Text: S.293 — 115th Congress (2017-2018)All Information (Except Text)

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Introduced in Senate (02/02/2017)

 
[Congressional Bills 115th Congress]
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[S. 293 Introduced in Senate (IS)]

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115th CONGRESS
  1st Session
                                 S. 293

To amend the Internal Revenue Code of 1986 to provide for the deferral 
     of inclusion in gross income for capital gains reinvested in 
                           opportunity zones.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            February 2, 2017

Mr. Scott (for himself, Mr. Booker, Mr. Blunt, Mr. Bennet, Mr. Graham, 
 Mr. Coons, Mrs. Capito, Mrs. Gillibrand, Mr. Peters, Mr. Gardner, Mr. 
 Young, and Mr. Warner) introduced the following bill; which was read 
             twice and referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to provide for the deferral 
     of inclusion in gross income for capital gains reinvested in 
                           opportunity zones.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Investing in Opportunity Act''.

SEC. 2. OPPORTUNITY ZONES.

    (a) In General.--Chapter 1 of the Internal Revenue Code of 1986 is 
amended by adding at the end the following:

                   ``Subchapter Z--Opportunity Zones

``Sec. 1400Z-1. Designation.
``Sec. 1400Z-2. Deferral for capital gains invested in opportunity 
                            zones.

``SEC. 1400Z-1. DESIGNATION.

    ``(a) Qualified Opportunity Zone Defined.--For the purposes of this 
subchapter, the term `qualified opportunity zone' means a population 
census tract that is a low-income community that is designated as a 
qualified opportunity zone.
    ``(b) Designation.--
            ``(1) Governor.--
                    ``(A) In general.--For purposes of subsection (a), 
                a population census tract that is a low-income 
                community is designated as a qualified opportunity zone 
                if--
                            ``(i) not later than the end of the 
                        determination period, the governor of the State 
                        in which the tract is located--
                                    ``(I) nominates the tract for 
                                designation as a qualified opportunity 
                                zone, and
                                    ``(II) notifies the Secretary in 
                                writing of such nomination, and
                            ``(ii) the Secretary certifies such 
                        nomination and designates such tract as a 
                        qualified opportunity zone before the end of 
                        the consideration period.
                    ``(B) Extension of periods.--A governor may request 
                that the Secretary extend either the determination or 
                consideration period, or both (determined without 
                regard to this subparagraph), for an additional 30 
                days.
                    ``(C) Deemed designation if secretary fails to 
                act.--Unless the tracts are ineligible for designation, 
                if the Secretary declines in writing to make such 
                certification and designation or fails to act before 
                the end of the consideration period, such nomination 
                shall be deemed to be certified and designated, 
                effective on the day after the last day of the 
                consideration period.
            ``(2) Secretary.--If a governor fails to make the 
        nominations and notifications by the end of the periods 
        referred to in paragraphs (1)(A) and (1)(B), the Secretary 
        shall designate and certify population census tracts that are 
        low-income communities as qualified opportunity zones, as 
        permitted by subsection (e).
    ``(c) Other Definitions.--For purposes of this subsection--
            ``(1) Low-income communities.--The term `low-income 
        community' has the same meaning as when used in section 45D(e).
            ``(2) Definition of periods.--
                    ``(A) Consideration period.--The term 
                `consideration period' means the 30-day period 
                beginning on the date on which the Secretary receives 
                notice under subsection (b)(1)(A)(i)(II), as extended 
                under subsection (b)(1)(B).
                    ``(B) Determination period.--The term 
                `determination period' means the 90-day period 
                beginning on the date of the enactment of the Investing 
                in Opportunity Act, as extended under subsection 
                (b)(1)(B).
    ``(d) Guidance for Opportunity Zone Nominations.--When considering 
the nomination of qualified opportunity zones, governors should strive 
for the creation of qualified opportunity zones that are geographically 
concentrated and contiguous clusters of population census tracts and 
should give particular consideration to areas that--
            ``(1) are currently the focus of mutually reinforcing 
        State, local, or private economic development initiatives to 
        attract investment and foster startup activity,
            ``(2) have demonstrated success in geographically targeted 
        development programs, such as promise zones, new market tax 
        credit, empowerment zones, and renewal communities, and
            ``(3) have recently experienced significant layoffs due to 
        business closures or relocations.
    ``(e) Number of Designations.--
            ``(1) In general.--Except as provided by paragraph (2), the 
        number of population census tracts in a State that may be 
        designated as qualified opportunity zones under this section 
        may not exceed 25 percent of the number of low-income 
        communities in the State.
            ``(2) Exception.--If the number of low-income communities 
        in a State is less than 100, then a total of 25 of such tracts 
        may be designated as qualified opportunity zones.
    ``(f) Designation of Tracts Contiguous With Low-Income 
Communities.--
            ``(1) In general.--A population census tract that is not a 
        low-income community may be designated as a qualified 
        opportunity zone under this section if--
                    ``(A) the tract is contiguous with the low-income 
                community that is designated as a qualified opportunity 
                zone, and
                    ``(B) the median family income of the tract does 
                not exceed 125 percent of the median family income of 
                the low-income community with which the tract is 
                contiguous.
            ``(2) Limitation.--Not more than 5 percent of the 
        population census tracts designated in a State as a qualified 
        opportunity zone may be designated under paragraph (1).
    ``(g) Period for Which Designation Is in Effect.--A designation as 
a qualified opportunity zone shall remain in effect for the period 
beginning on the date of the designation and ending at the close of the 
10th calendar year beginning on or after such date of designation.

