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CONGRESSIONAL RECORD HOUSEH12392 December 15, 2000(15) Except for purposes of sections

1202(a)(2), 1202(c)(2)(A), 1400B(b) , an d 1400F(b),in determining the per iod for which the tax-

payer has held proper ty the acquis i t ion of which resulted under section 1045 or 1397B inthe nonrecogni t ion of any par t of the gain real-ized on th e sale of other property, there shal l beincluded the per iod for which such other prop-er ty h as been held as of th e date of such sale ..

(3) Paragraph (2) of section 1394(b) isamended

(A) by striking section 1397C and insertingsection 1397D, an d

(B) by striking section 1397C(a)(2) and in-

sertin g section 1397D(a)(2).(4) Paragraph (3) of section 1394(b) isamended

(A) by striking section 1397B each place it appea rs an d in serting section 1397C, an d

(B) by striking section 1397B(d) and insert-in g section 1397C(d).

(5) Sections 1400(e) and 1400B(c) are eachamended by striking section 1397B each placeit a ppears an d in serting section 1397C.

(6) The table of subpar ts for par t I I I of sub-chapter U of chapter 1 is amended by s t r ik ingthe las t i tem and inser t ing the fol lowing newitems:

Subpart C. Nonrecognition of gain on rollover of empowerment z one investments .

Su bpart D . General provisions..(7) The table of sections for subpart D of such

par t I I I i s amended t o read as fol lows:

Sec. 1397C. En terprise zone busin ess defin ed.Sec. 1397D. Qualified zone property defined..

(c) E F F E C T I V E D AT E .The amendmen t s madeby th is sect ion shal l apply to qual i f ied empower-ment zone assets acquired af ter the date of theenactment of th is Act .SEC. 117. INCREASED EXCLUSION OF GAIN ON

SALE OF EMPOWERMENT ZONESTOCK.

(a) I N G E N E R A L .Subsection (a) of section1202 is amen ded to read as follows:

(a) E X C L U S I O N .(1) I N G E N E R A L.In the case of a taxpayer

other th an a corporat ion, gross income shal l not include 50 percent of any gain f rom the sale or exchange of qual i f ied smal l business s tock held

for more than 5 years.(2) E M P O W E R M E N T Z O N E B U S I N E S S E S .(A) I N G E NE R A L .In the case of qual i f ied

smal l business s tock acquired af ter the date of the enactment of th is paragraph in a corpora-t ion which is a qual i f ied business ent i ty (as de-

fined in section 1397C(b)) during substantiallyal l of the taxpayer s holding per iod for suchstock, paragraph (1) shal l be appl ied by sub-stitu tin g 60 percent for 50 percent .

(B) C E RTA I N R U L E S T O A P P LY .Ru les s imilar to the rules of paragraphs (5) and (7) of section1400B(b) shall apply for purposes of this para-graph.

(C) G A I N A F T E R 2014 N O T Q U A L I F I ED .Sub- paragraph (A) shal l not apply to gain a t t r ib-utable to periods after December 31, 2014.

(D) T R E AT M E N T O F D C Z O N E .Th e Dis t r ict of Columbia Enterpr ise Zone shal l not be t reated as an empowerment zone for purposes of th is

paragraph..(b) C O N F O R M I N G A M E N D M E N T S .(1) Paragraph (8) of section 1(h) is amended

by s t r ik ing means and a l l that fol lows and inserting means the excess of

(A) the gain which would be excluded fromgross income under section 1202 but for the per-centage limitation in section 1202(a), over

(B) the gain excluded from gross incomeunder section 1202..

(2) The section heading for section 1202 isamended by s t r ik ing 50-percent and inserting partial .

(3) The table of sect ions for par t I of sub-chapter P of chapter 1 is amended by s t r ik ing50-percent an d insertin g Partial.

(c) E F F E C T I V E D AT E .The amendmen t s madeby this sect ion shal l apply to s tock acquired af ter the date of the enactment of th is Act .

