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





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

                                     


             RENEWABLE ENERGY AND JOB CREATION ACT OF 2008

                               ----------                              

                              R E P O R T

                             together with

                    ADDITIONAL AND DISSENTING VIEWS

                              TO ACCOMPANY

                               H.R. 6049





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



             RENEWABLE ENERGY AND JOB CREATION ACT OF 2008





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

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



 
             RENEWABLE ENERGY AND JOB CREATION ACT OF 2008

                                _______
                                

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

                                _______
                                

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

                              R E P O R T

                             together with

                    ADDITIONAL AND DISSENTING VIEWS

                        [To accompany H.R. 6049]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Ways and Means, to whom was referred the 
bill (H.R. 6049) to amend the Internal Revenue Code of 1986 to 
provide incentives for energy production and conservation, to 
extend certain expiring provisions, to provide individual 
income tax relief, and for other purposes, having considered 
the same, report favorably thereon with an amendment and 
recommend that the bill as amended do pass.

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

SECTION 1. SHORT TITLE, ETC.

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

Sec. 1. Short title, etc.

                     TITLE I--ENERGY TAX INCENTIVES

                Subtitle A--Energy Production Incentives

                  Part I--Renewable Energy Incentives

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

                 Part II--Carbon Mitigation Provisions

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

    Subtitle B--Transportation and Domestic Fuel Security Provisions

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

       Subtitle C--Energy Conservation and Efficiency Provisions

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

          TITLE II--ONE-YEAR EXTENSION OF TEMPORARY PROVISIONS

         Subtitle A--Extensions Primarily Affecting Individuals

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

         Subtitle B--Extensions Primarily Affecting Businesses

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

                      Subtitle C--Other Extensions

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

                    TITLE III--ADDITIONAL TAX RELIEF

                   Subtitle A--Individual Tax Relief

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

                Subtitle B--Business Related Provisions

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

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

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

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

Sec. 331. Certain GO Zone incentives.

                      TITLE IV--REVENUE PROVISIONS

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

                     TITLE I--ENERGY TAX INCENTIVES

                Subtitle A--Energy Production Incentives

                  PART I--RENEWABLE ENERGY INCENTIVES

SEC. 101. RENEWABLE ENERGY CREDIT.

  (a) Extension of Credit.--
          (1) 1-year extension for wind facilities.--Paragraph (1) of 
        section 45(d) is amended by striking ``January 1, 2009'' and 
        inserting ``January 1, 2010''.
          (2) 3-year extension for certain other facilities.--Each of 
        the following provisions of section 45(d) is amended by 
        striking ``January 1, 2009'' and inserting ``January 1, 2012'':
                  (A) Clauses (i) and (ii) of paragraph (2)(A).
                  (B) Clauses (i)(I) and (ii) of paragraph (3)(A).
                  (C) Paragraph (4).
                  (D) Paragraph (5).
                  (E) Paragraph (6).
                  (F) Paragraph (7).
                  (G) Subparagraphs (A) and (B) of paragraph (9).
  (b) Modification of Credit Phaseout.--
          (1) Repeal of phaseout.--Subsection (b) of section 45 is 
        amended--
                  (A) by striking paragraph (1), and
                  (B) by striking ``the 8 cent amount in paragraph 
                (1),'' in paragraph (2) thereof.
          (2) Limitation based on investment in facility.--Subsection 
        (b) of section 45 is amended by inserting before paragraph (2) 
        the following new paragraph:
          ``(1) Limitation based on investment in facility.--
                  ``(A) In general.--In the case of any qualified 
                facility originally placed in service after December 
                31, 2009, the amount of the credit determined under 
                subsection (a) for any taxable year with respect to 
                electricity produced at such facility shall not exceed 
                the product of--
                          ``(i) the applicable percentage with respect 
                        to such facility, multiplied by
                          ``(ii) the eligible basis of such facility.
                  ``(B) Carryforward of unused limitation and excess 
                credit.--
                          ``(i) Unused limitation.--If the limitation 
                        imposed under subparagraph (A) with respect to 
                        any facility for any taxable year exceeds the 
                        prelimitation credit for such facility for such 
                        taxable year, the limitation imposed under 
                        subparagraph (A) with respect to such facility 
                        for the succeeding taxable year shall be 
                        increased by the amount of such excess.
                          ``(ii) Excess credit.--If the prelimitation 
                        credit with respect to any facility for any 
                        taxable year exceeds the limitation imposed 
                        under subparagraph (A) with respect to such 
                        facility for such taxable year, the credit 
                        determined under subsection (a) with respect to 
                        such facility for the succeeding taxable year 
                        (determined before the application of 
                        subparagraph (A) for such succeeding taxable 
                        year) shall be increased by the amount of such 
                        excess. With respect to any facility, no amount 
                        may be carried forward under this clause to any 
                        taxable year beginning after the 10-year period 
                        described in subsection (a)(2)(A)(ii) with 
                        respect to such facility.
                          ``(iii) Prelimitation credit.--The term 
                        `prelimitation credit' with respect to any 
                        facility for a taxable year means the credit 
                        determined under subsection (a) with respect to 
                        such facility for such taxable year, determined 
                        without regard to subparagraph (A) and after 
                        taking into account any increase for such 
                        taxable year under clause (ii).
                  ``(C) Applicable percentage.--For purposes of this 
                paragraph--
                          ``(i) In general.--The term `applicable 
                        percentage' means, with respect to any 
                        facility, the appropriate percentage prescribed 
                        by the Secretary for the month in which such 
                        facility is originally placed in service.
                          ``(ii) Method of prescribing applicable 
                        percentages.--The applicable percentages 
                        prescribed by the Secretary for any month under 
                        clause (i) shall be percentages which yield 
                        over a 10-year period amounts of limitation 
                        under subparagraph (A) which have a present 
                        value equal to 35 percent of the eligible basis 
                        of the facility.
                          ``(iii) Method of discounting.--The present 
                        value under clause (ii) shall be determined--
                                  ``(I) as of the last day of the 1st 
                                year of the 10-year period referred to 
                                in clause (ii),
                                  ``(II) by using a discount rate equal 
                                to the greater of 110 percent of the 
                                Federal long-term rate as in effect 
                                under section 1274(d) for the month 
                                preceding the month for which the 
                                applicable percentage is being 
                                prescribed, or 4.5 percent, and
                                  ``(III) by taking into account the 
                                limitation under subparagraph (A) for 
                                any year on the last day of such year.
                  ``(D) Eligible basis.--For purposes of this 
                paragraph--
                          ``(i) In general.--The term `eligible basis' 
                        means, with respect to any facility, the sum 
                        of--
                                  ``(I) the basis of such facility 
                                determined as of the time that such 
                                facility is originally placed in 
                                service, and
                                  ``(II) the portion of the basis of 
                                any shared qualified property which is 
                                properly allocable to such facility 
                                under clause (ii).
                          ``(ii) Rules for allocation.--For purposes of 
                        subclause (II) of clause (i), the basis of 
                        shared qualified property shall be allocated 
                        among all qualified facilities which are 
                        projected to be placed in service and which 
                        require utilization of such property in 
                        proportion to projected generation from such 
                        facilities.
                          ``(iii) Shared qualified property.--For 
                        purposes of this paragraph, the term `shared 
                        qualified property' means, with respect to any 
                        facility, any property described in section 
                        168(e)(3)(B)(vi)--
                                  ``(I) which a qualified facility will 
                                require for utilization of such 
                                facility, and
                                  ``(II) which is not a qualified 
                                facility.
                          ``(iv) Special rule relating to geothermal 
                        facilities.--In the case of any qualified 
                        facility using geothermal energy to produce 
                        electricity, the basis of such facility for 
                        purposes of this paragraph shall be determined 
                        as though intangible drilling and development 
                        costs described in section 263(c) were 
                        capitalized rather than expensed.
                  ``(E) Special rule for first and last year of credit 
                period.--In the case of any taxable year any portion of 
                which is not within the 10-year period described in 
                subsection (a)(2)(A)(ii) with respect to any facility, 
                the amount of the limitation under subparagraph (A) 
                with respect to such facility shall be reduced by an 
                amount which bears the same ratio to the amount of such 
                limitation (determined without regard to this 
                subparagraph) as such portion of the taxable year which 
                is not within such period bears to the entire taxable 
                year.
                  ``(F) Election to treat all facilities placed in 
                service in a year as 1 facility.--At the election of 
                the taxpayer, all qualified facilities which are part 
                of the same project and which are placed in service 
                during the same calendar year shall be treated for 
                purposes of this section as 1 facility which is placed 
                in service at the mid-point of such year or the first 
                day of the following calendar year.''.
  (c) Trash Facility Clarification.--Paragraph (7) of section 45(d) is 
amended--
          (1) by striking ``facility which burns'' and inserting 
        ``facility (other than a facility described in paragraph (6)) 
        which uses'', and
          (2) by striking ``combustion''.
  (d) Expansion of Biomass Facilities.--
          (1) Open-loop biomass facilities.--Paragraph (3) of section 
        45(d) is amended by redesignating subparagraph (B) as 
        subparagraph (C) and by inserting after subparagraph (A) the 
        following new subparagraph:
                  ``(B) Expansion of facility.--Such term shall include 
                a new unit placed in service after the date of the 
                enactment of this subparagraph in connection with a 
                facility described in subparagraph (A), but only to the 
                extent of the increased amount of electricity produced 
                at the facility by reason of such new unit.''.
          (2) Closed-loop biomass facilities.--Paragraph (2) of section 
        45(d) is amended by redesignating subparagraph (B) as 
        subparagraph (C) and inserting after subparagraph (A) the 
        following new subparagraph:
                  ``(B) Expansion of facility.--Such term shall include 
                a new unit placed in service after the date of the 
                enactment of this subparagraph in connection with a 
                facility described in subparagraph (A)(i), but only to 
                the extent of the increased amount of electricity 
                produced at the facility by reason of such new unit.''.
  (e) Sales of Net Electricity to Regulated Public Utilities Treated as 
Sales to Unrelated Persons.--Paragraph (4) of section 45(e) is amended 
by adding at the end the following new sentence: ``The net amount of 
electricity sold by any taxpayer to a regulated public utility (as 
defined in section 7701(a)(33)) shall be treated as sold to an 
unrelated person.''.
  (f) Modification of Rules for Hydropower Production.--Subparagraph 
(C) of section 45(c)(8) is amended to read as follows:
                  ``(C) Nonhydroelectric dam.--For purposes of 
                subparagraph (A), a facility is described in this 
                subparagraph if--
                          ``(i) the hydroelectric project installed on 
                        the nonhydroelectric dam is licensed by the 
                        Federal Energy Regulatory Commission and meets 
                        all other applicable environmental, licensing, 
                        and regulatory requirements,
                          ``(ii) the nonhydroelectric dam was placed in 
                        service before the date of the enactment of 
                        this paragraph and operated for flood control, 
                        navigation, or water supply purposes and did 
                        not produce hydroelectric power on the date of 
                        the enactment of this paragraph, and
                          ``(iii) the hydroelectric project is operated 
                        so that the water surface elevation at any 
                        given location and time that would have 
                        occurred in the absence of the hydroelectric 
                        project is maintained, subject to any license 
                        requirements imposed under applicable law that 
                        change the water surface elevation for the 
                        purpose of improving environmental quality of 
                        the affected waterway.
                The Secretary, in consultation with the Federal Energy 
                Regulatory Commission, shall certify if a hydroelectric 
                project licensed at a nonhydroelectric dam meets the 
                criteria in clause (iii). Nothing in this section shall 
                affect the standards under which the Federal Energy 
                Regulatory Commission issues licenses for and regulates 
                hydropower projects under part I of the Federal Power 
                Act.''.
  (g) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        property originally placed in service after December 31, 2008.
          (2) Repeal of credit phaseout.--The amendments made by 
        subsection (b)(1) shall apply to taxable years ending after 
        December 31, 2008.
          (3) Limitation based on investment in facility.--The 
        amendment made by subsection (b)(2) shall apply to property 
        originally placed in service after December 31, 2009.
          (4) Trash facility clarification; sales to related regulated 
        public utilities.--The amendments made by subsections (c) and 
        (e) shall apply to electricity produced and sold after the date 
        of the enactment of this Act.
          (5) Expansion of biomass facilities.--The amendments made by 
        subsection (d) shall apply to property placed in service after 
        the date of the enactment of this Act.

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

  (a) In General.--Paragraph (1) of section 45(c) is amended by 
striking ``and'' at the end of subparagraph (G), by striking the period 
at the end of subparagraph (H) and inserting ``, and'', and by adding 
at the end the following new subparagraph:
                  ``(I) marine and hydrokinetic renewable energy.''.
  (b) Marine Renewables.--Subsection (c) of section 45 is amended by 
adding at the end the following new paragraph:
          ``(10) Marine and hydrokinetic renewable energy.--
                  ``(A) In general.--The term `marine and hydrokinetic 
                renewable energy' means energy derived from--
                          ``(i) waves, tides, and currents in oceans, 
                        estuaries, and tidal areas,
                          ``(ii) free flowing water in rivers, lakes, 
                        and streams,
                          ``(iii) free flowing water in an irrigation 
                        system, canal, or other man-made channel, 
                        including projects that utilize nonmechanical 
                        structures to accelerate the flow of water for 
                        electric power production purposes, or
                          ``(iv) differentials in ocean temperature 
                        (ocean thermal energy conversion).
                  ``(B) Exceptions.--Such term shall not include any 
                energy which is derived from any source which utilizes 
                a dam, diversionary structure (except as provided in 
                subparagraph (A)(iii)), or impoundment for electric 
                power production purposes.''.
  (c) Definition of Facility.--Subsection (d) of section 45 is amended 
by adding at the end the following new paragraph:
          ``(11) Marine and hydrokinetic renewable energy facilities.--
        In the case of a facility producing electricity from marine and 
        hydrokinetic renewable energy, the term `qualified facility' 
        means any facility owned by the taxpayer--
                  ``(A) which has a nameplate capacity rating of at 
                least 150 kilowatts, and
                  ``(B) which is originally placed in service on or 
                after the date of the enactment of this paragraph and 
                before January 1, 2012.''.
  (d) Credit Rate.--Subparagraph (A) of section 45(b)(4) is amended by 
striking ``or (9)'' and inserting ``(9), or (11)''.
  (e) Coordination With Small Irrigation Power.--Paragraph (5) of 
section 45(d), as amended by section 101, is amended by striking 
``January 1, 2012'' and inserting ``the date of the enactment of 
paragraph (11)''.
  (f) Effective Date.--The amendments made by this section shall apply 
to electricity produced and sold after the date of the enactment of 
this Act, in taxable years ending after such date.

SEC. 103. ENERGY CREDIT.

  (a) Extension of Credit.--
          (1) Solar energy property.--Paragraphs (2)(A)(i)(II) and 
        (3)(A)(ii) of section 48(a) are each amended by striking 
        ``January 1, 2009'' and inserting ``January 1, 2015''.
          (2) Fuel cell property.--Subparagraph (E) of section 48(c)(1) 
        is amended by striking ``December 31, 2008'' and inserting 
        ``December 31, 2014''.
          (3) Microturbine property.--Subparagraph (E) of section 
        48(c)(2) is amended by striking ``December 31, 2008'' and 
        inserting ``December 31, 2014''.
  (b) Allowance of Energy Credit Against Alternative Minimum Tax.--
Subparagraph (B) of section 38(c)(4) is amended by striking ``and'' at 
the end of clause (iii), by redesignating clause (iv) as clause (v), 
and by inserting after clause (iii) the following new clause:
                          ``(iv) the credit determined under section 46 
                        to the extent that such credit is attributable 
                        to the energy credit determined under section 
                        48, and''.
  (c) Energy Credit for Combined Heat and Power System Property.--
          (1) In general.--Section 48(a)(3)(A) (defining energy 
        property) is amended by striking ``or'' at the end of clause 
        (iii), by inserting ``or'' at the end of clause (iv), and by 
        adding at the end the following new clause:
                          ``(v) combined heat and power system 
                        property,''.
          (2) Combined heat and power system property.--Section 48 is 
        amended by adding at the end the following new subsection:
  ``(d) Combined Heat and Power System Property.--For purposes of 
subsection (a)(3)(A)(v)--
          ``(1) Combined heat and power system property.--The term 
        `combined heat and power system property' means property 
        comprising a system--
                  ``(A) which uses the same energy source for the 
                simultaneous or sequential generation of electrical 
                power, mechanical shaft power, or both, in combination 
                with the generation of steam or other forms of useful 
                thermal energy (including heating and cooling 
                applications),
                  ``(B) which produces--
                          ``(i) at least 20 percent of its total useful 
                        energy in the form of thermal energy which is 
                        not used to produce electrical or mechanical 
                        power (or combination thereof), and
                          ``(ii) at least 20 percent of its total 
                        useful energy in the form of electrical or 
                        mechanical power (or combination thereof),
                  ``(C) the energy efficiency percentage of which 
                exceeds 60 percent, and
                  ``(D) which is placed in service before January 1, 
                2015.
          ``(2) Limitation.--
                  ``(A) In general.--In the case of combined heat and 
                power system property with an electrical capacity in 
                excess of the applicable capacity placed in service 
                during the taxable year, the credit under subsection 
                (a)(1) (determined without regard to this paragraph) 
                for such year shall be equal to the amount which bears 
                the same ratio to such credit as the applicable 
                capacity bears to the capacity of such property.
                  ``(B) Applicable capacity.--For purposes of 
                subparagraph (A), the term `applicable capacity' means 
                15 megawatts or a mechanical energy capacity of more 
                than 20,000 horsepower or an equivalent combination of 
                electrical and mechanical energy capacities.
                  ``(C) Maximum capacity.--The term `combined heat and 
                power system property' shall not include any property 
                comprising a system if such system has a capacity in 
                excess of 50 megawatts or a mechanical energy capacity 
                in excess of 67,000 horsepower or an equivalent 
                combination of electrical and mechanical energy 
                capacities.
          ``(3) Special rules.--
                  ``(A) Energy efficiency percentage.--For purposes of 
                this subsection, the energy efficiency percentage of a 
                system is the fraction--
                          ``(i) the numerator of which is the total 
                        useful electrical, thermal, and mechanical 
                        power produced by the system at normal 
                        operating rates, and expected to be consumed in 
                        its normal application, and
                          ``(ii) the denominator of which is the lower 
                        heating value of the fuel sources for the 
                        system.
                  ``(B) Determinations made on btu basis.--The energy 
                efficiency percentage and the percentages under 
                paragraph (1)(B) shall be determined on a Btu basis.
                  ``(C) Input and output property not included.--The 
                term `combined heat and power system property' does not 
                include property used to transport the energy source to 
                the facility or to distribute energy produced by the 
                facility.
          ``(4) Systems using biomass.--If a system is designed to use 
        biomass (within the meaning of paragraphs (2) and (3) of 
        section 45(c) without regard to the last sentence of paragraph 
        (3)(A)) for at least 90 percent of the energy source--
                  ``(A) paragraph (1)(C) shall not apply, but
                  ``(B) the amount of credit determined under 
                subsection (a) with respect to such system shall not 
                exceed the amount which bears the same ratio to such 
                amount of credit (determined without regard to this 
                paragraph) as the energy efficiency percentage of such 
                system bears to 60 percent.''.
  (d) Increase of Credit Limitation for Fuel Cell Property.--
Subparagraph (B) of section 48(c)(1) is amended by striking ``$500'' 
and inserting ``$1,500''.
  (e) Public Utility Property Taken Into Account.--
          (1) In general.--Paragraph (3) of section 48(a) is amended by 
        striking the second sentence thereof.
          (2) Conforming amendments.--
                  (A) Paragraph (1) of section 48(c) is amended by 
                striking subparagraph (D) and redesignating 
                subparagraph (E) as subparagraph (D).
                  (B) Paragraph (2) of section 48(c) is amended by 
                striking subparagraph (D) and redesignating 
                subparagraph (E) as subparagraph (D).
  (f) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall take 
        effect on the date of the enactment of this Act.
          (2) Allowance against alternative minimum tax.--The 
        amendments made by subsection (b) shall apply to credits 
        determined under section 46 of the Internal Revenue Code of 
        1986 in taxable years beginning after the date of the enactment 
        of this Act and to carrybacks of such credits.
          (3) Combined heat and power and fuel cell property.--The 
        amendments made by subsections (c) and (d) shall apply to 
        periods after the date of the enactment of this Act, in taxable 
        years ending after such date, under rules similar to the rules 
        of section 48(m) of the Internal Revenue Code of 1986 (as in 
        effect on the day before the date of the enactment of the 
        Revenue Reconciliation Act of 1990).
          (4)  Public utility property.--The amendments made by 
        subsection (e) shall apply to periods after February 13, 2008, 
        in taxable years ending after such date, under rules similar to 
        the rules of section 48(m) of the Internal Revenue Code of 1986 
        (as in effect on the day before the date of the enactment of 
        the Revenue Reconciliation Act of 1990).

SEC. 104. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT PROPERTY.

  (a) Extension.--Section 25D(g) is amended by striking ``December 31, 
2008'' and inserting ``December 31, 2014''.
  (b) Maximum Credit for Solar Electric Property.--
          (1) In general.--Section 25D(b)(1)(A) is amended by striking 
        ``$2,000'' and inserting ``$4,000''.
          (2) Conforming amendment.--Section 25D(e)(4)(A)(i) is amended 
        by striking ``$6,667'' and inserting ``$13,333''.
  (c) Credit for Residential Wind Property.--
          (1) In general.--Section 25D(a) is amended by striking 
        ``and'' at the end of paragraph (2), by striking the period at 
        the end of paragraph (3) and inserting ``, and'', and by adding 
        at the end the following new paragraph:
          ``(4) 30 percent of the qualified small wind energy property 
        expenditures made by the taxpayer during such year.''.
          (2) Limitation.--Section 25D(b)(1) is amended by striking 
        ``and'' at the end of subparagraph (B), by striking the period 
        at the end of subparagraph (C) and inserting ``, and'', and by 
        adding at the end the following new subparagraph:
                  ``(D) $500 with respect to each half kilowatt of 
                capacity (not to exceed $4,000) of wind turbines for 
                which qualified small wind energy property expenditures 
                are made.''.
          (3) Qualified small wind energy property expenditures.--
                  (A) In general.--Section 25D(d) is amended by adding 
                at the end the following new paragraph:
          ``(4) Qualified small wind energy property expenditure.--The 
        term `qualified small wind energy property expenditure' means 
        an expenditure for property which uses a wind turbine to 
        generate electricity for use in connection with a dwelling unit 
        located in the United States and used as a residence by the 
        taxpayer.''.
                  (B) No double benefit.--Section 45(d)(1) is amended 
                by adding at the end the following new sentence: ``Such 
                term shall not include any facility with respect to 
                which any qualified small wind energy property 
                expenditure (as defined in subsection (d)(4) of section 
                25D) is taken into account in determining the credit 
                under such section.''.
          (4) Maximum expenditures in case of joint occupancy.--Section 
        25D(e)(4)(A) is amended by striking ``and'' at the end of 
        clause (ii), by striking the period at the end of clause (iii) 
        and inserting ``, and'', and by adding at the end the following 
        new clause:
                          ``(iv) $1,667 in the case of each half 
                        kilowatt of capacity (not to exceed $13,333) of 
                        wind turbines for which qualified small wind 
                        energy property expenditures are made.''.
  (d) Credit for Geothermal Heat Pump Systems.--
          (1) In general.--Section 25D(a), as amended by subsection 
        (c), is amended by striking ``and'' at the end of paragraph 
        (3), by striking the period at the end of paragraph (4) and 
        inserting ``, and'', and by adding at the end the following new 
        paragraph:
          ``(5) 30 percent of the qualified geothermal heat pump 
        property expenditures made by the taxpayer during such year.''.
          (2) Limitation.--Section 25D(b)(1), as amended by subsection 
        (c), is amended by striking ``and'' at the end of subparagraph 
        (C), by striking the period at the end of subparagraph (D) and 
        inserting ``, and'', and by adding at the end the following new 
        subparagraph:
                  ``(E) $2,000 with respect to any qualified geothermal 
                heat pump property expenditures.''.
          (3) Qualified geothermal heat pump property expenditure.--
        Section 25D(d), as amended by subsection (c), is amended by 
        adding at the end the following new paragraph:
          ``(5) Qualified geothermal heat pump property expenditure.--
                  ``(A) In general.--The term `qualified geothermal 
                heat pump property expenditure' means an expenditure 
                for qualified geothermal heat pump property installed 
                on or in connection with a dwelling unit located in the 
                United States and used as a residence by the taxpayer.
                  ``(B) Qualified geothermal heat pump property.--The 
                term `qualified geothermal heat pump property' means 
                any equipment which--
                          ``(i) uses the ground or ground water as a 
                        thermal energy source to heat the dwelling unit 
                        referred to in subparagraph (A) or as a thermal 
                        energy sink to cool such dwelling unit, and
                          ``(ii) meets the requirements of the Energy 
                        Star program which are in effect at the time 
                        that the expenditure for such equipment is 
                        made.''.
          (4) Maximum expenditures in case of joint occupancy.--Section 
        25D(e)(4)(A), as amended by subsection (c), is amended by 
        striking ``and'' at the end of clause (iii), by striking the 
        period at the end of clause (iv) and inserting ``, and'', and 
        by adding at the end the following new clause:
                          ``(v) $6,667 in the case of any qualified 
                        geothermal heat pump property expenditures.''.
  (e) Credit Allowed Against Alternative Minimum Tax.--
          (1) In general.--Subsection (c) of section 25D is amended to 
        read as follows:
  ``(c) Limitation Based on Amount of Tax; Carryforward of Unused 
Credit.--
          ``(1) Limitation based on amount of tax.--In the case of a 
        taxable year to which section 26(a)(2) does not apply, the 
        credit allowed under subsection (a) for the taxable year shall 
        not exceed the excess of--
                  ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                  ``(B) the sum of the credits allowable under this 
                subpart (other than this section) and section 27 for 
                the taxable year.
          ``(2) Carryforward of unused credit.--
                  ``(A) Rule for years in which all personal credits 
                allowed against regular and alternative minimum tax.--
                In the case of a taxable year to which section 26(a)(2) 
                applies, if the credit allowable under subsection (a) 
                exceeds the limitation imposed by section 26(a)(2) for 
                such taxable year reduced by the sum of the credits 
                allowable under this subpart (other than this section), 
                such excess shall be carried to the succeeding taxable 
                year and added to the credit allowable under subsection 
                (a) for such succeeding taxable year.
                  ``(B) Rule for other years.--In the case of a taxable 
                year to which section 26(a)(2) does not apply, if the 
                credit allowable under subsection (a) exceeds the 
                limitation imposed by paragraph (1) for such taxable 
                year, such excess shall be carried to the succeeding 
                taxable year and added to the credit allowable under 
                subsection (a) for such succeeding taxable year.''.
          (2) Conforming amendments.--
                  (A) Section 23(b)(4)(B) is amended by inserting ``and 
                section 25D'' after ``this section''.
                  (B) Section 24(b)(3)(B) is amended by striking ``and 
                25B'' and inserting ``, 25B, and 25D''.
                  (C) Section 25B(g)(2) is amended by striking 
                ``section 23'' and inserting ``sections 23 and 25D''.
                  (D) Section 26(a)(1) is amended by striking ``and 
                25B'' and inserting ``25B, and 25D''.
  (f) Effective Date.--
          (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 2007.
          (2) Application of egtrra sunset.--The amendments made by 
        subparagraphs (A) and (B) of subsection (e)(2) shall be subject 
        to title IX of the Economic Growth and Tax Relief 
        Reconciliation Act of 2001 in the same manner as the provisions 
        of such Act to which such amendments relate.

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

  (a) Extension for Qualified Electric Utilities.--
          (1) In general.--Paragraph (3) of section 451(i) is amended 
        by inserting ``(before January 1, 2010, in the case of a 
        qualified electric utility)'' after ``January 1, 2008''.
          (2) Qualified electric utility.--Subsection (i) of section 
        451 is amended by redesignating paragraphs (6) through (10) as 
        paragraphs (7) through (11), respectively, and by inserting 
        after paragraph (5) the following new paragraph:
          ``(6) Qualified electric utility.--For purposes of this 
        subsection, the term `qualified electric utility' means a 
        person that, as of the date of the qualifying electric 
        transmission transaction, is vertically integrated, in that it 
        is both--
                  ``(A) a transmitting utility (as defined in section 
                3(23) of the Federal Power Act (16 U.S.C. 796(23))) 
                with respect to the transmission facilities to which 
                the election under this subsection applies, and
                  ``(B) an electric utility (as defined in section 
                3(22) of the Federal Power Act (16 U.S.C. 796(22))).''.
  (b) Extension of Period for Transfer of Operational Control 
Authorized by FERC.--Clause (ii) of section 451(i)(4)(B) is amended by 
striking ``December 31, 2007'' and inserting ``the date which is 4 
years after the close of the taxable year in which the transaction 
occurs''.
  (c) Property Located Outside the United States Not Treated as Exempt 
Utility Property.--Paragraph (5) of section 451(i) is amended by adding 
at the end the following new subparagraph:
                  ``(C) Exception for property located outside the 
                united states.--The term `exempt utility property' 
                shall not include any property which is located outside 
                the United States.''.
  (d) Effective Dates.--
          (1) Extension.--The amendments made by subsection (a) shall 
        apply to transactions after December 31, 2007.
          (2) Transfers of operational control.--The amendment made by 
        subsection (b) shall take effect as if included in section 909 
        of the American Jobs Creation Act of 2004.
          (3) Exception for property located outside the united 
        states.--The amendment made by subsection (c) shall apply to 
        transactions after the date of the enactment of this Act.

SEC. 106. NEW CLEAN RENEWABLE ENERGY BONDS.

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

                ``Subpart I--Qualified Tax Credit Bonds

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

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

  ``(a) Allowance of Credit.--If a taxpayer holds a qualified tax 
credit bond on one or more credit allowance dates of the bond during 
any taxable year, there shall be allowed as a credit against the tax 
imposed by this chapter for the taxable year an amount equal to the sum 
of the credits determined under subsection (b) with respect to such 
dates.
  ``(b) Amount of Credit.--
          ``(1) In general.--The amount of the credit determined under 
        this subsection with respect to any credit allowance date for a 
        qualified tax credit bond is 25 percent of the annual credit 
        determined with respect to such bond.
          ``(2) Annual credit.--The annual credit determined with 
        respect to any qualified tax credit bond is the product of--
                  ``(A) the applicable credit rate, multiplied by
                  ``(B) the outstanding face amount of the bond.
          ``(3) Applicable credit rate.--For purposes of paragraph (2), 
        the applicable credit rate is the rate which the Secretary 
        estimates will permit the issuance of qualified tax credit 
        bonds with a specified maturity or redemption date without 
        discount and without interest cost to the qualified issuer. The 
        applicable credit rate with respect to any qualified tax credit 
        bond shall be determined as of the first day on which there is 
        a binding, written contract for the sale or exchange of the 
        bond.
          ``(4) Special rule for issuance and redemption.--In the case 
        of a bond which is issued during the 3-month period ending on a 
        credit allowance date, the amount of the credit determined 
        under this subsection with respect to such credit allowance 
        date shall be a ratable portion of the credit otherwise 
        determined based on the portion of the 3-month period during 
        which the bond is outstanding. A similar rule shall apply when 
        the bond is redeemed or matures.
  ``(c) Limitation Based on Amount of Tax.--
          ``(1) In general.--The credit allowed under subsection (a) 
        for any taxable year shall not exceed the excess of--
                  ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                  ``(B) the sum of the credits allowable under this 
                part (other than subpart C and this subpart).
          ``(2) Carryover of unused credit.--If the credit allowable 
        under subsection (a) exceeds the limitation imposed by 
        paragraph (1) for such taxable year, such excess shall be 
        carried to the succeeding taxable year and added to the credit 
        allowable under subsection (a) for such taxable year 
        (determined before the application of paragraph (1) for such 
        succeeding taxable year).
  ``(d) Qualified Tax Credit Bond.--For purposes of this section--
          ``(1) Qualified tax credit bond.--The term `qualified tax 
        credit bond' means a new clean renewable energy bond which is 
        part of an issue that meets the requirements of paragraphs (2), 
        (3), (4), (5), and (6).
          ``(2) Special rules relating to expenditures.--
                  ``(A) In general.--An issue shall be treated as 
                meeting the requirements of this paragraph if, as of 
                the date of issuance, the issuer reasonably expects--
                          ``(i) 100 percent or more of the available 
                        project proceeds to be spent for 1 or more 
                        qualified purposes within the 3-year period 
                        beginning on such date of issuance, and
                          ``(ii) a binding commitment with a third 
                        party to spend at least 10 percent of such 
                        available project proceeds will be incurred 
                        within the 6-month period beginning on such 
                        date of issuance.
                  ``(B) Failure to spend required amount of bond 
                proceeds within 3 years.--
                          ``(i) In general.--To the extent that less 
                        than 100 percent of the available project 
                        proceeds of the issue are expended by the close 
                        of the expenditure period for 1 or more 
                        qualified purposes, the issuer shall redeem all 
                        of the nonqualified bonds within 90 days after 
                        the end of such period. For purposes of this 
                        paragraph, the amount of the nonqualified bonds 
                        required to be redeemed shall be determined in 
                        the same manner as under section 142.
                          ``(ii) Expenditure period.--For purposes of 
                        this subpart, the term `expenditure period' 
                        means, with respect to any issue, the 3-year 
                        period beginning on the date of issuance. Such 
                        term shall include any extension of such period 
                        under clause (iii).
                          ``(iii) Extension of period.--Upon submission 
                        of a request prior to the expiration of the 
                        expenditure period (determined without regard 
                        to any extension under this clause), the 
                        Secretary may extend such period if the issuer 
                        establishes that the failure to expend the 
                        proceeds within the original expenditure period 
                        is due to reasonable cause and the expenditures 
                        for qualified purposes will continue to proceed 
                        with due diligence.
                  ``(C) Qualified purpose.--For purposes of this 
                paragraph, the term `qualified purpose' means a purpose 
                specified in section 54B(a)(1).
                  ``(D) Reimbursement.--For purposes of this subtitle, 
                available project proceeds of an issue shall be treated 
                as spent for a qualified purpose if such proceeds are 
                used to reimburse the issuer for amounts paid for a 
                qualified purpose after the date that the Secretary 
                makes an allocation of bond limitation with respect to 
                such issue, but only if--
                          ``(i) prior to the payment of the original 
                        expenditure, the issuer declared its intent to 
                        reimburse such expenditure with the proceeds of 
                        a qualified tax credit bond,
                          ``(ii) not later than 60 days after payment 
                        of the original expenditure, the issuer adopts 
                        an official intent to reimburse the original 
                        expenditure with such proceeds, and
                          ``(iii) the reimbursement is made not later 
                        than 18 months after the date the original 
                        expenditure is paid.
          ``(3) Reporting.--An issue shall be treated as meeting the 
        requirements of this paragraph if the issuer of qualified tax 
        credit bonds submits reports similar to the reports required 
        under section 149(e).
          ``(4) Special rules relating to arbitrage.--
                  ``(A) In general.--An issue shall be treated as 
                meeting the requirements of this paragraph if the 
                issuer satisfies the requirements of section 148 with 
                respect to the proceeds of the issue.
                  ``(B) Special rule for investments during expenditure 
                period.--An issue shall not be treated as failing to 
                meet the requirements of subparagraph (A) by reason of 
                any investment of available project proceeds during the 
                expenditure period.
                  ``(C) Special rule for reserve funds.--An issue shall 
                not be treated as failing to meet the requirements of 
                subparagraph (A) by reason of any fund which is 
                expected to be used to repay such issue if--
                          ``(i) such fund is funded at a rate not more 
                        rapid than equal annual installments,
                          ``(ii) such fund is funded in a manner 
                        reasonably expected to result in an amount not 
                        greater than an amount necessary to repay the 
                        issue, and
                          ``(iii) the yield on such fund is not greater 
                        than the discount rate determined under 
                        paragraph (5)(B) with respect to the issue.
          ``(5) Maturity limitation.--
                  ``(A) In general.--An issue shall not be treated as 
                meeting the requirements of this paragraph if the 
                maturity of any bond which is part of such issue 
                exceeds the maximum term determined by the Secretary 
                under subparagraph (B).
                  ``(B) Maximum term.--During each calendar month, the 
                Secretary shall determine the maximum term permitted 
                under this paragraph for bonds issued during the 
                following calendar month. Such maximum term shall be 
                the term which the Secretary estimates will result in 
                the present value of the obligation to repay the 
                principal on the bond being equal to 50 percent of the 
                face amount of such bond. Such present value shall be 
                determined using as a discount rate the average annual 
                interest rate of tax-exempt obligations having a term 
                of 10 years or more which are issued during the month. 
                If the term as so determined is not a multiple of a 
                whole year, such term shall be rounded to the next 
                highest whole year.
          ``(6) Prohibition on financial conflicts of interest.--An 
        issue shall be treated as meeting the requirements of this 
        paragraph if the issuer certifies that--
                  ``(A) applicable State and local law requirements 
                governing conflicts of interest are satisfied with 
                respect to such issue, and
                  ``(B) if the Secretary prescribes additional 
                conflicts of interest rules governing the appropriate 
                Members of Congress, Federal, State, and local 
                officials, and their spouses, such additional rules are 
                satisfied with respect to such issue.
  ``(e) Other Definitions.--For purposes of this subchapter--
          ``(1) Credit allowance date.--The term `credit allowance 
        date' means--
                  ``(A) March 15,
                  ``(B) June 15,
                  ``(C) September 15, and
                  ``(D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
          ``(2) Bond.--The term `bond' includes any obligation.
          ``(3) State.--The term `State' includes the District of 
        Columbia and any possession of the United States.
          ``(4) Available project proceeds.--The term `available 
        project proceeds' means--
                  ``(A) the excess of--
                          ``(i) the proceeds from the sale of an issue, 
                        over
                          ``(ii) the issuance costs financed by the 
                        issue (to the extent that such costs do not 
                        exceed 2 percent of such proceeds), and
                  ``(B) the proceeds from any investment of the excess 
                described in subparagraph (A).
  ``(f) Credit Treated as Interest.--For purposes of this subtitle, the 
credit determined under subsection (a) shall be treated as interest 
which is includible in gross income.
  ``(g) S Corporations and Partnerships.--In the case of a tax credit 
bond held by an S corporation or partnership, the allocation of the 
credit allowed by this section to the shareholders of such corporation 
or partners of such partnership shall be treated as a distribution.
  ``(h) Bonds Held by Regulated Investment Companies and Real Estate 
Investment Trusts.--If any qualified tax credit bond is held by a 
regulated investment company or a real estate investment trust, the 
credit determined under subsection (a) shall be allowed to shareholders 
of such company or beneficiaries of such trust (and any gross income 
included under subsection (f) with respect to such credit shall be 
treated as distributed to such shareholders or beneficiaries) under 
procedures prescribed by the Secretary.
  ``(i) Credits May Be Stripped.--Under regulations prescribed by the 
Secretary--
          ``(1) In general.--There may be a separation (including at 
        issuance) of the ownership of a qualified tax credit bond and 
        the entitlement to the credit under this section with respect 
        to such bond. In case of any such separation, the credit under 
        this section shall be allowed to the person who on the credit 
        allowance date holds the instrument evidencing the entitlement 
        to the credit and not to the holder of the bond.
          ``(2) Certain rules to apply.--In the case of a separation 
        described in paragraph (1), the rules of section 1286 shall 
        apply to the qualified tax credit bond as if it were a stripped 
        bond and to the credit under this section as if it were a 
        stripped coupon.

