[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5186 Introduced in House (IH)]







109th CONGRESS
  2d Session
                                H. R. 5186

 To amend the Internal Revenue Code of 1986 to replace the expired tax 
           benefits for the DC Zone, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             April 25, 2006

  Ms. Norton introduced the following bill; which was referred to the 
 Committee on Ways and Means, and in addition to the Committees on the 
   Judiciary and Government Reform, 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 replace the expired tax 
           benefits for the DC Zone, 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 ``District of Columbia Tax Incentives 
Improvement Act of 2006''.

SEC. 2. ESTABLISHMENT OF DC TARGET AREAS TO REPLACE EXPIRED DC ZONE.

    (a) In General.--Section 1400 of the Internal Revenue Code of 1986 
(relating to establishment of DC Zone) is amended to read as follows:

``SEC. 1400. ESTABLISHMENT OF DC TARGET AREAS.

    ``(a) Establishment of DC Development Target Area.--
            ``(1) In general.--For purposes of this title--
                    ``(A) the modified DC area is hereby designated as 
                the DC Development Target Area, and
                    ``(B) except for purposes of sections 51 and 1396 
                and as otherwise provided in this subchapter, the DC 
                Development Target Area shall be treated as an 
                empowerment zone designated under subchapter U.
            ``(2) Modified dc area.--For purposes of this section--
                    ``(A) In general.--The term `modified DC area' 
                means the area consisting of--
                            ``(i) the census tracts located in the 
                        District of Columbia which are part of an 
                        enterprise community designated under 
                        subchapter U before August 5, 1997,
                            ``(ii) all other census tracts--
                                    ``(I) which are located in the 
                                District of Columbia, and
                                    ``(II) for which the poverty rate 
                                is not less than 20 percent as 
                                determined on the basis of the 1990 
                                census, and
                            ``(iii) the 31 census tracts identified for 
                        commercial and industrial development (as of 
                        October 11, 2005) by the Deputy Mayor for 
                        Planning and Economic Development of the 
                        District of Columbia.
                    ``(B) Exclusion of residential census tracts.--Such 
                term shall not include any census tract described in 
                clause (i) or (ii) of subparagraph (A) if no portion of 
                such census tract is zoned by the District of Columbia 
                for non-residential development as of June 30, 2003.
                    ``(C) Exclusion of residential blocks.--Such term 
                shall not include any residential block (as determined 
                by the Deputy Mayor for Planning and Economic 
                Development of the District of Columbia).
            ``(3) Special rule for application of enterprise zone 
        business definition.--For purposes of this subchapter and for 
        purposes of applying subchapter U with respect to the DC 
        Development Target Area, section 1397C shall be applied without 
        regard to subsections (b)(6), (c)(5), and (d)(2)(B) thereof.
            ``(4) Time for which designation applicable.--
                    ``(A) In general.--The designation made by 
                paragraph (1) shall apply for the period beginning on 
                January 1, 2006, and ending on December 31, 2009.
                    ``(B) Coordination with dc enterprise community 
                designated under subchapter u.--With respect to the 
                portions of the census tracts referred to in paragraph 
                (2)(A)(i) which are in the modified DC area--
                            ``(i) section 1400(f)(2) shall not apply, 
                        and
                            ``(ii) the designation under subchapter U 
                        of such portions shall terminate on December 
                        31, 2009.
    ``(b) Establishment of DC Employment Target Area.--
            ``(1) In general.--For purposes of this title--
                    ``(A) the DC high unemployment area is hereby 
                designated as the DC Employment Target Area, and
                    ``(B) except as otherwise provided in this 
                subchapter, the DC Employment Target Area shall be 
                treated as an empowerment zone designated under 
                subchapter U for purposes of sections 51 and 1396 (and 
                for purposes of applying this subchapter and subchapter 
                U with respect to such sections).
            ``(2) DC high unemployment area.--For purposes of this 
        section, the term `DC high unemployment area' means the census 
        tracts--
                    ``(A) which are located in the District of 
                Columbia, and
                    ``(B) for which the unemployment rate is not less 
                than 10 percent as determined on the basis of the 2000 
                census.
            ``(3) Special rule for application of employment credit.--
        With respect to the DC Employment Target Area, section 
        1396(d)(1)(A) (relating to empowerment zone employment credit) 
        shall be applied by substituting `the District of Columbia' for 
        `an empowerment zone'.
    ``(c) Definitions.--For purposes of this subchapter--
            ``(1) DC development target area.--The term `DC Development 
        Target Area' means the DC Development Target Area designated by 
        subsection (a).
            ``(2) DC employment target area.--The term `DC Employment 
        Target Area' means the DC Employment Target Area designated by 
        subsection (b).
    ``(d) Time for Which Designations Applicable.--
            ``(1) In general.--The designations made by subsections (a) 
        and (b) shall apply for the period beginning on January 1, 
        2006, and ending on December 31, 2009.
            ``(2) Coordination with dc enterprise community designated 
        under subchapter u.--With respect to the portions of the census 
        tracts referred to in subsection (a)(2)(A)(i) which are in the 
        modified DC area--
                    ``(A) section 1400(f)(2) shall not apply, and
                    ``(B) the designation under subchapter U of such 
                portions shall terminate on December 31, 2009.''.
    (b) Conforming Amendments.--
            (1) Section 1202(a)(2)(D) and section 1397B(b)(1) of such 
        Code are each amended by striking ``The District of Columbia 
        Enterprise Zone'' and inserting ``The DC Development Target 
        Area (as defined in section 1400) and the DC Zone (as defined 
        in section 1400, as in effect on December 31, 2005)''.
            (2) The heading of subchapter W of chapter 1 of such Code 
        is amended by striking ``Enterprise Zone'' and inserting 
        ``Target Areas''.
            (3) The item relating to section 1400 in the table of 
        sections for subchapter W of chapter 1 of such Code is amended 
        to read as follows:

