[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3865 Introduced in House (IH)]







105th CONGRESS
  2d Session
                                H. R. 3865

To amend the Internal Revenue Code of 1986 to allow the designation of 
              renewal communities, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 14, 1998

Mr. Watts of Oklahoma (for himself, Mr. Davis of Illinois, Mr. Talent, 
   Mr. Davis of Virginia, Mr. McIntosh, Mr. Knollenberg, Mr. Deal of 
 Georgia, Mr. Pitts, Mr. Ensign, Ms. Granger, Mr. Riggs, Mr. Sessions, 
 Mr. Thornberry, Mr. Gingrich, Mr. Sensenbrenner, Mr. Wamp, Mr. DeLay, 
   Mr. Largent, Mr. Bonilla, Ms. Furse, Mrs. Myrick, Mr. Coburn, Mr. 
     Chabot, Mrs. Emerson, Mr. Burton of Indiana, Mr. Peterson of 
   Pennsylvania, Mr. Norwood, Mr. Graham, Mr. Lewis of Kentucky, Mr. 
Doolittle, Mr. Ryun, Mrs. Northup, Mr. Frost, Mr. Towns, Mr. King, Mr. 
   English of Pennsylvania, Mr. Souder, Mr. Watkins, Mrs. Kelly, Mr. 
Boehner, Mr. Dooley of California, Mr. Armey, Mr. Hinojosa, Mr. Dreier, 
  Mr. Calvert, and Ms. Eddie Bernice Johnson of Texas) introduced the 
following bill; which was referred to the Committee on Ways and Means, 
 and in addition to the Committees on Banking and Financial Services, 
    and Commerce, for a period to be subsequently determined by the 
  Speaker, in each case for consideration of such provisions as fall 
           within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to allow the designation of 
              renewal communities, 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 AND TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``American Community 
Renewal Act of 1998''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title and table of contents.
Sec. 2. Findings and purpose.
       TITLE I--DESIGNATION AND EVALUATION OF RENEWAL COMMUNITIES

Sec. 101. Short title.
Sec. 102. Statement of purpose.
Sec. 103. Designation of renewal communities.
Sec. 104. Evaluation and reporting requirements.
Sec. 105. Interaction with other Federal programs.
            TITLE II--TAX INCENTIVES FOR RENEWAL COMMUNITIES

Sec. 201. Tax treatment of renewal communities.
Sec. 202. Extension of work opportunity tax credit for renewal 
                            communities
Sec. 203. Allowance of commercial revitalization credit.
Sec. 204. Conforming and clerical amendments.
                    TITLE III--ADDITIONAL PROVISIONS

Sec. 301. Transfer of unoccupied and substandard HUD-held housing in 
                            renewal communities to local governments.
Sec. 302. Prevention and treatment of substance abuse; services 
                            provided through religious organizations.
Sec. 303. CRA credit for investments in community development 
                            organizations located in renewal 
                            communities.

SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--The Congress makes the following findings:
            (1) Many of the Nation's urban centers are places with high 
        levels of poverty, high rates of welfare dependency, high crime 
        rates, poor schools, and joblessness.
            (2) Federal tax incentives and regulatory reforms can 
        encourage economic growth, job creation, and small business 
        formation in many urban centers.
            (3) Encouraging private sector investment in America's 
        economically distressed urban and rural areas is essential to 
        breaking the cycle of poverty and the related ills of crime, 
        drug abuse, illiteracy, welfare dependency, and unemployment.
    (b) Purpose.--The purpose of this Act is to increase job creation, 
small business expansion and formation, educational opportunities, and 
homeownership, and to foster moral renewal, in economically depressed 
areas by providing Federal tax incentives, regulatory reforms, school 
reform pilot projects, and homeownership incentives.

       TITLE I--DESIGNATION AND EVALUATION OF RENEWAL COMMUNITIES

SEC. 101. SHORT TITLE.

    This title may be cited as the ``Renewing American Communities Act 
of 1998''.

SEC. 102. STATEMENT OF PURPOSE.

    It is the purpose of this title to provide for the establishment of 
renewal communities in order to stimulate the creation of new jobs, 
particularly for disadvantaged workers and long-term unemployed 
individuals, and to promote revitalization of economically distressed 
areas primarily by providing or encouraging--
            (1) tax relief at the Federal, State, and local levels;
            (2) regulatory relief at the Federal, State, and local 
        levels; and
            (3) improved local services and an increase in the economic 
        stake of renewal community residents in their own community and 
        its development, particularly through the increased involvement 
        of private, local, and neighborhood organizations.

SEC. 103. DESIGNATION OF RENEWAL COMMUNITIES.

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

                  ``Subchapter X--Renewal Communities

                              ``Part I.   Designation.''

                         ``PART I--DESIGNATION

                              ``Sec. 1400E. Designation of Renewal 
                                        Communities.

``SEC. 1400E. DESIGNATION OF RENEWAL COMMUNITIES.

    ``(a) Designation.--
            ``(1) Definitions.--For purposes of this title, the term 
        `renewal community' means any area--
                    ``(A) which is nominated by one or more local 
                governments and the State or States in which it is 
                located for designation as a renewal community 
                (hereinafter in this section referred to as a 
                `nominated area'), and
                    ``(B) which the Secretary of Housing and Urban 
                Development, after consultation with--
                            ``(i) the Secretaries of Agriculture, 
                        Commerce, Labor, and the Treasury; the Director 
                        of the Office of Management and Budget; and the 
                        Administrator of the Small Business 
                        Administration, and
                            ``(ii) in the case of an area on an Indian 
                        reservation, the Secretary of the Interior,
                designates as a renewal community.
            ``(2) Number of designations.--
                    ``(A) In general.--The Secretary of Housing and 
                Urban Development may designate not more than 100 
                nominated areas as renewal communities.
                    ``(B) Minimum designation in rural areas.--Of the 
                areas designated under paragraph (1), at least 20 
                percent must be areas--
                            ``(i) which are within a local government 
                        jurisdiction or jurisdictions with a population 
                        of less than 50,000 (as determined under the 
                        most recent census data available),
                            ``(ii) which are outside of a metropolitan 
                        statistical area (within the meaning of section 
                        143(k)(2)(B)), or
                            ``(iii) which are determined by the 
                        Secretary of Housing and Urban Development, 
                        after consultation with the Secretary of 
                        Commerce, to be rural areas.
                    ``(C) Additional designations to replace revoked 
                designations.--
                            ``(i) In general.--The Secretary of Housing 
                        and Urban Development may designate one 
                        additional area under subparagraph (A) to 
                        replace each area for which the designation is 
                        revoked under subsection (b)(2), but in no 
                        event may more than 100 areas designated under 
                        this subsection bear designations as renewal 
                        communities at any time.
                            ``(ii) Extension of time limit on 
                        designations.--In the case of any designation 
                        made under this subparagraph, paragraph (4)(B) 
                        shall be applied by substituting `36-month' for 
                        `24-month'.
            ``(3) Areas designated based on degree of poverty, etc.--
                    ``(A) In general.--Except as otherwise provided in 
                this section, the nominated areas designated as renewal 
                communities under this subsection shall be those 
                nominated areas with the highest average ranking with 
                respect to the criteria described in subparagraphs (C), 
                (D), and (E) of subsection (c)(3). For purposes of the 
                preceding sentence, an area shall be ranked within each 
                such criterion on the basis of the amount by which the 
                area exceeds such criterion, with the area which 
                exceeds such criterion by the greatest amount given the 
                highest ranking.
                    ``(B) Exception where inadequate course of action, 
                etc.--An area shall not be designated under 
                subparagraph (A) if the Secretary of Housing and Urban 
                Development determines that the course of action 
                described in subsection (d)(2) with respect to such 
                area is inadequate.
                    ``(C) Priority for empowerment zones and enterprise 
                communities with respect to first half of 
                designations.--With respect to the first half of the 
                designations made under this section, the nominated 
                areas designated as renewal communities shall be chosen 
                first from nominated areas which are enterprise zones 
                or empowerment communities (and are otherwise eligible 
                for designation under this section), and then from 
                other nominated areas which are so eligible.
                    ``(D) Separate application to rural and other 
                areas.--Subparagraph (A) shall be applied separately 
                with respect to areas described in paragraph (2)(B) and 
                to other areas.
            ``(4) Limitation on designations.--
                    ``(A) Publication of regulations.--The Secretary of 
                Housing and Urban Development shall prescribe by 
                regulation no later than 4 months after the date of the 
                enactment of this section, after consultation with the 
                officials described in paragraph (1)(B)--
                            ``(i) the procedures for nominating an area 
                        under paragraph (1)(A),
                            ``(ii) the parameters relating to the size 
                        and population characteristics of a renewal 
                        community, and
                            ``(iii) the manner in which nominated areas 
                        will be evaluated based on the criteria 
                        specified in subsection (d).
                    ``(B) Time limitations.--The Secretary of Housing 
                and Urban Development may designate nominated areas as 
                renewal communities only during the 24-month period 
                beginning on the first day of the first month following 
                the month in which the regulations described in 
                subparagraph (A) are prescribed.
                    ``(C) Procedural rules.--The Secretary of Housing 
                and Urban Development shall not make any designation of 
                a nominated area as a renewal community under paragraph 
                (2) unless--
                            ``(i) the local governments and the State 
                        in which the nominated area is located have the 
                        authority--
                                    ``(I) to nominate such area for 
                                designation as a renewal community,
                                    ``(II) to make the State and local 
                                commitments described in subsection 
                                (d), and
                                    ``(III) to provide assurances 
                                satisfactory to the Secretary of 
                                Housing and Urban Development that such 
                                commitments will be fulfilled,
                            ``(ii) a nomination regarding such area is 
                        submitted in such a manner and in such form, 
                        and contains such information, as the Secretary 
                        of Housing and Urban Development shall by 
                        regulation prescribe, and
                            ``(iii) the Secretary of Housing and Urban 
                        Development determines that any information 
                        furnished is reasonably accurate.
            ``(5) Nomination process for indian reservations.--For 
        purposes of this subchapter, 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 treated 
        as being both the State and local governments with respect to 
        such area.
    ``(b) Period for Which Designation Is in Effect.--
            ``(1) In general.--Any designation of an area as a renewal 
        community 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 7th calendar year 
                following the calendar year in which such date occurs,
                    ``(B) the termination date designated by the State 
                and local governments in their nomination pursuant to 
                subsection (a)(4)(C)(ii), or
                    ``(C) the date the Secretary of Housing and Urban 
                Development revokes such designation under paragraph 
                (2).
            ``(2) Revocation of designation.--The Secretary of Housing 
        and Urban Development may, after--
                    ``(A) consultation with the officials described in 
                subsection (a)(1)(B) (and the Secretary of Education if 
                notification required under section 304 of the Low-
                Income Educational Opportunity Scholarship Act of 1998 
                is received), and
                    ``(B) a hearing on the record involving officials 
                of the State or local government involved (or both, if 
                applicable),
        revoke the designation of an area if the Secretary of Housing 
        and Urban Development determines that the local government or 
        State in which the area is located is not complying 
        substantially with the State or local commitments, 
        respectively, described in subsection (d).
    ``(c) Area and Eligibility Requirements.--
            ``(1) In general.--The Secretary of Housing and Urban 
        Development may designate any nominated area as a renewal 
        community under subsection (a) only if the area meets the 
        requirements of paragraphs (2) and (3) of this subsection.
            ``(2) Area requirements.--A nominated area meets the 
        requirements of this paragraph if--
                    ``(A) the area is within the jurisdiction of a 
                local government,
                    ``(B) the boundary of the area is continuous, and
                    ``(C) the area--
                            ``(i) has a population, as determined by 
                        the most recent census data available, of at 
                        least--
                                    ``(I) 4,000 if any portion of such 
                                area (other than a rural area described 
                                in subsection (a)(2)(B)(i)) is located 
                                within a metropolitan statistical area 
                                (within the meaning of section 
                                143(k)(2)(B)) which has a population of 
                                50,000 or greater, or
                                    ``(II) 1,000 in any other case, or
                            ``(ii) is entirely within an Indian 
                        reservation (as determined by the Secretary of 
                        the Interior).
            ``(3) Eligibility requirements.--A nominated area meets the 
        requirements of this paragraph if the State and the local 
        governments in which it is located certify (and the Secretary 
        of Housing and Urban Development, after such review of 
        supporting data as he deems appropriate, accepts such 
        certification) that--
                    ``(A) the area is one of pervasive poverty, 
                unemployment, and general distress,
                    ``(B) the unemployment rate in the area, as 
                determined by the appropriate available data, was at 
                least 1\1/2\ times the national unemployment rate for 
                the period to which such data relate,
                    ``(C) the poverty rate (as determined by the most 
                recent census data available) for each population 
                census tract (or where not tracted, the equivalent 
                county division as defined by the Bureau of the Census 
                for the purpose of defining poverty areas) within the 
                area was at least 20 percent for the period to which 
                such data relate, and
                    ``(D) in the case of an urban area, at least 70 
                percent of the households living in the area have 
                incomes below 80 percent of the median income of 
                households within the jurisdiction of the local 
                government (determined in the same manner as under 
                section 119(b)(2) of the Housing and Community 
                Development Act of 1974).
            ``(4) Consideration of high incidence of crime.--The 
        Secretary of Housing and Urban Development shall take into 
        account, in selecting nominated areas for designation as 
        renewal communities under this section, the extent to which 
        such areas have a high incidence of crime.
            ``(5) Consideration of communities identified in gao 
        study.--The Secretary of Housing and Urban Development shall 
        take into account, in selecting nominated areas for designation 
        as renewal communities under this section, if the area has 
        census tracts identified in the May 12, 1998, report of the 
        Government Accounting Office regarding the identification of 
        economically distressed areas.
    ``(d) Required State and Local Commitments.--
            ``(1) In general.--The Secretary of Housing and Urban 
        Development may designate any nominated area as a renewal 
        community under subsection (a) only if--
                    ``(A) the local government and the State in which 
                the area is located agree in writing that, during any 
                period during which the area is a renewal community, 
                such governments will follow a specified course of 
                action which meets the requirements of paragraph (2) 
                and is designed to reduce the various burdens borne by 
                employers or employees in such area, and
                    ``(B) the economic growth promotion requirements of 
                paragraph (3) are met.
            ``(2) Course of action.--
                    ``(A) In general.--A course of action meets the 
                requirements of this paragraph if such course of action 
                is a written document, signed by a State (or local 
                government) and neighborhood organizations, which 
                evidences a partnership between such State or 
                government and community-based organizations and which 
                commits each signatory to specific and measurable 
                goals, actions, and timetables. Such course of action 
                shall include at least five of the following:
                            ``(i) A reduction of tax rates or fees 
                        applying within the renewal community.
                            ``(ii) An increase in the level of 
                        efficiency of local services within the renewal 
                        community.
                            ``(iii) Crime reduction strategies, such as 
                        crime prevention (including the provision of 
                        such services by nongovernmental entities).
                            ``(iv) Actions to reduce, remove, simplify, 
                        or streamline governmental requirements 
                        applying within the renewal community.
                            ``(v) Involvement in the program by private 
                        entities, organizations, neighborhood 
                        organizations, and community groups, 
                        particularly those in the renewal community, 
including a commitment from such private entities to provide jobs and 
job training for, and technical, financial, or other assistance to, 
employers, employees, and residents from the renewal community.
                            ``(vi) State or local income tax benefits 
                        for fees paid for services performed by a 
                        nongovernmental entity which were formerly 
                        performed by a governmental entity.
                            ``(vii) The gift (or sale at below fair 
                        market value) of surplus realty (such as land, 
                        homes, and commercial or industrial structures) 
                        in the renewal community to neighborhood 
                        organizations, community development 
                        corporations, or private companies.
                    ``(B) Recognition of past efforts.--For purposes of 
                this section, in evaluating the course of action agreed 
                to by any State or local government, the Secretary of 
                Housing and Urban Development shall take into account 
                the past efforts of such State or local government in 
                reducing the various burdens borne by employers and 
                employees in the area involved.
            ``(3) Economic growth promotion requirements.--The economic 
        growth promotion requirements of this paragraph are met with 
        respect to a nominated area if the local government and the 
        State in which such area is located certify in writing that 
        such government and State, respectively, have repealed or 
        otherwise will not enforce within the area, if such area is 
        designated as a renewal community--
                    ``(A) licensing requirements for occupations that 
                do not ordinarily require a professional degree,
                    ``(B) zoning restrictions on home-based businesses 
                which do not create a public nuisance,
                    ``(C) permit requirements for street vendors who do 
                not create a public nuisance,
                    ``(D) zoning or other restrictions that impede the 
                formation of schools or child care centers, and
                    ``(E) franchises or other restrictions on 
                competition for businesses providing public services, 
                including but not limited to taxicabs, jitneys, cable 
                television, or trash hauling,
        except to the extent that such regulation of businesses and 
        occupations is necessary for and well-tailored to the 
        protection of health and safety.
    ``(e) Coordination With Treatment of Empowerment Zones and 
Enterprise Communities.--For purposes of this title, if there are in 
effect with respect to the same area both--
            ``(1) a designation as a renewal community, and
            ``(2) a designation as an empowerment zone or enterprise 
        community,
both of such designations shall be given full effect with respect to 
such area.
    ``(f) Definitions.--For purposes of this subchapter--
            ``(1) Governments.--If more than one government seeks to 
        nominate an area as a renewal community, any reference to, or 
        requirement of, this section shall apply to all such 
        governments.
            ``(2) State.--The term `State' includes Puerto Rico, the 
        Virgin Islands of the United States, Guam, American Samoa, the 
        Northern Mariana Islands, and any other possession of the 
        United States.
            ``(3) Local government.--The term `local government' 
        means--
                    ``(A) any county, city, town, township, parish, 
                village, or other general purpose political subdivision 
                of a State,
                    ``(B) any combination of political subdivisions 
                described in subparagraph (A) recognized by the 
                Secretary of Housing and Urban Development, and
                    ``(C) the District of Columbia.''

