
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 107-110 Section 1076(t)]
[CITE: 26USC1397E]

 
                     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 IV--INCENTIVES FOR EDUCATION ZONES
 
Sec. 1397E. Credit to holders of qualified zone academy bonds


(a) Allowance of credit

    In the case of an eligible taxpayer who holds a qualified zone 
academy bond on the credit allowance date of such bond which occurs 
during the taxable year, there shall be allowed as a credit against the 
tax imposed by this chapter for such taxable year the amount determined 
under subsection (b).

(b) Amount of credit

                           (1) In general

        The amount of the credit determined under this subsection with 
    respect to any qualified zone academy bond is the amount equal to 
    the product of--
            (A) the credit rate determined by the Secretary under 
        paragraph (2) for the month in which such bond was issued, 
        multiplied by
            (B) the face amount of the bond held by the taxpayer on the 
        credit allowance date.

                          (2) Determination

        During each calendar month, the Secretary shall determine a 
    credit rate which shall apply to bonds issued during the following 
    calendar month. The credit rate for any month is the percentage 
    which the Secretary estimates will permit the issuance of qualified 
    zone academy bonds without discount and without interest cost to the 
    issuer.

(c) Limitation based on amount of tax

    The credit allowed under subsection (a) for any taxable year shall 
not exceed the excess of--
        (1) the sum of the regular tax liability (as defined in section 
    26(b)) plus the tax imposed by section 55, over
        (2) the sum of the credits allowable under part IV of subchapter 
    A (other than subpart C thereof, relating to refundable credits).

(d) Qualified zone academy bond

    For purposes of this section--

                           (1) In general

        The term ``qualified zone academy bond'' means any bond issued 
    as part of an issue if--
            (A) 95 percent or more of the proceeds of such issue are to 
        be used for a qualified purpose with respect to a qualified zone 
        academy established by an eligible local education agency,
            (B) the bond is issued by a State or local government within 
        the jurisdiction of which such academy is located,
            (C) the issuer--
                (i) designates such bond for purposes of this section,
                (ii) certifies that it has written assurances that the 
            private business contribution requirement of paragraph (2) 
            will be met with respect to such academy, and
                (iii) certifies that it has the written approval of the 
            eligible local education agency for such bond issuance, and

            (D) the term of each bond which is part of such issue does 
        not exceed the maximum term permitted under paragraph (3).

            (2) Private business contribution requirement

        (A) In general

            For purposes of paragraph (1), the private business 
        contribution requirement of this paragraph is met with respect 
        to any issue if the eligible local education agency that 
        established the qualified zone academy has written commitments 
        from private entities to make qualified contributions having a 
        present value (as of the date of issuance of the issue) of not 
        less than 10 percent of the proceeds of the issue.

        (B) Qualified contributions

            For purposes of subparagraph (A), the term ``qualified 
        contribution'' means any contribution (of a type and quality 
        acceptable to the eligible local education agency) of--
                (i) equipment for use in the qualified zone academy 
            (including state-of-the-art technology and vocational 
            equipment),
                (ii) technical assistance in developing curriculum or in 
            training teachers in order to promote appropriate market 
            driven technology in the classroom,
                (iii) services of employees as volunteer mentors,
                (iv) internships, field trips, or other educational 
            opportunities outside the academy for students, or
                (v) any other property or service specified by the 
            eligible local education agency.

                        (3) Term requirement

        During each calendar month, the Secretary shall determine the 
    maximum term permitted under this paragraph for bonds issued during 
    the following calendar month. Such maximum term shall be the term 
    which the Secretary estimates will result in the present value of 
    the obligation to repay the principal on the bond being equal to 50 
    percent of the face amount of the bond. Such present value shall be 
    determined using as a discount rate the average annual interest rate 
    of tax-exempt obligations having a term of 10 years or more which 
    are issued during the month. If the term as so determined is not a 
    multiple of a whole year, such term shall be rounded to the next 
    highest whole year.

                     (4) Qualified zone academy

        (A) In general

            The term ``qualified zone academy'' means any public school 
        (or academic program within a public school) which is 
        established by and operated under the supervision of an eligible 
        local education agency to provide education or training below 
        the postsecondary level if--
                (i) such public school or program (as the case may be) 
            is designed in cooperation with business to enhance the 
            academic curriculum, increase graduation and employment 
            rates, and better prepare students for the rigors of college 
            and the increasingly complex workforce,
                (ii) students in such public school or program (as the 
            case may be) will be subject to the same academic standards 
            and assessments as other students educated by the eligible 
            local education agency,
                (iii) the comprehensive education plan of such public 
            school or program is approved by the eligible local 
            education agency, and
                (iv)(I) such public school is located in an empowerment 
            zone or enterprise community (including any such zone or 
            community designated after the date of the enactment of this 
            section), or
                (II) there is a reasonable expectation (as of the date 
            of issuance of the bonds) that at least 35 percent of the 
            students attending such school or participating in such 
            program (as the case may be) will be eligible for free or 
            reduced-cost lunches under the school lunch program 
            established under the Richard B. Russell National School 
            Lunch Act.

        (B) Eligible local education agency

            The term ``eligible local education agency'' means any local 
        educational agency as defined in section 14101 of the Elementary 
        and Secondary Education Act of 1965.

                        (5) Qualified purpose

        The term ``qualified purpose'' means, with respect to any 
    qualified zone academy--
            (A) rehabilitating or repairing the public school facility 
        in which the academy is established,
            (B) providing equipment for use at such academy,
            (C) developing course materials for education to be provided 
        at such academy, and
            (D) training teachers and other school personnel in such 
        academy.

                        (6) Eligible taxpayer

        The term ``eligible taxpayer'' means--
            (A) a bank (within the meaning of section 581),
            (B) an insurance company to which subchapter L applies, and
            (C) a corporation actively engaged in the business of 
        lending money.

(e) Limitation on amount of bonds designated

                       (1) National limitation

        There is a national zone academy bond limitation for each 
    calendar year. Such limitation is $400,000,000 for 1998, 1999, 2000, 
    and 2001, and, except as provided in paragraph (4), zero thereafter.

                    (2) Allocation of limitation

        The national zone academy bond limitation for a calendar year 
    shall be allocated by the Secretary among the States on the basis of 
    their respective populations of individuals below the poverty line 
    (as defined by the Office of Management and Budget). The limitation 
    amount allocated to a State under the preceding sentence shall be 
    allocated by the State education agency to qualified zone academies 
    within such State.

            (3) Designation subject to limitation amount

        The maximum aggregate face amount of bonds issued during any 
    calendar year which may be designated under subsection (d)(1) with 
    respect to any qualified zone academy shall not exceed the 
    limitation amount allocated to such academy under paragraph (2) for 
    such calendar year.

                 (4) Carryover of unused limitation

        If for any calendar year--
            (A) the limitation amount for any State, exceeds
            (B) the amount of bonds issued during such year which are 
        designated under subsection (d)(1) with respect to qualified 
        zone academies within such State,

    the limitation amount for such State for the following calendar year 
    shall be increased by the amount of such excess. Any carryforward of 
    a limitation amount may be carried only to the first 2 years (3 
    years for carryforwards from 1998 or 1999) following the unused 
    limitation year. For purposes of the preceding sentence, a 
    limitation amount shall be treated as used on a first-in first-out 
    basis.

(f) Other definitions

    For purposes of this section--

                      (1) Credit allowance date

        The term ``credit allowance date'' means, with respect to any 
    issue, the last day of the 1-year period beginning on the date of 
    issuance of such issue and the last day of each successive 1-year 
    period thereafter.

                              (2) Bond

        The term ``bond'' includes any obligation.

                              (3) State

        The term ``State'' includes the District of Columbia and any 
    possession of the United States.

(g) Credit included in gross income

    Gross income includes the amount of the credit allowed to the 
taxpayer under this section (determined without regard to subsection 
(c)).

(h) Credit treated as allowed under part IV of subchapter A

    For purposes of subtitle F, the credit allowed by this section shall 
be treated as a credit allowable under part IV of subchapter A of this 
chapter.

(Added Pub. L. 105-34, title II, Sec. 226(a), Aug. 5, 1997, 111 Stat. 
821; amended Pub. L. 105-206, title VI, Sec. 6004(g)(2)-(4), July 22, 
1998, 112 Stat. 796; Pub. L. 106-78, title VII, Sec. 752(b)(11), Oct. 
22, 1999, 113 Stat. 1169; Pub. L. 106-170, title V, Sec. 509, Dec. 17, 
1999, 113 Stat. 1924.)

                       References in Text

    The date of the enactment of this section, referred to in subsec. 
(d)(4)(A)(iv)(I), is the date of enactment of Pub. L. 105-34, which was 
approved Aug. 5, 1997.
    The Richard B. Russell National School Lunch Act, referred to in 
subsec. (d)(4)(A)(iv)(II), is act June 4, 1946, ch. 281, 60 Stat. 230, 
as amended, which is classified generally to chapter 13 (Sec. 1751 et 
seq.) of Title 42, The Public Health and Welfare. For complete 
classification of this Act to the Code, see Short Title note set out 
under section 1751 of Title 42 and Tables.
    Section 14101 of the Elementary and Secondary Education Act of 1965, 
referred to in subsec. (d)(4)(B), is classified to section 8801 of Title 
20, Education.


                               Amendments

    1999--Subsec. (d)(4)(A)(iv)(II). Pub. L. 106-78 substituted 
``Richard B. Russell National School Lunch Act'' for ``National School 
Lunch Act''.
    Subsec. (e)(1). Pub. L. 106-170, Sec. 509(a), substituted ``, 1999, 
2000, and 2001'' for ``and 1999''.
    Subsec. (e)(4). Pub. L. 106-170, Sec. 509(b), inserted at end ``Any 
carryforward of a limitation amount may be carried only to the first 2 
years (3 years for carryforwards from 1998 or 1999) following the unused 
limitation year. For purposes of the preceding sentence, a limitation 
amount shall be treated as used on a first-in first-out basis.''
    1998--Subsec. (d)(4)(B). Pub. L. 105-206, Sec. 6004(g)(2), 
substituted ``local educational agency as defined'' for ``local 
education agency as defined''.
    Subsec. (g). Pub. L. 105-206, Sec. 6004(g)(4), inserted 
``(determined without regard to subsection (c))'' after ``section''.
    Subsec. (h). Pub. L. 105-206, Sec. 6004(g)(3), added subsec. (h).


                    Effective Date of 1998 Amendment

    Amendment by Pub. L. 105-206 effective, except as otherwise 
provided, as if included in the provisions of the Taxpayer Relief Act of 
1997, Pub. L. 105-34, to which such amendment relates, see section 6024 
of Pub. L. 105-206, set out as a note under section 1 of this title.


                             Effective Date

    Section 226(c) of Pub. L. 105-34 provided that: ``The amendments 
made by this section [enacting this section and renumbering section 
1397D as section 1397F of this title] shall apply to obligations issued 
after December 31, 1997.''
