S. 1149Senate108th Congress (2003-2005)In Committee
Energy Tax Incentives Act of 2003

Legislative Activity

Stay on top of the latest movement without scrolling through every action
2 earlier actions
SenateCalendars Latest Action
Placed on Senate Legislative Calendar under General Orders. Calendar No. 113.
May 23, 2003
View full timeline
SenateIntro Referral
Introduced in Senate
May 23, 2003
SenateCommittee
Committee on Finance. Original measure reported to Senate by Senator Grassley. With written report No. 108-54.
Finance Committee
May 23, 2003
SenateCalendars
Placed on Senate Legislative Calendar under General Orders. Calendar No. 113.
May 23, 2003
Floor Debate

2 members
What members said about S. 1149 on the floor
1 Republican1 Democrat
Sen. Chuck GrassleyR-IA · Jul 31, 2003
Mr. President, last night, Senator Baucus and I, along with Chairman Domenici and Senator Bingaman introduced the Energy Tax Incentives Act of 2003 as an amendment to the underlying energy bill. We also submitted an amendment that contains technical and conforming modifications to the Finance Committee reported amendment. Those amendments are numbered 1424 and 1431 and are printed in the Record of Wednesday, July 30, 2003. These important tax initiatives were developed after several months of consultation between our Committee members, and voted out of the Finance Committee as a bipartisan product. In my estimation, the Energy Tax Incentives Act reflects a fair balance of the interests of the members and effectively supports the development of energy production from renewable and environmentally beneficial sources.
I would like to briefly describe that amendment before I talk about the tax incentives part of the energy bill.
For years, I have worked to decrease our reliance on foreign sources of energy and accelerate and diversify domestic energy production. I believe public policy ought to promote renewable domestic production that uses renewable energy and fosters economic development.
Specifically, the development of alternative energy sources should alleviate domestic energy shortages and insulate the United States from the Middle East dominated oil supply. In addition, the development of renewable energy resources conserves existing natural resources and protects the environment. Finally, alternative energy development provides economic benefits to farmers, ranchers and forest land owners, such as those in Iowa who have launched efforts to diversify the state's economy and to find creative ways to extract a greater return from abundant natural resources.
Section 45 of the Internal Revenue Code currently provides a production tax credit for electricity produced from renewable sources including wind, closed-loop biomass, and poultry waste. The Energy Tax Incentives Act extends the section 45 credit and expands the sources of electricity to include biomass, including agricultural waste nutrients, geothermal wells and solar energy.
I have been a constant advocate of alternative energy sources. Since the inception almost ten years ago of the wind energy tax credit, nearly 4,300 megawatts of generating capacity have been installed across the country. Forty percent of that capacity was added during 2001, a year in which wind energy installations increased 3000% over the prior year--the most new wind capacity ever installed in the United States. Wind farms installed last year produce enough electricity to power almost half a million average American households per year, demonstrating the significant capacity of wind. In addition, wind represents an affordable and inexhaustible source of domestically produced energy. Extending the wind energy tax credit until 2007 would support the tremendous continued development of this clean, renewable energy source.
The Finance Committee's amendment supports a maturing green energy source. Experts have established wind energy's valuable contributions to maintaining cleaner air and a cleaner environment. Every 10,000 megawatts of wind energy produced in the United States can reduce carbon monoxide emissions by 33 million metric tons by replacing the combustion of fossil fuels.
In addition, this proposal helps to empower our rural communities to reap continued economic benefits. The installation of wind turbines has a stimulative economic effect because it requires significant capital investment which results in the creation of jobs and the injection of capital into often rural economic areas. The wind industry now estimates that nearly $2 billion in employment and economic development will be added this year alone in the presence of the prompt extension of the credit through January 1, 2007
In addition, for each wind turbine, a farmer or rancher can receive more than $2,000 per year for 20 years in direct lease payments. Iowa's major wind farms currently pay more than $640,000 per year to land owners, and the development of 1,000 megawatts of capacity in California, for example, would result in annual payments of approximately $2 million to farm and forest landowners in that state.
As many of my colleagues know, I authored the section 45 tax credit included in the Energy Policy Act of 1992 which provided a tax credit for the production of energy from closed loop biomass.
This term refers to biomass produced specifically for energy production. An example is switchgrass grown in my home state of Iowa. To sustain many of the benefits derived from the production of biomass energy, we extend the existing credit and expand the provision to additional new sources of biomass energy production.
Environmentally-friendly biomass energy production is a proven, effective technology that generates numerous waste management public benefits across the country.
Moreover, the amendment expands the biomass definition to cover open loop biomass. Open loop biomass, includes organic, non-hazardous materials such as saw dust, tree trimmings, agricultural byproducts and untreated construction debris.
The development of a local industry to convert biomass to electricity has the potential to produce enormous economic benefits and electricity security for rural America.
In addition, studies show that biomass crops could produce between $2 and $5 billion in additional farm income for American farmers. As an example, over 450 tons of turkey and chicken litter are under contract to be sold for an electricity plant using poultry litter being built in Minnesota. This is a win-win, not only do the farmers not have to pay to dispose of this stuff, they get paid to sell the litter.
Finally, marginal farmland incapable of sustaining traditional yearly production is often capable of generating native grasses and organic materials that are ideal for biomass energy production. Turning tree trimmings and native grasses into energy provides an economic gain and serves an important public interest.
I am very proud of a long history of supporting new alternative energy concepts in the production of electricity. This amendment continues and expands that commitment. As discussed previously, section 45 provides a production tax credit for electricity produced from renewable sources including wind, closed-loop biomass, and poultry waste. The amendment modifies section 45 to include electricity generated from swine and bovine waste nutrient. This is a great example of how the agriculture and energy industries can come together to develop an environmentally-friendly renewable resource.
By using animal waste as an energy source, an American livestock producer can reduce or eliminate monthly energy purchases from electric and gas suppliers and provide excess energy for distribution to other members of the community. By way of example, in January 2001, an 850- cow dairy operation near Princeton, MN generated enough electricity to run its entire dairy farm and to sell $4,400 worth of excess power to the local electric provider--enough to power 78 homes during the coldest month of the year. In addition, a 5,000-hog farm, has potential to generate approximately 650,000 kilowatts of electricity--an amount equal to the consumption of 76 average American homes.
The swine and bovine proposal is truly Green electricity, as it also furthers environmental objectives. Specifically, anaerobic digestion of manure improves air quality because it eliminates of as much as 90 percent of the odor from feedlots and improves soil and water quality by dramatically reducing problems with waste run-off. Maximizing farm resources in such a manner may prove essential to remain competitive in today's livestock market. In addition, the technology used to create the electricity results in the production of a fertilizer product that is of a higher quality than unprocessed animal waste.
The Energy Tax Incentives Act is important to agriculture, rural economy and small business, it is also important for domestic supply and energy independence.
Rural America can play an important part in energy independence and domestic supply. In addition to the production of electricity, this amendment includes additional tax incentives for the production of alternative fuels from renewable resources.
A small producers credit for the production of ethanol has been included to clarify that farmers cooperatives producing ethanol will be able to pass that tax incentive through to their farmer members. And we have a new incentive for the production of biodiesel. Biodiesel is a natural substitute for diesel fuel and can be made from almost all vegetable oils and animal fats. Modern science is allowing us to slowly substitute natural renewable agricultural sources for traditional petroleum. It gives us choices for the future and it can relieve the strain on the domestic oil production to fulfill those important needs that agricultural products cannot serve.
Let me point out that the Finance Committee amendment contains provisions that enhance the tax incentives for ethanol production. Ethanol is a clean burning fuel that will continue to be a key element in our transportation fuels policy. We reshaped the ethanol excise tax exemption. Under the Finance Committee change, ethanol-blended fuels will make the same contribution to the highway trust fund as regular gasoline while also retaining an important incentive to promote the use of domestic, renewable fuels.
It makes common sense for ethanol taxes to contribute just as much to building highways as traditional gasoline taxes. It isn't logical for a smaller portion of ethanol taxes to contribute to highways than the taxes from traditional gasoline. All types of vehicle fuel taxes should contribute equally to highway construction and maintenance.
Our highway needs are great. Our dependence on imported fuel should decrease. This restructuring of ethanol excise taxes contributes to both of those priorities. At the same time, it preserves all incentives to use the clean-burning, renewable, domestically produced ethanol, the fuel of the future.
Renewable fuels like ethanol and biodiesel will improve air quality, strengthen national security, reduce the trade deficit, decrease dependence on the Middle East for oil, and expand markets for agricultural products.
The Energy Tax Incentives Act amendment is a balanced package. I would like to note, with some satisfaction, that today we have the opportunity to do the people's business in the way they want us to do business. This Energy Tax Incentive amendment was crafted in a bipartisan way on an important initiative in a way that reflects the diversity of our views and the diversity of our nation. In this wartime climate, this is what the people want.
I have only taken a few minutes to review a portion of the amendment. The electricity tax credits and the alternative fuel incentives in the amendment are good for agriculture, good for the environment, good for energy consumers and good for national security interests. But this entire tax incentive amendment is equally important to a sound energy policy and I hope that my colleagues will join with me to advance these important legislative objectives.
Let me turn to the peculiar procedural situation that we find ourselves in. I want to enter conference with a clear understanding of the bipartisan intent of the Senate.
Today, the Senate will pass the text of last year's energy bill. Read literally, the unanimous consent agreement, states that the text of last year's Finance Committee amendment, which was adopted unanimously at the time, passes the Senate.
Folks in my home state of Iowa or my friend, Senator Baucus' home State of Montana, might reasonably ask a question. That question would be if you have improved the Finance Committee amendment from last year's bill, why not last year's tax title with this year's tax title? That's a good question. That was my position and that of Senator Baucus.
From a technical standpoint, you'd have to scratch your head, looking at effective dates for a bill that is now over a year old. There are other details in the official Senate-passed bill that will appear odd simply because the text has not been updated in over a year.
The answer to the question is simple. The answer is that this procedural agreement would not hold together unless last year's bill text stayed exactly the same. That reflects the agreement of the leaders on both sides. It has nothing to do with the substance of this year's Finance Committee amendment which is non-controversial. It has to do with the all or nothing, simplistic nature of the offer made by Senators Daschle and Reid. The problem is that, if tax matters are opened up, no matter how non-controversial, then other matters would be open. In that situation, then the agreement of the leaders could not be consummated expeditiously.
Our majority leader, Senator Frist, assured me that the position of the Senate Republican Caucus would be this year's Finance Committee amendment. As the senior Finance Committee conferee, let me assure the Senate, that will be our conference position. Just as importantly, let me make sure the other body understands the letter and spirit of our position. Let me repeat that, loudly and clearly.
The Senate position for conference purposes will be this year's Finance Committee amendment. Everyone here knows, that in regular order, this year's Finance Committee would have been adopted by the Senate. That is the substantive position and the intellectually honest position. I expect my House counterparts to recognize and respect that intellectually honest position.
Before I finish I would like to comment on a few tax incentive proposals I intended to offer to the Finance Committee amendment. Because of the procedural situation we are in, these matters will not be in the Senate-passed bill. That is unfortunate, but, if we are to get a bill out of the Senate, these proposals became casualties for the cause.
The first proposal deals with dividend allocation rules for cooperatives. This proposal would allow the payments of dividends on the stock of cooperatives without reducing patronage dividends. This measure is very important for energy production and agriculture and, I expect, would have easily cleared the Senate.
The second proposal deals with an expansion of the qualified zone academy bond program to cover certain ``green'' teaching facilities recognized by the Department of Energy. This is an important matter for one such facility in my home State of Iowa. Like the first proposal, I expect this provision would have easily cleared the Senate.
The third proposal deals with publicly-traded partnerships. This proposal would permit mutual funds to acquire interests in publicly- traded partnerships. Publicly-traded partnerships are a key source of financing for energy production projects such as pipelines.
I regret the procedural situation we find ourselves in. Unfortunately, these important priorities will not be directly addressed in the Senate bill. I intend to raise them in conference in the spirit of this bill. If not successful, I will pursue them on future tax vehicles.
Sen. Max BaucusD-MT · Jul 31, 2003
Mr. President, we are about to vote on the comprehensive Energy legislation. While the Senate has debated numerous aspects of this legislation, there has been a little discussion--not very much, I…
Mr. President, we are about to vote on the comprehensive Energy legislation. While the Senate has debated numerous aspects of this legislation, there has been a little discussion--not very much, I might add--
of the tax provisions in this bill. Yesterday, Senator Grassley, Senator Bingaman, Senator Domenici and I filed the Energy Tax Incentives Act of 2003 as an amendment to S. 14.
I ask unanimous consent to have printed in the Record a revenue table and the committee report at the conclusion of my remarks.
Mr. President, this amendment reflects the energy tax incentives reported out by the Finance Committee in April. The incentives in this amendment enjoy broad support, across the political spectrum.
These tax incentives are also very similar to those in last year's energy tax bill. In April of last year, they won overwhelming support on the Senate floor.
I was disappointed that the conferees did not reach an agreement on the larger energy package last year. I am hopeful that this year, we will see these provisions signed into law.
Before explaining the specific incentives proposed in this amendment, let me first take a few moments to address the nature of the energy challenge facing the nation.
The last few years have seen energy crises, characterized by energy supply shortages and price spikes. We saw rolling blackouts in the State of California. Energy price jolts affected nearly all Americans. Energy-related disruptions were widespread and severe.
Folks back in my home state of Montana have been particularly hard hit. Many people in Montana have to drive great distances just to get to work. And high gas and energy prices raise the costs of doing business for small businesses, farmers, and ranchers, alike.
Today, we face continued uncertainty in world energy markets. Earlier this year, energy prices soared to record levels. This was due, in part, to uncertainty over the war in Iraq. And it was also due, in part, to the colder-than-average winter.
Natural gas markets raise growing concerns. This May, Federal Reserve Chairman Alan Greenspan predicted that growing demand for natural gas and limited supplies would continue to raise natural gas prices. Chairman Greenspan warned that this situation could put American companies at a disadvantage relative to their overseas competitors.
Since then, natural gas prices have continued to climb. Today, natural gas prices are nearly double last year's levels. A year ago, natural gas prices across the nation averaged about $3 per thousand cubic feet. This year, during the last three days of June, trading on the New York Mercantile Exchange pushed prices up to an average of $5.98 per thousand cubic feet.
Natural gas is a key input and cost of doing business in the manufacturing sector. Manufacturing is very energy-intensive. Manufacturers use energy to heat factories, to heat boilers to make steam and produce electricity to run machines. Manufacturing accounts for nearly one-half of the nation's natural gas use.
Higher gas prices place additional competitive pressures on these businesses. The National Association of Manufacturers reports that rising energy costs are causing many companies to close their operations.
Slowing in the manufacturing sector accounts for much of the current weakening in our economy. And this means that hard-working Americans are losing jobs--high-paying jobs--jobs that often move overseas.
Rising natural gas prices also affect American consumers. The Department of Energy predicts that household bills will be about 20 percent higher this winter than last year.
Gasoline prices have also raised concerns. Last year at this time, the national average retail price for regular gasoline was about $1.40 per gallon. Earlier this year, prices peaked at almost $1.70 per gallon. Last week's average price was $1.52 per gallon. The Department of Energy expects prices to remain at this higher level throughout the year. This volatility in U.S. gas prices has a sharp economic effect, disrupting businesses and lives.
The average U.S. household uses about 1,100 gallons of gasoline a year in their cars. Thus the increase in gas prices over last year means that an average household is paying $132 more a year just for their car's gasoline. And because gas prices peaked at almost $1.70 per gallon earlier this year, the actual increase in household spending on gasoline was much greater.
Such a cost difference can have severe effects on businesses. Consider a business that relies primarily on trucking services for shipping its products. For these companies, even modest price volatility can break the business.
The outlook for both the gasoline and natural gas markets is not promising. The Department of Energy projects that during the next 20 years, world oil demand will increase by more than 50 percent, from 76 million barrels per day in 2000 to nearly 120 million barrels per day in 2020.
The more reliant we are on petroleum products, the more that oil price fluctuations will affect us. And continued political uncertainly and the treat of terrorism will worsen this vulnerability.
To address these energy challenges, the Energy Committee has designed the underlying bill. And to contribute to these efforts, earlier this year, the Finance Committee marked up a bill providing tax incentives to support these broader energy policy objectives. Those incentives are reflected in the pending amendment.
The Finance Committee amendment consists of a balanced package of targeted incentives directed to alternative energy, traditional energy production, and energy efficiency.
The amendment would accomplish its goals in three main ways:
First, it would encourage new energy production, especially production from renewable sources.
Second, it would encourage the development of new technology.
And third, it would encourage energy conservation.
Production, technology, and conservation. Let me explain each in turn.
First, new production is critical. The level of U.S. energy production directly affects our dependence on foreign sources of energy. If we can increase U.S. energy production faster than demand, we can become less reliant on foreign energy. The opposite, however, is taking place.
As this chart shows, through 2020, America's energy use is increasing more rapidly than domestic energy production. As a result, our reliance on foreign sources of energy is increasing.
Here is how we address the problem: Through targeted incentives, this amendment would encourage the development of both traditional and alternative sources of production, thereby boosting our overall energy resources. This will help promote American energy independence, which will contribute to both greater economic growth and national security.
The use of tax incentives to promote energy development stretches back to the enactment of the income tax in 1916, with tax incentives for the production of oil and gas. And in 1978, we created tax incentives for renewable fuels and for conservation.
This amendment would provide tax incentives for the development of renewable resources and alternative fuels. Renewables provide cleaner, safer alternatives to more drilling and more nuclear facilities.
This amendment would extend the wind and biomass credit for an additional 5 years. And the amendment would qualify many more sources-- geothermal, solar, plant life, and others--as renewable fuel sources.
At the same time, we recognize that the U.S. will continue to rely on oil, gas, and coal production. To further boost production, the amendment would create a new credit for oil and gas production from marginal wells. And the amendment would simplify cost recovery of geological and geophysical expenditures. The amendment would also include several tax incentives to help the oil and gas industry to bring supply to market.
While this amendment would thus support exploration and production of more traditional resources, it would also encourage cleaner use of these fuels.
For example, the amendment includes several incentives to encourage electric utilities to invest in technologies that will make their coal- fired power plants cleaner-burning and more efficient. This will help make coal a more environmentally-friendly energy source into the future, even as we look for alternatives.
Energy sector activities are often front and center in environmental debates. Congress needs to consider environmental concerns when crafting its energy legislation. By carefully targeting our tax incentives, we can encourage more environmentally-friendly activities, such as the use of renewable resources and the transition towards cleaner, more-efficient technologies.
Let me turn to the second key element of the amendment: new technology.
New technology can be the cornerstone of energy independence and cleaner energy. In the future, electricity, new and alternative fuels, and fuel cells will power our cars.
But to get there, we will need substantial investments to create the building blocks for future technologies. Why? Because today's transportation sector is 97 percent reliant on petroleum based fuel. That's right. 97 percent.
We need a lot of change to make the transportation sector cleaner and more fuel-efficient. We need to make significant investments to bring about this change.
In addition, we need to promote the use of cleaner, more-efficient technologies throughout the energy sector. Such state-of-the-art technologies are often more expensive than more-traditional technologies. Tax incentives help to bridge the gap in cost between these cleaner technologies and traditional technologies.
Here is what we do.
We create tax credits for the purchase of new technology vehicles. These vehicles of the future will be powered by alternative fuels, fuel cells, and by electric batteries.
We also provide tax credits for the purchase of hybrid vehicles, which run partly on electricity and partly on gasoline.
What is so great about these vehicles? Well for starters, fuel cell and electric vehicles are zero-emissions vehicles. And hybrid and alternative fuel vehicles can speed us toward the development of these zero-emissions vehicles.
And each of these vehicle types can significantly improve fuel economy and energy independence. To make sure, we provide certain tax credits only if the vehicle achieves large improvements in fuel economy.
Many new vehicle technologies require new fuels and infrastructure to deliver those fuels. Therefore, the amendment provides tax incentives for the installation of new-technology refueling stations and for the purchase of alternative fuels.
We also have developed a number of incentives to promote the use of cleaner-burning, state-of-the-art technologies throughout the energy sector.
We create incentives for clean coal. Under the amendment, if you retrofit to use currently available clean coal technology, you are eligible for a production tax credit. If you use advanced technology, you are eligible for both an investment credit and a production credit.
Investing in these cleaner-burning technologies in the coal and transportation sectors will have positive long-term environmental effects, particularly for air quality.
Other incentives will promote the development of renewable energy technology. These and other tax incentives will help advance further technological development. This will have a long-term stimulative effect on America's economy.
The third key element of the amendment is conservation. Just as much as new production, conservation promotes energy independence. It also helps reduce pollution and thereby improve our health and the environment in the longer term.
In crafting these incentives, we have struck a balance between production and conservation. Increasing conservation--reducing energy consumption--will help reduce our reliance on foreign sources of energy.
And tax incentives can be effective means of encouraging conservation. A couple of years back, Economist Kevin Hassett told the Committee that ``a 10 percentage point credit would likely increase the probability of investing--in conservation--by about 24 percent.''
The amendment includes several incentives to encourage businesses and homeowners to use energy-efficient equipment, building materials, and appliances. These tax incentives can make the difference, as such products tend to be more expensive than more-traditional products and materials.
As Energy Secretary Abraham said during a tour of the National Renewable Energy Laboratory in Golden, Colorado, earlier this month: Americans can help mitigate an expected natural-gas shortage during the coming year by reducing energy use and adopting efficiency measures for heating and cooling homes and offices.
The amendment would give a tax credit to reduce the cost of the energy-efficient technology, enabling individuals to purchase energy- efficient refrigerators and other appliances.
The amendment would also empower individuals with more complete energy consumption information by encouraging metering devices. These types of metering devices allow people to make more-informed decisions about the use of energy and thereby save energy in their homes.
Over time, the benefits of tax investments in energy conservation will reduce monthly energy bills. These cost savings can have the same economic effect as a tax cut--more dollars in the hands of American families.
Those are the three key elements of the amendment. New production, new technology, and conservation.
The amendment includes other important provisions. One in particular is electric utility restructuring. This is important for investor-owned utilities, municipal utilities, and cooperatives, like those back in Montana.
Other provisions address nuclear decommissioning funds and the treatment of cooperatives.
Finally, these tax provisions address market inefficiencies by providing a real economic benefit for engaging in more environmentally- sensitive activities. In short, this amendment is good environmental policy and good energy policy.
This is a good amendment. It is a package of tax incentives that are important in their own right and that will complement the broader energy bill. It will provide a key component of our emerging environmental and energy policies.
I support Chairman Grassley's position that this amendment generally should represent the position of the Finance Committee and the Senate during conference negotiations of the Energy Bill.
Mr. President, I yield the floor.
Bill Text

Latest available legislative text
Reading Mode
Raw Text PDF
Placed on Calendar SenateIssued May 23, 2003
        [Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[S. 1149 Placed on Calendar Senate (PCS)]

Calendar No. 113
108th CONGRESS
1st Session
S. 1149

[Report No. 108-54]

To amend the Internal Revenue Code of 1986 to provide energy tax
incentives, and for other purposes.

_______________________________________________________________________

IN THE SENATE OF THE UNITED STATES

May 23, 2003

Mr. Grassley, from the Committee on Finance, reported the following
original bill; which was read twice and placed on the calendar

_______________________________________________________________________

A BILL

To amend the Internal Revenue Code of 1986 to provide energy tax
incentives, and for other purposes.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; ETC.

(a) Short Title.--This Act may be cited as the ``Energy Tax
Incentives Act of 2003''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this division an amendment or repeal is expressed
in terms of an amendment to, or repeal of, a section or other
provision, the reference shall be considered to be made to a section or
other provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents for this Act is as
follows:

Sec. 1. Short title; etc.
TITLE I--RENEWABLE ELECTRICITY PRODUCTION TAX CREDIT

Sec. 101. Extension and expansion of credit for electricity produced
from certain renewable resources.
TITLE II--ALTERNATIVE MOTOR VEHICLES AND FUELS INCENTIVES

Sec. 201. Alternative motor vehicle credit.
Sec. 202. Modification of credit for qualified electric vehicles.
Sec. 203. Credit for installation of alternative fueling stations.
Sec. 204. Credit for retail sale of alternative fuels as motor vehicle
fuel.
Sec. 205. Small ethanol producer credit.
Sec. 206. Increased flexibility in alcohol fuels tax credit.
Sec. 207. Incentives for biodiesel.
Sec. 208. Alcohol fuel and biodiesel mixtures excise tax credit.
Sec. 209. Sale of gasoline and diesel fuel at duty-free sales
enterprises.
TITLE III--CONSERVATION AND ENERGY EFFICIENCY PROVISIONS

Sec. 301. Credit for construction of new energy efficient home.
Sec. 302. Credit for energy efficient appliances.
Sec. 303. Credit for residential energy efficient property.
Sec. 304. Credit for business installation of qualified fuel cells and
stationary microturbine power plants.
Sec. 305. Energy efficient commercial buildings deduction.
Sec. 306. Three-year applicable recovery period for depreciation of
qualified energy management devices.
Sec. 307. Three-year applicable recovery period for depreciation of
qualified water submetering devices.
Sec. 308. Energy credit for combined heat and power system property.
Sec. 309. Credit for energy efficiency improvements to existing homes.
TITLE IV--CLEAN COAL INCENTIVES

Subtitle A--Credit for Emission Reductions and Efficiency Improvements
in Existing Coal-Based Electricity Generation Facilities

Sec. 401. Credit for production from a qualifying clean coal technology
unit.
Subtitle B--Incentives for Early Commercial Applications of Advanced
Clean Coal Technologies

Sec. 411. Credit for investment in qualifying advanced clean coal
technology.
Sec. 412. Credit for production from a qualifying advanced clean coal
technology unit.
Subtitle C--Treatment of Persons Not Able To Use Entire Credit

Sec. 421. Treatment of persons not able to use entire credit.
TITLE V--OIL AND GAS PROVISIONS

Sec. 501. Oil and gas from marginal wells.
Sec. 502. Natural gas gathering lines treated as 7-year property.
Sec. 503. Expensing of capital costs incurred in complying with
Environmental Protection Agency sulfur
regulations.
Sec. 504. Environmental tax credit.
Sec. 505. Determination of small refiner exception to oil depletion
deduction.
Sec. 506. Marginal production income limit extension.
Sec. 507. Amortization of delay rental payments.
Sec. 508. Amortization of geological and geophysical expenditures.
Sec. 509. Extension and modification of credit for producing fuel from
a nonconventional source.
Sec. 510. Natural gas distribution lines treated as 15-year property.
Sec. 511. Credit for Alaska natural gas.
Sec. 512. Certain Alaska natural gas pipeline property treated as 7-
year property.
Sec. 513. Arbitrage rules not to apply to prepayments for natural gas.
TITLE VI--ELECTRIC UTILITY RESTRUCTURING PROVISIONS

Sec. 601. Modifications to special rules for nuclear decommissioning
costs.
Sec. 602. Treatment of certain income of cooperatives.
Sec. 603. Sales or dispositions to implement Federal Energy Regulatory
Commission or State electric restructuring
policy.
TITLE VII--ADDITIONAL PROVISIONS

Sec. 701. Extension of accelerated depreciation and wage credit
benefits on Indian reservations.
Sec. 702. Study of effectiveness of certain provisions by GAO.
Sec. 703. Repeal of 4.3-cent motor fuel excise taxes on railroads and
inland waterway transportation which remain
in general fund.
Sec. 704. Expansion of research credit.
TITLE VIII--REVENUE PROVISIONS

Subtitle A--Provisions Designed To Curtail Tax Shelters

Sec. 801. Penalty for failing to disclose reportable transaction.
Sec. 802. Accuracy-related penalty for listed transactions and other
reportable transactions having a
significant tax avoidance purpose.
Sec. 803. Tax shelter exception to confidentiality privileges relating
to taxpayer communications.
Sec. 804. Disclosure of reportable transactions.
Sec. 805. Modifications to penalty for failure to register tax
shelters.
Sec. 806. Modification of penalty for failure to maintain lists of
investors.
Sec. 807. Penalty on promoters of tax shelters.
Subtitle B--Provisions to Discourage Corporate Expatriation

Sec. 821. Tax treatment of inverted corporate entities.
Sec. 822. Excise tax on stock compensation of insiders in inverted
corporations.
Sec. 823. Reinsurance of United States risks in foreign jurisdictions.
Subtitle C--Other Revenue Provisions

Sec. 831. Extension of Internal Revenue Service user fees.
Sec. 832. Addition of vaccines against hepatitis A to list of taxable
vaccines.
Sec. 833. Individual expatriation to avoid tax.

TITLE I--RENEWABLE ELECTRICITY PRODUCTION TAX CREDIT

SEC. 101. EXTENSION AND EXPANSION OF CREDIT FOR ELECTRICITY PRODUCED
FROM CERTAIN RENEWABLE RESOURCES.

(a) Expansion of Qualified Energy Resources.--Subsection (c) of
section 45 (relating to electricity produced from certain renewable
resources) is amended to read as follows:
``(c) Qualified Energy Resources.--For purposes of this section--
``(1) In general.--The term `qualified energy resources'
means--
``(A) wind,
``(B) closed-loop biomass,
``(C) biomass (other than closed-loop biomass),
``(D) geothermal energy,
``(E) solar energy,
``(F) small irrigation power,
``(G) biosolids and sludge, and
``(H) municipal solid waste.''.
``(2) Closed-loop biomass.--The term `closed-loop biomass'
means any organic material from a plant which is planted
exclusively for purposes of being used at a qualified facility
to produce electricity.
``(3) Biomass.--
``(A) In general.--The term `biomass' means--
``(i) any agricultural livestock waste
nutrients, or
``(ii) any solid, nonhazardous, cellulosic
waste material which is segregated from other
waste materials and which is derived from--
``(I) any of the following forest-
related resources: mill and harvesting
residues, precommercial thinnings,
slash, and brush,
``(II) solid wood waste materials,
including waste pallets, crates,
dunnage, manufacturing and construction
wood wastes (other than pressure-
treated, chemically-treated, or painted
wood wastes), and landscape or right-of-way tree trimmings, but not
including municipal solid waste, gas derived from the biodegradation of
solid waste, or paper which is commonly recycled, or
``(III) agriculture sources,
including orchard tree crops, vineyard,
grain, legumes, sugar, and other crop
by-products or residues.
``(B) Agricultural livestock waste nutrients.--
``(i) In general.--The term `agricultural
livestock waste nutrients' means agricultural
livestock manure and litter, including wood
shavings, straw, rice hulls, and other bedding
material for the disposition of manure.
``(ii) Agricultural livestock.--The term
`agricultural livestock' includes bovine,
swine, poultry, and sheep.
``(4) Geothermal energy.--The term `geothermal energy'
means energy derived from a geothermal deposit (within the
meaning of section 613(e)(2)).
``(5) Small irrigation power.--The term `small irrigation
power' means power--
``(A) generated without any dam or impoundment of
water through an irrigation system canal or ditch, and
``(B) the installed capacity of which is less than
5 megawatts.
``(6) Biosolids and sludge.--The term `biosolids and
sludge' means the residue or solids removed in the treatment of
commercial, industrial, or municipal wastewater.
``(7) Municipal solid waste.--The term `municipal solid
waste' has the meaning given the term `solid waste' under
section 2(27) of the Solid Waste Disposal Act (42 U.S.C.
6903).''.
(b) Extension and Expansion of Qualified Facilities.--
(1) In general.--Section 45 is amended by redesignating
subsection (d) as subsection (e) and by inserting after
subsection (c) the following new subsection:
``(d) Qualified Facilities.--For purposes of this section--
``(1) Wind facility.--In the case of a facility using wind
to produce electricity, the term `qualified facility' means any
facility owned by the taxpayer which is originally placed in
service after December 31, 1993, and before January 1, 2007.
``(2) Closed-loop biomass facility.--
``(A) In general.--In the case of a facility using
closed-loop biomass to produce electricity, the term
`qualified facility' means any facility--
``(i) owned by the taxpayer which is
originally placed in service after December 31,
1992, and before January 1, 2007, or
``(ii) owned by the taxpayer which before
January 1, 2007, is originally placed in
service and modified to use closed-loop biomass
to co-fire with coal, with other biomass, or
with both, but only if the modification is
approved under the Biomass Power for Rural
Development Programs or is part of a pilot
project of the Commodity Credit Corporation as
described in 65 Fed. Reg. 63052.
``(B) Special rules.--In the case of a qualified
facility described in subparagraph (A)(ii)--
``(i) the 10-year period referred to in
subsection (a) shall be treated as beginning no
earlier than the date of the enactment of the
Energy Tax Incentives Act of 2003,
``(ii) the amount of the credit determined
under subsection (a) with respect to the
facility shall be an amount equal to the amount
determined without regard to this clause
multiplied by the ratio of the thermal content
of the closed-loop biomass used in such
facility to the thermal content of all fuels
used in such facility, and
``(iii) if the owner of such facility is
not the producer of the electricity, the person
eligible for the credit allowable under
subsection (a) shall be the lessee or the
operator of such facility.
``(3) Biomass facility.--
``(A) In general.--In the case of a facility using
biomass (other than closed-loop biomass) to produce
electricity, the term `qualified facility' means any
facility owned by the taxpayer which--
``(i) in the case of a facility using
agricultural livestock waste nutrients, is
originally placed in service after the date of
the enactment of the Energy Tax Incentives Act
of 2003 and before January 1, 2007, and
``(ii) in the case of any other facility,
is originally placed in service before January
1, 2005.
``(B) Special rules for preeffective date
facilities.--In the case of any facility described in
subparagraph (A)(ii) which is placed in service before
the date of the enactment of such Act--
``(i) subsection (a)(1) shall be applied by
substituting `1.2 cents' for `1.5 cents', and
``(ii) the 5-year period beginning on
January 1, 2004, shall be substituted for the
10-year period in subsection (a)(2)(A)(ii).
``(C) Credit eligibility.--In the case of any
facility described in subparagraph (A), if the owner of
such facility is not the producer of the electricity,
the person eligible for the credit allowable under
subsection (a) shall be the lessee or the operator of
such facility.
``(4) Geothermal or solar energy facility.--
``(A) In general.--In the case of a facility using
geothermal or solar energy to produce electricity, the
term `qualified facility' means any facility owned by
the taxpayer which is originally placed in service
after the date of the enactment of the Energy Tax
Incentives Act of 2003 and before January 1, 2007.
``(B) Special rule.--In the case of any facility
described in subparagraph (A), the 5-year period
beginning on the date the facility was originally
placed in service shall be substituted for the 10-year
period in subsection (a)(2)(A)(ii).
``(5) Small irrigation power facility.--In the case of a
facility using small irrigation power to produce electricity,
the term `qualified facility' means any facility owned by the
taxpayer which is originally placed in service after the date
of the enactment of the Energy Tax Incentives Act of 2003 and
before January 1, 2007.
``(6) Biosolids and sludge facility.--In the case of a
facility using waste heat from the incineration of biosolids
and sludge to produce electricity, the term `qualified
facility' means any facility owned by the taxpayer which is
originally placed in service after the date of the enactment of
the Energy Tax Incentives Act of 2003 and before January 1,
2007. Such term shall not include any property described in
section 48(a)(5) the basis of which is taken into account for
purposes of the energy credit under section 46.
``(7) Municipal solid waste facility.--
``(A) In general.--In the case of a facility or
unit incinerating municipal solid waste to produce
electricity, the term `qualified facility' means any
facility or unit owned by the taxpayer which is
originally placed in service after the date of the
enactment of the Energy Tax Incentives Act of 2003 and
before January 1, 2007.
``(B) Special rule.--In the case of any facility or
unit described in subparagraph (A), the 5-year period
beginning on the date the facility or unit was
originally placed in service shall be substituted for
the 10-year period in subsection (a)(2)(A)(ii).
``(C) Credit eligibility.--In the case of any
qualified facility described in subparagraph (A), if
the owner of such facility is not the producer of the
electricity, the person eligible for the credit
allowable under subsection (a) shall be the lessee or
the operator of such facility.''.
(2) No credit for certain production.--Section 45(e)
(relating to definitions and special rules), as redesignated by
paragraph (1), is amended by striking paragraph (6) and
inserting the following new paragraph:
``(6) Operations inconsistent with solid waste disposal
act.--In the case of a qualified facility described in
subsection (d)(6)(A), subsection (a) shall not apply to
electricity produced at such facility during any taxable year
if, during a portion of such year, there is a certification in
effect by the Administrator of the Environmental Protection
Agency that such facility was permitted to operate in a manner
inconsistent with section 4003(d) of the Solid Waste Disposal
Act (42 U.S.C. 6943(d)).''.
(3) Conforming amendment.--Section 45(e), as so
redesignated, is amended by striking ``subsection (c)(3)(A)''
in paragraph (7)(A)(i) and inserting ``subsection (d)(1)''.
(c) Credit Rate for Electricity Produced From New Facilities.--
(1) In general.--Section 45(a) is amended by adding at the
end the following new flush sentence:
``In the case of electricity produced after 2003 at any qualified
facility originally placed in service after the date of the enactment
of the Energy Tax Incentives Act of 2003, paragraph (1) shall be
applied by substituting `1.8 cents' for `1.5 cents'.''.
(2) New rate not subject to inflation adjustment.--Section
45(b)(2) (relating to credit and phaseout adjustment based on
inflation) is amended by adding at the end the following new
sentence: ``This paragraph shall not apply to any amount which
is substituted for the 1.5 cent amount in subsection (a) by
reason of any provision of this section.''.
(d) Elimination of Certain Credit Reductions.--Section 45(b)(3)(A)
(relating to credit reduced for grants, tax-exempt bonds, subsidized
energy financing, and other credits) is amended--
(1) by striking clause (ii),
(2) by redesignating clauses (iii) and (iv) as clauses (ii)
and (iii),
(3) by inserting ``(other than proceeds of an issue of
State or local government obligations the interest on which is
exempt from tax under section 103, or any loan, debt, or other
obligation incurred under subchapter I of chapter 31 of title 7
of the Rural Electrification Act of 1936 (7 U.S.C. 901 et
seq.), as in effect on the date of the enactment of the Energy
Tax Incentives Act of 2003)'' after ``project'' in clause (ii)
(as so redesignated),
(4) by adding at the end the following new sentence: ``This
paragraph shall not apply with respect to any facility
described in subsection (d)(2)(A)(ii).'', and
(5) by striking ``tax-exempt bonds,'' in the heading and
inserting ``certain''.
(e) Treatment of Persons Not Able To Use Entire Credit.--Section
45(e) (relating to definitions and special rules), as redesignated by
subsection (b)(1), is amended by adding at the end the following new
paragraph:
``(8) Treatment of persons not able to use entire credit.--
``(A) Allowance of credit.--
``(i) In general.--Except as otherwise
provided in this subsection--
``(I) any credit allowable under
subsection (a) with respect to a
qualified facility owned by a person
described in clause (ii) may be
transferred or used as provided in this
paragraph, and
``(II) the determination as to
whether the credit is allowable shall
be made without regard to the tax-
exempt status of the person.
``(ii) Persons described.--A person is
described in this clause if the person is--
``(I) an organization described in
section 501(c)(12)(C) and exempt from
tax under section 501(a),
``(II) an organization described in
section 1381(a)(2)(C),
``(III) a public utility (as
defined in section 136(c)(2)(B)), which
is exempt from income tax under this
subtitle,
``(IV) any State or political
subdivision thereof, the District of
Columbia, any possession of the United
States, or any agency or
instrumentality of any of the
foregoing, or
``(V) any Indian tribal government
(within the meaning of section 7871) or
any agency or instrumentality thereof.
``(B) Transfer of credit.--
``(i) In general.--A person described in
subparagraph (A)(ii) may transfer any credit to
which subparagraph (A)(i) applies through an
assignment to any other person not described in
subparagraph (A)(ii). Such transfer may be
revoked only with the consent of the Secretary.
``(ii) Regulations.--The Secretary shall
prescribe such regulations as necessary to
ensure that any credit described in clause (i)
is assigned once and not reassigned by such
other person.
``(iii) Transfer proceeds treated as
arising from essential government function.--
Any proceeds derived by a person described in
subclause (III), (IV), or (V) of subparagraph
(A)(ii) from the transfer of any credit under
clause (i) shall be treated as arising from the
exercise of an essential government function.
``(C) Use of credit as an offset.--Notwithstanding
any other provision of law, in the case of a person
described in subclause (I), (II), or (V) of
subparagraph (A)(ii), any credit to which subparagraph
(A)(i) applies may be applied by such person, to the
extent provided by the Secretary of Agriculture, as a
prepayment of any loan, debt, or other obligation the
entity has incurred under subchapter I of chapter 31 of
title 7 of the Rural Electrification Act of 1936 (7
U.S.C. 901 et seq.), as in effect on the date of the
enactment of the Energy Tax Incentives Act of 2003.
``(D) Credit not income.--Any transfer under
subparagraph (B) or use under subparagraph (C) of any
credit to which subparagraph (A)(i) applies shall not
be treated as income for purposes of section
501(c)(12).
``(E) Treatment of unrelated persons.--For purposes
of subsection (a)(2)(B), sales of electricity among and
between persons described in subparagraph (A)(ii) shall
be treated as sales between unrelated parties.''.
(f) Effective Dates.--
(1) In general.--Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
electricity produced and sold after the date of the enactment
of this Act, in taxable years ending after such date.
(2) Certain biomass facilities.--With respect to any
facility described in section 45(d)(3)(A)(ii) of the Internal
Revenue Code of 1986, as added by subsection (b)(1), which is
placed in service before the date of the enactment of this Act,
the amendments made by this section shall apply to electricity
produced and sold after December 31, 2003, in taxable years
ending after such date.
(3) Credit rate for new facilities.--The amendments made by
subsection (c) shall apply to electricity produced and sold
after December 31, 2003, in taxable years ending after such
date.
(4) Nonapplication of amendments to preeffective date
poultry waste facilities.--The amendments made by this section
shall not apply with respect to any poultry waste facility
(within the meaning of section 45(c)(3)(C), as in effect on the
day before the date of the enactment of this Act) placed in
service on or before such date of enactment.

