26 U.S.C. § 1397B — Nonrecognition of gain on rollover of

Page 2488 TITLE 26—INTERNAL REVENUE CODE § 1397B 1 See References in Text note below. property which is qualified zone property shall be 50 percent of the cost thereof. (b) Recapture Rules similar to the rules under section 179(d)(10) shall apply with respect to any quali- fied zone property which ceases to be used in an empowerment zone by an enterprise zone busi- ness. (c) Termination This section shall not apply to any property placed in service in taxable years beginning after December 31, 2020. (Added Pub. L. 103–66, title XIII, § 13301(a), Aug. 10, 1993, 107 Stat. 552; amended Pub. L. 105–34, title IX, § 952(c), Aug. 5, 1997, 111 Stat. 887; Pub. L. 106–554, § 1(a)(7) [title I, § 114(a), (b)], Dec. 21, 2000, 114 Stat. 2763, 2763A–601; Pub. L. 116–260, div. EE, title I, § 118(b), Dec. 27, 2020, 134 Stat. 3051.) Editorial Notes AMENDMENTS 2020—Subsec. (c). Pub. L. 116–260 added subsec. (c). 2000—Subsec. (a)(1)(A). Pub. L. 106–554, § 1(a)(7) [title I, § 114(a)], substituted ‘‘$35,000’’ for ‘‘$20,000’’. Subsec. (c). Pub. L. 106–554, § 1(a)(7) [title I, § 114(b)], struck out heading and text of subsec. (c). Text read as follows: ‘‘For purposes of this section, qualified zone property shall not include any property substantially all of the use of which is in any parcel described in sec- tion 1391(g)(3)(A)(iii).’’ 1997—Subsec. (c). Pub. L. 105–34 added subsec. (c). Statutory Notes and Related Subsidiaries EFFECTIVE DATE 2020 AMENDMENT Amendment by Pub. L. 116–260 applicable to taxable years beginning after Dec. 31, 2020, see section 118(e) of div. EE of Pub. L. 116–260, set out as a note under sec- tion 1391 of this title. EFFECTIVE DATE OF 2000 AMENDMENT Pub. L. 106–554, § 1(a)(7) [title I, § 114(c)], Dec. 21, 2000, 114 Stat. 2763, 2763A–601, provided that: ‘‘The amend- ments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2001.’’ SUBPART C—NONRECOGNITION OF GAIN ON ROLLOVER OF EMPOWERMENT ZONE INVESTMENTS Sec. 1397B. Nonrecognition of gain on rollover of em- powerment zone investments. Editorial Notes AMENDMENTS 2000—Pub. L. 106–554, § 1(a)(7) [title I, § 116(a)(3)], Dec. 21, 2000, 114 Stat. 2763, 2763A–602, added subpart C head- ing and item 1397B. Former subpart C, consisting of sections 1397B and 1397C, redesignated D. § 1397B. Nonrecognition of gain on rollover of empowerment zone investments (a) Nonrecognition of gain In the case of any sale of a qualified empower- ment zone asset held by the taxpayer for more than 1 year and with respect to which such tax- payer elects the application of this section, gain from such sale shall be recognized only to the extent that the amount realized on such sale ex- ceeds— (1) the cost of any qualified empowerment zone asset (with respect to the same zone as the asset sold) purchased by the taxpayer dur- ing the 60-day period beginning on the date of such sale, reduced by (2) any portion of such cost previously taken into account under this section. (b) Definitions and special rules For purposes of this section— (1) Qualified empowerment zone asset (A) In general The term ‘‘qualified empowerment zone asset’’ means any property which would be a qualified community asset (as defined in sec- tion 1400F) 1 if in section 1400F 1— (i) references to empowerment zones were substituted for references to renewal communities, (ii) references to enterprise zone busi- nesses (as defined in section 1397C) were substituted for references to renewal com- munity businesses, (iii) the date of the enactment of this paragraph were substituted for ‘‘December 31, 2001’’ each place it appears, and (iv) the day after the date set forth in section 1391(d)(1)(A)(i) were substituted for ‘‘January 1, 2010’’ each place it appears. (B) References Any reference in this paragraph to section 1400F shall be treated as reference to such section before its repeal. (2) Certain gain not eligible for rollover This section shall not apply to— (A) any gain which is treated as ordinary income for purposes of this subtitle, and (B) any gain which is attributable to real property, or an intangible asset, which is not an integral part of an enterprise zone busi- ness. (3) Purchase A taxpayer shall be treated as having pur- chased any property if, but for paragraph (4), the unadjusted basis of such property in the hands of the taxpayer would be its cost (within the meaning of section 1012). (4) Basis adjustments If gain from any sale is not recognized by reason of subsection (a), such gain shall be ap- plied to reduce (in the order acquired) the basis for determining gain or loss of any quali- fied empowerment zone asset which is pur- chased by the taxpayer during the 60-day pe- riod described in subsection (a). This para- graph shall not apply for purposes of section 1202. (5) Holding period For purposes of determining whether the nonrecognition of gain under subsection (a) applies to any qualified empowerment zone asset which is sold, the taxpayer’s holding pe- riod for such asset and the asset referred to in Page 2489 TITLE 26—INTERNAL REVENUE CODE § 1397C subsection (a)(1) shall be determined without regard to section 1223. (c) Termination This section shall not apply to sales in taxable years beginning after December 