I
103D CONGRESS
1ST SESSION
H. R. 1958
To amend the Internal Revenue Code of 1986 to provide tax incentives
with respect to enterprise zones and areas affected by military base
closings or reductions in military base employment.
IN THE HOUSE OF REPRESENTATIVES
MAY 4, 1993
Mr. CLYBURN (for himself, Mrs. MEEK, Mr. HASTINGS, and Mr. FIELDS of
Louisiana) introduced the following bill; which was referred to the Com-
mittee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
tax incentives with respect to enterprise zones and areas
affected by military base closings or reductions in mili-
tary base employment.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
TITLE I—PROVISIONS RELATING
TO DISTRESSED URBAN AND
RURAL AREAS
SEC. 101. STATEMENT OF PURPOSE.
It is the purpose of this title to establish a demonstra-
tion program of providing incentives for the creation of
tax enterprise zones in order—
(1) to revitalize economically and physically dis-
tressed areas, primarily by encouraging the forma-
tion of new businesses and the retention and expan-
sion of existing businesses,
(2) to promote meaningful employment for tax
enterprise zone residents, and
(3) to encourage individuals to reside in the tax
enterprise zones in which they are employed.
Subtitle A—Designation and Tax
Incentives
SEC. 102. DESIGNATION AND TREATMENT OF URBAN TAX
ENTERPRISE ZONES AND RURAL DEVELOP-
MENT INVESTMENT ZONES.
(a) IN GENERAL.—Chapter 1 (relating to normal
taxes and surtaxes) is amended by inserting after sub-
chapter T the following new subchapter:
‘‘Subchapter U—Designation and Treatment
of Tax Enterprise Zones
‘‘Part I. Designation of tax enterprise zones.
‘‘Part II. Incentives for tax enterprise zones.
‘‘PART I—DESIGNATION OF TAX ENTERPRISE
ZONES
‘‘Sec. 1391. Designation procedure.
‘‘Sec. 1392. Eligibility and selection criteria.
‘‘Sec. 1393. Definitions and special rules.
‘‘SEC. 1391. DESIGNATION PROCEDURE.
‘‘(a) IN GENERAL.—For purposes of this title, the
term ‘tax enterprise zone’ means any area which is, under
this part—
‘‘(1) nominated by 1 or more local governments
and the State in which it is located for designation
as a tax enterprise zone, and
‘‘(2) designated by—
‘‘(A) the Secretary of Housing and Urban
Development in the case of an urban tax enter-
prise zone, or
‘‘(B) the Secretary of Agriculture, in con-
sultation with the Secretary of Commerce, in
the case of a rural development investment
zone.
‘‘(b) NUMBER OF DESIGNATIONS.—
‘‘(1) AGGREGATE LIMIT.—The appropriate Sec-
retaries may designate in the aggregate 50 nomi-
nated areas as tax enterprise zones under this sec-
tion, subject to the availability of eligible nominated
areas. Not more than 25 urban tax enterprise zones
may be designated and not more than 25 rural de-
velopment investment zones may be designated.
Such designations may be made only during cal-
endar years after 1991 and before 1997.
‘‘(2) ANNUAL LIMITS.—
‘‘(A) URBAN TAX ENTERPRISE ZONES.—
The number of urban tax enterprise zones des-
ignated under paragraph (1)—
‘‘(i) before 1994 shall not exceed 8,
‘‘(ii) before 1995 shall not exceed 15,
and
‘‘(iii) before 1996 shall not exceed 21.
‘‘(B) RURAL DEVELOPMENT INVESTMENT
ZONES.—The number of rural development in-
vestment zones designated under paragraph
(1)—
‘‘(i) before 1994 shall not exceed 8,
‘‘(ii) before 1995 shall not exceed 15,
and
‘‘(iii) before 1996 shall not exceed 21.
‘‘(3) ADVANCE
DESIGNATIONS
PERMITTED.—
For purposes of this subchapter, a designation dur-
ing any calendar year shall be treated as made on
January 1 of the following calendar year if the ap-
propriate Secretary, in making such designation,
specifies
that
such
designation
is
effective
as
of such January 1.
‘‘(c) LIMITATIONS ON DESIGNATIONS.—The appro-
priate Secretary may not make any designation under sub-
section (a) unless—
‘‘(1) the local governments and the State in
which the nominated area is located have the au-
thority—
‘‘(A) to nominate the area for designation
as a tax enterprise zone, and
‘‘(B) to provide assurances satisfactory to
the appropriate Secretary that the commit-
ments under section 1392(c) will be fulfilled,
‘‘(2) a nomination of the area is submitted
within a reasonable time before the calendar year for
which designation as a tax enterprise zone is sought
(or, if later, a reasonable time after the date of the
enactment of this subchapter),
‘‘(3) the appropriate Secretary determines that
any information furnished is reasonably accurate,
and
‘‘(4) the State and local governments certify
that no portion of the area nominated is already in-
cluded in a tax enterprise zone or in an area other-
wise nominated to be a tax enterprise zone.