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

  ``(a) New Clean Renewable Energy Bond.--For purposes of this subpart, 
the term `new clean renewable energy bond' means any bond issued as 
part of an issue if--
          ``(1) 100 percent of the available project proceeds of such 
        issue are to be used for capital expenditures incurred by 
        public power providers or cooperative electric companies for 
        one or more qualified renewable energy facilities,
          ``(2) the bond is issued by a qualified issuer, and
          ``(3) the issuer designates such bond for purposes of this 
        section.
  ``(b) Reduced Credit Amount.--The annual credit determined under 
section 54A(b) with respect to any new clean renewable energy bond 
shall be 70 percent of the amount so determined without regard to this 
subsection.
  ``(c) Limitation on Amount of Bonds Designated.--
          ``(1) In general.--The maximum aggregate face amount of bonds 
        which may be designated under subsection (a) by any issuer 
        shall not exceed the limitation amount allocated under this 
        subsection to such issuer.
          ``(2) National limitation on amount of bonds designated.--
        There is a national new clean renewable energy bond limitation 
        of $2,000,000,000 which shall be allocated by the Secretary as 
        provided in paragraph (3), except that--
                  ``(A) not more than 33 \1/3\ percent thereof may be 
                allocated to qualified projects of public power 
                providers,
                  ``(B) not more than 33 \1/3\ percent thereof may be 
                allocated to qualified projects of governmental bodies, 
                and
                  ``(C) not more than 33 \1/3\ percent thereof may be 
                allocated to qualified projects of cooperative electric 
                companies.
          ``(3) Method of allocation.--
                  ``(A) Allocation among public power providers.--After 
                the Secretary determines the qualified projects of 
                public power providers which are appropriate for 
                receiving an allocation of the national new clean 
                renewable energy bond limitation, the Secretary shall, 
                to the maximum extent practicable, make allocations 
                among such projects in such manner that the amount 
                allocated to each such project bears the same ratio to 
                the cost of such project as the limitation under 
                paragraph (2)(A) bears to the cost of all such 
                projects.
                  ``(B) Allocation among governmental bodies and 
                cooperative electric companies.--The Secretary shall 
                make allocations of the amount of the national new 
                clean renewable energy bond limitation described in 
                paragraphs (2)(B) and (2)(C) among qualified projects 
                of governmental bodies and cooperative electric 
                companies, respectively, in such manner as the 
                Secretary determines appropriate.
  ``(d) Definitions.--For purposes of this section--
          ``(1) Qualified renewable energy facility.--The term 
        `qualified renewable energy facility' means a qualified 
        facility (as determined under section 45(d) without regard to 
        paragraphs (8) and (10) thereof and to any placed in service 
        date) owned by a public power provider, a governmental body, or 
        a cooperative electric company.
          ``(2) Public power provider.--The term `public power 
        provider' means a State utility with a service obligation, as 
        such terms are defined in section 217 of the Federal Power Act 
        (as in effect on the date of the enactment of this paragraph).
          ``(3) Governmental body.--The term `governmental body' means 
        any State or Indian tribal government, or any political 
        subdivision thereof.
          ``(4) Cooperative electric company.--The term `cooperative 
        electric company' means a mutual or cooperative electric 
        company described in section 501(c)(12) or section 
        1381(a)(2)(C).
          ``(5) Clean renewable energy bond lender.--The term `clean 
        renewable energy bond lender' means a lender which is a 
        cooperative which is owned by, or has outstanding loans to, 100 
        or more cooperative electric companies and is in existence on 
        February 1, 2002, and shall include any affiliated entity which 
        is controlled by such lender.
          ``(6) Qualified issuer.--The term `qualified issuer' means a 
        public power provider, a cooperative electric company, a 
        governmental body, a clean renewable energy bond lender, or a 
        not-for-profit electric utility which has received a loan or 
        loan guarantee under the Rural Electrification Act.''.
  (b) Reporting.--Subsection (d) of section 6049 is amended by adding 
at the end the following new paragraph:
          ``(9) Reporting of credit on qualified tax credit bonds.--
                  ``(A) In general.--For purposes of subsection (a), 
                the term `interest' includes amounts includible in 
                gross income under section 54A and such amounts shall 
                be treated as paid on the credit allowance date (as 
                defined in section 54A(e)(1)).
                  ``(B) Reporting to corporations, etc.--Except as 
                otherwise provided in regulations, in the case of any 
                interest described in subparagraph (A) of this 
                paragraph, subsection (b)(4) of this section shall be 
                applied without regard to subparagraphs (A), (H), (I), 
                (J), (K), and (L)(i).
                  ``(C) Regulatory authority.--The Secretary may 
                prescribe such regulations as are necessary or 
                appropriate to carry out the purposes of this 
                paragraph, including regulations which require more 
                frequent or more detailed reporting.''.
  (c) Conforming Amendments.--
          (1) Sections 54(c)(2) and 1400N(l)(3)(B) are each amended by 
        striking ``subpart C'' and inserting ``subparts C and I''.
          (2) Section 1397E(c)(2) is amended by striking ``subpart H'' 
        and inserting ``subparts H and I''.
          (3) Section 6401(b)(1) is amended by striking ``and H'' and 
        inserting ``H, and I''.
          (4) The heading of subpart H of part IV of subchapter A of 
        chapter 1 is amended by striking ``Certain Bonds'' and 
        inserting ``Clean Renewable Energy Bonds''.
          (5) The table of subparts for part IV of subchapter A of 
        chapter 1 is amended by striking the item relating to subpart H 
        and inserting the following new items:

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

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

  (d) Application of Certain Labor Standards on Projects Financed Under 
Tax Credit Bonds.--Subchapter IV of chapter 31 of title 40, United 
States Code, shall apply to projects financed with the proceeds of any 
tax credit bond (as defined in section 54A of the Internal Revenue Code 
of 1986).
  (e) Effective Dates.--The amendments made by this section shall apply 
to obligations issued after the date of the enactment of this Act.

                 PART II--CARBON MITIGATION PROVISIONS

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

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

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

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

SEC. 113. TEMPORARY INCREASE IN COAL EXCISE TAX.

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

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

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

SEC. 115. CARBON AUDIT OF THE TAX CODE.

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

    Subtitle B--Transportation and Domestic Fuel Security Provisions

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

  (a) In General.--Paragraph (3) of section 168(l) is amended to read 
as follows:
          ``(3) Cellulosic biofuel.--The term `cellulosic biofuel' 
        means any liquid fuel which is produced from any 
        lignocellulosic or hemicellulosic matter that is available on a 
        renewable or recurring basis.''.
  (b) Conforming Amendments.--Subsection (l) of section 168 is 
amended--
          (1) by striking ``cellulosic biomass ethanol'' each place it 
        appears and inserting ``cellulosic biofuel'',
          (2) by striking ``Cellulosic Biomass Ethanol'' in the heading 
        of such subsection and inserting ``Cellulosic Biofuel'', and
          (3) by striking ``cellulosic biomass ethanol'' in the heading 
        of paragraph (2) thereof and inserting ``cellulosic biofuel''.
  (c) Effective Date.--The amendments made by this section shall apply 
to property placed in service after the date of the enactment of this 
Act, in taxable years ending after such date.

SEC. 122. CREDITS FOR BIODIESEL AND RENEWABLE DIESEL.

  (a) In General.--Sections 40A(g), 6426(c)(6), and 6427(e)(5)(B) are 
each amended by striking ``December 31, 2008'' and inserting ``December 
31, 2009''.
  (b) Increase in Rate of Credit.--
          (1) Income tax credit.--Paragraphs (1)(A) and (2)(A) of 
        section 40A(b) are each amended by striking ``50 cents'' and 
        inserting ``$1.00''.
          (2) Excise tax credit.--Paragraph (2) of section 6426(c) is 
        amended to read as follows:
          ``(2) Applicable amount.--For purposes of this subsection, 
        the applicable amount is $1.00.''.
          (3) Conforming amendments.--
                  (A) Subsection (b) of section 40A is amended by 
                striking paragraph (3) and by redesignating paragraphs 
                (4) and (5) as paragraphs (3) and (4), respectively.
                  (B) Paragraph (2) of section 40A(f) is amended to 
                read as follows:
          ``(2) Exception.--Subsection (b)(4) shall not apply with 
        respect to renewable diesel.''.
                  (C) Paragraphs (2) and (3) of section 40A(e) are each 
                amended by striking ``subsection (b)(5)(C)'' and 
                inserting ``subsection (b)(4)(C)''.
                  (D) Clause (ii) of section 40A(d)(3)(C) is amended by 
                striking ``subsection (b)(5)(B)'' and inserting 
                ``subsection (b)(4)(B)''.
  (c) Uniform Treatment of Diesel Produced From Biomass.--Paragraph (3) 
of section 40A(f) is amended--
          (1) by striking ``diesel fuel'' and inserting ``liquid 
        fuel'',
          (2) by striking ``using a thermal depolymerization process'', 
        and
          (3) by striking ``or D396'' in subparagraph (B) and inserting 
        ``, D396, or other equivalent standard approved by the 
        Secretary''.
  (d) Coproduction of Renewable Diesel With Petroleum Feedstock.--
          (1) In general.--Paragraph (3) of section 40A(f) (defining 
        renewable diesel) is amended by adding at the end the following 
        flush sentence:
        ``Such term does not include any fuel derived from coprocessing 
        biomass with a feedstock which is not biomass. For purposes of 
        this paragraph, the term `biomass' has the meaning given such 
        term by section 45K(c)(3).''.
          (2) Conforming amendment.--Paragraph (3) of section 40A(f) is 
        amended by striking ``(as defined in section 45K(c)(3))''.
  (e) Eligibility of Certain Aviation Fuel.--Paragraph (3) of section 
40A(f) (defining renewable diesel) is amended by adding at the end the 
following: ``The term `renewable diesel' also means fuel derived from 
biomass which meets the requirements of a Department of Defense 
specification for military jet fuel or an American Society of Testing 
and Materials specification for aviation turbine fuel.''
  (f) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        fuel produced, and sold or used, after December 31, 2008.
          (2) Coproduction of renewable diesel with petroleum 
        feedstock.--The amendments made by subsection (c) shall apply 
        to fuel produced, and sold or used, after February 13, 2008.

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

  (a) Alcohol Fuels Credit.--Subsection (d) of section 40 is amended by 
adding at the end the following new paragraph:
          ``(6) Limitation to alcohol with connection to the united 
        states.--No credit shall be determined under this section with 
        respect to any alcohol which is produced outside the United 
        States for use as a fuel outside the United States. For 
        purposes of this paragraph, the term `United States' includes 
        any possession of the United States.''.
  (b) Biodiesel Fuels Credit.--Subsection (d) of section 40A is amended 
by adding at the end the following new paragraph:
          ``(5) Limitation to biodiesel with connection to the united 
        states.--No credit shall be determined under this section with 
        respect to any biodiesel which is produced outside the United 
        States for use as a fuel outside the United States. For 
        purposes of this paragraph, the term `United States' includes 
        any possession of the United States.''.
  (c) Excise Tax Credit.--
          (1) In general.--Section 6426 is amended by adding at the end 
        the following new subsection:
  ``(i) Limitation to Fuels With Connection to the United States.--
          ``(1) Alcohol.--No credit shall be determined under this 
        section with respect to any alcohol which is produced outside 
        the United States for use as a fuel outside the United States.
          ``(2) Biodiesel and alternative fuels.--No credit shall be 
        determined under this section with respect to any biodiesel or 
        alternative fuel which is produced outside the United States 
        for use as a fuel outside the United States.
For purposes of this subsection, the term `United States' includes any 
possession of the United States.''.
          (2) Conforming amendment.--Subsection (e) of section 6427 is 
        amended by redesignating paragraph (5) as paragraph (6) and by 
        inserting after paragraph (4) the following new paragraph:
          ``(5) Limitation to fuels with connection to the united 
        states.--No amount shall be payable under paragraph (1) or (2) 
        with respect to any mixture or alternative fuel if credit is 
        not allowed with respect to such mixture or alternative fuel by 
        reason of section 6426(i).''.
  (d) Effective Date.--The amendments made by this section shall apply 
to claims for credit or payment made on or after May 15, 2008.

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

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

``SEC. 30D. NEW QUALIFIED PLUG-IN ELECTRIC DRIVE MOTOR VEHICLES.

  ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to the sum of the credit amounts determined under subsection (b) 
with respect to each new qualified plug-in electric drive motor vehicle 
placed in service by the taxpayer during the taxable year.
  ``(b) Per Vehicle Dollar Limitation.--
          ``(1) In general.--The amount determined under this 
        subsection with respect to any new qualified plug-in electric 
        drive motor vehicle is the sum of the amounts determined under 
        paragraphs (2) and (3) with respect to such vehicle.
          ``(2) Base amount.--The amount determined under this 
        paragraph is $3,000.
          ``(3) Battery capacity.--In the case of a vehicle which draws 
        propulsion energy from a battery with not less than 5 kilowatt 
        hours of capacity, the amount determined under this paragraph 
        is $200, plus $200 for each kilowatt hour of capacity in excess 
        of 5 kilowatt hours. The amount determined under this paragraph 
        shall not exceed $2,000.
  ``(c) Application With Other Credits.--
          ``(1) Business credit treated as part of general business 
        credit.--So much of the credit which would be allowed under 
        subsection (a) for any taxable year (determined without regard 
        to this subsection) that is attributable to property of a 
        character subject to an allowance for depreciation shall be 
        treated as a credit listed in section 38(b) for such taxable 
        year (and not allowed under subsection (a)).
          ``(2) Personal credit.--
                  ``(A) In general.--For purposes of this title, the 
                credit allowed under subsection (a) for any taxable 
                year (determined after application of paragraph (1)) 
                shall be treated as a credit allowable under subpart A 
                for such taxable year.
                  ``(B) Limitation based on amount of tax.--In the case 
                of a taxable year to which section 26(a)(2) does not 
                apply, the credit allowed under subsection (a) for any 
                taxable year (determined after application of paragraph 
                (1)) shall not exceed the excess of--
                          ``(i) the sum of the regular tax liability 
                        (as defined in section 26(b)) plus the tax 
                        imposed by section 55, over
                          ``(ii) the sum of the credits allowable under 
                        subpart A (other than this section and sections 
                        23 and 25D) and section 27 for the taxable 
                        year.
  ``(d) New Qualified Plug-in Electric Drive Motor Vehicle.--For 
purposes of this section--
          ``(1) In general.--The term `new qualified plug-in electric 
        drive motor vehicle' means a motor vehicle (as defined in 
        section 30(c)(2))--
                  ``(A) the original use of which commences with the 
                taxpayer,
                  ``(B) which is acquired for use or lease by the 
                taxpayer and not for resale,
                  ``(C) which is made by a manufacturer,
                  ``(D) which has a gross vehicle weight rating of less 
                than 14,000 pounds,
                  ``(E) which has received a certificate of conformity 
                under the Clean Air Act and meets or exceeds the Bin 5 
                Tier II emission standard established in regulations 
                prescribed by the Administrator of the Environmental 
                Protection Agency under section 202(i) of the Clean Air 
                Act for that make and model year vehicle, and
                  ``(F) which is propelled to a significant extent by 
                an electric motor which draws electricity from a 
                battery which--
                          ``(i) has a capacity of not less than 4 
                        kilowatt hours, and
                          ``(ii) is capable of being recharged from an 
                        external source of electricity.
          ``(2) Exception.--The term `new qualified plug-in electric 
        drive motor vehicle' shall not include any vehicle which is not 
        a passenger automobile or light truck if such vehicle has a 
        gross vehicle weight rating of less than 8,500 pounds.
          ``(3) Other terms.--The terms `passenger automobile', `light 
        truck', and `manufacturer' have the meanings given such terms 
        in regulations prescribed by the Administrator of the 
        Environmental Protection Agency for purposes of the 
        administration of title II of the Clean Air Act (42 U.S.C. 7521 
        et seq.).
          ``(4) Battery capacity.--The term `capacity' means, with 
        respect to any battery, the quantity of electricity which the 
        battery is capable of storing, expressed in kilowatt hours, as 
        measured from a 100 percent state of charge to a 0 percent 
        state of charge.
  ``(e) Limitation on Number of New Qualified Plug-in Electric Drive 
Motor Vehicles Eligible for Credit.--
          ``(1) In general.--In the case of a new qualified plug-in 
        electric drive motor vehicle sold during the phaseout period, 
        only the applicable percentage of the credit otherwise 
        allowable under subsection (a) shall be allowed.
          ``(2) Phaseout period.--For purposes of this subsection, the 
        phaseout period is the period beginning with the second 
        calendar quarter following the calendar quarter which includes 
        the first date on which the number of new qualified plug-in 
        electric drive motor vehicles manufactured by the manufacturer 
        of the vehicle referred to in paragraph (1) sold for use in the 
        United States after the date of the enactment of this section, 
        is at least 60,000.
          ``(3) Applicable percentage.--For purposes of paragraph (1), 
        the applicable percentage is--
                  ``(A) 50 percent for the first 2 calendar quarters of 
                the phaseout period,
                  ``(B) 25 percent for the 3d and 4th calendar quarters 
                of the phaseout period, and
                  ``(C) 0 percent for each calendar quarter thereafter.
          ``(4) Controlled groups.--Rules similar to the rules of 
        section 30B(f)(4) shall apply for purposes of this subsection.
  ``(f) Special Rules.--
          ``(1) Basis reduction.--The basis of any property for which a 
        credit is allowable under subsection (a) shall be reduced by 
        the amount of such credit (determined without regard to 
        subsection (c)).
          ``(2) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit allowable 
        under subsection (a) with respect to any property which ceases 
        to be property eligible for such credit.
          ``(3) Property used outside united states, etc., not 
        qualified.--No credit shall be allowed under subsection (a) 
        with respect to any property referred to in section 50(b)(1) or 
        with respect to the portion of the cost of any property taken 
        into account under section 179.
          ``(4) Election not to take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects to not have this section apply to such vehicle.
          ``(5) Property used by tax-exempt entity; interaction with 
        air quality and motor vehicle safety standards.--Rules similar 
        to the rules of paragraphs (6) and (10) of section 30B(h) shall 
        apply for purposes of this section.''.
  (b) Coordination With Alternative Motor Vehicle Credit.--Section 
30B(d)(3) is amended by adding at the end the following new 
subparagraph:
                  ``(D) Exclusion of plug-in vehicles.--Any vehicle 
                with respect to which a credit is allowable under 
                section 30D (determined without regard to subsection 
                (c) thereof) shall not be taken into account under this 
                section.''.
  (c) Credit Made Part of General Business Credit.--Section 38(b) is 
amended--
          (1) by striking ``and'' each place it appears at the end of 
        any paragraph,
          (2) by striking ``plus'' each place it appears at the end of 
        any paragraph,
          (3) by striking the period at the end of paragraph (31) and 
        inserting ``, plus'', and
          (4) by adding at the end the following new paragraph:
          ``(32) the portion of the new qualified plug-in electric 
        drive motor vehicle credit to which section 30D(c)(1) 
        applies.''.
  (d) Conforming Amendments.--
          (1)(A) Section 24(b)(3)(B), as amended by section 104, is 
        amended by striking ``and 25D'' and inserting ``25D, and 30D''.
          (B) Section 25(e)(1)(C)(ii) is amended by inserting ``30D,'' 
        after ``25D,''.
          (C) Section 25B(g)(2), as amended by section 104, is amended 
        by striking ``and 25D'' and inserting ``, 25D, and 30D''.
          (D) Section 26(a)(1), as amended by section 104, is amended 
        by striking ``and 25D'' and inserting ``25D, and 30D''.
          (E) Section 1400C(d)(2) is amended by striking ``and 25D'' 
        and inserting ``25D, and 30D''.
          (2) Section 1016(a) is amended by striking ``and'' at the end 
        of paragraph (35), by striking the period at the end of 
        paragraph (36) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
          ``(37) to the extent provided in section 30D(f)(1).''.
          (3) Section 6501(m) is amended by inserting ``30D(f)(4),'' 
        after ``30C(e)(5),''.
          (4) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following new item:

``Sec. 30D. New qualified plug-in electric drive motor vehicles.''.
  (e) Treatment of Alternative Motor Vehicle Credit as a Personal 
Credit.--
          (1) In general.--Paragraph (2) of section 30B(g) is amended 
        to read as follows:
          ``(2) Personal credit.--The credit allowed under subsection 
        (a) for any taxable year (after application of paragraph (1)) 
        shall be treated as a credit allowable under subpart A for such 
        taxable year.''.
          (2) Conforming amendments.--
                  (A) Subparagraph (A) of section 30C(d)(2) is amended 
                by striking ``sections 27, 30, and 30B'' and inserting 
                ``sections 27 and 30''.
                  (B) Paragraph (3) of section 55(c) is amended by 
                striking ``30B(g)(2),''.
  (f) Effective Date.--
          (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        taxable years beginning after December 31, 2008.
          (2) Treatment of alternative motor vehicle credit as personal 
        credit.--The amendments made by subsection (e) shall apply to 
        taxable years beginning after December 31, 2007.
  (g) Application of EGTRRA Sunset.--The amendment made by subsection 
(d)(1)(A) shall be subject to title IX of the Economic Growth and Tax 
Relief Reconciliation Act of 2001 in the same manner as the provision 
of such Act to which such amendment relates.

SEC. 125. EXCLUSION FROM HEAVY TRUCK TAX FOR IDLING REDUCTION UNITS AND 
                    ADVANCED INSULATION.

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

SEC. 126. RESTRUCTURING OF NEW YORK LIBERTY ZONE TAX CREDITS.

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

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

  ``(a) In General.--In the case of a New York Liberty Zone 
governmental unit, there shall be allowed as a credit against any taxes 
imposed for any payroll period by section 3402 for which such 
governmental unit is liable under section 3403 an amount equal to so 
much of the portion of the qualifying project expenditure amount 
allocated under subsection (b)(3) to such governmental unit for the 
calendar year as is allocated by such governmental unit to such period 
under subsection (b)(4).
  ``(b) Qualifying Project Expenditure Amount.--For purposes of this 
section--
          ``(1) In general.--The term `qualifying project expenditure 
        amount' means, with respect to any calendar year, the sum of--
                  ``(A) the total expenditures paid or incurred during 
                such calendar year by all New York Liberty Zone 
                governmental units and the Port Authority of New York 
                and New Jersey for any portion of qualifying projects 
                located wholly within the City of New York, New York, 
                and
                  ``(B) any such expenditures--
                          ``(i) paid or incurred in any preceding 
                        calendar year which begins after the date of 
                        enactment of this section, and
                          ``(ii) not previously allocated under 
                        paragraph (3).
          ``(2) Qualifying project.--The term `qualifying project' 
        means any transportation infrastructure project, including 
        highways, mass transit systems, railroads, airports, ports, and 
        waterways, in or connecting with the New York Liberty Zone (as 
        defined in section 1400K(h)), which is designated as a 
        qualifying project under this section jointly by the Governor 
        of the State of New York and the Mayor of the City of New York, 
        New York.
          ``(3) General allocation.--
                  ``(A) In general.--The Governor of the State of New 
                York and the Mayor of the City of New York, New York, 
                shall jointly allocate to each New York Liberty Zone 
                governmental unit the portion of the qualifying project 
                expenditure amount which may be taken into account by 
                such governmental unit under subsection (a) for any 
                calendar year in the credit period.
                  ``(B) Aggregate limit.--The aggregate amount which 
                may be allocated under subparagraph (A) for all 
                calendar years in the credit period shall not exceed 
                $2,000,000,000.
                  ``(C) Annual limit.--The aggregate amount which may 
                be allocated under subparagraph (A) for any calendar 
                year in the credit period shall not exceed the sum of--
                          ``(i) $115,000,000 ($425,000,000 in the case 
                        of the last 2 years in the credit period), plus
                          ``(ii) the aggregate amount authorized to be 
                        allocated under this paragraph for all 
                        preceding calendar years in the credit period 
                        which was not so allocated.
                  ``(D) Unallocated amounts at end of credit period.--
                If, as of the close of the credit period, the amount 
                under subparagraph (B) exceeds the aggregate amount 
                allocated under subparagraph (A) for all calendar years 
                in the credit period, the Governor of the State of New 
                York and the Mayor of the City of New York, New York, 
                may jointly allocate to New York Liberty Zone 
                governmental units for any calendar year in the 5-year 
                period following the credit period an amount equal to--
                          ``(i) the lesser of--
                                  ``(I) such excess, or
                                  ``(II) the qualifying project 
                                expenditure amount for such calendar 
                                year, reduced by
                          ``(ii) the aggregate amount allocated under 
                        this subparagraph for all preceding calendar 
                        years.
          ``(4) Allocation to payroll periods.--Each New York Liberty 
        Zone governmental unit which has been allocated a portion of 
        the qualifying project expenditure amount under paragraph (3) 
        for a calendar year may allocate such portion to payroll 
        periods beginning in such calendar year as such governmental 
        unit determines appropriate.
  ``(c) Carryover of Unused Allocations.--
          ``(1) In general.--Except as provided in paragraph (2), if 
        the amount allocated under subsection (b)(3) to a New York 
        Liberty Zone governmental unit for any calendar year exceeds 
        the aggregate taxes imposed by section 3402 for which such 
        governmental unit is liable under section 3403 for periods 
        beginning in such year, such excess shall be carried to the 
        succeeding calendar year and added to the allocation of such 
        governmental unit for such succeeding calendar year.
          ``(2) Reallocation.--If a New York Liberty Zone governmental 
        unit does not use an amount allocated to it under subsection 
        (b)(3) within the time prescribed by the Governor of the State 
        of New York and the Mayor of the City of New York, New York, 
        then such amount shall after such time be treated for purposes 
        of subsection (b)(3) in the same manner as if it had never been 
        allocated.
  ``(d) Definitions and Special Rules.--For purposes of this section--
          ``(1) Credit period.--The term `credit period' means the 12-
        year period beginning on January 1, 2009.
          ``(2) New york liberty zone governmental unit.--The term `New 
        York Liberty Zone governmental unit' means--
                  ``(A) the State of New York,
                  ``(B) the City of New York, New York, and
                  ``(C) any agency or instrumentality of such State or 
                City.
          ``(3) Treatment of funds.--Any expenditure for a qualifying 
        project taken into account for purposes of the credit under 
        this section shall be considered State and local funds for the 
        purpose of any Federal program.
          ``(4) Treatment of credit amounts for purposes of withholding 
        taxes.--For purposes of this title, a New York Liberty Zone 
        governmental unit shall be treated as having paid to the 
        Secretary, on the day on which wages are paid to employees, an 
        amount equal to the amount of the credit allowed to such entity 
        under subsection (a) with respect to such wages, but only if 
        such governmental unit deducts and withholds wages for such 
        payroll period under section 3401 (relating to wage 
        withholding).
  ``(e) Reporting.--The Governor of the State of New York and the Mayor 
of the City of New York, New York, shall jointly submit to the 
Secretary an annual report--
          ``(1) which certifies--
                  ``(A) the qualifying project expenditure amount for 
                the calendar year, and
                  ``(B) the amount allocated to each New York Liberty 
                Zone governmental unit under subsection (b)(3) for the 
                calendar year, and
          ``(2) includes such other information as the Secretary may 
        require to carry out this section.
  ``(f) Guidance.--The Secretary may prescribe such guidance as may be 
necessary or appropriate to ensure compliance with the purposes of this 
section.''.
  (b) Termination of Special Allowance and Expensing.--Subparagraph (A) 
of section 1400K(b)(2), as redesignated by subsection (a), is amended 
by striking the parenthetical therein and inserting ``(in the case of 
nonresidential real property and residential rental property, the date 
of the enactment of the Renewable Energy and Job Creation Act of 2008 
or, if acquired pursuant to a binding contract in effect on such 
enactment date, December 31, 2009)''.
  (c) Conforming Amendments.--
          (1) Section 38(c)(3)(B) is amended by striking ``section 
        1400L(a)'' and inserting ``section 1400K(a)''.
          (2) Section 168(k)(2)(D)(ii) is amended by striking ``section 
        1400L(c)(2)'' and inserting ``section 1400K(c)(2)''.
          (3) The table of sections for part I of subchapter Y of 
        chapter 1 is amended by redesignating the item relating to 
        section 1400L as an item relating to section 1400K and by 
        inserting after such item the following new item:

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

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

SEC. 127. TRANSPORTATION FRINGE BENEFIT TO BICYCLE COMMUTERS.

  (a) In General.--Paragraph (1) of section 132(f) is amended by adding 
at the end the following:
                  ``(D) Any qualified bicycle commuting 
                reimbursement.''.
  (b) Limitation on Exclusion.--Paragraph (2) of section 132(f) is 
amended by striking ``and'' at the end of subparagraph (A), by striking 
the period at the end of subparagraph (B) and inserting ``, and'', and 
by adding at the end the following new subparagraph:
                  ``(C) the applicable annual limitation in the case of 
                any qualified bicycle commuting reimbursement.''.
  (c) Definitions.--Paragraph (5) of section 132(f) is amended by 
adding at the end the following:
                  ``(F) Definitions related to bicycle commuting 
                reimbursement.--
                          ``(i) Qualified bicycle commuting 
                        reimbursement.--The term `qualified bicycle 
                        commuting reimbursement' means, with respect to 
                        any calendar year, any employer reimbursement 
                        during the 15-month period beginning with the 
                        first day of such calendar year for reasonable 
                        expenses incurred by the employee during such 
                        calendar year for the purchase of a bicycle and 
                        bicycle improvements, repair, and storage, if 
                        such bicycle is regularly used for travel 
                        between the employee's residence and place of 
                        employment.
                          ``(ii) Applicable annual limitation.--The 
                        term `applicable annual limitation' means, with 
                        respect to any employee for any calendar year, 
                        the product of $20 multiplied by the number of 
                        qualified bicycle commuting months during such 
                        year.
                          ``(iii) Qualified bicycle commuting month.--
                        The term `qualified bicycle commuting month' 
                        means, with respect to any employee, any month 
                        during which such employee--
                                  ``(I) regularly uses the bicycle for 
                                a substantial portion of the travel 
                                between the employee's residence and 
                                place of employment, and
                                  ``(II) does not receive any benefit 
                                described in subparagraph (A), (B), or 
                                (C) of paragraph (1).''.
  (d) Constructive Receipt of Benefit.--Paragraph (4) of section 132(f) 
is amended by inserting ``(other than a qualified bicycle commuting 
reimbursement)'' after ``qualified transportation fringe''.
  (e) Effective Date.--The amendments made by this section shall apply 
to taxable years beginning after December 31, 2008.

SEC. 128. ALTERNATIVE FUEL VEHICLE REFUELING PROPERTY CREDIT.

  (a) Increase in Credit Amount.--Section 30C is amended--
          (1) by striking ``30 percent'' in subsection (a) and 
        inserting ``50 percent'', and
          (2) by striking ``$30,000'' in subsection (b)(1) and 
        inserting ``$50,000''.
  (b) Extension of Credit.--Paragraph (2) of section 30C(g) is amended 
by striking ``December 31, 2009'' and inserting ``December 31, 2010''.
  (c) Effective Date.--The amendments made by this section shall apply 
to property placed in service after the date of the enactment of this 
Act, in taxable years ending after such date.

       Subtitle C--Energy Conservation and Efficiency Provisions

SEC. 141. QUALIFIED ENERGY CONSERVATION BONDS.

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

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

  ``(a) Qualified Energy Conservation Bond.--For purposes of this 
subchapter, the term `qualified energy conservation bond' means any 
bond issued as part of an issue if--
          ``(1) 100 percent of the available project proceeds of such 
        issue are to be used for one or more qualified conservation 
        purposes,
          ``(2) the bond is issued by a State or local government, and
          ``(3) the issuer designates such bond for purposes of this 
        section.
  ``(b) Reduced Credit Amount.--The annual credit determined under 
section 54A(b) with respect to any qualified energy conservation bond 
shall be 70 percent of the amount so determined without regard to this 
subsection.
  ``(c) Limitation on Amount of Bonds Designated.--The maximum 
aggregate face amount of bonds which may be designated under subsection 
(a) by any issuer shall not exceed the limitation amount allocated to 
such issuer under subsection (e).
  ``(d) National Limitation on Amount of Bonds Designated.--There is a 
national qualified energy conservation bond limitation of 
$3,000,000,000.
  ``(e) Allocations.--
          ``(1) In general.--The limitation applicable under subsection 
        (d) shall be allocated by the Secretary among the States in 
        proportion to the population of the States.
          ``(2) Allocations to largest local governments.--
                  ``(A) In general.--In the case of any State in which 
                there is a large local government, each such local 
                government shall be allocated a portion of such State's 
                allocation which bears the same ratio to the State's 
                allocation (determined without regard to this 
                subparagraph) as the population of such large local 
                government bears to the population of such State.
                  ``(B) Allocation of unused limitation to state.--The 
                amount allocated under this subsection to a large local 
                government may be reallocated by such local government 
                to the State in which such local government is located.
                  ``(C) Large local government.--For purposes of this 
                section, the term `large local government' means any 
                municipality or county if such municipality or county 
                has a population of 100,000 or more.
          ``(3) Allocation to issuers; restriction on private activity 
        bonds.--Any allocation under this subsection to a State or 
        large local government shall be allocated by such State or 
        large local government to issuers within the State in a manner 
        that results in not less than 70 percent of the allocation to 
        such State or large local government being used to designate 
        bonds which are not private activity bonds.
  ``(f) Qualified Conservation Purpose.--For purposes of this section--
          ``(1) In general.--The term `qualified conservation purpose' 
        means any of the following:
                  ``(A) Capital expenditures incurred for purposes of--
                          ``(i) reducing energy consumption in 
                        publicly-owned buildings by at least 20 
                        percent,
                          ``(ii) implementing green community programs,
                          ``(iii) rural development involving the 
                        production of electricity from renewable energy 
                        resources, or
                          ``(iv) any qualified facility (as determined 
                        under section 45(d) without regard to 
                        paragraphs (8) and (10) thereof and without 
                        regard to any placed in service date).
                  ``(B) Expenditures with respect to research 
                facilities, and research grants, to support research 
                in--
                          ``(i) development of cellulosic ethanol or 
                        other nonfossil fuels,
                          ``(ii) technologies for the capture and 
                        sequestration of carbon dioxide produced 
                        through the use of fossil fuels,
                          ``(iii) increasing the efficiency of existing 
                        technologies for producing nonfossil fuels,
                          ``(iv) automobile battery technologies and 
                        other technologies to reduce fossil fuel 
                        consumption in transportation, or
                          ``(v) technologies to reduce energy use in 
                        buildings.
                  ``(C) Mass commuting facilities and related 
                facilities that reduce the consumption of energy, 
                including expenditures to reduce pollution from 
                vehicles used for mass commuting.
                  ``(D) Demonstration projects designed to promote the 
                commercialization of--
                          ``(i) green building technology,
                          ``(ii) conversion of agricultural waste for 
                        use in the production of fuel or otherwise,
                          ``(iii) advanced battery manufacturing 
                        technologies,
                          ``(iv) technologies to reduce peak use of 
                        electricity, or
                          ``(v) technologies for the capture and 
                        sequestration of carbon dioxide emitted from 
                        combusting fossil fuels in order to produce 
                        electricity.
                  ``(E) Public education campaigns to promote energy 
                efficiency.
          ``(2) Special rules for private activity bonds.--For purposes 
        of this section, in the case of any private activity bond, the 
        term `qualified conservation purposes' shall not include any 
        expenditure which is not a capital expenditure.
  ``(g) Population.--
          ``(1) In general.--The population of any State or local 
        government shall be determined for purposes of this section as 
        provided in section 146(j) for the calendar year which includes 
        the date of the enactment of this section.
          ``(2) Special rule for counties.--In determining the 
        population of any county for purposes of this section, any 
        population of such county which is taken into account in 
        determining the population of any municipality which is a large 
        local government shall not be taken into account in determining 
        the population of such county.
  ``(h) Application to Indian Tribal Governments.--An Indian tribal 
government shall be treated for purposes of this section in the same 
manner as a large local government, except that--
          ``(1) an Indian tribal government shall be treated for 
        purposes of subsection (e) as located within a State to the 
        extent of so much of the population of such government as 
        resides within such State, and
          ``(2) any bond issued by an Indian tribal government shall be 
        treated as a qualified energy conservation bond only if issued 
        as part of an issue the available project proceeds of which are 
        used for purposes for which such Indian tribal government could 
        issue bonds to which section 103(a) applies.''.
  (b) Conforming Amendments.--
          (1) Paragraph (1) of section 54A(d), as added by section 106, 
        is amended to read as follows:
          ``(1) Qualified tax credit bond.--The term `qualified tax 
        credit bond' means--
                  ``(A) a new clean renewable energy bond, or
                  ``(B) a qualified energy conservation bond,
        which is part of an issue that meets requirements of paragraphs 
        (2), (3), (4), (5), and (6).''.
          (2) Subparagraph (C) of section 54A(d)(2), as added by 
        section 106, is amended to read as follows:
                  ``(C) Qualified purpose.--For purposes of this 
                paragraph, the term `qualified purpose' means--
                          ``(i) in the case of a new clean renewable 
                        energy bond, a purpose specified in section 
                        54B(a)(1), and
                          ``(ii) in the case of a qualified energy 
                        conservation bond, a purpose specified in 
                        section 54C(a)(1).''.
          (3) The table of sections for subpart I of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following new item:

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

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

SEC. 142. CREDIT FOR NONBUSINESS ENERGY PROPERTY.

