[House Report 109-45]
[From the U.S. Government Publishing Office]



109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     109-45

======================================================================



 
  ENHANCED ENERGY INFRASTRUCTURE AND TECHNOLOGY TAX POLICY ACT OF 2005

                                _______
                                

April  18, 2005.--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

                        [To accompany H.R. 1541]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 1541) to amend the Internal Revenue Code of 1986 to 
enhance energy infrastructure properties in the United States 
and to encourage the use of certain energy technologies, 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...........................................16
    Title I--Energy Infrastructure Tax Incentives....................17
        A. Natural Gas Gathering Lines Treated as Seven-Year 
            Property (sec. 101 of the bill and sec. 168 of the 
            Code)................................................    17
        B. Natural Gas Distribution Lines Treated as Fifteen-Year 
            Property (sec. 102 of the bill and sec. 168 of the 
            Code)................................................    18
        C. Transmission Property Treated as Fifteen-Year Property 
            (sec. 103 of the bill and sec. 168 of the Code)......    19
        D. Amortization of Atmospheric Pollution Control 
            Facilities (sec. 104 of the bill and sec. 169 of the 
            Code)................................................    19
        E. Modification of Credit for Producing Fuel From a Non-
            Conventional Source (sec. 105 of the bill and sec. 29 
            and new sec. 45J of the Code)........................    21
        F. Modification to Special Rules for Nuclear 
            Decommissioning Costs (sec. 106 of the bill and sec. 
            468A of the Code)....................................    22
        G. Exempt Certain Prepayments for Natural Gas from Tax-
            Exempt Bond Arbitrage Rules (sec. 107 of the bill and 
            sec. 148 of the Code)................................    25
        H. Determination of Small Refiner Exception to Oil 
            Depletion Deduction (sec. 108 of the bill and sec. 
            613A of the Code)....................................    29
    Title II--Miscellaneous Energy Tax Incentives....................30
        A. Residential Solar Hot Water Heating, Photovoltaic, and 
            Fuel Cell Credit (sec. 201 of the bill and new sec. 
            25C of the Code).....................................    30
        B. Business Fuel Cell Investment Credit (sec. 202 of the 
            bill and sec. 48 of the Code)........................    31
        C. Btu-Based Rate for Diesel-Water Fuel Emulsion (sec. 
            203 of the bill and secs. 4081 and 6427 of the Code).    32
        D. Amortization of Delay Rental Payments (sec. 204 of the 
            bill and new sec. 167 of the Code)...................    33
        E. Amortization of Geological and Geophysical 
            Expenditures (sec. 205 of the bill and new sec. 167 
            of the Code).........................................    34
        F. Advanced Lean-Burn Motor Vehicle Credit (sec. 206 of 
            the bill and new sec. 30B of the Code)...............    36
        G. Energy Efficient Improvements to Existing Homes (sec. 
            207 of the bill and new sec. 25D of the Code)........    39
    Title III--Alternative Minimum Tax Relief........................40
        A. New Nonrefundable Personal Credits Allowed Against 
            Regular and Minimum Taxes (sec. 301 of the bill and 
            sec. 26 of the Code).................................    40
        B. Certain Business Energy Credits Allowed Against the 
            Regular and Minimum Taxes (sec. 302 of the bill and 
            sec. 38 of the Code).................................    41
II. Votes of the Committee...........................................42
III.Budget Efects of the Bill........................................43

IV. Other Matters to be Discussed Under the Rules of the House.......50
  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; ETC.

  (a) Short Title.--This Act may be cited as the ``Enhanced Energy 
Infrastructure and Technology Tax Act of 2005''.
  (b) Amendment of 1986 Code.--Except as otherwise expressly provided, 
whenever in this Act an amendment or repeal is expressed in terms of an 
amendment to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provision of the 
Internal Revenue Code of 1986.
  (c) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; etc.

             TITLE I--ENERGY INFRASTRUCTURE TAX INCENTIVES

Sec. 101. Natural gas gathering lines treated as 7-year property.
Sec. 102. Natural gas distribution lines treated as 15-year property.
Sec. 103. Electric transmission property treated as 15-year property.
Sec. 104. Expansion of amortization for certain atmospheric pollution 
control facilities in connection with plants first placed in service 
after 1975.
Sec. 105. Modification of credit for producing fuel from a 
nonconventional source.
Sec. 106. Modifications to special rules for nuclear decommissioning 
costs.
Sec. 107. Arbitrage rules not to apply to prepayments for natural gas.
Sec. 108. Determination of small refiner exception to oil depletion 
deduction.

             TITLE II--MISCELLANEOUS ENERGY TAX INCENTIVES

Sec. 201. Credit for residential energy efficient property.
Sec. 202. Credit for business installation of qualified fuel cells.
Sec. 203. Reduced motor fuel excise tax on certain mixtures of diesel 
fuel.
Sec. 204. Amortization of delay rental payments.
Sec. 205. Amortization of geological and geophysical expenditures.
Sec. 206. Advanced lean burn technology motor vehicle credit.
Sec. 207. Credit for energy efficiency improvements to existing homes.

               TITLE III--ALTERNATIVE MINIMUM TAX RELIEF

Sec. 301. New nonrefundable personal credits allowed against regular 
and minimum taxes.
Sec. 302. Certain business energy credits allowed against regular and 
minimum taxes.

             TITLE I--ENERGY INFRASTRUCTURE TAX INCENTIVES

SEC. 101. 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 (iii), by redesignating clause (iv) as clause (v), 
and by inserting after clause (iii) the following new clause:

                          ``(iv) any natural gas gathering line, and''.

  (b) Natural Gas Gathering Line.--Subsection (i) of section 168 is 
amended by inserting after paragraph (16) the following new paragraph:
          ``(17) 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, and
                  ``(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 for which a certificate as an 
                        interstate transmission pipeline has been 
                        issued by the Federal Energy Regulatory 
                        Commission,
                          ``(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)(iii) the following:

``(C) (iv)..................................................      14''.

  (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)(iv)''.
  (e) Effective Date.--The amendments made by this section shall apply 
to property placed in service after April 11, 2005.

SEC. 102. 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 (v), by striking the period at the end of clause (vi) 
and inserting ``, and'', and by adding at the end the following new 
clause:
                          ``(vii) 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)(vi) 
the following:

``(E) (vii).................................................      35''.

  (c) Effective Date.--The amendments made by this section shall apply 
to property placed in service after April 11, 2005.

SEC. 103. ELECTRIC TRANSMISSION PROPERTY TREATED AS 15-YEAR PROPERTY.

  (a) In General.--Subparagraph (E) of section 168(e)(3) (relating to 
classification of certain property), as amended by section 102 of this 
Act, is amended by striking ``and'' at the end of clause (vi), by 
striking the period at the end of clause (vii) and inserting ``, and'', 
and by adding at the end the following new clause:
                          ``(viii) any section 1245 property (as 
                        defined in section 1245(a)(3)) used in the 
                        transmission at 69 or more kilovolts of 
                        electricity for sale and the original use of 
                        which commences with the taxpayer after April 
                        11, 2005.''.
  (b) Alternative System.--The table contained in section 168(g)(3)(B) 
is amended by inserting after the item relating to subparagraph 
(E)(vii) the following:

``(E) (viii)................................................      30''.

  (c) Effective Date.--The amendments made by this section shall apply 
to property placed in service after April 11, 2005.

SEC. 104. EXPANSION OF AMORTIZATION FOR CERTAIN ATMOSPHERIC POLLUTION 
                    CONTROL FACILITIES IN CONNECTION WITH PLANTS FIRST 
                    PLACED IN SERVICE AFTER 1975.

  (a) Eligibility of Post-1975 Pollution Control Facilities.--
Subsection (d) of section 169 (relating to definitions) is amended by 
adding at the end the following:
          ``(5) Special rule relating to certain atmospheric pollution 
        control facilities.--In the case of any atmospheric pollution 
        control facility which is placed in service after April 11, 
        2005, and used in connection with an electric generation plant 
        or other property which is primarily coal fired, paragraph (1) 
        shall be applied without regard to the phrase `in operation 
        before January 1, 1976'.''.
  (b) Treatment as New Identifiable Treatment Facility.--Subparagraph 
(B) of section 169(d)(4) is amended to read as follows:
                  ``(B) Certain facilities placed in operation after 
                april 11, 2005.--In the case of any facility described 
                in paragraph (1) solely by reason of paragraph (5), 
                subparagraph (A) shall be applied by substituting 
                `April 11, 2005' for `December 31, 1968' each place it 
                appears therein.''.
  (c) Technical Amendment.--Section 169(d)(3) is amended by striking 
``Health, Education, and Welfare'' and inserting ``Health and Human 
Services''.
  (d) Effective Date.--The amendments made by this section shall apply 
to facilities placed in service after April 11, 2005.

SEC. 105. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A 
                    NONCONVENTIONAL SOURCE.

  (a) 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 (18), by 
        striking the period at the end of paragraph (19) and inserting 
        ``, plus'', and by adding at the end the following:
          ``(20) the nonconventional source production credit 
        determined under section 45J(a).''.
          (3) Conforming amendments.--
                  (A) Section 30(b)(3)(A) is amended by striking 
                ``sections 27 and 29'' and inserting ``section 27''.
                  (B) Sections 43(b)(2), 45I(b)(2)(C)(i), and 
                613A(c)(6)(C) are each amended by striking ``section 
                29(d)(2)(C)'' and inserting ``section 45J(d)(2)(C)''.
                  (C) Section 45(e)(9) is amended--
                          (i) by striking ``section 29'' and inserting 
                        ``section 45J'', and
                          (ii) by inserting ``(or under section 29, as 
                        in effect on the day before the date of 
                        enactment of the Enhanced Energy Infrastructure 
                        and Technology Tax Act of 2005, for any prior 
                        taxable year)'' before the period at the end 
                        thereof.
                  (D) Section 45I is amended--
                          (i) in subsection (c)(2)(A) by striking 
                        ``section 29(d)(5))'' and inserting ``section 
                        45J(d)(5))'', and
                          (ii) in subsection (d)(3) by striking 
                        ``section 29'' both places it appears and 
                        inserting ``section 45J''.
                  (E) Section 45J(a), as redesignated by paragraph (1), 
                is amended by striking ``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''.
                  (F) Section 45J(b), as so redesignated, is amended by 
                striking paragraph (6).
                  (G) Section 53(d)(1)(B)(iii) is amended by striking 
                ``under section 29'' and all that follows through ``or 
                not allowed''.
                  (H) Section 55(c)(3) is amended by striking 
                ``29(b)(6),''.
                  (I) 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).
                  (J) 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''.
                  (K) 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.
                  (L) 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.''.

  (b) Amendments Conforming to the Repeal of the Natural Gas Policy Act 
of 1978.--
          (1) In general.--Section 29(c)(2)(A) (before redesignation 
        under subsection (a)) is amended--
                  (A) by inserting ``(as in effect before the repeal of 
                such section)'' after ``1978'', and
                  (B) by striking subsection (e) and redesignating 
                subsections (f) and (g) as subsections (e) and (f), 
                respectively.
          (2) Conforming amendments.--Section 29(g)(1)(before 
        redesignation under subsection (a) and paragraph (1) of this 
        subsection) is amended--
                  (A) in subparagraph (A) by striking ``subsection 
                (f)(1)(B)'' and inserting ``subsection (e)(1)(B)'', and
                  (B) in subparagraph (B) by striking ``subsection 
                (f)'' and inserting ``subsection (e)''.
  (c) Effective Dates.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to credits 
        determined under the Internal Revenue Code of 1986 for taxable 
        years ending after December 31, 2005.
          (2) Subsection (b).--The amendments made by subsection (b) 
        shall take effect on the date of the enactment of this Act.

