[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 393 Introduced in Senate (IS)]

103d CONGRESS
  1st Session
                                 S. 393

 To amend the Internal Revenue Code of 1986 to provide incentives for 
       urban and rural enterprise zones, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

             February 18 (legislative day, January 5), 1993

 Mr. Lieberman 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 incentives for 
       urban and rural enterprise zones, and for other purposes.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Enterprise Zone 
Tax Act of 1993''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. STATEMENT OF PURPOSE.

    It is the purpose of this Act to establish a demonstration program 
of providing incentives for the creation of tax enterprise zones in 
order--
            (1) to revitalize economically and physically distressed 
        areas, primarily by encouraging the formation of new businesses 
        and the retention and expansion of existing businesses, and
            (2) to promote meaningful employment for tax enterprise 
        zone residents.

SEC. 3. DESIGNATION AND TREATMENT OF URBAN TAX ENTERPRISE ZONES, RURAL 
              DEVELOPMENT INVESTMENT ZONES, AND INDIAN RESERVATION TAX 
              ENTERPRISE ZONES.

    (a) In General.--Chapter 1 (relating to normal taxes and surtaxes) 
is amended by inserting after subchapter T the following new 
subchapter:

   ``Subchapter U--Designation and Treatment of Tax Enterprise Zones

                              ``Part I. Designation of tax enterprise 
                                        zones.
                              ``Part II. Incentives for tax enterprise 
                                        zones.

             ``PART I--DESIGNATION OF TAX ENTERPRISE ZONES

                              ``Sec. 1391. Designation procedure.
                              ``Sec. 1392. Eligibility and selection 
                                        criteria.
                              ``Sec. 1393. Definitions and special 
                                        rules.

``SEC. 1391. DESIGNATION PROCEDURE.

    ``(a) In General.--For purposes of this title, the term `tax 
enterprise zone' means any area which is, under this part--
            ``(1) nominated by 1 or more local governments and the 
        State in which it is located for designation as a tax 
        enterprise zone, and
            ``(2) designated by--
                    ``(A) the Secretary of Housing and Urban 
                Development in the case of an urban tax enterprise 
                zone,
                    ``(B) the Secretary of Agriculture, in consultation 
                with the Secretary of the Interior, in the case of a 
                rural development investment zone, and
                    ``(C) the Secretary of the Interior in the case of 
                an Indian reservation tax enterprise zone.
    ``(b) Number of Designations.--
            ``(1) Aggregate limit.--The appropriate Secretaries shall 
        designate 125 nominated areas as tax enterprise zones under 
        this section, of which 75 shall be urban tax enterprise zones, 
        40 shall be rural development investment zones, and 10 shall be 
        Indian reservation tax enterprise zones. Such designations may 
        be made only during calendar years after 1992 and before 1997 
        and shall be subject to the availability of eligible nominated 
        areas.
            ``(2) Annual limits.--
                    ``(A) Urban tax enterprise zones.--The number of 
                urban tax enterprise zones designated under paragraph 
                (1)--
                            ``(i) in calendar year 1993 shall not 
                        exceed 11,
                            ``(ii) in calendar year 1994 shall not 
                        exceed the sum of 14 plus the carryover amount 
                        for such year,
                            ``(iii) in calendar year 1995 shall not 
                        exceed the sum of 25 plus the carryover amount 
                        for such year, and
                            ``(iv) in calendar year 1996 shall not 
                        exceed the sum of 25 plus the carryover amount 
                        for such year.
                    ``(B) Rural development investment zones.--The 
                number of rural development investment zones designated 
                under paragraph (1)--
                            ``(i) in calendar year 1993 shall not 
                        exceed 8,
                            ``(ii) in calendar year 1994 shall not 
                        exceed the sum of 8 plus the carryover amount 
                        for such year,
                            ``(iii) in calendar year 1995 shall not 
                        exceed the sum of 12 plus the carryover amount 
                        for such year, and
                            ``(iv) in calendar year 1996 shall not 
                        exceed the sum of 12 plus the carryover amount 
                        for such year.
                    ``(C) Indian reservation tax enterprise zones.--The 
                number of Indian reservation tax enterprise zones under 
                paragraph (1)--
                            ``(i) in calendar year 1993 shall not 
                        exceed 2,
                            ``(ii) in calendar year 1994 shall not 
                        exceed the sum of 2 plus the carryover amount 
                        for such year,
                            ``(iii) in calendar year 1995 shall not 
                        exceed the sum of 3 plus the carryover amount 
                        for such year, and
                            ``(iv) in calendar year 1996 shall not 
                        exceed the sum of 3 plus the carryover amount 
                        for such year.
                    ``(D) Carryover amount.--For purposes of 
                subparagraphs (A), (B), and (C), the carryover amount 
                for any calendar year shall be equal to the amount by 
                which--
                            ``(i) the limitation under such 
                        subparagraph for the preceding calendar year, 
                        exceeds
                            ``(ii) the number of designations made 
                        under paragraph (1) for the type of tax 
                        enterprise zone to which such subparagraph 
                        relates in such preceding calendar year.
            ``(3) Advance designations permitted.--For purposes of this 
        subchapter, a designation during any calendar year shall be 
        treated as made on January 1 of the following calendar year if 
        the appropriate Secretary, in making such designation, 
        specifies that such designation is effective as of such January 
        1.
            ``(4) Certain zones must be in small cities, etc.--For 
        purposes of this subsection--
                    ``(A) of the 75 urban tax enterprise zones, at 
                least 40 shall be from nominated areas which are 
                nominated by 1 or more local governments having 
                jurisdiction over areas with an aggregate population 
                (as determined by the 1990 or subsequent census data) 
                of less than 500,000, and
                    ``(B) of such zones designated during any calendar 
                year, at least 8 shall be from areas described in 
                subparagraph (A).
    ``(c) Limitations on Designations.--The appropriate Secretary may 
not make any designation under subsection (a) unless--
            ``(1) the local governments and the State in which the 
        nominated area is located have the authority--
                    ``(A) to nominate the area for designation as a tax 
                enterprise zone, and
                    ``(B) to provide assurances satisfactory to the 
                appropriate Secretary that the commitments under 
                section 1392(c) will be fulfilled,
            ``(2) the appropriate Secretary determines that any 
        information furnished is reasonably accurate, and
            ``(3) the State and local governments certify that no 
        portion of the area nominated is already included in a tax 
        enterprise zone or in an area otherwise nominated to be a tax 
        enterprise zone.
    ``(d) Period for Which Designation Is in Effect.--
            ``(1) In general.--Any designation of an area as a tax 
        enterprise zone shall remain in effect during the period 
        beginning on the date of the designation and ending on the 
        earliest of--
                    ``(A) December 31 of the 10th calendar year 
                following the calendar year in which such date occurs,
                    ``(B) the termination date designated by the State 
                and local governments as provided for in their 
                nomination, or
                    ``(C) the date the appropriate Secretary revokes 
                the designation under paragraph (2).
            ``(2) Revocation of designation.--
                    ``(A) In general.--The appropriate Secretary shall 
                revoke the designation of an area as a tax enterprise 
                zone if such Secretary determines that the local 
                government or the State in which it is located--
                            ``(i) has significantly modified the 
                        boundaries of the area, or
                            ``(ii) is not complying substantially with 
                        the State and local commitments pursuant to 
                        section 1392(c).
                    ``(B) Applicable procedures.--A designation may be 
                revoked by the appropriate Secretary under subparagraph 
                (A) only after a hearing on the record at which 
                officials of the State or local government are given 
                the opportunity to participate and after an opportunity 
                for the State or local government to correct any 
                deficiencies the Secretary determines under 
                subparagraph (A).
                    ``(C) Revocation to be prospective.--Any revocation 
                under subparagraph (A) shall not take effect before the 
                date of the final determination under subparagraph (A) 
                (after application of subparagraph (B)).

``SEC. 1392. ELIGIBILITY AND SELECTION CRITERIA.

