[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 508 Introduced in House (IH)]
103d CONGRESS
1st Session
H. R. 508
To amend the Internal Revenue Code of 1986 to provide tax incentives to
encourage corporations to provide financing and management support
services to small business concerns operating in urban areas designated
as enterprise zones.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
January 21, 1993
Mr. Franks of Connecticut 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 tax incentives to
encourage corporations to provide financing and management support
services to small business concerns operating in urban areas designated
as enterprise zones.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Urban Entrepreneurial Opportunities
Act''.
SEC. 2. TAX INCENTIVES FOR URBAN ENTREPRENEURIAL OPPORTUNITY FINANCING
SUBSIDIARIES.
(a) General Rule.--Part VIII of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 (relating to special deductions for
corporations) is amended by adding at the end thereof the following new
subpart:
``Subpart B--Tax Incentives for Urban Entrepreneurial Financing
Subsidiaries
``Sec. 251. Deduction for equity
contributions to urban
entrepreneurial opportunity
financing subsidiaries.
``Sec. 252. Overall limitation on
deductions.
``Sec. 253. Definitions and special
rules.
``SEC. 251. DEDUCTION FOR EQUITY CONTRIBUTIONS TO URBAN ENTREPRENEURIAL
OPPORTUNITY FINANCING SUBSIDIARIES.
``(a) General Rule.--In the case of a qualified contributing
corporation, there shall be allowed as a deduction an amount equal to
the equity contributions made by such corporation to an urban
entrepreneurial opportunity financing subsidiary of such corporation.
Such deduction shall be allowed for the taxable year of the
contributing corporation in which the equity contribution is used by
the subsidiary in making qualified enterprise zone business loans.
``(b) Limitation.--The amount allowed as a deduction under
subsection (a) to any qualified contributing corporation for any
taxable year shall not exceed the lesser of--
``(1) $10,000,000, or
``(2) the portion of the program limitation allocated to
such corporation under section 252 to the extent the amount so
allocated was not used in a prior taxable year.
``(c) Equity Contribution.--For purposes of this section, the term
`equity contribution' means--
``(1) any amount paid in cash for stock in an urban
entrepreneurial opportunity financing subsidiary of the
corporation if such stock is acquired at its original issuance,
and
``(2) any contribution in cash to the capital of an urban
entrepreneurial opportunity financing subsidiary of the
corporation.
``(d) Recapture Provisions.--
``(1) Basis adjustment.--The adjusted basis of any stock
held by a corporation in an urban entrepreneurial opportunity
financing subsidiary of such corporation shall be reduced by
the amount allowed as a deduction under subsection (a) in
connection with the acquisition of such stock. No increase in
the basis of any such stock shall be made on account of any
contribution to the capital of such subsidiary for which a
deduction is allowed under subsection (a).
``(2) Ordinary income recapture.--Any gain recognized on
the sale or other disposition by a corporation of stock in an
urban entrepreneurial opportunity financing subsidiary of such
corporation shall be treated as ordinary income.
``(3) Certain events treated as dispositions.--If any urban
entrepreneurial opportunity financing subsidiary of a
corporation ceases to qualify as an urban entrepreneurial
opportunity financing subsidiary with respect to such
corporation, such corporation shall recognize gain as if it
sold its stock in such subsidiary for an amount equal to its
fair market value immediately before such cessation.
``SEC. 252. OVERALL LIMITATION ON DEDUCTIONS.
``(a) General Rule.--The Secretary of Housing and Urban Development
shall allocate the program limitation among the qualified contributing
corporations submitting applications to such Secretary for allocations
under this section.
``(b) Program Limitation.--The program limitation is $250,000,000.
``(c) Method of Making Allocations.--The Secretary of Housing and
Urban Development shall prescribe regulations setting forth the
procedures for making allocations under this section. Such procedures
shall--
``(1) include the criteria used in selecting the
corporations to which the allocations are made, and
``(2) be designed to ensure a reasonable availability, on a
geographical basis, of the benefits of this subpart.
``SEC. 253. DEFINITIONS AND SPECIAL RULES.
``(a) Qualified Contributing Corporation.--For purposes of this
subpart, the term `qualified contributing corporation' means any
domestic corporation which is not a small business concern; except that
such term shall not include any corporation predominantly engaged in a
banking, insurance, finance, or similar business.