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

SEC. 143. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

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

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

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

SEC. 145. ACCELERATED RECOVERY PERIOD FOR DEPRECIATION OF SMART METERS 
                    AND SMART GRID SYSTEMS.

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

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

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

          TITLE II--ONE-YEAR EXTENSION OF TEMPORARY PROVISIONS

         Subtitle A--Extensions Primarily Affecting Individuals

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SEC. 210. QUALIFIED INVESTMENT ENTITIES.

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

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

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

         Subtitle B--Extensions Primarily Affecting Businesses

SEC. 221. RESEARCH CREDIT.

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

SEC. 222. INDIAN EMPLOYMENT CREDIT.

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

SEC. 223. NEW MARKETS TAX CREDIT.

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

SEC. 224. RAILROAD TRACK MAINTENANCE.

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

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

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

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

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

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

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

SEC. 228. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

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

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

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

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

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

SEC. 231. QUALIFIED ZONE ACADEMY BONDS.

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

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

  ``(a) Qualified Zone Academy Bonds.--For purposes of this subchapter, 
the term `qualified zone academy bond' means any bond issued as part of 
an issue if--
          ``(1) 100 percent of the available project proceeds of such 
        issue are to be used for a qualified purpose with respect to a 
        qualified zone academy established by an eligible local 
        education agency,
          ``(2) the bond is issued by a State or local government 
        within the jurisdiction of which such academy is located, and
          ``(3) the issuer--
                  ``(A) designates such bond for purposes of this 
                section,
                  ``(B) certifies that it has written assurances that 
                the private business contribution requirement of 
                subsection (b) will be met with respect to such 
                academy, and
                  ``(C) certifies that it has the written approval of 
                the eligible local education agency for such bond 
                issuance.
  ``(b)  Private Business Contribution Requirement.--For purposes of 
subsection (a), the private business contribution requirement of this 
subsection is met with respect to any issue if the eligible local 
education agency that established the qualified zone academy has 
written commitments from private entities to make qualified 
contributions having a present value (as of the date of issuance of the 
issue) of not less than 10 percent of the proceeds of the issue.
  ``(c) Limitation on Amount of Bonds Designated.--
          ``(1) National limitation.--There is a national zone academy 
        bond limitation for each calendar year. Such limitation is 
        $400,000,000 for 2008, and, except as provided in paragraph 
        (4), zero thereafter.
          ``(2) Allocation of limitation.--The national zone academy 
        bond limitation for a calendar year shall be allocated by the 
        Secretary among the States on the basis of their respective 
        populations of individuals below the poverty line (as defined 
        by the Office of Management and Budget). The limitation amount 
        allocated to a State under the preceding sentence shall be 
        allocated by the State education agency to qualified zone 
        academies within such State.
          ``(3) Designation subject to limitation amount.--The maximum 
        aggregate face amount of bonds issued during any calendar year 
        which may be designated under subsection (a) with respect to 
        any qualified zone academy shall not exceed the limitation 
        amount allocated to such academy under paragraph (2) for such 
        calendar year.
          ``(4) Carryover of unused limitation.--
                  ``(A) In general.--If for any calendar year--
                          ``(i) the limitation amount for any State, 
                        exceeds
                          ``(ii) the amount of bonds issued during such 
                        year which are designated under subsection (a) 
                        with respect to qualified zone academies within 
                        such State,
                the limitation amount for such State for the following 
                calendar year shall be increased by the amount of such 
                excess.
                  ``(B) Limitation on carryover.--Any carryforward of a 
                limitation amount may be carried only to the first 2 
                years following the unused limitation year. For 
                purposes of the preceding sentence, a limitation amount 
                shall be treated as used on a first-in first-out basis.
                  ``(C) Coordination with section 1397e.--Any carryover 
                determined under section 1397E(e)(4) (relating to 
                carryover of unused limitation) with respect to any 
                State to calendar year 2008 shall be treated for 
                purposes of this section as a carryover with respect to 
                such State for such calendar year under subparagraph 
                (A), and the limitation of subparagraph (B) shall apply 
                to such carryover taking into account the calendar 
                years to which such carryover relates.
  ``(d) Definitions.--For purposes of this section--
          ``(1) Qualified zone academy.--The term `qualified zone 
        academy' means any public school (or academic program within a 
        public school) which is established by and operated under the 
        supervision of an eligible local education agency to provide 
        education or training below the postsecondary level if--
                  ``(A) such public school or program (as the case may 
                be) is designed in cooperation with business to enhance 
                the academic curriculum, increase graduation and 
                employment rates, and better prepare students for the 
                rigors of college and the increasingly complex 
                workforce,
                  ``(B) students in such public school or program (as 
                the case may be) will be subject to the same academic 
                standards and assessments as other students educated by 
                the eligible local education agency,
                  ``(C) the comprehensive education plan of such public 
                school or program is approved by the eligible local 
                education agency, and
                  ``(D)(i) such public school is located in an 
                empowerment zone or enterprise community (including any 
                such zone or community designated after the date of the 
                enactment of this section), or
                  ``(ii) there is a reasonable expectation (as of the 
                date of issuance of the bonds) that at least 35 percent 
                of the students attending such school or participating 
                in such program (as the case may be) will be eligible 
                for free or reduced-cost lunches under the school lunch 
                program established under the National School Lunch 
                Act.
          ``(2) Eligible local education agency.-- For purposes of this 
        section, the term `eligible local education agency' means any 
        local educational agency as defined in section 9101 of the 
        Elementary and Secondary Education Act of 1965.
          ``(3) Qualified purpose.--The term `qualified purpose' means, 
        with respect to any qualified zone academy--
                  ``(A) rehabilitating or repairing the public school 
                facility in which the academy is established,
                  ``(B) providing equipment for use at such academy,
                  ``(C) developing course materials for education to be 
                provided at such academy, and
                  ``(D) training teachers and other school personnel in 
                such academy.
          ``(4) Qualified contributions.--The term `qualified 
        contribution' means any contribution (of a type and quality 
        acceptable to the eligible local education agency) of--
                  ``(A) equipment for use in the qualified zone academy 
                (including state-of-the-art technology and vocational 
                equipment),
                  ``(B) technical assistance in developing curriculum 
                or in training teachers in order to promote appropriate 
                market driven technology in the classroom,
                  ``(C) services of employees as volunteer mentors,
                  ``(D) internships, field trips, or other educational 
                opportunities outside the academy for students, or
                  ``(E) any other property or service specified by the 
                eligible local education agency.''.
  (b) Conforming Amendments.--
          (1) Paragraph (1) of section 54A(d), as amended by sections 
        106 and 141, is amended by striking ``or'' at the end of 
        subparagraph (A), by inserting ``or'' at the end of 
        subparagraph (B), and by inserting after subparagraph (B) the 
        following new subparagraph:
                  ``(C) a qualified zone academy bond,''.
          (2) Subparagraph (C) of section 54A(d)(2), as amended by 
        sections 106 and 141, is amended by striking ``and'' at the end 
        of clause (i), by striking the period at the end of clause (ii) 
        and inserting ``, and'', and by adding at the end the following 
        new clause:
                          ``(iii) in the case of a qualified zone 
                        academy bond, a purpose specified in section 
                        54D(a)(1).''.
          (3) Section 1397E is amended by adding at the end the 
        following new subsection:
  ``(m) Termination.--This section shall not apply to any obligation 
issued after the date of the enactment of this Act.''.
          (4) The table of sections for subpart I of part IV of 
        subchapter A of chapter 1 is amended by adding at the end the 
        following new item:

``Sec. 54D. Qualified zone academy bonds.''.

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

SEC. 232. TAX INCENTIVES FOR INVESTMENT IN THE DISTRICT OF COLUMBIA.

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

SEC. 233. ECONOMIC DEVELOPMENT CREDIT FOR AMERICAN SAMOA.

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

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

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

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

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

SEC. 236. ENHANCED DEDUCTION FOR QUALIFIED COMPUTER CONTRIBUTIONS.

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

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

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

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

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

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

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

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

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

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

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

                      Subtitle C--Other Extensions

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

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

SEC. 252. AUTHORITY FOR UNDERCOVER OPERATIONS MADE PERMANENT.

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

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

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

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

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

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

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

                    TITLE III--ADDITIONAL TAX RELIEF

                   Subtitle A--Individual Tax Relief

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

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

SEC. 302. REFUNDABLE CHILD CREDIT.

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

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

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

                Subtitle B--Business Related Provisions

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

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

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

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

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

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

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

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

SEC. 331. CERTAIN GO ZONE INCENTIVES.

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

                      TITLE IV--REVENUE PROVISIONS

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

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

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

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

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

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

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

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

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

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

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

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

                 B. Background and Need for Legislation

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

                         C. Legislative History


Background

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

Committee action

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

                     TITLE I--ENERGY TAX INCENTIVES


            A. Clean Renewable Energy Production Incentives


1. Extension and modification of the credit for the production of 
        electricity from renewable resources (Secs. 101 and 102 of the 
        bill and sec. 45 of the Code)

                              PRESENT LAW

In general

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

Credit amounts and credit period

            In general
    The base amount of the electricity production credit is 1.5 
cents per kilowatt-hour (indexed annually for inflation) of 
electricity produced. The amount of the credit was 2 cents per 
kilowatt-hour for 2007.\2\ A taxpayer may generally claim a 
credit during the 10-year period commencing with the date the 
qualified facility is placed in service. The credit is reduced 
for grants, tax-exempt bonds, subsidized energy financing, and 
other credits.
---------------------------------------------------------------------------
    \2\The Internal Revenue Service (``IRS'') is expected to announce 
the 2008 inflation adjustment factor in the spring of 2008.
---------------------------------------------------------------------------
            Credit phaseout
    The amount of credit a taxpayer may claim is phased out as 
the market price of electricity exceeds certain threshold 
levels. The electricity production credit is reduced over a 3 
cent phaseout range to the extent the annual average contract 
price per kilowatt-hour of electricity sold in the prior year 
from the same qualified energy resource exceeds 8 cents 
(adjusted for inflation; 10.7 cents for 2007).
            Reduced credit periods and credit amounts
    Generally, in the case of open-loop biomass facilities 
(including agricultural livestock waste nutrient facilities), 
geothermal energy facilities, solar energy facilities, small 
irrigation power facilities, landfill gas facilities, and trash 
combustion facilities placed in service before August 8, 2005, 
the 10-year credit period is reduced to five years commencing 
on the date the facility was originally placed in service. 
However, for qualified open-loop biomass facilities (other than 
a facility described in sec. 45(d)(3)(A)(i) that uses 
agricultural livestock waste nutrients) placed in service 
before October 22, 2004, the five-year period commences on 
January 1, 2005. In the case of a closed-loop biomass facility 
modified to co-fire with coal, to co-fire with other biomass, 
or to co-fire with coal and other biomass, the credit period 
begins no earlier than October 22, 2004.
    In the case of open-loop biomass facilities (including 
agricultural livestock waste nutrient facilities), small 
irrigation power facilities, landfill gas facilities, trash 
combustion facilities, and qualified hydropower facilities the 
otherwise allowable credit amount is 0.75 cent per kilowatt-
hour, indexed for inflation measured after 1992 (1 cent per 
kilowatt-hour for 2007).
            Other limitations on credit claimants and credit amounts
    In general, in order to claim the credit, a taxpayer must 
own the qualified facility and sell the electricity produced by 
the facility to an unrelated party. A lessee or operator may 
claim the credit in lieu of the owner of the qualifying 
facility in the case of qualifying open-loop biomass facilities 
and in the case of closed-loop biomass facilities modified to 
co-fire with coal, to co-fire with other biomass, or to co-fire 
with coal and other biomass. In the case of a poultry waste 
facility, the taxpayer may claim the credit as a lessee or 
operator of a facility owned by a governmental unit.
    For all qualifying facilities, other than closed-loop 
biomass facilities modified to co-fire with coal, to co-fire 
with other biomass, or to co-fire with coal and other biomass, 
the amount of credit a taxpayer may claim is reduced by reason 
of grants, tax-exempt bonds, subsidized energy financing, and 
other credits, but the reduction cannot exceed 50 percent of 
the otherwise allowable credit. In the case of closed-loop 
biomass facilities modified to co-fire with coal, to co-fire 
with other biomass, or to co-fire with coal and other biomass, 
there is no reduction in credit by reason of grants, tax-exempt 
bonds, subsidized energy financing, and other credits.
    The credit for electricity produced from renewable sources 
is a component of the general business credit.\3\ Generally, 
the general business credit for any taxable year may not exceed 
the amount by which the taxpayer's net income tax exceeds the 
greater of the tentative minimum tax or so much of the net 
regular tax liability as exceeds $25,000. Excess credits may be 
carried back one year and forward up to 20 years.
---------------------------------------------------------------------------
    \3\Sec. 38(b)(8).
---------------------------------------------------------------------------
    A taxpayer's tentative minimum tax is treated as being zero 
for purposes of determining the tax liability limitation with 
respect to the section 45 credit for electricity produced from 
afacility (placed in service after October 22, 2004) during the 
first four years of production beginning on the date the facility is 
placed in service.

Qualified facilities

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

Summary of credit rate and credit period by facility type

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

Taxation of cooperatives and their patrons

    For Federal income tax purposes, a cooperative generally 
computes its income as if it were a taxable corporation, with 
one exception: the cooperative may exclude from its taxable 
income distributions of patronage dividends. Generally, a 
cooperative that is subject to the cooperative tax rules of 
subchapter T of the Code\4\ is permitted a deduction for 
patronage dividends paid only to the extent of net income that 
is derived from transactions with patrons who are members of 
the cooperative.\5\ The availability of such deductions from 
taxable income has the effect of allowing the cooperative to be 
treated like a conduit with respect to profits derived from 
transactions with patrons who are members of the cooperative.
---------------------------------------------------------------------------
    \4\Secs. 1381-1383.
    \5\Sec. 1382.
---------------------------------------------------------------------------
    Eligible cooperatives may elect to pass any portion of the 
credit through to their patrons. An eligible cooperative is 
defined as a cooperative organization that is owned more than 
50 percent by agricultural producers or entities owned by 
agricultural producers. The credit may be apportioned among 
patrons eligible to share in patronage dividends on the basis 
of the quantity or value of business done with or for such 
patrons for the taxable year. The election must be made on a 
timely filed return for the taxable year and, once made, is 
irrevocable for such taxable year.

                           REASONS FOR CHANGE

    The Committee believes that additional incentives for the 
production of electricity from renewable resources will help 
limit the environmental consequences of continued reliance on 
power generated using fossil fuels. The Committee also believes 
that it is important to modify the existing incentives to make 
them operate more effectively and to take advantage of new 
renewable energy technologies. Finally, the Committee believes 
that the phase-out limitation under present law has not worked 
effectively to limit the availability of the electricity 
production credit where increased efficiencies and improved 
technologies have reduced the need for continued tax subsidies. 
The Committee believes that a limitation based on the amount of 
investment in each particular renewable energy project would 
better serve this goal.

                        EXPLANATION OF PROVISION

    The provision extends and modifies the electricity 
production credit.

Extension of placed-in-service date for qualifying facilities

    The provision extends for three years (through 2011) the 
period during which qualified facilities producing electricity 
from closed-loop biomass, open-loop biomass, geothermal energy, 
small irrigation power, municipal solid waste, and qualified 
hydropower may be placed in service for purposes of the 
electricity production credit. The provision extends for one 
year (through 2009) the placed-in-service period for qualified 
wind facilities.

Addition of marine and hydrokinetic renewable energy as a qualified 
        resource

    The provision adds marine and hydrokinetic renewable energy 
as a qualified energy resource and marine and hydrokinetic 
renewable energy facilities as qualified facilities. Marine and 
hydrokinetic renewable energy is defined as energy derived from 
(1) waves, tides, and currents in oceans, estuaries, and tidal 
areas; (2) free flowing water in rivers, lakes, and streams; 
(3) free flowing water in an irrigation system, canal, or other 
man-made channel, including projects that utilize nonmechanical 
structures to accelerate the flow of water for electric power 
production purposes; or (4) differentials in ocean temperature 
(ocean thermal energy conversion). The term does not include 
energy derived from any source that uses a dam, diversionary 
structure (except for irrigation systems, canals, and other 
man-made channels), or impoundment for electric power 
production. A qualified marine and hydrokinetic renewable 
energy facility is any facility owned by the taxpayer and 
placed in service after the date ofenactment and before 2012 
that produces electric power from marine and hydrokinetic renewable 
energy and that has a nameplate capacity rating of at least 150 
kilowatts.
    Under the provision, marine and hydrokinetic renewable 
energy facilities subsume small irrigation power facilities. 
The provision, therefore, terminates as a separate category of 
qualified facility small irrigation power facilities placed in 
service on or after the date of enactment. Such facilities 
qualify for the electricity production credit as marine and 
hydrokinetic renewable energy facilities.

Phaseout replaced by limitation based on investment in facility

    The provision replaces the electricity production credit 
phaseout with an annual limit on the total credits that may be 
claimed with respect to any qualified facility placed in 
service after 2009 based on the investment in the facility. 
Under the limitation, the electricity production credit 
determined for any taxable year may not exceed the eligible 
basis of the facility multiplied by a limitation percentage 
(the ``applicable percentage'') determined by the Secretary for 
the month during which the facility is originally placed in 
service. The applicable percentage for any month is the 
percentage that yields over a 10-year period amounts of 
limitation that have a present value equal to 35 percent of the 
eligible basis of the facility. The discount rate for purposes 
of this calculation is the greater of 4.5 percent or 110 
percent of the long-term Federal rate.
    Generally, the eligible basis of a facility is the basis of 
such facility at the time it is originally placed in service. 
However, certain special rules apply. Since each wind turbine 
generally qualifies as a separate facility under section 45, 
the basis of shared qualified property at a wind project 
composed of multiple separate wind facilities may be allocated 
in proportion to the projected generation from such facilities. 
For this purpose, shared qualified property is property that is 
eligible for five-year depreciation under section 
168(e)(3)(B)(vi) but which is not part of a qualified facility. 
In the case of a qualified geothermal facility, the eligible 
basis for purposes of the limitation includes intangible 
drilling and development costs described in section 263(c).
    At the election of the taxpayer, all qualified facilities 
which are part of the same project and which are placed in 
service during the same calendar year may be treated for as a 
single facility placed in service at either the mid-point of 
such year or the first day of the following calendar year.
    Special rules apply for the first and last year of a 
facility's 10-year credit period to allocate the limitation 
across a taxpayer's taxable years. In addition, if a facility's 
production is less than the limitation amount for any taxable 
year, the limitation with respect to such facility for the next 
taxable year is increased by the amount of the unused 
limitation. Similarly, if the electricity production credit 
exceeds the limitation amount for any taxable year, but falls 
under the limit the following year, the credit for the 
following taxable year is increased, up to that year's 
limitation amount, by the amount of such excess, but not beyond 
the facility's 10-year credit eligibility period.

Clarification of the definition of trash combustion facility

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

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

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

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

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

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

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

                             EFFECTIVE DATE

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

2. Extension and modification of energy credit (Sec. 103 of the bill 
        and sec. 48 of the Code)

                              PRESENT LAW

In general

    A nonrefundable, 10-percent business energy credit\6\ is 
allowed for the cost of new property that is equipment that 
either (1) uses solar energy to generate electricity, to heat 
or cool a structure, or to provide solar process heat, or (2) 
is used to produce, distribute, or use energy derived from a 
geothermal deposit, but only, in the case of electricity 
generated by geothermal power, up to the electric transmission 
stage. Property used to generate energy for the purposes of 
heating a swimming pool is not eligible solar energy property.
---------------------------------------------------------------------------
    \6\Sec. 48.
---------------------------------------------------------------------------
    The energy credit is a component of the general business 
credit\7\ and as such is subject to the alternative minimum 
tax. An unused general business credit generally may be carried 
back one year and carried forward 20 years.\8\ The taxpayer's 
basis in the property is reduced by one-half of the amount of 
the credit claimed. For projects whose construction time is 
expected to equal or exceed two years, the credit may be 
claimed as progress expenditures are made on the project, 
rather than during the year the property is placed in service. 
Similarly, the credit only applies to expenditures made after 
the effective date of the provision.
---------------------------------------------------------------------------
    \7\Sec. 38(b)(1).
    \8\Sec. 39.
---------------------------------------------------------------------------
    In general, property that is public utility property is not 
eligible for the credit. Public utility property is property 
that is used predominantly in the trade or business of the 
furnishing or sale of (1) electrical energy, water, or sewage 
disposal services, (2) gas through a local distribution system, 
or (3) telephone service, domestic telegraph services, or other 
communication services (other than international telegraph 
services), if the rates for such furnishing or sale have been 
established or approved by a State or political subdivision 
thereof, by an agency or instrumentality of the United States, 
or by a public service or public utility commission. This rule 
is waived in the case of telecommunication companies' purchases 
of fuel cell and microturbine property.

Special rules for solar energy property

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

Fuel cells and microturbines

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

                           REASONS FOR CHANGE

    The Committee believes that alternative sources of energy 
are necessary to meet growing energy needs, reduce reliance on 
imports, and reduce green-house gas emissions. Toward that end, 
the Committee believes a long-term extension of the business 
credit for solar and fuel cell property is warranted to ensure 
the continued development of alternative energy resources. The 
Committee further believes that provision of the credit for 
combined heat and power property will help to stimulate more 
efficient use of fossil fuels used to generate electrical or 
mechanical power.
    The Committee believes that all sectors of the economy 
should be encouraged to invest in alternative energy 
technologies, and therefore removes the rule that prohibits 
public utilities from claiming the energy credit and also 
allows the credit against the alternative minimum tax for all 
taxpayers. The Committee also believes that increasing the cap 
on the fuel cell credit is necessary to promote further 
development of fuel cell technology.

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is generally effective on the date of 
enactment.
    The provision relating to combined heat and power property 
applies to periods after the date of enactment, in taxable 
years ending after such date, under rules similar to the rules 
of section 48(m) of the Code (as in effect on the day before 
the enactment of the Revenue Reconciliation Act of 1990).
    The provision relating to the restrictions on public 
utility property applies to periods after February 13, 2008, in 
taxable years ending after such date, under rules similar to 
the rules of section 48(m) of the Code (as in effect on the day 
before the enactment of the Revenue Reconciliation Act of 
1990).
    The allowance of the credit against the alternative minimum 
tax is effective for credits determined in taxable years 
beginning after the date of enactment.

3. Credit for residential energy efficient property (Sec. 104 of the 
        bill and sec. 25D of the Code)

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

4. Extension and modification of special rule to implement FERC and 
        State electric restructuring policy (Sec. 105 of the bill and 
        sec. 451(i) of the Code)

                              PRESENT LAW

    Generally, a taxpayer selling property recognizes gain to 
the extent the sales price (and any other consideration 
received) exceeds the seller's basis in the property. The 
recognized gain is subject to current income tax unless the 
gain is deferred or not recognized under a special tax 
provision.
    One such special tax provision permits taxpayers to elect 
to recognize gain from qualifying electric transmission 
transactions ratably over an eight-year period beginning in the 
year of sale if the amount realized from such sale is used to 
purchase exempt utility property within the applicable 
period\9\ (the ``reinvestment property''). If the amount 
realized exceeds the amount used to purchase reinvestment 
property, any realized gain is recognized to the extent of such 
excess in the year of the qualifying electric transmission 
transaction.
---------------------------------------------------------------------------
    \9\The applicable period for a taxpayer to reinvest the proceeds is 
four years after the close of the taxable year in which the qualifying 
electric transmission transaction occurs.
---------------------------------------------------------------------------
    A qualifying electric transmission transaction is the sale 
or other disposition of property used by the taxpayer in the 
trade or business of providing electric transmission services, 
or an ownership interest in such an entity, to an independent 
transmission company prior to January 1, 2008. In general, an 
independent transmission company is defined as: (1) an 
independent transmission provider\10\ approved by the FERC; (2) 
a person (i) who the FERC determines under section 203 of the 
Federal Power Act (or by declaratory order) is not a ``market 
participant'' and (ii) whose transmission facilities are placed 
under the operational control of a FERC-approved independent 
transmission provider before the close of the period specified 
in such authorization, but not later than December 31, 2007; or 
(3) in the case of facilities subject to the jurisdiction of 
the Public Utility Commission of Texas, (i) a person which is 
approved by that Commission as consistent with Texas State law 
regarding an independent transmission organization, or (ii) a 
political subdivision, or affiliate thereof, whose transmission 
facilities are under the operational control of an organization 
described in (i).
---------------------------------------------------------------------------
    \10\For example, a regional transmission organization, an 
independent system operator, or an independent transmission company.
---------------------------------------------------------------------------
    Exempt utility property is defined as: (1) property used in 
the trade or business of generating, transmitting, 
distributing, or selling electricity or producing, 
transmitting, distributing, or selling natural gas, or (2) 
stock in a controlled corporation whose principal trade or 
business consists of the activities described in (1).
    If a taxpayer is a member of an affiliated group of 
corporations filing a consolidated return, the reinvestment 
property may be purchased by any member of the affiliated group 
(in lieu of the taxpayer).

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

    The provision extends the treatment under the present-law 
deferral provision to sales or dispositions by a qualified 
electric utility prior to January 1, 2010. A qualified electric 
utility is defined as an electric utility, which as of the date 
of the qualifying electric transmission transaction, is 
vertically integrated in that it is both (1) a transmitting 
utility (as defined in the Federal Power Act)\11\ with respect 
to the transmission facilities to which the election applies, 
and (2) an electric utility (as defined in the Federal Power 
Act).\12\
---------------------------------------------------------------------------
    \11\Sec. 3(23), 16 U.S.C. 796, defines ``transmitting utility'' as 
any electric utility, qualifying cogeneration facility, qualifying 
small power production facility, or Federal power marketing agency 
which owns or operates electric power transmission facilities which are 
used for the sale of electric energy at wholesale.
    \12\Sec. 3(22), 16 U.S.C. 796, defines ``electric utility'' as any 
person or State agency (including any municipality) which sells 
electric energy; such term includes the Tennessee Valley Authority, but 
does not include any Federal power marketing agency.
---------------------------------------------------------------------------
    The definition of an independent transmission company is 
modified for taxpayers whose transmission facilities are placed 
under the operational control of a FERC-approved independent 
transmission provider, which under the provision must take 
place no later than four years after the close of the taxable 
year in which the transaction occurs.
    The provision also changes the definition of exempt utility 
property to exclude property that is located outside the United 
States.

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

Tax-exempt bonds

    Subject to certain Code restrictions, interest paid on 
bonds issued by State and local government generally is 
excluded from gross income for Federal income tax purposes. 
Bonds issued by State and local governments may be classified 
as either governmental bonds or private activity bonds. 
Governmental bonds are bonds the proceeds of which are 
primarily used to finance governmental functions or which are 
repaid with governmental funds. Private activity bonds are 
bonds in which the State or local government serves as a 
conduit providing financing to nongovernmental persons. For 
this purpose, the term ``nongovernmental person'' generally 
includes the Federal Government and all other individuals and 
entities other than States or local governments. The exclusion 
from income for interest on State and local bonds does not 
apply to private activity bonds, unless the bonds are issued 
for certain permitted purposes (``qualified private activity 
bonds'') and other Code requirements are met.
    In most cases, the aggregate volume of tax-exempt qualified 
private activity bonds is restricted by annual aggregate volume 
limits imposed on bonds issued by issuers within each State. 
For calendar year 2008, the State volume limit, which is 
indexed for inflation, equals $85 per resident of the State, or 
$262.09 million, if greater.
    The exclusion from income for interest on State and local 
bonds also does not apply to any arbitrage bond.\13\ An 
arbitrage bond is defined as any bond that is part of an issue 
if any proceeds of the issue are reasonably expected to be used 
(or intentionally are used) to acquire higher yielding 
investments or to replace funds that are used to acquire higher 
yielding investments.\14\ In general, arbitrage profits may be 
earned only during specified periods (e.g., defined ``temporary 
periods'') before funds are needed for the purpose of the 
borrowing or on specified types of investments (e.g., 
``reasonably required reserve or replacement funds''). Subject 
to limited exceptions, investment profits that are earned 
during these periods or on such investments must be rebated to 
the Federal Government.
---------------------------------------------------------------------------
    \13\Sec. 103(a) and (b)(2).
    \14\Sec. 148.
---------------------------------------------------------------------------
    An issuer must file with the IRS certain information about 
the bonds issued by them in order for that bond issue to be 
tax-exempt.\15\ Generally, this information return is required 
to be filed no later the 15th day of the second month after the 
close of the calendar quarter in which the bonds were issued.
---------------------------------------------------------------------------
    \15\Sec. 149(e).
---------------------------------------------------------------------------

Clean renewable energy bonds

    As an alternative to traditional tax-exempt bonds, States 
and local governments may issue clean renewable energy bonds 
(``CREBs''). CREBs are defined as any bond issued by a 
qualified issuer if, in addition to the requirements discussed 
below, 95 percent or more of the proceeds of such bonds are 
used to finance capital expenditures incurred by qualified 
borrowers for qualified projects. ``Qualified projects'' are 
facilities that qualify for the tax credit under section 45 
(other than Indian coal production facilities), without regard 
to the placed-in-service date requirements of that section.\16\ 
The term ``qualified issuers'' includes (1) governmental bodies 
(including Indian tribal governments); (2) mutual or 
cooperative electric companies (described in section 501(c)(12) 
or section 1381(a)(2)(C), or a not-for-profit electric utility 
which has received a loan or guarantee under the Rural 
Electrification Act); and (3) clean renewable energy bond 
lenders. The term ``qualified borrower'' includes a 
governmental body (including an Indian tribal government) and a 
mutual or cooperative electric company. A clean renewable 
energy bond lender means a cooperative which is owned by, or 
has outstanding loans to, 100 or more cooperative electric 
companies and is in existence on February 1, 2002.
---------------------------------------------------------------------------
    \16\In addition, Notice 2006-7 provides that qualified projects 
include any facility owned by a qualified borrower that is functionally 
related and subordinate to any facility described in sections 45(d)(1) 
through (d)(9) and owned by such qualified borrower.
---------------------------------------------------------------------------
    Unlike tax-exempt bonds, CREBs are not interest-bearing 
obligations. Rather, the taxpayer holding CREBs on a credit 
allowance date is entitled to a tax credit. The amount of the 
credit is determined by multiplying the bond's credit rate by 
the face amount on the holder's bond. The credit rate on the 
bonds is determined by the Secretary and is to be a rate that 
permits issuance of CREBs without discount and interest cost to 
the qualified issuer. The credit accrues quarterly and is 
includible in gross income (as if it were an interest payment 
on the bond), and can be claimed against regular income tax 
liability and alternative minimum tax liability.
    CREBs are subject to a maximum maturity limitation. The 
maximum maturity is the term which the Secretary estimates will 
result in the present value of the obligation to repay the 
principal on a CREBs being equal to 50 percent of the face 
amount of such bond. The discount rate used to determine the 
present value amount is the average annual interest rate of 
tax-exempt obligations having a term of 10 years or more which 
are issued during the month the CREBs are issued. In addition, 
the Code requires level amortization of CREBs during the period 
such bonds are outstanding.
    CREBs also are subject to the arbitrage requirements of 
section 148 that apply to traditional tax-exempt bonds. 
Principles under section 148 and the regulations thereunder 
apply for purposes of determining the yield restriction and 
arbitrage rebate requirements applicable to CREBs.
    In addition to the above requirements, at least 95 percent 
of the proceeds of CREBs must be spent on qualified projects 
within the five-year period that begins on the date of 
issuance. To the extent less than 95 percent of the proceeds 
are used to finance qualified projects during the five-year 
spending period, bonds will continue to qualify as CREBs if 
unspent proceeds are used within 90 days from the end of such 
five-year period to redeem bonds. The five-year spending period 
may be extended by the Secretary upon the qualified issuer's 
request demonstrating that the failure to satisfy the five-year 
requirement is due to reasonable cause and the projects will 
continue to proceed with due diligence.
    Issuers of CREBs are required to report issuance to the IRS 
in a manner similar to the information returns required for 
tax-exempt bonds. There is a national CREB limitation of $1.2 
billion. The maximum amount of CREBs that may be allocated to 
qualified projects of governmental bodies is $750 million. 
CREBs must be issued before January 1, 2009.

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

    The provision creates a new category of clean renewable 
energy bonds (``New CREBs'') that may be issued by qualified 
issuers to finance qualified renewable energy facilities. 
Qualified renewable energy facilities are facilities: (1) that 
qualify for the tax credit under section 45 (other than Indian 
coal and refined coal production facilities), without regard to 
the placed-in-service date requirements of that section; and 
(2) that are owned by a public power provider, governmental 
bodies, or cooperative electric company.
    The term ``qualified issuers'' includes: (1) public power 
providers; (2) a governmental body; (3) cooperative electric 
companies; (4) a not-for-profit electric utility that has 
received a loan or guarantee under the Rural Electrification 
Act; and (5) clean renewable energy bond lenders. The term 
``public power provider'' means a State utility with a service 
obligation, as such terms are defined in section 217 of the 
Federal Power Act (as in effect on the date of the enactment of 
this paragraph). A ``governmental body'' means any State or 
Indian tribal government, or any political subdivision thereof. 
The term ``cooperative electric company'' means a mutual or 
cooperative electric company (described in section 501(c)(12) 
or section 1381(a)(2)(C)). A clean renewable energy bond lender 
means a cooperative that is owned by, or has outstanding loans 
to, 100 or more cooperative electric companies and is in 
existence on February 1, 2002.
    There is a national limitation for New CREBs of $2 billion. 
Under the provision, no more than one-third of the national 
limit may be allocated to projects of public power providers, 
governmental bodies, or cooperative electric companies. 
Allocations to governmental bodies and cooperative electric 
companies may be made in the manner the Secretary determines 
appropriate. Allocations to projects of public power providers 
shall be made, to the extent practicable, in such manner that 
the amount allocated to each such project bears the same ratio 
to the cost of such project as the maximum allocation 
limitation to projects of public power providers bears to the 
cost of all such projects.
    Under the provision, 100 percent of the available project 
proceeds of New CREBs must be used within the three-year period 
that begins on the date of issuance. The provision defines 
available project proceeds as proceeds from the sale of the 
bond issue less issuance costs (not to exceed two percent) and 
any investment earnings on such sale proceeds. To the extent 
less than 100 percent of the available project proceeds are 
used to finance qualified projects during the three-year 
spending period, bonds will continue to qualify as New CREBs if 
unspent proceeds are used within 90 days from the end of such 
three-year period to redeem bonds. The three-year spending 
period may be extended by the Secretary upon the qualified 
issuer's request demonstrating that the failure to satisfy the 
three-year requirement is due to reasonable cause and the 
projects will continue to proceed with due diligence.
    New CREBs generally are subject to the arbitrage 
requirements of section 148. However, available project 
proceeds invested during the three-year spending period are not 
subject to the arbitrage restrictions (i.e., yield restriction 
and rebate requirements). In addition, amounts invested in a 
reserve fund are not subject to the arbitrage restrictions to 
the extent: (1) such fund is funded at a rate not more rapid 
than equal annual installments; (2) such fund is funded in a 
manner reasonably expected to result in an amount not greater 
than an amount necessary to repay the issue; and (3) the yield 
on such fund is not greater than the average annual interest 
rate of tax-exempt obligations having a term of 10 years or 
more that are issued during the month the New CREBs are issued.
    The maturity of New CREBs is the term that the Secretary 
estimates will result in the present value of the obligation to 
repay the principal on such bonds being equal to 50 percent of 
the face amount of such bonds, using as a discount rate the 
average annual interest rate of tax-exempt obligations having a 
term of 10 years or more which are issued during the month the 
qualified energy conservation bonds are issued.
    As with present-law CREBs, the taxpayer holding New CREBs 
on a credit allowance date is entitled to a tax credit. Unlike 
present-law CREBs, however, the credit rate on New CREBs is set 
by the Secretary at a rate that is 70 percent of the rate that 
would permit issuance of such bonds without discount and 
interest cost to the issuer. The amount of the tax credit is 
determined by multiplying the bond's credit rate by the face 
amount on the holder's bond. The credit accrues quarterly, is 
includible in gross income (as if it were an interest payment 
on the bond), and can be claimed against regular income tax 
liability and alternative minimum tax liability. Unused credits 
may be carried forward to succeeding taxable years. In 
addition, credits may be separated from the ownership of the 
underlying bond similar to how interest coupons can be stripped 
for interest-bearing bonds.
    Issuers of New CREBs are required to certify that the 
financial disclosure requirements that apply to State and local 
bonds offered for sale to the general public are satisfied with 
respect to any Federal, State, or local government official 
directly involved with the issuance of New CREBs. The provision 
authorizes the Secretary to impose additional financial 
reporting requirements by regulation.

