COMPARISON OF DIVISION C OF H.R. 4,

THE "ENERGY TAX POLICY ACT OF 2001,"

AS PASSED BY THE HOUSE OF REPRESENTATIVES

AND DIVISION H OF H.R. 4,

THE "ENERGY TAX INCENTIVES ACT OF 2002,"

AS AMENDED BY THE SENATE

Prepared by the Staff of the

JOINT COMMITEE ON TAXATION

May 23, 2002

JCX-43-02
i

CONTENTS

Page

INTRODUCTION ...................................................................................................................................................................................1

I. CONSERVATION...............................................................................................................................................................................2

1. Residential solar hot water, photovoltaics and other energy efficient property (sec. 3101 of the House bill and sec. 2103

 of the Senate amendment)................................................................................................................................................................2

2. Credit for producing electricity from certain sources (sec. 3102 of the House bill and secs. 1901, 1902, 1903, 1904, 1905,

 and 1906 of the Senate amendment)................................................................................................................................................2

3. Fuel cells (sec. 3103 of the House bill and sec. 2103 and 2104 of the Senate amendment) ..........................................................4

4. Alternative motor vehicle credit (secs. 3104 of the House bill and secs. 2001 and 2010 of the Senate amendment) ....................5

5. Extension of deduction for refueling property (sec. 3105 of the House bill and secs. 2003 and 2010 of the Senate

 amendment)......................................................................................................................................................................................9

6. Modification of credit for electric vehicles (sec. 3106 of House bill and sec. 2002 of the Senate amendment).............................10

7. Credit for retail sale of alternative motor vehicle fuels (sec. 2004 of the Senate amendment).......................................................11

8. Energy efficient appliances (sec. 3107 of the House bill and sec. 2102 of the Senate amendment)...............................................12

9. Energy efficient improvements to existing homes (sec. 3108 of the House bill and sec. 2109 of the Senate amendment)............13

10. Energy efficient new homes (sec. 3109 of the House bill and sec. 2101 of the Senate amendment.............................................13

11. Energy efficient commercial building property (sec. 3110 of the House bill and sec. 2105 of the Senate amendment)..............14

12. Energy management devices (secs. 3111 and 3112 of the House bill and secs. 2106 and 2107 of the Senate amendment.........16

13. Credit for energy efficient property used in business (combined heat and power system property) (sec. 3113 of the House

 bill and sec. 2108 of the Senate amendment) ................................................................................................................................16

14. Allow personal energy credits against the alternative minimum tax (sec. 3114 of the House bill and secs. 2103(b) and

 2109(b) of the Senate amendment).................................................................................................................................................17

15. Repeal of certain excise taxes on railroad diesel fuel and inland waterway fuel (sec. 3115 of the House bill)............................17

16. Btu-based highway excise tax rate for diesel fuel blended with water (sec. 3116 of the House bill) ...........................................18

17. Small ethanol producer credit (sec. 2005 of the Senate amendment)............................................................................................18

18. Transfer full amount of excise tax imposed on gasohol to the Highway Trust Fund (sec. 2006 of the Senate amendment)........19

19. Modify income tax and excise tax rules governing treatment of ETBE (sec. 2007 of the Senate amendment)............................20

20. Income tax credit and excise tax rate reduction for biodiesel fuel mixtures (sec. 2008 of the Senate amendment).....................21

21. Tax credit for certain "power takeoff" vehicles (sec. 2009 of the Senate amendment).................................................................21

22. Credit for production from a clean coal technology unit (secs. 2201 and 2221of the Senate amendment) ..................................22
ii

23. Investment credit for advanced clean coal technology (sec. 3117 of the House bill and secs. 2211 and 2221 of the

 Senate amendment).........................................................................................................................................................................23

24. Credit for production from advanced clean coal facilities (sec. 3118 of the House bill, sec. 2212 and 2221 of the Senate

 amendment)....................................................................................................................................................................................25

II. RELIABILITY....................................................................................................................................................................................27

1. Natural gas gathering lines treated as 7-year property (sec. 3201 of the House bill and 2302 of the Senate amendment).............27

2. Recovery period for natural gas distribution lines (sec. 3202 of the House bill and 2311 of the Senate amendment)...................27

3. Petroleum refining property treated as 7-year property (sec. 3203 of the House bill) ....................................................................28

4. Expensing of capital costs incurred for production in complying with Environmental Protection Agency sulfur regulations

 for small refiners (sec. 3204 of the House bill and sec. 2303 of the Senate amendment)...............................................................28

5. Credit for small refiners for production of diesel fuel in compliance with Environmental Protection Agency sulfur regulations

 for small refiners (sec. 3205 of the House bill and sec. 2304 of the Senate amendment)...............................................................29

