Rural Empowerment Zones and Enterprise Communities

The Rural Empowerment Zones and Enterprise Communities (EZ/EC) program is a USDA-administered place-based initiative that designates economically distressed rural areas for concentrated federal investment and tax benefits. Authorized by the Omnibus Budget Reconciliation Act of 1993 and extended through subsequent tax legislation, the program provides designated communities with employment tax credits, enhanced Section 179 expensing for business investment, and direct USDA grant funding — all contingent on a community-developed strategic plan for economic renewal. Implementing regulations are at 7 CFR Part 25.

Current Rule (2026)

What This Rule Does

The EZ/EC program works through geographic designation: after a competitive application process, USDA selects qualifying rural areas and officially designates them as Empowerment Zones (the highest tier), Enterprise Communities (a broader tier with fewer tax benefits), or Champion Communities (honorable mentions without statutory tax benefits). Once designated, a community unlocks federal tax incentives that flow to businesses operating within the zone and receives access to USDA EZ/EC grants tied to an approved strategic plan.

Three designation rounds were conducted. Round I (1993) designated 3 rural Empowerment Zones and 30 rural Enterprise Communities. Round II (1997 Tax Relief Act) added additional rural EZs and Enterprise Communities with larger tax benefit packages. Round III (Community Renewal Tax Relief Act of 2000) created Renewal Communities with a distinct tax structure. Most Round I and II designations have expired, and the program is no longer accepting new designation applications — but the regulations govern ongoing compliance, grant administration, and reporting obligations for communities that received designations.

For communities that hold active designations, Part 25 establishes the full governance framework: eligibility criteria, strategic plan requirements, reporting obligations, performance review, revocation procedures, and the USDA grant program that delivers direct funding to Round II rural empowerment zones and enterprise communities.

Key Provisions

• § 25.100 — Eligibility: nominated areas must have ≤30,000 population, demonstrate pervasive poverty, unemployment, and general distress, and meet specific poverty rate thresholds (all census tracts ≥20% poverty; ≥90% of tracts at ≥25% poverty)
• § 25.101 — Data: eligibility decisions use 1990 Census data and BLS published statistics; alternative population loss data allowed
• § 25.103 — Area size: maximum 1,000 square miles; multi-state areas must share a single contiguous border; areas cannot be gerrymandered to exclude non-qualifying tracts
• § 25.104 — Poverty rate: census tract poverty thresholds determine eligibility; Round I required stricter compliance than later rounds
• § 25.202 — Strategic plan: required for all applications; must follow four principles: (1) a clear vision building on local strengths; (2) community-based partnerships involving residents, businesses, nonprofits, and government; (3) economic opportunity creation; and (4) sustainable community development with measurable benchmarks
• § 25.204 — Evaluation: USDA may request plan amendments before approving a designation; the strategic plan is a living document subject to ongoing revision and USDA approval
• § 25.301 — Selection factors: Secretary considers plan feasibility, community commitment, leveraging of non-federal resources, innovation, and likelihood of long-term impact
• § 25.400 — Annual reporting: designated communities must submit progress reports showing actions taken under the strategic plan
• § 25.403 — 2-year work plans: designated EZs and ECs must submit rolling 2-year work plans at least 45 days before each new planning period begins
• § 25.405 — Revocation: USDA may revoke designation if the community fails to fulfill commitments, loses state or local government support, or fails to maintain resident engagement; revocation ends access to zone tax benefits and grants
• § 25.500 — Indian reservations: tribal governing bodies may nominate reservation lands without state/local government co-nomination; tribal nominations are treated as equivalent to joint state/local nominations — an important accommodation for tribal sovereignty
• § 25.602 — Grant recipients: USDA EZ/EC grants flow to the lead managing entity of Round II rural EZs and enterprise communities; grants must align with the approved strategic plan
• § 25.620 — Eligible uses: grants fund services supporting economic self-sufficiency, preventing poverty dependency, revitalizing neighborhoods, and expanding access to economic opportunity; grants cannot be used as local match for other federal awards or for political activity (§ 25.621)
• § 25.623 — Plan changes: any modification to an approved strategic plan or benchmark activity requires prior USDA approval

How It Affects You

If you live or operate a business in a designated EZ or EC: The primary federal tax benefit for Empowerment Zone businesses is the employment tax credit — a credit against federal income tax for wages paid to employees who both live and work within the zone (up to $3,000 per qualified employee per year under Round I structure; Round II provided a 20% wage credit up to $15,000/year per employee). Businesses may also benefit from enhanced Section 179 expensing for zone property, allowing larger first-year deductions for equipment purchases. Check with a tax advisor whether your business and employee locations satisfy the "work and live within the zone" requirement — both conditions must be met for the wage credit.

