Hemp Opportunity Zone Act of 2020

I 116TH CONGRESS 2D SESSION H. R. 8131 To amend the Internal Revenue Code of 1986 to establish Hemp Opportunity Zones. IN THE HOUSE OF REPRESENTATIVES AUGUST 28, 2020 Mr. RIGGLEMAN introduced the following bill; which was referred to the Com- mittee on Ways and Means, and in addition to the Committee on Agri- culture, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdic- tion of the committee concerned A BILL To amend the Internal Revenue Code of 1986 to establish Hemp Opportunity Zones. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Hemp Opportunity 4 Zone Act of 2020’’. 5 SEC. 2. HEMP OPPORTUNITY ZONES. 6 (a) IN GENERAL.—Chapter 1 of the Internal Rev- 7 enue Code of 1986 is amended by inserting after sub- 8 chapter V the following new subchapter: 9 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 2 •HR 8131 IH ‘‘Subchapter W—Hemp Opportunity Zones 1 ‘‘SEC. 1400W–1. DESIGNATION. 2 ‘‘(a) HEMP OPPORTUNITY ZONE DEFINED.—For 3 purposes of this subchapter, the term ‘hemp opportunity 4 zone’ means a population census tract that is a low-income 5 community that is designated as a hemp opportunity zone. 6 ‘‘(b) DESIGNATION.— 7 ‘‘(1) IN GENERAL.—For purposes of subsection 8 (a), a population census tract that is a low-income 9 community is designated as a hemp opportunity 10 zone if— 11 ‘‘(A) not later than the end of the deter- 12 mination period, the chief executive office of the 13 State in which the tract is located— 14 ‘‘(i) nominates the tract for designa- 15 tion as a hemp opportunity zone, and 16 ‘‘(ii) notifies the Secretary in writing 17 of such nomination, and 18 ‘‘(B) the Secretary certifies such nomina- 19 tion and designates such tract as a hemp oppor- 20 tunity zone before the end of the consideration 21 period. 22 ‘‘(2) FACTORS FOR CONSIDERATION.—In nomi- 23 nating tracts (and considering such nominations for 24 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 3 •HR 8131 IH certification) preference shall be given to areas 1 which— 2 ‘‘(A) are facing obstacles to economic de- 3 velopment due to a lack of resources, 4 ‘‘(B) are the focus of mutually reinforcing 5 state, local, or private economic development 6 initiatives, 7 ‘‘(C) are poised for economic growth that 8 requires access to a larger hemp market for 9 commercial purposes, and 10 ‘‘(D) represent the areas of a State where 11 such service would result in the highest return 12 on investment. 13 ‘‘(3) EXTENSION OF PERIODS.—A chief execu- 14 tive officer of a State may request that the Sec- 15 retary extend either the determination or consider- 16 ation period, or both (determined without regard to 17 this subparagraph), for an additional 30 days. 18 ‘‘(c) OTHER DEFINITIONS.—For purposes of this 19 subsection— 20 ‘‘(1) LOW-INCOME COMMUNITIES.—The term 21 ‘low-income community’ has the same meaning as 22 when used in section 45D(e). 23 ‘‘(2) DEFINITION OF PERIODS.— 24 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 4 •HR 8131 IH ‘‘(A) CONSIDERATION PERIOD.—The term 1 ‘consideration period’ means the 30-day period 2 beginning on the date on which the Secretary 3 receives notice under subsection (b)(1)(A)(ii), 4 as extended under subsection (b)(3). 5 ‘‘(B) DETERMINATION PERIOD.—The term 6 ‘determination period’ means the 90-day period 7 beginning on the date of the enactment of this 8 section, as extended under subsection (b)(2). 9 ‘‘(C) STATE.—For purposes of this sec- 10 tion, the term ‘State’ includes any possession of 11 the United States. 12 ‘‘(d) NUMBER OF DESIGNATIONS.— 13 ‘‘(1) IN GENERAL.—Except as provided by 14 paragraph (2), the number of population census 15 tracts in a State that may be designated as hemp 16 opportunity zones under this section may not exceed 17 25 percent of the number of low-income communities 18 in the State. 19 ‘‘(2) EXCEPTION.—If the number of low-income 20 communities in a State is less than 100, then a total 21 of 25 of such tracts may be designated as qualified 22 opportunity zones. 23 ‘‘(e) DESIGNATION OF TRACTS CONTIGUOUS WITH 24 LOW-INCOME COMMUNITIES.— 25 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 5 •HR 8131 IH ‘‘(1) IN GENERAL.—A population census tract 1 that is not a low-income community may be des- 2 ignated as a hemp opportunity zone under this sec- 3 tion if— 4 ‘‘(A) the tract is contiguous with the low- 5 income community that is designated as a hemp 6 opportunity zone, and 7 ‘‘(B) the median family income of the tract 8 does not exceed 125 percent of the median fam- 9 ily income of the low-income community with 10 which the tract is contiguous. 