Hurricane Laura Recovery Opportunity Zones Act

Bill: 116-s-4780
Sponsor: full_name: Sen. Kennedy, John [R-LA]
Introduced: 2020-10-01
Policy area: Taxation
Subjects: Business investment and capital

Capital gains tax

Disaster relief and insurance

Income tax deferral

Income tax rates

Louisiana

Natural disasters

Securities
Latest action: action_date: 2020-10-01
text: Read twice and referred to the Committee on Finance.

Summaries:
action_date: 2020-10-01
action_desc: Introduced in Senate
text: <p><b>Hurricane Laura Recovery Opportunity Zones Act</b></p> <p>This bill designates certain low-income community areas as qualified Hurricane Laura Recovery Opportunity Zones. Such zones are areas for which a major disaster has been declared before September 30, 2020, and which have been determined by the President to warrant individual or public assistance by reason of Hurricane Laura.</p> <p>The bill sets forth special rules for the treatment of capital gains in Hurricane Laura Recovery Opportunity Zones. It also expresses the sense of Congress that the rate of tax on income from capital gains in effect on the enactment date of this bill should not be changed.</p>

tv_txt: II 116th CONGRESS 2d Session S. 4780 IN THE SENATE OF THE UNITED STATES October 1, 2020 Mr. Kennedy introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to provide for qualified Hurricane Laura recovery opportunity zones, and for other purposes.