‘‘(d) PERIOD FOR WHICH DESIGNATION IS IN EF-
FECT.—
‘‘(1) IN GENERAL.—Any designation of an area
as a tax enterprise zone shall remain in effect during
the period beginning on the date of the designation
and ending on the earliest of—
‘‘(A) December 31 of the 15th calendar
year following the calendar year in which such
date occurs,
‘‘(B) the termination date designated by
the State and local governments as provided for
in their nomination, or
‘‘(C) the date the appropriate Secretary re-
vokes the designation under paragraph (2).
‘‘(2) REVOCATION OF DESIGNATION.—
‘‘(A) IN GENERAL.—The appropriate Sec-
retary shall revoke the designation of an area
as a tax enterprise zone if such Secretary deter-
mines that the local government or the State in
which it is located—
‘‘(i) has modified the boundaries of
the area, or
‘‘(ii) is not complying substantially
with the State and local commitments pur-
suant to section 1392(c).
‘‘(B) APPLICABLE PROCEDURES.—A des-
ignation may be revoked by the appropriate
Secretary under subparagraph (A) only after a
hearing on the record involving officials of the
State or local government involved.
‘‘SEC. 1392. ELIGIBILITY AND SELECTION CRITERIA.
‘‘(a) IN GENERAL.—The appropriate Secretary may
make a designation of any nominated area under section
1391 only on the basis of the eligibility and selection cri-
teria set forth in this section.
‘‘(b) ELIGIBILITY CRITERIA.—
‘‘(1) URBAN TAX ENTERPRISE ZONES.—A nom-
inated area which is not a rural area shall be eligible
for designation under section 1391 only if it meets
the following criteria:
‘‘(A) POPULATION.—The nominated area
has a population (as determined by the most re-
cent census data available) of not less than
4,000.
‘‘(B) DISTRESS.—The nominated area is
one of pervasive poverty, unemployment, and
general distress.
‘‘(C) SIZE.—The nominated area—
‘‘(i) does not exceed 20 square miles,
‘‘(ii) has a boundary which is continu-
ous, or consists of not more than 3 non-
contiguous parcels within the same metro-
politan area,
‘‘(iii) is located entirely within 1
State, and
‘‘(iv) does not include any portion of
a central business district (as such term is
used for purposes of the most recent Cen-
sus of Retail Trade).
‘‘(D) UNEMPLOYMENT RATE.—The unem-
ployment rate (as determined by the appro-
priate available data) is not less than 1.5 times
the national unemployment rate.
‘‘(E) POVERTY
RATE.—The poverty rate
(as determined by the most recent census data
available) for not less than 90 percent of the
population census tracts (or where not tracted,
the equivalent county divisions as defined by
the Bureau of the Census for the purposes of
defining poverty areas) within the nominated
area is not less than 20 percent.
‘‘(F) COURSE OF ACTION.—There has been
adopted for the nominated area a course of ac-
tion which meets the requirements of subsection
(c).
‘‘(2) 
RURAL
DEVELOPMENT
INVESTMENT
ZONES.—A nominated area which is a rural area
shall be eligible for designation under section 1391
only if it meets the following criteria:
‘‘(A) POPULATION.—The nominated area
has a population (as determined by the most re-
cent census data available) of not less than
1,000.
‘‘(B) DISTRESS.—The nominated area is
one of general distress.
‘‘(C) SIZE.—The nominated area—
‘‘(i) does not exceed 10,000 square
miles,
‘‘(ii) consists of areas within not more
than 4 contiguous counties,
‘‘(iii) has a boundary which is contin-
uous, or consists of not more than 3 non-
contiguous parcels, and
‘‘(iv) is located entirely within 1
State.
‘‘(D) ADDITIONAL
CRITERIA.—Not less
than 2 of the following criteria:
‘‘(i) UNEMPLOYMENT RATE.—The cri-
terion set forth in paragraph (1)(D).
‘‘(ii) POVERTY
RATE.—The criterion
set forth in paragraph (1)(E).
‘‘(iii) JOB
LOSS.—The amount of
wages attributable to employment in the
area, and subject to tax under section
3301 during the preceding calendar year,
is not more than 95 percent of such wages
during the 5th preceding calendar year.
‘‘(iv) 
OUT-MIGRATION.—The 
popu-
lation of the area decreased (as determined
by the most recent census data available)
by 10 percent or more between 1980 and
1990.
‘‘(E) COURSE OF ACTION.—There has been
adopted for the nominated area a course of ac-
tion which meets the requirements of subsection
(c).
‘‘(3) AREAS WITHIN INDIAN RESERVATIONS IN-
ELIGIBLE.—A nominated area shall not be eligible
for designation under section 1391 if any portion of
such area is within an Indian reservation.
‘‘(c) REQUIRED STATE
AND LOCAL COURSE
OF
ACTION.—
‘‘(1) IN GENERAL.—No nominated area may be
designated as a tax enterprise zone unless the local
government and the State in which it is located
agree in writing that, during any period during
which the area is a tax enterprise zone, the govern-
ments will follow a specified course of action de-
signed to reduce the various burdens borne by em-
ployers or employees in the area.