11 ‘‘(2) LIMITATION.—Not more than 5 percent of 12 the population census tracts designated in a State as 13 a hemp opportunity zone may be designated under 14 paragraph (1). 15 ‘‘(f) PERIOD FOR WHICH DESIGNATION IS IN EF- 16 FECT.—A designation as a hemp opportunity zone shall 17 remain in effect for the period beginning on the date of 18 the designation and ending at the close of the 10th cal- 19 endar year beginning on or after such date of designation. 20 ‘‘SEC. 1400W–2. DEFERRAL FOR ELIGIBLE TAXPAYER OF 21 CAPITAL GAINS INVESTED IN HEMP OPPOR- 22 TUNITY ZONES. 23 ‘‘(a) IN GENERAL.— 24 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 6 •HR 8131 IH ‘‘(1) EXCLUSION OF GAIN INVESTED IN HEMP 1 OPPORTUNITY ZONE PROPERTY.—In the case of gain 2 from the sale to, or exchange with, an unrelated per- 3 son of any property held by the taxpayer, at the 4 election of the taxpayer— 5 ‘‘(A) gross income for the taxable year 6 shall not include so much of such gain as does 7 not exceed the aggregate cost of all qualified 8 hemp opportunity zone property acquired by the 9 taxpayer during the 180-day period beginning 10 on the date of such sale or exchange, and 11 ‘‘(B) the amount of gain excluded by sub- 12 paragraph (A) shall be included in gross income 13 as provided by paragraph (2). 14 ‘‘(2) DEFERRAL OF GAIN INVESTED IN QUALI- 15 FIED HEMP OPPORTUNITY ZONE PROPERTY.— 16 ‘‘(A) YEAR OF INCLUSION.—Except as 17 provided by subparagraph (C), gain to which 18 paragraph (1)(B) applies shall be included in 19 income in the taxable year in which the quali- 20 fied hemp opportunity zone property related to 21 such gain is sold or exchanged in the amount 22 determined under subparagraph (B). 23 ‘‘(B) AMOUNT INCLUDIBLE.—The amount 24 of gain determined under this clause shall be— 25 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 7 •HR 8131 IH ‘‘(i) 100 percent of such gain in the 1 case of the sale or exchange of the quali- 2 fied hemp opportunity zone property with 3 respect to which gain is deferred under 4 paragraph (1) that is held for less than 5 5 years, 6 ‘‘(ii) 90 percent of such gain in the 7 case of the sale or exchange of the quali- 8 fied hemp opportunity zone property with 9 respect to which gain is deferred under 10 paragraph (1) that is held for at least 5 11 years but less than 7 years, and 12 ‘‘(iii) 85 percent of such gain in the 13 case of the sale or exchange of the quali- 14 fied hemp opportunity zone property with 15 respect to which gain is deferred under 16 paragraph (1) that is held for at least 7 17 years. 18 ‘‘(3) EXCLUSION OF GAIN ON QUALIFIED HEMP 19 OPPORTUNITY ZONE PROPERTY HELD FOR AT LEAST 20 10 YEARS.—Except as provided in paragraph (2), in 21 the case of the sale or exchange of qualified hemp 22 opportunity zone property, or an investment in a 23 qualified opportunity fund, held for at least 10 24 years, gross income for the taxable year shall not in- 25 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 8 •HR 8131 IH clude any gain from the sale or exchange of such 1 property or investment. 2 ‘‘(4) ONE ELECTION PER PROPERTY.—No elec- 3 tion may be made under paragraph (1) with respect 4 to a sale or exchange if an election previously made 5 with respect to such sale or exchange is in effect. 6 ‘‘(b) BASIS RULES RELATING TO QUALIFIED HEMP 7 OPPORTUNITY ZONE PROPERTY.— 8 ‘‘(1) REDUCED BY GAIN DEFERRED UNDER 9 SUBSECTION (a)(1).—The basis of a qualified hemp 10 opportunity zone property immediately after its ac- 11 quisition under subsection (a) shall be reduced by 12 the amount of gain deferred by reason of subsection 13 (a)(1)(A) with respect to such property. 14 ‘‘(2) INCREASE FOR GAIN RECOGNIZED UNDER 15 SUBSECTION (a)(2).—The basis of qualified hemp 16 opportunity zone property shall be increased by the 17 amount of gain recognized by reason of subsection 18 (a)(2) with respect to such property. 19 ‘‘(3) SUBSEQUENT INCREASE IN BASIS FOR 20 PROPERTY HELD FOR AT LEAST 5 YEARS BUT LESS 21 THAN 10 YEARS.—In the case of qualified hemp op- 22 portunity zone property held for at least 5 years but 23 less than 10 years— 24 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 9 •HR 8131 IH ‘‘(A) PROPERTY HELD FOR 5 YEARS.—For 1 qualified hemp opportunity zone property held 2 for at least 5 years, the basis of such property 3 shall be increased by an amount equal to 10 4 percent of the amount of gain deferred by rea- 5 son of subsection (a)(1)(A) with respect to such 6 property. 