24 the equivalent county divisions as defined by
25 the Bureau of the Census for the purposes of
•HR 16M IH
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1 defining poverty areas) within the nominated
2 area is not less than 20 percent.
3 "(F) Course of action. — There has been
4 adopted for the nominated area a course of ac-
5 tion which meets the requirements of subsection
6 (c).
7 "(2) Rural development investment
8 ZONES. — A nominated area which is a rural area
9 shall be eUgible for designation under section 1391
10 only if it meets the following criteria:
11 "(A) Population. — The nominated area
12 has a population (as determined by the most re-
13 cent census data available) of not less than
14 1,000.
15 "(B) Distress. — The nominated area is
16 one of general distress.
17 "(C) Size. — The nominated area —
18 "(i) does not exceed 10,000 square
19 miles,
20 "(ii) consists of areas within not more
21 than 4 contiguous counties,
22 "(iii) has a boundary which is contin-
23 uous, or consists of not more than 3 non-
24 contiguous parcels, and
•HR 16M IH
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1 "(iv) is located entirely within 1
2 State.
3 "(D) Additional criteria. — Not less
4 than 2 of the following criteria:
5 "(i) Unemployment rate. — The cri-
6 terion set forth in paragraph (1)(D).
7 "(ii) Poverty rate. — The criterion
8 set forth in paragraph (1)(E).
9 "(iii) Job loss. — The amount of
10 wages attributable to employment in the
11 area, and subject to tax under section
12 3301 during the preceding calendar year,
13 is not more than 95 percent of such wages
14 during the 5th preceding calendar year.
15 "(iv) OUT-MIGRATION. — The popu-
16 lation of the area decreased (as determined
17 by the most recent census data available)
18 by 10 percent or more between 1980 and
19 1990.
20 "(E) Course of action. — There has been
21 adopted for the nominated area a course of ac-
22 tion which meets the requirements of subsection
23 (c).
24 "(3) Areas within Indian reservations in-
25 eligible. — ^A nominated area shall not be eligible
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1 for designation under section 1391 if any portion of
2 such area is within an Indian reservation.
3 "(c) Required State and Local Course of Ac-
4 TION. —
5 "(1) In general. — No nominated area may be
6 designated as a tax enterprise zone unless the local
7 government and the State in which it is located
8 agree in writing that, during any period during
9 which the area is a tax enterprise zone, the govem-
10 ments will follow a specified course of action de-
ll signed to reduce the various burdens borne by em-
12 ployers or employees in the area.
13 "(2) Course of action. — The course of action
14 under paragraph (1) may be implemented by both
15 governments and private nongovernmental entities,
16 may not be funded from proceeds of any Federal
17 program (other than discretionary proceeds), and
18 may include —
19 "(A) a certification by the State insurance
20 commissioner (or similar State official) that
21 basic commercial property insurance of a type
22 comparable to that insurance generally in force
23 in urban or rural areas, whichever is applicable,
24 throughout the State is available to businesses
25 within the tax enterprise zone,
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1 "(B) a reduction of tax rates or fees apply-
2 ing within the tax enterprise zone,
3 "(C) an increase in the level, or efficiency
4 of deUvery, of local public services within the
5 tax enterprise zone,
6 "(D) actions to reduce, remove, simplify,
7 or streamline government paperwork require-
8 ments applicable within the tax enterprise zone,
9 "(E) the involvement in the program by
10 pubUc authorities or private entities, organiza-
11 tions, neighborhood associations, and commu-
12 nity groups, particularly those within the nomi-
13 nated area, including a written commitment to
14 provide jobs and job training for, and technical,
15 financial, or other assistance to, employers, em-
16 ployees, and residents of the nominated area,
17 "(F) the giving of special preference to
18 contractors owned and operated by members of
19 any socially and economically disadvantaged
20 group (within the meaning of section 8(a) of
21 the Small Business Act (15 U.S.C. 637(a)),
22 "(G) the gift (or sale at below fair market
23 value) of surplus land in the tax enterprise zone
24 to neighborhood organizations agreeing to oper-
25 ate a business on the land,
•HR 163« IH
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1 "(H) the establishment of a program
2 under which employers within the tax enterprise
3 zone may purchase health insurance for their
4 employees on a pooled basis,
5 "(I) the estabUshment of a program to en-
6 courage local financial institutions to satisfy
7 their obUgations under the Community Rein-
8 vestment Act of 1977 (12 U.S.C. 2901 et seq.)
