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[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1531 Reported in House (RH)]

                                                  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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    (a) Short Title.--This Act may be cited as the ``Energy Tax Policy 
Act of 2003''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.
    (c) Table of Contents.--

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.

                         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.

                         TITLE I--CONSERVATION

SEC. 101. CREDIT FOR RESIDENTIAL SOLAR ENERGY PROPERTY.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
after section 25B the following new section:

``SEC. 25C. RESIDENTIAL SOLAR ENERGY PROPERTY.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to the sum of--
            ``(1) 15 percent of the qualified photovoltaic property 
        expenditures made by the taxpayer during such year, and
            ``(2) 15 percent of the qualified solar water heating 
        property expenditures made by the taxpayer during the taxable 
        year.
    ``(b) Limitations.--
            ``(1) Maximum credit.--The credit allowed under subsection 
        (a) shall not exceed--
                    ``(A) $2,000 for each system of property described 
                in subsection (c)(1), and
                    ``(B) $2,000 for each system of property described 
                in subsection (c)(2).
            ``(2) Safety certifications.--No credit shall be allowed 
        under this section for an item of property unless--
                    ``(A) in the case of solar water heating equipment, 
                such equipment is certified for performance and safety 
                by the non-profit Solar Rating Certification 
                Corporation or a comparable entity endorsed by the 
                government of the State in which such property is 
                installed, and
                    ``(B) in the case of a photovoltaic system, such 
                system meets appropriate fire and electric code 
                requirements.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified solar water heating property expenditure.--
        The term `qualified solar water heating property expenditure' 
        means an expenditure for property to heat water for use in a 
        dwelling unit located in the United States and used as a 
        residence if at least half of the energy used by such property 
        for such purpose is derived from the sun.
            ``(2) Qualified photovoltaic property expenditure.--The 
        term `qualified photovoltaic property expenditure' means an 
        expenditure for property which uses solar energy to generate 
        electricity for use in a dwelling unit.
            ``(3) Solar panels.--No expenditure relating to a solar 
        panel or other property installed as a roof (or portion 
        thereof) shall fail to be treated as property described in 
        paragraph (1) or (2) solely because it constitutes a structural 
        component of the structure on which it is installed.
            ``(4) Labor costs.--Expenditures for labor costs properly 
        allocable to the onsite preparation, assembly, or original 
        installation of the property described in paragraph (1) or (2) 
        and for piping or wiring to interconnect such property to the 
        dwelling unit shall be taken into account for purposes of this 
        section.
            ``(5) Swimming pools, etc., used as storage medium.--
        Expenditures which are properly allocable to a swimming pool, 
hot tub, or any other energy storage medium which has a function other 
than the function of such storage shall not be taken into account for 
purposes of this section.
    ``(d) Special Rules.--
            ``(1) Dollar amounts in case of joint occupancy.--In the 
        case of any dwelling unit which is jointly occupied and used 
        during any calendar year as a residence by 2 or more 
        individuals the following shall apply:
                    ``(A) The amount of the credit allowable under 
                subsection (a) by reason of expenditures made during 
                such calendar year by any of such individuals with 
                respect to such dwelling unit shall be determined by 
                treating all of such individuals as 1 taxpayer whose 
                taxable year is such calendar year.
                    ``(B) There shall be allowable with respect to such 
                expenditures to each of such individuals, a credit 
                under subsection (a) for the taxable year in which such 
                calendar year ends in an amount which bears the same 
                ratio to the amount determined under subparagraph (A) 
                as the amount of such expenditures made by such 
                individual during such calendar year bears to the 
                aggregate of such expenditures made by all of such 
                individuals during such calendar year.
                    ``(C) Subparagraphs (A) and (B) shall be applied 
                separately with respect to qualified solar water 
                heating property expenditures and qualified 
                photovoltaic property expenditures.
            ``(2) Tenant-stockholder in cooperative housing 
        corporation.--In the case of an individual who is a tenant-
        stockholder (as defined in section 216) in a cooperative 
        housing corporation (as defined in such section), such 
        individual shall be treated as having made his tenant-
        stockholder's proportionate share (as defined in section 
        216(b)(3)) of any expenditures of such corporation.
            ``(3) Condominiums.--
                    ``(A) In general.--In the case of an individual who 
                is a member of a condominium management association 
                with respect to a condominium which he owns, such 
                individual shall be treated as having made his 
                proportionate share of any expenditures of such 
                association.
                    ``(B) Condominium management association.--For 
                purposes of this paragraph, the term `condominium 
                management association' means an organization which 
                meets the requirements of paragraph (1) of section 
                528(c) (other than subparagraph (E) thereof) with 
                respect to a condominium project substantially all of 
                the units of which are used as residences.
            ``(4) Allocation in certain cases.--If less than 80 percent 
        of the use of an item is for nonbusiness purposes, only that 
        portion of the expenditures for such item which is properly 
        allocable to use for nonbusiness purposes shall be taken into 
        account.
            ``(5) When expenditure made; amount of expenditure.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), an expenditure with respect to an 
                item shall be treated as made when the original 
                installation of the item is completed.
                    ``(B) Expenditures part of building construction.--
                In the case of an expenditure in connection with the 
                construction or reconstruction of a structure, such 
                expenditure shall be treated as made when the original 
                use of the constructed or reconstructed structure by 
                the taxpayer begins.
                    ``(C) Amount.--The amount of any expenditure shall 
                be the cost thereof.
            ``(6) Property financed by subsidized energy financing.--
        For purposes of determining the amount of expenditures made by 
        any individual with respect to any dwelling unit, there shall 
        not be taken into account expenditures which are made from 
        subsidized energy financing (as defined in section 
        48(a)(4)(A)).
    ``(e) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with respect 
to any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so allowed.
    ``(f) Termination.--The credit allowed under this section shall not 
apply to taxable years beginning after December 31, 2006 (December 31, 
2008, with respect to qualified photovoltaic property expenditures).''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 1016 is amended by striking 
        ``and'' at the end of paragraph (27), by striking the period at 
        the end of paragraph (28) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
            ``(29) to the extent provided in section 25C(e), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25C.''.
            (2) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 25B the following new item:

                              ``Sec. 25C. Residential solar energy 
                                        property.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2003.

SEC. 102. EXTENSION AND EXPANSION OF CREDIT FOR ELECTRICITY PRODUCED 
              FROM RENEWABLE RESOURCES.

    (a) Extension of Credit for Wind and Closed-Loop Biomass 
Facilities.--Subparagraphs (A) and (B) of section 45(c)(3) are each 
amended by striking ``2004'' and inserting ``2007''.
    (b) Expansion of Credit for Open-Loop Biomass, Landfill Gas 
Facilities, and Trash Combustion Facilities.--Paragraph (3) of section 
45(c) is amended by adding at the end the following new subparagraphs:
                    ``(D) Open-loop biomass facilities.--In the case of 
                a facility using open-loop biomass to produce 
                electricity, the term `qualified facility' means any 
                facility owned by the taxpayer which is originally 
placed in service before January 1, 2007.
                    ``(E) Landfill gas facilities.--In the case of a 
                facility producing electricity from gas derived from 
                the biodegradation of municipal solid waste, the term 
                `qualified facility' means any facility owned by the 
                taxpayer which is originally placed in service before 
                January 1, 2007.
                    ``(F) Trash combustion facilities.--In the case of 
                a facility which burns municipal solid waste to produce 
                electricity, the term `qualified facility' means any 
                facility owned by the taxpayer which is originally 
                placed in service after the date of the enactment of 
                this subparagraph and before January 1, 2007.''.
    (c) Definition and Special Rules.--Subsection (c) of section 45 is 
amended by adding at the end the following new paragraphs:
            ``(5) Open-loop biomass.--The term `open-loop biomass' 
        means any solid, nonhazardous, cellulosic waste material which 
        is segregated from other waste materials and which is derived 
        from--
                    ``(A) any of the following forest-related 
                resources: mill residues, precommercial thinnings, 
                slash, and brush,
                    ``(B) solid wood waste materials, including waste 
                pallets, crates, dunnage, manufacturing and 
                construction wood wastes (other than pressure-treated, 
                chemically-treated, or painted wood wastes), and 
                landscape or right-of-way tree trimmings, but not 
                including municipal solid waste (garbage), gas derived 
                from the biodegradation of solid waste, or paper that 
                is commonly recycled, or
                    ``(C) agriculture sources, including orchard tree 
                crops, vineyard, grain, legumes, sugar, and other crop 
                by-products or residues.
        Such term shall not include closed-loop biomass.
            ``(6) Reduced credit for certain preeffective date 
        facilities.--In the case of any facility described in 
        subparagraph (D) or (E) of paragraph (3) which is placed in 
        service before the date of the enactment of this paragraph--
                    ``(A) subsection (a)(1) shall be applied by 
                substituting `1.0 cents' for `1.5 cents', and
                    ``(B) the 5-year period beginning on the date of 
                the enactment of this paragraph shall be substituted in 
                lieu of the 10-year period in subsection (a)(2)(A)(ii).
            ``(7) Credit eligibility for open-loop biomass 
        facilities.--In the case of any facility described in paragraph 
        (3)(D) which is placed in service before the date of enactment 
        of this paragraph, if the owner of such facility is not the 
        producer of the electricity, the person eligible for the credit 
        allowable under subsection (a) is the lessee or the operator of 
        such facility.
            ``(8) Limit on reductions for grants, etc., for open-loop 
        biomass facilities.--If the amount of the credit determined 
        under subsection (a) with respect to any open-loop biomass 
        facility is required to be reduced under paragraph (3) of 
        subsection (b), the fraction under such paragraph shall in no 
        event be greater than \1/2\.
            ``(9) Coordination with section 29.--The term `qualified 
        facility' shall not include any facility the production from 
        which is allowed as a credit under section 29 for the taxable 
        year or any prior taxable year.''.
    (d) Qualified Energy Resources.--Paragraph (1) of section 45(c) 
(relating to qualified energy resources) is amended to read as follows:
            ``(1) Qualified energy resources.--The term `qualified 
        energy resources' means any resource described in paragraph (3) 
        which is used to generate electricity at a qualified 
        facility.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to electricity sold after the date of the enactment of this Act, 
in taxable years ending after such date.

SEC. 103. CREDIT FOR QUALIFIED FUEL CELL POWER PLANTS.

    (a) Business Property.--
            (1) In general.--Subparagraph (A) of section 48(a)(3) 
        (defining energy property) is amended by striking ``or'' at the 
        end of clause (i), by adding ``or'' at the end of clause (ii), 
        and by inserting after clause (ii) the following new clause:
                            ``(iii) equipment which is part of a 
                        qualified fuel cell power plant,''.
            (2) Qualified fuel cell power plant.--Subsection (a) of 
        section 48 is amended by redesignating paragraphs (4) and (5) 
        as paragraphs (5) and (6), respectively, and by inserting after 
        paragraph (3) the following new paragraph:
            ``(4) Qualified fuel cell power plant.--For purposes of 
        this subsection--
                    ``(A) In general.--The term `qualified fuel cell 
                power plant' means a fuel cell power plant that has an 
                electricity-only generation efficiency greater than 30 
                percent.
                    ``(B) Limitation.--The energy credit with respect 
                to any qualified fuel cell power plant for any taxable 
                year shall not exceed--
                            ``(i) $500 for each \1/2\ kilowatt of 
                        capacity of the power plant, reduced by
                            ``(ii) the aggregate energy credits allowed 
                        with respect to such power plant for all prior 
                        taxable years.
                    ``(C) Fuel cell power plant.--The term `fuel cell 
                power plant' means an integrated system comprised of a 
                fuel cell stack assembly and associated balance of 
                plant components that converts a fuel into electricity 
                using electrochemical means.
                    ``(D) Termination.--Such term shall not include any 
                property placed in service after December 31, 2006.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to property placed in service after December 31, 
        2003, under rules similar to the rules of section 48(m) of the 
        Internal Revenue Code of 1986 (as in effect on the day before 
the date of the enactment of the Revenue Reconciliation Act of 1990).
    (b) Nonbusiness Property.--
            (1) In general.--Subpart A of part IV of subchapter A of 
        chapter 1 (relating to nonrefundable personal credits) is 
        amended by inserting after section 25C the following new 
        section:

``SEC. 25D. NONBUSINESS QUALIFIED FUEL CELL POWER PLANT.

    ``(a) In General.--In the case of an individual, there shall be 
allowed as a credit against the tax imposed by this chapter for the 
taxable year an amount equal to 10 percent of the qualified fuel cell 
power plant expenditures which are paid or incurred during such year.
    ``(b) Limitations.--The credit allowed under subsection (a) with 
respect to any qualified fuel cell power plant for any taxable year 
shall not exceed--
            ``(1) $500 for each \1/2\ kilowatt of capacity of the power 
        plant, reduced by
            ``(2) the aggregate energy credits allowed with respect to 
        such power plant for all prior taxable years.
    ``(c) Qualified Fuel Cell Power Plant Expenditures.--For purposes 
of this section, the term `qualified fuel cell power plant 
expenditures' means expenditures by the taxpayer for any qualified fuel 
cell power plant (as defined in section 48(a)(4))--
            ``(1) which meets the requirements of subparagraphs (B) and 
        (D) of section 48(a)(3), and
            ``(2) which is installed on or in connection with a 
        dwelling unit--
                    ``(A) which is located in the United States, and
                    ``(B) which is used by the taxpayer as a residence.
Such term includes expenditures for labor costs properly allocable to 
the onsite preparation, assembly, or original installation of the 
property.
    ``(d) Special Rules.--For purposes of this section, rules similar 
to the rules of section 25C(d) shall apply.
    ``(e) Basis Adjustments.--For purposes of this subtitle, if a 
credit is allowed under this section for any expenditure with respect 
to any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so allowed.
    ``(f) Termination.--This section shall not apply to any expenditure 
made after December 31, 2006.''.
            (2) Conforming amendments.--
                    (A) Subsection (a) of section 1016 is amended by 
                striking ``and'' at the end of paragraph (28), by 
                striking the period at the end of paragraph (29) and 
                inserting ``, and'', and by adding at the end the 
                following new paragraph:
            ``(30) to the extent provided in section 25D(e), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25D.''.
                    (B) The table of sections for subpart A of part IV 
                of subchapter A of chapter 1 is amended by inserting 
                after the item relating to section 25C the following 
                new item:

                              ``Sec. 25D. Nonbusiness qualified fuel 
                                        cell power plant.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to expenditures paid or incurred after December 31, 
        2003, in taxable years ending after such date.

SEC. 104. CREDIT FOR ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

    (a) In General.--Subpart A of part IV of subchapter A of chapter 1 
(relating to nonrefundable personal credits) is amended by inserting 
after section 25D the following new section:

``SEC. 25E. ENERGY EFFICIENCY IMPROVEMENTS TO EXISTING HOMES.