SEC. 106. 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 (relating to special rules for nuclear decommissioning costs) is 
amended to read as follows:
  ``(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 ruling amount applicable to such taxable year.''.
  (b) 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 
        not more than an amount equal to the present value of the 
        portion of the total nuclear decommissioning costs with respect 
        to such nuclear power plant previously excluded for such 
        nuclear power plant under subsection (d)(2)(A) as in effect 
        immediately before the date of the enactment of the Enhanced 
        Energy Infrastructure and Technology Tax Act of 2005.
          ``(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 to the taxpayer (or a 
                predecessor) or a corresponding amount was not included 
                in gross income of the taxpayer (or a predecessor). 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 on 
                        transfers to fund.--No gain or loss shall be 
                        recognized on any transfer described in 
                        paragraph (1).
                          ``(ii) Transfers of appreciated property to 
                        fund.--If appreciated property is transferred 
                        in a transfer described in paragraph (1), the 
                        amount of the deduction shall not exceed 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) (defining ruling amount) 
        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''.
  (c) Technical Amendments.--Section 468A(e)(2) (relating to taxation 
of Fund) is amended--
          (1) by striking ``rate set forth in subparagraph (B)'' in 
        subparagraph (A) and inserting ``rate of 20 percent'',
          (2) by striking subparagraph (B), and
          (3) by redesignating subparagraphs (C) and (D) as 
        subparagraphs (B) and (C), respectively.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2005.

SEC. 107. 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) Exception for Qualified Electric and Natural Gas Supply 
Contracts.--Section 141(d) is amended by adding at the end the 
following new paragraph:
          ``(7) Exception for qualified electric and natural gas supply 
        contracts.--The term `nongovernmental output property' shall 
        not include any contract for the prepayment of electricity or 
        natural gas which is not investment property under section 
        148(b)(2).''.
  (d) Effective Date.--The amendments made by this section shall apply 
to obligations issued after the date of the enactment of this Act.

SEC. 108. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION 
                    DEDUCTION.

  (a) In General.--Paragraph (4) of section 613A(d) (relating to 
limitations on application of subsection (c)) is amended to read as 
follows:
          ``(4) Certain refiners excluded.--If the taxpayer or 1 or 
        more related persons 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 
        such persons 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 ending after the date of the enactment of this Act.

             TITLE II--MISCELLANEOUS ENERGY TAX INCENTIVES

SEC. 201. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT 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 ENERGY EFFICIENT 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 solar water heating 
        property expenditures made by the taxpayer during such year,
          ``(2) 15 percent of the qualified photovoltaic property 
        expenditures made by the taxpayer during such year, and
          ``(3) 15 percent of the qualified fuel cell property 
        expenditures made by the taxpayer during such year.
  ``(b) Limitations.--
          ``(1) Maximum credit.--
                  ``(A) In general.--The credit allowed under 
                subsection (a) shall not exceed--
                          ``(i) $2,000 for solar water heating property 
                        described in subsection (c)(1),
                          ``(ii) $2,000 for photovoltaic property 
                        described in subsection (c)(2), and
                          ``(iii) $500 for each 0.5 kilowatt of 
                        capacity of property described in subsection 
                        (c)(3).
                  ``(B) Prior expenditures by taxpayer on same 
                residence taken into account.--In determining the 
                amount of the credit allowed to a taxpayer with respect 
                to any dwelling unit under this section, the dollar 
                amounts under clauses (i) and (ii) of subparagraph (A) 
                with respect to each type of property described in such 
                clauses shall be reduced by the credit allowed to the 
                taxpayer under this section with respect to such type 
                of property for all preceding taxable years with 
                respect to such dwelling unit.
          ``(2) Property standards.--No credit shall be allowed under 
        this section for an item of property unless--
                  ``(A) the original use of such property commences 
                with the taxpayer,
                  ``(B) such property can be reasonably expected to 
                remain in use for at least 5 years,
                  ``(C) such property is installed on or in connection 
                with a dwelling unit located in the United States and 
                used as a residence by the taxpayer,
                  ``(D) in the case of solar water heating property, 
                such property is certified for performance by the non-
                profit Solar Rating and Certification Corporation or a 
                comparable entity endorsed by the government of the 
                State in which such property is installed, and
                  ``(E) in the case of fuel cell property, such 
                property meets the performance and quality standards 
                (if any) which have been prescribed by the Secretary by 
                regulations (after consultation with the Secretary of 
                Energy).
  ``(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 which uses solar energy to 
        heat water for use in a dwelling unit.
          ``(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 and which is not 
        described in paragraph (1).
          ``(3) Qualified fuel cell property expenditure.--The term 
        `qualified fuel cell property expenditure' means an expenditure 
        for any qualified fuel cell property (as defined in section 
        48(b)(1)).
  ``(d) Special Rules.--For purposes of this section--
          ``(1) 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) of subsection (c) solely because it constitutes a 
        structural component of the structure on which it is installed.
          ``(2) 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.
          ``(3) 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 rules 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 expenditures described in 
                paragraphs (1), (2), and (3) of subsection (c).
          ``(4) 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 the individual's 
        tenant-stockholder's proportionate share (as defined in section 
        216(b)(3)) of any expenditures of such corporation.
          ``(5) 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 the individual 
                owns, such individual shall be treated as having made 
                the individual's 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.
          ``(6) 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.
          ``(7) 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.
          ``(8) 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)(C)).
  ``(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, 2007.''.
  (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 new paragraph:
          ``(32) 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 energy efficient property.''.

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

SEC. 202. CREDIT FOR BUSINESS INSTALLATION OF QUALIFIED FUEL CELLS.

  (a) In General.--Section 48(a)(3)(A) (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) qualified fuel cell property,''.
  (b) Energy Percentage.--Subparagraph (A) of section 48(a)(2) 
(relating to energy percentage) is amended to read as follows:
                  ``(A) In general.--The energy percentage is--
                          ``(i) in the case of qualified fuel cell 
                        property, 15 percent, and
                          ``(ii) in the case of any other energy 
                        property, 10 percent.''.
  (c) Qualified Fuel Cell Property.--Section 48 (relating to energy 
credit) is amended--
          (1) by redesignating subsection (b) as paragraph (5) of 
        subsection (a),
          (2) by striking ``subsection (a)'' in paragraph (5) of 
        subsection (a), as redesignated by paragraph (1), and inserting 
        ``this subsection'', and
          (3) by adding at the end the following new subsection:
  ``(b) Qualified Fuel Cell Property.--For purposes of subsection 
(a)(3)(A)(iii)--
          ``(1) In general.--The term `qualified fuel cell property' 
        means a fuel cell power plant which--
                  ``(A) generates at least 0.5 kilowatt of electricity 
                using an electrochemical process, and
                  ``(B) has an electricity-only generation efficiency 
                greater than 30 percent.
          ``(2) Limitation.--The energy credit with respect to any 
        qualified fuel cell property shall not exceed an amount equal 
        to $500 for each 0.5 kilowatt of capacity of such property.
          ``(3) 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, 
        which converts a fuel into electricity using electrochemical 
        means.
          ``(4) Termination.--The term `qualified fuel cell property' 
        shall not include any property placed in service after December 
        31, 2007.''.
  (d) Conforming Amendment.--Section 48(a)(1) is amended by inserting 
``except as provided in subsection (b)(2),'' before ``the energy'' the 
first place it appears.
  (e) Effective Date.--The amendments made by this section shall apply 
to property placed in service after April 11, 2005, 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).

SEC. 203. 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:
                  ``(D) Diesel-water fuel emulsion.--In the case of 
                diesel-water fuel emulsion at least 16.9 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)(D) 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)(D).
                  ``(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)(D).''.
          (2) Later separation of fuel.--Section 4081 (relating to 
        imposition of tax) is amended by inserting after subsection (b) 
        the following new subsection:
  ``(c) 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)(D) (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.''.
  (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2006.

SEC. 204. 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 amendments made by this section shall apply 
to amounts paid or incurred in taxable years beginning after the date 
of the enactment of this Act.

SEC. 205. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

  (a) In General.--Section 167 (relating to depreciation), as amended 
by section 204 of this Act, 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) Conforming Amendment.--Section 263A(c)(3) is amended by inserting 
``167(h), 167(i),'' after ``under section''.
  (c) Effective Date.--The amendments made by this section shall apply 
to amounts paid or incurred in taxable years beginning after the date 
of the enactment of this Act.

SEC. 206. ADVANCED LEAN BURN TECHNOLOGY MOTOR VEHICLE CREDIT.

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

``SEC. 30B. ADVANCED LEAN BURN TECHNOLOGY 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 the credit amounts determined under subsection (b) 
with respect to each qualified advanced lean burn technology motor 
vehicle placed in service by the taxpayer during the taxable year.
  ``(b) Credit Amount.--For purposes of subsection (a)--
          ``(1) Fuel efficiency.--The credit amount with respect to any 
        vehicle shall be--
                  ``(A) $500, if the city fuel economy of such vehicle 
                is at least 125 percent but less than 150 percent of 
                the 2000 model year city fuel economy for a vehicle in 
                the same inertia weight class,
                  ``(B) $1,000, if the city fuel economy of such 
                vehicle is at least 150 percent but less than 175 
                percent of the 2000 model year city fuel economy for a 
                vehicle in the same inertia weight class,
                  ``(C) $1,500, if the city fuel economy of such 
                vehicle is at least 175 percent but less than 200 
                percent of the 2000 model year city fuel economy for a 
                vehicle in the same inertia weight class,
                  ``(D) $2,000, if the city fuel economy of such 
                vehicle is at least 200 percent but less than 225 
                percent of the 2000 model year city fuel economy for a 
                vehicle in the same inertia weight class,
                  ``(E) $2,500, if the city fuel economy of such 
                vehicle is at least 225 percent but less than 250 
                percent of the 2000 model year city fuel economy for a 
                vehicle in the same inertia weight class, and
                  ``(F) $3,000, if the city fuel economy of such 
                vehicle is at least 250 percent of the 2000 model year 
                city fuel economy for a vehicle in the same inertia 
                weight class.
          ``(2) Conservation.--The credit amount determined under 
        paragraph (1) with respect to any vehicle shall be increased 
        by--
                  ``(A) $250, if the lifetime fuel savings of such 
                vehicle is at least 1,500 gallons of motor fuel but 
                less than 2,500 gallons of motor fuel, and
                  ``(B) $500, if the lifetime fuel savings of such 
                vehicle is at least 2,500 gallons of motor fuel.
  ``(c) 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.
  ``(d) Definitions.--For purposes of this section--
          ``(1) Qualified advanced lean burn technology motor 
        vehicle.--The term `qualified advanced lean burn technology 
        motor vehicle' means a motor vehicle--
                  ``(A) the original use of which commences with the 
                taxpayer,
                  ``(B) powered by an internal combustion engine that--
                          ``(i) is designed to operate primarily using 
                        more air than is necessary for complete 
                        combustion of the fuel, and
                          ``(ii) incorporates direct injection,
                  ``(C) that only uses diesel fuel (as defined in 
                section 4083(a)(3)),
                  ``(D) the city fuel economy of which is at least 125 
                percent of the 2000 model year city fuel economy for a 
                vehicle in the same inertia weight class, and
                  ``(E) that 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.
          ``(2) Lifetime fuel savings.--The term `lifetime fuel 
        savings' means, with respect to a qualified advanced lean burn 
        technology motor vehicle, an amount equal to the excess (if 
        any) of--
                  ``(A) 120,000 divided by the 2000 model year city 
                fuel economy for the vehicle inertia weight class, over
                  ``(B) 120,000 divided by the city fuel economy for 
                such vehicle.
          ``(3) 2000 model year city fuel economy.--The 2000 model year 
        city fuel economy with respect to a vehicle shall be determined 
        in accordance with the following tables:
                  ``(A) 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.

                  ``(B) 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.