TITLE II--ALTERNATIVE MOTOR VEHICLES AND FUELS INCENTIVES

SEC. 201. ALTERNATIVE MOTOR VEHICLE CREDIT.

(a) In General.--Subpart B of part IV of subchapter A of chapter 1
(relating to foreign tax credit, etc.) is amended by adding at the end
the following new section:

``SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.

``(a) Allowance of Credit.--There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an amount
equal to the sum of--
``(1) the new qualified fuel cell motor vehicle credit
determined under subsection (b),
``(2) the new qualified hybrid motor vehicle credit
determined under subsection (c), and
``(3) the new qualified alternative fuel motor vehicle
credit determined under subsection (d).
``(b) New Qualified Fuel Cell Motor Vehicle Credit.--
``(1) In general.--For purposes of subsection (a), the new
qualified fuel cell motor vehicle credit determined under this
subsection with respect to a new qualified fuel cell motor
vehicle placed in service by the taxpayer during the taxable
year is--
``(A) $4,000, if such vehicle has a gross vehicle
weight rating of not more than 8,500 pounds,
``(B) $10,000, if such vehicle has a gross vehicle
weight rating of more than 8,500 pounds but not more
than 14,000 pounds,
``(C) $20,000, if such vehicle has a gross vehicle
weight rating of more than 14,000 pounds but not more
than 26,000 pounds, and
``(D) $40,000, if such vehicle has a gross vehicle
weight rating of more than 26,000 pounds.
``(2) Increase for fuel efficiency.--
``(A) In general.--The amount determined under
paragraph (1)(A) with respect to a new qualified fuel
cell motor vehicle which is a passenger automobile or
light truck shall be increased by--
``(i) $1,000, if such vehicle achieves at
least 150 percent but less than 175 percent of
the 2002 model year city fuel economy,
``(ii) $1,500, if such vehicle achieves at
least 175 percent but less than 200 percent of
the 2002 model year city fuel economy,
``(iii) $2,000, if such vehicle achieves at
least 200 percent but less than 225 percent of
the 2002 model year city fuel economy,
``(iv) $2,500, if such vehicle achieves at
least 225 percent but less than 250 percent of
the 2002 model year city fuel economy,
``(v) $3,000, if such vehicle achieves at
least 250 percent but less than 275 percent of
the 2002 model year city fuel economy,
``(vi) $3,500, if such vehicle achieves at
least 275 percent but less than 300 percent of
the 2002 model year city fuel economy, and
``(vii) $4,000, if such vehicle achieves at
least 300 percent of the 2002 model year city
fuel economy.
``(B) 2002 model year city fuel economy.--For
purposes of subparagraph (A), the 2002 model year city
fuel economy with respect to a vehicle shall be determined in
accordance with the following tables:
``(i) In the case of a passenger
automobile:
The 2002 model year city
``If vehicle inertia weight class                      fuel economy is:
is:
1,500 or 1,750 lbs............................            45.2 mpg
2,000 lbs.....................................            39.6 mpg
2,250 lbs.....................................            35.2 mpg
2,500 lbs.....................................            31.7 mpg
2,750 lbs.....................................            28.8 mpg
3,000 lbs.....................................            26.4 mpg
3,500 lbs.....................................            22.6 mpg
4,000 lbs.....................................            19.8 mpg
4,500 lbs.....................................            17.6 mpg
5,000 lbs.....................................            15.9 mpg
5,500 lbs.....................................            14.4 mpg
6,000 lbs.....................................            13.2 mpg
6,500 lbs.....................................            12.2 mpg
7,000 to 8,500 lbs............................            11.3 mpg.
``(ii) In the case of a light truck:

The 2002 model year city
``If vehicle inertia weight class                      fuel economy is:
is:
1,500 or 1,750 lbs............................            39.4 mpg
2,000 lbs.....................................            35.2 mpg
2,250 lbs.....................................            31.8 mpg
2,500 lbs.....................................            29.0 mpg
2,750 lbs.....................................            26.8 mpg
3,000 lbs.....................................            24.9 mpg
3,500 lbs.....................................            21.8 mpg
4,000 lbs.....................................            19.4 mpg
4,500 lbs.....................................            17.6 mpg
5,000 lbs.....................................            16.1 mpg
5,500 lbs.....................................            14.8 mpg
6,000 lbs.....................................            13.7 mpg
6,500 lbs.....................................            12.8 mpg
7,000 to 8,500 lbs............................            12.1 mpg.
``(C) Vehicle inertia weight class.--For purposes
of subparagraph (B), the term `vehicle inertia weight
class' has the same meaning as when defined in
regulations prescribed by the Administrator of the
Environmental Protection Agency for purposes of the
administration of title II of the Clean Air Act (42
U.S.C. 7521 et seq.).
``(3) New qualified fuel cell motor vehicle.--For purposes
of this subsection, the term `new qualified fuel cell motor
vehicle' means a motor vehicle--
``(A) which is propelled by power derived from 1 or
more cells which convert chemical energy directly into
electricity by combining oxygen with hydrogen fuel
which is stored on board the vehicle in any form and
may or may not require reformation prior to use,
``(B) which, in the case of a passenger automobile
or light truck--
``(i) for 2002 and later model vehicles,
has received a certificate of conformity under
the Clean Air Act and meets or exceeds the
equivalent qualifying California low emission
vehicle standard under section 243(e)(2) of the
Clean Air Act for that make and model year, and
``(ii) for 2004 and later model vehicles,
has received a certificate that such vehicle
meets or exceeds the Bin 5 Tier II emission
level established in regulations prescribed by
the Administrator of the Environmental
Protection Agency under section 202(i) of the
Clean Air Act for that make and model year
vehicle,
``(C) the original use of which commences with the
taxpayer,
``(D) which is acquired for use or lease by the
taxpayer and not for resale, and
``(E) which is made by a manufacturer.
``(c) New Qualified Hybrid Motor Vehicle Credit.--
``(1) In general.--For purposes of subsection (a), the new
qualified hybrid motor vehicle credit determined under this
subsection with respect to a new qualified hybrid motor vehicle
placed in service by the taxpayer during the taxable year is
the credit amount determined under paragraph (2).
``(2) Credit amount.--
``(A) In general.--The credit amount determined
under this paragraph shall be determined in accordance
with the following tables:
``(i) In the case of a new qualified hybrid
motor vehicle which is a passenger automobile,
medium duty passenger vehicle, or light truck
and which provides the following percentage of
the maximum available power:

``If percentage of the maximum
available power is:                             The credit amount is:
At least 4 percent but less than 10 percent...                $250
At least 10 percent but less than 20 percent..                $500
At least 20 percent but less than 30 percent..                $750
At least 30 percent...........................              $1,000.
``(ii) In the case of a new qualified
hybrid motor vehicle which is a heavy duty
hybrid motor vehicle and which provides the
following percentage of the maximum available
power:
``(I) If such vehicle has a gross
vehicle weight rating of not more than
14,000 pounds:

``If percentage of the maximum
available power is:                             The credit amount is:
At least 20 percent but less than 30 percent..              $1,000
At least 30 percent but less than 40 percent..              $1,750
At least 40 percent but less than 50 percent..              $2,000
At least 50 percent but less than 60 percent..              $2,250
At least 60 percent...........................              $2,500.
``(II) If such vehicle has a gross
vehicle weight rating of more than
14,000 but not more than 26,000 pounds:

``If percentage of the maximum
available power is:                             The credit amount is:
At least 20 percent but less than 30 percent..              $4,000
At least 30 percent but less than 40 percent..              $4,500
At least 40 percent but less than 50 percent..              $5,000
At least 50 percent but less than 60 percent..              $5,500
At least 60 percent...........................              $6,000.
``(III) If such vehicle has a gross
vehicle weight rating of more than
26,000 pounds:

``If percentage of the maximum
available power is:                             The credit amount is:
At least 20 percent but less than 30 percent..              $6,000
At least 30 percent but less than 40 percent..              $7,000
At least 40 percent but less than 50 percent..              $8,000
At least 50 percent but less than 60 percent..              $9,000
At least 60 percent...........................             $10,000.
``(B) Increase for fuel efficiency.--
``(i) Amount.--The amount determined under
subparagraph (A)(i) with respect to a new
qualified hybrid motor vehicle which is a
passenger automobile or light truck shall be
increased by--
``(I) $500, if such vehicle
achieves at least 125 percent but less
than 150 percent of the 2002 model year
city fuel economy,
``(II) $1,000, if such vehicle
achieves at least 150 percent but less
than 175 percent of the 2002 model year
city fuel economy,
``(III) $1,500, if such vehicle
achieves at least 175 percent but less
than 200 percent of the 2002 model year
city fuel economy,
``(IV) $2,000, if such vehicle
achieves at least 200 percent but less
than 225 percent of the 2002 model year
city fuel economy,
``(V) $2,500, if such vehicle
achieves at least 225 percent but less
than 250 percent of the 2002 model year
city fuel economy, and
``(VI) $3,000, if such vehicle
achieves at least 250 percent of the
2002 model year city fuel economy.
``(ii) 2002 model year city fuel economy.--
For purposes of clause (i), the 2002 model year
city fuel economy with respect to a vehicle
shall be determined on a gasoline gallon
equivalent basis as determined by the
Administrator of the Environmental Protection
Agency using the tables provided in subsection
(b)(2)(B) with respect to such vehicle.
``(C) Increase for accelerated emissions
performance.--The amount determined under subparagraph
(A)(ii) with respect to an applicable heavy duty hybrid
motor vehicle shall be increased by the increased credit amount
determined in accordance with the following tables:
``(i) In the case of a vehicle which has a
gross vehicle weight rating of not more than
14,000 pounds:

``If the model year is:             The increased credit amount is:
2003..........................................              $3,000
2004..........................................              $2,500
2005..........................................              $2,000
2006..........................................              $1,500.
``(ii) In the case of a vehicle which has a
gross vehicle weight rating of more than 14,000
pounds but not more than 26,000 pounds:

``If the model year is:             The increased credit amount is:
2003..........................................              $7,750
2004..........................................              $6,500
2005..........................................              $5,250
2006..........................................              $4,000.
``(iii) In the case of a vehicle which has
a gross vehicle weight rating of more than
26,000 pounds:

``If the model year is:             The increased credit amount is:
2003..........................................             $12,000
2004..........................................             $10,000
2005..........................................              $8,000
2006..........................................              $6,000.
``(D) Definitions relating to credit amount.--
``(i) Applicable heavy duty hybrid motor
vehicle.--For purposes of subparagraph (C), the
term `applicable heavy duty hybrid motor
vehicle' means a heavy duty hybrid motor
vehicle which is powered by an internal
combustion or heat engine which is certified as
meeting the emission standards set in the
regulations prescribed by the Administrator of
the Environmental Protection Agency for 2007
and later model year diesel heavy duty engines,
or for 2008 and later model year ottocycle
heavy duty engines, as applicable.
``(ii) Maximum available power.--
``(I) Passenger automobile, medium
duty passenger vehicle, or light
truck.--For purposes of subparagraph
(A)(i), the term `maximum available
power' means the maximum power
available from the rechargeable energy
storage system, during a standard 10
second pulse power or equivalent test,
divided by such maximum power and the
SAE net power of the heat engine.
``(II) Heavy duty hybrid motor
vehicle.--For purposes of subparagraph
(A)(ii), the term `maximum available
power' means the maximum power
available from the rechargeable energy
storage system, during a standard 10
second pulse power or equivalent test,
divided by the vehicle's total traction
power. The term `total traction power'
means the sum of the peak power from
the rechargeable energy storage system
and the heat engine peak power of the
vehicle, except that if such storage
system is the sole means by which the
vehicle can be driven, the total
traction power is the peak power of
such storage system.
``(3) New qualified hybrid motor vehicle.--For purposes of
this subsection--
``(A) In general.--The term `new qualified hybrid
motor vehicle' means a motor vehicle--
``(i) which draws propulsion energy from
onboard sources of stored energy which are
both--
``(I) an internal combustion or
heat engine using consumable fuel, and
``(II) a rechargeable energy
storage system,
``(ii) which, in the case of a passenger
automobile, medium duty passenger vehicle, or
light truck--
``(I) for 2002 and later model
vehicles, has received a certificate of
conformity under the Clean Air Act and
meets or exceeds the equivalent
qualifying California low emission
vehicle standard under section
243(e)(2) of the Clean Air Act for that
make and model year, and
``(II) for 2004 and later model
vehicles, has received a certificate
that such vehicle meets or exceeds the
Bin 5 Tier II emission level
established in regulations prescribed
by the Administrator of the
Environmental Protection Agency under
section 202(i) of the Clean Air Act for
that make and model year vehicle,
``(iii) which, in the case of a heavy duty
hybrid motor vehicle, has an internal
combustion or heat engine which has received a
certificate of conformity under the Clean Air
Act as meeting the emission standards set in
the regulations prescribed by the Administrator
of the Environmental Protection Agency for 2004
through 2007 model year diesel heavy duty
engines or ottocycle heavy duty engines, as
applicable,
``(iv) the original use of which commences
with the taxpayer,
``(v) which is acquired for use or lease by
the taxpayer and not for resale, and
``(vi) which is made by a manufacturer.
``(B) Consumable fuel.--For purposes of
subparagraph (A)(i)(I), the term `consumable fuel'
means any solid, liquid, or gaseous matter which
releases energy when consumed by an auxiliary power
unit.
``(4) Heavy duty hybrid motor vehicle.--For purposes of
this subsection, the term `heavy duty hybrid motor vehicle'
means a new qualified hybrid motor vehicle which has a gross
vehicle weight rating of more than 8,500 pounds. Such term does
not include a medium duty passenger vehicle.
``(d) New Qualified Alternative Fuel Motor Vehicle Credit.--
``(1) Allowance of credit.--Except as provided in paragraph
(5), the new qualified alternative fuel motor vehicle credit
determined under this subsection is an amount equal to the
applicable percentage of the incremental cost of any new
qualified alternative fuel motor vehicle placed in service by
the taxpayer during the taxable year.
``(2) Applicable percentage.--For purposes of paragraph
(1), the applicable percentage with respect to any new
qualified alternative fuel motor vehicle is--
``(A) 40 percent, plus
``(B) 30 percent, if such vehicle--
``(i) has received a certificate of
conformity under the Clean Air Act and meets or
exceeds the most stringent standard available
for certification under the Clean Air Act for
that make and model year vehicle (other than a zero emission standard),
or
``(ii) has received an order certifying the
vehicle as meeting the same requirements as
vehicles which may be sold or leased in
California and meets or exceeds the most
stringent standard available for certification
under the State laws of California (enacted in
accordance with a waiver granted under section
209(b) of the Clean Air Act) for that make and
model year vehicle (other than a zero emission
standard).
For purposes of the preceding sentence, in the case of any new
qualified alternative fuel motor vehicle which weighs more than
14,000 pounds gross vehicle weight rating, the most stringent
standard available shall be such standard available for
certification on the date of the enactment of the Energy Tax
Incentives Act of 2003.
``(3) Incremental cost.--For purposes of this subsection,
the incremental cost of any new qualified alternative fuel
motor vehicle is equal to the amount of the excess of the
manufacturer's suggested retail price for such vehicle over
such price for a gasoline or diesel fuel motor vehicle of the
same model, to the extent such amount does not exceed--
``(A) $5,000, if such vehicle has a gross vehicle
weight rating of not more than 8,500 pounds,
``(B) $10,000, if such vehicle has a gross vehicle
weight rating of more than 8,500 pounds but not more
than 14,000 pounds,
``(C) $25,000, if such vehicle has a gross vehicle
weight rating of more than 14,000 pounds but not more
than 26,000 pounds, and
``(D) $40,000, if such vehicle has a gross vehicle
weight rating of more than 26,000 pounds.
``(4) New qualified alternative fuel motor vehicle.--For
purposes of this subsection--
``(A) In general.--The term `new qualified
alternative fuel motor vehicle' means any motor
vehicle--
``(i) which is only capable of operating on
an alternative fuel,
``(ii) the original use of which commences
with the taxpayer,
``(iii) which is acquired by the taxpayer
for use or lease, but not for resale, and
``(iv) which is made by a manufacturer.
``(B) Alternative fuel.--The term `alternative
fuel' means compressed natural gas, liquefied natural
gas, liquefied petroleum gas, hydrogen, and any liquid
at least 85 percent of the volume of which consists of
methanol.
``(5) Credit for mixed-fuel vehicles.--
``(A) In general.--In the case of a mixed-fuel
vehicle placed in service by the taxpayer during the
taxable year, the credit determined under this
subsection is an amount equal to--
``(i) in the case of a 75/25 mixed-fuel
vehicle, 70 percent of the credit which would
have been allowed under this subsection if such
vehicle was a qualified alternative fuel motor
vehicle, and
``(ii) in the case of a 90/10 mixed-fuel
vehicle, 90 percent of the credit which would
have been allowed under this subsection if such
vehicle was a qualified alternative fuel motor
vehicle.
``(B) Mixed-fuel vehicle.--For purposes of this
subsection, the term `mixed-fuel vehicle' means any
motor vehicle described in subparagraph (C) or (D) of
paragraph (3), which--
``(i) is certified by the manufacturer as
being able to perform efficiently in normal
operation on a combination of an alternative
fuel and a petroleum-based fuel,
``(ii) either--
``(I) has received a certificate of
conformity under the Clean Air Act, or
``(II) has received an order
certifying the vehicle as meeting the
same requirements as vehicles which may
be sold or leased in California and
meets or exceeds the low emission
vehicle standard under section 88.105-
94 of title 40, Code of Federal
Regulations, for that make and model
year vehicle,
``(iii) the original use of which commences
with the taxpayer,
``(iv) which is acquired by the taxpayer
for use or lease, but not for resale, and
``(v) which is made by a manufacturer.
``(C) 75/25 mixed-fuel vehicle.--For purposes of
this subsection, the term `75/25 mixed-fuel vehicle'
means a mixed-fuel vehicle which operates using at
least 75 percent alternative fuel and not more than 25
percent petroleum-based fuel.
``(D) 90/10 mixed-fuel vehicle.--For purposes of
this subsection, the term `90/10 mixed-fuel vehicle'
means a mixed-fuel vehicle which operates using at
least 90 percent alternative fuel and not more than 10
percent petroleum-based fuel.
``(e) Application With Other Credits.--The credit allowed under
subsection (a) for any taxable year shall not exceed the excess (if
any) of--
``(1) the regular tax for the taxable year reduced by the
sum of the credits allowable under subpart A and sections 27,
29, and 30, over
``(2) the tentative minimum tax for the taxable year.
``(f) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Motor vehicle.--The term `motor vehicle' has the
meaning given such term by section 30(c)(2).
``(2) City fuel economy.--The city fuel economy with
respect to any vehicle shall be measured in a manner which is
substantially similar to the manner city fuel economy is
measured in accordance with procedures under part 600 of
subchapter Q of chapter I of title 40, Code of Federal
Regulations, as in effect on the date of the enactment of this
section.
``(3) Other terms.--The terms `automobile', `passenger
automobile', `medium duty passenger vehicle', `light truck',
and `manufacturer' have the meanings given such terms in
regulations prescribed by the Administrator of the
Environmental Protection Agency for purposes of the
administration of title II of the Clean Air Act (42 U.S.C. 7521
et seq.).
``(4)  Reduction in basis.--For purposes of this subtitle,
the basis of any property for which a credit is allowable under
subsection (a) shall be reduced by the amount of such credit so allowed
(determined without regard to subsection (e)).
``(5) No double benefit.--The amount of any deduction or
other credit allowable under this chapter--
``(A) for any incremental cost taken into account
in computing the amount of the credit determined under
subsection (d) shall be reduced by the amount of such
credit attributable to such cost, and
``(B) with respect to a vehicle described under
subsection (b) or (c), shall be reduced by the amount
of credit allowed under subsection (a) for such vehicle
for the taxable year.
``(6) Property used by tax-exempt entities.--In the case of
a credit amount which is allowable with respect to a motor
vehicle which is acquired by an entity exempt from tax under
this chapter, the person which sells or leases such vehicle to
the entity shall be treated as the taxpayer with respect to the
vehicle for purposes of this section and the credit shall be
allowed to such person, but only if the person clearly
discloses to the entity at the time of any sale or lease the
specific amount of any credit otherwise allowable to the entity
under this section.
``(7) Recapture.--The Secretary shall, by regulations,
provide for recapturing the benefit of any credit allowable
under subsection (a) with respect to any property which ceases
to be property eligible for such credit (including recapture in
the case of a lease period of less than the economic life of a
vehicle).
``(8) Property used outside united states, etc., not
qualified.--No credit shall be allowed under subsection (a)
with respect to any property referred to in section 50(b) or
with respect to the portion of the cost of any property taken
into account under section 179.
``(9) Election to not take credit.--No credit shall be
allowed under subsection (a) for any vehicle if the taxpayer
elects to not have this section apply to such vehicle.
``(10) Carryback and carryforward allowed.--
``(A) In general.--If the credit allowable under
subsection (a) for a taxable year exceeds the amount of
the limitation under subsection (e) for such taxable
year (in this paragraph referred to as the `unused
credit year'), such excess shall be a credit carryback
to each of the 3 taxable years preceding the unused
credit year and a credit carryforward to each of the 20
taxable years following the unused credit year, except
that no excess may be carried to a taxable year
beginning before the date of the enactment of this
paragraph.
``(B) Rules.--Rules similar to the rules of section
39 shall apply with respect to the credit carryback and
credit carryforward under subparagraph (A).
``(11) Interaction with air quality and motor vehicle
safety standards.--Unless otherwise provided in this section, a
motor vehicle shall not be considered eligible for a credit
under this section unless such vehicle is in compliance with--
``(A) the applicable provisions of the Clean Air
Act for the applicable make and model year of the
vehicle (or applicable air quality provisions of State
law in the case of a State which has adopted such
provision under a waiver under section 209(b) of the
Clean Air Act), and
``(B) the motor vehicle safety provisions of
sections 30101 through 30169 of title 49, United States
Code.
``(g) Regulations.--
``(1) In general.--Except as provided in paragraph (2), the
Secretary shall promulgate such regulations as necessary to
carry out the provisions of this section.
``(2) Coordination in prescription of certain
regulations.--The Secretary of the Treasury, in coordination
with the Secretary of Transportation and the Administrator of
the Environmental Protection Agency, shall prescribe such
regulations as necessary to determine whether a motor vehicle
meets the requirements to be eligible for a credit under this
section.
``(h) Termination.--This section shall not apply to any property
purchased after--
``(1) in the case of a new qualified fuel cell motor
vehicle (as described in subsection (b)), December 31, 2011,
and
``(2) in the case of any other property, December 31,
2006.''.
(b) Conforming Amendments.--
(1) Section 1016(a) is amended by striking ``and'' at the
end of paragraph (27), by striking the period at the end of
paragraph (28) and inserting ``, and'', and by adding at the
end the following new paragraph:
``(29) to the extent provided in section 30B(f)(4).''.
(2) Section 55(c)(2) is amended by inserting ``30B(e),''
after ``30(b)(3),''.
(3) Section 6501(m) is amended by inserting ``30B(f)(9),''
after ``30(d)(4),''.
(4) The table of sections for subpart B of part IV of
subchapter A of chapter 1 is amended by inserting after the
item relating to section 30A the following new item:

``Sec. 30B. Alternative motor vehicle credit.''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 202. MODIFICATION OF CREDIT FOR QUALIFIED ELECTRIC VEHICLES.

(a) Amount of Credit.--
(1) In general.--Section 30(a) (relating to allowance of
credit) is amended by striking ``10 percent of''.
(2) Limitation of credit according to type of vehicle.--
Section 30(b) (relating to limitations) is amended--
(A) by striking paragraphs (1) and (2) and
inserting the following new paragraph:
``(1) Limitation according to type of vehicle.--The amount
of the credit allowed under subsection (a) for any vehicle
shall not exceed the greatest of the following amounts
applicable to such vehicle:
``(A) In the case of a vehicle with a gross vehicle
weight rating not exceeding 8,500 pounds--
``(i) except as provided in clause (ii) or
(iii), $3,500,
``(ii) $6,000, if such vehicle is--
``(I) capable of a driving range of
at least 100 miles on a single charge
of the vehicle's rechargeable batteries
as measured pursuant to the urban
dynamometer schedules under appendix I
to part 86 of title 40, Code of Federal
Regulations, or
``(II) capable of a payload
capacity of at least 1,000 pounds, and
``(iii) if such vehicle is a low-speed
vehicle which conforms to Standard 500
prescribed by the Secretary of Transportation
(49 C.F.R. 571.500), as in effect on the date
of the enactment of the Energy Tax Incentives
Act of 2003, the lesser of--
``(I) 10 percent of the
manufacturer's suggested retail price
of the vehicle, or
``(II) $1,500.
``(B) In the case of a vehicle with a gross vehicle
weight rating exceeding 8,500 but not exceeding 14,000
pounds, $10,000.
``(C) In the case of a vehicle with a gross vehicle
weight rating exceeding 14,000 but not exceeding 26,000
pounds, $20,000.
``(D) In the case of a vehicle with a gross vehicle
weight rating exceeding 26,000 pounds, $40,000.'', and
(B) by redesignating paragraph (3) as paragraph
(2).
(3) Conforming amendments.--
(A) Section 53(d)(1)(B)(iii) is amended by striking
``section 30(b)(3)(B)'' and inserting ``section
30(b)(2)(B)''.
(B) Section 55(c)(2), as amended by this Act, is
amended by striking ``30(b)(3)'' and inserting
``30(b)(2)''.
(b) Qualified Battery Electric Vehicle.--
(1) In general.--Section 30(c)(1)(A) (defining qualified
electric vehicle) is amended to read as follows:
``(A) which is--
``(i) operated solely by use of a battery
or battery pack, or
``(ii) powered primarily through the use of
an electric battery or battery pack using a
flywheel or capacitor which stores energy
produced by an electric motor through
regenerative braking to assist in vehicle
operation,''.
(2) Leased vehicles.--Section 30(c)(1)(C) is amended by
inserting ``or lease'' after ``use''.
(3) Conforming amendments.--
(A) Subsections (a), (b)(2), and (c) of section 30
are each amended by inserting ``battery'' after
``qualified'' each place it appears.
(B) The heading of subsection (c) of section 30 is
amended by inserting ``Battery'' after ``Qualified''.
(C) The heading of section 30 is amended by
inserting ``battery'' after ``qualified''.
(D) The item relating to section 30 in the table of
sections for subpart B of part IV of subchapter A of
chapter 1 is amended by inserting ``battery'' after
``qualified''.
(E) Section 179A(c)(3) is amended by inserting
``battery'' before ``electric''.
(F) The heading of paragraph (3) of section 179A(c)
is amended by inserting ``battery'' before
``electric''.
(c) Additional Special Rules.--Section 30(d) (relating to special
rules) is amended by adding at the end the following new paragraphs:
``(5) No double benefit.--The amount of any deduction or
other credit allowable under this chapter for any cost taken
into account in computing the amount of the credit determined
under subsection (a) shall be reduced by the amount of such
credit attributable to such cost.
``(6) Property used by tax-exempt entities.--In the case of
a credit amount which is allowable with respect to a vehicle
which is acquired by an entity exempt from tax under this
chapter, the person which sells or leases such vehicle to the
entity shall be treated as the taxpayer with respect to the
vehicle for purposes of this section and the credit shall be
allowed to such person, but only if the person clearly
discloses to the entity at the time of any sale or lease the
specific amount of any credit otherwise allowable to the entity
under this section.
``(7) Carryback and carryforward allowed.--
``(A) In general.--If the credit allowable under
subsection (a) for a taxable year exceeds the amount of
the limitation under subsection (b)(2) for such taxable
year (in this paragraph referred to as the `unused
credit year'), such excess shall be a credit carryback
to each of the 3 taxable years preceding the unused
credit year and a credit carryforward to each of the 20
taxable years following the unused credit year, except
that no excess may be carried to a taxable year
beginning before the date of the enactment of this
paragraph.
``(B) Rules.--Rules similar to the rules of section
39 shall apply with respect to the credit carryback and
credit carryforward under subparagraph (A).''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 203. CREDIT FOR INSTALLATION OF ALTERNATIVE FUELING STATIONS.

(a) In General.--Subpart B of part IV of subchapter A of chapter 1
(relating to foreign tax credit, etc.), as amended by this Act, is
amended by adding at the end the following new section:

``SEC. 30C. CLEAN-FUEL VEHICLE REFUELING PROPERTY CREDIT.

``(a) Credit Allowed.--There shall be allowed as a credit against
the tax imposed by this chapter for the taxable year an amount equal to
50 percent of the amount paid or incurred by the taxpayer during the
taxable year for the installation of qualified clean-fuel vehicle
refueling property.
``(b) Limitation.--The credit allowed under subsection (a)--
``(1) with respect to any retail clean-fuel vehicle
refueling property, shall not exceed $30,000, and
``(2) with respect to any residential clean-fuel vehicle
refueling property, shall not exceed $1,000.
``(c) Year Credit Allowed.--Notwithstanding subsection (a), no
credit shall be allowed under subsection (a) with respect to any
qualified clean-fuel vehicle refueling property before the taxable year
in which the property is placed in service by the taxpayer.
``(d) Definitions.--For purposes of this section--
``(1) Qualified clean-fuel vehicle refueling property.--The
term `qualified clean-fuel vehicle refueling property' has the
same meaning given such term by section 179A(d).
``(2) Residential clean-fuel vehicle refueling property.--
The term `residential clean-fuel vehicle refueling property'
means qualified clean-fuel vehicle refueling property which is
installed on property which is used as the principal residence
(within the meaning of section 121) of the taxpayer.
``(3) Retail clean-fuel vehicle refueling property.--The
term `retail clean-fuel vehicle refueling property' means
qualified clean-fuel vehicle refueling property which is
installed on property (other than property described in
paragraph (2)) used in a trade or business of the taxpayer.
``(e) Application With Other Credits.--The credit allowed under
subsection (a) for any taxable year shall not exceed the excess (if
any) of--
``(1) the regular tax for the taxable year reduced by the
sum of the credits allowable under subpart A and sections 27,
29, 30, and 30B, over
``(2) the tentative minimum tax for the taxable year.
``(f) Basis Reduction.--For purposes of this title, the basis of
any property shall be reduced by the portion of the cost of such
property taken into account under subsection (a).
``(g) No Double Benefit.--
``(1) Coordination with other deductions and credits.--
Except as provided in paragraph (2), the amount of any
deduction or other credit allowable under this chapter for any
cost taken into account in computing the amount of the credit
determined under subsection (a) shall be reduced by the amount
of such credit attributable to such cost.
``(2) No deduction allowed under section 179a.--No
deduction shall be allowed under section 179A with respect to
any property with respect to which a credit is allowed under
subsection (a).
``(h) Refueling Property Installed for Tax-Exempt Entities.--In the
case of qualified clean-fuel vehicle refueling property installed on
property owned or used by an entity exempt from tax under this chapter,
the person which installs such refueling property for the entity shall
be treated as the taxpayer with respect to the refueling property for
purposes of this section (and such refueling property shall be treated
as retail clean-fuel vehicle refueling property) and the credit shall
be allowed to such person, but only if the person clearly discloses to
the entity in any installation contract the specific amount of the
credit allowable under this section.
``(i) Carryforward Allowed.--
``(1) In general.--If the credit allowable under subsection
(a) for a taxable year exceeds the amount of the limitation
under subsection (e) for such taxable year, such excess shall
be a credit carryforward to each of the 20 taxable years
following such taxable year.
``(2) Rules.--Rules similar to the rules of section 39
shall apply with respect to the credit carryforward under
paragraph (1).
``(j) Special Rules.--Rules similar to the rules of paragraphs (4)
and (5) of section 179A(e) shall apply.
``(k) Regulations.--The Secretary shall prescribe such regulations
as necessary to carry out the provisions of this section.
``(l) Termination.--This section shall not apply to any property
placed in service--
``(1) in the case of property relating to hydrogen, after
December 31, 2011, and
``(2) in the case of any other property, after December 31,
2007.''.
(b) Modifications to Extension of Deduction for Certain Refueling
Property.--
(1) In general.--Subsection (f) of section 179A is amended
to read as follows:
``(f) Termination.--This section shall not apply to any property
placed in service--
``(1) in the case of property relating to hydrogen, after
December 31, 2011, and
``(2) in the case of any other property, after December 31,
2007.''.
(2) Extension of phaseout.--Section 179A(b)(1)(B) is
amended--
(A) by striking ``calendar year 2004'' in clause
(i) and inserting ``calendar years 2004 and 2005
(calendar years 2004 through 2009 in the case of
property relating to hydrogen) '',
(B) by striking ``2005'' in clause (ii) and
inserting ``2006 (calendar year 2010 in the case of
property relating to hydrogen)'', and
(C) by striking ``2006'' in clause (iii) and
inserting ``2007 (calendar year 2011 in the case of
property relating to hydrogen)''.
(c) Incentive for Production of Hydrogen at Qualified Clean-Fuel
Vehicle Refueling Property.--Section 179A(d) (defining qualified clean-
fuel vehicle refueling property) is amended by adding at the end the
following new flush sentence:
``In the case of clean-burning fuel which is hydrogen produced from
another clean-burning fuel, paragraph (3)(A) shall be applied by
substituting `production, storage, or dispensing' for `storage or
dispensing' both places it appears.''.
(d) Conforming Amendments.--
(1) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (28), by striking the
period at the end of paragraph (29) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(30) to the extent provided in section 30C(f).''.
(2) Section 55(c)(2), as amended by this Act, is amended by
inserting ``30C(e),'' after ``30B(e),''.
(3) The table of sections for subpart B of part IV of
subchapter A of chapter 1, as amended by this Act, is amended
by inserting after the item relating to section 30B the
following new item:

``Sec. 30C. Clean-fuel vehicle refueling property credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 204. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR VEHICLE
FUEL.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits) is amended by inserting after
section 40 the following new section:

``SEC. 40A. CREDIT FOR RETAIL SALE OF ALTERNATIVE FUELS AS MOTOR
VEHICLE FUEL.

