IB 

Union Calendar No. 41

108TH CONGRESS 

1ST SESSION H. R. 1531

[Report No. 108–67] 

To amend the Internal Revenue Code of 1986 to enhance energy conservation 

and to provide for reliability and diversity in the energy supply for 

the American people, and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 1, 2003

Mr. MCCRERY introduced the following bill; which was referred to the 

Committee on Ways and Means 

APRIL 9, 2003

Reported with an amendment, committed to the Committee of the Whole 

House on the State of the Union, and ordered to be printed 

[Strike out all after the enacting clause and insert the part printed in italic] 

[For text of introduced bill, see copy of bill as introduced on April 1, 2003] 

A BILL

To amend the Internal Revenue Code of 1986 to enhance 

energy conservation and to provide for reliability and 

diversity in the energy supply for the American people, 

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,
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1 SECTION 1. SHORT TITLE. 

2 (a) SHORT TITLE.—This Act may be cited as the ‘‘En3 ergy Tax Policy Act of 2003’’. 

4 (b) AMENDMENT OF 1986 CODE.—Except as otherwise 

5 expressly provided, whenever in this Act an amendment or 

6 repeal is expressed in terms of an amendment to, or repeal 

7 of, a section or other provision, the reference shall be consid8 ered to be made to a section or other provision of the Inter9 nal Revenue Code of 1986. 

10 (c) TABLE OF CONTENTS.—

Sec. 1. Short title. 

TITLE I—CONSERVATION 

Sec. 101. Credit for residential solar energy property. 

Sec. 102. Extension and expansion of credit for electricity produced from renewable resources. 

Sec. 103. Credit for qualified fuel cell power plants. 

Sec. 104. Credit for energy efficiency improvements to existing homes. 

Sec. 105. Business credit for construction of new energy efficient home. 

Sec. 106. Energy credit for combined heat and power system property. 

Sec. 107. New nonrefundable personal credits allowed against regular and minimum taxes. 

Sec. 108. Repeal of 4.3-cent motor fuel excise taxes on railroads and inland waterway transportation which remain in general fund. 

Sec. 109. Reduced motor fuel excise tax on certain mixtures of diesel fuel. 

Sec. 110. Repeal of phaseouts for qualified electric vehicle credit and deduction 

for clean fuel-vehicles. 

Sec. 111. Alternative motor vehicle credit. 

TITLE II—RELIABILITY 

Sec. 201. Natural gas gathering lines treated as 7-year property. 

Sec. 202. Natural gas distribution lines treated as 15-year property. 

Sec. 203. Electric transmission property treated as 15-year property. 

Sec. 204. Expensing of capital costs incurred in complying with Environmental 

Protection Agency sulfur regulations. 

Sec. 205. Credit for production of low sulfur diesel fuel. 

Sec. 206. Determination of small refiner exception to oil depletion deduction. 

Sec. 207. Sales or dispositions to implement Federal Energy Regulatory Commission or State electric restructuring policy. 

Sec. 208. Modifications to special rules for nuclear decommissioning costs. 

Sec. 209. Treatment of certain income of cooperatives. 

Sec. 210. Arbitrage rules not to apply to prepayments for natural gas. 

Sec. 211. Prepayment of premium liability for coal industry health benefits. 
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TITLE III—PRODUCTION 

Sec. 301. Oil and gas from marginal wells. 

Sec. 302. Temporary suspension of limitation based on 65 percent of taxable income and extension of suspension of taxable income limit with 

respect to marginal production. 

Sec. 303. Amortization of delay rental payments. 

Sec. 304. Amortization of geological and geophysical expenditures. 

Sec. 305. Extension and modification of credit for producing fuel from a nonconventional source. 

Sec. 306. Business related energy credits allowed against regular and minimum 

tax. 

Sec. 307. Temporary repeal of alternative minimum tax preference for intangible 

drilling costs. 

Sec. 308. Allowance of enhanced recovery credit against the alternative minimum 

tax. 

TITLE IV—CORPORATE EXPATRIATION 

Sec. 401. Tax treatment of corporate expatriation. 

Sec. 402. Expressing the sense of the Congress that tax reform is needed to address 

the issue of corporate expatriation.

1 TITLE I—CONSERVATION 

2 SEC. 101. CREDIT FOR RESIDENTIAL SOLAR ENERGY PROP3 ERTY. 

4 (a) IN GENERAL.—Subpart A of part IV of subchapter 

5 A of chapter 1 (relating to nonrefundable personal credits) 

6 is amended by inserting after section 25B the following new 

7 section: 

8 ‘‘SEC. 25C. RESIDENTIAL SOLAR ENERGY PROPERTY. 

9 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an indi10 vidual, there shall be allowed as a credit against the tax 

11 imposed by this chapter for the taxable year an amount 

12 equal to the sum of—

13 ‘‘(1) 15 percent of the qualified photovoltaic 

14 property expenditures made by the taxpayer during 

15 such year, and 
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1 ‘‘(2) 15 percent of the qualified solar water heat2 ing property expenditures made by the taxpayer dur3 ing the taxable year. 

4 ‘‘(b) LIMITATIONS.—

5 ‘‘(1) MAXIMUM CREDIT.—The credit allowed 

6 under subsection (a) shall not exceed—

7 ‘‘(A) $2,000 for each system of property de8 scribed in subsection (c)(1), and 

9 ‘‘(B) $2,000 for each system of property de10 scribed in subsection (c)(2). 

11 ‘‘(2) SAFETY CERTIFICATIONS.—No credit shall 

12 be allowed under this section for an item of property 

13 unless—

14 ‘‘(A) in the case of solar water heating 

15 equipment, such equipment is certified for per16 formance and safety by the non-profit Solar Rat17 ing Certification Corporation or a comparable 

18 entity endorsed by the government of the State in 

19 which such property is installed, and 

20 ‘‘(B) in the case of a photovoltaic system, 

21 such system meets appropriate fire and electric 

22 code requirements. 

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

24 ‘‘(1) QUALIFIED SOLAR WATER HEATING PROP25 ERTY EXPENDITURE.—The term ‘qualified solar water 
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1 heating property expenditure’ means an expenditure 

2 for property to heat water for use in a dwelling unit 

3 located in the United States and used as a residence 

4 if at least half of the energy used by such property 

5 for such purpose is derived from the sun. 

6 ‘‘(2) QUALIFIED PHOTOVOLTAIC PROPERTY EX7 PENDITURE.—The term ‘qualified photovoltaic prop8 erty expenditure’ means an expenditure for property 

9 which uses solar energy to generate electricity for use 

10 in a dwelling unit. 

11 ‘‘(3) SOLAR PANELS.—No expenditure relating to 

12 a solar panel or other property installed as a roof (or 

13 portion thereof) shall fail to be treated as property de14 scribed in paragraph (1) or (2) solely because it con15 stitutes a structural component of the structure on 

16 which it is installed. 

17 ‘‘(4) LABOR COSTS.—Expenditures for labor 

18 costs properly allocable to the onsite preparation, as19 sembly, or original installation of the property de20 scribed in paragraph (1) or (2) and for piping or 

21 wiring to interconnect such property to the dwelling 

22 unit shall be taken into account for purposes of this 

23 section. 

24 ‘‘(5) SWIMMING POOLS, ETC., USED AS STORAGE

25 MEDIUM.—Expenditures which are properly allocable
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1 to a swimming pool, hot tub, or any other energy 

2 storage medium which has a function other than the 

3 function of such storage shall not be taken into ac4 count for purposes of this section. 

5 ‘‘(d) SPECIAL RULES.—

6 ‘‘(1) DOLLAR AMOUNTS IN CASE OF JOINT OCCU7 PANCY.—In the case of any dwelling unit which is 

8 jointly occupied and used during any calendar year 

9 as a residence by 2 or more individuals the following 

10 shall apply: 

11 ‘‘(A) The amount of the credit allowable 

12 under subsection (a) by reason of expenditures 

13 made during such calendar year by any of such 

14 individuals with respect to such dwelling unit 

15 shall be determined by treating all of such indi16 viduals as 1 taxpayer whose taxable year is such 

17 calendar year. 

18 ‘‘(B) There shall be allowable with respect to 

19 such expenditures to each of such individuals, a 

20 credit under subsection (a) for the taxable year 

21 in which such calendar year ends in an amount 

22 which bears the same ratio to the amount deter23 mined under subparagraph (A) as the amount of 

24 such expenditures made by such individual dur25 ing such calendar year bears to the aggregate of 
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1 such expenditures made by all of such individ2 uals during such calendar year. 

3 ‘‘(C) Subparagraphs (A) and (B) shall be 

4 applied separately with respect to qualified solar 

5 water heating property expenditures and quali6 fied photovoltaic property expenditures. 

7 ‘‘(2) TENANT-STOCKHOLDER IN COOPERATIVE

8 HOUSING CORPORATION.—In the case of an indi9 vidual who is a tenant-stockholder (as defined in sec10 tion 216) in a cooperative housing corporation (as de11 fined in such section), such individual shall be treated 

12 as having made his tenant-stockholder’s proportionate 

13 share (as defined in section 216(b)(3)) of any expend14 itures of such corporation. 

15 ‘‘(3) CONDOMINIUMS.—

16 ‘‘(A) IN GENERAL.—In the case of an indi17 vidual who is a member of a condominium man18 agement association with respect to a condo19 minium which he owns, such individual shall be 

20 treated as having made his proportionate share 

21 of any expenditures of such association. 

22 ‘‘(B) CONDOMINIUM MANAGEMENT ASSOCIA23 TION.—For purposes of this paragraph, the term 

24 ‘condominium management association’ means 

25 an organization which meets the requirements of 
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1 paragraph (1) of section 528(c) (other than sub2 paragraph (E) thereof) with respect to a condo3 minium project substantially all of the units of 

4 which are used as residences. 

5 ‘‘(4) ALLOCATION IN CERTAIN CASES.—If less 

6 than 80 percent of the use of an item is for nonbusi7 ness purposes, only that portion of the expenditures 

8 for such item which is properly allocable to use for 

9 nonbusiness purposes shall be taken into account. 

10 ‘‘(5) WHEN EXPENDITURE MADE; AMOUNT OF

11 EXPENDITURE.—

12 ‘‘(A) IN GENERAL.—Except as provided in 

13 subparagraph (B), an expenditure with respect 

14 to an item shall be treated as made when the 

15 original installation of the item is completed. 

16 ‘‘(B) EXPENDITURES PART OF BUILDING

17 CONSTRUCTION.—In the case of an expenditure 

18 in connection with the construction or recon19 struction of a structure, such expenditure shall be 

20 treated as made when the original use of the con21 structed or reconstructed structure by the tax22 payer begins. 

23 ‘‘(C) AMOUNT.—The amount of any expend24 iture shall be the cost thereof. 
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1 ‘‘(6) PROPERTY FINANCED BY SUBSIDIZED EN2 ERGY FINANCING.—For purposes of determining the 

3 amount of expenditures made by any individual with 

4 respect to any dwelling unit, there shall not be taken 

5 into account expenditures which are made from sub6 sidized energy financing (as defined in section 

7 48(a)(4)(A)). 

8 ‘‘(e) BASIS ADJUSTMENTS.—For purposes of this sub9 title, if a credit is allowed under this section for any ex10 penditure with respect to any property, the increase in the 

11 basis of such property which would (but for this subsection) 

12 result from such expenditure shall be reduced by the amount 

13 of the credit so allowed. 

14 ‘‘(f) TERMINATION.—The credit allowed under this sec15 tion shall not apply to taxable years beginning after Decem16 ber 31, 2006 (December 31, 2008, with respect to qualified 

17 photovoltaic property expenditures).’’. 

18 (b) CONFORMING AMENDMENTS.—

19 (1) Subsection (a) of section 1016 is amended by 

20 striking ‘‘and’’ at the end of paragraph (27), by strik21 ing the period at the end of paragraph (28) and in22 serting ‘‘, and’’, and by adding at the end the fol23 lowing new paragraph: 
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1 ‘‘(29) to the extent provided in section 25C(e), in 

2 the case of amounts with respect to which a credit has 

3 been allowed under section 25C.’’. 

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

5 of subchapter A of chapter 1 is amended by inserting 

6 after the item relating to section 25B the following 

7 new item:

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

8 (c) EFFECTIVE DATE.—The amendments made by this 

9 section shall apply to taxable years ending after December 

10 31, 2003. 

11 SEC. 102. EXTENSION AND EXPANSION OF CREDIT FOR 

12 ELECTRICITY PRODUCED FROM RENEWABLE 

13 RESOURCES. 

14 (a) EXTENSION OF CREDIT FOR WIND AND CLOSED15 LOOP BIOMASS FACILITIES.—Subparagraphs (A) and (B) 

16 of section 45(c)(3) are each amended by striking ‘‘2004’’ 

17 and inserting ‘‘2007’’. 

18 (b) EXPANSION OF CREDIT FOR OPEN-LOOP BIOMASS, 

19 LANDFILL GAS FACILITIES, AND TRASH COMBUSTION FA20 CILITIES.—Paragraph (3) of section 45(c) is amended by 

21 adding at the end the following new subparagraphs: 

22 ‘‘(D) OPEN-LOOP BIOMASS FACILITIES.—In 

23 the case of a facility using open-loop biomass to 

24 produce electricity, the term ‘qualified facility’ 

25 means any facility owned by the taxpayer which
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1 is originally placed in service before January 1, 

2 2007. 

3 ‘‘(E) LANDFILL GAS FACILITIES.—In the 

4 case of a facility producing electricity from gas 

5 derived from the biodegradation of municipal 

6 solid waste, the term ‘qualified facility’ means 

7 any facility owned by the taxpayer which is 

8 originally placed in service before January 1, 

9 2007. 

10 ‘‘(F) TRASH COMBUSTION FACILITIES.—In 

11 the case of a facility which burns municipal 

12 solid waste to produce electricity, the term 

13 ‘qualified facility’ means any facility owned by 

14 the taxpayer which is originally placed in serv15 ice after the date of the enactment of this sub16 paragraph and before January 1, 2007.’’. 

17 (c) DEFINITION AND SPECIAL RULES.—Subsection (c) 

18 of section 45 is amended by adding at the end the following 

19 new paragraphs: 

20 ‘‘(5) OPEN-LOOP BIOMASS.—The term ‘open-loop 

21 biomass’ means any solid, nonhazardous, cellulosic 

22 waste material which is segregated from other waste 

23 materials and which is derived from—
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1 ‘‘(A) any of the following forest-related re2 sources: mill residues, precommercial thinnings, 

3 slash, and brush, 

4 ‘‘(B) solid wood waste materials, including 

5 waste pallets, crates, dunnage, manufacturing 

6 and construction wood wastes (other than pres7 sure-treated, chemically-treated, or painted wood 

8 wastes), and landscape or right-of-way tree trim9 mings, but not including municipal solid waste 

10 (garbage), gas derived from the biodegradation of 

11 solid waste, or paper that is commonly recycled, 

12 or 

13 ‘‘(C) agriculture sources, including orchard 

14 tree crops, vineyard, grain, legumes, sugar, and 

15 other crop by-products or residues. 

16 Such term shall not include closed-loop biomass. 

17 ‘‘(6) REDUCED CREDIT FOR CERTAIN

18 PREEFFECTIVE DATE FACILITIES.—In the case of any 

19 facility described in subparagraph (D) or (E) of 

20 paragraph (3) which is placed in service before the 

21 date of the enactment of this paragraph—

22 ‘‘(A) subsection (a)(1) shall be applied by 

23 substituting ‘1.0 cents’ for ‘1.5 cents’, and 

24 ‘‘(B) the 5-year period beginning on the 

25 date of the enactment of this paragraph shall be 
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1 substituted in lieu of the 10-year period in sub2 section (a)(2)(A)(ii). 

3 ‘‘(7) CREDIT ELIGIBILITY FOR OPEN-LOOP BIO4 MASS FACILITIES.—In the case of any facility de5 scribed in paragraph (3)(D) which is placed in serv6 ice before the date of enactment of this paragraph, if 

7 the owner of such facility is not the producer of the 

8 electricity, the person eligible for the credit allowable 

9 under subsection (a) is the lessee or the operator of 

10 such facility. 

11 ‘‘(8) LIMIT ON REDUCTIONS FOR GRANTS, ETC., 

12 FOR OPEN-LOOP BIOMASS FACILITIES.—If the amount 

13 of the credit determined under subsection (a) with re14 spect to any open-loop biomass facility is required to 

15 be reduced under paragraph (3) of subsection (b), the 

16 fraction under such paragraph shall in no event be 

greater than 1 17 ⁄2. 

18 ‘‘(9) COORDINATION WITH SECTION 29.—The 

19 term ‘qualified facility’ shall not include any facility 

20 the production from which is allowed as a credit 

21 under section 29 for the taxable year or any prior 

22 taxable year.’’. 

23 (d) QUALIFIED ENERGY RESOURCES.—Paragraph (1) 

24 of section 45(c) (relating to qualified energy resources) is 

25 amended to read as follows: 
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1 ‘‘(1) QUALIFIED ENERGY RESOURCES.—The term 

2 ‘qualified energy resources’ means any resource de3 scribed in paragraph (3) which is used to generate 

4 electricity at a qualified facility.’’. 

5 (e) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to electricity sold after the date of the 

7 enactment of this Act, in taxable years ending after such 

8 date. 

9 SEC. 103. CREDIT FOR QUALIFIED FUEL CELL POWER 

10 PLANTS. 

11 (a) BUSINESS PROPERTY.—

12 (1) IN GENERAL.—Subparagraph (A) of section 

13 48(a)(3) (defining energy property) is amended by 

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

15 at the end of clause (ii), and by inserting after clause 

16 (ii) the following new clause: 

17 ‘‘(iii) equipment which is part of a 

18 qualified fuel cell power plant,’’. 

19 (2) QUALIFIED FUEL CELL POWER PLANT.—Sub20 section (a) of section 48 is amended by redesignating 

21 paragraphs (4) and (5) as paragraphs (5) and (6), 

22 respectively, and by inserting after paragraph (3) the 

23 following new paragraph: 

24 ‘‘(4) QUALIFIED FUEL CELL POWER PLANT.—For 

25 purposes of this subsection—
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1 ‘‘(A) IN GENERAL.—The term ‘qualified fuel 

2 cell power plant’ means a fuel cell power plant 

3 that has an electricity-only generation efficiency 

4 greater than 30 percent. 

5 ‘‘(B) LIMITATION.—The energy credit with 

6 respect to any qualified fuel cell power plant for 

7 any taxable year shall not exceed—

‘‘(i) $500 for each 1 8 ⁄2 kilowatt of ca9 pacity of the power plant, reduced by 

10 ‘‘(ii) the aggregate energy credits al11 lowed with respect to such power plant for 

12 all prior taxable years. 

13 ‘‘(C) FUEL CELL POWER PLANT.—The term 

14 ‘fuel cell power plant’ means an integrated sys15 tem comprised of a fuel cell stack assembly and 

16 associated balance of plant components that con17 verts a fuel into electricity using electrochemical 

18 means. 

19 ‘‘(D) TERMINATION.—Such term shall not 

20 include any property placed in service after De21 cember 31, 2006.’’. 

22 (3) EFFECTIVE DATE.—The amendments made 

23 by this subsection shall apply to property placed in 

24 service after December 31, 2003, under rules similar 

25 to the rules of section 48(m) of the Internal Revenue
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1 Code of 1986 (as in effect on the day before the date 

2 of the enactment of the Revenue Reconciliation Act 

3 of 1990). 

4 (b) NONBUSINESS PROPERTY.—

5 (1) IN GENERAL.—Subpart A of part IV of sub6 chapter A of chapter 1 (relating to nonrefundable per7 sonal credits) is amended by inserting after section 

8 25C the following new section: 

9 ‘‘SEC. 25D. NONBUSINESS QUALIFIED FUEL CELL POWER 

10 PLANT. 

11 ‘‘(a) IN GENERAL.—In the case of an individual, there 

12 shall be allowed as a credit against the tax imposed by this 

13 chapter for the taxable year an amount equal to 10 percent 

14 of the qualified fuel cell power plant expenditures which are 

15 paid or incurred during such year. 

16 ‘‘(b) LIMITATIONS.—The credit allowed under sub17 section (a) with respect to any qualified fuel cell power 

18 plant for any taxable year shall not exceed—

‘‘(1) $500 for each 1 19 ⁄2 kilowatt of capacity of the 

20 power plant, reduced by 

21 ‘‘(2) the aggregate energy credits allowed with re22 spect to such power plant for all prior taxable years. 

23 ‘‘(c) QUALIFIED FUEL CELL POWER PLANT EXPENDI24 TURES.—For purposes of this section, the term ‘qualified 

25 fuel cell power plant expenditures’ means expenditures by 
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1 the taxpayer for any qualified fuel cell power plant (as de2 fined in section 48(a)(4))—

3 ‘‘(1) which meets the requirements of subpara4 graphs (B) and (D) of section 48(a)(3), and 

5 ‘‘(2) which is installed on or in connection with 

6 a dwelling unit—

7 ‘‘(A) which is located in the United States, 

8 and 

9 ‘‘(B) which is used by the taxpayer as a res10 idence. 

11 Such term includes expenditures for labor costs properly al12 locable to the onsite preparation, assembly, or original in13 stallation of the property. 

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

15 rules similar to the rules of section 25C(d) shall apply. 

16 ‘‘(e) BASIS ADJUSTMENTS.—For purposes of this sub17 title, if a credit is allowed under this section for any ex18 penditure with respect to any property, the increase in the 

19 basis of such property which would (but for this subsection) 

20 result from such expenditure shall be reduced by the amount 

21 of the credit so allowed. 

22 ‘‘(f) TERMINATION.—This section shall not apply to 

23 any expenditure made after December 31, 2006.’’. 

24 (2) CONFORMING AMENDMENTS.—
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1 (A) Subsection (a) of section 1016 is 

2 amended by striking ‘‘and’’ at the end of para3 graph (28), by striking the period at the end of 

4 paragraph (29) and inserting ‘‘, and’’, and by 

5 adding at the end the following new paragraph: 

6 ‘‘(30) to the extent provided in section 25D(e), in 

7 the case of amounts with respect to which a credit has 

8 been allowed under section 25D.’’. 

9 (B) The table of sections for subpart A of 

10 part IV of subchapter A of chapter 1 is amended 

11 by inserting after the item relating to section 

12 25C the following new item:

‘‘Sec. 25D. Nonbusiness qualified fuel cell power plant.’’.

13 (3) EFFECTIVE DATE.—The amendments made 

14 by this subsection shall apply to expenditures paid or 

15 incurred after December 31, 2003, in taxable years 

16 ending after such date. 

17 SEC. 104. CREDIT FOR ENERGY EFFICIENCY IMPROVE18 MENTS TO EXISTING HOMES. 

19 (a) IN GENERAL.—Subpart A of part IV of subchapter 

20 A of chapter 1 (relating to nonrefundable personal credits) 

21 is amended by inserting after section 25D the following new 

22 section: 
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1 ‘‘SEC. 25E. ENERGY EFFICIENCY IMPROVEMENTS TO EXIST2 ING HOMES. 

3 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of an indi4 vidual, there shall be allowed as a credit against the tax 

5 imposed by this chapter for the taxable year an amount 

6 equal to 20 percent of the amount paid or incurred by the 

7 taxpayer for qualified energy efficiency improvements in8 stalled during such taxable year. 

9 ‘‘(b) LIMITATIONS.—

10 ‘‘(1) MAXIMUM CREDIT.—The credit allowed by 

11 this section with respect to a dwelling shall not exceed 

12 $2,000. 

13 ‘‘(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER ON

14 SAME DWELLING TAKEN INTO ACCOUNT.—If a credit 

15 was allowed to the taxpayer under subsection (a) with 

16 respect to a dwelling in 1 or more prior taxable years, 

17 the amount of the credit otherwise allowable for the 

18 taxable year with respect to that dwelling shall not 

19 exceed the amount of $2,000 reduced by the sum of the 

20 credits allowed under subsection (a) to the taxpayer 

21 with respect to the dwelling for all prior taxable 

22 years. 

23 ‘‘(c) CARRYFORWARD OF UNUSED CREDIT.—If the 

24 credit allowable under subsection (a) exceeds the limitation 

25 imposed by section 26(a) for such taxable year reduced by 

26 the sum of the credits allowable under this subpart (other 
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1 than this section) for such taxable year, such excess shall 

2 be carried to the succeeding taxable year and added to the 

3 credit allowable under subsection (a) for such succeeding 

4 taxable year. 

5 ‘‘(d) QUALIFIED ENERGY EFFICIENCY IMPROVE6 MENTS.—For purposes of this section, the term ‘qualified 

7 energy efficiency improvements’ means any energy efficient 

8 building envelope component which meets the prescriptive 

9 criteria for such component established by the 2000 Inter10 national Energy Conservation Code (or, in the case of metal 

11 roofs with appropriate pigmented coatings, meets the En12 ergy Star program requirements), if—

13 ‘‘(1) such component is installed in or on a 

14 dwelling—

15 ‘‘(A) located in the United States, and 

16 ‘‘(B) owned and used by the taxpayer as the 

17 taxpayer’s principal residence (within the mean18 ing of section 121), 

19 ‘‘(2) the original use of such component com20 mences with the taxpayer, and 

21 ‘‘(3) such component reasonably can be expected 

22 to remain in use for at least 5 years. 

23 If the aggregate cost of such components with respect to any 

24 dwelling exceeds $1,000, such components shall be treated 

25 as qualified energy efficiency improvements only if such
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1 components are also certified in accordance with subsection 

2 (e) as meeting such criteria. 

3 ‘‘(e) CERTIFICATION.—The certification described in 

4 subsection (d) shall be—

5 ‘‘(1) determined on the basis of the technical 

6 specifications or applicable ratings (including prod7 uct labeling requirements) for the measurement of en8 ergy efficiency, based upon energy use or building en9 velope component performance, for the energy efficient 

10 building envelope component, 

11 ‘‘(2) provided by a local building regulatory au12 thority, a utility, a manufactured home production 

13 inspection primary inspection agency (IPIA), or an 

14 accredited home energy rating system provider who is 

15 accredited by or otherwise authorized to use approved 

16 energy performance measurement methods by the Res17 idential Energy Services Network (RESNET), and 

18 ‘‘(3) made in writing in a manner that specifies 

19 in readily verifiable fashion the energy efficient build20 ing envelope components installed and their respective 

21 energy efficiency levels. 

22 ‘‘(f) DEFINITIONS AND SPECIAL RULES.—

23 ‘‘(1) TENANT-STOCKHOLDER IN COOPERATIVE

24 HOUSING CORPORATION.—In the case of an indi25 vidual who is a tenant-stockholder (as defined in sec-
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1 tion 216) in a cooperative housing corporation (as de2 fined in such section), such individual shall be treated 

3 as having paid his tenant-stockholder’s proportionate 

4 share (as defined in section 216(b)(3)) of the cost of 

5 qualified energy efficiency improvements made by 

6 such corporation. 

7 ‘‘(2) CONDOMINIUMS.—

8 ‘‘(A) IN GENERAL.—In the case of an indi9 vidual who is a member of a condominium man10 agement association with respect to a condo11 minium which he owns, such individual shall be 

12 treated as having paid his proportionate share of 

13 the cost of qualified energy efficiency improve14 ments made by such association. 

15 ‘‘(B) CONDOMINIUM MANAGEMENT ASSOCIA16 TION.—For purposes of this paragraph, the term 

17 ‘condominium management association’ means 

18 an organization which meets the requirements of 

19 paragraph (1) of section 528(c) (other than sub20 paragraph (E) thereof) with respect to a condo21 minium project substantially all of the units of 

22 which are used as residences. 

23 ‘‘(3) BUILDING ENVELOPE COMPONENT.—The 

24 term ‘building envelope component’ means insulation 

25 material or system which is specifically and pri-
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1 marily designed to reduce the heat loss or gain of a 

2 dwelling when installed in or on such dwelling, exte3 rior windows (including skylights) and doors, and 

4 metal roofs with appropriate pigmented coatings 

5 which are specifically and primarily designed to re6 duce the heat gain of a dwelling when installed in or 

7 on such dwelling. 

8 ‘‘(4) MANUFACTURED HOMES INCLUDED.—For 

9 purposes of this section, the term ‘dwelling’ includes 

10 a manufactured home which conforms to Federal 

11 Manufactured Home Construction and Safety Stand12 ards (section 3280 of title 24, Code of Federal Regula13 tions, as in effect on April 3, 2003). 

14 ‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub15 title, if a credit is allowed under this section for any ex16 penditure with respect to any property, the increase in the 

17 basis of such property which would (but for this subsection) 

18 result from such expenditure shall be reduced by the amount 

19 of the credit so allowed. 

20 ‘‘(h) APPLICATION OF SECTION.—This section shall 

21 apply to qualified energy efficiency improvements installed 

22 after December 31, 2003, and before January 1, 2007.’’. 

23 (b) CONFORMING AMENDMENTS.—
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1 (1) Subsection (c) of section 23 is amended by 

2 striking ‘‘section 1400C’’ and inserting ‘‘sections 25E 

3 and 1400C’’. 

4 (2) Subsection (a) of section 1016 is amended by 

5 striking ‘‘and’’ at the end of paragraph (29), by strik6 ing the period at the end of paragraph (30) and in7 serting ‘‘, and’’, and by adding at the end the fol8 lowing new paragraph: 

9 ‘‘(31) to the extent provided in section 25E(g), in 

10 the case of amounts with respect to which a credit has 

11 been allowed under section 25E.’’. 

12 (3) Subsection (d) of section 1400C is amended 

13 by inserting ‘‘and section 25E’’ after ‘‘this section’’. 

14 (4) The table of sections for subpart A of part IV 

15 of subchapter A of chapter 1 is amended by inserting 

16 after the item relating to section 25D the following 

17 new item:

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

18 (c) EFFECTIVE DATE.—The amendments made by this 

19 section shall apply to taxable years ending after December 

20 31, 2003. 

21 SEC. 105. BUSINESS CREDIT FOR CONSTRUCTION OF NEW 

22 ENERGY EFFICIENT HOME. 

23 (a) IN GENERAL.—Subpart D of part IV of subchapter 

24 A of chapter 1 (relating to business related credits) is 
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1 amended by inserting after section 45F the following new 

2 section: 

3 ‘‘SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT. 

4 ‘‘(a) IN GENERAL.—For purposes of section 38, in the 

5 case of an eligible contractor, the credit determined under 

6 this section for the taxable year is an amount equal to the 

7 aggregate adjusted bases of all energy efficient property in8 stalled in a qualified new energy efficient home during con9 struction of such home. 

10 ‘‘(b) LIMITATIONS.—

11 ‘‘(1) MAXIMUM CREDIT.—

12 ‘‘(A) IN GENERAL.—The credit allowed by 

13 this section with respect to a dwelling shall not 

14 exceed $2,000. 

15 ‘‘(B) PRIOR CREDIT AMOUNTS ON SAME

16 DWELLING TAKEN INTO ACCOUNT.—If a credit 

17 was allowed under subsection (a) with respect to 

18 a dwelling in 1 or more prior taxable years, the 

19 amount of the credit otherwise allowable for the 

20 taxable year with respect to that dwelling shall 

21 not exceed the amount of $2,000 reduced by the 

22 sum of the credits allowed under subsection (a) 

23 with respect to the dwelling for all prior taxable 

24 years.
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1 ‘‘(2) COORDINATION WITH REHABILITATION AND

2 ENERGY CREDITS.—For purposes of this section—

3 ‘‘(A) the basis of any property referred to in 

4 subsection (a) shall be reduced by that portion of 

5 the basis of any property which is attributable to 

6 qualified rehabilitation expenditures (as defined 

7 in section 47(c)(2)) or to the energy percentage 

8 of energy property (as determined under section 

9 48(a)), and 

10 ‘‘(B) expenditures taken into account under 

11 either section 47 or 48(a) shall not be taken into 

12 account under this section. 

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

14 ‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligible 

15 contractor’ means the person who constructed the new 

16 energy efficient home, or in the case of a manufac17 tured home which conforms to Federal Manufactured 

18 Home Construction and Safety Standards (section 

19 3280 of title 24, Code of Federal Regulations, as in 

20 effect on April 3, 2003), the manufactured home pro21 ducer of such home. 

22 ‘‘(2) ENERGY EFFICIENT PROPERTY.—The term 

23 ‘energy efficient property’ means any energy efficient 

24 building envelope component, and any energy effi25 cient heating or cooling appliance. 
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1 ‘‘(3) QUALIFIED NEW ENERGY EFFICIENT

2 HOME.—The term ‘qualified new energy efficient 

3 home’ means a dwelling—

4 ‘‘(A) located in the United States, 

5 ‘‘(B) the construction of which is substan6 tially completed after December 31, 2003, 

7 ‘‘(C) the original use of which is as a prin8 cipal residence (within the meaning of section 

9 121) which commences with the person who ac10 quires such dwelling from the eligible contractor, 

11 and 

12 ‘‘(D) which is certified to have a level of an13 nual heating and cooling energy consumption 

14 that is at least 30 percent below the annual level 

15 of heating and cooling energy consumption of a 

16 comparable dwelling constructed in accordance 

17 with the standards of the 2000 International En18 ergy Conservation Code and to have building envelope component improvements account for 1 19 ⁄3

20 of such 30 percent. 

21 ‘‘(4) CONSTRUCTION.—The term ‘construction’ 

22 includes reconstruction and rehabilitation. 

23 ‘‘(5) ACQUIRE.—The term ‘acquire’ includes pur24 chase and, in the case of reconstruction and rehabili-
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1 tation, such term includes a binding written contract 

2 for such reconstruction or rehabilitation. 

3 ‘‘(6) BUILDING ENVELOPE COMPONENT.—The 

4 term ‘building envelope component’ means insulation 

5 material or system which is specifically and pri6 marily designed to reduce the heat loss or gain of a 

7 dwelling when installed in or on such dwelling, exte8 rior windows (including skylights) and doors, and 

9 metal roofs with appropriate pigmented coatings 

10 which are specifically and primarily designed to re11 duce the heat gain of a dwelling when installed in or 

12 on such dwelling. 

13 ‘‘(7) MANUFACTURED HOME INCLUDED.—The 

14 term ‘dwelling’ includes a manufactured home con15 forming to Federal Manufactured Home Construction 

16 and Safety Standards (section 3280 of title 24, Code 

17 of Federal Regulations, as in effect on April 3, 2003). 

18 ‘‘(d) CERTIFICATION.—

19 ‘‘(1) METHOD.—A certification described in sub20 section (c)(3)(D) shall be determined on the basis of 

21 one of the following methods: 

22 ‘‘(A) The technical specifications or appli23 cable ratings (including product labeling require24 ments) for the measurement of energy efficiency 

25 for the energy efficient building envelope compo-
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1 nent or energy efficient heating or cooling appli2 ance, based upon energy use or building envelope 

3 component performance. 

4 ‘‘(B) An energy performance measurement 

5 method that utilizes computer software approved 

6 by organizations designated by the Secretary. 

7 ‘‘(2) PROVIDER.—Such certification shall be pro8 vided by—

9 ‘‘(A) in the case of a method described in 

10 paragraph (1)(A), a local building regulatory 

11 authority, a utility, a manufactured home pro12 duction inspection primary inspection agency 

13 (IPIA), or an accredited home energy rating sys14 tems provider who is accredited by, or otherwise 

15 authorized to use, approved energy performance 

16 measurement methods by the Home Energy Rat17 ings Systems Council or the National Associa18 tion of State Energy Officials, or 

19 ‘‘(B) in the case of a method described in 

20 paragraph (1)(B), an individual recognized by 

21 an organization designated by the Secretary for 

22 such purposes. 

23 ‘‘(3) FORM.—Such certification shall be made in 

24 writing in a manner that specifies in readily 

25 verifiable fashion the energy efficient building enve-
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1 lope components and energy efficient heating or cool2 ing appliances installed and their respective energy 

3 efficiency levels, and in the case of a method described 

4 in subparagraph (B) of paragraph (1), accompanied 

5 by written analysis documenting the proper applica6 tion of a permissible energy performance measure7 ment method to the specific circumstances of such 

8 dwelling. 

9 ‘‘(4) REGULATIONS.—

10 ‘‘(A) IN GENERAL.—In prescribing regula11 tions under this subsection for energy perform12 ance measurement methods, the Secretary shall 

13 prescribe procedures for calculating annual en14 ergy costs for heating and cooling and cost sav15 ings and for the reporting of the results. Such 

16 regulations shall—

17 ‘‘(i) be based on the National Home 

18 Energy Rating Technical Guidelines of the 

19 National Association of State Energy Offi20 cials, the Home Energy Rating Guidelines 

21 of the Home Energy Rating Systems Coun22 cil, or the modified 2001 California Resi23 dential ACM manual, 

24 ‘‘(ii) provide that any calculation pro25 cedures be developed such that the same en-
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1 ergy efficiency measures allow a home to 

2 qualify for the credit under this section re3 gardless of whether the house uses a gas or 

4 oil furnace or boiler or an electric heat 

5 pump, and 

6 ‘‘(iii) require that any computer soft7 ware allow for the printing of the Federal 

8 tax forms necessary for the credit under this 

9 section and explanations for the homebuyer 

10 of the energy efficient features that were 

11 used to comply with the requirements of this 

12 section. 

13 ‘‘(B) PROVIDERS.—For purposes of para14 graph (2)(B), the Secretary shall establish re15 quirements for the designation of individuals 

16 based on the requirements for energy consultants 

17 and home energy raters specified by the National 

18 Association of State Energy Officials. 

19 ‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub20 title, if a credit is determined under this section for any 

21 expenditure with respect to any property, the increase in 

22 the basis of such property which would (but for this sub23 section) result from such expenditure shall be reduced by 

24 the amount of the credit so determined. 
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1 ‘‘(f) APPLICATION OF SECTION.—Subsection (a) shall 

2 apply to dwellings purchased during the period beginning 

3 on January 1, 2004, and ending on December 31, 2006.’’. 

4 (b) CREDIT MADE PART OF GENERAL BUSINESS

5 CREDIT.—Subsection (b) of section 38 (relating to current 

6 year business credit) is amended by striking ‘‘plus’’ at the 

7 end of paragraph (14), by striking the period at the end 

8 of paragraph (15) and inserting ‘‘, plus’’, and by adding 

9 at the end thereof the following new paragraph: 

10 ‘‘(16) the new energy efficient home credit deter11 mined under section 45G.’’. 

12 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C (re13 lating to certain expenses for which credits are allowable) 

14 is amended by adding at the end thereof the following new 

15 subsection: 

16 ‘‘(d) NEW ENERGY EFFICIENT HOME EXPENSES.—No 

17 deduction shall be allowed for that portion of expenses for 

18 a new energy efficient home otherwise allowable as a deduc19 tion for the taxable year which is equal to the amount of 

20 the credit determined for such taxable year under section 

21 45G.’’. 

22 (d) LIMITATION ON CARRYBACK.—Subsection (d) of 

23 section 39 is amended by adding at the end the following 

24 new paragraph: 
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1 ‘‘(11) NO CARRYBACK OF NEW ENERGY EFFI2 CIENT HOME CREDIT BEFORE EFFECTIVE DATE.—No 

3 portion of the unused business credit for any taxable 

4 year which is attributable to the credit determined 

5 under section 45G may be carried back to any taxable 

6 year ending before January 1, 2004.’’. 

7 (e) DEDUCTION FOR CERTAIN UNUSED BUSINESS

8 CREDITS.—Subsection (c) of section 196 is amended by 

9 striking ‘‘and’’ at the end of paragraph (9), by striking the 

10 period at the end of paragraph (10) and inserting ‘‘, and’’, 

11 and by adding after paragraph (10) the following new 

12 paragraph: 

13 ‘‘(11) the new energy efficient home credit deter14 mined under section 45G.’’. 

15 (f) CLERICAL AMENDMENT.—The table of sections for 

16 subpart D of part IV of subchapter A of chapter 1 is amend17 ed by inserting after the item relating to section 45F the 

18 following new item:

‘‘Sec. 45G. New energy efficient home credit.’’.

19 (g) EFFECTIVE DATE.—The amendments made by this 

20 section shall apply to taxable years ending after December 

21 31, 2003. 

22 SEC. 106. ENERGY CREDIT FOR COMBINED HEAT AND 

23 POWER SYSTEM PROPERTY. 

24 (a) IN GENERAL.—Subparagraph (A) of section 

25 48(a)(3) (defining energy property) is amended by striking 
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1 ‘‘or’’ at the end of clause (ii), by adding ‘‘or’’ at the end 

2 of clause (iii), and by inserting after clause (iii) the fol3 lowing new clause: 

4 ‘‘(iv) combined heat and power system 

5 property,’’. 

6 (b) COMBINED HEAT AND POWER SYSTEM PROP7 ERTY.—Subsection (a) of section 48 is amended by redesig8 nating paragraphs (5) and (6) as paragraphs (6) and (7), 

9 respectively, and by inserting after paragraph (4) the fol10 lowing new paragraph: 

11 ‘‘(5) COMBINED HEAT AND POWER SYSTEM PROP12 ERTY.—For purposes of this subsection—

13 ‘‘(A) COMBINED HEAT AND POWER SYSTEM

14 PROPERTY.—The term ‘combined heat and power 

15 system property’ means property comprising a 

16 system—

17 ‘‘(i) which uses the same energy source 

18 for the simultaneous or sequential genera19 tion of electrical power, mechanical shaft 

20 power, or both, in combination with the 

21 generation of steam or other forms of useful 

22 thermal energy (including heating and cool23 ing applications), 

24 ‘‘(ii) which has an electrical capacity 

25 of more than 50 kilowatts or a mechanical
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1 energy capacity of more than 67 horsepower 

2 or an equivalent combination of electrical 

3 and mechanical energy capacities, 

4 ‘‘(iii) which produces—

5 ‘‘(I) at least 20 percent of its total 

6 useful energy in the form of thermal 

7 energy, and 

8 ‘‘(II) at least 20 percent of its 

9 total useful energy in the form of elec10 trical or mechanical power (or com11 bination thereof), 

12 ‘‘(iv) the energy efficiency percentage 

13 of which exceeds 60 percent (70 percent in 

14 the case of a system with an electrical ca15 pacity in excess of 50 megawatts or a me16 chanical energy capacity in excess of 67,000 

17 horsepower, or an equivalent combination of 

18 electrical and mechanical energy capac19 ities), and 

20 ‘‘(v) which is placed in service after 

21 December 31, 2003, and before January 1, 

22 2007. 

23 ‘‘(B) SPECIAL RULES.—

24 ‘‘(i) ENERGY EFFICIENCY PERCENT25 AGE.—For purposes of subparagraph 
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1 (A)(iv), the energy efficiency percentage of a 

2 system is the fraction—

3 ‘‘(I) the numerator of which is the 

4 total useful electrical, thermal, and me5 chanical power produced by the system 

6 at normal operating rates, and 

7 ‘‘(II) the denominator of which is 

8 the lower heating value of the primary 

9 fuel source for the system. 

10 ‘‘(ii) DETERMINATIONS MADE ON BTU

11 BASIS.—The energy efficiency percentage 

12 and the percentages under subparagraph 

13 (A)(iii) shall be determined on a Btu basis. 

14 ‘‘(iii) INPUT AND OUTPUT PROPERTY

15 NOT INCLUDED.—The term ‘combined heat 

16 and power system property’ does not in17 clude property used to transport the energy 

18 source to the facility or to distribute energy 

19 produced by the facility. 

20 ‘‘(iv) PUBLIC UTILITY PROPERTY.—

21 ‘‘(I) ACCOUNTING RULE FOR PUB22 LIC UTILITY PROPERTY.—If the com23 bined heat and power system property 

24 is public utility property (as defined 

25 in section 168(i)(1)), the taxpayer may 
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1 only claim the credit under the sub2 section if, with respect to such prop3 erty, the taxpayer uses a normalization 

4 method of accounting. 

5 ‘‘(II) CERTAIN EXCEPTION NOT TO

6 APPLY.—The matter in paragraph (3) 

7 which follows subparagraph (D) shall 

8 not apply to combined heat and power 

9 system property. 

10 ‘‘(C) EXTENSION OF DEPRECIATION RECOV11 ERY PERIOD.—If a taxpayer is allowed credit 

12 under this section for combined heat and power 

13 system property and such property would (but 

14 for this subparagraph) have a class life of 15 

15 years or less under section 168, such property 

16 shall be treated as having a 22-year class life for 

17 purposes of section 168.’’. 

18 (c) NO CARRYBACK OF ENERGY CREDIT BEFORE EF19 FECTIVE DATE.—Subsection (d) of section 39 is amended 

20 by adding at the end the following new paragraph: 

21 ‘‘(12) NO CARRYBACK OF ENERGY CREDIT BE22 FORE EFFECTIVE DATE.—No portion of the unused 

23 business credit for any taxable year which is attrib24 utable to the energy credit with respect to property 
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1 described in section 48(a)(5) may be carried back to 

2 a taxable year ending before January 1, 2004.’’. 

3 (d) EFFECTIVE DATE.—The amendments made by this 

4 section shall apply to property placed in service after De5 cember 31, 2003, in taxable years ending after such date. 

6 SEC. 107. NEW NONREFUNDABLE PERSONAL CREDITS AL7 LOWED AGAINST REGULAR AND MINIMUM 

8 TAXES. 

9 (a) IN GENERAL.—

10 (1) SECTION 25C.—Section 25C(b), as added by 

11 section 101, is amended by adding at the end the fol12 lowing new paragraph: 

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

14 The credit allowed under subsection (a) for the tax15 able year shall not exceed the excess of—

16 ‘‘(A) the sum of the regular tax liability (as 

17 defined in section 26(b)) plus the tax imposed by 

18 section 55, over 

19 ‘‘(B) the sum of the credits allowable under 

20 this subpart (other than this section and section 

21 25D and 25E) and section 27 for the taxable 

22 year.’’. 

23 (2) SECTION 25D.—Section 25D(b), as added by 

24 section 103, is amended to read as follows: 

25 ‘‘(b) LIMITATIONS.—
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1 ‘‘(1) IN GENERAL.—The credit allowed under 

2 subsection (a) with respect to any qualified fuel cell 

3 power plant for any taxable year shall not exceed—

‘‘(A) $500 for each 1 4 ⁄2 kilowatt of capacity 

5 of the power plant, reduced by 

6 ‘‘(B) the aggregate energy credits allowed 

7 with respect to such power plant for all prior 

8 taxable years. 

9 ‘‘(2) LIMITATION BASED ON AMOUNT OF TAX.—

10 The credit allowed under subsection (a) for the tax11 able year shall not exceed the excess of—

12 ‘‘(A) the sum of the regular tax liability (as 

13 defined in section 26(b)) plus the tax imposed by 

14 section 55, over 

15 ‘‘(B) the sum of the credits allowable under 

16 this subpart (other than this section and section 

17 25E) and section 27 for the taxable year.’’. 

18 (3) SECTION 25E.—Section 25E(b), as added by 

19 section 104, is amended by adding at the end the fol20 lowing new paragraph: 

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

22 The credit allowed under subsection (a) for the tax23 able year shall not exceed the excess of—
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1 ‘‘(A) the sum of the regular tax liability (as 

2 defined in section 26(b)) plus the tax imposed by 

3 section 55, over 

4 ‘‘(B) the sum of the credits allowable under 

5 this subpart (other than this section) and section 

6 27 for the taxable year.’’. 

7 (b) CONFORMING AMENDMENTS.—

8 (1) Section 23(b)(4)(B) is amended by inserting 

9 ‘‘and sections 25C, 25D, and 25E’’ after ‘‘this sec10 tion’’. 

11 (2) Section 24(b)(3)(B) is amended by striking 

12 ‘‘and 25B’’ and inserting ‘‘, 25B, 25C, 25D, and 

13 25E’’. 

14 (3) Section 25(e)(1)(C) is amended by inserting 

15 ‘‘25C, 25D, and 25E’’ after ‘‘25B,’’. 

16 (4) Section 25B(g)(2) is amended by striking 

17 ‘‘section 23’’ and inserting ‘‘sections 23, 25C, 25D, 

18 and 25E’’. 

19 (5) Section 25E(c), as added by section 104, is 

20 amended by striking ‘‘section 26(a) for such taxable 

21 year reduced by the sum of the credits allowable 

22 under this subpart (other than this section)’’ and in23 serting ‘‘subsection (b)(3)’’. 

24 (6) Section 26(a)(1) is amended by striking 

25 ‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’. 
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1 (7) Section 904(h) is amended by striking ‘‘and 

2 25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’. 

3 (8) Section 1400C(d) is amended by striking 

4 ‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’. 

5 (c) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to taxable years beginning after Decem7 ber 31, 2003. 

8 SEC. 108. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES 

9 ON RAILROADS AND INLAND WATERWAY 

10 TRANSPORTATION WHICH REMAIN IN GEN11 ERAL FUND. 

12 (a) TAXES ON TRAINS.—

13 (1) IN GENERAL.—Subparagraph (A) of section 

14 4041(a)(1) is amended by striking ‘‘or a diesel-pow15 ered train’’ each place it appears and by striking ‘‘or 

16 train’’. 

17 (2) CONFORMING AMENDMENTS.—

18 (A) Subparagraph (C) of section 4041(a)(1) 

19 is amended by striking clause (ii) and by redes20 ignating clause (iii) as clause (ii). 

21 (B) Subparagraph (C) of section 4041(b)(1) 

22 is amended by striking all that follows ‘‘section 

23 6421(e)(2)’’ and inserting a period. 

24 (C) Subsection (d) of section 4041 is 

25 amended by redesignating paragraph (3) as 
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1 paragraph (4) and by inserting after paragraph 

2 (2) the following new paragraph: 

3 ‘‘(3) DIESEL FUEL USED IN TRAINS.—There is 

4 hereby imposed a tax of 0.1 cent per gallon on any 

5 liquid other than gasoline (as defined in section 

6 4083)—

7 ‘‘(A) sold by any person to an owner, lessee, 

8 or other operator of a diesel-powered train for 

9 use as a fuel in such train, or 

10 ‘‘(B) used by any person as a fuel in a die11 sel-powered train unless there was a taxable sale 

12 of such fuel under subparagraph (A). 

13 No tax shall be imposed by this paragraph on the sale 

14 or use of any liquid if tax was imposed on such liq15 uid under section 4081.’’. 

16 (D) Subsection (f) of section 4082 is amend17 ed by striking ‘‘section 4041(a)(1)’’ and inserting 

18 ‘‘subsections (d)(3) and (a)(1) of section 4041, 

19 respectively’’. 

20 (E) Paragraph (3) of section 4083(a) is 

21 amended by striking ‘‘or a diesel-powered train’’. 

22 (F) Paragraph (3) of section 6421(f) is 

23 amended to read as follows: 

24 ‘‘(3) GASOLINE USED IN TRAINS.—In the case of 

25 gasoline used as a fuel in a train, this section shall 
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1 not apply with respect to the Leaking Underground 

2 Storage Tank Trust Fund financing rate under sec3 tion 4081.’’. 

4 (G) Paragraph (3) of section 6427(l) is 

5 amended to read as follows: 

6 ‘‘(3) REFUND OF CERTAIN TAXES ON FUEL USED

7 IN DIESEL-POWERED TRAINS.—For purposes of this 

8 subsection, the term ‘nontaxable use’ includes fuel 

9 used in a diesel-powered train. The preceding sentence 

10 shall not apply to the tax imposed by section 4041(d) 

11 and the Leaking Underground Storage Tank Trust 

12 Fund financing rate under section 4081 except with 

13 respect to fuel sold for exclusive use by a State or any 

14 political subdivision thereof.’’. 

15 (b) FUEL USED ON INLAND WATERWAYS.—

16 (1) IN GENERAL.—Paragraph (1) of section 

17 4042(b) is amended by adding ‘‘and’’ at the end of 

18 subparagraph (A), by striking ‘‘, and’’ at the end of 

19 subparagraph (B) and inserting a period, and by 

20 striking subparagraph (C). 

21 (2) CONFORMING AMENDMENT.—Paragraph (2) 

22 of section 4042(b) is amended by striking subpara23 graph (C). 

24 (c) EFFECTIVE DATE.—The amendments made by this 

25 section shall take effect on January 1, 2004. 
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1 SEC. 109. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN 

2 MIXTURES OF DIESEL FUEL. 

3 (a) IN GENERAL.—Paragraph (2) of section 4081(a) 

4 is amended by adding at the end the following: 

5 ‘‘(C) DIESEL-WATER FUEL EMULSION.—In 

6 the case of diesel-water fuel emulsion at least 14 

7 percent of which is water and with respect to 

8 which the emulsion additive is registered by a 

9 United States manufacturer with the Environ10 mental Protection Agency pursuant to section 

11 211 of the Clean Air Act (as in effect on March 

12 31, 2003), subparagraph (A)(iii) shall be applied 

13 by substituting ‘19.7 cents’ for ‘24.3 cents’.’’. 

14 (b) SPECIAL RULES FOR DIESEL-WATER FUEL EMUL15 SIONS.—

16 (1) REFUNDS FOR TAX-PAID PURCHASES.—Sec17 tion 6427 is amended by redesignating subsections 

18 (m) through (p) as subsections (n) through (q), respec19 tively, and by inserting after subsection (l) the fol20 lowing new subsection: 

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

22 ‘‘(1) IN GENERAL.—Except as provided in sub23 section (k), if any diesel fuel on which tax was im24 posed by section 4081 at the regular tax rate is used 

25 by any person in producing an emulsion described in 

26 section 4081(a)(2)(C) which is sold or used in such
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1 person’s trade or business, the Secretary shall pay 

2 (without interest) to such person an amount equal to 

3 the excess of the regular tax rate over the incentive 

4 tax rate with respect to such fuel. 

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

6 (1)—

7 ‘‘(A) REGULAR TAX RATE.—The term ‘reg8 ular tax rate’ means the aggregate rate of tax 

9 imposed by section 4081 determined without re10 gard to section 4081(a)(2)(C). 

11 ‘‘(B) INCENTIVE TAX RATE.—The term ‘in12 centive tax rate’ means the aggregate rate of tax 

13 imposed by section 4081 determined with regard 

14 to section 4081(a)(2)(C).’’. 

15 (2) LATER SEPARATION OF FUEL.—

16 (A) IN GENERAL.—Section 4081 (relating to 

17 imposition of tax) is amended by redesignating 

18 subsections (d) and (e) as subsections (e) and (f), 

19 respectively, and by inserting after subsection (c) 

20 the following new subsection: 

21 ‘‘(d) LATER SEPARATION OF FUEL FROM DIESEL22 WATER FUEL EMULSION.—If any person separates the tax23 able fuel from a diesel-water fuel emulsion on which tax 

24 was imposed under subsection (a) at a rate determined 

25 under subsection (a)(2)(C) (or with respect to which a credit 
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1 or payment was allowed or made by reason of section 6427), 

2 such person shall be treated as the refiner of such taxable 

3 fuel. The amount of tax imposed on any removal of such 

4 fuel by such person shall be reduced by the amount of tax 

5 imposed (and not credited or refunded) on any prior re6 moval or entry of such fuel.’’. 

7 (B) CONFORMING AMENDMENT.—Subsection 

8 (d) of section 6416 is amended by striking ‘‘sec9 tion 4081(e)’’ and inserting ‘‘section 4081(f)’’. 

10 (c) EFFECTIVE DATE.—The amendments made by this 

11 section shall take effect on October 1, 2003. 

12 SEC. 110. REPEAL OF PHASEOUTS FOR QUALIFIED ELEC13 TRIC VEHICLE CREDIT AND DEDUCTION FOR 

14 CLEAN FUEL-VEHICLES. 

15 (a) CREDIT FOR QUALIFIED ELECTRIC VEHICLES.—

16 Subsection (b) of section 30 (relating to limitations) is 

17 amended by striking paragraph (2) and redesignating 

18 paragraph (3) as paragraph (2). 

19 (b) DEDUCTION FOR CLEAN-FUEL VEHICLES AND

20 CERTAIN REFUELING PROPERTY.—Paragraph (1) of sec21 tion 179A(b) (relating to qualified clean-fuel vehicle prop22 erty) is amended to read as follows: 

23 ‘‘(1) QUALIFIED CLEAN-FUEL VEHICLE PROP24 ERTY.— The cost which may be taken into account 
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1 under subsection (a)(1)(A) with respect to any motor 

2 vehicle shall not exceed— 

3 ‘‘(A) in the case of a motor vehicle not de4 scribed in subparagraph (B) or (C), $2,000, 

5 ‘‘(B) in the case of any truck or van with 

6 a gross vehicle weight rating greater than 10,000 

7 pounds but not greater than 26,000 pounds, 

8 $5,000, or 

9 ‘‘(C) $50,000 in the case of— 

10 ‘‘(i) a truck or van with a gross vehicle 

11 weight rating greater than 26,000 pounds, 

12 or 

13 ‘‘(ii) any bus which has a seating ca14 pacity of at least 20 adults (not including 

15 the driver).’’. 

16 SEC. 111. ALTERNATIVE MOTOR VEHICLE CREDIT. 

17 (a) IN GENERAL.—Subpart B of part IV of subchapter 

18 A of chapter 1 (relating to foreign tax credit, etc.) is amend19 ed by adding at the end the following: 

20 ‘‘SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT. 

21 ‘‘(a) ALLOWANCE OF CREDIT.—There shall be allowed 

22 as a credit against the tax imposed by this chapter for the 

23 taxable year an amount equal to the sum of—

24 ‘‘(1) the new qualified fuel cell motor vehicle 

25 credit determined under subsection (b), and 
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1 ‘‘(2) the advanced lean burn technology motor 

2 vehicle credit determined under subsection (c). 

3 ‘‘(b) NEW QUALIFIED FUEL CELL MOTOR VEHICLE

4 CREDIT.—

5 ‘‘(1) IN GENERAL.—For purposes of subsection 

6 (a), the new qualified fuel cell motor vehicle credit de7 termined under this subsection with respect to a new 

8 qualified fuel cell motor vehicle placed in service by 

9 the taxpayer during the taxable year is—

10 ‘‘(A) $4,000, if such vehicle has a gross ve11 hicle weight rating of not more than 8,500 

12 pounds, 

13 ‘‘(B) $10,000, if such vehicle has a gross ve14 hicle weight rating of more than 8,500 pounds 

15 but not more than 14,000 pounds, 

16 ‘‘(C) $20,000, if such vehicle has a gross ve17 hicle weight rating of more than 14,000 pounds 

18 but not more than 26,000 pounds, and 

19 ‘‘(D) $40,000, if such vehicle has a gross ve20 hicle weight rating of more than 26,000 pounds. 

21 ‘‘(2) INCREASE FOR FUEL EFFICIENCY.—

22 ‘‘(A) IN GENERAL.—The amount determined 

23 under paragraph (1)(A) with respect to a new 

24 qualified fuel cell motor vehicle which is a pas-
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1 senger automobile or light truck shall be in2 creased by—

3 ‘‘(i) $1,000, if such vehicle achieves at 

4 least 150 percent but less than 175 percent 

5 of the 2000 model year city fuel economy, 

6 ‘‘(ii) $1,500, if such vehicle achieves at 

7 least 175 percent but less than 200 percent 

8 of the 2000 model year city fuel economy, 

9 ‘‘(iii) $2,000, if such vehicle achieves 

10 at least 200 percent but less than 225 per11 cent of the 2000 model year city fuel econ12 omy, 

13 ‘‘(iv) $2,500, if such vehicle achieves at 

14 least 225 percent but less than 250 percent 

15 of the 2000 model year city fuel economy, 

16 ‘‘(v) $3,000, if such vehicle achieves at 

17 least 250 percent but less than 275 percent 

18 of the 2000 model year city fuel economy, 

19 ‘‘(vi) $3,500, if such vehicle achieves at 

20 least 275 percent but less than 300 percent 

21 of the 2000 model year city fuel economy, 

22 and 

23 ‘‘(vii) $4,000, if such vehicle achieves 

24 at least 300 percent of the 2000 model year 

25 city fuel economy.
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1 ‘‘(B) 2000 MODEL YEAR CITY FUEL ECON2 OMY.—For purposes of subparagraph (A), the 

3 2000 model year city fuel economy with respect 

4 to a vehicle shall be determined in accordance 

5 with the following tables: 

6 ‘‘(i) In the case of a passenger auto7 mobile:

‘‘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.

8 ‘‘(ii) 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.

9 ‘‘(C) VEHICLE INERTIA WEIGHT CLASS.—

10 For purposes of subparagraph (B), the term ‘ve-
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1 hicle inertia weight class’ has the same meaning 

2 as when defined in regulations prescribed by the 

3 Administrator of the Environmental Protection 

4 Agency for purposes of the administration of title 

5 II of the Clean Air Act (42 U.S.C. 7521 et seq.). 

6 ‘‘(3) NEW QUALIFIED FUEL CELL MOTOR VEHI7 CLE.—For purposes of this subsection, the term ‘new 

8 qualified fuel cell motor vehicle’ means a motor vehi9 cle—

10 ‘‘(A) which is propelled by power derived 

11 from one or more cells which convert chemical 

12 energy directly into electricity by combining ox13 ygen with hydrogen fuel which is stored on board 

14 the vehicle in any form and may or may not re15 quire reformation prior to use, 

16 ‘‘(B) which, in the case of a passenger auto17 mobile or light truck—

18 ‘‘(i) for 2004 and later model vehicles, 

19 has received a certificate of conformity 

20 under the Clean Air Act and meets or ex21 ceeds the equivalent qualifying California 

22 low emission vehicle standard under section 

23 243(e)(2) of the Clean Air Act for that make 

24 and model year, and 
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1 ‘‘(ii) for 2004 and later model vehicles, 

2 has received a certificate that such vehicle 

3 meets or exceeds the Bin 5 Tier II emission 

4 level established in regulations prescribed by 

5 the Administrator of the Environmental 

6 Protection Agency under section 202(i) of 

7 the Clean Air Act for that make and model 

8 year vehicle, 

9 ‘‘(C) the original use of which commences 

10 with the taxpayer, 

11 ‘‘(D) which is acquired for use or lease by 

12 the taxpayer and not for resale, and 

13 ‘‘(E) which is made by a manufacturer. 

14 ‘‘(c) ADVANCED LEAN BURN TECHNOLOGY MOTOR VE15 HICLE CREDIT.—

16 ‘‘(1) IN GENERAL.—For purposes of subsection 

17 (a), the advanced lean burn technology motor vehicle 

18 credit determined under this subsection with respect 

19 to a new qualified advanced lean burn technology 

20 motor vehicle placed in service by the taxpayer dur21 ing the taxable year is the credit amount determined 

22 under paragraph (2). 

23 ‘‘(2) CREDIT AMOUNT.—
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1 ‘‘(A) INCREASE FOR FUEL EFFICIENCY.—

2 The credit amount determined under this para3 graph shall be—

4 ‘‘(i) $500, if such vehicle achieves at 

5 least 125 percent but less than 150 percent 

6 of the 2000 model year city fuel economy, 

7 ‘‘(ii) $1,000, if such vehicle achieves at 

8 least 150 percent but less than 175 percent 

9 of the 2000 model year city fuel economy, 

10 ‘‘(iii) $1,500, if such vehicle achieves 

11 at least 175 percent but less than 200 per12 cent of the 2000 model year city fuel econ13 omy, 

14 ‘‘(iv) $2,000, if such vehicle achieves at 

15 least 200 percent but less than 225 percent 

16 of the 2000 model year city fuel economy, 

17 ‘‘(v) $2,500, if such vehicle achieves at 

18 least 225 percent but less than 250 percent 

19 of the 2000 model year city fuel economy, 

20 and 

21 ‘‘(vi) $3,000, if such vehicle achieves at 

22 least 250 percent of the 2000 model year 

23 city fuel economy. 

24 For purposes of clause (i), the 2000 model year 

25 city fuel economy with respect to a vehicle shall 
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1 be determined using the tables provided in sub2 section (b)(2)(B) with respect to such vehicle. 

3 ‘‘(B) CONSERVATION CREDIT.—The amount 

4 determined under subparagraph (A) with respect 

5 to an advanced lean burn technology motor vehi6 cle shall be increased by—

7 ‘‘(i) $250, if such vehicle achieves a 

8 lifetime fuel savings of at least 1,500 gallons 

9 of gasoline, and 

10 ‘‘(ii) $500, if such vehicle achieves a 

11 lifetime fuel savings of at least 2,500 gallons 

12 of gasoline. 

13 ‘‘(C) OPTION TO USE LIKE VEHICLE.—At 

14 the option of the vehicle manufacturer, the in15 crease for fuel efficiency and conservation credit 

16 may be calculated by comparing the new ad17 vanced lean-burn technology motor vehicle to a 

18 like vehicle. 

19 ‘‘(3) DEFINITIONS.—For purposes of this sub20 section—

21 ‘‘(A) ADVANCED LEAN BURN TECHNOLOGY

22 MOTOR VEHICLE.—The term ‘advanced lean burn 

23 technology motor vehicle’ means a motor vehicle 

24 with an internal combustion engine that—
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1 ‘‘(i) is designed to operate primarily 

2 using more air than is necessary for com3 plete combustion of the fuel, 

4 ‘‘(ii) incorporates direct injection, 

5 ‘‘(iii) achieves at least 125 percent of 

6 the 2000 model year city fuel economy, and 

7 ‘‘(iv) for 2004 and later model vehicles, 

8 has received a certificate that such vehicle 

9 meets or exceeds the Bin 8 Tier II emission 

10 level established in regulations prescribed by 

11 the Administrator of the Environmental 

12 Protection Agency under section 202(i) of 

13 the Clean Air Act for that make and model 

14 year vehicle. 

15 ‘‘(B) LIKE VEHICLE.—The term ‘like vehi16 cle’ for an advanced lean burn technology motor 

17 vehicle derived from a conventional production 

18 vehicle produced in the same model year means 

19 a model that is equivalent in the following areas: 

20 ‘‘(i) Body style (2-door or 4-door). 

21 ‘‘(ii) Transmission (automatic or man22 ual). 

23 ‘‘(iii) Acceleration performance (± 0.05 

24 seconds). 
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1 ‘‘(iv) Drivetrain (2-wheel drive or 4-

2 wheel drive). 

3 ‘‘(v) Certification by the Administrator 

4 of the Environmental Protection Agency. 

5 ‘‘(C) LIFETIME FUEL SAVINGS.—The term 

6 ‘lifetime fuel savings’ shall be calculated by di7 viding 120,000 by the difference between the 

8 2000 model year city fuel economy for the vehicle 

9 inertia weight class and the city fuel economy 

10 for the new qualified hybrid motor vehicle. 

11 ‘‘(d) LIMITATION BASED ON AMOUNT OF TAX.—The 

12 credit allowed under subsection (a) for the taxable year shall 

13 not exceed the excess of—

14 ‘‘(1) the sum of the regular tax liability (as de15 fined in section 26(b)) plus the tax imposed by section 

16 55, over 

17 ‘‘(2) the sum of the credits allowable under sub18 part A and sections 27, 29, and 30A for the taxable 

19 year. 

20 ‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—For 

21 purposes of this section—

22 ‘‘(1) CONSUMABLE FUEL.—The term ‘consumable 

23 fuel’ means any solid, liquid, or gaseous matter which 

24 releases energy when consumed by an auxiliary power 

25 unit. 
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1 ‘‘(2) MOTOR VEHICLE.—The term ‘motor vehicle’ 

2 has the meaning given such term by section 30(c)(2). 

3 ‘‘(3) 2000 MODEL YEAR CITY FUEL ECONOMY.—

4 The 2000 model year city fuel economy with respect 

5 to any vehicle shall be measured under rules similar 

6 to the rules under section 4064(c). 

7 ‘‘(4) OTHER TERMS.—The terms ‘automobile’, 

8 ‘passenger automobile’, ‘light truck’, and ‘manufac9 turer’ have the meanings given such terms in regula10 tions prescribed by the Administrator of the Environ11 mental Protection Agency for purposes of the admin12 istration of title II of the Clean Air Act (42 U.S.C. 

13 7521 et seq.). 

14 ‘‘(5) REDUCTION IN BASIS.—For purposes of this 

15 subtitle, if a credit is allowed under this section for 

16 any expenditure with respect to any property, the in17 crease in the basis of such property which would (but 

18 for this paragraph) result from such expenditure shall 

19 be reduced by the amount of the credit so allowed. 

20 ‘‘(6) NO DOUBLE BENEFIT.—The amount of any 

21 deduction or credit allowable under this chapter 

22 (other than the credit allowable under this section), 

23 with respect to a vehicle described under subsection 

24 (b), shall be reduced by the amount of credit allowed 
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1 under subsection (a) for such vehicle for the taxable 

2 year. 

3 ‘‘(7) PROPERTY USED BY TAX-EXEMPT ENTI4 TIES.—In the case of a credit amount which is allow5 able with respect to a motor vehicle which is acquired 

6 by an entity exempt from tax under this chapter, the 

7 person which sells or leases such vehicle to the entity 

8 shall be treated as the taxpayer with respect to the ve9 hicle for purposes of this section and the credit shall 

10 be allowed to such person, but only if the person 

11 clearly discloses to the entity in any sale or lease doc12 ument the specific amount of any credit otherwise al13 lowable to the entity under this section. 

14 ‘‘(8) RECAPTURE.—The Secretary shall, by regu15 lations, provide for recapturing the benefit of any 

16 credit allowable under subsection (a) with respect to 

17 any property which ceases to be property eligible for 

18 such credit (including recapture in the case of a lease 

19 period of less than the economic life of a vehicle). 

20 ‘‘(9) PROPERTY USED OUTSIDE UNITED STATES, 

21 ETC., NOT QUALIFIED.—No credit shall be allowed 

22 under subsection (a) with respect to any property re23 ferred to in section 50(b) or with respect to the por24 tion of the cost of any property taken into account 

25 under section 179. 
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1 ‘‘(10) ELECTION TO NOT TAKE CREDIT.—No 

2 credit shall be allowed under subsection (a) for any 

3 vehicle if the taxpayer elects to not have this section 

4 apply to such vehicle. 

5 ‘‘(11) CARRYFORWARD ALLOWED.—

6 ‘‘(A) IN GENERAL.—If the credit amount al7 lowable under subsection (a) for a taxable year 

8 exceeds the amount of the limitation under sub9 section (d) for such taxable year (referred to as 

10 the ‘unused credit year’ in this paragraph), such 

11 excess shall be allowed as a credit carryforward 

12 for each of the 20 taxable years following the un13 used credit year. 

14 ‘‘(B) RULES.—Rules similar to the rules of 

15 section 39 shall apply with respect to the credit 

16 carryforward under subparagraph (A). 

17 ‘‘(12) INTERACTION WITH AIR QUALITY AND

18 MOTOR VEHICLE SAFETY STANDARDS.—Unless other19 wise provided in this section, a motor vehicle shall 

20 not be considered eligible for a credit under this sec21 tion unless such vehicle is in compliance with—

22 ‘‘(A) the applicable provisions of the Clean 

23 Air Act for the applicable make and model year 

24 of the vehicle (or applicable air quality provi25 sions of State law in the case of a State which
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1 has adopted such provision under a waiver 

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

3 ‘‘(B) the motor vehicle safety provisions of 

4 sections 30101 through 30169 of title 49, United 

5 States Code. 

6 ‘‘(f) REGULATIONS.—

7 ‘‘(1) IN GENERAL.—The Secretary shall promul8 gate such regulations as necessary to carry out the 

9 provisions of this section. 

10 ‘‘(2) DETERMINATION OF MOTOR VEHICLE ELIGI11 BILITY.—The Secretary, in coordination with the Sec12 retary of Transportation and the Administrator of the 

13 Environmental Protection Agency, shall prescribe 

14 such regulations as necessary to determine whether a 

15 motor vehicle meets the requirements to be eligible for 

16 a credit under this section. 

17 ‘‘(g) TERMINATION.—This section shall not apply to 

18 any property placed in service after—

19 ‘‘(1) in the case of a new qualified fuel cell motor 

20 vehicle (as described in subsection (b)), December 31, 

21 2012, and 

22 ‘‘(2) in the case of any other property, December 

23 31, 2006.’’. 

24 (b) CONFORMING AMENDMENTS.—
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1 (1) Section 1016(a) is amended by striking 

2 ‘‘and’’ at the end of paragraph (30), by striking the 

3 period at the end of paragraph (31) and inserting ‘‘, 

4 and’’, and by adding at the end the following: 

5 ‘‘(32) to the extent provided in section 

6 30B(e)(5).’’. 

7 (2) Section 6501(m) is amended by inserting 

8 ‘‘30B(e)(10),’’ after ‘‘30(d)(4),’’. 

9 (3) The table of sections for subpart B of part IV 

10 of subchapter A of chapter 1 is amended by inserting 

11 after the item relating to section 30A the following:

‘‘Sec. 30B. Alternative motor vehicle credit.’’.

12 (c) EFFECTIVE DATE.—The amendments made by this 

13 section shall apply to property placed in service after De14 cember 31, 2003, in taxable years ending after such date. 

15 TITLE II—RELIABILITY 

16 SEC. 201. NATURAL GAS GATHERING LINES TREATED AS 7-

17 YEAR PROPERTY. 

18 (a) IN GENERAL.—Subparagraph (C) of section 

19 168(e)(3) (relating to classification of certain property) is 

20 amended by striking ‘‘and’’ at the end of clause (i), by re21 designating clause (ii) as clause (iii), and by inserting after 

22 clause (i) the following new clause: 

23 ‘‘(ii) any natural gas gathering line, 

24 and’’. 
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1 (b) NATURAL GAS GATHERING LINE.—Subsection (i) 

2 of section 168 is amended by adding after paragraph (15) 

3 the following new paragraph: 

4 ‘‘(16) NATURAL GAS GATHERING LINE.—The 

5 term ‘natural gas gathering line’ means—

6 ‘‘(A) the pipe, equipment, and appur7 tenances determined to be a gathering line by the 

8 Federal Energy Regulatory Commission, or 

9 ‘‘(B) the pipe, equipment, and appur10 tenances used to deliver natural gas from the 

11 wellhead or a commonpoint to the point at which 

12 such gas first reaches—

13 ‘‘(i) a gas processing plant, 

14 ‘‘(ii) an interconnection with a trans15 mission pipeline certificated by the Federal 

16 Energy Regulatory Commission as an 

17 interstate transmission pipeline, 

18 ‘‘(iii) an interconnection with an 

19 intrastate transmission pipeline, or 

20 ‘‘(iv) a direct interconnection with a 

21 local distribution company, a gas storage 

22 facility, or an industrial consumer.’’. 

23 (c) ALTERNATIVE SYSTEM.—The table contained in 

24 section 168(g)(3)(B) is amended by inserting after the item 

25 relating to subparagraph (C)(i) the following:

‘‘(C)(ii) .............................................................................................................. 10’’.
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1 (d) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub2 paragraph (B) of section 56(a)(1) is amended by inserting 

3 before the period the following: ‘‘, or in section 

4 168(e)(3)(C)(ii)’’. 

5 (e) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to property placed in service after the 

7 date of the enactment of this Act, in taxable years ending 

8 after such date. 

9 SEC. 202. NATURAL GAS DISTRIBUTION LINES TREATED AS 

10 15-YEAR PROPERTY. 

11 (a) IN GENERAL.—Subparagraph (E) of section 

12 168(e)(3) (relating to classification of certain property) is 

13 amended by striking ‘‘and’’ at the end of clause (ii), by 

14 striking the period at the end of clause (iii) and by insert15 ing ‘‘, and’’, and by adding at the end the following new 

16 clause: 

17 ‘‘(iv) any natural gas distribution 

18 line.’’. 

19 (b) ALTERNATIVE SYSTEM.—The table contained in 

20 section 168(g)(3)(B) is amended by inserting after the item 

21 relating to subparagraph (E)(iii) the following:

‘‘(E)(iv) .............................................................................................................. 20’’.

22 (c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub23 paragraph (B) of section 56(a)(1) is amended by inserting 

24 before the period the following: ‘‘, or in section 

25 168(e)(3)(E)(iv)’’. 
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1 (d) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to property placed in service after the 

3 date of the enactment of this Act, in taxable years ending 

4 after such date. 

5 SEC. 203. ELECTRIC TRANSMISSION PROPERTY TREATED 

6 AS 15-YEAR PROPERTY. 

7 (a) IN GENERAL.—Subparagraph (E) of section 

8 168(e)(3) (relating to classification of certain property) is 

9 amended by striking ‘‘and’’ at the end of clause (iii), by 

10 striking the period at the end of clause (iv) and by inserting 

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

12 ‘‘(v) any section 1245 property (as de13 fined in section 1245(a)(3)) used in the 

14 transmission at 69 or more kilovolts of elec15 tricity for sale.’’. 

16 (b) ALTERNATIVE SYSTEM.—The table contained in 

17 section 168(g)(3)(B) is amended by inserting after the item 

18 relating to subparagraph (E)(iv) the following:

‘‘(E)(v) ............................................................................................................... 20’’.

19 (c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub20 paragraph (B) of section 56(a)(1) is amended by inserting 

21 before the period the following: ‘‘, or in section 

22 168(e)(3)(E)(v)’’. 

23 (d) EFFECTIVE DATE.—The amendments made by this 

24 section shall apply to property placed in service after the
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1 date of the enactment of this Act, in taxable years ending 

2 after such date. 

3 SEC. 204. EXPENSING OF CAPITAL COSTS INCURRED IN 

4 COMPLYING WITH ENVIRONMENTAL PROTEC5 TION AGENCY SULFUR REGULATIONS. 

6 (a) IN GENERAL.—Part VI of subchapter B of chapter 

7 1 (relating to itemized deductions for individuals and cor8 porations) is amended by inserting after section 179A the 

9 following new section: 

10 ‘‘SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN 

11 COMPLYING WITH ENVIRONMENTAL PROTEC12 TION AGENCY SULFUR REGULATIONS. 

13 ‘‘(a) TREATMENT AS EXPENSES.—A small business re14 finer (as defined in section 45H(c)(1)) may elect to treat 

15 75 percent of qualified capital costs (as defined in section 

16 45H(c)(2)) which are paid or incurred by the taxpayer dur17 ing the taxable year as expenses which are not chargeable 

18 to capital account. Any cost so treated shall be allowed as 

19 a deduction for the taxable year in which paid or incurred. 

20 ‘‘(b) REDUCED PERCENTAGE.—In the case of a small 

21 business refiner with average daily domestic refinery runs 

22 for the 1-year period ending on March 31, 2003, in excess 

23 of 155,000 barrels, the number of percentage points de24 scribed in subsection (a) shall be reduced (not below zero) 

25 by the product of such number (before the application of 
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1 this subsection) and the ratio of such excess to 50,000 bar2 rels. 

3 ‘‘(c) BASIS REDUCTION.—

4 ‘‘(1) IN GENERAL.—For purposes of this title, the 

5 basis of any property shall be reduced by the portion 

6 of the cost of such property taken into account under 

7 subsection (a). 

8 ‘‘(2) ORDINARY INCOME RECAPTURE.—For pur9 poses of section 1245, the amount of the deduction al10 lowable under subsection (a) with respect to any 

11 property which is of a character subject to the allow12 ance for depreciation shall be treated as a deduction 

13 allowed for depreciation under section 167.’’. 

14 (b) CONFORMING AMENDMENTS.—

15 (1) Section 263(a)(1) is amended by striking 

16 ‘‘or’’ at the end of subparagraph (G), by striking the 

17 period at the end of subparagraph (H) and inserting 

18 ‘‘; or’’, and by adding at the end the following new 

19 subparagraph: 

20 ‘‘(I) expenditures for which a deduction is 

21 allowed under section 179B.’’. 

22 (2) Section 312(k)(3)(B) is amended—

23 (A) by striking ‘‘section 179 or 179A’’ each 

24 place it appears and inserting ‘‘section 179, 

25 179A, or 179B’’, and 
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1 (B) in the heading, by striking ‘‘179 OR

2 179A’’ and inserting ‘‘179, 179A, OR 179B’’. 

3 (3) Section 1016(a) is amended by striking 

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

5 period at the end of paragraph (32) and inserting ‘‘, 

6 and’’, and by adding at the end the following new 

7 paragraph: 

8 ‘‘(33) to the extent provided in section 179B(c).’’. 

9 (4) Paragraphs (2)(C) and (3)(C) of section 

10 1245(a) are each amended by inserting ‘‘179B,’’ after 

11 ‘‘179A,’’. 

12 (5) The table of sections for part VI of sub13 chapter B of chapter 1 is amended by inserting after 

14 the item relating to section 179A the following new 

15 item:

‘‘Sec. 179B. Deduction for capital costs incurred in complying 

with Environmental Protection Agency sulfur regulations.’’.

16 (c) EFFECTIVE DATE.—The amendment made by this 

17 section shall apply to expenses paid or incurred after March 

18 31, 2003, in taxable years ending after such date. 

19 SEC. 205. CREDIT FOR PRODUCTION OF LOW SULFUR DIE20 SEL FUEL. 

21 (a) IN GENERAL.—Subpart D of part IV of subchapter 

22 A of chapter 1 (relating to business-related credits) is 

23 amended by adding at the end the following new section: 
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1 ‘‘SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIE2 SEL FUEL. 

3 ‘‘(a) IN GENERAL.—For purposes of section 38, the 

4 amount of the low sulfur diesel fuel production credit deter5 mined under this section with respect to any facility of a 

6 small business refiner is an amount equal to 5 cents for 

7 each gallon of low sulfur diesel fuel produced during the 

8 taxable year by such small business refiner at such facility. 

9 ‘‘(b) MAXIMUM CREDIT.—

10 ‘‘(1) IN GENERAL.—The aggregate credit deter11 mined under subsection (a) for any taxable year with 

12 respect to any facility shall not exceed—

13 ‘‘(A) 25 percent of the qualified capital costs 

14 incurred by the small business refiner with re15 spect to such facility, reduced by 

16 ‘‘(B) the aggregate credits determined under 

17 this section for all prior taxable years with re18 spect to such facility. 

19 ‘‘(2) REDUCED PERCENTAGE.—In the case of a 

20 small business refiner with average daily domestic re21 finery runs for the 1-year period ending on March 31, 

22 2003, in excess of 155,000 barrels, the number of per23 centage points described in paragraph (1) shall be re24 duced (not below zero) by the product of such number 

25 (before the application of this paragraph) and the 

26 ratio of such excess to 50,000 barrels. 
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1 ‘‘(c) DEFINITIONS.—For purposes of this section—

2 ‘‘(1) SMALL BUSINESS REFINER.—The term 

3 ‘small business refiner’ means, with respect to any 

4 taxable year, a refiner of crude oil with respect to 

5 which not more than 1,500 persons are engaged in the 

6 refinery operations of the business on any day during 

7 such taxable year and whose average daily domestic 

8 refinery run for the 1-year period ending on March 

9 31, 2003, did not exceed 205,000 barrels. 

10 ‘‘(2) QUALIFIED CAPITAL COSTS.—The term 

11 ‘qualified capital costs’ means, with respect to any fa12 cility, those costs paid or incurred during the appli13 cable period for compliance with the applicable EPA 

14 regulations with respect to such facility, including ex15 penditures for the construction of new process oper16 ation units or the dismantling and reconstruction of 

17 existing process units to be used in the production of 

18 low sulfur diesel fuel, associated adjacent or offsite 

19 equipment (including tankage, catalyst, and power 

20 supply), engineering, construction period interest, 

21 and sitework. 

22 ‘‘(3) APPLICABLE EPA REGULATIONS.—The term 

23 ‘applicable EPA regulations’ means the Highway 

24 Diesel Fuel Sulfur Control Requirements of the Envi25 ronmental Protection Agency.
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1 ‘‘(4) APPLICABLE PERIOD.—The term ‘applicable 

2 period’ means, with respect to any facility, the period 

3 beginning on April 1, 2003, and ending with the date 

4 which is 1 year after the date on which the taxpayer 

5 must comply with the applicable EPA regulations 

6 with respect to such facility. 

7 ‘‘(5) LOW SULFUR DIESEL FUEL.—The term ‘low 

8 sulfur diesel fuel’ means diesel fuel with a sulfur con9 tent of 15 parts per million or less. 

10 ‘‘(d) REDUCTION IN BASIS.—For purposes of this sub11 title, if a credit is determined under this section for any 

12 expenditure with respect to any property, the increase in 

13 basis of such property which would (but for this subsection) 

14 result from such expenditure shall be reduced by the amount 

15 of the credit so determined. 

16 ‘‘(e) CERTIFICATION.—

17 ‘‘(1) REQUIRED.—Not later than the date which 

18 is 30 months after the first day of the first taxable 

19 year in which the low sulfur diesel fuel production 

20 credit is allowed with respect to a facility, the small 

21 business refiner must obtain certification from the 

22 Secretary, in consultation with the Administrator of 

23 the Environmental Protection Agency, that the tax24 payer’s qualified capital costs with respect to such fa-
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1 cility will result in compliance with the applicable 

2 EPA regulations. 

3 ‘‘(2) CONTENTS OF APPLICATION.—An applica4 tion for certification shall include relevant informa5 tion regarding unit capacities and operating charac6 teristics sufficient for the Secretary, in consultation 

7 with the Administrator of the Environmental Protec8 tion Agency, to determine that such qualified capital 

9 costs are necessary for compliance with the applicable 

10 EPA regulations. 

11 ‘‘(3) REVIEW PERIOD.—Any application shall be 

12 reviewed and notice of certification, if applicable, 

13 shall be made within 60 days of receipt of such appli14 cation. 

15 ‘‘(4) STATUTE OF LIMITATIONS.—With respect to 

16 the credit allowed under this section—

17 ‘‘(A) the statutory period for the assessment 

18 of any deficiency attributable to such credit shall 

19 not expire before the end of the 3-year period 

20 ending on the date that the review period de21 scribed in paragraph (3) ends, and 

22 ‘‘(B) such deficiency may be assessed before 

23 the expiration of such 3-year period notwith24 standing the provisions of any other law or rule 
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1 of law which would otherwise prevent such as2 sessment. 

3 ‘‘(f) CONTROLLED GROUPS.—For purposes of this sec4 tion, all persons treated as a single employer under sub5 section (b), (c), (m), or (o) of section 414 shall be treated 

6 as 1 taxpayer.’’. 

7 (b) CREDIT MADE PART OF GENERAL BUSINESS

8 CREDIT.—Subsection (b) of section 38 (relating to general 

9 business credit) is amended by striking ‘‘plus’’ at the end 

10 of paragraph (15), by striking the period at the end of para11 graph (16) and inserting ‘‘, plus’’, and by adding at the 

12 end the following new paragraph: 

13 ‘‘(17) in the case of a small business refiner, the 

14 low sulfur diesel fuel production credit determined 

15 under section 45H(a).’’. 

16 (c) DENIAL OF DOUBLE BENEFIT.—Section 280C (re17 lating to certain expenses for which credits are allowable) 

18 is amended by adding after subsection (d) the following new 

19 subsection: 

20 ‘‘(e) LOW SULFUR DIESEL FUEL PRODUCTION CRED21 IT.—No deduction shall be allowed for that portion of the 

22 expenses otherwise allowable as a deduction for the taxable 

23 year which is equal to the amount of the credit determined 

24 for the taxable year under section 45H(a).’’. 
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1 (d) BASIS ADJUSTMENT.—Section 1016(a) (relating to 

2 adjustments to basis) is amended by striking ‘‘and’’ at the 

3 end of paragraph (32), by striking the period at the end 

4 of paragraph (33) and inserting ‘‘, and’’, and by adding 

5 at the end the following new paragraph: 

6 ‘‘(34) in the case of a facility with respect to 

7 which a credit was allowed under section 45H, to the 

8 extent provided in section 45H(d).’’. 

9 (e) CLERICAL AMENDMENT.—The table of sections for 

10 subpart D of part IV of subchapter A of chapter 1 is amend11 ed by adding at the end the following new item:

‘‘Sec. 45H. Credit for production of low sulfur diesel fuel.’’.

12 (f) EFFECTIVE DATE.—The amendments made by this 

13 section shall apply to expenses paid or incurred after March 

14 31, 2003, in taxable years ending after such date. 

15 SEC. 206. DETERMINATION OF SMALL REFINER EXCEPTION 

16 TO OIL DEPLETION DEDUCTION. 

17 (a) IN GENERAL.—Paragraph (4) of section 613A(d) 

18 (relating to certain refiners excluded) is amended to read 

19 as follows: 

20 ‘‘(4) CERTAIN REFINERS EXCLUDED.—If the tax21 payer or a related person engages in the refining of 

22 crude oil, subsection (c) shall not apply to the tax23 payer for a taxable year if the average daily refinery 

24 runs of the taxpayer and the related person for the 

25 taxable year exceed 75,000 barrels. For purposes of 
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1 this paragraph, the average daily refinery runs for 

2 any taxable year shall be determined by dividing the 

3 aggregate refinery runs for the taxable year by the 

4 number of days in the taxable year.’’. 

5 (b) EFFECTIVE DATE.—The amendment made by this 

6 section shall apply to taxable years beginning after Decem7 ber 31, 2003.

8 SEC. 207. SALES OR DISPOSITIONS TO IMPLEMENT FED9 ERAL ENERGY REGULATORY COMMISSION OR 

10 STATE ELECTRIC RESTRUCTURING POLICY. 

11 (a) IN GENERAL.—Section 451 (relating to general 

12 rule for taxable year of inclusion) is amended by adding 

13 at the end the following new subsection: 

14 ‘‘(i) SPECIAL RULE FOR SALES OR DISPOSITIONS TO

15 IMPLEMENT FEDERAL ENERGY REGULATORY COMMISSION

16 OR STATE ELECTRIC RESTRUCTURING POLICY.—

17 ‘‘(1) IN GENERAL.—In the case of any qualifying 

18 electric transmission transaction to which the tax19 payer elects the application of this section, qualified 

20 gain from such transaction shall be recognized—

21 ‘‘(A) in the taxable year which includes the 

22 date of such transaction to the extent the amount 

23 realized from such transaction exceeds—

24 ‘‘(i) the cost of exempt utility property 

25 which is purchased by the taxpayer during
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1 the 4-year period beginning on such date, 

2 reduced (but not below zero) by 

3 ‘‘(ii) any portion of such cost pre4 viously taken into account under this sub5 section, and 

6 ‘‘(B) ratably over the 8-taxable year period 

7 beginning with the taxable year which includes 

8 the date of such transaction, in the case of any 

9 such gain not recognized under subparagraph 

10 (A). 

11 ‘‘(2) QUALIFIED GAIN.—For purposes of this sub12 section, the term ‘qualified gain’ means, with respect 

13 to any qualifying electric transmission transaction in 

14 any taxable year— 

15 ‘‘(A) any ordinary income derived from 

16 such transaction which would be required to be 

17 recognized under section 1245 or 1250 for such 

18 taxable year (determined without regard to this 

19 subsection), and 

20 ‘‘(B) any income derived from such trans21 action in excess of the amount described in sub22 paragraph (A) which is required to be included 

23 in gross income for such taxable year (deter24 mined without regard to this subsection). 
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1 ‘‘(3) QUALIFYING ELECTRIC TRANSMISSION

2 TRANSACTION.—For purposes of this subsection, the 

3 term ‘qualifying electric transmission transaction’ 

4 means any sale or other disposition before January 1, 

5 2007, of—

6 ‘‘(A) property used in the trade or business 

7 of providing electric transmission services, or 

8 ‘‘(B) any stock or partnership interest in a 

9 corporation or partnership, as the case may be, 

10 whose principal trade or business consists of pro11 viding electric transmission services, 

12 but only if such sale or disposition is to an inde13 pendent transmission company. 

14 ‘‘(4) INDEPENDENT TRANSMISSION COMPANY.—

15 For purposes of this subsection, the term ‘independent 

16 transmission company’ means—

17 ‘‘(A) an independent transmission provider 

18 approved by the Federal Energy Regulatory 

19 Commission, 

20 ‘‘(B) a person—

21 ‘‘(i) who the Federal Energy Regu22 latory Commission determines in its au23 thorization of the transaction under section 

24 203 of the Federal Power Act (16 U.S.C. 

25 824b) or by declaratory order is not a mar-
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1 ket participant within the meaning of such 

2 Commission’s rules applicable to inde3 pendent transmission providers, and 

4 ‘‘(ii) whose transmission facilities to 

5 which the election under this subsection ap6 plies are under the operational control of a 

7 Federal Energy Regulatory Commission-ap8 proved independent transmission provider 

9 before the close of the period specified in 

10 such authorization, but not later than the 

11 close of the period applicable under sub12 section (a)(2)(B) as extended under para13 graph (2), or 

14 ‘‘(C) in the case of facilities subject to the 

15 jurisdiction of the Public Utility Commission of 

16 Texas—

17 ‘‘(i) a person which is approved by 

18 that Commission as consistent with Texas 

19 State law regarding an independent trans20 mission provider, or 

21 ‘‘(ii) a political subdivision or affiliate 

22 thereof whose transmission facilities are 

23 under the operational control of a person 

24 described in clause (i). 
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1 ‘‘(5) EXEMPT UTILITY PROPERTY.—For purposes 

2 of this subsection—

3 ‘‘(A) IN GENERAL.—The term ‘exempt util4 ity property’ means property used in the trade 

5 or business of—

6 ‘‘(i) generating, transmitting, distrib7 uting, or selling electricity, or 

8 ‘‘(ii) producing, transmitting, distrib9 uting, or selling natural gas. 

10 ‘‘(B) NONRECOGNITION OF GAIN BY REASON

11 OF ACQUISITION OF STOCK.—Acquisition of con12 trol of a corporation shall be taken into account 

13 under this subsection with respect to a qualifying 

14 electric transmission transaction only if the 

15 principal trade or business of such corporation is 

16 a trade or business referred to in subparagraph 

17 (A). 

18 ‘‘(6) SPECIAL RULE FOR CONSOLIDATED

19 GROUPS.—In the case of a corporation which is a 

20 member of an affiliated group filing a consolidated 

21 return, any exempt utility property purchased by an22 other member of such group shall be treated as pur23 chased by such corporation for purposes of applying 

24 paragraph (1)(A). 
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1 ‘‘(7) TIME FOR ASSESSMENT OF DEFI2 CIENCIES.—If the taxpayer has made the election 

3 under paragraph (1) and any gain is recognized by 

4 such taxpayer as provided in paragraph (1)(B), 

5 then—

6 ‘‘(A) the statutory period for the assessment 

7 of any deficiency, for any taxable year in which 

8 any part of the gain on the transaction is real9 ized, attributable to such gain shall not expire 

10 prior to the expiration of 3 years from the date 

11 the Secretary is notified by the taxpayer (in such 

12 manner as the Secretary may by regulations pre13 scribe) of the purchase of exempt utility property 

14 or of an intention not to purchase such property, 

15 and 

16 ‘‘(B) such deficiency may be assessed before 

17 the expiration of such 3-year period notwith18 standing any law or rule of law which would 

19 otherwise prevent such assessment. 

20 ‘‘(8) PURCHASE.—For purposes of this sub21 section, the taxpayer shall be considered to have pur22 chased any property if the unadjusted basis of such 

23 property is its cost within the meaning of section 

24 1012.
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1 ‘‘(9) ELECTION.—An election under paragraph 

2 (1) shall be made at such time and in such manner 

3 as the Secretary may require and, once made, shall 

4 be irrevocable.’’. 

5 (b) EFFECTIVE DATE.—The amendments made by this 

6 section shall apply to transactions occurring after the date 

7 of the enactment of this Act, in taxable years ending after 

8 such date. 

9 SEC. 208. MODIFICATIONS TO SPECIAL RULES FOR NU10 CLEAR DECOMMISSIONING COSTS. 

11 (a) REPEAL OF LIMITATION ON DEPOSITS INTO FUND

12 BASED ON COST OF SERVICE; CONTRIBUTIONS AFTER

13 FUNDING PERIOD.—Subsection (b) of section 468A is 

14 amended to read as follows: 

15 ‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—

16 ‘‘(1) IN GENERAL.—The amount which a tax17 payer may pay into the Fund for any taxable year 

18 shall not exceed the ruling amount applicable to such 

19 taxable year. 

20 ‘‘(2) CONTRIBUTIONS AFTER FUNDING PERIOD.—

21 Notwithstanding any other provision of this section, 

22 a taxpayer may pay into the Fund in any taxable 

23 year after the last taxable year to which the ruling 

24 amount applies. Payments may not be made under 

25 the preceding sentence to the extent such payments 
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1 would cause the assets of the Fund to exceed the nu2 clear decommissioning costs allocable to the tax3 payer’s current or former interest in the nuclear 

4 power plant to which the Fund relates. The limitation 

5 under the preceding sentence shall be determined by 

6 taking into account a reasonable rate of inflation for 

7 the nuclear decommissioning costs and a reasonable 

8 after-tax rate of return on the assets of the Fund until 

9 such assets are anticipated to be expended.’’. 

10 (b) CLARIFICATION OF TREATMENT OF FUND TRANS11 FERS.—Subsection (e) of section 468A is amended by add12 ing at the end the following new paragraph: 

13 ‘‘(8) TREATMENT OF FUND TRANSFERS.—If, in 

14 connection with the transfer of the taxpayer’s interest 

15 in a nuclear power plant, the taxpayer transfers the 

16 Fund with respect to such power plant to the trans17 feree of such interest and the transferee elects to con18 tinue the application of this section to such Fund—

19 ‘‘(A) the transfer of such Fund shall not 

20 cause such Fund to be disqualified from the ap21 plication of this section, and 

22 ‘‘(B) no amount shall be treated as distrib23 uted from such Fund, or be includible in gross 

24 income, by reason of such transfer.’’. 
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1 (c) TREATMENT OF CERTAIN DECOMMISSIONING

2 COSTS.—

3 (1) IN GENERAL.—Section 468A is amended by 

4 redesignating subsections (f) and (g) as subsections 

5 (g) and (h), respectively, and by inserting after sub6 section (e) the following new subsection: 

7 ‘‘(f) TRANSFERS INTO QUALIFIED FUNDS.—

8 ‘‘(1) IN GENERAL.—Notwithstanding subsection 

9 (b), any taxpayer maintaining a Fund to which this 

10 section applies with respect to a nuclear power plant 

11 may transfer into such Fund up to an amount equal 

12 to the excess of the total nuclear decommissioning 

13 costs with respect to such nuclear power plant over 

14 the portion of such costs taken into account in deter15 mining the ruling amount in effect immediately be16 fore the transfer. 

17 ‘‘(2) DEDUCTION FOR AMOUNTS TRANS18 FERRED.—

19 ‘‘(A) IN GENERAL.—Except as provided in 

20 subparagraph (C), the deduction allowed by sub21 section (a) for any transfer permitted by this 

22 subsection shall be allowed ratably over the re23 maining estimated useful life (within the mean24 ing of subsection (d)(2)(A)) of the nuclear power 
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1 plant beginning with the taxable year during 

2 which the transfer is made. 

3 ‘‘(B) DENIAL OF DEDUCTION FOR PRE4 VIOUSLY DEDUCTED AMOUNTS.—No deduction 

5 shall be allowed for any transfer under this sub6 section of an amount for which a deduction was 

7 previously allowed or a corresponding amount 

8 was not included in gross income. For purposes 

9 of the preceding sentence, a ratable portion of 

10 each transfer shall be treated as being from pre11 viously deducted or excluded amounts to the ex12 tent thereof. 

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

14 If—

15 ‘‘(i) any transfer permitted by this 

16 subsection is made to any Fund to which 

17 this section applies, and 

18 ‘‘(ii) such Fund is transferred there19 after, 

20 any deduction under this subsection for taxable 

21 years ending after the date that such Fund is 

22 transferred shall be allowed to the transferor for 

23 the taxable year which includes such date. 

24 ‘‘(D) SPECIAL RULES.—
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1 ‘‘(i) GAIN OR LOSS NOT RECOG2 NIZED.—No gain or loss shall be recognized 

3 on any transfer permitted by this sub4 section. 

5 ‘‘(ii) TRANSFERS OF APPRECIATED

6 PROPERTY.—If appreciated property is 

7 transferred in a transfer permitted by this 

8 subsection, the amount of the deduction 

9 shall be the adjusted basis of such property. 

10 ‘‘(3) NEW RULING AMOUNT REQUIRED.—Para11 graph (1) shall not apply to any transfer unless the 

12 taxpayer requests from the Secretary a new schedule 

13 of ruling amounts in connection with such transfer. 

14 ‘‘(4) NO BASIS IN QUALIFIED FUNDS.—Notwith15 standing any other provision of law, the taxpayer’s 

16 basis in any Fund to which this section applies shall 

17 not be increased by reason of any transfer permitted 

18 by this subsection.’’. 

19 (2) NEW RULING AMOUNT TO TAKE INTO AC20 COUNT TOTAL COSTS.—Subparagraph (A) of section 

21 468A(d)(2) is amended to read as follows: 

22 ‘‘(A) fund the total nuclear decommis23 sioning costs with respect to such power plant 

24 over the estimated useful life of such power plant, 

25 and’’.
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1 (d) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to taxable years beginning after Decem3 ber 31, 2003. 

4 SEC. 209. TREATMENT OF CERTAIN INCOME OF COOPERA5 TIVES. 

6 (a) INCOME FROM OPEN ACCESS AND NUCLEAR DE7 COMMISSIONING TRANSACTIONS.—

8 (1) IN GENERAL.—Subparagraph (C) of section 

9 501(c)(12) is amended by striking ‘‘or’’ at the end of 

10 clause (i), by striking clause (ii), and by adding at 

11 the end the following new clauses: 

12 ‘‘(ii) from any provision or sale of 

13 transmission service or ancillary services if 

14 such services are provided on a nondiscrim15 inatory open access basis under an inde16 pendent transmission provider agreement 

17 approved by FERC (other than income re18 ceived or accrued directly or indirectly from 

19 a member), 

20 ‘‘(iii) from any nuclear decommis21 sioning transaction, or 

22 ‘‘(iv) from any asset exchange or con23 version transaction.’’. 
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1 (2) DEFINITIONS AND SPECIAL RULES.—Para2 graph (12) of section 501(c) is amended by adding at 

3 the end the following new subparagraphs: 

4 ‘‘(E) For purposes of subparagraph (C)(ii), 

5 the term ‘FERC’ means the Federal Energy Reg6 ulatory Commission and references to such term 

7 shall be treated as including the Public Utility 

8 Commission of Texas with respect to any 

9 ERCOT utility (as defined in section 

10 212(k)(2)(B) of the Federal Power Act (16 

11 U.S.C. 824k(k)(2)(B))). 

12 ‘‘(F) For purposes of subparagraph (C)(iii), 

13 the term ‘nuclear decommissioning transaction’ 

14 means—

15 ‘‘(i) any transfer into a trust, fund, or 

16 instrument established to pay any nuclear 

17 decommissioning costs if the transfer is in 

18 connection with the transfer of the mutual 

19 or cooperative electric company’s interest in 

20 a nuclear power plant or nuclear power 

21 plant unit, 

22 ‘‘(ii) any distribution from any trust, 

23 fund, or instrument established to pay any 

24 nuclear decommissioning costs, or 
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1 ‘‘(iii) any earnings from any trust, 

2 fund, or instrument established to pay any 

3 nuclear decommissioning costs. 

4 ‘‘(G) For purposes of subparagraph (C)(iv), 

5 the term ‘asset exchange or conversion trans6 action’ means any voluntary exchange or invol7 untary conversion of any property related to 

8 generating, transmitting, distributing, or selling 

9 electric energy by a mutual or cooperative elec10 tric company, the gain from which qualifies for 

11 deferred recognition under section 1031 or 1033, 

12 but only if the replacement property acquired by 

13 such company pursuant to such section con14 stitutes property which is used, or to be used, 

15 for—

16 ‘‘(i) generating, transmitting, distrib17 uting, or selling electric energy, or 

18 ‘‘(ii) producing, transmitting, distrib19 uting, or selling natural gas.’’. 

20 (b) TREATMENT OF INCOME FROM LOAD LOSS TRANS21 ACTIONS, ETC.—Paragraph (12) of section 501(c), as 

22 amended by subsection (a)(2), is amended by adding after 

23 subparagraph (G) the following new subparagraph: 

24 ‘‘(H)(i) In the case of a mutual or coopera25 tive electric company described in this para-
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1 graph or an organization described in section 

2 1381(a)(2)(C), income received or accrued from a 

3 load loss transaction shall be treated as an 

4 amount collected from members for the sole pur5 pose of meeting losses and expenses. 

6 ‘‘(ii) For purposes of clause (i), the term 

7 ‘load loss transaction’ means any wholesale or 

8 retail sale of electric energy (other than to mem9 bers) to the extent that the aggregate sales during 

10 the recovery period do not exceed the load loss 

11 mitigation sales limit for such period. 

12 ‘‘(iii) For purposes of clause (ii), the load 

13 loss mitigation sales limit for the recovery period 

14 is the sum of the annual load losses for each year 

15 of such period. 

16 ‘‘(iv) For purposes of clause (iii), a mutual 

17 or cooperative electric company’s annual load 

18 loss for each year of the recovery period is the 

19 amount (if any) by which—

20 ‘‘(I) the megawatt hours of electric en21 ergy sold during such year to members of 

22 such electric company are less than 

23 ‘‘(II) the megawatt hours of electric en24 ergy sold during the base year to such mem25 bers.
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1 ‘‘(v) For purposes of clause (iv)(II), the 

2 term ‘base year’ means—

3 ‘‘(I) the calendar year preceding the 

4 start-up year, or 

5 ‘‘(II) at the election of the electric com6 pany, the second or third calendar years 

7 preceding the start-up year. 

8 ‘‘(vi) For purposes of this subparagraph, the 

9 recovery period is the 7-year period beginning 

10 with the start-up year. 

11 ‘‘(vii) For purposes of this subparagraph, 

12 the start-up year is the calendar year which in13 cludes the date of the enactment of this subpara14 graph or, if later, at the election of the mutual 

15 or cooperative electric company—

16 ‘‘(I) the first year that such electric 

17 company offers nondiscriminatory open ac18 cess, or 

19 ‘‘(II) the first year in which at least 10 

20 percent of such electric company’s sales are 

21 not to members of such electric company. 

22 ‘‘(viii) A company shall not fail to be treat23 ed as a mutual or cooperative company for pur24 poses of this paragraph or as a corporation oper25 ating on a cooperative basis for purposes of sec-
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1 tion 1381(a)(2)(C) by reason of the treatment 

2 under clause (i). 

3 ‘‘(ix) For purposes of subparagraph (A), in 

4 the case of a mutual or cooperative electric com5 pany, income received, or accrued, indirectly 

6 from a member shall be treated as an amount 

7 collected from members for the sole purpose of 

8 meeting losses and expenses.’’. 

9 (c) EXCEPTION FROM UNRELATED BUSINESS TAX10 ABLE INCOME.—Subsection (b) of section 512 (relating to 

11 modifications) is amended by adding at the end the fol12 lowing new paragraph: 

13 ‘‘(18) TREATMENT OF MUTUAL OR COOPERATIVE

14 ELECTRIC COMPANIES.—In the case of a mutual or 

15 cooperative electric company described in section 

16 501(c)(12), there shall be excluded income which is 

17 treated as member income under subparagraph (H) 

18 thereof.’’. 

19 (d) CROSS REFERENCE.—Section 1381 is amended by 

20 adding at the end the following new subsection:

21 ‘‘(c) CROSS REFERENCE.—

‘‘For treatment of income from load loss transactions of organizations described in subsection 

(a)(2)(C), see section 501(c)(12)(H).’’.

22 (e) EFFECTIVE DATE.—The amendments made by this 

23 section shall apply to taxable years beginning after the date 

24 of the enactment of this Act. 
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1 SEC. 210. ARBITRAGE RULES NOT TO APPLY TO PREPAY2 MENTS FOR NATURAL GAS. 

3 (a) IN GENERAL.—Subsection (b) of section 148 (relat4 ing to higher yielding investments) is amended by adding 

5 at the end the following new paragraph: 

6 ‘‘(4) SAFE HARBOR FOR PREPAID NATURAL

7 GAS.—

8 ‘‘(A) IN GENERAL.—The term ‘investment9 type property’ does not include a prepayment 

10 under a qualified natural gas supply contract. 

11 ‘‘(B) QUALIFIED NATURAL GAS SUPPLY

12 CONTRACT.—For purposes of this paragraph, the 

13 term ‘qualified natural gas supply contract’ 

14 means any contract to acquire natural gas for 

15 resale by a utility owned by a governmental unit 

16 if the amount of gas permitted to be acquired 

17 under the contract by the utility during any 

18 year does not exceed the sum of—

19 ‘‘(i) the annual average amount during 

20 the testing period of natural gas purchased 

21 (other than for resale) by customers of such 

22 utility who are located within the service 

23 area of such utility, and 

24 ‘‘(ii) the amount of natural gas to be 

25 used to transport the prepaid natural gas to 

26 the utility during such year. 
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1 ‘‘(C) NATURAL GAS USED TO GENERATE

2 ELECTRICITY.—Natural gas used to generate 

3 electricity shall be taken into account in deter4 mining the average under subparagraph 

5 (B)(i)—

6 ‘‘(i) only if the electricity is generated 

7 by a utility owned by a governmental unit, 

8 and 

9 ‘‘(ii) only to the extent that the elec10 tricity is sold (other than for resale) to cus11 tomers of such utility who are located with12 in the service area of such utility. 

13 ‘‘(D) ADJUSTMENTS FOR CHANGES IN CUS14 TOMER BASE.—

15 ‘‘(i) NEW BUSINESS CUSTOMERS.—If—

16 ‘‘(I) after the close of the testing 

17 period and before the date of issuance 

18 of the issue, the utility owned by a gov19 ernmental unit enters into a contract 

20 to supply natural gas (other than for 

21 resale) for a business use at a property 

22 within the service area of such utility, 

23 and 

24 ‘‘(II) the utility did not supply 

25 natural gas to such property during
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1 the testing period or the ratable 

2 amount of natural gas to be supplied 

3 under the contract is significantly 

4 greater than the ratable amount of gas 

5 supplied to such property during the 

6 testing period, 

7 then a contract shall not fail to be treated 

8 as a qualified natural gas supply contract 

9 by reason of supplying the additional nat10 ural gas under the contract referred to in 

11 subclause (I). 

12 ‘‘(ii) LOST CUSTOMERS.—The average 

13 under subparagraph (B)(i) shall not exceed 

14 the annual amount of natural gas reason15 ably expected to be purchased (other than 

16 for resale) by persons who are located with17 in the service area of such utility and who, 

18 as of the date of issuance of the issue, are 

19 customers of such utility. 

20 ‘‘(E) RULING REQUESTS.—The Secretary 

21 may increase the average under subparagraph 

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

23 governmental unit establishes to the satisfaction 

24 of the Secretary that, based on objective evidence 

25 of growth in natural gas consumption or popu-
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1 lation, such average would otherwise be insuffi2 cient for such period. 

3 ‘‘(F) ADJUSTMENT FOR NATURAL GAS OTH4 ERWISE ON HAND.—

5 ‘‘(i) IN GENERAL.—The amount other6 wise permitted to be acquired under the 

7 contract for any period shall be reduced 

8 by—

9 ‘‘(I) the applicable share of nat10 ural gas held by the utility on the date 

11 of issuance of the issue, and 

12 ‘‘(II) the natural gas (not taken 

13 into account under subclause (I)) 

14 which the utility has a right to acquire 

15 during such period (determined as of 

16 the date of issuance of the issue). 

17 ‘‘(ii) APPLICABLE SHARE.—For pur18 poses of the clause (i), the term ‘applicable 

19 share’ means, with respect to any period, 

20 the natural gas allocable to such period if 

21 the gas were allocated ratably over the pe22 riod to which the prepayment relates. 

23 ‘‘(G) INTENTIONAL ACTS.—Subparagraph 

24 (A) shall cease to apply to any issue if the util25 ity owned by the governmental unit engages in 
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1 any intentional act to render the volume of nat2 ural gas acquired by such prepayment to be in 

3 excess of the sum of—

4 ‘‘(i) the amount of natural gas needed 

5 (other than for resale) by customers of such 

6 utility who are located within the service 

7 area of such utility, and 

8 ‘‘(ii) the amount of natural gas used to 

9 transport such natural gas to the utility. 

10 ‘‘(H) TESTING PERIOD.—For purposes of 

11 this paragraph, the term ‘testing period’ means, 

12 with respect to an issue, the most recent 5 cal13 endar years ending before the date of issuance of 

14 the issue. 

15 ‘‘(I) SERVICE AREA.—For purposes of this 

16 paragraph, the service area of a utility owned by 

17 a governmental unit shall be comprised of—

18 ‘‘(i) any area throughout which such 

19 utility provided at all times during the test20 ing period—

21 ‘‘(I) in the case of a natural gas 

22 utility, natural gas transmission or 

23 distribution services, and 

24 ‘‘(II) in the case of an electric 

25 utility, electricity distribution services, 
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1 ‘‘(ii) any area within a county contig2 uous to the area described in clause (i) in 

3 which retail customers of such utility are lo4 cated if such area is not also served by an5 other utility providing natural gas or elec6 tricity services, as the case may be, and 

7 ‘‘(iii) any area recognized as the serv8 ice area of such utility under State or Fed9 eral law.’’. 

10 (b) PRIVATE LOAN FINANCING TEST NOT TO APPLY

11 TO PREPAYMENTS FOR NATURAL GAS.—Paragraph (2) of 

12 section 141(c) (providing exceptions to the private loan fi13 nancing test) is amended by striking ‘‘or’’ at the end of 

14 subparagraph (A), by striking the period at the end of sub15 paragraph (B) and inserting ‘‘, or’’, and by adding at the 

16 end the following new subparagraph: 

17 ‘‘(C) is a qualified natural gas supply con18 tract (as defined in section 148(b)(4)).’’. 

19 (c) EFFECTIVE DATE.—The amendment made by this 

20 section shall apply to obligations issued after the date of 

21 the enactment of this Act.
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1 SEC. 211. PREPAYMENT OF PREMIUM LIABILITY FOR COAL 

2 INDUSTRY HEALTH BENEFITS. 

3 (a) IN GENERAL.—Section 9704 (relating to liability 

4 of assigned operators) is amended by adding at the end the 

5 following new subsection: 

6 ‘‘(j) PREPAYMENT OF PREMIUM LIABILITY.—

7 ‘‘(1) IN GENERAL.—If—

8 ‘‘(A) any assigned operator who is a mem9 ber of a controlled group of corporations (within 

10 the meaning of section 52(a)) makes a payment 

11 meeting the requirements of paragraph (2) to the 

12 Combined Fund, and 

13 ‘‘(B) the common parent of such group—

14 ‘‘(i) is jointly and severally liable for 

15 any premium which would (but for this 

16 subsection) be required to be paid by such 

17 operator, and 

18 ‘‘(ii) provides security which meets the 

19 requirements of paragraph (3), 

20 then no person (other than such common parent) shall 

21 be liable for any premium for which such operator 

22 would otherwise be liable. 

23 ‘‘(2) REQUIREMENTS.—A payment meets the re24 quirements of this paragraph if—

25 ‘‘(A) the amount of the payment is not less 

26 than the present value of the total premium li-
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1 ability of the assigned operator for its assignees 

2 under this chapter with respect to the Combined 

3 Fund (as determined by the operator’s enrolled 

4 actuary, as defined in section 7701(a)(35)), 

5 using actuarial methods and assumptions each of 

6 which is reasonable and which are reasonable in 

7 the aggregate, as determined by such enrolled ac8 tuary, 

9 ‘‘(B) a signed actuarial report is filed with 

10 the Secretary of Labor by such enrolled actuary 

11 containing—

12 ‘‘(i) the date of the actuarial valuation 

13 applicable to the report, and 

14 ‘‘(ii) a statement by the enrolled actu15 ary signing the report that to the best of the 

16 actuary’s knowledge the report is complete 

17 and accurate and that in the actuary’s 

18 opinion the actuarial assumptions used are 

19 in the aggregate reasonably related to the 

20 experience of the operator and to reasonable 

21 expectations, 

22 ‘‘(C) a description of the security described 

23 in paragraph (3) is filed with the Secretary of 

24 Labor by the common parent, and 
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1 ‘‘(D) 30 calendar days have elapsed after 

2 the report required by subparagraph (B), and 

3 the description required by subparagraph (C), 

4 are filed with the Secretary of Labor, and the 

5 Secretary of Labor has not notified the assigned 

6 operator in writing that the requirements of this 

7 paragraph have not been satisfied. 

8 ‘‘(3) SECURITY.—Security meets the require9 ments of this paragraph if—

10 ‘‘(A) the security (in the form of a bond, let11 ter of credit, or cash escrow) is provided to the 

12 trustees of the 1992 UMWA Benefit Plan, solely 

13 for the purpose of paying premiums for bene14 ficiaries described in section 9712(b)(2)(B), 

15 equal in amount to one year’s liability of the as16 signed operator under section 9711, determined 

17 by using the average cost of such operator’s li18 ability during its prior 3 calendar years; and 

19 ‘‘(B) the security will remain in place for 

20 5 years. 

21 ‘‘(4) USE OF PREPAYMENT.—Any payment to 

22 which this subsection applies (and earnings thereon) 

23 shall be used exclusively to pay premiums which 

24 would (but for this subsection) be required to be paid 

25 by the assigned operator making such payment.’’. 
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1 (b) EFFECTIVE DATE.—The amendment made by this 

2 section shall take effect on the date of the enactment of this 

3 Act. 

4 TITLE III—PRODUCTION 

5 SEC. 301. OIL AND GAS FROM MARGINAL WELLS. 

6 (a) IN GENERAL.—Subpart D of part IV of subchapter 

7 A of chapter 1 (relating to business credits) is amended by 

8 adding at the end the following: 

9 ‘‘SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM 

10 MARGINAL WELLS. 

11 ‘‘(a) GENERAL RULE.—For purposes of section 38, the 

12 marginal well production credit for any taxable year is an 

13 amount equal to the product of—

14 ‘‘(1) the credit amount, and 

15 ‘‘(2) the qualified credit oil production and the 

16 qualified natural gas production which is attributable 

17 to the taxpayer. 

18 ‘‘(b) CREDIT AMOUNT.—For purposes of this section—

19 ‘‘(1) IN GENERAL.—The credit amount is—

20 ‘‘(A) $3 per barrel of qualified crude oil 

21 production, and 

22 ‘‘(B) 50 cents per 1,000 cubic feet of quali23 fied natural gas production. 

24 ‘‘(2) REDUCTION AS OIL AND GAS PRICES IN25 CREASE.—
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1 ‘‘(A) IN GENERAL.—The $3 and 50 cents 

2 amounts under paragraph (1) shall each be re3 duced (but not below zero) by an amount which 

4 bears the same ratio to such amount (determined 

5 without regard to this paragraph) as—

6 ‘‘(i) the excess (if any) of the applica7 ble reference price over $15 ($1.67 for quali8 fied natural gas production), bears to 

9 ‘‘(ii) $3 ($0.33 for qualified natural 

10 gas production). 

11 The applicable reference price for a taxable year 

12 is the reference price of the calendar year pre13 ceding the calendar year in which the taxable 

14 year begins. 

15 ‘‘(B) INFLATION ADJUSTMENT.—In the case 

16 of any taxable year beginning in a calendar year 

17 after 2003, each of the dollar amounts contained 

18 in subparagraph (A) shall be increased to an 

19 amount equal to such dollar amount multiplied 

20 by the inflation adjustment factor for such cal21 endar year (determined under section 

22 43(b)(3)(B) by substituting ‘2002’ for ‘1990’). 

23 ‘‘(C) REFERENCE PRICE.—For purposes of 

24 this paragraph, the term ‘reference price’ means, 

25 with respect to any calendar year—
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1 ‘‘(i) in the case of qualified crude oil 

2 production, the reference price determined 

3 under section 29(d)(2)(C), and 

4 ‘‘(ii) in the case of qualified natural 

5 gas production, the Secretary’s estimate of 

6 the annual average wellhead price per 1,000 

7 cubic feet for all domestic natural gas. 

8 ‘‘(c) QUALIFIED CRUDE OIL AND NATURAL GAS PRO9 DUCTION.—For purposes of this section—

10 ‘‘(1) IN GENERAL.—The terms ‘qualified crude 

11 oil production’ and ‘qualified natural gas production’ 

12 mean domestic crude oil or natural gas which is pro13 duced from a qualified marginal well. 

14 ‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION

15 WHICH MAY QUALIFY.—

16 ‘‘(A) IN GENERAL.—Crude oil or natural 

17 gas produced during any taxable year from any 

18 well shall not be treated as qualified crude oil 

19 production or qualified natural gas production 

20 to the extent production from the well during the 

21 taxable year exceeds 1,095 barrels or barrel 

22 equivalents. 

23 ‘‘(B) PROPORTIONATE REDUCTIONS.—

24 ‘‘(i) SHORT TAXABLE YEARS.—In the 

25 case of a short taxable year, the limitations 
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1 under this paragraph shall be proportion2 ately reduced to reflect the ratio which the 

3 number of days in such taxable year bears 

4 to 365. 

5 ‘‘(ii) WELLS NOT IN PRODUCTION EN6 TIRE YEAR.—In the case of a well which is 

7 not capable of production during each day 

8 of a taxable year, the limitations under this 

9 paragraph applicable to the well shall be 

10 proportionately reduced to reflect the ratio 

11 which the number of days of production 

12 bears to the total number of days in the tax13 able year. 

14 ‘‘(3) DEFINITIONS.—

15 ‘‘(A) QUALIFIED MARGINAL WELL.—The 

16 term ‘qualified marginal well’ means a domestic 

17 well—

18 ‘‘(i) the production from which during 

19 the taxable year is treated as marginal pro20 duction under section 613A(c)(6), or 

21 ‘‘(ii) which, during the taxable year—

22 ‘‘(I) has average daily production 

23 of not more than 25 barrel equivalents, 

24 and 
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1 ‘‘(II) produces water at a rate not 

2 less than 95 percent of total well efflu3 ent. 

4 ‘‘(B) CRUDE OIL, ETC.—The terms ‘crude 

5 oil’, ‘natural gas’, ‘domestic’, and ‘barrel’ have 

6 the meanings given such terms by section 

7 613A(e). 

8 ‘‘(C) BARREL EQUIVALENT.—The term ‘bar9 rel equivalent’ means, with respect to natural 

10 gas, a conversion ratio of 6,000 cubic feet of nat11 ural gas to 1 barrel of crude oil. 

12 ‘‘(d) OTHER RULES.—

13 ‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX14 PAYER.—In the case of a qualified marginal well in 

15 which there is more than one owner of operating in16 terests in the well and the crude oil or natural gas 

17 production exceeds the limitation under subsection 

18 (c)(2), qualifying crude oil production or qualifying 

19 natural gas production attributable to the taxpayer 

20 shall be determined on the basis of the ratio which 

21 taxpayer’s revenue interest in the production bears to 

22 the aggregate of the revenue interests of all operating 

23 interest owners in the production. 

24 ‘‘(2) OPERATING INTEREST REQUIRED.—Any 

25 credit under this section may be claimed only on pro-
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1 duction which is attributable to the holder of an oper2 ating interest. 

3 ‘‘(3) PRODUCTION FROM NONCONVENTIONAL

4 SOURCES EXCLUDED.—In the case of production from 

5 a qualified marginal well which is eligible for the 

6 credit allowed under section 29 for the taxable year, 

7 no credit shall be allowable under this section unless 

8 the taxpayer elects not to claim the credit under sec9 tion 29 with respect to the well.’’. 

10 (b) CREDIT TREATED AS BUSINESS CREDIT.—Section 

11 38(b) is amended by striking ‘‘plus’’ at the end of para12 graph (16), by striking the period at the end of paragraph 

13 (17) and inserting ‘‘, plus’’, and by adding at the end the 

14 following: 

15 ‘‘(18) the marginal oil and gas well production 

16 credit determined under section 45I(a).’’. 

17 (c) CARRYBACK.—Subsection (a) of section 39 (relat18 ing to carryback and carryforward of unused credits gen19 erally) is amended by adding at the end the following: 

20 ‘‘(3) 10-YEAR CARRYBACK FOR MARGINAL OIL

21 AND GAS WELL PRODUCTION CREDIT.—In the case of 

22 the marginal oil and gas well production credit—

23 ‘‘(A) this section shall be applied separately 

24 from the business credit (other than the marginal 

25 oil and gas well production credit), 
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1 ‘‘(B) paragraph (1) shall be applied by sub2 stituting ‘10 taxable years’ for ‘1 taxable years’ 

3 in subparagraph (A) thereof, and 

4 ‘‘(C) paragraph (2) shall be applied—

5 ‘‘(i) by substituting ‘31 taxable years’ 

6 for ‘21 taxable years’ in subparagraph (A) 

7 thereof, and 

8 ‘‘(ii) by substituting ‘30 taxable years’ 

9 for ‘20 taxable years’ in subparagraph (A) 

10 thereof.’’. 

11 (d) COORDINATION WITH SECTION 29.—Section 29(a) 

12 is amended by striking ‘‘There’’ and inserting ‘‘At the elec13 tion of the taxpayer, there’’. 

14 (e) CLERICAL AMENDMENT.—The table of sections for 

15 subpart D of part IV of subchapter A of chapter 1 is amend16 ed by adding at the end the following:

‘‘Sec. 45I. Credit for producing oil and gas from marginal wells.’’.

17 (f) EFFECTIVE DATE.—The amendments made by this 

18 section shall apply to production in taxable years beginning 

19 after December 31, 2003.
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1 SEC. 302. TEMPORARY SUSPENSION OF LIMITATION BASED 

2 ON 65 PERCENT OF TAXABLE INCOME AND EX3 TENSION OF SUSPENSION OF TAXABLE IN4 COME LIMIT WITH RESPECT TO MARGINAL 

5 PRODUCTION. 

6 (a) LIMITATION BASED ON 65 PERCENT OF TAXABLE

7 INCOME.—Subsection (d) of section 613A (relating to limi8 tation on percentage depletion in case of oil and gas wells) 

9 is amended by adding at the end the following new para10 graph: 

11 ‘‘(6) TEMPORARY SUSPENSION OF TAXABLE IN12 COME LIMIT.—Paragraph (1) shall not apply to tax13 able years beginning after December 31, 2003, and be14 fore January 1, 2007, including with respect to 

15 amounts carried under the second sentence of para16 graph (1) to such taxable years.’’. 

17 (b) EXTENSION OF SUSPENSION OF TAXABLE INCOME

18 LIMIT WITH RESPECT TO MARGINAL PRODUCTION.—Sub19 paragraph (H) of section 613A(c)(6) (relating to temporary 

20 suspension of taxable income limit with respect to marginal 

21 production) is amended by striking ‘‘2004’’ and inserting 

22 ‘‘2007’’. 

23 (c) EFFECTIVE DATE.—The amendment made by sub24 section (a) shall apply to taxable years beginning after De25 cember 31, 2003. 
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1 SEC. 303. AMORTIZATION OF DELAY RENTAL PAYMENTS. 

2 (a) IN GENERAL.—Section 167 (relating to deprecia3 tion) is amended by redesignating subsection (h) as sub4 section (i) and by inserting after subsection (g) the fol5 lowing new subsection: 

6 ‘‘(h) AMORTIZATION OF DELAY RENTAL PAYMENTS

7 FOR DOMESTIC OIL AND GAS WELLS.—

8 ‘‘(1) IN GENERAL.—Any delay rental payment 

9 paid or incurred in connection with the development 

10 of oil or gas wells within the United States (as de11 fined in section 638) shall be allowed as a deduction 

12 ratably over the 24-month period beginning on the 

13 date that such payment was paid or incurred. 

14 ‘‘(2) HALF-YEAR CONVENTION.—For purposes of 

15 paragraph (1), any payment paid or incurred during 

16 the taxable year shall be treated as paid or incurred 

17 on the mid-point of such taxable year. 

18 ‘‘(3) EXCLUSIVE METHOD.—Except as provided 

19 in this subsection, no depreciation or amortization 

20 deduction shall be allowed with respect to such pay21 ments. 

22 ‘‘(4) TREATMENT UPON ABANDONMENT.—If any 

23 property to which a delay rental payment relates is 

24 retired or abandoned during the 24-month period de25 scribed in paragraph (1), no deduction shall be al26 lowed on account of such retirement or abandonment 
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1 and the amortization deduction under this subsection 

2 shall continue with respect to such payment. 

3 ‘‘(5) DELAY RENTAL PAYMENTS.—For purposes 

4 of this subsection, the term ‘delay rental payment’ 

5 means an amount paid for the privilege of deferring 

6 development of an oil or gas well under an oil or gas 

7 lease.’’. 

8 (b) EFFECTIVE DATE.—The amendment made by this 

9 section shall apply to amounts paid or incurred in taxable 

10 years beginning after December 31, 2003. 

11 SEC. 304. AMORTIZATION OF GEOLOGICAL AND GEO12 PHYSICAL EXPENDITURES. 

13 (a) IN GENERAL.—Section 167 (relating to deprecia14 tion) is amended by redesignating subsection (i) as sub15 section (j) and by inserting after subsection (h) the fol16 lowing new subsection: 

17 ‘‘(i) AMORTIZATION OF GEOLOGICAL AND GEO18 PHYSICAL EXPENDITURES.—

19 ‘‘(1) IN GENERAL.—Any geological and geo20 physical expenses paid or incurred in connection with 

21 the exploration for, or development of, oil or gas with22 in the United States (as defined in section 638) shall 

23 be allowed as a deduction ratably over the 24-month 

24 period beginning on the date that such expense was 

25 paid or incurred. 
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1 ‘‘(2) SPECIAL RULES.—For purposes of this sub2 section, rules similar to the rules of paragraphs (2), 

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

4 (b) EFFECTIVE DATE.—The amendment made by this 

5 section shall apply to costs paid or incurred in taxable 

6 years beginning after December 31, 2003. 

7 SEC. 305. EXTENSION AND MODIFICATION OF CREDIT FOR 

8 PRODUCING FUEL FROM A NONCONVEN9 TIONAL SOURCE. 

10 (a) IN GENERAL.—Section 29 is amended by adding 

11 at the end the following new subsection: 

12 ‘‘(h) EXTENSION FOR OTHER FACILITIES.—

13 ‘‘(1) EXTENSION FOR OIL AND CERTAIN GAS.—In 

14 the case of a well for producing qualified fuels de15 scribed in subparagraph (A) or (B)(i) of subsection 

16 (c)(1)—

17 ‘‘(A) APPLICATION OF CREDIT FOR NEW

18 WELLS.—Notwithstanding subsection (f), this 

19 section shall apply with respect to such fuels—

20 ‘‘(i) which are produced from a well 

21 drilled after the date of the enactment of 

22 this subsection and before January 1, 2007, 

23 and 

24 ‘‘(ii) which are sold not later than the 

25 close of the 4-year period beginning on the 
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1 date that such well is drilled, or, if earlier, 

2 January 1, 2010. 

3 ‘‘(B) EXTENSION OF CREDIT FOR OLD

4 WELLS.—Subsection (f)(2) shall be applied by 

5 substituting ‘2007’ for ‘2003’ with respect to 

6 wells described in subsection (f)(1)(A) with re7 spect to such fuels. 

8 ‘‘(2) EXTENSION FOR FACILITIES PRODUCING

9 QUALIFIED FUEL FROM LANDFILL GAS.—

10 ‘‘(A) IN GENERAL.—In the case of a facility 

11 for producing qualified fuel from landfill gas 

12 which was placed in service after June 30, 1998, 

13 and before January 1, 2007, this section shall 

14 apply to fuel produced at such facility during 

15 the 5-year period beginning on the later of—

16 ‘‘(i) the date such facility was placed 

17 in service, or 

18 ‘‘(ii) the date of the enactment of this 

19 subsection. 

20 ‘‘(B) REDUCTION OF CREDIT FOR CERTAIN

21 LANDFILL FACILITIES.—In the case of a facility 

22 to which paragraph (1) applies and which is lo23 cated at a landfill which is required pursuant to 

24 section 60.751(b)(2) or section 60.33c of title 40, 

25 Code of Federal Regulations (as in effect on
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1 April 3, 2003) to install and operate a collection 

2 and control system which captures gas generated 

3 within the landfill, subsection (a)(1) shall be ap4 plied to gas so captured by substituting ‘$2’ for 

5 ‘$3’ for the taxable year during which such sys6 tem is required to be installed and operated. 

7 ‘‘(3) SPECIAL RULES.—In determining the 

8 amount of credit allowable under this section solely 

9 by reason of this subsection—

10 ‘‘(A) DAILY LIMIT.—The amount of quali11 fied fuels sold during any taxable year which 

12 may be taken into account by reason of this sub13 section with respect to any project shall not ex14 ceed an average barrel-of-oil equivalent of 

15 200,000 cubic feet of natural gas per day. Days 

16 before the date the project is placed in service 

17 shall not be taken into account in determining 

18 such average. 

19 ‘‘(B) EXTENSION PERIOD TO COMMENCE

20 WITH UNADJUSTED CREDIT AMOUNT.—In the 

21 case of fuels sold during 2003, the dollar amount 

22 applicable under subsection (a)(1) shall be $3 

23 (without regard to subsection (b)(2)). In the case 

24 of fuels sold after 2003, subparagraph (B) of sub-
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1 section (d)(2) shall be applied by substituting 

2 ‘2003’ for ‘1979’.’’. 

3 (b) TREATMENT AS BUSINESS CREDIT.—

4 (1) CREDIT MOVED TO SUBPART RELATING TO

5 BUSINESS RELATED CREDITS.—The Internal Revenue 

6 Code of 1986 is amended by redesignating section 29 

7 as section 45J and by moving section 45J (as so re8 designated) from subpart B of part IV of subchapter 

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

10 subchapter A of chapter 1. 

11 (2) CREDIT TREATED AS BUSINESS CREDIT.—

12 Section 38(b) is amended by striking ‘‘plus’’ at the 

13 end of paragraph (17), by striking the period at the 

14 end of paragraph (18) and inserting ‘‘, plus’’, and by 

15 adding at the end the following: 

16 ‘‘(19) the nonconventional source production 

17 credit determined under section 45J(a).’’. 

18 (3) CONFORMING AMENDMENTS.—

19 (A) Section 30(b)(2)(A), as redesignated by 

20 section 110(a), is amended by striking ‘‘sections 

21 27 and 29’’ and inserting ‘‘section 27’’. 

22 (B) Section 30B(d), as added by section 

23 111, is amended by striking ‘‘, 29,’’. 

24 (C) Section 39(d) is amended by adding at 

25 the end the following new paragraph: 
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1 ‘‘(13) NO CARRYBACK FOR NONCONVENTIONAL

2 SOURCE PRODUCTION CREDIT.—No portion of the un3 used business credit for any taxable year which is at4 tributable to the credit under section 45J may be car5 ried back to a taxable year ending before April 1, 

6 2003.’’. 

7 (D) Sections 43(b)(2), 45I(b)(2)(C) (as 

8 added by section 301), and 613A(c)(6)(C) are 

9 each amended by striking ‘‘section 29(d)(2)(C)’’ 

10 and inserting ‘‘section 45J(d)(2)(C)’’. 

11 (E) Paragraph (9) of section 45(c), as 

12 added by section 102(c), is amended by striking 

13 ‘‘section 29’’ and inserting ‘‘section 45J’’ and by 

14 striking ‘‘SECTION 29’’ in the heading of such 

15 paragraph and inserting ‘‘SECTION 45J’’. 

16 (F) Section 45I(d)(3), as added by section 

17 301, is amended by striking ‘‘section 29’’ each 

18 place it appears and inserting ‘‘section 45J’’. 

19 (G) Section 45J(a), as amended by section 

20 301(d) and redesignated by paragraph (1), is 

21 amended by striking ‘‘At the election of the tax22 payer, there shall be allowed as a credit against 

23 the tax imposed by this chapter for the taxable 

24 year’’ and inserting ‘‘For purposes of section 38, 

25 if the taxpayer elects to have this section apply, 
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1 the nonconventional source production credit de2 termined under this section for the taxable year 

3 is’’. 

4 (H) Section 45J(b), as so redesignated, is 

5 amended by striking paragraph (6). 

6 (I) Section 53(d)(1)(B)(iii) is amended by 

7 striking ‘‘under section 29’’ and all that follows 

8 through ‘‘or not allowed’’. 

9 (J) Section 55(c)(2) is amended by striking 

10 ‘‘29(b)(6),’’. 

11 (K) Subsection (a) of section 772 is amend12 ed by inserting ‘‘and’’ at the end of paragraph 

13 (9), by striking paragraph (10), and by redesig14 nating paragraph (11) as paragraph (10). 

15 (L) Paragraph (5) of section 772(d) is 

16 amended by striking ‘‘the foreign tax credit, and 

17 the credit allowable under section 29’’ and in18 serting ‘‘and the foreign tax credit’’. 

19 (M) The table of sections for subpart B of 

20 part IV of subchapter A of chapter 1 is amended 

21 by striking the item relating to section 29. 

22 (N) The table of sections for subpart D of 

23 part IV of subchapter A of chapter 1 is amended 

24 by inserting after the item relating to section 45I 

25 the following new item:
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‘‘Sec. 45J. Credit for producing fuel from a nonconventional 

source.’’.

1 (c) EFFECTIVE DATES.—

2 (1) IN GENERAL.—The amendment made by sub3 section (a) shall apply to fuel sold after March 31, 

4 2003, in taxable years ending after such date. 

5 (2) TREATMENT AS BUSINESS CREDIT.—The 

6 amendments made by subsection (b) shall apply to 

7 taxable years ending after March 31, 2003. 

8 SEC. 306. BUSINESS RELATED ENERGY CREDITS ALLOWED 

9 AGAINST REGULAR AND MINIMUM TAX. 

10 (a) IN GENERAL.—Subsection (c) of section 38 (relat11 ing to limitation based on amount of tax) is amended by 

12 redesignating paragraph (4) as paragraph (5) and by in13 serting after paragraph (3) the following new paragraph: 

14 ‘‘(4) SPECIAL RULES FOR SPECIFIED ENERGY

15 CREDITS.—

16 ‘‘(A) IN GENERAL.—In the case of specified 

17 energy credits—

18 ‘‘(i) this section and section 39 shall be 

19 applied separately with respect to such 

20 credits, and 

21 ‘‘(ii) in applying paragraph (1) to 

22 such credits—

23 ‘‘(I) the tentative minimum tax 

24 shall be treated as being zero, and
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1 ‘‘(II) the limitation under para2 graph (1) (as modified by subclause 

3 (I)) shall be reduced by the credit al4 lowed under subsection (a) for the tax5 able year (other than the specified en6 ergy credits). 

7 ‘‘(B) SPECIFIED ENERGY CREDITS.—For 

8 purposes of this subsection, the term ‘specified 

9 energy credits’ means the credits determined 

10 under sections 45G, 45H, and 45I. 

11 ‘‘(C) SPECIAL RULE FOR QUALIFIED WIND

12 FACILITIES.—For purposes of this subsection, the 

13 term ‘specified energy credits’ shall include the 

14 credit determined under section 45 to the extent 

15 that such credit is attributable to electricity pro16 duced—

17 ‘‘(i) at a facility using wind to 

18 produce electricity which is originally 

19 placed in service after the date of the enact20 ment of this paragraph, and 

21 ‘‘(ii) during the 4-year period begin22 ning on the date that such facility was 

23 originally placed in service.’’. 

24 (b) CONFORMING AMENDMENTS.—Paragraphs 

25 (2)(A)(ii)(II) and (3)(A)(ii)(II) of section 38(c) are each 
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1 amended by inserting ‘‘or the specified energy credits’’ after 

2 ‘‘employee credit’’. 

3 (c) EFFECTIVE DATE.—The amendments made by this 

4 section shall apply to taxable years ending after the date 

5 of the enactment of this Act. 

6 SEC. 307. TEMPORARY REPEAL OF ALTERNATIVE MINIMUM 

7 TAX PREFERENCE FOR INTANGIBLE DRILL8 ING COSTS. 

9 (a) IN GENERAL.—Clause (ii) of section 57(a)(2)(E) 

10 is amended by adding at the end the following new sentence: 

11 ‘‘The preceding sentence shall not apply to taxable years 

12 beginning after December 31, 2003, and before January 1, 

13 2006.’’. 

14 (b) EFFECTIVE DATE.—The amendment made by this 

15 section shall apply to taxable years beginning after Decem16 ber 31, 2003. 

17 SEC. 308. ALLOWANCE OF ENHANCED RECOVERY CREDIT 

18 AGAINST THE ALTERNATIVE MINIMUM TAX. 

19 (a) IN GENERAL.—Subparagraph (B) of section 

20 38(c)(4), as amended by section 306, is amended by adding 

21 at the end the following new sentence: ‘‘For taxable years 

22 beginning after December 31, 2003, and before January 1, 

23 2006, such term includes the credit determined under sec24 tion 43.’’. 
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1 (b) EFFECTIVE DATE.—The amendment made by this 

2 section shall apply to taxable years beginning after Decem3 ber 31, 2003. 

4 TITLE IV—CORPORATE 

5 EXPATRIATION

6 SEC. 401. TAX TREATMENT OF CORPORATE EXPATRIATION. 

7 (a) IN GENERAL.—Subchapter C of chapter 80 (relat8 ing to provisions affecting more than one subtitle) is 

9 amended by adding at the end the following new section: 

10 ‘‘SEC. 7874. TAX TREATMENT OF CORPORATE EXPATRIA11 TION. 

12 ‘‘(a) INVERTED CORPORATIONS TREATED AS DOMES13 TIC CORPORATIONS.—

14 ‘‘(1) IN GENERAL.—If a foreign incorporated en15 tity is treated as an inverted domestic corporation, 

16 then, notwithstanding section 7701(a)(4), such entity 

17 shall be treated for purposes of this title as a domestic 

18 corporation. 

19 ‘‘(2) INVERTED DOMESTIC CORPORATION.—For 

20 purposes of this section, a foreign incorporated entity 

21 shall be treated as an inverted domestic corporation 

22 if, pursuant to a plan (or a series of related trans23 actions)—

24 ‘‘(A) the entity completes after March 4, 

25 2003, the direct or indirect acquisition of sub-
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1 stantially all of the properties held directly or 

2 indirectly by a domestic corporation or substan3 tially all of the properties constituting a trade or 

4 business of a domestic partnership, 

5 ‘‘(B) after the acquisition at least 80 per6 cent of the stock (by vote or value) of the entity 

7 is held—

8 ‘‘(i) in the case of an acquisition with 

9 respect to a domestic corporation, by former 

10 shareholders of the domestic corporation by 

11 reason of holding stock in the domestic cor12 poration, or 

13 ‘‘(ii) in the case of an acquisition with 

14 respect to a domestic partnership, by former 

15 partners of the domestic partnership by rea16 son of holding a capital or profits interest 

17 in the domestic partnership, and 

18 ‘‘(C) the expanded affiliated group which 

19 after the acquisition includes the entity does not 

20 have substantial business activities in the foreign 

21 country in which or under the law of which the 

22 entity is created or organized when compared to 

23 the total business activities of such expanded af24 filiated group.
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1 ‘‘(3) TERMINATION.—This subsection shall not 

2 apply to any acquisition completed after December 

3 31, 2004. 

4 ‘‘(b) DEFINITIONS AND SPECIAL RULES.—For pur5 poses of this section—

6 ‘‘(1) FOREIGN INCORPORATED ENTITY.—The 

7 term ‘foreign incorporated entity’ means any entity 

8 which is, or but for subsection (a) would be, treated 

9 as a foreign corporation for purposes of this title. 

10 ‘‘(2) EXPANDED AFFILIATED GROUP.—The term 

11 ‘expanded affiliated group’ means an affiliated group 

12 as defined in section 1504(a) but without regard to 

13 paragraphs (2), (3), and (4) of section 1504(b), except 

14 that section 1504(a) shall be applied by substituting 

15 ‘more than 50 percent’ for ‘at least 80 percent’ each 

16 place it appears. 

17 ‘‘(3) CERTAIN STOCK DISREGARDED.—There 

18 shall not be taken into account in determining owner19 ship under subsection (a)(3)(B)—

20 ‘‘(A) stock held by members of the expanded 

21 affiliated group which includes the foreign incor22 porated entity, or 

23 ‘‘(B) stock of such foreign incorporated enti24 ty which is sold in a public offering related to 

25 the acquisition described in subsection (a)(3)(A). 
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1 ‘‘(4) PLAN DEEMED IN CERTAIN CASES.—If a 

2 foreign incorporated entity acquires directly or indi3 rectly substantially all of the properties of a domestic 

4 corporation or partnership during the 4-year period 

5 beginning on the date which is 2 years before the 

6 ownership requirements of subsection (a)(3)(B) are 

7 met, such actions shall be treated as pursuant to a 

8 plan. 

9 ‘‘(5) CERTAIN TRANSFERS DISREGARDED.—The 

10 transfer of properties or liabilities (including by con11 tribution or distribution) shall be disregarded if such 

12 transfers are part of a plan a principal purpose of 

13 which is to avoid the purposes of this section. 

14 ‘‘(6) SPECIAL RULE FOR RELATED PARTNER15 SHIPS.—For purposes of applying subsection 

16 (a)(3)(B) to the acquisition of a domestic partnership, 

17 except as provided in regulations, all partnerships 

18 which are under common control (within the meaning 

19 of section 482) shall be treated as 1 partnership. 

20 ‘‘(7) REGULATIONS.—The Secretary shall pre21 scribe such regulations as may be appropriate to de22 termine whether a corporation is an inverted domestic 

23 corporation, including regulations—
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1 ‘‘(A) to treat warrants, options, contracts to 

2 acquire stock, convertible debt interests, and 

3 other similar interests as stock, and 

4 ‘‘(B) to treat stock as not stock. 

5 ‘‘(c) SPECIAL RULE FOR TREATIES.—Nothing in sec6 tion 894 or 7852(d) or in any other provision of law shall 

7 be construed as permitting an exemption, by reason of any 

8 treaty obligation of the United States heretofore or hereafter 

9 entered into, from the provisions of this section. 

10 ‘‘(d) REGULATIONS.—The Secretary shall provide such 

11 regulations as are necessary to carry out this section, in12 cluding regulations providing for such adjustments to the 

13 application of this section as are necessary to prevent the 

14 avoidance of the purposes of this section, including the 

15 avoidance of such purposes through—

16 ‘‘(1) the use of related persons, pass-through or 

17 other noncorporate entities, or other intermediaries, 

18 or 

19 ‘‘(2) transactions designed to have persons cease 

20 to be (or not become) members of expanded affiliated 

21 groups or related persons.’’. 

22 (b) CONFORMING AMENDMENT.—The table of sections 

23 for subchapter C of chapter 80 is amended by adding at 

24 the end the following new item:

‘‘Sec. 7874. Tax treatment of corporate expatriation.’’.
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1 (c) EFFECTIVE DATE.—The amendments made by this 

2 section shall apply to taxable years ending after March 4, 

3 2003.

4 SEC. 402. EXPRESSING THE SENSE OF THE CONGRESS THAT 

5 TAX REFORM IS NEEDED TO ADDRESS THE 

6 ISSUE OF CORPORATE EXPATRIATION. 

7 (a) FINDINGS.—The Congress finds that—

8 (1) the tax laws of the United States are overly 

9 complex; 

10 (2) the tax laws of the United States are among 

11 the most burdensome and uncompetitive in the world; 

12 (3) the tax laws of the United States make it dif13 ficult for domestically-owned United States companies 

14 to compete abroad and in the United States; 

15 (4) a domestically-owned corporation is dis16 advantaged compared to a United States subsidiary 

17 of a foreign-owned corporation; and 

18 (5) international competitiveness is forcing 

19 many United States corporations to make a choice 

20 they do not want to make—go out of business, sell the 

21 business to a foreign competitor, or become a sub22 sidiary of a foreign corporation (i.e., engage in an in23 version transaction). 

24 (b) SENSE OF CONGRESS.—It is the sense of Congress 

25 that passage of legislation to fix the underlying problems 
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1 with our tax laws is essential and should occur as soon as 

2 possible, so United States corporations will not face the cur3 rent pressures to engage in inversion transactions.
Union Calendar No. 41

108TH CONGRESS 

1ST SESSION H. R. 1531

[Report No. 108–67] 

A BILL

To amend the Internal Revenue Code of 1986 to 

enhance energy conservation and to provide for reliability and diversity in the energy supply for the American people, and for other purposes. 

APRIL 9, 2003

Reported with an amendment, committed to the Committee of the Whole House on the State of the Union, 

and ordered to be printed