          ``(4) Motor vehicle.--The term `motor vehicle' has the 
        meaning given such term by section 30(c)(2).
          ``(5) City fuel economy.--City fuel economy with respect to 
        any vehicle shall be measured in accordance with testing and 
        calculation procedures established by the Administrator of the 
        Environmental Protection Agency by regulations in effect on 
        April 11, 2005.
          ``(6) Other terms.--The terms `passenger automobile', `light 
        truck', and `manufacturer' shall 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.).
  ``(e) Carryforward Allowed.--
          ``(1) In general.--If the credit amount allowable under 
        subsection (a) for a taxable year exceeds the amount of the 
        limitation under subsection (c) 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.
          ``(2) Rules.--Rules similar to the rules of section 39 shall 
        apply with respect to the credit carryforward under paragraph 
        (1).
  ``(f) Special Rules.--For purposes of this section--
          ``(1) Reduction in basis.--The basis of any property for 
        which a credit is allowable under subsection (a) shall be 
        reduced by the amount of such credit (determined without regard 
        to subsection (c)).
          ``(2) No double benefit.--The amount of any deduction or 
        credit allowable under this chapter (other than the credit 
        allowable under subsection (a)), with respect to any vehicle 
        shall be reduced by the amount of credit allowed under 
        subsection (a) (determined without regard to subsection (c)) 
        for such vehicle for the taxable year.
          ``(3) Property used by tax-exempt entity.--In the case of a 
        vehicle whose use is described in paragraph (3) or (4) of 
        section 50(b) and which is not subject to a lease, the person 
        who sold such vehicle to the person or entity using such 
        vehicle shall be treated as the taxpayer that placed such 
        vehicle in service, but only if such person clearly discloses 
        to such person or entity in a document the amount of any credit 
        allowable under subsection (a) with respect to such vehicle 
        (determined without regard to subsection (c)).
          ``(4) Property used outside united states, etc., not 
        qualified.--No credit shall be allowable under subsection (a) 
        with respect to any property referred to in section 50(b)(1) or 
        with respect to the portion of the cost of any property taken 
        into account under section 179.
          ``(5) Election not to take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects not to have this section apply to such vehicle.
          ``(6) 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.
  ``(g) Regulations.--
          ``(1) In general.--The Secretary shall promulgate such 
        regulations as necessary to carry out this section, including 
        regulations to prevent the avoidance of the purposes of this 
        section through disposal of any motor vehicle or leasing of any 
        motor vehicle for a lease period of less than the economic life 
        of such vehicle.
          ``(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.
  ``(h) Termination.--This section shall not apply to any property 
placed in service after December 31, 2007.''.
  (b) Conforming Amendments.--
          (1) Section 1016(a), as amended by section 201 of this Act, 
        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:
          ``(33) to the extent provided in section 30B(f)(1).''.
          (2) Section 6501(m) is amended by inserting ``30B(f)(6),'' 
        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. Advanced lean burn technology motor vehicle credit.''.

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

SEC. 207. 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), as amended by section 
201, is amended by inserting after section 25C the following new 
section:

``SEC. 25D. 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 unit 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 unit in 1 or 
        more prior taxable years, the amount of the credit otherwise 
        allowable for the taxable year with respect to that dwelling 
        unit shall be reduced by the sum of the credits allowed under 
        subsection (a) to the taxpayer with respect to the dwelling 
        unit for all prior taxable years.
  ``(c) 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, as such Code (including 
supplements) is in effect on the date of the enactment of the Enhanced 
Energy Infrastructure and Technology Tax Act of 2005 (or, in the case 
of a metal roof with appropriate pigmented coatings which meet the 
Energy Star program requirements), if--
          ``(1) such component is installed in or on a dwelling unit 
        located in the United States and 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 
unit exceeds $1,000, such components shall be treated as qualified 
energy efficiency improvements only if such components are also 
certified in accordance with subsection (d) as meeting such 
prescriptive criteria.
  ``(d) Certification.--The certification described in subsection (c) 
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 which specifies in readily 
        verifiable fashion the energy efficient building envelope 
        components installed and their respective energy efficiency 
        levels.
  ``(e) Definitions and Special Rules.--For purposes of this section--
          ``(1) Building envelope component.--The term `building 
        envelope component' means--
                  ``(A) any insulation material or system which is 
                specifically and primarily designed to reduce the heat 
                loss or gain of a dwelling unit when installed in or on 
                such dwelling unit,
                  ``(B) exterior windows (including skylights),
                  ``(C) exterior doors, and
                  ``(D) any metal roof installed on a dwelling unit, 
                but only if such roof has appropriate pigmented 
                coatings which are specifically and primarily designed 
                to reduce the heat gain of such dwelling unit.
          ``(2) Manufactured homes included.--The term `dwelling unit' 
        includes a manufactured home which conforms to Federal 
        Manufactured Home Construction and Safety Standards (section 
        3280 of title 24, Code of Federal Regulations).
          ``(3) Application of rules.--Rules similar to the rules under 
        paragraphs (3), (4), and (5) of section 25C(d) shall apply.
  ``(f) 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.
  ``(g) Application of Section.--This section shall apply to qualified 
energy efficiency improvements installed after the date of the 
enactment of the Enhanced Energy Infrastructure and Technology Tax Act 
of 2005, and before January 1, 2008.''.
  (b) Conforming Amendments.--
          (1) Subsection (a) of section 1016, as amended by section 206 
        of this Act, 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) to the extent provided in section 25D(f), in the case 
        of amounts with respect to which a credit has been allowed 
        under section 25D.''.
          (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1, as amended by section 201, is 
        amended by inserting after the item relating to section 25C the 
        following new item:

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

  (c) Effective Date.--The amendments made by this section shall apply 
to improvements installed after the date of the enactment of this Act 
in taxable years ending after such date.

               TITLE III--ALTERNATIVE MINIMUM TAX RELIEF

SEC. 301. NEW NONREFUNDABLE PERSONAL CREDITS ALLOWED AGAINST REGULAR 
                    AND MINIMUM TAXES.

  (a) In General.--
          (1) Section 25c.--Section 25C(b), as added by section 201 of 
        this Act, 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.''.
          (2) Section 25d.--Section 25D(b), as added by section 207 of 
        this Act, 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 and 25D'' after ``this section''.
          (2) Section 24(b)(3)(B) is amended by striking ``and 25B'' 
        and inserting ``, 25B, 25C, and 25D''.
          (3) Section 25(e)(1)(C) is amended by inserting ``25C, and 
        25D'' after ``25B,''.
          (4) Section 25B(g)(2) is amended by striking ``section 23'' 
        and inserting ``sections 23, 25C, and 25D''.
          (5) Section 26(a)(1) is amended by striking ``and 25B'' and 
        inserting ``25B, 25C, and 25D''.
          (6) Section 904(h) is amended by striking ``and 25B'' and 
        inserting ``25B, 25C, and 25D''.
          (7) Section 1400C(d) is amended by striking ``and 25B'' and 
        inserting ``25B, 25C, and 25D''.
  (c) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2005.

SEC. 302. CERTAIN BUSINESS ENERGY CREDITS ALLOWED AGAINST REGULAR AND 
                    MINIMUM TAXES.

  (a) In General.--Subparagraph (B) of section 38(c)(4) (relating to 
specified credits) is amended by redesignating clause (ii) as clause 
(iv) and by striking clause (i) and inserting the following new 
clauses:
                          ``(i) the credits determined under sections 
                        40, 45H, and 45I,
                          ``(ii) so much of the credit determined under 
                        section 46 as is attributable to section 
                        48(a)(3)(A)(iii),
                          ``(iii) for taxable years beginning after 
                        December 31, 2005, and before January 1, 2008, 
                        the credit determined under section 43, and''.
  (b) Effective Dates.--
          (1) In general.--Except as provided by paragraph (2), the 
        amendment made by subsection (a) shall apply to credits 
        determined under the Internal Revenue Code of 1986 for taxable 
        years beginning after December 31, 2005.
          (2) Fuel cells.--Clause (ii) of section 38(c)(4)(B) of the 
        Internal Revenue Code of 1986, as amended by subsection (a) of 
        this section, shall apply to credits determined under the 
        Internal Revenue Code of 1986 for taxable years ending after 
        April 11, 2005.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 1541, as amended (the ``Enhanced Energy 
Infrastructure and Technology Tax Policy Act of 2005''), 
provides incentives to enhance energy infrastructure properties 
in the United States and to encourage the use of certain energy 
technologies, and for other purposes.
    The bill provides net tax reductions of $4.065 billion over 
fiscal years 2005-2010.

                 B. Background and Need for Legislation

    The provisions approved by the Committee provide incentives 
for taxpayers to enhance energy infrastructure properties in 
the United States and to encourage taxpayers to use certain 
energy technologies. The estimated revenue effects of the 
provisions comply with the most recent Congressional Budget 
Office revisions of budget projections.

                         C. Legislative History

    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 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 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.
    On April 9, 2003, the Committee on Ways and Means reported 
a bill, H.R. 1531, to the House of Representatives. H.R. 1531 
included 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 House passed the bill, as part of H.R. 6, 247-
175 on April 11, 2003. The Senate amended and passed H.R. 6 on 
July 31, 2003. A conference was convened. The House passed the 
conference report to H.R. 6, 246-180, on November 18, 2003. The 
Senate failed to pass the conference report to H.R. 6 before 
the adjournment of the 108th Congress.
    The Committee on Ways and Means marked up the provisions of 
the bill on April 13, 2005, and reported the provisions, as 
amended, on April 13, 2005, by a roll call vote, with a quorum 
present.

             TITLE I--ENERGY INFRASTRUCTURE TAX INCENTIVES


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


(Sec. 101 of the bill and sec. 168 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.\1\ Revenue Procedure 87-56 includes two asset 
classes either of which 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. In each of three recent cases, appellate 
courts have held that natural gas gathering lines owned by 
nonproducers fall within the scope of Asset class 13.2 (i.e., 
seven-year recovery period).\2\ The appellate court in each 
case reversed a lower court holding that natural gas gathering 
lines owned by nonproducers fall within the scope of Asset 
class 46.0 (i.e., 15-year recovery period). The IRS has not yet 
indicated whether it acquiesces in the result in these three 
appellate decisions in cases arising in other circuits.
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    \1\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22, 
1988-1 C.B. 785).
    \2\ Clajon Gas Co. L.P., v. Commissioner, 354 F.3d 786 (8th Cir. 
2004), rev'g 119 T.C. 197 (2002); Saginaw Bay Pipeline Co. v. United 
States, 338F.3d 600 (6th Cir. 2003), rev'g 88 A.F.T.R.2d 2001-6019 
(E.D. Mich. 2001); Duke Energy v. Commissioner, 172 F.3d 1255 (10th 
Cir. 1999), rev'g 109 T.C. 416 (1997).
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                           REASONS FOR CHANGE

    The Committee has noted the controversies between taxpayers 
and the IRS regarding the appropriate recovery period of 
natural gas gathering lines and believes it is important to 
provide clarity and certainty. The Committee notes that 
unprocessed gas in gathering lines is potentially more 
corrosive than interstate pipeline quality gas. The Committee 
concludes the appropriate recovery period for natural gas 
gathering lines is seven years. The Committee also believes a 
7-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 14 years for natural gas gathering 
lines. In addition, no adjustment will be made to the allowable 
amount of depreciation with respect to this property for 
purposes of computing a taxpayer's alternative minimum taxable 
income. 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 April 11, 2005. No inference is intended as to the proper 
treatment of natural gas gathering lines placed in service on 
or before April 11, 2005.

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


(Sec. 102 of the bill and sec. 168 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\ Natural gas distribution pipelines are 
assigned a 20-year recovery period and a class life of 35 
years.
---------------------------------------------------------------------------
    \3\ 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 35 years for natural gas 
distribution lines.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after April 11, 2005.

       C. Transmission Property Treated as Fifteen-Year Property


(Sec. 103 of the bill and sec. 168 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.\4\ 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.
---------------------------------------------------------------------------
    \4\ 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 
electricity transmission infrastructure assets 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 electricity transmission 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 30 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 at 69 or more kilovolts of 
electricity for sale, the original use of which commences with 
the taxpayer after April 11, 2005, will qualify for the new 
recovery period.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after April 11, 2005.

