Internal Revenue Code:Sec. 1397E. Credit to holders of qualified zone academy bonds
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Contents |
Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter U - Designation and Treatment of Empowerment Zones,
Enterprise Communities, and Rural Development Investment Areas
PART IV - INCENTIVES FOR EDUCATION ZONES
Statute
Sec. 1397E. Credit to holders of qualified zone academy bonds
(a) Allowance of credit
In the case of an eligible taxpayer who holds a qualified zone
academy bond on the credit allowance date of such bond which occurs
during the taxable year, there shall be allowed as a credit against
the tax imposed by this chapter for such taxable year the amount
determined under subsection (b).
(b) Amount of credit
(1) In general
The amount of the credit determined under this subsection with
respect to any qualified zone academy bond is the amount equal to
the product of -
(A) the credit rate determined by the Secretary under
paragraph (2) for the month in which such bond was issued,
multiplied by
(B) the face amount of the bond held by the taxpayer on the
credit allowance date.
(2) Determination
During each calendar month, the Secretary shall determine a
credit rate which shall apply to bonds issued during the
following calendar month. The credit rate for any month is the
percentage which the Secretary estimates will permit the issuance
of qualified zone academy bonds without discount and without
interest cost to the issuer.
(c) Limitation based on amount of tax
The credit allowed under subsection (a) for any taxable year
shall not exceed the excess of -
(1) the sum of the regular tax liability (as defined in section
26(b)) plus the tax imposed by section 55, over
(2) the sum of the credits allowable under part IV of
subchapter A (other than subpart C thereof, relating to
refundable credits, and subpart H thereof).
(d) Qualified zone academy bond
For purposes of this section -
(1) In general
The term ''qualified zone academy bond'' means any bond issued
as part of an issue if -
(A) 95 percent or more of the proceeds of such issue are to
be used for a qualified purpose with respect to a qualified
zone academy established by an eligible local education agency,
(B) the bond is issued by a State or local government within
the jurisdiction of which such academy is located,
(C) the issuer -
(i) designates such bond for purposes of this section,
(ii) certifies that it has written assurances that the
private business contribution requirement of paragraph (2)
will be met with respect to such academy, and
(iii) certifies that it has the written approval of the
eligible local education agency for such bond issuance,
(D) the term of each bond which is part of such issue does
not exceed the maximum term permitted under paragraph (3), and
(E) the issue meets the requirements of subsections (f), (g),
and (h).
(2) Private business contribution requirement
(A) In general
For purposes of paragraph (1), the private business
contribution requirement of this paragraph is met with respect
to any issue if the eligible local education agency that
established the qualified zone academy has written commitments
from private entities to make qualified contributions having a
present value (as of the date of issuance of the issue) of not
less than 10 percent of the proceeds of the issue.
(B) Qualified contributions
For purposes of subparagraph (A), the term ''qualified
contribution'' means any contribution (of a type and quality
acceptable to the eligible local education agency) of -
(i) equipment for use in the qualified zone academy
(including state-of-the-art technology and vocational
equipment),
(ii) technical assistance in developing curriculum or in
training teachers in order to promote appropriate market
driven technology in the classroom,
(iii) services of employees as volunteer mentors,
(iv) internships, field trips, or other educational
opportunities outside the academy for students, or
(v) any other property or service specified by the eligible
local education agency.
(3) Term requirement
During each calendar month, the Secretary shall determine the
maximum term permitted under this paragraph for bonds issued
during the following calendar month. Such maximum term shall be
the term which the Secretary estimates will result in the present
value of the obligation to repay the principal on the bond being
equal to 50 percent of the face amount of the bond. Such present
value shall be determined using as a discount rate the average
annual interest rate of tax-exempt obligations having a term of
10 years or more which are issued during the month. If the term
as so determined is not a multiple of a whole year, such term
shall be rounded to the next highest whole year.
(4) Qualified zone academy
(A) In general
The term ''qualified zone academy'' means any public school
(or academic program within a public school) which is
established by and operated under the supervision of an
eligible local education agency to provide education or
training below the postsecondary level if -
(i) such public school or program (as the case may be) is
designed in cooperation with business to enhance the academic
curriculum, increase graduation and employment rates, and
better prepare students for the rigors of college and the
increasingly complex workforce,
(ii) students in such public school or program (as the case
may be) will be subject to the same academic standards and
assessments as other students educated by the eligible local
education agency,
(iii) the comprehensive education plan of such public
school or program is approved by the eligible local education
agency, and
(iv)(I) such public school is located in an empowerment
zone or enterprise community (including any such zone or
community designated after the date of the enactment of this
section), or
(II) there is a reasonable expectation (as of the date of
issuance of the bonds) that at least 35 percent of the
students attending such school or participating in such
program (as the case may be) will be eligible for free or
reduced-cost lunches under the school lunch program
established under the Richard B. Russell National School
Lunch Act.
