A bill to amend the Internal Revenue Code of 1986 to modify the tax credit for holders of qualified zone academy bonds.

SECTION 1. MODIFICATIONS OF TREATMENT OF QUALIFIED ZONE ACADEMY BONDS.

    (a) Proceeds of Bonds May Be Used for Construction.--Paragraph (5) 
of section 1397E(d) of the Internal Revenue Code of 1986 (defining 
qualified purpose) is amended--
            (1) by striking ``rehabilitating or repairing'' in 
        subparagraph (A) and inserting ``constructing, rehabilitating, 
        or repairing'', and
            (2) by redesignating subparagraphs (B), (C), and (D) as 
        subparagraphs (C), (D), and (E), respectively, and by inserting 
        after subparagraph (A) the following:
                    ``(B) acquiring the land on which the facility is 
                to be constructed,''.
    (b) Repeal of Limitation on Taxpayers Eligible for Credit.--
            (1) In general.--Section 1397E(a) of such Code (relating to 
        allowance of credit) is amended by striking ``an eligible 
        taxpayer'' and inserting ``a taxpayer''.
            (2) Conforming amendment.--Section 1397E(d)(6) of such Code 
        is amended to read as follows:
            ``(6) Bonds held by regulated investment companies.--If any 
        qualified zone academy bond is held by a regulated investment 
        company, the credit determined under subsection (a) shall be 
        allowed to shareholders of such company under procedures 
        prescribed by the Secretary.''
    (c) Credits May Be Stripped.--Section 1397E of such Code is amended 
by adding at the end the following new subsection:
    ``(i) Credits May Be Stripped.--Under regulations prescribed by the 
Secretary--
            ``(1) In general.--There may be a separation (including at 
        issuance) of the ownership of a qualified zone academy bond and 
        the entitlement to the credit under this section with respect 
        to such bond. In case of any such separation, the credit under 
        this section shall be allowed to the person who on the credit 
        allowance date holds the instrument evidencing the entitlement 
        to the credit and not to the holder of the bond.
            ``(2) Certain rules to apply.--In the case of a separation 
        described in paragraph (1), the rules of section 1286 shall 
        apply to the qualified zone academy bond as if it were a 
        stripped bond and to the credit under this section as if it 
        were a stripped coupon.''
    (d) Allocation of Credit Authority.--
            (1) Allocation of limitation.--Section 1397(e)(2) of the 
        Internal Revenue Code of 1986 is amended to read as follows:
            ``(2) Allocation of limitation.--
                    ``(A) Allocation among states.--
                            ``(i) 1998, 1999, 2000, 2001, and 2002 
                        limitations.--The national zone academy bond 
                        limitations for calendar years 1998, 1999, 
                        2000, 2001, and 2002 shall be allocated by the 
                        Secretary among the States on the basis of 
                        their respective populations of individuals 
                        below the poverty line (as defined by the 
                        Office of Management and Budget).
                            ``(ii) Limitation after 2002.--The national 
                        zone academy bond limitation for any calendar 
                        year after 2002 shall be allocated by the 
                        Secretary among the States in proportion to the 
                        respective amounts each such State received for 
                        basic grants under subpart 2 of part A of title 
                        I of the Elementary and Secondary Education Act 
                        of 1965 (20 U.S.C. 6331 et seq.) for the most 
                        recent fiscal year ending before such calendar 
                        year.
                    ``(B) Allocation to local educational agencies.--
                The limitation amount allocated to a State under 
                subparagraph (A) shall be allocated by the State to 
                qualified zone academies within such State.
                    ``(C) Designation subject to limitation amount.--
                The maximum aggregate face amount of bonds issued 
                during any calendar year which may be designated under 
                subsection (a) with respect to any qualified zone 
                academy shall not exceed the limitation amount 
                allocated to such academy under subparagraph (B) for 
                such calendar year.''
            (2) Unused authority.--Section 1397E(e) of such Code 
        (relating to limitation on amount of bonds designated) is 
        amended--
                    (A) by striking ``If'' in paragraph (4) and 
                inserting ``Except as provided in paragraph (5), if'', 
                and
                    (B) by adding at the end the following:
            ``(5) Reallocation for amounts unused for two years.--
        Notwithstanding paragraph (4), rules similar to the rules of 
        section 42(h)(3)(D) shall apply for purposes of this section.''
    (e) Effective Dates.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        obligations issued after December 31, 2001.
            (2) Repeal of restriction on zone academy bond holders.--In 
        the case of bonds to which section 1397E of the Internal 
        Revenue Code of 1986 (as in effect before the date of the 
        enactment of this Act) applies, the limitation of such section 
        to eligible taxpayers (as defined in subsection (d)(6) of such 
        section) shall not apply after the date of the enactment of 
        this Act.

Summary: Amends the Internal Revenue Code to include construction as a "qualified purpose" for the spending of a "qualified zone academy bond" (95 percent of such bond proceeds must be spent on a "qualified purpose").Allows the credit retained by a regulated investment company for its holding of a zone academy bond to be distributed to the company's shareholders. Permits such credits to be stripped.