Credit to holders of rural renaissance bonds

(a)

In General

Subpart H of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to credits against tax) is amended by adding at the end the following new section:

54A.

Credit to holders of rural renaissance bonds

(a)

Allowance of Credit

In the case of a taxpayer who holds a rural renaissance bond on 1 or more credit allowance dates of the bond occurring during any taxable year, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of the credits determined under subsection (b) with respect to such dates. (b)

Amount of Credit

(1)

In general

The amount of the credit determined under this subsection with respect to any credit allowance date for a rural renaissance bond is 25 percent of the annual credit determined with respect to such bond. (2)

Annual credit

The annual credit determined with respect to any rural renaissance bond is the product of— (A)the credit rate determined by the Secretary under paragraph (3) for the day on which such bond was sold, multiplied by (B)the outstanding face amount of the bond. (3)

Determination

For purposes of paragraph (2), with respect to any rural renaissance bond, the Secretary shall determine daily or caused to be determined daily a credit rate which shall apply to the first day on which there is a binding, written contract for the sale or exchange of the bond. The credit rate for any day is the credit rate which the Secretary or the Secretary’s designee estimates will permit the issuance of rural renaissance bonds with a specified maturity or redemption date without discount and without interest cost to the qualified issuer. (4)

Credit allowance date

For purposes of this section, the term credit allowance date means— (A)March 15, (B)June 15, (C)September 15, and (D)December 15.

Such term also includes the last day on which the bond is outstanding.

(5)

Special rule for issuance and redemption

In the case of a bond which is issued during the 3-month period ending on a credit allowance date, the amount of the credit determined under this subsection with respect to such credit allowance date shall be a ratable portion of the credit otherwise determined based on the portion of the 3-month period during which the bond is outstanding. A similar rule shall apply when the bond is redeemed or matures. (c)

Limitation Based on Amount of Tax

The credit allowed under subsection (a) for any taxable year shall not exceed the excess of— (1)the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over (2)the sum of the credits allowable under this part (other than this subpart, subpart C, and section 1400N(l)). (d)

Rural Renaissance Bond

For purposes of this section— (1)

In general

The term rural renaissance bond means any bond issued as part of an issue if— (A)the bond is issued by a qualified issuer pursuant to an allocation by the Secretary to such issuer of a portion of the national rural renaissance bond limitation under subsection (f)(2), (B)95 percent or more of the proceeds from the sale of such issue are to be used for capital expenditures incurred by qualified borrowers for 1 or more qualified projects, (C)the qualified issuer designates such bond for purposes of this section and the bond is in registered form, (D)the issue meets the requirements of subsection (h), and (E)such bond is not a federally guaranteed bond (within the meaning of section 149(b)(2)). (2)

Qualified project; special use rules

(A)

In general

The term qualified project means 1 or more projects described in subparagraph (B) located in a rural area. (B)

Projects described

A project described in this subparagraph is a project eligible for assistance under— (i)the utilities programs described in section 381E(d)(2) of the Consolidated Farm and Rural Development Act (7 U.S.C. 2009d(d)(2)), (ii)the distance learning or telemedicine programs authorized pursuant to chapter 1 of subtitle D of title XXIII of the Food, Agriculture, Conservation, and Trade Act of 1990 (7 U.S.C. 950aaa et seq.), (iii)the rural electric programs authorized pursuant to the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.), (iv)the rural telephone programs authorized pursuant to the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.), (v)the broadband access programs authorized pursuant to title VI of the Rural Electrification Act of 1936 (7 U.S.C. 950bb et seq.), and (vi)the rural community facility programs as described in section 381E(d)(1) of the Consolidated Farm and Rural Development Act (7 U.S.C. 2009d(d)(1)). (C)

Refinancing rules

For purposes of paragraph (1)(B), a qualified project may be refinanced with proceeds of a rural renaissance bond only if the indebtedness being refinanced (including any obligation directly or indirectly refinanced by such indebtedness) was originally incurred by a qualified borrower after the date of the enactment of this section. (D)