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

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

                              PRESENT LAW

In general

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

Claims under the Code

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

10. Carbon audit of provisions of the Internal Revenue Code of 1986 
        (Sec. 115 of the bill)

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

    The provision directs the Secretary to request that the 
National Academy of Sciences undertake a comprehensive review 
of the Code to identify the types of and specific tax 
provisions that have the largest effects on carbon and other 
greenhouse gas emissions and to generally estimate the 
magnitude of those effects.\32\The report should identify the 
provisions of the Code that are most likely to have significant 
effects on carbon emissions and discuss the importance of 
controlling carbon and greenhouse gas emissions as part of a 
comprehensive national strategy for reducing U.S. contributions 
to global climate change.\33\The report will describe the 
processes by which the tax provisions affect emissions (both 
directly and indirectly), assess the relative influence of the 
identified provisions, and evaluate the potential for changes 
in the Code to reduce carbon emissions. The report also will 
identify other provisions of the Code that may have significant 
influence on other factors affecting climate change.
---------------------------------------------------------------------------
    \32\A detailed quantitative analysis is not required. It is 
envisioned that the review will catalogue and provide a general 
analysis of the effect of each identified provision.
    \33\``Greenhouse gas emissions'' include, but are not limited to, 
methane, nitrous oxide, ozone, and fluorinated hydrocarbons.
---------------------------------------------------------------------------
    The Secretary is to submit to Congress a report containing 
the results of the National Academy of Sciences review within 
two years of the date of enactment. The provision authorizes 
the appropriation of $1,500,000 to carry out the review.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

        B. Transportation and Domestic Fuel Security Provisions


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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

2. Credits for biodiesel and renewable diesel (Sec. 122 of the bill and 
        secs. 40A, 6426, and 6427 of the Code)

                              PRESENT LAW

Income tax credit

            Overview
    The Code provides an income tax credit for biodiesel fuels 
(the ``biodiesel fuels credit'').\34\ The biodiesel fuels 
credit is the sum of three credits: (1) the biodiesel mixture 
credit, (2) the biodiesel credit, and (3) the small agri-
biodiesel producer credit. The biodiesel fuels credit is 
treated as a general business credit. The amount of the 
biodiesel fuels credit is includable in gross income. The 
biodiesel fuels credit is coordinated to take into account 
benefits from the biodiesel excise tax credit and payment 
provisions discussed below. The credit does not apply to fuel 
sold or used after December 31, 2008.
---------------------------------------------------------------------------
    \34\Sec. 40A.
---------------------------------------------------------------------------
    Biodiesel is monoalkyl esters of long chain fatty acids 
derived from plant or animal matter that meet (1) the 
registration requirements established by the Environmental 
Protection Agency under section 211 of the Clean Air Act and 
(2) the requirements of the American Society of Testing and 
Materials (``ASTM'') D6751. Agri-biodiesel is biodiesel derived 
solely from virgin oils including oils from corn, soybeans, 
sunflower seeds, cottonseeds, canola, crambe, rapeseeds, 
safflowers, flaxseeds, rice bran, mustard seeds, or animal 
fats.
    Biodiesel may be taken into account for purposes of the 
credit only if the taxpayer obtains a certification (in such 
form and manner as prescribed by the Secretary) from the 
producer or importer of the biodiesel that identifies the 
product produced and the percentage of biodiesel and agri-
biodiesel in the product.
            Biodiesel mixture credit
    The biodiesel mixture credit is 50 cents for each gallon of 
biodiesel (other than agri-biodiesel) used by the taxpayer in 
the production of a qualified biodiesel mixture. For agri-
biodiesel, the credit is $1.00 per gallon. A qualified 
biodiesel mixture is a mixture of biodiesel and diesel fuel 
that is (1) sold by the taxpayer producing such mixture to any 
person for use as a fuel, or (2) is used as a fuel by the 
taxpayer producing such mixture. The sale or use must be in the 
trade or business of the taxpayer and is to be taken into 
account for the taxable year in which such sale or use occurs. 
No credit is allowed with respect to any casual off-farm 
production of a qualified biodiesel mixture.
            Biodiesel credit
    The biodiesel credit is 50 cents for each gallon of 
biodiesel that is not in a mixture with diesel fuel (100 
percent biodiesel or B-100) and which during the taxable year 
is (1) used by the taxpayer as a fuel in a trade or business or 
(2) sold by the taxpayer at retail to a person and placed in 
the fuel tank of such person's vehicle. For agri-biodiesel, the 
credit is $1.00 per gallon.
            Small agri-biodiesel producer credit
    The Code provides a small agri-biodiesel producer income 
tax credit, in addition to the biodiesel and biodiesel fuel 
mixture credits. The credit is a 10-cents-per-gallon credit for 
up to 15 million gallons of agri-biodiesel produced by small 
producers, defined generally as persons whose agri-biodiesel 
production capacity does not exceed 60 million gallons per 
year. The agri-biodiesel must (1) be sold by such producer to 
another person (a) for use by such other person in the 
production of a qualified biodiesel mixture in such person's 
trade or business (other than casual off-farm production), (b) 
for use by such other person as a fuel in a trade or business, 
or, (c) who sells such agri-biodiesel at retail to another 
person and places such agri-biodiesel in the fuel tank of such 
other person; or (2) used by the producer for any purpose 
described in (a), (b), or (c).

Biodiesel mixture excise tax credit

    The Code also provides an excise tax credit for biodiesel 
mixtures.\35\ The credit is 50 cents for each gallon of 
biodiesel used by the taxpayer in producing a biodiesel mixture 
for sale or use in a trade or business of the taxpayer. In the 
case of agri-biodiesel, the credit is $1.00 per gallon. A 
biodiesel mixture is a mixture of biodiesel and diesel fuel 
that (1) is sold by the taxpayer producing such mixture to any 
person for use as a fuel, or (2) is used as a fuel by the 
taxpayer producing such mixture. No credit is allowed unless 
the taxpayer obtains a certification (in such form and manner 
as prescribed by the Secretary) from the producer of the 
biodiesel that identifies the product produced and the 
percentage of biodiesel and agri-biodiesel in the product.\36\
---------------------------------------------------------------------------
    \35\Sec. 6426(c).
    \36\Sec. 6426(c)(4).
---------------------------------------------------------------------------
    The credit is not available for any sale or use for any 
period after December 31, 2008. This excise tax credit is 
coordinated with the income tax credit for biodiesel such that 
credit for the same biodiesel cannot be claimed for both income 
and excise tax purposes.

Payments with respect to biodiesel fuel mixtures

    If any person produces a biodiesel fuel mixture in such 
person's trade or business, the Secretary is to pay such person 
an amount equal to the biodiesel mixture credit.\37\ To the 
extent the biodiesel fuel mixture credit exceeds the section 
4081 liability of a person, the Secretary is to pay such person 
an amount equal to the biodiesel fuel mixture credit with 
respect to such mixture.\38\ Thus, if the person has no section 
4081 liability, the credit is refundable. The Secretary is not 
required to make payments with respect to biodiesel fuel 
mixtures sold or used after December 31, 2008.
---------------------------------------------------------------------------
    \37\Sec. 6427(e).
    \38\Sec. 6427(e)(1) and (e)(3).
---------------------------------------------------------------------------

Renewable diesel

    ``Renewable diesel'' is diesel fuel that (1) is derived 
from biomass (as defined in section 45K(c)(3)) using a thermal 
depolymerization process; (2) meets the registration 
requirements for fuels and fuel additives established by the 
Environmental Protection Agency (``EPA'') under section 211 of 
the Clean Air Act (42 U.S.C. sec. 7545); and (3) meets the 
requirements of the ASTM D975 or D396. ASTM D975 provides 
standards for diesel fuel suitable for use in diesel engines. 
ASTM D396 provides standards for fuel oil intended for use in 
fuel-oil burning equipment, such as furnaces.
    For purposes of the Code, renewable diesel is generally 
treated the same as biodiesel. Like biodiesel, the incentive 
may be taken as an income tax credit, an excise tax credit, or 
as a payment from the Secretary.\39\ The incentive for 
renewable diesel is $1.00 per gallon. There is no small 
producer credit for renewable diesel. The incentives for 
renewable diesel expire after December 31, 2008.
---------------------------------------------------------------------------
    \39\Secs. 40A(f), 6426(c), and 6427(e).
---------------------------------------------------------------------------
    Pursuant to IRS Notice 2007-37, the Secretary provided that 
fuel produced as a result of co-processing biomass and 
petroleum feedstock (``co-produced fuel'') qualifies for the 
renewable diesel incentives to the extent of the fuel 
attributable to the biomass in the mixture. In co-produced 
fuel, the fuel attributable to the biomass does not exist as a 
distinct separate quantity prior to mixing.

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to extend the 
biodiesel and renewable diesel incentives for an additional 
year to further encourage the development and use of these 
fuels. With respect to renewable diesel, the Committee believes 
that the incentive should be technology neutral, and therefore, 
the Committee deletes the requirement that the fuel be made 
through a thermal depolymerization process. While the Committee 
is unaware of an appropriate standard in addition to ASTM D975 
and ASTM D396 for renewable diesel, the Committee recognizes 
that as technology evolves other appropriate standards may 
arise for such fuel and therefore, the provision permits the 
Secretary to identify other equivalent or improved standards 
for renewable diesel.

                        EXPLANATION OF PROVISION

    The provision extends an additional year (through December 
31, 2009) the income tax credit, excise tax credit, and payment 
provisions for biodiesel (including agri-biodiesel) and 
renewable diesel. The provision provides that both biodiesel 
and agri-biodiesel are entitled to a credit of $1.00 per 
gallon.
    The provision modifies the definition of renewable diesel. 
The provision eliminates the requirement that the fuel be made 
using a thermal depolymerization process. The provision also 
permits the Secretary to identify standards equivalent to ASTM 
D975 and ASTM D396 for renewable diesel. Thus, under the 
provision, renewable diesel is liquid fuel derived from biomass 
which meets (a) the registration requirements for fuels and 
fuel additives established by the EPA under section 211 of the 
Clean Air Act, and (b) the requirements of the ASTM D975, ASTM 
D396, or other equivalent standard approved by the Secretary. 
The provision also provides that renewable diesel includes 
biomass fuel that meets a Department of Defense military 
specification for jet fuel or an ASTM for aviation turbine 
fuel.
    The provision also overrides IRS Notice 2007-37 with 
respect to co-produced fuel, providing that renewable diesel 
does not include any fuel derived from co-processing biomass 
with a feedstock that is not biomass. The de minimis use of 
catalysts, such as hydrogen, is permitted under the provision.

                             EFFECTIVE DATE

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

3. Clarification that credits for fuel are designed to provide an 
        incentive for United States production (Sec. 123 of the bill 
        and secs. 40, 40A, 6426 and 6427 of the Code)

                              PRESENT LAW

    The Code provides per-gallon incentives relating to the 
following qualified fuels: alcohol (including ethanol), 
biodiesel (including agri-biodiesel), renewable diesel, and 
certain alternative fuels.\40\ The incentives may be taken as 
an income tax credit, excise tax credit or payment. The 
provisions are coordinated so that a gallon of qualified fuel 
is only taken into account once. If the qualified fuel is part 
of a qualified fuel mixture, the incentives apply only to the 
amount of qualified fuel in the mixture.
---------------------------------------------------------------------------
    \40\See secs. 40, 40A, 6426, and 6427(e).
---------------------------------------------------------------------------
    For alcohol, other than ethanol, the amount of the credit 
is 60 cents per gallon. For ethanol, the credit is generally 51 
cents per gallon, an extra 10 cents per gallon available for 
small ethanol producers. The alcohol incentives expire after 
December 31, 2010. The amount of the credit for biodiesel is 50 
cents. For agri-biodiesel and renewable diesel, the credit 
amount is $1.00 per gallon. An extra 10 cents per gallon is 
available for small producers of agri-biodiesel. The biodiesel, 
agri-biodiesel and renewable diesel incentives expire after 
December 31, 2008. The credit amount for alternative fuels is 
50 cents per gallon. The incentives for alternative fuels 
expire after September 30, 2009 (after September 30, 2014, in 
the case of liquefied hydrogen).
    The Code is silent as to the geographic limitations on 
where the fuel must be produced, used, or sold. For imported 
ethanol, there is an offsetting tariff of 54 cents per gallon. 
This tariff expires January 1, 2009.

                           REASONS FOR CHANGE

    Alternative fuels are a significant component of 
establishing the nation's independence from foreign oil. The 
fuel incentives were not intended to subsidize fuels with no 
nexus to the United States. The Committee is aware of 
situations in which foreign-produced fuel is imported into the 
United States, mixed with a small amount of diesel fuel, in 
order to qualify for the credit for qualified biodiesel fuel 
mixtures, and then the fuel is exported. This practice does not 
contribute to establishing the country's fuel independence, 
therefore, the provision denies the fuel credits and payments 
to such fuel.

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

4. Alternative motor vehicle credit and plug-in electric vehicle credit 
        (Sec. 124 of the bill and sec. 30B and new sec. 30D of the 
        Code)

                              PRESENT LAW

In general

    A credit is available for each new qualified fuel cell 
vehicle, hybrid vehicle, advanced lean burn technology vehicle, 
and alternative fuel vehicle placed in service by the taxpayer 
during the taxable year.\41\ In general, the credit amount 
varies depending upon the type of technology used, the weight 
class of the vehicle, the amount by which the vehicle exceeds 
certain fuel economy standards, and, for some vehicles, the 
estimated lifetime fuel savings. The credit generally is 
available for vehicles purchased after 2005. The credit 
terminates after 2009, 2010, or 2014, depending on the type of 
vehicle.
---------------------------------------------------------------------------
    \41\Sec. 30B.
---------------------------------------------------------------------------
    In general, the credit is allowed to the vehicle owner, 
including the lessor of a vehicle subject to a lease. If the 
use of the vehicle is described in paragraphs (3) or (4) of 
section 50(b) (relating to use by tax-exempt organizations, 
governments, and foreign persons) and is not subject to a 
lease, the seller of the vehicle may claim the credit so long 
as the seller clearly discloses to the user in a document the 
amount that is allowable as a credit. A vehicle must be used 
predominantly in the United States to qualify for the credit.

Fuel cell vehicles

    A qualified fuel cell vehicle is a motor vehicle that is 
propelled by power derived from one or more cells that convert 
chemical energy directly into electricity by combining oxygen 
with hydrogen fuel that is stored on board the vehicle and may 
or may not require reformation prior to use. A qualified fuel 
cell vehicle must be purchased before January 1, 2015. The 
amount of credit for the purchase of a fuel cell vehicle is 
determined by a base credit amount that depends upon the weight 
class of the vehicle and, in the case of automobiles or light 
trucks, an additional credit amount that depends upon the rated 
fuel economy of the vehicle compared to a base fuel economy. 
For these purposes the base fuel economy is the 2002 model year 
city fuel economy rating for vehicles of various weight 
classes.\42\ Table 2, below, shows the base credit amounts.
---------------------------------------------------------------------------
    \42\See discussion surrounding Table 7, below.

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

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

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

Hybrid vehicles and advanced lean burn technology vehicles

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

Hybrid vehicles that are automobiles and light trucks

    In the case of an automobile or light truck (vehicles 
weighing 8,500 pounds or less), the amount of credit for the 
purchase of a hybrid vehicle is the sum of two components: (1) 
a fuel economy credit amount that varies with the rated fuel 
economy of the vehicle compared to a 2002 model year standard 
and (2) a conservation credit based on the estimated lifetime 
fuel savings of the qualified vehicle compared to a comparable 
2002 model year vehicle that is powered solely by a gasoline or 
diesel internal combustion engine. A qualified hybrid 
automobile or light truck must have a maximum available 
power\43\ from the rechargeable energy storage system of at 
least four percent. In addition, the vehicle must meet or 
exceed certain Environmental Protection Agency (``EPA'') 
emissions standards. For a vehicle with a gross vehicle weight 
rating of 6,000 pounds or less the applicable emissions 
standards are the Bin 5 Tier II emissions standards. For a 
vehicle with a gross vehicle weight rating greater than 6,000 
pounds and less than or equal to 8,500 pounds, the applicable 
emissions standards are the Bin 8 Tier II emissions standards.
---------------------------------------------------------------------------
    \43\For hybrid passenger vehicles and light trucks, the term 
``maximum available power'' means the maximum power available from the 
rechargeable energy storage system, during a standard 10 second pulse 
power or equivalent test, divided by such maximum power and the SAE net 
power of the heat engine. Sec. 30B(d)(3)(C)(i).
---------------------------------------------------------------------------
    Table 4, below, shows the fuel economy credit available to 
a hybrid passenger automobile or light truck whose fuel economy 
(on a gasoline gallon equivalent basis) exceeds that of a base 
fuel economy.

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

    Table 5, below, shows the conservation credit.

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

            Advanced lean burn technology vehicles
    The amount of credit for the purchase of an advanced lean 
burn technology vehicle is the sum of two components: (1) a 
fuel economy credit amount that varies with the rated fuel 
economy of the vehicle compared to a 2002 model year standard 
as described in Table 4, above, and (2) a conservation credit 
based on the estimated lifetime fuel savings of a qualified 
vehicle compared to a comparable 2002 model year vehicle as 
described in Table 5, above. The amounts of the credits are 
determined after an adjustment is made to account for the 
different BTU content of gasoline and the fuel utilized by the 
lean burn technology vehicle.
    A qualified advanced lean burn technology vehicle is a 
passenger automobile or a light truck that incorporates direct 
injection, achieves at least 125 percent of the 2002 model year 
city fuel economy, and for 2004 and later model vehicles meets 
or exceeds certain Environmental Protection Agency emissions 
standards. For a vehicle with a gross vehicle weight rating of 
6,000 pounds or less the applicable emissions standards are the 
Bin 5 Tier II emissions standards. For a vehicle with a gross 
vehicle weight rating greater than 6,000 pounds and less than 
or equal to 8,500 pounds, the applicable emissions standards 
are the Bin 8 Tier 11 emissions standards. A qualified advanced 
lean burn technology vehicle must be placed in service before 
January 1, 2011. Limitation on number of qualified hybrid and 
advanced lean burn technology vehicles eligible for the credit.
    There is a limitation on the number of qualified hybrid 
vehicles and advanced lean burn technology vehicles sold by 
each manufacturer of such vehicles that are eligible for the 
credit. Taxpayers may claim the full amount of the allowable 
credit up to the end of the first calendar quarter after the 
quarter in which the manufacturer records the 60,000th hybrid 
and advanced lean burn technology vehicle sale occurring after 
December 31, 2005. Taxpayers may claim one half of the 
otherwise allowable credit during the two calendar quarters 
subsequent to the first quarter after the manufacturer has 
recorded its 60,000th such sale. In the third and fourth 
calendar quarters subsequent to the first quarter after the 
manufacturer has recorded its 60,000th such sale, the taxpayer 
may claim one quarter of the otherwise allowable credit.
    Thus, for example, summing the sales of qualified hybrid 
vehicles of all weight classes and all sales of qualified 
advanced lean burn technology vehicles, if a manufacturer 
records the sale of its 60,000th qualified vehicle in February 
of 2007, taxpayers purchasing such vehicles from the 
manufacturer may claim the full amount of the credit on their 
purchases of qualified vehicles through June 30, 2007. For the 
period July 1, 2007, through December 31, 2007, taxpayers may 
claim one half of the otherwise allowable credit on purchases 
of qualified vehicles of the manufacturer. For the period 
January 1, 2008, through June 30, 2008, taxpayers may claim one 
quarter of the otherwise allowable credit on the purchases of 
qualified vehicles of the manufacturer. After June 30, 2008, no 
credit may be claimed for purchases of hybrid vehicles or 
advanced lean burn technology vehicles sold by the 
manufacturer.
            Hybrid vehicles that are medium and heavy trucks
    In the case of a qualified hybrid vehicle weighing more 
than 8,500 pounds, the amount of credit is determined by the 
estimated increase in fuel economy and the incremental cost of 
the hybrid vehicle compared to a comparable vehicle powered 
solely by a gasoline or diesel internal combustion engine and 
that is comparable in weight, size, and use of the vehicle. For 
a vehicle that achieves a fuel economy increase of at least 30 
percent but less than 40 percent, the credit is equal to 20 
percent of the incremental cost of the hybrid vehicle. For a 
vehicle that achieves a fuel economy increase of at least 40 
percent but less than 50 percent, the credit is equal to 30 
percent of the incremental cost of the hybrid vehicle. For a 
vehicle that achieves a fuel economy increase of 50 percent or 
more, the credit is equal to 40 percent of the incremental cost 
of the hybrid vehicle.
    The credit is subject to certain maximum applicable 
incremental cost amounts. For a qualified hybrid vehicle 
weighing more than 8,500 pounds but not more than 14,000 
pounds, the maximum allowable incremental cost amount is 
$7,500. For a qualified hybrid vehicle weighing more than 
14,000 pounds but not more than 26,000 pounds, the maximum 
allowable incremental cost amount is $15,000. For a qualified 
hybrid vehicle weighing more than 26,000 pounds, the maximum 
allowable incremental cost amount is $30,000.
    A qualified hybrid vehicle weighing more than 8,500 pounds 
but not more than 14,000 pounds must have a maximum available 
power from the rechargeable energy storage system of at least 
10 percent. A qualified hybrid vehicle weighing more than 
14,000 pounds must have a maximum available power from the 
rechargeable energy storage system of at least 15 percent.\44\
---------------------------------------------------------------------------
    \44\In the case of such heavy-duty hybrid motor vehicles, the 
percentage of maximum available power is computed by dividing the 
maximum power available from the rechargeable energy storage system 
during a standard 10-second pulse power test, divided by the vehicle's 
total traction power. A vehicle's total traction power is the sum of 
the peak power from the rechargeable energy storage system and the heat 
(e.g., internal combustion or diesel) engine's peak power. If the 
rechargeable energy storage system is the sole means by which the 
vehicle can be driven, then the total traction power is the peak power 
of the rechargeable energy storage system.
---------------------------------------------------------------------------

Alternative fuel vehicle

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

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

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

Base fuel economy

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

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

Other rules

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

Treatment of alternative motor vehicle credit as a personal credit

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

Plus-in electric drive motor vehicle credit

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

                             EFFECTIVE DATE

    The plug-in electric drive motor vehicle credit provision 
is effective for taxable years beginning after December 31, 
2008. The provision treating the nonbusiness portion of the 
alternative motor vehicle credit as a personal credit is 
effective for taxable years beginning after December 31, 2007.

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

6. Restructure New York Liberty Zone tax incentives (Sec. 126 of the 
        bill and secs. 1400K and 1400L of the Code)

                              PRESENT LAW

In general

    Present law includes a number of incentives to invest in 
property located in the New York Liberty Zone (``NYLZ''), which 
is the area located on or south of Canal Street, East Broadway 
(east of its intersection with Canal Street), or Grand Street 
(east of its intersection with East Broadway) in the Borough of 
Manhattan in the City of New York, New York. These incentives 
were enacted following the terrorist attack in New York City on 
September 11, 2001.\46\
---------------------------------------------------------------------------
    \46\In addition to the NYLZ provisions described above, other NYLZ 
incentives are provided: (1) $8 billion of tax-exempt private activity 
bond financing for certain nonresidential real property, residential 
rental property and public utility property is authorized to be issued 
after March 9, 2002, and before January 1, 2010; and (2) $9 billion of 
additional tax-exempt advance refunding bonds is available after March 
9, 2002, and before January 1, 2006, with respect to certain State or 
local bonds outstanding on September 11, 2001.
---------------------------------------------------------------------------

Special depreciation allowance for qualified New York Liberty Zone 
        property

    Section 1400L(b) allows an additional first-year 
depreciation deduction equal to 30 percent of the adjusted 
basis of qualified NYLZ property.\47\ In order to qualify, 
property generally must be placed in service on or before 
December 31, 2006 (December 31, 2009 in the case of 
nonresidential real property and residential rental property).
---------------------------------------------------------------------------
    \47\The amount of the additional first-year depreciation deduction 
is not affected by a short taxable year.
---------------------------------------------------------------------------
    The additional first-year depreciation deduction is allowed 
for both regular tax and alternative minimum tax purposes for 
the taxable year in which the property is placed in service. A 
taxpayer is allowed to elect out of the additional first-year 
depreciation for any class of property for any taxable year.
    In order for property to qualify for the additional first-
year depreciation deduction, it must meet all of the following 
requirements. First, the property must be property to which the 
general rules of the Modified Accelerated Cost Recovery System 
(``MACRS'')\48\ apply with (1) an applicable recovery period of 
20 years or less, (2) water utility property (as defined in 
section 168(e)(5)), (3) certain nonresidential real property 
and residential rental property, or (4) computer software other 
than computer software covered by section 197. A special rule 
precludes the additional first-year depreciation under this 
provision for (1) qualified NYLZ leasehold improvement 
property\49\ and (2) property eligible for the additional 
first-year depreciation deduction under section 168(k) (i.e., 
property is eligible for only one 30 percent additional first-
year depreciation). Second, substantially all of the use of 
such property must be in the NYLZ. Third, the original use of 
the property in the NYLZ must commence with the taxpayer on or 
after September 11, 2001. Finally, the property must be 
acquired by purchase\50\ by the taxpayer after September 10, 
2001 and placed in service on or before December 31, 2006. For 
qualifying nonresidential real property and residential rental 
property the property must be placed in service on or before 
December 31, 2009 in lieu of December 31, 2006. Property will 
not qualify if a binding written contract for the acquisition 
of such property was in effect before September 11, 2001.\51\
---------------------------------------------------------------------------
    \48\A special rule precludes the additional first-year depreciation 
deduction for property that is required to be depreciated under the 
alternative depreciation system of MACRS.
    \49\Qualified NYLZ leasehold improvement property is defined in 
another provision. Leasehold improvements that do no satisfy the 
requirements to be treated as ``qualified NYLZ leasehold improvement 
property'' may be eligible for the 30 percent additional first-year 
depreciation deduction (assuming all other conditions are met).
    \50\For purposes of this provision, purchase is defined as under 
section 179(d).
    \51\Property is not precluded from qualifying for the additional 
first-year depreciation merely because a binding written contract to 
acquire a component of the property is in effect prior to September 11, 
2001.
---------------------------------------------------------------------------
    Nonresidential real property and residential rental 
property are eligible for the additional first-year 
depreciation only to the extent such property rehabilitates 
real property damaged, or replaces real property destroyed or 
condemned as a result of the terrorist attacks of September 11, 
2001.
    Property that is manufactured, constructed, or produced by 
the taxpayer for use by the taxpayer qualifies for the 
additional first-year depreciation deduction if the taxpayer 
begins the manufacture, construction, or production of the 
property after September 10, 2001, and the property is placed 
in service on or before December 31, 2006\52\ (and all other 
requirements are met). Property that is manufactured, 
constructed, or produced for the taxpayer by another person 
under a contract that is entered into prior to the manufacture, 
construction, or production of the property is considered to be 
manufactured, constructed, or produced by the taxpayer.
---------------------------------------------------------------------------
    \52\December 31, 2009 with respect to qualified nonresidential real 
property and residential rental property.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes it is appropriate to restructure 
certain of the tax benefits that were provided to stimulate the 
redevelopment of the portions of the City of New York that were 
directly affected by the terrorist attacks of September 11, 
2001. The restructuring will assist in the development of 
transit connections necessary for the ongoing redevelopment of 
the New York Liberty Zone area.

                        EXPLANATION OF PROVISION

Repeal of certain NYLZ incentives

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

Creation of New York Liberty Zone Tax Credits

    The provision provides a credit against tax imposed for any 
payroll period by section 3402 (related to withholding for 
wages paid) for which a New York Liberty Zone governmental unit 
is liable under section 3403. The credit is equal to such 
portion of the qualifying project expenditure amounts allocated 
to the governmental unit for the calendar year that such 
governmental unit allocates to such period. The amount of the 
credit allowed for any payroll period shall be treated as a 
payment to the Secretary on the day on which the wages were 
paid to the employee, but only to the extent the governmental 
unit actually deducted and withheld such wages for the 
applicable period. A New York Liberty Zone governmental unit is 
the State of New York, the City of New York, or any agency or 
instrumentality of such State or city.
    Qualifying project expenditure amount means, with respect 
to any calendar year, the sum of (1) the total expenditures 
paid or incurred during such calendar year by all New York 
Liberty Zone governmental units and the Port Authority of New 
York and New Jersey for any portion of qualifying projects 
located wholly within the City of New York, and (2) any such 
expenditures paid or incurred in any preceding calendar year 
beginning after the date of enactment of this provision and not 
previously allocated.
    A qualifying project is any transportation infrastructure 
project, including highways, mass transit systems, railroads, 
airports, ports, and waterways, in or connecting with the New 
York Liberty Zone, which is designated as a qualifying project 
by the Governor of the State of New York and the Mayor of the 
City of New York.
    The Governor of the State of New York and the Mayor of the 
City of New York are to jointly allocate to each New York 
Liberty Zone governmental unit the portion of the qualifying 
expenditure amount that may be taken into account by such 
governmental unit to determine the credit for any calendar year 
in the credit period. The credit period is the 12-year period 
beginning on January 1, 2009. Aggregate amounts allocated may 
not exceed $2 billion during the credit period. There is also 
an annual limit on allocations equal to (1) $115 million for 
each year in the first ten years of the credit period, plus (2) 
any amounts in (1) that were authorized to be allocated for 
prior calendar years in the credit period but not so allocated. 
The annual limit for each of the last two years of the credit 
period is $425 million, plus any amounts that were authorized 
to be allocated for prior calendar years in the credit period 
but not so allocated.
    If amounts allocated to a New York Liberty Zone 
governmental unit exceed the aggregate taxes for which such 
unit is liable under section 3403, the excess may be carried to 
the succeeding calendar year and added to the allocation for 
that calendar year. If a New York Liberty Zone governmental 
unit does not use an amount allocated to it within the time 
prescribed by the Governor of the State of New York and the 
Mayor of the City of New York, such amounts will be treated as 
if never allocated, and thus they may be reallocated by the 
Governor and Mayor.
    Under the provision, any expenditure for a qualifying 
project taken into account for purposes of the credit shall be 
considered State and local funds for the purpose of any Federal 
program.
    The Governor of the State of New York and the Mayor of the 
City of New York must jointly submit to the Secretary an annual 
report that certifies the qualifying project expenditure 
amounts for the calendar year, the amount allocated to each New 
York Liberty Zone governmental unit, and any other such 
information as the Secretary may require.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

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

                              PRESENT LAW

    Qualified transportation fringe benefits provided by an 
employer are excluded from an employee's gross income.\54\ 
Qualified transportation fringe benefits include parking, 
transit passes, and vanpool benefits. In addition, no amount is 
includible in income of an employee merely because the employer 
offers the employee a choice between cash and qualified 
transportation fringe benefits. Up to $220 (for 2008) per month 
of employer-provided parking is excludable from income. Up to 
$115 (for 2008) per month of employer-provided transit and 
vanpool benefits are excludable from gross income. These 
amounts are indexed annually for inflation, rounded to the 
nearest multiple of $5.
---------------------------------------------------------------------------
    \54\Code sec. 132Z(f).
---------------------------------------------------------------------------
    Under present law, qualified transportation fringe benefits 
include a cash reimbursement by an employer to an employee. 
However, in the case of transit passes, a cash reimbursement is 
considered a qualified transportation fringe benefit only if a 
voucher or similar item which may be exchanged only for a 
transit pass is not readily available for direct distribution 
by the employer to the employee.

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2008.

8. Extension and modification of alternative fuel vehicle refueling 
        property credit (Sec. 128 of the bill and sec. 30C of the Code)

                              PRESENT LAW

    Taxpayers may claim a 30-percent credit for the cost of 
installing qualified clean-fuel vehicle refueling property to 
be used in a trade or business of the taxpayer or installed at 
the principal residence of the taxpayer.\55\ The credit may not 
exceed $30,000 per taxable year, per location, in the case of 
qualified refueling property used in a trade or business and 
$1,000 per taxable year per location in the case of qualified 
refueling property installed on property which is used as a 
principal residence.
---------------------------------------------------------------------------
    \55\Sec. 30C.
---------------------------------------------------------------------------
    Qualified refueling property is property (not including a 
building or its structural components) for the storage or 
dispensing of a clean-burning fuel into the fuel tank of a 
motor vehicle propelled by such fuel, but only if the storage 
or dispensing of the fuel is at the point where such fuel is 
delivered into the fuel tank of the motor vehicle. The use of 
such property must begin with the taxpayer.
    Clean-burning fuels are any fuel at least 85 percent of the 
volume of which consists of ethanol, natural gas, compressed 
natural gas, liquefied natural gas, liquefied petroleum gas, or 
hydrogen. In addition, any mixture of biodiesel and diesel 
fuel, determined without regard to any use of kerosene and 
containing at least 20 percent biodiesel, qualifies as a clean 
fuel.
    Credits for qualified refueling property used in a trade or 
business are part of the general business credit and may be 
carried back for one year and forward for 20 years. Credits for 
residential qualified refueling property cannot exceed for any 
taxable year the difference between the taxpayer's regular tax 
(reduced by certain other credits) and the taxpayer's tentative 
minimum tax. Generally, in the case of qualified refueling 
property sold to a tax-exempt entity, the taxpayer selling the 
property may claim the credit.
    A taxpayer's basis in qualified refueling property is 
reduced by the amount of the credit. In addition, no credit is 
available for property used outside the United States or for 
which an election to expense has been made under section 179.
    The credit is available for property placed in service 
after December 31, 2005, and (except in the case of hydrogen 
refueling property) before January 1, 2010. In the case of 
hydrogen refueling property, the property must be placed in 
service before January 1, 2015.

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

            C. Energy Conservation and Efficiency Provisions


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

                              PRESENT LAW

Tax-exempt bonds

            In general
    Subject to certain Code restrictions, interest paid on 
bonds issued by State and local government generally is 
excluded from gross income for Federal income tax purposes. 
Bonds issued by State and local governments may be classified 
as either governmental bonds or private activity bonds. 
Governmental bonds are bonds the proceeds of which are 
primarily used to finance governmental functions or which are 
repaid with governmental funds. Private activity bonds are 
bonds in which the State or local government serves as a 
conduit providing financing to nongovernmental persons. For 
this purpose, the term ``nongovernmental person'' generally 
includes the Federal Government and all other individuals and 
entities other than States or local governments. The exclusion 
from income for interest on State and local bonds does not 
apply to private activity bonds, unless the bonds are issued 
for certain permitted purposes (``qualified private activity 
bonds'') and other Code requirements are met.
            Private activity bond tests
    Present law provides two tests for determining whether a 
State or local bond is in substance a private activity bond, 
the private business test and the private loan test.\56\
---------------------------------------------------------------------------
    \56\Sec. 141(b) and (c).
---------------------------------------------------------------------------
            Private business tests
    Private business use and private payments result in State 
and local bonds being private activity bonds if both parts of 
the two-part private business test are satisfied--
           More than 10 percent of the bond proceeds is 
        to be used (directly or indirectly) by a private 
        business (the ``private business use test''); and
           More than 10 percent of the debt service on 
        the bonds is secured by an interest in property to be 
        used in a private business use or to be derived from 
        payments in respect of such property (the ``private 
        payment test'').\57\
---------------------------------------------------------------------------
    \57\The 10-percent private business use and payment threshold is 
reduced to five percent for private business uses that are unrelated to 
a governmental purpose also being financed with proceeds of the bond 
issue. In addition, as described more fully below, the 10-percent 
private business use and private payment thresholds are phased-down for 
larger bond issues for the financing of certain ``output'' facilities. 
The term output facility includes electric generation, transmission, 
and distribution facilities.
---------------------------------------------------------------------------
    Private business use generally includes any use by a 
business entity (including the Federal government), which 
occurs pursuant to terms not generally available to the general 
public. For example, if bond-financed property is leased to a 
private business (other than pursuant to certain short-term 
leases for which safe harbors are provided under Treasury 
regulations), bond proceeds used to finance the property are 
treated as used in a private business use, and rental payments 
are treated as securing the payment of the bonds. Private 
business use also can arise when a governmental entity 
contracts for the operation of a governmental facility by a 
private business under a management contract that does not 
satisfy Treasury regulatory safe harbors regarding the types of 
payments made to the private operator and the length of the 
contract.\58\
---------------------------------------------------------------------------
    \58\See Treas. Reg. sec. 1.141-3(b)(4) and Rev. Proc. 97-13, 197-1 
C.B. 632.
---------------------------------------------------------------------------
            Private loan test
    The second standard for determining whether a State or 
local bond is a private activity bond is whether an amount 
exceeding the lesser of (1) five percent of the bond proceeds 
or (2) $5 million is used (directly or indirectly) to finance 
loans to private persons. Private loans include both business 
and other (e.g., personal) uses and payments by private 
persons; however, in the case of business uses and payments, 
all private loans also constitute private business uses and 
payments subject to the private business test. Present law 
provides that the substance of a transaction governs in 
determining whether the transaction gives rise to a private 
loan. In general, any transaction which transfers tax ownership 
of property to a private person is treated as a loan.
            Qualified private activity bonds
    As stated, interest on private activity bonds is taxable 
unless the bonds meet the requirements for qualified private 
activity bonds. Qualified private activity bonds permit States 
or local governments to act as conduits providing tax-exempt 
financing for certain private activities. The definition of 
qualified private activity bonds includes an exempt facility 
bond, or qualified mortgage, veterans' mortgage, small issue, 
redevelopment, 501(c)(3), or student loan bond (sec. 141(e)). 
The definition of exempt facility bond includes bonds issued to 
finance certain transportation facilities (airports, ports, 
mass commuting, and high-speed intercity rail facilities); 
qualified residential rental projects; privately owned and/or 
operated utility facilities (sewage, water, solid waste 
disposal, and local district heating and cooling facilities, 
certain private electric and gas facilities, and hydroelectric 
dam enhancements); public/private educational facilities; 
qualified green building and sustainable design projects; and 
qualified highway or surface freight transfer facilities (sec. 
142(a)).
    In most cases, the aggregate volume of tax-exempt qualified 
private activity bonds is restricted by annual aggregate volume 
limits imposed on bonds issued by issuers within each State. 
For calendar year 2008, the State volume cap, which is indexed 
for inflation, equals $85 per resident of the State, or $262.09 
million, if greater.
            Arbitrage restrictions
    The exclusion from income for interest on State and local 
bonds also does not apply to any arbitrage bond.\59\ An 
arbitrage bond is defined as any bond that is part of an issue 
if any proceeds of the issue are reasonably expected to be used 
(or intentionally are used) to acquire higher yielding 
investments or to replace funds that are used to acquire higher 
yielding investments.\60\ In general, arbitrage profits may be 
earned only during specified periods (e.g., defined ``temporary 
periods'') before funds are needed for the purpose of the 
borrowing or on specified types of investments (e.g., 
``reasonably required reserve or replacement funds''). Subject 
to limited exceptions, investment profits that are earned 
during these periods or on such investments must be rebated to 
the Federal Government.
---------------------------------------------------------------------------
    \59\Sec. 103(a) and (b)(2).
    \60\Sec. 148.
---------------------------------------------------------------------------
            Indian tribal governments
    Indian tribal governments are provided with a tax status 
similar to State and local governments for specified purposes 
under the Code.\61\ Among the purposes for which a tribal 
government is treated as a State is the issuance of tax-exempt 
bonds. However, bonds issued by tribal governments are subject 
to limitations not imposed on State and local government 
issuers. Tribal governments are authorized to issue tax-exempt 
bonds only if substantially all of the proceeds are used for 
essential governmental functions or certain manufacturing 
facilities.\62\
---------------------------------------------------------------------------
    \61\Sec. 7871.
    \62\See. 7871(c).
---------------------------------------------------------------------------

Clean renewable energy bonds

    As an alternative to traditional tax-exempt bonds, States 
and local governments may issue clean renewable energy bonds 
(``CREBs''). CREBs are defined as any bond issued by a 
qualified issuer if, in addition to the requirements discussed 
below, 95 percent or more of the proceeds of such bonds are 
used to finance capital expenditures incurred by qualified 
borrowers for qualified projects. ``Qualified projects'' are 
facilities that qualify for the tax credit under section 45 
(other than Indian coal production facilities), without regard 
to the placed-in-service date requirements of that section.\63\ 
The term ``qualified issuers'' includes (1) governmental bodies 
(including Indian tribal governments); (2) mutual or 
cooperative electric companies (described in section 501(c)(12) 
or section 1381(a)(2)(C), or a not-for-profit electric utility 
which has received a loan or guarantee under the Rural 
Electrification Act); and (3) clean renewable energy bond 
lenders. The term ``qualified borrower'' includes a 
governmental body (including an Indian tribal government) and a 
mutual or cooperative electric company. A clean renewable 
energy bond lender means a cooperative which is owned by, or 
has outstanding loans to, 100 or more cooperative electric 
companies and is in existence on February 1, 2002.
---------------------------------------------------------------------------
    \63\In addition, Notice 2006-7 provides that qualified projects 
include any facility owned by a qualified borrower that is functionally 
related and subordinate to any facility described in section 45(d)(1) 
through (d)(9) and owned by such qualified borrower.
---------------------------------------------------------------------------
    Unlike tax-exempt bonds, CREBs are not interest-bearing 
obligations. Rather, the taxpayer holding CREBs on a credit 
allowance date is entitled to a tax credit. The amount of the 
credit is determined by multiplying the bond's credit rate by 
the face amount on the holder's bond. The credit rate on the 
bonds is determined by the Secretary and is to be a rate that 
permits issuance of CREBs without discount and interest cost to 
the qualified issuer. The credit accrues quarterly and is 
includible in gross income (as if it were an interest payment 
on the bond), and can be claimed against regular income tax 
liability and alternative minimum tax liability.
    CREBs are subject to a maximum maturity limitation. The 
maximum maturity is the term which the Secretary estimates will 
result in the present value of the obligation to repay the 
principal on a CREB being equal to 50 percent of the face 
amount of such bond. In addition, the Code requires level 
amortization of CREBs during the period such bonds are 
outstanding.
    CREBs also are subject to the arbitrage requirements of 
section 148 that apply to traditional tax-exempt bonds. 
Principles under section 148 and the regulations thereunder 
apply for purposes of determining the yield restriction and 
arbitrage rebate requirements applicable to CREBs.
    In addition to the above requirements, at least 95 percent 
of the proceeds of CREBs must be spent on qualified projects 
within the five-year period that begins on the date of 
issuance. To the extent less than 95 percent of the proceeds 
are used to finance qualified projects during the five-year 
spending period, bonds will continue to qualify as CREBs if 
unspent proceeds are used within 90 days from the end of such 
five-year period to redeem any ``nonqualified bonds.'' The 
five-year spending period may be extended by the Secretary upon 
the qualified issuer's request demonstrating that the failure 
to satisfy the five-year requirement is due to reasonable cause 
and the projects will continue to proceed with due diligence.
    Issuers of CREBs are required to report issuance to the IRS 
in a manner similar to the information returns required for 
tax-exempt bonds. There is a national CREB limitation of $1.2 
billion. The maximum amount of CREBs that may be allocated to 
qualified projects of governmental bodies is $750 million. 
CREBs must be issued before January 1, 2009.

