[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 1508 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                S. 1508

To amend the Internal Revenue Code of 1986 to extend and expand various 
  tax incentives for production of renewable energy and clean energy 
                    sources, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                              May 24, 2007

  Mr. Dorgan introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
To amend the Internal Revenue Code of 1986 to extend and expand various 
  tax incentives for production of renewable energy and clean energy 
                    sources, 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 ``Clean Energy 
Production Tax Incentives Act of 2007''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act 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--CLEAN ENERGY PRODUCTION TAX INCENTIVES

Sec. 101. Extension of and increase in renewable electricity production 
                            credit.
Sec. 102. Modifications to credit for clean renewable energy bonds.
Sec. 103. Extension of qualifying advanced clean coal project credit.
Sec. 104. Clean coal energy bonds.
Sec. 105. Credit for capture and storage or use of carbon dioxide.
Sec. 106. Carbon dioxide capture bonds.
Sec. 107. Incentives for investment in electric transmission property.
Sec. 108. Electric transmission property bonds.
Sec. 109. Extension and modification of investment credit for qualified 
                            fuel cell property, qualified microturbine 
                            property, and solar property.
                      TITLE II--REVENUE PROVISIONS

Sec. 201. Tax treatment of controlled foreign corporations established 
                            in tax havens.
Sec. 202. Taxation of income of controlled foreign corporations 
                            attributable to imported property.
Sec. 203. Modification of effective date of leasing provisions of the 
                            American Jobs Creation Act of 2004.
Sec. 204. Clarification of economic substance doctrine.
Sec. 205. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.
Sec. 206. Denial of deduction for interest on underpayments 
                            attributable to noneconomic substance 
                            transactions.

            TITLE I--CLEAN ENERGY PRODUCTION TAX INCENTIVES

SEC. 101. EXTENSION OF AND INCREASE IN RENEWABLE ELECTRICITY PRODUCTION 
              CREDIT.

    (a) Extension.--Paragraphs (1), (2), (3), (4), (5), (6), (7), and 
(9) of section 45(d) (relating to qualified facilities) is amended by 
striking ``January 1, 2009'' each place it appears and inserting 
``January 1, 2019''.
    (b) Increase in Credit Rate.--
            (1) In general.--Paragraph (1) of section 45(a) is amended 
        by striking ``1.5 cents'' and inserting ``2.1 cents''.
            (2) Modification of inflation adjustment.--
                    (A) In general.--Section 45(e)(2)(B) (defining 
                inflation adjustment factor) is amended by inserting 
                ``(calendar year 2006 in the case of the 2.1 cent 
                amount in subsection (a))'' after ``1992''.
                    (B) Conforming amendment.--Paragraph (2) of section 
                45(b) is amended by striking ``1.5 cent'' and inserting 
                ``2.1 cent''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to electricity produced and sold after the date of 
        the enactment of this Act.

SEC. 102. MODIFICATIONS TO CREDIT FOR CLEAN RENEWABLE ENERGY BONDS.

    (a) Increase in Amount of Bonds Designated; 10 Year Extension.--
            (1) In general.--Subsection (f) of section 54 is amended to 
        read as follows:
    ``(f) Limitation on Amount of Bonds Designated.--
            ``(1) National limitation.--There is a national clean 
        renewable energy bond limitation for each calendar year. Such 
        limitation is $1,000,000,000 for 2008, 2009, 2010, 2011, 2012, 
        2013, 2014, 2015, 2016, and 2017, and zero thereafter.
            ``(2) Allocation by secretary.--The national clean 
        renewable energy bond limitation for a calendar year shall be 
        allocated by the Secretary among qualified projects in such 
        manner as the Secretary determines appropriate, except that the 
        Secretary may not allocate more than $625,000,000 of such 
        limitation for each calendar year to finance qualified projects 
        of qualified borrowers which are governmental bodies.''.
            (2) Conforming amendment.--Section 54 is amended by 
        striking subsection (m).
    (b) Additional Period for Reimbursement of Costs Paid by 
Borrower.--Section 54(d)(2)(C) is amended by striking clause (iii) and 
inserting the following new clause:
                            ``(iii) the reimbursement is made not later 
                        than 18 months after the date the original 
                        expenditure is paid or, if later, the date that 
                        the project is placed in service or abandoned.
                In no event may the reimbursement under clause (iii) be 
                made more than 3 years after the date the original 
                expenditure is paid.''.
    (c) Clarification of Ratable Principal Amortization Requirement.--
            (1) In general.--Paragraph (5) of section 54(l) is amended 
        to read as follows:
            ``(5) Ratable principal amortization required.--A bond 
        shall not be treated as a clean renewable energy bond unless it 
        is part of an issue which provides for an equal amount of 
        principal to be paid by the qualified issuer during each 12-
        month period that the issue is outstanding (other than the 
        first 12-month period).''.
            (2) Conforming amendment.--The third sentence of section 
        54(e)(2) is amended by striking ``subsection (l)(6)'' and 
        inserting ``Subsection (l)(5)''.
    (d) Maximum Term of Issue.--The second sentence of section 54(e)(2) 
is amended by inserting ``the greater of 15 years or'' after ``Such 
maximum term shall be''.
    (e) Effective Date.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to obligations 
        issued after December 31, 2006.
            (2) Annual bond limitation.--The amendments made by 
        subsection (a) shall apply to obligations issued after December 
        31, 2007.

SEC. 103. EXTENSION OF QUALIFYING ADVANCED CLEAN COAL PROJECT CREDIT.

    (a) In General.--Paragraph (3) of section 48A(d)(3) (relating to 
aggregate credits) is amended to read as follows:
            ``(3) Aggregate credit limitations.--
                    ``(A) Initial allocations.--
                            ``(i) In general.--The aggregate credits 
                        allowed under subsection (a) for projects 
                        certified by the Secretary under paragraph (2) 
                        with respect to which an application has been 
                        accepted under paragraph (2)(C) before January 
                        1, 2008, may not exceed $1,300,000,000.
                            ``(ii) Particular projects.--Of the dollar 
                        amount in clause (i), the Secretary is 
                        authorized to certify--
                                    ``(I) $800,000,000 for integrated 
                                gasification combined cycle projects, 
                                and
                                    ``(II) $500,000,000 for projects 
                                which use other advanced coal-based 
                                generation technologies.
                            ``(iii) Priorities.--The Secretary shall 
                        give high priority to projects that incorporate 
                        capture and long-term storage of carbon 
                        dioxide, including carbon dioxide enhanced oil 
                        recovery.
                            ``(iv) Carryover.--
                                    ``(I) In general.--If the dollar 
                                amount under clause (i) exceeds the 
                                amount allocated to all projects for 
                                which an application has been accepted 
                                before January 1, 2008, the dollar 
                                amount under subparagraph (B)(i) for 
                                calendar year 2007 shall be increased 
                                by the amount of such excess.
                                    ``(II) Allocation.--Any amount 
                                redistributed under clause (i) shall be 
                                allocated to the same category under 
                                subparagraph (B)(ii) as the category of 
                                the original project to which it was 
                                allocated.
                    ``(B) Annual allocation.--
                            ``(i) In general.--In the case of projects 
                        with respect to which an application has been 
                        accepted under paragraph (2)(C) in any calendar 
                        year after 2007 and before 2018, the aggregate 
                        credits allowed under subsection (a) for all 
                        projects accepted in such calendar year may not 
                        exceed $750,000,000.
                            ``(ii) Particular projects.--Of the dollar 
                        amount in clause (i) with respect to any 
                        calendar year, the Secretary is authorized to 
                        certify--
                                    ``(I) $550,000,000 for integrated 
                                gasification combined cycle projects, 
                                and
                                    ``(II) $200,000,000 for projects 
                                which use other advanced coal-based 
                                generation technologies.
                            ``(iii) Priorities.--The Secretary shall 
                        give high priority to projects that incorporate 
                        capture and long-term storage of carbon 
                        dioxide, including for carbon dioxide enhanced 
                        oil recovery, permanent geological storage, or 
                        other purposes.
                            ``(iv) Carryovers.--If for any calendar 
                        year the dollar amount under subclause (I) or 
                        (II) of clause (ii) exceeds the amount 
                        allocated to all projects for which an 
                        application has been accepted during such 
                        calendar year, such dollar amount for the 
                        following calendar year shall be increased by 
                        the amount of such excess.
                    ``(C) Redistributions.--
                            ``(i) In general.--If any dollar amount 
                        allocated to a project under this paragraph has 
                        been revoked pursuant to paragraph (2)(D), then 
                        the dollar amount under subparagraph (B)(i) for 
                        the next available calendar year shall be 
                        increased by the amount of the dollar amount so 
                        revoked.
                            ``(ii) Allocation.--Any amount 
                        redistributed under clause (i) shall be 
                        allocated to the same category under 
                        subparagraph (B)(ii) as the category of the 
                        original project to which it was allocated.''.
    (b) Conforming Amendments.--
            (1) Application deadline.--The second sentence of section 
        48A(d)(3)(A) is amended to read as follows: ``No application 
        may be submitted for certification under this paragraph after 
        December 31, 2017.''
            (2) Review and redistribution.--Subsection (d) of section 
        48A is amended by striking paragraph (4).
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 104. CLEAN COAL ENERGY BONDS.

    (a) In General.--Subpart H of part IV of subchapter A of chapter 1 
is amended by adding at the end the following new section:

``SEC. 54A. CREDIT TO HOLDERS OF CLEAN COAL ENERGY BONDS.

