To amend the Internal Revenue Code of 1986 to provide tax benefits for the recovery of the area of New York City damaged in the September 11, 2001, terrorist attacks.

November 29, 2001

Mr. HOUGHTON (for himself, Mr. RANGEL, Mr. FOSSELLA, Mr. GILMAN, Mr. TOWNS, Mrs. MCCARTHY of New York, Mr. QUINN, Mr. KING, Mrs. KELLY, Mr. SWEENEY, Mr. REYNOLDS, Mr. SERRANO, Mr. WALSH, Mr. MCHUGH, Mr. GRUCCI, Mr. ENGEL, and Mr. HINCHEY) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to provide tax benefits for the recovery of the area of New York City damaged in the September 11, 2001, terrorist attacks.

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 `New York Liberty Zone Tax Relief Act of 2001'.

SEC. 2. TAX BENEFITS FOR AREA OF NEW YORK CITY DAMAGED IN TERRORIST ATTACKS ON SEPTEMBER 11, 2001.

(a) IN GENERAL- Chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subchapter:

`Subchapter Y--New York Liberty Zone Benefits

`Sec. 1400L. Tax benefits for New York Liberty Zone.

`SEC. 1400L. TAX BENEFITS FOR NEW YORK LIBERTY ZONE.

`(a) SPECIAL ALLOWANCE FOR CERTAIN PROPERTY ACQUIRED AFTER SEPTEMBER 10, 2001-

`(1) ADDITIONAL ALLOWANCE- In the case of any qualified New York Liberty Zone property--

`(A) the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to 30 percent of the adjusted basis of such property, and

`(B) the adjusted basis of the qualified New York Liberty Zone property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.

`(2) QUALIFIED NEW YORK LIBERTY ZONE PROPERTY- For purposes of this subsection--

`(A) IN GENERAL- The term `qualified New York Liberty Zone property' means property--

`(i)(I) to which section 168 applies (other than railroad grading and tunnel bores), or

`(II) which is computer software (as defined in section 167(f)(1)(B)) for which a deduction is allowable under section 167(a) without regard to this subsection,

`(ii) substantially all of the use of which is in the New York Liberty Zone and is in the active conduct of a trade or business by the taxpayer in such Zone,

`(iii) the original use of which in the New York Liberty Zone commences with the taxpayer after September 10, 2001, and

`(iv) which is acquired by the taxpayer by purchase (as defined in section 179(d)) after September 10, 2001, and placed in service by the taxpayer on or before the termination date, but only if no written binding contract for the acquisition was in effect before September 11, 2001.

The term `termination date' means December 31, 2006 (December 31, 2009, in the case of nonresidential real property and residential rental property).

`(B) EXCEPTIONS-

`(i) ALTERNATIVE DEPRECIATION PROPERTY- The term `qualified New York Liberty Zone property' shall not include any property to which the alternative depreciation system under section 168(g) applies, determined--

`(I) without regard to paragraph (7) of section 168(g) (relating to election to have system apply), and

`(II) after application of section 280F(b) (relating to listed property with limited business use).

`(ii) ELECTION OUT- If a taxpayer makes an election under this clause with respect to any class of property for any taxable year, this subsection shall not apply to all property in such class placed in service during such taxable year.

`(C) SPECIAL RULES RELATING TO ORIGINAL USE-

`(i) SELF-CONSTRUCTED PROPERTY- In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer's own use, the requirements of clause (iv) of subparagraph (A) shall be treated as met if the taxpayer begins manufacturing, constructing, or producing the property after September 10, 2001, and before the termination date.

`(ii) SALE-LEASEBACKS- For purposes of subparagraph (A)(iii), if property--

`(I) is originally placed in service after September 10, 2001, by a person, and

`(II) sold and leased back by such person within 3 months after the date such property was originally placed in service,

such property shall be treated as originally placed in service not earlier than the date on which such property is used under the leaseback referred to in subclause (II).

`(D) ALLOWANCE AGAINST ALTERNATIVE MINIMUM TAX- The deduction allowed by this subsection shall be allowed in determining alternative minimum taxable income for purposes of the tax imposed by section 55.

