AMENDMENTS.—
(1) Clause (iii) of section 852(b)(3)(D) is
amended by striking ‘‘66 percent’’ and inserting ‘‘85
percent’’.
(2) Paragraphs (1) and (2) of section 1445(e)
are each amended by striking ‘‘34 percent’’ and in-
serting ‘‘15 percent’’.
SEC. 203. REDUCTION OF MINIMUM TAX RATE ON CAPITAL
GAINS.
Subparagraph (A) of section 55(b)(1) (relating to
tentative minimum tax) is amended to read as follows:
‘‘(A) the sum of—
‘‘(i) 15 percent of the lesser of—
‘‘(I) the net capital gain (deter-
mined with the adjustments provided
in this part), or
‘‘(II) so much of the alternative
minimum taxable income for the tax-
able year as exceeds the exemption
amount, plus
‘‘(ii) 20 percent (24 percent in the
case of a taxpayer other than a corpora-
tion) of the amount (if any) by which the
excess referred to in clause (i)(II) exceeds
the net capital gain (as so determined), re-
duced by’’.
SEC. 204. INDEXING OF CERTAIN ASSETS FOR PURPOSES
OF DETERMINING GAIN OR LOSS.
(a) IN GENERAL.—Part II of subchapter O of chap-
ter 1 (relating to basis rules of general application) is
amended by inserting after section 1021 the following new
section:
‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS FOR PURPOSES
OF DETERMINING GAIN OR LOSS.
‘‘(a) GENERAL RULE.—
‘‘(1) INDEXED
BASIS
SUBSTITUTED
FOR
AD-
JUSTED BASIS.—Except as provided in paragraph
(2), if an indexed asset which has been held for
more than 1 year is sold or otherwise disposed of,
for purposes of this title the indexed basis of the
asset shall be substituted for its adjusted basis.
‘‘(2) EXCEPTION
FOR
DEPRECIATION, ETC.—
The deduction for depreciation, depletion, and amor-
tization shall be determined without regard to the
application of paragraph (1) to the taxpayer or any
other person.
‘‘(b) INDEXED ASSET.—
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the term ‘indexed asset’ means—
‘‘(A) stock in a corporation, and
‘‘(B) tangible property (or any interest
therein), which is a capital asset of property
used in the trade or business (as defined in sec-
tion 1231(b)).
‘‘(2) CERTAIN
PROPERTY
EXCLUDED.—For
purposes of this section, the term ‘indexed asset’
does not include—
‘‘(A) CREDITOR’S INTEREST.—Any interest
in property which is in the nature of a credi-
tor’s interest.
‘‘(B) OPTIONS.—Any option or other right
to acquire an interest in property.
‘‘(C) NET LEASE PROPERTY.—In the case
of a lessor, net lease property (within the mean-
ing of subsection (h)(1)).
‘‘(D) CERTAIN PREFERRED STOCK.—Stock
which is fixed and preferred as to dividends and
does not participate in corporate growth to any
significant extent.
‘‘(E) STOCK IN CERTAIN CORPORATIONS.—
Stock in—
‘‘(i) an S corporation (within the
meaning of section 1361),
‘‘(ii) a personal holding company (as
defined in section 542), and
‘‘(iii) a foreign corporation.
‘‘(3) EXCEPTION FOR STOCK IN FOREIGN COR-
PORATION WHICH IS REGULARLY TRADED ON NA-
TIONAL OR REGIONAL EXCHANGE.—Clause (iii) of
paragraph (2)(E) shall not apply to stock in a for-
eign corporation the stock of which is listed on the
New York Stock Exchange, the American Stock Ex-
change, or any domestic regional exchange for which
quotations are published on a regular basis other
than—
‘‘(A) stock of a foreign investment com-
pany (within the meaning of section 1246(b)),
and
‘‘(B) stock in a foreign corporation held by
a United States person who meets the require-
ments of section 1248(a)(2).
‘‘(c) INDEXED BASIS.—For purposes of this sec-
tion—
‘‘(1) INDEXED BASIS.—The indexed basis for
any asset is—
‘‘(A) the adjusted basis of the asset, multi-
plied by
‘‘(B) the applicable inflation ratio.