``(a) General Rule.--For purposes of section 38, the alternative
fuel retail sales credit for any taxable year is the applicable amount
for each gasoline gallon equivalent of alternative fuel sold at retail
by the taxpayer during such year as a fuel to propel any qualified
motor vehicle.
``(b) Definitions.--For purposes of this section--
``(1) Applicable amount.--The term `applicable amount'
means the amount determined in accordance with the following
table:

``In the case of any taxable year
ending in--                                The applicable amount is--
2003..........................................            30 cents
2004..........................................            40 cents
2005 and 2006.................................            50 cents.
``(2) Alternative fuel.--The term `alternative fuel' means
compressed natural gas, liquefied natural gas, liquefied
petroleum gas, hydrogen, or any liquid at least 85 percent of
the volume of which consists of methanol or ethanol.
``(3) Gasoline gallon equivalent.--The term `gasoline
gallon equivalent' means, with respect to any alternative fuel,
the amount (determined by the Secretary) of such fuel having a
Btu content of 114,000.
``(4) Qualified motor vehicle.--The term `qualified motor
vehicle' means any motor vehicle (as defined in section
30(c)(2)) which meets any applicable Federal or State emissions
standards with respect to each fuel by which such vehicle is
designed to be propelled.
``(5) Sold at retail.--
``(A) In general.--The term `sold at retail' means
the sale, for a purpose other than resale, after
manufacture, production, or importation.
``(B) Use treated as sale.--If any person uses
alternative fuel (including any use after importation)
as a fuel to propel any new qualified alternative fuel
motor vehicle (as defined in section 30B(d)(4)) before
such fuel is sold at retail, then such use shall be
treated in the same manner as if such fuel were sold at
retail as a fuel to propel such a vehicle by such
person.
``(c) No Double Benefit.--The amount of any deduction or other
credit allowable under this chapter for any fuel taken into account in
computing the amount of the credit determined under subsection (a)
shall be reduced by the amount of such credit attributable to such
fuel.
``(d) Pass-Thru in the Case of Estates and Trusts.--Under
regulations prescribed by the Secretary, rules similar to the rules of
subsection (d) of section 52 shall apply.
``(e) Termination.--This section shall not apply to any fuel sold
at retail after December 31, 2006.''.
(b) Credit Treated as Business Credit.--Section 38(b) (relating to
current year business credit) is amended by striking ``plus'' at the
end of paragraph (14), by striking the period at the end of paragraph
(15) and inserting ``, plus'', and by adding at the end the following
new paragraph:
``(16) the alternative fuel retail sales credit determined
under section 40A(a).''.
(c) Transitional Rule.--Section 39(d) (relating to transitional
rules) is amended by adding at the end the following new paragraph:
``(11) No carryback of section 40a credit before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the alternative fuel retail sales
credit determined under section 40A(a) may be carried back to a
taxable year ending on or before the date of the enactment of
such section.''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 is amended by inserting after the
item relating to section 40 the following new item:

``Sec. 40A. Credit for retail sale of alternative fuels as
motor vehicle fuel.''.
(e) Effective Date.--The amendments made by this section shall
apply to fuel sold at retail after the date of the enactment of this
Act, in taxable years ending after such date.

SEC. 205. SMALL ETHANOL PRODUCER CREDIT.

(a) Allocation of Alcohol Fuels Credit to Patrons of a
Cooperative.--Section 40(g) (relating to definitions and special rules
for eligible small ethanol producer credit) is amended by adding at the
end the following new paragraph:
``(6) Allocation of small ethanol producer credit to
patrons of cooperative.--
``(A) Election to allocate.--
``(i) In general.--In the case of a
cooperative organization described in section
1381(a), any portion of the credit determined
under subsection (a)(3) for the taxable year
may, at the election of the organization, be
apportioned pro rata among patrons of the
organization on the basis of the quantity or
value of business done with or for such patrons
for the taxable year.
``(ii) Form and effect of election.--An
election under clause (i) for any taxable year
shall be made on a timely filed return for such
year. Such election, once made, shall be
irrevocable for such taxable year.
``(B) Treatment of organizations and patrons.--The
amount of the credit apportioned to patrons under
subparagraph (A)--
``(i) shall not be included in the amount
determined under subsection (a) with respect to
the organization for the taxable year, and
``(ii) shall be included in the amount
determined under subsection (a) for the taxable
year of each patron for which the patronage
dividends for the taxable year described in
subparagraph (A) are included in gross income.
``(C) Special rules for decrease in credits for
taxable year.--If the amount of the credit of a
cooperative organization determined under subsection
(a)(3) for a taxable year is less than the amount of
such credit shown on the return of the cooperative
organization for such year, an amount equal to the
excess of--
``(i) such reduction, over
``(ii) the amount not apportioned to such
patrons under subparagraph (A) for the taxable
year,
shall be treated as an increase in tax imposed by this
chapter on the organization. Such increase shall not be
treated as tax imposed by this chapter for purposes of
determining the amount of any credit under this chapter
or for purposes of section 55.''.
(b) Improvements to Small Ethanol Producer Credit.--
(1) Definition of small ethanol producer.--Section 40(g)
(relating to definitions and special rules for eligible small
ethanol producer credit) is amended by striking ``30,000,000''
each place it appears and inserting ``60,000,000''.
(2) Small ethanol producer credit not a passive activity
credit.--Clause (i) of section 469(d)(2)(A) is amended by
striking ``subpart D'' and inserting ``subpart D, other than
section 40(a)(3),''.
(3) Allowing credit against entire regular tax and minimum
tax.--
(A) In general.--Subsection (c) of section 38
(relating to limitation based on amount of tax) is
amended by redesignating paragraph (4) as paragraph (5)
and by inserting after paragraph (3) the following new
paragraph:
``(4) Special rules for small ethanol producer credit.--
``(A) In general.--In the case of the small ethanol
producer credit--
``(i) this section and section 39 shall be
applied separately with respect to the credit,
and
``(ii) in applying paragraph (1) to the
credit--
``(I) the amounts in subparagraphs
(A) and (B) thereof shall be treated as
being zero, and
``(II) the limitation under
paragraph (1) (as modified by subclause
(I)) shall be reduced by the credit
allowed under subsection (a) for the
taxable year (other than the small
ethanol producer credit).
``(B) Small ethanol producer credit.--For purposes
of this subsection, the term `small ethanol producer
credit' means the credit allowable under subsection (a)
by reason of section 40(a)(3).''.
(B) Conforming amendments.--Subclause (II) of
section 38(c)(2)(A)(ii) and subclause (II) of section
38(c)(3)(A)(ii) are each amended by inserting ``or the
small ethanol producer credit'' after ``employee
credit''.
(4) Small ethanol producer credit not added back to income
under section 87.--Section 87 (relating to income inclusion of
alcohol fuel credit) is amended to read as follows:

``SEC. 87. ALCOHOL FUEL CREDIT.

``Gross income includes an amount equal to the sum of--
``(1) the amount of the alcohol mixture credit determined
with respect to the taxpayer for the taxable year under section
40(a)(1), and
``(2) the alcohol credit determined with respect to the
taxpayer for the taxable year under section 40(a)(2).''.
(c) Conforming Amendment.--Section 1388 (relating to definitions
and special rules for cooperative organizations) is amended by adding
at the end the following new subsection:
``(k) Cross Reference.--For provisions relating to the
apportionment of the alcohol fuels credit between cooperative
organizations and their patrons, see section 40(g)(6).''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

SEC. 206. INCREASED FLEXIBILITY IN ALCOHOL FUELS TAX CREDIT.

(a) Alcohol Fuels Credit May Be Transferred.--Section 40 (relating
to alcohol used as fuel) is amended by adding at the end the following
new subsection:
``(i) Credit May Be Transferred.--
``(1) In general.--A taxpayer may transfer any credit
allowable under paragraph (1) or (2) of subsection (a) with
respect to alcohol used in the production of ethyl tertiary
butyl ether through an assignment to a qualified assignee. Such
transfer may be revoked only with the consent of the Secretary.
``(2) Qualified assignee.--For purposes of this subsection,
the term `qualified assignee' means any person who--
``(A) is liable for taxes imposed under section
4081,
``(B) is registered under section 4101, and
``(C) obtains a certificate from the taxpayer
described in paragraph (1) which identifies the amount
of alcohol used in such production.
``(3) Regulations.--The Secretary shall prescribe such
regulations as necessary to insure that any credit described in
paragraph (1) is claimed once and not reassigned by a qualified
assignee.''.
(b) Effective Date.--The amendment made by this section shall apply
on and after the date of the enactment of this Act.

SEC. 207. INCENTIVES FOR BIODIESEL.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by inserting after section 40A the following new section:

``SEC. 40B. BIODIESEL USED AS FUEL.

``(a) General Rule.--For purposes of section 38, the biodiesel
fuels credit determined under this section for the taxable year is an
amount equal to the biodiesel mixture credit.
``(b) Definition of Biodiesel Mixture Credit.--For purposes of this
section--
``(1) Biodiesel mixture credit.--
``(A) In general.--The biodiesel mixture credit of
any taxpayer for any taxable year is the sum of the
products of the biodiesel mixture rate for each
qualified biodiesel mixture and the number of gallons
of such mixture of the taxpayer for the taxable year.
``(B) Biodiesel mixture rate.--For purposes of
subparagraph (A), the biodiesel mixture rate for each
qualified biodiesel mixture shall be--
``(i) in the case of a mixture with only
agri-biodiesel, 1 cent for each whole
percentage point (not exceeding 20 percentage
points) of agri-biodiesel in such mixture, and
``(ii) in the case of a mixture with
recycled biodiesel, or a combination of agri-
biodiesel and recycled biodiesel, 0.5 cent for
each whole percentage point (not exceeding 20
percentage points) of such biodiesel in such
mixture.
``(2) Qualified biodiesel mixture.--
``(A) In general.--The term `qualified biodiesel
mixture' means a mixture of diesel fuel and biodiesel
which--
``(i) is sold by the taxpayer producing
such mixture to any person for use as a fuel in
a diesel-powered engine, or
``(ii) is used as a fuel in a diesel-
powered engine by the taxpayer producing such
mixture.
``(B) Sale or use must be in trade or business,
etc.--
``(i) In general.--The production of a
qualified biodiesel mixture shall be taken into
account--
``(I) only if the sale or use
described in subparagraph (A) is in a
trade or business of the taxpayer, and
``(II) for the taxable year in
which such sale or use occurs.
``(ii) Certification for agri-biodiesel.--
Agri-biodiesel used in the production of a
qualified biodiesel mixture shall be taken into
account only if the taxpayer described in
subparagraph (A) obtains a certification from
the producer of the agri-biodiesel which
identifies the product produced.
``(C) Casual off-farm production not eligible.--No
credit shall be allowed under this section with respect
to any casual off-farm production of a qualified
biodiesel mixture.
``(c) Coordination With Credit Against Excise Tax.--The amount of
the credit determined under this section with respect to any agri-
biodiesel shall, under regulations prescribed by the Secretary, be
properly reduced to take into account any benefit provided with respect
to such agri-biodiesel solely by reason of the application of section
6426 or 6427(e).
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Biodiesel.--The term `biodiesel' means the monoalkyl
esters of long chain fatty acids for use in diesel-powered
engines which meet--
``(A) the registration requirements for fuels and
fuel additives established by the Environmental
Protection Agency under section 211 of the Clean Air
Act (42 U.S.C. 7545), and
``(B) the requirements of the American Society of
Testing and Materials D6751.
``(2) Agri-biodiesel.--The term `agri-biodiesel' means
biodiesel derived solely from virgin oils. Such term shall
include esters derived from vegetable oils from corn, soybeans,
sunflower seeds, cottonseeds, canola, crambe, rapeseeds,
safflowers, flaxseeds, rice bran, and mustard seeds, and from
animal fats.
``(3) Recycled biodiesel.--The term `recycled biodiesel'
means biodiesel derived from nonvirgin vegetable oils or
nonvirgin animal fats.
``(4) Biodiesel mixture not used as a fuel, etc.--
``(A) Imposition of tax.--If--
``(i) any credit was determined under this
section with respect to biodiesel used in the
production of any qualified biodiesel mixture,
and
``(ii) any person--
``(I) separates such biodiesel from
the mixture, or
``(II) without separation, uses the
mixture other than as a fuel,
then there is hereby imposed on such person a
tax equal to the product of the biodiesel
mixture rate applicable under subsection
(b)(1)(B) and the number of gallons of the
mixture.
``(B) Applicable laws.--All provisions of law,
including penalties, shall, insofar as applicable and
not inconsistent with this section, apply in respect of
any tax imposed under subparagraph (A) as if such tax
were imposed by section 4081 and not by this chapter.
``(5) Pass-thru in the case of estates and trusts.--Under
regulations prescribed by the Secretary, rules similar to the
rules of subsection (d) of section 52 shall apply.
``(e) Termination.--This section shall not apply to any fuel sold
after December 31, 2005.''.
(b) Credit Treated as Part of General Business Credit.--Section
38(b) (relating to current year business credit), as amended by this
Act, is amended by striking ``plus'' at the end of paragraph (15), by
striking the period at the end of paragraph (16) and inserting ``,
plus'', and by adding at the end the following new paragraph:
``(17) the biodiesel fuels credit determined under section
40B(a).''.
(c) Conforming Amendments.--
(1) Section 39(d), as amended by this Act, is amended by
adding at the end the following new paragraph:
``(12) No carryback of biodiesel fuels credit before
effective date.--No portion of the unused business credit for
any taxable year which is attributable to the biodiesel fuels
credit determined under section 40B may be carried back to a
taxable year ending on or before the date of the enactment of
section 40B.''.
(2) Section 196(c) is amended by striking ``and'' at the
end of paragraph (9), by striking the period at the end of
paragraph (10) and inserting ``, and'', and by adding at the
end the following new paragraph:
``(11) the biodiesel fuels credit determined under section
40B(a).''.
(3) The table of sections for subpart D of part IV of
subchapter A of chapter 1, as amended by this Act, is amended
by adding after the item relating to section 40A the following
new item:

``Sec. 40B. Biodiesel used as fuel.''.
(d) Effective Date.--The amendments made by this section shall
apply to fuel sold after the date of the enactment of this Act, in
taxable years ending after such date.

SEC. 208. ALCOHOL FUEL AND BIODIESEL MIXTURES EXCISE TAX CREDIT.

(a) In General.--Subchapter B of chapter 65 (relating to rules of
special application) is amended by inserting after section 6425 the
following new section:

``SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL MIXTURES.

``(a) Allowance of Credits.--There shall be allowed as a credit
against the tax imposed by section 4081 an amount equal to the sum of--
``(1) the alcohol fuel mixture credit, plus
``(2) the biodiesel mixture credit.
``(b) Alcohol Fuel Mixture Credit.--
``(1) In general.--For purposes of this section, the
alcohol fuel mixture credit is the applicable amount for each
gallon of alcohol used by the taxpayer in producing an alcohol
fuel mixture.
``(2) Applicable amount.--For purposes of this subsection--
``(A) In general.--Except as provided in
subparagraph (B), the applicable amount is 52 cents (51
cents in the case of any sale or use after 2004).
``(B) Mixtures not containing ethanol.--In the case
of an alcohol fuel mixture in which none of the alcohol
consists of ethanol, the applicable amount is 60 cents.
``(3) Alcohol fuel mixture.--For purposes of this
subsection, the term `alcohol fuel mixture' is a mixture
which--
``(A) consists of alcohol and a taxable fuel, and
``(B) is sold for use or used as a fuel by the
taxpayer producing the mixture.
``(4) Other definitions.--For purposes of this subsection--
``(A) Alcohol.--The term `alcohol' includes
methanol and ethanol but does not include--
``(i) alcohol produced from petroleum,
natural gas, or coal (including peat), or
``(ii) alcohol with a proof of less than
190 (determined without regard to any added
denaturants).
Such term also includes an alcohol gallon equivalent of
ethyl tertiary butyl ether or other ethers produced
from such alcohol.
``(B) Taxable fuel.--The term `taxable fuel' has
the meaning given such term by section 4083(a)(1).
``(5) Termination.--This subsection shall not apply to any
sale or use for any period after December 31, 2010.
``(c) Biodiesel Mixture Credit.--
``(1) In general.--For purposes of this section, the
biodiesel mixture credit is the product of the applicable
amount and the number of gallons of agri-biodiesel used by the
taxpayer in producing any qualified biodiesel mixture
containing only agri-biodiesel, except that the number of
gallons of agri-biodiesel taken into account in determining the
credit shall not exceed 1 gallon for each 5 gallons of
qualified biodiesel mixture produced.
``(2) Applicable amount.--For purposes of this subsection,
the applicable amount is $1.00.
``(3) Definitions.--Any term used in this subsection which
is also used in section 40B shall have the meaning given such
term by section 40B.
``(4) Termination.--This subsection shall not apply to any
sale or use for any period after December 31, 2005.
``(d) Mixture not used as a fuel, etc.--
``(1) Imposition of tax.--If--
``(A) any credit was determined under this section
with respect to alcohol or agri-biodiesel used in the
production of any alcohol fuel mixture or qualified
biodiesel mixture, respectively, and
``(B) any person--
``(i) separates such alcohol or agri-
biodiesel from the mixture, or
``(ii) without separation, uses the mixture
other than as a fuel,
then there is hereby imposed on such person a tax equal
to the product of the applicable amount and the number
of gallons of such alcohol or agri-biodiesel.
``(2) Applicable laws.--All provisions of law, including
penalties, shall, insofar as applicable and not inconsistent
with this section, apply in respect of any tax imposed under
paragraph (1) as if such tax were imposed by section 4081 and
not by this section.''.
(b) Conforming Amendments.--
(1) Section 40(c) is amended by striking ``section 4081(c),
or section 4091(c)'' and inserting ``section 4091(c), section
6426, section 6427(e), or section 6427(f)''.
(2) Section 40(d)(4)(B) is amended by striking ``or
4081(c)''.
(3) Section 40(e)(1) is amended--
(A) by striking ``2007'' in subparagraph (A) and
inserting ``2010'', and
(B) by striking ``2008'' in subparagraph (B) and
inserting ``2011''.
(4) Section 40(h) is amended--
(A) by striking ``2007'' in paragraph (1) and
inserting ``2010'', and
(B) by striking ``, 2006, or 2007'' in the table
contained in paragraph (2) and inserting ``through
2010''.
(5) Section 4041(b)(2)(B) is amended by striking ``a
substance other than petroleum or natural gas'' and inserting
``coal (including peat)''.
(6) Paragraph (1) of section 4041(k) is amended to read as
follows:
``(1) In general.--Under regulations prescribed by the
Secretary, in the case of the sale or use of any liquid at
least 10 percent of which consists of alcohol (as defined in
section 6426(b)(4)(A)), the rate of the tax imposed by
subsection (c)(1) shall be the comparable rate under section
4091(c).''.
(7) Section 4081 is amended by striking subsection (c).
(8) Paragraph (2) of section 4083(a) is amended to read as
follows:
``(2) Gasoline.--The term `gasoline'--
``(A) includes any gasoline blend, other than
qualified methanol or ethanol fuel (as defined in
section 4041(b)(2)(B)) or a denaturant of alcohol (as
defined in section 6426(b)(4)(A)), and
``(B) includes, to the extent prescribed in
regulations--
``(i) any gasoline blend stock, and
``(ii) any product commonly used as an
additive in gasoline.
For purposes of subparagraph (B)(i), the term `gasoline blend
stock' means any petroleum product component of gasoline.''.
(9) Section 6427 is amended by inserting after subsection
(d) the following new subsection:
``(e) Gasoline, Diesel Fuel, and Kerosene Used to Produce Certain
Alcohol Fuel and Biodiesel Mixtures.--
``(1) In general.--Except as provided in subsection (k), if
any gasoline, diesel fuel, or kerosene on which tax was imposed
by section 4081 is used by any person in producing a mixture
described in section 6426 which is sold or used in such
person's trade or business, the Secretary shall pay (without
interest) to such person an amount equal to the alcohol fuel
mixture credit or the biodiesel mixture credit with respect to
such gasoline, diesel fuel, or kerosene.
``(2) Coordination with other repayment provisions.--No
amount shall be payable under paragraph (1) with respect to any
gasoline, diesel fuel, or kerosene with respect to which an
amount is payable under subsection (b), (d), or (l) or under
section 6416(b)(2), 6420, 6421, or 6426.
``(3) Termination.--This subsection shall not apply with
respect to--
``(A) any alcohol fuel mixture (as defined in
section 6426(b)(3)) sold or used after December 31,
2010, and
``(B) any qualified biodiesel mixture (within the
meaning of section 6426(c)(1)) sold or used after
December 31, 2005.''.
(10) Subsection (f) of section 6427 is amended to read as
follows:
``(f) Aviation Fuel Used to Produce Certain Alcohol Fuels.--
``(1) In general.--Except as provided in subsection (k), if
any aviation fuel on which tax was imposed by section 4091 at
the regular tax rate is used by any person in producing a
mixture described in section 4091(c)(1)(A) which is sold or
used in such person's trade or business, the Secretary shall pay
(without interest) to such person an amount equal to the excess of the
regular tax rate over the incentive tax rate with respect to such fuel.
``(2) Definitions.--For purposes of paragraph (1)--
``(A) Regular tax rate.--The term `regular tax
rate' means the aggregate rate of tax imposed by
section 4091 determined without regard to subsection
(c) thereof.
``(B) Incentive tax rate.--The term `incentive tax
rate' means the aggregate rate of tax imposed by
section 4091 with respect to fuel described in
subsection (c)(2) thereof.
``(3) Coordination with other repayment provisions.--No
amount shall be payable under paragraph (1) with respect to any
aviation fuel with respect to which an amount is payable under
subsection (d) or (l).
``(4) Termination.--This subsection shall not apply with
respect to any mixture sold or used after September 30,
2007.''.
(11) Paragraphs (1) and (2) of section 6427(i) are amended
by inserting ``(f),'' after ``(d),''.
(12) Section 6427(i)(3) is amended--
(A) by striking ``subsection (f)'' both places it
appears in subparagraph (A) and inserting ``subsection
(e)'',
(B) by striking ``gasoline, diesel fuel, or
kerosene used to produce a qualified alcohol mixture
(as defined in section 4081(c)(3))'' in subparagraph
(A) and inserting ``a mixture described in section
6426'',
(C) by striking ``subsection (f)(1)'' in
subparagraph (B) and inserting ``subsection (e)(1)'',
(D) by striking ``20 days of the date of the filing
of such claim'' in subparagraph (B) and inserting ``45
days of the date of the filing of such claim (20 days
in the case of an electronic claim)'', and
(E) by striking ``alcohol mixture'' in the heading
and inserting ``alcohol fuel and biodiesel mixture''.
(13) Section 6427(o) is amended--
(A) by striking paragraph (1) and inserting the
following new paragraph:
``(1) any tax is imposed by section 4081, and'',
(B) by striking ``such gasohol'' in paragraph (2)
and inserting ``the alcohol fuel mixture (as defined in
section 6426(b)(3))'',
(C) by striking ``gasohol'' both places it appears
in the matter following paragraph (2) and inserting
``alcohol fuel mixture'', and
(D) by striking ``Gasohol'' in the heading and
inserting ``Alcohol Fuel Mixture''.
(14) Section 9503(b)(1) is amended by adding at the end the
following new flush sentence:
``For purposes of this paragraph, taxes received under sections
4041 and 4081 shall be determined without reduction for credits
under section 6426.''.
(15) Section 9503(b)(4) is amended--
(A) by adding ``or'' at the end of subparagraph
(C),
(B) by striking the comma at the end of
subparagraph (D)(iii) and inserting a period, and
(C) by striking subparagraphs (E) and (F).
(16) Section 9503(c)(2)(A)(i)(III) is amended by inserting
``(other than subsection (e) thereof)'' after ``section 6427''.
(17) Section 9503(e)(2) is amended by striking subparagraph
(B) and by redesignating subparagraphs (C), (D), and (E) as
subparagraphs (B), (C), and (D), respectively.
(18) The table of sections for subchapter B of chapter 65
is amended by inserting after the item relating to section 6425
the following new item:

``Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.''.
(c) Effective Date.--The amendments made by this section shall
apply to fuel sold or used after September 30, 2003.
(d) Format for Filing.--The Secretary of the Treasury shall
describe the electronic format for filing claims described in section
6427(i)(3)(B) of the Internal Revenue Code of 1986 (as amended by
subsection (b)(12)(D)) not later than September 30, 2003.

SEC. 209. SALE OF GASOLINE AND DIESEL FUEL AT DUTY-FREE SALES
ENTERPRISES.

(a) Prohibition.--Section 555(b) of the Tariff Act of 1930 (19
U.S.C. 1555(b)) is amended--
(1) by redesignating paragraphs (6) through (8) as
paragraphs (7) through (9), respectively; and
(2) by inserting after paragraph (5) the following:
``(6) Any gasoline or diesel fuel sold at a duty-free sales
enterprise shall be considered to be entered for consumption
into the customs territory of the United States.''.
(b) Construction.--The amendments made by this section shall not be
construed to create any inference with respect to the interpretation of
any provision of law as such provision was in effect on the day before
the date of enactment of this Act.
(c) Effective date.--The amendments made by this section shall take
effect on the date of enactment of this Act.

TITLE III--CONSERVATION AND ENERGY EFFICIENCY PROVISIONS

SEC. 301. CREDIT FOR CONSTRUCTION OF NEW ENERGY EFFICIENT HOME.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by adding at the end the following new section:

``SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT.

``(a) In General.--For purposes of section 38, in the case of an
eligible contractor, the credit determined under this section for the
taxable year is an amount equal to the aggregate adjusted bases of all
energy efficient property installed in a qualifying new home during
construction of such home.
``(b) Limitations.--
``(1) Maximum credit.--
``(A) In general.--The credit allowed by this
section with respect to a qualifying new home shall not
exceed--
``(i) in the case of a 30-percent home,
$1,000, and
``(ii) in the case of a 50-percent home,
$2,000.
``(B) 30- or 50-percent home.--For purposes of
subparagraph (A)--
``(i) 30-percent home.--The term `30-
percent home' means--
``(I) a qualifying new home which
is certified to have a projected level
of annual heating and cooling energy
consumption, measured in terms of
average annual energy cost to the
homeowner, which is at least 30 percent
less than the annual level of heating
and cooling energy consumption of a
qualifying new home constructed in
accordance with the standards of
chapter 4 of the 2000 International
Energy Conservation Code, or
``(II) in the case of a qualifying
new home which is a manufactured home,
a home which meets the applicable
standards required by the Administrator
of the Environmental Protection Agency
under the Energy Star Labeled Homes
program.
``(ii) 50-percent home.--The term `50-
percent home' means a qualifying new home which
would be described in clause (i)(I) if 50
percent were substituted for 30 percent.
``(C) Prior credit amounts on same home taken into
account.--The amount of the credit otherwise allowable
for the taxable year with respect to a qualifying new
home under clause (i) or (ii) of subparagraph (A) shall
be reduced by the sum of the credits allowed under
subsection (a) to any taxpayer with respect to the home
for all preceding taxable years.
``(2) Coordination with certain credits.--For purposes of
this section--
``(A) the basis of any property referred to in
subsection (a) shall be reduced by that portion of the
basis of any property which is attributable to the
rehabilitation credit (as determined under section
47(a)) or to the energy credit (as determined under
section 48(a)), and
``(B) expenditures taken into account under section
25D, 47, or 48(a) shall not be taken into account under
this section.
``(c) Definitions.--For purposes of this section--
``(1) Eligible contractor.--The term `eligible contractor'
means--
``(A) the person who constructed the qualifying new
home, or
``(B) in the case of a qualifying new home which is
a manufactured home, the manufactured home producer of
such home.
If more than 1 person is described in subparagraph (A) or (B)
with respect to any qualifying new home, such term means the
person designated as such by the owner of such home.
``(2) Energy efficient property.--The term `energy
efficient property' means any energy efficient building
envelope component, and any energy efficient heating or cooling
equipment which can, individually or in combination with other
components, meet the requirements of this section.
``(3) Qualifying new home.--
``(A) In general.--The term `qualifying new home'
means a dwelling--
``(i) located in the United States,
``(ii) the construction of which is
substantially completed after the date of the
enactment of this section, and
``(iii) the first use of which after
construction is as a principal residence
(within the meaning of section 121).
``(B) Manufactured home included.--The term
`qualifying new home' includes a manufactured home
conforming to Federal Manufactured Home Construction
and Safety Standards (24 C.F.R. 3280).
``(4) Construction.--The term `construction' includes
reconstruction and rehabilitation.
``(5) Building envelope component.--The term `building
envelope component' means--
``(A) any insulation material or system which is
specifically and primarily designed to reduce the heat
loss or gain of a qualifying new home when installed in
or on such home,
``(B) exterior windows (including skylights), and
``(C) exterior doors.
``(d) Certification.--
``(1) Method of certification.--
``(A) In general.--A certification described in
subsection (b)(1)(B) shall be determined either by a
component-based method or a performance-based method,
or, in the case of a qualifying new home which is a
manufactured home, by a method prescribed by the
Administrator of the Environmental Protection Agency
under the Energy Star Labeled Homes program.
``(B) Component-based method.--A component-based
method is a method which uses the applicable technical
energy efficiency specifications or ratings (including
product labeling requirements) for the energy efficient
building envelope component or energy efficient heating
or cooling equipment. The Secretary shall, in
consultation with the Administrator of the
Environmental Protection Agency, develop prescriptive
component-based packages which are equivalent in energy
performance to properties which qualify under
subparagraph (C).
``(C) Performance-based method.--
``(i) In general.--A performance-based
method is a method which calculates projected
energy usage and cost reductions in the
qualifying new home in relation to a new home--
``(I) heated by the same fuel type,
and
``(II) constructed in accordance
with the standards of chapter 4 of the
2000 International Energy Conservation
Code.
``(ii) Computer software.--Computer
software shall be used in support of a
performance-based method certification under
clause (i). Such software shall meet procedures
and methods for calculating energy and cost
savings in regulations promulgated by the
Secretary of Energy. Such regulations on the
specifications for software and verification
protocols shall be based on the 2001 California
Residential Alternative Calculation Method
Approval Manual.
``(2) Provider.--A certification described in subsection
(b)(1)(B) shall be provided by--
``(A) in the case of a component-based method, a
local building regulatory authority, a utility, or a
home energy rating organization,
``(B) in the case of a performance-based method, an
individual recognized by an organization designated by
the Secretary for such purposes, or
``(C) in the case of a qualifying new home which is
a manufactured home, a manufactured home primary
inspection agency.
``(3) Form.--
``(A) In general.--A certification described in
subsection (b)(1)(B) shall be made in writing in a
manner which specifies in readily verifiable fashion
the energy efficient building envelope components and
energy efficient heating or cooling equipment installed
and their respective rated energy efficiency
performance, and
``(i) in the case of a performance-based
method, accompanied by a written analysis
documenting the proper application of a
permissible energy performance calculation
method to the specific circumstances of such
qualifying new home, and
``(ii) in the case of a qualifying new home
which is a manufactured home, accompanied by
such documentation as required by the
Administrator of the Environmental Protection
Agency under the Energy Star Labeled Homes
program.
``(B) Form provided to buyer.--A form documenting
the energy efficient building envelope components and
energy efficient heating or cooling equipment installed
and their rated energy efficiency performance shall be
provided to the buyer of the qualifying new home. The
form shall include labeled R-value for insulation
products, NFRC-labeled U-factor and solar heat gain
coefficient for windows, skylights, and doors, labeled
annual fuel utilization efficiency (AFUE) ratings for
furnaces and boilers, labeled heating seasonal
performance factor (HSPF) ratings for electric heat
pumps, and labeled seasonal energy efficiency ratio
(SEER) ratings for air conditioners.
``(C) Ratings label affixed in dwelling.--A
permanent label documenting the ratings in subparagraph
(B) shall be affixed to the front of the electrical
distribution panel of the qualifying new home, or shall
be otherwise permanently displayed in a readily
inspectable location in such home.
``(4) Regulations.--
``(A) In general.--In prescribing regulations under
this subsection for performance-based certification
methods, the Secretary shall prescribe procedures for
calculating annual energy usage and cost reductions for
heating and cooling and for the reporting of the
results. Such regulations shall--
``(i) provide that any calculation
procedures be fuel neutral such that the same
energy efficiency measures allow a qualifying
new home to be eligible for the credit under
this section regardless of whether such home
uses a gas or oil furnace or boiler or an
electric heat pump, and
``(ii) require that any computer software
allow for the printing of the Federal tax forms
necessary for the credit under this section and
for the printing of forms for disclosure to the
homebuyer.
``(B) Providers.--For purposes of paragraph (2)(B),
the Secretary shall establish requirements for the
designation of individuals based on the requirements
for energy consultants and home energy raters specified
by the Mortgage Industry National Home Energy Rating
Standards.
``(e) Application.--Subsection (a) shall apply to qualifying new
homes the construction of which is substantially completed after the
date of the enactment of this section and purchased during the period
beginning on such date and ending on--
``(1) in the case of any 30-percent home, December 31,
2005, and
``(2) in the case of any 50-percent home, December 31,
2007.''.
(b) Credit Made Part of General Business Credit.--Section 38(b)
(relating to current year business credit), as amended by this Act, is
amended by striking ``plus'' at the end of paragraph (16), by striking
the period at the end of paragraph (17) and inserting ``, plus'', and
by adding at the end the following new paragraph:
``(18) the new energy efficient home credit determined
under section 45G(a).''.
(c) Denial of Double Benefit.--Section 280C (relating to certain
expenses for which credits are allowable) is amended by adding at the
end the following new subsection:
``(d) New Energy Efficient Home Expenses.--No deduction shall be
allowed for that portion of expenses for a qualifying new home
otherwise allowable as a deduction for the taxable year which is equal
to the amount of the credit determined for such taxable year under
section 45G(a).''.
(d) Limitation on Carryback.--Section 39(d) (relating to transition
rules), as amended by this Act, is amended by adding at the end the
following new paragraph:
``(13) No carryback of new energy efficient home credit
before effective date.--No portion of the unused business
credit for any taxable year which is attributable to the credit
determined under section 45G may be carried back to any taxable
year ending on or before the date of the enactment of such
section.''.
(e) Deduction for Certain Unused Business Credits.--Section 196(c)
(defining qualified business credits), as amended by this Act, is
amended by striking ``and'' at the end of paragraph (10), by striking
the period at the end of paragraph (11) and inserting ``, and'', and by
adding after paragraph (11) the following new paragraph:
``(12) the new energy efficient home credit determined
under section 45G(a).''.
(f) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45G. New energy efficient home
credit.''.
(g) Effective Date.--The amendments made by this section shall
apply to homes the construction of which is substantially completed
after the date of the enactment of this Act.

SEC. 302. CREDIT FOR ENERGY EFFICIENT APPLIANCES.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits), as amended by this Act, is
amended by adding at the end the following new section:

``SEC. 45H. ENERGY EFFICIENT APPLIANCE CREDIT.

``(a) Allowance of Credit.--
``(1) In general.--For purposes of section 38, the energy
efficient appliance credit determined under this section for
the taxable year is an amount equal to the sum of the amounts
determined under paragraph (2) for qualified energy efficient
appliances produced by the taxpayer during the calendar year
ending with or within the taxable year.
``(2) Amount.--The amount determined under this paragraph
for any category described in subsection (b)(2)(B) shall be the
product of the applicable amount for appliances in the category
and the eligible production for the category.
``(b) Applicable Amount; Eligible Production.--For purposes of
subsection (a)--
``(1) Applicable amount.--The applicable amount is--
``(A) $50, in the case of--
``(i) a clothes washer which is
manufactured with at least a 1.42 MEF, or
``(ii) a refrigerator which consumes at
least 10 percent less kilowatt hours per year
than the energy conservation standards for
refrigerators promulgated by the Department of
Energy and effective on July 1, 2001,
``(B) $100, in the case of--
``(i) a clothes washer which is
manufactured with at least a 1.50 MEF, or
``(ii) a refrigerator which consumes at
least 15 percent (20 percent in the case of a
refrigerator manufactured after 2006) less
kilowatt hours per year than such energy
conservation standards, and
``(C) $150, in the case of a refrigerator
manufactured before 2007 which consumes at least 20
percent less kilowatt hours per year than such energy
conservation standards.
``(2) Eligible production.--
``(A) In general.--The eligible production of each
category of qualified energy efficient appliances is
the excess of--
``(i) the number of appliances in such
category which are produced by the taxpayer
during such calendar year, over
``(ii) the average number of appliances in
such category which were produced by the
taxpayer during calendar years 2000, 2001, and
2002.
``(B) Categories.--For purposes of subparagraph
(A), the categories are--
``(i) clothes washers described in
paragraph (1)(A)(i),
``(ii) clothes washers described in
paragraph (1)(B)(i),
``(iii) refrigerators described in
paragraph (1)(A)(ii),
``(iv) refrigerators described in paragraph
(1)(B)(ii), and
``(v) refrigerators described in paragraph
(1)(C).
``(c) Limitation on Maximum Credit.--
``(1) In general.--The amount of credit allowed under
subsection (a) with respect to a taxpayer for all taxable years
shall not exceed $60,000,000, of which not more than
$30,000,000 may be allowed with respect to the credit
determined by using the applicable amount under subsection
(b)(1)(A).
``(2) Limitation based on gross receipts.--The credit
allowed under subsection (a) with respect to a taxpayer for the
taxable year shall not exceed an amount equal to 2 percent of
the average annual gross receipts of the taxpayer for the 3
taxable years preceding the taxable year in which the credit is
determined.
``(3) Gross receipts.--For purposes of this subsection, the
rules of paragraphs (2) and (3) of section 448(c) shall apply.
``(d) Definitions.--For purposes of this section--
``(1) Qualified energy efficient appliance.--The term
`qualified energy efficient appliance' means--
``(A) a clothes washer described in subparagraph
(A)(i) or (B)(i) of subsection (b)(1), or
``(B) a refrigerator described in subparagraph
(A)(ii), (B)(ii), or (C) of subsection (b)(1).
``(2) Clothes washer.--The term `clothes washer' means a
residential clothes washer, including a residential style coin
operated washer.
``(3) Refrigerator.--The term `refrigerator' means an
automatic defrost refrigerator-freezer which has an internal
volume of at least 16.5 cubic feet.
``(4) MEF.--The term `MEF' means Modified Energy Factor (as
determined by the Secretary of Energy).
``(e) Special Rules.--
``(1) In general.--Rules similar to the rules of
subsections (c), (d), and (e) of section 52 shall apply for
purposes of this section.
``(2) Aggregation rules.--All persons treated as a single
employer under subsection (a) or (b) of section 52 or
subsection (m) or (o) of section 414 shall be treated as 1
person for purposes of subsection (a).
``(f) Verification.--The taxpayer shall submit such information or
certification as the Secretary, in consultation with the Secretary of
Energy, determines necessary to claim the credit amount under
subsection (a).
``(g) Termination.--This section shall not apply--
``(1) with respect to refrigerators described in subsection
(b)(1)(A)(ii) produced after December 31, 2004, and
``(2) with respect to all other qualified energy efficient
appliances produced after December 31, 2007.''.
(b) Credit Made Part of General Business Credit.--Section 38(b)
(relating to current year business credit), as amended by this Act, is
amended by striking ``plus'' at the end of paragraph (17), by striking
the period at the end of paragraph (18) and inserting ``, plus'', and
by adding at the end the following new paragraph:
``(19) the energy efficient appliance credit determined
under section 45H(a).''.
(c) Limitation on Carryback.--Section 39(d) (relating to transition
rules), as amended by this Act, is amended by adding at the end the
following new paragraph:
``(14) No carryback of energy efficient appliance credit
before effective date.--No portion of the unused business
credit for any taxable year which is attributable to the energy
efficient appliance credit determined under section 45H may be
carried to a taxable year ending on or before the date of the
enactment of such section.''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45H. Energy efficient appliance
credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to appliances produced after the date of the enactment of this
Act, in taxable years ending after such date.