6. Independent producer test change from daily runs to average daily runs (sec. 3206 of the House bill and sec. 2305 of the

 Senate amendment)..........................................................................................................................................................................30

7. Tax-exempt bonds for public power facilities (sec. 3207 of the House bill and secs. 2401 and 2405 of the Senate

 amendment)......................................................................................................................................................................................30

8. Dispositions of transmission property to implement FERC restructuring policy (sec. 3208 of the House bill and 2404 of the

 Senate amendment)..........................................................................................................................................................................31

9. Distributions of stock to implement FERC or State electric restructuring policy (sec. 3209 of the House bill).............................32

10. Ongoing study and reports with regard to tax issues resulting from future restructuring decisions (sec. 2401 of the

 Senate amendment)........................................................................................................................................................................33

11. Special rules for nuclear decommissioning costs (sec. 3210 of the House bill and sec. 2402 of the Senate amendment) ...........33

12. Treatment of certain electric cooperatives (sec. 3211 of the House bill and secs. 2403 and 2406 of the Senate amendment).....34

III. PRODUCTION..................................................................................................................................................................................37

1. Marginal wells credit (sec. 3301 of the House bill and sec. 2301 of the Senate amendment) ........................................................37

2. Net income limitation on percentage depletion for oil and gas property and suspension of limitation based on 65 percent of

 taxable income (sec. 3302 of the House bill and sec. 2306 of the Senate amendment) ..................................................................37

3. Delay rental payments (sec. 3303 of the House bill and sec. 2308 of the Senate amendment).......................................................39

4. Geological and geophysical costs (sec. 3304 of the House bill and sec. 2307 of the Senate amendment).....................................39

5. Five year carryback for net operating losses from oil and gas properties (sec. 3305 of the House bill).........................................40

6. Extension and expansion of credit for producing fuel from a nonconventional source (sec. 3306 of the House bill and

 secs. 2309 and 2310 of the Senate amendment)..............................................................................................................................40
iii

7. Allow certain business credits against the alternative minimum tax (sec. 3307 of the House bill and secs. 2005(b)(3) and

 2503(c) of the Senate amendment)..................................................................................................................................................43

8. Intangible drilling costs (IDCs) (sec. 3308 of the House bill).........................................................................................................44

9. Enhanced oil recovery credit (sec. 43) (sec. 3309 of the House bill) ..............................................................................................44

10. Accelerated depreciation and wage credit benefits for businesses on Indian reservations (sec. 3310 of the House bill and

 sec. 2501 of the Senate amendment)...............................................................................................................................................44

IV. ADDITIONAL PROVISIONS..........................................................................................................................................................46

1. Arbitrage rules not to apply to prepayments for natural gas (sec. 3213 of the House bill) .............................................................46

2. GAO study of effectiveness of alternative motor vehicles and fuel incentives (sec. 2502 of the Senate amendment)...................47

3. Credit for production of Alaska natural gas (sec. 2503 of the Senate amendment) ........................................................................47

4. Sale of gasoline and diesel fuel at duty-free sales enterprises (sec. 2504 of the Senate amendment).............................................48

5. Treatment of certain dispositions of dairy property to implement bovine tuberculosis eradication program (sec. 2505 of the

 Senate amendment)..........................................................................................................................................................................49

6. Expand exemption from aviation fuels excise taxes for aerial applicators (see 2506 of the Senate amendment) ..........................50

7. Expand definition of rural airports exempt from the tax imposed on each segment of a flight (sec. 2507 of the Senate

 amendment)......................................................................................................................................................................................51

8. Exempt transportation by seaplane from ticket taxes (sec. 2508 of the Senate amendment)..........................................................52
1

INTRODUCTION

On August 2, 2001 the House of Representatives passed H.R. 4. On April 25, 2002 the Senate amended and passed H.R. 4.

This document,1 prepared by the staff of the Joint Committee on Taxation, presents a side-by-side comparison of provisions in 

the House bill and Senate amendment that would modify the Internal Revenue Code.

This document does not contain a description of section 3212 of H.R. 4, as passed by the House. That provision, relating to 

diesel fuel dyeing requirements, was enacted by the Job Creation and Worker Assistance Act of 2002. Additionally, certain other 

expiring provisions were extended by that Act, but for different periods than would have been provided in H.R. 4 when passed by the 

House. Those extensions were the credit for producing electricity from wind, closed-loop biomass, and poultry litter, the deduction 

for qualified clean-fuel vehicle property, the deduction for qualified clean-fuel vehicle refueling property, the credit for the purchase 

of electric vehicles, the suspension of the taxable income limitation on percentage depletion for oil and gas property, and the tax 

incentives for investment on Indian reservations. In addition, the Job Creation and Worker Assistance Act of 2002 also provided for 

five-year carryback of certain net operating losses.

