Amends the Internal Revenue Code to allow a: (1) tax credit for the lesser of $5,000 or ten percent of the purchase price of a principal residence in a qualifying county; and (2) capital loss deduction with respect to a sale or exchange of a principal residence in a qualifying county.
Provides for the creation of tax-exempt individual homestead accounts, funded by individual cash contributions and matching Federal contributions according to a specified formula, whose tax-free distributions after five years are used by residents of qualifying counties for qualified higher education or medical expenses, first-time homebuyer or business capitalization costs, or rollovers.
Establishes a rural investment tax credit of 70 percent of the present value of new buildings (including rehabilitation projects) or 30 percent of the present value of existing buildings.
Establishes a qualified rural small business investment credit of 30 percent of expenditures for starting or expanding a business, including costs for capital, plant and equipment, inventory expenses, and wages, but not including interest costs.
Provides for accelerated depreciation of business property in rural investment projects.
New Homestead Venture Capital Fund Act - Amends the Consolidated Farm and Rural Development Act to establish the New Homestead Venture Capital Fund (Fund), owned by private investors, to generate and provide equity capital to rural businesses in qualifying counties. Directs the Secretary of Agriculture to provide funding and guarantees for private investors in the Fund.
[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 675 Introduced in Senate (IS)]
109th CONGRESS
1st Session
S. 675
To reward the hard work and risk of individuals who choose to live in
and help preserve America's small, rural towns, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
March 17, 2005
Mr. Dorgan (for himself, Mr. Hagel, Mr. Brownback, Mr. Johnson, Mr.
Durbin, Mr. Burns, Mr. Conrad, Mr. Dayton, and Mr. Harkin) introduced
the following bill; which was read twice and referred to the Committee
on Finance
_______________________________________________________________________
A BILL
To reward the hard work and risk of individuals who choose to live in
and help preserve America's small, rural towns, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``New Homestead Act
of 2005''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; etc.
TITLE I--NEW HOMESTEAD OPPORTUNITIES
Sec. 101. Loans for leadership initiative.
Sec. 102. Credit for certain rural homebuyers.
Sec. 103. Capital loss deduction allowed with respect to sale or
exchange of principal residence in certain
rural areas.
Sec. 104. Individual homestead accounts.
TITLE II--INCENTIVES FOR MAIN STREET BUSINESSES
Sec. 201. Rural investment tax credit.
Sec. 202. Qualified rural small business investment credit.
Sec. 203. Accelerated depreciation for rural investment property.
TITLE III--NEW HOMESTEAD VENTURE CAPITAL FUND
Sec. 301. New homestead venture capital fund.
TITLE I--NEW HOMESTEAD OPPORTUNITIES
SEC. 101. LOANS FOR LEADERSHIP INITIATIVE.
(a) Definitions.--In this section:
(1) Degree.--The term ``degree'' means an associate's or
bachelor's degree awarded by an institution of higher
education.
(2) Institution of higher education.--The term
``institution of higher education'' has the meaning given the
term in section 101 of the Higher Education Act of 1965 (20
U.S.C. 1001).
(3) Qualifying county.--The term ``qualifying county''
means any county which--
(A) is outside a metropolitan statistical area
(defined as such by the Office of Management and
Budget), and
(B) during the 20-year period ending with the
calendar year preceding the date of enactment of this
Act, has a net out-migration of inhabitants from the
county of at least 10 percent of the population of the
county at the beginning of such period.
(4) Secretary.--The term ``Secretary'' means the Secretary
of Education.
(b) Program.--
(1) In general.--The Secretary shall carry out a program of
assuming the obligation to repay, pursuant to subsection (c), a
loan made, insured, or guaranteed under part B, D, or E of
title IV of the Higher Education Act of 1965 (20 U.S.C. 1071 et
seq., 20 U.S.C. 1087a et seq., and 20 U.S.C. 1087aa et seq.),
excluding loans made under section 428B of such Act or
comparable loans made under part D of such Act, for any
borrower who--
(A) completes a degree;
(B) resides in a qualifying county; and
(C) is employed in a qualifying county.
(2) Regulations.--The Secretary is authorized to prescribe
such regulations as may be necessary to carry out the
provisions of this section.
(c) Loan Repayment.--
(1) In general.--The Secretary shall assume the obligation
to repay, after each of the first 5 years of the residency and
employment described in subparagraphs (B) and (C) of subsection
(b)(1) that occur after the date of enactment of this section,
10 percent of the total amount of all loans made to a student
under the provisions of the Higher Education Act of 1965 as
described in subsection (b)(1), up to a maximum amount of
$2,000 each year.
(2) Construction.--Nothing in this section shall be
construed to authorize the refunding of any repayment of a loan
made under part B, D, or E of title IV of the Higher Education
Act of 1965.
(3) Interest.--If a portion of a loan is repaid by the
Secretary under this section for any year, the proportionate
amount of interest on such loan which accrues for such year
shall be repaid by the Secretary so long as the total amount
repaid by the Secretary in any 1 year does not exceed $2,000.
(d) Repayment to Eligible Lenders.--The Secretary shall pay to each
eligible lender or holder for each fiscal year an amount equal to the
aggregate amount of loans which are subject to repayment pursuant to
this section for such year.
(e) Application for Repayment.--
(1) In general.--An eligible borrower desiring loan
repayment under this section shall submit a complete and
accurate application to the Secretary at such time, in such
manner, and containing such information as the Secretary may
require.
(2) Conditions.--An eligible borrower may apply for loan
repayment under this section after completing each year of
qualifying residency and employment. The eligible borrower
shall receive forbearance while engaged in qualifying residency
and employment unless the borrower is in deferment while so
engaged.
(f) Definition of Eligible Borrower.--In this section the term
``eligible borrower'' means any borrower who is not in default on any
of the borrower's student loans under part B, D, or E of title IV of
the Higher Education Act of 1965.
(g) Authorization of Appropriations.--
(1) Loan repayment.--There are authorized to be
appropriated to carry out this section such sums as may be
necessary.
(2) Perkins loan funds.--There are authorized to be
appropriated such sums as may be necessary for Federal capital
contributions to student loan funds established under part E of
title IV of the Higher Education Act of 1965.
(h) Repayment Excluded From Gross Income.--Section 108(f)(1)
(relating to student loans) is amended by inserting ``or pursuant to
section 101 of the New Homestead Act of 2005'' after ``employers''.
SEC. 102. CREDIT FOR CERTAIN RURAL HOMEBUYERS.
(a) In General.--Subpart A of part IV of subchapter A of chapter 1
(relating to nonrefundable personal credits) is amended by inserting
before section 26 the following new section:
``SEC. 25C. PURCHASE OF RESIDENCES BY CERTAIN RURAL HOMEBUYERS.
``(a) Allowance of Credit.--In the case of an individual who
purchases a qualified residence in a qualifying county during any
taxable year, there shall be allowed as a credit against the tax
imposed by this chapter for the taxable year an amount equal to the
lesser of--
``(1) 10 percent of the purchase price of the residence, or
``(2) $5,000.
``(b) Limitations.--
``(1) Limitation based on amount of tax.--The credit
allowed under subsection (a) for any taxable year shall not
exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
subpart (other than this section and section 23) and
section 27 for the taxable year.
``(2) Married individuals filing jointly.--In the case of a
husband and wife who file a joint return, the credit under this
section is allowable only if the residence is a qualified
residence with respect to both the husband and wife, and the
amount specified under subsection (a)(2) shall apply to the
joint return.
``(3) Married individuals filing separately.--In the case
of a married individual filing a separate return, subsection
(a)(2) shall be applied by substituting `$2,500' for `$5,000'.
``(4) Other taxpayers.--If 2 or more individuals who are
not married purchase a qualified residence, the amount of the
credit allowed under subsection (a) shall be allocated among
such individuals in such manner as the Secretary may prescribe,
except that the total amount of the credits allowed to all such
individuals shall not exceed $5,000.
``(c) Definitions.--For purposes of this section--
``(1) Qualified residence.--The term `qualified residence'
has the same meaning as when used in section 163(h).
``(2) Qualifying county.--The term `qualifying county'
means any county which--
``(A) is outside a metropolitan statistical area
(defined as such by the Office of Management and
Budget), and
``(B) during the 20-year period ending with the
calendar year preceding the date of the enactment of
this section, has a net out-migration of inhabitants
from the county of at least 10 percent of the
population of the county at the beginning of such
period.
``(3) Purchase and purchase price.--The terms `purchase'
and `purchase price' have the meanings provided by section
1400C(e).
``(d) Carryforward of Unused Credit.--If the credit allowable under
subsection (a) for any taxable year exceeds the limitation imposed by
subsection (b)(1) for such taxable year reduced by the sum of the
credits allowable under this subpart (other than this section and
section 23), such excess shall be carried to the succeeding taxable
year and added to the credit allowable under subsection (a) for such
taxable year.
``(e) Reporting.--If the Secretary requires information reporting
under section 6045 by a person described in subsection (e)(2) thereof
to verify the eligibility of taxpayers for the credit allowable by this
section, the exception provided by section 6045(e)(5) shall not apply.
