[Congressional Bills 114th Congress]
[From the U.S. Government Publishing Office]
[S. 2868 Introduced in Senate (IS)]

<DOC>






114th CONGRESS
  2d Session
                                S. 2868

To amend the Internal Revenue Code of 1986 to provide for the deferral 
     of inclusion in gross income for capital gains reinvested in 
                     economically distressed zones.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 27, 2016

Mr. Scott (for himself, Mr. Booker, Mr. Gardner, Mr. Peters, Mr. Blunt, 
and Mr. Bennet) 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 provide for the deferral 
     of inclusion in gross income for capital gains reinvested in 
                     economically distressed zones.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Investing in Opportunity Act''.

SEC. 2. OPPORTUNITY ZONES.

    (a) In General.--Chapter 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following:

                   ``Subchapter Z--Opportunity Zones

``Sec. 1400Z-1. Designation.
``Sec. 1400Z-2. Temporary capital gains deferral.

``SEC. 1400Z-1. DESIGNATION.

    ``(a) Qualified Opportunity Zone Defined.--For the purposes of this 
subchapter, the term `qualified opportunity zone' means a population 
census tract that is a low-income community that is designated as a 
qualified opportunity zone.
    ``(b) Designation.--
            ``(1) Governor.--
                    ``(A) In general.--For purposes of subsection (a), 
                a population census tract that is a low-income 
                community is designated as a qualified opportunity zone 
                if--
                            ``(i) not later than the end of the 
                        determination period, the governor of the State 
                        in which the tract is located--
                                    ``(I) nominates the tract for 
                                designation as a qualified opportunity 
                                zone, and
                                    ``(II) notifies the Secretary in 
                                writing of such nomination, and
                            ``(ii) the Secretary certifies such 
                        nomination and designates such tract as a 
                        qualified opportunity zone before the end of 
                        the consideration period.
                    ``(B) Extension of periods.--A governor may request 
                that the Secretary extend either the determination or 
                consideration period, or both (determined without 
                regard to this subparagraph), for an additional 30 
                days.
                    ``(C) Deemed designation if secretary fails to 
                act.--Unless the tracts are ineligible for designation, 
                if the Secretary declines in writing to make such 
                certification and designation or fails to act before 
                the end of the consideration period, such nomination 
                shall be deemed to be certified and designated, 
                effective on the day after the last day of the 
                consideration period.
            ``(2) Secretary.--If a governor fails to make the 
        nominations and notifications by the end of the periods 
        referred to in paragraphs (1)(A) and (1)(B), the Secretary 
        shall designate and certify population census tracts that are 
        low-income communities as qualified opportunity zones, as 
        permitted by subsection (e).
    ``(c) Other Definitions.--For purposes of this subsection--
            ``(1) Low-income communities.--The term `low-income 
        community' has the same meaning as when used in section 45D(e).
            ``(2) Definition of periods.--
                    ``(A) Consideration period.--The term 
                `consideration period' means the 30-day period 
                beginning on the date on which the Secretary receives 
                notice under subsection (b)(1)(A)(i)(II), as extended 
                under subsection (b)(1)(B).
                    ``(B) Determination period.--The term 
                `determination period' means the 90-day period 
                beginning on the date of the enactment of the Investing 
                in Opportunity Act, as extended under subsection 
                (b)(1)(B).
    ``(d) Guidance for Opportunity Zone Nominations.--When considering 
the nomination of qualified opportunity zones, governors should strive 
for the creation of qualified opportunity zones that are geographically 
concentrated and contiguous clusters of population census tracts and 
should give particular consideration to areas that--
            ``(1) are currently the focus of mutually reinforcing 
        State, local, or private economic development initiatives to 
        attract investment and foster startup activity,
            ``(2) have demonstrated success in geographically targeted 
        development programs, such as promise zones, new market tax 
        credit, empowerment zones, and renewal communities, and
            ``(3) have recently experienced significant layoffs due to 
        business closures or relocations.
    ``(e) Number of Designations.--
            ``(1) In general.--Except as provided by paragraph (2), the 
        number of population census tracts in a State that may be 
        designated as qualified opportunity zones under this section 
        may not exceed 25 percent of the number of low-income 
        communities in the State.
            ``(2) Exception.--If the number of low-income communities 
        in a State is less than 100, then a total of 25 of such tracts 
        may be designated as qualified opportunity zones.
    ``(f) Designation of Tracts Contiguous With Low-Income 
Communities.--
            ``(1) In general.--A population census tract that is not a 
        low-income community may be designated as a qualified 
        opportunity zone under this section if--
                    ``(A) the tract is contiguous with the low-income 
                community that is designated as a qualified opportunity 
                zone, and
                    ``(B) the median family income of the tract does 
                not exceed 125 percent of the median family income of 
                the low-income community with which the tract is 
                contiguous.
            ``(2) Limitation.--Not more than 5 percent of the 
        population census tracts designated in a State as a qualified 
        opportunity zone may be designated under paragraph (1).
    ``(g) Period for Which Designation Is in Effect.--A designation as 
a qualified opportunity zone shall remain in effect for the period 
beginning on the date of the designation and ending at the close of the 
10th calendar year beginning on or after such date of designation.