 

1

 This document may be cited as follows, Joint Committee on Taxation, Comparison of Division C of H.R. 4, the "Energy Tax 

Policy Act of 2001," as Passed by the House of Representatives and Division H of H.R. 4, the "Energy Tax Incentives Act of 2002," as 

Amended by the Senate, (JCX-43-02), May 23, 2002.
2

Provision Present Law House Bill Senate Amendment

I. CONSERVATION

1. Residential solar hot 

water, photovoltaics and 

other energy efficient 

property (sec. 3101 of the 

House bill and sec. 2103 

of the Senate amendment)

No provision. Provides a tax credit for the 

purchase of qualified photovoltaic 

property and qualified solar water 

heating property that is used 

exclusively for purposes other than 

heating swimming pools and hot 

tubs. The credit is equal to 15 

percent of qualified investment up 

to a maximum credit of $2,000 for 

solar water heating property and 

for rooftop photovoltaic property. 

Effective date.–purchases after 

December 31, 2001 and in taxable 

years beginning before January 1, 

2007 (January 1, 2009 for 

photovoltaic property)

House bill plus:

30 percent credit for wind energy 

property ($2,000 max).

100 percent credit, with caps, for 

energy efficient: electric heat

pump hot water heaters ($75); 

electric heat pumps ($250); 

geothermal heat pumps ($250); 

natural gas furnaces ($250); 

central air conditioners ($250); 

natural gas water heaters ($75)

Effective date.–purchases after 

December 31, 2002 and before 

January 1, 2008.

2. Credit for producing 

electricity from certain 

sources (sec. 3102 of the 

House bill and secs. 

1901, 1902, 1903, 1904, 

1905, and 1906 of the 

Senate amendment) 

An income tax credit is 

allowed for the production of 

electricity from either qualified 

wind energy, qualified “closedloop” biomass, or qualified 

poultry waste facilities (sec. 

45).

The credit applies to electricity 

Extends the placed-in-service date 

for wind facilities and closed-loop 

biomass facilities to facilities 

placed in service before January 1, 

2007. (Poultry waste facilities are 

not extended).

Defines two new qualifying 

facilities: (1) open-loop biomass 

Extends all present law facility 

placed-in-service dates to include 

facilities placed in service before 

January 1, 2007.

Defines eight new qualifying 

facilities: (1) open-loop biomass 

placed in service before January 

1, 2005. The credit for these 
3

Provision Present Law House Bill Senate Amendment

produced by a wind energy 

facility placed in service after 

December 31, 1993, and before 

January 1, 2004, to electricity 

produced by a closed-loop 

biomass facility placed in 

service after December 31, 

1992, and before January 1, 

2004, and to a poultry waste 

facility placed in service after 

December 31, 1999, and before 

January 1, 2004. The credit is 

allowable for production 

during the 10-year period after 

a facility is originally placed in 

service. 

Credit amount reduced for taxexempt financing and other 

subsidies. Generally facility 

owner must claim credit.

facilities and (2) landfill gas 

facilities. The credit for these 

facilities is available only for five 

years of production.

Effective date.–electricity sold 

after the date of enactment.

facilities is available for three 

years of production. Existing 

facilities qualify, but at reduced 

credit rate; (2) certain existing 

facilities modified before January 

1, 2007 to use closed-loop 

biomass co-fired with coal. 

Credit available for all electricity, 

not only that attributable to closeloop fuel; (3) swine and bovine 

waste nutrient facilities placed in 

service after the date of 

enactment and before January 1, 

2007; (4) geothermal facilities 

placed in service after the date of 

enactment and before January 1, 

2007. Credit available for five 

years of production; (5) solar 

facilities placed in service after 

the date of enactment and before 

January 1, 2007. Credit available 

for five years of production; (6) 

municipal biosolids facilities 

placed in service after December 

31, 2001 and before January 1, 

2007; (7) recycled sludge 

facilities, including existing 

facilities, placed in service before 

January 1, 2007; and (8) small 
4

Provision Present Law House Bill Senate Amendment

irrigation power facilities placed 

in service after the date of 

enactment and before January 1, 

2007.

Permits tax-exempt financing and 

rural electrification loans for 

facilities without reduction of 

credit.

Credits would be tradable. 

Lessee operators could claim 

credit.

Effective date.–electricity sold 

after the date of enactment.

3. Fuel cells (sec. 3103 of 

the House bill and sec. 

2103 and 2104 of the 

Senate amendment)

A 10 percent business credit is 

allowable for (1) equipment 

that uses solar energy to 

generate electricity, to heat or 

cool a structure or provide hot 

water, or provide solar process 

heat; and (2) equipment used 

to produce distribute, or use 

energy derived from a 

geothermal deposit.