9 by making loans to enterprise zone businesses,
10 with emphasis on startup and other small-busi-
1 1 ness concerns (as defined in section 3(a) of the
12 Small Business Act (15 U.S.C. 632(a)),
13 "(J) the giving of special preference to
14 qualified low-income housing projects located in
15 tax enterprise zones, in the allocation of the
16 State housing credit ceiling applicable under
17 section 42, and
18 "(K) the ^ving of special preference to fa-
19 cilities located in tax enterprise zones, in the al-
20 location of the State ceiling on private activity
21 bonds applicable under section 146.
22 "(3) Recognition op past efforts. — In
23 evaluating courses of action agreed to by any State
24 or local government, the appropriate Secretary shall
25 take into account the past efforts of the State or
•HR ISM IH
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1 local government in reducing the various burdens
2 borne by employers and employees in the area in-
3 volved.
4 "(4) Prohibition of assistance for busi-
5 ness relocations. —
6 "(A) In GENERAL. — The course of action
7 implemented under paragraph (1) may not in-
8 elude any action to assist any establishment in
9 relocating from one area to another area.
10 "(B) Exception. — The limitation estab-
11 lished in subparagraph (A) shall not be con-
12 strued to prohibit assistance for the expansion
13 of an existing business entity through the estab-
14 lishment of a new branch, affiliate, or subsidi-
15 ary if —
16 "(i) the establishment of the new
17 branch, affiliate, or subsidiary will not re-
18 suit in an increase in unemployment in the
19 area of original location or in any other
20 area where the existing business entity
21 conducts business operations, and
22 '*(ii) there is no reason to believe that
23 the new branch, affiliate, or subsidiary is
24 being established with the intention of elos-
25 ing dowTi the operations of the existing
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1 business entity in the area of its original
2 location or in any other area where the ex-
3 isting business entity conducts business op-
4 erations.
5 "(d) Selection Criteria.— From among the nomi-
6 nated areas eligible for designation under subsection (b)
7 by the appropriate Secretary, such appropriate Secretary
8 shall make designations of tax enterprise zones on the
9 basis of the follo^v^ng factors (each of which is to be given
10 equal weight):
^^ "(1) State and local commitments. — The
12 strength and quality of the commitments which have
13 been promised as part of the course of action rel-
14 ative to the fiscal ability of the nominating State
15 and local governments.
^^ "(2) Implementation of course op ac-
17 TION.— The effectiveness and enforceabihty of the
18 guarantees that the course of action will actually be
19 carried out, including the specificity with which the
20 commitments under paragraph (1) are described in
21 order that the applicable Secretary will be better
22 able to determine annually under section
1391(d)(2)(A)(ii) whether the commitments ' are
23
24 being carried out.
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1 "(3) Private commitments. — The level of
2 commitments by private entities of additional re-
3 sources and contributions to the economy of the
4 nominated area, including the creation of new or ex-
5 panded business activities.
6 "(4) Average rankings. — The average rank-
7 ing with respect to^
8 "(A) the criteria set forth in subpara-
9 graphs (D) and (E) of subsection (b)(1), in the
10 case of an area which is not a rural area, or
11 "(B) the 2 criteria set forth in subsection
12 (b)(2)(D) that give the area a higher average
13 ranking, in the case of a rural area.
14 "(5) Revitalization potential. — The poten-
15 tial for the revitalization of the nominated area as
16 a result of zone designation, taking into account
17 particularly the number of jobs to be created and re-
18 tained.
19 "SEC. 1393. DEFINrnONS AND SPECIAL RULES.
20 For purposes of this subchapter —
21 "(1) Urban tax enterprise zone. — The
22 - , term 'urban tax enterprise zone' means a tax enter-
23 prise zone which meets the requirements of section
24 1392(b)(1).
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1 "(2) Rural development investment
2 zone.— The term 'rural development investment
3 zone' means a tax enterprise zone which meets the
4 requirements of section 1392(b)(2).
5 "(3) (jOVERNMENTS.— If more than 1 local gov-
6 emment seeks to nominate an area as a tax enter-
7 prise zone, any reference to, or requirement of, this
8 subchapter shall apply to all such governments.
9 "(4) Local government.— The term 'local
10 government' means —
^^ "(A) any county, city, town, township, par-
12 ish, village, or other general purpose political
13 subdivision of a State, and
^^ "(B) any combination of political subdivi-
15 sions described in subparagraph (A) recognized
16 by the appropriate Secretary.
17 "(5) Nominated area.— The term 'nominated
18 area' means an area which is nominated by 1 or
19 more local governments and the State in which it is
20 located for designation as a tax enterprise zone
21 under this subchapter.