‘‘(2) APPLICABLE INFLATION RATIO.—The ap-
plicable inflation ratio for any asset is the percent-
age arrived at by dividing—
‘‘(A) the gross national product deflator
for the calendar quarter in which the disposi-
tion takes place, by
‘‘(B) the gross national product deflator
for the calendar quarter in which the asset was
acquired by the taxpayer (or, if later, the cal-
endar quarter ending December 31, 1992).
The applicable inflation ratio shall not be taken into
account unless it is greater than 1. The applicable
inflation ratio for any asset shall be rounded to the
nearest one-tenth of 1 percent.
‘‘(3) GROSS NATIONAL PRODUCT DEFLATOR.—
The gross national product deflator for any calendar
quarter is the implicit price deflator for the gross
national product for such quarter (as shown in the
1st revision thereof).
‘‘(4) SECRETARY
TO
PUBLISH
TABLES.—The
Secretary shall publish tables specifying the applica-
ble inflation ratios for each calendar quarter.
‘‘(d) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) TREATMENT AS SEPARATE ASSET.—In the
case of any asset, the following shall be treated as
a separate asset:
‘‘(A) a substantial improvement to prop-
erty,
‘‘(B) in the case of stock of a corporation,
a substantial contribution to capital, and
‘‘(C) any other portion of an asset to the
extent that separate treatment of such portion
is appropriate to carry out the purposes of this
section.
‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS
THROUGHOUT HOLDING PERIOD.—
‘‘(A) IN GENERAL.—The applicable infla-
tion ratio shall be appropriately reduced for cal-
endar months at any time during which the
asset was not an indexed asset.
‘‘(B) CERTAIN
SHORT
SALES.—For pur-
poses of applying subparagraph (A), an asset
shall be treated as not an indexed asset for any
short sale period during which the taxpayer or
the taxpayer’s spouse sells short property sub-
stantially identical to the asset. For purposes of
the preceding sentence, the short sale period be-
gins on the day after the substantially identical
property is sold and ends on the closing date
for the sale.
‘‘(3) TREATMENT
OF
CERTAIN
DISTRIBU-
TIONS.—A distribution with respect to stock in a
corporation which is not a dividend shall be treated
as a disposition.
‘‘(4) SECTION
CANNOT
INCREASE
ORDINARY
LOSS.—To the extent that (but for this paragraph)
this section would create or increase a net ordinary
loss to which section 1231(a)(2) applies or an ordi-
nary loss to which any other provision of this title
applies, such provision shall not apply. The taxpayer
shall be treated as having a long-term capital loss in
an amount equal to the amount of the ordinary loss
to which the preceding sentence applies.
‘‘(5) ACQUISITION
DATE
WHERE
THERE
HAS
BEEN
PRIOR
APPLICATION
OF
SUBSECTION
(a)(1)
WITH RESPECT TO THE TAXPAYER.—If there has
been a prior application of subsection (a)(1) to an
asset while such asset was held by the taxpayer, the
date of acquisition of such asset by the taxpayer
shall be treated as not earlier than the date of the
most recent such prior application.
‘‘(6) COLLAPSIBLE CORPORATIONS.—The appli-
cation of section 341(a) (relating to collapsible cor-
porations) shall be determined without regard to this
section.
‘‘(e) CERTAIN CONDUIT ENTITIES.—
‘‘(1) REGULATED
INVESTMENT
COMPANIES;
REAL ESTATE INVESTMENT TRUSTS; COMMON TRUST
FUNDS.—
‘‘(A) IN GENERAL.—Stock in a qualified
investment entity shall be an indexed asset for
any calendar month in the same ratio as the
fair market value of the assets held by such en-
tity at the close of such month which are in-
dexed assets bears to the fair market value of
all assets of such entity at the close of such
month.
‘‘(B) RATIO OF 90 PERCENT OR MORE.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 90 percent or more, such
ratio for such month shall be 100 percent.
‘‘(C) RATIO OF 10 PERCENT OR LESS.—If
the ratio for any calendar month determined
under subparagraph (A) would (but for this
subparagraph) be 10 percent or less, such ratio
for such month shall be zero.
‘‘(D) VALUATION OF ASSETS IN CASE OF
REAL ESTATE INVESTMENT TRUSTS.—Nothing
in this paragraph shall require a real estate in-
vestment trust to value its assets more fre-
quently than once each 36 months (except
where such trust ceases to exist). The ratio
under subparagraph (A) for any calendar
month for which there is no valuation shall be
the trustee’s good faith judgment as to such
valuation.
