[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]

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                                 A BILL

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

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                              May 23, 2003

                 Read twice and placed on the calendar