If you're a community leader in a designated EZ or EC: Active designations carry ongoing compliance obligations: annual progress reports, 2-year rolling work plans, and USDA performance reviews. USDA conducts periodic on-site reviews and may hire independent evaluators. Failure to maintain resident involvement and execute the strategic plan can lead to revocation — which would end zone tax benefits for local businesses. Maintain documentation of community engagement activities and benchmark progress.

If you're in a rural tribal community: Indian reservation lands receive special treatment under § 25.500: the tribal governing body alone may nominate reservation lands without state or local government co-nomination. If your tribe's reservation was not designated in prior rounds, the program is effectively closed to new designations, but similar geographic tax incentives are available through Opportunity Zones (26 U.S.C. § 1400Z-2), which replaced much of the EZ/EC framework for new investment.

Statutory Authority

This rule implements:

• 26 U.S.C. § 1391 — Designation of empowerment zones and enterprise communities: Secretary of HUD (urban) and Secretary of Agriculture (rural) designate qualifying areas; sets the number of designations by round and the designation period
• 26 U.S.C. § 1393 — Area and eligibility requirements: population and geographic criteria that nominated areas must meet
• 26 U.S.C. § 1397 — Tax benefits: employment credits, enhanced expensing, and other tax incentives available to businesses operating in designated zones

Recent Rulemakings

85 FR 31938 (May 28, 2020) — Updated Part 25 to align with current USDA organizational structure and clarify reporting requirements for remaining active designations.

67 FR 13557 (Mar. 22, 2002) and 67 FR 13556 — Round III amendments implementing the Community Renewal Tax Relief Act of 2000 provisions for Renewal Communities and additional enterprise community designations.

63 FR 19114 (Apr. 17, 1998) — Round II implementing rules for the Taxpayer Relief Act of 1997 EZ/EC expansion, including the USDA grant program for rural Round II communities (Subpart F).

Recent Developments

• All designations expired: The original Empowerment Zone, Enterprise Community, and Renewal Community designations under Part 25 have all expired — the last Renewal Communities lost their designated status at the end of 2009. USDA's Part 25 framework exists as administrative infrastructure for managing any residual reporting requirements or grant closeouts, but no active EZ/EC/RC designations remain for rural areas.
• Opportunity Zones as successor program: The Tax Cuts and Jobs Act of 2017 created Opportunity Zones — low-income census tracts designated by governors where investors can defer and reduce capital gains taxes — as a successor concept to Empowerment Zones. Unlike EZs, Opportunity Zones primarily operate through an investor tax incentive (deferral of capital gains reinvested into Qualified Opportunity Funds) rather than direct grants or employment tax credits. Opportunity Zone regulations (26 CFR §§ 1.1400Z-1 and 1.1400Z-2) are administered by Treasury/IRS rather than USDA.
• Rural Opportunity Zone investment gaps: Research on Opportunity Zone implementation found that rural OZs attracted significantly less private investment than urban OZs, mirroring historical criticisms of the EZ program that rural areas couldn't compete with urban areas for nationally mobile capital. Rural development advocates have sought additional policy tools (co-investment incentives, technical assistance) to make rural OZs more competitive.
• New Markets Tax Credit in rural areas: The New Markets Tax Credit (NMTC), administered by Treasury's CDFI Fund, provides a partial functional successor to EZ investment incentives in rural areas. NMTC allocations to Community Development Entities (CDEs) that invest in low-income communities have been used for manufacturing facilities, health clinics, and rural broadband infrastructure. The 2020 permanent extension of NMTC in the Consolidated Appropriations Act maintained this tool for rural investment.

Pending Action

No new federal Empowerment Zone, Enterprise Community, or Renewal Community designations are available under USDA's Part 25 — all prior designations have expired and no new designation authority exists under current law. Producers and rural communities seeking investment incentives should focus on Opportunity Zone structures (Treasury/IRS 26 CFR §§ 1.1400Z-1 and 1.1400Z-2), New Markets Tax Credits (Treasury CDFI Fund), and USDA Rural Development programs (Business and Industry loan guarantees, Community Facilities grants) as the active tools. Watch for any Farm Bill 2025 rural development title provisions that might revive place-based investment incentive designations — rural EZ-style programs have been proposed in rural development policy discussions but have not advanced in recent Congresses.