Provides a 10 percent credit for the 

purchase of qualified stationary 

fuel cell power plants for 

businesses and individuals. The 

credit may not exceed $1,000 for 

each kilowatt of capacity. For 

individuals, the qualified fuel cell 

power plant must be installed on or 

in connection with a dwelling unit 

located in the United States and 

used by the taxpayer as a principal 

residence.

30 percent credit for business and 

residential fuel cells of at least 0.5 

kilowatt of capacity. Credit may 

not exceed $500 for each 0.5 

kilowatt of capacity.

Additionally, qualified 

microturbines receive 10 percent 

credit not to exceed $200 for each 

kilowatt of capacity.

Effective date.–property placed in 

service after December 31, 2002 
5

Provision Present Law House Bill Senate Amendment

Effective date.–property placed in 

service or expenditures made after 

December 31, 2001 and before 

January 1, 2007.

and before January 1, 2008.

4. Alternative motor 

vehicle credit (secs. 3104 

of the House bill and secs. 

2001 and 2010 of the 

Senate amendment)

Certain costs of qualified 

clean-fuel vehicle property 

may be expensed and deducted 

when such property is placed 

in service (sec. 179A). 

Qualified vehicles use certain 

clean-burning fuels (natural 

gas, liquefied natural gas, 

liquefied petroleum gas, 

hydrogen, electricity and any 

other fuel at least 85 percent of 

which is methanol, ethanol, 

any other alcohol or ether). 

The deduction varies by size of 

vehicle with the maximum 

amount $50,000 for a truck or 

van with a gross vehicle 

weight over 26,000 pounds or 

certain buses. Maximum 

deduction is $2,000 for 

vehicles with gross weight 

10,000 pounds or less. The 

deduction phases down in the 

years 2004 through 2006, and 

Extends present-law deduction 

through December 31, 2007, with 

phaseout beginning in 2005.

Repeals present-law credit for 

electric fuel cell vehicles.

Provides credit for the purchase of 

fuel cell motor vehicles, hybrid 

motor vehicles, alternative fuel 

motor vehicles, mixed-fuel 

vehicles, and advanced lean burn 

technology motor vehicles. If a 

tax-exempt entity purchases a 

vehicle, the seller or lessor may 

claim the credit. Unused credits 

may be carried forward 20 years. 

Credit for property placed in 

service before 2008 (2012 in the 

case of fuel cell motor vehicles).

Similar to House bill.

Extends present-law deduction 

through December 31, 2007 

(December 31, 2011 in the case 

of hydrogen-related property). 

25-percent phaseout in 2004 and 

2005 (2004 through 2009 in the 

case of hydrogen-related 

property).

Repeals present-law credit for 

electric fuel cell vehicles.

Unused credits may be carried 

back three years and forward 20 

years. Credit for property placed 

in service before 2007 (2012 in 

the case of fuel cell motor 

vehicles).
6

Provision Present Law House Bill Senate Amendment

is unavailable for purchases 

after December 31, 2006. 

In addition, the 10-percent tax 

credit provided for the cost of a 

qualified electric vehicle, up to 

a maximum credit of $4,000 

(sec. 30) includes a vehicle that 

is powered primarily by an 

electric motor drawing current 

from fuel cells. The full 

amount of the credit is 

available for purchases prior to 

2004. The credit phases down 

in the years 2004 through 

2006, and is unavailable for 

purchases after December 31, 

2006.

Fuel cell motor vehicles.–Credit 

ranges from $4,000 for vehicles 

weighing less than or equal to 

8,500 pounds to $40,000 for 

vehicles weighing more than 

26,000 pounds.

There are additional credits to 

automobiles and light trucks for 

meeting fuel economy 

performance standards compared 

to 2000 model year standards. 

Additional credits range from 

$1,000 for fuel economy 150 

percent of year 2000 to $4,000 for 

fuel economy 300 percent of year 

2000.

Hybrid motor vehicles.–Credit 

varies by weight of vehicle and 

power available from the battery 

system compared to the power of 

the internal combustion engine. 

For auto and light truck credit 

ranges from $250 for battery 

power of 2.5 percent to $1,000 for 

battery power of 30 percent. For 

vehicle weighing more than 26,000 

pounds, credit ranges from $6,000 

for battery power of 20 percent to 

Fuel cell motor vehicles.–Same as 

House bill.

Hybrid motor vehicles.–Similar 

to House bill. For auto and light 

truck credit ranges from $250 for 

battery power of 4.0 percent to 

$1,000 for battery power of 30 

percent. For vehicle weighing 

more than 10,000 pounds but not 

more than 14,000 pounds, credit 

ranges from $1,000 for battery 

power of 20 percent to $2,500 for 

battery power of 60 percent.

