    [House Report 110-658]
    [From the U.S. Government Publishing Office]

    110th Congress                                                   Report
                            HOUSE OF REPRESENTATIVES
     2d Session                                                     110-658
    _______________________________________________________________________

                 RENEWABLE ENERGY AND JOB CREATION ACT OF 2008

                                   ----------

                                  R E P O R T

                                 together with

                        ADDITIONAL AND DISSENTING VIEWS

                                  TO ACCOMPANY

                                   H.R. 6049

      May 20, 2008.--Committed to the Committee of the Whole House of the
                  State of the Union and ordered to be printed

                 RENEWABLE ENERGY AND JOB CREATION ACT OF 2008

    110th Congress                                                   Report
                            HOUSE OF REPRESENTATIVES
     2d Session                                                     110-658

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

                 RENEWABLE ENERGY AND JOB CREATION ACT OF 2008

                                    _______

      May 20, 2008.--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

                        ADDITIONAL AND DISSENTING VIEWS

                            [To accompany H.R. 6049]

          [Including cost estimate of the Congressional Budget Office]

      The Committee on Ways and Means, to whom was referred the
    bill (H.R. 6049) to amend the Internal Revenue Code of 1986 to
    provide incentives for energy production and conservation, to
    extend certain expiring provisions, to provide individual
    income tax relief, and for other purposes, 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, ETC.

      (a) Short Title.--This Act may be cited as the ``Renewable Energy and
    Job Creation Act of 2008''.
      (b) Reference.--Except as otherwise expressly provided, whenever in
    this Act an amendment or repeal is expressed in terms of an amendment
    to, or repeal of, a section or other provision, the reference shall be
    considered to be made to a section or other provision of the Internal
    Revenue Code of 1986.
      (c) Table of Contents.--The table of contents for this Act is as
    follows:

    Sec. 1. Short title, etc.

                         TITLE I--ENERGY TAX INCENTIVES

                    Subtitle A--Energy Production Incentives

                      Part I--Renewable Energy Incentives

    Sec. 101. Renewable energy credit.
    Sec. 102. Production credit for electricity produced from marine
    renewables.
    Sec. 103. Energy credit.
    Sec. 104. Credit for residential energy efficient property.
    Sec. 105. Special rule to implement FERC and State electric
    restructuring policy.
    Sec. 106. New clean renewable energy bonds.

                     Part II--Carbon Mitigation Provisions

    Sec. 111. Expansion and modification of advanced coal project
    investment credit.
    Sec. 112. Expansion and modification of coal gasification investment
    credit.
    Sec. 113. Temporary increase in coal excise tax.
    Sec. 114. Special rules for refund of the coal excise tax to certain
    coal producers and exporters.
    Sec. 115. Carbon audit of the tax code.

        Subtitle B--Transportation and Domestic Fuel Security Provisions

    Sec. 121. Inclusion of cellulosic biofuel in bonus depreciation for
    biomass ethanol plant property.
    Sec. 122. Credits for biodiesel and renewable diesel.
    Sec. 123. Clarification that credits for fuel are designed to provide
    an incentive for United States production.
    Sec. 124. Credit for new qualified plug-in electric drive motor
    vehicles.
    Sec. 125. Exclusion from heavy truck tax for idling reduction units and
    advanced insulation.
    Sec. 126. Restructuring of New York Liberty Zone tax credits.
    Sec. 127. Transportation fringe benefit to bicycle commuters.
    Sec. 128. Alternative fuel vehicle refueling property credit.

           Subtitle C--Energy Conservation and Efficiency Provisions

    Sec. 141. Qualified energy conservation bonds.
    Sec. 142. Credit for nonbusiness energy property.
    Sec. 143. Energy efficient commercial buildings deduction.
    Sec. 144. Modifications of energy efficient appliance credit for
    appliances produced after 2007.
    Sec. 145. Accelerated recovery period for depreciation of smart meters
    and smart grid systems.
    Sec. 146. Qualified green building and sustainable design projects.

              TITLE II--ONE-YEAR EXTENSION OF TEMPORARY PROVISIONS

             Subtitle A--Extensions Primarily Affecting Individuals

    Sec. 201. Deduction for State and local sales taxes.
    Sec. 202. Deduction of qualified tuition and related expenses.
    Sec. 203. Treatment of certain dividends of regulated investment
    companies.
    Sec. 204. Tax-free distributions from individual retirement plans for
    charitable purposes.
    Sec. 205. Deduction for certain expenses of elementary and secondary
    school teachers.
    Sec. 206. Election to include combat pay as earned income for purposes
    of earned income tax credit.
    Sec. 207. Modification of mortgage revenue bonds for veterans.
    Sec. 208. Distributions from retirement plans to individuals called to
    active duty.
    Sec. 209. Stock in RIC for purposes of determining estates of
    nonresidents not citizens.
    Sec. 210. Qualified investment entities.
    Sec. 211. Exclusion of amounts received under qualified group legal
    services plans.

             Subtitle B--Extensions Primarily Affecting Businesses

    Sec. 221. Research credit.
    Sec. 222. Indian employment credit.
    Sec. 223. New markets tax credit.
    Sec. 224. Railroad track maintenance.
    Sec. 225. Fifteen-year straight-line cost recovery for qualified
    leasehold improvements and qualified restaurant property.
    Sec. 226. Seven-year cost recovery period for motorsports racing track
    facility.
    Sec. 227. Accelerated depreciation for business property on Indian
    reservation.
    Sec. 228. Expensing of environmental remediation costs.
    Sec. 229. Deduction allowable with respect to income attributable to
    domestic production activities in Puerto Rico.
    Sec. 230. Modification of tax treatment of certain payments to
    controlling exempt organizations.
    Sec. 231. Qualified zone academy bonds.
    Sec. 232. Tax incentives for investment in the District of Columbia.
    Sec. 233. Economic development credit for American Samoa.
    Sec. 234. Enhanced charitable deduction for contributions of food
    inventory.
    Sec. 235. Enhanced charitable deduction for contributions of book
    inventory to public schools.
    Sec. 236. Enhanced deduction for qualified computer contributions.
    Sec. 237. Basis adjustment to stock of S corporations making charitable
    contributions of property.
    Sec. 238. Work opportunity tax credit for Hurricane Katrina employees.
    Sec. 239. Subpart F exception for active financing income.
    Sec. 240. Look-thru rule for related controlled foreign corporations.
    Sec. 241. Expensing for certain qualified film and television
    productions.

                          Subtitle C--Other Extensions

    Sec. 251. Authority to disclose information related to terrorist
    activities made permanent.
    Sec. 252. Authority for undercover operations made permanent.
    Sec. 253. Authority to disclose return information for certain veterans
    programs made permanent.
    Sec. 254. Increase in limit on cover over of rum excise tax to Puerto
    Rico and the Virgin Islands.
    Sec. 255. Parity in the application of certain limits to mental health
    benefits.

                        TITLE III--ADDITIONAL TAX RELIEF

                       Subtitle A--Individual Tax Relief

    Sec. 301. Additional standard deduction for real property taxes for
    nonitemizers.
    Sec. 302. Refundable child credit.
    Sec. 303. Increase of AMT refundable credit amount for individuals with
    long-term unused credits for prior year minimum tax liability, etc.

                    Subtitle B--Business Related Provisions

    Sec. 311. Uniform treatment of attorney-advanced expenses and court
    costs in contingency fee cases.
    Sec. 312. Provisions related to film and television productions.

      Subtitle C--Modification of Penalty on Understatement of Taxpayer's
                        Liability by Tax Return Preparer

    Sec. 321. Modification of penalty on understatement of taxpayer's
    liability by tax return preparer.

       Subtitle D--Extension and Expansion of Certain GO Zone Incentives

    Sec. 331. Certain GO Zone incentives.

                          TITLE IV--REVENUE PROVISIONS

    Sec. 401. Nonqualified deferred compensation from certain tax
    indifferent parties.
    Sec. 402. Delay in application of worldwide allocation of interest.
    Sec. 403. Time for payment of corporate estimated taxes.

                         TITLE I--ENERGY TAX INCENTIVES

                    Subtitle A--Energy Production Incentives

                      PART I--RENEWABLE ENERGY INCENTIVES

    SEC. 101. RENEWABLE ENERGY CREDIT.

      (a) Extension of Credit.--
              (1) 1-year extension for wind facilities.--Paragraph (1) of
            section 45(d) is amended by striking ``January 1, 2009'' and
            inserting ``January 1, 2010''.
              (2) 3-year extension for certain other facilities.--Each of
            the following provisions of section 45(d) is amended by
            striking ``January 1, 2009'' and inserting ``January 1, 2012'':
                      (A) Clauses (i) and (ii) of paragraph (2)(A).
                      (B) Clauses (i)(I) and (ii) of paragraph (3)(A).
                      (C) Paragraph (4).
                      (D) Paragraph (5).
                      (E) Paragraph (6).
                      (F) Paragraph (7).
                      (G) 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, 2009, 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
                            prelimitation credit for 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 prelimitation
                            credit 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 be 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.
                              ``(iii) Prelimitation credit.--The term
                            `prelimitation credit' with respect to any
                            facility for a taxable year means the credit
                            determined under subsection (a) with respect to
                            such facility for such taxable year, determined
                            without regard to subparagraph (A) and after
                            taking into account any increase for such
                            taxable year under clause (ii).
                      ``(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 applicable
                            percentages.--The applicable 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 greater of 110 percent of the
                                    Federal long-term rate as in effect
                                    under section 1274(d) for the month
                                    preceding the month for which the
                                    applicable percentage is being
                                    prescribed, or 4.5 percent, 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--
                              ``(i) In general.--The term `eligible basis'
                            means, with respect to any facility, the sum
                            of--
                                      ``(I) the basis of such facility
                                    determined as of the time that such
                                    facility is originally placed in
                                    service, and
                                      ``(II) the portion of the basis of
                                    any shared qualified property which is
                                    properly allocable to such facility
                                    under clause (ii).
                              ``(ii) Rules for allocation.--For purposes of
                            subclause (II) of clause (i), the basis of
                            shared qualified property shall be allocated
                            among all qualified facilities which are
                            projected to be placed in service and which
                            require utilization of such property in
                            proportion to projected generation from such
                            facilities.
                              ``(iii) Shared qualified property.--For
                            purposes of this paragraph, the term `shared
                            qualified property' means, with respect to any
                            facility, any property described in section
                            168(e)(3)(B)(vi)--
                                      ``(I) which a qualified facility will
                                    require for utilization of such
                                    facility, and
                                      ``(II) which is not a qualified
                                    facility.
                              ``(iv) Special rule relating to geothermal
                            facilities.--In the case of any qualified
                            facility using geothermal energy to produce
                            electricity, the basis of such facility for
                            purposes of this paragraph shall be determined
                            as though intangible drilling and development
                            costs described in section 263(c) were
                            capitalized rather than expensed.
                      ``(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.
                      ``(F) Election to treat all facilities placed in
                    service in a year as 1 facility.--At the election of
                    the taxpayer, all qualified facilities which are part
                    of the same project and which are placed in service
                    during the same calendar year shall be treated for
                    purposes of this section as 1 facility which is placed
                    in service at the mid-point of such year or the first
                    day of the following calendar year.''.
      (c) Trash Facility Clarification.--Paragraph (7) of section 45(d) is
    amended--
              (1) by striking ``facility which burns'' and inserting
            ``facility (other than a facility described in paragraph (6))
            which uses'', and
              (2) by striking ``combustion''.
      (d) Expansion of Biomass Facilities.--
              (1) Open-loop biomass facilities.--Paragraph (3) of section
            45(d) is amended by redesignating subparagraph (B) as
            subparagraph (C) and by inserting after subparagraph (A) the
            following new subparagraph:
                      ``(B) Expansion of facility.--Such term shall include
                    a new unit placed in service after the date of the
                    enactment of this subparagraph in connection with a
                    facility described in subparagraph (A), but only to the
                    extent of the increased amount of electricity produced
                    at the facility by reason of such new unit.''.
              (2) Closed-loop biomass facilities.--Paragraph (2) of section
            45(d) is amended by redesignating subparagraph (B) as
            subparagraph (C) and inserting after subparagraph (A) the
            following new subparagraph:
                      ``(B) Expansion of facility.--Such term shall include
                    a new unit placed in service after the date of the
                    enactment of this subparagraph in connection with a
                    facility described in subparagraph (A)(i), but only to
                    the extent of the increased amount of electricity
                    produced at the facility by reason of such new unit.''.
      (e) Sales of Net Electricity to Regulated Public Utilities Treated as
    Sales to Unrelated Persons.--Paragraph (4) of section 45(e) is amended
    by adding at the end the following new sentence: ``The net amount of
    electricity sold by any taxpayer to a regulated public utility (as
    defined in section 7701(a)(33)) shall be treated as sold to an
    unrelated person.''.
      (f) Modification of Rules for Hydropower Production.--Subparagraph
    (C) of section 45(c)(8) is amended to read as follows:
                      ``(C) Nonhydroelectric dam.--For purposes of
                    subparagraph (A), a facility is described in this
                    subparagraph if--
                              ``(i) the hydroelectric project installed on
                            the nonhydroelectric dam is licensed by the
                            Federal Energy Regulatory Commission and meets
                            all other applicable environmental, licensing,
                            and regulatory requirements,
                              ``(ii) the nonhydroelectric dam was placed in
                            service before the date of the enactment of
                            this paragraph and operated for flood control,
                            navigation, or water supply purposes and did
                            not produce hydroelectric power on the date of
                            the enactment of this paragraph, and
                              ``(iii) the hydroelectric project is operated
                            so that the water surface elevation at any
                            given location and time that would have
                            occurred in the absence of the hydroelectric
                            project is maintained, subject to any license
                            requirements imposed under applicable law that
                            change the water surface elevation for the
                            purpose of improving environmental quality of
                            the affected waterway.
                    The Secretary, in consultation with the Federal Energy
                    Regulatory Commission, shall certify if a hydroelectric
                    project licensed at a nonhydroelectric dam meets the
                    criteria in clause (iii). Nothing in this section shall
                    affect the standards under which the Federal Energy
                    Regulatory Commission issues licenses for and regulates
                    hydropower projects under part I of the Federal Power
                    Act.''.
      (g) Effective Date.--
              (1) In general.--Except as otherwise provided in this
            subsection, 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.
              (3) Limitation based on investment in facility.--The
            amendment made by subsection (b)(2) shall apply to property
            originally placed in service after December 31, 2009.
              (4) Trash facility clarification; sales to related regulated
            public utilities.--The amendments made by subsections (c) and
            (e) shall apply to electricity produced and sold after the date
            of the enactment of this Act.
              (5) Expansion of biomass facilities.--The amendments made by
            subsection (d) shall apply to property placed in service after
            the date of the enactment of this Act.

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

      (a) In General.--Paragraph (1) of section 45(c) 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, 2012.''.
      (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 section 101, is amended by striking
    ``January 1, 2012'' 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. ENERGY CREDIT.

      (a) Extension of Credit.--
              (1) Solar energy property.--Paragraphs (2)(A)(i)(II) and
            (3)(A)(ii) of section 48(a) are each amended by striking
            ``January 1, 2009'' and inserting ``January 1, 2015''.
              (2) Fuel cell property.--Subparagraph (E) of section 48(c)(1)
            is amended by striking ``December 31, 2008'' and inserting
            ``December 31, 2014''.
              (3) Microturbine property.--Subparagraph (E) of section
            48(c)(2) is amended by striking ``December 31, 2008'' and
            inserting ``December 31, 2014''.
      (b) Allowance of Energy Credit Against Alternative Minimum Tax.--
    Subparagraph (B) of section 38(c)(4) is amended by striking ``and'' at
    the end of clause (iii), by redesignating clause (iv) as clause (v),
    and by inserting after clause (iii) the following new clause:
                              ``(iv) the credit determined under section 46
                            to the extent that such credit is attributable
                            to the energy credit determined under section
                            48, and''.
      (c) Energy Credit for Combined Heat and Power System Property.--
              (1) In general.--Section 48(a)(3)(A) (defining energy
            property) is amended by striking ``or'' at the end of clause
            (iii), by inserting ``or'' at the end of clause (iv), and by
            adding at the end the following new clause:
                              ``(v) combined heat and power system
                            property,''.
              (2) Combined heat and power system property.--Section 48 is
            amended by adding at the end the following new subsection:
      ``(d) Combined Heat and Power System Property.--For purposes of
    subsection (a)(3)(A)(v)--
              ``(1) Combined heat and power system property.--The term
            `combined heat and power system property' means property
            comprising a system--
                      ``(A) which uses the same energy source for the
                    simultaneous or sequential generation of electrical
                    power, mechanical shaft power, or both, in combination
                    with the generation of steam or other forms of useful
                    thermal energy (including heating and cooling
                    applications),
                      ``(B) which produces--
                              ``(i) at least 20 percent of its total useful
                            energy in the form of thermal energy which is
                            not used to produce electrical or mechanical
                            power (or combination thereof), and
                              ``(ii) at least 20 percent of its total
                            useful energy in the form of electrical or
                            mechanical power (or combination thereof),
                      ``(C) the energy efficiency percentage of which
                    exceeds 60 percent, and
                      ``(D) which is placed in service before January 1,
                    2015.
              ``(2) Limitation.--
                      ``(A) In general.--In the case of combined heat and
                    power system property with an electrical capacity in
                    excess of the applicable capacity placed in service
                    during the taxable year, the credit under subsection
                    (a)(1) (determined without regard to this paragraph)
                    for such year shall be equal to the amount which bears
                    the same ratio to such credit as the applicable
                    capacity bears to the capacity of such property.
                      ``(B) Applicable capacity.--For purposes of
                    subparagraph (A), the term `applicable capacity' means
                    15 megawatts or a mechanical energy capacity of more
                    than 20,000 horsepower or an equivalent combination of
                    electrical and mechanical energy capacities.
                      ``(C) Maximum capacity.--The term `combined heat and
                    power system property' shall not include any property
                    comprising a system if such system has a capacity in
                    excess of 50 megawatts or a mechanical energy capacity
                    in excess of 67,000 horsepower or an equivalent
                    combination of electrical and mechanical energy
                    capacities.
              ``(3) Special rules.--
                      ``(A) Energy efficiency percentage.--For purposes of
                    this subsection, the energy efficiency percentage of a
                    system is the fraction--
                              ``(i) the numerator of which is the total
                            useful electrical, thermal, and mechanical
                            power produced by the system at normal
                            operating rates, and expected to be consumed in
                            its normal application, and
                              ``(ii) the denominator of which is the lower
                            heating value of the fuel sources for the
                            system.
                      ``(B) Determinations made on btu basis.--The energy
                    efficiency percentage and the percentages under
                    paragraph (1)(B) shall be determined on a Btu basis.
                      ``(C) Input and output property not included.--The
                    term `combined heat and power system property' does not
                    include property used to transport the energy source to
                    the facility or to distribute energy produced by the
                    facility.
              ``(4) Systems using biomass.--If a system is designed to use
            biomass (within the meaning of paragraphs (2) and (3) of
            section 45(c) without regard to the last sentence of paragraph
            (3)(A)) for at least 90 percent of the energy source--
                      ``(A) paragraph (1)(C) shall not apply, but
                      ``(B) the amount of credit determined under
                    subsection (a) with respect to such system shall not
                    exceed the amount which bears the same ratio to such
                    amount of credit (determined without regard to this
                    paragraph) as the energy efficiency percentage of such
                    system bears to 60 percent.''.
      (d) Increase of Credit Limitation for Fuel Cell Property.--
    Subparagraph (B) of section 48(c)(1) is amended by striking ``$500''
    and inserting ``$1,500''.
      (e) Public 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).
      (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) Combined heat and power and fuel cell property.--The
            amendments made by subsections (c) and (d) 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 utility property.--The amendments made by
            subsection (e) shall apply to periods after February 13, 2008,
            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. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT PROPERTY.

      (a) Extension.--Section 25D(g) is amended by striking ``December 31,
    2008'' and inserting ``December 31, 2014''.
      (b) Maximum Credit for Solar Electric Property.--
              (1) In general.--Section 25D(b)(1)(A) is amended by striking
            ``$2,000'' and inserting ``$4,000''.
              (2) Conforming amendment.--Section 25D(e)(4)(A)(i) is amended
            by striking ``$6,667'' and inserting ``$13,333''.
      (c) Credit for Residential Wind Property.--
              (1) In general.--Section 25D(a) is amended by striking
            ``and'' at the end of paragraph (2), by striking the period at
            the end of paragraph (3) and inserting ``, and'', and by adding
            at the end the following new paragraph:
              ``(4) 30 percent of the qualified small wind energy property
            expenditures made by the taxpayer during such year.''.
              (2) Limitation.--Section 25D(b)(1) is amended by striking
            ``and'' at the end of subparagraph (B), by striking the period
            at the end of subparagraph (C) and inserting ``, and'', and by
            adding at the end the following new subparagraph:
                      ``(D) $500 with respect to each half kilowatt of
                    capacity (not to exceed $4,000) of wind turbines for
                    which qualified small wind energy property expenditures
                    are made.''.
              (3) Qualified small wind energy property expenditures.--
                      (A) In general.--Section 25D(d) is amended by adding
                    at the end the following new paragraph:
              ``(4) Qualified small wind energy property expenditure.--The
            term `qualified small wind energy property expenditure' means
            an expenditure for property which uses a wind turbine to
            generate electricity for use in connection with a dwelling unit
            located in the United States and used as a residence by the
            taxpayer.''.
                      (B) No double benefit.--Section 45(d)(1) is amended
                    by adding at the end the following new sentence: ``Such
                    term shall not include any facility with respect to
                    which any qualified small wind energy property
                    expenditure (as defined in subsection (d)(4) of section
                    25D) is taken into account in determining the credit
                    under such section.''.
              (4) Maximum expenditures in case of joint occupancy.--Section
            25D(e)(4)(A) is amended by striking ``and'' at the end of
            clause (ii), by striking the period at the end of clause (iii)
            and inserting ``, and'', and by adding at the end the following
            new clause:
                              ``(iv) $1,667 in the case of each half
                            kilowatt of capacity (not to exceed $13,333) of
                            wind turbines for which qualified small wind
                            energy property expenditures are made.''.
      (d) Credit for Geothermal Heat Pump Systems.--
              (1) In general.--Section 25D(a), as amended by subsection
            (c), is amended by striking ``and'' at the end of paragraph
            (3), by striking the period at the end of paragraph (4) and
            inserting ``, and'', and by adding at the end the following new
            paragraph:
              ``(5) 30 percent of the qualified geothermal heat pump
            property expenditures made by the taxpayer during such year.''.
              (2) Limitation.--Section 25D(b)(1), as amended by subsection
            (c), is amended by striking ``and'' at the end of subparagraph
            (C), by striking the period at the end of subparagraph (D) and
            inserting ``, and'', and by adding at the end the following new
            subparagraph:
                      ``(E) $2,000 with respect to any qualified geothermal
                    heat pump property expenditures.''.
              (3) Qualified geothermal heat pump property expenditure.--
            Section 25D(d), as amended by subsection (c), is amended by
            adding at the end the following new paragraph:
              ``(5) Qualified geothermal heat pump property expenditure.--
                      ``(A) In general.--The term `qualified geothermal
                    heat pump property expenditure' means an expenditure
                    for qualified geothermal heat pump property installed
                    on or in connection with a dwelling unit located in the
                    United States and used as a residence by the taxpayer.
                      ``(B) Qualified geothermal heat pump property.--The
                    term `qualified geothermal heat pump property' means
                    any equipment which--
                              ``(i) uses the ground or ground water as a
                            thermal energy source to heat the dwelling unit
                            referred to in subparagraph (A) or as a thermal
                            energy sink to cool such dwelling unit, and
                              ``(ii) meets the requirements of the Energy
                            Star program which are in effect at the time
                            that the expenditure for such equipment is
                            made.''.
              (4) Maximum expenditures in case of joint occupancy.--Section
            25D(e)(4)(A), as amended by subsection (c), 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) $6,667 in the case of any qualified
                            geothermal heat pump property expenditures.''.
      (e) 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''.
      (f) Effective Date.--
              (1) In general.--The amendments made by this section shall
            apply to taxable years beginning after December 31, 2007.
              (2) Application of egtrra sunset.--The amendments made by
            subparagraphs (A) and (B) of subsection (e)(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.

    SEC. 105. 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) is amended
            by inserting ``(before January 1, 2010, in the case of a
            qualified electric utility)'' after ``January 1, 2008''.
              (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
            person that, as of the date of the qualifying electric
            transmission transaction, is vertically integrated, in that it
            is both--
                      ``(A) a transmitting utility (as defined in section
                    3(23) of the Federal Power Act (16 U.S.C. 796(23)))
                    with respect to the transmission facilities to which
                    the election under this subsection applies, and
                      ``(B) an electric utility (as defined in section
                    3(22) of the Federal Power Act (16 U.S.C. 796(22))).''.
      (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 amendments 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. NEW CLEAN RENEWABLE ENERGY BONDS.

      (a) In General.--Part IV of subchapter A of chapter 1 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
                            reasonably expected to result in an amount not
                            greater than an amount necessary to repay the
                            issue, 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 33 \1/3\ percent thereof may be
                    allocated to qualified projects of public power
                    providers,
                      ``(B) not more than 33 \1/3\ percent thereof may be
                    allocated to qualified projects of governmental bodies,
                    and
                      ``(C) not more than 33 \1/3\ 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
                    paragraph (2)(A) bears to the cost of all such
                    projects.
                      ``(B) Allocation among governmental bodies and
                    cooperative electric companies.--The Secretary shall
                    make allocations of the amount of the national new
                    clean renewable energy bond limitation described in
                    paragraphs (2)(B) and (2)(C) among qualified projects
                    of governmental bodies and cooperative electric
                    companies, respectively, 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, a governmental body, 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) Governmental body.--The term `governmental body' means
            any State or Indian tribal government, or any political
            subdivision thereof.
              ``(4) 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).
              ``(5) 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.
              ``(6) Qualified issuer.--The term `qualified issuer' means a
            public power provider, a cooperative electric company, a
            governmental body, 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 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) 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).
      (e) Effective Dates.--The amendments made by this section shall apply
    to obligations issued after the date of the enactment of this Act.

                     PART II--CARBON MITIGATION PROVISIONS

    SEC. 111. EXPANSION AND MODIFICATION OF ADVANCED COAL PROJECT
                        INVESTMENT CREDIT.

      (a) Modification of Credit Amount.--Section 48A(a) is amended by
    striking ``and'' at the end of paragraph (1), by striking the period at
    the end of paragraph (2) and inserting ``, and'', and by adding at the
    end the following new paragraph:
              ``(3) 30 percent of the qualified investment for such taxable
            year in the case of projects described in clause (iii) of
            subsection (d)(3)(B).''.
      (b) Expansion of Aggregate Credits.--Section 48A(d)(3)(A) is amended
    by striking ``$1,300,000,000'' and inserting ``$2,550,000,000''.
      (c) Authorization of Additional Projects.--
              (1) In general.--Subparagraph (B) of section 48A(d)(3) is
            amended to read as follows:
                      ``(B) Particular projects.--Of the dollar amount in
                    subparagraph (A), the Secretary is authorized to
                    certify--
                              ``(i) $800,000,000 for integrated
                            gasification combined cycle projects the
                            application for which is submitted during the
                            period described in paragraph (2)(A)(i),
                              ``(ii) $500,000,000 for projects which use
                            other advanced coal-based generation
                            technologies the application for which is
                            submitted during the period described in
                            paragraph (2)(A)(i), and
                              ``(iii) $1,250,000,000 for advanced coal-
                            based generation technology projects the
                            application for which is submitted during the
                            period described in paragraph (2)(A)(ii).''.
              (2) Application period for additional projects.--Subparagraph
            (A) of section 48A(d)(2) is amended to read as follows:
                      ``(A) Application period.--Each applicant for
                    certification under this paragraph shall submit an
                    application meeting the requirements of subparagraph
                    (B). An applicant may only submit an application--
                              ``(i) for an allocation from the dollar
                            amount specified in clause (i) or (ii) of
                            paragraph (3)(B) during the 3-year period
                            beginning on the date the Secretary establishes
                            the program under paragraph (1), and
                              ``(ii) for an allocation from the dollar
                            amount specified in paragraph (3)(B)(iii)
                            during the 3-year period beginning at the
                            earlier of the termination of the period
                            described in clause (i) or the date prescribed
                            by the Secretary.''.
              (3) Capture and sequestration of carbon dioxide emissions
            requirement.--
                      (A) In general.--Section 48A(e)(1) is amended by
                    striking ``and'' at the end of subparagraph (E), by
                    striking the period at the end of subparagraph (F) and
                    inserting ``; and'', and by adding at the end the
                    following new subparagraph:
                      ``(G) in the case of any project the application for
                    which is submitted during the period described in
                    subsection (d)(2)(A)(ii), the project includes
                    equipment which separates and sequesters at least 65
                    percent (70 percent in the case of an application for
                    reallocated credits under subsection (d)(4)) of such
                    project's total carbon dioxide emissions.''.
                      (B) Highest priority for projects which sequester
                    carbon dioxide emissions.--Section 48A(e)(3) is amended
                    by striking ``and'' at the end of subparagraph
                    (A)(iii), by striking the period at the end of
                    subparagraph (B)(iii) and inserting ``, and'', and by
                    adding at the end the following new subparagraph:
                      ``(C) give highest priority to projects with the
                    greatest separation and sequestration percentage of
                    total carbon dioxide emissions.''.
                      (C) Recapture of credit for failure to sequester.--
                    Section 48A is amended by adding at the end the
                    following new subsection:
      ``(h) Recapture of Credit for Failure To Sequester.--The Secretary
    shall provide for recapturing the benefit of any credit allowable under
    subsection (a) with respect to any project which fails to attain or
    maintain the separation and sequestration requirements of subsection
    (e)(1)(G).''.
              (4) Additional priority for research partnerships.--Section
            48A(e)(3)(B), as amended by paragraph (3)(B), is amended--
                      (A) by striking ``and'' at the end of clause (ii),
                      (B) by redesignating clause (iii) as clause (iv), and
                      (C) by inserting after clause (ii) the following new
                    clause:
                              ``(iii) applicant participants who have a
                            research partnership with an eligible
                            educational institution (as defined in section
                            529(e)(5)), and''.
              (5) Clerical amendment.--Section 48A(e)(3) is amended by
            striking ``integrated gasification combined cycle'' in the
            heading and inserting ``certain''.
      (d) Competitive Certification Awards Modification Authority.--Section
    48A, as amended by subsection (c)(3), is amended by adding at the end
    the following new subsection:
      ``(i) Competitive Certification Awards Modification Authority.--In
    implementing this section or section 48B, the Secretary is directed to
    modify the terms of any competitive certification award and any
    associated closing agreement where such modification--
              ``(1) is consistent with the objectives of such section,
              ``(2) is requested by the recipient of the competitive
            certification award, and
              ``(3) involves moving the project site to improve the
            potential to capture and sequester carbon dioxide emissions,
            reduce costs of transporting feedstock, and serve a broader
            customer base,
    unless the Secretary determines that the dollar amount of tax credits
    available to the taxpayer under such section would increase as a result
    of the modification or such modification would result in such project
    not being originally certified. In considering any such modification,
    the Secretary shall consult with other relevant Federal agencies,
    including the Department of Energy.''.
      (e) Disclosure of Allocations.--Section 48A(d) is amended by adding
    at the end the following new paragraph:
              ``(5) Disclosure of allocations.--The Secretary shall, upon
            making a certification under this subsection or section 48B(d),
            publicly disclose the identity of the applicant and the amount
            of the credit certified with respect to such applicant.''.
      (f) Effective Dates.--
              (1) In general.--Except as otherwise provided in this
            subsection, the amendments made by this section shall apply to
            credits the application for which is submitted during the
            period described in section 48A(d)(2)(A)(ii) of the Internal
            Revenue Code of 1986 and which are allocated or reallocated
            after the date of the enactment of this Act.
              (2) Competitive certification awards modification
            authority.--The amendment made by subsection (d) shall take
            effect on the date of the enactment of this Act and is
            applicable to all competitive certification awards entered into
            under section 48A or 48B of the Internal Revenue Code of 1986,
            whether such awards were issued before, on, or after such date
            of enactment.
              (3) Disclosure of allocations.--The amendment made by
            subsection (e) shall apply to certifications made after the
            date of the enactment of this Act.
              (4) Clerical amendment.--The amendment made by subsection
            (c)(5) shall take effect as if included in the amendment made
            by section 1307(b) of the Energy Tax Incentives Act of 2005.

    SEC. 112. EXPANSION AND MODIFICATION OF COAL GASIFICATION INVESTMENT
                        CREDIT.

      (a) Modification of Credit Amount.--Section 48B(a) is amended by
    inserting ``(30 percent in the case of credits allocated under
    subsection (d)(1)(B))'' after ``20 percent''.
      (b) Expansion of Aggregate Credits.--Section 48B(d)(1) is amended by
    striking ``shall not exceed $350,000,000'' and all that follows and
    inserting ``shall not exceed--
                      ``(A) $350,000,000, plus
                      ``(B) $250,000,000 for qualifying gasification
                    projects that include equipment which separates and
                    sequesters at least 75 percent of such project's total
                    carbon dioxide emissions.''.
      (c) Recapture of Credit for Failure To Sequester.--Section 48B is
    amended by adding at the end the following new subsection:
      ``(f) Recapture of Credit for Failure To Sequester.--The Secretary
    shall provide for recapturing the benefit of any credit allowable under
    subsection (a) with respect to any project which fails to attain or
    maintain the separation and sequestration requirements for such project
    under subsection (d)(1).''.
      (d) Selection Priorities.--Section 48B(d) is amended by adding at the
    end the following new paragraph:
              ``(4) Selection priorities.--In determining which qualifying
            gasification projects to certify under this section, the
            Secretary shall--
                      ``(A) give highest priority to projects with the
                    greatest separation and sequestration percentage of
                    total carbon dioxide emissions, and
                      ``(B) give high priority to applicant participants
                    who have a research partnership with an eligible
                    educational institution (as defined in section
                    529(e)(5)).''.
      (e) Effective Date.--The amendments made by this section shall apply
    to credits described in section 48B(d)(1)(B) of the Internal Revenue
    Code of 1986 which are allocated or reallocated after the date of the
    enactment of this Act.

    SEC. 113. TEMPORARY INCREASE IN COAL EXCISE TAX.

      Paragraph (2) of section 4121(e) is amended--
              (1) by striking ``January 1, 2014'' in subparagraph (A) and
            inserting ``December 31, 2018'', and
              (2) by striking ``January 1 after 1981'' in subparagraph (B)
            and inserting ``December 31 after 2007''.

    SEC. 114. SPECIAL RULES FOR REFUND OF THE COAL EXCISE TAX TO CERTAIN
                        COAL PRODUCERS AND EXPORTERS.

      (a) Refund.--
              (1) Coal producers.--
                      (A) In general.--Notwithstanding subsections (a)(1)
                    and (c) of section 6416 and section 6511 of the
                    Internal Revenue Code of 1986, if--
                              (i) a coal producer establishes that such
                            coal producer, or a party related to such coal
                            producer, exported coal produced by such coal
                            producer to a foreign country or shipped coal
                            produced by such coal producer to a possession
                            of the United States, or caused such coal to be
                            exported or shipped, the export or shipment of
                            which was other than through an exporter who
                            meets the requirements of paragraph (2),
                              (ii) such coal producer filed an excise tax
                            return on or after October 1, 1990, and on or
                            before the date of the enactment of this Act,
                            and
                              (iii) such coal producer files a claim for
                            refund with the Secretary not later than the
                            close of the 30-day period beginning on the
                            date of the enactment of this Act,
                    then the Secretary shall pay to such coal producer an
                    amount equal to the tax paid under section 4121 of such
                    Code on such coal exported or shipped by the coal
                    producer or a party related to such coal producer, or
                    caused by the coal producer or a party related to such
                    coal producer to be exported or shipped.
                      (B) Special rules for certain taxpayers.--For
                    purposes of this section--
                              (i) In general.--If a coal producer or a
                            party related to a coal producer has received a
                            judgment described in clause (iii), such coal
                            producer shall be deemed to have established
                            the export of coal to a foreign country or
                            shipment of coal to a possession of the United
                            States under subparagraph (A)(i).
                              (ii) Amount of payment.--If a taxpayer
                            described in clause (i) is entitled to a
                            payment under subparagraph (A), the amount of
                            such payment shall be reduced by any amount
                            paid pursuant to the judgment described in
                            clause (iii).
                              (iii) Judgment described.--A judgment is
                            described in this subparagraph if such
                            judgment--
                                      (I) is made by a court of competent
                                    jurisdiction within the United States,
                                      (II) relates to the constitutionality
                                    of any tax paid on exported coal under
                                    section 4121 of the Internal Revenue
                                    Code of 1986, and
                                      (III) is in favor of the coal
                                    producer or the party related to the
                                    coal producer.
              (2) Exporters.--Notwithstanding subsections (a)(1) and (c) of
            section 6416 and section 6511 of the Internal Revenue Code of
            1986, and a judgment described in paragraph (1)(B)(iii) of this
            subsection, if--
                      (A) an exporter establishes that such exporter
                    exported coal to a foreign country or shipped coal to a
                    possession of the United States, or caused such coal to
                    be so exported or shipped,
                      (B) such exporter filed a tax return on or after
                    October 1, 1990, and on or before the date of the
                    enactment of this Act, and
                      (C) such exporter files a claim for refund with the
                    Secretary not later than the close of the 30-day period
                    beginning on the date of the enactment of this Act,
            then the Secretary shall pay to such exporter an amount equal
            to $0.825 per ton of such coal exported by the exporter or
            caused to be exported or shipped, or caused to be exported or
            shipped, by the exporter.
      (b) Limitations.--Subsection (a) shall not apply with respect to
    exported coal if a settlement with the Federal Government has been made
    with and accepted by, the coal producer, a party related to such coal
    producer, or the exporter, of such coal, as of the date that the claim
    is filed under this section with respect to such exported coal. For
    purposes of this subsection, the term ``settlement with the Federal
    Government'' shall not include any settlement or stipulation entered
    into as of the date of the enactment of this Act, the terms of which
    contemplate a judgment concerning which any party has reserved the
    right to file an appeal, or has filed an appeal.
      (c) Subsequent Refund Prohibited.--No refund shall be made under this
    section to the extent that a credit or refund of such tax on such
    exported or shipped coal has been paid to any person.
      (d) Definitions.--For purposes of this section--
              (1) Coal producer.--The term ``coal producer'' means the
            person in whom is vested ownership of the coal immediately
            after the coal is severed from the ground, without regard to
            the existence of any contractual arrangement for the sale or
            other disposition of the coal or the payment of any royalties
            between the producer and third parties. The term includes any
            person who extracts coal from coal waste refuse piles or from
            the silt waste product which results from the wet washing (or
            similar processing) of coal.
              (2) Exporter.--The term ``exporter'' means a person, other
            than a coal producer, who does not have a contract, fee
            arrangement, or any other agreement with a producer or seller
            of such coal to export or ship such coal to a third party on
            behalf of the producer or seller of such coal and--
                      (A) is indicated in the shipper's export declaration
                    or other documentation as the exporter of record, or
                      (B) actually exported such coal to a foreign country
                    or shipped such coal to a possession of the United
                    States, or caused such coal to be so exported or
                    shipped.
              (3) Related party.--The term ``a party related to such coal
            producer'' means a person who--
                      (A) is related to such coal producer through any
                    degree of common management, stock ownership, or voting
                    control,
                      (B) is related (within the meaning of section
                    144(a)(3) of the Internal Revenue Code of 1986) to such
                    coal producer, or
                      (C) has a contract, fee arrangement, or any other
                    agreement with such coal producer to sell such coal to
                    a third party on behalf of such coal producer.
              (4) Secretary.--The term ``Secretary'' means the Secretary of
            Treasury or the Secretary's designee.
      (e) Timing of Refund.--With respect to any claim for refund filed
    pursuant to this section, the Secretary shall determine whether the
    requirements of this section are met not later than 180 days after such
    claim is filed. If the Secretary determines that the requirements of
    this section are met, the claim for refund shall be paid not later than
    180 days after the Secretary makes such determination.
      (f) Interest.--Any refund paid pursuant to this section shall be paid
    by the Secretary with interest from the date of overpayment determined
    by using the overpayment rate and method under section 6621 of the
    Internal Revenue Code of 1986.
      (g) Denial of Double Benefit.--The payment under subsection (a) with
    respect to any coal shall not exceed--
              (1) in the case of a payment to a coal producer, the amount
            of tax paid under section 4121 of the Internal Revenue Code of
            1986 with respect to such coal by such coal producer or a party
            related to such coal producer, and
              (2) in the case of a payment to an exporter, an amount equal
            to $0.825 per ton with respect to such coal exported by the
            exporter or caused to be exported by the exporter.
      (h) Application of Section.--This section applies only to claims on
    coal exported or shipped on or after October 1, 1990, through the date
    of the enactment of this Act.
      (i) Standing Not Conferred.--
              (1) Exporters.--With respect to exporters, this section shall
            not confer standing upon an exporter to commence, or intervene
            in, any judicial or administrative proceeding concerning a
            claim for refund by a coal producer of any Federal or State
            tax, fee, or royalty paid by the coal producer.
              (2) Coal producers.--With respect to coal producers, this
            section shall not confer standing upon a coal producer to
            commence, or intervene in, any judicial or administrative
            proceeding concerning a claim for refund by an exporter of any
            Federal or State tax, fee, or royalty paid by the producer and
            alleged to have been passed on to an exporter.

    SEC. 115. 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.

        Subtitle B--Transportation and Domestic Fuel Security Provisions

    SEC. 121. INCLUSION OF CELLULOSIC BIOFUEL IN BONUS DEPRECIATION FOR
                        BIOMASS ETHANOL PLANT PROPERTY.

      (a) In General.--Paragraph (3) of section 168(l) is amended to read
    as follows:
              ``(3) Cellulosic biofuel.--The term `cellulosic biofuel'
            means any liquid fuel which is produced from any
            lignocellulosic or hemicellulosic matter that is available on a
            renewable or recurring basis.''.
      (b) Conforming Amendments.--Subsection (l) of section 168 is
    amended--
              (1) by striking ``cellulosic biomass ethanol'' each place it
            appears and inserting ``cellulosic biofuel'',
              (2) by striking ``Cellulosic Biomass Ethanol'' in the heading
            of such subsection and inserting ``Cellulosic Biofuel'', and
              (3) by striking ``cellulosic biomass ethanol'' in the heading
            of paragraph (2) thereof and inserting ``cellulosic biofuel''.
      (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. 122. 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, 2009''.
      (b) Increase in Rate of Credit.--
              (1) Income tax credit.--Paragraphs (1)(A) and (2)(A) of
            section 40A(b) are each amended by striking ``50 cents'' and
            inserting ``$1.00''.
              (2) Excise tax credit.--Paragraph (2) of section 6426(c) is
            amended to read as follows:
              ``(2) Applicable amount.--For purposes of this subsection,
            the applicable amount is $1.00.''.
              (3) Conforming amendments.--
                      (A) Subsection (b) of section 40A is amended by
                    striking paragraph (3) and by redesignating paragraphs
                    (4) and (5) as paragraphs (3) and (4), respectively.
                      (B) Paragraph (2) of section 40A(f) is amended to
                    read as follows:
              ``(2) Exception.--Subsection (b)(4) shall not apply with
            respect to renewable diesel.''.
                      (C) Paragraphs (2) and (3) of section 40A(e) are each
                    amended by striking ``subsection (b)(5)(C)'' and
                    inserting ``subsection (b)(4)(C)''.
                      (D) Clause (ii) of section 40A(d)(3)(C) is amended by
                    striking ``subsection (b)(5)(B)'' and inserting
                    ``subsection (b)(4)(B)''.
      (c) Uniform Treatment of Diesel Produced From Biomass.--Paragraph (3)
    of section 40A(f) is amended--
              (1) by striking ``diesel fuel'' and inserting ``liquid
            fuel'',
              (2) by striking ``using a thermal depolymerization process'',
            and
              (3) by striking ``or D396'' in subparagraph (B) and inserting
            ``, D396, or other equivalent standard approved by the
            Secretary''.
      (d) Coproduction of Renewable Diesel 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))''.
      (e) Eligibility of Certain Aviation Fuel.--Paragraph (3) of section
    40A(f) (defining renewable diesel) is amended by adding at the end the
    following: ``The term `renewable diesel' also means fuel derived from
    biomass which meets the requirements of a Department of Defense
    specification for military jet fuel or an American Society of Testing
    and Materials specification for aviation turbine fuel.''
      (f) Effective Date.--
              (1) In general.--Except as otherwise provided in this
            subsection, the amendments made by this section shall apply to
            fuel produced, and sold or used, after December 31, 2008.
              (2) Coproduction of renewable diesel with petroleum
            feedstock.--The amendments made by subsection (c) shall apply
            to fuel produced, and sold or used, after February 13, 2008.

    SEC. 123. CLARIFICATION THAT CREDITS FOR FUEL ARE DESIGNED TO PROVIDE
                        AN INCENTIVE FOR UNITED STATES PRODUCTION.

      (a) 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.''.
      (b) 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.''.
      (c) Excise Tax Credit.--
              (1) In general.--Section 6426 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.''.
              (2) 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.--The amendments made by this section shall apply
    to claims for credit or payment made on or after May 15, 2008.

    SEC. 124. CREDIT FOR NEW QUALIFIED PLUG-IN ELECTRIC DRIVE MOTOR
                        VEHICLES.

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

    ``SEC. 30D. NEW QUALIFIED PLUG-IN ELECTRIC DRIVE MOTOR 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 new qualified plug-in electric drive motor 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 new qualified plug-in electric
            drive motor 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 $3,000.
              ``(3) Battery capacity.--In the case of a 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) New Qualified Plug-in Electric Drive Motor Vehicle.--For
    purposes of this section--
              ``(1) In general.--The term `new qualified plug-in electric
            drive motor 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, and
                      ``(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.
              ``(2) Exception.--The term `new qualified plug-in electric
            drive motor 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 New Qualified Plug-in Electric Drive
    Motor Vehicles Eligible for Credit.--
              ``(1) In general.--In the case of a new qualified plug-in
            electric drive motor 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 new qualified plug-in
            electric drive motor 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) Coordination With Alternative Motor Vehicle Credit.--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 new qualified plug-in electric
            drive motor vehicle credit to which section 30D(c)(1)
            applies.''.
      (d) Conforming Amendments.--
              (1)(A) Section 24(b)(3)(B), as amended by section 104, 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 section 104, is amended
            by striking ``and 25D'' and inserting ``, 25D, and 30D''.
              (D) Section 26(a)(1), as amended by section 104, 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 (35), by striking the period at the end of
            paragraph (36) and inserting ``, and'', and by adding at the
            end the following new paragraph:
              ``(37) 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. New qualified plug-in electric drive motor 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, 2008.
              (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, 2007.
      (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. 125. EXCLUSION FROM HEAVY TRUCK TAX FOR IDLING REDUCTION UNITS AND
                        ADVANCED INSULATION.

      (a) In General.--Section 4053 is amended by adding at the end the
    following new paragraphs:
              ``(9) Idling reduction device.--Any device or system of
            devices which--
                      ``(A) is designed to provide to a vehicle those
                    services (such as heat, air conditioning, or
                    electricity) that would otherwise require the operation
                    of the main drive engine while the vehicle is
                    temporarily parked or remains stationary using one or
                    more devices affixed to a tractor, and
                      ``(B) is certified by the Secretary of Energy, in
                    consultation with the Administrator of the
                    Environmental Protection Agency and the Secretary of
                    Transportation, to reduce idling of such vehicle at a
                    motor vehicle rest stop or other location where such
                    vehicles are temporarily parked or remain stationary.
              ``(10) Advanced insulation.--Any insulation that has an R
            value of not less than R35 per inch.''.
      (b) Effective Date.--The amendment made by this section shall apply
    to sales or installations after the date of the enactment of this Act.

    SEC. 126. 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) $115,000,000 ($425,000,000 in the case
                            of the last 2 years in the credit period), 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, 2009.
              ``(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 Job Creation Act of 2008
    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.

    SEC. 127. TRANSPORTATION FRINGE BENEFIT TO BICYCLE COMMUTERS.

      (a) In General.--Paragraph (1) of section 132(f) 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) 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) 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, 2008.

    SEC. 128. ALTERNATIVE FUEL VEHICLE REFUELING PROPERTY CREDIT.

      (a) Increase in Credit Amount.--Section 30C 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) 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.

           Subtitle C--Energy Conservation and Efficiency Provisions

    SEC. 141. QUALIFIED ENERGY CONSERVATION BONDS.

      (a) In General.--Subpart I of part IV of subchapter A of chapter 1,
    as added by section 106, 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) Reduced Credit Amount.--The annual credit determined under
    section 54A(b) with respect to any qualified energy conservation bond
    shall be 70 percent of the amount so determined without regard to this
    subsection.
      ``(c) 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 (e).
      ``(d) National Limitation on Amount of Bonds Designated.--There is a
    national qualified energy conservation bond limitation of
    $3,000,000,000.
      ``(e) Allocations.--
              ``(1) In general.--The limitation applicable under subsection
            (d) 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.
      ``(f) 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,
                              ``(iii) rural development involving the
                            production of electricity from renewable energy
                            resources, or
                              ``(iv) any qualified facility (as determined
                            under section 45(d) without regard to
                            paragraphs (8) and (10) thereof and without
                            regard to any placed in service date).
                      ``(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.
      ``(g) 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.
      ``(h) 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 (e) 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 106,
            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), (5), and (6).''.
              (2) Subparagraph (C) of section 54A(d)(2), as added by
            section 106, 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. 142. CREDIT FOR NONBUSINESS ENERGY PROPERTY.

      (a) Extension of Credit.--Section 25C(g) is amended by striking
    ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Qualified Biomass Fuel Property.--
              (1) In general.--Section 25C(d)(3) is amended--
                      (A) by striking ``and'' at the end of subparagraph
                    (D),
                      (B) by striking the period at the end of subparagraph
                    (E) and inserting ``, and'', and
                      (C) by adding at the end the following new
                    subparagraph:
                      ``(F) a stove which uses the burning of biomass fuel
                    to heat a dwelling unit located in the United States
                    and used as a residence by the taxpayer, or to heat
                    water for use in such a dwelling unit, and which has a
                    thermal efficiency rating of at least 75 percent.''.
              (2) Biomass fuel.--Section 25C(d) is amended by adding at the
            end the following new paragraph:
              ``(6) Biomass fuel.--The term `biomass fuel' means any plant-
            derived fuel available on a renewable or recurring basis,
            including agricultural crops and trees, wood and wood waste and
            residues (including wood pellets), plants (including aquatic
            plants), grasses, residues, and fibers.''.
      (c) Coordination With Credit for Qualified Geothermal Heat Pump
    Property Expenditures.--
              (1) In general.--Paragraph (3) of section 25C(d), as amended
            by subsection (b), is amended by striking subparagraph (C) and
            by redesignating subparagraphs (D), (E), and (F) as
            subparagraphs (C), (D), and (E), respectively.
              (2) Conforming amendment.--Subparagraph (C) of section
            25C(d)(2) is amended to read as follows:
                      ``(C) Requirements and standards for air conditioners
                    and heat pumps.--The standards and requirements
                    prescribed by the Secretary under subparagraph (B) with
                    respect to the energy efficiency ratio (EER) for
                    central air conditioners and electric heat pumps--
                              ``(i) shall require measurements to be based
                            on published data which is tested by
                            manufacturers at 95 degrees Fahrenheit, and
                              ``(ii) may be based on the certified data of
                            the Air Conditioning and Refrigeration
                            Institute that are prepared in partnership with
                            the Consortium for Energy Efficiency.''.
      (d) Effective Date.--The amendments made this section shall apply to
    expenditures made after December 31, 2007.

    SEC. 143. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

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

    SEC. 144. MODIFICATIONS OF ENERGY EFFICIENT APPLIANCE CREDIT FOR
                        APPLIANCES PRODUCED AFTER 2007.

      (a) In General.--Subsection (b) of section 45M 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.''.
      (b) Eligible Production.--
              (1) Similar treatment for all appliances.--Subsection (c) of
            section 45M is amended--
                      (A) by striking paragraph (2),
                      (B) by striking ``(1) In general'' and all that
                    follows through ``the eligible'' and inserting ``The
                    eligible'',
                      (C) by moving the text of such subsection in line
                    with the subsection heading, and
                      (D) by redesignating subparagraphs (A) and (B) as
                    paragraphs (1) and (2), respectively, and by moving
                    such paragraphs 2 ems to the left.
              (2) Modification of base period.--Paragraph (2) of section
            45M(c), as amended by paragraph (1), 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), and
              ``(3) refrigerators described in subsection (b)(3).''.
      (d) Aggregate Credit Amount Allowed.--
              (1) Increase in limit.--Paragraph (1) of section 45M(e) 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), and
                      ``(C) any refrigerator described in subsection
                    (b)(3).''.
              (2) Clothes washer.--Section 45M(f)(3) is amended by
            inserting ``commercial'' before ``residential'' the second
            place it appears.
              (3) Top-loading clothes washer.--Subsection (f) of section
            45M 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) Replacement of energy factor.--Section 45M(f)(6), as
            redesignated by paragraph (3), is amended to read as follows:
              ``(6) 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.''.
              (5) Gallons per cycle; water consumption factor.--Section
            45M(f), as amended by paragraph (3), is amended by adding at
            the end the following:
              ``(9) 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.
              ``(10) 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. 145. ACCELERATED RECOVERY PERIOD FOR DEPRECIATION OF SMART METERS
                        AND SMART GRID SYSTEMS.

      (a) In General.--Section 168(e)(3)(D) is amended by striking ``and''
    at the end of clause (i), by striking the period at the end of clause
    (ii) and inserting a comma, and by inserting after clause (ii) the
    following new clauses:
                              ``(iii) any qualified smart electric meter,
                            and
                              ``(iv) any qualified smart electric grid
                            system.''.
      (b) Definitions.--Section 168(i) is amended by inserting at the end
    the following new paragraph:
              ``(18) Qualified smart electric meters.--
                      ``(A) In general.--The term `qualified smart electric
                    meter' means any smart electric meter which is placed
                    in service by a taxpayer who is a supplier of electric
                    energy or a provider of electric energy services.
                      ``(B) Smart electric meter.--For purposes of
                    subparagraph (A), the term `smart electric meter' 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 electric meter in support of
                            time-based rates or other forms of demand
                            response,
                              ``(iii) provides data to such supplier or
                            provider so that the supplier or provider can
                            provide energy usage information to customers
                            electronically, and
                              ``(iv) provides net metering.
              ``(19) Qualified smart electric grid systems.--
                      ``(A) In general.--The term `qualified smart electric
                    grid system' means any smart grid property used as part
                    of a system for electric distribution grid
                    communications, monitoring, and management placed in
                    service by a taxpayer who is a supplier of electric
                    energy or a provider of electric energy services.
                      ``(B) Smart grid property.--For the purposes of
                    subparagraph (A), the term `smart grid property' means
                    electronics and related equipment that is capable of--
                              ``(i) sensing, collecting, and monitoring
                            data of or from all portions of a utility's
                            electric distribution grid,
                              ``(ii) providing real-time, two-way
                            communications to monitor or manage such grid,
                            and
                              ``(iii) providing real time analysis of and
                            event prediction based upon collected data that
                            can be used to improve electric distribution
                            system reliability, quality, and
                            performance.''.
      (c) Continued Application of 150 Percent Declining Balance Method.--
    Paragraph (2) of section 168(b) is amended by striking ``or'' at the
    end of subparagraph (B), by redesignating subparagraph (C) as
    subparagraph (D), and by inserting after subparagraph (B) the following
    new subparagraph:
                      ``(C) any property (other than property described in
                    paragraph (3)) which is a qualified smart electric
                    meter or qualified smart electric grid system, or''.
      (d) Effective Date.--The amendments made by this section shall apply
    to property placed in service after the date of the enactment of this
    Act.

    SEC. 146. QUALIFIED GREEN BUILDING AND SUSTAINABLE DESIGN PROJECTS.

      (a) In General.--Paragraph (8) of section 142(l) is amended by
    striking ``September 30, 2009'' and inserting ``September 30, 2012''.
      (b) Treatment of Current Refunding Bonds.--Paragraph (9) of section
    142(l) is amended by striking ``October 1, 2009'' and inserting
    ``October 1, 2012''.
      (c) Accountability.--The second sentence of section 701(d) of the
    American Jobs Creation Act of 2004 is amended by striking ``issuance,''
    and inserting ``issuance of the last issue with respect to such
    project,''.

              TITLE II--ONE-YEAR EXTENSION OF TEMPORARY PROVISIONS

             Subtitle A--Extensions Primarily Affecting Individuals

    SEC. 201. DEDUCTION FOR STATE AND LOCAL SALES TAXES.

      (a) In General.--Subparagraph (I) of section 164(b)(5) is amended by
    striking ``January 1, 2008'' and inserting ``January 1, 2009''.
      (b) Effective Date.--The amendment made by this section shall apply
    to taxable years beginning after December 31, 2007.

    SEC. 202. DEDUCTION OF QUALIFIED TUITION AND RELATED EXPENSES.

      (a) In General.--Subsection (e) of section 222 is amended by striking
    ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to taxable years beginning after December 31, 2007.

    SEC. 203. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED INVESTMENT
                        COMPANIES.

      (a) Interest-Related Dividends.--Subparagraph (C) of section
    871(k)(1) (defining interest-related dividend) is amended by striking
    ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Short-Term Capital Gain Dividends.--Subparagraph (C) of section
    871(k)(2) (defining short-term capital gain dividend) is amended by
    striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (c) Effective Date.--The amendments made by this section shall apply
    to dividends with respect to taxable years of regulated investment
    companies beginning after December 31, 2007.

    SEC. 204. TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS FOR
                        CHARITABLE PURPOSES.

      (a) In General.--Subparagraph (F) of section 408(d)(8) is amended by
    striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to distributions made in taxable years beginning after December 31,
    2007.

    SEC. 205. DEDUCTION FOR CERTAIN EXPENSES OF ELEMENTARY AND SECONDARY
                        SCHOOL TEACHERS.

      (a) In General.--Subparagraph (D) of section 62(a)(2) is amended by
    striking ``or 2007'' and inserting ``2007, or 2008''.
      (b) Effective Date.--The amendment made by subsection (a) shall apply
    to taxable years beginning after December 31, 2007.

    SEC. 206. ELECTION TO INCLUDE COMBAT PAY AS EARNED INCOME FOR PURPOSES
                        OF EARNED INCOME TAX CREDIT.

      (a) In General.--Subclause (II) of section 32(c)(2)(B)(vi) (defining
    earned income) is amended by striking ``January 1, 2008'' and inserting
    ``January 1, 2009''.
      (b) Conforming Amendment.--Paragraph (4) of section 6428(e) is
    amended by striking ``except that'' and all that follows through ``such
    term'' and inserting ``except that such term''.
      (c) Effective Date.--The amendment made by this section shall apply
    to taxable years ending after December 31, 2007.

    SEC. 207. MODIFICATION OF MORTGAGE REVENUE BONDS FOR VETERANS.

      (a) Qualified Mortgage Bonds Used To Finance Residences for Veterans
    Without Regard to First-Time Homebuyer Requirement.--Subparagraph (D)
    of section 143(d)(2) is amended by striking ``January 1, 2008'' and
    inserting ``January 1, 2009''.
      (b) Effective Date.--The amendment made by this section shall apply
    to bonds issued after December 31, 2007.

    SEC. 208. DISTRIBUTIONS FROM RETIREMENT PLANS TO INDIVIDUALS CALLED TO
                        ACTIVE DUTY.

      (a) In General.--Clause (iv) of section 72(t)(2)(G) is amended by
    striking ``December 31, 2007'' and inserting ``January 1, 2009''.
      (b) Effective Date.--The amendment made by this section shall apply
    to individuals ordered or called to active duty on or after December
    31, 2007.

    SEC. 209. STOCK IN RIC FOR PURPOSES OF DETERMINING ESTATES OF
                        NONRESIDENTS NOT CITIZENS.

      (a) In General.--Paragraph (3) of section 2105(d) is amended by
    striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to decedents dying after December 31, 2007.

    SEC. 210. QUALIFIED INVESTMENT ENTITIES.

      (a) In General.--Clause (ii) of section 897(h)(4)(A) is amended by
    striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by subsection (a) shall take
    effect on January 1, 2008, except that such amendment shall not apply
    to the application of withholding requirements with respect to any
    payment made on or before the date of the enactment of this Act.

    SEC. 211. EXCLUSION OF AMOUNTS RECEIVED UNDER QUALIFIED GROUP LEGAL
                        SERVICES PLANS.

      (a) In General.--Subsection (e) of section 120 is amended by striking
    ``shall not apply to taxable years beginning after June 30, 1992'' and
    inserting ``shall apply to taxable years beginning after December 31,
    2007, and before January 1, 2009''.
      (b) Effective Date.--The amendments made by this section shall apply
    to taxable years beginning after December 31, 2007.

             Subtitle B--Extensions Primarily Affecting Businesses

    SEC. 221. RESEARCH CREDIT.

      (a) In General.--Subparagraph (B) of section 41(h)(1) is amended by
    striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Computation of Credit for Taxable Year in Which Credit
    Terminates.--Paragraph (2) of section 41(h) is amended to read as
    follows:
              ``(2) Computation of credit for taxable year in which credit
            terminates.--
                      ``(A) In general.--In the case of any taxable year
                    with respect to which this section applies to a number
                    of days which is less than the total number of days in
                    such taxable year, the applicable base amount with
                    respect to such taxable year shall be the amount which
                    bears the same ratio to such applicable amount
                    (determined without regard to this paragraph) as the
                    number of days in such taxable year to which this
                    section applies bears to the total number of days in
                    such taxable year.
                      ``(B) Applicable base amount.--For purposes of
                    subparagraph (A), the term `applicable base amount'
                    means, with respect to any taxable year--
                              ``(i) except as otherwise provided in this
                            subparagraph, the base amount for the taxable
                            year,
                              ``(ii) in the case of a taxable year with
                            respect to which an election under subsection
                            (c)(4) (relating to election of alternative
                            incremental credit) is in effect, the average
                            described in subsection (c)(1)(B) for the
                            taxable year, and
                              ``(iii) in the case of a taxable year with
                            respect to which an election under subsection
                            (c)(5) (relating to election of alternative
                            simplified credit) is in effect, the average
                            qualified research expenses for the 3 taxable
                            years preceding the taxable year.''.
      (c) Conforming Amendment.--Subparagraph (D) of section 45C(b)(1) is
    amended by striking ``December 31, 2007'' and inserting ``December 31,
    2008''.
      (d) Effective Date.--The amendments made by this section shall apply
    to amounts paid or incurred after December 31, 2007.

    SEC. 222. INDIAN EMPLOYMENT CREDIT.

      (a) In General.--Subsection (f) of section 45A is amended by striking
    ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to taxable years beginning after December 31, 2007.

    SEC. 223. NEW MARKETS TAX CREDIT.

      Subparagraph (D) of section 45D(f)(1) is amended by striking ``and
    2008'' and inserting ``2008, and 2009''.

    SEC. 224. RAILROAD TRACK MAINTENANCE.

      (a) In General.--Subsection (f) of section 45G is amended by striking
    ``January 1, 2008'' and inserting ``January 1, 2009''.
      (b) Effective Date.--The amendment made by this section shall apply
    to expenditures paid or incurred during taxable years beginning after
    December 31, 2007.

    SEC. 225. FIFTEEN-YEAR STRAIGHT-LINE COST RECOVERY FOR QUALIFIED
                        LEASEHOLD IMPROVEMENTS AND QUALIFIED RESTAURANT
                        PROPERTY.

      (a) In General.--Clauses (iv) and (v) of section 168(e)(3)(E) are
    each amended by striking ``January 1, 2008'' and inserting ``January 1,
    2009''.
      (b) Effective Date.--The amendments made by this section shall apply
    to property placed in service after December 31, 2007.

    SEC. 226. SEVEN-YEAR COST RECOVERY PERIOD FOR MOTORSPORTS RACING TRACK
                        FACILITY.

      (a) In General.--Subparagraph (D) of section 168(i)(15) is amended by
    striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to property placed in service after December 31, 2007.

    SEC. 227. ACCELERATED DEPRECIATION FOR BUSINESS PROPERTY ON INDIAN
                        RESERVATION.

      (a) In General.--Paragraph (8) of section 168(j) is amended by
    striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to property placed in service after December 31, 2007.

    SEC. 228. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

      (a) In General.--Subsection (h) of section 198 is amended by striking
    ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to expenditures paid or incurred after December 31, 2007.

    SEC. 229. DEDUCTION ALLOWABLE WITH RESPECT TO INCOME ATTRIBUTABLE TO
                        DOMESTIC PRODUCTION ACTIVITIES IN PUERTO RICO.

      (a) In General.--Subparagraph (C) of section 199(d)(8) is amended--
              (1) by striking ``first 2 taxable years'' and inserting
            ``first 3 taxable years'', and
              (2) by striking ``January 1, 2008'' and inserting ``January
            1, 2009''.
      (b) Effective Date.--The amendments made by this section shall apply
    to taxable years beginning after December 31, 2007.

    SEC. 230. MODIFICATION OF TAX TREATMENT OF CERTAIN PAYMENTS TO
                        CONTROLLING EXEMPT ORGANIZATIONS.

      (a) In General.--Clause (iv) of section 512(b)(13)(E) is amended by
    striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to payments received or accrued after December 31, 2007.

    SEC. 231. QUALIFIED ZONE ACADEMY BONDS.

      (a) In General.--Subpart I of part IV of subchapter A of chapter 1,
    as amended by sections 106 and 141, is amended by adding at the end the
    following new section:

    ``SEC. 54D. QUALIFIED ZONE ACADEMY BONDS.