‘‘(E) QUALIFIED INVESTMENT ENTITY.—
For purposes of this paragraph, the term
‘qualified investment entity’ means—
‘‘(i) a regulated investment company
(within the meaning of section 851),
‘‘(ii) a real estate investment trust
(within the meaning of section 856), and
‘‘(iii) a common trust fund (within the
meaning of section 584).
‘‘(2) PARTNERSHIPS.—In the case of a partner-
ship, the adjustment made under subsection (a) at
the partnership level shall be passed through to the
partners.
‘‘(3) SUBCHAPTER
S
CORPORATIONS.—In the
case of an electing small business corporation, the
adjustment under subsection (a) at the corporate
level shall be passed through to the shareholders.
‘‘(f) DISPOSITIONS BETWEEN RELATED PERSONS.—
‘‘(1) IN GENERAL.—This section shall not apply
to any sale or other disposition of property between
related persons except to the extent that the basis
of such property in the hands of the transferee is a
substituted basis.
‘‘(2) RELATED PERSONS DEFINED.—For pur-
poses of this section, the term ‘related persons’
means—
‘‘(A) persons bearing a relationship set
forth in section 267(b), and
‘‘(B) persons treated as single employer
under subsection (b) or (c) of section 414.
‘‘(g) TRANSFERS TO INCREASE INDEXING ADJUST-
MENT OR DEPRECIATION ALLOWANCE.—If any person
transfers cash, debt, or any other property to another per-
son and the principal purpose of such transfer is—
‘‘(1) to secure or increase an adjustment under
subsection (a), or
‘‘(2) to increase (by reason of an adjustment
under subsection (a)) a deduction for depreciation,
depletion, or amortization,
the Secretary may disallow part or all of such adjustment
or increase.
‘‘(h) DEFINITIONS.—For purposes of this section—
‘‘(1) NET
LEASE
PROPERTY
DEFINED.—The
term ‘net lease property’ means leased real property
where—
‘‘(A) the term of the lease (taking into ac-
count options to renew) was 50 percent or more
of the useful life of the property, and
‘‘(B) for the period of the lease, the sum
of the deductions with respect to such property
which are allowable to the lessor solely by rea-
son of section 162 (other than rents and reim-
bursed amounts with respect to such property)
is 15 percent or less of the rental income pro-
duced by such property.
‘‘(2) STOCK INCLUDES INTEREST IN COMMON
TRUST FUND.—The term ‘stock in a corporation’ in-
cludes any interest in a common trust fund (as de-
fined in section 584(a)).
‘‘(i) REGULATIONS.—The Secretary shall prescribe
such regulations as may be necessary or appropriate to
carry out the purposes of this section.’’
(b) CLERICAL AMENDMENT.—The table of sections
for part II of subchapter O of such chapter 1 is amended
by inserting after the item relating to section 1021 the
following new item:
‘‘Sec. 1022. Indexing of certain assets for purposes of determining
gain or loss.’’
(c) ADJUSTMENT TO APPLY FOR PURPOSES OF DE-
TERMINING EARNINGS AND PROFITS.—Subsection (f) of
section 312 (relating to effect on earnings and profits of
gain or loss and of receipt of tax-free distributions) is
amended by adding at the end the following new para-
graph:
‘‘(3) EFFECT ON EARNINGS AND PROFITS OF
INDEXED BASIS.—
‘‘For substitution of indexed basis for adjusted
basis in the case of the disposition of certain assets
after December 31, 1992, see section 1022(a)(1).’’
SEC. 205. INDEXING OF LIMITATION ON CAPITAL LOSSES
OF INDIVIDUALS.
Section 1211 (relating to limitation on capital losses)
is amended by adding at the end the following new sub-
section:
‘‘(c) 
INDEXATION
OF
LIMITATION
ON
NONCORPORATE TAXPAYERS.—
‘‘(1) IN GENERAL.—In the case of any taxable
year beginning in a calendar year after 1992, the
$3,000 and $1,500 amounts under subsection (b)(1)
shall be increased by an amount equal to—
‘‘(A) such dollar amount, multiplied by
‘‘(B) the applicable inflation adjustment
for the calendar year in which the taxable year
begins.
