[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 201 Introduced in House (IH)]







105th CONGRESS
  1st Session
                                H. R. 201

 To amend the Internal Revenue Code of 1986 to provide tax incentives 
 for the economic recovery of areas affected by the loss of employment 
         in the financial institution and real estate sectors.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 7, 1997

 Mrs. Kennelly 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 
 for the economic recovery of areas affected by the loss of employment 
         in the financial institution and real estate sectors.

    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 ``Financial Institution and Real 
Estate (FIRE) Relief Act of 1997''.

SEC. 2. DESIGNATION AND TREATMENT OF ECONOMIC RECOVERY AREAS.

    (a) In General.--Chapter 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following new subchapter:

  ``Subchapter W--Designation and Treatment of Economic Recovery Areas

                              ``Part I. Designation.
                              ``Part II. Incentives.

                         ``PART I--DESIGNATION

                              ``Sec. 1399A. Designation procedure.
                              ``Sec. 1399B. Eligibility criteria; 
                                        definitions and special rules.

``SEC. 1399A. DESIGNATION PROCEDURE.

    ``(a) In General.--From among the areas nominated for designation 
under this section, the Secretary may designate 3 nominated areas as 
economic recovery areas.
    ``(b) Period Designations May Be Made.--A designation may be made 
under this section only during the 1-year period beginning on the date 
of the enactment of this subchapter.
    ``(c) Period for Which Designation Is In Effect.--
            ``(1) In general.--Any designation under this section shall 
        remain in effect during the period beginning on the date of the 
        designation and ending on the earliest of--
                    ``(A) the close of the 10th calendar year beginning 
                on or after such date of designation,
                    ``(B) the termination date designated by the State 
                and local governments as provided for in their 
                nomination, or
                    ``(C) the date the Secretary revokes the 
                designation.
            ``(2) Revocation of designation.--The Secretary may revoke 
        the designation under this section of an area under rules 
        similar to the rules of section 1391(d)(2).
    ``(d) Other Rules To Apply.--Rules similar to the rules of 
subsections (e) and (f) of section 1391 shall apply for purposes of the 
designation under this section.

``SEC. 1399B. ELIGIBILITY CRITERIA; DEFINITIONS AND SPECIAL RULES.

    ``(a) In General.--A nominated area shall be eligible for 
designation under section 1399A only if it meets the following 
criteria:
            ``(1) Enterprise zone criteria.--The nominated area is an 
        urban area which meets the criteria under section 1392 for 
        urban areas (determined without regard to section 1392(a)(3)(D) 
        thereof).
            ``(2) Employment losses in financial institution and real 
        estate sectors.--With respect to the nominated area--
                    ``(A) at least 12 percent of the wages attributable 
                to private, nonagricultural employment in the area 
                during 1989, and subject to tax under section 3301 
                during such year, were in the financial institution and 
                real estate sectors, and
                    ``(B) the employment in such area in such sectors 
                for the calendar year preceding the calendar year in 
                which such area is nominated for designation is 10 
                percent (or, if lesser, 5,000 full-time equivalent 
                jobs) less than such employment during 1989.
        The requirement of subparagraph (B) shall not be met if 
        substantially all of such decline in employment is attributable 
        to 1 employer. Data for the labor market area which includes 
        the nominated area may be used for purposes of this paragraph 
        if data is not separately available for the nominated area.
    ``(b) Definitions.--For purposes of this subchapter--
            ``(1) Economic recovery area.--The term `economic recovery 
        area' means an area designated as such under section 1399A.
            ``(2) Financial institution.--The term `financial 
        institution' includes any bank, any insurance company, and any 
        trade or business of performing brokerage services.
            ``(3) Urban area.--The term `urban area' means an area 
        which is not a rural area (as defined in section 1393(a)(2)).
            ``(4) Other definitions and special rules.--Rules similar 
        to the rules of paragraphs (4) through (9) of section 1393(a) 
        shall apply for purposes of this subchapter.

                         ``PART II--INCENTIVES

                              ``Sec. 1399D. Economic recovery area 
                                        employment credit.
                              ``Sec. 1399E. Reduction in capital gains 
                                        tax on equity investments in 
                                        area businesses.
                              ``Sec. 1399F. Other incentives.

``SEC. 1399D. ECONOMIC RECOVERY AREA EMPLOYMENT CREDIT.

    ``(a) Amount of Credit.--For purposes of section 38, the amount of 
the economic recovery area employment credit determined under this 
section with respect to any employer for any taxable year is 20 percent 
of the qualified area wages paid or incurred during the calendar year 
which ends with or within such taxable year.
    ``(b) Qualified Area Wages.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified area wages' means any wages paid or incurred by an 
        employer for services performed by an employee while such 
        employee is a qualified area employee.
            ``(2) Only first $15,000 of wages per year taken into 
        account.--With respect to each qualified area employee, the 
        amount of qualified area wages which may be taken into account 
        for a calendar year shall not exceed $15,000.
            ``(3) Coordination with targeted jobs credit and 
        empowerment zone employment credit.--
                    ``(A) In general.--The term `qualified area wages' 
                shall not include wages taken into account in 
                determining the credit under section 51 or 1396.
                    ``(B) Coordination with paragraph (2).--The $15,000 
                amount in paragraph (2) shall be reduced for any 
                calendar year by the amount of wages paid or incurred 
                during such year which are taken into account in 
                determining the credit under section 51 or 1396.
    ``(c) Qualified Area Employee.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `qualified area 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 an economic recovery area in a 
                trade or business of the employer, and
                    ``(B) the prior employment of such employee was by 
                an employer in such area from which--
                            ``(i) such employee was involuntarily 
                        separated from service (other than in a 
                        separation determined under the applicable 
                        State unemployment compensation law to be due 
                        to the misconduct of such employee), or
                            ``(ii) such employee retired.
            ``(2) Certain individuals not eligible.--Rules similar to 
        the rules of paragraphs (2) and (3) of section 1396(d) shall 
        apply for purposes of paragraph (1).
    ``(d) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Wages.--The term `wages' has the same meaning as when 
        used in section 51.
            ``(2) Controlled Groups.--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 section, and 
        the credit (if any) determined under this section with respect 
        to each such employer shall be its proportionate share of the 
        wages giving rise to such credit.
            ``(3) Certain other rules made applicable.--For purposes of 
        this section, rules similar to the rules of section 51(k) and 
        subsections (c), (d), and (e) of section 52 shall apply.

``SEC. 1399E. REDUCTION IN CAPITAL GAINS TAX ON EQUITY INVESTMENTS IN 
              AREA BUSINESSES.

    ``(a) Taxpayers Other Than Corporations.--

                                ``For 10 percent maximum rate of tax on 
qualified area investments, see section 1(h).
    ``(b) Corporations.--

                                ``For 17 percent maximum rate of tax on 
qualified area investments, see section 1201.
    ``(c) Qualified Area Investments.--For purposes of sections 1 and 
1201--
            ``(1) In general.--The term `qualified area investment' 
        means--
                    ``(A) any qualified area stock,
                    ``(B) any qualified area business property, and
                    ``(C) any qualified area partnership interest,
        held for more than 5 years as of the date of the sale or 
        exchange to which section 1 or 1201 applies.
            ``(2) Qualified area stock.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified area 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 a qualified area 
                        business (or, in the case of a new corporation, 
                        such corporation was being organized for 
                        purposes of being a qualified area business), 
                        and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such stock, such 
                        corporation qualified as a qualified area 
                        business.
                    ``(B) Redemptions.--The term `qualified area 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 area business property.--
                    ``(A) In general.--The term `qualified area 
                business property' means tangible property if--
                            ``(i) 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 economic recovery area took 
                        effect,
                            ``(ii) the original use of such property in 
                        such an area commences with the taxpayer, and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such property, 
                        substantially all of the use of such property 
                        was in an economic recovery area and in a 
                        qualified area business of the taxpayer.
                    ``(B) Special rule for substantial improvements.--
                The requirements of clauses (i) and (ii) of 
                subparagraph (A) shall be treated as satisfied with 
                respect to--
                            ``(i) property which is substantially 
                        improved by the taxpayer, and
                            ``(ii) any land on which such property is 
                        located.
                For purposes of the preceding sentence, property shall 
                be treated as substantially improved by the taxpayer 
                if, during any 24-month period beginning after the date 
                on which the designation of the economic recovery area 
                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.
                    ``(C) Limitation on land.--The term `qualified area 
                business property' shall not include land which is not 
                an integral part of a qualified area business.
            ``(4) Qualified area partnership interest.--The term 
        `qualified area 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 a qualified area business (or, in 
                the case of a new partnership, such partnership was 
                being organized for purposes of being a qualified area 
                business), and
                    ``(C) during substantially all of the taxpayer's 
                holding period for such interest, such partnership 
                qualified as a qualified area business.
        A rule similar to the rule of paragraph (2)(B) shall apply for 
        purposes of this paragraph.
            ``(5) Treatment of subsequent purchasers.--The term 
        `qualified area investment' includes any property which would 
        be a qualified area investment but for paragraph (2)(A)(i), 
        (3)(A)(ii), or (4)(A) in the hands of the taxpayer if such 
        property was a qualified area investment in the hands of any 
        prior holder.
            ``(6) 10-year safe harbor.--If any property ceases to be a 
        qualified area investment by reason of paragraph (2)(A)(iii), 
        (3)(A)(iii), or (4)(C) after the 10-year period beginning on 
        the date the taxpayer acquired such property, such property 
        shall continue to be treated as meeting the requirements of 
        such paragraph; except that the amount of gain to which 
        subsections (a) and (b) apply on any sale or exchange of such 
        property shall not exceed the amount which would be long-term 
        capital gain had such property been sold on the date of such 
        cessation.
            ``(7) Treatment of area terminations.--The termination of 
        any designation of an area as an economic recovery area shall 
        be disregarded for purposes of determining whether any property 
        is a qualified area investment.
    ``(d) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified area business.--The term `qualified area 
        business' means any business which would be an enterprise zone 
        business as defined in section 1397B if `economic recovery 
        area' were substituted for `empowerment zone' each place it 
        appears.
            ``(2) Qualified business.--The term `qualified business' 
        has the meaning given such term by section 1397B(d), determined 
        by substituting `economic recovery area' for `empowerment zone' 
        each place it appears.
            ``(3) Gain attributable to periods after termination of 
        area designation not qualified.--The amount of gain to which 
        subsections (a) and (b) apply on any sale or exchange of 
        property shall not include any gain attributable to periods 
        after the termination of any designation of an area as an 
        economic recovery area.
    ``(e) Treatment of Pass-Thru Entities.--
            ``(1) Sales and exchanges.--Gain 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 a qualified area 
        business during substantially all of the period the taxpayer 
        held such interest) for more than 5 years shall be treated as 
        gain on a qualified area investment to the extent such gain is 
        attributable to amounts which would be long-term capital gain 
        on qualified area investments (determined as if such 
        investments 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. A rule similar to the 
        rule of paragraph (2)(C) shall apply for purposes of the 
        preceding sentence.
            ``(2) Income inclusions.--
                    ``(A) In general.--Any amount included in income by 
                reason of holding an interest in a pass-thru entity 
                (other than an entity which was a qualified area 
                business during substantially all of the period the 
                taxpayer held the interest to which such inclusion 
                relates) shall be treated as gain on a qualified area 
                investment if such amount meets the requirements of 
                subparagraph (B).
                    ``(B) Requirements.--An amount meets the 
                requirements of this subparagraph if--
                            ``(i) such amount is attributable to long-
                        term capital gain recognized on the sale or 
                        exchange by the pass-thru entity of property 
                        which is a qualified area investment asset in 
                        the hands of such entity and which was held by 
                        such entity for more than 5 years, and
                            ``(ii) such amount is includible in the 
                        gross income of the taxpayer by reason of the 
                        holding of an interest in such entity which was 
                        held by the taxpayer on the date on which such 
                        pass-thru entity acquired such asset and at all 
                        times thereafter before the disposition of such 
                        asset by such pass-thru entity.
                    ``(C) Limitation based on interest originally held 
                by taxpayer.--Subparagraph (A) shall not apply to any 
                amount to the extent such amount exceeds the amount to 
                which subparagraph (A) would have applied if such 
                amount were determined by reference to the interest the 
                taxpayer held in the pass-thru entity on the date the 
                qualified area asset was acquired.
            ``(3) Pass-thru entity.--For purposes of this subsection, 
        the term `pass-thru entity' means--
                    ``(A) any partnership,
                    ``(B) any S corporation,
                    ``(C) any regulated investment company, and
                    ``(D) any common trust fund.
    ``(f) Sales and Exchanges of Interests in Partnerships and S 
Corporations Which Are Qualified Area Businesses.--In the case of the 
sale or exchange of an interest in a partnership, or of stock in an S 
corporation, which was a qualified area business during substantially 
all of the period the taxpayer held such interest or stock, the amount 
of long-term capital gain shall be determined without regard to--
            ``(1) any intangible, and any land, which is not an 
        integral part of any qualified business, and
            ``(2) gain attributable to periods before the designation 
        of an area as an economic recovery area.
    ``(g) Certain Tax-Free and Other Transfers.--For purposes of this 
section--
            ``(1) In general.--In the case of a transfer of a qualified 
        area investment to which this subsection applies, the 
        transferee shall be treated as--
                    ``(A) having acquired such investment in the same 
                manner as the transferor, and
                    ``(B) having held such investment during any 
                continuous period immediately preceding the transfer 
                during which it was held (or treated as held under this 
                subsection) by the transferor.
            ``(2) Transfers to which subsection applies.--This 
        subsection shall apply to any transfer--
                    ``(A) by gift,
                    ``(B) at death, or
                    ``(C) from a partnership to a partner thereof of a 
                qualified area investment with respect to which the 
                requirements of subsection (e)(2) are met at the time 
                of the transfer (without regard to the 5-year holding 
                requirement).
            ``(3) Certain rules made applicable.--Rules similar to the 
        rules of section 1244(d)(2) shall apply for purposes of this 
        section.

``SEC. 1399F. OTHER INCENTIVES.

    ``(a) Expensing of Equipment and Leasehold Improvements.--
            ``(1) In general.--In the case of a qualified area business 
        (as defined in section 1399E(d)), for purposes of section 179--
                    ``(A) the limitations of paragraphs (1) and (2) of 
                section 179(b) shall not apply to section 179 property 
                which is qualified area property placed in service 
                during the taxable year, and
                    ``(B) leasehold improvements placed in service by 
                the lessor in an economic recovery area shall be 
                treated as section 179 property for purposes of 
                subparagraph (A) and section 179.
            ``(2) Recapture.--Rules similar to the rules under section 
        179(d)(10) shall apply with respect to any qualified area 
        property which ceases to be used in an economic recovery area 
        by a qualified area business.
            ``(3) Qualified area property.--For purposes of this 
        subsection, the term `qualified area property' means any 
        property which would be qualified zone property as defined in 
        section 1397C, if `economic recovery area' were substituted for 
        `empowerment zone' each place it appears.
    ``(b) Passive Loss Rules Not To Apply to Rehabilitation of Historic 
Structures.--Section 469 shall not apply to so much of the 
rehabilitation credit determined under section 47 as is attributable to 
certified historic structures (as defined in section 47(c)(3)) located 
in an economic recovery area.
    ``(c) Double Deduction for Security Devices.--The amount of any 
deduction otherwise allowable under section 162 for any security 
expenses shall be increased by 100 percent of such amount.''
    (b) Reduction in Capital Gains Rates.--
            (1) Taxpayers other than corporations.--Subsection (h) of 
        section 1 of such Code (relating to maximum capital gains rate) 
        is amended to read as follows:
    ``(h) Maximum Capital Gains Rate.--
            ``(1) In general.--If a taxpayer has a net capital gain for 
        any taxable year, then the tax imposed by this section shall 
        not exceed the sum of--
                    ``(A) a tax computed at the rates and in the same 
                manner as if this subsection had not been enacted on 
                the greater of--
                            ``(i) taxable income reduced by the amount 
                        of the net capital gain, or
                            ``(ii) the amount of taxable income taxed 
                        at a rate below 10 percent, plus
                    ``(B) a tax of 10 percent on the lesser of--
                            ``(i) the net capital gain determined by 
                        only taking into account gain and loss 
                        attributable to qualified area investments (as 
                        defined in section 1399E(c)), or
                            ``(ii) the amount of taxable income in 
                        excess of the amount on which tax is determined 
                        under subparagraph (A), plus
                    ``(C) a tax of 28 percent of taxable income in 
                excess of the sum of the amounts on which tax was 
                determined under subparagraphs (A) and (B).
            ``(2) Coordination with investment income election.--For 
        purposes of paragraph (1), the net capital gain for any taxable 
        year shall be reduced (but not below zero) by the amount which 
        the taxpayer elects to take into account as investment income 
        for the taxable year under section 163(d)(4)(B)(iii).''
            (2) Corporations.--Paragraph (2) of section 1201(a) of such 
        Code is amended to read as follows:
            ``(2)(A) a tax of 17 percent of the lesser of--
                    ``(i) the net capital gain determined by only 
                taking into account gain and loss attributable to 
                qualified area investments (as defined in section 
                1399E(c)), or
                    ``(ii) the net capital gain, plus
            ``(B) a tax of 35 percent of the net capital gain in excess 
        of the amount on which tax was determined under subparagraph 
        (A).''
    (c) Technical Amendments.--
            (1) Employment Credit Part of General Business Credit.--
                    (A) Subsection (b) of section 38 of such Code 
                (relating to current year business credit) is amended 
                by striking ``plus'' at the end of paragraph (11), by 
                striking the period at the end of paragraph (12) and 
                inserting ``, plus'', and by adding at the end the 
                following new paragraph:
            ``(13) the economic recovery area employment credit 
        determined under section 1399D(a).''
                    (B) Subsection (d) of section 39 of such Code is 
                amended by adding at the end the following new 
                paragraph:
            ``(8) Economic recovery area employment credit.--No portion 
        of the unused business credit which is attributable to the 
        credit determined under section 1399D (relating to economic 
        recovery area employment credit) may be carried to any taxable 
        year ending before January 1, 1997.''
            (2) Denial of deduction for portion of wages equal to 
        economic recovery area employment credit.--
                    (A) Subsection (a) of section 280C of such Code 
                (relating to rule for targeted jobs credit) is amended 
                by striking ``and 1396(a)'' and inserting ``, 1396(a), 
                and 1399D(a)''.
                    (B) Subsection (c) of section 196 of such Code 
                (relating to deduction for certain unused business 
                credits) is amended by striking ``and'' at the end of 
                paragraph (6), by striking the period at the end of 
                paragraph (7) and inserting ``, and'', and by adding at 
                the end the following new paragraph:
            ``(8) the economic recovery area employment credit 
        determined under section 1399D(a).''
            (3) Carryovers.--Subsection (c) of section 381 of such Code 
        (relating to carryovers in certain corporate acquisitions) is 
        amended by adding at the end the following new paragraph:
            ``(27) Economic recovery area provisions.--The acquiring 
        corporation shall take into account (to the extent proper to 
        carry out the purposes of this section and subchapter W, and 
        under such regulations as may be prescribed by the Secretary) 
        the items required to be taken into account for purposes of 
        subchapter W in respect of the distributor or transferor 
        corporation.''
            (4) The table of subchapters for chapter 1 of such Code is 
        amended by inserting after the item relating to subchapter V 
        the following new item:

                              ``Subchapter W. Designation and treatment 
                                        of economic recovery areas.''
    (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.
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