[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2182 Introduced in House (IH)]






109th CONGRESS
  1st Session
                                H. R. 2182

To promote freedom, fairness, and economic opportunity by establishing 
a National Enterprise Zone system to promote prosperity in economically 
                            depressed areas.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              May 5, 2005

  Mr. Fortuno (for himself and Mr. Ryan of Wisconsin) introduced the 
 following bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
To promote freedom, fairness, and economic opportunity by establishing 
a National Enterprise Zone system to promote prosperity in economically 
                            depressed areas.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``National 
Enterprise Zone Act of 2005''.
    (b) Table of Contents.--

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
Sec. 3. Nationa``subchapter z--national enterprise zones
        ``Sec. 1400M. National Enterprise Zone designation procedure.
        ``Sec. 1400N. National Enterprise Zone Eligibility Criteria.
        ``Sec. 1400O. Effect of National Enterprise Zone designation on 
                            individuals, estates and trusts.
        ``Sec. 1400P. National Enterprise Zone individual taxable 
                            income.
        ``Sec. 1400Q. Effect of National Enterprise Zone designation on 
                            corporations.
        ``Sec. 1400R. National Enterprise Zone Corporate taxable 
                            income.
        ``Sec. 1400S. Conduct of an active trade or business within a 
                            National Enterprise Zone by corporations, 
                            partnerships and sole proprietors.
        ``Sec. 1400T. Definitions and special rules.

SEC. 2. FINDINGS.

    The Congress finds that--
            (1) a higher level of private sector economic activity is 
        necessary to alleviate poverty and unemployment in economically 
        depressed regions of the United States;
            (2) removing tax disincentives to reside or do business in 
        economically depressed areas is an effective means of promoting 
        economic growth, development, employment, a higher standard of 
        living and a higher quality of life in economically depressed 
        areas;
            (3) lower marginal tax rates on work, savings and 
        investment in economically depressed regions will promote 
        employment, business activity and development in economically 
        depressed areas; and
            (4) improved taxation of business investment in plant, 
        equipment and inventories in economically depressed areas will 
        encourage businesses to operate in those areas.

SEC. 3. NATIONAL ENTERPRISE ZONES.

    (a) In General.--Chapter 1 of the Internal Revenue Code of 1986 is 
amended by inserting after subchapter Y the following new subchapter:

               ``Subchapter Z--National Enterprise Zones

``Sec. 1400M. National Enterprise Zone designation procedure.
``Sec. 1400N. National Enterprise Zone eligibility criteria.
``Sec. 1400O. Effect of National Enterprise Zone designation on 
                            individuals, estates and trusts.
``Sec. 1400P. National Enterprise Zone individual taxable income.
``Sec. 1400Q. Effect of National Enterprise Zone designation on 
                            corporations.
``Sec. 1400R. National Enterprise Zone corporate taxable income.
``Sec. 1400S. Conduct of an active trade or business within a National 
                            Enterprise Zone by corporations, 
                            partnerships and sole proprietors.
``Sec. 1400T. Definitions and special rules.

``SEC. 1400M. NATIONAL ENTERPRISE ZONE DESIGNATION PROCEDURE.

