[Congressional Record Volume 149, Number 173 (Monday, November 24, 2003)]
[Senate]
[Pages S15813-S15816]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BAUCUS (for himself, Mr. Inhofe, Mrs. Dole, and Mr. 
        Rockefeller):
  S. 1936. A bill to amend the Internal Revenue Code of 1986 to exclude 
from unrelated business taxable income the gain or loss on the sale or 
exchange of certain brownfield sites, and for other purposes; to the 
Committee on Finance.
  Mr. BAUCUS. Mr. President, I am pleased to join my colleague Senator 
Inhofe, and my other Senate colleagues in introducing the Brownfield 
Revitalization Act of 2003. Given the nature of this legislation--
establishing tax incentives to encourage cleanup of environmentally 
contaminated property across the country--it is appropriate that this 
be a joint introduction between the Chairman of the Senate Environment 
and Public Works Committee and the Ranking Member of the Senate Finance 
Committee. This legislation is bipartisan, but it is also bicameral. A 
companion bill was introduced earlier this week in the House of 
Representatives by Congresswoman Nancy Johnson and Congressman Xavier 
Becerra.
  Across the United States, environmentally contaminated sites endanger 
public health, impede economic development, and negatively impact tax 
rolls. The United States has an estimated 1,000,000 such properties 
scattered across our inner cities and rural areas alike.
  In my own State of Montana, there are well over 5,000 such sites. 
This may seem surprising for a state like Montana that is relatively 
undeveloped and pristine. But we are by no means unaffected by the 
scourge of environmental contamination. In addition to contamination 
caused by leaking underground storage tanks and contamination caused by 
other light industries, Montana also has been impacted by significant 
contamination left behind by some of the very industries that built our 
great state.
  Contaminated sediments can be found along the Clark Fork River from 
Butte, MT, downstream for 140 miles to Missoula and on into Idaho--a 
legacy of the copper mining and smelting operations at Butte and 
Anaconda.

[[Page S15814]]

Tremolite asbestos contamination is prevalent at numerous sites around 
Libby, MT, including the local high school and middle school tracks--a 
legacy from the Zonlite Mine that began operating in the 1920s and 
produced 80 percent of the world's supply of vermiculite. These 
industries created wealth and jobs for generations of Montanans. Today, 
however, contamination from wood processing facilities, abandoned 
mines, and numerous other activities have harmed human health and the 
environment and continue to stifle the development of new business in 
Montana. These sites are well known to Montanans: Sites such as 
Missoula Sawmill site and the White Pine Sash site in Missoula, the 
Missouri River Corridor site in Great Falls, and sites in Helena, 
Bozeman, Billings and numerous other communities all across Montana. We 
can and must do more to help revitalize these important areas.
  Congress has undertaken a number of initiatives to address the 
brownfield problem in this country. I am proud to have been able to 
play a leadership role in passing the Brownfields Revitalization and 
Reinvestment Act of 2001. That bill has helped provide new Federal 
funds for evaluation and remediation of brownfield sites and has helped 
to resolve some of the liability issues that were inhibiting 
remediation of these contaminated properties.
  But, We must do more. The U.S. Chamber of Commerce has estimated that 
at the current rate of cleanup, it will take 10,000 years for us to 
remediate all of the contaminated sites in America. The United States 
Environmental Protection Agency, in an analysis conducted with George 
Washington University, concluded that the remediation ``costs for all 
of the brownfields located within the United States have been estimated 
to exceed $650 billion,'' and that, consequently, ``it is imperative 
that private capital be attracted to the redevelopment of 
brownfields.''
  Late last year, Senator Grassley and I entered a colloquy in the 
Congressional Record expressing our concern that certain provisions in 
the tax code are having the unintended consequence of discouraging 
investment in the remediation and redevelopment of our nation's 
polluted sites. In that colloquy, we pledged to get our arms around 
this issue and to draft legislation to correct this problem. I am 
pleased that we are standing here today to introduce legislation to do 
just that.
  Let me briefly describe the basis for this bill and the means by 
which this legislation will dramatically accelerate the remediation of 
contaminated lands in America.
  Today, tax-exempt investors such as university endowments, private 
pension funds, and charitable foundations can invest their capital in 
the stock market and certain real estate transactions that do not clean 
the environment without fear of incurring an Unrelated Business Income 
Tax, or UBIT, on any gains they make from their investments.
  Because UBIT-sensitive entities hold over $6 trillion dollars in 
financial assets and routinely deploy more capital in real estate 
projects than any other category of investor, the unintended 
consequence of UBIT has been to drive our nation's biggest and most 
active real estate investors away from projects focused on the 
remediation and redevelopment of polluted properties.
  This bill seeks to address this problem by allowing eligible tax-
exempt entities to invest in the cleanup and redevelopment of qualified 
contaminated properties without incurring unrelated business income tax 
at the time they sell the property.
  The legislation accomplishes this goal by concentrating on three 
basic tasks: 1. focus investment on moderately and heavily polluted 
properties, 2. require taxpayers to work with the State authorities and 
the public to ensure adequate clean up, and 3. ensure that the 
legislation is tightly crafted to prevent abuse.
  First, this bill focuses on moderately and heavily polluted 
properties.
  Section 198 of the tax code contains a structure under which 
designated state environmental agencies certify contaminated property 
that is eligible for special rules concerning deductions of remediation 
costs. This bill uses this existing structure to identify and certify 
contaminated sites that are eligible for inclusion within this bill. 
Prior to requesting certification from a state agency, the taxpayer is 
required to provide the agency with site characterizations, assessments 
and other documentation illustrating the scope and character of the 
pollution problem at the target site.

