Revision of benefits

(a)

Safe harbor for meeting requirement that 35 percent of employees be residents of zone

Paragraph (2) of section 1394(b) (defining enterprise zone facility) is amended by adding at the end the following new subparagraph:

(D)

Additional safe harbor for meeting requirement that 35 percent of employees be residents of zone

The requirements of subsections (b)(6) and (c)(7) of section 1397C shall not fail to be treated as met for any period with respect to a qualified business if— (i)as of the date of issuance of the issue, it is reasonably expected that within 3 years after such date the business will increase employment by at least the lesser of— (I)(aa)500 full-time employees in the case of a business located in a renewal community or in a rural area (as defined in section 1393(a)(2)) in an empowerment zone or enterprise community, or (bb)1,000 full-time employees in the case of a business located outside a rural area (as so defined) in an empowerment zone or enterprise community, or (II)10 percent of the number of full-time employees estimated to have been employed in such zone or community on the date of its designation, (ii)as of the date of issuance of the issue, it is reasonably expected that as a result of the bonds the business will increase employment by at least one job for each $150,000 in face amount of the issue, (iii)at any time within 3 years after the date of issuance of the issue, the requirements of such subsections are met, or (iv)the business enters into a binding agreement with the appropriate local government employment agency to apply a first source rule to advertise and prioritize employment opportunities with such business for qualified residents of such zone or community.

(b)

Eligibility of businesses developing or holding intangibles

Paragraph (4) of section 1397C(d) is amended by inserting before the period unless the intangibles are developed within the empowerment zone. (c)

Reduced wage credit allowable for zone residents employed outside the zone; employees need not be residents of zone in which employed

(1)

In general

Subsection (b) of section 1396 is amended to read as follows:

(b)

Applicable percentage

(1)

Qualified zone employees who perform substantially all of their services in an empowerment zone

The applicable percentage is 20 percent with respect to qualified zone employees who would meet the requirement of subsection (d)(1) if only services performed within an empowerment zone were taken into account. (2)

Other qualified zone employees

(A)

In general

The applicable percentage is— (i)20 percent in the case of designated qualified zone employees of employers which are enterprise zone businesses, and (ii)10 percent in the case of any other designated qualified zone employee. (B)

Limitations on number of designated employees

(i)

In general

For purposes of subparagraph (A), the term designated qualified zone employee means a qualified zone employee— (I)to whom paragraph (1) does not apply, and (II)who is designated under this subparagraph. (ii)

Manner of designations

Designations under this subparagraph shall be made by the local government or governments which nominated the area to be an empowerment zone. (iii)

Limitation on designations

The number of employees for whom a designation under this subparagraph is in effect at any one time with respect to each empowerment zone shall not exceed— (I)500 for purposes of subparagraph (A)(i), and (II)2,000 for purposes of subparagraph (A)(ii).

(2)

Qualified zone employee

Paragraph (1) of section 1396(d) is amended— (A)by striking within an empowerment zone in subparagraph (A), and (B)by striking such empowerment zone in subparagraph (B) and inserting an empowerment zone. (d)

Carryforward of unallocated state commercial revitalization expenditure ceiling

Paragraph (1) of section 1400I(d) is amended to read as follows:

(1)

In general

The aggregate commercial revitalization expenditure amount which a commercial revitalization agency may allocate for any calendar year is the amount equal to the sum of— (A)the amount of the State commercial revitalization expenditure ceiling determined under this paragraph for such calendar year for such agency (determined without regard to subparagraph (B)), and (B)the aggregate of the unused State commercial revitalization expenditure ceilings determined under this paragraph for such agency for each of the 2 preceding calendar years.

For purposes of subparagraph (B), amounts of expenditure ceiling shall be treated as allocated by an agency first from unused amounts for the second preceding calendar year, then from unused amounts for the 1st preceding calendar year, and then from amounts from the current year State allocation.

(e)

Authority to expand boundaries of zones and communities

(1)

Empowerment zones and enterprise communities

Section 1391 is amended by adding at the end the following new subsection:

(i)

Authority to expand boundaries of designated areas

At the request of all governments which nominated an area as an empowerment zone or enterprise community, the appropriate Secretary may expand the area of such zone or community to include 1 or more noncontiguous areas if such governments establish to the satisfaction of the appropriate Secretary that such expansion furthers the purposes of the designation of the initial area as such a zone or community.

(2)

Renewal communities

Section 1400E is amended by adding at the end the following new subsection:

(h)

Authority to expand boundaries of designated areas

At the request of all governments which nominated an area as a renewal community, the Secretary of Housing and Urban Development may expand the area of such community to include 1 or more noncontiguous areas if such governments establish to the satisfaction of such Secretary that such expansion furthers the purposes of the designation of the initial area as a renewal community.