``SEC. 1400Z-2. DEFERRAL FOR CAPITAL GAINS INVESTED IN OPPORTUNITY 
              ZONES.

    ``(a) Special Rules When Gain From Sale of Property Invested in 
Opportunity Zone Property.--
            ``(1) Exclusion of gain invested in opportunity zone 
        property.--In the case of gain from the sale to, or exchange 
        with, an unrelated person of any property held by the taxpayer, 
        at the election of the taxpayer--
                    ``(A) gross income for the taxable year shall not 
                include so much of such gain as does not exceed the 
                aggregate cost of all qualified opportunity zone 
                property acquired by the taxpayer during the 180-day 
                period beginning on the date of such sale or exchange, 
                and
                    ``(B) the amount of gain excluded by subparagraph 
                (A) shall be included in gross income as provided by 
                paragraph (2).
            ``(2) Deferral of gain invested in opportunity zone 
        property.--
                    ``(A) Year of inclusion.--Except as provided by 
                subparagraph (C), gain to which paragraph (1)(B) 
                applies shall be included in income in the taxable year 
                in which the qualified opportunity zone property 
                related to such gain is sold or exchanged in the amount 
                determined under subparagraph (B).
                    ``(B) Amount includible.--The amount of gain 
                determined under this clause shall be--
                            ``(i) 100 percent of such gain in the case 
                        of the sale or exchange of the qualified 
                        opportunity zone property with respect to which 
                        gain is deferred under paragraph (1) that is 
                        held for less than 5 years,
                            ``(ii) 90 percent of such gain in the case 
                        of the sale or exchange of the qualified 
                        opportunity zone property with respect to which 
                        gain is deferred under paragraph (1) that is 
                        held for at least 5 years but less than 7 
                        years, and
                            ``(iii) 85 percent of such gain in the case 
                        of the sale or exchange of the qualified 
                        opportunity zone property with respect to which 
                        gain is deferred under paragraph (1) that is 
                        held for at least 7 years.
                    ``(C) Property held after 2026 treated as sold.--
                For purposes of subparagraph (A), any qualified 
                opportunity zone property that has not been sold or 
                exchanged on or before December 31, 2026, shall be 
                treated as sold on December 31, 2026.
            ``(3) Exclusion of gain on qualified opportunity zone 
        property held for at least 10 years.--Except as provided in 
        paragraph (2), in the case of the sale or exchange of qualified 
        opportunity zone property, or an investment in a qualified 
        opportunity fund, held for at least 10 years, gross income for 
        the taxable year shall not include any gain from the sale or 
        exchange of such property or investment.
            ``(4) One election per property.--No election may be made 
        under paragraph (1) with respect to a sale or exchange if an 
        election previously made with respect to such sale or exchange 
        is in effect.
    ``(b) Basis Rules Relating to Qualified Opportunity Zone 
Property.--
            ``(1) Reduced by gain deferred under subsection (a)(1).--
        The basis of a qualified opportunity zone property immediately 
        after its acquisition under subsection (a) shall be reduced by 
        the amount of gain deferred by reason of subsection (a)(1)(A) 
        with respect to such property.
            ``(2) Increase for gain recognized under subsection 
        (a)(2).--The basis of qualified opportunity zone property shall 
        be increased by the amount of gain recognized by reason of 
        subsection (a)(2) with respect to such property.
            ``(3) Subsequent increase in basis for property held for at 
        least 5 years but less than 10 years.--In the case of qualified 
        opportunity zone property held for at least 5 years but less 
        than 10 years--
                    ``(A) Property held for 5 years.--For qualified 
                opportunity zone property held for at least 5 years, 
                the basis of such property shall be increased by an 
                amount equal to 10 percent of the amount of gain 
                deferred by reason of subsection (a)(1)(A) with respect 
                to such property.
                    ``(B) Property held for 7 years.--For qualified 
                opportunity zone property held for at least 7 years, 
                the basis of such property shall be increased by an 
                amount equal to 5 percent of the amount of gain 
                deferred by reason of subsection (a)(1)(A) with respect 
                to such property.
    ``(c) Qualified Opportunity Zone Property.--For purposes of this 
section:
            ``(1) In general.--The term `qualified opportunity zone 
        property' means property which is--
                    ``(A) qualified opportunity zone stock,
                    ``(B) qualified opportunity zone partnership 
