Hurricane Laura Recovery Opportunity Zones Act

II 116TH CONGRESS 2D SESSION S. 4780 To amend the Internal Revenue Code of 1986 to provide for qualified Hurricane Laura recovery opportunity zones, and for other purposes. IN THE SENATE OF THE UNITED STATES OCTOBER 1, 2020 Mr. KENNEDY introduced the following bill; which was read twice and referred to the Committee on Finance A BILL To amend the Internal Revenue Code of 1986 to provide for qualified Hurricane Laura recovery opportunity zones, and for other purposes. 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 ‘‘Hurricane Laura Re- 4 covery Opportunity Zones Act’’. 5 SEC. 2. QUALIFIED HURRICANE LAURA RECOVERY OPPOR- 6 TUNITY ZONES. 7 (a) IN GENERAL.—Chapter 1 of the Internal Rev- 8 enue Code of 1986 is amended by adding at the end the 9 following: 10 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 2 •S 4780 IS ‘‘Subchapter AA—Hurricane Laura Recovery 1 Opportunity Zones 2 ‘‘Sec. 1400AA–1. Designation. ‘‘Sec. 1400AA–2. Special rules for capital gains invested in Hurricane Laura Recovery Opportunity Zones. ‘‘SEC. 1400AA–1. DESIGNATION. 3 ‘‘(a) QUALIFIED HURRICANE LAURA RECOVERY OP- 4 PORTUNITY ZONE DEFINED.—For purposes of this chap- 5 ter, the term ‘qualified Hurricane Laura recovery oppor- 6 tunity zone’ means any census tract that— 7 ‘‘(1) is a low income community (as defined in 8 section 1400Z–1(c)), and 9 ‘‘(2) is located within the Hurricane Laura dis- 10 aster zone. 11 ‘‘(b) QUALIFIED HURRICANE LAURA DISASTER 12 ZONE.—For purposes of this chapter, the term ‘qualified 13 Hurricane Laura disaster zone’ means an area— 14 ‘‘(1) with respect to which a major disaster has 15 been declared by the President under section 401 of 16 the Robert T. Stafford Disaster Relief and Emer- 17 gency Assistance Act before September 30, 2020, by 18 reason of Hurricane Laura, and 19 ‘‘(2) which has been determined by the Presi- 20 dent to warrant individual or individual and public 21 assistance from the Federal Government under such 22 Act by reason of Hurricane Laura. 23 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 3 •S 4780 IS ‘‘(c) PERIOD OF TREATMENT.—A census tract de- 1 scribed in subsection (a) shall not be treated as a qualified 2 Hurricane Laura recovery opportunity zone— 3 ‘‘(1) for any period before August 28, 2020, or 4 ‘‘(2) for any period after the close of the 10th 5 calendar year beginning on or after such date. 6 ‘‘SEC. 1400AA–2. SPECIAL RULES FOR CAPITAL GAINS IN- 7 VESTED IN HURRICANE LAURA RECOVERY 8 OPPORTUNITY ZONES. 9 ‘‘(a) IN GENERAL.— 10 ‘‘(1) TREATMENT OF GAINS.—In the case of 11 capital gain from the sale to, or exchange with, an 12 unrelated person of any property held by the tax- 13 payer, at the election of the taxpayer— 14 ‘‘(A) gross income for the taxable year 15 shall not include so much of such gain as does 16 not exceed the aggregate amount invested by 17 the taxpayer in a qualified Hurricane Laura re- 18 covery opportunity fund during the 180-day pe- 19 riod beginning on the date of such sale or ex- 20 change, 21 ‘‘(B) the amount of gain excluded by sub- 22 paragraph (A) shall be included in gross income 23 as provided by subsection (b), and 24 ‘‘(C) subsection (c) shall apply. 25 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 4 •S 4780 IS The preceding sentence shall not apply in the case 1 of any gain which is treated under this chapter as 2 ordinary income. 3 ‘‘(2) ELECTION.—No election may be made 4 under paragraph (1)— 5 ‘‘(A) with respect to a sale or exchange if 6 an election previously made with respect to such 7 sale or exchange is in effect, or 8 ‘‘(B) with respect to any sale or exchange 9 after December 31, 2030. 10 ‘‘(b) DEFERRAL OF GAIN INVESTED IN OPPOR- 11 TUNITY ZONE PROPERTY.— 12 ‘‘(1) YEAR OF INCLUSION.—Gain to which sub- 13 section (a)(1)(B) applies shall be included in income 14 in the taxable year which includes the earlier of— 15 ‘‘(A) the date on which such investment is 16 sold or exchanged, or 17 ‘‘(B) December 31, 2030. 18 ‘‘(2) AMOUNT INCLUDIBLE.— 19 ‘‘(A) IN GENERAL.—The amount of gain 20 included in income under subsection (a)(1)(B) 21 shall be the excess of— 22 ‘‘(i) the lesser of the amount of gain 23 excluded under subsection (a)(1)(A) or the 24 fair market value of the investment as de- 25 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 5 •S 4780 IS termined as of the date described in para- 1 graph (1), over 2 ‘‘(ii) the taxpayer’s basis in the in- 3 vestment. 4 ‘‘(B) DETERMINATION OF BASIS.— 5 ‘‘(i) IN GENERAL.