Economic Opportunity for Distressed Communities Act

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2292 Introduced in House (IH)]

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119th CONGRESS
  1st Session
                                H. R. 2292

 To amend the Internal Revenue Code of 1986 to establish special rules
     for capital gains invested in brownfield and superfund sites.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                             March 24, 2025

  Mr. Edwards (for himself and Ms. Crockett) introduced the following
      bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL

 To amend the Internal Revenue Code of 1986 to establish special rules
     for capital gains invested in brownfield and superfund sites.

    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 ``Economic Opportunity for Distressed
Communities Act''.

SEC. 2. ESTABLISHMENT OF SPECIAL RULES FOR CAPITAL GAINS INVESTED IN
              DISTRESSED OPPORTUNITY ZONES.

    (a) In General.--Subchapter Z of chapter 1 of the Internal Revenue
Code of 1986 is amended by adding at the end the following new section:

``SEC. 1400Z-3. SPECIAL RULES FOR CAPITAL GAINS INVESTED IN DISTRESSED
              OPPORTUNITY ZONES.

    ``(a) In General.--
            ``(1) Treatment of gains.--In the case of capital gains
        from the sale to, or exchange with, an unrelated person of any
        property held by the taxpayer, at the election of the
        taxpayer--
                    ``(A) gross income for the taxable year shall not
                include so much of such gain as does not exceed the
                aggregate amount invested by the taxpayer in a
                qualified distressed opportunity fund during the 180-
                day period beginning on the date of such sale or
                exchange,
                    ``(B) the amount of gain excluded by subparagraph
                (A) shall be included in gross income as provided by
                subsection (b), and
                    ``(C) subsection (c) shall apply.
            ``(2) Election.--No election may be made under paragraph
        (1)--
                    ``(A) with respect to a sale or exchange if an
                election previously made with respect to such sale or
                exchange is in effect, or
                    ``(B) with respect to any sale or exchange after
                December 31, 2033.
    ``(b) Deferral of Gain Invested in Qualified Distressed Opportunity
Zone Property.--
            ``(1) Year of inclusion.--Gain to which subsection
        (a)(1)(B) applies shall be included in income in the taxable
        year which includes the earlier of--
                    ``(A) the date on which such investment is sold or
                exchanged, or
                    ``(B) December 31, 2033.
            ``(2) Amount includible.--
                    ``(A) In general.--The amount of gain included in
                gross income under subsection (a)(1)(A) shall be the
                excess of--
                            ``(i) the lesser of the amount of gain
                        excluded under paragraph (1) or the fair market
                        value of the investment as determined as of the
                        date described in paragraph (1), over
                            ``(ii) the taxpayer's basis in the
                        investment.
                    ``(B) Determination of basis qualified distressed
                opportunity zone property.--
                            ``(i) In general.--Except as otherwise
                        provided in this clause or subsection (c), the
                        taxpayer's basis in the investment shall be
                        zero.
                            ``(ii) Increase for gain recognized under
                        subsection (a)(1)(B).--The basis in the
                        investment shall be increased by the amount of
                        gain recognized by reason of subsection
                        (a)(1)(B) with respect to such property.
                            ``(iii) Investments held for 5 years.--In
                        the case of any investment held for at least 5
                        years, the basis of such investment shall be
                        increased by an amount equal to 10 percent of
                        the amount of gain deferred by reason of
                        subsection (a)(1)(A).
                            ``(iv) Investments held for 7 years.--In
                        the case of any investment held by the taxpayer
                        for at least 7 years, in addition to any
                        adjustment made under clause (iii), the basis
                        of such property shall be increased by an
                        amount equal to 5 percent of the amount of gain
                        deferred by reason of subsection (a)(1)(A).
    ``(c) Special Rule for Investments Held for at Least 10 Years.--In
the case of any investment held by the taxpayer for at least 10 years
and with respect to which the taxpayer makes an election under this
subsection, the basis of such property shall be equal to the fair
market value of such investment on the date that the investment is sold
or exchanged.
    ``(d) Qualified Distressed Opportunity Fund.--For purposes of this
section--
            ``(1) In general.--The term `qualified distressed
        opportunity fund' means any investment vehicle which is
        organized as a corporation or a partnership for the purpose of
        investing in qualified distressed opportunity zone property
        (other than another qualified distressed opportunity fund) that
        holds at least 90 percent of its assets in qualified distressed
        opportunity zone property, determined by the average of the
        percentage of qualified distressed opportunity zone property
        held in the fund as measured--
                    ``(A) on the last day of the first 6-month period
                of the taxable year of the fund, and
                    ``(B) on the last day of the taxable year of the
                fund.
            ``(2) Qualified distressed opportunity zone property.--
                    ``(A) In general.--The term `qualified distressed