    ``(a) In General.--The appropriate Secretary may make a designation 
of any nominated area under section 1391 only on the basis of the 
eligibility and selection criteria set forth in this section.
    ``(b) Eligibility Criteria.--
            ``(1) Urban tax enterprise zones.--A nominated area which 
        is not a rural area (and no portion of which is located on an 
        Indian reservation) shall be eligible for designation under 
        section 1391 only if it meets the following criteria:
                    ``(A) Population.--The nominated area has a 
                population (as determined by the 1990 or subsequent 
                census data) of not less than 20,000, (10,000 in the 
                case of any urban tax enterprise zone described in 
                section 1391(b)(4)).
                    ``(B) Distress.--The nominated area is one of 
                pervasive unemployment and general distress.
                    ``(C) Size.--The nominated area--
                            ``(i) is one contiguous area, and
                            ``(ii) is located within not more than 2 
                        States.
                    ``(D) Poverty rate.--The poverty rate (as 
                determined by the 1990 or subsequent census data)--
                            ``(i) for each population census tract 
                        within the nominated area is not less than 25 
                        percent, and
                            ``(ii) for not less than 80 percent of the 
                        population census tracts within the nominated 
                        area is not less than 35 percent.
                    ``(E) Course of action.--There has been adopted for 
                the nominated area a course of action which meets the 
                requirements of subsection (c).
            ``(2) Rural development investment zones.--A nominated area 
        which is a rural area shall be eligible for designation under 
        section 1391 only if it meets the following criteria:
                    ``(A) Population.--The nominated area has a 
                population (as determined by the 1990 or subsequent 
                census data) of not less than 5,000.
                    ``(B) Additional criteria.--The criteria set forth 
                in subparagraphs (B), (C), (D), and (E) of paragraph 
                (1).
            ``(3) Indian reservation tax enterprise zones.--A nominated 
        area which is an Indian reservation tax enterprise zone shall 
        be eligible for designation under section 1391 only if it meets 
        the following criteria:
                    ``(A) Size.--The nominated area--
                            ``(i) is located on an Indian reservation,
                            ``(ii) is one contiguous area, and
                            ``(iii) is located within not more than 2 
                        States.
                    ``(B) Additional criteria.--The criteria set forth 
                in subparagraphs (B), (D), and (E) of paragraph (1).
            ``(4) Special rule with respect to course of action 
        criteria.--In the case of a nominated area which is--
                    ``(A) described in paragraph (2) and is located on 
                an Indian reservation, or
                    ``(B) described in paragraph (3),
        the criteria set forth in subparagraph (E) of paragraph (1) 
        shall apply only to the extent the reservation governing body 
        has legal authority to comply with such criteria.
    ``(c) Required State and Local Course of Action.--
            ``(1) In general.--No nominated area may be designated as a 
        tax enterprise zone unless the local government and the State 
        in which it is located agree in writing that, during any period 
        during which the area is a tax enterprise zone, the governments 
        will follow a specified course of action designed to reduce the 
        various burdens borne by employers or employees in the area.
            ``(2) Course of action.--The course of action under 
        paragraph (1) may be implemented by both governments and 
        nongovernmental entities, may not be funded from proceeds of 
        any Federal program (other than discretionary proceeds), and--
                    ``(A) shall include--
                            ``(i) a certification by the State 
                        insurance commissioner (or similar State 
                        official) that basic commercial property 
                        insurance of a type comparable to that 
                        insurance generally in force in urban or rural 
                        areas, whichever is applicable, throughout the 
                        State is available to businesses within the tax 
                        enterprise zone,
                            ``(ii) a program to ensure the necessary 
                        rehabilitation of publicly owned property 
                        within the tax enterprise zone,
                            ``(iii) an increase in the level, or 
                        efficiency of delivery, of local public 
                        services within the tax enterprise zone,
                            ``(iv) the involvement in the program by 
                        public authorities or private entities, 
                        organizations, neighborhood associations, and 
                        community groups, particularly those within the 
                        nominated area, including a written commitment 
                        to provide jobs and job training for, and 
                        technical, financial, or other assistance to, 
                        employers, employees, and residents of the 
                        nominated area,
                            ``(v) the giving of special preference to 
                        contractors owned and operated by members of 
                        any socially and economically disadvantaged 
                        group (within the meaning of section 8(a) of 
                        the Small Business Act (15 U.S.C. 637(a)), in 
                        connection with an activity any part of which 
                        occurs within the tax enterprise zone,
                            ``(vi) the establishment of a program to 
                        encourage local financial institutions to 
                        satisfy their obligations under the Community 
                        Reinvestment Act of 1977 (12 U.S.C. 2901 et 
                        seq.) by making loans to tax enterprise zone 
                        businesses, with emphasis on locally-owned 
                        businesses and on small-business concerns (as 
                        defined in section 3(a) of the Small Business 
                        Act (15 U.S.C. 632(a)),
                            ``(vii) the giving of special preference to 
                        qualified low-income housing projects located 
                        in tax enterprise zones, in the allocation of 
                        the State housing credit ceiling applicable 
                        under section 42, and
                            ``(viii) the giving of special preference 
                        to facilities located in tax enterprise zones, 
                        in the allocation of the State ceiling on 
                        private activity bonds applicable under section 
                        146, and
                    ``(B) may include--
                            ``(i) a reduction of tax rates or fees 
                        applying within the tax enterprise zone,
                            ``(ii) the gift (or sale at below fair 
                        market value) of surplus land in the tax 
                        enterprise zone to neighborhood organizations 
                        agreeing to operate a business on the land, and
                            ``(iii) the establishment of a program 
                        under which employers within the tax enterprise 
                        zone may purchase health insurance for their 
                        employees on a pooled basis.
            ``(3) Recognition of past efforts.--In evaluating courses 
        of action agreed to by any State or local government, the 
        appropriate Secretary shall take into account the past efforts 
        of the State or local government in reducing the various 
        burdens borne by employers and employees in the area involved.
            ``(4) Prohibition of assistance for business relocations.--
                    ``(A) In general.--The course of action implemented 
                under paragraph (1) may not include any action to 
                assist any establishment in relocating from 1 area 
                outside the nominated area to the nominated area.
                    ``(B) Exception.--The limitation established in 
                subparagraph (A) shall not be construed to prohibit 
                assistance for the expansion of an existing business 
                entity through the establishment of a new branch, 
                affiliate, or subsidiary if--
                            ``(i) the establishment of the new branch, 
                        affiliate, or subsidiary will not result in a 
                        decrease in employment in the area of original 
                        location or in any other area where the 
                        existing business entity conducts business 
                        operations, and
                            ``(ii) there is no reason to believe that 
                        the new branch, affiliate, or subsidiary is 
                        being established with the intention of closing 
                        down the operations of the existing business 
                        entity in the area of its original location or 
                        in any other area where the existing business 
                        entity conducts business operations.
    ``(d) Selection Criteria.--
            ``(1) Eligibility.--The appropriate Secretary shall make a 
        determination as to whether a nominated area meets the 
        eligibility requirements under subsection (b) for designation 
        as a tax enterprise zone.
            ``(2) Designation.--From among the nominated areas 
        determined to be eligible for designation under paragraph (1), 
        the appropriate Secretary shall make designations of tax 
        enterprise zones on the basis of the following factors (each of 
        which is to be given equal weight):
                    ``(A) State and local commitments.--The strength 
                and quality of the commitments which have been promised 
                as part of the course of action relative to the fiscal 
                ability of the nominating State and local governments.
                    ``(B) Implementation of course of action.--The 
                effectiveness and enforceability of the guarantees that 
                the course of action will actually be carried out, 
                including the specificity with which the commitments 
                under subparagraph (A) are described in order that the 
                applicable Secretary will be better able to determine 
                annually under section 1391(d)(2)(A)(ii) whether the 
                commitments are being carried out.
                    ``(C) Private commitments.--The level of 
                commitments by private entities of additional resources 
                and contributions to the economy of the nominated area, 
                including the creation of new or expanded business 
                activities.
                    ``(D) Levels of poverty and distress.--The relative 
                levels of distress and poverty under subparagraphs (B) 
                and (D) of subsection (b)(1).

