H.R. 193 — Enterprise Zone Development and Employment Act of 1989

 
HR 193 IH
101st CONGRESS
1st Session
 H. R. 193
To amend the Internal Revenue Code of 1986 to provide tax incentives for
the establishment of Enterprise Zones, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
January 3, 1989
Mr. IRELAND introduced the following bill; which was referred jointly to
the Committees on Ways and Means, the Judiciary, and Banking, Finance and
Urban Affairs
A BILL
To amend the Internal Revenue Code of 1986 to provide tax incentives for
the establishment of Enterprise Zones, and for other purposes.
  Be it enacted by the Senate and House of Representatives of the United
  States of America in Congress assembled, That this Act may be cited as the
  `Enterprise Zone Development and Employment Act of 1989.'
SEC. 102. PURPOSES.
  It is the purpose of this title to provide for the establishment
  of enterprise zones in order to stimulate the creation of new jobs,
  particularly for disadvantaged workers and long-term unemployed individuals,
  and to promote revitalization of economically distressed areas primarily
  by providing or encouraging--
  (1) tax relief at the Federal, State, and local levels;
  (2) regulatory relief at the Federal, State, and local levels; and
  (3) improved local services and an increase in the economic stake of
  enterprise zone residents in their own community and its development,
  particularly through the increased involvement of private, local, and
  neighborhood organizations.
Subtitle A--Designation of Enterprise Zones
SEC. 111. DESIGNATION OF ZONES.
  (a) GENERAL RULE- Chapter 80 (relating to general rules) is amended by
  adding at the end thereof the following new subchapter:
`Subchapter D--Designation of Enterprise Zones
`Sec. 7881. Designation.
`SEC. 7881. DESIGNATION.
  `(a) Designation of Zones-
  `(1) DEFINITIONS- For purposes of this title, the term `enterprise zone'
  means any area--
  `(A) which is nominated by one or more local governments and the State
  or States in which it is located for designation as an enterprise zone
  (hereinafter in this section referred to as a `nominated area'), and
  `(B) which the Secretary of Housing and Urban Development, after consultation
  with--
  `(i) the Secretaries of Agriculture, Commerce, Labor, and the Treasury;
  the Director of the Office of Management and Budget; and the Administrator
  of the Small Business Administration, and
  `(ii) in the case of an area on an Indian reservation, the Secretary of
  the Interior,
designates as an enterprise zone.
  `(2) Number of designations-
  `(A) IN GENERAL- The Secretary of Housing and Urban Development may
  designate not more than 100 nominated areas as enterprise zones.
  `(B) MINIMUM DESIGNATION IN RURAL AREAS- Of the areas designated under
  clause (i), at least one-fourth must be areas--
  `(i) which are within a local government jurisdiction or jurisdictions
  with a population of less than 50,000 (as determined under the most recent
  census data available),
  `(ii) which are outside of a metropolitan statistical area (within the
  meaning of section 143(k)(2)(B)), or
  `(iii) which are determined by the Secretary of Housing and Urban
  Development, after consultation with the Secretary of Commerce, to be
  rural areas.
  `(3) AREAS DESIGNATED BASED SOLELY ON DEGREE OF POVERTY, ETC-
  `(A) IN GENERAL- Except as provided in subparagraph (B), the Secretary
  of Housing and Urban Development shall designate those nominated areas
  with the highest average ranking with respect to the criteria described in
  subparagraphs (C), (D), (E), and (F) of subsection (c)(3). For purposes of
  the preceding sentence, an area shall be ranked within each such criterion
  on the basis of the amount by which the area exceeds such criterion,
  with the area which exceeds such criterion by the greatest amount given
  the highest ranking.
  `(B) EXCEPTION WHERE INADEQUATE COURSE OF ACTION, ETC- An area shall not
  be designated under subparagraph (A) if the Secretary of Housing and Urban
  Development determines that the course of action with respect to such area
  is inadequate.
  `(C) SEPARATE APPLICATION TO RURAL AND OTHER AREAS- Subparagraph (A) shall
  be applied separately with respect to areas described in paragraph (2)(B)
  and to other areas.
  `(4) Limitation on designations-
  `(A) PUBLICATION OF REGULATIONS- Before designating any area as an enterprise
  zone, the Secretary of Housing and Urban Development shall prescribe by
  regulation no later than 4 months following the enactment of this section,
  after consultation with the officials described in paragraph (1)(B)--
  `(i) the procedures for nominating an area under paragraph (1)(A),
  `(ii) the parameters relating to the size and population characteristics
  of an enterprise zone, and
  `(iii) the manner in which nominated areas will be evaluated based on the
  criteria specified in subsection (d).
  `(B) TIME LIMITATIONS- The Secretary of Housing and Urban Development shall
  designate nominated areas as enterprise zones only during the 24-month
  period beginning on the later of--
  `(i) the first day of the first month following the month in which the
  effective date of the regulations described in subparagraph (A) occurs, or
  `(ii) July 1, 1989.
  `(C) PROCEDURAL RULES- The Secretary of Housing and Urban Development
  shall not make any designation under paragraph (1) unless--
  `(i) the local governments and the State in which the nominated area is
  located have the authority--
  `(I) to nominate such area for designation as an enterprise zone,
  `(II) to make the State and local commitments under subsection (d), and
  `(III) to provide assurances satisfactory to the Secretary of Housing and
  Urban Development that such commitments will be fulfilled,
  `(ii) a nomination therefor is submitted in such a manner and in such
  form, and contains such information, as the Secretary of Housing and Urban
  Development shall by regulation prescribe,
  `(iii) the Secretary of Housing and Urban Development determines that any
  information furnished is reasonably accurate, and
  `(iv) the State and local governments certify that no portion of the area
  nominated is already included in an enterprise zone or in an area otherwise
  nominated to be an enterprise zone.
  `(5) NOMINATION PROCESS FOR INDIAN RESERVATIONS- In the case of a nominated
  area on an Indian reservation, the reservation governing body (as determined
  by the Secretary of the Interior) shall be deemed to be both the State
  and local governments with respect to such area.
  `(b) Period for Which Designation is in Effect-
  `(1) IN GENERAL- Any designation of an area as an enterprise zone shall
  remain in effect during the period beginning on the date of the designation
  and ending on the earliest of--
  `(A) December 31 of the 24th calendar year following the calendar year in
  which such date occurs,
  `(B) the termination date designated by the State and local governments
  as provided for in their nomination pursuant to subsection (a)(4)(C)(ii), or
  `(C) the date the Secretary of Housing and Urban Development revokes such
  designation under paragraph (2).
  `(2) REVOCATION OF DESIGNATION- The Secretary of Housing and Urban
  Development may after--
  `(A) consultation with the officials described in subsection (a)(1)(B), and
  `(B) a hearing on the record involving officials of the State or local
  government involved,
revoke the designation of an area if the Secretary of Housing and Urban
Development determines that the local government or the State in which it is
located is not complying substantially with the State and local commitments
pursuant to subsection (d).
  `(c) Area and Eligibility Requirements-
  `(1) IN GENERAL- The Secretary of Housing and Urban Development may make
  a designation of any nominated area under subsection (a)(1) only if it
  meets the requirements of paragraphs (2) and (3).
  `(2) AREA REQUIREMENTS- A nominated area meets the requirements of this
  paragraph if--
  `(A) the area is within the jurisdiction of the local government,
  `(B) the boundary of the area is continuous, and
  `(C) the area--
  (i) has a population, as determined by the most recent census data available,
  of at least--
  `(I) 4,000 if any portion of such area (other than a rural area described
  in subsection (a)(2)(B)(i)) is located within a metropolitan statistical
  area (within the meaning of section 103A(1)(4)(B)) with a population of
  50,000 or greater, or
  `(II) 1,000 in any other case, or
  `(ii) is entirely within an Indian reservation (as determined by the
  Secretary of the Interior).
