article: SECTION 1. MODIFICATIONS OF TREATMENT OF QUALIFIED ZONE ACADEMY BONDS. (a) Proceeds of Bonds May Be Used for Construction.--Paragraph (5) of section 1397E(d) of the Internal Revenue Code of 1986 (defining qualified purpose) is amended-- (1) by striking ``rehabilitating or repairing'' in subparagraph (A) and inserting ``constructing, rehabilitating, or repairing'', and (2) by redesignating subparagraphs (B), (C), and (D) as subparagraphs (C), (D), and (E), respectively, and by inserting after subparagraph (A) the following: ``(B) acquiring the land on which the facility is to be constructed,''. (b) Repeal of Limitation on Taxpayers Eligible for Credit.-- (1) In general.--Section 1397E(a) of such Code (relating to allowance of credit) is amended by striking ``an eligible taxpayer'' and inserting ``a taxpayer''. (2) Conforming amendment.--Section 1397E(d)(6) of such Code is amended to read as follows: ``(6) Bonds held by regulated investment companies.--If any qualified zone academy bond is held by a regulated investment company, the credit determined under subsection (a) shall be allowed to shareholders of such company under procedures prescribed by the Secretary.'' (c) Credits May Be Stripped.--Section 1397E of such Code is amended by adding at the end the following new subsection: ``(i) Credits May Be Stripped.--Under regulations prescribed by the Secretary-- ``(1) In general.--There may be a separation (including at issuance) of the ownership of a qualified zone academy bond and the entitlement to the credit under this section with respect to such bond. In case of any such separation, the credit under this section shall be allowed to the person who on the credit allowance date holds the instrument evidencing the entitlement to the credit and not to the holder of the bond. ``(2) Certain rules to apply.--In the case of a separation described in paragraph (1), the rules of section 1286 shall apply to the qualified zone academy bond as if it were a stripped bond and to the credit under this section as if it were a stripped coupon.'' (d) Allocation of Credit Authority.-- (1) Allocation of limitation.--Section 1397(e)(2) of the Internal Revenue Code of 1986 is amended to read as follows: ``(2) Allocation of limitation.-- ``(A) Allocation among states.-- ``(i) 1998, 1999, 2000, 2001, and 2002 limitations.--The national zone academy bond limitations for calendar years 1998, 1999, 2000, 2001, and 2002 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). ``(ii) Limitation after 2002.--The national zone academy bond limitation for any calendar year after 2002 shall be allocated by the Secretary among the States in proportion to the respective amounts each such State received for basic grants under subpart 2 of part A of title I of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 6331 et seq.) for the most recent fiscal year ending before such calendar year. ``(B) Allocation to local educational agencies.-- The limitation amount allocated to a State under subparagraph (A) shall be allocated by the State to qualified zone academies within such State. ``(C) Designation subject to limitation amount.-- The maximum aggregate face amount of bonds issued during any calendar year which may be designated under subsection (a) with respect to any qualified zone academy shall not exceed the limitation amount allocated to such academy under subparagraph (B) for such calendar year.'' (2) Unused authority.--Section 1397E(e) of such Code (relating to limitation on amount of bonds designated) is amended-- (A) by striking ``If'' in paragraph (4) and inserting ``Except as provided in paragraph (5), if'', and (B) by adding at the end the following: ``(5) Reallocation for amounts unused for two years.-- Notwithstanding paragraph (4), rules similar to the rules of section 42(h)(3)(D) shall apply for purposes of this section.'' (e) Effective Dates.-- (1) In general.--Except as otherwise provided in this subsection, the amendments made by this section shall apply to obligations issued after December 31, 2001. (2) Repeal of restriction on zone academy bond holders.--In the case of bonds to which section 1397E of the Internal Revenue Code of 1986 (as in effect before the date of the enactment of this Act) applies, the limitation of such section to eligible taxpayers (as defined in subsection (d)(6) of such section) shall not apply after the date of the enactment of this Act.
summary: Amends the Internal Revenue Code to include construction as a "qualified purpose" for the spending of a "qualified zone academy bond" (95 percent of such bond proceeds must be spent on a "qualified purpose").Allows the credit retained by a regulated investment company for its holding of a zone academy bond to be distributed to the company's shareholders. Permits such credits to be stripped.