^2 "(6) Rural area.— The term 'rural area^
23 means any area which is —
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50
1 "(A) outside of a metropolitan statistical
2 area (within the meaning of section
3 143(k)(2)(B)), or
4 "(B) determined by the Secretary of Agri-
5 culture, after consultation with the Secretary of
6 Commerce, to be a rural area.
7 "(7) Appropriate secretary. — The term *ap-
8 propriate Secretary' means —
9 "(A) the Secretary of Housing and Urban
10 Development in the case of urban tax enterprise
11 zones, and
12 "(B) the Secretary of Agriculture in the
13 case of rural development investment zones.
14 "(8) State-chartered development cor-
15 PORATIONS. — ^An area shall be treated as nominated
16 by a State and a local government if it is nominated
17 by an economic development corporation chartered
18 by the State.
19 "PART n— INCENTIVES FOR TAX ENTERPRISE
20 ZONES
"Subpart A. Enterprise zone employment credit.
"Subpart B. Investment incentives.
"Subpart C. Regulations.
21 ''Subpart A — Enterprise Zone Employment Credit
"Sec. 1394. Enterprise zone emplojinent credit.
"Sec. 1395. Other definitions and sj)ecial rules.
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1 '«EC. 1394. ENTERPRISE ZONE EMPLOYMENT CREDIT.
2 "(a) Amount of Credit. — For purposes of section
3 38, the amount of the enterprise zone employment credit
4 determined under this section with respect to any em-
5 ployer for any taxable year is 15 percent of the qualified
6 zone wages paid or incurred during such taxable year.
7 "(b) Qualified Zone Wages. —
8 "(1) In general. — For purposes of this sec-
9 tion, the term 'qualified zone wages' means any
10 wages paid or incurred by an employer for services
11 performed by an employee while such employee is a
12 qualified zone employee.
13 "(2) Only first $20,000 of wages per year
14 TAKEN INTO ACCOUNT. — ^With respect to each quali-
15 fied zone employee, the amount of qualified zone
16 wages which may be taken into account for the tax-
17 able year shall not exceed $20,000.
18 "(3) Coordination with targeted jobs
19 credit. — The term 'qualified zone wages' shall not
20 include wages attributable to service rendered during
21 the 1-year period beginning with the day the individ-
22 ual begins work for the employer if any portion of
23 such wages is taken into account in determining the
24 credit under section 51.
25 "(c) Qualified Zone Employee. — For purposes of
26 this section —
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1 "(1) In general. — Except as otherwise pro-
2 vided in this subsection, the term 'qualified zone em-
3 ployee' means, with respect to any period, any em-
4 ployee of an employer if —
5 "(A) substantially all of the services per-
6 formed during such period by such employee for
7 such employer are performed within a tax en-
8 terprise zone in a trade or business of the em-
9 ployer, and
10 "(B) the principal place of abode of such
11 employee while performing such services is
12 within such tax enterprise zone.
13 "(2) Certain individuals not eligible. —
14 The term 'qualified zone employee' shall not
15 include —
16 "(A) any individual described in subpara-
17 graph (A), (B), or (C) of section 51(i)(l),
18 "(B) any 5-percent owner (as defined in
19 section 416(i)(l)(B)),
20 "(C) any individual employed by the em-
21 ployer at any facility described in section
22 144(c)(6)(B), and
_23 "(D) any individual employed by the em-
24 ployer in a trade or business the principal activ-
25 ity of which is farming (within the meaning of
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1 subparagraphs (A) or (B) of section
2 2032A(e)(5)), but only if, as of the close of the
3 taxable year, the sum of —
4 "(i) the aggregate unac^justed bases
5 (or, if greater, the fair market value) of
6 the assets owned by the employer which
7 are used in such a trade or business, and
8 "(ii) the aggregate value of assets
9 leased by the employer which are used in
10 such a trade or business (as determined
11 under regulations prescribed by the Sec-
12 retary),
13 exceeds $500,000.
14 "(d) Early Termination of Employment by Em-
15 PLOYER. —
16 "(1) In GENERAL.— If the employment of any
17 employee is terminated by the taxpayer before the
18 day 1 year after the day on which such employee
19 began work for the employer —
20 "(A) no wages with respect to such em-
21 ployee shall be taken into account under sub-
22 section (a) for the taxable year in which such
23 employment is terminated, and
24 "(B) the tax under this chapter fcTthe
25 taxable year in which such employment is ter-
•HR 16S6 IH
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1 minated shall be increased by the aggregate
2 credits (if any) allowed under section 38(a) for
3 prior taxable years by reason of wages taken
4 into account with respect to such employee.
