For purposes of this part, the term "enterprise zone business" means—
(1) any qualified business entity, and
(2) any qualified proprietorship.
For purposes of this section, the term "qualified business entity" means, with respect to any taxable year, any corporation or partnership if for such year—
(1) every trade or business of such entity is the active conduct of a qualified business within an empowerment zone,
(2) at least 50 percent of the total gross income of such entity is derived from the active conduct of such business,
(3) a substantial portion of the use of the tangible property of such entity (whether owned or leased) is within an empowerment zone,
(4) a substantial portion of the intangible property of such entity is used in the active conduct of any such business,
(5) a substantial portion of the services performed for such entity by its employees are performed in an empowerment zone,
(6) at least 35 percent of its employees are residents of an empowerment zone,
(7) less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is attributable to collectibles (as defined in section 408(m)(2)) other than collectibles that are held primarily for sale to customers in the ordinary course of such business, and
(8) less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is attributable to nonqualified financial property.
For purposes of this section, the term "qualified proprietorship" means, with respect to any taxable year, any qualified business carried on by an individual as a proprietorship if for such year—
(1) at least 50 percent of the total gross income of such individual from such business is derived from the active conduct of such business in an empowerment zone,
(2) a substantial portion of the use of the tangible property of such individual in such business (whether owned or leased) is within an empowerment zone,
(3) a substantial portion of the intangible property of such business is used in the active conduct of such business,
(4) a substantial portion of the services performed for such individual in such business by employees of such business are performed in an empowerment zone,
(5) at least 35 percent of such employees are residents of an empowerment zone,
(6) less than 5 percent of the average of the aggregate unadjusted bases of the property of such individual which is used in such business is attributable to collectibles (as defined in section 408(m)(2)) other than collectibles that are held primarily for sale to customers in the ordinary course of such business, and
(7) less than 5 percent of the average of the aggregate unadjusted bases of the property of such individual which is used in such business is attributable to nonqualified financial property.
For purposes of this subsection, the term "employee" includes the proprietor.
For purposes of this section—
Except as otherwise provided in this subsection, the term "qualified business" means any trade or business.
The rental to others of real property located in an empowerment zone shall be treated as a qualified business if and only if—
(A) the property is not residential rental property (as defined in section 168(e)(2)), and
(B) at least 50 percent of the gross rental income from the real property is from enterprise zone businesses.
For purposes of subparagraph (B), the lessor of the property may rely on a lessee's certification that such lessee is an enterprise zone business.
The rental to others of tangible personal property shall be treated as a qualified business if and only if at least 50 percent of the rental of such property is by enterprise zone businesses or by residents of an empowerment zone.
The term "qualified business" shall not include any trade or business consisting predominantly of the development or holding of intangibles for sale or license.
The term "qualified business" shall not include—
(A) any trade or business consisting of the operation of any facility described in section 144(c)(6)(B), and
(B) any trade or business the principal activity of which is farming (within the meaning of subparagraph (A) or (B) of section 2032A(e)(5)), but only if, as of the close of the taxable year, the sum of—
(i) the aggregate unadjusted bases (or, if greater, the fair market value) of the assets owned by the taxpayer which are used in such a trade or business, and
(ii) the aggregate value of assets leased by the taxpayer which are used in such a trade or business,
exceeds $500,000.
For purposes of subparagraph (B), rules similar to the rules of section 1397(b) shall apply.
For purposes of this section, the term "nonqualified financial property" means debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities, and other similar property specified in regulations; except that such term shall not include—
(1) reasonable amounts of working capital held in cash, cash equivalents, or debt instruments with a term of 18 months or less, or
(2) debt instruments described in section 1221(a)(4).
For purposes of this section, if—
(1) a business entity or proprietorship uses real property located within an empowerment zone,
(2) the business entity or proprietorship also uses real property located outside the empowerment zone,
(3) the amount of real property described in paragraph (1) is substantial compared to the amount of real property described in paragraph (2), and
(4) the real property described in paragraph (2) is contiguous to part or all of the real property described in paragraph (1),
then all the services performed by employees, all business activities, all tangible property, and all intangible property of the business entity or proprietorship that occur in or is located on the real property described in paragraphs (1) and (2) shall be treated as occurring or situated in an empowerment zone.