  The legislation maintains its focus on moderately and heavily 
contaminated properties by requiring taxpayers to expend on remediation 
of each site the greater of $550,000 or 12 percent of the fair market 
value of the site, assessed as though the site were not contaminated. 
These remediation thresholds have intentionally been set higher than he 
typical range of costs reported to the Environmental Protection Agency 
to clean up brownfield sites nationwide. By establishing such high 
remediation thresholds, the legislation excludes incidentally or 
trivially contaminated property and focuses new capital investment on 
those sites most in need of additional assistance.
  Second, this bill requires taxpayers to work with affected states and 
the public to ensure adequate clean up.
  In addition to requiring high levels of remediation expenditures on 
each site, the legislation contains numerous other safeguards designed 
to ensure that remediation of each site is performed to state 
specifications and with full public involvement.
  Similar to the front-end certification that is required to classify 
properties as truly contaminated, the legislation requires the taxpayer 
to obtain a tail-end certification from the state agency indicating 
that the site has been cleaned up and is no longer considered a 
brownfield. Prior to applying for this certification, the taxpayer must 
provide the State agency with sufficient information and documentation 
to allow the state agency to make this determination. In particular, 
the taxpayer must certify and provide documentation that: there are no 
longer hazardous substances, pollutants or contaminants on the property 
that are complicating the redevelopment or reuse of the site, 
environmental remediation is complete or substantially complete in 
conformance with all applicable federal, state and local environmental 
laws and regulations, the property is suitable for more economically 
productive or environmentally beneficial uses than at the time of 
acquisition, if additional activities are required to complete 
remediation, sufficient financial assurances and institutional controls 
are in place to complete the remediation in as short a time as 
possible, and the public was notified and given the opportunity to 
comment on the remedial actions taken to clean up the property and, if 
necessary, on any longer-term remediation activities.
  The provisions in this legislation are designed to create substantive 
thresholds that the tax-exempt entity must meet in order to qualify for 
the exemption from UBIT. This legislation does not alter the complex 
web of existing federal, state or local environmental laws, regulations 
or standards.
  Third, this bill ensures that the legislation is tightly crafted to 
prevent abuse.
  It is worth noting that this legislation has been drafted to contain 
numerous safeguards to prevent abuse of this program. The anti-abuse 
examples include the following. The taxpayer cannot be the party that 
has caused the pollution and cannot be otherwise related to the 
polluter. Also, all transactions, purchase of the property, sale of the 
property, expenditure of remediation funds, etc., must be arms-length 
transactions with parties unrelated to the taxpayer. Further, the 
taxpayer is not allowed to count any Federal funds, e.g. grants, etc., 
or other types of government payments and benefits toward and required 
remediation thresholds. There are also restrictions on how the taxpayer 
may treat costs across multiple properties, requiring that an election 
be made specifying when and which properties are considered for such 
purposes; this is intended to prevent cherry-picking among different 
properties once the election has been made. Moreover, the legislation 
contains special restrictions addressing the use of the legislation's 
provisions by partnerships and other pass-through entities including 
requiring that all partnerships under the bill be fractions-rule 
compliant.

