Short title, etc

(a)

Short title

This Act may be cited as the

Investment in Energy Independence Act of 2006

. (b)

Table of contents

The table of contents for this Act is as follows:

Sec. 1. Short title, etc.

Sec. 2. Credit for investment in coal-to-liquid fuels projects.

Sec. 3. Temporary expensing for equipment used in coal-to-liquid fuels process.

Sec. 4. Expansion and extension of alternative fuel credit.

Sec. 5. Modifications to enhanced oil, natural gas, and coalbed methane recovery credit.

Sec. 6. Allowance of enhanced oil, natural gas, and coalbed methane recovery credit against the alternative minimum tax.

Sec. 7. Expansion of expensing of oil and alternative fuel refineries.

Sec. 8. Expensing for conversion of natural gas-fired facilities for the production ethanol to coal-fired facilities.

Credit for investment in coal-to-liquid fuels projects

(a)

In general

Section 46 of the Internal Revenue Code of 1986 (relating to amount of credit) is amended by striking and at the end of paragraph (3), by striking the period at the end of paragraph (4) and inserting , and, and by adding at the end the following new paragraph:

(5)the qualifying coal-to-liquid fuels project credit.

(b)

Amount of credit

Subpart E of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to rules for computing investment credit) is amended by inserting after section 48B the following new section:

48C.

Qualifying coal-to-liquid fuels project credit

(a)

In general

For purposes of section 46, the qualifying coal-to-liquid fuels project credit for any taxable year is an amount equal to 20 percent of the qualified investment for such taxable year. (b)

Qualified investment

(1)

In general

For purposes of subsection (a), the qualified investment for any taxable year is the basis of property placed in service by the taxpayer during such taxable year which is part of a qualifying coal-to-liquid fuels project— (A)(i)the construction, reconstruction, or erection of which is completed by the taxpayer, or (ii)which is acquired by the taxpayer if the original use of such property commences with the taxpayer, and (B)with respect to which depreciation (or amortization in lieu of depreciation) is allowable. (2)

Applicable rules

For purposes of this section, rules similar to the rules of subsection (a)(4) and (b) of section 48 shall apply. (c)

Definitions

For purposes of this section— (1)

Qualifying coal-to-liquid fuels project

The term qualifying coal-to-liquid fuels project means any domestic project which— (A)employs the Fischer-Tropsch process to produce at least 5,000 barrels per day of transportation grade liquid fuels from coal, including any property which allows for the capture, transportation, or sequestration of by-products resulting from such process, including carbon emissions, and (B)any portion of the qualified investment in which is certified under the qualifying coal-to-liquid program as eligible for credit under this section in an amount (not to exceed $200,000,000) determined by the Secretary. (2)

Coal

The term coal means any carbonized or semicarbonized matter, including peat and biomass. (3)

Biomass

The term biomass means any organic material other than oil and natural gas (or any product thereof). (d)

Qualifying coal-to-Liquid fuels project program

(1)

In general

The Secretary, in consultation with the Secretary of Energy, shall establish a qualifying coal-to-liquid fuels project program to consider and award certifications for qualified investment eligible for credits under this section to 10 qualifying coal-to-liquid fuels project sponsors under this section, not less than 2 of which shall not have the capacity to produce more than 10,000 barrels of transportation grade liquid fuels from coal per day. The total qualified investment which may be awarded eligibility for credit under the program shall not exceed $2,000,000,000. (2)

Period of issuance

A certificate of eligibility under paragraph (1) may be issued only during the 10-fiscal year period beginning on October 1, 2006. (3)

Selection criteria

The Secretary shall not make a competitive certification award for qualified investment for credit eligibility under this section unless the recipient has documented to the satisfaction of the Secretary that— (A)the award recipient is financially viable without the receipt of additional Federal funding associated with the proposed project, (B)the recipient will provide sufficient information to the Secretary for the Secretary to ensure that the qualified investment is spent efficiently and effectively, (C)a market exists for the products of the proposed project as evidenced by contracts or written statements of intent from potential customers, (D)the fuels identified with respect to the gasification technology for such project will comprise at least 90 percent of the fuels required by the project for the production of transportation grade liquid fuels, (E)the award recipient’s project team is competent in the construction and operation of the Fischer-Tropsch process, with preference given to those recipients with experience which demonstrates successful and reliable operations of such process, and (F)the award recipient has met other criteria established and published by the Secretary. (e)

Denial of double benefit

No deduction or other credit shall be allowed with respect to the basis of any property taken into account in determining the credit allowed under this section.

