[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3643 Introduced in House (IH)]

103d CONGRESS
  1st Session
                                H. R. 3643

To amend the Internal Revenue Code of 1986 to provide tax incentives to 
  encourage corporations to provide financing and management support 
  services to enable welfare recipients to leave welfare and operate 
                        small business concerns.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           November 22, 1993

  Mr. Franks of Connecticut introduced the following bill; which was 
              referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to provide tax incentives to 
  encourage corporations to provide financing and management support 
  services to enable welfare recipients to leave welfare and operate 
                        small business concerns.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Welfare Opportunities and Pay Back 
Act''.

SEC. 2. TAX INCENTIVES FOR WELFARE OPPORTUNITY FINANCING SUBSIDIARIES.

    (a) General Rule.--Part VIII of subchapter B of chapter 1 of the 
Internal Revenue Code of 1986 (relating to special deductions for 
corporations) is amended by adding at the end thereof the following new 
subpart:

     ``Subpart B--Tax Incentives for Welfare Financing Subsidiaries

                              ``Sec. 251. Deduction for equity 
                                        contributions to welfare 
                                        opportunity financing 
                                        subsidiaries.
                              ``Sec. 252. Overall limitation on 
                                        deductions.
                              ``Sec. 253. Definitions and special 
                                        rules.

``SEC. 251. DEDUCTION FOR EQUITY CONTRIBUTIONS TO WELFARE OPPORTUNITY 
              FINANCING SUBSIDIARIES.

    ``(a) General Rule.--In the case of a qualified contributing 
corporation, there shall be allowed as a deduction an amount equal to 
the equity contributions made by such corporation to a welfare 
opportunity financing subsidiary of such corporation. Such deduction 
shall be allowed for the taxable year of the contributing corporation 
in which the equity contribution is used by the subsidiary in making 
qualified business loans.
    ``(b) Limitation.--The amount allowed as a deduction under 
subsection (a) to any qualified contributing corporation for any 
taxable year shall not exceed the lesser of--
            ``(1) $10,000,000, or
            ``(2) the portion of the program limitation allocated to 
        such corporation under section 252 to the extent the amount so 
        allocated was not used in a prior taxable year.
    ``(c) Equity Contribution.--For purposes of this section, the term 
`equity contribution' means--
            ``(1) any amount paid in cash for stock in a welfare 
        opportunity financing subsidiary of the corporation if such 
        stock is acquired at its original issuance, and
            ``(2) any contribution in cash to the capital of a welfare 
        opportunity financing subsidiary of the corporation.
    ``(d) Recapture Provisions.--
            ``(1) Basis adjustment.--The adjusted basis of any stock 
        held by a corporation in a welfare opportunity financing 
        subsidiary of such corporation shall be reduced by the amount 
        allowed as a deduction under subsection (a) in connection with 
        the acquisition of such stock. No increase in the basis of any 
        such stock shall be made on account of any contribution to the 
        capital of such subsidiary for which a deduction is allowed 
        under subsection (a).
            ``(2) Ordinary income recapture.--Any gain recognized on 
        the sale or other disposition by a corporation of stock in a 
        welfare opportunity financing subsidiary of such corporation 
        shall be treated as ordinary income.
            ``(3) Certain events treated as dispositions.--If any 
        welfare opportunity financing subsidiary of a corporation 
        ceases to qualify as a welfare opportunity financing subsidiary 
        with respect to such corporation, such corporation shall 
        recognize gain as if it sold its stock in such subsidiary for 
        an amount equal to its fair market value immediately before 
        such cessation.

``SEC. 252. OVERALL LIMITATION ON DEDUCTIONS.

    ``(a) General Rule.--The Secretary of Health and Human Services 
shall allocate the program limitation among the qualified contributing 
corporations submitting applications to such Secretary for allocations 
under this section.
    ``(b) Program Limitation.--The program limitation is $250,000,000.
    ``(c) Method of Making Allocations.--The Secretary of Health and 
Human Services shall prescribe regulations setting forth the procedures 
for making allocations under this section. Such procedures shall--
            ``(1) include the criteria used in selecting the 
        corporations to which the allocations are made, and
            ``(2) be designed to ensure a reasonable availability, on a 
        geographical basis, of the benefits of this subpart.