                interest,
                    ``(C) qualified opportunity zone business property, 
                or
                    ``(D) an interest in a qualified investment fund.
            ``(2) Qualified opportunity zone stock.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `qualified opportunity zone 
                stock' means any stock in a domestic corporation if--
                            ``(i) such stock is acquired by the 
                        taxpayer after December 31, 2017, at its 
                        original issue (directly or through an 
                        underwriter) from the corporation solely in 
                        exchange for cash,
                            ``(ii) as of the time such stock was 
                        issued, such corporation was a qualified 
                        opportunity zone business (or, in the case of a 
                        new corporation, such corporation was being 
                        organized for purposes of being a qualified 
                        opportunity zone business), and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such stock, such 
                        corporation qualified as a qualified 
                        opportunity zone business.
                    ``(B) Redemptions.--A rule similar to the rule of 
                section 1202(c)(3) shall apply for purposes of this 
                paragraph.
            ``(3) Qualified opportunity zone partnership interest.--The 
        term `qualified opportunity zone partnership interest' means 
        any capital or profits interest in a domestic partnership if--
                    ``(A) such interest is acquired by the taxpayer 
                after December 31, 2017, from the partnership solely in 
                exchange for cash,
                    ``(B) as of the time such interest was acquired, 
                such partnership was a qualified opportunity zone 
                business (or, in the case of a new partnership, such 
                partnership was being organized for purposes of being a 
                qualified opportunity zone business), and
                    ``(C) during substantially all of the taxpayer's 
                holding period for such interest, such partnership 
                qualified as a qualified opportunity zone business.
            ``(4) Qualified opportunity zone business property.--
                    ``(A) In general.--The term `qualified opportunity 
                zone business property' means tangible property used in 
                a trade or business of the taxpayer if--
                            ``(i) such property was acquired by the 
                        taxpayer by purchase (as defined in section 
                        179(d)(2)) after December 31, 2017,
                            ``(ii) the original use of such property in 
                        the qualified opportunity zone commences with 
                        the taxpayer or the taxpayer substantially 
                        improves the property, and
                            ``(iii) during substantially all of the 
                        taxpayer's holding period for such property, 
                        substantially all of the use of such property 
                        was in a qualified opportunity zone.
                    ``(B) Substantial improvement.--For purposes of 
                subparagraph (A)(ii), property shall be treated as 
                substantially improved by the taxpayer only if, during 
                any 30-month period beginning after the date of 
                acquisition of such property, additions to basis with 
                respect to such property in the hands of the taxpayer 
                exceed an amount equal to the adjusted basis of such 
                property at the beginning of such 30-month period in 
                the hands of the taxpayer.
                    ``(C) Related party.--For purposes of subparagraph 
                (A)(i), the related person rule of section 179(d)(2) 
                shall be applied pursuant to paragraph (8) of this 
                subsection in lieu of the application of such rule in 
                section 179(d)(2)(A).
            ``(5) Qualified opportunity fund.--The term `qualified 
        opportunity fund' means any investment vehicle organized as a 
        corporation or a partnership for the purpose of investing in 
        qualified opportunity zone property (other than another 
        qualified opportunity fund) that holds at least 90 percent of 
        its assets in qualified opportunity zone property, determined--
                    ``(A) on the last day of the first 6-month period 
                of the taxable year of the fund, and
                    ``(B) on the last day of the taxable year of the 
                fund.
            ``(6) Qualified opportunity zone business.--
                    ``(A) In general.--The term `qualified opportunity 
                zone business' means a trade or business--
                            ``(i) in which substantially all of the 
                        tangible property owned or leased by the 
                        taxpayer is qualified opportunity zone business 
                        property,
                            ``(ii) which satisfies the requirements of 
                        paragraphs (2), (4), and (8) of section 
                        1397C(b), and
                            ``(iii) which is not described in section 
