[House Report 110-214]
[From the U.S. Government Publishing Office]



110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    110-214

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



 
        RENEWABLE ENERGY AND ENERGY CONSERVATION TAX ACT OF 2007

                                _______
                                

 June 27, 2007.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 2776]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 2776) to amend the Internal Revenue Code of 1986 to 
provide tax incentives for the production of renewable energy 
and energy conservation, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Renewable Energy and 
Energy Conservation Tax Act of 2007''.
  (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 of this Act is as 
follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.

                     TITLE I--PRODUCTION INCENTIVES

Sec. 101. Extension and modification of renewable energy credit.
Sec. 102. Production credit for electricity produced from marine 
renewables.
Sec. 103. Extension and modification of energy credit.
Sec. 104. New clean renewable energy bonds.
Sec. 105. Extension and modification of special rule to implement FERC 
and State electric restructuring policy.
Sec. 106. Repeal of dollar limitation and allowance against alternative 
minimum tax for residential solar and fuel cell property credit.

                         TITLE II--CONSERVATION

                       Subtitle A--Transportation

Sec. 201. Credit for plug-in hybrid vehicles.
Sec. 202. Extension and modification of alternative fuel vehicle 
refueling property credit.
Sec. 203. Extension and modification of credits for biodiesel and 
renewable diesel.
Sec. 204. Credit for production of cellulosic alcohol.
Sec. 205. Extension of transportation fringe benefit to bicycle 
commuters.
Sec. 206. Modification of limitation on automobile depreciation.
Sec. 207. Restructuring of New York Liberty Zone tax credits.

               Subtitle B--Other Conservation Provisions

Sec. 211. Qualified energy conservation bonds.
Sec. 212. Qualified residential energy efficiency assistance bonds.
Sec. 213. Extension of energy efficient commercial buildings deduction.
Sec. 214. Modifications of energy efficient appliance credit for 
appliances produced after 2007.
Sec. 215. Five-year applicable recovery period for depreciation of 
qualified energy management devices.

                     TITLE III--REVENUE PROVISIONS

             Subtitle A--Denial of Oil and Gas Tax Benefits

Sec. 301. Denial of deduction for income attributable to domestic 
production of oil, natural gas, or primary products thereof.
Sec. 302. 7-year amortization of geological and geophysical 
expenditures for certain major integrated oil companies.
Sec. 303. Clarification of determination of foreign oil and gas 
extraction income.

   Subtitle B--Clarification of Eligibility for Certain Fuel Credits

Sec. 311. Clarification of eligibility for renewable diesel credit.
Sec. 312. Clarification that credits for fuel are designed to provide 
an incentive for United States production.

                       TITLE IV--OTHER PROVISIONS

                          Subtitle A--Studies

Sec. 401. Carbon audit of the tax code.
Sec. 402. Comprehensive study of biofuels.

Subtitle B--Application of Certain Labor Standards on Projects Financed 
                         Under Tax Credit Bonds

Sec. 411. Application of certain labor standards on projects financed 
under tax credit bonds.

                     TITLE I--PRODUCTION INCENTIVES

SEC. 101. EXTENSION AND MODIFICATION OF RENEWABLE ENERGY CREDIT.

  (a) Extension of Credit.--Each of the following provisions of section 
45(d) (relating to qualified facilities) is amended by striking 
``January 1, 2009'' and inserting ``January 1, 2013'':
          (1) Paragraph (1).
          (2) Clauses (i) and (ii) of paragraph (2)(A).
          (3) Clauses (i)(I) and (ii) of paragraph (3)(A).
          (4) Paragraph (4).
          (5) Paragraph (5).
          (6) Paragraph (6).
          (7) Paragraph (7).
          (8) Subparagraphs (A) and (B) of paragraph (9).
  (b) Modification of Credit Phaseout.--
          (1) Repeal of phaseout.--Subsection (b) of section 45 is 
        amended--
                  (A) by striking paragraph (1), and
                  (B) by striking ``the 8 cent amount in paragraph 
                (1),'' in paragraph (2) thereof.
          (2) Limitation based on investment in facility.--Subsection 
        (b) of section 45 is amended by inserting before paragraph (2) 
        the following new paragraph:
          ``(1) Limitation based on investment in facility.--
                  ``(A) In general.--In the case of any qualified 
                facility originally placed in service after December 
                31, 2008, the amount of the credit determined under 
                subsection (a) for any taxable year with respect to 
                electricity produced at such facility shall not exceed 
                the product of--
                          ``(i) the applicable percentage with respect 
                        to such facility, multiplied by
                          ``(ii) the eligible basis of such facility.
                  ``(B) Carryforward of unused limitation and excess 
                credit.--
                          ``(i) Unused limitation.--If the limitation 
                        imposed under subparagraph (A) with respect to 
                        any facility for any taxable year exceeds the 
                        credit determined under subsection (a) 
                        (determined without regard to this paragraph) 
                        with respect to such facility for such taxable 
                        year, the limitation imposed under subparagraph 
                        (A) with respect to such facility for the 
                        succeeding taxable year shall be increased by 
                        the amount of such excess.
                          ``(ii) Excess credit.--If the credit 
                        determined under subsection (a) (determined 
                        without regard to this paragraph) with respect 
                        to any facility for any taxable year exceeds 
                        the limitation imposed under subparagraph (A) 
                        with respect to such facility for such taxable 
                        year, the credit determined under subsection 
                        (a) with respect to such facility for the 
                        succeeding taxable year (determined before the 
                        application of subparagraph (A) for such 
                        succeeding taxable year) shall be increased by 
                        the amount of such excess. With respect to any 
                        facility, no amount may carried forward under 
                        this clause to any taxable year beginning after 
                        the 10-year period described in subsection 
                        (a)(2)(A)(ii) with respect to such facility.
                  ``(C) Applicable percentage.--For purposes of this 
                paragraph--
                          ``(i) In general.--The term `applicable 
                        percentage' means, with respect to any 
                        facility, the appropriate percentage prescribed 
                        by the Secretary for the month in which such 
                        facility is originally placed in service.
                          ``(ii) Method of prescribing percentages.--
                        The percentages prescribed by the Secretary for 
                        any month under clause (i) shall be percentages 
                        which yield over a 10-year period amounts of 
                        limitation under subparagraph (A) which have a 
                        present value equal to 35 percent of the 
                        eligible basis of the facility.
                          ``(iii) Method of discounting.--The present 
                        value under clause (ii) shall be determined--
                                  ``(I) as of the last day of the 1st 
                                year of the 10-year period referred to 
                                in clause (ii),
                                  ``(II) by using a discount rate equal 
                                to the average annual interest rate of 
                                tax-exempt obligations having a term of 
                                10 years or more which are issued 
                                during the month preceding the month 
                                for which the percentage is being 
                                prescribed, and
                                  ``(III) by taking into account the 
                                limitation under subparagraph (A) for 
                                any year on the last day of such year.
                  ``(D) Eligible basis.--For purposes of this 
                paragraph, the term `eligible basis' means, with 
                respect to any facility, the basis of such facility 
                determined as of the time that such facility is 
                originally placed in service.
                  ``(E) Special rule for first and last year of credit 
                period.--In the case of any taxable year any portion of 
                which is not within the 10-year period described in 
                subsection (a)(2)(A)(ii) with respect to any facility, 
                the amount of the limitation under subparagraph (A) 
                with respect to such facility shall be reduced by an 
                amount which bears the same ratio to the amount of such 
                limitation (determined without regard to this 
                subparagraph) as such portion of the taxable year which 
                is not within such period bears to the entire taxable 
                year.''.
  (c) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to property 
        originally placed in service after December 31, 2008.
          (2) Repeal of credit phaseout.--The amendments made by 
        subsection (b)(1) shall apply to taxable years ending after 
        December 31, 2008.

SEC. 102. PRODUCTION CREDIT FOR ELECTRICITY PRODUCED FROM MARINE 
                    RENEWABLES.

  (a) In General.--Paragraph (1) of section 45(c) (relating to 
resources) is amended by striking ``and'' at the end of subparagraph 
(G), by striking the period at the end of subparagraph (H) and 
inserting ``, and'', and by adding at the end the following new 
subparagraph:
                  ``(I) marine and hydrokinetic renewable energy.''.
  (b) Marine Renewables.--Subsection (c) of section 45 is amended by 
adding at the end the following new paragraph:
          ``(10) Marine and hydrokinetic renewable energy.--
                  ``(A) In general.--The term `marine and hydrokinetic 
                renewable energy' means energy derived from--
                          ``(i) waves, tides, and currents in oceans, 
                        estuaries, and tidal areas,
                          ``(ii) free flowing water in rivers, lakes, 
                        and streams,
                          ``(iii) free flowing water in an irrigation 
                        system, canal, or other man-made channel, 
                        including projects that utilize nonmechanical 
                        structures to accelerate the flow of water for 
                        electric power production purposes, or
                          ``(iv) differentials in ocean temperature 
                        (ocean thermal energy conversion).
                  ``(B) Exceptions.--Such term shall not include any 
                energy which is derived from any source which utilizes 
                a dam, diversionary structure (except as provided in 
                subparagraph (A)(iii)), or impoundment for electric 
                power production purposes.''.
  (c) Definition of Facility.--Subsection (d) of section 45 is amended 
by adding at the end the following new paragraph:
          ``(11) Marine and hydrokinetic renewable energy facilities.--
        In the case of a facility producing electricity from marine and 
        hydrokinetic renewable energy, the term `qualified facility' 
        means any facility owned by the taxpayer--
                  ``(A) which has a nameplate capacity rating of at 
                least 150 kilowatts, and
                  ``(B) which is originally placed in service on or 
                after the date of the enactment of this paragraph and 
                before January 1, 2013.''.
  (d) Credit Rate.--Subparagraph (A) of section 45(b)(4) is amended by 
striking ``or (9)'' and inserting ``(9), or (11)''.
  (e) Coordination With Small Irrigation Power.--Paragraph (5) of 
section 45(d), as amended by this Act, is amended by striking ``January 
1, 2013'' and inserting ``the date of the enactment of paragraph 
(11)''.
  (f) Effective Date.--The amendments made by this section shall apply 
to electricity produced and sold after the date of the enactment of 
this Act, in taxable years ending after such date.

SEC. 103. EXTENSION AND MODIFICATION OF ENERGY CREDIT.

  (a) Extension of Credit.--
          (1) Solar energy property.--Paragraphs (2)(A)(i)(II) and 
        (3)(A)(ii) of section 48(a) (relating to energy credit) are 
        each amended by striking ``January 1, 2009'' and inserting 
        ``January 1, 2017''.
          (2) Fuel cell property.--Subparagraph (E) of section 48(c)(1) 
        (relating to qualified fuel cell property) is amended by 
        striking ``December 31, 2008'' and inserting ``December 31, 
        2016''.
  (b) Allowance of Energy Credit Against Alternative Minimum Tax.--
Subparagraph (B) of section 38(c)(4) (relating to specified credits) is 
amended by striking ``and'' at the end of clause (iii), by striking the 
period at the end of clause (iv) and inserting ``, and'', and by adding 
at the end the following new clause:
                          ``(v) the credit determined under section 46 
                        to the extent that such credit is attributable 
                        to the energy credit determined under section 
                        48.''.
  (c) Increase of Credit Limitation for Fuel Cell Property.--
Subparagraph (B) of section 48(c)(1) is amended by striking ``$500'' 
and inserting ``$1,500''.
  (d) Public Electric Utility Property Taken Into Account.--
          (1) In general.--Paragraph (3) of section 48(a) is amended by 
        striking the second sentence thereof.
          (2) Conforming amendments.--
                  (A) Paragraph (1) of section 48(c) is amended by 
                striking subparagraph (D) and redesignating 
                subparagraph (E) as subparagraph (D).
                  (B) Paragraph (2) of section 48(c) is amended by 
                striking subparagraph (D) and redesignating 
                subparagraph (E) as subparagraph (D).
  (e) Clerical Amendments.--Paragraphs (1)(B) and (2)(B) of section 
48(c) are each amended by striking ``paragraph (1)'' and inserting 
``subsection (a)''.
  (f) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall take 
        effect on the date of the enactment of this Act.
          (2) Allowance against alternative minimum tax.--The 
        amendments made by subsection (b) shall apply to credits 
        determined under section 46 of the Internal Revenue Code of 
        1986 in taxable years beginning after the date of the enactment 
        of this Act and to carrybacks of such credits.
          (3) Increase in limitation for fuel cell property.--The 
        amendment made by subsection (c) shall apply to periods after 
        the date of the enactment of this Act, in taxable years ending 
        after such date, 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).
          (4)  Public electric utility property.--The amendments made 
        by subsection (d) shall apply to periods after June 20, 2007, 
        in taxable years ending after such date, 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. 104. NEW CLEAN RENEWABLE ENERGY BONDS.

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

                ``Subpart I--Qualified Tax Credit Bonds

``Sec. 54A. Credit to holders of qualified tax credit bonds.
``Sec. 54B. New clean renewable energy bonds.

``SEC. 54A. CREDIT TO HOLDERS OF QUALIFIED TAX CREDIT BONDS.

  ``(a) Allowance of Credit.--If a taxpayer holds a qualified tax 
credit bond on one or more credit allowance dates of the bond during 
any taxable year, there shall be allowed as a credit against the tax 
imposed by this chapter for the taxable year an amount equal to the sum 
of the credits determined under subsection (b) with respect to such 
dates.
  ``(b) Amount of Credit.--
          ``(1) In general.--The amount of the credit determined under 
        this subsection with respect to any credit allowance date for a 
        qualified tax credit bond is 25 percent of the annual credit 
        determined with respect to such bond.
          ``(2) Annual credit.--The annual credit determined with 
        respect to any qualified tax credit bond is the product of--
                  ``(A) the applicable credit rate, multiplied by
                  ``(B) the outstanding face amount of the bond.
          ``(3) Applicable credit rate.--For purposes of paragraph (2), 
        the applicable credit rate is the rate which the Secretary 
        estimates will permit the issuance of qualified tax credit 
        bonds with a specified maturity or redemption date without 
        discount and without interest cost to the qualified issuer. The 
        applicable credit rate with respect to any qualified tax credit 
        bond shall be determined as of the first day on which there is 
        a binding, written contract for the sale or exchange of the 
        bond.
          ``(4) Special rule for issuance and redemption.--In the case 
        of a bond which is issued during the 3-month period ending on a 
        credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed or matures.
  ``(c) Limitation Based on Amount of Tax.--
          ``(1) In general.--The credit allowed under subsection (a) 
        for any 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 
                part (other than subpart C and this subpart).
          ``(2) Carryover of unused credit.--If the credit allowable 
        under subsection (a) exceeds the limitation imposed by 
        paragraph (1) for such taxable year, such excess shall be 
        carried to the succeeding taxable year and added to the credit 
        allowable under subsection (a) for such taxable year 
        (determined before the application of paragraph (1) for such 
        succeeding taxable year).
  ``(d) Qualified Tax Credit Bond.--For purposes of this section--
          ``(1) Qualified tax credit bond.--The term `qualified tax 
        credit bond' means a new clean renewable energy bond which is 
        part of an issue that meets the requirements of paragraphs (2), 
        (3), (4), (5), and (6).
          ``(2) Special rules relating to expenditures.--
                  ``(A) In general.--An issue shall be treated as 
                meeting the requirements of this paragraph if, as of 
                the date of issuance, the issuer reasonably expects--
                          ``(i) 100 percent or more of the available 
                        project proceeds to be spent for 1 or more 
                        qualified purposes within the 3-year period 
                        beginning on such date of issuance, and
                          ``(ii) a binding commitment with a third 
                        party to spend at least 10 percent of such 
                        available project proceeds will be incurred 
                        within the 6-month period beginning on such 
                        date of issuance.
                  ``(B) Failure to spend required amount of bond 
                proceeds within 3 years.--
                          ``(i) In general.--To the extent that less 
                        than 100 percent of the available project 
                        proceeds of the issue are expended by the close 
                        of the expenditure period for 1 or more 
                        qualified purposes, the issuer shall redeem all 
                        of the nonqualified bonds within 90 days after 
                        the end of such period. For purposes of this 
                        paragraph, the amount of the nonqualified bonds 
                        required to be redeemed shall be determined in 
                        the same manner as under section 142.
                          ``(ii) Expenditure period.--For purposes of 
                        this subpart, the term `expenditure period' 
                        means, with respect to any issue, the 3-year 
                        period beginning on the date of issuance. Such 
                        term shall include any extension of such period 
                        under clause (iii).
                          ``(iii) Extension of period.--Upon submission 
                        of a request prior to the expiration of the 
                        expenditure period (determined without regard 
                        to any extension under this clause), the 
                        Secretary may extend such period if the issuer 
                        establishes that the failure to expend the 
                        proceeds within the original expenditure period 
                        is due to reasonable cause and the expenditures 
                        for qualified purposes will continue to proceed 
                        with due diligence.
                  ``(C) Qualified purpose.--For purposes of this 
                paragraph, the term `qualified purpose' means a purpose 
                specified in section 54B(a)(1).
                  ``(D) Reimbursement.--For purposes of this subtitle, 
                available project proceeds of an issue shall be treated 
                as spent for a qualified purpose if such proceeds are 
                used to reimburse the issuer for amounts paid for a 
                qualified purpose after the date that the Secretary 
                makes an allocation of bond limitation with respect to 
                such issue, but only if--
                          ``(i) prior to the payment of the original 
                        expenditure, the issuer declared its intent to 
                        reimburse such expenditure with the proceeds of 
                        a qualified tax credit bond,
                          ``(ii) not later than 60 days after payment 
                        of the original expenditure, the issuer adopts 
                        an official intent to reimburse the original 
                        expenditure with such proceeds, and
                          ``(iii) the reimbursement is made not later 
                        than 18 months after the date the original 
                        expenditure is paid.
          ``(3) Reporting.--An issue shall be treated as meeting the 
        requirements of this paragraph if the issuer of qualified tax 
        credit bonds submits reports similar to the reports required 
        under section 149(e).
          ``(4) Special rules relating to arbitrage.--
                  ``(A) In general.--An issue shall be treated as 
                meeting the requirements of this paragraph if the 
                issuer satisfies the requirements of section 148 with 
                respect to the proceeds of the issue.
                  ``(B) Special rule for investments during expenditure 
                period.--An issue shall not be treated as failing to 
                meet the requirements of subparagraph (A) by reason of 
                any investment of available project proceeds during the 
                expenditure period.
                  ``(C) Special rule for reserve funds.--An issue shall 
                not be treated as failing to meet the requirements of 
                subparagraph (A) by reason of any fund which is 
                expected to be used to repay such issue if--
                          ``(i) such fund is funded at a rate not more 
                        rapid than equal annual installments,
                          ``(ii) such fund is funded in a manner that 
                        such fund will not exceed the amount necessary 
                        to repay the issue if invested at the maximum 
                        rate permitted under clause (iii), and
                          ``(iii) the yield on such fund is not greater 
                        than the discount rate determined under 
                        paragraph (5)(B) with respect to the issue.
          ``(5) Maturity limitation.--
                  ``(A) In general.--An issue shall not be treated as 
                meeting the requirements of this paragraph if the 
                maturity of any bond which is part of such issue 
                exceeds the maximum term determined by the Secretary 
                under subparagraph (B).
                  ``(B) Maximum term.--During each calendar month, the 
                Secretary shall determine the maximum term permitted 
                under this paragraph for bonds issued during the 
                following calendar month. Such maximum term shall be 
                the term which the Secretary estimates will result in 
                the present value of the obligation to repay the 
                principal on the bond being equal to 50 percent of the 
                face amount of such bond. Such present value shall be 
                determined using as a discount rate the average annual 
                interest rate of tax-exempt obligations having a term 
                of 10 years or more which are issued during the month. 
                If the term as so determined is not a multiple of a 
                whole year, such term shall be rounded to the next 
                highest whole year.
          ``(6) Prohibition on financial conflicts of interest.--An 
        issue shall be treated as meeting the requirements of this 
        paragraph if the issuer certifies that--
                  ``(A) applicable State and local law requirements 
                governing conflicts of interest are satisfied with 
                respect to such issue, and
                  ``(B) if the Secretary prescribes additional 
                conflicts of interest rules governing the appropriate 
                Members of Congress, Federal, State, and local 
                officials, and their spouses, such additional rules are 
                satisfied with respect to such issue.
  ``(e) Other Definitions.--For purposes of this subchapter--
          ``(1) Credit allowance date.--The term `credit allowance 
        date' means--
                  ``(A) March 15,
                  ``(B) June 15,
                  ``(C) September 15, and
                  ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
          ``(2) Bond.--The term `bond' includes any obligation.
          ``(3) State.--The term `State' includes the District of 
        Columbia and any possession of the United States.
          ``(4) Available project proceeds.--The term `available 
        project proceeds' means--
                  ``(A) the excess of--
                          ``(i) the proceeds from the sale of an issue, 
                        over
                          ``(ii) the issuance costs financed by the 
                        issue (to the extent that such costs do not 
                        exceed 2 percent of such proceeds), and
                  ``(B) the proceeds from any investment of the excess 
                described in subparagraph (A).
  ``(f) Credit Treated as Interest.--For purposes of this subtitle, the 
credit determined under subsection (a) shall be treated as interest 
which is includible in gross income.
  ``(g) S Corporations and Partnerships.--In the case of a tax credit 
bond held by an S corporation or partnership, the allocation of the 
credit allowed by this section to the shareholders of such corporation 
or partners of such partnership shall be treated as a distribution.
  ``(h) Bonds Held by Regulated Investment Companies and Real Estate 
Investment Trusts.--If any qualified tax credit bond is held by a 
regulated investment company or a real estate investment trust, the 
credit determined under subsection (a) shall be allowed to shareholders 
of such company or beneficiaries of such trust (and any gross income 
included under subsection (f) with respect to such credit shall be 
treated as distributed to such shareholders or beneficiaries) under 
procedures prescribed by the Secretary.
  ``(i) Credits May Be Stripped.--Under regulations prescribed by the 
Secretary--
          ``(1) In general.--There may be a separation (including at 
        issuance) of the ownership of a qualified tax credit bond and 
        the entitlement to the credit under this section with respect 
        to such bond. In case of any such separation, the credit under 
        this section shall be allowed to the person who on the credit 
        allowance date holds the instrument evidencing the entitlement 
        to the credit and not to the holder of the bond.
          ``(2) Certain rules to apply.--In the case of a separation 
        described in paragraph (1), the rules of section 1286 shall 
        apply to the qualified tax credit bond as if it were a stripped 
        bond and to the credit under this section as if it were a 
        stripped coupon.

``SEC. 54B. NEW CLEAN RENEWABLE ENERGY BONDS.

  ``(a) New Clean Renewable Energy Bond.--For purposes of this subpart, 
the term `new clean renewable energy bond' means any bond issued as 
part of an issue if--
          ``(1) 100 percent of the available project proceeds of such 
        issue are to be used for capital expenditures incurred by 
        public power providers or cooperative electric companies for 
        one or more qualified renewable energy facilities,
          ``(2) the bond is issued by a qualified issuer, and
          ``(3) the issuer designates such bond for purposes of this 
        section.
  ``(b) Reduced Credit Amount.--The annual credit determined under 
section 54A(b) with respect to any new clean renewable energy bond 
shall be 70 percent of the amount so determined without regard to this 
subsection.
  ``(c) Limitation on Amount of Bonds Designated.--
          ``(1) In general.--The maximum aggregate face amount of bonds 
        which may be designated under subsection (a) by any issuer 
        shall not exceed the limitation amount allocated under this 
        subsection to such issuer.
          ``(2) National limitation on amount of bonds designated.--
        There is a national new clean renewable energy bond limitation 
        of $2,000,000,000 which shall be allocated by the Secretary as 
        provided in paragraph (3), except that--
                  ``(A) not more than 60 percent thereof may be 
                allocated to qualified projects of public power 
                providers, and
                  ``(B) not more than 40 percent thereof may be 
                allocated to qualified projects of cooperative electric 
                companies.
          ``(3) Method of allocation.--
                  ``(A) Allocation among public power providers.--After 
                the Secretary determines the qualified projects of 
                public power providers which are appropriate for 
                receiving an allocation of the national new clean 
                renewable energy bond limitation, the Secretary shall, 
                to the maximum extent practicable, make allocations 
                among such projects in such manner that the amount 
                allocated to each such project bears the same ratio to 
                the cost of such project as the limitation under 
                subparagraph (2)(A) bears to the cost of all such 
                projects.
                  ``(B) Allocation among cooperative electric 
                companies.--The Secretary shall make allocations of the 
                amount of the national new clean renewable energy bond 
                limitation described in paragraph (2)(B) among 
                qualified projects of cooperative electric companies in 
                such manner as the Secretary determines appropriate.
  ``(d) Definitions.--For purposes of this section--
          ``(1) Qualified renewable energy facility.--The term 
        `qualified renewable energy facility' means a qualified 
        facility (as determined under section 45(d) without regard to 
        paragraphs (8) and (10) thereof and to any placed in service 
        date) owned by a public power provider or a cooperative 
        electric company.
          ``(2) Public power provider.--The term `public power 
        provider' means a State utility with a service obligation, as 
        such terms are defined in section 217 of the Federal Power Act 
        (as in effect on the date of the enactment of this paragraph).
          ``(3) Cooperative electric company.--The term `cooperative 
        electric company' means a mutual or cooperative electric 
        company described in section 501(c)(12) or section 
        1381(a)(2)(C).
          ``(4) Clean renewable energy bond lender.--The term `clean 
        renewable energy bond lender' means a lender which is a 
        cooperative which is owned by, or has outstanding loans to, 100 
        or more cooperative electric companies and is in existence on 
        February 1, 2002, and shall include any affiliated entity which 
        is controlled by such lender.
          ``(5) Qualified issuer.--The term `qualified issuer' means a 
        public power provider, a cooperative electric company, a clean 
        renewable energy bond lender, or a not-for-profit electric 
        utility which has received a loan or loan guarantee under the 
        Rural Electrification Act.''.
  (b) Reporting.--Subsection (d) of section 6049 (relating to returns 
regarding payments of interest) is amended by adding at the end the 
following new paragraph:
          ``(9) Reporting of credit on qualified tax credit bonds.--
                  ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 54A and such amounts shall 
                be treated as paid on the credit allowance date (as 
                defined in section 54A(e)(1)).
                  ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A) of this 
                paragraph, subsection (b)(4) of this section shall be 
                applied without regard to subparagraphs (A), (H), (I), 
                (J), (K), and (L)(i).
                  ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''.
  (c) Conforming Amendments.--
          (1) Sections 54(c)(2) and 1400N(l)(3)(B) are each amended by 
        striking ``subpart C'' and inserting ``subparts C and I''.
          (2) Section 1397E(c)(2) is amended by striking ``subpart H'' 
        and inserting ``subparts H and I''.
          (3) Section 6401(b)(1) is amended by striking ``and H'' and 
        inserting ``H, and I''.
          (4) The heading of subpart H of part IV of subchapter A of 
        chapter 1 is amended by striking ``Certain Bonds'' and 
        inserting ``Clean Renewable Energy Bonds''.
          (5) The table of subparts for part IV of subchapter A of 
        chapter 1 is amended by striking the item relating to subpart H 
        and inserting the following new items:

``subpart h. nonrefundable credit to holders of clean renewable energy 
                                 bonds.

              ``subpart i. qualified tax credit bonds.''.

  (d) Effective Dates.--The amendments made by this section shall apply 
to obligations issued after the date of the enactment of this Act.

SEC. 105. EXTENSION AND MODIFICATION OF SPECIAL RULE TO IMPLEMENT FERC 
                    AND STATE ELECTRIC RESTRUCTURING POLICY.

  (a) Extension for Qualified Electric Utilities.--
          (1) In general.--Paragraph (3) of section 451(i) (relating to 
        special rule for sales or dispositions to implement Federal 
        Energy Regulatory Commission or State electric restructuring 
        policy) is amended by striking ``before January 1, 2008,'' and 
        inserting ``before January 1, 2010, by a qualified electric 
        utility,''.
          (2) Qualified electric utility.--Subsection (i) of section 
        451 is amended by redesignating paragraphs (6) through (10) as 
        paragraphs (7) through (11), respectively, and by inserting 
        after paragraph (5) the following new paragraph:
          ``(6) Qualified electric utility.--For purposes of this 
        subsection, the term `qualified electric utility' means--
                  ``(A) an electric utility (as defined in section 
                3(22) of the Federal Power Act (16 U.S.C. 796(22))), 
                and
                  ``(B) any person in the same holding company system 
                (as defined in section 1262(9) of the Public Utility 
                Holding Company Act of 2005 (42 U.S.C. 16451(9))) as an 
                electric utility referred to subparagraph (A).''.
  (b) Extension of Period for Transfer of Operational Control 
Authorized by FERC.--Clause (ii) of section 451(i)(4)(B) is amended by 
striking ``December 31, 2007'' and inserting ``the date which is 4 
years after the close of the taxable year in which the transaction 
occurs''.
  (c) Property Located Outside the United States Not Treated as Exempt 
Utility Property.--Paragraph (5) of section 451(i) is amended by adding 
at the end the following new subparagraph:
                  ``(C) Exception for property located outside the 
                united states.--The term `exempt utility property' 
                shall not include any property which is located outside 
                the United States.''.
  (d) Effective Dates.--
          (1) Extension.--The amendment made by subsection (a) shall 
        apply to transactions after December 31, 2007.
          (2) Transfers of operational control.--The amendment made by 
        subsection (b) shall take effect as if included in section 909 
        of the American Jobs Creation Act of 2004.
          (3) Exception for property located outside the united 
        states.--The amendment made by subsection (c) shall apply to 
        transactions after the date of the enactment of this Act.

SEC. 106. REPEAL OF DOLLAR LIMITATION AND ALLOWANCE AGAINST ALTERNATIVE 
                    MINIMUM TAX FOR RESIDENTIAL SOLAR AND FUEL CELL 
                    PROPERTY CREDIT.

  (a) Repeal of Maximum Dollar Limitation.--
          (1) In general.--Subsection (b) of section 25D (relating to 
        limitations) is amended to read as follows:
  ``(b) Certification of Solar Water Heating Property.--No credit shall 
be allowed under this section for an item of property described in 
subsection (d)(1) unless such property is certified for performance by 
the non-profit Solar Rating Certification Corporation or a comparable 
entity endorsed by the government of the State in which such property 
is installed.''.
          (2) Conforming amendments.--
                  (A) Subsection (e) of section 25D is amended by 
                striking paragraph (4) and by redesignating paragraphs 
                (5) through (9) as paragraphs (4) through (8), 
                respectively.
                  (B) Paragraph (1) of section 25C(e) is amended by 
                striking ``(8), and (9)'' and inserting ``and (8) (and 
                paragraph (4) as in effect before its repeal by the 
                Renewable Energy and Energy Conservation Tax Act of 
                2007)''.
  (b) Credit Allowed Against Alternative Minimum Tax.--
          (1) In general.--Subsection (c) of section 25D is amended to 
        read as follows:
  ``(c) Limitation Based on Amount of Tax; Carryforward of Unused 
Credit.--
          ``(1) Limitation based on amount of tax.--In the case of a 
        taxable year to which section 26(a)(2) does not apply, 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) Carryforward of unused credit.--
                  ``(A) Rule for years in which all personal credits 
                allowed against regular and alternative minimum tax.--
                In the case of a taxable year to which section 26(a)(2) 
                applies, if the credit allowable under subsection (a) 
                exceeds the limitation imposed by section 26(a)(2) for 
                such taxable year reduced by the sum of the credits 
                allowable under this subpart (other than this section), 
                such excess shall be carried to the succeeding taxable 
                year and added to the credit allowable under subsection 
                (a) for such succeeding taxable year.
                  ``(B) Rule for other years.--In the case of a taxable 
                year to which section 26(a)(2) does not apply, if the 
                credit allowable under subsection (a) exceeds the 
                limitation imposed by paragraph (1) for such taxable 
                year, such excess shall be carried to the succeeding 
                taxable year and added to the credit allowable under 
                subsection (a) for such succeeding taxable year.''.
          (2) Conforming amendments.--
                  (A) Section 23(b)(4)(B) is amended by inserting ``and 
                section 25D'' after ``this section''.
                  (B) Section 24(b)(3)(B) is amended by striking ``and 
                25B'' and inserting ``, 25B, and 25D''.
                  (C) Section 25B(g)(2) is amended by striking 
                ``section 23'' and inserting ``sections 23 and 25D''.
                  (D) Section 26(a)(1) is amended by striking ``and 
                25B'' and inserting ``25B, and 25D''.
  (c) Effective Dates.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        expenditures made after the date of the enactment of this Act.
          (2) Allowance against alternative minimum tax.--
                  (A) In general.--The amendments made by subsection 
                (b) shall apply to taxable years beginning after the 
                date of the enactment of this Act.
                  (B) Application of egtrra sunset.--The amendments 
                made by subparagraphs (A) and (B) of subsection (b)(2) 
                shall be subject to title IX of the Economic Growth and 
                Tax Relief Reconciliation Act of 2001 in the same 
                manner as the provisions of such Act to which such 
                amendments relate.

                         TITLE II--CONSERVATION

                       Subtitle A--Transportation

SEC. 201. CREDIT FOR PLUG-IN HYBRID VEHICLES.

  (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 new section:

``SEC. 30D. PLUG-IN HYBRID VEHICLES.

  ``(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 plug-in hybrid vehicle placed in service 
by the taxpayer during the taxable year.
  ``(b) Per Vehicle Dollar Limitation.--
          ``(1) In general.--The amount determined under this 
        subsection with respect to any qualified plug-in hybrid vehicle 
        is the sum of the amounts determined under paragraphs (2) and 
        (3) with respect to such vehicle.
          ``(2) Base amount.--The amount determined under this 
        paragraph is $4,000.
          ``(3) Battery capacity.--In the case of vehicle which draws 
        propulsion energy from a battery with not less than 5 kilowatt 
        hours of capacity, the amount determined under this paragraph 
        is $200, plus $200 for each kilowatt hour of capacity in excess 
        of 5 kilowatt hours. The amount determined under this paragraph 
        shall not exceed $2,000.
  ``(c) Application With Other Credits.--
          ``(1) Business credit treated as part of general business 
        credit.--So much of the credit which would be allowed under 
        subsection (a) for any taxable year (determined without regard 
        to this subsection) that is attributable to property of a 
        character subject to an allowance for depreciation shall be 
        treated as a credit listed in section 38(b) for such taxable 
        year (and not allowed under subsection (a)).
          ``(2) Personal credit.--
                  ``(A) In general.--For purposes of this title, the 
                credit allowed under subsection (a) for any taxable 
                year (determined after application of paragraph (1)) 
                shall be treated as a credit allowable under subpart A 
                for such taxable year.
                  ``(B) Limitation based on amount of tax.--In the case 
                of a taxable year to which section 26(a)(2) does not 
                apply, the credit allowed under subsection (a) for any 
                taxable year (determined after application of paragraph 
                (1)) shall not exceed the excess of--
                          ``(i) the sum of the regular tax liability 
                        (as defined in section 26(b)) plus the tax 
                        imposed by section 55, over
                          ``(ii) the sum of the credits allowable under 
                        subpart A (other than this section and sections 
                        23 and 25D) and section 27 for the taxable 
                        year.
  ``(d) Qualified Plug-in Hybrid Vehicle.--For purposes of this 
section--
          ``(1) In general.--The term `qualified plug-in hybrid 
        vehicle' means a motor vehicle (as defined in section 
        30(c)(2))--
                  ``(A) the original use of which commences with the 
                taxpayer,
                  ``(B) which is acquired for use or lease by the 
                taxpayer and not for resale,
                  ``(C) which is made by a manufacturer,
                  ``(D) which has a gross vehicle weight rating of less 
                than 14,000 pounds,
                  ``(E) which has received a certificate of conformity 
                under the Clean Air Act and meets or exceeds the Bin 5 
                Tier II emission standard established in regulations 
                prescribed by the Administrator of the Environmental 
                Protection Agency under section 202(i) of the Clean Air 
                Act for that make and model year vehicle,
                  ``(F) which is propelled to a significant extent by 
                an electric motor which draws electricity from a 
                battery which--
                          ``(i) has a capacity of not less than 4 
                        kilowatt hours, and
                          ``(ii) is capable of being recharged from an 
                        external source of electricity, and
                  ``(G) which either--
                          ``(i) is also propelled to a significant 
                        extent by other than an electric motor, or
                          ``(ii) has a significant onboard source of 
                        electricity which also recharges the battery 
                        referred to in subparagraph (F).
          ``(2) Exception.--The term `qualified plug-in hybrid vehicle' 
        shall not include any vehicle which is not a passenger 
        automobile or light truck if such vehicle has a gross vehicle 
        weight rating of less than 8,500 pounds.
          ``(3) Other terms.--The terms `passenger automobile', `light 
        truck', and `manufacturer' have the meanings given such terms 
        in regulations prescribed by the Administrator of the 
        Environmental Protection Agency for purposes of the 
        administration of title II of the Clean Air Act (42 U.S.C. 7521 
        et seq.).
          ``(4) Battery capacity.--The term `capacity' means, with 
        respect to any battery, the quantity of electricity which the 
        battery is capable of storing, expressed in kilowatt hours, as 
        measured from a 100 percent state of charge to a 0 percent 
        state of charge.
  ``(e) Limitation on Number of Qualified Plug-in Hybrid Vehicles 
Eligible for Credit.--
          ``(1) In general.--In the case of a qualified plug-in hybrid 
        vehicle sold during the phaseout period, only the applicable 
        percentage of the credit otherwise allowable under subsection 
        (a) shall be allowed.
          ``(2) Phaseout period.--For purposes of this subsection, the 
        phaseout period is the period beginning with the second 
        calendar quarter following the calendar quarter which includes 
        the first date on which the number of qualified plug-in hybrid 
        vehicles manufactured by the manufacturer of the vehicle 
        referred to in paragraph (1) sold for use in the United States 
        after the date of the enactment of this section, is at least 
        60,000.
          ``(3) Applicable percentage.--For purposes of paragraph (1), 
        the applicable percentage is--
                  ``(A) 50 percent for the first 2 calendar quarters of 
                the phaseout period,
                  ``(B) 25 percent for the 3d and 4th calendar quarters 
                of the phaseout period, and
                  ``(C) 0 percent for each calendar quarter thereafter.
          ``(4) Controlled groups.--Rules similar to the rules of 
        section 30B(f)(4) shall apply for purposes of this subsection.
  ``(f) Special Rules.--
          ``(1) Basis reduction.--The basis of any property for which a 
        credit is allowable under subsection (a) shall be reduced by 
        the amount of such credit (determined without regard to 
        subsection (c)).
          ``(2) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit allowable 
        under subsection (a) with respect to any property which ceases 
        to be property eligible for such credit.
          ``(3) Property used outside united states, etc., not 
        qualified.--No credit shall be allowed 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.
          ``(4) Election not to take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects to not have this section apply to such vehicle.
          ``(5) Property used by tax-exempt entity; interaction with 
        air quality and motor vehicle safety standards.--Rules similar 
        to the rules of paragraphs (6) and (10) of section 30B(h) shall 
        apply for purposes of this section.''.
  (b) Plug-in Vehicles Not Treated as New Qualified Hybrid Vehicles.--
Section 30B(d)(3) is amended by adding at the end the following new 
subparagraph:
                  ``(D) Exclusion of plug-in vehicles.--Any vehicle 
                with respect to which a credit is allowable under 
                section 30D (determined without regard to subsection 
                (c) thereof) shall not be taken into account under this 
                section.''.
  (c) Credit Made Part of General Business Credit.--Section 38(b) is 
amended--
          (1) by striking ``and'' each place it appears at the end of 
        any paragraph,
          (2) by striking ``plus'' each place it appears at the end of 
        any paragraph,
          (3) by striking the period at the end of paragraph (31) and 
        inserting ``, plus'', and
          (4) by adding at the end the following new paragraph:
          ``(32) the portion of the plug-in hybrid vehicle credit to 
        which section 30D(c)(1) applies.''.
  (d) Conforming Amendments.--
          (1)(A) Section 24(b)(3)(B), as amended by this Act, is 
        amended by striking ``and 25D'' and inserting ``25D, and 30D''.
          (B) Section 25(e)(1)(C)(ii) is amended by inserting ``30D,'' 
        after ``25D,''.
          (C) Section 25B(g)(2), as amended by this Act, is amended by 
        striking ``and 25D'' and inserting ``, 25D, and 30D''.
          (D) Section 26(a)(1), as amended by this Act, is amended by 
        striking ``and 25D'' and inserting ``25D, and 30D''.
          (E) Section 1400C(d)(2) is amended by striking ``and 25D'' 
        and inserting ``25D, and 30D''.
          (2) Section 1016(a) is amended by striking ``and'' at the end 
        of paragraph (36), by striking the period at the end of 
        paragraph (37) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
          ``(38) to the extent provided in section 30D(f)(1).''.
          (3) Section 6501(m) is amended by inserting ``30D(f)(4),'' 
        after ``30C(e)(5),''.
          (4) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following new item:

``Sec. 30D. Plug-in hybrid vehicles.''.

  (e) Treatment of Alternative Motor Vehicle Credit as a Personal 
Credit.--
          (1) In general.--Paragraph (2) of section 30B(g) is amended 
        to read as follows:
          ``(2) Personal credit.--The credit allowed under subsection 
        (a) for any taxable year (after application of paragraph (1)) 
        shall be treated as a credit allowable under subpart A for such 
        taxable year.''.
          (2) Conforming amendments.--
                  (A) Subparagraph (A) of section 30C(d)(2) is amended 
                by striking ``sections 27, 30, and 30B'' and inserting 
                ``sections 27 and 30''.
                  (B) Paragraph (3) of section 55(c) is amended by 
                striking ``30B(g)(2),''.
  (f) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years beginning after December 31, 2007.
          (2) Treatment of alternative motor vehicle credit as personal 
        credit.--The amendments made by subsection (e) shall apply to 
        taxable years beginning after December 31, 2006.
  (g) Application of EGTRRA Sunset.--The amendment made by subsection 
(d)(1)(A) shall be subject to title IX of the Economic Growth and Tax 
Relief Reconciliation Act of 2001 in the same manner as the provision 
of such Act to which such amendment relates.

SEC. 202. EXTENSION AND MODIFICATION OF ALTERNATIVE FUEL VEHICLE 
                    REFUELING PROPERTY CREDIT.

  (a) Increase in Credit Amount.--Section 30C (relating to alternative 
fuel vehicle refueling property credit) is amended--
          (1) by striking ``30 percent'' in subsection (a) and 
        inserting ``50 percent'', and
          (2) by striking ``$30,000'' in subsection (b)(1) and 
        inserting ``$50,000''.
  (b) Extension of Credit.--Paragraph (2) of section 30C(g) (relating 
to termination) is amended by striking ``December 31, 2009'' and 
inserting ``December 31, 2010''.
  (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. 203. EXTENSION AND MODIFICATION OF CREDITS FOR BIODIESEL AND 
                    RENEWABLE DIESEL.

  (a) In General.--Sections 40A(g), 6426(c)(6), and 6427(e)(5)(B) are 
each amended by striking ``December 31, 2008'' and inserting ``December 
31, 2010''.
  (b) Uniform Treatment of Diesel Produced From Biomass.--Paragraph (3) 
of section 40A(f) is amended--
          (1) by striking ``using a thermal depolymerization process'', 
        and
          (2) by striking ``or D396'' in subparagraph (B) and inserting 
        ``or other equivalent standard approved by the Secretary for 
        fuels to be used in diesel-powered highway vehicles''.
  (c) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to fuel produced, 
        and sold or used, after the date of the enactment of this Act.
          (2) Uniform treatment of diesel produced from biomass.--The 
        amendments made by subsection (b) shall apply to fuel produced, 
        and sold or used, after the date which is 30 days after the 
        date of the enactment of this Act.

SEC. 204. CREDIT FOR PRODUCTION OF CELLULOSIC ALCOHOL.

  (a) In General.--Subsection (b) of section 40 is amended by 
redesignating paragraph (5) as paragraph (6) and by inserting after 
paragraph (4) the following new paragraph:
          ``(5) Cellulosic alcohol fuel producer credit.--
                  ``(A) In general.--The cellulosic alcohol fuel 
                producer credit of any cellulosic alcohol fuel producer 
                for any taxable year is 50 cents for each gallon of 
                qualified cellulosic fuel production of such producer.
                  ``(B) Qualified cellulosic fuel production.--For 
                purposes of this paragraph, the term `qualified 
                cellulosic fuel production' means any cellulosic 
                alcohol which is produced by a cellulosic alcohol fuel 
                producer, and which during the taxable year--
                          ``(i) is sold by such producer to another 
                        person--
                                  ``(I) for use by such other person in 
                                the production of a qualified mixture 
                                in such other person's trade or 
                                business (other than casual off-farm 
                                production),
                                  ``(II) for use by such other person 
                                as a fuel in a trade or business, or
                                  ``(III) who sells such alcohol at 
                                retail to another person and places 
                                such alcohol in the fuel tank of such 
                                other person, or
                          ``(ii) is used or sold by such producer for 
                        any purpose described in clause (i).
                  ``(C) Cellulosic alcohol.--For purposes of this 
                paragraph, the term `cellulosic alcohol' means any 
                alcohol which--
                          ``(i) is produced in the United States for 
                        use as a fuel in the United States, and
                          ``(ii) is derived from any lignocellulosic or 
                        hemicellulosic matter that is available on a 
                        renewable or recurring basis.
                For purposes of this subparagraph, the term `United 
                States' includes any possession of the United States.
                  ``(D) Cellulosic alcohol fuel producer.--For purposes 
                of this paragraph, the term `cellulosic alcohol fuel 
                producer' means any person who produces cellulosic 
                alcohol in a trade or business and is registered with 
                the Secretary as a cellulosic alcohol fuel producer.
                  ``(E) Additional distillation excluded.--The 
                qualified cellulosic fuel production of any producer 
                for any taxable year shall not include any alcohol 
                which is purchased by the producer and with respect to 
                which such producer increases the proof of the alcohol 
                by additional distillation.''.
  (b) Conforming Amendments.--
          (1) Subsection (a) of section 40 is amended by striking 
        ``plus'' at the end of paragraph (1), by striking ``plus'' at 
        the end of paragraph (2), by striking the period at the end of 
        paragraph (3) and inserting ``, plus'', and by adding at the 
        end the following new paragraph:
          ``(4) in the case of a cellulosic alcohol fuel producer, the 
        cellulosic alcohol fuel producer credit.''.
          (2) Clause (ii) of section 40(d)(3)(C) is amended by striking 
        ``subsection (b)(4)(B)'' and inserting ``paragraph (4)(B) or 
        (5)(B) of subsection (b)''.
  (c) Effective Date.--The amendments made by this section shall apply 
to alcohol produced after December 31, 2007.

SEC. 205. EXTENSION OF TRANSPORTATION FRINGE BENEFIT TO BICYCLE 
                    COMMUTERS.

  (a) In General.--Paragraph (1) of section 132(f) of the Internal 
Revenue Code of 1986 (relating to general rule for qualified 
transportation fringe) is amended by adding at the end the following:
                  ``(D) Any qualified bicycle commuting 
                reimbursement.''.
  (b) Limitation on Exclusion.--Paragraph (2) of section 132(f) of such 
Code is amended by striking ``and'' at the end of subparagraph (A), by 
striking the period at the end of subparagraph (B) and inserting ``, 
and'', and by adding at the end the following new subparagraph:
                  ``(C) the applicable annual limitation in the case of 
                any qualified bicycle commuting reimbursement.''.
  (c) Definitions.--Paragraph (5) of section 132(f) of such Code 
(relating to definitions) is amended by adding at the end the 
following:
                  ``(F) Definitions related to bicycle commuting 
                reimbursement.--
                          ``(i) Qualified bicycle commuting 
                        reimbursement.--The term `qualified bicycle 
                        commuting reimbursement' means, with respect to 
                        any calendar year, any employer reimbursement 
                        during the 15-month period beginning with the 
                        first day of such calendar year for reasonable 
                        expenses incurred by the employee during such 
                        calendar year for the purchase of a bicycle and 
                        bicycle improvements, repair, and storage, if 
                        such bicycle is regularly used for travel 
                        between the employee's residence and place of 
                        employment.
                          ``(ii) Applicable annual limitation.--The 
                        term `applicable annual limitation' means, with 
                        respect to any employee for any calendar year, 
                        the product of $20 multiplied by the number of 
                        qualified bicycle commuting months during such 
                        year.
                          ``(iii) Qualified bicycle commuting month.--
                        The term `qualified bicycle commuting month' 
                        means, with respect to any employee, any month 
                        during which such employee--
                                  ``(I) regularly uses the bicycle for 
                                a substantial portion of the travel 
                                between the employee's residence and 
                                place of employment, and
                                  ``(II) does not receive any benefit 
                                described in subparagraph (A), (B), or 
                                (C) of paragraph (1).''.
  (d) Constructive Receipt of Benefit.--Paragraph (4) of section 132(f) 
is amended by inserting ``(other than a qualified bicycle commuting 
reimbursement)'' after ``qualified transportation fringe''.
  (e) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2007.

SEC. 206. MODIFICATION OF LIMITATION ON AUTOMOBILE DEPRECIATION.

  (a) In General.--Paragraph (5) of section 280F(d) of the Internal 
Revenue Code of 1986 (defining passenger automobile) is amended to read 
as follows:
          ``(5) Passenger automobile.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), the term `passenger automobile' means any 4-
                wheeled vehicle--
                          ``(i) which is primarily designed or which 
                        can be used to carry passengers over public 
                        streets, roads, or highways (except any vehicle 
                        operated exclusively on a rail or rails), and
                          ``(ii) which is rated at not more than 14,000 
                        pounds gross vehicle weight.
                  ``(B) Exceptions.--The term `passenger automobile' 
                shall not include--
                          ``(i) any exempt-design vehicle, and
                          ``(ii) any exempt-use vehicle.
                  ``(C) Exempt-design vehicle.--The term `exempt-design 
                vehicle' means--
                          ``(i) any vehicle which, by reason of its 
                        nature or design, is not likely to be used more 
                        than a de minimis amount for personal purposes, 
                        and
                          ``(ii) any vehicle--
                                  ``(I) which is designed to have a 
                                seating capacity of more than 9 persons 
                                behind the driver's seat,
                                  ``(II) which is equipped with a cargo 
                                area of at least 5 feet in interior 
                                length which is an open area or is 
                                designed for use as an open area but is 
                                enclosed by a cap and is not readily 
                                accessible directly from the passenger 
                                compartment, or
                                  ``(III) has an integral enclosure, 
                                fully enclosing the driver compartment 
                                and load carrying device, does not have 
                                seating rearward of the driver's seat, 
                                and has no body section protruding more 
                                than 30 inches ahead of the leading 
                                edge of the windshield.
                  ``(D) Exempt-use vehicle.--The term `exempt-use 
                vehicle' means--
                          ``(i) any ambulance, hearse, or combination 
                        ambulance-hearse used by the taxpayer directly 
                        in a trade or business,
                          ``(ii) any vehicle used by the taxpayer 
                        directly in the trade or business of 
                        transporting persons or property for 
                        compensation or hire, and
                          ``(iii) any truck or van if substantially all 
                        of the use of such vehicle by the taxpayer is 
                        directly in--
                                  ``(I) a farming business (within the 
                                meaning of section 263A(e)(4)),
                                  ``(II) the transportation of a 
                                substantial amount of equipment, 
                                supplies, or inventory, or
                                  ``(III) the moving or delivery of 
                                property which requires substantial 
                                cargo capacity.
                  ``(E) Recapture.--In the case of any vehicle which is 
                not a passenger automobile by reason of being an 
                exempt-use vehicle, if such vehicle ceases to be an 
                exempt-use vehicle in any taxable year after the 
                taxable year in which such vehicle is placed in 
                service, a rule similar to the rule of subsection (b) 
                shall apply.''.
  (b) Conforming Amendment.--Section 179(b) of such Code (relating to 
limitations) is amended by striking paragraph (6).
  (c) Effective Date.--The amendments made by this section shall apply 
to property placed in service after December 31, 2007.

SEC. 207. RESTRUCTURING OF NEW YORK LIBERTY ZONE TAX CREDITS.

  (a) In General.--Part I of subchapter Y of chapter 1 is amended by 
redesignating section 1400L as section 1400K and by adding at the end 
the following new section:

``SEC. 1400L. NEW YORK LIBERTY ZONE TAX CREDITS.