Subtitle CNew Markets Tax CreditSEC. 121. NEW MARKETS TAX CREDIT.

(a) I N G E N E R A L .Subpart D of par t IV of sub-chapter A of chapter 1 ( re la t ing to business-re-la ted credi ts) i s amended by adding a t the end the f ol lowing new sect ion:SEC. 45D. NEW MARKETS TAX CREDIT.

(a) A L L O WA N C E O F C REDIT .(1) I N G E N E R A L .For purposes of section 38,

in the case of a taxpayer who holds a qual i f ied equi ty investment on a credi t a l lowance date of such investment which occurs dur ing the tax-able year, the new markets tax credi t deter-mined un der th is sect ion for such t axable year isan amoun t equal to th e appl icable percentage of the amount paid to the qual i f ied community de-velopment en t i ty f or such investment a t i t s or igi-nal i ssue.

(2) A P P L I CA B L E P E R C E NTA G E .For purposesof paragraph (1), the applicable percentage is

(A) 5 percent with respect to the first 3 credit a l lowance dates , and

(B) 6 percent with respect to the remainder of th e credi t a l lowance dates .

(3) C R E D I T A L L O WA N C E D AT E .For purposesof paragraph (1), the term credit allowancedate means, wi th respect to any qual i f ied eq-u i ty i nvestmen t

(A) the dat e on which such investment is in i -t ia l ly made, and

(B) each of the 6 anniversary dates of suchdate th ereaf ter.

(b) Q U A L I F I E D E Q U I T Y I N V E S T M E N T .For purposes of this section

(1) I N G E N E R A L.The term qual i f ied equi tyinvestment means any equi ty investment in aqual i f ied community development ent i ty i f

(A) such investment is acquired by the taxpayer at its original issue (directly or throughan un derwri ter) sole ly in exchan ge for cash,

(B) substant ia l ly a l l of such cash is used bythe qual i f ied community development ent i ty tomake qual i f ied low-income community invest-men t s , and

(C) such investment is designated for purposes of th is sect ion by t he qua l i f ied communitydevelopment ent i ty.Such term shal l not include any equi ty invest-ment issued by a qual i f ied community develop-ment ent i ty more than 5 years af ter the datethat such ent i ty receives an a l locat ion under subsect ion ( f ) . Any al locat ion not used withinsuch 5-year per iod may be real located by the

Secretary un der subsect ion ( f ) .(2) L I M I TAT I O N .The max imum amoun t o f equi ty investments issued by a qual i f ied commu-ni ty development ent i ty which may be des-ignated under paragraph (1)(C) by such ent i tyshal l not exceed the por t ion of the l imita t ionamount a l located under subsect ion ( f ) to suchen t i t y.

(3) S A F E H A R B O R F O R D E T ER M I N IN G U S E O F C A S H .The requirement of paragraph (1)(B)shall be treated as met if at least 85 percent of the aggregate gross assets of the qualified com-munity development ent i ty are invested in qual i -

f ied low-income community investments .(4) T R E AT M EN T O F S UB SE QU EN T P UR -

C H A S E R S .The term qual i f ied equi ty invest-ment includes any equi ty investment whichwould (but for paragraph (1)(A)) be a qual i f ied equ i ty i nves tmen t i n t he hands o f t he t axpaye r

i f such investment was a qual i f ied equi ty invest-ment in t he han ds of a pr ior holder.(5) R E D E M P T I O N S .A rule s imilar to the rule

of section 1202(c)(3) shall apply for purposes of th is subsect ion.

(6) E Q U I T Y I N V E S T M E N T .The term equi tyinvestment means

(A) any s tock (other than nonqual i f ied pre- ferred stock as defin ed in section 351(g)(2)) in a nent i ty which is a corporat ion, and

(B) any capi ta l in teres t in an ent i ty which isa par tnership .

