Rural microbusiness investment credit

(a)

In general

Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to business related credits) is amended by adding at the end the following new section:

45S.

Rural microbusiness investment credit

(a)

In general

For purposes of section 38, the amount of the rural microbusiness investment credit determined under this section for any taxable year with respect to a rural microbusiness is equal to 35 percent of the qualified new investments in the rural microbusiness for the taxable year. (b)

Limitations

(1)

Per business limitations

The amount allowed as a credit under subsection (a) with respect to any rural microbusiness for a taxable year shall not exceed— (A)$10,000, reduced (but not below zero) by (B)the amount allowed under subsection (a) to the rural microbusiness for all preceding taxable years. (2)

Per taxpayer limitations

The amount allowed as a credit under subsection (a) with respect to any taxpayer with respect to all rural microbusinesses of the taxpayer for a taxable year shall not exceed— (A)$10,000, reduced (but not below zero) by (B)the amount allowed under subsection (a) to the taxpayer with respect to rural microbusinesses for all preceding taxable years. (c)

Definitions

For purposes of this section— (1)

Qualified new investment

The term qualified new investment means the excess of— (A)qualified expenditures paid or incurred for the taxable year, over (B)the greater of— (i)qualified expenditures paid or incurred for the preceding taxable year, or (ii)the average annual qualified expenditures paid or incurred over the preceding three taxable years.

If the rural microbusiness was not in existence for the entire 3-year period referred to in clause (ii) of subparagraph (B), subparagraph (B) shall be applied without regard to so much of such subparagraph as precedes such clause (ii) and any taxable years during such 3-year period for which the rural microbusiness was not in existence shall be taken into account as taxable years during which there were no qualified expenditures.

(2)

Qualified expenditures

(A)

In general

The term qualified expenditures means any amount which is paid or incurred with respect to a rural microbusiness. Such term includes costs for capital plant and equipment, inventory expenses, and wages. (B)

Exception

Such term does not include— (i)any interest cost, (ii)the cost of any vehicle which is not a qualified nonpersonal use vehicle (as defined in section 274(i)), and (iii)the cost of any compensation or benefits to the taxpayer claiming the credit, including the taxpayer’s spouse and dependents. (3)

Rural microbusiness

(A)

In general

The term rural microbusiness means any trade or business if— (i)such trade or business is operated as a proprietorship, partnership, trust (to the extent that the trust is a pass-thru entity), S corporation, or other pass-thru entity, (ii)each of the owners of such trade or business, with respect to the taxable year for which the credit is claimed— (I)materially participates (as determined under rules similar to the rules of section 469(h)) in such trade or business, and (II)in the case of any trade or business substantially all of the activity of which is in agricultural production, is a first-time farmer (as defined in section 147(c)(2)(C)), (iii)such trade or business is carried on, and physically located, in a distressed rural area during the taxable year for which the credit is claimed, (iv)such trade or business employs not more than 5 full time (or full-time equivalent) employees during the taxable year for which the credit is claimed, and (v)which meets the gross revenue test under subparagraph (D) for the first taxable year in which the credit under subsection (a) is allowable with respect to the trade or business. (B)

Exceptions

Such term shall not include— (i)any trade or business which includes, in whole or in part, any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or other facility used for gambling, or any store the principal business of which is the sale of alcoholic beverages for consumption off premises, or (ii)any trade or business with respect to which records are required under section 2257 of title 18, United States Code, to be maintained with respect to any performer. (C)

Gross revenue test

(i)

In general

A trade or business meets the gross revenue test of this subparagraph for any taxable year if the average annual gross revenue of the trade or business for the 3-taxable year period ending with the taxable year does not exceed $1,000,000. (ii)

Aggregation rules

All persons treated as a single employer under subsection (a) or (b) or section 52 or subsection (m) or (o) of section 414 shall be treated as a trade or business for purposes of clause (i). (iii)

Special rules for entities not in existence for entire 3-year period, etc

Rules similar to the rules of subparagraphs (A), (B), and (D) of section 448(c)(3) shall apply for purposes of this subparagraph. (D)

Self-employed individuals

For purposes of this paragraph, if, with respect to a trade or business, an individual is treated as an employee under section 401(c), such individual shall be treated as an employee of such trade or business for purposes of the preceding sentence. (E)

Full-time equivalent employee

For purposes of this paragraph— (i)

In general

The term full-time equivalent employee means a number of employees equal to the number determined by dividing— (I)the total number of hours of service for which wages were paid by the employer to employees during the taxable year, by (II)2,080.