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

    The provision creates a new category of tax-credit bonds, 
qualified energy conservation bonds. Qualified energy 
conservation bonds may be used to finance qualified 
conservation purposes.
    The term ``qualified conservation purpose'' means:
          1. Capital expenditures incurred for purposes of 
        reducing energy consumption in publicly owned buildings 
        by at least 20 percent; implementing green community 
        programs; rural development involving the production of 
        electricity from renewable energy resources; or any 
        facility eligible for the production tax credit under 
        section 45 (other than Indian coal and refined coal 
        production facilities);
          2. Expenditures with respect to facilities or grants 
        that support research in: (A) development of cellulosic 
        ethanol or other nonfossil fuels; (B) technologies for 
        the capture and sequestration of carbon dioxide 
        produced through the use of fossil fuels; (C) 
        increasing the efficiency of existing technologies for 
        producing nonfossil fuels; (D) automobile battery 
        technologies and other technologies to reduce fossil 
        fuel consumption in transportation; and (E) 
        technologies to reduce energy use in buildings;
          3. Mass commuting facilities and related facilities 
        that reduce the consumption of energy, including 
        expenditures to reduce pollution from vehicles used for 
        mass commuting;
          4. Demonstration projects designed to promote the 
        commercialization of. (A) green building technology; 
        (B) conversion of agricultural waste for use in the 
        production of fuel or otherwise; (C) advanced battery 
        manufacturing technologies; (D) technologies to reduce 
        peak-use of electricity; and (D) technologies for the 
        capture and sequestration of carbon dioxide emitted 
        from combusting fossil fuels in order to produce 
        electricity; and
          5. Public education campaigns to promote energy 
        efficiency (other than movies, concerts, and other 
        events held primarily for entertainment purposes).
    There is a national limitation on qualified energy 
conservation bonds of $3 billion. Allocations of qualified 
energy conservation bonds are made to the States with sub-
allocations to large local governments. Allocations are made to 
the States according to their respective populations, reduced 
by any sub-allocations to large local governments (defined 
below) within the States. Sub-allocations to large local 
governments shall be an amount of the national qualified energy 
conservation bond limitation that bears the same ratio to the 
amount of such limitation that otherwise would be allocated to 
the State in which such large local government is located as 
the population of such large local government bears to the 
population of such State. The term large local government 
means: any municipality or county if such municipality or 
county has a population of 100,000 or more. Indian tribal 
governments also are treated as large local governments for 
these purposes (without regard to population).
    Each State or large local government receiving an 
allocation of qualified energy conservation bonds may further 
allocate issuance authority to issuers within such State or 
large local government. However, any allocations to issuers 
within the State or large local government shall be made in a 
manner that results in not less than 70 percent of the 
allocation of qualified energy conservation bonds to such State 
or large local government being used to designate bonds that 
are not private activity bonds (i.e., the bond cannot meet the 
private business tests or the private loan test of section 
141).
    Under the provision, 100 percent of the available project 
proceeds of qualified energy conservation bonds must be used 
for qualified conservation purposes. In the case of qualified 
conservation bonds issued as private activity bonds, 100 
percent of the available project proceeds must be used for 
capital expenditures. In addition, qualified energy 
conservation bonds only may be issued by Indian tribal 
governments to the extent such bonds are issued for purposes 
that satisfy the present law requirements for tax-exempt bonds 
issued by Indian tribal governments (i.e., essential 
governmental functions and certain manufacturing purposes).
    The provision requires 100 percent of the available project 
proceeds of qualified energy conservation bonds to be used 
within the three-year period that begins on the date of 
issuance. The provision defines available project proceeds as 
proceeds from the sale of the issue less issuance costs (not to 
exceed two percent) and any investment earnings on such sale 
proceeds. To the extent less than 100 percent of the available 
project proceeds are used to finance qualified conservation 
purposes during the three-year spending period, bonds will 
continue to qualify as qualified energy conservation bonds if 
unspent proceeds are used within 90 days from the end of such 
three-year period to redeem bonds. The three-year spending 
period may be extended by the Secretary upon the issuer's 
request demonstrating that the failure to satisfy the three-
year requirement is due to reasonable cause and the projects 
will continue to proceed with due diligence.
    Qualified energy conservation bonds generally are subject 
to the arbitrage requirements of section 148. However, 
available project proceeds invested during the three-year 
spending period are not subject to the arbitrage restrictions 
(i.e., yield restriction and rebate requirements). In addition, 
amounts invested in a reserve fund are not subject to the 
arbitrage restrictions to the extent: (1) such fund is funded 
at a rate not more rapid than equal annual installments; (2) 
such fund is funded in a manner reasonably expected to result 
in an amount not greater than an amount necessary to repay the 
issue; and (3) the yield on such fund is not greater than the 
average annual interest rate of tax-exempt obligations having a 
term of 10 years or more that are issued during the month the 
qualified energy conservation bonds are issued.
    The maturity of qualified energy conservation bonds is the 
term that the Secretary estimates will result in the present 
value of the obligation to repay the principal on such bonds 
being equal to 50 percent of the face amount of such bonds, 
using as a discount rate the average annual interest rate of 
tax-exempt obligations having a term of 10 years or more that 
are issued during the month the qualified energy conservation 
bonds are issued.
    As with present-law tax credit bonds, the taxpayer holding 
qualified energy conservation bonds on a credit allowance date 
is entitled to a tax credit. The credit rate on the bonds is 
set by the Secretary at a rate that is 70 percent of the rate 
that would permit issuance of such bonds without discount and 
interest cost to the issuer. The amount of the tax credit is 
determined by multiplying the bond's credit rate by the face 
amount on the holder's bond. The credit accrues quarterly, is 
includible in gross income (as if it were an interest payment 
on the bond), and can be claimed against regular income tax 
liability and alternative minimum tax liability. Unused credits 
may be carried forward to succeeding taxable years. In 
addition, credits may be separated from the ownership of the 
underlying bond similar to how interest coupons can be stripped 
for interest-bearing bonds.
    Issuers of qualified energy conservation bonds are required 
to certify that the financial disclosure requirements that 
apply to State and local bonds offered for sale to the general 
public are satisfied with respect to any Federal, State, or 
local government official directly involved with the issuance 
of such bonds. The provision authorizes the Secretary to impose 
additional financial reporting requirements by regulation.

                             EFFECTIVE DATE

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

2. Extension and modification of energy efficient existing homes credit 
        (Sec. 142 of the bill and sec. 25C of the Code)

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

3. Energy efficient commercial buildings deduction (Sec. 143 of the 
        bill and sec. 179D of the Code)

                              PRESENT LAW

In general

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

Partial allowance of deduction

    In the case of a building that does not meet the overall 
building requirement of a 50-percent energy savings, a partial 
deduction is allowed with respect to each separate building 
system that comprises energy efficient property and which is 
certified by a qualified professional as meeting or exceeding 
the applicable system-specific savings targets established by 
the Secretary of the Treasury. The applicable system-specific 
savings targets to be established by the Secretary are those 
that would result in a total annual energy savings with respect 
to the whole building of 50 percent, if each of the separate 
systems met the system specific target. The separate building 
systems are (1) the interior lighting system, (2) the heating, 
cooling, ventilation and hot water systems, and (3) the 
building envelope. The maximum allowable deduction is $0.60 per 
square foot for each separate system.
            Interim rules for lighting systems
    In the case of system-specific partial deductions, in 
general no deduction is allowed until the Secretary establishes 
system-specific targets.\64\ However, in the case of lighting 
system retrofits, until such time as the Secretary issues final 
regulations, the system-specific energy savings target for the 
lighting system is deemed to be met by a reduction in Lighting 
Power Density of 40 percent (50 percent in the case of a 
warehouse) of the minimum requirements in Table 9.3.1.1 or 
Table 9.3.1.2 of ASHRAE/IESNA Standard 90.1-2001. Also, in the 
case of a lighting system that reduces lighting power density 
by 25 percent, a partial deduction of 30 cents per square foot 
is allowed. A pro-rated partial deduction is allowed in the 
case of a lighting system that reduces lighting power density 
between 25 percent and 40 percent. Certain lighting level and 
lighting control requirements must also be met in order to 
qualify for the partial lighting deductions under the interim 
rule.
---------------------------------------------------------------------------
    \64\IRS Notice 2008-40 has set a target of a 10 percent reduction 
in total energy and power costs with respect to the building envelope, 
and 20 percent each with respect to the interior lighting system and 
the heating, cooling, ventilation and hot water systems.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

4. Extension and modification of energy efficient appliance credit 
        (Sec. 144 of the bill and sec. 45M of the Code)

                              PRESENT LAW

    A credit is allowed for the eligible production of certain 
energy-efficient dishwashers, clothes washers, and 
refrigerators.
    The credit for dishwashers applies to dishwashers produced 
in 2006 and 2007 that meet the Energy Star standards for 2007, 
and equals $32.31 per eligible dishwasher.\65\
---------------------------------------------------------------------------
    \65\The credit amount equals $3 multiplied by 100 times the 
``energy savings percentage,'' but may not exceed $100 per dishwasher. 
The energy saving percentage is defined as the change in the energy 
factor (EF) required by the Energy Star program between 2007 and 2005 
divided by the EF requirement for 2007. The EF required for the Energy 
Star program was 0.58 in 2005 and 0.65 in 2007, for a change of 0.07. 
The energy saving percentage is thus 0.07 / 0.65, which when multiplied 
by 100 times $3 equals $32.31 per refrigerator.
---------------------------------------------------------------------------
    The credit for clothes washers equals $100 for clothes 
washers manufactured in 2006-2007 that meet the requirements of 
the Energy Star program that are in effect for clothes washers 
in 2007.
    The credit for refrigerators is based on energy savings and 
year of manufacture. The energy savings are determined relative 
to the energy conservation standards promulgated by the 
Department of Energy that took effect on July 1, 2001. 
Refrigerators that achieve a 15 to 20 percent energy saving and 
that are manufactured in 2006 receive a $75 credit. 
Refrigerators that achieve a 20 to 25 percent energy saving 
receive a (i) $125 credit if manufactured in 2006-2007. 
Refrigerators that achieve at least a 25 percent energy saving 
receive a (i) $175 credit if manufactured in 2006-2007.
    Appliances eligible for the credit include only those 
produced in the United States and that exceed the average 
amount of U.S. production from the three prior calendar years 
for each category of appliance. In the case of refrigerators, 
eligible production is U.S. production that exceeds 110 percent 
of the average amount of U.S. production from the three prior 
calendar years.
    A dishwasher is any a residential dishwasher subject to the 
energy conservation standards established by the Department of 
Energy. A refrigerator must be an automatic defrost 
refrigerator-freezer with an internal volume of at least 16.5 
cubic feet to qualify for the credit. A clothes washer is any 
residential clothes washer, including a residential style coin 
operated washer, that satisfies the relevant efficiency 
standard.
    The taxpayer may not claim credits in excess of $75 million 
for all taxable years, and may not claim credits in excess of 
$20 million with respect to clothes washers eligible for the 
$50 credit and refrigerators eligible for the $75 credit. A 
taxpayer may elect to increase the $20 million limitation 
described above to $25 million provided that the aggregate 
amount of credits with respect to such appliances, plus 
refrigerators eligible for the $100 and $125 credits, is 
limited to $50 million for all taxable years.
    Additionally, the credit allowed in a taxable year for all 
appliances may not exceed two percent of the average annual 
gross receipts of the taxpayer for the three taxable years 
preceding the taxable year in which the credit is determined.
    The credit is part of the general business credit.

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

Dishwashers

          1. $45 in the case of a dishwasher that is 
        manufactured in calendar year 2008 or 2009 that uses no 
        more than 324 kilowatt hours per year and 5.8 gallons 
        per cycle, and
          2. $75 in the case of a dishwasher that is 
        manufactured in calendar year 2008, 2009, or 2010 and 
        that uses no more than 307 kilowatt hours per year and 
        5.0 gallons per cycle (5.5 gallons per cycle for 
        dishwashers designed for greater than 12 place 
        settings).

Clothes washers

          1. $75 in the case of a residential top-loading 
        clothes washer manufactured in calendar year 2008 that 
        meets or exceeds a 1.72 modified energy factor and does 
        not exceed a 8.0 water consumption factor, and
          2. $125 in the case of a residential top-loading 
        clothes washer manufactured in calendar year 2008 or 
        2009 that meets or exceeds a 1.8 modified energy factor 
        and does not exceed a 7.5 water consumption factor,
          3. $150 in the case of a residential or commercial 
        clothes washer manufactured in calendar year 2008, 2009 
        or 2010 that meets or exceeds a 2.0 modified energy 
        factor and does not exceed a 6.0 water consumption 
        factor, and
          4. $250 in the case of a residential or commercial 
        clothes washer manufactured in calendar year 2008, 
        2009, or 2010 that meets or exceeds a 2.2 modified 
        energy factor and does not exceed a 4.5 water 
        consumption factor.

Refrigerators

          1. $50 in the case of a refrigerator manufactured in 
        calendar year 2008 that consumes at least 20 percent 
        but not more than 22.9 percent less kilowatt hours per 
        year than the 2001 energy conservation standards,
          2. $75 in the case of a refrigerator that is 
        manufactured in calendar year 2008 or 2009 that 
        consumes at least 23 percent but no more than 24.9 
        percent less kilowatt hours per year than the 2001 
        energy conservation standards,
          3. $100 in the case of a refrigerator that is 
        manufactured in calendar year 2008, 2009 or 2010 that 
        consumes at least 25 percent but not more than 29.9 
        percent less kilowatt hours per year than the 2001 
        energy conservation standards, and
          4. $200 in the case of a refrigerator manufactured in 
        calendar year 2008, 2009 or 2010 that consumes at least 
        30 percent less energy than the 2001 energy 
        conservation standards.
    Appliances eligible for the credit include only those that 
exceed the average amount of production from the two prior 
calendar years for each category of appliance, rather than the 
present law three prior calendar years. Additionally, the 
special rule with respect to refrigerators is eliminated.
    The aggregate credit amount allowed with respect to a 
taxpayer for all taxable years beginning after December 31, 
2007 may not exceed $75 million, with the exception that the 
$200 refrigerator credit and the $250 clothes washer credit are 
not limited.
    The term ``modified energy factor'' means the modified 
energy factor established by the Department of Energy for 
compliance with the Federal energy conservation standard.
    The term ``gallons per cycle'' means, with respect to a 
dishwasher, the amount of water, expressed in gallons, required 
to complete a normal cycle of a dishwasher.
    The term ``water consumption factor'' means, with respect 
to a clothes washer, the quotient of the total weighted per-
cycle water consumption divided by the cubic foot (or liter) 
capacity of the clothes washer.

                             EFFECTIVE DATE

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

5. Accelerated recovery period for depreciation of smart meters and 
        smart grid systems (Sec. 145 of the bill and sec. 168 of the 
        Code)

                              PRESENT LAW

    A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through annual deductions for depreciation or amortization. 
Tangible property generally is depreciated under the modified 
accelerated cost recovery system (``MACRS''), which determines 
depreciation by applying specific recovery periods, placed-in-
service conventions, and depreciation methods to the cost of 
various types of depreciable property.\66\ The class lives of 
assets placed in service after 1986 are generally set forth in 
Revenue Procedure 87-56.\67\ Assets included in class 49.14, 
describing assets used in the transmission and distribution of 
electricity for sale and related land improvements, are 
assigned a class life of 30 years and a recovery period of 20 
years.
---------------------------------------------------------------------------
    \66\Sec. 168.
    \67\1987-2 C.B. 674 (as clarified and modified by Rev. Proc. 88-22, 
1988-1 C.B. 785).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that smart electric meters and smart 
electric grid systems are integral to the development and use 
of technology to conserve energy resources. Therefore, the 
Committee believes that investment in smart electric meters and 
smart electric grid systems should be encouraged through a 
shorter recovery period for depreciation. The Committee also 
believes that smart electric meters should be capable of net 
metering, which allows customers a credit for providing 
electricity to the supplier of electric energy or provider of 
electric energy services.

                        EXPLANATION OF PROVISION

    The provision provides a 10-year recovery period and 150 
percent declining balance method for any qualified smart 
electric meter and any qualified smart electric grid system. 
For purposes of the provision, a qualified smart electric meter 
means any time-based meter and related communication equipment 
which is placed in service by a taxpayer who is a supplier of 
electric energy or a provider of electric energy services and 
which is capable of being used by the taxpayer as part of a 
system that (1) measures and records electricity usage data on 
a time-differentiated basis in at least 24 separate time 
segments per day; (2) provides for the exchange of information 
between the supplier or provider and the customer's smart 
electric meter in support of time-based rates or other forms of 
demand response; and (3) provides data to such supplier or 
provider so that the supplier or provider can provide energy 
usage information to customers electronically; and (4) provides 
all commercial and residential customers of such supplier or 
provider with net metering. The term ``net metering'' means 
allowing a customer a credit, if any, as complies with 
applicable Federal and State laws and regulations, for 
providing electricity to the supplier or provider.
    For purposes of the provision, a qualified smart electric 
grid system means any smart grid property used as part of a 
system for electric distribution grid communications, 
monitoring, and management placed in service by a taxpayer who 
is a supplier of electric energy or a provider of electric 
energy services. Smart grid property includes electronics and 
related equipment that is capable of (1) sensing, collecting, 
and monitoring data of or from all portions of a utility's 
electric distribution grid; (2) providing real-time, two-way 
communications to monitor to manage such grid; and (3) 
providing real-time analysis of an event prediction based upon 
collected data that can be used to improve electric 
distribution system reliability, quality, and performance.

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

In general

    Private activity bonds are bonds that nominally are issued 
by States or local governments, but the proceeds of which are 
used (directly or indirectly) by a private person and payment 
of which is derived from funds of such private person. The 
exclusion from income for interest paid on State and local 
bonds does not apply to private activity bonds, unless the 
bonds are issued for certain permitted purposes (``qualified 
private activity bonds''). The definition of a qualified 
private activity bond includes exempt facility bonds.
    In most cases, the aggregate volume of tax-exempt qualified 
private activity bonds, including most exempt facility bonds, 
is restricted by annual aggregate volume limits imposed onbonds 
issued by issuers within each State. For calendar year 2008, the State 
volume cap, which is indexed for inflation, equals $85 per resident of 
the State, or $262.09 million, if greater.

Qualified green building and sustainable design project bonds

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision applies on the date of enactment.

             II. ONE-YEAR EXTENSION OF TEMPORARY PROVISIONS


             a. Extensions Primarily Affecting Individuals


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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

In general

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

Interest-related dividends

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

Expiration

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

In general

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

Charitable contributions

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

IRA rules

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

Qualified charitable distributions

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

                           REASONS FOR CHANCE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANCE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

In general

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

Child credit

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

Earned income credit

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision generally takes effect on January 1, 2008.

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

              B. Extensions Primarily Affecting Businesses


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

                              PRESENT LAW

General rule

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

Computation of allowable credit

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

Alternative incremental research credit regime

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

Alternative simplified credit

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

Eligible expenses

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

Relation to deduction

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

In general

    A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through annual deductions for depreciation or amortization. 
Tangible property generally is depreciated under the modified 
accelerated cost recovery system (``MACRS''), which determines 
depreciation by applying specific recovery periods, placed-in-
service conventions, and depreciation methods to the cost of 
various types of depreciable property.\121\ The cost of 
nonresidential real property is recovered using the straight-
line method of depreciation and a recovery period of 39 years. 
Nonresidential real property is subject to the mid-month 
placed-in-service convention. Under the mid-month convention, 
the depreciation allowance for the first year property is 
placed in service is based on the number of months the property 
was in service, and property placed in service at any time 
during a month is treated as having been placed in service in 
the middle of the month.
---------------------------------------------------------------------------
    \121\Sec. 168.
---------------------------------------------------------------------------

Depreciation of leasehold improvements

    Generally, depreciation allowances for improvements made on 
leased property are determined under MACRS, even if the MACRS 
recovery period assigned to the property is longer than the 
term of the lease. This rule applies regardless of whether the 
lessor or the lessee places the leasehold improvements in 
service. If a leasehold improvement constitutes an addition or 
improvement to nonresidential real property already placed in 
service, the improvement generally is depreciated using the 
straight-line method over a 39-year recovery period, beginning 
in the month the addition or improvement was placed in service. 
However, exceptions exist for certain qualified leasehold 
improvements and qualified restaurant property.

Qualified leasehold improvement property

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

Qualified restaurant property

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

6. 7-year recovery period for motorsports racetrack property (Sec. 226 
        of the bill and sec. 168 of the Code)

                              PRESENT LAW

    A taxpayer generally must capitalize the cost of property 
used in a trade or business and recover such cost over time 
through annual deductions for depreciation or amortization. 
Tangible property generally is depreciated under the modified 
accelerated cost recovery system (``MACRS''), which determines 
depreciation by applying specific recovery periods, placed-in-
service conventions, and depreciation methods to the cost of 
various types of depreciable property.\122\ The cost of 
nonresidential real property is recovered using the straight-
line method of depreciation and a recovery period of 39 years. 
Nonresidential real property is subject to the mid-month 
placed-in-service convention. Under the mid-month convention, 
the depreciation allowance for the first year property is 
placed in service is based on the number of months the property 
was in service, and property placed in service at any time 
during a month is treated as having been placed in service in 
the middle of the month. Land improvements (such as roads and 
fences) are recovered over 15 years. An exception exists for 
the theme and amusement park industry, whose assets are 
assigned a recovery period of seven years. Additionally, a 
motorsports entertainment complex placed in service before 
December 31, 2007 is assigned a recovery period of seven 
years.\123\ For these purposes, a motorsports entertainment 
complex means a racing track facility which is permanently 
situated on land that during the 36 month period following its 
placed in service date it hosts a racing event.\124\ The term 
motorsports entertainment complex also includes ancillary 
facilities, land improvements (e.g., parking lots, sidewalks, 
fences), support facilities (e.g., food and beverage retailing, 
souvenir vending), and appurtenances associated with such 
facilities (e.g., ticket booths, grandstands).
---------------------------------------------------------------------------
    \122\Sec. 168.
    \123\Sec. 168(e)(3)(C)(ii).
    \124\Sec. 168(i)(15).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

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


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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

In general

    Present law provides a deduction from taxable income (or, 
in the case of an individual, adjusted gross income) that is 
equal to a portion of the taxpayer's qualified production 
activities income. For taxable years beginning after 2009, the 
deduction is nine percent of that income. For taxable years 
beginning in 2005 and 2006, the deduction is three percent of 
qualified production activities income and for taxable years 
beginning in 2007, 2008, and 2009, the deduction is six percent 
of qualified production activities income. For taxpayers 
subject to the 35-percent corporate income tax rate, the nine-
percent deduction effectively reduces the corporate income tax 
rate to just under 32 percent on qualified production 
activities income.

Qualified production activities income

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

Domestic production gross receipts

    Domestic production gross receipts generally are gross 
receipts of a taxpayer that are derived from (1) any sale, 
exchange, or other disposition, or any lease, rental, or 
license, of qualifying production property\134\ that was 
manufactured, produced, grown or extracted by the taxpayer in 
whole or in significant part within the United States; (2) any 
sale, exchange, or other disposition, or any lease, rental, or 
license, of qualified film\135\ produced by the taxpayer; (3) 
any lease, rental, license, sale, exchange, or other 
disposition of electricity, natural gas, or potable water 
produced by the taxpayer in the United States; (4) construction 
of real property performed in the United States by a taxpayer 
in the ordinary course of a construction trade or business; or 
(5) engineering or architectural services performed in the 
United States for the construction of real property located in 
the United States.
---------------------------------------------------------------------------
    \134\Qualifying production property generally includes any tangible 
personal property, computer software, and sound recordings.
    \135\Qualified film includes any motion picture film or videotape 
(including live or delayed television programming, but not including 
certain sexually explicit productions) if 50 percent or more of the 
total compensation relating to the production of the film (including 
compensation in the form of residuals and participations) constitutes 
compensation for services performed in the United States by actors, 
production personnel, directors, and producers.
---------------------------------------------------------------------------

Wage limitation

    For taxable years beginning after May 17, 2006, the amount 
of the deduction for a taxable year is limited to 50 percent of 
the wages paid by the taxpayer, and properly allocable to 
domestic production gross receipts, during the calendar year 
that ends in such taxable year.\136\ Wages paid to bona fide 
residents of Puerto Rico generally are not included in the wage 
limitation amount.\137\
---------------------------------------------------------------------------
    \136\For purposes of the provision, ``wages'' include the sum of 
the amounts of wages as defined in section 3401(a) and elective 
deferrals that the taxpayer properly reports to the Social Security 
Administration with respect to the employment of employees of the 
taxpayer during the calendar year ending during the taxpayer's taxable 
year. For taxable years beginning before May 18, 2006, the limitation 
is based upon all wages paid by the taxpayer, rather than only wages 
properly allocable to domestic production gross receipts.
    \137\Sec. 3401(a)(8)(C).
---------------------------------------------------------------------------

Rules for Puerto Rico

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

Tax-exempt bonds

    Interest paid on State and local governmental bonds 
generally is excluded from gross income for Federal income tax 
purposes if the proceeds of the bonds are used to finance 
direct activities of these governmental units or if the bonds 
are repaid with revenues of the governmental units. Activities 
that can be financed with these tax-exempt bonds include the 
financing of public schools.\144\ An issuer must file with the 
IRS certain information about the bonds issued by them in order 
for that bond issue to be tax-exempt.\145\ Generally, this 
information return is required to be filed no later than the 
15th day of the second month after the close of the calendar 
quarter in which the bonds were issued.
---------------------------------------------------------------------------
    \144\Sec. 103.
    \145\Sec. 149(e).
---------------------------------------------------------------------------
    The tax exemption for State and local bonds does not apply 
to any arbitrage bond.\146\ An arbitrage bond is defined as any 
bond that is part of an issue if any proceeds of the issue are 
reasonably expected to be used (or intentionally are used) to 
acquire higher yielding investments or to replace funds that 
are used to acquire higher yielding investments.\147\ In 
general, arbitrage profits may be earned only during specified 
periods (e.g., defined ``temporary periods'') before funds are 
needed for the purpose of the borrowing or on specified types 
of investments (e.g., ``reasonably required reserve or 
replacement funds''). Subject to limited exceptions, investment 
profits that are earned during these periods or on such 
investments must be rebated to the Federal Government.
---------------------------------------------------------------------------
    \146\Sec. 103(a) and (b)(2).
    \147\Sec. 148.
---------------------------------------------------------------------------

Qualified zone academy bonds

    As an alternative to traditional tax-exempt bonds, States 
and local governments were given the authority to issue 
``qualified zone academy bonds.''\148\ A total of $400 million 
of qualified zone academy bonds is authorized to be issued 
annually in calendar years 1998 through 2007. The $400 million 
aggregate bond cap is allocated each year to the States 
according to their respective populations of individuals below 
the poverty line. Each State, in turn, allocates the credit 
authority to qualified zone academies within such State.
---------------------------------------------------------------------------
    \148\Sec. 1397E.
---------------------------------------------------------------------------
    Financial institutions that hold qualified zone academy 
bonds are entitled to a nonrefundable tax credit in an amount 
equal to a credit rate multiplied by the face amount of the 
bond. A taxpayer holding a qualified zone academy bond on the 
credit allowance date is entitled to a credit. The credit is 
includable in gross income (as if it were a taxable interest 
payment on the bond), and may be claimed against regular income 
tax and alternative minimum tax liability.
    The Treasury Department sets the credit rate at a rate 
estimated to allow issuance of qualified zone academy bonds 
without discount and without interest cost to the issuer. The 
maximum term of the bond is determined by the Treasury 
Department, so that the present value of the obligation to 
repay the bond was 50 percent of the face value. of the bond.
    ``Qualified zone academy bonds'' are defined as any bond 
issued by a State or local government, provided that (1) at 
least 95 percent of the proceeds are used for the purpose of 
renovating, providing equipment to, developing course materials 
for use at, or training teachers and other school personnel in 
a ``qualified zone academy'' and (2) private entities have 
promised to contribute to the qualified zone academy certain 
equipment, technical assistance or training, employee services, 
or other property or services with a value equal to at least 10 
percent of the bond proceeds.
    A school is a ``qualified zone academy'' if (1) the school 
is a public school that provides education and training below 
the college level, (2) the school operates a special academic 
program in cooperation with businesses to enhance the academic 
curriculum and increase graduation and employment rates, and 
(3) either (a) the school is located in an empowerment zone or 
enterprise community designated under the Code, or (b) it is 
reasonably expected that at least 35 percent of the students at 
the school will be eligible for free or reduced-cost lunches 
under the school lunch program established under the National 
School Lunch Act.
    The Tax Relief and Health Care Act of 2006 (``TRHCA'')\149\ 
imposed the arbitrage requirements that generally apply to 
interest-bearing tax-exempt bonds to qualified zone academy 
bonds. In addition, an issuer of qualified zone academy bonds 
must reasonably expect to and actually spend 95 percent or more 
of the proceeds of such bonds on qualified zone academy 
property within the five-year period that begins on the date of 
issuance. To the extent less than 95 percent of the proceeds 
are used to finance qualified zone academy property during the 
five-year spending period, bonds will continue to qualify as 
qualified zone academy bonds if unspent proceeds are used 
within 90 days from the end of such five-year period to redeem 
any nonqualified bonds. The five-year spending period may be 
extended by the Secretary if the issuer establishes that the 
failure to meet the spending requirement is due to reasonable 
cause and the related purposes for issuing the bonds will 
continue to proceed with due diligence. Issuers of qualified 
zone academy bonds are required to report issuance to the IRS 
in a manner similar to the information returns required for 
tax-exempt bonds.
---------------------------------------------------------------------------
    \149\Pub. L. No. 109-432.
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

    The provision extends and modifies the present-law 
qualified zone academy bond program. The provision authorizes 
issuance of up to $400 million of qualified zone academy bonds 
annually through 2008.
    For bonds issued after the date of enactment, the provision 
also modifies the spending and arbitrage rules that apply to 
qualified zone academy bonds. The provision modifies the 
spending rule by requiring 100 percent of available project 
proceeds to be spent on qualified zone academy property. In 
addition, the provision modifies the arbitrage rules by 
providing that available project proceeds invested during the 
five-year period beginning on the date of issue are not subject 
to the arbitrage restrictions (i.e., yield restriction and 
rebate requirements). The provision defines ``available project 
proceeds'' as proceeds from the sale of an issue of qualified 
zone academy bonds, less issuance costs (not to exceed two 
percent) and any investment earnings on such proceeds. Thus, 
available project proceeds invested during the five-year 
spending period may be invested at unrestricted yields, but the 
earnings on such investments must be spent on qualified zone 
academy property.
    The provision provides that amounts invested in a reserve 
fund are not subject to the arbitrage restrictions to the 
extent: (1) such fund is funded at a rate not more rapid than 
equal annual installments; (2) such fund is funded in a manner 
reasonably expected to result in an amount not greater than an 
amount necessary to repay the issue; and (3) the yield on such 
fund is not greater than the average annual interest rate of 
tax-exempt obligations having a term of 10 years or more that 
are issued during the month the qualified zone academy bonds 
are issued.

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

In general

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

Wage credit

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

Section 179 expensing

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

Tax-exempt financing

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

Zero-percent capital gains

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

District of Columbia homebuyer tax credit

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                         PRESENT AND PRIOR LAW

In general

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

Qualification as existing credit claimant

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

Economic activity-based limit

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

Income-based limit

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

Repeal and phase out

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

American Samoa economic development credit

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

General rules regarding contributions of food inventory

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

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

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

Work opportunity tax credit

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

Work Opportunity Tax Credit for Hurricane Katrina Employees

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

In general

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

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

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

                          C. Other Extensions


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

                              PRESENT LAW

In general

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

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

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

Disclosure of return information other than by ex parte court order

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                        EXPLANATION OF PROVISION

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

                           REASONS FOR CHANGE

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is effective upon the date of enactment.

                    TITLE III--ADDITIONAL TAX RELIEF


                        A. Individual Tax Relief


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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision applies to taxable years beginning in 2008.

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning in 
2008.