‘‘(2) COURSE OF ACTION.—The course of action
under paragraph (1) may be implemented by both
governments and private nongovernmental entities,
may not be funded from proceeds of any Federal
program (other than discretionary proceeds), and
may include—
‘‘(A) a certification by the State insurance
commissioner (or similar State official) that
basic commercial property insurance of a type
comparable to that insurance generally in force
in urban or rural areas, whichever is applicable,
throughout the State is available to businesses
within the tax enterprise zone,
‘‘(B) a reduction of tax rates or fees apply-
ing within the tax enterprise zone,
‘‘(C) an increase in the level, or efficiency
of delivery, of local public services within the
tax enterprise zone,
‘‘(D) actions to reduce, remove, simplify,
or streamline government paperwork require-
ments applicable within the tax enterprise zone,
‘‘(E) the involvement in the program by
public authorities or private entities, organiza-
tions, neighborhood associations, and commu-
nity groups, particularly those within the nomi-
nated area, including a written commitment to
provide jobs and job training for, and technical,
financial, or other assistance to, employers, em-
ployees, and residents of the nominated area,
‘‘(F) the giving of special preference to
contractors owned and operated by members of
any socially and economically disadvantaged
group (within the meaning of section 8(a) of
the Small Business Act (15 U.S.C. 637(a)),
‘‘(G) the gift (or sale at below fair market
value) of surplus land in the tax enterprise zone
to neighborhood organizations agreeing to oper-
ate a business on the land,
‘‘(H) the establishment of a program
under which employers within the tax enterprise
zone may purchase health insurance for their
employees on a pooled basis,
‘‘(I) the establishment of a program to en-
courage local financial institutions to satisfy
their obligations under the Community Rein-
vestment Act of 1977 (12 U.S.C. 2901 et seq.)
by making loans to enterprise zone businesses,
with emphasis on startup and other small-busi-
ness concerns (as defined in section 3(a) of the
Small Business Act (15 U.S.C. 632(a)),
‘‘(J) the giving of special preference to
qualified low-income housing projects located in
tax enterprise zones, in the allocation of the
State housing credit ceiling applicable under
section 42, and
‘‘(K) the giving of special preference to fa-
cilities located in tax enterprise zones, in the al-
location of the State ceiling on private activity
bonds applicable under section 146.
‘‘(3) RECOGNITION
OF
PAST
EFFORTS.—In
evaluating courses of action agreed to by any State
or local government, the appropriate Secretary shall
take into account the past efforts of the State or
local government in reducing the various burdens
borne by employers and employees in the area in-
volved.
‘‘(4) PROHIBITION OF ASSISTANCE FOR BUSI-
NESS RELOCATIONS.—
‘‘(A) IN GENERAL.—The course of action
implemented under paragraph (1) may not in-
clude any action to assist any establishment in
relocating from 1 area to another area.
‘‘(B) EXCEPTION.—The limitation estab-
lished in subparagraph (A) shall not be con-
strued to prohibit assistance for the expansion
of an existing business entity through the estab-
lishment of a new branch, affiliate, or subsidi-
ary if—
‘‘(i) the establishment of the new
branch, affiliate, or subsidiary will not re-
sult in an increase in unemployment in the
area of original location or in any other
area where the existing business entity
conducts business operations, and
‘‘(ii) there is no reason to believe that
the new branch, affiliate, or subsidiary is
being established with the intention of clos-
ing down the operations of the existing
business entity in the area of its original
location or in any other area where the ex-
isting business entity conducts business op-
erations.
‘‘(d) SELECTION CRITERIA.—From among the nomi-
nated areas eligible for designation under subsection (b)
by the appropriate Secretary, such appropriate Secretary
shall make designations of tax enterprise zones on the
basis of the following factors (each of which is to be given
equal weight):
‘‘(1) STATE AND LOCAL COMMITMENTS.—The
strength and quality of the commitments which have
been promised as part of the course of action rel-
ative to the fiscal ability of the nominating State
and local governments.
‘‘(2) IMPLEMENTATION
OF
COURSE
OF
AC-
TION.—The effectiveness and enforceability of the
guarantees that the course of action will actually be
carried out, including the specificity with which the
commitments under paragraph (1) are described in
order that the applicable Secretary will be better
able 
to 
determine 
annually 
under 
section
1391(d)(2)(A)(ii) whether the commitments are
being carried out.
‘‘(3) PRIVATE
COMMITMENTS.—The level of
commitments by private entities of additional re-
sources and contributions to the economy of the
nominated area, including the creation of new or ex-
panded business activities.
‘‘(4) AVERAGE RANKINGS.—The average rank-
ing with respect to—
‘‘(A) the criteria set forth in subpara-
graphs (D) and (E) of subsection (b)(1), in the
case of an area which is not a rural area, or
‘‘(B) the 2 criteria set forth in subsection
(b)(2)(D) that give the area a higher average
ranking, in the case of a rural area.
‘‘(5) REVITALIZATION POTENTIAL.—The poten-
tial for the revitalization of the nominated area as
a result of zone designation, taking into account
particularly the number of jobs to be created and re-
tained.
‘‘SEC. 1393. DEFINITIONS AND SPECIAL RULES.
For purposes of this subchapter—
‘‘(1) URBAN
TAX
ENTERPRISE
ZONE.—The
term ‘urban tax enterprise zone’ means a tax enter-
prise zone which meets the requirements of section
1392(b)(1).
‘‘(2) 
RURAL
DEVELOPMENT
INVESTMENT
ZONE.—The term ‘rural development investment
zone’ means a tax enterprise zone which meets the
requirements of section 1392(b)(2).