1. Short title This Act may be cited as the Hurricane Laura Recovery Opportunity Zones Act . 2. Qualified Hurricane Laura recovery opportunity zones (a) In general Chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following: AA Hurricane Laura recovery opportunity zones Sec. 1400AA–1. Designation. Sec. 1400AA–2. Special rules for capital gains invested in Hurricane Laura Recovery Opportunity Zones. 1400AA–1. Designation (a) Qualified Hurricane Laura recovery opportunity zone defined For purposes of this chapter, the term qualified Hurricane Laura recovery opportunity zone means any census tract that— (1) is a low income community (as defined in section 1400Z–1(c)), and (2) is located within the Hurricane Laura disaster zone. (b) Qualified Hurricane Laura disaster zone For purposes of this chapter, the term qualified Hurricane Laura disaster zone means an area— (1) with respect to which a major disaster has been declared by the President under section 401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act before September 30, 2020, by reason of Hurricane Laura, and (2) which has been determined by the President to warrant individual or individual and public assistance from the Federal Government under such Act by reason of Hurricane Laura. (c) Period of treatment A census tract described in subsection (a) shall not be treated as a qualified Hurricane Laura recovery opportunity zone— (1) for any period before August 28, 2020, or (2) for any period after the close of the 10th calendar year beginning on or after such date. 1400AA–2. Special rules for capital gains invested in Hurricane Laura recovery opportunity zones (a) In general (1) Treatment of gains In the case of capital gain from the sale to, or exchange with, an unrelated person of any property held by the taxpayer, at the election of the taxpayer— (A) gross income for the taxable year shall not include so much of such gain as does not exceed the aggregate amount invested by the taxpayer in a qualified Hurricane Laura recovery opportunity fund during the 180-day period beginning on the date of such sale or exchange, (B) the amount of gain excluded by subparagraph (A) shall be included in gross income as provided by subsection (b), and (C) subsection (c) shall apply. The preceding sentence shall not apply in the case of any gain which is treated under this chapter as ordinary income. (2) Election No election may be made under paragraph (1)— (A) with respect to a sale or exchange if an election previously made with respect to such sale or exchange is in effect, or (B) with respect to any sale or exchange after December 31, 2030. (b) Deferral of gain invested in opportunity zone property (1) Year of inclusion Gain to which subsection (a)(1)(B) applies shall be included in income in the taxable year which includes the earlier of— (A) the date on which such investment is sold or exchanged, or (B) December 31, 2030. (2) Amount includible (A) In general The amount of gain included in income under subsection (a)(1)(B) shall be the excess of— (i) the lesser of the amount of gain excluded under subsection (a)(1)(A) or the fair market value of the investment as determined as of the date described in paragraph (1), over (ii) the taxpayer's basis in the investment. (B) Determination of basis (i) In general Except as otherwise provided in this subparagraph or subsection (c), the taxpayer's basis in the investment shall be zero. (ii) Increase for gain recognized under subsection (a)(1)(B) The basis in the investment shall be increased by the amount of gain recognized by reason of subsection (a)(1)(B) with respect to such investment. (iii) Investments held for 5 years In the case of any investment held for at least 5 years, the basis of such investment shall be increased by an amount equal to 10 percent of the amount of gain deferred by reason of subsection (a)(1)(A). (iv) Investments held for 7 years In the case of any investment held by the taxpayer for at least 7 years, in addition to any adjustment made under clause (iii), the basis of such property shall be increased by an amount equal to 5 percent of the amount of gain deferred by reason of subsection (a)(1)(A). (c) Special rule for investments held for at least 10 years In the case of any investment held by the taxpayer for at least 10 years and with respect to which the taxpayer makes an election under this subsection, the basis of such investment shall be equal to the fair market value of such investment on the date that the investment is sold or exchanged. (d) Qualified Hurricane Laura recovery opportunity fund For purposes of this section— (1) In general The term qualified Hurricane Laura recover opportunity fund means any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified Hurricane Laura recovery opportunity zone property (other than another qualified Hurricane Laura recovery opportunity fund) that holds at least 90 percent of its assets in qualified Hurricane Laura recovery opportunity zone property, determined by the average of the percentage of qualified Hurricane Laura recovery opportunity zone property held in the fund as measured— (A) on the last day of the first 6-month period of the taxable year of the fund, and (B) on the last day of the taxable year of the fund. (2) Qualified Hurricane Laura recovery opportunity zone property (A) In general The term qualified Hurricane Laura recovery opportunity zone property means property which is— (i) qualified Hurricane Laura recovery opportunity zone stock, (ii) qualified Hurricane Laura recovery opportunity zone partnership interest, or (iii) qualified Hurricane Laura recovery opportunity zone business property. (B) Qualified Hurricane Laura recovery opportunity zone stock (i) In general Except as provided in clause (ii), the term qualified Hurricane Laura recovery opportunity zone stock means any stock in a domestic corporation if— (I) such stock is acquired by the qualified Hurricane Laura recovery opportunity fund after December 31, 2020, at its original issue (directly or through an underwriter) from the corporation solely in exchange for cash, (II) as of the time such stock was issued, such corporation was a qualified Hurricane Laura recovery opportunity zone business (or, in the case of a new corporation, such corporation was being organized for purposes of being a qualified Hurricane Laura recovery opportunity zone business), and (III) during substantially all of the qualified Hurricane Laura recovery opportunity fund's holding period for such stock, such corporation qualified as a qualified Hurricane Laura recovery opportunity zone business. (ii) Redemptions A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph. (C) Qualified Hurricane Laura recovery opportunity zone partnership interest The term qualified Hurricane Laura recovery opportunity zone partnership interest means any capital or profits interest in a domestic partnership if— (i) such interest is acquired by the qualified Hurricane Laura recovery opportunity fund after December 31, 2020, from the partnership solely in exchange for cash, (ii) as of the