§1397B. 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 "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 80 percent of the total gross income of such entity is derived from the active conduct of such business,

(3) substantially all of the use of the tangible property of such entity (whether owned or leased) is within an empowerment zone,

(4) substantially all of the intangible property of such entity is used in, and exclusively related to, the active conduct of any such business,

(5) substantially all 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 proprietorship

For 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 80 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) substantially all of the use of the tangible property of such individual in such business (whether owned or leased) is within an empowerment zone,

(3) substantially all of the intangible property of such business is used in, and exclusively related to, the active conduct of such business,

(4) substantially all 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 business

For purposes of this section-

(1) In general

Except as otherwise provided in this subsection, the term "qualified business" means any trade or business.

(2) Rental of real property

The 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.

(3) Rental of tangible personal property

The rental to others of tangible personal property shall be treated as a qualified business if and only if substantially all of the rental of such property is by enterprise zone businesses or by residents of an empowerment zone.

(4) Treatment of business holding intangibles

The term "qualified business" shall not include any trade or business consisting predominantly of the development or holding of intangibles for sale or license.

(5) Certain businesses excluded

The 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 subparagraphs ¹ (A) or (B) of section 2032A(e)(5)), but only if, as of the close of the preceding 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 property

For 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(4).

(Added Pub. L. 103–66, title XIII, §13301(a), Aug. 10, 1993, 107 Stat. 552 .)

Section Referred to in Other Sections

This section is referred to in section 1394 of this title.

¹ So in original. Probably should be "subparagraph".