(B) Eligible local education agency
The term ''eligible local education agency'' means any local
educational agency as defined in section 9101 of the Elementary
and Secondary Education Act of 1965.
(5) Qualified purpose
The term ''qualified purpose'' means, with respect to any
qualified zone academy -
(A) rehabilitating or repairing the public school facility in
which the academy is established,
(B) providing equipment for use at such academy,
(C) developing course materials for education to be provided
at such academy, and
(D) training teachers and other school personnel in such
academy.
(6) Eligible taxpayer
The term ''eligible taxpayer'' means -
(A) a bank (within the meaning of section 581),
(B) an insurance company to which subchapter L applies, and
(C) a corporation actively engaged in the business of lending
money.
(e) Limitation on amount of bonds designated
(1) National limitation
There is a national zone academy bond limitation for each
calendar year. Such limitation is $400,000,000 for 1998, 1999,
2000, 2001, 2002, 2003, 2004, 2005, 2006, and 2007 and, except
as provided in paragraph (4), zero thereafter.
(2) Allocation of limitation
The national zone academy bond limitation for a calendar year
shall be allocated by the Secretary among the States on the basis
of their respective populations of individuals below the poverty
line (as defined by the Office of Management and Budget). The
limitation amount allocated to a State under the preceding
sentence shall be allocated by the State education agency to
qualified zone academies within such State.
(3) Designation subject to limitation amount
The maximum aggregate face amount of bonds issued during any
calendar year which may be designated under subsection (d)(1)
with respect to any qualified zone academy shall not exceed the
limitation amount allocated to such academy under paragraph (2)
for such calendar year.
(4) Carryover of unused limitation
If for any calendar year -
(A) the limitation amount for any State, exceeds
(B) the amount of bonds issued during such year which are
designated under subsection (d)(1) with respect to qualified
zone academies within such State,
the limitation amount for such State for the following calendar
year shall be increased by the amount of such excess. Any
carryforward of a limitation amount may be carried only to the
first 2 years (3 years for carryforwards from 1998 or 1999)
following the unused limitation year. For purposes of the
preceding sentence, a limitation amount shall be treated as used
on a first-in first-out basis.
(f) Special Rules Relating to Expenditures.--
(1) In general.--An issue shall be treated as meeting the
requirements of this subsection if, as of the date of issuance,
the issuer reasonably expects--
(A) at least 95 percent of the proceeds from the
sale of the issue are to be spent for 1 or more
qualified purposes with respect to qualified zone
academies within the 5-year period beginning on the date
of issuance of the qualified zone academy bond,
(B) a binding commitment with a third party to
spend at least 10 percent of the proceeds from the sale
of the issue will be incurred within the 6-month period
beginning on the date of issuance of the qualified zone
academy bond, and
(C) such purposes will be completed with due
diligence and the proceeds from the sale of the issue
will be spent with due diligence.
(2) Extension of period.--Upon submission of a request
prior to the expiration of the period described in paragraph
(1)(A), the Secretary may extend such period if the issuer
establishes that the failure to satisfy the 5-year requirement
is due to reasonable cause and the related purposes will
continue to proceed with due diligence.
(3) Failure to spend required amount of bond proceeds
within 5 years.--To the extent that less than 95 percent of the
proceeds of such issue are expended by the close of the 5-year
period beginning on the date of issuance (or if
an extension has been obtained under paragraph (2), by the close
of the extended period), the issuer shall redeem all of the
nonqualified bonds within 90 days after the end of such period.
For purposes of this paragraph, the amount of the nonqualified
bonds required to be redeemed shall be determined in the same
manner as under section 142.
(g) Special Rules Relating to Arbitrage.--An issue shall be
treated as meeting the requirements of this subsection if the issuer
satisfies the arbitrage requirements of section 148 with respect to
proceeds of the issue.
(h) Reporting.--Issuers of qualified academy zone bonds shall
submit reports similar to the reports required under section 149(e).
(i) Other definitions
For purposes of this section -
(1) Credit allowance date
The term ''credit allowance date'' means, with respect to any
issue, the last day of the 1-year period beginning on the date of
issuance of such issue and the last day of each successive 1-year
period thereafter.
(2) Bond
The term ''bond'' includes any obligation.
