[Congressional Record Volume 149, Number 16 (Wednesday, January 29, 2003)]
[Senate]
[Pages S1745-S1746]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. FITZGERALD (for himself, Mr. Johnson, Mr. Hagel, and Mr. 
        Harkin):
  S. 240. 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.
  Mr. FITZGERALD. Mr. President, I rise today to introduce legislation 
that would extend the 10-cents-per-gallon small ethanol producers' tax 
credit to small farmer-owned cooperatives. The measure, if approved by 
Congress, could help boost ethanol production at a time when domestic 
energy prices are on the rise and the United States is seeking to 
reduce its dependence on foreign oil.
  Under current law, small ethanol producers, those who make less than 
30 million gallons of ethanol per year, are eligible for an additional 
10-cents-per-gallon-tax credit for up to 15 million gallons of ethanol 
each year. While the tax credit is intended to help maximize U.S. 
ethanol production by aiding small producers that otherwise may not be 
able to compete with larger companies, an unintended glitch in the law 
bars small farm cooperatives from passing this credit on to their 
farmers. Unfortunately, this glitch stifles production and penalizes 
farmers who join cooperatives.
  Farm cooperatives can be an efficient way for farmers to trim costs 
and maximize income. We must ensure that our tax code does not penalize 
farmers for pooling their resources in cooperatives. With rising energy 
prices and a potentiality vast new market for ethanol in the Nation's 
clean air program, we should encourage, not discourage, greater 
production by ethanol cooperatives.
  This legislation would revise existing tax law to permit farmer-owned 
cooperatives to pass the small producers' ethanol tax credit on to 
their members through dividends and allow these producers to treat this 
income as if they had generated it directly.
  The bill would also expand the number of producers eligible for the 
tax credit by doubling the production limit from 30 million gallons of 
ethanol a year 60 million gallons. Like most businesses, ethanol 
production facilities must achieve economies of scale to be viable in a 
competitive marketplace. Doubling the limit to 60 million gallons 
simply modernizes the tax credit to reflect current economic realities.
  I believe we must approach the new millennium with a renewed 
commitment to keep our environment clean and safe, and I also believes 
this objective is consistent with building and maintaining a strong 
economy. Renewable energy is central to our long-term goal of energy 
self-sufficiency. By expanding eligibility for the small producers' 
ethanol tax credit, this bill could stimulate ethanol production and 
ultimately help lessen our dependence on foreign sources of oil.
  Realizing this important benefit, the Senate included this 
legislation in the comprehensive energy legislation, H.R. 4, which 
unfortunately, failed to emerge from conference committee prior to the 
end of the 107th Congress. Additionally, this small ethanol producer 
tax credit legislation was incorporated into Senator Grassley's ``Tax

[[Page S1746]]

Empowerment and Relief for Farmers and Fishermen, TERFF, Act,'' which 
we also did not approve prior to adjournment of the last Congress. I 
look forward to working with our new Finance Committee Chairman and my 
co-sponsor, Senators Johnson, Hagel, and Harkin, to get this 
legislation signed into law.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 240

       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.--Subsection (g) of section 40 of the Internal 
     Revenue Code of 1986 (relating to alcohol used as fuel) is 
     amended by adding at the end the following new paragraph:
       ``(6) Allocation of small ethanol producer credit to 
     patrons of cooperative.--
       ``(A) Election to allocate.--
       ``(i) In general.--In the case of a cooperative 
     organization described in section 1381(a), any portion of the 
     credit determined under subsection (a)(3) for the taxable 
     year may, at the election of the organization, be apportioned 
     pro rata among patrons of the organization on the basis of 
     the quantity or value of business done with or for such 
     patrons for the taxable year.
       ``(ii) Form and effect of election.--An election under 
     clause (i) for any taxable year shall be made on a timely 
     filed return for such year. Such election, once made, shall 
     be irrevocable for such taxable year.
       ``(B) Treatment of organizations and patrons.--The amount 
     of the credit apportioned to patrons under subparagraph (A)--
       ``(i) shall not be included in the amount determined under 
     subsection (a) with respect to the organization for the 
     taxable year,

       ``(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 determined under subsection (a)(3) for a taxable 
     year is less than the amount of such credit shown on the 
     return of the cooperative organization for such year, an 
     amount equal to the excess of--
       ``(i) such reduction, over
       ``(ii) the amount not apportioned to such patrons under 
     subparagraph (A) for the taxable year,
     shall be treated as an increase in tax imposed by this 
     chapter on the organization. Such increase shall not be 
     treated as tax imposed by this chapter for purposes of 
     determining the amount of any credit under this chapter or 
     for purposes of section 55.''.
       (b) Improvements to Small Ethanol Producer Credit.--
       (1) Definition of small ethanol producer.--Section 40(g) of 
     such Code (relating to definitions and special rules for 
     eligible small ethanol producer credit) is amended by 
     striking ``30,000,000'' each place it appears and inserting 
     ``60,000,000''.
       (2) Small ethanol producer credit not a passive activity 
     credit.--Clause (i) of section 469(d)(2)(A) of such Code is 
     amended by striking ``subpart D'' and inserting ``subpart D, 
     other than section 40(a)(3),''.
       (3) Allowing credit against entire regular tax and minimum 
     tax.--
       (A) In general.--Subsection (c) of section 38 of such Code 
     (relating to limitation based on amount of tax) is amended by 
     redesignating paragraph (4) as paragraph (5) and by inserting 
     after paragraph (3) the following new paragraph:
       ``(4) Special rules for small ethanol producer credit.--
       ``(A) In general.--In the case of the small ethanol 
     producer credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) the amounts in subparagraphs (A) and (B) thereof 
     shall be treated as being zero, and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the small 
     ethanol producer credit).

       ``(B) Small ethanol producer credit.--For purposes of this 
     subsection, the term `small ethanol producer credit' means 
     the credit allowable under subsection (a) by reason of 
     section 40(a)(3).''.
       (B) Conforming amendments.--Subclause (II) of section 
     38(c)(2)(A)(ii) and subclause (II) of section 38(c)(3)(A)(ii) 
     are each amended by inserting ``or the small ethanol producer 
     credit'' after ``employee credit''.
       (4) Small ethanol producer credit not added back to income 
     under section 87.--Section 87 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 such Code 
     (relating to definitions and special rules for cooperative 
     organizations) is amended by adding at the end the following 
     new subsection:
       ``(k) Cross Reference.--For provisions relating to the 
     apportionment of the alcohol fuels credit between cooperative 
     organizations and their patrons, see section 40(g)(6).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                                 ______