                opportunity zone property' means property which is--
                            ``(i) qualified distressed opportunity zone
                        stock,
                            ``(ii) qualified distressed opportunity
                        zone partnership interest, or
                            ``(iii) qualified distressed opportunity
                        zone business property.
                    ``(B) Qualified distressed opportunity zone
                stock.--
                            ``(i) In general.--Except as provided in
                        clause (ii), the term `qualified distressed
                        opportunity zone stock' means any stock in a
                        domestic corporation if--
                                    ``(I) such stock is acquired by the
                                qualified distressed opportunity fund
                                after December 31, 2025, at its
                                original issue (directly or through an
                                underwriter) from the corporation
                                solely in exchange for cash,
                                    ``(II) as of the time such stock
                                was issued, such corporation was a
                                qualified distressed opportunity zone
                                business (or, in the case of a new
                                corporation, such corporation was being
                                organized for purposes of being a
                                qualified distressed opportunity zone
                                business), and
                                    ``(III) during substantially all of
                                the qualified distressed opportunity
                                fund's holding period for such stock,
                                such corporation qualified as a
                                qualified distressed opportunity zone
                                business.
                            ``(ii) Redemptions.--A rule similar to the
                        rule of section 1202(c)(3) shall apply for
                        purposes of this paragraph.
                    ``(C) Qualified distressed opportunity zone
                partnership interest.--The term `qualified distressed
                opportunity zone partnership interest' means any
                capital or profits interest in a domestic partnership
                if--
                            ``(i) such interest is acquired by the
                        qualified distressed opportunity fund after
                        December 31, 2025, from the partnership solely
                        in exchange for cash,
                            ``(ii) as of the time such interest was
                        acquired, such partnership was a qualified
                        distressed opportunity zone business (or, in
                        the case of a new partnership, such partnership
                        was being organized for purposes of being a
                        qualified distressed opportunity zone
                        business), and
                            ``(iii) during substantially all of the
                        qualified distressed opportunity fund's holding
                        period for such interest, such partnership
                        qualified as a qualified distressed opportunity
                        zone business.
                    ``(D) Qualified distressed opportunity zone
                business property.--
                            ``(i) In general.--The term `qualified
                        distressed opportunity zone business property'
                        means tangible property used in a trade or
                        business of the qualified distressed
                        opportunity fund if--
                                    ``(I) such property was acquired by
                                the qualified distressed opportunity
                                fund by purchase (as defined in section
                                179(d)(2)) after December 31, 2025,
                                    ``(II) the original use of such
                                property in the qualified distressed
                                opportunity zone commences with the
                                qualified distressed opportunity fund
                                or the qualified distressed opportunity
                                fund substantially improves the
                                property, and
                                    ``(III) during substantially all of
                                the qualified distressed opportunity
                                fund's holding period for such
                                property, substantially all of the use
                                of such property was in a qualified
                                distressed opportunity zone.
                            ``(ii) Substantial improvement.--For
                        purposes of subparagraph (A)(ii), property
                        shall be treated as substantially improved by
                        the qualified distressed opportunity fund only
                        if, during any 30-month period beginning after
                        the date of acquisition of such property,
                        additions to basis with respect to such
                        property in the hands of the qualified
                        distressed opportunity fund exceed an amount
                        equal to the adjusted basis of such property at
                        the beginning of such 30-month period in the
                        hands of the qualified distressed opportunity
                        fund.
                            ``(iii) Related party.--For purposes of
                        subparagraph (A)(i), the related person rule of
                        section 179(d)(2) shall be applied pursuant to
                        subsection (e)(2) in lieu of the application of
                        such rule in section 179(d)(2)(A).
            ``(3) Qualified distressed opportunity zone business.--