      ``(a) Qualified Zone Academy Bonds.--For purposes of this subchapter,
    the term `qualified zone academy 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 a qualified purpose with respect to a
            qualified zone academy established by an eligible local
            education agency,
              ``(2) the bond is issued by a State or local government
            within the jurisdiction of which such academy is located, and
              ``(3) the issuer--
                      ``(A) designates such bond for purposes of this
                    section,
                      ``(B) certifies that it has written assurances that
                    the private business contribution requirement of
                    subsection (b) will be met with respect to such
                    academy, and
                      ``(C) certifies that it has the written approval of
                    the eligible local education agency for such bond
                    issuance.
      ``(b)  Private Business Contribution Requirement.--For purposes of
    subsection (a), the private business contribution requirement of this
    subsection is met with respect to any issue if the eligible local
    education agency that established the qualified zone academy has
    written commitments from private entities to make qualified
    contributions having a present value (as of the date of issuance of the
    issue) of not less than 10 percent of the proceeds of the issue.
      ``(c) Limitation on Amount of Bonds Designated.--
              ``(1) National limitation.--There is a national zone academy
            bond limitation for each calendar year. Such limitation is
            $400,000,000 for 2008, and, except as provided in paragraph
            (4), zero thereafter.
              ``(2) Allocation of limitation.--The national zone academy
            bond limitation for a calendar year shall be allocated by the
            Secretary among the States on the basis of their respective
            populations of individuals below the poverty line (as defined
            by the Office of Management and Budget). The limitation amount
            allocated to a State under the preceding sentence shall be
            allocated by the State education agency to qualified zone
            academies within such State.
              ``(3) Designation subject to limitation amount.--The maximum
            aggregate face amount of bonds issued during any calendar year
            which may be designated under subsection (a) with respect to
            any qualified zone academy shall not exceed the limitation
            amount allocated to such academy under paragraph (2) for such
            calendar year.
              ``(4) Carryover of unused limitation.--
                      ``(A) In general.--If for any calendar year--
                              ``(i) the limitation amount for any State,
                            exceeds
                              ``(ii) the amount of bonds issued during such
                            year which are designated under subsection (a)
                            with respect to qualified zone academies within
                            such State,
                    the limitation amount for such State for the following
                    calendar year shall be increased by the amount of such
                    excess.
                      ``(B) Limitation on carryover.--Any carryforward of a
                    limitation amount may be carried only to the first 2
                    years following the unused limitation year. For
                    purposes of the preceding sentence, a limitation amount
                    shall be treated as used on a first-in first-out basis.
                      ``(C) Coordination with section 1397e.--Any carryover
                    determined under section 1397E(e)(4) (relating to
                    carryover of unused limitation) with respect to any
                    State to calendar year 2008 shall be treated for
                    purposes of this section as a carryover with respect to
                    such State for such calendar year under subparagraph
                    (A), and the limitation of subparagraph (B) shall apply
                    to such carryover taking into account the calendar
                    years to which such carryover relates.
      ``(d) Definitions.--For purposes of this section--
              ``(1) Qualified zone academy.--The term `qualified zone
            academy' means any public school (or academic program within a
            public school) which is established by and operated under the
            supervision of an eligible local education agency to provide
            education or training below the postsecondary level if--
                      ``(A) such public school or program (as the case may
                    be) is designed in cooperation with business to enhance
                    the academic curriculum, increase graduation and
                    employment rates, and better prepare students for the
                    rigors of college and the increasingly complex
                    workforce,
                      ``(B) students in such public school or program (as
                    the case may be) will be subject to the same academic
                    standards and assessments as other students educated by
                    the eligible local education agency,
                      ``(C) the comprehensive education plan of such public
                    school or program is approved by the eligible local
                    education agency, and
                      ``(D)(i) such public school is located in an
                    empowerment zone or enterprise community (including any
                    such zone or community designated after the date of the
                    enactment of this section), or
                      ``(ii) there is a reasonable expectation (as of the
                    date of issuance of the bonds) that at least 35 percent
                    of the students attending such school or participating
                    in such program (as the case may be) will be eligible
                    for free or reduced-cost lunches under the school lunch
                    program established under the National School Lunch
                    Act.
              ``(2) Eligible local education agency.-- For purposes of this
            section, the term `eligible local education agency' means any
            local educational agency as defined in section 9101 of the
            Elementary and Secondary Education Act of 1965.
              ``(3) Qualified purpose.--The term `qualified purpose' means,
            with respect to any qualified zone academy--
                      ``(A) rehabilitating or repairing the public school
                    facility in which the academy is established,
                      ``(B) providing equipment for use at such academy,
                      ``(C) developing course materials for education to be
                    provided at such academy, and
                      ``(D) training teachers and other school personnel in
                    such academy.
              ``(4) Qualified contributions.--The term `qualified
            contribution' means any contribution (of a type and quality
            acceptable to the eligible local education agency) of--
                      ``(A) equipment for use in the qualified zone academy
                    (including state-of-the-art technology and vocational
                    equipment),
                      ``(B) technical assistance in developing curriculum
                    or in training teachers in order to promote appropriate
                    market driven technology in the classroom,
                      ``(C) services of employees as volunteer mentors,
                      ``(D) internships, field trips, or other educational
                    opportunities outside the academy for students, or
                      ``(E) any other property or service specified by the
                    eligible local education agency.''.
      (b) Conforming Amendments.--
              (1) Paragraph (1) of section 54A(d), as amended by sections
            106 and 141, 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 zone academy bond,''.
              (2) Subparagraph (C) of section 54A(d)(2), as amended by
            sections 106 and 141, 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 zone
                            academy bond, a purpose specified in section
                            54D(a)(1).''.
              (3) Section 1397E is amended by adding at the end the
            following new subsection:
      ``(m) Termination.--This section shall not apply to any obligation
    issued after the date of the enactment of this Act.''.
              (4) 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. 54D. Qualified zone academy 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. 232. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF COLUMBIA.

      (a) Designation of Zone.--
              (1) In general.--Subsection (f) of section 1400 is amended by
            striking ``2007'' both places it appears and inserting
            ``2008''.
              (2) Effective date.--The amendments made by this subsection
            shall apply to periods beginning after December 31, 2007.
      (b) Tax-Exempt Economic Development Bonds.--
              (1) In general.--Subsection (b) of section 1400A is amended
            by striking ``2007'' and inserting ``2008''.
              (2) Effective date.--The amendment made by this subsection
            shall apply to bonds issued after December 31, 2007.
      (c) Zero Percent Capital Gains Rate.--
              (1) In general.--Subsection (b) of section 1400B is amended
            by striking ``2008'' each place it appears and inserting
            ``2009''.
              (2) Conforming amendments.--
                      (A) Section 1400B(e)(2) is amended--
                              (i) by striking ``2012'' and inserting
                            ``2013'', and
                              (ii) by striking ``2012'' in the heading
                            thereof and inserting ``2013''.
                      (B) Section 1400B(g)(2) is amended by striking
                    ``2012'' and inserting ``2013''.
                      (C) Section 1400F(d) is amended by striking ``2012''
                    and inserting ``2013''.
              (3) Effective dates.--
                      (A) Extension.--The amendments made by paragraph (1)
                    shall apply to acquisitions after December 31, 2007.
                      (B) Conforming amendments.--The amendments made by
                    paragraph (2) shall take effect on the date of the
                    enactment of this Act.
      (d) First-Time Homebuyer Credit.--
              (1) In general.--Subsection (i) of section 1400C is amended
            by striking ``2008'' and inserting ``2009''.
              (2) Effective date.--The amendment made by this subsection
            shall apply to property purchased after December 31, 2007.

    SEC. 233. ECONOMIC DEVELOPMENT CREDIT FOR AMERICAN SAMOA.

      (a) In General.--Subsection (d) of section 119 of division A of the
    Tax Relief and Health Care Act of 2006 is amended--
              (1) by striking ``first two taxable years'' and inserting
            ``first 3 taxable years'', and
              (2) by striking ``January 1, 2008'' and inserting ``January
            1, 2009''.
      (b) Effective Date.--The amendment made by this section shall apply
    to taxable years beginning after December 31, 2007.

    SEC. 234. ENHANCED CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF FOOD
                        INVENTORY.

      (a) In General.--Clause (iv) of section 170(e)(3)(C) is amended by
    striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to contributions made after December 31, 2007.

    SEC. 235. ENHANCED CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF BOOK
                        INVENTORY TO PUBLIC SCHOOLS.

      (a) In General.--Clause (iv) of section 170(e)(3)(D) is amended by
    striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to contributions made after December 31, 2007.

    SEC. 236. ENHANCED DEDUCTION FOR QUALIFIED COMPUTER CONTRIBUTIONS.

      (a) In General.--Subparagraph (G) of section 170(e)(6) is amended by
    striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to contributions made during taxable years beginning after December 31,
    2007.

    SEC. 237. BASIS ADJUSTMENT TO STOCK OF S CORPORATIONS MAKING CHARITABLE
                        CONTRIBUTIONS OF PROPERTY.

      (a) In General.--The last sentence of section 1367(a)(2) is amended
    by striking ``December 31, 2007'' and inserting ``December 31, 2008''.
      (b) Effective Date.--The amendment made by this section shall apply
    to contributions made in taxable years beginning after December 31,
    2007.

    SEC. 238. WORK OPPORTUNITY TAX CREDIT FOR HURRICANE KATRINA EMPLOYEES.

      (a) In General.--Paragraph (1) of section 201(b) of the Katrina
    Emergency Tax Relief Act of 2005 is amended by striking ``2-year'' and
    inserting ``3-year''.
      (b) Effective Date.--The amendment made by subsection (a) shall apply
    to individuals hired after August 27, 2007.

    SEC. 239. SUBPART F EXCEPTION FOR ACTIVE FINANCING INCOME.

      (a) Exempt Insurance Income.--Paragraph (10) of section 953(e)
    (relating to application) is amended--
              (1) by striking ``January 1, 2009'' and inserting ``January
            1, 2010'', and
              (2) by striking ``December 31, 2008'' and inserting
            ``December 31, 2009''.
      (b) Exception to Treatment as Foreign Personal Holding Company
    Income.--Paragraph (9) of section 954(h) (relating to application) is
    amended by striking ``January 1, 2009'' and inserting ``January 1,
    2010''.

    SEC. 240. LOOK-THRU RULE FOR RELATED CONTROLLED FOREIGN CORPORATIONS.

      (a) In General.--Subparagraph (C) of section 954(c)(6) (relating to
    application) is amended by striking ``January 1, 2009'' and inserting
    ``January 1, 2010''.
      (b) Effective Date.--The amendment made by this section shall apply
    to taxable years of foreign corporations beginning after December 31,
    2008, and to taxable years of United States shareholders with or within
    which such taxable years of foreign corporations end.

    SEC. 241. EXPENSING FOR CERTAIN QUALIFIED FILM AND TELEVISION
                        PRODUCTIONS.

      (a) In General.--Subsection (f) of section 181 is amended by striking
    ``December 31, 2008'' and inserting ``December 31, 2009''.
      (b) Effective Date.--The amendment made by this section shall apply
    to productions commencing after December 31, 2008.

                          Subtitle C--Other Extensions

    SEC. 251. AUTHORITY TO DISCLOSE INFORMATION RELATED TO TERRORIST
                        ACTIVITIES MADE PERMANENT.

      (a) In General.--Subparagraph (C) of section 6103(i)(3) is amended by
    striking clause (iv).
      (b) Disclosure on Request.--Paragraph (7) of section 6103(i) is
    amended by striking subparagraph (E).
      (c) Effective Date.--The amendments made by this section shall apply
    to disclosures after the date of the enactment of this Act.

    SEC. 252. AUTHORITY FOR UNDERCOVER OPERATIONS MADE PERMANENT.

      (a) In General.--Subsection (c) of section 7608 is amended by
    striking paragraph (6).
      (b) Effective Date.--The amendment made by this section shall take
    effect on January 1, 2008.

    SEC. 253. AUTHORITY TO DISCLOSE RETURN INFORMATION FOR CERTAIN VETERANS
                        PROGRAMS MADE PERMANENT.

      (a) In General.--Paragraph (7) of section 6103(l) is amended by
    striking the last sentence thereof.
      (b) Conforming Amendment.--Section 6103(l)(7)(D)(viii)(III) is
    amended by striking ``sections 1710(a)(1)(I), 1710(a)(2), 1710(b), and
    1712(a)(2)(B)'' and inserting ``sections 1710(a)(2)(G), 1710(a)(3), and
    1710(b)''.
      (c) Effective Date.--The amendment made by subsection (a) shall apply
    to requests made after September 30, 2008.

    SEC. 254. INCREASE IN LIMIT ON COVER OVER OF RUM EXCISE TAX TO PUERTO
                        RICO AND THE VIRGIN ISLANDS.

      (a) In General.--Paragraph (1) of section 7652(f) is amended by
    striking ``January 1, 2008'' and inserting ``January 1, 2009''.
      (b) Effective Date.--The amendment made by this section shall apply
    to distilled spirits brought into the United States after December 31,
    2007.

    SEC. 255. PARITY IN THE APPLICATION OF CERTAIN LIMITS TO MENTAL HEALTH
                        BENEFITS.

      Subsection (f) of section 9812 is amended--
              (1) by striking ``and'' at the end of paragraph (2), and
              (2) by striking paragraph (3) and inserting the following new
            paragraphs:
              ``(3) on or after January 1, 2008, and before the date of the
            enactment of the Renewable Energy and Job Creation Act of 2008,
            and
              ``(4) after December 31, 2008.''.

                        TITLE III--ADDITIONAL TAX RELIEF

                       Subtitle A--Individual Tax Relief

    SEC. 301. ADDITIONAL STANDARD DEDUCTION FOR REAL PROPERTY TAXES FOR
                        NONITEMIZERS.

      (a) In General.--Section 63(c)(1) (defining standard deduction) 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) in the case of any taxable year beginning in
                    2008, the real property tax deduction.''.
      (b) Definition.--Section 63(c) is amended by adding at the end the
    following new paragraph:
              ``(7) Real property tax deduction.--For purposes of paragraph
            (1), the real property tax deduction is the lesser of--
                      ``(A) the amount allowable as a deduction under this
                    chapter for State and local taxes described in section
                    164(a)(1), or
                      ``(B) $350 ($700 in the case of a joint return).
            Any taxes taken into account under section 62(a) shall not be
            taken into account under this paragraph.''.
      (c) Effective Date.--The amendments made by this section shall apply
    to taxable years beginning after December 31, 2007.

    SEC. 302. REFUNDABLE CHILD CREDIT.

      (a) Modification of Threshold Amount.--Clause (i) of section
    24(d)(1)(B) is amended by inserting ``($8,500 in the case of taxable
    years beginning in 2008)'' after ``$10,000''.
      (b) Effective Date.--The amendment made by subsection (a) shall apply
    to taxable years beginning after December 31, 2007.

    SEC. 303. INCREASE OF AMT REFUNDABLE CREDIT AMOUNT FOR INDIVIDUALS WITH
                        LONG-TERM UNUSED CREDITS FOR PRIOR YEAR MINIMUM TAX
                        LIABILITY, ETC.

      (a) In General.--Paragraph (2) of section 53(e) is amended to read as
    follows:
              ``(2) AMT refundable credit amount.--For purposes of
            paragraph (1), the term `AMT refundable credit amount' means,
            with respect to any taxable year, the amount (not in excess of
            the long-term unused minimum tax credit for such taxable year)
            equal to the greater of--
                      ``(A) 50 percent of the long-term unused minimum tax
                    credit for such taxable year, or
                      ``(B) the amount (if any) of the AMT refundable
                    credit amount for the taxpayer's preceding taxable year
                    (determined without regard to subsection (f)(2)).''.
      (b) Treatment of Certain Underpayments, Interest, and Penalties
    Attributable to the Treatment of Incentive Stock Options.--Section 53
    is amended by adding at the end the following new subsection:
      ``(f) Treatment of Certain Underpayments, Interest, and Penalties
    Attributable to the Treatment of Incentive Stock Options.--
              ``(1) Abatement.--Any underpayment of tax outstanding on the
            date of the enactment of this subsection which is attributable
            to the application of section 56(b)(3) for any taxable year
            ending before January 1, 2008 (and any interest or penalty with
            respect to such underpayment which is outstanding on such date
            of enactment), is hereby abated. The amount determined under
            subsection (b)(1) shall not include any tax abated under the
            preceding sentence.
              ``(2) Increase in credit for certain interest and penalties
            already paid.--The AMT refundable credit amount, and the
            minimum tax credit determined under subsection (b), for the
            taxpayer's first 2 taxable years beginning after December 31,
            2007, shall each be increased by 50 percent of the aggregate
            amount of the interest and penalties which were paid by the
            taxpayer before the date of the enactment of this subsection
            and which would (but for such payment) have been abated under
            paragraph (1).''.
      (c) Effective Date.--
              (1) In general.--Except as provided in paragraph (2), the
            amendment made by this section shall apply to taxable years
            beginning after December 31, 2007.
              (2) Abatement.--Section 53(f)(1) of the Internal Revenue Code
            of 1986, as added by subsection (b), shall take effect on the
            date of the enactment of this Act.

                    Subtitle B--Business Related Provisions

    SEC. 311. UNIFORM TREATMENT OF ATTORNEY-ADVANCED EXPENSES AND COURT
                        COSTS IN CONTINGENCY FEE CASES.

      (a) In General.--Section 162 is amended by redesignating subsection
    (q) as subsection (r) and by inserting after subsection (p) the
    following new subsection:
      ``(q) Attorney-Advanced Expenses and Court Costs in Contingency Fee
    Cases.--In the case of any expense or court cost which is paid or
    incurred in the course of the trade or business of practicing law and
    the repayment of which is contingent on a recovery by judgment or
    settlement in the action to which such expense or cost relates, the
    deduction under subsection (a) shall be determined as if such expense
    or cost was not subject to repayment.''.
      (b) Effective Date.--The amendment made by this section shall apply
    to expenses and costs paid or incurred in taxable years beginning after
    the date of the enactment of this Act.

    SEC. 312. PROVISIONS RELATED TO FILM AND TELEVISION PRODUCTIONS.

      (a) Modification of Limitation on Expensing.--Subparagraph (A) of
    section 181(a)(2) is amended to read as follows:
                      ``(A) In general.--Paragraph (1) shall not apply to
                    so much of the aggregate cost of any qualified film or
                    television production as exceeds $15,000,000.''.
      (b) Modifications to Deduction for Domestic Activities.--
              (1) Determination of w-2 wages.--Paragraph (2) of section
            199(b) is amended by adding at the end the following new
            subparagraph:
                      ``(D) Special rule for qualified film.--In the case
                    of a qualified film, such term shall include
                    compensation for services performed in the United
                    States by actors, production personnel, directors, and
                    producers.''.
              (2) Definition of qualified film.--Paragraph (6) of section
            199(c) is amended by adding at the end the following: ``A
            qualified film shall include any copyrights, trademarks, or
            other intangibles with respect to such film. The methods and
            means of distributing a qualified film shall not affect the
            availability of the deduction under this section.''.
              (3) Partnerships.--Subparagraph (A) of section 199(d)(1) is
            amended by striking ``and'' at the end of clause (ii), by
            striking the period at the end of clause (iii) and inserting
            ``, and'', and by adding at the end the following new clause:
                              ``(iv) in the case of each partner of a
                            partnership, or shareholder of an S
                            corporation, who owns (directly or indirectly)
                            at least 20 percent of the capital interests in
                            such partnership or of the stock of such S
                            corporation--
                                      ``(I) such partner or shareholder
                                    shall be treated as having engaged
                                    directly in any film produced by such
                                    partnership or S corporation, and
                                      ``(II) such partnership or S
                                    corporation shall be treated as having
                                    engaged directly in any film produced
                                    by such partner or shareholder.''.
      (c) 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) Expensing.--The amendments made by subsection (a) shall
            apply to qualified film and television productions commencing
            after December 31, 2007.

      Subtitle C--Modification of Penalty on Understatement of Taxpayer's
                        Liability by Tax Return Preparer

    SEC. 321. MODIFICATION OF PENALTY ON UNDERSTATEMENT OF TAXPAYER'S
                        LIABILITY BY TAX RETURN PREPARER.

      (a) In General.--Subsection (a) of section 6694 (relating to
    understatement due to unreasonable positions) is amended to read as
    follows:
      ``(a) Understatement Due to Unreasonable Positions.--
              ``(1) In general.--If a tax return preparer--
                      ``(A) prepares any return or claim of refund with
                    respect to which any part of an understatement of
                    liability is due to a position described in paragraph
                    (2), and
                      ``(B) knew (or reasonably should have known) of the
                    position,
            such tax return preparer shall pay a penalty with respect to
            each such return or claim in an amount equal to the greater of
            $1,000 or 50 percent of the income derived (or to be derived)
            by the tax return preparer with respect to the return or claim.
              ``(2) Unreasonable position.--
                      ``(A) In general.--Except as otherwise provided in
                    this paragraph, a position is described in this
                    paragraph unless there is or was substantial authority
                    for the position.
                      ``(B) Disclosed positions.--If the position was
                    disclosed as provided in section 6662(d)(2)(B)(ii)(I)
                    and is not a position to which subparagraph (C)
                    applies, the position is described in this paragraph
                    unless there is a reasonable basis for the position.
                      ``(C) Tax shelters and reportable transactions.--If
                    the position is with respect to a tax shelter (as
                    defined in section 6662(d)(2)(C)(ii)) or a reportable
                    transaction to which section 6662A applies, the
                    position is described in this paragraph unless it is
                    reasonable to believe that the position would more
                    likely than not be sustained on its merits.
              ``(3) Reasonable cause exception.--No penalty shall be
            imposed under this subsection if it is shown that there is
            reasonable cause for the understatement and the tax return
            preparer acted in good faith.''.
      (b) Effective Date.--The amendment made by this section shall apply--
              (1) in the case of a position other than a position described
            in subparagraph (C) of section 6694(a)(2) of the Internal
            Revenue Code of 1986 (as amended by this section), to returns
            prepared after May 25, 2007, and
              (2) in the case of a position described in such subparagraph
            (C), to returns prepared for taxable years ending after the
            date of the enactment of this Act.

       Subtitle D--Extension and Expansion of Certain GO Zone Incentives

    SEC. 331. CERTAIN GO ZONE INCENTIVES.

      (a) Use of Amended Income Tax Returns To Take Into Account Receipt of
    Certain Hurricane-Related Casualty Loss Grants by Disallowing
    Previously Taken Casualty Loss Deductions.--
              (1) In general.--Notwithstanding any other provision of the
            Internal Revenue Code of 1986, if a taxpayer claims a deduction
            for any taxable year with respect to a casualty loss to a
            principal residence (within the meaning of section 121 of such
            Code) resulting from Hurricane Katrina, Hurricane Rita, or
            Hurricane Wilma and in a subsequent taxable year receives a
            grant under Public Law 109-148, 109-234, or 110-116 as
            reimbursement for such loss, such taxpayer may elect to file an
            amended income tax return for the taxable year in which such
            deduction was allowed (and for any taxable year to which such
            deduction is carried) and reduce (but not below zero) the
            amount of such deduction by the amount of such reimbursement.
              (2) Time of filing amended return.--Paragraph (1) shall apply
            with respect to any grant only if any amended income tax
            returns with respect to such grant are filed not later than the
            later of--
                      (A) the due date for filing the tax return for the
                    taxable year in which the taxpayer receives such grant,
                    or
                      (B) the date which is 1 year after the date of the
                    enactment of this Act.
              (3) Waiver of penalties and interest.--Any underpayment of
            tax resulting from the reduction under paragraph (1) of the
            amount otherwise allowable as a deduction shall not be subject
            to any penalty or interest under such Code if such tax is paid
            not later than 1 year after the filing of the amended return to
            which such reduction relates.
      (b) Waiver of Deadline on Construction of GO Zone Property Eligible
    for Bonus Depreciation.--
              (1) In general.--Subparagraph (B) of section 1400N(d)(3) is
            amended to read as follows:
                      ``(B) without regard to `and before January 1, 2009'
                    in clause (i) thereof, and''.
              (2) Effective date.--The amendment made by this subsection
            shall apply to property placed in service after December 31,
            2007.
      (c) Inclusion of Certain Counties in Gulf Opportunity Zone for
    Purposes of Tax-Exempt Bond Financing.--
              (1) In general.--Subsection (a) of section 1400N is amended
            by adding at the end the following new paragraph:
              ``(8) Inclusion of certain counties.--For purposes of this
            subsection, the Gulf Opportunity Zone includes Colbert County,
            Alabama and Dallas County, Alabama.''.
              (2) Effective date.--The amendment made by this subsection
            shall take effect as if included in the provisions of the Gulf
            Opportunity Zone Act of 2005 to which it relates.

                          TITLE IV--REVENUE PROVISIONS

    SEC. 401. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX
                        INDIFFERENT PARTIES.

      (a) In General.--Subpart B of part II of subchapter E of chapter 1 is
    amended by inserting after section 457 the following new section:

    ``SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX
                        INDIFFERENT PARTIES.

      ``(a) In General.--Any compensation which is deferred under a
    nonqualified deferred compensation plan of a nonqualified entity shall
    be includible in gross income when there is no substantial risk of
    forfeiture of the rights to such compensation.
      ``(b) Nonqualified Entity.--For purposes of this section, the term
    `nonqualified entity' means--
              ``(1) any foreign corporation unless substantially all of its
            income is--
                      ``(A) effectively connected with the conduct of a
                    trade or business in the United States, or
                      ``(B) subject to a comprehensive foreign income tax,
                    and
              ``(2) any partnership unless substantially all of its income
            is allocated to persons other than--
                      ``(A) foreign persons with respect to whom such
                    income is not subject to a comprehensive foreign income
                    tax, and
                      ``(B) organizations which are exempt from tax under
                    this title.
      ``(c) Determinability of Amounts of Compensation.--
              ``(1) In general.--If the amount of any compensation is not
            determinable at the time that such compensation is otherwise
            includible in gross income under subsection (a)--
                      ``(A) such amount shall be so includible in gross
                    income when determinable, and
                      ``(B) the tax imposed under this chapter for the
                    taxable year in which such compensation is includible
                    in gross income shall be increased by the sum of--
                              ``(i) the amount of interest determined under
                            paragraph (2), and
                              ``(ii) an amount equal to 20 percent of the
                            amount of such compensation.
              ``(2) Interest.--For purposes of paragraph (1)(B)(i), the
            interest determined under this paragraph for any taxable year
            is the amount of interest at the underpayment rate under
            section 6621 plus 1 percentage point on the underpayments that
            would have occurred had the deferred compensation been
            includible in gross income for the taxable year in which first
            deferred or, if later, the first taxable year in which such
            deferred compensation is not subject to a substantial risk of
            forfeiture.
      ``(d) Other Definitions and Special Rules.--For purposes of this
    section--
              ``(1) Substantial risk of forfeiture.--
                      ``(A) In general.--The rights of a person to
                    compensation shall be treated as subject to a
                    substantial risk of forfeiture only if such person's
                    rights to such compensation are conditioned upon the
                    future performance of substantial services by any
                    individual.
                      ``(B) Exception for compensation based on gain
                    recognized on an investment asset.--
                              ``(i) In general.--To the extent provided in
                            regulations prescribed by the Secretary, if
                            compensation is determined solely by reference
                            to the amount of gain recognized on the
                            disposition of an investment asset, such
                            compensation shall be treated as subject to a
                            substantial risk of forfeiture until the date
                            of such disposition.
                              ``(ii) Investment asset.--For purposes of
                            clause (i), the term `investment asset' means
                            any single asset (other than an investment fund
                            or similar entity)--
                                      ``(I) acquired directly by an
                                    investment fund or similar entity,
                                      ``(II) with respect to which such
                                    entity does not (nor does any person
                                    related to such entity) participate in
                                    the active management of such asset (or
                                    if such asset is an interest in an
                                    entity, in the active management of the
                                    activities of such entity), and
                                      ``(III) substantially all of any gain
                                    on the disposition of which (other than
                                    such deferred compensation) is
                                    allocated to investors in such entity.
                              ``(iii) Coordination with special rule.--
                            Paragraph (3)(B) shall not apply to any
                            compensation to which clause (i) applies.
              ``(2) Comprehensive foreign income tax.--The term
            `comprehensive foreign income tax' means, with respect to any
            foreign person, the income tax of a foreign country if--
                      ``(A) such person is eligible for the benefits of a
                    comprehensive income tax treaty between such foreign
                    country and the United States, or
                      ``(B) such person demonstrates to the satisfaction of
                    the Secretary that such foreign country has a
                    comprehensive income tax.
              ``(3) Nonqualified deferred compensation plan.--
                      ``(A) In general.--The term `nonqualified deferred
                    compensation plan' has the meaning given such term
                    under section 409A(d), except that such term shall
                    include any plan that provides a right to compensation
                    based on the appreciation in value of a specified
                    number of equity units of the service recipient.
                      ``(B) Exception.--Compensation shall not be treated
                    as deferred for purposes of this section if the service
                    provider receives payment of such compensation not
                    later than 12 months after the end of the taxable year
                    of the service recipient during which the right to the
                    payment of such compensation is no longer subject to a
                    substantial risk of forfeiture.
              ``(4) Exception for certain compensation with respect to
            effectively connected income.--In the case a foreign
            corporation with income which is taxable under section 882,
            this section shall not apply to compensation which, had such
            compensation had been paid in cash on the date that such
            compensation ceased to be subject to a substantial risk of
            forfeiture, would have been deductible by such foreign
            corporation against such income.
              ``(5) Application of rules.--Rules similar to the rules of
            paragraphs (5) and (6) of section 409A(d) shall apply.
      ``(e) Regulations.--The Secretary shall prescribe such regulations as
    may be necessary or appropriate to carry out the purposes of this
    section, including regulations disregarding a substantial risk of
    forfeiture in cases where necessary to carry out the purposes of this
    section.''.
      (b) Conforming Amendment.--Section 26(b)(2) is amended by striking
    ``and'' at the end of subparagraph (U), by striking the period at the
    end of subparagraph (V) and inserting ``, and'', and by adding at the
    end the following new subparagraph:
                      ``(W) section 457A(c)(1)(B) (relating to
                    determinability of amounts of compensation).''.
      (c) Clerical Amendment.--The table of sections of subpart B of part
    II of subchapter E of chapter 1 is amended by inserting after the item
    relating to section 457 the following new item:

    ``Sec. 457A. Nonqualified deferred compensation from certain tax
    indifferent parties.''.

      (d) Effective Date.--
              (1) In general.--Except as otherwise provided in this
            subsection, the amendments made by this section shall apply to
            amounts deferred which are attributable to services performed
            after December 31, 2008.
              (2) Application to existing deferrals.--In the case of any
            amount deferred to which the amendments made by this section do
            not apply solely by reason of the fact that the amount is
            attributable to services performed before January 1, 2009, to
            the extent such amount is not includible in gross income in a
            taxable year beginning before 2018, such amounts shall be
            includible in gross income in the later of--
                      (A) the last taxable year beginning before 2018, or
                      (B) the taxable year in which there is no substantial
                    risk of forfeiture of the rights to such compensation
                    (determined in the same manner as determined for
                    purposes of section 457A of the Internal Revenue Code
                    of 1986, as added by this section).
              (3) Charitable contributions of existing deferrals
            permitted.--
                      (A) In general.--Subsection (b) of section 170 of the
                    Internal Revenue Code of 1986 shall not apply to (and
                    subsections (b) and (d) of such section shall be
                    applied without regard to) so much of the taxpayer's
                    qualified contributions made during the taxpayer's last
                    taxable year beginning before 2018 as does not exceed
                    the taxpayer's qualified inclusion amount. For purposes
                    of subsection (b) of section 170 of such Code, the
                    taxpayer's contribution base for such last taxable year
                    shall be reduced by the amount of the taxpayer's
                    qualified contributions to which such subsection does
                    not apply by reason the preceding sentence.
                      (B) Qualified contributions.--For purposes of this
                    paragraph, the term ``qualified contributions'' means
                    the aggregate charitable contributions (as defined in
                    section 170(c) of such Code) paid in cash by the
                    taxpayer to organizations described in section
                    170(b)(1)(A) of such Code (other than any organization
                    described in section 509(a)(3) of such Code or any fund
                    or account described in section 4966(d)(2) of such
                    Code).
                      (C) Qualified inclusion amount.--For purposes of this
                    paragraph, the term ``qualified inclusion amount''
                    means the amount includible in the taxpayer's gross
                    income for the last taxable year beginning before 2018
                    by reason of paragraph (2).
              (4) Accelerated payments.--No later than 120 days after the
            date of the enactment of this Act, the Secretary shall issue
            guidance providing a limited period of time during which a
            nonqualified deferred compensation arrangement attributable to
            services performed on or before December 31, 2008, may, without
            violating the requirements of section 409A(a) of the Internal
            Revenue Code of 1986, be amended to conform the date of
            distribution to the date the amounts are required to be
            included in income.
              (5) Certain back-to-back arrangements.--If the taxpayer is
            also a service recipient and maintains one or more nonqualified
            deferred compensation arrangements for its service providers
            under which any amount is attributable to services performed on
            or before December 31, 2008, the guidance issued under
            paragraph (4) shall permit such arrangements to be amended to
            conform the dates of distribution under such arrangement to the
            date amounts are required to be included in the income of such
            taxpayer under this subsection.
              (6) Accelerated payment not treated as material
            modification.--Any amendment to a nonqualified deferred
            compensation arrangement made pursuant to paragraph (4) or (5)
            shall not be treated as a material modification of the
            arrangement for purposes of section 409A of the Internal
            Revenue Code of 1986.

    SEC. 402. DELAY IN APPLICATION OF WORLDWIDE ALLOCATION OF INTEREST.

      (a) In General.--Paragraphs (5)(D) and (6) of section 864(f) are each
    amended by striking ``December 31, 2008'' and inserting ``December 31,
    2018''.
      (b) Effective Date.--The amendments made by this section shall apply
    to taxable years beginning after December 31, 2008.

    SEC. 403. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.

      (a) Repeal of Adjustment for 2012.--Subparagraph (B) of section
    401(1) of the Tax Increase Prevention and Reconciliation Act of 2005 is
    amended by striking the percentage contained therein and inserting
    ``100 percent''.
      (b) Modification of Adjustment for 2013.--The percentage under
    subparagraph (C) of section 401(1) of the Tax Increase Prevention and
    Reconciliation Act of 2005 in effect on the date of the enactment of
    this Act is increased by 37.75 percentage points.

                           I. SUMMARY AND BACKGROUND

                             A. Purpose and Summary

        The bill, H.R. 6049, as amended, includes energy tax
    incentives, extends a number of expiring provisions, and
    provides additional tax relief. The provisions approved by the
    Committee provide incentives for taxpayers to enhance energy
    infrastructure properties in the United States and to encourage
    taxpayers to use certain energy technologies. The provisions
    also extend a number of expiring Internal Revenue Code
    provisions, including the deduction for State and local sales
    taxes, the research and experimentation tax credit, and certain
    education tax benefits. They also provide additional tax
    relief, including an additional standard deduction for real
    property taxes for nonitemizers and an expansion of the
    refundable child credit.

                     B. Background and Need for Legislation

        The energy tax incentives approved by the Committee are
    intended to reduce America's greenhouse gas emissions and
    overall dependence on fossil fuels. The other provisions extend
    needed tax relief to individuals and businesses.

                             C. Legislative History

    Background

        H.R. 6049 was introduced in the House of Representatives on
    May 14, 2008, and was referred to the Committee on Ways and
    Means.

    Committee action

        The Committee on Ways and Means marked up the bill on May
    15, 2008, and ordered the bill, as amended, favorably reported.

                         TITLE I--ENERGY TAX INCENTIVES

                A. Clean Renewable Energy Production Incentives

    1. Extension and modification of the credit for the production of
            electricity from renewable resources (Secs. 101 and 102 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. Unless 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 was 2 cents per
    kilowatt-hour for 2007.\2\ 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.
    ---------------------------------------------------------------------------
        \2\The Internal Revenue Service (``IRS'') is expected to announce
    the 2008 inflation adjustment factor in the spring of 2008.
    ---------------------------------------------------------------------------
                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 (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.\3\ 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.
    ---------------------------------------------------------------------------
        \3\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
    afacility (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     Credit period for
                                                                                placed in service      facilities
                                                             Credit amount for     on or before    placed in service
            Eligible electricity production activity          2007 (cents per     August 8, 2005    after August 8,
                                                               kilowatt-hour)      (years from      2005 (years from
                                                                                placed-in-service  placed-in-service
                                                                                      date)              date)
    ----------------------------------------------------------------------------------------------------------------
    Wind...................................................                  2                 10                 10
    Closed-loop biomass....................................                  2              \1\10                 10
    Open-loop biomass (including agricultural livestock                      1               \2\5                 10
     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 landfill gas                            1                  5                 10
     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 five-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\4\ 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.\5\ 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.
    ---------------------------------------------------------------------------
        \4\Secs. 1381-1383.
        \5\Sec. 1382.
    ---------------------------------------------------------------------------
        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 additional incentives for the
    production of electricity from renewable resources will help
    limit the environmental consequences of continued reliance on
    power generated using fossil fuels. The Committee also believes
    that it is important to modify the existing incentives to make
    them operate more effectively and to take advantage of new
    renewable energy technologies. Finally, the Committee believes
    that the phase-out limitation under present law has not worked
    effectively to limit the availability of the electricity
    production credit where increased efficiencies and improved
    technologies have reduced the need for continued tax subsidies.
    The Committee believes that a limitation based on the amount of
    investment in each particular renewable energy project would
    better serve this goal.

                            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 three years (through 2011) the
    period during which qualified facilities producing electricity
    from 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. The provision extends for one
    year (through 2009) the placed-in-service period for qualified
    wind facilities.

    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 qualified marine and hydrokinetic renewable
    energy facility is any facility owned by the taxpayer and
    placed in service after the date ofenactment and before 2012
    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 2009 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 greater of 4.5 percent or 110
    percent of the long-term Federal rate.
        Generally, the eligible basis of a facility is the basis of
    such facility at the time it is originally placed in service.
    However, certain special rules apply. Since each wind turbine
    generally qualifies as a separate facility under section 45,
    the basis of shared qualified property at a wind project
    composed of multiple separate wind facilities may be allocated
    in proportion to the projected generation from such facilities.
    For this purpose, shared qualified property is property that is
    eligible for five-year depreciation under section
    168(e)(3)(B)(vi) but which is not part of a qualified facility.
    In the case of a qualified geothermal facility, the eligible
    basis for purposes of the limitation includes intangible
    drilling and development costs described in section 263(c).
        At the election of the taxpayer, all qualified facilities
    which are part of the same project and which are placed in
    service during the same calendar year may be treated for as a
    single facility placed in service at either the mid-point of
    such year or the first day of the following calendar year.
        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.

    Clarification of the definition of trash combustion facility

        The provision modifies the definition of qualified trash
    combustion facilities to permit facilities that gasify
    municipal solid waste and then burn such gas as part of an
    electricity generation process to qualify for the electricity
    production credit.

    Modification of the definitions of open-loop biomass facility and
            closed-loop biomass facility to include new units added to
            existing qualified facilities

        The definitions of qualified open-loop biomass facility and
    qualified closed-loop biomass facility are modified to include
    new power generation units placed in service at existing
    qualified facilities, but only to the extent of the increased
    amount of electricity produced at such facilities by reason of
    such new units.

    Modification of the third party sale rule for sales to regulated public
            utilities

        The provision modifies the requirement that qualified
    electricity be sold to a third party. Under the provision, net
    sales of electricity to a regulated public utility are treated
    as sold to an unrelated person. Thus, under the provision, a
    partnership controlled by a regulated public utility may sell
    power otherwise eligible for the electricity production credit
    to its controlling partner without failing the third party sale
    rule.

    Modification to definition of nonhydroelectric dam for purposes of
            qualified hydropower production

        The provision modifies the definition of nonhydroelectric
    dam for purposes of qualified hydropower production. Under the
    new definition, the nonhydroelectric dam must have been
    operated for flood control, navigation, or water supply
    purposes.
        The provision replaces the requirement that the project not
    enlarge the diversion structure or bypass channel, or impound
    additional water from the natural stream channel, with a
    requirement that the project be operated so that the water
    surface elevation at any given location and time be the same as
    would occur in absence of the project, subject to any license
    requirements aimed at improving the environmental quality of
    the affected waterway.
        The hydroelectric project installed on the nonhydroelectric
    dam must still be licensed by the Federal Energy Regulatory
    Commission and meet all other applicable environmental,
    licensing, and regulatory requirements, including applicable
    fish passage requirements.

                                 EFFECTIVE DATE

        The extension of the electricity production credit is
    effective for facilities originally placed in service 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. The repeal
    of the credit phaseout adjustment is effective for taxable
    years ending after 2008. The limitation based on investment is
    effective for facilities originally placed in service after
    2009. The clarification of the definition of trash combustion
    facility and the modification to the third party sale rule
    areeffective for electricity produced and sold after the date of
    enactment. The modifications to the definitions of open-loop biomass
    facility, closed-loop biomass facility, and nonhydroelectric dam are
    effective for property placed in service after the date of enactment.

    2. 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\6\ 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.
    ---------------------------------------------------------------------------
        \6\Sec. 48.
    ---------------------------------------------------------------------------
        The energy credit is a component of the general business
    credit\7\ 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.\8\ The taxpayer's
    basis in the property is reduced by one-half of 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.
    ---------------------------------------------------------------------------
        \7\Sec. 38(b)(1).
        \8\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 one-half 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
    the continued development of alternative energy resources. The
    Committee further believes that provision of the credit for
    combined heat and power property will help to stimulate more
    efficient use of fossil fuels used to generate electrical or
    mechanical power.
        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 of fuel cell technology.

                            EXPLANATION OF PROVISION

        The provision extends the otherwise expiring credits and
    credit rates for six years, through December 31, 2014. The
    provision raises the $500 per half kilowatt of capacity credit
    cap with respect to fuel cells to $1500 per half kilowatt of
    capacity. Also, the restrictions on public utility property
    being eligible for the credit are repealed. The provision makes
    the energy credit allowable against the alternative minimum
    tax.
        The provision makes combined heat and power (``CHP'')
    property eligible for the 10-percent energy credit through
    December 31, 2014.
        CHP property is property: (1) that uses the same energy
    source for the simultaneous or sequential generation of
    electrical power, mechanical shaft power, or both, in
    combination with the generation of steam or other forms of
    useful thermal energy (including heating and cooling
    applications); (2) that has an electrical capacity of not more
    than 50 megawatts or a mechanical energy capacity of no more
    than 67,000 horsepower or an equivalent combination of
    electrical and mechanical energy capacities; (3) that produces
    at least 20 percent of its total useful energy in the form of
    thermal energy that is not used to produce electrical or
    mechanical power, and produces at least 20 percent of its total
    useful energy in the form of electrical or mechanical power (or
    a combination thereof); and (4) the energy efficiency
    percentage of which exceeds 60 percent. CHP property does not
    include property used to transport the energy source to the
    generating facility or to distribute energy produced by the
    facility.
        The otherwise allowable credit with respect to CHP property
    is reduced to the extent the property has an electrical
    capacity or mechanical capacity in excess of any applicable
    limits. Property in excess of the applicable limit (15
    megawatts or a mechanical energy capacity of more than 20,000
    horsepower or an equivalent combination of electrical and
    mechanical energy capacities) is permitted to claim a fraction
    of the otherwise allowable credit. The fraction is equal to the
    applicable limit divided by the capacity of the property. For
    example, a 45 megawatt property would be eligible to claim 15/
    45ths, or one third, of the otherwise allowable credit. Again,
    no credit is allowed if the property exceeds the 50 megawatt or
    67,000 horsepower limitations described above.
        Additionally, the provision provides that systems whose
    fuel source is at least 90 percent open-loop biomass and that
    would qualify for the credit but for the failure to meet the
    efficiency standard are eligible for a credit that is reduced
    in proportion to the degree to which the system fails to meet
    the efficiency standard. For example, a system that would
    otherwise be required to meet the 60-percent efficiency
    standard, but which only achieves 30-percent efficiency, would
    be permitted a credit equal to one-half of the otherwise
    allowable credit (i.e., a 5-percent credit).

                                 EFFECTIVE DATE

        The provision is generally effective on the date of
    enactment.
        The provision relating to combined heat and power property
    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 relating to the restrictions on public
    utility property applies to periods after February 13, 2008, 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.

    3. Credit for residential energy efficient property (Sec. 104 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 applies to property placed in service prior to
    January 1, 2009.

                               REASONS FOR CHANGE

        The Committee believes the cap on the amount of the
    available credit for solar electric and fuel cell property
    should be raised in order to provide additional incentive to
    invest in such property for those who would otherwise have been
    restricted by the tighter caps. The Committee also believes
    that it is proper to provide an incentive for residential wind
    and geothermal property to encourage investments in such
    property to reduce fossil fuel consumption. Finally, the
    Committee believes that it is appropriate to allow the credit
    against the minimum tax in order to make sure the incentive is
    available to all taxpayers.

                            EXPLANATION OF PROVISION

        The provision extends the credit for six years (through
    December 31, 2014) and allows the credit to be claimed against
    the alternative minimum tax. Additionally, the credit cap for
    solar electric property is raised to $4,000.
        The provision provides a new 30-percent credit for
    qualified small wind energy property expenses made by the
    taxpayer during the taxable year. The credit is limited to $500
    with respect to each half kilowatt of capacity, not to exceed
    $4,000. The credit for qualified small wind energy property is
    allowed for expenditures after December 31, 2007, for property
    placed in service prior to January 1, 2015.
        Qualified small wind energy property expenditures are
    expenditures for property that uses a wind turbine to generate
    electricity for use in a dwelling unit located in the U.S. and
    used as a residence by the taxpayer.
        The provision also provides a 30-percent credit for
    qualified geothermal heat pump property expenditures, not to
    exceed $2,000. The term ``qualified geothermal heat pump
    property expenditure'' means an expenditure for qualified
    geothermal heat pump property installed on or in connection
    with a dwelling unit located in the United States and used as a
    residence by the taxpayer. Qualified geothermal heat pump
    property means any equipment which (1) uses the ground or
    ground water as a thermal energy source to heat the dwelling
    unit or as a thermal energy sink to cool such dwelling unit,
    and (2) meets the requirements of the Energy Star program which
    are in effect at the time that the expenditure for such
    equipment is made. The credit for qualified geothermal heat
    pump property is allowed for expenditures after December 31,
    2007, for property placed in service prior to January 1, 2015.

                                 EFFECTIVE DATE

        The provision is effective for taxable years beginning
    after December 31, 2007, for property placed in service prior
    to January 1, 2015.

    4. Extension and modification of special rule to implement FERC and
            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\9\ (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.
    ---------------------------------------------------------------------------
        \9\The applicable period for a taxpayer to reinvest the proceeds is
    four years after the close of the taxable year in which the qualifying
    electric transmission transaction occurs.
    ---------------------------------------------------------------------------
        A qualifying electric transmission transaction is the sale
    or other disposition of property used by the taxpayer in the
    trade or business of providing electric transmission services,
    or an ownership interest in such an entity, to an independent
    transmission company prior to January 1, 2008. In general, an
    independent transmission company is defined as: (1) an
    independent transmission provider\10\ approved by the FERC; (2)
    a person (i) who the FERC determines under section 203 of the
    Federal Power Act (or by declaratory order) is not a ``market
    participant'' and (ii) whose transmission facilities are placed
    under the operational control of a FERC-approved independent
    transmission provider before the close of the period specified
    in such authorization, but not later than 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).
    ---------------------------------------------------------------------------
        \10\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, which as of the date
    of the qualifying electric transmission transaction, is
    vertically integrated in that it is both (1) a transmitting
    utility (as defined in the Federal Power Act)\11\ with respect
    to the transmission facilities to which the election applies,
    and (2) an electric utility (as defined in the Federal Power
    Act).\12\
    ---------------------------------------------------------------------------
        \11\Sec. 3(23), 16 U.S.C. 796, defines ``transmitting utility'' as
    any electric utility, qualifying cogeneration facility, qualifying
    small power production facility, or Federal power marketing agency
    which owns or operates electric power transmission facilities which are
    used for the sale of electric energy at wholesale.
        \12\Sec. 3(22), 16 U.S.C. 796, defines ``electric utility'' as any
    person or State agency (including any municipality) which sells
    electric energy; such term includes the Tennessee Valley Authority, but
    does not include any Federal power marketing agency.
    ---------------------------------------------------------------------------
        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 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
    transactions after the date of enactment.

    5. New clean renewable energy bonds (Sec. 106 of the bill and new secs.
            54A and 54B of the Code)

                                  PRESENT LAW

    Tax-exempt bonds

        Subject to certain Code restrictions, interest paid 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.
        In most cases, the aggregate volume of tax-exempt qualified
    private activity bonds is restricted by annual aggregate volume
    limits imposed on bonds issued by issuers within each State.
    For calendar year 2008, the State volume limit, which is
    indexed for inflation, equals $85 per resident of the State, or
    $262.09 million, if greater.
        The exclusion from income for interest on State and local
    bonds also does not apply to any arbitrage bond.\13\ 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.\14\ 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.
    ---------------------------------------------------------------------------
        \13\Sec. 103(a) and (b)(2).
        \14\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.\15\ Generally, this information return is required
    to be filed no later the 15th day of the second month after the
    close of the calendar quarter in which the bonds were issued.
    ---------------------------------------------------------------------------
        \15\Sec. 149(e).
    ---------------------------------------------------------------------------

    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.\16\
    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.
    ---------------------------------------------------------------------------
        \16\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.

                            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, governmental
    bodies, or cooperative electric company.
        The term ``qualified issuers'' includes: (1) public power
    providers; (2) a governmental body; (3) cooperative electric
    companies; (4) a not-for-profit electric utility that has
    received a loan or guarantee under the Rural Electrification
    Act; and (5) clean renewable energy bond lenders. 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). A ``governmental body'' means any State or
    Indian tribal government, or any political subdivision thereof.
    The term ``cooperative electric company'' means a mutual or
    cooperative electric company (described in section 501(c)(12)
    or section 1381(a)(2)(C)). 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.
    Under the provision, no more than one-third of the national
    limit may be allocated to projects of public power providers,
    governmental bodies, or cooperative electric companies.
    Allocations to governmental bodies and 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 reasonably expected to result in an amount not greater
    than an amount necessary to repay the issue; 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 set
    by the Secretary at a rate that is 70 percent of the rate that
    would permit issuance of such bonds 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.

    6. Expansion and modification of the advanced coal investment project
            credit (Sec. 111 of the bill and sec. 48A of the Code)

                                  PRESENT LAW

        An investment tax credit is available for power generation
    projects that use integrated gasification combined cycle
    (``IGCC'') or other advanced coal-based electricity generation
    technologies. The credit amount is 20 percent for investments
    in qualifying IGCC projects and 15 percent for investments in
    qualifying projects that use other advanced coal-based
    electricity generation technologies.
        To qualify, an advanced coal project must be located in the
    United States and use an advanced coal-based generation
    technology to power a new electric generation unit or to
    retrofit or repower an existing unit. Generally, an electric
    generation unit using an advanced coal-based technology must be
    designed to achieve a 99 percent reduction in sulfur dioxide
    and a 90 percent reduction in mercury, as well as to limit
    emissions of nitrous oxide and particulate matter.\17\
    ---------------------------------------------------------------------------
        \17\For advanced coal project certification applications submitted
    after October 2, 2006, an electric generation unit using advanced coal-
    based generation technology designed to use subbituminous coal can meet
    the performance requirement relating to the removal of sulfur dioxide
    if it is designed either to remove 99 percent of the sulfur dioxide or
    to achieve an emission limit of 0.04 pounds of sulfur dioxide per
    million British thermal units on a 30-day average.
    ---------------------------------------------------------------------------
        The fuel input for a qualifying project, when completed,
    must use at least 75 percent coal. The project, consisting of
    one or more electric generation units at one site, must have a
    nameplate generating capacity of at least 400 megawatts, and
    the taxpayer must provide evidence that a majority of the
    output of the project is reasonably expected to be acquired or
    utilized.
        Credits are available only for projects certified by the
    Secretary of Treasury, in consultation with the Secretary of
    Energy. Certifications are issued using a competitive bidding
    process. The Secretary of Treasury must establish a
    certification program no later than 180 days after August 8,
    2005,\18\ and each project application must be submitted during
    the three-year period beginning on the date such certification
    program is established. An applicant for certification has two
    years from the date the Secretary accepts the application to
    provide the Secretary with evidence that the requirements for
    certification have been met. Upon certification, the applicant
    has five years from the date of issuance of the certification
    to place the project in service.
    ---------------------------------------------------------------------------
        \18\The Secretary issued guidance establishing the certification
    program on February 21, 2006 (IRS Notice 2006-24).
    ---------------------------------------------------------------------------
        The Secretary of Treasury may allocate $800 million of
    credits to IGCC projects and $500 million to projects using
    other advanced coal-based electricity generation technologies.
    Qualified projects must be economically feasible and use the
    appropriate clean coal technologies. With respect to IGCC
    projects, credit-eligible investments include only investments
    in property associated with the gasification of coal, including
    any coal handling and gas separation equipment. Thus,
    investments in equipment that could operate by drawing fuel
    directly from a natural gas pipeline do not qualify for the
    credit.
        In determining which projects to certify that use IGCC
    technology, the Secretary must allocate power generation
    capacity in relatively equal amounts to projects that use
    bituminous coal, subbituminous coal, and lignite as primary
    feedstock. In addition, the Secretary must give high priority
    to projects which include greenhouse gas capture capability,
    increased by-product utilization, and other benefits.

                               REASONS FOR CHANGE

        The Committee believes that to the extent electricity will
    continue to be produced from coal, it must be done in as clean
    and efficient a manner as possible. To this end, the Committee
    believes that additional investment incentives will encourage
    the construction of advanced coal facilities that both capture
    and sequester carbon dioxide and reduce the emissions of other
    pollutants.

                            EXPLANATION OF PROVISION

        The provision increases to 30 percent the credit rate for
    IGCC and other advanced coal projects. In addition, the
    provision permits the Secretary to allocate an additional $1.25
    billion of credits to qualifying projects.
        The provision modifies the definition of qualifying
    projects to require that projects include equipment which
    separates and sequesters at least 65 percent of the project's
    total carbon dioxide emissions. This percentage increases to 70
    percent if the credits are later reallocated by the Secretary.
    The Secretary is required to recapture the benefit of any
    allocated credit if a project fails to attain or maintain these
    carbon dioxide separation and sequestration requirements.
        In selecting projects, the provision requires the Secretary
    to give high priority to applicants who have a research
    partnership with an eligible educational institution. In
    addition, the Secretary must give the highest priority to
    projects with the greatest separation and sequestration
    percentage of total carbon dioxide emissions. The provision
    also requires that the Secretary disclose which projects
    receive credit allocations, including the identity of the
    taxpayer and the amount of the credit awarded.
        In implementing either section 48A (relating to the credit
    described above) or section 48B (relating to the coal
    gasification credit), the provision directs the Secretary to
    modify theterms of any competitive certification award and any
    associated closing agreements in certain cases. Specifically,
    modification is required when it (1) is consistent with the objectives
    of such section, (2) is requested by the recipient of the award, and
    (3) involves moving the project site to improve the potential to
    capture and sequester carbon dioxide emissions, reduce costs of
    transporting feedstock, and serve a broader customer base. However, no
    modification is required if the Secretary determines that the dollar
    amount of tax credits available to the taxpayer under the applicable
    section would increase as a result of the modification or such
    modification would result in such project not being originally
    certified. In considering any such modification, the Secretary must
    consult with other relevant Federal agencies, including the Department
    of Energy.

                                 EFFECTIVE DATE

        The provision authorizing the Secretary to allocate
    additional credits is effective on the date of enactment. The
    increased credit rate along with the carbon dioxide
    sequestration and other rules (other than the term modification
    provision) are effective with respect to these additional
    credit allocations. The provision directing the Secretary to
    modify the terms of certain competitive certification awards
    and associated closing agreements is effective for awards
    issued before, on, or after the date of enactment.

    7. Expansion and modification of the coal gasification investment
            credit (Sec. 112 of the bill and sec. 48B of the Code)

                                  PRESENT LAW

        A 20 percent investment tax credit is available for
    investments in certain qualifying coal gasification projects.
    Only property which is part of a qualifying gasification
    project and necessary for the gasification technology of such
    project is eligible for the gasification credit.
        Qualified gasification projects convert coal, petroleum
    residue, biomass, or other materials recovered for their energy
    or feedstock value into a synthesis gas composed primarily of
    carbon monoxide and hydrogen for direct use or subsequent
    chemical or physical conversion. Qualified projects must be
    carried out by an eligible entity, defined as any person whose
    application for certification is principally intended for use
    in a domestic project which employs domestic gasification
    applications related to (1) chemicals, (2) fertilizers, (3)
    glass, (4) steel, (5) petroleum residues, (6) forest products,
    and (7) agriculture, including feedlots and dairy operations.
        Credits are available only for projects certified by the
    Secretary of Treasury, in consultation with the Secretary of
    Energy. Certifications are issued using a competitive bidding
    process. The Secretary of Treasury must establish a
    certification program no later than 180 days after August 8,
    2005,\19\ and each project application must be submitted during
    the 3-year period beginning on the date such certification
    program is established. The Secretary of Treasury may not
    allocate more than $350 million in credits. In addition, the
    Secretary may certify a maximum of $650 million in qualified
    investment as eligible for credit with respect to any single
    project.
    ---------------------------------------------------------------------------
        \19\The Secretary issued guidance establishing the certification
    program on February 21, 2006 (IRS Notice 2006-25).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that facilities that gasify coal and
    other resources for use in industrial applications should be
    operated in an environmentally responsible manner. To this end,
    the Committee believes these incentives will reduce pollution
    and encourage the capture and sequestration of carbon dioxide
    emissions.

                            EXPLANATION OF PROVISION

        The provision expands and modifies the coal gasification
    investment credit. The provision increases the gasification
    project credit rate to 30 percent and permits the Secretary to
    allocate an additional $250 million of credits to qualified
    projects.
        The provision modifies the definition of qualified projects
    to require that such projects include equipment which separates
    and sequesters at least 75 percent of total carbon dioxide
    emissions. The Secretary is required to recapture the benefit
    of any allocated credit if a project fails to attain or
    maintain these carbon dioxide separation and sequestration
    requirements.
        In selecting projects, the provision requires the Secretary
    to give high priority to applicants who have a research
    partnership with an eligible educational institution. In
    addition, the Secretary must give the highest priority to
    projects with the greatest separation and sequestration
    percentage of total carbon dioxide emissions. The provision
    also requires that the Secretary disclose which projects
    receive credit allocations, including the identity of the
    taxpayer and the amount of the credit awarded.

                                 EFFECTIVE DATE

        The provision authorizing the Secretary to allocate
    additional credits is effective on the date of enactment. The
    increased credit rate along with the carbon dioxide
    sequestration and other rules are effective with respect to
    these additional credit allocations.

    8. Extend excise tax on coal at current rates (Sec. 113 of the bill and
            sec. 4121 of the Code)

                                  PRESENT LAW

        A $1.10 per ton excise tax is imposed on coal sold by the
    producer from underground mines in the United States. The rate
    is 55 cents per ton on coal sold by the producer from surface
    mining operations. In either case, the tax cannot exceed 4.4
    percent of the coal producer's selling price. No tax is imposed
    on lignite.
        Gross receipts from the excise tax are dedicated to the
    Black Lung Disability Trust Fund to finance benefits under the
    Federal Black Lung Benefits Act. Currently, the Black Lung
    Disability Trust Fund is in a deficit position because previous
    spending was financed with interest-bearing advances from the
    General Fund.
        The coal excise tax rates are scheduled to decline to 50
    cents per ton for underground-mined coal and 25 cents per ton
    for surface-mined coal (and the cap is scheduled to decline to
    two percent of the selling price) for sales after January 1,
    2014, or after any earlier January 1 on which there is no
    balance of repayable advances from the Black Lung Disability
    Trust Fund to the General Fund and no unpaid interest on such
    advances.

                               REASONS FOR CHANGE

        Trust fund financing of benefits under the Federal Black
    Lung Benefits Act was established in 1977 to reduce reliance on
    the Treasury and to recover costs from the mining industry. The
    expenses of the program covered by the Trust Fund (benefits,
    administration, and interest) have exceeded revenues, with
    advances from the General Fund making up the difference. It
    appears that the Trust Fund will not be able to pay off its
    debt to the Treasury Department by December 31, 2013.
    Therefore, the Committee believes that it is appropriate to
    continue the tax on coal at the increased rates beyond the
    expiration date.

                            EXPLANATION OF PROVISION

        The provision retains the excise tax on coal at the current
    rates until the earlier of the following dates: (1) January 1,
    2019, and (2) the day after the first December 31 after 2007 on
    which the Black Lung Disability Trust Fund has repaid, with
    interest, all amounts borrowed from the General Fund. On and
    after that date, the reduced rates of $.50 per ton for coal
    from underground mines and $.25 per ton for coal from surface
    mines will apply and the tax per ton of coal will be capped at
    two percent of the amount for which it is sold by the producer.

                                 EFFECTIVE DATE

        The provision is effective on the date of enactment.

    9. Temporary procedures for excise tax refunds on exported coal (Sec.
            114 of the bill)

                                  PRESENT LAW

    In general

        Excise tax is imposed on coal, except lignite, produced
    from mines located in the United States.\20\ The producer of
    the coal is liable for paying the tax to the IRS. Producers
    generally recover the tax from their purchasers.
    ---------------------------------------------------------------------------
        \20\Sec. 4121(a). Throughout the relevant period, the rate of tax
    on coal from underground mines has been $1.10 per ton and the rate of
    tax on coal from surface mines has been $0.55 per ton. These rates are
    subject to a limitation of 4.4 percent of the producer's sale price.
    Sec. 4121(b).
    ---------------------------------------------------------------------------
        The Export Clause of the U.S. Constitution provides that
    ``no Tax or Duty shall be laid on Articles exported from any
    State.''\21\ Courts have determined that the Export Clause
    applies to excise tax on exported coal, and therefore such
    taxes are subject to a claim for refund.\22\ The Supreme Court
    has ruled that taxpayers seeking a refund of such taxes must
    proceed under the rules of the Internal Revenue Code.\23\
    ---------------------------------------------------------------------------
        \21\U.S. Const., art. 1, sec. 9, cl. 5.
        \22\See Ranger Fuel Corp. v. United States, 33 F. Supp. 2d 466
    (E.D. Va. 1998). The IRS subsequently provided guidance regarding how
    taxpayers may assure that exported coal would not be subject to excise
    tax. Notice 2000-28, 2000-1 C.B. 1116.
        \23\United States v. Clintwood Elkhorn Mining Co., 76 U.S.L.W. 4189
    (U.S. April 15, 2008). Prior to the Supreme Court's decision, some
    courts had allowed taxpayers to bring claims under the Tucker Act, 28
    U.S.C. sec. 1491(a), which confers jurisdiction upon the Court of
    Federal Claims ``to render judgment upon any claim against the United
    States founded either upon the Constitution, or any Act of Congress or
    any regulation of an executive department . . . .'' Lower courts had
    held that such a Tucker Act claim was subject to the Tucker Act's six-
    year statute of limitations and was not subject to the requirements of
    the Code. Venture Coal Sales Co. v. U.S., 93 AFTR 2d 2004-2495 (Fed.
    Cir. 2004); Cyprus Amax Coal Co. v. U.S., 205 F.3d 1369 (Fed. Cir.
    2000). The Supreme Court held that the stricter Code rules apply to
    these refund claims.
    ---------------------------------------------------------------------------

    Claims under the Code

        In order to obtain a refund of taxes on exported coal, a
    claimant must satisfy the following requirements of the Code
    and case law:
              1. A claim for refund must be filed within three
            years from the time the return was filed, or within two
            years from the time the tax was paid, whichever period
            expires later;\24\
    ---------------------------------------------------------------------------
        \24\Sec. 6511(a).
    ---------------------------------------------------------------------------
              2. The person must establish that the goods were in
            the stream of export when the excise tax was
            imposed;\25\
    ---------------------------------------------------------------------------
        \25\See Ranger Fuel Corp. v. United States, 33 F. Supp. 2d 466
    (E.D. Va. 1998). See also United States v. International Business
    Machines Corp., 517 U.S. 843 (1996); Joy Oil, Ltd. v. State Tax
    Commission, 337 U.S. 286 (1949).
    ---------------------------------------------------------------------------
              3. The claimant must establish that it has home the
            tax. More specifically, the claimant must establish
            that the tax was neither included in the price of the
            article nor collected from the purchaser (or if so,
            that the claimant has repaid the amount of tax to the
            ultimate purchaser), that the claimant has repaid or
            agreed to repay the tax to the ultimate vendor or has
            obtained the written consent of such ultimate vendor to
            the allowance of the claim, or that the claimant has
            filed the written consent of the ultimate purchaser to
            the allowance of the claim;\26\
    ---------------------------------------------------------------------------
        \26\Sec. 6416(a)(1).
    ---------------------------------------------------------------------------
              4. In the case of an exporter or shipper of an
            article exported to a foreign country or shipped to a
            possession, the amount of tax may be refunded to the
            exporter or shipper if the person who paid the tax
            waives its claim to such amount;\27\ and
    ---------------------------------------------------------------------------
        \27\Sec. 6416(c).
    ---------------------------------------------------------------------------
              5. A civil action for refund must not be begun before
            the expiration of six months from the date of filing
            the claim (unless the claim has been disallowed during
            that time), nor after the expiration of two years from
            the date of mailing the notice of claim
            disallowance.\28\
    ---------------------------------------------------------------------------
        \28\Sec. 6532(a).
    ---------------------------------------------------------------------------
        In 2000, the Internal Revenue Service (``IRS'') issued
    Notice 2000-28,\29\ which summarizes the IRS position regarding
    claims for credits or refunds of excise taxes on exported coal
    and sets forth procedural rules relating to such claims. Under
    Notice 2000-28, a coal producer or exporter must provide the
    following information as part of its claim:
    ---------------------------------------------------------------------------
        \29\Notice 2000-28, 2001-1 C.B. 1116.
    ---------------------------------------------------------------------------
              1. A statement by the person that paid the tax to the
            government that provides the quarter and the year for
            which the tax was reported on Form 720, the line number
            on such Form, the amount of tax paid on the coal, and
            the date of payment;
              2. In the case of an exporter, a statement by the
            person that paid the tax to the government that such
            person has waived the right to claim a refund;
              3. A statement that the claimant has evidence that
            the coal was in the stream of export when sold by the
            producer;
              4. In the case of an exporter, proof of exportation;
              5. In the case of a coal producer, a statement that
            the coal actually was exported; and
              6. A statement that the claimant:
                      a. has neither included the tax in the price
                    of the coal nor collected the amount of the tax
                    from its buyer,
                      b. has repaid the amount of the tax to the
                    ultimate purchaser of the coal, or
                      c. has obtained the written consent of the
                    ultimate purchaser of the coal to the allowance
                    of the claim.
        If the IRS disallows the claim, the claimant may proceed in
    a Federal district court or the Court of Federal Claims under
    28 U.S.C. sec. 1346(a)(1), which grants these courts concurrent
    jurisdiction over ``[a]ny civil action against the United
    States for the recovery of any internalrevenue tax alleged to
    have been erroneously or illegally assessed or collected . . . or any
    sum alleged to have been excessive or in any manner wrongfully
    collected under the internal-revenue laws.''
        With respect to claims under the Code allowed by the IRS or
    by a court, prejudgment interest is generally allowed.\30\
    ---------------------------------------------------------------------------
        \30\See sec. 6611; 28 U.S.C. sec. 2411.
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        Courts have determined, and the IRS has agreed, that the
    Federal excise taxes imposed on exported coal was
    unconstitutionally collected. However, present law does not
    offer a complete remedy to the affected coal producers and
    exporters, to whom the producers generally passed on the excise
    tax (in those transactions in which exporters were involved).
    The recent Supreme Court case of United States v. Clintwood
    Elkhorn Mining Co. further limits the available remedies by
    clarifying that the claims of the coal producers and exporters
    are subject to the three-year statute of limitations of the
    Code. The Committee believes that it is appropriate to provide
    a fair, equitable, and more complete remedy to both the
    affected coal producers and exporters that permits refunds for
    these unconstitutionally collected taxes that would otherwise
    be barred by the applicable statute of limitations.