‘‘(2) APPLICABLE INFLATION ADJUSTMENT.—
For purposes of paragraph (1), the applicable infla-
tion adjustment for any calendar year is the percent-
age (if any) by which—
‘‘(A) the gross national product deflator
for the last calendar quarter of the preceding
calendar year, exceeds
‘‘(B) the gross national product deflator
for the last calendar quarter of 1991.
For purposes of this paragraph, the term ‘gross na-
tional product deflator’ has the meaning given such
term by section 1022(c)(3).’’
SEC. 206. EFFECTIVE DATES.
(a) IN GENERAL.—Except as provided in subsection
(b), the amendments made by this title shall apply to sales
or exchanges occurring after December 31, 1992.
(b) INDEXING OF LOSS LIMITATION.—The amend-
ment made by section 205 shall apply to taxable years be-
ginning after December 31, 1992
TITLE III—INCENTIVES FOR RE-
DEVELOPMENT 
OF 
CLOSED
MILITARY BASES
SEC. 301. TAX INCENTIVES FOR INVESTMENTS ON CLOSED
MILITARY BASES.
(a) GENERAL RULE.—Chapter 1 (relating to normal
taxes and surtaxes) is amended by inserting after sub-
chapter T the following new subchapter:
‘‘Subchapter U—Investment Incentives for Closed
Military Bases
‘‘Sec. 1391. Exclusion of gain from closed military base invest-
ments.
‘‘Sec. 1392. Modification of passive loss rules.
‘‘Sec. 1393. Additional incentives.
‘‘Sec. 1394. Closed base business defined.
‘‘Sec. 1395. Qualified closed military base defined.
‘‘Sec. 1396. Regulations.
‘‘SEC. 1391. EXCLUSION OF GAIN FROM CLOSED MILITARY
BASE INVESTMENTS.
‘‘(a) GENERAL RULE.—Gross income shall not in-
clude 100 percent of any qualified capital gain recognized
on the sale or exchange of a qualified closed base asset
held for more than 5 years.
‘‘(b) QUALIFIED CLOSED BASE ASSET.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—The term ‘qualified closed
base asset’ means—
‘‘(A) any qualified stock,
‘‘(B) any qualified business property, and
‘‘(C) any qualified partnership interest.
Such term shall not include any property acquired
by the taxpayer after November 30, 1997.
‘‘(2) QUALIFIED STOCK.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘qualified stock’
means any stock in a domestic corporation if—
‘‘(i) such stock is acquired by the tax-
payer on original issue from the corpora-
tion solely in exchange for cash,
‘‘(ii) as of the time such stock was is-
sued, such corporation was a closed base
business (or, in the case of a new corpora-
tion, such corporation was being organized
for purposes of being a closed base busi-
ness), and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such stock,
such corporation qualified as a closed base
business.
‘‘(B) REDEMPTIONS.—The term ‘qualified
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 attempt to
avoid the purposes of this section.
‘‘(3) QUALIFIED BUSINESS PROPERTY.—
‘‘(A) IN
GENERAL.—The term ‘qualified
business property’ means any 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 closure of the military base occurred,
‘‘(ii) the original use of such property
on a qualified closed military base com-
mences with the taxpayer, and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such prop-
erty, substantially all of the use of such
property was within a qualified closed mili-
tary base and in a closed base business of
the taxpayer.
‘‘(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 closure of the
military base occurred, 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 tax-
payer, or (ii) $5,000.
‘‘(C) LIMITATION
ON
LAND.—The term
‘qualified business property’ shall not include
land which is not an integral part of a qualified
business.
‘‘(4) QUALIFIED
PARTNERSHIP
INTEREST.—
The term ‘qualified 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 closed base busi-
ness (or, in the case of a new partnership, such
partnership was being organized for purposes of
being a closed base business), and
‘‘(C) during substantially all of the tax-
payer’s holding period for such interest, such
partnership qualified as a closed base business.
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 closed base asset’ in-
cludes any property which would be a qualified
closed base asset but for paragraph (2)(A)(i),
(3)(A)(ii), or (4)(A) in the hands of the taxpayer if
such property was a qualified closed base asset in
the hands of any prior holder.
‘‘(6) 10-YEAR SAFE HARBOR.—If any property
ceases to be a qualified closed base asset 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 subsection (a) applies on any sale or ex-
change of such property shall not exceed the amount
which would be qualified capital gain had such prop-
erty been sold on the date of such cessation.
