H.R. 2292

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2292 Introduced in House (IH)]

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119th CONGRESS
1st Session
H. R. 2292

To amend the Internal Revenue Code of 1986 to establish special rules 
for capital gains invested in brownfield and superfund sites.

_______________________________________________________________________

IN THE HOUSE OF REPRESENTATIVES

March 24, 2025

Mr. Edwards (for himself and Ms. Crockett) introduced the following 
bill; which was referred to the Committee on Ways and Means

_______________________________________________________________________

A BILL

To amend the Internal Revenue Code of 1986 to establish special rules 
for capital gains invested in brownfield and superfund sites.

Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Economic Opportunity for Distressed 
Communities Act''.

SEC. 2. ESTABLISHMENT OF SPECIAL RULES FOR CAPITAL GAINS INVESTED IN 
DISTRESSED OPPORTUNITY ZONES.

(a) In General.--Subchapter Z of chapter 1 of the Internal Revenue 
Code of 1986 is amended by adding at the end the following new section:

``SEC. 1400Z-3. SPECIAL RULES FOR CAPITAL GAINS INVESTED IN DISTRESSED 
OPPORTUNITY ZONES.

``(a) In General.--
``(1) Treatment of gains.--In the case of capital gains 
from the sale to, or exchange with, an unrelated person of any 
property held by the taxpayer, at the election of the 
taxpayer--
``(A) gross income for the taxable year shall not 
include so much of such gain as does not exceed the 
aggregate amount invested by the taxpayer in a 
qualified distressed opportunity fund during the 180-
day period beginning on the date of such sale or 
exchange,
``(B) the amount of gain excluded by subparagraph 
(A) shall be included in gross income as provided by 
subsection (b), and
``(C) subsection (c) shall apply.
``(2) Election.--No election may be made under paragraph 
(1)--
``(A) with respect to a sale or exchange if an 
election previously made with respect to such sale or 
exchange is in effect, or
``(B) with respect to any sale or exchange after 
December 31, 2033.
``(b) Deferral of Gain Invested in Qualified Distressed Opportunity 
Zone Property.--
``(1) Year of inclusion.--Gain to which subsection 
(a)(1)(B) applies shall be included in income in the taxable 
year which includes the earlier of--
``(A) the date on which such investment is sold or 
exchanged, or
``(B) December 31, 2033.
``(2) Amount includible.--
``(A) In general.--The amount of gain included in 
gross income under subsection (a)(1)(A) shall be the 
excess of--
``(i) the lesser of the amount of gain 
excluded under paragraph (1) or the fair market 
value of the investment as determined as of the 
date described in paragraph (1), over
``(ii) the taxpayer's basis in the 
investment.
``(B) Determination of basis qualified distressed 
opportunity zone property.--
``(i) In general.--Except as otherwise 
provided in this clause or subsection (c), the 
taxpayer's basis in the investment shall be 
zero.
``(ii) Increase for gain recognized under 
subsection (a)(1)(B).--The basis in the 
investment shall be increased by the amount of 
gain recognized by reason of subsection 
(a)(1)(B) with respect to such property.
``(iii) Investments held for 5 years.--In 
the case of any investment held for at least 5 
years, the basis of such investment shall be 
increased by an amount equal to 10 percent of 
the amount of gain deferred by reason of 
subsection (a)(1)(A).
``(iv) Investments held for 7 years.--In 
the case of any investment held by the taxpayer 
for at least 7 years, in addition to any 
adjustment made under clause (iii), the basis 
of such property shall be increased by an 
amount equal to 5 percent of the amount of gain 
deferred by reason of subsection (a)(1)(A).
``(c) Special Rule for Investments Held for at Least 10 Years.--In 
the case of any investment held by the taxpayer for at least 10 years 
and with respect to which the taxpayer makes an election under this 
subsection, the basis of such property shall be equal to the fair 
market value of such investment on the date that the investment is sold 
or exchanged.
``(d) Qualified Distressed Opportunity Fund.--For purposes of this 
section--
``(1) In general.--The term `qualified distressed 
opportunity fund' means any investment vehicle which is 
organized as a corporation or a partnership for the purpose of 
investing in qualified distressed opportunity zone property 