  ``(a) In General.--In the case of a New York Liberty Zone 
governmental unit, there shall be allowed as a credit against any taxes 
imposed for any payroll period by section 3402 for which such 
governmental unit is liable under section 3403 an amount equal to so 
much of the portion of the qualifying project expenditure amount 
allocated under subsection (b)(3) to such governmental unit for the 
calendar year as is allocated by such governmental unit to such period 
under subsection (b)(4).
  ``(b) Qualifying Project Expenditure Amount.--For purposes of this 
section--
          ``(1) In general.--The term `qualifying project expenditure 
        amount' means, with respect to any calendar year, the sum of--
                  ``(A) the total expenditures paid or incurred during 
                such calendar year by all New York Liberty Zone 
                governmental units and the Port Authority of New York 
                and New Jersey for any portion of qualifying projects 
                located wholly within the City of New York, New York, 
                and
                  ``(B) any such expenditures--
                          ``(i) paid or incurred in any preceding 
                        calendar year which begins after the date of 
                        enactment of this section, and
                          ``(ii) not previously allocated under 
                        paragraph (3).
          ``(2) Qualifying project.--The term `qualifying project' 
        means any transportation infrastructure project, including 
        highways, mass transit systems, railroads, airports, ports, and 
        waterways, in or connecting with the New York Liberty Zone (as 
        defined in section 1400K(h)), which is designated as a 
        qualifying project under this section jointly by the Governor 
        of the State of New York and the Mayor of the City of New York, 
        New York.
          ``(3) General allocation.--
                  ``(A) In general.--The Governor of the State of New 
                York and the Mayor of the City of New York, New York, 
                shall jointly allocate to each New York Liberty Zone 
                governmental unit the portion of the qualifying project 
                expenditure amount which may be taken into account by 
                such governmental unit under subsection (a) for any 
                calendar year in the credit period.
                  ``(B) Aggregate limit.--The aggregate amount which 
                may be allocated under subparagraph (A) for all 
                calendar years in the credit period shall not exceed 
                $2,000,000,000.
                  ``(C) Annual limit.--The aggregate amount which may 
                be allocated under subparagraph (A) for any calendar 
                year in the credit period shall not exceed the sum of--
                          ``(i) $169,000,000, plus
                          ``(ii) the aggregate amount authorized to be 
                        allocated under this paragraph for all 
                        preceding calendar years in the credit period 
                        which was not so allocated.
                  ``(D) Unallocated amounts at end of credit period.--
                If, as of the close of the credit period, the amount 
                under subparagraph (B) exceeds the aggregate amount 
                allocated under subparagraph (A) for all calendar years 
                in the credit period, the Governor of the State of New 
                York and the Mayor of the City of New York, New York, 
                may jointly allocate to New York Liberty Zone 
                governmental units for any calendar year in the 5-year 
                period following the credit period an amount equal to--
                          ``(i) the lesser of--
                                  ``(I) such excess, or
                                  ``(II) the qualifying project 
                                expenditure amount for such calendar 
                                year, reduced by
                          ``(ii) the aggregate amount allocated under 
                        this subparagraph for all preceding calendar 
                        years.
          ``(4) Allocation to payroll periods.--Each New York Liberty 
        Zone governmental unit which has been allocated a portion of 
        the qualifying project expenditure amount under paragraph (3) 
        for a calendar year may allocate such portion to payroll 
        periods beginning in such calendar year as such governmental 
        unit determines appropriate.
  ``(c) Carryover of Unused Allocations.--
          ``(1) In general.--Except as provided in paragraph (2), if 
        the amount allocated under subsection (b)(3) to a New York 
        Liberty Zone governmental unit for any calendar year exceeds 
        the aggregate taxes imposed by section 3402 for which such 
        governmental unit is liable under section 3403 for periods 
        beginning in such year, such excess shall be carried to the 
        succeeding calendar year and added to the allocation of such 
        governmental unit for such succeeding calendar year.
          ``(2) Reallocation.--If a New York Liberty Zone governmental 
        unit does not use an amount allocated to it under subsection 
        (b)(3) within the time prescribed by the Governor of the State 
        of New York and the Mayor of the City of New York, New York, 
        then such amount shall after such time be treated for purposes 
        of subsection (b)(3) in the same manner as if it had never been 
        allocated.
  ``(d) Definitions and Special Rules.--For purposes of this section--
          ``(1) Credit period.--The term `credit period' means the 12-
        year period beginning on January 1, 2008.
          ``(2) New york liberty zone governmental unit.--The term `New 
        York Liberty Zone governmental unit' means--
                  ``(A) the State of New York,
                  ``(B) the City of New York, New York, and
                  ``(C) any agency or instrumentality of such State or 
                City.
          ``(3) Treatment of funds.--Any expenditure for a qualifying 
        project taken into account for purposes of the credit under 
        this section shall be considered State and local funds for the 
        purpose of any Federal program.
          ``(4) Treatment of credit amounts for purposes of withholding 
        taxes.--For purposes of this title, a New York Liberty Zone 
        governmental unit shall be treated as having paid to the 
        Secretary, on the day on which wages are paid to employees, an 
        amount equal to the amount of the credit allowed to such entity 
        under subsection (a) with respect to such wages, but only if 
        such governmental unit deducts and withholds wages for such 
        payroll period under section 3401 (relating to wage 
        withholding).
  ``(e) Reporting.--The Governor of the State of New York and the Mayor 
of the City of New York, New York, shall jointly submit to the 
Secretary an annual report--
          ``(1) which certifies--
                  ``(A) the qualifying project expenditure amount for 
                the calendar year, and
                  ``(B) the amount allocated to each New York Liberty 
                Zone governmental unit under subsection (b)(3) for the 
                calendar year, and
          ``(2) includes such other information as the Secretary may 
        require to carry out this section.
  ``(f) Guidance.--The Secretary may prescribe such guidance as may be 
necessary or appropriate to ensure compliance with the purposes of this 
section.''
  (b) Termination of Special Allowance and Expensing.--Subparagraph (A) 
of section 1400K(b)(2), as redesignated by subsection (a), is amended 
by striking the parenthetical therein and inserting ``(in the case of 
nonresidential real property and residential rental property, the date 
of the enactment of the Renewable Energy and Energy Conservation Tax 
Act of 2007 or, if acquired pursuant to a binding contract in effect on 
such enactment date, December 31, 2009)''.
  (c) Conforming Amendments.--
          (1) Section 38(c)(3)(B) is amended by striking ``section 
        1400L(a)'' and inserting ``section 1400K(a)''.
          (2) Section 168(k)(2)(D)(ii) is amended by striking ``section 
        1400L(c)(2)'' and inserting ``section 1400K(c)(2)''.
          (3) The table of sections for part I of subchapter Y of 
        chapter 1 is amended by redesignating the item relating to 
        section 1400L as an item relating to section 1400K and by 
        inserting after such item the following new item:

``Sec. 1400L. New York Liberty Zone tax credits.''.

  (d) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act.

               Subtitle B--Other Conservation Provisions

SEC. 211. QUALIFIED ENERGY CONSERVATION BONDS.

  (a) In General.--Subpart I of part IV of subchapter A of chapter 1, 
as added by section 104, is amended by adding at the end the following 
new section:

``SEC. 54C. QUALIFIED ENERGY CONSERVATION BONDS.

  ``(a) Qualified Energy Conservation Bond.--For purposes of this 
subchapter, the term `qualified energy conservation bond' means any 
bond issued as part of an issue if--
          ``(1) 100 percent of the available project proceeds of such 
        issue are to be used for one or more qualified conservation 
        purposes,
          ``(2) the bond is issued by a State or local government, and
          ``(3) the issuer designates such bond for purposes of this 
        section.
  ``(b) Limitation on Amount of Bonds Designated.--The maximum 
aggregate face amount of bonds which may be designated under subsection 
(a) by any issuer shall not exceed the limitation amount allocated to 
such issuer under subsection (d).
  ``(c) National Limitation on Amount of Bonds Designated.--There is a 
national qualified energy conservation bond limitation of 
$3,600,000,000.
  ``(d) Allocations.--
          ``(1) In general.--The limitation applicable under subsection 
        (c) shall be allocated by the Secretary among the States in 
        proportion to the population of the States.
          ``(2) Allocations to largest local governments.--
                  ``(A) In general.--In the case of any State in which 
                there is a large local government, each such local 
                government shall be allocated a portion of such State's 
                allocation which bears the same ratio to the State's 
                allocation (determined without regard to this 
                subparagraph) as the population of such large local 
                government bears to the population of such State.
                  ``(B) Allocation of unused limitation to state.--The 
                amount allocated under this subsection to a large local 
                government may be reallocated by such local government 
                to the State in which such local government is located.
                  ``(C) Large local government.--For purposes of this 
                section, the term `large local government' means any 
                municipality or county if such municipality or county 
                has a population of 100,000 or more.
          ``(3) Allocation to issuers; restriction on private activity 
        bonds.--Any allocation under this subsection to a State or 
        large local government shall be allocated by such State or 
        large local government to issuers within the State in a manner 
        that results in not less than 70 percent of the allocation to 
        such State or large local government being used to designate 
        bonds which are not private activity bonds.
  ``(e) Qualified Conservation Purpose.--For purposes of this section--
          ``(1) In general.--The term `qualified conservation purpose' 
        means any of the following:
                  ``(A) Capital expenditures incurred for purposes of--
                          ``(i) reducing energy consumption in 
                        publicly-owned buildings by at least 20 
                        percent,
                          ``(ii) implementing green community programs, 
                        or
                          ``(iii) rural development involving the 
                        production of electricity from renewable energy 
                        resources.
                  ``(B) Expenditures with respect to research 
                facilities, and research grants, to support research 
                in--
                          ``(i) development of cellulosic ethanol or 
                        other nonfossil fuels,
                          ``(ii) technologies for the capture and 
                        sequestration of carbon dioxide produced 
                        through the use of fossil fuels,
                          ``(iii) increasing the efficiency of existing 
                        technologies for producing nonfossil fuels,
                          ``(iv) automobile battery technologies and 
                        other technologies to reduce fossil fuel 
                        consumption in transportation, or
                          ``(v) technologies to reduce energy use in 
                        buildings.
                  ``(C) Mass commuting facilities and related 
                facilities that reduce the consumption of energy, 
                including expenditures to reduce pollution from 
                vehicles used for mass commuting.
                  ``(D) Demonstration projects designed to promote the 
                commercialization of--
                          ``(i) green building technology,
                          ``(ii) conversion of agricultural waste for 
                        use in the production of fuel or otherwise,
                          ``(iii) advanced battery manufacturing 
                        technologies,
                          ``(iv) technologies to reduce peak use of 
                        electricity, or
                          ``(v) technologies for the capture and 
                        sequestration of carbon dioxide emitted from 
                        combusting fossil fuels in order to produce 
                        electricity.
                  ``(E) Public education campaigns to promote energy 
                efficiency.
          ``(2) Special rules for private activity bonds.--For purposes 
        of this section, in the case of any private activity bond, the 
        term `qualified conservation purposes' shall not include any 
        expenditure which is not a capital expenditure.
  ``(f) Population.--
          ``(1) In general.--The population of any State or local 
        government shall be determined for purposes of this section as 
        provided in section 146(j) for the calendar year which includes 
        the date of the enactment of this section.
          ``(2) Special rule for counties.--In determining the 
        population of any county for purposes of this section, any 
        population of such county which is taken into account in 
        determining the population of any municipality which is a large 
        local government shall not be taken into account in determining 
        the population of such county.
  ``(g) Application to Indian Tribal Governments.--An Indian tribal 
government shall be treated for purposes of this section in the same 
manner as a large local government, except that--
          ``(1) an Indian tribal government shall be treated for 
        purposes of subsection (d) as located within a State to the 
        extent of so much of the population of such government as 
        resides within such State, and
          ``(2) any bond issued by an Indian tribal government shall be 
        treated as a qualified energy conservation bond only if issued 
        as part of an issue the available project proceeds of which are 
        used for purposes for which such Indian tribal government could 
        issue bonds to which section 103(a) applies.''.
  (b) Conforming Amendments.--
          (1) Paragraph (1) of section 54A(d), as added by section 104, 
        is amended to read as follows:
          ``(1) Qualified tax credit bond.--The term `qualified tax 
        credit bond' means--
                  ``(A) a new clean renewable energy bond, or
                  ``(B) a qualified energy conservation bond,
        which is part of an issue that meets requirements of paragraphs 
        (2), (3), (4), and (5).''.
          (2) Subparagraph (C) of section 54A(d)(2), as added by 
        section 104, is amended to read as follows:
                  ``(C) Qualified purpose.--For purposes of this 
                paragraph, the term `qualified purpose' means--
                          ``(i) in the case of a new clean renewable 
                        energy bond, a purpose specified in section 
                        54B(a)(1), and
                          ``(ii) in the case of a qualified energy 
                        conservation bond, a purpose specified in 
                        section 54C(a)(1).''.
          (3) The table of sections for subpart I of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following new item:

``Sec. 54C. Qualified energy conservation bonds.''.

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

SEC. 212. QUALIFIED RESIDENTIAL ENERGY EFFICIENCY ASSISTANCE BONDS.

  (a) In General.--Subpart I of part IV of subchapter A of chapter 1 
(as amended by this Act) is amended by adding at the end the following 
new section:

``SEC. 54D. QUALIFIED RESIDENTIAL ENERGY EFFICIENCY ASSISTANCE BONDS.

  ``(a) Qualified Residential Energy Efficiency Assistance Bond.--For 
purposes of this subchapter, the term `qualified residential energy 
efficiency assistance bond' means any bond issued as part of an issue 
if--
          ``(1) 100 percent of the available project proceeds of such 
        issue are to be used for 1 or more qualified residential energy 
        efficiency assistance purposes,
          ``(2) not less than 20 percent of the available project 
        proceeds of such issue are to be used for 1 or more qualified 
        low-income residential energy efficiency assistance purposes,
          ``(3) repayments of principal and applicable interest on 
        financing provided by the issue are used not later than the 
        close of the 3-month period beginning on the date the 
        prepayment (or complete repayment) is received to redeem bonds 
        which are part of the issue or to provide for 1 or more 
        qualified residential energy efficiency assistance purposes,
          ``(4) the bond is issued by a State, and
          ``(5) the issuer designates such bond for purposes of this 
        section.
  ``(b) Limitation on Amount of Bonds Designated.--The maximum 
aggregate face amount of bonds which may be designated under subsection 
(a) by any issuer shall not exceed the limitation amount allocated 
under subsection (d) to such issuer.
  ``(c) National Limitation on Amount of Bonds Designated.--There is a 
national qualified energy conservation bond limitation of 
$2,400,000,000.
  ``(d) Limitation Allocated Among States.--The limitation under 
subsection (c) shall be allocated by the Secretary among the States in 
proportion to the population of the States.
  ``(e) Qualified Residential Energy Efficiency Assistance Purpose.--
For purposes of this section--
          ``(1) In general.--The term `qualified residential energy 
        efficiency assistance purpose' means any grant or low-interest 
        loan to acquire (including reasonable installation costs)--
                  ``(A) any property which meets (at a minimum) the 
                requirements of the Energy Star program and which is to 
                be installed in a dwelling unit,
                  ``(B) any property which uses wind, solar, or 
                geothermal energy or qualified fuel cell property (as 
                defined in section 48(c)(1)) to generate electricity, 
                or to heat or cool water, for use in a dwelling unit 
                (other than property described in section 25D(e)(3)), 
                and
                  ``(C) any improvements to a dwelling unit which are 
                made pursuant to a plan certified by an energy 
                efficiency expert that such improvement will yield at 
                least a 20 percent reduction in total household energy 
                consumption related to heating, cooling, lighting, and 
                appliances.
          ``(2) Geothermal heat pump.--Any geothermal heat pump to 
        provide heating or cooling in a dwelling unit described in 
        paragraph (1)(B) shall be treated as described in paragraph 
        (1)(B).
          ``(3) Dollar limitations.--
                  ``(A) In general.--Such term shall not include any 
                grant or loan for improvements described in paragraph 
                (1)(C) with respect to any dwelling unit to the extent 
                that such grant or loan (when added to all other grants 
                or loans for such improvements) exceeds $5,000.
                  ``(B) Increased limitation for certain principal 
                residences.--In the case of a dwelling unit which is 
                used as a principal residence (within the meaning of 
                section 121) by the recipient of the grant or loan 
                referred to in subparagraph (A)--
                          ``(i) subparagraph (A) shall be applied by 
                        substituting `$12,000' for `$5,000' if such 
                        grant or loan would satisfy the requirements of 
                        paragraph (1)(A) if such paragraph were applied 
                        by substituting `50 percent' for `20 percent', 
                        and
                          ``(ii) in any case to which clause (i) does 
                        not apply, subparagraph (A) shall be applied by 
                        substituting `$8,000' for `$5,000' if such 
                        grant or loan would satisfy the requirements of 
                        paragraph (1)(A) if such paragraph were applied 
                        by substituting `35 percent' for `20 percent'.
          ``(4) Low-interest loan.--The term `low interest loan' means 
        any loan which charges interest at a rate which does not exceed 
        the applicable Federal rate in effect under section 1288(b)(1) 
        determined as of the issuance of the loan.
          ``(5) Exclusion of certain property.--The following property 
        shall not be taken into account for purposes of paragraph 
        (1)(A):
                  ``(A) Any equipment used in connection with a 
                swimming pool, hot tub, or similar property.
                  ``(B) Any television.
                  ``(C) Any device for converting digital signal to 
                analog.
                  ``(D) Any DVD player.
                  ``(E) Any video cassette recorder (VCR).
                  ``(F) Any audio equipment.
                  ``(G) Any cordless phone.
                  ``(H) Any other item of property where there is 
                substantial recreational use.
  ``(f) Qualified Low-Income Residential Efficiency Assistance 
Purpose.--For purposes of this section--
          ``(1) In general.--The term `qualified low-income residential 
        energy efficiency assistance purpose' means any qualified 
        residential energy efficiency assistance purpose with respect 
        to a dwelling unit which is occupied (at the time of the grant 
        or loan) by individuals whose income is 50 percent or less of 
        area median gross income. Rules similar to the rules of section 
        142(d)(2)(B) shall apply for purposes of this paragraph.
          ``(2) Restriction to grants.--Such term shall not include any 
        loan.
  ``(g) Definitions and Special Rules.--For purposes of this section--
          ``(1) Applicable interest.--The term `applicable interest' 
        means, with respect to any loan, so much of any interest on 
        such loan which exceeds 1 percentage point.
          ``(2) Special rule relating to arbitrage.--An issue shall not 
        be treated as failing to meet the requirements of section 
        54A(d)(4)(A) by reason of any investment of available project 
        proceeds in 1 or more qualified residential energy efficiency 
        assistance purposes.
          ``(3) Population.--The population of any State or local 
        government shall be determined as provided in section 146(j) 
        for the calendar year which includes the date of the enactment 
        of this section.
          ``(4) Reporting.--
                  ``(A) Reports by issuers.--Issuers of qualified 
                residential energy efficiency assistance bonds shall, 
                not later than 6 months after the expenditure period 
                (as defined in section 54A) and annually thereafter 
                until the last such bond is redeemed, submit reports to 
                the Secretary regarding such bonds, including 
                information regarding--
                          ``(i) the number and monetary value of loans 
                        and grants provided and the purposes for which 
                        provided,
                          ``(ii) the number of dwelling units the 
                        energy efficiency of which improved as result 
                        of such loans and grants,
                          ``(iii) the types of property described in 
                        subsection (e)(1)(A) installed as a result of 
                        such loans and grants and the projected energy 
                        savings with respect to such property,
                          ``(iv) the types of property described in 
                        subsection (e)(1)(B) installed as a result of 
                        such loans and grants and the projected 
                        production of such property, and
                          ``(v) the projected energy savings as a 
                        result of such loans and grants for 
                        improvements described in subsection (e)(1)(C).
                  ``(B) Report to congress.--Not later than 12 months 
                after receipt of the first report under subparagraph 
                (A) and annually thereafter until the last such report 
                is required to be submitted, the Secretary, in 
                consultation with the Secretary of Energy and the 
                Administrator of the Environmental Protection Agency, 
                shall submit a report to Congress regarding the bond 
                program under this section, including information 
                regarding--
                          ``(i) the aggregate of each category of 
                        information described in subparagraph (A) 
                        (including any independent assessment of 
                        projected energy savings), and
                          ``(ii) an estimate of the amount of 
                        greenhouse gas emissions reduced as a result of 
                        such bond program.''.
  (b) Conforming Amendments.--
          (1) Paragraph (1) of section 54A(d), as added by section 104 
        and amended by section 211, is amended by striking ``or'' at 
        the end of subparagraph (A), by inserting ``or'' at the end of 
        subparagraph (B), and by inserting after subparagraph (B) the 
        following new subparagraph:
                  ``(C) a qualified residential energy efficiency 
                assistance bond,''.
          (2) Subparagraph (C) of section 54A(d)(2), as added by 
        section 104 and amended by section 211, is amended by striking 
        ``and'' at the end of clause (i), by striking the period at the 
        end of clause (ii) and inserting ``, and'', and by adding at 
        the end the following new clause:
                          ``(iii) in the case of a qualified 
                        residential energy efficiency assistance bond, 
                        a purpose specified in section 54D(a)(1).''.
          (3) The table of sections for subpart I of part IV of 
        subchapter A of chapter 1, as amended by this Act, is amended 
        by adding at the end the following new item:

``Sec. 54D. Qualified residential energy efficiency assistance 
bonds.''.

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

SEC. 213. EXTENSION OF ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

  Subsection (h) of section 179D (relating to termination) is amended 
by striking ``December 31, 2008'' and inserting ``December 31, 2013''.

SEC. 214. MODIFICATIONS OF ENERGY EFFICIENT APPLIANCE CREDIT FOR 
                    APPLIANCES PRODUCED AFTER 2007.

  (a) In General.--Subsection (b) of section 45M (relating to 
applicable amount) is amended to read as follows:
  ``(b) Applicable Amount.--For purposes of subsection (a)--
          ``(1) Dishwashers.--The applicable amount is--
                  ``(A) $45 in the case of a dishwasher which is 
                manufactured in calendar year 2008 or 2009 and which 
                uses no more than 324 kilowatt hours per year and 5.8 
                gallons per cycle, and
                  ``(B) $75 in the case of a dishwasher which is 
                manufactured in calendar year 2008, 2009, or 2010 and 
                which uses no more than 307 kilowatt hours per year and 
                5.0 gallons per cycle (5.5 gallons per cycle for 
                dishwashers designed for greater than 12 place 
                settings).
          ``(2) Clothes washers.--The applicable amount is--
                  ``(A) $75 in the case of a residential top-loading 
                clothes washer manufactured in calendar year 2008 which 
                meets or exceeds a 1.72 modified energy factor and does 
                not exceed a 8.0 water consumption factor,
                  ``(B) $125 in the case of a residential top-loading 
                clothes washer manufactured in calendar year 2008 or 
                2009 which meets or exceeds a 1.8 modified energy 
                factor and does not exceed a 7.5 water consumption 
                factor,
                  ``(C) $150 in the case of a residential or commercial 
                clothes washer manufactured in calendar year 2008, 2009 
                or 2010 which meets or exceeds 2.0 modified energy 
                factor and does not exceed a 6.0 water consumption 
                factor, and
                  ``(D) $250 in the case of a residential or commercial 
                clothes washer manufactured in calendar year 2008, 
                2009, or 2010 which meets or exceeds 2.2 modified 
                energy factor and does not exceed a 4.5 water 
                consumption factor.
          ``(3) Refrigerators.--The applicable amount is--
                  ``(A) $50 in the case of a refrigerator which is 
                manufactured in calendar year 2008, and consumes at 
                least 20 percent but not more than 22.9 percent less 
                kilowatt hours per year than the 2001 energy 
                conservation standards,
                  ``(B) $75 in the case of a refrigerator which is 
                manufactured in calendar year 2008 or 2009, and 
                consumes at least 23 percent but no more than 24.9 
                percent less kilowatt hours per year than the 2001 
                energy conservation standards,
                  ``(C) $100 in the case of a refrigerator which is 
                manufactured in calendar year 2008, 2009 or 2010, and 
                consumes at least 25 percent but not more than 29.9 
                percent less kilowatt hours per year than the 2001 
                energy conservation standards, and
                  ``(D) $200 in the case of a refrigerator manufactured 
                in calendar year 2008, 2009 or 2010 and which consumes 
                at least 30 percent less energy than the 2001 energy 
                conservation standards.
          ``(4) Dehumidifiers.--The applicable amount is--
                  ``(A) $15 in the case of a dehumidifier manufactured 
                in calendar year 2008 that has a capacity less than or 
                equal to 45 pints per day and is 7.5 percent more 
                efficient than the applicable Department of Energy 
                energy conservation standard effective October 2012, 
                and
                  ``(B) $25 in the case of a dehumidifier manufactured 
                in calendar year 2008 that has a capacity greater than 
                45 pints per day and is 7.5 percent more efficient than 
                the applicable Department of Energy energy conservation 
                standard effective October 2012.''.
  (b) Eligible Production.--
          (1) Similar treatment for all appliances.--Subsection (c) of 
        section 45M (relating to eligible production) is amended--
                  (A) by striking paragraph (2),
                  (B) by striking ``(1) In general'' and all that 
                follows through ``the eligible'' and inserting ``The 
                eligible'', and
                  (C) by moving the text of such subsection in line 
                with the subsection heading and redesignating 
                subparagraphs (A) and (B) as paragraphs (1) and (2), 
                respectively.
          (2) Modification of base period.--Paragraph (2) of section 
        45M(c), as amended by paragraph (1) of this section, is amended 
        by striking ``3-calendar year'' and inserting ``2-calendar 
        year''.
  (c) Types of Energy Efficient Appliances.--Subsection (d) of section 
45M (defining types of energy efficient appliances) is amended to read 
as follows:
  ``(d) Types of Energy Efficient Appliance.--For purposes of this 
section, the types of energy efficient appliances are--
          ``(1) dishwashers described in subsection (b)(1),
          ``(2) clothes washers described in subsection (b)(2),
          ``(3) refrigerators described in subsection (b)(3), and
          ``(4) dehumidifiers described in subsection (b)(4).''.
  (d) Aggregate Credit Amount Allowed.--
          (1) Increase in limit.--Paragraph (1) of section 45M(e) 
        (relating to aggregate credit amount allowed) is amended to 
        read as follows:
          ``(1) Aggregate credit amount allowed.--The aggregate amount 
        of credit allowed under subsection (a) with respect to a 
        taxpayer for any taxable year shall not exceed $75,000,000 
        reduced by the amount of the credit allowed under subsection 
        (a) to the taxpayer (or any predecessor) for all prior taxable 
        years beginning after December 31, 2007.''.
          (2) Exception for certain refrigerator and clothes washers.--
        Paragraph (2) of section 45M(e) is amended to read as follows:
          ``(2) Amount allowed for certain refrigerators and clothes 
        washers.--Refrigerators described in subsection (b)(3)(D) and 
        clothes washers described in subsection (b)(2)(D) shall not be 
        taken into account under paragraph (1).''.
  (e) Qualified Energy Efficient Appliances.--
          (1) In general.--Paragraph (1) of section 45M(f) (defining 
        qualified energy efficient appliance) is amended to read as 
        follows:
          ``(1) Qualified energy efficient appliance.--The term 
        `qualified energy efficient appliance' means--
                  ``(A) any dishwasher described in subsection (b)(1),
                  ``(B) any clothes washer described in subsection 
                (b)(2),
                  ``(C) any refrigerator described in subsection 
                (b)(3), and
                  ``(D) any dehumidifier described in subsection 
                (b)(4).''.
          (2) Clothes washer.--Section 45M(f)(3) (defining clothes 
        washer) is amended by inserting ``commercial'' before 
        ``residential'' the second place it appears.
          (3) Top-loading clothes washer.--Subsection (f) of section 
        45M (relating to definitions) is amended by redesignating 
        paragraphs (4), (5), (6), and (7) as paragraphs (5), (6), (7), 
        and (8), respectively, and by inserting after paragraph (3) the 
        following new paragraph:
          ``(4) Top-loading clothes washer.--The term `top-loading 
        clothes washer' means a clothes washer which has the clothes 
        container compartment access located on the top of the machine 
        and which operates on a vertical axis.''.
          (4) Dehumidifier.--Subsection (f) of section 45M, as amended 
        by paragraph (3), is amended by redesignating paragraphs (6), 
        (7), and (8) as paragraphs (7), (8) and (9), respectively, and 
        by inserting after paragraph (5) the following new paragraph:
          ``(6) Dehumidifier.--The term `dehumidifier' means a self-
        contained, electrically operated, and mechanically refrigerated 
        encased assembly consisting of--
                  ``(A) a refrigerated surface that condenses moisture 
                from the atmosphere,
                  ``(B) a refrigerating system, including an electric 
                motor,
                  ``(C) an air-circulating fan, and
                  ``(D) means for collecting or disposing of 
                condensate.''.
          (5) Replacement of energy factor.--Section 45M(f)(7), as 
        amended by paragraph (4), is amended to read as follows:
          ``(7) Modified energy factor.--The term `modified energy 
        factor' means the modified energy factor established by the 
        Department of Energy for compliance with the Federal energy 
        conservation standard.''.
          (6) Gallons per cycle; water consumption factor.--Section 
        45M(f) (relating to definitions) is amended by adding at the 
        end the following:
          ``(10) Gallons per cycle.--The term `gallons per cycle' 
        means, with respect to a dishwasher, the amount of water, 
        expressed in gallons, required to complete a normal cycle of a 
        dishwasher.
          ``(11) Water consumption factor.--The term `water consumption 
        factor' means, with respect to a clothes washer, the quotient 
        of the total weighted per-cycle water consumption divided by 
        the cubic foot (or liter) capacity of the clothes washer.''.
  (f) Effective Date.--The amendments made by this section shall apply 
to appliances produced after December 31, 2007.

SEC. 215. FIVE-YEAR APPLICABLE RECOVERY PERIOD FOR DEPRECIATION OF 
                    QUALIFIED ENERGY MANAGEMENT DEVICES.

  (a) In General.--Section 168(e)(3)(B) (relating to 5-year 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 
inserting after clause (vi) the following new clause:
                          ``(vii) any qualified energy management 
                        device.''.
  (b) Definition of Qualified Energy Management Device.--Section 168(i) 
(relating to definitions and special rules) is amended by inserting at 
the end the following new paragraph:
          ``(18) Qualified energy management device.--
                  ``(A) In general.--The term `qualified energy 
                management device' means any energy management device 
                which is installed on real property of a customer of 
                the taxpayer and is placed in service by a taxpayer 
                who--
                          ``(i) is a supplier of electric energy or a 
                        provider of electric energy services, and
                          ``(ii) provides all commercial and 
                        residential customers of such supplier or 
                        provider with net metering upon the request of 
                        such customer.
                  ``(B) Energy management device.--For purposes of 
                subparagraph (A), the term `energy management device' 
                means any time-based meter and related communication 
                equipment which is capable of being used by the 
                taxpayer as part of a system that--
                          ``(i) measures and records electricity usage 
                        data on a time-differentiated basis in at least 
                        24 separate time segments per day,
                          ``(ii) provides for the exchange of 
                        information between supplier or provider and 
                        the customer's energy management device in 
                        support of time-based rates or other forms of 
                        demand response, and
                          ``(iii) provides data to such supplier or 
                        provider so that the supplier or provider can 
                        provide energy usage information to customers 
                        electronically.
                  ``(C) Net metering.--For purposes of subparagraph 
                (A), the term `net metering' means allowing customers a 
                credit for providing electricity to the supplier or 
                provider.''.
  (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.

                     TITLE III--REVENUE PROVISIONS

             Subtitle A--Denial of Oil and Gas Tax Benefits

SEC. 301. DENIAL OF DEDUCTION FOR INCOME ATTRIBUTABLE TO DOMESTIC 
                    PRODUCTION OF OIL, NATURAL GAS, OR PRIMARY PRODUCTS 
                    THEREOF.

  (a) In General.--Subparagraph (B) of section 199(c)(4) (relating to 
exceptions) is amended by striking ``or'' at the end of clause (ii), by 
striking the period at the end of clause (iii) and inserting ``, or'', 
and by inserting after clause (iii) the following new clause:
                          ``(iv) the sale, exchange, or other 
                        disposition of oil, natural gas, or any primary 
                        product thereof.''.
  (b) Primary Product.--Section 199(c)(4)(B) is amended by adding at 
the end the following flush sentence:
                ``For purposes of clause (iv), the term `primary 
                product' has the same meaning as when used in section 
                927(a)(2)(C), as in effect before its repeal.''.
  (c) Conforming Amendments.--Section 199(c)(4) is amended--
          (1) in subparagraph (A)(i)(III) by striking ``electricity, 
        natural gas,'' and inserting ``electricity'', and
          (2) in subparagraph (B)(ii) by striking ``electricity, 
        natural gas,'' and inserting ``electricity''.
  (d) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2007.

SEC. 302. 7-YEAR AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL 
                    EXPENDITURES FOR CERTAIN MAJOR INTEGRATED OIL 
                    COMPANIES.

  (a) In General.--Subparagraph (A) of section 167(h)(5) (relating to 
special rule for major integrated oil companies) is amended by striking 
``5-year'' and inserting ``7-year''.
  (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred after the date of the enactment of this 
Act.

SEC. 303. CLARIFICATION OF DETERMINATION OF FOREIGN OIL AND GAS 
                    EXTRACTION INCOME.

  (a) In General.--Paragraph (1) of section 907(c) is amended by 
redesignating subparagraph (B) as subparagraph (C), by striking ``or'' 
at the end of subparagraph (A), and by inserting after subparagraph (A) 
the following new subparagraph:
                  ``(B) so much of any transportation of such minerals 
                as occurs before the fair market value event, or''.
  (b) Fair Market Value Event.--Subsection (c) of section 907 is 
amended by adding at the end the following new paragraph:
          ``(6) Fair market value event.--For purposes of this section, 
        the term `fair market value event' means, with respect to any 
        mineral, the first point in time at which such mineral--
                  ``(A) has a fair market value which can be determined 
                on the basis of a transfer, which is an arm's length 
                transaction, of such mineral from the taxpayer to a 
                person who is not related (within the meaning of 
                section 482) to such taxpayer, or
                  ``(B) is at a location at which the fair market value 
                is readily ascertainable by reason of transactions 
                among unrelated third parties with respect to the same 
                mineral (taking into account source, location, quality, 
                and chemical composition).''.
  (c) Special Rule for Certain Petroleum Taxes.--Subsection (c) of 
section 907, as amended by subsection (b), is amended to by adding at 
the end the following new paragraph:
          ``(7) Oil and gas taxes.--In the case of any tax imposed by a 
        foreign country which is limited in its application to 
        taxpayers engaged in oil or gas activities--
                  ``(A) the term `oil and gas extraction taxes' shall 
                include such tax,
                  ``(B) the term `foreign oil and gas extraction 
                income' shall include any taxable income which is taken 
                into account in determining such tax (or is directly 
                attributable to the activity to which such tax 
                relates), and
                  ``(C) the term `foreign oil related income' shall not 
                include any taxable income which is treated as foreign 
                oil and gas extraction income under subparagraph 
                (B).''.
  (d) Conforming Amendments.--
          (1) Subparagraph (C) of section 907(c)(1), as redesignated by 
        this section, is amended by inserting ``or used by the taxpayer 
        in the activity described in subparagraph (B)'' before the 
        period at the end.
          (2) Subparagraph (B) of section 907(c)(2) is amended to read 
        as follows:
                  ``(B) so much of the transportation of such minerals 
                or primary products as is not taken into account under 
                paragraph (1)(B),''.
  (e) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after the date of the enactment of this Act.

   Subtitle B--Clarification of Eligibility for Certain Fuel Credits

SEC. 311. CLARIFICATION OF ELIGIBILITY FOR RENEWABLE DIESEL CREDIT.

  (a) Coproduction With Petroleum Feedstock.--
          (1) In general.--Paragraph (3) of section 40A(f) (defining 
        renewable diesel) is amended by adding at the end the following 
        flush sentence:
        ``Such term does not include any fuel derived from coprocessing 
        biomass with a feedstock which is not biomass. For purposes of 
        this paragraph, the term `biomass' has the meaning given such 
        term by section 45K(c)(3).''.
          (2) Conforming amendment.--Paragraph (3) of section 40A(f) is 
        amended by striking ``(as defined in section 45K(c)(3))''.
  (b) Clarification of Eligibility for Alternative Fuel Credit.--
          (1) In general.--Subparagraph (F) of section 6426(d)(2) is 
        amended by striking ``hydrocarbons'' and inserting ``fuel''.
          (2) Conforming amendment.--Section 6426 is amended by adding 
        at the end the following new subsection:
  ``(h) Denial of Double Benefit.--No credit shall be determined under 
subsection (d) or (e) with respect to any fuel with respect to which 
credit may be determined under subsection (b) or (c) or under section 
40 or 40A.''.
  (c) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to fuel produced, 
        and sold or used, after June 30, 2007.
          (2) Clarification of eligibility for alternative fuel 
        credit.--The amendment made by subsection (b) shall take effect 
        as if included in section 11113 of the Safe, Accountable, 
        Flexible, Efficient Transportation Equity Act: A Legacy for 
        Users.

SEC. 312. CLARIFICATION THAT CREDITS FOR FUEL ARE DESIGNED TO PROVIDE 
                    AN INCENTIVE FOR UNITED STATES PRODUCTION.

  (a) Biodiesel Fuels Credit.--Paragraph (5) of section 40A(d), as 
added by subsection (c), is amended to read as follows:
          ``(5) Limitation to biodiesel with connection to the united 
        states.--No credit shall be determined under this section with 
        respect to any biodiesel unless--
                  ``(A) such biodiesel is produced in the United States 
                for use as a fuel in the United States, and
                  ``(B) the taxpayer obtains a certification (in such 
                form and manner as prescribed by the Secretary) from 
                the producer of the biodiesel which identifies the 
                product produced and the location of such production.
        For purposes of this paragraph, the term `United States' 
        includes any possession of the United States.''.
  (b) Excise Tax Credit.--Paragraph (2) of section 6426(i), as added by 
subsection (c), is amended to read as follows:
          ``(2) Biodiesel and alternative fuels.--No credit shall be 
        determined under this section with respect to any biodiesel or 
        alternative fuel unless--
                  ``(A) such biodiesel or alternative fuel is produced 
                in the United States for use as a fuel in the United 
                States, and
                  ``(B) the taxpayer obtains a certification (in such 
                form and manner as prescribed by the Secretary) from 
                the producer of such biodiesel or alternative fuel 
                which identifies the product produced and the location 
                of such production.''.
  (c) Provisions Clarifying Treatment of Fuels With No Nexus to the 
United States.--
          (1) Alcohol fuels credit.--Subsection (d) of section 40 is 
        amended by adding at the end the following new paragraph:
          ``(6) Limitation to alcohol with connection to the united 
        states.--No credit shall be determined under this section with 
        respect to any alcohol which is produced outside the United 
        States for use as a fuel outside the United States. For 
        purposes of this paragraph, the term `United States' includes 
        any possession of the United States.''.
          (2) Biodiesel fuels credit.--Subsection (d) of section 40A is 
        amended by adding at the end the following new paragraph:
          ``(5) Limitation to biodiesel with connection to the united 
        states.--No credit shall be determined under this section with 
        respect to any biodiesel which is produced outside the United 
        States for use as a fuel outside the United States. For 
        purposes of this paragraph, the term `United States' includes 
        any possession of the United States.''.
          (3) Excise tax credit.--
                  (A) In general.--Section 6426, as amended by section 
                311, is amended by adding at the end the following new 
                subsection:
  ``(i) Limitation to Fuels With Connection to the United States.--
          ``(1) Alcohol.--No credit shall be determined under this 
        section with respect to any alcohol which is produced outside 
        the United States for use as a fuel outside the United States.
          ``(2) Biodiesel and alternative fuels.--No credit shall be 
        determined under this section with respect to any biodiesel or 
        alternative fuel which is produced outside the United States 
        for use as a fuel outside the United States.
For purposes of this subsection, the term `United States' includes any 
possession of the United States.''.
                  (B) Conforming amendment.--Subsection (e) of section 
                6427 is amended by redesignating paragraph (5) as 
                paragraph (6) and by inserting after paragraph (4) the 
                following new paragraph:
          ``(5) Limitation to fuels with connection to the united 
        states.--No amount shall be payable under paragraph (1) or (2) 
        with respect to any mixture or alternative fuel if credit is 
        not allowed with respect to such mixture or alternative fuel by 
        reason of section 6426(i).''.
  (d) Effective Date.--
          (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this section shall apply to fuel produced, 
        and sold or used, after the date of the enactment of this Act.
          (2) Provisions clarifying treatment of fuels with no nexus to 
        the united states.--
                  (A) In general.--Except as otherwise provided in this 
                paragraph, the amendments made by subsection (c) shall 
                take effect as if included in section 301 of the 
                American Jobs Creation Act of 2004.
                  (B) Alternative fuel credits.--So much of the 
                amendments made by subsection (c) as relate to the 
                alternative fuel credit or the alternative fuel mixture 
                credit shall take effect as if included in section 
                11113 of the Safe, Accountable, Flexible, Efficient 
                Transportation Equity Act: A Legacy for Users.
                  (C) Renewable diesel.--So much of the amendments made 
                by subsection (c) as relate to renewable diesel shall 
                take effect as if included in section 1346 of the 
                Energy Policy Act of 2005.

                       TITLE IV--OTHER PROVISIONS

                          Subtitle A--Studies

SEC. 401. CARBON AUDIT OF THE TAX CODE.

  (a) Study.--The Secretary of the Treasury shall enter into an 
agreement with the National Academy of Sciences to undertake a 
comprehensive review of the Internal Revenue Code of 1986 to identify 
the types of and specific tax provisions that have the largest effects 
on carbon and other greenhouse gas emissions and to estimate the 
magnitude of those effects.
  (b) Report.--Not later than 2 years after the date of enactment of 
this Act, the National Academy of Sciences shall submit to Congress a 
report containing the results of study authorized under this section.
  (c) Authorization of Appropriations.--There is authorized to be 
appropriated to carry out this section $1,500,000 for the period of 
fiscal years 2008 and 2009.

SEC. 402. COMPREHENSIVE STUDY OF BIOFUELS.

  (a) Study.--The Secretary of the Treasury, in consultation with the 
Secretary of Agriculture, the Secretary of Energy, and the 
Administrator of the Environmental Protection Agency, shall enter into 
an agreement with the National Academy of Sciences to produce an 
analysis of current scientific findings to determine--
          (1) current biofuels production, as well as projections for 
        future production,
          (2) the maximum amount of biofuels production capable on 
        United States farmland,
          (3) the domestic effects of a dramatic increase in biofuels 
        production on, for example--
                  (A) the price of fuel,
                  (B) the price of land in rural and suburban 
                communities,
                  (C) crop acreage and other land use,
                  (D) the environment, due to changes in crop acreage, 
                fertilizer use, runoff, water use, emissions from 
                vehicles utilizing biofuels, and other factors,
                  (E) the price of feed,
                  (F) the selling price of grain crops,
                  (G) exports and imports of grains,
                  (H) taxpayers, through cost or savings to commodity 
                crop payments, and
                  (I) the expansion of refinery capacity,
          (4) the ability to convert corn ethanol plants for other 
        uses, such as cellulosic ethanol or biodiesel,
          (5) a comparative analysis of corn ethanol versus other 
        biofuels and renewable energy sources, considering cost, energy 
        output, and ease of implementation, and
          (6) the need for additional scientific inquiry, and specific 
        areas of interest for future research.
  (b) Report.--The National Academy of Sciences shall submit an initial 
report of the findings of the report required under subsection (a) to 
the Congress not later than 3 months after the date of the enactment of 
this Act, and a final report not later than 6 months after such date of 
enactment.

Subtitle B--Application of Certain Labor Standards on Projects Financed 
                         Under Tax Credit Bonds

SEC. 411. APPLICATION OF CERTAIN LABOR STANDARDS ON PROJECTS FINANCED 
                    UNDER TAX CREDIT BONDS.

  Subchapter IV of chapter 31 of title 40, United States Code, shall 
apply to projects financed with the proceeds of any tax credit bond (as 
defined in section 54A of the Internal Revenue Code of 1986).

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 2776, as amended (the ``Renewable Energy and 
Energy Conservation Tax Act of 2007''), provides incentives to 
promote the use of renewable energy and to encourage energy 
conservation and for other purposes.

                 B. Background and Need for Legislation

    Climate change and energy security are a concern of this 
Congress. Promoting the use of renewable energy and encouraging 
energy conservation will help reduce the impact of energy 
consumption on climate change and reduce the reliance of the 
United States on imported fossil fuels.

                         C. Legislative History

    The Committee on Ways and Means held hearings on energy and 
tax policy, focusing on climate change, on February 28, 2007. 
The Subcommittee on Select Revenue Measures held hearings on 
April 19, 2007, and on April 24, 2007, on tax incentives for 
alternative sources of energy and on Member proposals on energy 
tax incentives.
    The Committee on Ways and Means marked up the provisions of 
the bill on June 20, 2007, and reported the provisions, as 
amended, on June 20, 2007, by a roll call vote, with a quorum 
present.

                      II. EXPLANATION OF THE BILL


                     TITLE I--PRODUCTION INCENTIVES


   A. Extension and Modification of the Credit for the Production of 
Electricity From Renewable Resources (Sec. 101 of the Bill and Sec. 45 
                              of the Code)


                              PRESENT LAW

In general

    An income tax credit is allowed for the production of 
electricity from qualified energy resources at qualified 
facilities.\1\ Qualified energy resources comprise wind, 
closed-loop biomass, open-loop biomass, geothermal energy, 
solar energy, small irrigation power, municipal solid waste, 
and qualified hydropower production. Qualified facilities are, 
generally, facilities that generate electricity using qualified 
energy resources. To be eligible for the credit, electricity 
produced from qualified energy resources at qualified 
facilities must be sold by the taxpayer to an unrelated person.
---------------------------------------------------------------------------
    \1\ Sec. 45. In addition to the electricity production credit, 
section 45 also provides income tax credits for the production of 
Indian coal and refined coal at qualified facilities. Except where 
otherwise stated, all section references are to the Internal Revenue 
Code of 1986, as amended (the ``Code'').
---------------------------------------------------------------------------

Credit amounts and credit period

            In general
    The base amount of the electricity production credit is 1.5 
cents per kilowatt-hour (indexed annually for inflation) of 
electricity produced. The amount of the credit is 2 cents per 
kilowatt-hour for 2007. A taxpayer may generally claim a credit 
during the 10-year period commencing with the date the 
qualified facility is placed in service. The credit is reduced 
for grants, tax-exempt bonds, subsidized energy financing, and 
other credits.
            Credit phaseout
    The amount of credit a taxpayer may claim is phased out as 
the market price of electricity exceeds certain threshold 
levels. The electricity production credit is reduced over a 3 
cent phaseout range to the extent the annual average contract 
price per kilowatt-hour of electricity sold in the prior year 
from the same qualified energy resource exceeds 8 cents 
(adjusted for inflation; 10.7 cents for 2007).
            Reduced credit periods and credit amounts
    Generally, in the case of open-loop biomass facilities 
(including agricultural livestock waste nutrient facilities), 
geothermal energy facilities, solar energy facilities, small 
irrigation power facilities, landfill gas facilities, and trash 
combustion facilities placed in service before August 8, 2005, 
the 10-year credit period is reduced to five years commencing 
on the date the facility was originally placed in service. 
However, for qualified open-loop biomass facilities (other than 
a facility described in sec. 45(d)(3)(A)(i) that uses 
agricultural livestock waste nutrients) placed in service 
before October 22, 2004, the five-year period commences on 
January 1, 2005. In the case of a closed-loop biomass facility 
modified to co-fire with coal, to co-fire with other biomass, 
or to co-fire with coal and other biomass, the credit period 
begins no earlier than October 22, 2004.
    In the case of open-loop biomass facilities (including 
agricultural livestock waste nutrient facilities), small 
irrigation power facilities, landfill gas facilities, trash 
combustion facilities, and qualified hydropower facilities the 
otherwise allowable credit amount is 0.75 cent per kilowatt-
hour, indexed for inflation measured after 1992 (currently 1 
cent per kilowatt-hour for 2007).
            Other limitations on credit claimants and credit amounts
    In general, in order to claim the credit, a taxpayer must 
own the qualified facility and sell the electricity produced by 
the facility to an unrelated party. A lessee or operator may 
claim the credit in lieu of the owner of the qualifying 
facility in the case of qualifying open-loop biomass facilities 
and in the case of closed-loop biomass facilities modified to 
co-fire with coal, to co-fire with other biomass, or to co-fire 
with coal and other biomass. In the case of a poultry waste 
facility, the taxpayer may claim the credit as a lessee or 
operator of a facility owned by a governmental unit.
    For all qualifying facilities, other than closed-loop 
biomass facilities modified to co-fire with coal, to co-fire 
with other biomass, or to co-fire with coal and other biomass, 
the amount of credit a taxpayer may claim is reduced by reason 
of grants, tax-exempt bonds, subsidized energy financing, and 
other credits, but the reduction cannot exceed 50 percent of 
the otherwise allowable credit. In the case of closed-loop 
biomass facilities modified to co-fire with coal, to co-fire 
with other biomass, or to co-fire with coal and other biomass, 
there is no reduction in credit by reason of grants, tax-exempt 
bonds, subsidized energy financing, and other credits.
    The credit for electricity produced from renewable sources 
is a component of the general business credit.\2\ Generally, 
the general business credit for any taxable year may not exceed 
the amount by which the taxpayer's net income tax exceeds the 
greater of the tentative minimum tax or so much of the net 
regular tax liability as exceeds $25,000. Excess credits may be 
carried back one year and forward up to 20 years.
---------------------------------------------------------------------------
    \2\ Sec. 38(b)(8).
---------------------------------------------------------------------------
    A taxpayer's tentative minimum tax is treated as being zero 
for purposes of determining the tax liability limitation with 
respect to 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.

Qualified facilities

            Wind energy facility
    A wind energy facility is a facility that uses wind to 
produce electricity. To be a qualified facility, a wind energy 
facility must be placed in service after December 31, 1993, and 
before January 1, 2009.
            Closed-loop biomass facility
    A closed-loop biomass facility is a facility that uses any 
organic material from a plant which is planted exclusively for 
the purpose of being used at a qualifying facility to produce 
electricity. In addition, a facility can be a closed-loop 
biomass facility if it is a facility that is modified to use 
closed-loop biomass to co-fire with coal, with other biomass, 
or with both coal and other biomass, but only if the 
modification is approved under the Biomass Power for Rural 
Development Programs or is part of a pilot project of the 
Commodity Credit Corporation.
    To be a qualified facility, a closed-loop biomass facility 
must be placed in service after December 31, 1992, and before 
January 1, 2009. In the case of a facility using closed-loop 
biomass but also co-firing the closed-loop biomass with coal, 
other biomass, or coal and other biomass, a qualified facility 
must be originally placed in service and modified to co-fire 
the closed-loop biomass at any time before January 1, 2009.
            Open-loop biomass (including agricultural livestock waste 
                    nutrients) facility
    An open-loop biomass facility is a facility that uses open-
loop biomass to produce electricity. For purposes of the 
credit, open-loop biomass is defined as (1) any agricultural 
livestock waste nutrients or (2) any solid, nonhazardous, 
cellulosic waste material or any lignin material that is 
segregated from other waste materials and which is derived 
from:
           forest-related resources, including mill and 
        harvesting residues, precommercial thinnings, slash, 
        and brush;
           solid wood waste materials, including waste 
        pallets, crates, dunnage, manufacturing and 
        construction wood wastes, and landscape or right-of-way 
        tree trimmings; or
           agricultural sources, including orchard tree 
        crops, vineyard, grain, legumes, sugar, and other crop 
        by-products or residues.
    Agricultural livestock waste nutrients are defined as 
agricultural livestock manure and litter, including bedding 
material for the disposition of manure. Wood waste materials do 
not qualify as open-loop biomass to the extent they are 
pressure treated, chemically treated, or painted. In addition, 
municipal solid waste, gas derived from the biodegradation of 
solid waste, and paper which is commonly recycled do not 
qualify as open-loop biomass. Open-loop biomass does not 
include closed-loop biomass or any biomass burned in 
conjunction with fossil fuel (co-firing) beyond such fossil 
fuel required for start up and flame stabilization.
    In the case of an open-loop biomass facility that uses 
agricultural livestock waste nutrients, a qualified facility is 
one that was originally placed in service after October 22, 
2004, and before January 1, 2009, and has a nameplate capacity 
rating which is not less than 150 kilowatts. In the case of any 
other open-loop biomass facility, a qualified facility is one 
that was originally placed in service before January 1, 2009.
            Geothermal facility
    A geothermal facility is a facility that uses geothermal 
energy to produce electricity. Geothermal energy is energy 
derived from a geothermal deposit that is a geothermal 
reservoir consisting of natural heat that is stored in rocks or 
in an aqueous liquid or vapor (whether or not under pressure). 
To be a qualified facility, a geothermal facility must be 
placed in service after October 22, 2004, and before January 1, 
2009.
            Solar facility
    A solar facility is a facility that uses solar energy to 
produce electricity. To be a qualified facility, a solar 
facility must be placed in service after October 22, 2004, and 
before January 1, 2006.
            Small irrigation facility
    A small irrigation power facility is a facility that 
generates electric power through an irrigation system canal or 
ditch without any dam or impoundment of water. The installed 
capacity of a qualified facility must be at least 150 kilowatts 
but less than five megawatts. To be a qualified facility, a 
small irrigation facility must be originally placed in service 
after October 22, 2004, and before January 1, 2009.
            Landfill gas facility
    A landfill gas facility is a facility that uses landfill 
gas to produce electricity. Landfill gas is defined as methane 
gas derived from the biodegradation of municipal solid waste. 
To be a qualified facility, a landfill gas facility must be 
placed in service after October 22, 2004, and before January 1, 
2009.
            Trash combustion facility
    Trash combustion facilities are facilities that burn 
municipal solid waste (garbage) to produce steam to drive a 
turbine for the production of electricity. To be a qualified 
facility, a trash combustion facility must be placed in service 
after October 22, 2004, and before January 1, 2009. A qualified 
trash combustion facility includes a new unit, placed in 
service after October 22, 2004, that increases electricity 
production capacity at an existing trash combustion facility. A 
new unit generally would include a new burner/boiler and 
turbine. The new unit may share certain common equipment, such 
as trash handling equipment, with other pre-existing units at 
the same facility. Electricity produced at a new unit of an 
existing facility qualifies for the production credit only to 
the extent of the increased amount of electricity produced at 
the entire facility.
            Hydropower facility
    A qualifying hydropower facility is (1) a facility that 
produced hydroelectric power (a hydroelectric dam) prior to 
August 8, 2005, at which efficiency improvements or additions 
to capacity have been made after such date and before January 
1, 2009, that enable the taxpayer to produce incremental 
hydropower or (2) a facility placed in service before August 8, 
2005, that did not produce hydroelectric power (a 
nonhydroelectric dam) on such date, and to which turbines or 
other electricity generating equipment have been added after 
such date and before January 1, 2009.
    At an existing hydroelectric facility, the taxpayer may 
claim credit only for the production of incremental 
hydroelectric power. Incremental hydroelectric power for any 
taxable year is equal to the percentage of average annual 
hydroelectric power produced at the facility attributable to 
the efficiency improvement or additions of capacity determined 
by using the same water flow information used to determine an 
historic average annual hydroelectric power production baseline 
for that facility. The Federal Energy Regulatory Commission 
will certify the baseline power production of the facility and 
the percentage increase due to the efficiency and capacity 
improvements.
    At a nonhydroelectric dam, the facility must be licensed by 
the Federal Energy Regulatory Commission and meet all other 
applicable environmental, licensing, and regulatory 
requirements and the turbines or other generating devices must 
be added to the facility after August 8, 2005 and before 
January 1, 2009. In addition, there must not be any enlargement 
of the diversion structure, construction or enlargement of a 
bypass channel, or the impoundment or any withholding of 
additional water from the natural stream channel.