—Except as other- 6 wise provided in this subparagraph or sub- 7 section (c), the taxpayer’s basis in the in- 8 vestment shall be zero. 9 ‘‘(ii) INCREASE FOR GAIN RECOG- 10 NIZED UNDER SUBSECTION (a)(1)(B).— 11 The basis in the investment shall be in- 12 creased by the amount of gain recognized 13 by reason of subsection (a)(1)(B) with re- 14 spect to such investment. 15 ‘‘(iii) INVESTMENTS HELD FOR 5 16 YEARS.—In the case of any investment 17 held for at least 5 years, the basis of such 18 investment shall be increased by an 19 amount equal to 10 percent of the amount 20 of gain deferred by reason of subsection 21 (a)(1)(A). 22 ‘‘(iv) INVESTMENTS HELD FOR 7 23 YEARS.—In the case of any investment 24 held by the taxpayer for at least 7 years, 25 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 6 •S 4780 IS in addition to any adjustment made under 1 clause (iii), the basis of such property shall 2 be increased by an amount equal to 5 per- 3 cent of the amount of gain deferred by rea- 4 son of subsection (a)(1)(A). 5 ‘‘(c) SPECIAL RULE FOR INVESTMENTS HELD FOR 6 AT LEAST 10 YEARS.—In the case of any investment held 7 by the taxpayer for at least 10 years and with respect to 8 which the taxpayer makes an election under this sub- 9 section, the basis of such investment shall be equal to the 10 fair market value of such investment on the date that the 11 investment is sold or exchanged. 12 ‘‘(d) QUALIFIED HURRICANE LAURA RECOVERY OP- 13 PORTUNITY FUND.—For purposes of this section— 14 ‘‘(1) IN GENERAL.—The term ‘qualified Hurri- 15 cane Laura recover opportunity fund’ means any in- 16 vestment vehicle which is organized as a corporation 17 or a partnership for the purpose of investing in 18 qualified Hurricane Laura recovery opportunity zone 19 property (other than another qualified Hurricane 20 Laura recovery opportunity fund) that holds at least 21 90 percent of its assets in qualified Hurricane Laura 22 recovery opportunity zone property, determined by 23 the average of the percentage of qualified Hurricane 24 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 7 •S 4780 IS Laura recovery opportunity zone property held in 1 the fund as measured— 2 ‘‘(A) on the last day of the first 6-month 3 period of the taxable year of the fund, and 4 ‘‘(B) on the last day of the taxable year of 5 the fund. 6 ‘‘(2) QUALIFIED HURRICANE LAURA RECOVERY 7 OPPORTUNITY ZONE PROPERTY.— 8 ‘‘(A) IN GENERAL.—The term ‘qualified 9 Hurricane Laura recovery opportunity zone 10 property’ means property which is— 11 ‘‘(i) qualified Hurricane Laura recov- 12 ery opportunity zone stock, 13 ‘‘(ii) qualified Hurricane Laura recov- 14 ery opportunity zone partnership interest, 15 or 16 ‘‘(iii) qualified Hurricane Laura re- 17 covery opportunity zone business property. 18 ‘‘(B) QUALIFIED HURRICANE LAURA RE- 19 COVERY OPPORTUNITY ZONE STOCK.— 20 ‘‘(i) IN GENERAL.—Except as pro- 21 vided in clause (ii), the term ‘qualified 22 Hurricane Laura recovery opportunity 23 zone stock’ means any stock in a domestic 24 corporation if— 25 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 8 •S 4780 IS ‘‘(I) such stock is acquired by the 1 qualified Hurricane Laura recovery 2 opportunity fund after December 31, 3 2020, at its original issue (directly or 4 through an underwriter) from the cor- 5 poration solely in exchange for cash, 6 ‘‘(II) as of the time such stock 7 was issued, such corporation was a 8 qualified Hurricane Laura recovery 9 opportunity zone business (or, in the 10 case of a new corporation, such cor- 11 poration was being organized for pur- 12 poses of being a qualified Hurricane 13 Laura recovery opportunity zone busi- 14 ness), and 15 ‘‘(III) during substantially all of 16 the qualified Hurricane Laura recov- 17 ery opportunity fund’s holding period 18 for such stock, such corporation quali- 19 fied as a qualified Hurricane Laura 20 recovery opportunity zone business. 21 ‘‘(ii) REDEMPTIONS.—A rule similar 22 to the rule of section 1202(c)(3) shall 23 apply for purposes of this paragraph. 24 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 9 •S 4780 IS ‘‘(C) QUALIFIED HURRICANE LAURA RE- 1 COVERY OPPORTUNITY ZONE PARTNERSHIP IN- 2 TEREST.