[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[S. 4780 Introduced in Senate (IS)]

<DOC>






116th CONGRESS
  2d Session
                                S. 4780

  To amend the Internal Revenue Code of 1986 to provide for qualified 
  Hurricane Laura recovery opportunity zones, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            October 1, 2020

  Mr. Kennedy 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 qualified 
  Hurricane Laura recovery opportunity zones, and for other purposes.

    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 ``Hurricane Laura Recovery Opportunity 
Zones Act''.

SEC. 2. QUALIFIED HURRICANE LAURA RECOVERY OPPORTUNITY ZONES.

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

      ``Subchapter AA--Hurricane Laura Recovery Opportunity Zones

``Sec. 1400AA-1. Designation.
``Sec. 1400AA-2. Special rules for capital gains invested in Hurricane 
                            Laura Recovery Opportunity Zones.

``SEC. 1400AA-1. DESIGNATION.

    ``(a) Qualified Hurricane Laura Recovery Opportunity Zone 
Defined.--For purposes of this chapter, the term `qualified Hurricane 
Laura recovery opportunity zone' means any census tract that--
            ``(1) is a low income community (as defined in section 
        1400Z-1(c)), and
            ``(2) is located within the Hurricane Laura disaster zone.
    ``(b) Qualified Hurricane Laura Disaster Zone.--For purposes of 
this chapter, the term `qualified Hurricane Laura disaster zone' means 
an area--
            ``(1) with respect to which a major disaster has been 
        declared by the President under section 401 of the Robert T. 
        Stafford Disaster Relief and Emergency Assistance Act before 
        September 30, 2020, by reason of Hurricane Laura, and
            ``(2) which has been determined by the President to warrant 
        individual or individual and public assistance from the Federal 
        Government under such Act by reason of Hurricane Laura.
    ``(c) Period of Treatment.--A census tract described in subsection 
(a) shall not be treated as a qualified Hurricane Laura recovery 
opportunity zone--
            ``(1) for any period before August 28, 2020, or
            ``(2) for any period after the close of the 10th calendar 
        year beginning on or after such date.

``SEC. 1400AA-2. SPECIAL RULES FOR CAPITAL GAINS INVESTED IN HURRICANE 
              LAURA RECOVERY OPPORTUNITY ZONES.

