Sec. 301. Tax incentives related to Economic Freedom Zones
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Chapter 1 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subchapter: Part I—Tax incentives Part II—Definitions Sec. 1400V–1. Economic Freedom Zone individual flat tax. Sec. 1400V–2. Economic Freedom Zone corporate flat tax. Sec. 1400V–3. Zero percent capital gains rate. Sec. 1400V–4. Reduced payroll taxes. Sec. 1400V–5. Increase in expensing under section 179. In the case of any individual whose principal residence (within the meaning of section 121) is located in an Economic Freedom Zone for the taxable year, in lieu of the tax imposed by section 1, there shall be imposed a tax equal to 5 percent of the taxable income of such taxpayer.
For purposes of this title, the tax imposed by the preceding sentence shall be treated as a tax imposed by section 1. In the case of a joint return under section 6013, subsection
(a)shall apply so long as either spouse has a principal residence (within the meaning of section 121) in an Economic Freedom Zone for the taxable year. The tax imposed by section 55 shall not apply to any taxpayer to whom subsection
(a)applies. In the case of any corporation located in an Economic Freedom Zone for the taxable year, in lieu of the tax imposed by section 11, there shall be imposed a tax equal to 5 percent of the taxable income of such corporation. For purposes of this title, the tax imposed by the preceding sentence shall be treated as a tax imposed by section 11. Subsection
(a)shall not apply to any corporation for any taxable year if the adjusted gross income of such corporation for such taxable year exceeds $500,000,000. For purposes of this section, a corporation shall be considered to be located in an Economic Freedom Zone if— not less than 10 percent of the total gross income of such corporation is derived from the active conduct of a trade or business within an Economic Freedom Zone, or at least 25 percent of the employees of such corporation are residents of an Economic Freedom Zone. The tax imposed by section 55 shall not apply to any taxpayer to whom subsection
(a)applies. Gross income shall not include qualified capital gain from the sale or exchange of— any Economic Freedom Zone asset held for more than 5 years, any real property located in an Economic Freedom Zone. For purposes of this section— The term Economic Freedom Zone asset means— any Economic Freedom Zone business stock, any Economic Freedom Zone partnership interest, and any Economic Freedom Zone business property. The term Economic Freedom Zone business stock means any stock in a domestic corporation if— such stock is acquired by the taxpayer, before the date on which such corporation no longer qualifies as an Economic Freedom Zone business due to the lapse of 1 or more Economic Freedom Zones, at its original issue (directly or through an underwriter) solely in exchange for cash, as of the time such stock was issued, such corporation was an Economic Freedom Zone business (or, in the case of a new corporation, such corporation was being organized for purposes of being an Economic Freedom Zone business), and during substantially all of the taxpayer's holding period for such stock, such corporation qualified as an Economic Freedom Zone business. A rule similar to the rule of section 1202(c)(3) shall apply for purposes of this paragraph. The term Economic Freedom Zone partnership interest means any capital or profits interest in a domestic partnership if— such interest is acquired by the taxpayer, before the date on which such partnership no longer qualifies as an Economic Freedom Zone business due to the lapse of 1 or more Economic Freedom Zones, from the partnership solely in exchange for cash, as of the time such interest was acquired, such partnership was an Economic Freedom Zone business (or, in the case of a new partnership, such partnership was being organized for purposes of being an Economic Freedom Zone business), and during substantially all of the taxpayer's holding period for such interest, such partnership qualified as an Economic Freedom Zone business. A rule similar to the rule of paragraph (2)(B) shall apply for purposes of this paragraph. The term Economic Freedom Zone business property means tangible property if— such property was acquired by the taxpayer by purchase (as defined in section 179(d)(2)) after the date on such taxpayer qualifies as an Economic Freedom Zone business and before the date on which such taxpayer no longer qualifies as an Economic Freedom Zone business due to the lapse of 1 or more Economic Freedom Zones, the original use of such property in the Economic Freedom Zone commences with the taxpayer, and during substantially all of the taxpayer's holding period for such property, substantially all of the use of such property was in an Economic Freedom Zone business of the taxpayer. The requirements of clauses
(i)and
(ii)of subparagraph
(A)shall be treated as met with respect to— property which is substantially improved by the taxpayer before the date on which such taxpayer no longer qualifies as an Economic Freedom Zone business due to the lapse of 1 or more Economic Freedom Zones, and any land on which such property is located. For purposes of clause (i), property shall be treated as substantially improved by the taxpayer only if, during any 24-month period beginning after the date on which the taxpayer qualifies as an Economic Freedom Zone business additions to basis with respect to such property in the hands of the taxpayer exceed the greater of— an amount equal to the adjusted basis of such property at the beginning of such 24-month period in the hands of the taxpayer, or $5,000. Except as otherwise provided in this subsection, the termination of the designation of the Economic Freedom Zone shall be disregarded for purposes of determining whether any property is an Economic Freedom Zone asset. The term Economic Freedom Zone asset includes any property which would be an Economic Freedom Zone asset but for paragraph (2)(A)(i), (3)(A), or (4)(A)(i) or
(ii)in the hands of the taxpayer if such property was an Economic Freedom Zone asset in the hands of a prior holder. If any property ceases to be an Economic Freedom Zone asset by reason of paragraph (2)(A)(iii), (3)(C), or (4)(A)(iii) after the 5-year period beginning on the date the taxpayer acquired such property, such property shall continue to be treated as meeting the requirements of such paragraph; except that the amount of gain to which subsection
