Foreign Oil Displacement Act

Summary: Foreign Oil Displacement Act - Amends the Internal Revenue Code to allow an investment credit for carbonaceous fuels conversion facilities, defined as facilities for producing:  (1) oil from shale and tar sands; (2) gas from geopressured brine, Devonian shale, coal seams, or a tight formation, or from biomass; and (3) liquid, gaseous, or solid synthetic fuels from coal (including lignite, standard anthracite, peat, and any byproduct from a coal, culm, or silt preparation facility containing fixed carbon and including such fuels when used as feedstocks).  Provides for recapture. 
Allows any unused portion of a carbonaceous fuels facility credit to be sold or assigned.  Provides for the treatment of the seller and acquirer. 
Excludes from the definitions of "taxable fuel," "gasoline," "diesel fuel," and "aviation fuel," and excludes from taxation under specified provisions, fuel produced by such a facility or that portion of a blend that is such a fuel.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Foreign Oil Displacement Act''.

SEC. 2. FINDINGS.

    Congress finds that--
            (1) the strategic interests of the United States would be 
        served by a reduction in the Nation's dependence upon imported 
        oil to produce transportation fuels and other products vital to 
        both the domestic economy and national security;
            (2) this goal would be served by the development of a 
        viable, commercially competitive synthetic fuels industry 
        reliant upon domestic coals and other plentiful, nontraditional 
        carbonaceous feedstocks; and
            (3) temporary financial incentives are required to foster 
        private investment in the technology, design, construction, and 
        operation of strategic facilities capable of producing 
        synthetic fuels on a commercial scale.

SEC. 3. CARBONACEOUS FUELS FACILITY CREDIT.

