
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)[164(b)]]
[CITE: 26USC1400B]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
           Subchapter W--District of Columbia Enterprise Zone
 
Sec. 1400B. Zero percent capital gains rate


(a) Exclusion

    Gross income shall not include qualified capital gain from the sale 
or exchange of any DC Zone asset held for more than 5 years.

(b) DC Zone asset

    For purposes of this section--

                           (1) In general

        The term ``DC Zone asset'' means--
            (A) any DC Zone business stock,
            (B) any DC Zone partnership interest, and
            (C) any DC Zone business property.

                     (2) DC Zone business stock

        (A) In general

            The term ``DC Zone business stock'' means any stock in a 
        domestic corporation which is originally issued after December 
        31, 1997, if--
                (i) such stock is acquired by the taxpayer, before 
            January 1, 2004, at its original issue (directly or through 
            an underwriter) solely in exchange for cash,
                (ii) as of the time such stock was issued, such 
            corporation was a DC Zone business (or, in the case of a new 
            corporation, such corporation was being organized for 
            purposes of being a DC Zone business), and
                (iii) during substantially all of the taxpayer's holding 
            period for such stock, such corporation qualified as a DC 
            Zone business.

        (B) Redemptions

            A rule similar to the rule of section 1202(c)(3) shall apply 
        for purposes of this paragraph.

                  (3) DC Zone partnership interest

        The term ``DC Zone partnership interest'' means any capital or 
    profits interest in a domestic partnership which is originally 
    issued after December 31, 1997, if--
            (A) such interest is acquired by the taxpayer, before 
        January 1, 2004, from the partnership solely in exchange for 
        cash,
            (B) as of the time such interest was acquired, such 
        partnership was a DC Zone business (or, in the case of a new 
        partnership, such partnership was being organized for purposes 
        of being a DC Zone business), and
            (C) during substantially all of the taxpayer's holding 
        period for such interest, such partnership qualified as a DC 
        Zone business.

    A rule similar to the rule of paragraph (2)(B) shall apply for 
    purposes of this paragraph.

                    (4) DC Zone business property

        (A) In general

            The term ``DC Zone business property'' means tangible 
        property if--
                (i) such property was acquired by the taxpayer by 
            purchase (as defined in section 179(d)(2)) after December 
            31, 1997, and before January 1, 2004,
                (ii) the original use of such property in the DC Zone 
            commences with the taxpayer, and
                (iii) during substantially all of the taxpayer's holding 
            period for such property, substantially all of the use of 
            such property was in a DC Zone business of the taxpayer.

        (B) Special rule for buildings which are substantially improved

            (i) In general

                The requirements of clauses (i) and (ii) of subparagraph 
            (A) shall be treated as met with respect to--
                    (I) property which is substantially improved by the 
                taxpayer before January 1, 2004, and
                    (II) any land on which such property is located.
            (ii) Substantial improvement

                For purposes of clause (i), property shall be treated as 
            substantially improved by the taxpayer only if, during any 
            24-month period beginning after December 31, 1997, additions 
            to basis with respect to such property in the hands of the 
            taxpayer exceed the greater of--
                    (I) an amount equal to the adjusted basis of such 
                property at the beginning of such 24-month period in the 
                hands of the taxpayer, or
                    (II) $5,000.

                (5) Treatment of DC Zone termination

        The termination of the designation of the DC Zone shall be 
    disregarded for purposes of determining whether any property is a DC 
    Zone asset.

            (6) Treatment of subsequent purchasers, etc.

        The term ``DC Zone asset'' includes any property which would be 
    a DC Zone asset but for paragraph (2)(A)(i), (3)(A), or (4)(A)(i) or 
    (ii) in the hands of the taxpayer if such property was a DC Zone 
    asset in the hands of a prior holder.

                       (7) 5-year safe harbor

        If any property ceases to be a DC Zone asset by reason of 
    paragraph (2)(A)(iii), (3)(C), or (4)(A)(iii) after the 5-year 
    period beginning on the date the taxpayer acquired such property, 
    such property shall continue to be treated as meeting the 
    requirements of such paragraph; except that the amount of gain to 
    which subsection (a) applies on any sale or exchange of such 
    property shall not exceed the amount which would be qualified 
    capital gain had such property been sold on the date of such 
    cessation.

(c) DC Zone business

    For purposes of this section, the term ``DC Zone business'' means 
any enterprise zone business (as defined in section 1397C), determined--
        (1) after the application of section 1400(e),
        (2) by substituting ``80 percent'' for ``50 percent'' in 
    subsections (b)(2) and (c)(1) of section 1397C, and
        (3) by treating no area other than the DC Zone as an empowerment 
    zone or enterprise community.

(d) Treatment of zone as including census tracts with 10 percent poverty 
        rate

    For purposes of applying this section (and for purposes of applying 
this subchapter and subchapter U with respect to this section), the DC 
Zone shall be treated as including all census tracts--
        (1) which are located in the District of Columbia, and
        (2) for which the poverty rate is not less than 10 percent as 
    determined on the basis of the 1990 census.

(e) Other definitions and special rules

    For purposes of this section--

                     (1) Qualified capital gain

        Except as otherwise provided in this subsection, the term 
    ``qualified capital gain'' means any gain recognized on the sale or 
    exchange of--
            (A) a capital asset, or
            (B) property used in the trade or business (as defined in 
        section 1231(b)).

          (2) Gain before 1998 or after 2008 not qualified

        The term ``qualified capital gain'' shall not include any gain 
    attributable to periods before January 1, 1998, or after December 
    31, 2008.

                   (3) Certain gain not qualified

        The term ``qualified capital gain'' shall not include any gain 
    which would be treated as ordinary income under section 1245 or 
    under section 1250 if section 1250 applied to all depreciation 
    rather than the additional depreciation.

       (4) Intangibles and land not integral part of DC Zone 
                                  business

        The term ``qualified capital gain'' shall not include any gain 
    which is attributable to real property, or an intangible asset, 
    which is not an integral part of a DC Zone business.

                   (5) Related party transactions

        The term ``qualified capital gain'' shall not include any gain 
    attributable, directly or indirectly, in whole or in part, to a 
    transaction with a related person. For purposes of this paragraph, 
    persons are related to each other if such persons are described in 
    section 267(b) or 707(b)(1).

(f) Certain other rules to apply

    Rules similar to the rules of subsections (g), (h), (i)(2), and (j) 
of section 1202 shall apply for purposes of this section.

(g) Sales and exchanges of interests in partnerships and S corporations 
        which are DC Zone businesses

    In the case of the sale or exchange of an interest in a partnership, 
or of stock in an S corporation, which was a DC Zone business during 
substantially all of the period the taxpayer held such interest or 
stock, the amount of qualified capital gain shall be determined without 
regard to--
        (1) any gain which is attributable to real property, or an 
    intangible asset, which is not an integral part of a DC Zone 
    business, and
        (2) any gain attributable to periods before January 1, 1998, or 
    after December 31, 2008.

(Added Pub. L. 105-34, title VII, Sec. 701(a), Aug. 5, 1997, 111 Stat. 
864; amended Pub. L. 105-206, title VI, Sec. 6008(c), July 22, 1998, 112 
Stat. 811; Pub. L. 106-554, Sec. 1(a)(7) [title I, Secs. 116(b)(5), 
164(b)], Dec. 21, 2000, 114 Stat. 2763, 2763A-603, 2763A-625.)


                               Amendments

    2000--Subsec. (b). Pub. L. 106-554, Sec. 1(a)(7) [title I, 
Sec. 164(b)(1)], substituted ``2004'' for ``2003'' wherever appearing.
    Subsec. (c). Pub. L. 106-554, Sec. 1(a)(7) [title I, 
Sec. 116(b)(5)], substituted ``section 1397C'' for ``section 1397B'' in 
introductory provisions and in par. (2).
    Subsec. (e)(2). Pub. L. 106-554, Sec. 1(a)(7) [title I, 
Sec. 164(b)(2)], substituted ``2008'' for ``2007'' in heading and text.
    Subsec. (g)(2). Pub. L. 106-554, Sec. 1(a)(7) [title I, 
Sec. 164(b)(2)], substituted ``2008'' for ``2007''.
    1998--Subsec. (b)(5). Pub. L. 105-206, Sec. 6008(c)(1), added par. 
(5).
    Subsec. (b)(6). Pub. L. 105-206, Sec. 6008(c)(2), substituted 
``(4)(A)(i) or (ii)'' for ``(4)(A)(ii)''.
    Subsec. (c). Pub. L. 105-206, Sec. 6008(c)(3), struck out ``entity 
which is an'' before ``enterprise zone'' in introductory provisions.
    Subsec. (d)(2). Pub. L. 105-206, Sec. 6008(c)(4), inserted ``as 
determined on the basis of the 1990 census'' after ``percent''.


                    Effective Date of 2000 Amendment

    Amendment by section 1(a)(7) [title I, Sec. 116(b)(5)] 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 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.

                  Section Referred to in Other Sections

    This section is referred to in sections 45D, 1202, 1223, 1400F of 
this title.