      D. Amortization of Atmospheric Pollution Control Facilities


(Sec. 104 of the bill and sec. 169 of the Code)

                              PRESENT LAW

    In general, a taxpayer may elect to recover the cost of any 
certified pollution control facility over a period of 60 
months.\5\ A certified pollution control facility is defined as 
a new, identifiable treatment facility which (1) is used in 
connection with a plant in operation before January 1, 1976, to 
abate or control water or atmospheric pollution or 
contamination by removing, altering, disposing, storing, or 
preventing the creation or emission of pollutants, 
contaminants, wastes or heat; and (2) does not lead to a 
significant increase in output or capacity, a significant 
extension of useful life, a significant reduction in total 
operating costs for such plant or other property (or any unit 
thereof), or a significant alteration in the nature of a 
manufacturing production process or facility. Certification is 
required by appropriate State and Federal authorities that the 
facility complies with appropriate standards.
---------------------------------------------------------------------------
    \5\ Sec. 169. For purposes of computing alternative minimum taxable 
income, the depreciation deduction is determined using the straght-line 
method over the appliable regular tax recovery period.
---------------------------------------------------------------------------
    For a pollution control facility with a useful life greater 
than 15 years, only the portion of the basis attributable to 
the first 15 years is eligible to be amortized over a 60-month 
period.\6\ In addition, a corporate taxpayer must reduce the 
amount of basis otherwise eligible for the 60-month recovery by 
20 percent.\7\ The amount of basis not eligible for 60-month 
amortization is depreciable under the regular tax rules for 
depreciation.
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    \6\ The amounnt attributable to the first 15 years is equal to an 
amount which bears the same ration to the portion of the adjusted basis 
of the facility, which would be eligible for amortization but for the 
application of this rule, as 15 bears to the number of years of useful 
life of the facility.
    \7\ Sec. 291(a)(5).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee is concerned about the effects of atmospheric 
pollution created by coal-fired electric generation plants and 
recognizes that the present-law election is not available for 
pollution control facilities used in connection with such a 
plant which commenced operation after December 31, 1975. The 
Committee notes that the Environmental Protection Agency 
recently has promulgated new, stricter emissions standards for 
coal-fired, electric generation plants. The Committee believes 
that the present-law incentive to install pollution control 
facilities should be available to taxpayers that install 
atmospheric pollution control equipment in all such plants, 
regardless of when they commenced operation.

                        EXPLANATION OF PROVISION

    The provision expands the provision allowing a taxpayer to 
recover the cost of certain certified air pollution control 
facilities (but not water pollution control facilities) over 60 
months by repealing the requirement that only certified 
pollution control facilities used in connection with a plant in 
operation before January 1, 1976 qualify. Under the provision, 
a certified air pollution control facility which used in 
connection with an electric generation plant which is primarily 
coal fired will be eligible for 60-month amortization 
regardless of whether the associated plant or other property 
was in operation prior to January 1, 1976. In the case a 
facility used in connection with a plant or other property not 
in operation before January 1, 1976, the facility must be 
property that either (i) the construction, reconstruction, or 
erection of which is completed by the taxpayer after April 11, 
2005 (to the extent of the portion of the basis properly 
attributable to the construction, reconstruction, or erection 
after that date), or (ii) is acquired after April 11, 2005, if 
the original use of the property commences with the taxpayer 
after that date. The provision does not change the present-law 
rules relating to corporate taxpayers or to pollution control 
facilities with a useful life greater than 15 years, and the 
provision does not modify in any way the treatment of water 
pollution control facilities.

                             EFFECTIVE DATE

    The provision is effective for air pollution control 
facilities placed in service after April 11, 2005.

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


(Sec. 105 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) \8\ per 
barrel or BTU oil barrel equivalent (``section 29 credit''). 
Qualified fuels must be produced within the United States.
---------------------------------------------------------------------------
    \8\ The value of the credit in 2004 was $6.56 per barrel of oil 
equivalent produced, which is approximately $1.16 per thousand cubic 
feet of natural gas.
---------------------------------------------------------------------------
    Qualified fuels include:
    1. oil produced from shale and tar sands;
    2. gas produced from geopressured brine, Devonian shale, 
coal seams, tight formations, or biomass; and
    3. liquid, gaseous, or solid synthetic fuels produced from 
coal (including lignite).
    In general, the section 29 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 section 29 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).
    The section 29 credit may not exceed the excess of the 
regular tax liability over the tentative minimum tax. Unused 
section 29 credits may not be carried forward or carried back 
to other taxable years. However, to the extent the section 29 
credit is disallowed because of the tentative minimum tax, the 
minimum tax credit allowable in future years is increased by 
the amount so disallowed.
    Other business credits are included in the general business 
credit (sec. 38). Generally, the general business credit may 
not exceed the excess of the taxpayer's net income tax over the 
greater of the taxpayer's tentative minimum tax or 25 percent 
of so much of the taxpayer's net regular tax liability as 
exceeds $25,000. General business credits in excess of this 
limitation may be carried back one year and forward up to 20 
years. The section 29 credit is not part of the general 
business credit.
    The section 29 credit includes definitional cross-
references and a credit limitation relating to the Natural Gas 
Policy Act of 1978. The Natural Gas Policy Act of 1978 has been 
repealed.

                           REASONS FOR CHANGE

    The Committee recognizes that the section 29 credit 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 credit, and therefore believes it is appropriate to 
treat the credit as part of the general business credits.

                        EXPLANATION OF PROVISION

    The provision makes the credit for producing fuel from a 
non-conventional source part of the general business credit. 
Thus, the credit for producing fuel from a non-conventional 
source will be subject to the limitations applicable to the 
general business credit. Any unused credits may be carried back 
one year and forward 20 years.
    The provision also makes certain clerical changes in cross-
references to the Natural Gas Policy Act of 1978, which has 
been repealed.

                             EFFECTIVE DATE

    The provision applies to credits determined for taxable 
years ending after December 31, 2005.\9\ The clerical changes 
are effective on the date of enactment.
---------------------------------------------------------------------------
    \9\ The credit may not be carried back to a taxable year ending 
before January 1, 2006 (sec. 39(d)).
---------------------------------------------------------------------------

   F. Modification to Special Rules for Nuclear Decommissioning Costs


(Sec. 106 of the bill and sec. 468A of the Code)

                              PRESENT LAW

Overview

    Special rules dealing with nuclear decommissioning reserve 
funds were enacted 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.\10\
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    \10\ 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'').\11\ 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.
---------------------------------------------------------------------------
    \11\ 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 anuclear 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.\12\ 
The transferee is required to obtain a new ruling amount from 
the IRS or accept a discretionary determination by the IRS.\13\
---------------------------------------------------------------------------
    \12\ Treas. reg. sec. 1.468A-6.
    \13\ 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.\14\ 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.
---------------------------------------------------------------------------
    \14\ 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 total nuclear 
decommissioning costs with respect to a nuclear powerplant 
previously excluded under section 468A(d)(2)(A).\15\ 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 is 
allowed as a deduction over the remaining useful life of the 
nuclear powerplant.\16\ 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.
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    \15\ For example, if $100 is the present value of the total 
decommissioning costs of a nuclear powerplant, and if under present law 
the qualified fund is only permitted to accumulate $75 of 
decommissioning costs over such plant's estimated useful life (because 
the qualified fund was not in existence during 25 percent of the 
estimated useful life of the nuclear powerplant), a taxpayer could 
contribute $25 to the qualified fund under this component of the 
provision.
    \16\ 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.
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                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2005.

  G. Exempt Certain Prepayments for Natural Gas from Tax-Exempt Bond 
                            Arbitrage Rules


(Sec. 107 of the bill and sec. 148 of the Code)

                              PRESENT LAW

Arbitrage restrictions

    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. Restrictions are imposed 
on the ability of States or local governments to invest the 
proceeds of these bonds for profit (the ``arbitrage 
restrictions'').\17\ 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 if a principal purpose 
of the prepayment is to receive an investment return from the 
time the prepayment is made until the time payment otherwise 
would be made. 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.
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    \17\ Sec. 148.
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    On August 4, 2003, the Treasury Department issued final 
regulations deeming to be customary, and not in violation of 
the arbitrage rules, certain prepayments for natural gas and 
electricity.\18\ Generally, a qualified prepayment under the 
regulations requires that 90 percent of the natural gas or 
electricity purchased with the prepayment be used for a 
qualifying use. Generally, natural gas is used for a qualifying 
use if it is to be (1) furnished to retail gas customers of the 
issuing municipal utility who are located in the natural gas 
service area of the issuing municipal utility, however, gas 
used to produce electricity for sale is not included under this 
provision (2) used by the issuing municipal utility to produce 
electricity that will be furnished to retail electric service 
area customers of the issuing utility, (3) used by the issuing 
municipal utility to produce electricity that will be sold to a 
utility owned by a governmental person and furnished to the 
service area retail electric customers of the purchaser, (4) 
sold to a utility that is owned by a governmental person if the 
requirements of (1), (2) or (3) are satisfied by the purchasing 
utility (treating the purchaser as the issuing utility) or (5) 
used to fuel the pipeline transportation of the prepaid gas 
supply. Electricity is used for a qualifying use if it is to be 
(1) furnished to retail service area electric customers of the 
issuing municipal utility or (2) sold to a municipal utility 
and furnished to retail electric customers of the purchaser who 
are located in the electricity service area of the purchaser.
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    \18\ Treas. Reg. sec. 1.148-1(e)(2)(iii).
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Private activity bond tests

    State and local bonds may be classified as either 
governmental bonds or private activity bonds. Governmental 
bonds are bonds the proceeds of which are primarily used to 
finance governmental functions or the debt is repaid with 
governmental funds. Private activity bonds are bonds where the 
State or local government serves as a conduit providing 
financing to private businesses or individuals. A bond will be 
treated as a private activity bond if more than five percent of 
the proceeds of the bond issue, or, if less, more than 
$5,000,000 is used (directly or indirectly) to make or finance 
loans to persons other than governmental units (the ``private 
loan financing test'') or if it meets the requirements of a 
two-part private business test.\19\
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    \19\ Sec. 141(b) and (c). Under the private business test, a bond 
is a private activity bond if it is part of an issue in which: (1) more 
than 10 percent of the proceeds of the issue (including use of the 
bond-financed property) are to be used in the trade or business of any 
person other than a governmental unit (``private business use''); and 
(2) more than 10 percent of the payment of principal or interest on the 
issue is, directly or indirectly, (a) secured by property used or to be 
used for a private business use or (b) to be derived from payments in 
respect of property, or borrowed money, used or to be used for a 
private business use (``private payment test'').
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    The exclusion from income for State and local bonds does 
not apply to private activity bonds, unless the bonds are 
issued for certain purposes permitted by the Code. Section 
141(d) of the Code provides that the term ``private activity 
bond'' includes any bond issued as part of an issue if the 
amount of the proceeds of the issue which are to be used 
(directly or indirectly) for the acquisition by a governmental 
unit of nongovernmental output property exceeds the lesser of 
five percent of such proceeds or $5 million. ``Nongovernmental 
output property'' generally means any property (or interest 
therein) which before such acquisition was used (or held for 
use) by a person other than a governmental unit in connection 
with an output facility (other than a facility for the 
furnishing of water). An exception applies to output property 
which is to be used in connection with an output facility 95 
percent or more of the output of which will be consumed in (1) 
a qualified service area of the governmental unit acquiring the 
property, or (2) a qualified annexed area of such unit.

                           REASONS FOR CHANGE

    The Committee determined that it was appropriate to 
complement the 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. The creation of this safe harbor is not 
intended to limit the Secretary's regulatory authority to 
identify other situations in which prepayments do not give rise 
to investment type property.

                        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 supply 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 utility owned by a 
governmental unit 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 supply contract for any 
period is to be reduced by the applicable share of 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). 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.
    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 calculation of average annual retail natural gas 
consumption 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 services, or in the case of an 
electric utility, electricity distribution services; (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.

Nongovernmental output property restrictions

    A qualified natural gas supply contract as defined in the 
provision is not nongovernmental output property for purposes 
of subsection (d) of section 141. Subsection (d) of section 141 
does not apply to prepayment contracts for natural gas or 
electricity that either under the Treasury regulations or 
statutory safe harbor are not investment-type property for 
purposes of the arbitrage rules under section 148. No inference 
is intended regarding the application of subsection 141(d) to 
prepayment contracts not covered by the statutory safe harbor 
or Treasury regulations.

Application to joint action agencies

    In a number of States, joint action agencies serve as 
purchasing agents for their member municipal gas utilities. The 
provision is intended to allow municipal utilities in a State 
to participate in such buying arrangements as established under 
State law, subject to the same limitations that would apply if 
an individual utility were to purchase gas directly. When 
acting on behalf of its municipal gas utility members, the 
total amount of gas that can be purchased by a joint action 
agency under the provision's exception to the arbitrage rules 
is the aggregate of what each such member could purchase for 
itself on a direct basis. Thus, with respect to qualified 
natural gas supply contracts entered into by joint action 
agencies for or on behalf of one or more member municipal 
utilities, the requirements of the safe harbor are tested at 
the individual municipal utility level based on the amount of 
gas that would be allocated to such member during any year 
covered by the contract.

