119-hr2292

[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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