(c)

Conforming amendments

(1)Section 49(a)(1)(C) of the Internal Revenue Code of 1986 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 after clause (iv) the following new clause:

(v)the basis of any property which is part of a qualifying coal-to-liquid fuels project under section 48C.

(2)The table of sections for subpart E of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 48B the following new item:

Sec. 48C. Qualifying coal-to-liquid fuels project credit.

(d)

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).

Temporary expensing for equipment used in coal-to-liquid fuels process

(a)

In general

Part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 179D the following new section:

179E.

Election to expense certain coal-to-liquid fuels facilities

(a)

Treatment as expenses

A taxpayer may elect to treat the cost of any qualified coal-to-liquid fuels process property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the expense is incurred. (b)

Election

(1)

In general

An election under this section for any taxable year shall be made on the taxpayer’s return of the tax imposed by this chapter for the taxable year. Such election shall be made in such manner as the Secretary may by regulations prescribe. (2)

Election irrevocable

Any election made under this section may not be revoked except with the consent of the Secretary. (c)

Qualified coal-to-Liquid fuels process property

The term qualified coal-to-liquid fuels process property means any property located in the United States— (1)which employs the Fischer-Tropsch process to produce transportation grade liquid fuels from coal (as defined in section 48C(c)(2)), including any property which allows for the capture, transportation, or sequestration of by-products resulting from such process, including carbon emissions, (2)the original use of which commences with the taxpayer, (3)the construction of which— (A)except as provided in subparagraph (B), is subject to a binding construction contract entered into after the date of the enactment of this section and before January 1, 2011, but only if there was no written binding construction contract entered into on or before such date of enactment, or (B)in the case of self-constructed property, began after the date of the enactment of this section and before January 1, 2011, and (4)which is placed in service by the taxpayer after the date of the enactment of this section and before January 1, 2016. (d)

Election To allocate deduction to cooperative owner

If— (1)a taxpayer to which subsection (a) applies is an organization to which part I of subchapter T applies, and (2)one or more persons directly holding an ownership interest in the taxpayer are organizations to which part I of subchapter T apply,

the taxpayer may elect to allocate all or a portion of the deduction allowable under subsection (a) to such persons. Such allocation shall be equal to the person’s ratable share of the total amount allocated, determined on the basis of the person’s ownership interest in the taxpayer. The taxable income of the taxpayer shall not be reduced under section 1382 by reason of any amount to which the preceding sentence applies.

(e)

Basis reduction

(1)

In general

For purposes of this title, if a deduction is allowed under this section with respect to any qualified coal-to-liquid fuels process property, the basis of such property shall be reduced by the amount of the deduction so allowed. (2)

Ordinary income recapture

For purposes of section 1245, the amount of the deduction allowable under subsection (a) with respect to any property which is of a character subject to the allowance for depreciation shall be treated as a deduction allowed for depreciation under section 167. (f)

Application with other deductions and credits

(1)

Other deductions

No deduction shall be allowed under any other provision of this chapter with respect to any expenditure with respect to which a deduction is allowed under subsection (a) to the taxpayer. (2)

Credits

No credit shall be allowed under section 38 with respect to any amount for which a deduction is allowed under subsection (a). (g)

Reporting

No deduction shall be allowed under subsection (a) to any taxpayer for any taxable year unless such taxpayer files with the Secretary a report containing such information with respect to the operation of the property of the taxpayer as the Secretary shall require.

(b)

Conforming amendments

(1)Section 1016(a) of the Internal Revenue Code of 1986 is amended by striking and at the end of paragraph (36), by striking the period at the end of paragraph (37) and inserting , and, and by adding at the end the following new paragraph:

(38)to the extent provided in section 179E(e)(1).

(2)Section 1245(a) of such Code is amended by inserting 179E, after 179D, both places it appears in paragraphs (2)(C) and (3)(C). (3)Section 263(a)(1) of such Code is amended by striking or at the end of subparagraph (J), by striking the period at the end of subparagraph (K) and inserting , or, and by inserting after subparagraph (K) the following new subparagraph:

(L)expenditures for which a deduction is allowed under section 179E.

(4)Section 312(k)(3)(B) of such Code is amended by striking or 179D each place it appears in the heading and text and inserting 179D, or 179E. (5)The table of sections for part VI of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 179D the following new item:

Sec. 179E. Election to expense certain coal-to-liquid fuels facilities.

(c)

Effective date

The amendments made by this section shall apply to properties placed in service after the date of the enactment of this Act.

Expansion and extension of alternative fuel credit

(a)

Expansion

(1)Paragraph (2) of section 6426(d) of the Internal Revenue Code of 1986 (defining alternative fuel) is amended by striking and at the end of subparagraph (E), by striking the period at the end of subparagraph (F) and inserting , and, and by inserting after subparagraph (F) the following:

(G)any liquid fuel derived from oil shale extracted in the United States.