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

                              PRESENT LAW

In general

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

AMT treatment of incentive stock options

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

Allowance of long-term unused credits

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

                     B. Business Related Provisions


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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

3. Modification of domestic production activities deduction for film 
        production (Sec. 312(b) of the bill and sec. 199 of the Code)

                              PRESENT LAW

In general

    Section 199 of the Code provides a deduction from taxable 
income (or, in the case of an individual, adjusted gross 
income) that is equal to a portion of the taxpayer's qualified 
production activities income. For taxable years beginning after 
2009, the deduction is nine percent of such income. For taxable 
years beginning in 2008 and 2009, the deduction is six percent 
of such income. The deduction for a taxable year is limited to 
50 percent of the wages properly allocable to domestic 
production gross receipts paid by the taxpayer during the 
calendar year that ends in such taxable year.\226\
---------------------------------------------------------------------------
    \226\For purposes of the provision, ``wages'' include the sum of 
the amounts of wages as defined in section 3401(a) and elective 
deferrals that the taxpayer properly reports to the Social Security 
Administration with respect to the employment of employees of the 
taxpayer during the calendar year ending during the taxpayer's taxable 
year. Elective deferrals include elective deferrals as defined in 
section 402(g)(3), amounts deferred under section 457, and, designated 
Roth contributions (as defined in section 402A).
---------------------------------------------------------------------------

Qualified production activities income

    In general, qualified production activities income 
(``QPAI'') is equal to domestic production gross receipts 
(``DPGR''), reduced by the sum of: (1) the costs of goods sold 
that are allocable to such receipts; (2) other expenses, 
losses, or deductions which are properly allocable to such 
receipts.\227\
---------------------------------------------------------------------------
    \227\Sec. 199(c)(1).
---------------------------------------------------------------------------

Domestic production gross receipts

    DPGR generally are gross receipts of a taxpayer that are 
derived from: (1) any sale, exchange or other disposition, or 
any lease, rental or license, of qualifying production property 
(``QPP'') that was manufactured, produced, grown or extracted 
(``MPGE'') by the taxpayer in whole or in significant part 
within the United States;\228\ (2) any sale, exchange or other 
disposition, or any lease, rental or license, of qualified film 
produced by the taxpayer; (3) any sale, exchange or other 
disposition of electricity, natural gas, or potable water 
produced by the taxpayer in the United States; (4) in the case 
of a taxpayer engaged in the active conduct of a construction 
trade or business, construction of real property performed in 
the United States by the taxpayer in the ordinary course of 
such trade or business;\229\ or (5) in the case of a taxpayer 
engaged in the active conduct of an engineering or 
architectural services trade or business, engineering or 
architectural services performed in the United States by the 
taxpayer in the ordinary course of such trade or business with 
respect to the construction of real property in the United 
States.\230\
---------------------------------------------------------------------------
    \228\Domestic production gross receipts include gross receipts of a 
taxpayer derived from any sale, exchange or other disposition of 
agricultural products with respect to which the taxpayer performs 
storage, handling or other processing activities (other than 
transportation activities) within the United States, provided such 
products are consumed in connection with, or incorporated into, the 
manufacturing, production, growth or extraction of qualifying 
production property (whether or not by the taxpayer).
    \229\For this purpose, construction activities include activities 
that are directly related to the erection or substantial renovation of 
residential and commercial buildings and infrastructure. Substantial 
renovation would include structural improvements, but not mere cosmetic 
changes, such as painting, that is not performed in connection with 
activities that otherwise constitute substantial renovation.
    \230\Sec. 199(c)(4)(A).
---------------------------------------------------------------------------
    Domestic production gross receipts do not include any gross 
receipts of the taxpayer that are derived from: (1) the sale of 
food or beverages prepared by the taxpayer at a retail 
establishment; (2) the transmission or distribution of 
electricity, natural gas, or potable water; or (3) the lease, 
rental, license, sale, exchange, or other disposition of 
land.\231\
---------------------------------------------------------------------------
    \231\Sec. 199(c)(4)(B).
---------------------------------------------------------------------------
    A special rule for government contracts provides that 
property that is manufactured or produced by the taxpayer 
pursuant to a contract with the Federal Government is 
considered to be DPGR even if title or risk of loss is 
transferred to the Federal Government before the manufacture or 
production of such property is complete to the extent required 
by the Federal Acquisition Regulation.\232\
---------------------------------------------------------------------------
    \232\Sec. 199(c)(4)(C).
---------------------------------------------------------------------------
    For purposes of determining DPGR of a partnership and its 
partners, provided all of the interests in the capital and 
profits of the partnership are owned by members of the same 
expanded affiliated group (``EAG'') at all times during the 
taxable year of the partnership, then the partnership and all 
members of that EAG are treated as a single taxpayer during 
such period.\233\
---------------------------------------------------------------------------
    \233\Sec. 199(c)(4)(D).
---------------------------------------------------------------------------

Qualifying production property and qualified film

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

Other rules

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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


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

                              PRESENT LAW

Taxpayer standards

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

Tax return preparer standards

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

        D. Extension and Expansion of Certain GO Zone Incentives


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

                              PRESENT LAW

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

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

                              PRESENT LAW

In general

    A taxpayer is allowed to recover, through annual 
depreciation deductions, the cost of certain property used in a 
trade or business or for the production of income. The amount 
of the depreciation deduction allowed with respect to tangible 
property for a taxable year is determined under the modified 
accelerated cost recovery system (``MACRS''). Under MACRS, 
different types of property generally are assigned applicable 
recovery periods and depreciation methods. The recovery periods 
applicable to most tangible personal property (other than 
residential rental property and nonresidential real property) 
range from three to 25 years. The depreciation methods 
generally applicable to tangible personal property are the 200-
percent and 150-percent declining balance methods, switching to 
the straight-line method for the taxable year in which the 
depreciation deduction would be maximized.

Gulf Opportunity Zone

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

Gulf Opportunity Zone property

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

Gulf Opportunity Zone extension property

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

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

                              PRESENT LAW

In general

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

GO Zone

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

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

                      TITLE IV--REVENUE PROVISIONS


 A. Modify Tax Treatment of Offshore Nonqualified Deferred Compensation


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

                              PRESENT LAW

In general

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

Section 409A

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

Timing of the service recipient's deduction

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

Section 457

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

Charitable contributions

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

In general

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

Nonqualified deferred compensation

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

Nonqualified entity

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

Additional rules

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

Treasury regulations

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

Charitable contributions of existing deferrals permitted

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

                             EFFECTIVE DATE

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

        B. Delay Implementation of Worldwide Interest Allocation


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

                              PRESENT LAW

In general

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

Worldwide interest allocation

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

          C. Modifications to Corporate Estimated Tax Payments


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

                              PRESENT LAW

In general

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

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

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

Subsequent legislation

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

                           REASONS FOR CHANGE

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

                        EXPLANATION OF PROVISION

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

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

                      III. VOTES OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the vote of the Committee on Ways and Means in its 
consideration of H.R. 6049, the ``Renewable Energy and Jobs 
Creation Act of 2008''.

                    MOTION TO REPORT RECOMMENDATIONS

    The Chairman's Amendment in the Nature of a Substitute, was 
ordered favorably reported by a rollcall vote of 25 yeas to 12 
nays (with a quorum being present). The vote was as follows:

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

                          VOTES ON AMENDMENTS

    A rollcall vote was conducted on the following amendments 
to the Chairman's Amendment in the Nature of a Substitute.
    An amendment offered by Mr. Stark which would strike 
Section 111, relating to the ``Expansion and Modification of 
Advanced Coal Project Investment Credit'', was defeated by a 
rollcall vote of 2 yeas to 36 nays. The vote was as follows:

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

    An amendment offered by Mr. Reynolds which would extend 
temporary alternative minimum tax relief for an additional 
year, through December 31, 2008, was defeated by a rollcall 
vote of 15 yeas to 24 nays. The vote was as follows:

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

    An amendment offered by Mr. Stark, which would eliminate 
the tax credit for ethanol in Section 124, was defeated by a 
rollcall vote of 8 yeas to 30 nays. The vote was as follows:

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

    An amendment by Mr. English which would repeal the 
individual alternative minimum tax, beginning in tax year 2019, 
was defeated by a rollcall vote of 15 yeas to 24 nays. The vote 
was as follows:

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

    An amendment offered by Mr. Stark, which would prevent any 
racehorse which is 2 years old or younger at the time it is 
placed in service from qualifying as 3-year property under 
Section 168 of the Internal Revenue Code, was defeated by a 
rollcall vote of 15 yeas to 24 nays. The vote was as follows:

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

    An amendment offered by Mr. Brady was offered which would 
strike Section 311, the ``Attorney-Advanced Expenses'' 
provision, which is estimated to cost $1.572 billion (over ten 
years). The amendment would then apply the $1.572 billion (over 
ten years) towards lowering the floor of the refundable child 
credit (Section 302) over the same period. The amendment was 
defeated by a rollcall vote of 14 yeas to 25 nays. The vote was 
as follows:

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

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

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

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provisions of the bill, H.R. 6049 as reported.
    The bill is estimated to have the following effects on 
budget receipts for fiscal years 2008-2018:


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

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

      C. Cost Estimate Prepared by the Congressional Budget Office

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

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

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

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

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

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

                                                                             CHANGES IN DIRECT SPENDING (OUTLAYS)\1\

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

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

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

                                                                          CHANGES IN SPENDING SUBJECT TO APPROPRIATION

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

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

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

Revenues

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

Direct spending

    Refundable Tax Credits. Individuals may claim a tax credit 
for qualifying children under the age of 17. In the event that 
the credit exceeds a taxpayer's liability in a tax year, the 
taxpayer is allowed a refundable credit for that excess amount 
subject to certain limitations. The amount of that refundable 
credit is recorded as an outlay in the budget. Under H.R. 6049, 
those limitations would be loosened. Furthermore, the bill 
would modify the refundable credit associated with payments of 
the AMT. Under current law, an individual who pays the 
alternative minimum tax in any tax year may be eligible for a 
refundable tax credit in future years. H.R. 6049 would allow 
for an accelerated use of unused credits from previous years. 
JCT estimates that these provisions would increase outlays for 
the refundable credits by $4.2 billion over the 2008-2018 
period.
    Refunds for Excise Tax on Exported Coal. The bill would 
allow coal producers and exporters to claim a refund for excise 
taxes imposed on coal exported from the United States. Those 
taxes have been ruled unconstitutional. Refunds of the 
principal amount would be treated as a reduction in revenues, 
while refunds of the interest on those payments would be 
treated as direct spending. JCT estimates that refunding such 
payments would decrease revenues and increase outlays over the 
2008-2009 period by $0.1 billion and $0.2 billion, 
respectively. That estimate is based on two factors: the number 
of outstanding court cases involving coal producers and 
exporters currently seeking repayment of coal export taxes (as 
well as interest on those earlier payments), and the average 
court settlement for previous cases. JCT assumes that all 
refunds for pending cases would be paid in 2008 and 2009. 
Payments in those years accelerate some settlements that would 
have occurred in later years; as a result, JCT estimates that 
between 2010 and 2018, revenues would increase by $0.1 billion, 
offsetting the revenue decrease in 2008 and 2009.
    Funding for New York's Transportation Infrastructure. The 
bill would provide the city and the state of New York with tax 
credits for a certain amount of their expenditures made for 
transportation infrastructure related to the Liberty Zone. The 
credits could be used against the income taxes that the 
jurisdictions withhold from the paychecks of their employees 
and remit to the Internal Revenue Service. Because the 
jurisdictions do not themselves pay federal income taxes, the 
credits would essentially be grants and are treated as direct 
spending. JCT estimates that instituting the credits would 
increase direct spending by $1.2 billion over the 2008-2018 
period.
    Include Combat Pay as Earned Income. The bill would extend 
the option for individuals to include combat pay in earned 
income for purposes of the earned income credit through 
December 31, 2008. JCT estimates that this change would 
increase outlays from the refundable credit by $17 million in 
2009.
    Payment of Tax on Distilled Spirits. An excise tax of 
$13.50 per proof gallon is assessed on distilled spirits 
produced or brought into the United States. The treasuries of 
Puerto Rico and the Virgin Islands have received $10.50 per 
proof gallon of the excise tax on rum imported into the United 
States from any country or those territories (that amount is 
known as the tax cover over) since the higher payment rate of 
$13.25 per proof gallon expired on December 31, 2007. Section 
254 would increase the cover over to $13.25 per proof gallon 
for assessments made between January 1, 2008, and December 31, 
2008. Those payments to Puerto Rico and the Virgin Islands are 
recorded in the budget as outlays. Based on recent tax and 
payment data, CBO estimates that this provision would increase 
direct spending by $96 million over the 2008-2009 period.

Spending subject to appropriation

    Transportation Fringe Benefits. The bill would expand the 
use of transportation fringe benefits for federal employees to 
include bicycle commuters. The provision would allow up to $20 
per month for repair expenses, equipment costs, and storage 
costs for employees who regularly use a bicycle for commuting 
purposes. Based on information from the U.S. Census Bureau, CBO 
estimates that about 11,000 federal employees currently commute 
to work via bicycle. Assuming appropriation of the necessary 
amounts, CBO estimates that implementing this provision would 
cost $2 million in 2009 and $14 million over the 2009-2013 
period.
    Reports. H.R. 6049 would require two reports to the 
Congress by the National Academy of Sciences. One would 
evaluate the tax provisions in the Internal Revenue Code that 
affect carbon and greenhouse gas emissions, while the other 
would concern biofuels, including their present status and 
future potential. Based on the costs of similar studies and 
assuming appropriation of the specified and necessary amounts, 
CBO estimates that those studies would cost $2 million over the 
2008-2012 period.
    Intergovernmental and private-sector impact: CBO and JCT 
have reviewed the bill and determined that it contains no 
intergovernmental mandates as defined in UMRA. CBO has reviewed 
the nontax provisions of the bill and determined that they 
contain no private-sector mandates as defined in UMRA. JCT has 
determined that the tax provisions of the bill contain three 
private-sector mandates as defined in UMRA. The bill would 
extend the excise tax on coal at its current rates, adjust the 
rules for taxation of deferred compensation, and delay the 
implementation of worldwide interest allocation rules. JCT 
estimates the costs required to comply with the mandates would 
exceed the annual threshold established by UMRA ($136 million 
in 2008, adjusted annually for inflation) in each of the next 
10 years.
    Estimate prepared by: Federal Revenues: Zachary Epstein and 
Shinobu Suzuki; Federal Spending: Matthew Pickford and Dwayne 
Wright; Impact on State, Local, and Tribal Governments: 
Elizabeth Cove; Impact on the Private Sector: Amy Petz.
    Estimate approved by: G. Thomas Woodward, Assistant 
Director for Tax Analysis; Peter H. Fontaine, Assistant 
Director for Budget Analysis.

                    D. Macroeconomic Impact Analysis

    In compliance with clause 3(h)(2) of rule XIII of the Rules 
of the House of Representatives, the following statement is 
made by the Joint Committee on Taxation with respect to the 
provisions of the bill amending the Internal Revenue Code of 
1986: The temporary nature and limited scope of the tax 
reductions in this bill limit the amount of probable change in 
economic behavior that could be expected. The revenue raising 
provisions affect primarily repatriation or timing of on-shore 
realization of certain specialized sources of income, which is 
accounted for in the conventional estimate. Therefore, the 
effects of the bill on economic activity are so small as to be 
incalculable within the context of a model of the aggregate 
economy.

                             E. PAY-GO Rule

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

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


          A. Committee Oversight Findings and Recommendations

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

        B. Statement of General Performance Goals and Objectives

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

                 C. Constitutional Authority Statement

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

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the bill contains four 
unfunded Federal mandates on the private sector: (1) extend 
excise tax on coal at current rates (sunset 12/31/18); (2) 
modification of the incentives relating to alcohol fuels 
(VEETC) 45 cents; (3) immediate tax on deferred compensation 
paid by certain foreign entities; and (4) delay implementation 
of worldwide allocation of interest expense until 2019.
    The Committee has determined that the bill does not impose 
a Federal intergovernmental mandate on State, local, or tribal 
governments.

                E. Applicability of House Rule XXI 5(b)

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

                       F. Tax Complexity Analysis

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

                        G. Limited Tax Benefits

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

         Changes in Existing Law Made by the Bill, as Reported

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

                     INTERNAL REVENUE CODE OF 1986


Subtitle A--Income Taxes

           *       *       *       *       *       *       *


CHAPTER 1--NORMAL TAXES AND SURTAXES

           *       *       *       *       *       *       *


Subchapter A--Determination of Tax Liability

           *       *       *       *       *       *       *


PART IV--CREDITS AGAINST TAX

           *       *       *       *       *       *       *



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

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

subpart i. qualified tax credit bonds.

           *       *       *       *       *       *       *


Subpart A--Nonrefundable Personal Credits

           *       *       *       *       *       *       *


SEC. 23. ADOPTION EXPENSES.

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

           *       *       *       *       *       *       *

          (4) Limitation based on amount of tax.--In the case 
        of a taxable year to which section 26(a)(2) does not 
        apply, the credit allowed under subsection (a) for any 
        taxable year shall not exceed the excess of--
                  (A) * * *
                  (B) the sum of the credits allowable under 
                this subpart (other than this section and 
                section 25D) and section 27 for the taxable 
                year.

           *       *       *       *       *       *       *


SEC. 24. CHILD TAX CREDIT.

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

           *       *       *       *       *       *       *

          (3) Limitation based on amount of tax.--In the case 
        of a taxable year to which section 26(a)(2) does not 
        apply, the credit allowed under subsection (a) for any 
        taxable year shall not exceed the excess of--
                  (A) * * *
                  (B) the sum of the credits allowable under 
                this subpart (other than this section and 
                sections 23 [and 25B], 25B, 25D, and 30D) and 
                section 27 for the taxable year.

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 25. INTEREST ON CERTAIN HOME MORTGAGES.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

                  (C) Applicable tax limit.--For purposes of 
                this paragraph, the term ``applicable tax 
                limit'' means--
                          (i) * * *
                          (ii) in the case of a taxable year to 
                        which section 26(a)(2) does not apply, 
                        the limitation imposed by section 
                        26(a)(1) for the taxable year reduced 
                        by the sum of the credits allowable 
                        under this subpart (other than this 
                        section and sections 23, 24, 25B, 25D, 
                        30D, and 1400C).

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

  (g) Limitation Based on Amount of Tax.--In the case of a 
taxable year to which section 26(a)(2) does not apply, the 
credit allowed under subsection (a) for the taxable year shall 
not exceed the excess of--
          (1) * * *
          (2) the sum of the credits allowable under this 
        subpart (other than this section and [section 23] 
        sections 23, 25D, and 30D) and section 27 for the 
        taxable year.

SEC. 25C. NONBUSINESS ENERGY PROPERTY.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

SEC. 25D. RESIDENTIAL ENERGY EFFICIENT PROPERTY.

  (a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this 
chapter for the taxable year an amount equal to the sum of--
          (1) * * *
          (2) 30 percent of the qualified solar water heating 
        property expenditures made by the taxpayer during such 
        year, [and]
          (3) 30 percent of the qualified fuel cell property 
        expenditures made by the taxpayer during such year[.],
          (4) 30 percent of the qualified small wind energy 
        property expenditures made by the taxpayer during such 
        year, and
          (5) 30 percent of the qualified geothermal heat pump 
        property expenditures made by the taxpayer during such 
        year.
  (b) Limitations.--
          (1) Maximum credit.--The credit allowed under 
        subsection (a) (determined without regard to subsection 
        (c)) for any taxable year shall not exceed--
                  (A) [$2,000] $4,000 with respect to any 
                qualified solar electric property expenditures,
                  (B) $2,000 with respect to any qualified 
                solar water heating property expenditures, 
                [and]
                  (C) $500 with respect to each half kilowatt 
                of capacity of qualified fuel cell property (as 
                defined in section 48(c)(1)) for which 
                qualified fuel cell property expenditures are 
                made[.],
                  (D) $500 with respect to each half kilowatt 
                of capacity (not to exceed $4,000) of wind 
                turbines for which qualified small wind energy 
                property expenditures are made, and
                  (E) $2,000 with respect to any qualified 
                geothermal heat pump property expenditures.

           *       *       *       *       *       *       *

  [(c) Carryforward of Unused Credit.--
          [(1) Rule for years in which all personal credits 
        allowed against regular and alternative minimum tax.--
        In the case of a taxable year to which section 26(a)(2) 
        applies, if the credit allowable under subsection (a) 
        exceeds the limitation imposed by section 26(a)(2) for 
        such taxable year reduced by the sum of the credits 
        allowable under this subpart (other than this section), 
        such excess shall be carried to the succeeding taxable 
        year and added to the credit allowable under subsection 
        (a) for such succeeding taxable year.
          [(2) Rule for other years.--In the case of a taxable 
        year to which section 26(a)(2) does not apply, if the 
        credit allowable under subsection (a) exceeds the 
        limitation imposed by section 26(a)(1) for such taxable 
        year reduced by the sum of the credits allowable under 
        this subpart (other than this section and sections 23, 
        24, and 25B), such excess shall be carried to the 
        succeeding taxable year and added to the credit 
        allowable under subsection (a) for such succeeding 
        taxable year.]
  (c) Limitation Based on Amount of Tax; Carryforward of Unused 
Credit.--
          (1) Limitation based on amount of tax.--In the case 
        of a taxable year to which section 26(a)(2) does not 
        apply, the credit allowed under subsection (a) for the 
        taxable year shall not exceed the excess of--
                  (A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed 
                by section 55, over
                  (B) the sum of the credits allowable under 
                this subpart (other than this section) and 
                section 27 for the taxable year.
          (2) Carryforward of unused credit.--
                  (A) Rule for years in which all personal 
                credits allowed against regular and alternative 
                minimum tax.--In the case of a taxable year to 
                which section 26(a)(2) applies, if the credit 
                allowable under subsection (a) exceeds the 
                limitation imposed by section 26(a)(2) for such 
                taxable year reduced by the sum of the credits 
                allowable under this subpart (other than this 
                section), such excess shall be carried to the 
                succeeding taxable year and added to the credit 
                allowable under subsection (a) for such 
                succeeding taxable year.
                  (B) Rule for other years.--In the case of a 
                taxable year to which section 26(a)(2) does not 
                apply, if the credit allowable under subsection 
                (a) exceeds the limitation imposed by paragraph 
                (1) for such taxable year, such excess shall be 
                carried to the succeeding taxable year and 
                added to the credit allowable under subsection 
                (a) for such succeeding taxable year.
  (d) Definitions.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Qualified small wind energy property 
        expenditure.--The term ``qualified small wind energy 
        property expenditure'' means an expenditure for 
        property which uses a wind turbine to generate 
        electricity for use in connection with a dwelling unit 
        located in the United States and used as a residence by 
        the taxpayer.
          (5) Qualified geothermal heat pump property 
        expenditure.--
                  (A) In general.--The term ``qualified 
                geothermal heat pump property expenditure'' 
                means an expenditure for qualified geothermal 
                heat pump property installed on or in 
                connection with a dwelling unit located in the 
                United States and used as a residence by the 
                taxpayer.
                  (B) Qualified geothermal heat pump 
                property.--The term ``qualified geothermal heat 
                pump property'' means any equipment which--
                          (i) uses the ground or ground water 
                        as a thermal energy source to heat the 
                        dwelling unit referred to in 
                        subparagraph (A) or as a thermal energy 
                        sink to cool such dwelling unit, and
                          (ii) meets the requirements of the 
                        Energy Star program which are in effect 
                        at the time that the expenditure for 
                        such equipment is made.
  (e) Special Rules.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Dollar amounts in case of joint occupancy.--In 
        the case of any dwelling unit which is jointly occupied 
        and used during any calendar year as a residence by two 
        or more individuals the following rules shall apply:
                  (A) Maximum expenditures.--The maximum amount 
                of expenditures which may be taken into account 
                under subsection (a) by all such individuals 
                with respect to such dwelling unit during such 
                calendar year shall be--
                          (i) [$6,667] $13,333 in the case of 
                        any qualified solar electric property 
                        expenditures,
                          (ii) $6,667 in the case of any 
                        qualified solar water heating property 
                        expenditures, [and]
                          (iii) $1,667 in the case of each half 
                        kilowatt of capacity of qualified fuel 
                        cell property (as defined in section 
                        48(c)(1)) for which qualified fuel cell 
                        property expenditures are made[.],
                          (iv) $1,667 in the case of each half 
                        kilowatt of capacity (not to exceed 
                        $13,333) of wind turbines for which 
                        qualified small wind energy property 
                        expenditures are made, and
                          (v) $6,667 in the case of any 
                        qualified geothermal heat pump property 
                        expenditures.

           *       *       *       *       *       *       *

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

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

  (a) Limitation Based on Amount of Tax.--
          (1) In general.--The aggregate amount of credits 
        allowed by this subpart (other than sections 23, 24, 
        [and 25B] 25B, 25D, and 30D) for the taxable year shall 
        not exceed the excess (if any) of--
                  (A) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


                        Subpart B--Other Credits

Sec. 27. Taxes of foreign countries and possessions of the United 
          States; possession tax credit.
     * * * * * * *
Sec. 30D. New qualified plug-in electric drive motor vehicles.

           *       *       *       *       *       *       *


SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 30D. NEW QUALIFIED PLUG-IN ELECTRIC DRIVE MOTOR VEHICLES.

  (a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an 
amount equal to the sum of the credit amounts determined under 
subsection (b) with respect to each new qualified plug-in 
electric drive motor vehicle placed in service by the taxpayer 
during the taxable year.
  (b) Per Vehicle Dollar Limitation.--
          (1) In general.--The amount determined under this 
        subsection with respect to any new qualified plug-in 
        electric drive motor vehicle is the sum of the amounts 
        determined under paragraphs (2) and (3) with respect to 
        such vehicle.
          (2) Base amount.--The amount determined under this 
        paragraph is $3,000.
          (3) Battery capacity.--In the case of a vehicle which 
        draws propulsion energy from a battery with not less 
        than 5 kilowatt hours of capacity, the amount 
        determined under this paragraph is $200, plus $200 for 
        each kilowatt hour of capacity in excess of 5 kilowatt 
        hours. The amount determined under this paragraph shall 
        not exceed $2,000.
  (c) Application With Other Credits.--
          (1) Business credit treated as part of general 
        business credit.--So much of the credit which would be 
        allowed under subsection (a) for any taxable year 
        (determined without regard to this subsection) that is 
        attributable to property of a character subject to an 
        allowance for depreciation shall be treated as a credit 
        listed in section 38(b) for such taxable year (and not 
        allowed under subsection (a)).
          (2) Personal credit.--
                  (A) In general.--For purposes of this title, 
                the credit allowed under subsection (a) for any 
                taxable year (determined after application of 
                paragraph (1)) shall be treated as a credit 
                allowable under subpart A for such taxable 
                year.
                  (B) Limitation based on amount of tax.--In 
                the case of a taxable year to which section 
                26(a)(2) does not apply, the credit allowed 
                under subsection (a) for any taxable year 
                (determined after application of paragraph (1)) 
                shall not exceed the excess of--
                          (i) the sum of the regular tax 
                        liability (as defined in section 26(b)) 
                        plus the tax imposed by section 55, 
                        over
                          (ii) the sum of the credits allowable 
                        under subpart A (other than this 
                        section and sections 23 and 25D) and 
                        section 27 for the taxable year.
  (d) New Qualified Plug-in Electric Drive Motor Vehicle.--For 
purposes of this section--
          (1) In general.--The term ``new qualified plug-in 
        electric drive motor vehicle'' means a motor vehicle 
        (as defined in section 30(c)(2))--
                  (A) the original use of which commences with 
                the taxpayer,
                  (B) which is acquired for use or lease by the 
                taxpayer and not for resale,
                  (C) which is made by a manufacturer,
                  (D) which has a gross vehicle weight rating 
                of less than 14,000 pounds,
                  (E) which has received a certificate of 
                conformity under the Clean Air Act and meets or 
                exceeds the Bin 5 Tier II emission standard 
                established in regulations prescribed by the 
                Administrator of the Environmental Protection 
                Agency under section 202(i) of the Clean Air 
                Act for that make and model year vehicle, and
                  (F) which is propelled to a significant 
                extent by an electric motor which draws 
                electricity from a battery which--
                          (i) has a capacity of not less than 4 
                        kilowatt hours, and
                          (ii) is capable of being recharged 
                        from an external source of electricity.
          (2) Exception.--The term ``new qualified plug-in 
        electric drive motor vehicle'' shall not include any 
        vehicle which is not a passenger automobile or light 
        truck if such vehicle has a gross vehicle weight rating 
        of less than 8,500 pounds.
          (3) Other terms.--The terms ``passenger automobile'', 
        ``light truck'', and ``manufacturer'' have the meanings 
        given such terms in regulations prescribed by the 
        Administrator of the Environmental Protection Agency 
        for purposes of the administration of title II of the 
        Clean Air Act (42 U.S.C. 7521 et seq.).
          (4) Battery capacity.--The term ``capacity'' means, 
        with respect to any battery, the quantity of 
        electricity which the battery is capable of storing, 
        expressed in kilowatt hours, as measured from a 100 
        percent state of charge to a 0 percent state of charge.
  (e) Limitation on Number of New Qualified Plug-in Electric 
Drive Motor Vehicles Eligible for Credit.--
          (1) In general.--In the case of a new qualified plug-
        in electric drive motor vehicle sold during the 
        phaseout period, only the applicable percentage of the 
        credit otherwise allowable under subsection (a) shall 
        be allowed.
          (2) Phaseout period.--For purposes of this 
        subsection, the phaseout period is the period beginning 
        with the second calendar quarter following the calendar 
        quarter which includes the first date on which the 
        number of new qualified plug-in electric drive motor 
        vehicles manufactured by the manufacturer of the 
        vehicle referred to in paragraph (1) sold for use in 
        the United States after the date of the enactment of 
        this section, is at least 60,000.
          (3) Applicable percentage.--For purposes of paragraph 
        (1), the applicable percentage is--
                  (A) 50 percent for the first 2 calendar 
                quarters of the phaseout period,
                  (B) 25 percent for the 3d and 4th calendar 
                quarters of the phaseout period, and
                  (C) 0 percent for each calendar quarter 
                thereafter.
          (4) Controlled groups.--Rules similar to the rules of 
        section 30B(f)(4) shall apply for purposes of this 
        subsection.
  (f) Special Rules.--
          (1) Basis reduction.--The basis of any property for 
        which a credit is allowable under subsection (a) shall 
        be reduced by the amount of such credit (determined 
        without regard to subsection (c)).
          (2) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit 
        allowable under subsection (a) with respect to any 
        property which ceases to be property eligible for such 
        credit.
          (3) Property used outside united states, etc., not 
        qualified.--No credit shall be allowed under subsection 
        (a) with respect to any property referred to in section 
        50(b)(1) or with respect to the portion of the cost of 
        any property taken into account under section 179.
          (4) Election not to take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the 
        taxpayer elects to not have this section apply to such 
        vehicle.
          (5) Property used by tax-exempt entity; interaction 
        with air quality and motor vehicle safety standards.--
        Rules similar to the rules of paragraphs (6) and (10) 
        of section 30B(h) shall apply for purposes of this 
        section.

Subpart C--Refundable Credits

           *       *       *       *       *       *       *


SEC. 32. EARNED INCOME.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subpart D--Business Related Credits

           *       *       *       *       *       *       *


SEC. 38. GENERAL BUSINESS CREDIT.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 40. ALCOHOL USED AS FUEL.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          [(3) Credit for agri-biodiesel.--In the case of any 
        biodiesel which is agri-biodiesel, paragraphs (1)(A) 
        and (2)(A) shall be applied by substituting ``$1.00'' 
        for ``50 cents''.]
          [(4)] (3) Certification for biodiesel.--No credit 
        shall be allowed under paragraph (1) or (2) of 
        subsection (a) unless the taxpayer obtains a 
        certification (in such form and manner as prescribed by 
        the Secretary) from the producer or importer of the 
        biodiesel which identifies the product produced and the 
        percentage of biodiesel and agri-biodiesel in the 
        product.
          [(5)] (4) Small agri-biodiesel producer credit.--
                  (A) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (5) Limitation to biodiesel with connection to the 
        united states.--No credit shall be determined under 
        this section with respect to any biodiesel which is 
        produced outside the United States for use as a fuel 
        outside the United States. For purposes of this 
        paragraph, the term ``United States'' includes any 
        possession of the United States.
  (e) Definitions and Special Rules for Small Agri-Biodiesel 
Producer Credit.--For purposes of this section--
          (1) * * *
          (2) Aggregation rule.--For purposes of the 15,000,000 
        gallon limitation under [subsection (b)(5)(C)] 
        subsection (b)(4)(C) and the 60,000,000 gallon 
        limitation under paragraph (1), all members of the same 
        controlled group of corporations (within the meaning of 
        section 267(f)) and all persons under common control 
        (within the meaning of section 52(b) but determined by 
        treating an interest of more than 50 percent as a 
        controlling interest) shall be treated as 1 person.
          (3) Partnership, s corporation, and other pass-thru 
        entities.--In the case of a partnership, trust, S 
        corporation, or other pass-thru entity, the limitations 
        contained in [subsection (b)(5)(C)] subsection 
        (b)(4)(C) and paragraph (1) shall be applied at the 
        entity level and at the partner or similar level.

           *       *       *       *       *       *       *

  (f) Renewable Diesel.--For purposes of this title--
          (1) * * *
          [(2) Exceptions.--
                  [(A) Rate of credit.--Subsections (b)(1)(A) 
                and (b)(2)(A) shall be applied with respect to 
                renewable diesel by substituting ``$1.00'' for 
                ``50 cents''.
                  [(B) Nonapplication of certain credits.--
                Subsections (b)(3) and (b)(5) shall not apply 
                with respect to renewable diesel.]
          (2) Exception.--Subsection (b)(4) shall not apply 
        with respect to renewable diesel.
          (3) Renewable diesel defined.--The term ``renewable 
        diesel'' means [diesel fuel] liquid fuel derived from 
        biomass [(as defined in section 45K(c)(3)) using a 
        thermal depolymerization process] which meets--
                  (A) * * *
                  (B) the requirements of the American Society 
                of Testing and Materials D975 [or D396], D396, 
                or other equivalent standard approved by the 
                Secretary.
        Such term does not include any fuel derived from 
        coprocessing biomass with a feedstock which is not 
        biomass. For purposes of this paragraph, the term 
        ``biomass'' has the meaning given such term by section 
        45K(c)(3). The term ``renewable diesel'' also means 
        fuel derived from biomass which meets the requirements 
        of a Department of Defense specification for military 
        jet fuel or an American Society of Testing and 
        Materials specification for aviation turbine fuel.
  (g) Termination.--This section shall not apply to any sale or 
use after [December 31, 2008] December 31, 2009.

SEC. 41. CREDIT FOR INCREASING RESEARCH ACTIVITIES.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

  (a) * * *
  (b) Limitations and Adjustments.--
          [(1) Phaseout of credit.--The amount of the credit 
        determined under subsection (a) shall be reduced by an 
        amount which bears the same ratio to the amount of the 
        credit (determined without regard to this paragraph) 
        as--
                  [(A) the amount by which the reference price 
                for the calendar year in which the sale occurs 
                exceeds 8 cents, bears to
                  [(B) 3 cents.]
          (1) Limitation based on investment in facility.--
                  (A) In general.--In the case of any qualified 
                facility originally placed in service after 
                December 31, 2009, the amount of the credit 
                determined under subsection (a) for any taxable 
                year with respect to electricity produced at 
                such facility shall not exceed the product of--
                          (i) the applicable percentage with 
                        respect to such facility, multiplied by
                          (ii) the eligible basis of such 
                        facility.
                  (B) Carryforward of unused limitation and 
                excess credit.--
                          (i) Unused limitation.--If the 
                        limitation imposed under subparagraph 
                        (A) with respect to any facility for 
                        any taxable year exceeds the 
                        prelimitation credit for such facility 
                        for such taxable year, the limitation 
                        imposed under subparagraph (A) with 
                        respect to such facility for the 
                        succeeding taxable year shall be 
                        increased by the amount of such excess.
                          (ii) Excess credit.--If the 
                        prelimitation credit with respect to 
                        any facility for any taxable year 
                        exceeds the limitation imposed under 
                        subparagraph (A) with respect to such 
                        facility for such taxable year, the 
                        credit determined under subsection (a) 
                        with respect to such facility for the 
                        succeeding taxable year (determined 
                        before the application of subparagraph 
                        (A) for such succeeding taxable year) 
                        shall be increased by the amount of 
                        such excess. With respect to any 
                        facility, no amount may be carried 
                        forward under this clause to any 
                        taxable year beginning after the 10-
                        year period described in subsection 
                        (a)(2)(A)(ii) with respect to such 
                        facility.
                          (iii) Prelimitation credit.--The term 
                        ``prelimitation credit'' with respect 
                        to any facility for a taxable year 
                        means the credit determined under 
                        subsection (a) with respect to such 
                        facility for such taxable year, 
                        determined without regard to 
                        subparagraph (A) and after taking into 
                        account any increase for such taxable 
                        year under clause (ii).
                  (C) Applicable percentage.--For purposes of 
                this paragraph--
                          (i) In general.--The term 
                        ``applicable percentage'' means, with 
                        respect to any facility, the 
                        appropriate percentage prescribed by 
                        the Secretary for the month in which 
                        such facility is originally placed in 
                        service.
                          (ii) Method of prescribing applicable 
                        percentages.--The applicable 
                        percentages prescribed by the Secretary 
                        for any month under clause (i) shall be 
                        percentages which yield over a 10-year 
                        period amounts of limitation under 
                        subparagraph (A) which have a present 
                        value equal to 35 percent of the 
                        eligible basis of the facility.
                          (iii) Method of discounting.--The 
                        present value under clause (ii) shall 
                        be determined--
                                  (I) as of the last day of the 
                                1st year of the 10-year period 
                                referred to in clause (ii),
                                  (II) by using a discount rate 
                                equal to the greater of 110 
                                percent of the Federal long-
                                term rate as in effect under 
                                section 1274(d) for the month 
                                preceding the month for which 
                                the applicable percentage is 
                                being prescribed, or 4.5 
                                percent, and
                                  (III) by taking into account 
                                the limitation under 
                                subparagraph (A) for any year 
                                on the last day of such year.
                  (D) Eligible basis.--For purposes of this 
                paragraph--
                          (i) In general.--The term ``eligible 
                        basis'' means, with respect to any 
                        facility, the sum of--
                                  (I) the basis of such 
                                facility determined as of the 
                                time that such facility is 
                                originally placed in service, 
                                and
                                  (II) the portion of the basis 
                                of any shared qualified 
                                property which is properly 
                                allocable to such facility 
                                under clause (ii).
                          (ii) Rules for allocation.--For 
                        purposes of subclause (II) of clause 
                        (i), the basis of shared qualified 
                        property shall be allocated among all 
                        qualified facilities which are 
                        projected to be placed in service and 
                        which require utilization of such 
                        property in proportion to projected 
                        generation from such facilities.
                          (iii) Shared qualified property.--For 
                        purposes of this paragraph, the term 
                        ``shared qualified property'' means, 
                        with respect to any facility, any 
                        property described in section 
                        168(e)(3)(B)(vi)--
                                  (I) which a qualified 
                                facility will require for 
                                utilization of such facility, 
                                and
                                  (II) which is not a qualified 
                                facility.
                          (iv) Special rule relating to 
                        geothermal facilities.--In the case of 
                        any qualified facility using geothermal 
                        energy to produce electricity, the 
                        basis of such facility for purposes of 
                        this paragraph shall be determined as 
                        though intangible drilling and 
                        development costs described in section 
                        263(c) were capitalized rather than 
                        expensed.
                  (E) Special rule for first and last year of 
                credit period.--In the case of any taxable year 
                any portion of which is not within the 10-year 
                period described in subsection (a)(2)(A)(ii) 
                with respect to any facility, the amount of the 
                limitation under subparagraph (A) with respect 
                to such facility shall be reduced by an amount 
                which bears the same ratio to the amount of 
                such limitation (determined without regard to 
                this subparagraph) as such portion of the 
                taxable year which is not within such period 
                bears to the entire taxable year.
                  (F) Election to treat all facilities placed 
                in service in a year as 1 facility.--At the 
                election of the taxpayer, all qualified 
                facilities which are part of the same project 
                and which are placed in service during the same 
                calendar year shall be treated for purposes of 
                this section as 1 facility which is placed in 
                service at the mid-point of such year or the 
                first day of the following calendar year.
          (2) Credit and phaseout adjustment based on 
        inflation.--The 1.5 cent amount in subsection (a), [the 
        8 cent amount in paragraph (1),] the $4.375 amount in 
        subsection (e)(8)(A), and in subsection (e)(8)(B)(i) 
        the reference price of fuel used as a feedstock (within 
        the meaning of subsection (c)(7)(A)) in 2002 shall each 
        be adjusted by multiplying such amount by the inflation 
        adjustment factor for the calendar year in which the 
        sale occurs. If any amount as increased under the 
        preceding sentence is not a multiple of 0.1 cent, such 
        amount shall be rounded to the nearest multiple of 0.1 
        cent.

