[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.
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\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'').
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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.
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\2\The Internal Revenue Service (``IRS'') is expected to announce
the 2008 inflation adjustment factor in the spring of 2008.
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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).
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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.
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\4\Secs. 1381-1383.
\5\Sec. 1382.
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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.
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\6\Sec. 48.
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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.
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\7\Sec. 38(b)(1).
\8\Sec. 39.
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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.
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\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.
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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).
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\10\For example, a regional transmission organization, an
independent system operator, or an independent transmission company.
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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\
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\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.
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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.
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\13\Sec. 103(a) and (b)(2).
\14\Sec. 148.
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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.
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\15\Sec. 149(e).
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Clean renewable energy bonds
As an alternative to traditional tax-exempt bonds, States
and local governments may issue clean renewable energy bonds
(``CREBs''). CREBs are defined as any bond issued by a
qualified issuer if, in addition to the requirements discussed
below, 95 percent or more of the proceeds of such bonds are
used to finance capital expenditures incurred by qualified
borrowers for qualified projects. ``Qualified projects'' are
facilities that qualify for the tax credit under section 45
(other than Indian coal production facilities), without regard
to the placed-in-service date requirements of that section.\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.
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\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.
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Unlike tax-exempt bonds, CREBs are not interest-bearing
obligations. Rather, the taxpayer holding CREBs on a credit
allowance date is entitled to a tax credit. The amount of the
credit is determined by multiplying the bond's credit rate by
the face amount on the holder's bond. The credit rate on the
bonds is determined by the Secretary and is to be a rate that
permits issuance of CREBs without discount and interest cost to
the qualified issuer. The credit accrues quarterly and is
includible in gross income (as if it were an interest payment
on the bond), and can be claimed against regular income tax
liability and alternative minimum tax liability.
CREBs are subject to a maximum maturity limitation. The
maximum maturity is the term which the Secretary estimates will
result in the present value of the obligation to repay the
principal on a CREBs being equal to 50 percent of the face
amount of such bond. 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\
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\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.
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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.
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\18\The Secretary issued guidance establishing the certification
program on February 21, 2006 (IRS Notice 2006-24).
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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.
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\19\The Secretary issued guidance establishing the certification
program on February 21, 2006 (IRS Notice 2006-25).
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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.
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\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).
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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\
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\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.
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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\
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\24\Sec. 6511(a).
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2. The person must establish that the goods were in
the stream of export when the excise tax was
imposed;\25\
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\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).
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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\
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\26\Sec. 6416(a)(1).
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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
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\27\Sec. 6416(c).
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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\
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\28\Sec. 6532(a).
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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:
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\29\Notice 2000-28, 2001-1 C.B. 1116.
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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\
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\30\See sec. 6611; 28 U.S.C. sec. 2411.
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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.
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\31\See sec. 6621.
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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.
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\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.
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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.
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Biodiesel is monoalkyl esters of long chain fatty acids
derived from plant or animal matter that meet (1) the
registration requirements established by the Environmental
Protection Agency under section 211 of the Clean Air Act and
(2) the requirements of the American Society of Testing and
Materials (``ASTM'') D6751. Agri-biodiesel is biodiesel derived
solely from virgin oils including oils from corn, soybeans,
sunflower seeds, cottonseeds, canola, crambe, rapeseeds,
safflowers, flaxseeds, rice bran, mustard seeds, or animal
fats.
Biodiesel may be taken into account for purposes of the
credit only if the taxpayer obtains a certification (in such
form and manner as prescribed by the Secretary) from the
producer or importer of the biodiesel 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.
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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.
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\45\Sec. 4051.
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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\
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\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.
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Special depreciation allowance for qualified New York Liberty Zone
property
Section 1400L(b) allows an additional first-year
depreciation deduction equal to 30 percent of the adjusted
basis of qualified NYLZ property.\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).
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\47\The amount of the additional first-year depreciation deduction
is not affected by a short taxable year.
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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\
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\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.