Such number shall be rounded to the next lowest whole number if not otherwise a whole number.

(ii)

Excess hours not counted

If an employee works in excess of 2,080 hours of service during any taxable year, such excess shall not be taken into account under clause (i). (iii)

Hours of service

The Secretary, in consultation with the Secretary of Labor, shall prescribe such regulations, rules, and guidance as may be necessary to determine the hours of service of an employee, including rules for the application of this paragraph to employees who are not compensated on an hourly basis. (4)

Distressed rural area

(A)

In general

The term distressed rural area means any qualified area in the United States— (i)that has lost at least 5 percent of its population over the last 10 years, (ii)that lost at least 10 percent if its population over the last 20 years, (iii)that has median family income below 85 percent of the national median family income, (iv)that has a poverty rate that exceeds 12.5 percent, or (v)where average unemployment in the preceding year exceeds 120 percent of the national average. (B)

Qualified area

For purposes of subparagraph (A), the term qualified area means— (i)any area other than— (I)a city or town that has a population of greater than 50,000 inhabitants, and (II)any urbanized area contiguous and adjacent to a city or town described in subclause (I), and (ii)any county in which— (I)there is no city or town that has a population of greater than 100,000 inhabitants, and (II)there are no urbanized areas contiguous and adjacent to a city or town described in subclause (I). (C)

Relevant sources of information

In determining whether an area is a distressed rural area under this paragraph, such determination shall be made in accordance with the most recent information from the Bureau of the Census, the Bureau of Labor Statistics, or other government entity with relevant information. (5)

Related persons

A person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707(b) (but, in applying section 267(b) and (c) for purposes of this section, paragraph (4) of section 267(c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, and lineal descendants). (d)

Denial of double benefit

No deduction or credit shall be allowed under any other provision of this chapter for any amount taken into account in determining the credit under this section. (e)

Other rules

(1)

Married couple must file joint return

Rules similar to the rules of paragraphs (2), (3), and (4) of section 21(e) shall apply for purposes of this section. (2)

Denial of credit to dependents

No credit shall be allowed under this section to any individual with respect to whom a deduction is allowed under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual's calendar year begins.

(b)

Credit allowed as part of general business credit

Section 38(b) of such Code (defining current year business credit) is amended by striking plus at the end of paragraph (35), by striking the period at the end of paragraph (36) and inserting , plus, and by adding at the end the following new paragraph:

(37)the rural microbusiness investment credit determined under section 45S(a).

(c)

Carryover of Unused Credit

Subsection (a) of section 39 of such Code is amended by adding at the end the following new paragraph:

(5)

5-year carryback for rural microbusiness investment credit

Notwithstanding subsection (d), in the case of the rural microbusiness investment credit— (A)this section shall be applied separately from the business credit and the marginal oil and gas well production credit (other than the rural microbusiness investment credit), (B)paragraph (1) shall be applied by substituting each of the 5 taxable years for the taxable year in subparagraph (A) thereof, and (C)paragraph (2) shall be applied— (i)by substituting 25 taxable years for 21 taxable years in subparagraph (A) thereof, and (ii)by substituting 24 taxable years for 20 taxable years in subparagraph (B) thereof.

(d)

Conforming amendment

The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding at the end the following new item:

Sec. 45S. Rural microbusiness investment credit.

(e)

Effective date

The amendments made by this section shall apply to expenditures made in taxable years beginning after the date of the enactment of this Act.