—The term ‘qualified Hurricane Laura 3 recovery opportunity zone partnership interest’ 4 means any capital or profits interest in a do- 5 mestic partnership if— 6 ‘‘(i) such interest is acquired by the 7 qualified Hurricane Laura recovery oppor- 8 tunity fund after December 31, 2020, from 9 the partnership solely in exchange for cash, 10 ‘‘(ii) as of the time such interest was 11 acquired, such partnership was a qualified 12 Hurricane Laura recovery opportunity 13 zone business (or, in the case of a new 14 partnership, such partnership was being 15 organized for purposes of being a qualified 16 Hurricane Laura recovery opportunity 17 zone business), and 18 ‘‘(iii) during substantially all of the 19 qualified Hurricane Laura recovery oppor- 20 tunity fund’s holding period for such inter- 21 est, such partnership qualified as a quali- 22 fied Hurricane Laura recovery opportunity 23 zone business. 24 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 10 •S 4780 IS ‘‘(D) QUALIFIED HURRICANE LAURA RE- 1 COVERY OPPORTUNITY ZONE BUSINESS PROP- 2 ERTY.— 3 ‘‘(i) IN GENERAL.—The term ‘quali- 4 fied Hurricane Laura recovery opportunity 5 zone business property’ means tangible 6 property used in a trade or business of the 7 qualified Hurricane Laura recovery oppor- 8 tunity fund if— 9 ‘‘(I) such property was acquired 10 by the qualified Hurricane Laura re- 11 covery opportunity fund by purchase 12 (as defined in section 179(d)(2)) after 13 December 31, 2020, 14 ‘‘(II) the original use of such 15 property commences with the qualified 16 Hurricane Laura recovery opportunity 17 fund or the qualified Hurricane Laura 18 recovery opportunity fund substan- 19 tially improves the property, and 20 ‘‘(III) during substantially all of 21 the qualified Hurricane Laura recov- 22 ery opportunity fund’s holding period 23 for such property, substantially all of 24 the use of such property was in a 25 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 11 •S 4780 IS qualified Hurricane Laura recovery 1 opportunity zone. 2 ‘‘(ii) SUBSTANTIAL IMPROVEMENT.— 3 For purposes of clause (i)(II), property 4 shall be treated as substantially improved 5 by the qualified Hurricane Laura recovery 6 opportunity fund only if, during any 30- 7 month period beginning after the date of 8 acquisition of such property, additions to 9 basis with respect to such property in the 10 hands of the qualified Hurricane Laura re- 11 covery opportunity fund exceed an amount 12 equal to the adjusted basis of such prop- 13 erty at the beginning of such 30-month pe- 14 riod in the hands of the qualified Hurri- 15 cane Laura recovery opportunity fund. 16 ‘‘(iii) RELATED PARTY.—For pur- 17 poses of clause (i)(I)— 18 ‘‘(I) property shall not be treated 19 as acquired by purchase if acquired 20 from a related person (within the 21 meaning of subsection (e)(2)), and 22 ‘‘(II) section 179(d)(2) shall be 23 applied without regard to subpara- 24 graph (A) thereof. 25 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 12 •S 4780 IS ‘‘(3) QUALIFIED HURRICANE LAURA RECOVERY 1 OPPORTUNITY ZONE BUSINESS.— 2 ‘‘(A) IN GENERAL.—The term ‘qualified 3 Hurricane Laura recovery opportunity zone 4 business’ means a trade or business— 5 ‘‘(i) in which substantially all of the 6 tangible property owned or leased by the 7 taxpayer is qualified Hurricane Laura re- 8 covery opportunity zone business property 9 (determined by substituting ‘qualified Hur- 10 ricane Laura recovery opportunity zone 11 business’ for ‘qualified Hurricane Laura 12 recovery opportunity fund’ each place it 13 appears in paragraph (2)(D)), 14 ‘‘(ii) which satisfies the requirements 15 of paragraphs (2), (4), and (8) of section 16 1397C(b), and 17 ‘‘(iii) which is not described in section 18 144(c)(6)(B). 19 ‘‘(B) SPECIAL RULE.—For purposes of 20 subparagraph (A), tangible property that ceases 21 to be a qualified Hurricane Laura recovery op- 22 portunity zone business property shall continue 23 to be treated as a qualified Hurricane Laura re- 24 VerDate Sep 11 2014 00:31 Oct 18, 2020 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S4780.IS S4780 kjohnson on DSK79L0C42PROD with BILLS 13 •S 4780 IS covery opportunity zone business property for 1 the lesser of— 2 ‘‘(i) 5 years after the date on which 3 such tangible property ceases to be so 4 qualified, or 5 ‘‘(ii) the date on which such tangible 6 property is no longer held by the qualified 7 Hurricane Laura recovery opportunity 8 zone business. 9 ‘‘(e) APPLICABLE RULES.— 10 ‘‘(1) TREATMENT OF INVESTMENTS WITH 11 MIXED FUNDS.—In the case of any investment in a 12 qualified Hurricane Laura recovery opportunity fund 13 only a portion of which consists of investments of 14 gain to which an election under subsection (a) is in 15 effect— 16 ‘‘(A) such investment shall be treated as 2 17 separate investments, consisting of— 18 ‘‘(i) o [Text truncated for display. 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