Summary of credit rate and credit period by facility type

        TABLE 1.--SUMMARY OF SECTION 45 CREDIT FOR ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE RESOURCES
----------------------------------------------------------------------------------------------------------------
                                                                   Credit period for
                                                                  facilities placed in      Credit period for
   Eligible electricity production      Credit amount for 2007    service on or before     facilities placed in
               activity                  (cents per kilowatt-    August 8, 2005 (years   service after August 8,
                                                hour)            from placed-in-service  2005 (years from placed-
                                                                         date)               in-service date)
----------------------------------------------------------------------------------------------------------------
Wind.................................                        2                       10                       10
Closed-loop biomass..................                        2                   \1\ 10                       10
Open-loop biomass (including                                 1                    \2\ 5                       10
 agricultural livestock waste
 nutrient facilities)................
Geothermal...........................                        2                        5                       10
Solar (pre-2006 facilities only).....                        2                        5                       10
Small irrigation power...............                        1                        5                       10
Municipal solid waste (including                             1                        5                       10
 landfill gas facilities and trash
 combustion facilities)..............
Qualified hydropower.................                        1                      N/A                       10
----------------------------------------------------------------------------------------------------------------
\1\ In the case of certain co-firing closed-loop facilities, the credit period begins no earlier than October
  22, 2004.
\2\ For certain facilities placed in service before October 22, 2004, the Eve-year credit period commences on
  January 1, 2005.

Taxation of cooperatives and their patrons

    For Federal income tax purposes, a cooperative generally 
computes its income as if it were a taxable corporation, with 
one exception: the cooperative may exclude from its taxable 
income distributions of patronage dividends. Generally, a 
cooperative that is subject to the cooperative tax rules of 
subchapter T of the Code \3\ is permitted a deduction for 
patronage dividends paid only to the extent of net income that 
is derived from transactions with patrons who are members of 
the cooperative.\4\ The availability of such deductions from 
taxable income has the effect of allowing the cooperative to be 
treated like a conduit with respect to profits derived from 
transactions with patrons who are members of the cooperative. 
Fir taxable years ending on or before August 8, 2005, 
cooperatives may not pass any portion of the income tax credit 
for electricity production through to their patrons.
---------------------------------------------------------------------------
    \3\ Secs. 1381-1383.
    \4\ Sec. 1382.
---------------------------------------------------------------------------
    For taxable years ending after August 8, 2005, eligible 
cooperatives may elect to pass any portion of the credit 
through to their patrons. An eligible cooperative is defined as 
a cooperative organization that is owned more than 50 percent 
by agricultural producers or entities owned by agricultural 
producers. The credit may be apportioned among patrons eligible 
to share in patronage dividends on the basis of the quantity or 
value of business done with or for such patrons for the taxable 
year. The election must be made on a timely filed return for 
the taxable year and, once made, is irrevocable for such 
taxable year.

                           REASONS FOR CHANGE

    The Committee believes that it is important to extend 
existing incentives for the production of electricity from 
renewable resources because these incentives help limit the 
environmental consequences of producing electricity from fossil 
fuels. Because many of the facilities that produce electricity 
from renewable resources take several years to be placed in 
service, the Committee believes that it is important to provide 
a long-term extension of these incentives to ensure that the 
tax incentive serves its purpose of encouraging the 
installation of these facilities. The Committee also believes 
that it is important to expand the available incentives to 
include new renewable resources as the technology develops to 
take advantage of those resources.
    Finally, the Committee believes that the production tax 
credit is intended to help taxpayers afford the costs of 
installing facilities that produce electricity from renewable 
resources. Under present law, certain facilities that produce 
electricity from renewable resources receive greater assistance 
than others. The Committee believes that a framework limiting 
the present value of all production tax credits to a percentage 
of the cost of each particular renewable energy project is 
appropriate to minimize disparities among renewable resources 
and to ensure that the amount of financial assistance 
corresponds with the cost of installing each facility.

                        EXPLANATION OF PROVISION

    The provision extends and modifies the electricity 
production credit.

Extension of placed-in-service date for qualifying facilities

    The provision extends for four years (through 2012) the 
period during which qualified facilities producing electricity 
from wind, closed-loop biomass, open-loop biomass, geothermal 
energy, small irrigation power, municipal solid waste, and 
qualified hydropower may be placed in service for purposes of 
the electricity production credit.

Addition of marine and hydrokinetic renewable energy as a qualified 
        resource

    The provision adds marine and hydrokinetic renewable energy 
as a qualified energy resource and marine and hydrokinetic 
renewable energy facilities as qualified facilities. Marine and 
hydrokinetic renewable energy is defined as energy derived from 
(1) waves, tides, and currents in oceans, estuaries, and tidal 
areas; (2) free flowing water in rivers, lakes, and streams; 
(3) free flowing water in an irrigation system, canal, or other 
man-made channel, including projects that utilize nonmechanical 
structures to accelerate the flow of water for electric power 
production purposes; or (4) differentials in ocean temperature 
(ocean thermal energy conversion). The term does not include 
energy derived from any source. that uses a dam, diversionary 
structure (except for irrigation systems, canals, and other 
man-made channels), or impoundment for electric power 
production. A marine and hydrokinetic renewable energy facility 
is any facility owned by the taxpayer and placed in service 
after the date of enactment and before 2014 that produces 
electric power from marine and hydrokinetic renewable energy 
and that has a nameplate capacity rating of at least 150 
kilowatts.
    Under the provision, marine and hydrokinetic renewable 
energy facilities subsume small irrigation power facilities. 
The provision, therefore, terminates as a separate category of 
qualified facility small irrigation power facilities placed in 
service on or after the date of enactment. Such facilities 
qualify for the electricity production credit as marine and 
hydrokinetic renewable energy facilities.

Phaseout replaced by limitation based on investment in facility

    The provision replaces the electricity production credit 
phaseout with an annual limit on the total credits that may be 
claimed with respect to any qualified facility placed in 
service after 2008 based on the investment in the facility. 
Under the limitation, the electricity production credit 
determined for any taxable year may not exceed the eligible 
basis of the facility multiplied by a limitation percentage 
(the ``applicable percentage'') determined by the Secretary for 
the month during which the facility is originally placed in 
service. The applicable percentage for any month is the 
percentage that yields over a 10-year period amounts of 
limitation that have a present value equal to 35 percent of the 
eligible basis of the facility. The discount rate for purposes 
of this calculation is the average annual interest rate of tax-
exempt obligations having a term of 10 years or more that are 
issued during the month preceding the month for which the 
percentage is being prescribed. The eligible basis of a 
facility is the basis of such facility at the time it is 
originally placed in service.
    Special rules apply for the first and last year of a 
facility's 10-year credit period to allocate the limitation 
across a taxpayer's taxable years. In addition, if a facility's 
production is less than the limitation amount for any taxable 
year, the limitation with respect to such facility for the next 
taxable year is increased by the amount of the unused 
limitation. Similarly, if the electricity production credit 
exceeds the limitation amount for any taxable year, but falls 
under the limit the following year, the credit for the 
following taxable year is increased, up to that year's 
limitation amount, by the amount of such excess, but not beyond 
the facility's 10-year credit eligibility period.

                             EFFECTIVE DATE

    The extension of the electricity production credit and the 
limitation based on investment are effective for facilities 
originally placed in service after 2008. The repeal of the 
credit phaseout adjustment is effective for taxable years 
ending after 2008. The addition of marine and hydrokinetic 
renewable energy as a qualified energy resource is effective 
for electricity produced at qualified facilities and sold after 
the date of enactment in taxable years ending after such date.

 B. Extension and Modification of Energy Credit (Sec. 103 of the Bill 
                        and Sec. 48 of the Code)


                              PRESENT LAW

In general

    A nonrefundable, 10-percent business energy credit is 
allowed for the cost of new property that is equipment that 
either (1) uses solar energy to generate electricity, to heat 
or cool a structure, or to provide solar process heat, or (2) 
is 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. Property used to generate energy for the purposes of 
heating a swimming pool is not eligible solar energy property.
    The energy credit is a component of the general business 
credit \5\ and as such is subject to the alternative minimum 
tax. An unused general business credit generally may be carried 
back one year and carried forward 20 years.\6\ The taxpayer's 
basis in the property is reduced by the amount of the credit 
claimed. For projects whose construction time is expected to 
equal or exceed two years, the credit may be claimed as 
progress expenditures are made on the project, rather than 
during the year the property is placed in service. Similarly, 
the credit only applies to expenditures made after the 
effective date of the provision.
---------------------------------------------------------------------------
    \5\ Sec. 38(b)(1).
    \6\ Sec. 39.
---------------------------------------------------------------------------
    In general, property that is public utility property is not 
eligible for the credit. Public utility property is property 
that is used predominantly in the trade or business of the 
furnishing or sale of (1) electrical energy, water, or sewage 
disposal services, (2) gas through a local distribution system, 
or (3) telephone service, domestic telegraph services, or other 
communication services (other than international telegraph 
services), if the rates for such furnishing or sale have been 
established or approved by a State or political subdivision 
thereof, by an agency or instrumentality of the United States, 
or by a public service or public utility commission. This rule 
is waived in the case of telecommunication companies' purchases 
of fuel cell and microturbine property.

Special rules for solar energy property

    The credit for solar energy property is increased to 30 
percent in the case of periods after December 31, 2005 and 
prior to January 1, 2009. Additionally, equipment that uses 
fiber-optic distributed sunlight to illuminate the inside of a 
structure is solar energy property eligible for the 30-percent 
credit.

Fuel cells and microturbines

    The business energy credit also applies for the purchase of 
qualified fuel cell power plants, but only for periods after 
December 31, 2005 and prior to January 1, 2009: The credit rate 
is 30 percent.
    A qualified fuel cell power plant is an integrated system 
composed of a fuel cell stack assembly and associated balance 
of plant components that (1) converts a fuel into electricity 
using electrochemical means, and (2) has an electricity-only 
generation efficiency of greater than 30 percent and a capacity 
of at least 0.5 kilowatt. The credit may not exceed $500 for 
each 0.5 kilowatt of capacity.
    The business energy credit also applies for the purchase of 
qualifying stationary microturbine power plants, but only for 
periods after December 31, 2005 and prior to January 1, 2009. 
The credit is limited to the lesser of 10 percent of the basis 
of the property or $200 for each kilowatt of capacity.
    A qualified stationary microturbine power plant is an 
integrated system comprised of a gas turbine engine, a 
combustor, a recuperator or regenerator, a generator or 
alternator, and associated balance of plant components that 
converts a fuel into electricity and thermal energy. Such 
system also includes all secondary components located between 
the existing infrastructure for fuel delivery and the existing 
infrastructure for power distribution, including equipment and 
controls for meeting relevant power standards, such as voltage, 
frequency and power factors. Such system must have an 
electricity-only generation efficiency of not less that 26 
percent at International Standard Organization conditions and a 
capacity of less than 2,000 kilowatts.
    Additionally, for purposes of the fuel cell and 
microturbine credits, and only in the case of 
telecommunications companies, the general present-law section 
48 restriction that would otherwise prohibit telecommunication 
companies from claiming the new credit due to their status as 
public utilities is waived.

                           REASONS FOR CHANGE

    The Committee believes that alternative sources of energy 
are necessary to meet growing energy needs, reduce reliance on 
imports, and reduce green-house gas emissions. Toward that end, 
the Committee believes a long-term extension of the business 
credit for solar and fuel cell property is warranted to ensure 
that business have the certainly needed to continue development 
of alternative energy resources. The Committee believes that 
all sectors of the economy should be encouraged to invest in 
alternative energy technologies, and therefore removes the rule 
that prohibits public utilities from claiming the energy credit 
and also allows the credit against the alternative minimum tax 
for all taxpayers. The Committee also believes that increasing 
the cap on the fuel cell credit is necessary to promote further 
development and advancement of fuel cell technology.

                        EXPLANATION OF PROVISION

    The provision extends the 30-percent credit for solar and 
fuel cell property for eight years. Additionally, the fuel cell 
credit cap of $500 for each 0.5 kilowatt of capacity is raised 
to $1,500 for each 0.5 kilowatt. The provision makes the energy 
credit allowable against the alternative minimum tax.
    Also, the restriction on public utility property being 
eligible for the credit is eliminated.

                             EFFECTIVE DATE

    The provision extending the 30-percent credit is effective 
on the date of enactment. The increase in the credit cap for 
fuel cells applies to periods after the date of enactment, in 
taxable years ending after such date, under rules similar to 
the rules of section 48(m) of the Code (as in effect on the day 
before the enactment of the Revenue Reconciliation Act of 
1990). The provision repealing the prohibition on public 
utility eligibility for the energy credit applies to periods 
after June 20, 2007, in taxable years ending after such date, 
under rules similar to the rules of section 48(m) of the Code 
(as in effect on the day before the enactment of the Revenue 
Reconciliation Act of 1990). The allowance of the credit 
against the alternative minimum tax is effective for credits 
determined in taxable years beginning after the date of 
enactment.

C. New Clean Renewable Energy Bonds (Sec. 104 of the Bill and New Sec. 
                            54B of the Code)


                              PRESENT LAW

Tax-exempt bonds

    Interest on State and local governmental bonds generally is 
excluded from gross income for Federal income tax purposes if 
the proceeds of the bonds are used to finance direct activities 
of these governmental units or if the bonds are repaid with 
revenues of the governmental units. Activities that can be 
financed with these tax-exempt bonds include the financing of 
electric power facilities (i.e., generation, transmission, 
distribution, and retailing).
    Interest on State or local government bonds to finance 
activities of private persons (``private activity bonds'') is 
taxable unless a specific exception is contained in the Code 
(or in non-Code provision of a revenue Act). The term ``private 
person'' generally includes the Federal Government and all 
other individuals and entities other than States or local 
governments. The Code includes exceptions permitting States or 
local governments to act as conduits providing tax-exempt 
financing for certain private activities. In most cases, the 
aggregate volume of these tax-exempt private activity bonds is 
restricted by annual aggregate volume limits imposed on bonds 
issued by issuers within each State. For calendar year 2007, 
the State volume cap, which is indexed for inflation, equals 
$85 per resident of the State, or $256.24 million, if greater.
    The tax exemption for State and local bonds also does not 
apply to any arbitrage bond.\7\ An arbitrage bond is defined as 
any bond that is part of an issue if any proceeds of the issue 
are reasonably expected to be used (or intentionally are used) 
to acquire higher yielding investments or to replace funds that 
are used to acquire higher yielding investments.\8\ In general, 
arbitrage profits may be earned only during specified periods 
(e.g., defined ``temporary periods'') before funds are needed 
for the purpose of the borrowing or on specified types of 
investments (e.g., ``reasonably required reserve or replacement 
funds''). Subject to limited exceptions, investment profits 
that are earned during these periods or on such investments 
must be rebated to the Federal Government.
---------------------------------------------------------------------------
    \7\ Sec. 103(a) and (b)(2).
    \8\ Sec. 148.
---------------------------------------------------------------------------
    An issuer must file with the IRS certain information about 
the bonds issued by them in order for that bond issue to be 
tax-exempt.\9\ Generally, this information return is required 
to be filed no later than the 15th day of the second month 
after the close of the calendar quarter in which the bonds were 
issued.
---------------------------------------------------------------------------
    \9\ Sec. 149(e).
---------------------------------------------------------------------------

Clean renewable enemy bonds

    As an alternative to traditional tax-exempt bonds, States 
and local governments may issue clean renewable energy bonds 
(``CREBs''). CREBs are defined as any bond issued by a 
qualified issuer if, in addition to the requirements discussed 
below, 95 percent or more of the proceeds of such bonds are 
used to finance capital expenditures incurred by qualified 
borrowers for qualified projects. ``Qualified projects'' are 
facilities that qualify for the tax credit under section 45 
(other than Indian coal production facilities), without regard 
to the placed-in-service date requirements of that section.\10\ 
The term ``qualified issuers'' includes (1) governmental bodies 
(including Indian tribal governments); (2) mutual or 
cooperative electric companies (described in section 501(c)(12) 
or section 1381(a)(2)(C), or a not-for-profit electric utility 
which has received a loan or guarantee under the Rural 
Electrification Act); and (3) clean renewable energy bond 
lenders. The term ``qualified borrower'' includes a 
governmental body (including an Indian tribal government) and a 
mutual or cooperative electric company. A clean renewable 
energy bond lender means a cooperative which is owned by, or 
has outstanding loans to, 100 or more cooperative electric 
companies and is in existence on February 1, 2002.
---------------------------------------------------------------------------
    \10\ In addition, Notice 2006-7 provides that qualified projects 
include any facility owned by a qualified borrower that is functionally 
related and subordinate to any facility described in sections 45(d)(1) 
through (d)(9) and owned by such qualified borrower.
---------------------------------------------------------------------------
    Unlike tax-exempt bonds, CREBs are not interest-bearing 
obligations. Rather, the taxpayer holding CREBs on a credit 
allowance date is entitled to a tax credit. The amount of the 
credit is determined by multiplying the bond's credit rate by 
the face amount on the holder's bond. The credit rate on the 
bonds is determined by the Secretary and is to be a rate that 
permits issuance of CREBs without discount and interest cost to 
the qualified issuer. The credit accrues quarterly and is 
includible in gross income (as if it were an interest payment 
on the bond), and can be claimed against regular income tax 
liability and alternative minimum tax liability.
    CREBs are subject to a maximum maturity limitation. The 
maximum maturity is the term which the Secretary estimates will 
result in the present value of the obligation to repay the 
principal on a CREBs being equal to 50 percent of the face 
amount of such bond. The discount rate used to determine the 
present value amount is the average annual interest rate of 
tax-exempt obligations having a term of 10 years or more which 
are issued during the month the CREBs are issued. In addition, 
the Code requires level amortization of CREBs during the period 
such bonds are outstanding.
    CREBs also are subject to the arbitrage requirements of 
section 148 that apply to traditional tax-exempt bonds. 
Principles under section 148 and the regulations thereunder 
apply for purposes of determining the yield restriction and 
arbitrage rebate requirements applicable to CREBs.
    In addition to the above requirements, at least 95 percent 
of the proceeds of CREBs must be spent on qualified projects 
within the five-year period that begins on the date of 
issuance. To the extent less than 95 percent of the proceeds 
are used to finance qualified projects during the five-year 
spending period, bonds will continue to qualify as CREBs if 
unspent proceeds are used within 90 days from the end of such 
five-year period to redeem bonds. The five-year spending period 
may be extended by the Secretary upon the qualified issuer's 
request demonstrating that the failure to satisfy the five-year 
requirement is due to reasonable cause and the projects will 
continue to proceed with due diligence.
    Issuers of CREBs are required to report issuance to the IRS 
in a manner similar to the information returns required for 
tax-exempt bonds. There is a national CREB limitation of $1.2 
billion. The maximum amount of CREBs that may be allocated to 
qualified projects of governmental bodies is $750 million. 
CREBs must be issued before January 1, 2009.

                           REASONS FOR CHANGE

    The Committee believes that incentives for the development 
of facilities that produce electricity from renewable resources 
will help limit the environmental consequences of continued 
reliance on power generated using fossil fuels. Because certain 
taxpayers are unable to benefit from tax credits, tax-credit 
bonds provide an alternative means of assisting such taxpayers 
with the costs of installing facilities that produce 
electricity from renewable resources. As a result, the 
Committee feels that it is appropriate to authorize the 
issuance of new clean renewable energy bonds.
    The Committee also believes that the general rules for tax-
credit bonds should be consistent. The Committee believes that 
a uniform set of general rules would benefit the CREBs program 
and other tax-credit bond programs. The Committee recognizes 
that the rules that apply to present-law CREBs should be 
modified in order to enhance the benefits provided by these tax 
credit bonds. The Committee also believes that a separate tax 
credit bond program is necessary for governmental bodies.

                        EXPLANATION OF PROVISION

    The provision creates a new category of clean renewable 
energy bonds (``New CREBs'') that may be issued by qualified 
issuers to finance qualified renewable energy facilities. 
Qualified renewable energy facilities are facilities: (1) that 
qualify for the tax credit under section 45 (other than Indian 
coal and refined coal production facilities), without regard to 
the placed-in-service date requirements of that section; and 
(2) that are owned by a public power provider or cooperative 
electric company. The term ``cooperative electric company'' 
means a mutual or cooperative electric company (described in 
section 501(c)(12) or section 1381(a)(2)(C)). The term ``public 
power provider'' means a State utility with a service 
obligation, as such terms are defined in section 217 of the 
Federal Power Act (as in effect on the date of the enactment of 
this paragraph). The term ``qualified issuers'' includes: (1) 
public power providers; (2) cooperative electric companies; (3) 
a not-for-profit electric utility that has received a loan or 
guarantee under the Rural Electrification Act; and (4) clean 
renewable energy bond lenders. A clean renewable energy bond 
lender means a cooperative that is owned by, or has outstanding 
loans to, 100 or more cooperative electric companies and is in 
existence on February 1, 2002.
    There is a national limitation for New CREBs of $2 billion. 
The provision limits the total allocations that may be made to 
projects of public power providers and projects of cooperative 
electric companies to 60 percent of the national limitation and 
40 percent of the national limitation, respectively. 
Allocations to cooperative electric companies may be made in 
the manner the Secretary determines appropriate. Allocations to 
projects of public power providers shall be made, to the extent 
practicable, in such manner that the amount allocated to each 
such project bears the same ratio to the cost of such project 
as the maximum allocation limitation to projects of public 
power providers bears to the cost of all such projects.
    Under the provision, 100 percent of the available project 
proceeds of New CREBs must be used within the three-year period 
that begins on the date of issuance. The provision defines 
available project proceeds as proceeds from the sale of the 
bond issue less issuance costs (not to exceed two percent) and 
any investment earnings on such sale proceeds. To the extent 
less than 100 percent of the available project proceeds are 
used to finance qualified projects during the three-year 
spending period, bonds will continue to qualify as New CREBs if 
unspent proceeds are used within 90 days from the end of such 
three-year period to redeem bonds. The three-year spending 
period may be extended by the Secretary upon the qualified 
issuer's request demonstrating that the failure to satisfy the 
three-year requirement is due to reasonable cause and the 
projects will continue to proceed with due diligence.
    New CREBs generally are subject to the arbitrage 
requirements of section 148. However, available project 
proceeds invested during the three-year spending period are not 
subject to the arbitrage restrictions (i.e., yield restriction 
and rebate requirements). In addition, amounts invested in a 
reserve fund are not subject to the arbitrage restrictions to 
the extent: (1) such fund is funded at a rate not more rapid 
than equal annual installments; (2) such fund is funded in a 
manner such that the fund will not exceed the amount necessary 
to repay the issue if invested at the average annual interest 
rate of tax-exempt obligations having a term of 10 years or 
more that are issued during the month the New CREBs are issued; 
and (3) the yield on such fund is not greater than the average 
annual interest rate of tax-exempt obligations having a term of 
10 years or more that are issued during the month the New CREBs 
are issued.
    The maturity of New CREBs is the term that the Secretary 
estimates will result in the present value of the obligation to 
repay the principal on such bonds being equal to 50 percent of 
the face amount of such bonds, using as a discount rate the 
average annual interest rate of tax-exempt obligations having a 
term of 10 years or more which are issued during the month the 
qualified energy conservation bonds are issued.
    As with present-law CREBs, the taxpayer holding New CREBs 
on a credit allowance date is entitled to a tax credit. Unlike 
present-law CREBs, however, the credit rate on New CREBs is 
determined by the Secretary and is to be a rate that is 70 
percent of the rate that would permit issuance of CREBs without 
discount and interest cost to the issuer. The amount of the tax 
credit is determined by multiplying the bond's credit rate by 
the face amount on the holder's bond. The credit accrues 
quarterly, is includible in gross income (as if it were an 
interest payment on the bond), and can be claimed against 
regular income tax liability and alternative minimum tax 
liability. Unused credits may be carried forward to succeeding 
taxable years. In addition, credits may be separated from the 
ownership of the underlying bond similar to how interest 
coupons can be stripped for interest-bearing bonds.
    Issuers of New CREBs are required to certify that the 
financial disclosure requirements that apply to State and local 
bonds offered for sale to the general public are satisfied with 
respect to any Federal, State, or local government official 
directly involved with the issuance of New CREBs. The provision 
authorizes the Secretary to impose additional financial 
reporting requirements by regulation.

                             EFFECTIVE DATE

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

   D. Extension and Modification of Special Rule for Sales or Other 
Dispositions To Implement FERC, Restructuring Policy or State Electric 
Restructuring Policy (Sec. 105 of the bill and Sec. 451(i) of the Code)


                              PRESENT LAW

    Generally, a taxpayer selling property recognizes gain to 
the extent the sales price (and any other consideration 
received) exceeds the seller's basis in the property. The 
recognized gain is subject to current income tax unless the 
gain is deferred or not recognized under a special tax 
provision.
    One such special tax provision permits taxpayers to elect 
to recognize gain from qualifying electric transmission 
transactions ratably over an eight-year period beginning in the 
year of sale if the amount realized from such sale is used to 
purchase exempt utility property within the applicable period 
\11\ (the ``reinvestment property''). If the amount realized 
exceeds the amount used to purchase reinvestment property, any 
realized gain is recognized to the extent of such excess in the 
year of the qualifying electric transmission transaction.
---------------------------------------------------------------------------
    \11\ The applicable period for a taxpayer to reinvest the proceeds 
is four years after the close of the taxable year in which the 
qualifying electric transmission transaction occurs.
---------------------------------------------------------------------------
    A qualifying electric transmission transaction is the sale 
or other disposition of property used by the taxpayer in the 
trade or business of providing electric transmission services, 
or an ownership interest in such an entity, to an independent 
transmission company prior to January 1, 2008. In general, an 
independent transmission company is defined as: (1) an 
independent transmission provider \12\ approved by the FERC; 
(2) a person (i) who the FERC determines under section 203 of 
the Federal Power Act (or by declaratory order) is not a 
``market participant'' and (ii) whose transmission facilities 
are placed under the operational control of a FERC-approved 
independent transmission provider before the close of the 
period specified in such authorization, but not later than 
December 31, 2007; or (3) in the case of facilities subject to 
the jurisdiction of the Public Utility Commission of Texas, (i) 
a person which is approved by that Commission as consistent 
with Texas State law regarding an independent transmission 
organization, or (ii) a political subdivision, or affiliate 
thereof, whose transmission facilities are under the 
operational control of an organization described in (i).
---------------------------------------------------------------------------
    \12\ For example, a regional transmission organization, an 
independent system operator, or an independent transmission company.
---------------------------------------------------------------------------
    Exempt utility property is defined as: (1) property used in 
the trade or business of generating, transmitting, 
distributing, or selling electricity or producing, 
transmitting, distributing, or selling natural gas, or (2) 
stock in a controlled corporation whose principal trade or 
business consists of the activities described in (1).
    If a taxpayer is a member of an affiliated group of 
corporations filing a consolidated return, the reinvestment 
property may be purchased by any member of the affiliated group 
(in lieu of the taxpayer).

                           REASONS FOR CHANGE

    The Committee believes that the ``unbundling'' of electric 
transmission assets held by vertically integrated utilities, 
with the transmission assets ultimately placed under the 
ownership or control of independent transmission providers (or 
other similarly-approved operators), continues to be an 
important policy. To facilitate the implementation of this 
policy, the Committee believes it is appropriate to assist 
taxpayers in moving forward with industry restructuring by 
providing a tax deferral for gain associated with certain 
dispositions of electric transmission assets.
    The Committee believes that the exempt utility property 
purchased by the taxpayer with the proceeds from the qualifying 
electric transmission transaction should be located in the 
United States in order to qualify for tax-deferral treatment.

                        EXPLANATION OF PROVISION

    The provision extends the treatment under the present-law 
deferral provision to sales or dispositions by a qualified 
electric utility prior to January 1, 2010. A qualified electric 
utility is defined as an electric utility as defined in the 
Federal Power Act \13\ and any person in the same holding 
company system \14\ as an electric utility.
---------------------------------------------------------------------------
    \13\ Sec. 3(22) of the Federal Power Act, 16 U.S.C. 796(22).
    \14\ Sec. 1262(9) of the Public Utility Holding Company Act of 
2005, 42 U.S.C. 16451(9).
---------------------------------------------------------------------------
    The definition of an independent transmission company is 
modified for taxpayers whose transmission facilities are placed 
under the operational control of a FERC-approved independent 
transmission provider, which under the provision must take 
place no later than four years after the close of the taxable 
year in which the transaction occurs.
    The provision also changes the definition of exempt utility 
property to exclude property that is located outside the United 
States.

                             EFFECTIVE DATE

    The extension provision applies to qualifying electric 
transmission transactions after December 31, 2007. The change 
in the definition of an independent transmission company is 
effective as if included in section 909 of the American Jobs 
Creation Act of 2004. The exclusion for property located 
outside the United States applies to qualifying electric 
transmission transactions after the date of enactment.

 E. Credit for Residential Energy Efficient Property (Sec. 106 of the 
                     Bill and Sec. 25D of the Code)


                              PRESENT LAW

    Code section 25D provides a personal tax credit for the 
purchase of qualified solar electric 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 30-percent of qualifying expenditures, with 
a maximum credit for each of these systems of property of 
$2,000. Section 25D also provides a 30 percent credit for the 
purchase of qualified fuel cell power plants. The credit for 
any fuel cell may not exceed $500 for each 0.5 kilowatt of 
capacity.
    Qualifying solar water heating property means an 
expenditure for property to heat water for use in a dwelling 
unit located in the United States and used as a residence if at 
least half of the energy used by such property for such purpose 
is derived from the sun. Qualified solar electric 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 (1) converts a fuel 
into electricity using electrochemical means, (2) has an 
electricity-only generation efficiency of greater than 30 
percent. The qualified fuel cell power plant must be installed 
on or in connection with a dwelling unit located in the United 
States and used by the taxpayer as a principal residence.
    The credit is nonrefundable, and the depreciable basis of 
the property is reduced by the amount of the credit. 
Expenditures for labor costs allocable to onsite preparation, 
assembly, or original installation of property eligible for the 
credit are eligible expenditures.
    Certain equipment safety requirements need to be met to 
qualify for the credit. Special proration rules apply in the 
case of jointly owned property, condominiums, and tenant-
stockholders in cooperative housing corporations. If less than 
80 percent of the property is used for nonbusiness purposes, 
only that portion of expenditures that is used for nonbusiness 
purposes is taken into account.
    The credit is not allowed against the alternative minimum 
tax.
    The credit applies to property placed in service after 
December 31, 2005 and prior to January 1, 2009.

                           REASONS FOR CHANGE

    The Committee believes the cap on the amount of the 
available credit should be removed in order to provide a 
straight 30-percent credit for residential fuel cell, solar 
electric, and solar hot water heating property. The removal of 
the cap will provide an incentive to invest in additional solar 
and fuel cell property for those who would otherwise have been 
restricted by the cap.

                        EXPLANATION OF PROVISION

    The provision eliminates the fuel cell credit cap of $500 
for each 0.5 kilowatt of capacity and the $2,000 solar electric 
and $2,000 solar water heating caps. The provision also allows 
the credit to offset alternative minimum tax liability.

                             EFFECTIVE DATE

    The provision is generally effective for expenditures after 
the date of enactment. The allowance of the credit against the 
alternative minimum tax is effective for taxable years 
beginning after the date of enactment.

                         TITLE II--CONSERVATION


                           A. Transportation


1. Credit for new plug-in hybrid vehicles (sec. 201 of the bill and 
        sec. 30B and new sec. 30D of the Code)

                              PRESENT LAW

In general

    A credit is available for each new qualified fuel cell 
vehicle, hybrid vehicle, advanced lean burn technology vehicle, 
and alternative fuel vehicle placed in service by the taxpayer 
during the taxable year.\15\ In general, the credit amount 
varies depending upon the type of technology used, the weight 
class of the vehicle, the amount by which the vehicle exceeds 
certain fuel economy standards, and, for some vehicles, the 
estimated lifetime fuel savings. The credit generally is 
available for vehicles purchased after 2005. The credit 
terminates after 2009, 2010, or 2014, depending on the type of 
vehicle.
---------------------------------------------------------------------------
    \15\ Sec. 30B.
---------------------------------------------------------------------------
    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 paragraphs (3) or (4) of 
section 50(b) (relating to use by tax-exempt organizations, 
governments, and foreign persons) and is not subject to a 
lease, the seller of the vehicle may claim the credit so long 
as 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.

Fuel cell vehicles

    A qualified fuel cell vehicle is a motor vehicle that is 
propelled by power derived from one or more cells that convert 
chemical energy directly into electricity by combining oxygen 
with hydrogen fuel that is stored on board the vehicle and may 
or may not require reformation prior to use. A qualified fuel 
cell vehicle must be purchased before January 1, 2015. The 
amount of credit for the purchase of a fuel cell vehicle is 
determined by a base credit amount that depends upon the weight 
class of the vehicle and, in the case of automobiles or light 
trucks, an additional credit amount that depends upon the rated 
fuel economy of the vehicle compared to a base fuel economy. 
For these purposes the base fuel economy is the 2002 model year 
city fuel economy rating for vehicles of various weight 
classes.\16\ Table 2, below, shows the base credit amounts.
---------------------------------------------------------------------------
    \16\ See discussion surrounding Table 7, below.

           TABLE 2.--BASE CREDIT AMOUNT FOR FUEL CELL VEHICLES
------------------------------------------------------------------------
        Vehicle gross weight rating (pounds)             Credit amount
------------------------------------------------------------------------
Vehicle  8,500......................................             $8,000
8,500 < vehicle  14,000.............................            $10,000
14,000 < vehicle  26,000............................            $20,000
26,000 < vehicle....................................            $40,000
------------------------------------------------------------------------

    In the case of a fuel cell vehicle weighing less than 8,500 
pounds and placed in service after December 31, 2009, the 
$8,000 amount in Table 2, above is reduced to $4,000.
    Table 3, below, shows the additional credits for passenger 
automobiles or light trucks.

            TABLE 3.--CREDIT FOR QUALIFIED FUEL CELL VEHICLES
------------------------------------------------------------------------
                           If fuel economy of the fuel cell vehicle is:
         Credit         ------------------------------------------------
                                 at least              but less than
------------------------------------------------------------------------
$1,000                   150% of base fuel        175% of base fuel
                          economy                  economy
$1,500                   175% of base fuel        200% of base fuel
                          economy                  economy
$2,000                   200% of base fuel        225% of base fuel
                          economy                  economy
$2,500                   225% of base fuel        250% of base fuel
                          economy                  economy
$3,000                   250% of base fuel        275% of base fuel
                          economy                  economy
$3,500                   275% of base fuel        300% of base fuel
                          economy                  economy
$4,000                   300% of base fuel
                          economy
------------------------------------------------------------------------

Hybrid vehicles and advanced lean burn technology vehicles

            Qualified hybrid vehicle
    A qualified hybrid vehicle is a motor vehicle that draws 
propulsion energy from on-board sources of stored energy that 
include both an internal combustion engine or heat engine using 
combustible fuel and a rechargeable energy storage system 
(e.g., batteries). A qualified hybrid vehicle must be placed in 
service before January 1, 2011 (January 1, 2010 in the case of 
a hybrid vehicle weighing more than 8,500 pounds).

Hybrid vehicles that are automobiles and light trucks

    In the case of an automobile or light truck (vehicles 
weighing 8,500 pounds or less), the amount of credit for the 
purchase of a hybrid vehicle is the sum of two components: (1) 
a fuel economy credit amount that varies with the rated fuel 
economy of the vehicle compared to a 2002 model year standard 
and (2) a conservation credit based on the estimated lifetime 
fuel savings of the qualified vehicle compared to a comparable 
2002 model year vehicle that is powered solely by a gasoline or 
diesel internal combustion engine. A qualified hybrid 
automobile or light truck must have a maximum available power 
\17\ from the rechargeable energy storage system of at least 
four percent. In addition, the vehicle must meet or exceed 
certain Environmental Protection Agency (``EPA'') emissions 
standards. For a vehicle with a gross vehicle weight rating of 
6,000 pounds or less the applicable emissions standards are the 
Bin 5 Tier II emissions standards. For a vehicle with a gross 
vehicle weight rating greater than 6,000 pounds and less than 
or equal to 8,500 pounds, the applicable emissions standards 
are the Bin 8 Tier II emissions standards.
---------------------------------------------------------------------------
    \17\ For hybrid passenger vehicles and light trucks, the term 
``maximum available power'' means the maximum power available from the 
rechargeable energy storage system, during a standard 10 second pulse 
power or equivalent test, divided by such maximum power and the SAE net 
power of the heat engine. Sec. 30B(d)(3)(C)(i).
---------------------------------------------------------------------------
    Table 4, below, shows the fuel economy credit available to 
a hybrid passenger automobile or light truck whose fuel economy 
(on a gasoline gallon equivalent basis) exceeds that of a base 
fuel economy.

                      TABLE 4.--FUEL ECONOMY CREDIT
------------------------------------------------------------------------
                            If fuel economy of the hybrid vehicle is:
         Credit         ------------------------------------------------
                                 at least              but less than
------------------------------------------------------------------------
$400                     125% of base fuel        150% of base fuel
                          economy                  economy
$800                     150% of base fuel        175% of base fuel
                          economy                  economy
$1,200                   175% of base fuel        200% of base fuel
                          economy                  economy
$1,600                   200% of base fuel        225% of base fuel
                          economy                  economy
$2,000                   225% of base fuel        250% of base fuel
                          economy                  economy
$2,400                              250% of base fuel economy
------------------------------------------------------------------------

    Table 5, below, shows the conservation credit.

                      TABLE 5.--CONSERVATION CREDIT
------------------------------------------------------------------------
 Estimated lifetime fuel savings  (gallons of
                   gasoline)                       Conservation amount
------------------------------------------------------------------------
At least 1,200 but less than 1,800............                     $250
At least 1,800 but less than 2,400............                     $500
At least 2,400 but less than 3,000............                     $750
At least 3,000................................                   $1,000
------------------------------------------------------------------------

            Advanced lean burn technology vehicles
    The amount of credit for the purchase of an advanced lean 
burn technology vehicle is the sum of two components: (1) a 
fuel economy credit amount that varies with the rated fuel 
economy of the vehicle compared to a 2002 model year standard 
as described in Table 4, above, and (2) a conservation credit 
based on the estimated lifetime fuel savings of a qualified 
vehicle compared to a comparable 2002 model year vehicle as 
described in Table 5, above. The amounts of the credits are 
determined after an adjustment is made to account for the 
different BTU content of gasoline and the fuel utilized by the 
lean bum technology vehicle.
    A qualified advanced lean burn technology vehicle is a 
passenger automobile or a light truck that incorporates direct 
injection, achieves at least 125 percent of the 2002 model year 
city fuel economy, and for 2004 and later model vehicles meets 
or exceeds certain Environmental Protection Agency emissions 
standards. For a vehicle with a gross vehicle weight rating of 
6,000 pounds or less the applicable emissions standards are the 
Bin 5 Tier II emissions standards. For a vehicle with a gross 
vehicle weight rating greater than 6,000 pounds and less than 
or equal to 8,500 pounds, the applicable emissions standards 
are the Bin 8 Tier II emissions standards. A qualified advanced 
lean burn technology vehicle must be placed in service before 
January 1, 2011. Limitation on number of qualified hybrid and 
advanced lean burn technology vehicles eligible for the credit
    There is a limitation on the number of qualified hybrid 
vehicles and advanced lean burn technology vehicles sold by 
each manufacturer of such vehicles that are eligible for the 
credit. Taxpayers may claim the full amount of the allowable 
credit up to the end of the first calendar quarter after the 
quarter in which the manufacturer records the 60,000th hybrid 
and advanced lean burn technology vehicle sale occurring after 
December 31, 2005. Taxpayers may claim one half of the 
otherwise allowable credit during the two calendar quarters 
subsequent to the first quarter after the manufacturer has 
recorded its 60,000th such sale. In the third and fourth 
calendar quarters subsequent to the first quarter after the 
manufacturer has recorded its 60,000th such sale, the taxpayer 
may claim one quarter of the otherwise allowable credit.
    Thus, for example, summing the sales of qualified hybrid 
vehicles of all weight classes and all sales of qualified 
advanced lean burn technology vehicles, if a manufacturer 
records the sale of its 60,000th qualified vehicle in February 
of 2007, taxpayers purchasing such vehicles from the 
manufacturer may claim the full amount of the credit on their 
purchases of qualified vehicles through June 30, 2007. For the 
period July 1, 2007, through December 31, 2007, taxpayers may 
claim one half of the otherwise allowable credit on purchases 
of qualified vehicles of the manufacturer. For the period 
January 1, 2008, through June 30, 2008, taxpayers may claim one 
quarter of the otherwise allowable credit on the purchases of 
qualified vehicles of the manufacturer. After June 30, 2008, no 
credit may be claimed for purchases of hybrid vehicles or 
advanced lean bum technology vehicles sold by the manufacturer.
            Hybrid vehicles that are medium and heavy trucks
    In the case of a qualified hybrid vehicle weighing more 
than 8,500 pounds, the amount of credit is determined by the 
estimated increase in fuel economy and the incremental cost of 
the hybrid vehicle compared to a comparable vehicle powered 
solely by a gasoline or diesel internal combustion engine and 
that is comparable in weight, size, and use of the vehicle. For 
a vehicle that achieves a fuel economy increase of at least 30 
percent but less than 40 percent, the credit is equal to 20 
percent of the incremental cost of the hybrid vehicle. For a 
vehicle that achieves a fuel economy increase of at least 40 
percent but less than 50 percent, the credit is equal to 30 
percent of the incremental cost of the hybrid vehicle. For a 
vehicle that achieves a fuel economy increase of 50 percent or 
more, the credit is equal to 40 percent of the incremental cost 
of the hybrid vehicle.
    The credit is subject to certain maximum applicable 
incremental cost amounts. For a qualified hybrid vehicle 
weighing more than 8,500 pounds but not more than 14,000 
pounds, the maximum allowable incremental cost amount is 
$7,500. For a qualified hybrid vehicle weighing more than 
14,000 pounds but not more than 26,000 pounds, the maximum 
allowable incremental cost amount is $15,000. For a qualified 
hybrid vehicle weighing more than 26,000 pounds, the maximum 
allowable incremental cost amount is $30,000.
    A qualified hybrid vehicle weighing more than 8,500 pounds 
but not more than 14,000 pounds must have a maximum available 
power from the rechargeable energy storage system of at least 
10 percent. A qualified hybrid vehicle weighing more than 
14,000 pounds must have a maximum available power from the 
rechargeable energy storage system of at least 15 percent.\18\
---------------------------------------------------------------------------
    \18\ In the case of such heavy-duty hybrid motor vehicles, the 
percentage of maximum available power is computed by dividing the 
maximum power available from the rechargeable energy storage system 
during a standard 10-second pulse power test, divided by the vehicle's 
total traction power. A vehicle's total traction power is the sum of 
the peak power from the rechargeable energy storage system and the heat 
(e.g., internal combustion or diesel) engine's peak power. If the 
rechargeable energy storage system is the sole means by which the 
vehicle can be driven, then the total traction power is the peak power 
of the rechargeable energy storage system.
---------------------------------------------------------------------------

Alternative fuel vehicle

    The credit for the purchase of a new alternative fuel 
vehicle is 50 percent of the incremental cost of such vehicle, 
plus an additional 30 percent if the vehicle meets certain 
emissions standards. The incremental cost of any new qualified 
alternative fuel vehicle is the excess of the manufacturer's 
suggested retail price for such vehicle over the price for a 
gasoline or diesel fuel vehicle of the same model. To be 
eligible for the credit, a qualified alternative fuel vehicle 
must be purchased before January 1, 2011.
    The amount of the credit varies depending on the weight of 
the qualified vehicle. The credit is subject to certain maximum 
applicable incremental cost amounts. Table 6, below, shows the 
maximum permitted incremental cost for the purpose of 
calculating the credit for alternative fuel vehicles by vehicle 
weight class as well as the maximum credit amount for such 
vehicles.

         TABLE 6.--MAXIMUM ALLOWABLE INCREMENTAL COST FOR CALCULATION OF ALTERNATIVE FUEL VEHICLE CREDIT
----------------------------------------------------------------------------------------------------------------
                                                                  Maximum allowable
            Vehicle gross weight rating (pounds)                  incremental cost      Maximum allowable credit
----------------------------------------------------------------------------------------------------------------
Vehicle: 8,500..............................................                   $5,000                    $4,000
8,500 < vehicle: 14,000.....................................                  $10,000                    $8,000
14,000 < vehicle: 26,000....................................                  $25,000                   $20,000
26,000 < vehicle............................................                  $40,000                   $32,000
----------------------------------------------------------------------------------------------------------------

    Alternative fuels comprise compressed natural gas, 
liquefied natural gas, liquefied petroleum gas, hydrogen, and 
any liquid fuel that is at least 85 percent methanol. Qualified 
alternative fuel vehicles are vehicles that operate only on 
qualified alternative fuels and are incapable of operating on 
gasoline or diesel (except to the extent gasoline or diesel 
fuel is part of a qualified mixed fuel, described below).
    Certain mixed fuel vehicles, that is vehicles that use a 
combination of an alternative fuel and a petroleum-based fuel, 
are eligible for a reduced credit. If the vehicle operates on a 
mixed fuel that is at least 75 percent alternative fuel, the 
vehicle is eligible for 70 percent of the otherwise allowable 
alternative fuel vehicle credit. If the vehicle operates on a 
mixed fuel that is at least 90 percent alternative fuel, the 
vehicle is eligible for 90 percent of the otherwise allowable 
alternative fuel vehicle credit.

Base fuel economy

    The base fuel economy is the 2002 model year city fuel 
economy by vehicle type and vehicle inertia weight class. For 
this purpose, ``vehicle inertia weight class'' has the same 
meaning as when defined in regulations prescribed by the EPA 
for purposes of Title II of the Clean Air Act. Table 7, below, 
shows the 2002 model year city fuel economy for vehicles by 
type and by inertia weight class.

               TABLE 7.--2002 MODEL YEAR CITY FUEL ECONOMY
------------------------------------------------------------------------
Vehicle inertia  weight    Passenger automobile     Light truck  (miles
    class  (pounds)         (miles per gallon)          per gallon)
------------------------------------------------------------------------
1,500                    45.2                     39.4
1,750                    45.2                     39.4
2,000                    39.6                     35.2
2,250                    35.2                     31.8
2,500                    31.7                     29.0
2,750                    28.8                     26.8
3,000                    26.4                     24.9
3,500                    22.6                     21.8
4,000                    19.8                     19.4
4,500                    17.6                     17.6
5,000                    15.9                     16.1
5,500                    14.4                     14.8
6,000                    13.2                     13.7
6,500                    12.2                     12.8
7,000                    11.3                     12.1
8,500                    11.3                     12.1
------------------------------------------------------------------------

Other rules

    The portion of the credit attributable to vehicles of a 
character subject to an allowance for depreciation is treated 
as a portion of the general business credit; the remainder of 
the credit is allowable to the extent of the excess of the 
regular tax (reduced by certain other credits) over the 
alternative minimum tax for the taxable year.

                           REASONS FOR CHANGE

    The Committee believes that further investments in advanced 
technology vehicles are necessary to transform automotive 
transportation in the United States to be cleaner, more fuel 
efficient, and less reliant on petroleum fuels. Tax benefits 
provided directly to the consumer to lower the cost of new 
technology and alternative-fueled vehicles can help lower 
consumer resistance to these technologies by making the 
vehicles more price competitive with purely petroleum-based 
fuel vehicles and creating increased demand and market 
dependability for manufacturers to produce the technologies. 
The eventual goal is mass production and mass-market acceptance 
of new technology vehicles. To this end, the Committee believes 
the present-law incentives for alternative fuel vehicles should 
be expanded to include benefits for plug-in hybrid vehicles, 
which the Committee believes are the next generation of hybrid 
vehicles. The Committee also believes that this and existing 
incentives for alternative fuel vehicles should be treated as 
personal credits, making them eligible for possible future 
alternative minimum tax relief and thereby expanding their 
application to a larger number of potential buyers.

                        EXPLANATION OF PROVISION

Plug-in hybrid credit

    The provision allows a credit for each qualified plug-in 
hybrid vehicle placed in service. A qualified plug-in hybrid 
vehicle is a motor vehicle that meets certain emissions 
standards and is propelled to a significant extent by an 
electric motor that draws electricity from a battery that (1) 
has a capacity of at least four kilowatt-hours; (2) is capable 
of being recharged from an external source of electricity; and 
(3) is also propelled to a significant extent by other than an 
electric motor or has a significant onboard source of 
electricity that also recharges the battery. Qualified vehicles 
must have a gross weight of less than 14,000 pounds. In 
addition, qualified vehicles weighing less than 8,500 pounds 
must be passenger automobiles or light trucks.
    The base amount of the plug-in hybrid credit is $4,000. If 
the qualified vehicle draws propulsion from a battery with at 
least five kilowatt-hours of capacity, the credit amount is 
increased by $200, plus another $200 for each kilowatt-hour of 
battery capacity in excess of five kilowatt-hours, up to a 
maximum additional credit of $2,000.
    In general, the credit is available to the vehicle owner, 
including the lessor of a vehicle subject to lease. If the 
qualified vehicle is used by certain tax-exempt organizations, 
governments, or foreign persons and is not subject to a lease, 
the seller of the vehicle may claim the credit so long as 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.
    There is a limitation on the number of qualified plug-in 
hybrid vehicles sold by each manufacturer of such vehicles that 
are eligible for the credit. Taxpayers may claim the full 
amount of the allowable credit up to the end of the first 
calendar quarter after the quarter in which the manufacturer 
records the 60,000th plug-in hybrid vehicle sale. Taxpayers may 
claim one half of the otherwise allowable credit during the two 
calendar quarters subsequent to the first quarter after the 
manufacturer has recorded its 60,000th such sale. In the third 
and fourth calendar quarters subsequent to the first quarter 
after the manufacturer has recorded its 60,000th such sale, the 
taxpayer may claim one quarter of the otherwise allowable 
credit.
    The basis of any qualified vehicle is reduced by the amount 
of the credit. To the extent a vehicle is eligible for credit 
as a qualified plug-in hybrid vehicle, it is not eligible for 
credit as a qualified hybrid vehicle under section 30B. The 
portion of the credit attributable to vehicles of a character 
subject to an allowance for depreciation is treated as part of 
the general business credit; the nonbusiness portion of the 
credit is allowable to the extent of the excess of the regular 
tax and the alternative minimum tax (reduced by certain other 
credits) for the taxable year.

Treatment of alternative motor vehicle credit as a personal credit

    The provision modifies the section 30B alternative motor 
vehicle credit by treating the nonbusiness portion of that 
credit as a personal credit As a result, in the event Congress 
in the future extends the provision allowing personal credits 
to offset the alternative minimum tax, the alternative motor 
vehicle credit will be allowable against the alternative 
minimum tax.