(2)Subparagraph (E) of section 6426(d)(2)(d) of such Code is amended by inserting and biomass (as defined in section 45K(c)(3) without regard to subparagraph (B) thereof) after peat. (b)

Extension

(1)

Alternative fuel credit

Paragraph (4) of section 6426(d) of such Code is amended to read as follows:

(4)

Termination

This subsection shall not apply to— (A)any sale or use involving liquified hydrogen for any period after September 30, 2020, (B)any sale or use involving liquid fuel derived from coal (including peat and biomass) through the Fischer-Tropsch process for any period after September 30, 2020, (C)any sale or use involving liquid hydrocarbons derived from biomass (as specified in paragraph (2)(F) for any period after September 30, 2020, (D)any sale or use involving liquid fuel derived from oil shale for any period after September 30, 2020, (E)any other sale or use for any period after September 30, 2009.

(2)

Payments

(A)

In general

Paragraph (5) of section 6427(e) of the Internal Revenue Code of 1986 is amended by striking and and the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting a comma, and by adding at the end the following new subparagraphs:

(E)any alternative fuel or alternative fuel mixture (as so defined) involving liquid fuel derived from coal (including peat and biomass) through the Fischer-Tropsch process sold or used after September 30, 2020, and (F)any sale or use involving liquid derived from oil shale for any period after September 30, 2020.

(B)

Conforming amendment

Section 6427(e)(5)(C) of such Code is amended by striking subparagraph (D) and inserting subparagraphs (D), (E), and (F).

Modifications to enhanced oil, natural gas, and coalbed methane recovery credit

(a)

Enhanced credit for carbon dioxide injections

Section 43 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

(f)

Enhanced credit for projects using qualified carbon dioxide

(1)

In general

For purposes of this section— (A)the term qualified project includes a project described in paragraph (2), and (B)in the case of a project described in paragraph (2), subsection (a) shall be applied by substituting 50 percent for 15 percent. (2)

Projects described

(A)

In general

A project is described in this paragraph if— (i)the project begins or is substantially expanded after December 31, 2006, and (ii)the project uses qualified carbon dioxide in an enhanced oil, natural gas, or coalbed methane recovery method which involves flooding or injection. (B)

Enhanced oil recovery

For purposes of this subsection, the term enhanced oil recovery means recovery of oil by injecting or flooding with qualified carbon dioxide. (C)

Enhanced natural gas recovery

The term enhanced natural gas recovery means recovery of natural gas by injecting or flooding with qualified carbon dioxide. (D)

Enhanced coalbed methane recovery

The term enhanced coalbed methane recovery means recovery of coalbed methane by injecting or flooding with qualified carbon dioxide. (E)

Qualified carbon dioxide

For purposes of this subsection, the term qualified carbon dioxide means carbon dioxide that is— (i)separated from natural gas and natural gas liquids at a natural gas processing plant, or (ii)from any other industrial source. (3)

Termination

This subsection shall not apply to costs paid or incurred for any qualified enhanced oil recovery project after December 31, 2020.

(b)

Conforming amendments

(1)Section 43 of such Code is amended— (A)in subsection (a) by striking enhanced oil recovery credit and inserting enhanced oil, natural gas, and coalbed methane recovery credit, and (B)by striking qualified enhanced oil recovery costs each place it appears and inserting qualified costs, (C)by striking qualified enhanced oil recovery project each place it appears and inserting qualified project, and (D)in the section heading by inserting

, natural gas, and coalbed methane

after

oil

. (2)The item in the table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code relating to section 43 is amended to read as follows:

Sec. 43. Enhanced oil, natural gas, and coalbed methane recovery credit.

(c)

Effective date

The amendments made by this section shall apply to costs paid or incurred in taxable years ending after December 31, 2006.

Allowance of enhanced oil, natural gas, and coalbed methane recovery credit against the alternative minimum tax

(a)

In general

Subsection (c) of section 38 of the Internal Revenue Code of 1986 (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 enhanced oil, natural gas, and coalbed methane recovery credit

In the case of the enhanced oil, natural gas, and coalbed methane recovery credit determined under section 43— (A)this section and section 39 shall be applied separately with respect to such credit, and (B)in applying paragraph (1) to such credit— (i)the tentative minimum tax shall be treated as being zero, and (ii)the limitation under paragraph (1) (as modified by clause (i)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the enhanced oil recovery credit).