‘‘(3) GOVERNMENTS.—If more than 1 local gov-
ernment seeks to nominate an area as a tax enter-
prise zone, any reference to, or requirement of, this
subchapter shall apply to all such governments.
‘‘(4) 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.
‘‘(5) NOMINATED AREA.—The term ‘nominated
area’ means an area which is nominated by 1 or
more local governments and the State in which it is
located for designation as a tax enterprise zone
under this subchapter.
‘‘(6) 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.
‘‘(7) APPROPRIATE SECRETARY.—The term ‘ap-
propriate Secretary’ means—
‘‘(A) the Secretary of Housing and Urban
Development in the case of urban tax enterprise
zones, and
‘‘(B) the Secretary of Agriculture in the
case of rural development investment zones.
‘‘(8) STATE-CHARTERED
DEVELOPMENT
COR-
PORATIONS.—An area shall be treated as nominated
by a State and a local government if it is nominated
by an economic development corporation chartered
by the State.
‘‘PART II—INCENTIVES FOR TAX ENTERPRISE
ZONES
‘‘Subpart A. Enterprise zone employment credit.
‘‘Subpart B. Investment incentives.
‘‘Subpart C. Regulations.
‘‘Subpart A—Enterprise Zone Employment Credit
‘‘Sec. 1394. Enterprise zone employment credit.
‘‘Sec. 1395. Other definitions and special rules.
‘‘SEC. 1394. ENTERPRISE ZONE EMPLOYMENT CREDIT.
‘‘(a) AMOUNT OF CREDIT.—For purposes of section
38, the amount of the enterprise zone employment credit
determined under this section with respect to any em-
ployer for any taxable year is 15 percent of the qualified
zone wages paid or incurred during such taxable year.
‘‘(b) QUALIFIED ZONE WAGES.—
‘‘(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 the tax-
able year shall not exceed $20,000.
‘‘(3) COORDINATION
WITH
TARGETED
JOBS
CREDIT.—The term ‘qualified zone wages’ shall not
include wages attributable to service rendered during
the 1-year period beginning with the day the individ-
ual begins work for the employer if any portion of
such wages is taken into account in determining the
credit under section 51.
‘‘(c) 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 a tax en-
terprise zone in a trade or business of the em-
ployer, and
‘‘(B) the principal place of abode of such
employee while performing such services is
within such tax enterprise 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 at any facility described in section
144(c)(6)(B), and
‘‘(D) 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.
‘‘(d) EARLY TERMINATION OF EMPLOYMENT BY EM-
PLOYER.—
‘‘(1) IN GENERAL.—If the employment of any
employee is terminated by the taxpayer before the
day 1 year after the day on which such employee
began work for the employer—
‘‘(A) no wages with respect to such em-
ployee shall be taken into account under sub-
section (a) for the taxable year in which such
employment is terminated, and
‘‘(B) the tax under this chapter for the
taxable year in which such employment is ter-
minated shall be increased by the aggregate
credits (if any) allowed under section 38(a) for
prior taxable years by reason of wages taken
into account with respect to such employee.
‘‘(2) 
CARRYBACKS
AND
CARRYOVERS
AD-
JUSTED.—In the case of any termination of employ-
ment to which paragraph (1) applies, the carrybacks
and carryovers under section 39 shall be properly
adjusted.
‘‘(3) SUBSECTION NOT TO APPLY IN CERTAIN
CASES.—
‘‘(A) IN
GENERAL.—Paragraph (1) shall
not apply to—
‘‘(i) a termination of employment of
an employee who voluntarily leaves the em-
ployment of the taxpayer,
‘‘(ii) a termination of employment of
an individual who before the close of the
period referred to in paragraph (1) 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
‘‘(iii) 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 (1), the employment
relationship between the taxpayer and an em-
ployee 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.
‘‘(4) SPECIAL
RULE.—Any increase in tax
under paragraph (1) shall not be treated as a tax
imposed by this chapter for purposes of—
‘‘(A) determining the amount of any credit
allowable under this chapter, and
‘‘(B) determining the amount of the tax
imposed by section 55.
‘‘SEC. 1395. OTHER DEFINITIONS AND SPECIAL RULES.
‘‘(a) WAGES.—For purposes of this subpart, the term
‘wages’ has the same meaning as when used in section
51.
‘‘(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 1394 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-
‘‘(A) the amount of such excess shall be
treated as an amount paid to which subsection
(a) applies during the next taxable year, and
‘‘(B) the deduction allowed for any taxable
year shall be allocated proportionately among
the enterprise zone stock purchased by such
person on the basis of the respective purchase
prices per share.
‘‘(3) AGGREGATION WITH FAMILY MEMBERS.—
The taxpayer and members of the taxpayer’s family
shall be treated as one person for purposes of para-
graph (1), and the limitations contained in such
paragraph shall be allocated among the taxpayer and
such members in accordance with their respective
purchases of enterprise zone stock. For purposes of
this paragraph, an individual’s family includes only
such individual’s spouse and minor children.