``SEC. 1393. DEFINITIONS AND SPECIAL RULES.

    ``For purposes of this subchapter--
            ``(1) Urban tax enterprise zone.--The term `urban tax 
        enterprise zone' means a tax enterprise zone which meets the 
        requirements of section 1392(b)(1).
            ``(2) Rural development investment zone.--The term `rural 
        development investment zone' means a tax enterprise zone which 
        meets the requirements of section 1392(b)(2).
            ``(3) Indian reservation tax enterprise zone.--The term 
        `Indian reservation tax enterprise zone' means a tax enterprise 
        zone which meets the requirements of section 1392(b)(3).
            ``(4) Governments.--If more than 1 government seeks to 
        nominate an area as a tax enterprise zone, any reference to, or 
        requirement of, this subchapter shall apply to all such 
        governments.
            ``(5) Indian reservation.--The term `Indian reservation' 
        means a reservation, as defined in--
                    ``(A) section 3(d) of the Indian Financing Act of 
                1974 (25 U.S.C. 1452(d)), or
                    ``(B) section 4(10) of the Indian Child Welfare Act 
                of 1978 (25 U.S.C. 1903(10)).
            ``(6) Local government.--The term `local government' 
        means--
                    ``(A) any county, city, town, township, parish, 
                village, or other general purpose political subdivision 
                of a State, and
                    ``(B) any combination of political subdivisions 
                described in subparagraph (A) recognized by the 
                appropriate Secretary.
            ``(7) Nominated area.--
                    ``(A) In general.--The term `nominated area' means 
                an area which is nominated by 1 or more local 
                governments and the State in which it is located for 
                designation as a tax enterprise zone under this 
                subchapter.
                    ``(B) Indian reservations.--In the case of a 
                nominated area on an Indian reservation, the 
                reservation governing body (as determined by the 
                Secretary of the Interior) shall be deemed to be both 
                the State and local governments with respect to the 
                area.
            ``(8) Rural area.--The term `rural area' means any area 
        which is--
                    ``(A) outside of a metropolitan statistical area 
                (within the meaning of section 143(k)(2)(B)), or
                    ``(B) determined by the Secretary of Agriculture, 
                after consultation with the Secretary of the Interior, 
                to be a rural area.
        Such term may include an area within an Indian reservation.
            ``(9) Appropriate secretary.--The term `appropriate 
        Secretary' means--
                    ``(A) the Secretary of Housing and Urban 
                Development in the case of urban tax enterprise zones,
                    ``(B) the Secretary of Agriculture in the case of 
                rural development investment zones, and
                    ``(C) the Secretary of the Interior in the case of 
                Indian reservation tax enterprise zones.
            ``(10) Population census tracts.--If areas are not tracted 
        as population census tracts, the equivalent county divisions as 
        defined by the Bureau of the Census for purposes of defining 
        poverty areas shall be treated as population census tracts.

             ``PART II--INCENTIVES FOR TAX ENTERPRISE ZONES

                              ``Subpart A. Enterprise zone employment 
                                        credits.
                              ``Subpart B. Investment incentives.
                              ``Subpart C. General provisions.

            ``Subpart A--Enterprise Zone Employment Credits

                              ``Sec. 1395. Enterprise zone employment 
                                        credit.

``SEC. 1395. ENTERPRISE ZONE EMPLOYMENT CREDIT.

    ``(a) Amount of Credit.--For purposes of section 38, the amount of 
the enterprise zone employment credit determined under this section 
with respect to any employer for any taxable year is 30 percent of the 
qualified zone wages paid or incurred during such taxable year.
    ``(b) Qualified Zone Wages.--For purposes of this section, the term 
`qualified zone wages' means any wages paid or incurred by an employer 
for services performed by an employee while such employee is a 
qualified zone employee to the extent such wages do not exceed $15,000.
    ``(c) Qualified Zone Employee.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `qualified zone employee' means, with 
        respect to any period, any employee of an employer if--
                    ``(A) substantially all of the services performed 
                during such period by such employee for such employer 
                are performed within a tax enterprise zone in a trade 
                or business of the employer, and
                    ``(B) the principal place of abode of such employee 
                while performing such services is within such tax 
                enterprise zone.
            ``(2) Certain individuals not eligible.--The term 
        `qualified zone employee' shall not include--
                    ``(A) any individual described in subparagraph (A), 
                (B), or (C) of section 51(i)(1),
                    ``(B) any 5-percent owner (as defined in section 
                416(i)(1)(B)),
                    ``(C) any individual unless such individual 
                either--
                            ``(i) is employed by the employer at least 
                        90 days, or
                            ``(ii) has completed at least 120 hours of 
                        services performed for the employer,
                    ``(D) any individual employed by the employer at 
                any facility described in section 144(c)(6)(B), and
                    ``(E) any individual employed by a trade or 
                business the principal activity of which is farming 
                (within the meaning of subparagraphs (A) or (B) of 
                section 2032A(e)(5)), but only if, as of the close of 
                the preceding taxable year, the unadjusted basis of the 
                assets of the farm exceed $500,000.
    ``(d) Credit Refundable for Small Employers.--
            ``(1) In general.--In the case of so much of the credit 
        allowed by section 38 which is attributable to the enterprise 
        zone employment credit of a small employer--
                    ``(A) section 38(c) shall not apply, and
                    ``(B) for purposes of this title, such credit shall 
                be treated as if it were allowed under subpart C of 
                this part (relating to refundable credits).
            ``(2) Small employer.--For purposes of this subsection--
                    ``(A) In general.--The term `small employer' means, 
                with respect to any taxable year, any employer which 
                had gross receipts not greater than $2,000,000 during 
                the preceding taxable year.
                    ``(B) Phaseout.--In the case of an employer which 
                had gross receipts in excess of $1,000,000, the amount 
                of the credit to which paragraph (1) would otherwise 
                apply shall be reduced by the amount which bears the 
                same ratio to the amount of the credit as such excess 
                bears to $1,000,000.
                    ``(C) Gross receipts; predecessors.--For purposes 
                of this paragraph, rules similar to the rules of 
                subparagraphs (B), (C), and (D) of section 448(c)(3) 
                shall apply.
    ``(e) Notice of Availability of Advance Payment of Earned Income 
Credit.--No credit shall be allowed to any employer which fails to 
notify all of the employees of such employer eligible to receive 
advanced payments of the credit under section 32 (relating to the 
earned income credit) of the availability of such advanced payments.
    ``(f) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Wages.--
                    ``(A) In general.--The term `wages' has the same 
                meaning as when used in section 51, except that 
                paragraph (4) of section 51(c) shall not apply.
                    ``(B) Certain training and educational benefits.--
                            ``(i) In general.--The following amounts 
                        shall be treated as wages paid to an employee:
                                    ``(I) Any amount paid or incurred 
                                by an employer which is excludable from 
                                the gross income of an employee under 
                                section 127, but only to the extent 
                                paid or incurred to a person which is 
                                not a related person.
                                    ``(II) In the case of an employee 
                                who has not attained the age of 19, any 
                                amount paid or incurred by an employer 
                                for any youth training program operated 
                                by such employer in conjunction with 
                                local education officials.
                            ``(ii) Related person.--A person is related 
                        to any other person if the person bears a 
                        relationship to such other person specified in 
                        section 267(b) or 707(b)(1), or such person and 
                        such other person are engaged in trades or 
                        businesses under common control (within the 
                        meaning of subsections (a) and (b) of section 
                        52). For purposes of the preceding sentence, in 
                        applying section 267(b) or 707(b)(1), `10 
                        percent' shall be substituted for `50 percent'.
            ``(2) Controlled groups.--
                    ``(A) Treated as single employer.--All employers 
                treated as a single employer under subsection (a) or 
                (b) of section 52 shall be treated as a single employer 
                for purposes of this subpart.
                    ``(B) Proportionate share.--The credit (if any) 
                determined under this section with respect to each 
                employer described in subparagraph (A) shall be such 
                employer's proportionate share of the wages giving rise 
                to such credit.
          ``(3) Certain other rules made applicable.--Rules similar to 
        the rules of section 51(k) and subsections (c), (d), and (e) of 
        section 52 shall apply.