time such interest was acquired, such partnership was a qualified Hurricane Laura recovery opportunity zone business (or, in the case of a new partnership, such partnership was being organized for purposes of being a qualified Hurricane Laura recovery opportunity zone business), and (iii) during substantially all of the qualified Hurricane Laura recovery opportunity fund's holding period for such interest, such partnership qualified as a qualified Hurricane Laura recovery opportunity zone business. (D) Qualified Hurricane Laura recovery opportunity zone business property (i) In general The term qualified Hurricane Laura recovery opportunity zone business property means tangible property used in a trade or business of the qualified Hurricane Laura recovery opportunity fund if— (I) such property was acquired by the qualified Hurricane Laura recovery opportunity fund by purchase (as defined in section 179(d)(2)) after December 31, 2020, (II) the original use of such property commences with the qualified Hurricane Laura recovery opportunity fund or the qualified Hurricane Laura recovery opportunity fund substantially improves the property, and (III) during substantially all of the qualified Hurricane Laura recovery opportunity fund's holding period for such property, substantially all of the use of such property was in a qualified Hurricane Laura recovery opportunity zone. (ii) Substantial improvement For purposes of clause (i)(II), property shall be treated as substantially improved by the qualified Hurricane Laura recovery opportunity fund only if, during any 30-month period beginning after the date of acquisition of such property, additions to basis with respect to such property in the hands of the qualified Hurricane Laura recovery opportunity fund exceed an amount equal to the adjusted basis of such property at the beginning of such 30-month period in the hands of the qualified Hurricane Laura recovery opportunity fund. (iii) Related party For purposes of clause (i)(I)— (I) property shall not be treated as acquired by purchase if acquired from a related person (within the meaning of subsection (e)(2)), and (II) section 179(d)(2) shall be applied without regard to subparagraph (A) thereof. (3) Qualified Hurricane Laura recovery opportunity zone business (A) In general The term qualified Hurricane Laura recovery opportunity zone business means a trade or business— (i) in which substantially all of the tangible property owned or leased by the taxpayer is qualified Hurricane Laura recovery opportunity zone business property (determined by substituting qualified Hurricane Laura recovery opportunity zone business for qualified Hurricane Laura recovery opportunity fund each place it appears in paragraph (2)(D)), (ii) which satisfies the requirements of paragraphs (2), (4), and (8) of section 1397C(b), and (iii) which is not described in section 144(c)(6)(B). (B) Special rule For purposes of subparagraph (A), tangible property that ceases to be a qualified Hurricane Laura recovery opportunity zone business property shall continue to be treated as a qualified Hurricane Laura recovery opportunity zone business property for the lesser of— (i) 5 years after the date on which such tangible property ceases to be so qualified, or (ii) the date on which such tangible property is no longer held by the qualified Hurricane Laura recovery opportunity zone business. (e) Applicable rules (1) Treatment of investments with mixed funds In the case of any investment in a qualified Hurricane Laura recovery opportunity fund only a portion of which consists of investments of gain to which an election under subsection (a) is in effect— (A) such investment shall be treated as 2 separate investments, consisting of— (i) one investment that only includes amounts to which the election under subsection (a) applies, and (ii) a separate investment consisting of other amounts, and (B) subsections (a), (b), and (c) shall only apply to the investment described in subparagraph (A)(i). (2) Related persons For purposes of this section, persons are related to each other if such persons are described in section 267(b) or 707(b)(1), determined by substituting 20 percent for 50 percent each place it occurs in such sections. (3) Decedents In the case of a decedent, amounts includible in gross income under this section shall, if not properly includible in the gross income of the decedent, be includible in gross income as provided by section 691. (4) Regulations The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including— (A) rules for the certification of qualified Hurricane Laura recovery opportunity funds for the purposes of this section, (B) rules to ensure a qualified Hurricane Laura recovery opportunity fund has a reasonable period of time to reinvest the return of capital from investments in qualified Hurricane Laura recovery opportunity zone stock and qualified Hurricane Laura recovery opportunity zone partnership interests, and to reinvest proceeds received from the sale or disposition of qualified Hurricane Laura recovery opportunity zone property, and (C) rules to prevent abuse. (f) Failure of qualified Hurricane Laura recovery opportunity fund To maintain investment standard (1) In general If a qualified Hurricane Laura recovery opportunity fund fails to meet the 90-percent requirement of subsection (d)(1), the qualified Hurricane Laura recovery opportunity fund shall pay a penalty for each month it fails to meet the requirement in an amount equal to the product of— (A) the excess of— (i) the amount equal to 90 percent of its aggregate assets, over (ii) the aggregate amount of qualified Hurricane Laura recovery opportunity zone property held by the fund, multiplied by (B) the underpayment rate established under section 6621(a)(2) for such month. (2) Special rule for partnerships In the case that the qualified Hurricane Laura recovery opportunity fund is a partnership, the penalty imposed by paragraph (1) shall be taken into account proportionately as part of the distributive share of each partner of the partnership. (3) Reasonable cause exception No penalty shall be imposed under this subsection with respect to any failure if it is shown that such failure is due to reasonable cause. . (b) Basis adjustments Section 1016(a) of the Internal Revenue Code of 1986 is amended by striking and at the end of paragraph (37), by striking the period at the end of paragraph (38) and inserting , and , and by inserting after paragraph (38) the following: (39) to the extent provided in subsections (b)(2) and (c) of section 1400AA–2. . (c) Clerical amendment The table of subchapters for chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item: Subchapter AA. Hurricane Laura recovery opportunity zone . (d) Effective date The amendments made by this section shall take effect on the date of the enactment of this Act. 3. Sense of the Congress relating to maintaining capital gains rates It is the sense of Congress that the rate of tax on income from capital gains (as in effect on the date of the enactment of this Act) should not be changed.