[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2242 Placed on Calendar Senate (PCS)]






                                                       Calendar No. 446
110th CONGRESS
  1st Session
                                S. 2242

                          [Report No. 110-206]

 To amend the Trade Act of 1974 to establish supplemental agricultural 
 disaster assistance and to amend the Internal Revenue Code of 1986 to 
provide tax incentives for conservation and alternative energy sources 
     and to provide tax relief for farmers, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            October 25, 2007

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

_______________________________________________________________________

                                 A BILL


 
 To amend the Trade Act of 1974 to establish supplemental agricultural 
 disaster assistance and to amend the Internal Revenue Code of 1986 to 
provide tax incentives for conservation and alternative energy sources 
     and to provide tax relief for farmers, 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; AMENDMENTS TO 1986 CODE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Heartland, 
Habitat, Harvest, and Horticulture Act of 2007''.
    (b) Amendments to 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; amendments to 1986 Code; table of contents.
    TITLE I--SUPPLEMENTAL AGRICULTURAL DISASTER ASSISTANCE FROM THE 
                 AGRICULTURE DISASTER RELIEF TRUST FUND

Sec. 101. Supplemental agriculture disaster assistance.
                   TITLE II--CONSERVATION PROVISIONS

          Subtitle A--Land and Species Preservation Provisions

Sec. 201. Conservation reserve tax credit.
Sec. 202. Exclusion of Conservation Reserve Program payments from SECA 
                            tax for certain individuals.
Sec. 203. Permanent extension of special rule encouraging contributions 
                            of capital gain real property for 
                            conservation purposes.
Sec. 204. Tax credit for recovery and restoration of endangered 
                            species.
Sec. 205. Deduction for endangered species recovery expenditures.
Sec. 206. Exclusion for certain payments and programs relating to fish 
                            and wildlife.
Sec. 207. Credit for easements granted under certain Department of 
                            Agriculture conservation programs.
                     Subtitle B--Timber Provisions

Sec. 211. Forest conservation bonds.
Sec. 212. Deduction for qualified timber gain.
Sec. 213. Excise tax not applicable to section 1203 deduction of real 
                            estate investment trusts.
Sec. 214. Timber REIT modernization.
Sec. 215. Mineral royalty income qualifying income for timber REITs.
Sec. 216. Modification of taxable REIT subsidiary asset test for timber 
                            REITs.
Sec. 217. Safe harbor for timber property.
                      TITLE III--ENERGY PROVISIONS

                   Subtitle A--Electricity Generation

Sec. 301. Credit for residential and business wind property.
Sec. 302. Landowner incentive to encourage electric transmission build-
                            out.
Sec. 303. Exception to reduction of renewable electricity credit.
                        Subtitle B--Alcohol Fuel

Sec. 311. Expansion of special allowance to cellulosic biomass alcohol 
                            fuel plant property.
Sec. 312. Credit for production of cellulosic biomass alcohol.
Sec. 313. Extension of small ethanol producer credit.
Sec. 314. Credit for producers of fossil free alcohol.
Sec. 315. Modification of alcohol credit.
Sec. 316. Calculation of volume of alcohol for fuel credits.
Sec. 317. Ethanol tariff extension.
Sec. 318. Elimination and reductions of duty drawback on certain 
                            imported ethanol.
            Subtitle C--Biodiesel and Renewable Diesel Fuel

Sec. 321. Extension and modification of credit for biodiesel and 
                            renewable diesel used as fuel.
Sec. 322. Treatment of qualified alcohol fuel mixtures and qualified 
                            biodiesel fuel mixtures as taxable fuels.
                      Subtitle D--Alternative Fuel

Sec. 331. Extension and modification of alternative fuel credit.
Sec. 332. Extension of alternative fuel vehicle refueling property 
                            credit.
                   TITLE IV--AGRICULTURAL PROVISIONS

Sec. 401. Increase in loan limits on agricultural bonds.
Sec. 402. Modification of installment sale rules for certain farm 
                            property.
Sec. 403. Allowance of section 1031 treatment for exchanges involving 
                            certain mutual ditch, reservoir, or 
                            irrigation company stock.
Sec. 404. Credit to holders of rural renaissance bonds.
Sec. 405. Agricultural chemicals security credit.
Sec. 406. Credit for drug safety and effectiveness testing for minor 
                            animal species.
Sec. 407. Certain farming business machinery and equipment treated as 
                            5-year property.
Sec. 408. Expensing of broadband Internet access expenditures.
Sec. 409. Credit for energy efficient motors.
                  TITLE V--REVENUE RAISING PROVISIONS

              Subtitle A--Miscellaneous Revenue Provisions

Sec. 501. Limitation on farming losses of certain taxpayers.
Sec. 502. Modification to optional method of computing net earnings 
                            from self-employment.
Sec. 503. Information reporting for Commodity Credit Corporation 
                            transactions.
Sec. 504. Modification of section 1031 treatment for certain real 
                            estate.
Sec. 505. Modification of effective date of leasing provisions of the 
                            American Jobs Creation Act of 2004.
Sec. 506. Time for payment of corporate estimated taxes.
Sec. 507. Ineligibility of collectibles for nontaxable like kind 
                            exchange treatment.
Sec. 508. Denial of deduction for certain fines, penalties, and other 
                            amounts.
Sec. 509. Increase in information return penalties.
                Subtitle B--Economic Substance Doctrine

Sec. 511. Clarification of economic substance doctrine.
Sec. 512. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.
Sec. 513. Denial of deduction for interest on underpayments 
                            attributable to noneconomic substance 
                            transactions.

    TITLE I--SUPPLEMENTAL AGRICULTURAL DISASTER ASSISTANCE FROM THE 
                 AGRICULTURE DISASTER RELIEF TRUST FUND

SEC. 101. SUPPLEMENTAL AGRICULTURE DISASTER ASSISTANCE.

    (a) In General.--The Trade Act of 1974 (19 U.S.C. 2101 et seq.) is 
amended by adding at the end the following:

        ``TITLE IX--SUPPLEMENTAL AGRICULTURE DISASTER ASSISTANCE

``SEC. 901. PERMANENT AUTHORITY FOR SUPPLEMENTAL REVENUE ASSISTANCE.

    ``(a) Definitions.--In this section:
            ``(1) Actual production history yield.--The term `actual 
        production history yield' means the weighted average actual 
        production history for each insurable commodity or noninsurable 
        commodity, as calculated under the Federal Crop Insurance Act 
        (7 U.S.C. 1501 et seq.) or the noninsured crop disaster 
        assistance program, respectively.
            ``(2) Counter-cyclical program payment yield.--The term 
        `counter-cyclical program payment yield' means the weighted 
        average payment yield established under section 1102 of the 
        Farm Security and Rural Investment Act of 2002 (7 U.S.C. 7912).
            ``(3) Disaster county.--
                    ``(A) In general.--The term `disaster county' means 
                a county included in the geographic area covered by a 
                qualifying natural disaster declaration.
                    ``(B) Inclusion.--The term `disaster county' 
                includes--
                            ``(i) a county contiguous to a county 
                        described in subparagraph (A); and
                            ``(ii) any farm in which, during a calendar 
                        year, the total loss of production of the farm 
                        relating to weather is greater than 50 percent 
                        of the normal production of the farm, as 
                        determined by the Secretary.
            ``(4) Eligible producer on a farm.--
                    ``(A) In general.--The term `eligible producer on a 
                farm' means an individual or entity described in 
                subparagraph (B) that, as determined by the Secretary, 
                assumes the production and market risks associated with 
                the agricultural production of crops or livestock.
                    ``(B) Description.--An individual or entity 
                referred to in subparagraph (A) is--
                            ``(i) a citizen of the United States;
                            ``(ii) a resident alien;
                            ``(iii) a partnership of citizens of the 
                        United States; or
                            ``(iv) a corporation, limited liability 
                        corporation, or other farm organizational 
                        structure organized under State law.
            ``(5) Farm.--
                    ``(A) In general.--The term `farm' means, in 
                relation to an eligible producer on a farm, the sum of 
                all crop acreage in all counties that--
                            ``(i) is used for grazing by the eligible 
                        producer; or
                            ``(ii) is planted or intended to be planted 
                        for harvest by the eligible producer.
                    ``(B) Aquaculture.--In the case of aquaculture, the 
                term `farm' means, in relation to an eligible producer 
                on a farm, all fish being produced in all counties that 
                are intended to be harvested for sale by the eligible 
                producer.
                    ``(C) Honey.--In the case of honey, the term `farm' 
                means, in relation to an eligible producer on a farm, 
                all bees and beehives in all counties that are intended 
                to be harvested for a honey crop by the eligible 
                producer.
            ``(6) Farm-raised fish.--The term `farm-raised fish' means 
        any aquatic species (including any species of finfish, mollusk, 
        crustacean, or other aquatic invertebrate, amphibian, reptile, 
        or aquatic plant) that is propagated and reared in a controlled 
        or semicontrolled environment.
            ``(7) Insurable commodity.--The term `insurable commodity' 
        means an agricultural commodity (excluding livestock) for which 
        the producer on a farm is eligible to obtain a policy or plan 
        of insurance under the Federal Crop Insurance Act (7 U.S.C. 
        1501 et seq.).
            ``(8) Livestock.--The term `livestock' includes--
                    ``(A) cattle (including dairy cattle);
                    ``(B) bison;
                    ``(C) poultry;
                    ``(D) sheep;
                    ``(E) swine;
                    ``(F) horses; and
                    ``(G) other livestock, as determined by the 
                Secretary.
            ``(9) Moving 5-year olympic average county yield.--The term 
        `moving 5-year Olympic average county yield' means the weighted 
        average yield obtained from the 5 most recent years of yield 
        data provided by the National Agriculture Statistics Service 
        obtained from data after dropping the highest and the lowest 
        yields.
            ``(10) Noninsurable commodity.--The term `noninsurable 
        commodity' means a crop for which the eligible producers on a 
        farm are eligible to obtain assistance under the noninsured 
        crop assistance program.
            ``(11) Noninsured crop assistance program.--The term 
        `noninsured crop assistance program' means the program carried 
        out under section 196 of the Federal Agriculture Improvement 
        and Reform Act of 1996 (7 U.S.C. 7333).
            ``(12) Qualifying natural disaster declaration.--The term 
        `qualifying natural disaster declaration' means a natural 
        disaster declared by the Secretary for production losses under 
        section 321(a) of the Consolidated Farm and Rural Development 
        Act (7 U.S.C. 1961(a)).
            ``(13) Secretary.--The term `Secretary' means the Secretary 
        of Agriculture.
            ``(14) State.--The term `State' means--
                    ``(A) a State;
                    ``(B) the District of Columbia;
                    ``(C) the Commonwealth of Puerto Rico; and
                    ``(D) any other territory or possession of the 
                United States.
            ``(15) Trust fund.--The term `Trust Fund' means the 
        Agriculture Disaster Relief Trust Fund established under 
        section 902.
            ``(16) United states.--The term `United States' when used 
        in a geographical sense, means all of the States.
    ``(b) Supplemental Revenue Assistance Payments.--
            ``(1) In general.--The Secretary shall use such sums as are 
        necessary from the Trust Fund to make crop disaster assistance 
        payments to eligible producers on farms in disaster counties 
        that have incurred crop production losses or crop quality 
        losses, or both, during the crop year.
            ``(2) Amount.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                Secretary shall provide crop disaster assistance 
                payments under this section to an eligible producer on 
                a farm in an amount equal to 52 percent of the 
                difference between--
                            ``(i) the disaster assistance program 
                        guarantee, as described in paragraph (3); and
                            ``(ii) the total farm revenue for a farm, 
                        as described in paragraph (4).
                    ``(B) Limitation.--The disaster assistance program 
                guarantee for a crop used to calculate the payments for 
                a farm under subparagraph (A)(i) may not be greater 
                than 90 percent of the sum of the expected revenue, as 
                described in paragraph (5) for each of the crops on a 
                farm, as determined by the Secretary.
            ``(3) Supplemental revenue assistance program guarantee.--
                    ``(A) In general.--Except as otherwise provided in 
                this paragraph, the supplemental assistance program 
                guarantee shall be the sum obtained by adding--
                            ``(i) for each insurable commodity on the 
                        farm, the product obtained by multiplying--
                                    ``(I) the greatest of--
                                            ``(aa) the actual 
                                        production history yield;
                                            ``(bb) 85 percent of the 
                                        moving 5-year Olympic average 
                                        county yield; and
                                            ``(cc) the counter-cyclical 
                                        program payment yield for each 
                                        crop;
                                    ``(II) the percentage of the crop 
                                insurance yield guarantee;
                                    ``(III) the percentage of crop 
                                insurance price elected by the eligible 
                                producer;
                                    ``(IV) the crop insurance price; 
                                and
                                    ``(V) 115 percent; and
                            ``(ii) for each noninsurable commodity on a 
                        farm, the product obtained by multiplying--
                                    ``(I) the weighted noninsured crop 
                                assistance program yield guarantee;
                                    ``(II) except as provided in 
                                subparagraph (B), 100 percent of the 
                                noninsured crop assistance program 
                                established price; and
                                    ``(III) 115 percent.
                    ``(B) Supplemental buy-up noninsured assistance 
                program.--Beginning on the date that the Secretary 
                makes available supplemental buy-up coverage under the 
                noninsured assistance program in accordance with 
                subsection (h), the percentage described in subclause 
                (II) of subparagraph (A)(ii) shall be equal to the 
                percentage of the noninsured assistance program price 
                guarantee elected by the producer.
                    ``(C) Adjustment insurance guarantee.--
                Notwithstanding subparagraph (A), in the case of an 
                insurable commodity for which a plan of insurance 
                provides for an adjustment in the guarantee, such as in 
                the case of prevented planting, the adjusted insurance 
                guarantee shall be the basis for determining the 
                disaster assistance program guarantee for the insurable 
                commodity.
                    ``(D) Adjusted assistance level.--Notwithstanding 
                subparagraph (A), in the case of a noninsurable 
                commodity for which the noninsured crop assistance 
                program provides for an adjustment in the level of 
                assistance, such as in the case of prevented 
                harvesting, the adjusted assistance level shall be the 
                basis for determining the disaster assistance program 
                guarantee for the noninsurable commodity.
                    ``(E) Equitable treatment for non-yield based 
                policies.--The Secretary shall establish equitable 
                treatment for non-yield based policies and plans of 
                insurance, such as the Adjusted Gross Revenue Lite 
                insurance program.
                    ``(F) Public managed land.--Notwithstanding 
                subparagraph (A), if rangeland is managed by a Federal 
                agency and the carrying capacity of the managed 
                rangeland is reduced as a result of a disaster in the 
                preceding year that was the basis for a qualifying 
                natural disaster declaration--
                            ``(i) the calculation for the supplemental 
                        assistance program guarantee determined under 
                        subparagraph (A) as the guarantee applies to 
                        the managed rangeland shall be not less than 75 
                        percent of the guarantee for the preceding 
                        year; and
                            ``(ii) the requirement for a designation by 
                        the Secretary for the current year is waived.
            ``(4) Farm revenue.--
                    ``(A) In general.--For purposes of this subsection, 
                the total farm revenue for a farm, shall equal the sum 
                obtained by adding--
                            ``(i) the estimated actual value for 
                        grazing and for each crop produced on a farm by 
                        using the product obtained by multiplying--
                                    ``(I) the actual crop acreage 
                                grazed or harvested by an eligible 
                                producer on a farm;
                                    ``(II) the estimated actual yield 
                                of the grazing land or crop production; 
                                and
                                    ``(III) subject to subparagraphs 
                                (B) and (C), the average market price 
                                received or value of the production 
                                during the first 5 months of the 
                                marketing year for the county in which 
                                the farm or portion of a farm is 
                                located;
                            ``(ii) 20 percent of amount of any direct 
                        payments made to the producer under section 
                        1103 of the Farm Security and Rural Investment 
                        Act of 2002 (7 U.S.C. 7913);
                            ``(iii) the amount of payments for 
                        prevented planting on a farm;
                            ``(iv) the amount of crop insurance 
                        indemnities received by an eligible producer on 
                        a farm for each crop on a farm, including 
                        indemnities for grazing losses;
                            ``(v) the amount of payments an eligible 
                        producer on a farm received under the 
                        noninsured crop assistance program for each 
                        crop on a farm, including grazing losses; and
                            ``(vi) the value of any other natural 
                        disaster assistance payments provided by the 
                        Federal Government to an eligible producer on a 
                        farm for each crop on a farm for the same loss 
                        for which the eligible producer is seeking 
                        assistance.
                    ``(B) Adjustment.--The Secretary shall adjust the 
                average market price received by the eligible producer 
                on a farm--
                            ``(i) to reflect the average quality 
                        discounts applied to the local or regional 
                        market price of a crop, hay, or forage due to a 
                        reduction in the intrinsic characteristics of 
                        the production resulting from adverse weather, 
                        as determined annually by the State office of 
                        the Farm Service Agency; and
                            ``(ii) to account for a crop the value of 
                        which is reduced due to excess moisture 
                        resulting from a disaster-related condition.
                    ``(C) Maximum amount for certain crops.--With 
                respect to a crop for which an eligible producer on a 
                farm receives assistance under the noninsured crop 
                assistance program, the average market price received 
                or value of the production during the first 5 months of 
                the marketing year for the county in which the farm or 
                portion of a farm is located shall be an amount not 
                more than 100 percent of the price of the crop 
                established under the noninsured crop assistance 
                program.
            ``(5) Expected revenue.--The expected revenue for each crop 
        on a farm shall equal the sum obtained by adding--
                    ``(A) the expected value of grazing;
                    ``(B) the product obtained by multiplying--
                            ``(i) the greatest of--
                                    ``(I) the actual production history 
                                yield of the eligible producer on a 
                                farm;
                                    ``(II) the moving 5-year Olympic 
                                average county yield; and
                                    ``(III) the counter-cyclical 
                                program payment yield;
                            ``(ii) the acreage planted or intended to 
                        be planted for each crop; and
                            ``(iii) 100 percent of the insurance price 
                        guarantee; and
                    ``(C) the product obtained by multiplying--
                            ``(i) 100 percent of the noninsured crop 
                        assistance program yield; and
                            ``(ii) 100 percent of the noninsured crop 
                        assistance program price for each of the crops 
                        on a farm.
    ``(c) Livestock Indemnity Payments.--
            ``(1) In general.--The Secretary shall use such sums as are 
        necessary from the Trust Fund to make livestock indemnity 
        payments to eligible producers on farms that have incurred 
        livestock death losses in excess of the normal mortality due to 
        adverse weather, as determined by the Secretary, during the 
        calendar year, including losses due to hurricanes, floods, 
        blizzards, disease, wildfires, extreme heat, and extreme cold.
            ``(2) Payment rates.--Indemnity payments to an eligible 
        producer on a farm under paragraph (1) shall be made at a rate 
        of 75 percent of the market value of the applicable livestock 
        on the day before the date of death of the livestock, as 
        determined by the Secretary.
    ``(d) Emergency Assistance for Livestock, Honey Bees, and Farm-
Raised Fish.--
            ``(1) In general.--The Secretary shall use up to 
        $35,000,000 per year from the Trust Fund to provide emergency 
        relief to eligible producers of livestock, honey bees, and 
        farm-raised fish to aid in the reduction of losses due to 
        adverse weather or other environmental conditions, such as 
        blizzards and wildfires, as determined by the Secretary, that 
        are not covered under the authority of the Secretary to make 
        qualifying natural disaster declarations.
            ``(2) Use of funds.--Funds made available under this 
        subsection shall be used to reduce losses caused by feed or 
        water shortages, disease, or other factors as determined by the 
        Secretary.
            ``(3) Availability of funds.--Any funds made available 
        under this subsection and not used in a crop year shall remain 
        available until expended.
    ``(e) Tree Assistance Program.--
            ``(1) Definitions.--In this subsection:
                    ``(A) Eligible orchardist.--The term `eligible 
                orchardist' means a person that--
                            ``(i) produces annual crops from trees for 
                        commercial purposes; or
                            ``(ii) produces nursery, ornamental, fruit, 
                        nut, or Christmas trees for commercial sale.
                    ``(B) Natural disaster.--The term `natural 
                disaster' means plant disease, insect infestation, 
                drought, fire, freeze, flood, earthquake, lightning, or 
                other occurrence, as determined by the Secretary.
                    ``(C) Tree.--The term `tree' includes a tree, bush, 
                and vine.
            ``(2) Eligibility.--
                    ``(A) Loss.--Subject to subparagraph (B), the 
                Secretary shall provide assistance under paragraph (3) 
                to eligible orchardists that planted trees for 
                commercial purposes but lost the trees as a result of a 
                natural disaster, as determined by the Secretary.
                    ``(B) Limitation.--An eligible orchardist shall 
                qualify for assistance under subparagraph (A) only if 
                the tree mortality of the eligible orchardist, as a 
                result of damaging weather or related condition, 
                exceeds 15 percent (adjusted for normal mortality).
            ``(3) Assistance.--The assistance provided by the Secretary 
        to eligible orchardists for losses described in paragraph (2) 
        shall consist of--
                    ``(A)(i) reimbursement of 75 percent of the cost of 
                replanting trees lost due to a natural disaster, as 
                determined by the Secretary, in excess of 15 percent 
                mortality (adjusted for normal mortality); or
                    ``(ii) at the option of the Secretary, sufficient 
                seedlings to reestablish a stand; and
                    ``(B) reimbursement of 50 percent of the cost of 
                pruning, removal, and other costs incurred by an 
                eligible orchardist to salvage existing trees or, in 
                the case of tree mortality, to prepare the land to 
                replant trees as a result of damage or tree mortality 
                due to a natural disaster, as determined by the 
                Secretary, in excess of 15 percent damage or mortality 
                (adjusted for normal tree damage and mortality).
    ``(f) Pest and Disease Management and Disaster Prevention.--
            ``(1) Definitions.--In this subsection:
                    ``(A) Early pest detection and surveillance.--The 
                term `early pest detection and surveillance' means the 
                full range of activities undertaken to find newly 
                introduced pests, whether the pests are new to the 
                United States or new to certain areas of the United 
                States, before--
                            ``(i) the pests become established; or
                            ``(ii) the pest infestations become too 
                        large and costly to eradicate or control.
                    ``(B) Pest.--The term `pest' has the meaning given 
                the term `plant pest' in section 403 of the Plant 
                Protection Act (7 U.S.C. 7702).
                    ``(C) Specialty crop.--The term `specialty crop' 
                has the meaning given the term in section 3 of the 
                Specialty Crops Competitiveness Act of 2004 (7 U.S.C. 
                1621 note; Public Law 108-465).
                    ``(D) State department of agriculture.--The term 
                `State department of agriculture' means an agency of a 
                State that has a legal responsibility to perform early 
                pest detection and surveillance activities.
            ``(2) Establishment.--The Secretary shall establish a 
        program--
                    ``(A) to conduct early pest detection and 
                surveillance activities in cooperation with State 
                departments of agriculture;
                    ``(B) to determine and prioritize pest and disease 
                threats to domestic production of specialty crops;
                    ``(C) to create an audit-based certification 
                approach to protect against the spread of plant pests 
                and to facilitate the interstate movement of plants and 
                plant products; and
                    ``(D) to prevent potential damage from crop 
                disasters caused by pests and diseases.
            ``(3) Early pest detection and surveillance improvement 
        program.--
                    ``(A) Cooperative agreements.--The Secretary shall 
                enter into cooperative agreements with State 
                departments of agriculture to provide grants to the 
                State departments of agriculture for early pest 
                detection and surveillance activities.
                    ``(B) Application.--
                            ``(i) In general.--A State department of 
                        agriculture seeking to enter into a cooperative 
                        agreement under this subsection shall submit to 
                        the Secretary an application containing such 
                        information as the Secretary may require.
                            ``(ii) Notification.--The Secretary shall 
                        notify applicants of--
                                    ``(I) the requirements to be 
                                imposed on a State department of 
                                agriculture for auditing of, and 
                                reporting on, the use of any funds 
                                provided by the Secretary under the 
                                cooperative agreement;
                                    ``(II) the criteria to be used to 
                                ensure that early pest detection and 
                                surveillance activities supported under 
                                the cooperative agreement are based on 
                                sound scientific data or thorough risk 
                                assessments; and
                                    ``(III) the means of identifying 
                                pathways of pest introductions.
                    ``(C) Use of funds.--
                            ``(i) Pest detection and surveillance 
                        activities.--A State department of agriculture 
                        that receives funds under this subsection shall 
                        use the funds to carry out early pest detection 
                        and surveillance activities approved by the 
                        Secretary to prevent the introduction or spread 
                        of a pest.
                            ``(ii) Subagreements.--A State department 
                        of agriculture may use funds received under 
                        this subsection to enter into subagreements 
                        with political subdivisions in the State that 
                        have legal responsibilities relating to 
                        agricultural pest and disease surveillance.
                    ``(D) Special funding considerations.--Subject to 
                the availability of funds under paragraph (9), the 
                Secretary shall provide funds to a State department of 
                agriculture that the Secretary determines is in a State 
                that has a high risk of being affected by 1 or more 
                pest, based on--
                            ``(i) the number of international airports 
                        and maritime facilities in the State;
                            ``(ii) the volume of international 
                        passenger and cargo entry into the State;
                            ``(iii)(I) the geographic location of the 
                        State; and
                            ``(II) whether the location is conducive to 
                        agricultural pest and disease establishment due 
                        to the climate or crop diversity of the State;
                            ``(iv)(I) the types of agricultural 
                        commodities or plants produced in the State; 
                        and
                            ``(II) whether the commodities or plants 
                        produced are conducive to agricultural pest and 
                        disease establishment due to the climate or 
                        crop diversity of the State;
                            ``(v) whether the Secretary has declared an 
                        emergency in the State pursuant to section 442 
                        of the Plant Protection Act (7 U.S.C. 7772) due 
                        to an agricultural pest or disease of Federal 
                        concern; and
                            ``(vi) such other factors as the Secretary 
                        considers appropriate.
                    ``(E) Cost-share.--
                            ``(i) Federal cost share; form of non-
                        federal cost share.--Except as provided in 
                        clause (ii), a cooperative agreement entered 
                        into under subparagraph (A) shall provide 
                        that--
                                    ``(I) the Federal share of carrying 
                                out the cooperative agreement shall not 
                                exceed 75 percent of the total cost;
                                    ``(II) the non-Federal share of the 
                                cost of carrying out the agreement may 
                                be provided in-kind; and
                                    ``(III) any in-kind costs may 
                                include indirect costs as considered 
                                appropriate by the Secretary.
                            ``(ii) Ability to provide funds.--The 
                        Secretary shall not take the ability to provide 
                        non-Federal costs to carry out a cooperative 
                        agreement entered into under subparagraph (A) 
                        into consideration in deciding whether to enter 
                        into a cooperative agreement with a State 
                        department of agriculture.
                            ``(iii) Special funding considerations.--
                        The non-Federal share of carrying out 
                        subparagraph (D) shall not exceed 40 percent of 
                        the total costs of carrying out that 
                        subparagraph.
                    ``(F) Reporting requirement.--Not later than 180 
                days after the date of completion of an early pest 
                detection and surveillance activity conducted by a 
                State department of agriculture using funds provided 
                under this subsection, the State department of 
                agriculture shall submit to the Secretary a report that 
                describes the purposes and results of the activities, 
                including any activities conducted pursuant to a 
                subagreement referred to in subparagraph (C)(ii).
            ``(4) Threat identification and mitigation program.--
                    ``(A) In general.--In conducting the program 
                established under paragraph (2), the Secretary shall--
                            ``(i) develop risk assessments of the 
                        existing and potential threat to the specialty 
                        crop industry in the United States from pests 
                        and disease;
                            ``(ii) prepare a list that prioritizes pest 
                        and disease threats to the specialty crop 
                        industry;
                            ``(iii) develop action plans, in 
                        consultation with State departments of 
                        agriculture and other State or regional 
                        resource partnerships, that effectively address 
                        pest and disease threats to the specialty crop 
                        industry, including pathway analysis, domestic 
                        and offshore mitigation measures, and 
                        comprehensive exclusion measures at ports of 
                        entry and other key distribution centers, in 
                        addition to strategies to employ if a pest or 
                        disease is introduced;
                            ``(iv) implement the action plans as soon 
                        as the action plans are developed to test the 
                        effectiveness of the action plans and help 
                        prevent new foreign and domestic pest and 
                        disease threats from being introduced or widely 
                        disseminated in the United States; and
                            ``(v) collaborate with the nursery 
                        industry, research institutions, and other 
                        appropriate entities to develop a nursery pest 
                        risk management system--
                                    ``(I) to identify nursery pests and 
                                diseases;
                                    ``(II) to prevent the introduction, 
                                establishment, and spread of the pests 
                                and diseases; and
                                    ``(III) to reduce the risk of, 
                                prioritize, mitigate, and eradicate the 
                                pests and diseases.
                    ``(B) Reports.--Not later than 1 year after the 
                date of enactment of this title, and annually 
                thereafter, the Secretary shall update and submit to 
                Congress the priority list and action plans described 
                in subparagraph (A), including an accounting of funds 
                expended on the action plans.
            ``(5) Audit-based approach to specialty crop phytosanitary 
        certification.--In conducting the program established under 
        paragraph (2), the Secretary shall provide funds and technical 
        assistance to specialty crop growers, organizations 
        representing specialty crop growers, and State and local 
        agencies working with specialty crop growers and organizations 
        for the development and implementation of certification systems 
        based on audit-based approaches (such as best management 
        practices or nursery pest risk management systems) to address 
        plant pests and mitigate the risk of plant pests in the 
        movement of plants and plant products.
            ``(6) Cooperative agreements.--The Secretary may enter into 
        cooperative agreements with other Federal departments or 
        agencies, States or political subdivisions of States, national 
        governments, local governments of other nations, domestic or 
        international organizations, domestic or international 
        associations, and other persons to carry out this subsection.
            ``(7) Consultation.--The Secretary shall consult with the 
        National Plant Board, State departments of agriculture, and 
        specialty crop grower organizations to establish funding 
        priorities under this subsection for each fiscal year.
            ``(8) Administrative costs.--Not more than 5 percent of the 
        funds provided under this subsection may be used for 
        administrative costs.
            ``(9) Funding.--The Secretary shall use from the Trust Fund 
        to carry out this subsection--
                    ``(A) $10,000,000 for fiscal year 2008;
                    ``(B) $15,000,000 for fiscal year 2009;
                    ``(C) $30,000,000 for fiscal year 2010;
                    ``(D) $45,000,000 for fiscal year 2011; and
                    ``(E) $60,000,000 for fiscal year 2012.
    ``(g) Risk Management Purchase Requirement.--
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the eligible producers on a farm shall not be 
        eligible for assistance under this section with respect to 
        losses to an insurable commodity or noninsurable commodity if 
        the eligible producers on the farm--
                    ``(A) in the case of an insurable commodity, did 
                not obtain a policy or plan of insurance for the 
                insurable commodity under the Federal Crop Insurance 
                Act (7 U.S.C. 1501 et seq.) (excluding a crop insurance 
                pilot program under that Act) for the crop incurring 
                the losses; or
                    ``(B) in the case of a noninsurable commodity, did 
                not file the required paperwork, and pay the 
                administrative fee by the applicable State filing 
                deadline, for the noninsurable commodity under the 
                noninsured crop assistance program for the crop 
                incurring the losses.
            ``(2) Minimum.--To be considered to have obtained insurance 
        under paragraph (1), an eligible producer on a farm shall have 
        obtained a policy or plan of insurance with not less than 50 
        percent yield coverage at 55 percent of the insurable price for 
        each crop grazed, planted, or intended to be planted for 
        harvest on a whole farm.
            ``(3) Waiver.--With respect to eligible producers that are 
        limited resource, minority, or beginning farmers or ranchers, 
        as determined by the Secretary, the Secretary may--
                    ``(A) waive paragraph (1); and
                    ``(B) provide disaster assistance under this 
                section at a level that the Secretary determines to be 
                equitable and appropriate.
            ``(4) Equitable relief.--The Secretary may provide 
        equitable relief to eligible producers on a farm that 
        unintentionally fail to meet the requirements of paragraph (1) 
        for 1 or more crops on a farm on a case-by-case basis, as 
        determined by the Secretary.
    ``(h) Supplemental Buy-up Noninsured Assistance Program.--
            ``(1) In general.--The Secretary shall establish a program 
        under which eligible producers on a farm may purchase under the 
        noninsured crop assistance program additional yield and price 
        coverage for a crop, including a forage, hay, or honey crop, 
        of--
                    ``(A) 60 or 65 percent (as elected by the producers 
                on the farm) of the yield established for the crop 
                under the program; and
                    ``(B) 100 percent of the price established for the 
                crop under the program.
            ``(2) Fees.--The Secretary shall establish and collect fees 
        from eligible producers on a farm participating in the program 
        established under paragraph (1) to offset all of the costs of 
        the program, as determined by the Secretary.
    ``(i) Payment Limitations.--
            ``(1) In general.--The total amount of disaster assistance 
        that an eligible producer on a farm may receive under this 
        section may not exceed $100,000.
            ``(2) AGI limitation.--Section 1001D of the Food Security 
        Act of 1985 (7 U.S.C. 1308-3a or any successor provision) shall 
        apply with respect to assistance provided under this section.
    ``(j) Period of Effectiveness.--This section shall be effective 
only for losses that are incurred as the result of a disaster, adverse 
weather, or other environmental condition that occurs on or before 
September 30, 2012, as determined by the Secretary.