‘‘(c) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) QUALIFIED
CAPITAL
GAIN.—Except as
otherwise provided in this subsection, the term
‘qualified capital gain’ means any long-term capital
gain.
‘‘(2) CERTAIN GAIN ON REAL PROPERTY NOT
QUALIFIED.—The term ‘qualified capital gain’ shall
not include any gain which would be treated as ordi-
nary income under section 1250 if section 1250 ap-
plied to all depreciation rather than the additional
depreciation.
‘‘(d) 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 closed base business during sub-
stantially all of the period the taxpayer held such in-
terest) for more than 5 years shall be treated as
gain described in subsection (a) to the extent such
gain is attributable to amounts which would be
qualified capital gain on qualified closed base assets
(determined as if such assets 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
taxpayer held such interest. A rule similar to the
rule of paragraph (2)(C) shall apply for purposes of
the preceding sentence.
‘‘(2) INCOME INCLUSIONS.—
‘‘(A) IN GENERAL.—Any amount included
in income by reason of holding an interest in a
pass-thru entity (other than an entity which
was a closed base business during substantially
all of the period the taxpayer held the interest
to which such inclusion relates) shall be treated
as gain described in subsection (a) if such
amount meets the requirements of subpara-
graph (B).
‘‘(B) REQUIREMENTS.—An amount meets
the requirements of this subparagraph if—
‘‘(i) such amount is attributable to
qualified capital gain recognized on the
sale or exchange by the pass-thru entity of
property which is a qualified closed base
asset in the hands of such entity and
which was held by such entity for the pe-
riod required under subsection (a), and
‘‘(ii) such amount is includible in the
gross income of the taxpayer by reason of
the holding of an interest in such entity
which was held by the taxpayer on the date
on which such pass-thru entity acquired
such asset and at all times thereafter be-
fore the disposition of such asset by such
pass-thru entity.
‘‘(C) LIMITATION
BASED
ON
INTEREST
ORIGINALLY
HELD
BY
TAXPAYER.—Subpara-
graph (A) shall not apply to any amount to the
extent such amount exceeds the amount to
which subparagraph (A) would have applied if
such amount were determined by reference to
the interest the taxpayer held in the pass-thru
entity on the date the qualified zone asset was
acquired.
‘‘(3) PASS-THRU ENTITY.—For purposes of this
subsection, the term ‘pass-thru entity’ means—
‘‘(A) any partnership,
‘‘(B) any S corporation,
‘‘(C) any regulated investment company,
and
‘‘(D) any common trust fund.
‘‘(e) SALES
AND EXCHANGES
OF INTERESTS
IN
PARTNERSHIPS
AND
S CORPORATIONS
WHICH
ARE
CLOSED BASE BUSINESSES.—In the case of the sale or
exchange of an interest in a partnership, or of stock in
an S corporation, which was a closed base business during
substantially all of the period the taxpayer held such inter-
est or stock, the amount of qualified capital gain shall be
determined without regard to—
‘‘(1) any intangible, and any land, which is not
an integral part of any qualified business, and
‘‘(2) gain attributable to periods before the clo-
sure of the military base.
‘‘(f) CERTAIN TAX-FREE AND OTHER TRANSFERS.—
For purposes of this section—
‘‘(1) IN GENERAL.—In the case of a transfer of
a qualified closed base asset to which this subsection
applies, the transferee shall be treated as—
‘‘(A) having acquired such asset in the
same manner as the transferor, and
‘‘(B) having held such asset during any
continuous period immediately preceding the
transfer during which it was held (or treated as
held under this subsection) by the transferor.
‘‘(2) TRANSFERS TO WHICH SUBSECTION AP-
PLIES.—This subsection shall apply to any trans-
fer—
‘‘(A) by gift,
‘‘(B) at death, or
‘‘(C) from a partnership to a partner
thereof of a qualified closed base asset with re-
spect to which the requirements of subsection
(d)(2) are met at the time of the transfer (with-
out regard to the 5-year holding requirement).
‘‘(3) CERTAIN
RULES
MADE
APPLICABLE.—
Rules similar to the rules of section 1244(d)(2) shall
apply for purposes of this section.