[[Page S15815]]

  Because this legislation is narrowly crafted, and because tax-exempt 
entities are not currently investing in these sites, and thus are not 
paying UBIT, the Joint Committee on Taxation has concluded that this 
legislation will actually generate revenue for the Federal treasury 
during the first three years after enactment and that it will cost $10 
million over five years and $192 million over ten years.
  Further, because the legislation will accelerate cleanup of 
brownfield sites, create jobs, stimulate the economy, reduce blight and 
public health concerns, and because the bill has an acceptable fiscal 
impact, this legislative approach has been endorsed by Environmental 
Defense, the U.S. Chamber of Commerce, the National Taxpayers Union, 
and the U.S. Conference of Mayors, as well as numerous local, state and 
regional organizations and municipalities.
  Passage of this bill will dramatically increase the speed at which 
our country's contaminated properties are remediated and brought back 
into productive taxable use. This narrowly crafted legislation will 
create jobs, increase tax revenues, and protect the environment--all 
accomplished without creating new government programs or regulations 
and all at a minimal cost to the Federal treasury.
  I am pleased to be introducing this legislation with my colleague 
from Oklahoma. I look forward to working together to enact this 
legislation into law.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1936

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

     SECTION 1. EXCLUSION OF GAIN OR LOSS ON SALE OR EXCHANGE OF 
                   CERTAIN BROWNFIELD SITES FROM UNRELATED 
                   BUSINESS TAXABLE INCOME.

       (a) In General.--Subsection (b) of section 512 of the 
     Internal Revenue Code of 1986 (relating to unrelated business 
     taxable income) is amended by adding at the end the following 
     new paragraph:
       ``(18) Treatment of gain or loss on sale or exchange of 
     certain brownfield sites..--
       ``(A) In general.--Notwithstanding paragraph (5)(B), there 
     shall be excluded any gain or loss from the qualified sale, 
     exchange, or other disposition of any qualifying brownfield 
     property by an eligible taxpayer.
       ``(B) Eligible taxpayer.--For purposes of this paragraph--
       ``(i) In general.--The term `eligible taxpayer' means, with 
     respect to a property, any organization exempt from tax under 
     section 501(a) which--

       ``(I) acquires from an unrelated person a qualifying 
     brownfield property, and
       ``(II) pays or incurs eligible remediation expenditures 
     with respect to such property in an amount which exceeds the 
     greater of $550,000 or 12 percent of the fair market value of 
     the property at the time such property was acquired by the 
     eligible taxpayer, determined as if there was not a presence 
     of a hazardous substance, pollutant, or contaminant on the 
     property which is complicating the expansion, redevelopment, 
     or reuse of the property.

       ``(ii) Exception.--Such term shall not include any 
     organization which is--

       ``(I) potentially liable under section 107 of the 
     Comprehensive Environmental Response, Compensation, and 
     Liability Act of 1980 with respect to the qualifying 
     brownfield property,
       ``(II) affiliated with any other person which is so 
     potentially liable through any direct or indirect familial 
     relationship or any contractual, corporate, or financial 
     relationship (other than a contractual, corporate, or 
     financial relationship which is created by the instruments by 
     which title to any qualifying brownfield property is conveyed 
     or financed or by a contract of sale of goods or services), 
     or
       ``(III) the result of a reorganization of a business entity 
     which was so potentially liable.