                             EFFECTIVE DATE

    The plug-in hybrid credit provision is effective for 
taxable years beginning after December 31, 2007. The provision 
treating the nonbusiness portion of the alternative motor 
vehicle credit as a personal credit is effective for taxable 
years beginning after December 31, 2006.

2. Extension and modification of credit for installation of alternative 
        fuel vehicle refueling property (sec. 202 of the bill and sec. 
        30C of the Code)

                              PRESENT LAW

    Taxpayers may claim a 30-percent credit for the cost of 
installing qualified clean-fuel vehicle refueling property to 
be used in a trade or business of the taxpayer or installed at 
the principal residence of the taxpayer.\19\ The credit may not 
exceed $30,000 per taxable year, per location, in the case of 
qualified refueling property used in a trade or business and 
$1,000 per taxable year per location in the case of qualified 
refueling property installed on property which is used as a 
principal residence.
---------------------------------------------------------------------------
    \19\ Sec. 30C.
---------------------------------------------------------------------------
    Qualified refueling property is property (not including a 
building or its structural components) for the storage or 
dispensing of a clean-burning fuel into the fuel tank of a 
motor vehicle propelled by such fuel, but only if the storage 
or dispensing of the fuel is at the point where such fuel is 
delivered into the fuel tank of the motor vehicle. The use of 
such property must begin with the taxpayer.
    Clean-burning fuels are any fuel at least 85 percent of the 
volume of which consists of ethanol, natural gas, compressed 
natural gas, liquefied natural gas, liquefied petroleum gas, or 
hydrogen. In addition, any mixture of biodiesel and diesel 
fuel, determined without regard to any use of kerosene and 
containing at least 20 percent biodiesel, qualifies as a clean 
fuel.
    Credits for qualified refueling property used in a trade or 
business are part of the general business credit and may be 
carried back for one year and forward for 20 years. Credits for 
residential qualified refueling property cannot exceed for any 
taxable year the difference between the taxpayer's regular tax 
(reduced by certain other credits) and the taxpayer's tentative 
minimum tax. Generally, in the case of qualified refueling 
property sold to a taxexempt entity, the taxpayer selling the 
property may claim the credit.
    A taxpayer's basis in qualified refueling property is 
reduced by the amount of the credit. In addition, no credit is 
available for property used outside the United States or for 
which an election to expense has been made under section 179.
    The credit is available for property placed in service 
after December 3l, 2005, and (except in the case of hydrogen 
refueling property) before January 1, 2010. In the case of 
hydrogen refueling property, the property must be placed in 
service before January 1, 2015.

                           REASONS FOR CHANGE

    The Committee believes that widespread adoption of advanced 
technology and alternative fuel vehicles is necessary to 
transform automotive transportation in the United States to be 
cleaner, more fuel efficient, and less reliant on petroleum 
fuels. The Committee further believes that one important method 
to encourage this trend is to provide additional tax incentives 
for the development and installation of the infrastructure 
necessary to deliver clean fuels to drivers of clean-fuel 
vehicles.

                        EXPLANATION OF PROVISION

    The provision extends and modifies the credit for 
installing alternative fuel refueling property. The provision 
extends for one year (through 2010) the credit for installing 
non-hydrogen alternative fuel refueling property. The provision 
also increases the credit amount to 50 percent of the cost of 
the qualified property and raises to $50,000 per taxable year, 
per location, the limit with respect to depreciable qualified 
property.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after the date of enactment, in taxable years ending after such 
date.

3. Extension of credits for biodiesel and extension and modification of 
        renewable diesel credit (sec. 203 of the bill and secs. 40A, 
        6426, and 6427 of the Code)

                              PRESENT LAW

Income tax credit

            Overview
    The Code provides an income tax credit for biodiesel fuels 
(the ``biodiesel fuels credit'') \20\ The biodiesel fuels 
credit is the sum of the biodiesel mixture credit, the 
biodiesel credit and the small agri-biodiesel producer credit. 
The biodiesel fuels credit is treated as a general business 
credit. The amount of the biodiesel fuels credit is includable 
in gross income. The biodiesel fuels credit is coordinated to 
take into account benefits from the biodiesel excise tax credit 
and payment provisions discussed below. The credit does not 
apply to fuel sold or used after December 31, 2008.
---------------------------------------------------------------------------
    \20\ Sec. 40A.
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    Biodiesel is monoalkyl esters of long chain fatty acids 
derived from plant or animal matter that meet (1) the 
registration requirements established by the Environmental 
Protection Agency under section 211 of the Clean Air Act and 
(2) the requirements of the American Society of Testing and 
Materials (``ASTM'') D6751. Agri-biodiesel is biodiesel derived 
solely from virgin oils including oils from corn, soybeans, 
sunflower seeds, cottonseeds, canola, crambe, rapeseeds, 
safflowers, flaxseeds, rice bran, mustard seeds, or animal 
fats.
    Biodiesel may be taken into account for purposes of the 
credit only if the taxpayer obtains a certification (in such 
form and manner as prescribed by the Secretary) from the 
producer or importer of the biodiesel which identifies the 
product produced and the percentage of the biodiesel and agri-
biodiesel in the product.
            Biodiesel mixture credit
    The biodiesel mixture credit is 50 cents for each gallon of 
biodiesel (other than agribiodiesel) used by the taxpayer in 
the production of a qualified biodiesel mixture. For 
agribiodiesel, the credit is $1.00 per gallon. A qualified 
biodiesel mixture is a mixture of biodiesel and diesel fuel 
that is (1) sold by the taxpayer producing such mixture to any 
person for use as a fuel, or (2) is used as a fuel by the 
taxpayer producing such mixture. The sale or use must be in the 
trade or business of the taxpayer and is to be taken into 
account for the taxable year in which such sale or use occurs. 
No credit is allowed with respect to any casual off-farm 
production of a qualified biodiesel mixture.
            Biodiesel credit
    The biodiesel credit is 50 cents for each gallon of 
biodiesel which is not in a mixture with diesel fuel (100 
percent biodiesel or B-100) and which during the taxable year 
is (1) used by the taxpayer as a fuel in a trade or business or 
(2) sold by the taxpayer at retail to a person and placed in 
the fuel tank of such person's vehicle. For agri-biodiesel, the 
credit is $1.00 per gallon.
            Small agri-biodiesel producer credit
    The Code provides a small agri-biodiesel producer income 
tax credit, in addition to the biodiesel and biodiesel fuel 
mixture credits. The credit is a 10-cents-per-gallon credit for 
up to 15 million gallons of agri-biodiesel produced by small 
producers, defined generally as persons whose agri-biodiesel 
production capacity does not exceed 60 million gallons per 
year. The agribiodiesel must (1) be sold by such producer to 
another person (a) for use by such other person in the 
production of a qualified biodiesel mixture in such person's 
trade or business (other than casual off-farm production), (b) 
for use by such other person as a fuel in a trade or business, 
or, (c) who sells such agri-biodiesel at retail to another 
person and places such ethanol in the fuel tank of such other 
person; or (2) used by the producer for any purpose described 
in (a), (b), or (c).

Biodiesel mixture excise tax credit

    The Code also provides an excise tax credit for biodiesel 
mixtures \21\ The credit is 50 cents for each gallon of 
biodiesel used by the taxpayer in producing a biodiesel mixture 
for sale or use in a trade or business of the taxpayer. In the 
case of agri-biodiesel, the credit is $1.00 per gallon. A 
biodiesel mixture is a mixture of biodiesel and diesel fuel 
that (1) is sold by the taxpayer producing such mixture to any 
person for use as a fuel, or (2) is used as a fuel by the 
taxpayer producing such mixture. No credit is allowed unless 
the taxpayer obtains a certification (in such form and manner 
as prescribed by the Secretary) from the producer of the 
biodiesel that identifies the product produced and the 
percentage of biodiesel and agri-biodiesel in the product.\22\
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    \21\ Sec. 6426(c).
    \22\ Sec. 6426(c)(4).
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    The credit is not available for any sale or use for any 
period after December 31, 2008. This excise tax credit is 
coordinated with the income tax credit for biodiesel such that 
credit for the same biodiesel cannot be claimed for both income 
and excise tax purposes.

Payments with respect to biodiesel fuel mixtures

    If any person produces a biodiesel fuel mixture in such 
person's trade or business, the Secretary is to pay such person 
an amount equal to the biodiesel mixture credit \23\ To the 
extent the biodiesel fuel mixture credit exceeds the section 
4081 liability of a person, the Secretary is to pay such person 
an amount equal to the biodiesel fuel mixture credit with 
respect to such mixture.\24\ Thus, if the person has no section 
4081 liability, the credit is refundable. The Secretary is not 
required to make payments with respect to biodiesel fuel 
mixtures sold or used after December 31, 2008.
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    \23\ Sec. 6427(e).
    \24\ Sec. 6427(e)(1) and (e)(3).
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Renewable diesel

    ``Renewable diesel'' is diesel fuel that (1) is derived 
from biomass (as defined in section 45K(c)(3)) using a thermal 
depolymerization process; (2) meets the registration 
requirements for fuels and fuel additives established by the 
Environmental Protection Agency (``EPA'') under section 211 of 
the Clean Air Act (42 U.S.C. sec. 7545); and (3) meets the 
requirements of the ASTM D975 or D396. ASTM D975 provides 
standards for diesel fuel suitable for use in diesel engines. 
ASTM D396 provides standards for fuel oil intended for use in 
fuel-oil burning equipment, such as furnaces.
    For purposes of the Code, renewable diesel is generally 
treated the same as biodiesel. Like biodiesel, the incentive 
may be taken as an income tax credit, an excise tax credit, or 
as a payment from the Secretary.\25\ The incentive for 
renewable diesel is $1.00 per gallon and there is no small 
producer credit for renewable diesel. The incentives for 
renewable diesel expire after December 31, 2008.
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    \25\ Secs. 40A(f), 6426(c), and 6427(e).
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                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
biodiesel and renewable diesel incentives for an additional two 
years to further encourage the development and use of these 
fuels. With respect to renewable diesel, the Committee believes 
that the incentive should be technology neutral, and therefore, 
the Committee deletes the requirement that the fuel be made 
through a thermal depolymerization process. In an environment 
of limited resources, the Committee believes energy policy is 
best served by limiting the one-dollar-per-gallon incentive to 
fuel suitable for use in diesel-powered highway vehicles. The 
Committee believes that fuel that is not suitable for use in 
diesel-powered highway vehicles but is derived from biomass 
should be eligible for a reduced 50 cents per gallon incentive 
for alternative fuels. Thus, the Committee limits the renewable 
diesel incentive to fuels meeting the standard for motor fuels, 
ASTM D975. While the Committee is unaware of an appropriate 
standard in addition to ASTM D975 for renewable diesel, the 
Committee recognizes that as technology evolves other 
appropriate standards may arise for fuel suitable for use in 
diesel-powered highway vehicles and therefore, the provision 
permits the Secretary to identify other equivalent or improved 
standards for such motor fuel.

                        EXPLANATION OF PROVISION

    The provision extends an additional two years (through 
December 31, 2010) the income tax credit, excise tax credit, 
and payment provisions for biodiesel (including agri-biodiesel) 
and renewable diesel.
    The provision modifies the definition of renewable diesel 
to eliminate the requirement that the fuel be made using a 
thermal depolymerization process. The provision also requires 
that all renewable diesel meet the ASTM D975 standard by 
eliminating the ASTM D396 standard from the definition of 
renewable diesel. The provision permits the Secretary to 
identify standards equivalent to ASTM D975 for renewable diesel 
suitable for use in diesel-powered highway vehicles.

                             EFFECTIVE DATE

    The provision is generally effective for fuel produced, and 
sold or used, after the date of enactment. The modifications to 
the definition of renewable diesel are effective for fuel 
produced, and sold or used, after the date that is 30 days 
after the date of enactment.

4. Credit for production of cellulosic alcohol (sec. 204 of the bill 
        and sec. 40 of the Code)

                              PRESENT LAW

    The alcohol fuels credit is the sum of three credits: the 
alcohol mixture credit, the alcohol credit, and the small 
ethanol producer credit. Generally, the alcohol fuels credit 
expires after December 31, 2010.\26\
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    \26\ The alcohol fuels credit is unavailable when, for any period 
before January 1, 2011, the tax rates for gasoline and diesel fuels 
drop to 4.3 cents per gallon.
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    Taxpayers are eligible for an income tax credit of 51 cents 
per gallon of ethanol (60 cents in the case of alcohol other 
than ethanol) used in the production of a qualified mixture 
(the ``alcohol mixture credit''). A ``qualified mixture'' means 
a mixture of alcohol and gasoline, (or of alcohol and a special 
fuel) sold by the taxpayer as fuel, or used as fuel by the 
taxpayer producing such mixture. The term ``alcohol'' includes 
methanol and ethanol but does not include (1) alcohol produced 
from petroleum, natural gas, or coal (including peat), or (2) 
alcohol with a proof of less than 150.
    Taxpayers may reduce their income taxes by 51 cents for 
each gallon of ethanol, which is not in a mixture with gasoline 
or other special fuel, that they sell at the retail level as 
vehicle fuel or use themselves as a fuel in their trade or 
business (``the alcohol credit''). For alcohol other than 
ethanol, the rate is 60 cents per gallon.\27\
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    \27\ In the case of any alcohol (other than ethanol) with a proof 
that is at least 150 but less than 190, the credit is 45 cents per 
gallon (the ``low-proof blender amount''). For ethanol with a proof 
that is at least 150 but less than 190, the low-proof blender amount is 
37.78 cents.
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    In the case of ethanol, the Code provides an additional 10-
cents-per-gallon credit for up to 15 million gallons per year 
for small producers. Small producer is defined generally as 
persons whose production capacity does not exceed 60 million 
gallons per year. The ethanol must (1) be sold by such producer 
to another person (a) for use by such other person in the 
production of a qualified alcohol fuel mixture in such person's 
trade or business (other than casual off farm production), (b) 
for use by such other person as a fuel in a trade or business, 
or, (c) who sells such ethanol at retail to another person and 
places such ethanol in the fuel tank of such other person; or 
(2) used by the producer for any purpose described in (1)(a), 
(b), or (c). A cooperative may pass through the small ethanol 
producer credit to its patrons.
    The alcohol fuels credit is includable in income and is 
treated as a general business credit, subject to the ordering 
rules and carryforward/carryback rules that apply to business 
credits generally. The credit is allowable against the 
alternative minimum tax.
    For purposes of depreciation, section 168(1) allows an 
additional first-year deduction equal to 50 percent of the 
adjusted basis of qualified cellulosic biomass ethanol plant 
property. Qualified cellulosic biomass ethanol plant property 
means property used in the U.S. solely to produce cellulosic 
biomass ethanol. For this purpose, cellulosic biomass ethanol 
means ethanol derived from any lignocellulosic or 
hemicellulosic matter that is available on a renewable or 
recurring basis. In order to qualify, the property generally 
must be placed in service before January 1, 2013.

                           REASONS FOR CHANGE

    The Committee believes that the development of fuels from 
cellulosic materials, such as corn stover, switchgrass, and 
other organic materials that can be grown anywhere, is a 
significant component in establishing the nation's energy 
independence using materials beyond starch-based, food source 
materials. Tax incentives are an important part of taking this 
industry from the level of demonstration projects into a 
practical and competitive fuel source. To encourage new 
production capacity for this fuel, using materials beyond 
starch-based, food sources materials, the provision provides a 
new per-gallon incentive for cellulosic alcohol fuel producers.

                        EXPLANATION OF PROVISION

    The provision adds a fourth component to the alcohol fuels 
credit. The provision provides an income tax credit of 50 cents 
per gallon for certain qualified cellulosic fuel production of 
the producer for the taxable year. Qualified cellulosic fuel 
production is any cellulosic alcohol that is produced by a 
cellulosic alcohol fuel producer during the taxable year and is 
(1) sold by such producer to another person (a) for use by such 
other person in the production of a qualified alcohol fuel 
mixture in such person's trade or business (other than casual 
off-farm production), (b) for use by such other person as a 
fuel in a trade or business, or, (c) who sells such alcohol at 
retail to another person and places such alcohol in the fuel 
tank of such other person; or (2) is used by the producer for 
any purpose described in (1)(a), (b), or (c).
    Cellulosic alcohol is alcohol that (1) is produced in the 
United States for consumption in the United States and (2) is 
derived from any lignocellulosic or hemicellulosic matter that 
is available on a renewable or recurring basis. Examples of 
such lignocellulosic or hemicellulosic matter include dedicated 
energy crops and trees, wood and wood residues, plants, 
grasses, agricultural residues, fibers, animal wastes and other 
waste materials, and municipal solid waste.
    ``Cellulosic alcohol fuel producer'' means any person who 
produces cellulosic alcohol in a trade or business and is 
registered with the Secretary as a cellulosic alcohol fuel 
producer.

                             EFFECTIVE DATE

    The provision is effective for alcohol produced after 
December 31, 2007.

5. Extension of transportation fringe benefit to bicycle commuters 
        (sec. 205 of the bill and sec. 132 of the Code)

                              PRESENT LAW

    Qualified transportation fringe benefits provided by an 
employer are excluded from an employee's gross income.\28\ 
Qualified transportation fringe benefits include parking, 
transit passes, and vanpool benefits. In addition, no amount is 
includable in income of an employee merely because the employer 
offers the employee a choice between cash and qualified 
transportation fringe benefits. Up to $215 (for 2007) per month 
of employer-provided parking is excludable from income. Up to 
$110 (for 2007) per month of employer-provided transit and 
vanpool benefits are excludable from gross income. These 
amounts are indexed annually for inflation, rounded to the 
nearest multiple of $5.
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    \28\  Code sec. 132(f).
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    Under present law, qualified transportation fringe benefits 
include a cash reimbursement by an employer to an employee. 
However, in the case of transit passes, a cash reimbursement is 
considered a qualified transportation fringe benefit only if a 
voucher or similar item which may be exchanged only for a 
transit pass is not readily available for direct distribution 
by the employer to the employee.

                           REASONS FOR CHANCE

    As part of a package of alternatives to reduce the nation's 
reliance on fossil fuels and to encourage conservation of 
energy resources, the Committee believes that the exclusion 
from gross income for qualified transportation fringe benefits 
should be extended to cover expenses incurred by an employee in 
commuting to work by bicycle. Bicycle commuting achieves both 
goals of reducing fossil fuel reliance and encouraging 
conservation. Such commuting involves recurring expenses and 
the Committee believes that incentives should be provided to 
encourage this nonmotorized form of commuting.

                        EXPLANATION OF PROVISION

    The proposal adds a qualified bicycle commuting 
reimbursement fringe benefit as a qualified transportation 
fringe benefit. A qualified bicycle commuting reimbursement 
fringe benefit means, with respect to a calendar year, any 
employer reimbursement during the 15-month period beginning 
with the first day of such calendar year of an employee for 
reasonable expenses incurred by the employee during the 
calendar year for the purchase and repair of a bicycle, bicycle 
improvements, and bicycle storage, provided that the bicycle is 
regularly used for travel between the employee's residence and 
place of employment.
    The maximum amount that can be excluded from an employee's 
gross income for a calendar year on account of a bicycle 
commuting reimbursement fringe benefit is the applicable annual 
limitation for the employee for that calendar year. The 
applicable annual limitation for an employee for a calendar 
year is equal to the product of $20 multiplied by the number of 
theemployee's qualified bicycle commuting months for the year. 
The $20 amount is not indexed for inflation. A qualified bicycle 
commuting month means with respect to an employee any month for which 
the employee does not receive any other qualified transportation fringe 
benefit and during which the employee regularly uses a bicycle for a 
substantial portion of travel between the employee's residence and 
place of employment. Thus, no amount is credited towards an employee's 
applicable annual limitation for any month in which an employee's usage 
of a bicycle is infrequent or constitutes an insubstantial portion of 
the employee's commute.
    A bicycle commuting reimbursement fringe benefit cannot be 
funded by an elective salary contribution on the part of an 
employee.

                             EFFECTIVE DATE

    The proposal is effective for taxable years beginning after 
December 31, 2007.

6. Modification of the limitation on depreciation under section 280F 
        (sec. 206 of the bill and sec. 280F of the Code)

                              PRESENT LAW

Limitation on depreciation

    A taxpayer is allowed to recover, through annual 
depreciation deductions, the cost of certain property used in a 
trade or business or for the production of income. The amount 
of the depreciation deduction allowed with respect to tangible 
property for a taxable year is determined under the modified 
accelerated cost recovery system (``MACRS''). Under MACRS, 
passenger automobiles generally are recovered over a recovery 
period of five years. However, section 280F imposes a 
limitation on the amount of the annual depreciation deduction 
for passenger automobiles, including certain trucks and vans.
    For passenger automobiles subject to the limitation and 
placed in service in 2007, the maximum amount of allowable 
depreciation is $3,060 for the year in which the vehicle is 
placed in service, $4,900 for the second year, $2,850 for the 
third year, and $1,775 for the fourth and later years. For 
trucks and vans subject to the limitation and placed in service 
in 2007, the maximum amount of allowable depreciation is $3,260 
for the year in which the vehicle was placed in service, $5,200 
for the second year, $3,050 for the third year, and $1,875 for 
the fourth and later years. The limitation applies to the 
combined amount of the depreciation deduction and the section 
179 expensing otherwise permitted under present law for the 
vehicle.
    For purposes of the limitation, passenger automobiles are 
defined broadly to include any 4-wheeled vehicles that are 
manufactured primarily for use on public streets, roads, and 
highways and which are rated at 6,000 pounds unloaded gross 
vehicle weight or less.\29\ In the case of a truck or a van, 
the depreciation limitation applies to vehicles that are rated 
6,000 pounds gross vehicle weight or less. Sport utility 
vehicles under this weight amount are generally treated as a 
truck for the purpose of applying the limitation.\30\
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    \29\ Sec. 280F(d)(5)(A). Exceptions are provided for any ambulance, 
hearse, or any vehicle used by the taxpayer directly in the trade or 
business of transporting persons or property for compensation or hire.
    \30\ Rev. Proc. 2007-30, 2007-18 I.R.B. 1104.
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Limitation on expensing

    In lieu of depreciation, a taxpayer with a sufficiently 
small amount of annual investment may elect to deduct (or 
``expense'') such costs under section 179. The Small Business 
and Work Opportunity Tax Act of 2007 \31\ increased the amount 
a taxpayer may deduct, for taxable years beginning in 2007 
through 2010, to $125,000 of the cost of qualifying property 
placed in service for the taxable year.\32\ In general, 
qualifying property is defined as depreciable tangible personal 
property that is purchased for use in the active conduct of a 
trade or business. Off-the-shelf computer software placed in 
service in taxable years beginning before 2010 is treated as 
qualifying property. The $125,000 amount is reduced (but not 
below zero) by the amount by which the cost of qualifying 
property placed in service during the taxable year exceeds 
$500,000. The $125,000 and $500,000 amounts are indexed for 
inflation in taxable years beginning after 2007 and before 
2011.\33\
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    \31\ Pub. L. No. 110-28, sec. 8212 (2007).
    \32\ Additional section 179 incentives are provided with respect to 
qualified property meeting applicable requirements that is used by a 
business in an empowerment zone (sec. 1397A), a renewal community (sec. 
1400J), or the Gulf Opportunity Zone (sec. 1400N(e)).
    \33\ For taxable years beginning in 2011 and thereafter (or before 
2003), the following rules apply. A taxpayer with a sufficiently small 
amount of annual investment may elect to deduct up to $25,000 of the 
cost of qualifying property placed in service for the taxable year. The 
$25,000 amount is reduced (but not below zero) by the amount by which 
the cost of qualifying property placed in service during the taxable 
year exceeds $200,000. The $25,000 and $200,000 amounts are not indexed 
for inflation.
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    Passenger automobiles subject to the section 280F 
limitation are eligible for section 179 expensing only to the 
extent of the dollar limitations in section 280F. The 
limitation applies to the combined amount of the depreciation 
deduction and the section 179 expensing for the taxable year 
otherwise permitted under present law for the vehicle.
    For sport utility vehicles above the 6,000 pound weight 
rating, which are not subject to the limitation under section 
280F, the maximum cost that may be expensed for any taxable 
year under section 179 is $25,000.\34\ For purposes of this 
provision, a sport utility vehicle is defined as any 4-wheeled 
vehicle which: (1) is primarily designed or which can be used 
to carry passengers over public streets, roads, or highways; 
(2) is not subject to the section 280F limitations; and (3) is 
rated at not more than 14,000 pounds gross vehicle weight. 
Certain vehicles are excluded from this limitation, including 
any vehicle which: (1) is designed to have a seating capacity 
of more than nine persons behind the driver's seat; (2) is 
equipped with a cargo area of at least six feet in interior 
length which is an open area or is designed for use as an open 
area but is enclosed by a cap and is not readily accessible 
directly from the passenger compartment; or (3) has an integral 
enclosure, fully enclosing the driver compartment and load 
carrying device, does not have seating rearward of the driver's 
seat, and has no body section protruding more than 30 inches 
ahead of the leading edge of the windshield.
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    \34\ Sec. 179(b)(6).
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                           REASONS FOR CHANGE

    The Committee believes that section 280F may discourage 
taxpayers from purchasing lighter vehicles in favor of heavier 
vehicles. Because heavier vehicles tend to be less fuel 
efficient, the Committee feels that energy policy would be best 
served by removing the incentive for heavier vehicles. The 
Committee also believes that businesses and taxpayers that need 
to acquire heavier vehicles should not be disadvantaged by 
subjecting certain heavier vehicles to the same set of rules 
that apply to lighter vehicles. Therefore, the Committee 
believes that exceptions should be provided for certain light 
and heavy vehicles that, based on their design or use, will be 
used for certain business purposes.

                        EXPLANATION OF PROVISION

    The provision modifies the definition of passenger 
automobiles subject to the section 280F limitation on 
depreciation and expensing. The provision defines passenger 
automobiles to include any 4-wheeled vehicles that are designed 
primarily to carry passengers over public streets, roads, or 
highways and which are rated at 14,000 pounds gross vehicle 
weight or less. Thus, under the provision, sport utility 
vehicles with a gross vehicle weight over 6,000 through 14,000 
pounds (as well as those rated at 6,000 pounds or less gross 
vehicle weight) generally are subject to the section 280F 
limitation on depreciation and expensing.
    The provision contains two categories of excepted vehicles: 
exempt-design vehicles and exempt-use vehicles. Some of the 
exceptions included within these two categories are included in 
present law, but some of the exceptions are new under the 
provision. An exempt-design vehicle is any vehicle: (1) which, 
by reason of its nature or design, is not likely to be used 
more than a de minimis amount for personal purposes; \35\ (2) 
which is designed to have a seating capacity of more than nine 
persons behind the driver's seat; (3) which is equipped with a 
cargo area of at least five feet in interior length, which is 
an open area or is designed for use as an open area but is 
enclosed by a cap and is not readily accessible directly from 
the passenger compartment; or (4) has an integral enclosure, 
fully enclosing the driver compartment and load carrying 
device, does not have seating rearward of the driver's seat, 
and has no body section protruding more than 30 inches ahead of 
the leading edge of the windshield. An exempt-use vehicle is: 
(1) any ambulance, hearse, or combination ambulance-hearse used 
by the taxpayer directly in a trade or business; (2) any 
vehicle used by the taxpayer directly in the trade or business 
of transporting persons or property for compensation or hire; 
or (3) any truck or van if substantially all of the use of such 
vehicle by the taxpayer is directly in (a) a farming business, 
(b) the transportation of a substantial amount of equipment, 
supplies, or inventory, or (c) the moving or delivery of 
property which requires substantial cargo capacity. Thus, for 
example, a taxpayer in the business of plumbing who purchases a 
truck for purposes of transporting pipes, plumbing fixtures, 
and plumbing tools to a job site would not be subject to the 
limitations of section 280F as modified by the provision. 
Similarly, a taxpayer who purchasers a van and equips the van 
to carry ice cream as part of a business of making curbside 
sales of ice cream from the van to customers would not be 
subject to the limitations of section 280F as modified by the 
provision. On the other hand, if a taxpayer in the trade or 
business of real estate brokerage or sale purchases a vehicle, 
in part to transport sales brochures and ``for sale'' signs, 
the purchase of a vehicle generally would be subject to the 
limitations under section 280E as modified by the provision as 
such sales brochures and signs do not represent a substantial 
amount of equipment or supplies to the business of brokerage.
---------------------------------------------------------------------------
    \35\ Examples of such vehicles include qualified nonpersonal use 
vehicles as defined in Treas. Reg. sec. 1.274-5T(k).
---------------------------------------------------------------------------
    The provision imposes a recapture requirement in the case 
of any vehicle that is not a passenger automobile by reason of 
being an exempt-use vehicle to the extent the vehicle ceases to 
be an exempt-use vehicle in any taxable year after the taxable 
year in which the vehicle is placed in service. The provision 
also repeals the separate rule in present-law section 179(b)(6) 
relating to expensing of sport utility vehicles.

                             EFFECTIVE DATE

    The provision is effective for property placed in service 
after December 31, 2007.

7. Restructure New York Liberty Zone tax incentives (sec. 207 of the 
        bill and secs. 1400K and 1400L of the Code)

                              PRESENT LAW

In general

    Present law includes a number of incentives to invest in 
property located in the New York Liberty Zone (``NYLZ''), which 
is the area located on or south of Canal Street, East Broadway 
(east of its intersection with Canal Street), or Grand Street 
(east of its intersection with East Broadway) in the Borough of 
Manhattan in the City of New York, New York. These incentives 
were enacted following the terrorist attack in New York City on 
September 11, 2001.\36\
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    \36\ In addition to the NYLZ provisions described above, other NYLZ 
incentives are provided: (1) $8 billion of tax-exempt private activity 
bond financing for certain nonresidential real property, residential 
rental property and public utility property is authorized to be issued 
after March 9, 2002, and before January 1, 2010; and (2) $9 billion of 
additional tax-exempt advance refunding bonds is available after March 
9, 2002, and before January 1, 2006, with respect to certain State or 
local bonds outstanding on September 11, 2001.
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Special depreciation allowance for qualified New York Liberty Zone 
        property

    Section 1400L(b) allows an additional first-year 
depreciation deduction equal to 30 percent of the adjusted 
basis of qualified NYLZ property.\37\ In order to qualify, 
property generally must be placed in service on or before 
December 31, 2006 (December 31, 2009 in the case of 
nonresidential real property and residential rental property).
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    \37\ The amount of the additional first-year depreciation deduction 
is not affected by a short taxable year.
---------------------------------------------------------------------------
    The additional first-year depreciation deduction is allowed 
for both regular tax and alternative minimum tax purposes for 
the taxable year in which the property is placed in service. A 
taxpayer is allowed to elect out of the additional first-year 
depreciation for any class of property for any taxable year.
    In order for property to qualify for the additional first-
year depreciation deduction, it must meet all of the following 
requirements. First, the property must be property to which the 
general rules of the Modified Accelerated Cost Recovery System 
(``MACRS'') \38\ apply with (1) an applicable recovery period 
of 20 years or less, (2) water utility property (as defined in 
section 168(e)(5)), (3) certain nonresidential real property 
and residential rental property, or (4) computer software other 
than computer software covered by section 197. A special rule 
precludes the additional first-year depreciation under this 
provision for (1) qualified NYLZ leasehold improvement property 
\39\ and (2) property eligible for the additional first-year 
depreciation deduction under section 168(k) (i.e., property is 
eligible for only one 30 percent additional first-year 
depreciation). Second, substantially all of the use of such 
property must be in the NYLZ. Third, the original use of the 
property in the NYLZ must commence with the taxpayer on or 
after September 11, 2001. Finally, the property must be 
acquired by purchase \40\ by the taxpayer after September 10, 
2001 and placed in service on or before December 31, 2006. For 
qualifying nonresidential real property and residential rental 
property the property must be placed in service on or before 
December 31, 2009 in lieu of December 31, 2006. Property will 
not qualify if a binding written contract for the acquisition 
of such property was in effect before September 11, 2001.\41\
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    \38\ A special rule precludes the additional first-year 
depreciation deduction for property that is required to be depreciated 
under the alternative depreciation system of MACRS.
    \39\ Qualified NYLZ leasehold improvement property is defined in 
another provision. Leasehold improvements that do not satisfy the 
requirements to be treated as ``qualified NYLZ leasehold improvement 
property'' may be eligible for the 30 percent additional first-year 
depreciation deduction (assuming all other conditions are met).
    \40\ For purposes of this provision, purchase is defined as under 
section 179(d).
    \41\ Property is not precluded from qualifying for the additional 
first-year depreciation merely because a binding written contract to 
acquire a component of the property is in effect prior to September 11, 
2001.
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    Nonresidential real property and residential rental 
property are eligible for the additional first-year 
depreciation only to the extent such property rehabilitates 
real property damaged, or replaces real property destroyed or 
condemned as a result of the terrorist attacks of September 11, 
2001.
    Property that is manufactured, constructed, or produced by 
the taxpayer for use by the taxpayer qualifies for the 
additional first-year depreciation deduction if the taxpayer 
begins the manufacture, construction, or production of the 
property after September 10, 2001, and the property is placed 
in service on or before December 31, 2006 \42\ (and all other 
requirements are met). Property that is manufactured, 
constructed, or produced for the taxpayer by another person 
under a contract that is entered into prior to the manufacture, 
construction, or production of the property is considered to be 
manufactured, constructed, or produced by the taxpayer.
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    \42\ December 31, 2009 with respect to qualified nonresidential 
real property and residential rental property.
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Depreciation of New York Liberty Zone leasehold improvements

    Generally, depreciation allowances for improvements made on 
leased property are determined under MACRS, even if the MACRS 
recovery period assigned to the property is longer than the 
term of the lease \43\ This rule applies regardless of whether 
the lessor or the lessee places the leasehold improvements in 
service \44\ If a leasehold improvement constitutes an addition 
or improvement to nonresidential real property already placed 
in service, the improvement generally is depreciated using the 
straight-line method over a 39-year recovery period, beginning 
in the month the addition or improvement is placed in 
service.\45\
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    \43\ Sec. 168(i)(8). The Tax Reform Act of 1986 modified the 
Accelerated Cost Recovery System (``ACRS'') to institute MACRS. Prior 
to the adoption of ACRS by the Economic Recovery Tax Act of 1981, 
taxpayers were allowed to depreciate the various components of a 
building as separate assets with separate useful lives. The use of 
component depreciation was repealed upon the adoption of ACRS. The Tax 
Reform Act of 1986 also denied the use of component depreciation under 
MACRS.
    \44\ Former sections 168(f)(6) and 178 provided that, in certain 
circumstances, a lessee could recover the cost of leasehold 
improvements made over the remaining term of the lease. The Tax Reform 
Act of 1986 repealed these provisions.
    \45\ Secs. 168(b)(3), (c), (d)(2), and (i)(6). If the improvement 
is characterized as tangible personal property, ACRS or MACRS 
depreciation is calculated using the shorter recovery periods, 
accelerated methods, and conventions applicable to such property. The 
determination of whether improvements are characterized as tangible 
personal property or as nonresidential real property often depends on 
whether or not the improvements constitute a ``structural component'' 
of a building (as defined by Treas. Reg. sec. 1.48-1(e)(1)). See, e.g., 
Metro National Corp v. Commissioner, 52 TCM (CCH) 1440 (1987); King 
Radio Corp. Inc. v. U.S., 486 F.2d 1091 (10th Cir. 1973); Mallinckrodt, 
Inc. v. Commissioner, 778 F.2d 402 (8th Cir. 1985) (with respect to 
various leasehold improvements).
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    A special rule exists for qualified NYLZ leasehold 
improvement property, which is recovered over five years using 
the straight-line method. The term qualified NYLZ leasehold 
improvement property means property defined in section 
168(e)(6) that is acquired and placed in service after 
September 10, 2001, and before January 1, 2007 (and not subject 
to a binding contract on September 10, 2001), in the NYLZ. For 
purposes of the alternative,depreciation system, the property 
is assigned a nine-year recovery period. A taxpayer may elect 
out of the 5-year (and 9-year) recovery period for qualified 
NYLZ leasehold improvement property.

Increased section 179 expensing for qualified New York Liberty Zone 
        property

    In lieu of depreciation, a taxpayer with a sufficiently 
small amount of annual investment may elect to deduct (or 
``expense'') such costs under section 179. The Small Business 
and Work Opportunity Tax Act of 2007 \46\ increased the amount 
a taxpayer may deduct, for taxable years beginning in 2007 
through 2010, to $125,000 of the cost of qualifying property 
placed in service for the taxable year.\47\ In general, 
qualifying property is defined as depreciable tangible personal 
property that is purchased for use in the active conduct of a 
trade or business. Off-the-shelf computer software placed in 
service in taxable years beginning before 2010 is treated as 
qualifying property. The $125,000 amount is reduced (but not 
below zero) by the amount by which the cost of qualifying 
property placed in service during the taxable year exceeds 
$500,000. The $125,000 and $500,000 amounts are indexed for 
inflation in taxable years beginning after 2007 and before 
2011.\48\ In general, qualifying property for this purpose is 
defined as depreciable tangible personal property that is 
purchased for use in the active conduct of a trade or business.
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    \46\ Pub. L. No. 110-28, sec. 8212 (2007).
    \47\ Additional section 179 incentives are provided with respect to 
qualified property meeting applicable requirements that is used by a 
business in an empowerment zone (sec. 1397A), a renewal community (sec. 
1400J), or the Gulf Opportunity Zone (sec. 1400N(e)).
    \48\ For taxable years beginning in 2011 and thereafter (or before 
2003), the following rules apply. A taxpayer with a sufficiently small 
amount of annual investment may elect to deduct up to $25,000 of the 
cost of qualifying property placed in service for the taxable year. The 
$25,000 amount is reduced (but not below zero) by the amount by which 
the cost of qualifying property placed in service during the taxable 
year exceeds $200,000. The $25,000 and $200,000 amounts are not indexed 
for inflation.
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    The amount eligible to be expensed for a taxable year may 
not exceed the taxable income for a taxable year that is 
derived from the active conduct of a trade or business 
(determined without regard to this provision). Any amount that 
is not allowed as a deduction because of the taxable income 
limitation may be carried forward to succeeding taxable years 
(subject to similar limitations). No general business credit 
under section 38 is allowed with respect to any amount for 
which a deduction is allowed under section 179.
    The amount a taxpayer can deduct under section 179 is 
increased for qualifying property used in the NYLZ. 
Specifically, the maximum dollar amount that may be deducted 
under section 179 is increased by the lesser of (1) $35,000 or 
(2) the cost of qualifying property placed in service during 
the taxable year. This amount is in addition to the amount 
otherwise deductible under section 179.
    Qualifying property for purposes of the NYLZ provision 
means section 179 property \49\ purchased and placed in service 
by the taxpayer after September 10, 2001 and before January 1, 
2007, where (1) substantially all of the use of such property 
is in the NYLZ in the active conduct of a trade or business by 
the taxpayer in the NYLZ, and (2) the original use of which in 
the NYLZ commences with the taxpayer after September 10, 
2001.\50\
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    \49\ As defined in sec. 179(d)(1).
    \50\ See Rev. Proc. 2002-33, 2002-1 C.B. 963 (May 20, 2002), for 
procedures on claiming the increased section 179 expensing deduction by 
taxpayers who filed their tax returns before June 1, 2002.
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    The phase-out range for the section 179 deduction 
attributable to NYLZ property is applied by taking into account 
only 50 percent of the cost of NYLZ property that is section 
179 property. Also, no general business credit under section 38 
is allowed with respect to any amount for which a deduction is 
allowed under section 179.
    The provision is effective for property placed in service 
after September 10, 2001 and before January 1, 2007.

Extended replacement period for New York Liberty Zone involuntary 
        conversions

    A taxpayer may elect not to recognize gain with respect to 
property that is involuntarily converted if the taxpayer 
acquires within an applicable period (the ``replacement 
period'') property similar or related in service or use.\51\ If 
the taxpayer does not replace the converted property with 
property similar or related in service or use, then gain 
generally is recognized. If the taxpayer elects to apply the 
rules of section 1033, gain on the converted property is 
recognized only to the extent that the amount realized on the 
conversion exceeds the cost of the replacement property. In 
general, the replacement period begins with the date of the 
disposition of the converted property and ends two years after 
the close of the first taxable year in which any part of the 
gain upon conversion is realized.\52\ The replacement period is 
extended to three years if the converted property is real 
property held for the productive use in a trade or business or 
for investment.\53\
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    \51\ Sec. 1033(a).
    \52\ Sec. 1033(a)(2)(B).
    \53\ Sec. 1033(g)(4).
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    The replacement period is extended to five years with 
respect to property that was involuntarily converted within the 
NYLZ as a result of the terrorist attacks that occurred on 
September 11, 2001. However, the five-year period is available 
only if substantially all of the use of the replacement 
property is in New York City. In all other cases, the present-
law replacement period rules continue to apply.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to restructure 
certain of the tax benefits that were provided to stimulate the 
redevelopment of the portions of the City of New York that were 
directly affected by the terrorist attacks of September 11, 
2001. Certain of the tax benefits for investment that were 
provided to New York following the attacks of September 11, 
2001, are not usable for public sector investments, and the 
Committee believes they should be restructured so that they may 
be used for public mass transit purposes. The restructuring 
will assist in the development of transit connections necessary 
for the ongoing redevelopment of the New York Liberty Zone 
area. The Committee believes that expanding mass transit and 
encouraging its use reduces fossil fuel consumption and 
promotes energy conservation.

                        EXPLANATION OF PROVISION

Repeal of certain NYLZ incentives

    The provision repeals the first-year depreciation allowance 
of 30 percent and the additional section 179 expensing in the 
case of nonresidential real property and residential rental 
property as of the date of enactment of this provision.\54\
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    \54\ In the case of nonresidential real property and residential 
rental property acquired pursuant to a binding contract in effect on 
such enactment date, the first-year depreciation allowance of 30 
percent and the additional section 179 expensing provisions terminate 
on December 31, 2009.
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Creation of New York Liberty Zone Tax Credits

    The provision provides a credit against tax imposed for any 
payroll period by section 3402 (related to withholding for 
wages paid) for which a New York Liberty Zone governmental unit 
is liable under section 3403. The credit is equal to such 
portion of the qualifying project expenditure amounts allocated 
to the governmental unit for the calendar year that such 
governmental unit allocates to such period. The amount of the 
credit allowed for any payroll period shall be treated as a 
payment to the Secretary on the day on which the wages were 
paid to the employee, but only to the extent the governmental 
unit actually deducted and withheld such wages for the 
applicable period. A New York Liberty Zone governmental unit is 
the State of New York, the City of New York, or any agency or 
instrumentality of such State or city.
    Qualifying project expenditure amount means, with respect 
to any calendar year, the sum of (1) the total expenditures 
paid or incurred during such calendar year by all New York 
Liberty Zone governmental units and the Port Authority of New 
York and New Jersey for any portion of qualifying projects 
located wholly within the City of New York, and (2) any such 
expenditures paid or incurred in any preceding calendar year 
beginning after the date of enactment of this provision and not 
previously allocated.
    A qualifying project is any transportation infrastructure 
project, including highways, mass transit systems, railroads, 
airports, ports, and waterways, in or connecting with the New 
York Liberty Zone, which is designated as a qualifying project 
by the Governor of the State of New York and the Mayor of the 
City of New York.
    The Governor of the State of New York and the Mayor of the 
City of New York are to jointly allocate to each New York 
Liberty Zone governmental unit the portion of the qualifying 
expenditure amount that may be taken into account by such 
governmental unit to determine the credit for any calendar year 
in the credit period. The credit period is the 12-year period 
beginning on January 1, 2008. Aggregate amounts allocated may 
not exceed $2 billion during the credit period. There is also 
an annual limit on allocations equal to (1) $169 million for 
each year of the credit period, plus (2) any amounts in (1) 
that were authorized to be allocated for prior calendar years 
in the credit period but not so allocated.
    If amounts allocated to a New York Liberty Zone 
governmental unit exceed the aggregate taxes for which such 
unit is liable under section 3403, the excess may be carried to 
the succeeding calendar year and added to the allocation for 
that calendar year. If a New York Liberty Zone governmental 
unit does not use an amount allocated to it within the time 
prescribed by the Governor of the State of New York and the 
Mayor of the City of New York, such amounts will be treated as 
if never allocated, and thus they may be reallocated by the 
Governor and Mayor.
    Under the provision, any expenditure for a qualifying 
project taken into account for purposes of the credit shall be 
considered State and local funds for the purpose of any Federal 
program.
    The Governor of the State of New York and the Mayor of the 
City of New York must jointly submit to the Secretary an annual 
report that certifies the qualifying project expenditure 
amounts for the calendar year, the amount allocated to each New 
York Liberty Zone governmental unit, and any other such 
information as the Secretary may require.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                    B. Other Conversation Provisions


1. Qualified energy conservation bonds (sec. 211 of the bill and new 
        sec. 54C of the Code)

                              PRESENT LAW

Tax-exempt bonds

            In general
    Subject to certain Code restrictions, interest on bonds 
issued by State and local government generally is excluded from 
gross income for Federal income tax purposes. Bonds issued by 
State and local governments 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 which are repaid with 
governmental funds. Private activity bonds are bonds in which 
the State or local government serves as a conduit providing 
financing to nongovernmental persons. For this purpose, the 
term ``nongovernmental person'' generally includes the Federal 
Government and all other individuals and entities other than 
States or local governments. The exclusion from income for 
interest on State and local bonds does not apply to private 
activity bonds, unless the bonds are issued for certain 
permitted purposes (``qualified private activity bonds'') and 
other Code requirements are met.
            Private activity bond tests
    Present law provides two tests for determining whether a 
State or local bond is in substance a private activity bond, 
the private business test and the private loan test.\55\
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    \55\ Sec. 141(b) and (c).
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            Private business tests
    Private business use and private payments result in State 
and local bonds being private activity bonds if both parts of 
the two-part private business test are satisfied--
           More than 10 percent of the bond proceeds is 
        to be used (directly or indirectly) by a private 
        business (the ``private business use test''); and
           More than 10 percent of the debt service on 
        the bonds is secured by an interest in property to be 
        used in a private business use or to be derived from 
        payments in respect of such property (the ``private 
        payment test'').\56\
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    \56\ The 10-percent private business use and payment threshold is 
reduced to five percent for private business uses that are unrelated to 
a governmental purpose also being financed with proceeds of the bond 
issue. In addition, as described more fully below, the 10-percent 
private business use and private payment thresholds are phased-down for 
larger bond issues for the financing of certain ``output'' facilities. 
The term output facility includes electric generation, transmission, 
and distribution facilities.
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    Private business use generally includes any use by a 
business entity including the Federal government), which occurs 
pursuant to terms not generally available to the general 
public. For example, if bond-financed property is leased to a 
private business (other than pursuant to certain short-term 
leases for which safe harbors are provided under Treasury 
regulations), bond proceeds used to finance the property are 
treated as used in a private business use, and rental payments 
are treated as securing the payment of the bonds. Private 
business use also can arise when a governmental entity 
contracts for the operation of a governmental facility by a 
private business under a management contract that does not 
satisfy Treasury regulatory safe harbors regarding the types of 
payments made to the private operator and the length of the 
contract.\57\
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    \57\ See Treas. Reg. sec. 1.141-3(b)(4) and Rev. Proc. 97-13, 1997-
1 C.B. 632.
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            Private loan test
    The second standard for determining whether a State or 
local bond is a private activity bond is whether an amount 
exceeding the lesser of (1) five percent of the bond proceeds 
or (2) $5 million is used (directly or indirectly) to finance 
loans to private persons. Private loans include both business 
and other (e.g., personal) uses and payments by private 
persons; however, in the case of business uses and payments, 
all private loans also constitute private business uses and 
payments subject to the private business test. Present law 
provides that the substance of a transaction governs in 
determining whether the transaction gives rise to a private 
loan. In general, any transaction which transfers tax ownership 
of property to a private person is treated as a loan.
            Qualified private activity bonds
    As stated, interest on private activity bonds is taxable 
unless the bonds meet the requirements for qualified private 
activity bonds. Qualified private activity bonds permit States 
or local governments to act as conduits providing tax-exempt 
financing for certain private activities. The definition of 
qualified private activity bonds includes an exempt facility 
bond, or qualified mortgage, veterans' mortgage, small issue, 
redevelopment, 501(c)(3), or student loan bond (sec. 141(e)). 
The definition of exempt facility bond includes bonds issued to 
finance certain transportation facilities (airports, ports, 
mass commuting, and high-speed intercity rail facilities); 
qualified residential rental projects; privately owned and/or 
operated utility facilities (sewage, water, solid waste 
disposal, and local district heating and cooling facilities, 
certain private electric and gas facilities, and hydroelectric 
dam enhancements); public/private educational facilities; 
qualified green building and sustainable design projects; and 
qualified highway or surface freight transfer facilities (sec. 
142(a)).
    In most cases, the aggregate volume of these tax-exempt 
private activity bonds is restricted by annual aggregate volume 
limits imposed on bonds issued by issuers within each State. 
For calendar year 2007, the State volume cap, which is indexed 
for inflation, equals $85 per resident of the State, or $256.24 
million, if greater.
            Arbitrage restrictions
    The tax exemption for State and local bonds also does not 
apply to any arbitrage bond.\58\ An arbitrage bond is defined 
as any bond that is part of an issue if any proceeds of the 
issue are reasonably expected to be used (or intentionally are 
used) to acquire higher yielding investments or to replace 
funds that are used to acquire higher yielding investments.\59\ 
In general, arbitrage profits may be earned only during 
specified periods (e.g., defined ``temporary periods'') before 
funds are needed for the purpose of the borrowing or on 
specified types of investments (e.g., ``reasonably required 
reserve or replacement funds''). Subject to limited exceptions, 
investment profits that are earned during these periods or on 
such investments must be rebated to the Federal Government.
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    \58\ Sec. 103(a) and (b)(2).
    \59\ Sec. 148.
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            Indian tribal governments
    Indian tribal governments are provided with a tax status 
similar to State and local governments for specified purposes 
under the Code.\60\ Among the purposes for which a tribal 
government is treated as a State is the issuance of tax-exempt 
bonds. However, bonds issued by tribal governments are subject 
to limitations not imposed on State and local government 
issuers. Tribal governments are authorized to issue tax-exempt 
bonds only if substantially all of the proceeds are used for 
essential governmental functions or certain manufacturing 
facilities.\61\
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    \60\ Sec. 7871.
    \61\ Sec. 7871(c).
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Clean renewable enemy bonds

    As an alternative to traditional tax-exempt bonds, States 
and local governments may issue clean renewable energy bonds 
(``CREBs''). CREBs are defined as any bond issued by a 
qualified issuer if, in addition to the requirements discussed 
below, 95 percent or more of the proceeds of such bonds are 
used to finance capital expenditures incurred by qualified 
borrowers for qualified projects. ``Qualified projects'' are 
facilities that qualify for the tax credit under section 45 
(other than Indian coal production facilities), without regard 
to the placed-in-service date requirements of that section.\62\ 
The term ``qualified issuers'' includes (1) governmental bodies 
(including Indian tribal governments); (2) mutual or 
cooperative electric companies (described in section 501(c)(12) 
or section 1381(a)(2)(C), or a not-for-profit electric utility 
which has received a loan or guarantee under the Rural 
Electrification Act); and (3) clean renewable energy bond 
lenders. The term ``qualified borrower'' includes a 
governmental body (including an Indian tribal government) and a 
mutual or cooperative electric company. A clean renewable. 
energy bond lender means a cooperative which is owned by, or 
has outstanding loans to, 100 or more cooperative electric 
companies and is in existence on February 1, 2002.
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    \62\ In addition, Notice 2006-7 provides that qualified projects 
include any facility owned by a qualified borrower that is functionally 
related and subordinate to any facility described in section 45(d)(1) 
through (d)(9) and owned by such qualified borrower.
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    Unlike tax-exempt bonds, CREBs are not interest-bearing 
obligations. Rather, the taxpayer holding CREBs on a credit 
allowance date is entitled to a tax credit. The amount of the 
credit is determined by multiplying the bond's credit rate by 
the face amount on the holder's bond. The credit rate on the 
bonds is determined by the Secretary and is to be a rate that 
permits issuance of CREBs without discount and interest cost to 
the qualified issuer. The credit accrues quarterly and is 
includible in gross income (as if it were an interest payment 
on the bond), and can be claimed against regular income tax 
liability and alternative minimum tax liability.
    CREBs are subject to a maximum maturity limitation. The 
maximum maturity is the term which the Secretary estimates will 
result in the present value of the obligation to repay the 
principal on a CREBs being equal to 50 percent of the face 
amount of such bond. In addition, the Code requires level 
amortization of CREBs during the period such bonds are 
outstanding.
    CREBs also are subject to the arbitrage requirements of 
section 148 that apply to traditional tax-exempt bonds. 
Principles under section 148 and the regulations thereunder 
apply for purposes of determining the yield restriction and 
arbitrage rebate requirements applicable to CREBs.
    In addition to the above requirements, at least 95 percent 
of the proceeds of CREBs must be spent on qualified projects 
within the five-year period that begins on the date of 
issuance. To the extent less than 95 percent of the proceeds 
are used to finance qualified projects during the five-year 
spending period, bonds will continue to qualify as CREBs if 
unspent proceeds are used within 90 days from the end of such 
five-year period to redeem any ``nonqualified bonds.'' The 
five-year spending period may be extended by the Secretary upon 
the qualified issuer's request demonstrating that the failure 
to satisfy the five-year requirement is due to reasonable cause 
and the projects will continue to proceed with due diligence.
    Issuers of CREBs are required to report issuance to the IRS 
in a manner similar to the information returns required for 
tax-exempt bonds. There is a national CREB limitation of $1.2 
billion. The maximum amount of CREBs that may be allocated to 
qualified projects of governmental bodies is $750 million. 
CREBs must be issued before January 1, 2009.