``SEC. 902. AGRICULTURE DISASTER RELIEF TRUST FUND.

    ``(a) Creation of Trust Fund.--There is established in the Treasury 
of the United States a trust fund to be known as the `Agriculture 
Disaster Relief Trust Fund', consisting of such amounts as may be 
appropriated or credited to such Trust Fund as provided in this 
section.
    ``(b) Transfer to Trust Fund.--
            ``(1) In general.--There are appropriated to the 
        Agriculture Disaster Relief Trust Fund amounts equivalent to 
        3.34 percent of the amounts received in the general fund of the 
        Treasury of the United States during fiscal years 2008 through 
        2012 attributable to the duties collected on articles entered, 
        or withdrawn from warehouse, for consumption under the 
        Harmonized Tariff Schedule of the United States.
            ``(2) Amounts based on estimates.--The amounts appropriated 
        under this section shall be transferred at least monthly from 
        the general fund of the Treasury of the United States to the 
        Agriculture Disaster Relief Trust Fund on the basis of 
        estimates made by the Secretary of the Treasury. Proper 
        adjustments shall be made in the amounts subsequently 
        transferred to the extent prior estimates were in excess of or 
        less than the amounts required to be transferred.
    ``(c) Administration.--
            ``(1) Reports.--The Secretary of the Treasury shall be the 
        trustee of the Agriculture Disaster Relief Trust Fund and shall 
        submit an annual report to Congress each year on the financial 
        condition and the results of the operations of such Trust Fund 
        during the preceding fiscal year and on its expected condition 
        and operations during the 5 fiscal years succeeding such fiscal 
        year. Such report shall be printed as a House document of the 
        session of Congress to which the report is made.
            ``(2) Investment.--
                    ``(A) In general.--The Secretary of the Treasury 
                shall invest such portion of the Agriculture Disaster 
                Relief Trust Fund as is not in his judgment required to 
                meet current withdrawals. Such investments may be made 
                only in interest bearing obligations of the United 
                States. For such purpose, such obligations may be 
                acquired--
                            ``(i) on original issue at the issue price, 
                        or
                            ``(ii) by purchase of outstanding 
                        obligations at the market price.
                    ``(B) Sale of obligations.--Any obligation acquired 
                by the Agriculture Disaster Relief Trust Fund may be 
                sold by the Secretary of the Treasury at the market 
                price.
                    ``(C) Interest on certain proceeds.--The interest 
                on, and the proceeds from the sale or redemption of, 
                any obligations held in the Agriculture Disaster Relief 
                Trust Fund shall be credited to and form a part of such 
                Trust Fund.
    ``(d) Expenditures From Trust Fund.--Amounts in the Agriculture 
Disaster Relief Trust Fund shall be available for the purposes of 
making expenditures to meet those obligations of the United States 
incurred under section 901.
    ``(e) Authority to Borrow.--
            ``(1) In general.--There are authorized to be appropriated, 
        and are appropriated, to the Agriculture Disaster Relief Trust 
        Fund, as repayable advances, such sums as may be necessary to 
        carry out the purposes of such Trust Fund.
            ``(2) Repayment of advances.--
                    ``(A) In general.--Advances made to the Agriculture 
                Disaster Relief Trust Fund shall be repaid, and 
                interest on such advances shall be paid, to the general 
                fund of the Treasury when the Secretary determines that 
                moneys are available for such purposes in such Trust 
                Fund.
                    ``(B) Rate of interest.--Interest on advances made 
                pursuant to this subsection shall be--
                            ``(i) at a rate determined by the Secretary 
                        of the Treasury (as of the close of the 
                        calendar month preceding the month in which the 
                        advance is made) to be equal to the current 
                        average market yield on outstanding marketable 
                        obligations of the United States with remaining 
                        periods to maturity comparable to the 
                        anticipated period during which the advance 
                        will be outstanding, and
                            ``(ii) compounded annually.''.
    (b) Secretarial Discretion.--Section 442(c) of the Plant Protection 
Act (7 U.S.C. 7772(c)) is amended by striking ``of longer than 60 
days''.

                   TITLE II--CONSERVATION PROVISIONS

          Subtitle A--Land and Species Preservation Provisions

SEC. 201. CONSERVATION RESERVE TAX CREDIT.

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

``SEC. 30D. CONSERVATION RESERVE CREDIT.

    ``(a) In General.--There shall be allowed as a credit against the 
tax imposed by this chapter for the taxable year an amount equal to the 
rental value of any land enrolled in the conservation reserve program.
    ``(b) Limitations.--
            ``(1) Limitation based on amount of tax.--The credit 
        allowed under this section for any taxable year shall not 
        exceed the excess of--
                    ``(A) the regular tax liability for the taxable 
                year reduced by the sum of the credits allowable under 
                subpart A and sections 27, 30, 30B, and 30C, over
                    ``(B) the tentative minimum tax for the taxable 
                year.
            ``(2) Limitation based on allocated portion of national 
        limitation.--The credit allowed under subsection (a) for any 
        taxpayer for any taxable year shall not exceed the excess of--
                    ``(A) the amount of the national credit limitation 
                allocated to such taxpayer under subsection (c) for the 
                fiscal year in which such taxable year ends and all 
                prior fiscal years, over
                    ``(B) the credit allowed under subsection (a) for 
                all prior taxable years.
    ``(c) Conservation Reserve Credit Limitation.--
            ``(1) In general.--There is a conservation reserve credit 
        limitation for each fiscal year of the United States. Such 
        limitation is--
                    ``(A) $750,000,000 for each of fiscal years 2008 
                through 2012, and
                    ``(B) zero thereafter.
            ``(2) Allocation.--
                    ``(A) In general.--The Secretary, in consultation 
                with the Secretary of Agriculture, shall allocate the 
                conservation reserve credit limitation to taxpayers--
                            ``(i) who are owners or operators of land 
                        enrolled in the conservation reserve program, 
                        and
                            ``(ii) who have entered into an agreement 
                        with the Secretary of Agriculture to receive an 
                        allocation under this paragraph in lieu of a 
                        rental payment for such year under section 1234 
                        of the Food Security Act of 1985.
                    ``(B) Allocation limitation.--The Secretary may not 
                allocate more than $50,000 to any 1 taxpayer for any 
                fiscal year.
            ``(3) Carryforward of limitation.--
                    ``(A) In general.--If for any fiscal year the 
                limitation under paragraph (1) (after the application 
                of this paragraph) exceeds the amount allocated to all 
                eligible taxpayers for such fiscal year, the limitation 
                amount for the following fiscal year shall be increased 
                by the amount of such excess.
                    ``(B) Special rule for 2012.--Notwithstanding 
                subparagraph (A), no amount of the conservation reserve 
                credit limitation may be carried to any fiscal year 
                following fiscal year 2012.
    ``(d) Carryforward.--If the amount of the credit allowable under 
subsection (a) for any taxpayer for any taxable year (determined 
without regard to subsection (b)(1)) exceeds the limitation under 
subsection (b)(1), such excess may be carried forward to the succeeding 
taxable year and added to the credit allowable under subsection (a) for 
such succeeding taxable year.
    ``(e) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Conservation reserve program.--For purposes of this 
        subsection, the term `conservation reserve program' means the 
        conservation reserve program established under subchapter B of 
        chapter 1 of subtitle D of title XII of the Food Security Act 
        of 1985.
            ``(2) Denial of double benefit.--No deduction or other 
        credit shall be allowed under this chapter for any amount with 
        respect to which a credit is allowed under subsection (a).
            ``(3) Recapture of allocation.--If a taxpayer terminates a 
        contract under the conservation reserve program before the end 
        of the fiscal year with respect to which an allocation under 
        subsection (c)(2) is made, the Secretary shall recapture the 
        amount of the credit allowed under this section which bears the 
        same ratio to the amount so allocated as the number of days in 
        the fiscal year during which the contract was not in effect 
        bears to 365.
            ``(4) Treatment of credit under income tax and self-
        employment income tax.--Notwithstanding any agreement between 
        the taxpayer and the Secretary of Agriculture, for purposes of 
        this chapter and chapter 2, the amount of any credit received 
        under this section shall not be treated as income.''.
    (b) Conforming Amendment.--The table of sections for subpart B of 
part IV of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 30C the following new item:

``Sec. 30D. Conservation reserve credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 202. EXCLUSION OF CONSERVATION RESERVE PROGRAM PAYMENTS FROM SECA 
              TAX FOR CERTAIN INDIVIDUALS.

    (a) Internal Revenue Code.--Section 1402(a)(1) (defining net 
earnings from self-employment) is amended by inserting ``, and 
including payments under section 1233(2) of the Food Security Act of 
1985 (16 U.S.C. 3833(2)) to individuals receiving benefits under 
section 202 or 223 of the Social Security Act'' after ``crop shares''.
    (b) Social Security Act.--Section 211(a)(1) of the Social Security 
Act is amended by inserting ``, and including payments under section 
1233(2) of the Food Security Act of 1985 (16 U.S.C. 3833(2)) to 
individuals receiving benefits under section 202 or 223'' after ``crop 
shares''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments made after December 31, 2007.

SEC. 203. PERMANENT EXTENSION OF SPECIAL RULE ENCOURAGING CONTRIBUTIONS 
              OF CAPITAL GAIN REAL PROPERTY FOR CONSERVATION PURPOSES.

    (a) In General.--
            (1) Individuals.--Subparagraph (E) of section 170(b)(1) 
        (relating to contributions of qualified conservation 
        contributions) is amended by striking clause (vi).
            (2) Corporations.--Subparagraph (B) of section 170(b)(2) 
        (relating to qualified conservation contributions by certain 
        corporate farmers and ranchers) is amended by striking clause 
        (iii).
    (b) Effective Date.--The amendments made by this section shall 
apply to contributions made in taxable years beginning after December 
31, 2007.

SEC. 204. TAX CREDIT FOR RECOVERY AND RESTORATION OF ENDANGERED 
              SPECIES.

    (a) In General.--Subpart B 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. 30E. ENDANGERED SPECIES RECOVERY AND RESTORATION CREDIT.

