[Congressional Record Volume 146, Number 93 (Tuesday, July 18, 2000)]
[Senate]
[Pages S7161-S7162]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRAMS:
  S. 2884. A bill to amend the Internal Revenue Code of 1986 to allow 
allocation of small ethanol producer credit to patrons of cooperative, 
and for other purposes; to the Committee on Finance.


                     small ethanol producer credit

  Mr. GRAMS. Mr. President, I rise today to introduce legislation to 
allow farmer-owned cooperatives access to the small ethanol producer 
tax credit. Mr. President, current law provides for an income tax 
credit of 10 cents per gallon for up to 15 million gallons of annual 
ethanol production by a small ethanol producer. A small ethanol 
producer is one defined as having a production capacity of less than 30 
million gallons per year. The credit was enacted as part of the Omnibus 
Budget Reconciliation Act of 1990 and championed by our former 
colleague, Senator Bob Dole. Unfortunately, the credit was enacted at a 
time when the growth and shape of the ethanol industry was still 
difficult to predict.
  This situation has led to an unfortunate situation in Minnesota, 
Iowa, and in other areas where farmer-owned cooperatives have been 
unable to access the credit due to the way in which the original 
legislation was drafted. The original legislation certainly envisioned 
these small, farmer-owned cooperatives as being eligible for the tax 
credit, but the intricacies of the tax code have made it impossible for 
them to do so.
  Mr. President, there are currently 22 cooperative ethanol plants in 
the United States. Twelve of them are located in Minnesota. Eleven of 
these Minnesota cooperatives involve over 5,000 farmers and their 
families. Minnesota cooperatives are able to produce roughly 189 
million gallons of ethanol per year.
  My legislation would simply provide a technical correction to ensure 
farmer-owned cooperatives are included in the definition of who can 
benefit from the small ethanol producer tax credit. My bill also 
expands the definition to include facilities with less than 60 million 
gallons in annual capacity.
  I want to again stress that this proposal is consistent with the 
original intent of the 1990 law that created the small ethanol producer 
tax credit. Farmer-owned cooperatives were never intended to be 
excluded from receiving the benefits of the tax credit if they produce 
less than 30 million gallons. It was just hard to envision the role and 
growth of cooperatives when we passed the 1990 law. Cooperatives are 
not huge corporate ventures, but associations of small farmers.
  Mr. President, the ethanol industry in Minnesota and across the 
country is one we should promote. Ethanol is a crucial product for 
rural America, for our nation as a whole, and especially for Minnesota. 
I'd like to point out just a few of ethanol's impressive benefits--
environmentally and economically. According to the Minnesota Corn 
Growers, ethanol production boosts nationwide employment by over 
195,000 jobs. Ethanol improves our trade balance by $2 billion and adds 
$450 million to state tax receipts. It reduces emissions from gasoline 
use and therefore helps us clean up the environment.
  According to the American Coalition for Ethanol, more than $3 billion 
has been invested in 43 ethanol facilities in 20 states. Those 
investments have directly created 40,000 jobs and more than $12.6 
billion in increased income over the next five years.
  Minnesota is now home to over a dozen operating ethanol plants with a 
capacity of over 200 million gallons annually. These plants mean new 
jobs with good wages and good benefits for people living in rural areas 
where these plants are built. According to a report by the Minnesota 
Legislative Auditor, those plants, and the resulting economic activity, 
are expected to create as many as 5,000 new, high-wage jobs--including 
jobs in production, construction, and support industries.
  In addition to its positive economic impact, ethanol production 
allows our nation to move away from our dependence on foreign energy 
sources. The United States Department of Agriculture estimates that for 
every gallon of ethanol produced domestically, we displace seven 
gallons of imported oil. Ethanol plays a role in increasing our 
national energy security by providing a stable, homegrown, renewable 
energy supply. Ethanol is estimated to reduce our demand for foreign 
oil by 98,000 barrels per day.
  Those are just some of the reasons why I urge my colleagues to join 
me in allowing small, farmer-owned cooperatives to enjoy the full 
benefits of the small ethanol producer tax credit.
  I want to thank Senator Charles Grassley of Iowa for working with me 
on this important legislation. As everyone knows, Senator Grassley has 
been a steadfast leader of efforts to promote tax relief for farmers 
and rural Americans. I'm proud to be working with him on this 
legislation.
  I ask that the full text of my bill be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2884

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

     SECTION 1. SMALL ETHANOL PRODUCER CREDIT.