‘‘(c) ENTERPRISE ZONE STOCK.—For purposes of
this section—
‘‘(1) IN GENERAL.—The term ‘enterprise zone
stock’ means stock of a corporation if—
‘‘(A) such stock is acquired on original
issue from the corporation, and
‘‘(B) such corporation is, at the time of
issue, a qualified enterprise zone issuer.
‘‘(2) PROCEEDS MUST BE INVESTED IN QUALI-
FIED ENTERPRISE ZONE PROPERTY.—
‘‘(A) IN GENERAL.—Such term shall in-
clude such stock only to the extent that the pro-
ceeds of such issuance are used by such issuer
during the 12-month period beginning on the
date of issuance to purchase (as defined in sec-
tion 179(d)(2)) qualified enterprise zone prop-
erty.
‘‘(B) QUALIFIED ENTERPRISE ZONE PROP-
ERTY.—For purposes of this section, the term
‘qualified enterprise zone property’ means prop-
erty to which section 168 applies—
‘‘(i) the original use of which in a tax
enterprise zone commences with the issuer,
and
‘‘(ii) substantially all of the use of
which is in a tax enterprise zone.
‘‘(3) REDEMPTIONS.—The term ‘enterprise
zone stock’ shall not include any stock acquired from
a corporation which made a substantial stock re-
demption or distribution (without a bona fide busi-
ness purpose therefor) in an attempt to avoid the
purposes of this section.
‘‘(d) QUALIFIED ENTERPRISE ZONE ISSUER.—For
purposes of this section, the term ‘qualified enterprise
zone issuer’ means any domestic C corporation if—
‘‘(1) such corporation is an enterprise zone
business or, in the case of a new corporation, such
corporation is being organized for purposes of being
an enterprise zone business,
‘‘(2) such corporation does not have more than
one class of stock,
‘‘(3) the sum of—
‘‘(A) the money,
‘‘(B) the aggregate unadjusted bases of
property owned by such corporation, and
‘‘(C) the value of property leased to the
corporation (as determined under regulations
prescribed by the Secretary),
does not exceed $5,000,000, and
‘‘(4) more than 20 percent of the total voting
power, and 20 percent of the total value, of the
stock of such corporation is owned directly by indi-
viduals or estates or indirectly by individuals
through partnerships or trusts.
The determination under paragraph (3) shall be made as
of the time of issuance of the stock in question but shall
include amounts received for such stock.
‘‘(e) DISPOSITIONS OF STOCK.—
‘‘(1) BASIS REDUCTION.—For purposes of this
title, the basis of any enterprise zone stock shall be
reduced by the amount of the deduction allowed
under this section with respect to such stock.
‘‘(2) DEDUCTION
RECAPTURED
AS
ORDINARY
INCOME.—For purposes of section 1245—
‘‘(A) any stock the basis of which is re-
duced under paragraph (1) (and any other
property the basis of which is determined in
whole or in part by reference to the adjusted
basis of such stock) shall be treated as section
1245 property, and
‘‘(B) any reduction under paragraph (1)
shall be treated as a deduction allowed for de-
preciation.
If an exchange of any stock described in paragraph
(1) qualifies under section 354(a), 355(a), or
356(a), the amount of gain recognized under section
1245 by reason of this paragraph shall not exceed
the amount of gain recognized in the exchange (de-
termined without regard to this paragraph).
‘‘(3) CERTAIN EVENTS TREATED AS DISPOSI-
TIONS.—For purposes of determining the amount
treated as ordinary income under section 1245 by
reason of paragraph (2), paragraph (3) of section
1245(b) (relating to certain tax-free transactions)
shall not apply.
‘‘(4) INTEREST
CHARGED
IF
DISPOSITION
WITHIN 5 YEARS OF PURCHASE.—
‘‘(A) IN GENERAL.—If—
‘‘(i) a taxpayer disposes of any enter-
prise zone stock with respect to which a
deduction was allowed under subsection (a)
(or any other property the basis of which
is determined in whole or in part by ref-
erence to the adjusted basis of such stock)
before the end of the 5-year period begin-
ning on the date such stock was purchased
by the taxpayer, and
‘‘(ii) section 1245(a) applies to such
disposition by reason of paragraph (2),
then the tax imposed by this chapter for the
taxable year in which such disposition occurs
shall be increased by the amount determined
under subparagraph (B).
‘‘(B) ADDITIONAL AMOUNT.—For purposes
of subparagraph (A), the additional amount
shall be equal to the amount of interest (deter-
mined at the rate applicable under section
6621(a)(2)) that would accrue—
‘‘(i) during the period beginning on
the date the stock was purchased by the
taxpayer and ending on the date of such
disposition by the taxpayer,
‘‘(ii) on an amount equal to the aggre-
gate decrease in tax of the taxpayer result-
ing from the deduction allowed under this
subsection (a) with respect to such stock.
‘‘(C) SPECIAL RULE.—Any increase in tax
under subparagraph (A) shall not be treated as
a tax imposed by this chapter for purposes of—
‘‘(i) determining the amount of any
credit allowable under this chapter, and
‘‘(ii) determining the amount of the
tax imposed by section 55.