SEC. 303. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT PROPERTY.

(a) In General.--Subpart A of part IV of subchapter A of chapter 1
(relating to nonrefundable personal credits) is amended by inserting
after section 25B the following new section:

``SEC. 25C. RESIDENTIAL ENERGY EFFICIENT PROPERTY.

``(a) Allowance of Credit.--In the case of an individual, there
shall be allowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to the sum of--
``(1) 15 percent of the qualified photovoltaic property
expenditures made by the taxpayer during such year,
``(2) 15 percent of the qualified solar water heating
property expenditures made by the taxpayer during such year,
``(3) 30 percent of the qualified fuel cell property
expenditures made by the taxpayer during such year,
``(4) 30 percent of the qualified wind energy property
expenditures made by the taxpayer during such year, and
``(5) the sum of the qualified Tier 2 energy efficient
building property expenditures made by the taxpayer during such
year.
``(b) Limitations.--
``(1) Maximum credit.--The credit allowed under subsection
(a) shall not exceed--
``(A) $2,000 for property described in paragraph
(1), (2), or (5) of subsection (d),
``(B) $500 for each 0.5 kilowatt of capacity of
property described in subsection (d)(4), and
``(C) for property described in subsection (d)(6)--
``(i) $75 for each electric heat pump water
heater,
``(ii) $250 for each electric heat pump,
``(iii) $250 for each advanced natural gas,
oil, or propane furnace,
``(iv) $250 for each central air
conditioner,
``(v) $75 for each natural gas, oil, or
propane water heater, and
``(vi) $250 for each geothermal heat pump.
``(2) Safety certifications.--No credit shall be allowed
under this section for an item of property unless--
``(A) in the case of solar water heating property,
such property is certified for performance and safety
by the non-profit Solar Rating Certification
Corporation or a comparable entity endorsed by the
government of the State in which such property is
installed,
``(B) in the case of a photovoltaic property, a
fuel cell property, or a wind energy property, such
property meets appropriate fire and electric code
requirements, and
``(C) in the case of property described in
subsection (d)(6), such property meets the performance
and quality standards, and the certification
requirements (if any), which--
``(i) have been prescribed by the Secretary
by regulations (after consultation with the
Secretary of Energy or the Administrator of the
Environmental Protection Agency, as
appropriate),
``(ii) in the case of the energy efficiency
ratio (EER)--
``(I) require measurements to be
based on published data which is tested
by manufacturers at 95 degrees
Fahrenheit, and
``(II) do not require ratings to be
based on certified data of the
Air Conditioning and Refrigeration Institute, and
``(iii) are in effect at the time of the
acquisition of the property.
``(c) Carryforward of Unused Credit.--If the credit allowable under
subsection (a) exceeds the limitation imposed by section 26(a) for such
taxable year reduced by the sum of the credits allowable under this
subpart (other than this section and section 25D), such excess shall be
carried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such succeeding taxable year.
``(d) Definitions.--For purposes of this section--
``(1) Qualified solar water heating property expenditure.--
The term `qualified solar water heating property expenditure'
means an expenditure for property to heat water for use in a
dwelling unit located in the United States and used as a
residence by the taxpayer if at least half of the energy used
by such property for such purpose is derived from the sun.
``(2) Qualified photovoltaic property expenditure.--The
term `qualified photovoltaic property expenditure' means an
expenditure for property which uses solar energy to generate
electricity for use in a dwelling unit located in the United
States and used as a residence by the taxpayer.
``(3) Solar panels.--No expenditure relating to a solar
panel or other property installed as a roof (or portion
thereof) shall fail to be treated as property described in
paragraph (1) or (2) solely because it constitutes a structural
component of the structure on which it is installed.
``(4) Qualified fuel cell property expenditure.--The term
`qualified fuel cell property expenditure' means an expenditure
for qualified fuel cell property (as defined in section
48(a)(4)) installed on or in connection with a dwelling unit
located in the United States and used as a principal residence
(within the meaning of section 121) by the taxpayer.
``(5) Qualified wind energy property expenditure.--The term
`qualified wind energy property expenditure' means an
expenditure for property which uses wind energy to generate
electricity for use in a dwelling unit located in the United
States and used as a residence by the taxpayer.
``(6) Qualified tier 2 energy efficient building property
expenditure.--
``(A) In general.--The term `qualified Tier 2
energy efficient building property expenditure' means
an expenditure for any Tier 2 energy efficient building
property.
``(B) Tier 2 energy efficient building property.--
The term `Tier 2 energy efficient building property'
means--
``(i) an electric heat pump water heater
which yields an energy factor of at least 1.7
in the standard Department of Energy test
procedure,
``(ii) an electric heat pump which has a
heating seasonal performance factor (HSPF) of
at least 9, a seasonal energy efficiency ratio
(SEER) of at least 15, and an energy efficiency
ratio (EER) of at least 12.5,
``(iii) an advanced natural gas, oil, or
propane furnace which achieves at least 95
percent annual fuel utilization efficiency
(AFUE),
``(iv) a central air conditioner which has
a seasonal energy efficiency ratio (SEER) of at
least 15 and an energy efficiency ratio (EER)
of at least 12.5,
``(v) a natural gas, oil, or propane water
heater which has an energy factor of at least
0.80 in the standard Department of Energy test
procedure, and
``(vi) a geothermal heat pump which has an
energy efficiency ratio (EER) of at least 21.
``(7) Labor costs.--Expenditures for labor costs properly
allocable to the onsite preparation, assembly, or original
installation of the property described in paragraph (1), (2),
(4), (5), or (6) and for piping or wiring to interconnect such
property to the dwelling unit shall be taken into account for
purposes of this section.
``(8) Swimming pools, etc., used as storage medium.--
Expenditures which are properly allocable to a swimming pool,
hot tub, or any other energy storage medium which has a
function other than the function of such storage shall not be
taken into account for purposes of this section.
``(e) Special Rules.--For purposes of this section--
``(1) Dollar amounts in case of joint occupancy.--In the
case of any dwelling unit which is jointly occupied and used
during any calendar year as a residence by 2 or more
individuals the following rules shall apply:
``(A) The amount of the credit allowable, under
subsection (a) by reason of expenditures (as the case
may be) made during such calendar year by any of such
individuals with respect to such dwelling unit shall be
determined by treating all of such individuals as 1
taxpayer whose taxable year is such calendar year.
``(B) There shall be allowable, with respect to
such expenditures to each of such individuals, a credit
under subsection (a) for the taxable year in which such
calendar year ends in an amount which bears the same
ratio to the amount determined under subparagraph (A)
as the amount of such expenditures made by such
individual during such calendar year bears to the
aggregate of such expenditures made by all of such
individuals during such calendar year.
``(2) Tenant-stockholder in cooperative housing
corporation.--In the case of an individual who is a tenant-
stockholder (as defined in section 216) in a cooperative
housing corporation (as defined in such section), such
individual shall be treated as having made his tenant-
stockholder's proportionate share (as defined in section
216(b)(3)) of any expenditures of such corporation.
``(3) Condominiums.--
``(A) In general.--In the case of an individual who
is a member of a condominium management association
with respect to a condominium which the individual
owns, such individual shall be treated as having made
the individual's proportionate share of any
expenditures of such association.
``(B) Condominium management association.--For
purposes of this paragraph, the term `condominium
management association' means an organization which
meets the requirements of paragraph (1) of section
528(c) (other than subparagraph (E) thereof) with
respect to a condominium project substantially all of
the units of which are used as residences.
``(4) Allocation in certain cases.--Except in the case of
qualified wind energy property expenditures, if less than 80
percent of the use of an item is for nonbusiness purposes, only
that portion of the expenditures for such item which is
properly allocable to use for nonbusiness purposes shall be
taken into account.
``(5) When expenditure made; amount of expenditure.--
``(A) In general.--Except as provided in
subparagraph (B), an expenditure with respect to an
item shall be treated as made when the original
installation of the item is completed.
``(B) Expenditures part of building construction.--
In the case of an expenditure in connection with the
construction or reconstruction of a structure, such
expenditure shall be treated as made when the original
use of the constructed or reconstructed structure by
the taxpayer begins.
``(C) Amount.--The amount of any expenditure shall
be the cost thereof.
``(6) Property financed by subsidized energy financing.--
For purposes of determining the amount of expenditures made by
any individual with respect to any dwelling unit, there shall
not be taken into account expenditures which are made from
subsidized energy financing (as defined in section
48(a)(5)(C)).
``(f) Basis Adjustments.--For purposes of this subtitle, if a
credit is allowed under this section for any expenditure with respect
to any property, the increase in the basis of such property which would
(but for this subsection) result from such expenditure shall be reduced
by the amount of the credit so allowed.
``(g) Termination.--The credit allowed under this section shall not
apply to expenditures after December 31, 2007.''.
(b) Credit Allowed Against Regular Tax and Alternative Minimum
Tax.--
(1) In general.--Section 25C(b), as added by subsection
(a), is amended by adding at the end the following new
paragraph:
``(3) Limitation based on amount of tax.--The credit
allowed under subsection (a) for the taxable year shall not
exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
subpart (other than this section and section 25D) and
section 27 for the taxable year.''.
(2) Conforming amendments.--
(A) Section 25C(c), as added by subsection (a), is
amended by striking ``section 26(a) for such taxable
year reduced by the sum of the credits allowable under
this subpart (other than this section and section
25D)'' and inserting ``subsection (b)(3)''.
(B) Section 23(b)(4)(B) is amended by inserting
``and section 25C'' after ``this section''.
(C) Section 24(b)(3)(B) is amended by striking ``23
and 25B'' and inserting ``23, 25B, and 25C''.
(D) Section 25(e)(1)(C) is amended by inserting
``25C,'' after ``25B,''.
(E) Section 25B(g)(2) is amended by striking
``section 23'' and inserting ``sections 23 and 25C''.
(F) Section 26(a)(1) is amended by striking ``and
25B'' and inserting ``25B, and 25C''.
(G) Section 904(h) is amended by striking ``and
25B'' and inserting ``25B, and 25C''.
(H) Section 1400C(d) is amended by striking ``and
25B'' and inserting ``25B, and 25C''.
(c) Additional Conforming Amendments.--
(1) Section 23(c), as in effect for taxable years beginning
before January 1, 2004, is amended by striking ``section
1400C'' and inserting ``sections 25C and 1400C''.
(2) Section 25(e)(1)(C), as in effect for taxable years
beginning before January 1, 2004, is amended by inserting ``,
25C,'' after ``sections 23''.
(3) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (29), by striking the
period at the end of paragraph (30) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(31) to the extent provided in section 25C(f), in the
case of amounts with respect to which a credit has been allowed
under section 25C.''.
(4) Section 1400C(d), as in effect for taxable years
beginning before January 1, 2004, is amended by inserting ``and
section 25C'' after ``this section''.
(5) The table of sections for subpart A of part IV of
subchapter A of chapter 1 is amended by inserting after the
item relating to section 25B the following new item:

``Sec. 25C. Residential energy efficient
property.''.
(d) Effective Dates.--
(1) In general.--Except as provided by paragraph (2), the
amendments made by this section shall apply to expenditures
after the date of the enactment of this Act, in taxable years
ending after such date.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to taxable years beginning after December 31, 2003.

SEC. 304. CREDIT FOR BUSINESS INSTALLATION OF QUALIFIED FUEL CELLS AND
STATIONARY MICROTURBINE POWER PLANTS.

(a) In General.--Section 48(a)(3)(A) (defining energy property) is
amended by striking ``or'' at the end of clause (i), by adding ``or''
at the end of clause (ii), and by inserting after clause (ii) the
following new clause:
``(iii) qualified fuel cell property or
qualified microturbine property,''.
(b) Qualified Fuel Cell Property; Qualified Microturbine
Property.--Section 48(a) (relating to energy credit) is amended by
redesignating paragraphs (4) and (5) as paragraphs (5) and (6),
respectively, and by inserting after paragraph (3) the following new
paragraph:
``(4) Qualified fuel cell property; qualified microturbine
property.--For purposes of this subsection--
``(A) Qualified fuel cell property.--
``(i) In general.--The term `qualified fuel
cell property' means a fuel cell power plant
which--
``(I) generates at least 0.5
kilowatt of electricity using an
electrochemical process, and
``(II) has an electricity-only
generation efficiency greater than 30
percent.
``(ii) Limitation.--In the case of
qualified fuel cell property placed in service
during the taxable year, the credit otherwise
determined under paragraph (1) for such year
with respect to such property shall not exceed
an amount equal to $500 for each 0.5 kilowatt
of capacity of such property.
``(iii) Fuel cell power plant.--The term
`fuel cell power plant' means an integrated
system comprised of a fuel cell stack assembly
and associated balance of plant components
which converts a fuel into electricity using
electrochemical means.
``(iv) Termination.--The term `qualified
fuel cell property' shall not include any
property placed in service after December 31,
2007.
``(B) Qualified microturbine property.--
``(i) In general.--The term `qualified
microturbine property' means a stationary
microturbine power plant which--
``(I) has a capacity of less than
2,000 kilowatts, and
``(II) has an electricity-only
generation efficiency of not less than
26 percent at International Standard
Organization conditions.
``(ii) Limitation.--In the case of
qualified microturbine property placed in
service during the taxable year, the credit
otherwise determined under paragraph (1) for
such year with respect to such property shall
not exceed an amount equal $200 for each
kilowatt of capacity of such property.
``(iii) Stationary microturbine power
plant.--The term `stationary microturbine power
plant' means an integrated system comprised of
a gas turbine engine, a combustor, a
recuperator or regenerator, a generator or
alternator, and associated balance of plant
components which converts a fuel into
electricity and thermal energy. Such term also
includes all secondary components located
between the existing infrastructure for fuel
delivery and the existing infrastructure for
power distribution, including equipment and
controls for meeting relevant power standards,
such as voltage, frequency, and power factors.
``(iv) Termination.--The term `qualified
microturbine property' shall not include any
property placed in service after December 31,
2006.''.
(c) Energy Percentage.--Section 48(a)(2)(A) (relating to energy
percentage) is amended to read as follows:
``(A) In general.--The energy percentage is--
``(i) in the case of qualified fuel cell
property, 30 percent, and
``(ii) in the case of any other energy
property, 10 percent.''.
(d) Conforming Amendments.--
(A) Section 29(b)(3)(A)(i)(III) is amended by
striking ``section 48(a)(4)(C)'' and inserting
``section 48(a)(5)(C)''.
(B) Section 48(a)(1) is amended by inserting
``except as provided in subparagraph (A)(ii) or (B)(ii)
of paragraph (4),'' before ``the energy''.
(e) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date, under rules similar
to the rules of section 48(m) of the Internal Revenue Code of 1986 (as
in effect on the day before the date of the enactment of the Revenue
Reconciliation Act of 1990).

SEC. 305. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations) is amended by
inserting after section 179A the following new section:

``SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

``(a) In General.--There shall be allowed as a deduction for the
taxable year in which a building is placed in service by a taxpayer, an
amount equal to the energy efficient commercial building property
expenditures made by such taxpayer with respect to the construction or
reconstruction of such building for the taxable year or any preceding
taxable year.
``(b) Maximum Amount of Deduction.--The amount of energy efficient
commercial building property expenditures taken into account under
subsection (a) shall not exceed an amount equal to the product of--
``(1) $2.25, and
``(2) the square footage of the building with respect to
which the expenditures are made.
``(c) Energy Efficient Commercial Building Property Expenditures.--
For purposes of this section--
``(1) In general.--The term `energy efficient commercial
building property expenditures' means amounts paid or incurred
for energy efficient property installed on or in connection
with the construction or reconstruction of a building--
``(A) for which depreciation is allowable under
section 167,
``(B) which is located in the United States, and
``(C) which is the type of structure to which the
Standard 90.1-2001 of the American Society of Heating,
Refrigerating, and Air Conditioning Engineers and the
Illuminating Engineering Society of North America is
applicable.
Such term includes expenditures for labor costs properly
allocable to the onsite preparation, assembly, or original
installation of the property.
``(2) Energy efficient property.--For purposes of paragraph
(1)--
``(A) In general.--The term `energy efficient
property' means any property which reduces total annual
energy and power costs with respect to the lighting,
heating, cooling, ventilation, and hot water supply
systems of the building by 50 percent or more in
comparison to a building which meets the minimum
requirements of Standard 90.1-2001 of the American
Society of Heating, Refrigerating, and Air Conditioning
Engineers and the Illuminating Engineering Society of
North America, using methods of calculation described
in subparagraph (B) and certified by qualified
individuals as provided under paragraph (5).
``(B) Methods of calculation.--The Secretary, in
consultation with the Secretary of Energy, shall
promulgate regulations which describe in detail methods
for calculating and verifying energy and power costs.
``(C) Computer software.--
``(i) In general.--Any calculation
described in subparagraph (B) shall be prepared
by qualified computer software.
``(ii) Qualified computer software.--For
purposes of this subparagraph, the term
`qualified computer software' means software--
``(I) for which the software
designer has certified that the
software meets all procedures and
detailed methods for calculating energy
and power costs as required by the
Secretary,
``(II) which provides such forms as
required to be filed by the Secretary
in connection with energy efficiency of
property and the deduction allowed
under this section, and
``(III) which provides a notice
form which summarizes the energy
efficiency features of the building and
its projected annual energy costs.
``(3) Allocation of deduction for public property.--In the
case of energy efficient commercial building property
expenditures made by a public entity with respect to the
construction or reconstruction of a public building, the
Secretary shall promulgate regulations under which the value of
the deduction with respect to such expenditures which would be
allowable to the public entity under this section (determined
without regard to the tax-exempt status of such entity) may be
allocated to the person primarily responsible for designing the
energy efficient property. Such person shall be treated as the
taxpayer for purposes of this section.
``(4) Notice to owner.--Any qualified individual providing
a certification under paragraph (5) shall provide an
explanation to the owner of the building regarding the energy
efficiency features of the building and its projected annual
energy costs as provided in the notice under paragraph
(2)(C)(ii)(III).
``(5) Certification.--
``(A) In general.--The Secretary shall prescribe
procedures for the inspection and testing for
compliance of buildings by qualified individuals
described in subparagraph (B). Such procedures shall
be--
``(i) comparable, given the difference
between commercial and residential buildings,
to the requirements in the Mortgage Industry
National Home Energy Rating Standards, and
``(ii) fuel neutral such that the same
energy efficiency measures allow a building to
be eligible for the credit under this section
regardless of whether such building uses a gas
or oil furnace or boiler or an electric heat
pump.
``(B) Qualified individuals.--Individuals qualified
to determine compliance shall be only those individuals
who are recognized by an organization certified by the
Secretary for such purposes. The Secretary may qualify
a home energy ratings organization, a local building
regulatory authority, a State or local energy office, a
utility, or any other organization which meets the
requirements prescribed under this paragraph.
``(C) Proficiency of qualified individuals.--The
Secretary shall consult with nonprofit organizations
and State agencies with expertise in energy efficiency
calculations and inspections to develop proficiency
tests and training programs to qualify individuals to
determine compliance.
``(d) Basis Reduction.--For purposes of this subtitle, if a
deduction is allowed under this section with respect to any energy
efficient property, the basis of such property shall be reduced by the
amount of the deduction so allowed.
``(e) Regulations.--The Secretary shall promulgate such regulations
as necessary to take into account new technologies regarding energy
efficiency and renewable energy for purposes of determining energy
efficiency and savings under this section.
``(f) Termination.--This section shall not apply with respect to
any energy efficient commercial building property expenditures in
connection with a building the construction of which is not completed
on or before December 31, 2009.''.
(b) Conforming Amendments.--
(1) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (30), by striking the
period at the end of paragraph (31) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(32) to the extent provided in section 179B(d).''.
(2) Section 1245(a) is amended by inserting ``179B,'' after
``179A,'' both places it appears in paragraphs (2)(C) and
(3)(C).
(3) Section 1250(b)(3) is amended by inserting before the
period at the end of the first sentence ``or by section 179B''.
(4) Section 263(a)(1) is amended by striking ``or'' at the
end of subparagraph (G), by striking the period at the end of
subparagraph (H) and inserting ``, or'', and by inserting after
subparagraph (H) the following new subparagraph:
``(I) expenditures for which a deduction is allowed
under section 179B.''.
(5) Section 312(k)(3)(B) is amended by striking ``or 179A''
each place it appears in the heading and text and inserting ``,
179A, or 179B''.
(c) Clerical Amendment.--The table of sections for part VI of
subchapter B of chapter 1 is amended by inserting after section 179A
the following new item:

``Sec. 179B. Energy efficient commercial
buildings deduction.''.
(d) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

SEC. 306. THREE-YEAR APPLICABLE RECOVERY PERIOD FOR DEPRECIATION OF
QUALIFIED ENERGY MANAGEMENT DEVICES.

(a) In General.--Section 168(e)(3)(A) (defining 3-year property) is
amended by striking ``and'' at the end of clause (ii), by striking the
period at the end of clause (iii) and inserting ``, and'', and by
adding at the end the following new clause:
``(iv) any qualified energy management
device.''.
(b) Definition of Qualified Energy Management Device.--Section
168(i) (relating to definitions and special rules) is amended by
inserting at the end the following new paragraph:
``(15) Qualified energy management device.--
``(A) In general.--The term `qualified energy
management device' means any energy management device
which is placed in service before January 1, 2008, by a
taxpayer who is a supplier of electric energy or a
provider of electric energy services.
``(B) Energy management device.--For purposes of
subparagraph (A), the term `energy management device'
means any meter or metering device which is used by the
taxpayer--
``(i) to measure and record electricity
usage data on a time-differentiated basis in at
least 4 separate time segments per day, and
``(ii) to provide such data on at least a
monthly basis to both consumers and the
taxpayer.''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 307. THREE-YEAR APPLICABLE RECOVERY PERIOD FOR DEPRECIATION OF
QUALIFIED WATER SUBMETERING DEVICES.

(a) In General.--Section 168(e)(3)(A) (defining 3-year property),
as amended by this Act, is amended by striking ``and'' at the end of
clause (iii), by striking the period at the end of clause (iv) and
inserting ``, and'', and by adding at the end the following new clause:
``(v) any qualified water submetering
device.''.
(b) Definition of Qualified Water Submetering Device.--Section
168(i) (relating to definitions and special rules), as amended by this
Act, is amended by inserting at the end the following new paragraph:
``(16) Qualified water submetering device.--
``(A) In general.--The term `qualified water
submetering device' means any water submetering device
which is placed in service before January 1, 2008, by a
taxpayer who is an eligible resupplier with respect to
the unit for which the device is placed in service.
``(B) Water submetering device.--For purposes of
this paragraph, the term `water submetering device'
means any submetering device which is used by the
taxpayer--
``(i) to measure and record water usage
data, and
``(ii) to provide such data on at least a
monthly basis to both consumers and the
taxpayer.
``(C) Eligible resupplier.--For purposes of
subparagraph (A), the term `eligible resupplier' means
any taxpayer who purchases and installs qualified water
submetering devices in every unit in any multi-unit
property.''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 308. ENERGY CREDIT FOR COMBINED HEAT AND POWER SYSTEM PROPERTY.

(a) In General.--Section 48(a)(3)(A) (defining energy property), as
amended by this Act, is amended by striking ``or'' at the end of clause
(ii), by adding ``or'' at the end of clause (iii), and by inserting
after clause (iii) the following new clause:
``(iv) combined heat and power system
property,''.
(b) Combined Heat and Power System Property.--Section 48(a)
(relating to energy credit), as amended by this Act, is amended by
redesignating paragraphs (5) and (6) as paragraphs (6) and (7),
respectively, and by inserting after paragraph (4) the following new
paragraph:
``(5) Combined heat and power system property.--For
purposes of this subsection--
``(A) Combined heat and power system property.--The
term `combined heat and power system property' means
property comprising a system--
``(i) which uses the same energy source for
the simultaneous or sequential generation of
electrical power, mechanical shaft power, or
both, in combination with the generation of
steam or other forms of useful thermal energy
(including heating and cooling applications),
``(ii) which has an electrical capacity of
more than 50 kilowatts or a mechanical energy
capacity of more than 67 horsepower or an
equivalent combination of electrical and
mechanical energy capacities,
``(iii) which produces--
``(I) at least 20 percent of its
total useful energy in the form of
thermal energy which is not used to
produce electrical or mechanical power
(or combination thereof), and
``(II) at least 20 percent of its
total useful energy in the form of
electrical or mechanical power (or
combination thereof),
``(iv) the energy efficiency percentage of
which exceeds 60 percent (70 percent in the
case of a system with an electrical capacity in
excess of 50 megawatts or a mechanical energy
capacity in excess of 67,000 horsepower, or an
equivalent combination of electrical and
mechanical energy capacities), and
``(v) which is placed in service before
January 1, 2007.
``(B) Special rules.--
``(i) Energy efficiency percentage.--For
purposes of subparagraph (A)(iv), the energy
efficiency percentage of a system is the
fraction--
``(I) the numerator of which is the
total useful electrical, thermal, and
mechanical power produced by the system
at normal operating rates, and expected
to be consumed in its normal
application, and
``(II) the denominator of which is
the lower heating value of the primary
fuel source for the system.
``(ii) Determinations made on btu basis.--
The energy efficiency percentage and the
percentages under subparagraph (A)(iii) shall
be determined on a Btu basis.
``(iii) Input and output property not
included.--The term `combined heat and power
system property' does not include property used
to transport the energy source to the facility
or to distribute energy produced by the
facility.
``(iv) Public utility property.--
``(I) Accounting rule for public
utility property.--If the combined heat
and power system property is public
utility property (as defined in section
168(i)(10)), the taxpayer may only
claim the credit under this subsection
if, with respect to such property, the
taxpayer uses a normalization method of
accounting.
``(II) Certain exception not to
apply.--The matter following paragraph
(3)(D) shall not apply to combined heat and power system property.
``(v) Nonapplication of certain rules.--
For purposes of determining if the term
`combined heat and power system property'
includes technologies which generate
electricity or mechanical power using back-
pressure steam turbines in place of existing
pressure-reducing valves or which make use of
waste heat from industrial processes such as by
using organic rankin, stirling, or kalina heat
engine systems, subparagraph (A) shall be
applied without regard to clauses (i), (iii),
and (iv) thereof.
``(C) Extension of depreciation recovery period.--
If a taxpayer is allowed a credit under this section
for a combined heat and power system property which has
a class life of 15 years or less under section 168,
such property shall be treated as having a 22-year
class life for purposes of section 168.''.
(c) Limitation on Carryback.--Section 39(d) (relating to transition
rules), as amended by this Act, is amended by adding at the end the
following new paragraph:
``(15) No carryback of energy credit before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the energy credit with respect to
property described in section 48(a)(5) may be carried back to a
taxable year ending on or before the date of the enactment of
such section.''.
(d) Conforming Amendments.--
(A) Section 25C(e)(6), as added by this Act, is
amended by striking ``section 48(a)(5)(C)'' and
inserting ``section 48(a)(6)(C)''.
(B) Section 29(b)(3)(A)(i)(III), as amended by this
Act, is amended by striking ``section 48(a)(5)(C)'' and
inserting ``section 48(a)(6)(C)''.
(e) Effective Date.--The amendments made by this subsection shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date, under rules similar
to the rules of section 48(m) of the Internal Revenue Code of 1986 (as
in effect on the day before the date of the enactment of the Revenue
Reconciliation Act of 1990).

SEC. 309. CREDIT FOR ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

(a) In General.--Subpart A of part IV of subchapter A of chapter 1
(relating to nonrefundable personal credits), as amended by this Act,
is amended by inserting after section 25C the following new section:

``SEC. 25D. ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

``(a) Allowance of Credit.--In the case of an individual, there
shall be allowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to 10 percent of the amount paid
or incurred by the taxpayer for qualified energy efficiency
improvements installed during such taxable year.
``(b) Limitation.--The credit allowed by this section with respect
to a dwelling for any taxable year shall not exceed $300, reduced (but
not below zero) by the sum of the credits allowed under subsection (a)
to the taxpayer with respect to the dwelling for all preceding taxable
years.
``(c) Carryforward of Unused Credit.--If the credit allowable under
subsection (a) exceeds the limitation imposed by section 26(a) for such
taxable year reduced by the sum of the credits allowable under this
subpart (other than this section) for such taxable year, such excess
shall be carried to the succeeding taxable year and added to the credit
allowable under subsection (a) for such succeeding taxable year.
``(d) Qualified Energy Efficiency Improvements.--For purposes of
this section, the term `qualified energy efficiency improvements' means
any energy efficient building envelope component which is certified to
meet or exceed the prescriptive criteria for such component in the 2000
International Energy Conservation Code, or any combination of energy
efficiency measures which are certified as achieving at least a 30
percent reduction in heating and cooling energy usage for the dwelling
(as measured in terms of energy cost to the taxpayer), if--
``(1) such component or combination of measures is
installed in or on a dwelling which--
``(A) is located in the United States,
``(B) has not been treated as a qualifying new home
for purposes of any credit allowed under section 45G,
and
``(C) is owned and used by the taxpayer as the
taxpayer's principal residence (within the meaning of
section 121),
``(2) the original use of such component or combination of
measures commences with the taxpayer, and
``(3) such component or combination of measures reasonably
can be expected to remain in use for at least 5 years.
``(e) Certification.--
``(1) Methods of certification.--
``(A) Component-based method.--The certification
described in subsection (d) for any component described
in such subsection shall be determined on the basis of
applicable energy efficiency ratings (including product
labeling requirements) for affected building envelope
components.
``(B) Performance-based method.--
``(i) In general.--The certification
described in subsection (d) for any combination
of measures described in such subsection shall
be--
``(I) determined by comparing the
projected heating and cooling energy
usage for the dwelling to such usage
for such dwelling in its original
condition, and
``(II) accompanied by a written
analysis documenting the proper
application of a permissible energy
performance calculation method to the
specific circumstances of such
dwelling.
``(ii) Computer software.--Computer
software shall be used in support of a
performance-based method certification under
clause (i). Such software shall meet procedures
and methods for calculating energy and cost
savings in regulations promulgated by the
Secretary of Energy. Such regulations on the
specifications for software and verification
protocols shall be based on the 2001 California
Residential Alternative Calculation Method
Approval Manual.
``(2) Provider.--A certification described in subsection
(d) shall be provided by--
``(A) in the case of the method described in
paragraph (1)(A), by a third party, such as a local
building regulatory authority, a utility, a
manufactured home primary inspection agency, or a home
energy rating organization, or
``(B) in the case of the method described in
paragraph (1)(B), an individual recognized by an
organization designated by the Secretary for such purposes.
``(3) Form.--A certification described in subsection (d)
shall be made in writing on forms which specify in readily
inspectable fashion the energy efficient components and other
measures and their respective efficiency ratings, and which
include a permanent label affixed to the electrical
distribution panel of the dwelling.
``(4) Regulations.--
``(A) In general.--In prescribing regulations under
this subsection for certification methods described in
paragraph (1)(B), the Secretary, after examining the
requirements for energy consultants and home energy
ratings providers specified by the Mortgage Industry
National Home Energy Rating Standards, shall prescribe
procedures for calculating annual energy usage and cost
reductions for heating and cooling and for the
reporting of the results. Such regulations shall--
``(i) provide that any calculation
procedures be fuel neutral such that the same
energy efficiency measures allow a dwelling to
be eligible for the credit under this section
regardless of whether such dwelling uses a gas
or oil furnace or boiler or an electric heat
pump, and
``(ii) require that any computer software
allow for the printing of the Federal tax forms
necessary for the credit under this section and
for the printing of forms for disclosure to the
owner of the dwelling.
``(B) Providers.--For purposes of paragraph (2)(B),
the Secretary shall establish requirements for the
designation of individuals based on the requirements
for energy consultants and home energy raters specified
by the Mortgage Industry National Home Energy Rating
Standards.
``(f) Definitions and Special Rules.--For purposes of this
section--
``(1) Dollar amounts in case of joint occupancy.--In the
case of any dwelling unit which is jointly occupied and used
during any calendar year as a residence by 2 or more
individuals the following rules shall apply:
``(A) The amount of the credit allowable under
subsection (a) by reason of expenditures for the
qualified energy efficiency improvements made during
such calendar year by any of such individuals with
respect to such dwelling unit shall be determined by
treating all of such individuals as 1 taxpayer whose
taxable year is such calendar year.
``(B) There shall be allowable, with respect to
such expenditures to each of such individuals, a credit
under subsection (a) for the taxable year in which such
calendar year ends in an amount which bears the same
ratio to the amount determined under subparagraph (A)
as the amount of such expenditures made by such
individual during such calendar year bears to the
aggregate of such expenditures made by all of such
individuals during such calendar year.
``(2) Tenant-stockholder in cooperative housing
corporation.--In the case of an individual who is a tenant-
stockholder (as defined in section 216) in a cooperative
housing corporation (as defined in such section), such
individual shall be treated as having paid his tenant-
stockholder's proportionate share (as defined in section
216(b)(3)) of the cost of qualified energy efficiency
improvements made by such corporation.
``(3) Condominiums.--
``(A) In general.--In the case of an individual who
is a member of a condominium management association
with respect to a condominium which the individual
owns, such individual shall be treated as having paid
the individual's proportionate share of the cost of
qualified energy efficiency improvements made by such
association.
``(B) Condominium management association.--For
purposes of this paragraph, the term `condominium
management association' means an organization which
meets the requirements of paragraph (1) of section
528(c) (other than subparagraph (E) thereof) with
respect to a condominium project substantially all of
the units of which are used as residences.
``(4) Building envelope component.--The term `building
envelope component' means--
``(A) any insulation material or system which is
specifically and primarily designed to reduce the heat
loss or gain or a dwelling when installed in or on such
dwelling,
``(B) exterior windows (including skylights), and
``(C) exterior doors.
``(5) Manufactured homes included.--For purposes of this
section, the term `dwelling' includes a manufactured home which
conforms to Federal Manufactured Home Construction and Safety
Standards (24 C.F.R. 3280).
``(g) Basis Adjustment.--For purposes of this subtitle, if a credit
is allowed under this section for any expenditure with respect to any
property, the increase in the basis of such property which would (but
for this subsection) result from such expenditure shall be reduced by
the amount of the credit so allowed.
``(h) Termination.--Subsection (a) shall not apply to qualified
energy efficiency improvements installed after December 31, 2006.''.
(b) Credit Allowed Against Regular Tax and Alternative Minimum
Tax.--
(1) In general.--Section 25D(b), as added by subsection
(a), is amended by adding at the end the following new
paragraph:
``(3) Limitation based on amount of tax.--The credit
allowed under subsection (a) for the taxable year shall not
exceed the excess of--
``(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
``(B) the sum of the credits allowable under this
subpart (other than this section) and section 27 for
the taxable year.''.
(2) Conforming amendments.--
(A) Section 25D(c), as added by subsection (a), is
amended by striking ``section 26(a) for such taxable
year reduced by the sum of the credits allowable under
this subpart (other than this section)'' and inserting
``subsection (b)(3)''.
(B) Section 23(b)(4)(B), as amended by this Act, is
amended by striking ``section 25C'' and inserting
``sections 25C and 25D''.
(C) Section 24(b)(3)(B), as amended by this Act, is
amended by striking ``and 25C'' and inserting ``25C,
and 25D''.
(D) Section 25(e)(1)(C), as amended by this Act, is
amended by inserting ``25D,'' after ``25C,''.
(E) Section 25B(g)(2), as amended by this Act, is
amended by striking ``23 and 25C'' and inserting ``23,
25C, and 25D''.
(F) Section 26(a)(1), as amended by this Act, is
amended by striking ``and 25C'' and inserting ``25C,
and 25D''.
(G) Section 904(h), as amended by this Act, is
amended by striking ``and 25C'' and inserting ``25C,
and 25D''.
(H) Section 1400C(d), as amended by this Act, is
amended by striking ``and 25C'' and inserting ``25C,
and 25D''.
(c) Additional Conforming Amendments.--
(1) Section 23(c), as in effect for taxable years beginning
before January 1, 2004, and as amended by this Act, is amended
by inserting ``, 25D,'' after ``sections 25C''.
(2) Section 25(e)(1)(C), as in effect for taxable years
beginning before January 1, 2004, and as amended by this Act,
is amended by inserting ``25D,'' after ``25C,''.
(3) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (31), by striking the
period at the end of paragraph (32) and inserting ``; and'',
and by adding at the end the following new paragraph:
``(33) to the extent provided in section 25D(g), in the
case of amounts with respect to which a credit has been allowed
under section 25D.''.
(4) Section 1400C(d), as in effect for taxable years
beginning before January 1, 2004, and as amended by this Act,
is amended by striking ``section 25C'' and inserting ``sections
25C and 25D''.
(5) The table of sections for subpart A of part IV of
subchapter A of chapter 1, as amended by this Act, is amended
by inserting after the item relating to section 25C the
following new item:

``Sec. 25D. Energy efficiency
improvements to existing
homes.''.
(d) Effective Dates.--
(1) In general.--Except as provided by paragraph (2), the
amendments made by this section shall apply to property
installed after the date of the enactment of this Act, in
taxable years ending after such date.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to taxable years beginning after December 31, 2003.