(f)

Modification of requirement for expanding designated area based on 2000 census

Clause (ii) of section 1400E(g)(1)(A) is amended to read as follows:

(ii)such tract has a poverty rate using 2000 census data— (I)which is at least 20 percent, or (II)which exceeds the poverty rate for such tract using 1990 census data.

(g)

Repeal of exclusion of central business district from eligibility as designated area

Paragraph (3) of section 1392(a) is amended by adding and at the end of subparagraph (B), by striking , and at the end of subparagraph (C) and inserting a period, and by striking subparagraph (D). (h)

Carryover of unused increased section 179 expensing limit

(1)

In general

Subparagraph (A) of section 1397A(a)(1) is amended to read as follows:

(A)the sum of— (i)$35,000, and (ii)the aggregate of the unused increased limitations for each of the 2 preceding taxable years, or

(2)

Unused increased limitation

Section 1392 is amended by adding at the end the following new subsection:

(c)

Unused increased limitation

For purposes of subsection (a)(1)(A)— (1)

In general

The unused increased limitation for any taxable year is the excess (but not more than $35,000) of the limitation under section 179(b)(1) as increased under subsection (a) over the cost of section 179 property which is qualified zone property placed in service during the taxable year. (2)

Ordering rule

The limitation under section 179(b)(1) as increased under subsection (a) shall be treated as used first from unused limitation for the second preceding calendar year, then from unused limitation for the 1st preceding calendar year, and then from such limitation for the current year.

(i)

Election of financing arrangement in lieu of tax benefits

Section 1396 is amended by adding at the end the following new subsection:

(e)

Election of financing arrangement in lieu of tax benefits

(1)

In general

At the election of any significant empowerment zone business, for the payment period of the debt obligation designated in such election by such business— (A)such business— (i)shall not be treated as an enterprise zone business for purposes of section 1396, and (ii)shall not be allowed any deduction for depreciation under section168 with respect to qualified zone property, and (B)the Secretary shall make the payments described in paragraph (2) to the holder of such debt obligation. (2)

Payments

(A)

In general

At the beginning of each year of the payment period, the Secretary shall pay (out of any money in the Treasury not otherwise appropriated) to the holder of the debt obligation designated by such zone business an amount equal to the value of the tax benefits under this chapter for such year to which such zone business would be entitled but for the election under this subsection. (B)

Assumptions

For purposes of valuing tax benefits under subparagraph (A), the Secretary shall assume that— (i)the business is an enterprise zone business for purposes of section 1396, (ii)all qualified zone property placed in service by the zone business is a single property with a recovery period under section 168 of 15 years, and (iii)the rate of tax under this chapter is 25 percent. (C)

Payment period

The payment period is the period of 15 calendar years beginning with the earlier of— (i)the calendar year specified (before the beginning of such year) by the taxpayer as the 1st year of the payment period, or (ii)the 5th calendar year beginning after the date that the election under this subsection is made. (3)

Significant empowerment zone business

For purposes of this subsection, the term significant empowerment zone business means any trade or business operating in an empowerment zone if— (A)such business is nominated by the State or local government which nominated the area taken into account under section 1396 to be an empowerment zone, and (B)the Secretary of Housing and Urban Development determines that it is reasonably anticipated that such business will increase employment in such zone during the first 3 years of the payment period by at least the lesser of— (i)1,000 full-time employees, or (ii)10 percent of the number of full-time employees estimated to have been employed in such zone on the date of its designation.

(j)

Certain federally guaranteed bonds issued to provide investments in empowerment zones and renewal communities permitted to be tax-exempt, etc

Subparagraph (A) of section 149(b)(3) is amended by striking or at the end of clause (ii), by striking the period at the end of clause (iii) and inserting , or, and by adding at the end the following new clause:

(iv)any guarantee by a Federal Home Loan Bank for a bond 95 percent or more of the net proceeds of which are to be used to provide property in an empowerment zone or renewal community.

(k)

Tax-exempt interest of financial institutions on zone facility bonds not subject to interest disallowance

Subparagraph (B) of section 265(b)(3) (defining qualified bond) is amended by adding at the end the following new clause:

(iii)

Enterprise zone facility bonds

The term qualified tax-exempt obligation includes any obligation which is treated as an exempt facility bond by section 1394.

(l)

Effective date

The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act. (m)

Reporting

The Secretary of the Treasury (or the Secretary’s delegate) shall annually submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report detailing for each empowerment zone, enterprise community, and renewal community the amount and type of claimed tax benefits.