    ``(a) In General.--In the case of an eligible taxpayer, there shall 
be allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to the sum of--
            ``(1) the habitat protection easement credit, plus
            ``(2) the habitat restoration credit.
    ``(b) Limitation.--
            ``(1) In general.--The credit allowed under subsection (a) 
        for any taxpayer for any taxable year shall not exceed the 
        endangered species recovery credit limitation allocated to the 
        eligible taxpayer under subsection (f) for the calendar year in 
        which the taxpayer's taxable year ends.
            ``(2) Carryforwards.--
                    ``(A) In general.--If the amount of the credit 
                allowable under subsection (a) for any taxpayer for any 
                taxable year (determined without regard to paragraph 
                (1)) exceeds the endangered species recovery credit 
                limitation allocated under subsection (f) to such 
                taxpayer for the calendar year in which the taxpayer's 
                taxable year ends, such excess may be carried forward 
                to the next taxable year for which an allocation is 
                made to such taxpayer under subsection (f). Any amount 
                carried to another taxable year under this subparagraph 
                shall be treated as added to the credit allowable under 
                subsection (a)(1) or (a)(2), whichever is appropriate, 
                for such taxable year.
                    ``(B) Carryforward of allocation amount.--If the 
                amount of the endangered species recovery credit 
                limitation allocated to a taxpayer for any calendar 
                year under subsection (f) exceeds the amount of the 
                credit allowed to the taxpayer under subsection (a) for 
                the taxable year ending in such calendar year, such 
                excess may be carried forward to the next taxable year 
                of the taxpayer. Any amount carried to another taxable 
                year under this subparagraph shall be treated as 
                allocated to the taxpayer for use in such taxable year 
                under subsection (f).
    ``(c) Eligible Taxpayer; Qualified Agreements.--For purposes of 
this section--
            ``(1) In general.--The term `eligible taxpayer' means--
                    ``(A) a taxpayer who--
                            ``(i) owns real property which contains the 
                        habitat of a qualified species, and
                            ``(ii) enters into a qualified perpetual 
                        habitat protection agreement, a qualified 30-
                        year habitat protection agreement, or a 
                        qualified habitat protection agreement with 
                        respect to such real property, and
                    ``(B) any other taxpayer who--
                            ``(i) is a party to a qualified perpetual 
                        habitat protection agreement, a qualified 30-
                        year habitat protection agreement, or a 
                        qualified habitat protection agreement, and
                            ``(ii) as part of any such agreement, 
                        agrees to assume responsibility for costs paid 
                        or incurred as a result of implementing such 
                        agreement.
            ``(2) Qualified perpetual habitat protection agreement.--
        The term `qualified perpetual habitat protection agreement' 
        means an agreement--
                    ``(A) under which a taxpayer described in paragraph 
                (1)(A) grants to the appropriate Secretary, the 
                Secretary of Agriculture, the Secretary of Defense, or 
                a State an easement in perpetuity for the protection of 
                the habitat of a qualified species, and
                    ``(B) which meets the requirements of paragraph 
                (5).
            ``(3) Qualified 30-year habitat protection agreement.--The 
        term `qualified 30-year habitat protection agreement' means an 
        agreement not described in paragraph (2)--
                    ``(A) under which a taxpayer described in paragraph 
                (1)(A) grants to the appropriate Secretary, the 
                Secretary of Agriculture, the Secretary of Defense, or 
                a State an easement for a period of 30 years or greater 
                for the protection of the habitat of a qualified 
                species, and
                    ``(B) which meets the requirements of paragraph 
                (5).
            ``(4) Qualified habitat protection agreement.--The term 
        `qualified habitat protection agreement' means an agreement--
                    ``(A) under which a taxpayer described in paragraph 
                (1)(A) enters into an agreement not described in 
                paragraph (2) or (3) with the appropriate Secretary, 
                the Secretary of Agriculture, the Secretary of Defense, 
                or a State to protect the habitat of a qualified 
                species for a specified period of time, and
                    ``(B) which meets the requirements of paragraph 
                (5).
            ``(5) Requirements.--An agreement meets the requirements of 
        this paragraph if the agreement--
                    ``(A) is consistent with any recovery plan which is 
                applicable and which has been approved for a qualified 
                species under section 4 of the Endangered Species Act 
                of 1973,
                    ``(B) includes a habitat management plan agreed to 
                by the appropriate Secretary and the eligible taxpayer, 
                and
                    ``(C) requires that technical assistance with 
                respect to the duties under the habitat management plan 
                be provided to the taxpayer by the appropriate 
                Secretary or an entity approved by the appropriate 
                Secretary.
    ``(d) Habitat Protection Easement Credit.--
            ``(1) In general.--For purposes of subsection (a)(1), the 
        habitat protection easement credit for any taxable year is an 
        amount equal to--
                    ``(A) in the case of a taxpayer described in 
                subsection (c)(1)(A) who has entered into a qualified 
                perpetual habitat protection agreement during such 
                taxable year, 100 percent of the excess (if any) of--
                            ``(i) the fair market value of the real 
                        property with respect to which the qualified 
                        perpetual habitat protection agreement is made, 
                        determined on the day before such agreement is 
                        entered into, over
                            ``(ii) the fair market value of such 
                        property, determined on the day after such 
                        agreement is entered into,
                    ``(B) in the case of a taxpayer described in 
                subsection (c)(1)(A) who has entered into a qualified 
                30-year habitat protection agreement during such 
                taxable year, 75 percent of such excess, and
                    ``(C) in the case of any other taxpayer, zero.
            ``(2) Reduction for amount received for easement.--The 
        amount determined under paragraph (1) shall be reduced by any 
        amount received by the taxpayer in connection with the 
        easement.
            ``(3) Limitation based on amount of tax.--The credit 
        allowed under subsection (a)(1) for any taxable year shall not 
        exceed the sum of--
                    ``(A) the taxpayer's regular tax liability for the 
                taxable year reduced by the sum of the credits 
                allowable under subpart A and sections 27, 30, 30B, 
                30C, and 30D, and
                    ``(B) the tax imposed by section 55(a) for the 
                taxable year.
            ``(4) Carryforward of unused credit.--If the credit 
        allowable under subsection (a)(1) for any taxable year exceeds 
        the limitation imposed by paragraph (3) for such taxable year, 
        such excess shall be carried to the succeeding taxable year and 
        added to the credit allowable under subsection (a)(1) for such 
        succeeding taxable year.
            ``(5) Qualified appraisals required.--No amount shall be 
        taken into account under this subsection unless the eligible 
        taxpayer includes with the taxpayer's return for the taxable 
        year a qualified appraisal (within the meaning of section 
        170(f)(11)(E)) of the real property.
    ``(e) Habitat Restoration Credit.--
            ``(1) In general.--For purposes of subsection (a)(2), the 
        habitat restoration credit for any taxable year shall be an 
        amount equal to--
                    ``(A) in the case of a qualified perpetual habitat 
                protection agreement, 100 percent of the costs paid or 
                incurred by an eligible taxpayer during such taxable 
                year pursuant to the habitat management plan under such 
                agreement,
                    ``(B) in the case of a qualified 30-year habitat 
                protection agreement, 75 percent of the costs paid or 
                incurred by an eligible taxpayer during such taxable 
                year pursuant to the habitat management plan under such 
                agreement, and
                    ``(C) in the case of a qualified habitat protection 
                agreement, 50 percent of the costs paid or incurred by 
                an eligible taxpayer during such taxable year pursuant 
                to the habitat management plan under such agreement.
            ``(2) Limitation based on amount of tax.--The credit 
        allowed under subsection (a)(2) for any taxable year shall not 
        exceed the excess (if any) of--
                    ``(A) the regular tax liability for the taxable 
                year reduced by the sum of the credits allowable under 
                subpart A, sections 27, 30, 30B, 30C, 30D, and 
                subsection (a)(1), over
                    ``(B) the tentative minimum tax for the taxable 
                year.
            ``(3) Carryforward of unused credit.--If the credit 
        allowable under subsection (a)(2) for any taxable year exceeds 
        the limitation imposed by paragraph (2) for such taxable year, 
        such excess shall be carried to the succeeding taxable year and 
        added to the credit allowable under subsection (a)(2) for such 
        succeeding taxable year.
            ``(4) Special rules.--
                    ``(A) Certain costs not included.--No amount shall 
                be taken into account with respect to any cost which is 
                paid or incurred by a taxpayer to comply with any 
                requirement of a Federal, State, or local government 
                (other than costs required under an agreement described 
                in subsection (c)).
                    ``(B) Subsidized financing.--For purposes of 
                paragraph (1), the amount of costs paid or incurred by 
                an eligible taxpayer pursuant to any habitat management 
                plan described in subsection (c)(5)(B) shall be reduced 
                by the amount of any financing provided under any 
                Federal or State program a principal purpose of which 
                is to subsidize financing for the conservation of the 
                habitat of a qualified species.
    ``(f) Endangered Species Recovery Credit Limitation.--
            ``(1) In general.--There is an endangered species recovery 
        credit limitation for each calendar year. Such limitation is--
                    ``(A) for 2008, 2009, 2010, 2011, and 2012--
                            ``(i) with respect to allocations described 
                        in paragraph (2)(A)--
                                    ``(I) $5,000,000 with respect to 
                                qualified perpetual habitat protection 
                                agreements,
                                    ``(II) $2,000,000 with respect to 
                                qualified 30-year habitat protection 
                                agreements, and
                                    ``(III) $1,000,000 with respect to 
                                qualified habitat protection 
                                agreements, and
                            ``(ii) with respect to allocations 
                        described in paragraph (2)(B)--
                                    ``(I) $290,000,000 with respect to 
                                qualified perpetual habitat protection 
                                agreements,
                                    ``(II) $55,000,000 with respect to 
                                qualified 30-year habitat protection 
                                agreements, and
                                    ``(III) $35,000,000 with respect to 
                                qualified habitat protection 
                                agreements, and
                    ``(B) except as provided in paragraph (3), zero 
                thereafter.
            ``(2) Allocation of limitation.--
                    ``(A) Allocations in coordination with the 
                secretary of agriculture.--The limitations described in 
                paragraph (1)(A)(i) shall be allocated to eligible 
                taxpayers by the Secretary in consultation with the 
                Secretary of Agriculture.
                    ``(B) Other allocations.--
                            ``(i) In general.--The limitations 
                        described in paragraph (1)(A)(ii) shall be 
                        allocated to eligible taxpayers in consultation 
                        with the Secretary of the Interior and the 
                        Secretary of Commerce.
                            ``(ii) Establishment of allocation 
                        program.--Not later than 180 days after the 
                        date of the enactment of this Act, the 
                        Secretary, in consultation with the Secretary 
                        of the Interior and the Secretary of Commerce, 
                        shall, by regulation, establish a program to 
                        process applications from eligible taxpayers 
                        and to determine how to best allocate the 
                        credit limitations under clause (i) taking into 
                        account the considerations described in clause 
                        (iii).
                            ``(iii) Considerations.--In accepting 
                        applications to make allocations to eligible 
                        taxpayers under this section, priority shall be 
                        given to taxpayers with agreements--
                                    ``(I) relating to habitats that 
                                will significantly increase the 
                                likelihood of recovering and delisting 
                                a species as an endangered species or a 
                                threatened species (as defined under 
                                section 2 of the Endangered Species Act 
                                of 1973),
                                    ``(II) that are cost-effective and 
                                maximize the benefits to a qualified 
                                species per dollar expended,
                                    ``(III) relating to habitats of 
                                species which have a federally approved 
                                recovery plan pursuant to section 4 of 
                                the Endangered Species Act of 1973,
                                    ``(IV) relating to habitats with 
                                the potential to contribute 
                                significantly to the improvement of the 
                                status of a qualified species,
                                    ``(V) relating to habitats with the 
                                potential to contribute significantly 
                                to the eradication or control of 
                                invasive species that are imperiling a 
                                qualified species,
                                    ``(VI) with habitat management 
                                plans that will manage multiple 
                                qualified species,
                                    ``(VII) with habitat management 
                                plans that will create adjacent or 
                                proximate habitat for the recovery of a 
                                qualified species,
                                    ``(VIII) relating to habitats for 
                                qualified species with an urgent need 
                                for protection,
                                    ``(IX) with habitat management 
                                plans that assist in preventing the 
                                listing of a species as endangered or 
                                threatened under the Endangered Species 
                                Act of 1973 or a similar State law,
                                    ``(X) with habitat management plans 
                                that may resolve conflicts between the 
                                protection of qualified species and 
                                otherwise lawful human activities, and
                                    ``(XI) with habitat management 
                                plans that may resolve conflicts 
                                between the protection of a qualified 
                                species and military training or other 
                                military operations.
            ``(3) Carryover of unused limitation.--If for any calendar 
        year any of the limitations under paragraph (1) (after the 
        application of this paragraph) exceeds the amount allocated to 
        eligible taxpayers for such calendar year, such limitation 
        amount for the following calendar year shall be increased by 
        the amount of such excess.
    ``(g) Other Definitions and Special Rules.--
            ``(1) Appropriate secretary.--The term `appropriate 
        Secretary' has the meaning given to the term `Secretary' under 
        section 3(15) of the Endangered Species Act of 1973.
            ``(2) Habitat management plan.--The term `habitat 
        management plan' means, with respect to any habitat, a plan 
        which--
                    ``(A) identifies one or more qualified species to 
                which the plan applies,
                    ``(B) is designed to--
                            ``(i) restore or enhance the habitat of the 
                        qualified species, or
                            ``(ii) reduce threats to the qualified 
                        species through the management of the habitat,
                    ``(C) describes the current condition of the 
                habitat to be restored or enhanced,
                    ``(D) describes the threats to the qualified 
                species that are intended to be reduced through the 
                plan,
                    ``(E) describes the management practices to be 
                undertaken by the taxpayer,
                    ``(F) provides a schedule of deadlines for 
                undertaking such management practices and the expected 
                responses of the habitat and the species,
                    ``(G) requires monitoring of the management 
                practices and the status of the qualified species and 
                its habitat, and
                    ``(H) describes the technical assistance to be 
                provided to the taxpayer and identifies the entity that 
                will provide such assistance.
            ``(3) Qualified species.--The term `qualified species' 
        means--
                    ``(A) any species listed as an endangered species 
                or threatened species under the Endangered Species Act 
                of 1973, or
                    ``(B) any species for which a finding has been made 
                under section 4(b)(3) of the Endangered Species Act of 
                1973 that listing under such Act may be warranted.
            ``(4) Taking.--The term `taking' has the meaning given to 
        such term under the Endangered Species Act of 1973.
            ``(5) Reduction in basis.--For purposes of this subtitle--
                    ``(A) Habitat protection easement credit.--The 
                basis of any property for which a credit is allowed 
                under subsection (a)(1) shall be reduced by the amount 
                of basis which is allocated, under regulations 
                prescribed by the Secretary, to the easement granted as 
                part of a qualified perpetual habitat protection 
                agreement or a qualified 30-year habitat protection 
                agreement.
                    ``(B) Habitat restoration credit.--If a credit is 
                allowed under subsection (a)(2) for any expenditure 
                with respect to any property, the increase in the basis 
                of such property which would (but for this 
                subparagraph) result from such expenditure shall be 
                reduced by the amount of the credit so allowed.
            ``(6) Denial of double benefit.--No deduction or other 
        credit shall be allowed under this chapter for any amount with 
        respect to which a credit is allowed under subsection (a).
            ``(7) Certification.--No credit shall be allowed under 
        subsection (a) unless the appropriate Secretary certifies that 
        any agreement described in subsection (c) will contribute to 
        the recovery of a qualified species.
            ``(8) Request for authorization of incidental takings.--The 
        Secretary shall request the appropriate Secretary to consider 
        whether to authorize under the Endangered Species Act of 1973 
        takings by an eligible taxpayer of a qualified species to which 
        an agreement described in subsection (c) relates if the takings 
        are incidental to--
                    ``(A) the restoration, enhancement, or management 
                of the habitat pursuant to the habitat management plan 
                under the agreement, or
                    ``(B) the use of the property to which the 
                agreement pertains at any time after the expiration of 
                the easement or the specified period described in 
                subsection (c)(4)(A), but only if such use will leave 
                the qualified species at least as well off on the 
                property as it was before the agreement was made.
            ``(9) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit under any credit allowable 
        under subsection (a) if the Secretary determines that--
                    ``(A) the taxpayer has failed to carry out the 
                duties of the taxpayer under the terms of a qualified 
                perpetual habitat protection agreement, a qualified 30-
                year habitat protection agreement, or a qualified 
                habitat protection agreement, and
                    ``(B) there are no other available means to 
                remediate such failure.''.
    (b) GAO Study.--
            (1) In general.--The Comptroller General of the United 
        States shall undertake a study on the effectiveness of the 
        credit allowed under section 30E of the Internal Revenue Code 
        of 1986 (as added by this Act).
            (2) Issues to be studied.--The study under paragraph (1) 
        shall--
                    (A) evaluate--
                            (i) the contributions that habitat 
                        management plans established under such credit 
                        have made in restoring or enhancing species 
                        habitat and reducing threats to species, and
                            (ii) the implementation of the credit 
                        allocation program established in section 
                        30E(f)(2) of such Code (as so added), and
                    (B) include recommendations for improving the 
                effectiveness of such credit.
            (3) Reports.--
                    (A) Interim report.--Not later than 3 years after 
                the date of the enactment of this Act, the Comptroller 
                General of the United States shall submit to Congress 
                an interim report on the study conducted under 
                paragraph (1).
                    (B) Final report.--Not later than 5 years after the 
                date of the enactment of this Act, the Comptroller 
                General of the United States shall submit to Congress a 
                final report on the study conducted under paragraph 
                (1).
    (c) Conforming Amendments.--
            (1) Section 1016(a) is amended by striking ``and'' at the 
        end of paragraph (36), by striking the period at the end of 
        paragraph (37) and inserting ``, and'', and by inserting after 
        paragraph (37) the following new paragraph:
            ``(38) to the extent provided in section 30E(g)(5).''.
            (2) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1, as amended by this Act, is amended 
        by inserting after the item relating to section 30D the 
        following new item:

``Sec. 30E. Endangered species recovery and restoration credit.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

SEC. 205. DEDUCTION FOR ENDANGERED SPECIES RECOVERY EXPENDITURES.

    (a) Deduction for Endangered Species Recovery Expenditures.--
            (1) In general.--Paragraph (1) of section 175(c) (relating 
        to definitions) is amended by inserting after the first 
        sentence the following new sentence: ``Such term shall include 
        expenditures paid or incurred for the purpose of achieving 
        site-specific management actions recommended in recovery plans 
        approved pursuant to the Endangered Species Act of 1973.''.
            (2) Conforming amendments.--
                    (A) Section 175 is amended by inserting ``, or for 
                endangered species recovery'' after ``prevention of 
                erosion of land used in farming'' each place it appears 
                in subsections (a) and (c).
                    (B) The heading of section 175 is amended by 
                inserting ``; endangered species recovery 
                expenditures'' before the period.
                    (C) The item relating to section 175 in the table 
                of sections for part VI of subchapter B of chapter 1 is 
                amended by inserting ``; endangered species recovery 
                expenditures'' before the period.
    (b) Limitations.--Paragraph (3) of section 175(c) (relating to 
additional limitations) is amended--
            (1) in the heading, by inserting ``or endangered species 
        recovery plan'' after ``conservation plan'', and
            (2) in subparagraph (A)(i), by inserting ``or the recovery 
        plan approved pursuant to the Endangered Species Act of 1973'' 
        after ``Department of Agriculture''.
    (c) Effective Date.--The amendments made by this section shall 
apply to expenditures paid or incurred after the date of the enactment 
of this Act.

SEC. 206. EXCLUSION FOR CERTAIN PAYMENTS AND PROGRAMS RELATING TO FISH 
              AND WILDLIFE.

    (a) In General.--Subsection (a) of section 126 (relating to certain 
cost-sharing payments) is amended by redesignating paragraph (10) as 
paragraph (13) and by inserting after paragraph (9) the following new 
paragraphs:
            ``(10) The Partners for Fish and Wildlife Program 
        authorized by the Partners for Fish and Wildlife Act.
            ``(11) The Landowner Incentive Program, the State Wildlife 
        Grants Program, and the Private Stewardship Grants Program 
        authorized by the Fish and Wildlife Act of 1956.
            ``(12) The Forest Health Protection Program and the program 
        related to integrated pest management authorized by the 
        Cooperative Forestry Assistance Act of 1978.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to payments received after the date of the enactment of this Act.

SEC. 207. CREDIT FOR EASEMENTS GRANTED UNDER CERTAIN DEPARTMENT OF 
              AGRICULTURE CONSERVATION PROGRAMS.

    (a) In General.--Subpart B 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. 30F. AGRICULTURE CONSERVATION EASEMENT CREDIT.

    ``(a) In General.--There shall be allowed as a credit against the 
tax imposed by this chapter for the taxable year an amount equal to the 
sum of--
            ``(1) the wetlands reserve conservation credit, plus
            ``(2) the working grassland protection credit.
    ``(b) Limitations.--
            ``(1) Limitation based on amount of tax.--The credit 
        allowed under this section for any taxable year shall not 
        exceed the excess of--
                    ``(A) the regular tax liability for the taxable 
                year reduced by the sum of the credits allowable under 
                subpart A and sections 27, 30, 30B, 30C, 30D, 
                30E(a)(1), and 30E(a)(2), over
                    ``(B) the tentative minimum tax for the taxable 
                year.
            ``(2) Limitation based on allocated portion of national 
        limitation.--The credit allowed under subsection (a) for any 
        taxpayer for any taxable year shall not exceed the excess of--
                    ``(A) the amount of the national credit limitation 
                allocated to such taxpayer under subsection (e) for 
                such taxable year and all prior taxable years, over
                    ``(B) the credit allowed under subsection (a) for 
                all prior taxable years.
    ``(c) Wetlands Reserve Conservation Credit.--
            ``(1) In general.--For purposes of subsection (a)(1), in 
        the case of a wetlands reserve eligible taxpayer, the wetlands 
        reserve conservation credit for any taxable year is an amount 
        equal to the applicable percentage of the wetlands reserve 
        easement value.
            ``(2) Wetlands reserve eligible taxpayer.--For purposes of 
        this section, the term `wetlands reserve eligible taxpayer' 
        means any taxpayer who--
                    ``(A) has granted an easement to the Secretary of 
                Agriculture under the wetlands reserve program, and
                    ``(B) who has entered into an agreement with the 
                Secretary of Agriculture to receive an allocation under 
                subsection (e)(2) in lieu of a payment under section 
                1237A(f) of the Food Security Act of 1985.
            ``(3) Applicable percentage.--For purposes of paragraph 
        (1), the term `applicable percentage' means the percentage 
        equal to--
                    ``(A) 100 percent, minus
                    ``(B) the highest percentage of tax which would 
                apply under section 1 or 11 with respect to the 
                taxpayer if the taxable income of the taxpayer were 
                increased by an amount equal to the wetlands reserve 
                easement value.
            ``(4) Wetlands reserve easement value.--For purposes of 
        this section, the term `wetlands reserve easement value' means 
        the lesser of--
                    ``(A) the product of--
                            ``(i) the wetlands reserve geographic area 
                        rate for the area in which the real property to 
                        which the easement pertains is located, and
                            ``(ii) the number of acres to which the 
                        easement applies, or
                    ``(B) the value of any payment to which the 
                taxpayer would be entitled with respect to such 
                easement under section 1237A(f) of the Food Security 
                Act of 1985 if the taxpayer had not entered into an 
                agreement described in paragraph (2)(B).
            ``(5) Wetlands reserve geographic area rate.--For purposes 
        of paragraph (4)(A)(i), the wetlands reserve geographic area 
        rate shall be the rate per acre, determined by the Secretary in 
        consultation with the Secretary of Agriculture, appropriate for 
        easements granted under the wetlands reserve program in 
        different geographic areas.
    ``(d) Working Grassland Protection Credit.--
            ``(1) In general.--For purposes of subsection (a)(2), in 
        the case of any working grassland eligible taxpayer, the 
        working grassland protection credit for any taxable year is an 
        amount equal to the applicable percentage of the working 
        grassland easement value.
            ``(2) Working grassland eligible taxpayer.--For purposes of 
        this section, the term `working grassland eligible taxpayer' 
        means any taxpayer who--
                    ``(A) has granted an easement under the working 
                grassland protection program to an eligible easement 
                holder, and
                    ``(B) who has entered into an agreement with the 
                Secretary of Agriculture to receive an allocation under 
                subsection (e)(2) in lieu of a payment under section 
                1238P(b) of the Food Security Act of 1985.
            ``(3) Applicable percentage.--For purposes of paragraph 
        (1), the term `applicable percentage' means the percentage 
        equal to--
                    ``(A) 100 percent, minus
                    ``(B) the highest percentage of tax which would 
                apply under section 1 or 11 with respect to the 
                taxpayer if the taxable income of the taxpayer were 
                increased by an amount equal to the working grassland 
                easement value.
            ``(4) Working grassland easement value.--For purposes of 
        this section, the term `working grassland easement value' 
        means--
                    ``(A) in the case of a permanent conservation 
                easement (within the meaning of section 1238N of the 
                Food Security Act of 1985), the lesser of--
                            ``(i) the product of--
                                    ``(I) the working grassland 
                                protection geographic area rate for the 
                                area in which the real property to 
                                which the easement pertains is located, 
                                and
                                    ``(II) the number of acres to which 
                                the easement applies, or
                            ``(ii) the value of any payment to which 
                        the taxpayer would be entitled in return for 
                        such easement under section 1238P(b)(1)(A)(i) 
                        of the Food Security Act of 1985 if the 
                        taxpayer had not entered into an agreement 
                        described in paragraph (2)(B), and
                    ``(B) in the case of a 30-year conservation 
                easement (within the meaning of section 1238N of such 
                Act), the lesser of--
                            ``(i) 30 percent of the lesser of the 
                        amount determined under clause (i) or (ii) of 
                        subparagraph (A), or
                            ``(ii) the value of any payment to which 
                        the taxpayer would be entitled in return for 
                        such easement under section 1238P(b)(1)(A)(ii) 
                        of such Act if the taxpayer had not entered 
                        into an agreement described in paragraph 
                        (2)(B).
            ``(5) Working grassland protection geographic area rate.--
        For purposes of paragraph (4)(A)(i)(I), the working grassland 
        protection geographic area rate shall be the rate, determined 
        by the Secretary in consultation with the Secretary of 
        Agriculture, appropriate for easements granted under the 
        working grassland protection program in different geographic 
        areas.
    ``(e) National Conservation Credit Limitation.--
            ``(1) In general.--The aggregate credits allowed under 
        subsection (a) for all taxpayers shall not exceed 
        $1,000,000,000.
            ``(2) Allocation.--The Secretary, in consultation with the 
        Secretary of Agriculture, shall allocate the credit limitation 
        under paragraph (1) to taxpayers who grant easements under the 
        wetlands reserve program and the working grassland protection 
        program.
            ``(3) Limitation on allocation.--No amount of the credit 
        limitation may be allocated to any taxpayer for any taxable 
        year which ends after September 30, 2012.
    ``(f) Carryforward.--If the amount of the credit allowable under 
subsection (a) for any taxpayer for any taxable year (determined 
without regard to subsection (b)(1)) exceeds the limitation under 
subsection (b)(1), such excess may be carried forward to the succeeding 
taxable year and added to the credit allowable under subsection (a) for 
such succeeding taxable year.
    ``(g) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Wetlands reserve program.--The term `wetlands reserve 
        program' means the wetlands reserve program established under 
        subchapter C of chapter 1 of subtitle D of title XII of the 
        Food Security Act of 1985.
            ``(2) Working grassland protection program.--The term 
        `working grassland protection program' means the grassland 
        reserve program established under subchapter C of chapter 2 of 
        subtitle D of title XII of the Food Security Act of 1985.
            ``(3) Eligible easement holder.--The term `eligible 
        easement holder' means the Secretary of Agriculture or a State.
            ``(4) Denial of double benefit.--No deduction or other 
        credit shall be allowed under this chapter for any amount with 
        respect to which a credit is allowed under subsection (a).
            ``(5) Reduction in basis.--For purposes of this subtitle, 
        the basis of any property for which a credit is allowed under 
        subsection (a) shall be reduced by the amount of basis which is 
        allocated, under regulations prescribed by the Secretary, to 
        the easement granted under the wetlands reserve program or the 
        working grassland protection program.
            ``(6) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit allowable 
        under subsection (a) if the Secretary, in consultation with the 
        Secretary of Agriculture, determines that--
                    ``(A) the eligible taxpayer has failed to carry out 
                the duties of the taxpayer under the terms of the 
                easement, and
                    ``(B) there are no other available means to 
                remediate such failure.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a), as amended by this Act, is amended by 
        striking ``and'' at the end of paragraph (37), by striking the 
        period at the end of paragraph (38) and inserting ``, and'', 
        and by inserting after paragraph (38) the following new 
        paragraph:
            ``(39) to the extent provided in section 30F(g)(5).''.
            (2) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1, as amended by this Act, is amended 
        by inserting after the item relating to section 30E the 
        following new item:

``Sec. 30F. Agriculture conservation easement credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to easements granted after September 30, 2007, in taxable years 
ending after such date.

                     Subtitle B--Timber Provisions

SEC. 211. FOREST CONSERVATION BONDS.