``(f) Recapture of Credit in Case of Certain Sales.--
``(1) In general.--Except as provided in paragraph (5), if
the taxpayer disposes of a qualified residence with respect to
the purchase of which a credit was allowed under subsection (a)
at any time within 5 years after the date the taxpayer acquired
the property, then the tax imposed under this chapter for the
taxable year in which the disposition occurs is increased by
the credit recapture amount.
``(2) Credit recapture amount.--For purposes of paragraph
(1), the credit recapture amount is an amount equal to the sum
of--
``(A) the applicable recapture percentage of the
amount of the credit allowed to the taxpayer under this
section, plus
``(B) interest at the overpayment rate established
under section 6621 on the amount determined under
subparagraph (A) for each prior taxable year for the
period beginning on the due date for filing the return
for the prior taxable year involved.
No deduction shall be allowed under this chapter for interest
described in subparagraph (B).
``(3) Applicable recapture percentage.--
``(A) In general.--For purposes of this subsection,
the applicable recapture percentage shall be determined
from the following table:
The applicable
recapture
``If the sale occurs in:
percentage is:
Year 1............................... 100
Year 2............................... 80
Year 3............................... 60
Year 4............................... 40
Year 5............................... 20
Years 6 and thereafter............... 0.
``(B) Years.--For purposes of subparagraph (A),
year 1 shall begin on the first day of the taxable year
in which the purchase of the qualified residence
described in subsection (a) occurs.
``(4) No credits against tax.--Any increase in tax under
this subsection shall not be treated as a tax imposed by this
chapter for purposes of determining the amount of any credit
under this chapter or for purposes of section 55.
``(5) Death of owner; casualty loss; involuntary
conversion; etc.--The provisions of paragraph (1) do not apply
to--
``(A) a disposition of a qualified residence made
on account of the death of any individual having a
legal or equitable interest therein occurring during
the 5-year period to which reference is made under
paragraph (1),
``(B) a disposition of the old qualified residence
if it is substantially or completely destroyed by a
casualty described in section 165(c)(3) or compulsorily
or involuntarily converted (within the meaning of
section 1033(a)), or
``(C) a disposition pursuant to a settlement in a
divorce or legal separation proceeding where the
qualified residence is sold or the other spouse retains
such residence.
``(g) Basis Adjustment.--For purposes of this subtitle, if a credit
is allowed under this section with respect to the purchase of any
residence, the basis of such residence shall be reduced by the amount
of the credit so allowed.''.
(b) Conforming Amendments.--
(1) Subsection (a) of section 1016 (relating to general
rule for adjustments to basis) is amended by striking ``and''
at the end of paragraph (30), by striking the period at the end
of paragraph (31) and inserting ``, and'', and by adding at the
end the following new paragraph:
``(32) in the case of a residence with respect to which a
credit was allowed under section 25C, to the extent provided in
section 25C(g).''.
(2) Section 24(b)(3)(B) is amended by striking ``23 and
25B'' and inserting ``23, 25B, and 25C''.
(3) Section 25(e)(1)(C) is amended by inserting ``25C,''
after ``25B,''.
(4) Section 25B(g) is amended by striking ``section 23''
and inserting ``sections 23 and 25C''.
(5) Section 26(a)(1) is amended by striking ``and 25B'' and
inserting ``25B, and 25C''.
(6) Section 1400C(d) is amended by striking ``and 25B'' and
inserting ``25B, and 25C''.
(7) The table of sections for subpart A of part IV of
subchapter A of chapter 1 is amended by inserting before the
item relating to section 26 the following new item:
``Sec. 25C. Purchase of residences by certain rural homebuyers.''.
(c) Effective Date.--The amendments made by this section shall
apply to purchases after the date of the enactment of this Act, in
taxable years ending after such date.
SEC. 103. CAPITAL LOSS DEDUCTION ALLOWED WITH RESPECT TO SALE OR
EXCHANGE OF PRINCIPAL RESIDENCE IN CERTAIN RURAL AREAS.
(a) In General.--Subsection (c) of section 165 (relating to
limitation on losses of individuals) is amended--
(1) by striking ``and'' at the end of paragraph (2),
(2) by striking the period at the end of paragraph (3) and
inserting ``; and'', and
(3) by adding at the end the following new paragraph:
``(4) losses arising from the sale or exchange of the
principal residence (within the meaning of section 121) of the
taxpayer located in a qualifying county (as defined in section
223(b)(2)), but only if the principal residence was acquired by
the taxpayer after the date of enactment of this paragraph.''.
(b) Conforming Amendment.--Section 67(b)(3) is amended by striking
``paragraph (2) or (3)'' and inserting ``paragraph (2), (3), or (4)''.
(c) Effective Date.--The amendments made by this section shall
apply to sales and exchanges after the date of the enactment of this
Act, in taxable years ending after such date.
SEC. 104. INDIVIDUAL HOMESTEAD ACCOUNTS.
(a) In General.--Subchapter F of chapter 1 (relating to exempt
organizations) is amended by adding at the end the following new part:
``PART IX--INDIVIDUAL HOMESTEAD ACCOUNTS
``Sec. 530A. Individual homestead accounts.
``SEC. 530A. INDIVIDUAL HOMESTEAD ACCOUNTS.
``(a) General Rule.--An individual homestead account shall be
exempt from taxation under this subtitle. Notwithstanding the preceding
sentence, any individual homestead account shall be subject to the
taxes imposed by section 511 (relating to imposition of tax on
unrelated business income of charitable, etc., organizations).
``(b) Individual Homestead Account.--For purposes of this title,
the term `individual homestead account' means a trust created or
organized in the United States for the exclusive benefit of a qualified
individual or his beneficiaries, but only if the written governing
instrument creating the trust meets the following requirements:
``(1) Except in the case of a qualified rollover (as
defined in subsection (f)(7))--
``(A) no contribution will be accepted unless it is
in cash,
``(B) contributions will not be accepted for the
taxable year in excess of $2,500 (determined without
regard to any contribution made under subsection (d)),
and
``(C) contributions will not be accepted for any
taxable year following the fifth taxable year in which
the qualified individual has contributed to any
individual homestead account.
``(2) The requirements of paragraphs (2) through (6) of
section 408(a) are met.
``(c) Qualified Individual; Qualifying County.--For purposes of
this section--
``(1) Qualified individual.--The term `qualified
individual' means, for any taxable year, an individual who is a
bona fide resident of a qualifying county.
``(2) Qualifying county.--The term `qualifying county'
means any county which--
``(A) is outside a metropolitan statistical area
(defined as such by the Office of Management and
Budget), and
``(B) during the 20-year period ending with the
calendar year preceding the date of the enactment of
this section, has a net out-migration of inhabitants
from the county of at least 10 percent of the
population of the county at the beginning of such
period.
``(d) Matching Contributions to Individual Homestead Accounts.--
``(1) In general.--Not less than once each taxable year,
the Secretary shall deposit (to the extent provided in
appropriation Acts) into an individual Homestead account of
each qualified individual an amount equal to the applicable
percentage of the sum of the amounts deposited into all of the
individual homestead accounts of such individual during such
taxable year (determined without regard to any amount
contributed under this subsection).
``(2) Applicable percentage.--For purposes of this
subsection, the applicable percentage with respect to any
qualified individual for any taxable year shall be determined
in accordance with the following tables:
``(A) In the case of a married individual (as
defined in section 7703) filing a joint return:
``If modified adjusted gross income The applicable percentage is:
is:
$30,000 or less........................................ 50
Over $30,000 but not over $60,000...................... 25
Over $60,000 but not over $100,000..................... 12.5
Over $100,000.......................................... zero.
``(B) In the case of a head of household (as
defined in section 2(b)):
``If modified adjusted gross income The applicable percentage is:
is:
$22,500 or less........................................ 50
Over $22,500 but not over $45,000...................... 25
Over $45,000 but not over $75,000...................... 12.5
Over $75,000........................................... zero.
``(C) In the case of any other individual:
``If modified adjusted gross income The applicable percentage is:
is:
$15,000 or less........................................ 50
Over $15,000 but not over $30,000...................... 25
Over $30,000 but not over $50,000...................... 12.5
Over $50,000........................................... zero.
For purposes of this paragraph, the term `modified adjusted
gross income' has the meaning given such term by section
86(b)(2).
``(3) Exclusion from income.--Except as otherwise provided
in this section, gross income shall not include any amount
deposited into an individual homestead account under paragraph
(1).
``(4) Forfeiture of matching contributions in the case of
certain distributions.--In the event of a distribution from an
individual homestead account before the date described in
subsection (f)(1)(A) (other than a distribution described in
subsection (e)(2)(A)), the account holder shall forfeit the
corresponding matching contributions and interest earned on the
matching contributions, unless such distribution is
recontributed to such account within 6 months of such
distribution.