                            EXPLANATION OF PROVISION

        The provision creates a new procedure under which certain
    coal producers and exporters may claim a refund of excise taxes
    imposed on coal exported from the United States. Coal producers
    or exporters that exported coal during the period beginning on
    or after October 1, 1990 and ending on or before the date of
    enactment of the provision, with respect to which a return was
    filed on or after October 1, 1990, and on or before the date of
    enactment, and that file a claim for refund not later than the
    close of the 30-day period beginning on the day of enactment,
    may obtain a refund from the Secretary of the Treasury of
    excise taxes paid on such exported coal and any interest
    accrued from the date of overpayment. Interest on such claims
    is computed under the Code.\31\ The Secretary of the Treasury
    is required to determine whether to approve the claim within
    180 days after such claim is filed, and to pay such claim not
    later than 180 days after making such determination.
    ---------------------------------------------------------------------------
        \31\See sec. 6621.
    ---------------------------------------------------------------------------
        In order to qualify for a refund under the provision, a
    coal producer must establish that it, or a party related to
    such coal producer, exported coal produced by such coal
    producer to a foreign country or shipped coal produced by such
    coal producer to a U.S. possession, the export or shipment of
    which was other than through an exporter that has filed a valid
    and timely claim for refund under the provision. An exporter
    must establish that it exported coal to a foreign country,
    shipped coal to a U.S. possession, or caused such coal to be so
    exported or shipped. Refunds to producers are to be made in an
    amount equal to the tax paid on exported coal. Exporters are to
    receive a payment equal to $0.825 per ton of exported coal.
        Special rules apply if a court has rendered a judgment. If
    a coal producer or a party related to a coal producer has
    received, from a court of competent jurisdiction in the United
    States, a judgment in favor of such coal producer (or party
    related to such coal producer) that relates to the
    constitutionality of Federal excise tax paid on exported coal,
    then such coal producer is deemed to have established the
    export of coal to a foreign country or shipment of coal to a
    possession of the United States. If such coal producer is
    entitled to a payment under this provision, the amount of such
    payment is reduced by any amount awarded under such court
    judgment. In the event such judgment is later overturned, the
    coal producer must pay to the Secretary the amount of any
    payment received under the provision unless the coal producer
    establishes the export of the coal to a foreign country or
    shipment of coal to a possession of the United States. Subject
    to the rules below, a coal exporter may file a claim
    notwithstanding that a coal producer or a party related to a
    coal producer has received a court judgment relating to the
    same coal.
        Under the provision, the term ``coal producer'' means the
    person that owns the coal immediately after the coal is severed
    from the ground, without regard to the existence of any
    contractual arrangement for the sale or other disposition of
    the coal or the payment of any royalties between the producer
    and third parties. The term also includes any person who
    extracts coal from coal waste refuse piles or from the silt
    waste product which results from the wet washing or similar
    processing of coal. The term ``exporter'' means a person, other
    than a coal producer, that does not have an agreement with a
    producer or seller of such coal to sell or export such coal to
    a third party on behalf of such producer or seller, and that is
    indicated as the exporter of record in the shipper's export
    declaration or other documentation, or actually exported such
    coal to a foreign country, shipped such coal to a U.S.
    possession, or caused such coal to be so exported or shipped.
    The term ``a party related to such coal producer'' means a
    person that is related to such coal producer through any degree
    of common management, stock ownership, or voting control, is
    related, within the meaning of section 144(a)(3), to such coal
    producer, or has a contract, fee arrangement, or any other
    agreement with such coal producer to sell such coal to a third
    party on behalf of such coal producer.
        The provision does not apply with respect to excise tax on
    exported coal if a credit or refund of such tax has been
    allowed or made, or if a ``settlement with the Federal
    Government'' has been made with and accepted by the coal
    producer, a party related to such coal producer, or the
    exporter of such coal, as of the date that the claim is filed
    under the provision. The term ``settlement with the Federal
    Government'' does not include a settlement or stipulation
    entered into as of the date of enactment, if such settlement or
    stipulation contemplates ajudgment with respect to which any
    party has filed an appeal or has reserved the right to file an
    appeal. In addition, the provision does not apply to the extent
    that a credit or refund of tax on exported coal has been paid
    to any person, regardless of whether such credit or refund
    occurs prior to, or after, the date of enactment.
        The provision does not confer standing upon an exporter to
    commence, or intervene in, any judicial or administrative
    proceeding concerning a claim for refund by a coal producer of
    any Federal or State tax, fee, or royalty paid by the coal
    producer. The provision does not confer standing upon a coal
    producer to commence, or intervene in, any judicial or
    administrative proceeding concerning a claim for refund by an
    exporter of any Federal or State tax, fee, or royalty paid by
    the producer and alleged to have been passed on to an exporter.

                                 EFFECTIVE DATE

        The provision applies to claims on coal exported on or
    after October 1, 1990 through the date of enactment, with
    respect to amounts of tax for which a return was filed on or
    after October 1, 1990, and on or before the date of enactment,
    and for which a claim for refund is filed not later than the
    close of the 30-day period beginning on the date of enactment.

    10. Carbon audit of provisions of the Internal Revenue Code of 1986
            (Sec. 115 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.\32\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.\33\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.
    ---------------------------------------------------------------------------
        \32\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.
        \33\``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.

            B. Transportation and Domestic Fuel Security Provisions

    1. Inclusion of cellulosic biofuel in bonus depreciation for biomass
            ethanol plant property (Sec. 121 of the bill and sec. 168 of
            the Code)

                                  PRESENT LAW

        Section 168(l) allows an additional first-year depreciation
    deduction equal to 50 percent of the adjusted basis of
    qualified cellulosic biomass ethanol plant property. In order
    to qualify, the property generally must be placed in service
    before January 1, 2013.
        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. For
    example, lignocellulosic or hemicellulosic matter that is
    available on a renewable or recurring basis includes bagasse
    (from sugar cane), corn stalks, and switchgrass.
        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.
    The additional first-year depreciation deduction is subject to
    the general rules regarding whether an item is deductible under
    section 162 or subject to capitalization under section 263 or
    section 263A. The basis of the property and the depreciation
    allowances in the year of purchase and later years are
    appropriately adjusted to reflect the additional first-year
    depreciation deduction. In addition, there is no adjustment to
    the allowable amount of depreciation for purposes of computing
    a taxpayer's alternative minimum taxable income with respect to
    property to which the provision applies. 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 the following
    requirements. The original use of the property must commence
    with the taxpayer on or after December 20, 2006. The property
    must be acquired by purchase (as defined under section 179(d))
    by the taxpayer after December 20, 2006, and placed in service
    before January 1, 2013. Property does not qualify if a binding
    written contract for the acquisition of such property was in
    effect on or before December 20, 2006.
        Property that is manufactured, constructed, or produced by
    the taxpayer for use by the taxpayer qualifies if the taxpayer
    begins the manufacture, construction, or production of the
    property after December 20, 2006, and the property is placed in
    service before January 1, 2013 (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.
        Property, any portion of which is financed with the
    proceeds of a tax-exempt obligation under section 103, is not
    eligible for the additional first-year depreciation deduction.
    Recapture rules apply if the property ceases to be qualified
    cellulosic biomass ethanol plant property.
        Property with respect to which the taxpayer has elected 50
    percent expensing under section 179C is not eligible for the
    additional first-year depreciation deduction.

                               REASONS FOR CHANGE

        The committee believes that the expensing provision should
    include any cellulosic biofuel and not be limited to ethanol.
    Additionally, the committee believes that the provision should
    not be limited to certain processes.

                            EXPLANATION OF PROVISION

        The provision changes the definition of qualified property.
    Under the provision, qualified property includes cellulosic
    biofuel, which is defined as any liquid fuel which is produced
    from any lignocellulosic or hemicellulosic matter that is
    available on a renewable or recurring basis.

                                 EFFECTIVE DATE

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

    2. Credits for biodiesel and renewable diesel (Sec. 122 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'').\34\ The biodiesel fuels
    credit is the sum of three credits: (1) the biodiesel mixture
    credit, (2) the biodiesel credit, and (3) 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.
    ---------------------------------------------------------------------------
        \34\Sec. 40A.
    ---------------------------------------------------------------------------
        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 that identifies the
    product produced and the percentage of biodiesel and agri-
    biodiesel in the product.
                Biodiesel mixture credit
        The biodiesel mixture credit is 50 cents for each gallon of
    biodiesel (other than agri-biodiesel) used by the taxpayer in
    the production of a qualified biodiesel mixture. For agri-
    biodiesel, 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 that 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 agri-biodiesel 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 agri-biodiesel 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.\35\ 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.\36\
    ---------------------------------------------------------------------------
        \35\Sec. 6426(c).
        \36\Sec. 6426(c)(4).
    ---------------------------------------------------------------------------
        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.\37\ 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.\38\ 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.
    ---------------------------------------------------------------------------
        \37\Sec. 6427(e).
        \38\Sec. 6427(e)(1) and (e)(3).
    ---------------------------------------------------------------------------

    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.\39\ The incentive for
    renewable diesel is $1.00 per gallon. There is no small
    producer credit for renewable diesel. The incentives for
    renewable diesel expire after December 31, 2008.
    ---------------------------------------------------------------------------
        \39\Secs. 40A(f), 6426(c), and 6427(e).
    ---------------------------------------------------------------------------
        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.

                               REASONS FOR CHANGE

        The Committee believes it is appropriate to extend the
    biodiesel and renewable diesel incentives for an additional
    year 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. While the Committee
    is unaware of an appropriate standard in addition to ASTM D975
    and ASTM D396 for renewable diesel, the Committee recognizes
    that as technology evolves other appropriate standards may
    arise for such fuel and therefore, the provision permits the
    Secretary to identify other equivalent or improved standards
    for renewable diesel.

                            EXPLANATION OF PROVISION

        The provision extends an additional year (through December
    31, 2009) the income tax credit, excise tax credit, and payment
    provisions for biodiesel (including agri-biodiesel) and
    renewable diesel. The provision provides that both biodiesel
    and agri-biodiesel are entitled to a credit of $1.00 per
    gallon.
        The provision modifies the definition of renewable diesel.
    The provision eliminates the requirement that the fuel be made
    using a thermal depolymerization process. The provision also
    permits the Secretary to identify standards equivalent to ASTM
    D975 and ASTM D396 for renewable diesel. Thus, under the
    provision, renewable diesel is liquid fuel derived from biomass
    which meets (a) the registration requirements for fuels and
    fuel additives established by the EPA under section 211 of the
    Clean Air Act, and (b) the requirements of the ASTM D975, ASTM
    D396, or other equivalent standard approved by the Secretary.
    The provision also provides that renewable diesel includes
    biomass fuel that meets a Department of Defense military
    specification for jet fuel or an ASTM for aviation turbine
    fuel.
        The provision also 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 de minimis use of
    catalysts, such as hydrogen, is permitted under the provision.

                                 EFFECTIVE DATE

        The provision is generally effective for fuel produced, and
    sold or used, after December 31, 2008. The provision making co-
    produced fuel ineligible for the renewable diesel incentives is
    effective for fuel produced, and sold or used, after February
    13, 2008.

    3. Clarification that credits for fuel are designed to provide an
            incentive for United States production (Sec. 123 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.\40\ 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.
    ---------------------------------------------------------------------------
        \40\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 generally 51
    cents per gallon, an extra 10 cents per gallon available for
    small ethanol producers. 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. An extra 10 cents per gallon is
    available for small producers of agri-biodiesel. 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 be 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
    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 is aware of
    situations in which foreign-produced fuel is imported into the
    United States, mixed with a small amount of diesel fuel, in
    order to qualify for the credit for qualified biodiesel fuel
    mixtures, and then the fuel is exported. This practice does not
    contribute to establishing the country's fuel independence,
    therefore, the provision denies the fuel credits and payments
    to such fuel.

                            EXPLANATION OF PROVISION

        The provision provides that fuel that is produced outside
    the United States for use as a fuel outside the United States
    is ineligible for the per-gallon tax incentives relating to
    alcohol, biodiesel, renewable diesel, and alternative fuel. For
    example, fuel in the following situations is ineligible for
    incentives: (1) biodiesel, which is not in a mixture, that is
    both produced and used outside the United States, (2) foreign-
    produced biodiesel that is used to make a qualified mixture
    outside of the United States for foreign use, and (3) foreign-
    produced biodiesel that is used to make a qualified mixture in
    the United States that is then exported for foreign use.

                                 EFFECTIVE DATE

        The provision is effective for claims for credit or payment
    made on or after May 15, 2008.

    4. Alternative motor vehicle credit and plug-in electric vehicle credit
            (Sec. 124 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.\41\ 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.
    ---------------------------------------------------------------------------
        \41\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.\42\ Table 2, below, shows the base credit amounts.
    ---------------------------------------------------------------------------
        \42\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
                         [Percent of base fuel economy]
    ------------------------------------------------------------------------
                                                         If fuel economy of
                                                            the fuel cell
                                                             vehicle is:
                          Credit                       ---------------------
                                                                    But less
                                                         At least     than
    ------------------------------------------------------------------------
    $1,000............................................        150        175
    $1,500............................................        175        200
    $2,000............................................        200        225
    $2,500............................................        225        250
    $3,000............................................        250        275
    $3,500............................................        275        300
    $4,000............................................        300
    ------------------------------------------------------------------------

    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\43\ 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.
    ---------------------------------------------------------------------------
        \43\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
                         [Percent of base fuel economy]
    ------------------------------------------------------------------------
                                                         If fuel economy of
                                                         the hybrid vehicle
                                                                 is:
                          Credit                       ---------------------
                                                                    But less
                                                         At least     than
    ------------------------------------------------------------------------
    $400..............................................        125        150
    $800..............................................        150        175
    $1,200............................................        175        200
    $1,600............................................        200        225
    $2,000............................................        225        250
    $2,400............................................        250
    ------------------------------------------------------------------------

        Table 5, below, shows the conservation credit.

                          TABLE 5.--CONSERVATION CREDIT
    ------------------------------------------------------------------------
                                                              Conservation
    Estimated lifetime fuel savings (gallons of gasoline)        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 burn 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 11 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 burn 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.\44\
    ---------------------------------------------------------------------------
        \44\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
    gasolineor 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
    ------------------------------------------------------------------------
        Vehicle gross weight rating     Maximum allowable  Maximum allowable
                 (pounds)                incremental cost        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 per
         class (pounds)         (miles per gallon)            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-fuel 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 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 electric drive vehicles, which the
    Committee believes are the next generation of alternative-fuel
    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

    Treatment of alternative motor vehicle credit as a personal credit

        The provision modifies the alternative motor vehicle credit
    by treating the nonbusiness portion of that credit as a
    personal credit. As a result, in the event Congress 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.

    Plus-in electric drive motor vehicle credit

        The provision allows a credit for each qualified plug-in
    electric drive motor vehicle placed in service. A qualified
    plug-in electric drive motor vehicle is a motor vehicle that
    meets certain emissions standard's 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 and (2) is capable of being recharged from an
    external source of electricity. 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 electric drive motor vehicle
    credit is $3,000. 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
    electric drive motor 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 electric drive motor
    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 electric drive motor 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.

                                 EFFECTIVE DATE

        The plug-in electric drive motor vehicle credit provision
    is effective for taxable years beginning after December 31,
    2008. 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, 2007.

    5. Exclusion from heavy vehicle excise tax for idling reduction units
            and advanced insulation (Sec. 125 of the bill and sec. 4053 of
            the Code)

                                  PRESENT LAW

        A 12 percent excise tax (the ``heavy vehicle excise tax'')
    is imposed on the first retail sale of automobile truck chassis
    and bodies, truck trailer and semitrailer chassis and bodies,
    and tractors of the kind chiefly used for highway
    transportation in combination with a trailer or
    semitrailer.\45\ The heavy vehicle excise tax does not apply to
    automobile truck chassis and bodies suitable for use with a
    vehicle which has a gross vehicle weight of 33,000 pounds or
    less. The tax also does not apply to truck trailer and
    semitrailer chassis and bodies suitable for use with a trailer
    or semitrailer which has a gross vehicle weight of 26,000
    pounds or less, or to tractors having a gross vehicle weight of
    19,500 pounds or less if such tractor in combination with a
    trailer or semitrailer has a gross combined weight of 33,000
    pounds or less.
    ---------------------------------------------------------------------------
        \45\Sec. 4051.
    ---------------------------------------------------------------------------
        If the owner, lessee, or operator of a taxable article
    installs any part or accessory within six months after the date
    such vehicle was first placed in service, a 12 percent tax
    applies on the price of such part or accessory and its
    installation.

                               REASONS FOR CHANGE

        Idling of the main drive engine of heavy trucks consumes
    significant amounts of fuel. For example, truckers may continue
    to engage the main drive engines during rest periods to
    continue running air conditioning, heat, or electric appliances
    during rest stops. The Committee believes it is appropriate to
    provide an exemption from the heavy vehicle excise tax for
    qualified idling reduction devices, as such devices could lower
    fuel consumption, as well as reduce emissions.

                            EXPLANATION OF PROVISION

        The provision provides an exemption from the heavy vehicle
    excise tax for the cost of qualifying idling reduction devices.
    A qualifying idling reduction device means any device or system
    of devices that (1) is designed to provide to a vehicle those
    services (such as heat, air conditioning, or electricity),
    which would otherwise require the operation of the main drive
    engine while the vehicle is temporarily parked or remains
    stationary, by using one or more devices affixed to a tractor,
    and (2) is certified by the Secretary of Energy, in
    consultation with the Administrator of the Environmental
    Protection Agency and the Secretary of Transportation, to
    reduce idling of such vehicle at a motor vehicle rest stop or
    other location where such vehicles are temporarily parked or
    remain stationary.
        The provision also provides an exemption for the
    installation of ``advanced insulation'' in a commercial
    refrigerated truck or trailer that is subject to the heavy
    vehicle excise tax. Advanced insulation means insulation that
    has an R value of not less than R35 per inch.
        Both exemptions apply regardless of whether the device or
    insulation is factory installed or later added as an accessory.

                                 EFFECTIVE DATE

        The provision is effective for retail sales or
    installations made after the date of enactment.

    6. Restructure New York Liberty Zone tax incentives (Sec. 126 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.\46\
    ---------------------------------------------------------------------------
        \46\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.
    ---------------------------------------------------------------------------

    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.\47\ 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).
    ---------------------------------------------------------------------------
        \47\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'')\48\ 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\49\ 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\50\ 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.\51\
    ---------------------------------------------------------------------------
        \48\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.
        \49\Qualified NYLZ leasehold improvement property is defined in
    another provision. Leasehold improvements that do no 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).
        \50\For purposes of this provision, purchase is defined as under
    section 179(d).
        \51\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.
    ---------------------------------------------------------------------------
        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\52\ (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.
    ---------------------------------------------------------------------------
        \52\December 31, 2009 with respect to qualified nonresidential real
    property and residential rental property.
    ---------------------------------------------------------------------------

                               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. The restructuring will assist in the development of
    transit connections necessary for the ongoing redevelopment of
    the New York Liberty Zone area.

                            EXPLANATION OF PROVISION

    Repeal of certain NYLZ incentives

        The provision repeals the NYLZ incentive for the additional
    first-year depreciation allowance of 30 percent for
    nonresidential real property and residential rental property as
    of the date of enactment of this provision.\53\
    ---------------------------------------------------------------------------
        \53\In the case of nonresidential real property and residential
    rental property acquired pursuant to a binding contract in effect on
    such enactment date, provision terminates on December 31, 2009.
    ---------------------------------------------------------------------------

    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, 2009. Aggregate amounts allocated may
    not exceed $2 billion during the credit period. There is also
    an annual limit on allocations equal to (1) $115 million for
    each year in the first ten years 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.
    The annual limit for each of the last two years of the credit
    period is $425 million, plus any amounts 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.

    7. Extension of transportation fringe benefit to bicycle commuters
            (Sec. 127 of the bill and sec. 132(f) of the Code)

                                  PRESENT LAW

        Qualified transportation fringe benefits provided by an
    employer are excluded from an employee's gross income.\54\
    Qualified transportation fringe benefits include parking,
    transit passes, and vanpool benefits. In addition, no amount is
    includible in income of an employee merely because the employer
    offers the employee a choice between cash and qualified
    transportation fringe benefits. Up to $220 (for 2008) per month
    of employer-provided parking is excludable from income. Up to
    $115 (for 2008) 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.
    ---------------------------------------------------------------------------
        \54\Code sec. 132Z(f).
    ---------------------------------------------------------------------------
        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 CHANGE

        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 provision 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
    the employee'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 provision is effective for taxable years beginning
    after December 31, 2008.

    8. Extension and modification of alternative fuel vehicle refueling
            property credit (Sec. 128 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.\55\ 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.
    ---------------------------------------------------------------------------
        \55\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 tax-exempt 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 31, 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.

                C. Energy Conservation and Efficiency Provisions

    1. Qualified energy conservation bonds (Sec. 141 of the bill and new
            sec. 54C of the Code)

                                  PRESENT LAW

    Tax-exempt bonds

                In general
        Subject to certain Code restrictions, interest paid 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.\56\
    ---------------------------------------------------------------------------
        \56\Sec. 141(b) and (c).
    ---------------------------------------------------------------------------
                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'').\57\
    ---------------------------------------------------------------------------
        \57\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.
    ---------------------------------------------------------------------------
        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.\58\
    ---------------------------------------------------------------------------
        \58\See Treas. Reg. sec. 1.141-3(b)(4) and Rev. Proc. 97-13, 197-1
    C.B. 632.
    ---------------------------------------------------------------------------
                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 tax-exempt qualified
    private activity bonds is restricted by annual aggregate volume
    limits imposed on bonds issued by issuers within each State.
    For calendar year 2008, the State volume cap, which is indexed
    for inflation, equals $85 per resident of the State, or $262.09
    million, if greater.
                Arbitrage restrictions
        The exclusion from income for interest on State and local
    bonds also does not apply to any arbitrage bond.\59\ 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.\60\ 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.
    ---------------------------------------------------------------------------
        \59\Sec. 103(a) and (b)(2).
        \60\Sec. 148.
    ---------------------------------------------------------------------------
                Indian tribal governments
        Indian tribal governments are provided with a tax status
    similar to State and local governments for specified purposes
    under the Code.\61\ 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.\62\
    ---------------------------------------------------------------------------
        \61\Sec. 7871.
        \62\See. 7871(c).
    ---------------------------------------------------------------------------

    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.\63\
    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.
    ---------------------------------------------------------------------------
        \63\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.
    ---------------------------------------------------------------------------
        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 CREB 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; implementing green community
            programs; rural development involving the production of
            electricity from renewable energy resources; or any
            facility eligible for the production tax credit under
            section 45 (other than Indian coal and refined coal
            production facilities);
              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 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 reasonably expected to result
    in an amount not greater than an amount necessary to repay the
    issue; 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
    set by the Secretary at a rate that is 70 percent of the rate
    that would permit issuance of such bonds 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 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. Extension and modification of energy efficient existing homes credit
            (Sec. 142 of the bill and sec. 25C of the Code)

                                  PRESENT LAW

        Code section 25C provides a 10-percent credit for the
    purchase of qualified energy efficiency improvements to
    existing homes. A qualified energy efficiency improvement is
    any energy efficiency building envelope component that meets or
    exceeds the prescriptive criteria for such a component
    established by the 2000 International Energy Conservation Code
    as supplemented and as in effect on August 8, 2005 (or, in the
    case of metal roofs with appropriate pigmented coatings, meets
    the Energy Star program requirements), and (1) that is
    installed in or on a dwelling located in the United States; (2)
    owned and used by the taxpayer as the taxpayer's principal
    residence; (3) the original use of which commences with the
    taxpayer; and (4) such component reasonably can be expected to
    remain in use for at least five years. The credit is
    nonrefundable.
        Building envelope components are: (1) insulation materials
    or systems which are specifically and primarily designed to
    reduce the heat loss or gain for a dwelling; (2) exterior
    windows (including skylights) and doors; and (3) metal roofs
    with appropriate pigmented coatings which are specifically and
    primarily designed to reduce the heat loss or gain for a
    dwelling.
        Additionally, code section 25C provides specified credits
    for the purchase of specific energy efficient property. The
    allowable credit for the purchase of certain property is (1)
    $50 foreach advanced main air circulating fan, (2) $150 for
    each qualified natural gas, propane, or oil furnace or hot water
    boiler, and (3) $300 for each item of qualified energy efficient
    property.
        An advanced main air circulating fan is a fan used in a
    natural gas, propane, or oil furnace originally placed in
    service by the taxpayer during the taxable year, and which has
    an annual electricity use of no more than two percent of the
    total annual energy use of the furnace (as determined in the
    standard Department of Energy test procedures).
        A qualified natural gas, propane, or oil furnace or hot
    water boiler is a natural gas, propane, or oil furnace or hot
    water boiler with an annual fuel utilization efficiency rate of
    at least 95.
        Qualified energy-efficient property is: (1) an electric
    heat pump water heater which yields an energy factor of at
    least 2.0 in the standard Department of Energy test procedure,
    (2) an electric heat pump which has a heating seasonal
    performance factor (HSPF) of at least 9, a seasonal energy
    efficiency ratio (SEER) of at least 15, and an energy
    efficiency ratio (EER) of at least 13, (3) a geothermal heat
    pump which (i) in the case of a closed loop product, has an
    energy efficiency ratio (EER) of at least 14.1 and a heating
    coefficient of performance (COP) of at least 3.3, (ii) in the
    case of an open loop product, has an energy efficiency ratio
    (EER) of at least 16.2 and a heating coefficient of performance
    (COP) of at least 3.6, and (iii) in the case of a direct
    expansion (DX) product, has an energy efficiency ratio (EER) of
    at least 15 and a heating coefficient of performance (COP) of
    at least 3.5, (4) a central air conditioner with energy
    efficiency of at least the highest efficiency tier established
    by the Consortium for Energy Efficiency as in effect on Jan. 1,
    2006, and (5) a natural gas, propane, or oil water heater which
    has an energy factor of at least 0.80.
        Under section 25C, the maximum credit for a taxpayer with
    respect to the same dwelling for all taxable years is $500, and
    no more than $200 of such credit may be attributable to
    expenditures on windows.
        The taxpayer's basis in the property is reduced by the
    amount of the credit. Special rules apply in the case of
    condominiums and tenant-stockholders in cooperative housing
    corporations.
        The credit applies to property placed in service prior to
    January 1, 2008.

                               REASONS FOR CHANGE

        Because residential energy consumption represents a large
    fraction of national energy use, the Committee believes that
    energy savings in this sector of the economy have the potential
    to significantly reduce national energy consumption, which in
    turn will decrease reliance on foreign suppliers of oil and
    reduce pollution in general. The Committee believes that tax
    credits for certain energy efficiency improvements will help to
    spur savings in this sector of the economy. Because of the new
    credit for geothermal heat pumps included in section 25D, the
    credit for geothermal heat pumps in section 25C is eliminated.

                            EXPLANATION OF PROVISION

        The provision extends the credit for one year, through
    December 31, 2008. The provision adds biomass fuel property to
    the list of qualified energy efficient building property
    eligible for a $300 credit. Biomass fuel property is a stove
    that burns biomass fuel to heat a dwelling unit located in the
    United States and used as a principal residence by the
    taxpayer, or to heat water for such dwelling unit, and that has
    a thermal efficiency rating of at least 75 percent. Biomass
    fuel is any plant-derived fuel available on a renewable or
    recurring basis, including agricultural crops and trees, wood
    and wood waste and residues (including wood pellets), plants
    (including aquatic plants, grasses, residues, and fibers.
        The credit for geothermal heat pumps is eliminated.

                                 EFFECTIVE DATE

        The provision is effective for expenditures after December
    31, 2007, for property placed in service prior to January 1,
    2009.

    3. Energy efficient commercial buildings deduction (Sec. 143 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
    describe methods 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.\64\ 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.
    ---------------------------------------------------------------------------
        \64\IRS Notice 2008-40 has set a target of a 10 percent reduction
    in total energy and power costs with respect to the building envelope,
    and 20 percent each with respect to the interior lighting system and
    the heating, cooling, ventilation and hot water systems.
    ---------------------------------------------------------------------------

                               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. 144 of the bill and sec. 45M of the Code)

                                  PRESENT LAW

        A credit is allowed 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,
    and equals $32.31 per eligible dishwasher.\65\
    ---------------------------------------------------------------------------
        \65\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 for the Energy
    Star program was 0.58 in 2005 and 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 a 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

              1. $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
              2. $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

              1. $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
              2. $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,
              3. $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
              4. $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

              1. $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,
              2. $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,
              3. $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
              4. $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.
        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 ``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. Accelerated recovery period for depreciation of smart meters and
            smart grid systems (Sec. 145 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.\66\ The class lives of
    assets placed in service after 1986 are generally set forth in
    Revenue Procedure 87-56.\67\ 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.
    ---------------------------------------------------------------------------
        \66\Sec. 168.
        \67\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 smart electric meters and smart
    electric grid systems are integral to the development and use
    of technology to conserve energy resources. Therefore, the
    Committee believes that investment in smart electric meters and
    smart electric grid systems should be encouraged through a
    shorter recovery period for depreciation. The Committee also
    believes that smart electric meters should be capable of net
    metering, which allows customers a credit for providing
    electricity to the supplier of electric energy or provider of
    electric energy services.

                            EXPLANATION OF PROVISION

        The provision provides a 10-year recovery period and 150
    percent declining balance method for any qualified smart
    electric meter and any qualified smart electric grid system.
    For purposes of the provision, a qualified smart electric meter
    means any time-based meter and related communication equipment
    which is placed in service by a taxpayer who is a supplier of
    electric energy or a provider of electric energy services and
    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 smart
    electric meter 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; and (4) provides
    all commercial and residential customers of such supplier or
    provider with net metering. The term ``net metering'' means
    allowing a customer a credit, if any, as complies with
    applicable Federal and State laws and regulations, for
    providing electricity to the supplier or provider.
        For purposes of the provision, a qualified smart electric
    grid system means any smart grid property used as part of a
    system for electric distribution grid communications,
    monitoring, and management placed in service by a taxpayer who
    is a supplier of electric energy or a provider of electric
    energy services. Smart grid property includes electronics and
    related equipment that is capable of (1) sensing, collecting,
    and monitoring data of or from all portions of a utility's
    electric distribution grid; (2) providing real-time, two-way
    communications to monitor to manage such grid; and (3)
    providing real-time analysis of an event prediction based upon
    collected data that can be used to improve electric
    distribution system reliability, quality, and performance.

                                 EFFECTIVE DATE

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

    6. Extension of issuance authority for qualified green building and
            sustainable design project bonds (Sec. 146 of the bill and sec.
            142 of the Code)

                                  PRESENT LAW

    In general

        Private activity bonds are bonds that nominally are issued
    by States or local governments, but the proceeds of which are
    used (directly or indirectly) by a private person and payment
    of which is derived from funds of such private person. The
    exclusion from income for interest paid 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''). The definition of a qualified
    private activity bond includes exempt facility bonds.
        In most cases, the aggregate volume of tax-exempt qualified
    private activity bonds, including most exempt facility bonds,
    is restricted by annual aggregate volume limits imposed onbonds
    issued by issuers within each State. For calendar year 2008, the State
    volume cap, which is indexed for inflation, equals $85 per resident of
    the State, or $262.09 million, if greater.

    Qualified green building and sustainable design project bonds

        The definition of exempt facility bond includes qualified
    green building and sustainable design project bonds
    (``qualified green bond''). A qualified green bond is defined
    as any bond issued as part of an issue that finances a project
    designated by the Secretary, after consultation with the
    Administrator of the Environmental Protection Agency (the
    ``Administrator'') as a green building and sustainable design
    project that meets the following eligibility requirements: (1)
    at least 75 percent of the square footage of the commercial
    buildings that are part of the project is registered for the
    U.S. Green Building Council's LEED\68\ certification and is
    reasonably expected (at the time of designation) to meet such
    certification; (2) the project includes a brownfield site;\69\
    (3) the project receives at least $5 million dollars in
    specific State or local resources; and (4) the project includes
    at least one million square feet of building or at least 20
    acres of land.
    ---------------------------------------------------------------------------
        \68\The LEED (``Leadership in Energy and Environmental Design)
    Green Building Rating System is a voluntary, consensus-based national
    standard for developing high-performance sustainable buildings.
    Registration is the first step toward LEED certification. Actual
    certification requires that the applicant project satisfy a number of
    requirements. Commercial buildings, as defined by standard building
    codes are eligible for certification. Commercial occupancies include,
    but are not limited to, offices, retail and service establishments,
    institutional buildings (e.g. libraries, schools, museums, churches,
    etc.), hotels, and residential buildings of four or more habitable
    stories.
        \69\For this purpose, a brownfield site is defined by section
    101(39) of the Comprehensive Environmental Response, Compensation, and
    Liability Act of 1980 (42 U.S.C. sec. 9601), including a site described
    in subparagraph (D)(ii)(1I)(aa) thereof (relating to a site that is
    contaminated by petroleum or a petroleum product excluded from the
    definition of `hazardous substance' under section 101).
    ---------------------------------------------------------------------------
        Qualified green bonds are not subject to the State bond
    volume limitations. Rather, there is a national limitation of
    $2 billion of qualified green bonds that the Secretary may
    allocate, in the aggregate, to qualified green building and
    sustainable design projects. Qualified green bonds may be
    currently refunded if certain conditions are met, but cannot be
    advance refunded. The authority to issue qualified green bonds
    terminates after September 30, 2009.
        Under present law, each green building and sustainable
    design project must certify to the Secretary, no later than 30
    days after the completion of the project, that the net benefit
    of the tax- exempt financing was used for the purposes
    described in the project application. Issuers are required to
    maintain, on behalf of each project, an interest bearing
    reserve account equal to one percent of the net proceeds of any
    qualified green bond issued for such project. Not later than
    five years after the date of issuance of bonds with respect to
    the project, the Secretary, after consultation with the
    Administrator, shall determine whether the project financed
    with the proceeds of qualified green bonds has substantially
    complied with the requirements and goals of the project. If the
    Secretary, after such consultation, certifies that the project
    has substantially complied with the requirements and goals,
    amounts in the reserve account, including all interest, shall
    be released to the project. If the Secretary determines that
    the project has not substantially complied with such
    requirements and goals, amounts in the reserve account,
    including all interest, shall be paid to the United States
    Treasury.

                               REASONS FOR CHANGE

        The Committee believes that tax-exempt financing provides
    State and local governments with an effective tool for
    encouraging private investment in projects that promote energy
    conservation. The Committee believes that qualified green bonds
    provide such a tool and, thus, it is appropriate to extend this
    provision.

                            EXPLANATION OF PROVISION

        The provision extends the authority to issue qualified
    green bonds through September 30, 2012.
        The provision also clarifies that the date for determining
    whether amounts in a reserve account may be released to a green
    building and sustainable design project is the date that is
    five years after the date of issuance of the last bond issue
    issued with respect to such project.

                                 EFFECTIVE DATE

        The provision applies on the date of enactment.

                 II. ONE-YEAR EXTENSION OF TEMPORARY PROVISIONS

                 a. Extensions Primarily Affecting Individuals

    1. Deduction of State and local general sales taxes (Sec. 201 of the
            bill and sec. 164 of the Code)

                                  PRESENT LAW

        For purposes of determining regular tax liability, an
    itemized deduction is permitted for certain State and local
    taxes paid, including individual income taxes, real property
    taxes, and personal property taxes. The itemized deduction is
    not permitted for purposes of determining a taxpayer's
    alternative minimum taxable income. For taxable years beginning
    in 2004 and 2005, at the election of the taxpayer, an itemized
    deduction may be taken for State and local general sales taxes
    in lieu of the itemized deduction provided under present law
    for State and local income taxes. As is the case for State and
    local income taxes, the itemized deduction for State and local
    general sales taxes is not permitted for purposes of
    determining a taxpayers alternative minimum taxable income.
    Taxpayers have two options with respect to the determination of
    the sales tax deduction amount. Taxpayers may deduct the total
    amount of general State and local sales taxes paid by
    accumulating receipts showing general sales taxes paid.
    Alternatively, taxpayers may use tables created by the
    Secretary of the Treasury that show the allowable deduction.
    The tables are based on average consumption by taxpayers on a
    State-by-State basis taking into account number of dependents,
    modified adjusted gross income and rates of State and local
    general sales taxation. Taxpayers who live in more than one
    jurisdiction during the tax year are required to pro-rate the
    table amounts based on the time they live in each jurisdiction.
    Taxpayers who use the tables created by the Secretary may, in
    addition to the table amounts, deduct eligible general sales
    taxes paid with respect to the purchase of motor vehicles,
    boats and other items specified by the Secretary. Sales taxes
    for items that may be added to the tables are not reflected in
    the tables themselves.
        The term ``general sales tax'' means a tax imposed at one
    rate with respect to the sale at retail of a broad range of
    classes of items. However, in the case of items of food,
    clothing, medical supplies, and motor vehicles, the fact that
    the tax does not apply with respect to some or all of such
    items is not taken into account in determining whether the tax
    applies with respect to a broad range of classes of items, and
    the fact that the rate of tax applicable with respect to some
    or all of such items is lower than the general rate of tax is
    not taken into account in determining whether the tax is
    imposed at one rate. Except in the case of a lower rate of tax
    applicable with respect to food, clothing, medical supplies, or
    motor vehicles, no deduction is allowed for any general sales
    tax imposed with respect to an item at a rate other than the
    general rate of tax. However, in the case of motor vehicles, if
    the rate of tax exceeds the general rate, such excess shall be
    disregarded and the general rate is treated as the rate of tax.
        A compensating use tax with respect to an item is treated
    as a general sales tax, provided such tax is complementary to a
    general sales tax and a deduction for sales taxes is allowable
    with respect to items sold at retail in the taxing jurisdiction
    that are similar to such item.

                               REASONS FOR CHANGE

        The Committee believes an extension of the option to deduct
    State and local sales taxes in lieu of deducting State and
    local income taxes is appropriate to continue to provide
    similar Federal tax treatment to residents of States that rely
    on sales taxes, rather than income taxes, to fund State and
    local governmental functions.

                            EXPLANATION OF PROVISION

        The present-law provision allowing taxpayers to elect to
    deduct State and local sales taxes in lieu of State and local
    income taxes is extended for one year (through December 31,
    2008).

                                 EFFECTIVE DATE

        The provision applies to taxable years beginning after
    December 31, 2007.

    2. Above-the-line deduction for higher education expenses (Sec. 202 of
            the bill and sec. 222 of the Code)

                                  PRESENT LAW

        An individual is allowed an above-the-line deduction for
    qualified tuition and related expenses for higher education
    paid by the individual during the taxable year.\70\ Qualified
    tuition and related expenses are defined in the same manner as
    for the Hope and Lifetime Learning credits, and includes
    tuition and fees required for the enrollment or attendance of
    the taxpayer, the taxpayer's spouse, or any dependent of the
    taxpayer with respect to whom the taxpayer may claim a personal
    exemption, at an eligible institution of higher education for
    courses of instruction of such individual at such
    institution.\71\ The expenses must be in connection with
    enrollment at an institution of higher education during the
    taxable year, or with an academic period beginning during the
    taxable year or during the first three months of the next
    taxable year. The deduction is not available for tuition and
    related expenses paid for elementary or secondary education.
    ---------------------------------------------------------------------------
        \70\Sec. 222.
        \71\The deduction generally is not available for expenses with
    respect to a course or education involving sports, games, or hobbies,
    and is not available for student activity fees, athletic fees,
    insurance expenses, or other expenses unrelated to an individual's
    academic course of instruction.
    ---------------------------------------------------------------------------
        The maximum deduction is $4,000 for an individual whose
    adjusted gross income for the taxable year does not exceed
    $65,000 ($130,000 in the case of a joint return), or $2,000 for
    other individuals whose adjusted gross income does not exceed
    $80,000 ($160,000 in the case of a joint return). No deduction
    is allowed for an individual whose adjusted gross income
    exceeds the relevant adjusted gross income limitations, for a
    married individual who does not file a joint return, or for an
    individual with respect to whom a personal exemption deduction
    may be claimed by another taxpayer for the taxable year. The
    deduction is not available for taxable years beginning after
    December 31, 2007.
        The amount of qualified tuition and related expenses must
    be reduced by certain scholarships, educational assistance
    allowances, and other amounts paid for the benefit of such
    individual,\72\ and by the amount of such expenses taken into
    account for purposes of determining any exclusion from gross
    income of: (1) income from certain U.S. savings bonds used to
    pay higher education tuition and fees; and (2) income from a
    Coverdell education savings account.\73\ Additionally, such
    expenses must be reduced by the earnings portion (but not the
    return of principal) of distributions from a qualified tuition
    program if an exclusion under section 529 is claimed with
    respect to expenses eligible for the qualified tuition
    deduction. No deduction is allowed for any expense for which a
    deduction is otherwise allowed or with respect to an individual
    for whom a Hope credit or Lifetime Learning credit is elected
    for such taxable year.
    ---------------------------------------------------------------------------
        \72\Secs. 222(d)(1) and 25A(g)(2).
        \73\Sec. 222(c). These reductions are the same as those that apply
    to the Hope and Lifetime Learning credits.
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee observes that the cost of a college education
    continues to rise, and thus believes that the extension of the
    qualified tuition deduction is appropriate to mitigate the
    impact of rising tuition costs on students and their families.
    The Committee further believes that the tuition deduction
    provides an important financial incentive for individuals to
    pursue higher education.

                            EXPLANATION OF PROVISION

        The provision extends the qualified tuition deduction for
    one year so that it is available for taxable years beginning
    before January 1, 2009.

                                 EFFECTIVE DATE

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

    3. Extension of special withholding tax rule for interest-related and
            short-term capital gain dividends paid by regulated investment
            companies (Sec. 203 of the bill and sec. 871 of the Code)

                                  PRESENT LAW

    In general

        Under present law, a regulated investment company (``RIC'')
    that earns certain interest income that would not be subject to
    U.S. tax if earned by a foreign person directly may, to the
    extent of such income, designate a dividend it pays as derived
    from such interest income. A similar provision applies to
    short-term capital gain.\74\ A foreign person who is a
    shareholder in the RIC generally would treat such a dividend as
    exempt from gross-basis U.S. tax, as if the foreign person had
    earned the interest or short-term capital gain directly.
    ---------------------------------------------------------------------------
        \74\Certain distributions to which section 897 does not apply by
    reason of the second sentence of section 897(h)(1) continue to be
    treated as a dividend from a RIC that is not a short-term capital gain
    dividend.
    ---------------------------------------------------------------------------
        Under present law, a RIC may, under certain circumstances,
    designate all or a portion of a dividend as an ``interest-
    related dividend,'' or as a ``short-term capital gain
    dividend'' by written notice mailed to its shareholders not
    later than 60 days after the close of its taxable year. In
    addition, an interest-related dividend or short-term capital
    gain dividend received by a foreign person generally is exempt
    from U.S. gross-basis tax under sections 871(a), 881, 1441 and
    1442.

    Interest-related dividends

        The withholding exemption does not apply to an interest-
    related dividend on shares of RIC stock if the withholding
    agent does not receive a statement, similar to that required
    under the portfolio interest rules, that the beneficial owner
    of the shares is not a U.S. person. The exemption does not
    apply to a dividend paid to any person within a foreign country
    (or dividends addressed to, or for the account of, persons
    within such foreign country) with respect to which the Treasury
    Secretary has determined, under the portfolio interest rules,
    that exchange of information is inadequate to prevent evasion
    of U.S. income tax by U.S. persons.
        In addition, the exemption generally does not apply to
    dividends paid to a controlled foreign corporation to the
    extent such dividends are attributable to income received by
    the RIC on a debt obligation of a person with respect to which
    the recipient of the dividend (i.e., the controlled foreign
    corporation) is a related person. Nor does the exemption
    generally apply to dividends to the extent such dividends are
    attributable to income (other than short-term original issue
    discount or bank deposit interest) received by the RIC on
    indebtedness issued by the RIC-dividend recipient or by any
    corporation or partnership with respect to which the recipient
    of the RIC dividend is a 10-percent shareholder. However, in
    these two circumstances the RIC remains exempt from its
    withholding obligation unless the RIC knows that the dividend
    recipient is such a controlled foreign corporation or 10-
    percent shareholder. To the extent that an interest-related
    dividend received by a controlled foreign corporation is
    attributable to interest income of the RIC that would be
    portfolio interest if received by a foreign corporation, the
    dividend is treated as portfolio interest for purposes of the
    de minimis rules, the high-tax exception, and the same country
    exceptions of subpart F (see sec. 881(c)(5)(A)).
        The aggregate amount designated as interest-related
    dividends for the RIC's taxable year (including dividends so
    designated that are paid after the close of the taxable year
    but treated as paid during that year as described in section
    855) generally is limited to the qualified net interest income
    of the RIC for the taxable year. The qualified net interest
    income of the RIC equals theexcess of: (1) The amount of
    qualified interest income of the RIC; over (2) the amount of expenses
    of the RIC properly allocable to such interest income.
        Qualified interest income of the RIC is equal to the sum of
    its U.S.-source income with respect to: (1) Bank deposit
    interest; (2) short term original issue discount that is
    currently exempt from the gross-basis tax under section 871;
    (3) any interest (including amounts recognized as ordinary
    income in respect of original issue discount, market discount,
    or acquisition discount under the provisions of sections 1271-
    1288, and such other amounts as regulations may provide) on an
    obligation which is in registered form, unless it is earned on
    an obligation issued by a corporation or partnership in which
    the RIC is a 10-percent shareholder or is contingent interest
    not treated as portfolio interest under section 871(h)(4); and
    (4) any interest-related dividend from another RIC.
        If the amount designated as an interest-related dividend is
    greater than the qualified net interest income described above,
    the portion of the distribution so designated which constitutes
    an interest-related dividend will be only that proportion of
    the amount so designated as the amount of the qualified net
    interest income bears to the amount so designated.

    Expiration

        The special rules for interest-related dividends and for
    short-term capital gain dividends received from a RIC do not
    apply to any taxable year of a RIC beginning after December 31,
    2007.

                               REASONS FOR CHANGE

        The committee believes that, to the extent a RIC
    distributes to a foreign person a dividend attributable to
    amounts that would have been exempt from U.S. withholding tax
    had the foreign person received it directly (such as portfolio
    interest and capital gains, including short-term capital
    gains), such dividend similarly should be exempt from the U.S.
    gross-basis withholding tax. Therefore, the committee believes
    that it is desirable to extend the present law provision for an
    additional year.

                            EXPLANATION OF PROVISION

        The provision extends the exemption from withholding tax of
    interest-related dividends and of short-term capital gain
    dividends received from a RIC to taxable years of a RIC
    beginning before January 1, 2009.

                                 EFFECTIVE DATE

        The provision applies to dividends with respect to taxable
    years of RICs beginning after December 31, 2007 and before
    January 1, 2009.

    4. Tax-free distributions from individual retirement plans for
            charitable purposes (Sec. 204 of the bill and sec. 408 of the
            Code)

                                  PRESENT LAW

    In general

        If an amount withdrawn from a traditional individual
    retirement arrangement (``IRA'') or a Roth IRA is donated to a
    charitable organization, the rules relating to the tax
    treatment of withdrawals from IRAs apply to the amount
    withdrawn and the charitable contribution is subject to the
    normally applicable limitations on deductibility of such
    contributions. An exception applies in the case of a qualified
    charitable distribution.

    Charitable contributions

        In computing taxable income, an individual taxpayer who
    itemizes deductions generally is allowed to deduct the amount
    of cash and up to the fair market value of property contributed
    to a charity described in section 501(c)(3), to certain
    veterans' organizations, fraternal societies, and cemetery
    companies,\75\ or to a Federal, State, or local governmental
    entity for exclusively public purposes.\76\ The deduction also
    is allowed for purposes of calculating alternative minimum
    taxable income.
    ---------------------------------------------------------------------------
        \75\Secs. 170(c)(3)-(5).
        \76\Sec. 170(c)(1).
    ---------------------------------------------------------------------------
        The amount of the deduction allowable for a taxable year
    with respect to a charitable contribution of property may be
    reduced depending on the type of property contributed, the type
    of charitable organization to which the property is
    contributed, and the income of the taxpayer.\77\
    ---------------------------------------------------------------------------
        \77\Secs. 170(b) and (e).
    ---------------------------------------------------------------------------
        A taxpayer who takes the standard deduction (i.e., who does
    not itemize deductions) may not take a separate deduction for
    charitable contributions.\78\
    ---------------------------------------------------------------------------
        \78\Sec. 170(a).
    ---------------------------------------------------------------------------
        A payment to a charity (regardless of whether it is termed
    a ``contribution'') in exchange for which the donor receives an
    economic benefit is not deductible, except to the extent that
    the donor can demonstrate, among other things, that the payment
    exceeds the fair market value of the benefit received from the
    charity. To facilitate distinguishing charitable contributions
    from purchases of goods or services from charities, present law
    provides that no charitable contribution deduction is allowed
    for a separate contribution of $250 or more unless the donor
    obtains a contemporaneous written acknowledgement of the
    contribution from the charity indicating whether the charity
    provided any good or service (and an estimate of the value of
    any such good or service) to the taxpayer in consideration for
    the contribution.\79\ In addition, present law requires that
    any charity that receives a contribution exceeding $75 made
    partly as a gift and partly as consideration for goods or
    services furnished by the charity (a ``quid pro quo''
    contribution) is required to inform the contributor in writing
    of an estimate of the value of the goods or services furnished
    by the charity and that only the portion exceeding the value of
    the goods or services may be deductible as a charitable
    contribution.\80\
    ---------------------------------------------------------------------------
        \79\Sec. 170(f)(8).
        \80\Sec. 6115.
    ---------------------------------------------------------------------------
        Under present law, total deductible contributions of an
    individual taxpayer to public charities, private operating
    foundations, and certain types of private nonoperating
    foundations may not exceed 50 percent of the taxpayer's
    contribution base, which is the taxpayer's adjusted gross
    income for a taxable year (disregarding any net operating loss
    carryback). To the extent a taxpayer has not exceeded the 50-
    percent limitation, (1) contributions of capital gain property
    to public charities generally may be deducted up to 30 percent
    of the taxpayer's contribution base, (2) contributions of cash
    to private foundations and certain other charitable
    organizations generally may be deducted up to 30 percent of the
    taxpayer's contribution base, and (3) contributions of capital
    gain property to private foundations and certain other
    charitable organizations generally may be deducted up to 20
    percent of the taxpayer's contribution base.
        Contributions by individuals in excess of the 50-percent,
    30-percent, and 20-percent limits may be carried over and
    deducted over the next five taxable years, subject to the
    relevant percentage limitations on the deduction in each of
    those years.
        In addition to the percentage limitations imposed
    specifically on charitable contributions, present law imposes a
    reduction on most itemized deductions, including charitable
    contribution deductions, for taxpayers with adjusted gross
    income in excess of a threshold amount, which is indexed
    annually for inflation. The threshold amount for 2008 is
    $159,950 ($79,975 for married individuals filing separate
    returns). For those deductions that are subject to the limit,
    the total amount of itemized deductions is reduced by three
    percent of adjusted gross income over the threshold amount, but
    not by more than 80 percent of itemized deductions subject to
    the limit. A phase-out of the overall limitation on itemized
    deductions for all taxpayers began in 2006. The overall
    limitation is reduced by two-thirds in taxable years beginning
    in 2008 and 2009. The overall limitation is eliminated for
    taxable years beginning after December 31, 2009; however, this
    elimination of the limitation sunsets on December 31, 2010.
        In general, a charitable deduction is not allowed for
    income, estate, or gift tax purposes if the donor transfers an
    interest in property to a charity (e.g., a remainder) while
    also either retaining an interest in that property (e.g., an
    income interest) or transferring an interest in that property
    to a noncharity for less than full and adequate
    consideration.\81\ Exceptions to this general rule are provided
    for, among other interests, remainder interests in charitable
    remainder annuity trusts, charitable remainder unitrusts, and
    pooled income funds, and present interests in the form of a
    guaranteed annuity or a fixed percentage of the annual value of
    the property.\82\ For such interests, a charitable deduction is
    allowed to the extent of the present value of the interest
    designated for a charitable organization.
    ---------------------------------------------------------------------------
        \81\Secs. 170(f), 2055(e)(2), and 2522(c)(2).
        \82\Sec. 170(f)(2).
    ---------------------------------------------------------------------------

    IRA rules

        Within limits, individuals may make deductible and
    nondeductible contributions to a traditional IRA. Amounts in a
    traditional IRA are includible in income when withdrawn (except
    to the extent the withdrawal represents a return of
    nondeductible contributions). Individuals also may make
    nondeductible contributions to a Roth IRA. Qualified
    withdrawals from a Roth IRA are excludable from gross income.
    Withdrawals from a Roth IRA that are not qualified withdrawals
    are includible in gross income to the extent attributable to
    earnings. Includible amounts withdrawn from a traditional IRA
    or a Roth IRA before attainment of age 59\1/2\ are subject to
    an additional 10-percent early withdrawal tax, unless an
    exception applies. Under present law, minimum distributions are
    required to be made from tax-favored retirement arrangements,
    including IRAs. Minimum required distributions from a
    traditional IRA must generally begin by the April 1 of the
    calendar year following the year in which the IRA owner attains
    age 70\1/2\.\83\
    ---------------------------------------------------------------------------
        \83\Minimum distribution rules also apply in the case of
    distributions after the death of a traditional or Roth IRA owner.
    ---------------------------------------------------------------------------
        If an individual has made nondeductible contributions to a
    traditional IRA, a portion of each distribution from an IRA is
    nontaxable until the total amount of nondeductible
    contributions has been received. In general, the amount of a
    distribution that is nontaxable is determined by multiplying
    the amount of the distribution by the ratio of the remaining
    nondeductible contributions to the account balance. In making
    the calculation, all traditional IRAs of an individual are
    treated as a single IRA, all distributions during any taxable
    year are treated as a single distribution, and the value of the
    contract, income on the contract, and investment in the
    contract are computed as of the close of the calendar year.
        In the case of a distribution from a Roth IRA that is not a
    qualified distribution, in determining the portion of the
    distribution attributable to earnings, contributions and
    distributions are deemed to be distributed in the following
    order: (1) Regular Roth IRA contributions; (2) taxable
    conversion contributions;\84\ (3) nontaxable conversion
    contributions; and (4) earnings. In determining the amount of
    taxable distributions from a Roth IRA, all Roth IRA
    distributions in the same taxable year are treated as a single
    distribution, all regular Roth IRA contributions for a year are
    treated as a single contribution, and all conversion
    contributions during the year are treated as a single
    contribution.
    ---------------------------------------------------------------------------
        \84\Conversion contributions refer to conversions of amounts in a
    traditional IRA to a Roth IRA.
    ---------------------------------------------------------------------------
        Distributions from an IRA (other than a Roth IRA) are
    generally subject to withholding unless the individual elects
    not to have withholding apply.\85\ Elections not to have
    withholding apply are to be made in the time and manner
    prescribed by the Secretary.
    ---------------------------------------------------------------------------
        \85\Sec. 3405.
    ---------------------------------------------------------------------------

    Qualified charitable distributions

        Present law provides an exclusion from gross income for
    otherwise taxable IRA distributions from a traditional or a
    Roth IRA in the case of qualified charitable distributions.\86\
    The exclusion may not exceed $100,000 per taxpayer per taxable
    year. Special rules apply in determining the amount of an IRA
    distribution that is otherwise taxable. The otherwise
    applicable rules regarding taxation of IRA distributions and
    the deduction of charitable contributions continue to apply to
    distributions from an IRA that are not qualified charitable
    distributions. Qualified charitable distributions are taken
    into account for purposes of the minimum distribution rules
    applicable to traditional IRAs to the same extent the
    distribution would have been taken into account under such
    rules had the distribution not been directly distributed under
    the qualified charitable distribution provision. An IRA does
    not fail to qualify as an IRA merely because qualified
    charitable distributions have been made from the IRA.
    ---------------------------------------------------------------------------
        \86\The exclusion does not apply to distributions from employer-
    sponsored retirements plans, including SIMPLE IRAs and simplified
    employee pensions (``SEPs'').
    ---------------------------------------------------------------------------
        A qualified charitable distribution is any distribution
    from an IRA directly by the IRA trustee to an organization
    described in section 170(b)(1)(A) (other than an organization
    described in section 509(a)(3) or a donor advised fund (as
    defined in section 4966(d)(2)). Distributions are eligible for
    the exclusion only if made on or after the date the individual
    for whose benefit the IRA is maintained attains age 70\1/2\.
        The exclusion applies only if a charitable contribution
    deduction for the entire distribution otherwise would be
    allowable (under present law), determined without regard to the
    generally applicable percentage limitations. Thus, for example,
    if the deductible amount is reduced because of a benefit
    received in exchange, or if a deduction is not allowable
    because the donor did not obtain sufficient substantiation, the
    exclusion is not available with respect to any part of the IRA
    distribution.
        If the IRA owner has any IRA that includes nondeductible
    contributions, a special rule applies in determining the
    portion of a distribution that is includible in gross income
    (but for the qualified charitable distribution provision) and
    thus is eligible for qualified charitable distribution
    treatment. Under the special rule, the distribution is treated
    as consisting of income first, up to the aggregate amount that
    would be includible in gross income (but for the qualified
    charitable distribution provision) if the aggregate balance of
    all IRAs having the same owner were distributed during the same
    year. In determining the amount of subsequent IRA distributions
    includible in income, proper adjustments are to be made to
    reflect the amount treated as a qualified charitable
    distribution under the special rule.
        Distributions that are excluded from gross income by reason
    of the qualified charitable distribution provision are not
    taken into account in determining the deduction for charitable
    contributions under section 170.
        The exclusion for qualified charitable distributions
    applies to distributions made in taxable years beginning after
    December 31, 2005. Under present law, the exclusion does not
    apply to distributions made in taxable years beginning after
    December 31, 2007.

                               REASONS FOR CHANCE

        The Committee believes that facilitating charitable
    contributions from IRAs will help increase giving to charitable
    organizations. Therefore, the Committee believes that the
    exclusion for qualified charitable distributions should be
    extended for one year.

                            EXPLANATION OF PROVISION

        The provision would extend the exclusion for qualified
    charitable distributions to distributions made in taxable years
    beginning after December 31, 2007, and before January 1, 2009.

                                 EFFECTIVE DATE

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

    5. Educator expense deduction (Sec. 205 of the bill and sec. 62 of the
            Code)

                                  PRESENT LAW

        In general, ordinary and necessary business expenses are
    deductible. However, unreimbursed employee business expenses
    generally are deductible only as an itemized deduction and only
    to the extent that the individual's total miscellaneous
    deductions (including employee business expenses) exceed two
    percent of adjusted gross income. An individual's otherwise
    allowable itemized deductions may be further limited by the
    overall limitation on itemized deductions, which reduces
    itemized deductions for taxpayers with adjusted gross income in
    excess of $159,950 (for 2008).\87\ In addition, miscellaneous
    itemized deductions are not allowable under the alternative
    minimum tax.
    ---------------------------------------------------------------------------
        \87\The adjusted gross income threshold is $79,975 in the case of a
    married individual filing a separate return (for 2008).
    ---------------------------------------------------------------------------
        Eligible educators are allowed an above-the-line deduction
    for certain expenses.\88\ Specifically, for taxable years
    beginning after December 31, 2001, and prior to January 1,
    2008, an above-the-line deduction is allowed for up to $250
    annually of expenses paid or incurred by an eligible educator
    for books, supplies (other than nonathletic supplies for
    courses of instruction in health or physical education),
    computer equipment (including related software and services)
    and other equipment, and supplementary materials used by the
    eligible educator in the classroom. To be eligible for this
    deduction, the expenses must be otherwise deductible under
    section 162 as a trade or business expense. A deduction is
    allowed only to the extent the amount of expenses exceeds the
    amount excludable from income under section 135 (relating to
    education savings bonds), 529(c)(1) (relating to qualified
    tuition programs), and section 530(d)(2) (relating to Coverdell
    education savings accounts).
    ---------------------------------------------------------------------------
        \88\Sec. 62(a)(2)(D).
    ---------------------------------------------------------------------------
        An eligible educator is a kindergarten through grade 12
    teacher, instructor, counselor, principal, or aide in a school
    for at least 900 hours during a school year. A school means any
    school that provides elementary education or secondary
    education, as determined under State law.
        The above-the-line deduction for eligible educators is not
    allowed for taxable years beginning after December 31, 2007.

                               REASONS FOR CHANCE

        The Committee recognizes that many elementary and secondary
    school teachers provide substantial classroom resources at
    their own expense, and believe that it is appropriate to extend
    the present law deduction for such expenses in order to
    continue to partially offset the substantial costs such
    educators incur for the benefit of their students.

                            EXPLANATION OF PROVISION

        The provision extends the deduction for eligible educator
    expenses for one year so that it is available for taxable years
    beginning before January 1, 2009.

                                 EFFECTIVE DATE

        The provision is effective for expenses paid or incurred in
    taxable years beginning after December 31, 2007.

    6. One year extension of the election to treat combat pay as earned
            income for purposes of the earned income credit (Sec. 206 of
            the bill and sec. 32 of the Code)

                                  PRESENT LAW

    In general

        Subject to certain limitations, military compensation
    earned by members of the Armed Forces while serving in a combat
    zone may be excluded from gross income. In addition, for up to
    two years following service in a combat zone, military
    personnel may also exclude compensation earned while
    hospitalized from wounds, disease, or injuries incurred while
    serving in the combat zone.

    Child credit

        Combat pay that is otherwise excluded from gross income
    under section 112 is treated as earned income which is taken
    into account in computing taxable income for purposes of
    calculating the refundable portion of the child credit.

    Earned income credit

        Any taxpayer may elect to treat combat pay that is
    otherwise excluded from gross income under section 112 as
    earned income for purposes of the earned income credit. This
    election is available with respect to any taxable year ending
    after the date of enactment and before January 1, 2008.

                               REASONS FOR CHANGE

        The Committee believes that members of the armed forces
    serving in combat should have full availability of the earned
    income credit, notwithstanding the exclusion of combat pay from
    gross income for purposes of determining federal tax liability.
    The Committee believes an extension of the election to treat
    combat pay as earnings for purposes of the earned income credit
    is necessary to achieve this result.

                            EXPLANATION OF PROVISION

        The provision extends for one year the availability of the
    election to treat combat pay that is otherwise excluded from
    gross income under section 112 as earned income for purposes of
    the earned income credit.

                                 EFFECTIVE DATE

        The provision is effective in taxable years beginning after
    December 31, 2007 and before January 1, 2009.

    7. Extension of qualified mortgage bond program rules for veterans
            (Sec. 207 of the bill and sec. 143 of the Code)

                                  PRESENT LAW

        Private activity bonds are bonds that nominally are issued
    by States or local governments, but the proceeds of which are
    used (directly or indirectly) by a private person and payment
    of which is derived from funds of such private person. The
    exclusion from income for State and local bonds does not apply
    to private activity bonds, unless the bonds are issued for
    certain permitted purposes (``qualified private activity
    bonds''). The definition of a qualified private activity bond
    includes both qualified mortgage bonds and qualified veterans'
    mortgage bonds.
        Qualified mortgage bonds are issued to make mortgage loans
    to qualified mortgagors for owner-occupied residences. The Code
    imposes several limitations on qualified mortgage bonds,
    including income limitations for homebuyers and purchase price
    limitations for the home financed with bond proceeds. In
    addition, qualified mortgage bonds generally cannot be used to
    finance a mortgage for a homebuyer who had an ownership
    interest in a principal residence in the three years preceding
    the execution of the mortgage (the ``first-time homebuyer''
    requirement).
        Under a special rule, qualified mortgage bonds may be
    issued to finance mortgages for veterans who served in the
    active military without regard to the first-time homebuyer
    requirement. Present-law income and purchase price limitations
    apply to loans to veterans financed with the proceeds of
    qualified mortgage bonds. Veterans are eligible for the
    exception from the first-time homebuyer requirement without
    regard to the date they last served on active duty or the date
    they applied for a loan after leaving active duty. However,
    veterans may only use the exception one time. This provision
    applies to bonds issued before January 1, 2008.

                               REASONS FOR CHANGE

        The Committee believes that the mortgage bond program
    provides an effective tool for providing the benefits of
    homeownership to military veterans. The present-law exception
    to the first-time homebuyer rule allows a broader class of
    veterans to benefit from the program and the Committee believes
    it is appropriate to extend the exception for an additional
    year.

                            EXPLANATION OF PROVISION

        The provision extends for one year the first-time homebuyer
    exception for veterans under the qualified mortgage bond
    program.

                                 EFFECTIVE DATE

        The provision applies to bonds issued after December 31,
    2007.

    8. Treatment of distributions to individuals called to active duty for
            at least 180 days (Sec. 208 of the bill and sec. 72 of the
            Code)

                                  PRESENT LAW

        Under present law, a taxpayer who receives a distribution
    from a qualified retirement plan prior to age 59\1/2\, death,
    or disability generally is subject to a 10-percent early
    withdrawal tax on the amount includible in income, unless an
    exception to the tax applies. Among other exceptions, the early
    distribution tax does not apply to distributions made to an
    employee who separates from service after age 55, or to
    distributions that are part of a series of substantially equal
    periodic payments made for the life (or life expectancy) of the
    employee or the joint lives (or life expectancies) of the
    employee and his or her beneficiary.
        Certain amounts held in a qualified cash or deferred
    arrangement (a ``section 401(k) plan'') or in a tax-sheltered
    annuity (a ``section 403(b) annuity'') may not be distributed
    before severance from employment, age 59\1/2\, death,
    disability, or financial hardship of the employee.
        Pursuant to amendments to section 72(t) made by the Pension
    Protection Act of 2006,\89\ the 10-percent early withdrawal tax
    does not apply to a qualified reservist distribution. A
    qualified reservist distribution is a distribution (1) from an
    IRA or attributable to elective deferrals under a section
    401(k) plan, section 403(b) annuity, or certain similar
    arrangements, (2) made to an individual who (by reason of being
    a member of a reserve component as defined in section 101 of
    title 37 of the U.S. Code) was ordered or called to active duty
    for a period in excess of 179 days or for an indefinite period,
    and (3) that is made during the period beginning on the date of
    such order or call to duty and ending at the close of the
    active duty period. A section 401(k) plan or section 403(b)
    annuity does not violate the distribution restrictions
    applicable to such plans by reason of making a qualified
    reservist distribution.
    ---------------------------------------------------------------------------
        \89\Pub. L. No. 109-280.
    ---------------------------------------------------------------------------
        An individual who receives a qualified reservist
    distribution may, at any time during the two-year period
    beginning on the day after the end of the active duty period,
    make one or more contributions to an IRA of such individual in
    an aggregate amount not to exceed the amount of such
    distribution. The dollar limitations otherwise applicable to
    contributions to IRAs do not apply to any contribution made
    pursuant to this special repayment rule. No deduction is
    allowed for any contribution made under the special repayment
    rule.
        The special rules applicable to a qualified reservist
    distribution apply to individuals ordered or called to active
    duty after September 11, 2001, and before December 31, 2007.

                               REASONS FOR CHANGE

        The Committee believes that the exception to the 10-percent
    early withdrawal tax is an important tax relief provision for
    reservists called to active duty. Reservists called to active
    duty may need access to amounts that they have contributed to
    tax-favored retirement savings programs in order to meet their
    personal financial obligations while serving our country. Given
    the continuing need for activation of reservists, the Committee
    believes that this tax relief provision should be extended so
    that it applies to reservists called to active duty on or after
    December 31, 2007.

                            EXPLANATION OF PROVISION

        The provision extends the rules applicable to qualified
    reservist distributions to individuals ordered or called to
    active duty before January 1, 2009.

                                 EFFECTIVE DATE

        The provision applies to individuals ordered or called to
    active duty on or after December 31, 2007.

    9. Extension of special rule for regulated investment company stock
            held in the estate of a nonresident non-citizen (Sec. 209 of
            the bill and sec. 2105 of the Code)

                                  PRESENT LAW

        The gross estate of a decedent who was a U.S. citizen or
    resident generally includes all property--real, personal,
    tangible, and intangible--wherever situated.\90\ The gross
    estate of a nonresident non-citizen decedent, by contrast,
    generally includes only property that at the time of the
    decedent's death is situated within the United States.\91\
    Property within the United States generally includes debt
    obligations of U.S. persons, including the Federal government
    and State and local governments, but does not include either
    bank deposits or portfolio obligations the interest on which
    would be exempt from U.S. income tax under section 871.\92\
    Stock owned and held by a nonresident non-citizen generally is
    treated as property within the United States if the stock was
    issued by a domestic corporation.\93\
    ---------------------------------------------------------------------------
        \90\Sec. 2031. The Economic Growth and Tax Relief Reconciliation
    Act of 2001 (``EGTRRA'') repealed the estate tax for estates of
    decedents dying after December 31, 2009. EGTRRA, however, included a
    termination provision under which EGTRRA's rules, including estate tax
    repeal, do not apply to estates of decedents dying after December 31,
    2010.
        \91\Sec. 2103.
        \92\Secs. 2104(c), 2105(b).
        \93\Sec. 2104(a); Treas. Reg. sec. 20.2104-1(a)(5)).
    ---------------------------------------------------------------------------
        Treaties may reduce U.S. taxation of transfers of the
    estates of nonresident non-citizens. Under recent treaties, for
    example, U.S. tax generally may be eliminated except insofar as
    the property transferred includes U.S. real property or
    business property of a U.S. permanent establishment.
        Although stock issued by a domestic corporation generally
    is treated as property within the United States, stock of a
    regulated investment company (``RIC'') that was owned by a
    nonresident non-citizen is not deemed property within the
    United States in the proportion that, at the end of the quarter
    of the RIC's taxable year immediately before a decedent's date
    of death, the assets held by the RIC are debt obligations,
    deposits, or other property that would be treated as situated
    outside the United States if held directly by the estate (the
    ``estate tax look-through rule for RIC stock'').\94\ This
    estate tax look-through rule for RIC stock does not apply to
    estates of decedents dying after December 31, 2007.
    ---------------------------------------------------------------------------
        \94\Sec. 2105(d).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        If a RIC satisfies certain income, asset, and distribution
    requirements, only one level of income tax generally is imposed
    on the income and gains of a RIC, and this tax is imposed on
    the RIC stockholders. By extension, the Committee believes it
    is appropriate to treat a RIC as a conduit under the rules for
    determining the extent to which the transfer of the estate of a
    nonresident non-citizen is subject to U.S. Federal estate tax.
    To the extent the assets of a RIC would not be subject to U.S.
    estate tax if held directly by an estate, the Committee
    believes there should be no estate tax when the assets are
    owned indirectly by ownership of stock in a RIC.