    ``(a) Nominated Zone.--The governor of a State or United States 
territory or the Mayor of the District of Columbia may nominate one or 
more zones for consideration by the Secretary. This nomination shall 
take the form of a written application submitted in the manner and form 
prescribed by the Secretary. Said application shall contain all of the 
information necessary to determine whether a nominated zone meets the 
National Enterprise Zone eligibility criteria.
    ``(b) Application Deadline.--The nomination application shall be 
submitted after January 1st and before February 28th of the year prior 
to the proposed effective date of the zone.
    ``(c) Deficiencies Deadline.--The Secretary shall inform the 
nominator of any procedural noncompliance by the nominator with the 
application procedures or of any needed information that may be missing 
from the application by issuing a deficiency notice no later than April 
30th of the year that the application was submitted.
    ``(d) Curing Deadline.--The nominator shall cure any deficiencies 
set forth in the Secretary's deficiency notice by May 31st of the year 
in which the deficiency notice was issued. Failure to timely cure said 
deficiencies shall constitute the withdraw of the nomination 
application.
    ``(e) Designation Deadline.--The Secretary shall make a 
determination with respect to any nomination application no later than 
September 30th of the year in which the application was received. If 
the Secretary finds that a nominated zone meets the National Enterprise 
Zone eligibility criteria set forth in section 1400N, then the 
Secretary shall designate said zone as a National Enterprise Zone no 
later than September 30th of the year that the application was 
submitted. If the Secretary finds that a nominated zone does not meet 
the National Enterprise Zone eligibility criteria set forth in section 
1400N or that the application does not contain sufficient information 
to determine whether a nominated zone meets the National Enterprise 
Zone eligibility criteria set forth in section 1400N, then the 
Secretary shall decline to designate said zone as a National Enterprise 
Zone and shall, not later than October 31st of the year the application 
was submitted, provide to the nominator a rejection notice setting 
forth with particularly the reasons why the application was rejected.
    ``(f) No Prejudice With Respect to Previously Nominated Zones.--
Whether a zone or a substantially similar zone has been nominated in 
previous years shall not be regarded by the Secretary as relevant when 
evaluating whether to designate a nominated zone as a National 
Enterprise Zone.
    ``(g) Application Contents.--The application submitted by the 
nominator shall contain--
            ``(1) an enumeration of all of the census tracts to be 
        included in the zone;
            ``(2) census data for each tract as to median household 
        income in that tract;
            ``(3) census data for each tract as to the poverty rate in 
        that tract;
            ``(4) the state, territorial or District of Columbia law 
        that conforms to the requirements of section 1400N; and
            ``(5) such other information as the Secretary may require.
    ``(h) Effective Date of Zone Designation.--The effective date of 
the designation of any zone as a National Enterprise Zone pursuant to 
this section shall be January 1 of the year following its designation. 
The designation shall continue indefinitely. However, the zone shall be 
subject to annual eligibility reviews after it has been effective five 
years.
    ``(i) Annual Eligibility Review.--Between January 1 and April 30 of 
the sixth year of a National Enterprise Zone's initial effective date 
and each year thereafter, the Secretary shall undertake a review of 
each National Enterprise Zone designation whereby the Secretary shall 
determine whether the zone continues to meet the National Enterprise 
Zone Eligibility Criteria established by section 1400N. If this review 
determines that a National Enterprise Zone no longer meets the National 
Enterprise Zone Eligibility Criteria established by section 1400N, then 
the Secretary shall revoke the designation effective the end of the 
calendar year. No later than June 30 after said determination, the 
Secretary shall issue a notice to the nominator and to all taxpayers 
making National Enterprise Zone elections with respect to said zone in 
the taxpayer's previous taxable year that the designation will be 
revoked at the end of the calendar year for said National Enterprise 
Zone. The Secretary shall publish the annual eligibility review results 
for all National Enterprise Zones no later than June 30 of each year.

``SEC. 1400N. NATIONAL ENTERPRISE ZONE ELIGIBILITY CRITERIA.

    ``(a) National Enterprise Zone Eligibility Criteria.--A National 
Enterprise Zone must--
            ``(1) be composed of contiguous census tracts (none of 
        which may be part of an existing National Enterprise Zone);
            ``(2) have greater than 10,000 residents;
            ``(3) have a poverty rate two times the national poverty 
        rate;
            ``(4) have a median household income less than 60 percent 
        of the national median household income;
            ``(5) have an unemployment rate 2.5 times the national 
        average unemployment rate; and
            ``(6) be located entirely within a state, territory or the 
        District of Columbia that the Secretary certifies has enacted 
        conforming laws within the meaning of subsection (e).
    ``(b) Special Rule for Small Incorporated Cities or Small 
Counties.--Paragraph (2) of subsection (a) shall not apply to a zone if 
the zone comprises an entire incorporated city or an entire county 
provided that said incorporated city or county existed on the date of 
enactment of this subchapter.
    ``(c) No Overlap With Existing Zones of Different Type.--No part of 
a National Enterprise Zone may also be a part of an Empowerment Zone, 
Enterprise Community, or Rural Development Investment Area (Subchapter 
U zones), District of Columbia Enterprise Zone (subchapter W zones). 
However, the nominator of a proposed National Enterprise Zone may 
indicate in his application that the some or all of an existing 
subchapter U or subchapter W zone shall lose that designation upon its 
designation as all or part of a National Enterprise Zone. Said existing 
subchapter U or subchapter W zone shall lose said designation upon its 
designation as all or part of a National Enterprise Zone in a manner 
prescribed by the Secretary.
    ``(d) Data.--No later than November 30th of each year, the 
Secretary shall designate which data as of which date shall be used by 
nominators to perform the calculations required in subsection (a) in 
applications made the following year.
    ``(e) Conforming Laws.--A state, territory or the District of 
Columbia shall be deemed to have enacted conforming laws if it is in 
substantial compliance with--
            ``(1) the No Child Left Behind Act of 2001 (Public Law 107-
        110), and
            ``(2) its tax laws provide for either--
                    ``(A) a substantially similar income tax base with 
                respect to business income arising from the conduct of 
                an active trade or business within a National 
                Enterprise Zone as that provided for Federal income tax 
                purposes and tax rates no higher than that imposed on 
                businesses without a National Enterprise Zone, or
                    ``(B) the imposition of no income tax with respect 
                to business income arising from the conduct of an 
                active trade or business within a National Enterprise 
                Zone.

