26 U.S.C. § 1396 — Empowerment zone employment credit

Page 2486 TITLE 26—INTERNAL REVENUE CODE § 1396 Subpart B. Additional expensing. C. Nonrecognition of gain on rollover of em- powerment zone investments. D. General provisions. Editorial Notes AMENDMENTS 2000—Pub. L. 106–554, § 1(a)(7) [title I, § 116(b)(6)], Dec. 21, 2000, 114 Stat. 2763, 2763A–604, added items for sub- parts C and D and struck out former item for subpart C ‘‘General provisions’’. SUBPART A—EMPOWERMENT ZONE EMPLOYMENT CREDIT Sec. 1396. Empowerment zone employment credit. 1397. Other definitions and special rules. § 1396. Empowerment zone employment credit (a) Amount of credit For purposes of section 38, the amount of the empowerment zone employment credit deter- mined under this section with respect to any employer for any taxable year is the applicable percentage of the qualified zone wages paid or incurred during the calendar year which ends with or within such taxable year. (b) Applicable percentage For purposes of this section, the applicable percentage is 20 percent. (c) Qualified zone wages (1) In general For purposes of this section, the term ‘‘qualified zone wages’’ means any wages paid or incurred by an employer for services per- formed by an employee while such employee is a qualified zone employee. (2) Only first $15,000 of wages per year taken into account With respect to each qualified zone em- ployee, the amount of qualified zone wages which may be taken into account for a cal- endar year shall not exceed $15,000. (3) Coordination with work opportunity credit (A) In general The term ‘‘qualified zone wages’’ shall not include wages taken into account in deter- mining the credit under section 51. (B) Coordination with paragraph (2) The $15,000 amount in paragraph (2) shall be reduced for any calendar year by the amount of wages paid or incurred during such year which are taken into account in determining the credit under section 51. (d) Qualified zone employee For purposes of this section— (1) In general Except as otherwise provided in this sub- section, the term ‘‘qualified zone employee’’ means, with respect to any period, any em- ployee of an employer if— (A) substantially all of the services per- formed during such period by such employee for such employer are performed within an empowerment zone in a trade or business of the employer, and (B) the principal place of abode of such em- ployee while performing such services is within such empowerment zone. (2) Certain individuals not eligible The term ‘‘qualified zone employee’’ shall not include— (A) any individual described in subpara- graph (A), (B), or (C) of section 51(i)(1), (B) any 5-percent owner (as defined in sec- tion 416(i)(1)(B)), (C) any individual employed by the em- ployer for less than 90 days, (D) any individual employed by the em- ployer at any facility described in section 144(c)(6)(B), and (E) any individual employed by the em- ployer in a trade or business the principal activity of which is farming (within the meaning of subparagraph (A) or (B) of sec- tion 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 as- sets owned by the employer which are used in such a trade or business, and (ii) the aggregate value of assets leased by the employer which are used in such a trade or business (as determined under regulations prescribed by the Secretary), exceeds $500,000. (3) Special rules related to termination of em- ployment (A) In general Paragraph (2)(C) shall not apply to— (i) a termination of employment of an individual who before the close of the pe- riod referred to in paragraph (2)(C) be- comes disabled to perform the services of such employment unless such disability is removed before the close of such period and the taxpayer fails to offer reemploy- ment to such individual, or (ii) a termination of employment of an individual if it is determined under the ap- plicable State unemployment compensa- tion law that the termination was due to the misconduct of such individual. (B) Changes in form of business For purposes of paragraph (2)(C), the em- ployment relationship between the taxpayer and an employee shall not be treated as ter- minated— (i) by a transaction to which section 381(a) applies if the employee continues to be employed by the acquiring corporation, or (ii) by reason of a mere change in the form of conducting the trade or business of the taxpayer if the employee continues to be employed in such trade or business and the taxpayer retains a substantial interest in such trade or business. (Added Pub. L. 103–66, title XIII, § 13301(a), Aug. 10, 1993, 107 Stat. 549; amended Pub. L. 104–188, title I, § 1201(e)(4), Aug. 20, 1996, 110 Stat. 1772; Pub. L. 105–34, title IX, §§ 951(b), 952(b), Aug. 5, Page 2487 TITLE 26—INTERNAL REVENUE CODE § 1397A 1997, 111 Stat. 885, 887; Pub. L. 106–554, § 1(a)(7) [title I, § 113(a), (b)], Dec. 21, 2000, 114 Stat. 2763, 2763A–601.) Editorial Notes REFERENCES IN TEXT The Taxpayer Relief Act of 1997, referred to in subsec. (b)(2), is Pub. L. 105–34, Aug. 5, 1997, 111 Stat. 788. For complete classification of this Act to the