    (a) Tax-Exempt Bond Financing.--
            (1) In general.--For purposes of the Internal Revenue Code 
        of 1986, any qualified forest conservation bond shall be 
        treated as an exempt facility bond under section 142 of such 
        Code.
            (2) Qualified forest conservation bond.--For purposes of 
        this section, the term ``qualified forest conservation bond'' 
        means any bond issued as part of an issue if--
                    (A) 95 percent or more of the net proceeds (as 
                defined in section 150(a)(3) of such Code) of such 
                issue are to be used for qualified project costs, and
                    (B) such bond is issued before the date which is 36 
                months after the date of the enactment of this Act.
            (3) Limitation on aggregate amount issued.--
                    (A) In general.--The maximum aggregate face amount 
                of bonds which may be issued under this subsection 
                shall not exceed $1,500,000,000 for all projects 
                (excluding refunding bonds).
                    (B) Enforcement of limitation.--An issue shall not 
                be treated as an issue described in paragraph (2) if 
                the aggregate face amount of bonds issued pursuant to 
                such issue for any qualified projects costs (when added 
                to the aggregate face amount of bonds previously so 
                issued for such costs) exceeds the amount allocated 
                under subparagraph (C).
                    (C) Initial allocation of limitation.--The 
                limitation described in subparagraph (A) shall be 
                allocated by the Secretary of the Treasury among 
                qualified organizations as follows:
                            (i) 35 percent for qualified project costs 
                        with respect to the cost of acquisition by any 
                        qualified organization in the Pacific Northwest 
                        region.
                            (ii) 30 percent for qualified project costs 
                        with respect to the cost of acquisition by any 
                        qualified organization in the Western region.
                            (iii) 17.5 percent for qualified project 
                        costs with respect to the cost of acquisition 
                        by any qualified organization in the Southeast 
                        region.
                            (iv) 17.5 percent for qualified project 
                        costs with respect to the cost of acquisition 
                        by any qualified organization in the Northeast 
                        region.
                    (D) Secondary allocation procedure.--If for the 
                period ending on the last day of the 24th month after 
                the date of the enactment of this Act, the limitation 
                amount for any region under subparagraph (C) exceeds 
                the amount of bonds allocated by the Secretary of the 
                Treasury during such period, the Secretary of the 
                Treasury may allocate such excess among qualified 
                organizations in any other region in such manner as the 
                Secretary of the Treasury determines appropriate.
                    (E) Regions.--For purposes of this paragraph--
                            (i) Pacific northwest region.--The term 
                        ``Pacific Northwest region'' means Region 6 as 
                        defined by the United States Forest Service of 
                        the Department of Agriculture under section 
                        200.2 of title 36, Code of Federal Regulations.
                            (ii) Western region.--The term ``Western 
                        region'' means Regions 1, 2, 3, 4, 5, and 10 
                        (as so defined).
                            (iii) Southeast region.--The term 
                        ``Southeast region'' means Region 8 (as so 
                        defined).
                            (iv) Northeast region.--The term 
                        ``Northeast region'' means Region 9 (as so 
                        defined).
            (4) Qualified project costs.--For purposes of this 
        subsection, the term ``qualified project costs'' means the 
        costs of acquisition by a qualified organization from an 
        unrelated person of forests and forest land which, at the time 
        of acquisition or immediately thereafter, are subject to a 
        conservation restriction described in subsection (c)(2).
            (5) Special rules.--In applying the Internal Revenue Code 
        of 1986 to any qualified forest conservation bond, the 
        following modifications shall apply:
                    (A) Section 146 of such Code (relating to volume 
                cap) shall not apply.
                    (B) For purposes of section 147(b) of such Code 
                (relating to maturity may not exceed 120 percent of 
                economic life), the land and standing timber acquired 
                with proceeds of qualified forest conservation bonds 
                shall have an economic life of 35 years.
                    (C) Subsections (c) and (d) of section 147 of such 
                Code (relating to limitations on acquisition of land 
                and existing property) shall not apply.
            (6) Treatment of current refunding bonds.--Paragraphs 
        (2)(B) and (3) shall not apply to any bond (or series of bonds) 
        issued to refund a qualified forest conservation bond issued 
        before the date which is 36 months after the date of the 
        enactment of this Act, if--
                    (A) the average maturity date of the issue of which 
                the refunding bond is a part is not later than the 
                average maturity date of the bonds to be refunded by 
                such issue,
                    (B) the amount of the refunding bond does not 
                exceed the outstanding amount of the refunded bond, and
                    (C) the net proceeds of the refunding bond are used 
                to redeem the refunded bond not later than 90 days 
                after the date of the issuance of the refunding bond.
        For purposes of subparagraph (A), average maturity shall be 
        determined in accordance with section 147(b)(2)(A) of such 
        Code.
            (7) Effective date.--This subsection shall apply to 
        obligations issued on or after the date which is 180 days after 
        the date of the enactment of this Act.
    (b) Items From Qualified Harvesting Activities Not Subject to Tax 
or Taken Into Account.--
            (1) In general.--Income, gains, deductions, losses, or 
        credits from a qualified harvesting activity conducted by a 
        qualified organization shall not be subject to tax or taken 
        into account under subtitle A of the Internal Revenue Code of 
        1986.
            (2) Limitation.--The amount of income excluded from gross 
        income under paragraph (1) for any taxable year shall not 
        exceed the amount used by the qualified organization to make 
        debt service payments during such taxable year for qualified 
        forest conservation bonds.
            (3) Qualified harvesting activity.--For purposes of 
        paragraph (1)--
                    (A) In general.--The term ``qualified harvesting 
                activity'' means the sale, lease, or harvesting, of 
                standing timber--
                            (i) on land owned by a qualified 
                        organization which was acquired with proceeds 
                        of qualified forest conservation bonds, and
                            (ii) pursuant to a qualified conservation 
                        plan adopted by the qualified organization.
                    (B) Exceptions.--
                            (i) Cessation as qualified organization.--
                        The term ``qualified harvesting activity'' 
                        shall not include any sale, lease, or 
                        harvesting for any period during which the 
                        organization ceases to qualify as a qualified 
                        organization.
                            (ii) Exceeding limits on harvesting.--The 
                        term ``qualified harvesting activity'' shall 
                        not include any sale, lease, or harvesting of 
                        standing timber on land acquired with proceeds 
                        of qualified forest conservation bonds to the 
                        extent that--
                                    (I) the average annual area of 
                                timber harvested from such land exceeds 
                                2.5 percent of the total area of such 
                                land, or
                                    (II) the quantity of timber removed 
                                from such land exceeds the quantity 
                                which can be removed from such land 
                                annually in perpetuity on a sustained-
                                yield basis with respect to such land.
                        The limitations under subclauses (I) and (II) 
                        shall not apply to post-fire restoration and 
                        rehabilitation or sanitation harvesting of 
                        timber stands which are substantially damaged 
                        by fire, windthrow, or other catastrophes, or 
                        which are in imminent danger from insect or 
                        disease attack.
            (4) Termination.--This subsection shall not apply to any 
        qualified harvesting activity of a qualified organization 
        occurring after the date on which--
                    (A) there is no outstanding qualified forest 
                conservation bond with respect to such qualified 
                organization, or
                    (B) any such bond ceases to be a tax-exempt bond.
            (5) Partial recapture of benefits if harvesting limit 
        exceeded.--If, as of the date that this subsection ceases to 
        apply under paragraph (4)(B), the average annual area of timber 
        harvested from the land exceeds the requirement of subclause 
        (I) or (II) of paragraph (3)(B)(ii), the tax imposed by chapter 
        1 of the Internal Revenue Code of 1986 shall be increased, 
        under rules prescribed by the Secretary of the Treasury, by the 
        sum of the tax benefits attributable to such excess and 
        interest at the underpayment rate under section 6621 of such 
        Code for the period of the underpayment.
    (c) Definitions.--For purposes of this section--
            (1) Qualified conservation plan.--The term ``qualified 
        conservation plan'' means a multiple land use program or plan 
        which--
                    (A) is designed and administered primarily for the 
                purposes of protecting and enhancing wildlife and fish, 
                timber, scenic attributes, recreation, and soil and 
                water quality of the forest and forest land,
                    (B) mandates that conservation of forest and forest 
                land is the single-most significant use of the forest 
                and forest land, and
                    (C) requires that timber harvesting be consistent 
                with--
                            (i) restoring and maintaining reference 
                        conditions for the region's ecotype,
                            (ii) restoring and maintaining a 
                        representative sample of young, mid, and late 
                        successional forest age classes,
                            (iii) maintaining or restoring the 
                        resources' ecological health for purposes of 
                        preventing damage from fire, insect, or 
                        disease,
                            (iv) maintaining or enhancing wildlife or 
                        fish habitat, or
                            (v) enhancing research opportunities in 
                        sustainable renewable resource uses.
            (2) Conservation restriction.--The conservation restriction 
        described in this paragraph is a restriction which--
                    (A) is granted in perpetuity to an unrelated person 
                which is described in section 170(h)(3) of such Code 
                and which, in the case of a nongovernmental unit, is 
                organized and operated for conservation purposes,
                    (B) meets the requirements of clause (ii) or 
                (iii)(II) of section 170(h)(4)(A) of such Code,
                    (C) obligates the qualified organization to pay the 
                costs incurred by the holder of the conservation 
                restriction in monitoring compliance with such 
                restriction, and
                    (D) requires an increasing level of conservation 
                benefits to be provided whenever circumstances allow 
                it.
            (3) Qualified organization.--The term ``qualified 
        organization'' means a nonprofit organization--
                    (A) substantially all the activities of which are 
                charitable, scientific, or educational, including 
                acquiring, protecting, restoring, managing, and 
                developing forest lands and other renewable resources 
                for the long-term charitable, educational, scientific, 
                and public benefit,
                    (B) which periodically conducts educational 
                programs designed to inform the public of 
                environmentally sensitive forestry management and 
                conservation techniques,
                    (C) which has at all times a board of directors--
                            (i) at least 20 percent of the members of 
                        which are representatives of the conservation 
                        community,
                            (ii) at least 20 percent of the members of 
                        which are public officials, and
                            (iii) not more than one-third of the 
                        members of which are individuals who are or 
                        were at any time within 5 years before the 
                        beginning of a term of membership on the board, 
                        an employee of, independent contractor with 
                        respect to, officer of, director of, or held a 
                        material financial interest in, a commercial 
                        forest products enterprise with which the 
                        qualified organization has a contractual or 
                        other financial arrangement,
                    (D) the bylaws of which require at least two-thirds 
                of the members of the board of directors to vote 
                affirmatively to approve the qualified conservation 
                plan and any change thereto, and
                    (E) upon dissolution, is required to dedicate its 
                assets to--
                            (i) an organization described in section 
                        501(c)(3) of such Code which is organized and 
                        operated for conservation purposes, or
                            (ii) a governmental unit described in 
                        section 170(c)(1) of such Code.
            (4) Unrelated person.--The term ``unrelated person'' means 
        a person who is not a related person.
            (5) Related person.--A person shall be treated as related 
        to another person if--
                    (A) such person bears a relationship to such other 
                person described in section 267(b) (determined without 
                regard to paragraph (9) thereof), or 707(b)(1), of such 
                Code, determined by substituting ``25 percent'' for 
                ``50 percent'' each place it appears therein, and
                    (B) in the case such other person is a non-profit 
                organization, if such person controls directly or 
                indirectly more than 25 percent of the governing body 
                of such organization.

SEC. 212. DEDUCTION FOR QUALIFIED TIMBER GAIN.

    (a) In General.--Part I of subchapter P of chapter 1 is amended by 
adding at the end the following new section:

``SEC. 1203. DEDUCTION FOR QUALIFIED TIMBER GAIN.

    ``(a) In General.--In the case of a taxpayer which elects the 
application of this section for a taxable year, there shall be allowed 
a deduction against gross income in an amount equal to 60 percent of 
the lesser of--
            ``(1) the taxpayer's qualified timber gain for such year, 
        or
            ``(2) the taxpayer's net capital gain for such year.
    ``(b) Qualified Timber Gain.--For purposes of this section, the 
term `qualified timber gain' means, with respect to any taxpayer for 
any taxable year, the excess (if any) of--
            ``(1) the sum of the taxpayer's gains described in 
        subsections (a) and (b) of section 631 for such year, over
            ``(2) the sum of the taxpayer's losses described in such 
        subsections for such year.
    ``(c) Special Rules for Pass-Thru Entities.--
            ``(1) In the case of any qualified timber gain of a pass-
        thru entity (as defined in section 1(h)(10)) other than a real 
        estate investment trust, the election under this section shall 
        be made separately by each taxpayer subject to tax on such 
        gain.
            ``(2) In the case of any qualified timber gain of a real 
        estate investment trust, the election under this section shall 
        be made by the real estate investment trust.
    ``(d) Election.--An election under this section may be made only 
with respect to the first taxable year beginning after the date of the 
enactment of this section.''.
    (b) Coordination With Maximum Capital Gains Rates.--
            (1) Taxpayers other than corporations.--Paragraph (2) of 
        section 1(h) is amended to read as follows:
            ``(2) Reduction of net capital gain.--For purposes of this 
        subsection, the net capital gain for any taxable year shall be 
        reduced (but not below zero) by the sum of--
                    ``(A) the amount which the taxpayer takes into 
                account as investment income under section 
                163(d)(4)(B)(iii), and
                    ``(B) in the case of a taxable year with respect to 
                which an election is in effect under section 1203, the 
                lesser of--
                            ``(i) the amount described in paragraph (1) 
                        of section 1203(a), or
                            ``(ii) the amount described in paragraph 
                        (2) of such section.''.
            (2) Corporations.--Section 1201 is amended by redesignating 
        subsection (b) as subsection (c) and inserting after subsection 
        (a) the following new subsection:
    ``(b) Qualified Timber Gain Not Taken Into Account.--For purposes 
of this section, in the case of a corporation with respect to which an 
election is in effect under section 1203, the net capital gain for any 
taxable year shall be reduced (but not below zero) by the corporation's 
qualified timber gain (as defined in section 1203(b)).''.
    (c) Deduction Allowed Whether or Not Individual Itemizes Other 
Deductions.--Subsection (a) of section 62 is amended by inserting 
before the last sentence the following new paragraph:
            ``(22) Qualified timber gains.--The deduction allowed by 
        section 1203.''.
    (d) Deduction Allowed in Computing Adjusted Current Earnings.--
Subparagraph (C) of section 56(g)(4) is amended by adding at the end 
the following new clause:
                            ``(vii) Deduction for qualified timber 
                        gain.--Clause (i) shall not apply to any 
                        deduction allowed under section 1203.''.
    (e) Deduction Allowed in Computing Taxable Income of Electing Small 
Business Trusts.--Subparagraph (C) of section 641(c)(2) is amended by 
inserting after clause (iii) the following new clause:
                            ``(iv) The deduction allowed under section 
                        1203.''.
    (f) Treatment of Qualified Timber Gain of Real Estate Investment 
Trusts.--Paragraph (3) of section 857(b) is amended by inserting after 
subparagraph (F) the following new subparagraph:
                    ``(G) Treatment of qualified timber gain.--For 
                purposes of this part, in the case of a real estate 
                investment trust with respect to which an election is 
                in effect under section 1203--
                            ``(i) Reduction of net capital gain.--The 
                        net capital gain of the real estate investment 
                        trust for any taxable year shall be reduced 
                        (but not below zero) by the real estate 
                        investment trust's qualified timber gain (as 
                        defined in section 1203(b)).
                            ``(ii) Adjustment to shareholder's basis 
                        attributable to deduction for qualified timber 
                        gains.--
                                    ``(I) In general.--The adjusted 
                                basis of shares in the hands of the 
                                shareholder shall be increased by the 
                                amount of the deduction allowable under 
                                section 1203(a) as provided in 
                                subclauses (II) and (III).
                                    ``(II) Allocation of basis increase 
                                for distributions made during taxable 
                                year.--For any taxable year of a real 
                                estate investment trust for which an 
                                election is in effect under section 
                                1203, in the case of a distribution 
                                made with respect to shares during such 
                                taxable year of amounts attributable to 
                                the deduction allowable under section 
                                1203(a), the adjusted basis of such 
                                shares shall be increased by the amount 
                                of such distributions.
                                    ``(III) Allocation of excess.--If 
                                the deduction allowable under section 
                                1203(a) for a taxable year exceeds the 
                                amount of distributions described in 
                                subclause (II), the excess shall be 
                                allocated to every shareholder of the 
                                real estate investment trust at the 
                                close of the trust's taxable year in 
                                the same manner as if a distribution of 
                                such excess were made with respect to 
                                such shares.
                                    ``(IV) Designations.--To the extent 
                                provided in regulations, a real estate 
                                investment trust shall designate the 
                                amounts described in subclauses (II) 
                                and (III) in a manner similar to the 
                                designations provided with respect to 
                                capital gains described in 
                                subparagraphs (C) and (D).
                                    ``(V) Definitions.--As used in this 
                                subparagraph, the terms `share' and 
                                `shareholder' shall include beneficial 
                                interests and holders of beneficial 
                                interests, respectively.
                            ``(iii) Earnings and profits deduction for 
                        qualified timber gains.--The deduction 
                        allowable under section 1203(a) for a taxable 
                        year shall be allowed as a deduction in 
                        computing the earnings and profits of the real 
                        estate investment trust for such taxable year. 
                        The earnings and profits of any such 
                        shareholder which is a corporation shall be 
                        appropriately adjusted in accordance with 
                        regulations prescribed by the Secretary.''.
    (g) Loss Attributable to Basis Adjustment for Deduction for 
Qualified Timber Gain of Real Estate Investment Trusts.--
            (1) Section 857(b)(8) is amended by redesignating 
        subparagraphs (B) and (C) as subparagraphs (C) and (D), 
        respectively, and by inserting after subparagraph (A) the 
        following new subparagraph:
                    ``(B) Loss attributable to basis adjustment for 
                deduction for qualified timber gain.--If--
                            ``(i) a shareholder of a real estate 
                        investment trust receives a basis adjustment 
                        provided under subsection (b)(3)(G)(ii), and
                            ``(ii) the taxpayer has held such share or 
                        interest for 6 months or less,
                then any loss on the sale or exchange of such share or 
                interest shall, to the extent of the amount described 
                in clause (i), be disallowed.''.
            (2) Subparagraph (D) of section 857(b)(8), as redesignated 
        by paragraph (1), is amended by striking ``subparagraph (A)'' 
        and inserting ``subparagraphs (A) and (B)''.
    (h) Conforming Amendments.--
            (1) Subparagraph (B) of section 172(d)(2) is amended to 
        read as follows:
                    ``(B) the exclusion under section 1202, and the 
                deduction under section 1203, shall not be allowed.''.
            (2) Paragraph (4) of section 642(c) is amended by striking 
        the first sentence and inserting ``To the extent that the 
        amount otherwise allowable as a deduction under this subsection 
        consists of gain described in section 1202(a) or qualified 
        timber gain (as defined in section 1203(b)), proper adjustment 
        shall be made for any exclusion allowable to the estate or 
        trust under section 1202 and for any deduction allowable to the 
        estate or trust under section 1203.''
            (3) Paragraph (3) of section 643(a) is amended by striking 
        the last sentence and inserting ``The exclusion under section 
        1202 and the deduction under section 1203 shall not be taken 
        into account.''.
            (4) Subparagraph (C) of section 643(a)(6) is amended to 
        read as follows:
                    ``(C) Paragraph (3) shall not apply to a foreign 
                trust. In the case of such a trust--
                            ``(i) there shall be included gains from 
                        the sale or exchange of capital assets, reduced 
                        by losses from such sales or exchanges to the 
                        extent such losses do not exceed gains from 
                        such sales or exchanges, and
                            ``(ii) the deduction under section 1203 
                        shall not be taken into account.''.
            (5) Paragraph (4) of section 691(c) is amended by inserting 
        ``1203,'' after ``1202,''.
            (6) Paragraph (2) of section 871(a) is amended by inserting 
        ``or 1203,'' after ``1202,''.
            (7) The table of sections for part I of subchapter P of 
        chapter 1 is amended by adding at the end the following new 
        item:

``Sec. 1203. Deduction for qualified timber gain.''.
    (i) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 213. EXCISE TAX NOT APPLICABLE TO SECTION 1203 DEDUCTION OF REAL 
              ESTATE INVESTMENT TRUSTS.

    (a) In General.--
            (1) Ordinary income.--Subparagraph (B) of section 
        4981(e)(1) is amended to read as follows:
                    ``(B) by not taking into account--
                            ``(i) any gain or loss from the sale or 
                        exchange of capital assets (determined without 
                        regard to any reduction that would be applied 
                        for purposes of section 857(b)(3)(G)(i)), and
                            ``(ii) any deduction allowable under 
                        section 1203, and''.
            (2) Capital gain net income.--Section 4981(e)(2) is amended 
        by adding at the end the following new subparagraph:
                    ``(D) Qualified timber gain.--The amount determined 
                under subparagraph (A) shall be determined without 
                regard to any reduction that would be applied for 
                purposes of section 857(b)(3)(G)(i) but shall be 
                reduced for any deduction allowable under section 1203 
                for such calendar year.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 214. TIMBER REIT MODERNIZATION.

    (a) In General.--Section 856(c)(5) is amended by adding after 
subparagraph (G) the following new subparagraph:
                    ``(H) Treatment of timber gains.--
                            ``(i) In general.--Gain from the sale of 
                        real property described in paragraph (2)(D) and 
                        (3)(C) shall include gain which is--
                                    ``(I) recognized by an election 
                                under section 631(a) from timber owned 
                                by the real estate investment trust, 
                                the cutting of which is provided by a 
                                taxable REIT subsidiary of the real 
                                estate investment trust;
                                    ``(II) recognized under section 
                                631(b); or
                                    ``(III) income which would 
                                constitute gain under subclause (I) or 
                                (II) but for the failure to meet the 1-
                                year holding period requirement.
                            ``(ii) Special rules.--
                                    ``(I) For purposes of this 
                                subtitle, cut timber, the gain of which 
                                is recognized by a real estate 
                                investment trust pursuant to an 
                                election under section 631(a) described 
                                in clause (i)(I) or so much of clause 
                                (i)(III) as relates to clause (i)(I), 
                                shall be deemed to be sold to the 
                                taxable REIT subsidiary of the real 
                                estate investment trust on the first 
                                day of the taxable year.
                                    ``(II) For purposes of this 
                                subtitle, income described in this 
                                subparagraph shall not be treated as 
                                gain from the sale of property 
                                described in section 1221(a)(1).
                            ``(iii) Termination.--This subparagraph 
                        shall not apply to dispositions after the 
                        termination date.''.
    (b) Termination Date.--Subsection (c) of section 856 is amended by 
adding at the end the following new paragraph:
            ``(8) Termination date.--For purposes of this subsection, 
        the term `termination date' means the last day of the first 
        taxable year beginning after the date of the enactment of this 
        paragraph.''.
    (c) Effective Date.--The amendments made by subsection (a) shall 
apply to dispositions in taxable years beginning after the date of the 
enactment of this Act.

SEC. 215. MINERAL ROYALTY INCOME QUALIFYING INCOME FOR TIMBER REITS.

    (a) In General.--Section 856(c)(2) is amended by striking ``and'' 
at the end of subparagraph (G), by inserting ``and'' at the end of 
subparagraph (H), and by adding after subparagraph (H) the following 
new subparagraph:
                    ``(I) mineral royalty income earned in the first 
                taxable year beginning after the date of the enactment 
                of this subparagraph from real property owned by a 
                timber real estate investment trust held, or once held, 
                in connection with the trade or business of producing 
                timber by such real estate investment trust;''.
    (b) Timber Real Estate Investment Trust.--Section 856(c)(5), as 
amended by this Act, is amended by adding after subparagraph (H) the 
following new subparagraph:
                    ``(I) Timber real estate investment trust.--The 
                term `timber real estate investment trust' means a real 
                estate investment trust in which more than 50 percent 
                in value of its total assets consists of real property 
                held in connection with the trade or business of 
                producing timber.''.
    (c) Effective Date.--The amendments by this section shall apply to 
taxable years beginning after the date of the enactment of this Act.

SEC. 216. MODIFICATION OF TAXABLE REIT SUBSIDIARY ASSET TEST FOR TIMBER 
              REITS.

    (a) In General.--Section 856(c)(4)(B)(ii) is amended by inserting 
``(in the case of a quarter which closes on or before the termination 
date, 25 percent in the case of a timber real estate investment 
trust)'' after ``not more than 20 percent of the value of its total 
assets is represented by securities of one or more taxable REIT 
subsidiaries''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 217. SAFE HARBOR FOR TIMBER PROPERTY.

    (a) In General.--Section 857(b)(6) (relating to income from 
prohibited transactions) is amended by adding at the end the following 
new subparagraph:
                    ``(G) Special rules for sales to qualified 
                organizations.--
                            ``(i) In general.--In the case of sale of a 
                        real estate asset (as defined in section 
                        856(c)(5)(B)) to a qualified organization (as 
                        defined in section 170(h)(3)) exclusively for 
                        conservation purposes (within the meaning of 
                        section 170(h)(1)(C)), subparagraph (D) shall 
                        be applied--
                                    ``(I) by substituting `2 years' for 
                                `4 years' in clause (i), and
                                    ``(II) by substituting `2-year 
                                period' for `4-year period' in clauses 
                                (ii) and (iii).
                            ``(ii) Termination.--This subparagraph 
                        shall not apply to sales after the termination 
                        date.''.
    (b) Prohibited Transactions.--Section 857(b)(6)(D)(v) is amended by 
inserting ``or, in the case of a sale on or before the termination 
date, a taxable REIT subsidiary'' after ``independent contractor (as 
defined in section 856(d)(3)) from whom the trust itself does not 
derive or receive any income''.
    (c) Sales That Are Not Prohibited Transactions.--Section 857(b)(6), 
as amended by subsection (a), is amended by adding at the end the 
following new subparagraph:
                    ``(H) Sales of property that are not a prohibited 
                transaction.--In the case of a sale on or before the 
                termination date, the sale of property which is not a 
                prohibited transaction through application of 
                subparagraph (D) shall be considered property held for 
                investment or for use in a trade or business and not 
                property described in section 1221(a)(1) for all 
                purposes of this subtitle.''.
    (d) Termination Date.--Section 857(b)(6), as amended by subsections 
(a) and (c), is amended by adding at the end the following new 
subparagraph:
                    ``(I) Termination date.--For purposes of this 
                paragraph, the term `termination date' means the last 
                day of the first taxable year beginning after the date 
                of the enactment of this subparagraph.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to dispositions in taxable years beginning after the date of the 
enactment of this Act.

                      TITLE III--ENERGY PROVISIONS

                   Subtitle A--Electricity Generation

SEC. 301. CREDIT FOR RESIDENTIAL AND BUSINESS WIND PROPERTY.

