View all text of Subpart D [§ 1397C - § 1397D]
§ 1397C. Enterprise zone business defined
(a) In generalFor purposes of this part, the term “enterprise zone business” means—
(1) any qualified business entity, and
(2) any qualified proprietorship.
(b) Qualified business entityFor purposes of this section, the term “qualified 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 income 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 performed 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 collectibles that are held primarily for sale to customers in the ordinary course of such business, and
(8) less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is attributable to nonqualified financial property.
(c) Qualified proprietorshipFor purposes of this section, the term “qualified proprietorship” means, with respect to any taxable year, any qualified business carried on by an individual as a proprietorship if for such year—
(1) at least 50 percent of the total gross income of such individual from such business is derived from the active conduct of such business in an empowerment zone,
(2) a substantial portion of the use of the tangible property of such individual in such business (whether owned or leased) is within an empowerment zone,
(3) a substantial portion of the intangible property of such business is used in the active conduct of such business,
(4) a substantial portion of the services performed for such individual in such business by employees of such business are performed in an empowerment zone,
(5) at least 35 percent of such employees are residents of an empowerment zone,
(6) less than 5 percent of the average of the aggregate unadjusted bases of the property of such individual which is used in such business is attributable to collectibles (as defined in section 408(m)(2)) other than collectibles that are held primarily for sale to customers in the ordinary course of such business, and
(7) less than 5 percent of the average of the aggregate unadjusted bases of the property of such individual which is used in such business is attributable to nonqualified financial property.
For purposes of this subsection, the term “employee” includes the proprietor.
(d) Qualified businessFor purposes of this section—
(1) In general
(2) Rental of real propertyThe rental to others of real property located in an empowerment zone shall be treated as a qualified business if and only if—
(A) the property is not residential rental property (as defined in section 168(e)(2)), and
(B) at least 50 percent of the gross rental income from the real property is from enterprise zone businesses.
For purposes of subparagraph (B), the lessor of the property may rely on a lessee’s certification that such lessee is an enterprise zone business.
(3) Rental of tangible personal property
(4) Treatment of business holding intangibles
(5) Certain businesses excludedThe term “qualified business” shall not include—
(A) any trade or business consisting of the operation of any facility described in section 144(c)(6)(B), and
(B) any trade or business the principal activity of which is farming (within the meaning of subparagraph (A) or (B) of section 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 assets owned by the taxpayer which are used in such a trade or business, and
(ii) the aggregate value of assets leased by the taxpayer which are used in such a trade or business,
exceeds $500,000.
For purposes of subparagraph (B), rules similar to the rules of section 1397(b) shall apply.
(e) Nonqualified financial propertyFor purposes of this section, the term “nonqualified financial property” means debt, stock, partnership interests, options, futures contracts, forward contracts, warrants, notional principal contracts, annuities, and other similar property specified in regulations; except that such term shall not include—
(1) reasonable amounts of working capital held in cash, cash equivalents, or debt instruments with a term of 18 months or less, or
(2) debt instruments described in section 1221(a)(4).
(f) Treatment of businesses straddling census tract linesFor purposes of this section, if—
(1) a business entity or proprietorship uses real property located within an empowerment zone,
(2) the business entity or proprietorship also uses real property located outside the empowerment zone,
(3) the amount of real property described in paragraph (1) is substantial compared to the amount of real property described in paragraph (2), and
(4) the real property described in paragraph (2) is contiguous to part or all of the real property described in paragraph (1),
then all the services performed by employees, all business activities, all tangible property, and all intangible property of the business entity or proprietorship that occur in or is located on the real property described in paragraphs (1) and (2) shall be treated as occurring or situated in an empowerment zone.
(Added Pub. L. 103–66, title XIII, § 13301(a), Aug. 10, 1993, 107 Stat. 552, § 1397B; amended Pub. L. 104–188, title I, § 1703(m), Aug. 20, 1996, 110 Stat. 1877; Pub. L. 105–34, title IX, § 956(a), Aug. 5, 1997, 111 Stat. 890; Pub. L. 106–170, title V, § 532(c)(4), Dec. 17, 1999, 113 Stat. 1931; renumbered § 1397C, Pub. L. 106–554, § 1(a)(7) [title I, § 116(a)(2)], Dec. 21, 2000, 114 Stat. 2763, 2763A–602; Pub. L. 115–141, div. U, title IV, § 401(a)(196), Mar. 23, 2018, 132 Stat. 1193.)