``SEC. 1400O. EFFECT OF NATIONAL ENTERPRISE ZONE DESIGNATION ON 
              INDIVIDUALS, ESTATES AND TRUSTS.

    ``(a) Individual Alternative National Enterprise Zone Tax.--If for 
any taxable year, any individual taxpayer who is resident in a National 
Enterprise Zone for the entire taxable year has any National Enterprise 
Zone taxable income, then, in lieu of any tax imposed by section 1 or 
section 55, said individual taxpayer may elect, in a form prescribed by 
the Secretary, to pay a tax which shall consist of the sum of--
            ``(1) a tax computed on the taxable income reduced by the 
        amount of National Enterprise Zone tentative taxable income (if 
        greater than zero), at the rates and in the manner as if this 
        subsection had not been enacted, plus
            ``(2) a tax of 17 percent of the National Enterprise Zone 
        taxable income.
    ``(b) Individual Taxpayer.--For purposes of this section, an 
individual taxpayer shall include an--
            ``(1) individual,
            ``(2) married individual making a single return jointly 
        with his spouse,
            ``(3) surviving spouse,
            ``(4) head of household,
            ``(5) married individual who does not make a single return 
        jointly with his or her spouse,
            ``(6) estate, or
            ``(7) trust.
    ``(c) Certain Individuals, Estates and Trusts.--
            ``(1) Joint filers.--In the case of married individuals 
        making a single return jointly, both individuals must have been 
        residents in a National Enterprise Zone for their entire 
        taxable year to qualify to file jointly under this section.
            ``(2) Individuals resident in multiple zones.--Individuals 
        who were residents of two or more National Enterprise Zones 
        during their taxable year but were residents of a National 
        Enterprise Zone for their entire taxable year shall be eligible 
        under this section.
            ``(3) Estates and certain trusts.--The estate of an 
        individual and testamentary trusts of said individual shall be 
        eligible under this section if the decedent was a resident of a 
        National Enterprise Zone for at least two complete taxable 
        years prior to the individual's death.

``SEC. 1400P. NATIONAL ENTERPRISE ZONE INDIVIDUAL TAXABLE INCOME.

    ``(a) National Enterprise Zone Individual Tentative Taxable 
Income.--National Enterprise Zone tentative individual taxable income 
shall be equal to taxable income (as defined by section 63 without 
regard to section 179(e)) plus the additions set forth in subsection 
(b) less the deductions set forth in subsection (c).
    ``(b) Additions to Taxable Income to Determine National Enterprise 
Individual Tentative Taxable Income.--The following amounts shall be 
added to taxable income for purposes of determining National Enterprise 
Zone individual tentative taxable income--
            ``(1) any amount excluded by section 103;
            ``(2) any amount excluded by section 105;
            ``(3) any amount excluded by section 106; and
            ``(4) any amount excluded by section 125.
    ``(c) Deductions From Taxable Income to Determine National 
Enterprise Individual Tentative Taxable Income.--The following amounts 
shall be deducted from taxable income for purposes of determining 
National Enterprise Zone individual tentative taxable income--
            ``(1) the taxpayer's distributive share of any partnership 
        item (within the meaning of section 702) that is not 
        attributable to the conduct of an active trade or business 
        within a National Enterprise Zone;
            ``(2) the taxpayer's pro rata share of any S corporation 
        item (within the meaning of section 1366) that is not 
        attributable to the conduct of an active trade or business 
        within a National Enterprise Zone; and
            ``(3) income derived from business that does not constitute 
        the conduct of an active trade or business within a National 
        Enterprise Zone.
    ``(d) National Enterprise Zone Individual Taxable Income.--National 
Enterprise Zone individual taxable income shall be National Enterprise 
Zone tentative individual taxable income less--
            ``(1) net savings (as defined in subsection e);
            ``(2) capital gains subject to tax by section 1 provided 
        that the property disposed of, the disposition of which gave 
        rise to the gain or loss, was acquired by the taxpayer at a 
        time the taxpayer was a resident of a National Enterprise Zone;
            ``(3) expenditures made to acquire inventory property;
            ``(4) the amount, if any, the taxpayer elects to deduct 
        pursuant to 179(e) that exceeds the limitations in section 
        179(b);
            ``(5) deductions reduced pursuant to section 68; and
            ``(6) amounts by which the exemption was reduced pursuant 
        to section 151(d)(3).
    ``(e) Net Savings.--
            ``(1) General rule.--Net savings means deposits or 
        contributions to non-qualified financial accounts less 
        withdraws or distributions from nonqualified financial accounts 
        held.
            ``(2) Nonqualified financial accounts.--A non-qualified 
        financial account means an account maintained with a bank 
        (other than a checking account), a regulated investment 
        company, an investment bank or brokerage firm that is not a 
        qualified trust or account within the meaning of subchapter D.
    ``(f) Tax Upon Leaving Zone.--The cumulative sum of net savings 
deducted pursuant to subsection (d)(1) (if greater than zero) shall be 
includible in gross income and taxed at a 17 percent rate upon a person 
becoming a non-resident of a National Enterprise Zone.