                        144(c)(6)(B).
                    ``(B) Special rule.--For purposes of subparagraph 
                (A), tangible property that ceases to be a qualified 
                opportunity zone business property shall continue to be 
                treated as a qualified opportunity zone business 
                property for the lesser of--
                            ``(i) 5 years after the date on which such 
                        tangible property ceases to be so qualified, or
                            ``(ii) the date on which such tangible 
                        property is no longer held by the qualified 
                        opportunity zone business.
    ``(d) Applicable Rules.--
            ``(1) In general.--For purposes of this section and except 
        as otherwise provided in this section, rules similar to the 
        rules applicable to deferred like kind exchanges under section 
        1031 shall apply except that reinvestment in opportunity zone 
        property need not require an intermediary party.
            ``(2) Related persons.--For purposes of this subsection, 
        persons are related to each other if such persons are described 
        in section 267(b) or 707(b)(1), determined by substituting `20 
        percent' for `50 percent' each place it occurs in such 
        sections.
            ``(3) Decedents.--In the case of a decedent, amounts 
        recognized under this section shall, if not properly includible 
        in the gross income of the decedent, be includible in gross 
        income as provided by section 691.
            ``(4) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this section, including--
                    ``(A) rules providing for proportionate inclusion 
                in income and increases in basis for purposes of 
                subsections (a) and (b) in cases in which a sale or 
                exchange of any qualified opportunity zone property 
                with respect to which gain is deferred under subsection 
                (a)(1)(A) is less than all of such property,
                    ``(B) rules requiring taxpayers to provide such 
                information as the Secretary determines to be necessary 
                or appropriate for the identification of both the 
                assets sold (including basis and sale price) and the 
                assets acquired and investments made, and
                    ``(C) rules to prevent abuse.
    ``(e) Failure of Qualified Opportunity Fund To Maintain Investment 
Standard.--
            ``(1) In general.--If a qualified opportunity fund fails to 
        meet the 90-percent requirement of subsection (c)(5), the 
        qualified opportunity fund shall pay a penalty for each month 
        it fails to meet the requirement in an amount equal to the 
        product of--
                    ``(A) the excess of--
                            ``(i) the amount equal to 90 percent of its 
                        aggregate assets, over
                            ``(ii) the aggregate amount of qualified 
                        opportunity zone property held by the fund, 
                        multiplied by
                    ``(B) the underpayment rate established under 
                section 6621(a)(2) for such month.
            ``(2) Special rule for partnerships.--In the case that the 
        qualified opportunity fund is a partnership, the penalty 
        imposed by paragraph (1) shall be taken into account 
        proportionately as part of the distributive share of each 
        partner of the partnership.
            ``(3) Reasonable cause exception.--No penalty shall be 
        imposed under this subsection with respect to any failure if it 
        is shown that such failure is due to reasonable cause.''.
    (b) Basis Adjustments.--Section 1016(a) of such Code is amended by 
striking ``and'' at the end of paragraph (36), by striking the period 
at the end of paragraph (37) and inserting ``, and'', and by inserting 
after paragraph (37) the following:
            ``(38) to the extent provided in section 1400Z-2(b).''.
    (c) Report to Congress.--The Secretary of the Treasury, or the 
Secretary's delegate, shall submit a report to Congress on the 
opportunity zone incentives enacted by this section beginning 5 years 
after the date of enactment of this Act and annually thereafter. The 
report shall include an assessment of investments held by qualified 
opportunity funds nationally and at the State level. To the extent such 
information is available, the report shall include the number of 
qualified opportunity funds, the amount of assets held in qualified 
opportunity funds, the composition of qualified opportunity fund 
investments by asset class, the percentage of qualified opportunity 
zone census tracts designated under subchapter Z of the Internal 
Revenue Code of 1986 (as added by this section) that have received 
qualified opportunity fund investments. The report shall also include 
an assessment of the impacts and outcomes of the investments in those 
areas on economic indicators including job creation, poverty reduction, 
and new business starts, and other metrics as determined by the 
Secretary.
    (d) Clerical Amendment.--The table of subchapters for chapter 1 of 
such Code is amended by adding at the end the following new item:

                  ``subchapter z. opportunity zones''.

    (e) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.
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