                   ``Subpart B--Investment Incentives

                              ``Sec. 1397. Additional expensing 
                                        allowance.
                              ``Sec. 1397A. Accelerated depreciation.
                              ``Sec. 1397B. Deduction for purchase of 
                                        enterprise zone stock.
                              ``Sec. 1397C. Low-income housing credit.
                              ``Sec. 1397D. Ordinary loss treatment for 
                                        certain property.

``SEC. 1397. ADDITIONAL EXPENSING ALLOWANCE.

    ``(a) In General.--In the case of a qualified enterprise zone 
business, for purposes of section 179--
            ``(1) qualified zone property shall be treated as section 
        179 property,
            ``(2) the limitation under subsection (b) shall apply in 
        lieu of the limitation under section 179(b)(1), and
            ``(3) in the case of section 179 property other than 
        qualified zone property, the limitation under section 179(b)(1) 
        (as reduced under section 179(b)(2)) applicable to such 
        property shall be reduced (but not below zero) by the cost of 
        qualified zone property placed in service during the taxable 
        year.
    ``(b) Limitation.--Subject to the limitation of section 179(b)(2), 
the aggregate cost of qualified zone property which may be taken into 
account under section 179(a) for any taxable year shall not exceed the 
sum of--
            ``(1) $10,000, plus,
            ``(2) 50 percent of so much of such cost as exceeds $10,000 
        but does not exceed $50,000.
    ``(c) Qualified Enterprise Zone Business.--
            ``(1) In general.--For purposes of this subchapter, the 
        term `qualified enterprise zone business' means--
                    ``(A) any qualified business entity, and
                    ``(B) any qualified proprietorship.
            ``(2) Qualified business entity.--For purposes of this 
        subsection, the term `qualified business entity' means, with 
        respect to any taxable year, any corporation or partnership if 
        for such year--
                    ``(A)(i) every trade or business of such entity is 
                the active conduct of a qualified business within a tax 
                enterprise zone, and
                    ``(ii) at least 80 percent of the total gross 
                income of such entity is derived from the active 
                conduct of any such business,
                    ``(B) substantially all of the use of the tangible 
                property of such entity (whether owned or leased) is 
                within a tax enterprise zone,
                    ``(C) substantially all of the intangible property 
                of such entity is used in, and exclusively related to, 
                the active conduct of any such business,
                    ``(D) substantially all of the services performed 
                for such entity by its employees are performed in a tax 
                enterprise zone,
                    ``(E) at least \1/3\ of its employees are residents 
                of a tax enterprise zone, and
                    ``(F) less than 5 percent of the average of the 
                aggregate unadjusted bases of the property of such 
                entity is attributable to--
                            ``(i) collectibles (as defined in section 
                        408(m)(2)) other than collectibles that are 
                        held primarily for sale to customers in the 
                        ordinary course of any such business, or
                            ``(ii) nonqualified financial property.
            ``(3) Qualified proprietorship.--For purposes of this 
        subsection, the term `qualified proprietorship' means, with 
        respect to any taxable year, any qualified business carried on 
        by an individual as a proprietorship if for such year--
                    ``(A) at least 80 percent of the total gross income 
                of such business is derived from the active conduct of 
                such business in a tax enterprise zone,
                    ``(B) substantially all of the use of the tangible 
                property of such business (whether owned or leased) is 
                within a tax enterprise zone,
                    ``(C) substantially all of the intangible property 
                of such business is used in, and exclusively related 
                to, the active conduct of such business,
                    ``(D) substantially all of the services performed 
                for such business by employees of such business are 
                performed in a tax enterprise zone,
                    ``(E) at least \1/3\ of such employees are 
                residents of a tax enterprise zone,
                    ``(F) less than 5 percent of the average of the 
                aggregate unadjusted bases of the property of such 
                business is attributable to--
                            ``(i) collectibles (as defined in section 
                        408(m)(2)) other than collectibles that are 
                        held primarily for sale to customers in the 
                        ordinary course of such business, or
                            ``(ii) nonqualified financial property.
        For purposes of this paragraph, the term `employee' includes a 
        self-employed individual (within the meaning of section 
        401(c)(1)).
            ``(4) Qualified business.--For purposes of this 
        subsection--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the term `qualified business' means any 
                trade or business.
                    ``(B) Rental of real property.--The rental of any 
                building or structure located in a tax enterprise zone 
                shall be treated as a qualified business if and only if 
                at least 50 percent of the gross rental income from the 
                building or structure is from enterprise zone 
                businesses (without regard to this subparagraph).
                    ``(C) Rental of tangible personal property.--The 
                rental of tangible personal property shall be treated 
                as a qualified business if and only if substantially 
                all of the rental of such property is by enterprise 
                zone businesses or by residents of a tax enterprise 
                zone.
                    ``(D) Treatment of business holding intangibles.--
                The term `qualified business' shall not include any 
                trade or business consisting predominantly of the 
                development or holding of intangibles for sale or 
                license.
                    ``(E) Certain businesses excluded.--The term 
                `qualified business' shall not include any trade or 
                business consisting of the operation of any facility 
                described in section 144(c)(6)(B) or of operating a 
                trade or business the principal activity of which is 
                farming (within the meaning of subparagraph (A) or (B) 
                of section 2032A(e)(5)), but only if, as of the close 
                of the preceding taxable year, the unadjusted basis of 
                the assets of the farm exceed $500,000.
            ``(5) Nonqualified financial property.--For purposes of 
        this subsection, the term `nonqualified financial property' 
        means debt, stock, partnership interests, options, futures 
        contracts, forward contracts, warrants, notional principal 
        contracts, annuities, and other similar property specified in 
        regulations; except that such term shall not include--
                    ``(A) reasonable amounts of working capital held in 
                cash, cash equivalents, or debt instruments with a term 
                of 18 months or less, or
                    ``(B) accounts or notes receivable described in 
                section 1221(4).
            ``(6) Termination of enterprise zone business.--An activity 
        shall cease to be a qualified enterprise zone business as of 
        the date on which the designation of the enterprise zone in 
        which the activity is conducted terminates or is revoked 
        pursuant to section 1391(d). The preceding sentence shall not 
        apply--
                    ``(A) during the 1st taxable year of an activity,
                    ``(B) to property placed in service before the date 
                of the termination or revocation of such designation, 
                or
                    ``(C) to property placed in service on or after 
                such date pursuant to a binding, written contract in 
                effect before such date and at all times thereafter.
    ``(d) Qualified Zone Property.--For purposes of this section--
            ``(1) In general.--The term `qualified zone property' means 
        any property to which section 168 applies--
                    ``(A) if such property was acquired by the taxpayer 
                by purchase (as defined in section 179(d)(2)) after the 
                date on which the designation of the tax enterprise 
                zone took effect,
                    ``(B) the original use of which in a tax enterprise 
                zone commences with the taxpayer, and
                    ``(C) substantially all of the use of which is in a 
                tax enterprise zone and is in the active conduct of a 
                trade or business by the taxpayer in such zone.
            ``(2) Special rule for substantial renovations.--In the 
        case of any property which is substantially renovated by the 
        taxpayer, the requirements of subparagraphs (A) and (B) of 
        paragraph (1) shall be treated as satisfied. For purposes of 
        the preceding sentence, property shall be treated as 
        substantially renovated by the taxpayer if, during any 24-month 
        period beginning after the date on which the designation of the 
        tax enterprise zone took effect, additions to basis with 
        respect to such property in the hands of the taxpayer exceed 
        the greater of (i) an amount equal to the adjusted basis at the 
        beginning of such 24-month period in the hands of the taxpayer, 
        or (ii) $5,000.
            ``(3) Exception for alternative depreciation property.--The 
        term `qualified zone property' does not include any property to 
        which the alternative depreciation system under section 168(g) 
        applies, determined--
                    ``(A) without regard to section 168(g)(7) (relating 
                to election to use alternative depreciation system), 
                and
                    ``(B) after application of section 280F(b) 
                (relating to listed property with limited business 
                use).
    ``(e) Special Rules for Sale-Leasebacks.--For purposes of 
subsection (d)(1), if property is sold and leased back by the taxpayer 
within 3 months after the date such property was originally placed in 
service, such property shall be treated as originally placed in service 
not earlier than the date on which such property is used under the 
leaseback.
    ``(f) Recapture.--Rules similar to the rules under section 
179(d)(10) shall apply with respect to any qualified zone property of 
any business which ceases to be a qualified enterprise zone business.

``SEC. 1397A. ACCELERATED DEPRECIATION.

    ``(a) In General.--For purposes of section 168, with respect to 
qualified zone property (as defined in section 1397(d)) of a qualified 
enterprise zone business (as defined in section 1397(c)), the 
applicable recovery period shall be determined in accordance with the 
table contained in subsection (b) in lieu of the table contained in 
section 168(c)(1).
    ``(b) Applicable Recovery Period for Qualified Zone Property.--For 
purposes of subsection (a)--

                                                         The applicable
``In the case of:                                   recovery period is:
    3-year property...............................              2 years
    5-year property...............................              3 years
    7-year property...............................              4 years
    10-year property..............................              6 years
    15-year property..............................              9 years
    20-year property..............................             12 years
    Nonresidential real property..................            20 years.

``SEC. 1397B. DEDUCTION FOR PURCHASE OF ENTERPRISE ZONE STOCK.

    ``(a) General Rule.--In the case of an individual, there shall be 
allowed as a deduction an amount equal to 50 percent of the aggregate 
amount paid in cash by the taxpayer during the taxable year for the 
purchase of enterprise zone stock.
    ``(b) Limitation.--
            ``(1) In general.--The maximum amount allowed as a 
        deduction under subsection (a) to a taxpayer for the taxable 
        year shall not exceed the lesser of--
                    ``(A) $20,000, or
                    ``(B) the excess of $200,000 over the amount 
                allowed as a deduction under this section to the 
                taxpayer for all prior taxable years.
            ``(2) Excess amounts.--If the amount otherwise deductible 
        by any person under subsection (a) exceeds the limitation under 
        paragraph (1)--
                    ``(A) the amount of such excess shall be treated as 
                an amount paid to which subsection (a) applies during 
                the next taxable year, and
                    ``(B) the deduction allowed for any taxable year 
                shall be allocated proportionately among the enterprise 
                zone stock purchased by such person on the basis of the 
                respective purchase prices per share.
            ``(3) Aggregation with family members.--The taxpayer and 
        members of the taxpayer's family (as defined in section 
        267(c)(4)) shall be treated as one person for purposes of 
        paragraph (1), and the limitations contained in such paragraph 
        shall be allocated among the taxpayer and such members in 
        accordance with their respective purchases of enterprise zone 
        stock.
    ``(c) Enterprise Zone Stock.--For purposes of this section--
            ``(1) In general.--The term `enterprise zone stock' means 
        stock of a corporation if--
                    ``(A) such stock is acquired on original issue from 
                the corporation, and
                    ``(B) such corporation is, at the time of issue, a 
                qualified enterprise zone issuer.
            ``(2) Proceeds must be invested in qualified zone 
        property.--The term `enterprise zone stock' shall include such 
        stock only to the extent that the proceeds of such issuance are 
        used by such issuer during the 12-month period beginning on the 
        date of issuance to purchase (as defined in section 179(d)(2)) 
        qualified zone property (as defined in section 1397(d)).
            ``(3) Redemptions.--The term `enterprise zone stock' shall 
        not include any stock acquired from a corporation which made a 
        substantial stock redemption or distribution (without a bona 
        fide business purpose therefor) in an attempt to avoid the 
        purposes of this section.
    ``(d) Qualified Enterprise Zone Issuer.--For purposes of this 
section, the term `qualified enterprise zone issuer' means any domestic 
C corporation if--
            ``(1) such corporation is a qualified enterprise zone 
        business (as defined in section 1397(c)) or, in the case of a 
        new corporation, such corporation is being organized for 
        purposes of being such a qualified enterprise zone business,
            ``(2) such corporation does not have more than one class of 
        stock,
            ``(3) the sum of--
                    ``(A) the money,
                    ``(B) the aggregate unadjusted bases of property 
                owned by such corporation, and
                    ``(C) the value of property leased to the 
                corporation (as determined under regulations prescribed 
                by the Secretary),
        does not exceed $2,000,000, and
            ``(4) more than 20 percent of the total voting power, and 
        20 percent of the total value, of the stock of such corporation 
        is owned directly by individuals or estates or indirectly by 
        individuals through partnerships or trusts.
The determination under paragraph (3) shall be made as of the time of 
issuance of the stock in question but shall include amounts received 
for such stock.
    ``(e) Dispositions of Stock.--
            ``(1) Basis reduction.--For purposes of this title, the 
        basis of any enterprise zone stock shall be reduced by the 
        amount of the deduction allowed under this section with respect 
        to such stock.
            ``(2) Deduction recaptured as ordinary income.--For 
        purposes of section 1245--
                    ``(A) any stock the basis of which is reduced under 
                paragraph (1) (and any other property the basis of 
                which is determined in whole or in part by reference to 
                the adjusted basis of such stock) shall be treated as 
                section 1245 property, and
                    ``(B) any reduction under paragraph (1) shall be 
                treated as a deduction allowed for depreciation.
        If an exchange of any stock described in paragraph (1) 
        qualifies under section 354(a), 355(a), or 356(a), the amount 
        of gain recognized under section 1245 by reason of this 
        paragraph shall not exceed the amount of gain recognized in the 
        exchange (determined without regard to this paragraph).
            ``(3) Certain events treated as dispositions.--For purposes 
        of determining the amount treated as ordinary income under 
        section 1245 by reason of paragraph (2), paragraph (3) of 
        section 1245(b) (relating to certain tax-free transactions) 
        shall not apply.
            ``(4) Interest charged if disposition within 5 years of 
        purchase.--
                    ``(A) In general.--If--
                            ``(i) a taxpayer disposes of any enterprise 
                        zone stock with respect to which a deduction 
                        was allowed under subsection (a) (or any other 
                        property the basis of which is determined in 
                        whole or in part by reference to the adjusted 
                        basis of such stock) before the end of the 5-
                        year period beginning on the date such stock 
                        was purchased by the taxpayer, and
                            ``(ii) section 1245(a) applies to such 
                        disposition by reason of paragraph (2),
                then the tax imposed by this chapter for the taxable 
                year in which such disposition occurs shall be 
                increased by the amount determined under subparagraph 
                (B).
                    ``(B) Additional amount.--For purposes of 
                subparagraph (A), the additional amount shall be equal 
                to the amount of interest (determined at the rate 
                applicable under section 6621(a)(2)) that would 
                accrue--
                            ``(i) during the period beginning on the 
                        date the stock was purchased by the taxpayer 
                        and ending on the date of the disposition by 
                        the taxpayer,
                            ``(ii) on an amount equal to the aggregate 
                        decrease in tax of the taxpayer resulting from 
                        the deduction allowed under this subsection (a) 
                        with respect to such stock.
                    ``(C) Special rule.--Any increase in tax under 
                subparagraph (A) shall not be treated as a tax imposed 
                by this chapter for purposes of--
                            ``(i) determining the amount of any credit 
                        allowable under this chapter, and
                            ``(ii) determining the amount of the tax 
                        imposed by section 55.
    ``(f) Disqualification.--
            ``(1) Issuer ceases to qualify.--If, during the 10-year 
        period beginning on the date enterprise zone stock was 
        purchased by the taxpayer, the issuer of such stock ceases to 
        be a qualified enterprise zone issuer (determined without 
        regard to subsection (d)(3)), then notwithstanding any 
        provision of this subtitle other than paragraph (2), the 
        taxpayer shall be treated for purposes of subsection (e) as 
        disposing of such stock (and any other property the basis of 
        which is determined in whole or in part by reference to the 
        adjusted basis of such stock) during the taxable year during 
        which such cessation occurs at its fair market value as of the 
        1st day of such taxable year.
            ``(2) Cessation of enterprise zone status not to cause 
        recapture.--A corporation shall not fail to be treated as a 
        qualified enterprise zone issuer for purposes of paragraph (1) 
        solely by reason of the termination or revocation of a tax 
        enterprise zone designation.
    ``(g) Other Special Rules.--
            ``(1) Application of limits to partnerships and s 
        corporations.--In the case of a partnership or an S 
        corporation, the limitations under subsection (b) shall apply 
        at the partner and shareholder level and shall not apply at the 
        partnership or corporation level.
            ``(2) Deduction not allowed to estates and trusts.--Estates 
        and trusts shall not be treated as individuals for purposes of 
        this section.

``SEC. 1397C. LOW-INCOME HOUSING CREDIT.

    ``For purposes of section 42(d)(5)(C), any building located in a 
tax enterprise zone shall be treated in the same manner as if located 
in a qualified census tract.

``SEC. 1397D. ORDINARY LOSS TREATMENT FOR CERTAIN PROPERTY.

    ``(a) In General.--Loss on any qualified zone asset held for more 
than 2 years (5 years in the case of real property) shall be treated as 
an ordinary loss.
    ``(b) Qualified Zone Asset.--For purposes of subsection (a)--
            ``(1) In general.--The term `qualified zone asset' means--
                    ``(A) in the case of an individual, any qualified 
                zone stock or any qualified zone partnership interest, 
                and
                    ``(B) any qualified zone business property.
            ``(2) Qualified zone stock.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified zone stock' means 
                any stock in a domestic corporation if--
                            ``(i) such stock is acquired by the 
                        taxpayer on original issue from the corporation 
                        solely in exchange for cash,
                            ``(ii) as of the time such stock was 
                        issued, such corporation was an enterprise zone 
                        business, or, in the case of a new corporation, 
                        such corporation was being organized for 
                        purposes of being an enterprise zone business, 
                        and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such stock, such 
                        corporation qualified as an enterprise zone 
                        business.
                    ``(B) Exclusion of stock for which deduction under 
                section 1397b allowed.--The term `qualified zone stock' 
                shall not include any stock the basis of which is 
                reduced under section 1397B(e)(1).
                    ``(C) Redemptions.--The term `qualified zone stock' 
                shall not include any stock acquired from a corporation 
                which made a substantial stock redemption or 
                distribution (without a bona fide business purpose 
                therefor) in an attempt to avoid the purposes of this 
                section.
            ``(3) Qualified zone partnership interest.--The term 
        `qualified zone partnership interest' means any interest in a 
        partnership if--
                    ``(A) such interest is acquired by the taxpayer 
                from the partnership solely in exchange for cash,
                    ``(B) as of the time such interest was acquired, 
                such partnership was an enterprise zone business, or, 
                in the case of a new partnership, such partnership was 
                being organized for purposes of being an enterprise 
                zone business, and
                    ``(C) during substantially all of the taxpayer's 
                holding period for such interest, such partnership 
                qualified as an enterprise zone business.
        A rule similar to the rule of paragraph (2)(C) shall apply for 
        purposes of this paragraph.
            ``(4) Qualified zone business property.--The term 
        `qualified zone business property' means--
                    ``(A) any qualified zone property (as defined in 
                section 1397(d)), and
                    ``(B) any land which is an integral part of an 
                enterprise zone business.
            ``(5) Enterprise zone business.--The term `enterprise zone 
        business' means a qualified business entity (as defined in 
        section 1397(c)(2)).
            ``(6) Real property.--The term `real property' means any 
        property which is section 1250 property (as defined in section 
        1250(c)).
            ``(7) Treatment of zone terminations.--The termination of 
        any designation of an area as a tax enterprise zone shall be 
        disregarded for purposes of determining whether any property is 
        a qualified zone asset.
    ``(c) Special Rules.--For purposes of this section--
            ``(1) Treatment of pass-thru entities.--
                    ``(A) Sales and exchanges.--Loss on the sale or 
                exchange of an interest in a pass-thru entity held by 
                the taxpayer (other than an interest in an entity which 
                was an enterprise zone business during substantially 
                all of the period the taxpayer held such interest) for 
                more than 5 years shall be treated as ordinary loss 
                described in subsection (a) to the extent such loss is 
                attributable to amounts which would be loss on 
                qualified zone assets (determined as if such assets had 
                been sold on the date of the sale or exchange) held by 
                such entity for more than 5 years and throughout the 
                period the taxpayer held such interest.
                    ``(B) Distributions.--
                            ``(i) In general.--Any loss described in 
                        clause (ii) shall be treated as ordinary loss 
                        described in subsection (a).
                            ``(ii) Requirements.--A loss is described 
                        in this clause if--
                                    ``(I) such loss is attributable to 
                                loss on the sale or exchange by the 
                                pass-thru entity of property which is a 
                                qualified zone asset in the hands of 
                                such entity and which was held by such 
                                entity for the period required under 
                                subsection (a), and
                                    ``(II) such amount is included in 
                                computing the taxable income of the 
                                taxpayer by reason of the holding of an 
                                interest in such entity.
                    ``(C) Pass-thru entity.--For purposes of this 
                paragraph, the term `pass-thru entity' means--
                            ``(i) any partnership,
                            ``(ii) any S corporation,
                            ``(iii) any regulated investment company, 
                        and
                            ``(iv) any common trust fund.
            ``(2) Certain tax-free and other transfers.--
                    ``(A) In general.--In the case of a transfer of a 
                qualified zone asset to which this paragraph applies, 
                the transferee shall be treated as--
                            ``(i) having acquired such asset in the 
                        same manner as the transferor, and
                            ``(ii) having held such asset during any 
                        continuous period immediately preceding the 
                        transfer during which it was held (or treated 
                        as held under this paragraph) by the 
                        transferor.
                    ``(B) Transfers to which paragraph applies.--This 
                paragraph shall apply to any transfer--
                            ``(i) by gift,
                            ``(ii) at death, or
                            ``(iii) from a partnership to a partner 
                        thereof of a qualified zone asset with respect 
                        to which the requirements of paragraph (2)(B) 
                        are met at the time of the transfer (without 
                        regard to the 5-year holding requirement).
            ``(3) Certain other rules made applicable.--Rules similar 
        to the rules of paragraphs (1), (2), and (3) of section 1244(d) 
        shall apply.
            ``(4) Coordination with section 1231.--Losses treated as 
        ordinary losses by reason of this subsection shall not be taken 
        into account in applying section 1231.

                    ``Subpart C--General Provisions

                              ``Sec. 1397E. Regulations.

``SEC. 1397E. REGULATIONS.

    ``The Secretary shall prescribe such regulations as may be 
necessary or appropriate to carry out the purposes of this part, 
including--
            ``(1) regulations limiting the benefit of this part in 
        circumstances where such benefits, in combination with benefits 
        provided under other Federal programs, would result in an 
        activity being 100 percent or more subsidized by the Federal 
        Government, and
            ``(2) regulations preventing avoidance of the provisions of 
        this part.''
    (b) Clerical Amendment.--The table of subchapters for chapter 1 is 
amended by inserting after the item relating to subchapter T the 
following new item:

                              ``Subchapter U. Designation and treatment 
                                        of tax enterprise zones.''

SEC. 4. TAX ENTERPRISE ZONE BONDS.

    (a) In General.--Subsection (a) of section 142 (relating to exempt 
facility bonds) is amended by striking ``or'' at the end of paragraph 
(11), by striking the period at the end of paragraph (12) and inserting 
``, or'', and by adding at the end thereof the following new paragraph:
            ``(13) qualified enterprise zone facilities.''
    (b) Definition.--Section 142 is amended by adding at the end 
thereof the following new subsection:
    ``(k) Qualified Enterprise Zone Facilities.--
            ``(1) In general.--For purposes of subsection (a)(13), the 
        term `qualified enterprise zone facilities' means any qualified 
        zone property (as defined in section 1397(d) (other than 
        paragraph (3) thereof)) of a qualified enterprise zone business 
        (as defined in section 1397(c)), and any land located within a 
        tax enterprise zone which is an integral part of such business.
            ``(2) Tax enterprise zone.--For purposes of this subsection 
        (and for applying sections 1397(c) and 1397(d) under paragraph 
        (1)), the term `tax enterprise zone' has the meaning given such 
        term by section 1391(a), except that such term also includes 
        any other nominated area for the 5-year period beginning with 
        the date such area determined by the appropriate Secretary 
        under section 1392(d)(1) to be eligible for designation as a 
        tax enterprise zone.
            ``(3) Use of proceeds.--
                    ``(A) Period to spend proceeds.--
                            ``(i) General rule.--A bond issued as part 
                        of an issue described in subsection (a)(13) 
                        shall not be considered an exempt facility bond 
                        unless the proceeds are spent for the 
                        governmental purpose of the issue within an 18-
                        month period of the date of the issuance of the 
                        bond.
                            ``(ii) Exception.--Clause (i) shall not 
                        apply to any bond if--
                                    ``(I) the issuer pays a penalty 
                                equal to 3 percent of the amount of 
                                available proceeds of the issue which 
                                is not spent for the governmental 
                                purpose of the issue as of the close of 
                                the 18-month period described in clause 
                                (i), and
                                    ``(II) the issuer redeems such bond 
                                not later than 24 months after the date 
                                of the issuance of the bond.
                    ``(B) Limitation on amount of bonds.--A bond issued 
                as part of an issue described in subsection (a)(13) 
                shall not be considered an exempt facility bond if, at 
                any time, the face amount of such bond plus the 
                aggregate face amount of any outstanding bonds issued 
                as part of an issue described in subsection (a)(13) 
                used or to be used with respect to any qualified 
                enterprise zone business which is a principal user of a 
                facility financed by the proceeds of the issue exceeds 
                $1,000,000 (not including as outstanding any bond which 
                is to be redeemed). For purposes of the preceding 
                sentence, all persons treated as a single employer 
                under subsection (a) or (b) of section 52 shall be 
                treated as 1 person.
                    ``(C) Housing loans excluded.--A bond issued as 
                part of an issue described in subsection (a)(13) shall 
                not be considered an exempt facility bond if any 
                portion of the proceeds are used directly or indirectly 
                to provide residential real property.''
    (b) Certain Rules Not To Apply.--Subsection (h) of section 147 
(relating to other requirements applicable to certain private activity 
bonds) is amended by adding at the end thereof the following new 
paragraph:
            ``(3) Bonds for qualified enterprise zone facilities.--
        Subsections (c)(2) and (d) shall not apply to any bonds the 
        proceeds of which are used to finance qualified enterprise zone 
        facilities.''
    (c) Volume Cap Only Charged With 50 Percent of Tax Enterprise Zone 
Bonds.--Subsection (g) of section 146 (relating to volume cap) is 
amended by striking ``and'' at the end of paragraph (3), by striking 
the period at the end of paragraph (4) and inserting ``, and'', and by 
adding at the end thereof the following new paragraph:
            ``(5) 50 percent of any bond issued as part of an issue 
        described in subsection 142(a)(13).''
    (d) Penalties for Loans Made to Businesses That Cease to be 
Enterprise Zone Businesses, Etc.--Subsection (b) of section 150 
(relating to definitions and special rules) is amended by adding at the 
end thereof the following new paragraph:
            ``(7) Tax enterprise zone bonds.--In the case of any 
        qualified enterprise zone facility with respect to which 
        financing was provided by an issue described in section 
        142(a)(13)--
                    ``(A) No deduction allowed.--No deduction shall be 
                allowed under this chapter for interest on such 
                financing which accrues during the period beginning on 
                the first day of the calendar year which includes the 
                date on which--
                            ``(i) the trade or business to which the 
                        financing was provided ceases to be a qualified 
                        enterprise zone business (as defined in section 
                        1397(c)), or
                            ``(ii) substantially all of the use of such 
                        facility (determined in accordance with 
                        subchapter U) with respect to which the 
                        financing was provided ceases to be in a tax 
                        enterprise zone.
                For purposes of this subparagraph (and for applying 
                section 1397(c) under this subparagraph), the term `tax 
                enterprise zone' has the meaning given such term by 
                section 142(k)(2).
                    ``(B) Penalty imposed on business.--If at any time 
                during the 10-year period beginning on the date such 
                financing was provided--
                            ``(i) such facility ceases to be in use in 
                        a qualified enterprise zone business (as so 
                        defined), or
                            ``(ii) substantially all of the use of such 
                        facility ceases to be in a tax enterprise zone 
                        (as so defined),
                there is hereby imposed on such business to which such 
                financing was provided a penalty equal to 1.25 percent 
                of so much of the face amount of all financing provided 
                (whether or not from the same issue and whether or not 
                such issue is outstanding) before such cessation to 
                such business using such facility.
                    ``(C) Exception if zone ceases.--Subparagraphs (A) 
                and (B) shall not apply solely by reason of the 
                termination or revocation of a tax enterprise zone 
                designation.
                    ``(D) Exception for bankruptcy.--Subparagraphs (A) 
                and (B) shall not apply to any cessation resulting from 
                bankruptcy.''
    (e) Bank Interest Deduction.--
            (1) In general.--Clause (ii) of section 265(b)(3)(B) 
        (relating to exception for certain tax-exempt obligations) is 
        amended--
                    (A) by striking ``or'' at the end of subclause (I),
                    (B) by redesignating subclause (II) as subclause 
                (III), and
                    (C) by inserting after subclause (I) the following 
                new subclause:
                    ``(II) any bond elected not to be treated as a 
                private activity bond under clause (iii), or''.
            (2) Election not to treat qualified enterprise zone 
        facility bonds as private activity bonds.--Section 265(b)(3)(B) 
        is amended by adding at the end thereof the following new 
        clause:
            ``(iii) Election not to treat qualified enterprise zone 
        facility bonds as private activity bonds.--A bond issued as 
        part of an issue described in section 142(a)(13) shall not 
        treated as a private activity bond if, on or before the date of 
        the issue of such bond, the issuer irrevocably elects not to 
        treat such bond as a private activity bond for purposes of 
        clause (i)(II).''
            (3) Conforming amendment.--Subclause (I) of section 
        265(b)(3)(B)(i) (defining qualified tax-exempt obligation) is 
        amended by inserting ``or is an obligation issued as part of an 
        issue described in section 142(a)(13)'' after ``issues''.

SEC. 5. EXPANSION OF TARGETED JOBS CREDIT.

    (a) Allowance of Credit for Hiring Tax Enterprise Zone Resident.--
Paragraph (1) of section 51(d) (defining members of targeted groups) is 
amended by striking ``or'' at the end of subparagraph (I), by striking 
the period at the end of subparagraph (J) and inserting ``, or'', and 
by adding at the end the following new subparagraph:
            ``(K) a tax enterprise zone resident.''
    (b) Tax Enterprise Zone Resident.--Section 51(d) is amended by 
adding at the end thereof the following new paragraph:
            ``(17) Tax enterprise zone resident.--
                    ``(A) In general.--The term `tax enterprise zone 
                resident' means an individual whose principal place of 
                abode while performing services for the employer is 
                within a tax enterprise zone (as defined in section 
                1391(a)).
                    ``(B) Special rule for determining amount of 
                credit.--For purposes of applying this subpart to wages 
                paid or incurred to any tax enterprise zone resident, 
                subsection (a) shall be applied by substituting `30 
                percent' for `40 percent'.
                    ``(C) Coordination with zone employment credit.--
                For purposes of this paragraph, the term `qualified 
                wages' shall not include wages taken into account in 
                determining the credit under section 1395.''