TITLE IV--CLEAN COAL INCENTIVES

Subtitle A--Credit for Emission Reductions and Efficiency Improvements
in Existing Coal-Based Electricity Generation Facilities

SEC. 401. CREDIT FOR PRODUCTION FROM A QUALIFYING CLEAN COAL TECHNOLOGY
UNIT.

(a) Credit for Production From a Qualifying Clean Coal Technology
Unit.--Subpart D of part IV of subchapter A of chapter 1 (relating to
business related credits), as amended by this Act, is amended by adding
at the end the following new section:

``SEC. 45I. CREDIT FOR PRODUCTION FROM A QUALIFYING CLEAN COAL
TECHNOLOGY UNIT.

``(a) General Rule.--For purposes of section 38, the qualifying
clean coal technology production credit of any taxpayer for any taxable
year is equal to--
``(1) the applicable amount of clean coal technology
production credit, multiplied by
``(2) the applicable percentage of the sum of--
``(A) the kilowatt hours of electricity, plus
``(B) each 3,413 Btu of fuels or chemicals,
produced by the taxpayer during such taxable year at a
qualifying clean coal technology unit, but only if such
production occurs during the 10-year period beginning on the
date the unit was returned to service after becoming a
qualifying clean coal technology unit.
``(b) Applicable Amount.--
``(1) In general.--For purposes of this section, the
applicable amount of clean coal technology production credit is
equal to $0.0034.
``(2) Inflation adjustment.--For calendar years after 2004,
the applicable amount of clean coal technology production
credit shall be adjusted by multiplying such amount by the
inflation adjustment factor for the calendar year in which the
amount is applied. If any amount as increased under the
preceding sentence is not a multiple of 0.01 cent, such amount
shall be rounded to the nearest multiple of 0.01 cent.
``(c) Applicable Percentage.--For purposes of this section, with
respect to any qualifying clean coal technology unit, the applicable
percentage is the percentage equal to the ratio which the portion of
the national megawatt capacity limitation allocated to the taxpayer
with respect to such unit under subsection (e) bears to the total
megawatt capacity of such unit.
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) Qualifying clean coal technology unit.--The term
`qualifying clean coal technology unit' means a clean coal
technology unit of the taxpayer which--
``(A) on the date of the enactment of this
section--
``(i) was a coal-based electricity
generating steam generator-turbine unit which
was not a clean coal technology unit, and
``(ii) had a nameplate capacity rating of
not more than 300 megawatts,
``(B) becomes a clean coal technology unit as the
result of the retrofitting, repowering, or replacement
of the unit with clean coal technology during the 10-
year period beginning on the date of the enactment of
this section,
``(C) is not receiving nor is scheduled to receive
funding under the Clean Coal Technology Program, the
Power Plant Improvement Initiative, or the Clean Coal
Power Initiative administered by the Secretary of
Energy, and
``(D) receives an allocation of a portion of the
national megawatt capacity limitation under subsection
(e).
``(2) Clean coal technology unit.--The term `clean coal
technology unit' means a unit which--
``(A) uses clean coal technology, including
advanced pulverized coal or atmospheric fluidized bed
combustion, pressurized fluidized bed combustion,
integrated gasification combined cycle, or any other
technology, for the production of electricity,
``(B) uses coal to produce 75 percent or more of
its thermal output as electricity,
``(C) has a design net heat rate of at least 500
less than that of such unit as described in paragraph
(1)(A),
``(D) has a maximum design net heat rate of not
more than 9,500, and
``(E) meets the pollution control requirements of
paragraph (3).
``(3) Pollution control requirements.--
``(A) In general.--A unit meets the requirements of
this paragraph if--
``(i) its emissions of sulfur dioxide,
nitrogen oxide, or particulates meet the lower
of the emission levels for each such emission
specified in--
``(I) subparagraph (B), or
``(II) the new source performance
standards of the Clean Air Act (42
U.S.C. 7411) which are in effect for
the category of source at the time of
the retrofitting, repowering, or
replacement of the unit, and
``(ii) its emissions do not exceed any
relevant emission level specified by regulation
pursuant to the hazardous air pollutant
requirements of the Clean Air Act (42 U.S.C.
7412) in effect at the time of the
retrofitting, repowering, or replacement.
``(B) Specific levels.--The levels specified in
this subparagraph are--
``(i) in the case of sulfur dioxide
emissions, 50 percent of the sulfur dioxide
emission levels specified in the new source
performance standards of the Clean Air Act (42
U.S.C. 7411) in effect on the date of the
enactment of this section for the category of
source,
``(ii) in the case of nitrogen oxide
emissions--
``(I) 0.1 pound per million Btu of
heat input if the unit is not a
cyclone-fired boiler, and
``(II) if the unit is a cyclone-
fired boiler, 15 percent of the
uncontrolled nitrogen oxide emissions
from such boilers, and
``(iii) in the case of particulate
emissions, 0.02 pound per million Btu of heat
input.
``(4) Design net heat rate.--The design net heat rate with
respect to any unit, measured in Btu per kilowatt hour (HHV)--
``(A) shall be based on the design annual heat
input to and the design annual net electrical power,
fuels, and chemicals output from such unit (determined
without regard to such unit's co-generation of steam),
``(B) shall be adjusted for the heat content of the
design coal to be used by the unit if it is less than
12,000 Btu per pound according to the following
formula:
Design net heat rate = Unit net heat rate  x  [l- {((12,000-
design coal heat content, Btu per pound)/1,000)  x  0.013}],
``(C) shall be corrected for the site reference
conditions of--
``(i) elevation above sea level of 500
feet,
``(ii) air pressure of 14.4 pounds per
square inch absolute (psia),
``(iii) temperature, dry bulb of 63 deg.F,
``(iv) temperature, wet bulb of 54 deg.F,
and
``(v) relative humidity of 55 percent, and
``(D) if carbon capture controls have been
installed with respect to any qualifying unit and such
controls remove at least 50 percent of the unit's
carbon dioxide emissions, shall be adjusted up to the
design heat rate level which would have resulted
without the installation of such controls.
``(5) HHV.--The term `HHV' means higher heating value.
``(6) Application of certain rules.--The rules of
paragraphs (3), (4), and (5) of section 45(d) shall apply.
``(7) Inflation adjustment factor.--
``(A) In general.--The term `inflation adjustment
factor' means, with respect to a calendar year, a
fraction the numerator of which is the GDP implicit
price deflator for the preceding calendar year and the
denominator of which is the GDP implicit price deflator
for the calendar year 2003.
``(B) GDP implicit price deflator.--The term `GDP
implicit price deflator' means, for any calendar year,
the most recent revision of the implicit price deflator
for the gross domestic product as of June 30 of such
calendar year as computed by the Department of Commerce
before October 1 of such calendar year.
``(8) Noncompliance with pollution laws.--For purposes of
this section, a unit which is not in compliance with the
applicable State and Federal pollution prevention, control, and
permit requirements for any period of time shall not be
considered to be a qualifying clean coal technology unit during
such period.
``(e) National Limitation on the Aggregate Capacity of Qualifying
Clean Coal Technology Units.--
``(1) In general.--For purposes of this section, the
national megawatt capacity limitation for qualifying clean coal
technology units is 4,000 megawatts.
``(2) Allocation of limitation.--The Secretary shall
allocate the national megawatt capacity limitation for
qualifying clean coal technology units in such manner as the
Secretary may prescribe under the regulations under paragraph
(3).
``(3) Regulations.--Not later than 6 months after the date
of the enactment of this section, the Secretary shall prescribe
such regulations as may be necessary or appropriate--
``(A) to carry out the purposes of this subsection,
``(B) to limit the capacity of any qualifying clean
coal technology unit to which this section applies so
that the megawatt capacity allocated to any unit under
this subsection does not exceed 300 megawatts and the
combined megawatt capacity allocated to all such units
when all such units are placed in service during
the 10-year period described in subsection (d)(1)(B), does not exceed
4,000 megawatts,
``(C) to provide a certification process under
which the Secretary, in consultation with the Secretary
of Energy, shall approve and allocate the national
megawatt capacity limitation--
``(i) to encourage that units with the
highest thermal efficiencies, when adjusted for
the heat content of the design coal and site
reference conditions described in subsection
(d)(4)(C), and environmental performance, be
placed in service as soon as possible, and
``(ii) to allocate capacity to taxpayers
which have a definite and credible plan for
placing into commercial operation a qualifying
clean coal technology unit, including--
``(I) a site,
``(II) contractual commitments for
procurement and construction or, in the
case of regulated utilities, the
agreement of the State utility
commission,
``(III) filings for all necessary
preconstruction approvals,
``(IV) a demonstrated record of
having successfully completed
comparable projects on a timely basis,
and
``(V) such other factors that the
Secretary determines are appropriate,
``(D) to allocate the national megawatt capacity
limitation to a portion of the capacity of a qualifying
clean coal technology unit if the Secretary determines
that such an allocation would maximize the amount of
efficient production encouraged with the available tax
credits,
``(E) to set progress requirements and conditional
approvals so that capacity allocations for clean coal
technology units which become unlikely to meet the
necessary conditions for qualifying can be reallocated
by the Secretary to other clean coal technology units,
and
``(F) to provide taxpayers with opportunities to
correct administrative errors and omissions with
respect to allocations and record keeping within a
reasonable period after discovery, taking into account
the availability of regulations and other
administrative guidance from the Secretary.''.
(b) Credit Treated as Business Credit.--Section 38(b) (relating to
current year business credit), as amended by this Act, is amended by
striking ``plus'' at the end of paragraph (18), by striking the period
at the end of paragraph (19) and inserting ``, plus'', and by adding at
the end the following new paragraph:
``(20) the qualifying clean coal technology production
credit determined under section 45I(a).''.
(c) Transitional Rule.--Section 39(d) (relating to transitional
rules), as amended by this Act, is amended by adding at the end the
following new paragraph:
``(16) No carryback of section 45i credit before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the qualifying clean coal
technology production credit determined under section 45I may
be carried back to a taxable year ending on or before the date
of the enactment of such section.''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45I. Credit for production from a qualifying clean coal
technology unit.''.
(e) Effective Date.--The amendments made by this section shall
apply to production after the date of the enactment of this Act, in
taxable years ending after such date.

Subtitle B--Incentives for Early Commercial Applications of Advanced
Clean Coal Technologies

SEC. 411. CREDIT FOR INVESTMENT IN QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY.

(a) Allowance of Qualifying Advanced Clean Coal Technology Unit
Credit.--Section 46 (relating to amount of credit) is amended by
striking ``and'' at the end of paragraph (2), by striking the period at
the end of paragraph (3) and inserting ``, and'', and by adding at the
end the following new paragraph:
``(4) the qualifying advanced clean coal technology unit
credit.''.
(b) Amount of Qualifying Advanced Clean Coal Technology Unit
Credit.--Subpart E of part IV of subchapter A of chapter 1 (relating to
rules for computing investment credit) is amended by inserting after
section 48 the following new section:

``SEC. 48A. QUALIFYING ADVANCED CLEAN COAL TECHNOLOGY UNIT CREDIT.

``(a) In General.--For purposes of section 46, the qualifying
advanced clean coal technology unit credit for any taxable year is an
amount equal to 10 percent of the applicable percentage of the
qualified investment in a qualifying advanced clean coal technology
unit for such taxable year.
``(b) Qualifying Advanced Clean Coal Technology Unit.--
``(1) In general.--For purposes of subsection (a), the term
`qualifying advanced clean coal technology unit' means an
advanced clean coal technology unit of the taxpayer--
``(A)(i) in the case of a unit first placed in
service after the date of the enactment of this
section, the original use of which commences with the
taxpayer, or
``(ii) in the case of the retrofitting or
repowering of a unit first placed in service before
such date of enactment, the retrofitting or repowering
of which is completed by the taxpayer after such date,
or
``(B) which is depreciable under section 167,
``(C) which has a useful life of not less than 4
years,
``(D) which is located in the United States,
``(E) which is not receiving nor is scheduled to
receive funding under the Clean Coal Technology
Program, the Power Plant Improvement Initiative, or the
Clean Coal Power Initiative administered by the
Secretary of Energy,
``(F) which is not a qualifying clean coal
technology unit, and
``(G) which receives an allocation of a portion of
the national megawatt capacity limitation under
subsection (f).
``(2) Special rule for sale-leasebacks.--For purposes of
subparagraph (A) of paragraph (1), in the case of a unit
which--
``(A) is originally placed in service by a person,
and
``(B) is sold and leased back by such person, or is
leased to such person, within 3 months after the date
such unit was originally placed in service, for a
period of not less than 12 years,
such unit shall be treated as originally placed in service not
earlier than the date on which such unit is used under the
leaseback (or lease) referred to in subparagraph (B). The
preceding sentence shall not apply to any property if the
lessee and lessor of such property make an election under this
sentence. Such an election, once made, may be revoked only with
the consent of the Secretary.
``(3) Noncompliance with pollution laws.--For purposes of
this subsection, a unit which is not in compliance with the
applicable State and Federal pollution prevention, control, and
permit requirements for any period of time shall not be
considered to be a qualifying advanced clean coal technology
unit during such period.
``(c) Applicable Percentage.--For purposes of this section, with
respect to any qualifying advanced clean coal technology unit, the
applicable percentage is the percentage equal to the ratio which the
portion of the national megawatt capacity limitation allocated to the
taxpayer with respect to such unit under subsection (f) bears to the
total megawatt capacity of such unit.
``(d) Advanced Clean Coal Technology Unit.--For purposes of this
section--
``(1) In general.--The term `advanced clean coal technology
unit' means a new, retrofit, or repowering unit of the taxpayer
which--
``(A) is--
``(i) an eligible advanced pulverized coal
or atmospheric fluidized bed combustion
technology unit,
``(ii) an eligible pressurized fluidized
bed combustion technology unit,
``(iii) an eligible integrated gasification
combined cycle technology unit, or
``(iv) an eligible other technology unit,
and
``(B) meets the carbon emission rate requirements
of paragraph (6).
``(2) Eligible advanced pulverized coal or atmospheric
fluidized bed combustion technology unit.--The term `eligible
advanced pulverized coal or atmospheric fluidized bed
combustion technology unit' means a clean coal technology unit
using advanced pulverized coal or atmospheric fluidized bed
combustion technology which--
``(A) is placed in service after the date of the
enactment of this section and before January 1, 2013,
and
``(B) has a design net heat rate of not more than
8,500 (8,900 in the case of units placed in service
before 2009).
``(3) Eligible pressurized fluidized bed combustion
technology unit.--The term `eligible pressurized fluidized bed
combustion technology unit' means a clean coal technology unit
using pressurized fluidized bed combustion technology which--
``(A) is placed in service after the date of the
enactment of this section and before January 1, 2017,
and
``(B) has a design net heat rate of not more than
7,720 (8,900 in the case of units placed in service
before 2009, and 8,500 in the case of units placed in
service after 2008 and before 2013).
``(4) Eligible integrated gasification combined cycle
technology unit.--The term `eligible integrated gasification
combined cycle technology unit' means a clean coal technology
unit using integrated gasification combined cycle technology,
with or without fuel or chemical co-production, which--
``(A) is placed in service after the date of the
enactment of this section and before January 1, 2017,
``(B) has a design net heat rate of not more than
7,720 (8,900 in the case of units placed in service
before 2009, and 8,500 in the case of units placed in
service after 2008 and before 2013), and
``(C) has a net thermal efficiency (HHV) using coal
with fuel or chemical co-production of not less than
44.2 percent (38.4 percent in the case of units placed
in service before 2009, and 40.2 percent in the case of
units placed in service after 2008 and before 2013).
``(5) Eligible other technology unit.--The term `eligible
other technology unit' means a clean coal technology unit using
any other technology for the production of electricity which is
placed in service after the date of the enactment of this
section and before January 1, 2017.
``(6) Carbon emission rate requirements.--
``(A) In general.--Except as provided in
subparagraph (B), a unit meets the requirements of this
paragraph if--
``(i) in the case of a unit using design
coal with a heat content of not more than 9,000
Btu per pound, the carbon emission rate is less
than 0.60 pound of carbon per kilowatt hour,
and
``(ii) in the case of a unit using design
coal with a heat content of more than 9,000 Btu
per pound, the carbon emission rate is less
than 0.54 pound of carbon per kilowatt hour.
``(B) Eligible other technology unit.--In the case
of an eligible other technology unit, subparagraph (A)
shall be applied by substituting `0.51' and `0.459' for
`0.60' and `0.54', respectively.
``(e) General Definitions.--Any term used in this section which is
also used in section 45I shall have the meaning given such term in
section 45I.
``(f) National Limitation on the Aggregate Capacity of Advanced
Clean Coal Technology Units.--
``(1) In general.--For purposes of subsection (b)(1)(G),
the national megawatt capacity limitation is--
``(A) for qualifying advanced clean coal technology
units using advanced pulverized coal or atmospheric
fluidized bed combustion technology, not more than
1,000 megawatts (not more than 500 megawatts in the
case of units placed in service before 2009),
``(B) for such units using pressurized fluidized
bed combustion technology, not more than 500 megawatts
(not more than 250 megawatts in the case of units
placed in service before 2009),
``(C) for such units using integrated gasification
combined cycle technology, with or without fuel or
chemical co-production, not more than 2,000 megawatts
(not more than 750 megawatts in the case of units
placed in service before 2009), and
``(D) for such units using other technology for the
production of electricity, not more than 500 megawatts
(not more than 250 megawatts in the case of units
placed in service before 2009).
``(2) Allocation of limitation.--The Secretary shall
allocate the national megawatt capacity limitation for
qualifying advanced clean coal technology units in such manner
as the Secretary may prescribe under the regulations under
paragraph (3).
``(3) Regulations.--Not later than 6 months after the date
of the enactment of this section, the Secretary shall prescribe
such regulations as may be necessary or appropriate--
``(A) to carry out the purposes of this subsection
and section 45J,
``(B) to limit the capacity of any qualifying
advanced clean coal technology unit to which this
section applies so that the combined megawatt capacity
of all such units to which this section applies does
not exceed 4,000 megawatts,
``(C) to provide a certification process described
in section 45I(e)(3)(C),
``(D) to carry out the purposes described in
subparagraphs (D), (E), and (F) of section 45I(e)(3),
and
``(E) to reallocate capacity which is not allocated
to any technology described in subparagraphs (A)
through (D) of paragraph (1) because an insufficient
number of qualifying units request an allocation for
such technology, to another technology described in
such subparagraphs in order to maximize the amount of
energy efficient production encouraged with the
available tax credits.
``(4) Selection criteria.--For purposes of this subsection,
the selection criteria for allocating the national megawatt
capacity limitation to qualifying advanced clean coal
technology units--
``(A) shall be established by the Secretary of
Energy as part of a competitive solicitation,
``(B) shall include primary criteria of minimum
design net heat rate, maximum design thermal
efficiency, environmental performance, and lowest cost
to the Government, and
``(C) shall include supplemental criteria as
determined appropriate by the Secretary of Energy.
``(g) Qualified Investment.--For purposes of subsection (a), the
term `qualified investment' means, with respect to any taxable year,
the basis of a qualifying advanced clean coal technology unit placed in
service by the taxpayer during such taxable year (in the case of a unit
described in subsection (b)(1)(A)(ii), only that portion of the basis
of such unit which is properly attributable to the retrofitting or
repowering of such unit).
``(h) Qualified Progress Expenditures.--
``(1) Increase in qualified investment.--In the case of a
taxpayer who has made an election under paragraph (5), the
amount of the qualified investment of such taxpayer for the
taxable year (determined under subsection (g) without regard to
this subsection) shall be increased by an amount equal to the
aggregate of each qualified progress expenditure for the
taxable year with respect to progress expenditure property.
``(2) Progress expenditure property defined.--For purposes
of this subsection, the term `progress expenditure property'
means any property being constructed by or for the taxpayer and
which it is reasonable to believe will qualify as a qualifying
advanced clean coal technology unit which is being constructed
by or for the taxpayer when it is placed in service.
``(3) Qualified progress expenditures defined.--For
purposes of this subsection--
``(A) Self-constructed property.--In the case of
any self-constructed property, the term `qualified
progress expenditures' means the amount which, for
purposes of this subpart, is properly chargeable
(during such taxable year) to capital account with
respect to such property.
``(B) Nonself-constructed property.--In the case of
nonself-constructed property, the term `qualified
progress expenditures' means the amount paid during the
taxable year to another person for the construction of
such property.
``(4) Other definitions.--For purposes of this subsection--
``(A) Self-constructed property.--The term `self-
constructed property' means property for which it is
reasonable to believe that more than half of the
construction expenditures will be made directly by the
taxpayer.
``(B) Nonself-constructed property.--The term
`nonself-constructed property' means property which is
not self-constructed property.
``(C) Construction, etc.--The term `construction'
includes reconstruction and erection, and the term
`constructed' includes reconstructed and erected.
``(D) Only construction of qualifying advanced
clean coal technology unit to be taken into account.--
Construction shall be taken into account only if, for
purposes of this subpart, expenditures therefor are
properly chargeable to capital account with respect to
the property.
``(5) Election.--An election under this subsection may be
made at such time and in such manner as the Secretary may by
regulations prescribe. Such an election shall apply to the
taxable year for which made and to all subsequent taxable
years. Such an election, once made, may not be revoked except
with the consent of the Secretary.
``(i) Coordination With Other Credits.--This section shall not
apply to any property with respect to which the rehabilitation credit
under section 47 or the energy credit under section 48 is allowed
unless the taxpayer elects to waive the application of such credit to
such property.''.
(c) Recapture.--Section 50(a) (relating to other special rules) is
amended by adding at the end the following new paragraph:
``(6) Special rules relating to qualifying advanced clean
coal technology unit.--For purposes of applying this subsection
in the case of any credit allowable by reason of section 48A,
the following rules shall apply:
``(A) General rule.--In lieu of the amount of the
increase in tax under paragraph (1), the increase in
tax shall be an amount equal to the investment tax
credit allowed under section 38 for all prior taxable
years with respect to a qualifying advanced clean coal
technology unit (as defined by section
48A(b)(1)) multiplied by a fraction the numerator of which is the
number of years remaining to fully depreciate under this title the
qualifying advanced clean coal technology unit disposed of, and the
denominator of which is the total number of years over which such unit
would otherwise have been subject to depreciation. For purposes of the
preceding sentence, the year of disposition of the qualifying advanced
clean coal technology unit shall be treated as a year of remaining
depreciation.
``(B) Property ceases to qualify for progress
expenditures.--Rules similar to the rules of paragraph
(2) shall apply in the case of qualified progress
expenditures for a qualifying advanced clean coal
technology unit under section 48A, except that the
amount of the increase in tax under subparagraph (A) of
this paragraph shall be substituted for the amount
described in such paragraph (2).
``(C) Application of paragraph.--This paragraph
shall be applied separately with respect to the credit
allowed under section 38 regarding a qualifying
advanced clean coal technology unit.''.
(d) Transitional Rule.--Section 39(d) (relating to transitional
rules), as amended by this Act, is amended by adding at the end the
following new paragraph:
``(17) No carryback of section 48a credit before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the qualifying advanced clean
coal technology unit credit determined under section 48A may be
carried back to a taxable year ending on or before the date of
the enactment of such section.''.
(e) Technical Amendments.--
(1) Section 49(a)(1)(C) is amended by striking ``and'' at
the end of clause (ii), by striking the period at the end of
clause (iii) and inserting ``, and'', and by adding at the end
the following new clause:
``(iv) the portion of the basis of any
qualifying advanced clean coal technology unit
attributable to any qualified investment (as
defined by section 48A(g)).''.
(2) Section 50(a)(4) is amended by striking ``and (2)'' and
inserting ``(2), and (6)''.
(3) Section 50(c) is amended by adding at the end the
following new paragraph:
``(6) Nonapplication.--Paragraphs (1) and (2) shall not
apply to any qualifying advanced clean coal technology unit
credit under section 48A.''.
(4) The table of sections for subpart E of part IV of
subchapter A of chapter 1 is amended by inserting after the
item relating to section 48 the following new item:

``Sec. 48A. Qualifying advanced clean coal technology unit credit.''.
(f) Effective Date.--The amendments made by this section shall
apply to periods after the date of the enactment of this Act, under
rules similar to the rules of section 48(m) of the Internal Revenue
Code of 1986 (as in effect on the day before the date of the enactment
of the Revenue Reconciliation Act of 1990).

SEC. 412. CREDIT FOR PRODUCTION FROM A QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY UNIT.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by adding at the end the following new section:

``SEC. 45J. CREDIT FOR PRODUCTION FROM A QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY UNIT.

``(a) General Rule.--For purposes of section 38, the qualifying
advanced clean coal technology production credit of any taxpayer for
any taxable year is equal to--
``(1) the applicable amount of advanced clean coal
technology production credit, multiplied by
``(2) the applicable percentage (as determined under
section 48A(c)) of the sum of--
``(A) the kilowatt hours of electricity, plus
``(B) each 3,413 Btu of fuels or chemicals,
produced by the taxpayer during such taxable year at a
qualifying advanced clean coal technology unit, but only if
such production occurs during the 10-year period beginning on
the date the unit was originally placed in service (or returned
to service after becoming a qualifying advanced clean coal
technology unit).
``(b) Applicable Amount.--For purposes of this section--
``(1) In general.--Except as provided in paragraph (2), the
applicable amount of advanced clean coal technology production
credit with respect to production from a qualifying advanced
clean coal technology unit shall be determined as follows:
``(A) If the qualifying advanced clean coal
technology unit is producing electricity only:
``(i) In the case of a unit originally
placed in service before 2009, if--

------------------------------------------------------------------------
The applicable amount is:
---------------------------------
``The design net heat rate is:      For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------
Not more than 8,500...................          $.0060           $.0038
More than 8,500 but not more than               $.0025           $.0010
8,750................................
More than 8,750 but less than 8,900...          $.0010          $.0010.
------------------------------------------------------------------------

``(ii) In the case of a unit originally
placed in service after 2008 and before 2013,
if--

------------------------------------------------------------------------
The applicable amount is:
---------------------------------
``The design net heat rate is:      For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------
Not more than 7,770...................          $.0105           $.0090
More than 7,770 but not more than               $.0085           $.0068
8,125................................
More than 8,125 but less than 8,500...          $.0075          $.0055.
------------------------------------------------------------------------

``(iii) In the case of a unit originally
placed in service after 2012 and before 2017,
if--

------------------------------------------------------------------------
The applicable amount is:
---------------------------------
``The design net heat rate is:      For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------
Not more than 7,380...................          $.0140           $.0115
More than 7,380 but not more than               $.0120          $.0090.
7,720................................
------------------------------------------------------------------------

``(B) If the qualifying advanced clean coal
technology unit is producing fuel or chemicals:
``(i) In the case of a unit originally
placed in service before 2009, if--

------------------------------------------------------------------------
The applicable amount is:
``The unit design net thermal     ---------------------------------
efficiency (HHV) is:           For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------
Not less than 40.6 percent............          $.0060           $.0038
Less than 40.6 but not less than 40             $.0025           $.0010
percent..............................
Less than 40 but not less than 38.4             $.0010          $.0010.
percent..............................
------------------------------------------------------------------------

``(ii) In the case of a unit originally
placed in service after 2008 and before 2013,
if--

------------------------------------------------------------------------
The applicable amount is:
``The unit design net thermal     ---------------------------------
efficiency (HHV) is:           For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------
Not less than 43.6 percent............          $.0105           $.0090
Less than 43.6 but not less than 42             $.0085           $.0068
percent..............................
Less than 42 but not less than 40.2             $.0075          $.0055.
percent..............................
------------------------------------------------------------------------

``(iii) In the case of a unit originally
placed in service after 2012 and before 2017,
if--

------------------------------------------------------------------------
The applicable amount is:
``The unit design net thermal     ---------------------------------
efficiency (HHV) is:           For 1st 5 years   For 2d 5 years
of such service  of such service
------------------------------------------------------------------------

Not less than 44.2 percent............          $.0140           $.0115
Less than 44.2 but not less than 43.9           $.0120          $.0090.
percent..............................
------------------------------------------------------------------------

``(2) Special rule for units qualifying for greater
applicable amount when placed in service.--If, at the time a
qualifying advanced clean coal technology unit is placed in
service, production from the unit would be entitled to a
greater applicable amount if such unit had been placed in
service at a later date, the applicable amount for such unit
shall be such greater amount.
``(c) Inflation Adjustment.--For calendar years after 2004, each
dollar amount in subsection (b)(1) shall be adjusted by multiplying
such amount by the inflation adjustment factor for the calendar year in
which the amount is applied. If any amount as increased under the
preceding sentence is not a multiple of 0.01 cent, such amount shall be
rounded to the nearest multiple of 0.01 cent.
``(d) Definitions and Special Rules.--For purposes of this
section--
``(1) In general.--Any term used in this section which is
also used in section 45I or 48A shall have the meaning given
such term in such section.
``(2) Applicable rules.--The rules of paragraphs (3), (4),
and (5) of section 45(d) shall apply.''.
(b) Credit Treated as Business Credit.--Section 38(b) (relating to
current year business credit), as amended by this Act, is amended by
striking ``plus'' at the end of paragraph (19), by striking the period
at the end of paragraph (20) and inserting ``, plus'', and by adding at
the end the following new paragraph:
``(21) the qualifying advanced clean coal technology
production credit determined under section 45J(a).''.
(c) Transitional Rule.--Section 39(d) (relating to transitional
rules), as amended by this Act, is amended by adding at the end the
following new paragraph:
``(18) No carryback of section 45j credit before effective
date.--No portion of the unused business credit for any taxable
year which is attributable to the qualifying advanced clean
coal technology production credit determined under section 45J
may be carried back to a taxable year ending on or before the
date of the enactment of such section.''.
(d) Denial of Double Benefit.--Section 29(d) (relating to other
definitions and special rules) is amended by adding at the end the
following new paragraph:
``(9) Denial of double benefit.--This section shall not
apply with respect to any qualified fuel the production of
which may be taken into account for purposes of determining the
credit under section 45J.''.
(e) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45J. Credit for production from a qualifying advanced clean coal
technology unit.''.
(f) Effective Date.--The amendments made by this section shall
apply to production after the date of the enactment of this Act, in
taxable years ending after such date.

Subtitle C--Treatment of Persons Not Able To Use Entire Credit

SEC. 421. TREATMENT OF PERSONS NOT ABLE TO USE ENTIRE CREDIT.

(a) In General.--Section 45I, as added by this Act, is amended by
adding at the end the following new subsection:
``(f) Treatment of Person Not Able To Use Entire Credit.--
``(1) Allowance of credits.--
``(A) In general.--Any credit allowable under this
section, section 45J, or section 48A with respect to a
facility owned by a person described in subparagraph
(B) may be transferred or used as provided in this
subsection, and the determination as to whether the
credit is allowable shall be made without regard to the
tax-exempt status of the person.
``(B) Persons described.--A person is described in
this subparagraph if the person is--
``(i) an organization described in section
501(c)(12)(C) and exempt from tax under section
501(a),
``(ii) an organization described in section
1381(a)(2)(C),
``(iii) a public utility (as defined in
section 136(c)(2)(B)),
``(iv) any State or political subdivision
thereof, the District of Columbia, or any
agency or instrumentality of any of the
foregoing,
``(v) any Indian tribal government (within
the meaning of section 7871) or any agency or
instrumentality thereof, or
``(vi) the Tennessee Valley Authority.
``(2) Transfer of credit.--
``(A) In general.--A person described in clause
(i), (ii), (iii), (iv), or (v) of paragraph (1)(B) may
transfer any credit to which paragraph (1)(A) applies
through an assignment to any other person not described
in paragraph (1)(B). Such transfer may be revoked only
with the consent of the Secretary.
``(B) Regulations.--The Secretary shall prescribe
such regulations as necessary to ensure that any credit
described in subparagraph (A) is claimed once and not
reassigned by such other person.
``(C) Transfer proceeds treated as arising from
essential government function.--Any proceeds derived by
a person described in clause (iii), (iv), or (v) of
paragraph (1)(B) from the transfer of any credit under
subparagraph (A) shall be treated as arising from the
exercise of an essential government function.
``(3) Use of credit as an offset.--Notwithstanding any
other provision of law, in the case of a person described in
clause (i), (ii), or (v) of paragraph (1)(B), any credit to
which paragraph (1)(A) applies may be applied by such person,
to the extent provided by the Secretary of Agriculture, as a
prepayment of any loan, debt, or other obligation the entity
has incurred under subchapter I of chapter 31 of title 7 of the
Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.), as in
effect on the date of the enactment of this section.
``(4) Use by tva.--
``(A) In general.--Notwithstanding any other
provision of law, in the case of a person described in
paragraph (1)(B)(vi), any credit to which paragraph
(1)(A) applies may be applied as a credit against the
payments required to be made in any fiscal year under
section 15d(e) of the Tennessee Valley Authority Act of
1933 (16 U.S.C. 831n-4(e)) as an annual return on the
appropriations investment and an annual repayment sum.
``(B) Treatment of credits.--The aggregate amount
of credits described in paragraph (1)(A) with respect
to such person shall be treated in the same manner and
to the same extent as if such credits were a payment in
cash and shall be applied first against the annual
return on the appropriations investment.
``(C) Credit carryover.--With respect to any fiscal
year, if the aggregate amount of credits described
paragraph (1)(A) with respect to such person exceeds
the aggregate amount of payment obligations described
in subparagraph (A), the excess amount shall remain
available for application as credits against the
amounts of such payment obligations in succeeding
fiscal years in the same manner as described in this
paragraph.
``(5) Credit not income.--Any transfer under paragraph (2)
or use under paragraph (3) of any credit to which paragraph
(1)(A) applies shall not be treated as income for purposes of
section 501(c)(12).
``(6) Treatment of unrelated persons.--For purposes of this
subsection, transfers among and between persons described in
clauses (i), (ii), (iii), (iv), and (v) of paragraph (1)(B)
shall be treated as transfers between unrelated parties.''.
(b) Effective Date.--The amendment made by this section shall apply
to production after the date of the enactment of this Act, in taxable
years ending after such date.

TITLE V--OIL AND GAS PROVISIONS

SEC. 501. OIL AND GAS FROM MARGINAL WELLS.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business credits), as amended by this Act, is amended by
adding at the end the following new section:

``SEC. 45K. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.

``(a) General Rule.--For purposes of section 38, the marginal well
production credit for any taxable year is an amount equal to the
product of--
``(1) the credit amount, and
``(2) the qualified crude oil production and the qualified
natural gas production which is attributable to the taxpayer.
``(b) Credit Amount.--For purposes of this section--
``(1) In general.--The credit amount is--
``(A) $3 per barrel of qualified crude oil
production, and
``(B) 50 cents per 1,000 cubic feet of qualified
natural gas production.
``(2) Reduction as oil and gas prices increase.--
``(A) In general.--The $3 and 50 cents amounts
under paragraph (1) shall each be reduced (but not
below zero) by an amount which bears the same ratio to
such amount (determined without regard to this
paragraph) as--
``(i) the excess (if any) of the applicable
reference price over $15 ($1.67 for qualified
natural gas production), bears to
``(ii) $3 ($0.33 for qualified natural gas
production).
The applicable reference price for a taxable year is
the reference price of the calendar year preceding the
calendar year in which the taxable year begins.
``(B) Inflation adjustment.--
``(i) In general.--In the case of any
taxable year beginning in a calendar year after
2003, each of the dollar amounts contained in
subparagraph (A) shall be increased to an
amount equal to such dollar amount multiplied
by the inflation adjustment factor for such
calendar year.
``(ii) Inflation adjustment factor.--For
purposes of clause (i)--
``(I) In general.--The term
`inflation adjustment factor' means,
with respect to a calendar year, a
fraction the numerator of which is the
GDP implicit price deflator for the
preceding calendar year and the
denominator of which is the GDP
implicit price deflator for the
calendar year 2002.
``(II) GDP implicit price
deflator.--The term `GDP implicit price
deflator' means, for any calendar year,
the most recent revision of the
implicit price deflator for the gross
domestic product as of June 30 of such
calendar year as computed by the
Department of Commerce before October 1
of such calendar year.
``(C) Reference price.--For purposes of this
paragraph, the term `reference price' means, with
respect to any calendar year--
``(i) in the case of qualified crude oil
production, the reference price determined
under section 29(d)(2)(C), and
``(ii) in the case of qualified natural gas
production, the Secretary's estimate of the
annual average wellhead price per 1,000 cubic
feet for all domestic natural gas.
``(c) Qualified Crude Oil and Natural Gas Production.--For purposes
of this section--
``(1) In general.--The terms `qualified crude oil
production' and `qualified natural gas production' mean
domestic crude oil or domestic natural gas which is produced
from a qualified marginal well.
``(2) Limitation on amount of production which may
qualify.--
``(A) In general.--Crude oil or natural gas
produced during any taxable year from any well shall
not be treated as qualified crude oil production or
qualified natural gas production to the extent
production from the well during the taxable year
exceeds 1,095 barrels or barrel equivalents.
``(B) Proportionate reductions.--
``(i) Short taxable years.--In the case of
a short taxable year, the limitations under
this paragraph shall be proportionately reduced
to reflect the ratio which the number of days
in such taxable year bears to 365.
``(ii) Wells not in production entire
year.--In the case of a well which is not
capable of production during each day of a
taxable year, the limitations under this
paragraph applicable to the well shall be
proportionately reduced to reflect the ratio
which the number of days of production bears to
the total number of days in the taxable year.
``(3) Noncompliance with pollution laws.--Production from
any well during any period in which such well is not in
compliance with applicable Federal pollution prevention,
control, and permit requirements shall not be treated as
qualified crude oil production or qualified natural gas
production.
``(4) Definitions.--
``(A) Qualified marginal well.--The term `qualified
marginal well' means a domestic well--
``(i) the production from which during the
taxable year is treated as marginal production
under section 613A(c)(6), or
``(ii) which, during the taxable year--
``(I) has average daily production
of not more than 25 barrel equivalents,
and
``(II) produces water at a rate not
less than 95 percent of total well
effluent.
``(B) Crude oil, etc.--The terms `crude oil',
`natural gas', `domestic', and `barrel' have the
meanings given such terms by section 613A(e).
``(C) Barrel equivalent.--The term `barrel
equivalent' means, with respect to natural gas, a
conversation ratio of 6,000 cubic feet of natural gas
to 1 barrel of crude oil.
``(D) Domestic natural gas.--The term `domestic
natural gas' does not include Alaska natural gas (as
defined in section 45M(c)(1)).
``(d) Other Rules.--
``(1) Production attributable to the taxpayer.--In the case
of a qualified marginal well in which there is more than 1
owner of operating interests in the well and the crude oil or
natural gas production exceeds the limitation under subsection
(c)(2), qualifying crude oil production or qualifying natural
gas production attributable to the taxpayer shall be determined
on the basis of the ratio which taxpayer's revenue interest in
the production bears to the aggregate of the revenue interests
of all operating interest owners in the production.
``(2) Operating interest required.--Any credit under this
section may be claimed only on production which is attributable
to the holder of an operating interest.
``(3) Production from nonconventional sources excluded.--In
the case of production from a qualified marginal well which is
eligible for the credit allowed under section 29 for the
taxable year, no credit shall be allowable under this section
unless the taxpayer elects not to claim the credit under
section 29 with respect to the well.''.
(b) Credit Treated as Business Credit.--Section 38(b) (relating to
current year business credit), as amended by this Act, is amended by
striking ``plus'' at the end of paragraph (20), by striking the period
at the end of paragraph (21) and inserting ``, plus'', and by adding at
the end the following new paragraph:
``(22) the marginal oil and gas well production credit
determined under section 45K(a).''.
(c) No Carryback of Marginal Oil and Gas Well Production Credit
Before Effective Date.--Section 39(d) (relating to transition rules),
as amended by this Act, is amended by adding at the end the following
new paragraph:
``(19) No carryback of marginal oil and gas well production
credit before effective date.--No portion of the unused
business credit for any taxable year which is attributable to
the marginal oil and gas well production credit determined
under section 45K may be carried back to a taxable year ending
on or before the date of the enactment of such section.''.
(d) Coordination With Section 29.--Section 29(a) (relating to
allowance of credit) is amended by striking ``There'' and inserting
``At the election of the taxpayer, there''.
(e) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45K. Credit for producing oil and
gas from marginal wells.''.
(f) Effective Date.--The amendments made by this section shall
apply to production in taxable years beginning after the date of the
enactment of this Act.

