Revision of benefits

(a)

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

(1)

In general

Section 1397C (defining enterprise zone business) is amended by adding at the end the following new subsection:

(g)

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

The requirements of subsections (b)(6) and (c)(5) shall not fail to be treated as met for any period with respect to a qualified business if— (1)as of the date of issuance of an issue, the date property is placed in service, or the date of the sale of an asset, it is reasonably expected that within 3 years after such date the business will increase employment by at least the lesser of— (A)in the case of— (i)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, 500 full-time employees, or (ii)a business located outside a rural area (as so defined) in an empowerment zone or enterprise community, 1,000 full-time employees, or (B)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, (2)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, (3)at any time within 3 years after the date of the issuance of an issue, the date property is placed in service, or the date of the sale of an asset, the requirements of such subsections are met, or (4)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.

(2)

Effective date

The amendment made by this subsection shall take effect on the date of the enactment of this Act, except that in the case of obligations which are outstanding on such date, such date shall be deemed the date of issuance for such obligations. (b)

Eligibility of businesses developing or holding intangibles

(1)

In general

Paragraph (4) of section 1397C(d) is amended by inserting before the period unless the intangibles are developed within the empowerment zone. (2)

Effective date

The amendment made by this subsection shall apply to taxable years beginning after the date of the enactment of this Act. (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. (3)

Effective date

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

Carryforward of unallocated state commercial revitalization expenditure ceiling

(1)

In general

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.

(2)

Effective date

The amendment made by this subsection shall apply to calendar years beginning after the date of the enactment of this Act. (e)

Commercial revitalization deduction for building expansions

(1)

In general

Section 1400I(b)(1) is amended— (A)by striking any building (and its structural components) if, (B)by inserting any building (and its structural components) if before the building is placed in subparagraph (A), (C)by striking or at the end of subparagraph (A), (D)by striking such building not described in subparagraph (A), in subparagraph (B) and inserting any building (and its structural components) not described in subparagraph (A) if, (E)by striking the period at the end of subparagraph (B)(ii) and inserting , or, and (F)by adding at the end the following new subparagraph:

(C)in the case of any expansion of a building not described in subparagraph (A) or (B), such expansion if— (i)such expansion is made to a building owned by the taxpayer, (ii)the taxpayer provides a detailed accounting of the distinct capital costs attributable to such expansion, and (iii)such expansion is placed in service by the taxpayer in a renewal community and the original use of such expansion begins with the taxpayer.

(2)

Effective date

The amendments made by this subsection shall apply to property placed in service after the date of the enactment of this Act. (f)

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

(1)

In general

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)

Rural areas

With respect to any empowerment zone or enterprise community located in a rural area, at the request of the nominating local government, the appropriate Secretary shall expand the area of such zone or community to include the entire area of such nominating local government, but only if— (A)either— (i)the poverty rate and the unemployment rate for such entire area as determined by the 2000 decennial census data was at least 110 percent of such rate for the United States, or (ii)during the period beginning with the 1990 decennial census and ending with the 2000 decennial census, such entire area has a net out migration of inhabitants of at least 10 percent of the population of such area, and (B)such entire area meets 1 or more of the following criteria determined by the 2000 decennial census data: (i)Median household income is not more than 70 percent of such income for the United States. (ii)Per capita income is not more than 75 percent of such income for the United States. (iii)The percentage of such area's population which is disabled is at least 130 percent of such percentage for the United States.

(2)

Renewal communities

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

(h)

Authority To expand boundaries of designated areas

(1)

In general

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. (2)

Rural areas

With respect to any renewal community located in a rural area, at the request of the nominating local government, the Secretary of Housing and Urban Development shall expand the area of such community to include the entire area of such nominating local government, but only if— (A)either— (i)the poverty rate and the unemployment rate for such entire area as determined by the 2000 decennial census data was at least 110 percent of such rate for the United States, or (ii)during the period beginning with the 1990 decennial census and ending with the 2000 decennial census, such entire area has a net out migration of inhabitants of at least 10 percent of the population of such area, and (B)such entire area meets 1 or more of the following criteria determined by the 2000 decennial census data: (i)Median household income is not more than 70 percent of such income for the United States. (ii)Per capita income is not more than 75 percent of such income for the United States. (iii)The percentage of such area's population which is disabled is at least 130 percent of such percentage for the United States.