‘‘(f) DISQUALIFICATION.—
‘‘(1) ISSUER CEASES TO QUALIFY.—If, during
the 10-year period beginning on the date enterprise
zone stock was purchased by the taxpayer, the issuer
of such stock ceases to be a qualified enterprise zone
issuer (determined without regard to subsection
(d)(3)), then notwithstanding any provision of this
subtitle other than paragraph (2), the taxpayer shall
be treated for purposes of subsection (e) as dispos-
ing of such stock (and any other property the basis
of which is determined in whole or in part by ref-
erence to the adjusted basis of such stock) during
the taxable year during which such cessation occurs
at its fair market value as of the 1st day of such
taxable year.
‘‘(2) CESSATION OF ENTERPRISE ZONE STATUS
NOT
TO
CAUSE
RECAPTURE.—A corporation shall
not fail to be treated as a qualified enterprise zone
issuer for purposes of paragraph (1) solely by reason
of the termination or revocation of a tax enterprise
zone designation.
‘‘(g) OTHER SPECIAL RULES.—
‘‘(1) APPLICATION
OF
LIMITS
TO
PARTNER-
SHIPS AND S CORPORATIONS.—In the case of a part-
nership or an S corporation, the limitations under
subsection (b) shall apply at the partner and share-
holder level and shall not apply at the partnership
or corporation level.
‘‘(2) DEDUCTION NOT ALLOWED TO ESTATES
AND TRUSTS.—Estates and trusts shall not be treat-
ed as individuals for purposes of this section.
‘‘SEC. 1397. 50 PERCENT EXCLUSION FOR GAIN FROM NEW
ZONE INVESTMENTS.
‘‘(a) GENERAL RULE.—In the case of an individual,
gross income shall not include 50 percent of any qualified
capital gain recognized on the sale or exchange of a quali-
fied zone asset held for more than 5 years.
‘‘(b) QUALIFIED ZONE ASSET.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualified zone
asset’ means—
‘‘(A) any qualified zone stock,
‘‘(B) any qualified zone business property,
and
‘‘(C) any qualified zone partnership inter-
est.
‘‘(2) QUALIFIED ZONE STOCK.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the term ‘qualified zone
stock’ means any stock in a domestic corpora-
tion 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 an enterprise
zone business (or, in the case of a new cor-
poration, such corporation was being orga-
nized for purposes of being an enterprise
zone business), and
‘‘(iii) during substantially all of the
taxpayer’s holding period for such stock,
such corporation qualified as an enterprise
zone business.
‘‘(B) EXCLUSION OF STOCK FOR WHICH
DEDUCTION UNDER SECTION 1396 ALLOWED.—
The term ‘qualified zone stock’ shall not include
any stock the basis of which is reduced under
section 1396(e)(1).
‘‘(C) REDEMPTIONS.—The term ‘qualified
zone stock’ shall not include any stock acquired
from a corporation which made a substantial
stock redemption or distribution (without a
bona fide business purpose therefor) in an at-
tempt to avoid the purposes of this section.
‘‘(3) QUALIFIED ZONE BUSINESS PROPERTY.—
‘‘(A) IN
GENERAL.—The term ‘qualified
zone business property’ means tangible property
if—
‘‘(i) such property was acquired by
the taxpayer by purchase (as defined in
section 179(d)(2)) after the date on which
the designation of the tax enterprise zone
took effect,
‘‘(ii) the original use of such property
in a tax enterprise zone commences 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 in a tax enterprise zone and
in an enterprise zone business of the tax-
payer.
‘‘(B) SPECIAL RULE FOR SUBSTANTIAL IM-
PROVEMENTS.—The requirements of clauses (i)
and (ii) of subparagraph (A) shall be treated as
satisfied with respect to—
‘‘(i) property which is substantially
improved by the taxpayer, and
‘‘(ii) any land on which such property
is located.
For purposes of the preceding sentence, prop-
erty shall be treated as substantially improved
by the taxpayer if, during any 24-month period
beginning after the date on which the designa-
tion of the tax enterprise zone took effect, addi-
tions to basis with respect to such property in
the hands of the taxpayer exceed the greater of
(i) an amount equal to the adjusted basis at the
beginning of such 24-month period in the hands
of the taxpayer, or (ii) $5,000.
‘‘(C) LIMITATION
ON
LAND.—The term
‘qualified zone business property’ shall not in-
clude land which is not an integral part of a
qualified business (as defined in section
1397C(c)).
‘‘(4) QUALIFIED
ZONE
PARTNERSHIP
INTER-
EST.—The term ‘qualified zone 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 an enterprise zone
business (or, in the case of a new partnership,
such partnership was being organized for pur-
poses of being an enterprise zone business), and
‘‘(C) during substantially all of the tax-
payer’s holding period for such interest, such
partnership qualified as an enterprise zone
business.
A rule similar to the rule of paragraph (2)(C) shall
apply for purposes of this paragraph.
‘‘(5) 
TREATMENT
OF
SUBSEQUENT
PUR-
CHASERS.—The term ‘qualified zone asset’ includes
any property which would be a qualified zone 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 zone asset in the hands of any prior holder.
‘‘(6) 10-YEAR SAFE HARBOR.—If any property
ceases to be a qualified zone asset by reason of para-
graph (2)(A)(iii), (3)(A)(iii), or (4)(C) after the 10-
year period beginning on the date the taxpayer ac-
quired 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 exchange of
such property shall not exceed the amount which
would be qualified capital gain had such property
been sold on the date of such cessation.