SEC. 104. EVALUATION AND REPORTING REQUIREMENTS.

    Not later than the close of the fourth calendar year after the year 
in which the Secretary of Housing and Urban Development first 
designates an area as a renewal community under section 1400E of the 
Internal Revenue Code of 1986, and at the close of each fourth calendar 
year thereafter, such Secretary shall prepare and submit to the 
Congress a report on the effects of such designations in accomplishing 
the purposes of this Act.

SEC. 105. INTERACTION WITH OTHER FEDERAL PROGRAMS.

    (a) Tax Reductions.--Any reduction of taxes, with respect to any 
renewal community designated under section 1400E of the Internal 
Revenue Code of 1986 (as added by this title), under any plan of action 
under section 1400E(d) of such Code shall be disregarded in determining 
the eligibility of a State or local government for, or the amount or 
extent of, any assistance or benefits under any law of the United 
States (other than subchapter X of chapter 1 of such Code).
    (b) Coordination With Relocation Assistance.--The designation of a 
renewal community under section 1400E of such Code (as added by this 
title) shall not--
            (1) constitute approval of a Federal or Federally assisted 
        program or project (within the meaning of the Uniform 
        Relocation Assistance and Real Property Acquisition Policies 
        Act of 1970 (42 U.S.C. 4601 et seq.)), or
            (2) entitle any person displaced from real property located 
        in such community to any rights or any benefits under such Act.
    (c) Renewal Communities Treated as Labor Surplus Areas.--Any area 
which is designated as a renewal community under section 1400E of such 
Code (as added by this title) shall be treated for all purposes under 
Federal law as a labor surplus area.
    (d) Coordination With Job Training Programs.--Renewal communities 
are encouraged to coordinate efforts with job training providers who 
are public, private not-for-profit, or private for-profit entities.

            TITLE II--TAX INCENTIVES FOR RENEWAL COMMUNITIES

SEC. 201. TAX TREATMENT OF RENEWAL COMMUNITIES.

    (a) In General.--Subchapter X of chapter I of the Internal Revenue 
Code of 1986 (as added by title I) is amended by adding at the end the 
following new parts:

               ``PART II--RENEWAL COMMUNITY CAPITAL GAIN

                              ``Sec. 1400F. Renewal community capital 
                                        gain.
                              ``Sec. 1400G. Renewal community business 
                                        defined.

``SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.

    ``(a) General Rule.--Gross income does not include any qualified 
capital gain recognized on the sale or exchange of a qualified 
community asset held for more than 5 years.
    ``(b) Qualified Community Asset.--For purposes of this section--
            ``(1) In general.--The term `qualified community asset' 
        means--
                    ``(A) any qualified community stock,
                    ``(B) any qualified community business property, 
                and
                    ``(C) any qualified community partnership interest.
            ``(2) Qualified community stock.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified community 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 renewal 
                        community business (or, in the case of a new 
                        corporation, such corporation was being 
                        organized for purposes of being a renewal 
                        community business), and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such stock, such 
                        corporation qualified as a renewal community 
                        business.
                    ``(B) Redemptions.--The term `qualified community 
                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 community business property.--
                    ``(A) In general.--The term `qualified community 
                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 renewal community took 
                        effect,
                            ``(ii) the original use of such property in 
                        the renewal community 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 a renewal community business of the 
                        taxpayer.
                    ``(B) Special rule for substantial improvements.--
                            ``(i) In general.--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.
                            ``(ii) Substantial improvement.--For 
                        purposes of clause (i), property shall be 
                        treated as substantially improved by the 
                        taxpayer only if, during any 24-month period 
                        beginning after the date on which the 
                        designation of the renewal community 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 
                community business property' shall not include land 
                which is not an integral part of a renewal community 
                business.
            ``(4) Qualified community partnership interest.--The term 
        `qualified community 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 renewal community business (or, 
                in the case of a new partnership, such partnership was 
                being organized for purposes of being a renewal 
                community business), and
                    ``(C) during substantially all of the taxpayer's 
                holding period for such interest, such partnership 
                qualified as a renewal community business.
        A rule similar to the rule of paragraph (2)(C) shall apply for 
        purposes of this paragraph.
            ``(5) Treatment of subsequent purchasers.--The term 
        `qualified community asset' includes any property which would 
        be a qualified community asset but for paragraph (2)(A)(i), 
        (3)(A)(ii), or (4)(A) in the hands of the taxpayer if such 
        property was a qualified community asset in the hands of all 
        prior holders.
            ``(6) 10-year safe harbor.--If any property ceases to be a 
        qualified community asset 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 
        subsection (a) applies on any sale or exchange of such property 
        shall not exceed the amount which would be qualified capital 
        gain had such property been sold on the date of such cessation.
            ``(7) Treatment of community designation terminations.--The 
        termination of any designation of an area as a renewal 
        community shall be disregarded for purposes of determining 
        whether any property is a qualified community asset.
    ``(c) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified capital gain.--Except as otherwise provided 
        in this subsection, the term `qualified capital gain' means any 
        long-term capital gain recognized on the sale or exchange of a 
        qualified community asset held for more than 5 years 
        (determined without regard to any period before the designation 
        of the renewal community).
            ``(2) Certain gain on real property not qualified.--The 
        term `qualified capital gain' shall not include any gain which 
        would be treated as ordinary income under section 1250 if 
        section 1250 applied to all depreciation rather than the 
        additional depreciation.
            ``(3) Gain attributable to periods after termination of 
        community designation not qualified.--The term `qualified 
        capital gain' shall not include any gain attributable to 
        periods after the termination of any designation of an area as 
        a renewal community.
            ``(4) Related party transactions.--The term `qualified 
        capital gain' shall not include any gain attributable, directly 
        or indirectly, in whole or in part, to a transaction with a 
        related person. For purposes of this paragraph, persons are 
        related to each other if such persons are described in section 
        267(b) or 707(b)(1).
    ``(d) 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 renewal community 
        business during substantially all of the period the taxpayer 
        held such interest) for more than 5 years shall be treated as 
        gain described in subsection (a) to the extent such gain is 
        attributable to amounts which would be qualified capital gain 
        on qualified community 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 (determined without regard to any 
        period before the date of the designation of the renewal 
        community) 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 renewal community 
                business during substantially all of the period the 
                taxpayer held the interest to which such inclusion 
                relates) shall be treated as gain described in 
                subsection (a) 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 
                        qualified capital gain recognized on the sale 
                        or exchange by the pass-thru entity of property 
                        which is a qualified community 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 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 community 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.
    ``(e) Sales and Exchanges of Interests in Partnerships and S 
Corporations Which Are Qualified Community 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 renewal community business during 
substantially all of the period the taxpayer held such interest or 
stock, the amount of qualified capital gain shall be determined without 
regard to--
            ``(1) any intangible, and any land, which is not an 
        integral part of any qualified business entity (as defined in 
        section 1400G(b)), and
            ``(2) gain attributable to periods before the designation 
        of an area as a renewal community.
    ``(f) Certain Tax-Free and Other Transfers.--For purposes of this 
section--
            ``(1) In general.--In the case of a transfer of a qualified 
        community asset to which this subsection applies, the 
        transferee shall be treated as--
                    ``(A) having acquired such asset in the same manner 
                as the transferor, and
                    ``(B) having held such asset 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 community asset with respect to which the 
                requirements of subsection (d)(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. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.

