[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1526 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                S. 1526

 To amend the Internal Revenue Code of 1986 to provide a tax credit to 
 taxpayers investing in entities seeking to provide capital to create 
                 new markets in low-income communities.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             August 5, 1999

 Mr. Rockefeller (for himself, Mr. Robb, Mr. Sarbanes, Mr. Kerry, Mr. 
Kennedy, and Mr. Daschle) introduced the following bill; which was read 
             twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
 To amend the Internal Revenue Code of 1986 to provide a tax credit to 
 taxpayers investing in entities seeking to provide capital to create 
                 new markets in low-income communities.

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

SECTION 1. NEW MARKETS TAX CREDIT.

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

``SEC. 45D. NEW MARKETS TAX CREDIT.

``(a) Allowance of Credit.--
            ``(1) In general.--For purposes of section 38, in the case 
        of a taxpayer who holds a qualified equity investment on a 
        credit allowance date of such investment which occurs during 
        the taxable year, the new markets tax credit determined under 
        this section for such taxable year is an amount equal to 6 
        percent of the amount paid to the qualified community 
        development entity for such investment at its original issue.
            ``(2) Credit allowance date.--The term `credit allowance 
        date' means, with respect to any qualified equity investment--
                    ``(A) the date on which such investment is 
                initially made, and
                    ``(B) each of the 6 anniversary dates of such date 
                thereafter.
    ``(b) Qualified Equity Investment.--For purposes of this section--
            ``(1) In general.--The term `qualified equity investment' 
        means any equity investment in a qualified community 
        development entity if--
                    ``(A) such investment is acquired by the taxpayer 
                at its original issue (directly or through an 
                underwriter) solely in exchange for cash,
                    ``(B) substantially all of the proceeds from such 
                investment is used by the qualified community 
                development entity to make qualified low-income 
                community investments, and
                    ``(C) such investment is designated for purposes of 
                this section by the qualified community development 
                entity.
        Such term shall not include any equity investment issued by a 
        qualified community development entity more than 7 years after 
        the date that such entity receives an allocation under 
        subsection (f). Any allocation not used within such 7-year 
        period may be reallocated by the Secretary under subsection 
        (f).
            ``(2) Limitation.--The maximum amount of equity investments 
        issued by a qualified community development entity which may be 
        designated under paragraph (1)(C) by such entity shall not 
        exceed the portion of the limitation amount allocated under 
        subsection (f) to such entity.
            ``(3) Safe harbor for determining use of cash.--The 
        requirement of paragraph (1)(B) shall be treated as met if at 
        least 85 percent of the aggregate gross assets of the qualified 
        community development entity are invested in qualified low-
        income community investments.
            ``(4) Treatment of subsequent purchasers.--The term 
        `qualified equity investment' includes any equity investment 
        which would (but for paragraph (1)(A)) be a qualified equity 
        investment in the hands of the taxpayer if such investment was 
        a qualified equity investment in the hands of a prior holder.
            ``(5) Redemptions.--A rule similar to the rule of section 
        1202(c)(3) shall apply for purposes of this subsection.
            ``(6) Equity investment.--The term `equity investment' 
        means--
                    ``(A) any stock in a qualified community 
                development entity which is a corporation, and
                    ``(B) any capital interest in a qualified community 
                development entity which is a partnership.
    ``(c) Qualified Community Development Entity.--For purposes of this 
section--
            ``(1) In general.--The term `qualified community 
        development entity' means any domestic corporation or 
        partnership if--
                    ``(A) the primary mission of the entity is serving, 
                or providing investment capital for, low-income 
                communities or low-income persons,
                    ``(B) the entity maintains accountability to 
                residents of low-income communities through 
                representation on governing or advisory boards or 
                otherwise, and
                    ``(C) the entity is certified by the Secretary for 
                purposes of this section as being a qualified community 
                development entity.
            ``(2) Special rules for certain organizations.--The 
        requirements of paragraph (1) shall be treated as met by--
                    ``(A) any specialized small business investment 
                company (as defined in section 1044(c)(3)), and
                    ``(B) any community development financial 
                institution (as defined in section 103 of the Community 
                Development Banking and Financial Institutions Act of 
                1994 (12 U.S.C. 4702)).
    ``(d) Qualified Low-Income Community Investments.--For purposes of 
this section--
            ``(1) In general.--The term `qualified low-income community 
        investment' means--
                    ``(A) any equity investment in, or loan to, any 