``(b) Urban Entrepreneurial Opportunity Financing Subsidiary.--For
purposes of this subpart, the term `urban entrepreneurial financing
subsidiary' means any domestic corporation--
``(1) all the stock of which (exclusive of directors'
qualifying shares) is held directly by one qualified
contributing corporation, and
``(2) all the activities of which consist of--
``(A) making qualified enterprise zone business
loans,
``(B) providing management, administrative,
consulting, and other support services to qualified
small business concerns to which such corporation has
made qualified enterprise zone business loans, and
``(C) making temporary investments (for a period
not exceeding 6 months) of amounts being held for
purposes of making qualified enterprise zone business
loans.
``(c) Qualified Enterprise Zone Business Loans.--For purposes of
this subpart, the term `qualified enterprise zone business loan' means
any loan made by an urban entrepreneurial opportunity financing
subsidiary if--
``(1) such loan is made to a qualified small business
concern and such concern is not related (within the meaning of
section 267(b) or 707(b)) to such subsidiary or the qualified
contributing corporation holding such subsidiary,
``(2) the proceeds of such loan are used by such qualified
small business concern in the active conduct of a trade or
business in an urban enterprise zone,
``(3) the urban entrepreneurial opportunity financing
subsidiary provides (without charge) substantial qualified
services to the qualified small business concern in connection
with such loan, except that such small business concern may
waive the requirements of this paragraph, and
``(4) the interest on such loan does not exceed--
``(A) in the case of a secured loan, the prime rate
plus 3 percentage points, or
``(B) in the case of any other loan, the prime rate
plus 8 percentage points.
``(d) Qualified Small Business Concern.--For purposes of this
subpart, the term `qualified small business concern' means any person
if--
``(1) such person is a small business concern within the
meaning of section 3 of the Small Business Act (15 U.S.C. 632),
and
``(2) substantially all of the activities of such person
are within an urban enterprise zone.
``(e) Other Definitions and Special Rules.--
``(1) Urban enterprise zone.--For purposes of this subpart,
the term `urban enterprise zone' means--
``(A) any urban area designated as an enterprise
zone under any State law program, and
``(B) any urban area designated as an enterprise
zone under Federal law.
``(2) Substantial qualified services.--For purposes of this
subpart, the term `substantial qualified services' means, with
respect to any loan made by an urban entrepreneurial
opportunity financing subsidiary, any management,
administrative, consulting, or other support services provided
to the borrower under such loan, but only if the amount of such
services, to be provided during the first year such loan is
outstanding involve at least 1,000 man-hours for each $100,000
principal amount of such loan.
``(3) Prime rate.--For purposes of this subpart--
``(A) In general.--The term `prime rate' means the
average predominant prime rate quoted by commercial
banks to large businesses, as determined by the Board
of Governors of the Federal Reserve System.
``(B) When determination made.--
``(i) Except as provided in clause (ii),
the determination of the prime rate shall be
made as of the time the loan is made.
``(ii) If the loan is a variable rate loan,
the prime rate taken into account with respect
to any change in rate shall be determined as of
the time such change takes effect.
``(4) Treatment of controlled groups.--Any group of
corporations treated as a single employer under section 51(a)
or (b) shall be treated as one corporation for purposes of this
subpart.
``(f) Employees of Borrower May Be Taken Into Account for Certain
Purposes.--If--
``(1) a qualified contributing corporation has provided
financing through an urban entrepreneurial opportunity
financing subsidiary to any qualified small business concern,
and
``(2) such qualified small business concern designates such
subsidiary as its primary lender,
such qualified contributing corporation may treat the employees of such
qualified small business concern as its own employees for purposes of
determining which such qualified contributing corporation is in
compliance with the requirements of any Federal law. A qualified small
business concern may designate only 1 urban entrepreneurial opportunity
financing subsidiary is its primary lender for any period.''
(b) Clerical Amendment.--Part VIII of subchapter B of chapter 1 of
such Code is amended by inserting after the part heading the following:
``Subpart A--General provisions.
``Subpart B--Tax incentives for urban
entrepreneurial opportunity
financing subsidiaries.
``Subpart A--General Provisions''.
(c) Effective Date.--The amendments made by this section shall take
effect on the date of the enactment of this Act.
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