    ``(a) Allowance of Credit.--If a taxpayer holds a clean coal energy 
bond on 1 or more credit allowance dates of the bond occurring during 
any taxable year, 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 the credits determined under subsection (b) with respect to such 
dates.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit allowance date 
        for a clean coal energy bond is 25 percent of the annual credit 
        determined with respect to such bond.
            ``(2) Annual credit.--The annual credit determined with 
        respect to any clean coal energy bond is the product of--
                    ``(A) the credit rate determined by the Secretary 
                under paragraph (3) for the day on which such bond was 
                sold, multiplied by
                    ``(B) the outstanding face amount of the bond.
            ``(3) Determination.--For purposes of paragraph (2), with 
        respect to any clean coal energy bond, the Secretary shall 
        determine daily or cause to be determined daily a credit rate 
        which shall apply to the first day on which there is a binding, 
        written contract for the sale or exchange of the bond. The 
        credit rate for any day is the credit rate which the Secretary 
        or the Secretary's designee estimates will permit the issuance 
        of clean coal energy bonds with a specified maturity or 
        redemption date without discount and without interest cost to 
        the qualified issuer.
            ``(4) Credit allowance date.--For purposes of this section, 
        the term `credit allowance date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
    ``Such term also includes the last day on which the bond is 
outstanding.
            ``(5) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month period ending 
        on a credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed or matures.
    ``(c) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for any taxable year shall not exceed the excess of--
            ``(1) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(2) the sum of the credits allowable under this part 
        (other than subpart C, this subpart and section 1400N(l)).
    ``(d) Clean Coal Energy Bond.--For purposes of this section--
            ``(1) In general.--The term `clean coal energy bond' means 
        any bond issued as part of an issue if--
                    ``(A) the bond is issued by a qualified issuer 
                pursuant to an allocation by the Secretary to such 
                issuer of a portion of the national clean coal energy 
                bond limitation under subsection (f)(2),
                    ``(B) 95 percent or more of the proceeds from the 
                sale of such issue are to be used for capital 
                expenditures incurred by qualified borrowers for 1 or 
                more qualified projects,
                    ``(C) the qualified issuer designates such bond for 
                purposes of this section and the bond is in registered 
                form, and
                    ``(D) the issue meets the requirements of 
                subsection (h).
            ``(2) Qualified project; special use rules.--
                    ``(A) In general.--The term `qualified project' 
                means a qualifying advanced coal project (as defined in 
                section 48A(c)(1)) placed in service by a qualified 
                borrower.
                    ``(B) Refinancing rules.--For purposes of paragraph 
                (1)(B), a qualified project may be refinanced with 
                proceeds of a clean coal energy bond only if the 
                indebtedness being refinanced (including any obligation 
                directly or indirectly refinanced by such indebtedness) 
                was originally incurred by a qualified borrower after 
                the date of the enactment of this section.
                    ``(C) Reimbursement.--For purposes of paragraph 
                (1)(B), a clean coal energy bond may be issued to 
                reimburse a qualified borrower for amounts paid after 
                the date of the enactment of this section with respect 
                to a qualified project, but only if--
                            ``(i) prior to the payment of the original 
                        expenditure, the qualified borrower declared 
                        its intent to reimburse such expenditure with 
                        the proceeds of a clean coal energy bond,
                            ``(ii) not later than 60 days after payment 
                        of the original expenditure, the qualified 
                        issuer adopts an official intent to reimburse 
                        the original expenditure with such proceeds, 
                        and
                            ``(iii) the reimbursement is made not later 
                        than 18 months after the date the original 
                        expenditure is paid or, if later, the date that 
                        the project is placed in service or abandoned.
                In no event may the reimbursement under clause (iii) be 
                made more than 3 years after the date the original 
                expenditure is paid.
                    ``(D) Treatment of changes in use.--For purposes of 
                paragraph (1)(B), the proceeds of an issue shall not be 
                treated as used for a qualified project to the extent 
                that a qualified borrower takes any action within its 
                control which causes such proceeds not to be used for a 
                qualified project. The Secretary shall prescribe 
                regulations specifying remedial actions that may be 
                taken (including conditions to taking such remedial 
                actions) to prevent an action described in the 
                preceding sentence from causing a bond to fail to be a 
                clean coal energy bond.
    ``(e) Maturity Limitations.--
            ``(1) Duration of term.--A bond shall not be treated as a 
        clean coal energy bond if the maturity of such bond exceeds the 
        maximum term determined by the Secretary under paragraph (2) 
        with respect to such bond.
            ``(2) Maximum term.--During each calendar month, the 
        Secretary shall determine the maximum term permitted under this 
        paragraph for bonds issued during the following calendar month. 
        Such maximum term shall be the greater of 15 years or the term 
        which the Secretary estimates will result in the present value 
        of the obligation to repay the principal on the bond being 
        equal to 50 percent of the face amount of such bond. Such 
        present value shall be determined without regard to the 
        requirements of subsection (l)(5) and using as a discount rate 
        the average annual interest rate of tax of tax-exempt 
        obligations having a term of 10 years or more which are issued 
        during the month. If the term as so determined is not a 
        multiple of a whole year, such term shall be rounded to the 
        next highest whole year.
    ``(f) Limitation on Amount of Bonds Designated.--
            ``(1) National limitation.--There is a national clean coal 
        energy bond limitation of $5,000,000,000.
            ``(2) Allocation by secretary.--The Secretary shall 
        allocate the amount described in paragraph (1) among qualified 
        projects in such manner as the Secretary determines 
        appropriate, except that the Secretary may not allocate more 
        than $3,125,000,000 of the national clean coal energy bond 
        limitation to finance qualified projects of qualified borrowers 
        which are public power entities.
    ``(g) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section 
(determined without regard to subsection (c)) and the amount so 
included shall be treated as interest income.
    ``(h) Special Rules Relating to Expenditures.--
            ``(1) In general.--An issue shall be treated as meeting the 
        requirements of this subsection if, as of the date of issuance, 
        the qualified issuer reasonably expects--
                    ``(A) at least 95 percent of the proceeds from the 
                sale of the issue are to be spent for 1 or more 
                qualified projects within the 5-year period beginning 
                on the date of issuance of the clean energy bond,
                    ``(B) a binding commitment with a third party to 
                spend at least 10 percent of the proceeds from the sale 
                of the issue will be incurred within the 6-month period 
                beginning on the date of issuance of the clean energy 
                bond or, in the case of a clean energy bond the 
                proceeds of which are to be loaned to 2 or more 
                qualified borrowers, such binding commitment will be 
                incurred within the 6-month period beginning on the 
                date of the loan of such proceeds to a qualified 
                borrower, and
                    ``(C) such projects will be completed with due 
                diligence and the proceeds from the sale of the issue 
                will be spent with due diligence.
            ``(2) Extension of period.--Upon submission of a request 
        prior to the expiration of the period described in paragraph 
        (1)(A), the Secretary may extend such period if the qualified 
        issuer establishes that the failure to satisfy the 5-year 
        requirement is due to reasonable cause and the related projects 
        will continue to proceed with due diligence.
            ``(3) Failure to spend required amount of bond proceeds 
        within 5 years.--To the extent that less than 95 percent of the 
        proceeds of such issue are expended by the close of the 5-year 
        period beginning on the date of issuance (or if an extension 
        has been obtained under paragraph (2), by the close of the 
        extended period), the qualified issuer shall redeem all of the 
        nonqualified bonds within 90 days after the end of such period. 
        For purposes of this paragraph, the amount of the nonqualified 
        bonds required to be redeemed shall be determined in the same 
        manner as under section 142.
    ``(i) Special Rules Relating to Arbitrage.--A bond which is part of 
an issue shall not be treated as a clean coal energy bond unless, with 
respect to the issue of which the bond is a part, the qualified issuer 
satisfies the arbitrage requirements of section 148 with respect to 
proceeds of the issue.
    ``(j) Cooperative Electric Company; Clean Coal Energy Bond Lender; 
Public Power Entity; Qualified Borrower.--For purposes of this 
section--
            ``(1) Cooperative electric company.--The term `cooperative 
        electric company' means a mutual or cooperative electric 
        company described in section 501(c)(12) or section 
        1381(a)(2)(C), or a not-for-profit electric utility which has 
        received a loan or loan guarantee under the Rural 
        Electrification Act.
            ``(2) Clean coal energy bond lender.--The term `clean coal 
        energy bond lender' means a lender which is a cooperative which 
        is owned by, or has outstanding loans to, 100 or more 
        cooperative electric companies and is in existence on February 
        1, 2002, and shall include any affiliated entity which is 
        controlled by such lender.
            ``(3) Public power entity.--The term `public power entity' 
        means a State utility with a service obligation, as such terms 
        are defined in section 217 of the Federal Power Act (as in 
        effect on the date of the enactment of this paragraph).
            ``(4) Qualified issuer.--The term `qualified issuer' 
        means--
                    ``(A) a clean coal energy bond lender,
                    ``(B) a cooperative electric company, or
                    ``(C) a public power entity.
            ``(5) Qualified borrower.--The term `qualified borrower' 
        means--
                    ``(A) a mutual or cooperative electric company 
                described in section 501(c)(12) or 1381(a)(2)(C), or
                    ``(B) a public power entity.
    ``(k) Special Rules Relating to Pool Bonds.--No portion of a pooled 
financing bond may be allocable to any loan unless the borrower has 
entered into a written loan commitment for such portion prior to the 
issue date of such issue.
    ``(l) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Bond.--The term `bond' includes any obligation.
            ``(2) Pooled financing bond.--The term `pooled financing 
        bond' shall have the meaning given such term by section 
        149(f)(4)(A).
            ``(3) Partnership; s corporation; and other pass-thru 
        entities.--
                    ``(A) In general.--Under regulations prescribed by 
                the Secretary, in the case of a partnership, trust, S 
                corporation, or other pass-thru entity, rules similar 
                to the rules of section 41(g) shall apply with respect 
                to the credit allowable under subsection (a).
                    ``(B) No basis adjustment.--Rules similar to the 
                rules under section 1397E(l) shall apply.
            ``(4) Bonds held by regulated investment companies.--If any 
        clean coal energy bond is held by a regulated investment 
        company, the credit determined under subsection (a) shall be 
        allowed to shareholders of such company under procedures 
        prescribed by the Secretary.
            ``(5) Ratable principal amortization required.--A bond 
        shall not be treated as a clean coal energy bond unless it is 
        part of an issue which provides for one-half of the principal 
        amount of the issue to be paid in equal amounts in each 12-
        month period the issue in outstanding (excluding the first 2 
        12-month periods the issue is outstanding) prior to the year in 
        which the issue matures.
            ``(6) Reporting.--Issuers of clean coal energy bonds shall 
        submit reports similar to the reports required under section 
        149(e).
    ``(m) Termination.--This section shall not apply with respect to 
any bond issued after December 31, 2017.''.
    (b) Reporting.--Subsection (d) of section 6049 (relating to returns 
regarding payments of interest) is amended by adding at the end the 
following new paragraph:
            ``(9) Reporting of credit on clean coal energy bonds.--
                    ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 54A(g) and such amounts 
                shall be treated as paid on the credit allowance date 
                (as defined in section 54A(b)(4)).
                    ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A), subsection 
                (b)(4) shall be applied without regard to subparagraphs 
                (A), (H), (I), (J), (K), and (L)(i) of such subsection.
                    ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''.
    (c) Clerical Amendment.--The table of sections for subpart H of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following new item:

``Sec. 54A. Credit to holders of clean coal energy bonds.''.
    (d) Issuance of Regulations.--The Secretary of the Treasury shall 
issues regulations required under section 54A of the Internal Revenue 
Code of 1986 (as added by this section) not later than 120 days after 
the date of the enactment of this Act.
    (e) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2007.

SEC. 105. CREDIT FOR CAPTURE AND STORAGE OR USE OF CARBON DIOXIDE.

    (a) Tax Credit for Carbon Dioxide Captured From Industrial Sources 
and Used in Enhanced Oil and Natural Gas Recovery, and for Other 
Purposes.--
            (1) In general.--Subpart D of part IV of subchapter A of 
        chapter 1 (relating to business credits) is amended by adding 
        at the end the following new section:

``SEC. 45O. CREDIT FOR CAPTURE AND STORAGE OR USE OF CARBON DIOXIDE.

    ``(a) General Rule.--For purposes of section 38, the captured 
carbon dioxide tertiary injectant credit for any taxable year is an 
amount equal to the product of--
            ``(1) the credit amount, and
            ``(2) the qualified captured carbon dioxide which is 
        attributable to the taxpayer.
    ``(b) Credit Amount.--For purposes of this section--
            ``(1) In general.--The credit amount is $0.75 per 1,500 
        standard cubic feet of qualified captured carbon dioxide.
            ``(2) Inflation adjustment.--In the case of any taxable 
        year beginning in a calendar year after 2007, there shall be 
        substituted for the $0.75 amount under paragraph (1) an amount 
        equal to the product of--
                    ``(A) $0.75, multiplied by
                    ``(B) the inflation adjustment factor for such 
                calendar year determined under section 43(b)(3)(B) for 
                such calendar year, determined by substituting `2006' 
                for `1990'.
            ``(3) Credit amount for capture and storage.--In the case 
        of carbon dioxide which is qualified captured carbon dioxide by 
        reason of subsection (c)(1)(D)(i), paragraphs (1) and (2) shall 
        be applied by substituting `$1.00' for `$0.75' each place it 
        appears.
    ``(c) Qualified Captured Carbon Dioxide.--For purposes of this 
section--
            ``(1) In general.--The term `qualified captured carbon 
        dioxide' means carbon dioxide captured within the United States 
        (within the meaning of section 638(1)) or a possession of the 
        United States (within the meaning of section 638(2)) from an 
        anthropogenic source that--
                    ``(A) would otherwise be released into the 
                atmosphere as industrial emission of greenhouse gas,
                    ``(B) is measurable at the source of capture,
                    ``(C) is compressed, treated, and (if necessary) 
                transported via pipeline, and
                    ``(D) is--
                            ``(i) permanently sequestered in saline or 
                        other underground formations, or
                            ``(ii) sold or used as a tertiary injectant 
                        in a qualified enhanced oil or natural gas 
                        recovery project and permanently sequestered in 
                        geological formations as a result of such 
                        project.
            ``(2) Recycled carbon dioxide.--The term `qualified 
        captured carbon dioxide' includes the initial deposit of 
        captured carbon dioxide used as a tertiary injectant. Such term 
        does not include carbon dioxide that is re-captured, recycled, 
        and re-injected as part of the enhanced oil or natural gas 
        recovery project.
            ``(3) Anthropogenic source.--An anthropogenic source of 
        carbon dioxide is an industrial source, including any coal or 
        natural gas fired electrical generating power station, and 
        facilities related to such source.
            ``(4) Qualified enhanced oil or natural gas recovery 
        project.--The term `qualified enhanced oil or natural gas 
        recovery project' has the meaning given the term `qualified 
        enhanced oil recovery project' by section 43(c)(2), by 
        substituting `crude oil or natural gas' for `crude oil' in 
        subparagraph (A)(i) thereof.
            ``(5) Tertiary injectant.--The term `tertiary injectant' 
        has the same meaning as when used in section 193(b)(1).''.
            (2) Credit treated as part of general business credit.--
        Section 38(b) (relating to general business credit) is amended 
        by striking ``plus'' at the end of paragraph (30), by striking 
        the period at the end of paragraph (31) and inserting ``, 
        plus'', and by adding at the end of following new paragraph:
            ``(32) the captured carbon dioxide tertiary injectant 
        credit determined under section 45O(a).''.
            (3) Clerical amendment.--The table of sections for subpart 
        B of part IV of subchapter A of chapter 1 is amended by adding 
        at the end the following new item:

``Sec. 45O. Credit for capture and storage or use of carbon dioxide.''.
            (4) Effective date.--The amendments made by this subsection 
        shall apply to taxable years beginning after the date of the 
        enactment of this Act.
    (b) Class Life of Carbon Dioxide Distribution Pipelines.--
            (1) In general.--Subparagraph (D) of section 168(e)(3) 
        (relating to 10-year property) is amended by striking ``and'' 
        at the end of clause (i), by striking the period at the end of 
        clause (ii) and inserting ``, and'', and by adding at the end 
        the following new clause:
                            ``(iii) any pipeline used primarily for the 
                        distribution of carbon dioxide for use as a 
                        tertiary injectant (within the meaning of 
                        section 193(b)(1)) for a qualified enhanced oil 
                        or natural gas recovery project (as defined in 
                        section 45O(c)(4)) and the original use of 
                        which commences with the taxpayer after the 
                        date of the enactment of Clean Energy 
                        Production Tax Incentives Act of 2007.''.
            (2) Effective date.--The amendments made by this section 
        shall apply to property placed in service after the date of the 
        enactment of this Act.

SEC. 106. CARBON DIOXIDE CAPTURE BONDS.

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

``SEC. 54B. CREDIT TO HOLDERS OF CARBON DIOXIDE CAPTURE BONDS.