       (a) Allocation of Alcohol Fuels Credit to Patrons of a 
     Cooperative.--Section 40(g) Internal Revenue Code of 1986 
     (relating to definitions and special rules for eligible small 
     ethanol producer credit) is amended by adding at the end the 
     following:
       ``(6) Allocation of small ethanol producer credit to 
     patrons of cooperative.--
       ``(A) Election to allocate.--
       ``(i) In general.--Notwithstanding paragraph (4), in the 
     case of a cooperative organization described in section 
     1381(a), any portion of the credit determined under 
     subsection (a)(3) for the taxable year may, at the election 
     of the organization, be apportioned pro rata among patrons of 
     the organization on the basis of the quantity or value of 
     business done with or for such patrons for the taxable year.
       ``(ii) Form and effect of election.--An election under 
     clause (i) for any taxable year shall be made on a timely 
     filed return for such year. Such election, once made, shall 
     be irrevocable for such taxable year.
       ``(iii) Special rule for 1998 and 1999.--Notwithstanding 
     clause (ii), an election for any taxable year ending prior to 
     the date of the enactment of this paragraph may be made at 
     any time before the expiration of the 3-year period beginning 
     on the last date prescribed by law for filing the return of 
     the taxpayer for such taxable year (determined without regard 
     to extensions) by filing an amended return for such year.
       ``(B) Treatment of organizations and patrons.--The amount 
     of the credit apportioned to patrons under subparagraph (A)--
       ``(i) shall not be included in the amount determined under 
     subsection (a) with respect to the organization for the 
     taxable year,
       ``(ii) shall be included in the amount determined under 
     subsection (a) for the taxable year of each patron for which 
     the patronage dividends for the taxable year described in 
     subparagraph (A) are included in gross income, and
       ``(iii) shall be included in gross income of such patrons 
     for the taxable year in the manner and to the extent provided 
     in section 87.
       ``(C) Special rules for decrease in credits for taxable 
     year.--If the amount of the credit of a cooperative 
     organization (as so defined) determined under subsection 
     (a)(3) for a taxable year is less than the amount of such 
     credit shown on the return of the cooperative organization 
     for such year, an amount equal to the excess of--
       ``(i) such reduction, over
       ``(ii) the amount not apportioned to such patrons under 
     subparagraph (A) for the taxable year,
     shall be treated as an increase in tax imposed by this 
     chapter on the organization. Such increase shall not be 
     treated as tax imposed by this chapter for purposes of 
     determining the amount of any credit under this subpart or 
     subpart A, B, E, or G.''.
       (b) Definition of Small Ethanol Producer; Improvements to 
     Small Ethanol Producer Credit.--
       (1) Definition of small ethanol producer.--Section 40(g)(1) 
     of the Internal Revenue Code of 1986 (relating to eligible 
     small ethanol producer) is amended by striking ``30,000,000'' 
     and inserting ``60,000,000''.
       (2) Small ethanol producer credit not a passive activity 
     credit.--Clause (i) of section 469(d)(2)(A) of such Code 
     (relating to passive activity credit) is amended by striking 
     ``subpart D'' and inserting ``subpart D, other than section 
     40(a)(3),''.
       (3) Allowing credit against minimum tax.--
       (A) In general.--Subsection (c) of section 38 of such Code 
     (relating to limitation based on amount of tax) is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following:
       ``(3) Special rules for small ethanol producer credit.--
       ``(A) In general.--In the case of the small ethanol 
     producer credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

[[Page S7162]]

       ``(I) subparagraphs (A) and (B) thereof shall not apply, 
     and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the small 
     ethanol producer credit).

       ``(B) Small ethanol producer credit.--For purposes of this 
     subsection, the term `small ethanol producer credit' means 
     the credit allowable under subsection (a) by reason of 
     section 40(a)(3).''.
       (B) Conforming amendment.--Subclause (II) of section 
     38(c)(2)(A)(ii) of such Code is amended by inserting ``or the 
     small ethanol producer credit'' after ``employment credit''.
       (4) Small ethanol producer credit not added back to income 
     under section 87.--Section 87 of such Code (relating to 
     income inclusion of alcohol fuel credit is amended to read as 
     follows:

     ``SEC. 87. ALCOHOL FUEL CREDIT.

       ``Gross income includes an amount equal to the sum of--
       ``(1) the amount of the alcohol mixture credit determined 
     with respect to the taxpayer for the taxable year under 
     section 40(a)(1), and
       ``(2) the alcohol credit determined with respect to the 
     taxpayer for the taxable year under section 40(a)(2).''.
       (c) Conforming Amendment.--Section 1388 of the Internal 
     Revenue Code of 1986 (relating to definitions and special 
     rules for cooperative organizations) is amended by adding at 
     the end the following:
       ``(k) Cross Reference.--For provisions relating to the 
     apportionment of the alcohol fuels credit between cooperative 
     organizations and their patrons, see section 40(d) (6).''
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 1997.
       (2) Certain provisions.--The amendments made by paragraphs 
     (1) and (4) of subsection (b) shall apply to taxable years 
     ending after the date of the enactment of this Act.
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