       ``(C) Qualifying brownfield property.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `qualifying brownfield 
     property' means any real property which is certified, before 
     the taxpayer incurs any eligible remediation expenditures 
     (other than to obtain a Phase I environmental site 
     assessment), by an appropriate State agency (within the 
     meaning of section 198(c)(4)) in the State in which such 
     property is located as a brownfield site within the meaning 
     of section 101(39) of the Comprehensive Environmental 
     Response, Compensation, and Liability Act of 1980 (as in 
     effect on the date of the enactment of this paragraph).
       ``(ii) Request for certification.--Any request by an 
     eligible taxpayer for a certification described in clause (i) 
     shall include a sworn statement by the eligible taxpayer and 
     supporting documentation of the presence of a hazardous 
     substance, pollutant, or contaminant on the property which is 
     complicating the expansion, redevelopment, or reuse of the 
     property given the property's reasonably anticipated future 
     land uses or capacity for uses of the property (including a 
     Phase I environmental site assessment and, if applicable, 
     evidence of the property's presence on a local, State, or 
     Federal list of brownfields or contaminated property) and 
     other environmental assessments prepared or obtained by the 
     taxpayer.
       ``(D) Qualified sale, exchange, or other disposition.--For 
     purposes of this paragraph--
       ``(i) In general.--A sale, exchange, or other disposition 
     of property shall be considered as qualified if--

       ``(I) such property is transferred by the eligible taxpayer 
     to an unrelated person, and
       ``(II) within 1 year of such transfer the eligible taxpayer 
     has received a certification from the Environmental 
     Protection Agency or an appropriate State agency (within the 
     meaning of section 198(c)(4)) in the State in which such 
     property is located that, as a result of the eligible 
     taxpayer's remediation actions, such property would not be 
     treated as a qualifying brownfield property in the hands of 
     the transferee.

       ``(ii) Request for certification.--Any request by an 
     eligible taxpayer for a certification described in clause (i) 
     shall be made not later than the date of the transfer and 
     shall include a sworn statement by the eligible taxpayer 
     certifying the following:

       ``(I) Remedial actions which comply with all applicable or 
     relevant and appropriate requirements (consistent with 
     section 121(d) of the Comprehensive Environmental Response, 
     Compensation, and Liability Act of 1980) have been 
     substantially completed, such that there are no hazardous 
     substances, pollutants, or contaminants which complicate the 
     expansion, redevelopment, or reuse of the property given the 
     property's reasonably anticipated future land uses or 
     capacity for uses of the property.
       ``(II) The reasonably anticipated future land uses or 
     capacity for uses of the property are more economically 
     productive or environmentally beneficial than the uses of the 
     property in existence on the date of the certification 
     described in subparagraph (C)(i). For purposes of the 
     preceding sentence, use of property as a landfill or other 
     hazardous waste facility shall not be considered more 
     economically productive or environmentally beneficial.
       ``(III) A remediation plan has been implemented to bring 
     the property into compliance with all applicable local, 
     State, and Federal environmental laws, regulations, and 
     standards and to ensure that the remediation protects human 
     health and the environment.
       ``(IV) The remediation plan described in subclause (III), 
     including any physical improvements required to remediate the 
     property, is either complete or substantially complete, and, 
     if substantially complete, sufficient monitoring, funding, 
     institutional controls, and financial assurances have been 
     put in place to ensure the complete remediation of the 
     property in accordance with the remediation plan as soon as 
     is reasonably practicable after the sale, exchange, or other 
     disposition of such property.
       ``(V) Public notice that such request for certification 
     would be made was completed before the date of such request. 
     Such notice shall be in the same form and manner as required 
     for public participation required under section 117(a) of the 
     Comprehensive Environmental Response, Compensation, and 
     Liability Act of 1980 (as in effect on the date of the 
     enactment of this paragraph).

       ``(iii) Attachment to tax returns.--A copy of each of the 
     requests for certification described in clause (ii) of 
     subparagraph (C) and this subparagraph shall be included in 
     the tax return of the eligible taxpayer (and, where 
     applicable, of the qualifying partnership) for the taxable 
     year during which the transfer occurs.
       ``(E) Eligible remediation expenditures.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `eligible remediation 
     expenditures' means, with respect to any qualifying 
     brownfield property, any amount paid or incurred by the 
     eligible taxpayer to an unrelated third person to obtain a 
     Phase I environmental site assessment of the property, and 
     any amount so paid or incurred after the date of the 
     certification described in subparagraph (C)(i) for goods and 
     services necessary to obtain a certification described in 
     subparagraph (D)(i) with respect to such property, including 
     expenditures--