    ``(a) In General.--
            ``(1) Treatment of gains.--In the case of capital gain from 
        the sale to, or exchange with, an unrelated person of any 
        property held by the taxpayer, at the election of the 
        taxpayer--
                    ``(A) gross income for the taxable year shall not 
                include so much of such gain as does not exceed the 
                aggregate amount invested by the taxpayer in a 
                qualified Hurricane Laura recovery opportunity fund 
                during the 180-day period beginning on the date of such 
                sale or exchange,
                    ``(B) the amount of gain excluded by subparagraph 
                (A) shall be included in gross income as provided by 
                subsection (b), and
                    ``(C) subsection (c) shall apply.
        The preceding sentence shall not apply in the case of any gain 
        which is treated under this chapter as ordinary income.
            ``(2) Election.--No election may be made under paragraph 
        (1)--
                    ``(A) with respect to a sale or exchange if an 
                election previously made with respect to such sale or 
                exchange is in effect, or
                    ``(B) with respect to any sale or exchange after 
                December 31, 2030.
    ``(b) Deferral of Gain Invested in Opportunity Zone Property.--
            ``(1) Year of inclusion.--Gain to which subsection 
        (a)(1)(B) applies shall be included in income in the taxable 
        year which includes the earlier of--
                    ``(A) the date on which such investment is sold or 
                exchanged, or
                    ``(B) December 31, 2030.
            ``(2) Amount includible.--
                    ``(A) In general.--The amount of gain included in 
                income under subsection (a)(1)(B) shall be the excess 
                of--
                            ``(i) the lesser of the amount of gain 
                        excluded under subsection (a)(1)(A) or the fair 
                        market value of the investment as determined as 
                        of the date described in paragraph (1), over
                            ``(ii) the taxpayer's basis in the 
                        investment.
                    ``(B) Determination of basis.--
                            ``(i) In general.--Except as otherwise 
                        provided in this subparagraph or subsection 
                        (c), the taxpayer's basis in the investment 
                        shall be zero.
                            ``(ii) Increase for gain recognized under 
                        subsection (a)(1)(B).--The basis in the 
                        investment shall be increased by the amount of 
                        gain recognized by reason of subsection 
                        (a)(1)(B) with respect to such investment.
                            ``(iii) Investments held for 5 years.--In 
                        the case of any investment held for at least 5 
                        years, the basis of such investment shall be 
                        increased by an amount equal to 10 percent of 
                        the amount of gain deferred by reason of 
                        subsection (a)(1)(A).
                            ``(iv) Investments held for 7 years.--In 
                        the case of any investment held by the taxpayer 
                        for at least 7 years, in addition to any 
                        adjustment made under clause (iii), the basis 
                        of such property shall be increased by an 
                        amount equal to 5 percent of the amount of gain 
                        deferred by reason of subsection (a)(1)(A).
    ``(c) Special Rule for Investments Held for at Least 10 Years.--In 
the case of any investment held by the taxpayer for at least 10 years 
and with respect to which the taxpayer makes an election under this 
subsection, the basis of such investment shall be equal to the fair 
market value of such investment on the date that the investment is sold 
or exchanged.
    ``(d) Qualified Hurricane Laura Recovery Opportunity Fund.--For 
purposes of this section--
            ``(1) In general.--The term `qualified Hurricane Laura 
        recover opportunity fund' means any investment vehicle which is 
        organized as a corporation or a partnership for the purpose of 
        investing in qualified Hurricane Laura recovery opportunity 
        zone property (other than another qualified Hurricane Laura 
        recovery opportunity fund) that holds at least 90 percent of 
        its assets in qualified Hurricane Laura recovery opportunity 
        zone property, determined by the average of the percentage of 
        qualified Hurricane Laura recovery opportunity zone property 
        held in the fund as measured--
                    ``(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.
            ``(2) Qualified hurricane laura recovery opportunity zone 
        property.--
                    ``(A) In general.--The term `qualified Hurricane 
                Laura recovery opportunity zone property' means 
                property which is--
                            ``(i) qualified Hurricane Laura recovery 
                        opportunity zone stock,
                            ``(ii) qualified Hurricane Laura recovery 
                        opportunity zone partnership interest, or
                            ``(iii) qualified Hurricane Laura recovery 
                        opportunity zone business property.
                    ``(B) Qualified hurricane laura recovery 
                opportunity zone stock.--
                            ``(i) In general.--Except as provided in 
                        clause (ii), the term `qualified Hurricane 
                        Laura recovery opportunity zone stock' means 
                        any stock in a domestic corporation if--
                                    ``(I) such stock is acquired by the 
                                qualified Hurricane Laura recovery 
                                opportunity fund after December 31, 
                                2020, 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 Hurricane Laura recovery 
                                opportunity zone business (or, in the 
                                case of a new corporation, such 
                                corporation was being organized for 
                                purposes of being a qualified Hurricane 
                                Laura recovery opportunity zone 
                                business), and
                                    ``(III) during substantially all of 
                                the qualified Hurricane Laura recovery 
                                opportunity fund's holding period for 
                                such stock, such corporation qualified 
                                as a qualified Hurricane Laura recovery 
                                opportunity zone business.
                            ``(ii) Redemptions.--A rule similar to the 
                        rule of section 1202(c)(3) shall apply for 
                        purposes of this paragraph.
                    ``(C) Qualified hurricane laura recovery 
                opportunity zone partnership interest.--The term 
                `qualified Hurricane Laura recovery opportunity zone 
                partnership interest' means any capital or profits 
                interest in a domestic partnership if--
                            ``(i) such interest is acquired by the 
                        qualified Hurricane Laura recovery opportunity 
                        fund after December 31, 2020, from the 
                        partnership solely in exchange for cash,
                            ``(ii) as of the time such interest was 
                        acquired, such partnership was a qualified 
                        Hurricane Laura recovery opportunity zone 