‘‘(g) CERTAIN
BUSINESSES
TREATED
AS
NOT
QUALIFIED BUSINESSES.—For purposes of this section,
the term ‘closed base business’ has the meaning given such
term by section 1394; except that, in applying section
1394 for such purposes, the term ‘qualified business’ shall
not include any trade or business of producing property
of a character subject to the allowance for depletion under
section 611.
‘‘SEC. 1392. MODIFICATION OF PASSIVE LOSS RULES.
‘‘(a) IN GENERAL.—If this section applies to any tax-
payer for a taxable year—
‘‘(1) paragraph (2) of section 469(c) shall not
apply to any qualified rental real estate activity of
such taxpayer for such taxable year, and
‘‘(2) this section shall be applied as if each in-
terest of the taxpayer in rental real estate described
in subsection (b) were a separate activity.
Notwithstanding paragraph (2), a taxpayer may elect to
treat all interests in rental real estate described in sub-
section (b) as one activity. Nothing in the preceding provi-
sions of this subsection shall be construed as affecting the
determination of whether the taxpayer materially partici-
pates with respect to any interest in a limited partnership
as a limited partner.
‘‘(b) QUALIFIED RENTAL REAL ESTATE ACTIVITY.—
For purposes of this section, the term ‘qualified rental real
estate activity’ means any rental real estate activity with
respect to any real property which—
‘‘(1) is located within a qualified closed base,
and
‘‘(2) is acquired by the taxpayer after the date
on which such base was closed and before December
1, 1998.
‘‘(c) TAXPAYERS TO WHOM SECTION APPLIES.—
This section shall apply to a taxpayer for a taxable year
if more than one-half of the personal services performed
in trades or businesses by the taxpayer during such tax-
able year are performed in real property trades or busi-
nesses in which the taxpayer materially participates.
‘‘(d) REAL PROPERTY TRADE OR BUSINESS.—For
purposes of this section, the term ‘real property trade or
business’ means any real property development, redevelop-
ment, construction, reconstruction, acquisition, conver-
sion, rental, operation, management, leasing, or brokerage
trade or business.
‘‘(e) SPECIAL RULES FOR SUBSECTION (c).—
‘‘(1) CLOSELY HELD C CORPORATIONS.—In the
case of a closely held C corporation, the require-
ments of subsection (c) shall be treated as met for
any taxable year if more than 50 percent of the
gross receipts of such corporation for such taxable
year are derived from real property trades or busi-
nesses in which the corporation materially partici-
pates.
‘‘(2) PERSONAL SERVICES AS AN EMPLOYEE.—
For purposes of subsection (c), personal services
performed as an employee shall not be treated as
performed in real property trades or businesses. The
preceding sentence shall not apply if such employee
is a 5-percent owner (as defined in section
416(i)(1)(B)) in the employer.
‘‘SEC. 1393. ADDITIONAL INCENTIVES.
‘‘(a) INCREASE
IN EXPENSING UNDER SECTION
179.—In the case of a closed base business, section
179(b)(1) shall be applied by substituting ‘$50,000’ for
‘$10,000’; except that any increase under this subsection
in such dollar amount for any taxable year shall not exceed
$250,000 reduced by the aggregate additional amount al-
lowed as a deduction under section 179 for prior taxable
years by reason of this subsection. The preceding sentence
shall not apply to property acquired after November 30,
1997.
‘‘(b) ORDINARY LOSS TREATMENT
FOR CERTAIN
PROPERTY.—
‘‘(1) IN
GENERAL.—Loss on any qualified
closed base asset (as defined in section 1391(b))
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 within
a qualified closed base,
‘‘(2) substantially all of the use of the tangible
property of such individual in such business (wheth-
er owned or leased) is within a qualified closed base,
‘‘(3) substantially all of the intangible property
of such business is used in, and exclusively related
to, the active conduct of such business,
‘‘(4) substantially all of the services performed
for such individual in such business by employees of
such business are performed within a qualified
closed base,
‘‘(5) 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
‘‘(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 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.
‘‘(2) RENTAL OF REAL PROPERTY.—The rental
to others of real property located in a qualified
closed base shall be treated as a qualified business
if and only if—
‘‘(A) in the case of real property which is
not residential rental property (as defined in
section 168(e)(2)), the lessee is a closed base
business, or
‘‘(B) in the case of residential rental prop-
erty (as so defined)—
‘‘(i) such property was originally
placed in service after the date the base
was closed, or
‘‘(ii) such property is rehabilitated
after such date in a rehabilitation which
meets requirements based on the principles
of section 42(e)(3).