       ``(I) to manage, remove, control, contain, abate, or 
     otherwise remediate a hazardous substance, pollutant, or 
     contaminant on the property,
       ``(II) to obtain a Phase II environmental site assessment 
     of the property, including any expenditure to monitor, 
     sample, study, assess, or otherwise evaluate the release, 
     threat of release, or presence of a hazardous substance, 
     pollutant, or contaminant on the property,
       ``(III) to obtain environmental regulatory certifications 
     and approvals required to manage the remediation and 
     monitoring of the hazardous substance, pollutant, or 
     contaminant on the property, and
       ``(IV) regardless of whether it is necessary to obtain a 
     certification described in subparagraph (D)(i)(II), to obtain 
     remediation cost-cap or stop-loss coverage, re-opener or

[[Page S15816]]

     regulatory action coverage, or similar coverage under 
     environmental insurance policies, or financial guarantees 
     required to manage such remediation and monitoring.

       ``(ii) Exceptions.--Such term shall not include--

       ``(I) any portion of the purchase price paid or incurred by 
     the eligible taxpayer to acquire the qualifying brownfield 
     property,
       ``(II) environmental insurance costs paid or incurred to 
     obtain legal defense coverage, owner/operator liability 
     coverage, lender liability coverage, professional liability 
     coverage, or similar types of coverage,
       ``(III) any amount paid or incurred to the extent such 
     amount is reimbursed, funded, or otherwise subsidized by 
     grants provided by the United States, a State, or a political 
     subdivision of a State for use in connection with the 
     property, proceeds of an issue of State or local government 
     obligations used to provide financing for the property the 
     interest of which is exempt from tax under section 103, or 
     subsidized financing provided (directly or indirectly) under 
     a Federal, State, or local program provided in connection 
     with the property, or
       ``(IV) any expenditure paid or incurred before the date of 
     the enactment of this paragraph.

     For purposes of subclause (III), the Secretary may issue 
     guidance regarding the treatment of government-provided funds 
     for purposes of determining eligible remediation 
     expenditures.
       ``(F) Determination of gain or loss.--For purposes of this 
     paragraph, the determination of gain or loss shall not 
     include an amount treated as gain which is ordinary income 
     with respect to section 1245 or section 1250 property, 
     including amounts deducted as section 198 expenses which are 
     subject to the recapture rules of section 198(e), if the 
     taxpayer had deducted such amounts in the computation of its 
     unrelated business taxable income.
       ``(G) Special rules for partnerships.--
       ``(i) In general.--In the case of an eligible taxpayer 
     which is a partner of a qualifying partnership which 
     acquires, remediates, and sells, exchanges, or otherwise 
     disposes of a qualifying brownfield property, this paragraph 
     shall apply to the eligible taxpayer's distributive share of 
     the qualifying partnership's gain or loss from the sale, 
     exchange, or other disposition of such property.
       ``(ii) Qualifying partnership.--The term `qualifying 
     partnership' means a partnership which--

       ``(I) has a partnership agreement which satisfies the 
     requirements of section 514(c)(9)(B)(vi) at all times 
     beginning on the date of the first certification received by 
     the partnership under subparagraph (C)(i),
       ``(II) satisfies the requirements of subparagraphs (B)(i), 
     (C), (D), and (E), if `qualified partnership' is substituted 
     for `eligible taxpayer' each place it appears therein (except 
     subparagraph (D)(iii)), and
       ``(III) is not an organization which would be prevented 
     from constituting an eligible taxpayer by reason of 
     subparagraph (B)(ii).

       ``(iii) Requirement that tax-exempt partner be a partner 
     since first certification.--This paragraph shall apply with 
     respect to any eligible taxpayer which is a partner of a 
     partnership which acquires, remediates, and sells, exchanges, 
     or otherwise disposes of a qualifying brownfield property 
     only if such eligible taxpayer was a partner of the 
     qualifying partnership at all times beginning on the date of 
     the first certification received by the partnership under 
     subparagraph (C)(i) and ending on the date of the sale, 
     exchange, or other disposition of the property by the 
     partnership.
       ``(iv) Regulations.--The Secretary shall prescribe such 
     regulations as are necessary to prevent abuse of the 
     requirements of this subparagraph, including abuse through--

       ``(I) the use of special allocations of gains or losses, or
       ``(II) changes in ownership of partnership interests held 
     by eligible taxpayers.