                           REASONS FOR CHANGE

    The Committee believes that it is important to encourage 
energy conservation. The Committee believes that State and 
local governments often are in the best position to assess 
community needs and recognizes there are a number of approaches 
to energy conservation that State and local governments may 
wish to encourage. For example, the Committee recognizes that 
State and local governments may wish to encourage the 
development of combined heat and power systems, facilities that 
use thermal energy produced from renewable resources, smart 
electrical grids, the use of solar panels, mass transit, 
bicycle paths, or residential property that reduces peak-use of 
energy. In addition to these approaches, the Committee believes 
that State and local governments will develop numerous other 
approaches to energy conservation.
    Furthermore, the Committee recognizes that there is great 
potential for energy conservation in urban areas and the 
Committee believes that local officials should have the 
flexibility to develop their own approaches to energy 
conservation. Therefore, the Committee believes that it is 
appropriate to empower State and local governments by providing 
them with access to subsidized financing to help promote 
energy-efficient policies tailored to the needs of local 
communities.

                        EXPLANATION OF PROVISION

    The provision creates a new category of tax-credit bonds, 
qualified energy conservation bonds. Qualified energy 
conservation bonds may be used to finance qualified 
conservation purposes.
    The term ``qualified conservation purpose'' means:
          1. Capital expenditures incurred for purposes of 
        reducing energy consumption in publicly owned buildings 
        by at least 20 percent or implementing green community 
        programs;
          2. Expenditures with respect to facilities or grants 
        that support research in: (A) development of cellulosic 
        ethanol or other nonfossil fuels; (B) technologies for 
        the capture and sequestration of carbon dioxide 
        produced through the use of fossil fuels; (C) 
        increasing the efficiency of existing technologies for 
        producing nonfossil fuels; (D) automobile battery 
        technologies and other technologies to reduce fossil 
        fuel consumption in transportation; and (E) 
        technologies to reduce energy use in buildings;
          3. Mass commuting facilities and related facilities 
        that reduce the consumption of energy, including 
        expenditures to reduce pollution from vehicles used for 
        mass commuting;
          4. Demonstration projects designed to promote the 
        commercialization of: (A) green building technology; 
        (B) conversion of agricultural waste for use in the 
        production of fuel or otherwise; (C) advanced battery 
        manufacturing technologies; (D) technologies to reduce 
        peak-use of electricity; and (D) technologies for the 
        capture and sequestration of carbon dioxide emitted 
        from combusting fossil fuels in order to produce 
        electricity; and
          5. Public education campaigns to promote energy 
        efficiency (other than movies, concerts, and other 
        events held primarily for entertainment purposes).
    There is a national limitation on qualified energy 
conservation bonds of $3.6 billion. Allocations of qualified 
energy conservation bonds are made to the States with sub-
allocations to large local governments. Allocations are made to 
the States according to their respective populations, reduced 
by any sub-allocations to large local governments (defined 
below) within the States. Sub-allocations to large local 
governments shall be an amount of the national qualified energy 
conservation bond limitation that bears the same ratio to the 
amount of such limitation that otherwise would be allocated to 
the State in which such large local government is located as 
the population of such large local government bears to the 
population of such State. The term large local government 
means: any municipality or county if such municipality or 
county has a population of 100,000 or more. Indian tribal 
governments also are treated as large local governments for 
these purposes (without regard to population).
    Each State or large local government receiving an 
allocation of qualified energy conservation bonds may further 
allocate issuance authority to issuers within such State or 
large local government. However, any allocations to issuers 
within the State or large local government shall be made in a 
manner that results in not less than 70 percent of the 
allocation of qualified energy conservation bonds to such State 
or large local government being used to designate bonds that 
are not private activity bonds (i.e., the bond cannot meet the 
private business tests or the private loan test of section 
141).
    Under the provision, 100 percent of the available project 
proceeds of qualified energy conservation bonds must be used 
for qualified conservation purposes. In the case of qualified 
conservation bonds issued as private activity bonds, 100 
percent of the available project proceeds must be used for 
capital expenditures. In addition, qualified energy 
conservation bonds only may be issued by Indian tribal 
governments to the extent such bonds are issued for purposes 
that satisfy the present law requirements for tax-exempt bonds 
issued by Indian tribal governments (i.e., essential 
governmental functions and certain manufacturing purposes).
    The provision requires 100 percent of the available project 
proceeds of qualified energy conservation bonds to be used 
within the three-year period that begins on the date of 
issuance. The provision defines available project proceeds as 
proceeds from the sale of the issue less issuance costs (not to 
exceed two percent) and any investment earnings on such sale 
proceeds. To the extent less than 100 percent of the available 
project proceeds are used to finance qualified conservation 
purposes during the three-year spending period, bonds will 
continue to qualify as qualified energy conservation bonds if 
unspent proceeds are used within 90 days from the end of such 
three-year period to redeem bonds. The three-year spending 
period may be extended by the Secretary upon the issuer's 
request demonstrating that the failure to satisfy the three-
year requirement is due to reasonable cause and the projects 
will continue to proceed with due diligence.
    Qualified energy conservation bonds generally are subject 
to the arbitrage requirements of section 148. However, 
available project proceeds invested during the three-year 
spending period are not subject to the arbitrage restrictions 
(i.e., yield restriction and rebate requirements). In addition, 
amounts invested in a reserve fund are not subject to the 
arbitrage restrictions to the extent: (1) such fund is funded 
at a rate not more rapid than equal annual installments; (2) 
such fund is funded in a manner such that the fund will not 
exceed the amount necessary to repay the issue if invested at 
the average annual interest rate of tax-exempt obligations 
having a term of 10 years or more that are issued during the 
month the qualified energy conservation bonds are issued; and 
(3) the yield on such fund is not greater than the average 
annual interest rate of tax-exempt obligations having a term of 
10 years or more that are issued during the month the qualified 
energy conservation bonds are issued.
    The maturity of qualified energy conservation bonds is the 
term that the Secretary estimates will result in the present 
value of the obligation to repay the principal on such bonds 
being equal to 50 percent of the face amount of such bonds, 
using as a discount rate the average annual interest rate of 
tax-exempt obligations having a term of 10 years or more that 
are issued during the month the qualified energy conservation 
bonds are issued.
    As with present-law tax credit bonds, the taxpayer holding 
qualified energy conservation bonds on a credit allowance date 
is entitled to a tax credit. The credit rate on the bonds is 
determined by the Secretary to be a rate that permits issuance 
of the bonds without discount and interest cost to the 
qualified issuer. The amount of the tax credit to the holder is 
determined by multiplying the bond's credit rate by the face 
amount on the holder's bond. The credit accrues quarterly, is 
includible in gross income (as if it were an interest payment 
on the bond), and can be claimed against regular income tax 
liability and alternative minimum tax liability. Unused credits 
in one year may be carried forward to succeeding taxable years. 
In addition, credits may be separated from the ownership of the 
underlying bond similar to how interest coupons can be stripped 
for interest-bearing bonds.
    Issuers of qualified energy conservation bonds are required 
to certify that the financial disclosure requirements that 
apply to State and local bonds offered for sale to the general 
public are satisfied with respect to any Federal, State, or 
local government official directly involved with the issuance 
of such bonds. The provision authorizes the Secretary to impose 
additional financial reporting requirements by regulation.

                             EFFECTIVE DATE

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

2. Qualified residential energy efficiency assistance bonds (sec. 212 
        of the bill and new sec. 54D of the Code)

                              PRESENT LAW

Tax-exempt bonds

            In general
    Subject to certain Code restrictions, interest on bonds 
issued by State and local government generally is excluded from 
gross income for Federal income tax purposes. Bonds issued by 
State and local governments 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 which are repaid with 
governmental funds. Private activity bonds are bonds in which 
the State or local government serves as a conduit providing 
financing to nongovernmental persons. For this purpose, the 
term ``nongovernmental person'' generally includes the Federal 
Government and all other individuals and entities other than 
States or local governments. The exclusion from income for 
interest on State and local bonds does not apply to private 
activity bonds, unless the bonds are issued for certain 
permitted purposes (``qualified private activity bonds'') and 
other Code requirements are met.
            Private activity bond tests
    Present law provides two tests for determining whether a 
State or local bond is in substance a private activity bond, 
the private business test and the private loan test.\63\
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    \63\ Sec. 141(b) and (c).
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            Private business tests
    Private business use and private payments result in State 
and local bonds being private activity bonds if both parts of 
the two-part private business test are satisfied--
          1. More than 10 percent of the bond proceeds is to be 
        used (directly or indirectly) by a private business 
        (the ``private business use test''); and
          2. More than 10 percent of the debt service on the 
        bonds is secured by an interest in property to be used 
        in a private business use or to be derived from 
        payments in respect of such property (the ``private 
        payment test'').\64\
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    \64\ The 10-percent private business use and payment threshold is 
reduced to five percent for private business uses that are unrelated to 
a governmental purpose also being financed with proceeds of the bond 
issue. In addition, as described more fully below, the 10-percent 
private business use and private payment thresholds are phased-down for 
larger bond issues for the financing of certain ``output'' facilities. 
The term output facility includes electric generation, transmission, 
and distribution facilities.
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    Private business use generally includes any use by a 
business entity (including the Federal government), which 
occurs pursuant to terms not generally available to the general 
public. For example, if bond-financed property is leased to a 
private business (other than pursuant to certain short-term 
leases for which safe harbors are provided under Treasury 
regulations), bond proceeds used to fmance the property are 
treated as used in a private business use, and rental payments 
are treated as securing the payment of the bonds. Private 
business use also can arise when a governmental entity 
contracts for the operation of a governmental facility by a 
private business under a management contract that does not 
satisfy Treasury regulatory safe harbors regarding the types of 
payments made to the private operator and the length of the 
contract.\65\
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    \65\ See Treas. Reg. sec. 1.141-3(b)(4) and Rev. Proc. 97-13, 1997-
1 C.B. 632.
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            Private loan test
    The second standard for determining whether a State or 
local bond is a private activity bond is whether an amount 
exceeding the lesser of (1) five percent of the bond proceeds 
or (2) $5 million is used (directly or indirectly) to finance 
loans to private persons. Private loans include both business 
and other (e.g., personal) uses and payments by private 
persons; however, in the case of business uses and payments, 
all private loans also constitute private business uses and 
payments subject to the private business test. Present law 
provides that the substance of a transaction governs in 
determining whether the transaction gives rise to a private 
loan. In general, any transaction which transfers tax ownership 
of property to a private, person is treated as a loan.
            Qualified private activity bonds
    As stated, interest on private activity bonds is taxable 
unless the bonds meet the requirements for qualified private 
activity bonds. Qualified private activity bonds permit States 
or local governments to act as conduits providing tax-exempt 
financing for certain private activities. The definition of 
qualified private activity bonds includes an exempt facility 
bond, or qualified mortgage, veterans' mortgage, small issue, 
redevelopment, 501(c)(3), or student loan bond (sec. 141(e)). 
The definition of exempt facility bond includes bonds issued to 
finance certain transportation facilities (airports, ports, 
mass commuting, and high-speed intercity rail facilities); 
qualified residential rental projects; privately owned and/or 
operated utility facilities (sewage, water, solid waste 
disposal, and local district heating and cooling facilities, 
certain private electric and gas facilities, and hydroelectric 
dam enhancements); public/private educational facilities; 
qualified green building and sustainable design projects; and 
qualified highway or surface freight transfer facilities (sec. 
142(a)).
    In most cases, the aggregate volume of these tax-exempt 
private activity bonds is restricted by annual aggregate volume 
limits imposed on bonds issued by issuers within each State. 
For calendar year 2007, the State volume cap, which is indexed 
for inflation, equals $85 per resident of the State, or $256.24 
million, if greater.
            Arbitrage restrictions
    The tax exemption for State and local bonds also does not 
apply to any arbitrage bond.\66\ An arbitrage bond is defined 
as any bond that is part of an issue if any proceeds of the 
issue are reasonably expected to be used (or intentionally are 
used) to acquire higher yielding investments or to replace 
funds that are used to acquire higher yielding investments.\67\ 
In general, arbitrage profits may be earned only during 
specified periods (e.g., defined ``temporary periods'') before 
funds are needed for the purpose of the borrowing or on 
specified types of investments (e.g., ``reasonably required 
reserve or replacement funds''). Subject to limited exceptions, 
investment profits that are earned during these periods or on 
such investments must be rebated to the Federal Government.
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    \66\ Sec. 103(a) and (b)(2).
    \67\ Sec. 148.
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Clean renewable energy bonds

    As an alternative to traditional tax-exempt bonds, States 
and local governments may issue clean renewable energy bonds 
(``CREBs''). CREBs are defined as any bond issued by a 
qualified issuer if, in addition to the requirements discussed 
below, 95 percent or more of the proceeds of such bonds are 
used to finance capital expenditures incurred by qualified 
borrowers for qualified projects. ``Qualified projects'' are 
facilities that qualify for the tax credit under section 45 
(other than Indian coal production facilities), without regard 
to the placed-in-service date requirements of that section.\68\ 
The term ``qualified issuers'' includes (1) governmental bodies 
(including Indian tribal governments); (2) mutual or 
cooperative electric companies (described in section 501(c)(12) 
or section 1381(a)(2)(C), or a not-for-profit electric utility 
which has received a loan or guarantee under the Rural 
Electrification Act); and (3) clean renewable energy bond 
lenders. The term ``qualified borrower'' includes a 
governmental body (including an Indian tribal government) and a 
mutual or cooperative electric company. A clean renewable 
energy bond lender means a cooperative which is owned by, or 
has outstanding loans to, 100 or more cooperative electric 
companies and is in existence on February 1, 2002.
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    \68\ In addition, Notice 2006-7 provides that qualified projects 
include any facility owned by a qualified borrower that is functionally 
related and subordinate to any facility described in section 45(d)(1) 
through (d)(9) and owned by such qualified borrower.
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    Unlike tax-exempt bonds, CREBs are not interest-bearing 
obligations. Rather, the taxpayer holding CREBs on a credit 
allowance date is entitled to a tax credit. The amount of the 
credit is determined by multiplying the bond's credit rate by 
the face amount on the holder's bond. The credit rate on the 
bonds is determined by the Secretary and is to be a rate that 
permits issuance of CREBs without discount and interest cost to 
the qualified issuer. The credit accrues quarterly and is 
includible in gross income (as if it were an interest payment 
on the bond), and can be claimed against regular income tax 
liability and alternative minimum tax liability.
    CREBs are subject to a maximum maturity limitation. The 
maximum maturity is the term which the Secretary estimates will 
result in the present value of the obligation to repay the 
principal on a CREBs being equal to 50 percent of the face 
amount of such bond. In addition, the Code requires level 
amortization of CREBs during the period such bonds are 
outstanding.
    CREBs also are subject to the arbitrage requirements of 
section 148 that apply to traditional tax-exempt bonds. 
Principles under section 148 and the regulations thereunder 
apply for purposes of determining the yield restriction and 
arbitrage rebate requirements applicable to CREBs.
    In addition to the above requirements, at least 95 percent 
of the proceeds of CREBs must be spent on qualified projects 
within the five-year period that begins on the date of 
issuance. To the extent less than 95 percent of the proceeds 
are used to finance qualified projects during the five-year 
spending period, bonds will continue to qualify as CREBs if 
unspent proceeds are used within 90 days from the end of such 
five-year period to redeem any ``nonqualified bonds.'' The 
five-year spending period may be extended by the Secretary upon 
the qualified issuer's request demonstrating that the failure 
to satisfy the five-year requirement is due to reasonable cause 
and the projects will continue to proceed with due diligence.
    Issuers of CREBs are required to report issuance to the IRS 
in a manner similar to the information returns required for 
tax-exempt bonds. There is a national CREB limitation of $1.2 
billion. The maximum amount of CREBs that may be allocated to 
qualified projects of governmental bodies is $750 million. 
CREBs must be issued before January 1, 2009.

                           REASONS FOR CHANGE

    The Committee believes that incentives for the purchase and 
installation, of energy-efficient property and energy-efficient 
improvements to residences are desirable to help reduce energy 
consumption in the household sector. The Committee is aware 
that a number of communities have initiated programs that 
encourage the early adoption of energy conserving products. The 
Committee also believes that States are in an advantageous 
position to assess local energy conservation programs. Thus, 
the Committee believes that States should be provided with 
additional funding sources and flexibility to establish 
programs that promote energy conservation. The Committee 
further believes that this approach to the provision of tax 
benefits for energy conservation will enable taxpayers with no 
tax liability to benefit from energy conservation initiatives 
that operate through the Code.

                        EXPLANATION OF PROVISION

    The provision creates a new category of tax-credit bonds, 
qualified residential energy efficiency assistance bonds. A 
bond is a qualified residential energy efficiency assistance 
bond if, in addition to the requirements described below, 100 
percent of the available project proceeds are used for 
qualified residential energy efficiency assistance purposes and 
not less than 20 percent of the available project proceeds are 
used for qualified low-income residential energy efficiency 
assistance purposes.
    A ``qualified residential energy efficiency assistance 
purpose'' is any grant or low-interest loan made by a State to 
acquire (including reasonable installation costs): (1) any 
property that meets (at a minimum) the requirements of the 
Energy Star program and which is to be installed in a dwelling 
unit; (2) any property that uses wind, solar energy, geothermal 
energy (including any geothermal heat pump to provide heating 
or cooling), or qualified fuel cell property to generate 
electricity, or to heat or cool water, for use in a dwelling 
unit (other than property described in section 25D(e)(3)); and 
(3) any improvements to a dwelling unit that are made pursuant 
to a plan certified by an energy efficiency expert that such 
improvements will yield at least a 20 percent reduction in 
total energy consumption related to heating, cooling, lighting, 
and appliances. The term ``low-interest loan'' means any loan 
that charges interest at a rate that does not exceed the 
applicable Federal rate in effect under section 1288(b)(1) 
(relating to original issue discount for tax-exempt 
obligations). Under the provision, the following types of 
property may not be financed with qualified residential energy 
efficiency assistance bonds, notwithstanding the fact such 
property may otherwise meet Energy Star requirements: equipment 
used in connection with a swimming pool, hot tub, or similar 
property; televisions; devices for converting digital signal to 
analog; DVD players; video cassette recorders; audio equipment; 
cordless phones; and any other property substantially used for 
recreational purposes.
    Generally, grants or loans for improvements to a dwelling 
unit that are made pursuant to a plan certified by an energy 
efficiency expert that such improvements will yield at least a 
20 percent reduction in total energy consumption may not exceed 
$5,000, in the aggregate. This amount is increased to $8,000 if 
such improvements are certified to yield at least a 35 percent 
reduction in total energy consumption and to $12,000 if such 
improvements are certified to yield at least a 50 percent 
reduction in total energy consumption.
    A ``qualified low-income residential energy efficiency 
assistance purpose'' means any grant for a qualified 
residential energy efficiency assistance purpose with respect 
to a dwelling unit that is occupied (at the time of the grant) 
by individuals whose income is 50 percent or less of area 
median gross income (as determined under section 142(d)(2)(B)).
    The provision requires 100 percent of available project 
proceeds to be used within the three-year period that begins on 
the date of issuance. The provision defines available project 
proceeds as proceeds from the sale of the issue less issuance 
costs (not to exceed two percent) and any investment earnings 
on such sale proceeds. To the extent less than 100 percent of 
the available project proceeds are used to finance qualified 
residential energy efficiency assistance purposes during the 
three-year spending period, bonds will continue to qualify as 
qualified residential energy efficiency assistance bonds if 
unspent proceeds are used within 90 days from the end of such 
three-year period to redeem bonds. The three-year spending 
period may be extended by the Secretary upon the qualified 
issuer's request demonstrating that the failure to satisfy the 
three-year requirement is due to reasonable cause and the 
projects will continue to proceed with due diligence.
    Qualified residential energy efficiency assistance bonds 
generally are subject to the arbitrage requirements of section 
148. However, available project proceeds invested during the 
three-year spending period are not subject to the arbitrage 
restrictions (i.e., yield restriction and rebate requirements). 
In addition, amounts invested in a reserve fund are not subject 
to the arbitrage restrictions to the extent: (1) such fund is 
funded at a rate not more rapid than equal annual installments; 
(2) such fund is funded in a manner such that the fund will not 
exceed the amount necessary to repay the issue if invested at 
the average annual interest rate of tax-exempt obligations 
having a term of 10 years or more that are issued during the 
month the qualified residential energy efficiency assistance 
bonds are issued; and (3) the yield on such fund is not greater 
than the average annual interest rate of tax-exempt obligations 
having a term of 10 years or more that are issued during the 
month the qualified residential energy efficiency assistance 
bonds are issued.
    Under the provision, repayments of principal and applicable 
interest on financing provided by qualified residential energy 
efficiency assistance bonds must be used not later than the 
close of the three-month period beginning on the date the 
prepayment (or complete repayment) is received to redeem bonds 
that are part of the issue or for additional qualified 
residential energy efficiency assistance purposes. Applicable 
interest is interest on any loan that exceeds one percentage 
point.
    The maturity on qualified residential energy efficiency 
assistance bonds is the term that the Secretary estimates will 
result in the present value of the obligation to repay the 
principal on such bonds being equal to 50 percent of the face 
amount of such bonds, using as a discount rate the average 
annual interest rate of tax-exempt obligations having a term of 
10 years or more that are issued during the month the qualified 
residential energy efficiency assistance bonds are issued.
    As with present-law tax-credit bonds, the taxpayer holding 
qualified residential energy efficiency assistance bonds on a 
credit allowance date is entitled to a tax credit. The credit 
rate on qualified residential energy efficiency assistance 
bonds is determined by the Secretary to be a rate that permits 
issuance of such bonds without discount and interest cost to 
the qualified issuer. The amount of the tax credit to the 
holder is determined by multiplying the bond's credit rate by 
the face amount on the holder's bond. The credit accrues 
quarterly, is includible in gross income (as if it were an 
interest payment on the bond), and can be claimed against 
regular income tax liability and alternative minimum tax 
liability. Unused credits in one year may be carried forward to 
succeeding taxable years. In addition, credits may be separated 
from the ownership of the underlying bond similar to how 
interest coupons can be stripped for interest-bearing bonds.
    There is a national limitation for qualified residential 
energy efficiency assistance bonds of $2.4 billion. Allocations 
are made to the States according to their respective 
populations. Qualified issuers of qualified residential energy 
efficiency assistance bonds include the States (including 
constituted authorities empowered to issue obligations on 
behalf of the States).
    Issuers of qualified residential energy efficiency 
assistance bonds are required to certify that the financial 
disclosure requirements that apply to State and local bonds 
offered for sale to the general public are satisfied with 
respect to any Federal, State, or local government official 
directly involved with the issuance of such bonds. The 
provision authorizes the Secretary to impose additional 
financial reporting requirements by regulation.

                             EFFECTIVE DATE

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

3. Extension of energy efficient commercial buildings deduction (sec. 
        213 of the bill and sec. 179D of the Code)

                              PRESENT LAW

In general

    Code section 179D provides a deduction equal to energy-
efficient commercial building property expenditures made by the 
taxpayer. Energy-efficient commercial building property 
expenditures is defined as property (1) which is installed on 
or in any building located in the United States that is within 
the scope of Standard 90.1-2001 of the American Society of 
Heating, Refrigerating, and Air Conditioning Engineers and the 
Illuminating Engineering Society of North America (``ASHRAE/
IESNA''), (2) which is installed as part of (i) the interior 
lighting systems, (ii) the heating, cooling, ventilation, and 
hot water systems, or (iii) the building envelope, and (3) 
which is certified as being installed as part of a plan 
designed to reduce the total annual energy and power costs with 
respect to the interior lighting systems, heating, cooling, 
ventilation, and hot water systems of the building by 50 
percent or more in comparison to a reference building which 
meets the minimum requirements of Standard 90.1-2001 (as in 
effect on April 2, 2003). The deduction is limited to an amount 
equal to $1.80 per square foot of the property for which such 
expenditures are made. The deduction is allowed in the year in 
which the property is placed in service.
    Certain certification requirements must be met in order to 
qualify for the deduction. The Secretary, in consultation with 
the Secretary of Energy, will promulgate regulations that 
describemethods of calculating and verifying energy and power 
costs using qualified computer software based on the provisions of the 
2005 California Nonresidential Alternative Calculation Method Approval 
Manual or, in the case of residential property, the 2005 California 
Residential Alternative Calculation Method Approval Manual.
    The Secretary shall prescribe procedures for the inspection 
and testing for compliance of buildings that are comparable, 
given the difference between commercial and residential 
buildings, to the requirements in the Mortgage Industry 
National Accreditation Procedures for Home Energy Rating 
Systems. Individuals qualified to determine compliance shall 
only be those recognized by one or more organizations certified 
by the Secretary for such purposes.
    For energy-efficient commercial building property 
expenditures made by a public entity, such as public schools, 
the Secretary shall promulgate regulations that allow the 
deduction to be allocated to the person primarily responsible 
for designing the property in lieu of the public entity.
    If a deduction is allowed under this section, the basis of 
the property shall be reduced by the amount of the deduction.
    The deduction is effective for property placed in service 
after December 31, 2005 and prior to January 1, 2009.

Partial allowance of deduction

    In the case of a building that does not meet the overall 
building requirement of a 50-percent energy savings, a partial 
deduction is allowed with respect to each separate building 
system that comprises energy-efficient property and which is 
certified by a qualified professional as meeting or exceeding 
the applicable system-specific savings targets established by 
the Secretary of the Treasury. The applicable system-specific 
savings targets to be established by the Secretary are those 
that would result in a total annual energy savings with respect 
to the whole building of 50 percent, if each of the separate 
systems met the system-specific target. The separate building 
systems are (1) the interior lighting system, (2) the heating, 
cooling, ventilation and hot water systems, and (3) the 
building envelope. The maximum allowable deduction is $0.60 per 
square foot for each separate system.
            Interim rules for lighting systems
    In the case of system-specific partial deductions, in 
general no deduction is allowed until the Secretary establishes 
system-specific targets \69\. However, in the case of lighting 
system retrofits, until such time as the Secretary issues final 
regulations, the system-specific energy savings target for the 
lighting system is deemed to be met by a reduction in Lighting 
Power Density of 40 percent (50 percent in the case of a 
warehouse) of the minimum requirements in Table 9.3.1.1 or 
Table 9.3.1.2 of ASHRAE/IESNA Standard 90.1-2001. Also, in the 
case of a lighting system that reduces lighting power density 
by 25 percent, a partial deduction of 30 cents per square foot 
is allowed. A pro-rated partial deduction is allowed in the 
case of a lighting system that reduces lighting power density 
between 25 percent and 40 percent. Certain lighting level and 
lighting control requirements must also be met in order to 
qualify for the partial lighting deductions under the interim 
rule.
---------------------------------------------------------------------------
    \69\ IRS Notice 2006-52 has set a target of a 16\2/3\ percent 
reduction in total energy and power costs for each of the three 
subsystems.
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                           REASONS FOR CHANGE

    The Committee recognizes that a substantial portion of U.S. 
energy consumption is attributable to commercial buildings, and 
that the design and construction of commercial buildings is a 
multi-year process. Hence, the Committee believes that a long-
term extension of the present-law deduction for energy-
efficient commercial buildings is necessary to ensure that 
buildings currently in the design phase will be able to claim 
the deduction.

                        EXPLANATION OF PROVISION

    The provision extends the energy-efficient commercial 
buildings deduction for five years, through December 31, 2013.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

4. Extension and modification of energy-efficient appliance credit 
        (sec. 214 of the bill and sec. 45M of the Code)

                              PRESENT LAW

    The provision provides a credit for the eligible production 
of certain energy-efficient dishwashers, clothes washers, and 
refrigerators.
    The credit for dishwashers applies to dishwashers produced 
in 2006 and 2007 that meet the Energy Star standards for 2007. 
The credit amount equals $3 multiplied by 100 times the 
``energy savings percentage,'' but may not exceed $100 per 
dishwasher. The energy saving percentage is defined as the 
change in the energy factor (EF) required by the Energy Star 
program between 2007 and 2005 divided by the EF requirement for 
2007. The EF required in 2005 for the Energy Star program was 
0.58 and it was 0.65 in 2007, for a change of 0.07. The energy 
saving percentage is thus 0.07/0.65, which when multiplied by 
100 times $3 equals $32.31 per refrigerator.
    The credit for clothes washers equals $100 for clothes 
washers manufactured in 2006-2007 that meet the requirements of 
the Energy Star program that are in effect for clothes washers 
in 2007.
    The credit for refrigerators is based on energy savings and 
year of manufacture. The energy savings are determined relative 
to the energy conservation standards promulgated by the 
Department of Energy that took effect on July 1, 2001. 
Refrigerators that achieve a 15 to 20 percent energy saving and 
that are manufactured in 2006 receive a $75 credit. 
Refrigerators that achieve a 20 to 25 percent energy saving 
receive a (i) $125 credit if manufactured in 2006-2007. 
Refrigerators that achieve at least a 25 percent energy saving 
receive a (i) $175 credit if manufactured in 2006-2007.
    Appliances eligible for the credit include only those 
produced in the United States and that exceed the average 
amount of U.S. production from the three prior calendar years 
for each category of appliance. In the case of refrigerators, 
eligible production is U.S. production that exceeds 110 percent 
of the average amount of U.S. production from the three prior 
calendar years.
    A dishwasher is any residential dishwasher subject to the 
energy conservation standards established by the Department of 
Energy. A refrigerator must be an automatic defrost 
refrigerator-freezer with an internal volume of at least 16.5 
cubic feet to qualify for the credit. A clothes washer is any 
residential clothes washer, including a residential style coin-
operated washer, that satisfies the relevant efficiency 
standard.
    The taxpayer may not claim credits in excess of $75 million 
for all taxable years, and may not claim credits in excess of 
$20 million with respect to clothes washers eligible for the 
$50 credit and refrigerators eligible for the $75 credit. A 
taxpayer may elect to increase the $20 million limitation 
described above to $25 million provided that the aggregate 
amount of credits with respect to such appliances, plus 
refrigerators eligible for the $100 and $125 credits, is 
limited to $50 million for all taxable years.
    Additionally, the credit allowed in a taxable year for all 
appliances may not exceed two percent of the average annual 
gross receipts of the taxpayer for the three taxable years 
preceding the taxable year in which the credit is determined.
    The credit is part of the general business credit.

                           REASONS FOR CHANGE

    The Committee believes that incentives provided for the 
manufacture of energy-efficient household appliances are 
desirable to promote the development of energy-efficient 
appliance technologies and to help reduce energy consumption in 
the household sector. Hence the Committee extends the credit 
and strengthens the standards that must be met in order to be 
eligible for the credits.

                        EXPLANATION OF PROVISION

    The provision extends and modifies the energy efficient 
appliance credit.
    The provision provides modified credits for eligible 
production as follows:

Dishwashers

           $45 in the case of a dishwasher that is 
        manufactured in calendar year 2008 or 2009 that uses no 
        more than 324 kilowatt hours per year and 5.8 gallons 
        per cycle, and
           $75 in the case of a dishwasher that is 
        manufactured in calendar year 2008, 2009, or 2010 and 
        that uses no more than 307 kilowatt hours per year and 
        5.0 gallons per cycle (5.5 gallons per cycle for 
        dishwashers designed for greater than 12 place 
        settings).

Clothes washers

           $75 in the case of a residential top-loading 
        clothes washer manufactured in calendar year 2008 that 
        meets or exceeds a 1.72 modified energy factor and does 
        not exceed a 8.0 water consumption factor, and
           $125 in the case of a residential top-
        loading clothes washer manufactured in calendar year 
        2008 or 2009 that meets or exceeds a 1.8 modified 
        energy factor and does not exceed a 7.5 water 
        consumption factor,
           $150 in the case of a residential or 
        commercial clothes washer manufactured in calendar year 
        2008, 2009 or 2010 that meets or exceeds a 2.0 modified 
        energy factor and does not exceed a 6.0 water 
        consumption factor, and
           $250 in the case of a residential or 
        commercial clothes washer manufactured in calendar year 
        2008, 2009, or 2010 that meets or exceeds a 2.2 
        modified energy factor and does not exceed a 4.5 water 
        consumption factor.

Refrigerators

           $50 in the case of a refrigerator 
        manufactured in calendar year 2008 that consumes at 
        least 20 percent but not more than 22.9 percent less 
        kilowatt hours per year than the 2001 energy 
        conservation standards,
           $75 in the case of a refrigerator that is 
        manufactured in calendar year 2008 or 2009 that 
        consumes at least 23 percent but no more than 24.9 
        percent less kilowatt hours per year than the 2001 
        energy conservation standards,
           $100 in the case of a refrigerator that is 
        manufactured in calendar year 2008, 2009 or 2010 that 
        consumes at least 25 percent but not more than 29.9 
        percent less kilowatt hours per year than the 2001 
        energy conservation standards, and
           $200 in the case of a refrigerator 
        manufactured in calendar year 2008, 2009 or 2010 that 
        consumes at least 30 percent less energy than the 2001 
        energy conservation standards.

Dehumidifiers

           $15 in the case of a dehumidifier 
        manufactured in calendar year 2008 that has a capacity 
        less than or equal to 45 pints per day and is 7.5 
        percent more efficient than the applicable Department 
        of Energy energy conservation standard effective 
        October 2012, and
           $25 in the case of a dehumidifier 
        manufactured in calendar year 2008 that has a capacity 
        greater than 45 pints per day and is 7.5 percent more 
        efficient than the applicable Department of Energy 
        energy conservation standard effective October 2012.
    Appliances eligible for the credit include only those that 
exceed the average amount of production from the two prior 
calendar years for each category of appliance, rather than the 
present law three prior calendar years. Additionally, the 
special rule with respect to refrigerators is eliminated.
    The aggregate credit amount allowed with respect to a 
taxpayer for all taxable years beginning after December 31, 
2007 may not exceed $75 million, with the exception that the 
$200 refrigerator credit and the $250 clothes washer credit are 
not limited.
    The term ``dehumidifier'' means a self-contained, 
electrically operated, and mechanically refrigerated encased 
assembly consisting of (A) a refrigerated surface that 
condenses moisture from the atmosphere, (B) a refrigerating 
system, including an electric motor, (C) an air-circulating 
fan, and (D) means for collecting or disposing of condensate.
    The term ``modified energy factor'' means the modified 
energy factor established by the Department of Energy for 
compliance with the Federal energy conservation standard.
    The term ``gallons per cycle'' means, with respect to a 
dishwasher, the amount of water, expressed in gallons, required 
to complete a normal cycle of a dishwasher.
    The term ``water consumption factor'' means, with respect 
to a clothes washer, the quotient of the total weighted per-
cycle water consumption divided by the cubic foot (or liter) 
capacity of the clothes washer.

                             EFFECTIVE DATE

    The provision applies to appliances produced after December 
31, 2007.

5. Five-year cost recovery for qualified energy management devices 
        (sec. 215 of the bill and sec. 168 of the Code)

                              PRESENT LAW

    A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through annual deductions for depreciation or amortization. 
Tangible property generally is depreciated under the modified 
accelerated cost recovery system (``MACRS''), which determines 
depreciation by applying specific recovery periods, placed-in-
service conventions, and depreciation methods to the cost of 
various types of depreciable property.\70\ The class lives of 
assets placed in service after 1986 are generally set forth in 
Revenue Procedure 87-56.\71\ Assets included in class 49.14, 
describing assets used in the transmission and distribution of 
electricity for sale and related land improvements, are 
assigned a class life of 30 years and a recovery period of 20 
years.
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    \70\ Sec. 168.
    \71\ 1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-
22, 1988-1 C.B. 785).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that qualified energy management 
devices are integral to the development and use of technology 
to conserve energy resources. Therefore, the Committee believes 
that investment in qualified energy management devices that are 
attached to customers' real property should be encouraged 
through a shorter recovery period for depreciation. The 
Committee also believes that net metering, which allows 
customers a credit for providing electricity to the supplier of 
electric energy or provider of electric energy services, should 
be offered by such supplier or provider at the request of the 
customer.

                        EXPLANATION OF PROVISION

    The provision provides a five-year recovery period for any 
qualified energy management device. For purposes of the 
provision, a qualified energy management device means any 
energy management device which: (1) is installed on real 
property of a customer of the taxpayer; and (2) is placed in 
service by a taxpayer who is a supplier of electric energy or a 
provider of electric energy services that provides all 
commercial and residential customers with net metering upon the 
customer's request. For purposes of the provision, net metering 
means allowing customers a credit for providing electricity to 
the supplier or provider.
    An energy management device is any time-based meter and 
related communication equipment which is capable of being used 
by the taxpayer as part of a system that: (1) measures and 
records electricity usage data on a time-differentiated basis 
in at least 24 separate time segments per day; (2) provides for 
the exchange of information between the supplier or provider 
and the customer's energy management device in support of time-
based rates or other forms of demand response; and (3) provides 
data to such supplier or provider so that the supplier or 
provider can provide energy usage information to customers 
electronically.

                             EFFECTIVE DATE

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

                     TITLE III--REVENUE PROVISIONS


                 A. Denial of Oil and Gas Tax Benefits


1. Denial of deduction for income attributable to domestic production 
        of oil, natural gas, or primary products thereof (sec. 301 of 
        the bill and sec. 199 of the Code)

                              PRESENT LAW

In general

    Section 199 of the Code provides a deduction from taxable 
income (or, in the case of an individual, adjusted gross 
income) that is equal to a portion of the taxpayer's qualified 
production activities income. For taxable years beginning after 
2009, the deduction is nine percent of such income. For taxable 
years beginning in 2005 and 2006, the deduction is three 
percent of income and, for taxable years beginning in 2007, 
2008 and 2009, the deduction is six percent of income. However, 
the deduction for a taxable year is limited to 50 percent of 
the wages properly allocable to domestic production gross 
receipts paid by the taxpayer during the calendar year that 
ends in such taxable year.\72\
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    \72\ For purposes of the provision, ``wages'' include the sum of 
the amounts of wages as defined in section 3401(a) and elective 
deferrals that the taxpayer properly reports to the Social Security 
Administration with respect to the employment of employees of the 
taxpayer during the calendar year ending during the taxpayer's taxable 
year. Elective deferrals include elective deferrals as defined in 
section 402(g)(3), amounts deferred under section 457, and, for taxable 
years beginning after December 31, 2005, designated Roth contributions 
(as defined in section 402A).
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Qualified production activities income

    In general, ``qualified production activities income'' is 
equal to domestic production gross receipts (defined by section 
199(c)(4)), reduced by the sum of: (1) the costs of goods sold 
that are allocable to such receipts; (2) other expenses, 
losses, or deductions which are properly allocable to such 
receipts.

Domestic production gross receipts

    ``Domestic production gross receipts'' generally are gross 
receipts of a taxpayer that are derived from: (1) any sale, 
exchange or other disposition, or any lease, rental or license, 
of qualifying production property (``QPP'') that was 
manufactured, produced, grown or extracted (``MPGE'') by the 
taxpayer in whole or in significant part within the United 
States;\73\ (2) any sale, exchange or other disposition, or any 
lease, rental or license, of qualified film produced by the 
taxpayer; (3) any sale, exchange or other disposition of 
electricity, natural gas, or potable water produced by the 
taxpayer in the United States; (4) construction activities 
performed in the United States;\74\ or (5) engineering or 
architectural services performed in the United States for 
construction projects located in the United States.
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    \73\ Domestic production gross receipts include gross receipts of a 
taxpayer derived from any sale, exchange or other disposition of 
agricultural products with respect to which the taxpayer performs 
storage, handling or other processing activities (other than 
transportation activities) within the United States, provided such 
products are consumed in connection with, or incorporated into, the 
manufacturing, production, growth or extraction of qualifying 
production property (whether or not by the taxpayer).
    \74\ For this purpose, construction activities include activities 
that are directly related to the erection or substantial renovation of 
residential and commercial buildings and infrastructure. Substantial 
renovation would include structural improvements, but not mere cosmetic 
changes, such as painting, that is not performed in connection with 
activities that otherwise constitute substantial renovation.
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    Congress granted Treasury broad authority to ``prescribe 
such regulations as are necessary to carry out the purposes'' 
of section 199.\75\ In defining MPGE for purposes of section 
199, Treasury described the following as MPGE activities: 
manufacturing, producing, growing, extracting, installing, 
developing, improving, and creating QPP; making QPP out of 
scrap, salvage, or junk material as well as from new or raw 
material by processing, manipulating, refining, or changing the 
form of an article, or by combining or assembling two or more 
articles; cultivating soil, raising livestock, fishing, and 
mining minerals.\76\
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    \75\ Sec. 199(d)(9).
    \76\ Treas. Reg. sec. 1.199-3(e)(1).
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    The regulations specifically cite an example of oil 
refining activities in describing the ``in whole or in 
significant part'' test in determining domestic production 
gross receipts. QPP is generally considered to be MPGE in 
significant part by the taxpayer within the United States if 
such activities are substantial in nature taking into account 
all of the facts and circumstances, including the relative 
value added by, and relative cost of, the taxpayer's MPGE 
activity within the United States, the nature of the QPP, and 
the nature of the MPGE activity that the taxpayer performs 
within the United States.\77\ The following example is provided 
in the regulations to illustrate this ``substantial in nature'' 
standard:
---------------------------------------------------------------------------
    \77\ Treas. Reg. sec. 1.199-3(g)(2).
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          X purchases from Y, an unrelated person, unrefined 
        oil extracted outside the United States. X refines the 
        oil in the United States. The refining of the oil by X 
        is an MPGE activity that is substantial in nature.\78\
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    \78\ Treas. Reg. sec. 1.199-3(g)(5), Example 1.
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Electricity or natural gas transmission or distribution

    Although domestic production gross receipts include the 
gross receipts from the production in the United States of 
electricity and gas, the provision excludes gross receipts from 
the transmission or distribution of electricity and gas. Thus, 
in the case of a taxpayer who owns a facility for the 
production of electricity (either as part of a regulated 
utility or an independent power facility), the taxpayer's gross 
receipts from the production of electricity at that facility 
arequalified domestic production gross receipts. However, to 
the extent that the taxpayer is an integrated producer that generates 
electricity and delivers electricity to end users, any gross receipts 
properly attributable to the transmission of electricity from the 
generating facility to a point of local distribution and any gross 
receipts properly attributable to the distribution of electricity to 
final customers are not qualified domestic production gross receipts.
    For example, taxpayer A owns a wind turbine that generates 
electricity and taxpayer B owns a high-voltage transmission 
line that passes near taxpayer A's wind turbine and ends near 
the system of local distribution lines of taxpayer C.\79\ 
Taxpayer A sells the electricity produced at the wind turbine 
to taxpayer C and contracts with taxpayer B to transmit the 
electricity produced at the wind turbine to taxpayer C who 
sells the electricity to his or her customers using taxpayer 
C's distribution network. The gross receipts received by 
taxpayer A for the sale of electricity produced at the wind 
turbine constitute qualifying domestic production gross 
receipts. The gross receipts of taxpayer B from transporting 
taxpayer A's electricity to taxpayer C are not qualifying 
domestic production gross receipts. Likewise, the gross 
receipts of taxpayer C from distributing the electricity are 
not qualifying domestic production gross receipts. Also, if 
taxpayer A made direct sales of electricity to customers in 
taxpayer C's service area and taxpayer C received remuneration 
for the distribution of electricity, the gross receipts of 
taxpayer C are not qualifying domestic production gross 
receipts. If taxpayers A, B, and C are all related taxpayers, 
then taxpayers A, B, and C must allocate gross receipts to 
production activities, transmission activities, and 
distribution activities in a manner consistent with the 
preceding example.
---------------------------------------------------------------------------
    \79\ H.R. Rep. No. 108-755 (conference report for the American Jobs 
Creation Act of 2004), footnote 28 at 272.
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    The same principles apply in the case of the natural gas 
industry. In the case of natural gas, production activities 
generally are all activities involved in extracting natural gas 
from the ground and processing the gas into pipeline quality 
gas. Such activities would produce qualifying domestic 
production gross receipts. However, gross receipts of a 
taxpayer attributable to transmission of pipeline quality gas 
from a natural gas field (or from a natural gas processing 
plant) to a local distribution company's citygate (or to 
another customer) are not qualified domestic production gross 
receipts. Likewise, gas purchased by a local gas distribution 
company and distributed from the citygate to the local 
customers does not give rise to domestic production gross 
receipts.\80\
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    \80\ Id.
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Drilling oil or gas wells

    The Treasury regulations provide that qualifying 
construction activities performed in the United States include 
activities relating to drilling an oil or gas well.\81\ Under 
the regulations, activities the cost of which are intangible 
drilling and development costs within the meaning of Treas. Reg 
sec. 1.612-4 are considered to be activities constituting 
construction for purposes of determining domestic production 
gross receipts.\82\
---------------------------------------------------------------------------
    \81\ Treas. Reg. sec. 1.199-3(m)(1)(i).
    \82\ Treas. Reg. sec. 1.199-3(m)(2)(iii).
---------------------------------------------------------------------------

Qualifying in-kind partnerships

    In general, an owner of a pass-thru entity is not treated 
as conducting the qualified production activities of the pass-
thru entity, and vice versa. However, the Treasury regulations 
provide a special rule for ``qualifying in-kind partnerships,'' 
which are defined as partnerships engaged solely in the 
extraction, refining, or processing of oil, natural gas, 
petrochemicals, or products derived from oil, natural gas, or 
petrochemicals in whole or in significant part within the 
United States, or the production or generation of electricity 
in the United States.\83\ In the case of a qualifying in-kind 
partnership, each partner is treated as MPGE or producing the 
property MPGE or produced by the partnership that is 
distributed to that partner.\84\ If a partner of a qualifying 
in-kind partnership derives gross receipts from the lease, 
rental, license, sale, exchange, or other disposition of the 
property that was MPGE or produced by the qualifying in-kind 
partnership, then, provided such partner is a partner of the 
qualifying in-kind partnership at the time the partner disposes 
of the property, the partner is treated as conducting the MPGE 
or production activities previously conducted by the qualifying 
in-kind partnership with respect to that property.\85\
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    \83\ Treas. Reg. sec. 1.199-9(i)(2).
    \84\ Treas. Reg. sec. 1.199-9(i)(1).
    \85\ Id.
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Alternative minimum tax

    The deduction for domestic production activities is allowed 
for purposes of computing alternative minimum taxable income 
(including adjusted current earnings). The deduction in 
computing alternative minimum taxable income is determined by 
reference to the lesser of the qualified production activities 
income (as determined for the regular tax) or the alternative 
minimum taxable income (in the case of an individual, adjusted 
gross income as determined for the regular tax) without regard 
to this deduction.

                           REASONS FOR CHANGE

    The Committee believes that section 199 was enacted to 
replace the extraterritorial income (``ETI'') regime by 
providing new provisions to reduce the tax burden on those 
domestic manufacturers, including small businesses engaged in 
manufacturing. Taxpayers engaged in oil and gas activities were 
not permitted to claim ETI benefits. The Committee believes 
that these taxpayers should not be allowed to claim section 199 
deductions.

                        EXPLANATION OF PROVISION

    The provision excludes gross receipts of the taxpayer 
derived from the sale, exchange, or other disposition of oil, 
natural gas, or any primary product thereof from the term 
``domestic production gross receipts'' for purposes of section 
199. The term ``primary product'' has the same meaning as when 
used in section 927(a)(2)(C), as in effect before its repeal. 
The Treasury regulations define the term ``primary product from 
oil'' to mean crude oil and all products derived from the 
destructive distillation of crude oil, including volatile 
products, light oils such as motor fuel and kerosene, 
distillates such as naphtha, lubricating oils, greases and 
waxes, and residues such as fuel oil.\86\ Additionally, a 
product or commodity derived from shale oil which would be a 
primary product from oil if derived from crude oil is 
considered a primary product from oil.\87\ The term ``primary 
product from gas'' is defined as all gas and associated 
hydrocarbon components from gas wells or oil wells, whether 
recovered at the lease or upon further processing, including 
natural gas, condensates, liquefied petroleum gases such as 
ethane, propane, and butane, and liquid products such as 
natural gasoline.\88\ These primary products and processes are 
not intended to represent either the only primary products from 
oil or gas or the only processes from which primary products 
may be derived under existing and future technologies.\89\ 
Examples of nonprimary products include, but are not limited 
to, petrochemicals, medicinal products, insecticides, and 
alcohols.\90\
---------------------------------------------------------------------------
    \86\ Treas. Reg. sec. 1.927(a)-1T(g)(2)(i).
    \87\ Id.
    \88\ Treas. Reg. sec. 1.927(a)-1T(g)(2)(ii).
    \89\ Treas. Reg. sec. 1.927(a)-1T(g)(2)(iii).
    \90\ Treas. Reg. sec. 1.927(a)-1T(g)(2)(iv).
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                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2007.

2. 7-year amortization of geological and geophysical expenditures for 
        major integrated oil companies (sec. 302 of the bill and sec. 
        167 of the Code)

                              PRESENT LAW

    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. G&G costs incurred by independent 
producers and smaller integrated oil \91\ companies in 
connection with oil and gas exploration in the United States 
may generally be amortized over two years.\92\ Major integrated 
oil companies are required to amortize all G&G costs over five 
years.\93\ For purposes of this provision, a major integrated 
oil company, with respect to any taxable year, is a producer of 
crude oil which has an average daily worldwide production of 
crude oil of at least 500,000 barrels for the taxable year, had 
gross receipts in excess of one billion dollars for its last 
taxable year ending during the calendar year 2005, and 
generally has an ownership interest in a crude oil refiner of 
15 percent or more.\94\
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    \91\ Generally, an integrated oil company is a producer of crude 
oil that engages in the refining or retail sale of petroleum products 
in excess of certain threshold amounts.
    \92\ Sec. 167(h)(1).
    \93\ Sec. 167(h)(5).
    \94\ Id.
---------------------------------------------------------------------------
    In the case of abandoned property, remaining basis may not 
be recovered in the year of abandonment of a property as all 
basis is recovered over the applicable amortization period.

                           REASONS FOR CHANGE

    The Committee believes that a seven year period for 
amortization of G&G costs for major integrated oil companies is 
a more appropriate period for the recovery of these costs.

                        EXPLANATION OF PROVISION

    The provision extends from five years to seven years the 
amortization period for G&G costs for major integrated oil 
companies.

                             EFFECTIVE DATE

    The provision is effective for amounts paid or incurred 
after the date of enactment.