``SEC. 253. DEFINITIONS AND SPECIAL RULES.

    ``(a) Qualified Contributing Corporation.--For purposes of this 
subpart, the term `qualified contributing corporation' means any 
domestic corporation which is not a small business concern; except that 
such term shall not include any corporation predominantly engaged in a 
banking, insurance, finance, or similar business.
    ``(b) Welfare Opportunity Financing Subsidiary.--For purposes of 
this subpart, the term `welfare financing subsidiary' means any 
domestic corporation--
            ``(1) all the stock of which (exclusive of directors' 
        qualifying shares) is held directly by one qualified 
        contributing corporation, and
            ``(2) all the activities of which consist of--
                    ``(A) making qualified business loans,
                    ``(B) providing management, administrative, 
                consulting, and other support services to qualified 
                small business concerns to which such corporation has 
                made qualified business loans, and
                    ``(C) making temporary investments (for a period 
                not exceeding 6 months) of amounts being held for 
                purposes of making qualified business loans.
    ``(c) Qualified Business Loans.--For purposes of this subpart, the 
term `qualified business loan' means any loan made by a welfare 
opportunity financing subsidiary if--
            ``(1) such loan is made to a qualified small business 
        concern and such concern is not related (within the meaning of 
        section 267(b) or 707(b)) to such subsidiary or the qualified 
        contributing corporation holding such subsidiary,
            ``(2) the proceeds of such loan are used by such qualified 
        small business concern in the active conduct of a trade or 
        business,
            ``(3) the welfare opportunity financing subsidiary provides 
        (without charge) substantial qualified services to the 
        qualified small business concern in connection with such loan, 
        except that such small business concern may waive the 
        requirements of this paragraph, and
            ``(4) the interest on such loan does not exceed--
                    ``(A) in the case of a secured loan, the prime rate 
                plus 3 percentage points, or
                    ``(B) in the case of any other loan, the prime rate 
                plus 8 percentage points.
    ``(d) Qualified Small Business Concern.--For purposes of this 
subpart, the term `qualified small business concern' means any person 
if--
            ``(1) such person is a small business concern within the 
        meaning of section 3 of the Small Business Act (15 U.S.C. 632), 
        and
            ``(2) such person is wholly owned by 1 qualified 
        individual.
    ``(e) Qualified Individual.--For purposes of this subpart, the term 
`qualified individual' means an individual who--
            ``(1) has become ineligible to receive aid to families with 
        dependent children under a State plan approved under part A of 
        title IV of the Social Security Act, or supplemental security 
        income benefits under title XVI of such Act, by reason of the 
        receipt of a qualified business loan, and
            ``(2) as a condition of receiving the loan, has agreed to 
        repay (in accordance with section 6306) to the Federal 
        Government an amount equal to the total amount of benefits 
        described in paragraph (1) received by the individual during 
        the most recent 24 months (whether or not consecutive) during 
        which such benefits were so received.
    ``(f) Other Definitions and Special Rules.--
            ``(1) Substantial qualified services.--For purposes of this 
        subpart, the term `substantial qualified services' means, with 
        respect to any loan made by a welfare opportunity financing 
        subsidiary, any management, administrative, consulting, or 
        other support services provided to the borrower under such 
        loan, but only if the amount of such services, to be provided 
        during the first year such loan is outstanding involve at least 
        1,000 man-hours for each $100,000 principal amount of such 
        loan.
            ``(2) Prime rate.--For purposes of this subpart--
                    ``(A) In general.--The term `prime rate' means the 
                average predominant prime rate quoted by commercial 
                banks to large businesses, as determined by the Board 
                of Governors of the Federal Reserve System.
                    ``(B) When determination made.--
                            ``(i) Except as provided in clause (ii), 
                        the determination of the prime rate shall be 
                        made as of the time the loan is made.
                            ``(ii) If the loan is a variable rate loan, 
                        the prime rate taken into account with respect 
                        to any change in rate shall be determined as of 
                        the time such change takes effect.
            ``(3) Treatment of controlled groups.--Any group of 
        corporations treated as a single employer under section 51(a) 
        or (b) shall be treated as one corporation for purposes of this 
        subpart.
    ``(g) Employees of Borrower May Be Taken Into Account for Certain 
Purposes.--If--
            ``(1) a qualified contributing corporation has provided 
        financing through a welfare opportunity financing subsidiary to 
        any qualified small business concern, and
            ``(2) such qualified small business concern designates such 
        subsidiary as its primary lender,
such qualified contributing corporation may treat the employees of such 
qualified small business concern as its own employees for purposes of 
determining which such qualified contributing corporation is in 
compliance with the requirements of any Federal law. A qualified small 
business concern may designate only 1 welfare opportunity financing 
subsidiary is its primary lender for any period.''
    (b) Clerical Amendment.--Part VIII of subchapter B of chapter 1 of 
such Code is amended by inserting after the part heading the following:

                              ``Subpart A. General provisions.
                              ``Subpart B. Tax incentives for welfare 
                                        opportunity financing 
                                        subsidiaries.

                   ``Subpart A--General Provisions''.

    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 3. INDIVIDUALS RECEIVING LOANS FROM WELFARE OPPORTUNITY FINANCING 
              SUBSIDIARIES REQUIRED TO REPAY CERTAIN WELFARE BENEFITS.

    (a) In General.--Subchapter A of chapter 64 of the Internal Revenue 
Code of 1986 (relating to collection) is amended by adding at the end 
thereof the following new section:

``SEC. 6306. COLLECTION OF CERTAIN WELFARE BENEFITS FROM INDIVIDUALS 
              RECEIVING QUALIFIED BUSINESS LOANS.

    ``(a) In General.--Each borrower of a qualified business loan shall 
make the payments required under this section for each taxable year in 
the repayment period.
    ``(b) Required Payment.--
            ``(1) In general.--The amount required to be paid under 
        this section by any borrower for any taxable year in the 
        repayment period shall be the sum of--
                    ``(A) the amount determined by dividing the 
                repayable welfare benefits of such individual which 
                were not repaid under this section as of the close of 
                the preceding taxable year by the number of taxable 
                years remaining in the repayment period, plus
                    ``(B) interest on such amount determined at the 
                repayment interest rate.
            ``(2) Limitation based on adjusted gross income.--The 
        amount required to be paid under this section for any taxable 
        year shall not exceed 5 percent of the taxpayer's adjusted 
        gross income for such taxable year (determined without regard 
        to this section).
    ``(c) Definitions.--For purposes of this section--
            ``(1) Repayable welfare benefits.--The term `repayable 
        welfare benefits' means, with respect to any qualified business 
        loan giving rise to a payment obligation under this section, 
        the aggregate amount received by the borrower as aid to 
        families with dependent children under a State plan approved 
        under part A of title IV of the Social Security Act or as 
        supplemental security income benefits under title XVI of such 
        Act during the most recent 24 months (whether or not 
        consecutive) during which such benefits were so received before 
        the date such loan was made.
            ``(2) Repayment period.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `repayment period' means the 
                period determined in accordance with the following 
                table:

      

                                                                                                                
              ``If the aggregate repayable welfare benefits is--                                                
                                                                                 The repayment period is--      
                  At least                        But less than                                                 
                                                                                                                
                      1                               3,000                           2 taxable years           
                    3,001                             7,500                           5 taxable years           
                    7,501                            15,000                          10 taxable years           
                                                                                                                

