[House Report 108-67]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     108-67

======================================================================
 
                     ENERGY TAX POLICY ACT OF 2003

                                _______
                                

 April 9, 2003.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 1531]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 1531) to amend the Internal Revenue Code of 1986 to 
enhance energy conservation and to provide for reliability and 
diversity in the energy supply for the American people, and for 
other purposes, having considered the same, report favorably 
thereon with an amendment and recommend that the bill as 
amended do pass.

                                CONTENTS

                                                                   Page
   I. Summary and Background.........................................34
            A. Purpose and Summary...............................    34
            B. Background and Need for Legislation...............    34
            C. Legislative History...............................    35
  II. Explanation of the Bill........................................35
            A. Tax Credit for Residential Solar Energy (sec. 101 
                of the bill and new sec. 25C of the Code)........    35
            B. Extension and Modification of the Section 45 
                Electricity Production Credit (sec. 102 of the 
                bill and sec. 45 of the Code)....................    36
            C. Tax Incentives for Fuel Cells (sec. 103 of the 
                bill and sec. 48 and new sec. 25D of the Code)...    39
            D. Credit for Energy Efficiency Improvements to 
                Existing Homes (sec. 104 of the bill and new sec. 
                25E of the Code).................................    40
            E. Business Credit for Construction of New Energy-
                Efficient Homes (sec. 105 of the bill and new 
                sec. 45G of the Code)............................    41
            F. Energy Credit for Combined Heat and Power System 
                Property (sec. 106 of the bill and sec. 48 of the 
                Code)............................................    42
            G. Allow Nonbusiness Energy Credits Against the 
                Alternative Minimum Tax (sec. 107 of the bill and 
                new secs. 25C, 25D, and 25E of the Code).........    44
            H. Repeal Certain Excise Taxes on Rail Diesel Fuel 
                and Inland Waterway Barge Fuels (sec. 108 of the 
                bill and secs. 4041 and 4042 of the Code)........    44
            I. Btu-Based Rate for Diesel/Water Emulsion Fuel 
                (sec. 109 of the bill and secs. 4081 and 6427 of 
                the Code)........................................    45
            J. Modifications and Extensions of Provisions 
                Relating to Electric Vehicles, Clean-Fuel 
                Vehicles, and Clean-Fuel Vehicle Refueling 
                Property (secs. 110 and 111 of the bill and secs. 
                179A and 30 of the Code and new sec. 30B of the 
                Code)............................................    46
    Title II--Reliability............................................50
            A. Natural Gas Gathering Lines Treated as Seven-Year 
                Property (sec. 201 of the bill and secs. 168 and 
                56 of the Code)..................................    50
            B. Natural Gas Distribution Lines Treated as Fifteen-
                Year Property (sec. 202 of the bill and secs. 168 
                and 56 of the Code)..............................    51
            C. Transmission Property Treated as Fifteen-Year 
                Property (sec. 203 of the bill and secs. 168 and 
                56 of the Code)..................................    51
            D. Expensing of Capital Costs Incurred and Credit for 
                Production in Complying with Environmental 
                Protection Agency Sulfur Regulations (secs. 204 
                and 205 of the bill and new secs. 179B and 45H of 
                the Code)........................................    52
            E. Determination of Small Refiner Exception to Oil 
                Depletion Deduction (sec. 206 of the bill and 
                sec. 613A of the Code)...........................    53
            F. Sales or Dispositions to Implement Federal Energy 
                Regulatory Commission or State Electric 
                Restructuring Policy (sec. 207 of the bill and 
                sec. 451 of the Code)............................    54
            G. Modification to Special Rules for Nuclear 
                Decommissioning Costs (sec. 208 of the bill and 
                sec. 468A of the Code)...........................    56
            H. Treatment of Certain Income of Electric 
                Cooperatives (sec. 209 of the bill and sec. 501 
                of the Code).....................................    59
            I. Exempt Certain Prepayments for Natural Gas From 
                Tax-Exempt Bond Arbitrage Rules (sec. 210 of the 
                bill and sec. 148 of the Code)...................    63
            J. Prepayment of Premium Liability for Coal Miner 
                Health Benefits (sec. 211 of the bill and sec. 
                9704 of the Code)................................    66
 III. Production.....................................................67
            A. Tax Credit for Oil and Gas Production From 
                Marginal Wells (sec. 301 of the bill and new sec. 
                45J of the Code).................................    67
            B. Temporary Suspension of Limitation Based on 65 
                Percent of Taxable Income and Extension of 
                Suspension of Taxable Income Limit with Respect 
                to Marginal Production (sec. 302 of the bill and 
                sec. 613A of the Code)...........................    68
            C. Amortization of Delay Rental Payments (sec. 303 of 
                the bill and new sec. 199A of the Code)..........    71
            D. Amortization of Geological and Geophysical 
                Expenditures (sec. 304 of the bill and new sec. 
                199 of the Code).................................    71
            E. Extension and Modification of Credit for Producing 
                Fuel From a Non-Conventional Source (sec. 305 of 
                the bill and sec. 29 and new sec. 45J of the 
                Code)............................................    74
            F. Allow Certain Business Energy Credits Against the 
                Alternative Minimum Tax (sec. 306 of the bill and 
                sec. 38 of the Code).............................    76
            G. Repeal Alternative Minimum Tax Intangible Drilling 
                Costs (``IDC'') Preference for Oil and Gas 
                Production (sec. 307 of the bill and sec. 57 of 
                the Code)........................................    76
            H. Allow Enhanced Oil Recovery Credit Against the 
                Alternative Minimum Tax (sec. 308 of the bill and 
                sec. 38 of the Code).............................    77
  IV. Corporate Expatriation.........................................78
            A. Tax Treatment of Corporate Expatriation (sec. 401 
                of the bill and new sec. 7874 of the Code).......    78
            B. Sense of the Congress that Tax Reform Is Needed to 
                Address the Issue of Corporate Expatriation (sec. 
                402 of the bill).................................    82
   V. Votes of the Committee.........................................82
  VI. Budget Effects of the Bill.....................................84
            A. Committee Estimate of Budgetary Effects...........    84
            B. Statement Regarding New Budget Authority and Tax 
                Expenditures Budget Authority....................    88
            C. Cost Estimate Prepared by the Congressional Budget 
                Office...........................................    88
            D. Macroeconomic Impact Analysis.....................    91
 VII. Other Matters to be Discussed Under the Rules of the House.....91
            A. Committee Oversight Findings and Recommendations..    91
            B. Statement of General Performance Goals and 
                Objectives.......................................    91
            C. Constitutional Authority Statement................    92
            D. Information Relating to Unfunded Mandates.........    92
            E. Applicability of House Rule XXI 5(b)..............    92
            F. Tax Complexity Analysis...........................    92
VIII. Changes in Existing Law Made by the Bill, as Reported..........92
  IX. Dissenting Views..............................................150

    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  (a) Short Title.--This Act may be cited as the ``Energy Tax Policy 
Act of 2003''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) Table of Contents.--

Sec. 1. Short title.

                         TITLE I--CONSERVATION

Sec. 101. Credit for residential solar energy property.
Sec. 102. Extension and expansion of credit for electricity produced 
from renewable resources.
Sec. 103. Credit for qualified fuel cell power plants.
Sec. 104. Credit for energy efficiency improvements to existing homes.
Sec. 105. Business credit for construction of new energy efficient 
home.
Sec. 106. Energy credit for combined heat and power system property.
Sec. 107. New nonrefundable personal credits allowed against regular 
and minimum taxes.
Sec. 108. Repeal of 4.3-cent motor fuel excise taxes on railroads and 
inland waterway transportation which remain in general fund.
Sec. 109. Reduced motor fuel excise tax on certain mixtures of diesel 
fuel.
Sec. 110. Repeal of phaseouts for qualified electric vehicle credit and 
deduction for clean fuel-vehicles.
Sec. 111. Alternative motor vehicle credit.

                         TITLE II--RELIABILITY

Sec. 201. Natural gas gathering lines treated as 7-year property.
Sec. 202. Natural gas distribution lines treated as 15-year property.
Sec. 203. Electric transmission property treated as 15-year property.
Sec. 204. Expensing of capital costs incurred in complying with 
Environmental Protection Agency sulfur regulations.
Sec. 205. Credit for production of low sulfur diesel fuel.
Sec. 206. Determination of small refiner exception to oil depletion 
deduction.
Sec. 207. Sales or dispositions to implement Federal Energy Regulatory 
Commission or State electric restructuring policy.
Sec. 208. Modifications to special rules for nuclear decommissioning 
costs.
Sec. 209. Treatment of certain income of cooperatives.
Sec. 210. Arbitrage rules not to apply to prepayments for natural gas.
Sec. 211. Prepayment of premium liability for coal industry health 
benefits.

                         TITLE III--PRODUCTION

Sec. 301. Oil and gas from marginal wells.
Sec. 302. Temporary suspension of limitation based on 65 percent of 
taxable income and extension of suspension of taxable income limit with 
respect to marginal production.
Sec. 303. Amortization of delay rental payments.
Sec. 304. Amortization of geological and geophysical expenditures.
Sec. 305. Extension and modification of credit for producing fuel from 
a nonconventional source.
Sec. 306. Business related energy credits allowed against regular and 
minimum tax.
Sec. 307. Temporary repeal of alternative minimum tax preference for 
intangible drilling costs.
Sec. 308. Allowance of enhanced recovery credit against the alternative 
minimum tax.

                    TITLE IV--CORPORATE EXPATRIATION

Sec. 401. Tax treatment of corporate expatriation.
Sec. 402. Expressing the sense of the Congress that tax reform is 
needed to address the issue of corporate expatriation.

                         TITLE I--CONSERVATION

SEC. 101. CREDIT FOR RESIDENTIAL SOLAR ENERGY PROPERTY.

  (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
after section 25B the following new section:

``SEC. 25C. RESIDENTIAL SOLAR ENERGY PROPERTY.

  ``(a) Allowance of Credit.--In the case of an individual, 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) 15 percent of the qualified photovoltaic property 
        expenditures made by the taxpayer during such year, and
          ``(2) 15 percent of the qualified solar water heating 
        property expenditures made by the taxpayer during the taxable 
        year.
  ``(b) Limitations.--
          ``(1) Maximum credit.--The credit allowed under subsection 
        (a) shall not exceed--
                  ``(A) $2,000 for each system of property described in 
                subsection (c)(1), and
                  ``(B) $2,000 for each system of property described in 
                subsection (c)(2).
          ``(2) Safety certifications.--No credit shall be allowed 
        under this section for an item of property unless--
                  ``(A) in the case of solar water heating equipment, 
                such equipment is certified for performance and safety 
                by the non-profit Solar Rating Certification 
                Corporation or a comparable entity endorsed by the 
                government of the State in which such property is 
                installed, and
                  ``(B) in the case of a photovoltaic system, such 
                system meets appropriate fire and electric code 
                requirements.
  ``(c) Definitions.--For purposes of this section--
          ``(1) Qualified solar water heating property expenditure.--
        The term `qualified solar water heating property expenditure' 
        means an expenditure for property to heat water for use in a 
        dwelling unit located in the United States and used as a 
        residence if at least half of the energy used by such property 
        for such purpose is derived from the sun.
          ``(2) Qualified photovoltaic property expenditure.--The term 
        `qualified photovoltaic property expenditure' means an 
        expenditure for property which uses solar energy to generate 
        electricity for use in a dwelling unit.
          ``(3) Solar panels.--No expenditure relating to a solar panel 
        or other property installed as a roof (or portion thereof) 
        shall fail to be treated as property described in paragraph (1) 
        or (2) solely because it constitutes a structural component of 
        the structure on which it is installed.
          ``(4) Labor costs.--Expenditures for labor costs properly 
        allocable to the onsite preparation, assembly, or original 
        installation of the property described in paragraph (1) or (2) 
        and for piping or wiring to interconnect such property to the 
        dwelling unit shall be taken into account for purposes of this 
        section.
          ``(5) Swimming pools, etc., used as storage medium.--
        Expenditures which are properly allocable to a swimming pool, 
        hot tub, or any other energy storage medium which has a 
        function other than the function of such storage shall not be 
        taken into account for purposes of this section.
  ``(d) Special Rules.--
          ``(1) Dollar amounts in case of joint occupancy.--In the case 
        of any dwelling unit which is jointly occupied and used during 
        any calendar year as a residence by 2 or more individuals the 
        following shall apply:
                  ``(A) The amount of the credit allowable under 
                subsection (a) by reason of expenditures made during 
                such calendar year by any of such individuals with 
                respect to such dwelling unit shall be determined by 
                treating all of such individuals as 1 taxpayer whose 
                taxable year is such calendar year.
                  ``(B) There shall be allowable with respect to such 
                expenditures to each of such individuals, a credit 
                under subsection (a) for the taxable year in which such 
                calendar year ends in an amount which bears the same 
                ratio to the amount determined under subparagraph (A) 
                as the amount of such expenditures made by such 
                individual during such calendar year bears to the 
                aggregate of such expenditures made by all of such 
                individuals during such calendar year.
                  ``(C) Subparagraphs (A) and (B) shall be applied 
                separately with respect to qualified solar water 
                heating property expenditures and qualified 
                photovoltaic property expenditures.
          ``(2) Tenant-stockholder in cooperative housing 
        corporation.--In the case of an individual who is a tenant-
        stockholder (as defined in section 216) in a cooperative 
        housing corporation (as defined in such section), such 
        individual shall be treated as having made his tenant-
        stockholder's proportionate share (as defined in section 
        216(b)(3)) of any expenditures of such corporation.
          ``(3) Condominiums.--
                  ``(A) In general.--In the case of an individual who 
                is a member of a condominium management association 
                with respect to a condominium which he owns, such 
                individual shall be treated as having made his 
                proportionate share of any expenditures of such 
                association.
                  ``(B) Condominium management association.--For 
                purposes of this paragraph, the term `condominium 
                management association' means an organization which 
                meets the requirements of paragraph (1) of section 
                528(c) (other than subparagraph (E) thereof) with 
                respect to a condominium project substantially all of 
                the units of which are used as residences.
          ``(4) Allocation in certain cases.--If less than 80 percent 
        of the use of an item is for nonbusiness purposes, only that 
        portion of the expenditures for such item which is properly 
        allocable to use for nonbusiness purposes shall be taken into 
        account.
          ``(5) When expenditure made; amount of expenditure.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), an expenditure with respect to an item shall be 
                treated as made when the original installation of the 
                item is completed.
                  ``(B) Expenditures part of building construction.--In 
                the case of an expenditure in connection with the 
                construction or reconstruction of a structure, such 
                expenditure shall be treated as made when the original 
                use of the constructed or reconstructed structure by 
                the taxpayer begins.
                  ``(C) Amount.--The amount of any expenditure shall be 
                the cost thereof.
          ``(6) Property financed by subsidized energy financing.--For 
        purposes of determining the amount of expenditures made by any 
        individual with respect to any dwelling unit, there shall not 
        be taken into account expenditures which are made from 
        subsidized energy financing (as defined in section 
        48(a)(4)(A)).
  ``(e) Basis Adjustments.--For purposes of this subtitle, if a credit 
is allowed under this section for any expenditure with respect to any 
property, the increase in the basis of such property which would (but 
for this subsection) result from such expenditure shall be reduced by 
the amount of the credit so allowed.
  ``(f) Termination.--The credit allowed under this section shall not 
apply to taxable years beginning after December 31, 2006 (December 31, 
2008, with respect to qualified photovoltaic property expenditures).''.
  (b) Conforming Amendments.--
          (1) Subsection (a) of section 1016 is amended by striking 
        ``and'' at the end of paragraph (27), by striking the period at 
        the end of paragraph (28) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
          ``(29) to the extent provided in section 25C(e), in the case 
        of amounts with respect to which a credit has been allowed 
        under section 25C.''.
          (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 25B the following new item:

                              ``Sec. 25C. Residential solar energy 
                                        property.''.

  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years ending after December 31, 2003.

SEC. 102. EXTENSION AND EXPANSION OF CREDIT FOR ELECTRICITY PRODUCED 
                    FROM RENEWABLE RESOURCES.

  (a) Extension of Credit for Wind and Closed-Loop Biomass 
Facilities.--Subparagraphs (A) and (B) of section 45(c)(3) are each 
amended by striking ``2004'' and inserting ``2007''.
  (b) Expansion of Credit for Open-Loop Biomass, Landfill Gas 
Facilities, and Trash Combustion Facilities.--Paragraph (3) of section 
45(c) is amended by adding at the end the following new subparagraphs:
                  ``(D) Open-loop biomass facilities.--In the case of a 
                facility using open-loop biomass to produce 
                electricity, the term `qualified facility' means any 
                facility owned by the taxpayer which is originally 
                placed in service before January 1, 2007.
                  ``(E) Landfill gas facilities.--In the case of a 
                facility producing electricity from gas derived from 
                the biodegradation of municipal solid waste, the term 
                `qualified facility' means any facility owned by the 
                taxpayer which is originally placed in service before 
                January 1, 2007.
                  ``(F) Trash combustion facilities.--In the case of a 
                facility which burns municipal solid waste to produce 
                electricity, the term `qualified facility' means any 
                facility owned by the taxpayer which is originally 
                placed in service after the date of the enactment of 
                this subparagraph and before January 1, 2007.''.
  (c) Definition and Special Rules.--Subsection (c) of section 45 is 
amended by adding at the end the following new paragraphs:
          ``(5) Open-loop biomass.--The term `open-loop biomass' means 
        any solid, nonhazardous, cellulosic waste material which is 
        segregated from other waste materials and which is derived 
        from--
                  ``(A) any of the following forest-related resources: 
                mill residues, precommercial thinnings, slash, and 
                brush,
                  ``(B) solid wood waste materials, including waste 
                pallets, crates, dunnage, manufacturing and 
                construction wood wastes (other than pressure-treated, 
                chemically-treated, or painted wood wastes), and 
                landscape or right-of-way tree trimmings, but not 
                including municipal solid waste (garbage), gas derived 
                from the biodegradation of solid waste, or paper that 
                is commonly recycled, or
                  ``(C) agriculture sources, including orchard tree 
                crops, vineyard, grain, legumes, sugar, and other crop 
                by-products or residues.
        Such term shall not include closed-loop biomass.
          ``(6) Reduced credit for certain preeffective date 
        facilities.--In the case of any facility described in 
        subparagraph (D) or (E) of paragraph (3) which is placed in 
        service before the date of the enactment of this paragraph--
                  ``(A) subsection (a)(1) shall be applied by 
                substituting `1.0 cents' for `1.5 cents', and
                  ``(B) the 5-year period beginning on the date of the 
                enactment of this paragraph shall be substituted in 
                lieu of the 10-year period in subsection (a)(2)(A)(ii).
          ``(7) Credit eligibility for open-loop biomass facilities.--
        In the case of any facility described in paragraph (3)(D) which 
        is placed in service before the date of enactment of this 
        paragraph, if the owner of such facility is not the producer of 
        the electricity, the person eligible for the credit allowable 
        under subsection (a) is the lessee or the operator of such 
        facility.
          ``(8) Limit on reductions for grants, etc., for open-loop 
        biomass facilities.--If the amount of the credit determined 
        under subsection (a) with respect to any open-loop biomass 
        facility is required to be reduced under paragraph (3) of 
        subsection (b), the fraction under such paragraph shall in no 
        event be greater than \1/2\.
          ``(9) Coordination with section 29.--The term `qualified 
        facility' shall not include any facility the production from 
        which is allowed as a credit under section 29 for the taxable 
        year or any prior taxable year.''.
  (d) Qualified Energy Resources.--Paragraph (1) of section 45(c) 
(relating to qualified energy resources) is amended to read as follows:
          ``(1) Qualified energy resources.--The term `qualified energy 
        resources' means any resource described in paragraph (3) which 
        is used to generate electricity at a qualified facility.''.
  (e) Effective Date.--The amendments made by this section shall apply 
to electricity sold after the date of the enactment of this Act, in 
taxable years ending after such date.

SEC. 103. CREDIT FOR QUALIFIED FUEL CELL POWER PLANTS.

  (a) Business Property.--
          (1) In general.--Subparagraph (A) of section 48(a)(3) 
        (defining energy property) is amended by striking ``or'' at the 
        end of clause (i), by adding ``or'' at the end of clause (ii), 
        and by inserting after clause (ii) the following new clause:
                          ``(iii) equipment which is part of a 
                        qualified fuel cell power plant,''.
          (2) Qualified fuel cell power plant.--Subsection (a) of 
        section 48 is amended by redesignating paragraphs (4) and (5) 
        as paragraphs (5) and (6), respectively, and by inserting after 
        paragraph (3) the following new paragraph:
          ``(4) Qualified fuel cell power plant.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `qualified fuel cell 
                power plant' means a fuel cell power plant that has an 
                electricity-only generation efficiency greater than 30 
                percent.
                  ``(B) Limitation.--The energy credit with respect to 
                any qualified fuel cell power plant for any taxable 
                year shall not exceed--
                          ``(i) $500 for each \1/2\ kilowatt of 
                        capacity of the power plant, reduced by
                          ``(ii) the aggregate energy credits allowed 
                        with respect to such power plant for all prior 
                        taxable years.
                  ``(C) Fuel cell power plant.--The term `fuel cell 
                power plant' means an integrated system comprised of a 
                fuel cell stack assembly and associated balance of 
                plant components that converts a fuel into electricity 
                using electrochemical means.
                  ``(D) Termination.--Such term shall not include any 
                property placed in service after December 31, 2006.''.
          (3) Effective date.--The amendments made by this subsection 
        shall apply to property placed in service after December 31, 
        2003, under rules similar to the rules of section 48(m) of the 
        Internal Revenue Code of 1986 (as in effect on the day before 
        the date of the enactment of the Revenue Reconciliation Act of 
        1990).
  (b) Nonbusiness Property.--
          (1) In general.--Subpart A of part IV of subchapter A of 
        chapter 1 (relating to nonrefundable personal credits) is 
        amended by inserting after section 25C the following new 
        section:

``SEC. 25D. NONBUSINESS QUALIFIED FUEL CELL POWER PLANT.

  ``(a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to 10 percent of the qualified fuel cell 
power plant expenditures which are paid or incurred during such year.
  ``(b) Limitations.--The credit allowed under subsection (a) with 
respect to any qualified fuel cell power plant for any taxable year 
shall not exceed--
          ``(1) $500 for each \1/2\ kilowatt of capacity of the power 
        plant, reduced by
          ``(2) the aggregate energy credits allowed with respect to 
        such power plant for all prior taxable years.
  ``(c) Qualified Fuel Cell Power Plant Expenditures.--For purposes of 
this section, the term `qualified fuel cell power plant expenditures' 
means expenditures by the taxpayer for any qualified fuel cell power 
plant (as defined in section 48(a)(4))--
          ``(1) which meets the requirements of subparagraphs (B) and 
        (D) of section 48(a)(3), and
          ``(2) which is installed on or in connection with a dwelling 
        unit--
                  ``(A) which is located in the United States, and
                  ``(B) which is used by the taxpayer as a residence.
Such term includes expenditures for labor costs properly allocable to 
the onsite preparation, assembly, or original installation of the 
property.
  ``(d) Special Rules.--For purposes of this section, rules similar to 
the rules of section 25C(d) shall apply.
  ``(e) Basis Adjustments.--For purposes of this subtitle, if a credit 
is allowed under this section for any expenditure with respect to any 
property, the increase in the basis of such property which would (but 
for this subsection) result from such expenditure shall be reduced by 
the amount of the credit so allowed.
  ``(f) Termination.--This section shall not apply to any expenditure 
made after December 31, 2006.''.
          (2) Conforming amendments.--
                  (A) Subsection (a) of section 1016 is amended by 
                striking ``and'' at the end of paragraph (28), by 
                striking the period at the end of paragraph (29) and 
                inserting ``, and'', and by adding at the end the 
                following new paragraph:
          ``(30) to the extent provided in section 25D(e), in the case 
        of amounts with respect to which a credit has been allowed 
        under section 25D.''.
                  (B) The table of sections for subpart A of part IV of 
                subchapter A of chapter 1 is amended by inserting after 
                the item relating to section 25C the following new 
                item:

                              ``Sec. 25D. Nonbusiness qualified fuel 
                                        cell power plant.''.

          (3) Effective date.--The amendments made by this subsection 
        shall apply to expenditures paid or incurred after December 31, 
        2003, in taxable years ending after such date.

SEC. 104. CREDIT FOR ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

  (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
after section 25D the following new section:

``SEC. 25E. ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

  ``(a) Allowance of Credit.--In the case of an individual, there shall 
be allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to 20 percent of the amount paid or 
incurred by the taxpayer for qualified energy efficiency improvements 
installed during such taxable year.
  ``(b) Limitations.--
          ``(1) Maximum credit.--The credit allowed by this section 
        with respect to a dwelling shall not exceed $2,000.
          ``(2) Prior credit amounts for taxpayer on same dwelling 
        taken into account.--If a credit was allowed to the taxpayer 
        under subsection (a) with respect to a dwelling in 1 or more 
        prior taxable years, the amount of the credit otherwise 
        allowable for the taxable year with respect to that dwelling 
        shall not exceed the amount of $2,000 reduced by the sum of the 
        credits allowed under subsection (a) to the taxpayer with 
        respect to the dwelling for all prior taxable years.
  ``(c) Carryforward of Unused Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) for such 
taxable year reduced by the sum of the credits allowable under this 
subpart (other than this section) for such taxable year, such excess 
shall be carried to the succeeding taxable year and added to the credit 
allowable under subsection (a) for such succeeding taxable year.
  ``(d) Qualified Energy Efficiency Improvements.--For purposes of this 
section, the term `qualified energy efficiency improvements' means any 
energy efficient building envelope component which meets the 
prescriptive criteria for such component established by the 2000 
International Energy Conservation Code (or, in the case of metal roofs 
with appropriate pigmented coatings, meets the Energy Star program 
requirements), if--
          ``(1) such component is installed in or on a dwelling--
                  ``(A) located in the United States, and
                  ``(B) owned and used by the taxpayer as the 
                taxpayer's principal residence (within the meaning of 
                section 121),
          ``(2) the original use of such component commences with the 
        taxpayer, and
          ``(3) such component reasonably can be expected to remain in 
        use for at least 5 years.
If the aggregate cost of such components with respect to any dwelling 
exceeds $1,000, such components shall be treated as qualified energy 
efficiency improvements only if such components are also certified in 
accordance with subsection (e) as meeting such criteria.
  ``(e) Certification.--The certification described in subsection (d) 
shall be--
          ``(1) determined on the basis of the technical specifications 
        or applicable ratings (including product labeling requirements) 
        for the measurement of energy efficiency, based upon energy use 
        or building envelope component performance, for the energy 
        efficient building envelope component,
          ``(2) provided by a local building regulatory authority, a 
        utility, a manufactured home production inspection primary 
        inspection agency (IPIA), or an accredited home energy rating 
        system provider who is accredited by or otherwise authorized to 
        use approved energy performance measurement methods by the 
        Residential Energy Services Network (RESNET), and
          ``(3) made in writing in a manner that specifies in readily 
        verifiable fashion the energy efficient building envelope 
        components installed and their respective energy efficiency 
        levels.
  ``(f) Definitions and Special Rules.--
          ``(1) Tenant-stockholder in cooperative housing 
        corporation.--In the case of an individual who is a tenant-
        stockholder (as defined in section 216) in a cooperative 
        housing corporation (as defined in such section), such 
        individual shall be treated as having paid his tenant-
        stockholder's proportionate share (as defined in section 
        216(b)(3)) of the cost of qualified energy efficiency 
        improvements made by such corporation.
          ``(2) Condominiums.--
                  ``(A) In general.--In the case of an individual who 
                is a member of a condominium management association 
                with respect to a condominium which he owns, such 
                individual shall be treated as having paid his 
                proportionate share of the cost of qualified energy 
                efficiency improvements made by such association.
                  ``(B) Condominium management association.--For 
                purposes of this paragraph, the term `condominium 
                management association' means an organization which 
                meets the requirements of paragraph (1) of section 
                528(c) (other than subparagraph (E) thereof) with 
                respect to a condominium project substantially all of 
                the units of which are used as residences.
          ``(3) Building envelope component.--The term `building 
        envelope component' means insulation material or system which 
        is specifically and primarily designed to reduce the heat loss 
        or gain of a dwelling when installed in or on such dwelling, 
        exterior windows (including skylights) and doors, and metal 
        roofs with appropriate pigmented coatings which are 
        specifically and primarily designed to reduce the heat gain of 
        a dwelling when installed in or on such dwelling.
          ``(4) Manufactured homes included.--For purposes of this 
        section, the term `dwelling' includes a manufactured home which 
        conforms to Federal Manufactured Home Construction and Safety 
        Standards (section 3280 of title 24, Code of Federal 
        Regulations, as in effect on April 3, 2003).
  ``(g) Basis Adjustment.--For purposes of this subtitle, if a credit 
is allowed under this section for any expenditure with respect to any 
property, the increase in the basis of such property which would (but 
for this subsection) result from such expenditure shall be reduced by 
the amount of the credit so allowed.
  ``(h) Application of Section.--This section shall apply to qualified 
energy efficiency improvements installed after December 31, 2003, and 
before January 1, 2007.''.
  (b) Conforming Amendments.--
          (1) Subsection (c) of section 23 is amended by striking 
        ``section 1400C'' and inserting ``sections 25E and 1400C''.
          (2) Subsection (a) of section 1016 is amended by striking 
        ``and'' at the end of paragraph (29), by striking the period at 
        the end of paragraph (30) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
          ``(31) to the extent provided in section 25E(g), in the case 
        of amounts with respect to which a credit has been allowed 
        under section 25E.''.
          (3) Subsection (d) of section 1400C is amended by inserting 
        ``and section 25E'' after ``this section''.
          (4) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 25D the following new item:

                              ``Sec. 25E. Energy efficiency 
                                        improvements to existing 
                                        homes.''.

  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years ending after December 31, 2003.

SEC. 105. BUSINESS CREDIT FOR CONSTRUCTION OF NEW ENERGY EFFICIENT 
                    HOME.

  (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by inserting after 
section 45F the following new section:

``SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT.

  ``(a) In General.--For purposes of section 38, in the case of an 
eligible contractor, the credit determined under this section for the 
taxable year is an amount equal to the aggregate adjusted bases of all 
energy efficient property installed in a qualified new energy efficient 
home during construction of such home.
  ``(b) Limitations.--
          ``(1) Maximum credit.--
                  ``(A) In general.--The credit allowed by this section 
                with respect to a dwelling shall not exceed $2,000.
                  ``(B) Prior credit amounts on same dwelling taken 
                into account.--If a credit was allowed under subsection 
                (a) with respect to a dwelling in 1 or more prior 
                taxable years, the amount of the credit otherwise 
                allowable for the taxable year with respect to that 
                dwelling shall not exceed the amount of $2,000 reduced 
                by the sum of the credits allowed under subsection (a) 
                with respect to the dwelling for all prior taxable 
                years.
          ``(2) Coordination with rehabilitation and energy credits.--
        For purposes of this section--
                  ``(A) the basis of any property referred to in 
                subsection (a) shall be reduced by that portion of the 
                basis of any property which is attributable to 
                qualified rehabilitation expenditures (as defined in 
                section 47(c)(2)) or to the energy percentage of energy 
                property (as determined under section 48(a)), and
                  ``(B) expenditures taken into account under either 
                section 47 or 48(a) shall not be taken into account 
                under this section.
  ``(c) Definitions.--For purposes of this section--
          ``(1) Eligible contractor.--The term `eligible contractor' 
        means the person who constructed the new energy efficient home, 
        or in the case of a manufactured home which conforms to Federal 
        Manufactured Home Construction and Safety Standards (section 
        3280 of title 24, Code of Federal Regulations, as in effect on 
        April 3, 2003), the manufactured home producer of such home.
          ``(2) Energy efficient property.--The term `energy efficient 
        property' means any energy efficient building envelope 
        component, and any energy efficient heating or cooling 
        appliance.
          ``(3) Qualified new energy efficient home.--The term 
        `qualified new energy efficient home' means a dwelling--
                  ``(A) located in the United States,
                  ``(B) the construction of which is substantially 
                completed after December 31, 2003,
                  ``(C) the original use of which is as a principal 
                residence (within the meaning of section 121) which 
                commences with the person who acquires such dwelling 
                from the eligible contractor, and
                  ``(D) which is certified to have a level of annual 
                heating and cooling energy consumption that is at least 
                30 percent below the annual level of heating and 
                cooling energy consumption of a comparable dwelling 
                constructed in accordance with the standards of the 
                2000 International Energy Conservation Code and to have 
                building envelope component improvements account for 
                \1/3\ of such 30 percent.
          ``(4) Construction.--The term `construction' includes 
        reconstruction and rehabilitation.
          ``(5) Acquire.--The term `acquire' includes purchase and, in 
        the case of reconstruction and rehabilitation, such term 
        includes a binding written contract for such reconstruction or 
        rehabilitation.
          ``(6) Building envelope component.--The term `building 
        envelope component' means insulation material or system which 
        is specifically and primarily designed to reduce the heat loss 
        or gain of a dwelling when installed in or on such dwelling, 
        exterior windows (including skylights) and doors, and metal 
        roofs with appropriate pigmented coatings which are 
        specifically and primarily designed to reduce the heat gain of 
        a dwelling when installed in or on such dwelling.
          ``(7) Manufactured home included.--The term `dwelling' 
        includes a manufactured home conforming to Federal Manufactured 
        Home Construction and Safety Standards (section 3280 of title 
        24, Code of Federal Regulations, as in effect on April 3, 
        2003).
  ``(d) Certification.--
          ``(1) Method.--A certification described in subsection 
        (c)(3)(D) shall be determined on the basis of one of the 
        following methods:
                  ``(A) The technical specifications or applicable 
                ratings (including product labeling requirements) for 
                the measurement of energy efficiency for the energy 
                efficient building envelope component or energy 
                efficient heating or cooling appliance, based upon 
                energy use or building envelope component performance.
                  ``(B) An energy performance measurement method that 
                utilizes computer software approved by organizations 
                designated by the Secretary.
          ``(2) Provider.--Such certification shall be provided by--
                  ``(A) in the case of a method described in paragraph 
                (1)(A), a local building regulatory authority, a 
                utility, a manufactured home production inspection 
                primary inspection agency (IPIA), or an accredited home 
                energy rating systems provider who is accredited by, or 
                otherwise authorized to use, approved energy 
                performance measurement methods by the Home Energy 
                Ratings Systems Council or the National Association of 
                State Energy Officials, or
                  ``(B) in the case of a method described in paragraph 
                (1)(B), an individual recognized by an organization 
                designated by the Secretary for such purposes.
          ``(3) Form.--Such certification shall be made in writing in a 
        manner that specifies in readily verifiable fashion the energy 
        efficient building envelope components and energy efficient 
        heating or cooling appliances installed and their respective 
        energy efficiency levels, and in the case of a method described 
        in subparagraph (B) of paragraph (1), accompanied by written 
        analysis documenting the proper application of a permissible 
        energy performance measurement method to the specific 
        circumstances of such dwelling.
          ``(4) Regulations.--
                  ``(A) In general.--In prescribing regulations under 
                this subsection for energy performance measurement 
                methods, the Secretary shall prescribe procedures for 
                calculating annual energy costs for heating and cooling 
                and cost savings and for the reporting of the results. 
                Such regulations shall--
                          ``(i) be based on the National Home Energy 
                        Rating Technical Guidelines of the National 
                        Association of State Energy Officials, the Home 
                        Energy Rating Guidelines of the Home Energy 
                        Rating Systems Council, or the modified 2001 
                        California Residential ACM manual,
                          ``(ii) provide that any calculation 
                        procedures be developed such that the same 
                        energy efficiency measures allow a home to 
                        qualify for the credit under this section 
                        regardless of whether the house uses a gas or 
                        oil furnace or boiler or an electric heat pump, 
                        and
                          ``(iii) require that any computer software 
                        allow for the printing of the Federal tax forms 
                        necessary for the credit under this section and 
                        explanations for the homebuyer of the energy 
                        efficient features that were used to comply 
                        with the requirements of this section.
                  ``(B) Providers.--For purposes of paragraph (2)(B), 
                the Secretary shall establish requirements for the 
                designation of individuals based on the requirements 
                for energy consultants and home energy raters specified 
                by the National Association of State Energy Officials.
  ``(e) Basis Adjustment.--For purposes of this subtitle, if a credit 
is determined under this section for any expenditure with respect to 
any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so determined.
  ``(f) Application of Section.--Subsection (a) shall apply to 
dwellings purchased during the period beginning on January 1, 2004, and 
ending on December 31, 2006.''.
  (b) Credit Made Part of General Business Credit.--Subsection (b) of 
section 38 (relating to current year business credit) is amended by 
striking ``plus'' at the end of paragraph (14), by striking the period 
at the end of paragraph (15) and inserting ``, plus'', and by adding at 
the end thereof the following new paragraph:
          ``(16) the new energy efficient home credit determined under 
        section 45G.''.
  (c) Denial of Double Benefit.--Section 280C (relating to certain 
expenses for which credits are allowable) is amended by adding at the 
end thereof the following new subsection:
  ``(d) New Energy Efficient Home Expenses.--No deduction shall be 
allowed for that portion of expenses for a new energy efficient home 
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 45G.''.
  (d) Limitation on Carryback.--Subsection (d) of section 39 is amended 
by adding at the end the following new paragraph:
          ``(11) No carryback of new energy efficient home credit 
        before effective date.--No portion of the unused business 
        credit for any taxable year which is attributable to the credit 
        determined under section 45G may be carried back to any taxable 
        year ending before January 1, 2004.''.
  (e) Deduction for Certain Unused Business Credits.--Subsection (c) of 
section 196 is amended by striking ``and'' at the end of paragraph (9), 
by striking the period at the end of paragraph (10) and inserting ``, 
and'', and by adding after paragraph (10) the following new paragraph:
          ``(11) the new energy efficient home credit determined under 
        section 45G.''.
  (f) Clerical Amendment.--The table of sections for subpart D of part 
IV of subchapter A of chapter 1 is amended by inserting after the item 
relating to section 45F the following new item:

                              ``Sec. 45G. New energy efficient home 
                                        credit.''.

  (g) Effective Date.--The amendments made by this section shall apply 
to taxable years ending after December 31, 2003.

SEC. 106. ENERGY CREDIT FOR COMBINED HEAT AND POWER SYSTEM PROPERTY.

  (a) In General.--Subparagraph (A) of section 48(a)(3) (defining 
energy property) is amended by striking ``or'' at the end of clause 
(ii), by adding ``or'' at the end of clause (iii), and by inserting 
after clause (iii) the following new clause:
                          ``(iv) combined heat and power system 
                        property,''.
  (b) Combined Heat and Power System Property.--Subsection (a) of 
section 48 is amended by redesignating paragraphs (5) and (6) as 
paragraphs (6) and (7), respectively, and by inserting after paragraph 
(4) the following new paragraph:
          ``(5) Combined heat and power system property.--For purposes 
        of this subsection--
                  ``(A) Combined heat and power system property.--The 
                term `combined heat and power system property' means 
                property comprising a system--
                          ``(i) which uses the same energy source for 
                        the simultaneous or sequential generation of 
                        electrical power, mechanical shaft power, or 
                        both, in combination with the generation of 
                        steam or other forms of useful thermal energy 
                        (including heating and cooling applications),
                          ``(ii) which has an electrical capacity of 
                        more than 50 kilowatts or a mechanical energy 
                        capacity of more than 67 horsepower or an 
                        equivalent combination of electrical and 
                        mechanical energy capacities,
                          ``(iii) which produces--
                                  ``(I) at least 20 percent of its 
                                total useful energy in the form of 
                                thermal energy, and
                                  ``(II) at least 20 percent of its 
                                total useful energy in the form of 
                                electrical or mechanical power (or 
                                combination thereof),
                          ``(iv) the energy efficiency percentage of 
                        which exceeds 60 percent (70 percent in the 
                        case of a system with an electrical capacity in 
                        excess of 50 megawatts or a mechanical energy 
                        capacity in excess of 67,000 horsepower, or an 
                        equivalent combination of electrical and 
                        mechanical energy capacities), and
                          ``(v) which is placed in service after 
                        December 31, 2003, and before January 1, 2007.
                  ``(B) Special rules.--
                          ``(i) Energy efficiency percentage.--For 
                        purposes of subparagraph (A)(iv), the energy 
                        efficiency percentage of a system is the 
                        fraction--
                                  ``(I) the numerator of which is the 
                                total useful electrical, thermal, and 
                                mechanical power produced by the system 
                                at normal operating rates, and
                                  ``(II) the denominator of which is 
                                the lower heating value of the primary 
                                fuel source for the system.
                          ``(ii) Determinations made on btu basis.--The 
                        energy efficiency percentage and the 
                        percentages under subparagraph (A)(iii) shall 
                        be determined on a Btu basis.
                          ``(iii) Input and output property not 
                        included.--The term `combined heat and power 
                        system property' does not include property used 
                        to transport the energy source to the facility 
                        or to distribute energy produced by the 
                        facility.
                          ``(iv) Public utility property.--
                                  ``(I) Accounting rule for public 
                                utility property.--If the combined heat 
                                and power system property is public 
                                utility property (as defined in section 
                                168(i)(1)), the taxpayer may only claim 
                                the credit under the subsection if, 
                                with respect to such property, the 
                                taxpayer uses a normalization method of 
                                accounting.
                                  ``(II) Certain exception not to 
                                apply.--The matter in paragraph (3) 
                                which follows subparagraph (D) shall 
                                not apply to combined heat and power 
                                system property.
                  ``(C) Extension of depreciation recovery period.--If 
                a taxpayer is allowed credit under this section for 
                combined heat and power system property and such 
                property would (but for this subparagraph) have a class 
                life of 15 years or less under section 168, such 
                property shall be treated as having a 22-year class 
                life for purposes of section 168.''.
  (c) No Carryback of Energy Credit Before Effective Date.--Subsection 
(d) of section 39 is amended by adding at the end the following new 
paragraph:
          ``(12) No carryback of energy credit before effective date.--
        No portion of the unused business credit for any taxable year 
        which is attributable to the energy credit with respect to 
        property described in section 48(a)(5) may be carried back to a 
        taxable year ending before January 1, 2004.''.
  (d) Effective Date.--The amendments made by this section shall apply 
to property placed in service after December 31, 2003, in taxable years 
ending after such date.

SEC. 107. NEW NONREFUNDABLE PERSONAL CREDITS ALLOWED AGAINST REGULAR 
                    AND MINIMUM TAXES.

  (a) In General.--
          (1) Section 25C.--Section 25C(b), as added by section 101, is 
        amended by adding at the end the following new paragraph:
          ``(3) Limitation based on amount of tax.--The credit allowed 
        under subsection (a) for the taxable year shall not exceed the 
        excess of--
                  ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                  ``(B) the sum of the credits allowable under this 
                subpart (other than this section and section 25D and 
                25E) and section 27 for the taxable year.''.
          (2) Section 25D.--Section 25D(b), as added by section 103, is 
        amended to read as follows:
  ``(b) Limitations.--
          ``(1) In general.--The credit allowed under subsection (a) 
        with respect to any qualified fuel cell power plant for any 
        taxable year shall not exceed--
                  ``(A) $500 for each \1/2\ kilowatt of capacity of the 
                power plant, reduced by
                  ``(B) the aggregate energy credits allowed with 
                respect to such power plant for all prior taxable 
                years.
          ``(2) Limitation based on amount of tax.--The credit allowed 
        under subsection (a) for the taxable year shall not exceed the 
        excess of--
                  ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                  ``(B) the sum of the credits allowable under this 
                subpart (other than this section and section 25E) and 
                section 27 for the taxable year.''.
          (3) Section 25E.--Section 25E(b), as added by section 104, is 
        amended by adding at the end the following new paragraph:
          ``(3) Limitation based on amount of tax.--The credit allowed 
        under subsection (a) for the taxable year shall not exceed the 
        excess of--
                  ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                  ``(B) the sum of the credits allowable under this 
                subpart (other than this section) and section 27 for 
                the taxable year.''.
  (b) Conforming Amendments.--
          (1) Section 23(b)(4)(B) is amended by inserting ``and 
        sections 25C, 25D, and 25E'' after ``this section''.
          (2) Section 24(b)(3)(B) is amended by striking ``and 25B'' 
        and inserting ``, 25B, 25C, 25D, and 25E''.
          (3) Section 25(e)(1)(C) is amended by inserting ``25C, 25D, 
        and 25E'' after ``25B,''.
          (4) Section 25B(g)(2) is amended by striking ``section 23'' 
        and inserting ``sections 23, 25C, 25D, and 25E''.
          (5) Section 25E(c), as added by section 104, is amended by 
        striking ``section 26(a) for such taxable year reduced by the 
        sum of the credits allowable under this subpart (other than 
        this section)'' and inserting ``subsection (b)(3)''.
          (6) Section 26(a)(1) is amended by striking ``and 25B'' and 
        inserting ``25B, 25C, 25D, and 25E''.
          (7) Section 904(h) is amended by striking ``and 25B'' and 
        inserting ``25B, 25C, 25D, and 25E''.
          (8) Section 1400C(d) is amended by striking ``and 25B'' and 
        inserting ``25B, 25C, 25D, and 25E''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 108. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND 
                    INLAND WATERWAY TRANSPORTATION WHICH REMAIN IN 
                    GENERAL FUND.

  (a) Taxes on Trains.--
          (1) In general.--Subparagraph (A) of section 4041(a)(1) is 
        amended by striking ``or a diesel-powered train'' each place it 
        appears and by striking ``or train''.
          (2) Conforming amendments.--
                  (A) Subparagraph (C) of section 4041(a)(1) is amended 
                by striking clause (ii) and by redesignating clause 
                (iii) as clause (ii).
                  (B) Subparagraph (C) of section 4041(b)(1) is amended 
                by striking all that follows ``section 6421(e)(2)'' and 
                inserting a period.
                  (C) Subsection (d) of section 4041 is amended by 
                redesignating paragraph (3) as paragraph (4) and by 
                inserting after paragraph (2) the following new 
                paragraph:
          ``(3) Diesel fuel used in trains.--There is hereby imposed a 
        tax of 0.1 cent per gallon on any liquid other than gasoline 
        (as defined in section 4083)--
                  ``(A) sold by any person to an owner, lessee, or 
                other operator of a diesel-powered train for use as a 
                fuel in such train, or
                  ``(B) used by any person as a fuel in a diesel-
                powered train unless there was a taxable sale of such 
                fuel under subparagraph (A).
        No tax shall be imposed by this paragraph on the sale or use of 
        any liquid if tax was imposed on such liquid under section 
        4081.''
                  (D) Subsection (f) of section 4082 is amended by 
                striking ``section 4041(a)(1)'' and inserting 
                ``subsections (d)(3) and (a)(1) of section 4041, 
                respectively''.
                  (E) Paragraph (3) of section 4083(a) is amended by 
                striking ``or a diesel-powered train''.
                  (F) Paragraph (3) of section 6421(f) is amended to 
                read as follows:
          ``(3) Gasoline used in trains.--In the case of gasoline used 
        as a fuel in a train, this section shall not apply with respect 
        to the Leaking Underground Storage Tank Trust Fund financing 
        rate under section 4081.''
                  (G) Paragraph (3) of section 6427(l) is amended to 
                read as follows:
          ``(3) Refund of certain taxes on fuel used in diesel-powered 
        trains.--For purposes of this subsection, the term `nontaxable 
        use' includes fuel used in a diesel-powered train. The 
        preceding sentence shall not apply to the tax imposed by 
        section 4041(d) and the Leaking Underground Storage Tank Trust 
        Fund financing rate under section 4081 except with respect to 
        fuel sold for exclusive use by a State or any political 
        subdivision thereof.''
  (b) Fuel Used on Inland Waterways.--
          (1) In general.--Paragraph (1) of section 4042(b) is amended 
        by adding ``and'' at the end of subparagraph (A), by striking 
        ``, and'' at the end of subparagraph (B) and inserting a 
        period, and by striking subparagraph (C).
          (2) Conforming amendment.--Paragraph (2) of section 4042(b) 
        is amended by striking subparagraph (C).
  (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2004.

SEC. 109. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN MIXTURES OF DIESEL 
                    FUEL.

  (a) In General.--Paragraph (2) of section 4081(a) is amended by 
adding at the end the following:
                  ``(C) Diesel-water fuel emulsion.--In the case of 
                diesel-water fuel emulsion at least 14 percent of which 
                is water and with respect to which the emulsion 
                additive is registered by a United States manufacturer 
                with the Environmental Protection Agency pursuant to 
                section 211 of the Clean Air Act (as in effect on March 
                31, 2003), subparagraph (A)(iii) shall be applied by 
                substituting `19.7 cents' for `24.3 cents'.''.
  (b) Special Rules for Diesel-Water Fuel Emulsions.--
          (1) Refunds for tax-paid purchases.--Section 6427 is amended 
        by redesignating subsections (m) through (p) as subsections (n) 
        through (q), respectively, and by inserting after subsection 
        (l) the following new subsection:
  ``(m) Diesel Fuel Used To Produce Emulsion.--
          ``(1) In general.--Except as provided in subsection (k), if 
        any diesel fuel on which tax was imposed by section 4081 at the 
        regular tax rate is used by any person in producing an emulsion 
        described in section 4081(a)(2)(C) which is sold or used in 
        such person's trade or business, the Secretary shall pay 
        (without interest) to such person an amount equal to the excess 
        of the regular tax rate over the incentive tax rate with 
        respect to such fuel.
          ``(2) Definitions.--For purposes of paragraph (1)--
                  ``(A) Regular tax rate.--The term `regular tax rate' 
                means the aggregate rate of tax imposed by section 4081 
                determined without regard to section 4081(a)(2)(C).
                  ``(B) Incentive tax rate.--The term `incentive tax 
                rate' means the aggregate rate of tax imposed by 
                section 4081 determined with regard to section 
                4081(a)(2)(C).''.
          (2) Later separation of fuel.--
                  (A) In general.--Section 4081 (relating to imposition 
                of tax) is amended by redesignating subsections (d) and 
                (e) as subsections (e) and (f), respectively, and by 
                inserting after subsection (c) the following new 
                subsection:
  ``(d) Later Separation of Fuel From Diesel-Water Fuel Emulsion.--If 
any person separates the taxable fuel from a diesel-water fuel emulsion 
on which tax was imposed under subsection (a) at a rate determined 
under subsection (a)(2)(C) (or with respect to which a credit or 
payment was allowed or made by reason of section 6427), such person 
shall be treated as the refiner of such taxable fuel. The amount of tax 
imposed on any removal of such fuel by such person shall be reduced by 
the amount of tax imposed (and not credited or refunded) on any prior 
removal or entry of such fuel.''.
                  (B) Conforming amendment.--Subsection (d) of section 
                6416 is amended by striking ``section 4081(e)'' and 
                inserting ``section 4081(f)''.
  (c) Effective Date.--The amendments made by this section shall take 
effect on October 1, 2003.

