26 U.S.C. § 1391 — Designation procedure

Page 2477 TITLE 26—INTERNAL REVENUE CODE § 1391 tion 17(c) of Pub. L. 87–834, set out as a note under sec- tion 1381 of this title. SAVINGS PROVISION For provisions that nothing in amendment by Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. PER-UNIT RETAIN CERTIFICATES COVERED BY WRITTEN AGREEMENTS BETWEEN OCT. 14, 1965, AND NOV. 13, 1966: TRANSITION TREATMENT OF BY-LAW PROVISIONS Pub. L. 89–809, title II, § 211(f), Nov. 13, 1966, 80 Stat. 1584, provided that a written agreement between a pa- tron and a cooperative association which met certain qualifications and was entered into after Oct. 14, 1965 and before Nov. 13, 1966, and which was in effect on Nov. 13, 1966, was to be treated for purposes of subsec. (h) of this section as if entered into after Nov. 13, 1966. Subchapter U—Designation and Treatment of Empowerment Zones, Enterprise Commu- nities, and Rural Development Investment Areas Part I. Designation. II. Tax-exempt facility bonds for empowerment zones and enterprise communities. III. Additional incentives for empowerment zones. IV. Incentives for education zones. V. Regulations. Editorial Notes PRIOR PROVISIONS A prior subchapter U consisted of sections 1391 to 1397, prior to repeal by Pub. L. 99–514, title XIII, § 1303(a), Oct. 22, 1986, 100 Stat. 2658. AMENDMENTS 1997—Pub. L. 105–34, title II, § 226(b)(1), Aug. 5, 1997, 111 Stat. 824, added items for parts IV and V and struck out former item for part IV ‘‘Regulations’’. PART I—DESIGNATION Sec. 1391. Designation procedure. 1392. Eligibility criteria. 1393. Definitions and special rules. § 1391. Designation procedure (a) In general From among the areas nominated for designa- tion under this section, the appropriate Secre- taries may designate empowerment zones and enterprise communities. (b) Number of designations (1) Enterprise communities The appropriate Secretaries may designate in the aggregate 95 nominated areas as enter- prise communities under this section, subject to the availability of eligible nominated areas. Of that number, not more than 65 may be des- ignated in urban areas and not more than 30 may be designated in rural areas. (2) Empowerment zones The appropriate Secretaries may designate in the aggregate 11 nominated areas as em- powerment zones under this section, subject to the availability of eligible nominated areas. Of that number, not more than 8 may be des- ignated in urban areas and not more than 3 may be designated in rural areas. If 8 em- powerment zones are designated in urban areas, no less than 1 shall be designated in an urban area the most populous city of which has a population of 500,000 or less and no less than 1 shall be a nominated area which in- cludes areas in 2 States and which has a popu- lation of 50,000 or less. The Secretary of Hous- ing and Urban Development shall designate empowerment zones located in urban areas in such a manner that the aggregate population of all such zones does not exceed 1,000,000. (c) Period designations may be made A designation may be made under subsection (a) only after 1993 and before 1996. (d) Period for which designation is in effect (1) In general Any designation under this section shall re- main in effect during the period beginning on the date of the designation and ending on the earliest of— (A)(i) in the case of an empowerment zone, December 31, 2025, or (ii) in the case of an enterprise commu- nity, the close of the 10th calendar year be- ginning on or after such date of designation, (B) the termination date designated by the State and local governments as provided for in their nomination, or (C) the date the appropriate Secretary re- vokes the designation. (2) Revocation of designation The appropriate Secretary may revoke the designation under this section of an area if such Secretary determines that the local gov- ernment or the State in which it is located— (A) has modified the boundaries of the area, or (B) is not complying substantially with, or fails to make progress in achieving the benchmarks set forth in, the strategic plan under subsection (f)(2). (e) Limitations on designations No area may be designated under this section unless— (1) the area is nominated by 1 or more local governments and the State or States in which it is located for designation under this section, (2) such State or States and the local gov- ernments have the authority— (A) to nominate the area for designation under this section, and (B) to provide the assurances described in paragraph (3), (3) such State or States and the local gov- ernments provide written assurances satisfac- tory to the appropriate Secretary that the strategic plan described in the