Reimbursement

For purposes of paragraph (1)(B), a rural renaissance bond may be issued to reimburse a qualified borrower for amounts paid after the date of the enactment of this section with respect to a qualified project, but only if— (i)prior to the payment of the original expenditure, the qualified borrower declared its intent to reimburse such expenditure with the proceeds of a rural renaissance bond, (ii)not later than 60 days after payment of the original expenditure, the qualified issuer adopts an official intent to reimburse the original expenditure with such proceeds, and (iii)the reimbursement is made not later than 18 months after the date the original expenditure is paid. (E)

Treatment of changes in use

For purposes of paragraph (1)(B), the proceeds of an issue shall not be treated as used for a qualified project to the extent that a qualified borrower or qualified issuer takes any action within its control which causes such proceeds not to be used for a qualified project. The Secretary shall prescribe regulations specifying remedial actions that may be taken (including conditions to taking such remedial actions) to prevent an action described in the preceding sentence from causing a bond to fail to be a rural renaissance bond. (F)

Treatment of other subsidies

For purposes of subparagraph (B), a qualified project does not include any portion of a project financed by grants or subsidized financing provided (directly or indirectly) under a Federal program, including any State or local obligation used to provide financing for such portion the interest on which is exempt from tax under section 103. (e)

Maturity Limitations

(1)

Duration of term

A bond shall not be treated as a rural renaissance bond if the maturity of such bond exceeds the maximum term determined by the Secretary under paragraph (2) with respect to such bond. (2)

Maximum term

During each calendar month, the Secretary shall determine the maximum term permitted under this paragraph for bonds issued during the following calendar month. Such maximum term shall be the term which the Secretary estimates will result in the present value of the obligation to repay the principal on the bond being equal to 50 percent of the face amount of such bond. Such present value shall be determined without regard to the requirements of paragraph (3) and using as a discount rate the average annual interest rate of tax-exempt obligations having a term of 10 years or more which are issued during the month. If the term as so determined is not a multiple of a whole year, such term shall be rounded to the next highest whole year. (3)

Ratable principal amortization required

A bond shall not be treated as a rural renaissance bond unless it is part of an issue which provides for an equal amount of principal to be paid by the qualified issuer during each calendar year that the issue is outstanding. (f)

Limitation on Amount of Bonds Designated

(1)

National limitation

There is a national rural renaissance bond limitation of $400,000,000. (2)

Allocation by Secretary

(A)

In general

In accordance with subparagraph (B), the Secretary shall allocate the amount described in paragraph (1) among at least 20 qualified projects, or such lesser number of qualified projects with proper applications filed after 12 months after the adoption of the selection process under subparagraph (B). (B)

Selection process

In consultation with the Secretary of Agriculture, the Secretary shall adopt a process to select projects described in subparagraph (A). Under such process, no State may receive more than 15 percent of the allocation under subparagraph (A). (g)

Credit Included in Gross Income

Gross income includes the amount of the credit allowed to the taxpayer under this section (determined without regard to subsection (c)) and the amount so included shall be treated as interest income. (h)

Special Rules Relating to Expenditures

(1)

In general

An issue shall be treated as meeting the requirements of this subsection if, as of the date of issuance, the qualified issuer reasonably expects— (A)at least 95 percent of the proceeds from the sale of the issue are to be spent for 1 or more qualified projects within the 5-year period beginning on the date of issuance of the rural renaissance bond, (B)a binding commitment with a third party to spend at least 10 percent of the proceeds from the sale of the issue will be incurred within the 6-month period beginning on the date of issuance of the rural renaissance bond or, in the case of a rural renaissance bond the proceeds of which are to be loaned to 2 or more qualified borrowers, such binding commitment will be incurred within the 6-month period beginning on the date of the loan of such proceeds to a qualified borrower, and (C)such projects will be completed with due diligence and the proceeds from the sale of the issue will be spent with due diligence. (2)

Extension of period

Upon submission of a request prior to the expiration of the period described in paragraph (1)(A), the Secretary may extend such period if the qualified issuer establishes that the failure to satisfy the 5-year requirement is due to reasonable cause and the related projects will continue to proceed with due diligence. (3)

