[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1949 Introduced in House (IH)]
103d CONGRESS
1st Session
H. R. 1949
To amend the Internal Revenue Code of 1986 to provide a capital gain
exclusion for investments in qualified businesses with employee stock
ownership programs within Federal enterprise zones.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
April 29, 1993
Mr. Weldon (for himself and Mr. Andrews of New Jersey) introduced the
following bill; which was referred to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to provide a capital gain
exclusion for investments in qualified businesses with employee stock
ownership programs within Federal enterprise zones.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, That (a) chapter 1 of
the Internal Revenue Code of 1986 (relating to normal taxes and
surtaxes) is amended by inserting after subchapter T the following new
subchapter:
Subchapter U--Capital Gain Exclusion For Investments In Enterprise
Zones
``Sec. 1391. 100 percent exclusion for
gain from new zone investments.
``Sec. 1392. Enterprise zone business
defined.
``Sec. 1393. Tax enterprise zone.
``SEC. 1391. 100 PERCENT EXCLUSION FOR GAIN FROM NEW ZONE INVESTMENTS.
``(a) General Rule.--Gross income shall not include 100 percent of
any qualified capital gain recognized on the sale or exchange of a
qualified zone asset held for more than 5 years.
``(b) Qualified Zone Asset.--For purposes of this section--
``(1) In general.--The term `qualified zone asset' means--
``(A) any qualified zone stock,
``(B) any qualified zone business property, and
``(C) any qualified zone partnership interest.
``(2) Qualified zone stock.--
``(A) In general.--Except as provided in
subparagraph (B), the term `qualified zone stock' means
any stock in a domestic corporation if--
``(i) such stock is acquired by the
taxpayer on original issue from the corporation
solely in exchange for cash,
``(ii) as of the time such stock was
issued, such corporation was an enterprise zone
business (or, in the case of a new corporation,
such corporation was being organized for
purposes of being an enterprise zone business),
and
``(iii) during substantially all of the
taxpayer's holding period for such stock, such
corporation qualified as an enterprise zone
business.
``(B) Redemptions.--The term `qualified zone stock'
shall not include any stock acquired from a corporation
which made a substantial stock redemption or
distribution (without a bona fide business purpose
therefor) in an attempt to avoid the purposes of this
section.
``(3) Qualified zone business property.--
``(A) In general.--The term `qualified zone
business property' means tangible property if--
``(i) such property was acquired by the
taxpayer by purchase (as defined in section
179(d)(2)) after the date on which the
designation of the tax enterprise zone took
effect,
``(ii) the original use of such property in
a tax enterprise zone commences with the
taxpayer, 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 tax enterprise zone and in an
enterprise zone business of the taxpayer.
``(B) Special rule for substantial improvements.--
The requirements of clauses (i) and (ii) of
subparagraph (A) shall be treated as satisfied with
respect to--
``(i) property which is substantially
improved by the taxpayer, and
``(ii) any land on which such property is
located.
For purposes of the preceding sentence, property shall
be treated as subtantially improved by the taxpayer if,
during any 24-month period beginning after the date on
which the designation of the tax enterprise zone took
effect, additions to basis with respect to such
property in the hands of the taxpayer exceed the
greater of (i) an amount equal to the adjusted basis at
the beginning of such 24-month period in the hands of
the taxpayer, or (ii) $5,000.
``(C) Limitation on land.--The term `qualified zone
business property' shall not include land which is not
an integral part of a qualified business (as defined in
section 1392(c)).
``(4) Qualified zone partnership interest.--The term
`qualified zone partnership interest' means any interest in a
partnership if--
``(A) such interest is acquired by the taxpayer
from the partnership solely in exchange for cash,
``(B) as of the time such interest was acquired,
such partnership was an enterprise zone business (or,
in the case of a new partnership, such partnership was
being organized for purposes of being an enterprise
zone business), and
``(C) during substantially all of the taxpayer's
holding period for such interest, such partnership
qualified as an enterprise zone business.
A rule similar to the rule of paragraph (2)(B) shall apply for
purposes of this paragraph.
``(5) Treatment of subsequent purchasers.--The term
`qualified zone asset' includes any property which would be a
qualified zone asset but for paragraph (2)(A)(i), (3)(A)(ii),
or (3)(A) in the hands of the taxpayer if such property was a
qualified zone asset in the hands of any prior holder.
``(6) 10-year safe harbor.--If any property ceases to be a
qualified zone asset by reason of paragraph (2)(A)(iii),
(3)(A)(iii), or (3)(C) after the 10-year period beginning on
the date the taxpayer acquired such property, such property
shall continue to be treated as meeting the requirements of
such paragraph; except that the amount of gain to which
subsection (a) applies on any sale or exchange of such property
shall not exceed the amount which would be qualified capital
gain had such property been sold on the date of such cessation.