    ``(a) Allowance of Credit.--In the case of an individual, there 
shall be allowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to 20 percent of the amount paid 
or incurred by the taxpayer for qualified energy efficiency 
improvements installed during such taxable year.
    ``(b) Limitations.--
            ``(1) Maximum credit.--The credit allowed by this section 
        with respect to a dwelling shall not exceed $2,000.
            ``(2) Prior credit amounts for taxpayer on same dwelling 
        taken into account.--If a credit was allowed to the taxpayer 
        under subsection (a) with respect to a dwelling in 1 or more 
        prior taxable years, the amount of the credit otherwise 
        allowable for the taxable year with respect to that dwelling 
        shall not exceed the amount of $2,000 reduced by the sum of the 
        credits allowed under subsection (a) to the taxpayer with 
        respect to the dwelling for all prior taxable years.
    ``(c) Carryforward of Unused Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) for such 
taxable year reduced by the sum of the credits allowable under this 
subpart (other than this section) for such taxable year, such excess 
shall be carried to the succeeding taxable year and added to the credit 
allowable under subsection (a) for such succeeding taxable year.
    ``(d) Qualified Energy Efficiency Improvements.--For purposes of 
this section, the term `qualified energy efficiency improvements' means 
any energy efficient building envelope component which meets the 
prescriptive criteria for such component established by the 2000 
International Energy Conservation Code (or, in the case of metal roofs 
with appropriate pigmented coatings, meets the Energy Star program 
requirements), if--
            ``(1) such component is installed in or on a dwelling--
                    ``(A) located in the United States, and
                    ``(B) owned and used by the taxpayer as the 
                taxpayer's principal residence (within the meaning of 
                section 121),
            ``(2) the original use of such component commences with the 
        taxpayer, and
            ``(3) such component reasonably can be expected to remain 
        in use for at least 5 years.
If the aggregate cost of such components with respect to any dwelling 
exceeds $1,000, such components shall be treated as qualified energy 
efficiency improvements only if such components are also certified in 
accordance with subsection (e) as meeting such criteria.
    ``(e) Certification.--The certification described in subsection (d) 
shall be--
            ``(1) determined on the basis of the technical 
        specifications or applicable ratings (including product 
        labeling requirements) for the measurement of energy 
        efficiency, based upon energy use or building envelope 
        component performance, for the energy efficient building 
        envelope component,
            ``(2) provided by a local building regulatory authority, a 
        utility, a manufactured home production inspection primary 
        inspection agency (IPIA), or an accredited home energy rating 
        system provider who is accredited by or otherwise authorized to 
        use approved energy performance measurement methods by the 
        Residential Energy Services Network (RESNET), and
            ``(3) made in writing in a manner that specifies in readily 
        verifiable fashion the energy efficient building envelope 
        components installed and their respective energy efficiency 
        levels.
    ``(f) Definitions and Special Rules.--
            ``(1) Tenant-stockholder in cooperative housing 
        corporation.--In the case of an individual who is a tenant-
        stockholder (as defined in section 216) in a cooperative 
        housing corporation (as defined in such section), such 
        individual shall be treated as having paid his tenant-
        stockholder's proportionate share (as defined in section 
        216(b)(3)) of the cost of qualified energy efficiency 
        improvements made by such corporation.
            ``(2) Condominiums.--
                    ``(A) In general.--In the case of an individual who 
                is a member of a condominium management association 
                with respect to a condominium which he owns, such 
                individual shall be treated as having paid his 
                proportionate share of the cost of qualified energy 
                efficiency improvements made by such association.
                    ``(B) Condominium management association.--For 
                purposes of this paragraph, the term `condominium 
                management association' means an organization which 
                meets the requirements of paragraph (1) of section 
                528(c) (other than subparagraph (E) thereof) with 
                respect to a condominium project substantially all of 
                the units of which are used as residences.
            ``(3) Building envelope component.--The term `building 
        envelope component' means insulation material or system which 
        is specifically and primarily designed to reduce the heat loss 
        or gain of a dwelling when installed in or on such dwelling, 
        exterior windows (including skylights) and doors, and metal 
        roofs with appropriate pigmented coatings which are 
        specifically and primarily designed to reduce the heat gain of 
        a dwelling when installed in or on such dwelling.
            ``(4) Manufactured homes included.--For purposes of this 
        section, the term `dwelling' includes a manufactured home which 
        conforms to Federal Manufactured Home Construction and Safety 
        Standards (section 3280 of title 24, Code of Federal 
        Regulations, as in effect on April 3, 2003).
    ``(g) Basis Adjustment.--For purposes of this subtitle, if a credit 
is allowed under this section for any expenditure with respect to any 
property, the increase in the basis of such property which would (but 
for this subsection) result from such expenditure shall be reduced by 
the amount of the credit so allowed.
    ``(h) Application of Section.--This section shall apply to 
qualified energy efficiency improvements installed after December 31, 
2003, and before January 1, 2007.''.
    (b) Conforming Amendments.--
            (1) Subsection (c) of section 23 is amended by striking 
        ``section 1400C'' and inserting ``sections 25E and 1400C''.
            (2) Subsection (a) of section 1016 is amended by striking 
        ``and'' at the end of paragraph (29), by striking the period at 
        the end of paragraph (30) and inserting ``, and'', and by 
        adding at the end the following new paragraph:
            ``(31) to the extent provided in section 25E(g), in the 
        case of amounts with respect to which a credit has been allowed 
        under section 25E.''.
            (3) Subsection (d) of section 1400C is amended by inserting 
        ``and section 25E'' after ``this section''.
            (4) The table of sections for subpart A of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 25D the following new item:

                              ``Sec. 25E. Energy efficiency 
                                        improvements to existing 
                                        homes.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2003.

SEC. 105. BUSINESS CREDIT FOR CONSTRUCTION OF NEW ENERGY EFFICIENT 
              HOME.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business related credits) is amended by inserting after 
section 45F the following new section:

``SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT.

    ``(a) In General.--For purposes of section 38, in the case of an 
eligible contractor, the credit determined under this section for the 
taxable year is an amount equal to the aggregate adjusted bases of all 
energy efficient property installed in a qualified new energy efficient 
home during construction of such home.
    ``(b) Limitations.--
            ``(1) Maximum credit.--
                    ``(A) In general.--The credit allowed by this 
                section with respect to a dwelling shall not exceed 
                $2,000.
                    ``(B) Prior credit amounts on same dwelling taken 
                into account.--If a credit was allowed under subsection 
                (a) with respect to a dwelling in 1 or more prior 
                taxable years, the amount of the credit otherwise 
                allowable for the taxable year with respect to that 
                dwelling shall not exceed the amount of $2,000 reduced 
                by the sum of the credits allowed under subsection (a) 
                with respect to the dwelling for all prior taxable 
                years.
            ``(2) Coordination with rehabilitation and energy 
        credits.--For purposes of this section--
                    ``(A) the basis of any property referred to in 
                subsection (a) shall be reduced by that portion of the 
                basis of any property which is attributable to 
                qualified rehabilitation expenditures (as defined in 
                section 47(c)(2)) or to the energy percentage of energy 
                property (as determined under section 48(a)), and
                    ``(B) expenditures taken into account under either 
                section 47 or 48(a) shall not be taken into account 
                under this section.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Eligible contractor.--The term `eligible contractor' 
        means the person who constructed the new energy efficient home, 
        or in the case of a manufactured home which conforms to Federal 
        Manufactured Home Construction and Safety Standards (section 
        3280 of title 24, Code of Federal Regulations, as in effect on 
        April 3, 2003), the manufactured home producer of such home.
            ``(2) Energy efficient property.--The term `energy 
        efficient property' means any energy efficient building 
        envelope component, and any energy efficient heating or cooling 
        appliance.
            ``(3) Qualified new energy efficient home.--The term 
        `qualified new energy efficient home' means a dwelling--
                    ``(A) located in the United States,
                    ``(B) the construction of which is substantially 
                completed after December 31, 2003,
                    ``(C) the original use of which is as a principal 
                residence (within the meaning of section 121) which 
                commences with the person who acquires such dwelling 
                from the eligible contractor, and
                    ``(D) which is certified to have a level of annual 
                heating and cooling energy consumption that is at least 
                30 percent below the annual level of heating and 
                cooling energy consumption of a comparable dwelling 
                constructed in accordance with the standards of the 
                2000 International Energy Conservation Code and to have 
                building envelope component improvements account for 
                \1/3\ of such 30 percent.
            ``(4) Construction.--The term `construction' includes 
        reconstruction and rehabilitation.
            ``(5) Acquire.--The term `acquire' includes purchase and, 
        in the case of reconstruction and rehabilitation, such term 
        includes a binding written contract for such reconstruction or 
        rehabilitation.
            ``(6) Building envelope component.--The term `building 
        envelope component' means insulation material or system which 
        is specifically and primarily designed to reduce the heat loss 
        or gain of a dwelling when installed in or on such dwelling, 
        exterior windows (including skylights) and doors, and metal 
        roofs with appropriate pigmented coatings which are 
        specifically and primarily designed to reduce the heat gain of 
        a dwelling when installed in or on such dwelling.
            ``(7) Manufactured home included.--The term `dwelling' 
        includes a manufactured home conforming to Federal Manufactured 
        Home Construction and Safety Standards (section 3280 of title 
        24, Code of Federal Regulations, as in effect on April 3, 
        2003).
    ``(d) Certification.--
            ``(1) Method.--A certification described in subsection 
        (c)(3)(D) shall be determined on the basis of one of the 
        following methods:
                    ``(A) The technical specifications or applicable 
                ratings (including product labeling requirements) for 
                the measurement of energy efficiency for the energy 
                efficient building envelope component or energy 
                efficient heating or cooling appliance, based upon 
                energy use or building envelope component performance.
                    ``(B) An energy performance measurement method that 
                utilizes computer software approved by organizations 
                designated by the Secretary.
            ``(2) Provider.--Such certification shall be provided by--
                    ``(A) in the case of a method described in 
                paragraph (1)(A), a local building regulatory 
                authority, a utility, a manufactured home production 
                inspection primary inspection agency (IPIA), or an 
                accredited home energy rating systems provider who is 
                accredited by, or otherwise authorized to use, approved 
                energy performance measurement methods by the Home 
                Energy Ratings Systems Council or the National 
                Association of State Energy Officials, or
                    ``(B) in the case of a method described in 
                paragraph (1)(B), an individual recognized by an 
                organization designated by the Secretary for such 
                purposes.
            ``(3) Form.--Such certification shall be made in writing in 
        a manner that specifies in readily verifiable fashion the 
        energy efficient building envelope components and energy 
efficient heating or cooling appliances installed and their respective 
energy efficiency levels, and in the case of a method described in 
subparagraph (B) of paragraph (1), accompanied by written analysis 
documenting the proper application of a permissible energy performance 
measurement method to the specific circumstances of such dwelling.
            ``(4) Regulations.--
                    ``(A) In general.--In prescribing regulations under 
                this subsection for energy performance measurement 
                methods, the Secretary shall prescribe procedures for 
                calculating annual energy costs for heating and cooling 
                and cost savings and for the reporting of the results. 
                Such regulations shall--
                            ``(i) be based on the National Home Energy 
                        Rating Technical Guidelines of the National 
                        Association of State Energy Officials, the Home 
                        Energy Rating Guidelines of the Home Energy 
                        Rating Systems Council, or the modified 2001 
                        California Residential ACM manual,
                            ``(ii) provide that any calculation 
                        procedures be developed such that the same 
                        energy efficiency measures allow a home to 
                        qualify for the credit under this section 
                        regardless of whether the house uses a gas or 
                        oil furnace or boiler or an electric heat pump, 
                        and
                            ``(iii) require that any computer software 
                        allow for the printing of the Federal tax forms 
                        necessary for the credit under this section and 
                        explanations for the homebuyer of the energy 
                        efficient features that were used to comply 
                        with the requirements of this section.
                    ``(B) Providers.--For purposes of paragraph (2)(B), 
                the Secretary shall establish requirements for the 
                designation of individuals based on the requirements 
                for energy consultants and home energy raters specified 
                by the National Association of State Energy Officials.
    ``(e) Basis Adjustment.--For purposes of this subtitle, if a credit 
is determined under this section for any expenditure with respect to 
any property, the increase in the basis of such property which would 
(but for this subsection) result from such expenditure shall be reduced 
by the amount of the credit so determined.
    ``(f) Application of Section.--Subsection (a) shall apply to 
dwellings purchased during the period beginning on January 1, 2004, and 
ending on December 31, 2006.''.
    (b) Credit Made Part of General Business Credit.--Subsection (b) of 
section 38 (relating to current year business credit) is amended by 
striking ``plus'' at the end of paragraph (14), by striking the period 
at the end of paragraph (15) and inserting ``, plus'', and by adding at 
the end thereof the following new paragraph:
            ``(16) the new energy efficient home credit determined 
        under section 45G.''.
    (c) Denial of Double Benefit.--Section 280C (relating to certain 
expenses for which credits are allowable) is amended by adding at the 
end thereof the following new subsection:
    ``(d) New Energy Efficient Home Expenses.--No deduction shall be 
allowed for that portion of expenses for a new energy efficient home 
otherwise allowable as a deduction for the taxable year which is equal 
to the amount of the credit determined for such taxable year under 
section 45G.''.
    (d) Limitation on Carryback.--Subsection (d) of section 39 is 
amended by adding at the end the following new paragraph:
            ``(11) No carryback of new energy efficient home credit 
        before effective date.--No portion of the unused business 
        credit for any taxable year which is attributable to the credit 
        determined under section 45G may be carried back to any taxable 
        year ending before January 1, 2004.''.
    (e) Deduction for Certain Unused Business Credits.--Subsection (c) 
of section 196 is amended by striking ``and'' at the end of paragraph 
(9), by striking the period at the end of paragraph (10) and inserting 
``, and'', and by adding after paragraph (10) the following new 
paragraph:
            ``(11) the new energy efficient home credit determined 
        under section 45G.''.
    (f) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by inserting after the 
item relating to section 45F the following new item:

                              ``Sec. 45G. New energy efficient home 
                                        credit.''.
    (g) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after December 31, 2003.

SEC. 106. ENERGY CREDIT FOR COMBINED HEAT AND POWER SYSTEM PROPERTY.