SEC. 110. REPEAL OF PHASEOUTS FOR QUALIFIED ELECTRIC VEHICLE CREDIT AND 
                    DEDUCTION FOR CLEAN FUEL-VEHICLES.

  (a) Credit for Qualified Electric Vehicles.--Subsection (b) of 
section 30 (relating to limitations) is amended by striking paragraph 
(2) and redesignating paragraph (3) as paragraph (2).
  (b) Deduction for Clean-Fuel Vehicles and Certain Refueling 
Property.--Paragraph (1) of section 179A(b) (relating to qualified 
clean-fuel vehicle property) is amended to read as follows:
          ``(1) Qualified clean-fuel vehicle property.--The cost which 
        may be taken into account under subsection (a)(1)(A) with 
        respect to any motor vehicle shall not exceed--
                  ``(A) in the case of a motor vehicle not described in 
                subparagraph (B) or (C), $2,000,
                  ``(B) in the case of any truck or van with a gross 
                vehicle weight rating greater than 10,000 pounds but 
                not greater than 26,000 pounds, $5,000, or
                  ``(C) $50,000 in the case of--
                          ``(i) a truck or van with a gross vehicle 
                        weight rating greater than 26,000 pounds, or
                          ``(ii) any bus which has a seating capacity 
                        of at least 20 adults (not including the 
                        driver).''.

SEC. 111. ALTERNATIVE MOTOR VEHICLE CREDIT.

  (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
(relating to foreign tax credit, etc.) is amended by adding at the end 
the following:

``SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.

  ``(a) Allowance of Credit.--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 new qualified fuel cell motor vehicle credit 
        determined under subsection (b), and
          ``(2) the advanced lean burn technology motor vehicle credit 
        determined under subsection (c).
  ``(b) New Qualified Fuel Cell Motor Vehicle Credit.--
          ``(1) In general.--For purposes of subsection (a), the new 
        qualified fuel cell motor vehicle credit determined under this 
        subsection with respect to a new qualified fuel cell motor 
        vehicle placed in service by the taxpayer during the taxable 
        year is--
                  ``(A) $4,000, if such vehicle has a gross vehicle 
                weight rating of not more than 8,500 pounds,
                  ``(B) $10,000, if such vehicle has a gross vehicle 
                weight rating of more than 8,500 pounds but not more 
                than 14,000 pounds,
                  ``(C) $20,000, if such vehicle has a gross vehicle 
                weight rating of more than 14,000 pounds but not more 
                than 26,000 pounds, and
                  ``(D) $40,000, if such vehicle has a gross vehicle 
                weight rating of more than 26,000 pounds.
          ``(2) Increase for fuel efficiency.--
                  ``(A) In general.--The amount determined under 
                paragraph (1)(A) with respect to a new qualified fuel 
                cell motor vehicle which is a passenger automobile or 
                light truck shall be increased by--
                          ``(i) $1,000, if such vehicle achieves at 
                        least 150 percent but less than 175 percent of 
                        the 2000 model year city fuel economy,
                          ``(ii) $1,500, if such vehicle achieves at 
                        least 175 percent but less than 200 percent of 
                        the 2000 model year city fuel economy,
                          ``(iii) $2,000, if such vehicle achieves at 
                        least 200 percent but less than 225 percent of 
                        the 2000 model year city fuel economy,
                          ``(iv) $2,500, if such vehicle achieves at 
                        least 225 percent but less than 250 percent of 
                        the 2000 model year city fuel economy,
                          ``(v) $3,000, if such vehicle achieves at 
                        least 250 percent but less than 275 percent of 
                        the 2000 model year city fuel economy,
                          ``(vi) $3,500, if such vehicle achieves at 
                        least 275 percent but less than 300 percent of 
                        the 2000 model year city fuel economy, and
                          ``(vii) $4,000, if such vehicle achieves at 
                        least 300 percent of the 2000 model year city 
                        fuel economy.
                  ``(B) 2000 model year city fuel economy.--For 
                purposes of subparagraph (A), the 2000 model year city 
                fuel economy with respect to a vehicle shall be 
                determined in accordance with the following tables:
                          ``(i) In the case of a passenger automobile:

``If vehicle inertia weight class   The 2000 model year city fuel 
        is:                                 economy is:
    1,500 or 1,750 lbs............................            43.7 mpg 
    2,000 lbs.....................................            38.3 mpg 
    2,250 lbs.....................................            34.1 mpg 
    2,500 lbs.....................................            30.7 mpg 
    2,750 lbs.....................................            27.9 mpg 
    3,000 lbs.....................................            25.6 mpg 
    3,500 lbs.....................................            22.0 mpg 
    4,000 lbs.....................................            19.3 mpg 
    4,500 lbs.....................................            17.2 mpg 
    5,000 lbs.....................................            15.5 mpg 
    5,500 lbs.....................................            14.1 mpg 
    6,000 lbs.....................................            12.9 mpg 
    6,500 lbs.....................................            11.9 mpg 
    7,000 or 8,500 lbs............................            11.1 mpg.

                          ``(ii) In the case of a light truck:

``If vehicle inertia weight class   The 2000 model year city fuel 
        is:                                 economy is:
    1,500 or 1,750 lbs............................            37.6 mpg 
    2,000 lbs.....................................            33.7 mpg 
    2,250 lbs.....................................            30.6 mpg 
    2,500 lbs.....................................            28.0 mpg 
    2,750 lbs.....................................            25.9 mpg 
    3,000 lbs.....................................            24.1 mpg 
    3,500 lbs.....................................            21.3 mpg 
    4,000 lbs.....................................            19.0 mpg 
    4,500 lbs.....................................            17.3 mpg 
    5,000 lbs.....................................            15.8 mpg 
    5,500 lbs.....................................            14.6 mpg 
    6,000 lbs.....................................            13.6 mpg 
    6,500 lbs.....................................            12.8 mpg 
    7,000 or 8,500 lbs............................            12.0 mpg.

                  ``(C) Vehicle inertia weight class.--For purposes of 
                subparagraph (B), the term `vehicle inertia weight 
                class' has the same meaning as when defined in 
                regulations prescribed by the Administrator of the 
                Environmental Protection Agency for purposes of the 
                administration of title II of the Clean Air Act (42 
                U.S.C. 7521 et seq.).
          ``(3) New qualified fuel cell motor vehicle.--For purposes of 
        this subsection, the term `new qualified fuel cell motor 
        vehicle' means a motor vehicle--
                  ``(A) which is propelled by power derived from one or 
                more cells which convert chemical energy directly into 
                electricity by combining oxygen with hydrogen fuel 
                which is stored on board the vehicle in any form and 
                may or may not require reformation prior to use,
                  ``(B) which, in the case of a passenger automobile or 
                light truck--
                          ``(i) for 2004 and later model vehicles, has 
                        received a certificate of conformity under the 
                        Clean Air Act and meets or exceeds the 
                        equivalent qualifying California low emission 
                        vehicle standard under section 243(e)(2) of the 
                        Clean Air Act for that make and model year, and
                          ``(ii) for 2004 and later model vehicles, has 
                        received a certificate that such vehicle meets 
                        or exceeds the Bin 5 Tier II emission level 
                        established in regulations prescribed by the 
                        Administrator of the Environmental Protection 
                        Agency under section 202(i) of the Clean Air 
                        Act for that make and model year vehicle,
                  ``(C) the original use of which commences with the 
                taxpayer,
                  ``(D) which is acquired for use or lease by the 
                taxpayer and not for resale, and
                  ``(E) which is made by a manufacturer.
  ``(c) Advanced Lean Burn Technology Motor Vehicle Credit.--
          ``(1) In general.--For purposes of subsection (a), the 
        advanced lean burn technology motor vehicle credit determined 
        under this subsection with respect to a new qualified advanced 
        lean burn technology motor vehicle placed in service by the 
        taxpayer during the taxable year is the credit amount 
        determined under paragraph (2).
          ``(2) Credit amount.--
                  ``(A) Increase for fuel efficiency.--The credit 
                amount determined under this paragraph shall be--
                          ``(i) $500, if such vehicle achieves at least 
                        125 percent but less than 150 percent of the 
                        2000 model year city fuel economy,
                          ``(ii) $1,000, if such vehicle achieves at 
                        least 150 percent but less than 175 percent of 
                        the 2000 model year city fuel economy,
                          ``(iii) $1,500, if such vehicle achieves at 
                        least 175 percent but less than 200 percent of 
                        the 2000 model year city fuel economy,
                          ``(iv) $2,000, if such vehicle achieves at 
                        least 200 percent but less than 225 percent of 
                        the 2000 model year city fuel economy,
                          ``(v) $2,500, if such vehicle achieves at 
                        least 225 percent but less than 250 percent of 
                        the 2000 model year city fuel economy, and
                          ``(vi) $3,000, if such vehicle achieves at 
                        least 250 percent of the 2000 model year city 
                        fuel economy.
                For purposes of clause (i), the 2000 model year city 
                fuel economy with respect to a vehicle shall be 
                determined using the tables provided in subsection 
                (b)(2)(B) with respect to such vehicle.
                  ``(B) Conservation credit.--The amount determined 
                under subparagraph (A) with respect to an advanced lean 
                burn technology motor vehicle shall be increased by--
                          ``(i) $250, if such vehicle achieves a 
                        lifetime fuel savings of at least 1,500 gallons 
                        of gasoline, and
                          ``(ii) $500, if such vehicle achieves a 
                        lifetime fuel savings of at least 2,500 gallons 
                        of gasoline.
                  ``(C) Option to use like vehicle.--At the option of 
                the vehicle manufacturer, the increase for fuel 
                efficiency and conservation credit may be calculated by 
                comparing the new advanced lean-burn technology motor 
                vehicle to a like vehicle.
          ``(3) Definitions.--For purposes of this subsection--
                  ``(A) Advanced lean burn technology motor vehicle.--
                The term `advanced lean burn technology motor vehicle' 
                means a motor vehicle with an internal combustion 
                engine that--
                          ``(i) is designed to operate primarily using 
                        more air than is necessary for complete 
                        combustion of the fuel,
                          ``(ii) incorporates direct injection,
                          ``(iii) achieves at least 125 percent of the 
                        2000 model year city fuel economy, and
                          ``(iv) for 2004 and later model vehicles, has 
                        received a certificate that such vehicle meets 
                        or exceeds the Bin 8 Tier II emission level 
                        established in regulations prescribed by the 
                        Administrator of the Environmental Protection 
                        Agency under section 202(i) of the Clean Air 
                        Act for that make and model year vehicle.
                  ``(B) Like vehicle.--The term `like vehicle' for an 
                advanced lean burn technology motor vehicle derived 
                from a conventional production vehicle produced in the 
                same model year means a model that is equivalent in the 
                following areas:
                          ``(i) Body style (2-door or 4-door).
                          ``(ii) Transmission (automatic or manual).
                          ``(iii) Acceleration performance 
                        ( 0.05 seconds).
                          ``(iv) Drivetrain (2-wheel drive or 4-wheel 
                        drive).
                          ``(v) Certification by the Administrator of 
                        the Environmental Protection Agency.
                  ``(C) Lifetime fuel savings.--The term `lifetime fuel 
                savings' shall be calculated by dividing 120,000 by the 
                difference between the 2000 model year city fuel 
                economy for the vehicle inertia weight class and the 
                city fuel economy for the new qualified hybrid motor 
                vehicle.
  ``(d) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for the 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 subpart A and 
        sections 27, 29, and 30A for the taxable year.
  ``(e) Other Definitions and Special Rules.--For purposes of this 
section--
          ``(1) Consumable fuel.--The term `consumable fuel' means any 
        solid, liquid, or gaseous matter which releases energy when 
        consumed by an auxiliary power unit.
          ``(2) Motor vehicle.--The term `motor vehicle' has the 
        meaning given such term by section 30(c)(2).
          ``(3) 2000 model year city fuel economy.--The 2000 model year 
        city fuel economy with respect to any vehicle shall be measured 
        under rules similar to the rules under section 4064(c).
          ``(4) Other terms.--The terms `automobile', `passenger 
        automobile', `light truck', and `manufacturer' have the 
        meanings given such terms in regulations prescribed by the 
        Administrator of the Environmental Protection Agency for 
        purposes of the administration of title II of the Clean Air Act 
        (42 U.S.C. 7521 et seq.).
          ``(5)  Reduction in basis.--For purposes of this subtitle, if 
        a credit is allowed under this section for any expenditure with 
        respect to any property, the increase in the basis of such 
        property which would (but for this paragraph) result from such 
        expenditure shall be reduced by the amount of the credit so 
        allowed.
          ``(6) No double benefit.--The amount of any deduction or 
        credit allowable under this chapter (other than the credit 
        allowable under this section), with respect to a vehicle 
        described under subsection (b), shall be reduced by the amount 
        of credit allowed under subsection (a) for such vehicle for the 
        taxable year.
          ``(7) Property used by tax-exempt entities.--In the case of a 
        credit amount which is allowable with respect to a motor 
        vehicle which is acquired by an entity exempt from tax under 
        this chapter, the person which sells or leases such vehicle to 
        the entity shall be treated as the taxpayer with respect to the 
        vehicle for purposes of this section and the credit shall be 
        allowed to such person, but only if the person clearly 
        discloses to the entity in any sale or lease document the 
        specific amount of any credit otherwise allowable to the entity 
        under this section.
          ``(8) 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 (including recapture in 
        the case of a lease period of less than the economic life of a 
        vehicle).
          ``(9) Property used outside united states, etc., 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.
          ``(10) Election to not take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects to not have this section apply to such vehicle.
          ``(11) Carryforward allowed.--
                  ``(A) In general.--If the credit amount allowable 
                under subsection (a) for a taxable year exceeds the 
                amount of the limitation under subsection (d) for such 
                taxable year (referred to as the `unused credit year' 
                in this paragraph), such excess shall be allowed as a 
                credit carryforward for each of the 20 taxable years 
                following the unused credit year.
                  ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryforward 
                under subparagraph (A).
          ``(12) Interaction with air quality and motor vehicle safety 
        standards.--Unless otherwise provided in this section, a motor 
        vehicle shall not be considered eligible for a credit under 
        this section unless such vehicle is in compliance with--
                  ``(A) the applicable provisions of the Clean Air Act 
                for the applicable make and model year of the vehicle 
                (or applicable air quality provisions of State law in 
                the case of a State which has adopted such provision 
                under a waiver under section 209(b) of the Clean Air 
                Act), and
                  ``(B) the motor vehicle safety provisions of sections 
                30101 through 30169 of title 49, United States Code.
  ``(f) Regulations.--
          ``(1) In general.--The Secretary shall promulgate such 
        regulations as necessary to carry out the provisions of this 
        section.
          ``(2) Determination of motor vehicle eligibility.--The 
        Secretary, in coordination with the Secretary of Transportation 
        and the Administrator of the Environmental Protection Agency, 
        shall prescribe such regulations as necessary to determine 
        whether a motor vehicle meets the requirements to be eligible 
        for a credit under this section.
  ``(g) Termination.--This section shall not apply to any property 
placed in service after--
          ``(1) in the case of a new qualified fuel cell motor vehicle 
        (as described in subsection (b)), December 31, 2012, and
          ``(2) in the case of any other property, December 31, 
        2006.''.
  (b) Conforming Amendments.--
          (1) Section 1016(a) is amended by striking ``and'' at the end 
        of paragraph (30), by striking the period at the end of 
        paragraph (31) and inserting ``, and'', and by adding at the 
        end the following:
          ``(32) to the extent provided in section 30B(e)(5).''.
          (2) Section 6501(m) is amended by inserting ``30B(e)(10),'' 
        after ``30(d)(4),''.
          (3) 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 30A the following:

                              ``Sec. 30B. Alternative motor vehicle 
                                        credit.''.

  (c) Effective Date.--The amendments made by this section shall apply 
to property placed in service after December 31, 2003, in taxable years 
ending after such date.

                         TITLE II--RELIABILITY

SEC. 201. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR PROPERTY.

  (a) In General.--Subparagraph (C) of section 168(e)(3) (relating to 
classification of certain property) is amended by striking ``and'' at 
the end of clause (i), by redesignating clause (ii) as clause (iii), 
and by inserting after clause (i) the following new clause:
                          ``(ii) any natural gas gathering line, and''.
  (b) Natural Gas Gathering Line.--Subsection (i) of section 168 is 
amended by adding after paragraph (15) the following new paragraph:
          ``(16) Natural gas gathering line.--The term `natural gas 
        gathering line' means--
                  ``(A) the pipe, equipment, and appurtenances 
                determined to be a gathering line by the Federal Energy 
                Regulatory Commission, or
                  ``(B) the pipe, equipment, and appurtenances used to 
                deliver natural gas from the wellhead or a commonpoint 
                to the point at which such gas first reaches--
                          ``(i) a gas processing plant,
                          ``(ii) an interconnection with a transmission 
                        pipeline certificated by the Federal Energy 
                        Regulatory Commission as an interstate 
                        transmission pipeline,
                          ``(iii) an interconnection with an intrastate 
                        transmission pipeline, or
                          ``(iv) a direct interconnection with a local 
                        distribution company, a gas storage facility, 
                        or an industrial consumer.''.
  (c) Alternative System.--The table contained in section 168(g)(3)(B) 
is amended by inserting after the item relating to subparagraph (C)(i) 
the following:

``(C)(ii)......................................................   10''.

  (d) Alternative Minimum Tax Exception.--Subparagraph (B) of section 
56(a)(1) is amended by inserting before the period the following: ``, 
or in section 168(e)(3)(C)(ii)''.
  (e) 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. 202. NATURAL GAS DISTRIBUTION LINES TREATED AS 15-YEAR PROPERTY.

  (a) In General.--Subparagraph (E) of section 168(e)(3) (relating to 
classification of certain property) is amended by striking ``and'' at 
the end of clause (ii), by striking the period at the end of clause 
(iii) and by inserting ``, and'', and by adding at the end the 
following new clause:
                          ``(iv) any natural gas distribution line.''.
  (b) Alternative System.--The table contained in section 168(g)(3)(B) 
is amended by inserting after the item relating to subparagraph 
(E)(iii) the following:

``(E)(iv)......................................................   20''.

  (c) Alternative Minimum Tax Exception.--Subparagraph (B) of section 
56(a)(1) is amended by inserting before the period the following: ``, 
or in section 168(e)(3)(E)(iv)''.
  (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, in taxable years ending after such date.

SEC. 203. ELECTRIC TRANSMISSION PROPERTY TREATED AS 15-YEAR PROPERTY.

  (a) In General.--Subparagraph (E) of section 168(e)(3) (relating to 
classification of certain property) is amended by striking ``and'' at 
the end of clause (iii), by striking the period at the end of clause 
(iv) and by inserting ``, and'', and by adding at the end the following 
new clause:
                          ``(v) any section 1245 property (as defined 
                        in section 1245(a)(3)) used in the transmission 
                        at 69 or more kilovolts of electricity for 
                        sale.''.
  (b) Alternative System.--The table contained in section 168(g)(3)(B) 
is amended by inserting after the item relating to subparagraph (E)(iv) 
the following:

``(E)(v).......................................................   20''.

  (c) Alternative Minimum Tax Exception.--Subparagraph (B) of section 
56(a)(1) is amended by inserting before the period the following: ``, 
or in section 168(e)(3)(E)(v)''.
  (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, in taxable years ending after such date.

SEC. 204. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH 
                    ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

  (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 179A the following new section:

``SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH 
                    ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

  ``(a) Treatment as Expenses.--A small business refiner (as defined in 
section 45H(c)(1)) may elect to treat 75 percent of qualified capital 
costs (as defined in section 45H(c)(2)) which are paid or incurred by 
the taxpayer during the taxable year as expenses which are not 
chargeable to capital account. Any cost so treated shall be allowed as 
a deduction for the taxable year in which paid or incurred.
  ``(b) Reduced Percentage.--In the case of a small business refiner 
with average daily domestic refinery runs for the 1-year period ending 
on March 31, 2003, in excess of 155,000 barrels, the number of 
percentage points described in subsection (a) shall be reduced (not 
below zero) by the product of such number (before the application of 
this subsection) and the ratio of such excess to 50,000 barrels.
  ``(c) Basis Reduction.--
          ``(1) 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).
          ``(2) Ordinary income recapture.--For purposes of section 
        1245, the amount of the deduction allowable under subsection 
        (a) with respect to any property which is of a character 
        subject to the allowance for depreciation shall be treated as a 
        deduction allowed for depreciation under section 167.''.
  (b) Conforming Amendments.--
          (1) Section 263(a)(1) is amended by striking ``or'' at the 
        end of subparagraph (G), by striking the period at the end of 
        subparagraph (H) and inserting ``; or'', and by adding at the 
        end the following new subparagraph:
                  ``(I) expenditures for which a deduction is allowed 
                under section 179B.''.
          (2) Section 312(k)(3)(B) is amended--
                  (A) by striking ``section 179 or 179A'' each place it 
                appears and inserting ``section 179, 179A, or 179B'', 
                and
                  (B) in the heading, by striking ``179 or 179A'' and 
                inserting ``179, 179A, or 179B''.
          (3) Section 1016(a) is amended by striking ``and'' at the end 
        of paragraph (31), by striking the period at the end of 
        paragraph (32) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
          ``(33) to the extent provided in section 179B(c).''
          (4) Paragraphs (2)(C) and (3)(C) of section 1245(a) are each 
        amended by inserting ``179B,'' after ``179A,''.
          (5) The table of sections for part VI of subchapter B of 
        chapter 1 is amended by inserting after the item relating to 
        section 179A the following new item:

                              ``Sec. 179B. Deduction for capital costs 
                                        incurred in complying with 
                                        Environmental Protection Agency 
                                        sulfur regulations.''.

  (c) Effective Date.--The amendment made by this section shall apply 
to expenses paid or incurred after March 31, 2003, in taxable years 
ending after such date.

SEC. 205. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.

  (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. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.

  ``(a) In General.--For purposes of section 38, the amount of the low 
sulfur diesel fuel production credit determined under this section with 
respect to any facility of a small business refiner is an amount equal 
to 5 cents for each gallon of low sulfur diesel fuel produced during 
the taxable year by such small business refiner at such facility.
  ``(b) Maximum Credit.--
          ``(1) In general.--The aggregate credit determined under 
        subsection (a) for any taxable year with respect to any 
        facility shall not exceed--
                  ``(A) 25 percent of the qualified capital costs 
                incurred by the small business refiner with respect to 
                such facility, reduced by
                  ``(B) the aggregate credits determined under this 
                section for all prior taxable years with respect to 
                such facility.
          ``(2) Reduced percentage.--In the case of a small business 
        refiner with average daily domestic refinery runs for the 1-
        year period ending on March 31, 2003, in excess of 155,000 
        barrels, the number of percentage points described in paragraph 
        (1) shall be reduced (not below zero) by the product of such 
        number (before the application of this paragraph) and the ratio 
        of such excess to 50,000 barrels.
  ``(c) Definitions.--For purposes of this section--
          ``(1) Small business refiner.--The term `small business 
        refiner' means, with respect to any taxable year, a refiner of 
        crude oil with respect to which not more than 1,500 persons are 
        engaged in the refinery operations of the business on any day 
        during such taxable year and whose average daily domestic 
        refinery run for the 1-year period ending on March 31, 2003, 
        did not exceed 205,000 barrels.
          ``(2) Qualified capital costs.--The term `qualified capital 
        costs' means, with respect to any facility, those costs paid or 
        incurred during the applicable period for compliance with the 
        applicable EPA regulations with respect to such facility, 
        including expenditures for the construction of new process 
        operation units or the dismantling and reconstruction of 
        existing process units to be used in the production of low 
        sulfur diesel fuel, associated adjacent or offsite equipment 
        (including tankage, catalyst, and power supply), engineering, 
        construction period interest, and sitework.
          ``(3) Applicable epa regulations.--The term `applicable EPA 
        regulations' means the Highway Diesel Fuel Sulfur Control 
        Requirements of the Environmental Protection Agency.
          ``(4) Applicable period.--The term `applicable period' means, 
        with respect to any facility, the period beginning on April 1, 
        2003, and ending with the date which is 1 year after the date 
        on which the taxpayer must comply with the applicable EPA 
        regulations with respect to such facility.
          ``(5) Low sulfur diesel fuel.--The term `low sulfur diesel 
        fuel' means diesel fuel with a sulfur content of 15 parts per 
        million or less.
  ``(d) Reduction in Basis.--For purposes of this subtitle, if a credit 
is determined under this section for any expenditure with respect to 
any property, the increase in basis of such property which would (but 
for this subsection) result from such expenditure shall be reduced by 
the amount of the credit so determined.
  ``(e) Certification.--
          ``(1) Required.--Not later than the date which is 30 months 
        after the first day of the first taxable year in which the low 
        sulfur diesel fuel production credit is allowed with respect to 
        a facility, the small business refiner must obtain 
        certification from the Secretary, in consultation with the 
        Administrator of the Environmental Protection Agency, that the 
        taxpayer's qualified capital costs with respect to such 
        facility will result in compliance with the applicable EPA 
        regulations.
          ``(2) Contents of application.--An application for 
        certification shall include relevant information regarding unit 
        capacities and operating characteristics sufficient for the 
        Secretary, in consultation with the Administrator of the 
        Environmental Protection Agency, to determine that such 
        qualified capital costs are necessary for compliance with the 
        applicable EPA regulations.
          ``(3) Review period.--Any application shall be reviewed and 
        notice of certification, if applicable, shall be made within 60 
        days of receipt of such application.
          ``(4) Statute of limitations.--With respect to the credit 
        allowed under this section--
                  ``(A) the statutory period for the assessment of any 
                deficiency attributable to such credit shall not expire 
                before the end of the 3-year period ending on the date 
                that the review period described in paragraph (3) ends, 
                and
                  ``(B) such deficiency may be assessed before the 
                expiration of such 3-year period notwithstanding the 
                provisions of any other law or rule of law which would 
                otherwise prevent such assessment.
  ``(f) Controlled Groups.--For purposes of this section, all persons 
treated as a single employer under subsection (b), (c), (m), or (o) of 
section 414 shall be treated as 1 taxpayer.''.
  (b) Credit Made Part of General Business Credit.--Subsection (b) of 
section 38 (relating to general business credit) is amended by striking 
``plus'' at the end of paragraph (15), by striking the period at the 
end of paragraph (16) and inserting ``, plus'', and by adding at the 
end the following new paragraph:
          ``(17) in the case of a small business refiner, the low 
        sulfur diesel fuel production credit determined under section 
        45H(a).''.
  (c) Denial of Double Benefit.--Section 280C (relating to certain 
expenses for which credits are allowable) is amended by adding after 
subsection (d) the following new subsection:
  ``(e) Low Sulfur Diesel Fuel Production Credit.--No deduction shall 
be allowed for that portion of the expenses otherwise allowable as a 
deduction for the taxable year which is equal to the amount of the 
credit determined for the taxable year under section 45H(a).''.
  (d) Basis Adjustment.--Section 1016(a) (relating to adjustments to 
basis) is amended by striking ``and'' at the end of paragraph (32), by 
striking the period at the end of paragraph (33) and inserting ``, 
and'', and by adding at the end the following new paragraph:
          ``(34) in the case of a facility with respect to which a 
        credit was allowed under section 45H, to the extent provided in 
        section 45H(d).''.
  (e) 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. 45H. Credit for production of low 
                                        sulfur diesel fuel.''.

  (f) Effective Date.--The amendments made by this section shall apply 
to expenses paid or incurred after March 31, 2003, in taxable years 
ending after such date.

SEC. 206. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION 
                    DEDUCTION.

  (a) In General.--Paragraph (4) of section 613A(d) (relating to 
certain refiners excluded) is amended to read as follows:
          ``(4) Certain refiners excluded.--If the taxpayer or a 
        related person engages in the refining of crude oil, subsection 
        (c) shall not apply to the taxpayer for a taxable year if the 
        average daily refinery runs of the taxpayer and the related 
        person for the taxable year exceed 75,000 barrels. For purposes 
        of this paragraph, the average daily refinery runs for any 
        taxable year shall be determined by dividing the aggregate 
        refinery runs for the taxable year by the number of days in the 
        taxable year.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 207. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY REGULATORY 
                    COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY.

  (a) In General.--Section 451 (relating to general rule for taxable 
year of inclusion) is amended by adding at the end the following new 
subsection:
  ``(i) Special Rule for Sales or Dispositions To Implement Federal 
Energy Regulatory Commission or State Electric Restructuring Policy.--
          ``(1) In general.--In the case of any qualifying electric 
        transmission transaction to which the taxpayer elects the 
        application of this section, qualified gain from such 
        transaction shall be recognized--
                  ``(A) in the taxable year which includes the date of 
                such transaction to the extent the amount realized from 
                such transaction exceeds--
                          ``(i) the cost of exempt utility property 
                        which is purchased by the taxpayer during the 
                        4-year period beginning on such date, reduced 
                        (but not below zero) by
                          ``(ii) any portion of such cost previously 
                        taken into account under this subsection, and
                  ``(B) ratably over the 8-taxable year period 
                beginning with the taxable year which includes the date 
                of such transaction, in the case of any such gain not 
                recognized under subparagraph (A).
          ``(2) Qualified gain.--For purposes of this subsection, the 
        term `qualified gain' means, with respect to any qualifying 
        electric transmission transaction in any taxable year--
                  ``(A) any ordinary income derived from such 
                transaction which would be required to be recognized 
                under section 1245 or 1250 for such taxable year 
                (determined without regard to this subsection), and
                  ``(B) any income derived from such transaction in 
                excess of the amount described in subparagraph (A) 
                which is required to be included in gross income for 
                such taxable year (determined without regard to this 
                subsection).
          ``(3) Qualifying electric transmission transaction.--For 
        purposes of this subsection, the term `qualifying electric 
        transmission transaction' means any sale or other disposition 
        before January 1, 2007, of--
                  ``(A) property used in the trade or business of 
                providing electric transmission services, or
                  ``(B) any stock or partnership interest in a 
                corporation or partnership, as the case may be, whose 
                principal trade or business consists of providing 
                electric transmission services,
        but only if such sale or disposition is to an independent 
        transmission company.
          ``(4) Independent transmission company.--For purposes of this 
        subsection, the term `independent transmission company' means--
                  ``(A) an independent transmission provider approved 
                by the Federal Energy Regulatory Commission,
                  ``(B) a person--
                          ``(i) who the Federal Energy Regulatory 
                        Commission determines in its authorization of 
                        the transaction under section 203 of the 
                        Federal Power Act (16 U.S.C. 824b) or by 
                        declaratory order is not a market participant 
                        within the meaning of such Commission's rules 
                        applicable to independent transmission 
                        providers, and
                          ``(ii) whose transmission facilities to which 
                        the election under this subsection applies are 
                        under the operational control of a Federal 
                        Energy Regulatory Commission-approved 
                        independent transmission provider before the 
                        close of the period specified in such 
                        authorization, but not later than the close of 
                        the period applicable under subsection 
                        (a)(2)(B) as extended under paragraph (2), or
                  ``(C) in the case of facilities subject to the 
                jurisdiction of the Public Utility Commission of 
                Texas--
                          ``(i) a person which is approved by that 
                        Commission as consistent with Texas State law 
                        regarding an independent transmission provider, 
                        or
                          ``(ii) a political subdivision or affiliate 
                        thereof whose transmission facilities are under 
                        the operational control of a person described 
                        in clause (i).
          ``(5) Exempt utility property.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `exempt utility property' 
                means property used in the trade or business of--
                          ``(i) generating, transmitting, distributing, 
                        or selling electricity, or
                          ``(ii) producing, transmitting, distributing, 
                        or selling natural gas.
                  ``(B) Nonrecognition of gain by reason of acquisition 
                of stock.--Acquisition of control of a corporation 
                shall be taken into account under this subsection with 
                respect to a qualifying electric transmission 
                transaction only if the principal trade or business of 
                such corporation is a trade or business referred to in 
                subparagraph (A).
          ``(6) Special rule for consolidated groups.--In the case of a 
        corporation which is a member of an affiliated group filing a 
        consolidated return, any exempt utility property purchased by 
        another member of such group shall be treated as purchased by 
        such corporation for purposes of applying paragraph (1)(A).
          ``(7) Time for assessment of deficiencies.--If the taxpayer 
        has made the election under paragraph (1) and any gain is 
        recognized by such taxpayer as provided in paragraph (1)(B), 
        then--
                  ``(A) the statutory period for the assessment of any 
                deficiency, for any taxable year in which any part of 
                the gain on the transaction is realized, attributable 
                to such gain shall not expire prior to the expiration 
                of 3 years from the date the Secretary is notified by 
                the taxpayer (in such manner as the Secretary may by 
                regulations prescribe) of the purchase of exempt 
                utility property or of an intention not to purchase 
                such property, and
                  ``(B) such deficiency may be assessed before the 
                expiration of such 3-year period notwithstanding any 
                law or rule of law which would otherwise prevent such 
                assessment.
          ``(8) Purchase.--For purposes of this subsection, the 
        taxpayer shall be considered to have purchased any property if 
        the unadjusted basis of such property is its cost within the 
        meaning of section 1012.
          ``(9) Election.--An election under paragraph (1) shall be 
        made at such time and in such manner as the Secretary may 
        require and, once made, shall be irrevocable.''.
  (b) Effective Date.--The amendments made by this section shall apply 
to transactions occurring after the date of the enactment of this Act, 
in taxable years ending after such date.

SEC. 208. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR DECOMMISSIONING 
                    COSTS.

  (a) Repeal of Limitation on Deposits Into Fund Based on Cost of 
Service; Contributions After Funding Period.--Subsection (b) of section 
468A is amended to read as follows:
  ``(b) Limitation on Amounts Paid Into Fund.--
          ``(1) In general.--The amount which a taxpayer may pay into 
        the Fund for any taxable year shall not exceed the ruling 
        amount applicable to such taxable year.
          ``(2) Contributions after funding period.--Notwithstanding 
        any other provision of this section, a taxpayer may pay into 
        the Fund in any taxable year after the last taxable year to 
        which the ruling amount applies. Payments may not be made under 
        the preceding sentence to the extent such payments would cause 
        the assets of the Fund to exceed the nuclear decommissioning 
        costs allocable to the taxpayer's current or former interest in 
        the nuclear power plant to which the Fund relates. The 
        limitation under the preceding sentence shall be determined by 
        taking into account a reasonable rate of inflation for the 
        nuclear decommissioning costs and a reasonable after-tax rate 
        of return on the assets of the Fund until such assets are 
        anticipated to be expended.''.
  (b) Clarification of Treatment of Fund Transfers.--Subsection (e) of 
section 468A is amended by adding at the end the following new 
paragraph:
          ``(8) Treatment of fund transfers.--If, in connection with 
        the transfer of the taxpayer's interest in a nuclear power 
        plant, the taxpayer transfers the Fund with respect to such 
        power plant to the transferee of such interest and the 
        transferee elects to continue the application of this section 
        to such Fund--
                  ``(A) the transfer of such Fund shall not cause such 
                Fund to be disqualified from the application of this 
                section, and
                  ``(B) no amount shall be treated as distributed from 
                such Fund, or be includible in gross income, by reason 
                of such transfer.''.
  (c) Treatment of Certain Decommissioning Costs.--
          (1) In general.--Section 468A is amended by redesignating 
        subsections (f) and (g) as subsections (g) and (h), 
        respectively, and by inserting after subsection (e) the 
        following new subsection:
  ``(f) Transfers Into Qualified Funds.--
          ``(1) In general.--Notwithstanding subsection (b), any 
        taxpayer maintaining a Fund to which this section applies with 
        respect to a nuclear power plant may transfer into such Fund up 
        to an amount equal to the excess of the total nuclear 
        decommissioning costs with respect to such nuclear power plant 
        over the portion of such costs taken into account in 
        determining the ruling amount in effect immediately before the 
        transfer.
          ``(2) Deduction for amounts transferred.--
                  ``(A) In general.--Except as provided in subparagraph 
                (C), the deduction allowed by subsection (a) for any 
                transfer permitted by this subsection shall be allowed 
                ratably over the remaining estimated useful life 
                (within the meaning of subsection (d)(2)(A)) of the 
                nuclear power plant beginning with the taxable year 
                during which the transfer is made.
                  ``(B) Denial of deduction for previously deducted 
                amounts.--No deduction shall be allowed for any 
                transfer under this subsection of an amount for which a 
                deduction was previously allowed or a corresponding 
                amount was not included in gross income. For purposes 
                of the preceding sentence, a ratable portion of each 
                transfer shall be treated as being from previously 
                deducted or excluded amounts to the extent thereof.
                  ``(C) Transfers of qualified funds.--If--
                          ``(i) any transfer permitted by this 
                        subsection is made to any Fund to which this 
                        section applies, and
                          ``(ii) such Fund is transferred thereafter,
                any deduction under this subsection for taxable years 
                ending after the date that such Fund is transferred 
                shall be allowed to the transferor for the taxable year 
                which includes such date.
                  ``(D) Special rules.--
                          ``(i) Gain or loss not recognized.--No gain 
                        or loss shall be recognized on any transfer 
                        permitted by this subsection.
                          ``(ii) Transfers of appreciated property.--If 
                        appreciated property is transferred in a 
                        transfer permitted by this subsection, the 
                        amount of the deduction shall be the adjusted 
                        basis of such property.
          ``(3) New ruling amount required.--Paragraph (1) shall not 
        apply to any transfer unless the taxpayer requests from the 
        Secretary a new schedule of ruling amounts in connection with 
        such transfer.
          ``(4) No basis in qualified funds.--Notwithstanding any other 
        provision of law, the taxpayer's basis in any Fund to which 
        this section applies shall not be increased by reason of any 
        transfer permitted by this subsection.''.
          (2) New ruling amount to take into account total costs.--
        Subparagraph (A) of section 468A(d)(2) is amended to read as 
        follows:
                  ``(A) fund the total nuclear decommissioning costs 
                with respect to such power plant over the estimated 
                useful life of such power plant, and''.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 209. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.

  (a) Income From Open Access and Nuclear Decommissioning 
Transactions.--
          (1) In general.--Subparagraph (C) of section 501(c)(12) is 
        amended by striking ``or'' at the end of clause (i), by 
        striking clause (ii), and by adding at the end the following 
        new clauses:
                          ``(ii) from any provision or sale of 
                        transmission service or ancillary services if 
                        such services are provided on a 
                        nondiscriminatory open access basis under an 
                        independent transmission provider agreement 
                        approved by FERC (other than income received or 
                        accrued directly or indirectly from a member),
                          ``(iii) from any nuclear decommissioning 
                        transaction, or
                          ``(iv) from any asset exchange or conversion 
                        transaction.''.
          (2) Definitions and special rules.--Paragraph (12) of section 
        501(c) is amended by adding at the end the following new 
        subparagraphs:
                  ``(E) For purposes of subparagraph (C)(ii), the term 
                `FERC' means the Federal Energy Regulatory Commission 
                and references to such term shall be treated as 
                including the Public Utility Commission of Texas with 
                respect to any ERCOT utility (as defined in section 
                212(k)(2)(B) of the Federal Power Act (16 U.S.C. 
                824k(k)(2)(B))).
                  ``(F) For purposes of subparagraph (C)(iii), the term 
                `nuclear decommissioning transaction' means--
                          ``(i) any transfer into a trust, fund, or 
                        instrument established to pay any nuclear 
                        decommissioning costs if the transfer is in 
                        connection with the transfer of the mutual or 
                        cooperative electric company's interest in a 
                        nuclear power plant or nuclear power plant 
                        unit,
                          ``(ii) any distribution from any trust, fund, 
                        or instrument established to pay any nuclear 
                        decommissioning costs, or
                          ``(iii) any earnings from any trust, fund, or 
                        instrument established to pay any nuclear 
                        decommissioning costs.
                  ``(G) For purposes of subparagraph (C)(iv), the term 
                `asset exchange or conversion transaction' means any 
                voluntary exchange or involuntary conversion of any 
                property related to generating, transmitting, 
                distributing, or selling electric energy by a mutual or 
                cooperative electric company, the gain from which 
                qualifies for deferred recognition under section 1031 
                or 1033, but only if the replacement property acquired 
                by such company pursuant to such section constitutes 
                property which is used, or to be used, for--
                          ``(i) generating, transmitting, distributing, 
                        or selling electric energy, or
                          ``(ii) producing, transmitting, distributing, 
                        or selling natural gas.''.
  (b) Treatment of Income From Load Loss Transactions, Etc.--Paragraph 
(12) of section 501(c), as amended by subsection (a)(2), is amended by 
adding after subparagraph (G) the following new subparagraph:
                  ``(H)(i) In the case of a mutual or cooperative 
                electric company described in this paragraph or an 
                organization described in section 1381(a)(2)(C), income 
                received or accrued from a load loss transaction shall 
                be treated as an amount collected from members for the 
                sole purpose of meeting losses and expenses.
                  ``(ii) For purposes of clause (i), the term `load 
                loss transaction' means any wholesale or retail sale of 
                electric energy (other than to members) to the extent 
                that the aggregate sales during the recovery period do 
                not exceed the load loss mitigation sales limit for 
                such period.
                  ``(iii) For purposes of clause (ii), the load loss 
                mitigation sales limit for the recovery period is the 
                sum of the annual load losses for each year of such 
                period.
                  ``(iv) For purposes of clause (iii), a mutual or 
                cooperative electric company's annual load loss for 
                each year of the recovery period is the amount (if any) 
                by which--
                          ``(I) the megawatt hours of electric energy 
                        sold during such year to members of such 
                        electric company are less than
                          ``(II) the megawatt hours of electric energy 
                        sold during the base year to such members.
                  ``(v) For purposes of clause (iv)(II), the term `base 
                year' means--
                          ``(I) the calendar year preceding the start-
                        up year, or
                          ``(II) at the election of the electric 
                        company, the second or third calendar years 
                        preceding the start-up year.
                  ``(vi) For purposes of this subparagraph, the 
                recovery period is the 7-year period beginning with the 
                start-up year.
                  ``(vii) For purposes of this subparagraph, the start-
                up year is the calendar year which includes the date of 
                the enactment of this subparagraph or, if later, at the 
                election of the mutual or cooperative electric 
                company--
                          ``(I) the first year that such electric 
                        company offers nondiscriminatory open access, 
                        or
                          ``(II) the first year in which at least 10 
                        percent of such electric company's sales are 
                        not to members of such electric company.
                  ``(viii) A company shall not fail to be treated as a 
                mutual or cooperative company for purposes of this 
                paragraph or as a corporation operating on a 
                cooperative basis for purposes of section 1381(a)(2)(C) 
                by reason of the treatment under clause (i).
                  ``(ix) For purposes of subparagraph (A), in the case 
                of a mutual or cooperative electric company, income 
                received, or accrued, indirectly from a member shall be 
                treated as an amount collected from members for the 
                sole purpose of meeting losses and expenses.''.
  (c) Exception From Unrelated Business Taxable Income.--Subsection (b) 
of section 512 (relating to modifications) is amended by adding at the 
end the following new paragraph:
          ``(18) Treatment of mutual or cooperative electric 
        companies.--In the case of a mutual or cooperative electric 
        company described in section 501(c)(12), there shall be 
        excluded income which is treated as member income under 
        subparagraph (H) thereof.''.
  (d) Cross Reference.--Section 1381 is amended by adding at the end 
the following new subsection:
  ``(c) Cross Reference.--

                  ``For treatment of income from load loss transactions 
of organizations described in subsection (a)(2)(C), see section 
501(c)(12)(H).''.

  (e) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

SEC. 210. ARBITRAGE RULES NOT TO APPLY TO PREPAYMENTS FOR NATURAL GAS.

  (a) In General.--Subsection (b) of section 148 (relating to higher 
yielding investments) is amended by adding at the end the following new 
paragraph:
          ``(4) Safe harbor for prepaid natural gas.--
                  ``(A) In general.--The term `investment-type 
                property' does not include a prepayment under a 
                qualified natural gas supply contract.
                  ``(B) Qualified natural gas supply contract.--For 
                purposes of this paragraph, the term `qualified natural 
                gas supply contract' means any contract to acquire 
                natural gas for resale by a utility owned by a 
                governmental unit if the amount of gas permitted to be 
                acquired under the contract by the utility during any 
                year does not exceed the sum of--
                          ``(i) the annual average amount during the 
                        testing period of natural gas purchased (other 
                        than for resale) by customers of such utility 
                        who are located within the service area of such 
                        utility, and
                          ``(ii) the amount of natural gas to be used 
                        to transport the prepaid natural gas to the 
                        utility during such year.
                  ``(C) Natural gas used to generate electricity.--
                Natural gas used to generate electricity shall be taken 
                into account in determining the average under 
                subparagraph (B)(i)--
                          ``(i) only if the electricity is generated by 
                        a utility owned by a governmental unit, and
                          ``(ii) only to the extent that the 
                        electricity is sold (other than for resale) to 
                        customers of such utility who are located 
                        within the service area of such utility.
                  ``(D) Adjustments for changes in customer base.--
                          ``(i) New business customers.--If--
                                  ``(I) after the close of the testing 
                                period and before the date of issuance 
                                of the issue, the utility owned by a 
                                governmental unit enters into a 
                                contract to supply natural gas (other 
                                than for resale) for a business use at 
                                a property within the service area of 
                                such utility, and
                                  ``(II) the utility did not supply 
                                natural gas to such property during the 
                                testing period or the ratable amount of 
                                natural gas to be supplied under the 
                                contract is significantly greater than 
                                the ratable amount of gas supplied to 
                                such property during the testing 
                                period,
                        then a contract shall not fail to be treated as 
                        a qualified natural gas supply contract by 
                        reason of supplying the additional natural gas 
                        under the contract referred to in subclause 
                        (I).
                          ``(ii) Lost customers.--The average under 
                        subparagraph (B)(i) shall not exceed the annual 
                        amount of natural gas reasonably expected to be 
                        purchased (other than for resale) by persons 
                        who are located within the service area of such 
                        utility and who, as of the date of issuance of 
                        the issue, are customers of such utility.
                  ``(E) Ruling requests.--The Secretary may increase 
                the average under subparagraph (B)(i) for any period if 
                the utility owned by the governmental unit establishes 
                to the satisfaction of the Secretary that, based on 
                objective evidence of growth in natural gas consumption 
                or population, such average would otherwise be 
                insufficient for such period.
                  ``(F) Adjustment for natural gas otherwise on hand.--
                          ``(i) In general.--The amount otherwise 
                        permitted to be acquired under the contract for 
                        any period shall be reduced by--
                                  ``(I) the applicable share of natural 
                                gas held by the utility on the date of 
                                issuance of the issue, and
                                  ``(II) the natural gas (not taken 
                                into account under subclause (I)) which 
                                the utility has a right to acquire 
                                during such period (determined as of 
                                the date of issuance of the issue).
                          ``(ii) Applicable share.--For purposes of the 
                        clause (i), the term `applicable share' means, 
                        with respect to any period, the natural gas 
                        allocable to such period if the gas were 
                        allocated ratably over the period to which the 
                        prepayment relates.
                  ``(G) Intentional acts.--Subparagraph (A) shall cease 
                to apply to any issue if the utility owned by the 
                governmental unit engages in any intentional act to 
                render the volume of natural gas acquired by such 
                prepayment to be in excess of the sum of--
                          ``(i) the amount of natural gas needed (other 
                        than for resale) by customers of such utility 
                        who are located within the service area of such 
                        utility, and
                          ``(ii) the amount of natural gas used to 
                        transport such natural gas to the utility.
                  ``(H) Testing period.--For purposes of this 
                paragraph, the term `testing period' means, with 
                respect to an issue, the most recent 5 calendar years 
                ending before the date of issuance of the issue.
                  ``(I) Service area.--For purposes of this paragraph, 
                the service area of a utility owned by a governmental 
                unit shall be comprised of--
                          ``(i) any area throughout which such utility 
                        provided at all times during the testing 
                        period--
                                  ``(I) in the case of a natural gas 
                                utility, natural gas transmission or 
                                distribution services, and
                                  ``(II) in the case of an electric 
                                utility, electricity distribution 
                                services,
                          ``(ii) any area within a county contiguous to 
                        the area described in clause (i) in which 
                        retail customers of such utility are located if 
                        such area is not also served by another utility 
                        providing natural gas or electricity services, 
                        as the case may be, and
                          ``(iii) any area recognized as the service 
                        area of such utility under State or Federal 
                        law.''.
  (b) Private Loan Financing Test Not To Apply to Prepayments for 
Natural Gas.--Paragraph (2) of section 141(c) (providing exceptions to 
the private loan financing test) is amended by striking ``or'' at the 
end of subparagraph (A), by striking the period at the end of 
subparagraph (B) and inserting ``, or'', and by adding at the end the 
following new subparagraph:
                  ``(C) is a qualified natural gas supply contract (as 
                defined in section 148(b)(4)).''.
  (c) Effective Date.--The amendment made by this section shall apply 
to obligations issued after the date of the enactment of this Act.

SEC. 211. PREPAYMENT OF PREMIUM LIABILITY FOR COAL INDUSTRY HEALTH 
                    BENEFITS.

