Short title

(a)

Short title

This Act may be cited as the

Small and Medium Urban Regions Growth and Empowerment Act of 2009

or the

SURGE Act of 2009

. (b)

Amendment of 1986 code

Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

Findings

The Congress hereby finds the following: (1)Businesses in Empowerment Zones with less population density are disadvantaged from reaching the 35 percent employment rule, making them significantly less likely to be eligible for tax-exempt facility bonds and section 179 expensing. (2)Businesses in Empowerment Zones with less population density have a much smaller pool of eligible employees to choose from in order to access the employee wage credits. (3)Increasing empowerment zone coverage area into disadvantaged communities that are not currently covered by the zone is difficult, bureaucratic and lengthy. (4)There are too many limitations placed on the type of businesses that are eligible for the credit, making places such as small biotech firms, spas, and family-owned and operated businesses ineligible. (5)Workforce development and on-the-job training is needed to allow companies to transition to newer technologies or begin new hires for newly begun ventures.

Extension of benefits

(a)

Empowerment zones

(1)

Rounds i and ii designations

Section 1391(d)(1) is amended by striking December 31, 2009 in subparagraph (A)(i) and inserting December 31, 2019. (2)

Round iii designations

Section 1391(h)(2) is amended by striking December 31, 2009 and inserting December 31, 2019. (b)

Rural enterprise communities

Section 1391(d)(1)(A) is amended by striking or at the end of clause (i) and by striking clause (ii) and inserting the following new clauses:

(ii)in the case of an enterprise community not described in clause (iii), the close of the 10th calendar year beginning on or after such date of designation, or (iii)in the case of an enterprise community designated in a rural area pursuant to section 766 of division A of the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999, December 31, 2019,

(c)

Renewal communities

(1)Sections 1400E(b) and 1400I(g) are each amended by striking December 31, 2009 each place it appears and inserting December 31, 2019. (2)Sections 1400E(b)(3), 1400F(b), and 1400J(b) are each amended by striking January 1, 2010 each place it appears and inserting January 1, 2020. (3)Section 1400F(c)(2) amended by striking December 31, 2014 and inserting December 31, 2024. (4)Section 1400F(d) is amended by striking December 31, 2014 and inserting December 31, 2024. (5)Section 1400I(d)(2)(A) is amended by striking 2010 and inserting 2020. (d)

Treatment of termination dates specified in nominations

(1)Paragraph (1) of section 1391(d) is amended by adding at the end the following new flush sentence:

The termination date referred to in subparagraph (B) shall be treated as being no earlier than the termination date under subparagraph (A) unless an earlier termination date is designated under subparagraph (B) after the date of the enactment of this sentence.

(2)Paragraph (1) of section 1400E(b) of such Code is amended by adding at the end the following new flush sentence:

Expansion of businesses eligible for benefits; expansion of eligible business activities

(a)

Expansion of qualified business entities

(1)

In general

Subsections (b) and (c) of section 1397C are amended to read as follows:

(b)

Qualified business entity

For purposes of this section, the term qualified business entity means, with respect to any taxable year, any corporation or partnership if for such year— (1)any trade or business of such entity is the active conduct of a qualified business within an empowerment zone, (2)at least 35 percent of its employees are residents of an empowerment zone, (3)less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is attributable to collectibles (as defined in section 408(m)(2)) other than collectibles that are held primarily for sale to customers in the ordinary course of such business, and (4)less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is attributable to nonqualified financial property. (c)

Qualified proprietorship

For purposes of this section, the term qualified proprietorship means, with respect to any taxable year, any qualified business carried on by an individual as a proprietorship if for such year— (1)at least 35 percent of such employees are residents of an empowerment zone, (2)less than 5 percent of the average of the aggregate unadjusted bases of the property of such individual which is used in such business is attributable to collectibles (as defined in section 408(m)(2)) other than collectibles that are held primarily for sale to customers in the ordinary course of such business, and (3)less than 5 percent of the average of the aggregate unadjusted bases of the property of such individual which is used in such business is attributable to nonqualified financial property.

For purposes of this subsection, the term employee includes the proprietor.