                qualified active low-income community business,
                    ``(B) the purchase from another community 
                development entity of any loan made by such entity 
                which is a qualified low-income community investment if 
                the amount received by such other entity from such 
                purchase is used by such other entity to make qualified 
                low-income community investments,
                    ``(C) financial counseling and other services 
                specified in regulations prescribed by the Secretary to 
                businesses located in, and residents of, low-income 
                communities, and
                    ``(D) any equity investment in, or loan to, any 
                qualified community development entity if substantially 
                all of the investment or loan is used by such entity to 
                make qualified low-income community investments 
                described in subparagraphs (A), (B), and (C).
            ``(2) Qualified active low-income community business.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `qualified active low-income community 
                business' means, with respect to any taxable year, any 
                corporation or partnership if for such year--
                            ``(i) at least 50 percent of the total 
                        gross income of such entity is derived from the 
                        active conduct of a qualified business within 
                        any low-income community,
                            ``(ii) a substantial portion of the use of 
                        the tangible property of such entity (whether 
                        owned or leased) is within any low-income 
                        community,
                            ``(iii) a substantial portion of the 
                        services performed for such entity by its 
                        employees are performed in any low-income 
                        community,
                            ``(iv) 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
                            ``(v) less than 5 percent of the average of 
                        the aggregate unadjusted bases of the property 
                        of such entity is attributable to nonqualified 
                        financial property (as defined in section 
                        1397B(e)).
                    ``(B) Proprietorship.--Such term shall include any 
                business carried on by an individual as a proprietor if 
                such business would meet the requirements of 
                subparagraph (A) were it incorporated.
                    ``(C) Portions of business may be qualified active 
                low-income community business.--The term `qualified 
                active low-income community business' includes any 
                trades or businesses which would qualify as a qualified 
                active low-income community business if such trades or 
                businesses were separately incorporated.
            ``(3) Qualified business.--For purposes of this subsection, 
        the term `qualified business' has the meaning given to such 
        term by section 1397B(d); except that--
                    ``(A) in lieu of applying paragraph (2)(B) thereof, 
                the rental to others of real property located in any 
                low-income community shall be treated as a qualified 
                business if there are substantial improvements located 
                on such property,
                    ``(B) paragraph (3) thereof shall not apply, and
                    ``(C) such term shall not include any business if a 
                significant portion of the equity interests in such 
                business are held by any person who holds a significant 
                portion of the equity investments in the community 
                development entity.
    ``(e) Low-Income Community.--For purposes of this section--
            ``(1) In general.--The term `low-income community' means 
        any population census tract if--
                    ``(A) the poverty rate for such tract is at least 
                20 percent, or
                    ``(B)(i) in the case of a tract not located within 
                a metropolitan area, the median family income for such 
                tract does not exceed 80 percent of statewide median 
                family income, or
                    ``(ii) in the case of a tract located within a 
                metropolitan area, the median family income for such 
                tract does not exceed 80 percent of the greater of 
                statewide median family income or the metropolitan area 
                median family income.
            ``(2) Areas not within census tracts.--In the case of an 
        area which is not tracted for population census tracts, the 
        equivalent county divisions (as defined by the Bureau of the 
        Census for purposes of defining poverty areas) shall be used 
        for purposes of determining poverty rates and median family 
        income.
            ``(3) Targeted population.--The Secretary may prescribe 
        regulations under which 1 or more targeted populations (within 
        the meaning of section 3(20) of the Riegle Community 
        Development and Regulatory Improvement Act of 1974 (12 U.S.C. 
        4702(20))) may be treated as low-income communities. Such 
        regulations shall include procedures for identifying the area 
        covered by any such community for purposes of determining 
        entities which are qualified active low-income community 
        businesses with respect to such community.
    ``(f) National Limitation on Amount of Investments Designated.--
            ``(1) In general.--There is a new markets tax credit 
        limitation of $1,200,000,000 for each of calendar years 2000 