  (a) In General.--Section 9704 (relating to liability of assigned 
operators) is amended by adding at the end the following new 
subsection:
  ``(j) Prepayment of Premium Liability.--
          ``(1) In general.--If--
                  ``(A) any assigned operator who is a member of a 
                controlled group of corporations (within the meaning of 
                section 52(a)) makes a payment meeting the requirements 
                of paragraph (2) to the Combined Fund, and
                  ``(B) the common parent of such group--
                          ``(i) is jointly and severally liable for any 
                        premium which would (but for this subsection) 
                        be required to be paid by such operator, and
                          ``(ii) provides security which meets the 
                        requirements of paragraph (3),
        then no person (other than such common parent) shall be liable 
        for any premium for which such operator would otherwise be 
        liable.
          ``(2) Requirements.--A payment meets the requirements of this 
        paragraph if--
                  ``(A) the amount of the payment is not less than the 
                present value of the total premium liability of the 
                assigned operator for its assignees under this chapter 
                with respect to the Combined Fund (as determined by the 
                operator's enrolled actuary, as defined in section 
                7701(a)(35)), using actuarial methods and assumptions 
                each of which is reasonable and which are reasonable in 
                the aggregate, as determined by such enrolled actuary,
                  ``(B) a signed actuarial report is filed with the 
                Secretary of Labor by such enrolled actuary 
                containing--
                          ``(i) the date of the actuarial valuation 
                        applicable to the report, and
                          ``(ii) a statement by the enrolled actuary 
                        signing the report that to the best of the 
                        actuary's knowledge the report is complete and 
                        accurate and that in the actuary's opinion the 
                        actuarial assumptions used are in the aggregate 
                        reasonably related to the experience of the 
                        operator and to reasonable expectations,
                  ``(C) a description of the security described in 
                paragraph (3) is filed with the Secretary of Labor by 
                the common parent, and
                  ``(D) 30 calendar days have elapsed after the report 
                required by subparagraph (B), and the description 
                required by subparagraph (C), are filed with the 
                Secretary of Labor, and the Secretary of Labor has not 
                notified the assigned operator in writing that the 
                requirements of this paragraph have not been satisfied.
          ``(3) Security.--Security meets the requirements of this 
        paragraph if--
                  ``(A) the security (in the form of a bond, letter of 
                credit, or cash escrow) is provided to the trustees of 
                the 1992 UMWA Benefit Plan, solely for the purpose of 
                paying premiums for beneficiaries described in section 
                9712(b)(2)(B), equal in amount to one year's liability 
                of the assigned operator under section 9711, determined 
                by using the average cost of such operator's liability 
                during its prior 3 calendar years; and
                  ``(B) the security will remain in place for 5 years.
          ``(4) Use of prepayment.--Any payment to which this 
        subsection applies (and earnings thereon) shall be used 
        exclusively to pay premiums which would (but for this 
        subsection) be required to be paid by the assigned operator 
        making such payment.''
  (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

                         TITLE III--PRODUCTION

SEC. 301. OIL AND GAS FROM MARGINAL WELLS.

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

``SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.

  ``(a) General Rule.--For purposes of section 38, the marginal well 
production credit for any taxable year is an amount equal to the 
product of--
          ``(1) the credit amount, and
          ``(2) the qualified credit oil production and the qualified 
        natural gas production which is attributable to the taxpayer.
  ``(b) Credit Amount.--For purposes of this section--
          ``(1) In general.--The credit amount is--
                  ``(A) $3 per barrel of qualified crude oil 
                production, and
                  ``(B) 50 cents per 1,000 cubic feet of qualified 
                natural gas production.
          ``(2) Reduction as oil and gas prices increase.--
                  ``(A) In general.--The $3 and 50 cents amounts under 
                paragraph (1) shall each be reduced (but not below 
                zero) by an amount which bears the same ratio to such 
                amount (determined without regard to this paragraph) 
                as--
                          ``(i) the excess (if any) of the applicable 
                        reference price over $15 ($1.67 for qualified 
                        natural gas production), bears to
                          ``(ii) $3 ($0.33 for qualified natural gas 
                        production).
                The applicable reference price for a taxable year is 
                the reference price of the calendar year preceding the 
                calendar year in which the taxable year begins.
                  ``(B) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 2003, 
                each of the dollar amounts contained in subparagraph 
                (A) shall be increased to an amount equal to such 
                dollar amount multiplied by the inflation adjustment 
                factor for such calendar year (determined under section 
                43(b)(3)(B) by substituting `2002' for `1990').
                  ``(C) Reference price.--For purposes of this 
                paragraph, the term `reference price' means, with 
                respect to any calendar year--
                          ``(i) in the case of qualified crude oil 
                        production, the reference price determined 
                        under section 29(d)(2)(C), and
                          ``(ii) in the case of qualified natural gas 
                        production, the Secretary's estimate of the 
                        annual average wellhead price per 1,000 cubic 
                        feet for all domestic natural gas.
  ``(c) Qualified Crude Oil and Natural Gas Production.--For purposes 
of this section--
          ``(1) In general.--The terms `qualified crude oil production' 
        and `qualified natural gas production' mean domestic crude oil 
        or natural gas which is produced from a qualified marginal 
        well.
          ``(2) Limitation on amount of production which may qualify.--
                  ``(A) In general.--Crude oil or natural gas produced 
                during any taxable year from any well shall not be 
                treated or qualified crude oil production or qualified 
                natural gas production to the extent production from 
                the well during the taxable year exceeds 1,095 barrels 
                or barrel equivalents.
                  ``(B) Proportionate reductions.--
                          ``(i) Short taxable years.--In the case of a 
                        short taxable year, the limitations under this 
                        paragraph shall be proportionately reduced to 
                        reflect the ratio which the number of days in 
                        such taxable year bears to 365.
                          ``(ii) Wells not in production entire year.--
                        In the case of a well which is not capable of 
                        production during each day of a taxable year, 
                        the limitations under this paragraph applicable 
                        to the well shall be proportionately reduced to 
                        reflect the ratio which the number of days of 
                        production bears to the total number of days in 
                        the taxable year.
          ``(3) Definitions.--
                  ``(A) Qualified marginal well.--The term `qualified 
                marginal well' means a domestic well--
                          ``(i) the production from which during the 
                        taxable year is treated as marginal production 
                        under section 613A(c)(6), or
                          ``(ii) which, during the taxable year--
                                  ``(I) has average daily production of 
                                not more than 25 barrel equivalents, 
                                and
                                  ``(II) produces water at a rate not 
                                less than 95 percent of total well 
                                effluent.
                  ``(B) Crude oil, etc.--The terms `crude oil', 
                `natural gas', `domestic', and `barrel' have the 
                meanings given such terms by section 613A(e).
                  ``(C) Barrel equivalent.--The term `barrel 
                equivalent' means, with respect to natural gas, a 
                conversation ratio of 6,000 cubic feet of natural gas 
                to 1 barrel of crude oil.
  ``(d) Other Rules.--
          ``(1) Production attributable to the taxpayer.--In the case 
        of a qualified marginal well in which there is more than one 
        owner of operating interests in the well and the crude oil or 
        natural gas production exceeds the limitation under subsection 
        (c)(2), qualifying crude oil production or qualifying natural 
        gas production attributable to the taxpayer shall be determined 
        on the basis of the ratio which taxpayer's revenue interest in 
        the production bears to the aggregate of the revenue interests 
        of all operating interest owners in the production.
          ``(2) Operating interest required.--Any credit under this 
        section may be claimed only on production which is attributable 
        to the holder of an operating interest.
          ``(3) Production from nonconventional sources excluded.--In 
        the case of production from a qualified marginal well which is 
        eligible for the credit allowed under section 29 for the 
        taxable year, no credit shall be allowable under this section 
        unless the taxpayer elects not to claim the credit under 
        section 29 with respect to the well.''.
  (b) Credit Treated as Business Credit.--Section 38(b) is amended by 
striking ``plus'' at the end of paragraph (16), by striking the period 
at the end of paragraph (17) and inserting ``, plus'', and by adding at 
the end the following:
          ``(18) the marginal oil and gas well production credit 
        determined under section 45I(a).''.
  (c) Carryback.--Subsection (a) of section 39 (relating to carryback 
and carryforward of unused credits generally) is amended by adding at 
the end the following:
          ``(3) 10-year carryback for marginal oil and gas well 
        production credit.--In the case of the marginal oil and gas 
        well production credit--
                  ``(A) this section shall be applied separately from 
                the business credit (other than the marginal oil and 
                gas well production credit),
                  ``(B) paragraph (1) shall be applied by substituting 
                `10 taxable years' for `1 taxable years' in 
                subparagraph (A) thereof, and
                  ``(C) paragraph (2) shall be applied--
                          ``(i) by substituting `31 taxable years' for 
                        `21 taxable years' in subparagraph (A) thereof, 
                        and
                          ``(ii) by substituting `30 taxable years' for 
                        `20 taxable years' in subparagraph (A) 
                        thereof.''.
  (d) Coordination With Section 29.--Section 29(a) is amended by 
striking ``There'' and inserting ``At the election of the taxpayer, 
there''.
  (e) 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:

                              ``Sec. 45I. Credit for producing oil and 
                                        gas from marginal wells.''.

  (f) Effective Date.--The amendments made by this section shall apply 
to production in taxable years beginning after December 31, 2003.

SEC. 302. TEMPORARY SUSPENSION OF LIMITATION BASED ON 65 PERCENT OF 
                    TAXABLE INCOME AND EXTENSION OF SUSPENSION OF 
                    TAXABLE INCOME LIMIT WITH RESPECT TO MARGINAL 
                    PRODUCTION.

  (a) Limitation Based on 65 Percent of Taxable Income.--Subsection (d) 
of section 613A (relating to limitation on percentage depletion in case 
of oil and gas wells) is amended by adding at the end the following new 
paragraph:
          ``(6) Temporary suspension of taxable income limit.--
        Paragraph (1) shall not apply to taxable years beginning after 
        December 31, 2003, and before January 1, 2007, including with 
        respect to amounts carried under the second sentence of 
        paragraph (1) to such taxable years.''.
  (b) Extension of Suspension of Taxable Income Limit With Respect to 
Marginal Production.--Subparagraph (H) of section 613A(c)(6) (relating 
to temporary suspension of taxable income limit with respect to 
marginal production) is amended by striking ``2004'' and inserting 
``2007''.
  (c) Effective Date.--The amendment made by subsection (a) shall apply 
to taxable years beginning after December 31, 2003.

SEC. 303. AMORTIZATION OF DELAY RENTAL PAYMENTS.

  (a) In General.--Section 167 (relating to depreciation) is amended by 
redesignating subsection (h) as subsection (i) and by inserting after 
subsection (g) the following new subsection:
  ``(h) Amortization of Delay Rental Payments for Domestic Oil and Gas 
Wells.--
          ``(1) In general.--Any delay rental payment paid or incurred 
        in connection with the development of oil or gas wells within 
        the United States (as defined in section 638) shall be allowed 
        as a deduction ratably over the 24-month period beginning on 
        the date that such payment was paid or incurred.
          ``(2) Half-year convention.--For purposes of paragraph (1), 
        any payment paid or incurred during the taxable year shall be 
        treated as paid or incurred on the mid-point of such taxable 
        year.
          ``(3) Exclusive method.--Except as provided in this 
        subsection, no depreciation or amortization deduction shall be 
        allowed with respect to such payments.
          ``(4) Treatment upon abandonment.--If any property to which a 
        delay rental payment relates is retired or abandoned during the 
        24-month period described in paragraph (1), no deduction shall 
        be allowed on account of such retirement or abandonment and the 
        amortization deduction under this subsection shall continue 
        with respect to such payment.
          ``(5) Delay rental payments.--For purposes of this 
        subsection, the term `delay rental payment' means an amount 
        paid for the privilege of deferring development of an oil or 
        gas well under an oil or gas lease.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred in taxable years beginning after December 
31, 2003.

SEC. 304. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

  (a) In General.--Section 167 (relating to depreciation) is amended by 
redesignating subsection (i) as subsection (j) and by inserting after 
subsection (h) the following new subsection:
  ``(i) Amortization of Geological and Geophysical Expenditures.--
          ``(1) In general.--Any geological and geophysical expenses 
        paid or incurred in connection with the exploration for, or 
        development of, oil or gas within the United States (as defined 
        in section 638) shall be allowed as a deduction ratably over 
        the 24-month period beginning on the date that such expense was 
        paid or incurred.
          ``(2) Special rules.--For purposes of this subsection, rules 
        similar to the rules of paragraphs (2), (3), and (4) of 
        subsection (h) shall apply.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to costs paid or incurred in taxable years beginning after December 31, 
2003.

SEC. 305. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM 
                    A NONCONVENTIONAL SOURCE.

  (a) In General.--Section 29 is amended by adding at the end the 
following new subsection:
  ``(h) Extension for Other Facilities.--
          ``(1) Extension for oil and certain gas.--In the case of a 
        well for producing qualified fuels described in subparagraph 
        (A) or (B)(i) of subsection (c)(1)--
                  ``(A) Application of credit for new wells.--
                Notwithstanding subsection (f), this section shall 
                apply with respect to such fuels--
                          ``(i) which are produced from a well drilled 
                        after the date of the enactment of this 
                        subsection and before January 1, 2007, and
                          ``(ii) which are sold not later than the 
                        close of the 4-year period beginning on the 
                        date that such well is drilled, or, if earlier, 
                        January 1, 2010.
                  ``(B) Extension of credit for old wells.--Subsection 
                (f)(2) shall be applied by substituting `2007' for 
                `2003' with respect to wells described in subsection 
                (f)(1)(A) with respect to such fuels.
          ``(2) Extension for facilities producing qualified fuel from 
        landfill gas.--
                  ``(A) In general.--In the case of a facility for 
                producing qualified fuel from landfill gas which was 
                placed in service after June 30, 1998, and before 
                January 1, 2007, this section shall apply to fuel 
                produced at such facility during the 5-year period 
                beginning on the later of--
                          ``(i) the date such facility was placed in 
                        service, or
                          ``(ii) the date of the enactment of this 
                        subsection.
                  ``(B) Reduction of credit for certain landfill 
                facilities.--In the case of a facility to which 
                paragraph (1) applies and which is located at a 
                landfill which is required pursuant to section 
                60.751(b)(2) or section 60.33c of title 40, Code of 
                Federal Regulations (as in effect on April 3, 2003) to 
                install and operate a collection and control system 
                which captures gas generated within the landfill, 
                subsection (a)(1) shall be applied to gas so captured 
                by substituting `$2' for `$3' for the taxable year 
                during which such system is required to be installed 
                and operated.
          ``(3) Special rules.--In determining the amount of credit 
        allowable under this section solely by reason of this 
        subsection--
                  ``(A) Daily limit.--The amount of qualified fuels 
                sold during any taxable year which may be taken into 
                account by reason of this subsection with respect to 
                any project shall not exceed an average barrel-of-oil 
                equivalent of 200,000 cubic feet of natural gas per 
                day. Days before the date the project is placed in 
                service shall not be taken into account in determining 
                such average.
                  ``(B) Extension period to commence with unadjusted 
                credit amount.--In the case of fuels sold during 2003, 
                the dollar amount applicable under subsection (a)(1) 
                shall be $3 (without regard to subsection (b)(2)). In 
                the case of fuels sold after 2003, subparagraph (B) of 
                subsection (d)(2) shall be applied by substituting 
                `2003' for `1979'.''.
  (b) Treatment as Business Credit.--
          (1) Credit moved to subpart relating to business related 
        credits.--The Internal Revenue Code of 1986 is amended by 
        redesignating section 29 as section 45J and by moving section 
        45J (as so redesignated) from subpart B of part IV of 
        subchapter A of chapter 1 to the end of subpart D of part IV of 
        subchapter A of chapter 1.
          (2) Credit Treated as Business Credit.--Section 38(b) is 
        amended by striking ``plus'' at the end of paragraph (17), by 
        striking the period at the end of paragraph (18) and inserting 
        ``, plus'', and by adding at the end the following:
          ``(19) the nonconventional source production credit 
        determined under section 45J(a).''.
          (3) Conforming Amendments.--
                  (A) Section 30(b)(2)(A), as redesignated by section 
                110(a), is amended by striking ``sections 27 and 29'' 
                and inserting ``section 27''.
                  (B) Section 30B(d), as added by section 111, is 
                amended by striking ``, 29,''.
                  (C) Section 39(d) is amended by adding at the end the 
                following new paragraph:
          ``(13) No carryback for nonconventional source production 
        credit.--No portion of the unused business credit for any 
        taxable year which is attributable to the credit under section 
        45J may be carried back to a taxable year ending before April 
        1, 2003.''.
                  (D) Sections 43(b)(2), 45I(b)(2)(C) (as added by 
                section 301), and 613A(c)(6)(C) are each amended by 
                striking ``section 29(d)(2)(C)'' and inserting 
                ``section 45J(d)(2)(C)''.
                  (E) Paragraph (9) of section 45(c), as added by 
                section 102(c), is amended by striking ``section 29'' 
                and inserting ``section 45J'' and by striking ``section 
                29'' in the heading of such paragraph and inserting 
                ``section 45J''.
                  (F) Section 45I(d)(3), as added by section 301, is 
                amended by striking ``section 29'' each place it 
                appears and inserting ``section 45J''.
                  (G) Section 45J(a), as amended by section 301(d) and 
                redesignated by paragraph (1), is amended by striking 
                ``At the election of the taxpayer, there shall be 
                allowed as a credit against the tax imposed by this 
                chapter for the taxable year'' and inserting ``For 
                purposes of section 38, if the taxpayer elects to have 
                this section apply, the nonconventional source 
                production credit determined under this section for the 
                taxable year is''.
                  (H) Section 45J(b), as so redesignated, is amended by 
                striking paragraph (6).
                  (I) Section 53(d)(1)(B)(iii) is amended by striking 
                ``under section 29'' and all that follows through ``or 
                not allowed''.
                  (J) Section 55(c)(2) is amended by striking 
                ``29(b)(6),''.
                  (K) Subsection (a) of section 772 is amended by 
                inserting ``and'' at the end of paragraph (9), by 
                striking paragraph (10), and by redesignating paragraph 
                (11) as paragraph (10).
                  (L) Paragraph (5) of section 772(d) is amended by 
                striking ``the foreign tax credit, and the credit 
                allowable under section 29'' and inserting ``and the 
                foreign tax credit''.
                  (M) The table of sections for subpart B of part IV of 
                subchapter A of chapter 1 is amended by striking the 
                item relating to section 29.
                  (N) The table of sections for subpart D of part IV of 
                subchapter A of chapter 1 is amended by inserting after 
                the item relating to section 45I the following new 
                item:

                              ``Sec. 45J. Credit for producing fuel 
                                        from a nonconventional 
                                        source.''.

  (c) Effective Dates.--
          (1) In general.--The amendment made by subsection (a) shall 
        apply to fuel sold after March 31, 2003, in taxable years 
        ending after such date.
          (2) Treatment as business credit.--The amendments made by 
        subsection (b) shall apply to taxable years ending after March 
        31, 2003.

SEC. 306. BUSINESS RELATED ENERGY CREDITS ALLOWED AGAINST REGULAR AND 
                    MINIMUM TAX.

  (a) In General.--Subsection (c) of section 38 (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 specified energy credits.--
                  ``(A) In general.--In the case of specified energy 
                credits--
                          ``(i) this section and section 39 shall be 
                        applied separately with respect to such 
                        credits, and
                          ``(ii) in applying paragraph (1) to such 
                        credits--
                                  ``(I) the tentative minimum tax 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 specified energy 
                                credits).
                  ``(B) Specified energy credits.--For purposes of this 
                subsection, the term `specified energy credits' means 
                the credits determined under sections 45G, 45H, and 
                45I.
                  ``(C) Special rule for qualified wind facilities.--
                For purposes of this subsection, the term `specified 
                energy credits' shall include the credit determined 
                under section 45 to the extent that such credit is 
                attributable to electricity produced--
                          ``(i) at a facility using wind to produce 
                        electricity which is originally placed in 
                        service after the date of the enactment of this 
                        paragraph, and
                          ``(ii) during the 4-year period beginning on 
                        the date that such facility was originally 
                        placed in service.''.
  (b) Conforming Amendments.--Paragraphs (2)(A)(ii)(II) and 
(3)(A)(ii)(II) of section 38(c) are each amended by inserting ``or the 
specified energy credits'' after ``employee credit''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years ending after the date of the enactment of this Act.

SEC. 307. TEMPORARY REPEAL OF ALTERNATIVE MINIMUM TAX PREFERENCE FOR 
                    INTANGIBLE DRILLING COSTS.

  (a) In General.--Clause (ii) of section 57(a)(2)(E) is amended by 
adding at the end the following new sentence: ``The preceding sentence 
shall not apply to taxable years beginning after December 31, 2003, and 
before January 1, 2006.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 308. ALLOWANCE OF ENHANCED RECOVERY CREDIT AGAINST THE ALTERNATIVE 
                    MINIMUM TAX.

  (a) In General.--Subparagraph (B) of section 38(c)(4), as amended by 
section 306, is amended by adding at the end the following new 
sentence: ``For taxable years beginning after December 31, 2003, and 
before January 1, 2006, such term includes the credit determined under 
section 43.''.
  (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

                    TITLE IV--CORPORATE EXPATRIATION

SEC. 401. TAX TREATMENT OF CORPORATE EXPATRIATION.

  (a) In General.--Subchapter C of chapter 80 (relating to provisions 
affecting more than one subtitle) is amended by adding at the end the 
following new section:

``SEC. 7874. TAX TREATMENT OF CORPORATE EXPATRIATION.

  ``(a) Inverted Corporations Treated as Domestic Corporations.--
          ``(1) In general.--If a foreign incorporated entity is 
        treated as an inverted domestic corporation, then, 
        notwithstanding section 7701(a)(4), such entity shall be 
        treated for purposes of this title as a domestic corporation.
          ``(2) Inverted domestic corporation.--For purposes of this 
        section, a foreign incorporated entity shall be treated as an 
        inverted domestic corporation if, pursuant to a plan (or a 
        series of related transactions)--
                  ``(A) the entity completes after March 4, 2003, the 
                direct or indirect acquisition of substantially all of 
                the properties held directly or indirectly by a 
                domestic corporation or substantially all of the 
                properties constituting a trade or business of a 
                domestic partnership,
                  ``(B) after the acquisition at least 80 percent of 
                the stock (by vote or value) of the entity is held--
                          ``(i) in the case of an acquisition with 
                        respect to a domestic corporation, by former 
                        shareholders of the domestic corporation by 
                        reason of holding stock in the domestic 
                        corporation, or
                          ``(ii) in the case of an acquisition with 
                        respect to a domestic partnership, by former 
                        partners of the domestic partnership by reason 
                        of holding a capital or profits interest in the 
                        domestic partnership, and
                  ``(C) the expanded affiliated group which after the 
                acquisition includes the entity does not have 
                substantial business activities in the foreign country 
                in which or under the law of which the entity is 
                created or organized when compared to the total 
                business activities of such expanded affiliated group.
          ``(3) Termination.--This subsection shall not apply to any 
        acquisition completed after December 31, 2004.
  ``(b) Definitions and Special Rules.--For purposes of this section--
          ``(1) Foreign incorporated entity.--The term `foreign 
        incorporated entity' means any entity which is, or but for 
        subsection (a) would be, treated as a foreign corporation for 
        purposes of this title.
          ``(2) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group as defined in 
        section 1504(a) but without regard to paragraphs (2), (3), and 
        (4) of section 1504(b), except that section 1504(a) shall be 
        applied by substituting `more than 50 percent' for `at least 80 
        percent' each place it appears.
          ``(3) Certain stock disregarded.--There shall not be taken 
        into account in determining ownership under subsection 
        (a)(3)(B)--
                  ``(A) stock held by members of the expanded 
                affiliated group which includes the foreign 
                incorporated entity, or
                  ``(B) stock of such foreign incorporated entity which 
                is sold in a public offering related to the acquisition 
                described in subsection (a)(3)(A).
          ``(4) Plan deemed in certain cases.--If a foreign 
        incorporated entity acquires directly or indirectly 
        substantially all of the properties of a domestic corporation 
        or partnership during the 4-year period beginning on the date 
        which is 2 years before the ownership requirements of 
        subsection (a)(3)(B) are met, such actions shall be treated as 
        pursuant to a plan.
          ``(5) Certain transfers disregarded.--The transfer of 
        properties or liabilities (including by contribution or 
        distribution) shall be disregarded if such transfers are part 
        of a plan a principal purpose of which is to avoid the purposes 
        of this section.
          ``(6) Special rule for related partnerships.--For purposes of 
        applying subsection (a)(3)(B) to the acquisition of a domestic 
        partnership, except as provided in regulations, all 
        partnerships which are under common control (within the meaning 
        of section 482) shall be treated as 1 partnership.
          ``(7) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to determine whether a 
        corporation is an inverted domestic corporation, including 
        regulations--
                  ``(A) to treat warrants, options, contracts to 
                acquire stock, convertible debt interests, and other 
                similar interests as stock, and
                  ``(B) to treat stock as not stock.
  ``(c) Special Rule for Treaties.--Nothing in section 894 or 7852(d) 
or in any other provision of law shall be construed as permitting an 
exemption, by reason of any treaty obligation of the United States 
heretofore or hereafter entered into, from the provisions of this 
section.
  ``(d) Regulations.--The Secretary shall provide such regulations as 
are necessary to carry out this section, including regulations 
providing for such adjustments to the application of this section as 
are necessary to prevent the avoidance of the purposes of this section, 
including the avoidance of such purposes through--
          ``(1) the use of related persons, pass-through or other 
        noncorporate entities, or other intermediaries, or
          ``(2) transactions designed to have persons cease to be (or 
        not become) members of expanded affiliated groups or related 
        persons.''.
  (b) Conforming Amendment.--The table of sections for subchapter C of 
chapter 80 is amended by adding at the end the following new item:

                              ``Sec. 7874. Tax treatment of corporate 
                                        expatriation.''

  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years ending after March 4, 2003.

SEC. 402. EXPRESSING THE SENSE OF THE CONGRESS THAT TAX REFORM IS 
                    NEEDED TO ADDRESS THE ISSUE OF CORPORATE 
                    EXPATRIATION.

  (a) Findings.--The Congress finds that--
          (1) the tax laws of the United States are overly complex;
          (2) the tax laws of the United States are among the most 
        burdensome and uncompetitive in the world;
          (3) the tax laws of the United States make it difficult for 
        domestically-owned United States companies to compete abroad 
        and in the United States;
          (4) a domestically-owned corporation is disadvantaged 
        compared to a United States subsidiary of a foreign-owned 
        corporation; and
          (5) international competitiveness is forcing many United 
        States corporations to make a choice they do not want to make-
        go out of business, sell the business to a foreign competitor, 
        or become a subsidiary of a foreign corporation (i.e., engage 
        in an inversion transaction).
  (b) Sense of Congress.--It is the sense of Congress that passage of 
legislation to fix the underlying problems with our tax laws is 
essential and should occur as soon as possible, so United States 
corporations will not face the current pressures to engage in inversion 
transactions.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 1531, as amended (the ``Energy Tax Policy 
Act of 2003''), provides incentives for taxpayers to conserve 
energy, to enhance the reliability of domestic energy supplies, 
and to increase domestic supplies of energy.
    The bill provides net tax reductions of over $14.472 
billion over fiscal years 2003-2008.

                 B. Background and Need for Legislation

    The provisions approved by the Committee provide incentives 
for taxpayers to conserve energy, to convert to cleaner forms 
of energy, to enhance the reliability of domestic energy 
supplies, and to increase domestic supplies of energy. The 
estimated revenue effects of the provisions comply with the 
most recent Congressional Budget Office revisions of budget 
surplus projections.

                         C. Legislative History


                            COMMITTEE ACTION

    The Subcommittee on Oversight held hearings on March 5, 
2001 on the impact of Federal tax laws on the cost and supply 
of energy. The Subcommittee on Select Revenue Measures held 
hearings on May 3, June 12, and June 13, 2001 on the effect of 
Federal tax laws on the production, supply, and conservation of 
energy. On July 24, 2001, the Committee on Ways and Means 
reported a bill, H.R. 2511, to the House of Representatives. 
H.R. 2511 included incentives for taxpayer's to conserve 
energy, to convert to cleaner forms of energy, to enhance the 
reliability of domestic energy supplies, and to increase 
domestic supplies of energy. The House passed the bill, as part 
of H.R. 4, 240-189 on August 2, 2001. The Senate amended and 
passed H.R. 4 on April 25, 2002. A conference was convened, but 
not completed before the adjournment of the 107th Congress.
    The Committee on Ways and Means marked up the provisions of 
the bill on April 3, 2003, and reported the provisions, as 
amended, on April 3, 2003, by a roll call vote, with a quorum 
present.

                      II. EXPLANATION OF THE BILL


                         TITLE I--CONSERVATION


               A. Tax Credit for Residential Solar Energy


(Sec. 101 of the bill and new sec. 25C of the Code)

                              PRESENT LAW

    A nonrefundable, 10-percent business energy credit is 
allowed for the cost of new property that is equipment (1) that 
uses solar energy to generate electricity, to heat or cool a 
structure, or to provide solar process heat, or (2) used to 
produce, distribute, or use energy derived from a geothermal 
deposit, but only, in the case of electricity generated by 
geothermal power, up to the electric transmission stage.
    The business energy tax credits are components of the 
general business credit (sec. 38(b)(1)). The business energy 
tax credits, when combined with all other components of the 
general business credit, generally may not exceed for any 
taxable year the excess of the taxpayer's net income tax over 
the greater of (1) 25 percent of net regular tax liability 
above $25,000 or (2) the tentative minimum tax. For credits 
arising in taxable years beginning after December 31, 1997, an 
unused general business credit generally may be carried back 
one year and carried forward 20 years (sec. 39).
    A taxpayer may exclude from income the value of any subsidy 
provided by a public utility for the purchase or installation 
of an energy conservation measure. An energy conservation 
measure means any installation or modification primarily 
designed to reduce consumption of electricity or natural gas or 
to improve the management of energy demand with respect to a 
dwelling unit (sec. 136).
    There is no present-law personal tax credit for residential 
solar energy property.

                           REASONS FOR CHANGE

    The Committee recognizes that residential energy use 
represents a large share of national energy consumption, and 
accordingly believes that measures to encourage alternative 
energy sources for residential use have the potential to 
substantially reduce national reliance on traditional energy 
sources. The Committee believes that a tax credit for 
investments in solar energy sources will help to achieve that 
goal. Furthermore, the Committee believes that the on-site 
generation of electricity and hot water will reduce reliance on 
the United States' electricity grid and on natural gas 
pipelines.

                        EXPLANATION OF PROVISION

    The provision provides a personal tax credit for the 
purchase of qualified photovoltaic property and qualified solar 
water heating property that is used exclusively for purposes 
other than heating swimming pools and hot tubs. The credit is 
equal to 15 percent of qualified investment up to a maximum 
credit of $2,000 for solar water heating property and $2,000 
for rooftop photovoltaic property. This credit is 
nonrefundable, and the depreciable basis of the property is 
reduced by the amount of the credit.
    Qualifying solar water heating property is property that 
heats water for use in a dwelling unit located in the United 
States and used as a residence if at least half of the energy 
used by such property for such purpose is derived from the sun. 
Qualified photovoltaic property is property that uses solar 
energy to generate electricity for use in a dwelling unit. 
Expenditures for labor costs allocable to onsite preparation, 
assembly, or original installation of property eligible for the 
credit are eligible expenditures.
    Certain equipment safety requirements need to be met to 
qualify for the credit. Special proration rules apply in the 
case of jointly owned property, condominiums, and tenant-
stockholders in cooperative housing corporations.

                             EFFECTIVE DATE

    The credit applies to purchases in taxable years ending 
after December 31, 2003 and before January 1, 2007 (January 1, 
2009 in the case of qualified photovoltaic property).

B. Extension and Modification of the Section 45 Electricity Production 
                                 Credit


(Sec. 102 of the bill and sec. 45 of the Code)

                              PRESENT LAW

    An income tax credit is allowed for the production of 
electricity from either qualified wind energy, qualified 
``closed-loop'' biomass, or qualified poultry waste facilities 
(sec. 45). The amount of the credit is 1.5 cents per kilowatt 
hour (indexed for inflation) of electricity produced. The 
amount of the credit was 1.8 cents per kilowatt hour for 2002. 
The credit is reduced for grants, tax-exempt bonds, subsidized 
energy financing, and other credits.
    The credit applies to electricity produced by a wind energy 
facility placed in service after December 31, 1993, and before 
January 1, 2004, to electricity produced by a closed-loop 
biomass facility placed in service after December 31, 1992, and 
before January 1, 2004, and to a poultry waste facility placed 
in service after December 31, 1999, and before January 1, 2004. 
The credit is allowable for production during the 10-year 
period after a facility is originally placed in service. In 
order to claim the credit, a taxpayer must own the facility and 
sell the electricity produced by the facility to an unrelated 
party. In the case of a poultry waste facility, the taxpayer 
may claim the credit as a lessee/operator of a facility owned 
by a governmental unit.
    Closed-loop biomass is plant matter, where the plants are 
grown for the sole purpose of being used to generate 
electricity. It does not include waste materials (including, 
but not limited to, scrap wood, manure, and municipal or 
agricultural waste). The credit also is not available to 
taxpayers who use standing timber to produce electricity. 
Poultry waste means poultry manure and litter, including wood 
shavings, straw, rice hulls, and other bedding material for the 
disposition of manure.
    The credit for electricity produced from wind, closed-loop 
biomass, or poultry waste is a component of the general 
business credit (sec. 38(b)(8)). The credit, when combined with 
all other components of the general business credit, generally 
may not exceed for any taxable year the excess of the 
taxpayer's net income tax over the greater of (1) 25 percent of 
net regular tax liability above $25,000, or (2) the tentative 
minimum tax. For credits arising in taxable years beginning 
after December 31, 1997, an unused general business credit 
generally may be carried back one year and carried forward 20 
years (sec. 39). To coordinate the carryback with the period of 
application for this credit, the credit for electricity 
produced from closed-loop biomass facilities may not be carried 
back to a tax year ending before 1993 and the credit for 
electricity produced from wind energy may not be carried back 
to a tax year ending before 1994 (sec. 39).

                           REASONS FOR CHANGE

    The Committee recognizes that the section 45 production 
credit has fostered additional electricity generation capacity 
in the form of non-polluting wind power. The Committee believes 
it is important to continue this tax credit by extending the 
placed in service date for such facilities to bring more wind 
energy to the United States's electric grid.
    Based on the success of the section 45 credit in the 
development of wind power as an alternative source of 
electricity generation, the Committee further believes the 
country will benefit from the expansion of the production 
credit to certain other ``environmentally friendly'' sources of 
electricity generation. While open-loop biomass, landfill gas, 
and trash combustion facilities are not pollution free, they do 
address environmental concerns related to waste disposal and, 
in the case of landfill gas, mitigate the release of methane 
gas into the atmosphere. In addition, these potential power 
sources further diversify the nation's energy supply.
    Lastly, the Committee believes that certain pre-existing 
facilities should qualify for the section 45 production credit, 
albeit at a reduced rate. These facilities previously received 
explicit subsidies, or implicit subsidies provided through rate 
regulation. In a deregulated electricity market, these 
facilities, and the environmental benefits they yield, may be 
uneconomic without additional economic incentive. The Committee 
believes the benefits provided by such existing facilities 
warrant their inclusion in the section 45 production credit.

                        EXPLANATION OF PROVISION

    The provision extends the placed in service date for wind 
facilities and closed-loop biomass facilities to facilities 
placed in service after December 31, 1993 (December 31, 1992 in 
the case of closed-loop biomass facilities) and before January 
1, 2007.
    The proposal also defines three new qualifying facilities: 
open-loop biomass facilities, landfill gas facilities, and 
trash combustion facilities. Open-loop biomass is defined as 
any solid, nonhazardous, cellulosic waste material which is 
segregated from other waste materials and which is derived from 
any of forest-related resources, solid wood waste materials, or 
agricultural sources. Eligible forest-related resources are 
defined as mill as residues, precommercial thinnings, slash, 
and brush. Solid wood waste materials include waste pallets, 
crates, dunnage, manufacturing and construction wood wastes 
(other than pressure-treated, chemically-treated, or painted 
wood wastes), and landscape or right-of-way tree trimmings. 
Agricultural sources include orchard tree crops, vineyard, 
grain, legumes, sugar, and other crop by-products or residues. 
However, qualifying open-loop biomass does not include 
municipal solid waste (garbage) or paper that is commonly 
recycled. Landfill gas is defined as methane gas derived from 
the biodegradation of municipal solid waste. Trash combustion 
facilities are facilities that burn municipal solid waste 
(garbage) to produce steam to drive a turbine for the 
production of electricity. Qualifying open-loop biomass 
facilities and qualifying landfill gas facilities include 
facilities used to produce electricity placed in service before 
January 1, 2007. Qualifying trash combustion facilities include 
facilities placed in service after the date of enactment and 
before January 1, 2007.
    In the case of qualifying open-loop biomass facilities and 
qualifying landfill gas facilities placed in service on or 
before the date of enactment, the taxpayer may claim the 
section 45 production credit for only five years, commencing on 
the date of enactment. In the case of qualifying open-loop 
biomass facilities and qualifying landfill gas facilities 
placed in service on or before the date of enactment, the 
taxpayer may claim two-thirds of the otherwise allowable credit 
for electricity produced at the facility. In the case of 
qualifying open-loop biomass facilities originally placed in 
service on or before the date of enactment, a lessee or 
operator may claim the credit in lieu of the owner of the 
qualifying facility.
    In the case of wind facilities placed in service after the 
date of enactment, the taxpayer may claim credit for 
electricity production against both the taxpayer's regular tax 
and the taxpayer's alternative minimum tax, if any, for 
electricity produced during the first four years of production 
measured from the date on which the facility is placed in 
service.
    In the case of qualifying open-loop biomass facilities, the 
reduction in credit by reason of grants, tax-exempt bonds, 
subsidized energy financing, and other credits cannot exceed 50 
percent.
    No facility that previously claimed or currently claims 
credit under section 29 of the Code is a qualifying facility 
for purposes of section 45.

                             EFFECTIVE DATE

    The provision is effective for electricity sold from 
qualifying facilities after the date of enactment.

                    C. Tax Incentives for Fuel Cells


(Sec. 103 of the bill and sec. 48 and new sec. 25D of the Code)

                              PRESENT LAW

    A nonrefundable, 10-percent business energy credit is 
allowed for the cost of new property that is equipment (1) that 
uses solar energy to generate electricity, to heat or cool a 
structure, or to provide solar process heat, or (2) used to 
produce, distribute, or use energy derived from a geothermal 
deposit, but only, in the case of electricity generated by 
geothermal power, up to the electric transmission stage.
    The business energy tax credits are components of the 
general business credit (sec. 38(b)(1)). The business energy 
tax credits, when combined with all other components of the 
general business credit, generally may not exceed for any 
taxable year the excess of the taxpayer's net income tax over 
the greater of (1) 25 percent of net regular tax liability 
above $25,000 or (2) the tentative minimum tax. For credits 
arising in taxable years beginning after December 31, 1997, an 
unused general business credit generally may be carried back 
one year and carried forward 20 years (sec. 39).
    A taxpayer may exclude from income the value of any subsidy 
provided by a public utility for the purchase or installation 
of an energy conservation measure. An energy conservation 
measure means any installation or modification primarily 
designed to reduce consumption of electricity or natural gas or 
to improve the management of energy demand with respect to a 
dwelling unit (sec. 136).
    There is no present-law credit for fuel cell power plant 
property.

                           REASONS FOR CHANGE

    The Committee believes that investments in qualified fuel 
cell power plants represent a promising means to produce 
electricity through non-polluting means and from 
nonconventional energy sources. Furthermore, the on-site 
generation of electricity provided by fuel cell power plants 
will reduce reliance on the United States' electricity grid. 
The Committee believes that providing a tax credit for 
investment in qualified fuel cell power plants will encourage 
investments in such systems.

                        EXPLANATION OF PROVISION

    The provision provides a 10 percent credit for the purchase 
of qualified fuel cell power plants for businesses and 
individuals. A qualified fuel cell power plant is an integrated 
system comprised of a fuel cell stack assembly and associated 
balance of plant components that converts a fuel into 
electricity using electrochemical means, and which has an 
electricity-only generation efficiency of greater than 30 
percent. The credit may not exceed $500 for each 0.5 kilowatt 
of capacity. For individuals, the qualified fuel cell power 
plant must be installed on or in connection with a dwelling 
unit located in the United States and used by the taxpayer as a 
principal residence. The credit is nonrefundable. The 
taxpayer's basis in the property is reduced by the amount of 
the credit claimed.

                             EFFECTIVE DATE

    The credit for businesses applies to property placed in 
service after December 31, 2003 and before January 1, 2007, 
under rules similar to rules of section 48(m) of the Internal 
Revenue Code of 1986 (as in effect on the day before the date 
of enactment of the Revenue Reconciliation Act of 1990). The 
credit for individuals applies to expenditures made after 
December 31, 2003 and before January 1, 2007.

     D. Credit for Energy Efficiency Improvements to Existing Homes


(Sec. 104 of the bill and new sec. 25E of the Code)

                              PRESENT LAW

    A taxpayer may exclude from income the value of any subsidy 
provided by a public utility for the purchase or installation 
of an energy conservation measure. An energy conservation 
measure means any installation or modification primarily 
designed to reduce consumption of electricity or natural gas or 
to improve the management of energy demand with respect to a 
dwelling unit (sec. 136).
    There is no present-law credit for energy efficiency 
improvements to existing homes.

                           REASONS FOR CHANGE

    The Committee recognizes that residential energy use for 
heating and cooling represents a large share of national energy 
consumption, and accordingly believes that measures to reduce 
heating and cooling energy requirements have the potential to 
substantially reduce national energy consumption. The Committee 
further recognizes that many existing homes are inadequately 
insulated. Accordingly, the Committee believes that a tax 
credit for certain energy-efficiency improvements related to a 
home's envelope (exterior windows (including skylights) and 
doors, insulation, and certain roofing systems) will encourage 
homeowners to improve the insulation of their homes, which in 
turn will reduce national energy consumption.

                        EXPLANATION OF PROVISION

    The provision provides a 20-percent nonrefundable credit 
for the purchase of qualified energy efficiency improvements. 
The maximum credit for a taxpayer with respect to the same 
dwelling for all taxable years is $2,000. A qualified energy 
efficiency improvement is any energy efficiency building 
envelope component that is certified (in the case of 
expenditures that exceed $1,000) to meet or exceed the 
prescriptive criteria for such a component established by the 
2000 International Energy Conservation Code (or, in the case of 
metal roofs with appropriate pigmented coatings, meets the 
Energy Star program requirements), and (1) that is installed in 
or on a dwelling located in the United States; (2) owned and 
used by the taxpayer as the taxpayer's principal residence; (3) 
the original use of which commences with the taxpayer; and (4) 
such component reasonably can be expected to remain in use for 
at least five years.
    Building envelope components are: (1) insulation materials 
or systems which are specifically and primarily designed to 
reduce the heat loss or gain for a dwelling; (2) exterior 
windows (including skylights) and doors; and (3) metal roofs 
with appropriate pigmented coating which are specifically and 
primarily designed to reduce the heat loss or gain for a 
dwelling.
    The taxpayer's basis in the property is reduced by the 
amount of the credit. Special rules apply in the case of 
condominiums and tenant-stockholders in cooperative housing 
corporations.

                             EFFECTIVE DATE

    The credit is effective for qualified energy efficiency 
improvements installed after December 31, 2003 and before 
January 1, 2007.

   E. Business Credit for Construction of New Energy-Efficient Homes


(Sec. 105 of the bill and new sec. 45G of the Code)

                              PRESENT LAW

    A nonrefundable, 10-percent business energy credit is 
allowed for the cost of new property that is equipment (1) that 
uses solar energy to generate electricity, to heat or cool a 
structure, or to provide solar process heat, or (2) used to 
produce, distribute, or use energy derived from a geothermal 
deposit, but only, in the case of electricity generated by 
geothermal power, up to the electric transmission stage.
    The business energy tax credits are components of the 
general business credit (sec. 38(b)(1)). The business energy 
tax credits, when combined with all other components of the 
general business credit, generally may not exceed for any 
taxable year the excess of the taxpayer's net income tax over 
the greater of (1) 25 percent of net regular tax liability 
above $25,000 or (2) the tentative minimum tax. For credits 
arising in taxable years beginning after December 31, 1997, an 
unused general business credit generally may be carried back 
one year and carried forward 20 years (sec. 39).
    A taxpayer may exclude from income the value of any subsidy 
provided by a public utility for the purchase or installation 
of an energy conservation measure. An energy conservation 
measure means any installation or modification primarily 
designed to reduce consumption of electricity or natural gas or 
to improve the management of energy demand with respect to a 
dwelling unit (sec. 136).
    There is no present-law credit for the construction of new 
energy-efficient homes.

                           REASONS FOR CHANGE

    The Committee recognizes that residential energy use for 
heating and cooling represents a large share of national energy 
consumption, and accordingly believes that measures to reduce 
heating and cooling energy requirements have the potential to 
substantially reduce national energy consumption. The Committee 
further recognizes that the most cost-effective time to 
properly insulate a home is when it is under construction. 
Accordingly, the Committee believes that a tax credit for the 
use of energy-efficiency components in a home's envelope 
(exterior windows (including skylights) and doors, insulation, 
and certain roofing systems) or heating and cooling appliances 
will encourage contractors to produce highly energy-efficient 
homes, which in turn will reduce national energy consumption.

                        EXPLANATION OF PROVISION

    The provision provides a credit to an eligible contractor 
(up to $2,000 per dwelling) of an amount equal to the aggregate 
adjusted bases of all energy-efficient property installed in a 
qualified new energy-efficient home during construction.
    The eligible contractor is the person who constructs the 
home, or in the case of a manufactured home, the producer of 
such home. Energy efficiency property is any energy-efficient 
building envelope component (insulation materials, exterior 
windows and doors, metal roofs with appropriate pigmented 
coatings) and any energy-efficient heating or cooling 
appliance.
    To qualify as an energy-efficient new home, the home must 
be: (1) a dwelling located in the United States; (2) the 
principal residence of the person who acquires the dwelling 
from the eligible contractor; (3) certified to have a level of 
annual heating and cooling energy consumption that is at least 
30 percent below the annual level of heating and cooling energy 
consumption of a comparable dwelling constructed in accordance 
with the standards of the 2000 International Energy 
Conservation Code; and (4) with respect to the building 
envelope alone, certified to have a level of annual heating and 
cooling energy consumption that is 10 percent below the annual 
level of heating and cooling energy consumption of a comparable 
dwelling constructed in accordance with the standards of the 
2000 International Energy Conservation Code.

                             EFFECTIVE DATE

    The credit applies to homes whose construction is 
substantially completed after December 31, 2003 and which are 
purchased during the period beginning on January 1, 2003 and 
ending on December 31, 2006.

      F. Energy Credit for Combined Heat and Power System Property


(Sec. 106 of the bill and sec. 48 of the Code)

                              PRESENT LAW

    A nonrefundable, 10-percent business energy credit is 
allowed for the cost of new property that is equipment (1) that 
uses solar energy to generate electricity, to heat or cool a 
structure, or to provide solar process heat, or (2) used to 
produce, distribute, or use energy derived from a geothermal 
deposit, but only, in the case of electricity generated by 
geothermal power, up to the electric transmission stage.
    The business energy tax credits are components of the 
general business credit (sec. 38(b)(1)). The business energy 
tax credits, when combined with all other components of the 
general business credit, generally may not exceed for any 
taxable year the excess of the taxpayer's net income tax over 
the greater of (1) 25 percent of net regular tax liability 
above $25,000 or (2) the tentative minimum tax. For credits 
arising in taxable years beginning after December 31, 1997, an 
unused general business credit generally may be carried back 
one year and carried forward 20 years (sec. 39).
    A taxpayer may exclude from income the value of any subsidy 
provided by a public utility for the purchase or installation 
of an energy conservation measure. An energy conservation 
measure means any installation or modification primarily 
designed to reduce consumption of electricity or natural gas or 
to improve the management of energy demand with respect to a 
dwelling unit (sec. 136).
    There is no present-law credit for combined heat and power 
(``CHP'') property.

                           REASONS FOR CHANGE

    The Committee believes that investments in combined heat 
and power systems represent a promising means to achieve 
greater national energy efficiency by encouraging the dual use 
of the energy from the burning of fossil fuels. Furthermore, 
the on-site generation of electricity provided by CHP systems 
will reduce reliance on the United States' electricity grid. 
The Committee believes that providing a tax credit for 
investment in combined heat and power property will encourage 
investments in such systems.

                        EXPLANATION OF PROVISION

    The provision provides a 10-percent credit for the purchase 
of combined heat and power property.
    CHP property is property: (1) which uses the same energy 
source for the simultaneous or sequential generation of 
electrical power, mechanical shaft power, or both, in 
combination with the generation of steam or other forms of 
useful thermal energy (including heating and cooling 
applications); (2) which has an electrical capacity of more 
than 50 kilowatts or a mechanical energy capacity of more than 
67 horsepower or an equivalent combination of electrical and 
mechanical energy capacities; (3) which produces at least 20 
percent of its total useful energy in the form of thermal 
energy and at least 20 percent in the form of electrical or 
mechanical power (or a combination thereof); and (4) the energy 
efficiency percentage of which exceeds 60 percent (70 percent 
in the case of a system with an electrical capacity in excess 
of 50 megawatts or a mechanical energy capacity in excess of 
67,000 horsepower, or an equivalent combination of electrical 
and mechanical capacities.)
    CHP property does not include property used to transport 
the energy source to the generating facility or to distribute 
energy produced by the facility.
    If a taxpayer is allowed a credit for CHP property, and the 
property would ordinarily have a depreciation class life of 15 
years or less, the depreciation period for the property is 
treated as having a 22-year class life. The present-law carry 
back rules of the general business credit generally apply 
except that no credits attributable to combined heat and power 
property may be carried back before the effective date of this 
provision.