(2)

Conforming amendments

(A)Subsection (e) of section 1400 is amended by striking subsections (b)(6) and (c)(5) and inserting subsections (b)(2) and (c)(1). (B)Paragraph (2) of section 1400B(c) is amended by inserting (as in effect on the day before the date of the enactment of the Small and Medium Urban Regions Growth and Empowerment Act of 2009) after 1397C. (b)

Modification of employment requirement for businesses located in areas with lower population density

(1)

Definition of qualified business entity

Section 1397C is amended by adding at the end the following new subsection:

(g)

Modification of employment requirement for businesses located in areas with lower population density

(1)

In general

In the case of businesses located in a lower-density empowerment zone, subsections (b)(2) and (c)(1) shall be applied by treating employees as residents of the empowerment zone if they are residents of a census tract— (A)which is an area of pervasive poverty, unemployment, and general distress (within the meaning of section 1400E(c)(3)(A)), and (B)any point on the boundary of which is within 50 miles of any point on the boundary of the empowerment zone. (2)

Lower-density empowerment zone

For purposes of paragraph (1), the term lower density empowerment zone means any empowerment zone the average population of population census tracts within such zone is less than 3,000.

(2)

Employment credit

Paragraph (1) of section 1396(d) is amended by adding at the end the following new flush sentence:

In the case of businesses located in a lower-density empowerment zone (as defined in section 1397C(g)(2)), subparagraph (B) shall be applied by treating employees as residents of the empowerment zone if they are residents of a census tract which is an area of pervasive poverty, unemployment, and general distress (within the meaning of section 1400E(c)(3)(A)), and any point on the boundary of such tract is within 50 miles of any point on the boundary of the empowerment zone.

(c)

Expansion of eligible business activities

(1)

Renting real or personal property permitted

(A)

In general

Subsection (d) of section 1397C is amended by striking paragraphs (2) and (3). (B)

Recovery zone property

Paragraph (2) of section 1400U–3(c) is amended by striking subparagraph (A). (C)

Conforming amendment

Paragraph (3) of section 45D(d) is amended by striking ; except that and all that follows and inserting a period. (2)

Developing or holding intangibles permitted

(A)

In general

Subsection (d) of section 1397C is amended by striking paragraph (4). (B)

Conforming amendment

Clause (iii) of section 1394(b)(3)(B) is amended by striking , (4),. (3)

Certain other businesses permitted

(A)Paragraph (5) of section 1397C(d) is amended— (i)by striking any facility described in section 144(c)(6)(B) in subparagraph (A) and inserting any excluded facility, and (ii)by inserting before the last sentence the following new sentence: For purposes of subparagraph (A), the term excluded facility means any facility described in section 144(c)(6)(B) other than any golf course, spa, or therapeutic massage facility.. (B)Paragraph (2) of section 1400U–3(c), as amended by paragraph (1), is amended to read as follows:

(2)

Qualified business

The term qualified business means any trade or business other than any trade or business consisting of the operation of any excluded facility (as defined in section 1397C(d)(5)).

(d)

Empowerment zone employment credit To apply to employees at certain additional businesses and to employees who are family members

Subparagraph (D) of section 1396(d)(2) (defining qualified zone employee) is amended— (1)by striking subparagraph (A), (2)by redesignating subparagraphs (B), (C), (D), and (E) as subparagraphs (A), (B), (C), and (D), respectively, and (3)by striking any facility described in section 144(c)(6)(B) in subparagraph (C), as so redesignated, and inserting any excluded facility (as defined in section 1397C(d)(5)). (e)

Certain businesses may be financed with gulf opportunity zone bonds

(1)

In general

Subparagraph (E) of section 1400N(a)(2) is amended by striking any property described in section 144(c)(6)(B) and inserting any excluded facility (as defined in section 1397C(d)(5)). (2)

Effective date

The amendment made by this subsection shall apply to obligations issued after the date of the enactment of this Act.

Modifications permitting expansion of designated areas

(a)

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 contiguous or 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. (b)

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. (c)

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.

Expanded use of tax-exempt bonds

(a)

Enterprise facility bond limit for small cities To be the same as for larger cities

Subparagraph (B) of section 1394(f)(2) is amended by adding and at the end of clause (i), by striking clause (iii), and by amending clause (ii) to read as follows:

(ii)$230,000,000 if such zone is in an urban area.