                    ``(A) In general.--The term `qualified distressed
                opportunity zone business' means a trade or business--
                            ``(i) in which substantially all of the
                        tangible property owned or leased by the
                        taxpayer is qualified distressed opportunity
                        zone business property (determined by
                        substituting `qualified distressed opportunity
                        zone business' for `qualified distressed
                        opportunity fund' each place it appears in
                        subparagraph (D)),
                            ``(ii) which satisfies the requirements of
                        paragraphs (2), (4), and (8) of section
                        1397C(b), and
                            ``(iii) which is not described in section
                        144(c)(6)(B).
                    ``(B) Special rule.--For purposes of subparagraph
                (A), tangible property that ceases to be a qualified
                distressed opportunity zone business property shall
                continue to be treated as a qualified distressed
                opportunity zone business property for the lesser of--
                            ``(i) 5 years after the date on which such
                        tangible property ceases to be so qualified, or
                            ``(ii) the date on which such tangible
                        property is no longer held by the qualified
                        distressed opportunity zone business.
            ``(4) Qualified distressed opportunity zone.--The term
        `qualified distressed opportunity zone' means--
                    ``(A) a brownfield site (as defined in section
                101(39) of the Comprehensive Environmental Response,
                Compensation, and Liability Act of 1980), or
                    ``(B) a facility that is included on the National
                Priorities List developed by the President in
                accordance with section 105(a)(8)(B) of the
                Comprehensive Environmental Response, Compensation, and
                Liability Act of 1980.
    ``(e) Applicable Rules.--
            ``(1) Treatment of investments with mixed funds.--In the
        case of any investment in a qualified distressed opportunity
        fund only a portion of which consists of investments of gain to
        which an election under subsection (a) is in effect--
                    ``(A) such investment shall be treated as 2
                separate investments, consisting of--
                            ``(i) one investment that only includes
                        amounts to which the election under subsection
                        (a) applies, and
                            ``(ii) a separate investment consisting of
                        other amounts, and
                    ``(B) subsections (a), (b), and (c) shall only
                apply to the investment described in subparagraph
                (A)(i).
            ``(2) Related persons.--For purposes of this section,
        persons are related to each other if such persons are described
        in section 267(b) or 707(b)(1), determined by substituting `20
        percent' for `50 percent' each place it occurs in such
        sections.
            ``(3) Decedents.--In the case of a decedent, amounts
        recognized under this section shall, if not properly includible
        in the gross income of the decedent, be included in gross
        income as provided by section 691.
            ``(4) Regulations.--The Secretary shall prescribe such
        regulations as may be necessary or appropriate to carry out the
        purposes of this section, including--
                    ``(A) rules for the certification of qualified
                distressed opportunity funds for the purposes of this
                section,
                    ``(B) rules to ensure a qualified distressed
                opportunity fund has a reasonable period of time to
                reinvest the return of capital from investments in
                qualified distressed opportunity zone stock and
                qualified distressed opportunity zone partnership
                interests, and to reinvest proceeds received from the
                sale or disposition of qualified distressed opportunity
                zone property, and
                    ``(C) rules to prevent abuse.
    ``(f) Failure of Qualified Distressed Opportunity Fund To Maintain
Investment Standard.--
            ``(1) In general.--If a qualified distressed opportunity
        fund fails to meet the 90-percent requirement of subsection
        (d)(1), the qualified distressed opportunity fund shall pay a
        penalty for each month it fails to meet the requirement in an
        amount equal to the product of--
                    ``(A) the excess of--
                            ``(i) the amount equal to 90 percent of its
                        aggregate assets, over
                            ``(ii) the aggregate amount of qualified
                        distressed opportunity zone property held by
                        the fund, multiplied by
                    ``(B) the underpayment rate established under
                section 6621(a)(2) for such month.
            ``(2) Special rule for partnerships.--In the case that the
        qualified distressed opportunity fund is a partnership, the
        penalty imposed by paragraph (1) shall be taken int account
        proportionately as part of the distributive share of each
        partner of the partnership.
            ``(3) Reasonable cause exception.--No penalty shall be
        imposed under this subsection with respect to any failure if it
        is shown that such failure is due to reasonable cause.''.
    (b) Clerical Amendment.--The table of sections for subchapter Z of
chapter 1 is amended by adding at the end the following new item:

``Sec. 1400Z-3. Special rules for capital gains invested in distressed
                            opportunity zones.''.
    (c) Effective Date.--The amendments made by this section shall
apply to amounts invested after the date of the enactment of this Act.
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