7 ‘‘(B) PROPERTY HELD FOR 7 YEARS.—For 8 qualified hemp opportunity zone property held 9 for at least 7 years, the basis of such property 10 shall be increased by an amount equal to 5 per- 11 cent of the amount of gain deferred by reason 12 of subsection (a)(1)(A) with respect to such 13 property. 14 ‘‘(c) QUALIFIED HEMP OPPORTUNITY ZONE PROP- 15 ERTY.—For purposes of this section: 16 ‘‘(1) IN GENERAL.—The term ‘qualified hemp 17 opportunity zone property’ means property which 18 is— 19 ‘‘(A) qualified hemp opportunity zone 20 stock, 21 ‘‘(B) qualified hemp opportunity zone part- 22 nership interest, 23 ‘‘(C) qualified hemp opportunity zone busi- 24 ness property, or 25 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 10 •HR 8131 IH ‘‘(D) an interest in a qualified investment 1 fund. 2 ‘‘(2) QUALIFIED HEMP OPPORTUNITY ZONE 3 STOCK.— 4 ‘‘(A) IN GENERAL.—Except as provided in 5 subparagraph (B), the term ‘qualified hemp op- 6 portunity zone stock’ means any stock in a do- 7 mestic corporation if— 8 ‘‘(i) such stock is acquired by the tax- 9 payer after December 31, 2019, at its 10 original issue (directly or through an un- 11 derwriter) from the corporation solely in 12 exchange for cash, 13 ‘‘(ii) as of the time such stock was 14 issued, such corporation was a qualified 15 hemp opportunity zone business (or, in the 16 case of a new corporation, such corporation 17 was being organized for purposes of being 18 a qualified hemp opportunity zone busi- 19 ness), and 20 ‘‘(iii) during substantially all of the 21 taxpayer’s holding period for such stock, 22 such corporation qualified as a qualified 23 hemp opportunity zone business. 24 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 11 •HR 8131 IH ‘‘(B) REDEMPTIONS.—A rule similar to 1 the rule of section 1202(c)(3) shall apply for 2 purposes of this paragraph. 3 ‘‘(3) QUALIFIED HEMP OPPORTUNITY ZONE 4 PARTNERSHIP INTEREST.—The term ‘qualified hemp 5 opportunity zone partnership interest’ means any 6 capital or profits interest in a domestic partnership 7 if— 8 ‘‘(A) such interest is acquired by the tax- 9 payer after December 31, 2019, from the part- 10 nership solely in exchange for cash, 11 ‘‘(B) as of the time such interest was ac- 12 quired, such partnership was a qualified hemp 13 opportunity zone business (or, in the case of a 14 new partnership, such partnership was being 15 organized for purposes of being a qualified 16 hemp opportunity zone business), and 17 ‘‘(C) during substantially all of the tax- 18 payer’s holding period for such interest, such 19 partnership qualified as a qualified hemp oppor- 20 tunity zone business. 21 ‘‘(4) QUALIFIED HEMP OPPORTUNITY ZONE 22 BUSINESS PROPERTY.— 23 ‘‘(A) IN GENERAL.—The term ‘qualified 24 hemp opportunity zone business property’ 25 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 12 •HR 8131 IH means tangible property used in a trade or 1 business of the taxpayer if— 2 ‘‘(i) such property is used primarily in 3 the trade or business of producing hemp— 4 ‘‘(ii) such property was acquired by 5 the taxpayer by purchase (as defined in 6 section 179(d)(2)) after December 31, 7 2019, 8 ‘‘(iii) the original use of such property 9 in the qualified hemp opportunity zone 10 commences with the taxpayer or the tax- 11 payer substantially improves the property, 12 and 13 ‘‘(iv) during substantially all of the 14 taxpayer’s holding period for such prop- 15 erty, substantially all of the use of such 16 property was in a qualified hemp oppor- 17 tunity zone. 18 ‘‘(B) SUBSTANTIAL IMPROVEMENT.—For 19 purposes of subparagraph (A)(iii), property 20 shall be treated as substantially improved by 21 the taxpayer only if, during any 30-month pe- 22 riod beginning after the date of acquisition of 23 such property, additions to basis with respect to 24 such property in the hands of the taxpayer ex- 25 VerDate Sep 11 2014 04:39 Sep 05, 2020 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H8131.IH H8131 pbinns on DSKJLVW7X2PROD with BILLS 13 •HR 8131 IH ceed an amount equal to the adjusted basis of 1 such property at the beginning of such 30- 2 month period in the hands of the taxpayer. 3 ‘‘(C) TREATMENT OF RELATED PAR- 4 TIES.—For purposes of subparagraph (A)(ii), 5 the rules of subparagraph (A) of section 6 179(d)(2) shall be applied using the relation- 7 ship described in subsection (e)(2) in lieu of the 8 relationship described in such subparagraph. 9 [Text truncated for display. 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