application under subsection (f)(2) for such area will be implemented, (4) the appropriate Secretary determines that any information furnished is reasonably accurate, and (5) such State or States and local govern- ments certify that no portion of the area nom- Page 2478 TITLE 26—INTERNAL REVENUE CODE § 1391 inated is already included in an empowerment zone or in an enterprise community or in an area otherwise nominated to be designated under this section. (f) Application No area may be designated under this section unless the application for such designation— (1) demonstrates that the nominated area satisfies the eligibility criteria described in section 1392, (2) includes a strategic plan for accom- plishing the purposes of this subchapter that— (A) describes the coordinated economic, human, community, and physical develop- ment plan and related activities proposed for the nominated area, (B) describes the process by which the af- fected community is a full partner in the process of developing and implementing the plan and the extent to which local institu- tions and organizations have contributed to the planning process, (C) identifies the amount of State, local, and private resources that will be available in the nominated area and the private/public partnerships to be used, which may include participation by, and cooperation with, uni- versities, medical centers, and other private and public entities, (D) identifies the funding requested under any Federal program in support of the pro- posed economic, human, community, and physical development and related activities, (E) identifies baselines, methods, and benchmarks for measuring the success of carrying out the strategic plan, including the extent to which poor persons and fami- lies will be empowered to become economi- cally self-sufficient, and (F) does not include any action to assist any establishment in relocating from one area outside the nominated area to the nom- inated area, except that assistance for the expansion of an existing business entity through the establishment of a new branch, affiliate, or subsidiary is permitted if— (i) the establishment of the new branch, affiliate, or subsidiary will not result in a decrease in employment in the area of original location or in any other area where the existing business entity con- ducts business operations, and (ii) there is no reason to believe that the new branch, affiliate, or subsidiary is being established with the intention of closing down the operations of the existing business entity in the area of its original location or in any other area where the ex- isting business entity conducts business operation, and (3) includes such other information as may be required by the appropriate Secretary. (g) Additional designations permitted (1) In general In addition to the areas designated under subsection (a), the appropriate Secretaries may designate in the aggregate an additional 20 nominated areas as empowerment zones under this section, subject to the availability of eligible nominated areas. Of that number, not more than 15 may be designated in urban areas and not more than 5 may be designated in rural areas. (2) Period designations may be made and take effect A designation may be made under this sub- section after the date of the enactment of this subsection and before January 1, 1999. (3) Modifications to eligibility criteria, etc. (A) Poverty rate requirement (i) In general A nominated area shall be eligible for designation under this subsection only if the poverty rate for each population cen- sus tract within the nominated area is not less than 20 percent and the poverty rate for at least 90 percent of the population census tracts within the nominated area is not less than 25 percent. (ii) Treatment of census tracts with small populations A population census tract with a popu- lation of less than 2,000 shall be treated as having a poverty rate of not less than 25 percent if— (I) more than 75 percent of such tract is zoned for commercial or industrial use, and (II) such tract is contiguous to 1 or more other population census tracts which have a poverty rate of not less than 25 percent (determined without re- gard to this clause). (iii) Exception for developable sites Clause (i) shall not apply to up to 3 non- contiguous parcels in a nominated area which may be developed for commercial or industrial purposes. The aggregate area of noncontiguous parcels to which the pre- ceding sentence applies with respect to any nominated area shall not exceed 2,000 acres. (iv) Certain provisions not to apply Section 1392(a)(4) (and so much of para- graphs (1) and (2) of section 1392(b) as re- late to section 1392(a)(4)) shall