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Nonresidential real property and residential rental
property are eligible for the additional first-year
depreciation only to the extent such property rehabilitates
real property damaged, or replaces real property destroyed or
condemned as a result of the terrorist attacks of September 11,
2001.
Property that is manufactured, constructed, or produced by
the taxpayer for use by the taxpayer qualifies for the
additional first-year depreciation deduction if the taxpayer
begins the manufacture, construction, or production of the
property after September 10, 2001, and the property is placed
in service on or before December 31, 2006\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.
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\52\December 31, 2009 with respect to qualified nonresidential real
property and residential rental property.
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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\
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\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.
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Creation of New York Liberty Zone Tax Credits
The provision provides a credit against tax imposed for any
payroll period by section 3402 (related to withholding for
wages paid) for which a New York Liberty Zone governmental unit
is liable under section 3403. The credit is equal to such
portion of the qualifying project expenditure amounts allocated
to the governmental unit for the calendar year that such
governmental unit allocates to such period. The amount of the
credit allowed for any payroll period shall be treated as a
payment to the Secretary on the day on which the wages were
paid to the employee, but only to the extent the governmental
unit actually deducted and withheld such wages for the
applicable period. A New York Liberty Zone governmental unit is
the State of New York, the City of New York, or any agency or
instrumentality of such State or city.
Qualifying project expenditure amount means, with respect
to any calendar year, the sum of (1) the total expenditures
paid or incurred during such calendar year by all New York
Liberty Zone governmental units and the Port Authority of New
York and New Jersey for any portion of qualifying projects
located wholly within the City of New York, and (2) any such
expenditures paid or incurred in any preceding calendar year
beginning after the date of enactment of this provision and not
previously allocated.
A qualifying project is any transportation infrastructure
project, including highways, mass transit systems, railroads,
airports, ports, and waterways, in or connecting with the New
York Liberty Zone, which is designated as a qualifying project
by the Governor of the State of New York and the Mayor of the
City of New York.
The Governor of the State of New York and the Mayor of the
City of New York are to jointly allocate to each New York
Liberty Zone governmental unit the portion of the qualifying
expenditure amount that may be taken into account by such
governmental unit to determine the credit for any calendar year
in the credit period. The credit period is the 12-year period
beginning on January 1, 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.
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\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.
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\55\Sec. 30C.
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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\
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\56\Sec. 141(b) and (c).
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Private business tests
Private business use and private payments result in State
and local bonds being private activity bonds if both parts of
the two-part private business test are satisfied--
More than 10 percent of the bond proceeds is
to be used (directly or indirectly) by a private
business (the ``private business use test''); and
More than 10 percent of the debt service on
the bonds is secured by an interest in property to be
used in a private business use or to be derived from
payments in respect of such property (the ``private
payment test'').\57\
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\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.
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Private business use generally includes any use by a
business entity (including the Federal government), which
occurs pursuant to terms not generally available to the general
public. For example, if bond-financed property is leased to a
private business (other than pursuant to certain short-term
leases for which safe harbors are provided under Treasury
regulations), bond proceeds used to finance the property are
treated as used in a private business use, and rental payments
are treated as securing the payment of the bonds. Private
business use also can arise when a governmental entity
contracts for the operation of a governmental facility by a
private business under a management contract that does not
satisfy Treasury regulatory safe harbors regarding the types of
payments made to the private operator and the length of the
contract.\58\
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\58\See Treas. Reg. sec. 1.141-3(b)(4) and Rev. Proc. 97-13, 197-1
C.B. 632.
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Private loan test
The second standard for determining whether a State or
local bond is a private activity bond is whether an amount
exceeding the lesser of (1) five percent of the bond proceeds
or (2) $5 million is used (directly or indirectly) to finance
loans to private persons. Private loans include both business
and other (e.g., personal) uses and payments by private
persons; however, in the case of business uses and payments,
all private loans also constitute private business uses and
payments subject to the private business test. Present law
provides that the substance of a transaction governs in
determining whether the transaction gives rise to a private
loan. In general, any transaction which transfers tax ownership
of property to a private person is treated as a loan.