Code, see Ta- bles. PRIOR PROVISIONS A prior section 1396, added Pub. L. 95–600, title VI, § 601(a), Nov. 6, 1978, 92 Stat. 2895; amended Pub. L. 96–595, § 3(a)(6), (9), (10), Dec. 24, 1980, 94 Stat. 3465, re- lated to minimum distributions by an electing general stock ownership corporation, prior to repeal by Pub. L. 99–514, title XIII, § 1303(a), Oct. 22, 1986, 100 Stat. 2658. AMENDMENTS 2000—Subsec. (b). Pub. L. 106–554, § 1(a)(7) [title I, § 113(a)], amended subsec. (b) generally, substituting provisions establishing an applicable percentage of 20 percent for provisions setting out tables for deter- mining the applicable percentage. Subsec. (e). Pub. L. 106–554, § 1(a)(7) [title I, § 113(b)], struck out heading and text of subsec. (e). Text read as follows: ‘‘This section shall be applied without regard to any empowerment zone designated under section 1391(g).’’ 1997—Subsec. (b). Pub. L. 105–34 substituted ‘‘For pur- poses of this section— ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the term ‘applicable percentage’ means the per- centage determined in accordance with the following table:’’ for ‘‘For purposes of this section, the term ‘applicable percentage’ means the percentage determined in ac- cordance with the following table:’’ and added par. (2). Subsec. (e). Pub. L. 105–34, § 952(b), added subsec. (e). 1996—Subsec. (c)(3). Pub. L. 104–188 substituted ‘‘work opportunity credit’’ for ‘‘targeted jobs credit’’ in head- ing. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2000 AMENDMENT Pub. L. 106–554, § 1(a)(7) [title I, § 113(d)], Dec. 21, 2000, 114 Stat. 2763, 2763A–601, provided that: ‘‘The amend- ments made by this section [amending this section and section 1400 of this title] shall apply to wages paid or incurred after December 31, 2001.’’ EFFECTIVE DATE OF 1997 AMENDMENT Amendment by section 951(b) of Pub. L. 105–34 effec- tive Aug. 5, 1997, except that designations of new em- powerment zones made pursuant to amendments by section 951 of Pub. L. 105–34 to be made during 180-day period beginning Aug. 5, 1997, and no designation pursu- ant to such amendments to take effect before Jan. 1, 2000, see section 951(c) of Pub. L. 105–34, set out as a note under section 1391 of this title. EFFECTIVE DATE OF 1996 AMENDMENT Amendment by Pub. L. 104–188 applicable to individ- uals who begin work for the employer after Sept. 30, 1996, see section 1201(g) of Pub. L. 104–188, set out as a note under section 38 of this title. § 1397. Other definitions and special rules (a) Wages For purposes of this subpart— (1) In general The term ‘‘wages’’ has the same meaning as when used in section 51. (2) Certain training and educational benefits (A) In general The following amounts shall be treated as wages paid to an employee: (i) Any amount paid or incurred by an employer which is excludable from the gross income of an employee under section 127, but only to the extent paid or incurred to a person not related to the employer. (ii) In the case of an employee who has not attained the age of 19, any amount paid or incurred by an employer for any youth training program operated by such employer in conjunction with local edu- cation officials. (B) Related person A person is related to any other person if the person bears a relationship to such other person specified in section 267(b) or 707(b)(1), or such person and such other person are en- gaged in trades or businesses under common control (within the meaning of subsections (a) and (b) of section 52). For purposes of the preceding sentence, in applying section 267(b) or 707(b)(1), ‘‘10 percent’’ shall be sub- stituted for ‘‘50 percent’’. (b) Controlled groups For purposes of this subpart— (1) all employers treated as a single em- ployer under subsection (a) or (b) of section 52 shall be treated as a single employer for pur- poses of this subpart, and (2) the credit (if any) determined under sec- tion 1396 with respect to each such employer shall be its proportionate share of the wages giving rise to such credit. (c) Certain other rules made applicable For purposes of this subpart, rules similar to the rules of section 51(k) and subsections (c), (d), and (e) of section 52 shall apply. (Added Pub. L. 103–66, title XIII, § 13301(a), Aug. 10, 1993, 107 Stat. 551.) Editorial Notes PRIOR PROVISIONS A prior section 1397, added Pub. L. 95–600, title VI, § 601(a), Nov. 6, 1978, 92 Stat. 2895, related to special rules applicable to an electing general stock ownership corporation, prior to repeal by Pub. L. 99–514, title XIII, § 1303(a), Oct. 22, 1986, 100 Stat. 2658. SUBPART B—ADDITIONAL EXPENSING Sec. 1397A. Increase in expensing under section 179. § 1397A. Increase in expensing under section 179 (a) General rule In the case of an enterprise zone business, for purposes of section 179— (1) the limitation under section 179(b)(1) shall be increased by the lesser of— (A) $35,000, or (B) the cost of section 179 property which is qualified zone property placed in service during the taxable year, and (2) the amount taken into account under sec- tion 179(b)(2) with respect to any section 179