not apply to an area nominated for designation under this subsection. (v) Special rule for rural empowerment zone The Secretary of Agriculture may des- ignate not more than 1 empowerment zone in a rural area without regard to clause (i) if such area satisfies emigration criteria specified by the Secretary of Agriculture. (B) Size limitation (i) In general The parcels described in subparagraph (A)(iii) shall not be taken into account in determining whether the requirement of subparagraph (A) or (B) of section 1392(a)(3) is met. (ii) Special rule for rural areas If a population census tract (or equiva- lent division under section 1392(b)(4)) in a Page 2479 TITLE 26—INTERNAL REVENUE CODE § 1391 1 See References in Text note below. rural area exceeds 1,000 square miles or in- cludes a substantial amount of land owned by the Federal, State, or local govern- ment, the nominated area may exclude such excess square mileage or govern- mentally owned land and the exclusion of that area will not be treated as violating the continuous boundary requirement of section 1392(a)(3)(B). (C) Aggregate population limitation The aggregate population limitation under the last sentence of subsection (b)(2) shall not apply to a designation under paragraph (1). (D) Previously designated enterprise commu- nities may be included Subsection (e)(5) shall not apply to any en- terprise community designated under sub- section (a) that is also nominated for des- ignation under this subsection. (E) Indian reservations may be nominated (i) In general Section 1393(a)(4) shall not apply to an area nominated for designation under this subsection. (ii) Special rule An area in an Indian reservation shall be treated as nominated by a State and a local government if it is nominated by the reservation governing body (as determined by the Secretary of the Interior). (h) Additional designations permitted (1) In general In addition to the areas designated under subsections (a) and (g), the appropriate Secre- taries may designate in the aggregate an addi- tional 9 nominated areas as empowerment zones under this section, subject to the avail- ability of eligible nominated areas. Of that number, not more than seven may be des- ignated in urban areas and not more than 2 may be designated in rural areas. (2) Period designations may be made and take effect A designation may be made under this sub- section after the date of the enactment of this subsection and before January 1, 2002. (3) Modifications to eligibility criteria, etc. The rules of subsection (g)(3) shall apply to designations under this subsection. (4) Empowerment zones which become renewal communities The number of areas which may be des- ignated as empowerment zones under this sub- section shall be increased by 1 for each area which ceases to be an empowerment zone by reason of section 1400E(e).1 Each additional area designated by reason of the preceding sentence shall have the same urban or rural character as the area it is replacing. (Added Pub. L. 103–66, title XIII, § 13301(a), Aug. 10, 1993, 107 Stat. 543; amended Pub. L. 105–34, title IX, §§ 951(a), 952(a), (d), Aug. 5, 1997, 111 Stat. 885–887; Pub. L. 106–554, § 1(a)(7) [title I, §§ 111, 112, title III, § 319(13)], Dec. 21, 2000, 114 Stat. 2763, 2763A–600, 2763A–601, 2763A–646; Pub. L. 111–312, title VII, § 753(a), Dec. 17, 2010, 124 Stat. 3321; Pub. L. 112–240, title III, § 327(a), Jan. 2, 2013, 126 Stat. 2334; Pub. L. 113–295, div. A, title I, § 139(a), Dec. 19, 2014, 128 Stat. 4020; Pub. L. 114–113, div. Q, title I, § 171(a)(1), Dec. 18, 2015, 129 Stat. 3069; Pub. L. 115–123, div. D, title I, § 40311(a)(1), Feb. 9, 2018, 132 Stat. 147; Pub. L. 115–141, div. U, title IV, § 401(a)(194), Mar. 23, 2018, 132 Stat. 1193; Pub. L. 116–94, div. Q, title I, § 118(a), Dec. 20, 2019, 133 Stat. 3229; Pub. L. 116–260, div. EE, title I, § 118(a), Dec. 27, 2020, 134 Stat. 3051.) Editorial Notes REFERENCES IN TEXT The date of the enactment of this subsection, referred to in subsec. (g)(2), is the date of enactment of Pub. L. 105–34, which was approved Aug. 5, 1997. The date of the enactment of this subsection, referred to in subsec. (h)(2), is the date of enactment of Pub. L. 106–554, which was approved Dec. 21, 2000. Section 1400E(e), referred to in subsec. (h)(4), was re- pealed by Pub. L. 115–141, div. U, title IV, § 401(d)(5)(A), Mar. 23, 2018, 132 Stat. 1210. PRIOR PROVISIONS A prior section 1391, added Pub. L. 95–600, title VI, § 601(a), Nov. 6, 1978, 92 Stat. 2892; amended Pub. L. 96–222, title I, § 106(a)(4), Apr. 1, 1980, 94 Stat. 221; Pub. L. 96–595, § 3(a)(1), (2), Dec. 24, 1980, 94 Stat. 3465, defined terms used in former subchapter U, prior to repeal by Pub. L. 99–514, title XIII, § 1303(a), Oct. 22, 1986, 100 Stat. 2658. AMENDMENTS 2020—Subsec. (d)(1)(A)(i). Pub. L. 116–260 substituted ‘‘December 31, 2025’’ for ‘‘December 31, 2020’’. 