[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 161 Introduced in House (IH)]







105th CONGRESS
  1st Session
                                H. R. 161

    To amend the Internal Revenue Code of 1986 to terminate the tax 
        subsidies for large producers of ethanol used as a fuel.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                            January 7, 1997

 Mr. English of Pennsylvania (for himself, Mr. Frank of Massachusetts, 
and Mr. McDermott) introduced the following bill; which was referred to 
                    the Committee on Ways and Means

_______________________________________________________________________

                                 A BILL


 
    To amend the Internal Revenue Code of 1986 to terminate the tax 
        subsidies for large producers of ethanol used as a fuel.

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

SECTION 1. TERMINATION AFTER 1998 OF TAX SUBSIDIES FOR LARGE PRODUCERS 
              OF ETHANOL USED AS A FUEL.

    (a) General Rule.--Subsection (e) of section 40 of the Internal 
Revenue Code of 1986 is amended by adding at the end the following 
flush sentence:
        ``Except in the case of the credit determined under subsection 
        (a)(3), the preceding sentence shall be applied by substituting 
        `1998' for `2000' and `1999' for `2001'.''
    (b) Denial of Credit for Alcohol Used To Produce Ether.--Subsection 
(b) of section 40 of such Code is amended by adding at the end the 
following new paragraph:
            ``(6) Denial of credit for alcohol used to produce ether.--
        No credit shall be allowed under this section for alcohol used 
        to produce any ether.''
    (c) Conforming Reductions of Other Incentives for Ethanol Fuel.--
            (1) Repeal of reduced rate on ethanol fuel produced other 
        than from petroleum or natural gas.--Subsection (b) of section 
        4041 of such Code is amended to read as follows:
    ``(b) Exemption for Off-Highway Business Use.--
            ``(1) In general.--No tax shall be imposed by subsection 
        (a) or (d)(1) on liquids sold for use or used in an off-highway 
        business use.
            ``(2) Tax where other use.--If a liquid on which no tax was 
        imposed by reason of paragraph (1) is used otherwise than in an 
        off-highway business use, a tax shall be imposed by paragraph 
        (1)(B), (2)(B), or (3)(A)(ii) of subsection (a) (whichever is 
        appropriate) and by the corresponding provision of subsection 
        (d)(1) (if any).
            ``(3) Off-highway business use defined.--For purposes of 
        this subsection, the term `off-highway business use' has the 
        meaning given to such term by section 6421(e)(2); except that 
        such term shall not, for purposes of subsection (a)(1), include 
        use in a diesel-powered train.''
            (2) Repeal of reduced rate on ethanol fuel produced from 
        natural gas.--Subsection (m) of section 4041 of such Code is 
        amended--
                    (A) by striking ``or ethanol'' each place it 
                appears (including the heading of paragraph (2)), and
                    (B) by striking ``, ethanol, or other alcohol'' in 
                paragraph (2) and inserting ``or other alcohol (other 
                than ethanol)''.
    (d) Conforming Amendments to Excise Taxes; Fuel Alcohol Taxed in 
Same Manner as Other Motor Fuels.--
            (1) In general.--Paragraph (1) of section 4083(a) of such 
        Code (defining taxable fuel) is amended by striking ``and'' at 
        the end of subparagraph (A), by striking the period at the end 
        of subparagraph (B) and inserting ``, and'', and by adding at 
        the end the following:
                    ``(C) fuel alcohol.''
            (2) Fuel alcohol.--Subsection (a) of section 4083 of such 
        Code is amended by adding at the end the following new 
        paragraph:
            ``(4) Fuel alcohol.--The term `fuel alcohol' means any 
        alcohol (including ethanol and methanol)--
                    ``(A) which is produced other than from petroleum, 
                natural gas, or coal (including peat), and
                    ``(B) which is withdrawn from the distillery where 
                produced free of tax under chapter 51 by reason of 
                section 5181 or so much of section 5214(a)(1) as 
                relates to fuel use.''
            (3) Rate of tax.--Clause (i) of section 4081(a)(2)(A) of 
        such Code is amended by inserting ``and in the case of fuel 
        alcohol'' after ``aviation gasoline''.
            (4) Special rules for imposition of tax.--Paragraph (1) of 
        section 4081(a) of such Code is amended by adding at the end 
the following new subparagraph:
                    ``(C) Special rules for fuel alcohol.--In the case 
                of fuel alcohol--
                            ``(i) the distillery where produced shall 
                        be treated as a refinery, and
                            ``(ii) subparagraph (B) shall be applied by 
                        including transfers by truck or rail in excess 
                        of such minimum quantities as the Secretary 
                        shall prescribe.''
            (5) Repeal of reduced rates on alcohol fuels.--
                    (A) Section 4041 of such Code is amended by 
                striking subsection (k).
                    (B) Section 4081 of such Code is amended by 
                striking subsection (c).
                    (C) Section 4091 of such Code is amended by 
                striking subsection (c).
            (6) Conforming amendments.--
                    (A) Section 40 of such Code is amended by striking 
                subsection (c).
                    (B) Paragraph (4) of section 40(d) of such Code is 
                amended to read as follows:
            ``(4) Volume of alcohol.--For purposes of determining under 
        subsection (a) the number of gallons of alcohol with respect to 
        which a credit is allowable under subsection (a), the volume of 
        alcohol shall include the volume of any denaturant (including 
        gasoline) which is added under any formulas approved by the 
        Secretary to the extent that such denaturants do not exceed 5 
        percent of the volume of such alcohol (including 
        denaturants).''
                    (C) Paragraph (2) of section 4041(a) of such Code 
                is amended by adding at the end the following: ``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 and the tax thereon was not credited or 
                refunded.''
                    (D) Section 6427 of such Code is amended by 
                striking subsection (f).
                    (E) Subsection (i) of section 6427 of such Code is 
                amended by striking paragraph (3).
                    (F) Paragraph (2) of section 6427(k) of such Code 
                is amended by striking ``(3)''.
                    (G)(i) Paragraph (1) of section 6427(l) of such 
                Code is amended by striking ``or'' at the end of 
                subparagraph (A), by redesignating subparagraph (B) as 
                subparagraph (C), and by inserting after subparagraph 
                (A) the following new subparagraph:
                    ``(B) any fuel alcohol (as defined in section 4083) 
                on which tax has been imposed by section 4081, or''.
                    (ii) Paragraph (2) of section 6427(l) of such Code 
                is amended by striking ``and'' at the end of 
                subparagraph (A), by redesignating subparagraph (B) as 
                subparagraph (C), and by inserting after subparagraph 
                (A) the following new subparagraph:
                    ``(B) in the case of fuel alcohol (as so defined), 
                any use which is exempt from the tax imposed by section 
                4041(a)(2) other than by reason of a prior imposition 
                of tax, and''.
                    (iii) The heading of subsection (l) of section 6427 
                of such Code is amended by inserting ``, Fuel 
                Alcohol,'' after ``Diesel Fuel''.
                    (H) Sections 9503(b)(1)(E) and 9508(b)(2) of such 
                Code are each amended by striking ``and diesel fuel'' 
                and inserting ``diesel fuel, and fuel alcohol''.
                    (I) Section 9502 of such Code is amended by 
                striking subsection (e) and by redesignating subsection 
                (f) as subsection (e).
                    (J) Subsection (e) of section 9502 of such Code (as 
                redesignated by subparagraph (I)) is amended by 
                striking paragraph (2) and by redesignating paragraph 
                (3) as paragraph (2).
                    (K) Subsection (b) of section 9503 of such Code is 
                amended by striking paragraph (5).
                    (L) Paragraph (3) of section 9503(f) of such Code 
                is amended to read as follows:
            ``(3) Partially exempt methanol or ethanol fuel.--In the 
        case of a rate of tax determined under section 4041(m), the 
        Highway Trust Fund financing rate is the excess (if any) of the 
        rate so determined over--
                    ``(A) 5.55 cents per gallon after September 30, 
                1993, and before October 1, 1995, and
                    ``(B) 4.3 cents per gallon after September 30, 
                1995.''
