Katrina investment tax credit

(a)

In general

Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits) is amended by adding at the end the following new section:

45N.

Katrina investment tax credit

(a)

General rule

For purposes of section 38, in the case of a recovery area company, the Katrina investment tax credit determined under this section for the taxable year is an amount equal to 25 percent of the amount of the qualified equity investments made by the recovery area company during the taxable year. (b)

Qualified equity investment

For purposes of this section— (1)

In general

The term qualified equity investment means— (A)the transfer of cash, cash equivalents, or other property in exchange for stock or capital interest in a recovery area company, and (B)the cost of any qualified property acquired by a recovery area company to be used in its trade or business. (2)

Recovery area company

The term recovery area company means a domestic corporation or partnership— (A)the principal place of business of which is physically located in an area determined by the President before October 15, 2005, to warrant individual or individual and public assistance from the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act by reason of Hurricane Katrina, (B)at least 50 percent of the gross income of which is derived from the conduct of business in such area or the coastal waters adjacent thereto, (C)a substantial portion of the use of the tangible personal property of such entity (whether owned or leased) is within such area or the coastal waters adjacent thereto, and (D)a substantial portion of the services performed by such entity or by its employees are performed in such area or in the coastal waters adjacent thereto. (3)

Qualified property

The term qualified property means section 1245 property (as defined in section 1245(a)(3)). (c)

Recapture of credit

(1)

In general

If, at any time during the 5-year period beginning on the date on which a qualified equity investment in a recovery area company is made, 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 applicable percentage of 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 underpayment 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)

Applicable percentage

For purposes of paragraph (2), the applicable percentage is— (A)in the case of a recapture event that occurs within 1 year after the date that the qualified equity investment is made, 100 percent, (B)in the case of a recapture event that occurs within 2 years after such date, 80 percent, (C)in the case of a recapture event that occurs within 3 years after such date, 60 percent, (D)in the case of a recapture event that occurs within 4 years after such date, 40 percent, and (E)in the case of a recapture event that occurs within 5 years after such date, 20 percent. (4)

Recapture event

For purposes of this subsection, there is a recapture event with respect to a qualified equity investment if— (A)the recovery area company that made such investment ceases to be a recovery area company, (B)the qualified equity investment is redeemed by the recovery area company that made such investment, or (C)the qualified property acquired by a recovery area company ceases to be used by the recovery area company in its trade or business or such property is sold or otherwise disposed of by the recovery area company. (d)

Credit may be transferred

(1)

In general

Nothing in any law or rule of law shall be construed to limit the transferability of the credit allowed by this section through sale or repurchase agreements. (2)

Transferred credit excluded from gross income

The amount of a credit that is transferred through sale or repurchase agreements pursuant to this section shall not be included in gross income by the taxpayer to whom the credit is transferred. (e)

Termination

This section shall not apply to qualified equity investments made after December 31, 2007.

(b)

Credit made part of general business credit

Subsection (b) of section 38 of such Code is amended by striking and at the end of paragraph (25), by striking the period at the end of paragraph (26) and inserting , and, and by adding at the end the following new paragraph:

(27)the Katrina investment tax credit determined under section 45N(a).

(c)

Clerical amendment

The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by adding at the end the following new item:

Sec. 45N. Katrina investment tax credit

(d)

Effective date

The amendments made by this section shall apply to qualified equity investments made after September 1, 2005, in taxable years ending after such date.