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (10) Marine and hydrokinetic renewable energy.--
                  (A) In general.--The term ``marine and 
                hydrokinetic renewable energy'' means energy 
                derived from--
                          (i) waves, tides, and currents in 
                        oceans, estuaries, and tidal areas,
                          (ii) free flowing water in rivers, 
                        lakes, and streams,
                          (iii) free flowing water in an 
                        irrigation system, canal, or other man-
                        made channel, including projects that 
                        utilize nonmechanical structures to 
                        accelerate the flow of water for 
                        electric power production purposes, or
                          (iv) differentials in ocean 
                        temperature (ocean thermal energy 
                        conversion).
                  (B) Exceptions.--Such term shall not include 
                any energy which is derived from any source 
                which utilizes a dam, diversionary structure 
                (except as provided in subparagraph (A)(iii)), 
                or impoundment for electric power production 
                purposes.
  (d) Qualified Facilities.--For purposes of this section:
          (1) Wind facility.--In the case of a facility using 
        wind to produce electricity, the term ``qualified 
        facility'' means any facility owned by the taxpayer 
        which is originally placed in service after December 
        31, 1993, and before [January 1, 2009] January 1, 2010. 
        Such term shall not include any facility with respect 
        to which any qualified small wind energy property 
        expenditure (as defined in subsection (d)(4) of section 
        25D) is taken into account in determining the credit 
        under such section.
          (2) Closed-loop biomass facility.--
                  (A) In general.--In the case of a facility 
                using closed- loop biomass to produce 
                electricity, the term ``qualified facility'' 
                means any facility--
                          (i) owned by the taxpayer which is 
                        originally placed in service after 
                        December 31, 1992, and before [January 
                        1, 2009] January 1, 2012, or
                          (ii) owned by the taxpayer which 
                        before [January 1, 2009] January 1, 
                        2012, is originally placed in service 
                        and modified to use closed-loop biomass 
                        to co-fire with coal, with other 
                        biomass, or with both, but only if the 
                        modification is approved under the 
                        Biomass Power for Rural Development 
                        Programs or is part of a pilot project 
                        of the Commodity Credit Corporation as 
                        described in 65 Fed. Reg. 63052.
                  (B) Expansion of facility.--Such term shall 
                include a new unit placed in service after the 
                date of the enactment of this subparagraph in 
                connection with a facility described in 
                subparagraph (A)(i), but only to the extent of 
                the increased amount of electricity produced at 
                the facility by reason of such new unit.
                  [(B)] (C) Special rules.--In the case of a 
                qualified facility described in subparagraph 
                (A)(ii)--
                          (i) * * *

           *       *       *       *       *       *       *

          (3) Open-loop biomass facilities.--
                  (A) In general.--In the case of a facility 
                using open- loop biomass to produce 
                electricity, the term ``qualified facility'' 
                means any facility owned by the taxpayer 
                which--
                          (i) in the case of a facility using 
                        agricultural livestock waste 
                        nutrients--
                                  (I) is originally placed in 
                                service after the date of the 
                                enactment of this subclause and 
                                before [January 1, 2009] 
                                January 1, 2012, and

           *       *       *       *       *       *       *

                          (ii) in the case of any other 
                        facility, is originally placed in 
                        service before [January 1, 2009] 
                        January 1, 2012.
                  (B) Expansion of facility.--Such term shall 
                include a new unit placed in service after the 
                date of the enactment of this subparagraph in 
                connection with a facility described in 
                subparagraph (A), but only to the extent of the 
                increased amount of electricity produced at the 
                facility by reason of such new unit.
                  [(B)] (C) Credit eligibility.--In the case of 
                any facility described in subparagraph (A), if 
                the owner of such facility is not the producer 
                of the electricity, the person eligible for the 
                credit allowable under subsection (a) shall be 
                the lessee or the operator of such facility.
          (4) Geothermal or solar energy facility.--In the case 
        of a facility using geothermal or solar energy to 
        produce electricity, the term ``qualified facility'' 
        means any facility owned by the taxpayer which is 
        originally placed in service after the date of the 
        enactment of this paragraph and before [January 1, 
        2009] January 1, 2012 (January 1, 2006, in the case of 
        a facility using solar energy). Such term shall not 
        include any property described in section 48(a)(3) the 
        basis of which is taken into account by the taxpayer 
        for purposes of determining the energy credit under 
        section 48.
          (5) Small irrigation power facility.--In the case of 
        a facility using small irrigation power to produce 
        electricity, the term ``qualified facility'' means any 
        facility owned by the taxpayer which is originally 
        placed in service after the date of the enactment of 
        this paragraph and before [January 1, 2009] the date of 
        the enactment of paragraph (11).
          (6) Landfill gas facilities.--In the case of a 
        facility producing electricity from gas derived from 
        the biodegradation of municipal solid waste, the term 
        ``qualified facility'' means any facility owned by the 
        taxpayer which is originally placed in service after 
        the date of the enactment of this paragraph and before 
        [January 1, 2009] January 1, 2012.
          (7) Trash [combustion] facilities.--In the case of a 
        [facility which burns] facility (other than a facility 
        described in paragraph (6)) which uses municipal solid 
        waste to produce electricity, the term ``qualified 
        facility'' means any facility owned by the taxpayer 
        which is originally placed in service after the date of 
        the enactment of this paragraph and before [January 1, 
        2009] January 1, 2012. Such term shall include a new 
        unit placed in service in connection with a facility 
        placed in service on or before the date of the 
        enactment of this paragraph, but only to the extent of 
        the increased amount of electricity produced at the 
        facility by reason of such new unit.

           *       *       *       *       *       *       *

          (9) Qualified hydropower facility.--In the case of a 
        facility producing qualified hydroelectric production 
        described in subsection (c)(8), the term ``qualified 
        facility'' means--
                  (A) in the case of any facility producing 
                incremental hydropower production, such 
                facility but only to the extent of its 
                incremental hydropower production attributable 
                to efficiency improvements or additions to 
                capacity described in subsection (c)(8)(B) 
                placed in service after the date of the 
                enactment of this paragraph and before [January 
                1, 2009] January 1, 2012, and
                  (B) any other facility placed in service 
                after the date of the enactment of this 
                paragraph and before [January 1, 2009] January 
                1, 2012.

           *       *       *       *       *       *       *

          (11) Marine and hydrokinetic renewable energy 
        facilities.--In the case of a facility producing 
        electricity from marine and hydrokinetic renewable 
        energy, the term ``qualified facility'' means any 
        facility owned by the taxpayer--
                  (A) which has a nameplate capacity rating of 
                at least 150 kilowatts, and
                  (B) which is originally placed in service on 
                or after the date of the enactment of this 
                paragraph and before January 1, 2012.
  (e) Definitions and Special Rules.--For purposes of this 
section--
          (1) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 45A. INDIAN EMPLOYMENT CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 45D. NEW MARKETS TAX CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 45G. RAILROAD TRACK MAINTENANCE CREDIT.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 45M. ENERGY EFFICIENT APPLIANCE CREDIT.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (3) Clothes washer.--The term ``clothes washer'' 
        means a 1 residential model clothes washer, including a 
        commercial residential style coin operated washer.
          (4) Top-loading clothes washer.--The term ``top-
        loading clothes washer'' means a clothes washer which 
        has the clothes container compartment access located on 
        the top of the machine and which operates on a vertical 
        axis.
          [(4)] (5) Refrigerator.--The term ``refrigerator'' 
        means a residential model automatic defrost 
        refrigerator-freezer which has an internal volume of at 
        least 16.5 cubic feet.
          [(5) EF.--The term ``EF'' means the energy factor 
        established by the Department of Energy for compliance 
        with the Federal energy conservation standards.]
          (6) Modified energy factor.--The term ``modified 
        energy factor'' means the modified energy factor 
        established by the Department of Energy for compliance 
        with the Federal energy conservation standard.
          [(6)] (7) Produced.--The term ``produced'' includes 
        manufactured.
          [(7)] (8) 2001 energy conservation standard.--The 
        term ``2001 energy conservation standard'' means the 
        energy conservation standards promulgated by the 
        Department of Energy and effective July 1, 2001.
          (9) Gallons per cycle.--The term ``gallons per 
        cycle'' means, with respect to a dishwasher, the amount 
        of water, expressed in gallons, required to complete a 
        normal cycle of a dishwasher.
          (10) Water consumption factor.--The term ``water 
        consumption factor'' means, with respect to a clothes 
        washer, the quotient of the total weighted per-cycle 
        water consumption divided by the cubic foot (or liter) 
        capacity of the clothes washer.

           *       *       *       *       *       *       *


Subpart E--Rules for Computing Investment Credit

           *       *       *       *       *       *       *


SEC. 48. ENERGY CREDIT.

  (a) Energy Credit.--
          (1) * * *
          (2) Energy percentage.--
                  (A) In general.--The energy percentage is--
                          (i) 30 percent in the case of--
                                  (I) * * *
                                  (II) energy property 
                                described in paragraph 
                                (3)(A)(i) but only with respect 
                                to periods ending before 
                                [January 1, 2009] January 1, 
                                2015, and

           *       *       *       *       *       *       *

          (3) Energy property.--For purposes of this subpart, 
        the term ``energy property'' means any property--
                  (A) which is--
                          (i) * * *

           *       *       *       *       *       *       *

                          (ii) equipment which uses solar 
                        energy to illuminate the inside of a 
                        structure using fiber-optic distributed 
                        sunlight but only with respect to 
                        periods ending before [January 1, 2009] 
                        January 1, 2015,
                          (iii) equipment used to produce, 
                        distribute, or use energy derived from 
                        a geothermal deposit (within the 
                        meaning of section 613(e)(2)), but 
                        only, in the case of electricity 
                        generated by geothermal power, up to 
                        (but not including) the electrical 
                        transmission stage, [or]
                          (iv) qualified fuel cell property or 
                        qualified microturbine property, or
                          (v) combined heat and power system 
                        property,

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

                  [(D) Special rule.--The first sentence of the 
                matter in subsection (a)(3) which follows 
                subparagraph (D) thereof shall not apply to 
                qualified fuel cell property which is used 
                predominantly in the trade or business of the 
                furnishing or sale of telephone service, 
                telegraph service by means of domestic 
                telegraph operations, or other telegraph 
                services (other than international telegraph 
                services).]
                  [(E)] (D) Termination.--The term ``qualified 
                fuel cell property'' shall not include any 
                property for any period after [December 31, 
                2008] December 31, 2014.
          (2) Qualified microturbine property.--
                  (A) * * *

           *       *       *       *       *       *       *

                  [(D) Special rule.--The first sentence of the 
                matter in subsection (a)(3) which follows 
                subparagraph (D) thereof shall not apply to 
                qualified microturbine property which is used 
                predominantly in the trade or business of the 
                furnishing or sale of telephone service, 
                telegraph service by means of domestic 
                telegraph operations, or other telegraph 
                services (other than international telegraph 
                services).]
                  [(E)] (D) Termination.--The term ``qualified 
                microturbine property'' shall not include any 
                property for any period after [December 31, 
                2008] December 31, 2014.
  (d) Combined Heat and Power System Property.--For purposes of 
subsection (a)(3)(A)(v)--
          (1) Combined heat and power system property.--The 
        term ``combined heat and power system property'' means 
        property comprising a system--
                  (A) which uses the same energy source for the 
                simultaneous or sequential generation of 
                electrical power, mechanical shaft power, or 
                both, in combination with the generation of 
                steam or other forms of useful thermal energy 
                (including heating and cooling applications),
                  (B) which produces--
                          (i) at least 20 percent of its total 
                        useful energy in the form of thermal 
                        energy which is not used to produce 
                        electrical or mechanical power (or 
                        combination thereof), and
                          (ii) at least 20 percent of its total 
                        useful energy in the form of electrical 
                        or mechanical power (or combination 
                        thereof),
                  (C) the energy efficiency percentage of which 
                exceeds 60 percent, and
                  (D) which is placed in service before January 
                1, 2015.
          (2) Limitation.--
                  (A) In general.--In the case of combined heat 
                and power system property with an electrical 
                capacity in excess of the applicable capacity 
                placed in service during the taxable year, the 
                credit under subsection (a)(1) (determined 
                without regard to this paragraph) for such year 
                shall be equal to the amount which bears the 
                same ratio to such credit as the applicable 
                capacity bears to the capacity of such 
                property.
                  (B) Applicable capacity.--For purposes of 
                subparagraph (A), the term ``applicable 
                capacity'' means 15 megawatts or a mechanical 
                energy capacity of more than 20,000 horsepower 
                or an equivalent combination of electrical and 
                mechanical energy capacities.
                  (C) Maximum capacity.--The term ``combined 
                heat and power system property'' shall not 
                include any property comprising a system if 
                such system has a capacity in excess of 50 
                megawatts or a mechanical energy capacity in 
                excess of 67,000 horsepower or an equivalent 
                combination of electrical and mechanical energy 
                capacities.
          (3) Special rules.--
                  (A) Energy efficiency percentage.--For 
                purposes of this subsection, the energy 
                efficiency percentage of a system is the 
                fraction--
                          (i) the numerator of which is the 
                        total useful electrical, thermal, and 
                        mechanical power produced by the system 
                        at normal operating rates, and expected 
                        to be consumed in its normal 
                        application, and
                          (ii) the denominator of which is the 
                        lower heating value of the fuel sources 
                        for the system.
                  (B) Determinations made on btu basis.--The 
                energy efficiency percentage and the 
                percentages under paragraph (1)(B) shall be 
                determined on a Btu basis.
                  (C) Input and output property not included.--
                The term ``combined heat and power system 
                property'' does not include property used to 
                transport the energy source to the facility or 
                to distribute energy produced by the facility.
          (4) Systems using biomass.--If a system is designed 
        to use biomass (within the meaning of paragraphs (2) 
        and (3) of section 45(c) without regard to the last 
        sentence of paragraph (3)(A)) for at least 90 percent 
        of the energy source--
                  (A) paragraph (1)(C) shall not apply, but
                  (B) the amount of credit determined under 
                subsection (a) with respect to such system 
                shall not exceed the amount which bears the 
                same ratio to such amount of credit (determined 
                without regard to this paragraph) as the energy 
                efficiency percentage of such system bears to 
                60 percent.

SEC. 48A. QUALIFYING ADVANCED COAL PROJECT CREDIT.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

SEC. 48B. QUALIFYING GASIFICATION PROJECT CREDIT.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

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

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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


                 Subpart I--Qualified Tax Credit Bonds

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

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

  (a) Allowance of Credit.--If a taxpayer holds a qualified tax 
credit bond on one or more credit allowance dates of the bond 
during any taxable year, there shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an 
amount equal to the sum of the credits determined under 
subsection (b) with respect to such dates.
  (b) Amount of Credit.--
          (1) In general.--The amount of the credit determined 
        under this subsection with respect to any credit 
        allowance date for a qualified tax credit bond is 25 
        percent of the annual credit determined with respect to 
        such bond.
          (2) Annual credit.--The annual credit determined with 
        respect to any qualified tax credit bond is the product 
        of--
                  (A) the applicable credit rate, multiplied by
                  (B) the outstanding face amount of the bond.
          (3) Applicable credit rate.--For purposes of 
        paragraph (2), the applicable credit rate is the rate 
        which the Secretary estimates will permit the issuance 
        of qualified tax credit bonds with a specified maturity 
        or redemption date without discount and without 
        interest cost to the qualified issuer. The applicable 
        credit rate with respect to any qualified tax credit 
        bond shall be determined as of the first day on which 
        there is a binding, written contract for the sale or 
        exchange of the bond.
          (4) Special rule for issuance and redemption.--In the 
        case of a bond which is issued during the 3-month 
        period ending on a credit allowance date, the amount of 
        the credit determined under this subsection with 
        respect to such credit allowance date shall be a 
        ratable portion of the credit otherwise determined 
        based on the portion of the 3-month period during which 
        the bond is outstanding. A similar rule shall apply 
        when the bond is redeemed or matures.
  (c) Limitation Based on Amount of Tax.--
          (1) In general.--The credit allowed under subsection 
        (a) for any taxable year shall not exceed the excess 
        of--
                  (A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed 
                by section 55, over
                  (B) the sum of the credits allowable under 
                this part (other than subpart C and this 
                subpart).
          (2) Carryover of unused credit.--If the credit 
        allowable under subsection (a) exceeds the limitation 
        imposed by paragraph (1) for such taxable year, such 
        excess shall be carried to the succeeding taxable year 
        and added to the credit allowable under subsection (a) 
        for such taxable year (determined before the 
        application of paragraph (1) for such succeeding 
        taxable year).
  (d) Qualified Tax Credit Bond.--For purposes of this 
section--
          (1) Qualified tax credit bond.--The term ``qualified 
        tax credit bond'' means--
                  (A) a new clean renewable energy bond,
                  (B) a qualified energy conservation bond, or
                  (C) a qualified zone academy bond,
        which is part of an issue that meets requirements of 
        paragraphs (2), (3), (4), (5), and (6).
          (2) Special rules relating to expenditures.--
                  (A) In general.--An issue shall be treated as 
                meeting the requirements of this paragraph if, 
                as of the date of issuance, the issuer 
                reasonably expects--
                          (i) 100 percent or more of the 
                        available project proceeds to be spent 
                        for 1 or more qualified purposes within 
                        the 3-year period beginning on such 
                        date of issuance, and
                          (ii) a binding commitment with a 
                        third party to spend at least 10 
                        percent of such available project 
                        proceeds will be incurred within the 6-
                        month period beginning on such date of 
                        issuance.
                  (B) Failure to spend required amount of bond 
                proceeds within 3 years.--
                          (i) In general.--To the extent that 
                        less than 100 percent of the available 
                        project proceeds of the issue are 
                        expended by the close of the 
                        expenditure period for 1 or more 
                        qualified purposes, the issuer shall 
                        redeem all of the nonqualified bonds 
                        within 90 days after the end of such 
                        period. For purposes of this paragraph, 
                        the amount of the nonqualified bonds 
                        required to be redeemed shall be 
                        determined in the same manner as under 
                        section 142.
                          (ii) Expenditure period.--For 
                        purposes of this subpart, the term 
                        ``expenditure period'' means, with 
                        respect to any issue, the 3-year period 
                        beginning on the date of issuance. Such 
                        term shall include any extension of 
                        such period under clause (iii).
                          (iii) Extension of period.--Upon 
                        submission of a request prior to the 
                        expiration of the expenditure period 
                        (determined without regard to any 
                        extension under this clause), the 
                        Secretary may extend such period if the 
                        issuer establishes that the failure to 
                        expend the proceeds within the original 
                        expenditure period is due to reasonable 
                        cause and the expenditures for 
                        qualified purposes will continue to 
                        proceed with due diligence.
                  (C) Qualified purpose.--For purposes of this 
                paragraph, the term ``qualified purpose'' 
                means--
                          (i) in the case of a new clean 
                        renewable energy bond, a purpose 
                        specified in section 54B(a)(1),
                          (ii) in the case of a qualified 
                        energy conservation bond, a purpose 
                        specified in section 54C(a)(1), and
                          (iii) in the case of a qualified zone 
                        academy bond, a purpose specified in 
                        section 54D(a)(1).
                  (D) Reimbursement.--For purposes of this 
                subtitle, available project proceeds of an 
                issue shall be treated as spent for a qualified 
                purpose if such proceeds are used to reimburse 
                the issuer for amounts paid for a qualified 
                purpose after the date that the Secretary makes 
                an allocation of bond limitation with respect 
                to such issue, but only if--
                          (i) prior to the payment of the 
                        original expenditure, the issuer 
                        declared its intent to reimburse such 
                        expenditure with the proceeds of a 
                        qualified tax credit bond,
                          (ii) not later than 60 days after 
                        payment of the original expenditure, 
                        the issuer adopts an official intent to 
                        reimburse the original expenditure with 
                        such proceeds, and
                          (iii) the reimbursement is made not 
                        later than 18 months after the date the 
                        original expenditure is paid.
          (3) Reporting.--An issue shall be treated as meeting 
        the requirements of this paragraph if the issuer of 
        qualified tax credit bonds submits reports similar to 
        the reports required under section 149(e).
          (4) Special rules relating to arbitrage.--
                  (A) In general.--An issue shall be treated as 
                meeting the requirements of this paragraph if 
                the issuer satisfies the requirements of 
                section 148 with respect to the proceeds of the 
                issue.
                  (B) Special rule for investments during 
                expenditure period.--An issue shall not be 
                treated as failing to meet the requirements of 
                subparagraph (A) by reason of any investment of 
                available project proceeds during the 
                expenditure period.
                  (C) Special rule for reserve funds.--An issue 
                shall not be treated as failing to meet the 
                requirements of subparagraph (A) by reason of 
                any fund which is expected to be used to repay 
                such issue if--
                          (i) such fund is funded at a rate not 
                        more rapid than equal annual 
                        installments,
                          (ii) such fund is funded in a manner 
                        reasonably expected to result in an 
                        amount not greater than an amount 
                        necessary to repay the issue, and
                          (iii) the yield on such fund is not 
                        greater than the discount rate 
                        determined under paragraph (5)(B) with 
                        respect to the issue.
          (5) Maturity limitation.--
                  (A) In general.--An issue shall not be 
                treated as meeting the requirements of this 
                paragraph if the maturity of any bond which is 
                part of such issue exceeds the maximum term 
                determined by the Secretary under subparagraph 
                (B).
                  (B) Maximum term.--During each calendar 
                month, the Secretary shall determine the 
                maximum term permitted under this paragraph for 
                bonds issued during the following calendar 
                month. Such maximum term shall be the term 
                which the Secretary estimates will result in 
                the present value of the obligation to repay 
                the principal on the bond being equal to 50 
                percent of the face amount of such bond. Such 
                present value shall be determined using as a 
                discount rate the average annual interest rate 
                of tax-exempt obligations having a term of 10 
                years or more which are issued during the 
                month. If the term as so determined is not a 
                multiple of a whole year, such term shall be 
                rounded to the next highest whole year.
          (6) Prohibition on financial conflicts of interest.--
        An issue shall be treated as meeting the requirements 
        of this paragraph if the issuer certifies that--
                  (A) applicable State and local law 
                requirements governing conflicts of interest 
                are satisfied with respect to such issue, and
                  (B) if the Secretary prescribes additional 
                conflicts of interest rules governing the 
                appropriate Members of Congress, Federal, 
                State, and local officials, and their spouses, 
                such additional rules are satisfied with 
                respect to such issue.
  (e) Other Definitions.--For purposes of this subchapter--
          (1) Credit allowance date.--The term ``credit 
        allowance date'' means--
                  (A) March 15,
                  (B) June 15,
                  (C) September 15, and
                  (D) December 15.
        Such term includes the last day on which the bond is 
        outstanding.
          (2) Bond.--The term ``bond'' includes any obligation.
          (3) State.--The term ``State'' includes the District 
        of Columbia and any possession of the United States.
          (4) Available project proceeds.--The term ``available 
        project proceeds'' means--
                  (A) the excess of--
                          (i) the proceeds from the sale of an 
                        issue, over
                          (ii) the issuance costs financed by 
                        the issue (to the extent that such 
                        costs do not exceed 2 percent of such 
                        proceeds), and
                  (B) the proceeds from any investment of the 
                excess described in subparagraph (A).
  (f) Credit Treated as Interest.--For purposes of this 
subtitle, the credit determined under subsection (a) shall be 
treated as interest which is includible in gross income.
  (g) S Corporations and Partnerships.--In the case of a tax 
credit bond held by an S corporation or partnership, the 
allocation of the credit allowed by this section to the 
shareholders of such corporation or partners of such 
partnership shall be treated as a distribution.
  (h) Bonds Held by Regulated Investment Companies and Real 
Estate Investment Trusts.--If any qualified tax credit bond is 
held by a regulated investment company or a real estate 
investment trust, the credit determined under subsection (a) 
shall be allowed to shareholders of such company or 
beneficiaries of such trust (and any gross income included 
under subsection (f) with respect to such credit shall be 
treated as distributed to such shareholders or beneficiaries) 
under procedures prescribed by the Secretary.
  (i) Credits May Be Stripped.--Under regulations prescribed by 
the Secretary--
          (1) In general.--There may be a separation (including 
        at issuance) of the ownership of a qualified tax credit 
        bond and the entitlement to the credit under this 
        section with respect to such bond. In case of any such 
        separation, the credit under this section shall be 
        allowed to the person who on the credit allowance date 
        holds the instrument evidencing the entitlement to the 
        credit and not to the holder of the bond.
          (2) Certain rules to apply.--In the case of a 
        separation described in paragraph (1), the rules of 
        section 1286 shall apply to the qualified tax credit 
        bond as if it were a stripped bond and to the credit 
        under this section as if it were a stripped coupon.

SEC. 54B. NEW CLEAN RENEWABLE ENERGY BONDS.

  (a) New Clean Renewable Energy Bond.--For purposes of this 
subpart, the term ``new clean renewable energy bond'' means any 
bond issued as part of an issue if--
          (1) 100 percent of the available project proceeds of 
        such issue are to be used for capital expenditures 
        incurred by public power providers or cooperative 
        electric companies for one or more qualified renewable 
        energy facilities,
          (2) the bond is issued by a qualified issuer, and
          (3) the issuer designates such bond for purposes of 
        this section.
  (b) Reduced Credit Amount.--The annual credit determined 
under section 54A(b) with respect to any new clean renewable 
energy bond shall be 70 percent of the amount so determined 
without regard to this subsection.
  (c) Limitation on Amount of Bonds Designated.--
          (1) In general.--The maximum aggregate face amount of 
        bonds which may be designated under subsection (a) by 
        any issuer shall not exceed the limitation amount 
        allocated under this subsection to such issuer.
          (2) National limitation on amount of bonds 
        designated.--There is a national new clean renewable 
        energy bond limitation of $2,000,000,000 which shall be 
        allocated by the Secretary as provided in paragraph 
        (3), except that--
                  (A) not more than 33 \1/3\ percent thereof 
                may be allocated to qualified projects of 
                public power providers,
                  (B) not more than 33 \1/3\ percent thereof 
                may be allocated to qualified projects of 
                governmental bodies, and
                  (C) not more than 33 \1/3\ percent thereof 
                may be allocated to qualified projects of 
                cooperative electric companies.
          (3) Method of allocation.--
                  (A) Allocation among public power 
                providers.--After the Secretary determines the 
                qualified projects of public power providers 
                which are appropriate for receiving an 
                allocation of the national new clean renewable 
                energy bond limitation, the Secretary shall, to 
                the maximum extent practicable, make 
                allocations among such projects in such manner 
                that the amount allocated to each such project 
                bears the same ratio to the cost of such 
                project as the limitation under paragraph 
                (2)(A) bears to the cost of all such projects.
                  (B) Allocation among governmental bodies and 
                cooperative electric companies.--The Secretary 
                shall make allocations of the amount of the 
                national new clean renewable energy bond 
                limitation described in paragraphs (2)(B) and 
                (2)(C) among qualified projects of governmental 
                bodies and cooperative electric companies, 
                respectively, in such manner as the Secretary 
                determines appropriate.
  (d) Definitions.--For purposes of this section--
          (1) Qualified renewable energy facility.--The term 
        ``qualified renewable energy facility'' means a 
        qualified facility (as determined under section 45(d) 
        without regard to paragraphs (8) and (10) thereof and 
        to any placed in service date) owned by a public power 
        provider, a governmental body, or a cooperative 
        electric company.
          (2) Public power provider.--The term ``public power 
        provider'' means a State utility with a service 
        obligation, as such terms are defined in section 217 of 
        the Federal Power Act (as in effect on the date of the 
        enactment of this paragraph).
          (3) Governmental body.--The term ``governmental 
        body'' means any State or Indian tribal government, or 
        any political subdivision thereof.
          (4) Cooperative electric company.--The term 
        ``cooperative electric company'' means a mutual or 
        cooperative electric company described in section 
        501(c)(12) or section 1381(a)(2)(C).
          (5) Clean renewable energy bond lender.--The term 
        ``clean renewable energy bond lender'' means a lender 
        which is a cooperative which is owned by, or has 
        outstanding loans to, 100 or more cooperative electric 
        companies and is in existence on February 1, 2002, and 
        shall include any affiliated entity which is controlled 
        by such lender.
          (6) Qualified issuer.--The term ``qualified issuer'' 
        means a public power provider, a cooperative electric 
        company, a governmental body, a clean renewable energy 
        bond lender, or a not-for-profit electric utility which 
        has received a loan or loan guarantee under the Rural 
        Electrification Act.

SEC. 54C. QUALIFIED ENERGY CONSERVATION BONDS.

  (a) Qualified Energy Conservation Bond.--For purposes of this 
subchapter, the term ``qualified energy conservation bond'' 
means any bond issued as part of an issue if--
          (1) 100 percent of the available project proceeds of 
        such issue are to be used for one or more qualified 
        conservation purposes,
          (2) the bond is issued by a State or local 
        government, and
          (3) the issuer designates such bond for purposes of 
        this section.
  (b) Reduced Credit Amount.--The annual credit determined 
under section 54A(b) with respect to any qualified energy 
conservation bond shall be 70 percent of the amount so 
determined without regard to this subsection.
  (c) Limitation on Amount of Bonds Designated.--The maximum 
aggregate face amount of bonds which may be designated under 
subsection (a) by any issuer shall not exceed the limitation 
amount allocated to such issuer under subsection (e).
  (d) National Limitation on Amount of Bonds Designated.--There 
is a national qualified energy conservation bond limitation of 
$3,000,000,000.
  (e) Allocations.--
          (1) In general.--The limitation applicable under 
        subsection (d) shall be allocated by the Secretary 
        among the States in proportion to the population of the 
        States.
          (2) Allocations to largest local governments.--
                  (A) In general.--In the case of any State in 
                which there is a large local government, each 
                such local government shall be allocated a 
                portion of such State's allocation which bears 
                the same ratio to the State's allocation 
                (determined without regard to this 
                subparagraph) as the population of such large 
                local government bears to the population of 
                such State.
                  (B) Allocation of unused limitation to 
                state.--The amount allocated under this 
                subsection to a large local government may be 
                reallocated by such local government to the 
                State in which such local government is 
                located.
                  (C) Large local government.--For purposes of 
                this section, the term ``large local 
                government'' means any municipality or county 
                if such municipality or county has a population 
                of 100,000 or more.
          (3) Allocation to issuers; restriction on private 
        activity bonds.--Any allocation under this subsection 
        to a State or large local government shall be allocated 
        by such State or large local government to issuers 
        within the State in a manner that results in not less 
        than 70 percent of the allocation to such State or 
        large local government being used to designate bonds 
        which are not private activity bonds.
  (f) Qualified Conservation Purpose.--For purposes of this 
section--
          (1) In general.--The term ``qualified conservation 
        purpose'' means any of the following:
                  (A) Capital expenditures incurred for 
                purposes of--
                          (i) reducing energy consumption in 
                        publicly-owned buildings by at least 20 
                        percent,
                          (ii) implementing green community 
                        programs,
                          (iii) rural development involving the 
                        production of electricity from 
                        renewable energy resources, or
                          (iv) any qualified facility (as 
                        determined under section 45(d) without 
                        regard to paragraphs (8) and (10) 
                        thereof and without regard to any 
                        placed in service date).
                  (B) Expenditures with respect to research 
                facilities, and research grants, to support 
                research in--
                          (i) development of cellulosic ethanol 
                        or other nonfossil fuels,
                          (ii) technologies for the capture and 
                        sequestration of carbon dioxide 
                        produced through the use of fossil 
                        fuels,
                          (iii) increasing the efficiency of 
                        existing technologies for producing 
                        nonfossil fuels,
                          (iv) automobile battery technologies 
                        and other technologies to reduce fossil 
                        fuel consumption in transportation, or
                          (v) technologies to reduce energy use 
                        in buildings.
                  (C) Mass commuting facilities and related 
                facilities that reduce the consumption of 
                energy, including expenditures to reduce 
                pollution from vehicles used for mass 
                commuting.
                  (D) Demonstration projects designed to 
                promote the commercialization of--
                          (i) green building technology,
                          (ii) conversion of agricultural waste 
                        for use in the production of fuel or 
                        otherwise,
                          (iii) advanced battery manufacturing 
                        technologies,
                          (iv) technologies to reduce peak use 
                        of electricity, or
                          (v) technologies for the capture and 
                        sequestration of carbon dioxide emitted 
                        from combusting fossil fuels in order 
                        to produce electricity.
                  (E) Public education campaigns to promote 
                energy efficiency.
          (2) Special rules for private activity bonds.--For 
        purposes of this section, in the case of any private 
        activity bond, the term ``qualified conservation 
        purposes'' shall not include any expenditure which is 
        not a capital expenditure.
  (g) Population.--
          (1) In general.--The population of any State or local 
        government shall be determined for purposes of this 
        section as provided in section 146(j) for the calendar 
        year which includes the date of the enactment of this 
        section.
          (2) Special rule for counties.--In determining the 
        population of any county for purposes of this section, 
        any population of such county which is taken into 
        account in determining the population of any 
        municipality which is a large local government shall 
        not be taken into account in determining the population 
        of such county.
  (h) Application to Indian Tribal Governments.--An Indian 
tribal government shall be treated for purposes of this section 
in the same manner as a large local government, except that--
          (1) an Indian tribal government shall be treated for 
        purposes of subsection (e) as located within a State to 
        the extent of so much of the population of such 
        government as resides within such State, and
          (2) any bond issued by an Indian tribal government 
        shall be treated as a qualified energy conservation 
        bond only if issued as part of an issue the available 
        project proceeds of which are used for purposes for 
        which such Indian tribal government could issue bonds 
        to which section 103(a) applies.

SEC. 54D. QUALIFIED ZONE ACADEMY BONDS.

  (a) Qualified Zone Academy Bonds.--For purposes of this 
subchapter, the term ``qualified zone academy bond'' means any 
bond issued as part of an issue if--
          (1) 100 percent of the available project proceeds of 
        such issue are to be used for a qualified purpose with 
        respect to a qualified zone academy established by an 
        eligible local education agency,
          (2) the bond is issued by a State or local government 
        within the jurisdiction of which such academy is 
        located, and
          (3) the issuer--
                  (A) designates such bond for purposes of this 
                section,
                  (B) certifies that it has written assurances 
                that the private business contribution 
                requirement of subsection (b) will be met with 
                respect to such academy, and
                  (C) certifies that it has the written 
                approval of the eligible local education agency 
                for such bond issuance.
  (b)  Private Business Contribution Requirement.--For purposes 
of subsection (a), the private business contribution 
requirement of this subsection is met with respect to any issue 
if the eligible local education agency that established the 
qualified zone academy has written commitments from private 
entities to make qualified contributions having a present value 
(as of the date of issuance of the issue) of not less than 10 
percent of the proceeds of the issue.
  (c) Limitation on Amount of Bonds Designated.--
          (1) National limitation.--There is a national zone 
        academy bond limitation for each calendar year. Such 
        limitation is $400,000,000 for 2008, and, except as 
        provided in paragraph (4), zero thereafter.
          (2) Allocation of limitation.--The national zone 
        academy bond limitation for a calendar year shall be 
        allocated by the Secretary among the States on the 
        basis of their respective populations of individuals 
        below the poverty line (as defined by the Office of 
        Management and Budget). The limitation amount allocated 
        to a State under the preceding sentence shall be 
        allocated by the State education agency to qualified 
        zone academies within such State.
          (3) Designation subject to limitation amount.--The 
        maximum aggregate face amount of bonds issued during 
        any calendar year which may be designated under 
        subsection (a) with respect to any qualified zone 
        academy shall not exceed the limitation amount 
        allocated to such academy under paragraph (2) for such 
        calendar year.
          (4) Carryover of unused limitation.--
                  (A) In general.--If for any calendar year--
                          (i) the limitation amount for any 
                        State, exceeds
                          (ii) the amount of bonds issued 
                        during such year which are designated 
                        under subsection (a) with respect to 
                        qualified zone academies within such 
                        State,
                the limitation amount for such State for the 
                following calendar year shall be increased by 
                the amount of such excess.
                  (B) Limitation on carryover.--Any 
                carryforward of a limitation amount may be 
                carried only to the first 2 years following the 
                unused limitation year. For purposes of the 
                preceding sentence, a limitation amount shall 
                be treated as used on a first-in first-out 
                basis.
                  (C) Coordination with section 1397e.--Any 
                carryover determined under section 1397E(e)(4) 
                (relating to carryover of unused limitation) 
                with respect to any State to calendar year 2008 
                shall be treated for purposes of this section 
                as a carryover with respect to such State for 
                such calendar year under subparagraph (A), and 
                the limitation of subparagraph (B) shall apply 
                to such carryover taking into account the 
                calendar years to which such carryover relates.
  (d) Definitions.--For purposes of this section--
          (1) Qualified zone academy.--The term ``qualified 
        zone academy'' means any public school (or academic 
        program within a public school) which is established by 
        and operated under the supervision of an eligible local 
        education agency to provide education or training below 
        the postsecondary level if--
                  (A) such public school or program (as the 
                case may be) is designed in cooperation with 
                business to enhance the academic curriculum, 
                increase graduation and employment rates, and 
                better prepare students for the rigors of 
                college and the increasingly complex workforce,
                  (B) students in such public school or program 
                (as the case may be) will be subject to the 
                same academic standards and assessments as 
                other students educated by the eligible local 
                education agency,
                  (C) the comprehensive education plan of such 
                public school or program is approved by the 
                eligible local education agency, and
                  (D)(i) such public school is located in an 
                empowerment zone or enterprise community 
                (including any such zone or community 
                designated after the date of the enactment of 
                this section), or
                  (ii) there is a reasonable expectation (as of 
                the date of issuance of the bonds) that at 
                least 35 percent of the students attending such 
                school or participating in such program (as the 
                case may be) will be eligible for free or 
                reduced-cost lunches under the school lunch 
                program established under the National School 
                Lunch Act.
          (2) Eligible local education agency.-- For purposes 
        of this section, the term ``eligible local education 
        agency'' means any local educational agency as defined 
        in section 9101 of the Elementary and Secondary 
        Education Act of 1965.
          (3) Qualified purpose.--The term ``qualified 
        purpose'' means, with respect to any qualified zone 
        academy--
                  (A) rehabilitating or repairing the public 
                school facility in which the academy is 
                established,
                  (B) providing equipment for use at such 
                academy,
                  (C) developing course materials for education 
                to be provided at such academy, and
                  (D) training teachers and other school 
                personnel in such academy.
          (4) Qualified contributions.--The term ``qualified 
        contribution'' means any contribution (of a type and 
        quality acceptable to the eligible local education 
        agency) of--
                  (A) equipment for use in the qualified zone 
                academy (including state-of-the-art technology 
                and vocational equipment),
                  (B) technical assistance in developing 
                curriculum or in training teachers in order to 
                promote appropriate market driven technology in 
                the classroom,
                  (C) services of employees as volunteer 
                mentors,
                  (D) internships, field trips, or other 
                educational opportunities outside the academy 
                for students, or
                  (E) any other property or service specified 
                by the eligible local education agency.