``(e) Tax Treatment of Distributions.--
``(1) Inclusion of amounts in gross income.--Except as
otherwise provided in this subsection, any amount paid or
distributed out of an individual homestead account shall be
includible in the gross income of the payee or distributee, as
the case may be, in the manner as provided in section 72. For
purposes of the preceding sentence, distributions which are
includible in gross income shall be treated as first
attributable to amounts contributed under subsection (d) to the
extent thereof.
``(2) Exclusion of catastrophic medical expense
distributions in first five years and qualified individual
homestead distributions thereafter.--Paragraph (1) shall not
apply to--
``(A) any distribution described in section
72(t)92)(B) before the date described in subsection
(f)(1)(A), but only to the extent such distribution
does not exceed the balance in the account as of the
date of such distribution, reduced by any matching
contribution under subsection (d), and
``(B) any qualified individual homestead
distribution.
``(f) Qualified Individual Homestead Distribution.--For purposes of
this section--
``(1) In general.--The term `qualified individual homestead
distribution' means any amount paid or distributed out of an
individual homestead account which would otherwise be
includible in gross income, to the extent that such payment or
distribution--
``(A) is paid or distributed after the 5-taxable
year period beginning with the first taxable year in
which the qualified individual made a contribution to
the individual homestead account (including any
predecessor account), and
``(B) is used exclusively to pay qualified
individual homestead expenses for the qualified
individual or the spouse or dependent (as defined in
section 152) of such individual.
``(2) Qualified individual homestead expenses.--The term
`qualified individual homestead expenses' means any of the
following:
``(A) Qualified higher education expenses.
``(B) Qualified first-time homebuyer costs.
``(C) Qualified business capitalization costs.
``(D) Qualified medical expenses.
``(E) Qualified rollovers.
``(3) Qualified higher education expenses.--
``(A) In general.--The term `qualified higher
education expenses' has the meaning given such term by
section 72(t)(7), determined by treating postsecondary
vocational educational schools as eligible educational
institutions.
``(B) Postsecondary vocational education school.--
The term `postsecondary vocational educational school'
means an area vocational education school (as defined
in subparagraph (C) or (D) of section 521(4) of the
Carl D. Perkins Vocational and Applied Technology
Education Act (20 U.S.C. 2471(4))) which is in any
State (as defined in section 521(33) of such Act), as
such sections are in effect on the date of the
enactment of this section.
``(C) Coordination with other benefits.--The amount
of qualified higher education expenses for any taxable
year shall be reduced as provided in section 25A(g)(2).
``(4) Qualified first-time homebuyer costs.--The term
`qualified first-time homebuyer costs' means qualified
acquisition costs (as defined in section 72(t)(8) without
regard to subparagraph (B) thereof) with respect to a principal
residence (within the meaning of section 121) located in a
qualifying county for a qualified first-time homebuyer (as
defined in section 72(t)(8)).
``(5) Qualified business capitalization costs.--
``(A) In general.--The term `qualified business
capitalization costs' means qualified expenditures for
the capitalization of a qualified business pursuant to
a qualified plan.
``(B) Qualified expenditures.--The term `qualified
expenditures' means expenditures included in a
qualified plan, including capital, plant, equipment,
working capital, and inventory expenses.
``(C) Qualified business.--The term `qualified
business' means any trade or business located in a
qualifying county other than any trade or business--
``(i) which consists of the operation of
any facility described in section 144(c)(6)(B),
or
``(ii) which contravenes any law.
Rules similar to the rules under subsection (b) or (c)
of section 1397C shall apply to any qualified business
under this section.
``(D) Qualified plan.--The term `qualified plan'
means a business plan which meets such requirements as
the Secretary may specify.
``(6) Qualified medical expenses.--The term `qualified
medical expenses' means any amount paid during the taxable
year, not compensated for by insurance or otherwise, for
medical care (as defined in section 213(d)) of the taxpayer,
his spouse, or his dependent (as defined in section 152).
``(7) Qualified rollovers.--The term `qualified rollover'
means any amount paid from an individual homestead account of a
taxpayer into another such account established for the benefit
of--
``(A) such taxpayer, or
``(B) any qualified individual who is--
``(i) the spouse of such taxpayer, or
``(ii) any dependent (as defined in section
152) of the taxpayer.
Rules similar to the rules of section 408(d)(3) shall apply for
purposes of this paragraph.
``(g) Tax Treatment of Accounts.--
``(1) Loss of exemption in case of prohibited
transactions.--For purposes of this section, rules similar to
the rules of section 408(e) shall apply.
``(2) Other rules to apply.--Rules similar to the rules of
paragraphs (4), (5), and (6) of section 408(d) shall apply for
purposes of this section.
``(h) Other Definitions and Special Rules.--For purposes of this
section--
``(1) All accounts treated as one account.--All individual
homestead accounts of a qualified individual shall be treated
as 1 account.
``(2) Time when contributions deemed made.--A taxpayer
shall be deemed to have made a contribution to an individual
homestead account on the last day of the preceding taxable year
if the contribution is made on account of such taxable year and
is made not later than the time prescribed by law for filing
the return for such taxable year (not including extensions
thereof).
``(3) Custodial accounts.--Rules similar to the rules of
section 408(h) shall apply.
``(4) Reports.--The trustee of an individual homestead
account shall make such reports regarding such account to the
Secretary and to the individual for whom the account is
maintained with respect to contributions (and the years to
which they relate), distributions, and such other matters as
the Secretary may require under regulations. The reports
required by this paragraph--
``(A) shall be filed at such time and in such
manner as the Secretary prescribes in such regulations,
and
``(B) shall be furnished to individuals--
``(i) not later than January 31 of the
calendar year following the calendar year to
which such reports relate, and
``(ii) in such manner as the Secretary
prescribes in such regulations.
``(5) Investment in collectibles treated as
distributions.--Rules similar to the rules of section 408(m)
shall apply.
``(i) Designation of Earned Income Tax Credit Payments for Deposit
to Individual Homestead Account.--
``(1) In general.--With respect to the return of any
qualified individual for the taxable year of the tax imposed by
this chapter, such individual may designate that a specified
portion (not less than $1) of any overpayment of tax for such
taxable year which is attributable to the earned income tax
credit shall be deposited by the Secretary into an individual
homestead account of such individual. The Secretary shall so
deposit such portion designated under this subsection.
``(2) Manner and time of designation.--A designation under
paragraph (1) may be made with respect to any taxable year--
``(A) at the time of filing the return of the tax
imposed by this chapter for such taxable year, or
``(B) at any other time (after the time of filing
the return of the tax imposed by this chapter for such
taxable year) specified in regulations prescribed by
the Secretary.
Such designation shall be made in such manner as the Secretary
prescribes by regulations.
``(3) Portion attributable to earned income tax credit.--
For purposes of this subsection, an overpayment for any taxable
year shall be treated as attributable to the earned income tax
credit to the extent that such overpayment does not exceed the
credit allowed to the taxpayer under section 32 for such
taxable year.
``(4) Overpayments treated as refunded.--For purposes of
this title, any portion of an overpayment of tax designated
under paragraph (1) shall be treated as being refunded to the
taxpayer as of the last date prescribed for filing the return
of tax imposed by this chapter (determined without regard to
extensions) or, if later, the date the return is filed.
``(j) Penalty for Distributions Not Used for Qualified Individual
Homestead Expenses.--
``(1) In general.--If any amount is distributed from an
individual homestead account and is not used exclusively to pay
qualified individual homestead expenses for the holder of the
account or the spouse or dependent (as defined in section 152)
of such holder, the tax imposed by this chapter for the taxable
year of such distribution shall be increased by 10 percent of
such amount which is includible in gross income. For purposes
of the preceding sentence, distributions which are includible
in gross income shall be treated as first attributable to
amounts contributed under subsection (d) to the extent thereof.
``(2) Exception for certain distributions.--Paragraph (1)
shall not apply to distributions which are--
``(A) made on or after the date on which the
account holder attains age 59\1/2\,
``(B) made to a beneficiary (or the estate of the
account holder) on or after the death of the account
holder,
``(C) attributable to the account holder's being
disabled within the meaning of section 72(m)(7), or
``(D) described in subsection (e)(2)(A).
``(k) Application of Section.--This section shall apply to amounts
paid to an individual homestead account for any taxable year beginning
after the date of the enactment of the New Homestead Act of 2005.''.
(b) Tax on Excess Contributions.--
(1) Tax imposed.--Subsection (a) of section 4973 is amended
by striking ``or'' at the end of paragraph (4), by
redesignating paragraph (5) as paragraph (6), and by inserting
after paragraph (4) the following new paragraph:
``(5) an individual homestead account (within the meaning
of section 530A(b)), or''.
(2) Excess contributions.--Section 4973 is amended by
adding at the end the following subsection:
``(h) Individual Homestead Accounts.--For purposes of this section,
in the case of individual homestead accounts, the term `excess
contributions' means the sum of--
``(1) the excess (if any) of--
``(A) the amount contributed for the taxable year
to the accounts (other than a qualified rollover, as
defined in section 530A(f)(7), or a contribution under
section 530A(d)), over
``(B) the amount allowable under section 530A for
such contributions, and
``(2) the amount determined under this subsection for the
preceding taxable year reduced by the sum of--
``(A) the distributions out of the accounts for the
taxable year which were included in the gross income of
the payee under section 530A(e)(1),
``(B) the distributions out of the accounts for the
taxable year to which rules similar to the rules of
section 408(d)(5) apply by reason of section
530A(g)(2), and
``(C) the excess (if any) of the maximum amount
allowable as a contribution under section 530A for the
taxable year over the amount contributed to the account
for the taxable year (other than a contribution under
section 530A(d)).