    ``(a) Allowance of Credit.--If a taxpayer holds a carbon dioxide 
capture bond on 1 or more credit allowance dates of the bond occurring 
during any taxable year, 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 the credits determined under subsection (b) with respect to such 
dates.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit allowance date 
        for a carbon dioxide capture bond is 25 percent of the annual 
        credit determined with respect to such bond.
            ``(2) Annual credit.--The annual credit determined with 
        respect to any carbon dioxide capture bond is the product of--
                    ``(A) the credit rate determined by the Secretary 
                under paragraph (3) for the day on which such bond was 
                sold, multiplied by
                    ``(B) the outstanding face amount of the bond.
            ``(3) Determination.--For purposes of paragraph (2), with 
        respect to any carbon dioxide capture bond, the Secretary shall 
        determine daily or cause to be determined daily a credit rate 
        which shall apply to the first day on which there is a binding, 
        written contract for the sale or exchange of the bond. The 
        credit rate for any day is the credit rate which the Secretary 
        or the Secretary's designee estimates will permit the issuance 
        of carbon dioxide capture bonds with a specified maturity or 
        redemption date without discount and without interest cost to 
        the qualified issuer.
            ``(4) Credit allowance date.--For purposes of this section, 
        the term `credit allowance date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
    ``Such term also includes the last day on which the bond is 
outstanding.
            ``(5) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month period ending 
        on a credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed or matures.
    ``(c) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for any taxable year shall not exceed the excess of--
            ``(1) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(2) the sum of the credits allowable under this part 
        (other than subpart C, this subpart and section 1400N(l)).
    ``(d) Carbon Dioxide Capture Bond.--For purposes of this section--
            ``(1) In general.--The term `carbon dioxide capture bond' 
        means any bond issued as part of an issue if--
                    ``(A) the bond is issued by a qualified issuer 
                pursuant to an allocation by the Secretary to such 
                issuer of a portion of the national carbon dioxide 
                capture bond limitation under subsection (f)(2),
                    ``(B) 95 percent or more of the proceeds from the 
                sale of such issue are to be used for capital 
                expenditures incurred by qualified borrowers for 1 or 
                more qualified projects,
                    ``(C) the qualified issuer designates such bond for 
                purposes of this section and the bond is in registered 
                form, and
                    ``(D) the issue meets the requirements of 
                subsection (h).
            ``(2) Qualified project; special use rules.--
                    ``(A) Qualified project.--The term `qualified 
                project' means a project placed in service by a 
                qualified borrower for the processing of qualified 
                captured carbon dioxide (as defined in section 
                45O(c)(1)).
                    ``(B) Refinancing rules.--For purposes of paragraph 
                (1)(B), a qualified project may be refinanced with 
                proceeds of a carbon dioxide capture bond only if the 
                indebtedness being refinanced (including any obligation 
                directly or indirectly refinanced by such indebtedness) 
                was originally incurred by a qualified borrower after 
                the date of the enactment of this section.
                    ``(C) Reimbursement.--For purposes of paragraph 
                (1)(B), a carbon dioxide capture bond may be issued to 
                reimburse a qualified borrower for amounts paid after 
                the date of the enactment of this section with respect 
                to a qualified project, but only if--
                            ``(i) prior to the payment of the original 
                        expenditure, the qualified borrower declared 
                        its intent to reimburse such expenditure with 
                        the proceeds of a carbon dioxide capture bond,
                            ``(ii) not later than 60 days after payment 
                        of the original expenditure, the qualified 
                        issuer adopts an official intent to reimburse 
                        the original expenditure with such proceeds, 
                        and
                            ``(iii) the reimbursement is made not later 
                        than 18 months after the date the original 
                        expenditure is paid or, if later, the date that 
                        the project is placed in service or abandoned.
                In no event may the reimbursement under clause (iii) be 
                made more than 3 years after the date the original 
                expenditure is paid.
                    ``(D) Treatment of changes in use.--For purposes of 
                paragraph (1)(B), the proceeds of an issue shall not be 
                treated as used for a qualified project to the extent 
                that a qualified borrower takes any action within its 
                control which causes such proceeds not to be used for a 
                qualified project. The Secretary shall prescribe 
                regulations specifying remedial actions that may be 
                taken (including conditions to taking such remedial 
                actions) to prevent an action described in the 
                preceding sentence from causing a bond to fail to be a 
                carbon dioxide capture bond.
    ``(e) Maturity Limitations.--
            ``(1) Duration of term.--A bond shall not be treated as a 
        carbon dioxide capture bond if the maturity of such bond 
        exceeds the maximum term determined by the Secretary under 
        paragraph (2) with respect to such bond.
            ``(2) Maximum term.--During each calendar month, the 
        Secretary shall determine the maximum term permitted under this 
        paragraph for bonds issued during the following calendar month. 
        Such maximum term shall be the greater of 15 years or the term 
        which the Secretary estimates will result in the present value 
        of the obligation to repay the principal on the bond being 
        equal to 50 percent of the face amount of such bond. Such 
        present value shall be determined without regard to the 
        requirements of subsection (l)(5) and using as a discount rate 
        the average annual interest rate of tax of tax-exempt 
        obligations having a term of 10 years or more which are issued 
        during the month. If the term as so determined is not a 
        multiple of a whole year, such term shall be rounded to the 
        next highest whole year.
    ``(f) Limitation on Amount of Bonds Designated.--
            ``(1) National limitation.--There is a national carbon 
        dioxide capture bond limitation of $5,000,000,000.
            ``(2) Allocation by secretary.--The Secretary, in 
        consultation with the Secretary of Energy, shall allocate the 
        amount described in paragraph (1) among qualified projects in 
        such manner as the Secretary determines appropriate, except 
        that the Secretary may not allocate more than $3,125,000,000 of 
        the national carbon dioxide capture bond limitation to finance 
        qualified projects of qualified borrowers which are public 
        power entities.
    ``(g) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section 
(determined without regard to subsection (c)) and the amount so 
included shall be treated as interest income.
    ``(h) Special Rules Relating to Expenditures.--
            ``(1) In general.--An issue shall be treated as meeting the 
        requirements of this subsection if, as of the date of issuance, 
        the qualified issuer reasonably expects--
                    ``(A) at least 95 percent of the proceeds from the 
                sale of the issue are to be spent for 1 or more 
                qualified projects within the 5-year period beginning 
                on the date of issuance of the clean energy bond,
                    ``(B) a binding commitment with a third party to 
                spend at least 10 percent of the proceeds from the sale 
                of the issue will be incurred within the 6-month period 
                beginning on the date of issuance of the clean energy 
                bond or, in the case of a clean energy bond the 
                proceeds of which are to be loaned to 2 or more 
                qualified borrowers, such binding commitment will be 
                incurred within the 6-month period beginning on the 
                date of the loan of such proceeds to a qualified 
                borrower, and
                    ``(C) such projects will be completed with due 
                diligence and the proceeds from the sale of the issue 
                will be spent with due diligence.
            ``(2) Extension of period.--Upon submission of a request 
        prior to the expiration of the period described in paragraph 
        (1)(A), the Secretary may extend such period if the qualified 
        issuer establishes that the failure to satisfy the 5-year 
        requirement is due to reasonable cause and the related projects 
        will continue to proceed with due diligence.
            ``(3) Failure to spend required amount of bond proceeds 
        within 5 years.--To the extent that less than 95 percent of the 
        proceeds of such issue are expended by the close of the 5-year 
        period beginning on the date of issuance (or if an extension 
        has been obtained under paragraph (2), by the close of the 
        extended period), the qualified issuer shall redeem all of the 
        nonqualified bonds within 90 days after the end of such period. 
        For purposes of this paragraph, the amount of the nonqualified 
        bonds required to be redeemed shall be determined in the same 
        manner as under section 142.
    ``(i) Special Rules Relating to Arbitrage.--A bond which is part of 
an issue shall not be treated as a carbon dioxide capture bond unless, 
with respect to the issue of which the bond is a part, the qualified 
issuer satisfies the arbitrage requirements of section 148 with respect 
to proceeds of the issue.
    ``(j) Cooperative Electric Company; Carbon Dioxide Capture Bond 
Lender; Governmental Body; Qualified Borrower.--For purposes of this 
section--
            ``(1) Cooperative electric company.--The term `cooperative 
        electric company' means a mutual or cooperative electric 
        company described in section 501(c)(12) or section 
        1381(a)(2)(C), or a not-for-profit electric utility which has 
        received a loan or loan guarantee under the Rural 
        Electrification Act.
            ``(2) Carbon dioxide capture bond lender.--The term `carbon 
        dioxide capture bond lender' means a lender which is a 
        cooperative which is owned by, or has outstanding loans to, 100 
        or more cooperative electric companies and is in existence on 
        February 1, 2002, and shall include any affiliated entity which 
        is controlled by such lender.
            ``(3) Governmental body.--For purposes of this section, the 
        term `governmental body' means any State, territory, possession 
        of the United States, the District of Columbia, Indian tribal 
        government, and any political subdivision thereof.
            ``(4) Qualified issuer.--The term `qualified issuer' 
        means--
                    ``(A) a carbon dioxide capture bond lender,
                    ``(B) a cooperative electric company, or
                    ``(C) a governmental body.
            ``(5) Qualified borrower.--The term `qualified borrower' 
        means--
                    ``(A) a mutual or cooperative electric company 
                described in section 501(c)(12) or 1381(a)(2)(C), or
                    ``(B) a governmental body.
    ``(k) Special Rules Relating to Pool Bonds.--No portion of a pooled 
financing bond may be allocable to any loan unless the borrower has 
entered into a written loan commitment for such portion prior to the 
issue date of such issue.
    ``(l) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Bond.--The term `bond' includes any obligation.
            ``(2) Pooled financing bond.--The term `pooled financing 
        bond' shall have the meaning given such term by section 
        149(f)(4)(A).
            ``(3) Partnership; s corporation; and other pass-thru 
        entities.--
                    ``(A) In general.--Under regulations prescribed by 
                the Secretary, in the case of a partnership, trust, S 
                corporation, or other pass-thru entity, rules similar 
                to the rules of section 41(g) shall apply with respect 
                to the credit allowable under subsection (a).
                    ``(B) No basis adjustment.--Rules similar to the 
                rules under section 1397E(l) shall apply.
            ``(4) Bonds held by regulated investment companies.--If any 
        carbon dioxide capture bond is held by a regulated investment 
        company, the credit determined under subsection (a) shall be 
        allowed to shareholders of such company under procedures 
        prescribed by the Secretary.
            ``(5) Ratable principal amortization required.--A bond 
        shall not be treated as a carbon dioxide capture bond unless it 
        is part of an issue which provides for an equal amount of 
        principal to be paid by the qualified issuer during each 
        calendar year that the issue is outstanding.
            ``(6) Reporting.--Issuers of carbon dioxide capture bonds 
        shall submit reports similar to the reports required under 
        section 149(e).
    ``(m) Termination.--This section shall not apply with respect to 
any bond issued after December 31, 2017.''.
    (b) Reporting.--Subsection (d) of section 6049 (relating to returns 
regarding payments of interest), as amended by this Act, is amended by 
adding at the end the following new paragraph:
            ``(10) Reporting of credit on carbon dioxide capture 
        bonds.--
                    ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 54B(g) and such amounts 
                shall be treated as paid on the credit allowance date 
                (as defined in section 54B(b)(4)).
                    ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A), subsection 
                (b)(4) shall be applied without regard to subparagraphs 
                (A), (H), (I), (J), (K), and (L)(i) of such subsection.
                    ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''.
    (c) Clerical Amendment.--The table of sections for subpart H 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. 54B. Credit to holders of carbon dioxide capture bonds.''.
    (d) Issuance of Regulations.--The Secretary of the Treasury shall 
issues regulations required under section 54B of the Internal Revenue 
Code of 1986 (as added by this section) not later than 120 days after 
the date of the enactment of this Act.
    (e) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2007.

SEC. 107. INCENTIVES FOR INVESTMENT IN ELECTRIC TRANSMISSION PROPERTY.

    (a) Electric Transmission Property Investment Tax Credit.--
            (1) 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. 45P. ELECTRIC TRANSMISSION PROPERTY INVESTMENT CREDIT.