`(b) 5-YEAR RECOVERY PERIOD FOR DEPRECIATION OF CERTAIN LEASEHOLD IMPROVEMENTS-

`(1) IN GENERAL- For purposes of section 168, the term `5-year property' includes any qualified leasehold improvement property.

`(2) QUALIFIED LEASEHOLD IMPROVEMENT PROPERTY- For purposes of this subsection--

`(A) IN GENERAL- The term `qualified leasehold improvement property' means any improvement to an interior portion of a building which is nonresidential real property if--

`(i) such building is located in the New York Liberty Zone,

`(ii) such improvement is made under or pursuant to a lease (as defined in section 168(h)(7))--

`(I) by the lessee (or any sublessee) of such portion, or

`(II) by the lessor of such portion,

`(iii) such portion is to be occupied exclusively by the lessee (or any sublessee) of such portion,

`(iv) such improvement is placed in service--

`(I) after September 10, 2001, and more than 3 years after the date the building was first placed in service, and

`(II) before January 1, 2007, and

`(v) no written binding contract for such improvement was in effect before September 11, 2001.

`(B) CERTAIN IMPROVEMENTS NOT INCLUDED- Such term shall not include any improvement for which the expenditure is attributable to--

`(i) the enlargement of the building,

`(ii) any elevator or escalator,

`(iii) any structural component benefiting a common area, and

`(iv) the internal structural framework of the building.

`(C) DEFINITIONS AND SPECIAL RULES- For purposes of this paragraph--

`(i) COMMITMENT TO LEASE TREATED AS LEASE- A commitment to enter into a lease shall be treated as a lease, and the parties to such commitment shall be treated as lessor and lessee, respectively.

`(ii) RELATED PERSONS- A lease between related persons shall not be considered a lease. For purposes of the preceding sentence, the term `related persons' means--

`(I) members of an affiliated group (as defined in section 1504), and

`(II) persons having a relationship described in subsection (b) of section 267; except that, for purposes of this clause, the phrase `80 percent

or more' shall be substituted for the phrase `more than 50 percent' each place it appears in such subsection.

`(D) IMPROVEMENTS MADE BY LESSOR-

`(i) IN GENERAL- In the case of an improvement made by the person who was the lessor of such improvement when such improvement was placed in service, such improvement shall be qualified leasehold improvement property (if at all) only so long as such improvement is held by such person.

`(ii) EXCEPTION FOR CHANGES IN FORM OF BUSINESS- Property shall not cease to be qualified leasehold improvement property under clause (i) by reason of--

`(I) death,

`(II) a transaction to which section 381(a) applies, or

`(III) a mere change in the form of conducting the trade or business so long as the property is retained in such trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in such trade or business.

`(3) REQUIREMENT TO USE STRAIGHT LINE METHOD- The applicable depreciation method under section 168 shall be the straight line method in the case of qualified leasehold improvement property.

`(4) 9-YEAR RECOVERY PERIOD UNDER ALTERNATIVE SYSTEM- For purposes of section 168(g), the class life of qualified leasehold improvement property shall be 9 years.

`(c) INCREASE IN EXPENSING UNDER SECTION 179-

`(1) IN GENERAL- For purposes of section 179--

`(A) the limitation under section 179(b)(1) shall be increased by the lesser of--

`(i) $35,000, or

`(ii) the cost of section 179 property which is qualified New York Liberty Zone property placed in service during the taxable year, and

`(B) the amount taken into account under section 179(b)(2) with respect to any section 179 property which is qualified New York Liberty Zone property shall be 50 percent of the cost thereof.

`(2) RECAPTURE- Rules similar to the rules under section 179(d)(10) shall apply with respect to any qualified New York Liberty Zone property which ceases to be used in the New York Liberty Zone.

`(d) TAX-EXEMPT BOND FINANCING-

`(1) IN GENERAL- For purposes of this title, any qualified New York Liberty Bond shall be treated as an exempt facility bond.

`(2) QUALIFIED NEW YORK LIBERTY BOND- For purposes of this subsection, the term `qualified New York Liberty Bond' means any bond issued as part of an issue if--

`(A) 95 percent or more of the net proceeds (as defined in section 150(a)(3)) of such issue are to be used for qualified project costs,

`(B) such bond is issued by the State of New York or any political subdivision thereof,

`(C) the Governor of New York designates such bond for purposes of this section, and

`(D) such bond is issued during calendar year 2002, 2003, or 2004.