For purposes of this subsection, any contribution which is distributed
from the individual homestead account in a distribution to which rules
similar to the rules of section 408(d)(4) apply by reason of section
530A(g)(2) shall be treated as an amount not contributed.''.
(c) Tax on Prohibited Transactions.--Section 4975 is amended--
(1) by adding at the end of subsection (c) the following
paragraph:
``(7) Special rule for individual homestead accounts.--An
individual for whose benefit an individual homestead account is
established and any contributor to such account shall be exempt
from the tax imposed by this section with respect to any
transaction concerning such account (which would otherwise be
taxable under this section) if, with respect to such
transaction, the account ceases to be an individual homestead
account by reason of the application of section 530A(g)(1) to
such account.'', and
(2) in subsection (e)(1), by striking ``or'' at the end of
subparagraph (F), by redesignating subparagraph (G) as
subparagraph (H), and by inserting after subparagraph (F) the
following new subparagraph:
``(G) an individual homestead account described in
section 530A(b), or''.
(d) Information Relating to Certain Trusts and Annuity Plans.--
Subsection (c) of section 6047 is amended--
(1) by inserting ``or section 530A'' after ``section 219'',
and
(2) by inserting ``, of any individual homestead account
described in section 530A(b),'', after ``section 408(a)''.
(e) Inspection of Applications for Tax Exemption.--Clause (i) of
section 6104(a)(1)(B) is amended by inserting ``an individual homestead
account described in section 530A(b),'' after ``section 408(a),''.
(f) Failure to Provide Reports on Individual Homestead Accounts.--
Paragraph (2) of section 6693(a) is amended by striking ``and'' at the
end of subparagraph (D), by striking the period and inserting ``, and''
at the end of subparagraph (E), and by inserting after subparagraph (E)
the following new subparagraph:
``(F) section 530A(h)(4) (relating to individual
homestead accounts).''.
(g) Clerical Amendment.--The table of parts for subchapter F of
chapter 1 is amended by adding at the end the following new item:
``Part IX. Individual Homestead Accounts.''.
TITLE II--INCENTIVES FOR MAIN STREET BUSINESSES
SEC. 201. RURAL INVESTMENT TAX CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by adding at the end
the following new section:
``SEC. 42A. RURAL INVESTMENT CREDIT.
``(a) In General.--For purposes of section 38, the amount of the
rural investment credit determined under this section for any taxable
year in the credit period shall be an amount equal to the applicable
percentage of the eligible basis of each qualified rural investment
building.
``(b) Applicable Percentage: 70 Percent Present Value Credit for
New Buildings; 30 Percent Present Value Credit for Existing
Buildings.--For purposes of this section--
``(1) In general.--The term `applicable percentage' means
the appropriate percentage prescribed by the Secretary for the
earlier of--
``(A) the first month of the credit period with
respect to a rural investment building, or
``(B) at the election of the taxpayer, the month in
which the taxpayer and the rural investment credit
agency enter into an agreement with respect to such
building (which is binding on such agency, the
taxpayer, and all successors in interest) as to the
rural investment credit dollar amount to be allocated
to such building.
A month may be elected under subparagraph (B) only if the
election is made not later than the 5th day after the close of
such month. Such an election, once made, shall be irrevocable.
``(2) Method of prescribing percentages.--The percentages
prescribed by the Secretary for any month shall be percentages
which will yield over a 10-year period amounts of credit under
subsection (a) which have a present value equal to--
``(A) 70 percent of the eligible basis of a new
building, and
``(B) 30 percent of the eligible basis of an
existing building.
``(3) Method of discounting.--The present value under
paragraph (2) shall be determined--
``(A) as of the last day of the 1st year of the 10-
year period referred to in paragraph (2),
``(B) by using a discount rate equal to 72 percent
of the average of the annual Federal mid-term rate and
the annual Federal long-term rate applicable under
section 1274(d)(1) to the month applicable under
subparagraph (A) or (B) of paragraph (1) and compounded
annually, and
``(C) by assuming that the credit allowable under
this section for any year is received on the last day
of such year.
``(c) Eligible Basis; Qualified Rural Investment Building.--For
purposes of this section--
``(1) Eligible basis.--
``(A) In general.--The eligible basis of any
qualified rural investment building for any taxable
year shall be determined under rules similar to the
rules under section 42(d), except that--
``(i) the determination of the adjusted
basis of any building shall be made as of the
beginning of the credit period, and
``(ii) such basis shall include development
costs properly attributable to such building.
``(B) Development costs.--For purposes of
subparagraph (A)(ii), the term `development costs'
includes--
``(i) site preparation costs,
``(ii) State and local impact fees,
``(iii) reasonable development costs,
``(iv) professional fees related to basis
items,
``(v) construction financing costs related
to basis items other than land, and
``(vi) on-site and adjacent improvements
required by State and local governments.
``(2) Qualified rural investment building.--The term
`qualified rural investment building' means any building which
is part of a qualified rural investment project at all times
during the period--
``(A) beginning on the 1st day in the compliance
period on which such building is part of such an
investment project, and
``(B) ending on the last day of the compliance
period with respect to such building.
``(d) Rehabilitation Expenditures Treated as Separate New
Building.--Rehabilitation expenditures paid or incurred by the taxpayer
with respect to any building shall be treated for purposes of this
section as a separate new building under the rules of section 42(e).
``(e) Definition and Special Rules Relating to Credit Period.--
``(1) Credit period defined.--For purposes of this section,
the term `credit period' means, with respect to any building,
the period of 10 taxable years beginning with the taxable year
in which the building is first placed in service.
``(2) Special rule for 1st year of credit period.--
``(A) In general.--The credit allowable under
subsection (a) with respect to any building for the 1st
taxable year of the credit period shall be determined
by multiplying such credit by the fraction--
``(i) the numerator of which is the number
of full months of such year during which such
building was in service, and
``(ii) the denominator of which is 12.
``(B) Disallowed 1st year credit allowed in 11th
year.--Any reduction by reason of subparagraph (A) in
the credit allowable (without regard to subparagraph
(A)) for the 1st taxable year of the credit period
shall be allowable under subsection (a) for the 1st
taxable year following the credit period.
``(3) Credit period for existing buildings not to begin
before rehabilitation credit allowed.--The credit period for an
existing building shall not begin before the 1st taxable year
of the credit period for rehabilitation expenditures with
respect to the building.
``(f) Qualified Rural Investment Project; Qualifying County.--For
purposes of this section--
``(1) Qualified rural investment project.--The term
`qualified rural investment project' means any investment
project of 1 or more qualified rural investment buildings
located in a qualifying county (and, if necessary to the
project, any contiguous county) and selected by the State
according to its qualified rural investment plan.
``(2) Qualifying county.--The term `qualifying county'
means any county which--
``(A) is outside a metropolitan statistical area
(defined as such by the Office of Management and
Budget), and
``(B) during the 20-year period ending with the
calendar year preceding the date of the enactment of
this section, has a net out-migration of inhabitants
from the county of at least 10 percent of the
population of the county at the beginning of such
period.
``(g) Limitation on Aggregate Credit Allowable With Respect to
Investment Projects Located in a State.--
``(1) Credit may not exceed credit amount allocated to
building.--The amount of the credit determined under this
section for any taxable year with respect to any building shall
not exceed the rural investment credit dollar amount allocated
to such building under rules similar to the rules of section
42(h)(1).
``(2) Allocated credit amount to apply to all taxable years
ending during or after credit allocation year.--Any rural
investment credit dollar amount allocated to any building for
any calendar year--
``(A) shall apply to such building for all taxable
years in the credit period ending during or after such
calendar year, and
``(B) shall reduce the aggregate rural investment
credit dollar amount of the allocating agency only for
such calendar year.
``(3) Rural investment credit dollar amount for agencies.--
``(A) In general.--The aggregate rural investment
credit dollar amount which a rural investment credit
agency may allocate for any calendar year is the
portion of the State rural investment credit ceiling
allocated under this paragraph for such calendar year
to such agency.
``(B) State ceiling initially allocated to state
rural investment credit agencies.--Except as provided
in subparagraphs (D) and (E), the State rural
investment credit ceiling for each calendar year shall
be allocated to the rural investment credit agency of
such State. If there is more than 1 rural investment
credit agency of a State, all such agencies shall be
treated as a single agency.
``(C) State rural investment credit ceiling.--The
State rural investment credit ceiling applicable to any
State and any calendar year shall be an amount equal to
the sum of--
``(i) the unused State rural investment
credit ceiling (if any) of such State for the
preceding calendar year,
``(ii) $1,000,000 for each qualifying
county in the State,
``(iii) the amount of State rural
investment credit ceiling returned in the
calendar year, plus
``(iv) the amount (if any) allocated under
subparagraph (D) to such State by the
Secretary.