    (a) In General.--Subparagraph (A) of section 48(a)(3) (defining 
energy property) is amended by striking ``or'' at the end of clause 
(ii), by adding ``or'' at the end of clause (iii), and by inserting 
after clause (iii) the following new clause:
                            ``(iv) combined heat and power system 
                        property,''.
    (b) Combined Heat and Power System Property.--Subsection (a) of 
section 48 is amended by redesignating paragraphs (5) and (6) as 
paragraphs (6) and (7), respectively, and by inserting after paragraph 
(4) the following new paragraph:
            ``(5) Combined heat and power system property.--For 
        purposes of this subsection--
                    ``(A) Combined heat and power system property.--The 
                term `combined heat and power system property' means 
                property comprising a system--
                            ``(i) which uses the same energy source for 
                        the simultaneous or sequential generation of 
                        electrical power, mechanical shaft power, or 
                        both, in combination with the generation of 
                        steam or other forms of useful thermal energy 
                        (including heating and cooling applications),
                            ``(ii) which has an electrical capacity of 
                        more than 50 kilowatts or a mechanical energy 
capacity of more than 67 horsepower or an equivalent combination of 
electrical and mechanical energy capacities,
                            ``(iii) which produces--
                                    ``(I) at least 20 percent of its 
                                total useful energy in the form of 
                                thermal energy, and
                                    ``(II) at least 20 percent of its 
                                total useful energy in the form of 
                                electrical or mechanical power (or 
                                combination thereof),
                            ``(iv) the energy efficiency percentage of 
                        which exceeds 60 percent (70 percent in the 
                        case of a system with an electrical capacity in 
                        excess of 50 megawatts or a mechanical energy 
                        capacity in excess of 67,000 horsepower, or an 
                        equivalent combination of electrical and 
                        mechanical energy capacities), and
                            ``(v) which is placed in service after 
                        December 31, 2003, and before January 1, 2007.
                    ``(B) Special rules.--
                            ``(i) Energy efficiency percentage.--For 
                        purposes of subparagraph (A)(iv), the energy 
                        efficiency percentage of a system is the 
                        fraction--
                                    ``(I) the numerator of which is the 
                                total useful electrical, thermal, and 
                                mechanical power produced by the system 
                                at normal operating rates, and
                                    ``(II) the denominator of which is 
                                the lower heating value of the primary 
                                fuel source for the system.
                            ``(ii) Determinations made on btu basis.--
                        The energy efficiency percentage and the 
                        percentages under subparagraph (A)(iii) shall 
                        be determined on a Btu basis.
                            ``(iii) Input and output property not 
                        included.--The term `combined heat and power 
                        system property' does not include property used 
                        to transport the energy source to the facility 
                        or to distribute energy produced by the 
                        facility.
                            ``(iv) Public utility property.--
                                    ``(I) Accounting rule for public 
                                utility property.--If the combined heat 
                                and power system property is public 
                                utility property (as defined in section 
                                168(i)(1)), the taxpayer may only claim 
                                the credit under the subsection if, 
                                with respect to such property, the 
                                taxpayer uses a normalization method of 
                                accounting.
                                    ``(II) Certain exception not to 
                                apply.--The matter in paragraph (3) 
                                which follows subparagraph (D) shall 
                                not apply to combined heat and power 
                                system property.
                    ``(C) Extension of depreciation recovery period.--
                If a taxpayer is allowed credit under this section for 
                combined heat and power system property and such 
                property would (but for this subparagraph) have a class 
                life of 15 years or less under section 168, such 
                property shall be treated as having a 22-year class 
                life for purposes of section 168.''.
    (c) No Carryback of Energy Credit Before Effective Date.--
Subsection (d) of section 39 is amended by adding at the end the 
following new paragraph:
            ``(12) No carryback of energy credit before effective 
        date.--No portion of the unused business credit for any taxable 
        year which is attributable to the energy credit with respect to 
        property described in section 48(a)(5) may be carried back to a 
        taxable year ending before January 1, 2004.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2003, in taxable 
years ending after such date.

SEC. 107. NEW NONREFUNDABLE PERSONAL CREDITS ALLOWED AGAINST REGULAR 
              AND MINIMUM TAXES.

    (a) In General.--
            (1) Section 25c.--Section 25C(b), as added by section 101, 
        is amended by adding at the end the following new paragraph:
            ``(3) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for the taxable year shall not 
        exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                subpart (other than this section and section 25D and 
                25E) and section 27 for the taxable year.''.
            (2) Section 25d.--Section 25D(b), as added by section 103, 
        is amended to read as follows:
    ``(b) Limitations.--
            ``(1) In general.--The credit allowed under subsection (a) 
        with respect to any qualified fuel cell power plant for any 
        taxable year shall not exceed--
                    ``(A) $500 for each \1/2\ kilowatt of capacity of 
                the power plant, reduced by
                    ``(B) the aggregate energy credits allowed with 
                respect to such power plant for all prior taxable 
                years.
            ``(2) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for the taxable year shall not 
        exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                subpart (other than this section and section 25E) and 
                section 27 for the taxable year.''.
            (3) Section 25e.--Section 25E(b), as added by section 104, 
        is amended by adding at the end the following new paragraph:
            ``(3) Limitation based on amount of tax.--The credit 
        allowed under subsection (a) for the taxable year shall not 
        exceed the excess of--
                    ``(A) the sum of the regular tax liability (as 
                defined in section 26(b)) plus the tax imposed by 
                section 55, over
                    ``(B) the sum of the credits allowable under this 
                subpart (other than this section) and section 27 for 
                the taxable year.''.
    (b) Conforming Amendments.--
            (1) Section 23(b)(4)(B) is amended by inserting ``and 
        sections 25C, 25D, and 25E'' after ``this section''.
            (2) Section 24(b)(3)(B) is amended by striking ``and 25B'' 
        and inserting ``, 25B, 25C, 25D, and 25E''.
            (3) Section 25(e)(1)(C) is amended by inserting ``25C, 25D, 
        and 25E'' after ``25B,''.
            (4) Section 25B(g)(2) is amended by striking ``section 23'' 
        and inserting ``sections 23, 25C, 25D, and 25E''.
            (5) Section 25E(c), as added by section 104, is amended by 
        striking ``section 26(a) for such taxable year reduced by the 
        sum of the credits allowable under this subpart (other than 
        this section)'' and inserting ``subsection (b)(3)''.
            (6) Section 26(a)(1) is amended by striking ``and 25B'' and 
        inserting ``25B, 25C, 25D, and 25E''.
            (7) Section 904(h) is amended by striking ``and 25B'' and 
        inserting ``25B, 25C, 25D, and 25E''.
            (8) Section 1400C(d) is amended by striking ``and 25B'' and 
        inserting ``25B, 25C, 25D, and 25E''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 108. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE TAXES ON RAILROADS AND 
              INLAND WATERWAY TRANSPORTATION WHICH REMAIN IN GENERAL 
              FUND.

    (a) Taxes on Trains.--
            (1) In general.--Subparagraph (A) of section 4041(a)(1) is 
        amended by striking ``or a diesel-powered train'' each place it 
        appears and by striking ``or train''.
            (2) Conforming amendments.--
                    (A) Subparagraph (C) of section 4041(a)(1) is 
                amended by striking clause (ii) and by redesignating 
                clause (iii) as clause (ii).
                    (B) Subparagraph (C) of section 4041(b)(1) is 
                amended by striking all that follows ``section 
                6421(e)(2)'' and inserting a period.
                    (C) Subsection (d) of section 4041 is amended by 
                redesignating paragraph (3) as paragraph (4) and by 
                inserting after paragraph (2) the following new 
                paragraph:
            ``(3) Diesel fuel used in trains.--There is hereby imposed 
        a tax of 0.1 cent per gallon on any liquid other than gasoline 
        (as defined in section 4083)--
                    ``(A) sold by any person to an owner, lessee, or 
                other operator of a diesel-powered train for use as a 
                fuel in such train, or
                    ``(B) used by any person as a fuel in a diesel-
                powered train unless there was a taxable sale of such 
                fuel under subparagraph (A).
        No tax shall be imposed by this paragraph on the sale or use of 
        any liquid if tax was imposed on such liquid under section 
        4081.''.
                    (D) Subsection (f) of section 4082 is amended by 
                striking ``section 4041(a)(1)'' and inserting 
                ``subsections (d)(3) and (a)(1) of section 4041, 
                respectively''.
                    (E) Paragraph (3) of section 4083(a) is amended by 
                striking ``or a diesel-powered train''.
                    (F) Paragraph (3) of section 6421(f) is amended to 
                read as follows:
            ``(3) Gasoline used in trains.--In the case of gasoline 
        used as a fuel in a train, this section shall not apply with 
        respect to the Leaking Underground Storage Tank Trust Fund 
        financing rate under section 4081.''.
                    (G) Paragraph (3) of section 6427(l) is amended to 
                read as follows:
            ``(3) Refund of certain taxes on fuel used in diesel-
        powered trains.--For purposes of this subsection, the term 
        `nontaxable use' includes fuel used in a diesel-powered train. 
        The preceding sentence shall not apply to the tax imposed by 
        section 4041(d) and the Leaking Underground Storage Tank Trust 
        Fund financing rate under section 4081 except with respect to 
        fuel sold for exclusive use by a State or any political 
        subdivision thereof.''.
    (b) Fuel Used on Inland Waterways.--
            (1) In general.--Paragraph (1) of section 4042(b) is 
        amended by adding ``and'' at the end of subparagraph (A), by 
        striking ``, and'' at the end of subparagraph (B) and inserting 
        a period, and by striking subparagraph (C).
            (2) Conforming amendment.--Paragraph (2) of section 4042(b) 
        is amended by striking subparagraph (C).
    (c) Effective Date.--The amendments made by this section shall take 
effect on January 1, 2004.

SEC. 109. REDUCED MOTOR FUEL EXCISE TAX ON CERTAIN MIXTURES OF DIESEL 
              FUEL.

    (a) In General.--Paragraph (2) of section 4081(a) is amended by 
adding at the end the following:
                    ``(C) Diesel-water fuel emulsion.--In the case of 
                diesel-water fuel emulsion at least 14 percent of which 
                is water and with respect to which the emulsion 
                additive is registered by a United States manufacturer 
                with the Environmental Protection Agency pursuant to 
                section 211 of the Clean Air Act (as in effect on March 
                31, 2003), subparagraph (A)(iii) shall be applied by 
                substituting `19.7 cents' for `24.3 cents'.''.
    (b) Special Rules for Diesel-Water Fuel Emulsions.--
            (1) Refunds for tax-paid purchases.--Section 6427 is 
        amended by redesignating subsections (m) through (p) as 
        subsections (n) through (q), respectively, and by inserting 
        after subsection (l) the following new subsection:
    ``(m) Diesel Fuel Used To Produce Emulsion.--
            ``(1) In general.--Except as provided in subsection (k), if 
        any diesel fuel on which tax was imposed by section 4081 at the 
        regular tax rate is used by any person in producing an emulsion 
        described in section 4081(a)(2)(C) which is sold or used in 
        such person's trade or business, the Secretary shall pay 
(without interest) to such person an amount equal to the excess of the 
regular tax rate over the incentive tax rate with respect to such fuel.
            ``(2) Definitions.--For purposes of paragraph (1)--
                    ``(A) Regular tax rate.--The term `regular tax 
                rate' means the aggregate rate of tax imposed by 
                section 4081 determined without regard to section 
                4081(a)(2)(C).
                    ``(B) Incentive tax rate.--The term `incentive tax 
                rate' means the aggregate rate of tax imposed by 
                section 4081 determined with regard to section 
                4081(a)(2)(C).''.
            (2) Later separation of fuel.--
                    (A) In general.--Section 4081 (relating to 
                imposition of tax) is amended by redesignating 
                subsections (d) and (e) as subsections (e) and (f), 
                respectively, and by inserting after subsection (c) the 
                following new subsection:
    ``(d) Later Separation of Fuel From Diesel-Water Fuel Emulsion.--If 
any person separates the taxable fuel from a diesel-water fuel emulsion 
on which tax was imposed under subsection (a) at a rate determined 
under subsection (a)(2)(C) (or with respect to which a credit or 
payment was allowed or made by reason of section 6427), such person 
shall be treated as the refiner of such taxable fuel. The amount of tax 
imposed on any removal of such fuel by such person shall be reduced by 
the amount of tax imposed (and not credited or refunded) on any prior 
removal or entry of such fuel.''.
                    (B) Conforming amendment.--Subsection (d) of 
                section 6416 is amended by striking ``section 4081(e)'' 
                and inserting ``section 4081(f)''.
    (c) Effective Date.--The amendments made by this section shall take 
effect on October 1, 2003.

SEC. 110. REPEAL OF PHASEOUTS FOR QUALIFIED ELECTRIC VEHICLE CREDIT AND 
              DEDUCTION FOR CLEAN FUEL-VEHICLES.

    (a) Credit for Qualified Electric Vehicles.--Subsection (b) of 
section 30 (relating to limitations) is amended by striking paragraph 
(2) and redesignating paragraph (3) as paragraph (2).
    (b) Deduction for Clean-Fuel Vehicles and Certain Refueling 
Property.--Paragraph (1) of section 179A(b) (relating to qualified 
clean-fuel vehicle property) is amended to read as follows:
            ``(1) Qualified clean-fuel vehicle property.-- The cost 
        which may be taken into account under subsection (a)(1)(A) with 
        respect to any motor vehicle shall not exceed--
                    ``(A) in the case of a motor vehicle not described 
                in subparagraph (B) or (C), $2,000,
                    ``(B) in the case of any truck or van with a gross 
                vehicle weight rating greater than 10,000 pounds but 
                not greater than 26,000 pounds, $5,000, or
                    ``(C) $50,000 in the case of--
                            ``(i) a truck or van with a gross vehicle 
                        weight rating greater than 26,000 pounds, or
                            ``(ii) any bus which has a seating capacity 
                        of at least 20 adults (not including the 
                        driver).''.

SEC. 111. ALTERNATIVE MOTOR VEHICLE CREDIT.

    (a) In General.--Subpart B of part IV of subchapter A of chapter 1 
(relating to foreign tax credit, etc.) is amended by adding at the end 
the following:

``SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.