SEC. 502. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR PROPERTY.

(a) In General.--Section 168(e)(3)(C) (defining 7-year property) is
amended by striking ``and'' at the end of clause (i), by redesignating
clause (ii) as clause (iii), and by inserting after clause (i) the
following new clause:
``(ii) any natural gas gathering line,
and''.
(b) Natural Gas Gathering Line.--Section 168(i) (relating to
definitions and special rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
``(17) Natural gas gathering line.--The term `natural gas
gathering line' means--
``(A) the pipe, equipment, and appurtenances used
to deliver natural gas from the wellhead or a
commonpoint to the point at which such gas first
reaches--
``(i) a gas processing plant,
``(ii) an interconnection with a
transmission pipeline certificated by the
Federal Energy Regulatory Commission as an
interstate transmission pipeline,
``(iii) an interconnection with an
intrastate transmission pipeline, or
``(iv) a direct interconnection with a
local distribution company, a gas storage
facility, or an industrial consumer, or
``(B) any other pipe, equipment, or appurtenances
determined to be a gathering line by the Federal Energy
Regulatory Commission.
(c) Alternative System.--The table contained in section
168(g)(3)(B) (relating to special rule for certain property assigned to
classes) is amended by inserting after the item relating to
subparagraph (C)(i) the following new item:

``(C)(ii)......................................................   10''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 503. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH
ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

(a) In General.--Part VI of subchapter B of chapter 1 (relating to
itemized deductions for individuals and corporations), as amended by
this Act, is amended by inserting after section 179B the following new
section:

``SEC. 179C. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH
ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

``(a) Treatment as Expense.--
``(1) In general.--A small business refiner may elect to
treat any qualified capital costs as an expense which is not
chargeable to capital account. Any qualified cost which is so
treated shall be allowed as a deduction for the taxable year in
which the cost is paid or incurred.
``(2) Limitation.--
``(A) In general.--The aggregate costs which may be
taken into account under this subsection for any
taxable year may not exceed the applicable percentage
of the qualified capital costs paid or incurred for the
taxable year.
``(B) Applicable percentage.--For purposes of
subparagraph (A)--
``(i) In general.--Except as provided in
clause (ii), the applicable percentage is 75
percent.
``(ii) Reduced percentage.--In the case of
a small business refiner with average daily
refinery runs or average retained production
for the period described in subsection (b)(2)
in excess of 155,000 barrels, the percentage
described in clause (i) shall be reduced (but
not below zero) by the product of--
``(I) such percentage (before the
application of this clause), and
``(II) the ratio of such excess to
50,000 barrels.
``(b) Definitions.--For purposes of this section--
``(1) Qualified capital costs.--The term `qualified capital
costs' means any costs which--
``(A) are otherwise chargeable to capital account,
and
``(B) are paid or incurred for the purpose of
complying with the Highway Diesel Fuel Sulfur Control
Requirement of the Environmental Protection Agency, as
in effect on the date of the enactment of this section,
with respect to a facility placed in service by the
taxpayer before such date.
``(2) Small business refiner.--The term `small business
refiner' means, with respect to any taxable year, a refiner of
crude oil--
``(A) which, within the refinery operations of the
business, employs not more than 1,500 employees on any
day during such taxable year, and
``(B) the average daily refinery run or average
retained production of which for the 1-year period
ending on the date of the enactment of this section did
not exceed 205,000 barrels.
``(c) Coordination With Other Provisions.--Section 280B shall not
apply to amounts which are treated as expenses under this section.
``(d) Basis Reduction.--For purposes of this title, the basis of
any property shall be reduced by the portion of the cost of such
property taken into account under subsection (a).
``(e) Controlled Groups.--For purposes of this section, all persons
treated as a single employer under subsection (b), (c), (m), or (o) of
section 414 shall be treated as a single employer.''.
(b) Conforming Amendments.--
(1) Section 263(a)(1), as amended by this Act, is amended
by striking ``or'' at the end of subparagraph (H), by striking
the period at the end of subparagraph (I) and inserting ``,
or'', and by inserting after subparagraph (I) the following new
subparagraph:
``(J) expenditures for which a deduction is allowed
under section 179C.''.
(2) Section 263A(c)(3) is amended by inserting ``179C,''
after ``section''.
(3) Section 312(k)(3)(B), as amended by this Act, is
amended by striking ``or 179B'' each place it appears in the
heading and text and inserting ``179B, or 179C''.
(4) Section 1016(a), as amended by this Act, is amended by
striking ``and'' at the end of paragraph (32), by striking the
period at the end of paragraph (33) and inserting ``, and'',
and by adding at the end the following new paragraph:
``(34) to the extent provided in section 179C(d).''.
(5) Section 1245(a), as amended by this Act, is amended by
inserting ``179C,'' after ``179B,'' both places it appears in
paragraphs (2)(C) and (3)(C).
(6) The table of sections for part VI of subchapter B of
chapter 1, as amended by this Act, is amended by inserting
after the item relating to section 179B the following new item:

``Sec. 179C. Deduction for capital costs incurred in complying with
Environmental Protection Agency sulfur
regulations.''.
(c) Effective Date.--The amendment made by this section shall apply
to expenses paid or incurred after December 31, 2002, in taxable years
ending after such date.

SEC. 504. ENVIRONMENTAL TAX CREDIT.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business-related credits), as amended by this Act, is
amended by adding at the end the following new section:

``SEC. 45L. ENVIRONMENTAL TAX CREDIT.

``(a) In General.--For purposes of section 38, the amount of the
environmental tax credit determined under this section with respect to
any small business refiner for any taxable year is an amount equal to 5
cents for every gallon of low-sulfur diesel fuel produced at a facility
by such small business refiner during such taxable year.
``(b) Maximum Credit.--
``(1) In general.--For any small business refiner, the
aggregate amount determined under subsection (a) for any
taxable year with respect to any facility shall not exceed the
applicable percentage of the qualified capital costs paid or
incurred by such small business refiner with respect to such
facility during the applicable period, reduced by the credit
allowed under subsection (a) with respect to such facility for
any preceding year.
``(2) Applicable percentage.--For purposes of paragraph
(1)--
``(A) In general.--Except as provided in
subparagraph (B), the applicable percentage is 25
percent.
``(B) Reduced percentage.--The percentage described
in subparagraph (A) shall be reduced in the same manner
as under section 179C(a)(2)(B)(ii).
``(c) Definitions.--For purposes of this section--
``(1) In general.--The terms `small business refiner' and
`qualified capital costs' have the same meaning as given in
section 179C.
``(2) Low-sulfur diesel fuel.--The term `low-sulfur diesel
fuel' means diesel fuel containing not more than 15 parts per
million of sulfur.
``(3) Applicable period.--The term `applicable period'
means, with respect to any facility, the period beginning on
the day after the date of the enactment of this section and
ending with the date which is 1 year after the date on which
the taxpayer must comply with the applicable EPA regulations
with respect to such facility.
``(4) Applicable epa regulations.--The term `applicable EPA
regulations' means the Highway Diesel Fuel Sulfur Control
Requirements of the Environmental Protection Agency, as in
effect on the date of the enactment of this section.
``(d) Certification.--
``(1) Required.--Not later than the date which is 30 months
after the first day of the first taxable year in which a credit
is allowed under this section with respect to a facility, the
small business refiner shall obtain a certification from the
Secretary, in consultation with the Administrator of the
Environmental Protection Agency, that the taxpayer's qualified
capital costs with respect to such facility will result in
compliance with the applicable EPA regulations.
``(2) Contents of application.--An application for
certification shall include relevant information regarding unit
capacities and operating characteristics sufficient for the
Secretary, in consultation with the Administrator of the
Environmental Protection Agency, to determine that such
qualified capital costs are necessary for compliance with the
applicable EPA regulations.
``(3) Review period.--Any application shall be reviewed and
notice of certification, if applicable, shall be made within 60
days of receipt of such application. In the event the Secretary
does not notify the taxpayer of the results of such
certification within such period, the taxpayer may presume the
certification to be issued until so notified.
``(4) Statute of limitations.--With respect to the credit
allowed under this section--
``(A) the statutory period for the assessment of
any deficiency attributable to such credit shall not
expire before the end of the 3-year period ending on
the date that the period described in paragraph (3)
ends with respect to the taxpayer, and
``(B) such deficiency may be assessed before the
expiration of such 3-year period notwithstanding the
provisions of any other law or rule of law which would
otherwise prevent such assessment.
``(e) Controlled Groups.--For purposes of this section, all persons
treated as a single employer under subsection (b), (c), (m), or (o) of
section 414 shall be treated as a single employer.
``(f) Cooperative Organizations.--
``(1) Apportionment of credit.--
``(A) In general.--In the case of a cooperative
organization described in section 1381(a), any portion
of the credit determined under subsection (a) for the
taxable year may, at the election of the organization,
be apportioned among patrons eligible to share in
patronage dividends on the basis of the quantity or
value of business done with or for such patrons for the
taxable year.
``(B) Form and effect of election.--An election
under subparagraph (A) for any taxable year shall be
made on a timely filed return for such year. Such
election, once made, shall be irrevocable for such
taxable year.
``(2) Treatment of organizations and patrons.--
``(A) Organizations.--The amount of the credit not
apportioned to patrons pursuant to paragraph (1) shall
be included in the amount determined under subsection
(a) for the taxable year of the organization.
``(B) Patrons.--The amount of the credit
apportioned to patrons pursuant to paragraph (1) shall
be included in the amount determined under subsection
(a) for the first taxable year of each patron ending on
or after the last day of the payment period (as defined
in section 1382(d)) for the taxable year of the
organization or, if earlier, for the taxable year of
each patron ending on or after the date on which the
patron receives notice from the cooperative of the
apportionment.
``(3) Special rules for decrease in credits for taxable
year.--If the amount of the credit of a cooperative
organization determined under subsection (a) for a taxable year
is less than the amount of such credit shown on the return of
the cooperative organization for such year, an amount equal to
the excess of--
``(A) such reduction, over
``(B) the amount not apportioned to such patrons
under paragraph (1) for the taxable year,
shall be treated as an increase in tax imposed by this chapter
on the organization. Such increase shall not be treated as tax
imposed by this chapter for purposes of determining the amount
of any credit under this chapter or for purposes of section
55.''.
(b) Credit Made Part of General Business Credit.--Section 38(b)
(relating to current year business credit), as amended by this Act, is
amended by striking ``plus'' at the end of paragraph (21), by striking
the period at the end of paragraph (22) and inserting ``, plus'', and
by adding at the end the following new paragraph:
``(23) in the case of a small business refiner, the
environmental tax credit determined under section 45L(a).''.
(c) Denial of Double Benefit.--Section 280C (relating to certain
expenses for which credits are allowable), as amended by this Act, is
amended by adding at the end the following new subsection:
``(e) Environmental Tax Credit.--No deduction shall be allowed for
that portion of the expenses otherwise allowable as a deduction for the
taxable year which is equal to the amount of the credit determined for
the taxable year under section 45L(a).''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45L. Environmental tax credit.''.
(e) Effective Date.--The amendments made by this section shall
apply to expenses paid or incurred after December 31, 2002, in taxable
years ending after such date.

SEC. 505. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION
DEDUCTION.

(a) In General.--Paragraph (4) of section 613A(d) (relating to
limitations on application of subsection (c)) is amended to read as
follows:
``(4) Certain refiners excluded.--If the taxpayer or 1 or
more related persons engages in the refining of crude oil,
subsection (c) shall not apply to the taxpayer for a taxable
year if the average daily refinery runs of the taxpayer and
such persons for the taxable year exceed 60,000 barrels. For
purposes of this paragraph, the average daily refinery runs for
any taxable year shall be determined by dividing the aggregate
refinery runs for the taxable year by the number of days in the
taxable year.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years ending after the date of the enactment of this Act.

SEC. 506. MARGINAL PRODUCTION INCOME LIMIT EXTENSION.

Section 613A(c)(6)(H) (relating to temporary suspension of taxable
income limit with respect to marginal production) is amended by
striking ``2004'' and inserting ``2007''.

SEC. 507. AMORTIZATION OF DELAY RENTAL PAYMENTS.

(a) In General.--Section 167 (relating to depreciation) is amended
by redesignating subsection (h) as subsection (i) and by inserting
after subsection (g) the following new subsection:
``(h) Amortization of Delay Rental Payments for Domestic Oil and
Gas Wells.--
``(1) In general.--Any delay rental payment paid or
incurred in connection with the development of oil or gas wells
within the United States (as defined in section 638) shall be
allowed as a deduction ratably over the 24-month period
beginning on the date that such payment was paid or incurred.
``(2) Half-year convention.--For purposes of paragraph (1),
any payment paid or incurred during the taxable year shall be
treated as paid or incurred on the mid-point of such taxable
year.
``(3) Exclusive method.--Except as provided in this
subsection, no depreciation or amortization deduction shall be
allowed with respect to such payments.
``(4) Treatment upon abandonment.--If any property to which
a delay rental payment relates is retired or abandoned during
the 24-month period described in paragraph (1), no deduction
shall be allowed on account of such retirement or abandonment
and the amortization deduction under this subsection shall
continue with respect to such payment.
``(5) Delay rental payments.--For purposes of this
subsection, the term `delay rental payment' means an amount
paid for the privilege of deferring development of an oil or
gas well under an oil or gas lease.''.
(b) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred in taxable years beginning after the
date of the enactment of this Act.

SEC. 508. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

(a) In General.--Section 167 (relating to depreciation), as amended
by this Act, is amended by redesignating subsection (i) as subsection
(j) and by inserting after subsection (h) the following new subsection:
``(i) Amortization of Geological and Geophysical Expenditures.--
``(1) In general.--Any geological and geophysical expenses
paid or incurred in connection with the exploration for, or
development of, oil or gas within the United States (as defined
in section 638) shall be allowed as a deduction ratably over
the 24-month period beginning on the date that such expense was
paid or incurred.
``(2) Special rules.--For purposes of this subsection,
rules similar to the rules of paragraphs (2), (3), and (4) of
subsection (h) shall apply.''.
(b) Conforming Amendment.--Section 263A(c)(3) is amended by
inserting ``167(h), 167(i),'' after ``under section''.
(c) Effective Date.--The amendments made by this section shall
apply to costs paid or incurred in taxable years beginning after the
date of the enactment of this Act.

SEC. 509. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM
A NONCONVENTIONAL SOURCE.

(a) In General.--Section 29 (relating to credit for producing fuel
from a nonconventional source) is amended by adding at the end the
following new subsection:
``(h) Extension for Other Facilities.--
``(1) Oil and gas.--In the case of a well or facility for
producing qualified fuels described in subparagraph (A) or (B)
of subsection (c)(1) which was drilled or placed in service
after the date of the enactment of this subsection and before
January 1, 2007, notwithstanding subsection (f), this section
shall apply with respect to such fuels produced at such well or
facility before the close of the 3-year period beginning on the
date that such well is drilled or such facility is placed in
service.
``(2) Facilities producing fuels from agricultural and
animal waste.--
``(A) In general.--In the case of facility for
producing liquid, gaseous, or solid fuels from
qualified agricultural and animal wastes, including
such fuels when used as feedstocks, which was placed in
service after the date of the enactment of this
subsection and before January 1, 2007, this section
shall apply with respect to fuel produced at such
facility before the close of the 3-year period
beginning on the date such facility is placed in
service.
``(B) Qualified agricultural and animal waste.--For
purposes of this paragraph, the term `qualified
agricultural and animal waste' means agriculture and
animal waste, including by-products, packaging, and any
materials associated with the processing, feeding,
selling, transporting, or disposal of agricultural or
animal products or wastes.
``(3) Wells producing viscous oil.--
``(A) In general.--In the case of a well for
producing viscous oil which was placed in service after
the date of the enactment of this subsection and before
January 1, 2007, this section shall apply with respect
to fuel produced at such well before the close of the
3-year period beginning on the date such well is placed
in service.
``(B) Viscous oil.--The term `viscous oil' means
heavy oil, as defined in section 613A(c)(6), except
that--
``(i) `22 degrees' shall be substituted for
`20 degrees' in applying subparagraph (F)
thereof, and
``(ii) in all cases, the oil gravity shall
be measured from the initial well-head samples,
drill cuttings, or down hole samples.
``(C) Waiver of unrelated person requirement.--In
the case of viscous oil, the requirement under
subsection (a)(2)(A) of a sale to an unrelated person
shall not apply to any sale to the extent that the
viscous oil is not consumed in the immediate vicinity
of the wellhead.
``(4) Facilities producing refined coal.--
``(A) In general.--In the case of a facility
described in subparagraph (C) for producing refined
coal which was placed in service after the date of the
enactment of this subsection and before January 1,
2007, this section shall apply with respect to fuel
produced at such facility before the close of the 5-
year period beginning on the date such facility is
placed in service.
``(B) Refined coal.--For purposes of this
paragraph, the term `refined coal' means a fuel which
is a liquid, gaseous, or solid synthetic fuel produced
from coal (including lignite) or high carbon fly ash,
including such fuel used as a feedstock.
``(C) Covered facilities.--
``(i) In general.--A facility is described
in this subparagraph if such facility produces
refined coal using a technology which results
in--
``(I) a qualified emission
reduction, and
``(II) a qualified enhanced value.
``(ii) Qualified emission reduction.--For
purposes of this subparagraph, the term
`qualified emission reduction' means a
reduction of at least 20 percent of the
emissions of nitrogen oxide and either sulfur
dioxide or mercury released when burning the
refined coal (excluding any dilution caused by
materials combined or added during the
production process), as compared to the
emissions released when burning the feedstock
coal or comparable coal predominantly available
in the marketplace as of January 1, 2003.
``(iii) Qualified enhanced value.--For
purposes of this subparagraph, the term
`qualified enhanced value' means an increase of
at least 50 percent in the market value of the
refined coal (excluding any increase caused by
materials combined or added during the
production process), as compared to the value
of the feedstock coal.
``(iv) Qualifying advanced clean coal
technology units excluded.--A facility
described in this subparagraph shall not
include a qualifying advanced clean coal
technology unit (as defined in section 48A(b)).
``(5) Coalmine gas.--
``(A) In general.--This section shall apply to
coalmine gas--
``(i) captured or extracted by the taxpayer
during the period beginning after the date of
the enactment of this subsection and ending
before January 1, 2007, and
``(ii) utilized as a fuel source or sold by
or on behalf of the taxpayer to an unrelated
person during such period.
``(B) Coalmine gas.--For purposes of this
paragraph, the term `coalmine gas' means any methane
gas which is--
``(i) liberated during or as a result of
coal mining operations, or
``(ii) extracted up to 10 years in advance
of coal mining operations as part of a specific
plan to mine a coal deposit.
``(C) Special rule for advanced extraction.--In the
case of coalmine gas which is captured in advance of
coal mining operations, the credit under subsection (a)
shall be allowed only after the date the coal
extraction occurs in the immediate area where the
coalmine gas was removed.
``(D) Noncompliance with pollution laws.--This
paragraph shall not apply to the capture or extraction
of coalmine gas from coal mining operations with
respect to any period in which such coal mining
operations are not in compliance with applicable State
and Federal pollution prevention, control, and permit
requirements.
``(6) Special rules.--In determining the amount of credit
allowable under this section solely by reason of this
subsection--
``(A) Fuels treated as qualified fuels.--Any fuel
described in paragraph (2), (3), (4), or (5) shall be
treated as a qualified fuel for purposes of this
section.
``(B) Daily limit.--The amount of qualified fuels
sold during any taxable year which may be taken into
account by reason of this subsection with respect to
any project shall not exceed an average barrel-of-oil
equivalent of 200,000 cubic feet of natural gas per
day. Days before the date the project is placed in
service shall not be taken into account in determining
such average.
``(C) Credit amount.--The dollar amount applicable
under subsection (a)(1) shall be $3 (and the inflation
adjustment under subsection (b)(2) shall not apply to
such amount).''.
(b) Clarification of Placed in Service Date for Certain Landfill
Gas Facilities.--Section 29(d) (relating to other definitions and
special rules) is amended by adding at the end the following new
paragraph:
``(9) Clarification of placed in service date for certain
landfill gas facilities.--
``(A) In general.--In the case of a landfill placed
in service on or before the date of the enactment of
this paragraph--
``(i) a facility for producing qualified
fuel from such landfill shall include all
wells, pipes, and related components used to
collect landfill gas, and
``(ii) production of landfill gas from such
landfill attributable to wells, pipes, and
related components placed in service after such
date of enactment shall be treated as produced
from a facility placed in service on the date
such wells, pipes, and related components were
placed in service.
``(B) Landfill gas.--The term `landfill gas' means
gas described in subsection (c)(1)(B)(ii) and derived
from the biodegradation of municipal solid waste.''.
(c) Extension for certain fuel produced at existing facilities.--
Section 29(f)(2) (relating to application of section) is amended by
inserting ``(January 1, 2006, in the case of any coke, coke gas, or
natural gas and byproducts produced by coal gasification from lignite
in a facility described in paragraph (1)(B))'' after ``January 1,
2003''.
(d) Study of Coalbed Methane.--
(1) In general.--The Secretary of the Treasury shall
conduct a study regarding the effect of section 29 of the
Internal Revenue Code of 1986 on the production of coalbed
methane.
(2) Contents of study.--The study under paragraph (1) shall
estimate the total amount of credits under section 29 of the
Internal Revenue Code of 1986 claimed annually and in the
aggregate which are related to the production of coalbed
methane since the date of the enactment of such section 29.
Such study shall report the annual value of such credits
allowable for coalbed methane compared to the average annual
wellhead price of natural gas (per thousand cubic feet of
natural gas). Such study shall also estimate the incremental
increase in production of coalbed methane which has resulted
from the enactment of such section 29, and the cost to the
Federal Government, in terms of the net tax benefits claimed,
per thousand cubic feet of incremental coalbed methane produced
annually and in the aggregate since such enactment.
(e) Effective Date.--The amendments made by this section shall
apply to fuel sold after the date of the enactment of this Act, in
taxable years ending after such date.

SEC. 510. NATURAL GAS DISTRIBUTION LINES TREATED AS 15-YEAR PROPERTY.

(a) In General.--Section 168(e)(3)(E) (defining 15-year property)
is amended by striking ``and'' at the end of clause (ii), by striking
the period at the end of clause (iii) and by inserting ``, and'', and
by adding at the end the following new clause:
``(iv) any natural gas distribution
line.''.
(b) Alternative System.--The table contained in section
168(g)(3)(B) (relating to special rule for certain property assigned to
classes), as amended by this Act, is amended by adding after the item
relating to subparagraph (E)(iii) the following new item:

``(E)(iv)......................................................   20''.
(c) Effective Date.--The amendments made by this section shall
apply to property placed in service after the date of the enactment of
this Act, in taxable years ending after such date.

SEC. 511. CREDIT FOR ALASKA NATURAL GAS.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1
(relating to business related credits), as amended by this Act, is
amended by adding at the end the following new section:

``SEC. 45M. ALASKA NATURAL GAS.

``(a) In General.--For purposes of section 38, the Alaska natural
gas credit for any taxable year is an amount equal to the product of--
``(1) the credit amount, and
``(2) Alaska natural gas the production of which is
attributable to the taxpayer.
``(b) Credit Amount.--For purposes of this section--
``(1) In general.--The credit amount is $0.52 per 1,000,000
Btu of Alaska natural gas.
``(2) Reduction as gas prices increase.--
``(A) In general.--The dollar amount under
paragraph (1) shall be reduced (but not below zero) by
an amount which bears the same ratio to such amount
(determined without regard to this paragraph) as--
``(i) the excess (if any) of the applicable
reference price over $0.83, bears to
``(ii) $0.52.
``(B) Applicable reference price.--For purposes of
this paragraph--
``(i) In general.--The applicable reference
price for any calendar month in a taxable year
is the reference price for the calendar month
in which production occurs.
``(ii) Reference price.--The term
`reference price' means, with respect to any
calendar month, a published market price for
natural gas in United States dollars per
1,000,000 Btu (reduced by any gas
transportation costs and gas processing costs
as determined by the appropriate national
regulatory body for natural gas transportation)
as determined under regulations by the
Secretary.
``(C) Inflation adjustment.--
``(i) In general.--In the case of any
taxable year beginning in a calendar year after
2003, each of the dollar amounts contained in
paragraph (1) and subparagraph (A) of this
paragraph shall be increased to an amount equal
to such dollar amount multiplied by the
inflation adjustment factor for such calendar
year.
``(ii) Inflation adjustment factor.--For
purposes of clause (i)--
``(I) In general.--The term
`inflation adjustment factor' means,
with respect to a calendar year, a
fraction the numerator of which is the
GDP implicit price deflator for the
preceding calendar year and the
denominator of which is the GDP
implicit price deflator for the
calendar year 2002.
``(II) GDP implicit price
deflator.--The term `GDP implicit price
deflator' means, for any calendar year,
the most recent revision of the
implicit price deflator for the gross
domestic product as of June 30 of such
calendar year as computed by the
Department of Commerce before October 1
of such calendar year.
``(c) Alaska Natural Gas.--For purposes of this section--
``(1) In general.--The term `Alaska natural gas' means
natural gas entering the Alaska natural gas pipeline (as
defined in section 168(i)(18) (determined without regard to
subparagraph (B) thereof)) which is produced from a well--
``(A) located in the area of the State of Alaska
lying north of 64 degrees North latitude, determined by
excluding the area of the Alaska National Wildlife
Refuge (including the continental shelf thereof within
the meaning of section 638(1)), and
``(B) pursuant to the applicable State and Federal
pollution prevention, control, and permit requirements
from such area (including the continental shelf thereof
within the meaning of section 638(1)).
``(2) Natural gas.--The term `natural gas' has the meaning
given such term by section 613A(e)(2).
``(d) Special Rules.--For purposes of this section--
``(1) Production attributable to the taxpayer.--
``(A) In general.--In the case of a well in which
there is more than 1 person or entity--
``(i) entitled to production of Alaska
natural gas, or
``(ii) at the election of the taxpayer,
entitled to the value of production as either
an operating interest owner or a royalty
interest owner,
the portion of such production attributable to such
person or entity shall be determined on the basis of
the ratio which the person's or entity's interest in
the production or the value of production bears to the
aggregate of the interests of all operating interest
owners and royalty interest owners in the production or
the value of production.
``(B) Partnership properties.--In the case of a
partnership, for purposes of applying subparagraph (A),
production shall be attributable to its partners based
on each partner's distributive share of Alaska natural
gas which is produced from partnership properties and
attributable to the partnership or its partners under
subparagraph (A).
``(2) Pass-Thru in the Case of Estates and Trusts.--Under
regulations prescribed by the Secretary, rules similar to the
rules of subsection (d) of section 52 shall apply.
``(e) Application of Section.--This section shall apply to Alaska
natural gas during the period--
``(1) beginning with the later of--
``(A) January 1, 2010, or
``(B) the initial date for the interstate
transportation of such Alaska natural gas, and
``(2) ending with the date which is 15 years after the date
described in paragraph (1).''.
(b) Credit Treated as Business Credit.--Section 38(b) (relating to
current year business credit), as amended by this Act, is amended by
striking ``plus'' at the end of paragraph (22), by striking the period
at the end of paragraph (23) and inserting ``, plus'', and by adding at
the end the following new paragraph:
``(24) The Alaska natural gas credit determined under
section 45M(a).''.
(c) Allowing Credit Against Entire Regular Tax and Minimum Tax.--
(1) In general.--Section 38(c) (relating to limitation
based on amount of tax), as amended by this Act, is amended by
redesignating paragraph (5) as paragraph (6) and by inserting
after paragraph (4) the following new paragraph:
``(5) Special rules for alaska natural gas credit.--
``(A) In general.--In the case of the Alaska
natural gas credit--
``(i) this section and section 39 shall be
applied separately with respect to the credit,
and
``(ii) in applying paragraph (1) to the
credit--
``(I) the amounts in subparagraphs
(A) and (B) thereof shall be treated as
being zero, and
``(II) the limitation under
paragraph (1) (as modified by subclause
(I)) shall be reduced by the credit
allowed under subsection (a) for the
taxable year (other than the Alaska
natural gas credit).
``(B) Alaska Natural Gas Credit.--For purposes of
this subsection, the term `Alaska natural gas credit'
means the credit allowable under subsection (a) by
reason of section 45M(a).''.
(2) Conforming amendments.--Subclause (II) of section
38(c)(2)(A)(ii), as amended by this Act, subclause (II) of
section 38(c)(3)(A)(ii), as amended by this Act, and subclause
(II) of section 38(c)(4)(A)(ii), as added by this Act, are each
amended by inserting ``or the Alaska natural gas credit'' after
``producer credit''.
(d) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1, as amended by this Act, is
amended by adding at the end the following new item:

``Sec. 45M. Alaska natural gas.''.

SEC. 512. CERTAIN ALASKA NATURAL GAS PIPELINE PROPERTY TREATED AS 7-
YEAR PROPERTY.

(a) In General.--Section 168(e)(3)(C) (defining 7-year property),
as amended by this Act, is amended by striking ``and'' at the end of
clause (ii), by redesignating clause (iii) as clause (iv), and by
inserting after clause (ii) the following new clause:
``(iii) any Alaska natural gas pipeline,
and''.
(b) Alaska Natural Gas Pipeline.--Section 168(i) (relating to
definitions and special rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
``(18) Alaska natural gas pipeline.--The term `Alaska
natural gas pipeline' means the natural gas pipeline system
located in the State of Alaska which--
``(A) has a capacity of more than 500,000,000,000
Btu of natural gas per day, and
``(B) is placed in service after December 31, 2014.
Such term includes the pipe, trunk lines, related equipment,
and appurtenances used to carry natural gas, but does not
include any gas processing plant.''.
(c) Alternative System.--The table contained in section
168(g)(3)(B) (relating to special rule for certain property assigned to
classes), as amended by this Act, is amended by inserting after the
item relating to subparagraph (C)(ii) the following new item:

``(C)(iii).....................................................   10''.
(d) Effective Date.--The amendments made by this section shall
apply to property placed in service after December 31, 2014, in taxable
years ending after such date.

SEC. 513. ARBITRAGE RULES NOT TO APPLY TO PREPAYMENTS FOR NATURAL GAS.

(a) In General.--Section 148(b) (relating to higher yielding
investments) is amended by adding at the end the following new
paragraph:
``(4) Safe harbor for prepaid natural gas.--
``(A) In general.--The term `investment-type
property' does not include a prepayment under a
qualified natural gas supply contract.
``(B) Qualified natural gas supply contract.--For
purposes of this paragraph, the term `qualified natural
gas supply contract' means any contract to acquire
natural gas for resale by or for a utility owned by a
governmental unit if the amount of gas permitted to be
acquired under the contract for the utility during any
year does not exceed the sum of--
``(i) the annual average amount during the
testing period of natural gas purchased (other
than for resale) by customers of such utility
who are located within the service area of such
utility, and
``(ii) the amount of natural gas to be used
to transport the prepaid natural gas to the
utility during such year.
``(C) Natural gas used to generate electricity.--
Natural gas used to generate electricity shall be taken
into account in determining the average under
subparagraph (B)(i)--
``(i) only if the electricity is generated
by a utility owned by a governmental unit, and
``(ii) only to the extent that the
electricity is sold (other than for resale) to
customers of such utility who are located
within the service area of such utility.
``(D) Adjustments for changes in customer base.--
``(i) New business customers.--If--
``(I) after the close of the
testing period and before the date of
issuance of the issue, the utility
owned by a governmental unit enters
into a contract to supply natural gas
(other than for resale) for use by a
business at a property within the
service area of such utility, and
``(II) the utility did not supply
natural gas to such property during the
testing period or the ratable amount of
natural gas to be supplied under the
contract is significantly greater than
the ratable amount of gas supplied to
such property during the testing
period,
then a contract shall not fail to be treated as
a qualified natural gas supply contract by
reason of supplying the additional natural gas
under the contract referred to in subclause
(I).
``(ii) Overall limitation.--The average
under subparagraph (B)(i) shall not exceed the
annual amount of natural gas reasonably
expected to be purchased (other than for
resale) by persons who are located within the
service area of such utility and who, as of the
date of issuance of the issue, are customers of
such utility.
``(E) Ruling requests.--The Secretary may increase
the average under subparagraph (B)(i) for any period if
the utility owned by the governmental unit establishes
to the satisfaction of the Secretary that, based on
objective evidence of growth in natural gas consumption
or population, such average would otherwise be
insufficient for such period.
``(F) Adjustment for natural gas otherwise on
hand.--
``(i) In general.--The amount otherwise
permitted to be acquired under the contract for
any period shall be reduced by--
``(I) the applicable share of
natural gas held by the utility on the
date of issuance of the issue, and
``(II) the natural gas (not taken
into account under subclause (I)) which
the utility has a right to acquire
during such period (determined as of
the date of issuance of the issue).
``(ii) Applicable share.--For purposes of
clause (i), the term `applicable share' means,
with respect to any period, the natural gas
allocable to such period if the gas were
allocated ratably over the period to which the
prepayment relates.
``(G) Intentional acts.--Subparagraph (A) shall
cease to apply to any issue if the utility owned by the
governmental unit engages in any intentional act to
render the volume of natural gas acquired by such
prepayment to be in excess of the sum of--
``(i) the amount of natural gas needed
(other than for resale) by customers of such
utility who are located within the service area
of such utility, and
``(ii) the amount of natural gas used to
transport such natural gas to the utility.
``(H) Testing period.--For purposes of this
paragraph, the term `testing period' means, with
respect to an issue, the most recent 5 calendar years
ending before the date of issuance of the issue.
``(I) Service area.--For purposes of this
paragraph, the service area of a utility owned by a
governmental unit shall be comprised of--
``(i) any area throughout which such
utility provided at all times during the
testing period--
``(I) in the case of a natural gas
utility, natural gas transmission or
distribution services, and
``(II) in the case of an electric
utility, electricity distribution
services,
``(ii) any area within a county contiguous
to the area described in clause (i) in which
retail customers of such utility are located if
such area is not also served by another utility providing natural gas
or electricity services, as the case may be, and
``(iii) any area recognized as the service
area of such utility under State or Federal
law.''.
(b) Private Loan Financing Test Not To Apply to Prepayments for
Natural Gas.--Section 141(c)(2) (providing exceptions to the private
loan financing test) is amended by striking ``or'' at the end of
subparagraph (A), by striking the period at the end of subparagraph (B)
and inserting ``, or'', and by adding at the end the following new
subparagraph:
``(C) is a qualified natural gas supply contract
(as defined in section 148(b)(4)).''.
(c) Effective Date.--The amendment made by this section shall apply
to obligations issued after the date of the enactment of this Act.

TITLE VI--ELECTRIC UTILITY RESTRUCTURING PROVISIONS

SEC. 601. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR DECOMMISSIONING
COSTS.