                            EXPLANATION OF PROVISION

        The provision permits the estate tax look-through rule for
    RIC stock to apply to estates of decedents dying before January
    1, 2009.

                                 EFFECTIVE DATE

        The provision applies to estates of decedents dying after
    December 31, 2007.

    10. Extend RIC ``qualified investment entity'' treatment under FIRPTA
            (Sec. 210 of the bill and sec. 897 of the Code)

                                  PRESENT LAW

        Special U.S. tax rules apply to capital gains of foreign
    persons that are attributable to dispositions of interests in
    U.S. real property. In general, a foreign person (a foreign
    corporation or a nonresident alien individual) is not generally
    taxed on U.S. source capital gains unless certain personal
    presence or effectively connected business requirements are
    met. However, under the Foreign Investment in Real Property Tax
    Act (``FIRPTA'') provisions codified in section 897 of the
    Code, a foreign person who sells a U.S. real property interest
    (USRPI) is treated as if the gain from such a sale is
    effectively connected with a U.S. business, and is subject to
    tax at the same rates as a U.S. person. Withholding tax is also
    imposed under section 1445.
        A USPRI, the sale of which is subject to FIRPTA tax,
    includes stock or a beneficial interest in any U.S. real
    property holding corporation (as defined), unless the stock is
    regularly traded on an established securities market and the
    selling foreign corporation or nonresident alien individual
    held no more than 5 percent of that stock within the 5-year
    period ending on date of disposition (or, if shorter, during
    the period in which the entity was in existence). There is an
    exception, however, for stock of a domestically controlled
    ``qualified investment entity.'' However, if stock of a
    domestically controlled qualified investment entity is disposed
    of within the 30 days preceding a dividend distribution in an
    ``applicable wash sale transaction,'' in which an amount that
    would have been a taxable distribution (as described below) is
    instead treated as nontaxable sales proceeds, but substantially
    similar stock is reacquired (or an option to obtain it is
    acquired) within a 61 day period, then the amount that would
    have been a taxable distribution continues to be taxed.
        A distribution from a ``qualified investment entity'' that
    is attributable to the sale of a USRPI is subject to tax under
    FIRPTA unless the distribution is with respect to an interest
    that is regularly traded on an established securities market
    located in the United States and the recipient foreign
    corporation or nonresident alien individual held no more than 5
    percent of that class of stock or beneficial interest within
    the 1-year period ending on the date of distribution. Special
    rules apply to situations involving tiers of qualified
    investment entities.
        The term ``qualified investment entity'' includes a
    regulated investment company (``RIC'') that meets certain
    requirements, although the inclusion of a RIC in that
    definition is scheduled to expire, for certain purposes, on
    December 31, 2007.\95\ The definition does not expire for
    purposes of taxing distributions from the RIC that are
    attributable directly or indirectly to a distribution to the
    entity from a real estate investment trust, nor for purposes of
    the applicable wash sale rules.
    ---------------------------------------------------------------------------
        \95\Sec. 897(h).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The committee believes it is desirable to extend the
    present law provision for an additional year.

                            EXPLANATION OF PROVISION

        The provision extends the inclusion of a regulated
    investment company (RIC) within the definition of a ``qualified
    investment entity'' under section 897 of the Code through
    December 31, 2008, for those situations in which that inclusion
    would otherwise expire at the end of 2007. However, such
    extension does not apply to the application of withholding
    requirements with respect to any payment made on or before date
    of enactment.

                                 EFFECTIVE DATE

        The provision generally takes effect on January 1, 2008.

    11. Group legal services plans (Sec. 211 of the bill and secs. 120 and
            501 of the Code)

                                  PRESENT LAW

        For taxable years beginning before July 1, 1992, certain
    amounts contributed by an employer to a qualified group legal
    services plan for an employee (or the employee's spouse or
    dependents) of the value or legal services provided (or amounts
    paid for legal services) under such a plan with respect to an
    employee (or the employee's spouse or dependents) are
    excludable from an employee's gross income for income and
    employment tax purposes.\96\ The exclusion is limited to an
    annual premium value of $70.
    ---------------------------------------------------------------------------
        \96\Secs. 120, 3121(a)(17), and 3306(b)(12).
    ---------------------------------------------------------------------------
        Additionally, for taxable years beginning before July 1,
    1992, an organization the exclusive function of which is to
    provide legal services or indemnification against the cost of
    legal services as part of a qualified group legal services plan
    is exempt from tax.\97\
    ---------------------------------------------------------------------------
        \97\Sec. 501(c)(20).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that it is appropriate to
    temporarily restore the exclusion for employer-provided group
    legal services and to temporarily provide tax-exempt status for
    organizations which provide qualified group legal services.

                            EXPLANATION OF PROVISION

        The provision restores the exclusion for employer-provided
    group legal services for taxable years beginning after December
    31, 2007, and before January 1, 2009. Additionally, for taxable
    years beginning after December 31, 2007, and before January 1,
    2009, the provision provides tax-exempt status for
    organizations which provide qualified group legal services.

                                 EFFECTIVE DATE

        The provision applies to taxable years beginning after
    December 31, 2007, and before January 1, 2009.

                  B. Extensions Primarily Affecting Businesses

    1. Extend the research and experimentation tax credit (Sec. 221 of the
            bill and sec. 41 of the Code)

                                  PRESENT LAW

    General rule

        A taxpayer may claim a research credit equal to 20 percent
    of the amount by which the taxpayer's qualified research
    expenses for a taxable year exceed its base amount for that
    year.\98\ Thus, the research credit is generally available with
    respect to incremental increases in qualified research.
    ---------------------------------------------------------------------------
        \98\Sec. 41.
    ---------------------------------------------------------------------------
        A 20-percent research tax credit is also available with
    respect to the excess of (1) 100 percent of corporate cash
    expenses (including grants or contributions) paid for basic
    research conducted by universities (and certain nonprofit
    scientific research organizations) over (2) the sum of (a) the
    greater of two minimum basic research floors plus (b) an amount
    reflecting any decrease in nonresearch giving to universities
    by the corporation as compared to such giving during a fixed-
    base period, as adjusted for inflation. This separate credit
    computation is commonly referred to as the university basic
    research credit.\99\
    ---------------------------------------------------------------------------
        \99\Sec. 41(e).
    ---------------------------------------------------------------------------
        Finally, a research credit is available for a taxpayer's
    expenditures on research undertaken by an energy research
    consortium. This separate credit computation is commonly
    referred to as the energy research credit. Unlike the other
    research credits, the energy research credit applies to all
    qualified expenditures, not just those in excess of a base
    amount.
        The research credit, including the university basic
    research credit and the energy research credit, has expired and
    does not apply to amounts paid or incurred after December 31,
    2007.\100\
    ---------------------------------------------------------------------------
        \100\The research tax credit was initially enacted in the Economic
    Recovery Tax Act of 1981. It has been subsequently extended and
    modified numerous times. Most recently, the Tax Relief and Health Care
    Act of 2006 extended the research credit through December 31, 2007,
    modified the alternative incremental research credit, and added an
    election to claim an alternative simplified credit.
    ---------------------------------------------------------------------------

    Computation of allowable credit

        Except for energy research payments and certain university
    basic research payments made by corporations, the research tax
    credit applies only to the extent that the taxpayer's qualified
    research expenses for the current taxable year exceed its base
    amount. The base amount for the current year generally is
    computed by multiplying the taxpayer's fixed-base percentage by
    the average amount of the taxpayer's gross receipts for the
    four preceding years. If a taxpayer both incurred qualified
    research expenses and had gross receipts during each of at
    least three years from 1984 through 1988, then its fixed-base
    percentage is the ratio that its total qualified research
    expenses for the 1984-1988 period bears to its total gross
    receipts for that period (subject to a maximum fixed-base
    percentage of 16 percent). All other taxpayers (so-called
    start-up firms) are assigned a fixed-base percentage of three
    percent.\101\
    ---------------------------------------------------------------------------
        \101\The Small Business Job Protection Act of 1996 expanded the
    definition of start-up firms under section 41(c)(3)(B)(i) to include
    any firm if the first taxable year in which such firm had both gross
    receipts and qualified research expenses began after 1983. A special
    rule (enacted in 1993) is designed to gradually recompute a start-up
    firm's fixed-base percentage based on its actual research experience.
    Under this special rule, a start-up firm is assigned a fixed-base
    percentage of three percent for each of its first five taxable years
    after 1993 in which it incurs qualified research expenses. A start-up
    firm's fixed-base percentage for its sixth through tenth taxable years
    after 1993 in which it incurs qualified research expenses is a phased-
    in ratio based on the firm's actual research experience. For all
    subsequent taxable years, the taxpayer's fixed-base percentage is its
    actual ratio of qualified research expenses to gross receipts for any
    five years selected by the taxpayer from its fifth through tenth
    taxable years after 1993. Sec. 41(c)(3)(B).
    ---------------------------------------------------------------------------
        In computing the credit, a taxpayer's base amount cannot be
    less than 50 percent of its current-year qualified research
    expenses.
        To prevent artificial increases in research expenditures by
    shifting expenditures among commonly controlled or otherwise
    related entities, a special aggregation rule provides that all
    members of the same controlled group of corporations are
    treated as a single taxpayer.\102\ Under regulations prescribed
    by the Secretary, special rules apply for computing the credit
    when a major portion of a trade or business (or unit thereof)
    changes hands, under which qualified research expenses and
    gross receipts for periods prior to the change of ownership of
    a trade or business are treated as transferred with the trade
    or business that gave rise to those expenses and receipts for
    purposes of recomputing a taxpayer's fixed-base
    percentage.\103\
    ---------------------------------------------------------------------------
        \102\Sec. 41(f)(1).
        \103\Sec. 41(f)(3).
    ---------------------------------------------------------------------------

    Alternative incremental research credit regime

        Taxpayers are allowed to elect an alternative incremental
    research credit regime.\104\ If a taxpayer elects to be subject
    to this alternative regime, the taxpayer is assigned a three-
    tiered fixed-base percentage (that is lower than the fixed-base
    percentage otherwise applicable under present law) and the
    credit rate likewise is reduced.
    ---------------------------------------------------------------------------
        \104\Sec. 41(c)(4).
    ---------------------------------------------------------------------------
        Generally, for amounts paid or incurred prior to 2007,
    under the alternative incremental credit regime, a credit rate
    of 2.65 percent applies to the extent that a taxpayer's
    current-year research expenses exceed a base amount computed by
    using a fixed-base percentage of one percent (i.e., the base
    amount equals one percent of the taxpayer's average gross
    receipts for the four preceding years) but do not exceed a base
    amount computed by using a fixed-basepercentage of 1.5 percent.
    A credit rate of 3.2 percent applies to the extent that a taxpayer's
    current-year research expenses exceed a base amount computed by using a
    fixed-base percentage of 1.5 percent but do not exceed a base amount
    computed by using a fixed-base percentage of two percent. A credit rate
    of 3.75 percent applies to the extent that a taxpayer's current-year
    research expenses exceed a base amount computed by using a fixed-base
    percentage of two percent. Generally, for amounts paid or incurred
    after 2006, the credit rates listed above are increased to three
    percent, four percent, and five percent, respectively.\105\
    ---------------------------------------------------------------------------
        \105\A special transition rule applies for fiscal year 2006-2007
    taxpayers.
    ---------------------------------------------------------------------------
        An election to be subject to this alternative incremental
    credit regime can be made for any taxable year beginning after
    June 30, 1996, and such an election applies to that taxable
    year and all subsequent years unless revoked with the consent
    of the Secretary of the Treasury.

    Alternative simplified credit

        Generally, for amounts paid or incurred after 2006,
    taxpayers may elect to claim an alternative simplified credit
    for qualified research expenses.\106\ The alternative
    simplified research credit is equal to 12 percent of qualified
    research expenses that exceed 50 percent of the average
    qualified research expenses for the three preceding taxable
    years. The rate is reduced to six percent if a taxpayer has no
    qualified research expenses in any one of the three preceding
    taxable years.
    ---------------------------------------------------------------------------
        \106\A special transition rule applies for fiscal year 2006-2007
    taxpayers.
    ---------------------------------------------------------------------------
        An election to use the alternative simplified credit
    applies to all succeeding taxable years unless revoked with the
    consent of the Secretary. An election to use the alternative
    simplified credit may not be made for any taxable year for
    which an election to use the alternative incremental credit is
    in effect. A transition rule applies which permits a taxpayer
    to elect to use the alternative simplified credit in lieu of
    the alternative incremental credit if such election is made
    during the taxable year which includes January 1, 2007. The
    transition rule applies only to the taxable year which includes
    that date.

    Eligible expenses

        Qualified research expenses eligible for the research tax
    credit consist of: (1) in-house expenses of the taxpayer for
    wages and supplies attributable to qualified research; (2)
    certain time-sharing costs for computer use in qualified
    research; and (3) 65 percent of amounts paid or incurred by the
    taxpayer to certain other persons for qualified research
    conducted on the taxpayer's behalf (so-called contract research
    expenses).\107\ Notwithstanding the limitation for contract
    research expenses, qualified research expenses include 100
    percent of amounts paid or incurred by the taxpayer to an
    eligible small business, university, or Federal laboratory for
    qualified energy research.
    ---------------------------------------------------------------------------
        \107\Under a special rule, 75 percent of amounts paid to a research
    consortium for qualified research are treated as qualified research
    expenses eligible for the research credit (rather than 65 percent under
    the general rule under section 41(b)(3) governing contract research
    expenses) if (1) such research consortium is a tax-exempt organization
    that is described in section 501(c)(3) (other than a private
    foundation) or section 501(c)(6) and is organized and operated
    primarily to conduct scientific research, and (2) such qualified
    research is conducted by the consortium on behalf of the taxpayer and
    one or more persons not related to the taxpayer. Sec. 41(b)(3)(C).
    ---------------------------------------------------------------------------
        To be eligible for the credit, the research does not only
    have to satisfy the requirements of present-law section 174
    (described below) but also must be undertaken for the purpose
    of discovering information that is technological in nature, the
    application of which is intended to be useful in the
    development of a new or improved business component of the
    taxpayer, and substantially all of the activities of which
    constitute elements of a process of experimentation for
    functional aspects, performance, reliability, or quality of a
    business component. Research does not qualify for the credit if
    substantially all of the activities relate to style, taste,
    cosmetic, or seasonal design factors.\108\ In addition,
    research does not qualify for the credit: (1) if conducted
    after the beginning of commercial production of the business
    component; (2) if related to the adaptation of an existing
    business component to a particular customer's requirements; (3)
    if related to the duplication of an existing business component
    from a physical examination of the component itself or certain
    other information; or (4) if related to certain efficiency
    surveys, management function or technique, market research,
    market testing, or market development, routine data collection
    or routine quality control.\109\ Research does not qualify for
    the credit if it is conducted outside the United States, Puerto
    Rico, or any U.S. possession.
    ---------------------------------------------------------------------------
        \108\Sec. 41(d)(3).
        \109\Sec. 41(d)(4).
    ---------------------------------------------------------------------------

    Relation to deduction

        Under section 174, taxpayers may elect to deduct currently
    the amount of certain research or experimental expenditures
    paid or incurred in connection with a trade or business,
    notwithstanding the general rule that business expenses to
    develop or create an asset that has a useful life extending
    beyond the current year must be capitalized.\110\ However,
    deductions allowed to a taxpayer under section 174 (or any
    other section) are reduced by an amount equal to 100 percent of
    the taxpayer's research tax credit determined for the taxable
    year.\111\ Taxpayers may alternatively elect to claim a reduced
    research tax credit amount under section 41 in lieu of reducing
    deductions otherwise allowed.\112\
    ---------------------------------------------------------------------------
        \110\Taxpayers may elect 10-year amortization of certain research
    expenditures allowable as a deduction under section 174(a). Secs.
    174(f)(2) and 59(e).
        \111\Sec. 280C(c).
        \112\Sec. 280C(c)(3).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee acknowledges that research is important to
    the economy. Research is the basis of new products, new
    services, new industries, and new jobs for the domestic
    economy. Therefore, the Committee believes it is appropriate to
    extend the present-law research credit.

                            EXPLANATION OF PROVISION

        The provision extends the research credit for one year,
    through December 31, 2008. The provision also clarifies the
    computation of the alternative incremental research credit and
    the alternative simplified credit for the taxable year in which
    the credit terminates.

                                 EFFECTIVE DATE

        The provision is effective for amounts paid or incurred
    after December 31, 2007.

    2. Indian employment tax credit (Sec. 222 of the bill and sec. 45A of
            the Code)

                                  PRESENT LAW

        In general, a credit against income tax liability is
    allowed to employers for the first $20,000 of qualified wages
    and qualified employee health insurance costs paid or incurred
    by the employer with respect to certain employees (sec. 45A).
    The credit is equal to 20 percent of the excess of eligible
    employee qualified wages and health insurance costs during the
    current year over the amount of such wages and costs incurred
    by the employer during 1993. The credit is an incremental
    credit, such that an employer's current-year qualified wages
    and qualified employee health insurance costs (up to $20,000
    per employee) are eligible for the credit only to the extent
    that the sum of such costs exceeds the sum of comparable costs
    paid during 1993. No deduction is allowed for the portion of
    the wages equal to the amount of the credit.
        Qualified wages means wages paid or incurred by an employer
    for services performed by a qualified employee. A qualified
    employee means any employee who is an enrolled member of an
    Indian tribe or the spouse of an enrolled member of an Indian
    tribe, who performs substantially all of the services within an
    Indian reservation, and whose principal place of abode while
    performing such services is on or near the reservation in which
    the services are performed. An ``Indian reservation'' is a
    reservation as defined in section 3(d) of the Indian Financing
    Act of 1974 or section 4(l) of the Indian Child Welfare Act of
    1978. For purposes of the preceding sentence, section 3(d) is
    applied by treating ``former Indian reservations in Oklahoma''
    as including only lands that are (1) within the jurisdictional
    area of an Oklahoma Indian tribe as determined by the Secretary
    of the Interior, and (2) recognized by such Secretary as an
    area eligible for trust land status under 25 C.F.R. Part 151
    (as in effect on August 5, 1997).
        An employee is not treated as a qualified employee for any
    taxable year of the employer if the total amount of wages paid
    or incurred by the employer with respect to such employee
    during the taxable year exceeds an amount determined at an
    annual rate of $30,000 (which afteradjustment for inflation is
    currently $40,000).\113\ In addition, an employee will not be treated
    as a qualified employee under certain specific circumstances, such as
    where the employee is related to the employer (in the case of an
    individual employer) or to one of the employer's shareholders,
    partners, or grantors. Similarly, an employee will not be treated as a
    qualified employee where the employee has more than a 5 percent
    ownership interest in the employer. Finally, an employee will not be
    considered a qualified employee to the extent the employee's services
    relate to gaming activities or are performed in a building housing such
    activities.
    ---------------------------------------------------------------------------
        \113\See Form 8845, Indian Employment Credit (Rev. Dec. 2006).
    ---------------------------------------------------------------------------
        The Indian employment tax credit is not available for
    taxable years beginning after December 31, 2007.

                               REASONS FOR CHANGE

        The Committee believes that extending the Indian employment
    credit will expand business and employment opportunities within
    Indian reservations.

                            EXPLANATION OF PROVISION

        The provision extends for one year the present-law
    employment credit provision (through taxable years beginning on
    or before December 31, 2008).

                                 EFFECTIVE DATE

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

    3. Extend the new markets tax credit (Sec. 223 of the bill and sec. 45D
            of the Code)

                                  PRESENT LAW

        Section 45D provides a new markets tax credit for qualified
    equity investments made to acquire stock in a corporation, or a
    capital interest in a partnership, that is a qualified
    community development entity (``CDE'').\114\ The amount of the
    credit allowable to the investor (either the original purchaser
    or a subsequent holder) is (1) a five-percent credit for the
    year in which the equity interest is purchased from the CDE and
    for each of the following two years, and (2) a six-percent
    credit for each of the following four years. The credit is
    determined by applying the applicable percentage (five or six
    percent) to the amount paid to the CDE for the investment at
    its original issue, and is available for a taxable year to the
    taxpayer who holds the qualified equity investment on the date
    of the initial investment or on the respective anniversary date
    that occurs during the taxable year. The credit is recaptured
    if at any time during the seven-year period that begins on the
    date of the original issue of the investment the entity ceases
    to be a qualified CDE, the proceeds of the investment cease to
    be used as required, or the equity investment is redeemed.
    ---------------------------------------------------------------------------
        \114\Section 45D was added by section 121(a) of the Community
    Renewal Tax Relief Act of 2000, Pub. L. No. 106-554 (2000).
    ---------------------------------------------------------------------------
        A qualified CDE is any domestic corporation or partnership:
    (1) whose primary mission is serving or providing investment
    capital for low-income communities or low-income persons; (2)
    that maintains accountability to residents of low-income
    communities by their representation on any governing board of
    or any advisory board to the CDE; and (3) that is certified by
    the Secretary as being a qualified CDE. A qualified equity
    investment means stock (other than nonqualified preferred
    stock) in a corporation or a capital interest in a partnership
    that is acquired directly from a CDE for cash, and includes an
    investment of a subsequent purchaser if such investment was a
    qualified equity investment in the hands of the prior holder.
    Substantially all of the investment proceeds must be used by
    the CDE to make qualified low-income community investments. For
    this purpose, qualified low-income community investments
    include: (1) capital or equity investments in, or loans to,
    qualified active low-income community businesses; (2) certain
    financial counseling and other services to businesses and
    residents in low-income communities; (3) the purchase from
    another CDE of any loan made by such entity that is a qualified
    low-income community investment; or (4) an equity investment
    in, or loan to, another CDE.
        A ``low-income community'' is a population census tract
    with either (1) a poverty rate of at least 20 percent or (2)
    median family income which does not exceed 80 percent of the
    greater of metropolitan area median family income or statewide
    median family income (for a non-metropolitan census tract, does
    not exceed 80 percent of statewide median family income). In
    the case of a population census tract located within a high
    migration rural county, low-income is defined by reference to
    85 percent (rather than 80 percent) of statewide median family
    income. For this purpose, a high migration rural county is any
    county that, during the 20-year period ending with the year in
    which the most recent census was conducted, has a net out-
    migration of inhabitants from the county of at least 10 percent
    of the population of the county at the beginning of such
    period.
        The Secretary has the authority to designate ``targeted
    populations'' as low-income communities for purposes of the new
    markets tax credit. For this purpose, a ``targeted population''
    is defined by reference to section 103(20) of the Riegle
    Community Development and Regulatory Improvement Act of 1994
    (12 U.S.C. 4702(20)) to mean individuals, or an identifiable
    group of individuals, including an Indian tribe, who (A) are
    low-income persons; or (B) otherwise lack adequate access to
    loans or equity investments. Under such Act, ``low-income''
    means (1) for a targeted population within a metropolitan area,
    less than 80 percent of the area median family income; and (2)
    for a targeted population within a non-metropolitan area, less
    than the greater of 80 percent of the area median family income
    or 80 percent of the statewide non-metropolitan area median
    family income.\115\ is Under such Act, a targeted population is
    not required to be within any census tract. In addition, a
    population census tract with a population of less than 2,000 is
    treated as a low-income community for purposes of the credit if
    such tract is within an empowerment zone, the designation of
    which is in effect under section 1391, and is contiguous to one
    or more low-income communities.
    ---------------------------------------------------------------------------
        \115\12 U.S.C. 4702(17) (defines ``low-income'' for purposes of 12
    U.S.C. 4702(20)).
    ---------------------------------------------------------------------------
        A qualified active low-income community business is defined
    as a business that satisfies, with respect to a taxable year,
    the following requirements: (1) at least 50 percent of the
    total gross income of the business is derived from the active
    conduct of trade or business activities in any low-income
    community; (2) a substantial portion of the tangible property
    of such business is used in a low-income community; (3) a
    substantial portion of the services performed for such business
    by its employees is performed in a low-income community; and
    (4) less than five percent of the average of the aggregate
    unadjusted bases of the property of such business is
    attributable to certain financial property or to certain
    collectibles.
        The maximum annual amount of qualified equity investments
    is capped at $2.0 billion per year for calendar years 2004 and
    2005, and at $3.5 billion per year for calendar years 2006,
    2007, and 2008.

                               REASONS FOR CHANGE

        The Committee believes that the new markets tax credit has
    proved to be an effective means of providing equity and other
    investments to benefit businesses in low income communities,
    and that it is appropriate to provide for the allocation of
    additional investments for another calendar year.

                            EXPLANATION OF PROVISION

        The provision extends the new markets tax credit for one
    year, through 2009, permitting up to $3.5 billion in qualified
    equity investments for that calendar year.

                                 EFFECTIVE DATE

        The provision is effective on the date of enactment.

    4. Extend railroad track maintenance credit (Sec. 224 of the bill and
            sec. 45G of the Code)

                                  PRESENT LAW

        Present law provides a 50-percent business tax credit for
    qualified railroad track maintenance expenditures paid or
    incurred by an eligible taxpayer during the taxable year.\116\
    The credit is limited to the product of $3,500 times the number
    of miles of railroad track (1) owned or leased by an eligible
    taxpayer as of the close of its taxable year, and (2) assigned
    to the eligible taxpayer by a Class II or Class III railroad
    that owns or leases such track at the close of the taxable
    year.\117\ Each mile of railroad track may be taken into
    account only once, either by the owner of such mile or by the
    owner's assignee, in computing the per-mile limitation. Under
    the provision, the credit is limited in respect of the total
    number of miles of track (1) owned or leased by the Class II.
    or Class III railroad and (2) assigned to the Class II or Class
    III railroad for purposes of the credit.
    ---------------------------------------------------------------------------
        \116\Sec. 45G(a).
        \117\Sec. 45G(b)(1).
    ---------------------------------------------------------------------------
        Qualified railroad track maintenance expenditures are
    defined as gross expenditures (whether or not otherwise
    chargeable to capital account) for maintaining railroad track
    (including roadbed, bridges, and related track structures)
    owned or leased as of January 1, 2005, by a Class II or Class
    III railroad (determined without regard to any consideration
    for such expenditure given by the Class II or Class III
    railroad which made the assignment of such track).\118\
    ---------------------------------------------------------------------------
        \118\Sec. 45G(d).
    ---------------------------------------------------------------------------
        An eligible taxpayer means any Class II or Class III
    railroad, and any person who transports property using the rail
    facilities of a Class II or CIass III railroad or who furnishes
    railroad-related property or services to a Class II or Class
    III railroad, but only with respect to miles of railroad track
    assigned to such person by such railroad under the
    provision.\119\
    ---------------------------------------------------------------------------
        \119\Sec. 45G(c).
    ---------------------------------------------------------------------------
        The terms Class II or Class III railroad have the meanings
    given by the Surface Transportation Board.\120\
    ---------------------------------------------------------------------------
        \120\Sec. 45G(e)(1).
    ---------------------------------------------------------------------------
        The provision applies to qualified railroad track
    maintenance expenditures paid or incurred during taxable years
    beginning after December 31, 2004, and before January 1, 2008.

                               REASONS FOR CHANGE

        The Committee believes that Class II and Class III
    railroads are an important part of the nation's railway system.
    Therefore, the Committee believes that this incentive for
    railroad track maintenance expenditures should be extended.

                            EXPLANATION OF PROVISION

        The provision extends the present law provision for one
    year, for qualified railroad track maintenance expenditures
    paid or incurred before January 1, 2009.

                                 EFFECTIVE DATE

        The provision is effective for expenditures paid or
    incurred after December 31, 2007.

    5. Fifteen-year straight-line cost recovery for qualified leasehold
            improvements and qualified restaurant improvements (Sec. 225 of
            the bill and sec. 168 of the Code)

                                  PRESENT LAW

    In general

        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.\121\ The cost of
    nonresidential real property is recovered using the straight-
    line method of depreciation and a recovery period of 39 years.
    Nonresidential real property is subject to the mid-month
    placed-in-service convention. Under the mid-month convention,
    the depreciation allowance for the first year property is
    placed in service is based on the number of months the property
    was in service, and property placed in service at any time
    during a month is treated as having been placed in service in
    the middle of the month.
    ---------------------------------------------------------------------------
        \121\Sec. 168.
    ---------------------------------------------------------------------------

    Depreciation of 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. This rule applies regardless of whether the
    lessor or the lessee places the leasehold improvements in
    service. 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 was placed in service.
    However, exceptions exist for certain qualified leasehold
    improvements and qualified restaurant property.

    Qualified leasehold improvement property

        Section 168(e)(3)(E)(iv) provides a statutory 15-year
    recovery period for qualified leasehold improvement property
    placed in service before January 1, 2008. Qualified leasehold
    improvement property is recovered using the straight-line
    method and a half-year convention. Leasehold improvements
    placed in service in 2008 and later will be subject to the
    general rules described above.
        Qualified leasehold improvement property is any improvement
    to an interior portion of a building that is nonresidential
    real property, provided certain requirements are met. The
    improvement must be made under or pursuant to a lease either by
    the lessee (or sublessee), or by the lessor, of that portion of
    the building to be occupied exclusively by the lessee (or
    sublessee). The improvement must be placed in service more than
    three years after the date the building was first placed in
    service. Qualified leasehold improvement property does not
    include any improvement for which the expenditure is
    attributable to the enlargement of the building, any elevator
    or escalator, any structural component benefiting a common
    area, or the internal structural framework of the building.
        If a lessor makes an improvement that qualifies as
    qualified leasehold improvement property, such improvement does
    not qualify as qualified leasehold improvement property to any
    subsequent owner of such improvement. An exception to the rule
    applies in the case of death and certain transfers of property
    that qualify for non-recognition treatment.

    Qualified restaurant property

        Section 168(e)(3)(E)(v) provides a statutory 15-year
    recovery period for qualified restaurant property placed in
    service before January 1, 2008. For purposes of the provision,
    qualified restaurant property means any improvement to a
    building if such improvement is placed in service more than
    three years after the date such building was first placed in
    service and more than 50 percent of the building's square
    footage is devoted to the preparation of, and seating for on-
    premises consumption of, prepared meals. Qualified restaurant
    property is recovered using the straight-line method and a
    half-year convention. Restaurant property placed in service in
    2008 and later will be subject to the general rules described
    above.

                               REASONS FOR CHANGE

        The Committee believes that it is appropriate to extend the
    15-year recovery period for qualified leasehold improvements
    and qualified restaurant property.

                            EXPLANATION OF PROVISION

        The present-law provisions for qualified leasehold
    improvement property and qualified restaurant property are
    extended for one year (through December 31, 2008).

                                 EFFECTIVE DATE

        The provision applies to property placed in service after
    December 31, 2007.

    6. 7-year recovery period for motorsports racetrack property (Sec. 226
            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.\122\ The cost of
    nonresidential real property is recovered using the straight-
    line method of depreciation and a recovery period of 39 years.
    Nonresidential real property is subject to the mid-month
    placed-in-service convention. Under the mid-month convention,
    the depreciation allowance for the first year property is
    placed in service is based on the number of months the property
    was in service, and property placed in service at any time
    during a month is treated as having been placed in service in
    the middle of the month. Land improvements (such as roads and
    fences) are recovered over 15 years. An exception exists for
    the theme and amusement park industry, whose assets are
    assigned a recovery period of seven years. Additionally, a
    motorsports entertainment complex placed in service before
    December 31, 2007 is assigned a recovery period of seven
    years.\123\ For these purposes, a motorsports entertainment
    complex means a racing track facility which is permanently
    situated on land that during the 36 month period following its
    placed in service date it hosts a racing event.\124\ The term
    motorsports entertainment complex also includes ancillary
    facilities, land improvements (e.g., parking lots, sidewalks,
    fences), support facilities (e.g., food and beverage retailing,
    souvenir vending), and appurtenances associated with such
    facilities (e.g., ticket booths, grandstands).
    ---------------------------------------------------------------------------
        \122\Sec. 168.
        \123\Sec. 168(e)(3)(C)(ii).
        \124\Sec. 168(i)(15).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that extending the depreciation
    incentive will encourage economic development. The Committee
    also believes that taxpayers should not be required to recover
    the costs of motorsports entertainment complex beyond the
    useful life of the investment. Therefore, the provision extends
    the 7-year recovery period for motorsports entertainment
    complex property.

                            EXPLANATION OF PROVISION

        The provision extends the present law seven year recovery
    period for one year through December 31, 2008.

                                 EFFECTIVE DATE

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

    7. Accelerated depreciation for business property on Indian
            reservations (Sec. 227 of the bill and sec. 168 of the Code)

                                  PRESENT LAW

        With respect to certain property used in connection with
    the conduct of a trade or business within an Indian
    reservation, depreciation deductions under section 168(j) are
    determined using the following recovery periods:

    3-year property............................  2 years
    5-year property............................  3 years
    7-year property............................  4 years
    10-year property...........................  6 years
    15-year property...........................  9 years
    20-year property...........................  12 years
    Nonresidential real property...............  22 years

        ``Qualified Indian reservation property'' eligible for
    accelerated depreciation includes property described in the
    table above which is: (1) used by the taxpayer predominantly in
    the active conduct of a trade or business within an Indian
    reservation; (2) not used or located outside the reservation on
    a regular basis; (3) not acquired (directly or indirectly) by
    the taxpayer from a person who is related to the taxpayer;\125\
    and (4) is not property placed in service for purposes of
    conducting gaming activities.\126\ Certain ``qualified
    infrastructure property'' may be eligible for the accelerated
    depreciation even if located outside an Indian reservation,
    provided that the purpose of such property is to connect with
    qualified infrastructure property located within the
    reservation (e.g., roads, power lines, water systems, railroad
    spurs, and communications facilities).\127\
    ---------------------------------------------------------------------------
        \125\For these purposes, related persons is defined in Sec.
    465(b)(3)(C).
        \126\Sec. 168(j)(4)(A).
        \127\Sec. 168(j)(4)(C).
    ---------------------------------------------------------------------------
        An ``Indian reservation'' means a reservation as defined in
    section 3(d) of the Indian Financing Act of 1974 or section
    4(10) of the Indian Child Welfare Act of 1978. For purposes of
    the preceding sentence, section 3(d) is applied by treating
    ``former Indian reservations in Oklahoma'' as including only
    lands that are (1) within the jurisdictional area of an
    Oklahoma Indian tribe as determined by the Secretary of the
    Interior, and (2) recognized by such Secretary as an area
    eligible for trust land status under 25 C.F.R. Part 151 (as in
    effect on August 5, 1997).
        The depreciation deduction allowed for regular tax purposes
    is also allowed for purposes of the alternative minimum tax.
    The accelerated depreciation for Indian reservations is
    available with respect to property placed in service on or
    after January 1, 1994, and before January 1, 2008.

                               REASONS FOR CHANGE

        The Committee believes that extending the depreciation
    incentive will encourage economic development within Indian
    reservations and expand employment opportunities on such
    reservations.

                            EXPLANATION OF PROVISION

        The provision extends for one year the present-law
    incentive relating to depreciation of qualified Indian
    reservation property (to apply to property placed in service
    through December 31, 2008).

                                 EFFECTIVE DATE

        The provision applies to property placed in service after
    December 31, 2007.

    8. Extend expensing of brownfields remediation costs (Sec. 228 of the
            bill and sec. 198 of the Code)

                                  PRESENT LAW

        Present law allows a deduction for ordinary and necessary
    expenses paid or incurred in carrying on any trade or
    business.\128\ Treasury regulations provide that the cost of
    incidental repairs that neither materially add to the value of
    property nor appreciably prolong its life, but keep it in an
    ordinarily efficient operating condition, may be deducted
    currently as a business expense. Section 263(a)(1) limits the
    scope of section 162 by prohibiting a current deduction for
    certain capital expenditures. Treasury regulations define
    ``capital expenditures'' as amounts paid or incurred to
    materially add to the value, or substantially prolong the
    useful life, of property owned by the taxpayer, or to adapt
    property to a new or different use. Amounts paid for repairs
    and maintenance do not constitute capital expenditures. The
    determination of whether an expense is deductible or
    capitalizable is based on the facts and circumstances of each
    case.
    ---------------------------------------------------------------------------
        \128\Sec. 162.
    ---------------------------------------------------------------------------
        Taxpayers may elect to treat certain environmental
    remediation expenditures that would otherwise be chargeable to
    capital account as deductible in the year paid or
    incurred.\129\ The deduction applies for both regular and
    alternative minimum tax purposes. The expenditure must be
    incurred in connection with the abatement or control of
    hazardous substances at a qualified contaminated site. In
    general, any expenditure for the acquisition of depreciable
    property used in connection with the abatement or control of
    hazardous substances at a qualified contaminated site does not
    constitute a qualified environmental remediation expenditure.
    However, depreciation deductions allowable for such property,
    which would otherwise be allocated to the site under the
    principles set forth in Commissioner v. Idaho Power Co.\130\
    and section 263A, are treated as qualified environmental
    remediation expenditures.
    ---------------------------------------------------------------------------
        \129\Sec. 198.
        \130\418 U.S. 1 (1974).
    ---------------------------------------------------------------------------
        A ``qualified contaminated site'' (a so-called
    ``brownfield'') generally is any property that is held for use
    in a trade or business, for the production of income, or as
    inventory and is certified by the appropriate State
    environmental agency to be an area at or on which there has
    been a release (or threat of release) or disposal of a
    hazardous substance. Both urban and rural property may qualify.
    However, sites that are identified on the national priorities
    list under the Comprehensive Environmental Response,
    Compensation, and Liability Act of 1980 (``CERCLA'')\131\
    cannot qualify as targeted areas. Hazardous substances
    generally are defined by reference to sections 101(14) and 102
    of CERCLA, subject to additional limitations applicable to
    asbestos and similar substances within buildings, certain
    naturally occurring substances such as radon, and certain other
    substances released into drinking water supplies due to
    deterioration through ordinary use, as well as petroleum
    products defined in section 4612(a)(3) of the Code.
    ---------------------------------------------------------------------------
        \131\Pub. L. No. 96-510 (1980).
    ---------------------------------------------------------------------------
        In the case of property to which a qualified environmental
    remediation expenditure otherwise would have been capitalized,
    any deduction allowed under section 198 is treated as a
    depreciation deduction and the property is treated as section
    1245 property. Thus, deductions for qualified environmental
    remediation expenditures are subject to recapture as ordinary
    income upon a sale or other disposition of the property. In
    addition, sections 280B (demolition of structures) and 468
    (special rules for mining and solid waste reclamation and
    closing costs) do not apply to amounts that are treated as
    expenses under this provision.
        Eligible expenditures are those paid or incurred before
    January 1, 2008.
        The Gulf Opportunity Zone Act of 2005\132\ added section
    1400N(g) to the Code, which extended for two years (through
    December 31, 2007) the expensing of environmental remediation
    expenditures paid or incurred to abate contamination at
    qualified contaminated sites located in the Gulf Opportunity
    Zone. As a result of the extension of section 198 contained in
    the Tax Relief and Health Care Act of 2006,\133\ eligible
    expenditures covered under both section 1400N(g) and section
    198 must be paid or incurred prior to January 1, 2008.
    ---------------------------------------------------------------------------
        \132\Pub. L. No. 109-135 (2005).
        \133\Pub. L. No. 109-432 (2006).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that the expensing of brownfields
    remediation costs promotes the goal of environmental
    remediation and promotes new investment and employment
    opportunities by lowering the net capital cost of a development
    project. Therefore, the Committee believes it is appropriate to
    extend the present-law provision permitting the expensing of
    these environmental remediation costs.

                            EXPLANATION OF PROVISION

        The provision extends the present law expensing provision
    under section 198 for one year through December 31, 2008.

                                 EFFECTIVE DATE

        The provision is effective for expenditures paid or
    incurred after December 31, 2007.

    9. Extension of deduction for income attributable to domestic
            production activities in Puerto Rico (Sec. 229 of the bill and
            sec. 199 of the Code)

                                  PRESENT LAW

    In general

        Present law 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 that income. For taxable years
    beginning in 2005 and 2006, the deduction is three percent of
    qualified production activities income and for taxable years
    beginning in 2007, 2008, and 2009, the deduction is six percent
    of qualified production activities income. For taxpayers
    subject to the 35-percent corporate income tax rate, the nine-
    percent deduction effectively reduces the corporate income tax
    rate to just under 32 percent on qualified production
    activities income.

    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 those receipts and (2) other expenses,
    losses, or deductions which are properly allocable to those
    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\134\ that was
    manufactured, produced, grown or extracted by the taxpayer in
    whole or in significant part within the United States; (2) any
    sale, exchange, or other disposition, or any lease, rental, or
    license, of qualified film\135\ produced by the taxpayer; (3)
    any lease, rental, license, sale, exchange, or other
    disposition of electricity, natural gas, or potable water
    produced by the taxpayer in the United States; (4) construction
    of real property performed in the United States by a taxpayer
    in the ordinary course of a construction trade or business; or
    (5) engineering or architectural services performed in the
    United States for the construction of real property located in
    the United States.
    ---------------------------------------------------------------------------
        \134\Qualifying production property generally includes any tangible
    personal property, computer software, and sound recordings.
        \135\Qualified film includes any motion picture film or videotape
    (including live or delayed television programming, but not including
    certain sexually explicit productions) if 50 percent or more of the
    total compensation relating to the production of the film (including
    compensation in the form of residuals and participations) constitutes
    compensation for services performed in the United States by actors,
    production personnel, directors, and producers.
    ---------------------------------------------------------------------------

    Wage limitation

        For taxable years beginning after May 17, 2006, the amount
    of the deduction for a taxable year is limited to 50 percent of
    the wages paid by the taxpayer, and properly allocable to
    domestic production gross receipts, during the calendar year
    that ends in such taxable year.\136\ Wages paid to bona fide
    residents of Puerto Rico generally are not included in the wage
    limitation amount.\137\
    ---------------------------------------------------------------------------
        \136\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. For taxable years beginning before May 18, 2006, the limitation
    is based upon all wages paid by the taxpayer, rather than only wages
    properly allocable to domestic production gross receipts.
        \137\Sec. 3401(a)(8)(C).
    ---------------------------------------------------------------------------

    Rules for Puerto Rico

        When used in the Code in a geographical sense, the term
    ``United States'' generally includes only the States and the
    District of Columbia.\138\ A special rule for determining
    domestic production gross receipts, however, provides that in
    the case of any taxpayer with gross receipts from sources
    within the Commonwealth of Puerto Rico, the term ``United
    States'' includes the Commonwealth of Puerto Rico, but only if
    all of the taxpayer's gross receipts are taxable under the
    Federal income tax for individuals or corporations.\139\ In
    computing the 50-percent wage limitation, that taxpayer is
    permitted to take into account wages paid to bona fide
    residents of Puerto Rico for services performed in Puerto
    Rico.\140\
    ---------------------------------------------------------------------------
        \138\Sec. 7701(a)(9).
        \139\Sec. 199(d)(8)(A).
        \140\Sec. 199(d)(8)(B).
    ---------------------------------------------------------------------------
        The special rules for Puerto Rico apply only with respect
    to the first two taxable years of a taxpayer beginning after
    December 31, 2005 and before January 1, 2008.

                               REASONS FOR CHANGE

        The Committee believes that given the expiration of the
    Puerto Rico economic activity credit after 2005, it is
    appropriate to use other means to encourage investment in
    Puerto Rico. In particular, the Committee believes it is
    appropriate to treat a U.S. taxpayer's manufacturing activities
    in Puerto Rico in a manner similar to the treatment of
    manufacturing activities in the United States.

                            EXPLANATION OF PROVISION

        The provision allows the special domestic production
    activities rules for Puerto Rico to apply for one additional
    taxable year of a taxpayer.

                                 EFFECTIVE DATE

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

    10. Modification of tax treatment of certain payments to controlling
            exempt organizations (Sec. 230 of the bill and sec. 512 of the
            Code)

                                  PRESENT LAW

        In general, organizations exempt from Federal income tax
    are subject to the unrelated business income tax on income
    derived from a trade or business regularly carried on by the
    organization that is not substantially related to the
    performance of the organization's tax-exempt functions.\141\ In
    general, interest, rents, royalties, and annuities are excluded
    from the unrelated business income of tax-exempt
    organizations.\142\
    ---------------------------------------------------------------------------
        \141\Sec. 511.
        \142\Sec. 512(b).
    ---------------------------------------------------------------------------
        Section 512(b)(13) provides special rules regarding income
    derived by an exempt organization from a controlled subsidiary.
    In general, section 512(b)(13) treats otherwise excluded rent,
    royalty, annuity, and interest income as unrelated business
    income if such income is received from a taxable or tax-exempt
    subsidiary that is 50-percent controlled by the parent tax-
    exempt organization to the extent the payment reduces the net
    unrelated income (or increases any net unrelated loss) of the
    controlled entity (determined as if the entity were tax
    exempt). However, a special rule enacted as part of the Pension
    Protection Act of 2006 provides that, forpayments made pursuant
    to a binding written contract in effect on August 17, 2006 (or renewal
    of such a contract on substantially similar terms), the general rule of
    section 512(b)(13) applies only to the portion of payments received or
    accrued (before January 1, 2008) in a taxable year that exceeds the
    amount of the payment that would have been paid or accrued if the
    amount of such payment had been determined under the principles of
    section 482 (i.e., at arm's length).\143\ In addition, the special rule
    imposes a 20-percent penalty on the larger of such excess determined
    without regard to any amendment or supplement to a return of tax, or
    such excess determined with regard to all such amendments and
    supplements.
        In the case of a stock subsidiary, ``control'' means
    ownership by vote or value of more than 50 percent of the
    stock. In the case of a partnership or other entity,
    ``control'' means ownership of more than 50 percent of the
    profits, capital, or beneficial interests. In addition, present
    law applies the constructive ownership rules of section 318 for
    purposes of section 512(b)(13). Thus, a parent exempt
    organization is deemed to control any subsidiary in which it
    holds more than 50 percent of the voting power or value,
    directly (as in the case of a first-tier subsidiary) or
    indirectly (as in the case of a second-tier subsidiary).
    ---------------------------------------------------------------------------
        \143\Sec. 512(b)(13)(E).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        In enacting the special rule described above, the Pension
    Protection Act also required that, not later than January 1,
    2009, the Secretary shall submit a report to the Committee on
    Finance of the Senate and the Committee on Ways and Means of
    the House of Representatives a report on the effectiveness of
    the Internal Revenue Service in administering the special rule
    and on the extent to which payments by controlled entities to
    the controlling exempt organization meet the requirements of
    section 482 of the Code. Such report is required to include the
    results of any audit of any controlling organization or
    controlled entity and recommendations relating to the tax
    treatment of payments from controlled entities to controlling
    organizations. Considering that the report is not due until
    January 1, 2009, the Committee believes it is appropriate to
    extend the special rule for one year.

                            EXPLANATION OF PROVISION

        The provision extends the special rule of the Pension
    Protection Act to payments received or accrued before January
    1, 2009. Accordingly, under the provision, payments of rent,
    royalties, annuities, or interest income by a controlled
    organization to a controlling organization pursuant to a
    binding written contract in effect on August 17, 2006 (or
    renewal of such a contract on substantially similar terms), may
    be includible in the unrelated business taxable income of the
    controlling organization only to the extent the payment exceeds
    the amount of the payment determined under the principles of
    section 482 (i.e., at arm's length). Any such excess is subject
    to a 20-percent penalty on the larger of such excess determined
    without regard to any amendment or supplement to a return of
    tax, or such excess determined with regard to all such
    amendments and supplements.

                                 EFFECTIVE DATE

        The provision is effective for payments received or accrued
    after December 31, 2007.

    11. Extend and modify qualified zone academy bonds (Sec. 231 of the
            bill and new sec. 54D of the Code)

                                  PRESENT LAW

    Tax-exempt bonds

        Interest paid 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 public schools.\144\ 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.\145\ 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.
    ---------------------------------------------------------------------------
        \144\Sec. 103.
        \145\Sec. 149(e).
    ---------------------------------------------------------------------------
        The tax exemption for State and local bonds does not apply
    to any arbitrage bond.\146\ 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.\147\ 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.
    ---------------------------------------------------------------------------
        \146\Sec. 103(a) and (b)(2).
        \147\Sec. 148.
    ---------------------------------------------------------------------------

    Qualified zone academy bonds

        As an alternative to traditional tax-exempt bonds, States
    and local governments were given the authority to issue
    ``qualified zone academy bonds.''\148\ A total of $400 million
    of qualified zone academy bonds is authorized to be issued
    annually in calendar years 1998 through 2007. The $400 million
    aggregate bond cap is allocated each year to the States
    according to their respective populations of individuals below
    the poverty line. Each State, in turn, allocates the credit
    authority to qualified zone academies within such State.
    ---------------------------------------------------------------------------
        \148\Sec. 1397E.
    ---------------------------------------------------------------------------
        Financial institutions that hold qualified zone academy
    bonds are entitled to a nonrefundable tax credit in an amount
    equal to a credit rate multiplied by the face amount of the
    bond. A taxpayer holding a qualified zone academy bond on the
    credit allowance date is entitled to a credit. The credit is
    includable in gross income (as if it were a taxable interest
    payment on the bond), and may be claimed against regular income
    tax and alternative minimum tax liability.
        The Treasury Department sets the credit rate at a rate
    estimated to allow issuance of qualified zone academy bonds
    without discount and without interest cost to the issuer. The
    maximum term of the bond is determined by the Treasury
    Department, so that the present value of the obligation to
    repay the bond was 50 percent of the face value. of the bond.
        ``Qualified zone academy bonds'' are defined as any bond
    issued by a State or local government, provided that (1) at
    least 95 percent of the proceeds are used for the purpose of
    renovating, providing equipment to, developing course materials
    for use at, or training teachers and other school personnel in
    a ``qualified zone academy'' and (2) private entities have
    promised to contribute to the qualified zone academy certain
    equipment, technical assistance or training, employee services,
    or other property or services with a value equal to at least 10
    percent of the bond proceeds.
        A school is a ``qualified zone academy'' if (1) the school
    is a public school that provides education and training below
    the college level, (2) the school operates a special academic
    program in cooperation with businesses to enhance the academic
    curriculum and increase graduation and employment rates, and
    (3) either (a) the school is located in an empowerment zone or
    enterprise community designated under the Code, or (b) it is
    reasonably expected that at least 35 percent of the students at
    the school will be eligible for free or reduced-cost lunches
    under the school lunch program established under the National
    School Lunch Act.
        The Tax Relief and Health Care Act of 2006 (``TRHCA'')\149\
    imposed the arbitrage requirements that generally apply to
    interest-bearing tax-exempt bonds to qualified zone academy
    bonds. In addition, an issuer of qualified zone academy bonds
    must reasonably expect to and actually spend 95 percent or more
    of the proceeds of such bonds on qualified zone academy
    property 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 zone academy property during the
    five-year spending period, bonds will continue to qualify as
    qualified zone academy bonds 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 if the issuer establishes that the
    failure to meet the spending requirement is due to reasonable
    cause and the related purposes for issuing the bonds will
    continue to proceed with due diligence. Issuers of qualified
    zone academy bonds are required to report issuance to the IRS
    in a manner similar to the information returns required for
    tax-exempt bonds.
    ---------------------------------------------------------------------------
        \149\Pub. L. No. 109-432.
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that tax-credit bonds provide an
    effective means of subsidizing rehabilitation and repairs to
    public school facilities. Thus, the Committee believes that the
    extension of authority to issue qualified zone academy bonds is
    appropriate in light of the educational needs that exist today.
    However, the Committee also recognizes that modifications to
    the present law qualified zone academy bond program may be
    necessary to increase the marketability of such bonds. These
    modifications also will promote additional investment in the
    beneficiary public schools.

                            EXPLANATION OF PROVISION

        The provision extends and modifies the present-law
    qualified zone academy bond program. The provision authorizes
    issuance of up to $400 million of qualified zone academy bonds
    annually through 2008.
        For bonds issued after the date of enactment, the provision
    also modifies the spending and arbitrage rules that apply to
    qualified zone academy bonds. The provision modifies the
    spending rule by requiring 100 percent of available project
    proceeds to be spent on qualified zone academy property. In
    addition, the provision modifies the arbitrage rules by
    providing that available project proceeds invested during the
    five-year period beginning on the date of issue are not subject
    to the arbitrage restrictions (i.e., yield restriction and
    rebate requirements). The provision defines ``available project
    proceeds'' as proceeds from the sale of an issue of qualified
    zone academy bonds, less issuance costs (not to exceed two
    percent) and any investment earnings on such proceeds. Thus,
    available project proceeds invested during the five-year
    spending period may be invested at unrestricted yields, but the
    earnings on such investments must be spent on qualified zone
    academy property.
        The provision provides that 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
    reasonably expected to result in an amount not greater than an
    amount necessary to repay the issue; 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 zone academy bonds
    are issued.

                                 EFFECTIVE DATE

        The provision applies to bonds issued after the date of
    enactment.

    12. Tax incentives for investment in the District of Columbia (Sec. 232
            of the bill and secs. 1400, 1400A, 1400B, and 1400C of the
            Code)

                                  PRESENT LAW

    In general

        The Taxpayer Relief Act of 1997 designated certain
    economically depressed census tracts within the District of
    Columbia as the District of Columbia Enterprise Zone (the
    ``D.C. Zone''), within which businesses and individual
    residents are eligible for special tax incentives. The census
    tracts that compose the D.C. Zone are (1) all census tracts
    that presently are part of the D.C. enterprise community
    designated under section 1391 (i.e., portions of Anacostia, Mt.
    Pleasant, Chinatown, and the easternmost part of the District),
    and (2) all additional census tracts within the District of
    Columbia where the poverty rate is not less than 20 percent.
    The D.C. Zone designation remained in effect for the period
    from January 1, 1998 through December 31, 2007. In general, the
    tax incentives available in connection with the D.C. Zone are a
    20-percent wage credit, an additional $35,000 of section 179
    expensing for qualified zone property, expanded tax-exempt
    financing for certain zone facilities, and a zero-percent
    capital gains rate from the sale of certain qualified D.C. zone
    assets.

    Wage credit

        A 20-percent wage credit is available to employers for the
    first $15,000 of qualified wages paid to each employee (i.e., a
    maximum credit of $3,000 with respect to each qualified
    employee) who (1) is a resident of the D.C. Zone, and (2)
    performs substantially all employment services within the D.C.
    Zone in a trade or business of the employer.
        Wages paid to a qualified employee who earns more than
    $15,000 are eligible for the wage credit (although only the
    first $15,000 of wages is eligible for the credit). The wage
    credit is available with respect to a qualified full-time or
    part-time employee (employed for at least 90 days), regardless
    of the number of other employees who work for the employer. In
    general, any taxable business carrying out activities in the
    D.C. Zone may claim the wage credit, regardless of whether the
    employer meets the definition of a ``D.C. Zone business.''\150\
    ---------------------------------------------------------------------------
        \150\However, the wage credit is not available for wages paid in
    connection with certain business activities described in section
    144(c)(6)(B) or certain farming activities. In addition, wages are not
    eligible for the wage credit if paid to (1) a person who owns more than
    five percent of the stock (or capital or profits interests) of the
    employer, (2) certain relatives of the employer, or (3) if the employer
    is a corporation or partnership, certain relatives of a person who owns
    more than 50 percent of the business.
    ---------------------------------------------------------------------------
        An employer's deduction otherwise allowed for wages paid is
    reduced by the amount of wage credit claimed for that taxable
    year.\151\ Wages are not to be taken into account for purposes
    of the wage credit if taken into account in determining the
    employer's work opportunity tax credit under section 51 or the
    welfare-to-work credit under section 51A.\152\ In addition, the
    $15,000 cap is reduced by any wages taken into account in
    computing the work opportunity tax credit or the welfare-to-
    work credit.\153\ The wage credit may be used to offset up to
    25 percent of alternative minimum tax liability.\154\
    ---------------------------------------------------------------------------
        \151\Sec. 280C(a).
        \152\Secs. 1400H(a), 1396(c)(3)(A) and 51A(d)(2).
        \153\Secs. 1400H(a), 1396(c)(3)(B) and 51A(d)(2).
        \154\Sec. 38(c)(2).
    ---------------------------------------------------------------------------

    Section 179 expensing

        In general, a D.C. Zone business is allowed an additional
    $35,000 of section 179 expensing for qualifying property placed
    in service by a D.C. Zone business.\155\ The section 179
    expensing allowed to a taxpayer is phased out by the amount by
    which 50 percent of the cost of qualified zone property placed
    in service during the year by the taxpayer exceeds $200,000
    ($500,000 for taxable years beginning after 2006 and before
    2011). The term ``qualified zone property'' is defined as
    depreciable tangible property (including buildings), provided
    that (1) the property is acquired by the taxpayer (from an
    unrelated party) after the designation took effect, (2) the
    original use of the property in the D.C. Zone commences with
    the taxpayer, and (3) substantially all of the use of the
    property is in the D.C. Zone in the active conduct of a trade
    or business by the taxpayer.\156\ Special rules are provided in
    the case of property that is substantially renovated by the
    taxpayer.
    ---------------------------------------------------------------------------
        \155\Sec. 1397A.
        \156\Sec. 1397D.
    ---------------------------------------------------------------------------

    Tax-exempt financing

        A qualified D.C. Zone business is permitted to borrow
    proceeds from tax-exempt qualified enterprise zone facility
    bonds (as defined in section 1394) issued by the District of
    Columbia.\157\ Such bonds are subject to the District of
    Columbia's annual private activity bond volume limitation.
    Generally, qualified enterprise zone facility bonds for the
    District of Columbia are bonds 95 percent or more of the net
    proceeds of which are used to finance certain facilities within
    the D.C. Zone. The aggregate face amount of all outstanding
    qualified enterprise zone facility bonds per qualified D.C.
    Zone business may not exceed $15 million and may be issued only
    while the D.C. Zone designation is in effect.
    ---------------------------------------------------------------------------
        \157\Sec. 1400A.
    ---------------------------------------------------------------------------

    Zero-percent capital gains

        A zero-percent capital gains rate applies to capital gains
    from the sale of certain qualified D.C. Zone assets held for
    more than five years.\158\ In general, a qualified ``D.C. Zone
    asset'' means stock or partnership interests held in, or
    tangible property held by, a D.C. Zone business. For purposes
    of the zero-percent capital gains rate, the D.C. Enterprise
    Zone is defined to include all census tracts within the
    District of Columbia where the poverty rate is not less than 10
    percent.
    ---------------------------------------------------------------------------
        \158\Sec. 1400B.
    ---------------------------------------------------------------------------
        In general, gain eligible for the zero-percent tax rate
    means gain from the sale or exchange of a qualified D.C. Zone
    asset that is (1) a capital asset or property used in the trade
    or business as defined in section 1231(b), and (2) acquired
    before January 1, 2008. Gain that is attributable to real
    property, or to intangible assets, qualifies for the zero-
    percent rate, providedthat such real property or intangible
    asset is an integral part of a qualified D.C. Zone business.\159\
    However, no gain attributable to periods before January 1, 1998, and
    after December 31, 2012, is qualified capital gain.
    ---------------------------------------------------------------------------
        \159\However, sole proprietorships and other taxpayers selling
    assets directly cannot claim the zero-percent rate on capital gain from
    the sale of any intangible property (i.e., the integrally related test
    does not apply).
    ---------------------------------------------------------------------------

    District of Columbia homebuyer tax credit

        First-time homebuyers of a principal residence in the
    District of Columbia are eligible for a nonrefundable tax
    credit of up to $5,000 of the amount of the purchase price. The
    $5,000 maximum credit applies both to individuals and married
    couples. Married individuals filing separately can claim a
    maximum credit of $2,500 each. The credit phases out for
    individual taxpayers with adjusted gross income between $70,000
    and $90,000 ($110,000-$130,000 for joint filers). For purposes
    of eligibility, ``first-time homebuyer'' means any individual
    if such individual did not have a present ownership interest in
    a principal residence in the District of Columbia in the one-
    year period ending on the date of the purchase of the residence
    to which the credit applies. The credit expired for purchases
    after December 31, 2007.\160\
    ---------------------------------------------------------------------------
        \160\Sec. 1400C(i).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that it continues to be important to
    provide tax incentives to individuals and businesses in the
    D.C. Zone and that it is appropriate to extend such incentives
    for an additional year.

                            EXPLANATION OF PROVISION

        The provision extends the designation of the D.C. Zone for
    one year (through December 31, 2008), thus extending the wage
    credit and section 179 expensing for one year.
        The provision extends the tax-exempt financing authority
    for one year, applying to bonds issued during the period
    beginning on January 1, 1998, and ending on December 31, 2008.
        The provision extends the zero-percent capital gains rate
    applicable to capital gains from the sale of certain qualified
    D.C. Zone assets for one year.
        The provision extends the first-time homebuyer credit for
    one year, through December 31, 2008.

                                 EFFECTIVE DATE

        The provision is effective for periods beginning after,
    bonds issued after, acquisitions after, and property purchased
    after December 31, 2007.

    13. Extension of economic development credit for American Samoa (Sec.
            233 of the bill and sec. 119 of Pub. L. No. 109-432)

                             PRESENT AND PRIOR LAW

    In general

        For taxable years beginning before January 1, 2006, certain
    domestic corporations with business operations in the U.S.
    possessions were eligible for the possession tax credit.\161\
    This credit offset the U.S. tax imposed on certain income
    related to operations in the U.S. possessions.\162\ For
    purposes of the credit, possessions included, among other
    places, American Samoa. Subject to certain limitations
    described below, the amount of the possession tax credit
    allowed to any domestic corporation equaled the portion of that
    corporation's U.S. tax that was attributable to the
    corporation's non-U.S. source taxable income from (1) the
    active conduct of a trade or business within a U.S. possession,
    (2) the sale or exchange of substantially all of the assets
    that were used in such a trade or business, or (3) certain
    possessions investment.\163\ No deduction or foreign tax credit
    was allowed for any possessions or foreign tax paid or accrued
    with respect to taxable income that was taken into account in
    computing the credit under section 936.\164\ The section 936
    credit generally expired for taxable years beginning after
    December 31, 2005, but a special credit, described below, was
    allowed with respect to American Samoa.
    ---------------------------------------------------------------------------
        \161\Secs. 27(b), 936.
        \162\Domestic corporations with activities in Puerto Rico are
    eligible for the section 30A economic activity credit. That credit is
    calculated under the rules set forth in section 936.
        \163\Under phase-out rules described below, investment only in
    Guam, American Samoa, and the Northern Mariana Islands (and not in
    other possessions) now may give rise to income eligible for the section
    936 credit.
        \164\Sec. 936(c).
    ---------------------------------------------------------------------------
        To qualify for the possession tax credit for a taxable
    year, a domestic corporation was required to satisfy two
    conditions. First, the corporation was required to derive at
    least 80 percent of its gross income for the three-year period
    immediately preceding the close of the taxable year from
    sources within a possession. Second, the corporation was
    required to derive at least 75 percent of its gross income for
    that same period from the active conduct of a possession
    business.
        The possession tax credit was available only to a
    corporation that qualified as an existing credit claimant. The
    determination of whether a corporation was an existing credit
    claimant was made separately for each possession. The
    possession tax credit was computed separately for each
    possession with respect to which the corporation was an
    existing credit claimant, and the credit was subject to either
    an economic activity-based limitation or an income-based
    limitation.

    Qualification as existing credit claimant

        A corporation was an existing credit claimant with respect
    to a possession if (1) the corporation was engaged in the
    active conduct of a trade or business within the possession on
    October 13, 1995, and (2) the corporation elected the benefits
    of the possession tax credit in an election in effect for its
    taxable year that included October 13, 1995.\165\ A corporation
    that added a substantial new line of business (other than in a
    qualifying acquisition of all the assets of a trade or business
    of an existing credit claimant) ceased to be an existing credit
    claimant as of the close of the taxable year ending before the
    date on which that new line of business was added.
    ---------------------------------------------------------------------------
        \165\A corporation will qualify as an existing credit claimant if
    it acquired all the assets of a trade or business of a corporation that
    (1) actively conducted that trade or business in a possession on
    October 13, 1995, and (2) had elected the benefits of the possession
    tax credit in an election in effect for the taxable year that included
    October 13, 1995.
    ---------------------------------------------------------------------------

    Economic activity-based limit

        Under the economic activity-based limit, the amount of the
    credit determined under the rules described above was not
    permitted to exceed an amount equal to the sum of (1) 60
    percent of the taxpayer's qualified possession wages and
    allocable employee fringe benefit expenses, (2) 15 percent of
    depreciation allowances with respect to short-life qualified
    tangible property, plus 40 percent of depreciation allowances
    with respect to medium-life qualified tangible property, plus
    65 percent of depreciation allowances with respect to long-life
    qualified tangible property, and (3) in certain cases, a
    portion of the taxpayer's possession income taxes.

    Income-based limit

        As an alternative to the economic activity-based limit, a.
    taxpayer was permitted elect to apply a limit equal to the
    applicable percentage of the credit that otherwise would have
    been allowable with respect to possession business income; in
    taxable years beginning in 1998 and subsequent years, the
    applicable percentage was 40 percent.

    Repeal and phase out

        In 1996, the section 936 credit was repealed for new
    claimants for taxable years beginning after 1995 and was phased
    out for existing credit claimants over a period including
    taxable years beginning before 2006. The amount of the
    available credit during the phase-out period generally was
    reduced by special limitation rules. These phase-out period
    limitation rules did not apply to the credit available to
    existing credit claimants for income from activities in Guam,
    American Samoa, and the Northern Mariana Islands. As described
    previously, the section 936 credit generally was repealed for
    all possessions, including Guam, American Samoa, and the
    Northern Mariana Islands, for all taxable years beginning after
    2005, but a modified credit was allowed for activities in
    American Samoa.

    American Samoa economic development credit

        A domestic corporation that was an existing credit claimant
    with respect to American Samoa and that elected the application
    of section 936 for its last taxable year beginning before
    January 1, 2006 is allowed a credit based on the economic
    activity-based limitation rules described above. The credit is
    not part of the Code but is computed based on the rules secs.
    30A and 936. The credit is allowed for the first two taxable
    years of a corporation that first two taxable years of a
    corporation that begin after December 31, 2005, and before
    January 1, 2008.
        The amount of the credit allowed to a qualifying domestic
    corporation under the provision is equal to the sum of the
    amounts used in computing the corporation's economic activity-
    based limitation (described previously) with respect to
    American Samoa, except that no credit is allowed for the amount
    of any American Samoa income taxes. Thus, for any qualifying
    corporation the amount of the credit equals the sum of (1) 60
    percent of the corporation's qualified American Samoa wages and
    allocable employee fringe benefit expenses and (2) 15 percent
    of the corporation's depreciation allowances with respect to
    short-life qualified American Samoa tangible property, plus 40
    percent of the corporation's depreciation allowances with
    respect to medium-life qualified American Samoa tangible
    property, plus 65 percent of the corporation's depreciation
    allowances with respect to long-life qualified American Samoa
    tangible property.
        The section 936(c) rule denying a credit or deduction for
    any possessions or foreign tax paid with respect to taxable
    income taken into account in computing the credit under section
    936 does not apply with respect to the credit allowed by the
    provision.
        The credit is not available for taxable years beginning
    after December 31, 2007.

                               REASONS FOR CHANGE

        The Committee believes that it is important to encourage
    investment in American Samoa. With the expiration of the
    possession tax credit, the American Samoa economic development
    credit is an appropriate temporary provision while Congress
    considers long-term tax policy toward the U.S. possessions.