For purposes of clause (i), the unused State rural
investment credit ceiling for any calendar year is the
excess (if any) of the sum of the amounts described in
clauses (ii) through (iv) over the aggregate rural
investment credit dollar amount allocated for such
year. For purposes of clause (iii), the amount of State
rural investment credit ceiling returned in the
calendar year equals the rural investment credit dollar
amount previously allocated within the State to any
investment project which fails to meet the 10 percent
test under section 42(h)(1)(E)(ii) on a date after the
close of the calendar year in which the allocation was
made or which does not become a qualified rural
investment project within the period required by this
section or the terms of the allocation or to any
investment project with respect to which an allocation
is canceled by mutual consent of the rural investment
credit agency and the allocation recipient.
``(D) Unused rural investment credit carryovers
allocated among certain states.--
``(i) In general.--The unused rural
investment credit carryover of a State for any
calendar year shall be assigned to the
Secretary for allocation among qualified States
for the succeeding calendar year.
``(ii) Unused rural investment credit
carryover.--For purposes of this subparagraph,
the unused rural investment credit carryover of
a State for any calendar year is the excess (if
any) of the unused State rural investment
credit ceiling for such year (as defined in
subparagraph (C)(i)) over the excess (if any)
of--
``(I) the unused State rural
investment credit ceiling for the year
preceding such year, over
``(II) the aggregate rural
investment credit dollar amount
allocated for such year.
``(iii) Formula for allocation of unused
rural investment credit carryovers among
qualified states.--The amount allocated under
this subparagraph to a qualified State for any
calendar year shall be the amount determined by
the Secretary to bear the same ratio to the
aggregate unused rural investment credit
carryovers of all States for the preceding
calendar year as such State's population for
the calendar year bears to the population of
all qualified States for the calendar year. For
purposes of the preceding sentence, population
shall be determined in accordance with section
146(j).
``(iv) Qualified state.--For purposes of
this subparagraph, the term `qualified State'
means, with respect to a calendar year, any
State--
``(I) which allocated its entire
State rural investment credit ceiling
for the preceding calendar year, and
``(II) for which a request is made
(not later than May 1 of the calendar
year) to receive an allocation under
clause (iii).
``(E) State may provide for different allocation.--
Rules similar to the rules of section 146(e) (other
than paragraph (2)(B) thereof) shall apply for purposes
of this paragraph.
``(F) Population.--For purposes of this paragraph,
population shall be determined in accordance with
section 146(j).
``(G) Cost-of-living adjustment.--
``(i) In general.--In the case of a
calendar year after 2005, the $1,000,000 amount
in subparagraph (C) shall be increased by an
amount equal to--
``(I) such dollar amount,
multiplied by
``(II) the cost-of-living
adjustment determined under section 1(f
)(3) for such calendar year by
substituting `calendar year 2004' for
`calendar year 1992' in subparagraph
(B) thereof.
``(ii) Rounding.--Any increase under clause
(i) which is not a multiple of $5,000 shall be
rounded to the next lowest multiple of $5,000.
``(4) Portion of state ceiling set-aside for certain
investment projects involving qualified nonprofit
organizations.--
``(A) In general.--At least 10 percent of the State
rural investment credit ceiling for any State for any
calendar year shall be allocated to qualified rural
investment projects described in subparagraph (B).
``(B) Investment projects involving qualified
nonprofit organizations.--For purposes of subparagraph
(A), a qualified rural investment project is described
in this subparagraph if a qualified nonprofit
organization is to materially participate (within the
meaning of section 469(h)) in the development and
operation of the investment project throughout the
compliance period.
``(C) Qualified nonprofit organization.--For
purposes of this paragraph, the term `qualified
nonprofit organization' means any organization if--
``(i) such organization is described in any
paragraph of section 501(c) and is exempt from
tax under section 501(a),
``(ii) such organization is determined by
the State rural investment credit agency not to
be affiliated with or controlled by a for-
profit organization, and
``(iii) 1 of the exempt purposes of such
organization includes the fostering of rural
investment.
``(D) Treatment of certain subsidiaries.--
``(i) In general.--For purposes of this
paragraph, a qualified nonprofit organization
shall be treated as satisfying the ownership
and material participation test of subparagraph
(B) if any qualified corporation in which such
organization holds stock satisfies such test.
``(ii) Qualified corporation.--For purposes
of clause (i), the term `qualified corporation'
means any corporation if 100 percent of the
stock of such corporation is held by 1 or more
qualified nonprofit organizations at all times
during the period such corporation is in
existence.
``(E) State may not override set-aside.--Nothing in
subparagraph (F) of paragraph (3) shall be construed to
permit a State not to comply with subparagraph (A) of
this paragraph.
``(F) Credits for qualified nonprofit
organizations.--
``(i) Allowance of credit.--Any credit
which would be allowable under subsection (a)
with respect to a qualified rural investment
building of a qualified nonprofit organization
if such organization were not exempt from tax
under this chapter shall be treated as a credit
allowable under subpart C to such organization.
``(ii) Use of credit.--A qualified
nonprofit organization may assign, trade, sell,
or otherwise transfer any credit allowable to
such organization under subparagraph (A) to any
taxpayer.
``(iii) Credit not income.--A transfer
under subparagraph (B) of any credit allowable
under subparagraph (A) shall not result in
income for purposes of section 511.
``(5) Special rules.--
``(A) Building must be located within jurisdiction
of credit agency.--A rural investment credit agency may
allocate its aggregate rural investment credit dollar
amount only to buildings located in the jurisdiction of
the governmental unit of which such agency is a part.
``(B) Agency allocations in excess of limit.--If
the aggregate rural investment credit dollar amounts
allocated by a rural investment credit agency for any
calendar year exceed the portion of the State rural
investment credit ceiling allocated to such agency for
such calendar year, the rural investment credit dollar
amounts so allocated shall be reduced (to the extent of
such excess) for buildings in the reverse of the order
in which the allocations of such amounts were made.
``(C) Credit reduced if allocated credit dollar
amount is less than credit which would be allowable
without regard to sales convention, etc.--
``(i) In general.--The amount of the credit
determined under this section with respect to
any building shall not exceed the clause (ii)
percentage of the amount of the credit which
would (but for this subparagraph) be determined
under this section with respect to such
building.
``(ii) Determination of percentage.--For
purposes of clause (i), the clause (ii)
percentage with respect to any building is the
percentage which--
``(I) the rural investment credit
dollar amount allocated to such
building bears to
``(II) the credit amount determined
in accordance with clause (iii).
``(iii) Determination of credit amount.--
The credit amount determined in accordance with
this clause is the amount of the credit which
would (but for this subparagraph) be determined
under this section with respect to the building
if this section were applied without regard to
paragraph (2)(A) of subsection (e).
``(D) Rural investment credit agency to specify
applicable percentage and maximum eligible basis.--In
allocating a rural investment credit dollar amount to
any building, the rural investment credit agency shall
specify the applicable percentage and the maximum
eligible basis which may be taken into account under
this section with respect to such building. The
applicable percentage and maximum eligible basis so
specified shall not exceed the applicable percentage
and eligible basis determined under this section
without regard to this subsection.
``(6) Other definitions.--For purposes of this subsection--
``(A) Rural investment credit agency.--The term
`rural investment credit agency' means any agency
authorized to carry out this subsection.
``(B) Possessions treated as states.--The term
`State' includes a possession of the United States.
``(7) Portion of state ceiling set-aside for qualified
rural small business investment credits.--Not more than 20
percent of the State rural investment credit ceiling for any
State for any calendar year may be allocated to qualified rural
small business investment credits under section 42B.
``(h) Definitions and Special Rules.--For purposes of this
section--
``(1) Compliance period.--The term `compliance period'
means, with respect to any building, the period of 10 taxable
years beginning with the 1st taxable year of the credit period
with respect thereto.
``(2) New building.--The term `new building' means a
building the original use of which begins with the taxpayer.
``(3) Existing building.--The term `existing building'
means any building which is not a new building.
``(4) Application to estates and trusts.--In the case of an
estate or trust, the amount of the credit determined under
subsection (a) and any increase in tax under subsection (i)
shall be apportioned between the estate or trust and the
beneficiaries on the basis of the income of the estate or trust
allocable to each.
``(i) Recapture of Credit.--If--
``(1) as of the close of any taxable year in the compliance
period, the amount of the eligible basis of any building with
respect to the taxpayer is less than
``(2) the amount of such basis as of the close of the
preceding taxable year, then the taxpayer's tax under this
chapter for the taxable year shall be increased by the credit
recapture amount determined under rules similar to the rules of
section 42(j).