‘‘(7) TREATMENT OF ZONE TERMINATIONS.—
The termination of any designation of an area as a
tax enterprise zone shall be disregarded for purposes
of determining whether any property is a qualified
zone asset.
‘‘(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.
‘‘(3) GAIN ATTRIBUTABLE TO PERIODS AFTER
TERMINATION OF ZONE DESIGNATION NOT QUALI-
FIED.—The term ‘qualified capital gain’ shall not in-
clude any gain attributable to periods after the ter-
mination of any designation of an area as a tax en-
terprise zone.
‘‘(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 an enterprise zone business during
substantially all of the period the taxpayer held such
interest) 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 zone assets (deter-
mined 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 para-
graph (2)(C) shall apply for purposes of the preced-
ing 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 an enterprise zone business during substan-
tially all of the period the taxpayer held the in-
terest to which such inclusion relates) shall be
treated as gain described in subsection (a) if
such amount meets the requirements of sub-
paragraph (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 zone asset in
the hands of such entity and which was
held by such entity for the period 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
QUALIFIED ZONE BUSINESSES.—In the case of the sale
or exchange of an interest in a partnership, or of stock
in an S corporation, which was an enterprise zone business
during substantially all of the period the taxpayer held
such interest 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 (as defined
in section 1397C(b)), and
‘‘(2) gain attributable to periods before the des-
ignation of an area as a tax enterprise zone.
‘‘(f) CERTAIN TAX-FREE AND OTHER TRANSFERS.—
For purposes of this section—
‘‘(1) IN GENERAL.—In the case of a transfer of
a qualified zone asset to which this subsection ap-
plies, 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 zone asset with respect to
which the requirements of subsection (d)(2) are
met at the time of the transfer (without 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
and section 1397A, the term ‘enterprise zone business’ has
the meaning given such term by section 1397C except
that, in applying section 1397C 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. 1397A. NONRECOGNITION OF GAIN FROM NEW ZONE
INVESTMENTS.
‘‘(a) GENERAL RULE.—At the election of an individ-
ual, qualified capital gain (within the meaning of section
1397) from the sale or exchange of a qualified zone asset
shall be recognized only to the extent that—
‘‘(1) the amount realized from such sale or ex-
change, exceeds
‘‘(2) the cost (not heretofore taken into account
under this subsection) of any qualified zone asset
purchased directly by the taxpayer during the rein-
vestment period.
‘‘(b) QUALIFIED ZONE ASSET.—For purposes of this
section—
‘‘(1) IN GENERAL.—The term ‘qualified zone
asset’ has the meaning given such term by section
1397.
‘‘(2) TIME FOR TESTING.—
‘‘(A) SALES.—In the case of a sale or ex-
change of property, the determination of wheth-
er such property is a qualified zone asset shall
be made as of the time of the sale or exchange.
‘‘(B) PURCHASES.—In the case of a pur-
chase of property, the determination of whether
such property is a qualified zone asset shall be
made as of the time of such purchase.
‘‘(c) OTHER DEFINITIONS.—For purposes of this
section—
‘‘(1) REINVESTMENT PERIOD.—The term ‘rein-
vestment period’ means, with respect to any sale or
exchange, the 6-month period beginning on the date
of such sale or exchange.
‘‘(2) PURCHASE.—The term ‘purchase’ has the
meaning given to such term by section 179(d)(2).
‘‘(d) BUSINESS OR PROPERTY CEASES TO QUAL-
IFY.—
‘‘(1) IN GENERAL.—If, during the 10-year pe-
riod beginning on the date any qualified zone re-
placement asset was purchased by the taxpayer,
such asset ceases to be a qualified zone asset, not-
withstanding any provision of this subtitle other
than paragraph (3), the taxpayer shall be treated as
disposing of such asset during the taxable year dur-
ing which such cessation occurs at its fair market
value as of the 1st day of such taxable year.
‘‘(2) LIMITATION ON GAIN RECOGNIZED.—The
amount of gain recognized pursuant to paragraph
(1) with respect to any asset shall not exceed the
lesser of—
‘‘(A) the amount of gain which was not
recognized under subsection (a) by the reason
of the purchase of such asset, or
‘‘(B) the excess of the fair market value
referred to in paragraph (1) over the adjusted
basis of such asset.
‘‘(3) CESSATION OF ENTERPRISE ZONE STATUS
NOT TO CAUSE RECAPTURE.—An asset shall not fail
to be treated as a qualified zone asset for purposes
of paragraph (1) solely by reason of the termination
of a tax enterprise zone designation.
‘‘(4) QUALIFIED ZONE REPLACEMENT ASSET.—
For purposes of paragraph (1), the term ‘qualified
zone replacement asset’ means any qualified zone
asset the purchase of which resulted in the non-
recognition of gain under subsection (a) with respect
to any other property.
‘‘(e) BASIS
OF QUALIFIED ZONE REPLACEMENT
ASSET.—If gain from the sale or exchange of any property
is not recognized by reason of subsection (a), such gain
shall be applied to reduce (in the order acquired) the basis
of any qualified zone replacement asset (as defined in sub-
section (d)(4)) purchased during the reinvestment period.