                            EXPLANATION OF PROVISION

        The provision allows the American Samoa economic
    development credit for one additional taxable year of a
    taxpayer.

                                 EFFECTIVE DATE

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

    14. Extension of the enhanced charitable deduction for contributions of
            food inventory (Sec. 234 of the bill and sec. 170 of the Code)

                                  PRESENT LAW

    General rules regarding contributions of food inventory

        Under present law, a taxpayer's deduction for charitable
    contributions of inventory generally is limited to the
    taxpayer's basis (typically, cost) in the inventory, or if
    less, the fair market value of the inventory.
        For certain contributions of inventory, C corporations may
    claim an enhanced deduction equal to the lesser of (1) basis
    plus one-half of the item's appreciation (i.e., basis plus one-
    half of fair market value in excess of basis) or (2) two times
    basis.\166\ In general, a C corporation's charitable
    contribution deductions for a year may not exceed 10 percent of
    the corporation's taxable income.\167\ To be eligible for the
    enhanced deduction, the contributed property generally must be
    inventory of the taxpayer, contributed to a charitable
    organization described in section 501(c)(3) (except for private
    nonoperating foundations), and the donee must (1) use the
    property consistent with the donee's exempt purpose solely for
    the care of the ill, the needy, or infants, (2) not transfer
    the property in exchange for money, other property, or
    services, and (3) provide the taxpayer a written statement that
    the donee's use of the property will be consistent with such
    requirements. In the case of contributed property subject to
    the Federal Food, Drug, and Cosmetic Act, the property must
    satisfy the applicable requirements of such Act on the date of
    transfer and for 180 days prior to the transfer.
    ---------------------------------------------------------------------------
        \166\Sec. 170(e)(3).
        \167\Sec. 170(b)(2).
    ---------------------------------------------------------------------------
        A donor making a charitable contribution of inventory must
    make a corresponding adjustment to the cost of goods sold by
    decreasing the cost of goods sold by the lesser of the fair
    market value of the property or the donor's basis with respect
    to the inventory.\168\ Accordingly, if the allowable charitable
    deduction for inventory is the fair market value of the
    inventory, the donor reduces its cost of goods sold by such
    value, with the result that the difference between the fair
    market value and the donor's basis may still be recovered by
    the donor other than as a charitable contribution.
    ---------------------------------------------------------------------------
        \168\Treas. Reg. sec. 1.170A-4A(c)(3).
    ---------------------------------------------------------------------------
        To use the enhanced deduction, the taxpayer must establish
    that the fair market value of the donated item exceeds basis.
    The valuation of food inventory has been the subject of
    disputes between taxpayers and the IRS.\169\
    ---------------------------------------------------------------------------
        \169\Lucky Stores Inc. v. Commissioner, 105 T.C. 420 (1995)
    (holding that the value of surplus bread inventory donated to charity
    was the full retail price of the bread rather than half the retail
    price, as the IRS asserted).
    ---------------------------------------------------------------------------

    Temporary rule expanding and modifying the enhanced deduction for
            contributions of food inventory

        Under a temporary provision enacted as part of the Katrina
    Emergency Tax Relief Act of 2005 and extended by the Pension
    Protection Act of 2006, any taxpayer, whether or not a C
    corporation, engaged in a trade or business is eligible to
    claim the enhanced deduction for donations of food
    inventory.\170\ For taxpayers other than C corporations, the
    total deduction for donations of food inventory in a taxable
    year generally may not exceed 10 percent of the taxpayer's net
    income for such taxable year from all sole proprietorships, S
    corporations, or partnerships (or other non C corporation) from
    which contributions of apparently wholesome food are made. For
    example, if a taxpayer is a sole proprietor, a shareholder in
    an S corporation, and a partner in a partnership, and each
    business makes charitable contributions of food inventory, the
    taxpayer's deduction for donations of food inventory is limited
    to 10 percent of the taxpayer's net income from the sole
    proprietorship and the taxpayer's interests in the S
    corporation and partnership. However, if only the sole
    proprietorship and the S corporation made charitable
    contributions of food inventory, the taxpayer's deduction would
    be limited to 10 percent of the net income from the trade or
    business of the sole proprietorship and the taxpayer's interest
    in the S corporation, but not the taxpayer's interest in the
    partnership.\171\
    ---------------------------------------------------------------------------
        \170\Sec. 170(e)(3)(C).
        \171\The 10 percent limitation does not affect the application of
    the generally applicable percentage limitations. For example, if 10
    percent of a sole proprietor's net income from the proprietor's trade
    or business was greater than 50 percent of the proprietor's
    contribution base, the available deduction for the taxable year (with
    respect to contributions to public charities) would be 50 percent of
    the proprietor's contribution base. Consistent with present law, such
    contributions may be carried forward because they exceed the 50 percent
    limitation. Contributions of food inventory by a taxpayer that is not a
    C corporation that exceed the 10 percent limitation but not the 50
    percent limitation could not be carried forward.
    ---------------------------------------------------------------------------
        Under the temporary provision, the enhanced deduction for
    food is available only for food that qualifies as ``apparently
    wholesome food.'' ``Apparently wholesome food'' is defined as
    food intended for human consumption that meets all quality and
    labeling standards imposed by Federal, State, and local laws
    and regulations even though the food may not be readily
    marketable due to appearance, age, freshness, grade, size,
    surplus, or other conditions.
        The temporary provision does not apply to contributions
    made after December 31, 2007.

                               REASONS FOR CHANGE

        The Committee believes that charitable organizations
    benefit from charitable contributions of food by business other
    than C corporations and that the enhanced deduction is a useful
    incentive for the making of such contributions. Accordingly,
    the Committee believes it is appropriate to extend the special
    rule for charitable contributions of food inventory for one
    year.

                            EXPLANATION OF PROVISION

        The provision extends the expansion of, and modifications
    to, the enhanced deduction for charitable contributions of food
    inventory to contributions made before January 1, 2009.

                                 EFFECTIVE DATE

        The provision is effective for contributions made after
    December 31, 2007.

    15. Extension of the enhanced charitable deduction for contributions of
            book inventory (Sec. 235 of the bill and sec. 170 of the Code)

                                  PRESENT LAW

        Under present law, a taxpayer's deduction for charitable
    contributions of inventory generally is limited to the
    taxpayer's basis (typically, cost) in the inventory, or, if
    less, the fair market value of the inventory.
        In general, for certain contributions of inventory, C
    corporations may claim an enhanced deduction equal to the
    lesser of (1) basis plus one-half of the item's appreciation
    (i.e., basis plus one-half of fair market value in excess of
    basis) or (2) two times basis.\172\ In general, a C
    corporation's charitable contribution deductions for a year may
    not exceed 10 percent of the corporation's taxable income.\173\
    To be eligible for the enhanced deduction, the contributed
    property generally must be inventory of the taxpayer
    contributed to a charitable organization described in section
    501(c)(3) (except for private nonoperating foundations), and
    the donee must (1) use the property consistent with the donee's
    exempt purpose solely for the care of the ill, the needy, or
    infants, (2) not transfer the property in exchange for money,
    other property, or services, and (3) provide the taxpayer a
    written statement that the donee's use of the property will be
    consistent with such requirements. In the case of contributed
    property subject to the Federal Food, Drug, and Cosmetic Act,
    the property must satisfy the applicable requirements of such
    Act on the date of transfer and for 180 days prior to the
    transfer.
    ---------------------------------------------------------------------------
        \172\Sec. 170(e)(3).
        \173\Sec. 170(b)(2).
    ---------------------------------------------------------------------------
        A donor making a charitable contribution of inventory must
    make a corresponding adjustment to the cost of goods sold by
    decreasing the cost of goods sold by the lesser of the fair
    market value of the property or the donor's basis with respect
    to the inventory.\174\ Accordingly, if the allowable charitable
    deduction for inventory is the fair market value of the
    inventory, the donor reduces its cost of goods sold by such
    value, with the result that the difference between the fair
    market value and the donor's basis may still be recovered by
    the donor other than as a charitable contribution.
    ---------------------------------------------------------------------------
        \174\Treas. Reg. sec. 1.170A-4A(c)(3).
    ---------------------------------------------------------------------------
        To use the enhanced deduction, the taxpayer must establish
    that the fair market value of the donated item exceeds basis.
        The Katrina Emergency Tax Relief Act of 2005 expanded the
    generally applicable enhanced deduction for C corporations to
    certain qualified book contributions made after August 28,
    2005, and before January 1, 2006. The Pension Protection Act of
    2006 extended the deduction for qualified book contributions to
    contributions made before January 1, 2008. A qualified book
    contribution means a charitable contribution of books to a
    public school that provides elementary education or secondary
    education (kindergarten through grade 12) and that is an
    educational organization that normally maintains a regular
    faculty and curriculum and normally has a regularly enrolled
    body of pupils or students in attendance at the place where its
    educational activities are regularly carried on. The enhanced
    deduction for qualified book contributions is not allowed
    unless the donee organization certifies in writing that the
    contributed books are suitable, in terms of currency, content,
    and quantity, for use in the donee's educational programs and
    that the donee will use the books in such educational programs.
    The donee also must make the certifications required for the
    generally applicable enhanced deduction, i.e., the donee will
    (1) use the property consistent with the donee's exempt purpose
    solely for the care of the ill, the needy, or infants, (2) not
    transfer the property in exchange for money, other property, or
    services, and (3) provide the taxpayer a written statement that
    the donee's use of the property will be consistent with such
    requirements.

                               REASONS FOR CHANGE

        The Committee believes that public schools benefit from
    charitable contributions of book inventory and that the
    enhanced deduction is a useful incentive for the making of such
    contributions. Accordingly, the Committee believes it is
    appropriate to extend the enhanced deduction for charitable
    contributions of book inventory to public schools for one year.

                            EXPLANATION OF PROVISION

        The provision extends the enhanced deduction for
    contributions of book inventory to contributions made before
    January 1, 2009.

                                 EFFECTIVE DATE

        The provision is effective for contributions made after
    December 31, 2007.

    16. Extension of the enhanced charitable deduction for contributions of
            computer technology and equipment (Sec. 236 of the bill and
            sec. 170 of the Code)

                                  PRESENT LAW

        In the case of a charitable contribution of inventory or
    other ordinary-income or short-term capital gain property, the
    amount of the charitable deduction generally is limited to the
    taxpayer's basis in the property. In the case of a charitable
    contribution of tangible personal property, the deduction is
    limited to the taxpayer's basis in such property if the use by
    the recipient charitable organization is unrelated to the
    organization's tax-exempt purpose. In cases 121 involving
    contributions to a private foundation (other than certain
    private operating foundations), the amount of the deduction is
    limited to the taxpayer's basis in the property.\175\
    ---------------------------------------------------------------------------
        \175\Sec. 170(e)(1).
    ---------------------------------------------------------------------------
        Under present law, a taxpayer's deduction for charitable
    contributions of computer technology and equipment generally is
    limited to the taxpayer's basis (typically, cost) in the
    property. However, certain corporations may claim a deduction
    in excess of basis for a ``qualified computer
    contribution.''\176\ This enhanced deduction is equal to the
    lesser of (1) basis plus one-half of the item's appreciation
    (i.e., basis plus one half of fair market value in excess of
    basis) or (2) two times basis. The enhanced deduction for
    qualified computer contributions expires for any contribution
    made during any taxable year beginning after December 31, 2007.
    ---------------------------------------------------------------------------
        \176\Secs. 170(e)(4) and 170(e)(6).
    ---------------------------------------------------------------------------
        A qualified computer contribution means a charitable
    contribution of any computer technology or equipment, which
    meets standards of functionality and suitability as established
    by the Secretary of the Treasury. The contribution must be to
    certain educational organizations or public libraries and made
    not later than three years after the taxpayer acquired the
    property or, if the taxpayer constructed or assembled the
    property, not later than the date construction or assembly of
    the property is substantially completed.\177\ The original use
    of the property must be by the donor or the donee,\178\ and in
    the case of the donee, must be used substantially for
    educational purposes related to the function or purpose of the
    donee. The property must fit productively into the donee's
    education plan. The donee may not transfer the property in
    exchange for money, other property, or services, except for
    shipping, installation, and transfer costs. To determine
    whether property is constructed or assembled by the taxpayer,
    the rules applicable to qualified research contributions apply.
    Contributions may be made to private foundations under certain
    conditions.\179\
    ---------------------------------------------------------------------------
        \177\If the taxpayer constructed the property and reacquired such
    property, the contribution must be within three years of the date the
    original construction was substantially completed. Sec.
    170(e)(6)(D)(i).
        \178\This requirement does not apply if the property was reacquired
    by the manufacturer and contributed. Sec. 170(e)(6)(D)(ii).
        \179\Sec. 170(e)(6)(C).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that public libraries and
    educational organizations continue to benefit from corporate
    contributions of computer technology and equipment and that it
    is appropriate to extend the enhanced deduction for such
    contributions for one year.

                            EXPLANATION OF PROVISION

        The provision extends the enhanced deduction for computer
    technology and equipment for one year to apply to contributions
    made during any taxable year beginning after December 31, 2007,
    and before January 1, 2009.

                                 EFFECTIVE DATE

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

    17. Basis adjustment to stock of S corporations making charitable
            contributions of property (Sec. 237 of the bill and sec. 1367
            of the Code)

                                  PRESENT LAW

        Under present law, if an S corporation contributes money or
    other property to a charity, each shareholder takes into
    account the shareholder's pro rata share of the contribution in
    determining its own income tax liability.\180\ A shareholder of
    an S corporation reduces the basis in the stock of the S
    corporation by the amount of the charitable contribution that
    flows through to the shareholder.\181\
    ---------------------------------------------------------------------------
        \180\Sec. 1366(a)(1)(A).
        \181\Sec. 1367(a)(2)(B).
    ---------------------------------------------------------------------------
        In the case of contributions made in taxable years
    beginning after December 31, 2005, and before January 1, 2008,
    the amount of a shareholder's basis reduction in the stock of
    an S corporation by reason of a charitable contribution made by
    the corporation is equal to the shareholder's pro rata share of
    the adjusted basis of the contributed property. For
    contributions made in taxable years beginning after December
    31, 2007, the amount of the reduction is the shareholder's pro
    rata share of the fair market value of the contributed
    property.

                               REASONS FOR CHANGE

        The Committee believes that the present-law treatment of
    contributions of property by S corporations is appropriate and
    should be extended.

                            EXPLANATION OF PROVISION

        The bill extends the rule relating to the basis reduction
    on account of charitable contributions of property for one year
    to contributions made in taxable years beginning before January
    1, 2009.

                                 EFFECTIVE DATE

        The provision applies to contributions made in taxable
    years beginning after December 31, 2007.

    18. Extension of the Hurricane Katrina work opportunity tax credit
            (Sec. 238 of the bill and sec. 201 of the Katrina Emergency Tax
            Relief Act of 2005)

                                  PRESENT LAW

    Work opportunity tax credit

                In general
        The work opportunity tax credit is available on an elective
    basis for employers hiring individuals from one or more of nine
    targeted groups. The amount of the credit available to an
    employer is determined by the amount of qualified wages paid by
    the employer. Generally, qualified wages consist of wages
    attributable to service rendered by a member of a targeted
    group during the one-year period beginning with the day the
    individual begins work for the employer (two years in the case
    of an individual in the long-term family assistance recipient
    category).
                Targeted groups eligible for the credit
        Generally an employer is eligible for the credit only for
    qualified wages paid to members of a targeted group. There are
    nine targeted groups: (1) families receiving Temporary
    Assistance for Needy Families Program (``TANF''); (2) qualified
    veterans; (3) qualified ex-felons; (4) designated community
    residents; (5) vocational rehabilitation referrals; (6)
    qualified summer youth employees; (7) qualified food stamp
    recipients; (8) qualified supplemental security income
    (``SSI'') benefit recipients; and (9) qualified long-term
    family assistance recipients.
                Qualified wages
        Generally, qualified wages are defined as cash wages paid
    by the employer to a member of a targeted group. The employer's
    deduction for wages is reduced by the amount of the credit.
        For purposes of the credit, generally, wages are defined by
    reference to the FUTA definition of wages contained in sec.
    3306(b) (without regard to the dollar limitation therein
    contained). Special rules apply in the case of certain
    agricultural labor and certain railroad labor.
                Calculation of the credit
        The credit available to an employer for qualified wages
    paid to members of all targeted groups except for long-term
    family assistance recipients equals 40 percent (25 percent for
    employment of 400 hours or less) of qualified first-year wages.
    Generally, qualified first-year wages are qualified wages (not
    in excess of $6,000) attributable to service rendered by a
    member of a targeted group during the one-year period beginning
    with the day the individual began work for the employer.
    Therefore, the maximum credit per employee is $2,400 (40
    percent of the first $6,000 of qualified first-year wages).
    There are two exceptions to this general rule. First, with
    respect to qualified summer youth employees, the maximum credit
    is $1,200 (40 percent of the first $3,000 of qualified first-
    year wages). Second, with respect to qualified veterans who are
    entitled to compensation for a service-connected disability,
    the maximum credit is $4,800 because qualified first-year wages
    are $12,000 rather than $6,000 for such individuals.\182\
    Except for long-term family assistance recipients, no credit is
    allowed for second-year wages.
    ---------------------------------------------------------------------------
        \182\The expanded definition of qualified first-year wages does not
    apply to the veterans qualified with reference to a food stamp program,
    as defined under present law.
    ---------------------------------------------------------------------------
        In the case of long-term family assistance recipients, the
    credit equals 40 percent (25 percent for employment of 400
    hours or less) of $10,000 for qualified first-year wages and 50
    percent of the first $10,000 of qualified second-year wages.
    Generally, qualified second-year wages are qualified wages (not
    in excess of $10,000) attributable to service rendered by a
    member of the long-term family assistance category during the
    one-year period beginning on the day after the one-year period
    beginning with the day the individual began work for the
    employer. Therefore, the maximum credit per employee is $9,000
    (40 percent of the first $10,000 of qualified first-year wages
    plus 50 percent of the first $10,000 of qualified second-year
    wages).
                Certification rules
        An individual is not treated as a member of a targeted
    group unless: (1) on or before the day on which an individual
    begins work for an employer, the employer has received a
    certification from a designated local agency that such
    individual is a member of a targeted group; or (2) on or before
    the day an individual is offered employment with the employer,
    a pre-screening notice is completed by the employer with
    respect to such individual, and not later than the 28th day
    after the individual begins work for the employer, the employer
    submits such notice, signed by the employer and the individual
    under penalties of perjury, to the designated local agency as
    part of a written request for certification. For these
    purposes, a pre-screening notice is a document (in such form as
    the Secretary may prescribe) which contains information
    provided by the individual on the basis of which the employer
    believes that the individual is a member of a targeted group.
                Minimum employment period
        No credit is allowed for qualified wages paid to employees
    who work less than 120 hours in the first year of employment.
                Other rules
        The work opportunity tax credit is not allowed for wages
    paid to a relative or dependent of the taxpayer. No credit is
    allowed for wages paid to an individual who is a more than
    fifty-percent owner of the entity. Similarly, wages paid to
    replacement workers during a strike or lockout are not eligible
    for the work opportunity tax credit. Wages paid to any employee
    during any period for which the employer received on-the-job
    training program payments with respect to that employee are not
    eligible for the work opportunity tax credit. The work
    opportunity tax credit generally is not allowed for wages paid
    to individuals who had previously been employed by the
    employer. In addition, many other technical rules apply.
                Expiration
        The work opportunity tax credit is not available for
    individuals who begin work for an employer after August 31,
    2011.

    Work Opportunity Tax Credit for Hurricane Katrina Employees

                In general
        The Katrina Emergency Tax Relief Act of 2005 provided that
    a Hurricane Katrina employee is treated as a member of a
    targeted group for purposes of the work opportunity tax credit.
    A Hurricane Katrina employee was: (1) an individual who on
    August 28, 2005, had a principal place of abode in the core
    disaster area and was hired during the two-year period
    beginning on such date for a position, the principal place of
    employment of which was located in the core disaster area; and
    (2) an individual who on August 28, 2005, had a principal place
    of abode in the core disaster area, who was displaced from such
    abode by reason of Hurricane Katrina and was hired during the
    period beginning on such date and ending on December 31, 2005
    without regard to whether the new principal place of employment
    is in the core disaster area.
        The present-law WOTC certification requirement was waived
    for such individuals. In lieu of the certification requirement,
    an individual may have provided to the employer reasonable
    evidence that the individual is a Hurricane Katrina employee.
        The present-law rule that denies the credit with respect to
    wages of employees who had been previously employed by the
    employer was waived for the first hire of such employee as a
    Hurricane Katrina employee unless such employee was an employee
    of the employer on August 28, 2005.
                Definitions
        The term ``Hurricane Katrina disaster area'' means an area
    with respect to which a major disaster has been declared by the
    President before September 14, 2005 under section 401 of the
    Robert T. Stafford Disaster Relief and Emergency Assistance
    Act.
        The term ``core disaster area'' means that portion of the
    Hurricane Katrina disaster area determined by the President to
    warrant individual or individual and public assistance from the
    Federal Government under the Robert T. Stafford Disaster Relief
    and Emergency Assistance Act.

                               REASONS FOR CHANGE

        The Committee believes that the work opportunity tax credit
    should continue to be available as an incentive to provide
    employment opportunities in the core disaster area of Hurricane
    Katrina.

                            EXPLANATION OF PROVISION

        The provision extends through August 28, 2008, the work
    opportunity tax credit for certain Hurricane Katrina employees
    employed within the core disaster area. For this purpose, a
    Hurricane Katrina employee employed within the core disaster
    area is an individual who on August 28, 2005, had a principal
    place of abode in the core disaster area and is hired on or
    after August 28, 2005 and before August 29, 2008 for a
    position, the principal place of employment of which was
    located in the core disaster area.\183\ The other special rules
    (e.g., certification and previous employment) for Hurricane
    Katrina employees apply.
    ---------------------------------------------------------------------------
        \183\The prior-law work opportunity tax credit for Katrina
    employees hired to a new place of employment outside of the core
    disaster area is not extended by this provision.
    ---------------------------------------------------------------------------

                                 EFFECTIVE DATE

        The provision is effective for individuals hired after
    August 28, 2007, and before August 29, 2008.

    19. Subpart F exception for active financing income (Sec. 239 of the
            bill and secs. 953 and 954 of the Code)

                                  PRESENT LAW

        Under the subpart F rules,\184\ 10-percent-or-greater U.S.
    shareholders of a controlled foreign corporation (``CFC'') are
    subject to U.S. tax currently on certain income earned by the
    CFC, whether or not such income is distributed to the
    shareholders. The income subject to current inclusion under the
    subpart F rules includes, among other things, insurance income
    and foreign base company income. Foreign base company income
    includes, among other things, foreign personal holding company
    income and foreign base company services income (i.e., income
    derived from services performed for or on behalf of a related
    person outside the country in which the CFC is organized).
    ---------------------------------------------------------------------------
        \184\Secs. 951-964.
    ---------------------------------------------------------------------------
        Foreign personal holding company income generally consists
    of the following: (1) dividends, interest, royalties, rents,
    and annuities; (2) net gains from the sale or exchange of (a)
    property that gives rise to the preceding types of income, (b)
    property that does not give rise to income, and (c) interests
    in trusts, partnerships, and REMICs; (3) net gains from
    commodities transactions; (4) net gains from certain foreign
    currency transactions; (5) income that is equivalent to
    interest; (6) income from notional principal contracts; (7)
    payments in lieu of dividends; and (8) amounts received under
    personal service contracts.
        Insurance income subject to current inclusion under the
    subpart F rules includes any income of a CFC attributable to
    the issuing or reinsuring of any insurance or annuity contract
    in connection with risks located in a country other than the
    CFC's country of organization. Subpart F insurance income also
    includes income attributable to an insurance contract in
    connection with risks located within the CFC's country of
    organization, as the result of an arrangement under which
    another corporation receives a substantially equal amount of
    consideration for insurance of other country risks. Investment
    income of a CFC that is allocable to any insurance or annuity
    contract related to risks located outside the CFC's country of
    organization is taxable as subpart F insurance income.\185\
    ---------------------------------------------------------------------------
        \185\Prop. Treas. Reg. sec. 1.953-1(a).
    ---------------------------------------------------------------------------
        Temporary exceptions from foreign personal holding company
    income, foreign base company services income, and insurance
    income apply for subpart F purposes for certain income that is
    derived in the active conduct of a banking, financing, or
    similar business, as a securities dealer, or in the conduct of
    an insurance business (so-called ``active financing
    income'').\186\
    ---------------------------------------------------------------------------
        \186\Temporary exceptions from the subpart F provisions for certain
    active financing income applied only for taxable years beginning in
    1998 (Taxpayer Relief Act of 1997, Pub. L. No. 105-34). Those
    exceptions were modified and extended for one year, applicable only for
    taxable years beginning in 1999 (the Tax and Trade Relief Extension Act
    of 1998, Pub. L. No. 105-277). The Tax Relief Extension Act of 1999
    (Pub. L. No. 106-170) clarified and extended the temporary exceptions
    for two years, applicable only for taxable years beginning after 1999
    and before 2002. The Job Creation and Worker Assistance Act of 2002
    (Pub. L. No. 107-147) modified and extended the temporary exceptions
    for five years, for taxable years beginning after 2001 and before 2007.
    The Tax Increase Prevention and Reconciliation Act of 2005 (Pub. L. No.
    109-222) extended the temporary provisions for two years, for taxable
    years beginning after 2006 and before 2009.
    ---------------------------------------------------------------------------
        With respect to income derived in the active conduct of a
    banking, financing, or similar business, a CFC is required to
    be predominantly engaged in such business and to conduct
    substantial activity with respect to such business in order to
    qualify for the active financing exceptions. In addition,
    certain nexus requirements apply, which provide that income
    derived by a CFC or a qualified business unit (``QBU'') of a
    CFC from transactions with customers is eligible for the
    exceptions if, among other things, substantially all of the
    activities in connection with such transactions are conducted
    directly by the CFC or QBU in its home country, and such income
    is treated as earned by the CFC or QBU in its home country for
    purposes of such country's tax laws. Moreover, the exceptions
    apply to income derived from certain cross border transactions,
    provided that certain requirements are met. Additional
    exceptions from foreign personal holding company income apply
    for certain income derived by a securities dealer within the
    meaning of section 475 and for gain from the sale of active
    financing assets.
        In the case of a securities dealer, the temporary exception
    from foreign personal holding company income applies to certain
    income. The income covered by the exception is any interest or
    dividend (or certain equivalent amounts) from any transaction,
    including a hedging transaction or a transaction consisting of
    a deposit of collateral or margin, entered into in the ordinary
    course of the dealer's trade or business as a dealer in
    securities within the meaning of section 475. In the case of a
    QBU of the dealer, the income is required to be attributable to
    activities of the QBU in the country of incorporation, or to a
    QBU in the country in which the QBU both maintains its
    principal office and conducts substantial business activity. A
    coordination rule provides that thisexception generally takes
    precedence over the exception for income of a banking, financing or
    similar business, in the case of a securities dealer.
        In the case of insurance, a temporary exception from
    foreign personal holding company income applies for certain
    income of a qualifying insurance company with respect to risks
    located within the CFC's country of creation or organization.
    In the case of insurance, temporary exceptions from insurance
    income and from foreign personal holding company income also
    apply for certain income of a qualifying branch of a qualifying
    insurance company with respect to risks located within the home
    country of the branch, provided certain requirements are met
    under each of the exceptions. Further, additional temporary
    exceptions from insurance income and from foreign personal
    holding company income apply for certain income of certain CFCs
    or branches with respect to risks located in a country other
    than the United States, provided that the requirements for
    these exceptions are met. In the case of a life insurance or
    annuity contract, reserves for such contracts are determined
    under rules specific to the temporary exceptions. Present law
    also permits a taxpayer in certain circumstances, subject to
    approval by the IRS through the ruling process or in published
    guidance, to establish that the reserve of a life insurance
    company for life insurance and annuity contracts is the amount
    taken into account in determining the foreign statement reserve
    for the contract (reduced by catastrophe, equalization, or
    deficiency reserve or any similar reserve). IRS approval is to
    be based on whether the method, the interest rate, the
    mortality and morbidity assumptions, and any other factors
    taken into account in determining foreign statement reserves
    (taken together or separately) provide an appropriate means of
    measuring income for Federal income tax purposes.

                               REASONS FOR CHANGE

        In the Taxpayer Relief Act of 1997, one-year temporary
    exceptions from foreign personal holding company income were
    enacted for income from the active conduct of an insurance,
    banking, financing, or similar business. In 1998, 1999, 2002,
    and 2006, the provisions were extended, and in some cases,
    modified. The Congress believes, that it is appropriate to
    extend the temporary provisions, as modified by the previous
    legislation, for an additional year.

                            EXPLANATION OF PROVISION

        The provision extends for one year (for taxable years
    beginning before 2010) the present-law temporary exceptions
    from subpart F foreign personal holding company income, foreign
    base company services income, and insurance income for certain
    income that is derived in the active conduct of a banking,
    financing, or similar business, or in the conduct of an
    insurance business.

                                 EFFECTIVE DATE

        The provision is effective for taxable years of foreign
    corporations beginning after December 31, 2008, and for taxable
    years of U.S. shareholders with or within which such taxable
    years of such foreign corporations end.

    20. Look-through treatment of payments between related controlled
            foreign corporations under foreign personal holding company
            income rules (Sec. 240 of the bill and sec. 954(c)(6) of the
            Code)

                                  PRESENT LAW

    In general

        In general, the rules of subpart F (secs. 951-964) require
    U.S. shareholders with a 10-percent or greater interest in a
    controlled foreign corporation (``CFC'') to include certain
    income of the CFC (referred to as ``subpart F income'') on a
    current basis for U.S. tax purposes, regardless of whether the
    income is distributed to the shareholders.
        Subpart F income includes foreign base company income. One
    category of foreign base company income is foreign personal
    holding company income. For subpart F purposes, foreign
    personal holding company income generally includes dividends,
    interest, rents, and royalties, among other types of income.
    There are several exceptions to these rules. For example,
    foreign personal holding company income does not include
    dividends and interest received by a CFC from a related
    corporation organized and operating in the same foreign country
    in which the CFC is organized, or rents and royalties received
    by a CFC from a related corporation for the use of property
    within the country in which the CFC is organized. Interest,
    rent, and royalty payments do not qualify for this exclusion to
    the extent that such payments reduce the subpart F income of
    the payor. In addition, subpart F income of a CFC does not
    include any item of income from sources within the United
    States which is effectively connected with the conduct by such
    CFC of a trade or business within the United States (``ECI'')
    unless such item is exempt from taxation (or is subject to a
    reduced rate of tax) pursuant to a tax treaty.

    The ``look-through rule''\187\
    ---------------------------------------------------------------------------

        \187\The look-through rule was enacted by the Tax Increase
    Prevention and Reconciliation Act of 2005, Pub. L. No. 109-222, sec.
    103(b)(1) (2006).
    ---------------------------------------------------------------------------
        Under the ``look-through rule'' (sec. 954(c)(6)),
    dividends, interest (including factoring income which is
    treated as equivalent to interest under section 954(c)(1)(E)),
    rents, and royalties received by one CFC from a related CFC are
    not treated as foreign personal holding company income to the
    extent attributable or properly allocable to income of the
    payor that is neither subpart F nor treated as ECI. For this
    purpose, a related CFC is a CFC that controls or is controlled
    by the other CFC, or a CFC that is controlled by the same
    person or persons that control the other CFC. Ownership of more
    than 50 percent of the CFC's stock (by vote or value)
    constitutes control for these purposes.
        The Secretary is authorized to prescribe regulations that
    are necessary or appropriate to carry out the look-through
    rule, including such regulations as are appropriate to prevent
    the abuse of the purposes of such rule.
        The look-through rule is effective for taxable years of
    foreign corporations beginning after December 31, 2005, but
    before January 1, 2009, and for taxable years of U.S.
    shareholders with or within which such taxable years of such
    foreign corporations end.

                               REASONS FOR CHANGE

        The Committee believes that this provision should be
    extended for an additional year.

                            EXPLANATION OF PROVISION

        The provision extends for one year the application of the
    look-through rule, to taxable years of foreign corporations
    beginning before January 1, 2010, and for taxable years of U.S.
    shareholders with or within which such taxable years of such
    foreign corporations end.

                                 EFFECTIVE DATE

        The provision is effective for taxable years of foreign
    corporations beginning after December 31, 2008 (but before
    January 1, 2010), and for taxable years of U.S. shareholders
    with or within which such taxable years of such foreign
    corporations end.

    21. Extension of treatment of certain qualified film and television
            productions (Sec. 241 of the bill and sec. 181 of the Code)

                                  PRESENT LAW

        The modified Accelerated Cost Recovery System (``MACRS'')
    does not apply to certain property, including any motion
    picture film, video tape, or sound recording, or to any other
    property if the taxpayer elects to exclude such property from
    MACRS and the taxpayer properly applies a unit-of-production
    method or other method of depreciation not expressed in a term
    of years. Section 197 does not apply to certain intangible
    property, including property produced by the taxpayer or any
    interest in a film, sound recording, video tape, book or
    similar property not acquired in a transaction (or a series of
    related transactions) involving the acquisition of assets
    constituting a trade or business or substantial portion
    thereof. Thus, the recovery of the cost of a film, video tape,
    or similar property that is produced by the taxpayer or is
    acquired on a ``stand-alone'' basis by the taxpayer may not be
    determined under either the MACRS depreciation provisions or
    under the section 197 amortization provisions. The cost
    recovery of such property may be determined under section 167,
    which allows a depreciation deduction for the reasonable
    allowance for the exhaustion, wear and tear, or obsolescence of
    the property. 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. Section
    167(g) provides that the cost of motion picture films, sound
    recordings, copyrights, books, and patents are eligible to be
    recovered using the income forecast method of depreciation.
        Under section 181, taxpayers may elect\188\ to deduct the
    cost of any qualifying film and television production,
    commencing prior to January 1, 2009, in the year the
    expenditure is incurred in lieu of capitalizing the cost and
    recovering it through depreciation allowances.\189\ A qualified
    film or television production is one in which the aggregate
    cost is $15 million or less.\190\ The threshold is increased to
    $20 million if a significant amount of the production
    expenditures are incurred in areas eligible for designation as
    a low-income community or eligible for designation by the Delta
    Regional Authority as a distressed county or isolated area of
    distress.\191\
    ---------------------------------------------------------------------------
        \188\See Treas. Reg. section 1.181-2T for rules on making an
    election under this section.
        \189\For this purpose, a production is treated as commencing on the
    first date of principal photography.
        \190\Sec. 181(a)(2)(A). A qualifying film or television production
    that is co-produced is eligible for the benefits of the provision only
    if its aggregate cost, regardless of funding source, does not exceed
    the threshold.
        \191\Sec. 181(a)(2)(B).
    ---------------------------------------------------------------------------
        A qualified film or television production means any
    production of a motion picture (whether released theatrically
    or directly to video cassette or any other format) or
    television program if at least 75 percent of the total
    compensation expended on the production is for services
    performed in the United States by actors, directors, producers,
    and other relevant production personnel.\192\ The term
    ``compensation'' does not include participations and residuals
    (as defined in section 167(g)(7)(B)).\193\ With respect to
    property which is one or more episodes in a television series,
    each episode is treated as a separate production and only the
    first 44 episodes qualify under the provision.\194\ Qualified
    property does not include sexually explicit productions as
    defined by section 2257 of title 18 of the U.S. Code.\195\
    ---------------------------------------------------------------------------
        \192\Sec. 181(d)(3)(A).
        \193\Sec. 181(d)(3)(B).
        \194\Sec. 181(d)(2)(B).
        \195\Sec. 181(d)(2)(C).
    ---------------------------------------------------------------------------
        For purposes of recapture under section 1245, any deduction
    allowed under section 181 is treated as if it were a deduction
    allowable for amortization.\196\
    ---------------------------------------------------------------------------
        \196\Sec. 1245(a)(2)(C).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that section 181 encourages domestic
    film production. Therefore, the Committee believes that this
    provision should be extended.

                            EXPLANATION OF PROVISION

        The provision extends the provision for one year, to
    qualified film and television productions commencing prior to
    January 1, 2010.

                                 EFFECTIVE DATE

        The provision applies to qualified film and television
    productions commencing after December 31, 2008.

                              C. Other Extensions

    1. Authority to disclose information related to terrorist activity made
            permanent (Sec. 251 of the bill and sec. 6103 of the Code)

                                  PRESENT LAW

    In general

        Section 6103 provides that returns and return information
    may not be disclosed by the IRS, other Federal employees, State
    employees, and certain others having access to the information
    except as provided in the Internal Revenue Code. Section 6103
    contains a number of exceptions to this general rule of
    nondisclosure that authorize disclosure in specifically
    identified circumstances (including nontax criminal
    investigations) when certain conditions are satisfied.
                Disclosure provisions relating to emergency circumstances
        The IRS is authorized to disclose return information to
    apprise Federal law enforcement agencies of danger of death or
    physical injury to an individual or to apprise Federal law
    enforcement agencies of imminent flight of an individual from
    Federal prosecution.\197\ This authority has been used in
    connection with the investigation of terrorist activity.\198\
    ---------------------------------------------------------------------------
        \197\Sec. 6103(i)(3)(B).
        \198\See, Joint Committee on Taxation, Disclosure Report for Public
    Inspection Pursuant to Internal Revenue Code Section 6103(p)(3)(C) for
    Calendar Year 2002 (JCX 29.04) April 6, 2004.
    ---------------------------------------------------------------------------
                Disclosure provisions relating specifically to terrorist
                        activity
        Also among the disclosures permitted under the Code is
    disclosure of returns and return information for purposes of
    investigating terrorist incidents, threats, or activities, and
    for analyzing intelligence concerning terrorist incidents,
    threats, or activities. The term ``terrorist incident, threat,
    or activity'' is statutorily defined to mean an incident,
    threat, or activity involving an act of domestic terrorism or
    international terrorism.\199\
    ---------------------------------------------------------------------------
        \199\Sec. 6103(b)(11). For this purpose, ``domestic terrorism'' is
    defined in 18 U.S.C. sec. 2331(5) and ``international terrorism'' is
    defined in 18 U.S.C. sec. 2331(1).
    ---------------------------------------------------------------------------
        The term ``international terrorism'' means activities that
    involve violent acts or acts dangerous to human life that are a
    violation of the criminal laws of the United States or of any
    State, or that would be a criminal violation if committed
    within the jurisdiction of the United States or of any State;
    appear to be intended to intimidate or coerce a civilian
    population, to influence the policy of a government by
    intimidation or coercion, or to affect the conduct of a
    government by mass destruction, assassination, or kidnapping;
    and occur primarily outside the territorial jurisdiction of the
    United States, or transcend national boundaries in terms of the
    means by which they are accomplished, the persons they appear
    intended to intimidate or coerce, or the locale in which their
    perpetrators operate or seek asylum. The term ``domestic
    terrorism'' means activities that involve acts dangerous to
    human life that are a violation of the criminal laws of the
    United States or of any State; appear to be intended to
    intimidate or coerce a civilian population, to influence the
    policy of a government by intimidation or coercion or to affect
    the conduct of a government by mass destruction, assassination,
    or kidnapping; and occur primarily within the territorial
    jurisdiction of the United States.
        In general, returns and taxpayer return information must be
    obtained pursuant to an ex parte court order. Return
    information, other than taxpayer return information, generally
    is available upon a written request meeting specific
    requirements. The IRS also is permitted to make limited
    disclosures of such information on its own initiative to the
    appropriate Federal law enforcement agency.
                No disclosures may be made under these provisions after
                        December 31, 2007. The procedures applicable to
                        these provisions are described in detail below.

    Disclosure of returns and return information--by ex parte court order

                Ex parte court orders sought by Federal law enforcement and
                        Federal intelligence agencies
        The Code permits, pursuant to an ex parte court order, the
    disclosure of returns and return information (including
    taxpayer return information) to certain officers and employees
    of a Federal law enforcement agency or Federal intelligence
    agency. These officers and employees are required to be
    personally and directly engaged in any investigation of,
    response to, or analysis of intelligence and
    counterintelligence information concerning any terrorist
    incident, threat, or activity. These officers and employees are
    permitted to use this information solely for their use in the
    investigation, response, or analysis, and in any judicial,
    administrative, or grand jury proceeding, pertaining to any
    such terrorist incident, threat, or activity.
        The Attorney General, Deputy Attorney General, Associate
    Attorney General, an Assistant Attorney General, or a United
    States attorney, may authorize the application for the ex parte
    court order to be submitted to a Federal district court judge
    or magistrate. The Federal district court judge or magistrate
    would grant the order if based on the facts submitted he or she
    determines that: (1) there is reasonable cause to believe,
    based upon information believed to be reliable, that the return
    or return information may be relevant to a matter relating to
    such terrorist incident, threat, or activity; and (2) the
    return or return information is sought exclusively for the use
    in a Federal investigation, analysis, or proceeding concerning
    any terrorist incident, threat, or activity.
                Special rule for ex parte court ordered disclosure
                        initiated by the IRS
        If the Secretary of the Treasury (or his delegate)
    possesses returns or return information that may be related to
    a terrorist incident, threat, or activity, the Secretary may,
    on his own initiative, authorize an application for an ex parte
    court order to permit disclosure to Federal law enforcement. In
    order to grant the order, the Federal district court judge or
    magistrate must determine that there is reasonable cause to
    believe, based upon information believed to bereliable, that
    the return or return information may be relevant to a matter relating
    to such terrorist incident, threat, or activity. The information may be
    disclosed only to the extent necessary to apprise the appropriate
    Federal law enforcement agency responsible for investigating or
    responding to a terrorist incident, threat, or activity and for
    officers and employees of that agency to investigate or respond to such
    terrorist incident, threat, or activity. Further, use of the
    information is limited to use in a Federal investigation, analysis, or
    proceeding concerning a terrorist incident, threat, or activity.
    Because the Department of Justice represents the Secretary in Federal
    district court, the Secretary is permitted to disclose returns and
    return information to the Department of Justice as necessary and solely
    for the purpose of obtaining the special IRS ex parte court order.

    Disclosure of return information other than by ex parte court order

                Disclosure by the IRS without a request
        The Code permits the IRS to disclose return information,
    other than taxpayer return information, related to a terrorist
    incident, threat, or activity to the extent necessary to
    apprise the head of the appropriate Federal law enforcement
    agency responsible for investigating or responding to such
    terrorist incident, threat, or activity. The IRS on its own
    initiative and without a written request may make this
    disclosure. The head of the Federal law enforcement agency may
    disclose information to officers and employees of such agency
    to the extent necessary to investigate or respond to such
    terrorist incident, threat, or activity. A taxpayer's identity
    is not treated as return information supplied by the taxpayer
    or his or her representative.
                Disclosure upon written request of a Federal law
                        enforcement agency
        The Code permits the IRS to disclose return information,
    other than taxpayer return information, to officers and
    employees of Federal law enforcement upon a written request
    satisfying certain requirements. The request must: (1) be made
    by the head of the Federal law enforcement agency (or his
    delegate) involved in the response to or investigation of
    terrorist incidents, threats, or activities, and (2) set forth
    the specific reason or reasons why such disclosure may be
    relevant to a terrorist incident, threat, or activity. The
    information is to be disclosed to officers and employees of the
    Federal law enforcement agency who would be personally and
    directly involved in the response to or investigation of
    terrorist incidents, threats, or activities. The information is
    to be used by such officers and employees solely for such
    response or investigation.
        The Code permits the redisclosure by a Federal law
    enforcement agency to officers and employees of State and local
    law enforcement personally and directly engaged in the response
    to or investigation of the terrorist incident, threat, or
    activity. The State or local law enforcement agency must be
    part of an investigative or response team with the Federal law
    enforcement agency for these disclosures to be made.
                Disclosure upon request from the Departments of Justice or
                        the Treasury for intelligence analysis of terrorist
                        activity
        Upon written request satisfying certain requirements
    discussed below, the IRS is to disclose return information
    (other than taxpayer return information) to officers and
    employees of 136 the Department of Justice, Department of the
    Treasury, and other Federal intelligence agencies, who are
    personally and directly engaged in the collection or analysis
    of intelligence and counterintelligence or investigation
    concerning terrorist incidents, threats, or activities. Use of
    the information is limited to use by such officers and
    employees in such investigation, collection, or analysis.
        The written request is to set forth the specific reasons
    why the information to be disclosed is relevant to a terrorist
    incident, threat, or activity. The request is to be made by an
    individual who is: (1) an officer or employee of the Department
    of Justice or the Department of the Treasury, (2) appointed by
    the President with the advice and consent of the Senate, and
    (3) responsible for the collection and analysis of intelligence
    and counterintelligence information concerning terrorist
    incidents, threats, or activities. The Director of the United
    States Secret Service also is an authorized requester.

                               REASONS FOR CHANGE

        The Committee believes that the disclosure provisions
    relating to terrorist activities assist in the country's
    investigations of and response to terrorism. It is the
    Committee's understanding that this assistance has been
    impaired by the expiration of the provisions on December 31,
    2007. The Committee believes that it is appropriate to make the
    provisions permanent to avoid such interruptions in the future.

                            EXPLANATION OF PROVISION

        The provision makes permanent the present-law disclosure
    authority relating to terrorist activities.

                                 EFFECTIVE DATE

        The provision is effective for disclosures made on or after
    the date of enactment.

    2. IRS authority to fund undercover operations made permanent (Sec. 252
            of the bill and sec. 7608 of the Code)

                                  PRESENT LAW

        IRS undercover operations are statutorily\200\ exempt from
    the generally applicable restrictions controlling the use of
    Government funds (which generally provide that all receipts
    must be deposited in the general fund of the Treasury and all
    expenses be paid out of appropriated funds). In general, the
    Code permits the IRS to use proceeds from an undercover
    operation to pay additional expenses incurred in the undercover
    operation, through 2007. The IRS is required to conduct a
    detailed financial audit of large undercover operations in
    which the IRS is churning funds and to provide an annual audit
    report to the Congress on all such large undercover operations.
    ---------------------------------------------------------------------------
        \200\Sec. 7608(c).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes it is appropriate to permanently
    extend the IRS's authority to use proceeds from undercover
    operations to pay additional enforcement expenses. This
    authority provides the IRS with an important enforcement tool
    and it is similar to the authority provided to other law
    enforcement agencies.

                            EXPLANATION OF PROVISION

        The provision makes permanent the IRS's authority to use
    proceeds from an undercover operation to pay additional
    expenses incurred in the undercover operation.

                                 EFFECTIVE DATE

        The provision is effective on the date of enactment.

    3. Authority to disclose return information for certain veterans
            programs made permanent (Sec. 253 of the bill and sec. 6103 of
            the Code)

                                  PRESENT LAW

        The Code prohibits disclosure of returns and return
    information, except to the extent specifically authorized by
    the Code (sec. 6103). Unauthorized disclosure is a felony
    punishable by a fine not exceeding $5,000 or imprisonment of
    not more than five years, or both (sec. 7213). An action for
    civil damages also may be brought for unauthorized disclosure
    (sec. 7431). No tax information may be furnished by the
    Internal Revenue Service (``IRS'') to another agency unless the
    other agency establishes procedures satisfactory to the IRS for
    safeguarding the tax information it receives (sec. 6103(p)).
        Among the disclosures permitted under the Code is
    disclosure of certain tax information to the Department of
    Veterans Affairs. Disclosure is permitted to assist the
    Department of Veterans Affairs in determining eligibility for,
    and establishing correct benefit amounts under, certain of its
    needs-based pension, health care, and other programs (sec.
    6103(1)(7)(D)(viii)). The Department of Veterans Affairs
    disclosure provisions do not apply after September 30, 2008.

                               REASONS FOR CHANGE

        Ensuring that the correct amount of benefits is paid to
    recipients is an important budget priority. The Committee
    believes it is appropriate to make permanent the authority to
    disclose return information for certain veterans programs.

                            EXPLANATION OF PROVISION

        The provision makes permanent the authority to make
    disclosures to the Department of Veterans Affairs. The
    provision also corrects the cross-references to Title 38.

                                 EFFECTIVE DATE

        The provision is effective for requests made after
    September 30, 2008.

    4. Suspend limitation on rate of rum excise tax cover over to Puerto
            Rico and Virgin Islands (Sec. 254 of the bill and sec. 7652 of
            the Code)

                                  PRESENT LAW

        A $13.50 per proof gallon\201\ excise tax is imposed on
    distilled spirits produced in or imported (or brought) into the
    United States.\202\ The excise tax does not apply to distilled
    spirits that are exported from the United States, including
    exports to U.S. possessions (e.g., Puerto Rico and the Virgin
    Islands).\203\
    ---------------------------------------------------------------------------
        \201\A proof gallon is a liquid gallon consisting of 50 percent
    alcohol. See sec. 5002(a)(10) and (11).
        \202\Sec. 5001(a)(1).
        \203\Secs. 5062(b), 7653(b) and (c).
    ---------------------------------------------------------------------------
        The Code provides for cover over (payment) to Puerto Rico
    and the Virgin Islands of the excise tax imposed on rum
    imported (or brought) into the United States, without regard to
    the country of origin.\204\ The amount of the cover over is
    limited under Code section 7652(f) to $10.50 per proof gallon
    ($13.25 per proof gallon during the period July 1, 1999 through
    December 31, 2007).
    ---------------------------------------------------------------------------
        \204\Secs. 7652(a)(3), (b)(3), and (e)(1). One percent of the
    amount of excise tax collected from imports into the United States of
    articles produced in the Virgin Islands is retained by the United
    States under section 7652(b)(3).
    ---------------------------------------------------------------------------
        Tax amounts attributable to shipments to the United States
    of rum produced in Puerto Rico are covered over to Puerto Rico.
    Tax amounts attributable to shipments to the United States of
    rum produced in the Virgin Islands are covered over to the
    Virgin Islands. Tax amounts attributable to shipments to the
    United States of rum produced in neither Puerto Rico nor the
    Virgin Islands are divided and covered over to the two
    possessions under a formula.\205\ Amounts covered over to
    Puerto Rico and the Virgin Islands are deposited into the
    treasuries of the two possessions for use as those possessions
    determine.\206\ All of the amounts covered over are subject to
    the limitation.
    ---------------------------------------------------------------------------
        \205\Sec. 7652(e)(2).
        \206\Secs. 7652(a)(3), (b)(3), and (e)(1).
    ---------------------------------------------------------------------------

                            EXPLANATION OF PROVISION

        The provision suspends for one year the $10.50 per proof
    gallon limitation on the amount of excise taxes on rum covered
    over to Puerto Rico and the Virgin Islands. Under the
    provision, the cover over amount of $13.25 per proof gallon is
    extended for rum brought into the United States after December
    31, 2007 and before January 1, 2009. After December 31, 2008,
    the cover over amount reverts to $10.50 per proof gallon.

                               REASONS FOR CHANGE

        The Committee believes that it is appropriate to extend the
    increase in the amount of the rum excise tax covered over to
    these possessions.

                                 EFFECTIVE DATE

        The change in the cover over rate is effective for articles
    brought into the United States after December 31, 2007.

    5. Extension of parity in the application of certain limits to mental
            health benefits (Sec. 255 of the bill and sec. 9812 of the
            Code)

                                  PRESENT LAW

        The Code, the Employee Retirement Income Security Act of
    1974 (``ERISA'') and the Public Health Service Act (``PHSA'')
    contain provisions under which group health plans that provide
    both medical and surgical benefits and mental health benefits
    cannot impose aggregate lifetime or annual dollar limits on
    mental health benefits that are not imposed on substantially
    all medical and surgical benefits (``mental health parity
    requirements''). In the case of a group health plan which
    provides benefits for mental health, the mental health parity
    requirements do not affect the terms and conditions (including
    cost sharing, limits on numbers of visits or days of coverage,
    and requirements relating to medical necessity) relating to the
    amount, duration, or scope of mental health benefits under the
    plan, except as specifically provided in regard to parity in
    the imposition of aggregate lifetime limits and annual limits.
        The Code imposes an excise tax on group health plans which
    fail to meet the mental health parity requirements. The excise
    tax is equal to $100 per day during the period of noncompliance
    and is generally imposed on the employer sponsoring the plan if
    the plan fails to meet the requirements. The maximum tax that
    can be imposed during a taxable year cannot exceed the lesser
    of 10 percent of the employer's group health plan expenses for
    the prior year or $500,000. No tax is imposed if the Secretary
    determines that the employer did not know, and in exercising
    reasonable diligence would not have known, that the failure
    existed.
        The mental health parity requirements do not apply to group
    health plans of small employers nor do they apply if their
    application results in an increase in the cost under a group
    health plan of at least one percent. Further, the mental health
    parity requirements do not require group health plans to
    provide mental health benefits.
        The Code, ERISA and PHSA mental health parity requirements
    expired with respect to benefits for services furnished after
    December 31, 2007.

                               REASONS FOR CHANGE

        The Committee recognizes that the Code provisions relating
    to mental health parity are important to carrying out the
    purposes of the Mental Health Parity Act. Thus, the Committee
    believes that extending the Code provisions relating to mental
    health parity is warranted.

                            EXPLANATION OF PROVISION

        The provision extends the present-law Code excise tax for
    failure to comply with the mental health parity requirements
    for benefits for services furnished on or after the date of
    enactment through December 31, 2008.

                                 EFFECTIVE DATE

        The provision is effective upon the date of enactment.

                        TITLE III--ADDITIONAL TAX RELIEF

                            A. Individual Tax Relief

    1. Additional standard deduction for state and local real property
            taxes (Sec. 301 of the bill and sec. 63 of the Code)

                                  PRESENT LAW

        An individual taxpayer's taxable income is computed by
    reducing adjusted gross income either by a standard deduction
    or, if the taxpayer elects, by the taxpayer's itemized
    deductions. Unless an individual taxpayer elects, no itemized
    deduction is allowed for the taxable year. The deduction for
    certain taxes, including income taxes, real property taxes, and
    personal property taxes, generally is an itemized
    deduction.\207\
    ---------------------------------------------------------------------------
        \207\If the deduction for State and local taxes is attributable to
    business or rental income, the deduction is allowed in computing
    adjusted gross income and therefore is not an itemized deduction.
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes an additional standard deduction for
    real property taxes is appropriate in order to help lessen the
    impact of rising State and local property tax bills on those
    individual taxpayers with insufficient total itemized
    deductions to elect not to take the standard deduction.

                            EXPLANATION OF PROVISION

        The provision increases an individual taxpayer's standard
    deduction for a taxable year beginning in 2008 by the lesser of
    (1) the amount allowable\208\ to the taxpayer as a deduction
    for State and local taxes described in section 164(a)(1)
    (relating to real property taxes), or (2) $350 ($700 in the
    case of married individuals filing a joint return). The
    increased standard deduction is determined by taking into
    account real estate taxes for which a deduction is allowable to
    the taxpayer under section 164 and, in the case of a tenant-
    stockholder in a cooperative housing corporation, real estate
    taxes for which a deduction is allowable to the taxpayer under
    section 216. No taxes deductible in computing adjusted gross
    income are taken into account in computing the increased
    standard deduction.
    ---------------------------------------------------------------------------
        \208\In the case of an individual taxpayer who does not elect to
    itemize deductions, although no itemized deductions are allowed to the
    taxpayer, itemized deductions are nevertheless treated as
    ``allowable.'' See section 63(e).
    ---------------------------------------------------------------------------

                                 EFFECTIVE DATE

        The provision applies to taxable years beginning in 2008.

    2. Refundable child credit (Sec. 302 of the bill and sec. 24 of the
            Code)

                                  PRESENT LAW

        An individual may claim a tax credit for each qualifying
    child under the age of 17. The amount of the credit per child
    is $1,000 through 2010, and $500 thereafter. A child who is not
    a citizen, national, or resident of the United States cannot be
    a qualifying child.
        The credit is phased out for individuals with income over
    certain threshold amounts. Specifically, the otherwise
    allowable child tax credit is reduced by $50 for each $1,000
    (or fraction thereof) of modified adjusted gross income over
    $75,000 for single individuals or heads of households, $110,000
    for married individuals filing joint returns, and $55,000 for
    married individuals filing separate returns. For purposes of
    this limitation, modified adjusted gross income includes
    certain otherwise excludable income earned by U.S. citizens or
    residents living abroad or in certain U.S. territories.
        The credit is allowable against the regular tax and the
    alternative minimum tax. To the extent the child credit exceeds
    the taxpayer's tax liability, the taxpayer is eligible for a
    refundable credit (the additional child tax credit) equal to 15
    percent of earned income in excess of a threshold dollar amount
    (the ``earned income'' formula). The threshold dollar amount is
    $12,050 (2008), and is indexed for inflation.
        Families with three or more children may determine the
    additional child tax credit using the ``alternative formula,''
    if this results in a larger credit than determined under the
    earned income formula. Under the alternative formula, the
    additional child tax credit equals the amount by which the
    taxpayer's social security taxes exceed the taxpayer's earned
    income credit (``EIC'').
        Earned income is defined as the sum of wages, salaries,
    tips, and other taxable employee compensation plus net self-
    employment earnings. Unlike the EIC, which also includes the
    preceding items in its definition of earned income, the
    additional child tax credit is based only on earned income to
    the extent it is included in computing taxable income. For
    example, some ministers' parsonage allowances are considered
    self-employment income, and thus are considered earned income
    for purposes of computing the EIC, but the allowances are
    excluded from gross income for individual income tax purposes,
    and thus are not considered earned income for purposes of the
    additional child tax credit since the income is not included in
    taxable income.

                               REASONS FOR CHANGE

        The Committee believes it is appropriate to lower the
    threshold earnings level for the refundable child credit in
    order to increase the amount of available child credit for
    lower income households.

                            EXPLANATION OF PROVISION

        The provision modifies the earned income formula for the
    determination of the refundable child credit to apply to 15
    percent of earned income in excess of $8,500 for taxable years
    beginning in 2008.

                                 EFFECTIVE DATE

        The provision is effective for taxable years beginning in
    2008.

    3. Increase in AMT refundable credit amount for individuals with long-
            term unused credits for prior year minimum tax liability, etc.
            (Sec. 303 of the bill and sec. 53 of the Code)

                                  PRESENT LAW

    In general

        Present law imposes an alternative minimum tax (``AMT'') on
    an individual taxpayer to the extent the taxpayer's tentative
    minimum tax liability exceeds his or her regular income tax
    liability. An individual's tentative minimum tax is the sum of
    (1) 26 percent of so much of the taxable excess as does not
    exceed $175,000 ($87,500 in the case of a married individual
    filing a separate return) and (2) 28 percent of the remaining
    taxable excess. The taxable excess is the amount by which the
    alternative minimum taxable income (``AMTI'') exceeds an
    exemption amount.
        An individual's AMTI is the taxpayer's taxable income
    increased by certain preference items and adjusted by
    determining the tax treatment of certain items in a manner that
    negates the deferral of income resulting from the regular tax
    treatment of those items.
        The individual AMT attributable to deferral adjustments
    generates a minimum tax credit that is allowable to the extent
    the regular tax (reduced by other nonrefundable credits)
    exceeds the tentative minimum tax in a future taxable year.
    Unused minimum tax credits are carried forward indefinitely.

    AMT treatment of incentive stock options

        One of the adjustments in computing AMTI is the tax
    treatment of the exercise of an incentive stock option. An
    incentive stock option is an option granted by a corporation in
    connection with an individual's employment, so long as the
    option meets certain specified requirements.\209\ Under the
    regular tax, the exercise of an incentive stock option is tax-
    free if the stock is not disposed of within one year of
    exercise of the option or within two years of the grant of the
    option.\210\ The individual then computes the long-term capital
    gain or loss on the sale of the stock using the amount paid for
    the stock as the cost basis. If the holding period requirements
    are not satisfied, the individual generally takes into account
    at the exercise of the option an amount of ordinary income
    equal to the excess of the fair market value of the stock on
    the date of exercise over the amount paid for the stock. The
    cost basis of the stock is increased by the amount taken into
    account.\211\
    ---------------------------------------------------------------------------
        \209\Sec. 422.
        \210\Sec. 421.
        \211\If the stock is sold at a loss before the required holding
    periods are met, the amount taken into account may not exceed the
    amount realized on the sale over the adjusted basis of the stock. If
    the stock is sold after the taxable year in which the option was
    exercised but before the required holding periods are met, the required
    inclusion is made in the year the stock is sold.
    ---------------------------------------------------------------------------
        Under the individual alternative minimum tax, the exercise
    of an incentive stock option is treated as the exercise of an
    option other than an incentive stock option. Under this
    treatment, generally the individual takes into account as
    ordinary income for purposes of computing AMTI the excess of
    the fair market value of the stock at the date of exercise over
    the amount paid for the stock.\212\ When the stock is later
    sold, for purposes of computing capital gain or loss for
    purposes of AMTI, the adjusted basis of the stock includes the
    amount taken into account as AMTI.
    ---------------------------------------------------------------------------
        \212\If the stock is sold in the same taxable year the option is
    exercised, no adjustment in computing AMTI is required.
    ---------------------------------------------------------------------------
        The adjustment relating to incentive stock options is a
    deferral adjustment and therefore generates an AMT credit in
    the year the stock is sold.\213\
    ---------------------------------------------------------------------------
        \213\If the stock is sold for less than the amount paid for the
    stock, the loss may not be allowed in full in computing AMTI by reason
    of the $3,000 limit on the deductibility of net capital losses. Thus,
    the excess of the regular tax over the tentative minimum tax may not
    reflect the full amount of the loss.
    ---------------------------------------------------------------------------

    Allowance of long-term unused credits

        Under present law, an individual's minimum tax credit
    allowable for any taxable year beginning after December 31,
    2006, and beginning before January 1, 2013, is not less than
    the ``AMT refundable credit amount.'' The ``AMT refundable
    credit amount'' is the amount (not in excess of the long-term
    unused minimum tax credit) equal to the greatest of (1) $5,000,
    (2) 20 percent of the long-term unused minimum tax credit for
    the taxable year, or (3) the amount (if any) of the AMT
    refundable credit amount for the preceding taxable year before
    any reduction by reason of the reduction for adjusted gross
    income described below. The long-term unused minimum tax credit
    for any taxable year means the portion of the minimum tax
    credit attributable to the adjusted net minimum tax for taxable
    years before the 3rd taxable year immediately preceding the
    taxable year (assuming the credits are used on a first-in,
    first-out basis).
        In the case of an individual whose adjusted gross income
    for a taxable year exceeds the threshold amount (within the
    meaning of section 151(d)(3)(C)), the AMT refundable credit
    amount is reduced by the applicable percentage (within the
    meaning of section 151(d)(3)(B)). The additional credit
    allowable by reason of this provision is refundable.

                               REASONS FOR CHANGE

        The individual alternative minimum tax is intended to
    accelerate the tax on certain items of income that are deferred
    under the regular tax by initially imposing a tax and later
    allowing a minimum tax credit when the deferral ends. One of
    these items relates to the exercise of incentive stock options.
    However, because of technical problems, the credit may not be
    properly allowable where the value of the stock acquired on the
    exercise of an incentive stock option has declined in value
    when the stock is sold. In the past, Congress provided certain
    relief in these situations. The Committee believes that
    additional relief should be provided to correct this problem so
    that taxpayers are not paying tax on ``phantom'' income
    attributable to incentive stock options.

                            EXPLANATION OF PROVISION

        The bill generally allows the long-term unused minimum tax
    credit to be claimed over a two-year period (rather than five
    years) and eliminates the AGI phase-out.
        The bill provides that any underpayment of tax outstanding
    on the date of enactment which is attributable to the
    application of the minimum tax adjustment for incentive stock
    options (including any interest or penalty relating thereto) is
    abated. No tax which is abated is taken into account in
    determining the minimum tax credit.
        The bill provides that the AMT refundable credit amount and
    the AMT credit for each of the first two taxable years
    beginning after December 31, 2007, is increased by one-half of
    the amount of any interest and penalty paid before the date of
    enactment on account of the application of the minimum
    adjustment for incentive stock options.

                                 EFFECTIVE DATE

        The provision generally applies to taxable years beginning
    after December 31, 2007.
        The provision relating to the abatement of tax, interest,
    and penalties takes effect on date of enactment.

                         B. Business Related Provisions

    1. Uniform treatment of attorney-advanced expenses and court costs in
            contingency fee cases (Sec. 311 of the bill and new sec. 162 of
            the Code)

                                  PRESENT LAW

        In general, a deduction is allowed for ordinary and
    necessary expenses paid or incurred during the taxable year in
    carrying on any trade or business.\214\ For advanced litigation
    costs in contingency fee cases, the tax treatment is determined
    based on the type of arrangement that exists between the
    attorney and client. The contingent fee arrangements generally
    take two forms: (1) net fee arrangements, whereby the
    attorney's compensation is based on a percentage of the gross
    recovery net of the advanced litigation costs, and (2) gross
    fee arrangements, whereby the attorney's compensation is based
    on a percentage of the gross recovery without regard to the
    amount of advanced litigation costs. The advanced litigation
    costs typically include travel expenses, witness fees,
    deposition costs, court filing fees, expert witness fees, and
    other case related costs. When these costs are paid by the
    attorney, effectively on behalf of the client, they are
    generally considered to be advanced litigation costs.
    ---------------------------------------------------------------------------
        \214\Sec. 162(a).
    ---------------------------------------------------------------------------
        The advanced litigation costs incurred as part of net fee
    arrangements have been viewed by the IRS and the courts as a
    loan from the attorney to the client. A current deduction under
    section 162 is not permitted; however, the attorney may claim a
    bad debt deduction under section 166 at such time as the loan
    becomes worthless.\215\ This conclusion has primarily been
    reached based on the attorney's expectation of reimbursement
    based on the screening process used to accept cases with a high
    probability of victory (e.g., the rate of collection on the
    advances is typically in excess of 90%). In the case of a gross
    fee arrangement, the Ninth Circuit Court of Appeals has ruled
    that the costs are deductible by the attorney in the year
    incurred and the payment of such costs cannot be described as
    an advance or a loan when there is no obligation on the part of
    the client to repay the money expended.\216\
    ---------------------------------------------------------------------------
        \215\Burnett v. Commissioner, 356 F.2d 755 (5th Cir. 1966); Hearn
    v. Commissioner, 309 F.2d 431 (9th Cir. 1962); Canelo v. Commissioner,
    447 F.2d 484 (9th Cir. 1971); Boccardo v. United States, 12 Cl. Ct. 184
    (1987).
        \216\Boccardo v. Commissioner, 56 F.3d 1016 (9th Cir. 1995).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that uniform treatment of attorney-
    advanced expenses and court costs in contingency fee cases is
    an issue of tax fairness. A large number of attorneys are small
    business owners and many frequently work under contingency fee
    arrangements. Under present law, these expenses are deductible
    as paid or incurred in gross fee arrangements, but not in net
    fee arrangements. The average contingency fee case lasts two
    and one-half years, which leads to an extended deferral of
    these expenses. Additionally, while attorneys are required to
    capitalize these costs until the case is resolved in a net fee
    arrangement, similar expenditures are currently deductible when
    paid or incurred in other businesses. The provision eliminates
    this disparity.

                            EXPLANATION OF PROVISION

        The provision ensures a uniform set of rules for attorney-
    advanced expenses and court costs in contingency fee cases by
    providing that in the case of any expense or court cost which
    is paid or incurred in the course of the trade or business of
    practicing law and the repayment of which is contingent on a
    recovery by judgment or settlement in the action to which such
    expense or cost relates, the deduction of an ordinary and
    necessary business expense is determined as if such expense or
    cost is not subject to repayment. Thus, the amounts paid or
    incurred by the attorney are not considered to be a loan to the
    client, and the attorney is entitled to an otherwise
    permissible deduction in the taxable year in which the expense
    or cost is paid or incurred.

                                 EFFECTIVE DATE

        The provision applies to expenses and costs paid or
    incurred in taxable years beginning after date of enactment.