    ``(a) In General.--For purposes of this part, the term `renewal 
community business' means--
            ``(1) any qualified business entity, and
            ``(2) any qualified proprietorship.
Such term shall include any trades or businesses which would qualify as 
a renewal community business if such trades or businesses were 
separately incorporated. Such term shall not include any trade or 
business of producing property of a character subject to the allowance 
for depletion under section 611.
    ``(b) Qualified Business Entity.--For purposes of this section, the 
term `qualified business entity' means, with respect to any taxable 
year, any corporation or partnership if for such year--
            ``(1) every trade or business of such entity is the active 
        conduct of a qualified business within a renewal community,
            ``(2) at least 80 percent of the total gross income of such 
        entity is derived from the active conduct of such business,
            ``(3) substantially all of the use of the tangible property 
        of such entity (whether owned or leased) is within a renewal 
        community,
            ``(4) substantially all of the intangible property of such 
        entity is used in, and exclusively related to, the active 
        conduct of any such business,
            ``(5) substantially all of the services performed for such 
        entity by its employees are performed in a renewal community,
            ``(6) at least 35 percent of its employees are residents of 
        a renewal community,
            ``(7) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such entity is attributable 
        to 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, and
            ``(8) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such entity is attributable 
        to nonqualified financial property.
    ``(c) Qualified Proprietorship.--For purposes of this section, 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--
            ``(1) at least 80 percent of the total gross income of such 
        individual from such business is derived from the active 
        conduct of such business in a renewal community,
            ``(2) substantially all of the use of the tangible property 
        of such individual in such business (whether owned or leased) 
        is within a renewal community,
            ``(3) substantially all of the intangible property of such 
        business is used in, and exclusively related to, the active 
        conduct of such business,
            ``(4) substantially all of the services performed for such 
        individual in such business by employees of such business are 
performed in a renewal community,
            ``(5) at least 35 percent of such employees are residents 
        of a renewal community,
            ``(6) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such individual which is 
        used in such business is attributable to 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, and
            ``(7) less than 5 percent of the average of the aggregate 
        unadjusted bases of the property of such individual which is 
        used in such business is attributable to nonqualified financial 
        property.
For purposes of this subsection, the term `employee' includes the 
proprietor.
    ``(d) Qualified Business.--For purposes of this section--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `qualified business' means any trade or 
        business.
            ``(2) Rental of real property.--The rental to others of 
        real property located in a renewal community shall be treated 
        as a qualified business if and only if--
                    ``(A) the property is not residential rental 
                property (as defined in section 168(e)(2)), and
                    ``(B) at least 50 percent of the gross rental 
                income from the real property is from renewal community 
                businesses.
            ``(3) Rental of tangible personal property.--The rental to 
        others 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 renewal community businesses or 
        by residents of a renewal community.
            ``(4) 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.
            ``(5) Certain businesses excluded.--The term `qualified 
        business' shall not include--
                    ``(A) any trade or business consisting of the 
                operation of any facility described in section 
                144(c)(6)(B), and
                    ``(B) any 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 sum of--
                            ``(i) the aggregate unadjusted bases (or, 
                        if greater, the fair market value) of the 
                        assets owned by the taxpayer which are used in 
                        such a trade or business, and
                            ``(ii) the aggregate value of assets leased 
                        by the taxpayer which are used in such a trade 
                        or business,
                exceeds $500,000.
            ``(6) Controlled groups.--For purposes of paragraph (5)(B), 
        all persons treated as a single employer under subsection (a) 
        or (b) of section 52 shall be treated as a single taxpayer.
    ``(e) Nonqualified Financial Property.--For purposes of this 
section, 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--
            ``(1) reasonable amounts of working capital held in cash, 
        cash equivalents, or debt instruments with a term of 18 months 
        or less, or
            ``(2) debt instruments described in section 1221(4).

                ``PART III--FAMILY DEVELOPMENT ACCOUNTS

                              ``Sec. 1400H. Family development 
                                        accounts.
                              ``Sec. 1400I. Demonstration program to 
                                        provide matching contributions 
                                        to family development accounts 
                                        in certain renewal communities.
                              ``Sec. 1400J. Designation of earned 
                                        income tax credit payments for 
                                        deposit to family development 
                                        account.

``SEC. 1400H. FAMILY DEVELOPMENT ACCOUNTS FOR RENEWAL COMMUNITY EITC 
              RECIPIENTS.

    ``(a) Allowance of Deduction.--
            ``(1) In general.--There shall be allowed as a deduction--
                    ``(A) in the case of a qualified individual, the 
                amount paid in cash for the taxable year by such 
                individual to any family development account for such 
                individual's benefit, and
                    ``(B) in the case of any person other than a 
                qualified individual, the amount paid in cash for the 
                taxable year by such person to any family development 
                account for the benefit of a qualified individual.
        No deduction shall be allowed under this paragraph for any 
        amount deposited in a family development account under section 
        1400I (relating to demonstration program to provide matching 
        amounts in renewal communities).
            ``(2) Limitation.--
                    ``(A) In general.--The amount allowable as a 
                deduction to any individual for any taxable year by 
                reason of paragraph (1)(A) shall not exceed the lesser 
                of--
                            ``(i) $2,000, or
                            ``(ii) an amount equal to the compensation 
                        includible in the individual's gross income for 
                        such taxable year.
                    ``(B) Persons donating to family development 
                accounts of others.--The amount allowable as a 
                deduction to any person for any taxable year by reason 
                of paragraph (1)(B) shall not exceed $1,000 with 
                respect to any qualified individual.
            ``(3) Special rules for certain married individuals.--
                    ``(A) In general.--In the case of an individual to 
                whom this subparagraph applies for the taxable year, 
                the limitation of subparagraph (A) of paragraph (2) 
                shall be equal to the lesser of--
                            ``(i) the dollar amount in effect under 
                        paragraph (2)(A)(i) for the taxable year, or
                            ``(ii) the sum of--
                                    ``(I) the compensation includible 
                                in such individual's gross income for 
                                the taxable year, plus--
                                    ``(II) the compensation includible 
                                in the gross income of such 
                                individual's spouse for the taxable 
                                year reduced by the amount allowed as a 
                                deduction under paragraph (1) to such 
                                spouse for such taxable year.
                    ``(B) Individuals to whom subparagraph (a) 
                applies.--Subparagraph (A) shall apply to any 
                individual if--
                            ``(i) such individual files a joint return 
                        for the taxable year, and
                            ``(ii) the amount of compensation (if any) 
                        includible in such individual's gross income 
                        for the taxable year is less than the 
                        compensation includible in the gross income of 
                        such individual's spouse for the taxable year.
            ``(4) Rollovers.--No deduction shall be allowed under this 
        section with respect to any rollover contribution.
    ``(b) Tax Treatment of Distributions.--
            ``(1) Inclusion of amounts in gross income.--Except as 
        otherwise provided in this subsection, any amount paid or 
        distributed out of a family development account shall be 
        included in gross income by the payee or distributee, as the 
        case may be.
            ``(2) Exclusion of qualified family development 
        distributions.--Paragraph (1) shall not apply to any qualified 
        family development distribution.
            ``(3) Special rules.--Rules similar to the rules of 
        paragraphs (4) and (5) of section 408(d) shall apply for 
        purposes of this section.
    ``(c) Qualified Family Development Distribution.--For purposes of 
this section--
            ``(1) In general.--The term `qualified family development 
        distribution' means any amount paid or distributed out of a 
        family development account which would otherwise be includible 
        in gross income, to the extent that such payment or 
        distribution is used exclusively to pay qualified family 
        development expenses for the holder of the account or the 
        spouse or dependent (as defined in section 152) of such holder.
            ``(2) Qualified family development expenses.--The term 
        `qualified family development expenses' means any of the 
        following:
                    ``(A) Qualified postsecondary educational expenses.
                    ``(B) First-home purchase costs.
                    ``(C) Qualified business capitalization costs.
                    ``(D) Qualified medical expenses.
                    ``(E) Qualified rollovers.
            ``(3) Qualified postsecondary educational expenses.--
                    ``(A) In general.--The term `qualified 
                postsecondary educational expenses' means postsecondary 
                educational expenses paid to an eligible educational 
                institution.
                    ``(B) Postsecondary educational expenses.--The term 
                `postsecondary educational expenses' means tuition, 
                fees, room, board, books, supplies, and equipment 
                required for the enrollment or attendance of a student 
                at an eligible educational institution.
                    ``(C) Eligible educational institution.--The term 
                `eligible educational institution' means the following:
                            ``(i) Institution of higher education.--An 
                        institution described in section 481(a)(1) or 
                        1201(a) of the Higher Education Act of 1965 (20 
                        U.S.C. 1088(a)(1), 1141(a)), as such sections 
                        are in effect on the date of the enactment of 
                        this section.
                            ``(ii) Postsecondary vocational education 
                        school.--An area vocational education school 
                        (as defined in subparagraph (C) or (D) of 
                        section 521(4) of the Carl D. Perkins 
                        Vocational and Applied Technology Education Act 
                        (20 U.S.C. 2471(4))) which is in any State (as 
                        defined in section 521(33) of such Act), as 
                        such sections are in effect on the date of the 
                        enactment of this section.
                    ``(D) Coordination with savings bond provisions.--
                The amount of qualified postsecondary educational 
                expenses for any taxable year shall be reduced by any 
                amount excludable from gross income under section 135.
            ``(4) First-home purchase costs.--
                    ``(A) In general.--The term `first-home purchase 
                costs' means qualified acquisition costs with respect 
                to a qualified principal residence for a qualified 
                first-time homebuyer.
                    ``(B) Qualified acquisition costs.--The term 
                `qualified acquisition costs' means the costs of 
                acquiring, constructing, or reconstructing a residence. 
                Such term includes any usual or reasonable settlement, 
                financing, or other closing costs.
                    ``(C) Qualified principal residence.--The term 
                `qualified principal residence' means a principal 
                residence (within the meaning of section 1034), the 
                qualified acquisition costs of which do not exceed 100 
                percent of the average area purchase price applicable 
                to such residence (determined in accordance with 
                paragraphs (2) and (3) of section 143(e)).
                    ``(D) Qualified first-time homebuyer.--
                            ``(i) In general.--The term `qualified 
                        first-time homebuyer' means an individual if 
                        such individual (and, in the case of a married 
                        individual, the individual's spouse) has no 
                        present ownership interest in a principal 
                        residence during the 3-year period ending on 
                        the date of acquisition of the principal 
                        residence to which this subsection applies.
                            ``(ii) Date of acquisition.--The term `date 
                        of acquisition' means the date on which a 
                        binding contract to acquire, construct, or 
                        reconstruct the principal residence to which 
                        this subsection applies is entered into.
            ``(5) Qualified business capitalization costs.--
                    ``(A) In general.--The term `qualified business 
                capitalization costs' means qualified expenditures for 
                the capitalization of a qualified business pursuant to 
                a qualified plan.
                    ``(B) Qualified expenditures.--The term `qualified 
                expenditures' means expenditures included in a 
                qualified plan, including capital, plant, equipment, 
                working capital, and inventory expenses.
                    ``(C) Qualified business.--The term `qualified 
                business' means any business that does not contravene 
                any law or public policy (as determined by the 
                Secretary).
                    ``(D) Qualified plan.--The term `qualified plan' 
                means a business plan which--
                            ``(i) is approved by a financial 
                        institution, or by a nonprofit loan fund having 
                        demonstrated fiduciary integrity,
                            ``(ii) includes a description of services 
                        or goods to be sold, a marketing plan, and 
                        projected financial statements, and
                            ``(iii) may require the eligible individual 
                        to obtain the assistance of an experienced 
                        entrepreneurial advisor.
            ``(6) Qualified medical expenses.--The term `qualified 
        medical expenses' means any amount paid during the taxable 
        year, not compensated for by insurance or otherwise, for 
        medical care (as defined in section 213(d)) of the taxpayer, 
        his spouse, or his dependent (as defined in section 152).
            ``(7) Qualified rollovers.--The term `qualified rollover' 
        means any amount paid from a family development account of a 
        taxpayer into another such account established for the benefit 
        of--
                    ``(A) such taxpayer, or
                    ``(B) any qualified individual who is--
                            ``(i) the spouse of such taxpayer, or
                            ``(ii) any dependent (as defined in section 
                        152) of the taxpayer. Rules similar to the 
rules of section 408(d)(3) shall apply for purposes of this paragraph.
    ``(d) Tax Treatment of Accounts.--
            ``(1) In general.--Any family development account is exempt 
        from taxation under this subtitle unless such account has 
        ceased to be a family development account by reason of 
        paragraph (2). Notwithstanding the preceding sentence, any such 
        account is subject to the taxes imposed by section 511 
        (relating to imposition of tax on unrelated business income of 
        charitable, etc., organizations).
            ``(2) Loss of exemption in case of prohibited 
        transactions.--For purposes of this section, rules similar to 
        the rules of section 408(e) shall apply.
    ``(e) Family Development Account.--For purposes of this title, the 
term `family development account' means a trust created or organized in 
the United States for the exclusive benefit of a qualified individual 
or his beneficiaries, but only if the written governing instrument 
creating the trust meets the following requirements:
            ``(1) Except in the case of a qualified rollover (as 
        defined in subsection (c)(7))--
                    ``(A) no contribution will be accepted unless it is 
                in cash, and
                    ``(B) contributions will not be accepted for the 
                taxable year in excess of $2,000 (determined without 
                regard to any contribution made under section 1400I 
                (relating to demonstration program to provide matching 
                amounts in renewal communities)).
            ``(2) The trustee is a bank (as defined in section 408(n)) 
        or such other person who demonstrates to the satisfaction of 
        the Secretary that the manner in which such other person will 
        administer the trust will be consistent with the requirements 
        of this section.
            ``(3) No part of the trust funds will be invested in life 
        insurance contracts.
            ``(4) The interest of an individual in the balance in his 
        account is nonforfeitable.
            ``(5) The assets of the trust will not be commingled with 
        other property except in a common trust fund or common 
        investment fund.
            ``(6) Under regulations prescribed by the Secretary, rules 
        similar to the rules of section 401(a)(9) and the incidental 
        death benefit requirements of section 401(a) shall apply to the 
        distribution of the entire interest of an individual for whose 
        benefit the trust is maintained.
    ``(f) Qualified Individual.--For purposes of this section, the term 
`qualified individual' means, for any taxable year, an individual--
            ``(1) who is a bona fide resident of a renewal community 
        throughout the taxable year, and
            ``(2) to whom a credit was allowed under section 32 for the 
        preceding taxable year.
    ``(g) Other Definitions and Special Rules.--
            ``(1) Compensation.--The term `compensation' has the 
        meaning given such term by section 219(f)(1).
            ``(2) Married individuals.--The maximum deduction under 
        subsection (a) shall be computed separately for each 
        individual, and this section shall be applied without regard to 
        any community property laws.
            ``(3) Time when contributions deemed made.--For purposes of 
        this section, a taxpayer shall be deemed to have made a 
        contribution to a family development account on the last day of 
        the preceding taxable year if the contribution is made on 
        account of such taxable year and is made not later than the 
        time prescribed by law for filing the return for such taxable 
        year (not including extensions thereof).
            ``(4) Employer payments.--For purposes of this title, any 
        amount paid by an employer to a family development account 
        shall be treated as payment of compensation to the employee 
        (other than a self-employed individual who is an employee 
        within the meaning of section 401(c)(1)) includible in his 
        gross income in the taxable year for which the amount was 
        contributed, whether or not a deduction for such payment is 
        allowable under this section to the employee.
            ``(5) Zero basis.--The basis of an individual in any family 
        development account of such individual shall be zero.
            ``(6) Custodial accounts.--For purposes of this section, a 
        custodial account shall be treated as a trust if the assets of 
        such account are held by a bank (as defined in section 408(n)) 
        or another person who demonstrates, to the satisfaction of the 
        Secretary, that the manner in which such person will administer 
        the account will be consistent with the requirements of this 
        section, and if the custodial account would, except for the 
        fact that it is not a trust, constitute a family development 
        account described in this section. For purposes of this title, 
        in the case of a custodial account treated as a trust by reason 
        of the preceding sentence, the custodian of such account shall 
        be treated as the trustee thereof.
            ``(7) Reports.--The trustee of a family development account 
        shall make such reports regarding such account to the Secretary 
        and to the individual for whom the account is maintained with 
        respect to contributions (and the years to which they relate), 
        distributions, and such other matters as the Secretary may 
        require under regulations. The reports required by this 
        paragraph--
                    ``(A) shall be filed at such time and in such 
                manner as the Secretary prescribes in such regulations, 
                and
                    ``(B) shall be furnished to individuals--
                            ``(i) not later than January 31 of the 
                        calendar year following the calendar year to 
                        which such reports relate, and
                            ``(ii) in such manner as the Secretary 
                        prescribes in such regulations.
            ``(8) Investment in collectibles treated as 
        distributions.--Rules similar to the rules of section 408(m) 
        shall apply for purposes of this section.
    ``(h) Penalty for Distributions Not Used for Qualified Family 
Development Expenses.--
            ``(1) In general.--If any amount is distributed from a 
        family development account and is not used exclusively to pay 
        qualified family development expenses for the holder of the 
        account or the spouse or dependent (as defined in section 152) 
        of such holder, the tax imposed by this chapter for the taxable 
        year of such distribution shall be increased by the sum of--
                    ``(A) 100 percent of the portion of such amount 
                which is includible in gross income and is attributable 
                to amounts contributed under section 1400I (relating to 
                demonstration program to provide matching amounts in 
                renewal communities), and
                    ``(B) 10 percent of the portion of such amount 
                which is includible in gross income and is not 
                described in paragraph (1).
        For purposes of this subsection, the portion of a distributed 
        amount which is attributable to amounts contributed under 
        section 1400I is the amount which bears the same ratio to the 
        distributed amount as the aggregate amount contributed under 
        section 1400I to all family development accounts of the 
        individual bears to the aggregate amount contributed to such 
        accounts from all sources.
            ``(2) Exception for certain distributions.--Paragraph (1) 
        shall not apply to distributions which are--
                    ``(A) made on or after the date on which the 
                account holder attains age 59\1/2\,
                    ``(B) made pursuant to subsection (e)(6),
                    ``(C) made to a beneficiary (or the estate of the 
                account holder) on or after the death of the account 
                holder, or
                    ``(D) attributable to the account holder's being 
                disabled within the meaning of section 72(m)(7).

``SEC. 1400I. DEMONSTRATION PROGRAM TO PROVIDE MATCHING CONTRIBUTIONS 
              TO FAMILY DEVELOPMENT ACCOUNTS IN CERTAIN RENEWAL 
              COMMUNITIES.

    ``(a) Designation.--
            ``(1) Definitions.--For purposes of this section, the term 
        `FDA matching demonstration area' means any renewal community--
                    ``(A) which is nominated under this section by each 
                of the local governments and States which nominated 
                such community for designation as a renewal community 
                under section 1400E(a)(1)(A), and
                    ``(B) which the Secretary of Housing and Urban 
                Development, after consultation with--
                            ``(i) the Secretaries of Agriculture, 
                        Commerce, Labor, and the Treasury, the Director 
                        of the Office of Management and Budget, and the 
                        Administrator of the Small Business 
                        Administration, and
                            ``(ii) in the case of a community on an 
                        Indian reservation, the Secretary of the 
                        Interior,
                designates as an FDA matching demonstration area.
            ``(2) Number of designations.--
                    ``(A) In general.--The Secretary of Housing and 
                Urban Development may designate not more than 25 
                percent of the renewal communities as FDA matching 
                demonstration areas.
                    ``(B) Minimum designation in rural areas.--Of the 
                areas designated under paragraph (1), at least 2 must 
                be areas described in section 1400E(a)(2)(B).
            ``(3) Limitations on designations.--
                    ``(A) Publication of regulations.--The Secretary of 
                Housing and Urban Development shall prescribe by 
                regulation no later than 4 months after the date of the 
                enactment of this section, after consultation with the 
                officials described in paragraph (1)(B)--
                            ``(i) the procedures for nominating a 
                        renewal community under paragraph (1)(A) 
                        (including procedures for coordinating such 
                        nomination with the nomination of an area for 
                        designation as a renewal community under 
                        section 1400E), and
                            ``(ii) the manner in which nominated 
                        renewal communities will be evaluated for 
                        purposes of this section.
                    ``(B) Time limitations.--The Secretary of Housing 
                and Urban Development may designate renewal communities 
                as FDA matching demonstration areas only during the 24-
                month period beginning on the first day of the first 
                month following the month in which the regulations 
                described in subparagraph (A) are prescribed.
            ``(4) Designation based on degree of poverty, etc.--The 
        rules of section 1400E(a)(3) shall apply for purposes of 
        designations of FDA matching demonstration areas under this 
        section.
    ``(b) Period for Which Designation is in Effect.--Any designation 
of a renewal community as an FDA matching demonstration area shall 
remain in effect during the period beginning on the date of such 
designation and ending on the date on which such area ceases to be a 
renewal community.
    ``(c) Matching Contributions to Family Development Accounts.--
            ``(1) In general.--Not less than once each taxable year, 
        the Secretary shall deposit (to the extent provided in 
        appropriation Acts) into a family development account of each 
        qualified individual (as defined in section 1400H(f)) who is a 
        resident throughout the taxable year of an FDA matching 
        demonstration area an amount equal to the sum of the amounts 
        deposited into all of the family development accounts of such 
        individual during such taxable year (determined without regard 
        to any amount contributed under this section).
            ``(2) Limitations.--
                    ``(A) Annual limit.--The Secretary shall not 
                deposit more than $1000 under paragraph (1) with 
                respect to any individual for any taxable year.
                    ``(B) Aggregate limit.--The Secretary shall not 
                deposit more than $2000 under paragraph (1) with 
                respect to any individual.
            ``(3) Exclusion from income.--Except as provided in section 
        1400H, gross income shall not include any amount deposited into 
        a family development account under paragraph (1).

``SEC. 1400J. DESIGNATION OF EARNED INCOME TAX CREDIT PAYMENTS FOR 
              DEPOSIT TO FAMILY DEVELOPMENT ACCOUNT.

    ``(a) In General.--With respect to the return of any qualified 
individual (as defined in section 1400H(f)) for the taxable year of the 
tax imposed by this chapter, such individual may designate that a 
specified portion (not less than $1) of any overpayment of tax for such 
taxable year which is attributable to the earned income tax credit 
shall be deposited by the Secretary into a family development account 
of such individual. The Secretary shall so deposit such portion 
designated under this subsection.
    ``(b) Manner and Time of Designation.--A designation under 
subsection (a) may be made with respect to any taxable year--
            ``(1) at the time of filing the return of the tax imposed 
        by this chapter for such taxable year, or
            ``(2) at any other time (after the time of filing the 
        return of the tax imposed by this chapter for such taxable 
        year) specified in regulations prescribed by the Secretary.
Such designation shall be made in such manner as the Secretary 
prescribes by regulations.
    ``(c) Portion Attributable to Earned Income Tax Credit.--For 
purposes of subsection (a), an overpayment for any taxable year shall 
be treated as attributable to the earned income tax credit to the 
extent that such overpayment does not exceed the credit allowed to the 
taxpayer under section 32 for such taxable year.
    ``(d) Overpayments Treated as Refunded.--For purposes of this 
title, any portion of an overpayment of tax designated under subsection 
(a) shall be treated as being refunded to the taxpayer as of the last 
date prescribed for filing the return of tax imposed by this chapter 
(determined without regard to extensions) or, if later, the date the 
return is filed.

                    ``PART IV--ADDITIONAL INCENTIVES

                              ``Sec. 1400K. Commercial revitalization 
                                        credit.
                              ``Sec. 1400L. Increase in expensing under 
                                        section 179.
                              ``Sec. 1400M. Expensing of renewal 
                                        community environmental 
                                        remediation costs.

``SEC. 1400K. COMMERCIAL REVITALIZATION TAX CREDIT.

    ``(a) General Rule.--For purposes of section 46, except as provided 
in subsection (e), the commercial revitalization credit for any taxable 
year is an amount equal to the applicable percentage of the qualified 
revitalization expenditures with respect to any qualified 
revitalization building.
    ``(b) Applicable Percentage.--For purposes of this section--
            ``(1) In general.--The term `applicable percentage' means--
                    ``(A) 20 percent for the taxable year in which a 
                qualified revitalization building is placed in service, 
                or
                    ``(B) at the election of the taxpayer, 5 percent 
                for each taxable year in the credit period.
        The election under subparagraph (B), once made, shall be 
        irrevocable.
            ``(2) Credit period.--
                    ``(A) In general.--The term `credit period' means, 
                with respect to any building, the period of 10 taxable 
                years beginning with the taxable year in which the 
                building is placed in service.
                    ``(B) Applicable rules.--Rules similar to the rules 
                under paragraphs (2) and (4) of section 42(f) shall 
                apply.
    ``(c) Qualified Revitalization Buildings and Expenditures.--For 
purposes of this section--
            ``(1) Qualified revitalization building.--The term 
        `qualified revitalization building' means any building (and its 
        structural components) if--
                    ``(A) such building is located in a renewal 
                community and is placed in service after the 
                designation of such renewal community under section 
                1400E,
                    ``(B) a commercial revitalization credit amount is 
                allocated to the building under subsection (e), and
                    ``(C) depreciation (or amortization in lieu of 
                depreciation) is allowable with respect to the 
                building.
            ``(2) Qualified revitalization expenditure.--
                    ``(A) In general.--The term `qualified 
                revitalization expenditure' means any amount properly 
                chargeable to capital account--
                            ``(i) for property for which depreciation 
                        is allowable under section 168 and which is--
                                    ``(I) nonresidential real property, 
                                or
                                    ``(II) an addition or improvement 
                                to property described in subclause (I),
                            ``(ii) in connection with the construction 
                        or substantial rehabilitation or reconstruction 
                        of a qualified revitalization building, or
                            ``(iii) for the acquisition of land in 
                        connection with the qualified revitalization 
                        building.
                    ``(B) Dollar limitation.--The aggregate amount 
                which may be treated as qualified revitalization 
                expenditures with respect to any qualified 
                revitalization building for any taxable year shall not 
                exceed the excess of--
                            ``(i) $10,000,000, reduced by
                            ``(ii) any such expenditures with respect 
                        to the building taken into account by the 
                        taxpayer or any predecessor in determining the 
                        amount of the credit under this section for all 
                        preceding taxable years.
                    ``(C) Certain expenditures not included.--The term 
                `qualified revitalization expenditure' does not 
                include--
                            ``(i) Straight line depreciation must be 
                        used.--Any expenditure (other than with respect 
                        to land acquisitions) with respect to which the 
                        taxpayer does not use the straight line method 
                        over a recovery period determined under 
                        subsection (c) or (g) of section 168. The 
                        preceding sentence shall not apply to any 
                        expenditure to the extent the alternative 
                        depreciation system of section 168(g) applies 
                        to such expenditure by reason of subparagraph 
                        (B) or (C) of section 168(g)(1).
                            ``(ii) Acquisition costs.--The costs of 
                        acquiring any building or interest therein and 
                        any land in connection with such building to 
                        the extent that such costs exceed 30 percent of 
                        the qualified revitalization expenditures 
                        determined without regard to this clause.
                            ``(iii) Other credits.--Any expenditure 
                        which the taxpayer may take into account in 
                        computing any other credit allowable under this 
                        title unless the taxpayer elects to take the 
                        expenditure into account only for purposes of 
                        this section.
            ``(5) Substantial rehabilitation or reconstruction.--For 
        purposes of this subsection, a rehabilitation or reconstruction 
        shall be treated as a substantial rehabilitation or 
        reconstruction only if the qualified revitalization 
        expenditures in connection with the rehabilitation or 
        reconstruction exceed 25 percent of the fair market value of 
        the building (and its structural components) immediately before 
        the rehabilitation or reconstruction.
    ``(d) When Expenditures Taken Into Account.--
            ``(1) In general.--Qualified revitalization expenditures 
        with respect to any qualified revitalization building shall be 
        taken into account for the taxable year in which the qualified 
        revitalization building is placed in service. For purposes of 
        the preceding sentence, a substantial rehabilitation or 
        reconstruction of a building shall be treated as a separate 
        building.
            ``(2) Progress expenditure payments.--Rules similar to the 
        rules of subsections (b)(2) and (d) of section 47 shall apply 
        for purposes of this section.
    ``(e) Limitation on Aggregate Credits Allowable With Respect to 
Buildings Located in a State.--
            ``(1) In general.--The amount of the credit determined 
        under this section for any taxable year with respect to any 
        building shall not exceed the commercial revitalization credit 
        amount (in the case of an amount determined under subsection 
        (b)(1)(B), the present value of such amount as determined under 
        the rules of section 42(b)(2)(C)) allocated to such building 
        under this subsection by the commercial revitalization credit 
        agency. Such allocation shall be made at the same time and in 
        the same manner as under paragraphs (1) and (7) of section 
        42(h).
            ``(2) Commercial revitalization credit amount for 
        agencies.--
                    ``(A) In general.--The aggregate commercial 
                revitalization credit amount which a commercial 
                revitalization credit agency may allocate for any 
                calendar year is the amount of the State commercial 
                revitalization credit ceiling determined under this 
                paragraph for such calendar year for such agency.
                    ``(B) State commercial revitalization credit 
                ceiling.--
                            ``(i) In general.--The State commercial 
                        revitalization credit ceiling applicable to any 
                        State for any calendar year is $2,000,000 for 
                        each renewal community in the State.
                            ``(ii) Special rule where community located 
                        in more than 1 state.--If a renewal community 
                        is located in more than 1 State, a State's 
                        share of the amount specified in clause (i) 
                        with respect to such community shall be an 
                        amount that bears the same ratio to $2,000,000 
                        as the population in the State bears to the 
                        population in all States in which such 
                        community is located.
                            ``(iii) Other special rules.--Rules similar 
                        to the rules of subparagraphs (D), (E), (F), 
                        and (G) of section 42(h)(3) shall apply for 
                        purposes of this subsection.
                    ``(C) Commercial revitalization credit agency.--For 
                purposes of this section, the term `commercial 
                revitalization credit agency' means any agency 
                authorized by a State to carry out this section.
    ``(f) Responsibilities of Commercial Revitalization Credit 
Agencies.--
            ``(1) Plans for allocation.--Notwithstanding any other 
        provision of this section, the commercial revitalization credit 
        amount with respect to any building shall be zero unless--
                    ``(A) such amount was allocated pursuant to a 
                qualified allocation plan of the commercial 
                revitalization credit agency which is approved (in 
                accordance with rules similar to the rules of section 
                147(f)(2) (other than subparagraph (B)(ii) thereof)) by 
                the governmental unit of which such agency is a part, 
                and
                    ``(B) such agency notifies the chief executive 
                officer (or its equivalent) of the local jurisdiction 
                within which the building is located of such allocation 
                and provides such individual a reasonable opportunity 
                to comment on the allocation.
            ``(2) Qualified allocation plan.--For purposes of this 
        subsection, the term `qualified allocation plan' means any 
        plan--
                    ``(A) which sets forth selection criteria to be 
                used to determine priorities of the commercial 
                revitalization credit agency which are appropriate to 
                local conditions,
                    ``(B) which considers--
                            ``(i) the degree to which a project 
                        contributes to the implementation of a 
                        strategic plan that is devised for a renewal 
                        community through a citizen participation 
                        process,
                            ``(ii) the amount of any increase in 
                        permanent, full-time employment by reason of 
                        any project, and
                            ``(iii) the active involvement of residents 
                        and nonprofit groups within the renewal 
                        community, and
                    ``(C) which provides a procedure that the agency 
                (or its agent) will follow in monitoring compliance 
                with this section.
    ``(g) Termination.--This section shall not apply to any building 
placed in service after December 31, 2002.

``SEC. 1400L. INCREASE IN EXPENSING UNDER SECTION 179.

    ``(a) General Rule.--In the case of a renewal community business 
(as defined in section 1400G), for purposes of section 179--
            ``(1) the limitation under section 179(b)(1) shall be 
        increased by the lesser of--
                    ``(A) $35,000, or
                    ``(B) the cost of section 179 property which is 
                qualified renewal property placed in service during the 
                taxable year, and
            ``(2) the amount taken into account under section 179(b)(2) 
        with respect to any section 179 property which is qualified 
        renewal property shall be 50 percent of the cost thereof.
    ``(b) Recapture.--Rules similar to the rules under section 
179(d)(10) shall apply with respect to any qualified renewal property 
which ceases to be used in a renewal community by a renewal community 
business.
    ``(c) Qualified Renewal Property.--
            ``(1) General rule.--For purposes of this section--
                    ``(A) In general.--The term `qualified renewal 
                property' means any property to which section 168 
                applies (or would apply but for section 179) 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 renewal community took 
                        effect,
                            ``(ii) the original use of which in a 
                        renewal community commences with the taxpayer, 
                        and
                            ``(iii) substantially all of the use of 
                        which is in a renewal community and is in the 
                        active conduct of a qualified business (as 
                        defined in section 1400G(d)) by the taxpayer in 
                        such renewal community.
                    ``(B) Special rule for substantial renovations.--In 
                the case of any property which is substantially 
                renovated by the taxpayer, the requirements of clauses 
                (i) and (ii) of subparagraph (A) shall be treated as 
                satisfied. For purposes of the preceding sentence, 
                property shall be treated as substantially renovated by 
                the taxpayer only if, during any 24-month period 
                beginning after the date on which the designation of 
                the renewal community 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.
            ``(2) Special rules for sale-leasebacks.--For purposes of 
        paragraph (1)(A)(ii), 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.

``SEC. 1400M. EXPENSING OF RENEWAL COMMUNITY ENVIRONMENTAL REMEDIATION 
              COSTS.

    ``(a) Treatment as Expense.--A taxpayer may elect to treat any 
renewal community environmental remediation cost as an expense which is 
not chargeable to capital account. Any cost so treated shall be 
allowable as a deduction for the taxable year in which the cost is paid 
or incurred.
    ``(b) Renewal Community Environmental Remediation Cost.--For 
purposes of this section--
            ``(1) In general.--The term `renewal community 
        environmental remediation cost' means any cost which--
                    ``(A) is chargeable to capital account (determined 
                without regard to this section),
                    ``(B) is paid or incurred in connection with the 
                abatement or control of environmental contaminants at a 
                site located within a renewal community, and
                    ``(C) is certified by the applicable Federal or 
                State authority as being required by, and in compliance 
                with, applicable Federal and State laws governing 
                abatement and control of environmental contaminants.
            ``(2) Exceptions.--Such term shall not include any amount 
        paid or incurred--
                    ``(A) for equipment which is used in the 
                environmental remediation and which is of a character 
                subject to an allowance for depreciation or 
                amortization, or
                    ``(B) in connection with a site which is on the 
                national priorities list under section 105(a)(8)(B) of 
                the Comprehensive Environmental Response, Compensation, 
                and Liability Act of 1980 (42 U.S.C. 9605(a)(8)(B)).
        No deduction shall be allowed under this section for any amount 
        which is allowed as a deduction under any other provision of 
        this subtitle.
    ``(c) Special Rules.--For purposes of this section--
            ``(1) Limitation based on income from trade or business.--
        The amount allowed as a deduction under subsection (a) for any 
        taxable year shall not exceed the aggregate amount of taxable 
        income of the taxpayer for such taxable year which is derived 
        from the active conduct by the taxpayer of any trade or 
        business during such taxable year. For purposes of this 
        paragraph, rules similar to the rules of subparagraphs (B) and 
        (C) of section 179(b)(3) shall apply. In the case of a 
        partnership, S corporation, trust or other pass thru entity, 
        this paragraph shall be applied at both the entity and owner 
        levels.
            ``(2) Recapture rules.--
                    ``(A) Property not used in trade or business.--The 
                Secretary shall, by regulations, provide for 
                recapturing the benefit of any deduction allowable 
                under subsection (a) with respect to any property not 
                used predominantly in a trade or business at any time.
                    ``(B) Treatment of gain as ordinary income.--For 
                purposes of section 1245--
                            ``(i) the deduction allowable under 
                        subsection (a) shall be treated as a deduction 
                        allowable to the taxpayer for depreciation or 
                        amortization; and
                            ``(ii) property (other than section 1245 
                        property) to which the deduction would 
                        otherwise have been chargeable shall be treated 
                        as section 1245 property solely for purposes of 
                        applying section 1245 to such deduction.''
    (b) Deduction for Contributions to Family Development Accounts 
Allowable Whether or Not Taxpayer Itemizes.--Subsection (a) of section 
62 of the Internal Revenue Code of 1986 (relating to adjusted gross 
income defined) is amended by inserting after paragraph (17) the 
following new paragraph:
            ``(18) Family development accounts.--The deduction allowed 
        by section 1400H(a)(1)(A).''

SEC. 202. EXTENSION OF WORK OPPORTUNITY TAX CREDIT FOR RENEWAL 
              COMMUNITIES

    (a) Extension.--Subsection (c) of section 51 of the Internal 
Revenue Code of 1986 (relating to termination) is amended by adding at 
the end the following new paragraph:
            ``(5) Extension of credit for renewal communities.--
                    ``(A) In general.--In the case of an individual who 
                begins work for the employer after the date contained 
in paragraph (4)(B), for purposes of section 38--
                            ``(i) in lieu of applying subsection (a), 
                        the amount of the work opportunity credit 
                        determined under this section for the taxable 
                        year shall be equal to--
                                    ``(I) 15 percent of the qualified 
                                first-year wages for such year, and
                                    ``(II) 30 percent of the qualified 
                                second-year wages for such year,
                            ``(ii) subsection (b)(3) shall be applied 
                        by substituting `$10,000' for `$6,000',
                            ``(iii) paragraph (4)(B) shall be applied 
                        by substituting for the date contained therein 
                        the last day for which the designation under 
                        section 1400E of the renewal community referred 
                        to in subparagraph (B)(i) is in effect, and
                            ``(iv) rules similar to the rules of 
                        section 51A(b)(5)(C) shall apply.
                    ``(B) Qualified first and second-year wages.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--The term `qualified 
                        wages' means, with respect to each 1-year 
                        period referred to in clause (ii) or (iii), as 
                        the case may be, the wages paid or incurred by 
                        the employer during the taxable year to any 
                        individual but only if--
                                    ``(I) the employer is engaged in a 
                                trade or business in a renewal 
                                community throughout such 1-year 
                                period,
                                    ``(II) the individual is a resident 
                                of such renewal community throughout 
                                such 1-year period, and
                                    ``(III) substantially all of the 
                                services which such individual performs 
                                for the employer during such 1-year 
                                period are performed in such renewal 
                                community.
                            ``(ii) Qualified first-year wages.--The 
                        term `qualified first-year wages' means, with 
                        respect to any individual, qualified wages 
                        attributable to service rendered during the 1-
                        year period beginning with the day the 
                        individual begins work for the employer.
                            ``(iii) Qualified second-year wages.--The 
                        term `qualified second-year wages' means, with 
                        respect to any individual, qualified wages 
                        attributable to service rendered during the 1-
                        year period beginning on the day after the last 
                        day of the 1-year period with respect to such 
                        individual determined under clause (ii).''
    (b) Congruent Treatment of Renewal Communities and Enterprise Zones 
for Purposes of Youth Residence Requirements.--
            (1) High-risk youth.--Subparagraphs (A)(ii) and (B) of 
        section 51(d)(5) of such Code are each amended by striking 
        ``empowerment zone or enterprise community'' and inserting 
        ``empowerment zone, enterprise community, or renewal 
        community''.
            (2) Qualified summer youth employee.--Clause (iv) of 
        section 51(d)(7)(A) of such Code is amended by striking 
        ``empowerment zone or enterprise community'' and inserting 
        ``empowerment zone, enterprise community, or renewal 
        community''.
            (3) Headings.--Paragraphs (5)(B) and (7)(C) of section 
        51(d) of such Code are each amended by inserting ``or 
        community'' in the heading after ``zone''.

SEC. 203. ALLOWANCE OF COMMERCIAL REVITALIZATION CREDIT.

    Section 46 of the Internal Revenue Code of 1986 (relating to 
investment credit) is amended by striking ``and'' at the end of 
paragraph (2), by striking the period at the end of paragraph (3) and 
inserting ``, and'', and by adding at the end the following new 
paragraph:
            ``(4) the commercial revitalization credit provided under 
        section 1400K.''

SEC. 204. CONFORMING AND CLERICAL AMENDMENTS.

    (a) Tax on Excess Contributions.--
            (1) Tax imposed.--Subsection (a) of section 4973 of such 
        Code is amended by striking ``or'' at the end of paragraph (3), 
        adding ``or'' at the end of paragraph (4), and inserting after 
        paragraph (4) the following new paragraph:
            ``(5) a family development account (within the meaning of 
        section 1400H(e)),''.
            (2) Excess contributions.--Section 4973 of such Code is 
        amended by adding at the end the following new subsection:
    ``(g) Family Development Accounts.--For purposes of this section, 
in the case of a family development account, the term `excess 
contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the taxable year 
                to the account (other than a qualified rollover, as 
defined in section 1400H(c)(7), or a contribution under section 1400I), 
over
                    ``(B) the amount allowable as a deduction under 
                section 1400H for such contributions, and
            ``(2) the amount determined under this subsection for the 
        preceding taxable year reduced by the sum of--
                    ``(A) the distributions out of the account for the 
                taxable year which were included in the gross income of 
                the payee under section 1400H(b)(1),
                    ``(B) the distributions out of the account for the 
                taxable year to which rules similar to the rules of 
                section 408(d)(5) apply by reason of section 
                1400H(b)(3), and
                    ``(C) the excess (if any) of the maximum amount 
                allowable as a deduction under section 1400H for the 
                taxable year over the amount contributed to the account 
                for the taxable year (other than a contribution under 
                section 1400I).
For purposes of this subsection, any contribution which is distributed 
from the family development account in a distribution to which rules 
similar to the rules of section 408(d)(4) apply by reason of section 
1400H(b)(3) shall be treated as an amount not contributed.''
            (3) Heading.--The heading of section 4973 of such Code is 
        amended by inserting ``family development accounts,'' after 
        ``contracts,''.
    (b) Tax on Prohibited Transactions.--Section 4975 of such Code is 
amended--
            (1) by adding at the end of subsection (c) the following 
        new paragraph:
            ``(6) Special rule for family development accounts.--An 
        individual for whose benefit a family development account is 
        established and any contributor to such account shall be exempt 
        from the tax imposed by this section with respect to any 
        transaction concerning such account (which would otherwise be 
        taxable under this section) if, with respect to such 
        transaction, the account ceases to be a family development 
        account by reason of the application of section 1400H(d)(2) to 
        such account.'', and
            (2) in subsection (e)(1), by striking ``or'' at the end of 
        subparagraph (E), by redesignating subparagraph (F) as 
        subparagraph (G), and by inserting after subparagraph (E) the 
        following new subparagraph:
                    ``(F) a family development account described in 
                section 1400H(e), or''.
    (c) Information Relating to Certain Trusts and Annuity Plans.--
Subsection (c) of section 6047 of such Code is amended--
            (1) by inserting ``or section 1400H'' after ``section 
        219'', and
            (2) by inserting ``, of any family development account 
        described in section 1400H(e),'', after ``section 408(a)''.
    (d) Inspection of Applications for Tax Exemption.--Clause (i) of 
section 6104(a)(1)(B) of such Code is amended by inserting ``a family 
development account described in section 1400H(e),'' after ``section 
408(a),''.
    (e) Failure To Provide Reports on Family Development Accounts.--
Paragraph (2) of section 6693(a) of such Code is amended by striking 
``and'' at the end of subparagraph (C), by striking the period and 
inserting ``, and'' at the end of subparagraph (D), and by adding at 
the end the following new subparagraph:
                    ``(E) section 1400H(g)(7) (relating to family 
                development accounts).''
    (f) Conforming Amendments Regarding Commercial Revitalization 
Credit.--
            (1) Section 39(d) of such Code is amended by adding at the 
        end the following new paragraph:
            ``(9) No carryback of section 1400k credit before date of 
        enactment.--No portion of the unused business credit for any 
        taxable year which is attributable to any commercial 
        revitalization credit determined under section 1400K may be 
        carried back to a taxable year ending before the date of the 
        enactment of section 1400K.''
            (2) Subparagraph (B) of section 48(a)(2) of such Code is 
        amended by inserting ``or commercial revitalization'' after 
        ``rehabilitation'' each place it appears in the text and 
        heading.
            (3) Subparagraph (C) of section 49(a)(1) of such Code is 
        amended by striking ``and'' at the end of clause (ii), by 
        striking the period at the end of clause (iii) and inserting 
        ``, and'', and by adding at the end the following new clause:
                            ``(iv) the portion of the basis of any 
                        qualified revitalization building attributable 
                        to qualified revitalization expenditures.''
            (4) Paragraph (2) of section 50(a) of such Code is amended 
        by inserting ``or 1400K(d)(2)'' after ``section 47(d)'' each 
        place it appears.
            (5) Subparagraph (A) of section 50(b)(2) of such Code is 
        amended by inserting ``or qualified revitalization building 
        (respectively)'' after ``qualified rehabilitated building''.
            (6) Subparagraph (B) of section 50(a)(2) of such Code is 
        amended by adding at the end the following new sentence: ``A 
        similar rule shall apply for purposes of section 1400K.''
            (7) Paragraph (2) of section 50(b) of such Code is amended 
        by striking ``and'' at the end of subparagraph (C), by striking 
        the period at the end of subparagraph (D) and inserting ``; 
        and'', and by adding at the end the following new subparagraph:
                    ``(E) a qualified revitalization building (as 
                defined in section 1400K) to the extent of the portion 
                of the basis which is attributable to qualified 
                revitalization expenditures (as defined in section 
                1400K).''
            (8) Subparagraph (C) of section 50(b)(4) of such Code is 
        amended--
                    (A) by inserting ``or commercial revitalization'' 
                after ``rehabilitated'' in the text and heading, and
                    (B) by inserting ``or commercial revitalization'' 
                after ``rehabilitation''.
            (9) Subparagraph (C) of section 469(i)(3) is amended--
                    (A) by inserting ``or section 1400K'' after 
                ``section 42''; and
                    (B) by striking ``credit'' in the heading and 
                inserting ``and commercial revitalization credits''.
    (g) Clerical Amendments.--
            (1) The table of subchapters for chapter 1 of the Internal 
        Revenue Code of 1986 is amended by adding at the end the 
        following new item:

                              ``Subchapter X. Renewal Communities.''
            (2) The table of parts for subchapter X of chapter 1 of 
        such Code (as added by title I) is amended by adding at the end 
        the following new items:

                              ``Part II.  Renewal community capital 
                                        gain and stock.
                              ``Part III. Family development accounts.
                              ``Part IV.  Additional Incentives.''
            (3) The table of sections for chapter 43 of such Code is 
        amended by striking the item relating to section 4973 and 
        inserting the following new item:

                              ``Sec. 4973. Tax on excess contributions 
                                        to individual retirement 
                                        accounts, medical savings 
                                        accounts, certain section 
                                        403(b) contracts, family 
                                        development accounts, and 
                                        certain individual retirement 
                                        annuities.''

                    TITLE III--ADDITIONAL PROVISIONS

SEC. 301. TRANSFER OF UNOCCUPIED AND SUBSTANDARD HUD-HELD HOUSING IN 
              RENEWAL COMMUNITIES TO LOCAL GOVERNMENTS.

    (a) Transfer Requirement.--Pursuant to the authority under section 
204 of the Departments of Veterans Affairs and Housing and Urban 
Development, and Independent Agencies Appropriations Act, 1997, the 
Secretary shall transfer ownership of any qualified HUD property to the 
unit of general local government having jurisdiction for the area in 
which the property is located in accordance with this section, but only 
if the unit of general local government enters into an agreement with 
the Secretary meeting the requirements of subsection (d).
    (b) Qualified HUD Properties.--For purposes of this section, the 
term ``qualified HUD property'' means any unoccupied multifamily 
housing, project, substandard multifamily housing project, or 
unoccupied single family property, that is--
            (1) owned by the Secretary; and
            (2) located within a renewal community.
    (c) Timing of Transfer.--Any transfer of ownership required under 
subsection (a) shall be completed--
            (1) with respect to any multifamily housing project or 
        single family property that is acquired by the Secretary before 
        the date on which the area in which property is located is 
        designated as a renewal community and that is substandard or 
        unoccupied (as applicable) upon such date, not later than 1 
        year after such date; and
            (2) with respect to any multifamily housing project or 
        single family property that is acquired by the Secretary on or 
        after the date on which the area in which the property is 
        located is designated as a renewal community, not later than 1 
        year after--
                    (A) the date on which the project is determined to 
                be substandard or unoccupied (as applicable), in the 
                case of a property that is not unoccupied or 
                substandard upon acquisition by the Secretary; or
                    (B) the date on which the project is acquired by 
                the Secretary, in the case of a property that is 
                substandard or unoccupied (as applicable) upon such 
                acquisition.
    (d) Agreements To Sell Property to Community Development 
Corporations.--An agreement described in this subsection is an 
agreement that requires a unit of general local government to dispose 
of the qualified HUD property acquired by the unit of general local 
government in accordance with the following requirements:
            (1) Notification to community development corporations.--
        Not later than 30 days after the date on which the unit of 
        general local government acquires title to the property under 
        subsection (a), the unit of general local government shall 
        notify each community development corporation located in the 
        State in which the property is located--
                    (A) of such acquisition of title; and
                    (B) that, during the 6-month period beginning on 
                the date on which such notification is made, such 
                community development corporations shall have the 
                exclusive right under this subsection to make bona fide 
                offers to purchase the property on a cost recovery 
                basis.
            (2) Right of first refusal.--During the 6-month period 
        described in paragraph (1)(B)--
                    (A) the unit of general local government may not 
                sell or offer to sell the qualified HUD property other 
                than to a party notified under paragraph (1), unless 
                each community development corporation required to be 
                so notified has notified the unit of general local 
                government that the corporation will not make an offer 
to purchase the property; and
                    (B) the unit of general local government shall 
                accept a bona fide offer to purchase the property made 
                during such period if the offer is acceptable to the 
                unit of general local government, except that a unit of 
                general local government may not sell a property to a 
                community development corporation during that 6-month 
                period other than on a cost recovery basis.
            (3) Other disposition.--During the 6-month period beginning 
        on the expiration of the 6-month period described in paragraph 
        (1)(B), the unit of general local government shall dispose of 
        the property on a negotiated, competitive bid, or other basis, 
        on such terms as the unit of general local government deems 
        appropriate.
    (e) Satisfaction of Indebtedness.--Before transferring ownership of 
any qualified HUD property pursuant to subsection (a), the Secretary 
shall satisfy any indebtedness incurred in connection with the property 
to be transferred, by--
            (1) canceling the indebtedness; or
            (2) reimbursing the unit of general local government to 
        which the property is transferred for the amount of the 
        indebtedness.
    (f) Determination of Status of Properties.--To ensure compliance 
with the requirements of subsection (c), the Secretary shall take the 
following actions:
            (1) Upon designation of renewal communities.--Upon the 
        designation of any renewal community, the Secretary shall 
        promptly assess each residential property owned by the 
        Secretary that is located within such renewal community to 
        determine whether such property is a qualified HUD property.
            (2) Upon acquisition.--Upon acquiring any residential 
        property that is located with a renewal community, the 
        Secretary shall promptly determine whether the property is a 
        qualified HUD property.
            (3) Updates.--The Secretary shall periodically reassess the 
        residential properties owned by the Secretary to determine 
        whether any such properties have become qualified HUD 
        properties.
    (g) Tenant Leases.--This section shall not affect the terms or the 
enforceability of any contract or lease entered into with respect to 
any residential property before the date that such property becomes a 
qualified HUD property.
    (h) Procedures.--Not later than the expiration of the 6-month 
period beginning on the date of the enactment of this Act, the 
Secretary shall establish, by rule, regulation, or order, such 
procedures as may be necessary to carry out this section.
    (i) Definitions.--For purposes of this section, the following 
definitions shall apply:
            (1) Community development corporation.--The term 
        ``community development corporation'' means a nonprofit 
        organization whose primary purpose is to promote community 
        development by providing housing opportunities for low-income 
        families.
            (2) Cost recovery basis.--The term ``cost recovery basis'' 
        means, with respect to any sale of a residential property by a 
        unit of general local government to a community development 
        corporation under subsection (d)(2), that the purchase price 
        paid by the community development corporation is less than or 
        equal to the costs incurred by the unit of general local 
        government in connection with such property during the period 
        beginning on the date on which the unit of general local 
        government acquires title to the property under subsection (a) 
        and ending on the date on which the sale is consummated.
            (3) Low-income families.--The term ``low-income families'' 
        has the meaning given the term in section 3(b) of the United 
        States Housing Act of 1937.
            (4) Multifamily housing project.--The term ``multifamily 
        housing project'' has the meaning given the term in section 203 
        of the Housing and Community Development Amendments of 1978.
            (5) Renewal community.--The term ``renewal community'' 
        means an area designated (under subchapter X of chapter 1 of 
        the Internal Revenue Code of 1986) as a renewal community.
            (6) Residential property.--The term ``residential 
        property'' means a property that is a multifamily housing 
        project or a single family property.
            (7) Secretary.--The term ``Secretary'' means the Secretary 
        of Housing and Urban Development.
            (8) Severe physical problems.--The term ``severe physical 
        problems'' means, with respect to a dwelling unit, that the 
        unit--
                    (A) lacks hot or cold piped water, a flush toilet, 
                or both a bathtub and a shower in the unit, for the 
                exclusive use of that unit;
                    (B) on not less than 3 separate occasions during 
                the preceding winter months, was uncomfortably cold for 
                a period of more than 6 consecutive hours due to a 
                malfunction of the heating system for the unit;
                    (C) has no functioning electrical service, exposed 
                wiring, any room in which there is not a functioning 
                electrical outlet, or has experienced 3 or more blown 
                fuses or tripped circuit breakers during the preceding 
                90-day period;
                    (D) is accessible through a public hallway in which 
                there are no working light fixtures, loose or missing 
                steps or railings, and no elevator; or
                    (E) has severe maintenance problems, including 
                water leaks involving the roof, windows, doors, 
                basement, or pipes or plumbing fixtures, holes or open 
                cracks in walls or ceilings, severe paint peeling or 
                broken plaster, and signs of rodent infestation.
            (9) Single family property.--The term ``single family 
        property'' means a 1- to 4-family residence.
            (10) Substandard.--The term ``substandard'' means, with 
        respect to a multifamily housing project, that 25 percent or 
        more of the dwelling units in the project have severe physical 
        problems.
            (11) Unit of general local government.--The term ``unit of 
        general local government'' has the meaning given the term in 
        section 102(a) of the Housing and Community Development Act of 
        1974.
            (12) Unoccupied.--The term ``unoccupied'' means, with 
        respect to a residential property, that the unit of general 
        local government having jurisdiction over the area in which the 
        project is located has certified in writing that the property 
        is not inhabited.