`(3) LIMITATION ON AMOUNT OF BONDS DESIGNATED- The maximum aggregate face amount of bonds which may be designated under this subsection shall not exceed $15,000,000,000.

`(4) QUALIFIED PROJECT COSTS- For purposes of this subsection--

`(A) IN GENERAL- The term `qualified project costs' means the cost of acquisition, construction, reconstruction, and renovation of--

`(i) nonresidential real property and residential rental property (including fixed tenant improvements associated with such property) located in the New York Liberty Zone, and

`(ii) public utility property located in the New York Liberty Zone.

`(B) COSTS FOR CERTAIN PROPERTY OUTSIDE ZONE INCLUDED- Such term includes the cost of acquisition, construction, reconstruction, and renovation of nonresidential real property (including fixed tenant improvements associated with such property) located outside the New York Liberty Zone but within the City of New York, New York, if such property is part of a project which consists of at least 100,000 square feet of usable office or other commercial

space located in a single building or multiple adjacent buildings.

`(C) LIMITATIONS- Such term shall not include--

`(i) costs for property located outside the New York Liberty Zone to the extent such costs exceed $7,000,000,000,

`(ii) costs with respect to residential rental property to the extent such costs exceed $3,000,000,000, and

`(iii) costs with respect to property used for retail sales of tangible property to the extent such costs exceed $1,500,000,000.

`(D) MOVABLE FIXTURES AND EQUIPMENT- Such term shall not include costs with respect to movable fixtures and equipment.

`(5) SPECIAL RULES- In applying this title to any qualified New York Liberty Bond, the following modifications shall apply:

`(A) Section 146 (relating to volume cap) shall not apply.

`(B) Section 147(c) (relating to limitation on use for land acquisition) shall be determined by reference to the aggregate authorized face amount of all qualified New York Liberty Bonds rather than the net proceeds of each issue.

`(C) Section 147(d) (relating to acquisition of existing property not permitted) shall be applied by substituting `50 percent' for `15 percent' each place it appears.

`(D) Section 148(f)(4)(C) (relating to exception from rebate for certain proceeds to be used to finance construction expenditures) shall apply to construction proceeds of bonds issued under this section.

`(E) Financing provided by such a bond shall not be taken into account under section 168(g)(5)(A) with respect to property substantially all of the use of which is in the New York Liberty Zone and is in the active conduct of a trade or business by the taxpayer in such Zone.

`(F) Repayments of principal on financing provided by the issue--

`(i) may not be used to provide financing, and

`(ii) are used not later than the close of the 1st semiannual period beginning after the date of the repayment to redeem bonds which are part of such issue.

The requirement of clause (ii) shall be treated as met with respect to amounts received within 10 years after the date of issuance of the issue (or, in the case of refunding bond, the date of issuance of the original bond) if such amounts are used by the close of such 10 years to redeem bonds which are part of such issue.

`(G) Section 57(a)(5) shall not apply.

`(6) SEPARATE ISSUE TREATMENT OF PORTIONS OF AN ISSUE- This subsection shall not apply to the portion of the proceeds of an issue which (if issued as a separate issue) would be treated as a qualified bond or as a bond that is not a private activity bond (determined without regard to subsection (a)), if the issuer elects to so treat such portion.

`(e) EXTENSION OF REPLACEMENT PERIOD FOR NONRECOGNITION OF GAIN- Notwithstanding subsections (g) and (h) of section 1033, clause (i) of section 1033(a)(2)(B) shall be applied by substituting `5 years' for `2 years' with respect to property which is compulsorily or involuntarily converted as a result of the terrorist attacks on September 11, 2001, in the New York Liberty Zone but only if substantially all of the use of the replacement property is in the City of New York, New York.

`(f) NEW YORK LIBERTY ZONE- For purposes of this section, the term `New York Liberty Zone' means the area located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York.'

(b) CLERICAL AMENDMENT- The table of subchapters for chapter 1 of such Code is amended by adding at the end the following new item:

`Subchapter Y. New York Liberty Zone Benefits.'

END