Qualified private activity bonds
As stated, interest on private activity bonds is taxable
unless the bonds meet the requirements for qualified private
activity bonds. Qualified private activity bonds permit States
or local governments to act as conduits providing tax-exempt
financing for certain private activities. The definition of
qualified private activity bonds includes an exempt facility
bond, or qualified mortgage, veterans' mortgage, small issue,
redevelopment, 501(c)(3), or student loan bond (sec. 141(e)).
The definition of exempt facility bond includes bonds issued to
finance certain transportation facilities (airports, ports,
mass commuting, and high-speed intercity rail facilities);
qualified residential rental projects; privately owned and/or
operated utility facilities (sewage, water, solid waste
disposal, and local district heating and cooling facilities,
certain private electric and gas facilities, and hydroelectric
dam enhancements); public/private educational facilities;
qualified green building and sustainable design projects; and
qualified highway or surface freight transfer facilities (sec.
142(a)).
In most cases, the aggregate volume of 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.
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\59\Sec. 103(a) and (b)(2).
\60\Sec. 148.
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Indian tribal governments
Indian tribal governments are provided with a tax status
similar to State and local governments for specified purposes
under the Code.\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\
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\61\Sec. 7871.
\62\See. 7871(c).
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Clean renewable energy bonds
As an alternative to traditional tax-exempt bonds, States
and local governments may issue clean renewable energy bonds
(``CREBs''). CREBs are defined as any bond issued by a
qualified issuer if, in addition to the requirements discussed
below, 95 percent or more of the proceeds of such bonds are
used to finance capital expenditures incurred by qualified
borrowers for qualified projects. ``Qualified projects'' are
facilities that qualify for the tax credit under section 45
(other than Indian coal production facilities), without regard
to the placed-in-service date requirements of that section.\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.
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\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.
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Unlike tax-exempt bonds, CREBs are not interest-bearing
obligations. Rather, the taxpayer holding CREBs on a credit
allowance date is entitled to a tax credit. The amount of the
credit is determined by multiplying the bond's credit rate by
the face amount on the holder's bond. The credit rate on the
bonds is determined by the Secretary and is to be a rate that
permits issuance of CREBs without discount and interest cost to
the qualified issuer. The credit accrues quarterly and is
includible in gross income (as if it were an interest payment
on the bond), and can be claimed against regular income tax
liability and alternative minimum tax liability.
CREBs are subject to a maximum maturity limitation. The
maximum maturity is the term which the Secretary estimates will
result in the present value of the obligation to repay the
principal on a 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.
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\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.
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REASONS FOR CHANGE
The Committee recognizes that a substantial portion of U.S.
energy consumption is attributable to commercial buildings, and
that the design and construction of commercial buildings is a
multi-year process. Hence, the Committee believes that a long-
term extension of the present-law deduction for energy
efficient commercial buildings is necessary to ensure that
buildings currently in the design phase will be able to claim
the deduction.
EXPLANATION OF PROVISION
The provision extends the energy efficient commercial
buildings deduction for five years, through December 31, 2013.
EFFECTIVE DATE
The provision is effective on the date of enactment.
4. Extension and modification of energy efficient appliance credit
(Sec. 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\
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\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.
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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.
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\66\Sec. 168.
\67\1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22,
1988-1 C.B. 785).
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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.
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\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).
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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.
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\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.
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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.
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\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.
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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.
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\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.
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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.
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\75\Secs. 170(c)(3)-(5).
\76\Sec. 170(c)(1).
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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\
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\77\Secs. 170(b) and (e).
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A taxpayer who takes the standard deduction (i.e., who does
not itemize deductions) may not take a separate deduction for
charitable contributions.\78\
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\78\Sec. 170(a).
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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\
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\79\Sec. 170(f)(8).
\80\Sec. 6115.
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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.
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\81\Secs. 170(f), 2055(e)(2), and 2522(c)(2).
\82\Sec. 170(f)(2).
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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\
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\83\Minimum distribution rules also apply in the case of
distributions after the death of a traditional or Roth IRA owner.
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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.