                             EFFECTIVE DATE

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

 H. Determination of Small Refiner Exception to Oil Depletion Deduction


(Sec. 108 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 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.\20\ A 
refinery run is the volume of inputs of crude oil (excluding 
any product derived from oil) into the refining stream.\21\
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    \20\ Sec. 613A(d)(4).
    \21\ Treas. Reg. sec. 1.613A-7(s).
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                           REASONS FOR CHANGE

    The Committee notes that technological advances have 
permitted a number of small refineries to refine more petroleum 
without expanding 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 runs for the taxable year may not 
exceed 75,000 barrels. For this purpose, the taxpayer 
calculates average daily refinery runs by dividing total 
refinery runs for the taxable year by the total number of days 
in the taxable year.

                             EFFECTIVE DATE

    The provision is effective for taxable years ending after 
date of enactment.

             TITLE II--MISCELLANEOUS ENERGY TAX INCENTIVES


  A. Residential Solar Hot Water Heating, Photovoltaic, and Fuel Cell 
                                 Credit


(Sec. 201 of the bill and new sec. 25C of the Code)

                              PRESENT LAW

    There is no present-law personal tax credit for residential 
solar hot water, photovoltaic, or fuel cell property.
    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).

                           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 and fuel cell power plants 
will help to achieve that goal. Furthermore, the Committee 
believes that the on-site generation of electricity will reduce 
the burden 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. The provision also provides 
a 15-percent personal tax credit for the purchase of qualified 
fuel cell power plants. The credit may not exceed $500 for each 
0.5 kilowatt of capacity. The credit is nonrefundable.\22\ The 
taxpayer's basis in the property is reduced by the amount of 
the credit.
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    \22\ Sec. 301 of the bill allows the credit to offset both the 
regular tax and the alternative minimum tax.
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    Qualifying solar water heating property is property that 
heats water for use in a dwelling unit 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. 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.
    To qualify for the credit, the property must be installed 
on or in connection with a dwelling unit located in the United 
States and used as a residence by the taxpayer. 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 nonbusines purposes shall be 
taken into account. 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 expenditures made after the date of 
enactment in taxable years ending before January 1, 2008.

                B. Business Fuel Cell Investment Credit


(Sec. 202 of the bill and sec. 48 of the Code)

                              PRESENT LAW

    A 10-percent business energy investment tax 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 investment tax credit is a component of 
the general business credit. The general business credit 
generally may not exceed the excess of the taxpayer's net 
income tax over the greater of (1) the tentative minimum tax or 
(2) 25 percent of net regular tax liability in excess of 
$25,000. A general business credit in excess of the tax 
limitation generally may be carried back one year and carried 
forward up to 20 years.
    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 stationary 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 15-percent credit for the purchase 
of qualified fuel cell power plants for businesses. The credit 
is part of the business energy investment tax credit.\23\ 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. The 
taxpayer's basis in the property is reduced by the amount of 
the credit claimed.
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    \23\ Section 302 of the bill provides that the tentative minimum 
tax is treated as zero for purposes of applying the tax limitation to 
the portion of the investment tax credit attributable to the credit for 
fuels cells.
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                             EFFECTIVE DATE

    The provision applies to property placed in service after 
April 11, 2005, and before January 1, 2008, 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).

            C. Btu-Based Rate for Diesel-Water Fuel Emulsion


(Sec. 203 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.\24\ Gasoline and most 
special motor fuels are subject to tax at 18.3 cents per gallon 
for the Trust Fund.\25\
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    \24\ Sec. 4081(a)(2)(A)(iii).
    \25\ Secs. 4081(a)(2)(A)(i) and 4041(a)(2)(B)(i).
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    The tax rate for certain special motor fuels is determined, 
on an energy equivalent basis, as follows: \26\
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    \26\ See sec. 4041(a)(2)(B)(ii) and (iii), sec. 4041(a)(3) and sec. 
4041(m)(1)(A).

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


    No special tax rate is provided for diesel fuel blended 
with water to form a diesel-water fuel emulsion.

                           REASONS FOR CHANGE

    Because diesel-water emulsion fuels have fewer British 
thermal units (``Btu'') per gallon, 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-
water emulsion fuel may reduce emissions of 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 must consist of not more than 83.1 percent diesel 
(and other minor chemical additives to enhance combustion) and 
at least 16.9 percent water. The emulsion addition must be 
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). A refund of the 
difference between the regular rate (24.3 cents per gallon) and 
the incentive rate (19.7 cents per gallon) is available to the 
extent tax-paid diesel is used to produce a qualifying emulsion 
diesel fuel. 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 is effective on January 1, 2006.

                D. Amortization of Delay Rental Payments


(Sec. 204 of the bill and new sec. 167 of the Code)

                              PRESENT LAW

    Presently 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 Internal Revenue Service 
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 attained by 
establishing a clear 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 amounts paid or incurred in 
taxable years beginning after the date of enactment. No 
inference is intended from the prospective effective date of 
this provision as to the proper treatment of pre-effective date 
delay rental payments.

       E. Amortization of Geological and Geophysical Expenditures


(Sec. 205 of the bill and new sec. 167 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.\27\
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    \27\ 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 \28\ acquired or 
retained.\29\ 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.
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    \28\ ``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.
    \29\ 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.
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Revenue Ruling 77-188

    In Revenue Ruling 77-188 \30\ (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:
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    \30\ 1977-1 C.B. 76.
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     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 afteranalyzing 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,\31\ 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.''
---------------------------------------------------------------------------
    \31\ 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 a clear 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 amounts 
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 geological and geophysical 
costs paid or incurred in taxable years beginning after the 
date of enactment. No inference is intended from the 
prospective effective date of this provision as to the proper 
treatment of pre-effective date geological and geophysical 
costs.

               F. Advanced Lean-Burn Motor Vehicle Credit


(Sec. 206 of the bill and new sec. 30B of the Code)

                              PRESENT LAW

    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).\32\ 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 is reduced to 25 percent of 
the otherwise allowable deduction in 2006 and is unavailable 
for purchases after December 31, 2006.
---------------------------------------------------------------------------
    \32\ 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 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. The Committee believes that tax benefits to 
lower the cost of certain other new automotive technology 
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 
observes that certain diesel technologies offering fuel and 
environmental benefits are already available in Europe and 
believes it is important for this technology to be developed 
for the North American marketplace.

                        EXPLANATION OF PROVISION

    The provision provides a credit for each new qualified 
advanced lean-burn technology motor vehicle placed in service 
by the taxpayer during the taxable year. The amount of the 
credit for any vehicle is the sum of an amount for fuel 
efficiency and an amount for conservation. The amount for fuel 
efficiency is based on a comparison of the fuel efficiency of 
the vehicle compared to the Environmental Protection Agency's 
2000 model year city fuel economy for a vehicle in the same 
inertia weight class. The amount for conservation is based on 
the qualifying vehicle's estimated lifetime fuel savings 
compared to the same 2000 model year standard.
    Table 1, below, shows the credit amount for fuel efficiency 
of a qualified advanced leanburn technology motor vehicle.

TABLE 1.--FUEL EFFICIENCY CREDIT AMOUNT FOR QUALIFIED ADVANCED LEAN-BURN
                        TECHNOLOGY MOTOR VEHICLES
                     [Percent of base fuel economy]
------------------------------------------------------------------------
                                                     If fuel economy of
                                                       the vehicle is:
                   Credit Amount                   ---------------------
                                                                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
------------------------------------------------------------------------

    The credit amount for conservation of a qualified advanced 
lean burn technology vehicle is computed as follows. The 
vehicle is assumed to be driven 120,000 miles over its life. 
The 120,000 miles of lifetime mileage is divided by the fuel 
economy rating of the vehicle. The 120,000 miles of lifetime 
mileage also is divided by the 2000 model year city economy for 
a vehicle in the same inertia weight class. The difference is 
the lifetime fuel savings. If the vehicle achieves a lifetime 
motor fuel savings between 1,500 and 2,500 gallons of fuel, the 
credit amount for the vehicle is $250. If the vehicle achieves 
a lifetime fuel savings of at least 2,500 gallons of motor 
fuel, the credit amount is $500.
    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 2, below, 
shows the 2000 model year city fuel economy for vehicles by 
type and by inertia weight class.

               TABLE 2.--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
------------------------------------------------------------------------

    A qualifying advanced lean-burn technology motor vehicle 
means a motor vehicle the original use of which commences with 
the taxpayer, powered by an internal combustion engine that is 
designed to operate primarily using more air than is necessary 
for complete combustion of the fuel and incorporates direct 
injection, that uses only diesel fuel (as defined in section 
4083(a)(3)), has sufficient fuel economy to qualify for the 
credit, and meets the Environmental Protection Agency's Tier II 
bin 8 emissions standards. In addition, in order to qualify for 
a credit, a vehicle must be in compliance with the applicable 
provisions of the Clean Air Act and the motor vehicle safety 
provisions.
    In general, the credit is allowed to the vehicle owner, 
including the lessor of a vehicle subject to a lease. If the 
use of the vehicle is described in paragraph (3) or (4) of 
section 50(b) (relating to use by tax-exempt, governments and 
foreign persons) and is not subject to a lease, the seller of 
the vehicle may claim the credit so long the seller clearly 
discloses to the user in a document the amount that is 
allowable as a credit. A vehicle must be used predominantly in 
the United States to qualify for the credit.
    The provision permits the credit to offset both the regular 
tax and the alternative minimum tax. Credits in excess of this 
limitation may be carried forward for up to 20 years; credits 
may not be carried back to earlier years.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after the date of enactment and before January 1, 2008.

           G. Energy Efficient Improvements to Existing Homes


(Sec. 207 of the bill and new sec. 25D of the Code)

                              PRESENT LAW

    A taxpayer may exclude 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 credit for the purchase 
of qualified energy efficiency improvements to existing homes. 
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 meets or exceeds the prescriptive 
criteria for such a component established by the 2000 
International Energy Conservation Code as supplemented and as 
in effect on the date of enactment (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. The credit is nonrefundable.\33\
---------------------------------------------------------------------------
    \33\ Sec. 301 of the bill allows the credit to offset both the 
regular tax and the alternative minimum tax.
---------------------------------------------------------------------------
    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 coatings 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.
    In the case of expenditures that exceed $1,000, certain 
certification requirements must be met in order to qualify for 
the credit.

                             EFFECTIVE DATE

    The provision is effective for qualified energy efficiency 
improvements installed after the date of enactment and before 
January 1, 2008.

               TITLE III--ALTERNATIVE MINIMUM TAX RELIEF


   A. New Nonrefundable Personal Credits Allowed Against Regular and 
                             Minimum Taxes


(Sec. 301 of the bill and sec. 26 of the Code)

                              PRESENT LAW

    For taxable years beginning before 2006, the nonrefundable 
personal credits are allowed to the extent of the full amount 
of the individual's regular tax and alternative minimum tax.
    For taxable years beginning after 2005, the nonrefundable 
personal credits (other than the adoption credit, child credit 
and the savers' credit) are allowed only to the extent that the 
individual's regular income tax liability exceeds the 
individual's tentative minimum tax (determined without regard 
to the minimum tax foreign tax credit). The adoption credit, 
child credit, and IRA credit are allowed to the full extent of 
the individual's regular tax and alternative minimum tax.
    The tentative minimum tax for an individual is an amount 
equal to specified rates of tax imposed on the individual's 
taxable excess (i.e., the excess of the alternative minimum 
taxable income over an exemption amount that phases out).

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

    The provision allows the personal credits added by the bill 
for residential energy efficient property and energy efficient 
improvements to existing homes to offset both the regular tax 
and the alternative minimum tax.