Additional credits for meeting 

fuel economy performance 

standards compared to 2000 

model year standards range from 

$500 for fuel economy 125 

percent of year 2000 to $3,000 for 

fuel economy 250 percent of year 

2000. No addition lifetime fuel 

savings credit for autos and light 

trucks. Vehicles weighing more 

than 10,000 pounds eligible for 

additional credits for emissions 

reductions in years 2002 through 

2006. 
7

Provision Present Law House Bill Senate Amendment

$10,000 for battery power of 60 

percent.

There are additional credits to 

autos and light trucks for meeting 

fuel economy performance 

standards compared to 2000 model 

year standards. Additional credits 

range from $1,000 for fuel 

economy 125 percent of year 2000 

to $3,500 for fuel economy 250 

percent of year 2000. Autos and 

light trucks eligible for an 

additional $250 or $500 credit for 

estimated lifetime fuel savings. 

Vehicles weighing more than 

10,000 pounds eligible for 

additional credits for emissions 

reductions in years 2002 through 

2006. For vehicles weighing 

14,000 pounds or less credit ranges 

from $3,500 in 2002 to $1,500 in 

2006. For vehicles weighing more 

than 26,000 pounds credit ranges 

from $14,000 in 2002 to $6,000 in 

2006. 

Alternative fuel motor vehicles.–

50-percent credit for incremental 

cost of a dedicated alternative fuel 

motor vehicle. Additional 30-

Alternative fuel motor vehicles.–

Similar to House bill. 40-percent 

credit for incremental cost of 

alternative fuel motor vehicle 

with additional 30-percent credit 

if vehicle meets certain emissions 

standards. 

Mixed-fuel vehicles.–Same as 

House bill.

Advanced lean burn technology 

motor vehicles.–No provision.

Effective date.–property placed in 

service after September 30, 2002.
8

Provision Present Law House Bill Senate Amendment

percent credit if vehicle meets 

certain emissions standards. 

Incremental cost measured by 

reference to manufacturer’s 

suggested retail price. Limitations 

on qualifying incremental cost. 

Limit varies from $5,000 for auto 

and light truck to $40,000 for 

vehicles weighing more than 

26,000 pounds. Qualified 

alternative fuels: compressed 

natural gas, liquefied natural gas, 

liquefied petroleum gas, hydrogen, 

and a fuel consisting of at least 85 

percent methanol. Vehicle must 

operate exclusively on an 

alternative fuel.

Mixed-fuel vehicles.–certain 

alternative fuel vehicles weighing 

more than 14,000 pounds can be 

mixed-fuel vehicles.

Mixed-fuel vehicles must use 

75/25 mixtures or 95/5 mixtures of 

alternative fuels and petroleumbased fuel. 75/25 vehicles may 

claim 70 percent of the otherwise 

allowable alternative fuel motor 

vehicle credit. 95/5 vehicles may 

claim 95 percent of the otherwise 
9

Provision Present Law House Bill Senate Amendment

allowable alternative fuel motor 

vehicle credit.

Advanced lean burn technology 

motor vehicles.–Advanced lean 

burn technology motor vehicles 

must meet certain technical 

specifications. Credit varies for 

meeting fuel economy 

performance standards compared 

to 2000 model year standards. 

Credit range from $1,000 for fuel 

economy 125 percent of year 2000 

to $3,500 for fuel economy 250 

percent of year 2000. Additional 

$250 or $500 credit for estimated 

lifetime fuel savings.

Effective date.–property placed in 

service after December 31, 2001.

5. Extension of deduction 

for refueling property 

(sec. 3105 of the House 

bill and secs. 2003 and 

2010 of the Senate 

amendment)

Costs of clean-fuel vehicle 

refueling property may be 

expensed and deducted when 

such property is placed in 

service (sec. 179A). Cleanfuel vehicle refueling property 

comprises property for the 

storage or dispensing of a 

clean-burning fuel (natural gas, 

Extends deduction through 2007.

Effective date.–date of enactment.

Extends deduction through 2007 

(through 2011 in the case of 

hydrogen refueling property). 

Provides 50-percent credit for the 

cost of installing clean-fuel 

vehicle refueling property. If 

retail clean-fuel vehicle refueling 

property, credit may not exceed 

$30,000. If residential refueling
10

Provision Present Law House Bill Senate Amendment

liquefied natural gas, liquefied 

petroleum gas, hydrogen, 

electricity and any other fuel at 

least 85 percent of which is 

methanol, ethanol, any other 

alcohol or ether). Clean-fuel 

vehicle refueling property also 

includes property for the 

recharging of electric vehicles. 