    (a) Residential Wind Property.--
            (1) In general.--Section 25D(a) (relating to allowance of 
        credit) is amended by striking ``and'' at the end of paragraph 
        (2), by striking the period at the end of paragraph (3) and 
        inserting ``, and'', and by adding at the end the following new 
        paragraph:
            ``(4) 30 percent of the qualified small wind energy 
        property expenditures made by the taxpayer during such year.''.
            (2) Limitation.--Section 25D(b)(1) (relating to maximum 
        credit) is amended by striking ``and'' at the end of 
        subparagraph (B), by striking the period at the end of 
        subparagraph (C) and inserting ``, and'', and by adding at the 
        end the following new subparagraph:
                    ``(D) $4,000 with respect to any qualified small 
                wind energy property expenditures.''.
            (3) Qualified small wind energy property expenditures.--
                    (A) In general.--Section 25D(d) (relating to 
                definitions) is amended by adding at the end the 
                following new paragraph:
            ``(4) Qualified small wind energy property expenditure.--
        The term `qualified small wind energy property expenditure' 
        means an expenditure for qualified small wind energy property 
        (as defined in section 48(c)(3)(A)) installed on or in 
        connection with a dwelling unit located in the United States 
        and used as a residence by the taxpayer.''.
                    (B) No double benefit.--Section 45(d)(1) (relating 
                to wind facility) is amended by adding at the end the 
                following new sentence: ``Such term shall not include 
                any facility with respect to which any qualified small 
                wind energy property expenditure (as defined in 
                subsection (d)(4) of section 25D) is taken into account 
                in determining the credit under such section.''.
            (4) Maximum expenditures in case of joint occupancy.--
        Section 25D(e)(4)(A) (relating to maximum expenditures) 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) $1,667 in the case of wind turbines 
                        for which qualified small wind energy property 
                        expenditures are made.''.
    (b) Business Wind Property.--
            (1) In general.--Section 48(a)(3)(A) (defining energy 
        property) is amended by striking ``or'' at the end of clause 
        (iii), by adding ``or'' at the end of clause (iv), and by 
        inserting after clause (iv) the following new clause:
                            ``(v) qualified small wind energy 
                        property,''.
            (2) 30 percent credit.--Section 48(a)(2)(A)(i) is amended 
        by striking ``and'' at the end of subclause (II) and by 
        inserting after subclause (III) the following new subclause:
                                    ``(IV) qualified small wind energy 
                                property, and''.
            (3) Qualified small wind energy property.--Section 48(c) is 
        amended--
                    (A) by inserting ``; Qualified Small Wind Energy 
                Property'' after ``Qualified Microturbine Property'' in 
                the heading,
                    (B) by striking ``For purposes of this subsection'' 
                and inserting ``For purposes of this section'',
                    (C) by striking ``paragraph (1)'' in paragraphs 
                (1)(B) and (2)(B) and inserting ``subsection (a)(1)'', 
                and
                    (D) by adding at the end the following new 
                paragraph:
            ``(3) Qualified small wind energy property.--
                    ``(A) In general.--The term `qualified small wind 
                energy property' means property which uses a qualifying 
                small wind turbine to generate electricity.
                    ``(B) Limitation.--In the case of qualified small 
                wind energy property placed in service during the 
                taxable year, the credit otherwise determined under 
                subsection (a)(1) for such year with respect to such 
                property shall not exceed $4,000 with respect to any 
                taxpayer.
                    ``(C) Qualifying small wind turbine.--The term 
                `qualifying small wind turbine' means a wind turbine 
                which--
                            ``(i) has a nameplate capacity of not more 
                        than 100 kilowatts, and
                            ``(ii) meets the performance standards of 
                        the American Wind Energy Association.
                    ``(D) Termination.--The term `qualified small wind 
                energy property' shall not include any property for any 
                period after December 31, 2008.''.
            (4) Conforming amendment.--Section 48(a)(1) is amended by 
        striking ``paragraphs (1)(B) and (2)(B)'' and inserting 
        ``paragraphs (1)(B), (2)(B), and (3)(B)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to expenditures after December 31, 2007.

SEC. 302. LANDOWNER INCENTIVE TO ENCOURAGE ELECTRIC TRANSMISSION BUILD-
              OUT.

    (a) In General.--Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by inserting 
after section 139A the following new section:

``SEC. 139B. ELECTRIC TRANSMISSION EASEMENT PAYMENTS.

    ``(a) In General.--Gross income shall not include any qualified 
electric transmission easement payment.
    ``(b) Qualified Electric Transmission Easement Payment.--For 
purposes of this section, the term `qualified electric transmission 
payment' means any payment which is made--
            ``(1) by an electric utility or electric transmission 
        entity pursuant to an easement or other agreement granted by 
        the payee (or any predecessor of such payee), and
            ``(2) for the right of such entity (or any successors of 
        such entity) to locate on such payee's property transmission 
        lines and equipment used to transmit electricity at 230 or more 
        kilovolts, primarily from qualified facilities described in 
        section 45(d) (without regard to any placed in service date or 
        the last sentence of paragraph (4) thereof) or energy property 
        (as defined in section 48(a)(3)) placed in service after the 
        date of the enactment of this section.
    ``(c) No Increase in Basis.--Notwithstanding any other provision of 
this subtitle, no increase in the basis or adjusted basis of any 
property shall result from any amount excluded under this subsection 
with respect to such property.
    ``(d) Denial of Double Benefit.--Notwithstanding any other 
provision of this subtitle, no deduction or credit shall be allowed (to 
the person for whose benefit a qualified electric transmission easement 
payment is made) for, or by reason of, any expenditure to the extent of 
the amount excluded under this section with respect to such 
expenditure.''.
    (b) Clerical Amendment.--The table of sections for such part III is 
amended by inserting after the item relating to section 139A the 
following new item:

``Sec. 139B. Electric transmission easement payments.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to payments received after the date of the enactment of this Act.

SEC. 303. EXCEPTION TO REDUCTION OF RENEWABLE ELECTRICITY CREDIT.

    (a) In General.--Section 45(b)(3) (relating to credit reduced for 
grants, tax-exempt bonds, subsidized energy financing, and other 
credits) is amended by adding after the last sentence the following: 
``This paragraph shall not apply with respect to any loans, loan 
guarantees, or grants issued by the Secretary of Agriculture under 
authority granted by section 9006 of the Farm Security and Rural 
Investment Act of 2002.''
    (b) Effective Date.--The amendment made by this section shall apply 
to facilities placed in service after the date of the enactment of this 
Act.

                        Subtitle B--Alcohol Fuel

SEC. 311. EXPANSION OF SPECIAL ALLOWANCE TO CELLULOSIC BIOMASS ALCOHOL 
              FUEL PLANT PROPERTY.

    (a) In General.--Paragraph (3) of section 168(l) (relating to 
special allowance for cellulosic biomass ethanol plant property) is 
amended to read as follows:
            ``(3) Cellulosic biomass alcohol.--For purposes of this 
        subsection, the term `cellulosic biomass alcohol' means any 
        alcohol produced from any lignocellulosic or hemicellulosic 
        matter that is available on a renewable or recurring basis.''.
    (b) Conforming Amendments.--
            (1) Subsection (l) of section 168 is amended by striking 
        ``cellulosic biomass ethanol'' each place it appears and 
        inserting ``cellulosic biomass alcohol''.
            (2) The heading of section 168(l) is amended by striking 
        ``Cellulosic Biomass Ethanol'' and inserting ``Cellulosic 
        Biomass Alcohol''.
            (3) The heading of paragraph (2) of section 168(l) is 
        amended by striking ``cellulosic biomass ethanol'' and 
        inserting ``cellulosic biomass alcohol''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act, in taxable years ending after such date.

SEC. 312. CREDIT FOR PRODUCTION OF CELLULOSIC BIOMASS ALCOHOL.

    (a) In General.--Subsection (a) of section 40 (relating to alcohol 
used as fuel) is amended by striking ``plus'' at the end of paragraph 
(2), by striking the period at the end of paragraph (3) and inserting 
``, plus'', and by adding at the end the following new paragraph:
            ``(4) the small cellulosic alcohol producer credit.''.
    (b) Small Cellulosic Alcohol Producer Credit.--
            (1) In general.--Subsection (b) of section 40 is amended by 
        adding at the end the following new paragraph:
            ``(6) Small cellulosic alcohol producer credit.--
                    ``(A) In general.--In addition to any other credit 
                allowed under this section, there shall be allowed as a 
                credit against the tax imposed by this chapter for the 
                taxable year an amount equal to the applicable amount 
                for each gallon of not more than 60,000,000 gallons of 
                qualified cellulosic alcohol production.
                    ``(B) Applicable amount.--For purposes of 
                subparagraph (A), the applicable amount means the 
                excess of--
                            ``(i) $1.28, over
                            ``(ii) the sum of--
                                    ``(I) the amount of the credit in 
                                effect for alcohol which is ethanol 
                                under subsection (b)(1) (without regard 
                                to subsection (b)(3)) at the time of 
                                the qualified cellulosic alcohol 
                                production, plus
                                    ``(II) the amount of the credit in 
                                effect under subsection (b)(4) at the 
                                time of such production.
                    ``(C) Qualified cellulosic alcohol production.--For 
                purposes of this section, the term `qualified 
                cellulosic alcohol production' means any cellulosic 
                biomass alcohol which is produced by an eligible small 
                cellulosic alcohol producer and which during the 
                taxable year--
                            ``(i) is sold by the taxpayer to another 
                        person--
                                    ``(I) for use by such other person 
                                in the production of a qualified 
                                alcohol mixture in such other person's 
                                trade or business (other than casual 
                                off-farm production),
                                    ``(II) for use by such other person 
                                as a fuel in a trade or business, or
                                    ``(III) who sells such cellulosic 
                                biomass alcohol at retail to another 
                                person and places such cellulosic 
                                biomass alcohol in the fuel tank of 
                                such other person, or
                            ``(ii) is used or sold by the taxpayer for 
                        any purpose described in clause (i).
                    ``(D) Additional distillation excluded.--The 
                qualified cellulosic alcohol production of any taxpayer 
                for any taxable year shall not include any alcohol 
                which is purchased by the taxpayer and with respect to 
                which such producer increases the proof of the alcohol 
                by additional distillation.
                    ``(E) Application of paragraph.--This paragraph 
                shall apply with respect to qualified cellulosic 
                alcohol production after December 31, 2007, and before 
                April 1, 2015.''.
            (2) Termination date not to apply.--Subsection (e) of 
        section 40 (relating to termination) is amended--
                    (A) by inserting ``or subsection (b)(6)(E)'' after 
                ``by reason of paragraph (1)'' in paragraph (2), and
                    (B) by adding at the end the following new 
                paragraph:
            ``(3) Exception for small cellulosic alcohol producer 
        credit.--Paragraph (1) shall not apply to the portion of the 
        credit allowed under this section by reason of subsection 
        (a)(4).''.
    (c) Eligible Small Cellulosic Alcohol Producer.--Section 40 is 
amended by adding at the end the following new subsection:
    ``(i) Definitions and Special Rules for Small Cellulosic Alcohol 
Producer.--For purposes of this section--
            ``(1) In general.--The term `eligible small cellulosic 
        alcohol producer' means a person, who at all times during the 
        taxable year, has a productive capacity for cellulosic biomass 
        alcohol not in excess of 60,000,000 gallons.
            ``(2) Cellulosic biomass alcohol.--
                    ``(A) In general.--The term `cellulosic biomass 
                alcohol' has the meaning given such term under section 
                168(l)(3), but does not include any alcohol with a 
                proof of less than 150.
                    ``(B) Determination of proof.--The determination of 
                the proof of any alcohol shall be made without regard 
                to any added denaturants.
            ``(3) Aggregation rule.--For purposes of the 60,000,000 
        gallon limitation under paragraph (1) and subsection (b)(6)(A), 
        all members of the same controlled group of corporations 
        (within the meaning of section 267(f)) and all persons under 
        common control (within the meaning of section 52(b) but 
        determined by treating an interest of more than 50 percent as a 
        controlling interest) shall be treated as 1 person.
            ``(4) Partnership, s corporations, and other pass-thru 
        entities.--In the case of a partnership, trust, S corporation, 
        or other pass-thru entity, the limitation contained in 
        paragraph (1) shall be applied at the entity level and at the 
        partner or similar level.
            ``(5)  Allocation.--For purposes of this subsection, in the 
        case of a facility in which more than 1 person has an interest, 
        productive capacity shall be allocated among such persons in 
        such manner as the Secretary may prescribe.
            ``(6) Regulations.--The Secretary may prescribe such 
        regulations as may be necessary to prevent the credit provided 
        for in subsection (a)(4) from directly or indirectly 
        benefitting any person with a direct or indirect productive 
        capacity of more than 60,000,000 gallons of cellulosic biomass 
        alcohol during the taxable year.
            ``(7) Allocation of small cellulosic producer credit to 
        patrons of cooperative.--Rules similar to the rules under 
        subsection (g)(6) shall apply for purposes of this 
        subsection.''.
    (d) Alcohol Not Used as a Fuel, etc.--
            (1) In general.--Paragraph (3) of section 40(d) is amended 
        by redesignating subparagraph (D) as subparagraph (E) and by 
        inserting after subparagraph (C) the following new 
        subparagraph:
                    ``(D) Small cellulosic alcohol producer credit.--
                If--
                            ``(i) any credit is allowed under 
                        subsection (a)(4), and
                            ``(ii) any person does not use such fuel 
                        for a purpose described in subsection 
                        (b)(6)(C),
                then there is hereby imposed on such person a tax equal 
                to the applicable amount for each gallon of such 
                cellulosic biomass alcohol.''.
            (2) Conforming amendments.--
                    (A) Subparagraph (C) of section 40(d)(3) is amended 
                by striking ``producer'' in the heading and inserting 
                ``small ethanol producer''.
                    (B) Subparagraph (E) of section 40(d)(3), as 
                redesignated by paragraph (1), is amended by striking 
                ``or (C)'' and inserting ``(C), or (D)''.
    (e) Alcohol Produced in the United States.--Section 40(d), as 
amended by this section, is amended by adding at the end the following 
new paragraph:
            ``(6) Special rule for small cellulosic alcohol 
        producers.--No small cellulosic alcohol producer credit shall 
        be determined under subsection (a) with respect to any alcohol 
        unless such alcohol is produced in the United States.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to fuel produced after December 31, 2007.

SEC. 313. EXTENSION OF SMALL ETHANOL PRODUCER CREDIT.

    Paragraph (1) of section 40(e) (relating to termination) is 
amended--
            (1) in subparagraph (A), by inserting ``(December 31, 2012, 
        in the case of the credit allowed by reason of subsection 
        (a)(3))'' after ``December 31, 2010'', and
            (2) in subparagraph (B), by inserting ``(January 1, 2013, 
        in the case of the credit allowed by reason of subsection 
        (a)(3))'' after ``January 1, 2011''.

SEC. 314. CREDIT FOR PRODUCERS OF FOSSIL FREE ALCOHOL.

    (a) In General.--Subsection (a) of section 40 (relating to alcohol 
used as fuel), as amended by this Act, is amended by striking ``plus'' 
at the end of paragraph (3), by striking the period at the end of 
paragraph (4) and inserting ``, plus'', and by adding at the end the 
following new paragraph:
            ``(5) the small fossil free alcohol producer credit.''.
    (b) Small Fossil Free Alcohol Producer Credit.--Subsection (b) of 
section 40, as amended by this Act, is amended by adding at the end the 
following new paragraph:
            ``(7) Small fossil free alcohol producer credit.--
                    ``(A) In general.--In addition to any other credit 
                allowed under this section, there shall be allowed as a 
                credit against the tax imposed by this chapter for the 
                taxable year an amount equal to 25 cents for each 
                gallon of not more than 60,000,000 gallons of qualified 
                fossil free alcohol production.
                    ``(B) Qualified fossil free alcohol production.--
                For purposes of this section, the term `qualified 
                fossil free alcohol production' means alcohol which is 
                produced by an eligible small fossil free alcohol 
                producer at a fossil free alcohol production facility 
                and which during the taxable year--
                            ``(i) is sold by the taxpayer to another 
                        person--
                                    ``(I) for use by such other person 
                                in the production of a qualified 
                                alcohol mixture in such other person's 
                                trade or business (other than casual 
                                off-farm production),
                                    ``(II) for use by such other person 
                                as a fuel in a trade or business, or
                                    ``(III) who sells such alcohol at 
                                retail to another person and places 
                                such alcohol in the fuel tank of such 
                                other person, or
                            ``(ii) is used or sold by the taxpayer for 
                        any purpose described in clause (i).
                    ``(C) Additional distillation excluded.--The 
                qualified fossil free alcohol production of any 
                taxpayer for any taxable year shall not include any 
                alcohol which is purchased by the taxpayer and with 
                respect to which such producer increases the proof of 
                the alcohol by additional distillation.''.
    (c) Eligible Small Fossil Free Alcohol Producer.--Section 40, as 
amended by this Act, is amended by adding at the end the following new 
subsection:
    ``(j) Definitions and Special Rules for Small Fossil Free Alcohol 
Producer.--For purposes of this section--
            ``(1) In general.--The term `eligible small fossil free 
        alcohol producer' means a person, who at all times during the 
        taxable year, has a productive capacity for alcohol from all 
        fossil free alcohol production facilities of the taxpayer which 
        is not in excess of 60,000,000 gallons.
            ``(2) Fossil free alcohol production facility.--The term 
        `fossil free alcohol production facility' means any facility at 
        which 90 percent of the energy used in the production of 
        alcohol is produced from biomass (as defined in section 
        45K(c)(3)).
            ``(3) Aggregation rule.--For purposes of the 60,000,000 
        gallon limitation under paragraph (1) and subsection (b)(7)(A), 
        all members of the same controlled group of corporations 
        (within the meaning of section 267(f)) and all persons under 
        common control (within the meaning of section 52(b) but 
        determined by treating an interest of more than 50 percent as a 
        controlling interest) shall be treated as 1 person.
            ``(4) Partnership, s corporations, and other pass-thru 
        entities.--In the case of a partnership, trust, S corporation, 
        or other pass-thru entity, the limitation contained in 
        paragraph (1) shall be applied at the entity level and at the 
        partner or similar level.
            ``(5)  Allocation.--For purposes of this subsection, in the 
        case of a facility in which more than 1 person has an interest, 
        productive capacity shall be allocated among such persons in 
        such manner as the Secretary may prescribe.
            ``(6) Regulations.--The Secretary may prescribe such 
        regulations as may be necessary to prevent the credit provided 
        for in subsection (a)(5) from directly or indirectly 
        benefitting any person with a direct or indirect productive 
        capacity of more than 60,000,000 gallons of alcohol from fossil 
        free alcohol production facilities during the taxable year.
            ``(7) Allocation of small fossil free alcohol producer 
        credit to patrons of cooperative.--Rules similar to the rules 
        under subsection (g)(6) shall apply for purposes of this 
        subsection.''.
    (d) Alcohol Not Used as a Fuel, etc.--
            (1) In general.--Paragraph (3) of section 40(d), as amended 
        by this Act, is amended by redesignating subparagraph (E) as 
        subparagraph (F) and by inserting after subparagraph (D) the 
        following new subparagraph:
                    ``(E) Small fossil free alcohol producer credit.--
                If--
                            ``(i) any credit is allowed under 
                        subsection (a)(5), and
                            ``(ii) any person does not use such fuel 
                        for a purpose described in subsection 
                        (b)(7)(B),
                then there is hereby imposed on such person a tax equal 
                to 25 cents for each gallon of such alcohol.''.
            (2) Conforming amendment.--Subparagraph (F) of section 
        40(d)(3), as redesignated by paragraph (1) and amended by this 
        Act, is amended by striking ``or (D)'' and inserting ``(D), or 
        (E)''.
    (e) Alcohol Produced in the United States.--Section 40(d)(6), as 
added by section 312 of this Act, is amended--
            (1) by inserting ``or small fossil free alcohol producer 
        credit'' after ``cellulosic alcohol producer credit'', and
            (2) by inserting ``and fossil free'' after ``cellulosic'' 
        in the heading.
    (f) Termination.--Paragraph (1) of section 40(e), as amended by 
this Act, is amended--
            (1) in subparagraph (A), by striking ``(December 31, 2012, 
        in the case of the credit allowed by reason of subsection 
        (a)(3))'' and inserting ``(December 31, 2012, in the case of 
        the credits allowed by reason of paragraphs (3) and (5) of 
        subsection (a))'', and
            (2) in subparagraph (B), by striking ``(January 1, 2013, in 
        the case of the credit allowed by reason of subsection 
        (a)(3))'' and inserting ``(January 1, 2013, in the case of the 
        credits allowed by reason of paragraphs (3) and (5) of 
        subsection (a))''.
    (g) Effective Date.--The amendments made by this section shall 
apply to fuel produced after December 31, 2007.

SEC. 315. MODIFICATION OF ALCOHOL CREDIT.

    (a) Income Tax Credit.--Subsection (h) of section 40 (relating to 
reduced credit for ethanol blenders) is amended by adding at the end 
the following new paragraph:
            ``(3) Reduced amount after sale of 7,500,000,000 gallons.--
                    ``(A) In general.--In the case of any calendar year 
                beginning after the date described in subparagraph (B), 
                the last row in the table in paragraph (2) shall be 
                applied by substituting `46 cents' for `51 cents'.
                    ``(B) Date described.--The date described in this 
                subparagraph is the first date on which 7,500,000,000 
                gallons of ethanol (including cellulosic ethanol) have 
                been produced in or imported into the United States 
                after the date of the enactment of this paragraph, as 
                certified by the Secretary, in consultation with the 
                Administrator of the Environmental Protection 
                Agency.''.
    (b) Excise Tax Credit.--
            (1) In general.--Paragraph (2) of section 6426(b) (relating 
        to alcohol fuel mixture credit) is amended by adding at the end 
        the following new subparagraph:
                    ``(C) Reduced amount after sale of 7,500,000,000 
                gallons.--In the case of any alcohol fuel mixture 
                produced in a calendar year beginning after the date 
                described in section 40(h)(3)(B), subparagraph (A) 
                shall be applied by substituting `46 cents' for `51 
                cents'.''.
            (2) Conforming amendment.--Subparagraph (A) of section 
        6426(b)(2) is amended by striking ``subparagraph (B)'' and 
        inserting ``subparagraphs (B) and (C)''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

SEC. 316. CALCULATION OF VOLUME OF ALCOHOL FOR FUEL CREDITS.

    (a) In General.--Paragraph (4) of section 40(d) (relating to volume 
of alcohol) is amended by striking ``the volume of alcohol'' and all 
that follows and inserting ``the volume of alcohol shall not include 
any denaturant added to such alcohol.''.
    (b) Conforming Amendment for Excise Tax Credit.--Section 6426(b) 
(relating to alcohol fuel mixture credit) is amended by redesignating 
paragraph (5) as paragraph (6) and by inserting after paragraph (4) the 
following new paragraph:
            ``(5) Volume of alcohol.--For purposes of determining under 
        subsection (a) the number of gallons of alcohol with respect to 
        which a credit is allowable under subsection (a), the volume of 
        alcohol shall not include any denaturant added to such 
        alcohol.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to fuel sold or used after December 31, 2007.

SEC. 317. ETHANOL TARIFF EXTENSION.

    Headings 9901.00.50 and 9901.00.52 of the Harmonized Tariff 
Schedule of the United States are each amended in the effective period 
column by striking ``1/1/2009'' and inserting ``1/1/2011''.

SEC. 318. ELIMINATION AND REDUCTIONS OF DUTY DRAWBACK ON CERTAIN 
              IMPORTED ETHANOL.

    (a) In General.--Section 313(p) of the Tariff Act of 1930 (19 
U.S.C. 1313(p)) is amended by adding at the end the following 
paragraph:
            ``(5) Special rules for ethyl alcohol.--For purposes of 
        this subsection and subsections (b) and (j), ethyl alcohol or a 
        mixture of ethyl alcohol (whether imported with payment of duty 
        or made in the United States), may not be substituted for a 
        finished petroleum product for purposes of claiming a duty 
        drawback unless the exported finished petroleum product 
        contains ethyl alcohol.''.
    (b) Limitations on, and Reductions of, Drawbacks.--Section 313 of 
the Tariff Act of 1930 (19 U.S.C. 1313) is amended by adding at the end 
the following new subsection:
    ``(z) Limitations on, and Reductions of, Drawbacks.--
            ``(1) Limitations.--
                    ``(A) In general.--Ethyl alcohol or mixture 
                containing ethyl alcohol described in subparagraph (B) 
                may be treated as being of the same kind and quality 
                under subsection (b) of this section or may be treated 
                as being commercially interchangeable with any other 
                ethyl alcohol or mixture containing ethyl alcohol under 
                subsection (j)(2) of this section, only if the other 
                ethyl alcohol or mixture--
                            ``(i) if imported, is subject to the 
                        additional duty under subheading 9901.00.50 of 
                        the Harmonized Tariff Schedule of the United 
                        States; or
                            ``(ii) if domestic, is subject to Federal 
                        excise tax under section 4041 or 4081 of the 
                        Internal Revenue Code of 1986 in an amount 
                        equal to or greater than the amount of drawback 
                        claimed.
                    ``(B) Ethyl alcohol or mixture containing ethyl 
                alcohol described.--Ethyl alcohol or mixture containing 
                ethyl alcohol described in this subparagraph means--
                            ``(i) ethyl alcohol classifiable under 
                        subheading 2207.10.60 or 2207.20.00 of the 
                        Harmonized Tariff Schedule of the United 
                        States, or
                            ``(ii) a mixture containing ethyl alcohol 
                        classifiable under heading 2710 or 3824 of the 
                        Harmonized Tariff Schedule of the United 
                        States,
                which, if imported would be subject to additional duty 
                under subheading 9901.00.50 of such Schedule.
            ``(2) Reduction of drawback.--For purposes of subsections 
        (b), (j)(2), and (p) of this section, the amount of the refund 
        as drawback under this section shall be reduced by an amount 
        equal to any Federal tax credit or refund of any Federal tax 
        paid on the merchandise with respect to which the drawback is 
        claimed.''.
    (c) Effective Date.--The amendments made by this section apply to 
articles exported on or after the date that is 15 days after the date 
of the enactment of this Act.