``SEC. 1400Q. EFFECT OF NATIONAL ENTERPRISE ZONE DESIGNATION ON 
              CORPORATIONS.

    ``(a) Corporate Alternative National Enterprise Zone Tax.--If for 
any taxable year, any corporation (other than an S corporation) has any 
National Enterprise Zone taxable income, then, in lieu of any tax 
imposed by section 11 or section 55, said corporation may elect, in a 
form prescribed by the Secretary, to pay a tax which shall consist of 
the sum of--
            ``(1) a tax computed on the taxable income reduced by the 
        amount of National Enterprise Zone tentative corporate taxable 
        income (if greater than zero) at the rates and in the manner as 
        if this subsection had not been enacted, plus
            ``(2) a tax of 17 percent of the National Enterprise Zone 
        taxable income.

``SEC. 1400R. NATIONAL ENTERPRISE ZONE CORPORATE TAXABLE INCOME.

    ``(a) In General.--National Enterprise Zone Corporate tentative 
taxable income shall be taxable income (without regard to section 
179(e)) arising from the conduct of an active trade or business within 
one or more National Enterprise Zones.
    ``(b) Adjustments.--National Enterprise Zone Corporate taxable 
income shall be equal to National Enterprise Zone Corporate tentative 
taxable income less--
            ``(1) expenditures made to acquire inventory property held 
        in a National Enterprise Zone, and
            ``(2) the amount, if any, the taxpayer elects to deduct 
        pursuant to 179(e) that exceeds the limitations in section 
        179(b).

``SEC. 1400S. CONDUCT OF AN ACTIVE TRADE OR BUSINESS WITHIN A NATIONAL 
              ENTERPRISE ZONE BY CORPORATIONS, PARTNERSHIPS AND SOLE 
              PROPRIETORS.

    ``(a) Active Trade or Business.--For purposes of subchapter Z, the 
conduct of active trade or business means the conduct of a trade or 
business that derives no more than 5 percent of its gross income from 
passive activities (as defined by section 469).
    ``(b) Income and Expenses Within a National Enterprise Zone.--
            ``(1) Gross income.--Gross income from within a National 
        Enterprise Zone shall mean--
                    ``(A) compensation for labor or personal services 
                performed by a natural person who is based in a 
                National Enterprise Zone;
                    ``(B) rentals or royalties from property located in 
                a National Enterprise Zone;
                    ``(C) gains, profits and income derived from the 
                sale of inventory property held within a National 
                Enterprise Zone; and
                    ``(D) income from the sale of property that is 
                produced, created, fabricated, manufactured, extracted, 
                processed, cured, aged, grown or harvested within the 
                zone.
            ``(2) Expenses.--Expenses shall be allocated and 
        apportioned to the income producing activities to which they 
        are related. Expenses which are not allocable or apportioned to 
        any specific income producing activities shall be allocated on 
        the basis of gross income such that the ratio of the expense 
        allocated to the National Enterprise Zone is the same as the 
        ratio of gross income within the National Enterprise Zone to 
        all gross income within the United States of the taxpayer or 
        controlled group (in the case of a corporation that is a member 
        of a controlled group).
    ``(c) Alternative Formulary Method.--
            ``(1) In general.--A corporation (or controlled group in 
        the case of a corporation that is a member of a controlled 
        group), partnership or sole proprietor that so elects, in a 
        form and manner prescribed by the Secretary, may determine the 
        share of its income, expense and other items attributable to 
        the conduct of an active trade or business within a National 
        Enterprise Zone by multiplying its apportionment ratio by the 
        amount of the income, expense and other items for purposes of 
        determining its National Enterprise Zone Corporate taxable 
        income.
            ``(2) Apportionment ratio.--The apportionment ratio shall 
        be the ratio of--
                    ``(A) the sum of the remaining basis in depreciable 
                property held in zone for the entire taxable year, of 
                the inventory held in a zone at the end of the taxable 
                year and of the compensation paid to zone-based 
                employees during the taxable year, and
                    ``(B) the sum of the remaining basis in depreciable 
                property held in the United States for the entire 
                taxable year, of the inventory held in the United 
                States at the end of the taxable year and of the 
                compensation paid to employees within the United States 
                during the taxable year.
            ``(3) Mandatory use of alternative formulary method.--If a 
        taxpayer--
                    ``(A) derives greater than 10 percent of its gross 
                income from sales to related parties (as defined in 
                section 1313(c)), or
                    ``(B) expenses attributable to purchases from 
                related parties (as defined in section 1313(c)) account 
                for greater than 10 percent of its expenses,
        then said taxpayer must use the alternative formulary method.