(3) State
The term ''State'' includes the District of Columbia and any
possession of the United States.
(j) Credit included in gross income
Gross income includes the amount of the credit allowed to the
taxpayer under this section (determined without regard to
subsection (c)).
[Energy Policy Act of 2005,PL109-058, amended Section (h), effective for bonds
issued after December 31, 2005, as follows:]
(k) Credit Treated as Nonrefundable Bondholder Credit-
For purposes of this title, the credit allowed by this section shall
be treated as a credit allowable under subpart H of part IV of
subchapter A of this chapter.
[Prior to the Energy Policy Act of 2005, Sec. (h) read as follows:]
(h) Credit treated as allowed under part IV of subchapter A
For purposes of subtitle F, the credit allowed by this section
shall be treated as a credit allowable under part IV of subchapter
A of this chapter.
(l) S Corporations.--In the case of a qualified zone academy bond
held by an S corporation which is an eligible taxpayer--
(1) each shareholder shall take into account such
shareholder's pro rata share of the credit, and
(2) no basis adjustments to the stock of the corporation
shall be made under section 1367 on account of this section.
Sources
(Added Pub. L. 105-34, title II, Sec. 226(a), Aug. 5, 1997, 111
Stat. 821; amended Pub. L. 105-206, title VI, Sec. 6004(g)(2)-(4),
July 22, 1998, 112 Stat. 796; Pub. L. 106-78, title VII, Sec.
752(b)(11), Oct. 22, 1999, 113 Stat. 1169; Pub. L. 106-170, title
V, Sec. 509, Dec. 17, 1999, 113 Stat. 1924; Pub. L. 107-110, title
X, Sec. 1076(t), Jan. 8, 2002, 115 Stat. 2092.)
References in Text
REFERENCES IN TEXT
The date of the enactment of this section, referred to in subsec.
(d)(4)(A)(iv)(I), is the date of enactment of Pub. L. 105-34, which
was approved Aug. 5, 1997.
The Richard B. Russell National School Lunch Act, referred to in
subsec. (d)(4)(A)(iv)(II), is act June 4, 1946, ch. 281, 60 Stat.
230, as amended, which is classified generally to chapter 13 (Sec.
1751 et seq.) of Title 42, The Public Health and Welfare. For
complete classification of this Act to the Code, see Short Title
note set out under section 1751 of Title 42 and Tables.
Section 9101 of the Elementary and Secondary Education Act of
1965, referred to in subsec. (d)(4)(B), is classified to section
7801 of Title 20, Education.
Miscellaneous
AMENDMENTS
2006 - Tax Relief and Health Care Act of 2006 (P.L. 109-432)
SEC. 107. EXTENSION AND MODIFICATION OF QUALIFIED ZONE ACADEMY BONDS.
(a) In General.--Paragraph (1) of section 1397E(e) is amended by
striking ``and 2005'' and inserting ``2005, 2006, and 2007''.
(b) Special Rules Relating to Expenditures, Arbitrage, and
Reporting.--
(1) In general.--Section 1397E is amended--
(A) in subsection (d)(1), by striking ``and'' at the
end of subparagraph (C)(iii), by striking the period at
the end of subparagraph (D) and inserting ``, and'', and
by adding at the end the following new subparagraph:
``(E) the issue meets the requirements of
subsections (f), (g), and (h).'', and
(B) by redesignating subsections (f), (g), (h), and
(i) as subsections (i), (j), (k), and (l), respectively,
and by inserting after subsection (e) the following new
subsections:
``(f) Special Rules Relating to Expenditures.--
``(1) In general.--An issue shall be treated as meeting the
requirements of this subsection if, as of the date of issuance,
the issuer reasonably expects--
``(A) at least 95 percent of the proceeds from the
sale of the issue are to be spent for 1 or more
qualified purposes with respect to qualified zone
academies within the 5-year period beginning on the date
of issuance of the qualified zone academy bond,
``(B) a binding commitment with a third party to
spend at least 10 percent of the proceeds from the sale
of the issue will be incurred within the 6-month period
beginning on the date of issuance of the qualified zone
academy bond, and
``(C) such purposes will be completed with due
diligence and the proceeds from the sale of the issue
will be spent with due diligence.
``(2) Extension of period.--Upon submission of a request
prior to the expiration of the period described in paragraph
(1)(A), the Secretary may extend such period if the issuer
establishes that the failure to satisfy the 5-year requirement
is due to reasonable cause and the related purposes will
continue to proceed with due diligence.