``(j) Certifications and Other Reports to Secretary.--
``(1) Certification with respect to 1st year of credit
period.--Following the close of the 1st taxable year in the
credit period with respect to any qualified rural investment
building, the taxpayer shall certify to the Secretary (at such
time and in such form and in such manner as the Secretary
prescribes)--
``(A) the taxable year, and calendar year, in which
such building was first placed in service,
``(B) the eligible basis of such building as of the
beginning of the credit period,
``(C) the maximum applicable percentage and
eligible basis permitted to be taken into account by
the appropriate rural investment credit agency under
subsection (g),
``(D) the election made under subsection (f) with
respect to the qualified rural investment project of
which such building is a part, and
``(E) such other information as the Secretary may
require.
In the case of a failure to make the certification required by
the preceding sentence on the date prescribed therefor, unless
it is shown that such failure is due to reasonable cause and
not to willful neglect, no credit shall be allowable by reason
of subsection (a) with respect to such building for any taxable
year ending before such certification is made.
``(2) Annual reports to the secretary.--The Secretary may
require taxpayers to submit an information return (at such time
and in such form and manner as the Secretary prescribes) for
each taxable year setting forth--
``(A) the eligible basis for the taxable year of
each qualified rural investment building of the
taxpayer,
``(B) the information described in paragraph (1)(C)
for the taxable year, and
``(C) such other information as the Secretary may
require.
The penalty under section 6652(j) shall apply to any failure to
submit the return required by the Secretary under the preceding
sentence on the date prescribed therefor.
``(3) Annual reports from rural investment credit
agencies.--Each agency which allocates any rural investment
credit amount to any building for any calendar year shall
submit to the Secretary (at such time and in such manner as the
Secretary shall prescribe) an annual report specifying--
``(A) the amount of rural investment credit amount
allocated to each building for such year,
``(B) sufficient information to identify each such
building and the taxpayer with respect thereto, and
``(C) such other information as the Secretary may
require.
The penalty under section 6652(j) shall apply to any failure to
submit the report required by the preceding sentence on the
date prescribed therefor.
``(k) Responsibilities of Rural Investment Credit Agencies.--
``(1) Plans for allocation of credit among investment
projects.--
``(A) In general.--Notwithstanding any other
provision of this section, the rural investment credit
dollar amount with respect to any building shall be
zero unless--
``(i) such amount was allocated pursuant to
a qualified rural investment plan of the agency
which is approved by the governmental unit (in
accordance with rules similar to the rules of
section 147(f)(2) (other than subparagraph
(B)(ii) thereof)) of which such agency is a
part,
``(ii) such agency notifies the chief
executive officer (or the equivalent) of the
local jurisdiction within which the building is
located of such investment project and provides
such individual a reasonable opportunity to
comment on the investment project,
``(iii) a comprehensive market study of the
development needs of individuals in the
qualifying county to be served by the
investment project is conducted before the
credit allocation is made and at the
developer's expense by a disinterested party
who is approved by such agency, and
``(iv) a written explanation is available
to the general public for any allocation of a
rural investment credit dollar amount which is
not made in accordance with established
priorities and selection criteria of the rural
investment credit agency.
``(B) Qualified rural investment plan.--For
purposes of this section, the term `qualified rural
investment plan' means any plan--
``(i) which sets forth selection criteria
to be used to determine priorities of the rural
investment credit agency which are appropriate
to qualifying counties,
``(ii) which also gives preference in
allocating rural investment credit dollar
amounts among selected investment projects to--
``(I) investment projects that
target those small rural counties with
consistently high rates of net out-
migration,
``(II) investment projects that
link the economic development and job
creation efforts of 2 or more small
rural counties with high rates of net
out-migration, and
``(III) investment projects that
link the economic development and job
creation efforts of 1 or more small
rural counties in the State with high
rates of net out-migration to related
efforts in regions of such State
experiencing economic growth, and
``(iii) which provides a procedure that the
agency (or an agent or other private contractor
of such agency) will follow in monitoring for
noncompliance with the provisions of this
section and in notifying the Internal Revenue
Service of such noncompliance which such agency
becomes aware of and in monitoring for
noncompliance through regular site visits.
``(C) Certain selection criteria must be used.--The
selection criteria set forth in a qualified rural
investment plan must include--
``(i) investment project location,
``(ii) technology and transportation
infrastructure needs, and
``(iii) private development trends.
``(2) Credit allocated to building not to exceed amount
necessary to assure investment project feasibility.--
``(A) In general.--The rural investment credit
dollar amount allocated to an investment project shall
not exceed the amount the rural investment credit
agency determines is necessary for the financial
feasibility of the investment project and its viability
as a qualified rural investment project throughout the
compliance period.
``(B) Agency evaluation.--In making the
determination under subparagraph (A), the rural
investment credit agency shall consider--
``(i) the sources and uses of funds and the
total financing planned for the investment
project,
``(ii) any proceeds or receipts expected to
be generated by reason of tax benefits,
``(iii) the percentage of the rural
investment credit dollar amount used for
investment project costs other than the cost of
intermediaries, and
``(iv) the reasonableness of the
developmental and operational costs of the
investment project.
Clause (iii) shall not be applied so as to impede the
development of investment projects in hard-to-develop
areas.
``(C) Determination made when credit amount applied
for and when building placed in service.--
``(i) In general.--A determination under
subparagraph (A) shall be made as of each of
the following times:
``(I) The application for the rural
investment credit dollar amount.
``(II) The allocation of the rural
investment credit dollar amount.
``(III) The date the building is
first placed in service.
``(ii) Certification as to amount of other
subsidies.--Prior to each determination under
clause (i), the taxpayer shall certify to the
rural investment credit agency the full extent
of all Federal, State, and local subsidies
which apply (or which the taxpayer expects to
apply) with respect to the building.
``(l) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section, including regulations--
``(1) dealing with--
``(A) investment projects which include more than 1
building or only a portion of a building,
``(B) buildings which are sold in portions,
``(2) providing for the application of this section to
short taxable years,
``(3) preventing the avoidance of the rules of this
section, and
``(4) providing the opportunity for rural investment credit
agencies to correct administrative errors and omissions with
respect to allocations and record keeping within a reasonable
period after their discovery, taking into account the
availability of regulations and other administrative guidance
from the Secretary.''.
(b) Current Year Business Credit Calculation.--Section 38(b)
(relating to current year business credit) is amended by striking
``plus'' at the end of paragraph (18), by striking the period at the
end of paragraph (19) and inserting ``, plus'', and by adding at the
end the following new paragraph:
``(20) the rural investment credit determined under section
42A(a).''.
(c) Conforming Amendments.--
(1) Section 55(c)(1) is amended by inserting ``or
subsection (i) or (j) of section 42A'' after ``section 42''.
(2) Subsections (i)(c)(3), (i)(c)(6)(B)(i), and (k)(1) of
section 469 are each amended by inserting ``or 42A'' after
``section 42''.
(3) Section 772(a) is amended by striking ``and'' at the
end of paragraph (10), by redesignating paragraph (11) as
paragraph (12), and by inserting after paragraph (10) the
following new paragraph:
``(11) the rural investment credit determined under section
42A, and''.
(4) Section 774(b)(4) is amended by inserting ``, 42A(i),''
after ``section 42(j)''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 is amended by inserting after the
item relating to section 42 the following new item:
``Sec. 42A. Rural investment credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to expenditures made in taxable years beginning after the date of
the enactment of this Act.
SEC. 202. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by adding at the end the following new section:
``SEC. 42B. QUALIFIED RURAL SMALL BUSINESS INVESTMENT CREDIT.
``(a) In General.--For purposes of section 38, in the case of a
qualified rural small business, the amount of the qualified rural small
business investment credit determined under this section for any
taxable year is equal to 30 percent of the qualified expenditures for
the taxable year of such business.
``(b) Dollar Limitation.--
``(1) In general.--The credit allowable under subsection
(a) for any taxable year shall not exceed the lesser of--
``(A) $5,000, or
``(B) the amount when added to the aggregate
credits allowable to the taxpayer under subsection (a)
for all preceding taxable years does not exceed
$25,000.
``(2) No double credit allowed.--In the case of any
qualified rural small business which places in service a
qualified rural investment building with respect to which a
rural investment credit is allowed under section 42A for any
taxable year, paragraph (1)(A) shall be applied with respect to
such taxable year by substituting `zero' for `$5,000'.
``(c) Qualified Rural Small Business.--For purposes of this
section, the term `qualified rural small business' means any person if
such person--
``(1) employed not more than 5 full-time employees during
the taxable year,
``(2) materially and substantially participates in
management,
``(3) is located is a qualifying county, and
``(4) submitted a qualified business plan with respect to
which the rural investment credit agency with jurisdiction over
such qualifying county has allocated a portion of the State
rural investment ceiling for such taxable year under section
42A(g)(7).
For purposes of paragraph (1), an employee shall be considered full-
time if such employee is employed at least 30 hours per week for 20 or
more calendar weeks in the taxable year.
``(d) Qualified Expenditures.--For purposes of this section--
``(1) In general.--The term `qualified expenditures' means
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.
``(2) Only certain expenditures included for existing
businesses.--In the case of a qualified rural small business
with respect to which a credit under subsection (a) was allowed
for a preceding taxable year, such term shall include only so
much of the expenditures described in paragraph (1) for the
taxable year as exceed the aggregate of such expenditures for
the preceding taxable year.