(b)

Conforming amendments

Paragraphs (2)(A)(ii)(II) and (3)(A)(ii)(II) of section 38(c) of such Code are each amended by inserting or the enhanced oil, natural gas, and coalbed methane recovery credit after employee credit. (c)

Effective date

The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

Expansion of expensing of oil and alternative fuel refineries

(a)

Extension of placed in service requirement

Subparagraph (B) of section 179C(c)(1) of the Internal Revenue Code of 1986 (defining qualified refinery property) is amended by striking January 1, 2012 and inserting January 1, 2016. (b)

Production capacity

Subsection (e) of section 179C of such Code (relating to production capacity) is amended by striking or at the end of paragraph (1), by striking the period at the end of paragraph (2) and inserting , or, and by inserting after paragraph (2) the following new paragraph:

(3)enables the existing qualified refinery to process liquids from coal, oil shale, or biomass.

(c)

Effective date

The amendments made by this section shall apply to properties placed in service after the date of the enactment of this Act.

Expensing for conversion of natural gas-fired facilities for the production ethanol to coal-fired facilities

(a)

In general

Part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 179E the following new section:

179F.

Election to expense coal-fired facilities for production of ethanol

(a)

Treatment as Expenses

A taxpayer may elect to treat 50 percent of the cost of any qualified ethanol plant fueling property as an expense which is not chargeable to capital account. Any cost so treated shall be allowed as a deduction for the taxable year in which the qualified ethanol plant fueling property is placed in service. (b)

Election

(1)

In general

Election irrevocable

Any election made under this section may not be revoked except with the consent of the Secretary. (c)

Qualified ethanol plant fueling property

(1)

In general

The term qualified ethanol plant fueling property means, with respect to a qualified ethanol refinery, property using coal to produce energy used to produce ethanol— (A)the original use of which commences with the taxpayer, (B)which is placed in service by the taxpayer after the date of the enactment of this section and before January 1, 2016, and (C)which meets all applicable environmental laws in effect on the date such portion was placed in service. (2)

Special rule for sale-leasebacks

For purposes of paragraph (1)(A), if property is— (A)originally placed in service after the date of the enactment of this section by a person, and (B)sold and leased back by such person within 3 months after the date such property was originally placed in service,

such property shall be treated as originally placed in service not earlier than the date on which such property is used under the leaseback referred to in subparagraph (B).

(3)

Effect of waiver under Clean Air Act

A waiver under the Clean Air Act shall not be taken into account in determining whether the requirements of paragraph (1)(C) are met. (d)

Qualified ethanol refinery

For purposes of this section, the term qualified ethanol refinery means any refinery located in the United States which— (1)is designed to serve the primary purpose of processing material into ethanol, (2)on the date of the enactment of this section, used natural gas to produce energy in the ethanol production process, and (3)after the date of the enactment of this section, converted to the use of coal to produce energy in the ethanol production process. (e)

Ineligible refinery property

No deduction shall be allowed under subsection (a) for any qualified refinery property which is built solely to comply with consent decrees or projects mandated by Federal, State, or local governments. (f)

Election To allocate deduction to cooperative owner

(1)

In general

If— (A)a taxpayer to which subsection (a) applies is an organization to which part I of subchapter T applies, and (B)one or more persons directly holding an ownership interest in the taxpayer are organizations to which part I of subchapter T apply,

(2)

Form and effect of election

An election under paragraph (1) 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. (3)

Written notice to owners

If any portion of the deduction available under subsection (a) is allocated to owners under paragraph (1), the cooperative shall provide any owner receiving an allocation written notice of the amount of the allocation. Such notice shall be provided before the date on which the return described in paragraph (2) is due. (g)

Reporting

No deduction shall be allowed under subsection (a) to any taxpayer for any taxable year unless such taxpayer files with the Secretary a report containing such information with respect to the operation of the refineries of the taxpayer as the Secretary shall require.

(b)

Conforming amendments

(1)Section 1245(a) of such Code is amended by inserting 179F, after 179E, both places it appears in paragraphs (2)(C) and (3)(C). (2)Section 263(a)(1) of such Code is amended by striking or at the end of subparagraph (K), by striking the period at the end of subparagraph (L) and inserting , or, and by inserting after subparagraph (L) the following new subparagraph:

(M)expenditures for which a deduction is allowed under section 179F.

(3)Section 312(k)(3)(B) of such Code is amended by striking or 179E each place it appears in the heading and text and inserting 179E, or 179F. (4)The table of sections for part VI of subchapter B of chapter 1 is amended by inserting after the item relating to section 179E the following new item:

Sec. 179F. Election to expense coal-fired facilities for production of ethanol.

(c)

Effective date

The amendments made by this section shall apply to properties placed in service after the date of the enactment of this Act.