SEC. 6. OTHER PROVISIONS.

    (a) Alternative Minimum Tax.--
            (1) Employment credit may offset regular and minimum tax.--
                    (A) Regular tax.--Subsection (c) of section 38 
                (relating to limitation based on amount of tax) is 
                amended by adding at the end the following new 
                paragraph:
            ``(3) Special rules for employment credit.--
                    ``(A) In general.--This section and section 39 
                shall be applied separately--
                            ``(i) first with respect to so much of the 
                        credit allowed by subsection (a) as is not 
                        attributable to the employment credit, and
                            ``(ii) then with respect to the employment 
                        credit.
                    ``(B) Rules for application of employment credit.--
                            ``(i) In general.--In the case of the 
                        employment credit, in lieu of applying the 
                        preceding paragraphs of this subsection, the 
                        amount of such credit allowed under subsection 
                        (a) for any taxable year shall not exceed the 
                        net chapter 1 tax for such year.
                            ``(ii) Net chapter 1 tax.--For purposes of 
                        clause (i), the term `net chapter 1 tax' means 
                        the sum of the regular tax liability for the 
                        taxable year and the tax imposed by section 55 
                        for the taxable year, reduced by the sum of the 
                        credits allowable under this part for the 
                        taxable year (other than under section 34 and 
                        other than the employment credit).
                    ``(C) Employment credit.--For purposes of this 
                paragraph, the term `employment credit' means the 
                credit allowable under subsection (a) by reason of 
                section 1394, other than that portion of such credit 
                which is treated under section 1394(d) as allowable 
                under subpart C.''
                    (B) Minimum tax.--Paragraph (2) of section 55(c) is 
                amended to read as follows:
            ``(2) Cross references.--
                    ``(A) For provisions providing that certain credits 
                are not allowable against the tax imposed by this 
                section, see sections 26(a), 28(d)(2), 29(b)(5), and 
                38(c).
                    ``(B) For provisions allowing employment credit 
                against the tax imposed by this section, see section 
                38(c)(3).''
            (2) Expensing.--Subparagraph (A) of section 56(a)(1) 
        (relating to adjustments in computing alternative minimum 
        taxable income) is amended--
                    (A) in clause (i), by striking ``(ii)'' and 
                inserting ``(ii) or (iii)'', and
                    (B) by adding at the end thereof the following new 
                clause:
                            ``(iii) Expensing for qualified tax 
                        enterprise zone property.--The allowance 
                        provided by section 1397(a) for qualified zone 
                        property shall be allowed.''
    (b) Enterprise Zone Employment Credit Part of General Business 
Credit.--
            (1) Subsection (b) of section 38 (relating to current year 
        business credit) is amended by striking ``plus'' at the end of 
        paragraph (7), by striking the period at the end of paragraph 
        (8) and inserting ``, plus'', and by adding at the end the 
        following new paragraph:
            ``(9) the enterprise zone employment credit determined 
        under section 1394(a).''
            (2) Subsection (d) of section 39 is amended by adding at 
        the end thereof the following new paragraph:
            ``(4) No carryback of section 1394 credit before 
        enactment.--No portion of the unused business credit for any 
        taxable year which is attributable to the enterprise zone 
        employment credit determined under section 1394 may be carried 
        to a taxable year ending before the date of the enactment of 
        section 1394.''
    (c) Denial of Deduction for Portion of Wages Equal to Enterprise 
Zone Employment Credit.--
            (1) Subsection (a) of section 280C (relating to rule for 
        targeted jobs credit) is amended--
                    (A) by striking ``the amount of the credit 
                determined for the taxable year under section 51(a)'' 
                and inserting ``the sum of the credits determined for 
                the taxable year under sections 51(a) and 1394(a)'', 
                and
                    (B) by striking ``Targeted Jobs Credit'' in the 
                subsection heading and inserting ``Employment 
                Credits''.
            (2) Subsection (c) of section 196 (relating to deduction 
        for certain unused business credits) is amended by striking 
        ``and'' at the end of paragraph (4), by striking the period at 
        the end of paragraph (5) and inserting ``, and'', and by adding 
        at the end the following new paragraph:
            ``(6) the enterprise zone employment credit determined 
        under section 1394(a).''
    (d) Acquisitions.--Subsection (c) of section 381 (relating to 
carryovers in certain corporate acquisitions) is amended by adding at 
the end the following new paragraph:
            ``(26) Enterprise zone provisions.--The acquiring 
        corporation shall take into account (to the extent proper to 
        carry out the purposes of this section and subchapter U, and 
        under such regulations as may be prescribed by the Secretary) 
        the items required to be taken into account for purposes of 
        subchapter U in respect of the distributor or transferor 
        corporation.''
    (e) Nonitemizers Allowed Deduction for Enterprise Zone Stock.--
Subsection (a) of section 62 is amended by adding after paragraph (14) 
the following new paragraph:
            ``(15) Enterprise zone stock.--The deduction allowed by 
        section 1397B.''
    (f) Coordination With Refund Provision.--For purposes of section 
1324(b)(2) of title 31 of the United States Code, section 1395(d) of 
the Internal Revenue Code of 1986 (as added by this Act) shall be 
considered to be a credit provision of the Internal Revenue Code of 
1954 enacted before January 1, 1978.

SEC. 7. EFFECTIVE DATE; STUDY.

    (a) General Rule.--The amendments made by this Act shall take 
effect on the date of the enactment of this Act.
    (b) Requirement for Rules.--Not later than the date 4 months after 
the date of the enactment of this Act, the appropriate Secretaries 
shall issue rules--
            (1) establishing the procedures for nominating areas for 
        designation as tax enterprise zones,
            (2) establishing a method for comparing the factors listed 
        in section 1392(d) of the Internal Revenue Code of 1986 (as 
        added by this subtitle),
            (3) establishing recordkeeping requirements necessary or 
        appropriate to assist the studies required by section 107, and
            (4) providing that State and local governments shall have 
        at least 5 months after such rules are published to file 
        applications for nominated areas before such applications are 
        evaluated and compared and any area designated as a tax 
        enterprise zone.
    (c) Study of Effectiveness of Tax Enterprise Zone Incentives.--
            (1) In general.--The Secretary of the Treasury, in 
        consultation with the appropriate Secretary (as defined in 
        section 1393(9) of the Internal Revenue Code of 1986) shall 
        contract, within 3 months of the date of the enactment of this 
        Act, with the National Academy of Sciences (hereafter in this 
        section referred to as the `Academy') to conduct a study of the 
        relative effectiveness of the incentives and the assistance 
        provided by this Act in achieving the purposes of tax 
        enterprise zones.
            (2) Conduct of study.--If the Academy contracts for the 
        conduct of the study described in paragraph (1), the Academy 
        shall develop a study methodology and shall oversee and manage 
        the conduct of such study.
            (3) Reports.--The Academy shall submit to the Committee on 
        Ways and Means of the House of Representatives and the 
        Committee on Finance of the Senate--
                    (A) not later than July 1, 1997, an interim report 
                setting forth the findings as a result of such study, 
                and
                    (B) not later than July 1, 2000, a final report 
                setting forth the findings as a result of such study.
            (4) Funding.--There are authorized to be appropriated to 
        carry out the study and reports described in this subsection, 
        $500,000 for fiscal year 1993, and such sums as are necessary 
        for each succeeding fiscal year.

                                 <all>

S 393 IS----2
S 393 IS----3
S 393 IS----4
S 393 IS----5