[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 1859 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                S. 1859

 To amend the Internal Revenue Code of 1986 to provide a tax credit to 
 taxpayers investing in economically distressed rural communities, and 
                          for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            November 4, 1999

   Mr. Grams 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 economically distressed rural 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.

    This Act may be cited as the ``Rural Revitalization Act of 1999''.

SEC. 2. RURAL REVITALIZATION 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. RURAL REVITALIZATION TAX CREDIT.

    ``(a) Allowance of Credit.--
            ``(1) In general.--For purposes of section 38, the rural 
        revitalization tax credit determined under this section with 
        respect to taxpayer for a taxable year is an amount equal to 
        the sum of--
                    ``(A) the development credit, and
                    ``(B) the wage credit.
            ``(2) Credits.--For purposes of paragraph (1)--
                    ``(A) Development credit.--The term `development 
                credit' means, 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, 6 percent of the amount paid to the qualified 
                community development entity for such investment at its 
                original issue.
                    ``(B) Wage credit.--The term `wage credit' means, 
                in the case of any employer, the qualified wages paid 
                or incurred during the calendar year which ends with or 
                within such taxable year.
            ``(3) 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 annual 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 economic 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 are used by the qualified economic 
                development entity to make qualified low-income rural 
                community investments, and
                    ``(C) such investment is designated for purposes of 
                this section by the qualified economic development 
                entity.
        Such term shall not include any equity investment issued by a 
        qualified economic development entity more than 7 years after 
        the date that such entity receives an allocation under 
        subsection (g). Any allocation not used within such 7-year 
        period may be reallocated by the Secretary under subsection 
        (g).
            ``(2) Limitation.--The maximum amount of equity investments 
        issued by a qualified economic 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 (g) 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 
        economic development entity are invested in qualified low-
        income rural 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 economic development 
                entity which is a corporation, and
                    ``(B) any capital interest in a qualified economic 
                development entity which is a partnership.
    ``(c) Qualified Economic Development Entity.--For purposes of this 
section--
            ``(1) In general.--The term `qualified economic 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 rural 
                communities or low-income persons located in such 
                communities, and
                    ``(B) the entity is certified by the Secretary for 
                purposes of this section as being a qualified economic 
                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 Rural Community Investments.--For 
purposes of this section--
            ``(1) In general.--The term `qualified low-income rural 
        community investment' means--
                    ``(A) any equity investment in, or loan to, any 
                qualified active low-income rural community business,
                    ``(B) the purchase from another economic 
                development entity of any loan made by such entity 
                which is a qualified low-income rural community 
                investment if the amount received by such other entity 
                from such purchase is used by such other entity to make 
                qualified low-income rural community investments,
                    ``(C) financial counseling and other services 
                specified in regulations prescribed by the Secretary to 
                businesses located in, and residents of, low-income 
                rural communities, and
                    ``(D) any equity investment in, or loan to, any 
                qualified economic development entity if substantially 
                all of the investment or loan is used by such entity to 
                make qualified low-income rural community investments 
                described in subparagraphs (A), (B), and (C).
            ``(2) Qualified active low-income rural community 
        business.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `qualified active low-income rural 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 rural community,
                            ``(ii) a substantial portion of the use of 
                        the tangible property of such entity (whether 
                        owned or leased) is within any low-income rural 
                        community,
                            ``(iii) a substantial portion of the 
                        services performed for such entity by its 
                        employees are performed in any low-income rural 
                        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 rural community business.--The term 
                `qualified active low-income rural community business' 
                includes any trades or businesses which would qualify 
                as a qualified active low-income rural 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 rural community shall be treated as a 
                qualified business if there are substantial 
                improvements located on such property, and
                    ``(B) paragraph (3) thereof shall not apply.
    ``(e) Low-Income Rural Community.--For purposes of this section--
            ``(1) In general.--The term `low-income rural community' 
        means any population census tract if--
                    ``(A) for the 5 previous calendar years ending 
                before the date on which the taxable year in which the 
                investment is made begins--
                            ``(i) the average poverty rate for such 
                        tract is at least 20 percent, or
                            ``(ii) the average median family income for 
                        such tract does not exceed 80 percent of 
                        statewide median family income of the State in 
                        which such tract is located, and
                    ``(B) the tract is not located within a 
                metropolitan area.
            ``(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 rural 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 rural community 
        businesses with respect to such community.
    ``(f) Qualified Wages.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified wages' means any wages paid or incurred by an 
        employer for services performed by an employee while such 
        employee is a qualified employee.
            ``(2) Only first $3,000 of wages per year taken into 
        account.--With respect to each qualified employee, the amount 
        of qualified wages which may be taken into account for a 
        calendar year shall not exceed $3,000.
            ``(3) Coordination with work opportunity credit and 
        empowerment zone employment credit.--The term `qualified wages' 
        shall not include wages taken into account in determining the 
        credit under section 51 or 1396.
            ``(4) Other definitions; special rules.--
                    ``(A) Qualified employee.--For purposes of this 
                section--
                            ``(i) In general.--The term `qualified 
                        employee' means, with respect to any period, 
                        any employee of an employer if--
                                    ``(I) substantially all of the 
                                services performed during such period 
                                by such employee for such employer are 
                                performed within a low-income rural 
                                community in a trade or business of the 
                                employer, and
                                    ``(II) the principal place of abode 
                                of such employee while performing such 
                                services is within such low-income 
                                rural community.
                            ``(ii) Eligibility rules.--Rules similar to 
                        the rules of paragraphs (2) and (3) of section 
                        1396(d) shall apply.
                    ``(B) Wages.--The term `wages' has the same meaning 
                as when used in section 1396.
                    ``(C) Certain other rules made applicable.--For 
                purposes of this section, rules similar to the rules of 
                subsections (b) and (c) of section 1396 shall apply.
    ``(g) National Limitation on Amount of Investments Designated.--
            ``(1) In general.--There is a development 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 economic 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 development 
        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.
    ``(h) 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 economic 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 economic development entity if--
                    ``(A) such entity ceases to be a qualified economic 
                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.
    ``(i) 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.
    ``(j) Regulations.--The Secretary shall prescribe such regulations 
as may be appropriate to carry out this section, including 
regulations--
            ``(1) which limit the development 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 rural revitalization 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 rural revitalization 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 rural revitalization 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. Rural revitalization tax 
                                        credit.''
    (e) Effective Date.--The amendments made by this section shall 
apply to investments made after December 31, 1999.

SEC. 3. INCREASE IN EXPENSING FOR QUALIFIED ACTIVE LOW-INCOME RURAL 
              COMMUNITY BUSINESSES.

    (a) In General.--Subsection (b) of section 179 of the Internal 
Revenue Code of 1986 (relating to election to expense certain 
depreciable business assets) is amended by adding at the end the 
following new paragraph:
            ``(5) Increased limitation for qualified active low-income 
        rural community businesses.--In the case of a qualified active 
        low-income rural community business (as defined in section 
        45D(d)(2)), the applicable amount under paragraph (1) shall be 
        $37,500.''
    (b) Conforming Amendment.--Section 179(b)(1) of the Internal 
Revenue Code of 1986 (relating to dollar limitation) is amended by 
striking ``The aggregate'' and inserting ``Except as provided in 
paragraph (5), the aggregate''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 1999.
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