31, 2020. (Added Pub. L. 106–554, § 1(a)(7) [title I, § 116(a)(3)], Dec. 21, 2000, 114 Stat. 2763, 2763A–602; amended Pub. L. 113–295, div. A, title II, § 206(c), Dec. 19, 2014, 128 Stat. 4027; Pub. L. 115–141, div. U, title IV, § 401(d)(4)(B)(vii), (5)(B)(iv), (v), Mar. 23, 2018, 132 Stat. 1209, 1210; Pub. L. 116–260, div. EE, title I, § 118(c), Dec. 27, 2020, 134 Stat. 3051.) Editorial Notes REFERENCES IN TEXT The date of the enactment of this paragraph, referred to in subsec. (b)(1)(A)(iii), is the date of enactment of Pub. L. 106–554, which was approved Dec. 21, 2000. Section 1400F, referred to in subsec. (b)(1), 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 1397B was renumbered section 1397C of this title. AMENDMENTS 2020—Subsec. (c). Pub. L. 116–260 added subsec. (c). 2018—Subsec. (b)(1)(B). Pub. L. 115–141, § 401(d)(5)(B)(iv), added subpar. (B). Pub. L. 115–141, § 401(d)(4)(B)(vii), struck out subpar. (B). Text read as follows: ‘‘The District of Columbia En- terprise Zone shall not be treated as an empowerment zone for purposes of this section.’’ Subsec. (b)(5). Pub. L. 115–141, § 401(d)(5)(B)(v), sub- stituted ‘‘which is sold, the taxpayer’s holding period for such asset and the asset referred to in subsection (a)(1) shall be determined without regard to section 1223.’’ for ‘‘which is sold— ‘‘(A) the taxpayer’s holding period for such asset and the asset referred to in subsection (a)(1) shall be determined without regard to section 1223, and ‘‘(B) only the first year of the taxpayer’s holding period for the asset referred to in subsection (a)(1) shall be taken into account for purposes of para- graphs (2)(A)(iii), (3)(C), and (4)(A)(iii) of section 1400F(b).’’ 2014—Subsec. (b)(1)(A)(iv). Pub. L. 113–295 added cl. (iv). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2020 AMENDMENT Amendment by Pub. L. 116–260 applicable to taxable years beginning after Dec. 31, 2020, see section 118(e) of div. EE of Pub. L. 116–260, set out as a note under sec- tion 1391 of this title. EFFECTIVE DATE OF 2014 AMENDMENT Amendment by Pub. L. 113–295 effective as if included in the provisions of the Tax Relief, Unemployment In- surance Reauthorization, and Job Creation Act of 2010, Pub. L. 111–312, to which such amendment relates, see section 206(d) of Pub. L. 113–295, set out as a note under section 32 of this title. EFFECTIVE DATE Section applicable to qualified empowerment zone as- sets acquired after Dec. 21, 2000, see section 1(a)(7) [title I, § 116(c)] of Pub. L. 106–554, set out as an Effective Date of 2000 Amendment note under section 1016 of this title. SAVINGS PROVISION Amendment by section 401(d)(4)(B)(vii) of Pub. L. 115–141 not applicable to certain obligations issued, DC Zone assets acquired, or principal residences acquired before Jan. 1, 2012, see section 401(d)(4)(C) of Pub. L. 115–141, set out as a note under former section 1400 of this title. Amendment by section 401(d)(5)(B)(iv), (v) of Pub. L. 115–141 not applicable to certain qualified community assets acquired, wages paid or incurred, qualified revi- talization buildings placed in service, or property ac- quired before Jan. 1, 2010, see section 401(d)(5)(C) of Pub. L. 115–141, set out as a note under former section 1400E of this title. For provisions that nothing in amendment by Pub. L. 115–141 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining li- ability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title. SUBPART D—GENERAL PROVISIONS Sec. 1397C. Enterprise zone business defined. 1397D. Qualified zone property defined. Editorial Notes AMENDMENTS 2000—Pub. L. 106–554, § 1(a)(7) [title I, § 116(a)(1), (b)(7)], Dec. 21, 2000, 114 Stat. 2763, 2763A–602, 2763A–604, redesig- nated subpart C of this part as this subpart and items for sections 1397B and 1397C as 1397C and 1397D, respec- tively. § 1397C. Enterprise zone business defined (a) In general For purposes of this part, the term ‘‘enterprise zone business’’ means— (1) any qualified business entity, and (2) any qualified proprietorship. (b) Qualified business entity For purposes of this section, the term ‘‘quali- fied business entity’’ means, with respect to any taxable year, any corporation or partnership if for such year— (1) every trade or business of such entity is the active conduct of a qualified business within an empowerment zone, (2) at least 50 percent of the total gross in- come of such entity is derived from the active conduct of such business, (3) a substantial portion of the use of the tangible property of such entity (whether owned or leased) is within an empowerment zone, (4) a substantial portion of the intangible property of such entity is used in the active conduct of any such business, (5) a substantial portion of the services per- formed for such entity by its employees are performed in an empowerment zone, (6) at least 35 percent of its employees are residents of an empowerment zone, (7) less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is attributable to collectibles (as defined in section 408(m)(2)) other than col- lectibles that are held primarily for sale to customers in the ordinary course of such busi- ness, and (8) less than 5 percent of the average of the aggregate unadjusted bases of the property of