(c) Q U A L I F I E D C O M M U N I T Y D E V E L O P M E N T E N T I T Y .For purposes of th is sect ion

(1) I N G E N E R A L .Th e term qual i f ied commu-ni ty development ent i ty means any domest iccorporat ion or par tn ership i f

(A) th e pr imary miss ion of t he ent i ty is serv-ing, or providing investment capi ta l for, low-in-come communities or low-income persons,

(B) the ent i ty mainta ins accountabi l i ty tores idents of low-income communit ies throughtheir representat ion on any governing board of the ent i ty or on any advisory board to the ent i -t y, a n d

(C) the ent i ty is cer t i f ied by th e Secretary for purposes of this section as being a qualified community development ent i ty.

(2) S P E CI A L R U L E S F O R C ER TA I N O R GA N I Z A -T I O N S .Th e requirements of paragraph (1) shal lbe t reated as met by

(A) any specialized small business investment company (as defined in section 1044(c)(3)), and

(B) any community development f inancialins t i tu t ion (as def ined in sect ion 103 of the Com-mun i ty Developmen t Bank ing and F inanc i a l I n -stitutions Act of 1994 (12 U.S.C. 4702)).

(d) Q U A L I F I E D L OW -I NCOME C O M M U N I T Y I N -V E S T M E N T S .For purposes of th is sect ion

(1) I N G E N E R A L .Th e term qual i f ied low-in-come community investment means

(A) any capi ta l or equi ty investment in , or loan to , an y qual i f ied act ive low-income commu-ni ty business ,

(B) th e purchase f rom an other qual i f ied com-munity development ent i ty of any loan made bysuch ent i ty which is a qual i f ied low-incomecommunity investment ,

(C) financial counseling and other servicesspecified in regulations prescribed by the Sec-

re tary to businesses located in , an d res idents of ,low-income communit ies , an d (D) any equi ty inv estment in , or loan to , any

qual i f ied community development ent i ty .(2) Q U A L I FI E D A C T IV E L O W - IN C O M E C O M M U -

N I T Y B U S I N E S S .(A) I N G E N E R A L .For purposes of paragraph

(1), the term qualified active low-income com-munity business means, wi th respect to anytaxable year, any corporat ion ( including a non-

profit corporation) or partnership if for such year

(i) at least 50 percent of the total gross in-come of such ent i ty is der ived f rom the act iveconduct of a qual i f ied business wi thin any low-income community,

( i i ) a substant ia l por t ion of the use of thetangible proper ty of such ent i ty (whether owned or leased) is wi thin any low-income community,

(iii) a substantial portion of the services per- formed for such ent i ty by i ts employees are per- formed in any low-income community ,

(iv) less than 5 percent of the average of theaggregate unadjusted bases of the proper ty of such entity is attributable to collectibles (as de-

fined in section 408(m)(2)) oth er tha n collectiblesthat are held pr imari ly for sa le to customers inthe ordinary course of such business , and

(v) less than 5 percent of the average of theaggregate unadjusted bases of the proper ty of such ent i ty is a t t r ibutable to nonqual i f ied f i -nancial proper ty (as def ined in sect ion1397C(e)).

(B) P R O P R I E TO R S H I P .Such term shal l in-clude any business carr ied on by an individualas a propr ie tor i f such business would meet therequirements of su bparagraph (A) w ere i t incor-

porated.(C) P O RT I O N S O F B U S I N E SS M AY B E Q U A L I F I E D

A C T I V E L O W - IN C O M E C O M M U N I T Y B U S I N E S S . T h eterm qual i f ied act ive low-income communitybusiness includes any trades or businesseswhich would qual i fy as a qual i f ied act ive low-income community business i f such t rades or businesses were separately incorporated.