            Subtitle C--Biodiesel and Renewable Diesel Fuel

SEC. 321. EXTENSION AND MODIFICATION OF CREDIT FOR BIODIESEL AND 
              RENEWABLE DIESEL USED AS FUEL.

    (a) Extension.--
            (1) Income tax credits for biodiesel and renewable diesel 
        and small agri-biodiesel producer credit.--Section 40A(g) 
        (relating to termination) is amended by striking ``December 31, 
        2008'' and inserting ``December 31, 2010 (December 31, 2012, in 
        the case of the credit allowed by reason of subsection 
        (a)(3))''.
            (2) Excise tax credit.--Section 6426(c)(6) (relating to 
        termination) is amended by striking ``2008'' and inserting 
        ``2010''.
            (3) Fuels not used for taxable purposes.--Section 
        6427(e)(5)(B) (relating to termination) is amended by striking 
        ``2008'' and inserting ``2010''.
    (b) Modification of Credit for Renewable Diesel.--Section 40A(f) 
(relating to renewable diesel) is amended by adding at the end the 
following new paragraph:
            ``(4) Special rule for co-processed renewable diesel.--In 
        the case of a taxpayer which produces renewable diesel through 
        the co-processing of biomass and petroleum at any facility, 
        this subsection shall not apply to so much of the renewable 
        diesel produced at such facility and sold or used during the 
        taxable year in a mixture described in subsection (b)(1)(B) as 
        exceeds 60,000,000 gallons.''.
    (c) Modification Relating to Definition of Agri-Biodiesel.--
Paragraph (2) of section 40A(d) (relating to agri-biodiesel) is amended 
by striking ``and mustard seeds'' and inserting ``mustard seeds, and 
camelina''.
    (d) Effective Dates.--The amendments made by this section shall 
apply to fuel sold or used after the date of the enactment of this Act.

SEC. 322. TREATMENT OF QUALIFIED ALCOHOL FUEL MIXTURES AND QUALIFIED 
              BIODIESEL FUEL MIXTURES AS TAXABLE FUELS.

    (a) In General.--
            (1) Qualified alcohol fuel mixtures.--Paragraph (2) of 
        section 4083(a) (relating to gasoline) is amended--
                    (A) by striking ``and'' at the end of subparagraph 
                (A),
                    (B) by redesignating subparagraph (B) as 
                subparagraph (C), and
                    (C) by inserting after subparagraph (A) the 
                following new subparagraph:
                    ``(B) includes any qualified mixture (as defined in 
                section 40(b)(1)(B)), and''.
            (2) Qualified biodiesel fuel mixtures.--Subparagraph (A) of 
        section 4083(a)(3) (relating to diesel fuel) is amended by 
        striking ``and'' at the end of clause (ii), by redesignating 
        clause (iii) as clause (iv), and inserting after clause (ii) 
        the following new clause:
                            ``(iii) any qualified biodiesel mixture (as 
                        defined in section 40A(b)(1)(B)), and''.
    (b) Modification of Biodiesel Certification Requirement.--Paragraph 
(4) of section 40A(b) is amended by striking ``which identifies'' and 
all that follows and inserting ``which--
                    ``(A) identifies the product produced and the 
                percentage of biodiesel and agri-biodiesel in the 
                product, and
                    ``(B) documents that the biodiesel was 
                independently tested and meets the requirements of ASTM 
                D6751.''.
    (c) Information Reporting Requirement for Producers of Qualified 
Mixtures.--Section 4101(d) (relating to information reporting) is 
amended to read as follows:
    ``(d) Information Reporting.--The Secretary--
            ``(1) may require--
                    ``(A) information reporting by any person 
                registered under this section, and
                    ``(B) information reporting by such other persons 
                as the Secretary deems necessary to carry out this 
                part, and
            ``(2) shall require information reporting by any person 
        registered under this section and producing any qualified 
        mixture (as defined in section 40(b)(1)(B)) or any qualified 
        biodiesel mixture (as defined in section 40A(b)(1)(B)).
Any person who is required to report under this subsection and who has 
25 or more reportable transactions in a month shall file such report in 
electronic format.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to fuels removed, entered, or sold after December 31, 2007.

                      Subtitle D--Alternative Fuel

SEC. 331. EXTENSION AND MODIFICATION OF ALTERNATIVE FUEL CREDIT.

    (a) Extension.--
            (1) Alternative fuel credit.--Paragraph (4) of section 
        6426(d) (relating to alternative fuel credit) is amended by 
        striking ``September 30, 2009'' and inserting ``December 31, 
        2010''.
            (2) Alternative fuel mixture credit.--Paragraph (3) of 
        section 6426(e) (relating to alternative fuel mixture credit) 
        is amended by striking ``September 30, 2009'' and inserting 
        ``December 31, 2010''.
            (3) Payments.--Subparagraph (C) of section 6427(e)(5) 
        (relating to termination) is amended by striking ``September 
        30, 2009'' and inserting ``December 31, 2010''.
    (b) Modifications.--
            (1) Alternative fuel to include compressed or liquified 
        biomass gas.--Paragraph (2) of section 6426(d) (relating to 
        alternative fuel credit) is amended by striking ``and'' at the 
        end of subparagraph (E), by redesignating subparagraph (F) as 
        subparagraph (G), and by inserting after subparagraph (E) the 
        following new subparagraph:
                    ``(F) compressed or liquefied biomass gas, and''.
            (2) Credit allowed for aviation use of fuel.--Paragraph (1) 
        of section 6426(d) is amended by inserting ``sold by the 
        taxpayer for use as a fuel in aviation,'' after ``motorboat,''.
    (c) Carbon Capture Requirement for Certain Fuels.--
            (1) In general.--Subsection (d) of section 6426, as amended 
        by subsection (a), is amended by redesignating paragraph (4) as 
        paragraph (5) and by inserting after paragraph (3) the 
        following new paragraph:
            ``(4) Carbon capture requirement.--
                    ``(A) In general.--The requirements of this 
                paragraph are met if the fuel is certified, under such 
                procedures as required by the Secretary, as having been 
                derived from coal produced at a gasification facility 
                which separates and sequesters not less than the 
                applicable percentage of such facility's total carbon 
                dioxide emissions.
                    ``(B) Applicable percentage.--For purposes of 
                subparagraph (A), the applicable percentage is--
                            ``(i) 50 percent in the case of fuel 
                        produced after the date of the enactment of 
                        this paragraph and on or before the earlier 
                        of--
                                    ``(I) the date the Secretary makes 
                                a determination under subparagraph (C), 
                                or
                                    ``(II) December 30, 2010, and
                            ``(ii) 75 percent in the case of fuel 
                        produced after the date on which the applicable 
                        percentage under clause (i) ceases to apply.
                    ``(C) Determination to increase applicable 
                percentage before december 31, 2010.--If the Secretary, 
                after considering the recommendations of the Carbon 
                Sequestration Capability Panel, finds that the 
                applicable percentage under subparagraph (B) should be 
                75 percent for fuel produced before December 31, 2010, 
                the Secretary shall make a determination under this 
                subparagraph. Any determination made under this 
                subparagraph shall be made not later than 30 days after 
                the Secretary receives from the Carbon Sequestration 
                Panel the report required under section 331(c)(3)(D) of 
                the Heartland, Habitat, Harvest, and Horticulture Act 
                of 2007.''.
            (2) Conforming amendment.--Subparagraph (E) of section 
        6426(d)(2) is amended by inserting ``which meets the 
        requirements of paragraph (4) and which is'' after ``any liquid 
        fuel''.
            (3) Carbon sequestration capability panel.--
                    (A) Establishment of panel.--There is established a 
                panel to be known as the ``Carbon Sequestration 
                Capability Panel'' (hereafter in this paragraph 
                referred to as the ``Panel'').
                    (B) Membership.--The Panel shall be composed of--
                            (i) 1 individual appointed by the National 
                        Academy of Sciences,
                            (ii) 1 individual appointed by the Chairman 
                        of the Committee on Finance of the Senate, in 
                        consultation with the Ranking Member of the 
                        Committee, and
                            (iii) 1 individual appointed jointly by the 
                        individuals appointed under clauses (i) and 
                        (ii).
                    (C) Study.--The Panel shall study the appropriate 
                percentage of carbon dioxide for separation and 
                sequestration under section 6426(d)(4) of the Internal 
                Revenue Code of 1986 consistent with the purposes of 
                such section. The panel shall consider--
                            (i) whether it is feasible to separate and 
                        sequester 75 percent of the carbon dioxide 
                        emissions of a facility, and
                            (ii) costs and other factors associated 
                        with separating and sequestering such 
                        percentage of carbon dioxide emissions.
                    (D) Report.--Not later than 6 months after the date 
                of the enactment of this Act, the Panel shall report to 
                the Secretary of Treasury, the Committee on Finance of 
                the Senate, and the Committee on Ways and Means of the 
                House of Representatives on the study under 
                subparagraph (C) .
    (d) Effective Date.--The amendments made by this section shall 
apply to fuel sold or used after the date of the enactment of this Act.

SEC. 332. EXTENSION OF ALTERNATIVE FUEL VEHICLE REFUELING PROPERTY 
              CREDIT.

    Paragraph (2) of section 30C(g) (relating to termination) is 
amended by striking ``December 31, 2009'' and inserting ``December 31, 
2010''.

                   TITLE IV--AGRICULTURAL PROVISIONS

SEC. 401. INCREASE IN LOAN LIMITS ON AGRICULTURAL BONDS.

    (a) In General.--Subparagraph (A) of section 147(c)(2) (relating to 
exception for first-time farmers) is amended by striking ``$250,000'' 
and inserting ``$450,000''.
    (b) Inflation Adjustment.--Section 147(c)(2) is amended by adding 
at the end the following new subparagraph:
                    ``(H) Adjustments for inflation.--In the case of 
                any calendar year after 2008, the dollar amount in 
                subparagraph (A) shall be increased by an amount equal 
                to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year, determined by substituting 
                        `calendar year 2007' for `calendar year 1992' 
                        in subparagraph (B) thereof.
                If any amount as increased under the preceding sentence 
                is not a multiple of $100, such amount shall be rounded 
                to the nearest multiple of $100.''.
    (c) Modification of Substantial Farmland Definition.--Section 
147(c)(2)(E) (defining substantial farmland) is amended by striking 
``unless'' and all that follows through the period and inserting 
``unless such parcel is smaller than 30 percent of the median size of a 
farm in the county in which such parcel is located.''.
    (d) Conforming Amendment.--Section 147(c)(2)(C)(i)(II) is amended 
by striking ``$250,000'' and inserting ``the amount in effect under 
subparagraph (A)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to bonds issued after the date of the enactment of this Act.

SEC. 402. MODIFICATION OF INSTALLMENT SALE RULES FOR CERTAIN FARM 
              PROPERTY.

    (a) In General.--Section 453(i) (relating to recognition of 
recapture income in year of disposition) is amended by adding at the 
end the following new paragraph:
            ``(3) Exception for certain farm property.--Paragraph (1) 
        shall not apply to any installment sale of any single purpose 
        agricultural or horticultural structure or any tree or vine 
        bearing fruit or nuts eligible for classification as 10-year 
        property under section 168(e)(3)(D).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to installment sales occurring after the date of the enactment of this 
Act.

SEC. 403. ALLOWANCE OF SECTION 1031 TREATMENT FOR EXCHANGES INVOLVING 
              CERTAIN MUTUAL DITCH, RESERVOIR, OR IRRIGATION COMPANY 
              STOCK.

    (a) In General.--Section 1031 (relating to exchange of property 
held for productive use or investment) is amended by adding at the end 
the following new subsection:
    ``(i) Special Rules for Mutual Ditch, Reservoir, or Irrigation 
Company Stock.--For purposes of subsection (a)(2)(B), the term `stocks' 
shall not include shares in a mutual ditch, reservoir, or irrigation 
company if at the time of the exchange--
            ``(1) the mutual ditch, reservoir, or irrigation company is 
        an organization described in section 501(c)(12)(A) (determined 
        without regard to the percentage of its income that is 
        collected from its members for the purpose of meeting losses 
        and expenses), and
            ``(2) the shares in such company have been recognized by 
        the highest court of the State in which such company was 
        organized or by applicable State statute as constituting or 
        representing real property or an interest in real property.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to exchanges completed after the date of the enactment of this Act.

SEC. 404. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

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

``SEC. 54A. CREDIT TO HOLDERS OF RURAL RENAISSANCE BONDS.

    ``(a) Allowance of Credit.--In the case of a taxpayer who holds a 
rural renaissance 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 rural renaissance 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 rural renaissance 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 rural renaissance bond, the Secretary shall 
        determine daily or caused 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 rural renaissance 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, section 1400N(l), and this section).
    ``(d) Rural Renaissance Bond.--For purposes of this section--
            ``(1) In general.--The term `rural renaissance 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 rural renaissance 
                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,
                    ``(D) the issue meets the requirements of 
                subsection (h), and
                    ``(E) such bond is not a federally guaranteed bond 
                (within the meaning of section 149(b)(2)).
            ``(2) Qualified project; special use rules.--
                    ``(A) In general.--The term `qualified project' 
                means 1 or more projects described in subparagraph (B) 
                located in a rural area.
                    ``(B) Projects described.--A project described in 
                this subparagraph is a project eligible for assistance 
                under--
                            ``(i) the utilities programs described in 
                        section 381E(d)(2) of the Consolidated Farm and 
                        Rural Development Act (7 U.S.C. 2009d(d)(2)),
                            ``(ii) the distance learning or 
                        telemedicine programs authorized pursuant to 
                        chapter 1 of subtitle D of title XXIII of the 
                        Food, Agriculture, Conservation, and Trade Act 
                        of 1990 (7 U.S.C. 950aaa et seq.),
                            ``(iii) the rural electric programs 
                        authorized pursuant to the Rural 
                        Electrification Act of 1936 (7 U.S.C. 901 et 
                        seq.),
                            ``(iv) the rural telephone programs 
                        authorized pursuant to the Rural 
                        Electrification Act of 1936 (7 U.S.C. 901 et 
                        seq.),
                            ``(v) the broadband access programs 
                        authorized pursuant to title VI of the Rural 
                        Electrification Act of 1936 (7 U.S.C. 950bb et 
                        seq.), and
                            ``(vi) the rural community facility 
                        programs as described in section 381E(d)(1) of 
                        the Consolidated Farm and Rural Development Act 
                        (7 U.S.C. 2009d(d)(1)).
                    ``(C) Refinancing rules.--For purposes of paragraph 
                (1)(B), a qualified project may be refinanced with 
                proceeds of a rural renaissance 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.
                    ``(D) Reimbursement.--For purposes of paragraph 
                (1)(B), a rural renaissance 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 rural renaissance 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.
                    ``(E) 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 or qualified issuer 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 
                rural renaissance bond.
                    ``(F) Treatment of other subsidies.--For purposes 
                of subparagraph (B), a qualified project does not 
                include any portion of a project financed by grants or 
                subsidized financing provided (directly or indirectly) 
                under a Federal program, including any State or local 
                obligation used to provide financing for such portion 
                the interest on which is exempt from tax under section 
                103.
    ``(e) Maturity Limitations.--
            ``(1) Duration of term.--A bond shall not be treated as a 
        rural renaissance 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 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 paragraph (3) 
        and using as a discount rate the average annual interest rate 
        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.
            ``(3) Ratable principal amortization required.--A bond 
        shall not be treated as a rural renaissance 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.
    ``(f) Limitation on Amount of Bonds Designated.--
            ``(1) National limitation.--There is a national rural 
        renaissance bond limitation of $400,000,000.
            ``(2) Allocation by secretary.--
                    ``(A) In general.--In accordance with subparagraph 
                (B), the Secretary shall allocate the amount described 
                in paragraph (1) among at least 20 qualified projects, 
                or such lesser number of qualified projects with proper 
                applications filed after 12 months after the adoption 
                of the selection process under subparagraph (B).
                    ``(B) Selection process.--In consultation with the 
                Secretary of Agriculture, the Secretary shall adopt a 
                process to select projects described in subparagraph 
                (A). Under such process, the Secretary shall not 
                allocate more than 15 percent of the allocation under 
                subparagraph (A) to qualified projects within a single 
                State.
    ``(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 rural renaissance 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 rural 
                renaissance bond or, in the case of a rural renaissance 
                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 rural renaissance 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) Definitions and Special Rules Relating to Issuers and 
Borrowers.--For purposes of this section--
            ``(1) Qualified issuer.--The term `qualified issuer' 
        means--
                    ``(A) a rural renaissance bond lender,
                    ``(B) a cooperative electric company, or
                    ``(C) a governmental body.
            ``(2) 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.
            ``(3) Rural renaissance bond lender.--The term `rural 
        renaissance 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.
            ``(4) 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.
            ``(5) Governmental body.--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.
    ``(k) Special Rules Relating to Pool Bonds.--No portion of a pooled 
financing bond may be allocable to 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) Rural area.--The term `rural area' shall have the 
        meaning given such term by section 1393(a)(2).
            ``(4) 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.--In the case of a bond 
                held by a partnership or an S corporation, rules 
                similar to the rules under section 1397E(i) shall 
                apply.
            ``(5) Bonds held by regulated investment companies.--If any 
        rural renaissance 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.
            ``(6) Reporting.--Issuers of rural renaissance bonds shall 
        submit reports similar to the reports required under section 
        149(e).
            ``(7) Termination.--This section shall not apply with 
        respect to any bond issued after December 31, 2008.''.
    (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 rural renaissance 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) Conforming Amendments.--
            (1) 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 rural renaissance bonds.''.
            (2) Section 54(c)(2) is amended by inserting ``section 
        54A,'' after ``subpart C,''.
    (d) Issuance of Regulations.--The Secretary of Treasury shall issue 
regulations required under section 54A (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 the date of the enactment of this Act.

SEC. 405. AGRICULTURAL CHEMICALS SECURITY CREDIT.

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

``SEC. 45O. AGRICULTURAL CHEMICALS SECURITY CREDIT.

    ``(a) In General.--For purposes of section 38, in the case of an 
eligible agricultural business, the agricultural chemicals security 
credit determined under this section for the taxable year is 30 percent 
of the qualified security expenditures for the taxable year.
    ``(b) Facility Limitation.--The amount of the credit determined 
under subsection (a) with respect to any facility for any taxable year 
shall not exceed--
            ``(1) $100,000, reduced by
            ``(2) the aggregate amount of credits determined under 
        subsection (a) with respect to such facility for the 5 prior 
        taxable years.
    ``(c) Annual Limitation.--The amount of the credit determined under 
subsection (a) with respect to any taxpayer for any taxable year shall 
not exceed $2,000,000.
    ``(d) Qualified Chemical Security Expenditure.--For purposes of 
this section, the term `qualified chemical security expenditure' means, 
with respect to any eligible agricultural business for any taxable 
year, any amount paid or incurred by such business during such taxable 
year for--
            ``(1) employee security training and background checks,
            ``(2) limitation and prevention of access to controls of 
        specified agricultural chemicals stored at the facility,
            ``(3) tagging, locking tank valves, and chemical additives 
        to prevent the theft of specified agricultural chemicals or to 
        render such chemicals unfit for illegal use,
            ``(4) protection of the perimeter of specified agricultural 
        chemicals,
            ``(5) installation of security lighting, cameras, recording 
        equipment, and intrusion detection sensors,
            ``(6) implementation of measures to increase computer or 
        computer network security,
            ``(7) conducting a security vulnerability assessment,
            ``(8) implementing a site security plan, and
            ``(9) such other measures for the protection of specified 
        agricultural chemicals as the Secretary may identify in 
        regulation.
Amounts described in the preceding sentence shall be taken into account 
only to the extent that such amounts are paid or incurred for the 
purpose of protecting specified agricultural chemicals.
    ``(e) Eligible Agricultural Business.--For purposes of this 
section, the term `eligible agricultural business' means any person in 
the trade or business of--
            ``(1) selling agricultural products, including specified 
        agricultural chemicals, at retail predominantly to farmers and 
        ranchers, or
            ``(2) manufacturing, formulating, distributing, or aerially 
        applying specified agricultural chemicals.
    ``(f) Specified Agricultural Chemical.--For purposes of this 
section, the term `specified agricultural chemical' means--
            ``(1) any fertilizer commonly used in agricultural 
        operations which is listed under--
                    ``(A) section 302(a)(2) of the Emergency Planning 
                and Community Right-to-Know Act of 1986,
                    ``(B) section 101 of part 172 of title 49, Code of 
                Federal Regulations, or
                    ``(C) part 126, 127, or 154 of title 33, Code of 
                Federal Regulations, and
            ``(2) any pesticide (as defined in section 2(u) of the 
        Federal Insecticide, Fungicide, and Rodenticide Act), including 
        all active and inert ingredients thereof, which is customarily 
        used on crops grown for food, feed, or fiber.
    ``(g) Controlled Groups.--Rules similar to the rules of paragraphs 
(1) and (2) of section 41(f) shall apply for purposes of this section.
    ``(h) Regulations.--The Secretary may prescribe such regulations as 
may be necessary or appropriate to carry out the purposes of this 
section, including regulations which--
            ``(1) provide for the proper treatment of amounts which are 
        paid or incurred for purpose of protecting any specified 
        agricultural chemical and for other purposes, and
            ``(2) provide for the treatment of related properties as 
        one facility for purposes of subsection (b).
    ``(i) Termination.--This section shall not apply to any amount paid 
or incurred after December 31, 2012.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b) 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 the following new paragraph:
            ``(32) in the case of an eligible agricultural business (as 
        defined in section 45O(e)), the agricultural chemicals security 
        credit determined under section 45O(a).''.
    (c) Denial of Double Benefit.--Section 280C is amended by adding at 
the end the following new subsection:
    ``(f) Credit for Security of Agricultural Chemicals.--No deduction 
shall be allowed for that portion of the expenses otherwise allowable 
as a deduction taken into account in determining the credit under 
section 45O for the taxable year which is equal to the amount of the 
credit determined for such taxable year under section 45O(a).''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following new item:

``Sec. 45O. Agricultural chemicals security credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after the date of the enactment of 
this Act.

SEC. 406. CREDIT FOR DRUG SAFETY AND EFFECTIVENESS TESTING FOR MINOR 
              ANIMAL SPECIES.

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

``SEC. 45P. DRUG SAFETY AND EFFECTIVENESS TESTING FOR MINOR ANIMAL 
              SPECIES.