Up to $100,000 of such 

property at each location 

owned by the taxpayer may be 

expensed with respect to that 

location. The deduction is not 

available after 2006.

$30,000. If residential refueling

property, credit may not exceed 

$1,000. In case of hydrogen, 

property producing hydrogen also 

eligible. To be eligible for the 

credit, the property must be 

placed in service before January 

1, 2007 (January 1, 2012 in the 

case of hydrogen refueling 

property). If property owned by 

tax-exempt entity, installer may 

claim credit. Unused credits may 

be carried forward 20 years. 

Effective date.–property placed in 

service after September 30, 2002.

6. Modification of credit 

for electric vehicles (sec. 

3106 of House bill and 

sec. 2002 of the Senate 

amendment)

A 10-percent tax credit is 

provided for the cost of a 

qualified electric vehicle, up to 

a maximum credit of $4,000. 

The full amount of the credit is 

available for purchases prior to 

2004. The credit phases down 

in the years 2004 through 

2006, and is unavailable for 

purchases after December 31, 

2006.

Redefines credit eligibility to apply 

to battery vehicles. Modifies 

credit to vary by weight of vehicle. 

For certain smaller vehicles credit 

is lesser of 10 percent of 

manufacturer’s suggested retail 

price or $4,000. For vehicles 

8,500 pounds or less credit is 

$4,000 or $5,000 if certain 

performance and capacity criteria 

met. For other vehicles, credit 

varies from $10,000 for vehicles 

over 8,500 but not over 14,000 

Similar to House bill.

For certain smaller vehicles credit 

is lesser of 10 percent of 

manufacturer’s suggested retail 

price or $1,500. For vehicles 

8,500 pounds or less credit is 

$3,500 or $6,000 if certain 

performance (different than 

House bill) and capacity criteria 

met. 

Unused credits may be carried 

back three years and forward 20 
11

Provision Present Law House Bill Senate Amendment

pounds to $40,000 for vehicles 

exceeding 26,000 pounds.

If a tax-exempt entity purchases a 

vehicle, the seller or lessor may 

claim the credit. Unused credits 

may be carried forward 20 years.

Extends credit through 2007 and 

repeals phaseout.

Effective date.–property placed in 

service after December 31, 2001.

back three years and forward 20 

years.

Effective date.–property placed in 

service after September 30, 2002.

7. Credit for retail sale of 

alternative motor vehicle 

fuels (sec. 2004 of the 

Senate amendment)

There is no retail credit for the 

sale of alternative motor 

vehicle fuels. However, 

blenders may claim a 53-centsper-gallon income tax credit 

for alcohol fuels. The alcohol 

fuels credit may be claimed as 

a reduction in excise tax 

payments.

No provision. Provides credit equal to the 

gasoline gallon equivalent of 30 

cents per gallon of alternative fuel 

sold 2002 and in 2003, 40 cents 

per gallon in 2004, and 50 cents 

per gallon thereafter for retail sale 

of alternative fuels. Qualifying 

alternative fuels are compressed 

natural gas, liquefied natural gas, 

liquefied petroleum gas, 

hydrogen, any liquid mixture 

consisting of at least 85 percent 

methanol, and any liquid mixture 

consisting of at least 85 percent 

ethanol. Credit for sales prior to 
12

Provision Present Law House Bill Senate Amendment

January 1, 2007.

Effective date.–fuel sold at retail 

after September 30, 2002. 

8. Energy efficient 

appliances (sec. 3107 of 

the House bill and sec. 

2102 of the Senate 

amendment)

No provision. Provides a $50 or $100 credit for 

the manufacture of certain energyefficient clothes washers and 

refrigerators. Credit applies to the 

number of qualified appliances 

produced for the calendar year to 

the extent that number exceeds the 

average number of appliances in 

such category during the calendar 

years 1998, 1999, and 2000. $30 

million limit on the maximum 

credit claimed with respect to each 

credit. (i.e., the $50 or $100 

credit)

Effective date.–appliances 

produced after date of enactment 

and before January 1, 2007 

(January 1, 2005 in the case of 

refrigerators meeting the 10-

percent standard).

Similar to House bill. Base 

period years are 1999-2001.

Effective date.–appliances 

produced after December 31, 

2002 and before January 1, 2007 

(January 1, 2005 in the case of 

refrigerators meeting 10 percent 

standard)
13

Provision Present Law House Bill Senate Amendment

9. Energy efficient 

improvements to existing 

homes (sec. 3108 of the 

House bill and sec. 2109 

of the Senate amendment)

No provision. Creates a 20 percent nonrefundable 

tax credit, up to $2,000, for 

homeowners for certain energy 

efficient building envelope 

components (including metal 

roofs) for existing homes. 

