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American Jobs Creation Act of 2004

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Private activities eligible for financing with tax-exempt private activity bonds



Present law includes several exceptions permitting States or local governments to act as conduits providing tax-exempt financing for private activities. Generally, interest on bonds issued to benefit section 501(c)(3) organizations is tax-exempt ("qualified 501(c)(3) bonds"). In addition, States or local governments may issue tax-exempt "exempt-facility bonds" to finance property for certain private businesses. Business facilities eligible for this financing include transportation (airports, ports, local mass commuting, and high speed intercity rail facilities); privately owned and/or privately operated public works facilities (sewage, solid waste disposal, local district heating or cooling, hazardous waste disposal facilities and public educational facilities); privately owned and/or operated low-income rental housing; and certain private facilities for the local furnishing of electricity or gas.

Tax-exempt private activity bonds are subject to restrictions that generally do not apply to other bonds issued by State or local governments. In most cases, the aggregate face amount of tax-exempt private activity bonds that may be issued is restricted by annual volume limits. Moreover, most tax-exempt private activity bonds are subject to a term-to-maturity rule. Under that rule, the average maturity of most tax-exempt private activity bond cannot exceed 120 percent of the economic life of the property being financed.

Section 501(c)(3) organizations generally may not obtain the benefits of exempt facility bonds for debt issued and used to acquire forests and forest lands. In addition, qualified 501(c)(3) bonds may not be issued to acquire forests and forest lands to the extent such lands are used to finance a trade or business that is unrelated to the exempt purposes of the organization. Whether income derived by a section 501(c)(3) organization from timber harvesting is unrelated trade or business income depends upon a variety of factors.


House Bill



No provision.


Senate Amendment



The Senate amendment provides that qualified forest conservation bonds are treated as exempt facility bonds. Qualified forest conservation bonds are bonds issued for a qualified organization if 95 percent or more of the net proceeds of such bonds are used for qualified project costs, including acquisition of forests and forest land, capitalized interest, and credit enhancement fees that constitute qualified guarantee fees (within the meaning of section 148 of the Code). The costs of acquiring forests and forest land are qualified project costs if such land is acquired by a qualified organization from an unrelated party and at the time of acquisition or immediately thereafter such land is subject to a conservation restriction. Among other requirements, a qualified organization must be a nonprofit organization more than half the value of which consists of forests and forest land acquired with the proceeds of qualified forest conservation bonds.

The volume limitation on tax-exempt private activity bonds does not apply to qualified forest conservation bonds. Rather, the maximum aggregate face amount of qualified forest conservation bonds that may be issued is $1.5 billion, to be allocated by the Secretary of Treasury among qualified organizations. For purposes of the term-to-maturity rule, the land and timber acquired with qualified forest conservation bonds shall have an economic life of 35 years.

The Senate amendment provides that certain timber harvesting income derived by a qualified organization from forest lands acquired with proceeds from the qualified forest conservation bonds is excludable from income to the extent such income is used to pay debt service on the bonds and satisfies other conservation restrictions.

Effective date. --The provision is effective for bonds issued on or after the date that is 180 days after the date of enactment and before December 31, 2006 .


Conference Agreement



The conference agreement does not contain the Senate amendment provision.



4. Qualified tribal school modernization bonds (sec. 616 of the Senate amendment)


Present Law



Under present law, the interest on bonds issued by an Indian tribal government is taxexempt if substantially all of the proceeds of are to be used in the exercise of an essential government function. The term essential government function does not include any function that is not customarily performed by State or local governments with general taxing powers. In addition, Indian tribal governments are prohibited from issuing private activity bonds, with the exception of bonds issued for certain manufacturing facilities.

There is no present law provision that permits Indian tribal governments to issue tax-credit bonds.


House Bill



No provision.


Senate Amendment



The Senate amendment authorizes the Secretary of the Interior to establish a program under which eligible Indian tribes may issue qualified tribal school modernization bonds ("tribal school bonds"). A tribal school bond means any bond issued under the program if: (1) 95 percent of the proceeds of the issue are used for the construction, rehabilitation, or repair of a school facility funded by the Bureau of Indian Affairs of the Department of the Interior or for the acquisition of land on which such a school facility is to be constructed; (2) the bond is issued by an Indian tribe; (3) the issuer designates the bond for purposes of the program; and (4) the term of each bond that is part of such an issue does not exceed 15 years. For purposes of the provision, the term Indian tribe has the same meaning as the term Indian tribal government under section 7701(a)(40) of the Code (including the application of section 7871(d)) and any consortium of tribes approved by the Secretary of the Interior.

Under the provision, the holder of a tribal school bond receives a nonrefundable tax credit, in lieu of interest. The amount of the credit allowed is included in the holder's gross income as interest income. Unused credits may be carried forward to the succeeding taxable year.

The Senate amendment authorizes the Secretary of the Interior to establish an escrow fund to secure repayment of tribal school bonds. Principal payments on tribal school bonds may only be made from amounts in the escrow fund and such bonds are not guaranteed by the United States, the issuing Indian tribe, or the tribal school for which the bond was issued.

The Senate amendment establishes a national limitation of $200 million on the amount of tribal school bonds that may be designated in each of the years 2005 and 2006. The authority to issue tribal school bonds shall be allocated to Indian tribes by the Secretary of the Interior.

Effective date. --The provision is effective on the date of enactment with respect to bonds issued after December 31, 2004.


Conference Agreement



The conference agreement does not include the Senate amendment provision.


C. Provisions Relating to Depreciation





1. 7-year recovery period for certain track facilities (sec. 623 of the Senate amendment and sec. 168 of the Code)


Present Law



A taxpayer generally must capitalize the cost of property used in a trade or business and recover such cost over time through annual deductions for depreciation or amortization. Tangible property generally is depreciated under the modified accelerated cost recovery system ("MACRS"), which determines depreciation by applying specific recovery periods, placed-in-service conventions, and depreciation methods to the cost of various types of depreciable property (sec. 168). The cost of nonresidential real property is recovered using the straight-line method of depreciation and a recovery period of 39 years. Nonresidential real property is subject to the mid-month placed-in-service convention. Under the mid-month convention, the depreciation allowance for the first year property is placed in service is based on the number of months the property was in service, and property placed in service at any time during a month is treated as having been placed in service in the middle of the month. Land improvements (such as roads and fences) are recovered over 15 years. An exception exists for the theme and amusement park industry, whose assets are assigned a recovery period of seven years.


House Bill



No provision.


Senate Amendment



The Senate amendment provides a statutory 7-year recovery period for permanent motorsports racetrack complexes. For this purpose, motorsports racetrack complexes include land improvements and support facilities but do not include transportation equipment, warehouses, administrative buildings, hotels, or motels.

Effective date. --The Senate amendment is effective for property placed in service after date of enactment and before January 1, 2008 . No inference is intended with respect to the treatment of expenses incurred prior to the effective date.


Conference Agreement



The conference agreement follows the Senate amendment with the following modification to the effective date provisions.

Effective date. --The conference agreement is effective for property placed in service after the date of enactment and before January 1, 2008 . The conference agreement also excludes racetrack facilities placed in service after the date of enactment from the definition of theme and amusement facilities classified under Asset Class 80.0. The conferees do not intend for this provision to create any inference as to the treatment of property placed in service on or before the date of enactment. Accordingly, the conferees do not intend for the provision to affect the interpretation of the scope of Asset Class 80.0 for assets placed in service prior to the date of enactment. The conferees strongly urge the Secretary to resolve expeditiously any taxpayer disputes with respect to the scope of Class 80.0.



2. Alternative minimum tax and credits (sec. 624 of the Senate amendment and secs. 38 and 53 of the Code)


Present Law





Election to Increase Minimum Tax Credit Limitation in Lieu of Bonus Depreciation

Under present law, corporations are entitled to a minimum tax credit for the minimum tax imposed in prior taxable years. The amount of the credit is limited to the excess of the taxpayer's regular tax over the tentative minimum tax ("minimum tax credit limitation").

Under present law, certain property is allowed an additional depreciation allowance for the taxable year placed in service. This additional allowance is known as "bonus depreciation". Bonus depreciation is a temporary provision.



Use of General Business Credits Against the Alternative Minimum Tax

Under present law, the general business credit for any taxable year is limited to the excess of the taxpayer's income tax over the tentative minimum tax (or, if greater, 25 percent of the regular tax liability in excess of $25,000).338


House Bill



No provision.


Senate Amendment





Election to Increase Minimum Tax Credit Limitation in Lieu of Bonus Depreciation

The Senate amendment provides an election by a corporation to increase its minimum tax credit limitation for a taxable year by one half of the bonus depreciation amount. If a corporation makes an election for any taxable year, no bonus depreciation is allowed with respect to any property placed in service by the corporation for the taxable year. The bonus depreciation amount for a taxable year is an amount (not in excess of $25 million) equal to 30 percent of the aggregate bonus depreciation that would have been allowable but for the election. Any minimum tax credit allowable by reason of the election may be refundable to the extent it exceeds the corporation's tax liability.

Effective date. --Taxable years ending after December 31, 2003 .



Use of General Business Credits Against the Alternative Minimum Tax

The Senate amendment provides that the general business credit for any taxable year beginning in 2004 shall not be less than 50 percent of the lesser of (1) the amount of credit that would be allowed if the tentative minimum tax were zero for the taxable year or (2) the current year business credit. In no event shall the credit be less than the amount otherwise allowable under present law.

Effective date. --Taxable years beginning in 2004.


Conference Agreement



The conference agreement does not include the provisions in the Senate amendment.


D. Expansion of Business Credit





1. New markets tax credit for Native American reservations (sec. 631 of the Senate amendment)


Present Law



Section 45D provides a new markets tax credit for qualified equity investments made to acquire stock in a corporation, or a capital interest in a partnership, that is a qualified community development entity (" CDE ").339 The amount of the credit allowed to the investor (either the original purchaser or a subsequent holder) is (1) a five-percent credit for the year in which the equity interest is purchased from the CDE and for each of the following two years, and (2) a six-percent credit on each anniversary date thereafter for the following four years. The credit is determined by applying the applicable percentage (five or six percent) to the amount paid to the CDE for the investment at its original issue, and is available to the taxpayer who holds the qualified equity investment on the date of the initial investment or on the respective anniversary dates. The credit is recaptured if at any time during the seven-year period that begins on the date of the initial issue of the investment the entity ceases to be a qualified CDE , the proceeds of the investment cease to be used as required, or the interest is redeemed.

A qualified CDE is any domestic corporation or partnership: (1) whose primary mission is serving or providing investment capital for low-income communities or low-income persons; (2) that maintains accountability to residents of low-income communities by their representation on any governing board or any advisory board of the CDE ; and (3) that is certified by the Secretary as being a qualified CDE . A qualified equity investment means stock or a similar equity interest acquired directly from a CDE for cash. Substantially all of the investment proceeds must be used by the CDE to make qualified low-income community investments. For this purpose, qualified low-income community investments include: (1) capital or equity investments in, or loans to, qualified active businesses located in low-income communities; (2) certain financial counseling and other services to businesses and residents in low-income communities; (3) the purchase from another CDE of any loan made by such entity that is a qualified low-income community investment; or (4) an equity investment in, or loan to, another CDE .

A "low-income community" is defined as a census tract with either (1) a poverty rate of at least 20 percent or (2) median family income which does not exceed 80 percent of the greater of metropolitan area median family income or statewide median family income (for a non-metropolitan census tract, does not exceed 80 percent of statewide median family income). The Secretary may designate any area within any census tract as a low-income community provided that (1) the boundary is continuous, (2) the area (if it were a census tract) would otherwise satisfy the poverty rate or median income requirements, and (3) an inadequate access to investment capital exists in the area.

A qualified active business is defined as a business that satisfies, with respect to a taxable year, the following requirements: (1) at least 50 percent of the total gross income of the business is derived from the active conduct of trade or business activities in low-income communities; (2) a substantial portion of the tangible property of such business is used in a low-income community; (3) a substantial portion of the services performed for such business by its employees is performed in a low-income community; and (4) less than five percent of the average of the aggregate unadjusted bases of the property of such business is attributable to certain financial property or to certain collectibles.

The maximum annual amount of qualified equity investments is capped at $2.0 billion per year for calendar years 2004 and 2005, and $3.5 billion per year for calendar years 2006 and 2007.

No special rules apply to investments in community development entities that serve or provide investment capital with respect to low-income Native American reservations.


House Bill



No provision.


Senate Amendment



The Senate amendment provides special new markets tax credit rules for qualified equity investments in a "reservation development entity." In general, the present-law requirements applicable to the new markets tax credit apply for purposes of the new credit, with special requirements established to define the qualified investment entity (i.e., for purposes of this credit, the present-law "community development entity" is replaced with "reservation development entity"). Under the Senate amendment, a reservation development entity is a domestic corporation or partnership if: (A) the primary mission of the entity is serving, or providing investment capital for, low-income reservations; (B) the entity maintains accountability to residents of low-income reservations through their representation on any governing board or any advisory board of the entity; and (C) the entity is certified by the Secretary as being a reservation development entity. A low-income reservation means an Indian reservation (as defined in section 168(j)(6)) that has a poverty rate of at least 40 percent.

The maximum annual amount of qualified equity investments in reservation development entities is $50 million for each of calendar years 2004 through 2007. The limitation shall be allocated by the Secretary among reservation development entities selected by the Secretary, giving priority to any entity with a record of having successfully provided capital or technical assistance to disadvantaged businesses or communities, or that intends to make qualified low-income reservation investments in one or more unrelated businesses.

The Senate amendment provides that not later than January 31 of 2007 and 2010, the Comptroller General of the United States shall, pursuant to an audit, report to Congress on the new credit program, including all reservation development entities that receive an allocation under the program. In addition, the Senate amendment authorizes the Secretary to award a grant of not more than one million dollars to the First Nations Oweesta Corporation, and authorizes appropriations of one million dollars for fiscal years 2004 through 2014.

Effective date. --The provision is effective for investments made after December 31, 2003.


Conference Agreement



The conference agreement does not include the Senate amendment.



2. Ready Reserve-National Guard employee credit and Ready Reserve-National Guard replacement employee credit (sec. 632 of the Senate amendment)


Present Law



There is no employer tax credit for wages paid to Ready Reserve and National Guard employees called to active duty, or for wages paid to their replacements.


House Bill



No provision.


Senate Amendment



The Senate amendment provides an employer credit for wages paid to Ready Reserve-National Guard employees called to active duty. A Ready Reserve-National Guard employee means an employee who is a member of the Ready Reserve of a reserve component of an Armed Force of the United States as described in sections 10142 and 10101 of title 10, United States Code. The credit equals 50 percent of the compensation paid while the employee is called up to active duty up to a maximum of $30,000 of compensation. Special rules allowing refundability of the credit, up to the amount of employer payroll taxes, apply to employers of first responders called up to active duty. Qualified first responders are persons employed as a law enforcement official, a firefighter, or a paramedic, and who are a Ready Reserve-National Guard employee.

In addition, for "small business employers" of Ready Reserve-National Guard employees called up to active duty, the Senate amendment creates a replacement employee credit equal to 50 percent of the wages paid to any replacement employee up to a maximum credit of $6,000. Small business employers are employers that employ an average of 50 or fewer employees on business days during the taxable year. For small business manufacturing employers, the credit rate is increased to 100 percent and the maximum credit is increased to $20,000.

Self-employed contract workers called to active duty are eligible for the self employed portion of the credit, but businesses purchasing the services of contract workers are not eligible for the replacement employee credit.

The credits could be carried back 3 years and carried forward 20 years. Rules similar to section 280C apply to deny a deduction for the amount of the credits.

Effective date. --The provision is effective for investments made after September 30, 2004.


Conference Agreement



The conference agreement does not include the Senate amendment.



3. Rural investment tax credit (sec. 633 of the Senate amendment and new sec. 42A of the Code)


COM- RPT - HIST , HRRepNo 108-755, Conference Committee Report on the American Jobs Creation Act of 2004, HR 4520, (October 8, 2004), Part 04 of 08

This document is divided into multiple parts. To reach other parts, please use READ. You have reached Part 04


Present Law



There is no present-law provision specifically targeted to encourage investment in high-migration rural areas.


House Bill



No provision.


Senate Amendment



The proposal provides a tax credit that may be claimed by owners of certain rural residential property (i.e., qualified rural investment buildings). The credit is claimed annually, generally for a period of ten years. Taxpayers are eligible for a maximum present-value tax credit equal to 70 percent of the eligible basis of a new building and qualified rehabilitation expenses (30 percent in the case of an existing building).

A qualified rural investment building is defined as any building that is part of a qualified rural investment project at all times during the credit period. A qualified rural investment project is defined as any investment project of one or more buildings; (1) located in a qualifying county (and, if necessary to the project, a contiguous county); and (2) selected by the State in which the county is located, according to the State's qualified rural investment plan. Rehabilitation expenditures are treated as a separate building for purposes of the credit. A qualifying county is defined as a county which: (1) is located outside a metropolitan statistical area (as defined by the Office of Management and Budget); and (2) during the 20-year period ending with the year the most recent census was conducted, has experienced a net out-migration of inhabitants of the county of at least 10-percent of the population of the county. Generally, the credit and compliance periods are each ten years and the credit period for an existing building may not begin before the credit period for the related rehabilitation expenditures.

For purposes of this credit, the eligible basis of any qualified rural investment building shall be determined under rules similar to the rules of section 42 (the "low income rental housing credit") except that: (1) the determination of the adjusted basis of any building shall be made at the beginning of the credit period; and (2) such basis shall include development costs properly attributable to such building. Development costs are limited to: (1) site preparation costs; (2) State and local impact fees; (3) reasonable development fees; (4) professional fees related to basis items; (5) construction financing costs related to basis items other than land; and (6) on-site and adjacent improvements required by State or local governments.

Generally, any building eligible for the credit must receive an allocation of rural investment credit authority from the State rural investment credit agency in whose jurisdiction the building is located. The aggregate amount of such credits allocated within a State is limited by the State's annual rural investment credit ceiling. The ceiling for each calendar year is the sum of: (1) the unused State rural investment credit ceiling (if any) of such State for the preceding calendar year; (2) $185,000 for each qualifying county of the State; (3) the amount of State rural investment credit ceiling returned in the calendar year; and (4) the amount (if any) allocated to the State by the Secretary of the Treasury from the pool of unallocated rural investment credits unused by other States. The allocation is made by a formula provided in the statute. The $185,000 amount is indexed for inflation. At least 10 percent of each State's rural investment credit ceiling is set aside for projects in which a qualified non-profit organization is to materially participate (within the meaning of section 469(h) of the Code) in the development and operation of the project throughout the compliance period. A qualified non-profit organization generally means any organization if: (1) the organization is described in section 501(c) and exempt from tax under 501(a); (2) it is determined by the State rural investment credit agency not to be affiliated with or controlled by a for-profit organization; and (3) one or more of its exempt purposes includes the fostering of rural investment.

Effective date. --The provision is effective for expenditures made in taxable years beginning after the date of enactment.


Conference Agreement



The conference agreement does not include the Senate Amendment.



4. Qualified small business rural investment tax credit (sec. 634 of the Senate amendment and new sec. 42B of the Code)


Present Law



There is no present-law provision specifically targeted to encourage rural small business investment.


House Bill



No provision.


Senate Amendment



The Senate amendment provides a 30-percent tax credit for certain qualified expenditures paid or incurred by qualified rural small businesses. A qualified taxpayer's maximum credit for any taxable year may not exceed the lesser of: (1) $5,000; or (2) $25,000 minus the sum of the taxpayer's previous qualified rural small business investment credit claimed for all prior taxable years. For purposes of this credit, qualified expenditures are defined as expenditures normally associated with starting or expanding a business and included in a qualified business plan, including costs for capital, plant and equipment, inventory expenses, and wages but not including interest costs. In the case of a qualified rural small business with respect to which a small business rural investment credit was claimed in any previous years, qualified expenditures for each taxable year are limited to qualified small business expenditures for the year only to the extent that those total expenditures exceed the total expenditures for the immediately preceding taxable year. For example, assume Taxpayer A incurs qualified expenditures of $3000, in year 1, $0 in year 2, and $4,000 in year 3. Taxpayer A will be eligible for a qualified rural investment tax credit of $900 in year 1, $0 in year 2, and $1,200 in year 3.

A qualified rural small business is defined as any person, if such person; (1) employed not more than five full-time employees during the taxable year; (2) materially and substantially participates in management; (3) is located in a qualifying county; and (4) submitted a qualified business plan with respect to which an allocation of a rural investment tax credit was received. For these purposes, an employee is considered full-time if such employee is employed at least 30 hours per week for 20 or more calendar weeks in the taxable year. A qualifying county is defined as a county which: (1) is located outside a metropolitan statistical area (as defined by the Office of Management and Budget); and (2) during the 20-year period ending with the year the most recent census was conducted, has experienced a net out-migration of inhabitants of the county of at least 10-percent of the population of the county. A qualified business plan is a business plan which: (1) has been approved by the rural investment credit agency with jurisdiction over the qualifying county in which the qualified rural small business is located pursuant to such agency's rural investment plan; and (2) meets such requirements as the agency may specify.

Any otherwise allowable deduction or credit is reduced by the amount of this credit.

Effective date. --The provision is effective for expenditures made in taxable years beginning after the date of enactment.


Conference Agreement



The conference agreement does not include the Senate Amendment.



5. Provide a tax credit for maintenance of railroad track (sec. 635 of the Senate amendment and new sec. 45I of the Code)


Present Law



There is no provision that provides for a railroad track maintenance tax credit.


House Bill



No provision.


Senate Amendment



The Senate amendment provides a 30-percent business tax credit for qualified railroad track maintenance expenditures paid or incurred in a taxable year by eligible taxpayers. The credit is limited to the product of $3,500 times the number of miles of railroad track owned or leased by an eligible taxpayer as of the close of its taxable year. Qualified railroad track maintenance expenditures are defined as amounts expended (whether or not chargeable to a capital account) for maintaining railroad track (including roadbed, bridges, and related track structures) owned or leased as of January 1, 2005 , by a Class II or Class III railroad. An eligible taxpayer is defined as: (1) any Class II or Class III railroad; and (2) any person who transports property using the rail facilities of a Class II or Class III railroad or who furnishes railroadrelated property or services to such person. The taxpayer's basis in railroad track is reduced by the amount of the credit allowed. No portion of the credit may be carried back to any taxable year beginning before January 1, 2005 . Other rules apply.

This credit applies to qualified railroad track maintenance expenditures paid or incurred during taxable years beginning after December 31, 2004 , and before January 1, 2008 .

Effective date. --The Senate amendment is effective for taxable years beginning after December 31, 2004 .


Conference Agreement



The conference agreement follows the Senate amendment provision with the following modification. The conference agreement increases the credit percentage from 30-percent to 50-percent. In addition, the conference agreement clarifies that each mile of railroad track may be taken into account only once, either by the owner of such mile or by the owner's assignee, in computing the per-mile limitation.



6. Railroad revitalization and security investment credit (sec. 636 of the Senate amendment)


Present Law



There is no provision in present law for railroad revitalization.


House Bill



No provision.


Senate Amendment



The Senate amendment provides a 50-percent business tax credit for qualified project expenditures paid or incurred in a taxable year by eligible taxpayers. Qualified project expenditures generally are defined as expenditures (whether or not chargeable to a capital account) for: (1) planning; (2) environmental review and environmental impact mitigation; (3) track and track structure rehabilitation, relocation, improvement and development; (4) railroad safety and security improvements; (5) communications and signaling improvements; (6) intercity passenger rail equipment acquisition; and (7) rail station and intermodal facilities development. Such expenditures are limited to expenditures for a project with respect to intercity passenger rail transportation (as defined in 49 U.S.C. 24102) that is included in a State rail plan.

The railroad revitalization and security investment credit is subject to a national cap of $165 million per calendar year. The annual national cap is allocated pro rata to the States based on the each State's share of the national total of: (1) railroad and public road grade crossings on intercity passenger rail routes; (2) intercity passenger train miles; and (3) intercity embarkations and disembarkations for each passenger. Any credit allocations unused for a calendar year will be carried-over and allocated between those States that used their allocation for the calendar year and requested a share of the carryover. All projects must have an allocation to claim the credit.

The taxpayer's basis in such property is reduced by the amount of the credit allowed. No portion of the credit may be carried back to any taxable year beginning before January 1, 2005 . A credit under this section may be transferred (but no more than once) if the taxpayer is a tax-exempt entity or if the credit exceeds the taxpayer's tax liability for the year. Other rules apply.

Effective date. --The Senate amendment is effective for taxable years beginning after December 31, 2004 .


Conference Agreement



The conference agreement does not include the Senate amendment provision.



7. Special allocation of the railroad revitalization and security investment credit for New York city rail projects (sec. 636 of the Senate amendment)


Present Law



There is no provision in present law that provides a special allocation of the railroad revitalization and security investment credit.


House Bill



No provision.


Senate Amendment



The Senate amendment provides an additional allocation of $200 million dollars to New York City for qualified project expenditures within the New York Liberty Zone (as defined in Code section 1400L(h). This allocation is in addition to the allocation allowed under the general railroad revitalization and security investment credit, described above. Under a special rule, the $200 million will be allocated as follows: (1) $100 million to projects designated by the mayor of New York City; and (2) $100 million to projects designated by the Governor of New York. Qualified project expenditures are limited to expenditures for improvements to subway systems, for commuter rail systems, for rail links to airports, and for public infrastructure improvements in the vicinity of rail or subway stations. The taxpayer's basis in such property is reduced by the amount of the credit for which this credit is allowed. No portion of the credit may be carried back to any taxable year beginning before January 1, 2005 . A credit under this section may be transferred (but no more than once) if the taxpayer is a tax-exempt entity or if the credit exceeds the taxpayer's tax liability for the year. Other rules apply.

Effective date. --The Senate amendment is effective for taxable years beginning after December 31, 2004 .


Conference Agreement



The conference agreement does not include the Senate amendment provision.



8. Modification of targeted areas and low-income communities designated for new markets tax credit (sec. 637 of the Senate amendment and sec. 45D of the Code)


Present Law



Section 45D provides a new markets tax credit for qualified equity investments made to acquire stock in a corporation, or a capital interest in a partnership, that is a qualified community development entity (" CDE ").340 The amount of the credit allowable to the investor (either the original purchaser or a subsequent holder) is (1) a five-percent credit for the year in which the equity interest is purchased from the CDE and for each of the following two years, and (2) a sixpercent credit for each of the following four years. The credit is determined by applying the applicable percentage (five or six percent) to the amount paid to the CDE for the investment at its original issue, and is available for a taxable year to the taxpayer who holds the qualified equity investment on the date of the initial investment or on the respective anniversary date that occurs during the taxable year. The credit is recaptured if at any time during the seven-year period that begins on the date of the original issue of the investment the entity ceases to be a qualified CDE , the proceeds of the investment cease to be used as required, or the equity investment is redeemed.

A qualified CDE is any domestic corporation or partnership: (1) whose primary mission is serving or providing investment capital for low-income communities or low-income persons; (2) that maintains accountability to residents of low-income communities by their representation on any governing board of or any advisory board to the CDE ; and (3) that is certified by the Secretary as being a qualified CDE . A qualified equity investment means stock (other than nonqualified preferred stock) in a corporation or a capital interest in a partnership that is acquired directly from a CDE for cash, and includes an investment of a subsequent purchaser if such investment was a qualified equity investment in the hands of the prior holder. Substantially all of the investment proceeds must be used by the CDE to make qualified low-income community investments. For this purpose, qualified low-income community investments include: (1) capital or equity investments in, or loans to, qualified active low-income community businesses; (2) certain financial counseling and other services to businesses and residents in low-income communities; (3) the purchase from another CDE of any loan made by such entity that is a qualified low-income community investment; or (4) an equity investment in, or loan to, another CDE .

A "low-income community" is defined as a population census tract with either (1) a poverty rate of at least 20 percent or (2) median family income which does not exceed 80 percent of the greater of metropolitan area median family income or statewide median family income (for a non-metropolitan census tract, does not exceed 80 percent of statewide median family income). The Secretary may designate any area within any census tract as a low-income community provided that (1) the boundary is continuous, (2) the area (if it were a census tract) would otherwise satisfy the poverty rate or median income requirements, and (3) an inadequate access to investment capital exists in the area.

A qualified active low-income community business is defined as a business that satisfies, with respect to a taxable year, the following requirements: (1) at least 50 percent of the total gross income of the business is derived from the active conduct of trade or business activities in any low-income community; (2) a substantial portion of the tangible property of such business is used in a low-income community; (3) a substantial portion of the services performed for such business by its employees is performed in a low-income community; and (4) less than five percent of the average of the aggregate unadjusted bases of the property of such business is attributable to certain financial property or to certain collectibles.

The maximum annual amount of qualified equity investments is capped at $2.0 billion per year for calendar years 2004 and 2005, and at $3.5 billion per year for calendar years 2006 and 2007.


House Bill



No provision.


Senate Amendment



The Senate amendment modifies the Secretary's authority to designate certain areas as low-income communities to provide that the Secretary shall prescribe regulations to designate "targeted populations" as low-income communities for purposes of the new markets tax credit. For this purpose, a "targeted population" is defined by reference to section 103(20) of the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4702(20)) to mean individuals, or an identifiable group of individuals, including an Indian tribe, who (A) are low-income persons; or (B) otherwise lack adequate access to loans or equity investments. Under the Senate amendment, "low-income" means (1) for a targeted population within a metropolitan area, less than 80 percent of the area median family income; and (2) for a targeted population within a non-metropolitan area, less than the greater of 80 percent of the area median family income or 80 percent of the statewide non-metropolitan area median family income.341 Under the Senate amendment, a targeted population is not required to be within any census tract.

Effective date. --The provision is effective for designations made after the date of enactment.


Conference Agreement



The conference agreement follows the Senate amendment with respect to targeted population designations, modified to provide that a population census tract with a population of less than 2,000 shall be treated as a low-income community for purposes of the credit if such tract is within an empowerment zone, the designation of which is in effect under section 1391, and is contiguous to one or more low-income communities.

Effective date. --The targeted population provision is effective for designations made after the date of enactment. The low-population provision is effective for investments made after the date of enactment.



9. Modification of income requirement for census tracts within high migration rural counties for new markets tax credit (sec. 638 of the Senate amendment and sec. 45D of the Code)


Present Law



Section 45D provides a new markets tax credit for qualified equity investments made to acquire stock in a corporation, or a capital interest in a partnership, that is a qualified community development entity (" CDE ").342 The amount of the credit allowable to the investor (either the original purchaser or a subsequent holder) is (1) a five-percent credit for the year in which the equity interest is purchased from the CDE and for each of the following two years, and (2) a sixpercent credit for each of the following four years. The credit is determined by applying the applicable percentage (five or six percent) to the amount paid to the CDE for the investment at its original issue, and is available for the taxable year to the taxpayer who holds the qualified equity investment on the date of the initial investment or on the respective anniversary date that occurs during the taxable year. The credit is recaptured if at any time during the seven-year period that begins on the date of the original issue of the investment the entity ceases to be a qualified CDE , the proceeds of the investment cease to be used as required, or the equity investment is redeemed.

A qualified CDE is any domestic corporation or partnership: (1) whose primary mission is serving or providing investment capital for low-income communities or low-income persons; (2) that maintains accountability to residents of low-income communities by their representation on any governing board of or any advisory board to the CDE ; and (3) that is certified by the Secretary as being a qualified CDE . A qualified equity investment means stock (other than nonqualified preferred stock) in a corporation or a capital interest in a partnership that is acquired directly from a CDE for cash, and includes an investment of a subsequent purchaser if such investment was a qualified equity investment in the hands of the prior holder. Substantially all of the investment proceeds must be used by the CDE to make qualified low-income community investments. For this purpose, qualified low-income community investments include: (1) capital or equity investments in, or loans to, qualified active l