---
kind: "section"
citation: "26 U.S.C. § 1397C"
title: "26"
title_heading: "Internal Revenue Code"
number: "1397C"
heading: "Enterprise zone business defined"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/1397C"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter U — Designation and Treatment of Empowerment Zones, Enterprise Communities, and Rural Development Investment Areas"
  - "Part III — Additional Incentives for Empowerment Zones"
  - "Subpart D — General Provisions"
---

# §1397C. Enterprise zone business defined

- (a) **In general—** For purposes of this part, the term “enterprise zone business” means—
  - (1) any [qualified business entity](#b), and
  - (2) any [qualified proprietorship](#c).
- (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](/usc/26/761.md?p=a) if for such year—
  - (1) every [trade or business](/usc/26/1402.md?p=c) of such entity is the active conduct of a [qualified business](#d-1) within an [empowerment zone](/usc/26/1393.md?p=b),
  - (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](/usc/26/317.md?p=a) of such entity (whether owned or leased) is within an [empowerment zone](/usc/26/1393.md?p=b),
  - (4) a substantial portion of the intangible [property](/usc/26/317.md?p=a) 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](/usc/26/430.md?p=c-7-D-vi) are performed in an [empowerment zone](/usc/26/1393.md?p=b),
  - (6) at least 35 percent of its [employees](/usc/26/430.md?p=c-7-D-vi) are residents of an [empowerment zone](/usc/26/1393.md?p=b),
  - (7) less than 5 percent of the average of the aggregate unadjusted bases of the [property](/usc/26/317.md?p=a) of such entity is attributable to collectibles (as defined in [section 408(m)(2)](/usc/26/408.md?p=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](/usc/26/317.md?p=a) of such entity is attributable to [nonqualified financial property](#e).
- (c) **Qualified proprietorship—** For purposes of this section, the term “qualified proprietorship” means, with respect to any taxable year, any [qualified business](#d-1) 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](/usc/26/1393.md?p=b),
  - (2) a substantial portion of the use of the tangible [property](/usc/26/317.md?p=a) of such individual in such business (whether owned or leased) is within an [empowerment zone](/usc/26/1393.md?p=b),
  - (3) a substantial portion of the intangible [property](/usc/26/317.md?p=a) 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](/usc/26/430.md?p=c-7-D-vi) of such business are performed in an [empowerment zone](/usc/26/1393.md?p=b),
  - (5) at least 35 percent of such [employees](/usc/26/430.md?p=c-7-D-vi) are residents of an [empowerment zone](/usc/26/1393.md?p=b),
  - (6) less than 5 percent of the average of the aggregate unadjusted bases of the [property](/usc/26/317.md?p=a) of such individual which is used in such business is attributable to collectibles (as defined in [section 408(m)(2)](/usc/26/408.md?p=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](/usc/26/317.md?p=a) of such individual which is used in such business is attributable to [nonqualified financial property](#e).

  For purposes of this subsection, the term “[employee](/usc/26/430.md?p=c-7-D-vi)” 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](/usc/26/1402.md?p=c).
  - (2) **Rental of real property—** The rental to others of real [property](/usc/26/317.md?p=a) located in an [empowerment zone](/usc/26/1393.md?p=b) shall be treated as a [qualified business](#d-1) if and only if—
    - (A) the [property](/usc/26/317.md?p=a) is not residential rental [property](/usc/26/317.md?p=a) (as defined in [section 168(e)(2)](/usc/26/168.md?p=e-2)), and
    - (B) at least 50 percent of the gross rental income from the real [property](/usc/26/317.md?p=a) is from [enterprise zone businesses](#a).

    For purposes of [subparagraph (B)](#d-2-B), the lessor of the [property](/usc/26/317.md?p=a) may rely on a lessee’s certification that such lessee is an [enterprise zone business](#a).

  - (3) **Rental of tangible personal property—** The rental to others of tangible personal [property](/usc/26/317.md?p=a) shall be treated as a [qualified business](#d-1) if and only if at least 50 percent of the rental of such [property](/usc/26/317.md?p=a) is by [enterprise zone businesses](#a) or by residents of an [empowerment zone](/usc/26/1393.md?p=b).
  - (4) **Treatment of business holding intangibles—** The term “[qualified business](#d-1)” shall not include any [trade or business](/usc/26/1402.md?p=c) consisting predominantly of the development or holding of intangibles for sale or license.
  - (5) **Certain businesses excluded—** The term “[qualified business](#d-1)” shall not include—
    - (A) any [trade or business](/usc/26/1402.md?p=c) consisting of the operation of any facility described in [section 144(c)(6)(B)](/usc/26/144.md?p=c-6-B), and
    - (B) any [trade or business](/usc/26/1402.md?p=c) the principal activity of which is farming (within the meaning of subparagraph [(A)](/usc/26/2032A.md?p=e-5-A) or [(B)](/usc/26/2032A.md?p=e-5-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](/usc/26/851.md?p=c-4)) of the assets owned by the [taxpayer](/usc/26/1313.md?p=b) which are used in such a [trade or business](/usc/26/1402.md?p=c), and
      - (ii) the aggregate [value](/usc/26/851.md?p=c-4) of assets leased by the [taxpayer](/usc/26/1313.md?p=b) which are used in such a [trade or business](/usc/26/1402.md?p=c),

      exceeds $500,000.

    For purposes of [subparagraph (B)](#d-5-B), rules similar to the rules of [section 1397(b)](/usc/26/1397.md?p=b) shall apply.