``Sec. 1400. Establishment of DC Target Areas.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2006.

SEC. 3. REPEAL OF SPECIAL RULES RELATED TO TAX-EXEMPT ENTERPRISE ZONE 
              FACILITY BONDS.

    (a) In General.--Section 1400A of the Internal Revenue Code of 1986 
(relating to tax-exempt economic development bonds) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Subparagraph (B) of section 1394(f)(3) of such Code is 
        amended by striking ``(other than the District of Columbia 
        Enterprise Zone)''.
            (2) The table of sections for subchapter W of chapter 1 of 
        such Code is amended by striking the item relating to section 
        1400A.
    (c) Effective Date.--The amendments made by this section shall 
apply to obligations issued after December 31, 2005.

SEC. 4. ZERO PERCENT CAPITAL GAINS RATE ON CERTAIN DC ASSETS.

    (a) In General.--Section 1400B of the Internal Revenue Code of 1986 
(relating to zero percent capital gains rate) is amended to read as 
follows:

``SEC. 1400B. ZERO PERCENT CAPITAL GAINS RATE ON CERTAIN DC ASSETS.

    ``(a) Exclusion.--Gross income shall not include qualified capital 
gain from the sale or exchange of any expanded DC Zone asset held for 
more than 5 years.
    ``(b) Expanded DC Zone Asset.-- For purposes of this section--
            ``(1) In general.--The term `expanded DC Zone asset' 
        means--
                    ``(A) any expanded DC Zone business stock,
                    ``(B) any expanded DC Zone partnership interest, 
                and
                    ``(C) any expanded DC Zone business property.
            ``(2) Expanded dc zone business stock.--
                    ``(A) In general.--The term `expanded DC Zone 
                business stock' means any stock in a domestic 
                corporation which is originally issued after December 
                31, 1997, if--
                            ``(i) such stock is acquired by the 
                        taxpayer, before January 1, 2010, at its 
                        original issue (directly or through an 
                        underwriter) solely in exchange for cash,
                            ``(ii) as of the time such stock was 
                        issued, such corporation was an expanded DC 
                        Zone business (or, in the case of a new 
                        corporation, such corporation was being 
                        organized for purposes of being an expanded DC 
                        Zone business), and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such stock, such 
                        corporation qualified as an expanded DC Zone 
                        business.
                    ``(B) Redemptions.--A rule similar to the rule of 
                section 1202(c)(3) shall apply for purposes of this 
                paragraph.
            ``(3) Expanded dc zone partnership interest.--The term 
        `expanded DC Zone partnership interest' means any capital or 
        profits interest in a domestic partnership which is originally 
        issued after December 31, 1997, if--
                    ``(A) such interest is acquired by the taxpayer, 
                before January 1, 2010, from the partnership solely in 
                exchange for cash,
                    ``(B) as of the time such interest was acquired, 
                such partnership was an expanded DC Zone business (or, 
                in the case of a new partnership, such partnership was 
                being organized for purposes of being an expanded DC 
                Zone business), and
                    ``(C) during substantially all of the taxpayer's 
                holding period for such interest, such partnership 
                qualified as an expanded DC Zone business.
        A rule similar to the rule of paragraph (2)(B) shall apply for 
        purposes of this paragraph.
            ``(4) Expanded dc zone business property.--
                    ``(A) In general.--The term `expanded DC Zone 
                business property' means tangible property if--
                            ``(i) such property was acquired by the 
                        taxpayer by purchase (as defined in section 