       ``(H) Special rules for multiple properties.--
       ``(i) In general.--An eligible taxpayer or a qualifying 
     partnership of which the eligible taxpayer is a partner may 
     make a 1-time election to apply this paragraph to more than 1 
     qualifying brownfield property by averaging the eligible 
     remediation expenditures for all such properties acquired 
     during the election period. If the eligible taxpayer or 
     qualifying partnership makes such an election, the election 
     shall apply to all qualified sales, exchanges, or other 
     dispositions of qualifying brownfield properties the 
     acquisition and transfer of which occur during the period for 
     which the election remains in effect.
       ``(ii) Election.--An election under clause (i) shall be 
     made with the eligible taxpayer's or qualifying partnership's 
     timely filed tax return (including extensions) for the first 
     taxable year for which the taxpayer or qualifying partnership 
     intends to have the election apply. An election under clause 
     (i) is effective for the period--

       ``(I) beginning on the date which is the first day of the 
     taxable year of the return in which the election is included 
     or a later day in such taxable year selected by the eligible 
     taxpayer or qualifying partnership, and
       ``(II) ending on the date which is the earliest of a date 
     of revocation selected by the eligible taxpayer or qualifying 
     partnership, the date which is 8 years after the date 
     described in subclause (I), or, in the case of an election by 
     a qualifying partnership of which the eligible taxpayer is a 
     partner, the date of the termination of the qualifying 
     partnership.

       ``(iii) Revocation.--An eligible taxpayer or qualifying 
     partnership may revoke an election under clause (i)(II) by 
     filing a statement of revocation with a timely filed tax 
     return (including extensions). A revocation is effective as 
     of the first day of the taxable year of the return in which 
     the revocation is included or a later day in such taxable 
     year selected by the eligible taxpayer or qualifying 
     partnership. Once an eligible taxpayer or qualifying 
     partnership revokes the election, the eligible taxpayer or 
     qualifying partnership is ineligible to make another election 
     under clause (i) with respect to any qualifying brownfield 
     property subject to the revoked election.
       ``(I) Recapture.--If an eligible taxpayer excludes gain or 
     loss from a sale, exchange, or other disposition of property 
     to which an election under subparagraph (H) applies, and such 
     property fails to satisfy the requirements of this paragraph, 
     the unrelated business taxable income of the eligible 
     taxpayer for the taxable year in which such failure occurs 
     shall be determined by including any previously excluded gain 
     or loss from such sale, exchange, or other disposition 
     allocable to such taxpayer, and interest shall be determined 
     at the overpayment rate established under section 6621 on any 
     resulting tax for the period beginning with the due date of 
     the return for the taxable year during which such sale, 
     exchange, or other disposition occurred, and ending on the 
     date of payment of the tax.
       ``(J) Related persons.--For purposes of this paragraph, a 
     person shall be treated as related to another person if--
       ``(i) such person bears a relationship to such other person 
     described in section 267(b) (determined without regard to 
     paragraph (9) thereof), or section 707(b)(1), determined by 
     substituting `25 percent' for `50 percent' each place it 
     appears therein, and
       ``(ii) in the case such other person is a nonprofit 
     organization, if such person controls directly or indirectly 
     more than 25 percent of the governing body of such 
     organization.
       (b) Exclusion From Definition of Debt-Financed Property.--
     Section 514(b)(1) of the Internal Revenue Code of 1986 
     (defining debt-financed property) is amended by striking 
     ``or'' at the end of subparagraph (C), by striking the period 
     at the end of subparagraph (D) and inserting ``; or'', and by 
     inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) any property the gain or loss from the sale, 
     exchange, or other disposition of which would be excluded by 
     reason of the provisions of section 512(b)(18) in computing 
     the gross income of any unrelated trade or business.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to any gain or loss on the sale, exchange, or 
     other disposition of any property acquired by the taxpayer 
     after the date of the enactment of this Act.
                                 ______