    2. Modification of treatment of certain qualified film and television
            productions (Sec. 312(a) of the bill and sec. 181 of the Code)

                                  PRESENT LAW

        The modified Accelerated Cost Recovery System (``MACRS'')
    does not apply to certain property, including any motion
    picture film, video tape, or sound recording, or to any other
    property if the taxpayer elects to exclude such property from
    MACRS and the taxpayer properly applies a unit-of-production
    method or other method of depreciation not expressed in a term
    of years. Section 197 does not apply to certain intangible
    property, including property produced by the taxpayer or any
    interest in a film, sound recording, video tape, book or
    similar property not acquired in a transaction (or a series of
    related transactions) involving the acquisition of assets
    constituting a trade or business or substantial portion
    thereof. Thus, the recovery of the cost of a film, video tape,
    or similar property that is produced by the taxpayer or is
    acquired on a ``stand-alone'' basis by the taxpayer may not be
    determined under either the MACRS depreciation provisions or
    under the section 197 amortization provisions. The cost
    recovery of such property may be determined under section 167,
    which allows a depreciation deduction for the reasonable
    allowance for the exhaustion, wear and tear, or obsolescence of
    the property. 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. Section
    167(g) provides that the cost of motion picture films, sound
    recordings, copyrights, books, and patents are eligible to be
    recovered using the income forecast method of depreciation.
        Under section 181, taxpayers may elect\217\ to deduct the
    cost of any qualifying film and television production,
    commencing prior to January 1, 2009, in the year the
    expenditure is incurred in lieu of capitalizing the cost and
    recovering it through depreciation allowances.\218\ A qualified
    film or television production is one in which the aggregate
    cost is $15 million or less.\219\ The threshold is increased to
    $20 million if a significant amount of the production
    expenditures are incurred in areas eligible for designation as
    a low-income community or eligible for designation by the Delta
    Regional Authority as a distressed county or isolated area of
    distress.\220\
    ---------------------------------------------------------------------------
        \217\See Treas. Reg. section 1.181-2T for rules on making an
    election under this section.
        \218\For this purpose, a production is treated as commencing on the
    first date of principal photography.
        \219\Sec. 181(a)(2)(A). A qualifying film or television production
    that is co-produced is eligible for the benefits of the provision only
    if its aggregate cost, regardless of funding source, does not exceed
    the threshold.
        \220\Sec. 181(a)(2)(B).
    ---------------------------------------------------------------------------
        A qualified film or television production means any
    production of a motion picture (whether released theatrically
    or directly to video cassette or any other format) or
    television program if at least 75 percent of the total
    compensation expended on the production is for services
    performed in the United States by actors, directors, producers,
    and other relevant production personnel.\221\ The term
    ``compensation'' does not include participations and residuals
    (as defined in section 167(g)(7)(B)).\222\ With respect to
    property which is one or more episodes in a television series,
    each episode is treated as a separate production and only the
    first 44 episodes qualify under the provision.\223\ Qualified
    property does not include sexually explicit productions as
    defined by section 2257 of title 18 of the U.S. Code.\224\
    ---------------------------------------------------------------------------
        \221\Sec. 181(d)(3)(A).
        \222\Sec. 181(d)(3)(B).
        \223\Sec. 181(d)(2)(B).
        \224\Sec. 181(d)(2)(C).
    ---------------------------------------------------------------------------
        For purposes of recapture under section 1245, any deduction
    allowed under section 181 is treated as if it were a deduction
    allowable for amortization.\225\
    ---------------------------------------------------------------------------
        \225\Sec. 1245(a)(2)(C).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that section 181 encourages domestic
    film production and that the provision should be enhanced to
    include more expensive film productions. The issue of runaway
    production affects all productions, regardless of cost, and
    therefore the Committee believes that it is appropriate to
    treat as an expense the first $15 million ($20 million in
    certain cases) of production costs of otherwise qualified
    films.

                            EXPLANATION OF PROVISION

        The provision modifies the dollar limitation so that the
    first $15 million ($20 million for productions in low income
    communities or distressed area or isolated area of distress) of
    an otherwise qualified film or television production may be
    treated as an expense in cases where the aggregate cost of the
    production exceeds the dollar limitation. The cost of the
    production in excess of the dollar limitation is capitalized
    and recovered under the taxpayer's method of accounting for the
    recovery of such property.

                                 EFFECTIVE DATE

        The provision applies to qualified film and television
    productions commencing after December 31, 2007.

    3. Modification of domestic production activities deduction for film
            production (Sec. 312(b) 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 2008 and 2009, the deduction is six percent
    of such income. 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.\226\
    ---------------------------------------------------------------------------
        \226\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, designated
    Roth contributions (as defined in section 402A).
    ---------------------------------------------------------------------------

    Qualified production activities income

        In general, qualified production activities income
    (``QPAI'') is equal to domestic production gross receipts
    (``DPGR''), 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.\227\
    ---------------------------------------------------------------------------
        \227\Sec. 199(c)(1).
    ---------------------------------------------------------------------------

    Domestic production gross receipts

        DPGR 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;\228\ (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) in the case
    of a taxpayer engaged in the active conduct of a construction
    trade or business, construction of real property performed in
    the United States by the taxpayer in the ordinary course of
    such trade or business;\229\ or (5) in the case of a taxpayer
    engaged in the active conduct of an engineering or
    architectural services trade or business, engineering or
    architectural services performed in the United States by the
    taxpayer in the ordinary course of such trade or business with
    respect to the construction of real property in the United
    States.\230\
    ---------------------------------------------------------------------------
        \228\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).
        \229\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.
        \230\Sec. 199(c)(4)(A).
    ---------------------------------------------------------------------------
        Domestic production gross receipts do not include any gross
    receipts of the taxpayer that are derived from: (1) the sale of
    food or beverages prepared by the taxpayer at a retail
    establishment; (2) the transmission or distribution of
    electricity, natural gas, or potable water; or (3) the lease,
    rental, license, sale, exchange, or other disposition of
    land.\231\
    ---------------------------------------------------------------------------
        \231\Sec. 199(c)(4)(B).
    ---------------------------------------------------------------------------
        A special rule for government contracts provides that
    property that is manufactured or produced by the taxpayer
    pursuant to a contract with the Federal Government is
    considered to be DPGR even if title or risk of loss is
    transferred to the Federal Government before the manufacture or
    production of such property is complete to the extent required
    by the Federal Acquisition Regulation.\232\
    ---------------------------------------------------------------------------
        \232\Sec. 199(c)(4)(C).
    ---------------------------------------------------------------------------
        For purposes of determining DPGR of a partnership and its
    partners, provided all of the interests in the capital and
    profits of the partnership are owned by members of the same
    expanded affiliated group (``EAG'') at all times during the
    taxable year of the partnership, then the partnership and all
    members of that EAG are treated as a single taxpayer during
    such period.\233\
    ---------------------------------------------------------------------------
        \233\Sec. 199(c)(4)(D).
    ---------------------------------------------------------------------------

    Qualifying production property and qualified film

        QPP generally includes any tangible personal property,
    computer software, or sound recordings. ``Qualified film''
    includes any motion picture film or videotape\234\ (including
    live or delayed television programming, but not including
    certain sexually explicit productions) if 50 percent or more of
    the total compensation relating to the production of such film
    (including compensation in the form of residuals and
    participations)\235\ constitutes compensation for services
    performed in the United States by actors, production personnel,
    directors, and producers.\236\
    ---------------------------------------------------------------------------
        \234\The nature of the material on which properties described in
    section 168(f)(3) are embodied and the methods and means of
    distribution of such properties does not affect their qualification
    under this provision.
        \235\To the extent that a taxpayer has included an estimate of
    participations and/or residuals in its income forecast calculation
    under section 167(g), the taxpayer must use the same estimate of
    participations and/or residuals for purposes of determining total
    compensation.
        \236\Sec. 199(c)(6).
    ---------------------------------------------------------------------------

    Other rules

                Qualified production activities income of partnerships and
                        S corporations
        With respect to the domestic production activities of a
    partnership or S corporation, the deduction under section 199
    is determined at the partner or shareholder level.\237\ In
    performing the calculation, each partner or shareholder
    generally will take into account such person's allocable share
    of the components of the calculation (including domestic
    production gross receipts; the cost of goods sold allocable to
    such receipts; and other expenses, losses, or deductions
    allocable to such receipts) from the partnership or S
    corporation as well as any items relating to the partner or
    shareholder's own qualified production activities, if any.\238\
    Each partner or shareholder is treated as having W-2 wages for
    the taxable year in an amount equal to such person's allocable
    share of the W-2 wages of the partnership or S corporation for
    the taxable year.\239\
    ---------------------------------------------------------------------------
        \237\Sec. 199(d)(1)(A)(i).
        \238\Sec. 199(d)(1)(A)(ii).
        \239\Sec. 199(d)(1)(A)(iii).
    ---------------------------------------------------------------------------
        The Treasury regulations provide that, except for certain
    qualifying in-kind partnerships and EAG partnerships, an owner
    of a pass-thru entity is not treated as conducting the
    qualified production activities of the of the pass-thru entity,
    and vice versa.\240\
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        \240\Treas. Reg. Sec. 1.199-5T(g).
    ---------------------------------------------------------------------------
                Alternative minimum tax
        The deduction under section 199 is allowed for purposes of
    computing alternative minimum taxable income (including
    adjusted current earnings), without regard to alternative
    minimum tax adjustments.\241\ 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.\242\
    ---------------------------------------------------------------------------
        \241\Sec. 199(d)(6)(A).
        \242\Sec. 199(d)(6)(A).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that domestic film production is
    important to the United States economy and the domestic
    production activities deduction under section 199 should be
    modified to take into consideration how the film industry
    operates. Therefore, the Committee believes that it is
    appropriate to modify how the deduction is applied to this
    industry with regard to the type of qualifying property, the
    methods and means of distributing qualified films, commonly
    used structures for film production and distribution, and the
    W-2 wage limitation.

                            EXPLANATION OF PROVISION

        The provision provides that a qualified film includes any
    copyrights, trademarks, and other intangibles with respect to
    the film.
        The provision provides that the deduction under section 199
    for qualified films is not affected by the methods and means of
    distributing an otherwise qualified film.\243\ For example, the
    distribution of a qualified film via the internet (whether the
    film is viewed online or downloaded or whether or not there is
    a fee charged) is considered to be a disposition of the film
    for purposes of determining DPGR. Likewise, the distribution of
    a qualified film through an open air (free of charge) broadcast
    is considered a disposition of the film for these purposes.
    ---------------------------------------------------------------------------
        \243\This provision is consistent with H.R. Conf. Rep. No. 108-755,
    at 262, Fn. 30 (2004).
    ---------------------------------------------------------------------------
        The provision modifies the application of section 199 to
    partnerships and S corporations. First, the provision provides
    that each partner with at least a 20 percent capital interest
    or shareholder with at least a 20 percent ownership interest,
    either directly or indirectly, in such entity is treated as
    having engaged directly. in any film produced by the
    partnership or S corporation. For example, Studio A and Studio
    B form a partnership in which each is a 50-percent partner to
    produce a qualified film. Studio A has the rights to distribute
    the film domestically and Studio B has the rights to distribute
    the film outside the United States. Under the provision, the
    production activities of the partnership are attributed to each
    partner, and thus each partner's revenue from the distribution
    of the qualified film is not treated as non-DPGR solely because
    neither Studio A nor Studio B produced the qualified film
    itself. Additionally, a partnership or S corporation is treated
    as having engaged directly in any film produced by any partner
    with at least a 20 percent capital interest or shareholder with
    at least a 20 percent ownership interest, either directly or
    indirectly, in the partnership or S corporation. For example,
    Studio A and Studio B form a partnership in which each is a 50-
    percent partner to distribute a qualified film. Studio A
    produced the film and contributes it to the partnership and
    Studio B contributes distribution services to the partnership.
    Under the provision, the production activities of Studio A are
    attributed to the partnership, and thus the partnership's
    revenue from the distribution of the qualified film is not
    treated as non-DPGR solely because the partnership did not
    produce the qualified film. Thus, the Treasury regulation
    providing that an owner of a pass-thru entity is not treated as
    conducting the qualified production activities of the of the
    pass-thru entity, and vice versa,\244\ does not apply to
    situations to which this provision applies.
    ---------------------------------------------------------------------------
        \244\Treas. Reg. sec. 1.199-5T(g).
    ---------------------------------------------------------------------------
        The provision modifies the W-2 wage limitation by defining
    the term ``W-2 wages'' for qualified films to include any
    compensation for services performed in the United States by
    actors, production personnel, directors, and producers. Thus,
    compensation is not restricted to W-2 wages for the limitation
    of qualified films.

                                 EFFECTIVE DATE

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

    C. Modification of Penalty on Understatement of Taxpayer's Liability by
                              Tax Return Preparer

    1. Modified standard for imposition of tax return preparer penalties
            (Sec. 321 of the bill and sec. 6694 of the Code)

                                  PRESENT LAW

    Taxpayer standards

        Present law imposes accuracy-related penalties on a
    taxpayer at a rate of 20 percent of the portion of any
    underpayment that is attributable to any substantial
    understatement of income tax. In determining whether a
    substantial understatement exists, the amount of the
    understatement generally is reduced by any portion attributable
    to an item if (1) the treatment of the item is supported by
    substantial authority, or (2) facts relevant to the tax
    treatment of the item were adequately disclosed and there was a
    reasonable basis for its tax treatment.
        In the case of a tax shelter item of a non-corporate
    taxpayer, the substantial understatement penalty does not apply
    if the taxpayer had substantial authority for the tax position
    and the taxpayer can demonstrate that he or she had a
    reasonable belief that the position is ``more likely than not''
    the proper treatment. A taxpayer will be considered to have a
    reasonable belief that the treatment is more likely than not
    the proper treatment if the taxpayer relies upon the opinion of
    a professional advisor and the opinion is based upon the
    pertinent facts and authorities analyzed similar to the manner
    described in the substantial authority standard.\245\
    ---------------------------------------------------------------------------
        \245\Treas. Reg. sec. 1.6662-4(g).
    ---------------------------------------------------------------------------

    Tax return preparer standards

        Prior to enactment of the Small Business and Work
    Opportunity Tax Act of 2007, an income tax return preparer who
    prepared a tax return with respect to which there was an
    understatement of tax that was due to an undisclosed position
    for which there was not a realistic possibility of being
    sustained on its merits was liable for a $250 penalty. For a
    disclosed position, the preparer was liable only if the
    position was frivolous.
        Legislation enacted as part of the Small Business and Work
    Opportunity Tax Act of 2007 broadened the scope of the preparer
    penalty by applying it to all tax return preparers and altered
    the standards of conduct a tax return preparer is required to
    meet in order to avoid the imposition of penalties for the
    preparation of a return with respect to which there is an
    understatement of tax. A tax return preparer now can be
    penalized for preparing a return on which there is an
    understatement of tax liability as a result of an
    ``unreasonable position.'' Any position that a return preparer
    does not reasonably believe is more likely than not to be
    sustained on its merits is an ``unreasonable position'' unless
    the position is disclosed on the return and there is a
    reasonable basis for the position.
        In general, the term ``tax return preparer'' is broadly
    defined as any person who prepares for compensation, or who
    employs one or more persons to prepare for compensation, any
    return of tax or any claim for refund of tax.\246\ Preparation
    of a substantial portion of a return is treated as if it were
    the preparation of such return.
    ---------------------------------------------------------------------------
        \246\Sec. 7701(a)(36)(A).
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that the standards of conduct for
    taxpayers and return preparers generally should be uniform. The
    Committee believes that the present-law standard for return
    preparers, which is generally higher than that for taxpayers,
    can result in a conflict of interest for return preparers. The
    conflict of interest arises because it is in the interest of a
    preparer to advise his taxpayer client to either disclose a tax
    position or alter such position in order to avoid the preparer
    penalty, even though the taxpayer could legally and
    appropriately take the position without disclosure or facing
    penalties. This may have the unintended consequence of causing
    taxpayers to be less inclined to use the services of
    professional tax preparers, which could harm the system of tax
    collections. Thus, the Committee believes the standards of
    conduct for taxpayers and return preparers generally should be
    uniform.

                            EXPLANATION OF PROVISION

        The provision changes the standards for imposition of the
    tax return preparer penalty. The preparer standard for
    undisclosed positions is reduced to ``substantial authority.''
    The preparer standard for disclosed positions is ``reasonable
    basis.'' For tax shelters and reportable transactions to which
    section 6662A applies (i.e., listed transactions and reportable
    transactions with significant avoidance or evasion purposes), a
    tax return preparer is required to have a reasonable belief
    that such a transaction was more likely than not to be
    sustained on its merits.

                                 EFFECTIVE DATE

        The proposal generally is effective with respect to returns
    prepared after May 25, 2007. In the case of tax shelters and
    reportable transactions, the proposal is effective for returns
    prepared for taxable years ending after the date of enactment.

            D. Extension and Expansion of Certain GO Zone Incentives

    1. Election to amend returns for hurricane-related casualty losses
            (Sec. 331(a) of the bill)

                                  PRESENT LAW

        Under present law, a taxpayer may generally claim a
    deduction for any loss sustained during the taxable year and
    not compensated by insurance or otherwise.\247\ For individual
    taxpayers, deductible losses must be incurred in a trade or
    business or other profit-seeking activity or consist of
    property losses arising from fire, storm, shipwreck, or other
    casualty, or from theft.\248\ Generally, personal casualty or
    theft losses are deductible only if they exceed $100 per
    casualty or theft and net casualty and theft losses are
    deductible only to the extent it exceeds 10 percent of adjusted
    gross income.\249\ However, for hurricane-related casualty
    losses, these two casualty loss limitations are removed.\250\
    ---------------------------------------------------------------------------
        \247\Sec. 165.
        \248\Sec. 165(c)(3).
        \249\Sec. 165(h).
        \250\Sec. 1400S(6).
    ---------------------------------------------------------------------------
        Casualty losses are generally allowed for the taxable year
    of the loss. However, in the case of a disaster loss arising in
    an area determined by the President of the United States to
    warrant assistance by the Federal Government under the Robert
    T. Stafford Disaster Relief and Emergency Assistance Act, the
    taxpayer may elect to take the loss into account for the
    taxable year immediately before the taxable year in which the
    disaster occurred.\251\
    ---------------------------------------------------------------------------
        \251\Sec. 165(i).
    ---------------------------------------------------------------------------
        When a taxpayer receives reimbursement for such loss in a
    subsequent taxable year, the deductible loss is not recomputed
    for the taxable year in which the deduction was taken, the
    reimbursement amount is taken into income in the taxable year
    received.\252\
    ---------------------------------------------------------------------------
        \252\Treas. Reg. sec. 165-1(d)(2)(iii)
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        The Committee believes that homeowners who sustained
    hurricane related casualty losses on a principal residence
    should receive additional relief. Taxpayers may elect to
    include grant reimbursements into income in the year the
    casualty loss was taken to avoid being subject to higher
    marginal tax rate brackets in the year of receipt. This
    provides tax relief that allows homeowners to put more funds
    into rebuilding their principal residences.

                            EXPLANATION OF PROVISION

        The provision allows a taxpayer who claimed a casualty loss
    to a principal residence (within the meaning of section 121)
    resulting from Hurricane Katrina, Hurricane Rita, or Hurricane
    Wilma and in a subsequent year receives a grant as
    reimbursement of such loss to elect to file an amended return
    for the taxable year to which such deduction was allowed.\253\
    The casualty loss deduction is reduced, but not below zero, by
    the amount of such reimbursement. The time for filing such
    amended return is the later of three years after the original
    due date for filing the tax return or one year after the date
    of enactment of this Act. Any underpayment of tax shall not be
    subject to penalty or interest if paid not later than one year
    after the filing of the amended return.
    ---------------------------------------------------------------------------
        \253\To qualify the grant must be received under Public Law Nos.
    109-148, 109-234, or 110-116.
    ---------------------------------------------------------------------------

                                 EFFECTIVE DATE

        The provision is effective on the date of enactment.

    2. Waiver of deadline on construction of GO Zone property eligible for
            bonus depreciation (Sec. 331(b) of the bill and sec. 1400N of
            the Code)

                                  PRESENT LAW

    In general

        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,
    different types of property generally are assigned applicable
    recovery periods and depreciation methods. The recovery periods
    applicable to most tangible personal property (other than
    residential rental property and nonresidential real property)
    range from three to 25 years. The depreciation methods
    generally applicable to tangible personal property are the 200-
    percent and 150-percent declining balance methods, switching to
    the straight-line method for the taxable year in which the
    depreciation deduction would be maximized.

    Gulf Opportunity Zone

        The ``Gulf Opportunity Zone'' is defined as that portion of
    the Hurricane Katrina Disaster Area determined by the President
    to warrant individual or individual and public assistance from
    the Federal government under the Robert T. Stafford Disaster
    Relief and Emergency Assistance Act by reason of Hurricane
    Katrina. The term ``Hurricane Katrina disaster area'' means an
    area with respect to which a major disaster has been declared
    by the President before September 14, 2005, under section 401
    of the Robert T. Stafford Disaster Relief and Emergency
    Assistance Act by reason of Hurricane Katrina.

    Gulf Opportunity Zone property

        Present law provides an additional first-year depreciation
    deduction equal to 50 percent of the adjusted basis of
    qualified Gulf Opportunity Zone property. In order to qualify,
    property generally must be placed in service on or before
    December 31, 2007 (December 31, 2008, in the case of
    nonresidential real property and residential rental property).
        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.
    The additional first-year depreciation deduction is subject to
    the general rules regarding whether an item is deductible under
    section 162 or subject to capitalization under section 263 or
    section 263A. The basis of the property and the depreciation
    allowances in the year of purchase and later years are
    appropriately adjusted to reflect the additional first-year
    depreciation deduction. In addition, the provision provides
    that there is no adjustment to the allowable amount of
    depreciation for purposes of computing a taxpayer's alternative
    minimum taxable income with respect to property to which the
    provision applies. 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 (1) property to which
    the general rules of the Modified Accelerated Cost Recovery
    System (``MACRS'') apply with an applicable recovery period of
    20 years or less, (2) computer software other than computer
    software covered by section 197, (3) water utility property (as
    defined in section 168(e)(5)), (4) certain leasehold
    improvement property, or (5) certain nonresidential real
    property and residential rental property. Second, substantially
    all of the use of such property must be in the Gulf Opportunity
    Zone and in the active conduct of a trade or business by the
    taxpayer in the Gulf Opportunity Zone. Third, the original use
    of the property in the Gulf Opportunity Zone must commence with
    the taxpayer on or after August 28, 2005. (Thus, used property
    may constitute qualified property so long as it has not
    previously been used within the Gulf Opportunity Zone. In
    addition, it is intended that additional capital expenditures
    incurred to recondition or rebuild property the original use of
    which in the Gulf Opportunity Zone began with the taxpayer
    would satisfy the ``original use'' requirement. See Treasury
    Regulation section 1.48-2 Example 5.) Finally, the property
    must be acquired by purchase (as defined under section 179(d))
    by the taxpayer on or after August 28, 2005, and placed in
    service on or before December 31, 2007. For qualifying
    nonresidential real property and residential rental property,
    the property must be placed in service on or before December
    31, 2008, in lieu of December 31, 2007. Property does not
    qualify if a binding written contract for the acquisition of
    such property was in effect before August 28, 2005. However,
    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 August 28, 2005.
        Property that is manufactured, constructed, or produced by
    the taxpayer for use by the taxpayer qualifies if the taxpayer
    begins the manufacture, construction, or production of the
    property on or after August 28, 2005, and before January 1,
    2008, and the property is placed in service on or before
    December 31, 2007 (and all other requirements are met). In the
    case of qualified nonresidential real property and residential
    rental property, the property must be placed in service on or
    before December 31, 2008. Property that is manufactured,
    constructed, or 159 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.
        Under a special rule, property any portion of which is
    financed with the proceeds of a tax-exempt obligation under
    section 103 is not eligible for the additional first-year
    depreciation deduction. Recapture rules apply under the
    provision if the properly ceases to be qualified Gulf
    Opportunity Zone property.

    Gulf Opportunity Zone extension property

        The placed-in-service deadline is extended for specified
    Gulf Opportunity Zone extension property to qualify for the
    additional first-year depreciation deduction. Specified Gulf
    Opportunity Zone extension property is defined as property
    substantially all the use of which is in one or more specified
    portions of the Gulf Opportunity Zone and which is either: (1)
    nonresidential real property or residential rental property
    which is placed in service by the taxpayer on or before
    December 31, 2010, or (2) in the case of a taxpayer who places
    in service a building described in (1), property described in
    section 168(k)(2)(A)(i)\254\ placed in service on or before
    December 31, 2010, if substantially all the use of such
    property is in such building and such property is placed in
    service within 90 days of the date the building is placed in
    service. However, in the case of nonresidential real property
    or residential rental property, only the adjusted basis of such
    property attributable to manufacture, construction, or
    production before January 1, 2010 (``progress expenditures'')
    is eligible for the additional first-year depreciation.
    ---------------------------------------------------------------------------
        \254\Property described in section 168(k)(2)(A)(i) includes (1)
    property to which the general rules of the Modified Accelerated Cost
    Recovery System (``MACRS'') apply with an applicable recovery period of
    20 years or less, (2) computer software other than computer software
    covered by section 197, (3) water utility property (as defined in
    section 168(e)(5)), and (4) certain leasehold improvement property.
    ---------------------------------------------------------------------------
        The specified portions of the Gulf Opportunity Zone are
    defined as those portions of the Gulf Opportunity Zone which
    are in a county or parish which is identified by the Secretary
    of the Treasury (or his delegate) as being a county or parish
    in which hurricanes occurring in 2005 damaged (in the
    aggregate) more than 60 percent of the housing units in such
    county or parish which were occupied (determined according to
    the 2000 Census). These areas include the Louisiana parishes of
    Calcasieu, Cameron, Orleans, Plaquemines, St. Bernard, St.
    Tammany, and Washington, and the Mississippi counties of
    Hancock, Harrison, Jackson, Pearl River, and Stone.\255\
    ---------------------------------------------------------------------------
        \255\Notice 2007-36, 2007-17 I.R.B. 1000.
    ---------------------------------------------------------------------------

                               REASONS FOR CHANGE

        Many taxpayers have been unable to begin the construction
    of property in the Gulf Opportunity Zone due to the lack of
    electricity, clean water, and other circumstances beyond their
    control. Therefore, the Committee believes the commencement
    date for beginning the construction of self-constructed
    property should be removed so that these taxpayers may qualify
    for the additional first-year depreciation deduction to the
    extent the other requirements are met.

                            EXPLANATION OF PROVISION

        The provision removes the commencement date of January 1,
    2008, for self-constructed Gulf Opportunity Zone extension
    property. The placed in service date of December 31, 2010, and
    the progress expenditure date of January 1, 2010, are not
    modified.

                                 EFFECTIVE DATE

        The provision applies to property placed in service after
    December 31, 2007.

    3. Expansion of Gulf Opportunity Zone for purposes of tax-exempt bond
            financing (Sec. 331(c) of the bill and sec. 1490N of the Code)

                                  PRESENT LAW

    In general

        Under present law, gross income generally does not include
    interest paid on State or local bonds. State and local bonds
    are classified generally as either governmental bonds or
    private activity bonds. Governmental bonds are bonds which are
    primarily used to finance governmental functions or are repaid
    with governmental funds. Private activity bonds are bonds with
    respect to which the State or local government serves as a
    conduit providing financing to nongovernmental persons (e.g.,
    private businesses or individuals). The exclusion from income
    for State and local bonds does not apply to private activity
    bonds, unless the bonds are issued for certain permitted
    purposes (``qualified private activity bonds'').

    GO Zone

        The Gulf Opportunity Zone Act authorized the issuance of
    qualified private activity bonds to finance the construction
    and rehabilitation of residential and nonresidential property
    located in the Gulf Opportunity Zone (``Gulf Opportunity Zone
    Bonds''). Gulf Opportunity Zone Bonds must be before January 1,
    2011.
        Gulf Opportunity Zone Bonds may be issued by the State of
    Alabama, Louisiana, or Mississippi, or any political
    subdivision thereof. Issuance of bonds authorized under the
    provision is limited to projects approved by the Governor of
    the State (or the State bond commission in the case of a bond
    which is required under State law to be approved by such
    commission) in which the financed project shall be located. The
    maximum aggregate face amount of Gulf Opportunity Zone Bonds
    that may be issued in any State is limited to $2,500 multiplied
    by the population of the respective State within the Gulf
    Opportunity Zone. Current refundings of outstanding bonds
    issued under the provision do not count against the aggregate
    volume limit to the extent that the principal amount of the
    refunding bonds does not exceed the outstanding principal
    amount of the bonds being refunded. Gulf Opportunity Zone Bonds
    may not be advance refunded.
        Depending on the purpose for which such bonds are issued,
    Gulf Opportunity Zone Bonds are treated as either exempt
    facility bonds or qualified mortgage bonds. Gulf Opportunity
    Zone Bonds are treated as exempt facility bonds if 95 percent
    or more of the net proceeds of such bonds are to be used for
    qualified project costs located in the Gulf Opportunity Zone.
    Qualified project costs include the cost of acquisition,
    construction, reconstruction, and renovation of nonresidential
    real property (including buildings and their structural
    components and fixed improvements associated with such
    property), qualified residential rental projects (as defined in
    section 142(d) with certain modifications), and public utility
    property. For purposes of the provision, costs associated with
    improving a facility (e.g., installing equipment that enhances
    the pollution control of a manufacturing facility) may be
    permitted project costs if such costs are chargeable to the
    capital account of the facility or would be so chargeable
    either with a proper election by a taxpayer or but for a proper
    election by a taxpayer to deduct the costs.
        Bond proceeds may not be used to finance movable fixtures
    and equipment. The purpose of this limitation is to ensure that
    property financed with the bonds will remain in the Gulf
    Opportunity Zone. ``Movable fixtures and equipment'' does not
    include components that are assembled to construct an
    industrial plant. Such term also does not include consumer
    appliances installed in owner-occupied residences and
    residential rental property financed with the proceeds of Gulf
    Opportunity Zone Bonds.
        Rather than applying the 20-50 and 40-60 test under present
    law, a project is a qualified residential rental project under
    the provision if 20 percent or more of the residential units in
    such project are occupied by individuals whose income is 60
    percent or less of area median gross income or if 40 percent or
    more of the residential units in such project are occupied by
    individuals whose income is 70 percent or less of area median
    gross income.
        Gulf Opportunity Zone Bonds are treated as qualified
    mortgage bonds if the bonds of such issue meet the requirements
    of a qualified mortgage issue (as defined in section 143 and
    modified by this provision) and the residences financed with
    such bonds are located in the Gulf Opportunity Zone. For these
    purposes, residences located in the Gulf Opportunity Zone are
    treated as targeted area residences. Thus, the first-time
    homebuyer rule is waived and purchase and income rules for
    targeted area residences apply to residences financed with
    bonds issued under the provision. Under the provision, 100
    percent of the mortgages must be made to mortgagors whose
    family income is 140 percent or less of the applicable median
    family income. Thus, the present law rule allowing one-third of
    the mortgages to be made without regard to any income limits
    does not apply. In addition, the provision increases from
    $15,000 to $150,000 the amount of a qualified home-improvement
    loan that may be financed with bond proceeds.
        Subject to the following exceptions and modifications,
    issuance of Gulf Opportunity Zone Bonds is subject to the
    general rules applicable to issuance of qualified private
    activity bonds:
              (1) Except as otherwise permitted for a qualified
            mortgage issue, repayments of bond-financed loans may
            not be used to make additional loans;
              (2) Issuance of the bonds is not subject to the
            aggregate annual State private activity bond volume
            limits (sec. 146);
              (3) The restriction on acquisition of existing
            property is applied using a minimum requirement of 50
            percent of the cost of acquiring the building being
            devoted to rehabilitation (sec. 147(d));
              (4) The special arbitrage expenditure rules for
            certain construction bond proceeds apply to available
            construction proceeds of Gulf Opportunity Zone Bonds
            issued to finance qualified project costs, treating
            such bonds as a construction issue (sec. 148(t)(4)(C));
              (5) Interest on the bonds is not a preference item
            for purposes of the alternative minimum tax preference
            for private activity bond interest (sec. 57(a)(5)); and
              (6) No portion of the proceeds of the bonds may be
            used to provide any property described in section
            144(c)(6)(B) (i.e., any private or commercial golf
            course, country club, massage parlor, hot tub facility,
            suntan facility, racetrack or other facility used for
            gambling, or any store the principal purpose of which
            is the sale alcoholic beverages for consumption off
            premises).

                               REASONS FOR CHANGE

        The Committee believes that areas affected by Hurricane
    Katrina need additional recovery tools. The Committee believes
    that the Gulf Opportunity Zone bonds are a valuable resource
    for promoting recovery in the affected areas. The Committee
    believes that the Gulf Opportunity Zone bonds should be
    expanded so that this resource may be utilized by those areas
    that were not originally designated as part of the Gulf
    Opportunity Zone, but were severely impacted by the hurricane.

                            EXPLANATION OF PROVISION

        The provision adds Colbert County, Alabama and Dallas
    County, Alabama to the Gulf Opportunity Zone for the purpose of
    issuing Gulf Opportunity Zone Bonds.

                                 EFFECTIVE DATE

        The provision is effective as if included in the Gulf
    Opportunity Zone Act.

                          TITLE IV--REVENUE PROVISIONS

     A. Modify Tax Treatment of Offshore Nonqualified Deferred Compensation

    (Sec. 401 of the bill and new sec. 457A of the Code)

                                  PRESENT LAW

    In general

        Under present law, the determination of when amounts
    deferred under a nonqualified deferred compensation arrangement
    are includible in the gross income of the person earning the
    compensation depends on the facts and circumstances of the
    arrangement. A variety of tax principles and Code provisions
    may be relevant in making this determination, including the
    doctrine of constructive receipt, the economic benefit
    doctrine,\256\ the provisions of section 83 relating generally
    to transfers of property in connection with the performance of
    services, provisions relating specifically to nonexempt
    employee trusts (sec. 402(b)) and nonqualified annuities (sec.
    403(c)), and the requirements of section 409A.
    ---------------------------------------------------------------------------
        \256\See, e.g., Sproull v. Commissioner, 16 T.C. 244 (1951), aff'd,
    per curiam, 194 F.2d 541 (6th Cir. 1952); Rev. Rut. 60-31, 1960-1 C.B.
    174.
    ---------------------------------------------------------------------------
        In general, the time for income inclusion of nonqualified
    deferred compensation depends on whether the arrangement is
    unfunded or funded. If the arrangement is unfunded, then the
    compensation generally is includible in income by a cash-basis
    taxpayer when it is actually or constructively received. If the
    arrangement is funded, then income is includible for the year
    in which the individual's rights are transferable or not
    subject to a substantial risk of forfeiture.
        An arrangement generally is considered funded if there has
    been a transfer of property under section 83. Under that
    section, a transfer of property occurs when a person acquires a
    beneficial ownership interest in such property. The term
    ``property'' is defined very broadly for purposes of section
    83.\257\ Property includes real and personal property other
    than money or an unfunded and unsecured promise to pay money in
    the future. Property also includes a beneficial interest in
    assets (including money) that are transferred or set aside from
    claims of the creditors of the transferor; for example, in a
    trust or escrow account. Accordingly, if, in connection with
    the performance of services, vested contributions are made to a
    trust on an individual's behalf and the trust assets may be
    used solely to provide future payments to the individual, the
    payment of the contributions to the trust constitutes a
    transfer of property to the individual that is taxable under
    section 83. On the other hand, deferred amounts generally are
    not includible in income if nonqualified deferred compensation
    is payable from general corporate funds that are subject to the
    claims of general creditors, as such amounts are treated as
    unfunded and unsecured promises to pay money or property in the
    future.
    ---------------------------------------------------------------------------
        \257\Treas. Reg. sec. 1.83-3(e). This definition, in part, reflects
    previous IRS rulings on nonqualified deferred compensation.
    ---------------------------------------------------------------------------
        As discussed above, if the arrangement is unfunded, then
    the compensation generally is includible in income by a cash-
    basis taxpayer when it is actually or constructively received
    under section 451.\258\ Income is constructively received when
    it is credited to a person's account, set apart, or otherwise
    made available so that it may be drawn on at any time. Income
    is not constructively received if the taxpayer's control of its
    receipt is subject to substantial limitations or restrictions.
    A requirement to relinquish a valuable right in order to make
    withdrawals is generally treated as a substantial limitation or
    restriction.
    ---------------------------------------------------------------------------
        \258\Treas. Reg. secs. 1.451-1 and 1.451-2.
    ---------------------------------------------------------------------------
        Prior to the enactment of section 409A, arrangements had
    developed in an effort to provide employees with security for
    nonqualified deferred compensation, while still allowing
    deferral of income inclusion under the constructive receipt
    doctrine (which applies to unfunded arrangements). One such
    arrangement is a ``rabbi trust.'' A rabbi trust is a trust or
    other fund established by the employer to hold assets from
    which nonqualified deferred compensation payments will be made.
    The trust or fund is generally irrevocable and does not permit
    the employer to use the assets for purposes other than to
    provide nonqualified deferred compensation, except that the
    terms of the trust or fund provide that the assets are subject
    to the claims of the employer's creditors in the case of
    insolvency or bankruptcy. In the case of a rabbi trust, these
    terms have been the basis for the conclusion that the creation
    of a rabbi trust does not cause the related nonqualified
    deferred compensation arrangement to be funded for income tax
    purposes.\259\ As a result, no amount is included in income by
    reason of the rabbi trust; generally income inclusion occurs as
    payments are made from the trust.
    ---------------------------------------------------------------------------
        \259\This conclusion was first provided in a 1980 private ruling
    issued by the IRS with respect to an arrangement covering a rabbi;
    hence, the popular name ``rabbi trust.'' Priv. Ltr. RuI. 8113107 (Dec.
    31, 1980).
    ---------------------------------------------------------------------------

    Section 409A

                Reason for enactment
        The Congress enacted section 409A\260\ because it was
    concerned that many nonqualified deferred compensation
    arrangements had developed which allowed improper deferral of
    income. Executives often used arrangements that allowed
    deferral of income, but also provided security of future
    payment and control over amounts deferred. For example,
    nonqualified deferred compensation arrangements often contained
    provisions that allowed participants to receive distributions
    upon request, subject to forfeiture of a minimal amount (i.e.,
    a ``haircut'' provision). In addition, Congress was aware that
    since the concept of a rabbi trust was developed, techniques
    had been used that attempted to protect the assets from
    creditors despite the terms of the trust. For example, the
    trust or fund would be located in a foreign jurisdiction,
    making it difficult or impossible for creditors to reach the
    assets.
    ---------------------------------------------------------------------------
        \260\Section 409A was added to the Code by sec. 885 of the American
    Job Creation Act of 2004, Pub. L. No. 108-357.
    ---------------------------------------------------------------------------
        Prior to the enactment of section 409A, while the general
    tax principles governing deferred compensation were well
    established, the determination whether a particular arrangement
    effectively allowed deferral of income was generally made on a
    facts and circumstances basis. There was limited specific
    guidance with respect to common deferral arrangements. The
    Congress believed that it was appropriate to provide specific
    rules regarding whether deferral of income inclusion should be
    permitted and to provide a clear set of rules that would apply
    to these arrangements. The Congress believed that certain
    arrangements that allow participants inappropriate levels of
    control or access to amounts deferred should not result in
    deferral of income inclusion. The Congress also believed that
    certain arrangements, such as offshore trusts, which
    effectively protect assets from creditors of the employer,
    should be treated as funded and not result in deferral of
    income inclusion to the extent the amounts are vested.
                General requirements of section 409A
        In general.--Under section 409A, all amounts. deferred by a
    service provider under a nonqualified deferred compensation
    plan\261\ for all taxable years are currently includible in
    gross income of the service provider to the extent such amounts
    are not subject to a substantial risk of forfeiture\262\ and
    not previously included in gross income, unless certain
    requirements are satisfied. If the requirements of section 409A
    are not satisfied, in addition to current income inclusion,
    interest at the rate applicable to underpayments of tax plus
    one percentage point is imposed on the underpayments that would
    have occurred had the compensation been includible in income
    when first deferred, or if later, when not subject to a
    substantial risk of forfeiture. The amount required to be
    included in income is also subject to a 20-percent additional
    tax.
    ---------------------------------------------------------------------------
        \261\A plan includes an agreement or arrangement, including an
    agreement or arrangement that includes one person. Amounts deferred
    also include actual or notional earnings.
        \262\The rights of a person to compensation are subject to a
    substantial risk of forfeiture if the person's rights to such
    compensation are conditioned upon the performance of substantial
    services by any individual.
    ---------------------------------------------------------------------------
        Section 409A does not limit the amount that may be deferred
    under a nonqualified deferred compensation plan. The Secretary
    of the Treasury is authorized to prescribe regulations as are
    necessary or appropriate to carry out the purposes of section
    409A. The Secretary of the Treasury published final regulations
    under section 409A on April 17, 2007.\263\
    ---------------------------------------------------------------------------
        \263\On October 22, 2007, the IRS announced that during 2008,
    taxpayers are not required to comply with the fmal regulations.
    Instead, taxpayers must operate a plan in compliance with section 409A
    and the otherwise applicable guidance. To the extent an issue is not
    addressed, a reasonable, good faith interpretation of the statute must
    be used. Notice 2007-86.
    ---------------------------------------------------------------------------
        Under these regulations, the term ``service provider''
    includes an individual, corporation, subchapter S corporation,
    partnership, personal service corporation (as defined in
    section 269A(b)(1)), noncorporate entity that would be a
    personal service corporation if it were a corporation, or
    qualified personal service corporation (as defined in section
    448(d)(2)) for any taxable year in which such individual or
    entity accounts for gross income from the performance of
    services under the cash receipts and disbursements method of
    accounting.\264\ Section 409A does not apply to a service
    provider that provides significant services to at least two
    service recipients that are not related to each other or the
    service provider. This exclusion does not apply to a service
    provider who is an employee or a director of a corporation (or
    similar position in the case of an entity that is not a
    corporation).\265\ In addition, the exclusion does not apply to
    an entity that operates as the manager of a hedge fund or
    private equity fund. This is because the exclusion does not
    apply to the extent that a service provider provides management
    services to a service recipient. Management services for this
    purpose means services that involve the actual or de facto
    direction or control of the financial or operational aspects of
    a trade or business of the service recipient or investment
    management or advisory services provided to a service recipient
    whose primary trade or business includes the investment of
    financial assets, such as a hedge fund.\266\
    ---------------------------------------------------------------------------
        \264\Treas. Reg. sec. 1.409A-1(f)(1).
        \265\Treas. Reg. sec. 1.409A-1(f)(2).
        \266\Treas. Reg. sec. 1.409A-1(f)(2)(iv).
    ---------------------------------------------------------------------------
        Permissible distribution events.--Under section 409A,
    distributions from a nonqualified deferred compensation plan
    may be allowed only upon separation from service (as determined
    by the Secretary of the Treasury), death, a specified time (or
    pursuant to a fixed schedule), change in control of a
    corporation (to the extent provided by the Secretary of the
    Treasury), occurrence of an unforeseeable emergency, or if the
    service provider becomes disabled. A nonqualified deferred
    compensation plan may not allow distributions other than upon
    the permissible distribution events and, except as provided in
    regulations by the Secretary of the Treasury, may not permit
    acceleration of a distribution. In the case of a specified
    employee who separates from service, distributions may not be
    made earlier than six months after the date of the separation
    from service or upon death. Specified employees are key
    employees\267\ of publicly-traded corporations.
    ---------------------------------------------------------------------------
        \267\Key employees are defined in section 416(i) and generally
    include officers (limited to 50 employees) having annual compensation
    greater than $145,000 (for 2007), five percent owners, and one percent
    owners having annual compensation from the employer greater than
    $150,000.
    ---------------------------------------------------------------------------
        Elections.--Section 409A requires that a plan must provide
    that compensation for services performed during a taxable year
    may be deferred at the service provider's election only if the
    election to defer is made no later than the close of the
    preceding taxable year, or at such other time as provided in
    Treasury regulations. In the case of any performance-based
    compensation based on services performed over a period of at
    least 12 months, such election may be made no later than six
    months before the end of the service period. The time and form
    of distributions must be specified at the time of initial
    deferral. A plan may allow changes in the time and form of
    distributions subject to certain requirements.
        Back-to-back arrangements.--Back-to-back service recipients
    (i.e., situations under which an entity receives services from
    a service provider such as an employee, and the entity in turn
    provides services to a client) that involve back-to-back
    nonqualified deferred compensation arrangements (i.e., the fees
    payable by the client are deferred at both the entity level and
    the employee level) are subject to special rules under section
    409A. For example, the final regulations generally permit the
    deferral agreement between the entity and its client to treat
    as a permissible distribution event those events that are
    specified as distribution events in the deferral agreement
    between the entity and its employee. Thus, if separation from
    employment is a specified distribution event between the entity
    and the employee, the employee's separation generally is a
    permissible distribution event for the deferral agreement
    between the entity and its client.\268\
    ---------------------------------------------------------------------------
        \268\Treas. Reg. sec. 1.409A-3(i)(6).
    ---------------------------------------------------------------------------
        Offshore funding arrangements.--Section 409A requires
    current income inclusion in the case of certain offshore
    funding of nonqualified deferred compensation. Under section
    409A, in the case of assets set aside (directly or indirectly)
    in a trust (or other arrangement determined by the Secretary of
    the Treasury) for purposes of paying nonqualified deferred
    compensation, such assets are treated as property transferred
    in connection with the performance of services under section 83
    (whether or not such assets are available to satisfy the claims
    of general creditors) at the time set aside if such assets (or
    trust or other arrangement) are located outside of the United
    States or at the time transferred if such assets (or trust or
    other arrangement) are subsequently transferred outside of the
    United States. Any subsequent increases in the value of, or any
    earnings with respect to, such assets are treated as additional
    transfers of property.
        Interest at the underpayment rate plus one percentage point
    is imposed on the underpayments of tax that would have occurred
    had the amounts set aside been includible in income for the
    taxable year in which first deferred or, if later, the first
    taxable year not subject to a substantial risk of forfeiture.
    The amount required to be included in income also is subject to
    an additional 20-percent tax.
        The special funding rule does not apply to assets located
    in a foreign jurisdiction if substantially all of the services
    to which the nonqualified deferred compensation relates are
    performed in such foreign jurisdiction. The Secretary of the
    Treasury has authority to exempt arrangements from the
    provision if the arrangements do not result in an improper
    deferral of U.S. tax and will not result in assets being
    effectively beyond the reach of creditors.
                Definition of substantial risk of forfeiture
        Under the Treasury regulations, compensation is subject to
    a substantial risk of forfeiture if entitlement to the amount
    is conditioned upon either the performance of substantial
    future services by any person or the occurrence of a condition
    related to a purpose of the compensation, provided that the
    possibility of forfeiture is substantial.\269\
    ---------------------------------------------------------------------------
        \269\Treas. Reg. see. 1.409A-l(d)(1).
    ---------------------------------------------------------------------------
                Definition of nonqualified deferred compensation
        Under section 409A, a nonqualified deferred compensation
    plan generally includes any plan that provides for the deferral
    of compensation other than a qualified employer plan or any
    bona fide vacation leave, sick leave, compensatory time,
    disability pay, or death benefit plan. A qualified employer
    plan means a qualified retirement plan, tax-deferred annuity,
    simplified employee pension, and SIMPLE. A qualified
    governmental excess benefit arrangement (sec. 415(m)) and an
    eligible deferred compensation plan (sec. 457(b)) is a
    qualified employer plan.
        The Treasury regulations also provide that certain other
    types of plans are not considered deferred compensation, and
    thus are not subject to section 409A. For example, if a service
    recipient transfers property to a service provider, there is no
    deferral of compensation merely because the value of the
    property is either not includible in income under section 83 by
    reason of the property being substantially nonvested or is
    includible in income because of a valid section 83(b)
    election.\270\ Special rules apply in the case of stock
    options.\271\ Another exception applies to amounts that are not
    deferred beyond a short period of time after the amount is no
    longer subject to a substantial risk of forfeiture.\272\ Under
    this exception, there generally is no deferral for purposes of
    section 409A if the service provider actually or constructively
    receives the amount on or before the last day of the applicable
    2\1/2\ month period. The applicable 2\1/2\ month period is the
    period ending on the later of the 15th day of the third month
    following the end of: (1) the service provider's first taxable
    year in which the right to the payment is no longer subject to
    a substantial risk of forfeiture; or (2) the service
    recipient's first taxable year in which the right to the
    payment is no longer subject to a substantial risk of
    forfeiture.
    ---------------------------------------------------------------------------
        \270\Treas. Reg. Sec. 1.409A-l(b)(6).
        \271\Treas. Reg. Sec. 1.409A-1(b)(5).
        \272\Treas. Reg. sec. 1.409A-1(b)(4).
    ---------------------------------------------------------------------------
        Special rules apply in the case of stock appreciation
    rights (``SARs'').\273\ Under the final Treasury regulations, a
    SAR is a right to compensation based on the appreciation in
    value of a specified number of shares of service recipient
    stock occurring between the date of grant and the date of
    exercise of such right. The final regulations generally provide
    that a SAR does not result in a deferral of compensation for
    purposes of section 409A (and thus is not subject to section
    409A) if the compensation payable under the SAR is not greater
    than the excess of the fair market value of the underlying
    stock on the date the SAR is exercised over the fair market
    value of the underlying stock on the date the SAR is
    granted.\274\
    ---------------------------------------------------------------------------
        \273\Treas. Reg. sec. 1.409A-1(b)(5).
        \274\Treas. Reg. sec. 1.409A-1(b)(5)(i)(B).
    ---------------------------------------------------------------------------
        The Treasury regulations provide exclusions from the
    definition of nonqualified deferred compensation in the case of
    services performed by individuals who participate in certain
    foreign plans, including plans covered by an applicable treaty
    and broad-based foreign retirement plans.\275\ In the case of a
    U.S. citizen or lawful permanent alien, nonqualified deferred
    compensation plan does not include a broad-based foreign
    retirement plan, but only with respect to the portion of the
    plan that provides for nonelective deferral of foreign earned
    income and subject to limitations on the annual amount deferred
    under the plan or the annual amount payable under the plan. In
    general, foreign earned income refers to amounts received by an
    individual from sources within a foreign country that
    constitutes earned income attributable to services.
    ---------------------------------------------------------------------------
        \275\Treas. Reg. sec. 1.409A-1(a)(3).
    ---------------------------------------------------------------------------

    Timing of the service recipient's deduction

        Special statutory provisions govern the timing of the
    deduction for nonqualified deferred compensation, regardless of
    whether the arrangement covers employees or nonemployees and
    regardless of whether the arrangement is funded or
    unfunded.\276\ Under these provisions, the amount of
    nonqualified deferred compensation that is includible in the
    income of the service provider is deductible by the service
    recipient for the taxable year in which the amount is
    includible in the service provider's income.\277\ Thus, for
    example, in the case of an unfunded nonqualified deferred
    compensation plan, a deduction to the taxable service recipient
    is deferred until the deferred compensation is actually paid or
    made available to the service provider.
    ---------------------------------------------------------------------------
        \276\Secs. 404(a)(5), (b) and (d) and sec. 83(h).
        \277\In the case of a publicly held corporation, no deduction is
    allowed for a taxable year for remuneration with respect to a covered
    employee to the extent that the remuneration exceeds $1 million. Code
    sec. 162(m). The Code defines the term ``covered employee'' in part by
    reference to Federal securities law. In light of changes to Federal
    securities law, the Internal Revenue Service interprets the term
    covered employee as the principal executive officer of the taxpayer as
    of the close of the taxable year or the 3 most highly compensated
    employees of the taxpayer for the taxable year whose compensation must
    be disclosed to the taxpayer's shareholders (other than the principal
    executive officer or the principal financial officer). Notice 2007-49,
    2007-25 I.R.B. 1429. For purposes of the deduction limit, remuneration
    generally includes all remuneration for which a deduction is otherwise
    allowable, although commission-based compensation and certain
    performance-based compensation are not subject to the limit.
    Remuneration does not include compensation for which a deduction is
    allowable after a covered employee ceases to be a covered employee.
    Thus, the deduction limitation often does not apply to deferred
    compensation that is otherwise subject to the deduction limitation
    (e.g., is not performance-based compensation) because the payment of
    the compensation is deferred until after termination of employment.
    ---------------------------------------------------------------------------

    Section 457

        Special income recognition rules apply in the case of a
    participant in a deferred compensation plan that is sponsored
    by a State or local government or an organization that is
    exempt from Federal income tax under section 501(a). Section
    457 provides for different income inclusion rules, for two
    basic types of deferred compensation arrangements: (1)
    arrangements that limit the amount of compensation that may be
    deferred (generally, $15,500 in 2007) and that meet certain
    other requirements specified in section 457(b) (referred to as
    a ``section 457(b) plan'' or an ``eligible deferred
    compensation plan''); and (2) arrangements that do not satisfy
    the requirements of section 457(b) (referred to as a ``section
    457(f) plan'' or an ``ineligible deferred compensation plan'').
    Section 457 does not provide a limit on the amount of
    compensation that may be deferred under a section 457(f) plan.
        A participant in a section 457(b) plan does not recognize
    income with respect to the participant's interest in such plan
    until the time of actual distribution (or, if earlier, the time
    the participant's interest is made available to the
    participant, but only in the case of a section 457(b) plan
    maintained by a tax-exempt sponsor other than a State or local
    government). In contrast, a participant in a section 457(f)
    plan must include amounts deferred under such a plan in gross
    income for the first taxable year in which there is no
    substantial risk of forfeiture of the rights to such
    compensation.

    Charitable contributions

        In general, a deduction is permitted for charitable
    contributions, subject to certain limitations that depend on
    the type of taxpayer, the property contributed, and the donee
    organization. The amount of deduction generally equals the fair
    market value of the contributed property on the date of the
    contribution. Charitable deductions are provided for income,
    estate, and gift tax purposes.
        In general, for individuals, the amount deductible is a
    percentage of the taxpayer's contribution base, which is the
    taxpayer's adjusted gross income computed without regard to any
    net operating loss carryback. The applicable percentage of the
    contribution base varies depending on the type of donee
    organization and property contributed. Cash contributions by an
    individual taxpayer to public charities, private operating
    foundations, and certain types of private nonoperating
    foundations may not exceed 50 percent of the taxpayer's
    contribution base. Charitable contributions in excess of
    applicable percentage limits generally may be carried over to
    the five succeeding taxable years.

                               REASONS FOR CHANGE

        Under present law, there is a tension in the case of a
    nonqualified deferred compensation agreement between a service
    provider and a taxable service recipient. This arises because
    the timing rule under the Code defers the service recipient's
    deduction for nonqualified deferred compensation until the
    taxable year in which such compensation is includible in the
    service provider's gross income. This tension may limit the
    amount of compensation that a service recipient is willing to
    permit a service provider to defer under a nonqualified
    deferred compensation arrangement. Even when this tension does
    not limit the amount of compensation that a service recipient
    is willing to permit a service provider to defer under a
    nonqualified deferred compensation arrangement, this tension
    ensures that the cost of allowing this deferral is borne by the
    service recipient.
        Under present law, the ability to defer nonqualified
    deferred compensation is limited in certain cases in which this
    tension is not present. When this tension is not present, the
    cost of allowing service providers to defer under a
    nonqualified deferred compensation arrangement is not borne by
    the service recipient. Instead, this cost is borne by the
    Treasury. In order to limit the cost to the Treasury, Congress
    passed special rules limiting deferral in certain
    situations.Specifically, section 457 provides special rules that limit
    deferred compensation arrangements sponsored by State and local
    governments and other tax-exempt entities.
        The Committee has become aware of other situations in which
    the present law tension does not exist. Specifically, foreign
    corporations that are not subject to a comprehensive income tax
    and partnerships that are comprised of foreign persons and U.S.
    tax-exempt entities are indifferent to the timing of deductions
    for nonqualified deferred compensation. The Committee believes
    that in such cases additional rules should apply that limit the
    ability to defer service provider compensation.

                            EXPLANATION OF PROVISION

    In general

        Under the provision, any compensation that is deferred
    under a nonqualified deferred compensation plan of a
    nonqualified entity is includible in gross income by the
    service provider when there is no substantial risk of
    forfeiture of the service provider's rights to such
    compensation. The provision applies in addition to the
    requirements of section 409A (or any other provision of the
    Code or general tax law principle) with respect to nonqualified
    deferred compensation.

    Nonqualified deferred compensation

        For purposes of the provision, the term nonqualified
    deferred compensation plan is defined in the same manner as for
    purposes of section 409A. As under section 409A, the term
    nonqualified deferred compensation includes earnings with
    respect to previously deferred amounts. Earnings are treated in
    the same manner as the amount deferred to which the earnings
    relate.
        Under the provision, nonqualified deferred compensation
    includes any arrangement under which compensation is based on
    the increase in value of a specified number of equity units of
    the service recipient. Thus, stock appreciation rights (SARs)
    are treated as nonqualified deferred compensation under the
    provision, regardless of the exercise price of the SAR. It is
    not intended that the term nonqualified deferred compensation
    plan include an arrangement taxable under section 83 providing
    for the grant of an option on employer stock with an exercise
    price that is not less than the fair market value of the
    underlying stock on the date of grant if such arrangement does
    not include a deferral feature other than the feature that the
    option holder has the right to exercise the option in the
    future. The provision is not intended to change the tax
    treatment of incentive stock options meeting the requirements
    of section 422 or options granted under an employee stock
    purchase plan meeting the requirements of section 423.
    Similarly, nonqualified deferred compensation for purposes of
    the provision does not include a transfer of property to which
    section 83 is applicable (such as a transfer of restricted
    stock), provided that the arrangement does not include a
    deferral feature.
        Compensation is not treated as deferred for purposes of the
    provision if the service provider receives payment of the
    compensation not later than 12 months after the end of the
    taxable year of the service recipient during which the right to
    the payment of such compensation is no longer subject to a
    substantial risk of forfeiture.

    Nonqualified entity

        The term nonqualified entity includes certain foreign
    corporations and certain partnerships (either domestic or
    foreign). A foreign corporation is a nonqualified entity unless
    substantially all of such income is effectively connected with
    the conduct of a United States trade or business or is subject
    to a comprehensive foreign income tax. A partnership is a
    nonqualified entity unless substantially all of such income is
    allocated to persons other than foreign persons with respect to
    whom such income is not subject to a comprehensive income tax
    and organizations which are exempt from U.S. income tax.
        The term comprehensive foreign income tax means with
    respect to a foreign person, the income tax of a foreign
    country if (1) such person is eligible for the benefits of a
    comprehensive income tax treaty between such foreign country
    and the United States, or (2) such person demonstrates to the
    satisfaction of the Secretary of the Treasury that such foreign
    country has a comprehensive income tax.
        In the case of a foreign corporation with income that is
    taxable under section 882, the provision does not apply to
    compensation which, had such compensation been paid in cash on
    the date that such compensation ceased to be subject to a
    substantial risk of forfeiture, would have been deductible by
    such foreign corporation against such income.

    Additional rules

        For purposes of the provision, compensation of a service
    provider is subject to a substantial risk of forfeiture only if
    such person's right to the compensation is conditioned upon the
    future performance of substantial services by any person. Thus,
    compensation is subject to a substantial risk of forfeiture
    only if entitlement to the compensation is conditioned on the
    performance of substantial future services and the possibility
    of forfeiture is substantial. Substantial risk of forfeiture
    does not include a condition related to a purpose of the
    compensation (other than future performance of substantial
    services), regardless of whether the possibility of forfeiture
    is substantial.
        To the extent provided in regulations prescribed by the
    Secretary, if compensation is determined solely by reference to
    the amount of gain recognized on the disposition of an
    investment asset, such compensation is treated as subject to a
    substantial risk of forfeiture until the date of such
    disposition. Investment asset means any single asset (other
    than an investment fund or similar entity) (1) acquired
    directly by an investment fund or similar entity, (2) with
    respect to which such entity does not (nor does any person
    related to such entity) participate in the active management of
    such asset (or if such asset is an interest in an entity, in
    the active management of the assets of such entity), and (3)
    substantially all of any gain on the disposition of which
    (other than the nonqualified deferred compensation) is
    allocated to investors of such entity. The rule only applies if
    the compensation is determined solely by reference to the gain
    upon the disposition of an investment asset. Thus, for example,
    the rule does not apply in the case of an arrangement under
    which the amount of this compensation is reduced for losses on
    the disposition of any other asset. With respect to any gain
    attributable to the period before the asset is treated as no
    longer subject to a substantial risk of forfeiture, it is
    intended that Treasuryregulations will limit the application of
    this rule to gain attributable to the period that the service provider
    is performing services.
        The rule is intended to apply to compensation contingent on
    the disposition of a single asset held as a long-term
    investment, provided that the service provider does not
    actively manage the asset (other than the decision to purchase
    or sell the investment). If the asset is an interest in an
    entity (such as a company that produces products or services),
    the rule does not apply if the service provider actively
    participates in the management of the entity. Active management
    is intended to include participation in the day-to-day
    activities of the asset, but does not include the election of a
    director or other voting rights exercised by shareholders.
        The rule is intended to apply solely to compensation
    arrangements relating to passive investments by an investment
    fund in a single asset. For example, if an investment fund
    acquires XYZ operating corporation, the rule is intended to
    apply to an arrangement that the fund manager receive 20
    percent of the gain from the disposition of XYZ operating
    corporation if the fund manager does not actively participate
    in the management of XYZ operating corporation. In contrast,
    the rule does not apply if the investment fund holds two or
    more operating corporations and the fund manger's compensation
    is based on the net gain resulting from the disposition of the
    operating corporations. The rule does not apply to the
    disposition of a foreign subsidiary which holds a variety of
    assets the investment of which is managed by the service
    provider.
        Under the provision, if the amount of any deferred
    compensation is not determinable at the time that such
    compensation is otherwise required to be taken into account
    into income under the provision, the amount is taken into
    account when such amount becomes determinable. This rule
    applies in lieu of the general rule of the provision, under
    which deferred compensation is taken into account in income
    when such compensation is no longer subject to a substantial
    risk of forfeiture. In addition, the income tax with respect to
    such amount is increased by the sum of (1) an interest charge,
    and (2) an amount equal to 20 percent of such compensation. The
    interest charge is equal to the interest at the rate applicable
    to underpayments of tax plus one percentage point imposed on
    the underpayments that would have occurred had the compensation
    been includible in income when first deferred, or if later,
    when not subject to a substantial risk of forfeiture.

    Treasury regulations

        It is intended that the Secretary of the Treasury issue
    regulations as to when an amount is not determinable for
    purposes of the provision. It is intended that an amount of
    deferred compensation is not determinable at the time the
    amount is no longer subject to a substantial risk of forfeiture
    if the amount varies depending on the satisfaction of an
    objective condition. For example, if a deferred amount varies
    depending on the satisfaction of an objective condition at the
    time the amount is no longer subject to substantial risk of
    forfeiture (e.g., no amount is paid unless a certain threshold
    is achieved, 100 percent is paid if the threshold is achieved,
    and 200 percent is paid if a higher threshold is achieved), the
    amount deferred is not determinable.
        The Secretary of the Treasury is also authorized to issue
    such regulations as may be necessary or appropriate to carry
    out the purposes of the provision, including regulations
    disregarding a substantial risk of forfeiture as necessary to
    carry out such purposes.
        Under the provision, aggregation rules similar to those
    that apply under section 409A apply for purposes of determining
    whether a plan sponsor is a nonqualified entity. It is
    intended, however, that such aggregation rules are limited by
    the Secretary to operate in accordance with the purposes of the
    provision. For example, it is intended that the aggregation
    rules do not result in the application of the provision to
    employees of a U.S. subsidiary C corporation that is wholly
    owned by a nonqualified entity when the U.S. subsidiary
    sponsors the nonqualified deferred compensation plan in which
    the employees of the subsidiary participate. This is because
    the subsidiary is subject to the timing rule with respect to
    its deduction of its employees' nonqualified deferred
    compensation.

    Charitable contributions of existing deferrals permitted

        Under the provision, the 50-percent limit on the deduction
    for charitable contributions does not apply to qualified
    contributions to the extent of the qualified inclusion amount.
    A qualified contribution means a charitable contribution (1) of
    cash (2) made during the last taxable year beginning before
    2018 (3) to an organization described in section 170(b)(1)(A)
    (in general, a public charity), other than a supporting
    organization described in section 509(a) or a donor advised
    fund described in section 4966(d)(2). The qualified inclusion
    amount is the amount includable in gross income under the
    provision during such last taxable year attributable to
    services performed on or before December 31, 2008.
        In applying the percentage limitations on the deduction for
    charitable contributions under section 170(b) to the remaining
    charitable contributions, section 170(b) is applied without
    regard to the contributions to which the 50-percent limit does
    not apply, and the contribution base is reduced by that amount.
        In applying the carryover rules of section 170(d),
    contributions that are not subject to the 50-percent limit
    under the provision are not taken into account, because those
    contributions are deductible in the current taxable year.
        The provision may be illustrated by the following example:
        Example.--Assume an individual for 2017 has a contribution
    base of $1 million without regard to the qualified inclusion
    amount and a $1 million qualified inclusion amount which
    increases the contribution base to $2 million. The individual
    contributes $2 million in cash to organizations described in
    section 170(b)(1)(A), of which $1 million are qualified
    contributions. Without the waiver of the percentage limitation,
    the taxpayer's charitable contribution deduction would be $1
    million (i.e., 50 percent of a contribution base of $2
    million), and $1 million would be carried forward. Under the
    provision, the individual is allowed a charitable contribution
    deduction of $1.5 million--the sum of (1) $1 million in
    qualified contributions up to the qualified inclusion amount
    plus (2) $500,000 (the deduction that would be computed if the
    contribution base were reduced from $2 million to $1 million by
    the $1 million contributions to which the section 170(b)
    limitation does not apply, and those contributions were not
    taken into account). $500,000 is carried forward to future
    years.

                                 EFFECTIVE DATE

        The provision is effective with respect to amounts deferred
    which are attributable to services performed after December 31,
    2008. In the case of an amount deferred which is attributable
    to services performed on or before December 31, 2008, to the
    extent such amount is not includible in gross income in a
    taxable year beginning before 2018, then such amount is
    includible in gross income in the later of (1) the last taxable
    year beginning before 2018, or (2) the taxable year in which
    there is no substantial risk of forfeiture of the rights to
    such compensation. Earnings on amounts deferred which are
    attributable to services performed on or before December 31,
    2008, are subject to the provision only to the extent that the
    amounts to which such earnings relate are subject to the
    provision.
        No later than 120 days after date of enactment, the
    Secretary shall issue guidance providing a limited period of
    time during which a nonqualified deferred compensation
    arrangement attributable to services performed on or before
    December 31, 2008, may, without violating the requirements of
    section 409A(a), be amended to conform the date of distribution
    to the date the amounts are required to be included in income.
    If the taxpayer is also a service recipient and maintains one
    or more nonqualified deferred compensation arrangements for its
    service providers under which any amount is attributable to
    services performed on or before December 31, 2008, the guidance
    shall permit such arrangements to be amended to conform the
    dates of distribution under the arrangement to the date amounts
    are required to be included in income of the taxpayer under the
    provision. An amendment made pursuant to the Treasury guidance
    will not be treated as a material modification of the
    arrangement for purposes of section 409A.