                        179(d)(2)) after December 31, 1997, and before 
                        January 1, 2010,
                            ``(ii) the original use of such property in 
                        the expanded DC Zone 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 an expanded DC Zone business of the 
                        taxpayer.
                    ``(B) Special rule for buildings which are 
                substantially improved.--
                            ``(i) In general.--The requirements of 
                        clauses (i) and (ii) of subparagraph (A) shall 
                        be treated as met with respect to--
                                    ``(I) property which is 
                                substantially improved by the taxpayer 
                                before January 1, 2010, 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 December 31, 1997, 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 of such property at the 
                                beginning of such 24-month period in 
                                the hands of the taxpayer, or
                                    ``(II) $5,000.
            ``(5) Treatment of development area terminations.--Except 
        as provided in subsection (d), the termination of the 
        designation of the DC Zone or the DC Development Target Area 
        shall be disregarded for purposes of determining whether any 
        property is an expanded DC Zone asset.
            ``(6) Treatment of subsequent purchasers, etc.--The term 
        `expanded DC Zone asset' includes any property which would be 
        an expanded DC Zone asset but for paragraph (2)(A)(i), (3)(A), 
        or (4)(A)(i) or (ii) in the hands of the taxpayer if such 
        property was an expanded DC Zone asset in the hands of a prior 
        holder.
            ``(7) 5-year safe harbor.--If any property ceases to be an 
        expanded DC Zone asset by reason of paragraph (2)(A)(iii), 
        (3)(C), or (4)(A)(iii) after the 5-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.
    ``(c) Expanded DC Zone Business.--For purposes of this section, the 
term `expanded DC Zone business' means any enterprise zone business (as 
defined in section 1397C), determined--
            ``(1) after the application of section 1400D(d),
            ``(2) by substituting `80 percent' for `50 percent' in 
        subsections (b)(2) and (c)(1) of section 1397C,
            ``(3) by treating no area other than the expanded DC Zone 
        as an empowerment zone or enterprise community, and
            ``(4) in the case of periods beginning after December 31, 
        2005, without regard to subparagraph (B) of section 
        1397C(d)(2).
    ``(d) Expanded DC Zone.--For purposes of this section--
            ``(1) In general .--The term `expanded DC Zone' means the 
        DC Zone and DC Development Target Area.
            ``(2) DC zone.--The term `DC Zone' means--
                    ``(A) the DC Zone (within the meaning of section 
                1400, as in effect on December 31, 2005), and
                    ``(B) all census tracts--
                            ``(i) which are located in the District of 
                        Columbia, and
                            ``(ii) for which the poverty rate is not 
                        less than 10 percent as determined on the basis 
                        of the 1990 census.
            ``(3) Application of section to expired portion of dc 
        zone.--In the case of any expanded DC Zone asset (determined 
        without regard to this paragraph) which would not be an 
        expanded DC Zone asset if the expanded DC Zone did not include 
        that portion of the DC Zone which is not part the DC 
        Development Target Area, this section shall be applied--
                    ``(A) by substituting `January 1, 2006' for 
                `January 1, 2010' each place it appears in subsection 
                (b),
                    ``(B) by substituting `January 1, 2010' for 
                `January 1, 2014' in subsections (e)(2) and (g)(2).
            ``(4) Application of section to newly designated portion of 