    (e) Effective Date.--The amendments made by this section shall take 
effect on January 1, 1999.
    (f) Floor Stock Taxes.--
            (1) Imposition of tax.--In the case of fuel alcohol which 
        is held on January 1, 1999, by any person, there is hereby 
        imposed a floor stocks tax of 18.4 cents per gallon.
            (2) Liability for tax and method of payment.--
                    (A) Liability for tax.--A person holding fuel 
                alcohol on January 1, 1999, to which the tax imposed by 
                paragraph (1) applies shall be liable for such tax.
                    (B) Method of payment.--The tax imposed by 
                paragraph (1) shall be paid in such manner as the 
                Secretary shall prescribe.
                    (C) Time for payment.--The tax imposed by paragraph 
                (1) shall be paid on or before June 30, 1999.
            (3) Definitions.--For purposes of this subsection--
                    (A) Fuel alcohol.--The term ``fuel alcohol'' has 
                the meaning given such term by section 4083 of the 
                Internal Revenue Code of 1986, as amended by this 
                section.
                    (B) Held by a person.--Fuel alcohol shall be 
                considered as ``held by a person'' if title thereto has 
                passed to such person (whether or not delivery to the 
                person has been made).
                    (C) Secretary.--The term ``Secretary'' means the 
                Secretary of the Treasury or his delegate.
            (4) Exception for exempt uses.--The tax imposed by 
        paragraph (1) shall not apply to fuel alcohol held by any 
        person exclusively for any use to the extent a credit or refund 
        of the tax imposed by section 4081 of the Internal Revenue Code 
        of 1986 is allowable for such use.
            (5) Exception for fuel held in vehicle tank.--No tax shall 
        be imposed by paragraph (1) on fuel alcohol held in the tank of 
        a motor vehicle or motorboat.
            (6) Exception for certain amounts of fuel.--
                    (A) In general.--No tax shall be imposed by 
                paragraph (1) on fuel alcohol held on January 1, 1999, 
                by any person if the aggregate amount of fuel alcohol 
                held by such person on such date does not exceed 2,000 
                gallons. The preceding sentence shall apply only if 
                such person submits to the Secretary (at the time and 
                in the manner required by the Secretary) such 
                information as the Secretary shall require for purposes 
                of this paragraph.
                    (B) Exempt fuel.--For purposes of subparagraph (A), 
                there shall not be taken into account fuel held by any 
                person which is exempt from the tax imposed by 
                paragraph (1) by reason of paragraph (4) or (5).
                    (C) Controlled groups.--For purposes of this 
                paragraph--
                            (i) Corporations.--
                                    (I) In general.--All persons 
                                treated as a controlled group shall be 
                                treated as 1 person.
                                    (II) Controlled group.--The term 
                                ``controlled group'' has the meaning 
                                given to such term by subsection (a) of 
                                section 1563 of such Code; except that 
                                for such purposes the phrase ``more 
                                than 50 percent'' shall be substituted 
                                for the phrase ``at least 80 percent'' 
                                each place it appears in such 
                                subsection.
                            (ii) Nonincorporated persons under common 
                        control.--Under regulations prescribed by the 
                        Secretary, principles similar to the principles 
                        of clause (i) shall apply to a group of persons 
                        under common control where 1 or more of such 
                        persons is not a corporation.
            (7) Other laws applicable.--All provisions of law, 
        including penalties, applicable with respect to the taxes 
        imposed by section 4081 of such Code shall, insofar as 
        applicable and not inconsistent with the provisions of this 
        subsection, apply with respect to the floor stock taxes imposed 
        by paragraph (1) to the same extent as if such taxes were 
        imposed by such section 4081.
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