            B. Delay Implementation of Worldwide Interest Allocation

    (Sec. 402 of the bill and Sec. 864 of the Code)

                                  PRESENT LAW

    In general

        In order to compute the foreign tax credit limitation, a
    taxpayer must determine the amount of its taxable income from
    foreign sources. Thus, the taxpayer must allocate and apportion
    deductions between items of U.S.-source gross income, on the
    one hand, and items of foreign-source gross income, on the
    other.
        In the case of interest expense, the rules generally are
    based on the approach that money is fungible and that interest
    expense is properly attributable to all business activities and
    property of a taxpayer, regardless of any specific purpose for
    incurring an obligation on which interest is paid.\278\ For
    interest allocation purposes, all members of an affiliated
    group of corporations generally are treated as a single
    corporation (the so-called ``one-taxpayer rule'') and
    allocation must be made on the basis of assets rather than
    gross income. The term ``affiliated group'' in this context
    generally is defined by reference to the rules for determining
    whether corporations are eligible to file consolidated returns.
    ---------------------------------------------------------------------------
        \278\However, exceptions to the fungibility principle are provided
    in particular cases, some of which are described below.
    ---------------------------------------------------------------------------
        For consolidation purposes, the term ``affiliated group''
    means one or more chains of includible corporations connected
    through stock ownership with a common parent corporation which
    is an includible corporation, but only if: (1) the common
    parent owns directly stock possessing at least 80 percent of
    the total voting power and at least 80 percent of the total
    value of at least one other includible corporation; and (2)
    stock meeting the same voting power and value standards with
    respect to each includible corporation (excluding the common
    parent) is directly owned by one or more other includible
    corporations.
        Generally, the term ``includible corporation'' means any
    domestic corporation except certain corporations exempt from
    tax under section 501 (for example, corporations organized and
    operated exclusively for charitable or educational purposes),
    certain life insurance companies, corporations electing
    application of the possession tax credit, regulated investment
    companies, real estate investment trusts, and domestic
    international sales corporations. A foreign corporation
    generally is not an includible corporation.
        Subject to exceptions, the consolidated return and interest
    allocation definitions of affiliation generally are consistent
    with each other.\279\ For example, both definitions generally
    exclude all foreign corporations from the affiliated group.
    Thus, while debt generally is considered fungible among the
    assets of a group of domestic affiliated corporations, the same
    rules do not apply as between the domestic and foreign members
    of a group with the same degree of common control as the
    domestic affiliated group.
    ---------------------------------------------------------------------------
        \279\One such exception is that the affiliated group for interest
    allocation purposes includes section 936 corporations that are excluded
    from the consolidated group.
    ---------------------------------------------------------------------------
                Banks, savings institutions, and other financial affiliates
        The affiliated group for interest allocation purposes
    generally excludes what are referred to in the Treasury
    regulations as ``financial corporations'' (Treas. Reg. sec.
    1.861-11T(d)(4)). These include any corporation, otherwise a
    member of the affiliated group for consolidation purposes, that
    is a financial institution (described in section 581 or section
    591), the business of which is predominantly with persons other
    than related persons or their customers, and which is required
    by State or Federal law to be operated separately from any
    other entity which is not a financial institution (sec.
    864(e)(5)(C)). The category of financial corporations also
    includes, to the extent provided in regulations, bank holding
    companies (including financial holding companies), subsidiaries
    of banks and bank holding companies (including financial
    holding companies), and savings institutions predominantly
    engaged in the active conduct of a banking, fmancing, or
    similar business (sec. 864(e)(5)(D)).
        A financial corporation is not treated as a member of the
    regular affiliated group for purposes of applying the one-
    taxpayer rule to other non-financial members of that group.
    Instead, all such financial corporations that would be so
    affiliated are treated as a separate single corporation for
    interest allocation purposes.

    Worldwide interest allocation

                In general
        The American Jobs Creation Act of 2004 (``AJCA'')\280\
    modifies the interest expense allocation rules described above
    (which generally apply for purposes of computing the foreign
    tax credit limitation) by providing a one-time election (the
    ``worldwide affiliated group election'') under which the
    taxable income of the domestic members of an affiliated group
    from sources outside the United States generally is determined
    by allocating and apportioning interest expense of the domestic
    members of a worldwide affiliated group on a worldwide-group
    basis (i.e., as if all members of the worldwide group were a
    single corporation). If a group makes this election, the
    taxable income of the domestic members of a worldwide
    affiliated group from sources outside the United States is
    determined by allocating and apportioning the third-party
    interest expense of those domestic members to foreign-source
    income in an amount equal to the excess (if any) of (1) the
    worldwide affiliated group's worldwide third-party interest
    expense multiplied by the ratio which the foreign assets of the
    worldwide affiliated group bears to the total assets of the
    worldwide affiliated group,\281\ over (2) the third-party
    interest expense incurred by foreign members of the group to
    the extent such interest would be allocated to foreign sources
    if the principles of worldwide interest allocation were applied
    separately to the foreign members of the group.\282\
    ---------------------------------------------------------------------------
        \280\Pub. L. No. 108-357, sec. 401 (2004).
        \281\For purposes of determining the assets of the worldwide
    affiliated group, neither stock in corporations within the group nor
    indebtedness (including receivables) between members of the group is
    taken into account.
        \282\Although the interest expense of a foreign subsidiary is taken
    into account for purposes of allocating the interest expense of the
    domestic members of the electing worldwide affiliated group for foreign
    tax credit limitation purposes, the interest expense incurred by a
    foreign subsidiary is not deductible on a U.S. return.
    ---------------------------------------------------------------------------
        For purposes of the new elective rules based on worldwide
    fungibility, the worldwide, affiliated group means all
    corporations in an affiliated group as well as all controlled
    foreign corporations that, in the aggregate, either directly or
    indirectly,\283\ would be members of such an affiliated group
    if section 1504(b)(3) did not apply (i.e., in which at least 80
    percent of the vote and value of the stock of such corporations
    is owned by one or more other corporations included in the
    affiliated group). Thus, if an affiliated group makes this
    election, the taxable income from sources outside the United
    States of domestic group members generally is determined by
    allocating and apportioning interest expense of the domestic
    members of the worldwide affiliated group as if all of the
    interest expense and assets of 80-percent or greater owned
    domestic corporations (i.e., corporations that are part of the
    affiliated group, as modified to include insurance companies)
    and certain controlled foreign corporations were attributable
    to a single corporation.
    ---------------------------------------------------------------------------
        \283\Indirect ownership is determined under the rules of section
    958(a)(2) or through applying rules similar to those of section
    958(a)(2) to stock owned directly or indirectly by domestic
    partnerships, trusts, or estates.
    ---------------------------------------------------------------------------
        The common parent of the domestic affiliated group must
    make the worldwide affiliated group election. It must be made
    for the first taxable year beginning after December 31, 2008,
    in which a worldwide affiliated group exists that includes at
    least one foreign corporation that meets the requirements for
    inclusion in a worldwide affiliated group. Once made, the
    election applies to the common parent and all other members of
    the worldwide affiliated group for the taxable year for which
    the election was made and all subsequent taxable years, unless
    revoked with the consent of the Secretary of the Treasury.
                Financial institution group election
        Taxpayers are allowed to apply the bank group rules to
    exclude certain financial institutions from the affiliated
    group for interest allocation purposes under the worldwide
    fungibility approach. The rules also provides a one-time
    ``financial institution group'' election that expands the bank
    group. At the election of the common parent of the pre-election
    worldwide affiliated group, the interest expense allocation
    rules are applied separately to a subgroup of the worldwide
    affiliated group that consists of (1) all corporations that are
    part of the bank group, and (2) all ``financial corporations.''
    For this purpose, a corporation is a financial corporation if
    at least 80 percent of its gross income is financial services
    income (as described in section 904(d)(2)(C)(i) and the
    regulations thereunder) that is derived from transactions with
    unrelated persons.\284\ For these purposes, items of income or
    gain from a transaction or series of transactions are
    disregarded if a principal purpose for the transaction or
    transactions is to qualify any corporation as a financial
    corporation.
    ---------------------------------------------------------------------------
        \284\See Treas. Reg. sec. 1.904-4(e)(2).
    ---------------------------------------------------------------------------
        The common parent of the pre-election worldwide affiliated
    group must make the election for the first taxable year
    beginning after December 31, 2008, in which a worldwide
    affiliated group includes a financial corporation. Once made,
    the election applies to the financial institution group for the
    taxable year and all subsequent taxable years. In addition,
    anti-abuse rules are provided under which certain transfers
    from one member of a financial institution group to a member of
    the worldwide affiliated group outside of the financial
    institution group are treated as reducing the amount of
    indebtedness of the separate financial institution group.
    Regulatory authority is provided with respect to the election
    to provide for the direct allocation of interest expense in
    circumstances in which such allocation is appropriate to carry
    out the purposes of these rules, to prevent assets or interest
    expense from being taken into account more than once, or to
    address changes in members of any group (through acquisitions
    or otherwise) treated as affiliated under these rules.
                Effective date of worldwide interest allocation under AJCA
        The worldwide interest allocation rules under AJCA are
    effective for taxable years beginning after December 31, 2008.

                               REASONS FOR CHANGE

        The Committee believes that it is appropriate to delay
    implementation of the worldwide interest allocation rules.

                            EXPLANATION OF PROVISION

        The provision delays the effective date of worldwide
    interest allocation rules for ten years, until taxable years
    beginning after December 31, 2018. The required dates for
    making the worldwide affiliated group election and the
    financial institution group election are changed accordingly.

                                 EFFECTIVE DATE

        The provision is effective on the date of enactment.

              C. Modifications to Corporate Estimated Tax Payments

    (Sec. 403 of the bill and sec. 401 of the Tax Increase Prevention and
            Reconciliation Act of 2005)

                                  PRESENT LAW

    In general

        In general, corporations are required to make quarterly
    estimated tax payments of their income tax liability. For a
    corporation whose taxable year is a calendar year, these
    estimated tax payments must be made by April 15, June 15,
    September 15, and December 15.

    Tax Increase Prevention and Reconciliation Act of 2005 (``TIPRA'')

        TIPRA provided the following special rules:
        In case of a corporation with assets of at least $1
    billion, the payments due in July, August, and September, 2012,
    shall be increased to 106.25 percent of the payment otherwise
    due and the next required payment shall be reduced accordingly.
        In case of a corporation with assets of at least $1
    billion, the payments due in July, August, and September, 2013,
    shall be increased to 100.75 percent of the payment otherwise
    due and the next required payment shall be reduced accordingly.

    Subsequent legislation

        Several public laws have been enacted since TIPRA which
    further increase the percentage of payments due under each of
    the two special rules enacted by TIPRA described above.

                               REASONS FOR CHANGE

        The Committee believes it is appropriate to adjust the
    corporate estimated tax payments.

                            EXPLANATION OF PROVISION

        The provision makes two modifications to the corporate
    estimated tax payment rules.
        First, in case of a corporation with assets of at least $1
    billion, the payments due in July, August, and September, 2013,
    are increased by 37\3/4\ percentage points of the payment
    otherwise due and the next required payment shall be reduced
    accordingly.
        Second, in case of a corporation with assets of at least $1
    billion, the increased payments due in July, August, and
    September, 2012 under the special rules in TIPRA and subsequent
    legislation are repealed. In effect the general rule is applied
    (i.e., such corporations are required to make quarterly
    estimated tax payments based on their income tax liability.)

                                 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. 6049, the ``Renewable Energy and Jobs
    Creation Act of 2008''.

                        MOTION TO REPORT RECOMMENDATIONS

        The Chairman's Amendment in the Nature of a Substitute, was
    ordered favorably reported by a rollcall vote of 25 yeas to 12
    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....................  ........  ........  .........  Mr. Weller.......  ........        X   .........
    Mr. Tanner.....................        X   ........  .........  Mr. Hulshof......  ........  ........  .........
    Mr. Becerra....................        X   ........  .........  Mr. Lewis (KY)...  ........  ........  .........
    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....................  ........  ........  .........  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 rollcall vote was conducted on the following amendments
    to the Chairman's Amendment in the Nature of a Substitute.
        An amendment offered by Mr. Stark which would strike
    Section 111, relating to the ``Expansion and Modification of
    Advanced Coal Project Investment Credit'', was defeated by a
    rollcall vote of 2 yeas to 36 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.......  ........  ........  .........
    Mr. Becerra....................  ........        X   ........  Mr. Lewis (KY)....  ........  ........  .........
    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....................  ........  ........  ........  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   ........
    ----------------------------------------------------------------------------------------------------------------

        An amendment offered by Mr. Reynolds which would extend
    temporary alternative minimum tax relief for an additional
    year, through December 31, 2008, was defeated by a rollcall
    vote of 15 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......  ........  ........  .........
    Mr. Becerra....................  ........        X   .........  Mr. Lewis (KY)...  ........  ........  .........
    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   .........
    ----------------------------------------------------------------------------------------------------------------

        An amendment offered by Mr. Stark, which would eliminate
    the tax credit for ethanol in Section 124, was defeated by a
    rollcall vote of 8 yeas to 30 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.....................  ........  ........      pass   Mr. Hulshof......  ........  ........  .........
    Mr. Becerra....................  ........        X   .........  Mr. Lewis (KY)...  ........  ........  .........
    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   .........
    ----------------------------------------------------------------------------------------------------------------

        An amendment by Mr. English which would repeal the
    individual alternative minimum tax, beginning in tax year 2019,
    was defeated by a rollcall vote of 15 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......  ........  ........  .........
    Mr. Becerra....................  ........        X   .........  Mr. Lewis (KY)...  ........  ........  .........
    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
    ----------------------------------------------------------------------------------------------------------------

        An amendment offered by Mr. Stark, which would prevent any
    racehorse which is 2 years old or younger at the time it is
    placed in service from qualifying as 3-year property under
    Section 168 of the Internal Revenue Code, was defeated by a
    rollcall vote of 15 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......  ........  ........  .........
    Mr. Becerra....................        X   ........  .........  Mr. Lewis (KY)...  ........  ........  .........
    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   .........
    ----------------------------------------------------------------------------------------------------------------

        An amendment offered by Mr. Brady was offered which would
    strike Section 311, the ``Attorney-Advanced Expenses''
    provision, which is estimated to cost $1.572 billion (over ten
    years). The amendment would then apply the $1.572 billion (over
    ten years) towards lowering the floor of the refundable child
    credit (Section 302) over the same period. The amendment was
    defeated by a rollcall vote of 14 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......  ........  ........  .........
    Mr. Becerra....................  ........        X   .........  Mr. Lewis (KY)...  ........  ........  .........
    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   .........
    ----------------------------------------------------------------------------------------------------------------

        An en bloc amendment consisting of amendments offered by
    Mr. English (Safe Harbor from Underestimated Quarterly Tax
    Payments for Some Individual Alternative Minimum Tax Filers);
    Mr. Brady (Striking Title IV, Revenue Provision); Mr. Brady,
    (Expressing the Sense of Congress that the Extenders Bill
    should not be funded by offsets); Mr. Herger (Extend all
    expiring provisions through 2009, and extend the AMT patch
    through 2008); Mr. Camp (Extend the Research and Development
    Tax Credit for one year); Mr. Brady (Requiring the Secretary of
    the Treasury to conduct a study on the adverse effects if the
    Section 199, manufacturing tax credit, is repealed for major
    oil and gas companies); Mr. Brady (extend the deduction for
    state and local taxes) and Mr. Weller (Extension of the New and
    Existing Homes tax credit). The en bloc amendment was defeated
    by a rollcall vote of 15 yeas to 23 nays.

    ----------------------------------------------------------------------------------------------------------------
            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....................  ........  ........  .........  Mr. Weller.......        X   ........  .........
    Mr. Tanner.....................  ........        X   .........  Mr. Hulshof......  ........  ........  .........
    Mr. Becerra....................  ........        X   .........  Mr. Lewis (KY)...  ........  ........  .........
    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. 6049 as reported.
        The bill is estimated to have the following effects on
    budget receipts for fiscal years 2008-2018:

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

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

          C. Cost Estimate Prepared by the Congressional Budget Office

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

                                         U.S. Congress,
                                   Congressional Budget Office,
                                          Washington, DC, May 19, 2008.
    Hon. Charles B. Rangel,
    Chairman, Committee on Ways and Means,
    House of Representatives, Washington, DC.
        Dear Mr. Chairman: The Congressional Budget Office has
    prepared the enclosed cost estimate for H.R. 6049, the Energy
    and Tax Extenders Act of 2008.
        If you wish further details on this estimate, we will be
    pleased to provide them. The CBO staff contact is Zachary
    Epstein.
                Sincerely,
                                             Robert A. Sunshine
                               (For Peter R. Orszag, Director).
        Enclosure.

    H.R. 6049--Energy and Tax Extenders Act of 2008

        Summary: H.R. 6049 would amend tax law as it relates to a
    variety of expiring provisions, incentives for renewable energy
    investments, the treatment of income from deferred
    compensation, and the allocation of business interest expenses.
    The Joint Committee on Taxation (JCT) and the Congressional
    Budget Office estimate that enacting H.R. 6049 would decrease
    revenues by $8.1 billion in 2008 and increase revenues by $5.8
    billion over the 2008-2018 period. CBO and JCT estimate that
    the bill would increase direct spending by $0.1 billion in 2008
    and by $5.6 billion over the 2008-2018 period. On net, the bill
    would decrease budget deficits (or increase surpluses) by $0.1
    billion over the 2008-2018 period.
        CBO and JCT have reviewed the bill and determined that it
    contains no intergovernmental mandates as defined in the
    Unfunded Mandates Reform Act (UMRA). CBO has reviewed the
    nontax provisions of the bill and determined that they contain
    no private-sector mandates as defined in UMRA. JCT has reviewed
    the tax provisions of the bill and determined that they contain
    three private-sector mandates: the extension of the excise tax
    on coal at current rates, the immediate tax on deferred
    compensation paid by certain foreign entities, and the delay in
    implementing worldwide allocation of interest expense unti1
    2019. JCT estimates that the costs required to comply with the
    mandates would exceed the annual threshold established by UMRA
    ($136 million in 2008, adjusted annually for inflation) in each
    of the next 10 years (2009 through 2018).
        Estimated cost to the Federal Government: The estimated
    budgetary impact of H.R. 6049 is shown in the following table.
    The costs of this legislation fall within budget functions 600
    (income security), 800 (general government), and all other
    functions that contain salaries and expenses.

    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                          By fiscal year, in millions of dollars--
                                                      ----------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                  2008-      2008-
                                                          2008       2009       2010       2011       2012       2013       2014       2015       2016       2017       2018       2013       2018
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                           CHANGES IN REVENUES

    Energy Tax Provisions............................       -662     -2,386     -1,564     -1.569     -1,731     -1,742     -1,458     -1,248     -1,065     -1,119     -1,176     -9,658    -15,725
    Extension and Modification of Certain Provisions.     -6,106    -10,722     -5,105     -1,107       -946       -772       -684       -625       -403       -307       -150    -24,757    -26,927
    Immediate Tax on Deferred Compensation...........          0      1,849      2,539      2,313      2,275      2,028      1,513        942        453      7,319      3,057     11,003     24,289
    Delay in Worldwide Interest Allocation Rules.....          0        999      2,736      2,845      2,958      3,077      3,203      3,328      3,461      3,610      3,745     12,615     29,962
    Corporate Estimated Tax Payments Due in 2012 and           0          0          0          0     -9,934     31,312    -2l,378          0          0          0          0     21,378          0
     2013............................................
    Other Provisions.................................     -1,287     -2,739       -949       -300       -112        -83        -60          1          6        -76        -71      -5470      -5824
                                                      ----------------------------------------------------------------------------------------------------------------------------------------------
    Total Changes in Revenues........................     -8,055    -12,999     -2,343      2,182     -7,490     33,820    -18,864      2,326      2,370      9,427      5,405      5,111      5,775
        On-budget....................................     -8,055    -12,994     -2,341      2,182     -7,490     33,820    -18,864      2,326      2,370      9,427      5,405      5,118      5,782
        Off budget...................................          0         -5         -2          0          0          0          0          0          0          0          0         -7         -7

                                                                                 CHANGES IN DIRECT SPENDING (OUTLAYS)\1\

    Refundable Child Credit..........................          0      3,129          0          0          0          0          0          0          0          0          0      3,129      3,129
    Refundable AMT Credit............................          0        879        157          0          0          0          0          0          0          0          0      1,036      1,036
    Refunds for Excise Tax on Exported Coal..........         22        177          0          0          0          0          0          0          0          0          0        199        199
    Funding for New York's Transportation                      0        115        115        115        115        115       115         115        115        115        115        575      1,150
     Infrastructure..................................
    Include Combat Pay in Earned Income for                    0         17          0          0          0          0          0          0          0          0          0         17         17
     Calculating the EIC.............................
    Payment of Tax on Distilled Spirits..............         76         20          0          0          0          0          0          0          0          0          0         96         96
                                                      ----------------------------------------------------------------------------------------------------------------------------------------------
    Total Changes in Direct Spending.................         98      4,337        272        115        115        115        115        115        115        115        115      5,052      5,627

                                                        NET EFFECT ON THE BUDGET DEFICIT OR SURPLUS FROM CHANGES IN REVENUES AND DIRECT SPENDING

    Net Change in the Budget Deficit or Surplus\2\...     -8,153    -17,336     -2,615      2,067     -7,605     33,705    -18,979      2,211      2,255      9,312      5,290         59        148

                                                                              CHANGES IN SPENDING SUBJECT TO APPROPRIATION

    Transportation Fringe Benefit
        Estimated Authorization Level................          0          2          3          3          3          3          3          3          3          3          3         14         29
        Estimated Outlays............................          0          2          3          3          3          3          3          3          3          3          3         14         29
    Reports
        Estimated Authorization Level................          *          2          *          *          0          0          0          0          0          0          0          2          2
        Estimated Outlays............................          *          2          *          *          0          0          0          0          0          0          0          2          2
    Total Changes in Spending Subject to
     Appropriation...................................
        Estimated Authorization Level................          *          4          3          3          3          3          3          3          3          3          3         16         31
        Estimated Outlays............................          *          4          3          3          3          3          3          3          3          3          3         16         31
    ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\For all direct spending changes, budget authority equals outlays.
    \2\Negative numbers indicate increases in deficits (or decreases in surpluses); positive numbers indicate decreases in deficits (or increases in surpluses).

    Sources: Congressional Budget Office and Joint Committee on Taxation.
    Notes: AMT = alternative minimum tax; EIC = earned income credit; * = effect less than $500,000.

        Basis of the estimate: JCT estimated the effects of H.R.
    6049 on revenues, with the exception of one provision. CBO
    estimated the effects on revenues from the provision that would
    extend parity in the application of certain limits to mental
    health benefits. CBO and JCT estimated the effects on direct
    spending. For this estimate, CBO and JCT assume the legislation
    is enacted by June 1, 2008.

    Revenues

        Among other energy-related provisions, the bill extends for
    one year the tax credit for renewable energy production from
    various qualifying facilities, including wind, biomass,
    geothermal, and hydropower facilities, and adds facilities that
    generate electricity from renewable marine sources, such as
    tides and waves, to the list of those eligible for
    theproduction credit. Additionally, the bill would extend for one year
    the credit for energy-efficient improvements to a home, expand the
    advanced coal project and coal gasification investment credits, and
    provide a tax credit to purchasers of plug-in electric vehicles. JCT
    estimates that these and other energy-related provisions would reduce
    revenues by $15.7 billion over the 2008-2018 period.
        H.R. 6049 would extend a number of other expiring tax
    provisions for one year, including the deductions from taxable
    income for state and local sales taxes and certain higher-
    education tuition expenses. The bill also would extend for one
    year the tax credit for businesses that incur certain research
    and experimentation expenses and the 15-year straight line cost
    recovery method for certain types of expenses associated with
    improvements to leased property or restaurants. In addition to
    extending and modifying various expiring tax laws, the bill
    would allow taxpayers who do not itemize their deductions to
    add up to $350 of their 2008 property taxes paid to their
    standard deduction ($750 in the case of a married couple filing
    a joint return). JCT estimates that these extensions and other
    provisions would reduce revenues by $32.8 billion over the
    2008-2018 period.
        The bill includes several provisions that would raise
    revenues over the 2008-2018 period. Such provisions include a
    delay until 2019 of the effective date of a provision enacted
    in the American Jobs Creation Act of 2004 that, starting in
    2009, allows businesses to use an alternative method for
    allocating their interest expense between the United States and
    foreign sources. The bill also would modify the rules related
    to the taxation of deferred compensation. JCT estimates that
    these provisions would increase revenues by $54.3 billion over
    the 2008-2018 period. The bill also would shift revenues out of
    2012 and 2014 and into 2013 by adjusting the portion of
    corporate estimated tax payments due in July through September
    of 2012 and 2013.

    Direct spending

        Refundable Tax Credits. Individuals may claim a tax credit
    for qualifying children under the age of 17. In the event that
    the credit exceeds a taxpayer's liability in a tax year, the
    taxpayer is allowed a refundable credit for that excess amount
    subject to certain limitations. The amount of that refundable
    credit is recorded as an outlay in the budget. Under H.R. 6049,
    those limitations would be loosened. Furthermore, the bill
    would modify the refundable credit associated with payments of
    the AMT. Under current law, an individual who pays the
    alternative minimum tax in any tax year may be eligible for a
    refundable tax credit in future years. H.R. 6049 would allow
    for an accelerated use of unused credits from previous years.
    JCT estimates that these provisions would increase outlays for
    the refundable credits by $4.2 billion over the 2008-2018
    period.
        Refunds for Excise Tax on Exported Coal. The bill would
    allow coal producers and exporters to claim a refund for excise
    taxes imposed on coal exported from the United States. Those
    taxes have been ruled unconstitutional. Refunds of the
    principal amount would be treated as a reduction in revenues,
    while refunds of the interest on those payments would be
    treated as direct spending. JCT estimates that refunding such
    payments would decrease revenues and increase outlays over the
    2008-2009 period by $0.1 billion and $0.2 billion,
    respectively. That estimate is based on two factors: the number
    of outstanding court cases involving coal producers and
    exporters currently seeking repayment of coal export taxes (as
    well as interest on those earlier payments), and the average
    court settlement for previous cases. JCT assumes that all
    refunds for pending cases would be paid in 2008 and 2009.
    Payments in those years accelerate some settlements that would
    have occurred in later years; as a result, JCT estimates that
    between 2010 and 2018, revenues would increase by $0.1 billion,
    offsetting the revenue decrease in 2008 and 2009.
        Funding for New York's Transportation Infrastructure. The
    bill would provide the city 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 themselves pay federal income taxes, the
    credits would essentially be grants and are treated as direct
    spending. JCT estimates that instituting the credits would
    increase direct spending by $1.2 billion over the 2008-2018
    period.
        Include Combat Pay as Earned Income. The bill would extend
    the option for individuals to include combat pay in earned
    income for purposes of the earned income credit through
    December 31, 2008. JCT estimates that this change would
    increase outlays from the refundable credit by $17 million in
    2009.
        Payment of Tax on Distilled Spirits. An excise tax of
    $13.50 per proof gallon is assessed on distilled spirits
    produced or brought into the United States. The treasuries of
    Puerto Rico and the Virgin Islands have received $10.50 per
    proof gallon of the excise tax on rum imported into the United
    States from any country or those territories (that amount is
    known as the tax cover over) since the higher payment rate of
    $13.25 per proof gallon expired on December 31, 2007. Section
    254 would increase the cover over to $13.25 per proof gallon
    for assessments made between January 1, 2008, and December 31,
    2008. Those payments to Puerto Rico and the Virgin Islands are
    recorded in the budget as outlays. Based on recent tax and
    payment data, CBO estimates that this provision would increase
    direct spending by $96 million over the 2008-2009 period.

    Spending subject to appropriation

        Transportation Fringe Benefits. The bill would expand the
    use of transportation fringe benefits for federal employees to
    include bicycle commuters. The provision would allow up to $20
    per month for repair expenses, equipment costs, and storage
    costs for 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
    to work via bicycle. Assuming appropriation of the necessary
    amounts, CBO estimates that implementing this provision would
    cost $2 million in 2009 and $14 million over the 2009-2013
    period.
        Reports. H.R. 6049 would require two reports to the
    Congress by the National Academy of Sciences. One would
    evaluate the tax provisions in the Internal Revenue Code that
    affect carbon and greenhouse gas emissions, while the other
    would concern biofuels, including their present status and
    future potential. Based on the costs of similar studies and
    assuming appropriation of the specified and necessary amounts,
    CBO estimates that those studies would cost $2 million over the
    2008-2012 period.
        Intergovernmental and private-sector impact: CBO and JCT
    have reviewed the bill and determined that it contains no
    intergovernmental mandates as defined in UMRA. CBO has reviewed
    the nontax provisions of the bill and determined that they
    contain no private-sector mandates as defined in UMRA. JCT has
    determined that the tax provisions of the bill contain three
    private-sector mandates as defined in UMRA. The bill would
    extend the excise tax on coal at its current rates, adjust the
    rules for taxation of deferred compensation, and delay the
    implementation of worldwide interest allocation rules. JCT
    estimates the costs required to comply with the mandates would
    exceed the annual threshold established by UMRA ($136 million
    in 2008, adjusted annually for inflation) in each of the next
    10 years.
        Estimate prepared by: Federal Revenues: Zachary Epstein and
    Shinobu Suzuki; Federal Spending: Matthew Pickford and Dwayne
    Wright; Impact on State, Local, and Tribal Governments:
    Elizabeth Cove; Impact on the Private Sector: Amy Petz.
        Estimate approved by: G. Thomas Woodward, Assistant
    Director for Tax Analysis; Peter H. Fontaine, 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 temporary nature and limited scope of the tax
    reductions in this bill limit the amount of probable change in
    economic behavior that could be expected. The revenue raising
    provisions affect primarily repatriation or timing of on-shore
    realization of certain specialized sources of income, which is
    accounted for in the conventional estimate. Therefore, the
    effects of the bill on economic activity are so small as to be
    incalculable within the context of a model of the aggregate
    economy.

                                 E. PAY-GO Rule

        In compliance with clause 10 of rule XXI of the Rules of
    the House of Representatives, the following statement is made
    concerning the effects of the bill, H.R. 6049, as reported: the
    provisions of the bill affecting revenues have the net effect
    of not increasing the deficit or reducing the surplus for
    either: (1) the period comprising the current fiscal and the
    five fiscal years beginning with the fiscal year that ends in
    the following calendar year; and (2) the period comprising the
    current fiscal year and the ten fiscal years beginning with the
    fiscal year that ends in the following calendar year.

         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 advises that it was a result of the Committee's
    oversight review concerning the tax burden on taxpayers that
    the Committee concluded that it is appropriate and timely to
    enact the revenue provision included in the bill as reported.

            B. Statement of General Performance Goals and Objectives

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

                     C. Constitutional Authority Statement

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

                  D. Information Relating to Unfunded Mandates

        This information is provided in accordance with section 423
    of the Unfunded Mandates Act of 1995 (P.L. 104-4).
        The Committee has determined that the bill contains four
    unfunded Federal mandates on the private sector: (1) extend
    excise tax on coal at current rates (sunset 12/31/18); (2)
    modification of the incentives relating to alcohol fuels
    (VEETC) 45 cents; (3) immediate tax on deferred compensation
    paid by certain foreign entities; and (4) delay implementation
    of worldwide allocation of interest expense until 2019.
        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.

             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 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.

               *       *       *       *       *       *       *

      (d) Portion of Credit Refundable.--
              (1) In general.--The aggregate credits allowed to a
            taxpayer under subpart C shall be increased by the
            lesser of--
                      (A) * * *
                      (B) the amount by which the aggregate amount
                    of credits allowed by this subpart (determined
                    without regard to this subsection) would
                    increase if the limitation imposed by section
                    26(a)(2) or subsection (b)(3), as the case may
                    be, were increased by the greater of--
                              (i) 15 percent of so much of the
                            taxpayer's earned income (within the
                            meaning of section 32) which is taken
                            into account in computing taxable
                            income for the taxable year as exceeds
                            $10,000 ($8,500 in the case of taxable
                            years beginning in 2008), or

               *       *       *       *       *       *       *

    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) * * *

               *       *       *       *       *       *       *

      (d) Residential Energy Property Expenditures.--For purposes
    of this section--
              (1) * * *
              (2) Qualified energy property.--
                      (A) * * *

               *       *       *       *       *       *       *

                      [(C) Requirements for standards.--The
                    standards and requirements prescribed by the
                    Secretary under subparagraph (B)--
                              [(i) in the case of the energy
                            efficiency ratio (EER) for central air
                            conditioners and electric heat pumps--
                                      [(I) shall require
                                    measurements to be based on
                                    published data which is tested
                                    by manufacturers at 95 degrees
                                    Fahrenheit, and
                                      [(II) may be based on the
                                    certified data of the Air
                                    Conditioning and Refrigeration
                                    Institute that are prepared in
                                    partnership with the Consortium
                                    for Energy Efficiency, and
                              [(ii) in the case of geothermal heat
                            pumps--
                                      [(I) shall be based on
                                    testing under the conditions of
                                    ARI/ISO Standard 13256-1 for
                                    Water Source Heat Pumps or ARI
                                    870 for Direct Expansion
                                    GeoExchange Heat Pumps (DX), as
                                    appropriate, and
                                      [(II) shall include evidence
                                    that water heating services
                                    have been provided through a
                                    desuperheater or integrated
                                    water heating system connected
                                    to the storage water heater
                                    tank.]
                      (C) Requirements and standards for air
                    conditioners and heat pumps.--The standards and
                    requirements prescribed by the Secretary under
                    subparagraph (B) with respect to the energy
                    efficiency ratio (EER) for central air
                    conditioners and electric heat pumps--
                              (i) shall require measurements to be
                            based on published data which is tested
                            by manufacturers at 95 degrees
                            Fahrenheit, and
                              (ii) may be based on the certified
                            data of the Air Conditioning and
                            Refrigeration Institute that are
                            prepared in partnership with the
                            Consortium for Energy Efficiency.
              (3) Energy-efficient building property.--The term
            ``energy-efficient building property'' means--
                      (A) * * *

               *       *       *       *       *       *       *

                      [(C) a geothermal heat pump which--
                              [(i) in the case of a closed loop
                            product, has an energy efficiency ratio
                            (EER) of at least 14.1 and a heating
                            coefficient of performance (COP) of at
                            least 3.3,
                              [(ii) in the case of an open loop
                            product, has an energy efficiency ratio
                            (EER) of at least 16.2 and a heating
                            coefficient of performance (COP) of at
                            least 3.6, and
                              [(iii) in the case of a direct
                            expansion (DX) product, has an energy
                            efficiency ratio (EER) of at least 15
                            and a heating coefficient of
                            performance (COP) of at least 3.5,]
                      [(D)] (C) a central air conditioner which
                    achieves the highest efficiency tier
                    established by the Consortium for Energy
                    Efficiency, as in effect on January 1, 2006,
                    [and]
                      [(E)] (D) a natural gas, propane, or oil
                    water heater which has an energy factor of at
                    least 0.80[.], and
                      (E) a stove which uses the burning of biomass
                    fuel to heat a dwelling unit located in the
                    United States and used as a residence by the
                    taxpayer, or to heat water for use in such a
                    dwelling unit, and which has a thermal
                    efficiency rating of at least 75 percent.

               *       *       *       *       *       *       *

              (6) Biomass fuel.--The term ``biomass fuel'' means
            any plant-derived fuel available on a renewable or
            recurring basis, including agricultural crops and
            trees, wood and wood waste and residues (including wood
            pellets), plants (including aquatic plants), grasses,
            residues, and fibers.

               *       *       *       *       *       *       *

      (g) Termination.--This section shall not apply with respect
    to any property placed in service after [December 31, 2007]
    December 31, 2008.

    SEC. 25D. RESIDENTIAL ENERGY EFFICIENT PROPERTY.

      (a) Allowance of Credit.--In the case of an individual, there
    shall be allowed as a credit against the tax imposed by this
    chapter for the taxable year an amount equal to the sum of--
              (1) * * *
              (2) 30 percent of the qualified solar water heating
            property expenditures made by the taxpayer during such
            year, [and]
              (3) 30 percent of the qualified fuel cell property
            expenditures made by the taxpayer during such year[.],
              (4) 30 percent of the qualified small wind energy
            property expenditures made by the taxpayer during such
            year, and
              (5) 30 percent of the qualified geothermal heat pump
            property expenditures made by the taxpayer during such
            year.
      (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] $4,000 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[.],
                      (D) $500 with respect to each half kilowatt
                    of capacity (not to exceed $4,000) of wind
                    turbines for which qualified small wind energy
                    property expenditures are made, and
                      (E) $2,000 with respect to any qualified
                    geothermal heat pump property expenditures.

               *       *       *       *       *       *       *

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

               *       *       *       *       *       *       *

              (4) Qualified small wind energy property
            expenditure.--The term ``qualified small wind energy
            property expenditure'' means an expenditure for
            property which uses a wind turbine to generate
            electricity for use in connection with a dwelling unit
            located in the United States and used as a residence by
            the taxpayer.
              (5) Qualified geothermal heat pump property
            expenditure.--
                      (A) In general.--The term ``qualified
                    geothermal heat pump property expenditure''
                    means an expenditure for qualified geothermal
                    heat pump property installed on or in
                    connection with a dwelling unit located in the
                    United States and used as a residence by the
                    taxpayer.
                      (B) Qualified geothermal heat pump
                    property.--The term ``qualified geothermal heat
                    pump property'' means any equipment which--
                              (i) uses the ground or ground water
                            as a thermal energy source to heat the
                            dwelling unit referred to in
                            subparagraph (A) or as a thermal energy
                            sink to cool such dwelling unit, and
                              (ii) meets the requirements of the
                            Energy Star program which are in effect
                            at the time that the expenditure for
                            such equipment is made.
      (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] $13,333 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[.],
                              (iv) $1,667 in the case of each half
                            kilowatt of capacity (not to exceed
                            $13,333) of wind turbines for which
                            qualified small wind energy property
                            expenditures are made, and
                              (v) $6,667 in the case of any
                            qualified geothermal heat pump property
                            expenditures.

               *       *       *       *       *       *       *

      (g) Termination.--The credit allowed under this section shall
    not apply to property placed in service after [December 31,
    2008] December 31, 2014.

    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) * * *

               *       *       *       *       *       *       *

      (b) Regular Tax Liability.--For purposes of this part--
              (1) * * *
              (2) Exception for certain taxes.--For purposes of
            paragraph (1), any tax imposed by any of the following
            provisions shall not be treated as tax imposed by this
            chapter:
                      (A) * * *

               *       *       *       *       *       *       *

                      (U) section 223(f)(4) (relating to additional
                    tax on health savings account distributions not
                    used for qualified medical expenses), [and]
                      (V) subsections (a)(1)(B)(i) and (b)(4)(A) of
                    section 409A (relating to interest and
                    additional tax with respect to certain deferred
                    compensation)[.], and
                      (W) section 457A(c)(1)(B) (relating to
                    determinability of amounts of compensation).

               *       *       *       *       *       *       *

                            Subpart B--Other Credits

    Sec. 27. Taxes of foreign countries and possessions of the United
              States; possession tax credit.
         * * * * * * *
    Sec. 30D. New qualified plug-in electric drive motor 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 percent] 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 all qualified alternative fuel vehicle refueling
    property placed in service by the taxpayer during the taxable
    year at a location 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] December 31, 2010.

               *       *       *       *       *       *       *

    SEC. 30D. NEW QUALIFIED PLUG-IN ELECTRIC DRIVE MOTOR 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 new qualified plug-in
    electric drive motor 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 new qualified plug-in
            electric drive motor 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 $3,000.
              (3) Battery capacity.--In the case of a 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) New Qualified Plug-in Electric Drive Motor Vehicle.--For
    purposes of this section--
              (1) In general.--The term ``new qualified plug-in
            electric drive motor 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, and
                      (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.
              (2) Exception.--The term ``new qualified plug-in
            electric drive motor 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 New Qualified Plug-in Electric
    Drive Motor Vehicles Eligible for Credit.--
              (1) In general.--In the case of a new qualified plug-
            in electric drive motor 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 new qualified plug-in electric drive motor
            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 C--Refundable Credits

               *       *       *       *       *       *       *

    SEC. 32. EARNED INCOME.

      (a) * * *

               *       *       *       *       *       *       *

      (c) Definitions and Special Rules.--For purposes of this
    section--
              (1) * * *
              (2) Earned income.--
                      (A) * * *
                      (B) For purposes of subparagraph (A)--
                              (i) * * *

               *       *       *       *       *       *       *

                              (vi) in the case of any taxable year
                            ending--
                                      (I) * * *
                                      (II) before [January 1, 2008]
                                    January 1, 2009, a taxpayer may
                                    elect to treat amounts excluded
                                    from gross income by reason of
                                    section 112 as earned income.

               *       *       *       *       *       *       *

    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) * * *

               *       *       *       *       *       *       *

              (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 new qualified plug-in
            electric drive motor 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)] section 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 46 to the extent that such
                            credit is attributable to the energy
                            credit determined under section 48, and
                              [(iv)] (v) the credit determined
                            under section 51.

               *       *       *       *       *       *       *

    SEC. 40. ALCOHOL USED AS FUEL.

      (a) * * *

               *       *       *       *       *       *       *

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

               *       *       *       *       *       *       *

              (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) * * *
      (b) Definition of Biodiesel Mixture Credit, Biodiesel Credit,
    and Small Agri-Biodiesel Producer Credit.--For purposes of this
    section--
              (1) Biodiesel mixture credit.--
                      (A) In general.--The biodiesel mixture credit
                    of any taxpayer for any taxable year is [50
                    cents] $1.00 for each gallon of biodiesel used
                    by the taxpayer in the production of a
                    qualified biodiesel mixture.

               *       *       *       *       *       *       *

              (2) Biodiesel credit.--
                      (A) In general.--The biodiesel credit of any
                    taxpayer for any taxable year is [50 cents]
                    $1.00 for each gallon of biodiesel which is not
                    in a mixture with diesel fuel and which during
                    the taxable year--
                              (i) * * *

               *       *       *       *       *       *       *

              [(3) Credit for agri-biodiesel.--In the case of any
            biodiesel which is agri-biodiesel, paragraphs (1)(A)
            and (2)(A) shall be applied by substituting ``$1.00''
            for ``50 cents''.]
              [(4)] (3) Certification for biodiesel.--No credit
            shall be allowed under paragraph (1) or (2) of
            subsection (a) unless 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 biodiesel and agri-biodiesel in the
            product.
              [(5)] (4) Small agri-biodiesel producer credit.--
                      (A) * * *

               *       *       *       *       *       *       *

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

               *       *       *       *       *       *       *

                      (C) Producer credit.--If--
                              (i) * * *
                              (ii) any person does not use such
                            fuel for a purpose described in
                            [subsection (b)(5)(B)] subsection
                            (b)(4)(B), then there is hereby imposed
                            on such person a tax equal to 10 cents
                            a gallon for each gallon of such agri-
                            biodiesel.

               *       *       *       *       *       *       *

              (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.
      (e) Definitions and Special Rules for Small Agri-Biodiesel
    Producer Credit.--For purposes of this section--
              (1) * * *
              (2) Aggregation rule.--For purposes of the 15,000,000
            gallon limitation under [subsection (b)(5)(C)]
            subsection (b)(4)(C) and the 60,000,000 gallon
            limitation under paragraph (1), all members of the same
            controlled group of corporations (within the meaning of
            section 267(f)) and all persons under common control
            (within the meaning of section 52(b) but determined by
            treating an interest of more than 50 percent as a
            controlling interest) shall be treated as 1 person.
              (3) Partnership, s corporation, and other pass-thru
            entities.--In the case of a partnership, trust, S
            corporation, or other pass-thru entity, the limitations
            contained in [subsection (b)(5)(C)] subsection
            (b)(4)(C) and paragraph (1) shall be applied at the
            entity level and at the partner or similar level.

               *       *       *       *       *       *       *

      (f) Renewable Diesel.--For purposes of this title--
              (1) * * *
              [(2) Exceptions.--
                      [(A) Rate of credit.--Subsections (b)(1)(A)
                    and (b)(2)(A) shall be applied with respect to
                    renewable diesel by substituting ``$1.00'' for
                    ``50 cents''.
                      [(B) Nonapplication of certain credits.--
                    Subsections (b)(3) and (b)(5) shall not apply
                    with respect to renewable diesel.]
              (2) Exception.--Subsection (b)(4) shall not apply
            with respect to renewable diesel.
              (3) Renewable diesel defined.--The term ``renewable
            diesel'' means [diesel fuel] liquid 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], D396,
                    or other equivalent standard approved by the
                    Secretary.
            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). The term ``renewable diesel'' also means
            fuel derived from biomass which meets the requirements
            of a Department of Defense specification for military
            jet fuel or an American Society of Testing and
            Materials specification for aviation turbine fuel.
      (g) Termination.--This section shall not apply to any sale or
    use after [December 31, 2008] December 31, 2009.

    SEC. 41. CREDIT FOR INCREASING RESEARCH ACTIVITIES.

      (a) * * *

               *       *       *       *       *       *       *

      (h) Termination.--
              (1) In general.--This section shall not apply to any
            amount paid or incurred--
                      (A) * * *
                      (B) after [December 31, 2007] December 31,
                    2008.
              [(2) Computation of base amount.--In the case of any
            taxable year with respect to which this section applies
            to a number of days which is less than the total number
            of days in such taxable year, the base amount with
            respect to such taxable year shall be the amount which
            bears the same ratio to the base amount for such year
            (determined without regard to this paragraph) as the
            number of days in such taxable year to which this
            section applies bears to the total number of days in
            such taxable year.]
              (2) Computation of credit for taxable year in which
            credit terminates.--
                      (A) In general.--In the case of any taxable
                    year with respect to which this section applies
                    to a number of days which is less than the
                    total number of days in such taxable year, the
                    applicable base amount with respect to such
                    taxable year shall be the amount which bears
                    the same ratio to such applicable amount
                    (determined without regard to this paragraph)
                    as the number of days in such taxable year to
                    which this section applies bears to the total
                    number of days in such taxable year.
                      (B) Applicable base amount.--For purposes of
                    subparagraph (A), the term ``applicable base
                    amount'' means, with respect to any taxable
                    year--
                              (i) except as otherwise provided in
                            this subparagraph, the base amount for
                            the taxable year,
                              (ii) in the case of a taxable year
                            with respect to which an election under
                            subsection (c)(4) (relating to election
                            of alternative incremental credit) is
                            in effect, the average described in
                            subsection (c)(1)(B) for the taxable
                            year, and
                              (iii) in the case of a taxable year
                            with respect to which an election under
                            subsection (c)(5) (relating to election
                            of alternative simplified credit) is in
                            effect, the average qualified research
                            expenses for the 3 taxable years
                            preceding the taxable year.

               *       *       *       *       *       *       *

    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, 2009, 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
                            prelimitation credit for 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
                            prelimitation credit 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 be 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.
                              (iii) Prelimitation credit.--The term
                            ``prelimitation credit'' with respect
                            to any facility for a taxable year
                            means the credit determined under
                            subsection (a) with respect to such
                            facility for such taxable year,
                            determined without regard to
                            subparagraph (A) and after taking into
                            account any increase for such taxable
                            year under clause (ii).
                      (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 applicable
                            percentages.--The applicable
                            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 greater of 110
                                    percent of the Federal long-
                                    term rate as in effect under
                                    section 1274(d) for the month
                                    preceding the month for which
                                    the applicable percentage is
                                    being prescribed, or 4.5
                                    percent, 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--
                              (i) In general.--The term ``eligible
                            basis'' means, with respect to any
                            facility, the sum of--
                                      (I) the basis of such
                                    facility determined as of the
                                    time that such facility is
                                    originally placed in service,
                                    and
                                      (II) the portion of the basis
                                    of any shared qualified
                                    property which is properly
                                    allocable to such facility
                                    under clause (ii).
                              (ii) Rules for allocation.--For
                            purposes of subclause (II) of clause
                            (i), the basis of shared qualified
                            property shall be allocated among all
                            qualified facilities which are
                            projected to be placed in service and
                            which require utilization of such
                            property in proportion to projected
                            generation from such facilities.
                              (iii) Shared qualified property.--For
                            purposes of this paragraph, the term
                            ``shared qualified property'' means,
                            with respect to any facility, any
                            property described in section
                            168(e)(3)(B)(vi)--
                                      (I) which a qualified
                                    facility will require for
                                    utilization of such facility,
                                    and
                                      (II) which is not a qualified
                                    facility.
                              (iv) Special rule relating to
                            geothermal facilities.--In the case of
                            any qualified facility using geothermal
                            energy to produce electricity, the
                            basis of such facility for purposes of
                            this paragraph shall be determined as
                            though intangible drilling and
                            development costs described in section
                            263(c) were capitalized rather than
                            expensed.
                      (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.
                      (F) Election to treat all facilities placed
                    in service in a year as 1 facility.--At the
                    election of the taxpayer, all qualified
                    facilities which are part of the same project
                    and which are placed in service during the same
                    calendar year shall be treated for purposes of
                    this section as 1 facility which is placed in
                    service at the mid-point of such year or the
                    first day of the following calendar 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.

               *       *       *       *       *       *       *

              (8) Qualified hydropower production.--
                      (A) * * *

               *       *       *       *       *       *       *

                      [(C) Nonhydroelectric dam.--For purposes of
                    subparagraph (A), a facility is described in
                    this subparagraph if--
                              [(i) the facility is licensed by the
                            Federal Energy Regulatory Commission
                            and meets all other applicable
                            environmental, licensing, and
                            regulatory requirements,
                              [(ii) the facility was placed in
                            service before the date of the
                            enactment of this paragraph and did not
                            produce hydroelectric power on the date
                            of the enactment of this paragraph, and
                              [(iii) turbines or other generating
                            devices are to be added to the facility
                            after such date to produce
                            hydroelectric power, but only if there
                            is not any enlargement of the diversion
                            structure, or construction or
                            enlargement of a bypass channel, or the
                            impoundment or any withholding of any
                            additional water from the natural
                            stream channel.]
                      (C) Nonhydroelectric dam.--For purposes of
                    subparagraph (A), a facility is described in
                    this subparagraph if--
                              (i) the hydroelectric project
                            installed on the nonhydroelectric dam
                            is licensed by the Federal Energy
                            Regulatory Commission and meets all
                            other applicable environmental,
                            licensing, and regulatory requirements,
                              (ii) the nonhydroelectric dam was
                            placed in service before the date of
                            the enactment of this paragraph and
                            operated for flood control, navigation,
                            or water supply purposes and did not
                            produce hydroelectric power on the date
                            of the enactment of this paragraph, and
                              (iii) the hydroelectric project is
                            operated so that the water surface
                            elevation at any given location and
                            time that would have occurred in the
                            absence of the hydroelectric project is
                            maintained, subject to any license
                            requirements imposed under applicable
                            law that change the water surface
                            elevation for the purpose of improving
                            environmental quality of the affected
                            waterway.
                    The Secretary, in consultation with the Federal
                    Energy Regulatory Commission, shall certify if
                    a hydroelectric project licensed at a
                    nonhydroelectric dam meets the criteria in
                    clause (iii). Nothing in this section shall
                    affect the standards under which the Federal
                    Energy Regulatory Commission issues licenses
                    for and regulates hydropower projects under
                    part I of the Federal Power Act.

               *       *       *       *       *       *       *

              (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] January 1, 2010.
            Such term shall not include any facility with respect
            to which any qualified small wind energy property
            expenditure (as defined in subsection (d)(4) of section
            25D) is taken into account in determining the credit
            under such section.
              (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] January 1, 2012, or
                              (ii) owned by the taxpayer which
                            before [January 1, 2009] January 1,
                            2012, 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.
                      (B) Expansion of facility.--Such term shall
                    include a new unit placed in service after the
                    date of the enactment of this subparagraph in
                    connection with a facility described in
                    subparagraph (A)(i), but only to the extent of
                    the increased amount of electricity produced at
                    the facility by reason of such new unit.
                      [(B)] (C) Special rules.--In the case of a
                    qualified facility described in subparagraph
                    (A)(ii)--
                              (i) * * *

               *       *       *       *       *       *       *

              (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]
                                    January 1, 2012, and

               *       *       *       *       *       *       *

                              (ii) in the case of any other
                            facility, is originally placed in
                            service before [January 1, 2009]
                            January 1, 2012.
                      (B) Expansion of facility.--Such term shall
                    include a new unit placed in service after the
                    date of the enactment of this subparagraph in
                    connection with a facility described in
                    subparagraph (A), but only to the extent of the
                    increased amount of electricity produced at the
                    facility by reason of such new unit.
                      [(B)] (C) Credit eligibility.--In the case of
                    any facility described in subparagraph (A), if
                    the owner of such facility is not the producer
                    of the electricity, the person eligible for the
                    credit allowable under subsection (a) shall be
                    the lessee or the operator of such facility.
              (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] January 1, 2012 (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] January 1, 2012.
              (7) Trash [combustion] facilities.--In the case of a
            [facility which burns] facility (other than a facility
            described in paragraph (6)) which uses 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] January 1, 2012. 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] January 1, 2012, and
                      (B) any other facility placed in service
                    after the date of the enactment of this
                    paragraph and before [January 1, 2009] January
                    1, 2012.

               *       *       *       *       *       *       *

              (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, 2012.
      (e) Definitions and Special Rules.--For purposes of this
    section--
              (1) * * *

               *       *       *       *       *       *       *

              (4) Related persons.--Persons shall be treated as
            related to each other if such persons would be treated
            as a single employer under the regulations prescribed
            under section 52(b). In the case of a corporation which
            is a member of an affiliated group of corporations
            filing a consolidated return, such corporation shall be
            treated as selling electricity to an unrelated person
            if such electricity is sold to such a person by another
            member of such group. The net amount of electricity
            sold by any taxpayer to a regulated public utility (as
            defined in section 7701(a)(33)) shall be treated as
            sold to an unrelated person.

               *       *       *       *       *       *       *

    SEC. 45A. INDIAN EMPLOYMENT CREDIT.

      (a) * * *

               *       *       *       *       *       *       *

      (f) Termination.--This section shall not apply to taxable
    years beginning after [December 31, 2007] December 31, 2008.

               *       *       *       *       *       *       *

    SEC. 45C. CLINICAL TESTING EXPENSES FOR CERTAIN DRUGS FOR RARE DISEASES
                        OR CONDITIONS.

      (a) * * *
      (b) Qualified Clinical Testing Expenses.--For purposes of
    this section--
              (1) Qualified clinical testing expenses.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (D) Special rule.--For purposes of this
                    paragraph, section 41 shall be deemed to remain
                    in effect for periods after June 30, 1995, and
                    before July 1, 1996, and periods after
                    [December 31, 2007] December 31, 2008.

               *       *       *       *       *       *       *

    SEC. 45D. NEW MARKETS TAX CREDIT.

      (a) * * *

               *       *       *       *       *       *       *

      (f) National Limitation on Amount of Investments
    Designated.--
              (1) In general.--There is a new markets tax credit
            limitation for each calendar year. Such limitation is--
                      (A) * * *

               *       *       *       *       *       *       *

                      (D) $3,500,000,000 for 2006, 2007, [and 2008]
                    2008, and 2009.

               *       *       *       *       *       *       *

    SEC. 45G. RAILROAD TRACK MAINTENANCE CREDIT.

      (a) * * *

               *       *       *       *       *       *       *

      (f) Application of Section.--This section shall apply to
    qualified railroad track maintenance expenditures paid or
    incurred during taxable years beginning after December 31,
    2004, and before [January 1, 2008] January 1, 2009.

               *       *       *       *       *       *       *

    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.
      (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 year] 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),
            and
              (3) refrigerators described in subsection (b)(3).
      (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), and
                      (C) any refrigerator described in subsection
                    (b)(3).

               *       *       *       *       *       *       *

              (3) Clothes washer.--The term ``clothes washer''
            means a 1 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.
              [(5) EF.--The term ``EF'' means the energy factor
            established by the Department of Energy for compliance
            with the Federal energy conservation standards.]
              (6) 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)] (7) Produced.--The term ``produced'' includes
            manufactured.
              [(7)] (8) 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.
              (9) 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.
              (10) 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) * * *
                                      (II) energy property
                                    described in paragraph
                                    (3)(A)(i) but only with respect
                                    to periods ending before
                                    [January 1, 2009] January 1,
                                    2015, 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]
                            January 1, 2015,
                              (iii) equipment used to produce,
                            distribute, or use energy derived from
                            a geothermal deposit (within the
                            meaning of section 613(e)(2)), but
                            only, in the case of electricity
                            generated by geothermal power, up to
                            (but not including) the electrical
                            transmission stage, [or]
                              (iv) qualified fuel cell property or
                            qualified microturbine property, or
                              (v) combined heat and power system
                            property,

               *       *       *       *       *       *       *

            [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 section--
              (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 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] December 31, 2014.
              (2) Qualified microturbine property.--
                      (A) * * *

               *       *       *       *       *       *       *

                      [(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] December 31, 2014.
      (d) Combined Heat and Power System Property.--For purposes of
    subsection (a)(3)(A)(v)--
              (1) Combined heat and power system property.--The
            term ``combined heat and power system property'' means
            property comprising a system--
                      (A) which uses the same energy source for the
                    simultaneous or sequential generation of
                    electrical power, mechanical shaft power, or
                    both, in combination with the generation of
                    steam or other forms of useful thermal energy
                    (including heating and cooling applications),
                      (B) which produces--
                              (i) at least 20 percent of its total
                            useful energy in the form of thermal
                            energy which is not used to produce
                            electrical or mechanical power (or
                            combination thereof), and
                              (ii) at least 20 percent of its total
                            useful energy in the form of electrical
                            or mechanical power (or combination
                            thereof),
                      (C) the energy efficiency percentage of which
                    exceeds 60 percent, and
                      (D) which is placed in service before January
                    1, 2015.
              (2) Limitation.--
                      (A) In general.--In the case of combined heat
                    and power system property with an electrical
                    capacity in excess of the applicable capacity
                    placed in service during the taxable year, the
                    credit under subsection (a)(1) (determined
                    without regard to this paragraph) for such year
                    shall be equal to the amount which bears the
                    same ratio to such credit as the applicable
                    capacity bears to the capacity of such
                    property.
                      (B) Applicable capacity.--For purposes of
                    subparagraph (A), the term ``applicable
                    capacity'' means 15 megawatts or a mechanical
                    energy capacity of more than 20,000 horsepower
                    or an equivalent combination of electrical and
                    mechanical energy capacities.
                      (C) Maximum capacity.--The term ``combined
                    heat and power system property'' shall not
                    include any property comprising a system if
                    such system has a capacity in excess of 50
                    megawatts or a mechanical energy capacity in
                    excess of 67,000 horsepower or an equivalent
                    combination of electrical and mechanical energy
                    capacities.
              (3) Special rules.--
                      (A) Energy efficiency percentage.--For
                    purposes of this subsection, the energy
                    efficiency percentage of a system is the
                    fraction--
                              (i) the numerator of which is the
                            total useful electrical, thermal, and
                            mechanical power produced by the system
                            at normal operating rates, and expected
                            to be consumed in its normal
                            application, and
                              (ii) the denominator of which is the
                            lower heating value of the fuel sources
                            for the system.
                      (B) Determinations made on btu basis.--The
                    energy efficiency percentage and the
                    percentages under paragraph (1)(B) shall be
                    determined on a Btu basis.
                      (C) Input and output property not included.--
                    The term ``combined heat and power system
                    property'' does not include property used to
                    transport the energy source to the facility or
                    to distribute energy produced by the facility.
              (4) Systems using biomass.--If a system is designed
            to use biomass (within the meaning of paragraphs (2)
            and (3) of section 45(c) without regard to the last
            sentence of paragraph (3)(A)) for at least 90 percent
            of the energy source--
                      (A) paragraph (1)(C) shall not apply, but
                      (B) the amount of credit determined under
                    subsection (a) with respect to such system
                    shall not exceed the amount which bears the
                    same ratio to such amount of credit (determined
                    without regard to this paragraph) as the energy
                    efficiency percentage of such system bears to
                    60 percent.

    SEC. 48A. QUALIFYING ADVANCED COAL PROJECT CREDIT.

      (a) In General.--For purposes of section 46, the qualifying
    advanced coal project credit for any taxable year is an amount
    equal to--
              (1) 20 percent of the qualified investment for such
            taxable year in the case of projects described in
            subsection (d)(3)(B)(i), [and]
              (2) 15 percent of the qualified investment for such
            taxable year in the case of projects described in
            subsection (d)(3)(B)(ii)[.], and
              (3) 30 percent of the qualified investment for such
            taxable year in the case of projects described in
            clause (iii) of subsection (d)(3)(B).

               *       *       *       *       *       *       *

      (d) Qualifying Advanced Coal Project Program.--
              (1) * * *
              (2) Certification.--
                      [(A) Application period.--Each applicant for
                    certification under this paragraph shall submit
                    an application meeting the requirements of
                    subparagraph (B). An applicant may only submit
                    an application during the 3-year period
                    beginning on the date the Secretary establishes
                    the program under paragraph (1).]
                      (A) Application period.--Each applicant for
                    certification under this paragraph shall submit
                    an application meeting the requirements of
                    subparagraph (B). An applicant may only submit
                    an application--
                              (i) for an allocation from the dollar
                            amount specified in clause (i) or (ii)
                            of paragraph (3)(B) during the 3-year
                            period beginning on the date the
                            Secretary establishes the program under
                            paragraph (1), and
                              (ii) for an allocation from the
                            dollar amount specified in paragraph
                            (3)(B)(iii) during the 3-year period
                            beginning at the earlier of the
                            termination of the period described in
                            clause (i) or the date prescribed by
                            the Secretary.

               *       *       *       *       *       *       *

              (3) Aggregate credits.--
                      (A) In general.--The aggregate credits
                    allowed under subsection (a) for projects
                    certified by the Secretary under paragraph (2)
                    may not exceed [$1,300,000,000] $2,550,000,000.
                      [(B) Particular projects.--Of the dollar
                    amount in subparagraph (A), the Secretary is
                    authorized to certify--
                              [(i) $800,000,000 for integrated
                            gasification combined cycle projects,
                            and
                              [(ii) $500,000,000 for projects which
                            use other advanced coal-based
                            generation technologies.]
                      (B) Particular projects.--Of the dollar
                    amount in subparagraph (A), the Secretary is
                    authorized to certify--
                              (i) $800,000,000 for integrated
                            gasification combined cycle projects
                            the application for which is submitted
                            during the period described in
                            paragraph (2)(A)(i),
                              (ii) $500,000,000 for projects which
                            use other advanced coal-based
                            generation technologies the application
                            for which is submitted during the
                            period described in paragraph
                            (2)(A)(i), and
                              (iii) $1,250,000,000 for advanced
                            coal-based generation technology
                            projects the application for which is
                            submitted during the period described
                            in paragraph (2)(A)(ii).

               *       *       *       *       *       *       *

              (5) Disclosure of allocations.--The Secretary shall,
            upon making a certification under this subsection or
            section 48B(d), publicly disclose the identity of the
            applicant and the amount of the credit certified with
            respect to such applicant.
      (e) Qualifying Advanced Coal Projects.--
              (1) Requirements.--For purposes of subsection (c)(1),
            a project shall be considered a qualifying advanced
            coal project that the Secretary may certify under
            subsection (d)(2) if the Secretary determines that, at
            a minimum--
                      (A) * * *

               *       *       *       *       *       *       *

                      (E) the applicant provides evidence of
                    ownership or control of a site of sufficient
                    size to allow the proposed project to be
                    constructed and to operate on a long-term
                    basis; [and]
                      (F) the project will be located in the United
                    States[.]; and
                      (G) in the case of any project the
                    application for which is submitted during the
                    period described in subsection (d)(2)(A)(ii),
                    the project includes equipment which separates
                    and sequesters at least 65 percent (70 percent
                    in the case of an application for reallocated
                    credits under subsection (d)(4)) of such
                    project's total carbon dioxide emissions.

               *       *       *       *       *       *       *

              (3) Priority for [integrated gasification combined
            cycle] certain projects.--In determining which
            qualifying advanced coal projects to certify under
            subsection (d)(2), the Secretary shall--
                      (A) certify capacity, in accordance with the
                    procedures set forth in subsection (d), in
                    relatively equal amounts to--
                              (i) * * *

               *       *       *       *       *       *       *

                              (iii) projects using lignite as a
                            primary feedstock, [and]
                      (B) give high priority to projects which
                    include, as determined by the Secretary--
                              (i) * * *
                              (ii) increased by-product
                            utilization, [and]
                              (iii) applicant participants who have
                            a research partnership with an eligible
                            educational institution (as defined in
                            section 529(e)(5)), and
                              [(iii)] (iv) other benefits[.], and
                      (C) give highest priority to projects with
                    the greatest separation and sequestration
                    percentage of total carbon dioxide emissions.

               *       *       *       *       *       *       *

      (h) Recapture of Credit for Failure to Sequester.--The
    Secretary shall provide for recapturing the benefit of any
    credit allowable under subsection (a) with respect to any
    project which fails to attain or maintain the separation and
    sequestration requirements of subsection (e)(1)(G).
      (i) Competitive Certification Awards Modification
    Authority.--In implementing this section or section 48B, the
    Secretary is directed to modify the terms of any competitive
    certification award and any associated closing agreement where
    such modification--
              (1) is consistent with the objectives of such
            section,
              (2) is requested by the recipient of the competitive
            certification award, and
              (3) involves moving the project site to improve the
            potential to capture and sequester carbon dioxide
            emissions, reduce costs of transporting feedstock, and
            serve a broader customer base,
    unless the Secretary determines that the dollar amount of tax
    credits available to the taxpayer under such section would
    increase as a result of the modification or such modification
    would result in such project not being originally certified. In
    considering any such modification, the Secretary shall consult
    with other relevant Federal agencies, including the Department
    of Energy.

    SEC. 48B. QUALIFYING GASIFICATION PROJECT CREDIT.

      (a) In General.--For purposes of section 46, the qualifying
    gasification project credit for any taxable year is an amount
    equal to 20 percent (30 percent in the case of credits
    allocated under subsection (d)(1)(B)) of the qualified
    investment for such taxable year.

               *       *       *       *       *       *       *

      (d) Qualifying Gasification Project Program.--
              (1) In general.--Not later than 180 days after the
            date of the enactment of this section, the Secretary,
            in consultation with the Secretary of Energy, shall
            establish a qualifying gasification project program to
            consider and award certifications for qualified
            investment eligible for credits under this section to
            qualifying gasification project sponsors under this
            section. The total amounts of credit that may be
            allocated under the program [shall not exceed
            $350,000,000 under rules similar to the rules of
            section 48A(d)(4).] shall not exceed--
                      (A) $350,000,000, plus
                      (B) $250,000,000 for qualifying gasification
                    projects that include equipment which separates
                    and sequesters at least 75 percent of such
                    project's total carbon dioxide emissions.

               *       *       *       *       *       *       *

              (4) Selection priorities.--In determining which
            qualifying gasification projects to certify under this
            section, the Secretary shall--
                      (A) give highest priority to projects with
                    the greatest separation and sequestration
                    percentage of total carbon dioxide emissions,
                    and
                      (B) give high priority to applicant
                    participants who have a research partnership
                    with an eligible educational institution (as
                    defined in section 529(e)(5)).

               *       *       *       *       *       *       *

      (f) Recapture of Credit for Failure to Sequester.--The
    Secretary shall provide for recapturing the benefit of any
    credit allowable under subsection (a) with respect to any
    project which fails to attain or maintain the separation and
    sequestration requirements for such project under subsection
    (d)(1).

               *       *       *       *       *       *       *

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

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

      (a) * * *

               *       *       *       *       *       *       *

      (e) Special Rule for Individuals with Long-Term Unused
    Credits.--
              (1) * * *
              [(2) AMT refundable credit amount.--For purposes of
            paragraph (1)--
                      [(A) In general.--The term ``AMT refundable
                    credit amount'' means, with respect to any
                    taxable year, the amount (not in excess of the
                    long-term unused minimum tax credit for such
                    taxable year) equal to the greater of--
                              [(i) $5,000,
                              [(ii) 20 percent of the long-term
                            unused minimum tax credit for such
                            taxable year, or
                              [(iii) the amount (if any) of the AMT
                            refundable credit amount determined
                            under this paragraph for the taxpayer's
                            preceding taxable year (as determined
                            before any reduction under subparagraph
                            (B)).
                      [(B) Phaseout of amt refundable credit
                    amount.--
                              [(i) In general.--In the case of an
                            individual whose adjusted gross income
                            for any taxable year exceeds the
                            threshold amount (within the meaning of
                            section 151(d)(3)(C)), the AMT
                            refundable credit amount determined
                            under subparagraph (A) for such taxable
                            year shall be reduced by the applicable
                            percentage (within the meaning of
                            section 151(d)(3)(B)).
                              [(ii) Adjusted gross income.--For
                            purposes of clause (i), adjusted gross
                            income shall be determined without
                            regard to sections 911, 931, and 933.]
              (2) AMT refundable credit amount.--For purposes of
            paragraph (1), the term ``AMT refundable credit
            amount'' means, with respect to any taxable year, the
            amount (not in excess of the long-term unused minimum
            tax credit for such taxable year) equal to the greater
            of--
                      (A) 50 percent of the long-term unused
                    minimum tax credit for such taxable year, or
                      (B) the amount (if any) of the AMT refundable
                    credit amount for the taxpayer's preceding
                    taxable year (determined without regard to
                    subsection (f)(2)).