                             EFFECTIVE DATE

    The provision applies to taxable years beginning after 
December 31, 2005.\34\
---------------------------------------------------------------------------
    \34\ For taxable years beginning before January 1, 2006, present 
law allows all personal credits to offset both the regular tax and the 
alternative minimum tax.
---------------------------------------------------------------------------

  B. Certain Business Energy Credits Allowed Against the Regular and 
                             Minimum Taxes


(Sec. 302 of the bill and sec. 38 of the Code)

                              PRESENT LAW

    For any taxable year, the general business credit, which is 
the sum of the various business credits, generally may not 
exceed the excess of the taxpayer's net income tax over the 
greater of (i) the taxpayer's tentative minimum tax or (ii) 25 
percent of so much of the taxpayer's net regular tax liability 
as exceeds $25,000. Any general business credit in excess of 
this limitation may be carried back one year and forward up to 
20 years. 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.
    In applying the tax liability limitation to certain 
business energy credits that are part of the general business 
credit, the tentative minimum tax is treated as being zero. 
These credits include the alcohol fuels credit and the section 
45 credit for electricity produced from a facility (placed in 
service after October 22, 2004) during the first four years of 
production beginning on the date the facility is placed in 
service.

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

    The provision expands the list of business energy credits 
for which the tentative minimum tax is treated as being zero to 
include (i) the low sulfur diesel fuel production credit, (ii) 
the marginal oil and gas well production credit, (iii) the 
portion of the investment credit attributable to qualified fuel 
cells, and (iv) for taxable years beginning after December 31, 
2005, and before January 1, 2008, the enhanced oil recovery 
credit.

                             EFFECTIVE DATE

    The provision generally applies to credits determined for 
taxable years beginning after December 31, 2005. In the case of 
the credit for qualified fuel cells, the provision applies for 
taxable years ending after April 11, 2005.

                       II. 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. 1541.

                       MOTION TO REPORT THE BILL

    The bill, H.R. 1541 was ordered favorably reported by a 
rollcall vote of 26 yeas to 11 nays (with a quorum being 
present). The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................        X   ........  .........  Mr. Rangel.......  ........  ........  .........
Mr. Shaw.......................        X   ........  .........  Mr. Stark........  ........  ........  .........
Mrs. Johnson...................        X   ........  .........  Mr. Levin........  ........        X   .........
Mr. Herger.....................        X   ........  .........  Mr. Cardin.......        X   ........  .........
Mr. McCrery....................        X   ........  .........  Mr. McDermott....  ........        X   .........
Mr. Camp.......................        X   ........  .........  Mr. Lewis (GA)...  ........        X   .........
Mr. Ramstad....................        X   ........  .........  Mr. Neal.........  ........        X   .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......  ........        X   .........
Mr. Johnson....................  ........  ........  .........  Mr. Jefferson....        X   ........  .........
Mr. Portman....................  ........  ........  .........  Mr. Tanner.......        X   ........  .........
Mr. English....................        X   ........  .........  Mr. Becerra......  ........        X   .........
Mr. Hayworth...................        X   ........  .........  Mr. Doggett......  ........        X   .........
Mr. Weller.....................        X   ........  .........  Mr. Pomeroy......        X   ........  .........
Mr. Hulshof....................        X   ........  .........  Mrs. Tubbs Jones.  ........        X   .........
Mr. Lewis (KY).................        X   ........  .........  Mr. Thompson.....        X   ........  .........
Mr. Foley......................        X   ........  .........  Mr. Larsen.......  ........        X   .........
Mr. Brady......................        X   ........  .........  Mr. Emanuel......  ........        X   .........
Mr. Reynolds...................        X   ........  .........
Mr. Ryan.......................        X   ........  .........
Mr. Cantor.....................        X   ........  .........
Mr. Linder.....................        X   ........  .........
Mr. Beauprez...................        X   ........  .........
Ms. Hart.......................        X   ........  .........
Mr. Chocola....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendment to 
the Chairman's amendment in the nature of a substitute.
    An amendment by Mr. Doggett to section 105, which would 
repeal the tax credit for synthetic fuel produced from coal, 
was defeated by a rollcall vote of 12 yeas to 24 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Thomas.....................  ........        X   .........  Mr. Rangel.......  ........  ........  .........
Mr. Shaw.......................  ........        X   .........  Mr. Stark........  ........  ........  .........
Mrs. Johnson...................  ........        X   .........  Mr. Levin........        X   ........  .........
Mr. Herger.....................  ........        X   .........  Mr. Cardin.......  ........  ........  .........
Mr. McCrery....................  ........        X   .........  Mr. McDermott....        X   ........  .........
Mr. Camp.......................  ........        X   .........  Mr. Lewis (GA)...        X   ........  .........
Mr. Ramstad....................  ........        X   .........  Mr. Neal.........        X   ........  .........
Mr. Nussle.....................  ........        X   .........  Mr. McNulty......        X   ........  .........
Mr. Johnson....................  ........  ........  .........  Mr. Jefferson....  ........        X   .........
Mr. Portman....................  ........  ........  .........  Mr. Tanner.......  ........        X   .........
Mr. English....................  ........        X   .........  Mr. Becerra......        X   ........  .........
Mr. Hayworth...................  ........        X   .........  Mr. Doggett......        X   ........  .........
Mr. Weller.....................  ........        X   .........  Mr. Pomeroy......        X   ........  .........
Mr. Hulshof....................  ........        X   .........  Mrs. Tubbs Jones.        X   ........  .........
Mr. Lewis (KY).................  ........        X   .........  Mr. Thompson.....        X   ........  .........
Mr. Foley......................  ........        X   .........  Mr. Larsen.......        X   ........  .........
Mr. Brady......................  ........        X   .........  Mr. Emanuel......        X   ........  .........
Mr. Reynolds...................  ........        X   .........
Mr. Ryan.......................  ........        X   .........
Mr. Cantor.....................  ........        X   .........
Mr. Linder.....................  ........        X   .........
Mr. Beauprez...................  ........        X   .........
Ms. Hart.......................  ........        X   .........
Mr. Chocola....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                    III. 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. 1541 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2005-2010:


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 18, 2005.
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 cost estimate for H.R. 1541, the Enhanced 
Energy Infrastructure and Technology Tax Act of 2005.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Annabelle 
Bartsch.
            Sincerely,
                                       Douglas Holtz-Eakin,
                                                          Director.
    Enclosure.

H.R. 1541--Enhanced Energy Infrastructure and Technology Tax Act of 
        2005

    Summary: H.R. 1541 would amend a number provisions in the 
Internal Revenue Code primarily relating to energy. Some of 
those changes include modifying the depreciation lifetimes of 
some energy infrastructure, allowing certain energy-related 
expenditures to be amortized, creating various tax credits 
related to the use of energy-efficient technologies, and 
allowing energy-related tax credits to be applied against the 
alternative minimum tax. The bill would not affect direct 
spending or spending subject to appropriation.
    The Joint Committee on Taxation (JCT) estimates that 
enacting H.R. 1541 would increase federal revenues by $163 
million in 2005, and decrease revenues by about $4.2 billion 
over the 2006-2010 period and by about $8.2 billion over the 
2006-2015 period.
    JCT has determined that H.R. 1541 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA) and would impose no costs 
on state, local, or tribal governments.
    Estimated cost to the Federal Government: The budgetary 
impact of H.R. 1541 over the 2005-2015 period is shown in the 
following table.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              By fiscal year, in millions of dollars--
                                           -------------------------------------------------------------------------------------------------------------
                                              2005      2006      2007      2008      2009      2010      2011      2012      2013      2014      2015
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   CHANGES IN REVENUES

Energy Infrastructure Tax Provisions......       -17      -201      -646      -769      -535      -574      -633      -658      -683      -708      -732
Miscellaneous Energy Tax Provisions.......       180        71      -315      -461      -300      -209      -162      -164      -159      -161      -171
Alternative Minimum Tax Provisions........     (\1\)      -180      -252       -35        90        90        84        70        43        11     (\2\)
                                           -------------------------------------------------------------------------------------------------------------
    Estimated Revenues....................       163      -310    -1,213    -1,265      -745      -693      -711      -752      -799      -858      -903
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Loss of less than $500,000.
\2\ Gain of less than $500,000.
Source: Joint Committee on Taxation.

    Basis of estimate: JCT estimated all of the revenue effects 
of the bill. In total, JCT estimates enacting provisions of 
H.R. 1541 would increase federal revenues by $163 million in 
2005, and decrease revenues by about $4.2 billion over the 
2006-2010 period and $8.2 billion over the 2006-2015 period.

Energy Infrastructure Tax Provisions

    In total, JCT estimates enacting Title I would reduce 
federal revenues by $17 million in 2005, and by about $2.7 
billion over the 2006-2010 period and $6.1 billion over the 
2006-2015 period. Roughly half of the decrease in receipts, 
about $3.1 billion over the 2005-2015 period, would result from 
shortening the depreciation lifetimes for certain types of 
infrastructure equipment, including natural gas gathering and 
distribution pipelines and certain electricity transmission 
property. Modifying special rules for nuclear decommissioning 
costs would result in an additional decrease in revenues of 
about $1.3 billion over the 2006-2015 period, and expanding the 
eligibility rules for amortizing air pollution control 
facilities would further reduce federal revenues by about $1.4 
billion over the 2005-2015 period. JCT estimates the remaining 
provisions would lower receipts by $628 million between 2005 
and 2008 and then increase receipts by $328 million from 2009 
to 2015.

Miscellaneous Energy Tax Incentives

    Title II would provide tax credits for the use of various 
energy-efficient technologies. Those include installing 
residential solar hot water heaters and residential and 
commercial installation of fuel cells, as well as making energy 
efficient improvements to existing homes. JCT estimates the 
credits would reduce revenues by $488 million between 2006 and 
2012, though they would sunset on December 31, 2007. Other 
provisions would allow a two-year amortization period for 
certain delayed rental payments and all geological and 
geophysical expenditures related to oil and gas exploration. 
JCT estimates those provisions would increase receipts by $370 
million between 2005 and 2006, and then decrease receipts by 
about $1.7 billion between 2007 and 2015. In total, the 
provisions in title II would increase revenues by $180 million 
in 2005, and decrease revenues by about $1.2 billion over the 
2006-2010 period and by about $2 billion over the 2006-2015 
period.

Alternative Minimum Tax Relief Provisions

    Title III would allow taxpayers to apply certain energy-
related credits against the alternative minimum tax. JCT 
estimates that the credits for individual taxpayers would 
decrease federal revenues by $82 million over the 2006-2008 
period. Tax credits for businesses would reduce revenues by 
$384 million over the 2006-2008 period, and then increase 
revenues by about the same amount over the 2009-2015 period.
    Intergovernmental and private-sector impact: JCT has 
determined that H.R. 1541 contains no intergovernmental or 
private-sector mandates and would impose no costs on state, 
local, or tribal governments.
    Estimate prepared by: Annabelle Bartsch.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax 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 too 
small to be calculated within the context of a model of the 
aggregate economy.

     IV. 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.

        G. 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 Personal Credits

Sec. 21. Expenses for household and dependent care serveices necessary 
          for gainful employment.
     * * * * * * *
Sec. 25B. Elective deferrals and IRA contributions by certain 
          individuals.
Sec. 25C. Residential energy efficient property.
Sec. 25D. 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 and 25D) and section 27 for the 
                taxable year.

           *       *       *       *       *       *       *


SEC. 24. CHILD TAX CREDIT.

  (a) * * *
  (b) Limitations.--
          (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, and 25D) 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, and 25D 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, and 25D) and section 27 for the 
        taxable year.