``(3) Failure to spend required amount of bond proceeds
within 5 years.--To the extent that less than 95 percent of the
proceeds of such issue are expended by the close of the 5-year
period beginning on the date of issuance (or if
an extension has been obtained under paragraph (2), by the close
of the extended period), the issuer shall redeem all of the
nonqualified bonds within 90 days after the end of such period.
For purposes of this paragraph, the amount of the nonqualified
bonds required to be redeemed shall be determined in the same
manner as under section 142.
``(g) Special Rules Relating to Arbitrage.--An issue shall be
treated as meeting the requirements of this subsection if the issuer
satisfies the arbitrage requirements of section 148 with respect to
proceeds of the issue.
``(h) Reporting.--Issuers of qualified academy zone bonds shall
submit reports similar to the reports required under section 149(e).''.
(2) Conforming amendments.--Sections 54(l)(3)(B) and
1400N(l)(7)(B)(ii) <<NOTE: 26 USC 54, 1400N.>> are each amended
by striking ``section 1397E(i)'' and inserting ``section
1397E(l)''.
2005 - Energy Policy Act of 2005,PL109-058, made these admendments:
Section 1397E(c)(2) is amended by inserting `, and subpart H thereof'
after `refundable credits'; Subsection (h) of section 1397E is
amended to read as follows: "(h) Credit Treated as Nonrefundable
Bondholder Credit- For purposes of this title, the credit allowed by
this section shall be treated as a credit allowable under subpart H
of part IV of subchapter A of this chapter." Effective Date- The
amendments made by this section shall apply to bonds issued after
December 31, 2005.
2004 - Subsec.406(c),Pub.L.108-311, amended Sec.1397E
by adding a new subsection (i).
2004 - Subsec.304(a), Pub.L.108-311, amended Sec.1397E(e)(1)
by striking "and 2003" and inserting "2003, 2004, and 2005".
Effective Date.--The amendment made by this section shall
apply to obligations issued after December 31, 2003.
2002 - Subsec. 608(a), Pub. L. 107-147, amended Sec. 1397E(e)
(1)by substituting 2000, 2001, 2002, and 2003 for 2000 and 2001.
This Amendment shall apply to obligations issued after the date of
the enactment of this Act.
2002 - Subsec. (d)(4)(B). Pub. L. 107-110 substituted ''9101''
for ''14101''.
1999 - Subsec. (d)(4)(A)(iv)(II). Pub. L. 106-78 substituted
''Richard B. Russell National School Lunch Act'' for ''National
School Lunch Act''.
Subsec. (e)(1). Pub. L. 106-170, Sec. 509(a), substituted '',
1999, 2000, and 2001'' for ''and 1999''.
Subsec. (e)(4). Pub. L. 106-170, Sec. 509(b), inserted at end
''Any carryforward of a limitation amount may be carried only to
the first 2 years (3 years for carryforwards from 1998 or 1999)
following the unused limitation year. For purposes of the
preceding sentence, a limitation amount shall be treated as used on
a first-in first-out basis.''
1998 - Subsec. (d)(4)(B). Pub. L. 105-206, Sec. 6004(g)(2),
substituted ''local educational agency as defined'' for ''local
education agency as defined''.
Subsec. (g). Pub. L. 105-206, Sec. 6004(g)(4), inserted
''(determined without regard to subsection (c))'' after
''section''.
Subsec. (h). Pub. L. 105-206, Sec. 6004(g)(3), added subsec. (h).
EFFECTIVE DATE OF 2006 AMENDMENT
2006 - Tax Relief and Health Care Act of 2006 (P.L. 109-432)
SEC. 107. EXTENSION AND MODIFICATION OF QUALIFIED ZONE ACADEMY BONDS.
(c) <<NOTE: 26 USC 1397E note.>> Effective Dates.--
(1) Extension.--The amendment made by subsection (a) shall
apply to obligations issued after December 31, 2005.
(2) Special rules.--The amendments made by subsection (b)
shall apply to obligations issued after the date of the
enactment of this Act pursuant to allocations of the national
zone academy bond limitation for calendar years after 2005.
EFFECTIVE DATE OF 2002 AMENDMENT
Amendment by Pub. L. 107-110 effective Jan. 8, 2002, except with
respect to certain noncompetitive programs and competitive
programs, see section 5 of Pub. L. 107-110, set out as an Effective
Date note under section 6301 of Title 20, Education.
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE
Section 226(c) of Pub. L. 105-34 provided that: ''The amendments
made by this section (enacting this section and renumbering section
1397D as section 1397F of this title) shall apply to obligations
issued after December 31, 1997.''