(other than another qualified distressed opportunity fund) that 
holds at least 90 percent of its assets in qualified distressed 
opportunity zone property, determined by the average of the 
percentage of qualified distressed opportunity zone property 
held in the fund as measured--
``(A) on the last day of the first 6-month period 
of the taxable year of the fund, and
``(B) on the last day of the taxable year of the 
fund.
``(2) Qualified distressed opportunity zone property.--
``(A) In general.--The term `qualified distressed 
opportunity zone property' means property which is--
``(i) qualified distressed opportunity zone 
stock,
``(ii) qualified distressed opportunity 
zone partnership interest, or
``(iii) qualified distressed opportunity 
zone business property.
``(B) Qualified distressed opportunity zone 
stock.--
``(i) In general.--Except as provided in 
clause (ii), the term `qualified distressed 
opportunity zone stock' means any stock in a 
domestic corporation if--
``(I) such stock is acquired by the 
qualified distressed opportunity fund 
after December 31, 2025, at its 
original issue (directly or through an 
underwriter) from the corporation 
solely in exchange for cash,
``(II) as of the time such stock 
was issued, such corporation was a 
qualified distressed opportunity zone 
business (or, in the case of a new 
corporation, such corporation was being 
organized for purposes of being a 
qualified distressed opportunity zone 
business), and
``(III) during substantially all of 
the qualified distressed opportunity 
fund's holding period for such stock, 
such corporation qualified as a 
qualified distressed opportunity zone 
business.
``(ii) Redemptions.--A rule similar to the 
rule of section 1202(c)(3) shall apply for 
purposes of this paragraph.
``(C) Qualified distressed opportunity zone 
partnership interest.--The term `qualified distressed 
opportunity zone partnership interest' means any 
capital or profits interest in a domestic partnership 
if--
``(i) such interest is acquired by the 
qualified distressed opportunity fund after 
December 31, 2025, from the partnership solely 
in exchange for cash,
``(ii) as of the time such interest was 
acquired, such partnership was a qualified 
distressed opportunity zone business (or, in 
the case of a new partnership, such partnership 
was being organized for purposes of being a 
qualified distressed opportunity zone 
business), and
``(iii) during substantially all of the 
qualified distressed opportunity fund's holding 
period for such interest, such partnership 
qualified as a qualified distressed opportunity 
zone business.
``(D) Qualified distressed opportunity zone 
business property.--
``(i) In general.--The term `qualified 
distressed opportunity zone business property' 
means tangible property used in a trade or 
business of the qualified distressed 
opportunity fund if--
``(I) such property was acquired by 
the qualified distressed opportunity 
fund by purchase (as defined in section 
179(d)(2)) after December 31, 2025,
``(II) the original use of such 
property in the qualified distressed 
opportunity zone commences with the 
qualified distressed opportunity fund 
or the qualified distressed opportunity 
fund substantially improves the 
property, and
``(III) during substantially all of 
the qualified distressed opportunity 
fund's holding period for such 
property, substantially all of the use 
of such property was in a qualified 
distressed opportunity zone.
``(ii) Substantial improvement.--For 
purposes of subparagraph (A)(ii), property 
shall be treated as substantially improved by 
the qualified distressed opportunity fund only 
if, during any 30-month period beginning after 
the date of acquisition of such property, 
additions to basis with respect to such 
property in the hands of the qualified 
distressed opportunity fund exceed an amount 
equal to the adjusted basis of such property at 
the beginning of such 30-month period in the 
hands of the qualified distressed opportunity 
fund.
``(iii) Related party.--For purposes of 
subparagraph (A)(i), the related person rule of 
section 179(d)(2) shall be applied pursuant to 
subsection (e)(2) in lieu of the application of 
such rule in section 179(d)(2)(A).
``(3) Qualified distressed opportunity zone business.--
``(A) In general.--The term `qualified distressed 
opportunity zone business' means a trade or business--
``(i) in which substantially all of the 
tangible property owned or leased by the 
taxpayer is qualified distressed opportunity 