(3) Q U A L I F I E D B U S I N ES S .For purposes of th is su bsect ion, th e term qual i f ied bu siness hasthe meaning given to such term by sect ion1397C(d); except th at

(A) in l ieu of applying paragraph (2)(B)thereof , the rent al to oth ers of real proper ty lo-cated in any low-income community shal l betreated as a qual i f ied business i f there are sub-s tant ia l improvements located on such proper ty,an d

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CONGRESSIONAL RECORD HOUSE H12393 December 15, 2000(B) paragraph (3) th ereof shal l n ot apply .(e) L OW -I NCOME C O M M U N I T Y .For pu rposes

of th is sect ion(1) I N G E N E R A L .The term low-income com-

munity means any populat ion census t ract i f(A) th e pover ty ra te for such t ract i s a t leas t

20 percent, or (B)( i ) in th e case of a t ract not located w ith-

in a metropol i tan area , the median family in-come for such tract does not exceed 80 percent of s ta tewide median f amily income, or

( i i ) in the case of a t ract located within ametropol i tan area , th e median family income for such t ract does not exceed 80 percent of the

greater of s ta tewide median family income or the metropol i tan area median f amily income.Subparagraph (B) shal l be appl ied using

possess ionwide median family in come in th e caseof census t racts located within a possess ion of the Uni ted States .

(2) T A R G ET E D A R E A S.The Secretary maydesignate any area within any census t ract as alow-income community i f

(A) the boun dary of such a rea is cont inu ous, (B) the area would sat isfy the requirements

of paragraph (1) i f i t were a census t ract , and (C) an inadequate access to investment cap-

i ta l exis ts in such area .(3) A R E A S N OT W I T H IN C EN SU S T R A C T S .In

the case of an a rea which is not t racted for pop-ulat ion census t racts , the equivalent county di-vis ions (as def ined by the Bureau of the Census

for purposes of def ining pover ty areas) shal l beused for purposes of determining pover ty ra tesand median family income.

(f) N AT I O N A L L I M I TAT I O N O N A M O U N T O F I N -V E S T M E N T S D ESIGNATED .

(1) I N G E N E R A L .There is a new markets taxcredi t l imita t ion for each calendar year. Suchl imita t ion is

(A ) $1,000,000,000 fo r 2001,(B) $1,500,000,000 for 2002 an d 2003,(C) $2,000,000,000 for 2004 an d 2005, an d (D) $3,500,000,000 for 2006 an d 2007.(2) A L L O C AT I O N O F L I M I TAT I O N .The l imita-

t ion under paragraph (1) shal l be a l located bythe Secretary among qual i f ied community devel-opment ent i t ies se lected by the Secretary. Inmaking al locat ions under the preceding sen-tence, the Secretary shal l g ive pr ior i ty to anyen t i t y

(A) with a record of h aving successful ly pro-vided capi ta l or technical ass is tance to dis-

advan taged businesses or commun it ies, or (B) which intends to sa t isfy the requirement under subsect ion (b)(1)(B) by making qual i f ied low-income community investments in 1 or morebusinesses in which persons unrela ted to suchent i ty (wi thin the meaning of sect ion 267(b) or 707(b)(1)) hold the majority equity interest.

(3) C A R R Y O V E R O F U NU S ED L I M ITAT I O N .If the new markets tax credi t l imita t ion for anycalendar year exceeds the aggregate amoun t a l -located u nder paragraph (2) for such year, suchl imita t ion for the succeeding calendar y ear shal lbe increased by the amount of such excess . Noamoun t may be carr ied un der the preceding sen-tence to any calendar year after 2014.

(g) R E CA P T U R E O F C REDIT I N C E RTA I N C ASES .

(1) I N G E N E R A L .I f , a t any t ime du r ing the7-year per iod beginnin g on t he da te of t he or igi -nal i ssue of a qual i f ied equi ty investment in aqual i f ied community development ent i ty, thereis a recapture event wi th respect to such invest-ment , then the tax imposed by this chapter for the taxable year in which such event occursshal l be increased by the credi t recaptureamoun t .

(2) C R E D I T R E C A P T U R E A M O U N T .For purposes of paragraph (1), the credit recaptureamoun t i s an amoun t equa l t o t he sum o f

(A) the aggregate decrease in the credits al-lowed to the taxpayer under sect ion 38 for a l l

prior taxable years which w ould h ave resul ted i f no credi t had been determined u nder th is sect ionwith respect to such investment , p lus

(B) interes t a t the underpayment ra te es tab-lished under section 6621 on the amount deter-

mined under subparagraph (A) for each pr ior taxable year for the per iod beginning on the du edate for f i l ing the re turn for the pr ior taxable

year involved. No deduct ion shal l be a l lowed under th is chap-ter for in teres t described in subparagraph (B) .