Components must meet 1998 

International Energy Conservation 

Code standard. Homes must be 

certified by a third party only in 

the aggregate cost of components 

exceeds $1,000.

Effective date.–energy efficiency 

improvements installed after 

December 31, 2001 and before 

January 1, 2007.

10-percent nonrefundable tax 

credit for homeowners for certain 

energy efficient building 

envelope components for existing 

homes. 

The maximum credit for a 

taxpayer with respect to the same 

dwelling for all taxable years is 

$300. Components must meet 

2000 International Energy 

Conservation Code Standard or 

Energy Star Standard in the case 

of windows or be certified to 

achieve 30 percent reduction in 

heating and cooling energy usage.

All homes must be certified by a 

third party.

Effective date.–energy efficiency 

improvements installed after date 

of enactment and before January 

1, 2007.

10. Energy efficient new 

homes (sec. 3109 of the 

House bill and sec. 2101 

of the Senate amendment 

No provision. Creates a new tax credit (up to 

$2,000 per dwelling) for 

businesses, construction 

companies and contractors, for the 

Similar to House bill but the 

credit cannot exceed $1,250 

($2,000) in the case of a new 

home which has a projected level 
14

Provision Present Law House Bill Senate Amendment

of the Senate amendment costs of installing energy efficient 

heating and cooling appliances and 

building envelope components 

(insulation, windows, doors, metal 

roofs) that reduces heat loss (in 

winter) and gain (in summer) in 

new homes. The credit qualifying 

property would have to improve 

energy efficiency by at least 30 

percent from the standards 

established under the 1998 

International Energy Conservation 

Code.

Effective date.–credit applies to 

homes substantially completed 

after December 31, 2001 and 

purchased between January 1, 

2002 and December 31, 2006.

of annual heating and cooling 

costs that is 30 percent (50 

percent) less than a comparable 

dwelling constructed in 

accordance with Chapter 4 of the 

2000 International Energy 

Conservation Code. Also, 

manufactured homes that meet 

the Energy Star standard are 

treated as a 30% home. 

Certification requirements differ 

from House bill.

Effective date.–credit applies to 

homes substantially completed 

after date of enactment and 

purchased between date of 

enactment and December 31, 

2007.

11. Energy efficient 

commercial building 

property (sec. 3110 of the 

House bill and sec. 2105 

of the Senate amendment)

A 10 percent business credit is 

allowable for (1) equipment 

that uses solar energy to 

generate electricity, to heat or 

cool a structure or provide hot 

water, to provide solar process 

hear; and (2) equipment used 

to produce distribute, or use 

energy derived from a 

geothermal deposit.

Provides a deduction equal to 

energy-efficient commercial 

building property expenditures 

made by the taxpayer. Energyefficient commercial building 

property expenditures are amounts 

paid or incurred for energyefficient commercial building 

property installed in connection 

with the new construction or 

reconstruction of property: (1) 

Similar to House bill. Updated 

standards; certification 

requirements differ.

Effective date.–taxable years 

beginning after September 30, 

2002 for plans certified prior to 

December 31, 2007, whose 

construction is completed on or 

before December 31, 2009.
15

Provision Present Law House Bill Senate Amendment

geothermal deposit. reconstruction of property: (1) 

which would otherwise be 

depreciable property; (2) which is 

located in the United States, and 

(3) the construction or erection of 

which is completed by the 

taxpayer. The deduction is limited 

to an amount equal to the product 

of $2.25 and the square footage of 

the property for which such 

expenditures were made. Energyefficient commercial building 

property means any property that 

reduces total annual energy and 

power costs with respect to the 

lighting, heating, cooling, 

ventilation, and hot water supply 

systems of the building by 50 

percent or more in comparison to a 

reference building which meets the 

requirements of a Standard 90.1-

1999 of the American Society of 

Heating, Refrigerating, and Air 

Conditioning Engineers and the 

Illuminating Engineering Society 

of North America.

Effective date.–property placed in 

service after date of enactment and 
16

Provision Present Law House Bill Senate Amendment

before January 2, 2007.

12. Energy management 

devices (secs. 3111 and 

3112 of the House bill and 

secs. 2106 and 2107 of the 

Senate amendment

No provision. Provides a deduction of up to $30 

for each qualified new or 

retrofitted energy management 

device placed in service by any 

taxpayer who is a supplier of 

electric energy or natural gas or is 

a provider of electric energy or 

natural gas services. A taxpayer is 

required to reduce the adjusted 

basis of such property by the 

amount of the deduction. Provides 

a three-year recovery period for 

qualified new or retrofitted energy 

management devices placed in 

service by any taxpayer who is a 

supplier of electric energy or 

natural gas or is a provider of 

electric energy or natural gas 

services. 