(Added Pub. L. 103–66, title XIII, §13301(a), Aug. 10, 1993, 107 Stat. 552, §1397B; amended Pub. L. 104–188, title I, §1703(m), Aug. 20, 1996, 110 Stat. 1877; Pub. L. 105–34, title IX, §956(a), Aug. 5, 1997, 111 Stat. 890; Pub. L. 106–170, title V, §532(c)(4), Dec. 17, 1999, 113 Stat. 1931; renumbered §1397C, Pub. L. 106–554, §1(a)(7) [title I, §116(a)(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–602; Pub. L. 115–141, div. U, title IV, §401(a)(196), Mar. 23, 2018, 132 Stat. 1193.)
A prior section 1397C was renumbered section 1397D of this title.
2018—Subsec. (d)(5)(B). Pub. L. 115–141 substituted "subparagraph (A) or (B)" for "subparagraphs (A) or (B)" in introductory provisions.
2000—Pub. L. 106–554 renumbered section 1397B of this title as this section.
1999—Subsec. (e)(2). Pub. L. 106–170 substituted "section 1221(a)(4)" for "section 1221(4)".
1997—Subsec. (b)(2). Pub. L. 105–34, §956(a)(1), substituted "50 percent" for "80 percent".
Subsec. (b)(3). Pub. L. 105–34, §956(a)(2), substituted "a substantial portion" for "substantially all".
Subsec. (b)(4). Pub. L. 105–34, §956(a)(2), (3), substituted "a substantial portion" for "substantially all" and struck out ", and exclusively related to," after "entity is used in".
Subsec. (b)(5). Pub. L. 105–34, §956(a)(2), substituted "a substantial portion" for "substantially all".
Subsec. (c)(1). Pub. L. 105–34, §956(a)(1), substituted "50 percent" for "80 percent".
Subsec. (c)(2). Pub. L. 105–34, §956(a)(2), substituted "a substantial portion" for "substantially all".
Subsec. (c)(3). Pub. L. 105–34, §956(a)(2), (3), substituted "a substantial portion" for "substantially all" and struck out ", and exclusively related to," after "business is used in".
Subsec. (c)(4). Pub. L. 105–34, §956(a)(2), substituted "a substantial portion" for "substantially all".
Subsec. (d)(2). Pub. L. 105–34, §956(a)(4), inserted concluding provisions.
Subsec. (d)(3). Pub. L. 105–34, §956(a)(5), substituted "at least 50 percent" for "substantially all".
Subsec. (f). Pub. L. 105–34, §956(a)(6), added subsec. (f).
1996—Subsec. (d)(5)(B). Pub. L. 104–188 struck out "preceding" before "taxable year" in introductory provisions.
Amendment by Pub. L. 106–170 applicable to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after Dec. 17, 1999, see section 532(d) of Pub. L. 106–170, set out as a note under section 170 of this title.
Pub. L. 105–34, title IX, §956(b), Aug. 5, 1997, 111 Stat. 891, provided that:
"(1)
"(2)
Amendment by Pub. L. 104–188 effective as if included in the provision of the Revenue Reconciliation Act of 1993, Pub. L. 103–66, §§13001–13444, to which such amendment relates, see section 1703(o) of Pub. L. 104–188, set out as a note under section 39 of this title.
There are no related Treasury Regulations for this Code section. To browse a full list of Treasury Regulations within TouchTax, view the "All Regulation Sections" option.
The preliminary Code is a preliminary release of the Internal Revenue Code of 1986 (the "Code") by the Office of the Law Revision Counsel and is subject to further revision before it is released again as a final version. The source of the preliminary Code used in TouchTax is available here: https://uscode.house.gov/download/download.shtml. The Code is a consolidation and codification by subject matter of the general and permanent laws of the U.S. prepared by the Office of the Law Revision Counsel of the U.S. House of Representatives. The Treasury Regulations are a codification of the general and permanent rules published in the Federal Register by the departments and agencies of the federal government. The version of the Treasury Regulations available within TouchTax is part of the Electronic Code of Federal Regulations which is not an official legal edition of the Code of Federal Regulations but is an editorial compilation of CFR material and Federal Register amendments produced by the National Archives and Records Administration's Office of the Federal Register (OFR) and the Government Publishing Office. The source of the CFR used in TouchTax is available here: https://www.govinfo.gov/bulkdata/ECFR/title-26. Those using TouchTax for legal research should verify their results against the printed versions of the Code and Treasury Regulations. TouchTax is copyright 2024 by Com-Lab (Mobile). Learn more at http://touchtax.edrich.de.