‘‘(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 closed base businesses or by residents
of a qualified closed base.
‘‘(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
‘‘(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 sections 52 (a) and (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
‘‘(2) debt instruments described in section
1221(4).
‘‘SEC. 1395. QUALIFIED CLOSED MILITARY BASE DEFINED.
For purposes of this subchapter, the term ‘qualified
closed military base’ means any military installation if—
‘‘(1) such installation was closed pursuant to
the Defense Base Closure and Realignment Act of
1990 (10 U.S.C. 2687 note), and
‘‘(2) the Secretary of Defense certifies to the
Secretary that at least 1,000 workers on such instal-
lation or in surrounding areas were displaced by rea-
son of such closure.
‘‘SEC. 1396. REGULATIONS.
‘‘The Secretary shall prescribe such regulations as
may be necessary or appropriate to carry out the purposes
of this subchapter, including—
‘‘(1) regulations limiting the benefit of this part
in circumstances where such benefits, in combination
with benefits provided under other Federal pro-
grams, would result in an activity being 100 percent
or more subsidized by the Federal Government,
‘‘(2) regulations preventing abuse of the provi-
sions of this part, and
‘‘(3) regulations dealing with inadvertent fail-
ures of entities to be closed base 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. Investment incentives for closed military bases.’’
SEC. 302. SPECIAL RULES FOR REDEVELOPMENT BONDS
PROVIDING FINANCING FOR CLOSED MILI-
TARY BASES.
(a) IN GENERAL.—Subsection (c) of section 144 (re-
lating to qualified redevelopment bonds) is amended by
adding at the end thereof the following new paragraph:
‘‘(9) SPECIAL
RULES
FOR
TAX
ENTERPRISE
ZONES.—For purposes of this subsection, in the case
of bonds issued during the period beginning on the
date a qualified closed military base is closed and
ending on November 30, 1997—
‘‘(A) 
TREATMENT
AS
DESIGNATED
BLIGHTED AREA.—Such area shall be treated
as a designated blighted area. Any area des-
ignated by reason of the preceding sentence
shall not be taken into account in applying
paragraph (4)(C).
‘‘(B) SECURITY FOR BONDS.—The require-
ments of paragraph (2)(B) shall be treated as
met with respect to a financed area that is
within a qualified closed military base if the
general purpose governmental unit guarantees
the payment of principal and interest on the
issue either directly or through insurance, a let-
ter of credit, or a similar agreement but only if
the cost thereof is financed other than with pro-
ceeds of any tax-exempt private activity bond or
earnings on such proceeds.
‘‘(C) EXPANSION
OF
REDEVELOPMENT
PURPOSES.—
‘‘(i) IN GENERAL.—The term ‘redevel-
opment purposes’ includes the making of
loans to any closed base business (as de-
fined in section 1394) for—
‘‘(I) the acquisition of land with-
in the qualified closed base for use in
such business, or
‘‘(II) the acquisition, construc-
tion, reconstruction, or improvement
by such business of land, or property
of a character subject to the allowance
for depreciation, for use in such busi-
ness.
‘‘(ii) $2,500,000 LIMITATION.—Clause
(i) shall apply to loans made to any closed
base business only if the aggregate prin-
cipal amount of such loans (whether or not
financed by the same issue) does not ex-
ceed $2,500,000. For purposes of the pre-
ceding sentence, all persons treated as a
single employer under subsection (a) or (b)
of section 52 shall be treated as 1 person.
‘‘(iii) LOANS MUST BE MADE WITHIN
18 MONTHS AFTER BONDS ISSUED; REPAY-
MENTS
MUST
BE
USED
FOR
REDEMP-
TIONS.—Clause (i) shall apply only to
loans—
‘‘(I) made during the 18-month
period beginning on the date of issu-
ance of the issue financing such loan,
‘‘(II) repayments of principal on
which are used not later than the
close of the 1st semiannual period be-
ginning after the date the repayment
is received to redeem bonds which are
part of such issue, and
‘‘(III) the effective rate of inter-
est on which does not exceed the yield
on the issue by more than 0.125 per-
centage points.
