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.

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

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.

`(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:

The applicable percentage 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)):

The applicable percentage 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:

The applicable percentage 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)--

2 years

3 years

4 years

6 years

9 years

12 years

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