3. Require taxpayers to use an arm's-length fair-market value price for 
        purposes of calculating FOGEI and FORI; treat industry-specific 
        taxes as attributable solely to FOGEI (sec. 303 of the bill and 
        sec. 907 of the Code)

                              PRESENT LAW

In general

            Foreign tax credit
    The United States taxes its citizens and residents 
(including U.S. corporations) on their worldwide income. 
Because the countries in which income is earned also may assert 
their jurisdiction to tax the same income on the basis of 
source, foreign-source income earned by U.S. persons may be 
subject to double taxation. In order to mitigate this 
possibility, the United States generally provides a credit 
against U.S. tax liability for foreign income taxes paid or 
accrued.\95\ In the case of foreign income taxes paid or 
accrued by a foreign subsidiary, a U.S. parent corporation is 
generally entitled to an indirect (also referred to as a deemed 
paid) credit for those taxes when it receives an actual or 
deemed distribution of the underlying earnings from the foreign 
subsidiary.\96\
---------------------------------------------------------------------------
    \95\ Sec. 901.
    \96\ Secs. 902 and 960.
---------------------------------------------------------------------------
            Foreign tax credit limitations
    The foreign tax credit generally is limited to the U.S. tax 
liability on a taxpayer's foreign-source income. This general 
limitation is intended to ensure that the credit serves its 
purpose of mitigating double taxation of foreign-source income 
without offsetting the U.S. tax on U.S.-source income.\97\
---------------------------------------------------------------------------
    \97\ Sec. 904(a).
---------------------------------------------------------------------------
    In addition, this limitation is calculated separately for 
various categories of income, generally referred to as 
``separate limitation categories.'' The total amount of the 
foreign tax credit used to offset the U.S. tax on income in 
each separate limitation category may not exceed the proportion 
of the taxpayer's U.S. tax which the taxpayer's foreign-source 
taxable income in that category bears to its worldwide taxable 
income in that category. The separate limitation rules are 
intended to reduce the extent to which excess foreign taxes 
paid in a high-tax foreign jurisdiction can be ``cross-
credited'' against the residual U.S. tax on low-taxed foreign-
source income.\98\
---------------------------------------------------------------------------
    \98\ Sec. 904(d). For taxable years beginning prior to January 1, 
2007, section 904(d) provides eight separate baskets as a general 
matter, and effectively many more in situations in which various 
special rules apply. The American Jobs Creation Act of 2004 reduced the 
number of baskets from nine to eight for taxable years beginning after 
December 31, 2002, and further reduced the number of baskets to two 
(i.e., ``general'' and ``passive'') for taxable years beginning after 
December 31, 2006. Pub. L. No. 108-357, sec. 404 (2004).
---------------------------------------------------------------------------
            Special limitation on credits for foreign extraction taxes 
                    and taxes on foreign oil related income
    In addition to the foreign tax credit limitations that 
apply to all foreign tax credits, a special limitation is 
placed on foreign income taxes on foreign oil and gas 
extraction income (``FOGEI'').\99\ Under this special 
limitation, amounts claimed as taxes paid on FOGEI of a U.S. 
corporation qualify as creditable taxes (if they otherwise so 
qualify) only to the extent they do not exceed the product of 
the highest marginal U.S. tax rate on corporations (presently 
35 percent) multiplied by such extraction income. Foreign taxes 
paid in excess of that amount on such income are, in general, 
neither creditable nor deductible. The amount of any such taxes 
paid or accrued (or deemed paid) in any taxable year which 
exceeds the FOGEI limitation may be carried back to the 
immediately preceding taxable year and carried forward 10 
taxable years and credited (not deducted) to the extent that 
the taxpayer otherwise has excess FOGEI limitation for those 
years.\100\
---------------------------------------------------------------------------
    \99\ Sec. 907(a).
    \100\ Sec. 907(f). These carryback and carryforward rules are 
similar to the general foreign tax credit carryback and carryforward 
rules of section 904(c).
---------------------------------------------------------------------------
    A similar special limitation applies, in theory, to foreign 
taxes paid on foreign oil related income (``FORI'') in certain 
cases where the foreign law imposing such amount of tax is 
structured, or in fact operates, so that the amount of tax 
imposed with respect to foreign oil related income will 
generally be ``materially greater,'' over a ``reasonable period 
of time,'' than the amount generally imposed on income that is 
neither FORI nor FOGEI.\101\ Under the FORI rules, if this 
theoretical limitation were to apply, then the portion of the 
foreign taxes on FORI so disallowed would be recharacterized as 
a (non-creditable) deductible expense.\102\
---------------------------------------------------------------------------
    \101\ Sec. 907(b).
    \102\ Treas. Reg. sec. 1.907(a)-0(d).
---------------------------------------------------------------------------
    As a general matter, the FOGEI and FORI rules of section 
907 are informed by two related but distinct concerns. First, 
as described by the Staff of the Joint Committee on Taxation in 
1982, the rules were designed to address the perceived problem 
of ``disguised royalties'' being improperly treated as 
creditable foreign taxes:
    When U.S. oil companies began operations in a number of 
major oil exporting countries, they paid only a royalty for the 
oil extracted since there was generally no applicable income 
tax in those countries. However, in part because of the benefit 
to the oil companies of imposing an income tax, as opposed to a 
royalty, those countries have adopted taxes applicable to 
extraction income and have labeled them income taxes. Moreover, 
because of this relative advantage to the oil companies of 
paying income taxes rather than royalties, many oil-producing 
nations in the post-World War II era have tended to increase 
their revenues from oil extraction by increasing their taxes on 
U.S. oil companies.\103\
---------------------------------------------------------------------------
    \103\ Joint Committee on Taxation, Explanation of the Revenue 
Provisions of the Tax Equity and Fiscal Responsibility Act of 1982, 
(JCS-38-82), December 31, 1982, sec. IV.A.7.a, footnote 63.
---------------------------------------------------------------------------
    In addition, the section 907 rules have also been described 
as intended to prevent the crediting of high foreign taxes on 
FOGEI and FORI against the residual U.S. tax on other types of 
lower-taxed foreign source income.\104\ Consistent with this 
concern, between 1975 and 1982 the foreign tax credit rules 
provided a separate limitation category (or ``basket'') under 
the general section 904 limitation for foreign oil income 
(broadly defined to include both FORI and FOGEI within the 
meaning of present law section 907); this separate basket for 
foreign oil income was eliminated when the present law FORI 
rules were added and other changes were made by the Tax Equity 
and Reform Act of 1982.\105\
---------------------------------------------------------------------------
    \104\ H.R. Conf. Rep. No. 103-213, at 646 (1993).
    \105\ Pub. L. No. 97-248, sec. 211(c) (1982).
---------------------------------------------------------------------------

Determination of FOGEI and FORI

            In general
    Determination of a taxpayer's FOGEI and FORI is highly 
specific to the taxpayer's relevant facts and circumstances. 
Under section 907(c)(1), FOGEI is defined as taxable income 
derived from sources outside the United States and its 
possessions from the extraction (by the taxpayer or any other 
person) of minerals from oil or gas wells located outside the 
United States and its possessions or from the sale or exchange 
of assets used by the taxpayer in the trade or business of 
extracting those minerals.\106\ The regulations provide that 
``gross income from extraction is determined by reference to 
the fair market value of the minerals in the immediate vicinity 
of the well.''\107\
---------------------------------------------------------------------------
    \106\ Sec. 907(c)(1).
    \107\ Treas. Reg. sec. 1.907(c)-1(b)(2).
---------------------------------------------------------------------------
    The regulations do not provide specific methods for 
determining the fair market value of the extracted oil or gas 
in the immediate vicinity of the well, but simply provide that 
all the facts and circumstances that exist in the particular 
case must be considered, including (but not limited to) facts 
and circumstances pertaining to the independent market value 
(if any) in the immediate vicinity of the well, the fair market 
value at the port of the foreign country, and the relationships 
between the taxpayer and the foreign government.\108\
---------------------------------------------------------------------------
    \108\ Treas. Reg. sec. 1.907(c)-1(b)(6).
---------------------------------------------------------------------------
    Section 907(c)(2) defines FORI to include taxable income 
from the processing of oil and gas into their primary products, 
from the transportation or distribution and sale of oil and gas 
and their primary products, from the disposition of assets used 
in these activities, and from the performance of any other 
related service.\109\
---------------------------------------------------------------------------
    \109\ Sec. 907(c)(1); Treas. Reg. sec. 1.907(c)-1(d).
---------------------------------------------------------------------------
    As a result of these separate rules governing FOGEI and 
FORI and the interaction between them, a taxpayer's 
determination of the amounts of FOGEI and FORI, as well as the 
allocation of foreign taxes to each class of income, can have a 
significant impact on the taxpayer's overall U.S. tax 
liability.
            IRS field directive
    An October 12, 2004, IRS field directive (the ``2004 Field 
Directive'') sets forth guidance to international examiners and 
specialists on the application of what it describes as the two 
mostcommonly used methods for determining FOGEI and FORI when 
there is no ascertainable market price for the oil and gas in the 
immediate vicinity of the well, namely tie rersidual (rate of return) 
method and the proportionate profits method.
    Under the residual (rate of return) method, the taxpayer 
first calculates FORI by applying an assumed after-tax rate of 
return to the cost of its fixed ``FORI assets.''. Then, because 
income from the production and sale of oil and gas product is 
equal to the sum of FORI and FOGEI, FOGEI is determined by 
subtracting FORI (as calculated) from the taxpayer's total 
foreign income from the production and sale of oil and gas 
product.
    Under the proportionate profits method, the taxpayer 
allocates total income from the production and sale of the oil 
or gas product between FOGEI and FORI based on the relative 
costs of the FOGEI and FORI activities.
    Under either method, the taxpayer must determine its total 
income from the production and sale of oil and gas product, and 
must distinguish between costs and assets classified as 
relating to FOGEI and those relating to FORI. Under the 
residual (rate of return) method, the taxpayer must also 
determine appropriate rates of return for FORI assets. The 2004 
Field Directive sets forth examples of FOGEI assets \110\ and 
FORI assets,\111\ and further provides that assets that support 
both FOGEI and FORI may be allocated by any reasonable 
method.\112\
---------------------------------------------------------------------------
    \110\ Memorandum for Industry Directors (``Field Directive on IRC 
907 Evaluating Taxpayer Methods of Determining Foreign Oil and Gas 
Extraction Income (FOGEI) and Foreign Oil Related Income (FORI)''), 
October 12, 2004 (Tax Analysts Doc 2004-23010; 2004 TNT 233-8). By its 
terms, the 2004 Field Directive ``is not an official pronouncement of 
the law or the Service's position and cannot be used, cited, or relied 
upon as such.''
    \111\ Examples of FOGEI assets include wells, wellheads, and 
pumping equipment; slug catchers, separators, treaters, emulsion 
breakers and stock tanks needed to obtain marketable crude (for oil 
production); primary separation and dehydration equipment needed to 
arrive at a gaseous stream in which hydrocarbons may be recovered (for 
gas production); lines interconnecting the above; the infrastructure-
type equipment to provide for the operation of the above; and 
structures to physically support the above (such as offshore 
platforms).
    \112\ Examples of FORI assets include lines that carry natural gas 
beyond the primary separator and dehydration equipment and towards its 
sales point, and compressors needed to transport through these lines; 
lines that carry marketable crude oil from the premises, as well as 
pumps needed to transport crude oil through these lines; and assets 
used to process crude oil and natural gas.
---------------------------------------------------------------------------
            Apportionment of foreign taxes between FOGEI and FORI
    Under the Code, foreign taxes will be treated as oil and 
gas extraction taxes (and thus subject to the FOGEI limitation) 
to the extent they are paid or accrued during the taxable year 
with respect to FOGEI \113\ Treasury Regulations generally 
provide that, if a relevant foreign country imposes and 
collects foreign taxes on a single tax base that consists 
partly of amounts classified as FOGEI and partly of amounts 
classified as FORI, then such foreign taxes, shall be allocated 
in proportion to such amounts of FORI and FOGEI. For instance, 
suppose,that a foreign country (``County X'') has a corporate 
income tax system which taxes, at an aggregate rate of 40 
percent, all Country X-source oil and gas income (broadly 
defined, so that all of the taxpayer's Country X-source income 
will be subject to this tax rate); suppose further that the 
taxpayer's total Country X taxable income (which is assumed 
here to be. calculated identically for U.S. and Country X tax 
purposes) is $4,000, resulting in a Country X tax of $1,600. 
This $1,600 of tax will be apportioned between FOGEI and FORI 
in proportion to the relevant amounts of the taxpayer's Country 
X FOGEI and FORI.
---------------------------------------------------------------------------
    \113\ Sec. 907(c)(5).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee recognizes that section 907 is currently 
being interpreted in a manner which affords taxpayers great 
flexibility to allocate income between FOGEI and FORI. 
Moreover, because the present-law FORI limitation rules are 
vague and subjective, the Committee is concerned that the FORI 
limitation rarely operates in practice to limit the ability of 
taxpayers to claim credits for taxes attributed to FORI. As a 
result, the Committee believes that taxpayers may be allocating 
income in a manner which results in an inappropriate 
understatement of FOGEI, thereby largely circumventing the 
section 907 limitation rules.

                        EXPLANATION OF PROVISION

    Under the provision, taxpayers are no longer permitted to 
calculate FOGEI and FORI using the methods described in the 
2004 Field Directive; instead, taxpayers must identify the 
first point in time at which the oil or gas has a fair market 
value which can be determined on the basis of either (i) a 
transfer, in an arm's-length transaction, of such oil or gas to 
an unrelated third party by the taxpayer, or (ii) the arrival 
of such oil or gas at a location at which the fair market value 
is readily ascertainable by reason of transactions among 
unrelated third parties with respect to oil or gas that is 
substantially identical to such oil or gas (taking into account 
source, location, quality, and chemical composition). Thus, for 
example, where a taxpayer extracts crude oil at an offshore 
platform (and no readily ascertainable fair market value can be 
determined based upon comparable arm's-length sales in the 
immediate vicinity of the wellhead) and transports the crude 
oil via underwater pipelines (owned by the taxpayer) to a port 
facility (where other unrelated parties are engaged in arm's-
length purchase and sale transactions involving substantially 
identical crude oil), the taxpayer is required to use the 
independent fair market value of the crude oil at the port 
facility for purposes of calculating FOGEI. In such 
circumstances, the taxpayer is permitted to deduct the cost of 
transporting the crude oil to the port facility (as measured by 
its operating expenses attributable to the transportation 
activity, including depreciation of the pipeline) from its 
gross income (calculated with reference to the relevant 
independent fair market value so determined) to determine 
overall FOGEI.
    In addition, the provision also requires that, where a 
foreign country collects taxes that are limited in their 
application to taxpayers engaged in oil or gas activities, such 
a taxpayer is required to treat the entire amount of such taxes 
as oil and gas extraction taxes subject to the FOGEI limitation 
(rather than apportioning such taxes between FOGEI and FORI). 
In such a case, the taxpayer treats the entire amount of income 
on which such taxes are imposed as FOGEI.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2007.

        B. Clarification of Eligibility for Certain Fuel Credits


1. Clarification of eligibility for renewable diesel credit for fuel 
        co-produced with petroleum products (sec. 311 of the bill and 
        secs. 40A and 6426 of the Code)

                              PRESENT LAW

Renewable diesel

    The Code provides a tax incentive of $1.00 per gallon for 
renewable diesel. This incentive may be taken as an income tax 
credit, an excise tax credit, or as a payment from the 
Secretary.\114\ ``Renewable diesel'' means diesel fuel that (1) 
is derived from biomass (as defined in section 45K(c)(3)) using 
a thermal depolymerization process; (2) meets the registration 
requirements for fuels and fuel additives established by the 
Environmental Protection Agency under section 211 of the Clean 
Air Act (42 U.S.C. sec. 7545); and (3) meets the requirements 
of the American Society of Testing and Materials (``ASTM'') 
D975 or D396. ASTM D975 provides standards for diesel fuel 
suitable for use in diesel engines. ASTM D396 provides 
standards for fuel oil intended for use in fuel-oil burning 
equipment, such as furnaces. Biomass, as defined in section 
45K(c)(3), is any organic material other than (1) oil and 
natural gas (or any product thereof), and (2) coal (including 
lignite) or any product thereof
---------------------------------------------------------------------------
    \114\ Secs. 40A, 6426(c), and 6427(e). For purposes of the Code, 
renewable diesel is generally treated as biodiesel.
---------------------------------------------------------------------------
    Pursuant to IRS Notice 2007-37, the Secretary provided that 
fuel produced as a result of co-processing biomass and 
petroleum feedstock (``co-produced fuel'') qualifies for the 
renewable diesel incentives to the extent of the fuel 
attributable to the biomass in the mixture. In co-produced 
fuel, the fuel attributable to the biomass does not exist as a 
distinct separate quantity prior to mixing.

Liquid hydrocarbons from biomass

    The Code provides an excise tax credit 50 cents per gallon 
for certain alternative fuels.\115\ Included among the 
qualified alternative fuels is a provision for liquid 
hydrocarbons produced from biomass. Neither the Code, nor 
Treasury guidance define ``liquid hydrocarbons.'' However, fuel 
that is ethanol, methanol, biodiesel, or renewable diesel does 
not qualify as an alternative fuel.
---------------------------------------------------------------------------
    \115\ Sec. 6426(d). This incentive also can be taken as a payment 
under section 6427(e).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the tax incentives for 
renewable diesel should be used to encourage the building of 
new plants to provide new refining capacity for renewable 
diesel. The incentive was not intended to subsidize existing 
petroleum refining capacity. In the opinion of the Committee, 
IRS Notice 2007-37, which permits the co-processing of biomass 
with petroleumfeedstocks is inconsistent with the statutory 
requirement that renewable diesel be derived from biomass.
    The Committee is aware that there is some uncertainty as to 
whether a ``liquid hydrocarbon from biomass'' is allowed to 
contain oxygen or must consist exclusively of hydrogen and 
carbon. The intent of the provision is to cover generally 
liquid fuels from biomass, and so the provision makes a 
technical correction to that effect.

                        EXPLANATION OF PROVISION

    The provision overrides IRS Notice 2007-37 with respect to 
co-produced fuel, providing that renewable diesel does not 
include any fuel derived from co-processing biomass with a 
feedstock that is not biomass. The deminis use of catalysts, 
such as hydrogen, is permitted under the provision. The 
provision also clarifies the alternative fuel credit by 
replacing the term ``liquid hydrocarbons'' with ``liquid 
fuel.'' The provision provides that alcohol, biodiesel, 
renewable diesel, and qualified mixtures thereof (as 
subsections (b) and (c) of section 6426 and sections 40 and 
40A) do not qualify for the alternative fuel and alternative 
fuel mixture credit.

                             EFFECTIVE DATE

    The provision is generally effective for fuel produced and 
sold or used after June 30, 2007. The alternative fuel credit 
clarification is effective as if included in section 11113 of 
the Safe, Accountable, Flexible, Efficient Transportation 
Equity Act: A Legacy for Users.

2. Clarification that credits for fuel are designed to provide an 
        incentive for United States production (sec. 312 of the bill, 
        and secs. 40, 40A, 6426 and 6427 of the Code)

                              PRESENT LAW

    The Code provides per-gallon incentives relating to the 
following qualified fuels: alcohol (including ethanol), 
biodiesel (including agri-biodiesel), renewable diesel, and 
certain alternative fuels.\116\ The incentives may be taken as 
an income tax credit, excise tax credit or payment. The 
provisions are coordinated so that a gallon of qualified fuel 
is only taken into account once. If the qualified fuel is part 
of a qualified fuel mixture, the incentives apply only to the 
amount of qualified fuel in the mixture.
---------------------------------------------------------------------------
    \116\ See secs. 40, 40A, 6426, and 6427(e).
---------------------------------------------------------------------------
    For alcohol, other than ethanol, the amount of the credit 
is 60 cents per gallon. For ethanol, the credit is 51 cents per 
gallon. The alcohol incentives expire after December 31, 2010. 
The amount of the credit for biodiesel is 50 cents. For agri-
biodiesel and renewable diesel, the credit amount is $1.00 per 
gallon. The biodiesel, agri-biodiesel and renewable diesel 
incentives expire after December 31, 2008. The credit amount 
for alternative fuels is 50 cents per gallon. The incentives 
for alternative fuels expire after September 30, 2009 (after 
September 30, 2014, in the case of liquefied hydrogen).
    The Code is silent as to the geographic limitations on 
where the fuel must ber produced, used, or sold. For imported 
ethanol, there is an offsetting tariff of 54 cents per gallon. 
This tariff expires January 1, 2009.

                           REASONS FOR CHANGE

    Alternative fuels are a significant component of 
encouraging the use of renewable, non-petroleum fuel sources 
and establishing the nation's independence from foreign oil. 
The fuel incentives were not intended to subsidize fuels with 
no nexus to the United States. The Committee believes it is 
important to encourage the domestic production of alternative 
fuels and build a domestic industry to continue alternative 
fuel production. The Committee also believes that subsidized 
domestic fuels should be used domestically and not exported. 
Exported fuels do not contribute to establishing the country's 
fuel independence, therefore, the provision denies the fuel 
credits and payments to fuel that are not for consumption as a 
fuel in the United States.

                        EXPLANATION OF PROVISION

    The provision makes a technical correction to clarify that 
foreign-produced fuel that is used or sold for use outside of 
the United States is ineligible for the per-gallon tax 
incentives relating to alcohol, biodiesel, renewable diesel, 
and alternative fuel.
    On a prospective basis, the provision limits the per-gallon 
tax incentives for biodiesel (including agri-biodiesel), 
renewable diesel, and alternative fuels to fuels produced in 
the United States that are used or sold for use in the United 
States. For this purpose, ``United States'' includes any 
possession of the United States. The taxpayer must obtain a 
certification from the producer of the fuel that identifies the 
product produced and the location of such production. For 
example, whether part of a qualified mixture or alone, 
biodiesel only qualifies for the credit if the biodiesel is 
produced in the United States for consumption in the United 
States. Thus, foreign-produced biodiesel, although imported 
into the United States for consumption in the United States, 
does not qualify for the credit. Similarly, domestically 
produced biodiesel sold for export does not qualify for the 
credit.

                             EFFECTIVE DATE

    For foreign produced alcohol and biodiesel used outside of 
the United States, the provision is effective as if included in 
section 301 of the American Jobs Creation Act of 2004; for 
foreign produced renewable diesel used outside of the United 
States, the provision is effective as if included in section 
1346(c) of the Energy Policy Act of 2005; and for foreign 
produced alternative fuel used outside of the United States, 
the provision is effective as if included in section 11113 of 
the Safe, Accountable, Flexible, Efficient Transportation 
Equity Act: A Legacy for Users. The provision, as it relates to 
the restriction of the payments and credits to fuel both 
produced and used in the United States is effective for fuel 
produced, sold or used after the date of enactment.

                       TITLE IV--OTHER PROVISIONS


                               A. Studies


1. Carbon audit of provisions of the Internal Revenue Code of 1986 
        (sec. 401 of the bill)

                              PRESENT LAW

    Present law does not require a review of the Code for 
provisions that affect carbon emissions and climate. The 
National Research Council is part of the National Academies. 
The National Academy of Sciences serves to investigate, 
examine, experiment and report upon any subject of science 
whenever called upon to do so by any department of the 
government. The National Research Council was organized by the 
National Academy of Sciences in 1916 and is its principal 
operating agency for conducting science policy and technical 
work.

                           REASONS FOR CHANGE

    The Committee believes it is important to identify 
provisions in the Code which affect carbon and other greenhouse 
emissions. This study will provide scientifically-based 
information to aid decision makers in the formulation of tax 
policies aimed at reducing emissions and mitigating climate 
change.

                        EXPLANATION OF PROVISION

    The provision directs the Secretary to request that the 
National Academy of Sciences undertake a comprehensive review 
of the Code to identify the types of and specific tax 
provisions that have the largest effects on carbon and other 
greenhouse gas emissions and to generally estimate the 
magnitude of those effects.\117\ The report should identify the 
provisions of the Code that are most likely to have significant 
effects on carbon emissions and discuss the importance of 
controlling carbon and greenhouse gas emissions as part of a 
comprehensive national strategy for reducing U.S. contributions 
to global climate change.\118\ The report will describe the 
processes by which the tax provisions affect emissions (both 
directly and indirectly), assess the relative influence of the 
identified provisions, and evaluate the potential for changes 
in the Code to reduce carbon emissions. The report also will 
identify other provisions of the Code that may have significant 
influence on other factors affecting climate change.
---------------------------------------------------------------------------
    \117\ A detailed quantitative analysis is not required. It is 
envisioned that the review will catalogue and provide a general 
analysis of the effect of each identified provision.
    \118\ ``Greenhouse gas emissions'' include, but are not limited to, 
methane, nitrous oxide, ozone, and fluorinated hydrocarbons.
---------------------------------------------------------------------------
    The Secretary is to submit to Congress a report containing 
the results of the National Academy of Sciences review within 
two years of the date of enactment. The provision authorizes 
the appropriation of $1,500,000 to carry out the review.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

2. Comprehensive study of biofuels (sec. 402 of the bill)

                              PRESENT LAW

    The National Academy of Sciences serves to investigate, 
examine, experiment and report upon any subject of science 
whenever called upon to do so by any department of the 
government. The National Research Council is part of the 
National Academies. The National Research Council was organized 
by the National Academy of Sciences in 1916 and is its 
principal operating agency for conducting science policy and 
technical work.

                           REASONS FOR CHANGE

    The Committee believes that it is important to have an 
analysis of the current and projected capabilities for biofuel 
production and the effects of such production on non-fuel 
industries and commodities.

                        EXPLANATION OF PROVISION

    The provision requires the Secretary, in consultation with 
the Department of Energy and the Department of Agriculture and 
the Environmental Protection Agency, to enter into an agreement 
with the National Academy of Sciences to produce an analysis of 
current scientific findings to determine:
          1. Current biofuels production, as well as 
        projections for future production;
          2. The maximum amount of biofuels production capable 
        on U.S. farmland;
          3. The domestic effects of a dramatic increase in 
        biofuels production on, for example, (a) the price of 
        fuel, (b) the price of land in rural and suburban 
        communities, (c) crop acreage and other land use, (d) 
        the environment, due to changes in crop acreage, 
        fertilizer use, runoff, water use, emissions from 
        vehicles utilizing biofuels, and other factors, (e) the 
        price of feed, (f) the selling price of grain crops, 
        (g) exports and imports of grains, (h) taxpayers, 
        through cost or savings to commodity crop payments, and 
        (i) the expansion of refinery capacity;
          4. The ability to convert corn ethanol plants for 
        other uses, such as cellulosic ethanol or biodiesel;
          5. A comparative analysis of corn ethanol versus 
        other biofuels and renewable energy sources, 
        considering cost, energy output, and ease of 
        implementation; and
          6. The need for additional scientific inquiry, and 
        specific areas of interest for future research.
    The National Academy of Sciences shall issue an initial 
report of its findings to the Congress not later than three 
months after the date of enactment, and a final report not 
later than six months after the date of enactment.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                      III. 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 vote of the Committee on Ways and Means in its 
consideration of H.R. 2776, the ``Renewable Energy and Energy 
Conservation Tax Act of 2007.''

                    MOTION TO REPORT RECOMMENDATIONS

    The Chairman's Amendment in the Nature of a Substitute, as 
amended, was ordered favorably reported by a roll call vote of 
24 yeas to 16 nays (with a quorum being present). The vote was 
as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................        X   ........  .........  Mr. McCrery......  ........        X   .........
Mr. Stark......................        X   ........  .........  Mr. Herger.......  ........        X   .........
Mr. Levin......................        X   ........  .........  Mr. Camp.........  ........        X   .........
Mr. McDermott..................        X   ........  .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................        X   ........  .........  Mr. Johnson......  ........        X   .........
Mr. Neal.......................        X   ........  .........  Mr. English......  ........        X   .........
Mr. McNulty....................        X   ........  .........  Mr. Weller.......  ........        X   .........
Mr. Tanner.....................        X   ........  .........  Mr. Hulshof......  ........        X   .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...  ........        X   .........
Mr. Doggett....................        X   ........  .........  Mr. Brady........  ........        X   .........
Mr. Pomeroy....................        X   ........  .........  Mr. Reynolds.....  ........        X   .........
Ms. Tubbs Jones................        X   ........  .........  Mr. Ryan.........  ........        X   .........
Mr. Thompson...................        X   ........  .........  Mr. Cantor.......  ........        X   .........
Mr. Larson.....................        X   ........  .........  Mr. Linder.......  ........        X   .........
Mr. Emanuel....................        X   ........  .........  Mr. Nunes........  ........        X   .........
Mr. Blumenauer.................        X   ........  .........  Mr. Tiberi.......  ........        X   .........
Mr. Kind.......................        X   ........  .........  Mr. Porter.......  ........        X   .........
Mr. Pascrell...................        X   ........  .........
Ms. Berkley....................        X   ........  .........
Mr. Crowley....................        X   ........  .........
Mr. Van Hollen.................        X   ........  .........
Mr. Meek.......................        X   ........  .........
Ms. Schwartz...................        X   ........  .........
Mr. Davis......................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                          VOTES ON AMENDMENTS

    A roll call vote was conducted on the following amendments 
to the Chairman's Amendment in the Nature of a Substitute.
    Mr. Herger offered an amendment to the Chairman's amendment 
in the nature of a substitute which would allow qualified 
energy conservation bond proceeds to be used to build new or 
expand existing refinery capacity, or to build and maintain oil 
and gas transmission lines. The amendment was rejected by a 
roll call vote of 17 yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    Mr. Johnson offered an amendment to the Chairman's 
amendment in the nature of a substitute which would repeal the 
new requirement that Davis-Bacon wage and benefit mandates 
apply to all tax credit bonds under section 54A of the Internal 
Revenue Code. The amendment was rejected by a roll call vote of 
12 yeas to 28 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......  ........        X   .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......  ........        X   .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....  ........        X   .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........  ........        X   .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........  ........        X   .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......  ........        X   .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwarz....................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    Mr. English offered an amendment to the Chairman's 
amendment in the nature of a substitute which would provide a 
15-year recovery period for property used in the transmission 
or distribution of electricity for sale. The amendment was 
rejected by a roll call vote of 17 yeas to 23 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    Mr. Weller offered an amendment to the Chairman's amendment 
in the nature of a substitute which would provide an extension 
of the new and existing homes tax credit. The amendment was 
rejected by a roll call vote of 16 yeas to 23 nays and 1 
present. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........  ........        X   .........
Mr. Thompson...................  ........  ........         X   Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    Mr. Hulshof offered an amendment to the Chairman's 
amendment in the nature of a substitute which would prohibit 
the tax credit components of the qualified energy conservation 
bonds and the residential energy efficiency assistance bonds 
from being claimed by anyone other than the holder of the 
underlying bond. The amendment was rejected by a roll call vote 
of 17 yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    Mr. Brady offered an amendment to the Chairman's amendment 
in the nature of a substitute which would condition the repeal 
of the section 199 manufacturing deduction for income 
attributable to the domestic production of oil, natural gas, or 
primary products thereof. The amendment was rejected by a roll 
call vote of 16 yeas to 24 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......  ........        X   .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    Mr. Reynolds offered an amendment to the Chairman's 
amendment in the nature of a substitute which would strike 
public education campaign use of proceeds of qualified energy 
conservation bonds. The amendment was rejected by a roll call 
vote of 16 yeas to 24 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......  ........        X   .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    Mr. Ryan offered an amendment to the Chairman's amendment 
in the nature of a substitute which would place an income 
limitation on recipients of the proceeds from qualified energy 
conservation bonds or qualified residential energy efficiency 
assistance bonds. The amendment was rejected by a roll call 
vote of 16 yeas to 24 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......  ........        X   .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    Mr. Lewis of Kentucky offered an amendment for Mr. Nunes to 
the Chairman's amendment in the nature of a substitute 
regarding investment tax credit for coal-to-liquid fuels 
projects and, expensing for coal-to-liquid fuels projects. The 
amendment was rejected by a roll call vote of 14 yeas to 26 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......  ........        X   .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......  ........        X   .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........  ........        X   .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    Mr. Herger offered an amendment to the Chairman's amendment 
in the nature of a substitute which would require certification 
by the Secretary of the Treasury that this Act would reduce the 
price of gasoline and measurably reduce green house gas 
emissions. The amendment was rejected by a roll call vote of 17 
yeas to 23 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  .................  ........  ........  .........
Ms. Berkley....................  ........        X   .........  .................  ........  ........  .........
Mr. Crowley....................  ........        X   .........  .................  ........  ........  .........
Mr. Van Hollen.................  ........        X   .........  .................  ........  ........  .........
Mr. Meek.......................  ........        X   .........  .................  ........  ........  .........
Ms. Schwartz...................  ........        X   .........  .................  ........  ........  .........
Mr. Davis......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    Mr. Johnson offered an amendment to the Chairman's 
amendment in the nature of a substitute which would delete all 
of the revenue raising provisions in the bill. The amendment 
was rejected by a roll call vote of 16 yeas to 24 nays. The 
vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......  ........        X   .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  .................  ........  ........  .........
Ms. Berkley....................  ........        X   .........  .................  ........  ........  .........
Mr. Crowley....................  ........        X   .........  .................  ........  ........  .........
Mr. Van Hollen.................  ........        X   .........  .................  ........  ........  .........
Mr. Meek.......................  ........        X   .........  .................  ........  ........  .........
Ms. Schwartz...................  ........        X   .........  .................  ........  ........  .........
Mr. Davis......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    Mr. English offered an amendment with Mr. Weller to the 
Chairman's amendment in the nature of a substitute which would 
allow the section 45 production tax credit to be earned in 
excess of 35% of the facility's cost. The amendment was 
rejected by a roll call vote of 17 yeas to 23 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  .................  ........  ........  .........
Ms. Berkley....................  ........        X   .........  .................  ........  ........  .........
Mr. Crowley....................  ........        X   .........  .................  ........  ........  .........
Mr. Van Hollen.................  ........        X   .........  .................  ........  ........  .........
Mr. Meek.......................  ........        X   .........  .................  ........  ........  .........
Ms. Schwartz...................  ........        X   .........  .................  ........  ........  .........
Mr. Davis......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    Mr. Weller offered an amendment to the Chairman's amendment 
in the nature of a substitute which would provide a tax credit 
for certain flexible fuel hybrid vehicles. The amendment was 
rejected by a roll call vote of 15 yeas to 25 nays. The vote 
was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......  ........        X   .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........  ........        X   .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  .................  ........  ........  .........
Ms. Berkley....................  ........        X   .........  .................  ........  ........  .........
Mr. Crowley....................  ........        X   .........  .................  ........  ........  .........
Mr. Van Hollen.................  ........        X   .........  .................  ........  ........  .........
Mr. Meek.......................  ........        X   .........  .................  ........  ........  .........
Ms. Schwartz...................  ........        X   .........  .................  ........  ........  .........
Mr. Davis......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    Mr. Reynolds offered an amendment to the Chairman's 
amendment in the nature of a substitute which would expand 
eligibility for local government allocations of qualified 
energy conservation bonds to include small- and mid-sized 
cities and counties. The amendment was rejected by a roll call 
vote of 18 yeas to 22 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................        X   ........  .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  .................  ........  ........  .........
Ms. Berkley....................  ........        X   .........  .................  ........  ........  .........
Mr. Crowley....................  ........        X   .........  .................  ........  ........  .........
Mr. Van Hollen.................  ........        X   .........  .................  ........  ........  .........
Mr. Meek.......................  ........        X   .........  .................  ........  ........  .........
Ms. Schwartz...................  ........        X   .........  .................  ........  ........  .........
Mr. Davis......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    Mr. Nunes offered an amendment to the Chairman's amendment 
in the nature of a substitute which would exempt independent 
and small producers from repeal of the Sec. 199 deduction for 
income attributable to domestic production of oil, natural gas, 
or primary products thereof. The amendment was rejected by a 
roll call vote of 16 yeas to 24 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......  ........        X   .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  .................  ........  ........  .........
Ms. Berkley....................  ........        X   .........  .................  ........  ........  .........
Mr. Crowley....................  ........        X   .........  .................  ........  ........  .........
Mr. Van Hollen.................  ........        X   .........  .................  ........  ........  .........
Mr. Meek.......................  ........        X   .........  .................  ........  ........  .........
Ms. Schwartz...................  ........        X   .........  .................  ........  ........  .........
Mr. Davis......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    Mr. Weller offered an amendment to the Chairman's amendment 
in the nature of a substitute which would expand the research 
tax credit to promote energy efficient transportation 
technologies. The amendment was rejected by a roll call vote of 
15 yeas to 25 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......  ........        X   .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........  ........        X   .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........  .................  ........  ........  .........
Ms. Berkley....................  ........        X   .........  .................  ........  ........  .........
Mr. Crowley....................  ........        X   .........  .................  ........  ........  .........
Mr. Van Hollen.................  ........        X   .........  .................  ........  ........  .........
Mr. Meek.......................  ........        X   .........  .................  ........  ........  .........
Ms. Schwartz...................  ........        X   .........  .................  ........  ........  .........
Mr. Davis......................  ........        X   .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------

    Mr. Weller offered an amendment to the Chairman's amendment 
in the nature of a substitute concerning expensing for 
refueling property. The amendment was rejected by a roll call 
vote of 15 yeas to 25 nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......  ........        X   .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........  ........        X   .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    Mr. Brady offered an amendment to the Chairman's amendment 
in the nature of a substitute which would require the Secretary 
of the Treasury to study the economic effects of the Act. The 
amendment was rejected by a roll call vote of 17 yeas to 23 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........        X   ........  .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    Mr. English offered an amendment to the Chairman's 
amendment in the nature of a substitute which would create 
investment tax credit for in-situ oil shale extraction property 
and allow for expensing of oil shale extraction equipment. The 
amendment was rejected by a roll call vote of 16 yeas to 24 
nays. The vote was as follows:

----------------------------------------------------------------------------------------------------------------
        Representatives             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Rangel.....................  ........        X   .........  Mr. McCrery......        X   ........  .........
Mr. Stark......................  ........        X   .........  Mr. Herger.......        X   ........  .........
Mr. Levin......................  ........        X   .........  Mr. Camp.........        X   ........  .........
Mr. McDermott..................  ........        X   .........  Mr. Ramstad......        X   ........  .........
Mr. Lewis (GA).................  ........        X   .........  Mr. Johnson......        X   ........  .........
Mr. Neal.......................  ........        X   .........  Mr. English......        X   ........  .........
Mr. McNulty....................  ........        X   .........  Mr. Weller.......        X   ........  .........
Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......        X   ........  .........
Mr. Becerra....................  ........  ........  .........  Mr. Lewis (KY)...        X   ........  .........
Mr. Doggett....................  ........        X   .........  Mr. Brady........        X   ........  .........
Mr. Pomeroy....................  ........        X   .........  Mr. Reynolds.....        X   ........  .........
Ms. Tubbs Jones................  ........        X   .........  Mr. Ryan.........  ........        X   .........
Mr. Thompson...................  ........        X   .........  Mr. Cantor.......        X   ........  .........
Mr. Larson.....................  ........        X   .........  Mr. Linder.......        X   ........  .........
Mr. Emanuel....................  ........        X   .........  Mr. Nunes........        X   ........  .........
Mr. Blumenauer.................  ........        X   .........  Mr. Tiberi.......        X   ........  .........
Mr. Kind.......................  ........        X   .........  Mr. Porter.......        X   ........  .........
Mr. Pascrell...................  ........        X   .........
Ms. Berkley....................  ........        X   .........
Mr. Crowley....................  ........        X   .........
Mr. Van Hollen.................  ........        X   .........
Mr. Meek.......................  ........        X   .........
Ms. Schwartz...................  ........        X   .........
Mr. Davis......................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

                     IV. 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. 2776 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2007-2012:


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.

H.R. 2776--Renewable Energy and Energy Conservation Tax Act of 2007

    Summary: H.R. 2776 would make several changes to energy tax 
law. The changes would include extending and creating certain 
energy tax credits, establishing energy tax bonds, and 
modifying rules related to oil and gas taxes.
    The Joint Committee on Taxation (JCT) estimates that 
enacting H.R. 2776 would decrease revenues by less than 
$500,000 in 2007, increase revenues by $1.8 billion over the 
2007-2012 period, and increase revenues by $1.7 billion over 
the 2007-2017 period. JCT also estimates that the bill would 
increase outlays by $876 million over the 2007-2012 period and 
by $1.7 billion over the 2007-2017 period. The Congressional 
Budget Office (CBO) estimates that implementing the bill would 
cost $3 million to $4 million annually, subject to 
appropriation of the necessary amounts.
    JCT has reviewed the tax provisions of H.R. 2776 and has 
determined that they contain two private-sector mandates as 
defined in the Unfunded Mandates Reform Act (UMRA): the denial 
of deduction for income attributable to domestic production of 
oil, natural gas, or primary products thereof; and the 
clarification of determination of foreign oil and gas 
extraction income. The costs required to comply with each 
federal private-sector mandate generally are no greater than 
the aggregate estimate budget effects of the provision. The 
aggregate direct costs of the private-sector mandates in the 
bill would exceed the annual threshold established by UMRA for 
private-sector mandates ($131 million in 2007, adjusted 
annually for inflation) in each year beginning in fiscal year 
2008.
    JCT has also determined that the tax provisions of the bill 
contain no intergovernmental mandates. CBO has determined that 
the non-tax provisions in H.R. 2776 contain no private-sector 
or intergovernmental mandates as defined in UMRA.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of the bill over the 2007-2017 period is shown 
in the following table. The budgetary impact of this 
legislation falls within function 800 (general government).

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              By fiscal year, in millions of dollars--
                                                                  ------------------------------------------------------------------------------------------------------------------------------
                                                                     2007     2008     2009     2010     2011     2012      2013      2014      2015      2016      2017    2007-2012  2007-2017
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       CHANGES IN REVENUES

Title I: Production Incentives...................................       -5     -294     -433     -348     -448      -723      -965    -1,077    -1,090    -1,167    -1,236     -2,247     -7,782
Title II: Conservation Provisions................................       -3     -103     -264     -529     -485      -728      -859      -778      -766      -650      -614     -2,109     -5,775
Title III: Revenue Raising Provisions............................        8      588    1,159    1,310    1,480     1,558     1,643     1,728     1,825     1,934     2,052      6,106     15,286
                                                                  ------------------------------------------------------------------------------------------------------------------------------
    Total Changes................................................        *      191      462      433      547       107      -181      -127       -31       117       202      1,750      1,729

                                                                                   CHANGES IN DIRECT SPENDING

Title II: Conservation Provisions:
Estimated Budget Authority.......................................        0      169        0      338      200       169       169       169       169       169       169        876      1,721
Estimated Outlays................................................        0      169        0      338      200       169       169       169       169       169       169        876      1,721

                                                                          CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Title II: Conservation Provisions:
Estimated Authorization Level....................................        0        2        3        3        3         3         3         3         3         3         3         14         30
Estimated Outlays................................................        0        2        3        3        3         3         3         3         3         3         3         14         30
Title IV: Other Provisions:
Estimated Authorization Level....................................        0        2        1        0        0         0         0         0         0         0         0          3          3
Estimated Outlays................................................        0        2        1        0        0         0         0         0         0         0         0          3          3
Total Changes:
Estimated Authorization Level....................................        0        4        4        3        3         3         3         3         3         3         3         17         33
Estimated Outlays................................................        0        4        4        3        3         3         3         3         3         3         3         17        33
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Notes: Numbers may not sum to totals because of rounding.
*=loss of less than $500,000.
Sources: Joint Committee on Taxation and Congressional Budget Office.

    Basis of estimate: For this estimate, CBO and JCT assume 
that the bill will be enacted by July 1, 2007. JCT provided the 
estimates of changes in revenues and direct spending. CBO 
provided the estimates of changes in spending subject to 
appropriation.

Revenues and direct spending

    The legislation would make several energy tax law changes. 
JCT estimates that enacting H.R. 2776 would reduce revenues by 
less than $500,000 in 2007, increase revenues by $1.8 billion 
over the 2007-2012 period, and increase revenues by $1.7 
billion over the 2007-2017 period.
    Title I includes a provision that would extend and modify 
the renewable energy tax credit. Currently, the production of 
electricity from certain energy resources (such as wind and 
solar energy) is allowed an income tax credit that is set to 
expire for property placed in service after 2008. H.R. 2776 
would extend the credit for new property through December 31, 
2012, and it would expand the definition of qualified energy 
resources. Additionally, rather than phasing out the credit (as 
under current law), the bill would place an annual limit on the 
total credits that may be claimed by a facility. JCT estimates 
that this provision would reduce revenues by $1.4 billion over 
the 2007-2012 period and by $6.6 billion over the 2007-2017 
period. All in all, title I would reduce revenues, JCT 
estimates, by $5 million in 2007, by $2.2 billion over the 
2007-2012 period, and by $7.8 billion over the 2007-2017 
period.
    Title II, JCT estimates, would reduce revenues by $3 
million in 2007, by $2.1 billion over the 2007-2012 period, and 
by $5.8 billion over the 2007-2017 period. First, the title 
would allow a credit for plug-in hybrid vehicles, which JCT 
estimates would reduce revenues by $189 million over the 2007-
2012 period and by $1.2 billion over the 2007-2017 period. 
Second, it would create energy conservation bonds to be used, 
for example, to finance expenditures made to reduce energy 
consumption. JCT estimates that this provision would reduce 
revenues by less than $500,000 in 2007, by $481 million over 
the 2007-2012 period, and by $1.5 billion over the 2007-2017 
period. Third, the bill also would allow a five-year recovery 
period for time-based meters that measure and record 
electricity use at different points in the day and provides 
that data to the supplier or provider. Those meters are allowed 
a 20-year recovery period under current law. JCT estimates that 
this provision would reduce revenues by $371 million over the 
2007-2012 period and by $1.3 billion over the 2007-2017 period.
    Among other provisions, title II would restructure certain 
New York Liberty Zone tax incentives, which were enacted 
following the September 11, 2001, terrorist attacks. First, the 
bill would repeal the provisions that allow accelerated 
depreciation for certain property in the Liberty Zone. JCT 
estimates that repealing those provisions would increase 
revenue by $101 million over the 2007-2012 period and by $86 
million over the 2007-2017 period. Second, the bill would 
provide the city of New York and the state of New York with tax 
credits for a certain amount of their expenditures made for 
transportation infrastructure related to the Liberty Zone. The 
credits could be used against the income taxes that the 
jurisdictions withhold from the paychecks of their employees 
and remit to the Internal Revenue Service. Because the 
jurisdictions do not owe federal income tax liability, the 
credits are considered federal spending. JCT estimates that 
instituting the credits would increase direct spending by $876 
million over the 2007-2012 period and by $1.7 billion over the 
2007-2017 period.
    Title III includes multiple provisions that raise revenue. 
First, the bill would deny a tax deduction under section 199 of 
the Internal Revenue Code to any income from the sale or 
exchange of oil, natural gas, or related products, beginning in 
2008. JCT estimates that this would increase revenues by $4.2 
billion over the 2007-2012 period and by $11.4 billion over the 
2007-2017 period.
    Second, H.R. 2776 would modify the methods that 
transnational firms use to calculate their foreign oil and 
extraction income and their foreign oil related income. JCT 
estimates that these provisions would increase revenues by $4 
million in 2007, by $1.6 billion over the 2007-2012 period, and 
by $3.6 billion over the 2007-2017 period. JCT estimates that 
title III as a whole would increase revenue by $8 million in 
2007, by $6.1 billion over the 2007-2012 period, and by $15.3 
billion over the 2007-2017 period.

Spending subject to appropriation

    Section 205 would expand the use of federal employee 
transportation fringe benefits to include bicycle commuters. 
The provision would allow up to $20 per month for repairs, 
upgrades, and storage to employees who regularly use a bicycle 
for commuting purposes. Based on information from the U.S. 
Census Bureau, CBO estimates that about 11,000 federal 
employees currently commute via bicycle. Assuming the 
appropriation of the necessary amounts, CBO estimates that 
implementing this provision would cost the federal government 
$2 million in 2008 and about $30 million over the 2008-2017 
period.
    Additionally, H.R. 2776 would require two reports by the 
National Academy of Sciences. One report would evaluate tax 
provisions in the Internal Revenue Code of 1986 that affect 
carbon and greenhouse gas emissions, while the other report 
would concern biofuels, including their present status and 
future potential. Based on the cost of similar studies and 
assuming the appropriation of the specified and necessary 
amounts, CBO estimates that these studies would cost $2 million 
in 2008 and $3 million over the 2008-2009 period.
    Intergovernmental and private-sector impact: JCT has 
reviewed the tax provisions of H.R. 2776 and has determined 
that they contain two private-sector mandates as defined in 
UMRA: the denial of deduction for income attributable to 
domestic production of oil, natural gas, or primary products 
thereof; and the clarification of determination of foreign oil 
and gas extraction income. The costs required to comply with 
each federal private-sector mandate generally are no greater 
than the aggregate estimate budget effects of the provision. 
The aggregate direct costs of the private-sector mandates in 
the bill would exceed the annual threshold established by UMRA 
for private-sector mandates ($131 million in 2007, adjusted 
annually for inflation) in each year beginning in fiscal year 
2008.
    JCT has also determined that the tax provisions of the bill 
contain no intergovernmental mandates. CBO has determined that 
the non-tax provisions in H.R. 2776 contain no private-sector 
or intergovernmental mandates as defined in UMRA.
    Estimate prepared by: Federal revenues: Emily Schlect; 
Federal spending: Matthew Pickford; Impact on state, local, and 
tribal governments: Neil Hood; Impact on the private sector: 
Amy Petz.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis; Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                    D. Macroeconomic Impact Analysis

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

     V. 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 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 contains two 
unfunded Federal mandates on the private sector: (1) The denial 
of deduction for income attributable to domestic production of 
oil, natural gas, or primary products thereof; and (2) The 
clarification of determination of foreign oil and gas 
extraction income.
    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. Limited Tax Benefits

    Pursuant to clause 9 of rule XXI of the Rules of the House 
of Representatives, the Ways and Means Committee has determined 
that the bill as reported contains no congressional earmarks, 
limited tax benefits, or limited tariff benefits within the 
meaning of that Rule.

        H. 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.

     * * * * * * *

     [subpart h. nonrefundable credit to holders of certain bonds.]

  subpart h. nonrefundable credit to holders of clean renewable energy 
                                 bonds.

subpart i. qualified tax credit bonds.

           *       *       *       *       *       *       *


Subpart A--Nonrefundable Personal Credits

           *       *       *       *       *       *       *


SEC. 23. ADOPTION EXPENSES.

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

           *       *       *       *       *       *       *

          (4) Limitation based on amount of tax.--In the case 
        of a taxable year to which section 26(a)(2) does not 
        apply, 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 
                section 25D) and section 27 for the taxable 
                year.

           *       *       *       *       *       *       *


SEC. 24. CHILD TAX CREDIT.

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

           *       *       *       *       *       *       *

          (3) Limitation based on amount of tax.--In the case 
        of a taxable year to which section 26(a)(2) does not 
        apply, 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, 25D, and 30D) 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--
                          (i) * * *
                          (ii) in the case of a taxable year to 
                        which section 26(a)(2) does not apply, 
                        the limitation imposed by section 
                        26(a)(1) for the taxable year reduced 
                        by the sum of the credits allowable 
                        under this subpart (other than this 
                        section and sections 23, 24, 25B, 25D, 
                        30D, and 1400C).

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

  (g) Limitation Based on Amount of Tax.--In the case of a 
taxable year to which section 26(a)(2) does not apply, 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, 25D, and 30D) and section 27 for the 
        taxable year.

           *       *       *       *       *       *       *


SEC. 25C. NONBUSINESS ENERGY PROPERTY.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Special Rules.--For purposes of this section--
          (1) Application of rules.--Rules similar to the rules 
        under paragraphs (4), (5), (6), (7), [(8), and (9)] and 
        (8) (and paragraph (4) as in effect before its repeal 
        by the Renewable Energy and Energy Conservation Tax Act 
        of 2007) of section 25D(e) shall apply.

           *       *       *       *       *       *       *


SEC. 25D. RESIDENTIAL ENERGY EFFICIENT PROPERTY.

  (a) * * *
  [(b) Limitations.--
          [(1) Maximum credit.--The credit allowed under 
        subsection (a) (determined without regard to subsection 
        (c)) for any taxable year shall not exceed--
                  [(A) $2,000 with respect to any qualified 
                solar electric property expenditures,
                  [(B) $2,000 with respect to any qualified 
                solar water heating property expenditures, and
                  [(C) $500 with respect to each half kilowatt 
                of capacity of qualified fuel cell property (as 
                defined in section 48(c)(1)) for which 
                qualified fuel cell property expenditures are 
                made.
          [(2) Certification of solar water heating property.--
        No credit shall be allowed under this section for an 
        item of property described in subsection (d)(1) unless 
        such property is certified for performance by the non-
        profit Solar Rating Certification Corporation or a 
        comparable entity endorsed by the government of the 
        State in which such property is installed.
  [(c) Carryforward of Unused Credit.--
          [(1) Rule for years in which all personal credits 
        allowed against regular and alternative minimum tax.--
        In the case of a taxable year to which section 26(a)(2) 
        applies, if the credit allowable under subsection (a) 
        exceeds the limitation imposed by section 26(a)(2) for 
        such taxable year reduced by the sum of the credits 
        allowable under this subpart (other than this section), 
        such excess shall be carried to the succeeding taxable 
        year and added to the credit allowable under subsection 
        (a) for such succeeding taxable year.
          [(2) Rule for other years.--In the case of a taxable 
        year to which section 26(a)(2) does not apply, if the 
        credit allowable under subsection (a) exceeds the 
        limitation imposed by section 26(a)(1) for such taxable 
        year reduced by the sum of the credits allowable under 
        this subpart (other than this section and sections 23, 
        24, and 25B), such excess shall be carried to the 
        succeeding taxable year and added to the credit 
        allowable under subsection (a) for such succeeding 
        taxable year.]
  (b) Certification of Solar Water Heating Property.--No credit 
shall be allowed under this section for an item of property 
described in subsection (d)(1) unless such property is 
certified for performance by the non-profit Solar Rating 
Certification Corporation or a comparable entity endorsed by 
the government of the State in which such property is 
installed.
  (c) Limitation Based on Amount of Tax; Carryforward of Unused 
Credit.--
          (1) Limitation based on amount of tax.--In the case 
        of a taxable year to which section 26(a)(2) does not 
        apply, 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) Carryforward of unused credit.--
                  (A) Rule for years in which all personal 
                credits allowed against regular and alternative 
                minimum tax.--In the case of a taxable year to 
                which section 26(a)(2) applies, if the credit 
                allowable under subsection (a) exceeds the 
                limitation imposed by section 26(a)(2) for such 
                taxable year reduced by the sum of the credits 
                allowable under this subpart (other than this 
                section), such excess shall be carried to the 
                succeeding taxable year and added to the credit 
                allowable under subsection (a) for such 
                succeeding taxable year.
                  (B) Rule for other years.--In the case of a 
                taxable year to which section 26(a)(2) does not 
                apply, if the credit allowable under subsection 
                (a) exceeds the limitation imposed by paragraph 
                (1) for such taxable year, such excess shall be 
                carried to the succeeding taxable year and 
                added to the credit allowable under subsection 
                (a) for such succeeding taxable year.