    ``(a) Allowance of Credit.--There shall be allowed as a credit 
against the tax imposed by this chapter for the taxable year an amount 
equal to the sum of--
            ``(1) the new qualified fuel cell motor vehicle credit 
        determined under subsection (b), and
            ``(2) the advanced lean burn technology motor vehicle 
        credit determined under subsection (c).
    ``(b) New Qualified Fuel Cell Motor Vehicle Credit.--
            ``(1) In general.--For purposes of subsection (a), the new 
        qualified fuel cell motor vehicle credit determined under this 
        subsection with respect to a new qualified fuel cell motor 
        vehicle placed in service by the taxpayer during the taxable 
        year is--
                    ``(A) $4,000, if such vehicle has a gross vehicle 
                weight rating of not more than 8,500 pounds,
                    ``(B) $10,000, if such vehicle has a gross vehicle 
                weight rating of more than 8,500 pounds but not more 
                than 14,000 pounds,
                    ``(C) $20,000, if such vehicle has a gross vehicle 
                weight rating of more than 14,000 pounds but not more 
                than 26,000 pounds, and
                    ``(D) $40,000, if such vehicle has a gross vehicle 
                weight rating of more than 26,000 pounds.
            ``(2) Increase for fuel efficiency.--
                    ``(A) In general.--The amount determined under 
                paragraph (1)(A) with respect to a new qualified fuel 
                cell motor vehicle which is a passenger automobile or 
                light truck shall be increased by--
                            ``(i) $1,000, if such vehicle achieves at 
                        least 150 percent but less than 175 percent of 
                        the 2000 model year city fuel economy,
                            ``(ii) $1,500, if such vehicle achieves at 
                        least 175 percent but less than 200 percent of 
                        the 2000 model year city fuel economy,
                            ``(iii) $2,000, if such vehicle achieves at 
                        least 200 percent but less than 225 percent of 
                        the 2000 model year city fuel economy,
                            ``(iv) $2,500, if such vehicle achieves at 
                        least 225 percent but less than 250 percent of 
                        the 2000 model year city fuel economy,
                            ``(v) $3,000, if such vehicle achieves at 
                        least 250 percent but less than 275 percent of 
                        the 2000 model year city fuel economy,
                            ``(vi) $3,500, if such vehicle achieves at 
                        least 275 percent but less than 300 percent of 
                        the 2000 model year city fuel economy, and
                            ``(vii) $4,000, if such vehicle achieves at 
                        least 300 percent of the 2000 model year city 
                        fuel economy.
                    ``(B) 2000 model year city fuel economy.--For 
                purposes of subparagraph (A), the 2000 model year city 
                fuel economy with respect to a vehicle shall be 
                determined in accordance with the following tables:
                            ``(i) In the case of a passenger 
                        automobile:

``If vehicle inertia weight class   The 2000 model year city fuel 
        is:                                 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.
                            ``(ii) In the case of a light truck:

``If vehicle inertia weight class   The 2000 model year city fuel 
        is:                                 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.
                    ``(C) Vehicle inertia weight class.--For purposes 
                of subparagraph (B), the term `vehicle inertia weight 
                class' has the same meaning as when defined in 
                regulations prescribed by the Administrator of the 
                Environmental Protection Agency for purposes of the 
                administration of title II of the Clean Air Act (42 
                U.S.C. 7521 et seq.).
            ``(3) New qualified fuel cell motor vehicle.--For purposes 
        of this subsection, the term `new qualified fuel cell motor 
        vehicle' means a motor vehicle--
                    ``(A) which is propelled by power derived from one 
                or more cells which convert chemical energy directly 
                into electricity by combining oxygen with hydrogen fuel 
                which is stored on board the vehicle in any form and 
                may or may not require reformation prior to use,
                    ``(B) which, in the case of a passenger automobile 
                or light truck--
                            ``(i) for 2004 and later model vehicles, 
                        has received a certificate of conformity under 
                        the Clean Air Act and meets or exceeds the 
                        equivalent qualifying California low emission 
                        vehicle standard under section 243(e)(2) of the 
                        Clean Air Act for that make and model year, and
                            ``(ii) for 2004 and later model vehicles, 
                        has received a certificate that such vehicle 
                        meets or exceeds the Bin 5 Tier II emission 
                        level established in regulations prescribed by 
                        the Administrator of the Environmental 
                        Protection Agency under section 202(i) of the 
                        Clean Air Act for that make and model year 
                        vehicle,
                    ``(C) the original use of which commences with the 
                taxpayer,
                    ``(D) which is acquired for use or lease by the 
                taxpayer and not for resale, and
                    ``(E) which is made by a manufacturer.
    ``(c) Advanced Lean Burn Technology Motor Vehicle Credit.--
            ``(1) In general.--For purposes of subsection (a), the 
        advanced lean burn technology motor vehicle credit determined 
        under this subsection with respect to a new qualified advanced 
        lean burn technology motor vehicle placed in service by the 
        taxpayer during the taxable year is the credit amount 
        determined under paragraph (2).
            ``(2) Credit amount.--
                    ``(A) Increase for fuel efficiency.--The credit 
                amount determined under this paragraph shall be--
                            ``(i) $500, if such vehicle achieves at 
                        least 125 percent but less than 150 percent of 
                        the 2000 model year city fuel economy,
                            ``(ii) $1,000, if such vehicle achieves at 
                        least 150 percent but less than 175 percent of 
                        the 2000 model year city fuel economy,
                            ``(iii) $1,500, if such vehicle achieves at 
                        least 175 percent but less than 200 percent of 
                        the 2000 model year city fuel economy,
                            ``(iv) $2,000, if such vehicle achieves at 
                        least 200 percent but less than 225 percent of 
                        the 2000 model year city fuel economy,
                            ``(v) $2,500, if such vehicle achieves at 
                        least 225 percent but less than 250 percent of 
                        the 2000 model year city fuel economy, and
                            ``(vi) $3,000, if such vehicle achieves at 
                        least 250 percent of the 2000 model year city 
                        fuel economy.
                For purposes of clause (i), the 2000 model year city 
                fuel economy with respect to a vehicle shall be 
                determined using the tables provided in subsection 
                (b)(2)(B) with respect to such vehicle.
                    ``(B) Conservation credit.--The amount determined 
                under subparagraph (A) with respect to an advanced lean 
                burn technology motor vehicle shall be increased by--
                            ``(i) $250, if such vehicle achieves a 
                        lifetime fuel savings of at least 1,500 gallons 
                        of gasoline, and
                            ``(ii) $500, if such vehicle achieves a 
                        lifetime fuel savings of at least 2,500 gallons 
                        of gasoline.
                    ``(C) Option to use like vehicle.--At the option of 
                the vehicle manufacturer, the increase for fuel 
                efficiency and conservation credit may be calculated by 
                comparing the new advanced lean-burn technology motor 
                vehicle to a like vehicle.
            ``(3) Definitions.--For purposes of this subsection--
                    ``(A) Advanced lean burn technology motor 
                vehicle.--The term `advanced lean burn technology motor 
                vehicle' means a motor vehicle with an internal 
                combustion engine that--
                            ``(i) is designed to operate primarily 
                        using more air than is necessary for complete 
                        combustion of the fuel,
                            ``(ii) incorporates direct injection,
                            ``(iii) achieves at least 125 percent of 
                        the 2000 model year city fuel economy, and
                            ``(iv) for 2004 and later model vehicles, 
                        has received a certificate that such vehicle 
                        meets or exceeds the Bin 8 Tier II emission 
                        level established in regulations prescribed by 
                        the Administrator of the Environmental 
                        Protection Agency under section 202(i) of the 
                        Clean Air Act for that make and model year 
                        vehicle.
                    ``(B) Like vehicle.--The term `like vehicle' for an 
                advanced lean burn technology motor vehicle derived 
                from a conventional production vehicle produced in the 
                same model year means a model that is equivalent in the 
                following areas:
                            ``(i) Body style (2-door or 4-door).
                            ``(ii) Transmission (automatic or manual).
                            ``(iii) Acceleration performance 
                        (<plus-minus> 0.05 seconds).
                            ``(iv) Drivetrain (2-wheel drive or 4-wheel 
                        drive).
                            ``(v) Certification by the Administrator of 
                        the Environmental Protection Agency.
                    ``(C) Lifetime fuel savings.--The term `lifetime 
                fuel savings' shall be calculated by dividing 120,000 
                by the difference between the 2000 model year city fuel 
                economy for the vehicle inertia weight class and the 
                city fuel economy for the new qualified hybrid motor 
                vehicle.
    ``(d) Limitation Based on Amount of Tax.--The credit allowed under 
subsection (a) for the taxable year shall not exceed the excess of--
            ``(1) the sum of the regular tax liability (as defined in 
        section 26(b)) plus the tax imposed by section 55, over
            ``(2) the sum of the credits allowable under subpart A and 
        sections 27, 29, and 30A for the taxable year.
    ``(e) Other Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Consumable fuel.--The term `consumable fuel' means 
        any solid, liquid, or gaseous matter which releases energy when 
        consumed by an auxiliary power unit.
            ``(2) Motor vehicle.--The term `motor vehicle' has the 
        meaning given such term by section 30(c)(2).
            ``(3) 2000 model year city fuel economy.--The 2000 model 
        year city fuel economy with respect to any vehicle shall be 
        measured under rules similar to the rules under section 
        4064(c).
            ``(4) Other terms.--The terms `automobile', `passenger 
        automobile', `light truck', and `manufacturer' have the 
        meanings given such terms in regulations prescribed by the 
        Administrator of the Environmental Protection Agency for 
        purposes of the administration of title II of the Clean Air Act 
        (42 U.S.C. 7521 et seq.).
            ``(5)  Reduction in basis.--For purposes of this subtitle, 
        if a credit is allowed under this section for any expenditure 
        with respect to any property, the increase in the basis of such 
        property which would (but for this paragraph) result from such 
        expenditure shall be reduced by the amount of the credit so 
        allowed.
            ``(6) No double benefit.--The amount of any deduction or 
        credit allowable under this chapter (other than the credit 
        allowable under this section), with respect to a vehicle 
        described under subsection (b), shall be reduced by the amount 
        of credit allowed under subsection (a) for such vehicle for the 
        taxable year.
            ``(7) Property used by tax-exempt entities.--In the case of 
        a credit amount which is allowable with respect to a motor 
        vehicle which is acquired by an entity exempt from tax under 
        this chapter, the person which sells or leases such vehicle to 
        the entity shall be treated as the taxpayer with respect to the 
        vehicle for purposes of this section and the credit shall be 
        allowed to such person, but only if the person clearly 
        discloses to the entity in any sale or lease document the 
        specific amount of any credit otherwise allowable to the entity 
        under this section.
            ``(8) Recapture.--The Secretary shall, by regulations, 
        provide for recapturing the benefit of any credit allowable 
        under subsection (a) with respect to any property which ceases 
        to be property eligible for such credit (including recapture in 
        the case of a lease period of less than the economic life of a 
        vehicle).
            ``(9) Property used outside united states, etc., not 
        qualified.--No credit shall be allowed under subsection (a) 
        with respect to any property referred to in section 50(b) or 
        with respect to the portion of the cost of any property taken 
        into account under section 179.
            ``(10) Election to not take credit.--No credit shall be 
        allowed under subsection (a) for any vehicle if the taxpayer 
        elects to not have this section apply to such vehicle.
            ``(11) Carryforward allowed.--
                    ``(A) In general.--If the credit amount allowable 
                under subsection (a) for a taxable year exceeds the 
                amount of the limitation under subsection (d) for such 
                taxable year (referred to as the `unused credit year' 
                in this paragraph), such excess shall be allowed as a 
                credit carryforward for each of the 20 taxable years 
                following the unused credit year.
                    ``(B) Rules.--Rules similar to the rules of section 
                39 shall apply with respect to the credit carryforward 
                under subparagraph (A).
            ``(12) Interaction with air quality and motor vehicle 
        safety standards.--Unless otherwise provided in this section, a 
        motor vehicle shall not be considered eligible for a credit 
        under this section unless such vehicle is in compliance with--
                    ``(A) the applicable provisions of the Clean Air 
                Act for the applicable make and model year of the 
                vehicle (or applicable air quality provisions of State 
                law in the case of a State which has adopted such 
provision under a waiver under section 209(b) of the Clean Air Act), 
and
                    ``(B) the motor vehicle safety provisions of 
                sections 30101 through 30169 of title 49, United States 
                Code.
    ``(f) Regulations.--
            ``(1) In general.--The Secretary shall promulgate such 
        regulations as necessary to carry out the provisions of this 
        section.
            ``(2) Determination of motor vehicle eligibility.--The 
        Secretary, in coordination with the Secretary of Transportation 
        and the Administrator of the Environmental Protection Agency, 
        shall prescribe such regulations as necessary to determine 
        whether a motor vehicle meets the requirements to be eligible 
        for a credit under this section.
    ``(g) Termination.--This section shall not apply to any property 
placed in service after--
            ``(1) in the case of a new qualified fuel cell motor 
        vehicle (as described in subsection (b)), December 31, 2012, 
        and
            ``(2) in the case of any other property, December 31, 
        2006.''.
    (b) Conforming Amendments.--
            (1) Section 1016(a) is amended by striking ``and'' at the 
        end of paragraph (30), by striking the period at the end of 
        paragraph (31) and inserting ``, and'', and by adding at the 
        end the following:
            ``(32) to the extent provided in section 30B(e)(5).''.
            (2) Section 6501(m) is amended by inserting ``30B(e)(10),'' 
        after ``30(d)(4),''.
            (3) The table of sections for subpart B of part IV of 
        subchapter A of chapter 1 is amended by inserting after the 
        item relating to section 30A the following:

                              ``Sec. 30B. Alternative motor vehicle 
                                        credit.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after December 31, 2003, in taxable 
years ending after such date.

                         TITLE II--RELIABILITY

SEC. 201. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR PROPERTY.

    (a) In General.--Subparagraph (C) of section 168(e)(3) (relating to 
classification of certain property) is amended by striking ``and'' at 
the end of clause (i), by redesignating clause (ii) as clause (iii), 
and by inserting after clause (i) the following new clause:
                            ``(ii) any natural gas gathering line, 
                        and''.
    (b) Natural Gas Gathering Line.--Subsection (i) of section 168 is 
amended by adding after paragraph (15) the following new paragraph:
            ``(16) Natural gas gathering line.--The term `natural gas 
        gathering line' means--
                    ``(A) the pipe, equipment, and appurtenances 
                determined to be a gathering line by the Federal Energy 
                Regulatory Commission, or
                    ``(B) the pipe, equipment, and appurtenances used 
                to deliver natural gas from the wellhead or a 
                commonpoint to the point at which such gas first 
                reaches--
                            ``(i) a gas processing plant,
                            ``(ii) an interconnection with a 
                        transmission pipeline certificated by the 
                        Federal Energy Regulatory Commission as an 
                        interstate transmission pipeline,
                            ``(iii) an interconnection with an 
                        intrastate transmission pipeline, or
                            ``(iv) a direct interconnection with a 
                        local distribution company, a gas storage 
                        facility, or an industrial consumer.''.
    (c) Alternative System.--The table contained in section 
168(g)(3)(B) is amended by inserting after the item relating to 
subparagraph (C)(i) the following:

``(C)(ii)......................................................   10''.
    (d) Alternative Minimum Tax Exception.--Subparagraph (B) of section 
56(a)(1) is amended by inserting before the period the following: ``, 
or in section 168(e)(3)(C)(ii)''.
    (e) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act, in taxable years ending after such date.

SEC. 202. NATURAL GAS DISTRIBUTION LINES TREATED AS 15-YEAR PROPERTY.

    (a) In General.--Subparagraph (E) of section 168(e)(3) (relating to 
classification of certain property) is amended by striking ``and'' at 
the end of clause (ii), by striking the period at the end of clause 
(iii) and by inserting ``, and'', and by adding at the end the 
following new clause:
                            ``(iv) any natural gas distribution 
                        line.''.
    (b) Alternative System.--The table contained in section 
168(g)(3)(B) is amended by inserting after the item relating to 
subparagraph (E)(iii) the following:

``(E)(iv)......................................................   20''.
    (c) Alternative Minimum Tax Exception.--Subparagraph (B) of section 
56(a)(1) is amended by inserting before the period the following: ``, 
or in section 168(e)(3)(E)(iv)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act, in taxable years ending after such date.

SEC. 203. ELECTRIC TRANSMISSION PROPERTY TREATED AS 15-YEAR PROPERTY.

    (a) In General.--Subparagraph (E) of section 168(e)(3) (relating to 
classification of certain property) is amended by striking ``and'' at 
the end of clause (iii), by striking the period at the end of clause 
(iv) and by inserting ``, and'', and by adding at the end the following 
new clause:
                            ``(v) any section 1245 property (as defined 
                        in section 1245(a)(3)) used in the transmission 
                        at 69 or more kilovolts of electricity for 
                        sale.''.
    (b) Alternative System.--The table contained in section 
168(g)(3)(B) is amended by inserting after the item relating to 
subparagraph (E)(iv) the following:

``(E)(v).......................................................   20''.
    (c) Alternative Minimum Tax Exception.--Subparagraph (B) of section 
56(a)(1) is amended by inserting before the period the following: ``, 
or in section 168(e)(3)(E)(v)''.
    (d) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act, in taxable years ending after such date.

SEC. 204. EXPENSING OF CAPITAL COSTS INCURRED IN COMPLYING WITH 
              ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

    (a) In General.--Part VI of subchapter B of chapter 1 (relating to 
itemized deductions for individuals and corporations) is amended by 
inserting after section 179A the following new section:

``SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN COMPLYING WITH 
              ENVIRONMENTAL PROTECTION AGENCY SULFUR REGULATIONS.

    ``(a) Treatment as Expenses.--A small business refiner (as defined 
in section 45H(c)(1)) may elect to treat 75 percent of qualified 
capital costs (as defined in section 45H(c)(2)) which are paid or 
incurred by the taxpayer during the taxable year as expenses which are 
not chargeable to capital account. Any cost so treated shall be allowed 
as a deduction for the taxable year in which paid or incurred.
    ``(b) Reduced Percentage.--In the case of a small business refiner 
with average daily domestic refinery runs for the 1-year period ending 
on March 31, 2003, in excess of 155,000 barrels, the number of 
percentage points described in subsection (a) shall be reduced (not 
below zero) by the product of such number (before the application of 
this subsection) and the ratio of such excess to 50,000 barrels.
    ``(c) Basis Reduction.--
            ``(1) In general.--For purposes of this title, the basis of 
        any property shall be reduced by the portion of the cost of 
        such property taken into account under subsection (a).
            ``(2) Ordinary income recapture.--For purposes of section 
        1245, the amount of the deduction allowable under subsection 
        (a) with respect to any property which is of a character 
        subject to the allowance for depreciation shall be treated as a 
        deduction allowed for depreciation under section 167.''.
    (b) Conforming Amendments.--
            (1) Section 263(a)(1) is amended by striking ``or'' at the 
        end of subparagraph (G), by striking the period at the end of 
        subparagraph (H) and inserting ``; or'', and by adding at the 
        end the following new subparagraph:
                    ``(I) expenditures for which a deduction is allowed 
                under section 179B.''.
            (2) Section 312(k)(3)(B) is amended--
                    (A) by striking ``section 179 or 179A'' each place 
                it appears and inserting ``section 179, 179A, or 
                179B'', and
                    (B) in the heading, by striking ``179 or 179A'' and 
                inserting ``179, 179A, or 179B''.
            (3) Section 1016(a) is amended by striking ``and'' at the 
        end of paragraph (31), by striking the period at the end of 
        paragraph (32) and inserting ``, and'', and by adding at the 
        end the following new paragraph:
            ``(33) to the extent provided in section 179B(c).''.
            (4) Paragraphs (2)(C) and (3)(C) of section 1245(a) are 
        each amended by inserting ``179B,'' after ``179A,''.
            (5) The table of sections for part VI of subchapter B of 
        chapter 1 is amended by inserting after the item relating to 
        section 179A the following new item:

                              ``Sec. 179B. Deduction for capital costs 
                                        incurred in complying with 
                                        Environmental Protection Agency 
                                        sulfur regulations.''.
    (c) Effective Date.--The amendment made by this section shall apply 
to expenses paid or incurred after March 31, 2003, in taxable years 
ending after such date.

SEC. 205. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business-related credits) is amended by adding at the end 
the following new section:

``SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIESEL FUEL.

    ``(a) In General.--For purposes of section 38, the amount of the 
low sulfur diesel fuel production credit determined under this section 
with respect to any facility of a small business refiner is an amount 
equal to 5 cents for each gallon of low sulfur diesel fuel produced 
during the taxable year by such small business refiner at such 
facility.
    ``(b) Maximum Credit.--
            ``(1) In general.--The aggregate credit determined under 
        subsection (a) for any taxable year with respect to any 
        facility shall not exceed--
                    ``(A) 25 percent of the qualified capital costs 
                incurred by the small business refiner with respect to 
                such facility, reduced by
                    ``(B) the aggregate credits determined under this 
                section for all prior taxable years with respect to 
                such facility.
            ``(2) Reduced percentage.--In the case of a small business 
        refiner with average daily domestic refinery runs for the 1-
        year period ending on March 31, 2003, in excess of 155,000 
        barrels, the number of percentage points described in paragraph 
        (1) shall be reduced (not below zero) by the product of such 
        number (before the application of this paragraph) and the ratio 
        of such excess to 50,000 barrels.
    ``(c) Definitions.--For purposes of this section--
            ``(1) Small business refiner.--The term `small business 
        refiner' means, with respect to any taxable year, a refiner of 
        crude oil with respect to which not more than 1,500 persons are 
        engaged in the refinery operations of the business on any day 
        during such taxable year and whose average daily domestic 
        refinery run for the 1-year period ending on March 31, 2003, 
        did not exceed 205,000 barrels.
            ``(2) Qualified capital costs.--The term `qualified capital 
        costs' means, with respect to any facility, those costs paid or 
        incurred during the applicable period for compliance with the 
        applicable EPA regulations with respect to such facility, 
        including expenditures for the construction of new process 
        operation units or the dismantling and reconstruction of 
        existing process units to be used in the production of low 
        sulfur diesel fuel, associated adjacent or offsite equipment 
        (including tankage, catalyst, and power supply), engineering, 
        construction period interest, and sitework.
            ``(3) Applicable epa regulations.--The term `applicable EPA 
        regulations' means the Highway Diesel Fuel Sulfur Control 
        Requirements of the Environmental Protection Agency.
            ``(4) Applicable period.--The term `applicable period' 
        means, with respect to any facility, the period beginning on 
        April 1, 2003, and ending with the date which is 1 year after 
        the date on which the taxpayer must comply with the applicable 
        EPA regulations with respect to such facility.
            ``(5) Low sulfur diesel fuel.--The term `low sulfur diesel 
        fuel' means diesel fuel with a sulfur content of 15 parts per 
        million or less.
    ``(d) Reduction in Basis.--For purposes of this subtitle, if a 
credit is determined under this section for any expenditure with 
respect to any property, the increase in basis of such property which 
would (but for this subsection) result from such expenditure shall be 
reduced by the amount of the credit so determined.
    ``(e) Certification.--
            ``(1) Required.--Not later than the date which is 30 months 
        after the first day of the first taxable year in which the low 
        sulfur diesel fuel production credit is allowed with respect to 
        a facility, the small business refiner must obtain 
        certification from the Secretary, in consultation with the 
        Administrator of the Environmental Protection Agency, that the 
        taxpayer's qualified capital costs with respect to such 
        facility will result in compliance with the applicable EPA 
        regulations.
            ``(2) Contents of application.--An application for 
        certification shall include relevant information regarding unit 
        capacities and operating characteristics sufficient for the 
        Secretary, in consultation with the Administrator of the 
        Environmental Protection Agency, to determine that such 
        qualified capital costs are necessary for compliance with the 
        applicable EPA regulations.
            ``(3) Review period.--Any application shall be reviewed and 
        notice of certification, if applicable, shall be made within 60 
        days of receipt of such application.
            ``(4) Statute of limitations.--With respect to the credit 
        allowed under this section--
                    ``(A) the statutory period for the assessment of 
                any deficiency attributable to such credit shall not 
                expire before the end of the 3-year period ending on 
                the date that the review period described in paragraph 
                (3) ends, and
                    ``(B) such deficiency may be assessed before the 
                expiration of such 3-year period notwithstanding the 
                provisions of any other law or rule of law which would 
                otherwise prevent such assessment.
    ``(f) Controlled Groups.--For purposes of this section, all persons 
treated as a single employer under subsection (b), (c), (m), or (o) of 
section 414 shall be treated as 1 taxpayer.''.
    (b) Credit Made Part of General Business Credit.--Subsection (b) of 
section 38 (relating to general business credit) is amended by striking 
``plus'' at the end of paragraph (15), by striking the period at the 
end of paragraph (16) and inserting ``, plus'', and by adding at the 
end the following new paragraph:
            ``(17) in the case of a small business refiner, the low 
        sulfur diesel fuel production credit determined under section 
        45H(a).''.
    (c) Denial of Double Benefit.--Section 280C (relating to certain 
expenses for which credits are allowable) is amended by adding after 
subsection (d) the following new subsection:
    ``(e) Low Sulfur Diesel Fuel Production Credit.--No deduction shall 
be allowed for that portion of the expenses otherwise allowable as a 
deduction for the taxable year which is equal to the amount of the 
credit determined for the taxable year under section 45H(a).''.
    (d) Basis Adjustment.--Section 1016(a) (relating to adjustments to 
basis) is amended by striking ``and'' at the end of paragraph (32), by 
striking the period at the end of paragraph (33) and inserting ``, 
and'', and by adding at the end the following new paragraph:
            ``(34) in the case of a facility with respect to which a 
        credit was allowed under section 45H, to the extent provided in 
        section 45H(d).''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following new item:

                              ``Sec. 45H. Credit for production of low 
                                        sulfur diesel fuel.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to expenses paid or incurred after March 31, 2003, in taxable 
years ending after such date.

SEC. 206. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL DEPLETION 
              DEDUCTION.

    (a) In General.--Paragraph (4) of section 613A(d) (relating to 
certain refiners excluded) is amended to read as follows:
            ``(4) Certain refiners excluded.--If the taxpayer or a 
        related person engages in the refining of crude oil, subsection 
        (c) shall not apply to the taxpayer for a taxable year if the 
        average daily refinery runs of the taxpayer and the related 
        person for the taxable year exceed 75,000 barrels. For purposes 
        of this paragraph, the average daily refinery runs for any 
        taxable year shall be determined by dividing the aggregate 
        refinery runs for the taxable year by the number of days in the 
        taxable year.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 207. SALES OR DISPOSITIONS TO IMPLEMENT FEDERAL ENERGY REGULATORY 
              COMMISSION OR STATE ELECTRIC RESTRUCTURING POLICY.

    (a) In General.--Section 451 (relating to general rule for taxable 
year of inclusion) is amended by adding at the end the following new 
subsection:
    ``(i) Special Rule for Sales or Dispositions To Implement Federal 
Energy Regulatory Commission or State Electric Restructuring Policy.--
            ``(1) In general.--In the case of any qualifying electric 
        transmission transaction to which the taxpayer elects the 
        application of this section, qualified gain from such 
        transaction shall be recognized--
                    ``(A) in the taxable year which includes the date 
                of such transaction to the extent the amount realized 
                from such transaction exceeds--
                            ``(i) the cost of exempt utility property 
                        which is purchased by the taxpayer during the 
4-year period beginning on such date, reduced (but not below zero) by
                            ``(ii) any portion of such cost previously 
                        taken into account under this subsection, and
                    ``(B) ratably over the 8-taxable year period 
                beginning with the taxable year which includes the date 
                of such transaction, in the case of any such gain not 
                recognized under subparagraph (A).
            ``(2) Qualified gain.--For purposes of this subsection, the 
        term `qualified gain' means, with respect to any qualifying 
        electric transmission transaction in any taxable year--
                    ``(A) any ordinary income derived from such 
                transaction which would be required to be recognized 
                under section 1245 or 1250 for such taxable year 
                (determined without regard to this subsection), and
                    ``(B) any income derived from such transaction in 
                excess of the amount described in subparagraph (A) 
                which is required to be included in gross income for 
                such taxable year (determined without regard to this 
                subsection).
            ``(3) Qualifying electric transmission transaction.--For 
        purposes of this subsection, the term `qualifying electric 
        transmission transaction' means any sale or other disposition 
        before January 1, 2007, of--
                    ``(A) property used in the trade or business of 
                providing electric transmission services, or
                    ``(B) any stock or partnership interest in a 
                corporation or partnership, as the case may be, whose 
                principal trade or business consists of providing 
                electric transmission services,
        but only if such sale or disposition is to an independent 
        transmission company.
            ``(4) Independent transmission company.--For purposes of 
        this subsection, the term `independent transmission company' 
        means--
                    ``(A) an independent transmission provider approved 
                by the Federal Energy Regulatory Commission,
                    ``(B) a person--
                            ``(i) who the Federal Energy Regulatory 
                        Commission determines in its authorization of 
                        the transaction under section 203 of the 
                        Federal Power Act (16 U.S.C. 824b) or by 
                        declaratory order is not a market participant 
                        within the meaning of such Commission's rules 
                        applicable to independent transmission 
                        providers, and
                            ``(ii) whose transmission facilities to 
                        which the election under this subsection 
                        applies are under the operational control of a 
                        Federal Energy Regulatory Commission-approved 
                        independent transmission provider before the 
                        close of the period specified in such 
                        authorization, but not later than the close of 
                        the period applicable under subsection 
                        (a)(2)(B) as extended under paragraph (2), or
                    ``(C) in the case of facilities subject to the 
                jurisdiction of the Public Utility Commission of 
                Texas--
                            ``(i) a person which is approved by that 
                        Commission as consistent with Texas State law 
                        regarding an independent transmission provider, 
                        or
                            ``(ii) a political subdivision or affiliate 
                        thereof whose transmission facilities are under 
                        the operational control of a person described 
                        in clause (i).
            ``(5) Exempt utility property.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `exempt utility 
                property' means property used in the trade or business 
                of--
                            ``(i) generating, transmitting, 
                        distributing, or selling electricity, or
                            ``(ii) producing, transmitting, 
                        distributing, or selling natural gas.
                    ``(B) Nonrecognition of gain by reason of 
                acquisition of stock.--Acquisition of control of a 
                corporation shall be taken into account under this 
                subsection with respect to a qualifying electric 
                transmission transaction only if the principal trade or 
                business of such corporation is a trade or business 
                referred to in subparagraph (A).
            ``(6) Special rule for consolidated groups.--In the case of 
        a corporation which is a member of an affiliated group filing a 
        consolidated return, any exempt utility property purchased by 
        another member of such group shall be treated as purchased by 
        such corporation for purposes of applying paragraph (1)(A).
            ``(7) Time for assessment of deficiencies.--If the taxpayer 
        has made the election under paragraph (1) and any gain is 
        recognized by such taxpayer as provided in paragraph (1)(B), 
        then--
                    ``(A) the statutory period for the assessment of 
                any deficiency, for any taxable year in which any part 
                of the gain on the transaction is realized, 
                attributable to such gain shall not expire prior to the 
                expiration of 3 years from the date the Secretary is 
                notified by the taxpayer (in such manner as the 
                Secretary may by regulations prescribe) of the purchase 
                of exempt utility property or of an intention not to 
                purchase such property, and
                    ``(B) such deficiency may be assessed before the 
                expiration of such 3-year period notwithstanding any 
                law or rule of law which would otherwise prevent such 
                assessment.
            ``(8) Purchase.--For purposes of this subsection, the 
        taxpayer shall be considered to have purchased any property if 
        the unadjusted basis of such property is its cost within the 
        meaning of section 1012.
            ``(9) Election.--An election under paragraph (1) shall be 
        made at such time and in such manner as the Secretary may 
        require and, once made, shall be irrevocable.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions occurring after the date of the enactment of this 
Act, in taxable years ending after such date.

SEC. 208. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR DECOMMISSIONING 
              COSTS.

    (a) Repeal of Limitation on Deposits Into Fund Based on Cost of 
Service; Contributions After Funding Period.--Subsection (b) of section 
468A is amended to read as follows:
    ``(b) Limitation on Amounts Paid Into Fund.--
            ``(1) In general.--The amount which a taxpayer may pay into 
        the Fund for any taxable year shall not exceed the ruling 
        amount applicable to such taxable year.
            ``(2) Contributions after funding period.--Notwithstanding 
        any other provision of this section, a taxpayer may pay into 
        the Fund in any taxable year after the last taxable year to 
        which the ruling amount applies. Payments may not be made under 
        the preceding sentence to the extent such payments would cause 
        the assets of the Fund to exceed the nuclear decommissioning 
        costs allocable to the taxpayer's current or former interest in 
        the nuclear power plant to which the Fund relates. The 
        limitation under the preceding sentence shall be determined by 
        taking into account a reasonable rate of inflation for the 
        nuclear decommissioning costs and a reasonable after-tax rate 
        of return on the assets of the Fund until such assets are 
        anticipated to be expended.''.
    (b) Clarification of Treatment of Fund Transfers.--Subsection (e) 
of section 468A is amended by adding at the end the following new 
paragraph:
            ``(8) Treatment of fund transfers.--If, in connection with 
        the transfer of the taxpayer's interest in a nuclear power 
        plant, the taxpayer transfers the Fund with respect to such 
        power plant to the transferee of such interest and the 
        transferee elects to continue the application of this section 
        to such Fund--
                    ``(A) the transfer of such Fund shall not cause 
                such Fund to be disqualified from the application of 
                this section, and
                    ``(B) no amount shall be treated as distributed 
                from such Fund, or be includible in gross income, by 
                reason of such transfer.''.
    (c) Treatment of Certain Decommissioning Costs.--
            (1) In general.--Section 468A is amended by redesignating 
        subsections (f) and (g) as subsections (g) and (h), 
        respectively, and by inserting after subsection (e) the 
        following new subsection:
    ``(f) Transfers Into Qualified Funds.--
            ``(1) In general.--Notwithstanding subsection (b), any 
        taxpayer maintaining a Fund to which this section applies with 
        respect to a nuclear power plant may transfer into such Fund up 
        to an amount equal to the excess of the total nuclear 
        decommissioning costs with respect to such nuclear power plant 
        over the portion of such costs taken into account in 
        determining the ruling amount in effect immediately before the 
        transfer.
            ``(2) Deduction for amounts transferred.--
                    ``(A) In general.--Except as provided in 
                subparagraph (C), the deduction allowed by subsection 
                (a) for any transfer permitted by this subsection shall 
                be allowed ratably over the remaining estimated useful 
                life (within the meaning of subsection (d)(2)(A)) of 
                the nuclear power plant beginning with the taxable year 
                during which the transfer is made.
                    ``(B) Denial of deduction for previously deducted 
                amounts.--No deduction shall be allowed for any 
                transfer under this subsection of an amount for which a 
                deduction was previously allowed or a corresponding 
                amount was not included in gross income. For purposes 
                of the preceding sentence, a ratable portion of each 
                transfer shall be treated as being from previously 
                deducted or excluded amounts to the extent thereof.
                    ``(C) Transfers of qualified funds.--If--
                            ``(i) any transfer permitted by this 
                        subsection is made to any Fund to which this 
                        section applies, and
                            ``(ii) such Fund is transferred thereafter,
                any deduction under this subsection for taxable years 
                ending after the date that such Fund is transferred 
                shall be allowed to the transferor for the taxable year 
                which includes such date.
                    ``(D) Special rules.--
                            ``(i) Gain or loss not recognized.--No gain 
                        or loss shall be recognized on any transfer 
                        permitted by this subsection.
                            ``(ii) Transfers of appreciated property.--
                        If appreciated property is transferred in a 
                        transfer permitted by this subsection, the 
                        amount of the deduction shall be the adjusted 
                        basis of such property.
            ``(3) New ruling amount required.--Paragraph (1) shall not 
        apply to any transfer unless the taxpayer requests from the 
        Secretary a new schedule of ruling amounts in connection with 
        such transfer.
            ``(4) No basis in qualified funds.--Notwithstanding any 
        other provision of law, the taxpayer's basis in any Fund to 
        which this section applies shall not be increased by reason of 
        any transfer permitted by this subsection.''.
            (2) New ruling amount to take into account total costs.--
        Subparagraph (A) of section 468A(d)(2) is amended to read as 
        follows:
                    ``(A) fund the total nuclear decommissioning costs 
                with respect to such power plant over the estimated 
                useful life of such power plant, and''.
    (d) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2003.

SEC. 209. TREATMENT OF CERTAIN INCOME OF COOPERATIVES.

    (a) Income From Open Access and Nuclear Decommissioning 
Transactions.--
            (1) In general.--Subparagraph (C) of section 501(c)(12) is 
        amended by striking ``or'' at the end of clause (i), by 
        striking clause (ii), and by adding at the end the following 
        new clauses:
                            ``(ii) from any provision or sale of 
                        transmission service or ancillary services if 
                        such services are provided on a 
                        nondiscriminatory open access basis under an 
                        independent transmission provider agreement 
                        approved by FERC (other than income received or 
                        accrued directly or indirectly from a member),
                            ``(iii) from any nuclear decommissioning 
                        transaction, or
                            ``(iv) from any asset exchange or 
                        conversion transaction.''.
            (2) Definitions and special rules.--Paragraph (12) of 
        section 501(c) is amended by adding at the end the following 
        new subparagraphs:
                    ``(E) For purposes of subparagraph (C)(ii), the 
                term `FERC' means the Federal Energy Regulatory 
                Commission and references to such term shall be treated 
                as including the Public Utility Commission of Texas 
                with respect to any ERCOT utility (as defined in 
                section 212(k)(2)(B) of the Federal Power Act (16 
                U.S.C. 824k(k)(2)(B))).
                    ``(F) For purposes of subparagraph (C)(iii), the 
                term `nuclear decommissioning transaction' means--
                            ``(i) any transfer into a trust, fund, or 
                        instrument established to pay any nuclear 
                        decommissioning costs if the transfer is in 
                        connection with the transfer of the mutual or 
                        cooperative electric company's interest in a 
                        nuclear power plant or nuclear power plant 
                        unit,
                            ``(ii) any distribution from any trust, 
                        fund, or instrument established to pay any 
                        nuclear decommissioning costs, or
                            ``(iii) any earnings from any trust, fund, 
                        or instrument established to pay any nuclear 
                        decommissioning costs.
                    ``(G) For purposes of subparagraph (C)(iv), the 
                term `asset exchange or conversion transaction' means 
                any voluntary exchange or involuntary conversion of any 
                property related to generating, transmitting, 
                distributing, or selling electric energy by a mutual or 
                cooperative electric company, the gain from which 
                qualifies for deferred recognition under section 1031 
                or 1033, but only if the replacement property acquired 
                by such company pursuant to such section constitutes 
                property which is used, or to be used, for--
                            ``(i) generating, transmitting, 
                        distributing, or selling electric energy, or
                            ``(ii) producing, transmitting, 
                        distributing, or selling natural gas.''.
    (b) Treatment of Income From Load Loss Transactions, etc.--
Paragraph (12) of section 501(c), as amended by subsection (a)(2), is 
amended by adding after subparagraph (G) the following new 
subparagraph:
                    ``(H)(i) In the case of a mutual or cooperative 
                electric company described in this paragraph or an 
                organization described in section 1381(a)(2)(C), income 
                received or accrued from a load loss transaction shall 
                be treated as an amount collected from members for the 
                sole purpose of meeting losses and expenses.
                    ``(ii) For purposes of clause (i), the term `load 
                loss transaction' means any wholesale or retail sale of 
                electric energy (other than to members) to the extent 
                that the aggregate sales during the recovery period do 
                not exceed the load loss mitigation sales limit for 
                such period.
                    ``(iii) For purposes of clause (ii), the load loss 
                mitigation sales limit for the recovery period is the 
                sum of the annual load losses for each year of such 
                period.
                    ``(iv) For purposes of clause (iii), a mutual or 
                cooperative electric company's annual load loss for 
                each year of the recovery period is the amount (if any) 
                by which--
                            ``(I) the megawatt hours of electric energy 
                        sold during such year to members of such 
                        electric company are less than
                            ``(II) the megawatt hours of electric 
                        energy sold during the base year to such 
                        members.
                    ``(v) For purposes of clause (iv)(II), the term 
                `base year' means--
                            ``(I) the calendar year preceding the 
                        start-up year, or
                            ``(II) at the election of the electric 
                        company, the second or third calendar years 
                        preceding the start-up year.
                    ``(vi) For purposes of this subparagraph, the 
                recovery period is the 7-year period beginning with the 
                start-up year.
                    ``(vii) For purposes of this subparagraph, the 
                start-up year is the calendar year which includes the 
                date of the enactment of this subparagraph or, if 
                later, at the election of the mutual or cooperative 
                electric company--
                            ``(I) the first year that such electric 
                        company offers nondiscriminatory open access, 
                        or
                            ``(II) the first year in which at least 10 
                        percent of such electric company's sales are 
                        not to members of such electric company.
                    ``(viii) A company shall not fail to be treated as 
                a mutual or cooperative company for purposes of this 
                paragraph or as a corporation operating on a 
                cooperative basis for purposes of section 1381(a)(2)(C) 
                by reason of the treatment under clause (i).
                    ``(ix) For purposes of subparagraph (A), in the 
                case of a mutual or cooperative electric company, 
                income received, or accrued, indirectly from a member 
                shall be treated as an amount collected from members 
                for the sole purpose of meeting losses and expenses.''.
    (c) Exception From Unrelated Business Taxable Income.--Subsection 
(b) of section 512 (relating to modifications) is amended by adding at 
the end the following new paragraph:
            ``(18) Treatment of mutual or cooperative electric 
        companies.--In the case of a mutual or cooperative electric 
        company described in section 501(c)(12), there shall be 
        excluded income which is treated as member income under 
        subparagraph (H) thereof.''.
    (d) Cross Reference.--Section 1381 is amended by adding at the end 
the following new subsection:
    ``(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).''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 210. ARBITRAGE RULES NOT TO APPLY TO PREPAYMENTS FOR NATURAL GAS.

    (a) In General.--Subsection (b) of section 148 (relating to higher 
yielding investments) is amended by adding at the end the following new 
paragraph:
            ``(4) Safe harbor for prepaid natural gas.--
                    ``(A) In general.--The term `investment-type 
                property' does not include a prepayment under a 
                qualified natural gas supply contract.
                    ``(B) Qualified natural gas supply contract.--For 
                purposes of this paragraph, the term `qualified natural 
                gas supply contract' means any contract to acquire 
                natural gas for resale by a utility owned by a 
                governmental unit if the amount of gas permitted to be 
                acquired under the contract by the utility during any 
                year does not exceed the sum of--
                            ``(i) the annual average amount during the 
                        testing period of natural gas purchased (other 
                        than for resale) by customers of such utility 
                        who are located within the service area of such 
                        utility, and
                            ``(ii) the amount of natural gas to be used 
                        to transport the prepaid natural gas to the 
                        utility during such year.
                    ``(C) Natural gas used to generate electricity.--
                Natural gas used to generate electricity shall be taken 
                into account in determining the average under 
                subparagraph (B)(i)--
                            ``(i) only if the electricity is generated 
                        by a utility owned by a governmental unit, and
                            ``(ii) only to the extent that the 
                        electricity is sold (other than for resale) to 
                        customers of such utility who are located 
                        within the service area of such utility.
                    ``(D) Adjustments for changes in customer base.--
                            ``(i) New business customers.--If--
                                    ``(I) after the close of the 
                                testing period and before the date of 
                                issuance of the issue, the utility 
                                owned by a governmental unit enters 
                                into a contract to supply natural gas 
                                (other than for resale) for a business 
                                use at a property within the service 
                                area of such utility, and
                                    ``(II) the utility did not supply 
                                natural gas to such property during the 
testing period or the ratable amount of natural gas to be supplied 
under the contract is significantly greater than the ratable amount of 
gas supplied to such property during the testing period,
                        then a contract shall not fail to be treated as 
                        a qualified natural gas supply contract by 
                        reason of supplying the additional natural gas 
                        under the contract referred to in subclause 
                        (I).
                            ``(ii) Lost customers.--The average under 
                        subparagraph (B)(i) shall not exceed the annual 
                        amount of natural gas reasonably expected to be 
                        purchased (other than for resale) by persons 
                        who are located within the service area of such 
                        utility and who, as of the date of issuance of 
                        the issue, are customers of such utility.
                    ``(E) Ruling requests.--The Secretary may increase 
                the average under subparagraph (B)(i) for any period if 
                the utility owned by the governmental unit establishes 
                to the satisfaction of the Secretary that, based on 
                objective evidence of growth in natural gas consumption 
                or population, such average would otherwise be 
                insufficient for such period.
                    ``(F) Adjustment for natural gas otherwise on 
                hand.--
                            ``(i) In general.--The amount otherwise 
                        permitted to be acquired under the contract for 
                        any period shall be reduced by--
                                    ``(I) the applicable share of 
                                natural gas held by the utility on the 
                                date of issuance of the issue, and
                                    ``(II) the natural gas (not taken 
                                into account under subclause (I)) which 
                                the utility has a right to acquire 
                                during such period (determined as of 
                                the date of issuance of the issue).
                            ``(ii) Applicable share.--For purposes of 
                        the clause (i), the term `applicable share' 
                        means, with respect to any period, the natural 
                        gas allocable to such period if the gas were 
                        allocated ratably over the period to which the 
                        prepayment relates.
                    ``(G) Intentional acts.--Subparagraph (A) shall 
                cease to apply to any issue if the utility owned by the 
                governmental unit engages in any intentional act to 
                render the volume of natural gas acquired by such 
                prepayment to be in excess of the sum of--
                            ``(i) the amount of natural gas needed 
                        (other than for resale) by customers of such 
                        utility who are located within the service area 
                        of such utility, and
                            ``(ii) the amount of natural gas used to 
                        transport such natural gas to the utility.
                    ``(H) Testing period.--For purposes of this 
                paragraph, the term `testing period' means, with 
                respect to an issue, the most recent 5 calendar years 
                ending before the date of issuance of the issue.
                    ``(I) Service area.--For purposes of this 
                paragraph, the service area of a utility owned by a 
                governmental unit shall be comprised of--
                            ``(i) any area throughout which such 
                        utility provided at all times during the 
                        testing period--
                                    ``(I) in the case of a natural gas 
                                utility, natural gas transmission or 
                                distribution services, and
                                    ``(II) in the case of an electric 
                                utility, electricity distribution 
                                services,
                            ``(ii) any area within a county contiguous 
                        to the area described in clause (i) in which 
                        retail customers of such utility are located if 
                        such area is not also served by another utility 
                        providing natural gas or electricity services, 
                        as the case may be, and
                            ``(iii) any area recognized as the service 
                        area of such utility under State or Federal 
                        law.''.
    (b) Private Loan Financing Test Not To Apply to Prepayments for 
Natural Gas.--Paragraph (2) of section 141(c) (providing exceptions to 
the private loan financing test) is amended by striking ``or'' at the 
end of subparagraph (A), by striking the period at the end of 
subparagraph (B) and inserting ``, or'', and by adding at the end the 
following new subparagraph:
                    ``(C) is a qualified natural gas supply contract 
                (as defined in section 148(b)(4)).''.
    (c) Effective Date.--The amendment made by this section shall apply 
to obligations issued after the date of the enactment of this Act.

SEC. 211. PREPAYMENT OF PREMIUM LIABILITY FOR COAL INDUSTRY HEALTH 
              BENEFITS.

    (a) In General.--Section 9704 (relating to liability of assigned 
operators) is amended by adding at the end the following new 
subsection:
    ``(j) Prepayment of Premium Liability.--
            ``(1) In general.--If--
                    ``(A) any assigned operator who is a member of a 
                controlled group of corporations (within the meaning of 
                section 52(a)) makes a payment meeting the requirements 
                of paragraph (2) to the Combined Fund, and
                    ``(B) the common parent of such group--
                            ``(i) is jointly and severally liable for 
                        any premium which would (but for this 
                        subsection) be required to be paid by such 
                        operator, and
                            ``(ii) provides security which meets the 
                        requirements of paragraph (3),
        then no person (other than such common parent) shall be liable 
        for any premium for which such operator would otherwise be 
        liable.
            ``(2) Requirements.--A payment meets the requirements of 
        this paragraph if--
                    ``(A) the amount of the payment is not less than 
                the present value of the total premium liability of the 
                assigned operator for its assignees under this chapter 
                with respect to the Combined Fund (as determined by the 
                operator's enrolled actuary, as defined in section 
                7701(a)(35)), using actuarial methods and assumptions 
                each of which is reasonable and which are reasonable in 
                the aggregate, as determined by such enrolled actuary,
                    ``(B) a signed actuarial report is filed with the 
                Secretary of Labor by such enrolled actuary 
                containing--
                            ``(i) the date of the actuarial valuation 
                        applicable to the report, and
                            ``(ii) a statement by the enrolled actuary 
                        signing the report that to the best of the 
                        actuary's knowledge the report is complete and 
                        accurate and that in the actuary's opinion the 
                        actuarial assumptions used are in the aggregate 
                        reasonably related to the experience of the 
                        operator and to reasonable expectations,
                    ``(C) a description of the security described in 
                paragraph (3) is filed with the Secretary of Labor by 
                the common parent, and
                    ``(D) 30 calendar days have elapsed after the 
                report required by subparagraph (B), and the 
                description required by subparagraph (C), are filed 
                with the Secretary of Labor, and the Secretary of Labor 
                has not notified the assigned operator in writing that 
                the requirements of this paragraph have not been 
                satisfied.
            ``(3) Security.--Security meets the requirements of this 
        paragraph if--
                    ``(A) the security (in the form of a bond, letter 
                of credit, or cash escrow) is provided to the trustees 
                of the 1992 UMWA Benefit Plan, solely for the purpose 
                of paying premiums for beneficiaries described in 
                section 9712(b)(2)(B), equal in amount to one year's 
                liability of the assigned operator under section 9711, 
                determined by using the average cost of such operator's 
                liability during its prior 3 calendar years; and
                    ``(B) the security will remain in place for 5 
                years.
            ``(4) Use of prepayment.--Any payment to which this 
        subsection applies (and earnings thereon) shall be used 
        exclusively to pay premiums which would (but for this 
        subsection) be required to be paid by the assigned operator 
        making such payment.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the date of the enactment of this Act.

                         TITLE III--PRODUCTION

SEC. 301. OIL AND GAS FROM MARGINAL WELLS.

    (a) In General.--Subpart D of part IV of subchapter A of chapter 1 
(relating to business credits) is amended by adding at the end the 
following:

``SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.

    ``(a) General Rule.--For purposes of section 38, the marginal well 
production credit for any taxable year is an amount equal to the 
product of--
            ``(1) the credit amount, and
            ``(2) the qualified credit oil production and the qualified 
        natural gas production which is attributable to the taxpayer.
    ``(b) Credit Amount.--For purposes of this section--
            ``(1) In general.--The credit amount is--
                    ``(A) $3 per barrel of qualified crude oil 
                production, and
                    ``(B) 50 cents per 1,000 cubic feet of qualified 
                natural gas production.
            ``(2) Reduction as oil and gas prices increase.--
                    ``(A) In general.--The $3 and 50 cents amounts 
                under paragraph (1) shall each be reduced (but not 
                below zero) by an amount which bears the same ratio to 
                such amount (determined without regard to this 
                paragraph) as--
                            ``(i) the excess (if any) of the applicable 
                        reference price over $15 ($1.67 for qualified 
                        natural gas production), bears to
                            ``(ii) $3 ($0.33 for qualified natural gas 
                        production).
                The applicable reference price for a taxable year is 
                the reference price of the calendar year preceding the 
                calendar year in which the taxable year begins.
                    ``(B) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 2003, 
                each of the dollar amounts contained in subparagraph 
                (A) shall be increased to an amount equal to such 
                dollar amount multiplied by the inflation adjustment 
                factor for such calendar year (determined under section 
                43(b)(3)(B) by substituting `2002' for `1990').
                    ``(C) Reference price.--For purposes of this 
                paragraph, the term `reference price' means, with 
                respect to any calendar year--
                            ``(i) in the case of qualified crude oil 
                        production, the reference price determined 
                        under section 29(d)(2)(C), and
                            ``(ii) in the case of qualified natural gas 
                        production, the Secretary's estimate of the 
                        annual average wellhead price per 1,000 cubic 
                        feet for all domestic natural gas.
    ``(c) Qualified Crude Oil and Natural Gas Production.--For purposes 
of this section--
            ``(1) In general.--The terms `qualified crude oil 
        production' and `qualified natural gas production' mean 
        domestic crude oil or natural gas which is produced from a 
        qualified marginal well.
            ``(2) Limitation on amount of production which may 
        qualify.--
                    ``(A) In general.--Crude oil or natural gas 
                produced during any taxable year from any well shall 
                not be treated as qualified crude oil production or 
                qualified natural gas production to the extent 
                production from the well during the taxable year 
                exceeds 1,095 barrels or barrel equivalents.
                    ``(B) Proportionate reductions.--
                            ``(i) Short taxable years.--In the case of 
                        a short taxable year, the limitations under 
                        this paragraph shall be proportionately reduced 
                        to reflect the ratio which the number of days 
                        in such taxable year bears to 365.
                            ``(ii) Wells not in production entire 
                        year.--In the case of a well which is not 
                        capable of production during each day of a 
                        taxable year, the limitations under this 
                        paragraph applicable to the well shall be 
                        proportionately reduced to reflect the ratio 
                        which the number of days of production bears to 
                        the total number of days in the taxable year.
            ``(3) Definitions.--
                    ``(A) Qualified marginal well.--The term `qualified 
                marginal well' means a domestic well--
                            ``(i) the production from which during the 
                        taxable year is treated as marginal production 
                        under section 613A(c)(6), or
                            ``(ii) which, during the taxable year--
                                    ``(I) has average daily production 
                                of not more than 25 barrel equivalents, 
                                and
                                    ``(II) produces water at a rate not 
                                less than 95 percent of total well 
                                effluent.
                    ``(B) Crude oil, etc.--The terms `crude oil', 
                `natural gas', `domestic', and `barrel' have the 
                meanings given such terms by section 613A(e).
                    ``(C) Barrel equivalent.--The term `barrel 
                equivalent' means, with respect to natural gas, a 
                conversion ratio of 6,000 cubic feet of natural gas to 
                1 barrel of crude oil.
    ``(d) Other Rules.--
            ``(1) Production attributable to the taxpayer.--In the case 
        of a qualified marginal well in which there is more than one 
        owner of operating interests in the well and the crude oil or 
        natural gas production exceeds the limitation under subsection 
        (c)(2), qualifying crude oil production or qualifying natural 
        gas production attributable to the taxpayer shall be determined 
        on the basis of the ratio which taxpayer's revenue interest in 
        the production bears to the aggregate of the revenue interests 
        of all operating interest owners in the production.
            ``(2) Operating interest required.--Any credit under this 
        section may be claimed only on production which is attributable 
        to the holder of an operating interest.
            ``(3) Production from nonconventional sources excluded.--In 
        the case of production from a qualified marginal well which is 
        eligible for the credit allowed under section 29 for the 
        taxable year, no credit shall be allowable under this section 
        unless the taxpayer elects not to claim the credit under 
        section 29 with respect to the well.''.
    (b) Credit Treated as Business Credit.--Section 38(b) is amended by 
striking ``plus'' at the end of paragraph (16), by striking the period 
at the end of paragraph (17) and inserting ``, plus'', and by adding at 
the end the following:
            ``(18) the marginal oil and gas well production credit 
        determined under section 45I(a).''.
    (c) Carryback.--Subsection (a) of section 39 (relating to carryback 
and carryforward of unused credits generally) is amended by adding at 
the end the following:
            ``(3) 10-year carryback for marginal oil and gas well 
        production credit.--In the case of the marginal oil and gas 
        well production credit--
                    ``(A) this section shall be applied separately from 
                the business credit (other than the marginal oil and 
                gas well production credit),
                    ``(B) paragraph (1) shall be applied by 
                substituting `10 taxable years' for `1 taxable years' 
                in subparagraph (A) thereof, and
                    ``(C) paragraph (2) shall be applied--
                            ``(i) by substituting `31 taxable years' 
                        for `21 taxable years' in subparagraph (A) 
                        thereof, and
                            ``(ii) by substituting `30 taxable years' 
                        for `20 taxable years' in subparagraph (A) 
                        thereof.''.
    (d) Coordination With Section 29.--Section 29(a) is amended by 
striking ``There'' and inserting ``At the election of the taxpayer, 
there''.
    (e) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 is amended by adding at the end 
the following:

                              ``Sec. 45I. Credit for producing oil and 
                                        gas from marginal wells.''.
    (f) Effective Date.--The amendments made by this section shall 
apply to production in taxable years beginning after December 31, 2003.

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.

    (a) Limitation Based on 65 Percent of Taxable Income.--Subsection 
(d) of section 613A (relating to limitation on percentage depletion in 
case of oil and gas wells) is amended by adding at the end the 
following new paragraph:
            ``(6) Temporary suspension of taxable income limit.--
        Paragraph (1) shall not apply to taxable years beginning after 
        December 31, 2003, and before January 1, 2007, including with 
        respect to amounts carried under the second sentence of 
        paragraph (1) to such taxable years.''.
    (b) Extension of Suspension of Taxable Income Limit With Respect to 
Marginal Production.--Subparagraph (H) of section 613A(c)(6) (relating 
to temporary suspension of taxable income limit with respect to 
marginal production) is amended by striking ``2004'' and inserting 
``2007''.
    (c) Effective Date.--The amendment made by subsection (a) shall 
apply to taxable years beginning after December 31, 2003.

SEC. 303. AMORTIZATION OF DELAY RENTAL PAYMENTS.

    (a) In General.--Section 167 (relating to depreciation) is amended 
by redesignating subsection (h) as subsection (i) and by inserting 
after subsection (g) the following new subsection:
    ``(h) Amortization of Delay Rental Payments for Domestic Oil and 
Gas Wells.--
            ``(1) In general.--Any delay rental payment paid or 
        incurred in connection with the development of oil or gas wells 
        within the United States (as defined in section 638) shall be 
        allowed as a deduction ratably over the 24-month period 
        beginning on the date that such payment was paid or incurred.
            ``(2) Half-year convention.--For purposes of paragraph (1), 
        any payment paid or incurred during the taxable year shall be 
        treated as paid or incurred on the mid-point of such taxable 
        year.
            ``(3) Exclusive method.--Except as provided in this 
        subsection, no depreciation or amortization deduction shall be 
        allowed with respect to such payments.
            ``(4) Treatment upon abandonment.--If any property to which 
        a delay rental payment relates is retired or abandoned during 
        the 24-month period described in paragraph (1), no deduction 
        shall be allowed on account of such retirement or abandonment 
        and the amortization deduction under this subsection shall 
        continue with respect to such payment.
            ``(5) Delay rental payments.--For purposes of this 
        subsection, the term `delay rental payment' means an amount 
        paid for the privilege of deferring development of an oil or 
        gas well under an oil or gas lease.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to amounts paid or incurred in taxable years beginning after December 
31, 2003.

SEC. 304. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

    (a) In General.--Section 167 (relating to depreciation) is amended 
by redesignating subsection (i) as subsection (j) and by inserting 
after subsection (h) the following new subsection:
    ``(i) Amortization of Geological and Geophysical Expenditures.--
            ``(1) In general.--Any geological and geophysical expenses 
        paid or incurred in connection with the exploration for, or 
        development of, oil or gas within the United States (as defined 
        in section 638) shall be allowed as a deduction ratably over 
        the 24-month period beginning on the date that such expense was 
        paid or incurred.
            ``(2) Special rules.--For purposes of this subsection, 
        rules similar to the rules of paragraphs (2), (3), and (4) of 
        subsection (h) shall apply.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to costs paid or incurred in taxable years beginning after December 31, 
2003.

SEC. 305. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM 
              A NONCONVENTIONAL SOURCE.

    (a) In General.--Section 29 is amended by adding at the end the 
following new subsection:
    ``(h) Extension for Other Facilities.--
            ``(1) Extension for oil and certain gas.--In the case of a 
        well for producing qualified fuels described in subparagraph 
        (A) or (B)(i) of subsection (c)(1)--
                    ``(A) Application of credit for new wells.--
                Notwithstanding subsection (f), this section shall 
                apply with respect to such fuels--
                            ``(i) which are produced from a well 
                        drilled after the date of the enactment of this 
                        subsection and before January 1, 2007, and
                            ``(ii) which are sold not later than the 
                        close of the 4-year period beginning on the 
                        date that such well is drilled, or, if earlier, 
                        January 1, 2010.
                    ``(B) Extension of credit for old wells.--
                Subsection (f)(2) shall be applied by substituting 
                `2007' for `2003' with respect to wells described in 
                subsection (f)(1)(A) with respect to such fuels.
            ``(2) Extension for facilities producing qualified fuel 
        from landfill gas.--
                    ``(A) In general.--In the case of a facility for 
                producing qualified fuel from landfill gas which was 
                placed in service after June 30, 1998, and before 
                January 1, 2007, this section shall apply to fuel 
                produced at such facility during the 5-year period 
                beginning on the later of--
                            ``(i) the date such facility was placed in 
                        service, or
                            ``(ii) the date of the enactment of this 
                        subsection.
                    ``(B) Reduction of credit for certain landfill 
                facilities.--In the case of a facility to which 
                paragraph (1) applies and which is located at a 
                landfill which is required pursuant to section 
                60.751(b)(2) or section 60.33c of title 40, Code of 
                Federal Regulations (as in effect on April 3, 2003) to 
install and operate a collection and control system which captures gas 
generated within the landfill, subsection (a)(1) shall be applied to 
gas so captured by substituting `$2' for `$3' for the taxable year 
during which such system is required to be installed and operated.
            ``(3) Special rules.--In determining the amount of credit 
        allowable under this section solely by reason of this 
        subsection--
                    ``(A) Daily limit.--The amount of qualified fuels 
                sold during any taxable year which may be taken into 
                account by reason of this subsection with respect to 
                any project shall not exceed an average barrel-of-oil 
                equivalent of 200,000 cubic feet of natural gas per 
                day. Days before the date the project is placed in 
                service shall not be taken into account in determining 
                such average.
                    ``(B) Extension period to commence with unadjusted 
                credit amount.--In the case of fuels sold during 2003, 
                the dollar amount applicable under subsection (a)(1) 
                shall be $3 (without regard to subsection (b)(2)). In 
                the case of fuels sold after 2003, subparagraph (B) of 
                subsection (d)(2) shall be applied by substituting 
                `2003' for `1979'.''.
    (b) Treatment as Business Credit.--
            (1) Credit moved to subpart relating to business related 
        credits.--The Internal Revenue Code of 1986 is amended by 
        redesignating section 29 as section 45J and by moving section 
        45J (as so redesignated) from subpart B of part IV of 
        subchapter A of chapter 1 to the end of subpart D of part IV of 
        subchapter A of chapter 1.
            (2) Credit treated as business credit.--Section 38(b) is 
        amended by striking ``plus'' at the end of paragraph (17), by 
        striking the period at the end of paragraph (18) and inserting 
        ``, plus'', and by adding at the end the following:
            ``(19) the nonconventional source production credit 
        determined under section 45J(a).''.
            (3) Conforming amendments.--
                    (A) Section 30(b)(2)(A), as redesignated by section 
                110(a), is amended by striking ``sections 27 and 29'' 
                and inserting ``section 27''.
                    (B) Section 30B(d), as added by section 111, is 
                amended by striking ``, 29,''.
                    (C) Section 39(d) is amended by adding at the end 
                the following new paragraph:
            ``(13) No carryback for nonconventional source production 
        credit.--No portion of the unused business credit for any 
        taxable year which is attributable to the credit under section 
        45J may be carried back to a taxable year ending before April 
        1, 2003.''.
                    (D) Sections 43(b)(2), 45I(b)(2)(C) (as added by 
                section 301), and 613A(c)(6)(C) are each amended by 
                striking ``section 29(d)(2)(C)'' and inserting 
                ``section 45J(d)(2)(C)''.
                    (E) Paragraph (9) of section 45(c), as added by 
                section 102(c), is amended by striking ``section 29'' 
                and inserting ``section 45J'' and by striking ``section 
                29'' in the heading of such paragraph and inserting 
                ``section 45J''.
                    (F) Section 45I(d)(3), as added by section 301, is 
                amended by striking ``section 29'' each place it 
                appears and inserting ``section 45J''.
                    (G) Section 45J(a), as amended by section 301(d) 
                and redesignated by paragraph (1), is amended by 
                striking ``At the election of the taxpayer, there shall 
                be allowed as a credit against the tax imposed by this 
                chapter for the taxable year'' and inserting ``For 
                purposes of section 38, if the taxpayer elects to have 
                this section apply, the nonconventional source 
                production credit determined under this section for the 
                taxable year is''.
                    (H) Section 45J(b), as so redesignated, is amended 
                by striking paragraph (6).
                    (I) Section 53(d)(1)(B)(iii) is amended by striking 
                ``under section 29'' and all that follows through ``or 
                not allowed''.
                    (J) Section 55(c)(2) is amended by striking 
                ``29(b)(6),''.
                    (K) Subsection (a) of section 772 is amended by 
                inserting ``and'' at the end of paragraph (9), by 
                striking paragraph (10), and by redesignating paragraph 
                (11) as paragraph (10).
                    (L) Paragraph (5) of section 772(d) is amended by 
                striking ``the foreign tax credit, and the credit 
                allowable under section 29'' and inserting ``and the 
                foreign tax credit''.
                    (M) The table of sections for subpart B of part IV 
                of subchapter A of chapter 1 is amended by striking the 
                item relating to section 29.
                    (N) The table of sections for subpart D of part IV 
                of subchapter A of chapter 1 is amended by inserting 
                after the item relating to section 45I the following 
                new item:

                              ``Sec. 45J. Credit for producing fuel 
                                        from a nonconventional 
                                        source.''.
    (c) Effective Dates.--
            (1) In general.--The amendment made by subsection (a) shall 
        apply to fuel sold after March 31, 2003, in taxable years 
        ending after such date.
            (2) Treatment as business credit.--The amendments made by 
        subsection (b) shall apply to taxable years ending after March 
        31, 2003.

SEC. 306. BUSINESS RELATED ENERGY CREDITS ALLOWED AGAINST REGULAR AND 
              MINIMUM TAX.

    (a) In General.--Subsection (c) of section 38 (relating to 
limitation based on amount of tax) is amended by redesignating 
paragraph (4) as paragraph (5) and by inserting after paragraph (3) the 
following new paragraph:
            ``(4) Special rules for specified energy credits.--
                    ``(A) In general.--In the case of specified energy 
                credits--
                            ``(i) this section and section 39 shall be 
                        applied separately with respect to such 
                        credits, and
                            ``(ii) in applying paragraph (1) to such 
                        credits--
                                    ``(I) the tentative minimum tax 
                                shall be treated as being zero, and
                                    ``(II) the limitation under 
                                paragraph (1) (as modified by subclause 
                                (I)) shall be reduced by the credit 
                                allowed under subsection (a) for the 
                                taxable year (other than the specified 
                                energy credits).
                    ``(B) Specified energy credits.--For purposes of 
                this subsection, the term `specified energy credits' 
                means the credits determined under sections 45G, 45H, 
                and 45I.
                    ``(C) Special rule for qualified wind facilities.--
                For purposes of this subsection, the term `specified 
                energy credits' shall include the credit determined 
                under section 45 to the extent that such credit is 
                attributable to electricity produced--
                            ``(i) at a facility using wind to produce 
                        electricity which is originally placed in 
                        service after the date of the enactment of this 
                        paragraph, and
                            ``(ii) during the 4-year period beginning 
                        on the date that such facility was originally 
                        placed in service.''.
    (b) Conforming Amendments.--Paragraphs (2)(A)(ii)(II) and 
(3)(A)(ii)(II) of section 38(c) are each amended by inserting ``or the 
specified energy credits'' after ``employee credit''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after the date of the enactment of this 
Act.

SEC. 307. TEMPORARY REPEAL OF ALTERNATIVE MINIMUM TAX PREFERENCE FOR 
              INTANGIBLE DRILLING COSTS.

    (a) In General.--Clause (ii) of section 57(a)(2)(E) is amended by 
adding at the end the following new sentence: ``The preceding sentence 
shall not apply to taxable years beginning after December 31, 2003, and 
before January 1, 2006.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

SEC. 308. ALLOWANCE OF ENHANCED RECOVERY CREDIT AGAINST THE ALTERNATIVE 
              MINIMUM TAX.

    (a) In General.--Subparagraph (B) of section 38(c)(4), as amended 
by section 306, is amended by adding at the end the following new 
sentence: ``For taxable years beginning after December 31, 2003, and 
before January 1, 2006, such term includes the credit determined under 
section 43.''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2003.

                    TITLE IV--CORPORATE EXPATRIATION

SEC. 401. TAX TREATMENT OF CORPORATE EXPATRIATION.

    (a) In General.--Subchapter C of chapter 80 (relating to provisions 
affecting more than one subtitle) is amended by adding at the end the 
following new section:

``SEC. 7874. TAX TREATMENT OF CORPORATE EXPATRIATION.

    ``(a) Inverted Corporations Treated as Domestic Corporations.--
            ``(1) In general.--If a foreign incorporated entity is 
        treated as an inverted domestic corporation, then, 
        notwithstanding section 7701(a)(4), such entity shall be 
        treated for purposes of this title as a domestic corporation.
            ``(2) Inverted domestic corporation.--For purposes of this 
        section, a foreign incorporated entity shall be treated as an 
        inverted domestic corporation if, pursuant to a plan (or a 
        series of related transactions)--
                    ``(A) the entity completes after March 4, 2003, the 
                direct or indirect acquisition of substantially all of 
                the properties held directly or indirectly by a 
                domestic corporation or substantially all of the 
                properties constituting a trade or business of a 
                domestic partnership,
                    ``(B) after the acquisition at least 80 percent of 
                the stock (by vote or value) of the entity is held--
                            ``(i) in the case of an acquisition with 
                        respect to a domestic corporation, by former 
                        shareholders of the domestic corporation by 
                        reason of holding stock in the domestic 
                        corporation, or
                            ``(ii) in the case of an acquisition with 
                        respect to a domestic partnership, by former 
                        partners of the domestic partnership by reason 
                        of holding a capital or profits interest in the 
                        domestic partnership, and
                    ``(C) the expanded affiliated group which after the 
                acquisition includes the entity does not have 
                substantial business activities in the foreign country 
                in which or under the law of which the entity is 
                created or organized when compared to the total 
                business activities of such expanded affiliated group.
            ``(3) Termination.--This subsection shall not apply to any 
        acquisition completed after December 31, 2004.
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Foreign incorporated entity.--The term `foreign 
        incorporated entity' means any entity which is, or but for 
        subsection (a) would be, treated as a foreign corporation for 
        purposes of this title.
            ``(2) Expanded affiliated group.--The term `expanded 
        affiliated group' means an affiliated group as defined in 
        section 1504(a) but without regard to paragraphs (2), (3), and 
        (4) of section 1504(b), except that section 1504(a) shall be 
        applied by substituting `more than 50 percent' for `at least 80 
        percent' each place it appears.
            ``(3) Certain stock disregarded.--There shall not be taken 
        into account in determining ownership under subsection 
        (a)(3)(B)--
                    ``(A) stock held by members of the expanded 
                affiliated group which includes the foreign 
                incorporated entity, or
                    ``(B) stock of such foreign incorporated entity 
                which is sold in a public offering related to the 
                acquisition described in subsection (a)(3)(A).
            ``(4) Plan deemed in certain cases.--If a foreign 
        incorporated entity acquires directly or indirectly 
        substantially all of the properties of a domestic corporation 
        or partnership during the 4-year period beginning on the date 
        which is 2 years before the ownership requirements of 
        subsection (a)(3)(B) are met, such actions shall be treated as 
        pursuant to a plan.
            ``(5) Certain transfers disregarded.--The transfer of 
        properties or liabilities (including by contribution or 
        distribution) shall be disregarded if such transfers are part 
        of a plan a principal purpose of which is to avoid the purposes 
        of this section.
            ``(6) Special rule for related partnerships.--For purposes 
        of applying subsection (a)(3)(B) to the acquisition of a 
        domestic partnership, except as provided in regulations, all 
        partnerships which are under common control (within the meaning 
        of section 482) shall be treated as 1 partnership.
            ``(7) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to determine whether a 
        corporation is an inverted domestic corporation, including 
        regulations--
                    ``(A) to treat warrants, options, contracts to 
                acquire stock, convertible debt interests, and other 
                similar interests as stock, and
                    ``(B) to treat stock as not stock.
    ``(c) Special Rule for Treaties.--Nothing in section 894 or 7852(d) 
or in any other provision of law shall be construed as permitting an 
exemption, by reason of any treaty obligation of the United States 
heretofore or hereafter entered into, from the provisions of this 
section.
    ``(d) Regulations.--The Secretary shall provide such regulations as 
are necessary to carry out this section, including regulations 
providing for such adjustments to the application of this section as 
are necessary to prevent the avoidance of the purposes of this section, 
including the avoidance of such purposes through--
            ``(1) the use of related persons, pass-through or other 
        noncorporate entities, or other intermediaries, or
            ``(2) transactions designed to have persons cease to be (or 
        not become) members of expanded affiliated groups or related 
        persons.''.
    (b) Conforming Amendment.--The table of sections for subchapter C 
of chapter 80 is amended by adding at the end the following new item:

                              ``Sec. 7874. Tax treatment of corporate 
                                        expatriation.''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years ending after March 4, 2003.

SEC. 402. EXPRESSING THE SENSE OF THE CONGRESS THAT TAX REFORM IS 
              NEEDED TO ADDRESS THE ISSUE OF CORPORATE EXPATRIATION.

    (a) Findings.--The Congress finds that--
            (1) the tax laws of the United States are overly complex;
            (2) the tax laws of the United States are among the most 
        burdensome and uncompetitive in the world;
            (3) the tax laws of the United States make it difficult for 
        domestically-owned United States companies to compete abroad 
        and in the United States;
            (4) a domestically-owned corporation is disadvantaged 
        compared to a United States subsidiary of a foreign-owned 
        corporation; and
            (5) international competitiveness is forcing many United 
        States corporations to make a choice they do not want to make--
        go out of business, sell the business to a foreign competitor, 
        or become a subsidiary of a foreign corporation (i.e., engage 
        in an inversion transaction).
    (b) Sense of Congress.--It is the sense of Congress that passage of 
legislation to fix the underlying problems with our tax laws is 
essential and should occur as soon as possible, so United States 
corporations will not face the current 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
```