                             EFFECTIVE DATE

    The credit applies to property placed in service after 
December 31, 2003 and before January 1, 2007.

G. Allow Nonbusiness Energy Credits Against the Alternative Minimum Tax


(Sec. 107 of the bill and new secs. 25C, 25D, and 25E of the Code)

                              PRESENT LAW

    Present law imposes an alternative minimum tax on 
individuals in an amount equal to the excess of the tentative 
minimum tax over the regular tax liability. The tentative 
minimum tax is an amount equal to specified rates of tax 
imposed on the excess of the alternative minimum taxable income 
over an exemption amount.
    Generally, for taxable years beginning after December 31, 
2003, nonrefundable personal credits may not exceed the excess 
of the regular tax liability over the tentative minimum tax.

                           REASONS FOR CHANGE

    The Committee believes that the incentive effects of the 
nonbusiness energy credits should be available to all 
individual taxpayers, regardless of their alternative minimum 
tax status. Accordingly, the bill provides that the nonbusiness 
energy credits can be utilized by offsetting both the regular 
tax and the alternative minimum tax.

                        EXPLANATION OF PROVISION

    The provision allows the personal energy credits added by 
the bill to offset both the regular tax and the alternative 
minimum tax. These credits include the credit for residential 
solar energy property (sec. 25C), the credit for qualified 
stationary fuel cell powerplant expenditures (sec. 25D), and 
the credit for energy efficiency improvements to existing homes 
(sec. 25E).

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2003.

H. Repeal Certain Excise Taxes on Rail Diesel Fuel and Inland Waterway 
                              Barge Fuels


(Sec. 108 of the bill and secs. 4041 and 4042 of the Code)

                              PRESENT LAW

    Under present law, diesel fuel used in trains is subject to 
a 4.4-cents-per-gallon excise tax. Revenues from 4.3 cents per 
gallon of this excise tax are retained in the General Fund of 
the Treasury. The remaining 0.1-cent per gallon is deposited in 
the Leaking Underground Storage Tank (``LUST'') Trust Fund.\1\
---------------------------------------------------------------------------
    \1\ The 0.1-cent per gallon for the LUST Trust Fund applies so long 
as there is a tax imposed on rail diesel and the LUST Trust Fund tax is 
in effect (secs. 4041(d)(1) and (3), and 4081(d)(3)).
---------------------------------------------------------------------------
    Similarly, fuel used in barges operating on the designated 
inland waterways system is subject to a 4.3-cents-per-gallon 
General Fund excise tax. This tax is in addition to the 20.1-
cents-per-gallon tax rate that is imposed on fuels used in 
these barges to fund the Inland Waterways Trust Fund and the 
Leaking Underground Storage Tank Trust Fund.
    In both cases, the 4.3-cents-per-gallon excise tax rates 
are permanent. The LUST Trust Fund tax is scheduled to expire 
after March 31, 2005.

                           REASONS FOR CHANGE

    The Committee notes that in 1993, the Congress enacted the 
present-law 4.3-cents-per-gallon excise tax on motor fuels as a 
deficit reduction measure, with the receipts payable to the 
General Fund. Since that time, the Congress has diverted the 
4.3-cents-per-gallon excise tax for most uses to specified 
trust funds that provide benefits for those motor fuel users 
who ultimately bear the burden of these taxes. As a result, the 
Committee finds that generally only rail and barge operators 
remain as motor fuel users subject to the 4.3-cents-per-gallon 
excise tax who receive no benefits from a dedicated trust fund 
as a result of their tax burden. The Committee observes that 
rail and barge operators compete with other transportation 
service providers who benefit from expenditures paid from 
dedicated trust funds. The Committee concludes that it is 
inequitable and distortive of transportation decisions to 
continue to impose the 4.3-cents-per-gallon excise tax on 
diesel fuel used in trains and barges.

                        EXPLANATION OF PROVISION

    The 4.3-cents-per-gallon General Fund excise tax rate on 
diesel fuel used in trains and fuels used in barges operating 
on the designated inland waterways system is repealed. The 0.1 
cent per gallon for the Leaking Underground Storage Tank 
(``LUST'') Trust Fund is unchanged by the provision.

                             EFFECTIVE DATE

    The proposal is effective on January 1, 2004.

            I. Btu-Based Rate for Diesel/Water Emulsion Fuel


(Sec. 109 of the bill and secs. 4081 and 6427 of the Code)

                              PRESENT LAW

    A 24.3-cents-per-gallon excise tax is imposed on diesel 
fuel to finance the Highway Trust Fund. Gasoline and most 
special motor fuels are subject to tax at 18.3 cents per gallon 
for the Trust Fund. The statutory rate for certain special 
motor fuels is determined on an energy equivalent basis, as 
follows:





Liquefied petroleum gas (propane)....  13.6 cents per gallon.
Liquefied natural gas................  11.9 cents per gallon.
Methanol derived from petroleum or     9.15 cents per gallon.
 natural gas.
Compressed natural gas...............  48.54 cents per MCF.


    No special tax rate is provided for diesel fuel blended in 
a water emulsion fuel.

                           REASONS FOR CHANGE

    The Highway Trust Fund taxes are structured to reflect use 
of the highway system. Because diesel/water emulsion fuels have 
fewer Btu's, larger quantities must be purchased to travel the 
same number of miles as regular diesel fuel. A Btu-based tax 
rate better correlates highway use and tax paid. The Committee 
further understands that the diesel fuel/water emulsion fuel 
may reduce air pollutants relative to regular diesel fuel and 
believes that the Btu-based rate, by removing a tax 
disadvantage to use of the fuel, will be beneficial to the 
environment.

                        EXPLANATION OF PROVISION

    A special tax rate of 19.7 cents per gallon is provided for 
diesel fuel blended with water into a diesel-water fuel 
emulsion to reflect the reduced Btu content per gallon 
resulting from the water. Emulsion fuels eligible for the 
special rate consists of not more than 86 percent diesel (and 
other minor chemical additives to enhance combustion) and at 
least 14 percent water. Anyone who separates the diesel fuel 
from the diesel-water fuel emulsion on which a reduced rate of 
tax was imposed is treated as a refiner of the fuel and is 
liable for the difference between the amount of tax on the 
latest removal of the separated fuel and the amount of tax that 
was imposed upon the pre-mixture removal.

                             EFFECTIVE DATE

    The provision applies to fuels removed after September 30, 
2003.

  J. Modifications and Extensions of Provisions Relating to Electric 
    Vehicles, Clean-Fuel Vehicles, and Clean-Fuel Vehicle Refueling 
                                Property


(Secs. 110 and 111 of the bill and secs. 179A and 30 of the Code and 
        new sec. 30B of the Code)

                              PRESENT LAW

Electric vehicles

    A 10-percent tax credit is provided for the cost of a 
qualified electric vehicle, up to a maximum credit of $4,000 
(sec. 30). A qualified electric vehicle is a motor vehicle that 
is powered primarily by an electric motor drawing current from 
rechargeable batteries, fuel cells, or other portable sources 
of electrical current, the original use of which commences with 
the taxpayer, and that is acquired for the use by the taxpayer 
and not for resale. The full amount of the credit is available 
for purchases prior to 2002. The credit phases down in the 
years 2004 through 2006, and is unavailable for purchases after 
December 31, 2006.

Clean-fuel vehicles

    Certain costs of qualified clean-fuel vehicle may be 
expensed and deducted when such property is placed in service 
(sec. 179A). Qualified clean-fuel vehicle property includes 
motor vehicles that use certain clean-burning fuels (natural 
gas, liquefied natural gas, liquefied petroleum gas, hydrogen, 
electricity and any other fuel at least 85 percent of which is 
methanol, ethanol, any other alcohol or ether).\2\ The maximum 
amount of the deduction is $50,000 for a truck or van with a 
gross vehicle weight over 26,000 pounds or a bus with seating 
capacities of at least 20 adults; $5,000 in the case of a truck 
or van with a gross vehicle weight between 10,000 and 26,000 
pounds; and $2,000 in the case of any other motor vehicle. 
Qualified electric vehicles do not qualify for the clean-fuel 
vehicle deduction. The deduction phases down in the years 2004 
through 2006, and is unavailable for purchases after December 
31, 2006.
---------------------------------------------------------------------------
    \2\ A hybrid-electric vehicle may qualify as a clean-fuel vehicle 
under present law.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that automobile transportation in 
the United States in the 21st century can, and should, be less 
polluting of the air and more fuel efficient. The Committee 
recognizes that various different technological solutions may 
lead to this result. The Committee observes that consumer 
demand is increasing for those hybrid motor vehicles already 
available in the marketplace and that substantial new economic 
incentives to purchase these vehicles are not warranted. 
However, the Committee believes that tax benefits to lower the 
cost of certain other new technology automotive alternatives 
can help lower consumer resistance to these technologies and 
speed the nation's advancement down the highway to cleaner, 
more efficient, automobiles. The Committee believes no one 
technology has established that it alone provides the solution. 
Therefore, the Committee concludes it is appropriate to provide 
tax benefits tailored to each specific technology.

                        EXPLANATION OF PROVISION

Electric vehicles

    The provision repeals the phased down reduction in the 
credit for years 2004, 2005, and 2006. Thus, the provision 
provides that a taxpayer could claim the full 10-percent credit 
(up to a $4,000) maximum for the purchase of qualified electric 
vehicles before January 1, 2007.

Clean-fuel vehicles

    The provision repeals the phased down reduction in the 
allowable deduction for years 2004, 2005, and 2006. Thus, the 
provision provides that a taxpayer could claim a full deduction 
for allowable costs of clean-fuel vehicles purchased before 
January 1, 2007.

Fuel cell vehicles

    The provision provides a credit for the purchase of a new 
qualified fuel cell motor vehicle. A qualifying fuel cell 
vehicle is a motor vehicle that is propelled by power derived 
from one or more cells which convert chemical energy directly 
into electricity by combining oxygen with hydrogen fuel which 
is stored on board the vehicle and may or may not require 
reformation prior to use. In general the provision provides 
that the buyer claims the credit, unless the buyer is a tax-
exempt entity in which case the seller or lessor of the vehicle 
may claim the credit. The provision permits unused credits to 
be carried forward for up to 20 years. Qualified fuel cell 
motor vehicles are vehicles placed in service before 2013.
    The amount of credit for the purchase of a fuel cell 
vehicle is determined by a base credit amount that depends upon 
the weight class of the vehicle and, in the case of automobiles 
or light trucks, an additional credit amount that depends upon 
the rated fuel economy of the vehicle compared to a base fuel 
economy. For these purposes the base fuel economy is the 2000 
model year city fuel economy rating for vehicles of various 
weight classes (see below). Table 1, below, shows the base 
credit amounts.

           TABLE 1.--BASE CREDIT AMOUNT FOR FUEL CELL VEHICLES
------------------------------------------------------------------------
          Vehicle gross weight rating in pounds            Credit amount
------------------------------------------------------------------------
vehicle 8,500...........................................          $4,000
8,500 < vehicle 14,000..................................          10,000
14,000 < vehicle 26,000.................................          20,000
26,000 < vehicle........................................          40,000
------------------------------------------------------------------------

    Table 2, below, shows the additional credits for 
automobiles or light trucks.

           TABLE 2.--CREDIT FOR QUALIFYING FUEL CELL VEHICLES
                     [Percent of base fuel economy]
------------------------------------------------------------------------
                                                     If fuel economy of
                                                        the fuel cell
                                                         vehicle is:
                      Credit                       ---------------------
                                                                But less
                                                     At least     than
------------------------------------------------------------------------
$1,000............................................        150        175
$1,500............................................        175        200
$2,000............................................        200        225
$2,500............................................        225        250
$3,000............................................        250        275
$3,500............................................        275        300
$4,000............................................           300
------------------------------------------------------------------------

Advanced lean burn technology motor vehicle

    The provision provides a credit for the purchase of a new 
advanced lean burn technology motor vehicle. A qualifying 
advanced lean burn technology motor vehicle must meet the 
Environmental Protection Agency's Tier II bin 8 emissions 
standards. In general the provision provides that the buyer 
claims the credit, unless the buyer is a tax-exempt entity in 
which case the seller or lessor of the vehicle may claim the 
credit. The provision permits unused credits to be carried 
forward for up to 20 years. Qualified advanced lean burn 
technology motor vehicles are vehicles placed in service before 
2007. Table 3, below, shows the credits for the purchase of an 
advanced lean burn technology motor vehicle.

   TABLE 3.--CREDIT FOR QUALIFYING ADVANCED LEAN BURN TECHNOLOGY MOTOR
                                VEHICLES
                     [Percent of base fuel economy]
------------------------------------------------------------------------
                                                     If fuel economy of
                                                       the vehicle is:
                      Credit                       ---------------------
                                                                But less
                                                     At least     than
------------------------------------------------------------------------
 $500.............................................        125        150
$1,000............................................        150        175
$1,500............................................        175        200
$2,000............................................        200        225
$2,500............................................        225        250
$3,000............................................           250
------------------------------------------------------------------------

    In addition to the credit amount shown in Table 3, an 
advanced lean burn technology automobile or light truck may be 
eligible for an additional credit of $250 if the vehicle 
achieves an estimated lifetime fuel savings of at least 1,500 
gallons of fuel and a further additional credit of $500 if the 
vehicle achieves an estimated lifetime fuel savings of at least 
2,500 gallons compared to a like conventional vehicle (using 
the 2000 model year city fuel economy rating for the like 
vehicle and assuming 120,000 miles driven).

Base fuel economy

    The base fuel economy is the 2000 model year city fuel 
economy for vehicles by inertia weight class by vehicle type. 
The ``vehicle inertia weight class'' is that defined in 
regulations prescribed by the Environmental Protection Agency 
for purposes of Title II of the Clean Air Act. Table 4, below, 
shows the 2000 model year city fuel economy for vehicles by 
type and by inertia weight class.

               TABLE 4.--2000 MODEL YEAR CITY FUEL ECONOMY
------------------------------------------------------------------------
                                                 Passenger
                                                 automobile  Light truck
     Vehicle inertia weight class (pounds)       (miles per   (miles per
                                                  gallon)      gallon)
------------------------------------------------------------------------
1,500.........................................         43.7         37.6
1,750.........................................         43.7         37.6
2,000.........................................         38.3         33.7
2,250.........................................         34.1         30.6
2,500.........................................         30.7         28.0
2,750.........................................         27.9         25.9
3,000.........................................         25.6         24.1
3,500.........................................         22.0         21.3
4,000.........................................         19.3         19.0
4,500.........................................         17.2         17.3
5,000.........................................         15.5         15.8
5,500.........................................         14.1         14.6
6,000.........................................         12.9         13.6
6,500.........................................         11.9         12.8
7,000.........................................         11.1         12.0
8,500.........................................         11.1         12.0
------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                         TITLE II--RELIABILITY


     A. Natural Gas Gathering Lines Treated as Seven-Year Property


(Sec. 201 of the bill and secs. 168 and 56 of the Code)

                              PRESENT LAW

    The applicable recovery period for assets placed in service 
under the Modified Accelerated Cost Recovery System is based on 
the ``class life of the property.'' The class lives of assets 
placed in service after 1986 are generally set forth in Revenue 
Procedure 87-56.\3\ Revenue Procedure 87-56 includes two asset 
classes that could describe natural gas gathering lines owned 
by nonproducers of natural gas. Asset class 46.0, describing 
pipeline transportation, provides a class life of 22 years and 
a recovery period of 15 years. Asset class 13.2, describing 
assets used in the exploration for and production of petroleum 
and natural gas deposits, provides a class life of 14 years and 
a depreciation recovery period of seven years. The uncertainty 
regarding the appropriate recovery period of natural gas 
gathering lines has resulted in litigation between taxpayers 
and the IRS. The 10th Circuit Court of Appeals held that 
natural gas gathering lines owned by nonproducers falls within 
the scope of Asset class 13.2 (i.e., seven-year recovery 
period).\4\ More recently, the Tax Court and the U.S. District 
Court for the Eastern District of Michigan, Southern Division, 
held that natural gas gathering lines owned by nonproducers 
falls within the scope of Asset class 46.0 (i.e., 15-year 
recovery period).\5\
---------------------------------------------------------------------------
    \3\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22, 
1988-1 C.B. 785).
    \4\ Duke Energy v. Commissioner, 172 F.3d 1255 (10th Cir. 1999), 
rev'g 109 T.C. 416 (1997). See also True v. United States, 97-2 U.S. 
Tax Cas. (CCH) par. 50,946 (D. Wyo. 1997).
    \5\ Clajon Gas Co., L.P. v. Commissioner, 119 T.C. 197 (2002) and 
Saginaw Bay Pipeline Co. v. United States, 124 F. Supp. 2d 465 (E.D. 
Mich. 2001).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes the appropriate recovery period for 
natural gas gathering lines is seven years. The Committee also 
believes a seven-year recovery period, and the certainty 
provided compared to present law, will foster investment in 
natural gas fields that will enhance the domestic supply of 
natural gas.

                        EXPLANATION OF PROVISION

    The provision establishes a statutory seven-year recovery 
period and a class life of 10 years for natural gas gathering 
lines. In addition, the provision provides that there would be 
no adjustment to the allowable amount of depreciation for 
purposes of computing a taxpayer's alternative minimum taxable 
income with respect to such property. A natural gas gathering 
line is defined to include any pipe, equipment, and 
appurtenance that is (1) determined to be a gathering line by 
the Federal Energy Regulatory Commission, or (2) used to 
deliver natural gas from the wellhead or a common point to the 
point at which such gas first reaches (a) a gas processing 
plant, (b) an interconnection with an interstate transmission 
line, (c) an interconnection with an intrastate transmission 
line, or (d) a direct interconnection with a local distribution 
company, a gas storage facility, or an industrial consumer.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after the date of enactment. No inference is intended as to the 
proper treatment of natural gas gathering lines placed in 
service before the date of enactment.

   B. Natural Gas Distribution Lines Treated as Fifteen-Year Property


(Sec. 202 of the bill and secs. 168 and 56 of the Code)

                              PRESENT LAW

    The applicable recovery period for assets placed in service 
under the Modified Accelerated Cost Recovery System is based on 
the ``class life of the property.'' The class lives of assets 
placed in service after 1986 are generally set forth in Revenue 
Procedure 87-56.\6\ Natural gas distribution pipelines are 
assigned a 20-year recovery period and a class life of 35 
years.
---------------------------------------------------------------------------
    \6\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22, 
1988-1 C.B. 785).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes the importance of modernizing our 
aging energy infrastructure to meet the demands of the twenty-
first century, and the Committee also recognizes that both 
short-term and long-term solutions are required to meet this 
challenge. The Committee understands that investment in our 
energy infrastructure has not kept pace with the nation's 
needs. In light of this, the Committee believes it is 
appropriate to reduce the recovery period for investment in 
certain energy infrastructure property to encourage investment 
in such property.

                        EXPLANATION OF PROVISION

    The provision establishes a statutory 15-year recovery 
period and a class life of 20 years for natural gas 
distribution lines. In addition, the provision provides that 
there would be no adjustment to the allowable amount of 
depreciation for purposes of computing a taxpayer's alternative 
minimum taxable income with respect to such property.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after the date of enactment. a067hr.027

       C. Transmission Property Treated as Fifteen-Year Property


(Sec. 203 of the bill and secs. 168 and 56 of the Code)

                              PRESENT LAW

    The applicable recovery period for assets placed in service 
under the Modified Accelerated Cost Recovery System is based on 
the ``class life of the property.'' The class lives of assets 
placed in service after 1986 are generally set forth in Revenue 
Procedure 87-56.\7\ Assets used in the transmission and 
distribution of electricity for sale and related land 
improvements are assigned a 20-year recovery period and a class 
life of 30 years.
---------------------------------------------------------------------------
    \7\1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22, 
1988-1 C.B. 785).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes the importance of modernizing our 
aging energy infrastructure to meet the demands of the twenty-
first century, and the Committee also recognizes that both 
short-term and long-term solutions are required to meet this 
challenge. The Committee understands that investment in our 
energy infrastructure has not kept pace with the nation's 
needs. In light of this, the Committee believes it is 
appropriate to reduce the recovery period for investment in 
certain energy infrastructure property to encourage investment 
in such property.

                        EXPLANATION OF PROVISION

    The provision establishes a statutory 15-year recovery 
period and a class life of 20 years for certain assets used in 
the transmission of electricity for sale and related land 
improvements. For purposes of the provision, section 1245 
property used in the transmission of electricity for sale at 69 
kilovolts and above will qualify for the new recovery period. 
In addition, the provision provides that there would be no 
adjustment to the allowable amount of depreciation for purposes 
of computing a taxpayer's alternative minimum taxable income 
with respect to such property.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after the date of enactment.

  D. Expensing of Capital Costs Incurred and Credit for Production in 
   Complying With Environmental Protection Agency Sulfur Regulations


(Secs. 204 and 205 of the bill and new secs. 179B and 45H of the Code)

                              PRESENT LAW

    Taxpayers generally may recover the costs of investments in 
refinery property through annual depreciation deductions. 
Present law does not provide a credit for the production of 
low-sulfur diesel fuel.

                           REASONS FOR CHANGE

    The Committee believes it is important for all refiners to 
meet applicable pollution control standards. However, the 
Committee is concerned that the cost of complying with the 
Highway Diesel Fuel Sulfur Control Requirement of the 
Environmental Protection Agency may force some small refiners 
out of business. To maintain this refining capacity and to 
foster compliance with pollution control standards, the 
Committee believes it is appropriate to modify cost recovery 
provisions for small refiners to reduce their capital costs of 
complying with the Highway Diesel Fuel Sulfur Control 
Requirement of the Environmental Protection Agency.

                        EXPLANATION OF PROVISION

    The provision permits small business refiners to claim an 
immediate deduction (i.e., expensing) for up to 75 percent of 
the costs paid or incurred for the purpose of complying with 
the Highway Diesel Fuel Sulfur Control Requirements of the 
Environmental Protection Agency. In addition, the proposal 
provides that a small business refiner may claim credit equal 
to five cents per gallon for each gallon of low sulfur diesel 
fuel produced during the taxable year. The total production 
credit claimed by the taxpayer is limited to 25 percent of the 
capital costs incurred to come into compliance with the EPA 
diesel fuel requirements. The taxpayer's basis in such property 
is reduced by the amount of production credit claimed.
    For these purposes a small business refiner is a taxpayer 
who within the business of refining petroleum products engages 
not more than 1,500 persons directly in refining on business 
days and has less that 205,000 barrels per day of total 
domestic refinery capacity.\8\ The credit and deduction phase 
out for refiners with capacity in excess of 155,000 barrels per 
day.
---------------------------------------------------------------------------
    \8\ The refining capacities of all persons that are part of a 
related group are aggregated for purposes of this definition. In 
addition, in any case where refinery through-put or retained production 
of the refinery differs substantially from its average daily output of 
refined product, the Committee intends that capacity be measured by 
reference to the average daily output of refined product.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for expenses paid or incurred 
after March 31, 2003.

 E. Determination of Small Refiner Exception to Oil Depletion Deduction


(Sec. 206 of the bill and sec. 613A of the Code)

                              PRESENT LAW

    Present law classifies oil and gas producers as independent 
producers or integrated companies. The Code provides numerous 
special tax rules for operations by independent producers. One 
such rule allows independent producers to claim percentage 
depletion deductions rather than deducting the costs of their 
asset, a producing well, based on actual production from the 
well (i.e., cost depletion).
    A producer is an independent producer only if its refining 
and retail operations are relatively small. For example, an 
independent producer may not have refining operations the runs 
from which exceed 50,000 barrels on any day in the taxable year 
during which independent producer status is claimed.

                           REASONS FOR CHANGE

    The Committee notes that technological advances have 
permitted a number of small refineries to refine more petroleum 
without building out their facilities. The Committee believes 
that the goal of present law, to identify producers without 
significant refining capacity, can be achieved while permitting 
more flexibility to refinery operations.

                        EXPLANATION OF PROVISION

    The provision increases the current 50,000 barrel per day 
limitation to 75,000. In addition, the provision changes the 
refinery limitation on claiming independent producer status 
from a limit based on actual daily production to a limit based 
on average daily production for the taxable year. Accordingly, 
the average daily refinery run for the taxable year may not 
exceed 75,000 barrels. For this purpose, the taxpayer 
calculates average daily production by dividing total 
production for the taxable year by the total number of days in 
the taxable year.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003.

    F. Sales or Dispositions To Implement Federal Energy Regulatory 
           Commission or State Electric Restructuring Policy


(Sec. 207 of the bill and sec. 451 of the Code)

                              PRESENT LAW

    Generally, a taxpayer recognizes gain to the extent the 
sales price (and any other consideration received) exceeds the 
seller's basis in the property. The recognized gain is subject 
to current income tax unless the gain is deferred or not 
recognized under a special tax provision.

                           REASONS FOR CHANGE

    The Committee recognizes that electric deregulation has 
been occurring, and is continuing to occur, at both the Federal 
and State level. Federal and State energy regulators are 
calling for the ``unbundling'' of electric transmission assets 
held by vertically integrated utilities, with the transmission 
assets ultimately placed under the ownership or control of 
independent transmission providers (or other similarly-approved 
operators). This policy is intended to improve transmission 
management and facilitate the formation of competitive markets. 
To facilitate the implementation of these policy objectives, 
the Committee believes it is appropriate to assist taxpayers in 
moving forward with industry restructuring by providing a tax 
deferral for gain associated with certain dispositions of 
electric transmission assets. The Committee believes it is 
important that proceeds of such dispositions be reinvested in 
utility property to assist in modernizing our energy 
infrastructure. Thus, a tax deferral will only be available if 
the proceeds of such disposition are reinvested in utility 
property.

                        EXPLANATION OF PROVISION

    The provision permits a taxpayer to elect to recognize gain 
from a qualifying electric transmission transaction ratably 
over an eight-year period beginning in the year of sale if the 
amount realized from such sale is used to purchase exempt 
utility property within the applicable period \9\ (the 
``reinvestment property''). If the amount realized exceeds the 
amount used to purchase reinvestment property, any realized 
gain shall be recognized to the extent of such excess in the 
year of the qualifying electric transmission transaction. Any 
remaining realized gain is recognized ratably over the eight-
year period.
---------------------------------------------------------------------------
    \9\ The applicable period for a taxpayer to reinvest the proceeds 
is four years after the close of the taxable year in which the 
qualifying electric transmission transaction occurs.
---------------------------------------------------------------------------
    A qualifying electric transmission transaction is the sale 
or other disposition of property used by the taxpayer in the 
trade or business of providing electric transmission services, 
or an ownership interest in such an entity, to an independent 
transmission company prior to January 1, 2007. In general, an 
independent transmission company is defined as: (1) an 
independent transmission provider \10\ approved by the FERC; 
(2) a person (i) who the FERC determines under section 203 of 
the Federal Power Act (or by declaratory order) is not a 
``market participant'' and (ii) whose transmission facilities 
are placed under the operational control of a FERC-approved 
independent transmission provider before the close of the 
period specified in such authorization, but not later than 
January 1, 2007; or (3) in the case of facilities subject to 
the jurisdiction of the Public Utility Commission of Texas, (i) 
a person which is approved by that Commission as consistent 
with Texas State law regarding an independent transmission 
organization, or (ii) a political subdivision, or affiliate 
thereof, whose transmission facilities are under the 
operational control of an organization described in (i).
---------------------------------------------------------------------------
    \10\ For example, a regional transmission organization, an 
independent system operator, or and independent transmission company.
---------------------------------------------------------------------------
    Exempt utility property is defined as: (1) property used in 
the trade or business of generating, transmitting, 
distributing, or selling electricity or producing, 
transmitting, distributing, or selling natural gas, or (2) 
stock in a controlled corporation whose principal trade or 
business consists of the activities described in (1).
    If a taxpayer is a member of an affiliated group of 
corporations filing a consolidated return, the provision 
permits the reinvestment property to be purchased by any member 
of the affiliated group (in lieu of the taxpayer).
    If a taxpayer elects the application of the provision, then 
the statutory period for the assessment of any deficiency, for 
any taxable year in which any part of the gain eligible for the 
provision is realized, attributable to such gain shall not 
expire prior to the expiration of three years from the date the 
Secretary of the Treasury is notified by the taxpayer of the 
reinvestment property or an intention not to reinvest.
    An electing taxpayer is required to attach a statement to 
that effect in the tax return for the taxable year in which the 
transaction takes place in the manner as the Secretary shall 
prescribe. The election shall be binding for that taxable year 
and all subsequent taxable years.\11\ In addition, an electing 
taxpayer is required to attach a statement that identifies the 
reinvestment property in the manner as the Secretary shall 
prescribe.
---------------------------------------------------------------------------
    \11\ The provision also provides that the installment sale rules 
shall not apply to any qualifying electric transmission transaction for 
which a taxpayer elects the application of this provision.
---------------------------------------------------------------------------

                             EFFECTIVE DATE

    The provision is effective for transactions occurring after 
the date of enactment.

   G. Modification to Special Rules for Nuclear Decommissioning Costs


(Sec. 208 of the bill and sec. 468A of the Code)

                              PRESENT LAW

Overview

    Special rules dealing with nuclear decommissioning reserve 
funds were adopted by Congress in the Deficit Reduction Act of 
1984 (``1984 Act''), when tax issues regarding the time value 
of money were addressed generally. Under general tax accounting 
rules, a deduction for accrual basis taxpayers is deferred 
until there is economic performance for the item for which the 
deduction is claimed. However, the 1984 Act contains an 
exception under which a taxpayer responsible for nuclear 
powerplant decommissioning may elect to deduct contributions 
made to a qualified nuclear decommissioning fund for future 
decommissioning costs. Taxpayers who do not elect this 
provision are subject to general tax accounting rules.

Qualified nuclear decommissioning fund

    A qualified nuclear decommissioning fund (a ``qualified 
fund'') is a segregated fund established by a taxpayer that is 
used exclusively for the payment of decommissioning costs, 
taxes on fund income, management costs of the fund, and for 
making investments. The income of the fund is taxed at a 
reduced rate of 20 percent for taxable years beginning after 
December 31, 1995.\12\
---------------------------------------------------------------------------
    \12\ As originally enacted in 1984, a qualified fund paid tax on 
its earnings at the top corporate rate and, as a result, there was no 
present-value tax benefit of making deductible contributions to a 
qualified fund. Also, as originally enacted, the funds in the trust 
could be invested only in certain low risk investments. Subsequent 
amendments to the provision have reduced the rate of tax on a qualified 
fund to 20 percent and removed the restrictions on the types of 
permitted investments that a qualified fund can make.
---------------------------------------------------------------------------
    Contributions to a qualified fund are deductible in the 
year made to the extent that these amounts were collected as 
part of the cost of service to ratepayers (the ``cost of 
service requirement'').\13\ Funds withdrawn by the taxpayer to 
pay for decommissioning costs are included in the taxpayer's 
income, but the taxpayer also is entitled to a deduction for 
decommissioning costs as economic performance for such costs 
occurs.
---------------------------------------------------------------------------
    \13\ Taxpayers are required to include in gross income customer 
charges for decommissioning costs (sec. 88).
---------------------------------------------------------------------------
    Accumulations in a qualified fund are limited to the amount 
required to fund decommissioning costs of a nuclear powerplant 
for the period during which the qualified fund is in existence 
(generally post-1984 decommissioning costs of a nuclear 
powerplant). For this purpose, decommissioning costs are 
considered to accrue ratably over a nuclear powerplant's 
estimated useful life. In order to prevent accumulations of 
funds over the remaining life of a nuclear powerplant in excess 
of those required to pay future decommissioning costs of such 
nuclear powerplant and to ensure that contributions to a 
qualified fund are not deducted more rapidly than level funding 
(taking into account an appropriate discount rate), taxpayers 
must obtain a ruling from the IRS to establish the maximum 
annual contribution that may be made to a qualified fund (the 
``ruling amount''). In certain instances (e.g., change in 
estimates), a taxpayer is required to obtain a new ruling 
amount to reflect updated information.
    A qualified fund may be transferred in connection with the 
sale, exchange or other transfer of the nuclear powerplant to 
which it relates. If the transferee is a regulated public 
utility and meets certain other requirements, the transfer will 
be treated as a nontaxable transaction. No gain or loss will be 
recognized on the transfer of the qualified fund and the 
transferee will take the transferor's basis in the fund.\14\ 
The transferee is required to obtain a new ruling amount from 
the IRS or accept a discretionary determination by the IRS.\15\
---------------------------------------------------------------------------
    \14\ Treas. reg. sec. 1.468A-6.
    \15\ Treas. reg. sec. 1.468A-6(f).
---------------------------------------------------------------------------

Nonqualified nuclear decommissioning funds

    Federal and State regulators may require utilities to set 
aside funds for nuclear decommissioning costs in excess of the 
amount allowed as a deductible contribution to a qualified 
fund. In addition, taxpayers may have set aside funds prior to 
the effective date of the qualified fund rules.\16\ The 
treatment of amounts set aside for decommissioning costs prior 
to 1984 varies. Some taxpayers may have received no tax benefit 
while others may have deducted such amounts or excluded such 
amounts from income. Since 1984, taxpayers have been required 
to include in gross income customer charges for decommissioning 
costs (sec. 88), and a deduction has not been allowed for 
amounts set aside to pay for decommissioning costs except 
through the use of a qualified fund. Income earned in a 
nonqualified fund is taxable to the fund's owner as it is 
earned.
---------------------------------------------------------------------------
    \16\ These funds are generally referred to as ``nonqualified 
funds.''
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes the national importance of 
reserving funds to pay for decommissioning costs and the need 
for appropriate incentives to ensure that adequate funds are 
available for such costs. The Committee believes that it is 
appropriate to permit all decommissioning costs associated with 
a nuclear powerplant to be funded through a qualified fund. In 
addition, the Committee does not believe a utility should be 
denied the opportunity to contribute to a qualified fund simply 
because it operates in a deregulated environment.

                        EXPLANATION OF PROVISION

Repeal of cost of service requirement

    The provision repeals the cost of service requirement for 
deductible contributions to a nuclear decommissioning fund. 
Thus, all taxpayers, including unregulated taxpayers, are 
allowed a deduction for amounts contributed to a qualified 
fund.

Permit contributions to a qualified fund for pre-1984 decommissioning 
        costs

    The provision also repeals the limitation that a qualified 
fund only accumulate an amount sufficient to pay for a nuclear 
powerplant's decommissioning costs incurred during the period 
that the qualified fund is in existence (generally post-1984 
decommissioning costs). Thus, any taxpayer is permitted to 
accumulate an amount sufficient to cover the present value of 
100 percent of a nuclear powerplant's estimated decommissioning 
costs in a qualified fund. The provision does not change the 
requirement that contributions to a qualified fund not be 
deducted more rapidly than level funding.

Exception to ruling amount for certain decommissioning costs

    The provision permits a taxpayer to make contributions to a 
qualified fund in excess of the ruling amount in one 
circumstance. Specifically, a taxpayer is permitted to 
contribute up to the present value of the amount required to 
fund a nuclear powerplant's decommissioning costs which under 
present law section 468(d)(2)(A) is not permitted to be 
accumulated in a qualified fund (generally pre-1984 
decommissioning costs).\17\ It is anticipated that an amount 
that is permitted to be contributed under this special rule 
shall be determined using the estimate of total decommissioning 
costs used for purposes of determining the taxpayer's most 
recent ruling amount. Any amount transferred to the qualified 
fund under this special rule that has not previously been 
deducted or excluded from gross income is allowed as a 
deduction over the remaining useful life of the nuclear 
powerplant.\18\ If a qualified fund that has received amounts 
under this rule is transferred to another person, the 
transferor will be permitted a deduction for any remaining 
deductible amounts at the time of transfer.
---------------------------------------------------------------------------
    \17\ The ability to transfer property into a qualified fund under 
this special rule is available only to the extent the taxpayer has not 
obtained a new ruling amount incorporating the repeal of the limitation 
that a qualified fund only accumulate an amount sufficient to pay for 
decommissioning costs of a nuclear powerplant incurred during the 
period that the fund is in existence (generally post 1984 
decommissioning costs).
    \18\ A taxpayer recognizes no gain or loss on the contribution of 
property to a qualified fund under this special rule. The qualified 
fund will take a transferred (carryover) basis in such property. 
Correspondingly, a taxpayer's deduction (over the estimated life of the 
nuclear powerplant) is to be based on the adjusted tax basis of the 
property contributed rather than the fair market value of such 
property.
---------------------------------------------------------------------------

Contributions to a qualified fund after useful life of powerplant

    The provision also allows deductible contributions to a 
qualified fund subsequent to the end of a nuclear powerplant's 
estimated useful life. Such payments are permitted to the 
extent they do not cause the assets of the qualified fund to 
exceed the present value of the taxpayer's allocable share 
(current or former) of the nuclear decommissioning costs of 
such nuclear powerplant.

Clarify treatment of transfers of qualified funds

    The provision clarifies the Federal income tax treatment of 
the transfer of a qualified fund. No gain or loss would be 
recognized to the transferor or the transferee as a result of 
the transfer of a qualified fund in connection with the 
transfer of the power plant with respect to which such fund was 
established.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003.

        H. Treatment of Certain Income of Electric Cooperatives


(Sec. 209 of the bill and sec. 501 of the Code)

                              PRESENT LAW

In general

    Under present law, an entity must be operated on a 
cooperative basis in order to be treated as a cooperative for 
Federal income tax purposes. Although not defined by statute or 
regulation, the two principal criteria for determining whether 
an entity is operating on a cooperative basis are: (1) 
ownership of the cooperative by persons who patronize the 
cooperative; and (2) return of earnings to patrons in 
proportion to their patronage. The IRS requires that 
cooperatives must operate under the following principles: (1) 
subordination of capital in control over the cooperative 
undertaking and in ownership of the financial benefits from the 
cooperative; (2) democratic control by the members of the 
cooperative; (3) vesting in and allocation among the members of 
all excess of operating revenues over the expenses incurred to 
generate revenues in proportion to their participation in the 
cooperative (patronage); and (4) operation at cost (not 
operating for profit or below cost).\19\
---------------------------------------------------------------------------
    \19\ Announcement 96-24, Proposed Examination Guidelines Regarding 
Rural Electric Cooperatives, 1996-16 I.R.B. 35.
---------------------------------------------------------------------------
    In general, cooperative members are those who participate 
in the management of the cooperative and who share in patronage 
capital. As described below, income from the sale of electric 
energy by an electric cooperative may be member or non-member 
income to the cooperative, depending on the membership status 
of the purchaser. A municipal corporation may be a member of a 
cooperative.
    For Federal income tax purposes, a cooperative generally 
computes its income as if it were a taxable corporation, with 
one exception--the cooperative may exclude from its taxable 
income distributions of patronage dividends. In general, 
patronage dividends are the profits of the cooperative that are 
rebated to its patrons pursuant to a pre-existing obligation of 
the cooperative to do so. The rebate must be made in some 
equitable fashion on the basis of the quantity or value of 
business done with the cooperative.
    Except for tax-exempt farmers' cooperatives, cooperatives 
that are subject to the cooperative tax rules of subchapter T 
of the Code (sec. 1381, et seq.) are permitted a deduction for 
patronage dividends from their taxable income only to the 
extent of net income that is derived from transactions with 
patrons who are members of the cooperative (sec. 1382). The 
availability of such deductions from taxable income has the 
effect of allowing the cooperative to be treated like a conduit 
with respect to profits derived from transactions with patrons 
who are members of the cooperative.
    Cooperatives that qualify as tax-exempt farmers' 
cooperatives are permitted to exclude patronage dividends from 
their taxable income to the extent of all net income, including 
net income that is derived from transactions with patrons who 
are not members of the cooperative, provided the value of 
transactions with patrons who are not members of the 
cooperative does not exceed the value of transactions with 
patrons who are members of the cooperative (sec. 521).

Taxation of electric cooperatives exempt from subchapter T

    In general, the cooperative tax rules of subchapter T apply 
to any corporation operating on a cooperative basis (except 
mutual savings banks, insurance companies, other tax-exempt 
organizations, and certain utilities), including tax-exempt 
farmers' cooperatives (described in sec. 521(b)). However, 
subchapter T does not apply to an organization that is 
``engaged in furnishing electric energy, or providing telephone 
service, to persons in rural areas'' (sec. 1381(a)(2)(C)). 
Instead, electric cooperatives are taxed under rules that were 
generally applicable to cooperatives prior to the enactment of 
subchapter T in 1962. Under these rules, an electric 
cooperative can exclude patronage dividends from taxable income 
to the extent of all net income of the cooperative, including 
net income derived from transactions with patrons who are not 
members of the cooperative.\20\
---------------------------------------------------------------------------
    \20\ See Rev. Rul. 83-135, 1983-2 C.B. 149. Tax exemption of rural 
electric cooperatives
---------------------------------------------------------------------------

Tax exemption of rural electric cooperatives

    Section 501(c)(12) provides an income tax exemption for 
rural electric cooperatives if at least 85 percent of the 
cooperative's income consists of amounts collected from members 
for the sole purpose of meeting losses and expenses of 
providing service to its members. The IRS takes the position 
that rural electric cooperatives also must comply with the 
fundamental cooperative principles described above in order to 
qualify for tax exemption under section 501(c)(12).\21\ The 85-
percent test is determined without taking into account any 
income from qualified pole rentals and cancellation of 
indebtedness income from the prepayment of a loan under 
sections 306A, 306B, or 311 of the Rural Electrification Act of 
1936 (as in effect on January 1, 1987). The exclusion for 
cancellation of indebtedness income applies to such income 
arising in 1987, 1988, or 1989 on debt that either originated 
with, or is guaranteed by, the Federal Government. Rural 
electric cooperatives generally are subject to the tax on 
unrelated trade or business income under section 511.
---------------------------------------------------------------------------
    \21\ Rev. Rul. 72-36, 1972-1 C.B. 151.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The purpose of the 85-percent test under section 501(c)(12) 
is to ensure that the primary activities of an electric 
cooperative fulfill the statutory tax-exempt purpose of 
providing electricity services to the members of the 
cooperative. Similarly, the fundamental cooperative principles 
described above are the defining characteristics of a 
cooperative upon which the Federal tax rules condition conduit 
treatment.
    The Committee believes that the nature of an electric 
cooperative's activities does not change because it has income 
from certain transmission-related open access transactions with 
non-members, nuclear decommissioning transactions, or asset 
exchange or conversion transactions (as these terms are defined 
in the bill). Accordingly, the Committee believes that the 85-
percent test for tax exemption under present law should be 
applied without regard to such income. The Committee intends 
that the exclusion for certain transmission-related open access 
transactions with non-members shall be applied in a manner that 
allows an electric cooperative to carry out its statutory 
purpose in a restructured electric energy market environment 
without adversely impacting its tax-exempt status.
    The Committee further believes that electric energy sales 
to non-members should not result in a loss of tax-exempt status 
or cooperative status to the extent that such sales are 
necessary to replace lost sales of electric energy to members 
as a result of restructuring of the electric energy industry. 
Accordingly, the Committee believes that replacement electric 
energy sales to non-members (defined as ``load loss 
transactions'' in the bill) should be treated, for a limited 
period of time, as member income in applying the 85-percent 
test for tax exemption of rural electric cooperatives. The 
Committee believes that such treatment also should apply for 
purposes of determining whether tax-exempt and taxable electric 
cooperatives comply with the fundamental cooperative 
principles. Finally, the Committee believes that income from 
replacement electric energy sales should not be subject to the 
tax on unrelated trade or business income under Code section 
511.

                        EXPLANATION OF PROVISION

Treatment of income from open access transactions

    The bill provides that income received or accrued by a 
rural electric cooperative (other than income received or 
accrued directly or indirectly from a member of the 
cooperative) from the provision or sale of electric energy 
transmission services or ancillary services on a 
nondiscriminatory open access basis under an independent 
transmission provider agreement approved by FERC (including an 
agreement providing for the transfer of control--but not 
ownership--of transmission facilities) \22\ is excluded in 
determining whether a rural electric cooperative satisfies the 
85-percent test for tax exemption under section 501(c)(12).
---------------------------------------------------------------------------
    \22\ Under this provision, references to FERC are treated as 
including references to the Public Utility Commission of Texas.
---------------------------------------------------------------------------
    For purposes of the 85-percent test, the bill also provides 
that income received or accrued by a rural electric cooperative 
is treated as an amount collected from members for the sole 
purpose of meeting losses and expenses if the income is 
received or accrued indirectly from a member of the 
cooperative, provided that such income is derived from a ``like 
organization'' activity of the cooperative under present 
law.\23\
---------------------------------------------------------------------------
    \23\ See, e.g., Rev. Rul. 2002-54, 2002-37 I.R.B. 527; Rev. Rul. 
83-170, 1983-2 C.B. 97; Rev. Rul. 65-201, 1965-2 C.B. 170.
---------------------------------------------------------------------------

Treatment of income from nuclear decommissioning transactions

    The bill provides that income received or accrued by a 
rural electric cooperative from any ``nuclear decommissioning 
transaction'' also is excluded in determining whether a rural 
electric cooperative satisfies the 85-percent test for tax 
exemption under section 501(c)(12). The term ``nuclear 
decommissioning transaction'' is defined as--
          (1) Any transfer into a trust, fund, or instrument 
        established to pay any nuclear decommissioning costs if 
        the transfer is in connection with the transfer of the 
        cooperative's interest in a nuclear powerplant or 
        nuclear powerplant unit;
          (2) Any distribution from a trust, fund, or 
        instrument established to pay any nuclear 
        decommissioning costs; or
          (3) Any earnings from a trust, fund, or instrument 
        established to pay any nuclear decommissioning costs.

Treatment of income from asset exchange or conversion transactions

    The bill provides that gain realized by a tax-exempt rural 
electric cooperative from a voluntary exchange or involuntary 
conversion of certain property is excluded in determining 
whether a rural electric cooperative satisfies the 85-percent 
test for tax exemption under section 501(c)(12). This provision 
only applies to the extent that: (1) the gain would qualify for 
deferred recognition under section 1031 (relating to exchanges 
of property held for productive use or investment) or section 
1033 (relating to involuntary conversions); and (2) the 
replacement property that is acquired by the cooperative 
pursuant to section 1031 or section 1033 (as the case may be) 
constitutes property that is used, or to be used, for the 
purpose of generating, transmitting, distributing, or selling 
electricity or methane-based natural gas.

Treatment of income from load loss transactions

    Tax-exempt rural electric cooperatives.--The bill provides 
that income received or accrued by a tax-exempt rural electric 
cooperative from a ``load loss transaction'' is treated under 
501(c)(12) as income collected from members for the sole 
purpose of meeting losses and expenses of providing service to 
its members. Therefore, income from load loss transactions is 
treated as member income in determining whether a rural 
electric cooperative satisfies the 85-percent test for tax 
exemption under section 501(c)(12). The bill also provides that 
income from load loss transactions does not cause a tax-exempt 
electric cooperative to fail to be treated for Federal income 
tax purposes as a mutual or cooperative company under the 
fundamental cooperative principles described above.
    The term ``load loss transaction'' is generally defined as 
any wholesale or retail sale of electric energy (other than to 
a member of the cooperative) to the extent that the aggregate 
amount of such sales during a seven-year period beginning with 
the ``start-up year'' does not exceed the reduction in the 
amount of sales of electric energy during such period by the 
cooperative to members. The ``start-up year'' is defined as the 
calendar year which includes the date of enactment of this 
provision or, if later, at the election of the cooperative: (1) 
the first year that the cooperative offers nondiscriminatory 
open access; or (2) the first year in which at least 10 percent 
of the cooperative's sales of electric energy are to patrons 
who are not members of the cooperative.
    The bill also excludes income received or accrued by rural 
electric cooperatives from load loss transactions from the tax 
on unrelated trade or business income.
    Taxable electric cooperatives.--The bill provides that the 
receipt or accrual of income from load loss transactions by 
taxable electric cooperatives is treated as income from patrons 
who are members of the cooperative. Thus, income from a load 
loss transaction is excludible from the taxable income of a 
taxable electric cooperative if the cooperative distributes 
such income pursuant to a pre-existing contract to distribute 
the income to a patron who is not a member of the cooperative. 
The bill also provides that income from load loss transactions 
does not cause a taxable electric cooperative to fail to be 
treated for Federal income tax purposes as a mutual or 
cooperative company under the fundamental cooperative 
principles described above.

                             EFFECTIVE DATE

    This provision is effective for taxable years beginning 
after the date of enactment.