``(e) Qualified Business Plan.--For purposes of this section, the
term `qualified business plan' means 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.
``(f) Denial of Double Benefit.--In the case of the amount of the
credit determined under this section--
``(1) no deduction or credit shall be allowed for such
amount under any other provision of this chapter, and
``(2) no increase in the adjusted basis of any property
shall result from such amount.
``(g) Definitions and Special Rules.--For purposes of this
section--
``(1) any term which is used in this section which is used
in section 42A shall have the meaning given such term by
section 42A, and
``(2) rules similar to the rules under subsections (j)(2),
(j)(3), and (k) of section 42A shall apply.''.
(b) Current Year Business Credit Calculation.--Section 38(b)
(relating to current year business credit), as amended by this Act, is
amended by striking ``plus'' at the end of paragraph (19), by striking
the period at the end of paragraph (20) and inserting ``, plus'', and
by adding at the end the following new paragraph:
``(21) the qualified rural small business investment credit
determined under section 42B(a).''.
(c) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by inserting after the item relating to section 42A the
following new item:
``Sec. 42B. Qualified rural small business investment credit.''.
(d) Effective Date.--The amendments made by this section shall
apply to expenditures made in taxable years beginning after the date of
the enactment of this Act.
SEC. 203. ACCELERATED DEPRECIATION FOR RURAL INVESTMENT PROPERTY.
(a) In General.--Section 168 is amended by adding at the end the
following new subsection:
``(l) Property in Rural Investment Projects.--
``(1) In general.--For purposes of subsection (a), the
applicable recovery period for qualified rural investment
property shall be determined in accordance with the table
contained in paragraph (2) in lieu of the table contained in
subsection (c).
``(2) Applicable recovery period for rural investment
property.--For purposes of paragraph (1)--
The applicable
``In the case of: recovery period is:
3-year property........................... 2 years
5-year property........................... 3 years
7-year property........................... 4 years
10-year property.......................... 6 years
15-year property.......................... 9 years
20-year property.......................... 12 years
Nonresidential real property.............. 22 years.
``(3) Deduction allowed in computing minimum tax.--For
purposes of determining alternative minimum taxable income
under section 55, the deduction under subsection (a) for
property to which paragraph (1) applies shall be determined
under this section without regard to any adjustment under
section 56.
``(4) Qualified rural investment property defined.--For
purposes of this subsection--
``(A) In general.--The term `qualified rural
investment property' means property which is property
described in the table in paragraph (2) and which is--
``(i) used by the taxpayer predominantly in
the active conduct of a trade or business
within a qualified rural investment project,
``(ii) not used or located outside the
qualified rural investment project on a regular
basis,
``(iii) not acquired (directly or
indirectly) by the taxpayer from a person who
is related to the taxpayer (within the meaning
of section 465(b)(3)(C)), and
``(iv) not property (or any portion
thereof) placed in service for purposes of
operating any facility described in section
144(c)(6)(B).
``(B) Exception for alternative depreciation
property.--The term `qualified rural investment
property' does not include any property to which the
alternative depreciation system under subsection (g)
applies, determined--
``(i) without regard to subsection (g)(7)
(relating to election to use alternative
depreciation system), and
``(ii) after the application of section
280F(b) (relating to listed property with
limited business use).
``(C) Special rule for infrastructure investment.--
``(i) In general.--Subparagraph (A)(ii)
shall not apply to qualified infrastructure
property located outside of the qualified rural
investment project if the purpose of such
property is to connect with qualified
infrastructure property located within such
project.
``(ii) Qualified infrastructure property.--
For purposes of this subparagraph, the term
`qualified infrastructure property' means
qualified rural investment property (determined
without regard to subparagraph (A)(ii)) which--
``(I) benefits the qualifying
county infrastructure,
``(II) is available to the general
public, and
``(III) is placed in service in
connection with the taxpayer's active
conduct of a trade or business within a
qualified rural investment project.
Such term includes, but is not limited to,
roads, power lines, water systems, railroad
spurs, and communications facilities.
``(5) Definitions.--For purposes of this subsection, any
term used in this section which is used in section 42A shall
have the meaning given such term by section 42A.''.
(b) Effective Date.--The amendment made by this section shall apply
to property placed in service after the date of the enactment of this
Act, in taxable years ending after such date.
TITLE III--NEW HOMESTEAD VENTURE CAPITAL FUND
SEC. 301. NEW HOMESTEAD VENTURE CAPITAL FUND.
The Consolidated Farm and Rural Development Act (7 U.S.C. 1921 et
seq.) is amended by adding at the end the following new subtitle:
``Subtitle G--New Homestead Venture Capital Fund
``SEC. 383A. SHORT TITLE.
``This subtitle may be cited as the `New Homestead Venture Capital
Fund Act'.
``SEC. 383B. DEFINITIONS.
``In this subtitle:
``(1) Authorized private investor.--The term `authorized
private investor' means an individual, legal entity, or
affiliate or subsidiary of an individual or legal entity that--
``(A) is eligible to receive a loan guarantee under
this title;
``(B) is eligible to receive a loan guarantee under
the Rural Electrification Act of 1936 (7 U.S.C. 901 et
seq.);
``(C) is created under the National Consumer
Cooperative Bank Act (12 U.S.C. 3011 et seq.);
``(D) is an insured depository institution subject
to section 383D(b)(2);
``(E) is a Farm Credit System institution described
in section 1.2(a) of the Farm Credit Act of 1971 (12
U.S.C. 2002(a)); or
``(F) is determined by the Board to be an
appropriate investor in the Fund.
``(2) Board.--The term `Board' means the board of directors
of the Fund established under section 383F.
``(3) Fund.--The term `Fund' means the New Homestead
Venture Capital Fund established under section 383C.
``(4) Group of similar authorized private investors.--The
term `group of similar authorized private investors' means any
1 of the following:
``(A) Insured depository institutions with total
assets of more than $250,000,000.
``(B) Insured depository institutions with total
assets equal to or less than $250,000,000.
``(C) Farm Credit System institutions described in
section 1.2(a) of the Farm Credit Act of 1971 (12
U.S.C. 2002(a)).
``(D) Cooperative financial institutions (other
than Farm Credit System institutions).
``(E) Authorized private investors, other than
those described in subparagraphs (A) through (D).
``(F) Other nonprofit organizations, including
credit unions.
``(5) Insured depository institution.--The term `insured
depository institution' means any bank or savings association
the deposits of which are insured under the Federal Deposit
Insurance Act (12 U.S.C. 1811 et seq.).
``(6) Qualifying county.--The term `qualifying county'
means any county that--
``(A) is located outside a metropolitan statistical
area (as defined by the Office of Management and
Budget); and
``(B) during the 20-year period ending with the
fiscal year preceding the applicable fiscal year for
which assistance is made available under section 383E,
has a net outmigration of inhabitants from the county
of at least 10 percent of the population of the county
at the beginning of the period.
``(7) Rural business.--The term `rural business' means a
rural cooperative, a value-added agricultural enterprise, or
any other enterprise that is or will be located in a qualifying
county.
``SEC. 383C. ESTABLISHMENT OF THE FUND.
``(a) In General.--
``(1) Authority to establish.--Upon certification by the
Secretary that, to the maximum extent practicable, the parties
proposing to establish a fund provide a broad representation of
all of the groups of similar authorized private investors
described in subparagraphs (A) through (F) of section 383B(4),
the parties so certified may establish, a non-Federal entity
under State law, to purchase shares of, and manage a fund to be
known as the `New Homestead Venture Capital Fund', to generate
and provide equity capital to rural businesses.
``(2) Ownership.--
``(A) In general.--To the maximum extent
practicable, equity ownership of the Fund shall be
distributed among authorized private investors
representing all of the groups of similar authorized
private investors described in subparagraphs (A)
through (F) of section 383B(4).
``(B) Exclusion of groups.--No group of similar
authorized private investors shall be excluded from
equity ownership of the Fund during any period during
which the Fund is in existence if an authorized private
investor representative of the group is able and
willing to invest in the Fund.
``(b) Purpose.--The purpose of the Fund is to strengthen the
economies of qualifying counties by--
``(1) making needed investments in qualifying counties to
reverse the devastating impact of chronic outmigration and to
help the qualifying counties rebuild and grow;
``(2) providing equity funding for existing and startup
rural businesses with high potential for job creation that are
or will be located in qualifying counties;
``(3) offering the funding described in paragraph (2) to
rural businesses, many of which have difficulty obtaining
equity capital;
``(4) authorizing use of the funding described in paragraph
(2) only after State and local governments match a significant
portion of the funding;
``(5) requiring a portion of the funding described in
paragraph (2) to be used for technical and other similar
assistance to rural businesses; and
``(6) providing incentives to greater participation by
authorized private investors through provision of guarantees of
up to 60 percent of the investments of the authorized private
investors in qualifying counties.