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\84\Conversion contributions refer to conversions of amounts in a
traditional IRA to a Roth IRA.
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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.
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\85\Sec. 3405.
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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.
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\86\The exclusion does not apply to distributions from employer-
sponsored retirements plans, including SIMPLE IRAs and simplified
employee pensions (``SEPs'').
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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.
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\87\The adjusted gross income threshold is $79,975 in the case of a
married individual filing a separate return (for 2008).
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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).
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\88\Sec. 62(a)(2)(D).
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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.
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\89\Pub. L. No. 109-280.
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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\
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\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)).
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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.
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\94\Sec. 2105(d).
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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.
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\95\Sec. 897(h).
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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.
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\96\Secs. 120, 3121(a)(17), and 3306(b)(12).
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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\
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\97\Sec. 501(c)(20).
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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.
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\98\Sec. 41.
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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\
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\99\Sec. 41(e).
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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\
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\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.
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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\
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\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).
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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\
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\102\Sec. 41(f)(1).
\103\Sec. 41(f)(3).
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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.
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\104\Sec. 41(c)(4).
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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\
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\105\A special transition rule applies for fiscal year 2006-2007
taxpayers.
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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.
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\106\A special transition rule applies for fiscal year 2006-2007
taxpayers.
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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.
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\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).
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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.
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\108\Sec. 41(d)(3).
\109\Sec. 41(d)(4).
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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\
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\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).
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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.
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\113\See Form 8845, Indian Employment Credit (Rev. Dec. 2006).
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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.
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\114\Section 45D was added by section 121(a) of the Community
Renewal Tax Relief Act of 2000, Pub. L. No. 106-554 (2000).
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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)).
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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.
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\116\Sec. 45G(a).
\117\Sec. 45G(b)(1).
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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\
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\118\Sec. 45G(d).
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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\
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\119\Sec. 45G(c).
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The terms Class II or Class III railroad have the meanings
given by the Surface Transportation Board.\120\
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\120\Sec. 45G(e)(1).
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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.
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\121\Sec. 168.
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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).
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\122\Sec. 168.
\123\Sec. 168(e)(3)(C)(ii).
\124\Sec. 168(i)(15).
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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\
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\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).
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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.
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\128\Sec. 162.
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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.
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\129\Sec. 198.
\130\418 U.S. 1 (1974).
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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).
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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.
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\132\Pub. L. No. 109-135 (2005).
\133\Pub. L. No. 109-432 (2006).
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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.
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\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.
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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\
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\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).
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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\
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\138\Sec. 7701(a)(9).
\139\Sec. 199(d)(8)(A).
\140\Sec. 199(d)(8)(B).
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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\
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\141\Sec. 511.
\142\Sec. 512(b).
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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).
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\143\Sec. 512(b)(13)(E).
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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.
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\144\Sec. 103.
\145\Sec. 149(e).
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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.
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\146\Sec. 103(a) and (b)(2).
\147\Sec. 148.
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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.
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\148\Sec. 1397E.
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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.
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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\
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\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.
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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\
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\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).
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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.
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\155\Sec. 1397A.
\156\Sec. 1397D.
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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.
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\157\Sec. 1400A.
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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\
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\160\Sec. 1400C(i).
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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.
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\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).
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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.
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\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.
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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.
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\166\Sec. 170(e)(3).
\167\Sec. 170(b)(2).
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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.
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\168\Treas. Reg. sec. 1.170A-4A(c)(3).
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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\
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\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).
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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\
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\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.
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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.
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\172\Sec. 170(e)(3).
\173\Sec. 170(b)(2).
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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.
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\174\Treas. Reg. sec. 1.170A-4A(c)(3).
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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\
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\175\Sec. 170(e)(1).
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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.
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\176\Secs. 170(e)(4) and 170(e)(6).
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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\
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\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).
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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\
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\180\Sec. 1366(a)(1)(A).
\181\Sec. 1367(a)(2)(B).
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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.
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\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.
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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.
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\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.
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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).
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\184\Secs. 951-964.