Failure to spend required amount of bond proceeds within 5 years

To the extent that less than 95 percent of the proceeds of such issue are expended by the close of the 5-year period beginning on the date of issuance (or if an extension has been obtained under paragraph (2), by the close of the extended period), the qualified issuer shall redeem all of the nonqualified bonds within 90 days after the end of such period. For purposes of this paragraph, the amount of the nonqualified bonds required to be redeemed shall be determined in the same manner as under section 142. (i)

Special Rules Relating to Arbitrage

A bond which is part of an issue shall not be treated as a rural renaissance bond unless, with respect to the issue of which the bond is a part, the qualified issuer satisfies the arbitrage requirements of section 148 with respect to proceeds of the issue. (j)

Definitions and special rules relating to issuers and borrowers

For purposes of this section— (1)

Qualified issuer

The term qualified issuer means— (A)a rural renaissance bond lender, (B)a cooperative electric company, or (C)a governmental body. (2)

Qualified borrower

The term qualified borrower means— (A)a mutual or cooperative electric company described in section 501(c)(12) or 1381(a)(2)(C), or (B)a governmental body. (3)

Rural renaissance bond lender

The term rural renaissance bond lender means a lender which is a cooperative which is owned by, or has outstanding loans to, 100 or more cooperative electric companies and is in existence on February 1, 2002, and shall include any affiliated entity which is controlled by such lender. (4)

Cooperative electric company

The term cooperative electric company means a mutual or cooperative electric company described in section 501(c)(12) or section 1381(a)(2)(C), or a not-for-profit electric utility which has received a loan or loan guarantee under the Rural Electrification Act. (5)

Governmental body

The term governmental body means any State, territory, possession of the United States, the District of Columbia, Indian tribal government, and any political subdivision thereof. (k)

Special Rules Relating to Pool Bonds

No portion of a pooled financing bond may be allocable to loan unless the borrower has entered into a written loan commitment for such portion prior to the issue date of such issue. (l)

Other Definitions and Special Rules

For purposes of this section— (1)

Bond

The term bond includes any obligation. (2)

Pooled financing bond

The term pooled financing bond shall have the meaning given such term by section 149(f)(4)(A). (3)

Rural area

The term rural area shall have the meaning given such term by section 1393(a)(2). (4)

Partnership; s corporation; and other pass-thru entities

(A)

In general

Under regulations prescribed by the Secretary, in the case of a partnership, trust, S corporation, or other pass-thru entity, rules similar to the rules of section 41(g) shall apply with respect to the credit allowable under subsection (a). (B)

No basis adjustment

In the case of a bond held by a partnership or an S corporation, rules similar to the rules under section 1397E(i) shall apply. (5)

Bonds held by regulated investment companies

If any rural renaissance 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. (6)

Reporting

Issuers of rural renaissance bonds shall submit reports similar to the reports required under section 149(e). (7)

Termination

This section shall not apply with respect to any bond issued after December 31, 2008.

(b)

Reporting

Subsection (d) of section 6049 of the Internal Revenue Code of 1986 (relating to returns regarding payments of interest) is amended by adding at the end the following new paragraph:

(9)

Reporting of credit on rural renaissance bonds

(A)

In general

For purposes of subsection (a), the term interest includes amounts includible in gross income under section 54A(g) and such amounts shall be treated as paid on the credit allowance date (as defined in section 54A(b)(4)). (B)

Reporting to corporations, etc

Except as otherwise provided in regulations, in the case of any interest described in subparagraph (A), subsection (b)(4) shall be applied without regard to subparagraphs (A), (H), (I), (J), (K), and (L)(i) of such subsection. (C)

Regulatory authority

The Secretary may prescribe such regulations as are necessary or appropriate to carry out the purposes of this paragraph, including regulations which require more frequent or more detailed reporting.

(c)

Conforming Amendments

(1)The table of sections for subpart H of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

Sec. 54A. Credit to holders of rural renaissance bonds.

(2)Section 54(c)(2) of such Code is amended by inserting , section 54A, after subpart C. (d)

Issuance of Regulations

The Secretary of Treasury shall issue regulations required under section 54A of the Internal Revenue Code of 1986 (as added by this section) not later than 120 days after the date of the enactment of this Act. (e)

Effective Date

The amendments made by this section shall apply to bonds issued after the date of the enactment of this Act.