In determining the effective rate of interest
for purposes of subclause (III), there shall
be taken into account all fees, charges, and
other amounts (other than amounts for
any credit report) borne by the borrower
which are attributable to the loan or the
bond issue.
‘‘(iv) HOUSING LOANS EXCLUDED.—
Clause (i) shall not apply to any loan to be
used directly or indirectly to provide resi-
dential real property.
‘‘(v) COORDINATION
WITH
RESTRIC-
TIONS ON USE OF PROCEEDS.—Paragraphs
(6) and (8) shall apply notwithstanding
clause (i); except that in applying para-
graph (6), subsection (a)(8) shall be treat-
ed as not including a reference to a facility
the primary purpose of which is retail food
services.
‘‘(D) ISSUER TO DESIGNATE AMOUNT OF
ISSUE TO BE USED FOR LOANS.—Subparagraph
(C) shall not apply with respect to any issue
unless the issuer designates before the date of
issuance the amount of the proceeds of such
issue which is to be used for loans to which
subparagraph (C)(i) applies. If such amount ex-
ceeds the principal amount of loans to which
subparagraph (C)(i) applies, an amount of pro-
ceeds equal to such excess shall be used not
later than the close of the 1st semiannual pe-
riod beginning after the close of the 18-month
period referred to in subparagraph (C)(iii) to
redeem bonds which are part of such issue.
‘‘(E) DE MINIMIS REDEMPTIONS NOT RE-
QUIRED.—Subparagraphs (C)(iii) and (D) shall
not be construed to require amounts of less
than $250,000 to be used to redeem bonds. The
Secretary may by regulation treat related issues
as 1 issue for purposes of the preceding sen-
tence.
‘‘(F) PENALTY.—
‘‘(i) IN
GENERAL.—In the case of
property with respect to which financing
was provided under this paragraph, if at
any time during the 10-period beginning
on the date such financing was provided—
‘‘(I) such property ceases to be in
use in a closed base business (as de-
fined in section 1394), or
‘‘(II) substantially all of the use
of such property ceases to be in a
qualified closed base,
there is hereby imposed on the trade or
business to which such financing was pro-
vided a penalty equal to 1.25 percent of so
much of the face amount of all financing
provided (whether or not from the same
issue and whether or not such issue is out-
standing) before such cessation to the
trade or business using such property.
‘‘(ii) NO
PENALTY
BY
REASON
OF
ZONE TERMINATION.—No penalty shall be
imposed under clause (i) solely by reason
of the termination of the treatment of an
area as a qualified closed base.
‘‘(iii) 
EXCEPTION
FOR
BANK-
RUPTCY.—Clause (i) shall not apply to any
cessation resulting from bankruptcy.’’
(b) VOLUME CAP ONLY CHARGED WITH 50 PER-
CENT
OF TAX ENTERPRISE ZONE REDEVELOPMENT
BONDS.—Subsection (g) of section 146 is amended by
striking ‘‘and’’ at the end of paragraph (3), by striking
the period at the end of paragraph (4) and inserting ‘‘,
and’’, and by adding at the end thereof the following new
paragraph:
‘‘(5) 50 percent of any qualified redevelopment
bond issued as part of an issue 95 percent or more
of the net proceeds of which are to be used for 1 or
more redevelopment purposes (as defined in section
144(c)) in a qualified closed base.’’
(c) PENALTIES FOR LOANS MADE TO BUSINESSES
THAT CEASE TO BE ENTERPRISE ZONE BUSINESSES,
ETC.—Subsection (b) of section 150 is amended by adding
at the end thereof the following new paragraph:
‘‘(6) 
ENTERPRISE
ZONE
REDEVELOPMENT
BONDS.—In the case of any financing provided by
an issue the interest on which is exempt from tax by
reason of section 144(c)(9)—
‘‘(A) IN GENERAL.—No deduction shall be
allowed under this chapter for interest on such
financing which accrues during the period be-
ginning on the first day of the calendar year
which includes the date on which—
‘‘(i) the trade or business to which the
financing was provided ceases to be a
closed base business (as defined in section
1394
‘‘(ii) substantially all of the use of the
property (determined in accordance with
subchapter U) with respect to which the fi-
nancing was provided ceases to be in a
qualified closed base.
The preceding sentence shall not apply solely by
reason of the treatment of an area as a quali-
fied closed base.