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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\
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\185\Prop. Treas. Reg. sec. 1.953-1(a).
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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\
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\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.
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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\
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\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).
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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\
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\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).
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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\
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\192\Sec. 181(d)(3)(A).
\193\Sec. 181(d)(3)(B).
\194\Sec. 181(d)(2)(B).
\195\Sec. 181(d)(2)(C).
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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\
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\196\Sec. 1245(a)(2)(C).
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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\
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\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.
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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\
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\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).
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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.
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\200\Sec. 7608(c).
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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\
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\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).
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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).
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\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).
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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.
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\205\Sec. 7652(e)(2).
\206\Secs. 7652(a)(3), (b)(3), and (e)(1).
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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\
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\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.
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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.
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\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).
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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\
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\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.
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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.
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\212\If the stock is sold in the same taxable year the option is
exercised, no adjustment in computing AMTI is required.
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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\
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\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.
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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.
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\214\Sec. 162(a).
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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\
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\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).
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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\
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\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).
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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\
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\221\Sec. 181(d)(3)(A).
\222\Sec. 181(d)(3)(B).
\223\Sec. 181(d)(2)(B).
\224\Sec. 181(d)(2)(C).
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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\
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\225\Sec. 1245(a)(2)(C).
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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\
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\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).
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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\
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\227\Sec. 199(c)(1).
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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\
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\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).
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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\
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\231\Sec. 199(c)(4)(B).
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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\
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\232\Sec. 199(c)(4)(C).
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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\
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\233\Sec. 199(c)(4)(D).
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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\
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\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).
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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\
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\237\Sec. 199(d)(1)(A)(i).
\238\Sec. 199(d)(1)(A)(ii).
\239\Sec. 199(d)(1)(A)(iii).
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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).
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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\
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\241\Sec. 199(d)(6)(A).
\242\Sec. 199(d)(6)(A).
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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.
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\243\This provision is consistent with H.R. Conf. Rep. No. 108-755,
at 262, Fn. 30 (2004).
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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.
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\244\Treas. Reg. sec. 1.199-5T(g).
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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\
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\245\Treas. Reg. sec. 1.6662-4(g).
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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.
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\246\Sec. 7701(a)(36)(A).
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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\
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\247\Sec. 165.
\248\Sec. 165(c)(3).
\249\Sec. 165(h).
\250\Sec. 1400S(6).
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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\
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\251\Sec. 165(i).
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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\
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\252\Treas. Reg. sec. 165-1(d)(2)(iii)
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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.
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\253\To qualify the grant must be received under Public Law Nos.
109-148, 109-234, or 110-116.
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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.
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\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.
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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\
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\255\Notice 2007-36, 2007-17 I.R.B. 1000.
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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.
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\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.
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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.
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\257\Treas. Reg. sec. 1.83-3(e). This definition, in part, reflects
previous IRS rulings on nonqualified deferred compensation.
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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.
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\258\Treas. Reg. secs. 1.451-1 and 1.451-2.
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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.
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\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).
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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.
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\260\Section 409A was added to the Code by sec. 885 of the American
Job Creation Act of 2004, Pub. L. No. 108-357.
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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.
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\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.
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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\
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\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.
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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\
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\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).
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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.
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\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.
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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\
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\268\Treas. Reg. sec. 1.409A-3(i)(6).
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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\
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\269\Treas. Reg. see. 1.409A-l(d)(1).
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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.
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\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).
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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\
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\273\Treas. Reg. sec. 1.409A-1(b)(5).
\274\Treas. Reg. sec. 1.409A-1(b)(5)(i)(B).
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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.
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\275\Treas. Reg. sec. 1.409A-1(a)(3).
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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.
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\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.
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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.
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\278\However, exceptions to the fungibility principle are provided
in particular cases, some of which are described below.
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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.
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\279\One such exception is that the affiliated group for interest
allocation purposes includes section 936 corporations that are excluded
from the consolidated group.
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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\
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\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.
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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.
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\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.
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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.
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\284\See Treas. Reg. sec. 1.904-4(e)(2).
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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.