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          [(4) 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 two 
        or more individuals the following rules shall apply:
                  [(A) Maximum expenditures.--The maximum 
                amount of expenditures which may be taken into 
                account under subsection (a) by all such 
                individuals with respect to such dwelling unit 
                during such calendar year shall be--
                          [(i) $6,667 in the case of any 
                        qualified solar electric property 
                        expenditures,
                          [(ii) $6,667 in the case of any 
                        qualified solar water heating property 
                        expenditures, and
                          [(iii) $1,667 in the case of each 
                        half kilowatt of capacity of qualified 
                        fuel cell property (as defined in 
                        section 48(c)(1)) for which qualified 
                        fuel cell property expenditures are 
                        made.
                  [(B) Allocation of expenditures.--The 
                expenditures allocated to any individual for 
                the taxable year in which such calendar year 
                ends shall be an amount equal to the lesser 
                of--
                          [(i) the amount of expenditures made 
                        by such individual with respect to such 
                        dwelling during such calendar year, or
                          [(ii) the maximum amount of such 
                        expenditures set forth in subparagraph 
                        (A) multiplied by a fraction--
                                  [(I) the numerator of which 
                                is the amount of such 
                                expenditures with respect to 
                                such dwelling made by such 
                                individual during such calendar 
                                year, and
                                  [(II) the denominator of 
                                which is the total expenditures 
                                made by all such individuals 
                                with respect to such dwelling 
                                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 (d).]
          [(5)] (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 his tenant-stockholder's proportionate share (as 
        defined in section 216(b)(3)) of any expenditures of 
        such corporation.
          [(6)] (5) Condominiums.--
                  (A) * * *

           *       *       *       *       *       *       *

          [(7)] (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.
          [(8)] (7) When expenditure made; amount of 
        expenditure.--
                  (A) * * *

           *       *       *       *       *       *       *

          [(9)] (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)).

           *       *       *       *       *       *       *


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, 25D, and 30D) 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. 30D. Plug-in hybrid vehicles.

           *       *       *       *       *       *       *


SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

  (d) New Qualified Hybrid Motor Vehicle Credit.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) New qualified hybrid motor vehicle.--For purposes 
        of this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Exclusion of plug-in vehicles.--Any 
                vehicle with respect to which a credit is 
                allowable under section 30D (determined without 
                regard to subsection (c) thereof) shall not be 
                taken into account under this section.

           *       *       *       *       *       *       *

  (g) Application with Other Credits.--
          (1) * * *
          [(2) Personal credit.--The credit allowed under 
        subsection (a) (after the application of paragraph (1)) 
        for any taxable year shall not exceed the excess (if 
        any) of--
                  [(A) the regular tax liability (as defined in 
                section 26(b)) reduced by the sum of the 
                credits allowable under subpart A and sections 
                27 and 30, over
                  [(B) the tentative minimum tax for the 
                taxable year.]
          (2) Personal credit.--The credit allowed under 
        subsection (a) for any taxable year (after application 
        of paragraph (1)) shall be treated as a credit 
        allowable under subpart A for such taxable year.

           *       *       *       *       *       *       *


SEC. 30C. ALTERNATIVE FUEL VEHICLE REFUELING PROPERTY CREDIT.

  (a) Credit Allowed.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an 
amount equal to [30] 50 percent of the cost of any qualified 
alternative fuel vehicle refueling property placed in service 
by the taxpayer during the taxable year.
  (b) Limitation.--The credit allowed under subsection (a) with 
respect to any alternative fuel vehicle refueling property 
shall not exceed--
          (1) [$30,000] $50,000 in the case of a property of a 
        character subject to an allowance for depreciation, and

           *       *       *       *       *       *       *

  (d) Application with Other Credits.--
          (1) * * *
          (2) Personal credit.--The credit allowed under 
        subsection (a) (after the application of paragraph (1)) 
        for any taxable year shall not exceed the excess (if 
        any) of--
                  (A) the regular tax liability (as defined in 
                section 26(b)) reduced by the sum of the 
                credits allowable under subpart A and [sections 
                27, 30, and 30B] sections 27 and 30, over

           *       *       *       *       *       *       *

  (g) Termination.--This section shall not apply to any 
property placed in service--
          (1) * * *
          (2) in the case of any other property, after December 
        31, [2009] 2010.

           *       *       *       *       *       *       *


SEC. 30D. PLUG-IN HYBRID VEHICLES.

  (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 plug-in hybrid 
vehicle placed in service by the taxpayer during the taxable 
year.
  (b) Per Vehicle Dollar Limitation.--
          (1) In general.--The amount determined under this 
        subsection with respect to any qualified plug-in hybrid 
        vehicle is the sum of the amounts determined under 
        paragraphs (2) and (3) with respect to such vehicle.
          (2) Base amount.--The amount determined under this 
        paragraph is $4,000.
          (3) Battery capacity.--In the case of vehicle which 
        draws propulsion energy from a battery with not less 
        than 5 kilowatt hours of capacity, the amount 
        determined under this paragraph is $200, plus $200 for 
        each kilowatt hour of capacity in excess of 5 kilowatt 
        hours. The amount determined under this paragraph shall 
        not exceed $2,000.
  (c) Application With Other Credits.--
          (1) Business credit treated as part of general 
        business credit.--So much of the credit which would be 
        allowed under subsection (a) for any taxable year 
        (determined without regard to this subsection) that is 
        attributable to property of a character subject to an 
        allowance for depreciation shall be treated as a credit 
        listed in section 38(b) for such taxable year (and not 
        allowed under subsection (a)).
          (2) Personal credit.--
                  (A) In general.--For purposes of this title, 
                the credit allowed under subsection (a) for any 
                taxable year (determined after application of 
                paragraph (1)) shall be treated as a credit 
                allowable under subpart A for such taxable 
                year.
                  (B) Limitation based on amount of tax.--In 
                the case of a taxable year to which section 
                26(a)(2) does not apply, the credit allowed 
                under subsection (a) for any taxable year 
                (determined after application of paragraph (1)) 
                shall not exceed the excess of--
                          (i) the sum of the regular tax 
                        liability (as defined in section 26(b)) 
                        plus the tax imposed by section 55, 
                        over
                          (ii) the sum of the credits allowable 
                        under subpart A (other than this 
                        section and sections 23 and 25D) and 
                        section 27 for the taxable year.
  (d) Qualified Plug-in Hybrid Vehicle.--For purposes of this 
section--
          (1) In general.--The term ``qualified plug-in hybrid 
        vehicle'' means a motor vehicle (as defined in section 
        30(c)(2))--
                  (A) the original use of which commences with 
                the taxpayer,
                  (B) which is acquired for use or lease by the 
                taxpayer and not for resale,
                  (C) which is made by a manufacturer,
                  (D) which has a gross vehicle weight rating 
                of less than 14,000 pounds,
                  (E) which has received a certificate of 
                conformity under the Clean Air Act and meets or 
                exceeds the Bin 5 Tier II emission standard 
                established in regulations prescribed by the 
                Administrator of the Environmental Protection 
                Agency under section 202(i) of the Clean Air 
                Act for that make and model year vehicle,
                  (F) which is propelled to a significant 
                extent by an electric motor which draws 
                electricity from a battery which--
                          (i) has a capacity of not less than 4 
                        kilowatt hours, and
                          (ii) is capable of being recharged 
                        from an external source of electricity, 
                        and
                  (G) which either--
                          (i) is also propelled to a 
                        significant extent by other than an 
                        electric motor, or
                          (ii) has a significant onboard source 
                        of electricity which also recharges the 
                        battery referred to in subparagraph 
                        (F).
          (2) Exception.--The term ``qualified plug-in hybrid 
        vehicle'' shall not include any vehicle which is not a 
        passenger automobile or light truck if such vehicle has 
        a gross vehicle weight rating of less than 8,500 
        pounds.
          (3) Other terms.--The terms ``passenger automobile'', 
        ``light truck'', and ``manufacturer'' have the meanings 
        given such terms in regulations prescribed by the 
        Administrator of the Environmental Protection Agency 
        for purposes of the administration of title II of the 
        Clean Air Act (42 U.S.C. 7521 et seq.).
          (4) Battery capacity.--The term ``capacity'' means, 
        with respect to any battery, the quantity of 
        electricity which the battery is capable of storing, 
        expressed in kilowatt hours, as measured from a 100 
        percent state of charge to a 0 percent state of charge.
  (e) Limitation on Number of Qualified Plug-in Hybrid Vehicles 
Eligible for Credit.--
          (1) In general.--In the case of a qualified plug-in 
        hybrid vehicle sold during the phaseout period, only 
        the applicable percentage of the credit otherwise 
        allowable under subsection (a) shall be allowed.
          (2) Phaseout period.--For purposes of this 
        subsection, the phaseout period is the period beginning 
        with the second calendar quarter following the calendar 
        quarter which includes the first date on which the 
        number of qualified plug-in hybrid vehicles 
        manufactured by the manufacturer of the vehicle 
        referred to in paragraph (1) sold for use in the United 
        States after the date of the enactment of this section, 
        is at least 60,000.
          (3) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage is--
                  (A) 50 percent for the first 2 calendar 
                quarters of the phaseout period,
                  (B) 25 percent for the 3d and 4th calendar 
                quarters of the phaseout period, and
                  (C) 0 percent for each calendar quarter 
                thereafter.
          (4) Controlled groups.--Rules similar to the rules of 
        section 30B(f)(4) shall apply for purposes of this 
        subsection.
  (f) Special Rules.--
          (1) Basis reduction.--The basis of any property for 
        which a credit is allowable under subsection (a) shall 
        be reduced by the amount of such credit (determined 
        without regard to subsection (c)).
          (2) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit 
        allowable under subsection (a) with respect to any 
        property which ceases to be property eligible for such 
        credit.
          (3) Property used outside united states, etc., not 
        qualified.--No credit shall be allowed 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.
          (4) Election not to take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the 
        taxpayer elects to not have this section apply to such 
        vehicle.
          (5) Property used by tax-exempt entity; interaction 
        with air quality and motor vehicle safety standards.--
        Rules similar to the rules of paragraphs (6) and (10) 
        of section 30B(h) shall apply for purposes of this 
        section.

Subpart D--Business Related Credits

           *       *       *       *       *       *       *


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) * * *

           *       *       *       *       *       *       *

          (8) the renewable electricity production credit under 
        section 45(a), [and]

           *       *       *       *       *       *       *

          (24) the energy efficient appliance credit determined 
        under section 45M(a), [and]

           *       *       *       *       *       *       *

          (30) the Hurricane Wilma employee retention credit 
        determined under section 1400R(c), [plus]
          (31) the mine rescue team training credit determined 
        under section 45N(a)[.], plus
          (32) the portion of the plug-in hybrid vehicle credit 
        to which section 30D(c)(1) applies.
  (c) Limitation Based on Amount of Tax.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Special rules for New York Liberty Zone business 
        employee credit.--
                  (A) * * *
                  (B) New york liberty zone business employee 
                credit.--For purposes of this subsection, the 
                term ``New York Liberty Zone business employee 
                credit'' means the portion of work opportunity 
                credit under section 51 determined under 
                section [1400L(a)] 1400K(a).
          (4) Special rules for specified credits.--
                  (A) * * *
                  (B) Specified credits.--For purposes of this 
                subsection, the term ``specified credits'' 
                means--
                          (i) * * *

           *       *       *       *       *       *       *

                          (iii) the credit determined under 
                        section 45B, [and]
                          (iv) the credit determined under 
                        section 51[.], and
                          (v) the credit determined under 
                        section 46 to the extent that such 
                        credit is attributable to the energy 
                        credit determined under section 48.

           *       *       *       *       *       *       *


SEC. 40. ALCOHOL USED AS FUEL.

  (a) General Rule.--For purposes of section 38, the alcohol 
fuels credit determined under this section for the taxable year 
is an amount equal to the sum of--
          (1) the alcohol mixture credit, [plus]
          (2) the alcohol credit, [plus]
          (3) in the case of an eligible small ethanol 
        producer, the small ethanol producer credit[.], plus
          (4) in the case of a cellulosic alcohol fuel 
        producer, the cellulosic alcohol fuel producer credit.

           *       *       *       *       *       *       *

  (b) Definition of Alcohol Mixture Credit, Alcohol Credit, and 
Small Ethanol Producer Credit.--For purposes of this section, 
and except as provided in subsection (h)--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Cellulosic alcohol fuel producer credit.--
                  (A) In general.--The cellulosic alcohol fuel 
                producer credit of any cellulosic alcohol fuel 
                producer for any taxable year is 50 cents for 
                each gallon of qualified cellulosic fuel 
                production of such producer.
                  (B) Qualified cellulosic fuel production.--
                For purposes of this paragraph, the term 
                ``qualified cellulosic fuel production'' means 
                any cellulosic alcohol which is produced by a 
                cellulosic alcohol fuel producer, and which 
                during the taxable year--
                          (i) is sold by such producer to 
                        another person--
                                  (I) for use by such other 
                                person in the production of a 
                                qualified mixture in such other 
                                person's trade or business 
                                (other than casual off-farm 
                                production),
                                  (II) for use by such other 
                                person as a fuel in a trade or 
                                business, or
                                  (III) who sells such alcohol 
                                at retail to another person and 
                                places such alcohol in the fuel 
                                tank of such other person, or
                          (ii) is used or sold by such producer 
                        for any purpose described in clause 
                        (i).
                  (C) Cellulosic alcohol.--For purposes of this 
                paragraph, the term ``cellulosic alcohol'' 
                means any alcohol which--
                          (i) is produced in the United States 
                        for use as a fuel in the United States, 
                        and
                          (ii) is derived from any 
                        lignocellulosic or hemicellulosic 
                        matter that is available on a renewable 
                        or recurring basis.
                For purposes of this subparagraph, the term 
                ``United States'' includes any possession of 
                the United States.
                  (D) Cellulosic alcohol fuel producer.--For 
                purposes of this paragraph, the term 
                ``cellulosic alcohol fuel producer'' means any 
                person who produces cellulosic alcohol in a 
                trade or business and is registered with the 
                Secretary as a cellulosic alcohol fuel 
                producer.
                  (E) Additional distillation excluded.--The 
                qualified cellulosic fuel production of any 
                producer for any taxable year shall not include 
                any alcohol which is purchased by the producer 
                and with respect to which such producer 
                increases the proof of the alcohol by 
                additional distillation.
          [(5)] (6) Adding of denaturants not treated as 
        mixture.--The adding of any denaturant to alcohol shall 
        not be treated as the production of a mixture.

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (3) Mixture or alcohol not used as a fuel, etc.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Producer credit.--If--
                          (i) any credit was determined under 
                        subsection (a)(3), and
                          (ii) any person does not use such 
                        fuel for a purpose described in 
                        [subsection (b)(4)(B)] paragraph (4)(B) 
                        or (5)(B) of subsection (b),

           *       *       *       *       *       *       *

          (6) Limitation to alcohol with connection to the 
        united states.--No credit shall be determined under 
        this section with respect to any alcohol which is 
        produced outside the United States for use as a fuel 
        outside the United States. For purposes of this 
        paragraph, the term ``United States'' includes any 
        possession of the United States.

           *       *       *       *       *       *       *


SEC. 40A. BIODIESEL AND RENEWABLE DIESEL USED AS FUEL.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (5) Limitation to biodiesel with connection to the 
        united states.--No credit shall be determined under 
        this section with respect to any biodiesel unless--
                  (A) such biodiesel is produced in the United 
                States for use as a fuel in the United States, 
                and
                  (B) the taxpayer obtains a certification (in 
                such form and manner as prescribed by the 
                Secretary) from the producer of the biodiesel 
                which identifies the product produced and the 
                location of such production.
        For purposes of this paragraph, the term ``United 
        States'' includes any possession of the United States.

           *       *       *       *       *       *       *

  (f) Renewable Diesel.--For purposes of this title--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Renewable diesel defined.--The term ``renewable 
        diesel'' means diesel fuel derived from biomass [(as 
        defined in section 45K(c)(3)) using a thermal 
        depolymerization process] which meets--
                  (A) * * *
                  (B) the requirements of the American Society 
                of Testing and Materials D975 [or D396] or 
                other equivalent standard approved by the 
                Secretary for fuels to be used in diesel-
                powered highway vehicles.
        Such term does not include any fuel derived from 
        coprocessing biomass with a feedstock which is not 
        biomass. For purposes of this paragraph, the term 
        ``biomass'' has the meaning given such term by section 
        45K(c)(3).
  (g) Termination.--This section shall not apply to any sale or 
use after December 31, [2008] 2010.

           *       *       *       *       *       *       *


SEC. 45. ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE RESOURCES, ETC.

  (a) * * *
  (b) Limitations and Adjustments.--
          [(1) Phaseout of credit.--The amount of the credit 
        determined under subsection (a) shall be reduced by an 
        amount which bears the same ratio to the amount of the 
        credit (determined without regard to this paragraph) 
        as--
                  [(A) the amount by which the reference price 
                for the calendar year in which the sale occurs 
                exceeds 8 cents, bears to
                  [(B) 3 cents.]
          (1) Limitation based on investment in facility.--
                  (A) In general.--In the case of any qualified 
                facility originally placed in service after 
                December 31, 2008, the amount of the credit 
                determined under subsection (a) for any taxable 
                year with respect to electricity produced at 
                such facility shall not exceed the product of--
                          (i) the applicable percentage with 
                        respect to such facility, multiplied by
                          (ii) the eligible basis of such 
                        facility.
                  (B) Carryforward of unused limitation and 
                excess credit.--
                          (i) Unused limitation.--If the 
                        limitation imposed under subparagraph 
                        (A) with respect to any facility for 
                        any taxable year exceeds the credit 
                        determined under subsection (a) 
                        (determined without regard to this 
                        paragraph) with respect to such 
                        facility for such taxable year, the 
                        limitation imposed under subparagraph 
                        (A) with respect to such facility for 
                        the succeeding taxable year shall be 
                        increased by the amount of such excess.
                          (ii) Excess credit.--If the credit 
                        determined under subsection (a) 
                        (determined without regard to this 
                        paragraph) with respect to any facility 
                        for any taxable year exceeds the 
                        limitation imposed under subparagraph 
                        (A) with respect to such facility for 
                        such taxable year, the credit 
                        determined under subsection (a) with 
                        respect to such facility for the 
                        succeeding taxable year (determined 
                        before the application of subparagraph 
                        (A) for such succeeding taxable year) 
                        shall be increased by the amount of 
                        such excess. With respect to any 
                        facility, no amount may carried forward 
                        under this clause to any taxable year 
                        beginning after the 10-year period 
                        described in subsection (a)(2)(A)(ii) 
                        with respect to such facility.
                  (C) Applicable percentage.--For purposes of 
                this paragraph--
                          (i) In general.--The term 
                        ``applicable percentage'' means, with 
                        respect to any facility, the 
                        appropriate percentage prescribed by 
                        the Secretary for the month in which 
                        such facility is originally placed in 
                        service.
                          (ii) Method of prescribing 
                        percentages.--The percentages 
                        prescribed by the Secretary for any 
                        month under clause (i) shall be 
                        percentages which yield over a 10-year 
                        period amounts of limitation under 
                        subparagraph (A) which have a present 
                        value equal to 35 percent of the 
                        eligible basis of the facility.
                          (iii) Method of discounting.--The 
                        present value under clause (ii) shall 
                        be determined--
                                  (I) as of the last day of the 
                                1st year of the 10-year period 
                                referred to in clause (ii),
                                  (II) by using a discount rate 
                                equal to the average annual 
                                interest rate of tax-exempt 
                                obligations having a term of 10 
                                years or more which are issued 
                                during the month preceding the 
                                month for which the percentage 
                                is being prescribed, and
                                  (III) by taking into account 
                                the limitation under 
                                subparagraph (A) for any year 
                                on the last day of such year.
                  (D) Eligible basis.--For purposes of this 
                paragraph, the term ``eligible basis'' means, 
                with respect to any facility, the basis of such 
                facility determined as of the time that such 
                facility is originally placed in service.
                  (E) Special rule for first and last year of 
                credit period.--In the case of any taxable year 
                any portion of which is not within the 10-year 
                period described in subsection (a)(2)(A)(ii) 
                with respect to any facility, the amount of the 
                limitation under subparagraph (A) with respect 
                to such facility shall be reduced by an amount 
                which bears the same ratio to the amount of 
                such limitation (determined without regard to 
                this subparagraph) as such portion of the 
                taxable year which is not within such period 
                bears to the entire taxable year.
          (2) Credit and phaseout adjustment based on 
        inflation.--The 1.5 cent amount in subsection (a), [the 
        8 cent amount in paragraph (1),] the $4.375 amount in 
        subsection (e)(8)(A), and in subsection (e)(8)(B)(i) 
        the reference price of fuel used as a feedstock (within 
        the meaning of subsection (c)(7)(A)) in 2002 shall each 
        be adjusted by multiplying such amount by the inflation 
        adjustment factor for the calendar year in which the 
        sale occurs. If any amount as increased under the 
        preceding sentence is not a multiple of 0.1 cent, such 
        amount shall be rounded to the nearest multiple of 0.1 
        cent.

           *       *       *       *       *       *       *

          (4) Credit rate and period for electricity produced 
        and sold from certain facilities.--
                  (A) Credit rate.--In the case of electricity 
                produced and sold in any calendar year after 
                2003 at any qualified facility described in 
                paragraph (3), (5), (6), (7), [or (9)] (9), or 
                (11) of subsection (d), the amount in effect 
                under subsection (a)(1) for such calendar year 
                (determined before the application of the last 
                sentence of paragraph (2) of this subsection) 
                shall be reduced by one-half.

           *       *       *       *       *       *       *

  (c) Resources.--For purposes of this section:
          (1) In general.--The term ``qualified energy 
        resources'' means--
                  (A) * * *

           *       *       *       *       *       *       *

                  (G) municipal solid waste, [and]
                  (H) qualified hydropower production[.], and
                  (I) marine and hydrokinetic renewable energy.

           *       *       *       *       *       *       *

          (10) Marine and hydrokinetic renewable energy.--
                  (A) In general.--The term ``marine and 
                hydrokinetic renewable energy'' means energy 
                derived from--
                          (i) waves, tides, and currents in 
                        oceans, estuaries, and tidal areas,
                          (ii) free flowing water in rivers, 
                        lakes, and streams,
                          (iii) free flowing water in an 
                        irrigation system, canal, or other man-
                        made channel, including projects that 
                        utilize nonmechanical structures to 
                        accelerate the flow of water for 
                        electric power production purposes, or
                          (iv) differentials in ocean 
                        temperature (ocean thermal energy 
                        conversion).
                  (B) Exceptions.--Such term shall not include 
                any energy which is derived from any source 
                which utilizes a dam, diversionary structure 
                (except as provided in subparagraph (A)(iii)), 
                or impoundment for electric power production 
                purposes.
  (d) Qualified Facilities.--For purposes of this section:
          (1) Wind facility.--In the case of a facility using 
        wind to produce electricity, the term ``qualified 
        facility'' means any facility owned by the taxpayer 
        which is originally placed in service after December 
        31, 1993, and before January 1, [2009] 2013.
          (2) Closed-loop biomass facility.--
                  (A) In general.--In the case of a facility 
                using closed- loop biomass to produce 
                electricity, the term ``qualified facility'' 
                means any facility--
                          (i) owned by the taxpayer which is 
                        originally placed in service after 
                        December 31, 1992, and before January 
                        1, [2009] 2013, or
                          (ii) owned by the taxpayer which 
                        before January 1, [2009] 2013, is 
                        originally placed in service and 
                        modified to use closed-loop biomass to 
                        co-fire with coal, with other biomass, 
                        or with both, but only if the 
                        modification is approved under the 
                        Biomass Power for Rural Development 
                        Programs or is part of a pilot project 
                        of the Commodity Credit Corporation as 
                        described in 65 Fed. Reg. 63052.
          (3) Open-loop biomass facilities.--
                  (A) In general.--In the case of a facility 
                using open-loop biomass to produce electricity, 
                the term ``qualified facility'' means any 
                facility owned by the taxpayer which--
                          (i) in the case of a facility using 
                        agricultural livestock waste 
                        nutrients--
                                  (I) is originally placed in 
                                service after the date of the 
                                enactment of this subclause and 
                                before January 1, [2009] 2013, 
                                and

           *       *       *       *       *       *       *

                          (ii) in the case of any other 
                        facility, is originally placed in 
                        service before January 1, [2009] 2013.

           *       *       *       *       *       *       *

          (4) Geothermal or solar energy facility.--In the case 
        of a facility using geothermal or solar energy to 
        produce electricity, the term ``qualified facility'' 
        means any facility owned by the taxpayer which is 
        originally placed in service after the date of the 
        enactment of this paragraph and before January 1, 
        [2009] 2013 (January 1, 2006, in the case of a facility 
        using solar energy). Such term shall not include any 
        property described in section 48(a)(3) the basis of 
        which is taken into account by the taxpayer for 
        purposes of determining the energy credit under section 
        48.
          (5) Small irrigation power facility.--In the case of 
        a facility using small irrigation power to produce 
        electricity, the term ``qualified facility'' means any 
        facility owned by the taxpayer which is originally 
        placed in service after the date of the enactment of 
        this paragraph and before [January 1, 2009] the date of 
        the enactment of paragraph (11).
          (6) Landfill gas facilities.--In the case of a 
        facility producing electricity from gas derived from 
        the biodegradation of municipal solid waste, the term 
        ``qualified facility'' means any facility owned by the 
        taxpayer which is originally placed in service after 
        the date of the enactment of this paragraph and before 
        January 1, [2009] 2013.
          (7) Trash combustion facilities.--In the case of a 
        facility which burns municipal solid waste to produce 
        electricity, the term ``qualified facility'' means any 
        facility owned by the taxpayer which is originally 
        placed in service after the date of the enactment of 
        this paragraph and before January 1, [2009] 2013. Such 
        term shall include a new unit placed in service in 
        connection with a facility placed in service on or 
        before the date of the enactment of this paragraph, but 
        only to the extent of the increased amount of 
        electricity produced at the facility by reason of such 
        new unit.

           *       *       *       *       *       *       *

          (9) Qualified hydropower facility.--In the case of a 
        facility producing qualified hydroelectric production 
        described in subsection (c)(8), the term ``qualified 
        facility'' means--
                  (A) in the case of any facility producing 
                incremental hydropower production, such 
                facility but only to the extent of its 
                incremental hydropower production attributable 
                to efficiency improvements or additions to 
                capacity described in subsection (c)(8)(B) 
                placed in service after the date of the 
                enactment of this paragraph and before January 
                1, [2009] 2013, and
                  (B) any other facility placed in service 
                after the date of the enactment of this 
                paragraph and before January 1, [2009] 2013.

           *       *       *       *       *       *       *

          (11) Marine and hydrokinetic renewable energy 
        facilities.--In the case of a facility producing 
        electricity from marine and hydrokinetic renewable 
        energy, the term ``qualified facility'' means any 
        facility owned by the taxpayer--
                  (A) which has a nameplate capacity rating of 
                at least 150 kilowatts, and
                  (B) which is originally placed in service on 
                or after the date of the enactment of this 
                paragraph and before January 1, 2013.

           *       *       *       *       *       *       *


SEC. 45M. ENERGY EFFICIENT APPLIANCE CREDIT.

  (a) * * *
  [(b) Applicable Amount.--
          [(1) In general.--For purposes of subsection (a)--
                  [(A) Dishwashers.--The applicable amount is 
                the energy savings amount in the case of a 
                dishwasher which--
                          [(i) is manufactured in calendar year 
                        2006 or 2007, and
                          [(ii) meets the requirements of the 
                        Energy Star program which are in effect 
                        for dishwashers in 2007.
                  [(B) Clothes washers.--The applicable amount 
                is $100 in the case of a clothes washer which--
                          [(i) is manufactured in calendar year 
                        2006 or 2007, and
                          [(ii) meets the requirements of the 
                        Energy Star program which are in effect 
                        for clothes washers in 2007.
                  [(C) Refrigerators.--
                          [(i) 15 percent savings.--The 
                        applicable amount is $75 in the case of 
                        a refrigerator which--
                                  [(I) is manufactured in 
                                calendar year 2006, and
                                  [(II) consumes at least 15 
                                percent but not more than 20 
                                percent less kilowatt hours per 
                                year than the 2001 energy 
                                conservation standards.
                          [(ii) 20 percent savings.--The 
                        applicable amount is $125 in the case 
                        of a refrigerator which--
                                  [(I) is manufactured in 
                                calendar year 2006 or 2007, and
                                  [(II) consumes at least 20 
                                percent but not more than 25 
                                percent less kilowatt hours per 
                                year than the 2001 energy 
                                conservation standards.
                          [(iii) 25 percent savings.--The 
                        applicable amount is $175 in the case 
                        of a refrigerator which--
                                  [(I) is manufactured in 
                                calendar year 2006 or 2007, and
                                  [(II) consumes at least 25 
                                percent less kilowatt hours per 
                                year than the 2001 energy 
                                conservation standards.
          [(2) Energy savings amount.--For purposes of 
        paragraph (1)(A)--
                  [(A) In general.--The energy savings amount 
                is the lesser of--
                          [(i) the product of--
                                  [(I) $3, and
                                  [(II) 100 multiplied by the 
                                energy savings percentage, or
                          [(ii) $100.
                  [(B) Energy savings percentage.--For purposes 
                of subparagraph (A), the energy savings 
                percentage is the ratio of--
                          [(i) the EF required by the Energy 
                        Star program for dishwashers in 2007 
                        minus the EF required by the Energy 
                        Star program for dishwashers in 2005, 
                        to
                          [(ii) the EF required by the Energy 
                        Star program for dishwashers in 2007.]
  (b) Applicable Amount.--For purposes of subsection (a)--
          (1) Dishwashers.--The applicable amount is--
                  (A) $45 in the case of a dishwasher which is 
                manufactured in calendar year 2008 or 2009 and 
                which uses no more than 324 kilowatt hours per 
                year and 5.8 gallons per cycle, and
                  (B) $75 in the case of a dishwasher which is 
                manufactured in calendar year 2008, 2009, or 
                2010 and which uses no more than 307 kilowatt 
                hours per year and 5.0 gallons per cycle (5.5 
                gallons per cycle for dishwashers designed for 
                greater than 12 place settings).
          (2) Clothes washers.--The applicable amount is--
                  (A) $75 in the case of a residential top-
                loading clothes washer manufactured in calendar 
                year 2008 which meets or exceeds a 1.72 
                modified energy factor and does not exceed a 
                8.0 water consumption factor,
                  (B) $125 in the case of a residential top-
                loading clothes washer manufactured in calendar 
                year 2008 or 2009 which meets or exceeds a 1.8 
                modified energy factor and does not exceed a 
                7.5 water consumption factor,
                  (C) $150 in the case of a residential or 
                commercial clothes washer manufactured in 
                calendar year 2008, 2009 or 2010 which meets or 
                exceeds 2.0 modified energy factor and does not 
                exceed a 6.0 water consumption factor, and
                  (D) $250 in the case of a residential or 
                commercial clothes washer manufactured in 
                calendar year 2008, 2009, or 2010 which meets 
                or exceeds 2.2 modified energy factor and does 
                not exceed a 4.5 water consumption factor.
          (3) Refrigerators.--The applicable amount is--
                  (A) $50 in the case of a refrigerator which 
                is manufactured in calendar year 2008, and 
                consumes at least 20 percent but not more than 
                22.9 percent less kilowatt hours per year than 
                the 2001 energy conservation standards,
                  (B) $75 in the case of a refrigerator which 
                is manufactured in calendar year 2008 or 2009, 
                and consumes at least 23 percent but no more 
                than 24.9 percent less kilowatt hours per year 
                than the 2001 energy conservation standards,
                  (C) $100 in the case of a refrigerator which 
                is manufactured in calendar year 2008, 2009 or 
                2010, and consumes at least 25 percent but not 
                more than 29.9 percent less kilowatt hours per 
                year than the 2001 energy conservation 
                standards, and
                  (D) $200 in the case of a refrigerator 
                manufactured in calendar year 2008, 2009 or 
                2010 and which consumes at least 30 percent 
                less energy than the 2001 energy conservation 
                standards.
          (4) Dehumidifiers.--The applicable amount is--
                  (A) $15 in the case of a dehumidifier 
                manufactured in calendar year 2008 that has a 
                capacity less than or equal to 45 pints per day 
                and is 7.5 percent more efficient than the 
                applicable Department of Energy energy 
                conservation standard effective October 2012, 
                and
                  (B) $25 in the case of a dehumidifier 
                manufactured in calendar year 2008 that has a 
                capacity greater than 45 pints per day and is 
                7.5 percent more efficient than the applicable 
                Department of Energy energy conservation 
                standard effective October 2012.
  (c) Eligible Production.--
          [(1) In general.--Except as provided in paragraphs 
        (2), the eligible] The eligible production in a 
        calendar year with respect to each type of energy 
        efficient appliance is the excess of--
          [(A)] (1) the number of appliances of such type which 
        are produced by the taxpayer in the United States 
        during such calendar year, over
          [(B)] (2) the average number of appliances of such 
        type which were produced by the taxpayer (or any 
        predecessor) in the United States during the preceding 
        [3-calendar] 2-calendar year period.
          [(2) Special rule for refrigerators.--The eligible 
        production in a calendar year with respect to each type 
        of refrigerator described in subsection (b)(1)(C) is 
        the excess of--
                  [(A) the number of appliances of such type 
                which are produced by the taxpayer in the 
                United States during such calendar year, over
                  [(B) 110 percent of the average number of 
                appliances of such type which were produced by 
                the taxpayer (or any predecessor) in the United 
                States during the preceding 3-calendar year 
                period.
  [(d) Types of Energy Efficient Appliance.--For purposes of 
this section, the types of energy efficient appliances are--
          [(1) dishwashers described in subsection (b)(1)(A),
          [(2) clothes washers described in subsection 
        (b)(1)(B),
          [(3) refrigerators described in subsection 
        (b)(1)(C)(i),
          [(4) refrigerators described in subsection 
        (b)(1)(C)(ii), and
          [(5) refrigerators described in subsection 
        (b)(1)(C)(iii).]
  (d) Types of Energy Efficient Appliance.--For purposes of 
this section, the types of energy efficient appliances are--
          (1) dishwashers described in subsection (b)(1),
          (2) clothes washers described in subsection (b)(2),
          (3) refrigerators described in subsection (b)(3), and
          (4) dehumidifiers described in subsection (b)(4).
  (e) Limitations.--
          [(1) Aggregate credit amount allowed.--The aggregate 
        amount of credit allowed under subsection (a) with 
        respect to a taxpayer for any taxable year shall not 
        exceed $75,000,000 reduced by the amount of the credit 
        allowed under subsection (a) to the taxpayer (or any 
        predecessor) for all prior taxable years.
          [(2) Amount allowed for 15 percent savings 
        refrigerators.--In the case of refrigerators described 
        in subsection (b)(1)(C)(i), the aggregate amount of the 
        credit allowed under subsection (a) with respect to a 
        taxpayer for any taxable year shall not exceed 
        $20,000,000.]
          (1) Aggregate credit amount allowed.--The aggregate 
        amount of credit allowed under subsection (a) with 
        respect to a taxpayer for any taxable year shall not 
        exceed $75,000,000 reduced by the amount of the credit 
        allowed under subsection (a) to the taxpayer (or any 
        predecessor) for all prior taxable years beginning 
        after December 31, 2007.
          (2) Amount allowed for certain refrigerators and 
        clothes washers.--Refrigerators described in subsection 
        (b)(3)(D) and clothes washers described in subsection 
        (b)(2)(D) shall not be taken into account under 
        paragraph (1).

           *       *       *       *       *       *       *

  (f) Definitions.--For purposes of this section--
          [(1) Qualified energy efficient appliance.--The term 
        ``qualified energy efficient appliance'' means--
                  [(A) any dishwasher described in subsection 
                (b)(1)(A),
                  [(B) any clothes washer described in 
                subsection (b)(1)(B), and
                  [(C) any refrigerator described in subsection 
                (b)(1)(C).]
          (1) Qualified energy efficient appliance.--The term 
        ``qualified energy efficient appliance'' means--
                  (A) any dishwasher described in subsection 
                (b)(1),
                  (B) any clothes washer described in 
                subsection (b)(2),
                  (C) any refrigerator described in subsection 
                (b)(3), and
                  (D) any dehumidifier described in subsection 
                (b)(4).

           *       *       *       *       *       *       *

          (3) Clothes washer.--The term ``clothes washer'' 
        means a residential model clothes washer, including a 
        commercial residential style coin operated washer.
          (4) Top-loading clothes washer.--The term ``top-
        loading clothes washer'' means a clothes washer which 
        has the clothes container compartment access located on 
        the top of the machine and which operates on a vertical 
        axis.
          [(4)] (5) Refrigerator.--The term ``refrigerator'' 
        means a residential model automatic defrost 
        refrigerator-freezer which has an internal volume of at 
        least 16.5 cubic feet.
          (6) Dehumidifier.--The term ``dehumidifier'' means a 
        self-contained, electrically operated, and mechanically 
        refrigerated encased assembly consisting of--
                  (A) a refrigerated surface that condenses 
                moisture from the atmosphere,
                  (B) a refrigerating system, including an 
                electric motor,
                  (C) an air-circulating fan, and
                  (D) means for collecting or disposing of 
                condensate.
          [(5) EF.--The term ``EF'' means the energy factor 
        established by the Department of Energy for compliance 
        with the Federal energy conservation standards.]
          (7) Modified energy factor.--The term ``modified 
        energy factor'' means the modified energy factor 
        established by the Department of Energy for compliance 
        with the Federal energy conservation standard.
          [(6)] (8) Produced.--The term ``produced'' includes 
        manufactured.
          [(7)] (9) 2001 energy conservation standard.--The 
        term ``2001 energy conservation standard'' means the 
        energy conservation standards promulgated by the 
        Department of Energy and effective July 1, 2001.
          (10) Gallons per cycle.--The term ``gallons per 
        cycle'' means, with respect to a dishwasher, the amount 
        of water, expressed in gallons, required to complete a 
        normal cycle of a dishwasher.
          (11) Water consumption factor.--The term ``water 
        consumption factor'' means, with respect to a clothes 
        washer, the quotient of the total weighted per-cycle 
        water consumption divided by the cubic foot (or liter) 
        capacity of the clothes washer.

           *       *       *       *       *       *       *


Subpart E--Rules for Computing Investment Credit

           *       *       *       *       *       *       *


SEC. 48. ENERGY CREDIT.

  (a) Energy Credit.--
          (1) * * *
          (2) Energy percentage.--
                  (A) In general.--The energy percentage is--
                          (i) 30 percent in the case of--
                                  (I) qualified fuel cell 
                                property,
                                  (II) energy property 
                                described in paragraph 
                                (3)(A)(i) but only with respect 
                                to periods ending before 
                                January 1, [2009] 2017, and

           *       *       *       *       *       *       *

          (3) Energy property.--For purposes of this subpart, 
        the term ``energy property'' means any property--
                  (A) which is--
                          (i) * * *
                          (ii) equipment which uses solar 
                        energy to illuminate the inside of a 
                        structure using fiber-optic distributed 
                        sunlight but only with respect to 
                        periods ending before January 1, [2009] 
                        2017,

           *       *       *       *       *       *       *

        [The term ``energy property'' shall not include any 
        property which is public utility property (as defined 
        in section 46(f)(5) as in effect on the day before the 
        date of the enactment of the Revenue Reconciliation Act 
        of 1990).] Such term shall not include any property 
        which is part of a facility the production from which 
        is allowed as a credit under section 45 for the taxable 
        year or any prior taxable year.

           *       *       *       *       *       *       *

  (c) Qualified Fuel Cell Property; Qualified Microturbine 
Property.--For purposes of this subsection--
          (1) Qualified fuel cell property.--
                  (A) * * *
                  (B) Limitation.--In the case of qualified 
                fuel cell property placed in service during the 
                taxable year, the credit otherwise determined 
                under [paragraph (1)] subsection (a) for such 
                year with respect to such property shall not 
                exceed an amount equal to [$500] $1,500 for 
                each 0.5 kilowatt of capacity of such property.

           *       *       *       *       *       *       *

                  [(D) Special rule.--The first sentence of the 
                matter in subsection (a)(3) which follows 
                subparagraph (D) thereof shall not apply to 
                qualified fuel cell property which is used 
                predominantly in the trade or business of the 
                furnishing or sale of telephone service, 
                telegraph service by means of domestic 
                telegraph operations, or other telegraph 
                services (other than international telegraph 
                services).]
                  [(E)] (D) Termination.--The term ``qualified 
                fuel cell property'' shall not include any 
                property for any period after December 31, 
                [2008] 2016.
          (2) Qualified microturbine property.--
                  (A) * * *
                  (B) Limitation.--In the case of qualified 
                microturbine property placed in service during 
                the taxable year, the credit otherwise 
                determined under [paragraph (1)] subsection (a) 
                for such year with respect to such property 
                shall not exceed an amount equal $200 for each 
                kilowatt of capacity of such property.

           *       *       *       *       *       *       *

                  [(D) Special rule.--The first sentence of the 
                matter in subsection (a)(3) which follows 
                subparagraph (D) thereof shall not apply to 
                qualified microturbine property which is used 
                predominantly in the trade or business of the 
                furnishing or sale of telephone service, 
                telegraph service by means of domestic 
                telegraph operations, or other telegraph 
                services (other than international telegraph 
                services).]
                  [(E)] (D) Termination.--The term ``qualified 
                microturbine property'' shall not include any 
                property for any period after December 31, 
                2008.

           *       *       *       *       *       *       *


  Subpart H--Nonrefundable Credit to Holders of [Certain Bonds] Clean 
Renewable Energy Bonds

           *       *       *       *       *       *       *


SEC. 54. CREDIT TO HOLDERS OF CLEAN RENEWABLE ENERGY BONDS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Limitation Based on Amount of Tax.--The credit allowed 
under subsection (a) for any taxable year shall not exceed the 
excess of--
          (1) * * *
          (2) the sum of the credits allowable under this part 
        (other than [subpart C] subparts C and I, section 
        1400N(l), and this section).

           *       *       *       *       *       *       *


                 Subpart I--Qualified Tax Credit Bonds

Sec. 54A. Credit to holders of qualified tax credit bonds.
Sec. 54B. New clean renewable energy bonds.
Sec. 54C. Qualified energy conservation bonds.
Sec. 54D. Qualified residential energy efficiency assistance bonds.

SEC. 54A. CREDIT TO HOLDERS OF QUALIFIED TAX CREDIT BONDS.

  (a) Allowance of Credit.--If a taxpayer holds a qualified tax 
credit bond on one or more credit allowance dates of the bond 
during any taxable year, there shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an 
amount equal to the sum of the credits determined under 
subsection (b) with respect to such dates.
  (b) Amount of Credit.--
          (1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit 
        allowance date for a qualified tax credit bond is 25 
        percent of the annual credit determined with respect to 
        such bond.
          (2) Annual credit.--The annual credit determined with 
        respect to any qualified tax credit bond is the product 
        of--
                  (A) the applicable credit rate, multiplied by
                  (B) the outstanding face amount of the bond.
          (3) Applicable credit rate.--For purposes of 
        paragraph (2), the applicable credit rate is the rate 
        which the Secretary estimates will permit the issuance 
        of qualified tax credit bonds with a specified maturity 
        or redemption date without discount and without 
        interest cost to the qualified issuer. The applicable 
        credit rate with respect to any qualified tax credit 
        bond shall be determined as of the first day on which 
        there is a binding, written contract for the sale or 
        exchange of the bond.
          (4) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month 
        period ending on a credit allowance date, the amount of 
        the credit determined under this subsection with 
        respect to such credit allowance date shall be a 
        ratable portion of the credit otherwise determined 
        based on the portion of the 3-month period during which 
        the bond is outstanding. A similar rule shall apply 
        when the bond is redeemed or matures.
  (c) Limitation Based on Amount of Tax.--
          (1) In general.--The credit allowed under subsection 
        (a) for any 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 part (other than subpart C and this 
                subpart).
          (2) Carryover of unused credit.--If the credit 
        allowable under subsection (a) exceeds the limitation 
        imposed by paragraph (1) for such taxable year, such 
        excess shall be carried to the succeeding taxable year 
        and added to the credit allowable under subsection (a) 
        for such taxable year (determined before the 
        application of paragraph (1) for such succeeding 
        taxable year).
  (d) Qualified Tax Credit Bond.--For purposes of this 
section--
          (1) Qualified tax credit bond.--The term ``qualified 
        tax credit bond'' means--
                  (A) a new clean renewable energy bond,
                  (B) a qualified energy conservation bond, or
                  (C) a qualified residential energy efficiency 
                assistance bond,
        which is part of an issue that meets requirements of 
        paragraphs (2), (3), (4), and (5).
          (2) Special rules relating to expenditures.--
                  (A) In general.--An issue shall be treated as 
                meeting the requirements of this paragraph if, 
                as of the date of issuance, the issuer 
                reasonably expects--
                          (i) 100 percent or more of the 
                        available project proceeds to be spent 
                        for 1 or more qualified purposes within 
                        the 3-year period beginning on such 
                        date of issuance, and
                          (ii) a binding commitment with a 
                        third party to spend at least 10 
                        percent of such available project 
                        proceeds will be incurred within the 6-
                        month period beginning on such date of 
                        issuance.
                  (B) Failure to spend required amount of bond 
                proceeds within 3 years.--
                          (i) In general.--To the extent that 
                        less than 100 percent of the available 
                        project proceeds of the issue are 
                        expended by the close of the 
                        expenditure period for 1 or more 
                        qualified purposes, the issuer shall 
                        redeem all of the nonqualified bonds 
                        within 90 days after the end of such 
                        period. For purposes of this paragraph, 
                        the amount of the nonqualified bonds 
                        required to be redeemed shall be 
                        determined in the same manner as under 
                        section 142.
                          (ii) Expenditure period.--For 
                        purposes of this subpart, the term 
                        ``expenditure period'' means, with 
                        respect to any issue, the 3-year period 
                        beginning on the date of issuance. Such 
                        term shall include any extension of 
                        such period under clause (iii).
                          (iii) Extension of period.--Upon 
                        submission of a request prior to the 
                        expiration of the expenditure period 
                        (determined without regard to any 
                        extension under this clause), the 
                        Secretary may extend such period if the 
                        issuer establishes that the failure to 
                        expend the proceeds within the original 
                        expenditure period is due to reasonable 
                        cause and the expenditures for 
                        qualified purposes will continue to 
                        proceed with due diligence.
                  (C) Qualified purpose.--For purposes of this 
                paragraph, the term ``qualified purpose'' 
                means--
                          (i) in the case of a new clean 
                        renewable energy bond, a purpose 
                        specified in section 54B(a)(1),
                          (ii) in the case of a qualified 
                        energy conservation bond, a purpose 
                        specified in section 54C(a)(1), and
                          (iii) in the case of a qualified 
                        residential energy efficiency 
                        assistance bond, a purpose specified in 
                        section 54D(a)(1).
                  (D) Reimbursement.--For purposes of this 
                subtitle, available project proceeds of an 
                issue shall be treated as spent for a qualified 
                purpose if such proceeds are used to reimburse 
                the issuer for amounts paid for a qualified 
                purpose after the date that the Secretary makes 
                an allocation of bond limitation with respect 
                to such issue, but only if--
                          (i) prior to the payment of the 
                        original expenditure, the issuer 
                        declared its intent to reimburse such 
                        expenditure with the proceeds of a 
                        qualified tax credit bond,
                          (ii) not later than 60 days after 
                        payment of the original expenditure, 
                        the issuer adopts an official intent to 
                        reimburse the original expenditure with 
                        such proceeds, and
                          (iii) the reimbursement is made not 
                        later than 18 months after the date the 
                        original expenditure is paid.
          (3) Reporting.--An issue shall be treated as meeting 
        the requirements of this paragraph if the issuer of 
        qualified tax credit bonds submits reports similar to 
        the reports required under section 149(e).
          (4) Special rules relating to arbitrage.--
                  (A) In general.--An issue shall be treated as 
                meeting the requirements of this paragraph if 
                the issuer satisfies the requirements of 
                section 148 with respect to the proceeds of the 
                issue.
                  (B) Special rule for investments during 
                expenditure period.--An issue shall not be 
                treated as failing to meet the requirements of 
                subparagraph (A) by reason of any investment of 
                available project proceeds during the 
                expenditure period.
                  (C) Special rule for reserve funds.--An issue 
                shall not be treated as failing to meet the 
                requirements of subparagraph (A) by reason of 
                any fund which is expected to be used to repay 
                such issue if--
                          (i) such fund is funded at a rate not 
                        more rapid than equal annual 
                        installments,
                          (ii) such fund is funded in a manner 
                        that such fund will not exceed the 
                        amount necessary to repay the issue if 
                        invested at the maximum rate permitted 
                        under clause (iii), and
                          (iii) the yield on such fund is not 
                        greater than the discount rate 
                        determined under paragraph (5)(B) with 
                        respect to the issue.
          (5) Maturity limitation.--
                  (A) In general.--An issue shall not be 
                treated as meeting the requirements of this 
                paragraph if the maturity of any bond which is 
                part of such issue exceeds the maximum term 
                determined by the Secretary under subparagraph 
                (B).
                  (B) Maximum term.--During each calendar 
                month, the Secretary shall determine the 
                maximum term permitted under this paragraph for 
                bonds issued during the following calendar 
                month. Such maximum term shall be the term 
                which the Secretary estimates will result in 
                the present value of the obligation to repay 
                the principal on the bond being equal to 50 
                percent of the face amount of such bond. Such 
                present value shall be determined using as a 
                discount rate the average annual interest rate 
                of tax-exempt obligations having a term of 10 
                years or more which are issued during the 
                month. If the term as so determined is not a 
                multiple of a whole year, such term shall be 
                rounded to the next highest whole year.
          (6) Prohibition on financial conflicts of interest.--
        An issue shall be treated as meeting the requirements 
        of this paragraph if the issuer certifies that--
                  (A) applicable State and local law 
                requirements governing conflicts of interest 
                are satisfied with respect to such issue, and
                  (B) if the Secretary prescribes additional 
                conflicts of interest rules governing the 
                appropriate Members of Congress, Federal, 
                State, and local officials, and their spouses, 
                such additional rules are satisfied with 
                respect to such issue.
  (e) Other Definitions.--For purposes of this subchapter--
          (1) Credit allowance date.--The term ``credit 
        allowance date'' means--
                  (A) March 15,
                  (B) June 15,
                  (C) September 15, and
                  (D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
          (2) Bond.--The term ``bond'' includes any obligation.
          (3) State.--The term ``State'' includes the District 
        of Columbia and any possession of the United States.
          (4) Available project proceeds.--The term ``available 
        project proceeds'' means--
                  (A) the excess of--
                          (i) the proceeds from the sale of an 
                        issue, over
                          (ii) the issuance costs financed by 
                        the issue (to the extent that such 
                        costs do not exceed 2 percent of such 
                        proceeds), and
                  (B) the proceeds from any investment of the 
                excess described in subparagraph (A).
  (f) Credit Treated as Interest.--For purposes of this 
subtitle, the credit determined under subsection (a) shall be 
treated as interest which is includible in gross income.
  (g) S Corporations and Partnerships.--In the case of a tax 
credit bond held by an S corporation or partnership, the 
allocation of the credit allowed by this section to the 
shareholders of such corporation or partners of such 
partnership shall be treated as a distribution.
  (h) Bonds Held by Regulated Investment Companies and Real 
Estate Investment Trusts.--If any qualified tax credit bond is 
held by a regulated investment company or a real estate 
investment trust, the credit determined under subsection (a) 
shall be allowed to shareholders of such company or 
beneficiaries of such trust (and any gross income included 
under subsection (f) with respect to such credit shall be 
treated as distributed to such shareholders or beneficiaries) 
under procedures prescribed by the Secretary.
  (i) Credits May Be Stripped.--Under regulations prescribed by 
the Secretary--
          (1) In general.--There may be a separation (including 
        at issuance) of the ownership of a qualified tax credit 
        bond and the entitlement to the credit under this 
        section with respect to such bond. In case of any such 
        separation, the credit under this section shall be 
        allowed to the person who on the credit allowance date 
        holds the instrument evidencing the entitlement to the 
        credit and not to the holder of the bond.
          (2) Certain rules to apply.--In the case of a 
        separation described in paragraph (1), the rules of 
        section 1286 shall apply to the qualified tax credit 
        bond as if it were a stripped bond and to the credit 
        under this section as if it were a stripped coupon.

SEC. 54B. NEW CLEAN RENEWABLE ENERGY BONDS.