    ``(a) Allowance of Credit.--For purposes of section 38, in the case 
of an eligible taxpayer, the drug safety and effectiveness testing for 
minor animal species credit determined under this section for the 
taxable year shall be an amount equal to 50 percent of the qualified 
safety and effectiveness testing expenses paid or incurred by the 
taxpayer during the taxable year.
    ``(b) Eligible Taxpayer.--For purposes of this section, the term 
`eligible taxpayer' any taxpayer--
            ``(1) which--
                    ``(A) applies for the designation of a new animal 
                drug for use on a minor animal species under section 
                573 of the Federal Food, Drug, and Cosmetic Act, or
                    ``(B) owns animals which are the subject of safety 
                and effectiveness testing, and
            ``(2) which elects the application of this section for the 
        taxable year.
    ``(c) Qualified Safety and Effectiveness Testing Expenses.--For 
purposes of this section--
            ``(1) In general.--The term `qualified safety and 
        effectiveness testing expenses' means the sum of the following 
        amounts which are paid or incurred by the eligible taxpayer 
        during the taxable year in carrying on any trade or business of 
        such taxpayer:
                    ``(A) In-house safety and effectiveness testing 
                expenses.
                    ``(B) Contract safety and effectiveness testing 
                expenses.
        Such term does not include any amount to the extent such amount 
        is funded by any grant, contract, or otherwise by another 
        person (or any governmental entity).
            ``(2) In-house safety and effectiveness testing expenses.--
                    ``(A) In general.--The term `in-house safety and 
                effectiveness testing expenses' means--
                            ``(i) any wages paid or incurred to an 
                        employee for qualified services performed by 
                        such employee,
                            ``(ii) any amount paid or incurred for 
                        supplies used in the conduct of safety and 
                        effectiveness testing, and
                            ``(iii) under regulations prescribed by the 
                        Secretary, any amount paid or incurred to 
                        another person for the right to use computers 
                        in the conduct of safety and effectiveness 
                        testing.
                Clause (iii) shall not apply to any amount to the 
                extent that the taxpayer (or any person with whom the 
                taxpayer must aggregate expenditures under rules 
                specified under subsection (f)(2)) receives or accrues 
                any amount from any other person for the right to use 
                substantially identical personal property.
                    ``(B) Qualified services.--The term `qualified 
                services' means services consisting of--
                            ``(i) engaging in safety and effectiveness 
                        testing, or
                            ``(ii) engaging in the direct supervision 
                        or direct support of such testing.
                If substantially all of the services performed by an 
                individual for the taxpayer during the taxable year 
                consists of services meeting the requirements of clause 
                (i) or (ii), the term `qualified services' means all of 
                the services performed by such individual for the 
                taxpayer during the taxable year.
                    ``(C) Wages and supplies.--The terms `wages' and 
                `supplies' have the meanings given such terms by 
                section 41(b).
            ``(3) Contract safety and effectiveness testing expenses.--
                    ``(A) In general.--The term `contract safety and 
                effectiveness testing expenses' means any amount paid 
                or incurred by the taxpayer to any person (other than 
                an employee of the taxpayer) for safety and 
                effectiveness testing.
                    ``(B) Prepaid amounts.--If any contract safety and 
                effectiveness testing expenses paid or incurred during 
                any taxable year are attributable to safety and 
                effectiveness testing to be conducted after the close 
                of such taxable year, such amount shall be treated as 
                paid or incurred during the period during which the 
                safety and effectiveness testing is conducted.
    ``(d) Safety and Effectiveness Testing.--For purposes of this 
section--
            ``(1) In general.--The term `safety and effectiveness 
        testing' means any testing which--
                    ``(A) is related to the use of a new animal drug 
                for use on a minor animal species for which it was 
                designated under section 573 of the Federal Food, Drug, 
                and Cosmetic Act,
                    ``(B) is carried out under an exemption for such 
                new animal drug under section 512(j) of such Act (or 
                regulations issued under such section),
                    ``(C) occurs--
                            ``(i) after the date on which the 
                        application for designation of such new animal 
                        drug under section 573 of such Act is filed, 
                        and
                            ``(ii) before the date on which such 
                        application is approved under section 512(c) of 
                        such Act, and
                    ``(D) which is conducted by or on behalf of an 
                eligible taxpayer.
            ``(2) Minor animal species.--
                    ``(A) In general.--The term `minor animal species' 
                means animals, other than humans, which are not major 
                animal species.
                    ``(B) Major animal species.--The term `major animal 
                species' means cattle, horses, swine, chickens, 
                turkeys, dogs, cats, and any other species as 
                determined by the Secretary, after consultation with 
                the Secretary of Agriculture.
    ``(e) Treatment of Qualified Safety and Effectiveness Testing 
Expenses.--
            ``(1) In general.--Except as provided in paragraph (2), any 
        qualified safety and effectiveness testing expenses for a 
        taxable year to which an election under this section applies 
        shall not be taken into account for purposes of determining the 
        credit allowable under section 41 for such taxable year.
            ``(2) Treated as base period research expenses.--Any 
        qualified safe and effectiveness testing expenses for any 
        taxable year which are qualified research expenses (within the 
        meaning of section 41(b)) shall be taken into account in 
        determining base period research expenses for purposes of 
        applying section 41 to subsequent taxable years.
    ``(f) Special Rules.--
            ``(1) Limitation.--No credit shall be allowed under this 
        section with respect to any safety and effectiveness testing 
        conducted by a corporation to which an election under section 
        936 applies.
            ``(2) Aggregation of expenditures and allocations of 
        credit.--Rules similar to the rules of paragraphs (1) and (2) 
        of section 41(f) and section 41(g) shall apply for purposes of 
        this section.''.
    (b) Credit Allowed 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 drug safety and effectiveness testing for minor 
        animal species credit determined under section 45P(a).''.
    (c) Denial of Double Benefit.--Section 280C, as amended by this 
Act, is amended by adding at the end the following new subsection:
    ``(g) Drug Safety and Effectiveness Testing for Minor Animal 
Species Credit.--
            ``(1) In general.--No deduction shall be allowed for that 
        portion of the qualified safety and effectiveness testing 
        expenses (as defined in section 45P(c)(1)) otherwise allowable 
        as a deduction for the taxable year which is equal to the 
        amount of the credit determined for such taxable year under 
        section 45P(a).
            ``(2) Similar rule where taxpayer capitalizes rather than 
        deducts expenses.--If--
                    ``(A) the amount of the credit determined for the 
                taxable year under section 45P(a), exceeds
                    ``(B) the amount allowable as a deduction for such 
                taxable year for qualified safety and effectiveness 
                testing expenses (determined without regard to 
                paragraph (1)),
        the amount chargeable to capital account for the taxable year 
        for such expenses shall be reduced by the amount of such 
        excess.
            ``(3) Controlled groups.--Paragraph (3) of subsection (b) 
        shall apply for purposes of this subsection.''.
    (d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1, as amended by this Act, is 
amended by adding at the end the following new item:

``Sec. 45P. Drug safety and effectiveness testing for minor animal 
                            species.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred after the date of the enactment of 
this Act.

SEC. 407. CERTAIN FARMING BUSINESS MACHINERY AND EQUIPMENT TREATED AS 
              5-YEAR PROPERTY.

    (a) In General.--Section 168(e)(3)(B) (defining 5-year property) is 
amended by striking ``and'' at the end of clause (v), by striking the 
period at the end of clause (vi)(III) and inserting ``, and'', and by 
inserting after clause (vi) the following new clause:
                            ``(vii) any machinery or equipment (other 
                        than any grain bin, cotton ginning asset, 
                        fence, or other land improvement) which is used 
                        in a farming business (as defined in section 
                        263A(e)(4)), the original use of which 
                        commences with the taxpayer after the date of 
                        the enactment of this clause, and which is 
                        placed in service before January 1, 2010.''.
    (b) Alternative System.--The table contained in section 
168(g)(3)(B) (relating to special rule for certain property assigned to 
classes) is amended by inserting after the item relating to 
subparagraph (B)(iii) the following:

 
 
 
  ``(B)(vii)..............................................         10''.
 

    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

SEC. 408. EXPENSING OF BROADBAND INTERNET ACCESS EXPENDITURES.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations) is amended by 
inserting after section 190 the following new section:

``SEC. 191. BROADBAND EXPENDITURES.

    ``(a) Treatment of Expenditures.--
            ``(1) In general.--A taxpayer may elect to treat any 
        qualified broadband expenditure which is paid or incurred by 
        the taxpayer as an expense which is not chargeable to a capital 
        account. Any expenditure which is so treated shall be allowed 
        as a deduction.
            ``(2) Election.--An election under paragraph (1) shall be 
        made at such time and in such manner as the Secretary may 
        prescribe by regulation.
    ``(b) Qualified Broadband Expenditures.--For purposes of this 
section--
            ``(1) In general.--The term `qualified broadband 
        expenditure' means, with respect to any taxable year, any 
        direct or indirect costs incurred after the date of the 
        enactment of this section, and on or before the first December 
        31 which is 3 years after such date, and properly taken into 
        account with respect to--
                    ``(A) the purchase or installation of qualified 
                equipment (including any upgrades thereto), and
                    ``(B) the connection of such qualified equipment to 
                any qualified subscriber.
            ``(2) Certain satellite expenditures excluded.--Such term 
        shall not include any costs incurred with respect to the 
        launching of any satellite equipment.
            ``(3) Leased equipment.--Such term shall include so much of 
        the purchase price paid by the lessor of qualified equipment 
        subject to a lease described in subsection (c)(2)(B) as is 
        attributable to expenditures incurred by the lessee which would 
        otherwise be described in paragraph (1).
            ``(4) Limitation with regard to current generation 
        broadband services.--Only 50 percent of the amounts taken into 
        account under paragraph (1) with respect to qualified equipment 
        through which current generation broadband services are 
        provided shall be treated as qualified broadband expenditures.
    ``(c) When Expenditures Taken Into Account.--For purposes of this 
section--
            ``(1) In general.--Qualified broadband expenditures with 
        respect to qualified equipment shall be taken into account with 
        respect to the first taxable year in which--
                    ``(A) current generation broadband services are 
                provided through such equipment to qualified 
                subscribers, or
                    ``(B) next generation broadband services are 
                provided through such equipment to qualified 
                subscribers.
            ``(2) Limitation.--
                    ``(A) In general.--Qualified expenditures shall be 
                taken into account under paragraph (1) only with 
                respect to qualified equipment--
                            ``(i) the original use of which commences 
                        with the taxpayer, and
                            ``(ii) which is placed in service after the 
                        date of the enactment of this Act.
                    ``(B) Sale-leasebacks.--For purposes of 
                subparagraph (A), if property--
                            ``(i) is originally placed in service after 
                        the date of the enactment of this Act by any 
                        person, and
                            ``(ii) sold and leased back by such person 
                        within 3 months after the date such property 
                        was originally placed in service,
                such property shall be treated as originally placed in 
                service not earlier than the date on which such 
                property is used under the leaseback referred to in 
                clause (ii).
    ``(d) Special Allocation Rules.--
            ``(1) Current generation broadband services.--For purposes 
        of determining the amount of qualified broadband expenditures 
        under subsection (a)(1) with respect to qualified equipment 
        through which current generation broadband services are 
        provided, if the qualified equipment is capable of serving both 
        qualified subscribers and other subscribers, the qualified 
        broadband expenditures shall be multiplied by a fraction--
                    ``(A) the numerator of which is the sum of the 
                number of potential qualified subscribers within the 
                rural areas and the underserved areas which the 
                equipment is capable of serving with current generation 
                broadband services, and
                    ``(B) the denominator of which is the total 
                potential subscriber population of the area which the 
                equipment is capable of serving with current generation 
                broadband services.
            ``(2) Next generation broadband services.--For purposes of 
        determining the amount of qualified broadband expenditures 
        under subsection (a)(1) with respect to qualified equipment 
        through which next generation broadband services are provided, 
        if the qualified equipment is capable of serving both qualified 
        subscribers and other subscribers, the qualified broadband 
        expenditures shall be multiplied by a fraction--
                    ``(A) the numerator of which is the sum of--
                            ``(i) the number of potential qualified 
                        subscribers within the rural areas and 
                        underserved areas, plus
                            ``(ii) the number of potential qualified 
                        subscribers within the area consisting only of 
                        residential subscribers not described in clause 
                        (i),
                which the equipment is capable of serving with next 
                generation broadband services, and
                    ``(B) the denominator of which is the total 
                potential subscriber population of the area which the 
                equipment is capable of serving with next generation 
                broadband services.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Antenna.--The term `antenna' means any device used to 
        transmit or receive signals through the electromagnetic 
        spectrum, including satellite equipment.
            ``(2) Cable operator.--The term `cable operator' has the 
        meaning given such term by section 602(5) of the Communications 
        Act of 1934 (47 U.S.C. 522(5)).
            ``(3) Commercial mobile service carrier.--The term 
        `commercial mobile service carrier' means any person authorized 
        to provide commercial mobile radio service as defined in 
        section 20.3 of title 47, Code of Federal Regulations.
            ``(4) Current generation broadband service.--The term 
        `current generation broadband service' means the transmission 
        of signals at a rate of at least 5,000,000 bits per second to 
        the subscriber and at least 1,000,000 bits per second from the 
        subscriber.
            ``(5) Multiplexing or demultiplexing.--The term 
        `multiplexing' means the transmission of 2 or more signals over 
        a single channel, and the term `demultiplexing' means the 
        separation of 2 or more signals previously combined by 
        compatible multiplexing equipment.
            ``(6) Next generation broadband service.--The term `next 
        generation broadband service' means the transmission of signals 
        at a rate of at least 100,000,000 bits per second to the 
        subscriber and at least 20,000,000 bits per second from the 
        subscriber.
            ``(7) Nonresidential subscriber.--The term `nonresidential 
        subscriber' means any person who purchases broadband services 
        which are delivered to the permanent place of business of such 
        person.
            ``(8) Open video system operator.--The term `open video 
        system operator' means any person authorized to provide service 
        under section 653 of the Communications Act of 1934 (47 U.S.C. 
        573).
            ``(9) Other wireless carrier.--The term `other wireless 
        carrier' means any person (other than a telecommunications 
        carrier, commercial mobile service carrier, cable operator, 
        open video system operator, or satellite carrier) providing 
        current generation broadband services or next generation 
        broadband service to subscribers through the radio transmission 
        of energy.
            ``(10) Packet switching.--The term `packet switching' means 
        controlling or routing the path of any digitized transmission 
        signal which is assembled into packets or cells.
            ``(11) Provider.--The term `provider' means, with respect 
        to any qualified equipment--
                    ``(A) a cable operator,
                    ``(B) a commercial mobile service carrier,
                    ``(C) an open video system operator,
                    ``(D) a satellite carrier,
                    ``(E) a telecommunications carrier, or
                    ``(F) any other wireless carrier,
        providing current generation broadband services or next 
        generation broadband services to subscribers through such 
        qualified equipment.
            ``(12) Provision of services.--A provider shall be treated 
        as providing services to 1 or more subscribers if--
                    ``(A) such a subscriber has been passed by the 
                provider's equipment and can be connected to such 
                equipment for a standard connection fee,
                    ``(B) the provider is physically able to deliver 
                current generation broadband services or next 
                generation broadband services, as applicable, to such a 
                subscriber without making more than an insignificant 
                investment with respect to such subscriber,
                    ``(C) the provider has made reasonable efforts to 
                make such subscribers aware of the availability of such 
                services,
                    ``(D) such services have been purchased by 1 or 
                more such subscribers, and
                    ``(E) such services are made available to such 
                subscribers at average prices comparable to those at 
                which the provider makes available similar services in 
                any areas in which the provider makes available such 
                services.
            ``(13) Qualified equipment.--
                    ``(A) In general.--The term `qualified equipment' 
                means equipment which provides current generation 
                broadband services or next generation broadband 
                services--
                            ``(i) at least a majority of the time 
                        during periods of maximum demand to each 
                        subscriber who is utilizing such services, and
                            ``(ii) in a manner substantially the same 
                        as such services are provided by the provider 
                        to subscribers through equipment with respect 
                        to which no deduction is allowed under 
                        subsection (a)(1).
                    ``(B) Only certain investment taken into account.--
                Except as provided in subparagraph (C) or (D), 
                equipment shall be taken into account under 
                subparagraph (A) only to the extent it--
                            ``(i) extends from the last point of 
                        switching to the outside of the unit, building, 
                        dwelling, or office owned or leased by a 
                        subscriber in the case of a telecommunications 
                        carrier or broadband-over-powerline operator,
                            ``(ii) extends from the customer side of 
                        the mobile telephone switching office to a 
                        transmission/receive antenna (including such 
                        antenna) owned or leased by a subscriber in the 
                        case of a commercial mobile service carrier,
                            ``(iii) extends from the customer side of 
                        the headend to the outside of the unit, 
                        building, dwelling, or office owned or leased 
                        by a subscriber in the case of a cable operator 
                        or open video system operator, or
                            ``(iv) extends from a transmission/receive 
                        antenna (including such antenna) which 
                        transmits and receives signals to or from 
                        multiple subscribers, to a transmission/receive 
                        antenna (including such antenna) on the outside 
                        of the unit, building, dwelling, or office 
                        owned or leased by a subscriber in the case of 
                        a satellite carrier or other wireless carrier, 
                        unless such other wireless carrier is also a 
                        telecommunications carrier.
                    ``(C) Packet switching equipment.--Packet switching 
                equipment, regardless of location, shall be taken into 
                account under subparagraph (A) only if it is deployed 
                in connection with equipment described in subparagraph 
                (B) and is uniquely designed to perform the function of 
                packet switching for current generation broadband 
                services or next generation broadband services, but 
                only if such packet switching is the last in a series 
                of such functions performed in the transmission of a 
                signal to a subscriber or the first in a series of such 
                functions performed in the transmission of a signal 
                from a subscriber.
                    ``(D) Multiplexing and demultiplexing equipment.--
                Multiplexing and demultiplexing equipment shall be 
                taken into account under subparagraph (A) only to the 
                extent it is deployed in connection with equipment 
                described in subparagraph (B) and is uniquely designed 
                to perform the function of multiplexing and 
                demultiplexing packets or cells of data and making 
                associated application adaptions, but only if such 
                multiplexing or demultiplexing equipment is located 
                between packet switching equipment described in 
                subparagraph (C) and the subscriber's premises.
            ``(14) Qualified subscriber.--The term `qualified 
        subscriber' means--
                    ``(A) with respect to the provision of current 
                generation broadband services--
                            ``(i) any nonresidential subscriber 
                        maintaining a permanent place of business in a 
                        rural area or underserved area, or
                            ``(ii) any residential subscriber residing 
                        in a dwelling located in a rural area or 
                        underserved area which is not a saturated 
                        market, and
                    ``(B) with respect to the provision of next 
                generation broadband services--
                            ``(i) any nonresidential subscriber 
                        maintaining a permanent place of business in a 
                        rural area or underserved area, or
                            ``(ii) any residential subscriber.
            ``(15) Residential subscriber.--The term `residential 
        subscriber' means any individual who purchases broadband 
        services which are delivered to such individual's dwelling.
            ``(16) Rural area.--The term `rural area' means any census 
        tract which--
                    ``(A) is not within 10 miles of any incorporated or 
                census designated place containing more than 25,000 
                people, and
                    ``(B) is not within a county or county equivalent 
                which has an overall population density of more than 
                500 people per square mile of land.
            ``(17) Rural subscriber.--The term `rural subscriber' means 
        any residential subscriber residing in a dwelling located in a 
        rural area or nonresidential subscriber maintaining a permanent 
        place of business located in a rural area.
            ``(18) Satellite carrier.--The term `satellite carrier' 
        means any person using the facilities of a satellite or 
        satellite service licensed by the Federal Communications 
        Commission and operating in the Fixed-Satellite Service under 
        part 25 of title 47 of the Code of Federal Regulations or the 
        Direct Broadcast Satellite Service under part 100 of title 47 
        of such Code to establish and operate a channel of 
        communications for distribution of signals, and owning or 
        leasing a capacity or service on a satellite in order to 
        provide such point-to-multipoint distribution.
            ``(19) Saturated market.--The term `saturated market' means 
        any census tract in which, as of the date of the enactment of 
        this section--
                    ``(A) current generation broadband services have 
                been provided by a single provider to 85 percent or 
                more of the total number of potential residential 
                subscribers residing in dwellings located within such 
                census tract, and
                    ``(B) such services can be utilized--
                            ``(i) at least a majority of the time 
                        during periods of maximum demand by each such 
                        subscriber who is utilizing such services, and
                            ``(ii) in a manner substantially the same 
                        as such services are provided by the provider 
                        to subscribers through equipment with respect 
                        to which no deduction is allowed under 
                        subsection (a)(1).
            ``(20) Subscriber.--The term `subscriber' means any person 
        who purchases current generation broadband services or next 
        generation broadband services.
            ``(21) Telecommunications carrier.--The term 
        `telecommunications carrier' has the meaning given such term by 
        section 3(44) of the Communications Act of 1934 (47 U.S.C. 
        153(44)), but--
                    ``(A) includes all members of an affiliated group 
                of which a telecommunications carrier is a member, and
                    ``(B) does not include a commercial mobile service 
                carrier.
            ``(22) Total potential subscriber population.--The term 
        `total potential subscriber population' means, with respect to 
        any area and based on the most recent census data, the total 
        number of potential residential subscribers residing in 
        dwellings located in such area and potential nonresidential 
        subscribers maintaining permanent places of business located in 
        such area.
            ``(23) Underserved area.--The term `underserved area' 
        means--
                    ``(A) any census tract which is located in--
                            ``(i) an empowerment zone or enterprise 
                        community designated under section 1391, or
                            ``(ii) the District of Columbia Enterprise 
                        Zone established under section 1400, or
                    ``(B) any census tract--
                            ``(i) the poverty level of which is at 
                        least 30 percent (based on the most recent 
                        census data), and
                            ``(ii) the median family income of which 
                        does not exceed--
                                    ``(I) in the case of a census tract 
                                located in a metropolitan statistical 
                                area, 70 percent of the greater of the 
                                metropolitan area median family income 
                                or the statewide median family income, 
                                and
                                    ``(II) in the case of a census 
                                tract located in a nonmetropolitan 
                                statistical area, 70 percent of the 
                                nonmetropolitan statewide median family 
                                income.
            ``(24) Underserved subscriber.--The term `underserved 
        subscriber' means any residential subscriber residing in a 
        dwelling located in an underserved area or nonresidential 
        subscriber maintaining a permanent place of business located in 
        an underserved area.
    ``(f) Special Rules.--
            ``(1) Property used outside the united states, etc., not 
        qualified.--No expenditures shall be taken into account under 
        subsection (a)(1) with respect to the portion of the cost of 
        any property referred to in section 50(b) or with respect to 
        the portion of the cost of any property specified in an 
        election under section 179.
            ``(2) Basis reduction.--
                    ``(A) In general.--For purposes of this title, the 
                basis of any property shall be reduced by the portion 
                of the cost of such property taken into account under 
                subsection (a)(1).
                    ``(B) Ordinary income recapture.--For purposes of 
                section 1245, the amount of the deduction allowable 
                under subsection (a)(1) with respect to any property 
                which is of a character subject to the allowance for 
                depreciation shall be treated as a deduction allowed 
                for depreciation under section 167.
            ``(3) Coordination with section 38.--No credit shall be 
        allowed under section 38 with respect to any amount for which a 
        deduction is allowed under subsection (a)(1).''.
    (b) Special Rule for Mutual or Cooperative Telephone Companies.--
Section 512(b) (relating to modifications) is amended by adding at the 
end the following new paragraph:
            ``(20) Special rule for mutual or cooperative telephone 
        companies.--A mutual or cooperative telephone company which for 
        the taxable year satisfies the requirements of section 
        501(c)(12)(A) may elect to reduce its unrelated business 
        taxable income for such year, if any, by an amount that does 
        not exceed the qualified broadband expenditures which would be 
        taken into account under section 191 for such year by such 
        company if such company was not exempt from taxation. Any 
        amount which is allowed as a deduction under this paragraph 
        shall not be allowed as a deduction under section 191 and the 
        basis of any property to which this paragraph applies shall be 
        reduced under section 1016(a)(40).''.
    (c) Conforming Amendments.--
            (1) Section 263(a)(1) (relating to capital expenditures) is 
        amended by striking ``or'' at the end of subparagraph (J), by 
        striking the period at the end of subparagraph (K) and 
        inserting ``, or'', and by adding at the end the following new 
        subparagraph:
                    ``(L) expenditures for which a deduction is allowed 
                under section 191.''.
            (2) Section 1016(a), as amended by this Act, is amended by 
        striking ``and'' at the end of paragraph (38), by striking the 
        period at the end of paragraph (39) and inserting ``, and'', 
        and by adding at the end the following new paragraph:
            ``(40) to the extent provided in section 191(f)(2).''.
            (3) The table of sections for part VI of subchapter A of 
        chapter 1 is amended by inserting after the item relating to 
        section 190 the following new item:

``Sec. 191. Broadband expenditures.''.
    (d) Designation of Census Tracts.--
            (1) In general.--The Secretary of the Treasury shall, not 
        later than 90 days after the date of the enactment of this Act, 
        designate and publish those census tracts meeting the criteria 
        described in paragraphs (16), (22), and (23) of section 191(e) 
        of the Internal Revenue Code of 1986 (as added by this 
        section). In making such designations, the Secretary of the 
        Treasury shall consult with such other departments and agencies 
        as the Secretary determines appropriate.
            (2) Saturated market.--
                    (A) In general.--For purposes of designating and 
                publishing those census tracts meeting the criteria 
                described in subsection (e)(19) of such section 191--
                            (i) the Secretary of the Treasury shall 
                        prescribe not later than 30 days after the date 
                        of the enactment of this Act the form upon 
                        which any provider which takes the position 
                        that it meets such criteria with respect to any 
                        census tract shall submit a list of such census 
                        tracts (and any other information required by 
                        the Secretary) not later than 60 days after the 
                        date of the publication of such form, and
                            (ii) the Secretary of the Treasury shall 
                        publish an aggregate list of such census tracts 
                        and the applicable providers not later than 30 
                        days after the last date such submissions are 
                        allowed under clause (i).
                    (B) No subsequent lists required.--The Secretary of 
                the Treasury shall not be required to publish any list 
                of census tracts meeting such criteria subsequent to 
                the list described in subparagraph (A)(ii).
    (e) Other Regulatory Matters.--
            (1) Prohibition.--No Federal or State agency or 
        instrumentality shall adopt regulations or ratemaking 
        procedures that would have the effect of eliminating or 
        reducing any deduction or portion thereof allowed under section 
        191 of the Internal Revenue Code of 1986 (as added by this 
        section) or otherwise subverting the purpose of this section.
            (2) Treasury regulatory authority.--It is the intent of 
        Congress in providing the election to deduct qualified 
        broadband expenditures under section 191 of the Internal 
        Revenue Code of 1986 (as added by this section) to provide 
        incentives for the purchase, installation, and connection of 
        equipment and facilities offering expanded broadband access to 
        the Internet for users in certain low income and rural areas of 
        the United States, as well as to residential users nationwide, 
        in a manner that maintains competitive neutrality among the 
        various classes of providers of broadband services. 
        Accordingly, the Secretary of the Treasury shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of section 191 of such Code, including--
                    (A) regulations to determine how and when a 
                taxpayer that incurs qualified broadband expenditures 
                satisfies the requirements of section 191 of such Code 
                to provide broadband services, and
                    (B) regulations describing the information, 
                records, and data taxpayers are required to provide the 
                Secretary to substantiate compliance with the 
                requirements of section 191 of such Code.