``(7) Treatment of zone terminations.--The termination of
any designation of an area as a tax enterprise zone shall be
disregarded for purposes of determining whether any property is
a qualified zone asset.
``(c) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Qualified capital gain.--Except as otherwise provided
in this subsection, the term `qualified capital gain' means any
long-term capital gain.
``(2) Certain gain on real property not qualified.--The
term `qualified capital gain' shall not include any gain which
would be treated as ordinary income under section 1250 if
section 1250 applied to all depreciation rather than the
additional depreciation.
``(3) Gain attributable to periods after termination of
zone designation not qualified.--The term `qualified capital
gain' shall not include any gain attributable to periods after
the termination of any designation of an area as a tax
enterprise zone.
``(d) Treatment of Pass-Thru Entities.--
``(1) Sales and exchanges.--Gain on the sale or exchange of
an interest in a pass-thru entity held by the taxpayer (other
than an interest in an entity which was an enterprise zone
business during substantially all of the period the taxpayer
held such interest) for more than 5 years shall be treated as
gain described in subsection (a) to the extent such gain is
attributable to amounts which would be qualified capital gain
on qualified zone assets (determined as if such assets had been
sold on the date of the sale or exchange) held by such entity
for more than 5 years and throughout the period the taxpayer
held such interest. A rule similar to the rule of paragraph
(2)(C) shall apply for purposes of the preceding sentence.
``(2) Income inclusions.--
``(A) In general.--Any amount included in income by
reason of holding an interest in a pass-thru entity
(other than an entity which was an enterprise zone
business during substantially all of the period the
taxpayer held the interest to which such inclusion
relates) shall be treated as gain described in
subsection (a) if such amount meets the requirements of
subparagraph (B).
``(B) Requirements.--An amount meets the
requirements of this subparagraph if--
``(i) such amount is attributable to
qualified capital gain recognized on the sale
or exchange by the pass-thru entity of property
which is a qualified zone asset in the hands of
such entity and which was held by such entity
for the period required under subsection (a),
and
``(ii) such amount is includible in the
gross income of the taxpayer by reason of the
holding of an interest in such entity which was
held by the taxpayer on the date on which such
pass-thru entity acquired such asset and at all
times thereafter before the disposition of such
asset by such pass-thru entity.
``(C) Limitation based on interest originally held
by taxpayer.--Subparagraph (A) shall not apply to any
amount to the extent such amount exceeds the amount to
which subparagraph (A) would have applied if such
amount were determined by reference to the interest the
taxpayer held in the pass-thru entity on the date the
qualified zone asset was acquired.
``(3) Pass-thru entity.--For purposes of this subsection,
the term `pass-thru entity' means--
``(A) any partnership,
``(B) any S corporation,
``(C) any regulated investment company, and
``(D) any common trust fund.
``(e) Sales and Exchanges of Interests in Partnerships and S
Corporations Which are Qualified Zone Businesses.--In the case of the
sale or exchange of an interest in a partnership, or of stock in an S
corporation, which was an enterprise zone business during substantially
all of the period the taxpayer held such interest or stock, the amount
of qualified capital gain shall be determined without regard to--
``(1) any intangible, and any land, which is not an
integral part of any qualified business (as defined in section
1392(b)), and
``(2) gain attributable to periods before the designation
of an area as a tax enterprise zone.
``(f) Certain Tax-Free and Other Transfers.--For purposes of this
section--
``(1) In general.--In the case of a transfer of a qualified
zone asset to which this subsection applies, the transferee
shall be treated as--
``(A) having acquired such asset in the same manner
as the transferor, and
``(B) having held such asset during any continuous
period immediately preceding the transfer during which
it was held (or treated as held under this subsection)
by the transferor.
``(2) Transfers to which subsection applies.--This
subsection shall apply to any transfer--
``(A) by gift,
``(B) at death, or
``(C) from a partnership to a partner thereof of a
qualified zone asset with respect to which the
requirements of subsection (d)(2) are met at the time
of the transfer (without regard to the 5-year holding
requirement).
``(3) Certain rules made applicable.--Rules similar to the
rules of section 1244(d)(2) shall apply for purposes of this
section.
``(g) Certain Businesses Treated as Not Qualified Businesses.--For
purposes of this section, the term `enterprise zone business' has the
meaning given such term by section 1392 except that, in applying
section 1392 for such purposes, the term `qualified business' shall not
include any trade or business of producing property of a character
subject to the allowance for depletion under section 611.