        expanded dc zone.--In the case of any expanded DC Zone asset 
        (determined without regard to this paragraph) which would not 
        be an expanded DC Zone asset if the expanded DC Zone did not 
        include that portion of the DC Development Target Area which is 
        not part of the DC Zone, this section shall be applied--
                    ``(A) by substituting `December 31, 2005' for 
                `December 31, 1997' each place it appears in subsection 
                (b), and
                    ``(B) by substituting `January 1, 2006' for 
                `January 1, 1998' in subsections (e)(2) and (g)(2).
    ``(e) 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 
        gain recognized on the sale or exchange of--
                    ``(A) a capital asset, or
                    ``(B) property used in the trade or business (as 
                defined in section 1231(b).
            ``(2) Gain before 1998 or after 2014 not qualified.-- The 
        term `qualified capital gain' shall not include any gain 
        attributable to periods before January 1, 1998, or after 
        December 31, 2014.
            ``(3) Certain gain not qualified.--The term `qualified 
        capital gain' shall not include any gain which would be treated 
        as ordinary income under section 1245 or under section 1250 if 
        section 1250 applied to all depreciation rather than the 
        additional depreciation.
            ``(4) Intangibles and land not integral part of expanded dc 
        zone business.--The term `qualified capital gain' shall not 
        include any gain which is attributable to real property, or an 
        intangible asset, which is not an integral part of an expanded 
        DC Zone business.
            ``(5) 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).
    ``(f) Certain Other Rules to Apply.--Rules similar to the rules of 
subsections (g), (h), (i)(2), and (j) of section 1202 shall apply for 
purposes of this section.
    ``(g) Sales and Exchanges of Interests in Partnerships and S 
Corporations Which Are DC Development Area Businesses.--In the case of 
the sale or exchange of an interest in a partnership, or of stock in an 
S corporation, which was an expanded DC Zone 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 gain which is attributable to real property, or 
        an intangible asset, which is not an integral part of an 
        expanded DC Zone business, and
            ``(2) any gain attributable to periods before January 1, 
        1998, or after December 31, 2014.''.
    (b) Clerical Amendment.--The item relating to section 1400B in the 
table of sections for subchapter W of chapter 1 of such Code is amended 
to read as follows:

``Sec. 1400B. Zero capital gains rate on certain DC assets''.
    (c) Effective Date.--The amendments made by this section shall 
apply to sales or exchanges after December 31, 2005.

SEC. 5. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.

    (a) Extension of Credit.--Subsection (i) of section 1400C of such 
Code (relating to first-time homebuyer credit for District of Columbia) 
is amended by striking ``January 1, 2006'' and inserting ``January 1, 
2010''.
    (b) Increase in Maximum Credit.--Subsection (a) of section 1400C of 
such Code is amended by striking ``$5,000'' and inserting ``$10,000''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property purchased after December 31, 2005, in taxable years 
ending after such date.

SEC. 6. BONDS OF DISTRICT OF COLUMBIA EXEMPT FROM STATE AND LOCAL 
              TAXES.

    (a) In General.--Section 485 of the District of Columbia Home Rule 
Act is amended to read as follows:

                            ``tax exemption

    ``Sec. 485.
 Bonds and notes issued by the Council pursuant to this title and the 
interest thereon shall be exempt from all taxation (except estate, 
inheritance, and gift taxes) imposed by the United States, any State or 
political subdivision thereof, the District, or any possession of the 
United States.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to bonds and notes issued after the date of the enactment of this Act.
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