  `(3) ELIGIBILITY REQUIREMENTS- For purposes of paragraph (1), a nominated
  area meets the requirements of this paragraph if the State and local
  governments in which it is located certify and the Secretary of Housing
  and Urban Development, after such review of supporting data as he deems
  appropriate, accepts such certification, that--
  `(A) the area is one of pervasive poverty, unemployment, and general
  distress,
  `(B) the area is located wholly within the jurisdiction of a local government
  which is eligible for Federal assistance under section 119 of the Housing
  and Community Development Act of 1974, as in effect on the date of the
  enactment of this section,
  `(C) the unemployment rate, as determined by the appropriate available data,
  was at least 1 1/2  times the national unemployment rate for that period,
  `(D) the poverty rate (as determined by the most recent census data
  available) for each populous census tract (or where not tracted, the
  equivalent county division as defined by the Bureau of the Census for the
  purpose of defining poverty areas) within the area was at least 20 percent
  for the period to which such data relate,
  `(E) at least 70 percent of the households living in the area have incomes
  below 80 percent of the median income of households of the local government
  (determined in the same manner as under section 119(b)(2) of the Housing
  and Community Development Act of 1974), and
  `(F) the population of the area decreased by 20 percent or more between
  1970 and 1980 (as determined from the most recent census available).
  `(d) Required State and Local Commitments-
  `(1) IN GENERAL- No nominated area shall be designated as an enterprise zone
  unless the local government and the State in which it is located agree in
  writing that, during any period during which the area is an enterprise zone,
  such governments will follow a specified course of action designated to
  reduce the various burdens borne by employers or employees in such area. A
  course of action shall not be treated as meeting the requirements of this
  paragraph unless the course of action include provisions described in at
  least 4 of the subparagraphs of paragraph (2).
  `(2) COURSE OF ACTION- The course of action under paragraph (1) may be
  implemented by both such governments and private nongovernmental entities,
  may be funded from proceeds of any Federal program, and may include,
  but is not limited to--
  `(A) a reduction of tax rates or fees applying within the enterprise zone,
  `(B) an increase in the level of efficiency of local services within
  the enterprise zone; for example, crime prevention (particularly through
  experimentation with providing such services by nongovernmental entities),
  `(C) actions to reduce, remove, simplify, or streamline governmental
  requirements applying within the enterprise zone,
  `(D) involvement in the program by private entities, organizations,
  neighborhood associations, and community groups, particularly those within
  the nominated area, including a commitment from such private entities
  to provide jobs and job training for, and technical, financial, or other
  assistance to, employers, employees, and residents of the nominated area,
  `(E) the allowance of a deduction from State or local income taxes for
  fees paid or accrued for services performed by a nongovernmental entity
  but which were formerly performed by a governmental entity,
  `(F) the giving of special preference to contractors owned and operated
  by members of any minority, and
  `(G) the gift (or sale at below fair market value) of surplus land in
  the enterprise zone to neighborhood organizations agreeing to operate a
  business on the land.
  `(3) RECOGNITION OF PAST EFFORTS- In evaluating courses of action agreed
  to by any State or local government, the Secretary of Housing and Urban
  Development shall take into account the past efforts of such State or
  local government in reducing the various burdens borne by employers and
  employees in the area involved.
  `(e) DEFINITIONS- For the purposes of this title--
  `(1) GOVERNMENTS- If more than one government seeks to nominate an area
  as an enterprise zone, any reference to, or requirement of, this section
  shall apply to all such governments.
  `(2) STATE- The term `State' shall also include Puerto Rico, the Virgin
  Islands, Guam, American Samoa, the Northern Mariana Islands, and any other
  possession of the United States.
  `(3) LOCAL GOVERNMENT- The term `local government' means--
  `(A) any county, city, town, township, parish, village, or other general
  purpose political subdivision of a State,
  `(B) any combination of political subdivisions described in subparagraph
  (A) recognized by the Secretary of Housing and Urban Development, and
  `(C) the District of Columbia.'
  (b) CONFORMING AMENDMENT- The table of subchapters for chapter 80 is
  amended by adding at the end thereof the following new item:
`Subchapter D. Designation of Enterprise Zones.'
SEC. 112. EVALUATION AND REPORTING REQUIREMENTS.
  Not later than the close of the fourth calendar year after the year in
  which the Secretary of Housing and Urban Development first designates
  areas as enterprise zones, and at the close of each fourth calendar year
  thereafter, the Secretary of Housing and Urban Development shall prepare
  and submit to the Congress a report on the effects of such enterprise zones'
  designation in accomplishing the purposes of this Act.
SEC. 113. INTERACTION WITH OTHER FEDERAL PROGRAMS.
  (a) TAX REDUCTIONS- Any reduction of taxes under any required program of
  State and local commitment under section 7881(d) of the Internal Revenue
  Code of 1954 shall be disregarded in determining the eligibility of a
  State or local government for, or the amount or extent of, any assistance
  or benefits under any law of the United States.
  (b) COORDINATION WITH RELOCATION ASSISTANCE- The designation of an enterprise
  zone under section 7881 of the Internal Revenue Code of 1954 shall not--
  (1) constitute approval of a Federal or federally assisted program or project
  (within the meaning of the Uniform Relocation Assistance and Real Property
  Acquisition Policies Act of 1970 (42 U.S.C. 4601)), or
  (2) entitle any person displaced from real property located in such zone
  to any rights or any benefits under such Act.
  (c) ENTERPRISE ZONES TREATED AS LABOR SURPLUS AREAS- Any area which is
  designated as an enterprise zone under section 7881 of such Code shall be
  treated for all purposes under Federal law as a labor surplus area.
Subtitle B--Federal Income Tax Incentives
PART I--CREDITS FOR EMPLOYERS AND EMPLOYEES
SEC. 121. CREDIT FOR ENTERPRISE ZONE EMPLOYERS.
  (a) CREDIT FOR INCREASED ENTERPRISE ZONE EMPLOYMENT AND EMPLOYMENT OF
  DISADVANTAGED WORKERS- Subpart B of part IV of subchapter A of chapter
  1 (relating to foreign tax credit, etc.) is amended by inserting after
  section 29 the following new section:
`SEC. 30. CREDIT FOR ENTERPRISE ZONE EMPLOYMENT.
  `(a) IN GENERAL- There shall be allowed as a credit against the tax imposed
  by this chapter for the taxable year an amount equal to the sum of--
  `(1) 10 percent of the qualified increased employment expenditures of the
  taxpayer for the taxable year, and
  `(2) the economically disadvantaged credit amount of the taxpayer for such
  taxable year.
  `(b) LIMITATIONS BASED ON AMOUNT OF TAX-
  `(1) IN GENERAL- The credit allowed by subsection (a) for a taxable year
  shall not exceed the excess (if any) of--
  `(A) the regular tax for the taxable year reduced by the sum of the credits
  allowable under subpart A and sections 27, 28, and 29, over
  `(B) the tentative minimum tax for the taxable year.
  `(2) Carryback and carryover of unused credit-
  `(A) ALLOWANCE OF CREDIT- If the amount of the credit determined under this
  section for any taxable year exceeds the limitation provided by paragraph
  (1) for such taxable year (hereinafter in this paragraph referred to as the
  `unused credit year'), such excess shall be--
  `(i) an enterprise zone employment credit carryback to each of the 3
  taxable years preceding the unused credit year, and
  `(ii) an enterprise zone employment credit carryover to each of the 15
  taxable years following the unused credit year,
and shall be added to the amount allowable as a credit by this section for
such years. If any portion of such excess is a carryback to a taxable year
beginning before January 1, 1989, this section shall be deemed to have been
in effect for such taxable year for purposes of allowing such carryback as
a credit under this section. The entire amount of the unused credit for an
unused credit year shall be carried to the earliest of the 18 taxable years
to which (by reason of clauses (i) and (ii)) such credit may be carried,
and then to each of the other 17 taxable years to the extent that, because
of the limitation contained in subparagraph (B), such unused credit may not
be added for a prior taxable year to which such unused credit may be carried.
  `(B) LIMITATION- The amount of the unused credit which may be added under
  subparagraph (A) for any preceding or succeeding taxable year shall not
  exceed the amount by which the limitation provided by paragraph (1) for
  such taxable year exceeds the sum of--
  `(i) the credit allowable under this section for such taxable year, and
  `(ii) the amounts which, by reason of this paragraph, are added to the
  amount allowable for such taxable year and which are attributable to
  taxable years preceding the unused credit year.
  `(c) QUALIFIED INCREASED EMPLOYMENT EXPENDITURES DEFINED- For purposes of
  this section--
  `(1) IN GENERAL- The term `qualified increased employment expenditures'
  means the excess of--
  `(A) the qualified wages paid or incurred by the employer during the taxable
  year to qualified employees with respect to all enterprise zones, over
  `(B) the base period wages of the employer with respect to all such zones.
  `(2) Limitations as to qualified wages taken into account-
  `(A) DOLLAR AMOUNT- The amount of any qualified wages taken into account
  under paragraph (1) for any taxable year with respect to any qualified
  employee may not exceed 2.5 times the dollar limitation in effect under
  section 3306 (b)(1) for the calendar year with or within which such taxable
  year ends.
  `(B) APPLICATION WITH ECONOMICALLY DISADVANTAGED CREDIT AMOUNT- Qualified
  wages shall not be taken into account under paragraph (1) if such wages
  are taken into account in determining the economically disadvantaged credit
  amount under subsection (d).
  `(3) Base period wages-
  `(A) IN GENERAL- The term `base period wages' means, with respect to any
  enterprise zone, the amount of wages paid to employees during the 12-month
  period preceding the date on which the enterprise zone was designated
  as such under section 7881, or the date on which the enterprise zone is
  designated under State law, enacted after January 1, 1981, if earlier,
  which would have been qualified wages paid to qualified employees if such
  designation had been in effect for such period.
  `(B) RULES OF SPECIAL APPLICATION- For purposes of subparagraph (A)--
  `(i) subsection (f)(1) shall be applied by substituting `12-month period'
  for `taxable year' each place it appears, and
  `(ii) the dollar limitation taken into account under paragraph (2) in
  computing qualified wages shall be the amount in effect for taxable year
  for which the amount of the credit under subsection (a) is being computed.
  `(d) ECONOMICALLY DISADVANTAGED CREDIT AMOUNT- For purposes of this section--
  `(1) IN GENERAL- The term `economically disadvantaged credit amount'
  means the sum of the applicable percentage of qualified wages paid to each
  qualified economically disadvantaged individual.
  `(2) APPLICABLE PERCENTAGE- For purposes of paragraph (1), the term
  `applicable percentage' means, with respect to any qualified economically
  disadvantaged individual, the percentage determined in accordance with
  the following table:
 If the qualified wages
--
are paid for services
--The applicable
performed during:
--percentage is:
 The first 3 years after starting date
--50
 The 4th year after the starting date
--40
 The 5th year after the starting date
--30
 The 6th year after the starting date
--20
 The 7th through 20th year after the starting date
--10
 The 21st year after the starting date or later
--0
  `(3) STARTING DATE; BREAKS IN SERVICE- For purposes of this subsection--
  `(A) STARTING DATE- The term `starting date' means the day which the
  qualified economically disadvantaged individual begins work for the employer
  within an enterprise zone.
  `(B) BREAKS IN SERVICE- The periods described in the table under paragraph
  (2) (other than the first such period) shall be extended by any period of
  time during which the individual is unemployed, and by any period of time
  during which the individual is employed by a taxpayer in an enterprise zone
  designated under State law enacted after January 1, 1981, if such designation
  occurs prior to the designation of the enterprise zone under section 7881.
  `(e) QUALIFIED WAGES DEFINED- For purposes of this section--
  `(1) IN GENERAL- Except as otherwise provided in this subsection, the term
  `qualified wages' has the meaning given to the term `wages' by subsection
  (b) of section 3306 (determined without regard to any dollar limitation
  contained in such section).
  `(2) REDUCTION FOR CERTAIN FEDERALLY FUNDED PAYMENTS- For purposes of this
  section the wages paid or incurred by an employer for any period shall not
  include the amount of any Federally funded payments the employer receives
  or is entitled to receive for on-the-job training of such individual for
  such period.
  `(3) SPECIAL RULES FOR AGRICULTURAL AND RAILWAY LABOR- Under regulations
  prescribed by the Secretary, rules similar to the rules of section 51(h)
  shall apply with respect to services described in subparagraphs (A) and
  (B) of section 51(h)(1).
  `(f) Qualified Employee Defined-
  `(1) IN GENERAL- For purposes of this section, the term `qualified employee'
  means an individual--
  `(A) at least 90 percent of whose services for the employer during the
  taxable year are directly related to the conduct of the employer's trade
  or business located in an enterprise zone, and
  `(B) who performs at least 50 percent of his services for the employer
  during the taxable year in an enterprise zone.
  `(2) EXCEPTION FOR INDIVIDUALS WITH RESPECT TO WHOM CREDIT IS DETERMINED
  UNDER SECTION 51(A)- The term `qualified employee' shall not include an
  individual with respect to whom any credit for the employer is determined
  under section 51(a) for the taxable year (relating to targeted jobs credit).
  `(g) Qualified Economically Disadvantaged Individual-
  `(1) For purposes of this section, the term `qualified economically
  disadvantaged individual' means an individual--
  `(A) who is a qualified employee,
  `(B) who is hired by the employer during the period a designation under
  section 7881 is in effect for the area in which the services which qualify
  such individual as a qualified employee are performed, and
  `(C) who is certified as--
  `(i) an economically disadvantaged individual,
  `(ii) an eligible work incentive employee (within the meaning of section
  51(d)(9)), or
  `(iii) a general assistance recipient (within the meaning of section
  51(d)(6)).
  `(2) ECONOMICALLY DISADVANTAGED INDIVIDUAL- For purposes of paragraph (1)--
  `(A) IN GENERAL- The term `economically disadvantaged individual' means
  any individual who is certified by the designated local agency as being a
  member of a family that had a combined family income (including the cash
  value of food stamps) during the 6 months preceding the month in which
  such determination occurs that on an annual basis, was equal to or less
  than the sum of--
  `(i) the highest amount which would ordinarily be paid to a family of the
  same size without any income or resources in the form of payments for aid
  to families with dependent children under the State plan approved under
  part A of title IV of the Social Security Act for the State in which such
  individual resides, plus,
  `(ii) the highest cash value of the food stamps to which a family of the
  same size without any income or resources would be paid aid to families
  with dependent children under such State plan in the amount determined
  under clause (i). Any such determination shall be valid for the 45-day
  period beginning on the date such determination is made.
  `(B) SPECIAL RULE FOR FAMILIES WITH ONLY 1 INDIVIDUAL- For purposes of
  clause (i) of subparagraph (A), in the case of a family consisting of
  only one individual, the `highest amount which would ordinarily be paid'
  to such family under the State's plan approved under part A of title IV of
  the Social Security Act shall be an amount determined by the designated
  local agency on the basis of a reasonable relationship to the amounts
  payable under such plan to families consisting of two or more persons.
  `(3) CERTIFICATION- Certification of an individual as an individual described
  in paragraph (1)(C) shall be made in the same manner as certification
  under section 51.
  `(h) SPECIAL RULES- For purposes of this section--
  `(1) APPLICATION TO CERTAIN ENTITIES, ETC- Under regulations prescribed
  by the Secretary, rules similar to the rules of section 52 (other than
  subsection (b) thereof) and section 41(f)(3) shall apply.
  `(2) PERIODS OF LESS THAN A YEAR- If designation of an area as an enterprise
  zone under section 7871 occurs, expires, or is revoked on a date other
  than the first or last day of the taxable year of the taxpayer, or in the
  case of a short taxable year--
  `(A) the limitation specified in subsection (c)(2)(A), and the base period
  wages determined under subsection (c)(3), shall be adjusted on a pro rata
  basis (based upon the number of days), and
  `(B) the reduction specified in subsection (e)(2) and the 90 percent and
  50 percent tests set forth in subsection (f)(1) shall be determined by
  reference to the portion of the taxable year during which the designation
  of the area as an enterprise zone is in effect.
  `(i) Phaseout of credit-
  `(1) IN GENERAL- Except as provided in paragraph (2), in determining
  the amount of the credit for a taxable year under subsection (a) with
  respect to qualified wages paid or incurred for services performed in an
  enterprise zone--
  `(A) the following percentages shall be substituted for `10 percent'
  in subsection (a)(1):
  `(i) 7.5 percent in the earlier of--
  `(I) the taxable year which includes the date which is 21 years after the
  date on which such enterprise zone was designated under section 7881, or
  `(II) the taxable year which includes the date which is 4 years before
  the date (if any) on which such enterprise zone ceases to be a zone under
  section 7881(b)(1)(B),
  `(ii) 5 percent in the next succeeding taxable year,
  `(iii) 2.5 percent in the second next succeeding taxable year, and
  `(iv) zero thereafter, and
  `(B) the amount determined under subsection (a)(2) shall be reduced by--
  `(i) 25 percent in the case of the taxable year described in paragraph
  (1)(A),
  `(ii) 50 percent in the next succeeding taxable year,
  `(iii) 75 percent in the second next succeeding taxable year, and
  `(iv) 100 percent thereafter.
  `(2) REVOCATION OF DESIGNATION- If the designation of an area as an
  enterprise zone is revoked under section 7881(b)(2), such area shall continue
  to be treated as an enterprise zone for the period of 3 taxable years
  beginning after the date of such revocation except that only the allowable
  percentage of the amount of the credit which would (but for this paragraph)
  be allowable under this section for such a year shall be allowed. For
  purposes of the preceding sentence, the term `allowable percentage' means
  the amount determined in accordance with the following table:
`If the taxable year beginning
--The allowable
after the revocation is:
--percentage is:
The first such year
--75
The second such year
--50
The third such year
--25.
  `(j) Early Termination of Employment by Employer in Case of Qualified
  Economically Disadvantaged Individuals, Etc-
  `(1) GENERAL RULE- Under the regulations prescribed by the Secretary, if
  the employment of any qualified economically disadvantaged individual with
  respect to whom qualified wages are taken into account under subsection (a)
  is terminated by the taxpayer at any time during 270-day period beginning
  on the date such individual begins work for the employer, the tax under
  this chapter for the taxable year in which such employment is terminated
  shall be increased by an amount (determined under such regulations) equal
  to the credit allowed under subsection (a) for such taxable year and all
  prior taxable years attributable to qualified wages paid or incurred with
  respect to such employee.
  `(2) Subsection not to apply in certain cases-
  `(A) IN GENERAL- Paragraph (1) shall not apply to--
  `(i) a termination of employment of an employee who voluntarily leaves
  the employment of the employer.
  `(ii) a termination of employment of an individual who, before the close
  of the period referred to in paragraph (1), becomes disabled to perform
  the services of such employment, unless such disability is removed before
  the close of such period and the employer fails to offer reemployment to
  such individual,
  `(iii) a termination of employment of an individual, if it is determined
  under the applicable State unemployment compensation law that the termination
  was due to the misconduct of such individual, or
  `(iv) a termination of employment of an individual due to a substantial
  reduction in the trade or business operations of the employer.
  `(B) CHANGE IN FORM OF BUSINESS, ETC- For purposes of paragraph (1), the
  employment relationship between the employer and an employee shall not be
  treated as terminated--
  `(i) by a transaction to which section 381(a) applies, if the employee
  continues to be employed by the acquiring corporation, or
  `(ii) by reason of a mere change in the form of conducting the trade or
  business of the taxpayer, if the employee continues to be employed in such
  trade or business and the employer retains a substantial interest in such
  trade or business.
  `(3) SPECIAL RULE- Any increase in tax under paragraph (1) shall not be
  treated as tax imposed by this chapter for purposes of determining the
  amount of any credit allowable under subpart A.
  `(k) REGULATIONS- The Secretary shall prescribe such regulations as may be
  necessary to carry out the purposes of this section, including regulations
  to prevent the abuse of such purposes by denying the credit allowable under
  this section to employers which relocate their businesses in an enterprise
  zone while displacing former employees or which otherwise conduct their
  businesses so as to take advantage of the credit allowable by this section
  without furthering such purposes.'
  (b) NO DEDUCTION ALLOWED- Section 280C (relating to disallowance of
  deductions for certain expenses for which credits are allowable) is amended
  by adding at the end thereof the following new subsection:
  `(c) RULE FOR SECTION 30 CREDITS- No deduction shall be allowed for that
  portion of the wages or salaries paid or incurred for the taxable year
  which is equal to the amount of the credit allowable under section 30
  (relating to the employment credit for enterprise zone businesses). This
  subsection shall be applied under a rule similar to the rule under the
  last sentence of subsection (a).'
  (c) Technical Amendments Related to Carryover and Carryback of Credits-
  (1) Carryover of credit-
  (A) Subsection (c) of section 381 (relating to items of the distributor
  or transferor corporation) is amended by adding at the end thereof the
  following new paragraph:
  `(26) CREDIT UNDER SECTION 30- The acquiring corporation shall take into
  account (to the extent proper to carry out the purposes of this section
  and section 30, and under such regulations as may be prescribed by the
  Secretary) the items required to be taken into account for purposes of
  section 30 in respect to the distributor or transferor corporation.'
  (B) Paragraph (2) of section 383(a) is amended by redesignating subparagraphs
  (A) and (B) as subparagraphs (B) and (C), respectively, and by inserting
  before subparagraph (B) (as so redesignated) the following new subparagraph:
  `(A) unused enterprise zone employment credit under section 30,'.
  (2) Carryback of credit-
  (A) Subparagraph (C) of section 6511(d)(4) (defining credit carryback)
  is amended by inserting `and any enterprise zone employment credit under
  section 30(b)' before the period at the end thereof.
  (B) Subsection (a) of section 6411 (relating to tentative carryback and
  refund adjustments) is amended--
  (i) by inserting `enterprise zone employment credit carryback,' after
  `section 172(b),' in the first sentence, and
  (ii) by striking so much of the second sentence as follows `the return for
  the taxable year' and inserting the following: `of the net operating loss,
  net capital loss, unused enterprise zone employment credit, or unused
  business credit from which the carryback results and within a period of
  12 months after such taxable year (or, with respect to any portion of an
  enterprise zone employment credit carryback, or business credit carryback
  attributable to a net operating loss carryback or a net capital loss
  carryback from a subsequent taxable year, within a period of 12 months from
  the end of such subsequent taxable year or, with respect to any portion of a
  business credit carryback attributable to a research credit carryback or an
  enterprise zone employment credit carryback from a subsequent taxable year
  within a period of 12 months from the end of such subsequent taxable year)
  in the manner and form required by regulations prescribed by the Secretary'.
  (C) Subsections (a)(1) and (b) of section 6411 are each amended by inserting
  `unused enterprise zone employment credit,' after `net capital loss,'.
  (d) CLERICAL AMENDMENT- The table of sections for subpart B of part IV of
  subchapter A of chapter 1 is amended by adding after the item relating to
  section 29 the following new item:
`Sec. 30A. Credit for enterprise zone employment.'
  (e) EFFECTIVE DATE- The amendments made by this section shall apply to
  taxable years beginning after December 31, 1989.
SEC. 122. CREDIT FOR ENTERPRISE ZONE EMPLOYEES.
  (a) IN GENERAL- Subpart B of part IV of subchapter A of chapter 1 (relating
  to credits allowable), as amended by section 221, is amended by adding
  after section 30A the following new section:
`SEC. 30A. CREDIT FOR ENTERPRISE ZONE EMPLOYEES.
  `(a) IN GENERAL- In the case of a qualified employee, there is allowed as
  a credit against the tax imposed by this chapter for the taxable year an
  amount equal to 5 percent of the qualified wages for the taxable year.
  `(b) DEFINITIONS- For purposes of this section--
  `(1) QUALIFIED EMPLOYEE- the term `qualified employee' means an individual--
  `(A) who is described in section 30A(f)(1), and
  `(B) who is not the employee of the Federal Government or any State or
  subdivision of a State.
  `(2) Qualified wages-
  `(A) IN GENERAL- The term `qualified wages' has the meaning given to `wages'
  under subsection (b) of section 3306, attributable to services performed
  for an employer with respect to whom the employee is a qualified employee,
  in an amount which does not exceed 1 1/2  times the dollar limitation
  specified in such subsection.
  `(B) EXCEPTION- The term `qualified wages' does not include any compensation
  received from the Federal Government or any State or subdivision of a State.
  `(3) ENTERPRISE ZONE- The term `enterprise zone' means any area with respect
  to which a designation as an enterprise zone is in effect under section 7881.
  `(c) PHASEOUT OF CREDIT- In determining the amount of the credit for the
  taxable year under subsection (a) with respect to qualified wages paid
  to qualified employees for services performed in an enterprise zone, the
  following percentages shall be substituted for `5 percent' in subsection (a):
  `(1) 3 3/4  percent in the taxable year in which the date which is--
  `(A) 21 years after the date on which such enterprise zone was designated
  under section 7881 occurs, or
  `(B) if earlier, the date 4 years before the date the zone designation is
  to expire;
  `(2) 2 1/2  percent in the next succeeding taxable year;
  `(3) 1 1/4  percent in the second next succeeding taxable year; and
  `(4) zero thereafter.
  `(d) APPLICATION WITH OTHER CREDITS- The credit allowed by subsection (a)
  for a taxable year shall not exceed the excess (if any) of--
  `(1) the regular tax for the taxable year reduced by the sum of the credits
  allowable under subpart A and sections 27, 28, 29, and 30, over
  `(2) the tentative minimum tax for the taxable year.'
  (b) CONFORMING AMENDMENT- The table of sections for subpart B of part IV
  of subchapter A of chapter 1 is amended by adding after the item relating
  to section 30 the following new item:
`Sec. 30A. Credit for enterprise zone employees.'
  (c) EFFECTIVE DATE- The amendments made by this section shall apply to
  taxable years after December 31, 1989.
PART II--CREDITS FOR INVESTMENT IN TANGIBLE PROPERTY IN ENTERPRISE ZONES
SEC. 123. INVESTMENT TAX CREDIT FOR NEW ENTERPRISE ZONE CONSTRUCTION PROPERTY.
  (a) SECTION 38 PROPERTY- Paragraph (1) of section 48(a) (defining section 38
  property) is amended by striking out `or' at the end of subparagraph (F),
  by striking out the period at the end of subparagraph (G) and inserting
  in lieu thereof `; or', and by adding after subparagraph (G) the following
  new subparagraph:
  `(H) new enterprise zone construction property (within the meaning of
  subsection (t)) which is not otherwise section 38 property.'
  (b) Amount of Credit-
  (1) IN GENERAL- Subsection (a) of section 46 (relating to amount of
  investment tax credit) is amended by striking out `and' at the end of
  paragraph (2), by striking out the period at the end of paragraph (3)
  and inserting in lieu thereof `, and', and by adding at the end thereof
  the following new paragraph:
  `(4) in the case of new enterprise zone construction property, the enterprise
  zone percentage.'
  (2) ENTERPRISE ZONE PERCENTAGE DEFINED- Subsection (b) of section 46 is
  amended by adding at the end thereof the following new paragraph:
  `(5) Enterprise zone percentage-
  `(A) IN GENERAL- The enterprise zone percentage is 10 percent.
  `(B) PHASEOUT OF CREDIT AS ENTERPRISE ZONE ENDS- Subparagraph (A) shall
  be applied by substituting the following percentages for 10 percent:
  `(i) For the taxable year described in section 30(i)(1)(A)(i), 7.5.
  `(ii) For the next succeeding taxable year, 5.
  `(iii) For the second next succeeding taxable year, 2.5.
  `(iv) For any subsequent taxable year, zero.'
  (3) CONFORMING AMENDMENT- Section 48(o) (defining certain credits) is
  amended by adding at the end thereof the following new paragraph:
  `(4) ENTERPRISE ZONE CREDIT- The term `enterprise zone credit' means that
  portion of the credit allowed by section 38 which is attributable to the
  enterprise zone percentage.'
  (c) DEFINITIONS- Section 48 (relating to definitions and special rules)
  is amended by redesignating the subsection relating to cross references
  as subsection (u) and by inserting after subsection (s) the following
  new subsection:
  `(t) New Enterprise Zone Construction Property-
  `(1) IN GENERAL- The term `new enterprise zone construction property'
  means any section 1250 property which is--
  `(A) located in an enterprise zone,
  `(B) used by the taxpayer predominantly in the active conduct of a trade
  or business within an enterprise zone, and
  `(C) either--
  `(i) the construction, reconstruction, rehabilitation, renovation, expansion,
  or erection of which is completed by the taxpayer during the period the
  designation as a zone is in effect under section 7881, or
  `(ii) acquired during such period if the original use of such property
  commences with the taxpayer and commences during such period.
  `(2) SPECIAL RULES-
  `(A)(i) The term `new enterprise zone construction property' shall not
  include property acquired (directly or indirectly) by the taxpayer from
  a person who is related to the taxpayer (determined as of the time the
  property is acquired by the taxpayer).
  `(ii) For purposes of clause (i), a person (hereinafter in this clause
  referred to as the `related person') is related to any other person if--
  `(I) the related person bears a relationship to such other person specified
  in section 267(b) or 707(b)(1), or
  `(II) the related person and such other person are engaged in trades or
  businesses under common control (within the meaning of subsections (a)
  and (b) of section 52).
For purposes of subclause (I), `10 percent' shall be substituted for
`50 percent' in applying sections 267(b)(1) and 767(b)(1). In the case
of the acquisition of any property by any partnership which results from
the termination of another partnership under section 708(b)(1)(B), the
determination of whether the acquiring partnership is related to the other
partnership shall be made immediately before the event resulting in such
termination.
  `(B) In applying section 46(c)(1)(A) in the case of property described in
  paragraph (1)(C)(i), there shall be taken into account only that portion
  of the basis which is properly attributable to construction or erection
  during such period.
  `(3) REAL ESTATE RENTAL- For purposes of this section, ownership of
  residential, commercial, or industrial real property within an enterprise
  zone for rental shall be treated as the active conduct of a trade or
  business in an enterprise zone.'
  (d) LODGING TO QUALIFY- Paragraph (3) of section 48(a) (relating to property
  used for lodging) is amended--
  (1) by striking out `and' at the end of subparagraph (C),
  (2) by striking out the period at the end of subparagraph (D) and inserting
  in lieu thereof `, and,' and
  (3) by adding at the end thereof the following new subparagraph:
  `(E) new enterprise zone construction property.'
  (e) RECAPTURE- Subsection (a) of section 47 (relating to certain
  dispositions, etc., of section 38 property) is amended by adding at the
  end thereof the following new paragraph:
  `(10) Special rules for new enterprise zone construction property-
  `(A) IN GENERAL- If, during any taxable year, property with respect to
  which the taxpayer claimed an enterprise zone credit is disposed of the
  tax under this chapter for such taxable year shall be increased by the
  amount described in subparagraph (B).
  `(B) AMOUNT OF INCREASE- The increase in tax under subparagraph (A) shall
  equal the aggregate decrease in the credits allowed under section 38 by
  reason of section 46(a)(4) for all prior taxable years which would have
  resulted solely from reducing the expenditures taken into account with
  respect to the property by an amount which bears the same ratio to such
  expenditures as the number of taxable years that the property was held
  by the taxpayer bears to the applicable recovery period for earnings and
  profits under section 312(k).'
  (f) BASIS ADJUSTMENT TO REFLECT INVESTMENT CREDIT- Paragraph (3) of section
  48(q) (relating to basis adjustment to section 38 property) is amended to
  read as follows:
  `(3) SPECIAL RULE FOR QUALIFIED REHABILITATION AND ENTERPRISE ZONE
  EXPENDITURES- In the case of any credit determined under section 46(a) for--
  `(A) any qualified rehabilitation expenditure in connection with a qualified
  rehabilitated building other than a certified historic structure, or
  `(B) any expenditure in connection with new enterprise zone construction
  property (within the meaning of section 48(s)(1)),
paragraphs (1) and (2) of this subsection and paragraph (5) of subsection
(d) shall be applied without regard to the phrase `50 percent of'.'
  (g) EFFECTIVE DATE- The amendments made by this section shall apply to
  periods after December 31, 1988, under rules similar to the rules of
  section 48(m) of the Internal Revenue Code of 1986.
PART III--NONRECOGNITION OF QUALIFIED ENTERPRISE ZONE CAPITAL GAIN WHERE
ACQUISITION OF ENTERPRISE ZONE BUSINESS PROPERTY
SEC. 124. NONRECOGNITION OF QUALIFIED ENTERPRISE ZONE CAPITAL GAIN WHERE
ACQUISITION OF ENTERPRISE ZONE BUSINESS PROPERTY.
  (a) IN GENERAL- Part III of subchapter O of chapter 1 (relating to nontaxable
  exchanges) is amended by adding at the end thereof the following new section:
`SEC. 1043. NONRECOGNITION OF CAPITAL GAIN WHERE ACQUISITION OF ENTERPRISE
ZONE BUSINESS PROPERTY.
  `(a) NONRECOGNITION OF GAIN- If--
  `(1) any property is sold and there would (but for this section) be
  recognized gain with respect to such sale,
  `(2) within the 1-year period beginning on the date of such sale qualified
  replacement property is acquired by the taxpayer, and
  `(3) the taxpayer elects the application of this section with respect to
  such sale,
such gain from such sale shall be recognized only to the extent that the
amount realized from such sale exceeds the cost to the taxpayer of such
replacement property.
  `(b) QUALIFIED REPLACEMENT PROPERTY- For purposes of this section--
  `(1) IN GENERAL- The term `qualified replacement property' means--
  `(A) any tangible personal property used predominantly in an enterprise zone
  in the active conduct of a trade or business within such enterprise zone,
  `(B) any real property located in an enterprise zone used predominantly
  in the active conduct of a trade or business within such enterprise zone, and
  `(C) any interest in a corporation, partnership, or other entity if, for
  the 3 most recent taxable years of such entity ending before the date of
  the purchase of such interest, such entity, was a qualified business.
  `(2) QUALIFIED BUSINESS- The term `qualified business' means any person--
  `(A) which is actively engaged in the conduct of a trade or business within
  an enterprise zone during each of the 3 most recent taxable years of such
  entity ending before the date of sale of the interest,
  `(B) with respect to which at least 80 percent of such person's gross
  receipts for the taxable year are attributable to the active conduct of
  a trade or business within an enterprise zone, and
  `(C) with substantially all of its tangible assets located within an
  enterprise zone.
  `(3) REAL ESTATE RENTAL- Ownership of residential, commercial, or industrial
  real property within an enterprise zone for rental shall be treated as
  the active conduct of a trade or business in an enterprise zone.
  `(c) SPECIAL RULES- For purposes of this section--
  `(1) EXCHANGE TREATED AS SALE- An exchange by the taxpayer of property
  for other property shall be treated as a sale of the first property, and
  the acquisition of any qualified replacement property on the exchange of
  property shall be treated as a purchase of such replacement property.
  `(2) SECTION NOT TO APPLY TO ORDINARY INCOME- Subsection (a) shall not
  apply to any gain to the extent such gain is treated as ordinary income
  under any provision of this chapter.
  `(d) REDUCTION IN BASIS- Where the purchase of any qualified replacement
  property results under subsection (a) in the nonrecognition of gain on the
  sale of any other property, the basis of such replacement property shall be
  reduced by an amount equal to the amount of gain not so recognized on the
  sale of such other property. Where the purchase of more than 1 qualified
  replacement property is taken into account in the nonrecognition under
  subsection (a) of gain on the sale of a property, the preceding sentence
  shall be applied to each such replacement property in the order in which
  such properties are purchased.
  `(e) STATUTE OF LIMITATIONS- If the taxpayer during any taxable year sells
  any property at a gain, then--
  `(1) the statutory period for the assessment of any deficiency attributable
  to any part of such gain shall not expire before the expiration of the
  3-year period beginning on the date the Secretary is notified by the taxpayer
  (in such manner as the Secretary may by regulations prescribe) of--
  `(A) the taxpayer's cost of purchasing any qualified replacement property
  which the taxpayer claims results in nonrecognition of any part of such gain,
  `(B) the taxpayer's intention not to purchase any such investment within
  the 1-year period described in subsection (a), or
  `(C) the failure by the taxpayer to purchase any such replacement property
  within such period; and
  `(2) such deficiency may be assessed before the expiration of such 3-year
  period notwithstanding the provisions of any other law or rule of law
  which would otherwise prevent such assessment.'
  (b) HOLDING PERIOD- Section 1223 (relating to holding period of property) is
  amended by redesignating paragraph (14) as paragraph (15) and by inserting
  after paragraph (13) the following new paragraph:
  `(14) In determining the period for which the taxpayer has held any
  qualified replacement property the acquisition of which resulted under
  section 1043 in the nonrecognition of any part of the gain realized on
  the sale or exchange of any other property, there shall be included the
  period for which the property sold or exchanged had been held as of the
  date of such sale or exchange.'
  (c) BASIS ADJUSTMENT- Subsection (a) of section 1016 (relating to adjustments
  to basis) is amended by striking out `and' at the end of paragraph (24),
  by striking out the period at the end of paragraph (25) and inserting
  in lieu thereof `; and', and by adding at the end thereof the following
  new paragraph:
  `(26) in the case of any qualified replacement property the acquisition of
  which resulted under section 1043 in the nonrecognition of gain on the sale
  or exchange of other property, to the extent provided by section 1043(d).'
  (d) CLERICAL AMENDMENT- The table of sections of part III of subchapter O
  of chapter 1 is amended by adding at the end thereof the following new item:
`Sec. 1043. Nonrecognition of qualified enterprise zone capital gain where
acquisition of enterprise zone business property.'
  (e) EFFECTIVE DATE- The amendments made by this section shall apply to
  sales and exchanges after December 31, 1989, in taxable years ending after
  such date.
PART IV--DEDUCTION FOR PURCHASE OF ENTERPRISE STOCK
SEC. 125. DEDUCTION FOR PURCHASE OF ENTERPRISE STOCK.
  (a) IN GENERAL- Part VI of subchapter B of chapter 1 (relating to itemized
  deductions for individuals and corporations) is amended by adding at the
  end thereof the following new section:
`SEC. 197. DEDUCTION FOR PURCHASE OF ENTERPRISE STOCK.
  `(a) IN GENERAL- At the election of the taxpayer, there shall be allowed
  as a deduction the aggregate amount paid during the taxable year for the
  purchase of enterprise stock on the original issue of such stock by a
  qualified issuer.
  `(b) MAXIMUM DEDUCTION-
  `(1) IN GENERAL- The maximum amount allowed as a deduction under subsection
  (a) to a taxpayer for the taxable year shall not exceed $100,000.
  `(2) CONTROLLED GROUPS- For purposes of paragraph (1), the taxpayer and
  all persons who are related persons with respect to the taxpayer shall
  be treated as 1 person, and the $100,000 amount in paragraph (1) shall
  be allocated among the taxpayer and such persons in proportion to their
  respective purchases of stock during the taxable year for which credit is
  allowable by this section.
  `(3) ALLOCATION OF DEDUCTION WHERE MORE THAN $100,000 OF STOCK PURCHASED-
  If the amount of stock purchased by any person exceeds the limitation under
  this subsection with respect to such person, the deduction allowed under
  this section shall be allocated pro rata among the stock so purchased in
  accordance with the purchase price per share.
  `(c) DISPOSITIONS OF STOCK-
  `(1) GAIN TREATED AS ORDINARY INCOME- If any enterprise stock with respect
  to which a deduction was allowed under this section is disposed of by the
  taxpayer, then the lesser of--
  `(A) the excess of--
  `(i)(I) in the case of a sale or exchange, the amount realized, or
  `(II) in the case of any other disposition, the fair market value of the
  stock, over
  `(ii) the adjusted basis of such stock, or
  `(B) the amount of the deduction allowed under this section with respect
  to such stock,
shall be treated as ordinary income. Such gain shall be recognized
notwithstanding any other provision of this subtitle.
  `(2) INTEREST CHARGED IF DISPOSITION WITHIN 3 YEARS OF PURCHASE-
  `(A) IN GENERAL- If any enterprise stock is disposed of before the end
  of the 3-year period beginning on the date such stock was purchased by
  the taxpayer, the tax imposed by this chapter for the taxable year in
  which such disposition occurs shall be increased by the enterprise stock
  recapture amount.
  `(B) ENTERPRISE STOCK RECAPTURE AMOUNT- For purposes of subparagraph (A),
  the term `enterprise stock recapture amount' means an amount equal to the
  amount of interest (determined at the rate applicable under section 6621)
  which would accrue--
  `(i) during the period beginning on the date such stock was purchased by the
  taxpayer and ending on the date such stock was disposed of by the taxpayer,
  `(ii) on the aggregate decrease in tax of the taxpayer resulting from
  the deduction allowed under this section with respect to the stock so
  disposed of.
  `(d) TREATMENT WHERE ISSUER CEASES TO BE QUALIFIED-
  `(1) IN GENERAL- If--
  `(A) any qualified issuer with respect to the stock of which any taxpayer
  has made an election under this section ceases to meet the requirements
  of subsection (e)(2)(A) (i), (iii), or (iv), and
  `(B) such cessation occurs at any time before the close of the 5th taxable
  year ending after the date such stock was issued,
the tax treatment described in paragraph (2) shall apply to the taxable year
of the taxpayer in which such cessation occurs.
  `(2) TAX TREATMENT OF TAXPAYER- The tax treatment described in this
  paragraph for any taxable year is--
  `(A) the taxpayer shall include in income as ordinary income the amount
  of the deduction allowed under this section with respect to such stock,
  `(B) the tax imposed by this chapter for such taxable year shall be
  increased by an amount equal to the amount of interest (determined at the
  rate applicable under section 6621) which would accrue--
  `(i) during the period beginning on the date such stock was purchased by
  the taxpayer and ending on the disqualification date,
  `(ii) on the aggregate decrease in tax of the taxpayer resulting from the
  deduction allowed under this section with respect to the stock.