(a)applies on any sale or exchange of such property shall not exceed the amount which would be qualified capital gain had such property been sold on the date of such cessation. For purposes of this section, the term Economic Freedom Zone business means any enterprise zone business (as defined in section 1397C), determined— after the application of section 1400(e), by substituting 80 percent for 50 percent in subsections (b)(2) and (c)(1) of section 1397C, and by treating only areas that are Economic Freedom Zones as an empowerment zone or enterprise community. For purposes of this section— Except as otherwise provided in this subsection, the term qualified capital gain means any gain recognized on the sale or exchange of— a capital asset, or property used in the trade or business (as defined in section 1231(b)). The term qualified capital gain shall not include any gain attributable to periods before the date on which the a business qualifies as an Economic Freedom Zone business or after the date that is 4 years after the date on which such business no longer qualifies as an Economic Freedom Zone business due to the lapse of 1 or more Economic Freedom Zones. The term qualified capital gain shall not include any gain which would be treated as ordinary income under section 1245 or under section 1250 if section 1250 applied to all depreciation rather than the additional depreciation. In the case of gain described in subsection (a)(1), the term qualified capital gain shall not include any gain which is attributable to an intangible asset which is not an integral part of an Economic Freedom Zone business. The term qualified capital gain shall not include any gain attributable, directly or indirectly, in whole or in part, to a transaction with a related person. For purposes of this paragraph, persons are related to each other if such persons are described in section 267(b) or 707(b)(1). In the case of the sale or exchange of an interest in a partnership, or of stock in an S corporation, which was an Economic Freedom Zone business during substantially all of the period the taxpayer held such interest or stock, the amount of qualified capital gain shall be determined without regard to— any gain which is attributable to an intangible asset which is not an integral part of an Economic Freedom Zone business, and any gain attributable to periods before the date on which the a business qualifies as an Economic Freedom Zone business or after the date that is 4 years after the date on which such business no longer qualifies as an Economic Freedom Zone business due to the lapse of 1 or more Economic Freedom Zones. The rate of tax under 3101(a) (including for purposes of determining the applicable percentage under sections 3201(a) and 3211(a)(1)) shall be 4.2 percent for any remuneration received during any period in which the individual's principal residence (within the meaning of section 121) is located in an Economic Freedom Zone. The rate of tax under section 3111(a) (including for purposes of determining the applicable percentage under sections 3221(a)) shall be 4.2 percent with respect to remuneration paid for qualified services during any period in which the employer is located in an Economic Freedom Zone. For purposes of this section, the term qualified services means services performed— in a trade or business of a qualified employer, or in the case of a qualified employer exempt from tax under section 501(a) of the Internal Revenue Code of 1986, in furtherance of the activities related to the purpose or function constituting the basis of the employer’s exemption under section 501 of such Code. For purposes of this paragraph, the location of an employer shall be determined in the same manner as under section 1400V–2(c). The rate of tax under section 1401(a) shall be 8.40 percent any taxable year in which such individual was located (determined under section 1400V–2(c) as if such individual were a corporation) in an Economic Freedom Zone. - There are hereby appropriated to the Federal Old-Age and Survivors Trust Fund and the Federal Disability Insurance Trust Fund established under section 201 of the Social Security Act ( 42 U.S.C. 401 ) amounts equal to the reduction in revenues to the Treasury by reason of the application of subsection (a). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Trust Fund had such amendments not been enacted. There are hereby appropriated to the Social Security Equivalent Benefit Account established under section 15A(a) of the Railroad Retirement Act of 1974 ( 45 U.S.C. 231n–1(a) ) amounts equal to the reduction in revenues to the Treasury by reason of the application of paragraphs
(1)and
(2)of subsection (a). Amounts appropriated by the preceding sentence shall be transferred from the general fund at such times and in such manner as to replicate to the extent possible the transfers which would have occurred to such Account had such amendments not been enacted. For purposes of applying any provision of Federal law other than the provisions of the Internal Revenue Code of 1986, the rate of tax in effect under section 3101(a) shall be determined without regard to the reduction in such rate under this section. In the case of an Economic Freedom Zone business, for purposes of section 179— the limitation under section 179(b)(1) shall be increased by the lesser of— 200 percent of the amount in effect under such section (determined without regard to this section), or the cost of section 179 property which is Economic Freedom Zone business property placed in service during the taxable year, and the amount taken into account under section 179(b)(2) with respect to any section 179 property which is Economic Freedom Zone business property shall be 50 percent of the cost thereof. For purposes of this section, the term Economic Freedom Zone business property has the meaning given such term under section 1400V–3(b)(4), except that for purposes of subparagraph (A)(ii) thereof, if property is sold and leased back by the taxpayer 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 Rules similar to the rules under section 179(d)(10) shall apply with respect to any qualified zone property which ceases to be used in an empowerment zone by an enterprise zone business. Sec. 1400V–6. Economic Freedom Zone. For purposes of this subchapter, the term Economic Freedom Zone means any area which is an Economic Freedom Zone under title II of the Economic Freedom Zone Act. . The table of subchapters for chapter 1 of such Code is amended by inserting after the item relating to subchapter Y the following new item: Subchapter Z—Economic Freedom Zones . The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.
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- 45 USC 231n–1(a)
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