SEC. 302. PREVENTION AND TREATMENT OF SUBSTANCE ABUSE; SERVICES 
              PROVIDED THROUGH RELIGIOUS ORGANIZATIONS.

    Title V of the Public Health Service Act (42 U.S.C. 290aa et seq.) 
is amended by adding at the end the following part:

      ``Part G--Services Provided Through Religious Organizations

``SEC. 581. APPLICABILITY TO DESIGNATED PROGRAMS.

    ``(a) Designated Programs.--Subject to subsection (b), this part 
applies to each program under this Act that makes awards of Federal 
financial assistance to public or private entities for the purpose of 
carrying out activities to prevent or treat substance abuse (in this 
part referred to as a `designated program'). Designated programs 
include the program under subpart II of part B of title XIX (relating 
to formula grants to the States).
    ``(b) Limitation.--This part does not apply to any award of Federal 
financial assistance under a designated program for a purpose other 
than the purpose specified in subsection (a).
    ``(c) Definitions.--For purposes of this part (and subject to 
subsection (b)):
            ``(1) The term `designated award recipient' means a public 
        or private entity that has received an award under a designated 
        program (whether the award is a designated direct award or a 
        designated subaward).
            ``(2) The term `designated direct award' means an award 
        under a designated program that is received directly from the 
        Federal Government.
            ``(3) The term `designated subaward' means an award of 
        financial assistance made by a non-Federal entity, which award 
        consists in whole or in part of Federal financial assistance 
        provided through an award under a designated program.
            ``(4) The term `designated program' has the meaning given 
        such term in subsection (a).
            ``(5) The term `financial assistance' means a grant, 
        cooperative agreement, contract, or voucherized assistance.
            ``(6) The term `program beneficiary' means an individual 
        who receives program services.
            ``(7) The term `program participant' has the meaning given 
        such term in section 582(a)(2).
            ``(8) The term `program services' means treatment for 
        substance abuse, or preventive services regarding such abuse, 
        provided pursuant to an award under a designated program.
            ``(9) The term `religious organization' means a nonprofit 
        religious organization.
            ``(10) The term `voucherized assistance' means--
                    ``(A) a system of selecting and reimbursing program 
                services in which--
                            ``(i) the beneficiary is given a document 
                        or other authorization that may be used to pay 
                        for program services;
                            ``(ii) the beneficiary chooses the 
                        organization that will provide services to him 
                        or her according to rules specified by the 
                        designated award recipient; and
                            ``(iii) the organization selected by the 
                        beneficiary is reimbursed by the designated 
                        award recipient for program services provided; 
                        or
                    ``(B) any other mode of financial assistance to pay 
                for program services in which the program beneficiary 
                determines the allocation of program funds through his 
                or her selection of one service provider from among 
                alternatives.

``SEC. 582. RELIGIOUS ORGANIZATIONS AS PROGRAM PARTICIPANTS.

    ``(a) In General.--
            ``(1) Scope of authority.--Notwithstanding any other 
        provision of law, a religious organization--
                    ``(A) may be a designated award recipient;
                    ``(B) may make designated subawards to other public 
                or nonprofit private entities (including other 
                religious organizations);
                    ``(C) may provide for the provision of program 
                services to program beneficiaries through the use of 
                voucherized assistance; and
                    ``(D) may be a provider of services under a 
                designated program, including a provider that accepts 
                voucherized assistance.
            ``(2) Definition of program participant.--For purposes of 
        this part, the term `program participant' means a public or 
        private entity that has received a designated direct award, or 
        a designated subaward, regardless of whether the entity 
        provides program services. Such term includes an entity whose 
        only participation in a designated program is to provide 
        program services pursuant to the acceptance of voucherized 
        assistance.
    ``(b) Religious Organizations.--The purpose of this section is to 
allow religious organizations to be program participants on the same 
basis as any other nonprofit private provider without impairing the 
religious character of such organizations, and without diminishing the 
religious freedom of program beneficiaries.
    ``(c) Nondiscrimination Against Religious Organizations.--
            ``(1) Findings.--The Congress finds that the establishment 
        clause of the first amendment to the Constitution of the United 
        States does not require that--
                    ``(A) social-welfare programs discriminate against 
                faith-based providers of services; or
                    ``(B) faith-based providers of services, as a 
                prerequisite to participation in Federal programs, 
                abandon their religious character and censor their 
                religious expression.
            ``(2) Nondiscrimination.--Religious organizations are 
        eligible to be program participants on the same basis as any 
        other nonprofit private organization. Neither the Federal 
        Government nor a State receiving funds under such programs 
        shall discriminate against an organization that is or applies 
        to be a program participant on the basis that the organization 
        has a religious character.
    ``(d) Religious Character and Freedom.--
            ``(1) Religious organizations.--Except as provided in this 
        section, any religious organization that is a program 
        participant shall retain its independence from Federal, State, 
        and local government, including such organization's control 
        over the definition, development, practice, and expression of 
        its religious beliefs.
            ``(2) Additional safeguards.--Neither the Federal 
        Government nor a State shall require a religious organization 
        to--
                    ``(A) alter its form of internal governance; or
                    ``(B) remove religious art, icons, scripture, or 
                other symbols;
        in order to be a program participant.
    ``(e) Nondiscrimination in Employment.--
            ``(1) In general.--Except as provided in paragraph (2), 
        nothing in this section shall be construed to modify or affect 
        the provisions of any other Federal or State law or regulation 
        that relates to discrimination in employment on the basis of 
        religion.
            ``(2) Exception.--A religious organization that is a 
        program participant may require that an employee rendering 
        programs services adhere to--
                    ``(A) the religious beliefs and practices of such 
                organization; and
                    ``(B) any rules of the organization regarding the 
                use of drugs or alcohol.
    ``(f) Rights of Program Beneficiaries.--With respect to an 
individual who is a program beneficiary or a prospective program 
beneficiary, if the individual objects to a program participant on the 
basis that the participant is a religious organization, the following 
applies:
            ``(1) If the organization received a designated direct 
        award, the organization shall arrange for the individual to 
        receive program services through an alternative entity.
            ``(2) If the organization received a designated subaward, 
        the non-Federal entity that made the subaward shall arrange for 
        the individual to receive the program services through an 
        alternative program participant.
            ``(3) If the organization is providing services pursuant to 
        voucherized assistance, the designated award recipient that 
        operates the voucherized assistance program shall arrange for 
        the individual to receive the program services through an 
        alternative provider.
            ``(4) Arrangements under any of paragraphs (1) through (3) 
        with an alternative entity shall provide for program services 
        the monetary value of which is not less than the monetary value 
        of the program services that the individual would have received 
        from the religious organization involved.
    ``(g) Fiscal Accountability.--
            ``(1) In general.--Except as provided in paragraph (2), any 
        religious organization that is a program participant shall be 
        subject to the same regulations as other recipients of awards 
        of Federal financial assistance to account, in accordance with 
        generally accepted auditing principles, for the use of the 
        funds provided under such awards.
            ``(2) Limited audit.--With respect to the award involved, 
        if a religious organization that is a program participant 
maintains the Federal funds in a separate account from non-Federal 
funds, then only the Federal funds shall be subject to audit.
    ``(h) Compliance.--With respect to compliance with this section by 
an agency, a religious organization may obtain judicial review of 
agency action in accordance with chapter 7 of title 5, United States 
Code.

``SEC. 583. LIMITATIONS ON USE OF FUNDS FOR CERTAIN PURPOSES.

    ``(a) In General.--Except as provided in subsection (b), no funds 
provided directly to an entity under a designated program shall be 
expended for sectarian worship or instruction.
    ``(b) Exception.--Subsection (a) shall not apply to assistance 
provided to or on behalf of a program beneficiary if the beneficiary 
may choose where such assistance is redeemed or allocated.

``SEC. 584. ADMINISTRATION OF PROGRAM AND TREATMENT OF FUNDS.

    ``(a) Funds Not Aid to Institutions.--Financial assistance under a 
designated program provided to or on behalf of program beneficiaries is 
aid to the beneficiary, not to the organization providing program 
services. The receipt by a program beneficiary of program services at 
the facilities of the organization shall not constitute Federal 
financial assistance to the organization involved.
    ``(b) Prohibition on State Discrimination in Use of Funds.--No 
provision in any State constitution or State law shall be construed to 
prohibit the expenditure of Federal funds under a designated program in 
a religious facility or by a religious organization that is a program 
participant. If a State law or constitution would prevent the 
expenditure of State or local public funds in such a facility or by 
such an organization, then the State or local government shall 
segregate the Federal funds from State or other public funds for 
purposes of carrying out the designated program.

``SEC. 585. EDUCATIONAL REQUIREMENTS FOR PERSONNEL IN DRUG TREATMENT 
              PROGRAMS.

    ``(a) Findings.--The Congress finds that--
            ``(1) establishing formal educational qualification for 
        counselors and other personnel in drug treatment programs may 
        undermine the effectiveness of such programs; and
            ``(2) such formal educational requirements for counselors 
        and other personnel may hinder or prevent the provision of 
        needed drug treatment services.
    ``(b) Limitation on Educational Requirements of Personnel.--
            ``(1) Treatment of religious education.--If any State or 
        local government that is a program participant imposes formal 
        educational qualifications on providers of program services, 
        including religious organizations, such State or local 
        government shall treat religious education and training of 
        personnel as having a critical and positive role in the 
        delivery of program services. In applying educational 
        qualifications for personnel in religious organizations, such 
        State or local government shall give credit for religious 
        education and training equivalent to credit given for secular 
        course work in drug treatment or any other secular subject that 
        is of similar grade level and duration.
            ``(2) Restriction of discrimination requirements.--
                    ``(A) In general.--Subject to paragraph (1), a 
                State or local government that is a program participant 
                may establish formal educational qualifications for 
                personnel in organizations providing program services 
                that contribute to success in reducing drug use among 
                program beneficiaries.
                    ``(B) Exception.--The Secretary shall waive the 
                application of any educational qualification imposed 
                under subparagraph (A) for an individual religious 
                organization, if the Secretary determines that--
                            ``(i) the religious organization has a 
                        record of prior successful drug treatment for 
                        at least the preceding three years;
                            ``(ii) the educational qualifications have 
                        effectively barred such religious organization 
                        from becoming a program provider;
                            ``(iii) the organization has applied to the 
                        Secretary to waive the qualifications; and
                            ``(iv) the State or local government has 
                        failed to demonstrate empirically that the 
                        educational qualifications in question are 
                        necessary to the successful operation of a drug 
                        treatment program.''.

SEC. 303. CRA CREDIT FOR INVESTMENTS IN COMMUNITY DEVELOPMENT 
              ORGANIZATIONS LOCATED IN RENEWAL COMMUNITIES.

    Section 804 of the Community Reinvestment Act of 1977 (12 U.S.C. 
2903) is amended by adding at the end the following new subsection:
    ``(c) Investments in Certain Community Development Organizations.--
In assessing and taking into account, under subsection (a), the record 
of a regulated financial institution, the appropriate Federal financial 
supervisory agency may consider, as a factor, investments of the 
institution in, and capital investment, loan participation, and other 
ventures undertaken by the institution in cooperation with, any 
community development organization (as defined in section 234 of the 
Bank Enterprise Act of 1991) which is located in a renewal community 
(as designated under section 1400E of the Internal Revenue Code of 
1986).''.
                                 <all>