    ``(a) In General.--For purposes of section 38, the amount of the 
electric transmission property investment credit determined under this 
section for any taxable year in the credit period shall be an amount 
equal to the applicable percentage of the basis of each qualified 
electric transmission property.
    ``(b) Applicable Percentage.--For purposes of this section--
            ``(1) In general.--The term `applicable percentage' means 
        the appropriate percentage prescribed by the Secretary for the 
        first month of the credit period with respect to qualified 
        electric transmission property.
            ``(2) Method of prescribing percentages.--The percentages 
        prescribed by the Secretary for any month shall be percentages 
        which will yield over a 10-year period amounts of credit under 
        subsection (a) which have a present value equal to 80 percent 
        of the basis of the qualified electric transmission property.
            ``(3) Method of discounting.--The present value under 
        paragraph (2) shall be determined--
                    ``(A) as of the last day of the 1st year of the 10-
                year period referred to in paragraph (2),
                    ``(B) by using a discount rate equal to 72 percent 
                of the average of the annual Federal mid-term rate and 
                the annual Federal long-term rate applicable under 
                section 1274(d)(1) to the month applicable under 
                subparagraph (A) or (B) of paragraph (1) and compounded 
                annually, and
                    ``(C) by assuming that the credit allowable under 
                this section for any year is received on the last day 
                of such year.
    ``(c) Qualified Electric Transmission Property; Qualified 
Interstate Electric Transmission Investment Project; Compliance 
Period.--For purposes of this section--
            ``(1) Qualified electric transmission property.--The term 
        `qualified electric transmission property' means any section 
        1245 property (as defined in section 1245(a)(3)) used in the 
        transmission at 230 or more kilovolts of electricity for sale 
        which is part of a qualified interstate electric transmission 
        investment project at all times during the period--
                    ``(A) beginning on the 1st day in the compliance 
                period on which such property is part of such an 
                investment project, and
                    ``(B) ending on the last day of the compliance 
                period with respect to such property.
            ``(2) Qualified interstate electric transmission investment 
        project.--The term `qualified interstate electric transmission 
        investment project' means any investment project which consists 
        of the construction of property used in the interstate 
        transmission electricity and which is certified by the 
        Secretary under subsection (e).
            ``(3) Compliance period.--The term `compliance period' 
        means, with respect to any building, the period of 10 taxable 
        years beginning with the 1st taxable year of the credit period 
        with respect thereto.
    ``(d) Definition and Special Rules Relating to Credit Period.--
            ``(1) Credit period defined.--For purposes of this section, 
        the term `credit period' means, with respect to any property, 
        the period of 10 taxable years beginning with the taxable year 
        in which the property is first placed in service.
            ``(2) Special rule for 1st year of credit period.--
                    ``(A) In general.--The credit allowable under 
                subsection (a) with respect to any property for the 1st 
                taxable year of the credit period shall be determined 
                by multiplying such credit by the fraction--
                            ``(i) the numerator of which is the number 
                        of full months of such year during which such 
                        property was in service, and
                            ``(ii) the denominator of which is 12.
                    ``(B) Disallowed 1st year credit allowed in 11th 
                year.--Any reduction by reason of subparagraph (A) in 
                the credit allowable (without regard to subparagraph 
                (A)) for the 1st taxable year of the credit period 
                shall be allowable under subsection (a) for the 1st 
                taxable year following the credit period.
    ``(e) Certification of Qualified Interstate Electric Transmission 
Investment Projects.--
            ``(1) In general.--Not later than 180 days after the date 
        of the enactment of this Act, the Secretary, in consultation 
        with the Secretary of Energy, shall establish a program 
        identifying criteria for the certification of qualified 
        interstate electric transmission investment projects.
            ``(2) Certification.--
                    ``(A) Application period.--Each applicant for 
                certification under this paragraph shall submit an 
                application meeting the requirements of subparagraph 
                (B).
                    ``(B) Requirements for applications for 
                certification.--An application under subparagraph (A) 
                shall contain such information as the Secretary may 
                require in order to make a determination to accept or 
                reject an application for certification. Any 
                information contained in the application shall be 
                protected as provided in section 552(b)(4) of title 5, 
                United States Code.
                    ``(C) Time to act upon applications for 
                certification.--The Secretary shall issue a 
                determination as to whether an applicant has met the 
                requirements established under paragraph (1) within 60 
                days following the date of submittal of the application 
                for certification.
                    ``(D) Period of issuance.--An applicant which 
                receives a certification shall have 5 years from the 
                date of issuance of the certification in order to place 
                the project in service and if such project is not 
                placed in service by that time period then the 
                certification shall no longer be valid.
            ``(3) Aggregate credits.--The aggregate credits allowed 
        under subsection (a) for projects certified by the Secretary 
        under paragraph (2) may not exceed $2,500,000,000.
    ``(f) Credits for Electric Cooperatives and State and Local 
Governments.--
            ``(1) Allowance of credit.--Any credit which would be 
        allowable under subsection (a) with respect to an organization 
        described in paragraph (4) shall be treated as a credit 
        allowable under subpart C to such organization.
            ``(2) Use of credit.--An organization described in 
        paragraph (4) may assign, trade, sell, or otherwise transfer 
        any credit allowable to such organization under subsection (a) 
        to any taxpayer.
            ``(3) Credit not income.--A transfer under paragraph (2) of 
        any credit allowable under subsection (a) shall not result in 
        income for purposes of section 511.
            ``(4) Organization described.--An organization is described 
        in this paragraph if such organization is--
                    ``(A) a State or local government, or
                    ``(B) a mutual or cooperative electric company 
                which is described in section 501(c)(12) and exempt 
                from tax under section 501(a).
    ``(g) Certifications and Other Reports to Secretary.--
            ``(1) Certification with respect to 1st year of credit 
        period.--Following the close of the 1st taxable year in the 
        credit period with respect to any qualified electric 
        transmission property, the taxpayer shall certify to the 
        Secretary (at such time and in such form and in such manner as 
        the Secretary prescribes)--
                    ``(A) the taxable year, and calendar year, in which 
                such property was first placed in service,
                    ``(B) the basis of such property as of the 
                beginning of the credit period, and
                    ``(C) such other information as the Secretary may 
                require.
        In the case of a failure to make the certification required by 
        the preceding sentence on the date prescribed therefor, unless 
        it is shown that such failure is due to reasonable cause and 
        not to willful neglect, no credit shall be allowable by reason 
        of subsection (a) with respect to such property for any taxable 
        year ending before such certification is made.
            ``(2) Annual reports to the secretary.--The Secretary may 
        require taxpayers to submit an information return (at such time 
        and in such form and manner as the Secretary prescribes) for 
        each taxable year setting forth--
                    ``(A) the basis for the taxable year of each 
                qualified electric transmission property of the 
                taxpayer, and
                    ``(B) such other information as the Secretary may 
                require.
    ``(h) Regulations.--The Secretary shall prescribe such regulations 
as may be necessary or appropriate to carry out the purposes of this 
section, including regulations for recapturing the credit allowed under 
this section where appropriate.''.
            (2) Credit treated as part of general business credit.--
        Section 38(b), as amended by this Act, is amended by striking 
        ``plus'' at the end of paragraph (31), by striking the period 
        at the end of paragraph (32) and inserting ``, plus'', and by 
        adding at the end the following new paragraph:
            ``(33) the electric transmission property investment credit 
        determined under section 45P(a).''.
            (3) Clerical amendment.--The table of sections for subpart 
        B of part IV of subchapter A of chapter 1 of such Code, as 
        amended by this Act, is amended by adding at the end the 
        following new item:

``Sec. 45P. Electric transmission property investment credit.''.
    (b) Electric Transmission Property Treated as 10-Year Property.--
            (1) In general.--Subparagraph (D) of section 168(e)(3) 
        (relating to 10-year property), as amended by this Act, 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 section 1245 property (as 
                        defined in section 1245(a)(3)) used in the 
                        transmission at 230 or more kilovolts of 
                        electricity for sale and the original use of 
                        which commences with the taxpayer after the 
                        date of the enactment of this clause.''.
            (2) Conforming amendment.--Subparagraph (E) of section 
        168(e)(3) is amended by inserting ``and before the date of the 
        enactment of the Clean Energy Production Tax Incentives Act of 
        2007''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to property placed in service after the date of the 
        enactment of this Act.

SEC. 108. ELECTRIC TRANSMISSION PROPERTY BONDS.

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

``SEC. 54C. CREDIT TO HOLDERS OF ELECTRIC TRANSMISSION PROPERTY BONDS.