(3) R E CA P T U R E E V E NT .For purposes of paragraph (1) , there is a recapture event wi threspect to an equi ty investment in a qual i f ied community development ent i ty i f

(A) such entity ceases to be a qualified com-mun i ty developmen t en t i t y,

(B) the proceeds of the investment cease tobe used as required of subsection (b)(1)(B), or

(C) such investment is redeemed by such en-t i t y.

(4) S P E CI A L R U L E S .(A) T A X B E N E F I T R U L E .The t ax fo r t he t ax -

able year shal l be increased un der paragraph (1)only with respect to credits a l lowed by reason of th is sect ion which were used to reduce tax l i -abi l i ty. In the case of credi ts not so used to re-duce tax l iabi l i ty, the carryforwards and carrybacks under section 39 shall be appro-

pria te ly a djusted.(B) N O C R E D I T S A G A I NS T TA X .Any increase

in tax under th is subsect ion shal l not be t reated as a ta x imposed by th is chapter for purposes of determining the amount of any credi t under th ischapter or for purposes of section 55.

(h) B ASIS R EDUCTION .The basis of anyqual i f ied equi ty investment shal l be reduced bythe amount of any credi t determined under th is

sect ion with respect to such investment . Thissubsect ion shal l not apply for purposes of sec-tion s 1202, 1400B , an d 1400F.

(i) R E G U L AT I O N S .The Secretary shal l pre-scribe such regulat ions as ma y be appropria te tocarry out th is sect ion, in cluding regulat ions

(1) which limit the credit for investmentswhich are di rect ly or indirect ly subsidized byother Federal tax benef i ts ( including the credi t under sect ion 42 and the exclusion f rom grossincome u nd er section 103),

(2) which prevent the abuse of the purposesof th is sect ion,

(3) which provide rules for determiningwhether the requirement of subsect ion (b)(1)(B)is t reated as met ,

(4) which impose appropriate reporting re-quirements , an d

(5) which apply the provisions of this section

to n ewly formed ent i t ies . .(b) C REDIT M ADE P A RT O F G E N E R A L B U S I N E S SC REDIT .

(1) I N G E N E R A L .Subsection (b) of section 38 isamended by s t r ik ing plus a t t he end of para-graph (11) , by s t r ik ing the per iod a t the end of

paragraph (12) and inserting , plus, and byadding a t the end the fol lowing new paragraph:

(13) the new markets tax credit determined un der section 45D(a)..

(2) L I M I TAT IO N O N C A R R Y B A CK .Subsection(d) of sect ion 39 is amended by adding a t theend the fol lowing new paragraph:

(9) N O CA R R Y BA CK O F N EW M A RK ET S T A X C R ED I T B E F O R E J A N U A R Y 1 , 2001 .No port ion of the unused business credi t for any taxable year which is a t t r ibutable to the credi t under sect ion45D may be carried back to a taxable year end-ing before January 1, 2001..

(c) D E D UC T I O N F O R U NUSED C REDIT .Sub-section (c) of section 196 is amended by strikingand a t the end of paragraph (7) , by s t r ik ingthe per iod a t the end of paragraph (8) and in-ser t ing , and , and by adding a t the end the

following new paragraph:(9) the new markets tax credit determined

un der section 45D(a)..(d) C L E R I C A L A M E N D M E N T .The table of sec-

t ions for subpar t D of par t IV of subchapter Aof chapter 1 is amended by adding a t the end the fol lowing new i tem:

Sec. 45D. New mark ets tax credit..(e) E F F E C T I V E D AT E .The amendmen t s made

by this sect ion shal l apply to investments madeaf ter D ecember 31, 2000.