(b)

Zone employment requirement need not be met after testing period under zone facility bond rules

(1)

In general

Clause (iii) of section 1394(b)(3)(B) is amended by striking if at least 35 percent of the employees of such business for such year are residents of an empowerment zone or an enterprise community. (2)

Conforming amendment

Subsection (a) of section 1400A is amended by striking and section 1394(b)(3)(B)(iii) shall be applied without regard to the employee residency requirement. (c)

Zone facility bonds for small businesses may be guaranteed

(1)

In general

Subsection (d) of section 1394 is amended to read as follows:

(d)

Special rules

(1)

Acquisition of land and existing property permitted

The requirements of sections 147(c)(1)(A) and 147(d) shall not apply to any bond described in subsection (a). (2)

Bonds for small business may be guaranteed

Section 149(b) shall not apply to any bond issued as part of an issue 95 percent or more of the net proceeds (as defined in section 150(a)(3)) of which are to be used to provide any enterprise zone facility the principal user of which is a small employer (as defined in section 221(c)(4)).

(2)

Qualified gulf opportunity zone bonds

Paragraph (5) of section 1400N(a) is amended by adding at the end the following new subparagraph:

(H)Section 149(b) shall not apply to any qualified Gulf Opportunity Zone Bond issued as part of an issue 95 percent or more of the net proceeds (as defined in section 150(a)(3)) of such issue are to be used for qualified project costs for nonresidential real property (including fixed improvements associated with such property) the principal user of which is a small employer (as defined in section 221(c)(4)).

(3)

Recovery zone facility bonds

Subsection (d) of section 1400U–3 is amended by adding at the end the following new sentence: Section 149(b) shall not apply to any recovery zone facility bond issued as part of an issue 95 percent or more of the net proceeds (as defined in section 150(a)(3)) of such issue are to be used for recovery zone property the principal user of which is a small employer (as defined in section 221(c)(4)). (d)

Effective date

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

Other modifications

(a)

Nonrecognition of gain To apply to real property and intangibles

Paragraph (2) of section 1397B(b) is amended to read as follows:

(2)

Gain taxed as ordinary income not eligible for rollover

This section shall not apply to any gain which is treated as ordinary income for purposes of this subtitle.

(b)

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 (or as an amendment to 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 that provides a cost recovery benefit described in paragraph (2), and (B)the Secretary shall make the payments described in paragraph (2) to a 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 trustee designated by such business an amount equal to— (i)the empowerment zone employment credit computed for such year under this section as if the election was not made under this subsection, and (ii)except as provided in paragraph (4)(A), the amount equal to the cost recovery benefit divided by the number of years in 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 before the end of the first 5 full calendar years beginning after the date the election is made under this subsection, 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 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. In the event that a cost described in paragraph (2)(B)(i) is incurred, or a contract described in paragraph (2)(B)(ii) is entered into, after the beginning of the payment period, the Secretary shall increase future recover benefit payments to recover 100 percent of the cost recovery benefit associated with such costs or contracts 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).

Grants for awareness of zone benefits and technical assistance to small business

(a)

In general

Chapter 77 is amended by adding at the end the following new section:

7529.

Grants for awareness of zone benefits and technical assistance to small business

(a)

In general

The Secretary may make grants to State or local governments, or nonprofit organizations, for the purpose of making businesses aware of the benefits available under— (1)subchapter U of chapter 1 (relating to designation and treatment of empowerment zones, enterprise communities, and rural development investment areas), (2)subchapter W of chapter 1 (relating to District of Columbia enterprise zone), (3)subchapter X of chapter 1 (relating to renewal communities), and (4)subchapter Y of chapter 1 (relating to short-term regional benefits). (b)

Technical assistance grants

The Secretary may make grants to provide technical assistance to small businesses eligible for any benefits referred to in subsection (a).

(b)

Clerical amendment

The table of sections for such chapter is amended by adding at the end the following new item:

Sec. 7529. Grants for awareness of zone benefits and technical assistance to small business..

(c)

Effective date

The amendments made by this section shall take effect on the date of the enactment of this Act.

Effective date

Except as otherwise provided in this Act, the amendments made by this Act shall apply to taxable years beginning after the date of the enactment of this Act.