2019—Subsec. (d)(1)(A)(i). Pub. L. 116–94 substituted ‘‘December 31, 2020’’ for ‘‘December 31, 2017’’. 2018—Subsec. (d)(1)(A)(i). Pub. L. 115–123 substituted ‘‘December 31, 2017’’ for ‘‘December 31, 2016’’. Subsec. (g)(3)(E)(ii). Pub. L. 115–141 substituted ‘‘the Interior’’ for ‘‘Interior’’. 2015—Subsec. (d)(1)(A)(i). Pub. L. 114–113 substituted ‘‘December 31, 2016’’ for ‘‘December 31, 2014’’. 2014—Subsec. (d)(1)(A)(i). Pub. L. 113–295 substituted ‘‘December 31, 2014’’ for ‘‘December 31, 2013’’. 2013—Subsec. (d)(1)(A)(i). Pub. L. 112–240 substituted ‘‘December 31, 2013’’ for ‘‘December 31, 2011’’. 2010—Subsec. (d)(1)(A)(i). Pub. L. 111–312, § 753(a)(1), substituted ‘‘December 31, 2011’’ for ‘‘December 31, 2009’’. Subsec. (h)(2). Pub. L. 111–312, § 753(a)(2), struck out at end ‘‘Subject to subparagraphs (B) and (C) of subsection (d)(1), such designations shall remain in effect during the period beginning on January 1, 2002, and ending on December 31, 2009.’’ 2000—Subsec. (d)(1)(A). Pub. L. 106–554, § 1(a)(7) [title I, § 112], amended subpar. (A) generally. Prior to amend- ment, subpar. (A) read as follows: ‘‘the close of the 10th calendar year beginning on or after such date of des- ignation,’’. Subsec. (g)(3)(C). Pub. L. 106–554, § 1(a)(7) [title III, § 319(13)], substituted ‘‘paragraph (1)’’ for ‘‘paragraph (1)(B)’’. Subsec. (h). Pub. L. 106–554, § 1(a)(7) [title I, § 111], added subsec. (h). 1997—Subsec. (b)(2). Pub. L. 105–34, § 951(a)(3), sub- stituted ‘‘1,000,000’’ for ‘‘750,000’’. Pub. L. 105–34, § 951(a)(2), which directed substitution of ‘‘8’’ for ‘‘6’’, was executed by making the substi- tution both places ‘‘6’’ appeared, to reflect the probable intent of Congress. Page 2480 TITLE 26—INTERNAL REVENUE CODE § 1391 Pub. L. 105–34, § 951(a)(1), substituted ‘‘11’’ for ‘‘9’’. Subsec. (c). Pub. L. 105–34, § 952(d)(2), substituted ‘‘subsection (a)’’ for ‘‘this section’’. Subsecs. (e), (f). Pub. L. 105–34, § 952(d)(1), substituted ‘‘this section’’ for ‘‘subsection (a)’’ in introductory pro- visions. Subsec. (g). Pub. L. 105–34, § 952(a), added subsec. (g). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2020 AMENDMENT Pub. L. 116–260, div. EE, title I, § 118(e), Dec. 27, 2020, 134 Stat. 3051, provided that: ‘‘The amendments made by this section [amending this section and sections 1397A and 1397B of this title] shall apply to taxable years beginning after December 31, 2020.’’ EFFECTIVE DATE OF 2019 AMENDMENT Pub. L. 116–94, div. Q, title I, § 118(c), Dec. 20, 2019, 133 Stat. 3229, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 2017.’’ EFFECTIVE DATE OF 2018 AMENDMENT Pub. L. 115–123, div. D, title I, § 40311(b), Feb. 9, 2018, 132 Stat. 147, provided that: ‘‘The amendment made by subsection (a)(1) [amending this section] shall apply to taxable years beginning after December 31, 2016.’’ EFFECTIVE DATE OF 2015 AMENDMENT Pub. L. 114–113, div. Q, title I, § 171(e)(1), Dec. 18, 2015, 129 Stat. 3071, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 2014.’’ EFFECTIVE DATE OF 2014 AMENDMENT Pub. L. 113–295, div. A, title I, § 139(c), Dec. 19, 2014, 128 Stat. 4020, provided that: ‘‘The amendment made by this section [amending this section] shall apply to peri- ods after December 31, 2013.’’ EFFECTIVE DATE OF 2013 AMENDMENT Amendment by Pub. L. 112–240 applicable to periods after Dec. 31, 2011, see section 327(d) of Pub. L. 112–240, set out as a note under section 1202 of this title. EFFECTIVE DATE OF 2010 AMENDMENT Amendment by Pub. L. 111–312 applicable to periods after Dec. 31, 2009, see section 753(d) of Pub. L. 111–312, set out as a note under section 1202 of this title. EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105–34, title IX, § 951(c), Aug. 5, 1997, 111 Stat. 885, provided that: ‘‘The amendments made by this sec- tion [amending this section and section 1396 of this title] shall take effect on the date of the enactment of this Act [Aug. 5, 1997], except that designations of new empowerment zones made pursuant to such amend- ments shall be made during the 180-day period begin- ning on the date of the enactment of this Act. No des- ignation pursuant to such amendments shall take ef- fect before January 1, 2000.’’ TREATMENT OF CERTAIN TERMINATION DATES SPECIFIED IN NOMINATIONS Pub. L. 116–260, div. EE, title I, § 118(d), Dec. 27, 2020, 134 Stat. 3051, provided that: ‘‘In the case of a designa- tion of an empowerment zone the nomination for which included a termination date which is contemporaneous with the date specified in subparagraph (A)(i) of section 1391(d)(1) of the Internal Revenue Code of 1986 (as in ef- fect before the enactment of this Act [Dec. 27, 2020]), subparagraph (B) of such section shall not apply with respect to such designation if, after the date of the en- actment of this section, the entity which made such nomination amends the nomination to provide for a new termination date in such manner as the Secretary of the Treasury (or the Secretary’s designee) may pro- vide.’’ Pub. L. 116–94, div. Q, title I, § 118(b), Dec. 20, 2019, 133 Stat. 3229, provided that: ‘‘In the case of a designation of an empowerment zone the nomination for which in- cluded a termination date which is contemporaneous with the date specified in subparagraph (A)(i) of section 1391(d)(1) of the Internal Revenue Code of 1986 (as in ef- fect before the enactment of this Act [Dec. 20, 2019]), subparagraph (B) of such section shall not apply with respect to such designation if, after the date of the en- actment of this section, the entity which made such nomination amends the nomination to provide for a new termination date in such manner as the Secretary of the Treasury (or the Secretary’s designee) may pro- vide.’’ Pub. L. 115–123, div. D, title I, § 40311(a)(2), Feb. 9, 2018, 132 Stat. 147, provided that: ‘‘In the case of a designa- tion of an empowerment zone the nomination for which included a termination date which is contemporaneous with the date specified in subparagraph (A)(i) of section 1391(d)(1) of the Internal Revenue Code of 1986 (as in ef- fect before the enactment of this Act [Feb. 9, 2018]), subparagraph (B) of such section shall not apply with respect to such designation if, after the date of the en- actment of this section, the entity which made such nomination amends the nomination to provide for a new termination date in such manner as the Secretary of the Treasury (or the Secretary’s designee) may pro- vide.’’ Pub. L. 114–113, div. Q, title I, § 171(a)(2), Dec. 18, 2015, 129 Stat. 3069, provided that: ‘‘In the case of a designa- tion of an empowerment zone the nomination for which included a termination date which is contemporaneous with the date specified in subparagraph (A)(i) of section 1391(d)(1) of the Internal Revenue Code of 1986 (as in ef- fect before the enactment of this Act [Dec. 18, 2015]), subparagraph (B) of such section shall not apply with respect to such designation if, after the date of the en- actment of this section, the entity which made such nomination amends the nomination to provide for a new termination date in such manner as the Secretary of the Treasury (or the Secretary’s designee) may pro- vide.’’ Pub. L. 113–295, div. A, title I, § 139(b), Dec. 19, 2014, 128 Stat. 4020, provided that: ‘‘In the case of a designation of an empowerment zone the nomination for which in- cluded a termination date which is contemporaneous with the date specified in subparagraph (A)(i) of section 1391(d)(1) of the Internal Revenue Code of 1986 (as in ef- fect before the enactment of this Act [Dec. 19, 2014]), subparagraph (B) of such section shall not apply with respect to such designation if, after the date of the en- actment of this section, the entity which made such nomination amends the nomination to provide for a new termination date in such manner as the Secretary of the Treasury (or the Secretary’s designee) may pro- vide.’’ Pub. L. 112–240, title III, § 327(c), Jan. 2, 2013, 126 Stat. 2334, provided that: ‘‘In the case of a designation of an empowerment zone the nomination for which included a termination date which is contemporaneous with the date specified in subparagraph (A)(i) of section 1391(d)(1) of the Internal Revenue Code of 1986 (as in ef- fect before the enactment of this Act [Jan. 2, 2013]), subparagraph (B) of such section shall not apply with respect to such designation if, after the date of the en- actment of this section, the entity which made such nomination amends the nomination to provide for a new termination date in such manner as the Secretary of the Treasury (or the Secretary’s designee) may pro- vide.’’ Pub. L. 111–312, title VII, § 753(c), Dec. 17, 2010, 124 Stat. 3321, provided that: ‘‘In the case of a designation of an empowerment zone the nomination for which in- cluded a termination date which is contemporaneous with the date specified in subparagraph (A)(i) of section 1391(d)(1) of the Internal Revenue Code of 1986 (as in ef- fect before the enactment of this Act [Dec. 17, 2010]), subparagraph (B) of such section shall not apply with Page 2481 TITLE 26—INTERNAL REVENUE CODE § 1392 respect to such designation if, after the date of the en- actment of this section [Dec. 17, 2010], the entity which made such nomination amends the nomination to pro- vide for a new termination date in such manner as the Secretary of the Treasury (or the Secretary’s designee) may provide.’’ § 1392. Eligibility criteria (a) In general A nominated area shall be eligible for designa- tion under section 1391 only if it meets the fol- lowing criteria: (1) Population The nominated area has a maximum popu- lation of— (A) in the case of an urban area, the lesser of— (i) 200,000, or (ii) the greater of 50,000 or 10 percent of the population of the most populous city located within the nominated area, and (B) in the case of a rural area, 30,000. (2) Distress The nominated area is one of pervasive pov- erty, unemployment, and general distress. (3) Size The nominated area— (A) does not exceed 20 square miles if an urban area or 1,000 square miles if a rural area, (B) has a boundary which is continuous, or, except in the case of a rural area located in more than 1 State, consists of not more than 3 noncontiguous parcels, (C)(i) in the case of an urban area, is lo- cated entirely within no more than 2 contig- uous States, and (ii) in the case of a rural area, is located entirely within no more than 3 contiguous States, and (D) does not include any portion of a cen- tral business district (as such term is used for purposes of the most recent Census of Re- tail Trade) unless the poverty rate for each population census tract in such district is not less than 35 percent (30 percent in the case of an enterprise community). (4) Poverty rate The poverty rate— (A) for each population census tract within the nominated area is not less than 20 per- cent, (B) for at least 90 percent of the population census tracts within the nominated area is not less than 25 percent, and (C) for at least 50 percent of the population census tracts within the nominated area is not less than 35 percent. (b) Special rules relating to determination of poverty rate For purposes of subsection (a)(4)— (1) Treatment of census tracts with small popu- lations (A) Tracts with no population In the case of a population census tract with no population— (i) such tract shall be treated as having a poverty rate which meets the require- ments of subparagraphs (A) and (B) of sub- section (a)(4), but (ii) such tract shall be treated as having a zero poverty rate for purposes of apply- ing subparagraph (C) thereof. (B) Tracts with populations of less than 2,000 A population census tract with a popu- lation of less than 2,000 shall be treated as having a poverty rate which meets the re- quirements of subparagraphs (A) and (B) of subsection (a)(4) if more than 75 percent of such tract is zoned for commercial or indus- trial use. (2) Discretion to adjust requirements for enter- prise communities In determining whether a nominated area is eligible for designation as an enterprise com- munity, the appropriate Secretary may, where necessary to carry out the purposes of this subchapter, reduce by 5 percentage points one of the following thresholds for not more than 10 percent of the population census tracts (or, if fewer, 5 population census tracts) in the nominated area: (A) The 20 percent threshold in subsection (a)(4)(A). (B) The 25 percent threshold in subsection (a)(4)(B). (C) The 35 percent threshold in subsection (a)(4)(C). If the appropriate Secretary elects to reduce the threshold under subparagraph (C), such Secretary may (in lieu of applying the pre- ceding sentence) reduce by 10 percentage points the threshold under subparagraph (C) for 3 population census tracts. (3) Each noncontiguous area must satisfy pov- erty rate rule A nominated area may not include a non- contiguous parcel unless such parcel sepa- rately meets (subject to paragraphs (1) and (2)) the criteria set forth in subsection (a)(4). (4) Areas not within census tracts In the case of an area which is not tracted for population census tracts, the equivalent county divisions (as defined by the Bureau of the Census for purposes of defining poverty areas) shall be used for purposes of deter- mining poverty rates. (c) Factors to consider From among the nominated areas eligible for designation under section 1391 by the appro- priate Secretary, such appropriate Secretary shall make designations of empowerment zones and enterprise communities on the basis of— (1) the effectiveness of the strategic plan submitted pursuant to section 1391(f)(2) and the assurances made pursuant to section 1391(e)(3), and (2) criteria specified by the appropriate Sec- retary. (d) Special eligibility for nominated areas lo- cated in Alaska or Hawaii A nominated area in Alaska or Hawaii shall be treated as meeting the requirements of para-