(f ) GU I D A N CE O N A L L O C AT I O N O F N AT I O N A L L I M I TAT I O N .Not la ter than 120 days af ter thedate of the enactment of th is Act , the Secretaryof th e Treasury or the Secretarys delegate shal lissue gu idance w hich specif ies

(1) how ent i t ies shal l apply for an a l locat ionunder sect ion 45D(f)(2) of the Internal RevenueCode of 1986, as add ed by t his section;

(2) the compet i t ive procedure through whichsuch al locat ions are made; and

(3) the a ct ions that such S ecretary or delegateshal l take to ensure that such a l locat ions are

properly made to appropriate entities.(g) A U D I T A N D R EPORT .Not l a t e r t han J anu -

ary 31 of 2004, 2007, and 2010, the Comptroller General of the Uni ted States shal l , pursuant toan audi t of the new markets tax credi t programestabl ished under sect ion 45D of the Internal

Revenue Code of 1986 (as added by subsection(a)), report to Congress on such program, in-cluding a l l qual i f ied community development ent i t ies that receive an a l locat ion un der the newmarkets credit u nder such sect ion.

Subtitle DImprovements in Low-Income Housing Credit

SEC. 131. MODIFICATION OF STATE CEILING ON LOW-INCOME HOUSING CREDIT.

(a) I N G E N E R A L .Clauses (i) and (ii) of sec-tion 42(h)(3)(C) (relating to State housing credit ceiling) are amended to read as follows:

( i ) the u nu sed State h ousing credit cei l ing ( i f any) of such State for the preceding calendar

year,(ii) th e greater of(I) $1.75 ($1.50 for 2001) multiplied by the

State populat ion, or (II ) $2,000,000,.(b) A D JU S T M E N T O F STAT E C E IL I N G F O R I N -

C R E A S E S I N C OS T -OF -L IVING .Paragraph (3) of section 42(h) (relating to housing credit dollar amount for agencies) is amended by adding a t the end the fol lowing new subparagraph:

(H) C OS T -OF - L I V I N G A D J U S T M E N T .(i) I N G E NE R A L .In the case of a calendar

year after 2002, the $2,000,000 and $1.75 amountsin subparagraph (C) shall each be increased byan amoun t equa l t o

(I) such dol lar amount , mul t ipl ied by(I I ) th e cost-of- liv ing adju stment determined

under section 1(f)(3) for such calendar year bysubstituting calendar year 2001 for calendar

year 1992 in subparagraph (B) thereof.(ii) R OUNDING .(I) In the case of the $2,000,000 amount, any

increase un der c lause ( i) wh ich is not a mul t ipleof $5,000 shall be rounded to the next lowest multiple of $5,000.

( I I ) In the case of th e $1.75 amount , a ny in-crease under c lause ( i ) which is not a mul t ipleof 5 cents shal l be rounded to the next lowest mult iple of 5 cents..

(c) C O N F O R M I N G A M E N D M E N T S .(1) Section 42(h)(3)(C), as amended by sub-

section (a), is amended(A) by striking clause (ii) in the matter fol-

lowing clause (iv) and inserting clause (i);an d

(B) by striking clauses (i) in the matter fol-lowing clause (iv) and inserting clauses (ii).

(2) Section 42(h)(3)(D)(ii) is amend ed(A) by striking subparagraph (C)(ii) and in-

serting subp aragraph (C)(i); an d (B) by striking clauses (i) in subclause (II)

an d in serting clauses (ii).(d) E F F E C T I V E D AT E .The amendmen t s made

by this sect ion shal l apply to calendar yearsaf ter 2000.SEC. 132. MODIFICATION OF CRITERIA FOR ALLO-

CATING HOUSING CREDITS AMONG PROJECTS.

(a) S ELECTION C R I T E R I A .Subparagraph (C)of section 42(m)(1) (relating to certain selectioncriteria must be used) is amended

(1) by inser t ing , including whether the project includes the use of exis t ing housing as part of a commun ity revi ta l izat ion p lan beforethe comma at t he end of c lause ( i i i ); and

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2000 Nmtc Statute