  I. Exempt Certain Prepayments for Natural Gas From Tax-Exempt Bond 
                            Arbitrage Rules


(Sec. 210 of the bill and sec. 148 of the Code)

                              PRESENT LAW

    Interest on bonds issued by States or local governments to 
finance activities carried out or paid for by those entities 
generally is exempt from income tax (sec. 103). Restrictions 
are imposed on the ability of States or local governments to 
invest the proceeds of these bonds for profit (the ``arbitrage 
restrictions''). One such restriction limits the use of bond 
proceeds to acquire ``investment-type property.'' The term 
investment-type property includes the acquisition of property 
in a transaction involving a prepayment. A prepayment can 
produce prohibited arbitrage profits when the discount received 
for prepaying the costs exceeds the yield on the tax- exempt 
bonds. In general, prohibited prepayments include all 
prepayments that are not customary in an industry by both 
beneficiaries of tax-exempt bonds and other persons using 
taxable financing for the same transaction.
    On April 17, 2002, the Department of the Treasury issued 
proposed regulations regarding arbitrage and private activity 
restrictions applicable to tax-exempt bonds issued by State and 
local governments. The proposed regulations add an exception to 
the definition of investment-type property for certain natural 
gas prepayments that are made by or for one or more utilities 
that are owned by a governmental person.\24\ The exception 
applies if at least 95 percent of the natural gas purchased 
with the prepayment is to be (1) consumed by retail customers 
in the service area of a municipal gas utility, or (2) used to 
produce electricity that will be furnished to retain customers 
that a municipal electric utility is obligated to serve under 
State or Federal law. An obligation that arises solely because 
of a contract is not an obligation to serve under State or 
Federal law. For this purpose, the service area of a municipal 
gas utility is defined as (1) any area throughout which the 
municipal utility provided (at all times during the five-year 
period ending on the issue date) gas transmission or 
distribution service, and any area that is contiguous to such 
an area, or (2) any area where the municipal utility is 
obligated under State or Federal law to provide gas 
distribution services as provided in such law. Issuers may 
apply principles similar to the rules governing private use to 
cure a violation of the 95 percent requirement.\25\
---------------------------------------------------------------------------
    \24\ Prop. Treas. Reg. sec. 1.148-1(e)(2)(ii).
    \25\ See Treas. Reg. 1.141-12.
---------------------------------------------------------------------------
    A prepayment will not fail to meet the requirements for 
prepaid gas contracts by reason of any commodity swap contract 
that may be entered into between the issuer and an unrelated 
party (other than the gas supplier), or between the gas 
supplier and an unrelated party (other than the issuer), so 
long as each swap contract is an independent contract. A swap 
contract is an independent contract is not dependent on 
performance by any person (other than the party to the swap 
contract) under another contract (for example, a gas contract 
or another swap contract). A natural gas commodity swap 
contract will not fail to be an independent contract solely 
because the swap contract may terminate in the event of a 
failure of a gas supplier to deliver gas for which the swap 
contract is a hedge.\26\ The Commissioner may, by published 
guidance, set forth additional circumstances in which a 
prepayment does not give rise to investment-type property.
---------------------------------------------------------------------------
    \26\ Internal Revenue Service, Clarification of Proposed 
Regulations Relating to Tax-Exempt Bonds Issued by State or Local 
Governments, Notice 2002-52, 2002-30 IRB 1 (July 03, 2002).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee determined that it was appropriate to 
complement the proposed Treasury regulations with a safe harbor 
that provides certainty on the date of issuance that 
prepayments for natural gas within the safe harbor will not 
violate the arbitrage rules. This provision will ensure 
adequate supplies of natural gas at predictable prices for 
natural gas utility customers without sacrificing to a great 
degree the appropriate present-law limitations regarding tax-
exempt bond issuance for the purchase of investment property. 
The Committee believes that this proposal strikes an 
appropriate balance between these two competing policies.

                        EXPLANATION OF PROVISION

In general

    The provision creates a safe harbor exception to the 
general rule that tax-exempt bond-financed prepayments violate 
the arbitrage restrictions. The term ``investment type 
property'' does not include a prepayment under a qualified 
natural gas supply contract. The provision also provides that 
such prepayments are not treated as private loans for purposes 
of the private business tests.
    Under the provision, a prepayment financed with tax-exempt 
bond proceeds for the purpose of obtaining a supply of natural 
gas for service area customers of a governmental utility is not 
treated as the acquisition of investment-type property. A 
contract is a qualified natural gas contract if the volume of 
natural gas secured for any year covered by the prepayment does 
not exceed the sum of (1) the average annual natural gas 
purchased (other than for resale) by customers of the utility 
within the service area of the utility (``retail natural gas 
consumption'') during the testing period, and (2) the amount of 
natural gas that is needed to fuel transportation of the 
natural gas to the governmental utility. The testing period is 
the 5-calendar-year period immediately preceding the calendar 
year in which the bonds are issued. A retail customer is one 
who does not purchase natural gas for resale. Natural gas used 
to generate electricity by a governmental utility is counted as 
retail natural gas consumption if the electricity was sold to 
retail customers within the service area of the governmental 
electric utility.

Adjustments

    The volume of gas permitted by the general rule is reduced 
by natural gas otherwise available on the date of issuance. 
Specifically, the amount of natural gas permitted to be 
acquired under a qualified natural gas contract for any period 
is to be reduced by natural gas held by the utility on the date 
of issuance of the bonds and natural gas that the utility has a 
right to acquire for the prepayment period (determined as of 
the date of issuance).\27\ For purposes of the preceding 
sentence, applicable share means, with respect to any period, 
the natural gas allocable to such period if the gas were 
allocated ratably over the period to which the prepayment 
relates.
---------------------------------------------------------------------------
    \27\ For example, natural gas otherwise available on the date the 
bonds are issued includes supply covered by other prepayment contracts 
for the period, and supply held in storage or subject to an option to 
purchase by such utility that is available for retail natural gas 
consumption during the period covered by the prepayment. It does not 
include supply that could be purchased on the open market during the 
prepayment period.
---------------------------------------------------------------------------
    For purposes of the safe harbor, if after the close of the 
testing period and before the issue date of the bonds (1) the 
government utility enters into a contract to supply natural gas 
(other than for resale) for a commercial person for use at a 
property within the service area of such utility and (2) the 
gas consumption for such property was not included in the 
testing period or the ratable amount of natural gas to be 
supplied under the contract is significantly greater than the 
ratable amount of gas supplied to such property during the 
testing period, then the amount of gas permitted to be 
purchased may be increased to accommodate the contract.
    The average annual retail natural gas consumption 
calculation for purposes of the safe harbor, however, is not to 
exceed the annual amount of natural gas reasonably expected to 
be purchased (other than for resale) by persons who are located 
within the service area of such utility and who, as of the date 
of issuance of the issue, are customers of such utility.

Intentional acts

    The safe harbor does not apply if the utility engages in 
intentional acts to render (1) the volume of natural gas 
covered by the prepayment to be in excess of that needed for 
retail natural gas consumption, and (2) the amount of natural 
gas that is needed to fuel transportation of the natural gas to 
the governmental utility.

Definition of service area

    Service area is defined as (1) any area throughout which 
the governmental utility provided (at all times during the 
testing period) in the case of a natural gas utility, natural 
gas transmission or distribution service, or in the case of an 
electric utility, electric distribution service; (2) limited 
areas contiguous to such areas, and (3) any area recognized as 
the service area of the governmental utility under State or 
Federal law. Contiguous areas are limited to any area within a 
county contiguous to the area described in (1) in which retail 
customers of the utility are located if such area is not also 
served by another utility providing the same service.

Ruling request for higher prepayment amounts

    Upon written request, the Secretary may allow an issuer to 
prepay for an amount of gas greater than that allowed by the 
safe harbor based on objective evidence of growth in gas 
consumption or population that demonstrates that the amount 
permitted by the exception is insufficient.

                             EFFECTIVE DATE

    The provision is effective for obligations issued after the 
date of enactment.

   J. Prepayment of Premium Liability for Coal Miner Health Benefits


(Sec. 211 of the bill and sec. 9704 of the Code)

                              PRESENT LAW

    The United Mine Workers of America (``UMWA'') Combined 
Benefit Fund was established by the Coal Industry Retiree 
Health Benefit Act of 1992 (the ``Coal Act'') to assume 
responsibility of payments for medical care expenses of retired 
miners and their dependents who were eligible for heath care 
from the private 1950 and 1974 UMWA Benefit Plans. The Combined 
Benefit Fund is financed by assessments on current and former 
signatories to labor agreements with the UMWA, past transfers 
from an overfunded United Mine Workers pension fund, and 
transfers from the Abandoned Mine Reclamation Fund. The Social 
Security Administration is responsible for assigning eligible 
retired miners and their dependents to current and former 
signatories to labor agreements with the UMWA and calculating 
annual contributions to be paid by each such signatory for each 
beneficiary assigned to the signatory. The Coal Act uses the 
term ``assigned operator'' to refer to the signatory to which 
liability for a particular beneficiary of the Combined Benefit 
Fund has been assigned. Under the Coal Act, related persons to 
signatories to the relevant labor agreements may have liability 
for premium payments. In addition, successors to assigned 
operators may also have such liability.

                           REASONS FOR CHANGE

    The Committee is concerned about the ongoing viability of 
companies in the coal industry. The Committee understands that 
because assigned operators that are members of controlled 
groups of corporations must reflect Coal Act liabilities in 
attempting to arrange financing for their businesses, such 
companies have difficulty undertaking regular business 
transactions. Accordingly, the Committee believes that an 
assigned operator that is a member of controlled group of 
corporations should be permitted to prepay its premium 
liability to the Combined Benefit Fund while the common parent 
of such group remains liable for any premium for which the 
operator would otherwise be liable.

                        EXPLANATION OF PROVISION

    The provision allows assigned operators that are members of 
a controlled group of corporations to prepay their premium 
liability to the Combined Benefit Fund. Under the provision, 
only the common parent (and no other person) is liable for the 
premiums of an assigned operator which is a member of the 
parent's controlled group if: (1) the assigned operator makes a 
payment to the Combined Benefit Fund meeting certain 
requirements; (2) the parent is jointly and severally liable 
for any premium which would otherwise be required to be paid by 
the operator; and (3) the parent provides certain security.
    Under the provision, in order for the relief from liability 
to apply to the assigned operator: (1) the payment by the 
assigned operator (described in (1) above) must be no less than 
the present value of the total premium liability of the 
assigned operator, as determined by the operator's enrolled 
actuary, using actuarial methods and assumptions each of which 
is reasonable and which are reasonable in the aggregate (as 
determined by such actuary); (2) the enrolled actuary must file 
with the Department of Labor an actuarial report regarding the 
valuation made by the actuary; and (3) the parent must file a 
description of the security provided with the Secretary of 
Labor. The Secretary of Labor has 30 days after the filing of 
the reports in (2) and (3) to notify the operator if the 
Secretary believes the applicable requirements have not been 
satisfied.
    The security provided by the parent must be provided to the 
trustees of the 1992 UMWA Benefit Plan, solely for the purpose 
of paying premiums for eligible beneficiaries, and must be 
equal to one year's premium liability of the assigned operator 
(determined using the average cost of the operator's liability 
during the prior three years). The security must remain in 
place for five years. The security must be in the form of a 
bond, letter of credit or cash escrow.
    Any prepayment made under the provision is to be used 
exclusively to pay premiums for which the operator would 
otherwise be liable.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                            III. PRODUCTION


      A. Tax Credit for Oil and Gas Production From Marginal Wells


(Sec. 301 of the bill and new sec. 45J of the Code)

                              PRESENT LAW

    There is no credit for the production of oil and gas from 
marginal wells. The costs of such production may be recovered 
under the Code's depreciation and depletion rules and in other 
cases as a deduction for ordinary and necessary business 
expenses.

                           REASONS FOR CHANGE

    The highly volatile price of oil and gas can result in lost 
production during periods when prices are low. The Committee 
has learned that once a producing well is shut in, that source 
of supply may be forever lost. To increase domestic supply, the 
Committee determined that a tax credit will help ensure that 
supply is not lost as a result of low market prices.

                        EXPLANATION OF PROVISION

    The provision creates a new, $3 per barrel credit for the 
production of crude oil and a $0.50 per 1,000 cubic feet of 
qualified natural gas production. The maximum amount of 
production on which credit can be claimed is 1,095 barrels or 
barrel equivalents. In both cases, the credit is available only 
for production from a ``qualified marginal well.'' The credit 
is not available to production occurring if the reference price 
of oil exceeds $18 ($2.00 for natural gas). The credit is 
reduced proportionately for reference prices between $15 and 
$18 ($1.67 and $2.00 for natural gas). Reference prices are 
determined on a one-year look-back basis.
    A qualified marginal well is defined as (1) a domestic well 
the production from which is treated as marginal production for 
purposes of the Code percentage depletion rules or (2) a 
domestic well that during the taxable year had (a) average 
daily production of not more than 25 barrel equivalents and (b) 
produced water at a rate of not less than 95 percent of total 
well effluent.
    The credit is treated as a general business credit but is 
allowed against the alternative minimum tax. Additionally, 
unused credits can be carried back for up to 10 years rather 
than the generally applicable carryback period of one year.

                             EFFECTIVE DATE

    The provision is effective for production in taxable years 
beginning after December 31, 2003.

 B. Temporary Suspension of Limitation Based on 65 Percent of Taxable 
Income and Extension of Suspension of Taxable Income Limit With Respect 
                         to Marginal Production


(Sec. 302 of the bill and sec. 613A of the Code)

                              PRESENT LAW

In general

    Depletion, like depreciation, is a form of capital cost 
recovery. In both cases, the taxpayer is allowed a deduction in 
recognition of the fact that an asset--in the case of depletion 
for oil or gas interests, the mineral reserve itself--is being 
expended in order to produce income. Certain costs incurred 
prior to drilling an oil or gas property are recovered through 
the depletion deduction. These include costs of acquiring the 
lease or other interest in the property and geological and 
geophysical costs (in advance of actual drilling).
    Depletion is available to any person having an economic 
interest in a producing property. An economic interest is 
possessed in every case in which the taxpayer has acquired by 
investment any interest in minerals in place, and secures, by 
any form of legal relationship, income derived from the 
extraction of the mineral, to which it must look for a return 
of its capital.\28\ Thus, for example, both working interests 
and royalty interests in an oil- or gas-producing property 
constitute economic interests, thereby qualifying the interest 
holders for depletion deductions with respect to the property. 
A taxpayer who has no capital investment in the mineral deposit 
does not possess an economic interest merely because it 
possesses an economic or pecuniary advantage derived from 
production through a contractual relation.
---------------------------------------------------------------------------
    \28\ Treas. Reg. sec. 1.611-1(b)(1).
---------------------------------------------------------------------------
            Cost depletion
    Two methods of depletion are currently allowable under the 
Internal Revenue Code (the ``Code''): (1) the cost depletion 
method, and (2) the percentage depletion method (secs. 611-
613). Under the cost depletion method, the taxpayer deducts 
that portion of the adjusted basis of the depletable property 
which is equal to the ratio of units sold from that property 
during the taxable year to the number of units remaining as of 
the end of taxable year plus the number of units sold during 
the taxable year. Thus, the amount recovered under cost 
depletion may never exceed the taxpayer's basis in the 
property.
            Percentage depletion and related income limitations
    The Code generally limits the percentage depletion method 
for oil and gas properties to independent producers and royalty 
owners.\29\ Generally, under the percentage depletion method 15 
percent of the taxpayer's gross income from an oil- or gas-
producing property is allowed as a deduction in each taxable 
year (sec. 613A(c)). The amount deducted generally may not 
exceed 100 percent of the net income from that property in any 
year (the ``net-income limitation'') (sec. 613(a)). By 
contrast, for any other mineral qualifying for the percentage 
depletion deduction, such deduction may not exceed 50 percent 
of the taxpayer's taxable income from the depletable property. 
A similar 50-percent net-income limitation applied to oil and 
gas properties for taxable years beginning before 1991. Section 
11522(a) of the Omnibus Budget Reconciliation Act of 1990 
prospectively changed the net-income limitation threshold to 
100 percent only for oil and gas properties, effective for 
taxable years beginning after 1990. The 100-percent net-income 
limitation for marginal wells has been suspended for taxable 
years beginning after December 31, 1997, and before January 1, 
2004.
---------------------------------------------------------------------------
    \29\ Sec. 613A.
---------------------------------------------------------------------------
    Additionally, the percentage depletion deduction for all 
oil and gas properties may not exceed 65 percent of the 
taxpayer's overall taxable income (determined before such 
deduction and adjusted for certain loss carrybacks and trust 
distributions) (sec. 613A(d)(1)).\30\ Because percentage 
depletion, unlike cost depletion, is computed without regard to 
the taxpayer's basis in the depletable property, cumulative 
depletion deductions may be greater than the amount expended by 
the taxpayer to acquire or develop the property.
---------------------------------------------------------------------------
    \30\ Amounts disallowed as a result of this rule may be carried 
forward and deducted in subsequent taxable years, subject to the 65-
percent taxable income limitation for those years.
---------------------------------------------------------------------------
    A taxpayer is required to determine the depletion deduction 
for each oil or gas property under both the percentage 
depletion method (if the taxpayer is entitled to use this 
method) and the cost depletion method. If the cost depletion 
deduction is larger, the taxpayer must utilize that method for 
the taxable year in question (sec. 613(a)).

Limitation of oil and gas percentage depletion to independent producers 
        and royalty owners

    Generally, only independent producers and royalty owners 
(as contrasted to integrated oil companies) are allowed to 
claim percentage depletion. Percentage depletion for eligible 
taxpayers is allowed only with respect to up to 1,000 barrels 
of average daily production of domestic crude oil or an 
equivalent amount of domestic natural gas (sec. 613A(c)). For 
producers of both oil and natural gas, this limitation applies 
on a combined basis.
    In addition to the independent producer and royalty owner 
exception, certain sales of natural gas under a fixed contract 
in effect on February 1, 1975, and certain natural gas from 
geopressured brine,\31\ are eligible for percentage depletion, 
at rates of 22 percent and 10 percent, respectively. These 
exceptions apply without regard to the 1,000-barrel-per-day 
limitation and regardless of whether the producer is an 
independent producer or an integrated oil company.
---------------------------------------------------------------------------
    \31\ This exception is limited to wells, the drilling of which 
began between September 30, 1978, and January 1, 1984.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is concerned that, while current oil and gas 
operations may be profitable, the highly volatile nature of oil 
and gas prices could quickly create economic hardships in the 
industry. The potential problem could be particularly acute in 
those communities where a large percentage of jobs are related 
to the oil and gas industry. Thus, to help minimize the adverse 
effects of future price fluctuations, the Committee believes it 
is appropriate to suspend 100-percent net-income limitation for 
marginal wells and the 65-percent of taxable income limitation. 
The Committee believes that mitigating the effects of future 
price fluctuations will help ensure current and future domestic 
supply.

                        EXPLANATION OF PROVISION

    The limit on percentage depletion deductions to no more 
than 65 percent of the taxpayer's overall taxable income is 
suspended for taxable years beginning after December 31, 2003, 
and before January 1, 2007. The suspension of the 100-percent 
net-income limitation for marginal wells is extended through 
taxable years beginning before January 1, 2007.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2003.

                C. Amortization of Delay Rental Payments


(Sec. 303 of the bill and new sec. 199A of the Code)

                              PRESENT LAW

    Present law generally requires costs associated with 
inventory and property held for resale to be capitalized rather 
than currently deducted as they are incurred. (sec. 263). Oil 
and gas producers typically contract for mineral production in 
exchange for royalty payments. If mineral production is 
delayed, these contracts provide for ``delay rental payments'' 
as a condition of their extension. The Treasury Department has 
taken the position that the uniform capitalization rules of 
section 263A require delay rental payments to be capitalized.

                           REASONS FOR CHANGE

    The Committee believes that substantial simplification for 
taxpayers and significant gains in taxpayer compliance and 
reductions in administrative cost can be contained by 
establishing the simple rule that all delay rental payments may 
be amortized over two years, including the basis of abandoned 
property.

                        EXPLANATION OF PROVISION

    The provision allows delay rental payments incurred in 
connection with the development of oil or gas within the United 
States to be amortized over two years. In the case of abandoned 
property, remaining basis may no longer be recovered in the 
year of abandonment of a property as all basis is recovered 
over the two-year amortization period.

                             EFFECTIVE DATE

    The provision applies to delay rental payments paid or 
incurred in taxable years beginning after December 31, 2003. No 
inference is intended from the prospective effective date of 
this proposal as to the proper treatment of pre-effective date 
delay rental payments.

       D. Amortization of Geological and Geophysical Expenditures


(Sec. 304 of the bill and new sec. 199 of the Code)

                              PRESENT LAW

In general

    Geological and geophysical expenditures (``G&G costs'') are 
costs incurred by a taxpayer for the purpose of obtaining and 
accumulating data that will serve as the basis for the 
acquisition and retention of mineral properties by taxpayers 
exploring for minerals. A key issue with respect to the tax 
treatment of such expenditures is whether or not they are 
capital in nature. Capital expenditures are not currently 
deductible as ordinary and necessary business expenses, but are 
allocated to the cost of the property.\32\
---------------------------------------------------------------------------
    \32\ Under section 263, capital expenditures are defined generally 
as any amount paid for new buildings or for permanent improvements or 
betterments made to increase the value of any property or estate. 
Treasury regulations define capital expenditures to include amounts 
paid or incurred (1) to add to the value, or substantially prolong the 
useful life, of property owned by the taxpayer or (2) to adapt property 
to a new or different use. Treas. Reg. sec. 1.263(a)-1(b).
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    Courts have held that G&G costs are capital, and therefore 
are allocable to the cost of the property \33\ acquired or 
retained.\34\ The costs attributable to such exploration are 
allocable to the cost of the property acquired or retained. As 
described further below, IRS administrative rulings have 
provided further guidance regarding the definition and proper 
tax treatment of G&G costs.
---------------------------------------------------------------------------
    \33\ ``Property'' means an interest in a property as defined in 
section 614 of the Code, and includes an economic interest in a tract 
or parcel of land notwithstanding that a mineral deposit has not been 
established or proved at the time the costs are incurred.
    \34\ See, e.g., Schermerhorn Oil Corporation v. Commissioner, 46 
B.T.A. 151 (1942). By contrast, section 617 of the Code permits a 
taxpayer to elect to deduct certain expenditures incurred for the 
purpose of ascertaining the existence, location, extent, or quality of 
any deposit of ore or other mineral (but not oil and gas). These 
deductions are subject to recapture if the mine with respect to which 
the expenditures were incurred reaches the producing stage.
---------------------------------------------------------------------------

Revenue Ruling 77-188

    In Revenue Ruling 77-188 \35\ (hereinafter referred to as 
the ``1977 ruling''), the IRS provided guidance regarding the 
proper tax treatment of G&G costs. The ruling describes a 
typical geological and geophysical exploration program as 
containing the following elements:
---------------------------------------------------------------------------
    \35\ 1977-1 C.B. 76.
---------------------------------------------------------------------------
     It is customary in the search for mineral 
producing properties for a taxpayer to conduct an exploration 
program in one or more identifiable project areas. Each project 
area encompasses a territory that the taxpayer determines can 
be explored advantageously in a single integrated operation. 
This determination is made after analyzing certain variables 
such as (1) the size and topography of the project area to be 
explored, (2) the existing information available with respect 
to the project area and nearby areas, and (3) the quantity of 
equipment, the number of personnel, and the amount of money 
available to conduct a reasonable exploration program over the 
project area.
     The taxpayer selects a specific project area from 
which geological and geophysical data are desired and conducts 
a reconnaissance-type survey utilizing various geological and 
geophysical exploration techniques. These techniques are 
designed to yield data that will afford a basis for identifying 
specific geological features with sufficient mineral potential 
to merit further exploration.
     Each separable, noncontiguous portion of the 
original project area in which such a specific geological 
feature is identified is a separate ``area of interest.'' The 
original project area is subdivided into as many small projects 
as there are areas of interest located and identified within 
the original project area. If the circumstances permit a 
detailed exploratory survey to be conducted without an initial 
reconnaissance-type survey, the project area and the area of 
interest will be coextensive.
     The taxpayer seeks to further define the 
geological features identified by the prior reconnaissance-type 
surveys by additional, more detailed, exploratory surveys 
conducted with respect to each area of interest. For this 
purpose, the taxpayer engages in more intensive geological and 
geophysical exploration employing methods that are designed to 
yield sufficiently accurate sub-surface data to afford a basis 
for a decision to acquire or retain properties within or 
adjacent to a particular area of interest or to abandon the 
entire area of interest as unworthy of development by mine or 
well.
    The 1977 ruling provides that if, on the basis of data 
obtained from the preliminary geological and geophysical 
exploration operations, only one area of interest is located 
and identified within the original project area, then the 
entire expenditure for those exploratory operations is to be 
allocated to that one area of interest and thus capitalized 
into the depletable basis of that area of interest. On the 
other hand, if two or more areas of interest are located and 
identified within the original project area, the entire 
expenditure for the exploratory operations is to be allocated 
equally among the various areas of interest.
    If no areas of interest are located and identified by the 
taxpayer within the original project area, then the 1977 ruling 
states that the entire amount of the G&G costs related to the 
exploration is deductible as a loss under section 165. The loss 
is claimed in the taxable year in which that particular project 
area is abandoned as a potential source of mineral production.
    A taxpayer may acquire or retain a property within or 
adjacent to an area of interest, based on data obtained from a 
detailed survey that does not relate exclusively to any 
discrete property within a particular area of interest. 
Generally, under the 1977 ruling, the taxpayer allocates the 
entire amount of G&G costs to the acquired or retained property 
as a capital cost under section 263(a). If more than one 
property is acquired, it is proper to determine the amount of 
the G&G costs allocable to each such property by allocating the 
entire amount of the costs among the properties on the basis of 
comparative acreage.
    If, however, no property is acquired or retained within or 
adjacent to that area of interest, the entire amount of the G&G 
costs allocable to the area of interest is deductible as a loss 
under section 165 for the taxable year in which such area of 
interest is abandoned as a potential source of mineral 
production.
    In 1983, the IRS issued Revenue Ruling 83-105,\36\ which 
elaborates on the positions set forth in the 1977 ruling by 
setting forth seven factual situations and applying the 
principles of the 1977 ruling to those situations. In addition, 
Revenue Ruling 83-105 explains what constitutes ``abandonment 
as a potential source of mineral production.''
---------------------------------------------------------------------------
    \36\ 1983-2 C.B. 51.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that substantial simplification for 
taxpayers, significant gains in taxpayer compliance, and 
reductions in administrative cost can be obtained by 
establishing the simple rule that all geological and 
geophysical costs may be amortized over two years, including 
the basis of abandoned property.
    The Committee recognizes that, on average, a two-year 
amortization period accelerates recovery of geological and 
geophysical expenses. The Committee believes that more rapid 
recovery of such expenses will foster increased exploration for 
new sources of supply.

                        EXPLANATION OF PROVISION

    The provision allows geological and geophysical costs 
incurred in connection with oil and gas exploration in the 
United States to be amortized over two years. In the case of 
abandoned property, remaining basis may no longer be recovered 
in the year of abandonment of a property as all basis is 
recovered over the two-year amortization period.

                             EFFECTIVE DATE

    The provision is effective for G&G costs paid or incurred 
in taxable years beginning after December 31, 2003. No 
inference is intended from the prospective effective date of 
this proposal as to the proper treatment of pre-effective date 
geological and geophysical costs.

 E. Extension and Modification of Credit for Producing Fuel From a Non-
                          Conventional Source


(Sec. 305 of the bill and sec. 29 and new sec. 45J of the Code)

                              PRESENT LAW

    Certain fuels produced from ``non-conventional sources'' 
and sold to unrelated parties are eligible for an income tax 
credit equal to $3 (generally adjusted for inflation) \37\ per 
barrel or Btu oil barrel equivalent (sec. 29). Qualified fuels 
must be produced within the United States.
---------------------------------------------------------------------------
    \37\ The value of the section 29 credit for production in 2001 was 
$6.28 per barrel of oil equivalent.
---------------------------------------------------------------------------
    Qualified fuels include:
          (1) oil produced from shale and tar sands;
          (2) gas produced from geopressured brine, Devonian 
        shale, coal seams, tight formations (``tight sands''), 
        or biomass; and
          (3) liquid, gaseous, or solid synthetic fuels 
        produced from coal (including lignite).
    In general, the credit is available only with respect to 
fuels produced from wells drilled or facilities placed in 
service after December 31, 1979, and before January 1, 1993. An 
exception extends the January 1, 1993 expiration date for 
facilities producing gas from biomass and synthetic fuel from 
coal if the facility producing the fuel is placed in service 
before July 1, 1998, pursuant to a binding contract entered 
into before January 1, 1997.
    The credit may be claimed for qualified fuels produced and 
sold before January 1, 2003 in the case of non-conventional 
sources subject to the January 1, 1993 expiration date) or 
January 1, 2008 (in the case of biomass gas and synthetic fuel 
facilities eligible for the extension period).

                           REASONS FOR CHANGE

    The Committee concludes that the section 29 credit has 
brought forth oil and natural gas from domestic sources and 
that in the absence of these non-conventional sources the 
demand for imported fuels may have increased. To increase 
domestic sources of supply, the Committee believes it is 
appropriate to extend the section 29 credit to help foster new 
domestic fuel sources. The Committee is also concerned that, 
because of the higher extraction costs of these non-
conventional sources, the expiration of existing section 29 
benefits could lead to the loss of needed domestic fuel 
production. Therefore, the Committee believes it is appropriate 
to extend the credit for certain fuels produced from existing 
wells or facilities.
    The Committee recognizes that the world price of oil has 
not risen to levels forecast in 1978. Therefore, the Committee 
believes it is appropriate to restart the section 29 credit at 
a level lower than that currently available to existing 
production.
    The Committee recognizes that section 29 is not part of the 
general business credits and therefore no carryback or 
carryforward is available for the credit. The Committee 
believes that the carryback and carryforward rules should apply 
to the section 29 credit, and therefore believes it is 
appropriate to treat the section 29 credit as part of the 
general business credits.

                        EXPLANATION OF PROVISION

    The provision permits taxpayers to claim the sec. 29 credit 
for production of certain non-conventional fuels produced at 
wells placed in service after April 1, 2003 and before January 
1, 2007. Qualifying fuels are oil from shale or tar sands, and 
gas from geopressured brine, Devonian shale, coal seams or a 
tight formation. The value of the credit is $3.00 for 
production in 2003 and is indexed for inflation commencing with 
the credit amount for 2004. The credit could be claimed for 
production from the well for each of the first four years of 
production, but not for any production occurring after December 
31, 2009.
    The provision further permits production from certain 
existing wells (any well drilled after December 31, 1979 and 
before January 1, 1993) to claim a credit equal to the newly 
re-indexed value of $3.00 for production in 2003 after date of 
enactment through 2006.
    The provision also permits landfill gas sold to a third 
party from facilities placed in service after June 30, 1998 and 
before January 1, 2007 to be eligible for five years of credit 
from the later of the date of enactment or the date the 
facility is placed in service. The amount of credit is $3.00 
per barrel equivalent in 2003 and is indexed for inflation 
commencing with the credit amount for 2004. In the case of a 
landfill subject to the Environmental Protection Agency's 1996 
New Source Performance Standards/Emissions Guidelines the 
amount of credit is $2.00 per barrel equivalent in 2003 and is 
indexed for inflation commencing with the credit amount for 
2004.
    Under the provision, the taxpayer may not claim any credit 
for production in excess of a daily average of 200,000 cubic 
feet of gas (or barrel of oil equivalent) from a qualifying 
well or facility.\38\
---------------------------------------------------------------------------
    \38\ The daily average is computed as total production divided by 
the total number of days the well or facility was in production during 
the year.
---------------------------------------------------------------------------
    The provision also adds section 29 to the list of general 
business credits.

                             EFFECTIVE DATE

    The provision applies to fuel sold from qualifying wells 
and facilities after the April 1, 2003.

   F. Allow Certain Business Energy Credits Against the Alternative 
                              Minimum Tax


(Sec. 306 of the bill and sec. 38 of the Code)

                              PRESENT LAW

    Present law imposes an alternative minimum tax on 
individuals and corporations in an amount equal to the excess 
of the tentative minimum tax over the regular tax liability. 
The tentative minimum tax is an amount equal to specified rates 
of tax imposed on the excess of the alternative minimum taxable 
income over an exemption amount.
    Generally, business credits may not exceed the excess of 
the regular tax liability over the tentative minimum tax.

                           REASONS FOR CHANGE

    Under present law, the alternative minimum tax limits the 
intended incentive effects of tax credits for some taxpayers. 
The Committee believes that the incentive effects of business 
energy credits should be available to taxpayers regardless of 
their alternative minimum tax status. Accordingly, the bill 
provides that the certain business energy credits can be 
utilized by offsetting both the regular tax and the alternative 
minimum tax.

                        EXPLANATION OF PROVISION

    The provision makes the minimum tax limitation inapplicable 
to the business energy credits added by the bill. These credits 
include the credit for construction of new energy efficient 
homes (sec. 45G), the credit for production of low sulphur 
diesel fuel (sec. 45H), and the credit for oil and gas 
production from marginal wells (sec. 45I).
    In addition, the minimum tax limitation is inapplicable to 
the credit for electricity produced from certain renewable 
sources (sec. 45) to the extent attributable to a wind energy 
facility placed in service after the date of enactment of this 
bill and during the 4-year period beginning on the date the 
facility is originally placed in service.

                             EFFECTIVE DATE

    The provision applies to taxable years ending after the 
date of enactment.

 G. Repeal Alternative Minimum Tax Intangible Drilling Costs (``IDC'') 
                 Preference for Oil and Gas Production


(Sec. 307 of the bill and sec. 57 of the Code)

                              PRESENT LAW

    Taxpayers who pay or incur intangible drilling or 
development costs (``IDCs'') in the development of domestic oil 
or gas production may elect to either expense or capitalize 
these amounts. If an election to expense IDCs is made, the 
taxpayer deducts the amount of the IDCs as an expense in the 
taxable year the cost is paid or incurred.
    The difference between the amount of a taxpayer's IDC 
deduction and the amount which would have been currently 
deductible had IDCs been capitalized and recovered over a 10-
year period is an item of tax preference for the alternative 
minimum tax (``AMT'') to the extent that this amount exceeds 65 
percent of the taxpayer's net income from oil and gas 
properties for the taxable year. This preference applies to 
taxpayers other than integrated oil companies only to the 
extent that the failure to apply the preference would result in 
a reduction of the taxpayer's alternative minimum taxable 
income by more than 40 percent.

                           REASONS FOR CHANGE

    Under present law, the alternative minimum tax limits the 
intended incentive effects of IDC expensing for some taxpayers. 
The Committee wishes to increase the effectiveness of the IDC 
expensing provision by repealing the AMT preference for 
taxpayers other than integrated oil companies. The Committee 
believes this will increase the supply of oil and gas.

                        EXPLANATION OF PROVISION

    The provision repeals, for two years, the AMT preference 
for intangible drilling costs for oil and gas wells for 
taxpayers other than integrated oil companies.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2003, and before January 1, 2006.

 H. Allow Enhanced Oil Recovery Credit Against the Alternative Minimum 
                                  Tax


(Sec. 308 of the bill and sec. 38 of the Code)

                              PRESENT LAW

    Present law imposes an alternative minimum tax on 
individuals and corporations in an amount equal to the excess 
of the tentative minimum tax over the regular tax liability. 
The tentative minimum tax is an amount equal to specified rates 
of tax imposed on the excess of the alternative minimum taxable 
income over an exemption amount.
    Generally, business credits may not exceed the excess of 
the regular tax liability over the tentative minimum tax. One 
of these credits is the enhanced oil recovery credit (sec. 43).

                           REASONS FOR CHANGE

    Under present law, the alternative minimum tax limits the 
intended incentive effect of the enhanced oil recovery credit 
for some taxpayers. The Committee believes that the enhanced 
oil recovery credit should be utilized by offsetting both the 
regular tax and the alternative minimum tax. The Committee 
believes this will increase the supply of oil.

                        EXPLANATION OF PROVISION

    The provision repeals, for two years, the minimum tax 
limitation on the enhanced oil recovery credit.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2003, and beginning before January 1, 2006.

                       IV. CORPORATE EXPATRIATION


               A. Tax Treatment of Corporate Expatriation


(Sec. 401 of the bill and new sec. 7874 of the Code)

                              PRESENT LAW

Determination of corporate residence

    The U.S. tax treatment of a multinational corporate group 
depends significantly on whether the top-tier parent 
corporation of the group is domestic or foreign. For purposes 
of U.S. tax law, a corporation is treated as domestic if it is 
incorporated under the law of the United States or of any 
State. All other corporations (i.e., those incorporated under 
the laws of foreign countries) are treated as foreign.

U.S. taxation of domestic corporations

    The United States employs a ``worldwide'' tax system, under 
which domestic corporations generally are taxed on all income, 
whether derived in the United States or abroad. In order to 
mitigate the double taxation that may arise from taxing the 
foreign-source income of a domestic corporation, a foreign tax 
credit for income taxes paid to foreign countries is provided 
to reduce or eliminate the U.S. tax owed on such income, 
subject to certain limitations.
    Income earned by a domestic parent corporation from foreign 
operations conducted by foreign corporate subsidiaries 
generally is subject to U.S. tax when the income is distributed 
as a dividend to the domestic corporation. Until such 
repatriation, the U.S. tax on such income is generally 
deferred. However, certain anti-deferral regimes may cause the 
domestic parent corporation to be taxed on a current basis in 
the United States with respect to certain categories of passive 
or highly mobile income earned by its foreign subsidiaries, 
regardless of whether the income has been distributed as a 
dividend to the domestic parent corporation. The main anti- 
deferral regimes in this context are the controlled foreign 
corporation rules of subpart F \39\ and the passive foreign 
investment company rules.\40\ A foreign tax credit is generally 
available to offset, in whole or in part, the U.S. tax owed on 
this foreign-source income, whether repatriated as an actual 
dividend or included under one of the anti-deferral regimes.
---------------------------------------------------------------------------
    \39\ Secs. 951-964.
    \40\ Secs. 1291-1298.
---------------------------------------------------------------------------

U.S. taxation of foreign corporations

    The United States taxes foreign corporations only on income 
that has a sufficient nexus to the United States. Thus, a 
foreign corporation is generally subject to U.S. tax only on 
income that is ``effectively connected'' with the conduct of a 
trade or business in the United States. Such ``effectively 
connected income'' generally is taxed in the same manner and at 
the same rates as the income of a U.S. corporation. An 
applicable tax treaty may limit the imposition of U.S. tax on 
business operations of a foreign corporation to cases in which 
the business is conducted through a ``permanent establishment'' 
in the United States.
    In addition, foreign corporations generally are subject to 
a gross-basis U.S. tax at a flat 30-percent rate on the receipt 
of interest, dividends, rents, royalties, and certain similar 
types of income derived from U.S. sources, subject to certain 
exceptions. The tax generally is collected by means of 
withholding by the person making the payment. This tax may be 
reduced or eliminated under an applicable tax treaty.

U.S. tax treatment of inversion transactions

    Under present law, U.S. corporations may reincorporate in 
low-tax foreign jurisdictions and thereby replace the U.S. 
parent corporation of a multinational corporate group with a 
foreign parent corporation. These transactions are commonly 
referred to as inversion transactions. Inversion transactions 
may take many different forms, including stock inversions, 
asset inversions, and various combinations of and variations on 
the two. Most of the known transactions to date have been stock 
inversions. In one example of a stock inversion, a U.S. 
corporation forms a foreign corporation, which in turn forms a 
domestic merger subsidiary. The domestic merger subsidiary then 
merges into the U.S. corporation, with the U.S. corporation 
surviving, now as a subsidiary of the new foreign corporation. 
The U.S. corporation's shareholders receive shares of the 
foreign corporation and are treated as having exchanged their 
U.S. corporation shares for the foreign corporation shares. An 
asset inversion reaches a similar result, but through a direct 
merger of the top-tier U.S. corporation into a new foreign 
corporation, among other possible forms. An inversion 
transaction may be accompanied or followed by further 
restructuring of the corporate group. For example, in the case 
of a stock inversion, in order to remove income from foreign 
operations from the U.S. taxing jurisdiction, the U.S. 
corporation may transfer some or all of its foreign 
subsidiaries directly to the new foreign parent corporation or 
other related foreign corporations.
    In addition to removing foreign operations from the U.S. 
taxing jurisdiction, the corporate group may derive further 
advantage from the inverted structure by reducing U.S. tax on 
U.S.-source income through various earnings stripping or other 
transactions. This may include earnings stripping through 
payment by a U.S. corporation of deductible amounts such as 
interest, royalties, rents, or management service fees to the 
new foreign parent or other foreign affiliates. In this 
respect, the post-inversion structure enables the group to 
employ the same tax- reduction strategies that are available to 
other multinational corporate groups with foreign parents and 
U.S. subsidiaries, subject to the same limitations.\41\
---------------------------------------------------------------------------
    \41\ See, e.g., secs. 163(j) and 482.
---------------------------------------------------------------------------
    Inversion transactions may give rise to immediate U.S. tax 
consequences at the shareholder and/or the corporate level, 
depending on the type of inversion. In stock inversions, the 
U.S. shareholders generally recognize gain (but not loss) under 
section 367(a), based on the difference between the fair market 
value of the foreign corporation shares received and the 
adjusted basis of the domestic corporation stock exchanged. To 
the extent that a corporation's share value has declined, and/
or it has many foreign or tax-exempt shareholders, the impact 
of this section 367(a) ``toll charge'' is reduced. The transfer 
of foreign subsidiaries or other assets to the foreign parent 
corporation also may give rise to U.S. tax consequences at the 
corporate level (e.g., gain recognition and earnings and 
profits inclusions under sections 1001, 311(b), 304, 367, 1248 
or other provisions). The tax on any income recognized as a 
result of these restructurings may be reduced or eliminated 
through the use of net operating losses, foreign tax credits, 
and other tax attributes.
    In asset inversions, the U.S. corporation generally 
recognizes gain (but not loss) under section 367(a) as though 
it had sold all of its assets, but the shareholders generally 
do not recognize gain or loss, assuming the transaction meets 
the requirements of a reorganization under section 368.

                           REASONS FOR CHANGE

    The Committee is concerned about the reductions in taxes 
that some U.S. business enterprises may seek to achieve through 
inversion transactions. These transactions permit corporations 
and other entities to continue to conduct business in 
substantially the same manner as they did prior to the 
inversion, but with the result that the inverted entity avoids 
U.S. tax on income from foreign operations and may use 
earnings-stripping techniques to avoid U.S. tax on income from 
domestic operations. The Committee believes that it is 
inappropriate to allow U.S. business enterprises to achieve 
these tax benefits by means of transactions that have 
relatively little operational significance.
    At the same time, the Committee believes that the U.S. tax 
laws place domestically owned companies at a competitive 
disadvantage relative to foreign-owned companies, and thus 
create an incentive for domestically owned companies to become 
foreign-owned, via inversion or otherwise. The Committee 
believes that tax reform is needed to address these underlying 
problems, and that to enact permanent anti-inversion 
legislation without such reform would be to treat only one 
symptom of a deeper illness in the system.
    Balancing these concerns, the Committee believes that it is 
appropriate to impose a moratorium on inversion transactions 
while the Congress develops a solution to the relevant 
underlying problems in the tax system.

                        EXPLANATION OF PROVISION

    The provision denies the tax benefits of corporate 
inversion transactions completed after March 4, 2003 and before 
January 1, 2005, effectively imposing a moratorium on such 
transactions.
    For purposes of the provision, a corporate inversion 
transaction is a transaction in which, pursuant to a plan or a 
series of related transactions: (1) a U.S. corporation becomes 
a subsidiary of a foreign-incorporated entity or otherwise 
transfers substantially all of its properties to such an 
entity; (2) the former shareholders of the U.S. corporation 
hold (by reason of holding stock in the U.S. corporation) 80 
percent or more (by vote or value) of the stock of the foreign-
incorporated entity after the transaction; and (3) the foreign-
incorporated entity, considered together with all companies 
connected to it by a chain of greater than 50 percent ownership 
(i.e., the ``expanded affiliated group''), does not have 
substantial business activities in the entity's country of 
incorporation, compared to the total worldwide business 
activities of the expanded affiliated group. The proposal 
denies the intended tax benefits of this type of inversion by 
deeming the top-tier foreign corporation to be a domestic 
corporation for purposes of the Code.
    In determining whether a transaction meets the definition 
of an inversion under the proposal, stock held by members of 
the expanded affiliated group that includes the foreign 
incorporated entity is disregarded. For example, if the former 
top-tier U.S. corporation receives stock of the foreign 
incorporated entity (e.g., so-called ``hook'' stock), the stock 
would not be considered in determining whether the transaction 
meets the definition of an inversion. Similarly, if a U.S. 
parent corporation converts an existing wholly owned U.S. 
subsidiary into a wholly owned controlled foreign corporation, 
the stock of the new foreign corporation would be disregarded, 
and the definition would not be met. Stock sold in a public 
offering related to the transaction also is disregarded for 
these purposes.
    Transfers of properties or liabilities as part of a plan a 
principal purpose of which is to avoid the purposes of the 
proposal are disregarded. In addition, the Treasury Secretary 
is granted authority to prevent the avoidance of the purposes 
of the proposal, including avoidance through the use of related 
persons, pass-through or other noncorporate entities, or other 
intermediaries, and through transactions designed to qualify or 
disqualify a person as a related person or a member of an 
expanded affiliated group. Similarly, the Treasury Secretary is 
granted authority to treat certain non-stock instruments as 
stock, and certain stock as not stock, where necessary to carry 
out the purposes of the proposal.
    The provision also applies to partnership transactions in 
which a foreign-incorporated entity acquires substantially all 
of the properties constituting a trade or business of a 
domestic partnership, if after the acquisition at least 80 
percent of the stock of the entity is held by former partners 
of the partnership (by reason of holding their partnership 
interests), and the ``expanded affiliated group'' that includes 
the foreign-incorporated entity does not have substantial 
business activities in the entity's country of incorporation, 
compared to the total worldwide business activities of the 
expanded affiliated group. For purposes of applying this test, 
all partnerships that are under common control within the 
meaning of section 482 are treated as one partnership, except 
as provided otherwise in regulations.
    The provision explicitly provides that no treaty obligation 
shall prevent the application of the provision.

                             EFFECTIVE DATE

    The provision is effective for taxable years ending after 
March 4, 2003. The provision applies with respect to corporate 
inversion transactions completed after March 4, 2003 and before 
January 1, 2005.

B. Sense of the Congress that Tax Reform Is Needed To Address the Issue 
                       of Corporate Expatriation


(Sec. 402 of the bill)

                              PRESENT LAW

    The United States employs a ``worldwide'' tax system, under 
which domestic corporations generally are taxed on all income, 
whether derived in the United States or abroad. Income earned 
by a domestic parent corporation from foreign operations 
conducted by foreign corporate subsidiaries generally is 
subject to U.S. tax when the income is distributed as a 
dividend to the domestic corporation. Until such repatriation, 
the U.S. tax on such income is generally deferred. However, 
certain anti-deferral regimes may cause the domestic parent 
corporation to be taxed on a current basis in the United States 
with respect to certain categories of passive or highly mobile 
income earned by its foreign subsidiaries, regardless of 
whether the income has been distributed as a dividend to the 
domestic parent corporation. The main anti-deferral regimes in 
this context are the controlled foreign corporation rules of 
subpart F \42\ and the passive foreign investment company 
rules.\43\ A foreign tax credit is generally available to 
offset, in whole or in part, the U.S. tax owed on this foreign-
source income, whether repatriated as an actual dividend or 
included under one of the anti-deferral regimes.
---------------------------------------------------------------------------
    \42\ Secs. 951-964.
    \43\ Secs. 1291-1298.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the U.S. tax laws applicable to 
multinational business enterprises are significantly flawed, 
and that it is appropriate for the Congress to acknowledge 
these flaws and to indicate a commitment to remedying them.

                        EXPLANATION OF PROVISION

    The provision finds that the U.S. tax laws are overly 
complex and burdensome, placing domestically owned companies at 
a competitive disadvantage relative to foreign-owned companies, 
and thus creating an incentive for domestically owned companies 
to become foreign-owned, via inversion or otherwise. The 
provision expresses the Sense of the Congress ``that passage of 
legislation to fix the underlying problems with our tax laws is 
essential and should occur as soon as possible, so United 
States corporations will not face the current pressures to 
engage in inversion transactions.''

