Farm Employment and Enterprise Development Act of 1986

Farm Employment and Enterprise Development Act of 1986 - Title I: Designation of Enterprise Zones - Amends the Internal Revenue Code to provide for the designation of enterprise zones by the Secretary of Housing and Urban Development. Specifies that States and local governments shall nominate areas for such designation. Limits to 100 the total number of areas which may be designated as enterprise zones. Limits the period during which such designations shall remain in effect to a maximum of 25 years.

Specifies that the Secretary may designate such zones only if: (1) the area is within the jurisdiction of the nominating local government; (2) the boundary of the area is continuous; (3) the area has a population of at least 1,000 or is entirely within an Indian reservation; and (4) the area meets specified unemployment and poverty requirements.

Requires nominating local governments, as a condition of the Secretary's designation, to agree in writing to follow a course of action which may include reducing tax rates, improving local services, and providing job training to residents of the area.

Terminates the authority of the Secretary to designate rural enterprise zones on June 30, 1989, or three years after the publication of regulations pertaining to such zones, whichever is later. Describes areas to which preference shall be given in deciding to designate enterprise zones.

Requires the Secretary to report to the Congress every four years on the effects of such enterprise zones' designation in accomplishing the purposes of this Act.

Requires that any property tax reduction effected by a local government under the terms of this Act be disregarded for purposes of determining the eligibility of a State or local government for Federal assistance or benefits.

States that the designation of an enterprise zone shall not give displaced persons from such an area any rights or benefits under the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970. Provides that such enterprise zones shall be treated for all purposes under Federal law as labor surplus areas.

Title II: Federal Income Tax Incentives - Subtitle A: Credits for Employers and Employees - Allows employers located in rural enterprise zones a nonrefundable income tax credit for increased employment expenditures and employment of the disadvantaged. Allows a three-year carryback and a 15-year carryover of such credit. Sets the amount of such credit at ten percent of the increase in payroll (taking into account $17,500 in wages per year per employee) plus a specified percentage of wages paid to certain disadvantaged workers through the first 20 years of the enterprise zone designation. Phases out such credit in the last four years of the enterprise zone designation. Disallows a deduction for the portion of wages taken into account for such credit.

Allows an income tax credit to enterprise zone employees for five percent of wages earned (taking into account up to $10,500 per year). Phases out such credit in the last four years of the enterprise zone designation.

Subtitle B: Credits for Investment in Tangible Property in Enterprise Zones - Allows businesses an additional investment tax credit for investments made in certain enterprise zone construction property located in enterprise zones. Limits such credit to ten percent for new enterprise zone construction property, including rental property. Requires that the property subject to such credit be located in an enterprise zone, be predominantly used in the zone, be either constructed, reconstructed, renovated, etc. during the period of zone designation or acquired during such period, and not be acquired from relatives or related corporations. Requires the recapture of such credit upon the early disposition of the property. Provides for a phase-out of the enterprise zone tax credit as the enterprise zone ends. Provides for an adjustment to the basis of the enterprise zone construction property to reflect the enterprise zone tax credit.

Subtitle C: Nonrecognition of Qualified Enterprise Zone Capital Gain Where Acquisition of Enterprise Zone Business Property - Provides for the nonrecognition of capital gain on the sale of property where, within the one-year period beginning on the date of such sale, qualified replacement property is acquired by the taxpayer, to the extent the gain from the sale does not exceed the cost of the replacement property. Defines "qualified replacement property" as any personal property used predominantly in an enterprise zone in the active conduct of a trade or business within the enterprise zone, any real property located in the enterprise zone used in the active conduct of a trade or business, or any corporation, partnership, or other entity if, for the three most recent taxable years of such entity ending before the date of the purchase of such interest, such entity was a qualified business. Sets forth special rules for the operation of this provision.

Requires the basis of the replacement property to be reduced by an amount equal to the amount of gain not recognized on the sale of such other property. Extends the period for the statute of limitations relating to the assessment of tax with respect to the sale of property involving the nonrecognition provisions. Provides that the holding period for the qualified replacement property shall include the period for which the property sold or exchanged had been held as of the date of the sale or exchange.

Subtitle D: Deduction for Purchase of Enterprise Stock - Allows a taxpayer to deduct the aggregate amount paid during the taxable year for the purchase of enterprise stock on the original issue of such stock by a qualified issuer. Limits the maximum amount of such deduction to $100,000 a year. Requires that the $100,000 limit be allocated among the members of a controlled group. Requires the pro rata allocation of the $100,000 limit among the stock purchased where the aggregate amount of stock purchased exceeds the $100,000 limitation. Requires that the gain from the disposition of the stock shall be treated as ordinary income. Provides a formula for calculating such gain. Provides that interest be charged on the disposition of such stock if such disposition occurs before the end of the three-year period beginning on the date the stock was purchased.

Provides that where an issuer ceases to be a qualified issuer of enterprise stock before the close of the fifth taxable year after the date the stock was issued, the taxpayer must include in income the amount of the deduction allowed with respect to such stock plus interest on the aggregate decrease in tax of the taxpayer resulting from the deduction allowed with respect to such stock. Sets forth special rules with respect to such stock. Requires the basis of such stock to be reduced by the amount of the deduction allowed with respect to such stock.

Subtitle E: Rules Relating to Industrial Development Bonds - Provides that limitations on the cost recovery deductions for property financed with tax-exempt industrial development bonds shall not apply to enterprise zone property. Provides that the termination of the small issue exemption shall not apply to industrial development bonds the proceeds of which are used to finance facilities in such enterprise zones.

Subtitle F: Ordinary Loss Deduction for Securities of Enterprise Zone Business Which Become Worthless - Permits an ordinary loss deduction for securities of enterprise zone businesses which become worthless during the taxable year.

Subtitle G: Increase in Research Credit for Research Conducted in Enterprise Zones - Increases the tax credit for increasing research activities to 37 and one-half percent (currently, 25 percent) for research conducted in enterprise zones.

Subtitle H: Sense of the Congress with Respect to Tax Simplification - Expresses the sense of the Congress that the Internal Revenue Service should simplify the administration and enforcement of any provision of the Internal Revenue Code affected by this Act.

Subtitle I: Regulations - Directs the Secretary of the Treasury to issue regulations to carry out the provisions of this Act not later than six months after the date of enactment.

Title III: Regulatory Flexibility - Revises the definition of "small entity" for purposes of the analysis of regulatory functions to include qualified business, government, and nonprofit enterprises operating within enterprise zones.

Authorizes Federal agencies, upon request by a designating government, to waive or modify rules and regulations which pertain to the carrying out of projects or activities within an enterprise zone. Requires agencies to approve such request if the resulting benefits of job creation, community development, or economic revitalization outweigh the public interest in continuation of the rule unchanged.

Disallows waiver or modification of a rule that would directly violate a statutory requirement (including the Davis-Bacon Act and Fair Labor Standards Act) or which would present a danger to the public health and safety. Provides that such waivers or modifications of a rule shall remain in effect as long as the zone designations.

Amends the Department of Housing and Urban Development Act to direct the Secretary of Housing and Urban Development to promote the coordination of all enterprise zone programs and consolidate all periodic reports required under such programs into one summary report.

Title IV: Establishment of Foreign-Trade Zones in Enterprise Zones - Requires the Foreign-Trade Board to consider on a priority basis and expedite the processing of applications for the establishment of foreign-trade zones within enterprise zones. Requires the Secretary of the Treasury to give priority to, and expedite applications for, the establishment of ports of entry necessary to establish such zones. States that, to the maximum extent practicable, foreign-trade zones should be established within enterprise zones.