Rural Enterprise Zone Act of 1986

Rural Enterprise Zone Act of 1986 - Title I: Designation of Rural 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 45 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 15 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 January 1, 1987, or three years after the publication of regulations pertaining to such zones. Describes areas to which preference shall be given in deciding to designate enterprise zones.

Requires the Secretary to report to the Congress every three 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 the designation of a rural enterprise zone shall not constitute a Federal action for purposes of applying the requirements of the National Environmental Policy Act or other provisions of Federal law relating to the protection of the environment.

Title II: Federal Income Tax Incentives - Subtitle A: Credits for Employers - Allows employers located in rural enterprise zones an income tax credit for increased employment expenditures. Sets the amount of such credit at ten percent of the increase in payroll. Limits the dollar amount of wages taken into account with respect to any employee to an amount equal to the lower living standard for a family of four as determined by the Bureau of Labor Statistics. Disallows an income tax deduction for the portion of wages taken into account for such credit.

Subtitle B: Deferrals of Gain or Loss With Respect to Investment in Tangible Property in Rural Enterprise Zones - Allows the nonrecognition of gain or loss on the sale or exchange of rural enterprise zone property if the proceeds realized from such sale or exchange are used by the taxpayer to acquire rural enterprise zone property within one year.

Subtitle C: Rules Relating to Industrial Development Bonds - Exempts rural enterprise zone property from the limitation of the accelerated cost recovery deduction on property financed with tax-exempt bonds.

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. Modifies certain small issue volume limitations with respect to rural enterprise zone facilities. Requires that five percent of the industrial development bond volume cap for a State which has one or more rural enterprise zones shall be set aside for use only in such rural enterprise zones in such State.

Subtitle D: 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.

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 enterpise 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 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 Rural 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.