§ 1397E. Credit to holders of qualified zone academy bonds
(a)
Allowance of credit
In the case of an eligible taxpayer who holds a qualified zone academy bond on the credit allowance date of such bond which occurs during the taxable year, there shall be allowed as a credit against the tax imposed by this chapter for such taxable year the amount determined under subsection (b).
(b)
Amount of credit
(1)
In general
The amount of the credit determined under this subsection with respect to any qualified zone academy bond is the amount equal to the product of—
(2)
Determination
During each calendar month, the Secretary shall determine a credit rate which shall apply to bonds issued during the following calendar month. The credit rate for any month is the percentage which the Secretary estimates will permit the issuance of qualified zone academy bonds without discount and without interest cost to the issuer.
(c)
Limitation based on amount of tax
The credit allowed under subsection (a) for any taxable year shall not exceed the excess of—
(d)
Qualified zone academy bond
For purposes of this section—
(1)
In general
The term “qualified zone academy bond” means any bond issued as part of an issue if—
(A)
95 percent or more of the proceeds of such issue are to be used for a qualified purpose with respect to a qualified zone academy established by an eligible local education agency,
(B)
the bond is issued by a State or local government within the jurisdiction of which such academy is located,
(C)
the issuer—
(2)
Private business contribution requirement
(A)
In general
For purposes of paragraph (1), the private business contribution requirement of this paragraph is met with respect to any issue if the eligible local education agency that established the qualified zone academy has written commitments from private entities to make qualified contributions having a present value (as of the date of issuance of the issue) of not less than 10 percent of the proceeds of the issue.
(B)
Qualified contributions
For purposes of subparagraph (A), the term “qualified contribution” means any contribution (of a type and quality acceptable to the eligible local education agency) of—
(i)
equipment for use in the qualified zone academy (including state-of-the-art technology and vocational equipment),
(ii)
technical assistance in developing curriculum or in training teachers in order to promote appropriate market driven technology in the classroom,
(3)
Term requirement
During each calendar month, the Secretary shall determine the maximum term permitted under this paragraph for bonds issued during the following calendar month. Such maximum term shall be the term which the Secretary estimates will result in the present value of the obligation to repay the principal on the bond being equal to 50 percent of the face amount of the bond. Such present value shall be determined using as a discount rate the average annual interest rate of tax-exempt obligations having a term of 10 years or more which are issued during the month. If the term as so determined is not a multiple of a whole year, such term shall be rounded to the next highest whole year.
(4)
Qualified zone academy
(A)
In general
The term “qualified zone academy” means any public school (or academic program within a public school) which is established by and operated under the supervision of an eligible local education agency to provide education or training below the postsecondary level if—
(i)
such public school or program (as the case may be) is designed in cooperation with business to enhance the academic curriculum, increase graduation and employment rates, and better prepare students for the rigors of college and the increasingly complex workforce,
(ii)
students in such public school or program (as the case may be) will be subject to the same academic standards and assessments as other students educated by the eligible local education agency,
(iii)
the comprehensive education plan of such public school or program is approved by the eligible local education agency, and
(iv)
(I)
such public school is located in an empowerment zone or enterprise community (including any such zone or community designated after the date of the enactment of this section), or
(II)
there is a reasonable expectation (as of the date of issuance of the bonds) that at least 35 percent of the students attending such school or participating in such program (as the case may be) will be eligible for free or reduced-cost lunches under the school lunch program established under the Richard B. Russell National School Lunch Act.
(5)
Qualified purpose
The term “qualified purpose” means, with respect to any qualified zone academy—
(e)
Limitation on amount of bonds designated
(1)
National limitation
There is a national zone academy bond limitation for each calendar year. Such limitation is $400,000,000 for 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, and 2007, and, except as provided in paragraph (4), zero thereafter.
(2)
Allocation of limitation
The national zone academy bond limitation for a calendar year shall be allocated by the Secretary among the States on the basis of their respective populations of individuals below the poverty line (as defined by the Office of Management and Budget). The limitation amount allocated to a State under the preceding sentence shall be allocated by the State education agency to qualified zone academies within such State.
(3)
Designation subject to limitation amount
The maximum aggregate face amount of bonds issued during any calendar year which may be designated under subsection (d)(1) with respect to any qualified zone academy shall not exceed the limitation amount allocated to such academy under paragraph (2) for such calendar year.
(4)
Carryover of unused limitation
If for any calendar year—
(B)
the amount of bonds issued during such year which are designated under subsection (d)(1) with respect to qualified zone academies within such State,
the limitation amount for such State for the following calendar year shall be increased by the amount of such excess. Any carryforward of a limitation amount may be carried only to the first 2 years (3 years for carryforwards from 1998 or 1999) following the unused limitation year. For purposes of the preceding sentence, a limitation amount shall be treated as used on a first-in first-out basis.
(f)
Special rules relating to expenditures
(1)
In general
An issue shall be treated as meeting the requirements of this subsection if, as of the date of issuance, the issuer reasonably expects—
(A)
at least 95 percent of the proceeds from the sale of the issue are to be spent for 1 or more qualified purposes with respect to qualified zone academies within the 5-year period beginning on the date of issuance of the qualified zone academy bond,
(2)
Extension of period
Upon submission of a request prior to the expiration of the period described in paragraph (1)(A), the Secretary may extend such period if the issuer establishes that the failure to satisfy the 5-year requirement is due to reasonable cause and the related purposes will continue to proceed with due diligence.
(3)
Failure to spend required amount of bond proceeds within 5 years
To the extent that less than 95 percent of the proceeds of such issue are expended by the close of the 5-year period beginning on the date of issuance (or if an extension has been obtained under paragraph (2), by the close of the extended period), the issuer shall redeem all of the nonqualified bonds within 90 days after the end of such period. For purposes of this paragraph, the amount of the nonqualified bonds required to be redeemed shall be determined in the same manner as under section
142.
(g)
Special rules relating to arbitrage
An issue shall be treated as meeting the requirements of this subsection if the issuer satisfies the arbitrage requirements of section
148 with respect to proceeds of the issue.
(i)
Other definitions
For purposes of this section—
(j)
Credit included in gross income
Gross income includes the amount of the credit allowed to the taxpayer under this section (determined without regard to subsection (c)).
(k)
Credit treated as nonrefundable bondholder credit
For purposes of this title, the credit allowed by this section shall be treated as a credit allowable under subpart H of part IV of subchapter A of this chapter.
(l)
S corporations
In the case of a qualified zone academy bond held by an S corporation which is an eligible taxpayer—
(2)
no basis adjustments to the stock of the corporation shall be made under section
1367 on account of this section.
(m)
Termination
This section shall not apply to any obligation issued after the date of the enactment of the Tax Extenders and Alternative Minimum Tax Relief Act of 2008.