        through 2004.
            ``(2) Allocation of limitation.--The limitation under 
        paragraph (1) shall be allocated by the Secretary among 
        qualified community development entities selected by the 
        Secretary. In making allocations under the preceding sentence, 
        the Secretary shall give priority to entities with records of 
having successfully provided capital or technical assistance to 
disadvantaged businesses or communities.
            ``(3) Carryover of unused limitation.--If the new markets 
        tax credit limitation for any calendar year exceeds the 
        aggregate amount allocated under paragraph (2) for such year, 
        such limitation for the succeeding calendar year shall be 
        increased by the amount of such excess.
    ``(g) Recapture of Credit in Certain Cases.--
            ``(1) In general.--If, at any time during the 7-year period 
        beginning on the date of the original issue of a qualified 
        equity investment in a qualified community development entity, 
        there is a recapture event with respect to such investment, 
        then the tax imposed by this chapter for the taxable year in 
        which such event occurs shall be increased by the credit 
        recapture amount.
            ``(2) Credit recapture amount.--For purposes of paragraph 
        (1), the credit recapture amount is an amount equal to the sum 
        of--
                    ``(A) the aggregate decrease in the credits allowed 
                to the taxpayer under section 38 for all prior taxable 
                years which would have resulted if no credit had been 
                determined under this section with respect to such 
                investment, plus
                    ``(B) interest at the overpayment rate established 
                under section 6621 on the amount determined under 
                subparagraph (A) for each prior taxable year for the 
                period beginning on the due date for filing the return 
                for the prior taxable year involved.
        No deduction shall be allowed under this chapter for interest 
        described in subparagraph (B).
            ``(3) Recapture event.--For purposes of paragraph (1), 
        there is a recapture event with respect to an equity investment 
        in a qualified community development entity if--
                    ``(A) such entity ceases to be a qualified 
                community development entity,
                    ``(B) the proceeds of the investment cease to be 
                used as required of subsection (b)(1)(B), or
                    ``(C) such investment is redeemed by such entity.
            ``(4) Special rules.--
                    ``(A) Tax benefit rule.--The tax for the taxable 
                year shall be increased under paragraph (1) only with 
                respect to credits allowed by reason of this section 
                which were used to reduce tax liability. In the case of 
                credits not so used to reduce tax liability, the 
                carryforwards and carrybacks under section 39 shall be 
                appropriately adjusted.
                    ``(B) No credits against tax.--Any increase in tax 
                under this subsection shall not be treated as a tax 
                imposed by this chapter for purposes of determining the 
                amount of any credit under this chapter or for purposes 
                of section 55.
    ``(h) Basis Reduction.--The basis of any qualified equity 
investment shall be reduced by the amount of any credit determined 
under this section with respect to such investment.
    ``(i) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out this section, including 
regulations--
            ``(1) which limit the credit for investments which are 
        directly or indirectly subsidized by other Federal benefits 
        (including the credit under section 42 and the exclusion from 
        gross income under section 103),
            ``(2) which prevent the abuse of the provisions of this 
        section through the use of related parties,
            ``(3) which impose appropriate reporting requirements, and
            ``(4) which apply the provisions of this section to newly 
        formed entities.''
    (b) Credit Made Part of General Business Credit.--
            (1) In general.--Subsection (b) of section 38 of the 
        Internal Revenue Code of 1986 is amended by striking ``plus'' 
        at the end of paragraph (12), by striking the period at the end 
        of paragraph (13) and inserting ``, plus'', and by adding at 
        the end the following new paragraph:
            ``(14) the new markets tax credit determined under section 
        45D(a).''
            (2) Limitation on carryback.--Subsection (d) of section 39 
        of such Code is amended by adding at the end the following new 
        paragraph:
            ``(10) No carryback of new markets tax credit before 
        january 1, 2000.--No portion of the unused business credit for 
        any taxable year which is attributable to the credit under 
        section 45D may be carried back to a taxable year ending before 
        January 1, 2000.''
    (c) Deduction for Unused Credit.--Subsection (c) of section 196 of 
the Internal Revenue Code of 1986 is amended by striking ``and'' at the 
end of paragraph (7), by striking the period at the end of paragraph 
(8) and inserting ``, and'', and by adding at the end the following new 
paragraph:
            ``(9) the new markets tax credit determined under section 
        45D(a).''
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of the Internal Revenue Code of 
1986 is amended by adding at the end the following new item:

                              ``Sec. 45D. New markets tax credit.''
    (e) Effective Date.--The amendments made by this section shall 
apply to investments made after December 31, 1999.
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