(a) Repeal of Limitation on Deposits Into Fund Based on Cost of
Service; Contributions After Funding Period.--Subsection (b) of section
468A (relating to special rules for nuclear decommissioning costs) is
amended to read as follows:
``(b) Limitation on Amounts Paid Into Fund.--The amount which a
taxpayer may pay into the Fund for any taxable year shall not exceed
the ruling amount applicable to such taxable year.''.
(b) Clarification of Treatment of Fund Transfers.--Section 468A(e)
(relating to Nuclear Decommissioning Reserve Fund) is amended by adding
at the end the following new paragraph:
``(8) Treatment of fund transfers.--If, in connection with
the transfer of the taxpayer's interest in a nuclear power
plant, the taxpayer transfers the Fund with respect to such
power plant to the transferee of such interest and the
transferee elects to continue the application of this section
to such Fund--
``(A) the transfer of such Fund shall not cause
such Fund to be disqualified from the application of
this section, and
``(B) no amount shall be treated as distributed
from such Fund, or be includable in gross income, by
reason of such transfer.''.
(c) Treatment of Certain Decommissioning Costs.--
(1) In general.--Section 468A is amended by redesignating
subsections (f) and (g) as subsections (g) and (h),
respectively, and by inserting after subsection (e) the
following new subsection:
``(f) Transfers Into Qualified Funds.--
``(1) In general.--Notwithstanding subsection (b), any
taxpayer maintaining a Fund to which this section applies with
respect to a nuclear power plant may transfer into such Fund
not more than an amount equal to the present value of the
excess of the total nuclear decommissioning costs with respect
to such nuclear power plant over the portion of such costs
taken into account in determining the ruling amount in effect
immediately before the transfer.
``(2) Deduction for amounts transferred.--
``(A) In general.--Except as provided in
subparagraph (C), the deduction allowed by subsection
(a) for any transfer permitted by this subsection shall
be allowed ratably over the remaining estimated useful
life (within the meaning of subsection (d)(2)(A)) of
the nuclear power plant beginning with the taxable year
during which the transfer is made.
``(B) Denial of deduction for previously deducted
amounts.--No deduction shall be allowed for any
transfer under this subsection of an amount for which a
deduction was previously allowed or a corresponding
amount was not included in gross income. For purposes
of the preceding sentence, a ratable portion of each
transfer shall be treated as being from previously
deducted or excluded amounts to the extent thereof.
``(C) Transfers of qualified funds.--If--
``(i) any transfer permitted by this
subsection is made to any Fund to which this
section applies, and
``(ii) such Fund is transferred thereafter,
any deduction under this subsection for taxable years
ending after the date that such Fund is transferred
shall be allowed to the transferee and not the
transferor. The preceding sentence shall not apply if
the transferor is an entity exempt from tax under this
chapter.
``(D) Special rules.--
``(i) Gain or loss not recognized.--No gain
or loss shall be recognized on any transfer
permitted by this subsection.
``(ii) Transfers of appreciated property.--
If appreciated property is transferred in a
transfer permitted by this subsection, the
amount of the deduction shall not exceed the
adjusted basis of such property.
``(3) New ruling amount required.--Paragraph (1) shall not
apply to any transfer unless the taxpayer requests from the
Secretary a new schedule of ruling amounts in connection with
such transfer.
``(4) No basis in qualified funds.--Notwithstanding any
other provision of law, the taxpayer's basis in any Fund to
which this section applies shall not be increased by reason of
any transfer permitted by this subsection.''.
(2) New ruling amount to take into account total costs.--
Subparagraph (A) of section 468A(d)(2) (defining ruling amount)
is amended to read as follows:
``(A) fund the total nuclear decommissioning costs
with respect to such power plant over the estimated
useful life of such power plant, and''.
(d) Technical Amendment.--Section 468A(e)(2) (relating to taxation
of Fund) is amended--
(1) by striking ``rate set forth in subparagraph (B)'' in
subparagraph (A) and inserting ``rate of 20 percent'',
(2) by striking subparagraph (B), and
(3) by redesignating subparagraphs (C) and (D) as
subparagraphs (B) and (C), respectively.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

SEC. 602. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.

(a) Income From Open Access and Nuclear Decommissioning
Transactions.--
(1) In general.--Section 501(c)(12)(C) (relating to list of
exempt organizations) is amended by striking ``or'' at the end
of clause (i), by striking clause (ii), and by adding at the
end the following new clauses:
``(ii) from any open access transaction
(other than income received or accrued directly
or indirectly from a member),
``(iii) from any nuclear decommissioning
transaction,
``(iv) from any asset exchange or
conversion transaction, or
``(v) from the prepayment of any loan,
debt, or obligation made, insured, or
guaranteed under the Rural Electrification Act
of 1936.''.
(2) Definitions and special rules.--Section 501(c)(12) is
amended by adding at the end the following new subparagraphs:
``(E) For purposes of subparagraph (C)(ii)--
``(i) The term `open access transaction'
means any transaction meeting the open access
requirements of any of the following subclauses
with respect to a mutual or cooperative
electric company:
``(I) The provision or sale of
electric transmission service or
ancillary services meets the open
access requirements of this subclause
only if such services are provided on a
nondiscriminatory open access basis
pursuant to an open access transmission
tariff filed with and approved by FERC,
including an acceptable reciprocity
tariff, or under a regional
transmission organization agreement
approved by FERC.
``(II) The provision or sale of
electric energy distribution services
or ancillary services meets the open
access requirements of this subclause
only if such services are provided on a
nondiscriminatory open access basis to
end-users served by distribution
facilities owned by the mutual or
cooperative electric company (or its
members).
``(III) The delivery or sale of
electric energy generated by a
generation facility meets the open
access requirements of this subclause
only if such facility is directly
connected to distribution facilities
owned by the mutual or cooperative
electric company (or its members) which
owns the generation facility, and such
distribution facilities meet the open
access requirements of subclause (II).
``(ii) Clause (i)(I) shall apply in the
case of a voluntarily filed tariff only if the
mutual or cooperative electric company files a
report with FERC within 90 days after the date
of the enactment of this subparagraph relating
to whether or not such company will join a
regional transmission organization.
``(iii) A mutual or cooperative electric
company shall be treated as meeting the open
access requirements of clause (i)(I) if a
regional transmission organization controls the
transmission facilities.
``(iv) References to FERC in this
subparagraph shall be treated as including
references to the Public Utility Commission of
Texas with respect to any ERCOT utility (as
defined in section 212(k)(2)(B) of the Federal
Power Act (16 U.S.C. 824k(k)(2)(B))) or
references to the Rural Utilities Service with
respect to any other facility not subject to
FERC jurisdiction.
``(v) For purposes of this subparagraph--
``(I) The term `transmission
facility' means an electric output
facility (other than a generation
facility) which operates at an electric
voltage of 69 kilovolts or greater. To
the extent provided in regulations,
such term includes any output facility
which FERC determines is a transmission
facility under standards applied by
FERC under the Federal Power Act (as in
effect on the date of the enactment of
the Energy Tax Incentives Act of 2003).
``(II) The term `regional
transmission organization' includes an
independent system operator.
``(III) The term `FERC' means the
Federal Energy Regulatory Commission.
``(F) The term `nuclear decommissioning
transaction' means--
``(i) any transfer into a trust, fund, or
instrument established to pay any nuclear
decommissioning costs if the transfer is in
connection with the transfer of the mutual or
cooperative electric company's interest in a
nuclear power plant or nuclear power plant
unit,
``(ii) any distribution from any trust,
fund, or instrument established to pay any
nuclear decommissioning costs, or
``(iii) any earnings from any trust, fund,
or instrument established to pay any nuclear
decommissioning costs.
``(G) The term `asset exchange or conversion
transaction' means any voluntary exchange or
involuntary conversion of any property related to
generating, transmitting, distributing, or selling
electric energy by a mutual or cooperative electric
company, the gain from which qualifies for deferred
recognition under section 1031 or 1033, but only if the
replacement property acquired by such company pursuant
to such section constitutes property which is used, or
to be used, for--
``(i) generating, transmitting,
distributing, or selling electric energy, or
``(ii) producing, transmitting,
distributing, or selling natural gas.''.
(b) Treatment of Income From Load Loss Transactions.--Section
501(c)(12), as amended by subsection (a)(2), is amended by adding after
subparagraph (G) the following new subparagraph:
``(H)(i) In the case of a mutual or cooperative
electric company described in this paragraph or an
organization described in section 1381(a)(2)(C), income
received or accrued from a load loss transaction shall
be treated as an amount collected from members for the
sole purpose of meeting losses and expenses.
``(ii) For purposes of clause (i), the term `load
loss transaction' means any wholesale or retail sale of
electric energy (other than to members) to the extent
that the aggregate sales during the recovery period do
not exceed the load loss mitigation sales limit for
such period.
``(iii) For purposes of clause (ii), the load loss
mitigation sales limit for the recovery period is the
sum of the annual load losses for each year of such
period.
``(iv) For purposes of clause (iii), a mutual or
cooperative electric company's annual load loss for
each year of the recovery period is the amount (if any)
by which--
``(I) the megawatt hours of electric energy
sold during such year to members of such
electric company are less than
``(II) the megawatt hours of electric
energy sold during the base year to such
members.
``(v) For purposes of clause (iv)(II), the term
`base year' means--
``(I) the calendar year preceding the
start-up year, or
``(II) at the election of the electric
company, the second or third calendar years
preceding the start-up year.
``(vi) For purposes of this subparagraph, the
recovery period is the 7-year period beginning with the
start-up year.
``(vii) For purposes of this subparagraph, the
start-up year is the calendar year which includes the
date of the enactment of this subparagraph or, if
later, at the election of the mutual or cooperative
electric company--
``(I) the first year that such electric
company offers nondiscriminatory open access,
or
``(II) the first year in which at least 10
percent of such electric company's sales are
not to members of such electric company.
``(viii) A company shall not fail to be treated as
a mutual or cooperative company for purposes of this
paragraph or as a corporation operating on a
cooperative basis for purposes of section 1381(a)(2)(C)
by reason of the treatment under clause (i).
``(ix) In the case of a mutual or cooperative
electric company, income from any open access
transaction received, or accrued, indirectly from a
member shall be treated as an amount collected from
members for the sole purpose of meeting losses and
expenses.''.
(c) Exception From Unrelated Business Taxable Income.--Section
512(b) (relating to modifications) is amended by adding at the end the
following new paragraph:
``(18) Treatment of mutual or cooperative electric
companies.--In the case of a mutual or cooperative electric
company described in section 501(c)(12), there shall be
excluded income which is treated as member income under
subparagraph (H) thereof.''.
(d) Cross Reference.--Section 1381 is amended by adding at the end
the following new subsection:
``(c) Cross Reference.--

``For treatment of income from load
loss transactions of organizations described in subsection (a)(2)(C),
see section 501(c)(12)(H).''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after the date of the enactment of
this Act.

SEC. 603. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY REGULATORY
COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY.

(a) In General.--Section 451 (relating to general rule for taxable
year of inclusion) is amended by adding at the end the following new
subsection:
``(i) Special Rule for Sales or Dispositions To Implement Federal
Energy Regulatory Commission or State Electric Restructuring Policy.--
``(1) In general.--For purposes of this subtitle, if a
taxpayer elects the application of this subsection to a
qualifying electric transmission transaction in any taxable
year--
``(A) any ordinary income derived from such
transaction which would be required to be recognized
under section 1245 or 1250 for such taxable year
(determined without regard to this subsection), and
``(B) any income derived from such transaction in
excess of such ordinary income which is required to be
included in gross income for such taxable year
(determined without regard to this subsection),
shall be so recognized and included ratably over the 8-taxable
year period beginning with such taxable year.
``(2) Qualifying electric transmission transaction.--For
purposes of this subsection, the term `qualifying electric
transmission transaction' means any sale or other disposition
before January 1, 2008, of--
``(A) property used by the taxpayer in the trade or
business of providing electric transmission services,
or
``(B) any stock or partnership interest in a
corporation or partnership, as the case may be, whose
principal trade or business consists of providing
electric transmission services,
but only if such sale or disposition is to an independent
transmission company.
``(3) Independent transmission company.--For purposes of
this subsection, the term `independent transmission company'
means--
``(A) a regional transmission organization approved
by the Federal Energy Regulatory Commission,
``(B) a person--
``(i) who the Federal Energy Regulatory
Commission determines in its authorization of
the transaction under section 203 of the
Federal Power Act (16 U.S.C. 824b) is not a
market participant within the meaning of such
Commission's rules applicable to regional
transmission organizations, and
``(ii) whose transmission facilities to
which the election under this subsection
applies are under the operational control of a
Federal Energy Regulatory Commission-approved
regional transmission organization before the
close of the period specified in such
authorization, but not later than January 1,
2008, or
``(C) in the case of facilities subject to the
exclusive jurisdiction of the Public Utility Commission
of Texas, a person which is approved by that Commission
as consistent with Texas State law regarding an
independent transmission organization.
``(4) Election.--An election under paragraph (1), once
made, shall be irrevocable.
``(5) Nonapplication of installment sales treatment.--
Section 453 shall not apply to any qualifying electric
transmission transaction with respect to which an election to
apply this subsection is made.''.
(b) Effective Date.--The amendment made by this section shall apply
to transactions occurring after the date of the enactment of this Act.

TITLE VII--ADDITIONAL PROVISIONS

SEC. 701. EXTENSION OF ACCELERATED DEPRECIATION AND WAGE CREDIT
BENEFITS ON INDIAN RESERVATIONS.

(a) Special Recovery Period for Property on Indian Reservations.--
Section 168(j)(8) (relating to termination) is amended by striking
``2004'' and inserting ``2005''.
(b) Indian Employment Credit.--Section 45A(f) (relating to
termination) is amended by striking ``2004'' and inserting ``2005''.

SEC. 702. STUDY OF EFFECTIVENESS OF CERTAIN PROVISIONS BY GAO.

(a) Study.--The Comptroller General of the United States shall
undertake an ongoing analysis of--
(1) the effectiveness of the alternative motor vehicles and
fuel incentives provisions under title II and the conservation
and energy efficiency provisions under title III, and
(2) the recipients of the tax benefits contained in such
provisions, including an identification of such recipients by
income and other appropriate measurements.
Such analysis shall quantify the effectiveness of such provisions by
examining and comparing the Federal Government's forgone revenue to the
aggregate amount of energy actually conserved and tangible
environmental benefits gained as a result of such provisions.
(b) Reports.--The Comptroller General of the United States shall
report the analysis required under subsection (a) to Congress not later
than December 31, 2004, and annually thereafter.

SEC. 703. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND
INLAND WATERWAY TRANSPORTATION WHICH REMAIN IN GENERAL
FUND.

(a) Taxes on Trains.--
(1) In general.--Subparagraph (A) of section 4041(a)(1) is
amended by striking ``or a diesel-powered train'' each place it
appears and by striking ``or train''.
(2) Conforming amendments.--
(A) Subparagraph (C) of section 4041(a)(1) is
amended by striking clause (ii) and by redesignating
clause (iii) as clause (ii).
(B) Subparagraph (C) of section 4041(b)(1) is
amended by striking all that follows ``section
6421(e)(2)'' and inserting a period.
(C) Subsection (d) of section 4041 is amended by
redesignating paragraph (3) as paragraph (4) and by
inserting after paragraph (2) the following new
paragraph:
``(3) Diesel fuel used in trains.--There is hereby imposed
a tax of 0.1 cent per gallon on any liquid other than gasoline
(as defined in section 4083)--
``(A) sold by any person to an owner, lessee, or
other operator of a diesel-powered train for use as a
fuel in such train, or
``(B) used by any person as a fuel in a diesel-
powered train unless there was a taxable sale of such
fuel under subparagraph (A).
No tax shall be imposed by this paragraph on the sale or use of
any liquid if tax was imposed on such liquid under section
4081.''
(D) Subsection (f) of section 4082 is amended by
striking ``section 4041(a)(1)'' and inserting
``subsections (d)(3) and (a)(1) of section 4041,
respectively''.
(E) Paragraph (3) of section 4083(a) is amended by
striking ``or a diesel-powered train''.
(F) Paragraph (3) of section 6421(f) is amended to
read as follows:
``(3) Gasoline used in trains.--In the case of gasoline
used as a fuel in a train, this section shall not apply with
respect to the Leaking Underground Storage Tank Trust Fund
financing rate under section 4081.''
(G) Paragraph (3) of section 6427(l) is amended to
read as follows:
``(3) Refund of certain taxes on fuel used in diesel-
powered trains.--For purposes of this subsection, the term
`nontaxable use' includes fuel used in a diesel-powered train.
The preceding sentence shall not apply to the tax imposed by
section 4041(d) and the Leaking Underground Storage Tank Trust
Fund financing rate under section 4081 except with respect to
fuel sold for exclusive use by a State or any political
subdivision thereof.''
(b) Fuel Used on Inland Waterways.--
(1) In general.--Paragraph (1) of section 4042(b) is
amended by adding ``and'' at the end of subparagraph (A), by
striking ``, and'' at the end of subparagraph (B) and inserting
a period, and by striking subparagraph (C).
(2) Conforming amendment.--Paragraph (2) of section 4042(b)
is amended by striking subparagraph (C).
(c) Effective Date.--The amendments made by this section shall take
effect on January 1, 2004.

SEC. 704. EXPANSION OF RESEARCH CREDIT.

(a) Credit for Expenses Attributable to Certain Collaborative
Energy Research Consortia.--
(1) In general.--Section 41(a) (relating to credit for
increasing research activities) is amended by striking ``and''
at the end of paragraph (1), by striking the period at the end of
paragraph (2) and inserting ``, and'', and by adding at the end the
following new paragraph:
``(3) 20 percent of the amounts paid or incurred by the
taxpayer in carrying on any trade or business of the taxpayer
during the taxable year (including as contributions) to an
energy research consortium.''.
(2) Energy research consortium defined.--Section 41(f)
(relating to special rules) is amended by adding at the end the
following new paragraph:
``(6) Energy research consortium.--
``(A) In general.--The term `energy research
consortium' means any organization--
``(i) which is--
``(I) described in section
501(c)(3) and is exempt from tax under
section 501(a) and is organized and
operated primarily to conduct energy
research, or
``(II) organized and operated
primarily to conduct energy research in
the public interest (within the meaning
of section 501(c)(3)),
``(ii) which is not a private foundation,
``(iii) to which at least 5 unrelated
persons paid or incurred during the calendar
year in which the taxable year of the
organization begins amounts (including as
contributions) to such organization for energy
research, and
``(iv) to which no single person paid or
incurred (including as contributions) during
such calendar year an amount equal to more than
50 percent of the total amounts received by
such organization during such calendar year for
energy research.
``(B) Treatment of persons.--All persons treated as
a single employer under subsection (a) or (b) of
section 52 shall be treated as related persons for
purposes of subparagraph (A)(iii) and as a single
person for purposes of subparagraph (A)(iv).''.
(3) Conforming amendment.--Section 41(b)(3)(C) is amended
by inserting ``(other than an energy research consortium)''
after ``organization''.
(b) Repeal of Limitation on Contract Research Expenses Paid to
Small Businesses, Universities, and Federal Laboratories.--Section
41(b)(3) (relating to contract research expenses) is amended by adding
at the end the following new subparagraph:
``(D) Amounts paid to eligible small businesses,
universities, and federal laboratories.--
``(i) In general.--In the case of amounts
paid by the taxpayer to--
``(I) an eligible small business,
``(II) an institution of higher
education (as defined in section
3304(f)), or
``(III) an organization which is a
Federal laboratory,
for qualified research which is energy
research, subparagraph (A) shall be applied by
substituting `100 percent' for `65 percent'.
``(ii) Eligible small business.--For
purposes of this subparagraph, the term
`eligible small business' means a small
business with respect to which the taxpayer
does not own (within the meaning of section
318) 50 percent or more of--
``(I) in the case of a corporation,
the outstanding stock of the
corporation (either by vote or value),
and
``(II) in the case of a small
business which is not a corporation,
the capital and profits interests of
the small business.
``(iii) Small business.--For purposes of
this subparagraph--
``(I) In general.--The term `small
business' means, with respect to any
calendar year, any person if the annual
average number of employees employed by
such person during either of the 2
preceding calendar years was 500 or
fewer. For purposes of the preceding
sentence, a preceding calendar year may
be taken into account only if the
person was in existence throughout the
year.
``(II) Startups, controlled groups,
and predecessors.--Rules similar to the
rules of subparagraphs (B) and (D) of
section 220(c)(4) shall apply for
purposes of this clause.
``(iv) Federal laboratory.--For purposes of
this subparagraph, the term `Federal
laboratory' has the meaning given such term by
section 4(6) of the Stevenson-Wydler Technology
Innovation Act of 1980 (15 U.S.C. 3703(6)), as
in effect on the date of the enactment of the
Energy Tax Incentives Act of 2003.''.
(c) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred after the date of the enactment of
this Act.

TITLE VIII--REVENUE PROVISIONS

Subtitle A--Provisions Designed To Curtail Tax Shelters

SEC. 801. PENALTY FOR FAILING TO DISCLOSE REPORTABLE TRANSACTION.

(a) In General.--Part I of subchapter B of chapter 68 (relating to
assessable penalties) is amended by inserting after section 6707 the
following new section:

``SEC. 6707A. PENALTY FOR FAILURE TO INCLUDE REPORTABLE TRANSACTION
INFORMATION WITH RETURN OR STATEMENT.

``(a) Imposition of Penalty.--Any person who fails to include on
any return or statement any information with respect to a reportable
transaction which is required under section 6011 to be included with
such return or statement shall pay a penalty in the amount determined
under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraphs (2) and
(3), the amount of the penalty under subsection (a) shall be
$50,000.
``(2) Listed transaction.--The amount of the penalty under
subsection (a) with respect to a listed transaction shall be
$100,000.
``(3) Increase in penalty for large entities and high net
worth individuals.--
``(A) In general.--In the case of a failure under
subsection (a) by--
``(i) a large entity, or
``(ii) a high net worth individual,
the penalty under paragraph (1) or (2) shall be twice
the amount determined without regard to this paragraph.
``(B) Large entity.--For purposes of subparagraph
(A), the term `large entity' means, with respect to any
taxable year, a person (other than a natural person)
with gross receipts in excess of $10,000,000 for the
taxable year in which the reportable transaction occurs
or the preceding taxable year. Rules similar to the
rules of paragraph (2) and subparagraphs (B), (C), and
(D) of paragraph (3) of section 448(c) shall apply for
purposes of this subparagraph.
``(C) High net worth individual.--For purposes of
subparagraph (A), the term `high net worth individual'
means, with respect to a reportable transaction, a
natural person whose net worth exceeds $2,000,000
immediately before the transaction.
``(c) Definitions.--For purposes of this section--
``(1) Reportable transaction.--The term `reportable
transaction' means any transaction with respect to which
information is required to be included with a return or
statement because, as determined under regulations prescribed
under section 6011, such transaction is of a type which the
Secretary determines as having a potential for tax avoidance or
evasion.
``(2) Listed transaction.--Except as provided in
regulations, the term `listed transaction' means a reportable
transaction which is the same as, or substantially similar to,
a transaction specifically identified by the Secretary as a tax
avoidance transaction for purposes of section 6011.
``(d) Authority To Rescind Penalty.--
``(1) In general.--The Commissioner of Internal Revenue may
rescind all or any portion of any penalty imposed by this
section with respect to any violation if--
``(A) the violation is with respect to a reportable
transaction other than a listed transaction,
``(B) the person on whom the penalty is imposed has
a history of complying with the requirements of this
title,
``(C) it is shown that the violation is due to an
unintentional mistake of fact;
``(D) imposing the penalty would be against equity
and good conscience, and
``(E) rescinding the penalty would promote
compliance with the requirements of this title and
effective tax administration.
``(2) Discretion.--The exercise of authority under
paragraph (1) shall be at the sole discretion of the
Commissioner and may be delegated only to the head of the
Office of Tax Shelter Analysis. The Commissioner, in the
Commissioner's sole discretion, may establish a procedure to
determine if a penalty should be referred to the Commissioner
or the head of such Office for a determination under paragraph
(1).
``(3) No appeal.--Notwithstanding any other provision of
law, any determination under this subsection may not be
reviewed in any administrative or judicial proceeding.
``(4) Records.--If a penalty is rescinded under paragraph
(1), the Commissioner shall place in the file in the Office of
the Commissioner the opinion of the Commissioner or the head of
the Office of Tax Shelter Analysis with respect to the
determination, including--
``(A) the facts and circumstances of the
transaction,
``(B) the reasons for the rescission, and
``(C) the amount of the penalty rescinded.
``(5) Report.--The Commissioner shall each year report to
the Committee on Ways and Means of the House of Representatives
and the Committee on Finance of the Senate--
``(A) a summary of the total number and aggregate
amount of penalties imposed, and rescinded, under this
section, and
``(B) a description of each penalty rescinded under
this subsection and the reasons therefor.
``(e) Penalty Reported to SEC.--In the case of a person--
``(1) which is required to file periodic reports under
section 13 or 15(d) of the Securities Exchange Act of 1934 or
is required to be consolidated with another person for purposes
of such reports, and
``(2) which--
``(A) is required to pay a penalty under this
section with respect to a listed transaction, or
``(B) is required to pay a penalty under section
6662A with respect to any reportable transaction at a
rate prescribed under section 6662A(c),
the requirement to pay such penalty shall be disclosed in such reports
filed by such person for such periods as the Secretary shall specify.
Failure to make a disclosure in accordance with the preceding sentence
shall be treated as a failure to which the penalty under subsection
(b)(2) applies.
``(f) Coordination With Other Penalties.--The penalty imposed by
this section is in addition to any penalty imposed under this title.''.
(b) Conforming Amendment.--The table of sections for part I of
subchapter B of chapter 68 is amended by inserting after the item
relating to section 6707 the following:

``Sec. 6707A. Penalty for failure to
include reportable transaction
information with return or
statement.''.
(c) Effective Date.--The amendments made by this section shall
apply to returns and statements the due date for which is after the
date of the enactment of this Act.

SEC. 802. ACCURACY-RELATED PENALTY FOR LISTED TRANSACTIONS AND OTHER
REPORTABLE TRANSACTIONS HAVING A SIGNIFICANT TAX
AVOIDANCE PURPOSE.

(a) In General.--Subchapter A of chapter 68 is amended by inserting
after section 6662 the following new section:

``SEC. 6662A. IMPOSITION OF ACCURACY-RELATED PENALTY ON UNDERSTATEMENTS
WITH RESPECT TO REPORTABLE TRANSACTIONS.

``(a) Imposition of Penalty.--If a taxpayer has a reportable
transaction understatement for any taxable year, there shall be added
to the tax an amount equal to 20 percent of the amount of such
understatement.
``(b) Reportable Transaction Understatement.--For purposes of this
section--
``(1) In general.--The term `reportable transaction
understatement' means the sum of--
``(A) the product of--
``(i) the amount of the increase (if any)
in taxable income which results from a
difference between the proper tax treatment of
an item to which this section applies and the
taxpayer's treatment of such item (as shown on
the taxpayer's return of tax), and
``(ii) the highest rate of tax imposed by
section 1 (section 11 in the case of a taxpayer
which is a corporation), and
``(B) the amount of the decrease (if any) in the
aggregate amount of credits determined under subtitle A
which results from a difference between the taxpayer's
treatment of an item to which this section applies (as
shown on the taxpayer's return of tax) and the proper
tax treatment of such item.
For purposes of subparagraph (A), any reduction of the excess
of deductions allowed for the taxable year over gross income
for such year, and any reduction in the amount of capital
losses which would (without regard to section 1211) be allowed
for such year, shall be treated as an increase in taxable
income.
``(2) Items to which section applies.--This section shall
apply to any item which is attributable to--
``(A) any listed transaction, and
``(B) any reportable transaction (other than a
listed transaction) if a significant purpose of such
transaction is the avoidance or evasion of Federal
income tax.
``(c) Higher Penalty for Nondisclosed Listed and Other Avoidance
Transactions.--
``(1) In general.--Subsection (a) shall be applied by
substituting `30 percent' for `20 percent' with respect to the
portion of any reportable transaction understatement with
respect to which the requirement of section 6664(d)(2)(A) is
not met.
``(2) Rules applicable to compromise of penalty.--
``(A) In general.--If the 1st letter of proposed
deficiency which allows the taxpayer an opportunity for
administrative review in the Internal Revenue Service
Office of Appeals has been sent with respect to a
penalty to which paragraph (1) applies, only the
Commissioner of Internal Revenue may compromise all or
any portion of such penalty.
``(B) Applicable rules.--The rules of paragraphs
(2), (3), (4), and (5) of section 6707A(d) shall apply
for purposes of subparagraph (A).
``(d) Definitions of Reportable and Listed Transactions.--For
purposes of this section, the terms `reportable transaction' and
`listed transaction' have the respective meanings given to such terms
by section 6707A(c).
``(e) Special Rules.--
``(1) Coordination with penalties, etc., on other
understatements.--In the case of an understatement (as defined
in section 6662(d)(2))--
``(A) the amount of such understatement (determined
without regard to this paragraph) shall be increased by
the aggregate amount of reportable transaction
understatements for purposes of determining whether
such understatement is a substantial understatement
under section 6662(d)(1), and
``(B) the addition to tax under section 6662(a)
shall apply only to the excess of the amount of the
substantial understatement (if any) after the
application of subparagraph (A) over the aggregate
amount of reportable transaction understatements.
``(2) Coordination with other penalties.--
``(A) Application of fraud penalty.--References to
an underpayment in section 6663 shall be treated as
including references to a reportable transaction
understatement.
``(B) No double penalty.--This section shall not
apply to any portion of an understatement on which a
penalty is imposed under section 6663.
``(3) Special rule for amended returns.--Except as provided
in regulations, in no event shall any tax treatment included
with an amendment or supplement to a return of tax be taken
into account in determining the amount of any reportable
transaction understatement if the amendment or supplement is
filed after the earlier of the date the taxpayer is first
contacted by the Secretary regarding the examination of the
return or such other date as is specified by the Secretary.
``(4) Cross reference.--

``For reporting of section 6662A(c)
penalty to the Securities and Exchange Commission, see section
6707A(e).''.
(b) Determination of Other Understatements.--Subparagraph (A) of
section 6662(d)(2) is amended by adding at the end the following flush
sentence:
``The excess under the preceding sentence shall be
determined without regard to items to which section
6662A applies.''.
(c) Reasonable Cause Exception.--
(1) In general.--Section 6664 is amended by adding at the
end the following new subsection:
``(d) Reasonable Cause Exception for Reportable Transaction
Understatements.--
``(1) In general.--No penalty shall be imposed under
section 6662A with respect to any portion of a reportable
transaction understatement if it is shown that there was a
reasonable cause for such portion and that the taxpayer acted
in good faith with respect to such portion.
``(2) Special rules.--Paragraph (1) shall not apply to any
reportable transaction understatement unless--
``(A) the relevant facts affecting the tax
treatment of the item are adequately disclosed in
accordance with the regulations prescribed under
section 6011,
``(B) there is or was substantial authority for
such treatment, and
``(C) the taxpayer reasonably believed that such
treatment was more likely than not the proper
treatment.
A taxpayer failing to adequately disclose in accordance with
section 6011 shall be treated as meeting the requirements of
subparagraph (A) if the penalty for such failure was rescinded
under section 6707A(d).
``(3) Rules relating to reasonable belief.--For purposes of
paragraph (2)(C)--
``(A) In general.--A taxpayer shall be treated as
having a reasonable belief with respect to the tax
treatment of an item only if such belief--
``(i) is based on the facts and law that
exist at the time the return of tax which
includes such tax treatment is filed, and
``(ii) relates solely to the taxpayer's
chances of success on the merits of such
treatment and does not take into account the
possibility that a return will not be audited,
such treatment will not be raised on audit, or
such treatment will be resolved through
settlement if it is raised.
``(B) Certain opinions may not be relied upon.--
``(i) In general.--An opinion of a tax
advisor may not be relied upon to establish the
reasonable belief of a taxpayer if--
``(I) the tax advisor is described
in clause (ii), or
``(II) the opinion is described in
clause (iii).
``(ii) Disqualified tax advisors.--A tax
advisor is described in this clause if the tax
advisor--
``(I) is a material advisor (within
the meaning of section 6111(b)(1)) who
participates in the organization,
management, promotion, or sale of the
transaction or who is related (within
the meaning of section 267(b) or
707(b)(1)) to any person who so
participates,
``(II) is compensated directly or
indirectly by a material advisor with
respect to the transaction,
``(III) has a fee arrangement with
respect to the transaction which is
contingent on all or part of the
intended tax benefits from the
transaction being sustained, or
``(IV) as determined under
regulations prescribed by the
Secretary, has a continuing financial
interest with respect to the
transaction.
``(iii) Disqualified opinions.--For
purposes of clause (i), an opinion is
disqualified if the opinion--
``(I) is based on unreasonable
factual or legal assumptions (including
assumptions as to future events),
``(II) unreasonably relies on
representations, statements, findings,
or agreements of the taxpayer or any
other person,
``(III) does not identify and
consider all relevant facts, or
``(IV) fails to meet any other
requirement as the Secretary may
prescribe.''.
(2) Conforming amendment.--The heading for subsection (c)
of section 6664 is amended by inserting ``for Underpayments''
after ``Exception''.
(d) Conforming Amendments.--
(1) Subparagraph (C) of section 461(i)(3) is amended by
striking ``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(2) Paragraph (3) of section 1274(b) is amended--
(A) by striking ``(as defined in section
6662(d)(2)(C)(iii))'' in subparagraph (B)(i), and
(B) by adding at the end the following new
subparagraph:
``(C) Tax shelter.--For purposes of subparagraph
(B), the term `tax shelter' means--
``(i) a partnership or other entity,
``(ii) any investment plan or arrangement,
or
``(iii) any other plan or arrangement,
if a significant purpose of such partnership, entity,
plan, or arrangement is the avoidance or evasion of
Federal income tax.''.
(3) Section 6662(d) is amended--
(A) by striking subparagraphs (C) and (D) of
paragraph (2), and
(B) by adding at the end the following:
``(3) Secretarial list.--For purposes of this subsection,
section 6664(d)(2), and section 6694(a)(1), the Secretary may
prescribe a list of positions for which the Secretary believes
there is not substantial authority or there is no reasonable
belief that the tax treatment is more likely than not the
proper tax treatment. Such list (and any revisions thereof)
shall be published in the Federal Register or the Internal
Revenue Bulletin.''.
(4) Section 6664(c)(1) is amended by striking ``this part''
and inserting ``section 6662 or 6663''.
(5) Subsection (b) of section 7525 is amended by striking
``section 6662(d)(2)(C)(iii)'' and inserting ``section
1274(b)(3)(C)''.
(6)(A) The heading for section 6662 is amended to read as
follows:

``SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY ON
UNDERPAYMENTS.''.

(B) The table of sections for part II of subchapter A of
chapter 68 is amended by striking the item relating to section
6662 and inserting the following new items:

``Sec. 6662. Imposition of accuracy-
related penalty on
underpayments.
``Sec. 6662A. Imposition of accuracy-
related penalty on
understatements with respect to
reportable transactions.''.
(e) Effective Date.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment of this
Act.

SEC. 803. TAX SHELTER EXCEPTION TO CONFIDENTIALITY PRIVILEGES RELATING
TO TAXPAYER COMMUNICATIONS.

(a) In General.--Section 7525(b) (relating to section not to apply
to communications regarding corporate tax shelters) is amended to read
as follows:
``(b) Section Not To Apply to Communications Regarding Tax
Shelters.--The privilege under subsection (a) shall not apply to any
written communication which is--
``(1) between a federally authorized tax practitioner and--
``(A) any person,
``(B) any director, officer, employee, agent, or
representative of the person, or
``(C) any other person holding a capital or profits
interest in the person, and
``(2) in connection with the promotion of the direct or
indirect participation of the person in any tax shelter (as
defined in section 1274(b)(3)(C)).''.
(b) Effective Date.--The amendment made by this section shall apply
to communications made on or after the date of the enactment of this
Act.

SEC. 804. DISCLOSURE OF REPORTABLE TRANSACTIONS.

(a) In General.--Section 6111 (relating to registration of tax
shelters) is amended to read as follows:

``SEC. 6111. DISCLOSURE OF REPORTABLE TRANSACTIONS.

``(a) In General.--Each material advisor with respect to any
reportable transaction shall make a return (in such form as the
Secretary may prescribe) setting forth--
``(1) information identifying and describing the
transaction,
``(2) information describing any potential tax benefits
expected to result from the transaction, and
``(3) such other information as the Secretary may
prescribe.
Such return shall be filed not later than the date specified by the
Secretary.
``(b) Definitions.--For purposes of this section--
``(1) Material advisor.--
``(A) In general.--The term `material advisor'
means any person--
``(i) who provides any material aid,
assistance, or advice with respect to
organizing, promoting, selling, implementing,
or carrying out any reportable transaction, and
``(ii) who directly or indirectly derives
gross income in excess of the threshold amount
for such aid, assistance, or advice.
``(B) Threshold amount.--For purposes of
subparagraph (A), the threshold amount is--
``(i) $50,000 in the case of a reportable
transaction substantially all of the tax
benefits from which are provided to natural
persons, and
``(ii) $250,000 in any other case.
``(2) Reportable transaction.--The term `reportable
transaction' has the meaning given to such term by section
6707A(c).
``(c) Regulations.--The Secretary may prescribe regulations which
provide--
``(1) that only 1 person shall be required to meet the
requirements of subsection (a) in cases in which 2 or more
persons would otherwise be required to meet such requirements,
``(2) exemptions from the requirements of this section, and
``(3) such rules as may be necessary or appropriate to
carry out the purposes of this section.''.
(b) Conforming Amendments.--
(1) The item relating to section 6111 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:

``Sec. 6111. Disclosure of reportable
transactions.''.
(2)(A) So much of section 6112 as precedes subsection (c)
thereof is amended to read as follows:

``SEC. 6112. MATERIAL ADVISORS OF REPORTABLE TRANSACTIONS MUST KEEP
LISTS OF ADVISEES.

``(a) In General.--Each material advisor (as defined in section
6111) with respect to any reportable transaction (as defined in section
6707A(c)) shall maintain, in such manner as the Secretary may by
regulations prescribe, a list--
``(1) identifying each person with respect to whom such
advisor acted as such a material advisor with respect to such
transaction, and
``(2) containing such other information as the Secretary
may by regulations require.
This section shall apply without regard to whether a material advisor
is required to file a return under section 6111 with respect to such
transaction.''.
(B) Section 6112 is amended by redesignating subsection (c)
as subsection (b).
(C) Section 6112(b), as redesignated by subparagraph (B),
is amended--
(i) by inserting ``written'' before ``request'' in
paragraph (1)(A), and
(ii) by striking ``shall prescribe'' in paragraph
(2) and inserting ``may prescribe''.
(D) The item relating to section 6112 in the table of
sections for subchapter B of chapter 61 is amended to read as
follows:

``Sec. 6112. Material advisors of
reportable transactions must
keep lists of advisees.''.
(3)(A) The heading for section 6708 is amended to read as
follows:

``SEC. 6708. FAILURE TO MAINTAIN LISTS OF ADVISEES WITH RESPECT TO
REPORTABLE TRANSACTIONS.''.