SEC. 25C. RESIDENTIAL ENERGY EFFICIENT 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 solar water heating 
        property expenditures made by the taxpayer during such 
        year,
          (2) 15 percent of the qualified photovoltaic property 
        expenditures made by the taxpayer during such year, and
          (3) 15 percent of the qualified fuel cell property 
        expenditures made by the taxpayer during such year.
  (b) Limitations.--
          (1) Maximum credit.--
                  (A) In general.--The credit allowed under 
                subsection (a) shall not exceed--
                          (i) $2,000 for solar water heating 
                        property described in subsection 
                        (c)(1),
                          (ii) $2,000 for photovoltaic property 
                        described in subsection (c)(2), and
                          (iii) $500 for each 0.5 kilowatt of 
                        capacity of property described in 
                        subsection (c)(3).
                  (B) Prior expenditures by taxpayer on same 
                residence taken into account.--In determining 
                the amount of the credit allowed to a taxpayer 
                with respect to any dwelling unit under this 
                section, the dollar amounts under clauses (i) 
                and (ii) of subparagraph (A) with respect to 
                each type of property described in such clauses 
                shall be reduced by the credit allowed to the 
                taxpayer under this section with respect to 
                such type of property for all preceding taxable 
                years with respect to such dwelling unit.
          (2) Property standards.--No credit shall be allowed 
        under this section for an item of property unless--
                  (A) the original use of such property 
                commences with the taxpayer,
                  (B) such property can be reasonably expected 
                to remain in use for at least 5 years,
                  (C) such property is installed on or in 
                connection with a dwelling unit located in the 
                United States and used as a residence by the 
                taxpayer,
                  (D) in the case of solar water heating 
                property, such property is certified for 
                performance by the non-profit Solar Rating and 
                Certification Corporation or a comparable 
                entity endorsed by the government of the State 
                in which such property is installed, and
                  (E) in the case of fuel cell property, such 
                property meets the performance and quality 
                standards (if any) which have been prescribed 
                by the Secretary by regulations (after 
                consultation with the Secretary of Energy).
          (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) 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 which uses solar energy to heat water for use 
        in a dwelling unit.
          (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 and which is not described in paragraph (1).
          (3) Qualified fuel cell property expenditure.--The 
        term ``qualified fuel cell property expenditure'' means 
        an expenditure for any qualified fuel cell property (as 
        defined in section 48(b)(1)).
  (d) Special Rules.--For purposes of this section--
          (1) 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) of subsection (c) solely 
        because it constitutes a structural component of the 
        structure on which it is installed.
          (2) 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.
          (3) 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 rules 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 expenditures 
                described in paragraphs (1), (2), and (3) of 
                subsection (c).
          (4) 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 the individual's tenant-stockholder's 
        proportionate share (as defined in section 216(b)(3)) 
        of any expenditures of such corporation.
          (5) 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 
                the individual owns, such individual shall be 
                treated as having made the individual's 
                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.
          (6) 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.
          (7) 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.
          (8) 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)(C)).a)(4)(C)).
  (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, 2007.

SEC. 25D. 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 unit 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 unit in 1 or more prior taxable years, the 
        amount of the credit otherwise allowable for the 
        taxable year with respect to that dwelling unit shall 
        be reduced by the sum of the credits allowed under 
        subsection (a) to the taxpayer with respect to the 
        dwelling unit 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) 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, as such Code (including supplements) is in 
effect on the date of the enactment of the Enhanced Energy 
Infrastructure and Technology Tax Act of 2005 (or, in the case 
of a metal roof with appropriate pigmented coatings which meet 
the Energy Star program requirements), if--
          (1) such component is installed in or on a dwelling 
        unit located in the United States and 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 unit exceeds $1,000, such components shall be treated 
as qualified energy efficiency improvements only if such 
components are also certified in accordance with subsection (d) 
as meeting such prescriptive criteria.
  (d) Certification.--The certification described in subsection 
(c) 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 which specifies in 
        readily verifiable fashion the energy efficient 
        building envelope components installed and their 
        respective energy efficiency levels.
  (e) Definitions and Special Rules.--For purposes of this 
section--
          (1) Building envelope component.--The term ``building 
        envelope component'' means--
                  (A) any insulation material or system which 
                is specifically and primarily designed to 
                reduce the heat loss or gain of a dwelling unit 
                when installed in or on such dwelling unit,
                  (B) exterior windows (including skylights),
                  (C) exterior doors, and
                  (D) any metal roof installed on a dwelling 
                unit, but only if such roof has appropriate 
                pigmented coatings which are specifically and 
                primarily designed to reduce the heat gain of 
                such dwelling unit.
          (2) Manufactured homes included.--The term ``dwelling 
        unit'' includes a manufactured home which conforms to 
        Federal Manufactured Home Construction and Safety 
        Standards (section 3280 of title 24, Code of Federal 
        Regulations).
          (3) Application of rules.--Rules similar to the rules 
        under paragraphs (3), (4), and (5) of section 25C(d) 
        shall apply.
  (f) 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.
  (g) Application of Section.--This section shall apply to 
qualified energy efficiency improvements installed after the 
date of the enactment of the Enhanced Energy Infrastructure and 
Technology Tax Act of 2005, and before January 1, 2008.

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, and 25D) 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. Advanced lean burn technology motor vehicle credit.

           *       *       *       *       *       *       *


SEC. 30. CREDIT FOR QUALIFIED ELECTRIC VEHICLES.

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

           *       *       *       *       *       *       *

          (3) 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. ADVANCED LEAN BURN TECHNOLOGY 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 the credit amounts determined under 
subsection (b) with respect to each qualified advanced lean 
burn technology motor vehicle placed in service by the taxpayer 
during the taxable year.
  (b) Credit Amount.--For purposes of subsection (a)--
          (1) Fuel efficiency.--The credit amount with respect 
        to any vehicle shall be--
                  (A) $500, if the city fuel economy of such 
                vehicle is at least 125 percent but less than 
                150 percent of the 2000 model year city fuel 
                economy for a vehicle in the same inertia 
                weight class,
                  (B) $1,000, if the city fuel economy of such 
                vehicle is at least 150 percent but less than 
                175 percent of the 2000 model year city fuel 
                economy for a vehicle in the same inertia 
                weight class,
                  (C) $1,500, if the city fuel economy of such 
                vehicle is at least 175 percent but less than 
                200 percent of the 2000 model year city fuel 
                economy for a vehicle in the same inertia 
                weight class,
                  (D) $2,000, if the city fuel economy of such 
                vehicle is at least 200 percent but less than 
                225 percent of the 2000 model year city fuel 
                economy for a vehicle in the same inertia 
                weight class,
                  (E) $2,500, if the city fuel economy of such 
                vehicle is at least 225 percent but less than 
                250 percent of the 2000 model year city fuel 
                economy for a vehicle in the same inertia 
                weight class, and
                  (F) $3,000, if the city fuel economy of such 
                vehicle is at least 250 percent of the 2000 
                model year city fuel economy for a vehicle in 
                the same inertia weight class.
          (2) Conservation.--The credit amount determined under 
        paragraph (1) with respect to any vehicle shall be 
        increased by--
                  (A) $250, if the lifetime fuel savings of 
                such vehicle is at least 1,500 gallons of motor 
                fuel but less than 2,500 gallons of motor fuel, 
                and
                  (B) $500, if the lifetime fuel savings of 
                such vehicle is at least 2,500 gallons of motor 
                fuel.
  (c) 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.
  (d) Definitions.--For purposes of this section--
          (1) Qualified advanced lean burn technology motor 
        vehicle.--The term ``qualified advanced lean burn 
        technology motor vehicle'' means a motor vehicle--
                  (A) the original use of which commences with 
                the taxpayer,
                  (B) powered by an internal combustion engine 
                that--
                          (i) is designed to operate primarily 
                        using more air than is necessary for 
                        complete combustion of the fuel, and
                          (ii) incorporates direct injection,
                  (C) that only uses diesel fuel (as defined in 
                section 4083(a)(3)),
                  (D) the city fuel economy of which is at 
                least 125 percent of the 2000 model year city 
                fuel economy for a vehicle in the same inertia 
                weight class, and
                  (E) that 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.
          (2) Lifetime fuel savings.--The term ``lifetime fuel 
        savings'' means, with respect to a qualified advanced 
        lean burn technology motor vehicle, an amount equal to 
        the excess (if any) of--
                  (A) 120,000 divided by the 2000 model year 
                city fuel economy for the vehicle inertia 
                weight class, over
                  (B) 120,000 divided by the city fuel economy 
                for such vehicle.
          (3) 2000 model year city fuel economy.--The 2000 
        model year city fuel economy with respect to a vehicle 
        shall be determined in accordance with the following 
        tables:
                  (A) 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.

                  (B) 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.

          (4) Motor vehicle.--The term ``motor vehicle'' has 
        the meaning given such term by section 30(c)(2).
          (5) City fuel economy.--City fuel economy with 
        respect to any vehicle shall be measured in accordance 
        with testing and calculation procedures established by 
        the Administrator of the Environmental Protection 
        Agency by regulations in effect on April 11, 2005.
          (6) Other terms.--The terms ``passenger automobile'', 
        ``light truck'', and ``manufacturer'' shall 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.).
  (e) Carryforward Allowed.--
          (1) In general.--If the credit amount allowable under 
        subsection (a) for a taxable year exceeds the amount of 
        the limitation under subsection (c) 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.
          (2) Rules.--Rules similar to the rules of section 39 
        shall apply with respect to the credit carryforward 
        under paragraph (1).
  (f) Special Rules.--For purposes of this section--
          (1) Reduction in basis.--The basis of any property 
        for which a credit is allowable under subsection (a) 
        shall be reduced by the amount of such credit 
        (determined without regard to subsection (c)).
          (2) No double benefit.--The amount of any deduction 
        or credit allowable under this chapter (other than the 
        credit allowable under subsection (a)), with respect to 
        any vehicle shall be reduced by the amount of credit 
        allowed under subsection (a) (determined without regard 
        to subsection (c)) for such vehicle for the taxable 
        year.
          (3) Property used by tax-exempt entity.--In the case 
        of a vehicle whose use is described in paragraph (3) or 
        (4) of section 50(b) and which is not subject to a 
        lease, the person who sold such vehicle to the person 
        or entity using such vehicle shall be treated as the 
        taxpayer that placed such vehicle in service, but only 
        if such person clearly discloses to such person or 
        entity in a document the amount of any credit allowable 
        under subsection (a) with respect to such vehicle 
        (determined without regard to subsection (c)).
          (4) Property used outside united states, etc., not 
        qualified.--No credit shall be allowable under 
        subsection (a) with respect to any property referred to 
        in section 50(b)(1) or with respect to the portion of 
        the cost of any property taken into account under 
        section 179.
          (5) Election not to take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the 
        taxpayer elects not to have this section apply to such 
        vehicle.
          (6) 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.
  (g) Regulations.--
          (1) In general.--The Secretary shall promulgate such 
        regulations as necessary to carry out this section, 
        including regulations to prevent the avoidance of the 
        purposes of this section through disposal of any motor 
        vehicle or leasing of any motor vehicle for a lease 
        period of less than the economic life of such vehicle.
          (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.
  (h) Termination.--This section shall not apply to any 
property placed in service after December 31, 2007.

                  Subpart D--Business Related Credits

        Sec. 38. General business credit.
     * * * * * * *
        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) * * *

           *       *       *       *       *       *       *

          (18) the low sulfur diesel fuel production credit 
        determined under section 45H(a), [plus]
          (19) the marginal oil and gas well production credit 
        determined under section 45I(a)[.], plus
          (20) the nonconventional source production credit 
        determined under section 45J(a).
  (c) Limitation Based on Amount of Tax.--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Special rules for specified credits.--
                  (A) * * *
                  (B) Specified credits.--For purposes of this 
                subsection, the term ``specified credits'' 
                includes--
                          [(i) for taxable years beginning 
                        after December 31, 2004, the credit 
                        determined under section 40,]
                          (i) the credits determined under 
                        sections 40, 45H, and 45I,
                          (ii) so much of the credit determined 
                        under section 46 as is attributable to 
                        section 48(a)(3)(A)(iii),
                          (iii) for taxable years beginning 
                        after December 31, 2005, and before 
                        January 1, 2008, the credit determined 
                        under section 43, and
                          [(ii)] (iv) the credit determined 
                        under section 45 to the extent that 
                        such credit is attributable to 
                        electricity or refined coal produced--
                                  (I) * * *

           *       *       *       *       *       *       *


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, ETC.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (9) Coordination with credit for producing fuel from 
        a nonconventional source.--The term ``qualified 
        facility'' shall not include any facility the 
        production from which is allowed as a credit under 
        [section 29] section 45J for the taxable year or any 
        prior taxable year (or under section 29, as in effect 
        on the day before the date of enactment of the Enhanced 
        Energy Infrastructure and Technology Tax Act of 2005, 
        for any prior taxable year).

           *       *       *       *       *       *       *


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

  (a) * * *
  (b) Credit Amount.--For purposes of this section--
          (1) * * *
          (2) Reduction as oil and gas prices increase.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (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)] 
                        section 45J(d)(2)(C), and

           *       *       *       *       *       *       *

  (c) Qualified Crude Oil and Natural Gas Production.--For 
purposes of this section--
          (1) * * *
          (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 as 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-of-oil equivalents (as defined in 
                [section 29(d)(5))] section 45J(d)(5)).