  `(3) DISQUALIFICATION DATE- For purposes of paragraph (2), the term
  `disqualification date' means the earlier of--
  `(A) the date of the issuance by the qualified issuer (or any related
  person with respect to such issuer) of any regulated security, or
  `(B) the last day of the taxable year of the qualified issuer in which
  the requirements of subsection (e)(2)(A) (i) or (iv) ceased to be met.
  `(e) DEFINITIONS- For purposes of this section--
  `(1) ENTERPRISE STOCK- The term `enterprise stock' means common stock
  issued by a qualified issuer but only if the proceeds of such issue are
  used by such issuer in the conduct of a qualified business (as defined in
  section 1043(b)(3)(B)).
  `(2) QUALIFIED ISSUER-
  `(A) IN GENERAL- The term `qualified issuer' means any C corporation which,
  at the time of issuance of the stock involved--
  `(i) is conducting a qualified business described in section 1043(b)(3)(B),
  `(ii) does not have a net worth (either before or immediately after the
  issuance of the stock involved) exceeding $2,000,000,
  `(iii) has not had at any time during the 5-year testing period any
  outstanding regulated securities issued by such corporation, and
  `(iv) has derived during the testing period more than 50 percent of its gross
  receipts during such period from sources other than royalties, rents (other
  than rents from real estate described in section 1043(b)(3)(C)), dividends,
  interest, annuities, and sales and exchanges of stock or securities.
  `(B) RELATED PERSONS TAKEN INTO ACCOUNT IN CERTAIN CASES- For purposes of
  clauses (ii) and (iii) of subparagraph (A), the issuer and all persons who
  are related persons with respect to such issuer shall be treated as 1 person.
  `(C) TESTING PERIOD- For purposes of subparagraph (A), the term `testing
  period' means the period beginning on the first day of the 5th taxable
  year beginning before the issuance of the stock involved and ending on
  the date of such issuance.
  `(3) REGULATED SECURITIES- The term `regulated securities' means any
  security--
  `(A) registered on a national exchange under section 12(b) of the Securities
  Exchange Act of 1934, or
  `(B) registered (or required to be registered) under section 12(g) of such
  Act (determined without regard to section 12(g)(2) of such Act).
  `(4) RELATED PERSON- A person is a related person to another person if--
  `(A) such persons are treated as a single employer under subsections (a)
  and (b) of section 52, or
  `(B) in the case of individuals, such persons are husband and wife.
  `(f) SPECIAL RULES-
  `(1) AMOUNT PAID AFTER CLOSE OF TAXABLE YEAR- An amount paid after the
  close of the taxable year for the purchase of enterprise stock shall be
  treated for purposes of subsection (a) as paid during such year if--
  `(A) such amount is so paid not later than the time prescribed by law for
  filing the return for such taxable year (including extensions thereof), and
  `(B) the taxpayer was under a binding contract as of the close of such
  taxable year to purchase such stock.
  `(2) LIMITATION ON AMOUNT OF DEDUCTION- If--
  `(A) any enterprise stock is issued in exchange for property,
  `(B) the basis of such stock in the hands of the taxpayer is determined
  by reference to the basis of such property, and
  `(C) the adjusted basis (for determining gain) of such property immediately
  before the exchange exceeded its fair market value at such time,
then the deduction under this section, and such adjusted basis, shall both
be reduced by the excess described in subparagraph (C).
  `(g) BASIS ADJUSTMENT- For purposes of this subtitle, if a deduction is
  allowed under this section with respect to the purchase of any stock, the
  basis of such stock (without regard to this subsection) shall be reduced
  by the amount of the deduction allowed with respect to the purchase of
  such stock.'
  (b) TECHNICAL AMENDMENT- Subsection (a) of section 1016 (relating to
  adjustments to basis), as amended by this Act, is amended by striking out
  `and' at the end of paragraph (25), by striking out the period at the end
  of paragraph (26) and inserting in lieu thereof `, and', and by adding at
  the end thereof the following new paragraph:
  `(27) to the extent provided in section 197(g), in the case of stock with
  respect to which a deduction was allowed under section 197.'
  (c) CLERICAL AMENDMENT- The table of sections for part VI of subchapter B
  of chapter 1 is amended by adding at the end thereof the following new item:
`Sec. 197. Deduction for purchase of enterprise stock.'
  (d) EFFECTIVE DATE- The amendments made by this section shall apply to
  stock purchased after December 31, 1989.
PART V--RULES RELATING TO PRIVATE ACTIVITY BONDS
SEC. 126. PRIVATE ACTIVITY BONDS.
  (a) LIMITATION ON ACCELERATED COST RECOVERY DEDUCTION NOT TO APPLY TO
  ENTERPRISE ZONE PROPERTY- Subparagraph (C) of section 168(g)(5) (relating
  to limitations on property financed with tax-exempt bonds) is amended to
  read as follows:
  `(C) EXCEPTIONS- Subparagraph (A) shall not apply to any which is placed
  in service--
  `(i) in connection with any qualified residential rental project (within
  the meaning of section 142(a)(7)), or
  `(ii) as new enterprise zone construction property (within the meaning of
  section 48(t)).'
  (b) TERMINATION OF SMALL ISSUE EXEMPTION NOT TO APPLY- Paragraph 12 of
  section 142(a) (relating to termination of small issue exemption) is
  amended by adding at the end thereof the following new subparagraph:
  `(D) ENTERPRISE ZONE FACILITIES- This paragraph shall not apply to any
  obligation which is part of an issue substantially all of the proceeds
  of which are used to finance facilities within an enterprise zone if such
  facilities are placed in service while the designation as such a zone is
  in effect under section 7881.'
  (c) EFFECTIVE DATE- The amendments made by this section shall apply to
  obligations issued after December 31, 1989, in taxable years ending after
  such date.
PART VI--ORDINARY LOSS DEDUCTION FOR SECURITIES OF ENTERPRISE ZONE BUSINESS
WHICH BECOME WORTHLESS
SEC. 127. ORDINARY LOSS DEDUCTION ALLOWED FOR SECURITIES OF ENTERPRISE ZONE
BUSINESS WHICH BECOME WORTHLESS.
  (a) GENERAL RULE- Subsection (g) of section 165 (relating to losses)
  is amended by adding at the end thereof the following new paragraph:
  `(4) SECURITIES OF ENTERPRISE ZONE BUSINESS- If any security of a qualified
  business (as defined in section 1043(b)) which is a capital asset becomes
  worthless during the taxable year--
  `(A) paragraph (1) shall not apply, and
  `(B) the loss resulting therefrom shall, for purposes of this subtitle,
  be treated as a loss from the sale or exchange, on the last day of the
  taxable year, of property which is not a capital asset.'
  (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to
  losses sustained after December 31, 1989, in taxable years ending after
  such date.
PART VII--INCREASE IN RESEARCH CREDIT FOR RESEARCH CONDUCTED IN ENTERPRISE
ZONES
SEC. 128. INCREASE IN RESEARCH CREDIT FOR RESEARCH CONDUCTED IN ENTERPRISE
ZONES.
  (a) IN GENERAL- Section 41 (relating to credit for increasing research
  activities) is amended by adding at the end thereof the following new
  subsection:
  `(i) INCREASE IN CREDIT FOR RESEARCH CONDUCTED IN ENTERPRISE ZONE- Subsection
  (a)(1) shall be applied by substituting `37 1/2  percent' for `20 percent'
  with respect to the lesser of--
  `(1) the excess described in subsection (a)(1), or
  `(2) the excess which would be described in subsection (a) if only research
  conducted in enterprise zones were taken into account.
For purposes of paragraph (2), an area shall be treated as an enterprise zone
for a base period with respect to a taxable year if such area is designated
as an enterprise zone for such taxable year.'
  (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to
  taxable years beginning after December 31, 1989, and to base periods with
  respect to such taxable years.
PART VIII--SENSE OF THE CONGRESS WITH RESPECT TO TAX SIMPLIFICATION
SEC. 129. TAX SIMPLIFICATION.
  It is the sense of the Congress that the Secretary of the Treasury should
  in every way possible simplify the administration and enforcement of any
  provision of the Internal Revenue Code of 1954 added to, or amended by,
  this Act.
PART IX--REGULATIONS
SEC. 130. REGULATIONS.
  The Secretary of the Treasury or his delegate shall issue such regulations
  as may be necessary to carry out the amendments made by this title not
  later than 6 months after the date of the enactment of this Act.