PART VI--ALTERNATIVE MINIMUM TAX

           *       *       *       *       *       *       *


SEC. 55. ALTERNATIVE MINIMUM TAX IMPOSED.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subchapter B--Computation of Taxable Income

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


SEC. 62. ADJUSTED GROSS INCOME DEFINED.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 63. TAXABLE INCOME DEFINED.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 132. CERTAIN FRINGE BENEFITS.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


Subpart A--Private Activity Bonds

           *       *       *       *       *       *       *


SEC. 142. EXEMPT FACILITY BOND.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


PART VI--ITEMIZED DEDUCTIONS FOR INDIVIDUALS AND CORPORATIONS

           *       *       *       *       *       *       *


SEC. 162. TRADE OR BUSINESS EXPENSES.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 164. TAXES.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 168. ACCELERATED COST RECOVERY SYSTEM.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (18) Qualified smart electric meters.--
                  (A) In general.--The term ``qualified smart 
                electric meter'' means any smart electric meter 
                which is placed in service by a taxpayer who is 
                a supplier of electric energy or a provider of 
                electric energy services.
                  (B) Smart electric meter.--For purposes of 
                subparagraph (A), the term ``smart electric 
                meter'' means any time-based meter and related 
                communication equipment which is capable of 
                being used by the taxpayer as part of a system 
                that--
                          (i) measures and records electricity 
                        usage data on a time-differentiated 
                        basis in at least 24 separate time 
                        segments per day,
                          (ii) provides for the exchange of 
                        information between supplier or 
                        provider and the customer's electric 
                        meter in support of time-based rates or 
                        other forms of demand response,
                          (iii) provides data to such supplier 
                        or provider so that the supplier or 
                        provider can provide energy usage 
                        information to customers 
                        electronically, and
                          (iv) provides net metering.
          (19) Qualified smart electric grid systems.--
                  (A) In general.--The term ``qualified smart 
                electric grid system'' means any smart grid 
                property used as part of a system for electric 
                distribution grid communications, monitoring, 
                and management placed in service by a taxpayer 
                who is a supplier of electric energy or a 
                provider of electric energy services.
                  (B) Smart grid property.--For the purposes of 
                subparagraph (A), the term ``smart grid 
                property'' means electronics and related 
                equipment that is capable of--
                          (i) sensing, collecting, and 
                        monitoring data of or from all portions 
                        of a utility's electric distribution 
                        grid,
                          (ii) providing real-time, two-way 
                        communications to monitor or manage 
                        such grid, and
                          (iii) providing real time analysis of 
                        and event prediction based upon 
                        collected data that can be used to 
                        improve electric distribution system 
                        reliability, quality, and performance.-
  (j) Property on Indian Reservations.--
          (1) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 179D. ENERGY EFFICIENT COMMERCIAL BUILDINGS DEDUCTION.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 198. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

  (a) * * *

           *       *       *       *       *       *       *

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

SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION ACTIVITIES.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS

           *       *       *       *       *       *       *


SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subchapter D--Deferred Compensation, Etc

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


Subpart A--general rule

           *       *       *       *       *       *       *


SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subchapter E--Accounting Periods and Methods of Accounting

           *       *       *       *       *       *       *


PART II--METHODS OF ACCOUNTING

           *       *       *       *       *       *       *


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

Sec. 451. General rule for taxable year of inclusion.
     * * * * * * *
Sec. 457A. Nonqualified deferred compensation from certain tax 
          indifferent parties.

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

                  (C) Exception for property located outside 
                the united states.--The term ``exempt utility 
                property'' shall not include any property which 
                is located outside the United States.-
          (6) Qualified electric utility.--For purposes of this 
        subsection, the term ``qualified electric utility'' 
        means a person that, as of the date of the qualifying 
        electric transmission transaction, is vertically 
        integrated, in that it is both--
                  (A) a transmitting utility (as defined in 
                section 3(23) of the Federal Power Act (16 
                U.S.C. 796(23))) with respect to the 
                transmission facilities to which the election 
                under this subsection applies, and
                  (B) an electric utility (as defined in 
                section 3(22) of the Federal Power Act (16 
                U.S.C. 796(22))).
          [(6)] (7) Special rule for consolidated groups.--In 
        the case of a corporation which is a member of an 
        affiliated group filing a consolidated return, any 
        exempt utility property purchased by another member of 
        such group shall be treated as purchased by such 
        corporation for purposes of applying paragraph (1)(A).
          [(7)] (8) Time for assessment of deficiencies.--If 
        the taxpayer has made the election under paragraph (1) 
        and any gain is recognized by such taxpayer as provided 
        in paragraph (1)(B), then--
                  (A) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

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

           *       *       *       *       *       *       *


Subchapter F--Exempt Organizations

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


SEC. 512. UNRELATED BUSINESS TAXABLE INCOME.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


SEC. 864. DEFINITIONS AND SPECIAL RULES.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


PART II--NONRESIDENT ALIENS AND FOREIGN CORPORATIONS

           *       *       *       *       *       *       *


                Subpart A--Nonresident Alien Individuals

SEC. 871. TAX ON NONRESIDENT ALIEN INDIVIDUALS.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subpart D--Miscellaneous Provisions

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


PART III--INCOME FROM SOURCES WITHOUT THE UNITED STATES

           *       *       *       *       *       *       *


Subpart F--Controlled Foreign Corporations

           *       *       *       *       *       *       *


SEC. 953. INSURANCE INCOME.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


SEC. 954. FOREIGN BASE COMPANY INCOME.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subchapter O--Gain or Loss on Disposition of Property

           *       *       *       *       *       *       *


PART II--BASIS RULES OF GENERAL APPLICATION

           *       *       *       *       *       *       *


SEC. 1016. ADJUSTMENTS TO BASIS.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


PART II--TAX TREATMENT OF SHAREHOLDERS

           *       *       *       *       *       *       *


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

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

           *       *       *       *       *       *       *


                PART IV--INCENTIVES FOR EDUCATION ZONES

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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


           Subchapter W--District of Columbia Enterprise Zone

SEC. 1400. ESTABLISHMENT OF DC ZONE.

  (a) * * *

           *       *       *       *       *       *       *

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

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

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

SEC. 1400B. ZERO PERCENT CAPITAL GAINS RATE.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

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

  (a) * * *

           *       *       *       *       *       *       *

  (d) Carryforward of Unused Credit.--
          (1) * * *
          (2) Rule for other years.--In the case of a taxable 
        year to which section 26(a)(2) does not apply, if the 
        credit allowable under subsection (a) exceeds the 
        limitation imposed by section 26(a)(1) for such taxable 
        year reduced by the sum of the credits allowable under 
        subpart A of part IV of subchapter A (other than this 
        section and sections 23, 24, 25B, [and 25D] 25D, and 
        30D), such excess shall be carried to the succeeding 
        taxable year and added to the credit allowable under 
        subsection (a) for such taxable year.

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


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

SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subchapter Y--Short-Term Regional Benefits

           *       *       *       *       *       *       *


             PART I--TAX BENEFITS FOR NEW YORK LIBERTY ZONE

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

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

  (a) * * *
  (b) Special allowance for certain property acquired after 
September 10, 2001.--
          (1) * * *
          (2) Qualified New York Liberty Zone property.--For 
        purposes of this subsection--
                  (A) In general.--The term ``qualified New 
                York Liberty Zone property'' means property--
                (i) * * *

           *       *       *       *       *       *       *

                The term ``termination date'' means December 
                31, 2006 [(December 31, 2009, in the case of 
                nonresidential real property and residential 
                rental property)] (in the case of 
                nonresidential real property and residential 
                rental property, the date of the enactment of 
                the Renewable Energy and Job Creation Act of 
                2008 or, if acquired pursuant to a binding 
                contract in effect on such enactment date, 
                December 31, 2009).

           *       *       *       *       *       *       *


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

  (a) In General.--In the case of a New York Liberty Zone 
governmental unit, there shall be allowed as a credit against 
any taxes imposed for any payroll period by section 3402 for 
which such governmental unit is liable under section 3403 an 
amount equal to so much of the portion of the qualifying 
project expenditure amount allocated under subsection (b)(3) to 
such governmental unit for the calendar year as is allocated by 
such governmental unit to such period under subsection (b)(4).
  (b) Qualifying Project Expenditure Amount.--For purposes of 
this section--
          (1) In general.--The term ``qualifying project 
        expenditure amount'' means, with respect to any 
        calendar year, the sum of--
                  (A) the total expenditures paid or incurred 
                during such calendar year by all New York 
                Liberty Zone governmental units and the Port 
                Authority of New York and New Jersey for any 
                portion of qualifying projects located wholly 
                within the City of New York, New York, and
                  (B) any such expenditures--
                          (i) paid or incurred in any preceding 
                        calendar year which begins after the 
                        date of enactment of this section, and
                          (ii) not previously allocated under 
                        paragraph (3).
          (2) Qualifying project.--The term ``qualifying 
        project'' means any transportation infrastructure 
        project, including highways, mass transit systems, 
        railroads, airports, ports, and waterways, in or 
        connecting with the New York Liberty Zone (as defined 
        in section 1400K(h)), which is designated as a 
        qualifying project under this section jointly by the 
        Governor of the State of New York and the Mayor of the 
        City of New York, New York.
          (3) General allocation.--
                  (A) In general.--The Governor of the State of 
                New York and the Mayor of the City of New York, 
                New York, shall jointly allocate to each New 
                York Liberty Zone governmental unit the portion 
                of the qualifying project expenditure amount 
                which may be taken into account by such 
                governmental unit under subsection (a) for any 
                calendar year in the credit period.
                  (B) Aggregate limit.--The aggregate amount 
                which may be allocated under subparagraph (A) 
                for all calendar years in the credit period 
                shall not exceed $2,000,000,000.
                  (C) Annual limit.--The aggregate amount which 
                may be allocated under subparagraph (A) for any 
                calendar year in the credit period shall not 
                exceed the sum of--
                          (i) $115,000,000 ($425,000,000 in the 
                        case of the last 2 years in the credit 
                        period), plus
                          (ii) the aggregate amount authorized 
                        to be allocated under this paragraph 
                        for all preceding calendar years in the 
                        credit period which was not so 
                        allocated.
                  (D) Unallocated amounts at end of credit 
                period.--If, as of the close of the credit 
                period, the amount under subparagraph (B) 
                exceeds the aggregate amount allocated under 
                subparagraph (A) for all calendar years in the 
                credit period, the Governor of the State of New 
                York and the Mayor of the City of New York, New 
                York, may jointly allocate to New York Liberty 
                Zone governmental units for any calendar year 
                in the 5-year period following the credit 
                period an amount equal to--
                          (i) the lesser of--
                                  (I) such excess, or
                                  (II) the qualifying project 
                                expenditure amount for such 
                                calendar year, reduced by
                          (ii) the aggregate amount allocated 
                        under this subparagraph for all 
                        preceding calendar years.
          (4) Allocation to payroll periods.--Each New York 
        Liberty Zone governmental unit which has been allocated 
        a portion of the qualifying project expenditure amount 
        under paragraph (3) for a calendar year may allocate 
        such portion to payroll periods beginning in such 
        calendar year as such governmental unit determines 
        appropriate.
  (c) Carryover of Unused Allocations.--
          (1) In general.--Except as provided in paragraph (2), 
        if the amount allocated under subsection (b)(3) to a 
        New York Liberty Zone governmental unit for any 
        calendar year exceeds the aggregate taxes imposed by 
        section 3402 for which such governmental unit is liable 
        under section 3403 for periods beginning in such year, 
        such excess shall be carried to the succeeding calendar 
        year and added to the allocation of such governmental 
        unit for such succeeding calendar year.
          (2) Reallocation.--If a New York Liberty Zone 
        governmental unit does not use an amount allocated to 
        it under subsection (b)(3) within the time prescribed 
        by the Governor of the State of New York and the Mayor 
        of the City of New York, New York, then such amount 
        shall after such time be treated for purposes of 
        subsection (b)(3) in the same manner as if it had never 
        been allocated.
  (d) Definitions and Special Rules.--For purposes of this 
section--
          (1) Credit period.--The term ``credit period'' means 
        the 12-year period beginning on January 1, 2009.
          (2) New york liberty zone governmental unit.--The 
        term ``New York Liberty Zone governmental unit'' 
        means--
                  (A) the State of New York,
                  (B) the City of New York, New York, and
                  (C) any agency or instrumentality of such 
                State or City.
          (3) Treatment of funds.--Any expenditure for a 
        qualifying project taken into account for purposes of 
        the credit under this section shall be considered State 
        and local funds for the purpose of any Federal program.
          (4) Treatment of credit amounts for purposes of 
        withholding taxes.--For purposes of this title, a New 
        York Liberty Zone governmental unit shall be treated as 
        having paid to the Secretary, on the day on which wages 
        are paid to employees, an amount equal to the amount of 
        the credit allowed to such entity under subsection (a) 
        with respect to such wages, but only if such 
        governmental unit deducts and withholds wages for such 
        payroll period under section 3401 (relating to wage 
        withholding).
  (e) Reporting.--The Governor of the State of New York and the 
Mayor of the City of New York, New York, shall jointly submit 
to the Secretary an annual report--
          (1) which certifies--
                  (A) the qualifying project expenditure amount 
                for the calendar year, and
                  (B) the amount allocated to each New York 
                Liberty Zone governmental unit under subsection 
                (b)(3) for the calendar year, and
          (2) includes such other information as the Secretary 
        may require to carry out this section.
  (f) Guidance.--The Secretary may prescribe such guidance as 
may be necessary or appropriate to ensure compliance with the 
purposes of this section.

PART II--TAX BENEFITS FOR GO ZONES

           *       *       *       *       *       *       *


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

  (a) Tax-Exempt Bond Financing.--
          (1) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subtitle B--Estate and Gift Taxes

           *       *       *       *       *       *       *


CHAPTER 11--ESTATE TAX

           *       *       *       *       *       *       *


Subchapter B--Estates of Nonresidents Not Citizens

           *       *       *       *       *       *       *


SEC. 2105. PROPERTY WITHOUT THE UNITED STATES.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subtitle D--Miscellaneous Excise Taxes

           *       *       *       *       *       *       *


CHAPTER 31--RETAIL EXCISE TAXES

           *       *       *       *       *       *       *


Subchapter C--Heavy Trucks and Trailers

           *       *       *       *       *       *       *


SEC. 4053. EXEMPTIONS.

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


CHAPTER 32--MANUFACTURERS EXCISE TAXES

           *       *       *       *       *       *       *


Subchapter A--Automotive and Related Items

           *       *       *       *       *       *       *


PART III--PETROLEUM PRODUCTS

           *       *       *       *       *       *       *


Subchapter B--Coal

           *       *       *       *       *       *       *


SEC. 4121. IMPOSITION OF TAX.

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *


Subtitle F--Procedure and Administration

           *       *       *       *       *       *       *


CHAPTER 61--INFORMATION AND RETURNS

           *       *       *       *       *       *       *


Subchapter A--Returns and Records

           *       *       *       *       *       *       *


PART III--INFORMATION RETURNS

           *       *       *       *       *       *       *


Subpart B--Information Concerning Transactions With Other Persons

           *       *       *       *       *       *       *


SEC. 6049. RETURNS REGARDING PAYMENTS OF INTEREST.

  (a) * * *

           *       *       *       *       *       *       *

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

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

           *       *       *       *       *       *       *


Subchapter B--Miscellaneous Provisions

           *       *       *       *       *       *       *


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

  (a) * * *

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

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

           *       *       *       *       *       *       *

          (7) Disclosure of return information to federal, 
        state, and local agencies administering certain 
        programs under the social security act, the food stamp 
        act of 1977, or title 38, united states code, or 
        certain housing assistance programs.--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) Programs to which rule applies.--The 
                programs to which this paragraph applies are:
                          (i) * * *

           *       *       *       *       *       *       *

                          (viii)(I) * * *

           *       *       *       *       *       *       *

                          (III) health-care services furnished 
                        under [sections 1710(a)(1)(I), 
                        1710(a)(2), 1710(b), and 1712(a)(2)(B)] 
                        sections 1710(a)(2)(G), 1710(a)(3), and 
                        1710(b) of such title; and

           *       *       *       *       *       *       *

        Only return information from returns with respect to 
        net earnings from self-employment and wages may be 
        disclosed under this paragraph for use with respect to 
        any program described in clause (viii)(IV). [Clause 
        (viii) shall not apply after September 30, 2008.]

           *       *       *       *       *       *       *


CHAPTER 65--ABATEMENTS, CREDITS, AND REFUNDS

           *       *       *       *       *       *       *


                   Subchapter A--Procedure in General

SEC. 6401. AMOUNTS TREATED AS OVERPAYMENTS.

  (a) * * *
  (b) Excessive Credits.--
          (1) In general.--If the amount allowable as credits 
        under subpart C of part IV of subchapter A of chapter 1 
        (relating to refundable credits) exceeds the tax 
        imposed by subtitle A (reduced by the credits allowable 
        under subparts A, B, D, G, [and H] H, and I of such 
        part IV), the amount of such excess shall be considered 
        an overpayment.

           *       *       *       *       *       *       *


Subchapter B--Rules of Special Application

           *       *       *       *       *       *       *


SEC. 6426. CREDIT FOR ALCOHOL FUEL, BIODIESEL, AND ALTERNATIVE FUEL 
                    MIXTURES.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Biodiesel Mixture Credit.--
          (1) * * *
          [(2) Applicable amount.--For purposes of this 
        subsection--
                  [(A) In general.--Except as provided in 
                subparagraph (B), the applicable amount is 50 
                cents.
                  [(B) Amount for agri-biodiesel.--In the case 
                of any biodiesel which is agri-biodiesel, the 
                applicable amount is $1.00.]
          (2) Applicable amount.--For purposes of this 
        subsection, the applicable amount is $1.00.

           *       *       *       *       *       *       *

          (6) Termination.--This subsection shall not apply to 
        any sale, use, or removal for any period after 
        [December 31, 2008] December 31, 2009.

           *       *       *       *       *       *       *

  (i) Limitation to Fuels With Connection to the United 
States.--
          (1) Alcohol.--No credit shall be determined under 
        this section with respect to any alcohol which is 
        produced outside the United States for use as a fuel 
        outside the United States.
          (2) Biodiesel and alternative fuels.--No credit shall 
        be determined under this section with respect to any 
        biodiesel or alternative fuel which is produced outside 
        the United States for use as a fuel outside the United 
        States.
For purposes of this subsection, the term ``United States'' 
includes any possession of the United States.-

SEC. 6427. FUELS NOT USED FOR TAXABLE PURPOSES.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Alcohol, Biodiesel, or Alternative Fuel.--Except as 
provided in subsection (k)--
          (1) * * *

           *       *       *       *       *       *       *

          (5) Limitation to fuels with connection to the united 
        states.--No amount shall be payable under paragraph (1) 
        or (2) with respect to any mixture or alternative fuel 
        if credit is not allowed with respect to such mixture 
        or alternative fuel by reason of section 6426(i).
          [(5)] (6) Termination.--This subsection shall not 
        apply with respect to--
                  (A) * * *
                  (B) any biodiesel mixture (as defined in 
                section 6426(c)(3)) sold or used after 
                [December 31, 2008] December 31, 2009,

           *       *       *       *       *       *       *


SEC. 6428. 2008 RECOVERY REBATES FOR INDIVIDUALS.

  (a) * * *

           *       *       *       *       *       *       *

  (e) Definitions.--For purposes of this section--
          (1) * * *

           *       *       *       *       *       *       *

          (4) Earned income.--The term ``earned income'' has 
        the meaning set forth in section 32(c)(2) [except 
        that--
                  [(A) subclause (II) of paragraph (B)(vi) 
                thereof shall be applied by substituting 
                ``January 1, 2009'' for ``January 1, 2008'', 
                and
                  [(B) such term] except that such term shall 
                not include net earnings from self-employment 
                which are not taken into account in computing 
                taxable income.

           *       *       *       *       *       *       *


CHAPTER 66--LIMITATIONS

           *       *       *       *       *       *       *


         Subchapter A--Limitations on Assessment and Collection

SEC. 6501. LIMITATIONS ON ASSESSMENT AND COLLECTION.

  (a) * * *

           *       *       *       *       *       *       *

  (m) Deficiencies Attributable to Election of Certain 
Credits.--The period for assessing a deficiency attributable to 
any election under section 30(d)(4), 30B(h)(9), 30C(e)(5), 
30D(f)(4), 40(f), 43, 45B, 45C(d)(4), 45H(g), or 51(j) (or any 
revocation thereof) shall not expire before the date 1 year 
after the date on which the Secretary is notified of such 
election (or revocation).

           *       *       *       *       *       *       *


 CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE 
PENALTIES

           *       *       *       *       *       *       *


Subchapter B--Assessable Penalties

           *       *       *       *       *       *       *


PART I--GENERAL PROVISIONS

           *       *       *       *       *       *       *


SEC. 6694. UNDERSTATEMENT OF TAXPAYER'S LIABILITY BY TAX RETURN 
                    PREPARER.

  [(a) Understatement Due to Unreasonable Positions.--
          [(1) In general.--Any tax return preparer who 
        prepares any return or claim for refund with respect to 
        which any part of an understatement of liability is due 
        to a position described in paragraph (2) shall pay a 
        penalty with respect to each such return or claim in an 
        amount equal to the greater of--
                  [(A) $1,000, or
                  [(B) 50 percent of the income derived (or to 
                be derived) by the tax return preparer with 
                respect to the return or claim.
          [(2) Unreasonable position.--A position is described 
        in this paragraph if--
                  [(A) the tax return preparer knew (or 
                reasonably should have known) of the position,
                  [(B) there was not a reasonable belief that 
                the position would more likely than not be 
                sustained on its merits, and
                  [(C)(i) the position was not disclosed as 
                provided in section 6662(d)(2)(B)(ii), or
                  [(ii) there was no reasonable basis for the 
                position.
          [(3) Reasonable cause exception.--No penalty shall be 
        imposed under this subsection if it is shown that there 
        is reasonable cause for the understatement and the tax 
        return preparer acted in good faith.]
  (a) Understatement Due to Unreasonable Positions.--
          (1) In general.--If a tax return preparer--
                  (A) prepares any return or claim of refund 
                with respect to which any part of an 
                understatement of liability is due to a 
                position described in paragraph (2), and
                  (B) knew (or reasonably should have known) of 
                the position,
        such tax return preparer shall pay a penalty with 
        respect to each such return or claim in an amount equal 
        to the greater of $1,000 or 50 percent of the income 
        derived (or to be derived) by the tax return preparer 
        with respect to the return or claim.
          (2) Unreasonable position.--
                  (A) In general.--Except as otherwise provided 
                in this paragraph, a position is described in 
                this paragraph unless there is or was 
                substantial authority for the position.
                  (B) Disclosed positions.--If the position was 
                disclosed as provided in section 
                6662(d)(2)(B)(ii)(I) and is not a position to 
                which subparagraph (C) applies, the position is 
                described in this paragraph unless there is a 
                reasonable basis for the position.
                  (C) Tax shelters and reportable 
                transactions.--If the position is with respect 
                to a tax shelter (as defined in section 
                6662(d)(2)(C)(ii)) or a reportable transaction 
                to which section 6662A applies, the position is 
                described in this paragraph unless it is 
                reasonable to believe that the position would 
                more likely than not be sustained on its 
                merits.
          (3) Reasonable cause exception.--No penalty shall be 
        imposed under this subsection if it is shown that there 
        is reasonable cause for the understatement and the tax 
        return preparer acted in good faith.

           *       *       *       *       *       *       *


CHAPTER 78--DISCOVERY OF LIABILITY AND ENFORCEMENT OF TITLE

           *       *       *       *       *       *       *


Subchapter A--Examination and Inspection

           *       *       *       *       *       *       *


SEC. 7608. AUTHORITY OF INTERNAL REVENUE ENFORCEMENT OFFICERS.

  (a) * * *

           *       *       *       *       *       *       *

  (c) Rules Relating to Undercover Operations.--
          (1) * * *

           *       *       *       *       *       *       *

          [(6) Application of section.--The provisions of this 
        subsection--
                  [(A) shall apply after November 17, 1988, and 
                before January 1, 1990, and
                  [(B) shall apply after the date of the 
                enactment of this paragraph and before January 
                1, 2007.
        All amounts expended pursuant to this subsection during 
        the period described in subparagraph (B) shall be 
        recovered to the extent possible, and deposited in the 
        Treasury of the United States as miscellaneous 
        receipts, before January 1, 2007.]

           *       *       *       *       *       *       *


Subchapter D--Possessions

           *       *       *       *       *       *       *


SEC. 7652. SHIPMENTS TO THE UNITED STATES.

  (a) * * *

           *       *       *       *       *       *       *

  (f) Limitation on Cover over of Tax on Distilled Spirits.--
For purposes of this section, with respect to taxes imposed 
under section 5001 or this section on distilled spirits, the 
amount covered into the treasuries of Puerto Rico and the 
Virgin Islands shall not exceed the lesser of the rate of--
          (1) $10.50 ($13.25 in the case of distilled spirits 
        brought into the United States after June 30, 1999, and 
        before [January 1, 2008] January 1, 2009), or

           *       *       *       *       *       *       *


               ADDITIONAL VIEWS OF THE HON. RAHM EMANUEL

    I was not present during the rollcall for the Stark 
amendment to remove the coal sequestration and capture 
provisions contained in the underlying bill. If present, I 
would have voted no on the amendment. Additionally, I was not 
recorded as voting on final passage of the bill. I want the 
record to reflect that I support the legislation and indicated 
to the recording clerk that my intention was to vote in support 
of the bill but did so before my name was called during the 
rollcall tally.

                                                      Rahm Emanuel.

ADDITIONAL VIEWS OF REPRESENTATIVE EARL POMEROY, COMMITTEE ON WAYS AND 
                                 MEANS

    I would like to thank the Chairman for including an 
extension of the Wind Production Tax Credit (PTC) in H.R. 6049, 
the Energy and Tax Extenders Act of 2008. It is vital that we 
extend this important tax credit as soon as possible. However, 
I am concerned, as I know the Chair is, that we have not been 
able to provide the developing wind industry with a long term 
extension of this credit.
    The PTC has a history of short term extensions and 
expirations that have hampered industries ability to 
effectively develop generation capacity. Since 1999 the PTC has 
expired 3 times, each of these expirations saw dramatic slow 
down in wind power investment and the loss of thousands of jobs 
across the industry. In my district alone, LM Glasfiber, a 
blade manufacturer with more than 900 employees, was forced to 
furlough a sizable portion of its employees when the credit had 
expired 2004. In this time of economic insecurity a longer 
extension would provide workers in this industry with a greater 
degree of certainty.
    In 2004 when the credit had expired for 10 months of the 
year only 389 MW were installed. We have seen over the past 
three years how effective the PTC has been when there is some 
level of certainty that the credit will not expire. A 
staggering 5,200 MW of wind power were installed in 2007 after 
the credit had been in place for three uninterrupted years.
    I look forward to working with the Chairman to pass this 
one year extension with the hopes that next year we might be 
able to work out a long term extension.

                                                      Earl Pomeroy.

                            DISSENTING VIEWS

    This bill, above all, is about missed opportunities. The 
Majority has yet again missed the opportunity to avoid its own 
paygo tax trap. They've again missed the opportunity to work in 
a bipartisan, bicameral way to ensure that important extensions 
of expiring tax law are enacted seamlessly and without further 
unwarranted delay. And, perhaps most notably of all, they've 
missed the opportunity to address the single biggest 
``extender'' requiring immediate congressional attention: the 
urgently-needed annual ``patch'' for the alternative minimum 
tax (AMT). While we strongly support many of this bill's 
provisions--and will continue our efforts to see them enacted 
promptly as part of a workable, bipartisan package that can 
actually be signed into law by the President--the missed 
opportunities that abound in this bill require us to oppose 
H.R. 6049 in its current form.

                Compliance With Paygo Means Higher Taxes

    As we've consistently pointed out since the beginning of 
this Congress, the new Majority's paygo rules require massive 
tax increases to fund their party's legislative agenda. Whether 
that agenda includes proposals for new spending, brand new tax 
incentives, or merely extensions of the low-tax policies 
originally enacted by Republicans that would otherwise expire, 
Democrats' paygo rules necessitate higher and higher taxes in 
the form of new, revenue-raising offsets.
    But as we have argued all along, Washington doesn't have a 
revenue problem. Indeed, we are already collecting more taxes 
as a percentage of our GDP than the historical average. What 
Washington really has is a spending problem, although the 
Majority consistently fails to recognize it. Democrats' refusal 
to even consider the spending side of the equation was amply on 
display during the party-line defeat of Mr. Brady's amendment 
to express the Sense of Congress that the bill should be offset 
by spending reductions, rather than tax increases.
    As Republicans, we believe that Congress shouldn't be in 
the business of raising taxes, generally, and that it certainly 
shouldn't be doing so to ``pay for'' extensions of current law. 
Democrats were wrong to propose such offsetting tax hikes last 
year, and they are wrong again now. And as we look ahead toward 
2010, when a huge number of critically important tax policies--
ranging from the expanded $1,000 child credit to the lower 
rates on dividends and capital gains--are set to expire, the 
Majority's paygo logic will require more than $3.5 trillion in 
tax increases simply to maintain current law. Such enormous, 
looming tax hikes, baked into the budget by the Majority's ill-
advised paygo rules, would be disastrous for our Nation's 
families, businesses, and the economy at large. We should not 
begin down that road today by endorsing the Majority's plan to 
offset this smaller ``extenders'' package with offsetting 
revenue enhancements of questionable merit.

  A Partisan Exercise That Threatens Enactment of Important Extenders

    The House spent much of 2007 passing substantially similar 
tax bills over and over again because the Majority failed to 
recognize that the Senate was unwilling to pass the tax hikes 
contained in those bills. It is abundantly clear that the 
Senate will not pass this bill, either. Last month, forty-one 
Senators, enough to sustain a filibuster, signed a letter 
pledging to oppose tax bills that, like this one, contain 
revenue-raising offsets. Moreover, on the very same day that 
our Committee passed H.R. 6049, the Senate passed a motion to 
instruct conferees on the FY '09 budget resolution to reject 
the House amendment assuming $110 billion in tax increases as a 
result of having to offset the extension of expiring 
provisions, including the AMT patch.
    In short, we've read ahead, and we already know how this 
story is going to end. The final chapter involves House 
Democrats accepting the reality that, if they want to see 
anything enacted into law this year, they will have to abandon 
their partisan efforts to raise taxes and work with House 
Republicans, the Senate, and the White House to achieve a 
reasonable, workable solution that satisfies everyone involved.
    Unfortunately, the Majority's ongoing refusal to accept 
this reality has real consequences for America's hard-working 
families and U.S. businesses. Until the Majority backs off its 
tax-hike demands and demonstrates a willingness to compromise, 
broadly popular tax deductions for state and local sales taxes, 
higher education expenses, and out-of-pocket classroom expenses 
for schoolteachers, just to name a few, will not be renewed for 
2008. Similarly, the Majority's intransigence threatens the 
seamless, uninterrupted extension of the R&D tax credit, the 
active financing exception under subpart F, and other critical 
tax policies important to our Nation's business community. Even 
a broadly popular set of energy-related extenders--ranging from 
tax credits for electricity production from wind, biomass, and 
other renewable resources, to investment credits for solar 
energy and fuel cell property--has been put at risk by the 
partisan exercise undertaken by the Majority with H.R. 6049.
    As we have since the opening day of the 110th Congress, we 
stand ready to work with the Majority to find a common-sense, 
bipartisan pathway to getting these, and other, critical 
extenders enacted into law. In fact, during the Committee's 
consideration of the bill, Mr. Herger offered the Majority just 
such an opportunity with his amendment to extend the expiring 
provisions for not just one, but two years, without any 
offsetting tax hikes. Regrettably, by rejecting that approach 
on a party-line vote, the Majority demonstrated yet again its 
unwillingness to embrace a reasonable solution on behalf of 
American taxpayers.

                      Failure to Patch the A.M.T.

    Perhaps the greatest single flaw in the Majority's bill, 
however, is what it fails to include. Although the legislation 
extends dozens of expiring provisions--some for several years, 
including many that have not yet expired--it is deafeningly 
silent on the urgently-needed AMT patch, which has already 
expired. The Majority's failure to patch the AMT for 2008 means 
that more than 21 million middle-class individuals and families 
will pay an additional $61.5 billion in taxes next April--an 
average of over $2,800 per affected taxpayer.
    As we all painfully remember from the procedural fiasco 
engineered by the Majority last year, the AMT patch covering 
2007 was enacted later in the legislative year than ever 
before. That historically late enactment of the AMT patch 
caused significant headaches and uncertainty not only for 
middle-class taxpayers, but for the IRS in its administrative 
capacity as well. Indeed, according to the Government 
Accountability Office, the IRS could not even begin processing 
AMT-affected returns until about four weeks into the filing 
season.
    To avoid a repeat performance of last year's legislative 
debacle, we believe we should be focusing our attention on 
enacting this year's AMT patch right now, not at some 
unspecified time ``down the road'' as the Majority feebly 
promised during Committee debate. In light of the Democrats' 
gross mismanagement of the process last year, we hope our 
skepticism about the Majority's unconvincing pledge can be 
forgiven.
    During our Committee markup, Republicans unanimously 
supported an amendment by Mr. Reynolds that would have patched 
the AMT for 2008. Sadly, even members of the Majority from 
high-tax states, where the AMT often hits the hardest, turned 
their backs on their own constituents in voting down this 
amendment on a party-line vote. Given that outcome, it was 
altogether unsurprising that Democrats also unanimously 
rejected two other amendments offered by Mr. English--one that 
would have repealed the invidious AMT altogether and another 
that would at least protect taxpayers from owing interest and 
penalties for under-withholding during the year in case the 
Majority fails to enact a patch at all.
    It was only once the Majority abandoned its quest for tax 
hikes and waived its own paygo rules that last year's AMT patch 
saga could finally come to its merciful conclusion. There is 
simply no good reason to replicate last year's procedural 
nightmare, and we should be working together now to avoid a 
similar legislative train wreck in 2008. Without an AMT patch, 
H.R. 6049 is woefully incomplete.

                               Conclusion

    We have chosen not to focus here on the objections that 
many of us have to the inclusion of a host of additional 
items--beyond the traditional extenders package and the energy 
provisions on which there is a broad, bipartisan consensus--
that the Majority has tucked into this legislation. For 
instance, the bill contains a laundry list of new temporary 
provisions that add more than $7 billion to the cost of the 
bill, questionable new tax credit bonds that appear to be 
little more than ``green pork,'' as well as a $1.5 billion tax 
break for trial lawyers who use certain types of contingency 
fee arrangements. Many of these provisions were never subject 
to formal hearings, depriving the Committee the opportunity to 
fully understand the implications of these proposals.
    As discussed above, our most pressing concerns about H.R. 
6049 are much broader, however. The Majority's paygo rules 
require large tax hikes now and unfathomably large tax hikes 
over years to come. H.R. 6049 is little more than a political 
exercise that further threatens the prospects of enacting a 
seamless, bipartisan extenders package in a timely manner. 
Inaction on the AMT is inexcusable. It simply does not make 
sense to extend dozens of tax provisions (some for several 
years), to create a wide array of new extenders, and to hand 
out new, permanent tax benefits to certain groups, while 
failing to deal with the biggest and most important expired 
provision in the tax code, the AMT patch.
    We urge the Majority to address the concerns outlined above 
prior to bringing H.R. 6049 to the House floor.

                                   Jim McCrery.
                                   Wally Herger.
                                   Dave Camp.
                                   Jim Ramstad.
                                   Phil English.
                                   Jerry Weller.
                                   Kevin Brady.
                                   Tom Reynolds.
                                   Paul Ryan.
                                   Eric Cantor.
                                   Devin Nunes.

                                  
