SECTION 2. BACKGROUND

.01 Section 226 of the Taxpayer Relief Act of 1997, Pub. L. 105–34, 111 Stat. 821 (1997), added § 1397E to the Internal Revenue Code to provide a credit to holders of Bonds under certain circumstances so that the Bonds generally can be issued without discount or interest. Ninety-five percent of Bond proceeds are to be used for qualified purposes, as defined by § 1397E(d)(5), with respect to a qualified zone academy, as defined by § 1397E(d)(4).

.02 Section 1397E(e)(1), as amended by § 304 of the Working Families Tax Relief Act of 2004, Pub. L. 108–311, 118 Stat. 1166 (2004), provides that the na

tional Bond limitation is $400 million for each of the years 1998, 1999, 2000, 2001, 2002, 2003, 2004, and 2005. This amount is to be allocated among the States by the Secretary on the basis of their respective populations below the poverty level (as defined by the Office of Management and Budget) and is to be further allocated by each State to qualified zone academies within the State.

.03 Section 1397E(e)(4), as amended by § 509 of the Tax Relief Extension Act of 1999, Pub. L. 106–170, 113 Stat. 1860 (1999), provides that any carryforward of a limitation amount may be carried forward only to the first 2 years (3 years for carryforwards from 1998 or 1999) following the unused limitation year. For this purpose, a limitation amount shall be treated as used on a first-in first-out basis.

.04 Rev. Proc. 98–9, 1998–1 C.B. 341; Rev. Proc. 98–57, 1998–2 C.B. 682; Rev. Proc. 2000–10, 2000–1 C.B. 287; Rev. Proc. 2001–14, 2001–1 C.B. 343; Rev. Proc. 2002–25, 2002–1 C.B. 800; Rev. Proc. 2002–72, 2002–2 C.B. 931, and Rev. Proc. 2004–61, 2004–43 I.R.B. 707, allocated among the States the national limitation for 1998, 1999, 2000, 2001, 2002, 2003, and 2004, respectively.