    (a) Allowance of Carbonaceous Fuels Facility Credit.--Section 46 of 
the Internal Revenue Code of 1986 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 inserting after paragraph (3) the 
following new paragraph:
            ``(4) the carbonaceous fuels facility credit.''
    (b) Amount of Carbonaceous Fuels Facility Credit.--Section 48 of 
such Code (relating to the energy credit and the reforestation credit) 
is amended by adding after subsection (b) the following new subsection:
    ``(c) Carbonaceous Fuels Facility Credit.--
            ``(1) In general.--For purposes of section 46, the 
        carbonaceous fuels facility credit for any taxable year is an 
        amount equal to 28 percent of the qualified investment in a 
        carbonaceous fuels conversion facility for such taxable year.
            ``(2) Carbonaceous fuels conversion facility.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the term `carbonaceous fuels conversion facility' means 
                a facility of the taxpayer--
                            ``(i)(I) the original use of which 
                        commences with the taxpayer or the 
                        reconstruction of which is completed by the 
                        taxpayer (but only with respect to that portion 
                        of the basis which is properly attributable to 
                        such reconstruction), or
                            ``(II) that is acquired through purchase 
                        (as defined by section 179(d)(2)),
                            ``(ii) that is depreciable under section 
                        167,
                            ``(iii) that has a useful life of not less 
                        than 4 years, and
                            ``(iv) that is used to produce a qualified 
                        fuel.
                    ``(B) Special rule for sale-leasebacks.--For 
                purposes of clause (i) of subparagraph (A), in the case 
                of a facility that--
                            ``(i) is originally placed in service by a 
                        person, and
                            ``(ii) is sold and leased back by such 
                        person, or is leased to such person, within 3 
                        months after the date such facility was 
                        originally placed in service, for a period of 
                        not less than 12 years,
                such facility shall be treated as originally placed in 
                service not earlier than the date on which such 
                property is used under the leaseback (or lease) 
                referred to in clause (ii). The preceding sentence 
                shall not apply to any property if the lessee and 
                lessor of such property make an election under this 
                sentence. Such an election, once made, may be revoked 
                only with the consent of the Secretary.
                    ``(C) Qualified fuel.--For purposes of clause (iv) 
                of subparagraph (A), the term `qualified fuel'--
                            ``(i) has the meaning given such term by 
                        section 29(c), except that
                            ``(ii) in respect of subparagraph (C) of 
                        paragraph (1) of section 29(c), the term `coal' 
                        shall, in addition to lignite, be deemed to 
                        include standard anthracite, peat, and any 
                        byproduct from a coal, culm, or silt 
                        preparation facility that contains fixed 
                        carbon.
            ``(3) Qualified investment.--For purposes of paragraph (1), 
        the term `qualified investment' means, with respect to any 
        taxable year, the basis of a carbonaceous fuels conversion 
        facility placed in service by the taxpayer during such taxable 
        year.
            ``(4) Qualified progress expenditures.--
                    ``(A) Increase in qualified investment.--In the 
                case of a taxpayer who has made an election under 
                subparagraph (E), the amount of the qualified 
                investment of such taxpayer for the taxable year 
                (determined under paragraph (3) without regard to this 
                subsection) shall be increased by an amount equal to 
                the aggregate of each qualified progress expenditure 
                for the taxable year with respect to progress 
                expenditure property.
                    ``(B) Progress expenditure property defined.--For 
                purposes of this paragraph, the term `progress 
                expenditure property' means any property being 
                constructed by or for the taxpayer and which--
                            ``(i) cannot reasonably be expected to be 
                        completed in less than 18 months, and
                            ``(ii) it is reasonable to believe will 
                        qualify as a carbonaceous fuels conversion 
                        facility which is being constructed by or for 
                        the taxpayer when it is placed in service.
                    ``(C) Qualified progress expenditures defined.--For 
                purposes of this paragraph--
                            ``(i) Self-constructed property.--In the 
                        case of any self-constructed property, the term 
                        `qualified progress expenditures' means the 
                        amount which, for purposes of this subpart, is 
                        properly chargeable (during such taxable year) 
                        to capital account with respect to such 
                        property.
                            ``(ii) Non-self-constructed property.--In 
                        the case of non-self-constructed property, the 
                        term `qualified progress expenditures' means 
                        the amount paid during the taxable year to 
                        another person for the construction of such 
                        property.
                    ``(D) Other definitions.--For purposes of this 
                subsection--
                            ``(i) Self-constructed property.--The term 
                        `self-constructed property' means property for 
                        which it is reasonable to believe that more 
                        than half of the construction expenditures will 
                        be made directly by the taxpayer.
                            ``(ii) Non-self-constructed property.--The 
                        term `non-self-constructed property' means 
                        property which is not self-constructed 
                        property.
                            ``(iii) Construction, etc.--The term 
                        `construction' includes reconstruction and 
                        erection, and the term `constructed' includes 
                        reconstructed and erected.
                            ``(iv) Only construction of carbonaceous 
                        fuels conversion facility to be taken into 
                        account.--Construction shall be taken into 
                        account only if, for purposes of this subpart, 
                        expenditures therefor are properly chargeable 
to capital account with respect to the property.
                    ``(E) Election.--An election under this paragraph 
                may be made at such time and in such manner as the 
                Secretary may by regulations prescribe. Such an 
                election shall apply to the taxable year for which made 
                and to all subsequent taxable years. Such an election, 
                once made, may not be revoked except with the consent 
                of the Secretary.
            ``(5) Coordination with other credits.--This subsection 
        shall not apply to any property with respect to which the 
        energy credit or the rehabilitation credit is allowed unless 
        the taxpayer elects to waive the application of such credits to 
        such property.''
    (c) Recapture.--Subsection (a) of section 50 of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
paragraph:
            ``(6) Special rules relating to carbonaceous fuels 
        conversion facility.--For purposes of applying this subsection 
        in the case of any credit allowable by reason of section 48(c), 
        the following shall apply:
                    ``(A) General rule.--In lieu of the amount of the 
                increase in tax under paragraph (1), the increase in 
                tax shall be an amount equal to the investment tax 
                credit allowed under section 38 for all prior taxable 
                years with respect to a carbonaceous fuels conversion 
                facility (as defined by section 48(c)) multiplied by a 
                fraction whose numerator is the number of years 
                remaining to fully depreciate under this title the 
                carbonaceous fuels conversion facility disposed of, and 
                whose denominator is the total number of years over 
                which such facility would otherwise have been subject 
                to depreciation. For purposes of the preceding 
                sentence, the year of disposition of the carbonaceous 
                fuels conversion facility property shall be treated as 
                a year of remaining depreciation.
                    ``(B) Property ceases to qualify for progress 
                expenditures.--Rules similar to the rules of paragraph 
                (2) shall apply in the case of qualified progress 
                expenditures for a carbonaceous fuels conversion 
                facility under section 48(c), except that the amount of 
                the increase in tax under subparagraph (A) of this 
                paragraph shall be substituted in lieu of the amount 
                described in such paragraph (2).
                    ``(C) This paragraph shall be applied separately 
                with respect to the credit allowed under section 38 
                regarding a carbonaceous fuels conversion facility.''
    (d) Technical Amendments.--
            (1) Subparagraph (C) of section 49(a)(1) of such Code 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 thereof the following new 
        clause:
                            ``(iv) the portion of the basis of any 
                        carbonaceous fuels conversion facility 
                        attributable to any qualified investment (as 
                        defined by section 48(c)(3)).''
            (2) Paragraph (4) of section 50(a) of such Code is amended 
        by striking ``and (2)'' and inserting ``, (2), and (6)''.
            (3)(A) The section heading for section 48 of such Code is 
        amended to read as follows:

``SEC. 48. OTHER CREDITS.''