``(c) Articles of Incorporation and By-Laws.--The articles of
incorporation and by-laws of the Fund shall set forth purposes of the
Fund that are consistent with the purposes described in subsection (b).
``SEC. 383D. INVESTMENT IN THE FUND.
``(a) In General.--The Secretary shall--
``(1) subject to subsection (b)(1), make available to the
Fund $200,000,000 for each of fiscal years 2006 through 2015;
``(2) subject to subsection (c), guarantee a portion of
each investment made by an authorized private investor in the
Fund; and
``(3) subject to subsection (d), guarantee the repayment of
principal of, and accrued interest on, debentures issued by the
Fund to authorized private investors.
``(b) Non-Federal Funds.--
``(1) In general.--Under subsection (a)(1), the Secretary
shall make an amount available to the Fund for a fiscal year
only after--
``(A) at least $50,000,000 has been invested in the
Fund for the fiscal year by authorized private
investors in accordance with this subtitle and the
terms and conditions set forth in the by-laws of the
Fund; and
``(B) at least $50,000,000 has been invested in the
Fund for the fiscal year by State and local
governments.
``(2) Insured depository institutions.--
``(A) In general.--Subject to subparagraphs (B) and
(C)--
``(i) an insured depository institution may
be an authorized private investor in the Fund;
and
``(ii) an investment in the Fund may be
considered to be part of the record of an
institution in meeting the credit needs of the
community in which the institution is located
under any applicable Federal law.
``(B) Investment limit.--The total investment in
the Fund of an insured depository institution shall not
exceed 5 percent of the institution's capital and
surplus.
``(C) Regulatory authority.--An appropriate Federal
banking agency may, by regulation or order, impose on
any insured depository institution investing in the
Fund, any safeguard, limitation, or condition
(including an investment limit that is lower than the
investment limit under subparagraph (B)) that the
Federal banking agency considers to be appropriate to
ensure that the institution operates--
``(i) in a financially sound manner; and
``(ii) in compliance with all applicable
law.
``(c) Guarantee of Private Investments.--
``(1) In general.--The Secretary shall guarantee, under
terms and conditions determined by the Secretary--
``(A) except as provided in subparagraph (B), 40
percent of any loss of the principal of each investment
made by an authorized private investor in the Fund; and
``(B) 60 percent of any loss of the principal of
each investment made by an authorized private investor
in the Fund if the investment is used for a
manufacturing or high-technology business.
``(2) Maximum total guarantee.--The aggregate potential
liability of the Secretary with respect to all guarantees under
paragraph (1) shall not apply to more than $500,000,000 in
private investments in the Fund.
``(3) Redemption of guarantee.--
``(A) Date.--An authorized private investor in the
Fund may redeem a guarantee under paragraph (1), with
respect to the total investments in the Fund and the
total losses of the authorized private investor as of
the date of redemption--
``(i) on the date that is 5 years after the
date of the initial investment of the
authorized private investor; or
``(ii) annually thereafter.
``(B) Effect of redemption.--On redemption of a
guarantee under subparagraph (A)--
``(i) the shares in the Fund of the
authorized private investor shall be redeemed;
and
``(ii) the authorized private investor
shall be prohibited from making any future
investment in the Fund.
``(d) Debentures.--
``(1) In general.--The Fund may, at the discretion of the
Board, raise additional capital through the issuance of
debentures and through other means determined to be appropriate
by the Board.
``(2) Guarantee of debt by secretary.--
``(A) In general.--The Secretary shall guarantee
100 percent of the principal of, and accrued interest
on, debentures issued by the Fund that are approved by
the Secretary.
``(B) Maximum debt guaranteed by secretary.--The
outstanding value of debentures issued by the Fund and
guaranteed by the Secretary shall not exceed the lesser
of--
``(i) the amount equal to twice the value
of the assets held by the Fund; or
``(ii) $500,000,000.
``(C) Recapture of guarantee payments.--If the
Secretary makes a payment on a debenture issued by the
Fund as a result of a guarantee of the Secretary under
this paragraph, the Secretary shall have priority over
other creditors for repayment of the debenture.
``(3) Authorized private investors.--An authorized private
investor may purchase debentures issued by the Fund.
``SEC. 383E. INVESTMENTS AND OTHER ACTIVITIES OF THE FUND.
``(a) Investments.--
``(1) In general.--
``(A) Types.--Subject to subparagraphs (B) and (C),
the Fund may--
``(i) make equity investments in a rural
business that meets the requirements of
paragraph (6) and such other requirements as
the Board may establish; and
``(ii) extend credit to such rural business
in--
``(I) the form of mezzanine debt,
convertible debt, or subordinated debt;
or
``(II) any other form of near-
equity debt.
``(B) Limitations on equity investments.--After the
initial equity investment in a rural business described
in subparagraph (A)(i), the Fund may not make
additional equity investments in such rural business if
the additional equity investments would result in the
Fund owning more than 30 percent of the equity of such
rural business.
``(C) Limitation on nonequity investments.--Except
in the case of a project to assist a rural cooperative,
the total amount of nonequity investments described in
subparagraph (A)(ii) that may be provided by the Fund
shall not exceed 20 percent of the total investments of
the Fund in the project.
``(2) Procedures.--The Fund shall implement procedures to
ensure that--
``(A) the financing arrangements of the Fund meet
the Fund's primary focus of providing equity capital;
and
``(B) the Fund does not compete with conventional
sources of credit.
``(3) Diversity of projects.--The Fund--
``(A) shall seek to make equity investments in a
variety of viable projects for rural businesses, with a
significant share of investments--
``(i) in manufacturing or high-technology
businesses of diverse sizes;
``(ii) in smaller projects in rural
communities of diverse sizes; and
``(iii) in cooperative and noncooperative
businesses; and
``(B) shall be managed in a manner that diversifies
the risks to the Fund among a variety of projects.
``(4) Limitation on rural businesses assisted.--The Fund
shall not invest in any rural business that--
``(A) is primarily retail in nature (as determined
by the Board), other than a purchasing cooperative, or
``(B) consists of the operation of any facility
described in section 144(c)(6)(B).
``(5) Interest rate limitations.--Returns on investments in
and by the Fund, and returns on the extension of credit by
participants in projects assisted by the Fund, shall not be
subject to any State or Federal law establishing a maximum
allowable interest rate.
``(6) Requirements for recipients.--
``(A) Other investments.--Any recipient of amounts
from the Fund shall make or obtain a significant
investment from a source of capital other than the
Fund.
``(B) Sponsorship.--To be considered for an equity
investment from the Fund, a rural business investment
project shall be sponsored by a regional, State, or
local sponsoring or endorsing organization such as--
``(i) a financial institution;
``(ii) a development organization; or
``(iii) any other established entity
engaging or assisting in rural business
development, including a rural cooperative.
``(b) Technical Assistance.--The Board shall use not less than 2
percent of capital provided by the Federal Government to provide
technical assistance to rural businesses seeking an equity investment
from the Fund.
``(c) Annual Audit.--
``(1) In general.--The Board shall authorize an annual
audit of the financial statements of the Fund by a nationally
recognized auditing firm using generally accepted accounting
procedures.
``(2) Availability of audit results.--The results of the
audit required by paragraph (1) shall be made available to
investors in the Fund.
``(d) Annual Report.--The Board shall prepare and make available to
the public an annual report that--
``(1) describes the projects funded with amounts from the
Fund;
``(2) specifies the recipients of amounts from the Fund;
``(3) specifies the co-investors in all projects that
receive amounts from the Fund; and
``(4) meets the reporting requirements, if any, of the
State under the law of which the Fund is established.
``(e) Other Authorities.--
``(1) In general.--The Board may exercise such other
authorities as are necessary to carry out this subtitle.
``(2) Oversight.--The Secretary shall enter into a contract
with the Administrator of the Small Business Administration
under which the Administrator of the Small Business
Administration shall be responsible for the routine duties of
the Secretary in regard to the Fund.
``SEC. 383F. GOVERNANCE OF THE FUND.
``(a) In General.--The Fund shall be governed by a board of
directors that represents all of the authorized private investors in
the Fund and the Federal Government and that consists of--
``(1) a designee of the Secretary;
``(2) 2 members who are appointed by the Secretary and are
not Federal employees, including--
``(A) 1 member with expertise in venture capital
investment; and
``(B) 1 member with expertise in cooperative
development;
``(3) 1 member who is appointed by the Secretary and is a
State government representative from among States with the
highest rates of outmigration from qualifying counties; and
``(4) 7 members who are elected by the authorized private
investors with investments in the Fund, of whom not less than 1
member shall be a rural community banker from an insured
depository institution with total assets equal to or less than
$250,000,000 with an investment in the Fund.
``(b) Limitation on Voting Control.--No individual investor or
group of similar authorized private investors may control more than 25
percent of the votes on the Board.
``SEC. 383G. AUTHORIZATION OF APPROPRIATIONS.
``There are authorized to be appropriated such sums as are
necessary to carry out this subtitle.''.
<all>
Introduced in Senate
Sponsor introductory remarks on measure. (CR S3056)
Read twice and referred to the Committee on Finance.
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