               *       *       *       *       *       *       *

      (f) Treatment of Certain Underpayments, Interest, and
    Penalties Attributable to the Treatment of Incentive Stock
    Options.--
              (1) Abatement.--Any underpayment of tax outstanding
            on the date of the enactment of this subsection which
            is attributable to the application of section 56(b)(3)
            for any taxable year ending before January 1, 2008 (and
            any interest or penalty with respect to such
            underpayment which is outstanding on such date of
            enactment), is hereby abated. The amount determined
            under subsection (b)(1) shall not include any tax
            abated under the preceding sentence.
              (2) Increase in credit for certain interest and
            penalties already paid.--The AMT refundable credit
            amount, and the minimum tax credit determined under
            subsection (b), for the taxpayer's first 2 taxable
            years beginning after December 31, 2007, shall each be
            increased by 50 percent of the aggregate amount of the
            interest and penalties which were paid by the taxpayer
            before the date of the enactment of this subsection and
            which would (but for such payment) have been abated
            under paragraph (1).

      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 zone academy 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 zone academy bond,
            which is part of an issue that meets 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--
                              (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 zone
                            academy 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
                            reasonably expected to result in an
                            amount not greater than an amount
                            necessary to repay the issue, 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 33 \1/3\ percent thereof
                    may be allocated to qualified projects of
                    public power providers,
                      (B) not more than 33 \1/3\ percent thereof
                    may be allocated to qualified projects of
                    governmental bodies, and
                      (C) not more than 33 \1/3\ 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 paragraph
                    (2)(A) bears to the cost of all such projects.
                      (B) Allocation among governmental bodies and
                    cooperative electric companies.--The Secretary
                    shall make allocations of the amount of the
                    national new clean renewable energy bond
                    limitation described in paragraphs (2)(B) and
                    (2)(C) among qualified projects of governmental
                    bodies and cooperative electric companies,
                    respectively, 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, a governmental body, 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) Governmental body.--The term ``governmental
            body'' means any State or Indian tribal government, or
            any political subdivision thereof.
              (4) 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).
              (5) 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.
              (6) Qualified issuer.--The term ``qualified issuer''
            means a public power provider, a cooperative electric
            company, a governmental body, 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) Reduced Credit Amount.--The annual credit determined
    under section 54A(b) with respect to any qualified energy
    conservation bond shall be 70 percent of the amount so
    determined without regard to this subsection.
      (c) 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 (e).
      (d) National Limitation on Amount of Bonds Designated.--There
    is a national qualified energy conservation bond limitation of
    $3,000,000,000.
      (e) Allocations.--
              (1) In general.--The limitation applicable under
            subsection (d) 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.
      (f) 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,
                              (iii) rural development involving the
                            production of electricity from
                            renewable energy resources, or
                              (iv) any qualified facility (as
                            determined under section 45(d) without
                            regard to paragraphs (8) and (10)
                            thereof and without regard to any
                            placed in service date).
                      (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.
      (g) 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.
      (h) 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 (e) 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 ZONE ACADEMY BONDS.

      (a) Qualified Zone Academy Bonds.--For purposes of this
    subchapter, the term ``qualified zone academy 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 a qualified purpose with
            respect to a qualified zone academy established by an
            eligible local education agency,
              (2) the bond is issued by a State or local government
            within the jurisdiction of which such academy is
            located, and
              (3) the issuer--
                      (A) designates such bond for purposes of this
                    section,
                      (B) certifies that it has written assurances
                    that the private business contribution
                    requirement of subsection (b) will be met with
                    respect to such academy, and
                      (C) certifies that it has the written
                    approval of the eligible local education agency
                    for such bond issuance.
      (b)  Private Business Contribution Requirement.--For purposes
    of subsection (a), the private business contribution
    requirement of this subsection is met with respect to any issue
    if the eligible local education agency that established the
    qualified zone academy has written commitments from private
    entities to make qualified contributions having a present value
    (as of the date of issuance of the issue) of not less than 10
    percent of the proceeds of the issue.
      (c) Limitation on Amount of Bonds Designated.--
              (1) National limitation.--There is a national zone
            academy bond limitation for each calendar year. Such
            limitation is $400,000,000 for 2008, and, except as
            provided in paragraph (4), zero thereafter.
              (2) Allocation of limitation.--The national zone
            academy bond limitation for a calendar year shall be
            allocated by the Secretary among the States on the
            basis of their respective populations of individuals
            below the poverty line (as defined by the Office of
            Management and Budget). The limitation amount allocated
            to a State under the preceding sentence shall be
            allocated by the State education agency to qualified
            zone academies within such State.
              (3) Designation subject to limitation amount.--The
            maximum aggregate face amount of bonds issued during
            any calendar year which may be designated under
            subsection (a) with respect to any qualified zone
            academy shall not exceed the limitation amount
            allocated to such academy under paragraph (2) for such
            calendar year.
              (4) Carryover of unused limitation.--
                      (A) In general.--If for any calendar year--
                              (i) the limitation amount for any
                            State, exceeds
                              (ii) the amount of bonds issued
                            during such year which are designated
                            under subsection (a) with respect to
                            qualified zone academies within such
                            State,
                    the limitation amount for such State for the
                    following calendar year shall be increased by
                    the amount of such excess.
                      (B) Limitation on carryover.--Any
                    carryforward of a limitation amount may be
                    carried only to the first 2 years following the
                    unused limitation year. For purposes of the
                    preceding sentence, a limitation amount shall
                    be treated as used on a first-in first-out
                    basis.
                      (C) Coordination with section 1397e.--Any
                    carryover determined under section 1397E(e)(4)
                    (relating to carryover of unused limitation)
                    with respect to any State to calendar year 2008
                    shall be treated for purposes of this section
                    as a carryover with respect to such State for
                    such calendar year under subparagraph (A), and
                    the limitation of subparagraph (B) shall apply
                    to such carryover taking into account the
                    calendar years to which such carryover relates.
      (d) Definitions.--For purposes of this section--
              (1) Qualified zone academy.--The term ``qualified
            zone academy'' means any public school (or academic
            program within a public school) which is established by
            and operated under the supervision of an eligible local
            education agency to provide education or training below
            the postsecondary level if--
                      (A) such public school or program (as the
                    case may be) is designed in cooperation with
                    business to enhance the academic curriculum,
                    increase graduation and employment rates, and
                    better prepare students for the rigors of
                    college and the increasingly complex workforce,
                      (B) students in such public school or program
                    (as the case may be) will be subject to the
                    same academic standards and assessments as
                    other students educated by the eligible local
                    education agency,
                      (C) the comprehensive education plan of such
                    public school or program is approved by the
                    eligible local education agency, and
                      (D)(i) such public school is located in an
                    empowerment zone or enterprise community
                    (including any such zone or community
                    designated after the date of the enactment of
                    this section), or
                      (ii) there is a reasonable expectation (as of
                    the date of issuance of the bonds) that at
                    least 35 percent of the students attending such
                    school or participating in such program (as the
                    case may be) will be eligible for free or
                    reduced-cost lunches under the school lunch
                    program established under the National School
                    Lunch Act.
              (2) Eligible local education agency.-- For purposes
            of this section, the term ``eligible local education
            agency'' means any local educational agency as defined
            in section 9101 of the Elementary and Secondary
            Education Act of 1965.
              (3) Qualified purpose.--The term ``qualified
            purpose'' means, with respect to any qualified zone
            academy--
                      (A) rehabilitating or repairing the public
                    school facility in which the academy is
                    established,
                      (B) providing equipment for use at such
                    academy,
                      (C) developing course materials for education
                    to be provided at such academy, and
                      (D) training teachers and other school
                    personnel in such academy.
              (4) Qualified contributions.--The term ``qualified
            contribution'' means any contribution (of a type and
            quality acceptable to the eligible local education
            agency) of--
                      (A) equipment for use in the qualified zone
                    academy (including state-of-the-art technology
                    and vocational equipment),
                      (B) technical assistance in developing
                    curriculum or in training teachers in order to
                    promote appropriate market driven technology in
                    the classroom,
                      (C) services of employees as volunteer
                    mentors,
                      (D) internships, field trips, or other
                    educational opportunities outside the academy
                    for students, or
                      (E) any other property or service specified
                    by the eligible local education agency.

    PART VI--ALTERNATIVE MINIMUM TAX

               *       *       *       *       *       *       *

    SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

      (a) * * *

               *       *       *       *       *       *       *

      (c) Regular Tax.--
              (1) * * *

               *       *       *       *       *       *       *

              (3) Cross references.--For provisions providing that
            certain credits are not allowable against the tax
            imposed by this section, see sections 26(a), 30(b)(3),
            [30B(g)(2),] 30C(d)(2), and 38(c).

               *       *       *       *       *       *       *

    Subchapter B--Computation of Taxable Income

               *       *       *       *       *       *       *

      PART I--DEFINITION OF GROSS INCOME, ADJUSTED GROSS INCOME, TAXABLE
    INCOME, ETC

               *       *       *       *       *       *       *

    SEC. 62. ADJUSTED GROSS INCOME DEFINED.

      (a) General Rule.--For purposes of this subtitle, the term
    ``adjusted gross income'' means, in the case of an individual,
    gross income minus the following deductions:
              (1) * * *
              (2) Certain trade and business deductions of
            employees.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (D) Certain expenses of elementary and
                    secondary school teachers.--In the case of
                    taxable years beginning during 2002, 2003,
                    2004, 2005, 2006, [or 2007] 2007, or 2008, the
                    deductions allowed by section 162 which consist
                    of expenses, not in excess of $250, paid or
                    incurred by an eligible educator in connection
                    with books, supplies (other than nonathletic
                    supplies for courses of instruction in health
                    or physical education), computer equipment
                    (including related software and services) and
                    other equipment, and supplementary materials
                    used by the eligible educator in the classroom.

               *       *       *       *       *       *       *

    SEC. 63. TAXABLE INCOME DEFINED.

      (a) * * *

               *       *       *       *       *       *       *

      (c) Standard Deduction.--For purposes of this subtitle--
              (1) In general.--Except as otherwise provided in this
            subsection, the term ``standard deduction'' means the
            sum of--
                      (A) the basic standard deduction, [and]
                      (B) the additional standard deduction[.], and
                      (C) in the case of any taxable year beginning
                    in 2008, the real property tax deduction.

               *       *       *       *       *       *       *

              (7) Real property tax deduction.--For purposes of
            paragraph (1), the real property tax deduction is the
            lesser of--
                      (A) the amount allowable as a deduction under
                    this chapter for State and local taxes
                    described in section 164(a)(1), or
                      (B) $350 ($700 in the case of a joint
                    return).
            Any taxes taken into account under section 62(a) shall
            not be taken into account under this paragraph.

               *       *       *       *       *       *       *

    PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

               *       *       *       *       *       *       *

    SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE
                        CONTRACTS.

      (a) * * *

               *       *       *       *       *       *       *

      (t) 10-Percent Additional Tax on Early Distributions from
    Qualified Retirement Plans.--
              (1) * * *
              (2) Subsection not to apply to certain
            distributions.--Except as provided in paragraphs (3)
            and (4), paragraph (1) shall not apply to any of the
            following distributions:
                      (A) * * *

               *       *       *       *       *       *       *

                      (G) Distributions from retirement plans to
                    individuals called to active duty.--
                              (i) * * *

               *       *       *       *       *       *       *

                              (iv) Application of subparagraph.--
                            This subparagraph applies to
                            individuals ordered or called to active
                            duty after September 11, 2001, and
                            before [December 31, 2007] January 1,
                            2009. In no event shall the 2-year
                            period referred to in clause (ii) end
                            before the date which is 2 years after
                            the date of the enactment of this
                            subparagraph.

               *       *       *       *       *       *       *

    PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

               *       *       *       *       *       *       *

    SEC. 120. AMOUNTS RECEIVED UNDER QUALIFIED GROUP LEGAL SERVICES PLANS.

      (a) * * *

               *       *       *       *       *       *       *

      (e) Termination.--This section and section 501(c)(20) [shall
    not apply to taxable years beginning after June 30, 1992] shall
    apply to taxable years beginning after December 31, 2007, and
    before January 1, 2009.

               *       *       *       *       *       *       *

    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 IV--TAX EXEMPTION REQUIREMENTS FOR STATE AND LOCAL BONDS

               *       *       *       *       *       *       *

    Subpart A--Private Activity Bonds

               *       *       *       *       *       *       *

    SEC. 142. EXEMPT FACILITY BOND.

      (a) * * *

               *       *       *       *       *       *       *

      (l) Qualified Green Building and Sustainable Design
    Projects.--
              (1) * * *

               *       *       *       *       *       *       *

              (8) Termination.--Subsection (a)(14) shall not apply
            with respect to any bond issued after [September 30,
            2009] September 30, 2012.
              (9) Treatment of current refunding bonds.--Paragraphs
            (7)(B) and (8) shall not apply to any bond (or series
            of bonds) issued to refund a bond issued under
            subsection (a)(14) before [October 1, 2009] October 1,
            2012, if--
                      (A) * * *

               *       *       *       *       *       *       *

    SEC. 143. MORTGAGE REVENUE BONDS: QUALIFIED MORTGAGE BOND AND QUALIFIED
                        VETERANS' MORTGAGE BOND.

      (a) * * *

               *       *       *       *       *       *       *

      (d) 3-year requirement
              (1) * * *
              (2) Exceptions.--For purposes of paragraph (1), the
            proceeds of an issue which are used to provide--
                      (A) * * *

               *       *       *       *       *       *       *

                      (D) in the case of bonds issued after the
                    date of the enactment of this subparagraph and
                    before [January 1, 2008] January 1, 2009,
                    financing of any residence for a veteran (as
                    defined in section 101 of title 38, United
                    States Code), if such veteran has not
                    previously qualified for and received such
                    financing by reason of this subparagraph,
            shall be treated as used as described in paragraph (1).

               *       *       *       *       *       *       *

    PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

               *       *       *       *       *       *       *

    SEC. 162. TRADE OR BUSINESS EXPENSES.

      (a) * * *

               *       *       *       *       *       *       *

      (q) Attorney-Advanced Expenses and Court Costs in Contingency
    Fee Cases.--In the case of any expense or court cost which is
    paid or incurred in the course of the trade or business of
    practicing law and the repayment of which is contingent on a
    recovery by judgment or settlement in the action to which such
    expense or cost relates, the deduction under subsection (a)
    shall be determined as if such expense or cost was not subject
    to repayment.
      [(q)] (r) Cross Reference.--
              (1) * * *

               *       *       *       *       *       *       *

    SEC. 164. TAXES.

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

               *       *       *       *       *       *       *

              (5) General sales taxes.--For purposes of subsection
            (a)--
                      (A) * * *

               *       *       *       *       *       *       *

                      (I) Application of paragraph.--This paragraph
                    shall apply to taxable years beginning after
                    December 31, 2003, and before [January 1, 2008]
                    January 1, 2009.

               *       *       *       *       *       *       *

    SEC. 168. ACCELERATED COST RECOVERY SYSTEM.

      (a) * * *
      (b) Applicable Depreciation Method.--For purposes of this
    section--
              (1) * * *
              (2) 150 percent declining balance method in certain
            cases.--Paragraph (1) shall be applied by substituting
            ``150 percent'' for ``200 percent'' in the case of--
                      (A) * * *
                      (B) any property used in a farming business
                    (within the meaning of section 263A(e)(4)),
                    [or]
                      (C) any property (other than property
                    described in paragraph (3)) which is a
                    qualified smart electric meter or qualified
                    smart electric grid system, or
                      [(C)] (D) any property (other than property
                    described in paragraph (3)) with respect to
                    which the taxpayer elects under paragraph (5)
                    to have the provisions of this paragraph apply.

               *       *       *       *       *       *       *

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

               *       *       *       *       *       *       *

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

               *       *       *       *       *       *       *

                      (D) 10-year property.--The term ``10-year
                    property'' includes--
                              (i) any single purpose agricultural
                            or horticultural structure (within the
                            meaning of subsection (i)(13)), [and]
                              (ii) any tree or vine bearing fruit
                            or nuts[.],
                              (iii) any qualified smart electric
                            meter, and
                              (iv) any qualified smart electric
                            grid system.
                      (E) 15-year property.--The term ``15-year
                    property'' includes--
                              (i) * * *

               *       *       *       *       *       *       *

                              (iv) any qualified leasehold
                            improvement property placed in service
                            before [January 1, 2008] January 1,
                            2009,
                              (v) any qualified restaurant property
                            placed in service before [January 1,
                            2008] January 1, 2009,

               *       *       *       *       *       *       *

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

               *       *       *       *       *       *       *

              (15) Motorsports entertainment complex.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (D) Termination.--Such term shall not include
                    any property placed in service after [December
                    31, 2007] December 31, 2008.

               *       *       *       *       *       *       *

              (18) Qualified smart electric meters.--
                      (A) In general.--The term ``qualified smart
                    electric meter'' means any smart electric meter
                    which is placed in service by a taxpayer who is
                    a supplier of electric energy or a provider of
                    electric energy services.
                      (B) Smart electric meter.--For purposes of
                    subparagraph (A), the term ``smart electric
                    meter'' 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 electric
                            meter in support of time-based rates or
                            other forms of demand response,
                              (iii) provides data to such supplier
                            or provider so that the supplier or
                            provider can provide energy usage
                            information to customers
                            electronically, and
                              (iv) provides net metering.
              (19) Qualified smart electric grid systems.--
                      (A) In general.--The term ``qualified smart
                    electric grid system'' means any smart grid
                    property used as part of a system for electric
                    distribution grid communications, monitoring,
                    and management placed in service by a taxpayer
                    who is a supplier of electric energy or a
                    provider of electric energy services.
                      (B) Smart grid property.--For the purposes of
                    subparagraph (A), the term ``smart grid
                    property'' means electronics and related
                    equipment that is capable of--
                              (i) sensing, collecting, and
                            monitoring data of or from all portions
                            of a utility's electric distribution
                            grid,
                              (ii) providing real-time, two-way
                            communications to monitor or manage
                            such grid, and
                              (iii) providing real time analysis of
                            and event prediction based upon
                            collected data that can be used to
                            improve electric distribution system
                            reliability, quality, and performance.-
      (j) Property on Indian Reservations.--
              (1) * * *

               *       *       *       *       *       *       *

              (8) Termination.--This subsection shall not apply to
            property placed in service after [December 31, 2007]
            December 31, 2008.
      (k) Special Allowance for Certain Property Acquired After
    December 31, 2007, and Before January 1, 2009.--
              (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)).

               *       *       *       *       *       *       *

      (l) Special Allowance for [Cellulosic Biomass Ethanol]
    Cellulosic Biofuel Plant Property.--
              (1) Additional allowance.--In the case of any
            qualified [cellulosic biomass ethanol] cellulosic
            biofuel plant property--
                      (A) * * *

               *       *       *       *       *       *       *

              (2) Qualified [cellulosic biomass ethanol] cellulosic
            biofuel plant property.--The term ``qualified
            [cellulosic biomass ethanol] cellulosic biofuel plant
            property'' means property of a character subject to the
            allowance for depreciation--
                      (A) which is used in the United States solely
                    to produce [cellulosic biomass ethanol]
                    cellulosic biofuel,

               *       *       *       *       *       *       *

              [(3) Cellulosic biomass ethanol.--For purposes of
            this subsection, the term ``cellulosic biomass
            ethanol'' means ethanol produced by hydrolysis of any
            lignocellulosic or hemicellulosic matter that is
            available on a renewable or recurring basis.]
              (3) Cellulosic biofuel.--The term ``cellulosic
            biofuel'' means any liquid fuel which is produced from
            any lignocellulosic or hemicellulosic matter that is
            available on a renewable or recurring basis.

               *       *       *       *       *       *       *

              (5) Special rules.--For purposes of this subsection,
            rules similar to the rules of subparagraph (E) of
            section 168(k)(2) shall apply, except that such
            subparagraph shall be applied--
                      (A) * * *

               *       *       *       *       *       *       *

                      (C) by substituting ``qualified [cellulosic
                    biomass ethanol] cellulosic biofuel plant
                    property'' for ``qualified property'' in clause
                    (iv) thereof.

               *       *       *       *       *       *       *

              (7) Recapture.--For purposes of this subsection,
            rules similar to the rules under section 179(d)(10)
            shall apply with respect to any qualified [cellulosic
            biomass ethanol] cellulosic biofuel plant property
            which ceases to be qualified [cellulosic biomass
            ethanol] cellulosic biofuel plant property.
              (8) Denial of double benefit.--Paragraph (1) shall
            not apply to any qualified [cellulosic biomass ethanol]
            cellulosic biofuel plant property with respect to which
            an election has been made under section 179C (relating
            to election to expense certain refineries).

               *       *       *       *       *       *       *

    SEC. 170. CHARITABLE, ETC., CONTRIBUTIONS AND GIFTS.

      (a) * * *

               *       *       *       *       *       *       *

      (e) Certain Contributions of Ordinary Income and Capital Gain
    Property.--
              (1) * * *

               *       *       *       *       *       *       *

              (3) Special rule for certain contributions of
            inventory and other property.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (C) Special rule for contributions of food
                    inventory.--
                              (i) * * *

               *       *       *       *       *       *       *

                              (iv) Termination.--This subparagraph
                            shall not apply to contributions made
                            after [December 31, 2007] December 31,
                            2008.
                      (D) Special rule for contributions of book
                    inventory to public schools
                              (i) * * *

               *       *       *       *       *       *       *

                              (iv) Termination.--This subparagraph
                            shall not apply to contributions made
                            after [December 31, 2007] December 31,
                            2008.

               *       *       *       *       *       *       *

              (6) Special rule for contributions of computer
            technology and equipment for educational purposes.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (G) Termination.--This paragraph shall not
                    apply to any contribution made during any
                    taxable year beginning after [December 31,
                    2007] December 31, 2008.

               *       *       *       *       *       *       *

    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]
    December 31, 2013.

               *       *       *       *       *       *       *

    SEC. 181. TREATMENT OF CERTAIN QUALIFIED FILM AND TELEVISION
                        PRODUCTIONS.

      (a) Election to Treat Costs as Expenses.--
              (1) * * *
              (2) Dollar limitation.--
                      [(A) In general.--Paragraph (1) shall not
                    apply to any qualified film or television
                    production the aggregate cost of which exceeds
                    $15,000,000.]
                      (A) In general.--Paragraph (1) shall not
                    apply to so much of the aggregate cost of any
                    qualified film or television production as
                    exceeds $15,000,000.

               *       *       *       *       *       *       *

      (f) Termination.--This section shall not apply to qualified
    film and television productions commencing after [December 31,
    2008] December 31, 2009.

               *       *       *       *       *       *       *

    SEC. 198. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

      (a) * * *

               *       *       *       *       *       *       *

      (h) Termination.--This section shall not apply to
    expenditures paid or incurred after [December 31, 2007]
    December 31, 2008.

    SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

      (a) * * *
      (b) Deduction Limited to Wages Paid.--
              (1) * * *
              (2) W-2 wages.--For purposes of this section--
                      (A) * * *

               *       *       *       *       *       *       *

                      (D) Special rule for qualified film.--In the
                    case of a qualified film, such term shall
                    include compensation for services performed in
                    the United States by actors, production
                    personnel, directors, and producers.-

               *       *       *       *       *       *       *

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

               *       *       *       *       *       *       *

              (6) Qualified film.--The term ``qualified film''
            means any property described in section 168(f)(3) if
            not less than 50 percent of the total compensation
            relating to the production of such property is
            compensation for services performed in the United
            States by actors, production personnel, directors, and
            producers. Such term does not include property with
            respect to which records are required to be maintained
            under section 2257 of title 18, United States Code. A
            qualified film shall include any copyrights,
            trademarks, or other intangibles with respect to such
            film. The methods and means of distributing a qualified
            film shall not affect the availability of the deduction
            under this section.

               *       *       *       *       *       *       *

      (d) Definitions and Special Rules.--
              (1) Application of section to pass-thru entities.--
                      (A) Partnerships and s corporations.--In the
                    case of a partnership or S corporation--
                              (i) * * *
                              (ii) each partner or shareholder
                            shall take into account such person's
                            allocable share of each item described
                            in subparagraph (A) or (B) of
                            subsection (c)(1) (determined without
                            regard to whether the items described
                            in such subparagraph (A) exceed the
                            items described in such subparagraph
                            (B)), [and]
                              (iii) each partner or shareholder
                            shall be treated for purposes of
                            subsection (b) as having W-2 wages for
                            the taxable year in an amount equal to
                            such person's allocable share of the W-
                            2 wages of the partnership or S
                            corporation for the taxable year (as
                            determined under regulations prescribed
                            by the Secretary)[.], and-
                              (iv) in the case of each partner of a
                            partnership, or shareholder of an S
                            corporation, who owns (directly or
                            indirectly) at least 20 percent of the
                            capital interests in such partnership
                            or of the stock of such S corporation--
                                      (I) such partner or
                                    shareholder shall be treated as
                                    having engaged directly in any
                                    film produced by such
                                    partnership or S corporation,
                                    and
                                      (II) such partnership or S
                                    corporation shall be treated as
                                    having engaged directly in any
                                    film produced by such partner
                                    or shareholder.-

               *       *       *       *       *       *       *

              (8) Treatment of activities in puerto rico.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (C) Termination.--This paragraph shall apply
                    only with respect to the [first 2 taxable
                    years] first 3 taxable years of the taxpayer
                    beginning after December 31, 2005, and before
                    [January 1, 2008] January 1, 2009.

               *       *       *       *       *       *       *

    PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

               *       *       *       *       *       *       *

    SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.

      (a) * * *

               *       *       *       *       *       *       *

      (e) Termination.--This section shall not apply to taxable
    years beginning after [December 31, 2007] December 31, 2008.

               *       *       *       *       *       *       *

    Subchapter D--Deferred Compensation, Etc

               *       *       *       *       *       *       *

    PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC

               *       *       *       *       *       *       *

    Subpart A--general rule

               *       *       *       *       *       *       *

    SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.

      (a) * * *

               *       *       *       *       *       *       *

      (d) Tax Treatment of Distributions.--
              (1) * * *

               *       *       *       *       *       *       *

              (8) Distributions for charitable purposes.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (F) Termination.--This paragraph shall not
                    apply to distributions made in taxable years
                    beginning after [December 31, 2007] December
                    31, 2008.

               *       *       *       *       *       *       *

    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.
         * * * * * * *
    Sec. 457A. Nonqualified deferred compensation from certain tax
              indifferent parties.

               *       *       *       *       *       *       *

    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, in the case of 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 person that, as of the date of the qualifying
            electric transmission transaction, is vertically
            integrated, in that it is both--
                      (A) a transmitting utility (as defined in
                    section 3(23) of the Federal Power Act (16
                    U.S.C. 796(23))) with respect to the
                    transmission facilities to which the election
                    under this subsection applies, and
                      (B) an electric utility (as defined in
                    section 3(22) of the Federal Power Act (16
                    U.S.C. 796(22))).
              [(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.

               *       *       *       *       *       *       *

    SEC. 457A. NONQUALIFIED DEFERRED COMPENSATION FROM CERTAIN TAX
                        INDIFFERENT PARTIES.

      (a) In General.--Any compensation which is deferred under a
    nonqualified deferred compensation plan of a nonqualified
    entity shall be includible in gross income when there is no
    substantial risk of forfeiture of the rights to such
    compensation.
      (b) Nonqualified Entity.--For purposes of this section, the
    term ``nonqualified entity'' means--
              (1) any foreign corporation unless substantially all
            of its income is--
                      (A) effectively connected with the conduct of
                    a trade or business in the United States, or
                      (B) subject to a comprehensive foreign income
                    tax, and
              (2) any partnership unless substantially all of its
            income is allocated to persons other than--
                      (A) foreign persons with respect to whom such
                    income is not subject to a comprehensive
                    foreign income tax, and
                      (B) organizations which are exempt from tax
                    under this title.
      (c) Determinability of Amounts of Compensation.--
              (1) In general.--If the amount of any compensation is
            not determinable at the time that such compensation is
            otherwise includible in gross income under subsection
            (a)--
                      (A) such amount shall be so includible in
                    gross income when determinable, and
                      (B) the tax imposed under this chapter for
                    the taxable year in which such compensation is
                    includible in gross income shall be increased
                    by the sum of--
                              (i) the amount of interest determined
                            under paragraph (2), and
                              (ii) an amount equal to 20 percent of
                            the amount of such compensation.
              (2) Interest.--For purposes of paragraph (1)(B)(i),
            the interest determined under this paragraph for any
            taxable year is the amount of interest at the
            underpayment rate under section 6621 plus 1 percentage
            point on the underpayments that would have occurred had
            the deferred compensation been includible in gross
            income for the taxable year in which first deferred or,
            if later, the first taxable year in which such deferred
            compensation is not subject to a substantial risk of
            forfeiture.
      (d) Other Definitions and Special Rules.--For purposes of
    this section--
              (1) Substantial risk of forfeiture.--
                      (A) In general.--The rights of a person to
                    compensation shall be treated as subject to a
                    substantial risk of forfeiture only if such
                    person's rights to such compensation are
                    conditioned upon the future performance of
                    substantial services by any individual.
                      (B) Exception for compensation based on gain
                    recognized on an investment asset.--
                              (i) In general.--To the extent
                            provided in regulations prescribed by
                            the Secretary, if compensation is
                            determined solely by reference to the
                            amount of gain recognized on the
                            disposition of an investment asset,
                            such compensation shall be treated as
                            subject to a substantial risk of
                            forfeiture until the date of such
                            disposition.
                              (ii) Investment asset.--For purposes
                            of clause (i), the term ``investment
                            asset'' means any single asset (other
                            than an investment fund or similar
                            entity)--
                                      (I) acquired directly by an
                                    investment fund or similar
                                    entity,
                                      (II) with respect to which
                                    such entity does not (nor does
                                    any person related to such
                                    entity) participate in the
                                    active management of such asset
                                    (or if such asset is an
                                    interest in an entity, in the
                                    active management of the
                                    activities of such entity), and
                                      (III) substantially all of
                                    any gain on the disposition of
                                    which (other than such deferred
                                    compensation) is allocated to
                                    investors in such entity.
                              (iii) Coordination with special
                            rule.--Paragraph (3)(B) shall not apply
                            to any compensation to which clause (i)
                            applies.
              (2) Comprehensive foreign income tax.--The term
            ``comprehensive foreign income tax'' means, with
            respect to any foreign person, the income tax of a
            foreign country if--
                      (A) such person is eligible for the benefits
                    of a comprehensive income tax treaty between
                    such foreign country and the United States, or
                      (B) such person demonstrates to the
                    satisfaction of the Secretary that such foreign
                    country has a comprehensive income tax.
              (3) Nonqualified deferred compensation plan.--
                      (A) In general.--The term ``nonqualified
                    deferred compensation plan'' has the meaning
                    given such term under section 409A(d), except
                    that such term shall include any plan that
                    provides a right to compensation based on the
                    appreciation in value of a specified number of
                    equity units of the service recipient.
                      (B) Exception.--Compensation shall not be
                    treated as deferred for purposes of this
                    section if the service provider receives
                    payment of such compensation not later than 12
                    months after the end of the taxable year of the
                    service recipient during which the right to the
                    payment of such compensation is no longer
                    subject to a substantial risk of forfeiture.
              (4) Exception for certain compensation with respect
            to effectively connected income.--In the case a foreign
            corporation with income which is taxable under section
            882, this section shall not apply to compensation
            which, had such compensation had been paid in cash on
            the date that such compensation ceased to be subject to
            a substantial risk of forfeiture, would have been
            deductible by such foreign corporation against such
            income.
              (5) Application of rules.--Rules similar to the rules
            of paragraphs (5) and (6) of section 409A(d) shall
            apply.
      (e) Regulations.--The Secretary shall prescribe such
    regulations as may be necessary or appropriate to carry out the
    purposes of this section, including regulations disregarding a
    substantial risk of forfeiture in cases where necessary to
    carry out the purposes of this section.-

               *       *       *       *       *       *       *

    Subchapter F--Exempt Organizations

               *       *       *       *       *       *       *

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

               *       *       *       *       *       *       *

    SEC. 512. UNRELATED BUSINESS TAXABLE INCOME.

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

               *       *       *       *       *       *       *

              (13) Special rules for certain amounts received from
            controlled entities--
                      (A) * * *

               *       *       *       *       *       *       *

                      (E) Paragraph to apply only to certain excess
                    payments.--
                              (i) * * *

               *       *       *       *       *       *       *

                              (iv) Termination.--This subparagraph
                            shall not apply to payments received or
                            accrued after [December 31, 2007]
                            December 31, 2008.

               *       *       *       *       *       *       *

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

               *       *       *       *       *       *       *

    PART I--SOURCE RULES AND OTHER GENERAL RULES RELATING TO FOREIGN INCOME

               *       *       *       *       *       *       *

    SEC. 864. DEFINITIONS AND SPECIAL RULES.

      (a) * * *

               *       *       *       *       *       *       *

      (f) Allocation of research and experimental expenditures.--
              (1) * * *

               *       *       *       *       *       *       *

              (5) Election to expand financial institution group of
            worldwide group.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (D) Election.--An election under this
                    paragraph with respect to any financial
                    institution group may be made only by the
                    common parent of the pre-election worldwide
                    affiliated group and may be made only for the
                    first taxable year beginning after December 31,
                    [2008] 2018, in which such affiliated group
                    includes 1 or more financial corporations. Such
                    an election, once made, shall apply to all
                    financial corporations which are members of the
                    electing financial institution group for such
                    taxable year and all subsequent years unless
                    revoked with the consent of the Secretary.

               *       *       *       *       *       *       *

              (6) Election.--An election to have this subsection
            apply with respect to any worldwide affiliated group
            may be made only by the common parent of the domestic
            affiliated group referred to in paragraph (1)(C) and
            may be made only for the first taxable year beginning
            after December 31, [2008] 2018, in which a worldwide
            affiliated group exists which includes such affiliated
            group and at least 1 foreign corporation. Such an
            election, once made, shall apply to such common parent
            and all other corporations which are members of such
            worldwide affiliated group for such taxable year and
            all subsequent years unless revoked with the consent of
            the Secretary.

               *       *       *       *       *       *       *

    PART II--NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

               *       *       *       *       *       *       *

                    Subpart A--Nonresident Alien Individuals

    SEC. 871. TAX ON NONRESIDENT ALIEN INDIVIDUALS.

      (a) * * *

               *       *       *       *       *       *       *

      (k) Exemption for Certain Dividends of Regulated Investment
    Companies.--
              (1) Interest-related dividends.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (C) Interest-related dividend.--For purposes
                    of this paragraph, the term ``interest-related
                    dividend'' means any dividend (or part thereof)
                    which is designated by the regulated investment
                    company as an interest-related dividend in a
                    written notice mailed to its shareholders not
                    later than 60 days after the close of its
                    taxable year. If the aggregate amount so
                    designated with respect to a taxable year of
                    the company (including amounts so designated
                    with respect to dividends paid after the close
                    of the taxable year described in section 855)
                    is greater than the qualified net interest
                    income of the company for such taxable year,
                    the portion of each distribution which shall be
                    an interest-related dividend shall be only that
                    portion of the amounts so designated which such
                    qualified net interest income bears to the
                    aggregate amount so designated. Such term shall
                    not include any dividend with respect to any
                    taxable year of the company beginning after
                    [December 31, 2007] December 31, 2008.

               *       *       *       *       *       *       *

              (2) Short-term capital gain dividends.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (C) Short-term capital gain dividend.--For
                    purposes of this paragraph, the term ``short-
                    term capital gain dividend'' means any dividend
                    (or part thereof) which is designated by the
                    regulated investment company as a short-term
                    capital gain dividend in a written notice
                    mailed to its shareholders not later than 60
                    days after the close of its taxable year. If
                    the aggregate amount so designated with respect
                    to a taxable year of the company (including
                    amounts so designated with respect to dividends
                    paid after the close of the taxable year
                    described in section 855) is greater than the
                    qualified short-term gain of the company for
                    such taxable year, the portion of each
                    distribution which shall be a short-term
                    capital gain dividend shall be only that
                    portion of the amounts so designated which such
                    qualified short-term gain bears to the
                    aggregate amount so designated. Such term shall
                    not include any dividend with respect to any
                    taxable year of the company beginning after
                    [December 31, 2007] December 31, 2008.

               *       *       *       *       *       *       *

    Subpart D--Miscellaneous Provisions

               *       *       *       *       *       *       *

    SEC. 897. DISPOSITION OF INVESTMENT IN UNITED STATES REAL PROPERTY.

      (a) * * *

               *       *       *       *       *       *       *

      (h) Special Rules for Certain Investment Entities.--For
    purposes of this section--
              (1) * * *

               *       *       *       *       *       *       *

              (4) Definitions.--
                      (A) Qualified investment entity.--
                              (i) * * *
                              (ii) Termination.--Clause (i)(II)
                            shall not apply after [December 31,
                            2007] December 31, 2008.
                            Notwithstanding the preceding sentence,
                            an entity described in clause (i)(II)
                            shall be treated as a qualified
                            investment entity for purposes of
                            applying paragraphs (1) and (5) and
                            section 1445 with respect to any
                            distribution by the entity to a
                            nonresident alien individual or a
                            foreign corporation which is
                            attributable directly or indirectly to
                            a distribution to the entity from a
                            real estate investment trust.

               *       *       *       *       *       *       *

    PART III--INCOME FROM SOURCES WITHOUT THE UNITED STATES

               *       *       *       *       *       *       *

    Subpart F--Controlled Foreign Corporations

               *       *       *       *       *       *       *

    SEC. 953. INSURANCE INCOME.

      (a) * * *

               *       *       *       *       *       *       *

      (e) Exempt Insurance Income.--For purposes of this section--
              (1) * * *

               *       *       *       *       *       *       *

              (10) Application.--This subsection and section 954(i)
            shall apply only to taxable years of a foreign
            corporation beginning after December 31, 1998, and
            before [January 1, 2009] January 1, 2010, and to
            taxable years of United States shareholders with or
            within which any such taxable year of such foreign
            corporation ends. If this subsection does not apply to
            a taxable year of a foreign corporation beginning after
            [December 31, 2008] December 31, 2009 (and taxable
            years of United States shareholders ending with or
            within such taxable year), then, notwithstanding the
            preceding sentence, subsection (a) shall be applied to
            such taxable years in the same manner as it would if
            the taxable year of the foreign corporation began in
            1998.

               *       *       *       *       *       *       *

    SEC. 954. FOREIGN BASE COMPANY INCOME.

      (a) * * *

               *       *       *       *       *       *       *

      (c) Foreign Personal Holding Company Income.--
              (1) * * *

               *       *       *       *       *       *       *

              (6) Look-thru rule for related controlled foreign
            corporations.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (C) Application.--Subparagraph (A) shall
                    apply to taxable years of foreign corporations
                    beginning after December 31, 2005, and before
                    [January 1, 2009] January 1, 2010, and to
                    taxable years of United States shareholders
                    with or within which such taxable years of
                    foreign corporations end.

               *       *       *       *       *       *       *

      (h) Special Rule for Income Derived in the Active Conduct of
    Banking, Financing, or Similar Businesses.--
              (1) * * *

               *       *       *       *       *       *       *

              (9) Application.--This subsection, subsection
            (c)(2)(C)(ii), and the last sentence of subsection
            (e)(2) shall apply only to taxable years of a foreign
            corporation beginning after December 31, 1998, and
            before [January 1, 2009] January 1, 2010, and to
            taxable years of United States shareholders with or
            within which any such taxable year of such foreign
            corporation ends.

               *       *       *       *       *       *       *

    Subchapter O--Gain or Loss on Disposition of Property

               *       *       *       *       *       *       *

    PART II--BASIS RULES OF GENERAL APPLICATION

               *       *       *       *       *       *       *

    SEC. 1016. ADJUSTMENTS TO BASIS.

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

               *       *       *       *       *       *       *

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

               *       *       *       *       *       *       *

    Subchapter S--Tax Treatment of S Corporations and Their Shareholders

               *       *       *       *       *       *       *

    PART II--TAX TREATMENT OF SHAREHOLDERS

               *       *       *       *       *       *       *

    SEC. 1367. ADJUSTMENTS TO BASIS OF STOCK OF SHAREHOLDERS, ETC.

      (a) General Rule.--
              (1) * * *
              (2) Decreases in basis.--The basis of each
            shareholder's stock in an S corporation shall be
            decreased for any period (but not below zero) by the
            sum of the following items determined with respect to
            the shareholder for such period:
                      (A) * * *

               *       *       *       *       *       *       *

            The decrease under subparagraph (B) by reason of a
            charitable contribution (as defined in section 170(c))
            of property shall be the amount equal to the
            shareholder's pro rata share of the adjusted basis of
            such property. The preceding sentence shall not apply
            to contributions made in taxable years beginning after
            [December 31, 2007] December 31, 2008.

               *       *       *       *       *       *       *

         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 QUALIFIED 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).

               *       *       *       *       *       *       *

      (m) Termination.--This section shall not apply to any
    obligation issued after the date of the enactment of this Act.

               *       *       *       *       *       *       *

               Subchapter W--District of Columbia Enterprise Zone

    SEC. 1400. ESTABLISHMENT OF DC ZONE.

      (a) * * *

               *       *       *       *       *       *       *

      (f) Time for Which Designation Applicable.--
              (1) In general.--The designation made by subsection
            (a) shall apply for the period beginning on January 1,
            1998, and ending on December 31, [2007] 2008.
              (2) Coordination with dc enterprise community
            designated under subchapter u.--The designation under
            subchapter U of the census tracts referred to in
            subsection (b)(1) as an enterprise community shall
            terminate on December 31, [2007] 2008.

    SEC. 1400A. TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.

      (a) * * *
      (b) Period of Applicability.--This section shall apply to
    bonds issued during the period beginning on January 1, 1998,
    and ending on December 31, [2007] 2008.

    SEC. 1400B. ZERO PERCENT CAPITAL GAINS RATE.

      (a) * * *
      (b) DC Zone Asset.--For purposes of this section--
              (1) * * *

               *       *       *       *       *       *       *

              (2) DC Zone business stock.--
                      (A) In general.--The term ``DC Zone business
                    stock'' means any stock in a domestic
                    corporation which is originally issued after
                    December 31, 1997, if--
                              (i) such stock is acquired by the
                            taxpayer, before January 1, [2008]
                            2009, at its original issue (directly
                            or through an underwriter) solely in
                            exchange for cash,

               *       *       *       *       *       *       *

              (3) DC Zone partnership interest.--The term ``DC Zone
            partnership interest'' means any capital or profits
            interest in a domestic partnership which is originally
            issued after December 31, 1997, if--
                      (A) such interest is acquired by the
                    taxpayer, before January 1, [2008] 2009, from
                    the partnership solely in exchange for cash,

               *       *       *       *       *       *       *

              (4) DC Zone business property.--
                      (A) In general.--The term ``DC Zone business
                    property'' means tangible property if--
                              (i) such property was acquired by the
                            taxpayer by purchase (as defined in
                            section 179(d)(2)) after December 31,
                            1997, and before January 1, [2008]
                            2009,

               *       *       *       *       *       *       *

                      (B) Special rule for buildings which are
                    substantially improved.--
                              (i) In general.--The requirements of
                            clauses (i) and (ii) of subparagraph
                            (A) shall be treated as met with
                            respect to--
                                      (I) property which is
                                    substantially improved by the
                                    taxpayer before January 1,
                                    [2008] 2009, and

               *       *       *       *       *       *       *

      (e) Other Definitions and Special Rules.--For purposes of
    this section--
              (1) * * *
              (2) Gain before 1998 or after [2012] 2013 not
            qualified.--The term ``qualified capital gain'' shall
            not include any gain attributable to periods before
            January 1, 1998, or after December 31, [2012] 2013.

               *       *       *       *       *       *       *

      (g) Sales and Exchanges of Interests in Partnerships and S
    Corporations Which Are DC Zone Businesses.--In the case of the
    sale or exchange of an interest in a partnership, or of stock
    in an S corporation, which was a DC Zone business during
    substantially all of the period the taxpayer held such interest
    or stock, the amount of qualified capital gain shall be
    determined without regard to--
              (1) * * *
              (2) any gain attributable to periods before January
            1, 1998, or after December 31, [2012] 2013.

    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.

               *       *       *       *       *       *       *

      (i) Application of Section.--This section shall apply to
    property purchased after August 4, 1997, and before January 1,
    [2008] 2009.

               *       *       *       *       *       *       *

      PART II--RENEWAL COMMUNITY CAPITAL GAIN; RENEWAL COMMUNITY BUSINESS

    SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.

      (a) * * *

               *       *       *       *       *       *       *

      (d) Certain Rules to Apply.--For purposes of this section,
    rules similar to the rules of paragraphs (5), (6), and (7) of
    subsection (b), and subsections (f) and (g), of section 1400B
    shall apply; except that for such purposes section 1400B(g)(2)
    shall be applied by substituting ``January 1, 2002'' for
    ``January 1, 1998'' and ``December 31, 2014'' for ``December
    31, [2012] 2013''.

               *       *       *       *       *       *       *

    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 Job Creation Act of
                    2008 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) $115,000,000 ($425,000,000 in the
                            case of the last 2 years in the credit
                            period), 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, 2009.
              (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) Tax-Exempt Bond Financing.--
              (1) * * *

               *       *       *       *       *       *       *

              (8) Inclusion of certain counties.--For purposes of
            this subsection, the Gulf Opportunity Zone includes
            Colbert County, Alabama and Dallas County, Alabama.

               *       *       *       *       *       *       *

      (d) Special Allowance for Certain Property Acquired on or
    After August 28, 2005.--
              (1) * * *

               *       *       *       *       *       *       *

              (3) Special rules.--For purposes of this subsection,
            rules similar to the rules of subparagraph (E) of
            section 168(k)(2) shall apply, except that such
            subparagraph shall be applied--
                      (A) * * *
                      [(B) by substituting ``January 1, 2008'' for
                    ``January 1, 2009'' in clause (i) thereof,
                    and]-
                      (B) without regard to ``and before January 1,
                    2009'' in clause (i) thereof, and-

               *       *       *       *       *       *       *

      (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 B--Estate and Gift Taxes

               *       *       *       *       *       *       *

    CHAPTER 11--ESTATE TAX

               *       *       *       *       *       *       *

    Subchapter B--Estates of Nonresidents Not Citizens

               *       *       *       *       *       *       *

    SEC. 2105. PROPERTY WITHOUT THE UNITED STATES.

      (a) * * *

               *       *       *       *       *       *       *

      (d) Stock in a RIC.--
              (1) * * *

               *       *       *       *       *       *       *

              (3) Termination.--This subsection shall not apply to
            estates of decedents dying after [December 31, 2007]
            December 31, 2008.

               *       *       *       *       *       *       *

    Subtitle D--Miscellaneous Excise Taxes

               *       *       *       *       *       *       *

    CHAPTER 31--RETAIL EXCISE TAXES

               *       *       *       *       *       *       *

    Subchapter C--Heavy Trucks and Trailers

               *       *       *       *       *       *       *

    SEC. 4053. EXEMPTIONS.

      No tax shall be imposed by section 4051 on any of the
    following articles:
              (1) * * *

               *       *       *       *       *       *       *

              (9) Idling reduction device.--Any device or system of
            devices which--
                      (A) is designed to provide to a vehicle those
                    services (such as heat, air conditioning, or
                    electricity) that would otherwise require the
                    operation of the main drive engine while the
                    vehicle is temporarily parked or remains
                    stationary using one or more devices affixed to
                    a tractor, and
                      (B) is certified by the Secretary of Energy,
                    in consultation with the Administrator of the
                    Environmental Protection Agency and the
                    Secretary of Transportation, to reduce idling
                    of such vehicle at a motor vehicle rest stop or
                    other location where such vehicles are
                    temporarily parked or remain stationary.
              (10) Advanced insulation.--Any insulation that has an
            R value of not less than R35 per inch.

               *       *       *       *       *       *       *

    CHAPTER 32--MANUFACTURERS EXCISE TAXES

               *       *       *       *       *       *       *

    Subchapter A--Automotive and Related Items

               *       *       *       *       *       *       *

    PART III--PETROLEUM PRODUCTS

               *       *       *       *       *       *       *

    Subchapter B--Coal

               *       *       *       *       *       *       *

    SEC. 4121. IMPOSITION OF TAX.

      (a) * * *

               *       *       *       *       *       *       *

      (e) Reduction in Amount of Tax.--
              (1) * * *
              (2) Temporary increase termination date.--For
            purposes of paragraph (1), the temporary increase
            termination date is the earlier of--
                      (A) [January 1, 2014] December 31, 2018, or
                      (B) the first [January 1 after 1981] December
                    31 after 2007 as of which there is--
                              (i) * * *

               *       *       *       *       *       *       *

    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.-

               *       *       *       *       *       *       *

    Subchapter B--Miscellaneous Provisions

               *       *       *       *       *       *       *

    SEC. 6103. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN
                        INFORMATION.

      (a) * * *

               *       *       *       *       *       *       *

      (i) Disclosure to Federal Officers or Employees for
    Administration of Federal Laws Not Relating to Tax
    Administration.--
              (1) * * *

               *       *       *       *       *       *       *

              (3) Disclosure of return information to apprise
            appropriate officials of criminal or terrorist
            activities or emergency circumstances.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (C) Terrorist activities, etc.--
                              (i) * * *

               *       *       *       *       *       *       *

                              [(iv) Termination.--No disclosure may
                            be made under this subparagraph after
                            December 31, 2007.]

               *       *       *       *       *       *       *

              (7) Disclosure upon request of information relating
            to terrorist activities, etc.--
                      (A) * * *

               *       *       *       *       *       *       *

                      [(E) Termination.--No disclosure may be made
                    under this paragraph after December 31, 2007.]

               *       *       *       *       *       *       *

      (l) Disclosure of Returns and Return Information for Purposes
    Other Than Tax Administration.--
              (1) * * *

               *       *       *       *       *       *       *

              (7) Disclosure of return information to federal,
            state, and local agencies administering certain
            programs under the social security act, the food stamp
            act of 1977, or title 38, united states code, or
            certain housing assistance programs.--
                      (A) * * *

               *       *       *       *       *       *       *

                      (D) Programs to which rule applies.--The
                    programs to which this paragraph applies are:
                              (i) * * *

               *       *       *       *       *       *       *

                              (viii)(I) * * *

               *       *       *       *       *       *       *

                              (III) health-care services furnished
                            under [sections 1710(a)(1)(I),
                            1710(a)(2), 1710(b), and 1712(a)(2)(B)]
                            sections 1710(a)(2)(G), 1710(a)(3), and
                            1710(b) of such title; and

               *       *       *       *       *       *       *

            Only return information from returns with respect to
            net earnings from self-employment and wages may be
            disclosed under this paragraph for use with respect to
            any program described in clause (viii)(IV). [Clause
            (viii) shall not apply after September 30, 2008.]

               *       *       *       *       *       *       *

    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) * * *
              [(2) Applicable amount.--For purposes of this
            subsection--
                      [(A) In general.--Except as provided in
                    subparagraph (B), the applicable amount is 50
                    cents.
                      [(B) Amount for agri-biodiesel.--In the case
                    of any biodiesel which is agri-biodiesel, the
                    applicable amount is $1.00.]
              (2) Applicable amount.--For purposes of this
            subsection, the applicable amount is $1.00.

               *       *       *       *       *       *       *

              (6) Termination.--This subsection shall not apply to
            any sale, use, or removal for any period after
            [December 31, 2008] December 31, 2009.

               *       *       *       *       *       *       *

      (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.-

    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] December 31, 2009,

               *       *       *       *       *       *       *

    SEC. 6428. 2008 RECOVERY REBATES FOR INDIVIDUALS.

      (a) * * *

               *       *       *       *       *       *       *

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

               *       *       *       *       *       *       *

              (4) Earned income.--The term ``earned income'' has
            the meaning set forth in section 32(c)(2) [except
            that--
                      [(A) subclause (II) of paragraph (B)(vi)
                    thereof shall be applied by substituting
                    ``January 1, 2009'' for ``January 1, 2008'',
                    and
                      [(B) such term] except that such term shall
                    not include net earnings from self-employment
                    which are not taken into account in computing
                    taxable income.

               *       *       *       *       *       *       *

    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), 45H(g), or 51(j) (or any
    revocation thereof) shall not expire before the date 1 year
    after the date on which the Secretary is notified of such
    election (or revocation).

               *       *       *       *       *       *       *

     CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE
    PENALTIES

               *       *       *       *       *       *       *

    Subchapter B--Assessable Penalties

               *       *       *       *       *       *       *

    PART I--GENERAL PROVISIONS

               *       *       *       *       *       *       *

    SEC. 6694. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY TAX RETURN
                        PREPARER.

      [(a) Understatement Due to Unreasonable Positions.--
              [(1) In general.--Any tax return preparer who
            prepares any return or claim for refund with respect to
            which any part of an understatement of liability is due
            to a position described in paragraph (2) shall pay a
            penalty with respect to each such return or claim in an
            amount equal to the greater of--
                      [(A) $1,000, or
                      [(B) 50 percent of the income derived (or to
                    be derived) by the tax return preparer with
                    respect to the return or claim.
              [(2) Unreasonable position.--A position is described
            in this paragraph if--
                      [(A) the tax return preparer knew (or
                    reasonably should have known) of the position,
                      [(B) there was not a reasonable belief that
                    the position would more likely than not be
                    sustained on its merits, and
                      [(C)(i) the position was not disclosed as
                    provided in section 6662(d)(2)(B)(ii), or
                      [(ii) there was no reasonable basis for the
                    position.
              [(3) Reasonable cause exception.--No penalty shall be
            imposed under this subsection if it is shown that there
            is reasonable cause for the understatement and the tax
            return preparer acted in good faith.]
      (a) Understatement Due to Unreasonable Positions.--
              (1) In general.--If a tax return preparer--
                      (A) prepares any return or claim of refund
                    with respect to which any part of an
                    understatement of liability is due to a
                    position described in paragraph (2), and
                      (B) knew (or reasonably should have known) of
                    the position,
            such tax return preparer shall pay a penalty with
            respect to each such return or claim in an amount equal
            to the greater of $1,000 or 50 percent of the income
            derived (or to be derived) by the tax return preparer
            with respect to the return or claim.
              (2) Unreasonable position.--
                      (A) In general.--Except as otherwise provided
                    in this paragraph, a position is described in
                    this paragraph unless there is or was
                    substantial authority for the position.
                      (B) Disclosed positions.--If the position was
                    disclosed as provided in section
                    6662(d)(2)(B)(ii)(I) and is not a position to
                    which subparagraph (C) applies, the position is
                    described in this paragraph unless there is a
                    reasonable basis for the position.
                      (C) Tax shelters and reportable
                    transactions.--If the position is with respect
                    to a tax shelter (as defined in section
                    6662(d)(2)(C)(ii)) or a reportable transaction
                    to which section 6662A applies, the position is
                    described in this paragraph unless it is
                    reasonable to believe that the position would
                    more likely than not be sustained on its
                    merits.
              (3) Reasonable cause exception.--No penalty shall be
            imposed under this subsection if it is shown that there
            is reasonable cause for the understatement and the tax
            return preparer acted in good faith.

               *       *       *       *       *       *       *

    CHAPTER 78--DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE

               *       *       *       *       *       *       *

    Subchapter A--Examination and Inspection

               *       *       *       *       *       *       *

    SEC. 7608. AUTHORITY OF INTERNAL REVENUE ENFORCEMENT OFFICERS.

      (a) * * *

               *       *       *       *       *       *       *

      (c) Rules Relating to Undercover Operations.--
              (1) * * *

               *       *       *       *       *       *       *

              [(6) Application of section.--The provisions of this
            subsection--
                      [(A) shall apply after November 17, 1988, and
                    before January 1, 1990, and
                      [(B) shall apply after the date of the
                    enactment of this paragraph and before January
                    1, 2007.
            All amounts expended pursuant to this subsection during
            the period described in subparagraph (B) shall be
            recovered to the extent possible, and deposited in the
            Treasury of the United States as miscellaneous
            receipts, before January 1, 2007.]

               *       *       *       *       *       *       *

    Subchapter D--Possessions

               *       *       *       *       *       *       *

    SEC. 7652. SHIPMENTS TO THE UNITED STATES.

      (a) * * *

               *       *       *       *       *       *       *

      (f) Limitation on Cover over of Tax on Distilled Spirits.--
    For purposes of this section, with respect to taxes imposed
    under section 5001 or this section on distilled spirits, the
    amount covered into the treasuries of Puerto Rico and the
    Virgin Islands shall not exceed the lesser of the rate of--
              (1) $10.50 ($13.25 in the case of distilled spirits
            brought into the United States after June 30, 1999, and
            before [January 1, 2008] January 1, 2009), or

               *       *       *       *       *       *       *

                   ADDITIONAL VIEWS OF THE HON. RAHM EMANUEL

        I was not present during the rollcall for the Stark
    amendment to remove the coal sequestration and capture
    provisions contained in the underlying bill. If present, I
    would have voted no on the amendment. Additionally, I was not
    recorded as voting on final passage of the bill. I want the
    record to reflect that I support the legislation and indicated
    to the recording clerk that my intention was to vote in support
    of the bill but did so before my name was called during the
    rollcall tally.

                                                          Rahm Emanuel.

    ADDITIONAL VIEWS OF REPRESENTATIVE EARL POMEROY, COMMITTEE ON WAYS AND
                                     MEANS

        I would like to thank the Chairman for including an
    extension of the Wind Production Tax Credit (PTC) in H.R. 6049,
    the Energy and Tax Extenders Act of 2008. It is vital that we
    extend this important tax credit as soon as possible. However,
    I am concerned, as I know the Chair is, that we have not been
    able to provide the developing wind industry with a long term
    extension of this credit.
        The PTC has a history of short term extensions and
    expirations that have hampered industries ability to
    effectively develop generation capacity. Since 1999 the PTC has
    expired 3 times, each of these expirations saw dramatic slow
    down in wind power investment and the loss of thousands of jobs
    across the industry. In my district alone, LM Glasfiber, a
    blade manufacturer with more than 900 employees, was forced to
    furlough a sizable portion of its employees when the credit had
    expired 2004. In this time of economic insecurity a longer
    extension would provide workers in this industry with a greater
    degree of certainty.
        In 2004 when the credit had expired for 10 months of the
    year only 389 MW were installed. We have seen over the past
    three years how effective the PTC has been when there is some
    level of certainty that the credit will not expire. A
    staggering 5,200 MW of wind power were installed in 2007 after
    the credit had been in place for three uninterrupted years.
        I look forward to working with the Chairman to pass this
    one year extension with the hopes that next year we might be
    able to work out a long term extension.

                                                          Earl Pomeroy.

                                DISSENTING VIEWS

        This bill, above all, is about missed opportunities. The
    Majority has yet again missed the opportunity to avoid its own
    paygo tax trap. They've again missed the opportunity to work in
    a bipartisan, bicameral way to ensure that important extensions
    of expiring tax law are enacted seamlessly and without further
    unwarranted delay. And, perhaps most notably of all, they've
    missed the opportunity to address the single biggest
    ``extender'' requiring immediate congressional attention: the
    urgently-needed annual ``patch'' for the alternative minimum
    tax (AMT). While we strongly support many of this bill's
    provisions--and will continue our efforts to see them enacted
    promptly as part of a workable, bipartisan package that can
    actually be signed into law by the President--the missed
    opportunities that abound in this bill require us to oppose
    H.R. 6049 in its current form.

                    Compliance With Paygo Means Higher Taxes

        As we've consistently pointed out since the beginning of
    this Congress, the new Majority's paygo rules require massive
    tax increases to fund their party's legislative agenda. Whether
    that agenda includes proposals for new spending, brand new tax
    incentives, or merely extensions of the low-tax policies
    originally enacted by Republicans that would otherwise expire,
    Democrats' paygo rules necessitate higher and higher taxes in
    the form of new, revenue-raising offsets.
        But as we have argued all along, Washington doesn't have a
    revenue problem. Indeed, we are already collecting more taxes
    as a percentage of our GDP than the historical average. What
    Washington really has is a spending problem, although the
    Majority consistently fails to recognize it. Democrats' refusal
    to even consider the spending side of the equation was amply on
    display during the party-line defeat of Mr. Brady's amendment
    to express the Sense of Congress that the bill should be offset
    by spending reductions, rather than tax increases.
        As Republicans, we believe that Congress shouldn't be in
    the business of raising taxes, generally, and that it certainly
    shouldn't be doing so to ``pay for'' extensions of current law.
    Democrats were wrong to propose such offsetting tax hikes last
    year, and they are wrong again now. And as we look ahead toward
    2010, when a huge number of critically important tax policies--
    ranging from the expanded $1,000 child credit to the lower
    rates on dividends and capital gains--are set to expire, the
    Majority's paygo logic will require more than $3.5 trillion in
    tax increases simply to maintain current law. Such enormous,
    looming tax hikes, baked into the budget by the Majority's ill-
    advised paygo rules, would be disastrous for our Nation's
    families, businesses, and the economy at large. We should not
    begin down that road today by endorsing the Majority's plan to
    offset this smaller ``extenders'' package with offsetting
    revenue enhancements of questionable merit.

      A Partisan Exercise That Threatens Enactment of Important Extenders

        The House spent much of 2007 passing substantially similar
    tax bills over and over again because the Majority failed to
    recognize that the Senate was unwilling to pass the tax hikes
    contained in those bills. It is abundantly clear that the
    Senate will not pass this bill, either. Last month, forty-one
    Senators, enough to sustain a filibuster, signed a letter
    pledging to oppose tax bills that, like this one, contain
    revenue-raising offsets. Moreover, on the very same day that
    our Committee passed H.R. 6049, the Senate passed a motion to
    instruct conferees on the FY '09 budget resolution to reject
    the House amendment assuming $110 billion in tax increases as a
    result of having to offset the extension of expiring
    provisions, including the AMT patch.
        In short, we've read ahead, and we already know how this
    story is going to end. The final chapter involves House
    Democrats accepting the reality that, if they want to see
    anything enacted into law this year, they will have to abandon
    their partisan efforts to raise taxes and work with House
    Republicans, the Senate, and the White House to achieve a
    reasonable, workable solution that satisfies everyone involved.
        Unfortunately, the Majority's ongoing refusal to accept
    this reality has real consequences for America's hard-working
    families and U.S. businesses. Until the Majority backs off its
    tax-hike demands and demonstrates a willingness to compromise,
    broadly popular tax deductions for state and local sales taxes,
    higher education expenses, and out-of-pocket classroom expenses
    for schoolteachers, just to name a few, will not be renewed for
    2008. Similarly, the Majority's intransigence threatens the
    seamless, uninterrupted extension of the R&D tax credit, the
    active financing exception under subpart F, and other critical
    tax policies important to our Nation's business community. Even
    a broadly popular set of energy-related extenders--ranging from
    tax credits for electricity production from wind, biomass, and
    other renewable resources, to investment credits for solar
    energy and fuel cell property--has been put at risk by the
    partisan exercise undertaken by the Majority with H.R. 6049.
        As we have since the opening day of the 110th Congress, we
    stand ready to work with the Majority to find a common-sense,
    bipartisan pathway to getting these, and other, critical
    extenders enacted into law. In fact, during the Committee's
    consideration of the bill, Mr. Herger offered the Majority just
    such an opportunity with his amendment to extend the expiring
    provisions for not just one, but two years, without any
    offsetting tax hikes. Regrettably, by rejecting that approach
    on a party-line vote, the Majority demonstrated yet again its
    unwillingness to embrace a reasonable solution on behalf of
    American taxpayers.

                          Failure to Patch the A.M.T.

        Perhaps the greatest single flaw in the Majority's bill,
    however, is what it fails to include. Although the legislation
    extends dozens of expiring provisions--some for several years,
    including many that have not yet expired--it is deafeningly
    silent on the urgently-needed AMT patch, which has already
    expired. The Majority's failure to patch the AMT for 2008 means
    that more than 21 million middle-class individuals and families
    will pay an additional $61.5 billion in taxes next April--an
    average of over $2,800 per affected taxpayer.
        As we all painfully remember from the procedural fiasco
    engineered by the Majority last year, the AMT patch covering
    2007 was enacted later in the legislative year than ever
    before. That historically late enactment of the AMT patch
    caused significant headaches and uncertainty not only for
    middle-class taxpayers, but for the IRS in its administrative
    capacity as well. Indeed, according to the Government
    Accountability Office, the IRS could not even begin processing
    AMT-affected returns until about four weeks into the filing
    season.
        To avoid a repeat performance of last year's legislative
    debacle, we believe we should be focusing our attention on
    enacting this year's AMT patch right now, not at some
    unspecified time ``down the road'' as the Majority feebly
    promised during Committee debate. In light of the Democrats'
    gross mismanagement of the process last year, we hope our
    skepticism about the Majority's unconvincing pledge can be
    forgiven.
        During our Committee markup, Republicans unanimously
    supported an amendment by Mr. Reynolds that would have patched
    the AMT for 2008. Sadly, even members of the Majority from
    high-tax states, where the AMT often hits the hardest, turned
    their backs on their own constituents in voting down this
    amendment on a party-line vote. Given that outcome, it was
    altogether unsurprising that Democrats also unanimously
    rejected two other amendments offered by Mr. English--one that
    would have repealed the invidious AMT altogether and another
    that would at least protect taxpayers from owing interest and
    penalties for under-withholding during the year in case the
    Majority fails to enact a patch at all.
        It was only once the Majority abandoned its quest for tax
    hikes and waived its own paygo rules that last year's AMT patch
    saga could finally come to its merciful conclusion. There is
    simply no good reason to replicate last year's procedural
    nightmare, and we should be working together now to avoid a
    similar legislative train wreck in 2008. Without an AMT patch,
    H.R. 6049 is woefully incomplete.

                                   Conclusion

        We have chosen not to focus here on the objections that
    many of us have to the inclusion of a host of additional
    items--beyond the traditional extenders package and the energy
    provisions on which there is a broad, bipartisan consensus--
    that the Majority has tucked into this legislation. For
    instance, the bill contains a laundry list of new temporary
    provisions that add more than $7 billion to the cost of the
    bill, questionable new tax credit bonds that appear to be
    little more than ``green pork,'' as well as a $1.5 billion tax
    break for trial lawyers who use certain types of contingency
    fee arrangements. Many of these provisions were never subject
    to formal hearings, depriving the Committee the opportunity to
    fully understand the implications of these proposals.
        As discussed above, our most pressing concerns about H.R.
    6049 are much broader, however. The Majority's paygo rules
    require large tax hikes now and unfathomably large tax hikes
    over years to come. H.R. 6049 is little more than a political
    exercise that further threatens the prospects of enacting a
    seamless, bipartisan extenders package in a timely manner.
    Inaction on the AMT is inexcusable. It simply does not make
    sense to extend dozens of tax provisions (some for several
    years), to create a wide array of new extenders, and to hand
    out new, permanent tax benefits to certain groups, while
    failing to deal with the biggest and most important expired
    provision in the tax code, the AMT patch.
        We urge the Majority to address the concerns outlined above
    prior to bringing H.R. 6049 to the House floor.

                                       Jim McCrery.
                                       Wally Herger.
                                       Dave Camp.
                                       Jim Ramstad.
                                       Phil English.
                                       Jerry Weller.
                                       Kevin Brady.
                                       Tom Reynolds.
                                       Paul Ryan.
                                       Eric Cantor.
                                       Devin Nunes.