(3)

Effective date

The amendments made by this subsection shall take effect on the date of the enactment of this Act. (g)

Modification of requirement for expanding designated area based on 2000 census

(1)

In general

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.

(2)

Effective date

The amendment made by this subsection shall take effect on the date of the enactment of this Act. (h)

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

(1)

In general

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). (2)

Effective date

The amendments made by this subsection shall take effect on the date of the enactment of this Act. (i)

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.

(3)

Effective date

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

Election of financing arrangement in lieu of tax benefits

(1)

In general

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 allowed an empowerment zone employment credit described in subsection (a), and (ii)shall not be allowed any deduction for depreciation under section 168 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 (or in the event that there is more than 1 holder, to such trustee designated by the electing business to accept such payments on behalf of such holders). (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 business an amount equal to— (i)the empowerment zone employment credit computed each year under this section as if the election was not made under this subsection, and (ii)the cost recovery benefit described in subparagraph (B),

paid in equal installments (or as adjusted pursuant to paragraph (4)(A)) over the payment period described in subparagraph (C).

(B)

Cost recovery benefit

For purposes of subparagraph (A), the cost recovery benefit shall be an amount equal to 25 percent of— (i)the cost of any tangible property which is qualified zone property (including improvements to such tangible property) incurred by the significant empowerment zone business, and (ii)any such cost for which a binding contract for financing the acquisition of such tangible property (including improvements to such tangible property) has been made by such business and which under the terms of the financing is to be incurred within the first 5 full calendar years beginning after the date of the election made under this subsection. (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 significant empowerment zone business as the 1st year of the payment period without regard to the date the property is placed in service, 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 chief executive or the legislative body of the State or a local government in which the zone property is located, and (B)the Secretary of Housing and Urban Development determines that— (i)it is a facility for qualified research as defined in section 41(d) which is reasonably anticipated to make at least $50,000,000 of capital expenditures within the first 3 years of the payment period, or (ii)with respect to any other business, it is reasonably anticipated that such business will increase employment in such zone by the end of the first 3 years of the payment period by at least the lesser of— (I)1,000 full-time employees or equivalents, 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. (4)

Special rules

(A)

Adjustment to cost recovery benefit

In the event that the significant empowerment zone business does not incur a cost within the period described in paragraph (2)(B) and for which a cost recovery benefit payment is made under this subsection, the Secretary shall reduce future recovery benefit payments to recover 110 percent of the overpayments in equal installments over the remaining payment period. (B)

Basis adjustment

For purposes of this subtitle, if a cost recovery payment is made under this subsection with respect to any property, the basis of such property shall be reduced by the amount of such payment. (5)

Treatment of payments

Any payment made under this subsection shall not be treated as a Federal Government guarantee for purposes of section 149(b).

(2)

Conforming amendment

Section 1016(a) is amended by striking and at the end of paragraph (36), by striking the period at the end of paragraph (37) and inserting , and, and by adding at the end the following new paragraph:

(38)to the extent provided in section 1396(e)(4)(B).

(3)

Effective date

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

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

(1)

In general

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.

(2)

Effective date

The amendments made by this subsection shall apply to bonds issued after the date of the enactment of this Act. (l)

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

(1)

In general

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.

(2)

Effective date

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

Developable sites population clarification

(1)

In general

Subparagraph (C) of section 1391(g)(3) (relating to modifications to eligibility criteria, etc.) is amended to read as follows:

(C)

Population limitation

(i)

Aggregate population limitation

The aggregate population limitation under the last sentence of subsection (b)(2) shall not apply to a designation under paragraph (1). (ii)

Exception for developable sites

The parcels described in subparagraph (A)(iii) shall not be taken into account in determining whether the requirement of section 1392(a)(1)(A) is met.

(2)

Effective date

The amendment made by this subsection shall take effect on the date of the enactment of this Act. (n)

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.