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                       V. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the bill, H.R. 1531.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 1531, as amended, was ordered favorably 
reported by a rollcall vote of 24 yeas to 12 nays (with a 
quorum being present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........        X   .........
Mr. Crane......................        X   ........  .........  Mr. Stark........  ........        X   .........
Mr. Shaw.......................        X   ........  .........  Mr. Matsui.......  ........  ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Houghton...................        X   ........  .........  Mr. Cardin.......  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. McCrery....................        X   ........  .........  Mr. Kleczka......  ........  ........  .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........  ........  .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................        X   ........  .........  Mr. Jefferson....  ........        X   .........
Ms. Dunn.......................        X   ........  .........  Mr. Tanner.......  ........        X   .........
Mr. Collins....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Portman....................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. English....................        X   ........  .........  Mr. Pomeroy......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Sandlin......        X   ........  .........
Mr. Weller.....................        X   ........  .........  Ms. Tubbs Jones..  ........        X   .........
Mr. Hulshof....................        X   ........  .........  .................  ........  ........  .........
Mr. McInnis....................  ........  ........  .........  .................  ........  ........  .........
Mr. Lewis (KY).................        X   ........  .........  .................  ........  ........  .........
Mr. Foley......................        X   ........  .........  .................  ........  ........  .........
Mr. Brady......................        X   ........  .........  .................  ........  ........  .........
Mr. Ryan.......................        X   ........  .........  .................  ........  ........  .........
Mr. Cantor.....................        X   ........  .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendment to 
the Chairman's amendment in the nature of a substitute.
    Mr. Neal offered an amendment to strike Title IV and insert 
a new section which would disregard for U.S. tax purposes 
corporate expatriation transactions completed after September 
11, 2001. Corporations that completed expatriation transactions 
on or before September 11, 2001, would be taxed as U.S. 
corporations beginning after December 31, 2003. This amendment 
was defeated by a roll call vote of 14 yeas to 21 nays. The 
vote was as follows:

----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......        X   ........  .........
Mr. Crane......................  ........        X   .........  Mr. Stark........        X   ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Matsui.......        X   ........  .........
Mrs. Johnson...................  ........  ........  .........  Mr. Levin........        X   ........  .........
Mr. Houghton...................  ........        X   .........  Mr. Cardin.......        X   ........  .........
Mr. Herger.....................  ........  ........  .........  Mr. McDermott....        X   ........  .........
Mr. McCrery....................  ........        X   .........  Mr. Kleczka......  ........  ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................        X   ........  .........  Mr. McNulty......  ........  ........  .........
Mr. Johnson....................  ........        X   .........  Mr. Jefferson....        X   ........  .........
Ms. Dunn.......................  ........        X   .........  Mr. Tanner.......        X   ........  .........
Mr. Collins....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Portman....................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. English....................  ........        X   .........  Mr. Pomeroy......  ........        X   .........
Mr. Hayworth...................  ........        X   .........  Mr. Sandlin......  ........  ........  .........
Mr. Weller.....................  ........        X   .........  Ms. Tubbs Jones..        X   ........  .........
Mr. Hulshof....................  ........        X   .........  .................  ........  ........  .........
Mr. McInnis....................  ........  ........  .........  .................  ........  ........  .........
Mr. Lewis (KY).................  ........        X   .........  .................  ........  ........  .........
Mr. Foley......................  ........        X   .........  .................  ........  ........  .........
Mr. Brady......................  ........        X   .........  .................  ........  ........  .........
Mr. Ryan.......................  ........        X   .........  .................  ........  ........  .........
Mr. Cantor.....................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

                     VI. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 1531 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2003-2008:

      ESTIMATED REVENUE EFFECTS OF H.R. 1531, THE ``ENERGY TAX POLICY ACT OF 2003,'' AS PASSED BY THE COMMITTEE ON WAYS AND MEANS ON APRIL 3, 2003
                                                    [Fiscal years 2003-2008, in millions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
             Provision                             Effective                   2003       2004       2005       2006       2007       2008      2003-08
--------------------------------------------------------------------------------------------------------------------------------------------------------
Conservation Provisions:
    A. 15% Credit for Residential    tyba 12/31/03........................  .........         -3        -14        -19        -23        -23         -83
     Solar Hot Water (through 12/31/
     06) and Photovoltaics (through
     12/31/08).
    B. Extend (facilities placed in  esfqfa DOE...........................        -34       -162       -275       -302       -396       -393      -1,562
     service through 12/31/06
     Modify the Section 45 Credit
     for Producing Electricity From
     Certain Sources.
    C. Tax Incentives for Fuel
     Cells:.
        1. Credit for non-business   epoia 12/31/03.......................  .........         -1         -6        -10        -11  .........         -28
         installation of qualifying
         fuel cells (through 12/31/
         06).
        2. Credit for business       epoia 12/31/03.......................  .........         -1         -3         -3         -2         -1         -10
         installation of qualifying
         fuel cells (through 12/31/
         06)..
    D. Modification of Provisions    ppisa 12/31/03.......................  .........        -52       -115       -247        -27         88        -353
     Relating to Electric Vehicles
     and Clean-Fuel Vehicles--
     repeal the phaseout of the
     deduction under section 179A
     (clean fuel vehicles) and the
     credit under section 30
     (electric vehicles); sunset 12/
     31/06; fuel cell credit
     (sunset 12/31/12); advanced
     lean burn vehicles credit
     (sunset 12/31/06).
    E. Credit for Energy Efficiency  tyba 12/31/03 & ppisb 1/1/07.........  .........        -20       -110       -144       -136        -47        -457
     Improvements to Existing Homes.
    F. Business Credit for           tyba 12/31/03 & ppisb 1/1/07.........  .........        -84       -175       -252       -164        -56        -731
     Construction of New Energy
     Efficient Homes.
    G. Energy Credit for Combined    episa 12/31/03 & episb 1/7/07........  .........        -52        -51        -23         -8          2        -134
     Heat and Power System Property.
    H. Allow New Nonbusiness Energy  tyba 12/31/03........................  .........         -1         -5         -7         -9         -6         -28
     Credits Against the
     Alternative Minimum Tax.
    I. Repeal General Fund Excise    1/1/04...............................  .........       -107       -156       -161       -166       -171        -761
     Taxes on Railroad Diesel Fuel
     and Inland Waterway Barge Fuel.
    J. Btu-Based Highway Excise Tax  fra 9/30/03..........................                            Loss of Less Than $500,000
     Rate for Diesel Fuel Blended
     with Water.
                                                                           -----------------------------------------------------------------------------
      Total of Conservation          .....................................        -34       -483       -910     -1,168       -942       -607      -4,147
       Provisions.
                                                                           =============================================================================
Reliability Provisions:
    A. Natural Gas Gathering         ppisa DOE............................         -2         -7        -12        -23        -23        -50        -117
     Pipelines Treated as Seven-
     Year Property and No Minimum
     Tax Adjustment.
    B. Gas Distribution Pipelines    ppisa DOE............................         -5        -23        -50        -79       -109       -136        -402
     Treated as 15-Year Property
     and No Minimum Tax Adjustment.
    C. Electricity Transmission      ppisa DOE............................        -10        -36        -69       -119       -162       -202        -598
     Property Rated 69kV or Greater
     Treated as 15-year Property
     and No Minimum Tax Adjustment.
    D. Expensing of Capital Costs    epoia doi............................  .........  .........  .........         -7        -13        -25         -45
     Incurred and Credit for
     Production in Complying with
     Environmental Protection
     Agency Sulfur Regulations for
     Small Refiners.
    E. Determination of Small        tyba 12/31/03........................  .........         -8        -12        -12        -13        -13         -57
     Refiner Exception to Oil
     Depletion Deduction--modify
     definition of independent
     refiner from daily maximum run
     less than 50,000 barrels to
     average daily run less than
     75,000 barrels.
    F. Election to Recognize Gain    ta DOE...............................       -403     -1,368     -1,592     -1,312        185        952      -3,536
     From Sale or Disposition of
     Electric Transmission Property
     to Implement Federal Energy
     Regulatory Commission or State
     Electric Restructuring Policy
     Ratably Over Eight-Year Period
     Subject to Qualified
     Reinvestment (applies to sales
     or dispositions complete prior
     to January 1, 2007).
    G. Modification to Special       tyba 2003............................  .........        -86       -181       -198       -186       -167        -818
     Rules for Nuclear
     Decommissioning Costs--
     transfer of non-qualified
     funds (seller gets deduction
     on sale); eliminate cost of
     service requirement; permit
     full funding in qualified
     fund; and clarify treatment of
     fund transfers.
    H. Treatment of Certain Income   tyba DOE.............................      (\1\)         -8        -18        -21        -23        -25         -26
     of Electric Cooperatives.
    I. Exempt Certain Prepayments    generally DOE........................      (\1\)      (\1\)         -1         -1         -2         -3          -7
     of Natural Gas From Tax-Exempt
     Bond Arbitrage Rules.
    J. Liability for Coal Miner        ...................................           Estimate to be Provided by the Congressional Budget Office
     Health Benefits \2\.
                                                                           -----------------------------------------------------------------------------
      Total of Reliability           -....................................       -420     -1,536     -1,935     -1,772       -346        331      -5,675
       Provisions.
                                                                           =============================================================================
Production Provisions:
    A. Tax Credit for Oil and Gas    pi tyba 12/31/03.....................                                No Revenue Effect
     Production From Marginal Wells.
    B. Temporary Suspension of       tyba 12/31/03........................  .........       -112       -173       -181        -65  .........        -531
     Limitation Based on 65 Percent
     of Taxable Income (through 12/
     31/06).
    C. Extension of Suspension of    tyba 12/31/03........................  .........        -22        -35        -36        -13  .........        -106
     100 Percent of Taxable Income
     Limit With Respect to Marginal
     Production (through 12/31/06).
    D. Amortize Delay Rental         apoii tyba 12/31/03..................  .........         82         25        -63        -66        -40         -63
     Payments Over 2 Years.
    F. Extension and Modification    fsfqfa 4/1/03........................        -64       -178       -324       -504       -603       -540      -2,213
     of Credit for Producing Fuel
     From a Non-Conventional Source
     (placed in service through 12/
     31/06).
    G. Allow Certain Business        tyea DOE.............................  .........        -47        -32         -8         26         33         -28
     Energy Credits Against the
     Alternative Minimum Tax.
    H. Temporary Repeal of           tyba 12/31/03 & tybb 1/1/06..........  .........        -33        -49        -10          9          8         -75
     Alternative Minimum Tax
     Intangible Drilling Costs
     (``IDC'') Preference.
    I. Temporary Allowance of        tyba 12/31/03 & tybb 1/1/06..........  .........        -88       -137       -142        -37         20        -383
     Enhanced Oil Recovery Credit
     Against the Alternative
     Minimum Tax.
                                                                           -----------------------------------------------------------------------------
      Total of Production            .....................................        -64       -331       -893     -1,396     -1,198       -850      -4,733
       Provisions.
                                                                           -----------------------------------------------------------------------------
Tax Treatment of Expatriated         tca 3/4/03...........................  .........          6         62         12          3  .........          83
 Entities (sunset 12/31/04).
                                                                           -----------------------------------------------------------------------------
      Net Total....................  .....................................       -518     -2,344     -3,676     -4,324     -2,483     -1,126     -14,472
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Loss of less than $1 million.
\2\ Estimate provided by the Congressional Budget Office.

 Legend for ``Effective'' column: apoii = amounts paid or incurred in; cpoii = costs paid or incurred in; DOE = date of enactment; doi = date of
  introduction; epoia = expenses paid or incurred after; episa = equipments placed in service after; episb = equipment placed in service before; esfqfa
  = electricity sold from qualifying facilities after; fra = fuels removed after; fsfqfa = fuel sold from qualifying facilities after; pi = production
  in; ppisa = property placed in service after.

Note.--Details may not add to totals due to rounding. Date of enactment is assumed to be July 1, 2003. Source Joint Committee on Taxation.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
bill involves no new or increased budget authority. The 
Committee further states that the revenue reducing income tax 
provisions involve increased tax expenditures. (See amounts in 
table in Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, April 7, 2003.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed estimate for H.R. 1531, the Energy Tax 
Policy Act of 2003.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Annie 
Bartsch (for federal revenues) and Alexis Ahlstrom (for federal 
spending).
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 1531--Energy Tax Policy Act of 2003

    Summary: H.R. 1531 would amend existing tax law and 
establish new laws relating to energy production and 
consumption. The bill also would alter the tax treatment of 
inversion transactions undertaken by certain expatriating 
entities and allow certain coal companies to prepay liabilities 
to the United Mine Workers of America Combined Benefit Fund 
(CBF).
    The Congressional Budget Office (CBO) and the Joint 
Committee on Taxation (JCT) estimate that H.R. 1531 would 
decrease governmental receipts by $474 million in 2003, by 
about $14.5 billion over the 2003-2008 period, and by about 
$18.7 billion over the 2003-2013 period. CBO estimates that the 
bill would increase direct spending by $10 million over the 
2004-2013 period.
    CBO has reviewed section 211 of H.R. 1531 and determined 
that this section contains no intergovernmental mandates as 
defined in the Unfunded Mandates Reform Act (UMRA), and would 
impose no costs on state, local, or tribal governments. JCT has 
determined that the other provisions of H.R. 1531 contain no 
intergovernmental mandates as defined in UMRA and would impose 
no costs on state, local, or tribal governments.
    JCT has determined that the provision of the bill relating 
to the tax treatment of inversion transactions contains a 
private-sector mandate. The total cost of complying with the 
mandate would not exceed the threshold established by UMRA 
($117 million in 2003, adjusted annually for inflation).
    Estimated cost to the Federal Government: The following 
table summarizes the estimated budgetary impact of H.R. 1531.

----------------------------------------------------------------------------------------------------------------
                                                             By fiscal year, in millions of dollars--
                                                 ---------------------------------------------------------------
                                                    2003      2004       2005       2006       2007       2008
----------------------------------------------------------------------------------------------------------------
                                               CHANGES IN REVENUES

Extend and modify Section 45 credit.............      -34       -162       -275       -302       -396       -393
Extend and modify credit for non-conventional         -64       -178       -324       -504       -603       -540
 fuels..........................................
Allow amortizing of geological expenses.........        0         67       -168       -452       -449       -331
Modify depreciation rules for electric                -10        -36        -69       -119       -162       -202
 transmission property..........................
Repeal general fund excise taxes on railroad and        0       -107       -156       -161       -166       -171
 certain barge fuel.............................
Modify deductibility of nuclear decommissioning         0        -86       -181       -198       -186       -167
 costs..........................................
Modify depreciation rules for gas distribution         -5        -23        -50        -79       -109       -136
 pipelines......................................
Modify capital gain recognition on sale of           -403     -1,368     -1,592     -1,312        185        952
 certain electric transmission property.........
Provide other energy incentives.................       -2       -457       -923     -1,209       -600       -138
Allow prepayment of Combined Benefit Fund              44         -6         -6         -2         -5         -5
 premiums.......................................
Modify treatment of inversions..................        0          6         62         12          3          0
                                                 ---------------------------------------------------------------
      Total Changes in Revenues.................     -474     -2,350     -3,682     -4,326      2,488     -1,131
                                                 ===============================================================
                                           CHANGES IN DIRECT SPENDING

Combined Benefit Fund Outlays...................        0          1          1          1          1          1
----------------------------------------------------------------------------------------------------------------
Sources: CBO and the Joint Committee on Taxation.

Revenues

    All estimates, with the exception of that for the provision 
allowing the prepayment of premiums to the Combined Benefit 
Fund, were provided by JCT.
    H.R. 1531 contains numerous provisions altering existing 
laws and establishing new laws relating to energy production 
and consumption. CBO and JCT estimate that, together, the 
provisions contained in H.R. 1531 would decrease federal 
revenues by $474 million in 2003 by about $14.5 billion over 
the 2003-2008 period, and by about $18.7 billion over the 2003-
2013 period.
    The following provisions in the bill would have the most 
significant effects on the collection of governmental receipts:
     H.R. 1531 would extend and modify the Section 45 
credit for producing electricity from certain sources including 
wind, open- and closed-loop biomass, and trash-to-energy 
facilities. JCT estimates that this provision would reduce 
governmental receipts by $34 million in 2003, by about $1.6 
billion over the 2003-2008 period, and by about $3.2 billion 
over the 2003-2013 period.
     H.R. 1531 would also extend and modify the tax 
credit for the production of certain non-conventional fuels. 
JCT estimates that enacting this provision would reduce federal 
revenues by $64 million in 2003, by about $2.2 billion over the 
2003-2008 period, and by about $3.0 billion over the 2003-2013 
period.
     The bill would allow certain geological 
exploration expenditures to be amortized over a two-year 
period. JCT estimates that enacting this provision would reduce 
governmental receipts by about $1.3 billion over the 2004-2008 
period and $2.4 billion over the 2004-2013 period.
     The bill would also repeal general fund excise 
taxes on railroad diesel fuel and inland waterway barge fuel. 
JCT estimates that enacting this provision would reduce 
governmental receipts by $761 million over the 2004-2008 
period, and by about $1.7 billion over the 2004-2013 period.
     H.R. 1531 would modify the depreciation rules 
pertaining to certain electricity transmission property and 
certain gas distribution pipelines. JCT estimates that these 
provisions would reduce federal revenues by about $2.2 billion 
and $1.5 billion over the 2003-2013 period, respectively.
     JCT estimates that modifying special rules for 
nuclear decommissioning costs would also reduce governmental 
receipts by $1.5 billion over the 2003-2013 period.
     The bill would allow taxpayers to elect to 
recognize certain gains from the sale or disposition of 
electric transmission property over an eight-year period. JCT 
estimates that this provision would decrease governmental 
receipts by $403 million in 2003 and by $3.5 billion over the 
2003-2008 period, and that it would increase governmental 
receipts by $403 million over the 2003-2013 period.
    In addition, H.R. 1531, contains several other provisions 
also relating to energy production and consumption that, if 
enacted, would affect governmental receipts. JCT estimates 
that, together, these provisions would increase governmental 
receipts by $2 million in 2003, by about $3.3 billion over the 
2003-2008 period, and by about $3.8 billion over the 2004-2013 
period. The bill would also allow certain assigned operators of 
coal facilities and related companies to prepay their premium 
liability to the United Mine Workers of America Combined 
Benefit Fund. Such premiums are considered federal revenues and 
are used to cover medical care expenses for certain retired 
miners and their dependents. CBO estimates that allowing 
prepayment would increase federal revenues by $44 million in 
2004, but would decrease revenues in later years, for a net 
increase of only $1 million over the 2004-2013 period.
    Lastly, H.R. 1531 would modify the tax treatment of 
expatriating entities. The provisions would apply to inversion 
transactions undertaken between March 4, 2003, and December 31, 
2004. JCT estimates that enacting this provision would increase 
federal revenues by $83 million over the 2004-2007 period, but 
would have no effect thereafter.

Direct spending

    As noted above, H.R. 1531 would allow certain coal 
companies with liabilities to the Combined Benefit Fund to 
prefund those liabilities. CBO assumes that over the 2004-2013 
period, companies representing about 10 percent of retirees 
would choose to prefund. Prefunding would increase revenues 
into the fund over the 2004-2013 period, but would reduce 
revenues over the life of the fund. This would occur because 
the premium liability calculation would be based on the present 
value of that liability. CBO assumes that the CBF would buy 
Treasury notes with prefunded amounts and earn interest on 
those notes. This interest would be used to pay for health care 
for retirees, and would supplement the reduced premium income 
over the life of the fund from the private sector. CBO 
estimates that the CBF would receive $75 million in premiums 
from companies choosing to prefund, which is $5 million more 
than we estimate the fund would receive under current law over 
the 2004-2013 period. Under H.R. 1531, CBO estimates that the 
CBF would spend an additional $10 million over the 2004-2013 
period on health care benefits.
    Summary of the effect on revenues and direct spending: The 
overall effect of H.R. 1531 on revenues and direct spending is 
shown in the following table.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                          --------------------------------------------------------------------------------------------------------------
                                             2003      2004       2005       2006       2007       2008      2009     2010     2011     2012      2013
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in receipts......................     -474     -2,350     -3,682     -4,326     -2,488     -1,131     -852     -647     -625     -919     -1,174
Changes in outlays.......................        0          1          1          1          1          1        1        1        1        1          1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: CBO and the Joint Committee on Taxation.

    Estimated impact on state, local, and tribal governments: 
CBO and JCT have determined that H.R. 1531 contains no 
intergovernmental mandates as defined in UMRA and would impose 
no costs on state, local, or tribal governments.
    Estimated impact on the private sector: JCT has determined 
that the provision of the bill relating to the tax treatment of 
inversion transactions contains a private-sector mandate, 
however, the mandate would not exceed the threshold established 
by UMRA ($117 million in 2003, adjusted annually for 
inflation).
    Estimate prepared by: Federal revenues: Annie Bartsch; 
Federal spending; Alexis Ahlstrom; State, local, and tribal 
impact: Greg Waring.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis; Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: the effects of the bill on economic activity are so small 
as to be incalculable within the context of a model of the 
aggregate economy.

    VII. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review concerning the tax burden on taxpayers that 
the Committee concluded that it is appropriate and timely to 
enact the revenue provision included in the bill as reported.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises. . .''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill does not contain 
Federal mandates on the private sector. The Committee has 
determined that the bill does not impose a Federal 
intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the provisions of the bill, and states that 
the provisions of the bill do not involve any Federal income 
tax rate increases within the meaning of the rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the House Committee on Ways and 
Means, the Senate Committee on Finance, or any committee of 
conference if the legislation includes a provision that 
directly or indirectly amends the Internal Revenue Code and has 
widespread applicability to individuals or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that amend the Internal Revenue Code and that have 
``widespread applicability'' to individuals or small 
businesses.

      VIII. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

INTERNAL REVENUE CODE OF 1986

           *       *       *       *       *       *       *



SUBTITLE A--INCOME TAXES

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



SUBPART A--NONREFUNDABLE PERSON CREDITS

        Sec. 21. Expenses for household and dependent care services 
                  necessary for gainful employment.
     * * * * * * *
        Sec. 25C. Residential solar energy property.
        Sec. 25D. Nonbusiness qualified fuel cell power plant.
        Sec. 25E. Energy efficiency improvements to existing homes.

           *       *       *       *       *       *       *


SEC. 23. ADOPTION EXPENSES.

  (a) * * *
  (b) Limitations.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for any taxable year shall 
        not exceed the excess of--
                  (A) * * *
                  (B) the sum of the credits allowable under 
                this subpart (other than this section and 
                sections 25C, 25D, and 25E) and section 27 for 
                the taxable year.
  (c) Carryforwards of Unused Credit.--If the credit allowable 
under subsection (a) for any taxable year exceeds the 
limitation imposed by section 26(a) for such taxable year 
reduced by the sum of the credits allowable under this subpart 
(other than this section and [section 1400C] sections 25E and 
1400C), such excess shall be carried to the succeeding taxable 
year and added to the credit allowable under subsection (a) for 
such taxable year. No credit may be carried forward under this 
subsection to any taxable year following the fifth taxable year 
after the taxable year in which the credit arose. For purposes 
of the preceding sentence, credits shall be treated as used on 
a first-in first-out basis.

           *       *       *       *       *       *       *


SEC. 24. CHILD TAX CREDIT.

  (a) * * *
  (b) Limitation Based on Adjusted Gross Income.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for any taxable year shall 
        not exceed the excess of--
                  (A) * * *
                  (B) the sum of the credits allowable under 
                this subpart (other than this section and 
                sections 23 [and 25B], 25B, 25C, 25D, and 25E) 
                and section 27 for the taxable year.

           *       *       *       *       *       *       *


SEC. 25. INTEREST ON CERTAIN HOME MORTGAGES.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Special Rules and Definitions.--For purposes of this 
section--
          (1) Carryforward of unused credit.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Applicable tax limit.--For purposes of 
                this paragraph, the term ``applicable tax 
                limit'' means the limitation imposed by section 
                26(a) for the taxable year reduced by the sum 
                of the credits allowable under this subpart 
                (other than this section and sections 23, 24, 
                25B, 25C, 25D, and 25E and 1400C).

           *       *       *       *       *       *       *


SEC. 25B. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CERTAIN 
                    INDIVIDUALS.

  (a) * * *

           *       *       *       *       *       *       *

  (g) Limitation Based on Amount of Tax.--The credit allowed 
under subsection (a) for the taxable year shall not exceed the 
excess of--
          (1) * * *
          (2) the sum of the credits allowable under this 
        subpart (other than this section and [section 23] 
        sections 23, 25C, 25D, and 25E) and section 27 for the 
        taxable year.

           *       *       *       *       *       *       *


SEC. 25C. RESIDENTIAL SOLAR ENERGY PROPERTY.

  (a) Allowance of Credit.--In the case of an individual, 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) 15 percent of the qualified photovoltaic property 
        expenditures made by the taxpayer during such year, and
          (2) 15 percent of the qualified solar water heating 
        property expenditures made by the taxpayer during the 
        taxable year.
  (b) Limitations.--
          (1) Maximum credit.--The credit allowed under 
        subsection (a) shall not exceed--
                  (A) $2,000 for each system of property 
                described in subsection (c)(1), and
                  (B) $2,000 for each system of property 
                described in subsection (c)(2).
          (2) Safety certifications.--No credit shall be 
        allowed under this section for an item of property 
        unless--
                  (A) in the case of solar water heating 
                equipment, such equipment is certified for 
                performance and safety by the non-profit Solar 
                Rating Certification Corporation or a 
                comparable entity endorsed by the government of 
                the State in which such property is installed, 
                and
                  (B) in the case of a photovoltaic system, 
                such system meets appropriate fire and electric 
                code requirements.
          (3) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for the taxable year shall 
        not exceed the excess of--
                  (A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed 
                by section 55, over
                  (B) the sum of the credits allowable under 
                this subpart (other than this section and 
                section 25D and 25E) and section 27 for the 
                taxable year.
  (c) Definitions.--For purposes of this section--
          (1) Qualified solar water heating property 
        expenditure.--The term ``qualified solar water heating 
        property expenditure'' means an expenditure for 
        property to heat water for use in a dwelling unit 
        located in the United States and used as a residence if 
        at least half of the energy used by such property for 
        such purpose is derived from the sun.
          (2) Qualified photovoltaic property expenditure.--The 
        term ``qualified photovoltaic property expenditure'' 
        means an expenditure for property which uses solar 
        energy to generate electricity for use in a dwelling 
        unit.
          (3) Solar panels.--No expenditure relating to a solar 
        panel or other property installed as a roof (or portion 
        thereof) shall fail to be treated as property described 
        in paragraph (1) or (2) solely because it constitutes a 
        structural component of the structure on which it is 
        installed.
          (4) Labor costs.--Expenditures for labor costs 
        properly allocable to the onsite preparation, assembly, 
        or original installation of the property described in 
        paragraph (1) or (2) and for piping or wiring to 
        interconnect such property to the dwelling unit shall 
        be taken into account for purposes of this section.
          (5) Swimming pools, etc., used as storage medium.--
        Expenditures which are properly allocable to a swimming 
        pool, hot tub, or any other energy storage medium which 
        has a function other than the function of such storage 
        shall not be taken into account for purposes of this 
        section.
  (d) Special Rules.--
          (1) Dollar amounts in case of joint occupancy.--In 
        the case of any dwelling unit which is jointly occupied 
        and used during any calendar year as a residence by 2 
        or more individuals the following shall apply:
                  (A) The amount of the credit allowable under 
                subsection (a) by reason of expenditures made 
                during such calendar year by any of such 
                individuals with respect to such dwelling unit 
                shall be determined by treating all of such 
                individuals as 1 taxpayer whose taxable year is 
                such calendar year.
                  (B) There shall be allowable with respect to 
                such expenditures to each of such individuals, 
                a credit under subsection (a) for the taxable 
                year in which such calendar year ends in an 
                amount which bears the same ratio to the amount 
                determined under subparagraph (A) as the amount 
                of such expenditures made by such individual 
                during such calendar year bears to the 
                aggregate of such expenditures made by all of 
                such individuals during such calendar year.
                  (C) Subparagraphs (A) and (B) shall be 
                applied separately with respect to qualified 
                solar water heating property expenditures and 
                qualified photovoltaic property expenditures.
          (2) Tenant-stockholder in cooperative housing 
        corporation.--In the case of an individual who is a 
        tenant-stockholder (as defined in section 216) in a 
        cooperative housing corporation (as defined in such 
        section), such individual shall be treated as having 
        made his tenant-stockholder's proportionate share (as 
        defined in section 216(b)(3)) of any expenditures of 
        such corporation.
          (3) Condominiums.--
                  (A) In general.--In the case of an individual 
                who is a member of a condominium management 
                association with respect to a condominium which 
                he owns, such individual shall be treated as 
                having made his proportionate share of any 
                expenditures of such association.
                  (B) Condominium management association.--For 
                purposes of this paragraph, the term 
                ``condominium management association'' means an 
                organization which meets the requirements of 
                paragraph (1) of section 528(c) (other than 
                subparagraph (E) thereof) with respect to a 
                condominium project substantially all of the 
                units of which are used as residences.
          (4) Allocation in certain cases.--If less than 80 
        percent of the use of an item is for nonbusiness 
        purposes, only that portion of the expenditures for 
        such item which is properly allocable to use for 
        nonbusiness purposes shall be taken into account.
          (5) When expenditure made; amount of expenditure.--
                  (A) In general.--Except as provided in 
                subparagraph (B), an expenditure with respect 
                to an item shall be treated as made when the 
                original installation of the item is completed.
                  (B) Expenditures part of building 
                construction.--In the case of an expenditure in 
                connection with the construction or 
                reconstruction of a structure, such expenditure 
                shall be treated as made when the original use 
                of the constructed or reconstructed structure 
                by the taxpayer begins.
                  (C) Amount.--The amount of any expenditure 
                shall be the cost thereof.
          (6) Property financed by subsidized energy 
        financing.--For purposes of determining the amount of 
        expenditures made by any individual with respect to any 
        dwelling unit, there shall not be taken into account 
        expenditures which are made from subsidized energy 
        financing (as defined in section 48(a)(4)(A)).
  (e) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with 
respect to any property, the increase in the basis of such 
property which would (but for this subsection) result from such 
expenditure shall be reduced by the amount of the credit so 
allowed.
  (f) Termination.--The credit allowed under this section shall 
not apply to taxable years beginning after December 31, 2006 
(December 31, 2008, with respect to qualified photovoltaic 
property expenditures).

SEC. 25D. NONBUSINESS QUALIFIED FUEL CELL POWER PLANT.

  (a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter for 
the taxable year an amount equal to 10 percent of the qualified 
fuel cell power plant expenditures which are paid or incurred 
during such year.
  (b) Limitations.--
          (1) In general.--The credit allowed under subsection 
        (a) with respect to any qualified fuel cell power plant 
        for any taxable year shall not exceed--
                  (A) $500 for each \1/2\ kilowatt of capacity 
                of the power plant, reduced by
                  (B) the aggregate energy credits allowed with 
                respect to such power plant for all prior 
                taxable years.
          (2) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for the taxable year shall 
        not exceed the excess of--
                  (A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed 
                by section 55, over
                  (B) the sum of the credits allowable under 
                this subpart (other than this section and 
                section 25E) and section 27 for the taxable 
                year.
  (c) Qualified Fuel Cell Power Plant Expenditures.--For 
purposes of this section, the term ``qualified fuel cell power 
plant expenditures'' means expenditures by the taxpayer for any 
qualified fuel cell power plant (as defined in section 
48(a)(4))--
          (1) which meets the requirements of subparagraphs (B) 
        and (D) of section 48(a)(3), and
          (2) which is installed on or in connection with a 
        dwelling unit--
                  (A) which is located in the United States, 
                and
                  (B) which is used by the taxpayer as a 
                residence.
Such term includes expenditures for labor costs properly 
allocable to the onsite preparation, assembly, or original 
installation of the property.
  (d) Special Rules.--For purposes of this section, rules 
similar to the rules of section 25C(d) shall apply.
  (e) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with 
respect to any property, the increase in the basis of such 
property which would (but for this subsection) result from such 
expenditure shall be reduced by the amount of the credit so 
allowed.
  (f) Termination.--This section shall not apply to any 
expenditure made after December 31, 2006.

SEC. 25E. ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

  (a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this 
chapter for the taxable year an amount equal to 20 percent of 
the amount paid or incurred by the taxpayer for qualified 
energy efficiency improvements installed during such taxable 
year.
  (b) Limitations.--
          (1) Maximum credit.--The credit allowed by this 
        section with respect to a dwelling shall not exceed 
        $2,000.
          (2) Prior credit amounts for taxpayer on same 
        dwelling taken into account.--If a credit was allowed 
        to the taxpayer under subsection (a) with respect to a 
        dwelling in 1 or more prior taxable years, the amount 
        of the credit otherwise allowable for the taxable year 
        with respect to that dwelling shall not exceed the 
        amount of $2,000 reduced by the sum of the credits 
        allowed under subsection (a) to the taxpayer with 
        respect to the dwelling for all prior taxable years.
          (3) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for the taxable year shall 
        not exceed the excess of--
                  (A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed 
                by section 55, over
                  (B) the sum of the credits allowable under 
                this subpart (other than this section) and 
                section 27 for the taxable year.
  (c) Carryforward of Unused Credit.--If the credit allowable 
under subsection (a) exceeds the limitation imposed by 
subsection (b)(3) for such taxable year, such excess shall be 
carried to the succeeding taxable year and added to the credit 
allowable under subsection (a) for such succeeding taxable 
year.
  (d) Qualified Energy Efficiency Improvements.--For purposes 
of this section, the term ``qualified energy efficiency 
improvements'' means any energy efficient building envelope 
component which meets the prescriptive criteria for such 
component established by the 2000 International Energy 
Conservation Code (or, in the case of metal roofs with 
appropriate pigmented coatings, meets the Energy Star program 
requirements), if--
          (1) such component is installed in or on a dwelling--
                  (A) located in the United States, and
                  (B) owned and used by the taxpayer as the 
                taxpayer's principal residence (within the 
                meaning of section 121),
          (2) the original use of such component commences with 
        the taxpayer, and
          (3) such component reasonably can be expected to 
        remain in use for at least 5 years.
If the aggregate cost of such components with respect to any 
dwelling exceeds $1,000, such components shall be treated as 
qualified energy efficiency improvements only if such 
components are also certified in accordance with subsection (e) 
as meeting such criteria.
  (e) Certification.--The certification described in subsection 
(d) shall be--
          (1) determined on the basis of the technical 
        specifications or applicable ratings (including product 
        labeling requirements) for the measurement of energy 
        efficiency, based upon energy use or building envelope 
        component performance, for the energy efficient 
        building envelope component,
          (2) provided by a local building regulatory 
        authority, a utility, a manufactured home production 
        inspection primary inspection agency (IPIA), or an 
        accredited home energy rating system provider who is 
        accredited by or otherwise authorized to use approved 
        energy performance measurement methods by the 
        Residential Energy Services Network (RESNET), and
          (3) made in writing in a manner that specifies in 
        readily verifiable fashion the energy efficient 
        building envelope components installed and their 
        respective energy efficiency levels.
  (f) Definitions and Special Rules.--
          (1) Tenant-stockholder in cooperative housing 
        corporation.--In the case of an individual who is a 
        tenant-stockholder (as defined in section 216) in a 
        cooperative housing corporation (as defined in such 
        section), such individual shall be treated as having 
        paid his tenant-stockholder's proportionate share (as 
        defined in section 216(b)(3)) of the cost of qualified 
        energy efficiency improvements made by such 
        corporation.
          (2) Condominiums.--
                  (A) In general.--In the case of an individual 
                who is a member of a condominium management 
                association with respect to a condominium which 
                he owns, such individual shall be treated as 
                having paid his proportionate share of the cost 
                of qualified energy efficiency improvements 
                made by such association.
                  (B) Condominium management association.--For 
                purposes of this paragraph, the term 
                ``condominium management association'' means an 
                organization which meets the requirements of 
                paragraph (1) of section 528(c) (other than 
                subparagraph (E) thereof) with respect to a 
                condominium project substantially all of the 
                units of which are used as residences.
          (3) Building envelope component.--The term ``building 
        envelope component'' means insulation material or 
        system which is specifically and primarily designed to 
        reduce the heat loss or gain of a dwelling when 
        installed in or on such dwelling, exterior windows 
        (including skylights) and doors, and metal roofs with 
        appropriate pigmented coatings which are specifically 
        and primarily designed to reduce the heat gain of a 
        dwelling when installed in or on such dwelling.
          (4) Manufactured homes included.--For purposes of 
        this section, the term ``dwelling'' includes a 
        manufactured home which conforms to Federal 
        Manufactured Home Construction and Safety Standards 
        (section 3280 of title 24, Code of Federal Regulations, 
        as in effect on April 3, 2003).
  (g) Basis Adjustment.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with 
respect to any property, the increase in the basis of such 
property which would (but for this subsection) result from such 
expenditure shall be reduced by the amount of the credit so 
allowed.
  (h) Application of Section.--This section shall apply to 
qualified energy efficiency improvements installed after 
December 31, 2003, and before January 1, 2007.

SEC. 26. LIMITATION BASED ON TAX LIABILITY; DEFINITION OF TAX 
                    LIABILITY.

  (a) Limitation Based on Amount of Tax.--
          (1) In general.--The aggregate amount of credits 
        allowed by this subpart (other than sections 23, 24, 
        [and 25B] 25B, 25C, 25D, and 25E) for the taxable year 
        shall not exceed the excess (if any) of--
                  (A) * * *

           *       *       *       *       *       *       *


                        Subpart B--Other Credits

        Sec. 27. Taxes of foreign countries and possessions of the 
                  United States; possession tax credit.
        [Sec. 29. Credit for producing fuel from a nonconventional 
                  source.]
     * * * * * * *
        Sec. 30B. Alternative motor vehicle credit.

           *       *       *       *       *       *       *


SEC. 30. CREDIT FOR QUALIFIED ELECTRIC VEHICLES.

  (a) * * *
  (b) Limitations.--
          (1) * * *
          [(2) Phaseout.--In the case of any qualified electric 
        vehicle placed in service after December 31, 2003, the 
        credit otherwise allowable under subsection (a) 
        (determined after the application of paragraph (1)) 
        shall be reduced by--
                  [(A) 25 percent in the case of property 
                placed in service in calendar year 2004,
                  [(B) 50 percent in the case of property 
                placed in service in calendar year 2005, and
                  [(C) 75 percent in the case of property 
                placed in service in calendar year 2006.]
          [(3)] (2) Application with other credits.--The credit 
        allowed by subsection (a) for any taxable year shall 
        not exceed the excess (if any) of--
                  (A) the regular tax for the taxable year 
                reduced by the sum of the credits allowable 
                under subpart A and [sections 27 and 29] 
                section 27, over--

           *       *       *       *       *       *       *


SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.

  (a) Allowance of Credit.--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 new qualified fuel cell motor vehicle credit 
        determined under subsection (b), and
          (2) the advanced lean burn technology motor vehicle 
        credit determined under subsection (c).
  (b) New Qualified Fuel Cell Motor Vehicle Credit.--
          (1) In general.--For purposes of subsection (a), the 
        new qualified fuel cell motor vehicle credit determined 
        under this subsection with respect to a new qualified 
        fuel cell motor vehicle placed in service by the 
        taxpayer during the taxable year is--
                  (A) $4,000, if such vehicle has a gross 
                vehicle weight rating of not more than 8,500 
                pounds,
                  (B) $10,000, if such vehicle has a gross 
                vehicle weight rating of more than 8,500 pounds 
                but not more than 14,000 pounds,
                  (C) $20,000, if such vehicle has a gross 
                vehicle weight rating of more than 14,000 
                pounds but not more than 26,000 pounds, and
                  (D) $40,000, if such vehicle has a gross 
                vehicle weight rating of more than 26,000 
                pounds.
          (2) Increase for fuel efficiency.--
                  (A) In general.--The amount determined under 
                paragraph (1)(A) with respect to a new 
                qualified fuel cell motor vehicle which is a 
                passenger automobile or light truck shall be 
                increased by--
                          (i) $1,000, if such vehicle achieves 
                        at least 150 percent but less than 175 
                        percent of the 2000 model year city 
                        fuel economy,
                          (ii) $1,500, if such vehicle achieves 
                        at least 175 percent but less than 200 
                        percent of the 2000 model year city 
                        fuel economy,
                          (iii) $2,000, if such vehicle 
                        achieves at least 200 percent but less 
                        than 225 percent of the 2000 model year 
                        city fuel economy,
                          (iv) $2,500, if such vehicle achieves 
                        at least 225 percent but less than 250 
                        percent of the 2000 model year city 
                        fuel economy,
                          (v) $3,000, if such vehicle achieves 
                        at least 250 percent but less than 275 
                        percent of the 2000 model year city 
                        fuel economy,
                          (vi) $3,500, if such vehicle achieves 
                        at least 275 percent but less than 300 
                        percent of the 2000 model year city 
                        fuel economy, and
                          (vii) $4,000, if such vehicle 
                        achieves at least 300 percent of the 
                        2000 model year city fuel economy.
                  (B) 2000 model year city fuel economy.--For 
                purposes of subparagraph (A), the 2000 model 
                year city fuel economy with respect to a 
                vehicle shall be determined in accordance with 
                the following tables:
                          (i) In the case of a passenger 
                        automobile:

If vehicle inertia wThe 2000 model year city fuel economy is:
    1,500 or 1,750 lbs........................................ 43.7 mpg 
    2,000 lbs................................................. 38.3 mpg 
    2,250 lbs................................................. 34.1 mpg 
    2,500 lbs................................................. 30.7 mpg 
    2,750 lbs................................................. 27.9 mpg 
    3,000 lbs................................................. 25.6 mpg 
    3,500 lbs................................................. 22.0 mpg 
    4,000 lbs................................................. 19.3 mpg 
    4,500 lbs................................................. 17.2 mpg 
    5,000 lbs................................................. 15.5 mpg 
    5,500 lbs................................................. 14.1 mpg 
    6,000 lbs................................................. 12.9 mpg 
    6,500 lbs................................................. 11.9 mpg 
    7,000 or 8,500 lbs........................................ 11.1 mpg.
                          (ii) In the case of a light truck:

If vehicle inertia wThe 2000 model year city fuel economy is:
    1,500 or 1,750 lbs........................................ 37.6 mpg 
    2,000 lbs................................................. 33.7 mpg 
    2,250 lbs................................................. 30.6 mpg 
    2,500 lbs................................................. 28.0 mpg 
    2,750 lbs................................................. 25.9 mpg 
    3,000 lbs................................................. 24.1 mpg 
    3,500 lbs................................................. 21.3 mpg 
    4,000 lbs................................................. 19.0 mpg 
    4,500 lbs................................................. 17.3 mpg 
    5,000 lbs................................................. 15.8 mpg 
    5,500 lbs................................................. 14.6 mpg 
    6,000 lbs................................................. 13.6 mpg 
    6,500 lbs................................................. 12.8 mpg 
    7,000 or 8,500 lbs........................................ 12.0 mpg.

                  (C) Vehicle inertia weight class.--For 
                purposes of subparagraph (B), the term 
                ``vehicle inertia weight class'' has the same 
                meaning as when defined in regulations 
                prescribed by the Administrator of the 
                Environmental Protection Agency for purposes of 
                the administration of title II of the Clean Air 
                Act (42 U.S.C. 7521 et seq.).
          (3) New qualified fuel cell motor vehicle.--For 
        purposes of this subsection, the term ``new qualified 
        fuel cell motor vehicle'' means a motor vehicle--
                  (A) which is propelled by power derived from 
                one or more cells which convert chemical energy 
                directly into electricity by combining oxygen 
                with hydrogen fuel which is stored on board the 
                vehicle in any form and may or may not require 
                reformation prior to use,
                  (B) which, in the case of a passenger 
                automobile or light truck--
                          (i) for 2004 and later model 
                        vehicles, has received a certificate of 
                        conformity under the Clean Air Act and 
                        meets or exceeds the equivalent 
                        qualifying California low emission 
                        vehicle standard under section 
                        243(e)(2) of the Clean Air Act for that 
                        make and model year, and
                          (ii) for 2004 and later model 
                        vehicles, has received a certificate 
                        that such vehicle meets or exceeds the 
                        Bin 5 Tier II emission level 
                        established in regulations prescribed 
                        by the Administrator of the 
                        Environmental Protection Agency under 
                        section 202(i) of the Clean Air Act for 
                        that make and model year vehicle,
                  (C) the original use of which commences with 
                the taxpayer,
                  (D) which is acquired for use or lease by the 
                taxpayer and not for resale, and
                  (E) which is made by a manufacturer.
  (c) Advanced Lean Burn Technology Motor Vehicle Credit.--
          (1) In general.--For purposes of subsection (a), the 
        advanced lean burn technology motor vehicle credit 
        determined under this subsection with respect to a new 
        qualified advanced lean burn technology motor vehicle 
        placed in service by the taxpayer during the taxable 
        year is the credit amount determined under paragraph 
        (2).
          (2) Credit amount.--
                  (A) Increase for fuel efficiency.--The credit 
                amount determined under this paragraph shall 
                be--
                          (i) $500, if such vehicle achieves at 
                        least 125 percent but less than 150 
                        percent of the 2000 model year city 
                        fuel economy,
                          (ii) $1,000, if such vehicle achieves 
                        at least 150 percent but less than 175 
                        percent of the 2000 model year city 
                        fuel economy,
                          (iii) $1,500, if such vehicle 
                        achieves at least 175 percent but less 
                        than 200 percent of the 2000 model year 
                        city fuel economy,
                          (iv) $2,000, if such vehicle achieves 
                        at least 200 percent but less than 225 
                        percent of the 2000 model year city 
                        fuel economy,
                          (v) $2,500, if such vehicle achieves 
                        at least 225 percent but less than 250 
                        percent of the 2000 model year city 
                        fuel economy, and
                          (vi) $3,000, if such vehicle achieves 
                        at least 250 percent of the 2000 model 
                        year city fuel economy.
                For purposes of clause (i), the 2000 model year 
                city fuel economy with respect to a vehicle 
                shall be determined using the tables provided 
                in subsection (b)(2)(B) with respect to such 
                vehicle.
                  (B) Conservation credit.--The amount 
                determined under subparagraph (A) with respect 
                to an advanced lean burn technology motor 
                vehicle shall be increased by--
                          (i) $250, if such vehicle achieves a 
                        lifetime fuel savings of at least 1,500 
                        gallons of gasoline, and
                          (ii) $500, if such vehicle achieves a 
                        lifetime fuel savings of at least 2,500 
                        gallons of gasoline.
                  (C) Option to use like vehicle.--At the 
                option of the vehicle manufacturer, the 
                increase for fuel efficiency and conservation 
                credit may be calculated by comparing the new 
                advanced lean-burn technology motor vehicle to 
                a like vehicle.
          (3) Definitions.--For purposes of this subsection--
                  (A) Advanced lean burn technology motor 
                vehicle.--The term ``advanced lean burn 
                technology motor vehicle'' means a motor 
                vehicle with an internal combustion engine 
                that--
                          (i) is designed to operate primarily 
                        using more air than is necessary for 
                        complete combustion of the fuel,
                          (ii) incorporates direct injection,
                          (iii) achieves at least 125 percent 
                        of the 2000 model year city fuel 
                        economy, and
                          (iv) for 2004 and later model 
                        vehicles, has received a certificate 
                        that such vehicle meets or exceeds the 
                        Bin 8 Tier II emission level 
                        established in regulations prescribed 
                        by the Administrator of the 
                        Environmental Protection Agency under 
                        section 202(i) of the Clean Air Act for 
                        that make and model year vehicle.
                  (B) Like vehicle.--The term ``like vehicle'' 
                for an advanced lean burn technology motor 
                vehicle derived from a conventional production 
                vehicle produced in the same model year means a 
                model that is equivalent in the following 
                areas:
                          (i) Body style (2-door or 4-door).
                          (ii) Transmission (automatic or 
                        manual).
                          (iii) Acceleration performance 
                        ( 0.05 seconds).
                          (iv) Drivetrain (2-wheel drive or 4-
                        wheel drive).
                          (v) Certification by the 
                        Administrator of the Environmental 
                        Protection Agency.
                  (C) Lifetime fuel savings.--The term 
                ``lifetime fuel savings'' shall be calculated 
                by dividing 120,000 by the difference between 
                the 2000 model year city fuel economy for the 
                vehicle inertia weight class and the city fuel 
                economy for the new qualified hybrid motor 
                vehicle.
  (d) Limitation Based on Amount of Tax.--The credit allowed 
under subsection (a) for the 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 subpart A 
        and sections 27 and 30A for the taxable year.
  (e) Other Definitions and Special Rules.--For purposes of 
this section--
          (1) Consumable fuel.--The term ``consumable fuel'' 
        means any solid, liquid, or gaseous matter which 
        releases energy when consumed by an auxiliary power 
        unit.
          (2) Motor vehicle.--The term ``motor vehicle'' has 
        the meaning given such term by section 30(c)(2).
          (3) 2000 model year city fuel economy.--The 2000 
        model year city fuel economy with respect to any 
        vehicle shall be measured under rules similar to the 
        rules under section 4064(c).
          (4) Other terms.--The terms ``automobile'', 
        ``passenger automobile'', ``light truck'', and 
        ``manufacturer'' have the meanings given such terms in 
        regulations prescribed by the Administrator of the 
        Environmental Protection Agency for purposes of the 
        administration of title II of the Clean Air Act (42 
        U.S.C. 7521 et seq.).
          (5)  Reduction in basis.--For purposes of this 
        subtitle, if a credit is allowed under this section for 
        any expenditure with respect to any property, the 
        increase in the basis of such property which would (but 
        for this paragraph) result from such expenditure shall 
        be reduced by the amount of the credit so allowed.
          (6) No double benefit.--The amount of any deduction 
        or credit allowable under this chapter (other than the 
        credit allowable under this section), with respect to a 
        vehicle described under subsection (b), shall be 
        reduced by the amount of credit allowed under 
        subsection (a) for such vehicle for the taxable year.
          (7) Property used by tax-exempt entities.--In the 
        case of a credit amount which is allowable with respect 
        to a motor vehicle which is acquired by an entity 
        exempt from tax under this chapter, the person which 
        sells or leases such vehicle to the entity shall be 
        treated as the taxpayer with respect to the vehicle for 
        purposes of this section and the credit shall be 
        allowed to such person, but only if the person clearly 
        discloses to the entity in any sale or lease document 
        the specific amount of any credit otherwise allowable 
        to the entity under this section.
          (8) 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 (including recapture in the case of a lease 
        period of less than the economic life of a vehicle).
          (9) Property used outside united states, etc., 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.
          (10) Election to not take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the 
        taxpayer elects to not have this section apply to such 
        vehicle.
          (11) Carryforward allowed.--
                  (A) In general.--If the credit amount 
                allowable under subsection (a) for a taxable 
                year exceeds the amount of the limitation under 
                subsection (d) for such taxable year (referred 
                to as the ``unused credit year'' in this 
                paragraph), such excess shall be allowed as a 
                credit carryforward for each of the 20 taxable 
                years following the unused credit year.
                  (B) Rules.--Rules similar to the rules of 
                section 39 shall apply with respect to the 
                credit carryforward under subparagraph (A).
          (12) Interaction with air quality and motor vehicle 
        safety standards.--Unless otherwise provided in this 
        section, a motor vehicle shall not be considered 
        eligible for a credit under this section unless such 
        vehicle is in compliance with--
                  (A) the applicable provisions of the Clean 
                Air Act for the applicable make and model year 
                of the vehicle (or applicable air quality 
                provisions of State law in the case of a State 
                which has adopted such provision under a waiver 
                under section 209(b) of the Clean Air Act), and
                  (B) the motor vehicle safety provisions of 
                sections 30101 through 30169 of title 49, 
                United States Code.
  (f) Regulations.--
          (1) In general.--The Secretary shall promulgate such 
        regulations as necessary to carry out the provisions of 
        this section.
          (2) Determination of motor vehicle eligibility.--The 
        Secretary, in coordination with the Secretary of 
        Transportation and the Administrator of the 
        Environmental Protection Agency, shall prescribe such 
        regulations as necessary to determine whether a motor 
        vehicle meets the requirements to be eligible for a 
        credit under this section.
  (g) Termination.--This section shall not apply to any 
property placed in service after--
          (1) in the case of a new qualified fuel cell motor 
        vehicle (as described in subsection (b)), December 31, 
        2012, and
          (2) in the case of any other property, December 31, 
        2006.

           *       *       *       *       *       *       *


                  Subpart D--Business Related Credits

        Sec. 38. General business credit.
     * * * * * * *
        Sec. 45G. New energy efficient home credit.
        Sec. 45H. Credit for production of low sulfur diesel fuel.
        Sec. 45I. Credit for producing oil and gas from marginal wells.
        Sec. 45J. Credit for producing fuel from a nonconventional 
                  source.

           *       *       *       *       *       *       *


SEC. 38. GENERAL BUSINESS CREDIT.

  (a) * * *
  (b) Current Year Business Credit.--For purposes of this 
subpart, the amount of the current year business credit is the 
sum of the following credits determined for the taxable year:
          (1) * * *

           *       *       *       *       *       *       *

          (14) in the case of an eligible employer (as defined 
        in section 45E(c)), the small employer pension plan 
        startup cost credit determined under section 45E(a), 
        [plus]
          (15) the employer-provided child care credit 
        determined under section 45F(a)[.],
          (16) the new energy efficient home credit determined 
        under section 45G,
          (17) in the case of a small business refiner, the low 
        sulfur diesel fuel production credit determined under 
        section 45H(a),
          (18) the marginal oil and gas well production credit 
        determined under section 45I(a), plus
          (19) the nonconventional source production credit 
        determined under section 45J(a).
  (c) Limitation Based on Amount of Tax.--
          (1) * * *
          (2) Empowerment zone employment credit may offset 25 
        percent of minimum tax.--
                  (A) In general.--In the case of the 
                empowerment zone employment credit--
                          (i) * * *
                          (ii) for purposes of applying 
                        paragraph (1) to such credit
                                  (I) * * *
                                  (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 
                                empowerment zone employment 
                                credit or the New York Liberty 
                                Zone business employee credit 
                                or the specified energy 
                                credits).

           *       *       *       *       *       *       *

          (3) Special rules for new york liberty zone business 
        employee credit.--
                  (A) In general.--In the case of the New York 
                Liberty Zone business employee credit--
                          (i) * * *
                          (ii) in applying paragraph (1) to 
                        such credit--
                                  (I) * * *
                                  (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 New York 
                                Liberty Zone business employee 
                                credit or the specified energy 
                                credits).
          (4) Special rules for specified energy credits.--
                  (A) In general.--In the case of specified 
                energy credits--
                          (i) this section and section 39 shall 
                        be applied separately with respect to 
                        such credits, and
                          (ii) in applying paragraph (1) to 
                        such credits--
                                  (I) the tentative minimum tax 
                                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 specified 
                                energy credits).
                  (B) Specified energy credits.--For purposes 
                of this subsection, the term ``specified energy 
                credits'' means the credits determined under 
                sections 45G, 45H, and 45I.
                  (C) Special rule for qualified wind 
                facilities.--For purposes of this subsection, 
                the term ``specified energy credits'' shall 
                include the credit determined under section 45 
                to the extent that such credit is attributable 
                to electricity produced--
                          (i) at a facility using wind to 
                        produce electricity which is originally 
                        placed in service after the date of the 
                        enactment of this paragraph, and
                          (ii) during the 4-year period 
                        beginning on the date that such 
                        facility was originally placed in 
                        service.
          [(4)] (5) Special rules.--
                  (A) * * *
                  (B) Controlled groups.--In the case of a 
                controlled group, the $25,000 amount specified 
                under subparagraph (B) of paragraph (1) shall 
                be reduced for each component member of such 
                group by apportioning $25,000 among the 
                component members of such group in such manner 
                as the Secretary shall by regulations 
                prescribe. For purposes of the preceding 
                sentence, the term ``controlled group'' has the 
                meaning given to such term by section 1563(a). 
                For taxable years beginning after December 31, 
                2003, and before January 1, 2006, such term 
                includes the credit determined under section 
                43.

           *       *       *       *       *       *       *


SEC. 39. CARRYBACK AND CARRYFORWARD OF UNUSED CREDITS.

  (a) In General.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) 10-year carryback for marginal oil and gas well 
        production credit.--In the case of the marginal oil and 
        gas well production credit--
                  (A) this section shall be applied separately 
                from the business credit (other than the 
                marginal oil and gas well production credit),
                  (B) paragraph (1) shall be applied by 
                substituting ``10 taxable years'' for ``1 
                taxable years'' in subparagraph (A) thereof, 
                and
                  (C) paragraph (2) shall be applied--
                          (i) by substituting ``31 taxable 
                        years'' for ``21 taxable years'' in 
                        subparagraph (A) thereof, and
                          (ii) by substituting ``30 taxable 
                        years'' for ``20 taxable years'' in 
                        subparagraph (A) thereof.
  (d) Transitional Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (11) No carryback of new energy efficient home credit 
        before effective date.--No portion of the unused 
        business credit for any taxable year which is 
        attributable to the credit determined under section 45G 
        may be carried back to any taxable year ending before 
        January 1, 2004.
          (12) No carryback of energy credit before effective 
        date.--No portion of the unused business credit for any 
        taxable year which is attributable to the energy credit 
        with respect to property described in section 48(a)(5) 
        may be carried back to a taxable year ending before 
        January 1, 2004.
          (13) No carryback for nonconventional source 
        production credit.--No portion of the unused business 
        credit for any taxable year which is attributable to 
        the credit under section 45J may be carried back to a 
        taxable year ending before April 1, 2003.

           *       *       *       *       *       *       *


SEC. 43. ENHANCED OIL RECOVERY CREDIT.

  (a) * * *
  (b) Phase-Out of Credit as Crude Oil Prices Increase.--
          (1) * * *
          (2) Reference price.--For purposes of this 
        subsection, the term ``reference price'' means, with 
        respect to any calendar year, the reference price 
        determined for such calendar year under [section 
        29(d)(2)(C)] section 45J(d)(2)(C).

           *       *       *       *       *       *       *


SEC. 45. ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE RESOURCES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Definitions.--For purposes of this section--
          [(1) Qualified energy resources.--The term 
        ``qualified energy resources'' means--
                  [(A) wind,
                  [(B) closed-loop biomass, and
                  [(C) poultry waste.]
          (1) Qualified energy resources.--The term ``qualified 
        energy resources'' means any resource described in 
        paragraph (3) which is used to generate electricity at 
        a qualified facility.

           *       *       *       *       *       *       *

          (3) Qualified facility.--
                  (A) Wind facility.--In the case of a facility 
                using wind to produce electricity, the term 
                ``qualified facility'' means any facility owned 
                by the taxpayer which is originally placed in 
                service after December 31, 1993, and before 
                January 1, [2004] 2007.
                  (B) Closed-loop biomass facility.--In the 
                case of a facility using closed-loop biomass to 
                produce electricity, the term ``qualified 
                facility'' means any facility owned by the 
                taxpayer which is originally placed in service 
                after December 31, 1992, and before January 1, 
                [2004] 2007.

           *       *       *       *       *       *       *

                  (D) Open-loop biomass facilities.--In the 
                case of a facility using open-loop biomass to 
                produce electricity, the term ``qualified 
                facility'' means any facility owned by the 
                taxpayer which is originally placed in service 
                before January 1, 2007.
                  (E) Landfill gas facilities.--In the case of 
                a facility producing electricity from gas 
                derived from the biodegradation of municipal 
                solid waste, the term ``qualified facility'' 
                means any facility owned by the taxpayer which 
                is originally placed in service before January 
                1, 2007.
                  (F) Trash combustion facilities.--In the case 
                of a facility which burns municipal solid waste 
                to produce electricity, the term ``qualified 
                facility'' means any facility owned by the 
                taxpayer which is originally placed in service 
                after the date of the enactment of this 
                subparagraph and before January 1, 2007.

           *       *       *       *       *       *       *

          (5) Open-loop biomass.--The term ``open-loop 
        biomass'' means any solid, nonhazardous, cellulosic 
        waste material which is segregated from other waste 
        materials and which is derived from--
                  (A) any of the following forest-related 
                resources: mill residues, precommercial 
                thinnings, slash, and brush,
                  (B) solid wood waste materials, including 
                waste pallets, crates, dunnage, manufacturing 
                and construction wood wastes (other than 
                pressure-treated, chemically-treated, or 
                painted wood wastes), and landscape or right-
                of-way tree trimmings, but not including 
                municipal solid waste (garbage), gas derived 
                from the biodegradation of solid waste, or 
                paper that is commonly recycled, or
                  (C) agriculture sources, including orchard 
                tree crops, vineyard, grain, legumes, sugar, 
                and other crop by-products or residues.
        Such term shall not include closed-loop biomass.
          (6) Reduced credit for certain preeffective date 
        facilities.--In the case of any facility described in 
        subparagraph (D) or (E) of paragraph (3) which is 
        placed in service before the date of the enactment of 
        this paragraph--
                  (A) subsection (a)(1) shall be applied by 
                substituting ``1.0 cents'' for ``1.5 cents'', 
                and
                  (B) the 5-year period beginning on the date 
                of the enactment of this paragraph shall be 
                substituted in lieu of the 10-year period in 
                subsection (a)(2)(A)(ii).
          (7) Credit eligibility for open-loop biomass 
        facilities.--In the case of any facility described in 
        paragraph (3)(D) which is placed in service before the 
        date of enactment of this paragraph, if the owner of 
        such facility is not the producer of the electricity, 
        the person eligible for the credit allowable under 
        subsection (a) is the lessee or the operator of such 
        facility.
          (8) Limit on reductions for grants, etc., for open-
        loop biomass facilities.--If the amount of the credit 
        determined under subsection (a) with respect to any 
        open-loop biomass facility is required to be reduced 
        under paragraph (3) of subsection (b), the fraction 
        under such paragraph shall in no event be greater than 
        \1/2\.
          (9) Coordination with section 45J.--The term 
        ``qualified facility'' shall not include any facility 
        the production from which is allowed as a credit under 
        section 45J for the taxable year or any prior taxable 
        year.

           *       *       *       *       *       *       *


SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT.

  (a) In General.--For purposes of section 38, in the case of 
an eligible contractor, the credit determined under this 
section for the taxable year is an amount equal to the 
aggregate adjusted bases of all energy efficient property 
installed in a qualified new energy efficient home during 
construction of such home.
  (b) Limitations.--
          (1) Maximum credit.--
                  (A) In general.--The credit allowed by this 
                section with respect to a dwelling shall not 
                exceed $2,000.
                  (B) Prior credit amounts on same dwelling 
                taken into account.--If a credit was allowed 
                under subsection (a) with respect to a dwelling 
                in 1 or more prior taxable years, the amount of 
                the credit otherwise allowable for the taxable 
                year with respect to that dwelling shall not 
                exceed the amount of $2,000 reduced by the sum 
                of the credits allowed under subsection (a) 
                with respect to the dwelling for all prior 
                taxable years.
          (2) Coordination with rehabilitation and energy 
        credits.--For purposes of this section--
                  (A) the basis of any property referred to in 
                subsection (a) shall be reduced by that portion 
                of the basis of any property which is 
                attributable to qualified rehabilitation 
                expenditures (as defined in section 47(c)(2)) 
                or to the energy percentage of energy property 
                (as determined under section 48(a)), and
                  (B) expenditures taken into account under 
                either section 47 or 48(a) shall not be taken 
                into account under this section.
  (c) Definitions.--For purposes of this section--
          (1) Eligible contractor.--The term ``eligible 
        contractor'' means the person who constructed the new 
        energy efficient home, or in the case of a manufactured 
        home which conforms to Federal Manufactured Home 
        Construction and Safety Standards (section 3280 of 
        title 24, Code of Federal Regulations, as in effect on 
        April 3, 2003), the manufactured home producer of such 
        home.
          (2) Energy efficient property.--The term ``energy 
        efficient property'' means any energy efficient 
        building envelope component, and any energy efficient 
        heating or cooling appliance.
          (3) Qualified new energy efficient home.--The term 
        ``qualified new energy efficient home'' means a 
        dwelling--
                  (A) located in the United States,
                  (B) the construction of which is 
                substantially completed after December 31, 
                2003,
                  (C) the original use of which is as a 
                principal residence (within the meaning of 
                section 121) which commences with the person 
                who acquires such dwelling from the eligible 
                contractor, and
                  (D) which is certified to have a level of 
                annual heating and cooling energy consumption 
                that is at least 30 percent below the annual 
                level of heating and cooling energy consumption 
                of a comparable dwelling constructed in 
                accordance with the standards of the 2000 
                International Energy Conservation Code and to 
                have building envelope component improvements 
                account for \1/3\ of such 30 percent.
          (4) Construction.--The term ``construction'' includes 
        reconstruction and rehabilitation.
          (5) Acquire.--The term ``acquire'' includes purchase 
        and, in the case of reconstruction and rehabilitation, 
        such term includes a binding written contract for such 
        reconstruction or rehabilitation.
          (6) Building envelope component.--The term ``building 
        envelope component'' means insulation material or 
        system which is specifically and primarily designed to 
        reduce the heat loss or gain of a dwelling when 
        installed in or on such dwelling, exterior windows 
        (including skylights) and doors, and metal roofs with 
        appropriate pigmented coatings which are specifically 
        and primarily designed to reduce the heat gain of a 
        dwelling when installed in or on such dwelling.
          (7) Manufactured home included.--The term 
        ``dwelling'' includes a manufactured home conforming to 
        Federal Manufactured Home Construction and Safety 
        Standards (section 3280 of title 24, Code of Federal 
        Regulations, as in effect on April 3, 2003).
  (d) Certification.--
          (1) Method.--A certification described in subsection 
        (c)(3)(D) shall be determined on the basis of one of 
        the following methods:
                  (A) The technical specifications or 
                applicable ratings (including product labeling 
                requirements) for the measurement of energy 
                efficiency for the energy efficient building 
                envelope component or energy efficient heating 
                or cooling appliance, based upon energy use or 
                building envelope component performance.
                  (B) An energy performance measurement method 
                that utilizes computer software approved by 
                organizations designated by the Secretary.
          (2) Provider.--Such certification shall be provided 
        by--
                  (A) in the case of a method described in 
                paragraph (1)(A), a local building regulatory 
                authority, a utility, a manufactured home 
                production inspection primary inspection agency 
                (IPIA), or an accredited home energy rating 
                systems provider who is accredited by, or 
                otherwise authorized to use, approved energy 
                performance measurement methods by the Home 
                Energy Ratings Systems Council or the National 
                Association of State Energy Officials, or
                  (B) in the case of a method described in 
                paragraph (1)(B), an individual recognized by 
                an organization designated by the Secretary for 
                such purposes.
          (3) Form.--Such certification shall be made in 
        writing in a manner that specifies in readily 
        verifiable fashion the energy efficient building 
        envelope components and energy efficient heating or 
        cooling appliances installed and their respective 
        energy efficiency levels, and in the case of a method 
        described in subparagraph (B) of paragraph (1), 
        accompanied by written analysis documenting the proper 
        application of a permissible energy performance 
        measurement method to the specific circumstances of 
        such dwelling.
          (4) Regulations.--
                  (A) In general.--In prescribing regulations 
                under this subsection for energy performance 
                measurement methods, the Secretary shall 
                prescribe procedures for calculating annual 
                energy costs for heating and cooling and cost 
                savings and for the reporting of the results. 
                Such regulations shall--
                          (i) be based on the National Home 
                        Energy Rating Technical Guidelines of 
                        the National Association of State 
                        Energy Officials, the Home Energy 
                        Rating Guidelines of the Home Energy 
                        Rating Systems Council, or the modified 
                        2001 California Residential ACM manual,
                          (ii) provide that any calculation 
                        procedures be developed such that the 
                        same energy efficiency measures allow a 
                        home to qualify for the credit under 
                        this section regardless of whether the 
                        house uses a gas or oil furnace or 
                        boiler or an electric heat pump, and
                          (iii) require that any computer 
                        software allow for the printing of the 
                        Federal tax forms necessary for the 
                        credit under this section and 
                        explanations for the homebuyer of the 
                        energy efficient features that were 
                        used to comply with the requirements of 
                        this section.
                  (B) Providers.--For purposes of paragraph 
                (2)(B), the Secretary shall establish 
                requirements for the designation of individuals 
                based on the requirements for energy 
                consultants and home energy raters specified by 
                the National Association of State Energy 
                Officials.
  (e) Basis Adjustment.--For purposes of this subtitle, if a 
credit is determined under this section for any expenditure 
with respect to any property, the increase in the basis of such 
property which would (but for this subsection) result from such 
expenditure shall be reduced by the amount of the credit so 
determined.
  (f) Application of Section.--Subsection (a) shall apply to 
dwellings purchased during the period beginning on January 1, 
2004, and ending on December 31, 2006.

SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.

  (a) In General.--For purposes of section 38, the amount of 
the low sulfur diesel fuel production credit determined under 
this section with respect to any facility of a small business 
refiner is an amount equal to 5 cents for each gallon of low 
sulfur diesel fuel produced during the taxable year by such 
small business refiner at such facility.
  (b) Maximum Credit.--
          (1) In general.--The aggregate credit determined 
        under subsection (a) for any taxable year with respect 
        to any facility shall not exceed--
                  (A) 25 percent of the qualified capital costs 
                incurred by the small business refiner with 
                respect to such facility, reduced by
                  (B) the aggregate credits determined under 
                this section for all prior taxable years with 
                respect to such facility.
          (2) Reduced percentage.--In the case of a small 
        business refiner with average daily domestic refinery 
        runs for the 1-year period ending on March 31, 2003, in 
        excess of 155,000 barrels, the number of percentage 
        points described in paragraph (1) shall be reduced (not 
        below zero) by the product of such number (before the 
        application of this paragraph) and the ratio of such 
        excess to 50,000 barrels.
  (c) Definitions.--For purposes of this section--
          (1) Small business refiner.--The term ``small 
        business refiner'' means, with respect to any taxable 
        year, a refiner of crude oil with respect to which not 
        more than 1,500 persons are engaged in the refinery 
        operations of the business on any day during such 
        taxable year and whose average daily domestic refinery 
        run for the 1-year period ending on March 31, 2003, did 
        not exceed 205,000 barrels.
          (2) Qualified capital costs.--The term ``qualified 
        capital costs'' means, with respect to any facility, 
        those costs paid or incurred during the applicable 
        period for compliance with the applicable EPA 
        regulations with respect to such facility, including 
        expenditures for the construction of new process 
        operation units or the dismantling and reconstruction 
        of existing process units to be used in the production 
        of low sulfur diesel fuel, associated adjacent or 
        offsite equipment (including tankage, catalyst, and 
        power supply), engineering, construction period 
        interest, and sitework.
          (3) Applicable epa regulations.--The term 
        ``applicable EPA regulations'' means the Highway Diesel 
        Fuel Sulfur Control Requirements of the Environmental 
        Protection Agency.
          (4) Applicable period.--The term ``applicable 
        period'' means, with respect to any facility, the 
        period beginning on April 1, 2003, and ending with the 
        date which is 1 year after the date on which the 
        taxpayer must comply with the applicable EPA 
        regulations with respect to such facility.
          (5) Low sulfur diesel fuel.--The term ``low sulfur 
        diesel fuel'' means diesel fuel with a sulfur content 
        of 15 parts per million or less.
  (d) Reduction in Basis.--For purposes of this subtitle, if a 
credit is determined under this section for any expenditure 
with respect to any property, the increase in basis of such 
property which would (but for this subsection) result from such 
expenditure shall be reduced by the amount of the credit so 
determined.
  (e) Certification.--
          (1) Required.--Not later than the date which is 30 
        months after the first day of the first taxable year in 
        which the low sulfur diesel fuel production credit is 
        allowed with respect to a facility, the small business 
        refiner must obtain certification from the Secretary, 
        in consultation with the Administrator of the 
        Environmental Protection Agency, that the taxpayer's 
        qualified capital costs with respect to such facility 
        will result in compliance with the applicable EPA 
        regulations.
          (2) Contents of application.--An application for 
        certification shall include relevant information 
        regarding unit capacities and operating characteristics 
        sufficient for the Secretary, in consultation with the 
        Administrator of the Environmental Protection Agency, 
        to determine that such qualified capital costs are 
        necessary for compliance with the applicable EPA 
        regulations.
          (3) Review period.--Any application shall be reviewed 
        and notice of certification, if applicable, shall be 
        made within 60 days of receipt of such application.
          (4) Statute of limitations.--With respect to the 
        credit allowed under this section--
                  (A) the statutory period for the assessment 
                of any deficiency attributable to such credit 
                shall not expire before the end of the 3-year 
                period ending on the date that the review 
                period described in paragraph (3) ends, and
                  (B) such deficiency may be assessed before 
                the expiration of such 3-year period 
                notwithstanding the provisions of any other law 
                or rule of law which would otherwise prevent 
                such assessment.
  (f) Controlled Groups.--For purposes of this section, all 
persons treated as a single employer under subsection (b), (c), 
(m), or (o) of section 414 shall be treated as 1 taxpayer.

SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.

  (a) General Rule.--For purposes of section 38, the marginal 
well production credit for any taxable year is an amount equal 
to the product of--
          (1) the credit amount, and
          (2) the qualified credit oil production and the 
        qualified natural gas production which is attributable 
        to the taxpayer.
  (b) Credit Amount.--For purposes of this section--
          (1) In general.--The credit amount is--
                  (A) $3 per barrel of qualified crude oil 
                production, and
                  (B) 50 cents per 1,000 cubic feet of 
                qualified natural gas production.
          (2) Reduction as oil and gas prices increase.--
                  (A) In general.--The $3 and 50 cents amounts 
                under paragraph (1) shall each be reduced (but 
                not below zero) by an amount which bears the 
                same ratio to such amount (determined without 
                regard to this paragraph) as--
                          (i) the excess (if any) of the 
                        applicable reference price over $15 
                        ($1.67 for qualified natural gas 
                        production), bears to
                          (ii) $3 ($0.33 for qualified natural 
                        gas production).
                The applicable reference price for a taxable 
                year is the reference price of the calendar 
                year preceding the calendar year in which the 
                taxable year begins.
                  (B) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 
                2003, each of the dollar amounts contained in 
                subparagraph (A) shall be increased to an 
                amount equal to such dollar amount multiplied 
                by the inflation adjustment factor for such 
                calendar year (determined under section 
                43(b)(3)(B) by substituting ``2002'' for 
                ``1990'').
                  (C) Reference price.--For purposes of this 
                paragraph, the term ``reference price'' means, 
                with respect to any calendar year--
                          (i) in the case of qualified crude 
                        oil production, the reference price 
                        determined under section 45J(d)(2)(C), 
                        and
                          (ii) in the case of qualified natural 
                        gas production, the Secretary's 
                        estimate of the annual average wellhead 
                        price per 1,000 cubic feet for all 
                        domestic natural gas.
  (c) Qualified Crude Oil and Natural Gas Production.--For 
purposes of this section--
          (1) In general.--The terms ``qualified crude oil 
        production'' and ``qualified natural gas production'' 
        mean domestic crude oil or natural gas which is 
        produced from a qualified marginal well.
          (2) Limitation on amount of production which may 
        qualify.--
                  (A) In general.--Crude oil or natural gas 
                produced during any taxable year from any well 
                shall not be treated or qualified crude oil 
                production or qualified natural gas production 
                to the extent production from the well during 
                the taxable year exceeds 1,095 barrels or 
                barrel equivalents.
                  (B) Proportionate reductions.--
                          (i) Short taxable years.--In the case 
                        of a short taxable year, the 
                        limitations under this paragraph shall 
                        be proportionately reduced to reflect 
                        the ratio which the number of days in 
                        such taxable year bears to 365.
                          (ii) Wells not in production entire 
                        year.--In the case of a well which is 
                        not capable of production during each 
                        day of a taxable year, the limitations 
                        under this paragraph applicable to the 
                        well shall be proportionately reduced 
                        to reflect the ratio which the number 
                        of days of production bears to the 
                        total number of days in the taxable 
                        year.
          (3) Definitions.--
                  (A) Qualified marginal well.--The term 
                ``qualified marginal well'' means a domestic 
                well--
                          (i) the production from which during 
                        the taxable year is treated as marginal 
                        production under section 613A(c)(6), or
                          (ii) which, during the taxable year--
                                  (I) has average daily 
                                production of not more than 25 
                                barrel equivalents, and
                                  (II) produces water at a rate 
                                not less than 95 percent of 
                                total well effluent.
                  (B) Crude oil, etc.--The terms ``crude oil'', 
                ``natural gas'', ``domestic'', and ``barrel'' 
                have the meanings given such terms by section 
                613A(e).
                  (C) Barrel equivalent.--The term ``barrel 
                equivalent'' means, with respect to natural 
                gas, a conversation ratio of 6,000 cubic feet 
                of natural gas to 1 barrel of crude oil.
  (d) Other Rules.--
          (1) Production attributable to the taxpayer.--In the 
        case of a qualified marginal well in which there is 
        more than one owner of operating interests in the well 
        and the crude oil or natural gas production exceeds the 
        limitation under subsection (c)(2), qualifying crude 
        oil production or qualifying natural gas production 
        attributable to the taxpayer shall be determined on the 
        basis of the ratio which taxpayer's revenue interest in 
        the production bears to the aggregate of the revenue 
        interests of all operating interest owners in the 
        production.
          (2) Operating interest required.--Any credit under 
        this section may be claimed only on production which is 
        attributable to the holder of an operating interest.
          (3) Production from nonconventional sources 
        excluded.--In the case of production from a qualified 
        marginal well which is eligible for the credit allowed 
        under section 45J for the taxable year, no credit shall 
        be allowable under this section unless the taxpayer 
        elects not to claim the credit under section 45J with 
        respect to the well.

SEC. [29.] 45J. CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL 
                    SOURCE.

  (a) Allowance of Credit.--[There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year] 
For purposes of section 38, if the taxpayer elects to have this 
section apply, the nonconventional source production credit 
determined under this section for the taxable year is an amount 
equal to--
          (1) * * *

           *       *       *       *       *       *       *

  (b) Limitations and Adjustments.--
          (1) * * *

           *       *       *       *       *       *       *

          [(6) Application with other credits.--The credit 
        allowed by subsection (a) for any taxable year shall 
        not exceed the excess (if any) of--
                  [(A) the regular tax for the taxable year 
                reduced by the sum of the credits allowable 
                under subpart A and section 27, over
                  [(B) the tentative minimum tax for the 
                taxable year.]

           *       *       *       *       *       *       *

  (h) Extension for Other Facilities.--
          (1) Extension for oil and certain gas.--In the case 
        of a well for producing qualified fuels described in 
        subparagraph (A) or (B)(i) of subsection (c)(1)--
                  (A) Application of credit for new wells.--
                Notwithstanding subsection (f), this section 
                shall apply with respect to such fuels--
                          (i) which are produced from a well 
                        drilled after the date of the enactment 
                        of this subsection and before January 
                        1, 2007, and
                          (ii) which are sold not later than 
                        the close of the 4-year period 
                        beginning on the date that such well is 
                        drilled, or, if earlier, January 1, 
                        2010.
                  (B) Extension of credit for old wells.--
                Subsection (f)(2) shall be applied by 
                substituting ``2007'' for ``2003'' with respect 
                to wells described in subsection (f)(1)(A) with 
                respect to such fuels.
          (2) Extension for facilities producing qualified fuel 
        from landfill gas.--
                  (A) In general.--In the case of a facility 
                for producing qualified fuel from landfill gas 
                which was placed in service after June 30, 
                1998, and before January 1, 2007, this section 
                shall apply to fuel produced at such facility 
                during the 5-year period beginning on the later 
                of--
                          (i) the date such facility was placed 
                        in service, or
                          (ii) the date of the enactment of 
                        this subsection.
                  (B) Reduction of credit for certain landfill 
                facilities.--In the case of a facility to which 
                paragraph (1) applies and which is located at a 
                landfill which is required pursuant to section 
                60.751(b)(2) or section 60.33c of title 40, 
                Code of Federal Regulations (as in effect on 
                April 3, 2003) to install and operate a 
                collection and control system which captures 
                gas generated within the landfill, subsection 
                (a)(1) shall be applied to gas so captured by 
                substituting ``$2'' for ``$3'' for the taxable 
                year during which such system is required to be 
                installed and operated.
          (3) Special rules.--In determining the amount of 
        credit allowable under this section solely by reason of 
        this subsection--
                  (A) Daily limit.--The amount of qualified 
                fuels sold during any taxable year which may be 
                taken into account by reason of this subsection 
                with respect to any project shall not exceed an 
                average barrel-of-oil equivalent of 200,000 
                cubic feet of natural gas per day. Days before 
                the date the project is placed in service shall 
                not be taken into account in determining such 
                average.
                  (B) Extension period to commence with 
                unadjusted credit amount.--In the case of fuels 
                sold during 2003, the dollar amount applicable 
                under subsection (a)(1) shall be $3 (without 
                regard to subsection (b)(2)). In the case of 
                fuels sold after 2003, subparagraph (B) of 
                subsection (d)(2) shall be applied by 
                substituting ``2003'' for ``1979''.

           *       *       *       *       *       *       *


Subpart E--Rules for Computing Investment Credit

           *       *       *       *       *       *       *


SEC. 48. ENERGY CREDIT; REFORESTATION CREDIT.

  (a) Energy Credit.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Energy property.--For purposes of this subpart, 
        the term ``energy property'' means any property--
                  (A) which is--
                          (i) equipment which uses solar energy 
                        to generate electricity, to heat or 
                        cool (or provide hot water for use in) 
                        a structure, or to provide solar 
                        process heat, [or]
                          (ii) equipment used to produce, 
                        distribute, or use energy derived from 
                        a geothermal deposit (within the 
                        meaning of section 613(e)(2)), but 
                        only, in the case of electricity 
                        generated by geothermal power, up to 
                        (but not including) the electrical 
                        transmission stage,
                          (iii) equipment which is part of a 
                        qualified fuel cell power plant, or
                          (iv) combined heat and power system 
                        property,

           *       *       *       *       *       *       *

          (4) Qualified fuel cell power plant.--For purposes of 
        this subsection--
                  (A) In general.--The term ``qualified fuel 
                cell power plant'' means a fuel cell power 
                plant that has an electricity-only generation 
                efficiency greater than 30 percent.
                  (B) Limitation.--The energy credit with 
                respect to any qualified fuel cell power plant 
                for any taxable year shall not exceed--
                          (i) $500 for each \1/2\ kilowatt of 
                        capacity of the power plant, reduced by
                          (ii) the aggregate energy credits 
                        allowed with respect to such power 
                        plant for all prior taxable years.
                  (C) Fuel cell power plant.--The term ``fuel 
                cell power plant'' means an integrated system 
                comprised of a fuel cell stack assembly and 
                associated balance of plant components that 
                converts a fuel into electricity using 
                electrochemical means.
                  (D) Termination.--Such term shall not include 
                any property placed in service after December 
                31, 2006.
          (5) Combined heat and power system property.--For 
        purposes of this subsection--
                  (A) Combined heat and power system 
                property.--The term ``combined heat and power 
                system property'' means property comprising a 
                system--
                          (i) which uses the same energy source 
                        for the simultaneous or sequential 
                        generation of electrical power, 
                        mechanical shaft power, or both, in 
                        combination with the generation of 
                        steam or other forms of useful thermal 
                        energy (including heating and cooling 
                        applications),
                          (ii) which has an electrical capacity 
                        of more than 50 kilowatts or a 
                        mechanical energy capacity of more than 
                        67 horsepower or an equivalent 
                        combination of electrical and 
                        mechanical energy capacities,
                          (iii) which produces--
                                  (I) at least 20 percent of 
                                its total useful energy in the 
                                form of thermal energy, and
                                  (II) at least 20 percent of 
                                its total useful energy in the 
                                form of electrical or 
                                mechanical power (or 
                                combination thereof),
                          (iv) the energy efficiency percentage 
                        of which exceeds 60 percent (70 percent 
                        in the case of a system with an 
                        electrical capacity in excess of 50 
                        megawatts or a mechanical energy 
                        capacity in excess of 67,000 
                        horsepower, or an equivalent 
                        combination of electrical and 
                        mechanical energy capacities), and
                          (v) which is placed in service after 
                        December 31, 2003, and before January 
                        1, 2007.
                  (B) Special rules.--
                          (i) Energy efficiency percentage.--
                        For purposes of subparagraph (A)(iv), 
                        the energy efficiency percentage of a 
                        system is the fraction--
                                  (I) the numerator of which is 
                                the total useful electrical, 
                                thermal, and mechanical power 
                                produced by the system at 
                                normal operating rates, and
                                  (II) the denominator of which 
                                is the lower heating value of 
                                the primary fuel source for the 
                                system.
                          (ii) Determinations made on btu 
                        basis.--The energy efficiency 
                        percentage and the percentages under 
                        subparagraph (A)(iii) shall be 
                        determined on a Btu basis.
                          (iii) Input and output property not 
                        included.--The term ``combined heat and 
                        power system property'' does not 
                        include property used to transport the 
                        energy source to the facility or to 
                        distribute energy produced by the 
                        facility.
                          (iv) Public utility property.--
                                  (I) Accounting rule for 
                                public utility property.--If 
                                the combined heat and power 
                                system property is public 
                                utility property (as defined in 
                                section 168(i)(1)), the 
                                taxpayer may only claim the 
                                credit under the subsection if, 
                                with respect to such property, 
                                the taxpayer uses a 
                                normalization method of 
                                accounting.
                                  (II) Certain exception not to 
                                apply.--The matter in paragraph 
                                (3) which follows subparagraph 
                                (D) shall not apply to combined 
                                heat and power system property.
                  (C) Extension of depreciation recovery 
                period.--If a taxpayer is allowed credit under 
                this section for combined heat and power system 
                property and such property would (but for this 
                subparagraph) have a class life of 15 years or 
                less under section 168, such property shall be 
                treated as having a 22-year class life for 
                purposes of section 168.
          [(4)] (6) Special rule for property financed by 
        subsidized energy financing or industrial development 
        bonds.--
                  (A) * * *

           *       *       *       *       *       *       *

          [(5)] (7) Certain progress expenditure rules made 
        applicable.--Rules similar to the rules of subsections 
        (c)(4) and (d) of section 46 (as in effect on the day 
        before the date of the enactment of the Revenue 
        Reconciliation Act of 1990) shall apply for purposes of 
        this subsection.

           *       *       *       *       *       *       *


   Subpart G--Credit Against Regular Tax for Prior Year Minimum Tax 
Liability

           *       *       *       *       *       *       *


SEC. 53. CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Definitions.--For purposes of this section--
          (1) Net minimum tax.--
                  (A) * * *
                  (B) Credit not allowed for exclusion 
                preferences.--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) Special rule.--The adjusted net 
                        minimum tax for the taxable year shall 
                        be increased by the amount of the 
                        credit not allowed [under section 29 
                        (relating to credit for producing fuel 
                        from a nonconventional source) solely 
                        by reason of the application of section 
                        29(b)(6)(B), or not allowed] under 
                        section 30 solely by reason of the 
                        application of section 30(b)(3)(B).

           *       *       *       *       *       *       *


PART VI--MINIMUM TAX FOR TAX PREFERENCES

           *       *       *       *       *       *       *


SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Regular Tax.--
          (1)  * * *
          (2) Cross references.--
          For provisions providing that certain credits are not 
        allowable against the tax imposed by this section, see sections 
        26(a), [29(b)(6),] 30(b)(3) and 38(c).

           *       *       *       *       *       *       *


SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME.

  (a) Adjustments Applicable to All Taxpayers.--In determining 
the amount of the alternative minimum taxable income for any 
taxable year the following treatment shall apply (in lieu of 
the treatment applicable for purposes of computing the regular 
tax):
          (1) Depreciation.--
                  (A) * * *
                  (B) Exception for certain property.--This 
                paragraph shall not apply to property described 
                in paragraph (1), (2), (3), or (4) of section 
                168(f), or in section 168(e)(3)(C)(ii), or in 
                section 168(e)(3)(E)(iv), or in section 
                168(e)(3)(E)(v).

           *       *       *       *       *       *       *


SEC. 57. ITEMS OF TAX PREFERENCE.

  (a) General Rule.--For purposes of this part, the items of 
tax preference determined under this section are--
          (1) * * *
          (2) Intangible drilling costs.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (E) Exception for independent producers.--In 
                the case of any oil or gas well--
                          (i) * * *
                          (ii) Limitation on benefit.--The 
                        reduction in alternative minimum 
                        taxable income by reason of clause (i) 
                        for any taxable year shall not exceed 
                        40 percent (30 percent in case of 
                        taxable years beginning in 1993) of the 
                        alternative minimum taxable income for 
                        such year determined without regard to 
                        clause (i) and the alternative tax net 
                        operating loss deduction under section 
                        56(a)(4). The preceding sentence shall 
                        not apply to taxable years beginning 
                        after December 31, 2003, and before 
                        January 1, 2006.

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART IV--TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS

           *       *       *       *       *       *       *



Subpart A--Private Activity Bonds

           *       *       *       *       *       *       *



SEC. 141. PRIVATE ACTIVITY BOND; QUALIFIED BOND.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Private Loan Financing Test.--
          (1) * * *
          (2) Exception for tax assessment, etc., loans.--For 
        purposes of paragraph (1), a loan is described in this 
        paragraph if such loan--
                  (A) enables the borrower to finance any 
                governmental tax or assessment of general 
                application for a specific essential 
                governmental function, [or]
                  (B) is a nonpurpose investment (within the 
                meaning of section 148(f)(6)(A))[.], or
                  (C) is a qualified natural gas supply 
                contract (as defined in section 148(b)(4)).

           *       *       *       *       *       *       *


Subpart B--Requirements Applicable to All State and Local Bonds

           *       *       *       *       *       *       *



SEC. 148. ARBITRAGE.

  (a) * * *
  (b) Higher Yielding Investments.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Safe harbor for prepaid natural gas.--
                  (A) In general.--The term ``investment-type 
                property'' does not include a prepayment under 
                a qualified natural gas supply contract.
                  (B) Qualified natural gas supply contract.--
                For purposes of this paragraph, the term 
                ``qualified natural gas supply contract'' means 
                any contract to acquire natural gas for resale 
                by a utility owned by a governmental unit if 
                the amount of gas permitted to be acquired 
                under the contract by the utility during any 
                year does not exceed the sum of--
                          (i) the annual average amount during 
                        the testing period of natural gas 
                        purchased (other than for resale) by 
                        customers of such utility who are 
                        located within the service area of such 
                        utility, and
                          (ii) the amount of natural gas to be 
                        used to transport the prepaid natural 
                        gas to the utility during such year.
                  (C) Natural gas used to generate 
                electricity.--Natural gas used to generate 
                electricity shall be taken into account in 
                determining the average under subparagraph 
                (B)(i)--
                          (i) only if the electricity is 
                        generated by a utility owned by a 
                        governmental unit, and
                          (ii) only to the extent that the 
                        electricity is sold (other than for 
                        resale) to customers of such utility 
                        who are located within the service area 
                        of such utility.
                  (D) Adjustments for changes in customer 
                base.--
                          (i) New business customers.--If--
                                  (I) after the close of the 
                                testing period and before the 
                                date of issuance of the issue, 
                                the utility owned by a 
                                governmental unit enters into a 
                                contract to supply natural gas 
                                (other than for resale) for a 
                                business use at a property 
                                within the service area of such 
                                utility, and
                                  (II) the utility did not 
                                supply natural gas to such 
                                property during the testing 
                                period or the ratable amount of 
                                natural gas to be supplied 
                                under the contract is 
                                significantly greater than the 
                                ratable amount of gas supplied 
                                to such property during the 
                                testing period,
                        then a contract shall not fail to be 
                        treated as a qualified natural gas 
                        supply contract by reason of supplying 
                        the additional natural gas under the 
                        contract referred to in subclause (I).
                          (ii) Lost customers.--The average 
                        under subparagraph (B)(i) shall not 
                        exceed the annual amount of natural gas 
                        reasonably expected to be purchased 
                        (other than for resale) by persons who 
                        are located within the service area of 
                        such utility and who, as of the date of 
                        issuance of the issue, are customers of 
                        such utility.
                  (E) Ruling requests.--The Secretary may 
                increase the average under subparagraph (B)(i) 
                for any period if the utility owned by the 
                governmental unit establishes to the 
                satisfaction of the Secretary that, based on 
                objective evidence of growth in natural gas 
                consumption or population, such average would 
                otherwise be insufficient for such period.
                  (F) Adjustment for natural gas otherwise on 
                hand.--
                          (i) In general.--The amount otherwise 
                        permitted to be acquired under the 
                        contract for any period shall be 
                        reduced by--
                                  (I) the applicable share of 
                                natural gas held by the utility 
                                on the date of issuance of the 
                                issue, and
                                  (II) the natural gas (not 
                                taken into account under 
                                subclause (I)) which the 
                                utility has a right to acquire 
                                during such period (determined 
                                as of the date of issuance of 
                                the issue).
                          (ii) Applicable share.--For purposes 
                        of the clause (i), the term 
                        ``applicable share'' means, with 
                        respect to any period, the natural gas 
                        allocable to such period if the gas 
                        were allocated ratably over the period 
                        to which the prepayment relates.
                  (G) Intentional acts.--Subparagraph (A) shall 
                cease to apply to any issue if the utility 
                owned by the governmental unit engages in any 
                intentional act to render the volume of natural 
                gas acquired by such prepayment to be in excess 
                of the sum of--
                          (i) the amount of natural gas needed 
                        (other than for resale) by customers of 
                        such utility who are located within the 
                        service area of such utility, and
                          (ii) the amount of natural gas used 
                        to transport such natural gas to the 
                        utility.
                  (H) Testing period.--For purposes of this 
                paragraph, the term ``testing period'' means, 
                with respect to an issue, the most recent 5 
                calendar years ending before the date of 
                issuance of the issue.
                  (I) Service area.--For purposes of this 
                paragraph, the service area of a utility owned 
                by a governmental unit shall be comprised of--
                          (i) any area throughout which such 
                        utility provided at all times during 
                        the testing period--
                                  (I) in the case of a natural 
                                gas utility, natural gas 
                                transmission or distribution 
                                services, and
                                  (II) in the case of an 
                                electric utility, electricity 
                                distribution services,
                          (ii) any area within a county 
                        contiguous to the area described in 
                        clause (i) in which retail customers of 
                        such utility are located if such area 
                        is not also served by another utility 
                        providing natural gas or electricity 
                        services, as the case may be, and
                          (iii) any area recognized as the 
                        service area of such utility under 
                        State or Federal law.

           *       *       *       *       *       *       *


     PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

        Sec. 161. Allowance of deductions.
     * * * * * * *
        Sec. 179B. Deduction for capital costs incurred in complying 
                  with Environmental Protection Agency sulfur 
                  regulations.

           *       *       *       *       *       *       *


SEC. 167. DEPRECIATION.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Amortization of Delay Rental Payments for Domestic Oil 
and Gas Wells.--
          (1) In general.--Any delay rental payment paid or 
        incurred in connection with the development of oil or 
        gas wells within the United States (as defined in 
        section 638) shall be allowed as a deduction ratably 
        over the 24-month period beginning on the date that 
        such payment was paid or incurred.
          (2) Half-year convention.--For purposes of paragraph 
        (1), any payment paid or incurred during the taxable 
        year shall be treated as paid or incurred on the mid-
        point of such taxable year.
          (3) Exclusive method.--Except as provided in this 
        subsection, no depreciation or amortization deduction 
        shall be allowed with respect to such payments.
          (4) Treatment upon abandonment.--If any property to 
        which a delay rental payment relates is retired or 
        abandoned during the 24-month period described in 
        paragraph (1), no deduction shall be allowed on account 
        of such retirement or abandonment and the amortization 
        deduction under this subsection shall continue with 
        respect to such payment.
          (5) Delay rental payments.--For purposes of this 
        subsection, the term ``delay rental payment'' means an 
        amount paid for the privilege of deferring development 
        of an oil or gas well under an oil or gas lease.
  (i) Amortization of Geological and Geophysical 
Expenditures.--
          (1) In general.--Any geological and geophysical 
        expenses paid or incurred in connection with the 
        exploration for, or development of, oil or gas within 
        the United States (as defined in section 638) shall be 
        allowed as a deduction ratably over the 24-month period 
        beginning on the date that such expense was paid or 
        incurred.
          (2) Special rules.--For purposes of this subsection, 
        rules similar to the rules of paragraphs (2), (3), and 
        (4) of subsection (h) shall apply.
  [(h)] (j) Cross References.--
          (1) * * *
     * * * * * * *

SEC. 168. ACCELERATED COST RECOVERY SYSTEM.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Classification of Property.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Classification of certain property.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) 7-year property.--The term ``7-year 
                property'' includes--
                          (i) any railroad track, [and]
                          (ii) any natural gas gathering line, 
                        and
                          [(ii)] (iii) any property which--
                                  (I) * * *

           *       *       *       *       *       *       *

                  (E) 15-year property.--The term ``15-year 
                property'' includes--
                          (i) * * *
                          (ii) any telephone distribution plant 
                        and comparable equipment used for 2-way 
                        exchange of voice and data 
                        communications, [and]
                          (iii) any section 1250 property which 
                        is a retail motor fuels outlet (whether 
                        or not food or other convenience items 
                        are sold at the outlet)[.],
                          (iv) any natural gas distribution 
                        line, and
                          (v) any section 1245 property (as 
                        defined in section 1245(a)(3)) used in 
                        the transmission at 69 or more 
                        kilovolts of electricity for sale.

           *       *       *       *       *       *       *

  (g) Alternative Depreciation System for Certain Property.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Special rules for determining class life.--
                  (A) * * *
                  (B) Special rule for certain property 
                assigned to classes.--For purposes of paragraph 
                (2), in the case of property described in any 
                of the following subparagraphs of subsection 
                (e)(3), the class life shall be determined as 
                follows:

If property is described                                       The class
in subparagraph:                                                life is:
(A)(iii)..........................................................     4
(B)(ii)...........................................................     5
(B)(iii)..........................................................   9.5
(C)(i)............................................................    10
(C)(ii)...........................................................    10
(D)(i)............................................................    15
(D)(ii)...........................................................    20
(E)(i)............................................................    24
(E)(ii)...........................................................    24
(E)(iii)..........................................................    20
(E)(iv)...........................................................    20
20v)............................................................

           *       *       *       *       *       *       *

  (i) Definitions and Special Rules.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

          (16) Natural gas gathering line.--The term ``natural 
        gas gathering line'' means--
                  (A) the pipe, equipment, and appurtenances 
                determined to be a gathering line by the 
                Federal Energy Regulatory Commission, or
                  (B) the pipe, equipment, and appurtenances 
                used to deliver natural gas from the wellhead 
                or a commonpoint to the point at which such gas 
                first reaches--
                          (i) a gas processing plant,
                          (ii) an interconnection with a 
                        transmission pipeline certificated by 
                        the Federal Energy Regulatory 
                        Commission as an interstate 
                        transmission pipeline,
                          (iii) an interconnection with an 
                        intrastate transmission pipeline, or
                          (iv) a direct interconnection with a 
                        local distribution company, a gas 
                        storage facility, or an industrial 
                        consumer.

           *       *       *       *       *       *       *


SEC. 179A. DEDUCTION FOR CLEAN-FUEL VEHICLES AND CERTAIN REFUELING 
                    PROPERTY.

  (a) * * *
  (b) Limitations.--
          [(1) Qualified clean-fuel vehicle property.--
                  [(A) In general.--The cost which may be taken 
                into account under subsection (a)(1)(A) with 
                respect to any motor vehicle shall not exceed--
                          [(i) in the case of a motor vehicle 
                        not described in clause (ii) or (iii), 
                        $2,000,
                          [(ii) in the case of any truck or van 
                        with a gross vehicle weight rating 
                        greater than 10,000 pounds but not 
                        greater than 26,000 pounds, $5,000, or
                          [(iii) $50,000 in the case of--
                                  [(I) a truck or van with a 
                                gross vehicle weight rating 
                                greater than 26,000 pounds, or
                                  [(II) any bus which has a 
                                seating capacity of at least 20 
                                adults (not including the 
                                driver).
                  [(B) Phaseout.--In the case of any qualified 
                clean-fuel vehicle property placed in service 
                after December 31, 2003, the limit otherwise 
                applicable under subparagraph (A) shall be 
                reduced by--
                          [(i) 25 percent in the case of 
                        property placed in service in calendar 
                        year 2004,
                          [(ii) 50 percent in the case of 
                        property placed in service in calendar 
                        year 2005, and
                          [(iii) 75 percent in the case of 
                        property placed in service in calendar 
                        year 2006.]
          (1) Qualified clean-fuel vehicle property.--The cost 
        which may be taken into account under subsection 
        (a)(1)(A) with respect to any motor vehicle shall not 
        exceed--
                  (A) in the case of a motor vehicle not 
                described in subparagraph (B) or (C), $2,000,
                  (B) in the case of any truck or van with a 
                gross vehicle weight rating greater than 10,000 
                pounds but not greater than 26,000 pounds, 
                $5,000, or
                  (C) $50,000 in the case of--
                          (i) a truck or van with a gross 
                        vehicle weight rating greater than 
                        26,000 pounds, or
                          (ii) any bus which has a seating 
                        capacity of at least 20 adults (not 
                        including the driver).

           *       *       *       *       *       *       *


SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH 
                    ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

  (a) Treatment as Expenses.--A small business refiner (as 
defined in section 45H(c)(1)) may elect to treat 75 percent of 
qualified capital costs (as defined in section 45H(c)(2)) which 
are paid or incurred by the taxpayer during the taxable year as 
expenses which are not chargeable to capital account. Any cost 
so treated shall be allowed as a deduction for the taxable year 
in which paid or incurred.
  (b) Reduced Percentage.--In the case of a small business 
refiner with average daily domestic refinery runs for the 1-
year period ending on March 31, 2003, in excess of 155,000 
barrels, the number of percentage points described in 
subsection (a) shall be reduced (not below zero) by the product 
of such number (before the application of this subsection) and 
the ratio of such excess to 50,000 barrels.
  (c) Basis Reduction.--
          (1) 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).
          (2) Ordinary income recapture.--For purposes of 
        section 1245, the amount of the deduction allowable 
        under subsection (a) with respect to any property which 
        is of a character subject to the allowance for 
        depreciation shall be treated as a deduction allowed 
        for depreciation under section 167.

           *       *       *       *       *       *       *


SEC. 196. DEDUCTION FOR CERTAIN UNUSED BUSINESS CREDITS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Qualified Business Credits.--For purposes of this 
section, the term ``qualified business credits'' means--
          (1) the investment credit determined under section 46 
        (but only to the extent attributable to property the 
        basis of which is reduced by section 50(c)),

           *       *       *       *       *       *       *

          (9) the new markets tax credit determined under 
        section 45D(a), [and]
          (10) the small employer pension plan startup cost 
        credit determined under section 45E(a)[.], and
          (11) the new energy efficient home credit determined 
        under section 45G.

           *       *       *       *       *       *       *


PART IX--ITEMS NOT DEDUCTIBLE

           *       *       *       *       *       *       *


SEC. 263. CAPITAL EXPENDITURES.

  (a) General Rule.--No deduction shall be allowed for--
          (1) Any amount paid out for new buildings or for 
        permanent improvements or betterments made to increase 
        the value of any property or estate. This paragraph 
        shall not apply to--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) expenditures for which a deduction is 
                allowed under section 179; [or]
                  (H) expenditures for which a deduction is 
                allowed under section 179A[.]; or
                  (I) expenditures for which a deduction is 
                allowed under section 179B.

           *       *       *       *       *       *       *


SEC. 280C. CERTAIN EXPENSES FOR WHICH CREDITS ARE ALLOWABLE.

  (a) * * *

           *       *       *       *       *       *       *

  (d) New Energy Efficient Home Expenses.--No deduction shall 
be allowed for that portion of expenses for a new energy 
efficient home 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 45G.
  (e) Low Sulfur Diesel Fuel Production Credit.--No deduction 
shall be allowed for that portion of the expenses otherwise 
allowable as a deduction for the taxable year which is equal to 
the amount of the credit determined for the taxable year under 
section 45H(a).

           *       *       *       *       *       *       *


Subchapter C--Corporate Distributions and Adjustments

           *       *       *       *       *       *       *


PART I--DISTRIBUTIONS BY CORPORATIONS

           *       *       *       *       *       *       *


Subpart B--Effects on Corporation

           *       *       *       *       *       *       *


SEC. 312. EFFECT ON EARNINGS AND PROFITS.

  (a) * * *

           *       *       *       *       *       *       *

  (k) Effect of Depreciation on Earnings and Profits.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Exception for tangible property.--
                  (A) * * *
                  (B) Treatment of amounts deductible under 
                section [179 or 179A] 179, 179A, or 179B.--For 
                purposes of computing the earnings and profits 
                of a corporation, any amount deductible under 
                [section 179 or 179A] section 179, 179A, or 
                179B shall be allowed as a deduction ratably 
                over the period of 5 taxable years (beginning 
                with the taxable year for which such amount is 
                deductible under [section 179 or 179A] section 
                179, 179A, or 179B, as the case may be).

           *       *       *       *       *       *       *


Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *



Subpart B--Taxable Year for Which Items of Gross Income Included

           *       *       *       *       *       *       *



SEC. 451. GENERAL RULE FOR TAXABLE YEAR OF INCLUSION.

  (a) * * *

           *       *       *       *       *       *       *

  (i) Special Rule for Sales or Dispositions To Implement 
Federal Energy Regulatory Commission or State Electric 
Restructuring Policy.--
          (1) In general.--In the case of any qualifying 
        electric transmission transaction to which the taxpayer 
        elects the application of this section, qualified gain 
        from such transaction shall be recognized--
                  (A) in the taxable year which includes the 
                date of such transaction to the extent the 
                amount realized from such transaction exceeds--
                          (i) the cost of exempt utility 
                        property which is purchased by the 
                        taxpayer during the 4-year period 
                        beginning on such date, reduced (but 
                        not below zero) by
                          (ii) any portion of such cost 
                        previously taken into account under 
                        this subsection, and
                  (B) ratably over the 8-taxable year period 
                beginning with the taxable year which includes 
                the date of such transaction, in the case of 
                any such gain not recognized under subparagraph 
                (A).
          (2) Qualified gain.--For purposes of this subsection, 
        the term ``qualified gain'' means, with respect to any 
        qualifying electric transmission transaction in any 
        taxable year--
                  (A) any ordinary income derived from such 
                transaction which would be required to be 
                recognized under section 1245 or 1250 for such 
                taxable year (determined without regard to this 
                subsection), and
                  (B) any income derived from such transaction 
                in excess of the amount described in 
                subparagraph (A) which is required to be 
                included in gross income for such taxable year 
                (determined without regard to this subsection).
          (3) Qualifying electric transmission transaction.--
        For purposes of this subsection, the term ``qualifying 
        electric transmission transaction'' means any sale or 
        other disposition before January 1, 2007, of--
                  (A) property used in the trade or business of 
                providing electric transmission services, or
                  (B) any stock or partnership interest in a 
                corporation or partnership, as the case may be, 
                whose principal trade or business consists of 
                providing electric transmission services,
        but only if such sale or disposition is to an 
        independent transmission company.
          (4) Independent transmission company.--For purposes 
        of this subsection, the term ``independent transmission 
        company'' means--
                  (A) an independent transmission provider 
                approved by the Federal Energy Regulatory 
                Commission,
                  (B) a person--
                          (i) who the Federal Energy Regulatory 
                        Commission determines in its 
                        authorization of the transaction under 
                        section 203 of the Federal Power Act 
                        (16 U.S.C. 824b) or by declaratory 
                        order is not a market participant 
                        within the meaning of such Commission's 
                        rules applicable to independent 
                        transmission providers, and
                          (ii) whose transmission facilities to 
                        which the election under this 
                        subsection applies are under the 
                        operational control of a Federal Energy 
                        Regulatory Commission-approved 
                        independent transmission provider 
                        before the close of the period 
                        specified in such authorization, but 
                        not later than the close of the period 
                        applicable under subsection (a)(2)(B) 
                        as extended under paragraph (2), or
                  (C) in the case of facilities subject to the 
                jurisdiction of the Public Utility Commission 
                of Texas--
                          (i) a person which is approved by 
                        that Commission as consistent with 
                        Texas State law regarding an 
                        independent transmission provider, or
                          (ii) a political subdivision or 
                        affiliate thereof whose transmission 
                        facilities are under the operational 
                        control of a person described in clause 
                        (i).
          (5) Exempt utility property.--For purposes of this 
        subsection--
                  (A) In general.--The term ``exempt utility 
                property'' means property used in the trade or 
                business of--
                          (i) generating, transmitting, 
                        distributing, or selling electricity, 
                        or
                          (ii) producing, transmitting, 
                        distributing, or selling natural gas.
                  (B) Nonrecognition of gain by reason of 
                acquisition of stock.--Acquisition of control 
                of a corporation shall be taken into account 
                under this subsection with respect to a 
                qualifying electric transmission transaction 
                only if the principal trade or business of such 
                corporation is a trade or business referred to 
                in subparagraph (A).
          (6) Special rule for consolidated groups.--In the 
        case of a corporation which is a member of an 
        affiliated group filing a consolidated return, any 
        exempt utility property purchased by another member of 
        such group shall be treated as purchased by such 
        corporation for purposes of applying paragraph (1)(A).
          (7) Time for assessment of deficiencies.--If the 
        taxpayer has made the election under paragraph (1) and 
        any gain is recognized by such taxpayer as provided in 
        paragraph (1)(B), then--
                  (A) the statutory period for the assessment 
                of any deficiency, for any taxable year in 
                which any part of the gain on the transaction 
                is realized, attributable to such gain shall 
                not expire prior to the expiration of 3 years 
                from the date the Secretary is notified by the 
                taxpayer (in such manner as the Secretary may 
                by regulations prescribe) of the purchase of 
                exempt utility property or of an intention not 
                to purchase such property, and
                  (B) such deficiency may be assessed before 
                the expiration of such 3-year period 
                notwithstanding any law or rule of law which 
                would otherwise prevent such assessment.
          (8) Purchase.--For purposes of this subsection, the 
        taxpayer shall be considered to have purchased any 
        property if the unadjusted basis of such property is 
        its cost within the meaning of section 1012.
          (9) Election.--An election under paragraph (1) shall 
        be made at such time and in such manner as the 
        Secretary may require and, once made, shall be 
        irrevocable.

           *       *       *       *       *       *       *


Subpart C--Taxable Year for Which Deductions Taken

           *       *       *       *       *       *       *


SEC. 468A. SPECIAL RULES FOR NUCLEAR DECOMMISSIONING COSTS.

  (a) * * *
  [(b) Limitation on Amounts Paid Into Fund.--The amount which 
a taxpayer may pay into the Fund for any taxable year shall not 
exceed the lesser of--
          [(1) the amount of nuclear decommissioning costs 
        allocable to the Fund which is included in the 
        taxpayer's cost of service for ratemaking purposes for 
        such taxable year, or
          [(2) the ruling amount applicable to such taxable 
        year.]
  (b) Limitation on Amounts Paid Into Fund.--
          (1) In general.--The amount which a taxpayer may pay 
        into the Fund for any taxable year shall not exceed the 
        ruling amount applicable to such taxable year.
          (2) Contributions after funding period.--
        Notwithstanding any other provision of this section, a 
        taxpayer may pay into the Fund in any taxable year 
        after the last taxable year to which the ruling amount 
        applies. Payments may not be made under the preceding 
        sentence to the extent such payments would cause the 
        assets of the Fund to exceed the nuclear 
        decommissioning costs allocable to the taxpayer's 
        current or former interest in the nuclear power plant 
        to which the Fund relates. The limitation under the 
        preceding sentence shall be determined by taking into 
        account a reasonable rate of inflation for the nuclear 
        decommissioning costs and a reasonable after-tax rate 
        of return on the assets of the Fund until such assets 
        are anticipated to be expended.

           *       *       *       *       *       *       *

  (d) Ruling Amount.--For purposes of this section--
          (1) * * *
          (2) Ruling amount.--The term ``ruling amount'' means, 
        with respect to any taxable year, the amount which the 
        Secretary determines under paragraph (1) to be 
        necessary to--
                  [(A) fund that portion of the nuclear 
                decommissioning costs of the taxpayer with 
                respect to the nuclear power plant which bears 
                the same ratio to the total nuclear 
                decommissioning costs with respect to such 
                nuclear power plant as the period for which the 
                Fund is in effect bears to the estimated useful 
                life of such nuclear power plant, and]
                  (A) fund the total nuclear decommissioning 
                costs with respect to such power plant over the 
                estimated useful life of such power plant, and

           *       *       *       *       *       *       *

  (e) Nuclear Decommissioning Reserve Fund.--
          (1) * * *

           *       *       *       *       *       *       *

          (8) Treatment of fund transfers.--If, in connection 
        with the transfer of the taxpayer's interest in a 
        nuclear power plant, the taxpayer transfers the Fund 
        with respect to such power plant to the transferee of 
        such interest and the transferee elects to continue the 
        application of this section to such Fund--
                  (A) the transfer of such Fund shall not cause 
                such Fund to be disqualified from the 
                application of this section, and
                  (B) no amount shall be treated as distributed 
                from such Fund, or be includible in gross 
                income, by reason of such transfer.
  (f) Transfers Into Qualified Funds.--
          (1) In general.--Notwithstanding subsection (b), any 
        taxpayer maintaining a Fund to which this section 
        applies with respect to a nuclear power plant may 
        transfer into such Fund up to an amount equal to the 
        excess of the total nuclear decommissioning costs with 
        respect to such nuclear power plant over the portion of 
        such costs taken into account in determining the ruling 
        amount in effect immediately before the transfer.
          (2) Deduction for amounts transferred.--
                  (A) In general.--Except as provided in 
                subparagraph (C), the deduction allowed by 
                subsection (a) for any transfer permitted by 
                this subsection shall be allowed ratably over 
                the remaining estimated useful life (within the 
                meaning of subsection (d)(2)(A)) of the nuclear 
                power plant beginning with the taxable year 
                during which the transfer is made.
                  (B) Denial of deduction for previously 
                deducted amounts.--No deduction shall be 
                allowed for any transfer under this subsection 
                of an amount for which a deduction was 
                previously allowed or a corresponding amount 
                was not included in gross income. For purposes 
                of the preceding sentence, a ratable portion of 
                each transfer shall be treated as being from 
                previously deducted or excluded amounts to the 
                extent thereof.
                  (C) Transfers of qualified funds.--If--
                          (i) any transfer permitted by this 
                        subsection is made to any Fund to which 
                        this section applies, and
                          (ii) such Fund is transferred 
                        thereafter,
                any deduction under this subsection for taxable 
                years ending after the date that such Fund is 
                transferred shall be allowed to the transferor 
                for the taxable year which includes such date.
                  (D) Special rules.--
                          (i) Gain or loss not recognized.--No 
                        gain or loss shall be recognized on any 
                        transfer permitted by this subsection.
                          (ii) Transfers of appreciated 
                        property.--If appreciated property is 
                        transferred in a transfer permitted by 
                        this subsection, the amount of the 
                        deduction shall be the adjusted basis 
                        of such property.
          (3) New ruling amount required.--Paragraph (1) shall 
        not apply to any transfer unless the taxpayer requests 
        from the Secretary a new schedule of ruling amounts in 
        connection with such transfer.
          (4) No basis in qualified funds.--Notwithstanding any 
        other provision of law, the taxpayer's basis in any 
        Fund to which this section applies shall not be 
        increased by reason of any transfer permitted by this 
        subsection.
  [(f)] (g) Nuclear Power Plant.--For purposes of this section, 
the term ``nuclear power plant'' includes any unit thereof.
  [(g)] (h) Time When Payments Deemed Made.--For purposes of 
this section, a taxpayer shall be deemed to have made a payment 
to the Fund on the last day of a taxable year if such payment 
is made on account of such taxable year and is made within 2\1/
2\ months after the close of such taxable year.

           *       *       *       *       *       *       *


Subchapter F--Exempt Organizations

           *       *       *       *       *       *       *


PART I--GENERAL RULE

           *       *       *       *       *       *       *



SEC. 501. EXEMPTION FROM TAX ON CORPORATIONS, CERTAIN TRUSTS, ETC.

  (a) * * *

           *       *       *       *       *       *       *

  (c) List of Exempt Organizations.--The following 
organizations are referred to in subsection (a):
          (1) * * *

           *       *       *       *       *       *       *

          (12)(A) * * *

           *       *       *       *       *       *       *

                  (C) In the case of a mutual or cooperative 
                electric company, subparagraph (A) shall be 
                applied without taking into account any income 
                received or accrued--
                          (i) from qualified pole rentals, [or]
                          [(ii) from the prepayment of a loan 
                        under section 306A, 306B, or 311 of the 
                        Rural Electrification Act of 1936 (as 
                        in effect on January 1, 1987).]
                          (ii) from any provision or sale of 
                        transmission service or ancillary 
                        services if such services are provided 
                        on a nondiscriminatory open access 
                        basis under an independent transmission 
                        provider agreement approved by FERC 
                        (other than income received or accrued 
                        directly or indirectly from a member),
                          (iii) from any nuclear 
                        decommissioning transaction, or
                          (iv) from any asset exchange or 
                        conversion transaction.

           *       *       *       *       *       *       *

                  (E) For purposes of subparagraph (C)(ii), the 
                term ``FERC'' means the Federal Energy 
                Regulatory Commission and references to such 
                term shall be treated as including the Public 
                Utility Commission of Texas with respect to any 
                ERCOT utility (as defined in section 
                212(k)(2)(B) of the Federal Power Act (16 
                U.S.C. 824k(k)(2)(B))).
                  (F) For purposes of subparagraph (C)(iii), 
                the term ``nuclear decommissioning 
                transaction'' means--
                          (i) any transfer into a trust, fund, 
                        or instrument established to pay any 
                        nuclear decommissioning costs if the 
                        transfer is in connection with the 
                        transfer of the mutual or cooperative 
                        electric company's interest in a 
                        nuclear power plant or nuclear power 
                        plant unit,
                          (ii) any distribution from any trust, 
                        fund, or instrument established to pay 
                        any nuclear decommissioning costs, or
                          (iii) any earnings from any trust, 
                        fund, or instrument established to pay 
                        any nuclear decommissioning costs.
                  (G) For purposes of subparagraph (C)(iv), the 
                term ``asset exchange or conversion 
                transaction'' means any voluntary exchange or 
                involuntary conversion of any property related 
                to generating, transmitting, distributing, or 
                selling electric energy by a mutual or 
                cooperative electric company, the gain from 
                which qualifies for deferred recognition under 
                section 1031 or 1033, but only if the 
                replacement property acquired by such company 
                pursuant to such section constitutes property 
                which is used, or to be used, for--
                          (i) generating, transmitting, 
                        distributing, or selling electric 
                        energy, or
                          (ii) producing, transmitting, 
                        distributing, or selling natural gas.
                  (H)(i) In the case of a mutual or cooperative 
                electric company described in this paragraph or 
                an organization described in section 
                1381(a)(2)(C), income received or accrued from 
                a load loss transaction shall be treated as an 
                amount collected from members for the sole 
                purpose of meeting losses and expenses.
                  (ii) For purposes of clause (i), the term 
                ``load loss transaction'' means any wholesale 
                or retail sale of electric energy (other than 
                to members) to the extent that the aggregate 
                sales during the recovery period do not exceed 
                the load loss mitigation sales limit for such 
                period.
                  (iii) For purposes of clause (ii), the load 
                loss mitigation sales limit for the recovery 
                period is the sum of the annual load losses for 
                each year of such period.
                  (iv) For purposes of clause (iii), a mutual 
                or cooperative electric company's annual load 
                loss for each year of the recovery period is 
                the amount (if any) by which--
                          (I) the megawatt hours of electric 
                        energy sold during such year to members 
                        of such electric company are less than
                          (II) the megawatt hours of electric 
                        energy sold during the base year to 
                        such members.
                  (v) For purposes of clause (iv)(II), the term 
                ``base year'' means--
                          (I) the calendar year preceding the 
                        start-up year, or
                          (II) at the election of the electric 
                        company, the second or third calendar 
                        years preceding the start-up year.
                  (vi) For purposes of this subparagraph, the 
                recovery period is the 7-year period beginning 
                with the start-up year.
                  (vii) For purposes of this subparagraph, the 
                start-up year is the calendar year which 
                includes the date of the enactment of this 
                subparagraph or, if later, at the election of 
                the mutual or cooperative electric company--
                          (I) the first year that such electric 
                        company offers nondiscriminatory open 
                        access, or
                          (II) the first year in which at least 
                        10 percent of such electric company's 
                        sales are not to members of such 
                        electric company.
                  (viii) A company shall not fail to be treated 
                as a mutual or cooperative company for purposes 
                of this paragraph or as a corporation operating 
                on a cooperative basis for purposes of section 
                1381(a)(2)(C) by reason of the treatment under 
                clause (i).
                  (ix) For purposes of subparagraph (A), in the 
                case of a mutual or cooperative electric 
                company, income received, or accrued, 
                indirectly from a member shall be treated as an 
                amount collected from members for the sole 
                purpose of meeting losses and expenses.

           *       *       *       *       *       *       *


PART III--TAXATION OF BUSINESS INCOME OF CERTAIN EXEMPT ORGANIZATIONS

           *       *       *       *       *       *       *


SEC. 512. UNRELATED BUSINESS TAXABLE INCOME.

  (a) * * *
  (b) Modifications.--The modifications referred to in 
subsection (a) are the following:
          (1) * * *

           *       *       *       *       *       *       *

          (18) Treatment of mutual or cooperative electric 
        companies.--In the case of a mutual or cooperative 
        electric company described in section 501(c)(12), there 
        shall be excluded income which is treated as member 
        income under subparagraph (H) thereof.

           *       *       *       *       *       *       *


Subchapter I--Natural Resources

           *       *       *       *       *       *       *


PART I--DEDUCTIONS

           *       *       *       *       *       *       *


SEC. 613A. LIMITATIONS ON PERCENTAGE DEPLETION IN CASE OF OIL AND GAS 
                    WELLS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Exemption for Independent Producers and Royalty Owners.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Oil and natural gas produced from marginal 
        properties.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Applicable percentage.--For purposes of 
                subparagraph (A), the term ``applicable 
                percentage'' means the percentage (not greater 
                than 25 percent) equal to the sum of--
                          (i) * * *

           *       *       *       *       *       *       *

                For purposes of this paragraph, the term 
                ``reference price'' means, with respect to any 
                calendar year, the reference price determined 
                for such calendar year under [section 
                29(d)(2)(C)] section 45J(d)(2)(C).

           *       *       *       *       *       *       *

                  (H) Temporary suspension of taxable income 
                limit with respect to marginal production.--The 
                second sentence of subsection (a) of section 
                613 shall not apply to so much of the allowance 
                for depletion as is determined under 
                subparagraph (A) for any taxable year beginning 
                after December 31, 1997, and before January 1, 
                [2004] 2007.

           *       *       *       *       *       *       *

  (d) Limitations on Application of Subsection (c).--
          (1) * * *

           *       *       *       *       *       *       *

          [(4) Certain refiners excluded.--If the taxpayer or a 
        related person engages in the refining of crude oil, 
        subsection (c) shall not apply to such taxpayer if on 
        any day during the taxable year the refinery runs of 
        the taxpayer and such person exceed 50,000 barrels.]
          (4) Certain refiners excluded.--If the taxpayer or a 
        related person engages in the refining of crude oil, 
        subsection (c) shall not apply to the taxpayer for a 
        taxable year if the average daily refinery runs of the 
        taxpayer and the related person for the taxable year 
        exceed 75,000 barrels. For purposes of this paragraph, 
        the average daily refinery runs for any taxable year 
        shall be determined by dividing the aggregate refinery 
        runs for the taxable year by the number of days in the 
        taxable year.

           *       *       *       *       *       *       *

          (6) Temporary suspension of taxable income limit.--
        Paragraph (1) shall not apply to taxable years 
        beginning after December 31, 2003, and before January 
        1, 2007, including with respect to amounts carried 
        under the second sentence of paragraph (1) to such 
        taxable years.

           *       *       *       *       *       *       *


Subchapter K--Partners and Partnerships

           *       *       *       *       *       *       *


PART IV--SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS

           *       *       *       *       *       *       *


SEC. 772. SIMPLIFIED FLOW-THROUGH.

  (a) General Rule.--In determining the income tax of a partner 
of an electing large partnership, such partner shall take into 
account separately such partner's distributive share of the 
partnership's--
          (1) * * *

           *       *       *       *       *       *       *

          (9) foreign income taxes, and
          [(10) the credit allowable under section 29, and]
          [(11)] (10) other items to the extent that the 
        Secretary determines that the separate treatment of 
        such items is appropriate.

           *       *       *       *       *       *       *

  (d) Operating Rules.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (5) General credits.--The term ``general credits'' 
        means any credit other than the low-income housing 
        credit, the rehabilitation credit, [the foreign tax 
        credit, and the credit allowable under section 29] and 
        the foreign tax credit.

           *       *       *       *       *       *       *


 Subchapter N--Tax Based on Income From Sources Within or Without the 
United States

           *       *       *       *       *       *       *


PART III--INCOME FROM SOURCES WITHOUT THE UNITED STATES

           *       *       *       *       *       *       *



Subpart A--Foreign Tax Credit

           *       *       *       *       *       *       *


SEC. 904. LIMITATION ON CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Coordination with Nonrefundable Personal Credits.--In the 
case of an individual, for purposes of subsection (a), the tax 
against which the credit is taken is such tax reduced by the 
sum of the credits allowable under subpart A of part IV of 
subchapter A of this chapter (other than sections 23, 24, [and 
25B] 25B, 25C, 25D, and 25E). This subsection shall not apply 
to taxable years beginning during 2000, 2001, 2002, or 2003.

           *       *       *       *       *       *       *


Subchapter O--Gain or Loss on Disposition of Property

           *       *       *       *       *       *       *


PART II--BASIS RULES OF GENERAL APPLICATION

           *       *       *       *       *       *       *



SEC. 1016. ADJUSTMENTS TO BASIS.

  (a) General Rule.--Proper adjustment in respect of the 
property shall in all cases be made--
          (1) * * *

           *       *       *       *       *       *       *

          (27) in the case of a residence with respect to which 
        a credit was allowed under section 1400C, to the extent 
        provided in section 1400C(h), [and]
          (28) in the case of a facility with respect to which 
        a credit was allowed under section 45F, to the extent 
        provided in section 45F(f)(1)[.],
          (29) to the extent provided in section 25C(e), in the 
        case of amounts with respect to which a credit has been 
        allowed under section 25C,
          (30) to the extent provided in section 25D(e), in the 
        case of amounts with respect to which a credit has been 
        allowed under section 25D,
          (31) to the extent provided in section 25E(g), in the 
        case of amounts with respect to which a credit has been 
        allowed under section 25E,
          (32) to the extent provided in section 30B(e)(5),
          (33) to the extent provided in section 179B(c), and
          (34) in the case of a facility with respect to which 
        a credit was allowed under section 45H, to the extent 
        provided in section 45H(d).

           *       *       *       *       *       *       *


PART IV--SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES

           *       *       *       *       *       *       *


SEC. 1245. GAIN FROM DISPOSITIONS OF CERTAIN DEPRECIABLE PROPERTY.

  (a) General Rule.--
          (1) * * *
          (2) Recomputed basis.--For purposes of this section--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Certain deductions treated as 
                amortization.--Any deduction allowable under 
                section 179, 179A, 179B, 190, or 193 shall be 
                treated as if it were a deduction allowable for 
                amortization.
          (3) Section 1245 property.--For purposes of this 
        section, the term ``section 1245 property'' means any 
        property which is or has been property of a character 
        subject to the allowance for depreciation provided in 
        section 167 and is either--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) so much of any real property (other than 
                any property described in subparagraph (B)) 
                which has an adjusted basis in which there are 
                reflected adjustments for amortization under 
                section 169, 179, 179A, 179B, 185, 188 (as in 
                effect before its repeal by the Revenue 
                Reconciliation Act of 1990), 190, 193, or 194,

           *       *       *       *       *       *       *


Subchapter T--Cooperatives and Their Patrons

           *       *       *       *       *       *       *


PART I--TAX TREATMENT OF COOPERATIVES

           *       *       *       *       *       *       *


SEC. 1381. ORGANIZATIONS TO WHICH PART APPLIES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Cross Reference.--
          For treatment of income from load loss transactions of 
        organizations described in subsection (a)(2)(C), see section 
        501(c)(12)(H).

           *       *       *       *       *       *       *


Subchapter W--District of Columbia Enterprise Zone

           *       *       *       *       *       *       *


SEC. 1400C. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Carryover of Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) 
for such taxable year reduced by the sum of the credits 
allowable under subpart A of part IV of subchapter A (other 
than this section and section 25E and sections 23, 24, [and 
25B] 25B, 25C, 25D, and 25E, such excess shall be carried to 
the succeeding taxable year and added to the credit allowable 
under subsection (a) for such taxable year.

           *       *       *       *       *       *       *


Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


CHAPTER 31--RETAIL EXCISE TAXES

           *       *       *       *       *       *       *


Subchapter B--Special Fuels

           *       *       *       *       *       *       *


SEC. 4041. IMPOSITION OF TAX.

  (a) Diesel Fuel and Special Motor Fuels.--
          (1) Tax on diesel fuel in certain cases.--
                  (A) In general.--There is hereby imposed a 
                tax on any liquid other than gasoline (as 
                defined in section 4083)--
                          (i) sold by any person to an owner, 
                        lessee, or other operator of a diesel-
                        powered highway vehicle, [or a diesel-
                        powered train] for use as a fuel in 
                        such vehicle [or train], or
                          (ii) used by any person as a fuel in 
                        a diesel-powered highway vehicle, [or a 
                        diesel-powered train] unless there was 
                        a taxable sale of such fuel under 
                        clause (i).

           *       *       *       *       *       *       *

                  (C) Rate of tax.--
                          (i) * * *
                          [(ii) Rate of tax on trains.--In the 
                        case of any sale for use, or use, of 
                        diesel fuel in a train, the rate of tax 
                        imposed by this paragraph shall be--
                                  [(I) 6.8 cents per gallon 
                                after September 30, 1993, and 
                                before October 1, 1995
                                  [(II) 5.55 cents per gallon 
                                after September 30, 1995, and 
                                before November 1, 1998, and
                                  [(III) 4.3 cents per gallon 
                                after October 31, 1998.]
                          [(iii)] (ii) Rate of tax on certain 
                        buses.--
                                  (I) * * *

           *       *       *       *       *       *       *

  (b) Exemption for Off-Highway Business Use; Reduction in Tax 
for Qualified Methanol and Ethanol Fuel.--
          (1) Exemption for off-highway business use.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Off-highway business use defined.--For 
                purposes of this subsection, the term ``off-
                highway business use'' has the meaning given to 
                such term by section 6421(e)(2)[; except that 
                such term shall not, for purposes of subsection 
                (a)(1), include use in a diesel-powered 
                train.].

           *       *       *       *       *       *       *

  (d) Additional Taxes to Fund Leaking Underground Storage Tank 
Trust Fund.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Diesel fuel used in trains.--There is hereby 
        imposed a tax of 0.1 cent per gallon on any liquid 
        other than gasoline (as defined in section 4083)--
                  (A) sold by any person to an owner, lessee, 
                or other operator of a diesel-powered train for 
                use as a fuel in such train, or
                  (B) used by any person as a fuel in a diesel-
                powered train unless there was a taxable sale 
                of such fuel under subparagraph (A).
        No tax shall be imposed by this paragraph on the sale 
        or use of any liquid if tax was imposed on such liquid 
        under section 4081.
          [(3)] (4) Termination.--The taxes imposed by this 
        subsection shall not apply during any period during 
        which the Leaking Underground Storage Tank Trust Fund 
        financing rate under section 4081 does not apply.

           *       *       *       *       *       *       *


SEC. 4042. TAX ON FUEL USED IN COMMERCIAL TRANSPORTATION ON INLAND 
                    WATERWAYS.

  (a) * * *
  (b) Amount of Tax.--
          (1) In general.--The rate of the tax imposed by 
        subsection (a) is the sum of--
                  (A) the Inland Waterways Trust Fund financing 
                rate, and
                  (B) the Leaking Underground Storage Tank 
                Trust Fund financing rate[, and].
                  [(C) the deficit reduction rate.]
  (b) Amount of Tax.--
          (1) * * *
          (2) For purposes of paragraph (1)--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(C) The deficit reduction rate is 4.3 cents 
                per gallon.]

           *       *       *       *       *       *       *


CHAPTER 32--MANUFACTURERS EXCISE TAXES

           *       *       *       *       *       *       *


Subchapter A--Automotive and Related Items

           *       *       *       *       *       *       *


PART III--PETROLEUM PRODUCTS

           *       *       *       *       *       *       *


Subpart A--Gasoline and Diesel Fuel

           *       *       *       *       *       *       *


SEC. 4081. IMPOSITION OF TAX.

  (a) Tax Imposed.--
          (1) * * *
          (2) Rates of tax.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Diesel-water fuel emulsion.--In the case 
                of diesel-water fuel emulsion at least 14 
                percent of which is water and with respect to 
                which the emulsion additive is registered by a 
                United States manufacturer with the 
                Environmental Protection Agency pursuant to 
                section 211 of the Clean Air Act (as in effect 
                on March 31, 2003), subparagraph (A)(iii) shall 
                be applied by substituting ``19.7 cents'' for 
                ``24.3 cents''.

           *       *       *       *       *       *       *

  (d) Later Separation of Fuel From Diesel-Water Fuel 
Emulsion.--If any person separates the taxable fuel from a 
diesel-water fuel emulsion on which tax was imposed under 
subsection (a) at a rate determined under subsection (a)(2)(C) 
(or with respect to which a credit or payment was allowed or 
made by reason of section 6427), such person shall be treated 
as the refiner of such taxable fuel. The amount of tax imposed 
on any removal of such fuel by such person shall be reduced by 
the amount of tax imposed (and not credited or refunded) on any 
prior removal or entry of such fuel.
  [(d)] (e) Termination.--
          (1) * * *

           *       *       *       *       *       *       *

  [(e)] (f) Refunds in Certain Cases.--Under regulations 
prescribed by the Secretary, if any person who paid the tax 
imposed by this section with respect to any taxable fuel 
establishes to the satisfaction of the Secretary that a prior 
tax was paid (and not credited or refunded) with respect to 
such taxable fuel, then an amount equal to the tax paid by such 
person shall be allowed as a refund (without interest) to such 
person in the same manner as if it were an overpayment of tax 
imposed by this section.

SEC. 4082. EXEMPTIONS FOR DIESEL FUEL AND KEROSENE.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Cross Reference.--
          For tax on train and certain bus uses of fuel purchased tax-
        free, see [section 4041(a)(1)] subsections (d)(3) and (a)(1) of 
        section 4041, respectively.

SEC. 4083. DEFINITIONS; SPECIAL RULE; ADMINISTRATIVE AUTHORITY.

  (a) Taxable Fuel.--For purposes of this subpart--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Diesel fuel.--The term ``diesel fuel'' means any 
        liquid (other than gasoline) which is suitable for use 
        as a fuel in a diesel-powered highway vehicle, [or a 
        diesel-powered train].

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


Subchapter B--Rules of Special Application

           *       *       *       *       *       *       *


SEC. 6416. CERTAIN TAXES ON SALES AND SERVICES.

  (a) * * *

           *       *       *       *       *       *       *

  (d) Credit on Returns.--Any person entitled to a refund of 
tax imposed by chapter 31 or 32, paid to the Secretary may, 
instead of filing a claim for refund, take credit therefor 
against taxes imposed by such chapter due on any subsequent 
return. The preceding sentence shall not apply to the tax 
imposed by section 4081 in the case of refunds described in 
[section 4081(e)] section 4081(f) or to the tax imposed by 
section 4091 in the case of refunds described in section 
4091(d).

           *       *       *       *       *       *       *


SEC. 6421. GASOLINE USED FOR CERTAIN NONHIGHWAY PURPOSES, USED BY LOCAL 
                    TRANSIT SYSTEMS, OR SOLD FOR CERTAIN EXEMPT 
                    PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Exempt Sales; Other Payments or Refunds Available.--
          (1) * * *

           *       *       *       *       *       *       *

          [(3) Gasoline used in trains.--In the case of 
        gasoline used as a fuel in a train, this section shall 
        not apply with respect to--
                  [(A) the Leaking Underground Storage Tank 
                Trust Fund financing rate under section 4081, 
                and
                  [(B) so much of the rate specified in section 
                4081(a)(2)(A) as does not exceed--
                          [(i) 6.8 cents per gallon after 
                        September 30, 1993, and before October 
                        1, 1995,
                          [(ii) 5.55 cents per gallon after 
                        September 30, 1995, and before November 
                        1, 1998, and
                          [(iii) 4.3 cents per gallon after 
                        October 31, 1998.]
          (3) Gasoline used in trains.--In the case of gasoline 
        used as a fuel in a train, this section shall not apply 
        with respect to the Leaking Underground Storage Tank 
        Trust Fund financing rate under section 4081.

           *       *       *       *       *       *       *


SEC. 6427. FUELS NOT USED FOR TAXABLE PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (l) Nontaxable Uses of Diesel Fuel, Kerosene, and Aviation 
Fuel.--
          (1) * * *

           *       *       *       *       *       *       *

          [(3) Refund of certain taxes on fuel used in diesel-
        powered trains.--For purposes of this subsection, the 
        term ``nontaxable use'' includes fuel used in a diesel-
        powered train. The preceding sentence shall not apply 
        with respect to--
                  [(A) the Leaking Underground Storage Tank 
                Trust Fund financing rate under sections 4041 
                and 4081, and
                  [(B) so much of the rate specified in section 
                4081(a)(2)(A) as does not exceed--
                          [(i) 6.8 cents per gallon after 
                        September 30, 1993, and before October 
                        1, 1995,
                          [(ii) 5.55 cents per gallon after 
                        September 30, 1995, and before November 
                        1, 1998, and
                          [(iii) 4.3 cents per gallon after 
                        October 31, 1998.
        The preceding sentence shall not apply in the case of 
        fuel sold for exclusive use by a State or any political 
        subdivision thereof.]
          (3) Refund of certain taxes on fuel used in diesel-
        powered trains.--For purposes of this subsection, the 
        term ``nontaxable use'' includes fuel used in a diesel-
        powered train. The preceding sentence shall not apply 
        to the tax imposed by section 4041(d) and the Leaking 
        Underground Storage Tank Trust Fund financing rate 
        under section 4081 except with respect to fuel sold for 
        exclusive use by a State or any political subdivision 
        thereof.

           *       *       *       *       *       *       *

  (m) Diesel Fuel Used To Produce Emulsion.--
          (1) In general.--Except as provided in subsection 
        (k), if any diesel fuel on which tax was imposed by 
        section 4081 at the regular tax rate is used by any 
        person in producing an emulsion described in section 
        4081(a)(2)(C) which is sold or used in such person's 
        trade or business, the Secretary shall pay (without 
        interest) to such person an amount equal to the excess 
        of the regular tax rate over the incentive tax rate 
        with respect to such fuel.
          (2) Definitions.--For purposes of paragraph (1)--
                  (A) Regular tax rate.--The term ``regular tax 
                rate'' means the aggregate rate of tax imposed 
                by section 4081 determined without regard to 
                section 4081(a)(2)(C).
                  (B) Incentive tax rate.--The term ``incentive 
                tax rate'' means the aggregate rate of tax 
                imposed by section 4081 determined with regard 
                to section 4081(a)(2)(C).
  [(m)] (n) Regulations.--The Secretary may by regulations 
prescribe the conditions, not inconsistent with the provisions 
of this section, under which payments may be made under this 
section.
  [(n)] (o) Payments for Taxes Imposed by Section 4041(d).--For 
purposes of subsections (a), (b), and (c), the taxes imposed by 
section 4041(d) shall be treated as imposed by section 4041(a).
  [(o)] (p) Gasohol Used in Noncommercial Aviation.--Except as 
provided in subsection (k), if--
          (1) * * *

           *       *       *       *       *       *       *

  [(p)] (q) Cross References.--
          (1) For civil penalty for excessive claims under this section, 
        see section 6675.

           *       *       *       *       *       *       *


CHAPTER 66--LIMITATIONS

           *       *       *       *       *       *       *


Subchapter A--Limitations on Assessment and Collection

           *       *       *       *       *       *       *


SEC. 6501. LIMITATIONS ON ASSESSMENT AND COLLECTION.

  (a) * * *

           *       *       *       *       *       *       *

  (m) Deficiencies Attributable to Election of Certain 
Credits.--The period for assessing a deficiency attributable to 
any election under section 30(d)(4), 30B(e)(10), 40(f), 43, 
45B, 45C(d)(4), or 51(j) (or any revocation thereof) shall not 
expire before the date 1 year after the date on which the 
Secretary is notified of such election (or revocation).

           *       *       *       *       *       *       *


CHAPTER 80--GENERAL RULES

           *       *       *       *       *       *       *


        Subchapter C--Provision Affecting More Than One Subtitle

        Sec. 7871. Indian tribal governments treated as States for 
                  certain purposes.
     * * * * * * *
        Sec. 7874. Tax treatment of corporate expatriation.
     * * * * * * *

SEC. 7874. TAX TREATMENT OF CORPORATE EXPATRIATION.

  (a) Inverted Corporations Treated as Domestic Corporations.--
          (1) In general.--If a foreign incorporated entity is 
        treated as an inverted domestic corporation, then, 
        notwithstanding section 7701(a)(4), such entity shall 
        be treated for purposes of this title as a domestic 
        corporation.
          (2) Inverted domestic corporation.--For purposes of 
        this section, a foreign incorporated entity shall be 
        treated as an inverted domestic corporation if, 
        pursuant to a plan (or a series of related 
        transactions)--
                  (A) the entity completes after March 4, 2003, 
                the direct or indirect acquisition of 
                substantially all of the properties held 
                directly or indirectly by a domestic 
                corporation or substantially all of the 
                properties constituting a trade or business of 
                a domestic partnership,
                  (B) after the acquisition at least 80 percent 
                of the stock (by vote or value) of the entity 
                is held--
                          (i) in the case of an acquisition 
                        with respect to a domestic corporation, 
                        by former shareholders of the domestic 
                        corporation by reason of holding stock 
                        in the domestic corporation, or
                          (ii) in the case of an acquisition 
                        with respect to a domestic partnership, 
                        by former partners of the domestic 
                        partnership by reason of holding a 
                        capital or profits interest in the 
                        domestic partnership, and
                  (C) the expanded affiliated group which after 
                the acquisition includes the entity does not 
                have substantial business activities in the 
                foreign country in which or under the law of 
                which the entity is created or organized when 
                compared to the total business activities of 
                such expanded affiliated group.
          (3) Termination.--This subsection shall not apply to 
        any acquisition completed after December 31, 2004.
  (b) Definitions and Special Rules.--For purposes of this 
section--
          (1) Foreign incorporated entity.--The term ``foreign 
        incorporated entity'' means any entity which is, or but 
        for subsection (a) would be, treated as a foreign 
        corporation for purposes of this title.
          (2) Expanded affiliated group.--The term ``expanded 
        affiliated group'' means an affiliated group as defined 
        in section 1504(a) but without regard to paragraphs 
        (2), (3), and (4) of section 1504(b), except that 
        section 1504(a) shall be applied by substituting ``more 
        than 50 percent'' for ``at least 80 percent'' each 
        place it appears.
          (3) Certain stock disregarded.--There shall not be 
        taken into account in determining ownership under 
        subsection (a)(3)(B)--
                  (A) stock held by members of the expanded 
                affiliated group which includes the foreign 
                incorporated entity, or
                  (B) stock of such foreign incorporated entity 
                which is sold in a public offering related to 
                the acquisition described in subsection 
                (a)(3)(A).
          (4) Plan deemed in certain cases.--If a foreign 
        incorporated entity acquires directly or indirectly 
        substantially all of the properties of a domestic 
        corporation or partnership during the 4-year period 
        beginning on the date which is 2 years before the 
        ownership requirements of subsection (a)(3)(B) are met, 
        such actions shall be treated as pursuant to a plan.
          (5) Certain transfers disregarded.--The transfer of 
        properties or liabilities (including by contribution or 
        distribution) shall be disregarded if such transfers 
        are part of a plan a principal purpose of which is to 
        avoid the purposes of this section.
          (6) Special rule for related partnerships.--For 
        purposes of applying subsection (a)(3)(B) to the 
        acquisition of a domestic partnership, except as 
        provided in regulations, all partnerships which are 
        under common control (within the meaning of section 
        482) shall be treated as 1 partnership.
          (7) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to determine whether 
        a corporation is an inverted domestic corporation, 
        including regulations--
                  (A) to treat warrants, options, contracts to 
                acquire stock, convertible debt interests, and 
                other similar interests as stock, and
                  (B) to treat stock as not stock.
  (c) Special Rule for Treaties.--Nothing in section 894 or 
7852(d) or in any other provision of law shall be construed as 
permitting an exemption, by reason of any treaty obligation of 
the United States heretofore or hereafter entered into, from 
the provisions of this section.
  (d) Regulations.--The Secretary shall provide such 
regulations as are necessary to carry out this section, 
including regulations providing for such adjustments to the 
application of this section as are necessary to prevent the 
avoidance of the purposes of this section, including the 
avoidance of such purposes through--
          (1) the use of related persons, pass-through or other 
        noncorporate entities, or other intermediaries, or
          (2) transactions designed to have persons cease to be 
        (or not become) members of expanded affiliated groups 
        or related persons.

           *       *       *       *       *       *       *


Subtitle J--Coal Industry Health Benefits

           *       *       *       *       *       *       *


CHAPTER 99--COAL INDUSTRY HEALTH BENEFITS

           *       *       *       *       *       *       *


PART II--FINANCING

           *       *       *       *       *       *       *


SEC. 9704. LIABILITY OF ASSIGNED OPERATORS.

  (a) * * *

           *       *       *       *       *       *       *

  (j) Prepayment of Premium Liability.--
          (1) In general.--If--
                  (A) any assigned operator who is a member of 
                a controlled group of corporations (within the 
                meaning of section 52(a)) makes a payment 
                meeting the requirements of paragraph (2) to 
                the Combined Fund, and
                  (B) the common parent of such group--
                          (i) is jointly and severally liable 
                        for any premium which would (but for 
                        this subsection) be required to be paid 
                        by such operator, and
                          (ii) provides security which meets 
                        the requirements of paragraph (3),
        then no person (other than such common parent) shall be 
        liable for any premium for which such operator would 
        otherwise be liable.
          (2) Requirements.--A payment meets the requirements 
        of this paragraph if--
                  (A) the amount of the payment is not less 
                than the present value of the total premium 
                liability of the assigned operator for its 
                assignees under this chapter with respect to 
                the Combined Fund (as determined by the 
                operator's enrolled actuary, as defined in 
                section 7701(a)(35)), using actuarial methods 
                and assumptions each of which is reasonable and 
                which are reasonable in the aggregate, as 
                determined by such enrolled actuary,
                  (B) a signed actuarial report is filed with 
                the Secretary of Labor by such enrolled actuary 
                containing--
                          (i) the date of the actuarial 
                        valuation applicable to the report, and
                          (ii) a statement by the enrolled 
                        actuary signing the report that to the 
                        best of the actuary's knowledge the 
                        report is complete and accurate and 
                        that in the actuary's opinion the 
                        actuarial assumptions used are in the 
                        aggregate reasonably related to the 
                        experience of the operator and to 
                        reasonable expectations,
                  (C) a description of the security described 
                in paragraph (3) is filed with the Secretary of 
                Labor by the common parent, and
                  (D) 30 calendar days have elapsed after the 
                report required by subparagraph (B), and the 
                description required by subparagraph (C), are 
                filed with the Secretary of Labor, and the 
                Secretary of Labor has not notified the 
                assigned operator in writing that the 
                requirements of this paragraph have not been 
                satisfied.
          (3) Security.--Security meets the requirements of 
        this paragraph if--
                  (A) the security (in the form of a bond, 
                letter of credit, or cash escrow) is provided 
                to the trustees of the 1992 UMWA Benefit Plan, 
                solely for the purpose of paying premiums for 
                beneficiaries described in section 
                9712(b)(2)(B), equal in amount to one year's 
                liability of the assigned operator under 
                section 9711, determined by using the average 
                cost of such operator's liability during its 
                prior 3 calendar years; and
                  (B) the security will remain in place for 5 
                years.
          (4) Use of prepayment.--Any payment to which this 
        subsection applies (and earnings thereon) shall be used 
        exclusively to pay premiums which would (but for this 
        subsection) be required to be paid by the assigned 
        operator making such payment.

           *       *       *       *       *       *       *


                          IX. DISSENTING VIEWS

    The energy issue is an extraordinarily important one for 
this country. We need a balanced, comprehensive energy program 
developed in public with broad support that does not sacrifice 
the environment to meet our energy needs. Such a program must 
be a balance of conservation measures, incentives for the 
development of alternative energy sources, and measures to 
ensure a reliable supply of conventional energy. The committee 
bill does not meet that standard and, therefore, we cannot 
support it.
    The failure of this nation to have a comprehensive energy 
program has imposed large costs on our economy and our society 
as a whole. Energy producers have seen large fluctuations in 
prices, a cycle of boom and bust not conducive to necessary 
long term investments. The extraordinarily high electric prices 
faced by California and other regions early in 2002, followed 
by the collapse in such prices, is only one example. We are 
being asked to permit environmental degradation in a heedless 
rush to develop conventional sources of energy. We are 
increasingly dependent on oil imported from unstable regions of 
the world for our energy needs. Regardless of one's view about 
the current conflict in Iraq, there is no question that Saddam 
Hussein would not have had the financial resources to remain in 
power but for the world's need for his oil.
    Vice President Cheney's energy task force developed its 
energy plan in secret at a time when electricity prices were 
soaring in California and crude oil prices were falling. It 
used those facts to justify its plan. Now we see dropping 
electricity prices and soaring crude oil prices, but the plan 
remains the same. Ideology and special interests, not facts, 
seem to be the driving elements.
    The Committee bill, like Vice President Cheney's energy 
plan, was developed in secret without hearings or any 
significant public input. We thought that the Committee 
Democrats were the only ones excluded from the discussions 
leading to the development of the Committee bill. We were 
wrong. Assistant Treasury Secretary Pamela Olson, in an 
unscheduled appearance before the Committee, made it clear that 
the Administration had not been involved in the development of 
the Committee bill. She stated that the Administration 
supported the Committee bill in order to push the process 
forward, but was not willing to take a position on the 
substance of the bill because it had not been shared with the 
Administration.
    The Committee bill contains a large number of unexplained 
changes to the energy tax bill reported by the Committee in 
2001. Many energy conservation measures present in the earlier 
bill were dropped. New incentives were added without 
explanation, such as the tax credit for producing electricity 
from municipal waste or the new provisions providing 
accelerated depreciation for electric transmission lines. We do 
not know what influenced these decisions.
    The Committee bill is not balanced. It contains relatively 
few energy conservation incentives and places the primary focus 
on oil and gas and other traditional energy sources. The 
Committee bill is deliberately organized in a fashion to hide 
its lack of balance. The conservation title contains two major 
provisions that have nothing to do with energy conservation, 
repeal of the excise tax on diesel fuel used in railroads and 
inland waterway barges, and extension of the sec. 45 energy 
production credits. A very small portion of the total cost of 
the bill is devoted to energy conservation measures.
    We also are disappointed that the Committee is continuing 
its practice of using needed legislation as a vehicle for 
unrelated measures. Repeal of the excise tax on fuels used by 
trains and inland waterway barges may be justifiable but has 
nothing to do with energy policy. The more egregious unrelated 
provision is the provision that would grandfather from any 
restrictions those companies that reincorporated overseas for 
tax avoidance reasons. It is hard to imagine how the Republican 
members of this Committee can justify that permanent tax 
benefit for those companies. Those companies will have a 
permanent competitive advantage over the more patriotic 
companies that chose not to move their corporate mailbox 
overseas for tax avoidance. We are confident that the 
grandfathered companies will expect protection from our 
Government when they operate overseas and will expect to be 
able to profit from government contracts. At the same time, 
they refuse to contribute to the public good by paying their 
share of the tax burden.

                                   Jim McDermott.
                                   Robert T. Matsui.
                                   Pete Stark.
                                   Stephanie Tubbs Jones.
                                   Lloyd Doggett.
                                   William J. Jefferson.
                                   Michael R. McNulty.
                                   Richard E. Neal.
                                   Charles B. Rangel.
                                   Sander Levin.
                                   Xavier Becerra.
                                   John Lewis.
                                   Jerry Kleczka.
                                   Ben Cardin.
                                   John Tanner.

                                
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