``SEC. 1392. ENTERPRISE ZONE BUSINESS DEFINED.
``(a) In General.--For purposes of this subpart, the term
`enterprise zone business' means, with respect to any taxable year, any
corporation or partnership if for such year--
``(1)(A) every trade or business of such entity is the
active conduct of a qualified business within a tax enterprise
zone, and
``(B) at least 80 percent of the total gross income of such
entity is derived from the active conduct of such businesses,
``(2) substantially all of the use of the tangible property
of such entity (whether owned or leased) is within a tax
enterprise zone,
``(3) substantially all of the intangible property of such
entity is used in, and exclusively related to, the active
conduct of any such business,
``(4) substantially all of the services performed for such
entity by its employees are performed in a tax enterprise zone,
``(5) at least \1/3\ of its employees are residents of a
tax enterprise zone,
``(6) such entity offers its employees an opportunity to
purchase equity interests in such entity and at least 5 percent
(by value) of the equity interests in such entity are held
(directly or through a defined contribution plan which meets
the requirements of section 401(a)) by employees who (as of the
time of the acquisition of the interests) were disadvantaged
residents of a tax enterprise zone,
``(7) less than 5 percent of the average of the aggregate
unadjusted bases of the property of such entity is attributable
to collectibles (as defined in section 408(m)(2)) other than
collectibles that are held primarily for sale to customers in
the ordinary course of such business, and
``(8) less than 5 percent of the average of the aggregate
unadjusted bases of the property of such entity is attributable
to nonqualified financial property.
``(b) Disadvantaged Residents.--For purposes of subsection (a), an
employee is a disadvantaged resident of a tax enterprise zone if such
employee is a resident of such zone and if--
``(1) such employee is a member of an economically
disadvantaged family (within the meaning of section 51(d)(11)),
or
``(2) the family income (within the meaning of section
143(f)(2)) of such employee is less than 50 percent of the
applicable median family income (as defined in section
143(f)(4)).
``(c) Qualified Business.--For purposes of this section--
``(1) In general.--Except as otherwise provided in this
subsection, the term `qualified business' means any trade or
business.
``(2) Rental of real property.--The rental to others of
real property located in a tax enterprise zone shall be treated
as a qualified business if and only if--
``(A) in the case of real property which is not
residential rental property (as defined in section
168(e)(2)), the lessee is an enterprise zone business,
or
``(B) in the case of residential rental property
(as so defined)--
``(i) such property was originally placed
in service after the date the tax enterprise
zone was designated, or
``(ii) such property is rehabilitated after
such date in a rehabilitation which meets
requirements based on the principles of section
42(e)(3).
``(3) Rental of tangible personal property.--The rental to
others of tangible personal property shall be treated as a
qualified business if and only if substantially all of the
rental of such property is by enterprise zone businesses or by
residents of a tax enterprise zone.
``(4) Treatment of business holding intangibles.--The term
`qualified business' shall not include any trade or business
consisting predominantly of the development or holding of
intangibles for sale or license.
``(5) Certain businesses excluded.--The term `qualified
business' shall not include--
``(A) any trade or business consisting of the
operation of any facility described in section
144(c)(6)(B), and
``(B) any trade or business the principal activity
of which is farming (within the meaning of
subparagraphs (A) or (B) of section 2032A(e)(5)), but
only if, as of the close of the preceding taxable year,
the sum of--
``(i) the aggregate unadjusted bases (or,
if greater, the fair market value) of the
assets owned by the taxpayer which are used in
such a trade or business, and
``(ii) the aggregate value of assets leased
by the taxpayer which are used in such a trade
or business,
exceeds $500,000.
For purposes of subparagraph (B), rules similar to the rules of
section 1395(b) shall apply.
``(d) Nonqualified Financial Property.--For purposes of this
section, the term `nonqualified financial property' means debt, stock,
partnership interests, options, futures contracts, forward contracts,
warrants, notional principal contracts, annuities, and other similar
property specified in regulations; except that such term shall not
include--
``(1) reasonable amounts of working capital held in cash,
cash equivalents, or debt instruments with a term of 18 months
or less, or
``(2) debt instruments described in section 1221(4).
``SEC. 1393. TAX ENTERPRISE ZONE.
``For purposes of this subchapter, the term `tax enterprise zone'
means any area hereafter designated as an enterprise zone or tax
enterprise zone pursuant to any law enacted after the date of the
enactment of this section.''
(b) Clerical Amendment.--The table of subchapters for chapter 1 of
such Code is amended by inserting after the item relating to subchapter
T the following new subchapter:
``Subchapter U--Capital gain exclusion
for investments in enterprise
zones.''
<all>
HR 1949 IH----2