                        business (or, in the case of a new partnership, 
                        such partnership was being organized for 
                        purposes of being a qualified Hurricane Laura 
                        recovery opportunity zone business), and
                            ``(iii) during substantially all of the 
                        qualified Hurricane Laura recovery opportunity 
                        fund's holding period for such interest, such 
                        partnership qualified as a qualified Hurricane 
                        Laura recovery opportunity zone business.
                    ``(D) Qualified hurricane laura recovery 
                opportunity zone business property.--
                            ``(i) In general.--The term `qualified 
                        Hurricane Laura recovery opportunity zone 
                        business property' means tangible property used 
                        in a trade or business of the qualified 
                        Hurricane Laura recovery opportunity fund if--
                                    ``(I) such property was acquired by 
                                the qualified Hurricane Laura recovery 
                                opportunity fund by purchase (as 
                                defined in section 179(d)(2)) after 
                                December 31, 2020,
                                    ``(II) the original use of such 
                                property commences with the qualified 
                                Hurricane Laura recovery opportunity 
                                fund or the qualified Hurricane Laura 
                                recovery opportunity fund substantially 
                                improves the property, and
                                    ``(III) during substantially all of 
                                the qualified Hurricane Laura recovery 
                                opportunity fund's holding period for 
                                such property, substantially all of the 
                                use of such property was in a qualified 
                                Hurricane Laura recovery opportunity 
                                zone.
                            ``(ii) Substantial improvement.--For 
                        purposes of clause (i)(II), property shall be 
                        treated as substantially improved by the 
                        qualified Hurricane Laura recovery opportunity 
                        fund 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 qualified 
                        Hurricane Laura recovery opportunity fund 
                        exceed an amount equal to the adjusted basis of 
                        such property at the beginning of such 30-month 
                        period in the hands of the qualified Hurricane 
                        Laura recovery opportunity fund.
                            ``(iii) Related party.--For purposes of 
                        clause (i)(I)--
                                    ``(I) property shall not be treated 
                                as acquired by purchase if acquired 
                                from a related person (within the 
                                meaning of subsection (e)(2)), and
                                    ``(II) section 179(d)(2) shall be 
                                applied without regard to subparagraph 
                                (A) thereof.
            ``(3) Qualified hurricane laura recovery opportunity zone 
        business.--
                    ``(A) In general.--The term `qualified Hurricane 
                Laura recovery 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 Hurricane Laura recovery 
                        opportunity zone business property (determined 
                        by substituting `qualified Hurricane Laura 
                        recovery opportunity zone business' for 
                        `qualified Hurricane Laura recovery opportunity 
                        fund' each place it appears in paragraph 
                        (2)(D)),
                            ``(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 
                Hurricane Laura recovery opportunity zone business 
                property shall continue to be treated as a qualified 
                Hurricane Laura recovery 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 
                        Hurricane Laura recovery opportunity zone 
                        business.
    ``(e) Applicable Rules.--
            ``(1) Treatment of investments with mixed funds.--In the 
        case of any investment in a qualified Hurricane Laura recovery 
        opportunity fund only a portion of which consists of 
        investments of gain to which an election under subsection (a) 
        is in effect--
                    ``(A) such investment shall be treated as 2 
                separate investments, consisting of--
                            ``(i) one investment that only includes 
                        amounts to which the election under subsection 
                        (a) applies, and
                            ``(ii) a separate investment consisting of 
                        other amounts, and
                    ``(B) subsections (a), (b), and (c) shall only 
                apply to the investment described in subparagraph 
                (A)(i).
            ``(2) Related persons.--For purposes of this section, 
        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.
            ``(3) Decedents.--In the case of a decedent, amounts 
        includible in gross income 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.
            ``(4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this section, including--
                    ``(A) rules for the certification of qualified 
                Hurricane Laura recovery opportunity funds for the 
                purposes of this section,
                    ``(B) rules to ensure a qualified Hurricane Laura 
                recovery opportunity fund has a reasonable period of 
                time to reinvest the return of capital from investments 
                in qualified Hurricane Laura recovery opportunity zone 
                stock and qualified Hurricane Laura recovery 
                opportunity zone partnership interests, and to reinvest 
                proceeds received from the sale or disposition of 
                qualified Hurricane Laura recovery opportunity zone 
                property, and
                    ``(C) rules to prevent abuse.
    ``(f) Failure of Qualified Hurricane Laura Recovery Opportunity 
Fund To Maintain Investment Standard.--
            ``(1) In general.--If a qualified Hurricane Laura recovery 
        opportunity fund fails to meet the 90-percent requirement of 
        subsection (d)(1), the qualified Hurricane Laura recovery 
        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 
                        Hurricane Laura recovery opportunity zone 
                        property 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 Hurricane Laura recovery 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 the Internal Revenue 
Code of 1986 is amended by striking ``and'' at the end of paragraph 
(37), by striking the period at the end of paragraph (38) and inserting 
``, and'', and by inserting after paragraph (38) the following:
            ``(39) to the extent provided in subsections (b)(2) and (c) 
        of section 1400AA-2.''.
    (c) Clerical Amendment.--The table of subchapters for chapter 1 of 
the Internal Revenue Code of 1986 is amended by adding at the end the 
following new item:

     ``subchapter aa. hurricane laura recovery opportunity zone''.

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

SEC. 3. SENSE OF THE CONGRESS RELATING TO MAINTAINING CAPITAL GAINS 
              RATES.

    It is the sense of Congress that the rate of tax on income from 
capital gains (as in effect on the date of the enactment of this Act) 
should not be changed.
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