``SEC. 1400Z-2. TEMPORARY CAPITAL GAINS DEFERRAL FOR GAIN INVESTED IN 
              OPPORTUNITY ZONES.

    ``(a) In General.--
            ``(1) Maximum amount of gain.--Qualified capital gain from 
        the sale or exchange to an unrelated person of any asset held 
        by the taxpayer and which the taxpayer elects the application 
        of this section shall be the amount by which the amount 
        realized on such sale or exchange exceeds--
                    ``(A) the sum of--
                            ``(i) the cost of any qualified opportunity 
                        zone asset acquired by the taxpayer during the 
                        180-day period beginning on the date of such 
                        sale, plus
                            ``(ii) the amount invested in a qualified 
                        opportunity fund acquired by the taxpayer 
                        during the 180-day period beginning on the date 
                        of such sale, reduced by
                    ``(B) any portion of such cost and investment 
                previously taken into account under this section.
            ``(2) Amount of gain recognized.--The amount recognized 
        from the sale or exchange of an asset which is subject to 
        paragraph (1) shall be the amount equal to the qualified 
        capital gain multiplied by the same ratio as--
                    ``(A) the excess of the total amount realized on 
                such sale or exchange over the sum of the amounts 
                determined under subparagraphs (A)(i), (A)(ii), and (B) 
                of paragraph (1), bears to
                    ``(B) the total amount realized on such sale or 
                exchange.
            ``(3) Amount of gain deferred.--Except as provided by 
        subsection (c), any amount of qualified capital gain not 
        recognized by reason of paragraph (2) shall be recognized on 
        the earlier of--
                    ``(A) the date on which such qualified opportunity 
                zone asset or investment with respect to which such 
                qualified capital gain is allocated is disposed of, 
                except to the extent an additional deferral is provided 
                under paragraph (1) with respect to such disposition by 
                reason of the acquisition of a qualified opportunity 
                zone asset or investment in a qualified opportunity 
                fund, or
                    ``(B) December 31, 2025.
    ``(b) Qualified Opportunity Zone Asset.--For purposes of this 
section:
            ``(1) In general.--The term `qualified opportunity zone 
        asset' means--
                    ``(A) any qualified opportunity zone stock,
                    ``(B) any qualified opportunity zone partnership 
                interest, and
                    ``(C) any qualified opportunity zone business 
                property.
            ``(2) Qualified opportunity zone stock.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified opportunity zone 
                stock' means any stock in a domestic corporation if--
                            ``(i) such stock is acquired by the 
                        taxpayer after December 31, 2016, at its 
                        original issue (directly or through an 
                        underwriter) from the corporation solely in 
                        exchange for cash,
                            ``(ii) as of the time such stock was 
                        issued, such corporation was a qualified 
                        opportunity zone business (or, in the case of a 
                        new corporation, such corporation was being 
                        organized for purposes of being a qualified 
                        opportunity zone business), and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such stock, such 
                        corporation qualified as a qualified 
                        opportunity zone business.
                    ``(B) Redemptions.--A rule similar to the rule of 
                section 1202(c)(3) shall apply for purposes of this 
                paragraph.
            ``(3) Qualified opportunity zone partnership interest.--The 
        term `qualified opportunity zone partnership interest' means 
        any capital or profits interest in a domestic partnership if--
                    ``(A) such interest is acquired by the taxpayer 
                after December 31, 2016, from the partnership solely in 
                exchange for cash,
                    ``(B) as of the time such interest was acquired, 
                such partnership was a qualified opportunity zone 
                business (or, in the case of a new partnership, such 
                partnership was being organized for purposes of being a 
                qualified opportunity zone business), and
                    ``(C) during substantially all of the taxpayer's 
                holding period for such interest, such partnership 
                qualified as a qualified opportunity zone business.
            ``(4) Qualified opportunity zone business property.--
                    ``(A) In general.--The term `qualified opportunity 
                zone business property' means tangible property used in 
                a trade or business of the taxpayer if--
                            ``(i) such property was acquired by the 
                        taxpayer by purchase (as defined in section 
                        179(d)(2)) after December 31, 2016,
                            ``(ii) the original use of such property in 
                        the qualified opportunity zone commences with 
                        the taxpayer or the taxpayer substantially 
                        improves the property, and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such property, 
                        substantially all of the use of such property 
                        was in a qualified opportunity zone.
                    ``(B) Substantial improvement.--For purposes of 
                subparagraph (A)(ii), property shall be treated as 
                substantially improved by the taxpayer only if, during 
                any 30-month period beginning after the date of 
                acquisition of such property, additions to basis with 
                respect to such property in the hands of the taxpayer 
                exceed an amount equal to the adjusted basis of such 
                property at the beginning of such 30-month period in 
                the hands of the taxpayer.
                    ``(C) Related party.--For purposes of subparagraph 
                (A)(i), the related person rule of section 179(d)(2) 
                shall be applied pursuant to paragraph (8) of this 
                subsection in lieu of the application of such rule in 
                section 179(d)(2)(A).
            ``(5) Qualified capital gain.--
                    ``(A) In general.--Except as otherwise provided in 
                this subsection, the term `qualified capital gain' 
                means any gain recognized on the sale or exchange of--
                            ``(i) a capital asset, or
                            ``(ii) property used in the trade or 
                        business (as defined in section 1231(b)).
                    ``(B) Certain gain not qualified.--The term 
                `qualified capital gain' shall not include any gain 
                which would be treated as ordinary income under section 
                1245 or under section 1250 if section 1250 applied to 
                all depreciation rather than the additional 
                depreciation.
                    ``(C) Related party transactions.--The term 
                `qualified capital gain' shall not include any gain 
                attributable, directly or indirectly, in whole or in 
                part, to a transaction with a related person.
            ``(6) Qualified opportunity fund.--The term `qualified 
        opportunity fund' means any investment vehicle organized as a 
        corporation or a partnership for the purpose of investing in 
        qualified opportunity zone assets that holds at least 90 
        percent of its assets in qualified opportunity zone assets, 
        determined--
                    ``(A) on the last day of the first 6-month period 
                of the taxable year of the fund, and
                    ``(B) on the last day of the taxable year of the 
                fund.
            ``(7) Qualified opportunity zone business.--
                    ``(A) In general.--The term `qualified opportunity 
                zone business' means a trade or business--
                            ``(i) in which substantially all of the 
                        tangible property owned or leased by the 
                        taxpayer is qualified opportunity zone business 
                        property,
                            ``(ii) which satisfies the requirements of 
                        paragraphs (2), (4), and (8) of section 
                        1397C(b), and
                            ``(iii) which is not described in section 
                        144(c)(6)(B).
                    ``(B) Special rule.--For purposes of subparagraph 
                (A), tangible property that ceases to be a qualified 
                opportunity zone business property shall continue to be 
                treated as a qualified opportunity zone business 
                property for the lesser of--
                            ``(i) 5 years after the date on which such 
                        tangible property ceases to be so qualified, or
                            ``(ii) the date on which such tangible 
                        property is no longer held by the qualified 
                        opportunity zone business.
            ``(8) Related persons.--For purposes of this subsection, 
        persons are related to each other if such persons are described 
        in section 267(b) or 707(b)(1), determined by substituting `20 
        percent' for `50 percent' each place it occurs in such 
        sections.
    ``(c) Basis.--
            ``(1) In general.--The basis of a qualified opportunity 
        zone asset, and of an investment in a qualified opportunity 
        fund, immediately after its acquisition under subsection (a) 
        shall be the amount determined under subsection (a)(1)(A), 
        reduced by the amount recognized under subsection (a)(2).
            ``(2) Asset held for 5 or more years.--Except as provided 
        by paragraph (3), the basis of the qualified opportunity zone 
        asset, and of an investment in a qualified opportunity fund, 
        determined under paragraph (1) shall be increased by an amount 
        equal to--
                    ``(A) in the case that such asset is held by the 
                taxpayer for 5 years, by 10 percent of such capital 
                gain not recognized under subsection (a), and
                    ``(B) in addition to the increase under 
                subparagraph (A), in the case that such asset is held 
                by the taxpayer for 7 years, by 5 percent of such 
                capital gain not recognized under subsection (a).
            ``(3) Exemption from capital gains on gain of long-term 
        investments.--In the case of the sale or exchange of a 
        qualified opportunity zone asset, and of an investment in a 
        qualified opportunity fund, held for more than 10 years, at the 
        election of the taxpayer the basis of such asset or investment 
        in the hands of the taxpayer shall be the fair market value of 
        such asset or investment (as the cases may be) at the date of 
        such sale or exchange.
            ``(4) Deferred recognition.--In the case of recognition of 
        capital gain under subsection (a)(2), the basis of the 
        qualified opportunity zone asset, or investment in a qualified 
        opportunity fund, shall be increased by the amount of capital 
        gain so recognized.
    ``(d) Applicable Rules.--
            ``(1) In general.--For purposes of this section and except 
        as otherwise provided in this section, rules similar to the 
        rules applicable to deferred like kind exchanges under section 
        1031 shall apply except that reinvestment in opportunity zone 
        property need not require an intermediary party.
            ``(2) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this section, including--
                    ``(A) rules requiring taxpayers to provide such 
                information as the Secretary determines to be necessary 
                or appropriate for the identification of both the 
                assets sold (including basis and sale price) and the 
                assets acquired and investments made, and
                    ``(B) rules to prevent abuse.
            ``(3) Decedents.--In the case of a decedent, amounts 
        recognized under this section shall, if not properly includible 
        in the gross income of the decedent, be includible in gross 
        income as provided by section 691.
    ``(e) Failure of Qualified Opportunity Fund To Maintain Investment 
Standard.--
            ``(1) In general.--If a qualified opportunity fund fails to 
        meet the 90 percent requirement of subsection (b)(6), the 
        qualified opportunity fund shall pay a penalty for each month 
        it fails to meet the requirement in an amount equal to the 
        product of--
                    ``(A) the excess of--
                            ``(i) the amount equal to 90 percent of its 
                        aggregate assets, over
                            ``(ii) the aggregate amount of qualified 
                        opportunity zone assets held by the fund, 
                        multiplied by
                    ``(B) the underpayment rate established under 
                section 6621(a)(2) for such month.
            ``(2) Special rule for partnerships.--In the case that the 
        qualified opportunity fund is a partnership, the penalty 
        imposed by paragraph (1) shall be taken into account 
        proportionately as part of the distributive share of each 
        partner of the partnership.
            ``(3) Reasonable cause exception.--No penalty shall be 
        imposed under this subsection with respect to any failure if it 
        is shown that such failure is due to reasonable cause.''.
    (b) Basis Adjustments.--Section 1016(a) of such Code 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 inserting 
after paragraph (37) the following:
            ``(38) to the extent provided in section 1400Z-2(c).''.
    (c) Report to Congress.--The Secretary of the Treasury, or the 
Secretary's delegate, shall submit a report to Congress on the 
opportunity zone incentives enacted by this section beginning five 
years after the date of enactment of this Act and annually thereafter. 
The report shall include an assessment of opportunity fund investments 
nationally and at the State level. To the extent such information is 
available, the report shall include the number of opportunity funds, 
the amount of assets held in opportunity funds, the composition of 
opportunity fund investments by asset class, the percentage of 
qualified opportunity zone census tracts designated under subchapter Z 
of the Internal Revenue Code of 1986 (as added by this section) that 
have received opportunity fund investments. The report shall also 
include an assessment of the impacts and outcomes of the investments in 
those areas on economic indicators including job creation, poverty 
reduction, and new business starts, other metrics as determined by the 
Secretary.
    (d) Clerical Amendment.--The table of subchapters for chapter 1 of 
such Code is amended by adding at the end the following new items:

                  ``subchapter z. opportunity zones''.

    (e) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.
                                 <all>