           *       *       *       *       *       *       *

  (d) Other Rules.--
          (1) * * *

           *       *       *       *       *       *       *

          (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] 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 
        29] 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.]
  (c) Definition of Qualified Fuels.--For purposes of this 
section--
          (1) * * *
          (2) Gas from geopressured brine, etc.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the determination of whether 
                any gas is produced from geopressured brine, 
                Devonian shale, coal seams, or a tight 
                formation shall be made in accordance with 
                section 503 of the Natural Gas Policy Act of 
                1978 (as in effect before the repeal of such 
                section).
                  (B) Special rules for gas from tight 
                formations.--The term ``gas produced from a 
                tight formation'' shall only include gas from a 
                tight formation--
                          (i) which, as of April 20, 1977, was 
                        committed or dedicated to interstate 
                        commerce (as defined in section 2(18) 
                        of the Natural Gas Policy Act of 1978, 
                        as in effect on the date of the 
                        enactment of this clause), or
                          (ii) which is produced from a well 
                        drilled after such date of enactment.

           *       *       *       *       *       *       *

  [(e) Application with the Natural Gas Policy Act of 1978.--
          [(1) No credit if section 107 of the natural gas 
        policy act of 1978 is utilized.--Subsection (a) shall 
        apply with respect to any natural gas described in 
        subsection (c)(1)(B)(i) which is sold during the 
        taxable year only if such natural gas is sold at a 
        lawful price which is determined without regard to the 
        provisions of section 107 of the Natural Gas Policy Act 
        of 1978 and subtitle B of title I of such Act.
          [(2) Treatment of this section.--For purposes of 
        section 107(d) of the Natural Gas Policy Act of 1978, 
        this section shall not be treated as allowing any 
        credit, exemption, deduction, or comparable adjustment 
        applicable to the computation of any Federal tax.]
  [(f)] (e) Application of Section.--This section shall apply 
with respect to qualified fuels--
          (1) * * *

           *       *       *       *       *       *       *

  [(g)] (f) Extension for Certain Facilities.--
          (1) In general.--In the case of a facility for 
        producing qualified fuels described in subparagraph 
        (B)(ii) or (C) of subsection (c)(1)--
                  (A) for purposes of subsection [(f)(1)(B)] 
                (e)(1)(B), such facility shall be treated as 
                being placed in service before January 1, 1993, 
                if such facility is placed in service before 
                July 1, 1998, pursuant to a binding written 
                contract in effect before January 1, 1997, and
                  (B) if such facility is originally placed in 
                service after December 31, 1992, paragraph (2) 
                of subsection [(f)] (e) shall be applied with 
                respect to such facility by substituting 
                ``January 1, 2008'' for ``January 1, 2003''.

    Subpart E--Rules for Computing Credit for Investment in Certain 
Depreciable Property

           *       *       *       *       *       *       *


SEC. 48. ENERGY CREDIT.

  (a) Energy Credit.--
          (1) In general.--For purposes of section 46, except 
        as provided in subsection (b)(2), the energy credit for 
        any taxable year is the energy percentage of the basis 
        of each energy property placed in service during such 
        taxable year.
          (2) Energy percentage.--
                  [(A) In general.--The energy percentage is 10 
                percent.]
                  (A) In general.--The energy percentage is--
                          (i) in the case of qualified fuel 
                        cell property, 15 percent, and
                          (ii) in the case of any other energy 
                        property, 10 percent.

           *       *       *       *       *       *       *

          (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, or
                          (iii) qualified fuel cell property,

           *       *       *       *       *       *       *

          [(b)] (5) 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 
        [subsection (a)] this subsection.
  (b) Qualified Fuel Cell Property.--For purposes of subsection 
(a)(3)(A)(iii)--
          (1) In general.--The term ``qualified fuel cell 
        property'' means a fuel cell power plant which--
                  (A) generates at least 0.5 kilowatt of 
                electricity using an electrochemical process, 
                and
                  (B) has an electricity-only generation 
                efficiency greater than 30 percent.
          (2) Limitation.--The energy credit with respect to 
        any qualified fuel cell property shall not exceed an 
        amount equal to $500 for each 0.5 kilowatt of capacity 
        of such property.
          (3) 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, which converts a fuel into 
        electricity using electrochemical means.
          (4) Termination.--The term ``qualified fuel cell 
        property'' shall not include any property placed in 
        service after December 31, 2007.

           *       *       *       *       *       *       *


   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) * * *

           *       *       *       *       *       *       *

          (3) 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)(iv).

           *       *       *       *       *       *       *


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)).
  (d) Certain Issues Used to Acquire Nongovernmental Output 
Property Treated as Private Activity Bonds.--
          (1) * * *

           *       *       *       *       *       *       *

          (7) Exception for qualified electric and natural gas 
        supply contracts.--The term ``nongovernmental output 
        property'' shall not include any contract for the 
        prepayment of electricity or natural gas which is not 
        investment property under section 148(b)(2).

           *       *       *       *       *       *       *


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. 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) * * *

           *       *       *       *       *       *       *

                          (iii) any Alaska natural gas 
                        pipeline, [and]
                          (iv) any natural gas gathering line, 
                        and
                          [(iv)] (v) any property which--
                                  (I) does not have a class 
                                life, and
                                  (II) is not otherwise 
                                classified under paragraph (2) 
                                or this paragraph.

           *       *       *       *       *       *       *

                  (E) 15-year property.--The term ``15-year 
                property'' includes--
                          (i) * * *

           *       *       *       *       *       *       *

                          (v) any qualified restaurant property 
                        placed in service before January 1, 
                        2006, [and]
                          (vi) initial clearing and grading 
                        land improvements with respect to gas 
                        utility property[.],
                          (vii) any natural gas distribution 
                        line, and
                          (viii) any section 1245 property (as 
                        defined in section 1245(a)(3)) used in 
                        the transmission at 69 or more 
                        kilovolts of electricity for sale and 
                        the original use of which commences 
                        with the taxpayer after April 11, 2005.

           *       *       *       *       *       *       *

  (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)(iii)..........................................................   22 
(C)(iv)...........................................................   14 
(D)(i)............................................................   15 
(D)(ii)...........................................................   20 
(E)(i)............................................................   24 
(E)(ii)...........................................................   24 
(E)(iii)..........................................................   20 
(E)(iv)...........................................................   39 
(E)(v)............................................................   39 
(E)(vi)...........................................................   20 
(E)(vii)..........................................................   35 
(E)(viii).........................................................   30 
25..............................................................

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (17) 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, and
                  (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 for which a 
                        certificate as an interstate 
                        transmission pipeline has been issued 
                        by the Federal Energy Regulatory 
                        Commission,
                          (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. 169. AMORTIZATION OF POLLUTION CONTROL FACILITIES.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (3) Federal certifying authority.--The term ``Federal 
        certifying authority'' means, in the case of water 
        pollution, the Secretary of the Interior and, in the 
        case of air pollution, the Secretary of [Health, 
        Education, and Welfare] Health and Human Services.
          (4) New identifiable treatment facility.--
                  (A) * * *
                  [(B) Certain plants, etc., placed in 
                operation after 1968In the case of any 
                treatment facility used in connection with any 
                plant or other property not in operation before 
                January 1, 1969, the preceding sentence shall 
                be applied by substituting December 31, 1975, 
                for December 31, 1968.]
                  (B) Certain facilities placed in operation 
                after april 11, 2005.--In the case of any 
                facility described in paragraph (1) solely by 
                reason of paragraph (5), subparagraph (A) shall 
                be applied by substituting ``April 11, 2005'' 
                for ``December 31, 1968'' each place it appears 
                therein.
          (5) Special rule relating to certain atmospheric 
        pollution control facilities.--In the case of any 
        atmospheric pollution control facility which is placed 
        in service after April 11, 2005, and used in connection 
        with an electric generation plant or other property 
        which is primarily coal fired, paragraph (1) shall be 
        applied without regard to the phrase ``in operation 
        before January 1, 1976''.

           *       *       *       *       *       *       *


PART IX--ITEMS NOT DEDUCTIBLE

           *       *       *       *       *       *       *


SEC. 263A. CAPITALIZATION AND INCLUSION IN INVENTORY COSTS OF CERTAIN 
                    EXPENSES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) General Exceptions.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Certain development and other costs of oil and 
        gas wells or other mineral property.--This section 
        shall not apply to any cost allowable as a deduction 
        under section 167(h), 167(i), 179B, 263(c), 263(i), 
        291(b)(2), 616, or 617.

           *       *       *       *       *       *       *


Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


Subpart A--Methods of Accounting in General

           *       *       *       *       *       *       *


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.--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.

           *       *       *       *       *       *       *

  (d) Ruling Amount.--For purposes of this section--
          (1) Request required.--No deduction shall be allowed 
        for any payment to the Fund unless the taxpayer 
        requests, and receives, from the Secretary a schedule 
        of ruling amounts.
          (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) * * *
          (2) Taxation of fund.--
                  (A) In general.--There is hereby imposed on 
                the gross income of the Fund for any taxable 
                year a tax at the [rate set forth in 
                subparagraph (B)] rate of 20 percent, except 
                that--
                          (i) * * *

           *       *       *       *       *       *       *

                  [(B) Rate of tax.--For purposes of 
                subparagraph (A), the rate set forth in this 
                subparagraph is--
                          [(i) 22 percent in the case of 
                        taxable years beginning in calendar 
                        year 1994 or 1995, and
                          [(ii) 20 percent in the case of 
                        taxable years beginning after December 
                        31, 1995.]
                  [(C)] (B) Tax in lieu of other taxation.--The 
                tax imposed by subparagraph (A) shall be in 
                lieu of any other taxation under this subtitle 
                of the income from assets in the Fund.
                  [(D)] (C) Fund treated as corporation.--For 
                purposes of subtitle F--
                          (i) * * *

           *       *       *       *       *       *       *

  (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 not more than an amount equal 
        to the present value of the portion of the total 
        nuclear decommissioning costs with respect to such 
        nuclear power plant previously excluded for such 
        nuclear power plant under subsection (d)(2)(A) as in 
        effect immediately before the date of the enactment of 
        the Enhanced Energy Infrastructure and Technology Tax 
        Act of 2005.
          (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 to the taxpayer (or a 
                predecessor) or a corresponding amount was not 
                included in gross income of the taxpayer (or a 
                predecessor). 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 on 
                        transfers to fund.--No gain or loss 
                        shall be recognized on any transfer 
                        described in paragraph (1).
                          (ii) Transfers of appreciated 
                        property to fund.--If appreciated 
                        property is transferred in a transfer 
                        described in paragraph (1), the amount 
                        of the deduction shall not exceed 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 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).

           *       *       *       *       *       *       *

  (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 1 
        or more related persons 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 such persons 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.

           *       *       *       *       *       *       *


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) * * *

           *       *       *       *       *       *       *

  (i) 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, and 25D). This subsection shall not apply to 
taxable years beginning during 2000, 2001, 2002, 2003, 2004, or 
2005.

           *       *       *       *       *       *       *


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) * * *

           *       *       *       *       *       *       *

          (30) to the extent provided in section 179B(c), [and]
          (31) 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)[.],
          (32) 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,
          (33) to the extent provided in section 30B(f)(1), and
          (34) to the extent provided in section 25D(f), in the 
        case of amounts with respect to which a credit has been 
        allowed under section 25D.

           *       *       *       *       *       *       *


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 sections 23, 24, [and 25B] 25B, 25C, and 
25D, 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 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) * * *

           *       *       *       *       *       *       *

                  (D) Diesel-water fuel emulsion.--In the case 
                of diesel-water fuel emulsion at least 16.9 
                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''.

           *       *       *       *       *       *       *

  (c) 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)(D) 
(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.

Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


Subchapter B--Rules for Special Application

           *       *       *       *       *       *       *


SEC. 6427. FUELS NOT USED FOR TAXABLE PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (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)(D) 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)(D).
                  (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)(D).
  [(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(f)(6), 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).

           *       *       *       *       *       *       *


                                  
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