‘‘(f) COORDINATION WITH INSTALLMENT METHOD
REPORTING.—This section shall not apply to any gain
from any installment sale (as defined in section 453(b))
if section 453(a) applies to such sale.
‘‘(g) STATUTE OF LIMITATIONS.—If any gain is real-
ized by the taxpayer on any sale or exchange to which
an election under this section applies, then—
‘‘(1) the statutory period for the assessment of
any deficiency with respect to such gain shall not ex-
pire before the expiration of 3 years from the date
the Secretary is notified by the taxpayer (in such
manner as the Secretary may by regulations pre-
scribe) of—
‘‘(A) the taxpayer’s cost of purchasing any
qualified zone replacement asset,
‘‘(B) the taxpayer’s intention not to pur-
chase qualified zone replacement asset within
the reinvestment period, or
‘‘(C) a failure to make such purchase with-
in the reinvestment period, and
‘‘(2) such deficiency may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of any law or rule of law which would oth-
erwise prevent such assessment.
‘‘SEC. 1397B. ADDITIONAL INCENTIVES.
‘‘(a) INCREASE
IN EXPENSING UNDER SECTION
179.—In the case of an enterprise zone business, section
179(b)(1) shall be applied by substituting ‘$20,000’ for
‘$10,000’.
‘‘(b) ORDINARY LOSS TREATMENT
FOR CERTAIN
PROPERTY.—
‘‘(1) IN GENERAL.—Loss on any qualified zone
asset (as defined in section 1397(b)) held for more
than 2 years (5 years in the case of real property)
shall be treated as an ordinary loss.
‘‘(2) REAL PROPERTY.—For purposes of para-
graph (1), the term ‘real property’ means any prop-
erty which is section 1250 property (as defined in
section 1250(c)).
‘‘(3) SPECIAL RULES.—
‘‘(A) CERTAIN
RULES
MADE
APPLICA-
BLE.—For purposes of this subsection, rules
similar to the following rules shall apply:
‘‘(i) Paragraphs (1), (2), and (3) of
section 1244(d).
‘‘(ii) Subsections (b)(6), (c)(3), (d),
(e), and (f) of section 1397.
‘‘(B) 
COORDINATION
WITH
SECTION
1231.—Losses treated as ordinary losses by rea-
son of this subsection shall not be taken into
account in applying section 1231.
‘‘SEC. 1397C. 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)(A) every trade or business of such entity
is the active conduct of a qualified business within
a tax enterprise zone, and
‘‘(B) at least 80 percent of the total gross in-
come of such entity is derived from the active con-
duct of such business,
‘‘(2) substantially all of the use of the tangible
property of such entity (whether owned or leased) is
within a tax enterprise zone,
‘‘(3) substantially all of the intangible property
of such entity is used in, and exclusively related to,
the active conduct of any such business,
‘‘(4) substantially all of the services performed
for such entity by its employees are performed in a
tax enterprise zone,
‘‘(5) at least 1⁄3 of its employees are residents
of a tax enterprise zone,
‘‘(6) 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
‘‘(7) 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 a
tax enterprise zone,
‘‘(2) substantially all of the use of the tangible
property of such individual in such business (wheth-
er owned or leased) is within a tax enterprise zone,
‘‘(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 in a tax enterprise
zone,
‘‘(5) at least 1⁄3 of such employees are residents
of a tax enterprise 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.
‘‘(2) RENTAL OF REAL PROPERTY.—The rental
to others of real property located in a tax enterprise
zone 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 an enterprise
zone 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 tax en-
terprise zone was designated, 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 enterprise zone businesses or by resi-
dents of a tax enterprise 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
‘‘(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 1395(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).
‘‘Subpart C—Regulations
‘‘Sec. 1397C. Regulations.
‘‘SEC. 1397C. REGULATIONS.
‘‘The Secretary shall prescribe such regulations as
may be necessary or appropriate to carry out the purposes
of this part, 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 qualified 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 tax enterprise
zones.’’
SEC. 103. TECHNICAL AND CONFORMING AMENDMENTS.
(a) ENTERPRISE ZONE EMPLOYMENT CREDIT 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 (6), by striking the
period at the end of paragraph (7) and inserting ‘‘,
plus’’, and by adding at the end the following new
paragraph:
‘‘(8) the enterprise zone employment credit de-
termined under section 1394(a).’’
(2) Subsection (d) of section 39 is amended by
adding at the end thereof the following new para-
graph:
‘‘(3) NO CARRYBACK OF SECTION 1394 CREDIT
BEFORE
ENACTMENT.—No portion of the unused
business credit for any taxable year which is attrib-
utable to the enterprise zone employment credit de-
termined under section 1394 may be carried to a
taxable year ending before the date of the enactment
of section 1394.’’
(b) NONITEMIZERS ALLOWED DEDUCTION FOR EN-
TERPRISE ZONE STOCK.—Subsection (a) of section 62 is
amended by adding at the end thereof the following new
paragraph:
‘‘(14) ENTERPRISE ZONE STOCK.—The deduc-
tion allowed by section 1396.’’
(c) DENIAL OF DEDUCTION FOR PORTION OF WAGES
EQUAL TO ENTERPRISE ZONE EMPLOYMENT CREDIT.—
(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
determined for the taxable year under sections
51(a) and 1394(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: