39–006 

109TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 109–45 

ENHANCED ENERGY INFRASTRUCTURE AND 

TECHNOLOGY TAX POLICY ACT OF 2005 

APRIL 18, 2005.—Committed to the Committee of the Whole House on the State of 

the Union and ordered to be printed 

Mr. THOMAS, from the Committee on Ways and Means, 

submitted the following 

R E P O R T 

[To accompany H.R. 1541] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Ways and Means, to whom was referred the 

bill (H.R. 1541) to amend the Internal Revenue Code of 1986 to enhance energy infrastructure properties in the United States and to 

encourage the use of certain energy technologies, and for other purposes, having considered the same, report favorably thereon with 

an amendment and recommend that the bill as amended do pass. 

CONTENTS 

Page 

I. Summary and Background .............................................................................. 16 

Title I—Energy Infrastructure Tax Incentives .............................................. 17 

A. Natural Gas Gathering Lines Treated as Seven-Year Property 

(sec. 101 of the bill and sec. 168 of the Code) .................................. 17 

B. Natural Gas Distribution Lines Treated as Fifteen-Year Property 

(sec. 102 of the bill and sec. 168 of the Code) .................................. 18 

C. Transmission Property Treated as Fifteen-Year Property (sec. 103 

of the bill and sec. 168 of the Code) ................................................. 19 

D. Amortization of Atmospheric Pollution Control Facilities (sec. 104 

of the bill and sec. 169 of the Code) ................................................. 19 

E. Modification of Credit for Producing Fuel From a Non-Conventional Source (sec. 105 of the bill and sec. 29 and new sec. 

45J of the Code) .................................................................................. 21 

F. Modification to Special Rules for Nuclear Decommissioning Costs 

(sec. 106 of the bill and sec. 468A of the Code) ............................... 22 

G. Exempt Certain Prepayments for Natural Gas from Tax-Exempt 

Bond Arbitrage Rules (sec. 107 of the bill and sec. 148 of the 

Code) ................................................................................................... 25 

H. Determination of Small Refiner Exception to Oil Depletion Deduction (sec. 108 of the bill and sec. 613A of the Code) ........................ 29 

Title II—Miscellaneous Energy Tax Incentives ............................................. 30 

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A. Residential Solar Hot Water Heating, Photovoltaic, and Fuel Cell 

Credit (sec. 201 of the bill and new sec. 25C of the Code) .............. 30 

B. Business Fuel Cell Investment Credit (sec. 202 of the bill and 

sec. 48 of the Code) ............................................................................ 31 

C. Btu-Based Rate for Diesel-Water Fuel Emulsion (sec. 203 of the 

bill and secs. 4081 and 6427 of the Code) ........................................ 32 

D. Amortization of Delay Rental Payments (sec. 204 of the bill and 

new sec. 167 of the Code) .................................................................. 33 

E. Amortization of Geological and Geophysical Expenditures (sec. 

205 of the bill and new sec. 167 of the Code) .................................. 34 

F. Advanced Lean-Burn Motor Vehicle Credit (sec. 206 of the bill 

and new sec. 30B of the Code) .......................................................... 36 

G. Energy Efficient Improvements to Existing Homes (sec. 207 of 

the bill and new sec. 25D of the Code) ............................................. 39 

Title III—Alternative Minimum Tax Relief ................................................... 40 

A. New Nonrefundable Personal Credits Allowed Against Regular 

and Minimum Taxes (sec. 301 of the bill and sec. 26 of the 

Code) ................................................................................................... 40 

B. Certain Business Energy Credits Allowed Against the Regular 

and Minimum Taxes (sec. 302 of the bill and sec. 38 of the 

Code) ................................................................................................... 41 

II. Votes of the Committee .................................................................................... 42 

III. Budget Efects of the Bill .................................................................................. 43 

IV. Other Matters to be Discussed Under the Rules of the House ..................... 50 

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 ‘‘Enhanced Energy Infrastructure 

and Technology Tax Act of 2005’’. 

(b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment 

to, or repeal of, a section or other provision, the reference shall be considered to be 

made to a section or other provision of the Internal Revenue Code of 1986. 

(c) TABLE OF CONTENTS.—The table of contents for this Act is as follows: 

Sec. 1. Short title; etc. 

TITLE I—ENERGY INFRASTRUCTURE TAX INCENTIVES 

Sec. 101. Natural gas gathering lines treated as 7-year property. 

Sec. 102. Natural gas distribution lines treated as 15-year property. 

Sec. 103. Electric transmission property treated as 15-year property. 

Sec. 104. Expansion of amortization for certain atmospheric pollution control facilities in connection with plants 

first placed in service after 1975. 

Sec. 105. Modification of credit for producing fuel from a nonconventional source. 

Sec. 106. Modifications to special rules for nuclear decommissioning costs. 

Sec. 107. Arbitrage rules not to apply to prepayments for natural gas. 

Sec. 108. Determination of small refiner exception to oil depletion deduction. 

TITLE II—MISCELLANEOUS ENERGY TAX INCENTIVES 

Sec. 201. Credit for residential energy efficient property. 

Sec. 202. Credit for business installation of qualified fuel cells. 

Sec. 203. Reduced motor fuel excise tax on certain mixtures of diesel fuel. 

Sec. 204. Amortization of delay rental payments. 

Sec. 205. Amortization of geological and geophysical expenditures. 

Sec. 206. Advanced lean burn technology motor vehicle credit. 

Sec. 207. Credit for energy efficiency improvements to existing homes. 

TITLE III—ALTERNATIVE MINIMUM TAX RELIEF 

Sec. 301. New nonrefundable personal credits allowed against regular and minimum taxes. 

Sec. 302. Certain business energy credits allowed against regular and minimum taxes. 

TITLE I—ENERGY INFRASTRUCTURE TAX 

INCENTIVES 

SEC. 101. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR PROPERTY. 

(a) IN GENERAL.—Subparagraph (C) of section 168(e)(3) (relating to classification 

of certain property) 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) any natural gas gathering line, and’’. 

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(b) NATURAL GAS GATHERING LINE.—Subsection (i) of section 168 is amended by 

inserting after paragraph (16) the following new paragraph: 

‘‘(17) NATURAL GAS GATHERING LINE.—The term ‘natural gas gathering line’ means— ‘‘(A) the pipe, equipment, and appurtenances determined to be a gathering line by the Federal Energy Regulatory Commission, and 

‘‘(B) the pipe, equipment, and appurtenances used to deliver natural gas 

from the wellhead or a commonpoint to the point at which such gas first 

reaches— 

‘‘(i) a gas processing plant, 

‘‘(ii) an interconnection with a transmission pipeline for which a certificate as an interstate transmission pipeline has been issued by the 

Federal Energy Regulatory Commission, 

‘‘(iii) an interconnection with an intrastate transmission pipeline, or 

‘‘(iv) a direct interconnection with a local distribution company, a gas 

storage facility, or an industrial consumer.’’. 

(c) ALTERNATIVE SYSTEM.—The table contained in section 168(g)(3)(B) is amended 

by inserting after the item relating to subparagraph (C)(iii) the following: 

‘‘(C) (iv) ................................................................................................................................................................... 14’’. 

(d) ALTERNATIVE MINIMUM TAX EXCEPTION.—Subparagraph (B) of section 56(a)(1) 

is amended by inserting before the period the following: ‘‘, or in section 

168(e)(3)(C)(iv)’’. 

(e) EFFECTIVE DATE.—The amendments made by this section shall apply to property placed in service after April 11, 2005. 

SEC. 102. NATURAL GAS DISTRIBUTION LINES TREATED AS 15-YEAR PROPERTY. 

(a) IN GENERAL.—Subparagraph (E) of section 168(e)(3) (relating to classification 

of certain property) is amended by striking ‘‘and’’ at the end of clause (v), by striking 

the period at the end of clause (vi) and inserting ‘‘, and’’, and by adding at the end 

the following new clause: 

‘‘(vii) any natural gas distribution line.’’. 

(b) ALTERNATIVE SYSTEM.—The table contained in section 168(g)(3)(B) is amended 

by inserting after the item relating to subparagraph (E)(vi) the following: 

‘‘(E) (vii) .................................................................................................................................................................. 35’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to property placed in service after April 11, 2005. 

SEC. 103. ELECTRIC TRANSMISSION PROPERTY TREATED AS 15-YEAR PROPERTY. 

(a) IN GENERAL.—Subparagraph (E) of section 168(e)(3) (relating to classification 

of certain property), as amended by section 102 of this Act, is amended by striking 

‘‘and’’ at the end of clause (vi), by striking the period at the end of clause (vii) and 

inserting ‘‘, and’’, and by adding at the end the following new clause: 

‘‘(viii) any section 1245 property (as defined in section 1245(a)(3)) 

used in the transmission at 69 or more kilovolts of electricity for sale 

and the original use of which commences with the taxpayer after April 

11, 2005.’’. 

(b) ALTERNATIVE SYSTEM.—The table contained in section 168(g)(3)(B) is amended 

by inserting after the item relating to subparagraph (E)(vii) the following: 

‘‘(E) (viii) ................................................................................................................................................................ 30’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to property placed in service after April 11, 2005. 

SEC. 104. EXPANSION OF AMORTIZATION FOR CERTAIN ATMOSPHERIC POLLUTION CONTROL 

FACILITIES IN CONNECTION WITH PLANTS FIRST PLACED IN SERVICE AFTER 1975. 

(a) ELIGIBILITY OF POST-1975 POLLUTION CONTROL FACILITIES.—Subsection (d) of 

section 169 (relating to definitions) is amended by adding at the end the following: 

‘‘(5) SPECIAL RULE RELATING TO CERTAIN ATMOSPHERIC POLLUTION CONTROL

FACILITIES.—In the case of any atmospheric pollution control facility which is 

placed in service after April 11, 2005, and used in connection with an electric 

generation plant or other property which is primarily coal fired, paragraph (1) 

shall be applied without regard to the phrase ‘in operation before January 1, 

1976’.’’. 

(b) TREATMENT AS NEW IDENTIFIABLE TREATMENT FACILITY.—Subparagraph (B) of 

section 169(d)(4) is amended to read as follows: 

‘‘(B) CERTAIN FACILITIES PLACED IN OPERATION AFTER APRIL 11, 2005.—In 

the case of any facility described in paragraph (1) solely by reason of paragraph (5), subparagraph (A) shall be applied by substituting ‘April 11, 2005’ 

for ‘December 31, 1968’ each place it appears therein.’’. 

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(c) TECHNICAL AMENDMENT.—Section 169(d)(3) is amended by striking ‘‘Health, 

Education, and Welfare’’ and inserting ‘‘Health and Human Services’’. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to facilities placed in service after April 11, 2005. 

SEC. 105. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL 

SOURCE. 

(a) TREATMENT AS BUSINESS CREDIT.— 

(1) CREDIT MOVED TO SUBPART RELATING TO BUSINESS RELATED CREDITS.—The 

Internal Revenue Code of 1986 is amended by redesignating section 29 as section 45J and by moving section 45J (as so redesignated) from subpart B of part 

IV of subchapter A of chapter 1 to the end of subpart D of part IV of subchapter 

A of chapter 1. 

(2) CREDIT TREATED AS BUSINESS CREDIT.—Section 38(b) is amended by striking ‘‘plus’’ at the end of paragraph (18), by striking the period at the end of 

paragraph (19) and inserting ‘‘, plus’’, and by adding at the end the following: 

‘‘(20) the nonconventional source production credit determined under section 

45J(a).’’. 

(3) CONFORMING AMENDMENTS.— 

(A) Section 30(b)(3)(A) is amended by striking ‘‘sections 27 and 29’’ and 

inserting ‘‘section 27’’. 

(B) Sections 43(b)(2), 45I(b)(2)(C)(i), and 613A(c)(6)(C) are each amended 

by striking ‘‘section 29(d)(2)(C)’’ and inserting ‘‘section 45J(d)(2)(C)’’. 

(C) Section 45(e)(9) is amended— 

(i) by striking ‘‘section 29’’ and inserting ‘‘section 45J’’, and 

(ii) by inserting ‘‘(or under section 29, as in effect on the day before 

the date of enactment of the Enhanced Energy Infrastructure and 

Technology Tax Act of 2005, for any prior taxable year)’’ before the period at the end thereof. 

(D) Section 45I is amended— 

(i) in subsection (c)(2)(A) by striking ‘‘section 29(d)(5))’’ and inserting 

‘‘section 45J(d)(5))’’, and 

(ii) in subsection (d)(3) by striking ‘‘section 29’’ both places it appears 

and inserting ‘‘section 45J’’. 

(E) Section 45J(a), as redesignated by paragraph (1), is amended by striking ‘‘There shall be allowed as a credit against the tax imposed by this 

chapter for the taxable year’’ and inserting ‘‘For purposes of section 38, if 

the taxpayer elects to have this section apply, the nonconventional source 

production credit determined under this section for the taxable year is’’. 

(F) Section 45J(b), as so redesignated, is amended by striking paragraph 

(6). 

(G) Section 53(d)(1)(B)(iii) is amended by striking ‘‘under section 29’’ and 

all that follows through ‘‘or not allowed’’. 

(H) Section 55(c)(3) is amended by striking ‘‘29(b)(6),’’. 

(I) Subsection (a) of section 772 is amended by inserting ‘‘and’’ at the end 

of paragraph (9), by striking paragraph (10), and by redesignating paragraph (11) as paragraph (10). 

(J) Paragraph (5) of section 772(d) is amended by striking ‘‘the foreign tax 

credit, and the credit allowable under section 29’’ and inserting ‘‘and the 

foreign tax credit’’. 

(K) The table of sections for subpart B of part IV of subchapter A of chapter 1 is amended by striking the item relating to section 29. 

(L) The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 45I the following new item: 

‘‘Sec. 45J. Credit for producing fuel from a nonconventional source.’’. 

(b) AMENDMENTS CONFORMING TO THE REPEAL OF THE NATURAL GAS POLICY ACT

OF 1978.— 

(1) IN GENERAL.—Section 29(c)(2)(A) (before redesignation under subsection 

(a)) is amended— 

(A) by inserting ‘‘(as in effect before the repeal of such section)’’ after 

‘‘1978’’, and 

(B) by striking subsection (e) and redesignating subsections (f) and (g) as 

subsections (e) and (f), respectively. 

(2) CONFORMING AMENDMENTS.—Section 29(g)(1)(before redesignation under 

subsection (a) and paragraph (1) of this subsection) is amended— 

(A) in subparagraph (A) by striking ‘‘subsection (f)(1)(B)’’ and inserting 

‘‘subsection (e)(1)(B)’’, and 

5 

(B) in subparagraph (B) by striking ‘‘subsection (f)’’ and inserting ‘‘subsection (e)’’. 

(c) EFFECTIVE DATES.— 

(1) IN GENERAL.—Except as provided in paragraph (2), the amendments made 

by this section shall apply to credits determined under the Internal Revenue 

Code of 1986 for taxable years ending after December 31, 2005. 

(2) SUBSECTION (b).—The amendments made by subsection (b) shall take effect on the date of the enactment of this Act. 

SEC. 106. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR DECOMMISSIONING COSTS. 

(a) REPEAL OF LIMITATION ON DEPOSITS INTO FUND BASED ON COST OF SERVICE; 

CONTRIBUTIONS AFTER FUNDING PERIOD.—Subsection (b) of section 468A (relating to 

special rules for nuclear decommissioning costs) is amended to read as follows: 

‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—The amount which a taxpayer 

may pay into the Fund for any taxable year shall not exceed the ruling amount applicable to such taxable year.’’. 

(b) TREATMENT OF CERTAIN DECOMMISSIONING COSTS.— 

(1) IN GENERAL.—Section 468A is amended by redesignating subsections (f) 

and (g) as subsections (g) and (h), respectively, and by inserting after subsection 

(e) the following new subsection: 

‘‘(f) TRANSFERS INTO QUALIFIED FUNDS.— 

‘‘(1) IN GENERAL.—Notwithstanding subsection (b), any taxpayer maintaining 

a Fund to which this section applies with respect to a nuclear power plant may 

transfer into such Fund not more than an amount equal to the present value 

of the portion of the total nuclear decommissioning costs with respect to such 

nuclear power plant previously excluded for such nuclear power plant under 

subsection (d)(2)(A) as in effect immediately before the date of the enactment 

of the Enhanced Energy Infrastructure and Technology Tax Act of 2005. 

‘‘(2) DEDUCTION FOR AMOUNTS TRANSFERRED.— 

‘‘(A) IN GENERAL.—Except as provided in subparagraph (C), the deduction 

allowed by subsection (a) for any transfer permitted by this subsection shall 

be allowed ratably over the remaining estimated useful life (within the 

meaning of subsection (d)(2)(A)) of the nuclear power plant beginning with 

the taxable year during which the transfer is made. 

‘‘(B) DENIAL OF DEDUCTION FOR PREVIOUSLY DEDUCTED AMOUNTS.—No deduction shall be allowed for any transfer under this subsection of an 

amount for which a deduction was previously allowed to the taxpayer (or 

a predecessor) or a corresponding amount was not included in gross income 

of the taxpayer (or a predecessor). For purposes of the preceding sentence, 

a ratable portion of each transfer shall be treated as being from previously 

deducted or excluded amounts to the extent thereof. 

‘‘(C) TRANSFERS OF QUALIFIED FUNDS.—If— 

‘‘(i) any transfer permitted by this subsection is made to any Fund 

to which this section applies, and 

‘‘(ii) such Fund is transferred thereafter, 

any deduction under this subsection for taxable years ending after the date 

that such Fund is transferred shall be allowed to the transferor for the taxable year which includes such date. 

‘‘(D) SPECIAL RULES.— 

‘‘(i) GAIN OR LOSS NOT RECOGNIZED ON TRANSFERS TO FUND.—No gain 

or loss shall be recognized on any transfer described in paragraph (1). 

‘‘(ii) TRANSFERS OF APPRECIATED PROPERTY TO FUND.—If appreciated 

property is transferred in a transfer described in paragraph (1), the 

amount of the deduction shall not exceed the adjusted basis of such 

property. 

‘‘(3) NEW RULING AMOUNT REQUIRED.—Paragraph (1) shall not apply to any 

transfer unless the taxpayer requests from the Secretary a new schedule of ruling amounts in connection with such transfer. 

‘‘(4) NO BASIS IN QUALIFIED FUNDS.—Notwithstanding any other provision of 

law, the taxpayer’s basis in any Fund to which this section applies shall not 

be increased by reason of any transfer permitted by this subsection.’’. 

(2) NEW RULING AMOUNT TO TAKE INTO ACCOUNT TOTAL COSTS.—Subparagraph (A) of section 468A(d)(2) (defining ruling amount) is amended to read as 

follows: 

‘‘(A) fund the total nuclear decommissioning costs with respect to such 

power plant over the estimated useful life of such power plant, and’’. 

(c) TECHNICAL AMENDMENTS.—Section 468A(e)(2) (relating to taxation of Fund) is 

amended— 

6 

(1) by striking ‘‘rate set forth in subparagraph (B)’’ in subparagraph (A) and 

inserting ‘‘rate of 20 percent’’, 

(2) by striking subparagraph (B), and 

(3) by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), 

respectively. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2005. 

SEC. 107. ARBITRAGE RULES NOT TO APPLY TO PREPAYMENTS FOR NATURAL GAS. 

(a) IN GENERAL.—Subsection (b) of section 148 (relating to higher yielding investments) is amended by adding at the end the following new paragraph: 

‘‘(4) SAFE HARBOR FOR PREPAID NATURAL GAS.— 

‘‘(A) IN GENERAL.—The term ‘investment-type property’ does not include 

a prepayment under a qualified natural gas supply contract. 

‘‘(B) QUALIFIED NATURAL GAS SUPPLY CONTRACT.—For purposes of this 

paragraph, the term ‘qualified natural gas supply contract’ means any contract to acquire natural gas for resale by a utility owned by a governmental 

unit if the amount of gas permitted to be acquired under the contract by 

the utility during any year does not exceed the sum of— 

‘‘(i) the annual average amount during the testing period of natural 

gas purchased (other than for resale) by customers of such utility who 

are located within the service area of such utility, and 

‘‘(ii) the amount of natural gas to be used to transport the prepaid 

natural gas to the utility during such year. 

‘‘(C) NATURAL GAS USED TO GENERATE ELECTRICITY.—Natural gas used to 

generate electricity shall be taken into account in determining the average 

under subparagraph (B)(i)— 

‘‘(i) only if the electricity is generated by a utility owned by a governmental unit, and 

‘‘(ii) only to the extent that the electricity is sold (other than for resale) to customers of such utility who are located within the service 

area of such utility. 

‘‘(D) ADJUSTMENTS FOR CHANGES IN CUSTOMER BASE.— 

‘‘(i) NEW BUSINESS CUSTOMERS.—If— 

‘‘(I) after the close of the testing period and before the date of 

issuance of the issue, the utility owned by a governmental unit enters into a contract to supply natural gas (other than for resale) for 

a business use at a property within the service area of such utility, 

and 

‘‘(II) the utility did not supply natural gas to such property during the testing period or the ratable amount of natural gas to be 

supplied under the contract is significantly greater than the ratable amount of gas supplied to such property during the testing period, 

then a contract shall not fail to be treated as a qualified natural gas 

supply contract by reason of supplying the additional natural gas under 

the contract referred to in subclause (I). 

‘‘(ii) LOST CUSTOMERS.—The average under subparagraph (B)(i) shall 

not exceed the annual amount of natural gas reasonably expected to be 

purchased (other than for resale) by persons who are located within the 

service area of such utility and who, as of the date of issuance of the 

issue, are customers of such utility. 

‘‘(E) RULING REQUESTS.—The Secretary may increase the average under 

subparagraph (B)(i) for any period if the utility owned by the governmental 

unit establishes to the satisfaction of the Secretary that, based on objective 

evidence of growth in natural gas consumption or population, such average 

would otherwise be insufficient for such period. 

‘‘(F) ADJUSTMENT FOR NATURAL GAS OTHERWISE ON HAND.— 

‘‘(i) IN GENERAL.—The amount otherwise permitted to be acquired 

under the contract for any period shall be reduced by— 

‘‘(I) the applicable share of natural gas held by the utility on the 

date of issuance of the issue, and 

‘‘(II) the natural gas (not taken into account under subclause (I)) 

which the utility has a right to acquire during such period (determined as of the date of issuance of the issue). 

‘‘(ii) APPLICABLE SHARE.—For purposes of the clause (i), the term ‘applicable share’ means, with respect to any period, the natural gas allocable to such period if the gas were allocated ratably over the period 

to which the prepayment relates. 

7 

‘‘(G) INTENTIONAL ACTS.—Subparagraph (A) shall cease to apply to any 

issue if the utility owned by the governmental unit engages in any intentional act to render the volume of natural gas acquired by such prepayment 

to be in excess of the sum of— 

‘‘(i) the amount of natural gas needed (other than for resale) by customers of such utility who are located within the service area of such 

utility, and 

‘‘(ii) the amount of natural gas used to transport such natural gas to 

the utility. 

‘‘(H) TESTING PERIOD.—For purposes of this paragraph, the term ‘testing 

period’ means, with respect to an issue, the most recent 5 calendar years 

ending before the date of issuance of the issue. 

‘‘(I) SERVICE AREA.—For purposes of this paragraph, the service area of 

a utility owned by a governmental unit shall be comprised of— 

‘‘(i) any area throughout which such utility provided at all times during the testing period— 

‘‘(I) in the case of a natural gas utility, natural gas transmission 

or distribution services, and 

‘‘(II) in the case of an electric utility, electricity distribution services, 

‘‘(ii) any area within a county contiguous to the area described in 

clause (i) in which retail customers of such utility are located if such 

area is not also served by another utility providing natural gas or electricity services, as the case may be, and 

‘‘(iii) any area recognized as the service area of such utility under 

State or Federal law.’’. 

(b) PRIVATE LOAN FINANCING TEST NOT TO APPLY TO PREPAYMENTS FOR NATURAL

GAS.—Paragraph (2) of section 141(c) (providing exceptions to the private loan financing test) is amended by striking ‘‘or’’ at the end of subparagraph (A), by striking 

the period at the end of subparagraph (B) and inserting ‘‘, or’’, and by adding at 

the end the following new subparagraph: 

‘‘(C) is a qualified natural gas supply contract (as defined in section 

148(b)(4)).’’. 

(c) EXCEPTION FOR QUALIFIED ELECTRIC AND NATURAL GAS SUPPLY CONTRACTS.— 

Section 141(d) is amended by adding at the end the following new paragraph: 

‘‘(7) EXCEPTION FOR QUALIFIED ELECTRIC AND NATURAL GAS SUPPLY CONTRACTS.—The term ‘nongovernmental output property’ shall not include any 

contract for the prepayment of electricity or natural gas which is not investment 

property under section 148(b)(2).’’. 

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to obligations issued after the date of the enactment of this Act. 

SEC. 108. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION DEDUCTION. 

(a) IN GENERAL.—Paragraph (4) of section 613A(d) (relating to limitations on application of subsection (c)) is amended to read as follows: 

‘‘(4) CERTAIN REFINERS EXCLUDED.—If the taxpayer or 1 or more related persons engages in the refining of crude oil, subsection (c) shall not apply to the 

taxpayer for a taxable year if the average daily refinery runs of the taxpayer 

and such persons for the taxable year exceed 75,000 barrels. For purposes of 

this paragraph, the average daily refinery runs for any taxable year shall be 

determined by dividing the aggregate refinery runs for the taxable year by the 

number of days in the taxable year.’’. 

(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable 

years ending after the date of the enactment of this Act. 

TITLE II—MISCELLANEOUS ENERGY TAX 

INCENTIVES 

SEC. 201. CREDIT FOR RESIDENTIAL ENERGY EFFICIENT PROPERTY. 

(a) IN GENERAL.—Subpart A of part IV of subchapter A of chapter 1 (relating to 

nonrefundable personal credits) is amended by inserting after section 25B the following new section: 

‘‘SEC. 25C. 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— 

8 

‘‘(1) 15 percent of the qualified solar water heating property expenditures 

made by the taxpayer during such year, 

‘‘(2) 15 percent of the qualified photovoltaic property expenditures made by 

the taxpayer during such year, and 

‘‘(3) 15 percent of the qualified fuel cell property expenditures made by the 

taxpayer during such year. 

‘‘(b) LIMITATIONS.— ‘‘(1) MAXIMUM CREDIT.— ‘‘(A) IN GENERAL.—The credit allowed under subsection (a) shall not exceed— 

‘‘(i) $2,000 for solar water heating property described in subsection 

(c)(1), 

‘‘(ii) $2,000 for photovoltaic property described in subsection (c)(2), 

and 

‘‘(iii) $500 for each 0.5 kilowatt of capacity of property described in 

subsection (c)(3). 

‘‘(B) PRIOR EXPENDITURES BY TAXPAYER ON SAME RESIDENCE TAKEN INTO

ACCOUNT.—In determining the amount of the credit allowed to a taxpayer 

with respect to any dwelling unit under this section, the dollar amounts 

under clauses (i) and (ii) of subparagraph (A) with respect to each type of 

property described in such clauses shall be reduced by the credit allowed 

to the taxpayer under this section with respect to such type of property for 

all preceding taxable years with respect to such dwelling unit. 

‘‘(2) PROPERTY STANDARDS.—No credit shall be allowed under this section for 

an item of property unless— 

‘‘(A) the original use of such property commences with the taxpayer, 

‘‘(B) such property can be reasonably expected to remain in use for at 

least 5 years, 

‘‘(C) such property is installed on or in connection with a dwelling unit 

located in the United States and used as a residence by the taxpayer, 

‘‘(D) in the case of solar water heating property, such property is certified 

for performance by the non-profit Solar Rating and Certification Corporation or a comparable entity endorsed by the government of the State in 

which such property is installed, and 

‘‘(E) in the case of fuel cell property, such property meets the performance 

and quality standards (if any) which have been prescribed by the Secretary 

by regulations (after consultation with the Secretary of Energy). 

‘‘(c) DEFINITIONS.—For purposes of this section— 

‘‘(1) QUALIFIED SOLAR WATER HEATING PROPERTY EXPENDITURE.—The term 

‘qualified solar water heating property expenditure’ means an expenditure for 

property which uses solar energy to heat water for use in a dwelling unit. 

‘‘(2) QUALIFIED PHOTOVOLTAIC PROPERTY EXPENDITURE.—The term ‘qualified 

photovoltaic property expenditure’ means an expenditure for property which 

uses solar energy to generate electricity for use in a dwelling unit and which 

is not described in paragraph (1). 

‘‘(3) QUALIFIED FUEL CELL PROPERTY EXPENDITURE.—The term ‘qualified fuel 

cell property expenditure’ means an expenditure for any qualified fuel cell property (as defined in section 48(b)(1)). 

‘‘(d) SPECIAL RULES.—For purposes of this section— 

‘‘(1) SOLAR PANELS.—No expenditure relating to a solar panel or other property installed as a roof (or portion thereof) shall fail to be treated as property 

described in paragraph (1) or (2) of subsection (c) solely because it constitutes 

a structural component of the structure on which it is installed. 

‘‘(2) SWIMMING POOLS, ETC., USED AS STORAGE MEDIUM.—Expenditures which 

are properly allocable to a swimming pool, hot tub, or any other energy storage 

medium which has a function other than the function of such storage shall not 

be taken into account for purposes of this section. 

‘‘(3) 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 2 or more individuals, the following rules shall apply: 

‘‘(A) The amount of the credit allowable under subsection (a) by reason 

of expenditures made during such calendar year by any of such individuals 

with respect to such dwelling unit shall be determined by treating all of 

such individuals as 1 taxpayer whose taxable year is such calendar year. 

‘‘(B) There shall be allowable, with respect to such expenditures to each 

of such individuals, a credit under subsection (a) for the taxable year in 

which such calendar year ends in an amount which bears the same ratio 

to the amount determined under subparagraph (A) as the amount of such 

expenditures made by such individual during such calendar year bears to 

9 

the aggregate of such expenditures made by all of such individuals during 

such calendar year. 

‘‘(C) Subparagraphs (A) and (B) shall be applied separately with respect 

to expenditures described in paragraphs (1), (2), and (3) of subsection (c). 

‘‘(4) TENANT-STOCKHOLDER IN COOPERATIVE HOUSING CORPORATION.—In the 

case of an individual who is a tenant-stockholder (as defined in section 216) in 

a cooperative housing corporation (as defined in such section), such individual 

shall be treated as having made the individual’s tenant-stockholder’s proportionate share (as defined in section 216(b)(3)) of any expenditures of such corporation. 

‘‘(5) CONDOMINIUMS.— ‘‘(A) IN GENERAL.—In the case of an individual who is a member of a condominium management association with respect to a condominium which 

the individual owns, such individual shall be treated as having made the 

individual’s proportionate share of any expenditures of such association. 

‘‘(B) CONDOMINIUM MANAGEMENT ASSOCIATION.—For purposes of this 

paragraph, the term ‘condominium management association’ means an organization which meets the requirements of paragraph (1) of section 528(c) 

(other than subparagraph (E) thereof) with respect to a condominium 

project substantially all of the units of which are used as residences. 

‘‘(6) ALLOCATION IN CERTAIN CASES.—If less than 80 percent of the use of an 

item is for nonbusiness purposes, only that portion of the expenditures for such 

item which is properly allocable to use for nonbusiness purposes shall be taken 

into account. 

‘‘(7) WHEN EXPENDITURE MADE; AMOUNT OF EXPENDITURE.— ‘‘(A) IN GENERAL.—Except as provided in subparagraph (B), an expenditure with respect to an item shall be treated as made when the original installation of the item is completed. 

‘‘(B) EXPENDITURES PART OF BUILDING CONSTRUCTION.—In the case of an 

expenditure in connection with the construction or reconstruction of a structure, such expenditure shall be treated as made when the original use of 

the constructed or reconstructed structure by the taxpayer begins. 

‘‘(C) AMOUNT.—The amount of any expenditure shall be the cost thereof. 

‘‘(8) PROPERTY FINANCED BY SUBSIDIZED ENERGY FINANCING.—For purposes of 

determining the amount of expenditures made by any individual with respect 

to any dwelling unit, there shall not be taken into account expenditures which 

are made from subsidized energy financing (as defined in section 48(a)(4)(C)). 

‘‘(e) BASIS ADJUSTMENTS.—For purposes of this subtitle, if a credit is allowed 

under this section for any expenditure with respect to any property, the increase 

in the basis of such property which would (but for this subsection) result from such 

expenditure shall be reduced by the amount of the credit so allowed. 

‘‘(f) TERMINATION.—The credit allowed under this section shall not apply to taxable years beginning after December 31, 2007.’’. 

(b) CONFORMING AMENDMENTS.— (1) Section 1016(a) is amended by striking ‘‘and’’ at the end of paragraph (30), 

by striking the period at the end of paragraph (31) and inserting ‘‘, and’’, and 

by adding at the end the following new paragraph: 

‘‘(32) to the extent provided in section 25C(e), in the case of amounts with respect to which a credit has been allowed under section 25C.’’. 

(2) The table of sections for subpart A of part IV of subchapter A of chapter 

1 is amended by inserting after the item relating to section 25B the following 

new item: 

‘‘Sec. 25C. Residential energy efficient property.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to expenditures made after the date of the enactment of this Act. 

SEC. 202. CREDIT FOR BUSINESS INSTALLATION OF QUALIFIED FUEL CELLS. 

(a) IN GENERAL.—Section 48(a)(3)(A) (defining energy property) is amended by 

striking ‘‘or’’ at the end of clause (i), by adding ‘‘or’’ at the end of clause (ii), and 

by inserting after clause (ii) the following new clause: 

‘‘(iii) qualified fuel cell property,’’. 

(b) ENERGY PERCENTAGE.—Subparagraph (A) of section 48(a)(2) (relating to energy percentage) is amended to read as follows: 

‘‘(A) IN GENERAL.—The energy percentage is— 

‘‘(i) in the case of qualified fuel cell property, 15 percent, and 

‘‘(ii) in the case of any other energy property, 10 percent.’’. 

(c) QUALIFIED FUEL CELL PROPERTY.—Section 48 (relating to energy credit) is 

amended— 

(1) by redesignating subsection (b) as paragraph (5) of subsection (a), 

10 

(2) by striking ‘‘subsection (a)’’ in paragraph (5) of subsection (a), as redesignated by paragraph (1), and inserting ‘‘this subsection’’, and 

(3) by adding at the end the following new subsection: 

‘‘(b) QUALIFIED FUEL CELL PROPERTY.—For purposes of subsection (a)(3)(A)(iii)— 

‘‘(1) IN GENERAL.—The term ‘qualified fuel cell property’ means a fuel cell 

power plant which— 

‘‘(A) generates at least 0.5 kilowatt of electricity using an electrochemical 

process, and 

‘‘(B) has an electricity-only generation efficiency greater than 30 percent. 

‘‘(2) LIMITATION.—The energy credit with respect to any qualified fuel cell 

property shall not exceed an amount equal to $500 for each 0.5 kilowatt of capacity of such property. 

‘‘(3) FUEL CELL POWER PLANT.—The term ‘fuel cell power plant’ means an integrated system, comprised of a fuel cell stack assembly and associated balance 

of plant components, which converts a fuel into electricity using electrochemical 

means. 

‘‘(4) TERMINATION.—The term ‘qualified fuel cell property’ shall not include 

any property placed in service after December 31, 2007.’’. 

(d) CONFORMING AMENDMENT.—Section 48(a)(1) is amended by inserting ‘‘except 

as provided in subsection (b)(2),’’ before ‘‘the energy’’ the first place it appears. 

(e) EFFECTIVE DATE.—The amendments made by this section shall apply to property placed in service after April 11, 2005, 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. 203. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN MIXTURES OF DIESEL FUEL. 

(a) IN GENERAL.—Paragraph (2) of section 4081(a) is amended by adding at the 

end the following: 

‘‘(D) DIESEL-WATER FUEL EMULSION.—In the case of diesel-water fuel 

emulsion at least 16.9 percent of which is water and with respect to which 

the emulsion additive is registered by a United States manufacturer with 

the Environmental Protection Agency pursuant to section 211 of the Clean 

Air Act (as in effect on March 31, 2003), subparagraph (A)(iii) shall be applied by substituting ‘19.7 cents’ for ‘24.3 cents’.’’. 

(b) SPECIAL RULES FOR DIESEL-WATER FUEL EMULSIONS.— 

(1) REFUNDS FOR TAX-PAID PURCHASES.—Section 6427 is amended by redesignating subsections (m) through (p) as subsections (n) through (q), respectively, 

and by inserting after subsection (l) the following new subsection: 

‘‘(m) DIESEL FUEL USED TO PRODUCE EMULSION.— 

‘‘(1) IN GENERAL.—Except as provided in subsection (k), if any diesel fuel on 

which tax was imposed by section 4081 at the regular tax rate is used by any 

person in producing an emulsion described in section 4081(a)(2)(D) which is sold 

or used in such person’s trade or business, the Secretary shall pay (without interest) to such person an amount equal to the excess of the regular tax rate over 

the incentive tax rate with respect to such fuel. 

‘‘(2) DEFINITIONS.—For purposes of paragraph (1)— 

‘‘(A) REGULAR TAX RATE.—The term ‘regular tax rate’ means the aggregate rate of tax imposed by section 4081 determined without regard to section 4081(a)(2)(D). 

‘‘(B) INCENTIVE TAX RATE.—The term ‘incentive tax rate’ means the aggregate rate of tax imposed by section 4081 determined with regard to section 

4081(a)(2)(D).’’. 

(2) LATER SEPARATION OF FUEL.—Section 4081 (relating to imposition of tax) 

is amended by inserting after subsection (b) the following new subsection: 

‘‘(c) LATER SEPARATION OF FUEL FROM DIESEL-WATER FUEL EMULSION.—If any 

person separates the taxable fuel from a diesel-water fuel emulsion on which tax 

was imposed under subsection (a) at a rate determined under subsection (a)(2)(D) 

(or with respect to which a credit or payment was allowed or made by reason of 

section 6427), such person shall be treated as the refiner of such taxable fuel. The 

amount of tax imposed on any removal of such fuel by such person shall be reduced 

by the amount of tax imposed (and not credited or refunded) on any prior removal 

or entry of such fuel.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall take effect on 

January 1, 2006. 

SEC. 204. AMORTIZATION OF DELAY RENTAL PAYMENTS. 

(a) IN GENERAL.—Section 167 (relating to depreciation) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: 

11 

‘‘(h) AMORTIZATION OF DELAY RENTAL PAYMENTS FOR DOMESTIC OIL AND GAS

WELLS.— 

‘‘(1) IN GENERAL.—Any delay rental payment paid or incurred in connection 

with the development of oil or gas wells within the United States (as defined 

in section 638) shall be allowed as a deduction ratably over the 24-month period 

beginning on the date that such payment was paid or incurred. 

‘‘(2) HALF-YEAR CONVENTION.—For purposes of paragraph (1), any payment 

paid or incurred during the taxable year shall be treated as paid or incurred 

on the mid-point of such taxable year. 

‘‘(3) EXCLUSIVE METHOD.—Except as provided in this subsection, no depreciation or amortization deduction shall be allowed with respect to such payments. 

‘‘(4) TREATMENT UPON ABANDONMENT.—If any property to which a delay rental payment relates is retired or abandoned during the 24-month period described in paragraph (1), no deduction shall be allowed on account of such retirement or abandonment and the amortization deduction under this subsection 

shall continue with respect to such payment. 

‘‘(5) DELAY RENTAL PAYMENTS.—For purposes of this subsection, the term 

‘delay rental payment’ means an amount paid for the privilege of deferring development of an oil or gas well under an oil or gas lease.’’. 

(b) EFFECTIVE DATE.—The amendments made by this section shall apply to 

amounts paid or incurred in taxable years beginning after the date of the enactment 

of this Act. 

SEC. 205. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES. 

(a) IN GENERAL.—Section 167 (relating to depreciation), as amended by section 

204 of this Act, is amended by redesignating subsection (i) as subsection (j) and by 

inserting after subsection (h) the following new subsection: 

‘‘(i) AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.— 

‘‘(1) IN GENERAL.—Any geological and geophysical expenses paid or incurred 

in connection with the exploration for, or development of, oil or gas within the 

United States (as defined in section 638) shall be allowed as a deduction ratably 

over the 24-month period beginning on the date that such expense was paid or 

incurred. 

‘‘(2) SPECIAL RULES.—For purposes of this subsection, rules similar to the 

rules of paragraphs (2), (3), and (4) of subsection (h) shall apply.’’. 

(b) CONFORMING AMENDMENT.—Section 263A(c)(3) is amended by inserting 

‘‘167(h), 167(i),’’ after ‘‘under section’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to 

amounts paid or incurred in taxable years beginning after the date of the enactment 

of this Act. 

SEC. 206. ADVANCED LEAN BURN TECHNOLOGY MOTOR VEHICLE CREDIT. 

(a) IN GENERAL.—Subpart B of part IV of subchapter A of chapter 1 (relating to 

other credits) is amended by adding at the end the following: 

‘‘SEC. 30B. ADVANCED LEAN BURN TECHNOLOGY MOTOR VEHICLE CREDIT. 

‘‘(a) ALLOWANCE OF CREDIT.—There shall be allowed as a credit against the tax 

imposed by this chapter for the taxable year an amount equal to the sum of the 

credit amounts determined under subsection (b) with respect to each qualified advanced lean burn technology motor vehicle placed in service by the taxpayer during 

the taxable year. 

‘‘(b) CREDIT AMOUNT.—For purposes of subsection (a)— 

‘‘(1) FUEL EFFICIENCY.—The credit amount with respect to any vehicle shall 

be— 

‘‘(A) $500, if the city fuel economy of such vehicle is at least 125 percent 

but less than 150 percent of the 2000 model year city fuel economy for a 

vehicle in the same inertia weight class, 

‘‘(B) $1,000, if the city fuel economy of such vehicle is at least 150 percent 

but less than 175 percent of the 2000 model year city fuel economy for a 

vehicle in the same inertia weight class, 

‘‘(C) $1,500, if the city fuel economy of such vehicle is at least 175 percent 

but less than 200 percent of the 2000 model year city fuel economy for a 

vehicle in the same inertia weight class, 

‘‘(D) $2,000, if the city fuel economy of such vehicle is at least 200 percent 

but less than 225 percent of the 2000 model year city fuel economy for a 

vehicle in the same inertia weight class, 

‘‘(E) $2,500, if the city fuel economy of such vehicle is at least 225 percent 

but less than 250 percent of the 2000 model year city fuel economy for a 

vehicle in the same inertia weight class, and 

12 

‘‘(F) $3,000, if the city fuel economy of such vehicle is at least 250 percent 

of the 2000 model year city fuel economy for a vehicle in the same inertia 

weight class. 

‘‘(2) CONSERVATION.—The credit amount determined under paragraph (1) with 

respect to any vehicle shall be increased by— ‘‘(A) $250, if the lifetime fuel savings of such vehicle is at least 1,500 gallons of motor fuel but less than 2,500 gallons of motor fuel, and ‘‘(B) $500, if the lifetime fuel savings of such vehicle is at least 2,500 gallons of motor fuel. 

‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—The credit allowed under subsection 

(a) for the taxable year shall not exceed the excess of— 

‘‘(1) the sum of the regular tax liability (as defined in section 26(b)) plus the 

tax imposed by section 55, over 

‘‘(2) the sum of the credits allowable under subpart A and sections 27 and 30A 

for the taxable year. 

‘‘(d) DEFINITIONS.—For purposes of this section— 

‘‘(1) QUALIFIED ADVANCED LEAN BURN TECHNOLOGY MOTOR VEHICLE.—The 

term ‘qualified advanced lean burn technology motor vehicle’ means a motor vehicle— 

‘‘(A) the original use of which commences with the taxpayer, 

‘‘(B) powered by an internal combustion engine that— 

‘‘(i) is designed to operate primarily using more air than is necessary 

for complete combustion of the fuel, and 

‘‘(ii) incorporates direct injection, 

‘‘(C) that only uses diesel fuel (as defined in section 4083(a)(3)), 

‘‘(D) the city fuel economy of which is at least 125 percent of the 2000 

model year city fuel economy for a vehicle in the same inertia weight class, 

and 

‘‘(E) that has received a certificate that such vehicle meets or exceeds the 

Bin 8 Tier II emission level established in regulations prescribed by the Administrator of the Environmental Protection Agency under section 202(i) of 

the Clean Air Act. 

‘‘(2) LIFETIME FUEL SAVINGS.—The term ‘lifetime fuel savings’ means, with respect to a qualified advanced lean burn technology motor vehicle, an amount 

equal to the excess (if any) of— 

‘‘(A) 120,000 divided by the 2000 model year city fuel economy for the vehicle inertia weight class, over 

‘‘(B) 120,000 divided by the city fuel economy for such vehicle. 

‘‘(3) 2000 MODEL YEAR CITY FUEL ECONOMY.—The 2000 model year city fuel 

economy with respect to a vehicle shall be determined in accordance with the 

following tables: 

‘‘(A) In the case of a passenger automobile: 

‘‘If vehicle inertia weight class is: The 2000 model year city fuel economy is: 

1,500 or 1,750 lbs ........................................................................................................................... 43.7 mpg 

2,000 lbs .......................................................................................................................................... 38.3 mpg 

2,250 lbs .......................................................................................................................................... 34.1 mpg 

2,500 lbs .......................................................................................................................................... 30.7 mpg 

2,750 lbs .......................................................................................................................................... 27.9 mpg 

3,000 lbs .......................................................................................................................................... 25.6 mpg 

3,500 lbs .......................................................................................................................................... 22.0 mpg 

4,000 lbs .......................................................................................................................................... 19.3 mpg 

4,500 lbs .......................................................................................................................................... 17.2 mpg 

5,000 lbs .......................................................................................................................................... 15.5 mpg 

5,500 lbs .......................................................................................................................................... 14.1 mpg 

6,000 lbs .......................................................................................................................................... 12.9 mpg 

6,500 lbs .......................................................................................................................................... 11.9 mpg 

7,000 or 8,500 lbs ........................................................................................................................... 11.1 mpg. 

‘‘(B) In the case of a light truck: 

‘‘If vehicle inertia weight class is: The 2000 model year city fuel economy is: 

1,500 or 1,750 lbs ........................................................................................................................... 37.6 mpg 

2,000 lbs .......................................................................................................................................... 33.7 mpg 

2,250 lbs .......................................................................................................................................... 30.6 mpg 

2,500 lbs .......................................................................................................................................... 28.0 mpg 

2,750 lbs .......................................................................................................................................... 25.9 mpg 

3,000 lbs .......................................................................................................................................... 24.1 mpg 

3,500 lbs .......................................................................................................................................... 21.3 mpg 

4,000 lbs .......................................................................................................................................... 19.0 mpg 

4,500 lbs .......................................................................................................................................... 17.3 mpg 

5,000 lbs .......................................................................................................................................... 15.8 mpg 

5,500 lbs .......................................................................................................................................... 14.6 mpg 

6,000 lbs .......................................................................................................................................... 13.6 mpg 

6,500 lbs .......................................................................................................................................... 12.8 mpg 

7,000 or 8,500 lbs ........................................................................................................................... 12.0 mpg. 

‘‘(4) MOTOR VEHICLE.—The term ‘motor vehicle’ has the meaning given such 

term by section 30(c)(2). 

13 

‘‘(5) CITY FUEL ECONOMY.—City fuel economy with respect to any vehicle shall 

be measured in accordance with testing and calculation procedures established 

by the Administrator of the Environmental Protection Agency by regulations in 

effect on April 11, 2005. 

‘‘(6) OTHER TERMS.—The terms ‘passenger automobile’, ‘light truck’, and ‘manufacturer’ shall 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.). 

‘‘(e) CARRYFORWARD ALLOWED.— 

‘‘(1) IN GENERAL.—If the credit amount allowable under subsection (a) for a 

taxable year exceeds the amount of the limitation under subsection (c) for such 

taxable year (referred to as the ‘unused credit year’ in this paragraph), such excess shall be allowed as a credit carryforward for each of the 20 taxable years 

following the unused credit year. 

‘‘(2) RULES.—Rules similar to the rules of section 39 shall apply with respect 

to the credit carryforward under paragraph (1). 

‘‘(f) SPECIAL RULES.—For purposes of this section— 

‘‘(1) REDUCTION IN BASIS.—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) NO DOUBLE BENEFIT.—The amount of any deduction or credit allowable 

under this chapter (other than the credit allowable under subsection (a)), with 

respect to any vehicle shall be reduced by the amount of credit allowed under 

subsection (a) (determined without regard to subsection (c)) for such vehicle for 

the taxable year. 

‘‘(3) PROPERTY USED BY TAX-EXEMPT ENTITY.—In the case of a vehicle whose 

use is described in paragraph (3) or (4) of section 50(b) and which is not subject 

to a lease, the person who sold such vehicle to the person or entity using such 

vehicle shall be treated as the taxpayer that placed such vehicle in service, but 

only if such person clearly discloses to such person or entity in a document the 

amount of any credit allowable under subsection (a) with respect to such vehicle 

(determined without regard to subsection (c)). 

‘‘(4) PROPERTY USED OUTSIDE UNITED STATES, ETC., NOT QUALIFIED.—No credit 

shall be allowable 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. 

‘‘(5) ELECTION NOT TO TAKE CREDIT.—No credit shall be allowed under subsection (a) for any vehicle if the taxpayer elects not to have this section apply 

to such vehicle. 

‘‘(6) INTERACTION WITH AIR QUALITY AND MOTOR VEHICLE SAFETY STANDARDS.—Unless otherwise provided in this section, a motor vehicle shall not be 

considered eligible for a credit under this section unless such vehicle is in compliance with— 

‘‘(A) the applicable provisions of the Clean Air Act for the applicable 

make and model year of the vehicle (or applicable air quality provisions of 

State law in the case of a State which has adopted such provision under 

a waiver under section 209(b) of the Clean Air Act), and 

‘‘(B) the motor vehicle safety provisions of sections 30101 through 30169 

of title 49, United States Code. 

‘‘(g) REGULATIONS.— 

‘‘(1) IN GENERAL.—The Secretary shall promulgate such regulations as necessary to carry out this section, including regulations to prevent the avoidance 

of the purposes of this section through disposal of any motor vehicle or leasing 

of any motor vehicle for a lease period of less than the economic life of such 

vehicle. 

‘‘(2) DETERMINATION OF MOTOR VEHICLE ELIGIBILITY.—The Secretary, in coordination with the Secretary of Transportation and the Administrator of the 

Environmental Protection Agency, shall prescribe such regulations as necessary 

to determine whether a motor vehicle meets the requirements to be eligible for 

a credit under this section. 

‘‘(h) TERMINATION.—This section shall not apply to any property placed in service 

after December 31, 2007.’’. 

(b) CONFORMING AMENDMENTS.— 

(1) Section 1016(a), as amended by section 201 of this Act, is amended by 

striking ‘‘and’’ at the end of paragraph (31), by striking the period at the end 

of paragraph (32) and inserting ‘‘, and’’, and by adding at the end the following: 

‘‘(33) to the extent provided in section 30B(f)(1).’’. 

(2) Section 6501(m) is amended by inserting ‘‘30B(f)(6),’’ after ‘‘30(d)(4),’’. 

14 

(3) The table of sections for subpart B of part IV of subchapter A of chapter 

1 is amended by inserting after the item relating to section 30A the following: 

‘‘Sec. 30B. Advanced lean burn technology motor vehicle credit.’’. 

(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. 207. CREDIT FOR ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES. 

(a) IN GENERAL.—Subpart A of part IV of subchapter A of chapter 1 (relating to 

nonrefundable personal credits), as amended by section 201, is amended by inserting after section 25C the following new section: 

‘‘SEC. 25D. ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES. 

‘‘(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 20 percent of the amount paid or incurred by the taxpayer for qualified 

energy efficiency improvements installed during such taxable year. 

‘‘(b) LIMITATIONS.— 

‘‘(1) MAXIMUM CREDIT.—The credit allowed by this section with respect to a 

dwelling unit shall not exceed $2,000. 

‘‘(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER ON SAME DWELLING TAKEN INTO ACCOUNT.—If a credit was allowed to the taxpayer under subsection (a) with respect to a dwelling unit in 1 or more prior taxable years, the amount of the 

credit otherwise allowable for the taxable year with respect to that dwelling 

unit shall be reduced by the sum of the credits allowed under subsection (a) to 

the taxpayer with respect to the dwelling unit for all prior taxable years. 

‘‘(c) QUALIFIED ENERGY EFFICIENCY IMPROVEMENTS.—For purposes of this section, 

the term ‘qualified energy efficiency improvements’ means any energy efficient 

building envelope component which meets the prescriptive criteria for such component established by the 2000 International Energy Conservation Code, as such Code 

(including supplements) is in effect on the date of the enactment of the Enhanced 

Energy Infrastructure and Technology Tax Act of 2005 (or, in the case of a metal 

roof with appropriate pigmented coatings which meet the Energy Star program requirements), if— 

‘‘(1) such component is installed in or on a dwelling unit located in the United 

States and owned and used by the taxpayer as the taxpayer’s principal residence (within the meaning of section 121), 

‘‘(2) the original use of such component commences with the taxpayer, and 

‘‘(3) such component reasonably can be expected to remain in use for at least 

5 years. 

If the aggregate cost of such components with respect to any dwelling unit exceeds 

$1,000, such components shall be treated as qualified energy efficiency improvements only if such components are also certified in accordance with subsection (d) 

as meeting such prescriptive criteria. 

‘‘(d) CERTIFICATION.—The certification described in subsection (c) shall be— 

‘‘(1) determined on the basis of the technical specifications or applicable ratings (including product labeling requirements) for the measurement of energy 

efficiency (based upon energy use or building envelope component performance) 

for the energy efficient building envelope component, 

‘‘(2) provided by a local building regulatory authority, a utility, a manufactured home production inspection primary inspection agency (IPIA), or an accredited home energy rating system provider who is accredited by or otherwise 

authorized to use approved energy performance measurement methods by the 

Residential Energy Services Network (RESNET), and 

‘‘(3) made in writing in a manner which specifies in readily verifiable fashion 

the energy efficient building envelope components installed and their respective 

energy efficiency levels. 

‘‘(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— 

‘‘(1) BUILDING ENVELOPE COMPONENT.—The term ‘building envelope component’ means— 

‘‘(A) any insulation material or system which is specifically and primarily 

designed to reduce the heat loss or gain of a dwelling unit when installed 

in or on such dwelling unit, 

‘‘(B) exterior windows (including skylights), 

‘‘(C) exterior doors, and 

‘‘(D) any metal roof installed on a dwelling unit, but only if such roof has 

appropriate pigmented coatings which are specifically and primarily designed to reduce the heat gain of such dwelling unit. 

15 

‘‘(2) MANUFACTURED HOMES INCLUDED.—The term ‘dwelling unit’ includes a 

manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (section 3280 of title 24, Code of Federal Regulations). 

‘‘(3) APPLICATION OF RULES.—Rules similar to the rules under paragraphs (3), 

(4), and (5) of section 25C(d) shall apply. 

‘‘(f) BASIS ADJUSTMENT.—For purposes of this subtitle, if a credit is allowed under 

this section for any expenditure with respect to any property, the increase in the 

basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed. 

‘‘(g) APPLICATION OF SECTION.—This section shall apply to qualified energy efficiency improvements installed after the date of the enactment of the Enhanced Energy Infrastructure and Technology Tax Act of 2005, and before January 1, 2008.’’. 

(b) CONFORMING AMENDMENTS.— 

(1) Subsection (a) of section 1016, as amended by section 206 of this Act, is 

amended by striking ‘‘and’’ at the end of paragraph (32), by striking the period 

at the end of paragraph (33) and inserting ‘‘, and’’, and by adding at the end 

the following new paragraph: 

‘‘(34) to the extent provided in section 25D(f), in the case of amounts with respect to which a credit has been allowed under section 25D.’’. 

(2) The table of sections for subpart A of part IV of subchapter A of chapter 

1, as amended by section 201, is amended by inserting after the item relating 

to section 25C the following new item: 

‘‘Sec. 25D. Energy efficiency improvements to existing homes.’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to improvements installed after the date of the enactment of this Act in taxable years 

ending after such date. 

TITLE III—ALTERNATIVE MINIMUM TAX 

RELIEF 

SEC. 301. NEW NONREFUNDABLE PERSONAL CREDITS ALLOWED AGAINST REGULAR AND MINIMUM TAXES. 

(a) IN GENERAL.— 

(1) SECTION 25C.—Section 25C(b), as added by section 201 of this Act, is 

amended by adding at the end the following new paragraph: 

‘‘(3) LIMITATION BASED ON AMOUNT OF TAX.—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) SECTION 25D.—Section 25D(b), as added by section 207 of this Act, is 

amended by adding at the end the following new paragraph: 

‘‘(3) LIMITATION BASED ON AMOUNT OF TAX.—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.’’. 

(b) CONFORMING AMENDMENTS.— 

(1) Section 23(b)(4)(B) is amended by inserting ‘‘and sections 25C and 25D’’ 

after ‘‘this section’’. 

(2) Section 24(b)(3)(B) is amended by striking ‘‘and 25B’’ and inserting ‘‘, 25B, 

25C, and 25D’’. 

(3) Section 25(e)(1)(C) is amended by inserting ‘‘25C, and 25D’’ after ‘‘25B,’’. 

(4) Section 25B(g)(2) is amended by striking ‘‘section 23’’ and inserting ‘‘sections 23, 25C, and 25D’’. 

(5) Section 26(a)(1) is amended by striking ‘‘and 25B’’ and inserting ‘‘25B, 

25C, and 25D’’. 

(6) Section 904(h) is amended by striking ‘‘and 25B’’ and inserting ‘‘25B, 25C, 

and 25D’’. 

(7) Section 1400C(d) is amended by striking ‘‘and 25B’’ and inserting ‘‘25B, 

25C, and 25D’’. 

(c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2005. 

16 

SEC. 302. CERTAIN BUSINESS ENERGY CREDITS ALLOWED AGAINST REGULAR AND MINIMUM 

TAXES. 

(a) IN GENERAL.—Subparagraph (B) of section 38(c)(4) (relating to specified credits) is amended by redesignating clause (ii) as clause (iv) and by striking clause (i) 

and inserting the following new clauses: 

‘‘(i) the credits determined under sections 40, 45H, and 45I, 

‘‘(ii) so much of the credit determined under section 46 as is attributable to section 48(a)(3)(A)(iii), 

‘‘(iii) for taxable years beginning after December 31, 2005, and before 

January 1, 2008, the credit determined under section 43, and’’. 

(b) EFFECTIVE DATES.— (1) IN GENERAL.—Except as provided by paragraph (2), the amendment made 

by subsection (a) shall apply to credits determined under the Internal Revenue 

Code of 1986 for taxable years beginning after December 31, 2005. 

(2) FUEL CELLS.—Clause (ii) of section 38(c)(4)(B) of the Internal Revenue 

Code of 1986, as amended by subsection (a) of this section, shall apply to credits 

determined under the Internal Revenue Code of 1986 for taxable years ending 

after April 11, 2005. 

I. SUMMARY AND BACKGROUND 

A. PURPOSE AND SUMMARY

The bill, H.R. 1541, as amended (the ‘‘Enhanced Energy Infrastructure and Technology Tax Policy Act of 2005’’), provides incentives to enhance energy infrastructure properties in the United 

States and to encourage the use of certain energy technologies, and 

for other purposes. The bill provides net tax reductions of $4.065 billion over fiscal 

years 2005–2010. 

B. BACKGROUND AND NEED FOR LEGISLATION

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 estimated revenue effects of the provisions comply with the most recent Congressional Budget Office revisions of 

budget projections. 

C. LEGISLATIVE HISTORY

The Subcommittee on Oversight held hearings on March 5, 2001 

on the impact of Federal tax laws on the cost and supply of energy. 

The Subcommittee on Select Revenue Measures held hearings on 

May 3, June 12, and June 13, 2001 on the effect of Federal tax 

laws on the production, supply, and conservation of energy. On 

July 24, 2001, the Committee on Ways and Means reported a bill, 

H.R. 2511, to the House of Representatives. H.R. 2511 included incentives for taxpayers to conserve energy, to convert to cleaner 

forms of energy, to enhance the reliability of domestic energy supplies, and to increase domestic supplies of energy. The House 

passed the bill, as part of H.R. 4, 240–189 on August 2, 2001. The 

Senate amended and passed H.R. 4 on April 25, 2002. A conference 

was convened, but not completed before the adjournment of the 

107th Congress. 

On April 9, 2003, the Committee on Ways and Means reported 

a bill, H.R. 1531, to the House of Representatives. H.R. 1531 included incentives for taxpayers to conserve energy, to convert to 

cleaner forms of energy, to enhance the reliability of domestic energy supplies, and to increase domestic supplies of energy. The 

17 

1 1987–2 C.B. 674 (as clarified and modified by Rev. Proc. 88–22, 1988–1 C.B. 785). 

2 Clajon Gas Co. L.P., v. Commissioner, 354 F.3d 786 (8th Cir. 2004), rev’g 119 T.C. 197 

(2002); Saginaw Bay Pipeline Co. v. United States, 338F.3d 600 (6th Cir. 2003), rev’g 88 

A.F.T.R.2d 2001–6019 (E.D. Mich. 2001); Duke Energy v. Commissioner, 172 F.3d 1255 (10th 

Cir. 1999), rev’g 109 T.C. 416 (1997). 

House passed the bill, as part of H.R. 6, 247–175 on April 11, 2003. 

The Senate amended and passed H.R. 6 on July 31, 2003. A conference was convened. The House passed the conference report to 

H.R. 6, 246–180, on November 18, 2003. The Senate failed to pass 

the conference report to H.R. 6 before the adjournment of the 108th 

Congress. 

The Committee on Ways and Means marked up the provisions of 

the bill on April 13, 2005, and reported the provisions, as amended, 

on April 13, 2005, by a roll call vote, with a quorum present. 

TITLE I—ENERGY INFRASTRUCTURE TAX INCENTIVES 

A. NATURAL GAS GATHERING LINES TREATED AS SEVEN-YEAR

PROPERTY

(Sec. 101 of the bill and sec. 168 of the Code) 

PRESENT LAW

The applicable recovery period for assets placed in service under 

the Modified Accelerated Cost Recovery System is based on the 

‘‘class life of the property.’’ The class lives of assets placed in service after 1986 are generally set forth in Revenue Procedure 87–56.1

Revenue Procedure 87–56 includes two asset classes either of 

which could describe natural gas gathering lines owned by nonproducers of natural gas. Asset class 46.0, describing pipeline transportation, provides a class life of 22 years and a recovery period of 

15 years. Asset class 13.2, describing assets used in the exploration 

for and production of petroleum and natural gas deposits, provides 

a class life of 14 years and a depreciation recovery period of seven 

years. The uncertainty regarding the appropriate recovery period of 

natural gas gathering lines has resulted in litigation between taxpayers and the IRS. In each of three recent cases, appellate courts 

have held that natural gas gathering lines owned by nonproducers 

fall within the scope of Asset class 13.2 (i.e., seven-year recovery 

period).2 The appellate court in each case reversed a lower court 

holding that natural gas gathering lines owned by nonproducers 

fall within the scope of Asset class 46.0 (i.e., 15-year recovery period). The IRS has not yet indicated whether it acquiesces in the 

result in these three appellate decisions in cases arising in other 

circuits. 

REASONS FOR CHANGE

The Committee has noted the controversies between taxpayers 

and the IRS regarding the appropriate recovery period of natural 

gas gathering lines and believes it is important to provide clarity 

and certainty. The Committee notes that unprocessed gas in gathering lines is potentially more corrosive than interstate pipeline 

quality gas. The Committee concludes the appropriate recovery period for natural gas gathering lines is seven years. The Committee 

also believes a 7-year recovery period, and the certainty provided 

18 

3 1987–2 C.B. 674 (as clarified and modified by Rev. Proc. 88–22, 1988–1 C.B. 785). 

compared to present law, will foster investment in natural gas 

fields that will enhance the domestic supply of natural gas. 

EXPLANATION OF PROVISION

The provision establishes a statutory seven-year recovery period 

and a class life of 14 years for natural gas gathering lines. In addition, no adjustment will be made to the allowable amount of depreciation with respect to this property for purposes of computing a 

taxpayer’s alternative minimum taxable income. A natural gas 

gathering line is defined to include any pipe, equipment, and appurtenance that is (1) determined to be a gathering line by the 

Federal Energy Regulatory Commission, or (2) used to deliver natural gas from the wellhead or a common point to the point at which 

such gas first reaches (a) a gas processing plant, (b) an interconnection with an interstate transmission line, (c) an interconnection 

with an intrastate transmission line, or (d) a direct interconnection 

with a local distribution company, a gas storage facility, or an industrial consumer. 

EFFECTIVE DATE

The provision is effective for property placed in service after 

April 11, 2005. No inference is intended as to the proper treatment 

of natural gas gathering lines placed in service on or before April 

11, 2005. 

B. NATURAL GAS DISTRIBUTION LINES TREATED AS FIFTEEN-YEAR

PROPERTY

(Sec. 102 of the bill and sec. 168 of the Code) 

PRESENT LAW

The applicable recovery period for assets placed in service under 

the Modified Accelerated Cost Recovery System is based on the 

‘‘class life of the property.’’ The class lives of assets placed in service after 1986 are generally set forth in Revenue Procedure 87–56.3

Natural gas distribution pipelines are assigned a 20-year recovery 

period and a class life of 35 years. 

REASONS FOR CHANGE

The Committee recognizes the importance of modernizing our 

aging energy infrastructure to meet the demands of the twentyfirst century, and the Committee also recognizes that both shortterm and long-term solutions are required to meet this challenge. 

The Committee understands that investment in our energy infrastructure has not kept pace with the nation’s needs. In light of this, 

the Committee believes it is appropriate to reduce the recovery period for investment in certain energy infrastructure property to encourage investment in such property. 

EXPLANATION OF PROVISION

The provision establishes a statutory 15-year recovery period and 

a class life of 35 years for natural gas distribution lines. 

19 

4 1987–2 C.B. 674 (as clarified and modified by Rev. Proc. 88–22, 1988–1 C.B. 785). 

5Sec. 169. For purposes of computing alternative minimum taxable income, the depreciation 

deduction is determined using the straght-line method over the appliable regular tax recovery 

period. 

EFFECTIVE DATE

The provision is effective for property placed in service after 

April 11, 2005. 

C. TRANSMISSION PROPERTY TREATED AS FIFTEEN-YEAR PROPERTY

(Sec. 103 of the bill and sec. 168 of the Code) 

PRESENT LAW

The applicable recovery period for assets placed in service under 

the Modified Accelerated Cost Recovery System is based on the 

‘‘class life of the property.’’ The class lives of assets placed in service after 1986 are generally set forth in Revenue Procedure 87–56.4

Assets used in the transmission and distribution of electricity for 

sale and related land improvements are assigned a 20-year recovery period and a class life of 30 years. 

REASONS FOR CHANGE

The Committee recognizes the importance of modernizing our 

aging energy infrastructure to meet the demands of the twentyfirst century, and the Committee also recognizes that both shortterm and long-term solutions are required to meet this challenge. 

The Committee understands that investment in our electricity 

transmission infrastructure assets has not kept pace with the nation’s needs. In light of this, the Committee believes it is appropriate to reduce the recovery period for investment in certain electricity transmission infrastructure property to encourage investment in such property. 

EXPLANATION OF PROVISION

The provision establishes a statutory 15-year recovery period and 

a class life of 30 years for certain assets used in the transmission 

of electricity for sale and related land improvements. For purposes 

of the provision, section 1245 property used in the transmission at 

69 or more kilovolts of electricity for sale, the original use of which 

commences with the taxpayer after April 11, 2005, will qualify for 

the new recovery period. 

EFFECTIVE DATE

The provision is effective for property placed in service after 

April 11, 2005. 

D. AMORTIZATION OF ATMOSPHERIC POLLUTION CONTROL FACILITIES

(Sec. 104 of the bill and sec. 169 of the Code) 

PRESENT LAW

In general, a taxpayer may elect to recover the cost of any certified pollution control facility over a period of 60 months.5 A certified pollution control facility is defined as a new, identifiable 

treatment facility which (1) is used in connection with a plant in 

20 

6The amounnt attributable to the first 15 years is equal to an amount which bears the same 

ration to the portion of the adjusted basis of the facility, which would be eligible for amortization 

but for the application of this rule, as 15 bears to the number of years of useful life of the facility. 7Sec. 291(a)(5). 

operation before January 1, 1976, to abate or control water or atmospheric pollution or contamination by removing, altering, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes or heat; and (2) does not lead to a significant increase in output or capacity, a significant extension of 

useful life, a significant reduction in total operating costs for such 

plant or other property (or any unit thereof), or a significant alteration in the nature of a manufacturing production process or facility. Certification is required by appropriate State and Federal authorities that the facility complies with appropriate standards. 

For a pollution control facility with a useful life greater than 15 

years, only the portion of the basis attributable to the first 15 years 

is eligible to be amortized over a 60-month period.6 In addition, a 

corporate taxpayer must reduce the amount of basis otherwise eligible for the 60-month recovery by 20 percent.7 The amount of 

basis not eligible for 60-month amortization is depreciable under 

the regular tax rules for depreciation. 

REASONS FOR CHANGE

The Committee is concerned about the effects of atmospheric pollution created by coal-fired electric generation plants and recognizes that the present-law election is not available for pollution 

control facilities used in connection with such a plant which commenced operation after December 31, 1975. The Committee notes 

that the Environmental Protection Agency recently has promulgated new, stricter emissions standards for coal-fired, electric generation plants. The Committee believes that the present-law incentive to install pollution control facilities should be available to taxpayers that install atmospheric pollution control equipment in all 

such plants, regardless of when they commenced operation. 

EXPLANATION OF PROVISION

The provision expands the provision allowing a taxpayer to recover the cost of certain certified air pollution control facilities (but 

not water pollution control facilities) over 60 months by repealing 

the requirement that only certified pollution control facilities used 

in connection with a plant in operation before January 1, 1976 

qualify. Under the provision, a certified air pollution control facility 

which used in connection with an electric generation plant which 

is primarily coal fired will be eligible for 60-month amortization regardless of whether the associated plant or other property was in 

operation prior to January 1, 1976. In the case a facility used in 

connection with a plant or other property not in operation before 

January 1, 1976, the facility must be property that either (i) the 

construction, reconstruction, or erection of which is completed by 

the taxpayer after April 11, 2005 (to the extent of the portion of 

the basis properly attributable to the construction, reconstruction, 

or erection after that date), or (ii) is acquired after April 11, 2005, 

if the original use of the property commences with the taxpayer 

after that date. The provision does not change the present-law 

21 

8The value of the credit in 2004 was $6.56 per barrel of oil equivalent produced, which is 

approximately $1.16 per thousand cubic feet of natural gas. 

rules relating to corporate taxpayers or to pollution control facilities with a useful life greater than 15 years, and the provision does 

not modify in any way the treatment of water pollution control facilities. 

EFFECTIVE DATE

The provision is effective for air pollution control facilities placed 

in service after April 11, 2005. 

E. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE

(Sec. 105 of the bill and sec. 29 and new sec. 45J of the Code) 

PRESENT LAW

Certain fuels produced from ‘‘non-conventional sources’’ and sold 

to unrelated parties are eligible for an income tax credit equal to 

$3 (generally adjusted for inflation) 8 per barrel or BTU oil barrel 

equivalent (‘‘section 29 credit’’). Qualified fuels must be produced 

within the United States. 

Qualified fuels include: 

1. oil produced from shale and tar sands; 

2. gas produced from geopressured brine, Devonian shale, coal 

seams, tight formations, or biomass; and 

3. liquid, gaseous, or solid synthetic fuels produced from coal (including lignite). 

In general, the section 29 credit is available only with respect to 

fuels produced from wells drilled or facilities placed in service after 

December 31, 1979, and before January 1, 1993. An exception extends the January 1, 1993 expiration date for facilities producing 

gas from biomass and synthetic fuel from coal if the facility producing the fuel is placed in service before July 1, 1998, pursuant 

to a binding contract entered into before January 1, 1997. 

The section 29 credit may be claimed for qualified fuels produced 

and sold before January 1, 2003 (in the case of non-conventional 

sources subject to the January 1, 1993 expiration date) or January 

1, 2008 (in the case of biomass gas and synthetic fuel facilities eligible for the extension period). 

The section 29 credit may not exceed the excess of the regular 

tax liability over the tentative minimum tax. Unused section 29 

credits may not be carried forward or carried back to other taxable 

years. However, to the extent the section 29 credit is disallowed because of the tentative minimum tax, the minimum tax credit allowable in future years is increased by the amount so disallowed. 

Other business credits are included in the general business credit 

(sec. 38). Generally, the general business credit may not exceed the 

excess of the taxpayer’s net income tax over the greater of the taxpayer’s tentative minimum tax or 25 percent of so much of the taxpayer’s net regular tax liability as exceeds $25,000. General business credits in excess of this limitation may be carried back one 

year and forward up to 20 years. The section 29 credit is not part 

of the general business credit. 

22 

9The credit may not be carried back to a taxable year ending before January 1, 2006 (sec. 

39(d)). 

The section 29 credit includes definitional cross-references and a 

credit limitation relating to the Natural Gas Policy Act of 1978. 

The Natural Gas Policy Act of 1978 has been repealed. 

REASONS FOR CHANGE

The Committee recognizes that the section 29 credit is not part 

of the general business credits and therefore no carryback or 

carryforward is available for the credit. The Committee believes 

that the carryback and carryforward rules should apply to the credit, and therefore believes it is appropriate to treat the credit as 

part of the general business credits. 

EXPLANATION OF PROVISION

The provision makes the credit for producing fuel from a nonconventional source part of the general business credit. Thus, the 

credit for producing fuel from a non-conventional source will be 

subject to the limitations applicable to the general business credit. 

Any unused credits may be carried back one year and forward 20 

years. 

The provision also makes certain clerical changes in cross-references to the Natural Gas Policy Act of 1978, which has been repealed. 

EFFECTIVE DATE

The provision applies to credits determined for taxable years 

ending after December 31, 2005.9 The clerical changes are effective 

on the date of enactment. 

F. MODIFICATION TO SPECIAL RULES FOR NUCLEAR

DECOMMISSIONING COSTS

(Sec. 106 of the bill and sec. 468A of the Code) 

PRESENT LAW

Overview 

Special rules dealing with nuclear decommissioning reserve 

funds were enacted in the Deficit Reduction Act of 1984 (‘‘1984 

Act’’), when tax issues regarding the time value of money were addressed generally. Under general tax accounting rules, a deduction 

for accrual basis taxpayers is deferred until there is economic performance for the item for which the deduction is claimed. However, 

the 1984 Act contains an exception under which a taxpayer responsible for nuclear powerplant decommissioning may elect to deduct 

contributions made to a qualified nuclear decommissioning fund for 

future decommissioning costs. Taxpayers who do not elect this provision are subject to general tax accounting rules. 

Qualified nuclear decommissioning fund 

A qualified nuclear decommissioning fund (a ‘‘qualified fund’’) is 

a segregated fund established by a taxpayer that is used exclusively for the payment of decommissioning costs, taxes on fund income, management costs of the fund, and for making investments. 

23 

10 As originally enacted in 1984, a qualified fund paid tax on its earnings at the top corporate 

rate and, as a result, there was no present-value tax benefit of making deductible contributions 

to a qualified fund. Also, as originally enacted, the funds in the trust could be invested only 

in certain low risk investments. Subsequent amendments to the provision have reduced the rate 

of tax on a qualified fund to 20 percent and removed the restrictions on the types of permitted 

investments that a qualified fund can make. 11Taxpayers are required to include in gross income customer charges for decommissioning 

costs (sec. 88). 12Treas. reg. sec. 1.468A–6. 13Treas. reg. sec. 1.468A–6(f). 14These funds are generally referred to as ‘‘nonqualified funds.’’ 

The income of the fund is taxed at a reduced rate of 20 percent for 

taxable years beginning after December 31, 1995.10

Contributions to a qualified fund are deductible in the year made 

to the extent that these amounts were collected as part of the cost 

of service to ratepayers (the ‘‘cost of service requirement’’).11 Funds 

withdrawn by the taxpayer to pay for decommissioning costs are 

included in the taxpayer’s income, but the taxpayer also is entitled 

to a deduction for decommissioning costs as economic performance 

for such costs occurs. 

Accumulations in a qualified fund are limited to the amount required to fund decommissioning costs of a nuclear powerplant for 

the period during which the qualified fund is in existence (generally post-1984 decommissioning costs of a nuclear powerplant). 

For this purpose, decommissioning costs are considered to accrue 

ratably over a nuclear powerplant’s estimated useful life. In order 

to prevent accumulations of funds over the remaining life of a nuclear powerplant in excess of those required to pay future decommissioning costs of such nuclear powerplant and to ensure that 

contributions to a qualified fund are not deducted more rapidly 

than level funding (taking into account an appropriate discount 

rate), taxpayers must obtain a ruling from the IRS to establish the 

maximum annual contribution that may be made to a qualified 

fund (the ‘‘ruling amount’’). In certain instances (e.g., change in estimates), a taxpayer is required to obtain a new ruling amount to 

reflect updated information. 

A qualified fund may be transferred in connection with the sale, 

exchange or other transfer of the nuclear powerplant to which it relates. If the transferee is a regulated public utility and meets certain other requirements, the transfer will be treated as a nontaxable transaction. No gain or loss will be recognized on the transfer of the qualified fund and the transferee will take the transferor’s basis in the fund.12 The transferee is required to obtain a 

new ruling amount from the IRS or accept a discretionary determination by the IRS.13

NonQualified nuclear decommissioning funds 

Federal and State regulators may require utilities to set aside 

funds for nuclear decommissioning costs in excess of the amount allowed as a deductible contribution to a qualified fund. In addition, 

taxpayers may have set aside funds prior to the effective date of 

the qualified fund rules.14 The treatment of amounts set aside for 

decommissioning costs prior to 1984 varies. Some taxpayers may 

have received no tax benefit while others may have deducted such 

amounts or excluded such amounts from income. Since 1984, taxpayers have been required to include in gross income customer 

charges for decommissioning costs (sec. 88), and a deduction has 

24 

15For example, if $100 is the present value of the total decommissioning costs of a nuclear powerplant, and if under present law the qualified fund is only permitted to accumulate $75 

of decommissioning costs over such plant’s estimated useful life (because the qualified fund was 

not in existence during 25 percent of the estimated useful life of the nuclear powerplant), a taxpayer could contribute $25 to the qualified fund under this component of the provision. 16 A taxpayer recognizes no gain or loss on the contribution of property to a qualified fund 

under this special rule. The qualified fund will take a transferred (carryover) basis in such property. Correspondingly, a taxpayer’s deduction (over the estimated life of the nuclear powerplant) 

not been allowed for amounts set aside to pay for decommissioning 

costs except through the use of a qualified fund. Income earned in 

a nonqualified fund is taxable to the fund’s owner as it is earned. 

REASONS FOR CHANGE

The Committee recognizes the national importance of reserving 

funds to pay for decommissioning costs and the need for appropriate incentives to ensure that adequate funds are available for 

such costs. The Committee believes that it is appropriate to permit 

all decommissioning costs associated with a nuclear powerplant to 

be funded through a qualified fund. In addition, the Committee 

does not believe a utility should be denied the opportunity to contribute to a qualified fund simply because it operates in a deregulated environment. 

EXPLANATION OF PROVISION

Repeal of cost of service requirement 

The provision repeals the cost of service requirement for deductible contributions to a nuclear decommissioning fund. Thus, all taxpayers, including unregulated taxpayers, are allowed a deduction 

for amounts contributed to a qualified fund. 

Permit contributions to a qualified fund for pre-1984 decommissioning costs 

The provision also repeals the limitation that a qualified fund 

only accumulate an amount sufficient to pay for a nuclear powerplant’s decommissioning costs incurred during the period that the 

qualified fund is in existence (generally post-1984 decommissioning 

costs). Thus, any taxpayer is permitted to accumulate an amount 

sufficient to cover the present value of 100 percent of a nuclear 

powerplant’s estimated decommissioning costs in a qualified fund. 

The provision does not change the requirement that contributions 

to a qualified fund not be deducted more rapidly than level funding. 

Exception to ruling amount for certain decommissioning costs 

The provision permits a taxpayer to make contributions to a 

qualified fund in excess of the ruling amount in one circumstance. 

Specifically, a taxpayer is permitted to contribute up to the present 

value of total nuclear decommissioning costs with respect to a nuclear powerplant previously excluded under section 468A(d)(2)(A).15

It is anticipated that an amount that is permitted to be contributed 

under this special rule shall be determined using the estimate of 

total decommissioning costs used for purposes of determining the 

taxpayer’s most recent ruling amount. Any amount transferred to 

the qualified fund under this special rule is allowed as a deduction 

over the remaining useful life of the nuclear powerplant.16 If a 

25 

is to be based on the adjusted tax basis of the property contributed rather than the fair market 

value of such property. 17Sec. 148. 18Treas. Reg. sec. 1.148–1(e)(2)(iii). 

qualified fund that has received amounts under this rule is transferred to another person, the transferor will be permitted a deduction for any remaining deductible amounts at the time of transfer. 

EFFECTIVE DATE

The provision is effective for taxable years beginning after December 31, 2005. 

G. EXEMPT CERTAIN PREPAYMENTS FOR NATURAL GAS FROM TAX- EXEMPT BOND ARBITRAGE RULES

(Sec. 107 of the bill and sec. 148 of the Code) 

PRESENT LAW

Arbitrage restrictions 

Interest on bonds issued by States or local governments to finance activities carried out or paid for by those entities generally 

is exempt from income tax. Restrictions are imposed on the ability 

of States or local governments to invest the proceeds of these bonds 

for profit (the ‘‘arbitrage restrictions’’).17 One such restriction limits 

the use of bond proceeds to acquire ‘‘investment-type property.’’ The 

term investment-type property includes the acquisition of property 

in a transaction involving a prepayment if a principal purpose of 

the prepayment is to receive an investment return from the time 

the prepayment is made until the time payment otherwise would 

be made. A prepayment can produce prohibited arbitrage profits 

when the discount received for prepaying the costs exceeds the 

yield on the tax-exempt bonds. In general, prohibited prepayments 

include all prepayments that are not customary in an industry by 

both beneficiaries of tax-exempt bonds and other persons using taxable financing for the same transaction. 

On August 4, 2003, the Treasury Department issued final regulations deeming to be customary, and not in violation of the arbitrage 

rules, certain prepayments for natural gas and electricity.18 Generally, a qualified prepayment under the regulations requires that 

90 percent of the natural gas or electricity purchased with the prepayment be used for a qualifying use. Generally, natural gas is 

used for a qualifying use if it is to be (1) furnished to retail gas 

customers of the issuing municipal utility who are located in the 

natural gas service area of the issuing municipal utility, however, 

gas used to produce electricity for sale is not included under this 

provision (2) used by the issuing municipal utility to produce electricity that will be furnished to retail electric service area customers of the issuing utility, (3) used by the issuing municipal utility to produce electricity that will be sold to a utility owned by a 

governmental person and furnished to the service area retail electric customers of the purchaser, (4) sold to a utility that is owned 

by a governmental person if the requirements of (1), (2) or (3) are 

satisfied by the purchasing utility (treating the purchaser as the 

issuing utility) or (5) used to fuel the pipeline transportation of the 

prepaid gas supply. Electricity is used for a qualifying use if it is 

26 

19Sec. 141(b) and (c). Under the private business test, a bond is a private activity bond if it 

is part of an issue in which: (1) more than 10 percent of the proceeds of the issue (including 

use of the bond-financed property) are to be used in the trade or business of any person other 

than a governmental unit (‘‘private business use’’); and (2) more than 10 percent of the payment 

of principal or interest on the issue is, directly or indirectly, (a) secured by property used or 

to be used for a private business use or (b) to be derived from payments in respect of property, 

or borrowed money, used or to be used for a private business use (‘‘private payment test’’). 

to be (1) furnished to retail service area electric customers of the 

issuing municipal utility or (2) sold to a municipal utility and furnished to retail electric customers of the purchaser who are located 

in the electricity service area of the purchaser. 

Private activity bond tests 

State and local bonds 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 the debt is repaid with governmental funds. Private activity bonds are bonds where the State or local government serves as 

a conduit providing financing to private businesses or individuals. 

A bond will be treated as a private activity bond if more than five 

percent of the proceeds of the bond issue, or, if less, more than 

$5,000,000 is used (directly or indirectly) to make or finance loans 

to persons other than governmental units (the ‘‘private loan financing test’’) or if it meets the requirements of a two-part private business test.19

The exclusion from income for State and local bonds does not 

apply to private activity bonds, unless the bonds are issued for certain purposes permitted by the Code. Section 141(d) of the Code 

provides that the term ‘‘private activity bond’’ includes any bond 

issued as part of an issue if the amount of the proceeds of the issue 

which are to be used (directly or indirectly) for the acquisition by 

a governmental unit of nongovernmental output property exceeds 

the lesser of five percent of such proceeds or $5 million. ‘‘Nongovernmental output property’’ generally means any property (or 

interest therein) which before such acquisition was used (or held 

for use) by a person other than a governmental unit in connection 

with an output facility (other than a facility for the furnishing of 

water). An exception applies to output property which is to be used 

in connection with an output facility 95 percent or more of the output of which will be consumed in (1) a qualified service area of the 

governmental unit acquiring the property, or (2) a qualified annexed area of such unit. 

REASONS FOR CHANGE

The Committee determined that it was appropriate to complement the Treasury regulations with a safe harbor that provides 

certainty on the date of issuance that prepayments for natural gas 

within the safe harbor will not violate the arbitrage rules. This provision will ensure adequate supplies of natural gas at predictable 

prices for natural gas utility customers without sacrificing to a 

great degree the appropriate present-law limitations regarding taxexempt bond issuance for the purchase of investment property. The 

Committee believes that this proposal strikes an appropriate balance between these two competing policies. The creation of this 

safe harbor is not intended to limit the Secretary’s regulatory auVerDate Aug 04 2004 02:33 Apr 20, 2005 Jkt 039006 PO 00000 Frm 00026 Fmt 6659 Sfmt 6602 E:\HR\OC\HR045.XXX HR045
27 

thority to identify other situations in which prepayments do not 

give rise to investment type property. 

EXPLANATION OF PROVISION

In general 

The provision creates a safe harbor exception to the general rule 

that tax-exempt bond-financed prepayments violate the arbitrage 

restrictions. The term ‘‘investment type property’’ does not include 

a prepayment under a qualified natural gas supply contract. The 

provision also provides that such prepayments are not treated as 

private loans for purposes of the private business tests. 

Under the provision, a prepayment financed with tax-exempt 

bond proceeds for the purpose of obtaining a supply of natural gas 

for service area customers of a governmental utility is not treated 

as the acquisition of investment-type property. A contract is a 

qualified natural gas supply contract if the volume of natural gas 

secured for any year covered by the prepayment does not exceed 

the sum of (1) the average annual natural gas purchased (other 

than for resale) by customers of the utility within the service area 

of the utility (‘‘retail natural gas consumption’’) during the testing 

period, and (2) the amount of natural gas that is needed to fuel 

transportation of the natural gas to the governmental utility. The 

testing period is the 5-calendar-year period immediately preceding 

the calendar year in which the bonds are issued. A retail customer 

is one who does not purchase natural gas for resale. Natural gas 

used to generate electricity by a utility owned by a governmental 

unit is counted as retail natural gas consumption if the electricity 

was sold to retail customers within the service area of the governmental electric utility. 

Adjustments 

The volume of gas permitted by the general rule is reduced by 

natural gas otherwise available on the date of issuance. Specifically, the amount of natural gas permitted to be acquired under a 

qualified natural gas supply contract for any period is to be reduced by the applicable share of natural gas held by the utility on 

the date of issuance of the bonds and natural gas that the utility 

has a right to acquire for the prepayment period (determined as of 

the date of issuance). For purposes of the preceding sentence, ‘‘applicable share’’ means, with respect to any period, the natural gas 

allocable to such period if the gas were allocated ratably over the 

period to which the prepayment relates. 

For purposes of the safe harbor, if after the close of the testing 

period and before the issue date of the bonds (1) the government 

utility enters into a contract to supply natural gas (other than for 

resale) for a commercial person for use at a property within the 

service area of such utility and (2) the gas consumption for such 

property was not included in the testing period or the ratable 

amount of natural gas to be supplied under the contract is significantly greater than the ratable amount of gas supplied to such 

property during the testing period, then the amount of gas permitted to be purchased may be increased to accommodate the contract. 

28 

The calculation of average annual retail natural gas consumption 

for purposes of the safe harbor, however, is not to exceed the annual amount of natural gas reasonably expected to be purchased 

(other than for resale) by persons who are located within the service area of such utility and who, as of the date of issuance of the 

issue, are customers of such utility. 

Intentional acts 

The safe harbor does not apply if the utility engages in intentional acts to render (1) the volume of natural gas covered by the 

prepayment to be in excess of that needed for retail natural gas 

consumption, and (2) the amount of natural gas that is needed to 

fuel transportation of the natural gas to the governmental utility. 

Definition of service area 

Service area is defined as (1) any area throughout which the governmental utility provided (at all times during the testing period) 

in the case of a natural gas utility, natural gas transmission or distribution services, or in the case of an electric utility, electricity 

distribution services; (2) limited areas contiguous to such areas, 

and (3) any area recognized as the service area of the governmental 

utility under State or Federal law. Contiguous areas are limited to 

any area within a county contiguous to the area described in (1) 

in which retail customers of the utility are located if such area is 

not also served by another utility providing the same service. 

Ruling request for higher prepayment amounts 

Upon written request, the Secretary may allow an issuer to prepay for an amount of gas greater than that allowed by the safe harbor based on objective evidence of growth in gas consumption or 

population that demonstrates that the amount permitted by the exception is insufficient. 

Nongovernmental output property restrictions 

A qualified natural gas supply contract as defined in the provision is not nongovernmental output property for purposes of subsection (d) of section 141. Subsection (d) of section 141 does not 

apply to prepayment contracts for natural gas or electricity that either under the Treasury regulations or statutory safe harbor are 

not investment-type property for purposes of the arbitrage rules 

under section 148. No inference is intended regarding the application of subsection 141(d) to prepayment contracts not covered by 

the statutory safe harbor or Treasury regulations. 

Application to joint action agencies 

In a number of States, joint action agencies serve as purchasing 

agents for their member municipal gas utilities. The provision is 

intended to allow municipal utilities in a State to participate in 

such buying arrangements as established under State law, subject 

to the same limitations that would apply if an individual utility 

were to purchase gas directly. When acting on behalf of its municipal gas utility members, the total amount of gas that can be purchased by a joint action agency under the provision’s exception to 

the arbitrage rules is the aggregate of what each such member 

could purchase for itself on a direct basis. Thus, with respect to 

29 

20Sec. 613A(d)(4). 21Treas. Reg. sec. 1.613A–7(s). 

qualified natural gas supply contracts entered into by joint action 

agencies for or on behalf of one or more member municipal utilities, 

the requirements of the safe harbor are tested at the individual 

municipal utility level based on the amount of gas that would be 

allocated to such member during any year covered by the contract. 

EFFECTIVE DATE

The provision is effective for obligations issued after date of enactment. 

H. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL

DEPLETION DEDUCTION

(Sec. 108 of the bill and sec. 613A of the Code) 

PRESENT LAW

Present law classifies oil and gas producers as independent producers or integrated companies. The Code provides special tax 

rules for operations by independent producers. One such rule allows independent producers to claim percentage depletion deductions rather than deducting the costs of their asset, a producing 

well, based on actual production from the well (i.e., cost depletion). 

A producer is an independent producer only if its refining and retail operations are relatively small. For example, an independent 

producer may not have refining operations the runs from which exceed 50,000 barrels on any day in the taxable year during which 

independent producer status is claimed.20 A refinery run is the volume of inputs of crude oil (excluding any product derived from oil) 

into the refining stream.21

REASONS FOR CHANGE

The Committee notes that technological advances have permitted 

a number of small refineries to refine more petroleum without expanding their facilities. The Committee believes that the goal of 

present law, to identify producers without significant refining capacity, can be achieved while permitting more flexibility to refinery 

operations. 

EXPLANATION OF PROVISION

The provision increases the current 50,000-barrel-per-day limitation to 75,000. In addition, the provision changes the refinery limitation on claiming independent producer status from a limit based 

on actual daily production to a limit based on average daily production for the taxable year. Accordingly, the average daily refinery 

runs for the taxable year may not exceed 75,000 barrels. For this 

purpose, the taxpayer calculates average daily refinery runs by dividing total refinery runs for the taxable year by the total number 

of days in the taxable year. 

EFFECTIVE DATE

The provision is effective for taxable years ending after date of 

enactment. 

30 

22Sec. 301 of the bill allows the credit to offset both the regular tax and the alternative minimum tax. 

TITLE II—MISCELLANEOUS ENERGY TAX INCENTIVES 

A. RESIDENTIAL SOLAR HOT WATER HEATING, PHOTOVOLTAIC, AND

FUEL CELL CREDIT

(Sec. 201 of the bill and new sec. 25C of the Code) 

PRESENT LAW

There is no present-law personal tax credit for residential solar 

hot water, photovoltaic, or fuel cell property. 

A taxpayer may exclude from income the value of any subsidy 

provided by a public utility for the purchase or installation of an 

energy conservation measure. An energy conservation measure 

means any installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the 

management of energy demand with respect to a dwelling unit (sec. 

136). 

REASONS FOR CHANGE

The Committee recognizes that residential energy use represents 

a large share of national energy consumption, and accordingly believes that measures to encourage alternative energy sources for 

residential use have the potential to substantially reduce national 

reliance on traditional energy sources. The Committee believes that 

a tax credit for investments in solar energy sources and fuel cell 

power plants will help to achieve that goal. Furthermore, the Committee believes that the on-site generation of electricity will reduce 

the burden on the United States’ electricity grid and on natural gas 

pipelines. 

EXPLANATION OF PROVISION

The provision provides a personal tax credit for the purchase of 

qualified photovoltaic 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 15 percent of 

qualified investment up to a maximum credit of $2,000 for solar 

water heating property and $2,000 for rooftop photovoltaic property. The provision also provides a 15-percent personal tax credit 

for the purchase of qualified fuel cell power plants. The credit may 

not exceed $500 for each 0.5 kilowatt of capacity. The credit is nonrefundable.22 The taxpayer’s basis in the property is reduced by the 

amount of the credit. 

Qualifying solar water heating property is property that heats 

water for use in a dwelling unit if at least half of the energy used 

by such property for such purpose is derived from the sun. Qualified photovoltaic 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 converts 

a fuel into electricity using electrochemical means, and which has 

an electricity-only generation efficiency of greater than 30 percent. 

31 

To qualify for the credit, the property must be installed on or in 

connection with a dwelling unit located in the United States and 

used as a residence by the taxpayer. If less than 80 percent of the 

use of an item is for nonbusiness purposes, only that portion of the 

expenditures for such item which is properly allocable to use for 

nonbusines purposes shall be taken into account. 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. 

EFFECTIVE DATE

The credit applies to expenditures made after the date of enactment in taxable years ending before January 1, 2008. 

B. BUSINESS FUEL CELL INVESTMENT CREDIT

(Sec. 202 of the bill and sec. 48 of the Code) 

PRESENT LAW

A 10-percent business energy investment tax credit is allowed for 

the cost of new property that is equipment (1) that uses solar energy to generate electricity, to heat or cool a structure, or to provide solar process heat, or (2) 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. 

The business energy investment tax credit is a component of the 

general business credit. The general business credit generally may 

not exceed the excess of the taxpayer’s net income tax over the 

greater of (1) the tentative minimum tax or (2) 25 percent of net 

regular tax liability in excess of $25,000. A general business credit 

in excess of the tax limitation generally may be carried back one 

year and carried forward up to 20 years. 

A taxpayer may exclude from income the value of any subsidy 

provided by a public utility for the purchase or installation of an 

energy conservation measure. An energy conservation measure 

means any installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the 

management of energy demand with respect to a dwelling unit (sec. 

136). 

There is no present-law credit for stationary fuel cell power plant 

property. 

REASONS FOR CHANGE

The Committee believes that investments in qualified fuel cell 

power plants represent a promising means to produce electricity 

through non-polluting means and from nonconventional energy 

sources. Furthermore, the on-site generation of electricity provided 

by fuel cell power plants will reduce reliance on the United States’ 

electricity grid. The Committee believes that providing a tax credit 

for investment in qualified fuel cell power plants will encourage investments in such systems. 

32 

23Section 302 of the bill provides that the tentative minimum tax is treated as zero for purposes of applying the tax limitation to the portion of the investment tax credit attributable to 

the credit for fuels cells. 24Sec. 4081(a)(2)(A)(iii). 25Secs. 4081(a)(2)(A)(i) and 4041(a)(2)(B)(i). 26See sec. 4041(a)(2)(B)(ii) and (iii), sec. 4041(a)(3) and sec. 4041(m)(1)(A). 

EXPLANATION OF PROVISION

The provision provides a 15-percent credit for the purchase of 

qualified fuel cell power plants for businesses. The credit is part of 

the business energy investment tax credit.23 A qualified fuel cell 

power plant is an integrated system comprised of a fuel cell stack 

assembly and associated balance of plant components that converts 

a fuel into electricity using electrochemical means, and which has 

an electricity-only generation efficiency of greater than 30 percent. 

The credit may not exceed $500 for each 0.5 kilowatt of capacity. 

The taxpayer’s basis in the property is reduced by the amount of 

the credit claimed. 

EFFECTIVE DATE

The provision applies to property placed in service after April 11, 

2005, and before January 1, 2008, under rules similar to rules of 

section 48(m) of the Internal Revenue Code of 1986 (as in effect on 

the day before the date of enactment of the Revenue Reconciliation 

Act of 1990). 

C. BTU-BASED RATE FOR DIESEL-WATER FUEL EMULSION

(Sec. 203 of the bill and secs. 4081 and 6427 of the Code) 

PRESENT LAW

A 24.3-cents-per-gallon excise tax is imposed on diesel fuel to finance the Highway Trust Fund.24 Gasoline and most special motor 

fuels are subject to tax at 18.3 cents per gallon for the Trust 

Fund.25

The tax rate for certain special motor fuels is determined, on an 

energy equivalent basis, as follows: 26

Liquefied petroleum gas (propane) .................................. 13.6 cents per gallon. 

Liquefied natural gas ........................................................ 11.9 cents per gallon. 

Methanol derived from natural gas ................................. 9.15 cents per gallon. 

Compressed natural gas ................................................... 48.54 cents per MCF. 

No special tax rate is provided for diesel fuel blended with water 

to form a diesel-water fuel emulsion. 

REASONS FOR CHANGE

Because diesel-water emulsion fuels have fewer British thermal 

units (‘‘Btu’’) per gallon, larger quantities must be purchased to 

travel the same number of miles as regular diesel fuel. A Btu-based 

tax rate better correlates highway use and tax paid. The Committee further understands that the diesel-water emulsion fuel 

may reduce emissions of air pollutants relative to regular diesel 

fuel and believes that the Btu-based rate, by removing a tax disadvantage to use of the fuel, will be beneficial to the environment. 

33 

EXPLANATION OF PROVISION

A special tax rate of 19.7 cents per gallon is provided for diesel 

fuel blended with water into a diesel-water fuel emulsion to reflect 

the reduced Btu content per gallon resulting from the water. Emulsion fuels eligible for the special rate must consist of not more than 

83.1 percent diesel (and other minor chemical additives to enhance 

combustion) and at least 16.9 percent water. The emulsion addition 

must be registered by a United States manufacturer with the Environmental Protection Agency pursuant to section 211 of the Clean 

Air Act (as in effect on March 31, 2003). A refund of the difference 

between the regular rate (24.3 cents per gallon) and the incentive 

rate (19.7 cents per gallon) is available to the extent tax-paid diesel 

is used to produce a qualifying emulsion diesel fuel. Anyone who 

separates the diesel fuel from the diesel-water fuel emulsion on 

which a reduced rate of tax was imposed is treated as a refiner of 

the fuel and is liable for the difference between the amount of tax 

on the latest removal of the separated fuel and the amount of tax 

that was imposed upon the pre-mixture removal. 

EFFECTIVE DATE

The provision is effective on January 1, 2006. 

D. AMORTIZATION OF DELAY RENTAL PAYMENTS

(Sec. 204 of the bill and new sec. 167 of the Code) 

PRESENT LAW

Presently law generally requires costs associated with inventory 

and property held for resale to be capitalized rather than currently 

deducted as they are incurred (sec. 263). Oil and gas producers 

typically contract for mineral production in exchange for royalty 

payments. If mineral production is delayed, these contracts provide 

for ‘‘delay rental payments’’ as a condition of their extension. The 

Internal Revenue Service has taken the position that the uniform 

capitalization rules of section 263A require delay rental payments 

to be capitalized. 

REASONS FOR CHANGE

The Committee believes that substantial simplification for taxpayers and significant gains in taxpayer compliance and reductions 

in administrative cost can be attained by establishing a clear rule 

that all delay rental payments may be amortized over two years, 

including the basis of abandoned property. 

EXPLANATION OF PROVISION

The provision allows delay rental payments incurred in connection with the development of oil or gas within the United States 

to be amortized over two years. In the case of abandoned property, 

remaining basis may no longer be recovered in the year of abandonment of a property as all basis is recovered over the two-year 

amortization period. 

34 

27 Under section 263, capital expenditures are defined generally as any amount paid for new 

buildings or for permanent improvements or betterments made to increase the value of any 

property or estate. Treasury regulations define capital expenditures to include amounts paid or 

incurred (1) to add to the value, or substantially prolong the useful life, of property owned by 

the taxpayer or (2) to adapt property to a new or different use. Treas. Reg. sec. 1.263(a)–1(b). 28 ‘‘Property’’ means an interest in a property as defined in section 614 of the Code, and includes an economic interest in a tract or parcel of land notwithstanding that a mineral deposit 

has not been established or proved at the time the costs are incurred. 29See, e.g., Schermerhorn Oil Corporation v. Commissioner, 46 B.T.A. 151 (1942). By contrast, 

section 617 of the Code permits a taxpayer to elect to deduct certain expenditures incurred for 

the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or 

other mineral (but not oil and gas). These deductions are subject to recapture if the mine with 

respect to which the expenditures were incurred reaches the producing stage. 30 1977–1 C.B. 76. 

EFFECTIVE DATE

The provision applies to amounts paid or incurred in taxable 

years beginning after the date of enactment. No inference is intended from the prospective effective date of this provision as to 

the proper treatment of pre-effective date delay rental payments. 

E. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES

(Sec. 205 of the bill and new sec. 167 of the Code) 

PRESENT LAW

In general 

Geological and geophysical expenditures (‘‘G&G costs’’) are costs 

incurred by a taxpayer for the purpose of obtaining and accumulating data that will serve as the basis for the acquisition and retention of mineral properties by taxpayers exploring for minerals. 

A key issue with respect to the tax treatment of such expenditures 

is whether or not they are capital in nature. Capital expenditures 

are not currently deductible as ordinary and necessary business expenses, but are allocated to the cost of the property.27

Courts have held that G&G costs are capital, and therefore are 

allocable to the cost of the property 28 acquired or retained.29 The 

costs attributable to such exploration are allocable to the cost of the 

property acquired or retained. As described further below, IRS administrative rulings have provided further guidance regarding the 

definition and proper tax treatment of G&G costs. 

Revenue Ruling 77–188 

In Revenue Ruling 77–188 30 (hereinafter referred to as the ‘‘1977 

ruling’’), the IRS provided guidance regarding the proper tax treatment of G&G costs. The ruling describes a typical geological and 

geophysical exploration program as containing the following elements: 

• It is customary in the search for mineral producing properties 

for a taxpayer to conduct an exploration program in one or more 

identifiable project areas. Each project area encompasses a territory that the taxpayer determines can be explored advantageously 

in a single integrated operation. This determination is made after 

analyzing certain variables such as (1) the size and topography of 

the project area to be explored, (2) the existing information available with respect to the project area and nearby areas, and (3) the 

quantity of equipment, the number of personnel, and the amount 

35 

of money available to conduct a reasonable exploration program 

over the project area. 

• The taxpayer selects a specific project area from which geological and geophysical data are desired and conducts a reconnaissance-type survey utilizing various geological and geophysical exploration techniques. These techniques are designed to yield data 

that will afford a basis for identifying specific geological features 

with sufficient mineral potential to merit further exploration. 

• Each separable, noncontiguous portion of the original project 

area in which such a specific geological feature is identified is a 

separate ‘‘area of interest.’’ The original project area is subdivided 

into as many small projects as there are areas of interest located 

and identified within the original project area. If the circumstances 

permit a detailed exploratory survey to be conducted without an 

initial reconnaissance-type survey, the project area and the area of 

interest will be coextensive. 

• The taxpayer seeks to further define the geological features 

identified by the prior reconnaissance-type surveys by additional, 

more detailed, exploratory surveys conducted with respect to each 

area of interest. For this purpose, the taxpayer engages in more intensive geological and geophysical exploration employing methods 

that are designed to yield sufficiently accurate sub-surface data to 

afford a basis for a decision to acquire or retain properties within 

or adjacent to a particular area of interest or to abandon the entire 

area of interest as unworthy of development by mine or well. 

The 1977 ruling provides that if, on the basis of data obtained 

from the preliminary geological and geophysical exploration operations, only one area of interest is located and identified within the 

original project area, then the entire expenditure for those exploratory operations is to be allocated to that one area of interest and 

thus capitalized into the depletable basis of that area of interest. 

On the other hand, if two or more areas of interest are located and 

identified within the original project area, the entire expenditure 

for the exploratory operations is to be allocated equally among the 

various areas of interest. 

If no areas of interest are located and identified by the taxpayer 

within the original project area, then the 1977 ruling states that 

the entire amount of the G&G costs related to the exploration is 

deductible as a loss under section 165. The loss is claimed in the 

taxable year in which that particular project area is abandoned as 

a potential source of mineral production. 

A taxpayer may acquire or retain a property within or adjacent 

to an area of interest, based on data obtained from a detailed survey that does not relate exclusively to any discrete property within 

a particular area of interest. Generally, under the 1977 ruling, the 

taxpayer allocates the entire amount of G&G costs to the acquired 

or retained property as a capital cost under section 263( a). If more 

than one property is acquired, it is proper to determine the amount 

of the G&G costs allocable to each such property by allocating the 

entire amount of the costs among the properties on the basis of 

comparative acreage. 

If, however, no property is acquired or retained within or adjacent to that area of interest, the entire amount of the G&G costs 

allocable to the area of interest is deductible as a loss under section 

36 

31 1983–2 C.B. 51. 32 A hybrid-electric vehicle may qualify as a clean-fuel vehicle under present law. 

165 for the taxable year in which such area of interest is abandoned as a potential source of mineral production. 

In 1983, the IRS issued Revenue Ruling 83–105,31 which elaborates on the positions set forth in the 1977 ruling by setting forth 

seven factual situations and applying the principles of the 1977 ruling to those situations. In addition, Revenue Ruling 83–105 explains what constitutes ‘‘abandonment as a potential source of mineral production.’’ 

REASONS FOR CHANGE

The Committee believes that substantial simplification for taxpayers, significant gains in taxpayer compliance, and reductions in 

administrative cost can be obtained by establishing a clear rule 

that all geological and geophysical costs may be amortized over two 

years, including the basis of abandoned property. 

The Committee recognizes that, on average, a two-year amortization period accelerates recovery of geological and geophysical expenses. The Committee believes that more rapid recovery of such 

expenses will foster increased exploration for new sources of supply. 

EXPLANATION OF PROVISION

The provision allows geological and geophysical amounts incurred in connection with oil and gas exploration in the United 

States to be amortized over two years. In the case of abandoned 

property, remaining basis may no longer be recovered in the year 

of abandonment of a property as all basis is recovered over the twoyear amortization period. 

EFFECTIVE DATE

The provision is effective for geological and geophysical costs paid 

or incurred in taxable years beginning after the date of enactment. 

No inference is intended from the prospective effective date of this 

provision as to the proper treatment of pre-effective date geological 

and geophysical costs. 

F. ADVANCED LEAN-BURN MOTOR VEHICLE CREDIT

(Sec. 206 of the bill and new sec. 30B of the Code) 

PRESENT LAW

Certain costs of qualified clean-fuel vehicle may be expensed and 

deducted when such property is placed in service (sec. 179A). 

Qualified clean-fuel vehicle property includes motor vehicles that 

use certain clean-burning fuels (natural gas, liquefied natural gas, 

liquefied petroleum gas, hydrogen, electricity and any other fuel at 

least 85 percent of which is methanol, ethanol, any other alcohol 

or ether).32 The maximum amount of the deduction is $50,000 for 

a truck or van with a gross vehicle weight over 26,000 pounds or 

a bus with seating capacities of at least 20 adults; $5,000 in the 

case of a truck or van with a gross vehicle weight between 10,000 

and 26,000 pounds; and $2,000 in the case of any other motor vehiVerDate Aug 04 2004 02:33 Apr 20, 2005 Jkt 039006 PO 00000 Frm 00036 Fmt 6659 Sfmt 6602 E:\HR\OC\HR045.XXX HR045
37 

cle. Qualified electric vehicles do not qualify for the clean-fuel vehicle deduction. The deduction is reduced to 25 percent of the otherwise allowable deduction in 2006 and is unavailable for purchases 

after December 31, 2006. 

REASONS FOR CHANGE

The Committee believes that automobile transportation in the 

United States in the 21st century can, and should, be less polluting 

of the air and more fuel efficient. The Committee recognizes that 

various technological solutions may lead to this result. The Committee observes that consumer demand is increasing for those hybrid motor vehicles already available in the marketplace. The Committee believes that tax benefits to lower the cost of certain other 

new automotive technology alternatives can help lower consumer 

resistance to these technologies and speed the nation’s advancement down the highway to cleaner, more efficient, automobiles. The 

Committee observes that certain diesel technologies offering fuel 

and environmental benefits are already available in Europe and believes it is important for this technology to be developed for the 

North American marketplace. 

EXPLANATION OF PROVISION

The provision provides a credit for each new qualified advanced 

lean-burn technology motor vehicle placed in service by the taxpayer during the taxable year. The amount of the credit for any vehicle is the sum of an amount for fuel efficiency and an amount for 

conservation. The amount for fuel efficiency is based on a comparison of the fuel efficiency of the vehicle compared to the Environmental Protection Agency’s 2000 model year city fuel economy for 

a vehicle in the same inertia weight class. The amount for conservation is based on the qualifying vehicle’s estimated lifetime fuel 

savings compared to the same 2000 model year standard. 

Table 1, below, shows the credit amount for fuel efficiency of a 

qualified advanced leanburn technology motor vehicle. 

TABLE 1.—FUEL EFFICIENCY CREDIT AMOUNT FOR QUALIFIED ADVANCED LEAN-BURN 

TECHNOLOGY MOTOR VEHICLES 

[Percent of base fuel economy] 

Credit Amount 

If fuel economy of the vehicle is: 

At least But less 

than 

$500 ......................................................................................................................................................... 125 150 

$1,000 ...................................................................................................................................................... 150 175 

$1,500 ...................................................................................................................................................... 175 200 

$2,000 ...................................................................................................................................................... 200 225 

$2,500 ...................................................................................................................................................... 225 250 

$3,000 ...................................................................................................................................................... 250 

The credit amount for conservation of a qualified advanced lean 

burn technology vehicle is computed as follows. The vehicle is assumed to be driven 120,000 miles over its life. The 120,000 miles 

of lifetime mileage is divided by the fuel economy rating of the vehicle. The 120,000 miles of lifetime mileage also is divided by the 

2000 model year city economy for a vehicle in the same inertia 

38 

weight class. The difference is the lifetime fuel savings. If the vehicle achieves a lifetime motor fuel savings between 1,500 and 2,500 

gallons of fuel, the credit amount for the vehicle is $250. If the vehicle achieves a lifetime fuel savings of at least 2,500 gallons of 

motor fuel, the credit amount is $500. 

The base fuel economy is the 2000 model year city fuel economy 

for vehicles by inertia weight class by vehicle type. The ‘‘vehicle inertia weight class’’ is that defined in regulations prescribed by the 

Environmental Protection Agency for purposes of Title II of the 

Clean Air Act. Table 2, below, shows the 2000 model year city fuel 

economy for vehicles by type and by inertia weight class. 

TABLE 2.—2000 MODEL YEAR CITY FUEL ECONOMY 

Vehicle inertia weight class 

(pounds) 

Passenger automobile 

(miles per gallon) 

Light Truck 

(miles per gallon) 

1,500 ........................................................................................................................................ 43.7 37.6 

1,750 ........................................................................................................................................ 43.7 37.6 

2,000 ........................................................................................................................................ 38.3 33.7 

2,250 ........................................................................................................................................ 34.1 30.6 

2,500 ........................................................................................................................................ 30.7 28.0 

2,750 ........................................................................................................................................ 27.9 25.9 

3,000 ........................................................................................................................................ 25.6 24.1 

3,500 ........................................................................................................................................ 22.0 21.3 

4,000 ........................................................................................................................................ 19.3 19.0 

4,500 ........................................................................................................................................ 17.2 17.3 

5,000 ........................................................................................................................................ 15.5 15.8 

5,500 ........................................................................................................................................ 14.1 14.6 

6,000 ........................................................................................................................................ 12.9 13.6 

6,500 ........................................................................................................................................ 11.9 12.8 

7,000 ........................................................................................................................................ 11.1 12.0 

8,500 ........................................................................................................................................ 11.1 12.0 

A qualifying advanced lean-burn technology motor vehicle means 

a motor vehicle the original use of which commences with the taxpayer, powered by an internal combustion engine that is designed 

to operate primarily using more air than is necessary for complete 

combustion of the fuel and incorporates direct injection, that uses 

only diesel fuel (as defined in section 4083(a)(3)), has sufficient fuel 

economy to qualify for the credit, and meets the Environmental 

Protection Agency’s Tier II bin 8 emissions standards. In addition, 

in order to qualify for a credit, a vehicle must be in compliance 

with the applicable provisions of the Clean Air Act and the motor 

vehicle safety provisions. 

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 paragraph (3) or (4) of section 50(b) (relating to use 

by tax-exempt, governments and foreign persons) and is not subject 

to a lease, the seller of the vehicle may claim the credit so long 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. 

The provision permits the credit to offset both the regular tax 

and the alternative minimum tax. Credits in excess of this limitation may be carried forward for up to 20 years; credits may not be 

carried back to earlier years. 

39 

33Sec. 301 of the bill allows the credit to offset both the regular tax and the alternative minimum tax. 

EFFECTIVE DATE

The provision is effective for property placed in service after the 

date of enactment and before January 1, 2008. 

G. ENERGY EFFICIENT IMPROVEMENTS TO EXISTING HOMES

(Sec. 207 of the bill and new sec. 25D of the Code) 

PRESENT LAW

A taxpayer may exclude income the value of any subsidy provided by a public utility for the purchase or installation of an energy conservation measure. An energy conservation measure means 

any installation or modification primarily designed to reduce consumption of electricity or natural gas or to improve the management of energy demand with respect to a dwelling unit (sec. 136). 

There is no present law credit for energy efficiency improvements 

to existing homes. 

REASONS FOR CHANGE

The Committee recognizes that residential energy use for heating 

and cooling represents a large share of national energy consumption, and accordingly believes that measures to reduce heating and 

cooling energy requirements have the potential to substantially reduce national energy consumption. The Committee further recognizes that many existing homes are inadequately insulated. Accordingly, the Committee believes that a tax credit for certain energyefficiency improvements related to a home’s envelope (exterior windows (including skylights) and doors, insulation, and certain roofing systems) will encourage homeowners to improve the insulation 

of their homes, which in turn will reduce national energy consumption. 

EXPLANATION OF PROVISION

The provision provides a 20-percent credit for the purchase of 

qualified energy efficiency improvements to existing homes. The 

maximum credit for a taxpayer with respect to the same dwelling 

for all taxable years is $2,000. 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 the date of enactment 

(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.33

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 pigVerDate Aug 04 2004 02:33 Apr 20, 2005 Jkt 039006 PO 00000 Frm 00039 Fmt 6659 Sfmt 6602 E:\HR\OC\HR045.XXX HR045
40 

mented coatings which are specifically and primarily designed to 

reduce the heat loss or gain for a dwelling. 

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. 

In the case of expenditures that exceed $1,000, certain certification requirements must be met in order to qualify for the credit. 

EFFECTIVE DATE

The provision is effective for qualified energy efficiency improvements installed after the date of enactment and before January 1, 

2008. 

TITLE III—ALTERNATIVE MINIMUM TAX RELIEF 

A. NEW NONREFUNDABLE PERSONAL CREDITS ALLOWED AGAINST

REGULAR AND MINIMUM TAXES

(Sec. 301 of the bill and sec. 26 of the Code) 

PRESENT LAW

For taxable years beginning before 2006, the nonrefundable personal credits are allowed to the extent of the full amount of the individual’s regular tax and alternative minimum tax. 

For taxable years beginning after 2005, the nonrefundable personal credits (other than the adoption credit, child credit and the 

savers’ credit) are allowed only to the extent that the individual’s 

regular income tax liability exceeds the individual’s tentative minimum tax (determined without regard to the minimum tax foreign 

tax credit). The adoption credit, child credit, and IRA credit are allowed to the full extent of the individual’s regular tax and alternative minimum tax. 

The tentative minimum tax for an individual is an amount equal 

to specified rates of tax imposed on the individual’s taxable excess 

(i.e., the excess of the alternative minimum taxable income over an 

exemption amount that phases out). 

REASONS FOR CHANGE

The Committee believes that the incentive effects of the personal 

energy credits should be available to all individual taxpayers, regardless of their alternative minimum tax status. Accordingly, the 

bill provides that the personal energy credits can be utilized by offsetting both the regular tax and the alternative minimum tax. 

EXPLANATION OF PROVISION

The provision allows the personal credits added by the bill for 

residential energy efficient property and energy efficient improvements to existing homes to offset both the regular tax and the alternative minimum tax. 

41 

34For taxable years beginning before January 1, 2006, present law allows all personal credits 

to offset both the regular tax and the alternative minimum tax. 

EFFECTIVE DATE

The provision applies to taxable years beginning after December 

31, 2005.34

B. CERTAIN BUSINESS ENERGY CREDITS ALLOWED AGAINST THE

REGULAR AND MINIMUM TAXES

(Sec. 302 of the bill and sec. 38 of the Code) 

PRESENT LAW

For any taxable year, the general business credit, which is the 

sum of the various business credits, generally may not exceed the 

excess of the taxpayer’s net income tax over the greater of (i) the 

taxpayer’s tentative minimum tax or (ii) 25 percent of so much of 

the taxpayer’s net regular tax liability as exceeds $25,000. Any 

general business credit in excess of this limitation may be carried 

back one year and forward up to 20 years. The tentative minimum 

tax is an amount equal to specified rates of tax imposed on the excess of the alternative minimum taxable income over an exemption 

amount. 

In applying the tax liability limitation to certain business energy 

credits that are part of the general business credit, the tentative 

minimum tax is treated as being zero. These credits include the alcohol fuels credit and the section 45 credit for electricity produced 

from a facility (placed in service after October 22, 2004) during the 

first four years of production beginning on the date the facility is 

placed in service. 

REASONS FOR CHANGE

Under present law, the minimum tax limits the intended incentive effects of the energy tax credits. The Committee believes that 

the incentive effects of certain business energy credits should be 

available to taxpayers regardless of their tentative minimum tax. 

Accordingly, the bill provides that certain business energy credits 

can be utilized by offsetting both the regular tax and the alternative minimum tax. 

EXPLANATION OF PROVISION

The provision expands the list of business energy credits for 

which the tentative minimum tax is treated as being zero to include (i) the low sulfur diesel fuel production credit, (ii) the marginal oil and gas well production credit, (iii) the portion of the investment credit attributable to qualified fuel cells, and (iv) for taxable years beginning after December 31, 2005, and before January 

1, 2008, the enhanced oil recovery credit. 

EFFECTIVE DATE

The provision generally applies to credits determined for taxable 

years beginning after December 31, 2005. In the case of the credit 

for qualified fuel cells, the provision applies for taxable years ending after April 11, 2005. 

42 

II. 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 votes of the Committee on Ways and Means in its consideration of the bill, H.R. 1541. 

MOTION TO REPORT THE BILL

The bill, H.R. 1541 was ordered favorably reported by a rollcall 

vote of 26 yeas to 11 nays (with a quorum being present). The vote 

was as follows: 

Representatives Yea Nay Present Representative Yea Nay Present 

Mr. Thomas ........................... X ........... ............. Mr. Rangel ........................... ........... ........... .............

Mr. Shaw ............................... X ........... ............. Mr. Stark .............................. ........... ........... .............

Mrs. Johnson ......................... X ........... ............. Mr. Levin .............................. ........... X .............

Mr. Herger ............................. X ........... ............. Mr. Cardin ............................ X ........... .............

Mr. McCrery ........................... X ........... ............. Mr. McDermott ..................... ........... X .............

Mr. Camp .............................. X ........... ............. Mr. Lewis (GA) ..................... ........... X .............

Mr. Ramstad ......................... X ........... ............. Mr. Neal ............................... ........... X .............

Mr. Nussle ............................. ........... X ............. Mr. McNulty .......................... ........... X .............

Mr. Johnson ........................... ........... ........... ............. Mr. Jefferson ........................ X ........... .............

Mr. Portman .......................... ........... ........... ............. Mr. Tanner ............................ X ........... .............

Mr. English ........................... X ........... ............. Mr. Becerra .......................... ........... X .............

Mr. Hayworth ......................... X ........... ............. Mr. Doggett .......................... ........... X .............

Mr. Weller .............................. X ........... ............. Mr. Pomeroy ......................... X ........... .............

Mr. Hulshof ........................... X ........... ............. Mrs. Tubbs Jones ................. ........... X .............

Mr. Lewis (KY) ...................... X ........... ............. Mr. Thompson ...................... X ........... .............

Mr. Foley ............................... X ........... ............. Mr. Larsen ............................ ........... X .............

Mr. Brady .............................. X ........... ............. Mr. Emanuel ......................... ........... X .............

Mr. Reynolds ......................... X ........... .............

Mr. Ryan ............................... X ........... .............

Mr. Cantor ............................. X ........... .............

Mr. Linder ............................. X ........... .............

Mr. Beauprez ......................... X ........... .............

Ms. Hart ................................ X ........... .............

Mr. Chocola ........................... X ........... .............

VOTES ON AMENDMENTS

A rollcall vote was conducted on the following amendment to the 

Chairman’s amendment in the nature of a substitute. 

An amendment by Mr. Doggett to section 105, which would repeal the tax credit for synthetic fuel produced from coal, was defeated by a rollcall vote of 12 yeas to 24 nays. The vote was as follows: 

Representatives Yea Nay Present Representative Yea Nay Present 

Mr. Thomas ........................... ........... X ............. Mr. Rangel ........................... ........... ........... .............

Mr. Shaw ............................... ........... X ............. Mr. Stark .............................. ........... ........... .............

Mrs. Johnson ......................... ........... X ............. Mr. Levin .............................. X ........... .............

Mr. Herger ............................. ........... X ............. Mr. Cardin ............................ ........... ........... .............

Mr. McCrery ........................... ........... X ............. Mr. McDermott ..................... X ........... .............

Mr. Camp .............................. ........... X ............. Mr. Lewis (GA) ..................... X ........... .............

Mr. Ramstad ......................... ........... X ............. Mr. Neal ............................... X ........... .............

Mr. Nussle ............................. ........... X ............. Mr. McNulty .......................... X ........... .............

Mr. Johnson ........................... ........... ........... ............. Mr. Jefferson ........................ ........... X .............

Mr. Portman .......................... ........... ........... ............. Mr. Tanner ............................ ........... X .............

Mr. English ........................... ........... X ............. Mr. Becerra .......................... X ........... .............

Mr. Hayworth ......................... ........... X ............. Mr. Doggett .......................... X ........... .............

Mr. Weller .............................. ........... X ............. Mr. Pomeroy ......................... X ........... .............

Mr. Hulshof ........................... ........... X ............. Mrs. Tubbs Jones ................. X ........... .............

Mr. Lewis (KY) ...................... ........... X ............. Mr. Thompson ...................... X ........... .............

43 

Representatives Yea Nay Present Representative Yea Nay Present 

Mr. Foley ............................... ........... X ............. Mr. Larsen ............................ X ........... .............

Mr. Brady .............................. ........... X ............. Mr. Emanuel ......................... X ........... .............

Mr. Reynolds ......................... ........... X .............

Mr. Ryan ............................... ........... X .............

Mr. Cantor ............................. ........... X .............

Mr. Linder ............................. ........... X .............

Mr. Beauprez ......................... ........... X .............

Ms. Hart ................................ ........... X .............

Mr. Chocola ........................... ........... X .............

III. 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. 1541 as reported. 

The bill is estimated to have the following effects on budget receipts for fiscal years 2005–2010: 

44 


Insert offset folio 58 here HR45.001
45 


Insert offset folio 59 here HR45.002
46 


Insert offset folio 60 here HR45.003
47 

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, April 18, 2005. 

Hon. WILLIAM ‘‘BILL’’ M. THOMAS, 

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. 1541, the Enhanced Energy Infrastructure and Technology Tax Act of 2005. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Annabelle Bartsch. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, 

Director. 

Enclosure. 

H.R. 1541—Enhanced Energy Infrastructure and Technology Tax 

Act of 2005 

Summary: H.R. 1541 would amend a number provisions in the 

Internal Revenue Code primarily relating to energy. Some of those 

changes include modifying the depreciation lifetimes of some energy infrastructure, allowing certain energy-related expenditures to 

be amortized, creating various tax credits related to the use of energy-efficient technologies, and allowing energy-related tax credits 

to be applied against the alternative minimum tax. The bill would 

not affect direct spending or spending subject to appropriation. 

The Joint Committee on Taxation (JCT) estimates that enacting 

H.R. 1541 would increase federal revenues by $163 million in 2005, 

and decrease revenues by about $4.2 billion over the 2006–2010 period and by about $8.2 billion over the 2006–2015 period. 

JCT has determined that H.R. 1541 contains no intergovernmental or private-sector mandates as defined in the Unfunded 

Mandates Reform Act (UMRA) and would impose no costs on state, 

local, or tribal governments. 

Estimated cost to the Federal Government: The budgetary impact of H.R. 1541 over the 2005–2015 period is shown in the following table. 

48 

By fiscal year, in millions of dollars— 

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 

CHANGES IN REVENUES 

Energy Infrastructure Tax Provisions .................................................................................................... ¥17 ¥201 ¥646 ¥769 ¥535 ¥574 ¥633 ¥658 ¥683 ¥708 ¥732 

Miscellaneous Energy Tax Provisions .................................................................................................... 180 71 ¥315 ¥461 ¥300 ¥209 ¥162 ¥164 ¥159 ¥161 ¥171 Alternative Minimum Tax Provisions ..................................................................................................... (1) ¥180 ¥252 ¥35 90 90 84 70 43 11 (2) 

Estimated Revenues ..................................................................................................................... 163 ¥310 ¥1,213 ¥1,265 ¥745 ¥693 ¥711 ¥752 ¥799 ¥858 ¥903 

1 Loss of less than $500,000. 2 Gain of less than $500,000. 

Source: Joint Committee on Taxation. 

49 

Basis of estimate: JCT estimated all of the revenue effects of the 

bill. In total, JCT estimates enacting provisions of H.R. 1541 would 

increase federal revenues by $163 million in 2005, and decrease 

revenues by about $4.2 billion over the 2006–2010 period and $8.2 

billion over the 2006–2015 period. 

Energy Infrastructure Tax Provisions 

In total, JCT estimates enacting Title I would reduce federal rev- enues by $17 million in 2005, and by about $2.7 billion over the 

2006–2010 period and $6.1 billion over the 2006–2015 period. 

Roughly half of the decrease in receipts, about $3.1 billion over the 

2005–2015 period, would result from shortening the depreciation 

lifetimes for certain types of infrastructure equipment, including 

natural gas gathering and distribution pipelines and certain electricity transmission property. Modifying special rules for nuclear 

decommissioning costs would result in an additional decrease in 

revenues of about $1.3 billion over the 2006–2015 period, and expanding the eligibility rules for amortizing air pollution control facilities would further reduce federal revenues by about $1.4 billion 

over the 2005–2015 period. JCT estimates the remaining provisions 

would lower receipts by $628 million between 2005 and 2008 and 

then increase receipts by $328 million from 2009 to 2015. 

Miscellaneous Energy Tax Incentives 

Title II would provide tax credits for the use of various energyefficient technologies. Those include installing residential solar hot 

water heaters and residential and commercial installation of fuel 

cells, as well as making energy efficient improvements to existing 

homes. JCT estimates the credits would reduce revenues by $488 

million between 2006 and 2012, though they would sunset on December 31, 2007. Other provisions would allow a two-year amortization period for certain delayed rental payments and all geological 

and geophysical expenditures related to oil and gas exploration. 

JCT estimates those provisions would increase receipts by $370 

million between 2005 and 2006, and then decrease receipts by 

about $1.7 billion between 2007 and 2015. In total, the provisions 

in title II would increase revenues by $180 million in 2005, and decrease revenues by about $1.2 billion over the 2006–2010 period 

and by about $2 billion over the 2006–2015 period. 

Alternative Minimum Tax Relief Provisions 

Title III would allow taxpayers to apply certain energy-related 

credits against the alternative minimum tax. JCT estimates that 

the credits for individual taxpayers would decrease federal revenues by $82 million over the 2006–2008 period. Tax credits for 

businesses would reduce revenues by $384 million over the 2006– 

2008 period, and then increase revenues by about the same amount 

over the 2009–2015 period. 

Intergovernmental and private-sector impact: JCT has determined that H.R. 1541 contains no intergovernmental or private-sector mandates and would impose no costs on state, local, or tribal 

governments. 

Estimate prepared by: Annabelle Bartsch. 

Estimate approved by: G. Thomas Woodward, Assistant Director 

for Tax Analysis. 

50 

D. MACROECONOMIC IMPACT ANALYSIS

In compliance with clause 3(h)(2) of rule XIII of the Rules of the 

House of Representatives, the following statement is made by the 

Joint Committee on Taxation with respect to the provisions of the 

bill amending the Internal Revenue Code of 1986: the effects of the 

bill on economic activity are too small to be calculated within the 

context of a model of the aggregate economy. 

IV. 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 does not contain 

Federal mandates on the private sector. 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. 

51 

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. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

INTERNAL REVENUE CODE OF 1986 

Subtitle A—Income Taxes 

* * * * * * * 

CHAPTER 1—NORMAL TAXES AND SURTAXES 

* * * * * * * 

Subchapter A—Determination of Tax Liability 

* * * * * * * 

PART IV—CREDITS AGAINST TAX 

* * * * * * * 

Subpart A—Nonrefundable Personal Credits 

Sec. 21. Expenses for household and dependent care serveices necessary for gainful 

employment. 

* * * * * * * 

Sec. 25B. Elective deferrals and IRA contributions by certain individuals. 

Sec. 25C. Residential energy efficient property. 

Sec. 25D. Energy efficiency improvements to existing homes. 

* * * * * * * 

SEC. 23. ADOPTION EXPENSES. 

(a) * * * 

(b) LIMITATIONS.— 

52 

(1) * * * 

* * * * * * * 

(4) LIMITATION BASED ON AMOUNT OF TAX.—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 25C and 25D) and 

section 27 for the taxable year. 

* * * * * * * 

SEC. 24. CHILD TAX CREDIT. 

(a) * * * 

(b) LIMITATIONS.— 

(1) * * * 

* * * * * * * 

(3) LIMITATION BASED ON AMOUNT OF TAX.—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 øand 25B¿, 25B, 

25C, and 25D) and section 27 for the taxable year. 

* * * * * * * 

SEC. 25. INTEREST ON CERTAIN HOME MORTGAGES. 

(a) * * * 

* * * * * * * 

(e) SPECIAL RULES AND DEFINITIONS.—For purposes of this section— 

(1) CARRYFORWARD OF UNUSED CREDIT.— (A) * * * 

* * * * * * * 

(C) APPLICABLE TAX LIMIT.—For purposes of this paragraph, the term ‘‘applicable tax limit’’ means the limitation 

imposed by section 26(a) for the taxable year reduced by 

the sum of the credits allowable under this subpart (other 

than this section and sections 23, 24, 25B, 25C, and 25D 

and 1400C). 

* * * * * * * 

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

(a) * * * 

* * * * * * * 

(g) LIMITATION BASED ON AMOUNT OF TAX.—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 øsection 23¿ sections 23, 25C, and 25D) 

and section 27 for the taxable year. 

53 

SEC. 25C. 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) 15 percent of the qualified solar water heating property expenditures made by the taxpayer during such year, 

(2) 15 percent of the qualified photovoltaic property expenditures made by the taxpayer during such year, and 

(3) 15 percent of the qualified fuel cell property expenditures 

made by the taxpayer during such year. 

(b) LIMITATIONS.— (1) MAXIMUM CREDIT.— (A) IN GENERAL.—The credit allowed under subsection (a) 

shall not exceed— 

(i) $2,000 for solar water heating property described 

in subsection (c)(1), 

(ii) $2,000 for photovoltaic property described in subsection (c)(2), and 

(iii) $500 for each 0.5 kilowatt of capacity of property 

described in subsection (c)(3). 

(B) PRIOR EXPENDITURES BY TAXPAYER ON SAME RESIDENCE TAKEN INTO ACCOUNT.—In determining the amount 

of the credit allowed to a taxpayer with respect to any 

dwelling unit under this section, the dollar amounts under 

clauses (i) and (ii) of subparagraph (A) with respect to each 

type of property described in such clauses shall be reduced 

by the credit allowed to the taxpayer under this section 

with respect to such type of property for all preceding taxable years with respect to such dwelling unit. 

(2) PROPERTY STANDARDS.—No credit shall be allowed under 

this section for an item of property unless— 

(A) the original use of such property commences with the 

taxpayer, 

(B) such property can be reasonably expected to remain 

in use for at least 5 years, 

(C) such property is installed on or in connection with a 

dwelling unit located in the United States and used as a 

residence by the taxpayer, 

(D) in the case of solar water heating property, such 

property is certified for performance by the non-profit Solar 

Rating and Certification Corporation or a comparable entity endorsed by the government of the State in which such 

property is installed, and 

(E) in the case of fuel cell property, such property meets 

the performance and quality standards (if any) which have 

been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy). 

(3) LIMITATION BASED ON AMOUNT OF TAX.—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. 

(c) DEFINITIONS.—For purposes of this section— 

54 

(1) QUALIFIED SOLAR WATER HEATING PROPERTY EXPENDI- TURE.—The term ‘‘qualified solar water heating property expenditure’’ means an expenditure for property which uses solar 

energy to heat water for use in a dwelling unit. 

(2) QUALIFIED PHOTOVOLTAIC PROPERTY EXPENDITURE.—The 

term ‘‘qualified photovoltaic property expenditure’’ means an expenditure for property which uses solar energy to generate electricity for use in a dwelling unit and which is not described in 

paragraph (1). 

(3) QUALIFIED FUEL CELL PROPERTY EXPENDITURE.—The term 

‘‘qualified fuel cell property expenditure’’ means an expenditure 

for any qualified fuel cell property (as defined in section 

48(b)(1)). 

(d) SPECIAL RULES.—For purposes of this section— 

(1) SOLAR PANELS.—No expenditure relating to a solar panel 

or other property installed as a roof (or portion thereof) shall 

fail to be treated as property described in paragraph (1) or (2) 

of subsection (c) solely because it constitutes a structural component of the structure on which it is installed. 

(2) SWIMMING POOLS, ETC., USED AS STORAGE MEDIUM.—Expenditures which are properly allocable to a swimming pool, 

hot tub, or any other energy storage medium which has a function other than the function of such storage shall not be taken 

into account for purposes of this section. 

(3) 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 2 or more individuals, the following rules shall apply: 

(A) The amount of the credit allowable under subsection 

(a) by reason of expenditures made during such calendar 

year by any of such individuals with respect to such dwelling unit shall be determined by treating all of such individuals as 1 taxpayer whose taxable year is such calendar 

year. 

(B) There shall be allowable, with respect to such expenditures to each of such individuals, a credit under subsection 

(a) for the taxable year in which such calendar year ends 

in an amount which bears the same ratio to the amount determined under subparagraph (A) as the amount of such 

expenditures made by such individual during such calendar year bears to the aggregate of such expenditures 

made by all of such individuals during such calendar year. 

(C) Subparagraphs (A) and (B) shall be applied separately with respect to expenditures described in paragraphs 

(1), (2), and (3) of subsection (c). 

(4) TENANT-STOCKHOLDER IN COOPERATIVE HOUSING CORPORATION.—In the case of an individual who is a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as defined in such section), such individual shall be 

treated as having made the individual’s tenant-stockholder’s 

proportionate share (as defined in section 216(b)(3)) of any expenditures of such corporation. 

(5) CONDOMINIUMS.— 

(A) IN GENERAL.—In the case of an individual who is a 

member of a condominium management association with 

55 

respect to a condominium which the individual owns, such 

individual shall be treated as having made the individual’s 

proportionate share of any expenditures of such association. 

(B) CONDOMINIUM MANAGEMENT ASSOCIATION.—For purposes of this paragraph, the term ‘‘condominium management association’’ means an organization which meets the 

requirements of paragraph (1) of section 528(c) (other than 

subparagraph (E) thereof) with respect to a condominium 

project substantially all of the units of which are used as 

residences. 

(6) ALLOCATION IN CERTAIN CASES.—If less than 80 percent of 

the use of an item is for nonbusiness purposes, only that portion 

of the expenditures for such item which is properly allocable to 

use for nonbusiness purposes shall be taken into account. 

(7) WHEN EXPENDITURE MADE; AMOUNT OF EXPENDITURE.— 

(A) IN GENERAL.—Except as provided in subparagraph 

(B), an expenditure with respect to an item shall be treated 

as made when the original installation of the item is completed. 

(B) EXPENDITURES PART OF BUILDING CONSTRUCTION.— 

In the case of an expenditure in connection with the construction or reconstruction of a structure, such expenditure 

shall be treated as made when the original use of the constructed or reconstructed structure by the taxpayer begins. 

(C) AMOUNT.—The amount of any expenditure shall be 

the cost thereof. 

(8) PROPERTY FINANCED BY SUBSIDIZED ENERGY FINANCING.— 

For purposes of determining the amount of expenditures made 

by any individual with respect to any dwelling unit, there shall 

not be taken into account expenditures which are made from 

subsidized energy financing (as defined in section 

48(a)(4)(C)).a)(4)(C)). 

(e) BASIS ADJUSTMENTS.—For purposes of this subtitle, if a credit 

is allowed under this section for any expenditure with respect to any 

property, the increase in the basis of such property which would 

(but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed. 

(f) TERMINATION.—The credit allowed under this section shall not 

apply to taxable years beginning after December 31, 2007. 

SEC. 25D. ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES. 

(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 20 percent of the amount 

paid or incurred by the taxpayer for qualified energy efficiency improvements installed during such taxable year. 

(b) LIMITATIONS.— 

(1) MAXIMUM CREDIT.—The credit allowed by this section 

with respect to a dwelling unit shall not exceed $2,000. 

(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER ON SAME DWELLING

TAKEN INTO ACCOUNT.—If a credit was allowed to the taxpayer 

under subsection (a) with respect to a dwelling unit in 1 or 

more prior taxable years, the amount of the credit otherwise allowable for the taxable year with respect to that dwelling unit 

shall be reduced by the sum of the credits allowed under subVerDate Aug 04 2004 02:33 Apr 20, 2005 Jkt 039006 PO 00000 Frm 00055 Fmt 6659 Sfmt 6603 E:\HR\OC\HR045.XXX HR045
56 

section (a) to the taxpayer with respect to the dwelling unit for 

all prior taxable years. 

(3) LIMITATION BASED ON AMOUNT OF TAX.—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. 

(c) QUALIFIED ENERGY EFFICIENCY IMPROVEMENTS.—For purposes of this section, the term ‘‘qualified energy efficiency improvements’’ means any energy efficient building envelope component 

which meets the prescriptive criteria for such component established 

by the 2000 International Energy Conservation Code, as such Code 

(including supplements) is in effect on the date of the enactment of 

the Enhanced Energy Infrastructure and Technology Tax Act of 

2005 (or, in the case of a metal roof with appropriate pigmented 

coatings which meet the Energy Star program requirements), if— 

(1) such component is installed in or on a dwelling unit located in the United States and owned and used by the taxpayer 

as the taxpayer’s principal residence (within the meaning of section 121), 

(2) the original use of such component commences with the 

taxpayer, and 

(3) such component reasonably can be expected to remain in 

use for at least 5 years. 

If the aggregate cost of such components with respect to any dwelling unit exceeds $1,000, such components shall be treated as qualified energy efficiency improvements only if such components are also 

certified in accordance with subsection (d) as meeting such prescriptive criteria. 

(d) CERTIFICATION.—The certification described in subsection (c) 

shall be— 

(1) determined on the basis of the technical specifications or 

applicable ratings (including product labeling requirements) for 

the measurement of energy efficiency (based upon energy use or 

building envelope component performance) for the energy efficient building envelope component, 

(2) provided by a local building regulatory authority, a utility, a manufactured home production inspection primary inspection agency (IPIA), or an accredited home energy rating system provider who is accredited by or otherwise authorized to 

use approved energy performance measurement methods by the 

Residential Energy Services Network (RESNET), and 

(3) made in writing in a manner which specifies in readily 

verifiable fashion the energy efficient building envelope components installed and their respective energy efficiency levels. 

(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— 

(1) BUILDING ENVELOPE COMPONENT.—The term ‘‘building envelope component’’ means— 

(A) any insulation material or system which is specifically and primarily designed to reduce the heat loss or gain 

of a dwelling unit when installed in or on such dwelling 

unit, 

57 

(B) exterior windows (including skylights), 

(C) exterior doors, and 

(D) any metal roof installed on a dwelling unit, but only 

if such roof has appropriate pigmented coatings which are 

specifically and primarily designed to reduce the heat gain 

of such dwelling unit. 

(2) MANUFACTURED HOMES INCLUDED.—The term ‘‘dwelling 

unit’’ includes a manufactured home which conforms to Federal 

Manufactured Home Construction and Safety Standards (section 3280 of title 24, Code of Federal Regulations). 

(3) APPLICATION OF RULES.—Rules similar to the rules under 

paragraphs (3), (4), and (5) of section 25C(d) shall apply. 

(f) BASIS ADJUSTMENT.—For purposes of this subtitle, if a credit 

is allowed under this section for any expenditure with respect to any 

property, the increase in the basis of such property which would 

(but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed. 

(g) APPLICATION OF SECTION.—This section shall apply to qualified energy efficiency improvements installed after the date of the 

enactment of the Enhanced Energy Infrastructure and Technology 

Tax Act of 2005, and before January 1, 2008. 

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, øand 25B¿ 25B, 25C, 

and 25D) for the taxable year shall not exceed the excess (if 

any) of— 

(A) * * * 

* * * * * * * 

Subpart B—Other Credits 

Sec. 27. Taxes of foreign countries and possessions of the United States; possession 

tax credit. 

* * * * * * * 

øSec. 29. Credit for producing fuel from a nonconventional source.¿ 

* * * * * * * 

Sec. 30B. Advanced lean burn technology motor vehicle credit. 

* * * * * * * 

SEC. 30. CREDIT FOR QUALIFIED ELECTRIC VEHICLES. 

(a) * * * 

(b) LIMITATIONS.— (1) * * * 

* * * * * * * 

(3) APPLICATION WITH OTHER CREDITS.—The credit allowed 

by subsection (a) for any taxable year shall not exceed the excess (if any) of— 

(A) the regular tax for the taxable year reduced by the 

sum of the credits allowable under subpart A and øsections 27 and 29¿ section 27, over— 

* * * * * * * 

58 

SEC. 30B. ADVANCED LEAN BURN TECHNOLOGY MOTOR VEHICLE 

CREDIT. 

(a) ALLOWANCE OF CREDIT.—There shall be allowed as a credit 

against the tax imposed by this chapter for the taxable year an 

amount equal to the sum of the credit amounts determined under 

subsection (b) with respect to each qualified advanced lean burn 

technology motor vehicle placed in service by the taxpayer during 

the taxable year. 

(b) CREDIT AMOUNT.—For purposes of subsection (a)— 

(1) FUEL EFFICIENCY.—The credit amount with respect to any 

vehicle shall be— 

(A) $500, if the city fuel economy of such vehicle is at 

least 125 percent but less than 150 percent of the 2000 

model year city fuel economy for a vehicle in the same inertia weight class, 

(B) $1,000, if the city fuel economy of such vehicle is at 

least 150 percent but less than 175 percent of the 2000 

model year city fuel economy for a vehicle in the same inertia weight class, 

(C) $1,500, if the city fuel economy of such vehicle is at 

least 175 percent but less than 200 percent of the 2000 

model year city fuel economy for a vehicle in the same inertia weight class, 

(D) $2,000, if the city fuel economy of such vehicle is at 

least 200 percent but less than 225 percent of the 2000 

model year city fuel economy for a vehicle in the same inertia weight class, 

(E) $2,500, if the city fuel economy of such vehicle is at 

least 225 percent but less than 250 percent of the 2000 

model year city fuel economy for a vehicle in the same inertia weight class, and 

(F) $3,000, if the city fuel economy of such vehicle is at 

least 250 percent of the 2000 model year city fuel economy 

for a vehicle in the same inertia weight class. 

(2) CONSERVATION.—The credit amount determined under 

paragraph (1) with respect to any vehicle shall be increased 

by— 

(A) $250, if the lifetime fuel savings of such vehicle is at 

least 1,500 gallons of motor fuel but less than 2,500 gallons 

of motor fuel, and 

(B) $500, if the lifetime fuel savings of such vehicle is at 

least 2,500 gallons of motor fuel. 

(c) LIMITATION BASED ON AMOUNT OF TAX.—The credit allowed 

under subsection (a) for the taxable year shall not exceed the excess 

of— 

(1) the sum of the regular tax liability (as defined in section 

26(b)) plus the tax imposed by section 55, over 

(2) the sum of the credits allowable under subpart A and sections 27 and 30A for the taxable year. 

(d) DEFINITIONS.—For purposes of this section— 

(1) QUALIFIED ADVANCED LEAN BURN TECHNOLOGY MOTOR VEHICLE.—The term ‘‘qualified advanced lean burn technology 

motor vehicle’’ means a motor vehicle— 

(A) the original use of which commences with the taxpayer, 

59 

(B) powered by an internal combustion engine that— 

(i) is designed to operate primarily using more air 

than is necessary for complete combustion of the fuel, 

and 

(ii) incorporates direct injection, 

(C) that only uses diesel fuel (as defined in section 

4083(a)(3)), 

(D) the city fuel economy of which is at least 125 percent 

of the 2000 model year city fuel economy for a vehicle in the 

same inertia weight class, and 

(E) that has received a certificate that such vehicle meets 

or exceeds the Bin 8 Tier II emission level established in 

regulations prescribed by the Administrator of the Environmental Protection Agency under section 202(i) of the Clean 

Air Act. 

(2) LIFETIME FUEL SAVINGS.—The term ‘‘lifetime fuel savings’’ 

means, with respect to a qualified advanced lean burn technology motor vehicle, an amount equal to the excess (if any) of— 

(A) 120,000 divided by the 2000 model year city fuel 

economy for the vehicle inertia weight class, over 

(B) 120,000 divided by the city fuel economy for such vehicle. 

(3) 2000 MODEL YEAR CITY FUEL ECONOMY.—The 2000 model 

year city fuel economy with respect to a vehicle shall be determined in accordance with the following tables: 

(A) In the case of a passenger automobile: 

If vehicle inertia weight class is: The 2000 model year city fuel economy is: 

1,500 or 1,750 lbs ............................................................................. 43.7 mpg 

2,000 lbs ............................................................................................ 38.3 mpg 

2,250 lbs ............................................................................................ 34.1 mpg 

2,500 lbs ............................................................................................ 30.7 mpg 

2,750 lbs ............................................................................................ 27.9 mpg 

3,000 lbs ............................................................................................ 25.6 mpg 

3,500 lbs ............................................................................................ 22.0 mpg 

4,000 lbs ............................................................................................ 19.3 mpg 

4,500 lbs ............................................................................................ 17.2 mpg 

5,000 lbs ............................................................................................ 15.5 mpg 

5,500 lbs ............................................................................................ 14.1 mpg 

6,000 lbs ............................................................................................ 12.9 mpg 

6,500 lbs ............................................................................................ 11.9 mpg 

7,000 or 8,500 lbs ............................................................................. 11.1 mpg. 

(B) In the case of a light truck: 

If vehicle inertia weight class is: The 2000 model year city fuel economy is: 

1,500 or 1,750 lbs ............................................................................. 37.6 mpg 

2,000 lbs ............................................................................................ 33.7 mpg 

2,250 lbs ............................................................................................ 30.6 mpg 

2,500 lbs ............................................................................................ 28.0 mpg 

2,750 lbs ............................................................................................ 25.9 mpg 

3,000 lbs ............................................................................................ 24.1 mpg 

3,500 lbs ............................................................................................ 21.3 mpg 

4,000 lbs ............................................................................................ 19.0 mpg 

4,500 lbs ............................................................................................ 17.3 mpg 

5,000 lbs ............................................................................................ 15.8 mpg 

5,500 lbs ............................................................................................ 14.6 mpg 

6,000 lbs ............................................................................................ 13.6 mpg 

6,500 lbs ............................................................................................ 12.8 mpg 

7,000 or 8,500 lbs ............................................................................. 12.0 mpg. 

60 

(4) MOTOR VEHICLE.—The term ‘‘motor vehicle’’ has the meaning given such term by section 30(c)(2). 

(5) CITY FUEL ECONOMY.—City fuel economy with respect to 

any vehicle shall be measured in accordance with testing and 

calculation procedures established by the Administrator of the 

Environmental Protection Agency by regulations in effect on 

April 11, 2005. 

(6) OTHER TERMS.—The terms ‘‘passenger automobile’’, ‘‘light 

truck’’, and ‘‘manufacturer’’ shall 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.). 

(e) CARRYFORWARD ALLOWED.— 

(1) IN GENERAL.—If the credit amount allowable under subsection (a) for a taxable year exceeds the amount of the limitation under subsection (c) for such taxable year (referred to as 

the ‘‘unused credit year’’ in this paragraph), such excess shall 

be allowed as a credit carryforward for each of the 20 taxable 

years following the unused credit year. 

(2) RULES.—Rules similar to the rules of section 39 shall 

apply with respect to the credit carryforward under paragraph 

(1). 

(f) SPECIAL RULES.—For purposes of this section— 

(1) REDUCTION IN BASIS.—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) NO DOUBLE BENEFIT.—The amount of any deduction or 

credit allowable under this chapter (other than the credit allowable under subsection (a)), with respect to any vehicle shall be 

reduced by the amount of credit allowed under subsection (a) 

(determined without regard to subsection (c)) for such vehicle 

for the taxable year. 

(3) PROPERTY USED BY TAX-EXEMPT ENTITY.—In the case of a 

vehicle whose use is described in paragraph (3) or (4) of section 

50(b) and which is not subject to a lease, the person who sold 

such vehicle to the person or entity using such vehicle shall be 

treated as the taxpayer that placed such vehicle in service, but 

only if such person clearly discloses to such person or entity in 

a document the amount of any credit allowable under subsection (a) with respect to such vehicle (determined without regard to subsection (c)). 

(4) PROPERTY USED OUTSIDE UNITED STATES, ETC., NOT

QUALIFIED.—No credit shall be allowable 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. 

(5) ELECTION NOT TO TAKE CREDIT.—No credit shall be allowed under subsection (a) for any vehicle if the taxpayer elects 

not to have this section apply to such vehicle. 

(6) INTERACTION WITH AIR QUALITY AND MOTOR VEHICLE

SAFETY STANDARDS.—Unless otherwise provided in this section, 

a motor vehicle shall not be considered eligible for a credit 

under this section unless such vehicle is in compliance with— 

61 

(A) the applicable provisions of the Clean Air Act for the 

applicable make and model year of the vehicle (or applicable air quality provisions of State law in the case of a State 

which has adopted such provision under a waiver under 

section 209(b) of the Clean Air Act), and 

(B) the motor vehicle safety provisions of sections 30101 

through 30169 of title 49, United States Code. 

(g) REGULATIONS.— (1) IN GENERAL.—The Secretary shall promulgate such regulations as necessary to carry out this section, including regulations to prevent the avoidance of the purposes of this section 

through disposal of any motor vehicle or leasing of any motor 

vehicle for a lease period of less than the economic life of such 

vehicle. 

(2) DETERMINATION OF MOTOR VEHICLE ELIGIBILITY.—The 

Secretary, in coordination with the Secretary of Transportation 

and the Administrator of the Environmental Protection Agency, 

shall prescribe such regulations as necessary to determine 

whether a motor vehicle meets the requirements to be eligible 

for a credit under this section. 

(h) TERMINATION.—This section shall not apply to any property 

placed in service after December 31, 2007. 

Subpart D—Business Related Credits 

Sec. 38. General business credit. 

* * * * * * * 

Sec. 45I. Credit for producing oil and gas from marginal wells. 

Sec. 45J. Credit for producing fuel from a nonconventional source. 

* * * * * * * 

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) * * * 

* * * * * * * 

(18) the low sulfur diesel fuel production credit determined 

under section 45H(a), øplus¿ 

(19) the marginal oil and gas well production credit determined under section 45I(a)ø.¿, plus 

(20) the nonconventional source production credit determined 

under section 45J(a). 

(c) LIMITATION BASED ON AMOUNT OF TAX.— 

(1) * * * 

* * * * * * * 

(4) SPECIAL RULES FOR SPECIFIED CREDITS.— 

(A) * * * 

(B) SPECIFIED CREDITS.—For purposes of this subsection, 

the term ‘‘specified credits’’ includes— 

ø(i) for taxable years beginning after December 31, 

2004, the credit determined under section 40,¿ 

(i) the credits determined under sections 40, 45H, 

and 45I, 

62 

(ii) so much of the credit determined under section 

46 as is attributable to section 48(a)(3)(A)(iii), 

(iii) for taxable years beginning after December 31, 

2005, and before January 1, 2008, the credit determined under section 43, and 

ø(ii)¿ (iv) the credit determined under section 45 to 

the extent that such credit is attributable to electricity 

or refined coal produced— 

(I) * * * 

* * * * * * * 

SEC. 43. ENHANCED OIL RECOVERY CREDIT. 

(a) * * * 

(b) PHASE-OUT OF CREDIT AS CRUDE OIL PRICES INCREASE.— 

(1) * * * 

(2) REFERENCE PRICE.—For purposes of this subsection, the 

term ‘‘reference price’’ means, with respect to any calendar 

year, the reference price determined for such calendar year 

under øsection 29(d)(2)(C)¿ section 45J(d)(2)(C). 

* * * * * * * 

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

(a) * * * 

* * * * * * * 

(e) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— 

(1) * * * 

* * * * * * * 

(9) COORDINATION WITH CREDIT FOR PRODUCING FUEL FROM A

NONCONVENTIONAL SOURCE.—The term ‘‘qualified facility’’ shall 

not include any facility the production from which is allowed 

as a credit under øsection 29¿ section 45J for the taxable year 

or any prior taxable year (or under section 29, as in effect on 

the day before the date of enactment of the Enhanced Energy 

Infrastructure and Technology Tax Act of 2005, for any prior 

taxable year). 

* * * * * * * 

SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL 

WELLS. 

(a) * * * 

(b) CREDIT AMOUNT.—For purposes of this section— 

(1) * * * 

(2) REDUCTION AS OIL AND GAS PRICES INCREASE.— 

(A) * * * 

* * * * * * * 

(C) REFERENCE PRICE.—For purposes of this paragraph, 

the term ‘‘reference price’’ means, with respect to any calendar year— 

63 

(i) in the case of qualified crude oil production, the 

reference price determined under øsection 29(d)(2)(C)¿ 

section 45J(d)(2)(C), and 

* * * * * * * 

(c) QUALIFIED CRUDE OIL AND NATURAL GAS PRODUCTION.—For 

purposes of this section— 

(1) * * * 

(2) LIMITATION ON AMOUNT OF PRODUCTION WHICH MAY QUAL- IFY.— (A) IN GENERAL.—Crude oil or natural gas produced during any taxable year from any well shall not be treated as 

qualified crude oil production or qualified natural gas production to the extent production from the well during the 

taxable year exceeds 1,095 barrels or barrel-of-oil equivalents (as defined in øsection 29(d)(5))¿ section 45J(d)(5)). 

* * * * * * * 

(d) OTHER RULES.— (1) * * * 

* * * * * * * 

(3) PRODUCTION FROM NONCONVENTIONAL SOURCES EX- CLUDED.—In the case of production from a qualified marginal 

well which is eligible for the credit allowed under øsection 29¿ 

section 45J for the taxable year, no credit shall be allowable 

under this section unless the taxpayer elects not to claim the 

credit under øsection 29¿ section 45J with respect to the well. 

* * * * * * * 

SEC. ø29¿ 45J. CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE. 

(a) ALLOWANCE OF CREDIT.—øThere shall be allowed as a credit 

against the tax imposed by this chapter for the taxable year¿ For 

purposes of section 38, if the taxpayer elects to have this section 

apply, the nonconventional source production credit determined 

under this section for the taxable year is an amount equal to— 

(1) * * * 

* * * * * * * 

(b) LIMITATIONS AND ADJUSTMENTS.— (1) * * * 

* * * * * * * 

ø(6) APPLICATION WITH OTHER CREDITS.—The credit allowed 

by subsection (a) for any taxable year shall not exceed the excess (if any) of— 

ø(A) the regular tax for the taxable year reduced by the 

sum of the credits allowable under subpart A and section 

27, over 

ø(B) the tentative minimum tax for the taxable year.¿ 

(c) DEFINITION OF QUALIFIED FUELS.—For purposes of this section— 

(1) * * * 

(2) GAS FROM GEOPRESSURED BRINE, ETC.— 

(A) IN GENERAL.—Except as provided in subparagraph 

(B), the determination of whether any gas is produced 

from geopressured brine, Devonian shale, coal seams, or a 

64 

tight formation shall be made in accordance with section 

503 of the Natural Gas Policy Act of 1978 (as in effect before the repeal of such section). (B) SPECIAL RULES FOR GAS FROM TIGHT FORMATIONS.— The term ‘‘gas produced from a tight formation’’ shall only 

include gas from a tight formation— 

(i) which, as of April 20, 1977, was committed or 

dedicated to interstate commerce (as defined in section 

2(18) of the Natural Gas Policy Act of 1978, as in effect on the date of the enactment of this clause), or 

(ii) which is produced from a well drilled after such 

date of enactment. 

* * * * * * * 

ø(e) APPLICATION WITH THE NATURAL GAS POLICY ACT OF 1978.— 

ø(1) NO CREDIT IF SECTION 107 OF THE NATURAL GAS POLICY

ACT OF 1978 IS UTILIZED.—Subsection (a) shall apply with respect to any natural gas described in subsection (c)(1)(B)(i) 

which is sold during the taxable year only if such natural gas 

is sold at a lawful price which is determined without regard to 

the provisions of section 107 of the Natural Gas Policy Act of 

1978 and subtitle B of title I of such Act. 

ø(2) TREATMENT OF THIS SECTION.—For purposes of section 

107(d) of the Natural Gas Policy Act of 1978, this section shall 

not be treated as allowing any credit, exemption, deduction, or 

comparable adjustment applicable to the computation of any 

Federal tax.¿ 

ø(f)¿ (e) APPLICATION OF SECTION.—This section shall apply with 

respect to qualified fuels— 

(1) * * * 

* * * * * * * 

ø(g)¿ (f) Extension for Certain Facilities.— 

(1) IN GENERAL.—In the case of a facility for producing qualified fuels described in subparagraph (B)(ii) or (C) of subsection 

(c)(1)— 

(A) for purposes of subsection ø(f)(1)(B)¿ (e)(1)(B), such 

facility shall be treated as being placed in service before 

January 1, 1993, if such facility is placed in service before 

July 1, 1998, pursuant to a binding written contract in effect before January 1, 1997, and 

(B) if such facility is originally placed in service after 

December 31, 1992, paragraph (2) of subsection ø(f)¿ (e) 

shall be applied with respect to such facility by substituting ‘‘January 1, 2008’’ for ‘‘January 1, 2003’’. 

Subpart E—Rules for Computing Credit for Investment in 

Certain Depreciable Property 

* * * * * * * 

SEC. 48. ENERGY CREDIT. 

(a) ENERGY CREDIT.— (1) IN GENERAL.—For purposes of section 46, except as provided in subsection (b)(2), the energy credit for any taxable 

year is the energy percentage of the basis of each energy property placed in service during such taxable year. 

65 

(2) ENERGY PERCENTAGE.— 

ø(A) IN GENERAL.—The energy percentage is 10 percent.¿ 

(A) IN GENERAL.—The energy percentage is— 

(i) in the case of qualified fuel cell property, 15 percent, and 

(ii) in the case of any other energy property, 10 percent. 

* * * * * * * 

(3) ENERGY PROPERTY.—For purposes of this subpart, the 

term ‘‘energy property’’ means any property— 

(A) which is— 

(i) equipment which uses solar energy to generate 

electricity, to heat or cool (or provide hot water for use 

in) a structure, or to provide solar process heat, øor¿ 

(ii) 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 

(iii) qualified fuel cell property, 

* * * * * * * 

ø(b)¿ (5) CERTAIN PROGRESS EXPENDITURE RULES MADE APPLICABLE.—Rules similar to the rules of subsections (c)(4) and (d) 

of section 46 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply 

for purposes of øsubsection (a)¿ this subsection. 

(b) QUALIFIED FUEL CELL PROPERTY.—For purposes of subsection 

(a)(3)(A)(iii)— 

(1) IN GENERAL.—The term ‘‘qualified fuel cell property’’ 

means a fuel cell power plant which— 

(A) generates at least 0.5 kilowatt of electricity using an 

electrochemical process, and 

(B) has an electricity-only generation efficiency greater 

than 30 percent. 

(2) LIMITATION.—The energy credit with respect to any qualified fuel cell property shall not exceed an amount equal to $500 

for each 0.5 kilowatt of capacity of such property. 

(3) FUEL CELL POWER PLANT.—The term ‘‘fuel cell power 

plant’’ means an integrated system, comprised of a fuel cell 

stack assembly and associated balance of plant components, 

which converts a fuel into electricity using electrochemical 

means. 

(4) TERMINATION.—The term ‘‘qualified fuel cell property’’ 

shall not include any property placed in service after December 

31, 2007. 

* * * * * * * 

Subpart G—Credit Against Regular Tax for Prior Year 

Minimum Tax Liability 

* * * * * * * 

66 

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

(a) * * * 

* * * * * * * 

(d) DEFINITIONS.—For purposes of this section— 

(1) NET MINIMUM TAX.— 

(A) * * * 

(B) CREDIT NOT ALLOWED FOR EXCLUSION PREFERENCES.— 

(i) * * * 

* * * * * * * 

(iii) SPECIAL RULE.—The adjusted net minimum tax 

for the taxable year shall be increased by the amount 

of the credit not allowed øunder section 29 (relating to 

credit for producing fuel from a nonconventional 

source) solely by reason of the application of section 

29(b)(6)(B), or not allowed¿ under section 30 solely by 

reason of the application of section 30(b)(3)(B). 

* * * * * * * 

PART VI—MINIMUM TAX FOR TAX PREFERENCES 

* * * * * * * 

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), 

ø29(b)(6),¿ 30(b)(3) and 38(c). 

* * * * * * * 

SEC. 56. ADJUSTMENTS IN COMPUTING ALTERNATIVE MINIMUM TAXABLE INCOME. 

(a) ADJUSTMENTS APPLICABLE TO ALL TAXPAYERS.—In determining the amount of the alternative minimum taxable income for 

any taxable year the following treatment shall apply (in lieu of the 

treatment applicable for purposes of computing the regular tax): 

(1) DEPRECIATION.— 

(A) * * * 

(B) EXCEPTION FOR CERTAIN PROPERTY.—This paragraph 

shall not apply to property described in paragraph (1), (2), 

(3), or (4) of section 168(f), or in section 168(e)(3)(C)(iv). 

* * * * * * * 

PART IV—TAX EXEMPTION REQUIREMENTS FOR STATE 

AND LOCAL BONDS 

* * * * * * * 

67 

Subpart A—Private Activity bonds 

* * * * * * * 

SEC. 141. PRIVATE ACTIVITY BOND; QUALIFIED BOND 

(a) * * * 

* * * * * * * 

(c) PRIVATE LOAN FINANCING TEST.— 

(1) * * * 

(2) EXCEPTION FOR TAX ASSESSMENT, ETC., LOANS.—For purposes of paragraph (1), a loan is described in this paragraph 

if such loan— 

(A) enables the borrower to finance any governmental 

tax or assessment of general application for a specific essential governmental function, øor¿ 

(B) is a nonpurpose investment (within the meaning of 

section 148(f)(6)(A))ø.¿, or 

(C) is a qualified natural gas supply contract (as defined 

in section 148(b)(4)). 

(d) CERTAIN ISSUES USED TO ACQUIRE NONGOVERNMENTAL OUTPUT PROPERTY TREATED AS PRIVATE ACTIVITY BONDS.— 

(1) * * * 

* * * * * * * 

(7) EXCEPTION FOR QUALIFIED ELECTRIC AND NATURAL GAS

SUPPLY CONTRACTS.—The term ‘‘nongovernmental output property’’ shall not include any contract for the prepayment of electricity or natural gas which is not investment property under 

section 148(b)(2). 

* * * * * * * 

Subpart B—Requirements Applicable to All State and Local 

Bonds 

* * * * * * * 

SEC. 148. ARBITRAGE. 

(a) * * * 

(b) HIGHER YIELDING INVESTMENTS.—For purposes of this section— 

(1) * * * 

* * * * * * * 

(4) SAFE HARBOR FOR PREPAID NATURAL GAS.— 

(A) IN GENERAL.—The term ‘‘investment-type property’’ 

does not include a prepayment under a qualified natural 

gas supply contract. 

(B) QUALIFIED NATURAL GAS SUPPLY CONTRACT.—For 

purposes of this paragraph, the term ‘‘qualified natural gas 

supply contract’’ means any contract to acquire natural gas 

for resale by a utility owned by a governmental unit if the 

amount of gas permitted to be acquired under the contract 

by the utility during any year does not exceed the sum of— 

(i) the annual average amount during the testing period of natural gas purchased (other than for resale) by 

customers of such utility who are located within the 

service area of such utility, and 

68 

(ii) the amount of natural gas to be used to transport 

the prepaid natural gas to the utility during such year. 

(C) NATURAL GAS USED TO GENERATE ELECTRICITY.—Natural gas used to generate electricity shall be taken into account in determining the average under subparagraph 

(B)(i)— 

(i) only if the electricity is generated by a utility 

owned by a governmental unit, and 

(ii) only to the extent that the electricity is sold (other 

than for resale) to customers of such utility who are located within the service area of such utility. 

(D) ADJUSTMENTS FOR CHANGES IN CUSTOMER BASE.— 

(i) NEW BUSINESS CUSTOMERS.—If— 

(I) after the close of the testing period and before 

the date of issuance of the issue, the utility owned 

by a governmental unit enters into a contract to 

supply natural gas (other than for resale) for a 

business use at a property within the service area 

of such utility, and 

(II) the utility did not supply natural gas to such 

property during the testing period or the ratable 

amount of natural gas to be supplied under the 

contract is significantly greater than the ratable 

amount of gas supplied to such property during 

the testing period, 

then a contract shall not fail to be treated as a qualified natural gas supply contract by reason of supplying 

the additional natural gas under the contract referred 

to in subclause (I). 

(ii) LOST CUSTOMERS.—The average under subparagraph (B)(i) shall not exceed the annual amount of natural gas reasonably expected to be purchased (other 

than for resale) by persons who are located within the 

service area of such utility and who, as of the date of 

issuance of the issue, are customers of such utility. 

(E) RULING REQUESTS.—The Secretary may increase the 

average under subparagraph (B)(i) for any period if the 

utility owned by the governmental unit establishes to the 

satisfaction of the Secretary that, based on objective evidence of growth in natural gas consumption or population, 

such average would otherwise be insufficient for such period. 

(F) ADJUSTMENT FOR NATURAL GAS OTHERWISE ON

HAND.— 

(i) IN GENERAL.—The amount otherwise permitted to 

be acquired under the contract for any period shall be 

reduced by— 

(I) the applicable share of natural gas held by 

the utility on the date of issuance of the issue, and 

(II) the natural gas (not taken into account 

under subclause (I)) which the utility has a right 

to acquire during such period (determined as of 

the date of issuance of the issue). 

(ii) APPLICABLE SHARE.—For purposes of the clause 

(i), the term ‘‘applicable share’’ means, with respect to 

69 

any period, the natural gas allocable to such period if 

the gas were allocated ratably over the period to which 

the prepayment relates. 

(G) INTENTIONAL ACTS.—Subparagraph (A) shall cease to 

apply to any issue if the utility owned by the governmental 

unit engages in any intentional act to render the volume of 

natural gas acquired by such prepayment to be in excess of 

the sum of— 

(i) the amount of natural gas needed (other than for 

resale) by customers of such utility who are located 

within the service area of such utility, and 

(ii) the amount of natural gas used to transport such 

natural gas to the utility. 

(H) TESTING PERIOD.—For purposes of this paragraph, 

the term ‘‘testing period’’ means, with respect to an issue, 

the most recent 5 calendar years ending before the date of 

issuance of the issue. 

(I) SERVICE AREA.—For purposes of this paragraph, the 

service area of a utility owned by a governmental unit shall 

be comprised of— 

(i) any area throughout which such utility provided 

at all times during the testing period— 

(I) in the case of a natural gas utility, natural 

gas transmission or distribution services, and 

(II) in the case of an electric utility, electricity 

distribution services, 

(ii) any area within a county contiguous to the area 

described in clause (i) in which retail customers of 

such utility are located if such area is not also served 

by another utility providing natural gas or electricity 

services, as the case may be, and 

(iii) any area recognized as the service area of such 

utility under State or Federal law. 

* * * * * * * 

PART VI—ITEMIZED DEDUCTIONS FOR INDIVIDUALS 

AND CORPORATIONS 

* * * * * * * 

SEC. 167. DEPRECIATION. 

(a) * * * 

* * * * * * * 

(h) AMORTIZATION OF DELAY RENTAL PAYMENTS FOR DOMESTIC

OIL AND GAS WELLS.— 

(1) IN GENERAL.—Any delay rental payment paid or incurred 

in connection with the development of oil or gas wells within 

the United States (as defined in section 638) shall be allowed 

as a deduction ratably over the 24-month period beginning on 

the date that such payment was paid or incurred. 

(2) HALF-YEAR CONVENTION.—For purposes of paragraph (1), 

any payment paid or incurred during the taxable year shall be 

treated as paid or incurred on the mid-point of such taxable 

year. 

70 

(3) EXCLUSIVE METHOD.—Except as provided in this subsection, no depreciation or amortization deduction shall be allowed with respect to such payments. 

(4) TREATMENT UPON ABANDONMENT.—If any property to 

which a delay rental payment relates is retired or abandoned 

during the 24-month period described in paragraph (1), no deduction shall be allowed on account of such retirement or abandonment and the amortization deduction under this subsection 

shall continue with respect to such payment. 

(5) DELAY RENTAL PAYMENTS.—For purposes of this subsection, the term ‘‘delay rental payment’’ means an amount paid 

for the privilege of deferring development of an oil or gas well 

under an oil or gas lease. 

(i) AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDI- TURES.— 

(1) IN GENERAL.—Any geological and geophysical expenses 

paid or incurred in connection with the exploration for, or development of, oil or gas within the United States (as defined in 

section 638) shall be allowed as a deduction ratably over the 

24-month period beginning on the date that such expense was 

paid or incurred. 

(2) SPECIAL RULES.—For purposes of this subsection, rules 

similar to the rules of paragraphs (2), (3), and (4) of subsection 

(h) shall apply. 

ø(h)¿ (j) CROSS REFERENCES.— 

(1) * * * 

* * * * * * * 

SEC. 168. ACCELERATED COST RECOVERY SYSTEM. 

(a) * * * 

* * * * * * * 

(e) CLASSIFICATION OF PROPERTY.—For purposes of this section— 

(1) * * * 

* * * * * * * 

(3) CLASSIFICATION OF CERTAIN PROPERTY.— 

(A) * * * 

* * * * * * * 

(C) 7-year property.—The term ‘‘7-year property’’ includes— 

(i) * * * 

* * * * * * * 

(iii) any Alaska natural gas pipeline, øand¿ 

(iv) any natural gas gathering line, and 

ø(iv)¿ (v) any property which— 

(I) does not have a class life, and 

(II) is not otherwise classified under paragraph 

(2) or this paragraph. 

* * * * * * * 

(E) 15-year property.—The term ‘‘15-year property’’ includes— 

(i) * * * 

* * * * * * * 

71 

(v) any qualified restaurant property placed in service before January 1, 2006, øand¿ 

(vi) initial clearing and grading land improvements 

with respect to gas utility propertyø.¿, (vii) any natural gas distribution line, and 

(viii) any section 1245 property (as defined in section 

1245(a)(3)) used in the transmission at 69 or more kilovolts of electricity for sale and the original use of which 

commences with the taxpayer after April 11, 2005. 

* * * * * * * 

(g) ALTERNATIVE DEPRECIATION SYSTEM FOR CERTAIN PROPERTY.— 

(1) * * * 

* * * * * * * 

(3) SPECIAL RULES FOR DETERMINING CLASS LIFE.— 

(A) * * * 

(B) SPECIAL RULE FOR CERTAIN PROPERTY ASSIGNED TO

CLASSES.—For purposes of paragraph (2), in the case of 

property described in any of the following subparagraphs 

of subsection (e)(3), the class life shall be determined as 

follows: 

If property is described The class 

in subparagraph: life is: 

(A)(iii) ...................................................................................................................... 4

(B)(ii) ....................................................................................................................... 5

(B)(iii) ...................................................................................................................... 9.5

(C)(i) ........................................................................................................................ 10

(C)(iii) ...................................................................................................................... 22

(C)(iv) ...................................................................................................................... 14

(D)(i) ........................................................................................................................ 15

(D)(ii) ....................................................................................................................... 20

(E)(i) ........................................................................................................................ 24

(E)(ii) ....................................................................................................................... 24

(E)(iii) ...................................................................................................................... 20

(E)(iv) ...................................................................................................................... 39

(E)(v) ....................................................................................................................... 39

(E)(vi) ...................................................................................................................... 20

(E)(vii) ..................................................................................................................... 35

(E)(viii) .................................................................................................................... 30

(F) ............................................................................................................................ 25. 

* * * * * * * 

(i) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— 

(1) * * * 

* * * * * * * 

(17) NATURAL GAS GATHERING LINE.—The term ‘‘natural gas 

gathering line’’ means— 

(A) the pipe, equipment, and appurtenances determined 

to be a gathering line by the Federal Energy Regulatory 

Commission, and 

(B) the pipe, equipment, and appurtenances used to deliver natural gas from the wellhead or a commonpoint to 

the point at which such gas first reaches— 

(i) a gas processing plant, 

(ii) an interconnection with a transmission pipeline 

for which a certificate as an interstate transmission 

72 

pipeline has been issued by the Federal Energy Regulatory Commission, 

(iii) an interconnection with an intrastate transmission pipeline, or 

(iv) a direct interconnection with a local distribution 

company, a gas storage facility, or an industrial consumer. 

* * * * * * * 

SEC. 169. AMORTIZATION OF POLLUTION CONTROL FACILITIES. 

(a) * * * 

* * * * * * * 

(d) DEFINITIONS.—For purposes of this section— 

(1) * * * 

* * * * * * * 

(3) FEDERAL CERTIFYING AUTHORITY.—The term ‘‘Federal certifying authority’’ means, in the case of water pollution, the 

Secretary of the Interior and, in the case of air pollution, the 

Secretary of øHealth, Education, and Welfare¿ Health and 

Human Services. 

(4) NEW IDENTIFIABLE TREATMENT FACILITY.— 

(A) * * * 

ø(B) Certain plants, etc., placed in operation after 

1968In the case of any treatment facility used in connection with any plant or other property not in operation before January 1, 1969, the preceding sentence shall be applied by substituting December 31, 1975, for December 31, 

1968.¿ 

(B) CERTAIN FACILITIES PLACED IN OPERATION AFTER

APRIL 11, 2005.—In the case of any facility described in 

paragraph (1) solely by reason of paragraph (5), subparagraph (A) shall be applied by substituting ‘‘April 11, 2005’’ 

for ‘‘December 31, 1968’’ each place it appears therein. 

(5) SPECIAL RULE RELATING TO CERTAIN ATMOSPHERIC POLLU- TION CONTROL FACILITIES.—In the case of any atmospheric pollution control facility which is placed in service after April 11, 

2005, and used in connection with an electric generation plant 

or other property which is primarily coal fired, paragraph (1) 

shall be applied without regard to the phrase ‘‘in operation before January 1, 1976’’. 

* * * * * * * 

PART IX—ITEMS NOT DEDUCTIBLE 

* * * * * * * 

SEC. 263A. CAPITALIZATION AND INCLUSION IN INVENTORY COSTS OF 

CERTAIN EXPENSES. 

(a) * * * 

* * * * * * * 

(c) GENERAL EXCEPTIONS.— 

(1) * * * 

* * * * * * * 

73 

(3) CERTAIN DEVELOPMENT AND OTHER COSTS OF OIL AND GAS

WELLS OR OTHER MINERAL PROPERTY.—This section shall not 

apply to any cost allowable as a deduction under section 

167(h), 167(i), 179B, 263(c), 263(i), 291(b)(2), 616, or 617. 

* * * * * * * 

Subchapter E—Accounting Periods and Methods 

of Accounting 

* * * * * * * 

PART II—METHODS OF ACCOUNTING 

* * * * * * * 

Subpart A—Methods of Accounting in General 

* * * * * * * 

SEC. 468A. SPECIAL RULES FOR NUCLEAR DECOMMISSIONING COSTS. 

(a) * * * 

ø(b) LIMITATION ON AMOUNTS PAID INTO FUND.—The amount 

which a taxpayer may pay into the Fund for any taxable year shall 

not exceed the lesser of— 

ø(1) the amount of nuclear decommissioning costs allocable 

to the Fund which is included in the taxpayer’s cost of service 

for ratemaking purposes for such taxable year, or 

ø(2) the ruling amount applicable to such taxable year.¿ 

(b) LIMITATION ON AMOUNTS PAID INTO FUND.—The amount 

which a taxpayer may pay into the Fund for any taxable year shall 

not exceed the ruling amount applicable to such taxable year. 

* * * * * * * 

(d) RULING AMOUNT.—For purposes of this section— 

(1) REQUEST REQUIRED.—No deduction shall be allowed for 

any payment to the Fund unless the taxpayer requests, and receives, from the Secretary a schedule of ruling amounts. 

(2) RULING AMOUNT.—The term ‘‘ruling amount’’ means, with 

respect to any taxable year, the amount which the Secretary 

determines under paragraph (1) to be necessary to— 

ø(A) fund that portion of the nuclear decommissioning 

costs of the taxpayer with respect to the nuclear power 

plant which bears the same ratio to the total nuclear decommissioning costs with respect to such nuclear power 

plant as the period for which the Fund is in effect bears 

to the estimated useful life of such nuclear power plant, 

and¿ 

(A) fund the total nuclear decommissioning costs with respect to such power plant over the estimated useful life of 

such power plant, and 

* * * * * * * 

(e) NUCLEAR DECOMMISSIONING RESERVE FUND.— 

(1) * * * 

(2) TAXATION OF FUND.— 

(A) IN GENERAL.—There is hereby imposed on the gross 

income of the Fund for any taxable year a tax at the ørate 

74 

set forth in subparagraph (B)¿ rate of 20 percent, except 

that— 

(i) * * * 

* * * * * * * 

ø(B) RATE OF TAX.—For purposes of subparagraph (A), 

the rate set forth in this subparagraph is— 

ø(i) 22 percent in the case of taxable years beginning 

in calendar year 1994 or 1995, and 

ø(ii) 20 percent in the case of taxable years beginning after December 31, 1995.¿ 

ø(C)¿ (B) TAX IN LIEU OF OTHER TAXATION.—The tax imposed by subparagraph (A) shall be in lieu of any other 

taxation under this subtitle of the income from assets in 

the Fund. 

ø(D)¿ (C) FUND TREATED AS CORPORATION.—For purposes of subtitle F— 

(i) * * * 

* * * * * * * 

(f) TRANSFERS INTO QUALIFIED FUNDS.— 

(1) IN GENERAL.—Notwithstanding subsection (b), any taxpayer maintaining a Fund to which this section applies with respect to a nuclear power plant may transfer into such Fund not 

more than an amount equal to the present value of the portion 

of the total nuclear decommissioning costs with respect to such 

nuclear power plant previously excluded for such nuclear power 

plant under subsection (d)(2)(A) as in effect immediately before 

the date of the enactment of the Enhanced Energy Infrastructure and Technology Tax Act of 2005. 

(2) DEDUCTION FOR AMOUNTS TRANSFERRED.— 

(A) IN GENERAL.—Except as provided in subparagraph 

(C), the deduction allowed by subsection (a) for any transfer 

permitted by this subsection shall be allowed ratably over 

the remaining estimated useful life (within the meaning of 

subsection (d)(2)(A)) of the nuclear power plant beginning 

with the taxable year during which the transfer is made. 

(B) DENIAL OF DEDUCTION FOR PREVIOUSLY DEDUCTED

AMOUNTS.—No deduction shall be allowed for any transfer 

under this subsection of an amount for which a deduction 

was previously allowed to the taxpayer (or a predecessor) or 

a corresponding amount was not included in gross income 

of the taxpayer (or a predecessor). For purposes of the preceding sentence, a ratable portion of each transfer shall be 

treated as being from previously deducted or excluded 

amounts to the extent thereof. 

(C) TRANSFERS OF QUALIFIED FUNDS.—If— 

(i) any transfer permitted by this subsection is made 

to any Fund to which this section applies, and 

(ii) such Fund is transferred thereafter, 

any deduction under this subsection for taxable years ending after the date that such Fund is transferred shall be allowed to the transferor for the taxable year which includes 

such date. 

(D) SPECIAL RULES.— 

75 

(i) GAIN OR LOSS NOT RECOGNIZED ON TRANSFERS TO

FUND.—No gain or loss shall be recognized on any 

transfer described in paragraph (1). 

(ii) TRANSFERS OF APPRECIATED PROPERTY TO

FUND.—If appreciated property is transferred in a 

transfer described in paragraph (1), the amount of the 

deduction shall not exceed the adjusted basis of such 

property. 

(3) NEW RULING AMOUNT REQUIRED.—Paragraph (1) shall not 

apply to any transfer unless the taxpayer requests from the Secretary a new schedule of ruling amounts in connection with 

such transfer. 

(4) NO BASIS IN QUALIFIED FUNDS.—Notwithstanding any 

other provision of law, the taxpayer’s basis in any Fund to 

which this section applies shall not be increased by reason of 

any transfer permitted by this subsection. 

ø(f)¿ (g) NUCLEAR POWER PLANT.—For purposes of this section, 

the term ‘‘nuclear power plant’’ includes any unit thereof. 

ø(g)¿ (h) TIME WHEN PAYMENTS DEEMED MADE.—For purposes of 

this section, a taxpayer shall be deemed to have made a payment 

to the Fund on the last day of a taxable year if such payment is 

made on account of such taxable year and is made within 2-1/2 

months after the close of such taxable year. 

* * * * * * * 

Subchapter I—Natural Resources 

* * * * * * * 

PART I—DEDUCTIONS 

* * * * * * * 

SEC. 613A. LIMITATIONS ON PERCENTAGE DEPLETION IN CASE OF OIL 

AND GAS WELLS. 

(a) * * * 

* * * * * * * 

(c) EXEMPTION FOR INDEPENDENT PRODUCERS AND ROYALTY OWNERS.— 

(1) * * * 

* * * * * * * 

(6) OIL AND NATURAL GAS PRODUCED FROM MARGINAL PROPERTIES.— 

(A) * * * 

* * * * * * * 

(C) APPLICABLE PERCENTAGE.—For purposes of subparagraph (A), the term ‘‘applicable percentage’’ means the percentage (not greater than 25 percent) equal to the sum 

of— 

(i) * * * 

* * * * * * * 

For purposes of this paragraph, the term ‘‘reference price’’ 

means, with respect to any calendar year, the reference 

76 

price determined for such calendar year under øsection 

29(d)(2)(C)¿ section 45J(d)(2)(C). 

* * * * * * * 

(d) LIMITATIONS ON APPLICATION OF SUBSECTION (C).— 

(1) * * * 

* * * * * * * 

ø(4) CERTAIN REFINERS EXCLUDED.—If the taxpayer or a related person engages in the refining of crude oil, subsection (c) 

shall not apply to such taxpayer if on any day during the taxable year the refinery runs of the taxpayer and such person exceed 50,000 barrels.¿ 

(4) CERTAIN REFINERS EXCLUDED.—If the taxpayer or 1 or 

more related persons engages in the refining of crude oil, subsection (c) shall not apply to the taxpayer for a taxable year if 

the average daily refinery runs of the taxpayer and such persons for the taxable year exceed 75,000 barrels. For purposes of 

this paragraph, the average daily refinery runs for any taxable 

year shall be determined by dividing the aggregate refinery 

runs for the taxable year by the number of days in the taxable 

year. 

* * * * * * * 

Subchapter K—Partners and Partnerships 

* * * * * * * 

PART IV—SPECIAL RULES FOR ELECTING LARGE 

PARTNERSHIPS 

* * * * * * * 

SEC. 772. SIMPLIFIED FLOW-THROUGH. 

(a) GENERAL RULE.—In determining the income tax of a partner 

of an electing large partnership, such partner shall take into account separately such partner’s distributive share of the partnership’s— 

(1) * * * 

* * * * * * * 

(9) foreign income taxes, and 

ø(10) the credit allowable under section 29, and¿ 

ø(11)¿ (10) other items to the extent that the Secretary determines that the separate treatment of such items is appropriate. 

* * * * * * * 

(d) OPERATING RULES.—For purposes of this section— 

(1) * * * 

* * * * * * * 

(5) GENERAL CREDITS.—The term ‘‘general credits’’ means 

any credit other than the low-income housing credit, the rehabilitation credit, øthe foreign tax credit, and the credit allowable under section 29¿ and the foreign tax credit. 

* * * * * * * 

77 

Subchapter N—Tax Based on Income from 

Sources Within or Without the United States 

* * * * * * * 

PART III—INCOME FROM SOURCES WITHOUT THE 

UNITED STATES 

* * * * * * * 

Subpart A—Foreign tax credit 

* * * * * * * 

SEC. 904. LIMITATION ON CREDIT. 

(a) * * * 

* * * * * * * 

(i) COORDINATION WITH NONREFUNDABLE PERSONAL CREDITS.—In 

the case of an individual, for purposes of subsection (a), the tax 

against which the credit is taken is such tax reduced by the sum 

of the credits allowable under subpart A of part IV of subchapter 

A of this chapter (other than sections 23, 24, øand 25B¿ 25B, 25C, 

and 25D). This subsection shall not apply to taxable years beginning during 2000, 2001, 2002, 2003, 2004, or 2005. 

* * * * * * * 

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) * * * 

* * * * * * * 

(30) to the extent provided in section 179B(c), øand¿ 

(31) in the case of a facility with respect to which a credit 

was allowed under section 45H, to the extent provided in section 45H(d)ø.¿, 

(32) to the extent provided in section 25C(e), in the case of 

amounts with respect to which a credit has been allowed under 

section 25C, 

(33) to the extent provided in section 30B(f)(1), and 

(34) to the extent provided in section 25D(f), in the case of 

amounts with respect to which a credit has been allowed under 

section 25D. 

* * * * * * * 

78 

Subchapter W—District of Columbia Enterprise 

Zone 

* * * * * * * 

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

(a) * * * 

* * * * * * * 

(d) CARRYOVER OF CREDIT.—If the credit allowable under subsection (a) exceeds the limitation imposed by section 26(a) 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, øand 25B¿ 25B, 25C, and 25D, such excess shall 

be carried to the succeeding taxable year and added to the credit 

allowable under subsection (a) for such taxable year. 

* * * * * * * 

Subtitle D—Miscellaneous Excise Taxes 

* * * * * * * 

CHAPTER 32—MANUFACTURERS EXCISE 

TAXES 

* * * * * * * 

Subchapter A—Automotive and Related Items 

* * * * * * * 

PART III—PETROLEUM PRODUCTS 

* * * * * * * 

Subpart A—Gasoline and Diesel Fuel 

* * * * * * * 

SEC. 4081. IMPOSITION OF TAX. 

(a) TAX IMPOSED.— 

(1) * * * 

(2) RATES OF TAX.— 

(A) * * * 

* * * * * * * 

(D) DIESEL-WATER FUEL EMULSION.—In the case of dieselwater fuel emulsion at least 16.9 percent of which is water 

and with respect to which the emulsion additive is registered by a United States manufacturer with the Environmental Protection Agency pursuant to section 211 of the 

Clean Air Act (as in effect on March 31, 2003), subparagraph (A)(iii) shall be applied by substituting ‘‘19.7 cents’’ 

for ‘‘24.3 cents’’. 

* * * * * * * 

79 

(c) LATER SEPARATION OF FUEL FROM DIESEL-WATER FUEL

EMULSION.—If any person separates the taxable fuel from a dieselwater fuel emulsion on which tax was imposed under subsection (a) 

at a rate determined under subsection (a)(2)(D) (or with respect to 

which a credit or payment was allowed or made by reason of section 

6427), such person shall be treated as the refiner of such taxable 

fuel. The amount of tax imposed on any removal of such fuel by 

such person shall be reduced by the amount of tax imposed (and not 

credited or refunded) on any prior removal or entry of such fuel. 

Subtitle F—Procedure and Administration 

* * * * * * * 

CHAPTER 65—ABATEMENTS, CREDITS, AND 

REFUNDS 

* * * * * * * 

Subchapter B—Rules for Special Application 

* * * * * * * 

SEC. 6427. FUELS NOT USED FOR TAXABLE PURPOSES. 

(a) * * * 

* * * * * * * 

(m) DIESEL FUEL USED TO PRODUCE EMULSION.— 

(1) IN GENERAL.—Except as provided in subsection (k), if any 

diesel fuel on which tax was imposed by section 4081 at the regular tax rate is used by any person in producing an emulsion 

described in section 4081(a)(2)(D) which is sold or used in such 

person’s trade or business, the Secretary shall pay (without interest) to such person an amount equal to the excess of the regular tax rate over the incentive tax rate with respect to such 

fuel. 

(2) DEFINITIONS.—For purposes of paragraph (1)— 

(A) REGULAR TAX RATE.—The term ‘‘regular tax rate’’ 

means the aggregate rate of tax imposed by section 4081 determined without regard to section 4081(a)(2)(D). 

(B) INCENTIVE TAX RATE.—The term ‘‘incentive tax rate’’ 

means the aggregate rate of tax imposed by section 4081 determined with regard to section 4081(a)(2)(D). 

ø(m)¿ (n) REGULATIONS.—The Secretary may by regulations prescribe the conditions, not inconsistent with the provisions of this 

section, under which payments may be made under this section. 

ø(n)¿ (o) PAYMENTS FOR TAXES IMPOSED BY SECTION 4041(D).— 

For purposes of subsections (a), (b), and (c), the taxes imposed by 

section 4041(d) shall be treated as imposed by section 4041(a). 

ø(o)¿ (p) GASOHOL USED IN NONCOMMERCIAL AVIATION.—Except 

as provided in subsection (k), if— 

(1) * * * 

* * * * * * * 

80 

ø(p)¿ (q) CROSS REFERENCES.— (1) FOR CIVIL PENALTY FOR EXCESSIVE CLAIMS UNDER THIS SECTION, SEE

SECTION 6675

* * * * * * * 

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(f)(6), 40(f), 43, 45B, 45C(d)(4), or 

51(j) (or any revocation thereof) shall not expire before the date 1 

year after the date on which the Secretary is notified of such election (or revocation). 

* * * * * * * 

Æ