    ``(a) Allowance of Credit.--If a taxpayer holds an electric 
transmission property bond on 1 or more credit allowance dates of the 
bond occurring during any taxable year, 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 the credits determined under subsection (b) 
with respect to such dates.
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit allowance date 
        for an electric transmission property bond is 25 percent of the 
        annual credit determined with respect to such bond.
            ``(2) Annual credit.--The annual credit determined with 
        respect to any electric transmission property bond is the 
        product of--
                    ``(A) the credit rate determined by the Secretary 
                under paragraph (3) for the day on which such bond was 
                sold, multiplied by
                    ``(B) the outstanding face amount of the bond.
            ``(3) Determination.--For purposes of paragraph (2), with 
        respect to any electric transmission property bond, the 
        Secretary shall determine daily or cause to be determined daily 
        a credit rate which shall apply to the first day on which there 
        is a binding, written contract for the sale or exchange of the 
        bond. The credit rate for any day is the credit rate which the 
        Secretary or the Secretary's designee estimates will permit the 
        issuance of electric transmission property bonds with a 
        specified maturity or redemption date without discount and 
        without interest cost to the qualified issuer.
            ``(4) Credit allowance date.--For purposes of this section, 
        the term `credit allowance date' means--
                    ``(A) March 15,
                    ``(B) June 15,
                    ``(C) September 15, and
                    ``(D) December 15.
    ``Such term also includes the last day on which the bond is 
outstanding.
            ``(5) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month period ending 
        on a credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed or matures.
    ``(c) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for any taxable year shall not exceed the excess of--
            ``(1) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(2) the sum of the credits allowable under this part 
        (other than subpart C, this subpart and section 1400N(l)).
    ``(d) Electric Transmission Property Bond.--For purposes of this 
section--
            ``(1) In general.--The term `electric transmission property 
        bond' means any bond issued as part of an issue if--
                    ``(A) the bond is issued by a qualified issuer 
                pursuant to an allocation by the Secretary to such 
                issuer of a portion of the national electric 
                transmission property bond limitation under subsection 
                (f)(2),
                    ``(B) 95 percent or more of the proceeds from the 
                sale of such issue are to be used for capital 
                expenditures incurred by qualified borrowers for 1 or 
                more qualified projects,
                    ``(C) the qualified issuer designates such bond for 
                purposes of this section and the bond is in registered 
                form, and
                    ``(D) the issue meets the requirements of 
                subsection (h).
            ``(2) Qualified project; special use rules.--
                    ``(A) In general.--The term `qualified project' 
                means a project for the installation of any section 
                1245 property (as defined in section 1245(a)(3)) used 
                in the transmission at 230 or more kilovolts of 
                electricity for sale and placed in service by a 
                qualified borrower.
                    ``(B) Refinancing rules.--For purposes of paragraph 
                (1)(B), a qualified project may be refinanced with 
                proceeds of an electric transmission property bond only 
                if the indebtedness being refinanced (including any 
                obligation directly or indirectly refinanced by such 
                indebtedness) was originally incurred by a qualified 
                borrower after the date of the enactment of this 
                section.
                    ``(C) Reimbursement.--For purposes of paragraph 
                (1)(B), an electric transmission property bond may be 
                issued to reimburse a qualified borrower for amounts 
                paid after the date of the enactment of this section 
                with respect to a qualified project, but only if--
                            ``(i) prior to the payment of the original 
                        expenditure, the qualified borrower declared 
                        its intent to reimburse such expenditure with 
                        the proceeds of an electric transmission 
                        property bond,
                            ``(ii) not later than 60 days after payment 
                        of the original expenditure, the qualified 
                        issuer adopts an official intent to reimburse 
                        the original expenditure with such proceeds, 
                        and
                            ``(iii) the reimbursement is made not later 
                        than 18 months after the date the original 
                        expenditure is paid or, if later, the date that 
                        the project is placed in service or abandoned.
                In no event may the reimbursement under clause (iii) be 
                made more than 3 years after the date the original 
                expenditure is paid.
                    ``(D) Treatment of changes in use.--For purposes of 
                paragraph (1)(B), the proceeds of an issue shall not be 
                treated as used for a qualified project to the extent 
                that a qualified borrower takes any action within its 
                control which causes such proceeds not to be used for a 
                qualified project. The Secretary shall prescribe 
                regulations specifying remedial actions that may be 
                taken (including conditions to taking such remedial 
                actions) to prevent an action described in the 
                preceding sentence from causing a bond to fail to be an 
                electric transmission property bond.
    ``(e) Maturity Limitations.--
            ``(1) Duration of term.--A bond shall not be treated as an 
        electric transmission property bond if the maturity of such 
        bond exceeds the maximum term determined by the Secretary under 
        paragraph (2) with respect to such bond.
            ``(2) Maximum term.--During each calendar month, the 
        Secretary shall determine the maximum term permitted under this 
        paragraph for bonds issued during the following calendar month. 
        Such maximum term shall be the greater of 15 years or the term 
        which the Secretary estimates will result in the present value 
        of the obligation to repay the principal on the bond being 
        equal to 50 percent of the face amount of such bond. Such 
        present value shall be determined without regard to the 
        requirements of subsection (l)(6) and using as a discount rate 
        the average annual interest rate of tax of tax-exempt 
        obligations having a term of 10 years or more which are issued 
        during the month. If the term as so determined is not a 
        multiple of a whole year, such term shall be rounded to the 
        next highest whole year.
    ``(f) Limitation on Amount of Bonds Designated.--
            ``(1) National limitation.--There is a national electric 
        transmission property bond limitation of $2,500,000,000.
            ``(2) Allocation by secretary.--The Secretary, in 
        consultation with the Secretary of Energy, shall allocate the 
        amount described in paragraph (1) among qualified projects in 
        such manner as the Secretary determines appropriate, except 
        that the Secretary may not allocate more than $1,560,000,000 of 
        the national electric transmission property bond limitation to 
        finance qualified projects of qualified borrowers which are 
        public power entities.
    ``(g) Credit Included in Gross Income.--Gross income includes the 
amount of the credit allowed to the taxpayer under this section 
(determined without regard to subsection (c)) and the amount so 
included shall be treated as interest income.
    ``(h) Special Rules Relating to Expenditures.--
            ``(1) In general.--An issue shall be treated as meeting the 
        requirements of this subsection if, as of the date of issuance, 
        the qualified issuer reasonably expects--
                    ``(A) at least 95 percent of the proceeds from the 
                sale of the issue are to be spent for 1 or more 
                qualified projects within the 5-year period beginning 
                on the date of issuance of the clean energy bond,
                    ``(B) a binding commitment with a third party to 
                spend at least 10 percent of the proceeds from the sale 
                of the issue will be incurred within the 6-month period 
                beginning on the date of issuance of the clean energy 
                bond or, in the case of a clean energy bond the 
                proceeds of which are to be loaned to 2 or more 
                qualified borrowers, such binding commitment will be 
                incurred within the 6-month period beginning on the 
                date of the loan of such proceeds to a qualified 
                borrower, and
                    ``(C) such projects will be completed with due 
                diligence and the proceeds from the sale of the issue 
                will be spent with due diligence.
            ``(2) Extension of period.--Upon submission of a request 
        prior to the expiration of the period described in paragraph 
        (1)(A), the Secretary may extend such period if the qualified 
        issuer establishes that the failure to satisfy the 5-year 
        requirement is due to reasonable cause and the related projects 
        will continue to proceed with due diligence.
            ``(3) Failure to spend required amount of bond proceeds 
        within 5 years.--To the extent that less than 95 percent of the 
        proceeds of such issue are expended by the close of the 5-year 
        period beginning on the date of issuance (or if an extension 
        has been obtained under paragraph (2), by the close of the 
        extended period), the qualified issuer shall redeem all of the 
        nonqualified bonds within 90 days after the end of such period. 
        For purposes of this paragraph, the amount of the nonqualified 
        bonds required to be redeemed shall be determined in the same 
        manner as under section 142.
    ``(i) Special Rules Relating to Arbitrage.--A bond which is part of 
an issue shall not be treated as an electric transmission property bond 
unless, with respect to the issue of which the bond is a part, the 
qualified issuer satisfies the arbitrage requirements of section 148 
with respect to proceeds of the issue.
    ``(j) Cooperative Electric Company; Electric Transmission Property 
Bond Lender; Public Power Entity; Qualified Borrower.--For purposes of 
this section--
            ``(1) Cooperative electric company.--The term `cooperative 
        electric company' means a mutual or cooperative electric 
        company described in section 501(c)(12) or section 
        1381(a)(2)(C), or a not-for-profit electric utility which has 
        received a loan or loan guarantee under the Rural 
        Electrification Act.
            ``(2) Electric transmission property bond lender.--The term 
        `electric transmission property bond lender' means a lender 
        which is a cooperative which is owned by, or has outstanding 
        loans to, 100 or more cooperative electric companies and is in 
        existence on February 1, 2002, and shall include any affiliated 
        entity which is controlled by such lender.
            ``(3) Public power entity.--The term `public power entity' 
        means a State utility with a service obligation, as such terms 
        are defined in section 217 of the Federal Power Act (as in 
        effect on the date of the enactment of this paragraph).
            ``(4) Qualified issuer.--The term `qualified issuer' 
        means--
                    ``(A) an electric transmission property bond 
                lender,
                    ``(B) a cooperative electric company, or
                    ``(C) a public power entity.
            ``(5) Qualified borrower.--The term `qualified borrower' 
        means--
                    ``(A) a mutual or cooperative electric company 
                described in section 501(c)(12) or 1381(a)(2)(C), or
                    ``(B) a public power entity.
    ``(k) Special Rules Relating to Pool Bonds.--No portion of a pooled 
financing bond may be allocable to any loan unless the borrower has 
entered into a written loan commitment for such portion prior to the 
issue date of such issue.
    ``(l) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Bond.--The term `bond' includes any obligation.
            ``(2) Pooled financing bond.--The term `pooled financing 
        bond' shall have the meaning given such term by section 
        149(f)(4)(A).
            ``(3) Partnership; s corporation; and other pass-thru 
        entities.--
                    ``(A) In general.--Under regulations prescribed by 
                the Secretary, in the case of a partnership, trust, S 
                corporation, or other pass-thru entity, rules similar 
                to the rules of section 41(g) shall apply with respect 
                to the credit allowable under subsection (a).
                    ``(B) No basis adjustment.--Rules similar to the 
                rules under section 1397E(l) shall apply.
            ``(4) Bonds held by regulated investment companies.--If any 
        electric transmission property bond is held by a regulated 
        investment company, the credit determined under subsection (a) 
        shall be allowed to shareholders of such company under 
        procedures prescribed by the Secretary.
            ``(5) Ratable principal amortization required.--A bond 
        shall not be treated as an electric transmission property bond 
        unless it is part of an issue which provides for an equal 
        amount of principal to be paid by the qualified issuer during 
        each calendar year that the issue is outstanding.
            ``(6) Reporting.--Issuers of electric transmission property 
        bonds shall submit reports similar to the reports required 
        under section 149(e).
    ``(m) Termination.--This section shall not apply with respect to 
any bond issued after December 31, 2017.''.
    (b) Reporting.--Subsection (d) of section 6049 (relating to returns 
regarding payments of interest), as amended by this Act, is amended by 
adding at the end the following new paragraph:
            ``(11) Reporting of credit on electric transmission 
        property bonds.--
                    ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 54C(g) and such amounts 
                shall be treated as paid on the credit allowance date 
                (as defined in section 54C(b)(4)).
                    ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A), subsection 
                (b)(4) shall be applied without regard to subparagraphs 
                (A), (H), (I), (J), (K), and (L)(i) of such subsection.
                    ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''.
    (c) Clerical Amendment.--The table of sections for subpart H 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. 54C. Credit to holders of electric transmission property 
                            bonds.''.
    (d) Issuance of Regulations.--The Secretary of the Treasury shall 
issues regulations required under section 54C of the Internal Revenue 
Code of 1986 (as added by this section) not later than 120 days after 
the date of the enactment of this Act.
    (e) Effective Date.--The amendments made by this section shall 
apply to bonds issued after December 31, 2007.