zone business property (determined by 
substituting `qualified distressed opportunity 
zone business' for `qualified distressed 
opportunity fund' each place it appears in 
subparagraph (D)),
``(ii) which satisfies the requirements of 
paragraphs (2), (4), and (8) of section 
1397C(b), and
``(iii) which is not described in section 
144(c)(6)(B).
``(B) Special rule.--For purposes of subparagraph 
(A), tangible property that ceases to be a qualified 
distressed opportunity zone business property shall 
continue to be treated as a qualified distressed 
opportunity zone business property for the lesser of--
``(i) 5 years after the date on which such 
tangible property ceases to be so qualified, or
``(ii) the date on which such tangible 
property is no longer held by the qualified 
distressed opportunity zone business.
``(4) Qualified distressed opportunity zone.--The term 
`qualified distressed opportunity zone' means--
``(A) a brownfield site (as defined in section 
101(39) of the Comprehensive Environmental Response, 
Compensation, and Liability Act of 1980), or
``(B) a facility that is included on the National 
Priorities List developed by the President in 
accordance with section 105(a)(8)(B) of the 
Comprehensive Environmental Response, Compensation, and 
Liability Act of 1980.
``(e) Applicable Rules.--
``(1) Treatment of investments with mixed funds.--In the 
case of any investment in a qualified distressed opportunity 
fund only a portion of which consists of investments of gain to 
which an election under subsection (a) is in effect--
``(A) such investment shall be treated as 2 
separate investments, consisting of--
``(i) one investment that only includes 
amounts to which the election under subsection 
(a) applies, and
``(ii) a separate investment consisting of 
other amounts, and
``(B) subsections (a), (b), and (c) shall only 
apply to the investment described in subparagraph 
(A)(i).
``(2) Related persons.--For purposes of this section, 
persons are related to each other if such persons are described 
in section 267(b) or 707(b)(1), determined by substituting `20 
percent' for `50 percent' each place it occurs in such 
sections.
``(3) Decedents.--In the case of a decedent, amounts 
recognized under this section shall, if not properly includible 
in the gross income of the decedent, be included in gross 
income as provided by section 691.
``(4) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section, including--
``(A) rules for the certification of qualified 
distressed opportunity funds for the purposes of this 
section,
``(B) rules to ensure a qualified distressed 
opportunity fund has a reasonable period of time to 
reinvest the return of capital from investments in 
qualified distressed opportunity zone stock and 
qualified distressed opportunity zone partnership 
interests, and to reinvest proceeds received from the 
sale or disposition of qualified distressed opportunity 
zone property, and
``(C) rules to prevent abuse.
``(f) Failure of Qualified Distressed Opportunity Fund To Maintain 
Investment Standard.--
``(1) In general.--If a qualified distressed opportunity 
fund fails to meet the 90-percent requirement of subsection 
(d)(1), the qualified distressed opportunity fund shall pay a 
penalty for each month it fails to meet the requirement in an 
amount equal to the product of--
``(A) the excess of--
``(i) the amount equal to 90 percent of its 
aggregate assets, over
``(ii) the aggregate amount of qualified 
distressed opportunity zone property held by 
the fund, multiplied by
``(B) the underpayment rate established under 
section 6621(a)(2) for such month.
``(2) Special rule for partnerships.--In the case that the 
qualified distressed opportunity fund is a partnership, the 
penalty imposed by paragraph (1) shall be taken int account 
proportionately as part of the distributive share of each 
partner of the partnership.
``(3) Reasonable cause exception.--No penalty shall be 
imposed under this subsection with respect to any failure if it 
is shown that such failure is due to reasonable cause.''.
(b) Clerical Amendment.--The table of sections for subchapter Z of 
chapter 1 is amended by adding at the end the following new item:

``Sec. 1400Z-3. Special rules for capital gains invested in distressed 
opportunity zones.''.
(c) Effective Date.--The amendments made by this section shall 
apply to amounts invested after the date of the enactment of this Act.
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