5 "(2) Carrybacks and carryovers ad-
6 JUSTED. — In the case of any termination of employ-
7 ment to which paragraph (1) applies, the carrybacks
8 and carryovers under section 39 shall be properly
9 adjusted.
10 "(3) Subsection not to apply in certain
1 1 cases. —
12 "(A) In general. — Paragraph (1) shall
13 not apply to —
14 "(i) a termination of employment of
15 an employee who voluntarily leaves the em-
16 ployment of the taxpayer,
17 "(ii) a termination of employment of
18 an individual who before the close of the
19 period referred to in paragraph (1) be-
20 comes disabled to perform the services of
21 such employment unless such disability is
22 removed before the close of such period
23 and the taxpayer fails to offer reemploy-
24 ment to such individual, or
•HR 1636 IH
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1 "(iii) a termination of employment of
2 an individual if it is determined under the
3 applicable State unemployment eompensa-
4 tion law that the termination was due to
5 the misconduct of such individual.
6 "(B) Changes in form of business. —
7 For purposes of paragraph (1), the employment
8 relationship between the taxpayer and an em-
9 ployee shall not be treated as terminated —
10 "(1) by a transaction to which section
11 381(a) applies if the employee continues to
12 be employed by the acquiring corporation,
13 or
14 "(ii) by reason of a mere change in
15 the form of conducting the trade or busi-
16 ness of the taxpayer if the employee con-
17 tinues to be employed in such trade or
18 business and the taxpayer retains a sub-
19 stantial interest in such trade or business.
20 "(4) SpeciaIj rule. — ^Any increase in tax
21 under paragraph (1) shall not be treated as a tax
22 imposed by this chapter for purposes of —
23 "(A) determining the amount of any credit
24 allowable under this chapter, and
•HR ISM IH
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1 "(B) determining the amount of the tax
2 imposed by section 55.
3 "SEC. 1395. OTHER DEFINITIONS AND SPECIAL RULES.
4 "(a) Wages. — For purposes of this subpart, the term
5 'wages' has the same meaning as when used in section
6 51.
7 "(b) Controlled Groups. — For purposes of this
8 subpart —
9 "(1) all employers treated as a single employer
10 under subsection (a) or (b) of section 52 shall be
11 treated as a single employer for purposes of this
12 subpart, and
13 "(2) the credit (if any) determined under sec-
14 tion 1394 with respect to each such employer shall
15 be its proportionate share of the wages giving rise
16 to such credit.
17 "(c) Certain Other Rules Made Applicable. —
18 For purposes of this subpart, rules similar to the rules
19 of section 51(k) and subsections (c), (d), and (e) of section
20 52 shall apply.
21 "(d) Notice of Availability of Advance Pay-
22 MENT OF Earned Income Credit. — Each employer
23 shall take reasonable steps to notify all qualified zone em-
24 ployees of the availability to eligible individuals of receiv-
•HR 1636 IH
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1 ing advanced payments of the credit under section 32 (re-
2 lating to the earned income credit).
3 ''Subpart B — Investment Incentives
"Sec. 1396. Deduction for purchase of enterprise zone stock.
"Sec. 1397. 50 percent exclusion for gain from new zone invest-
ments.
"Sec. 1397 A. Nonrecognition of gain from new zone investments.
"Sec. 1397B. Other incentives.
"Sec. 1397C. Enterprise zone business defined.
4 "SEC. 1396. DEDUCTION FOR PURCHASE OF ENTERPRISE
5 ZONE STOCK.
6 "(a) General Rule. — In the case of an individual,
7 there shall be allowed as a deduction an amount equal to
8 50 percent of the aggregate amount paid in cash by the
9 taxpayer during the taxable year for the purchase of enter-
10 prise zone stock.
11 "(b) Limitation. —
12 "(1) In general. — The maximum amount al-
13 lowed as a deduction under subsection (a) to a tax-
14 payer for the taxable year shall not exceed the lesser
15 of—
16 "(A) $25,000, or
17 "(B) the excess of $250,000 over the
18 amount allowed as a deduction under this sec-
19 tion to the taxpayer for all prior taxable years.
20 "(2) Excess amounts. — If the amount PjJj^
21 wise deductible by any person under subsection (a)
22 exceeds the limitation under paragraph (1)(A) —
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58
1 "(A) the amount of such excess shall be
2 treated as an amount paid to which subsection
3 (a) applies during the next taxable year, and
4 "(B) the deduction allowed for any taxable
5 year shall be allocated proportionately among
6 the enterprise zone stock purchased by such
7 person on the basis of the respective purchase
8 prices per share.