``SEC. 1400T. DEFINITIONS AND SPECIAL RULES.

    ``(a) Based in a National Enterprise Zone.--A person is based in a 
National Enterprise Zone if that person works out of an office, 
factory, store or other facility located in a National Enterprise Zone 
not less than 80 percent of the hours worked by said person in a 
calendar year. In the case of a person that works for an employer for 
less than the full calendar year or was engaged in the conduct of an 
active trade or business within a National Enterprise Zone for less 
than the full calendar year, then a person shall be deemed based in a 
National Enterprise Zone if that person worked out of an office, 
factory, store or other facility located in a National Enterprise Zone 
not less than 80 percent of the hours worked by said person while 
employed by said employer or engaged in the conduct of an active trade 
or business within a National Enterprise Zone.
    ``(b) Inventory.--
            ``(1) Inventory property.--For purposes of sections 1400P 
        and 1400R, inventory property shall mean property described in 
        section 1221(a)(1) and any expenditures that were capitalized 
        pursuant to section 263A.
            ``(2) No double counting.--The deductions afforded by 
        section 1400P(d)(3) and 1400R(b)(1) are in lieu of the 
        deduction provided upon the sale of inventory property.
    ``(c) Nominator.--Nominator means the governor of a state or 
territory or the Mayor of the District of Columbia who nominated a zone 
by application to be a National Enterprise Zone.
    ``(d) Residency.--For purposes of this subchapter, a person is 
resident in national enterprise zone for the entire taxable year if--
            ``(1) his or her principal residence (within the meaning of 
        section 121) is within the national enterprise zone, and
            ``(2) he or she was present (within the meaning of section 
        7701(b)(3)) in the national enterprise zone no fewer than 245 
        calendar days during the taxable year.
    ``(e) Secretary.--Secretary shall mean the Secretary of the 
Treasury.''.
    (b) Conforming Amendments.--
            (1) Section 179 of the Internal Revenue Code of 1986 is 
        amended by inserting at the end the following new subsection:
    ``(e) No Limitation on Amount in National Enterprise Zones.--
            ``(1) In general.--The limitations of subsection (b) shall 
        not apply with respect to property placed in service in a 
        National Enterprise Zone.
            ``(2) Property removed from national enterprise zone.--
        Property expensed pursuant to section 179 that is removed from 
        service within a National Enterprise Zone but not disposed of 
        by the taxpayer shall be treated as if it had been, as of the 
        date of the removal, disposed of by the taxpayer and 
        repurchased by the taxpayer at a price equal to what its 
        remaining basis would have been if the section 179 election had 
        not been exercised with respect to the property.''.
            (2) Subsection (d) of section 243 of such Code is amended 
        by adding a new paragraph (5) at the end of said subsection as 
        follows:
            ``(5) a domestic corporation which is subject to taxation 
        under this chapter shall include any corporation organized 
        under the laws of the Commonwealth of Puerto Rico in any 
        taxable year it has made a section 1400Q election.''.
    (c) Clerical Amendment.--The table of subchapters for chapter 1 of 
such Code is amended by inserting after the item relating to subchapter 
Y the following new subchapter:

              ``subchapter z--national enterprise zones''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2005.
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