            (B) The table of sections for subpart E of part IV of 
        subchapter A of chapter 1 of such Code is amended by striking 
        the item relating to section 48 and inserting the following:

                              ``Sec. 48. Other credits.''
    (e) Sale or Assignment of Unused Credit Amount.--Section 50 of such 
Code is amended by adding at the end the following new subsection:
    ``(e) Sale or Assignment of Unused Carbonaceous Fuels Facility 
Credit Amount.--
            ``(1) General rule.--Any unused portion of a carbonaceous 
        fuels facility credit may be sold or assigned in accordance 
        with regulations prescribed by the Secretary.
            ``(2) Treatment of seller.--
                    ``(A) Liability.--The sale or assignment of any 
                portion of a credit under paragraph (1) shall not 
                relieve the seller or assignor of any penalty or 
                interest charged under this title with respect to such 
                portion.
                    ``(B) Basis.--The basis of a carbonaceous fuels 
                facility shall not be adjusted by reason of the sale or 
                assignment of a credit under paragraph (1).
            ``(3) Treatment of acquirer.--
                    ``(A) Credit claimed.--The credit (or portion 
                thereof) acquired under paragraph (1) may be claimed 
                only by the person acquiring such credit in the taxable 
year of such person in which such sale or assignment occurred and only 
if such person notifies the Secretary of the derivative source of such 
credit.
                    ``(B) Liability.--Such person shall not be subject 
                to any penalty or interest in respect of such credit 
                for which the seller or assignor remains subject under 
                paragraph (2)(A).
                    ``(C) Ordering rule.--
                            ``(i) In general.--Such credit shall be 
                        treated as a credit under this part allowable 
                        to such person and shall be used after the 
                        order of all other credits specified by section 
                        38(d).
                            ``(ii) Limitation on carryforwards.--No 
                        amount of a credit acquired under paragraph (1) 
                        may be treated as a business carryforward in 
                        any taxable year beginning after December 31, 
                        2010.
            ``(4) Regulations.--Not later than 1 year after the date of 
        the enactment of the Foreign Oil Displacement Act, the 
        Secretary shall prescribe regulations to carry out this 
        subsection.''
    (f) Effective Date.--The amendments made by this section shall 
apply to periods after the date of the enactment of this Act 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. 4. EXEMPTION FROM MANUFACTURERS EXCISE TAX ON FUELS.

    (a) Gasoline.--Subsection (a) of section 4083 of the Internal 
Revenue Code of 1986 is amended by adding at the end the following new 
paragraph:
            ``(4) Qualified carbonaceous fuel.--
                    ``(A) Exemption.--For taxable years beginning after 
                90 days after the date of the enactment of this 
                paragraph and ending before December 31, 2010, the 
                terms `taxable fuel', `gasoline', and `diesel fuel' do 
                not include qualified carbonaceous fuel or that portion 
                of a blend that is qualified carbonaceous fuel.
                    ``(B) Qualified carbonaceous fuel defined.--For 
                purposes of subparagraph (A), the term `qualified 
                carbonaceous fuel' means qualified fuel produced by a 
                carbonaceous fuels conversion facility.
                    ``(C) Other definitions.--For purposes of 
                subparagraph (B), the terms `qualified fuel' and 
                `carbonaceous fuels conversion facility' have the 
                meaning given such terms by section 48(c)(2).''
    (b) Aviation Fuel.--Subsection (a) of section 4093 of such Code is 
amended by adding at the end the following new sentence: ``Such term 
does not include qualified carbonaceous fuel (as defined by section 
4083(a)(4)).''
    (c) Retail Uses.--Section 4041 of such Code is amended by adding at 
the end the following new subsection:
    ``(n) Certain Carbonaceous Fuel.--
            ``(1) Exemption.--For taxable years beginning after 90 days 
        after the date of the enactment of this subsection and ending 
        before December 31, 2010, no tax shall be imposed under this 
        section on qualified carbonaceous fuel or that portion of a 
        blend that is qualified carbonaceous fuel.
            ``(2) Qualified carbonaceous fuel defined.--For purposes of 
        paragraph (1), the term `qualified carbonaceous fuel' has the 
        meaning given such term by section 4083(a)(4).''
    (d) Effective Date.--The amendments made by this section shall 
apply to fuels produced after the date of the enactment of this Act.