9 "(3) Aggrecjation' with p^a^mily members. —
10 The taxpayer and members of the taxpayer's family
11 shall be treated as one person for purposes of para-
12 graph (1), and the limitations contained in such
13 paragraph shall bo allocated among the taxpayer and
14 such members in accordance with their respective
15 purchases of enterprise zone stock. For purposes of
16 this paragraph, an individual's family includes only
17 such indixidual's spouse and minor children.
18 "(c) Enterprise Zone Stock. — For purposes of
19 this section —
20 "(1) Ix GENERAL. — The term 'enterprise zone
21 stock' means stock of a corporation if-^
22 "(A) such .stock is acquired on original
23 issue from the corj^oration, and
24 "(B) such coiporation is, at the time of
25 issue, a qualified enteriirisc zone issuer.
•HR 1636 IH
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1 "(2) Proceeds must be invested in quali-
2 FIED enterprise ZONE PROPERTY. —
3 "(A) In GENERAL. — Such term shall in-
4 elude such stock only to the extent that the pro-
5 ceeds of such issuance are used by such issuer
6 during the 12-month period beginning on the
7 date of issuance to purchase (as defined in sec-
8 tion 179(d)(2)) qualified enterprise zone prop-
9 ertv.
10 "(B) Qualified enterprise zone prop-
11 ert\'. — For purposes of this section, the term
12 'qualified enterprise zone property' means prop-
13 erty to which section 168 applies —
14 ' "(i) the original use of which in a tax
15 enterprise zone commences with the issuer,
16 and
17 "(ii) substantially all of the use of
18 which is in a tax enterprise zone.
19 "(3) Redemptions. — The term 'enterprise
20 zone stock' shall not include any stock acquired from
21 a corporation which made a substantial stock re-
22 demption or distribution (^\^thout a bona fide^Busi-
23 ness purj^ose therefor) in an attempt to avoid the
24 purposes of this section.
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1 "(d) Qualified Enterprise Zone Issuer. — For
2 purposes of this section, the term 'qualified enterprise
3 zone issuer' means any domestic C corporation if —
4 **(1) such corporation is an enterprise zone
5 business or, in the case of a new corporation, such
6 corporation is being organized for purposes of being
7 an enterprise zone business,
8 "(2) such corporation does not have more than
9 one class of stock,
10 "(3) the sum of—
11 "(A) the money,
12 "(B) the aggregate unadjusted bases of
13 property owned by such corporation, and
14 "(C) the value of property leased to the
15 corporation (as determined under regulations
16 prescribed by the Secretary),
17 does not exceed $5,000,000, and
18 "(4) more than 20 percent of the total voting
19 power, and 20 percent of the total value, of the
20 stock of such corporation is owned directly by indi-
21 viduals or estates or indirectly by individuals
22 through partnerships or trusts.
23 The determination under paragraph (3) shall be made as
24 of the time of issuance of the stock in question but shall
25 include amounts received for such stock.
•HR 1636 IH
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1 "(e) Dispositions of Stock. —
2 "(1) Basis reduction. — For purposes of this
3 title, the basis of any enterprise zone stock shall be
4 reduced by the amount of the deduction allowed
.5 under this section with respect to such stock.
6 "(2) Deduction recaptured as ordinary
7 income. — For purposes of section 1245 —
8 "(A) any stock the basis of which is re-
9 duced under paragraph (1) (and any other
10 property the basis of which is determined in
11 whole or in part by reference to the adjusted
12 ' basis of such stock) shall be treated as section
13 1245 property, and
14 "(B) any reduction under paragraph (1)
15 shall be treated as a deduction allowed for de-
16 preciation.
17 If an exchange of any stock described in paragraph
18 (1) qualifies under section 354(a), 355(a), or
19 356(a), the amount of gain recognized under section
20 1245 by reason of this paragraph shall not exceed
21 the amount of gain recognized in the exchange (de-
22 termined without regard to this paragraph).
23 "(3) Certain events treated as disposi-
24 TIONS. — For purposes of determining the amount
25 treated as ordinary income under section 1245 by
•HR 1S36 IH
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1 reason of paragraph (2), para^aph (3) of section
2 1245(b) (relating to certain tax-free transactions)
3 shall not apply.
4 "(4) Interest charged if disposition
5 within 5 years of purchase. —
6 "(A) In general. — If —
7 "(i) a taxpayer disposes of any enter-
8 prise zone stock with respect to which a
9 deduction was allowed under subsection (a)
10 (or any other property the basis of which