                    ``(B) Extension of repayment period if adjusted 
                gross income limitation on repayment amount applies.--
                The number of taxable years in the repayment period 
                shall be increased by 1 taxable year for each taxable 
                year that the required payment under this section is 
                limited under subsection (b)(2).
            ``(3) Repayment interest rate.--The term `repayment 
        interest rate' means, with respect to any taxable year ending 
        during a calendar year, the average prime rate as of the close 
        of each month during the preceding calendar year plus 1.5 
        percentage points.
            ``(4) Other definitions.--The terms `qualified business 
        loan' and `prime rate' have the meanings given such terms by 
        section 253.
    ``(d) Notice to Borrower.--
            ``(1) In general.--If the records of the Secretary indicate 
        that a borrower of a qualified business loan is required to 
        make a payment under this section for a taxable year ending 
        with or within a calendar year, the Secretary shall, during 
        January of such calendar year, furnish to such borrower notice 
        as to--
                    ``(A) the fact that the records of the Secretary 
                indicate that such borrower is required to make a 
                payment under this section for such taxable year,
                    ``(B) the minimum required payment under this 
                section for such taxable year, and
                    ``(C) the total amount which, if paid by the 
                taxpayer on or before the last date described in 
                subsection (e)(1) for such taxable year, would satisfy 
                such taxpayer's obligation to make further payments of 
                this section.
            ``(2) Form, etc.--The notice under paragraph (1) shall be 
        in such form as the Secretary may by regulations prescribe and 
        shall be sent by mail to the individual's last known address or 
        shall be left at the dwelling or usual place of business of 
        such individual.
    ``(e) Payment of Amount Owing.--Any amount to be collected from an 
individual under this section shall be paid--
            ``(1) not later than the last date (determined without 
        regard to extensions) prescribed for filing his return of tax 
        imposed by chapter 1 for the taxable year ending with or within 
        the calendar year during which the notice under subsection (d) 
        is sent, and
            ``(2)(A) if such return is filed not later than such date, 
        with such return, or
            ``(B) in any case not described in subparagraph (A), in 
        such manner as the Secretary may by regulations prescribe.
    ``(f) Failure To Pay Amount Owing.--If an individual fails to pay 
the full amount required to be paid on or before the last date 
described in subsection (e)(1), the Secretary shall assess and collect 
the unpaid amount in the same manner, with the same powers, and subject 
to the same limitations applicable to a tax imposed by subtitle C the 
collection of which would be jeopardized by delay.
    ``(g) Deceased and Permanently Disabled Borrowers; Discharge by 
Secretary.--If an individual who is required to make payments under 
this section dies or becomes permanently and totally disabled (as 
determined in accordance with regulations of the Secretary), then the 
Secretary shall discharge the borrower's liability for any payment 
under this section.
    ``(h) Crediting of Collections; Special Rules.--
            ``(1) Crediting of collections.--Amounts collected under 
        this section shall be credited to the governments paying the 
        repayable welfare benefits in proportion to each such 
        government's share of the aggregate welfare benefits required 
        to be repaid under this section.
            ``(2) Finality of assessment and collection.--The first 
        sentence of subsection (b) of section 6305 shall apply to 
        assessments and collections under subsection (f) of this 
        section.''
    (b) Application of Estimated Tax.--Subsection (f) of section 6654 
of such Code (relating to failure by individual to pay estimated income 
tax) is amended by striking ``minus'' at the end of paragraph (2) and 
inserting ``plus'', by redesignating paragraph (3) as paragraph (4), 
and by inserting after paragraph (2) the following new paragraph:
            ``(3) the amount required to be repaid under section 6306 
        (relating to collection of certain welfare benefits from 
        individuals receiving qualified business loans), minus.''
    (c) Clerical Amendment.--The table of sections for subchapter A of 
chapter 64 of such Code is amended by adding at the end thereof the 
following new item:

                              ``Sec. 6306. Collection of certain 
                                        welfare benefits from 
                                        individuals receiving qualified 
                                        business loans.''

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HR 3643 IH----2