SEC. 409. CREDIT FOR ENERGY EFFICIENT MOTORS.

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

``SEC. 45Q. CREDIT FOR ENERGY EFFICIENT MOTORS.

    ``(a) In General.--For purposes of section 38, the energy efficient 
motors credit determined under this section for any taxable year is an 
amount equal to the lesser of --
            ``(1) $15 per horsepower generated by qualified energy 
        efficient motors the original use of which begins with the 
        taxpayer during such taxable year, or
            ``(2) $1,250,000.
    ``(b) Qualified Energy Efficient Motor.--The term `qualified energy 
efficient motor' means a general- or definite-purpose electric motor of 
500 horsepower or less which meets or exceeds the efficiency levels 
specified in Tables 12-12 or 12-13 of the National Electrical 
Manufacturers Association MG-1 (2006).
    ``(c) Special Rules.--
            ``(1) Basis reduction.--The basis of any property for which 
        a credit is allowable under subsection (a) shall be reduced by 
        the amount of such credit.
            ``(2) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit allowable 
        under subsection (a) with respect to any property which ceases 
        to be property eligible for such credit.
            ``(3) Property used outside united states, etc., certain 
        depreciable property not qualified.--No credit shall be allowed 
        under subsection (a) with respect to any property referred to 
        in section 50(b) or with respect to the portion of the cost of 
        any property taken into account under section 179.
    ``(d) Termination.--This section shall not apply to any property 
placed in service after the date which is 3 years after the date of the 
enactment of this section.''.
    (b) Credit Allowed as Part of General Business Credit.--Section 
38(b), as amended by this Act, is amended by striking ``plus'' at the 
end of paragraph (32), by striking the period at the end of paragraph 
(33) and inserting ``, plus'', and by adding at the end the following 
new paragraph:
            ``(34) the credit for energy efficient motors determined 
        under section 45Q(a).''.
    (c) Conforming Amendments.--
            (1) Section 1016(a), as amended by this Act, is amended by 
        striking ``and'' at the end of paragraph (39), by striking the 
        period at the end of paragraph (40) and inserting ``, and'', 
        and by adding at the end the following new paragraph:
            ``(41) to the extent provided in section 45Q(c)(1).''.
            (2) The table of sections for subpart D of part IV of 
        subchapter A of chapter 1, as amended by this Act, is amended 
        by adding at the end the following new item:

``Sec. 45Q. Credit for energy efficient motors.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act.

                  TITLE V--REVENUE RAISING PROVISIONS

              Subtitle A--Miscellaneous Revenue Provisions

SEC. 501. LIMITATION ON FARMING LOSSES OF CERTAIN TAXPAYERS.

    (a) In General.--Section 461 (relating to general rule for taxable 
year of deduction) is amended by adding at the end the following new 
subsection:
    ``(j) Limitation on Farming Losses of Certain Taxpayers.--
            ``(1) In general.--If an applicable taxpayer has a farming 
        loss for the taxable year, such loss shall be allowed for such 
        taxable year only to the extent such loss does not exceed 
        $200,000.
            ``(2) Farming loss.--For purposes of this subsection, the 
        term `farming loss' means the excess of the deductions of the 
        taxpayer for the taxable year which are attributable to farming 
        businesses (as defined in section 263A(e)(4)) of such taxpayer 
        over income or gain of such taxpayer for the taxable year which 
        is attributable to such deductions.
            ``(3) Disallowed loss carried to next year.--Any loss which 
        is disallowed under paragraph (1) shall be treated as a 
        deduction of the taxpayer attributable to farming businesses in 
        the next taxable year.
            ``(4) Applicable taxpayer.--For purposes of this 
        subsection, the term `applicable taxpayer' means, with respect 
        to any taxable year, any individual, partnership, estate, or 
        trust which receives agriculture program payments or Commodity 
        Credit Corporation loans in such taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2007.

SEC. 502. MODIFICATION TO OPTIONAL METHOD OF COMPUTING NET EARNINGS 
              FROM SELF-EMPLOYMENT.

    (a) Amendments to the Internal Revenue Code of 1986.--
            (1) In general.--The matter following paragraph (17) of 
        section 1402(a) is amended--
                    (A) by striking ``$2,400'' each place it appears 
                and inserting ``the upper limit'', and
                    (B) by striking ``$1,600'' each place it appears 
                and inserting ``the lower limit''.
            (2) Definitions.--Section 1402 is amended by adding at the 
        end the following new subsection:
    ``(l) Upper and Lower Limits.--For purposes of subsection (a)--
            ``(1) Lower limit.--The lower limit for any taxable year is 
        the sum of the amounts required under section 213(d) of the 
        Social Security Act for a quarter of coverage in effect with 
        respect to each calendar quarter ending with or within such 
        taxable year.
            ``(2) Upper limit.--The upper limit for any taxable year is 
        the amount equal to 150 percent of the lower limit for such 
        taxable year.''.
    (b) Amendments to the Social Security Act.--
            (1) In general.--The matter following paragraph (16) of 
        section 211(a) of the Social Security Act is amended--
                    (A) by striking ``$2,400'' each place it appears 
                and inserting ``the upper limit'', and
                    (B) by striking ``$1,600'' each place it appears 
                and inserting ``the lower limit''.
            (2) Definitions.--Section 211 of such Act is amended by 
        adding at the end the following new subsection:

                        ``Upper and Lower Limits

    ``(k) For purposes of subsection (a)--
            ``(1) The lower limit for any taxable year is the sum of 
        the amounts required under section 213(d) for a quarter of 
        coverage in effect with respect to each calendar quarter ending 
        with or within such taxable year.
            ``(2) The upper limit for any taxable year is the amount 
        equal to 150 percent of the lower limit for such taxable 
        year.''.
            (3) Conforming amendment.--Section 212 of such Act is 
        amended--
                    (A) in subsection (b), by striking ``For'' and 
                inserting ``Except as provided in subsection (c), 
                for''; and
                    (B) by adding at the end the following new 
                subsection:
    ``(c) For the purpose of determining average indexed monthly 
earnings, average monthly wage, and quarters of coverage in the case of 
any individual who elects the option described in clause (ii) or (iv) 
in the matter following section 211(a)(16) for any taxable year that 
does not begin with or during a particular calendar year and end with 
or during such year, the self-employment income of such individual 
deemed to be derived during such taxable year shall be allocated to the 
two calendar years, portions of which are included within such taxable 
year, in the same proportion to the total of such deemed self-
employment income as the sum of the amounts applicable under section 
213(d) for the calendar quarters ending with or within each such 
calendar year bears to the lower limit for such taxable year specified 
in section 211(k)(1).''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2007.

SEC. 503. INFORMATION REPORTING FOR COMMODITY CREDIT CORPORATION 
              TRANSACTIONS.

    (a) In General.--Subpart A of part III of subchapter A of chapter 
61 (relating to information concerning persons subject to special 
provisions) is amended by inserting after section 6039I the following 
new section:

``SEC. 6039J. INFORMATION REPORTING WITH RESPECT TO COMMODITY CREDIT 
              CORPORATION TRANSACTIONS.

    ``(a) Requirement of Reporting.--The Commodity Credit Corporation, 
through the Secretary of Agriculture, shall make a return, according to 
the forms and regulations prescribed by the Secretary of the Treasury, 
setting forth any market gain realized by a taxpayer during the taxable 
year in relation to the repayment of a loan issued by the Commodity 
Credit Corporation, without regard to the manner in which such loan was 
repaid.
    ``(b) Statements To Be Furnished to Persons With Respect to Whom 
Information Is Required.--The Secretary of Agriculture shall furnish to 
each person whose name is required to be set forth in a return required 
under subsection (a) a written statement showing the amount of market 
gain reported in such return.''.
    (b) Clerical Amendment.--The table of sections for subpart A of 
part III of subchapter A of chapter 61 is amended by inserting after 
the item relating to section 6039I the following new item:

``Sec. 6039J. Information reporting with respect to Commodity Credit 
                            Corporation transactions.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to loans repaid on or after January 1, 2007.

SEC. 504. MODIFICATION OF SECTION 1031 TREATMENT FOR CERTAIN REAL 
              ESTATE.

    (a) In General.--Section 1031 (relating to exchange of property 
held for productive use or investment), as amended by this Act, is 
amended by adding at the end the following new subsection:
    ``(j) Special Rule for Agricultural Real Property.--
            ``(1) In general.--Unimproved agricultural real property 
        and improved real property are not property of a like kind.
            ``(2) Unimproved agricultural real property.--For purposes 
        of this subsection, the term `unimproved agricultural real 
        property' means real property--
                    ``(A) which is unimproved;
                    ``(B) which is used for farming purposes (within 
                the meaning of section 2032A(e)(5)); and
                    ``(C) with respect to which a taxpayer receives, in 
                the taxable year in which an exchange of such property 
                is made, any agriculture program payments or Commodity 
                Credit Corporation loans.
            ``(3) Exception.--Paragraph (1) shall not apply with 
        respect to any unimproved agricultural real property which, not 
        later than the date of the exchange, is permanently retired 
        from any program under which any payment, loan, or benefit 
        described in paragraph (2)(C) is made.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to exchanges completed after the date of the enactment of this 
Act.

SEC. 505. 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. 506. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

    The percentage under subparagraph (B) of section 401(1) of the Tax 
Increase Prevention and Reconciliation Act of 2005 in effect on the 
date of the enactment of this Act is increased by 7.00 percentage 
points.

SEC. 507. INELIGIBILITY OF COLLECTIBLES FOR NONTAXABLE LIKE KIND 
              EXCHANGE TREATMENT.

    (a) In General.--Section 1031(a)(2) (relating to exception) is 
amended by striking ``or'' at the end of subparagraph (E), by striking 
the period at the end of subparagraph (F) and inserting ``, or'', and 
by inserting after subparagraph (F) the following new subparagraph:
                    ``(G) collectibles (as defined in section 
                408(m)(2)).''.
    (b) Effective Date.--The amendments made by this section shall 
apply to exchanges completed after the date of the enactment of this 
Act.

SEC. 508. DENIAL OF DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER 
              AMOUNTS.

    (a) In General.--Subsection (f) of section 162 (relating to trade 
or business expenses) is amended to read as follows:
    ``(f) Fines, Penalties, and Other Amounts.--
            ``(1) In general.--Except as provided in paragraph (2), no 
        deduction otherwise allowable shall be allowed under this 
        chapter for any amount paid or incurred (whether by suit, 
        agreement, or otherwise) to, or at the direction of, a 
        government or entity described in paragraph (4) in relation 
        to--
                    ``(A) the violation of any law, or
                    ``(B) an investigation or inquiry into the 
                potential violation of any law which is initiated by 
                such government or entity.
            ``(2) Exception for amounts constituting restitution or 
        paid to come into compliance with law.--Paragraph (1) shall not 
        apply to any amount which--
                    ``(A) the taxpayer establishes--
                            ``(i) constitutes restitution (or 
                        remediation of property) for damage or harm 
                        caused by, or which may be caused by, the 
                        violation of any law or the potential violation 
                        of any law, or
                            ``(ii) is paid to come into compliance with 
                        any law which was violated or involved in the 
                        investigation or inquiry, and
                    ``(B) is identified as an amount described in 
                clause (i) or (ii) of subparagraph (A), as the case may 
                be, in the court order or settlement agreement, except 
                that the requirement of this subparagraph shall not 
                apply in the case of any settlement agreement which 
                requires the taxpayer to pay or incur an amount not 
                greater than $1,000,000.
        A taxpayer shall not meet the requirements of subparagraph (A) 
        solely by reason of an identification under subparagraph (B). 
        This paragraph shall not apply to any amount paid or incurred 
        as reimbursement to the government or entity for the costs of 
        any investigation or litigation unless such amount is paid or 
        incurred for a cost or fee regularly charged for any routine 
        audit or other customary review performed by the government or 
        entity.
            ``(3) Exception for amounts paid or incurred as the result 
        of certain court orders.--Paragraph (1) shall not apply to any 
        amount paid or incurred by order of a court in a suit in which 
        no government or entity described in paragraph (4) is a party.
            ``(4) Certain nongovernmental regulatory entities.--An 
        entity is described in this paragraph if it is--
                    ``(A) a nongovernmental entity which exercises 
                self-regulatory powers (including imposing sanctions) 
                in connection with a qualified board or exchange (as 
                defined in section 1256(g)(7)), or
                    ``(B) to the extent provided in regulations, a 
                nongovernmental entity which exercises self-regulatory 
                powers (including imposing sanctions) as part of 
                performing an essential governmental function.
            ``(5) Exception for taxes due.--Paragraph (1) shall not 
        apply to any amount paid or incurred as taxes due.''.
    (b) Reporting of Deductible Amounts.--
            (1) In general.--Subpart B of part III of subchapter A of 
        chapter 61 is amended by inserting after section 6050V the 
        following new section:

``SEC. 6050W. INFORMATION WITH RESPECT TO CERTAIN FINES, PENALTIES, AND 
              OTHER AMOUNTS.

    ``(a) Requirement of Reporting.--
            ``(1) In general.--The appropriate official of any 
        government or entity which is described in section 162(f)(4) 
        which is involved in a suit or agreement described in paragraph 
        (2) shall make a return in such form as determined by the 
        Secretary setting forth--
                    ``(A) the amount required to be paid as a result of 
                the suit or agreement to which paragraph (1) of section 
                162(f) applies,
                    ``(B) any amount required to be paid as a result of 
                the suit or agreement which constitutes restitution or 
                remediation of property, and
                    ``(C) any amount required to be paid as a result of 
                the suit or agreement for the purpose of coming into 
                compliance with any law which was violated or involved 
                in the investigation or inquiry.
            ``(2) Suit or agreement described.--
                    ``(A) In general.--A suit or agreement is described 
                in this paragraph if--
                            ``(i) it is--
                                    ``(I) a suit with respect to a 
                                violation of any law over which the 
                                government or entity has authority and 
                                with respect to which there has been a 
                                court order, or
                                    ``(II) an agreement which is 
                                entered into with respect to a 
                                violation of any law over which the 
                                government or entity has authority, or 
                                with respect to an investigation or 
                                inquiry by the government or entity 
                                into the potential violation of any law 
                                over which such government or entity 
                                has authority, and
                            ``(ii) the aggregate amount involved in all 
                        court orders and agreements with respect to the 
                        violation, investigation, or inquiry is $600 or 
                        more.
                    ``(B) Adjustment of reporting threshold.--The 
                Secretary may adjust the $600 amount in subparagraph 
                (A)(ii) as necessary in order to ensure the efficient 
                administration of the internal revenue laws.
            ``(3) Time of filing.--The return required under this 
        subsection shall be filed not later than--
                    ``(A) 30 days after the date on which a court order 
                is issued with respect to the suit or the date the 
                agreement is entered into, as the case may be, or
                    ``(B) the date specified by the Secretary.
    ``(b) Statements To Be Furnished to Individuals Involved in the 
Settlement.--Every person required to make a return under subsection 
(a) shall furnish to each person who is a party to the suit or 
agreement a written statement showing--
            ``(1) the name of the government or entity, and
            ``(2) the information supplied to the Secretary under 
        subsection (a)(1).
The written statement required under the preceding sentence shall be 
furnished to the person at the same time the government or entity 
provides the Secretary with the information required under subsection 
(a).
    ``(c) Appropriate Official Defined.--For purposes of this section, 
the term `appropriate official' means the officer or employee having 
control of the suit, investigation, or inquiry or the person 
appropriately designated for purposes of this section.''.
            (2) Conforming amendment.--The table of sections for 
        subpart B of part III of subchapter A of chapter 61 is amended 
        by inserting after the item relating to section 6050V the 
        following new item:

``Sec. 6050W. Information with respect to certain fines, penalties, and 
                            other amounts.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to amounts paid or incurred on or after the date of the enactment 
of this Act, except that such amendments shall not apply to amounts 
paid or incurred under any binding order or agreement entered into 
before such date. Such exception shall not apply to an order or 
agreement requiring court approval unless the approval was obtained 
before such date.

SEC. 509. INCREASE IN INFORMATION RETURN PENALTIES.

    (a) Failure To File Correct Information Returns.--
            (1) In general.--Section 6721(a)(1) is amended--
                    (A) by striking ``$50'' and inserting ``$250'', and
                    (B) by striking ``$250,000'' and inserting 
                ``$3,000,000''.
            (2) Reduction where correction in specified period.--
                    (A) Correction within 30 days.--Section 6721(b)(1) 
                is amended--
                            (i) by striking ``$15'' and inserting 
                        ``$50'',
                            (ii) by striking ``$50'' and inserting 
                        ``$250'', and
                            (iii) by striking ``$75,000'' and inserting 
                        ``$500,000''.
                    (B) Failures corrected on or before august 1.--
                Section 6721(b)(2) is amended--
                            (i) by striking ``$30'' and inserting 
                        ``$100'',
                            (ii) by striking ``$50'' and inserting 
                        ``$250'', and
                            (iii) by striking ``$150,000'' and 
                        inserting ``$1,500,000''.
            (3) Lower limitation for persons with gross receipts of not 
        more than $5,000,000.--Section 6721(d)(1) is amended--
                    (A) in subparagraph (A)--
                            (i) by striking ``$100,000'' and inserting 
                        ``$1,000,000'', and
                            (ii) by striking ``$250,000'' and inserting 
                        ``$3,000,000'',
                    (B) in subparagraph (B)--
                            (i) by striking ``$25,000'' and inserting 
                        ``$175,000'', and
                            (ii) by striking ``$75,000'' and inserting 
                        ``$500,000'', and
                    (C) in subparagraph (C)--
                            (i) by striking ``$50,000'' and inserting 
                        ``$500,000'', and
                            (ii) by striking ``$150,000'' and inserting 
                        ``$1,500,000''.
            (4) Penalty in case of intentional disregard.--Section 
        6721(e) is amended--
                    (A) by striking ``$100'' in paragraph (2) and 
                inserting ``$500'', and
                    (B) by striking ``$250,000'' in paragraph (3)(A) 
                and inserting ``$3,000,000''.
    (b) Failure to Furnish Correct Payee Statements.--
            (1) In general.--Section 6722(a) is amended--
                    (A) by striking ``$50'' and inserting ``$250'', and
                    (B) by striking ``$100,000'' and inserting 
                ``$1,000,000''.
            (2) Penalty in case of intentional disregard.--Section 
        6722(c) is amended--
                    (A) by striking ``$100'' in paragraph (1) and 
                inserting ``$500'', and
                    (B) by striking ``$100,000'' in paragraph (2)(A) 
                and inserting ``$1,000,000''.
    (c) Failure To Comply With Other Information Reporting 
Requirements.--Section 6723 is amended--
            (1) by striking ``$50'' and inserting ``$250'', and
            (2) by striking ``$100,000'' and inserting ``$1,000,000''.
    (d) Effective Date.--The amendments made by this section shall 
apply with respect to information returns required to be filed on or 
after January 1, 2008.

                Subtitle B--Economic Substance Doctrine

SEC. 511. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701 is amended by redesignating 
subsection (p) as subsection (q) and by inserting after subsection (o) 
the following new subsection:
    ``(p) 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) subject to clause (iii), the 
                                taxpayer has a substantial purpose 
                                (other than a Federal tax purpose) for 
                                entering into such transaction.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance solely 
                        by reason of having a potential for profit 
                        unless the present value of the reasonably 
                        expected pre-Federal tax profit from the 
                        transaction is substantial in relation to the 
                        present value of the expected net Federal tax 
                        benefits that would be allowed if the 
                        transaction were respected. In determining pre-
                        Federal tax profit, there shall be taken into 
                        account fees and other transaction expenses and 
                        to the extent provided by the Secretary, 
                        foreign taxes.
                            ``(iii) Special rules for determining 
                        whether non-federal tax purpose.--For purposes 
                        of clause (i)(II)--
                                    ``(I) a purpose of achieving a 
                                financial accounting benefit shall not 
                                be taken into account in determining 
                                whether a transaction has a substantial 
                                purpose (other than a Federal tax 
                                purpose) if the origin of such 
                                financial accounting benefit is a 
                                reduction of Federal tax, and
                                    ``(II) the taxpayer shall not be 
                                treated as having a substantial purpose 
                                (other than a Federal tax purpose) with 
                                respect to a transaction if the only 
                                such purpose is the reduction of non-
                                Federal taxes and the transaction will 
                                result in a reduction of Federal taxes 
                                substantially equal to, or greater 
                                than, the reduction in non-Federal 
                                taxes because of similarities between 
                                the laws imposing the taxes.
            ``(2) 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) 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.
            ``(3) Other provisions 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 or provision of this title, 
        and the requirements of this subsection shall be construed as 
        being in addition to any such other rule of law or provision of 
        this title.
            ``(4) 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. 512. 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 30 percent of the amount of such 
understatement.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `30 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 
        there is a lack of economic substance (within the meaning of 
        section 7701(p)(1)(B)) for the transaction giving rise to the 
        claimed benefit.
    ``(d) Rules Applicable to Assertion, Compromise, and Collection of 
Penalty.--
            ``(1) In general.--Only the Chief Counsel for the Internal 
        Revenue Service may assert a penalty imposed under this section 
        or may compromise all or any portion of such penalty. The Chief 
        Counsel may delegate the authority under this paragraph only to 
        an individual holding the position of chief of a branch within 
        the Office of the Chief Counsel for the Internal Revenue 
        Service.
            ``(2) Specific requirements.--
                    ``(A) Assertion of penalty.--The Chief Counsel for 
                the Internal Revenue Service (or the Chief Counsel's 
                delegate under paragraph (1)) shall not assert a 
                penalty imposed under this section unless, before the 
                assertion of the penalty, the taxpayer is provided--
                            ``(i) a notice of intent to assert the 
                        penalty, and
                            ``(ii) an opportunity to provide to the 
                        Commissioner (or the Chief Counsel's delegate 
                        under paragraph (1)) a written response to the 
                        proposed penalty within a reasonable period of 
                        time after such notice.
                    ``(B) Compromise of penalty.--A compromise shall 
                not result in a reduction in the penalty imposed by 
                this section in an amount greater than the amount which 
                bears the same ratio to the amount of the penalty 
                determined without regard to the compromise as--
                            ``(i) the reduction under the compromise in 
                        the noneconomic substance transaction 
                        understatement to which the penalty relates, 
                        bears to
                            ``(ii) the amount of the noneconomic 
                        substance transaction understatement determined 
                        without regard to the compromise.
            ``(3) Rules relating to relevancy requirement.--
                    ``(A) Determination of relevance by chief 
                counsel.--The Chief Counsel for the Internal Revenue 
                Service (or the Chief Counsel's delegate under 
                paragraph (1)) may assert, compromise, or collect a 
                penalty imposed by this section with respect to a 
                noneconomic substance transaction even if there has not 
                been a court determination that the economic substance 
                doctrine was relevant for purposes of this title to the 
                transaction if the Chief Counsel (or delegate) 
                determines that either was so relevant.
                    ``(B) Final order of court.--If there is a final 
                order of a court that determines that the economic 
                substance doctrine was not relevant for purposes of 
                this title to a transaction (or series of 
                transactions), any penalty imposed under this section 
                with respect to the transaction (or series of 
                transactions) shall be rescinded.
            ``(4) Applicable rules.--The rules of paragraphs (2) and 
        (3) of section 6707A(d) shall apply to a compromise under 
        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)--
                            (i) by inserting ``6662B or'' before 
                        ``6663'' in the text, and
                            (ii) by striking ``penalty'' in the heading 
                        and inserting ``and economic substance 
                        penalties'',
                    (C) in paragraph (2)(B)--
                            (i) by inserting ``and section 6662B'' 
                        after ``This section'', and
                            (ii) by striking ``penalty'' in the heading 
                        and inserting ``and economic substance 
                        penalties'',
                    (D) in paragraph (3), by inserting ``or noneconomic 
                substance transaction understatement'' after 
                ``reportable transaction understatement'', and
                    (E) 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)(B)) have been subject to 
                penalty under section 6662A at a rate prescribed under 
                section 6662A(c) or to penalty 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. 513. 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.
                                                       Calendar No. 446

110th CONGRESS

  1st Session

                                S. 2242

                          [Report No. 110-206]

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                                 A BILL

 To amend the Trade Act of 1974 to establish supplemental agricultural 
 disaster assistance and to amend the Internal Revenue Code of 1986 to 
provide tax incentives for conservation and alternative energy sources 
     and to provide tax relief for farmers, and for other purposes.

_______________________________________________________________________

                            October 25, 2007

                 Read twice and placed on the calendar