SEC. 109. EXTENSION AND MODIFICATION OF INVESTMENT CREDIT FOR QUALIFIED 
              FUEL CELL PROPERTY, QUALIFIED MICROTURBINE PROPERTY, AND 
              SOLAR PROPERTY.

    (a) Extension.--
            (1) Qualified fuel cell property.--Subparagraph (E) of 
        section 48(c)(1) is amended by striking ``December 31, 2008'' 
        and inserting ``December 31, 2018''.
            (2) Qualified microturbine property.--Subparagraph (E) of 
        section 48(c)(2) is amended by striking ``December 31, 2008'' 
        and inserting ``December 31, 2018''.
            (3) Solar property.--Subclause (II) of section 48(a)(2)(i) 
        is amended by striking ``January 1, 2009'' and inserting 
        ``January 1, 2019''.
    (b) Solar Investment Credit Allowed for Public Utility Property.--
            (1) In general.--The second sentence of section 48(a)(3) of 
        the Internal Revenue Code of 1986 is amended by inserting 
        ``(other than property described in subparagraph (A)(i))'' 
        before ``shall not''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to periods 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).

                      TITLE II--REVENUE PROVISIONS

SEC. 201. TAX TREATMENT OF CONTROLLED FOREIGN CORPORATIONS ESTABLISHED 
              IN TAX HAVENS.

    (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. 7875. CONTROLLED FOREIGN CORPORATIONS IN TAX HAVENS TREATED AS 
              DOMESTIC CORPORATIONS.

    ``(a) General Rule.--If a controlled foreign corporation is a tax-
haven CFC, then, notwithstanding section 7701(a)(4), such corporation 
shall be treated for purposes of this title as a domestic corporation.
    ``(b) Tax-Haven CFC.--For purposes of this section--
            ``(1) In general.--The term `tax-haven CFC' means, with 
        respect to any taxable year, a foreign corporation which--
                    ``(A) was created or organized under the laws of a 
                tax-haven country, and
                    ``(B) is a controlled foreign corporation 
                (determined without regard to this section) for an 
                uninterrupted period of 30 days or more during the 
                taxable year.
            ``(2) Exception.--The term `tax-haven CFC' does not include 
        a foreign corporation for any taxable year if substantially all 
        of its income for the taxable year is derived from the active 
        conduct of trades or businesses within the country under the 
        laws of which the corporation was created or organized.
    ``(c) Tax-Haven Country.--For purposes of this section--
            ``(1) In general.--The term `tax-haven country' means any 
        of the following:


``Andorra                             Guernsey                              Panama
Anguilla                              Isle of Man                           Samoa
Antigua and Barbuda                   Jersey                                San Marino
Aruba                                 Liberia                               Federation of
Commonwealth of the                   Principality of                         Saint Christ-
   Bahamas                              Liechtenstein                         opher
Bahrain                               Republic of the                         and Nevis
Barbados                                Maldives                            Saint Lucia
Belize                                Malta                                 Saint Vincent
Bermuda                               Republic of the                         and the
British Virgin Islands                  Marshall Islands                      Grenadines
Cayman Islands                        Mauritius                             Republic of the
Cook Islands                          Principality of Monaco                   Seychelles
Cyprus                                Montserrat                            Tonga
Commonwealth of the                   Republic of Nauru                     Turks and Caicos
   Dominica                           Netherlands                           Republic of
Gibraltar                             Antilles                                Vanuatu
Grenada                               Niue                                  ....................................

            ``(2) Secretarial authority.--The Secretary may remove or 
        add a foreign jurisdiction from the list of tax-haven countries 
        under paragraph (1) if the Secretary determines such removal or 
        addition is consistent with the purposes of this section.''.
    (b) Conforming Amendment.--The table of sections for subchapter C 
of chapter 80 is amended by adding at the end the following new item:

``Sec. 7875. Controlled foreign corporations in tax havens treated as 
                            domestic corporations.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2008.

SEC. 202. TAXATION OF INCOME OF CONTROLLED FOREIGN CORPORATIONS 
              ATTRIBUTABLE TO IMPORTED PROPERTY.

    (a) General Rule.--Subsection (a) of section 954 (defining foreign 
base company income) is amended by striking ``and'' at the end of 
paragraph (4), by striking the period at the end of paragraph (5) and 
inserting ``, and'', and by adding at the end the following new 
paragraph:
            ``(6) imported property income for the taxable year 
        (determined under subsection (j) and reduced as provided in 
        subsection (b)(5)).''.
    (b) Definition of Imported Property Income.--Section 954 is amended 
by adding at the end the following new subsection:
    ``(j) Imported Property Income.--
            ``(1) In general.--For purposes of subsection (a)(6), the 
        term `imported property income' means income (whether in the 
        form of profits, commissions, fees, or otherwise) derived in 
        connection with--
                    ``(A) manufacturing, producing, growing, or 
                extracting imported property;
                    ``(B) the sale, exchange, or other disposition of 
                imported property; or
                    ``(C) the lease, rental, or licensing of imported 
                property.
        Such term shall not include any foreign oil and gas extraction 
        income (within the meaning of section 907(c)) or any foreign 
        oil related income (within the meaning of section 907(c)).
            ``(2) Imported property.--For purposes of this subsection--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the term `imported property' means 
                property which is imported into the United States by 
                the controlled foreign corporation or a related person.
                    ``(B) Imported property includes certain property 
                imported by unrelated persons.--The term `imported 
                property' includes any property imported into the 
                United States by an unrelated person if, when such 
                property was sold to the unrelated person by the 
                controlled foreign corporation (or a related person), 
                it was reasonable to expect that--
                            ``(i) such property would be imported into 
                        the United States; or
                            ``(ii) such property would be used as a 
                        component in other property which would be 
                        imported into the United States.
                    ``(C) Exception for property subsequently 
                exported.--The term `imported property' does not 
                include any property which is imported into the United 
                States and which--
                            ``(i) before substantial use in the United 
                        States, is sold, leased, or rented by the 
                        controlled foreign corporation or a related 
                        person for direct use, consumption, or 
                        disposition outside the United States; or
                            ``(ii) is used by the controlled foreign 
                        corporation or a related person as a component 
                        in other property which is so sold, leased, or 
                        rented.
                    ``(D) Exception for certain agricultural 
                commodities.--The term `imported property' does not 
                include any agricultural commodity which is not grown 
                in the United States in commercially marketable 
                quantities.
            ``(3) Definitions and special rules.--
                    ``(A) Import.--For purposes of this subsection, the 
                term `import' means entering, or withdrawal from 
                warehouse, for consumption or use. Such term includes 
                any grant of the right to use intangible property (as 
                defined in section 936(h)(3)(B)) in the United States.
                    ``(B) United states.--For purposes of this 
                subsection, the term `United States' includes the 
                Commonwealth of Puerto Rico, the Virgin Islands of the 
                United States, Guam, American Samoa, and the 
                Commonwealth of the Northern Mariana Islands.
                    ``(C) Unrelated person.--For purposes of this 
                subsection, the term `unrelated person' means any 
                person who is not a related person with respect to the 
                controlled foreign corporation.
                    ``(D) Coordination with foreign base company sales 
                income.--For purposes of this section, the term 
                `foreign base company sales income' shall not include 
                any imported property income.''.
    (c) Separate Application of Limitations on Foreign Tax Credit for 
Imported Property Income.--
            (1) In general.--Paragraph (1) of section 904(d) (relating 
        to separate application of section with respect to certain 
        categories of income) is amended by striking ``and'' at the end 
        of subparagraph (A), by redesignating subparagraph (B) as 
        subparagraph (C), and by inserting after subparagraph (A) the 
        following new subparagraph:
                    ``(B) imported property income, and''.
            (2) Imported property income defined.--Paragraph (2) of 
        section 904(d) is amended by redesignating subparagraphs (I) 
        and (J) as subparagraphs (J) and (K), respectively, and by 
        inserting after subparagraph (H) the following new 
        subparagraph:
                    ``(I) Imported property income.--The term `imported 
                property income' means any income received or accrued 
                by any person which is of a kind which would be 
                imported property income (as defined in section 
                954(j)).''.
            (3) Conforming amendment.--Clause (ii) of section 
        904(d)(2)(A) is amended by inserting ``or imported property 
        income'' after ``passive category income''.
    (d) Technical Amendments.--
            (1) Clause (iii) of section 952(c)(1)(B) (relating to 
        certain prior year deficits may be taken into account) is 
        amended--
                    (A) by redesignating subclauses (II), (III), (IV), 
                and (V) as subclauses (III), (IV), (V), and (VI), and
                    (B) by inserting after subclause (I) the following 
                new subclause:
                                    ``(II) imported property income,''.
            (2) Paragraph (5) of section 954(b) (relating to deductions 
        to be taken into account) is amended by striking ``and the 
        foreign base company oil related income'' and inserting ``the 
        foreign base company oil related income, and the imported 
        property income''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after the date 
of the enactment of this Act, and to taxable years of United States 
shareholders within which or with which such taxable years of such 
foreign corporations end.

SEC. 203. MODIFICATION OF EFFECTIVE DATE OF LEASING PROVISIONS OF THE 
              AMERICAN JOBS CREATION ACT OF 2004.

    (a) Leases to Foreign Entities.--Section 849(b) of the American 
Jobs Creation Act of 2004 is amended by adding at the end the following 
new paragraph:
            ``(5) Leases to foreign entities.--In the case of tax-
        exempt use property leased to a tax-exempt entity which is a 
        foreign person or entity, the amendments made by this part 
        shall apply to taxable years beginning after December 31, 2006, 
        with respect to leases entered into on or before March 12, 
        2004.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect as if included in the enactment of the American Jobs Creation 
Act of 2004.

SEC. 204. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701 is amended by redesignating 
subsection (o) as subsection (p) and by inserting after subsection (n) 
the following new subsection:
    ``(o) Clarification of Economic Substance Doctrine; etc.--
            ``(1) General rules.--
                    ``(A) In general.--In any case in which a court 
                determines that the economic substance doctrine is 
                relevant for purposes of this title to a transaction 
                (or series of transactions), such transaction (or 
                series of transactions) shall have economic substance 
                only if the requirements of this paragraph are met.
                    ``(B) Definition of economic substance.--For 
                purposes of subparagraph (A)--
                            ``(i) In general.--A transaction has 
                        economic substance only if--
                                    ``(I) the transaction changes in a 
                                meaningful way (apart from Federal tax 
                                effects) the taxpayer's economic 
                                position, and
                                    ``(II) the taxpayer has a 
                                substantial nontax purpose for entering 
                                into such transaction and the 
                                transaction is a reasonable means of 
                                accomplishing such purpose.
                        In applying subclause (II), a purpose of 
                        achieving a financial accounting benefit shall 
                        not be taken into account in determining 
                        whether a transaction has a substantial nontax 
                        purpose if the origin of such financial 
                        accounting benefit is a reduction of income 
                        tax.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance by 
                        reason of having a potential for profit 
                        unless--
                                    ``(I) the present value of the 
                                reasonably expected pre-tax profit from 
                                the transaction is substantial in 
                                relation to the present value of the 
                                expected net tax benefits that would be 
                                allowed if the transaction were 
                                respected, and
                                    ``(II) the reasonably expected pre-
                                tax profit from the transaction exceeds 
                                a risk-free rate of return.
                    ``(C) Treatment of fees and foreign taxes.--Fees 
                and other transaction expenses and foreign taxes shall 
                be taken into account as expenses in determining pre-
                tax profit under subparagraph (B)(ii).
            ``(2) Special rules for transactions with tax-indifferent 
        parties.--
                    ``(A) Special rules for financing transactions.--
                The form of a transaction which is in substance the 
                borrowing of money or the acquisition of financial 
                capital directly or indirectly from a tax-indifferent 
                party shall not be respected if the present value of 
                the deductions to be claimed with respect to the 
                transaction is substantially in excess of the present 
                value of the anticipated economic returns of the person 
                lending the money or providing the financial capital. A 
                public offering shall be treated as a borrowing, or an 
                acquisition of financial capital, from a tax-
                indifferent party if it is reasonably expected that at 
                least 50 percent of the offering will be placed with 
                tax-indifferent parties.
                    ``(B) Artificial income shifting and basis 
                adjustments.--The form of a transaction with a tax-
                indifferent party shall not be respected if--
                            ``(i) it results in an allocation of income 
                        or gain to the tax-indifferent party in excess 
                        of such party's economic income or gain, or
                            ``(ii) it results in a basis adjustment or 
                        shifting of basis on account of overstating the 
                        income or gain of the tax-indifferent party.
            ``(3) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Economic substance doctrine.--The term 
                `economic substance doctrine' means the common law 
                doctrine under which tax benefits under subtitle A with 
                respect to a transaction are not allowable if the 
                transaction does not have economic substance or lacks a 
                business purpose.
                    ``(B) Tax-indifferent party.--The term `tax-
                indifferent party' means any person or entity not 
                subject to tax imposed by subtitle A. A person shall be 
                treated as a tax-indifferent party with respect to a 
                transaction if the items taken into account with 
                respect to the transaction have no substantial impact 
                on such person's liability under subtitle A.
                    ``(C) Exception for personal transactions of 
                individuals.--In the case of an individual, this 
                subsection shall apply only to transactions entered 
                into in connection with a trade or business or an 
                activity engaged in for the production of income.
                    ``(D) Treatment of lessors.--In applying paragraph 
                (1)(B)(ii) to the lessor of tangible property subject 
                to a lease--
                            ``(i) the expected net tax benefits with 
                        respect to the leased property shall not 
                        include the benefits of--
                                    ``(I) depreciation,
                                    ``(II) any tax credit, or
                                    ``(III) any other deduction as 
                                provided in guidance by the Secretary, 
                                and
                            ``(ii) subclause (II) of paragraph 
                        (1)(B)(ii) shall be disregarded in determining 
                        whether any of such benefits are allowable.
            ``(4) Other common law doctrines not affected.--Except as 
        specifically provided in this subsection, the provisions of 
        this subsection shall not be construed as altering or 
        supplanting any other rule of law, and the requirements of this 
        subsection shall be construed as being in addition to any such 
        other rule of law.
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection. Such regulations may include 
        exemptions from the application of this subsection.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 205. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

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

``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE, ETC.

    ``(a) Imposition of Penalty.--If a taxpayer has an noneconomic 
substance transaction understatement for any taxable year, there shall 
be added to the tax an amount equal to 40 percent of the amount of such 
understatement.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `40 percent' with 
respect to the portion of any noneconomic substance transaction 
understatement with respect to which the relevant facts affecting the 
tax treatment of the item are adequately disclosed in the return or a 
statement attached to the return.
    ``(c) Noneconomic Substance Transaction Understatement.--For 
purposes of this section--
            ``(1) In general.--The term `noneconomic substance 
        transaction understatement' means any amount which would be an 
        understatement under section 6662A(b)(1) if section 6662A were 
        applied by taking into account items attributable to 
        noneconomic substance transactions rather than items to which 
        section 6662A would apply without regard to this paragraph.
            ``(2) Noneconomic substance transaction.--The term 
        `noneconomic substance transaction' means any transaction if--
                    ``(A) there is a lack of economic substance (within 
                the meaning of section 7701(o)(1)) for the transaction 
                giving rise to the claimed benefit or the transaction 
                was not respected under section 7701(o)(2), or
                    ``(B) the transaction fails to meet the 
                requirements of any similar rule of law.
    ``(d) Rules Applicable to Compromise of Penalty.--
            ``(1) 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 this section 
        applies, only the Commissioner of Internal Revenue may 
        compromise all or any portion of such penalty.
            ``(2) Applicable rules.--The rules of paragraphs (2) and 
        (3) of section 6707A(d) shall apply for purposes of paragraph 
        (1).
    ``(e) Coordination With Other Penalties.--Except as otherwise 
provided in this part, the penalty imposed by this section shall be in 
addition to any other penalty imposed by this title.
    ``(f) Cross References.--

            ``(1) For coordination of penalty with 
            understatements under section 6662 and other 
            special rules, see section 6662A(e).
            ``(2) For reporting of penalty imposed under 
            this section to the Securities and Exchange 
            Commission, see section 6707A(e).''.
    (b) Coordination With Other Understatements and Penalties.--
            (1) The second sentence of section 6662(d)(2)(A) is amended 
        by inserting ``and without regard to items with respect to 
        which a penalty is imposed by section 6662B'' before the period 
        at the end.
            (2) Subsection (e) of section 6662A is amended--
                    (A) in paragraph (1), by inserting ``and 
                noneconomic substance transaction understatements'' 
                after ``reportable transaction understatements'' both 
                places it appears,
                    (B) in paragraph (2)(A), by inserting ``and a 
                noneconomic substance transaction understatement'' 
                after ``reportable transaction understatement'',
                    (C) in paragraph (2)(B), by inserting ``6662B or'' 
                before ``6663'',
                    (D) in paragraph (2)(C)(i), by inserting ``or 
                section 6662B'' before the period at the end,
                    (E) in paragraph (2)(C)(ii), by inserting ``and 
                section 6662B'' after ``This section'',
                    (F) in paragraph (3), by inserting ``or noneconomic 
                substance transaction understatement'' after 
                ``reportable transaction understatement'', and
                    (G) by adding at the end the following new 
                paragraph:
            ``(4) Noneconomic substance transaction understatement.--
        For purposes of this subsection, the term `noneconomic 
        substance transaction understatement' has the meaning given 
        such term by section 6662B(c).''.
            (3) Subsection (e) of section 6707A is amended--
                    (A) by striking ``or'' at the end of subparagraph 
                (B), and
                    (B) by striking subparagraph (C) and inserting the 
                following new subparagraphs:
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction, or
                    ``(D) is required to pay a penalty under section 
                6662(h) with respect to any transaction and would (but 
                for section 6662A(e)(2)(C)) have been subject to 
                penalty under section 6662A at a rate prescribed under 
                section 6662A(c) or under section 6662B,''.
    (c) Clerical Amendment.--The table of sections for part II of 
subchapter A of chapter 68 is amended by inserting after the item 
relating to section 6662A the following new item:

``Sec. 6662B. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 206. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.

    (a) In General.--Section 163(m) (relating to interest on unpaid 
taxes attributable to nondisclosed reportable transactions) is 
amended--
            (1) by striking ``attributable'' and all that follows and 
        inserting the following: ``attributable to--
            ``(1) the portion of any reportable transaction 
        understatement (as defined in section 6662A(b)) with respect to 
        which the requirement of section 6664(d)(2)(A) is not met, or
            ``(2) any noneconomic substance transaction understatement 
        (as defined in section 6662B(c)).'', and
            (2) by inserting ``And Noneconomic Substance Transactions'' 
        in the heading thereof after ``Transactions''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions after the date of the enactment of this Act in 
taxable years ending after such date.
                                 <all>