- (e) **Nonqualified financial property—** For purposes of this section, the term “nonqualified financial property” means debt, [stock](/usc/26/1504.md?p=a-4), [partnership](/usc/26/761.md?p=a) [interests](/usc/26/856.md?p=f-1), options, futures [contracts](/usc/26/101.md?p=f-3-A), forward [contracts](/usc/26/101.md?p=f-3-A), warrants, notional principal [contracts](/usc/26/101.md?p=f-3-A), annuities, and other similar [property](/usc/26/317.md?p=a) specified in regulations; except that such term shall not include—
  - (1) reasonable amounts of working capital held in [cash](/usc/26/856.md?p=c-5-K), [cash](/usc/26/856.md?p=c-5-K) equivalents, or [debt instruments](/usc/26/1275.md?p=a-1-A) with a term of 18 months or less, or
  - (2) [debt instruments](/usc/26/1275.md?p=a-1-A) described in [section 1221(a)(4)](/usc/26/1221.md?p=a-4).
- (f) **Treatment of businesses straddling census tract lines—** For purposes of this section, if—
  - (1) a business entity or proprietorship uses real [property](/usc/26/317.md?p=a) located within an [empowerment zone](/usc/26/1393.md?p=b),
  - (2) the business entity or proprietorship also uses real [property](/usc/26/317.md?p=a) located outside the [empowerment zone](/usc/26/1393.md?p=b),
  - (3) the amount of real [property](/usc/26/317.md?p=a) described in [paragraph (1)](#f-1) is substantial compared to the amount of real [property](/usc/26/317.md?p=a) described in [paragraph (2)](#f-2), and
  - (4) the real [property](/usc/26/317.md?p=a) described in [paragraph (2)](#f-2) is contiguous to part or all of the real [property](/usc/26/317.md?p=a) described in [paragraph (1)](#f-1),

  then all the services performed by [employees](/usc/26/430.md?p=c-7-D-vi), all business activities, all tangible [property](/usc/26/317.md?p=a), and all intangible [property](/usc/26/317.md?p=a) of the business entity or proprietorship that occur in or is located on the real [property](/usc/26/317.md?p=a) described in paragraphs [(1)](#f-1) and [(2)](#f-2) shall be treated as occurring or situated in an [empowerment zone](/usc/26/1393.md?p=b).


## Source credit

(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.)

## Notes

### Editorial Notes

### Prior Provisions

A prior section 1397C was renumbered section 1397D of this title.

### Amendments

2018—Subsec. (d)(5)(B). Pub. L. 115–141 substituted “subparagraph (A) or (B)” for “subparagraphs (A) or (B)” in introductory provisions.

2000—Pub. L. 106–554 renumbered section 1397B of this title as this section.

1999—Subsec. (e)(2). Pub. L. 106–170 substituted “section 1221(a)(4)” for “section 1221(4)”.

1997—Subsec. (b)(2). Pub. L. 105–34, § 956(a)(1), substituted “50 percent” for “80 percent”.

Subsec. (b)(3). Pub. L. 105–34, § 956(a)(2), substituted “a substantial portion” for “substantially all”.

Subsec. (b)(4). Pub. L. 105–34, § 956(a)(2), (3), substituted “a substantial portion” for “substantially all” and struck out “, and exclusively related to,” after “entity is used in”.

Subsec. (b)(5). Pub. L. 105–34, § 956(a)(2), substituted “a substantial portion” for “substantially all”.

Subsec. (c)(1). Pub. L. 105–34, § 956(a)(1), substituted “50 percent” for “80 percent”.

Subsec. (c)(2). Pub. L. 105–34, § 956(a)(2), substituted “a substantial portion” for “substantially all”.

Subsec. (c)(3). Pub. L. 105–34, § 956(a)(2), (3), substituted “a substantial portion” for “substantially all” and struck out “, and exclusively related to,” after “business is used in”.

Subsec. (c)(4). Pub. L. 105–34, § 956(a)(2), substituted “a substantial portion” for “substantially all”.

Subsec. (d)(2). Pub. L. 105–34, § 956(a)(4), inserted concluding provisions.

Subsec. (d)(3). Pub. L. 105–34, § 956(a)(5), substituted “at least 50 percent” for “substantially all”.

Subsec. (f). Pub. L. 105–34, § 956(a)(6), added subsec. (f).

1996—Subsec. (d)(5)(B). Pub. L. 104–188 struck out “preceding” before “taxable year” in introductory provisions.

### Statutory Notes and Related Subsidiaries

### Effective Date of 1999 Amendment

Amendment by Pub. L. 106–170 applicable to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after Dec. 17, 1999, see section 532(d) of Pub. L. 106–170, set out as a note under section 170 of this title.

### Effective Date of 1997 Amendment

Pub. L. 105–34, title IX, § 956(b), Aug. 5, 1997, 111 Stat. 891, provided that: In general.—The amendments made by this section [amending this section] shall apply to taxable years beginning on or after the date of the enactment of this Act [Aug. 5, 1997]. Special rule for enterprise zone facility bonds.—For purposes of section 1394(b) of the Internal Revenue Code of 1986, the amendments made by this section shall apply to obligations issued after the date of the enactment of this Act.”

### Effective Date of 1996 Amendment

Amendment by Pub. L. 104–188 effective as if included in the provision of the Revenue Reconciliation Act of 1993, Pub. L. 103–66, §§ 13001–13444, to which such amendment relates, see section 1703(o) of Pub. L. 104–188, set out as a note under section 39 of this title.