
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document affected by Public Law 106-554 Section 1(a)(7)]
[Document affected by Public Law 106-554 Section 1(a)(7)[115(a)]]
[Document affected by Public Law 106-554 Section 1(a)(7)[115(b)]]
[CITE: 26USC1394]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
Subchapter U--Designation and Treatment of Empowerment Zones, Enterprise 
           Communities, and Rural Development Investment Areas
 
PART II--TAX-EXEMPT FACILITY BONDS FOR EMPOWERMENT ZONES AND ENTERPRISE 
                               COMMUNITIES
 
Sec. 1394. Tax-exempt enterprise zone facility bonds


(a) In general

    For purposes of part IV of subchapter B of this chapter (relating to 
tax exemption requirements for State and local bonds), the term ``exempt 
facility bond'' includes any bond issued as part of an issue 95 percent 
or more of the net proceeds (as defined in section 150(a)(3)) of which 
are to be used to provide any enterprise zone facility.

(b) Enterprise zone facility

    For purposes of this section--

                           (1) In general

        The term ``enterprise zone facility'' means any qualified zone 
    property the principal user of which is an enterprise zone business, 
    and any land which is functionally related and subordinate to such 
    property.

                     (2) Qualified zone property

        The term ``qualified zone property'' has the meaning given such 
    term by section 1397D; except that--
            (A) the references to empowerment zones shall be treated as 
        including references to enterprise communities, and
            (B) section 1397D(a)(2) shall be applied by substituting 
        ``an amount equal to 15 percent of the adjusted basis'' for ``an 
        amount equal to the adjusted basis''.

                    (3) Enterprise zone business

        (A) In general

            Except as modified in this paragraph, the term ``enterprise 
        zone business'' has the meaning given such term by section 
        1397C.

        (B) Modifications

            In applying section 1397C for purposes of this section--
            (i) Businesses in enterprise communities eligible

                References in section 1397C to empowerment zones shall 
            be treated as including references to enterprise 
            communities.
            (ii) Waiver of requirements during startup period

                A business shall not fail to be treated as an enterprise 
            zone business during the startup period if--
                    (I) as of the beginning of the startup period, it is 
                reasonably expected that such business will be an 
                enterprise zone business (as defined in section 1397C as 
                modified by this paragraph) at the end of such period, 
                and
                    (II) such business makes bona fide efforts to be 
                such a business.
            (iii) Reduced requirements after testing period

                A business shall not fail to be treated as an enterprise 
            zone business for any taxable year beginning after the 
            testing period by reason of failing to meet any requirement 
            of subsection (b) or (c) of section 1397C if at least 35 
            percent of the employees of such business for such year are 
            residents of an empowerment zone or an enterprise community. 
            The preceding sentence shall not apply to any business which 
            is not a qualified business by reason of paragraph (1), (4), 
            or (5) of section 1397C(d).

        (C) Definitions relating to subparagraph (B)

            For purposes of subparagraph (B)--
            (i) Startup period

                The term ``startup period'' means, with respect to any 
            property being provided for any business, the period before 
            the first taxable year beginning more than 2 years after the 
            later of--
                    (I) the date of issuance of the issue providing such 
                property, or
                    (II) the date such property is first placed in 
                service after such issuance (or, if earlier, the date 
                which is 3 years after the date described in subclause 
                (I)).
            (ii) Testing period

                The term ``testing period'' means the first 3 taxable 
            years beginning after the startup period.

        (D) Portions of business may be enterprise zone business

            The term ``enterprise zone business'' includes any trades or 
        businesses which would qualify as an enterprise zone business 
        (determined after the modifications of subparagraph (B)) if such 
        trades or businesses were separately incorporated.

(c) Limitation on amount of bonds

                           (1) In general

        Subsection (a) shall not apply to any issue if the aggregate 
    amount of outstanding enterprise zone facility bonds allocable to 
    any person (taking into account such issue) exceeds--
            (A) $3,000,000 with respect to any 1 empowerment zone or 
        enterprise community, or
            (B) $20,000,000 with respect to all empowerment zones and 
        enterprise communities.

         (2) Aggregate enterprise zone facility bond benefit

        For purposes of subparagraph (A), the aggregate amount of 
    outstanding enterprise zone facility bonds allocable to any person 
    shall be determined under rules similar to the rules of section 
    144(a)(10), taking into account only bonds to which subsection (a) 
    applies.

(d) Acquisition of land and existing property permitted

    The requirements of sections 147(c)(1)(A) and 147(d) shall not apply 
to any bond described in subsection (a).

(e) Penalty for ceasing to meet requirements

                       (1) Failures corrected

        An issue which fails to meet 1 or more of the requirements of 
    subsections (a) and (b) shall be treated as meeting such 
    requirements if--
            (A) the issuer and any principal user in good faith 
        attempted to meet such requirements, and
            (B) any failure to meet such requirements is corrected 
        within a reasonable period after such failure is first 
        discovered.

    (2) Loss of deductions where facility ceases to be qualified

        No deduction shall be allowed under this chapter for interest on 
    any financing provided from any bond to which subsection (a) applies 
    with respect to any facility to the extent such interest accrues 
    during the period beginning on the first day of the calendar year 
    which includes the date on which--
            (A) substantially all of the facility with respect to which 
        the financing was provided ceases to be used in an empowerment 
        zone or enterprise community, or
            (B) the principal user of such facility ceases to be an 
        enterprise zone business (as defined in subsection (b)).

                    (3) Exception if zone ceases

        Paragraphs (1) and (2) shall not apply solely by reason of the 
    termination or revocation of a designation as an empowerment zone or 
    an enterprise community.

                    (4) Exception for bankruptcy

        Paragraphs (1) and (2) shall not apply to any cessation 
    resulting from bankruptcy.

(f) Bonds for empowerment zones designated under section 1391(g)

                           (1) In general

        In the case of a new empowerment zone facility bond--
            (A) such bond shall not be treated as a private activity 
        bond for purposes of section 146, and
            (B) subsection (c) of this section shall not apply.

                  (2) Limitation on amount of bonds

        (A) In general

            Paragraph (1) shall apply to a new empowerment zone facility 
        bond only if such bond is designated for purposes of this 
        subsection by the local government which nominated the area to 
        which such bond relates.

        (B) Limitation on bonds designated

            The aggregate face amount of bonds which may be designated 
        under subparagraph (A) with respect to any empowerment zone 
        shall not exceed--
                (i) $60,000,000 if such zone is in a rural area,
                (ii) $130,000,000 if such zone is in an urban area and 
            the zone has a population of less than 100,000, and
                (iii) $230,000,000 if such zone is in an urban area and 
            the zone has a population of at least 100,000.

        (C) Special rules

            (i) Coordination with limitation in subsection (c)

                Bonds to which paragraph (1) applies shall not be taken 
            into account in applying the limitation of subsection (c) to 
            other bonds.
            (ii) Current refunding not taken into account

                In the case of a refunding (or series of refundings) of 
            a bond designated under this paragraph, the refunding 
            obligation shall be treated as designated under this 
            paragraph (and shall not be taken into account in applying 
            subparagraph (B)) if--
                    (I) the amount of the refunding bond does not exceed 
                the outstanding amount of the refunded bond, and
                    (II) the refunded bond is redeemed not later than 90 
                days after the date of issuance of the refunding bond.

                 (3) Empowerment zone facility bond

        For purposes of this subsection, the term ``empowerment zone 
    facility bond'' means any bond which would be described in 
    subsection (a) if--
            (A) in the case of obligations issued before January 1, 
        2002, only empowerment zones designated under section 1391(g) 
        were taken into account under sections 1397C and 1397D, and
            (B) in the case of obligations issued after December 31, 
        2001, all empowerment zones (other than the District of Columbia 
        Enterprise Zone) were taken into account under sections 1397C 
        and 1397D.

(Added Pub. L. 103-66, title XIII, Sec. 13301(a), Aug. 10, 1993, 107 
Stat. 548; amended Pub. L. 104-188, title I, Sec. 1703(n)(7), Aug. 20, 
1996, 110 Stat. 1877; Pub. L. 105-34, title IX, Secs. 953(a), 955(a), 
(b), Aug. 5, 1997, 111 Stat. 887, 889, 890; Pub. L. 106-554, 
Sec. 1(a)(7) [title I, Secs. 115(a), 116(b)(3), (4)], Dec. 21, 2000, 114 
Stat. 2763, 2763A-601, 2763A-603.)


                            Prior Provisions

    A prior section 1394, added Pub. L. 95-600, title VI, Sec. 601(a), 
Nov. 6, 1978, 92 Stat. 2895; amended Pub. L. 96-595, Sec. 3(a)(6)-(8), 
Dec. 24, 1980, 94 Stat. 3465, related to rules applicable to 
distributions of an electing general stock ownership corporation, prior 
to repeal by Pub. L. 99-514, title XIII, Sec. 1303(a), Oct. 22, 1986, 
100 Stat. 2658.
    A prior section 1395, added Pub. L. 95-600, title VI, Sec. 601(a), 
Nov. 6, 1978, 92 Stat. 2895, related to adjustment to basis of stock of 
shareholders, prior to repeal by Pub. L. 99-514, title XIII, 
Sec. 1303(a), Oct. 22, 1986, 100 Stat. 2658.


                               Amendments

    2000--Subsec. (b)(2). Pub. L. 106-554, Sec. 1(a)(7) [title I, 
Sec. 116(b)(3)(A)], substituted ``section 1397D'' for ``section 1397C'' 
in introductory provisions.
    Subsec. (b)(2)(B). Pub. L. 106-554, Sec. 1(a)(7) [title I, 
Sec. 116(b)(3)(B)], substituted ``section 1397D(a)(2)'' for ``section 
1397C(a)(2)''.
    Subsec. (b)(3). Pub. L. 106-554, Sec. 1(a)(7) [title I, 
Sec. 116(b)(4)(A)], substituted ``section 1397C'' for ``section 1397B'' 
wherever appearing.
    Subsec. (b)(3)(B)(iii). Pub. L. 106-554, Sec. 1(a)(7) [title I, 
Sec. 116(b)(4)(B)], substituted ``section 1397C(d)'' for ``section 
1397B(d)''.
    Subsec. (f)(3). Pub. L. 106-554, Sec. 1(a)(7) [title I, 
Sec. 115(a)], amended heading and text of par. (3) generally. Prior to 
amendment, text read as follows: ``For purposes of this subsection, the 
term `new empowerment zone facility bond' means any bond which would be 
described in subsection (a) if only empowerment zones designated under 
section 1391(g) were taken into account under sections 1397B and 
1397C.''
    1997--Subsec. (b)(2). Pub. L. 105-34, Sec. 955(b), amended heading 
and text of par. (2) generally. Prior to amendment, text read as 
follows: ``The term `qualified zone property' has the meaning given such 
term by section 1397C; except that the references to empowerment zones 
shall be treated as including references to enterprise communities.''
    Subsec. (b)(3). Pub. L. 105-34, Sec. 955(b), amended heading and 
text of par. (3) generally. Prior to amendment, text read as follows: 
``The term `enterprise zone business' has the meaning given to such term 
by section 1397B, except that--
        ``(A) references to empowerment zones shall be treated as 
    including references to enterprise communities, and
        ``(B) such term includes any trades or businesses which would 
    qualify as an enterprise zone business (determined after the 
    modification of subparagraph (A)) if such trades or businesses were 
    separately incorporated.''
    Subsec. (f). Pub. L. 105-34, Sec. 953(a), added subsec. (f).
    1996--Subsec. (e)(2). Pub. L. 104-188, which directed that par. (2) 
be amended by striking ``(i)'' and inserting ``(A)'' and by striking 
``(ii)'' and inserting ``(B)'', could not be executed, because par. (2) 
contained neither ``(i)'' nor ``(ii)''.


                    Effective Date of 2000 Amendment

    Pub. L. 106-554, Sec. 1(a)(7) [title I, Sec. 115(b)], Dec. 21, 2000, 
114 Stat. 2763, 2763A-602, provided that: ``The amendments made by this 
section [amending this section] shall apply to obligations issued after 
December 31, 2001.''
    Amendment by section 1(a)(7) [title I, Sec. 116(b)(3), (4)] of Pub. 
L. 106-554 applicable to qualified empowerment zone assets acquired 
after Dec. 21, 2000, see section 1(a)(7) [title I, Sec. 116(c)] of Pub. 
L. 106-554, set out as a note under section 1016 of this title.


                    Effective Date of 1997 Amendment

    Section 953(b) of Pub. L. 105-34 provided that: ``The amendment made 
by this section [amending this section] shall apply to obligations 
issued after the date of the enactment of this Act [Aug. 5, 1997].''
    Section 955(c) of Pub. L. 105-34 provided that: ``The amendments 
made by this section [amending this section] shall apply to obligations 
issued after the date of the enactment of this Act [Aug. 5, 1997].''


                    Effective Date of 1996 Amendment

    Amendment by Pub. L. 104-188 effective as if included in the 
provision of the Revenue Reconciliation Act of 1993, Pub. L. 103-66, 
Secs. 13001-13444, to which such amendment relates, see section 1703(o) 
of Pub. L. 104-188, set out as a note under section 39 of this title.

                  Section Referred to in Other Sections

    This section is referred to in section 1400A of this title.