  (a) New Clean Renewable Energy Bond.--For purposes of this 
subpart, the term ``new clean renewable energy bond'' means any 
bond issued as part of an issue if--
          (1) 100 percent of the available project proceeds of 
        such issue are to be used for capital expenditures 
        incurred by public power providers or cooperative 
        electric companies for one or more qualified renewable 
        energy facilities,
          (2) the bond is issued by a qualified issuer, and
          (3) the issuer designates such bond for purposes of 
        this section.
  (b) Reduced Credit Amount.--The annual credit determined 
under section 54A(b) with respect to any new clean renewable 
energy bond shall be 70 percent of the amount so determined 
without regard to this subsection.
  (c) Limitation on Amount of Bonds Designated.--
          (1) In general.--The maximum aggregate face amount of 
        bonds which may be designated under subsection (a) by 
        any issuer shall not exceed the limitation amount 
        allocated under this subsection to such issuer.
          (2) National limitation on amount of bonds 
        designated.--There is a national new clean renewable 
        energy bond limitation of $2,000,000,000 which shall be 
        allocated by the Secretary as provided in paragraph 
        (3), except that--
                  (A) not more than 60 percent thereof may be 
                allocated to qualified projects of public power 
                providers, and
                  (B) not more than 40 percent thereof may be 
                allocated to qualified projects of cooperative 
                electric companies.
          (3) Method of allocation.--
                  (A) Allocation among public power 
                providers.--After the Secretary determines the 
                qualified projects of public power providers 
                which are appropriate for receiving an 
                allocation of the national new clean renewable 
                energy bond limitation, the Secretary shall, to 
                the maximum extent practicable, make 
                allocations among such projects in such manner 
                that the amount allocated to each such project 
                bears the same ratio to the cost of such 
                project as the limitation under subparagraph 
                (2)(A) bears to the cost of all such projects.
                  (B) Allocation among cooperative electric 
                companies.--The Secretary shall make 
                allocations of the amount of the national new 
                clean renewable energy bond limitation 
                described in paragraph (2)(B) among qualified 
                projects of cooperative electric companies in 
                such manner as the Secretary determines 
                appropriate.
  (d) Definitions.--For purposes of this section--
          (1) Qualified renewable energy facility.--The term 
        ``qualified renewable energy facility'' means a 
        qualified facility (as determined under section 45(d) 
        without regard to paragraphs (8) and (10) thereof and 
        to any placed in service date) owned by a public power 
        provider or a cooperative electric company.
          (2) Public power provider.--The term ``public power 
        provider'' means a State utility with a service 
        obligation, as such terms are defined in section 217 of 
        the Federal Power Act (as in effect on the date of the 
        enactment of this paragraph).
          (3) Cooperative electric company.--The term 
        ``cooperative electric company'' means a mutual or 
        cooperative electric company described in section 
        501(c)(12) or section 1381(a)(2)(C).
          (4) Clean renewable energy bond lender.--The term 
        ``clean renewable energy bond lender'' means a lender 
        which is a cooperative which is owned by, or has 
        outstanding loans to, 100 or more cooperative electric 
        companies and is in existence on February 1, 2002, and 
        shall include any affiliated entity which is controlled 
        by such lender.
          (5) Qualified issuer.--The term ``qualified issuer'' 
        means a public power provider, a cooperative electric 
        company, a clean renewable energy bond lender, or a 
        not-for-profit electric utility which has received a 
        loan or loan guarantee under the Rural Electrification 
        Act.

SEC. 54C. QUALIFIED ENERGY CONSERVATION BONDS.

  (a) Qualified Energy Conservation Bond.--For purposes of this 
subchapter, the term ``qualified energy conservation bond'' 
means any bond issued as part of an issue if--
          (1) 100 percent of the available project proceeds of 
        such issue are to be used for one or more qualified 
        conservation purposes,
          (2) the bond is issued by a State or local 
        government, and
          (3) the issuer designates such bond for purposes of 
        this section.
  (b) Limitation on Amount of Bonds Designated.--The maximum 
aggregate face amount of bonds which may be designated under 
subsection (a) by any issuer shall not exceed the limitation 
amount allocated to such issuer under subsection (d).
  (c) National Limitation on Amount of Bonds Designated.--There 
is a national qualified energy conservation bond limitation of 
$3,600,000,000.
  (d) Allocations.--
          (1) In general.--The limitation applicable under 
        subsection (c) shall be allocated by the Secretary 
        among the States in proportion to the population of the 
        States.
          (2) Allocations to largest local governments.--
                  (A) In general.--In the case of any State in 
                which there is a large local government, each 
                such local government shall be allocated a 
                portion of such State's allocation which bears 
                the same ratio to the State's allocation 
                (determined without regard to this 
                subparagraph) as the population of such large 
                local government bears to the population of 
                such State.
                  (B) Allocation of unused limitation to 
                state.--The amount allocated under this 
                subsection to a large local government may be 
                reallocated by such local government to the 
                State in which such local government is 
                located.
                  (C) Large local government.--For purposes of 
                this section, the term ``large local 
                government'' means any municipality or county 
                if such municipality or county has a population 
                of 100,000 or more.
          (3) Allocation to issuers; restriction on private 
        activity bonds.--Any allocation under this subsection 
        to a State or large local government shall be allocated 
        by such State or large local government to issuers 
        within the State in a manner that results in not less 
        than 70 percent of the allocation to such State or 
        large local government being used to designate bonds 
        which are not private activity bonds.
  (e) Qualified Conservation Purpose.--For purposes of this 
section--
          (1) In general.--The term ``qualified conservation 
        purpose'' means any of the following:
                  (A) Capital expenditures incurred for 
                purposes of--
                          (i) reducing energy consumption in 
                        publicly-owned buildings by at least 20 
                        percent,
                          (ii) implementing green community 
                        programs, or
                          (iii) rural development involving the 
                        production of electricity from 
                        renewable energy resources.
                  (B) Expenditures with respect to research 
                facilities, and research grants, to support 
                research in--
                          (i) development of cellulosic ethanol 
                        or other nonfossil fuels,
                          (ii) technologies for the capture and 
                        sequestration of carbon dioxide 
                        produced through the use of fossil 
                        fuels,
                          (iii) increasing the efficiency of 
                        existing technologies for producing 
                        nonfossil fuels,
                          (iv) automobile battery technologies 
                        and other technologies to reduce fossil 
                        fuel consumption in transportation, or
                          (v) technologies to reduce energy use 
                        in buildings.
                  (C) Mass commuting facilities and related 
                facilities that reduce the consumption of 
                energy, including expenditures to reduce 
                pollution from vehicles used for mass 
                commuting.
                  (D) Demonstration projects designed to 
                promote the commercialization of--
                          (i) green building technology,
                          (ii) conversion of agricultural waste 
                        for use in the production of fuel or 
                        otherwise,
                          (iii) advanced battery manufacturing 
                        technologies,
                          (iv) technologies to reduce peak use 
                        of electricity, or
                          (v) technologies for the capture and 
                        sequestration of carbon dioxide emitted 
                        from combusting fossil fuels in order 
                        to produce electricity.
                  (E) Public education campaigns to promote 
                energy efficiency.
          (2) Special rules for private activity bonds.--For 
        purposes of this section, in the case of any private 
        activity bond, the term ``qualified conservation 
        purposes'' shall not include any expenditure which is 
        not a capital expenditure.
  (f) Population.--
          (1) In general.--The population of any State or local 
        government shall be determined for purposes of this 
        section as provided in section 146(j) for the calendar 
        year which includes the date of the enactment of this 
        section.
          (2) Special rule for counties.--In determining the 
        population of any county for purposes of this section, 
        any population of such county which is taken into 
        account in determining the population of any 
        municipality which is a large local government shall 
        not be taken into account in determining the population 
        of such county.
  (g) Application to Indian Tribal Governments.--An Indian 
tribal government shall be treated for purposes of this section 
in the same manner as a large local government, except that--
          (1) an Indian tribal government shall be treated for 
        purposes of subsection (d) as located within a State to 
        the extent of so much of the population of such 
        government as resides within such State, and
          (2) any bond issued by an Indian tribal government 
        shall be treated as a qualified energy conservation 
        bond only if issued as part of an issue the available 
        project proceeds of which are used for purposes for 
        which such Indian tribal government could issue bonds 
        to which section 103(a) applies.

SEC. 54D. QUALIFIED RESIDENTIAL ENERGY EFFICIENCY ASSISTANCE BONDS.

  (a) Qualified Residential Energy Efficiency Assistance 
Bond.--For purposes of this subchapter, the term ``qualified 
residential energy efficiency assistance bond'' means any bond 
issued as part of an issue if--
          (1) 100 percent of the available project proceeds of 
        such issue are to be used for 1 or more qualified 
        residential energy efficiency assistance purposes,
          (2) not less than 20 percent of the available project 
        proceeds of such issue are to be used for 1 or more 
        qualified low-income residential energy efficiency 
        assistance purposes,
          (3) repayments of principal and applicable interest 
        on financing provided by the issue are used not later 
        than the close of the 3-month period beginning on the 
        date the prepayment (or complete repayment) is received 
        to redeem bonds which are part of the issue or to 
        provide for 1 or more qualified residential energy 
        efficiency assistance purposes,
          (4) the bond is issued by a State, and
          (5) the issuer designates such bond for purposes of 
        this section.
  (b) Limitation on Amount of Bonds Designated.--The maximum 
aggregate face amount of bonds which may be designated under 
subsection (a) by any issuer shall not exceed the limitation 
amount allocated under subsection (d) to such issuer.
  (c) National Limitation on Amount of Bonds Designated.--There 
is a national qualified energy conservation bond limitation of 
$2,400,000,000.
  (d) Limitation Allocated Among States.--The limitation under 
subsection (c) shall be allocated by the Secretary among the 
States in proportion to the population of the States.
  (e) Qualified Residential Energy Efficiency Assistance 
Purpose.--For purposes of this section--
          (1) In general.--The term ``qualified residential 
        energy efficiency assistance purpose'' means any grant 
        or low-interest loan to acquire (including reasonable 
        installation costs)--
                  (A) any property which meets (at a minimum) 
                the requirements of the Energy Star program and 
                which is to be installed in a dwelling unit,
                  (B) any property which uses wind, solar, or 
                geothermal energy or qualified fuel cell 
                property (as defined in section 48(c)(1)) to 
                generate electricity, or to heat or cool water, 
                for use in a dwelling unit (other than property 
                described in section 25D(e)(3)), and
                  (C) any improvements to a dwelling unit which 
                are made pursuant to a plan certified by an 
                energy efficiency expert that such improvement 
                will yield at least a 20 percent reduction in 
                total household energy consumption related to 
                heating, cooling, lighting, and appliances.
          (2) Geothermal heat pump.--Any geothermal heat pump 
        to provide heating or cooling in a dwelling unit 
        described in paragraph (1)(B) shall be treated as 
        described in paragraph (1)(B).
          (3) Dollar limitations.--
                  (A) In general.--Such term shall not include 
                any grant or loan for improvements described in 
                paragraph (1)(C) with respect to any dwelling 
                unit to the extent that such grant or loan 
                (when added to all other grants or loans for 
                such improvements) exceeds $5,000.
                  (B) Increased limitation for certain 
                principal residences.--In the case of a 
                dwelling unit which is used as a principal 
                residence (within the meaning of section 121) 
                by the recipient of the grant or loan referred 
                to in subparagraph (A)--
                          (i) subparagraph (A) shall be applied 
                        by substituting ``$12,000'' for 
                        ``$5,000'' if such grant or loan would 
                        satisfy the requirements of paragraph 
                        (1)(A) if such paragraph were applied 
                        by substituting ``50 percent'' for ``20 
                        percent'', and
                          (ii) in any case to which clause (i) 
                        does not apply, subparagraph (A) shall 
                        be applied by substituting ``$8,000'' 
                        for ``$5,000'' if such grant or loan 
                        would satisfy the requirements of 
                        paragraph (1)(A) if such paragraph were 
                        applied by substituting ``35 percent'' 
                        for ``20 percent''.
          (4) Low-interest loan.--The term ``low interest 
        loan'' means any loan which charges interest at a rate 
        which does not exceed the applicable Federal rate in 
        effect under section 1288(b)(1) determined as of the 
        issuance of the loan.
          (5) Exclusion of certain property.--The following 
        property shall not be taken into account for purposes 
        of paragraph (1)(A):
                  (A) Any equipment used in connection with a 
                swimming pool, hot tub, or similar property.
                  (B) Any television.
                  (C) Any device for converting digital signal 
                to analog.
                  (D) Any DVD player.
                  (E) Any video cassette recorder (VCR).
                  (F) Any audio equipment.
                  (G) Any cordless phone.
                  (H) Any other item of property where there is 
                substantial recreational use.
  (f) Qualified Low-Income Residential Efficiency Assistance 
Purpose.--For purposes of this section--
          (1) In general.--The term ``qualified low-income 
        residential energy efficiency assistance purpose'' 
        means any qualified residential energy efficiency 
        assistance purpose with respect to a dwelling unit 
        which is occupied (at the time of the grant or loan) by 
        individuals whose income is 50 percent or less of area 
        median gross income. Rules similar to the rules of 
        section 142(d)(2)(B) shall apply for purposes of this 
        paragraph.
          (2) Restriction to grants.--Such term shall not 
        include any loan.
  (g) Definitions and Special Rules.--For purposes of this 
section--
          (1) Applicable interest.--The term ``applicable 
        interest'' means, with respect to any loan, so much of 
        any interest on such loan which exceeds 1 percentage 
        point.
          (2) Special rule relating to arbitrage.--An issue 
        shall not be treated as failing to meet the 
        requirements of section 54A(d)(4)(A) by reason of any 
        investment of available project proceeds in 1 or more 
        qualified residential energy efficiency assistance 
        purposes.
          (3) Population.--The population of any State or local 
        government shall be determined as provided in section 
        146(j) for the calendar year which includes the date of 
        the enactment of this section.
          (4) Reporting.--
                  (A) Reports by issuers.--Issuers of qualified 
                residential energy efficiency assistance bonds 
                shall, not later than 6 months after the 
                expenditure period (as defined in section 54A) 
                and annually thereafter until the last such 
                bond is redeemed, submit reports to the 
                Secretary regarding such bonds, including 
                information regarding--
                          (i) the number and monetary value of 
                        loans and grants provided and the 
                        purposes for which provided,
                          (ii) the number of dwelling units the 
                        energy efficiency of which improved as 
                        result of such loans and grants,
                          (iii) the types of property described 
                        in subsection (e)(1)(A) installed as a 
                        result of such loans and grants and the 
                        projected energy savings with respect 
                        to such property,
                          (iv) the types of property described 
                        in subsection (e)(1)(B) installed as a 
                        result of such loans and grants and the 
                        projected production of such property, 
                        and
                          (v) the projected energy savings as a 
                        result of such loans and grants for 
                        improvements described in subsection 
                        (e)(1)(C).
                  (B) Report to congress.--Not later than 12 
                months after receipt of the first report under 
                subparagraph (A) and annually thereafter until 
                the last such report is required to be 
                submitted, the Secretary, in consultation with 
                the Secretary of Energy and the Administrator 
                of the Environmental Protection Agency, shall 
                submit a report to Congress regarding the bond 
                program under this section, including 
                information regarding--
                          (i) the aggregate of each category of 
                        information described in subparagraph 
                        (A) (including any independent 
                        assessment of projected energy 
                        savings), and
                          (ii) an estimate of the amount of 
                        greenhouse gas emissions reduced as a 
                        result of such bond program.

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


SEC. 132. CERTAIN FRINGE BENEFITS.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Qualified Transportation Fringe.--
          (1) In general.--For purposes of this section, the 
        term ``qualified transportation fringe'' means any of 
        the following provided by an employer to an employee:
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Any qualified bicycle commuting 
                reimbursement.
          (2) Limitation on exclusion.--The amount of the 
        fringe benefits which are provided by an employer to 
        any employee and which may be excluded from gross 
        income under subsection (a)(5) shall not exceed--
                  (A) $100 per month in the case of the 
                aggregate of the benefits described in 
                subparagraphs (A) and (B) of paragraph (1), 
                [and]
                  (B) $175 per month in the case of qualified 
                parking[.], and
                  (C) the applicable annual limitation in the 
                case of any qualified bicycle commuting 
                reimbursement.

           *       *       *       *       *       *       *

          (4) No constructive receipt.--No amount shall be 
        included in the gross income of an employee solely 
        because the employee may choose between any qualified 
        transportation fringe (other than a qualified bicycle 
        commuting reimbursement) and compensation which would 
        otherwise be includible in gross income of such 
        employee.
          (5) Definitions.--For purposes of this subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (F) Definitions related to bicycle commuting 
                reimbursement.--
                          (i) Qualified bicycle commuting 
                        reimbursement.--The term ``qualified 
                        bicycle commuting reimbursement'' 
                        means, with respect to any calendar 
                        year, any employer reimbursement during 
                        the 15-month period beginning with the 
                        first day of such calendar year for 
                        reasonable expenses incurred by the 
                        employee during such calendar year for 
                        the purchase of a bicycle and bicycle 
                        improvements, repair, and storage, if 
                        such bicycle is regularly used for 
                        travel between the employee's residence 
                        and place of employment.
                          (ii) Applicable annual limitation.--
                        The term ``applicable annual 
                        limitation'' means, with respect to any 
                        employee for any calendar year, the 
                        product of $20 multiplied by the number 
                        of qualified bicycle commuting months 
                        during such year.
                          (iii) Qualified bicycle commuting 
                        month.--The term ``qualified bicycle 
                        commuting month'' means, with respect 
                        to any employee, any month during which 
                        such employee--
                                  (I) regularly uses the 
                                bicycle for a substantial 
                                portion of the travel between 
                                the employee's residence and 
                                place of employment, and
                                  (II) does not receive any 
                                benefit described in 
                                subparagraph (A), (B), or (C) 
                                of paragraph (1).

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *


SEC. 167. DEPRECIATION.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Amortization of Geological and Geophysical 
Expenditures.--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Special rule for major integrated oil 
        companies.--
                  (A) In general.--In the case of a major 
                integrated oil company, paragraphs (1) and (4) 
                shall be applied by substituting ``[5-year] 7-
                year'' for ``24 month''.

           *       *       *       *       *       *       *


SEC. 168. ACCELERATED COST RECOVERY SYSTEM.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (3) Classification of certain property.--
                  (A) * * *
                  (B) 5-year property.--The term ``5-year 
                property'' includes--
                          (i) * * *

           *       *       *       *       *       *       *

                          (v) any section 1245 property used in 
                        connection with research and 
                        experimentation, [and]
                          (vi) any property which--
                                  (I) * * *

           *       *       *       *       *       *       *

                                  (III) is described in section 
                                48(l)(3)(A)(ix) (as in effect 
                                on the day before the date of 
                                the enactment of the Revenue 
                                Reconciliation Act of 1990)[.], 
                                and
                          (vii) any qualified energy management 
                        device.
                Nothing in any provision of law shall be 
                construed to treat property as not being 
                described in clause (vi)(I) (or the 
                corresponding provisions of prior law) by 
                reason of being public utility property (within 
                the meaning of section 48(a)(3)).

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (18) Qualified energy management device.--
                  (A) In general.--The term ``qualified energy 
                management device'' means any energy management 
                device which is installed on real property of a 
                customer of the taxpayer and is placed in 
                service by a taxpayer who--
                          (i) is a supplier of electric energy 
                        or a provider of electric energy 
                        services, and
                          (ii) provides all commercial and 
                        residential customers of such supplier 
                        or provider with net metering upon the 
                        request of such customer.
                  (B) Energy management device.--For purposes 
                of subparagraph (A), the term ``energy 
                management device'' means any time-based meter 
                and related communication equipment which is 
                capable of being used by the taxpayer as part 
                of a system that--
                          (i) measures and records electricity 
                        usage data on a time-differentiated 
                        basis in at least 24 separate time 
                        segments per day,
                          (ii) provides for the exchange of 
                        information between supplier or 
                        provider and the customer's energy 
                        management device in support of time-
                        based rates or other forms of demand 
                        response, and
                          (iii) provides data to such supplier 
                        or provider so that the supplier or 
                        provider can provide energy usage 
                        information to customers 
                        electronically.
                  (C) Net metering.--For purposes of 
                subparagraph (A), the term ``net metering'' 
                means allowing customers a credit for providing 
                electricity to the supplier or provider.

           *       *       *       *       *       *       *

  (k) Special Allowance for Certain Property Acquired After 
September 10, 2001, and before January 1, 2005.--
          (1) * * *
          (2) Qualified property.--For purposes of this 
        subsection--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Exceptions.--
                          (i) * * *
                          (ii) Qualified new york liberty zone 
                        leasehold improvement property.--The 
                        term ``qualified property'' shall not 
                        include any qualified New York Liberty 
                        Zone leasehold improvement property (as 
                        defined in [section 1400L(c)(2)] 
                        section 1400K(c)(2)).

           *       *       *       *       *       *       *


SEC. 179. ELECTION TO EXPENSE CERTAIN DEPRECIABLE BUSINESS ASSETS.

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

           *       *       *       *       *       *       *

          [(6) Limitation on cost taken into account for 
        certain passenger vehicles.--
                  [(A) In general.--The cost of any sport 
                utility vehicle for any taxable year which may 
                be taken into account under this section shall 
                not exceed $25,000.
                  [(B) Sport utility vehicle.--For purposes of 
                subparagraph (A)--
                          [(i) In general.--The term ``sport 
                        utility vehicle'' means any 4-wheeled 
                        vehicle--
                                  [(I) which is primarily 
                                designed or which can be used 
                                to carry passengers over public 
                                streets, roads, or highways 
                                (except any vehicle operated 
                                exclusively on a rail or 
                                rails),
                                  [(II) which is not subject to 
                                section 280F, and
                                  [(III) which is rated at not 
                                more than 14,000 pounds gross 
                                vehicle weight.
                          [(ii) Certain vehicles excluded.--
                        Such term does not include any vehicle 
                        which--
                                  [(I) is designed to have a 
                                seating capacity of more than 9 
                                persons behind the driver's 
                                seat,
                                  [(II) is equipped with a 
                                cargo area of at least 6 feet 
                                in interior length which is an 
                                open area or is designed for 
                                use as an open area but is 
                                enclosed by a cap and is not 
                                readily accessible directly 
                                from the passenger compartment, 
                                or
                                  [(III) has an integral 
                                enclosure, fully enclosing the 
                                driver compartment and load 
                                carrying device, does not have 
                                seating rearward of the 
                                driver's seat, and has no body 
                                section protruding more than 30 
                                inches ahead of the leading 
                                edge of the windshield.]

           *       *       *       *       *       *       *


SEC. 179D. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

  (a) * * *

           *       *       *       *       *       *       *

  (h) Termination.--This section shall not apply with respect 
to property placed in service after December 31, [2008] 2013.

           *       *       *       *       *       *       *


SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Qualified Production Activities Income.--For purposes of 
this section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Domestic production gross receipts.--
                  (A) In general.--The term ``domestic 
                production gross receipts'' means the gross 
                receipts of the taxpayer which are derived 
                from--
                          (i) any lease, rental, license, sale, 
                        exchange, or other disposition of--
                                  (I) * * *

           *       *       *       *       *       *       *

                                  (III) [electricity, natural 
                                gas,] electricity or potable 
                                water produced by the taxpayer 
                                in the United States,

           *       *       *       *       *       *       *

                  (B) Exceptions.--Such term shall not include 
                gross receipts of the taxpayer which are 
                derived from--
                          (i) * * *
                          (ii) the transmission or distribution 
                        of [electricity, natural gas,] 
                        electricity or potable water, [or]
                          (iii) the lease, rental, license, 
                        sale, exchange, or other disposition of 
                        land[.], or
                          (iv) the sale, exchange, or other 
                        disposition of oil, natural gas, or any 
                        primary product thereof.
                For purposes of clause (iv), the term ``primary 
                product'' has the same meaning as when used in 
                section 927(a)(2)(C), as in effect before its 
                repeal.

           *       *       *       *       *       *       *


PART IX--ITEMS NOT DEDUCTIBLE

           *       *       *       *       *       *       *


SEC. 280F. LIMITATION ON DEPRECIATION FOR LUXURY AUTOMOBILES; 
                    LIMITATION WHERE CERTAIN PROPERTY USED FOR PERSONAL 
                    PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          [(5) Passenger automobile.--
                  [(A) In general.--Except as provided in 
                subparagraph (B), the term ``passenger 
                automobile'' means any 4-wheeled vehicle--
                          [(i) which is manufactured primarily 
                        for use on public streets, roads, and 
                        highways, and
                          [(ii) which is rated at 6,000 pounds 
                        unloaded gross vehicle weight or less.
                In the case of a truck or van, clause (ii) 
                shall be applied by substituting ``gross 
                vehicle weight'' for ``unloaded gross vehicle 
                weight''.
                  [(B) Exception for certain vehicles.--The 
                term ``passenger automobile'' shall not 
                include--
                          [(i) any ambulance, hearse, or 
                        combination ambulance-hearse used by 
                        the taxpayer directly in a trade or 
                        business,
                          [(ii) any vehicle used by the 
                        taxpayer directly in the trade or 
                        business of transporting persons or 
                        property for compensation or hire, and
                          [(iii) under regulations, any truck 
                        or van.]
          (5) Passenger automobile.--
                  (A) In general.--Except as provided in 
                subparagraph (B), the term ``passenger 
                automobile'' means any 4-wheeled vehicle--
                          (i) which is primarily designed or 
                        which can be used to carry passengers 
                        over public streets, roads, or highways 
                        (except any vehicle operated 
                        exclusively on a rail or rails), and
                          (ii) which is rated at not more than 
                        14,000 pounds gross vehicle weight.
                  (B) Exceptions.--The term ``passenger 
                automobile'' shall not include--
                          (i) any exempt-design vehicle, and
                          (ii) any exempt-use vehicle.
                  (C) Exempt-design vehicle.--The term 
                ``exempt-design vehicle'' means--
                          (i) any vehicle which, by reason of 
                        its nature or design, is not likely to 
                        be used more than a de minimis amount 
                        for personal purposes, and
                          (ii) any vehicle--
                                  (I) which is designed to have 
                                a seating capacity of more than 
                                9 persons behind the driver's 
                                seat,
                                  (II) which is equipped with a 
                                cargo area of at least 5 feet 
                                in interior length which is an 
                                open area or is designed for 
                                use as an open area but is 
                                enclosed by a cap and is not 
                                readily accessible directly 
                                from the passenger compartment, 
                                or
                                  (III) has an integral 
                                enclosure, fully enclosing the 
                                driver compartment and load 
                                carrying device, does not have 
                                seating rearward of the 
                                driver's seat, and has no body 
                                section protruding more than 30 
                                inches ahead of the leading 
                                edge of the windshield.
                  (D) Exempt-use vehicle.--The term ``exempt-
                use vehicle'' means--
                          (i) any ambulance, hearse, or 
                        combination ambulance-hearse used by 
                        the taxpayer directly in a trade or 
                        business,
                          (ii) any vehicle used by the taxpayer 
                        directly in the trade or business of 
                        transporting persons or property for 
                        compensation or hire, and
                          (iii) any truck or van if 
                        substantially all of the use of such 
                        vehicle by the taxpayer is directly 
                        in--
                                  (I) a farming business 
                                (within the meaning of section 
                                263A(e)(4)),
                                  (II) the transportation of a 
                                substantial amount of 
                                equipment, supplies, or 
                                inventory, or
                                  (III) the moving or delivery 
                                of property which requires 
                                substantial cargo capacity.
                  (E) Recapture.--In the case of any vehicle 
                which is not a passenger automobile by reason 
                of being an exempt-use vehicle, if such vehicle 
                ceases to be an exempt-use vehicle in any 
                taxable year after the taxable year in which 
                such vehicle is placed in service, a rule 
                similar to the rule of subsection (b) shall 
                apply.

           *       *       *       *       *       *       *


Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

  (i) Special Rule for Sales or Dispositions to Implement 
Federal Energy Regulatory Commission or State Electric 
Restructuring Policy.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Qualifying electric transmission transaction.--
        For purposes of this subsection, the term ``qualifying 
        electric transmission transaction'' means any sale or 
        other disposition [before January 1, 2008,] before 
        January 1, 2010, by a qualified electric utility, of--
                  (A) * * *

           *       *       *       *       *       *       *

          (4) Independent transmission company.--For purposes 
        of this subsection, the term ``independent transmission 
        company'' means--
                  (A) * * *
                  (B) a person--
                          (i) * * *
                          (ii) whose transmission facilities to 
                        which the election under this 
                        subsection applies are under the 
                        operational control of a Federal Energy 
                        Regulatory Commission-approved 
                        independent transmission provider 
                        before the close of the period 
                        specified in such authorization, but 
                        not later than [December 31, 2007] the 
                        date which is 4 years after the close 
                        of the taxable year in which the 
                        transaction occurs, or

           *       *       *       *       *       *       *

          (5) Exempt utility property.--For purposes of this 
        subsection:
                  (A) * * *

           *       *       *       *       *       *       *

                  (C) Exception for property located outside 
                the united states.--The term ``exempt utility 
                property'' shall not include any property which 
                is located outside the United States.
          (6) Qualified electric utility.--For purposes of this 
        subsection, the term ``qualified electric utility'' 
        means--
                  (A) an electric utility (as defined in 
                section 3(22) of the Federal Power Act (16 
                U.S.C. 796(22))), and
                  (B) any person in the same holding company 
                system (as defined in section 1262(9) of the 
                Public Utility Holding Company Act of 2005 (42 
                U.S.C. 16451(9))) as an electric utility 
                referred to subparagraph (A).
          [(6)] (7) Special rule for consolidated groups.--In 
        the case of a corporation which is a member of an 
        affiliated group filing a consolidated return, any 
        exempt utility property purchased by another member of 
        such group shall be treated as purchased by such 
        corporation for purposes of applying paragraph (1)(A).
          [(7)] (8) Time for assessment of deficiencies.--If 
        the taxpayer has made the election under paragraph (1) 
        and any gain is recognized by such taxpayer as provided 
        in paragraph (1)(B), then--
                  (A) * * *

           *       *       *       *       *       *       *

          [(8)] (9) Purchase.--For purposes of this subsection, 
        the taxpayer shall be considered to have purchased any 
        property if the unadjusted basis of such property is 
        its cost within the meaning of section 1012.
          [(9)] (10) Election.--An election under paragraph (1) 
        shall be made at such time and in such manner as the 
        Secretary may require and, once made, shall be 
        irrevocable.
          [(10)] (11) Nonapplication of installment sales 
        treatment.--Section 453 shall not apply to any 
        qualifying electric transmission transaction with 
        respect to which an election to apply this subsection 
        is made.

           *       *       *       *       *       *       *


 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. 907. SPECIAL RULES IN CASE OF FOREIGN OIL AND GAS INCOME.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Foreign Income Definitions and Special Rules.--For 
purposes of this section--
          (1) Foreign oil and gas extraction income.--The term 
        ``foreign oil and gas extraction income'' means the 
        taxable income derived from sources without the United 
        States and its possessions from--
                  (A) the extraction (by the taxpayer or any 
                other person) of minerals from oil or gas 
                wells, [or]
                  (B) so much of any transportation of such 
                minerals as occurs before the fair market value 
                event, or
                  [(B)] (C) the sale or exchange of assets used 
                by the taxpayer in the trade or business 
                described in subparagraph (A) or used by the 
                taxpayer in the activity described in 
                subparagraph (B).
Such term does not include any dividend or interest income 
which is passive income (as defined in section 904(d)(2)(A)).
          (2) Foreign oil related income.--The term ``foreign 
        oil related income'' means the taxable income derived 
        from sources outside the United States and its 
        possessions from--
                  (A) * * *
                  [(B) the transportation of such minerals or 
                primary products,]
                  (B) so much of the transportation of such 
                minerals or primary products as is not taken 
                into account under paragraph (1)(B),

           *       *       *       *       *       *       *

          (6) Fair market value event.--For purposes of this 
        section, the term ``fair market value event'' means, 
        with respect to any mineral, the first point in time at 
        which such mineral--
                  (A) has a fair market value which can be 
                determined on the basis of a transfer, which is 
                an arm's length transaction, of such mineral 
                from the taxpayer to a person who is not 
                related (within the meaning of section 482) to 
                such taxpayer, or
                  (B) is at a location at which the fair market 
                value is readily ascertainable by reason of 
                transactions among unrelated third parties with 
                respect to the same mineral (taking into 
                account source, location, quality, and chemical 
                composition).
          (7) Oil and gas taxes.--In the case of any tax 
        imposed by a foreign country which is limited in its 
        application to taxpayers engaged in oil or gas 
        activities--
                  (A) the term ``oil and gas extraction taxes'' 
                shall include such tax,
                  (B) the term ``foreign oil and gas extraction 
                income'' shall include any taxable income which 
                is taken into account in determining such tax 
                (or is directly attributable to the activity to 
                which such tax relates), and
                  (C) the term ``foreign oil related income'' 
                shall not include any taxable income which is 
                treated as foreign oil and gas extraction 
                income under subparagraph (B).

           *       *       *       *       *       *       *


Subchapter O--Gain or Loss on Disposition of Property

           *       *       *       *       *       *       *


PART II--BASIS RULES OF GENERAL APPLICATION

           *       *       *       *       *       *       *


SEC. 1016. ADJUSTMENTS TO BASIS.

  (a) Proper Adjustment in Respect of the Property Shall in all 
Cases be Made.--
          (1) * * *

           *       *       *       *       *       *       *

          (36) to the extent provided in section 30B(h)(4), 
        [and]
          (37) to the extent provided in section 30C(f)[.], and
          (38) to the extent provided in section 30D(f)(1).

           *       *       *       *       *       *       *


     Subchapter U--Designation and Treatment of Empowerment Zones, 
Enterprise Communities, and Rural Development Investment Areas

           *       *       *       *       *       *       *


PART IV--INCENTIVES FOR EDUCATION ZONES

           *       *       *       *       *       *       *


SEC. 1397E. CREDIT TO HOLDERS OF QUALIF ZONE ACADEMY BONDS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Limitation Based on Amount of Tax.--The credit allowed 
under subsection (a) for any taxable year shall not exceed the 
excess of--
          (1) * * *
          (2) the sum of the credits allowable under part IV of 
        subchapter A (other than subpart C thereof, relating to 
        refundable credits, and [subpart H] subparts H and I 
        thereof).

           *       *       *       *       *       *       *


Subchapter W--District of Columbia Enterprise Zone

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

  (d) Carryforward of Unused Credit.--
          (1) * * *
          (2) Rule for other years.--In the case of a taxable 
        year to which section 26(a)(2) does not apply, if the 
        credit allowable under subsection (a) exceeds the 
        limitation imposed by section 26(a)(1) 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, 25B, [and 25D] 25D, and 
        30D), such excess shall be carried to the succeeding 
        taxable year and added to the credit allowable under 
        subsection (a) for such taxable year.

           *       *       *       *       *       *       *


Subchapter Y--Short-Term Regional Benefits

           *       *       *       *       *       *       *


             PART I--TAX BENEFITS FOR NEW YORK LIBERTY ZONE

Sec. [1400L] 1400K. Tax benefits for New York Liberty Zone.
Sec. 1400L. New York Liberty Zone tax credits.

           *       *       *       *       *       *       *


SEC. [1400L] 1400K. TAX BENEFITS FOR NEW YORK LIBERTY ZONE.

  (a) * * *
  (b) Special Allowance for Certain Property Acquired After 
September 10, 2001.--
          (1) * * *
          (2) Qualified new york liberty zone property.--For 
        purposes of this subsection--
                  (A) In general.--The term ``qualified New 
                York Liberty Zone property'' means property--
                          (i) * * *

           *       *       *       *       *       *       *

                The term ``termination date'' means December 
                31, 2006 [(December 31, 2009, in the case of 
                nonresidential real property and residential 
                rental property)] (in the case of 
                nonresidential real property and residential 
                rental property, the date of the enactment of 
                the Renewable Energy and Energy Conservation 
                Tax Act of 2007 or, if acquired pursuant to a 
                binding contract in effect on such enactment 
                date, December 31, 2009).

           *       *       *       *       *       *       *


SEC. 1400L. NEW YORK LIBERTY ZONE TAX CREDITS.

  (a) In General.--In the case of a New York Liberty Zone 
governmental unit, there shall be allowed as a credit against 
any taxes imposed for any payroll period by section 3402 for 
which such governmental unit is liable under section 3403 an 
amount equal to so much of the portion of the qualifying 
project expenditure amount allocated under subsection (b)(3) to 
such governmental unit for the calendar year as is allocated by 
such governmental unit to such period under subsection (b)(4).
  (b) Qualifying Project Expenditure Amount.--For purposes of 
this section--
          (1) In general.--The term ``qualifying project 
        expenditure amount'' means, with respect to any 
        calendar year, the sum of--
                  (A) the total expenditures paid or incurred 
                during such calendar year by all New York 
                Liberty Zone governmental units and the Port 
                Authority of New York and New Jersey for any 
                portion of qualifying projects located wholly 
                within the City of New York, New York, and
                  (B) any such expenditures--
                          (i) paid or incurred in any preceding 
                        calendar year which begins after the 
                        date of enactment of this section, and
                          (ii) not previously allocated under 
                        paragraph (3).
          (2) Qualifying project.--The term ``qualifying 
        project'' means any transportation infrastructure 
        project, including highways, mass transit systems, 
        railroads, airports, ports, and waterways, in or 
        connecting with the New York Liberty Zone (as defined 
        in section 1400K(h)), which is designated as a 
        qualifying project under this section jointly by the 
        Governor of the State of New York and the Mayor of the 
        City of New York, New York.
          (3) General allocation.--
                  (A) In general.--The Governor of the State of 
                New York and the Mayor of the City of New York, 
                New York, shall jointly allocate to each New 
                York Liberty Zone governmental unit the portion 
                of the qualifying project expenditure amount 
                which may be taken into account by such 
                governmental unit under subsection (a) for any 
                calendar year in the credit period.
                  (B) Aggregate limit.--The aggregate amount 
                which may be allocated under subparagraph (A) 
                for all calendar years in the credit period 
                shall not exceed $2,000,000,000.
                  (C) Annual limit.--The aggregate amount which 
                may be allocated under subparagraph (A) for any 
                calendar year in the credit period shall not 
                exceed the sum of--
                          (i) $169,000,000, plus
                          (ii) the aggregate amount authorized 
                        to be allocated under this paragraph 
                        for all preceding calendar years in the 
                        credit period which was not so 
                        allocated.
                  (D) Unallocated amounts at end of credit 
                period.--If, as of the close of the credit 
                period, the amount under subparagraph (B) 
                exceeds the aggregate amount allocated under 
                subparagraph (A) for all calendar years in the 
                credit period, the Governor of the State of New 
                York and the Mayor of the City of New York, New 
                York, may jointly allocate to New York Liberty 
                Zone governmental units for any calendar year 
                in the 5-year period following the credit 
                period an amount equal to--
                          (i) the lesser of--
                                  (I) such excess, or
                                  (II) the qualifying project 
                                expenditure amount for such 
                                calendar year, reduced by
                          (ii) the aggregate amount allocated 
                        under this subparagraph for all 
                        preceding calendar years.
          (4) Allocation to payroll periods.--Each New York 
        Liberty Zone governmental unit which has been allocated 
        a portion of the qualifying project expenditure amount 
        under paragraph (3) for a calendar year may allocate 
        such portion to payroll periods beginning in such 
        calendar year as such governmental unit determines 
        appropriate.
  (c) Carryover of Unused Allocations.--
          (1) In general.--Except as provided in paragraph (2), 
        if the amount allocated under subsection (b)(3) to a 
        New York Liberty Zone governmental unit for any 
        calendar year exceeds the aggregate taxes imposed by 
        section 3402 for which such governmental unit is liable 
        under section 3403 for periods beginning in such year, 
        such excess shall be carried to the succeeding calendar 
        year and added to the allocation of such governmental 
        unit for such succeeding calendar year.
          (2) Reallocation.--If a New York Liberty Zone 
        governmental unit does not use an amount allocated to 
        it under subsection (b)(3) within the time prescribed 
        by the Governor of the State of New York and the Mayor 
        of the City of New York, New York, then such amount 
        shall after such time be treated for purposes of 
        subsection (b)(3) in the same manner as if it had never 
        been allocated.
  (d) Definitions and Special Rules.--For purposes of this 
section--
          (1) Credit period.--The term ``credit period'' means 
        the 12-year period beginning on January 1, 2008.
          (2) New york liberty zone governmental unit.--The 
        term ``New York Liberty Zone governmental unit'' 
        means--
                  (A) the State of New York,
                  (B) the City of New York, New York, and
                  (C) any agency or instrumentality of such 
                State or City.
          (3) Treatment of funds.--Any expenditure for a 
        qualifying project taken into account for purposes of 
        the credit under this section shall be considered State 
        and local funds for the purpose of any Federal program.
          (4) Treatment of credit amounts for purposes of 
        withholding taxes.--For purposes of this title, a New 
        York Liberty Zone governmental unit shall be treated as 
        having paid to the Secretary, on the day on which wages 
        are paid to employees, an amount equal to the amount of 
        the credit allowed to such entity under subsection (a) 
        with respect to such wages, but only if such 
        governmental unit deducts and withholds wages for such 
        payroll period under section 3401 (relating to wage 
        withholding).
  (e) Reporting.--The Governor of the State of New York and the 
Mayor of the City of New York, New York, shall jointly submit 
to the Secretary an annual report--
          (1) which certifies--
                  (A) the qualifying project expenditure amount 
                for the calendar year, and
                  (B) the amount allocated to each New York 
                Liberty Zone governmental unit under subsection 
                (b)(3) for the calendar year, and
          (2) includes such other information as the Secretary 
        may require to carry out this section.
  (f) Guidance.--The Secretary may prescribe such guidance as 
may be necessary or appropriate to ensure compliance with the 
purposes of this section.

           *       *       *       *       *       *       *


PART II--TAX BENEFITS FOR GO ZONES

           *       *       *       *       *       *       *


SEC. 1400N. TAX BENEFITS FOR GULF OPPORTUNITY ZONE.

  (a) * * *

           *       *       *       *       *       *       *

  (l) Credit to Holders of Gulf Tax Credit Bonds.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Limitation based on amount of tax.--The credit 
        allowed under paragraph (1) for any taxable year shall 
        not exceed the excess of--
                  (A) * * *
                  (B) the sum of the credits allowable under 
                part IV of subchapter A (other than [subpart C] 
                subparts C and I and this subsection).

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


Subchapter A--Returns and Records

           *       *       *       *       *       *       *


PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *


Subpart B--Information Concerning Transactions with Other Persons

           *       *       *       *       *       *       *


SEC. 6049. RETURNS REGARDING PAYMENTS OF INTEREST.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (9) Reporting of credit on qualified tax credit 
        bonds.--
                  (A) In general.--For purposes of subsection 
                (a), the term ``interest'' includes amounts 
                includible in gross income under section 54A 
                and such amounts shall be treated as paid on 
                the credit allowance date (as defined in 
                section 54A(e)(1)).
                  (B) Reporting to corporations, etc.--Except 
                as otherwise provided in regulations, in the 
                case of any interest described in subparagraph 
                (A) of this paragraph, subsection (b)(4) of 
                this section shall be applied without regard to 
                subparagraphs (A), (H), (I), (J), (K), and 
                (L)(i).
                  (C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require 
                more frequent or more detailed reporting.

           *       *       *       *       *       *       *


CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


Subchapter A--Procedure in General

           *       *       *       *       *       *       *


SEC. 6401. AMOUNTS TREATED AS OVERPAYMENTS.

  (a) * * *
  (b) Excessive Credits.--
          (1) In general.--If the amount allowable as credits 
        under subpart C of part IV of subchapter A of chapter 1 
        (relating to refundable credits) exceeds the tax 
        imposed by subtitle A (reduced by the credits allowable 
        under subparts A, B, D, G, [and H] H, and I of such 
        part IV), the amount of such excess shall be considered 
        an overpayment.

           *       *       *       *       *       *       *


Subchapter B--Rules of Special Application

           *       *       *       *       *       *       *


SEC. 6426. CREDIT FOR ALCOHOL FUEL, BIODIESEL, AND ALTERNATIVE FUEL 
                    MIXTURES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Biodiesel Mixture Credit.--
          (1) * * *

           *       *       *       *       *       *       *

          (6) Termination.--This subsection shall not apply to 
        any sale, use, or removal for any period after December 
        31, [2008] 2010.
  (d) Alternative Fuel Credit.--
          (1) * * *
          (2) Alternative fuel.--For purposes of this section, 
        the term ``alternative fuel'' means--
                  (A) * * *

           *       *       *       *       *       *       *

                  (F) liquid [hydrocarbons] fuel derived from 
                biomass (as defined in section 45K(c)(3)).
  (h) Denial of Double Benefit.--No credit shall be determined 
under subsection (d) or (e) with respect to any fuel with 
respect to which credit may be determined under subsection (b) 
or (c) or under section 40 or 40A.
  (i) Limitation to Fuels With Connection to the United 
States.--
          (1) Alcohol.--No credit shall be determined under 
        this section with respect to any alcohol which is 
        produced outside the United States for use as a fuel 
        outside the United States.
          (2) Biodiesel and alternative fuels.--No credit shall 
        be determined under this section with respect to any 
        biodiesel or alternative fuel unless--
                  (A) such biodiesel or alternative fuel is 
                produced in the United States for use as a fuel 
                in the United States, and
                  (B) the taxpayer obtains a certification (in 
                such form and manner as prescribed by the 
                Secretary) from the producer of such biodiesel 
                or alternative fuel which identifies the 
                product produced and the location of such 
                production.
For purposes of this subsection, the term ``United States'' 
includes any possession of the United States.

SEC. 6427. FUELS NOT USED FOR TAXABLE PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Alcohol, Biodiesel, or Alternative Fuel.--Except as 
provided in subsection (k)--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Limitation to fuels with connection to the united 
        states.--No amount shall be payable under paragraph (1) 
        or (2) with respect to any mixture or alternative fuel 
        if credit is not allowed with respect to such mixture 
        or alternative fuel by reason of section 6426(i).
          [(5)] (6) Termination.--This subsection shall not 
        apply with respect to--
                  (A) * * *
                  (B) any biodiesel mixture (as defined in 
                section 6426(c)(3)) sold or used after December 
                31, [2008] 2010,

           *       *       *       *       *       *       *


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(h)(9), 30C(e)(5), 
30D(f)(4), 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).

           *       *       *       *       *       *       *


                          VI. DISSENTING VIEWS

    Through a series of hearings, public statements and other 
conversations with our friends across the aisle, we mistakenly 
came to believe that the Majority party was serious about 
addressing the real and growing energy needs of this country.
    Republicans and Democrats agree that the price of gasoline 
is far too high. We agree that we should reduce our dependence 
on foreign sources of energy by developing our own vast 
domestic and renewable energy resources. We believe that 
climate change is a legitimate concern, and that we must work 
hard to find a global solution to that problem. With such 
consensus on these major issues, we were optimistic that we 
could develop a bipartisan and effective approach to the future 
of energy policy in the United States.
    Unfortunately, the bill approved by the Ways & Means 
Committee went down a different path. Rather than focus on 
these important issues, the bill suffers from a lack of 
imagination in addressing the complex energy problems we face 
today. For these reasons, we must oppose this bill and will 
push instead for a better energy policy as the legislative 
process evolves.

          FAILS TO ADDRESS FUNDAMENTAL GOAL OF THE LEGISLATION

    As noted at the outset, there continues to be bipartisan 
consensus on the need to address climate change and on the need 
to reduce our dependence on foreign sources of energy. Despite 
this agreement, the Majority's bill does little to address 
these two issues. Indeed, it may decrease our energy 
independence.
    For example, the bill would allocate $6 billion in tax 
credit bonds to states and localities to use largely at their 
whim. The bill has no certification requirement that those 
expenditures actually be used to reduce greenhouse gases or 
fossil fuel consumption.
    Likewise, the punitive tax increases on domestic oil and 
gas producers will almost certainly increase our reliance on 
foreign sources of energy. Furthermore, while higher taxes on 
oil and gas companies may make for good talking points for 
politicians complaining about the high price of gasoline, it is 
difficult to imagine any serious economist would agree that 
higher taxes will bring down prices. But as was noted during 
the mark-up, some proponents of the legislation would prefer to 
raise taxes on oil and gas for the specific purpose of driving 
up prices to reduce consumption. For those harboring that 
hidden goal, one that few politicians would be willing to 
utter, this bill will bring those secret dreams one step closer 
to reality.

                 PROBLEMS REQUIRE BROAD-BASED SOLUTIONS

    A key component of the bill is the creation of a slush 
fund, financed with tax credit bonds, that will put federal 
dollars and few restrictions into the hands of governors, 
mayors of the 242 biggest cities in America, and countless 
other county officials, school boards and other political 
entities.
    During the mark-up, the witnesses before the Committee 
confirmed that qualifying expenditures for such bonds could 
include hybrid Lexus police cars for Beverly Hills, hybrid 
snowmobiles in posh Aspen, solar panels for Al Gore's house and 
bicycle powered toasters for all. It was thus disappointing to 
see numerous Republican amendments to responsibly limit the use 
of these funds reflexively rejected.

               GRAVE CONCERNS OVER TAX CREDIT TRAFFICKING

    We are particularly concerned with the expansion of tax 
credit bonds in this bill. These bonds allow the purchaser to 
receive a federal tax credit in lieu of interest payments. 
Allowing states and local municipalities to issue tax credit 
bonds is simply an end run around the federal appropriations 
process.
    Nevertheless, we understand that politicians like to dole 
out goodies. The Appropriations Committee shouldn't have all 
the fun. But what is disturbing is the high price of this kind 
of spending through the tax code.
    In 2004, the Congressional Budget Office reported that the 
nonstandard nature of tax credit bonds reduces their liquidity, 
leading investors to demand a premium. As such, the cost to the 
federal government of using tax credit bonds is greater than 
the cost of financing appropriations through conventional 
borrowing by the Treasury Department. We do not understand why 
the Federal government would choose such an inefficient funding 
mechanism.
    Even more so, we are opposed to the ``strippable'' feature 
of the tax credit bonds, an unprecedented expansion of tax 
credit bonds that will permit the tax credit portion of the 
debt to be separated from the principal and sold off to 
taxpayers with no other connection to the bond itself. We have 
substantial concerns about the ability to track the holders of 
these stripped credits and find this to be an odd result for a 
Congress that has been so concerned about the ``tax gap.''
    Just as in the world of fashion, what is old is new again. 
Strippable tax credit bonds strike chords reminiscent of the 
ill-fated ``safe-harbor leasing'' provision enacted in 1981, 
which allowed businesses to buy and sell tax attributes. But 
negative publicity came soon after passage, as stories 
proliferated about companies eliminating all of their tax 
liabilities by entering into ``leasing'' transactions with 
companies who could not use the deductions or tax credits 
associated with the property.
    A year later, in 1982, Congress repealed safe-harbor 
leasing. Although no Republican Member of the Committee served 
in the 97th Congress, the legislative history suggests the 
prompt reversal was necessitated by the tax-avoidance 
opportunities that safe-harbor leasing created and the adverse 
public reaction that followed. Concerns were raised that 
institutionalized commerce in tax benefits was likely to 
diminish respect for and compliance with the tax laws on the 
part of the public.
    We do not understand why the Majority would want to rush 
headlong into the mistakes of the past, especially as two of 
the senior Democrats on our panel were among the 226 Members of 
the House voting in 1982 to pass the bill that repealed safe 
harbor leasing. We can only wonder whether today's Majority 
will, like our colleagues a quarter of a century ago, beat a 
similarly hasty retreat and undo this mistake before the end of 
the 110th Congress.

                           ACCIDENTAL POLICY

    The legislation does seem to include, albeit accidentally, 
a few provisions that can actually be used to reduce our 
dependence on other countries for energy. While we do not 
support the use of tax credit bonds, as approved by the 
Committee, these bonds could be used to fund coal-to-liquid 
plants. While the authors may not have intended the use of 
these provisions in such a way, we have little doubt that 
leaders in states across the country will be eager to do so.
    Specifically, the bill allows the proceeds of tax credit 
bonds to be used for projects to ``promote the 
commercialization of technologies for the capture and 
sequestration of carbon dioxide.'' It does not say that the 
project must capture and sequester all of the carbon dioxide 
produced. So the bonds could be used to support carbon 
sequestration efforts that are a necessary part of new coal-to-
liquids facilities.
    We very much doubt this accidental policy will remain in 
the bill for long. Before it goes to the House Floor, we expect 
changes will be made to ``fix'' this ``error.'' Similarly, we 
expect the Majority will modify a provision that could allow 
the proceeds of the tax credit bonds to be used to promote the 
expansion of nuclear power.

                               CONCLUSION

    We share our colleagues' interest in finding ways to 
increase our energy independence and reduce the emission of 
greenhouse gases. But we were presented with a bill that does 
not seem to move us close to those goals and, in many ways, 
seems to move in the opposite direction.
                                   Jim McCrery.
                                   Phil English.
                                   Jerry Weller.
                                   Ron Lewis.
                                   Kevin Brady.
                                   Kenny Hulshof.
                                   Eric Cantor.
                                   Devin Nunes.
                                   Pat Tiberi.
                                   Jon Porter.

                                  
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