II 109th CONGRESS 2d Session S. 2347 IN THE SENATE OF THE UNITED STATES March 1, 2006 Mr. Conrad (for himself and Mr. Rockefeller) 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 extend and modify the tax credit for holders of qualified zone academy bonds.

1.

Extension and modification of treatment of qualified zone academy bonds

(a)

Extension and allocation of credit authority

(1)

Extension

Paragraph (1) of section 1397E(e) of the Internal Revenue Code of 1986 is amended by striking and 2005 and inserting 2005, 2006, and 2007. (2)

Allocation of limitation

Section 1397E(e)(2) of such Code is amended to read as follows: (2)

Allocation of limitation

(A)

Allocation among States

(i)

Limitation before 2006

The national zone academy bond limitations for calendar years 1998, 1999, 2000, 2001, 2002, 2003, 2004, and 2005 shall be allocated by the Secretary among the States on the basis of their respective populations of individuals below the poverty line (as defined by the Office of Management and Budget). (ii)

Limitation after 2005

(I)

In general

The national zone academy bond limitation for any calendar year after 2005 shall be allocated by the Secretary among the States in proportion to the respective amounts each such State received for basic grants under subpart 2 of part A of title I of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 6331 et seq.) for the most recent fiscal year ending before such calendar year. (II)

Minimum allocation

The allocation under subclause (I) to any State shall in no event be less than 1 percent of the national zone academy bond limitation. The Secretary shall ratably reduce the allocations of States to which this subclause does not apply by the amount required to offset increases in allocations of other States under this subclause. (B)

Allocation to academies

The limitation amount allocated to a State under subparagraph (A) shall be allocated by the State to qualified zone academies within such State. (C)

Designation subject to limitation amount

The maximum aggregate face amount of bonds issued during any calendar year which may be designated under subsection (a) with respect to any qualified zone academy shall not exceed the limitation amount allocated to such academy under subparagraph (B) for such calendar year. . (3)

Unused authority

Section 1397E(e) of such Code (relating to limitation on amount of bonds designated) is amended— (A)by striking If in paragraph (4) and inserting Except as provided in paragraph (5), if, and (B)by adding at the end the following: (5)

Reallocation for amounts unused for two years

Notwithstanding paragraph (4), rules similar to the rules of section 42(h)(3)(D) shall apply for purposes of this section. . (b)

Proceeds of bonds may be used for construction

Paragraph (5) of section 1397E(d) of the Internal Revenue Code of 1986 (defining qualified purpose) is amended— (1)by striking rehabilitating or repairing in subparagraph (A) and inserting constructing, rehabilitating, or repairing, and (2)by redesignating subparagraphs (B), (C), and (D) as subparagraphs (C), (D), and (E), respectively, and by inserting after subparagraph (A) the following: (B)acquiring the land on which the facility is to be constructed, . (c)

Repeal of limitation on taxpayers eligible for credit

(1)

In general

Section 1397E(a) of the Internal Revenue Code of 1986 (relating to allowance of credit) is amended by striking an eligible taxpayer and inserting a taxpayer. (2)

Conforming amendment

Section 1397E(d)(6) of such Code is amended to read as follows: (6)

Bonds held by regulated investment companies

If any qualified zone academy bond is held by a regulated investment company, the credit determined under subsection (a) shall be allowed to shareholders of such company under procedures prescribed by the Secretary. . (d)

Credits may be stripped

Section 1397E of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection: (j)

Credits may be stripped

Under regulations prescribed by the Secretary— (1)

In general

There may be a separation (including at issuance) of the ownership of a qualified zone academy bond and the entitlement to the credit under this section with respect to such bond. In case of any such separation, the credit under this section shall be allowed to the person who on the credit allowance date holds the instrument evidencing the entitlement to the credit and not to the holder of the bond. (2)

Certain rules to apply

In the case of a separation described in paragraph (1), the rules of section 1286 shall apply to the qualified zone academy bond as if it were a stripped bond and to the credit under this section as if it were a stripped coupon. (e)

Effective dates

(1)

In general

Except as otherwise provided in this subsection, the amendments made by this section shall apply to obligations issued after December 31, 2005. (2)

Repeal of restriction on zone academy bond holders

In the case of bonds to which section 1397E of the Internal Revenue Code of 1986 (as in effect before the date of the enactment of this Act) applies, the limitation of such section to eligible taxpayers (as defined in subsection (d)(6) of such section) shall not apply after the date of the enactment of this Act.