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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
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