(B) The item relating to section 6708 in the table of
sections for part I of subchapter B of chapter 68 is amended to
read as follows:

``Sec. 6708. Failure to maintain lists of
advisees with respect to
reportable transactions.''.
(c) Effective Date.--The amendments made by this section shall
apply to transactions with respect to which material aid, assistance,
or advice referred to in section 6111(b)(1)(A)(i) of the Internal
Revenue Code of 1986 (as added by this section) is provided after the
date of the enactment of this Act.

SEC. 805. MODIFICATIONS TO PENALTY FOR FAILURE TO REGISTER TAX
SHELTERS.

(a) In General.--Section 6707 (relating to failure to furnish
information regarding tax shelters) is amended to read as follows:

``SEC. 6707. FAILURE TO FURNISH INFORMATION REGARDING REPORTABLE
TRANSACTIONS.

``(a) In General.--If a person who is required to file a return
under section 6111(a) with respect to any reportable transaction--
``(1) fails to file such return on or before the date
prescribed therefor, or
``(2) files false or incomplete information with the
Secretary with respect to such transaction,
such person shall pay a penalty with respect to such return in the
amount determined under subsection (b).
``(b) Amount of Penalty.--
``(1) In general.--Except as provided in paragraph (2), the
penalty imposed under subsection (a) with respect to any
failure shall be $50,000.
``(2) Listed transactions.--The penalty imposed under
subsection (a) with respect to any listed transaction shall be
an amount equal to the greater of--
``(A) $200,000, or
``(B) 50 percent of the gross income derived by
such person with respect to aid, assistance, or advice
which is provided with respect to the listed
transaction before the date the return including the
transaction is filed under section 6111.
Subparagraph (B) shall be applied by substituting `75 percent'
for `50 percent' in the case of an intentional failure or act
described in subsection (a).
``(c) Rescission Authority.--The provisions of section 6707A(d)
(relating to authority of Commissioner to rescind penalty) shall apply
to any penalty imposed under this section.
``(d) Reportable and Listed Transactions.--The terms `reportable
transaction' and `listed transaction' have the respective meanings
given to such terms by section 6707A(c).''.
(b) Clerical Amendment.--The item relating to section 6707 in the
table of sections for part I of subchapter B of chapter 68 is amended
by striking ``tax shelters'' and inserting ``reportable transactions''.
(c) Effective Date.--The amendments made by this section shall
apply to returns the due date for which is after the date of the
enactment of this Act.

SEC. 806. MODIFICATION OF PENALTY FOR FAILURE TO MAINTAIN LISTS OF
INVESTORS.

(a) In General.--Subsection (a) of section 6708 is amended to read
as follows:
``(a) Imposition of Penalty.--
``(1) In general.--If any person who is required to
maintain a list under section 6112(a) fails to make such list
available upon written request to the Secretary in accordance
with section 6112(b)(1)(A) within 20 business days after the
date of the Secretary's request, such person shall pay a
penalty of $10,000 for each day of such failure after such 20th
day.
``(2) Reasonable cause exception.--No penalty shall be
imposed by paragraph (1) with respect to the failure on any day
if such failure is due to reasonable cause.''.
(b) Effective Date.--The amendment made by this section shall apply
to requests made after the date of the enactment of this Act.

SEC. 807. PENALTY ON PROMOTERS OF TAX SHELTERS.

(a) Penalty on Promoting Abusive Tax Shelters.--Section 6700(a) is
amended by adding at the end the following new sentence:
``Notwithstanding the first sentence, if an activity with respect to
which a penalty imposed under this subsection involves a statement
described in paragraph (2)(A), the amount of the penalty shall be equal
to 50 percent of the gross income derived (or to be derived) from such
activity by the person on which the penalty is imposed.''.
(b) Effective Date.--The amendment made by this section shall apply
to activities after the date of the enactment of this Act.

Subtitle B--Provisions to Discourage Corporate Expatriation

SEC. 821. TAX TREATMENT OF INVERTED CORPORATE ENTITIES.

(a) In General.--Subchapter C of chapter 80 (relating to provisions
affecting more than one subtitle) is amended by adding at the end the
following new section:

``SEC. 7874. RULES RELATING TO INVERTED CORPORATE ENTITIES.

``(a) Inverted Corporations Treated as Domestic Corporations.--
``(1) In general.--If a foreign incorporated entity is
treated as an inverted domestic corporation, then,
notwithstanding section 7701(a)(4), such entity shall be
treated for purposes of this title as a domestic corporation.
``(2) Inverted domestic corporation.--For purposes of this
section, a foreign incorporated entity shall be treated as an
inverted domestic corporation if, pursuant to a plan (or a
series of related transactions)--
``(A) the entity completes after March 20, 2002,
the direct or indirect acquisition of substantially all
of the properties held directly or indirectly by a
domestic corporation or substantially all of the
properties constituting a trade or business of a
domestic partnership,
``(B) after the acquisition at least 80 percent of
the stock (by vote or value) of the entity is held--
``(i) in the case of an acquisition with
respect to a domestic corporation, by former
shareholders of the domestic corporation by
reason of holding stock in the domestic
corporation, or
``(ii) in the case of an acquisition with
respect to a domestic partnership, by former
partners of the domestic partnership by reason
of holding a capital or profits interest in the
domestic partnership, and
``(C) the expanded affiliated group which after the
acquisition includes the entity does not have
substantial business activities in the foreign country
in which or under the law of which the entity is
created or organized when compared to the total
business activities of such expanded affiliated group.
Except as provided in regulations, an acquisition of properties
of a domestic corporation shall not be treated as described in
subparagraph (A) if none of the corporation's stock was readily
tradeable on an established securities market at any time
during the 4-year period ending on the date of the acquisition.
``(b) Preservation of Domestic Tax Base in Certain Inversion
Transactions To Which Subsection (a) Does Not Apply.--
``(1) In general.--If a foreign incorporated entity would
be treated as an inverted domestic corporation with respect to
an acquired entity if either--
``(A) subsection (a)(2)(A) were applied by
substituting `after December 31, 1996, and on or before
March 20, 2002' for `after March 20, 2002' and
subsection (a)(2)(B) were applied by substituting `more
than 50 percent' for `at least 80 percent', or
``(B) subsection (a)(2)(B) were applied by
substituting `more than 50 percent' for `at least 80
percent',
then the rules of subsection (c) shall apply to any inversion
gain of the acquired entity during the applicable period and
the rules of subsection (d) shall apply to any related party
transaction of the acquired entity during the applicable
period. This subsection shall not apply for any taxable year if
subsection (a) applies to such foreign incorporated entity for
such taxable year.
``(2) Acquired entity.--For purposes of this section--
``(A) In general.--The term `acquired entity' means
the domestic corporation or partnership substantially
all of the properties of which are directly or
indirectly acquired in an acquisition described in
subsection (a)(2)(A) to which this subsection applies.
``(B) Aggregation rules.--Any domestic person
bearing a relationship described in section 267(b) or
707(b) to an acquired entity shall be treated as an
acquired entity with respect to the acquisition
described in subparagraph (A).
``(3) Applicable period.--For purposes of this section--
``(A) In general.--The term `applicable period'
means the period--
``(i) beginning on the first date
properties are acquired as part of the
acquisition described in subsection (a)(2)(A)
to which this subsection applies, and
``(ii) ending on the date which is 10 years
after the last date properties are acquired as
part of such acquisition.
``(B) Special rule for inversions occurring before
march 21, 2002.--In the case of any acquired entity to
which paragraph (1)(A) applies, the applicable period
shall be the 10-year period beginning on January 1,
2003.
``(c) Tax on Inversion Gains May Not Be Offset.--If subsection (b)
applies--
``(1) In general.--The taxable income of an acquired entity
(or any expanded affiliated group which includes such entity)
for any taxable year which includes any portion of the
applicable period shall in no event be less than the inversion
gain of the entity for the taxable year.
``(2) Credits not allowed against tax on inversion gain.--
Credits shall be allowed against the tax imposed by this
chapter on an acquired entity for any taxable year described in
paragraph (1) only to the extent such tax exceeds the product
of--
``(A) the amount of the inversion gain for the
taxable year, and
``(B) the highest rate of tax specified in section
11(b)(1).
For purposes of determining the credit allowed by section 901
inversion gain shall be treated as from sources within the
United States.
``(3) Special rules for partnerships.--In the case of an
acquired entity which is a partnership--
``(A) the limitations of this subsection shall
apply at the partner rather than the partnership level,
``(B) the inversion gain of any partner for any
taxable year shall be equal to the sum of--
``(i) the partner's distributive share of
inversion gain of the partnership for such
taxable year, plus
``(ii) income or gain required to be
recognized for the taxable year by the partner
under section 367(a), 741, or 1001, or under
any other provision of chapter 1, by reason of
the transfer during the applicable period of
any partnership interest of the partner in such
partnership to the foreign incorporated entity,
and
``(C) the highest rate of tax specified in the rate
schedule applicable to the partner under chapter 1
shall be substituted for the rate of tax under
paragraph (2)(B).
``(4) Inversion gain.--For purposes of this section, the
term `inversion gain' means any income or gain required to be
recognized under section 304, 311(b), 367, 1001, or 1248, or
under any other provision of chapter 1, by reason of the
transfer during the applicable period of stock or other
properties by an acquired entity--
``(A) as part of the acquisition described in
subsection (a)(2)(A) to which subsection (b) applies,
or
``(B) after such acquisition to a foreign related
person.
The Secretary may provide that income or gain from the sale of
inventories or other transactions in the ordinary course of a
trade or business shall not be treated as inversion gain under
subparagraph (B) to the extent the Secretary determines such
treatment would not be inconsistent with the purposes of this
section.
``(5) Coordination with section 172 and minimum tax.--Rules
similar to the rules of paragraphs (3) and (4) of section
860E(a) shall apply for purposes of this section.
``(6) Statute of limitations.--
``(A) In general.--The statutory period for the
assessment of any deficiency attributable to the
inversion gain of any taxpayer for any pre-inversion
year shall not expire before the expiration of 3 years
from the date the Secretary is notified by the taxpayer
(in such manner as the Secretary may prescribe) of the
acquisition described in subsection (a)(2)(A) to which
such gain relates and such deficiency may be assessed
before the expiration of such 3-year period
notwithstanding the provisions of any other law or rule
of law which would otherwise prevent such assessment.
``(B) Pre-inversion year.--For purposes of
subparagraph (A), the term `pre-inversion year' means
any taxable year if--
``(i) any portion of the applicable period
is included in such taxable year, and
``(ii) such year ends before the taxable
year in which the acquisition described in
subsection (a)(2)(A) is completed.
``(d) Special Rules Applicable to Related Party Transactions.--
``(1) Annual application for agreements on return
positions.--
``(A) In general.--Each acquired entity to which
subsection (b) applies shall file with the Secretary an
application for an approval agreement under
subparagraph (D) for each taxable year which includes a
portion of the applicable period. Such application
shall be filed at such time and manner, and shall
contain such information, as the Secretary may
prescribe.
``(B) Secretarial action.--Within 90 days of
receipt of an application under subparagraph (A) (or
such longer period as the Secretary and entity may
agree upon), the Secretary shall--
``(i) enter into an agreement described in
subparagraph (D) for the taxable year covered
by the application,
``(ii) notify the entity that the Secretary
has determined that the application was filed
in good faith and substantially complies with
the requirements for the application under
subparagraph (A), or
``(iii) notify the entity that the
Secretary has determined that the application
was not filed in good faith or does not
substantially comply with such requirements.
If the Secretary fails to act within the time
prescribed under the preceding sentence, the entity
shall be treated for purposes of this paragraph as
having received notice under clause (ii).
``(C) Failures to comply.--If an acquired entity
fails to file an application under subparagraph (A), or
the acquired entity receives a notice under
subparagraph (B)(iii), for any taxable year, then for
such taxable year--
``(i) there shall not be allowed any
deduction, or addition to basis or cost of
goods sold, for amounts paid or incurred, or
losses incurred, by reason of a transaction
between the acquired entity and a foreign
related person,
``(ii) any transfer or license of
intangible property (as defined in section
936(h)(3)(B)) between the acquired entity and a
foreign related person shall be disregarded,
and
``(iii) any cost-sharing arrangement
between the acquired entity and a foreign
related person shall be disregarded.
``(D) Approval agreement.--For purposes of
subparagraph (A), the term `approval agreement' means a
prefiling, advance pricing, or other agreement
specified by the Secretary which contains such
provisions as the Secretary determines necessary to
ensure that the requirements of sections 163(j),
267(a)(3), 482, and 845, and any other provision of
this title applicable to transactions between related
persons and specified by the Secretary, are met.
``(E) Tax court review.--
``(i) In general.--The Tax Court shall have
jurisdiction over any action brought by an
acquired entity receiving a notice under
subparagraph (B)(iii) to determine whether the
issuance of the notice was an abuse of
discretion, but only if the action is brought
within 30 days after the date of the mailing
(determined under rules similar to section
6213) of the notice.
``(ii) Court action.--The Tax Court shall
issue its decision within 30 days after the
filing of the action under clause (i) and may
order the Secretary to issue a notice described
in subparagraph (B)(ii).
``(iii) Review.--An order of the Tax Court
under this subparagraph shall be reviewable in
the same manner as any other decision of the
Tax Court.
``(2) Modifications of limitation on interest deduction.--
In the case of an acquired entity to which subsection (b)
applies, section 163(j) shall be applied--
``(A) without regard to paragraph (2)(A)(ii)
thereof, and
``(B) by substituting `25 percent' for `50 percent'
each place it appears in paragraph (2)(B) thereof.
``(e) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Rules for application of subsection (a)(2).--In
applying subsection (a)(2) for purposes of subsections (a) and
(b), the following rules shall apply:
``(A) Certain stock disregarded.--There shall not
be taken into account in determining ownership for
purposes of subsection (a)(2)(B)--
``(i) stock held by members of the expanded
affiliated group which includes the foreign
incorporated entity, or
``(ii) stock of such entity which is sold
in a public offering or private placement
related to the acquisition described in
subsection (a)(2)(A).
``(B) Plan deemed in certain cases.--If a foreign
incorporated entity acquires directly or indirectly
substantially all of the properties of a domestic
corporation or partnership during the 4-year period
beginning on the date which is 2 years before the
ownership requirements of subsection (a)(2)(B) are met
with respect to such domestic corporation or
partnership, such actions shall be treated as pursuant
to a plan.
``(C) Certain transfers disregarded.--The transfer
of properties or liabilities (including by contribution
or distribution) shall be disregarded if such transfers
are part of a plan a principal purpose of which is to
avoid the purposes of this section.
``(D) Special rule for related partnerships.--For
purposes of applying subsection (a)(2) to the
acquisition of a domestic partnership, except as
provided in regulations, all partnerships which are
under common control (within the meaning of section
482) shall be treated as 1 partnership.
``(E) Treatment of certain rights.--The Secretary
shall prescribe such regulations as may be necessary--
``(i) to treat warrants, options, contracts
to acquire stock, convertible debt instruments,
and other similar interests as stock, and
``(ii) to treat stock as not stock.
``(2) Expanded affiliated group.--The term `expanded
affiliated group' means an affiliated group as defined in
section 1504(a) but without regard to section 1504(b)(3),
except that section 1504(a) shall be applied by substituting
`more than 50 percent' for `at least 80 percent' each place it
appears.
``(3) Foreign incorporated entity.--The term `foreign
incorporated entity' means any entity which is, or but for
subsection (a)(1) would be, treated as a foreign corporation
for purposes of this title.
``(4) Foreign related person.--The term `foreign related
person' means, with respect to any acquired entity, a foreign
person which--
``(A) bears a relationship to such entity described
in section 267(b) or 707(b), or
``(B) is under the same common control (within the
meaning of section 482) as such entity.
``(5) Subsequent acquisitions by unrelated domestic
corporations.--
``(A) In general.--Subject to such conditions,
limitations, and exceptions as the Secretary may
prescribe, if, after an acquisition described in
subsection (a)(2)(A) to which subsection (b) applies, a
domestic corporation stock of which is traded on an
established securities market acquires directly or
indirectly any properties of one or more acquired
entities in a transaction with respect to which the
requirements of subparagraph (B) are met, this section
shall cease to apply to any such acquired entity with
respect to which such requirements are met.
``(B) Requirements.--The requirements of the
subparagraph are met with respect to a transaction
involving any acquisition described in subparagraph (A)
if--
``(i) before such transaction the domestic
corporation did not have a relationship
described in section 267(b) or 707(b), and was
not under common control (within the meaning of
section 482), with the acquired entity, or any
member of an expanded affiliated group
including such entity, and
``(ii) after such transaction, such
acquired entity--
``(I) is a member of the same
expanded affiliated group which
includes the domestic corporation or
has such a relationship or is under
such common control with any member of
such group, and
``(II) is not a member of, and does
not have such a relationship and is not
under such common control with any
member of, the expanded affiliated
group which before such acquisition
included such entity.
``(f) Regulations.--The Secretary shall provide such regulations as
are necessary to carry out this section, including regulations
providing for such adjustments to the application of this section as
are necessary to prevent the avoidance of the purposes of this section,
including the avoidance of such purposes through--
``(1) the use of related persons, pass-through or other
noncorporate entities, or other intermediaries, or
``(2) transactions designed to have persons cease to be (or
not become) members of expanded affiliated groups or related
persons.''.
(b) Treatment of Agreements.--
(1) Confidentiality.--
(A) Treatment as return information.--Section
6103(b)(2) (relating to return information) is amended
by striking ``and'' at the end of subparagraph (C), by
inserting ``and'' at the end of subparagraph (D), and
by inserting after subparagraph (D) the following new
subparagraph:
``(E) any approval agreement under section
7874(d)(1) to which any preceding subparagraph does not
apply and any background information related to the
agreement or any application for the agreement,''.
(B) Exception from public inspection as written
determination.--Section 6110(b)(1)(B) is amended by
striking ``or (D)'' and inserting ``, (D), or (E)''.
(2) Reporting.--The Secretary of the Treasury shall include
with any report on advance pricing agreements required to be
submitted after the date of the enactment of this Act under
section 521(b) of the Ticket to Work and Work Incentives
Improvement Act of 1999 (Public Law 106-170) a report regarding
approval agreements under section 7874(d)(1) of the Internal
Revenue Code of 1986. Such report shall include information
similar to the information required with respect to advance
pricing agreements and shall be treated for confidentiality
purposes in the same manner as the reports on advance pricing
agreements are treated under section 521(b)(3) of such Act.
(c) Information Reporting.--The Secretary of the Treasury shall
exercise the Secretary's authority under the Internal Revenue Code of
1986 to require entities involved in transactions to which section 7874
of such Code (as added by subsection (a)) applies to report to the
Secretary, shareholders, partners, and such other persons as the
Secretary may prescribe such information as is necessary to ensure the
proper tax treatment of such transactions.
(d) Conforming Amendment.--The table of sections for subchapter C
of chapter 80 is amended by adding at the end the following new item:

``Sec. 7874. Rules relating to inverted
corporate entities.''.
(e) Transition Rule for Certain Regulated Investment Companies and
Unit Investment Trusts.--Notwithstanding section 7874 of the Internal
Revenue Code of 1986 (as added by subsection (a)), a regulated
investment company, or other pooled fund or trust specified by the
Secretary of the Treasury, may elect to recognize gain by reason of
section 367(a) of such Code with respect to a transaction under which a
foreign incorporated entity is treated as an inverted domestic
corporation under section 7874(a) of such Code by reason of an
acquisition completed after March 20, 2002, and before January 1, 2004.

SEC. 822. EXCISE TAX ON STOCK COMPENSATION OF INSIDERS IN INVERTED
CORPORATIONS.

(a) In General.--Subtitle D is amended by adding at the end the
following new chapter:

``CHAPTER 48--STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS

``Sec. 5000A. Stock compensation of
insiders in inverted
corporations entities.

``SEC. 5000A. STOCK COMPENSATION OF INSIDERS IN INVERTED CORPORATIONS.

``(a) Imposition of Tax.--In the case of an individual who is a
disqualified individual with respect to any inverted corporation, there
is hereby imposed on such person a tax equal to 20 percent of the value
(determined under subsection (b)) of the specified stock compensation
held (directly or indirectly) by or for the benefit of such individual
or a member of such individual's family (as defined in section 267) at
any time during the 12-month period beginning on the date which is 6
months before the inversion date.
``(b) Value.--For purposes of subsection (a)--
``(1) In general.--The value of specified stock
compensation shall be--
``(A) in the case of a stock option (or other
similar right) or any stock appreciation right, the
fair value of such option or right, and
``(B) in any other case, the fair market value of
such compensation.
``(2) Date for determining value.--The determination of
value shall be made--
``(A) in the case of specified stock compensation
held on the inversion date, on such date,
``(B) in the case of such compensation which is
canceled during the 6 months before the inversion date,
on the day before such cancellation, and
``(C) in the case of such compensation which is
granted after the inversion date, on the date such
compensation is granted.
``(c) Tax To Apply Only If Shareholder Gain Recognized.--Subsection
(a) shall apply to any disqualified individual with respect to an
inverted corporation only if gain (if any) on any stock in such
corporation is recognized in whole or part by any shareholder by reason
of the acquisition referred to in section 7874(a)(2)(A) (determined by
substituting `July 10, 2002' for `March 20, 2002') with respect to such
corporation.
``(d) Exception Where Gain Recognized on Compensation.--Subsection
(a) shall not apply to--
``(1) any stock option which is exercised on the inversion
date or during the 6-month period before such date and to the
stock acquired in such exercise, and
``(2) any specified stock compensation which is sold,
exchanged, or distributed during such period in a transaction
in which gain or loss is recognized in full.
``(e) Definitions.--For purposes of this section--
``(1) Disqualified individual.--The term `disqualified
individual' means, with respect to a corporation, any
individual who, at any time during the 12-month period
beginning on the date which is 6 months before the inversion
date--
``(A) is subject to the requirements of section
16(a) of the Securities Exchange Act of 1934 with
respect to such corporation or any member of the
expanded affiliated group which includes such
corporation, or
``(B) would be subject to such requirements if such
corporation or member were an issuer of equity
securities referred to in such section.
``(2) Inverted corporation; inversion date.--
``(A) Inverted corporation.--The term `inverted
corporation' means any corporation to which subsection
(a) or (b) of section 7874 applies determined--
``(i) by substituting `July 10, 2002' for
`March 20, 2002' in section 7874(a)(2)(A), and
``(ii) without regard to subsection
(b)(1)(A).
Such term includes any predecessor or successor of such
a corporation.
``(B) Inversion date.--The term `inversion date'
means, with respect to a corporation, the date on which
the corporation first becomes an inverted corporation.
``(3) Specified stock compensation.--
``(A) In general.--The term `specified stock
compensation' means payment (or right to payment)
granted by the inverted corporation (or by any member
of the expanded affiliated group which includes such
corporation) to any person in connection with the
performance of services by a disqualified individual
for such corporation or member if the value of such
payment or right is based on (or determined by
reference to) the value (or change in value) of stock
in such corporation (or any such member).
``(B) Exceptions.--Such term shall not include--
``(i) any option to which part II of
subchapter D of chapter 1 applies, or
``(ii) any payment or right to payment from
a plan referred to in section 280G(b)(6).
``(4) Expanded affiliated group.--The term `expanded
affiliated group' means an affiliated group (as defined in
section 1504(a) without regard to section 1504(b)(3)); except
that section 1504(a) shall be applied by substituting `more
than 50 percent' for `at least 80 percent' each place it
appears.
``(f) Special Rules.--For purposes of this section--
``(1) Cancellation of restriction.--The cancellation of a
restriction which by its terms will never lapse shall be
treated as a grant.
``(2) Payment or reimbursement of tax by corporation
treated as specified stock compensation.--Any payment of the
tax imposed by this section directly or indirectly by the
inverted corporation or by any member of the expanded
affiliated group which includes such corporation--
``(A) shall be treated as specified stock
compensation, and
``(B) shall not be allowed as a deduction under any
provision of chapter 1.
``(3) Certain restrictions ignored.--Whether there is
specified stock compensation, and the value thereof, shall be
determined without regard to any restriction other than a
restriction which by its terms will never lapse.
``(4) Property transfers.--Any transfer of property shall
be treated as a payment and any right to a transfer of property
shall be treated as a right to a payment.
``(5) Other administrative provisions.--For purposes of
subtitle F, any tax imposed by this section shall be treated as
a tax imposed by subtitle A.
``(g) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section.''.
(b) Denial of Deduction.--
(1) In general.--Paragraph (6) of section 275(a) is amended
by inserting ``48,'' after ``46,''.
(2) $1,000,000 limit on deductible compensation reduced by
payment of excise tax on specified stock compensation.--
Paragraph (4) of section 162(m) is amended by adding at the end
the following new subparagraph:
``(G) Coordination with excise tax on specified
stock compensation.--The dollar limitation contained in
paragraph (1) with respect to any covered employee
shall be reduced (but not below zero) by the amount of
any payment (with respect to such employee) of the tax
imposed by section 5000A directly or indirectly by the
inverted corporation (as defined in such section) or by
any member of the expanded affiliated group (as defined
in such section) which includes such corporation.''.
(c) Conforming Amendments.--
(1) The last sentence of section 3121(v)(2)(A) is amended
by inserting before the period ``or to any specified stock
compensation (as defined in section 5000A) on which tax is
imposed by section 5000A''.
(2) The table of chapters for subtitle D is amended by
adding at the end the following new item:

``Chapter 48. Stock compensation of
insiders in inverted
corporations.''.
(d) Effective Date.--The amendments made by this section shall take
effect on July 11, 2002; except that periods before such date shall not
be taken into account in applying the periods in subsections (a) and
(e)(1) of section 5000A of the Internal Revenue Code of 1986, as added
by this section.

SEC. 823. REINSURANCE OF UNITED STATES RISKS IN FOREIGN JURISDICTIONS.

(a) In General.--Section 845(a) (relating to allocation in case of
reinsurance agreement involving tax avoidance or evasion) is amended by
striking ``source and character'' and inserting ``amount, source, or
character''.
(b) Effective Date.--The amendments made by this section shall
apply to any risk reinsured after April 11, 2002.

Subtitle C--Other Revenue Provisions

SEC. 831. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

(a) In General.--Chapter 77 (relating to miscellaneous provisions)
is amended by adding at the end the following new section:

``SEC. 7528. INTERNAL REVENUE SERVICE USER FEES.

``(a) General Rule.--The Secretary shall establish a program
requiring the payment of user fees for--
``(1) requests to the Internal Revenue Service for ruling
letters, opinion letters, and determination letters, and
``(2) other similar requests.
``(b) Program Criteria.--
``(1) In general.--The fees charged under the program
required by subsection (a)--
``(A) shall vary according to categories (or
subcategories) established by the Secretary,
``(B) shall be determined after taking into account
the average time for (and difficulty of) complying with
requests in each category (and subcategory), and
``(C) shall be payable in advance.
``(2) Exemptions, etc.--
``(A) In general.--The Secretary shall provide for
such exemptions (and reduced fees) under such program
as the Secretary determines to be appropriate.
``(B) Exemption for certain requests regarding
pension plans.--The Secretary shall not require payment
of user fees under such program for requests for
determination letters with respect to the qualified
status of a pension benefit plan maintained solely by 1
or more eligible employers or any trust which is part
of the plan. The preceding sentence shall not apply to
any request--
``(i) made after the later of--
``(I) the fifth plan year the
pension benefit plan is in existence,
or
``(II) the end of any remedial
amendment period with respect to the
plan beginning within the first 5 plan
years, or
``(ii) made by the sponsor of any prototype
or similar plan which the sponsor intends to
market to participating employers.
``(C) Definitions and special rules.--For purposes
of subparagraph (B)--
``(i) Pension benefit plan.--The term
`pension benefit plan' means a pension, profit-
sharing, stock bonus, annuity, or employee
stock ownership plan.
``(ii) Eligible employer.--The term
`eligible employer' means an eligible employer
(as defined in section 408(p)(2)(C)(i)(I))
which has at least 1 employee who is not a
highly compensated employee (as defined in
section 414(q)) and is participating in the
plan. The determination of whether an employer
is an eligible employer under subparagraph (B)
shall be made as of the date of the request
described in such subparagraph.
``(iii) Determination of average fees
charged.--For purposes of any determination of
average fees charged, any request to which
subparagraph (B) applies shall not be taken
into account.
``(3) Average fee requirement.--The average fee charged
under the program required by subsection (a) shall not be less
than the amount determined under the following table:

Average
``Category                                                          fee
Employee plan ruling and opinion..............                $250
Exempt organization ruling....................                $350
Employee plan determination...................                $300
Exempt organization determination.............                $275
Chief counsel ruling..........................                $200.
``(c) Termination.--No fee shall be imposed under this section with
respect to requests made after September 30, 2013.''.
(b) Conforming Amendments.--
(1) The table of sections for chapter 77 is amended by
adding at the end the following new item:

``Sec. 7528. Internal Revenue Service
user fees.''.
(2) Section 10511 of the Revenue Act of 1987 is repealed.
(3) Section 620 of the Economic Growth and Tax Relief
Reconciliation Act of 2001 is repealed.
(c) Limitations.--Notwithstanding any other provision of law, any
fees collected pursuant to section 7528 of the Internal Revenue Code of
1986, as added by subsection (a), shall not be expended by the Internal
Revenue Service unless provided by an appropriations Act.
(d) Effective Date.--The amendments made by this section shall
apply to requests made after the date of the enactment of this Act.

SEC. 832. ADDITION OF VACCINES AGAINST HEPATITIS A TO LIST OF TAXABLE
VACCINES.

(a) In General.--Section 4132(a)(1) (defining taxable vaccine) is
amended by redesignating subparagraphs (I), (J), (K), and (L) as
subparagraphs (J), (K), (L), and (M), respectively, and by inserting
after subparagraph (H) the following new subparagraph:
``(I) Any vaccine against hepatitis A.''.
(b) Conforming Amendment.--Section 9510(c)(1)(A) is amended by
striking ``October 18, 2000'' and inserting ``April 2, 2003''.
(c) Effective Date.--
(1) Sales, etc.--The amendments made by this section shall
apply to sales and uses on or after the first day of the first
month which begins more than 4 weeks after the date of the
enactment of this Act.
(2) Deliveries.--For purposes of paragraph (1) and section
4131 of the Internal Revenue Code of 1986, in the case of sales
on or before the effective date described in such paragraph for
which delivery is made after such date, the delivery date shall
be considered the sale date.

SEC. 843. INDIVIDUAL EXPATRIATION TO AVOID TAX.

(a) Expatriation To Avoid Tax.--
(1) In general.--Subsection (a) of section 877 (relating to
treatment of expatriates) is amended to read as follows:
``(a) Treatment of Expatriates.--
``(1) In general.--Every nonresident alien individual to
whom this section applies and who, within the 10-year period
immediately preceding the close of the taxable year, lost
United States citizenship shall be taxable for such taxable
year in the manner provided in subsection (b) if the tax
imposed pursuant to such subsection (after any reduction in
such tax under the last sentence of such subsection) exceeds
the tax which, without regard to this section, is imposed
pursuant to section 871.
``(2) Individuals subject to this section.--This section
shall apply to any individual if--
``(A) the average annual net income tax (as defined
in section 38(c)(1)) of such individual for the period
of 5 taxable years ending before the date of the loss
of United States citizenship is greater than $122,000,
``(B) the net worth of the individual as of such
date is $2,000,000 or more, or
``(C) such individual fails to certify under
penalty of perjury that he has met the requirements of
this title for the 5 preceding taxable years or fails
to submit such evidence of such compliance as the
Secretary may require.
In the case of the loss of United States citizenship in any
calendar year after 2003, such $122,000 amount shall be
increased by an amount equal to such dollar amount multiplied
by the cost-of-living adjustment determined under section
1(f)(3) for such calendar year by substituting `2002' for
`1992' in subparagraph (B) thereof. Any increase under the
preceding sentence shall be rounded to the nearest multiple of
$1,000.''.
(2) Revision of exceptions from alternative tax.--
Subsection (c) of section 877 (relating to tax avoidance not
presumed in certain cases) is amended to read as follows:
``(c) Exceptions.--
``(1) In general.--Subparagraphs (A) and (B) of subsection
(a)(2) shall not apply to an individual described in paragraph
(2) or (3).
``(2) Dual citizens.--
``(A) In general.--An individual is described in
this paragraph if--
``(i) the individual became at birth a
citizen of the United States and a citizen of
another country and continues to be a citizen
of such other country, and
``(ii) the individual has had no
substantial contacts with the United States.
``(B) Substantial contacts.--An individual shall be
treated as having no substantial contacts with the
United States only if the individual--
``(i) was never a resident of the United
States (as defined in section 7701(b)),
``(ii) has never held a United States
passport, and
``(iii) was not present in the United
States for more than 30 days during any
calendar year which is 1 of the 10 calendar
years preceding the individual's loss of United
States citizenship.
``(3) Certain minors.--An individual is described in this
paragraph if--
``(A) the individual became at birth a citizen of
the United States,
``(B) neither parent of such individual was a
citizen of the United States at the time of such birth,
``(C) the individual's loss of United States
citizenship occurs before such individual attains age
18\1/2\, and
``(D) the individual was not present in the United
States for more than 30 days during any calendar year
which is 1 of the 10 calendar years preceding the
individual's loss of United States citizenship.''.
(3) Conforming amendment.--Section 2107(a) is amended to
read as follows:
``(a) Treatment of Expatriates.--A tax computed in accordance with
the table contained in section 2001 is hereby imposed on the transfer
of the taxable estate, determined as provided in section 2106, of every
decedent nonresident not a citizen of the United States if the date of
death occurs during a taxable year with respect to which the decedent
is subject to tax under section 877(b).''.
(b) Special Rules for Determining When an Individual is no Longer a
United States Citizen or Long-Term Resident.--Section 7701 (relating to
definitions) is amended by redesignating subsection (n) as subsection
(o) and by inserting after subsection (m) the following new subsection:
``(n) Special Rules for Determining When an Individual is no Longer
a United States Citizen or Long-Term Resident.--An individual who would
not (but for this subsection) be treated as a citizen or resident of
the United States shall continue to be treated as a citizen or resident
of the United States until such individual--
``(1) gives notice of an expatriating act or termination of
residency (with the requisite intent to relinquish citizenship
or terminate residency) to the Secretary of State or the
Secretary of Homeland Security, and
``(2) provides a statement in accordance with section
6039G.''.
(c) Physical Presence in the United States for More Than 30 Days.--
Section 877 (relating to expatriation to avoid tax) is amended by
adding at the end the following new subsection:
``(g) Physical Presence.--This section shall not apply to any
individual for any taxable year during the 10-year period referred to
in subsection (a) in which such individual is present (within the
meaning of section 7701(b)(7) without regard to subparagraphs (B), (C),
and (D) thereof) in the United States for more than 30 days in the
calendar year ending in such taxable year, and such individual shall be
treated for purposes of this title as a citizen or resident of the
United States for such taxable year.''.
(d) Transfers Subject to Gift Tax.--Subsection (a) of section 2501
(relating to taxable transfers) is amended by adding at the end the
following:
``(6) Transfers of certain stock.--
``(A) In general.--Paragraph (3) shall not apply to
the transfer of stock described in subparagraph (B) by
any individual to whom section 877(b) applies, and
section 2511(a) shall be applied without regard to
whether such stock is property which is situated within
the United States.
``(B) Valuation.--For purposes of subparagraph (A),
the value of stock shall be determined as provided in
section 2103, except that--
``(i) if the donor owned (within the
meaning of section 958(a)) at the time of such
transfer 10 percent or more of the total
combined voting power of all classes of stock
entitled to vote of a foreign corporation, and
``(ii) if such donor owned (within the
meaning of section 958(a)), or is considered to
have owned (by applying the ownership rules of
section 958(b)), at the time of such transfer,
more than 50 percent of--
``(I) the total combined voting
power of all classes of stock entitled
to vote of such corporation, or
``(II) the total value of the stock
of such corporation,
then the portion of the fair market value of the stock
of such foreign corporation transferred by such donor
which is included for purposes of subparagraph (A)
shall be the amount which bears the same ratio to such
value as the fair market value of any assets owned by
such foreign corporation and situated in the United
States at the time of such transfer bears to the total
fair market value of all assets owned by such foreign
corporation at such time. For purposes of the preceding
sentence, a donor shall be treated as owning stock of a
foreign corporation at the time of such transfer if, at
such time, by trust or otherwise, within the meaning of
sections 2035 to 2038, inclusive, he owned such
stock.''.
(e) Enhanced Information Reporting From Individuals Losing United
States Citizenship.--
(1) In general.--Subsection (a) of section 6039G is amended
to read as follows:
``(a) In General.--Notwithstanding any other provision of law, any
individual to whom section 877(b) applies for any taxable year shall
provide a statement for such taxable year which includes the
information described in subsection (b).''.
(2) Information to be provided.--Subsection (b) of section
6039G is amended to read as follows:
``(b) Information To Be Provided.--Information required under
subsection (a) shall include--
``(1) the taxpayer's TIN,
``(2) the mailing address of such individual's principal
foreign residence,
``(3) the foreign country, in which such individual is
residing,
``(4) the foreign country of which such individual is a
citizen,
``(5) information detailing the income, assets, and
liabilities of such individual,
``(6) the number of days that the individual was present in
the United States during the taxable year, and
``(7) such other information as the Secretary may
prescribe.''.
(3) Increase in penalty.--Subsection (d) of section 6039G
is amended to read as follows:
``(d) Penalty.--If--
``(1) an individual is required to file a statement under
subsection (a) for any taxable year, and
``(2) fails to file such a statement with the Secretary on
or before the date such statement is required to be filed or
fails to include all the information required to be shown on
the statement or includes incorrect information,
such individual shall pay a penalty of $5,000 unless it is shown that
such failure is due to reasonable cause and not to willful neglect.''.
(4) Conforming amendment.--Section 6039G is amended by
striking subsections (c), (f), and (g) and by redesignating
subsections (d) and (e) as subsection (c) and (d),
respectively.
(f) Effective Date.--The amendments made by this section shall
apply to individuals who expatriate after February 27, 2003.

Calendar No. 113

108th CONGRESS

1st Session

S. 1149

[Report No. 108-54]

_______________________________________________________________________

A BILL

To amend the Internal Revenue Code of 1986 to provide energy tax
incentives, and for other purposes.

_______________________________________________________________________

May 23, 2003

Read twice and placed on the calendar