Subtitle C--Regulatory Flexibility
SEC. 131. DEFINITION OF SMALL ENTITIES IN ENTERPRISE ZONES FOR PURPOSES OF
ANALYSIS OR REGULATORY FUNCTIONS.
  Section 601 of title 5, United States Code, is amended by--
  (1) strike out `and' at the end of paragraph (5); and
  (2) striking out paragraph (6) and inserting in lieu thereof the following:
  `(6) the term `small entity' means--
  `(A) a small business, small organization, or small governmental jurisdiction
  within the meaning of paragraphs (3), (4), and (5) of this section,
  respectively; and
  `(B) any qualified business; any governments which designated and approved an
  area which has been designated as an enterprise zone (within the meaning of
  section 7881 of the Internal Revenue Code of 1986) to the extent any rule
  pertains to the carrying out of projects, activities, or undertakings within
  such zone; and any not-for-profit enterprise carrying out a significant
  portion of its activities within such a zone; and
  `(7) the term `qualified business' means any person, corporation, or
  other entity--
  `(A) which is engaged in the active conduct of a trade or business within
  an enterprise zone (within the meaning of section 7881 of the Internal
  Revenue Code of 1986); and
  `(B) for whom at least 50 percent of its employees are qualified employees
  (within the meaning of section 30(f) of such Code).'
SEC. 132. WAIVER OR MODIFICATION OF AGENCY RULES IN ENTERPRISE ZONES.
  (a) Chapter 6 of title 5, United States Code, is amended by redesignating
  sections 611 and 612 as sections 612 and 613, respectively, and inserting
  the following new section immediately after section 610:
`Sec. 611. Waiver or modification of agency rules in enterprise zones
  `(a) Upon the written request of the governments which designated and
  approved an area which has been designated as an enterprise zone under
  section 7881 of the Internal Revenue Code of 1986, an agency is authorized,
  in order to further the job creation, community development, or economic
  revitalization objectives of the zone, to waive or modify all or part of
  any rule which it has authority to promulgate, as such rule pertains to
  the carrying out of projects, activities, or undertakings within the zone.
  `(b) Nothing in this section shall authorize an agency to waive or modify
  any rule adopted to carry out a statute or Executive order which prohibits,
  or the purpose of which is to protect persons against, discrimination on
  the basis of race, color, religion, sex, marital status, national origin,
  age, or handicap.
  `(c) A request under subsection (a) shall specify the rule or rules to
  be waived or modified and the change proposed, and shall briefly describe
  why the change would promote the achievement of the job creation, community
  development, or economic revitalization objectives of the enterprise zone. If
  a request is made to an agency other than the Department of Housing and
  Urban Development, the requesting governments shall send a copy of the
  request to the Secretary of Housing and Urban Development at the time the
  request is made.
  `(d) In considering a request, the agency shall weigh the extent to which
  the proposed change is likely to further job creation, community development,
  or economic revitalization within the enterprise zone against the effect the
  change is likely to have on the underlying purposes of applicable statutes
  in the geographic area which would be affected by the change. The agency
  shall approve the request whenever it finds, in its discretion, that the
  public interest which the proposed change would serve in furthering such
  job creation, community development or economic revitalization outweighs
  the public interest which continuation of the rule unchanged would serve
  in furthering such underlying purposes. The agency shall not approve any
  request to waive or modify a rule if that waiver or modification would--
  `(1) directly violate a statutory requirement (including any requirement
  of the Fair Labor Standards Act of 1938 (52 Stat. 1060; 29 U.S.C. 201 et
  seq.)); or
  `(2) be likely to present a significant risk to the public health, including
  environmental health or safety, such as a rule with respect to occupational
  safety or health, or environmental pollution.
  `(e) If a request is disapproved, the agency shall inform the requesting
  governments in writing of the reasons therefor and shall, to the maximum
  extent possible, work with such governments to develop an alternative,
  consistent with the standards contained in subsection (d).
  `(f) Agencies shall discharge their responsibilities under this section
  in an expeditious manner, and shall make a determination on requests not
  later than 90 days after their receipt.
  `(g) A waiver or modification of a rule under subsection (a) shall not
  be considered to be a rule, rulemaking, or regulation under chapter 5 of
  this title. To facilitate reaching its decision on any requested waiver
  or modification, the agency may seek the views of interested parties and,
  if the views are to be sought, determine how they should be obtained and
  to what extent, if any, they should be taken into account in considering
  the request. The agency shall publish a notice in the Federal Register
  stating any waiver or modification of a rule under this section.
  `(h) In the event that an agency proposes to amend a rule for which a
  waiver or modification under this section is in effect, the agency shall
  not change the waiver or modification to impose additional requirements
  unless it determines, consistent with standards contained in subsection
  (d), that such action is necessary.
  `(i) No waiver or modification of a rule under this section shall remain
  in effect for a longer period than the period for which the enterprise
  zone designation remains in effect for the area in which the waiver or
  modification applies.
  `(j) For purposes of this section, the term `rule' means (1) any rule as
  defined in section 551(4) of this title or (2) any rulemaking conducted
  on the record after opportunity for an agency hearing pursuant to sections
  556 and 557 of this title.'
  (b) The table of sections for such chapter is amended by redesignating
  `Sec. 611.' and `Sec. 612.' and `Sec. 613.', respectively, and inserting
  the following new item immediately after `Sec. 610.':
`Sec. 611. Waiver or modification of agency rules in enterprise zones.'
  (c) Section 601(2) of such title is amended by inserting `(except for
  purposes of section 611)' immediately before `means.'
  (d) Section 613 of such title, redesignated by subsection (a) of this
  section, is amended by--
  (1) inserting `(except section 611)' immediately after `chapter' in
  subsection (a); and
  (2) inserting `as defined in section 601(2)' immediately before the period
  at the end of the first sentence of subsection (b).
SEC. 133. COORDINATION OF HOUSING AND URBAN DEVELOPMENT PROGRAMS IN ENTERPRISE
ZONES.
  Section 3 of the Department of Housing and Urban Development Act is amended
  by adding at the end thereof the following new subsection:
  `(d) The Secretary of Housing and Urban Development shall--
  `(1) promote the coordination of all programs under his jurisdiction which
  are carried on within an enterprise zone designated pursuant to 7881 of
  the Internal Revenue Code of 1986;
  `(2) expedite, to the greatest extent possible, the consideration of
  applications for programs referred to in paragraph (1) through the
  consolidation of forms or otherwise; and
  `(3) provide, whenever possible, for the consolidation of periodic reports
  required under programs referred to in paragraph (1) into one summary
  report submitted at such intervals as may be designated by the Secretary.'
Subtitle D--Establishment of Foreign-Trade Zones in Enterprise Zones
SEC. 141. FOREIGN-TRADE ZONE PREFERENCES.
  (a) PREFERENCE IN ESTABLISHMENT OF FOREIGN-TRADE ZONES IN REVITALIZATION
  AREAS- In processing applications for the establishment of foreign-trade
  zones pursuant to an Act entitled `To provide for the establishment,
  operation, and maintenance of foreign-trade zones in ports of entry of the
  United States, to expedite and encourage foreign commerce, and for other
  purposes,' approved June 18, 1934 (48 Stat. 998), the Foreign-Trade Zone
  Board shall consider on a priority basis and expedite, to the maximum extent
  possible, the processing of any application involving the establishment
  of a foreign-trade zone within an enterprise zone designated pursuant to
  section 7881 of the Internal Revenue Code of 1954.
  (b) APPLICATION PROCEDURE- In processing applications for the establishment
  of ports of entry pursuant to an Act entitled `An Act making appropriations
  for sundry civil expenses of the Government for the fiscal year ending
  June thirtieth, nineteen hundred and fifteen, and for other purposes,'
  approved August 1, 1914 (38 Stat. 609), the Secretary of the Treasury shall
  consider on a priority basis and expedite, to the maximum extent possible,
  the processing of any application involving the establishment of a port
  of entry which is necessary to permit the establishment of a foreign-trade
  zone within an enterprise zone.
  (c) APPLICATION EVALUATION- In evaluating applications for the establishment
  of foreign-trade zones and ports of entry in connection with enterprise
  zones, the Foreign-Trade Zone Board and the Secretary of the Treasury shall
  approve the applications to the maximum extent practicable, consistent
  with their respective statutory responsibilities.
Enterprise Zone Development and Employment Act of 1989

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