Effective date.–property placed in 

service after date of enactment.

Same as House bill, but adds 

water submetering devices that 

are placed in service before 

January 1, 2008.

13. Energy credit for 

combined heat and 

power system property 

(sec. 3113 of the House 

A 10 percent business credit is 

allowable for (1) equipment 

that uses solar energy to 

generate electricity, to heat or 

Provides a 10 percent credit for the 

purchase of combined heat and 

power property.

Same as House bill, but 

eliminates energy efficiency 

standard and heat vs. power 

energy output requirements for 
17

Provision Present Law House Bill Senate Amendment

bill and sec. 2108 of the 

Senate amendment)

cool a structure or provide hot 

water, to provide solar process 

heat; and (2) equipment used 

to produce distribute, or use 

energy derived from a 

geothermal deposit.

Also provides that property 

eligible for the credit that would 

have a class life of 15 years or less 

will be treated as having a 22-year 

class life.

Effective date.–property placed in 

service after December 31, 2001 

and before January 1, 2007.

technologies using back-pressure 

steam turbines or which make use 

of waste heat from industrial 

processes such as by using 

organic Rankin, Stirling, or 

Kalina heat engine systems.

Effective date.–property placed in 

service after December 31, 2002 

and before January 1, 2007.

14. Allow personal 

energy credits against 

the alternative minimum 

tax (sec. 3114 of the 

House bill and secs. 

2103(b) and 2109(b) of 

the Senate amendment)

For taxable years beginning 

after 2003, personal credits 

(other than the child credit, 

adoption credit and IRA credit) 

are not allowed against the 

alternative minimum tax.

Allows the personal energy credits 

added by the bill to offset both the 

regular tax and the alternative 

minimum tax. These credits 

include the credit for residential 

solar energy property, the credit 

for certain energy-efficient 

property, and the credit for energy 

efficient improvements to existing 

homes.

Effective date.–effective taxable

years beginning after 2003.

Same as House bill.

These credits include the credit 

for residential energy efficient 

property and the credit for energy 

efficient improvements to 

existing homes. 

Effective date.–effective taxable 

years beginning after 2003.

15. Repeal of certain 

excise taxes on railroad 

diesel fuel and inland 

waterway fuel (sec. 3115 

Diesel fuel used in trains and 

fuels used in barges operating 

on the designated inland 

waterways system are subject 

The 4.3-cents-per-gallon General 

Fund excise tax on diesel fuel used 

in trains and fuels used in barges 

operating on the designated inland 

No provision.
18

Provision Present Law House Bill Senate Amendment

of the House bill) to a 4.3-cents-per-gallon 

General Fund excise tax. In 

both cases, the 4.3-cents-pergallon excise tax rates are 

permanent. 

waterways system is repealed over 

a prescribed phase-out period. The 

tax will be fully repealed effective 

on January 1, 2010. 

Effective date.–October 1, 2001.

16. Btu-based highway 

excise tax rate for diesel 

fuel blended with water 

(sec. 3116 of the House 

bill)

A 24.3 cents per gallon excise 

tax is imposed on diesel fuel to 

finance the Highway Trust 

Fund. Gasoline and most 

special motor fuels are subject 

to tax at 18.3 cents per gallon 

for that trust Fund.

A special tax rate of 19.7 cents per 

gallon is provided for diesel fuel 

blended with water into a 

diesel/water emulsion fuel to 

reflect the reduced Btu content per 

gallon resulting from the water. 

Effective date.–October 1, 2001.

No provision.

17. Small ethanol 

producer credit (sec. 

2005 of the Senate 

amendment)

Present law provides several 

tax benefits for ethanol and 

methanol produced from 

renewable sources (e.g., 

biomass) that are used as a 

motor fuel or that are blended 

with other fuels (e.g., gasoline) 

for such a use. A 53-cents-pergallon income tax credit is 

allowed for ethanol used as a 

motor fuel (the "alcohol fuels 

credit"). In the case of ethanol, 

the Code provides a separate 

No provision. Allows pass-through of all or any 

portion of the cooperative’s small 

ethanol producer credit to its 

patrons.

In addition, the Senate 

amendment: (1) liberalizes the 

definition of an eligible small 

producer to include persons 

whose production capacity does 

not exceed 60 million gallons; (2) 

repeals the rule that includes the 

small producer credit in income 

of taxpayers claiming it and 
19

Provision Present Law House Bill Senate Amendment

10-cents-per-gallon credit for 

small producers, defined 

generally as persons whose 

production does not exceed 15 

million gallons per year and 

whose production capacity 

does not exceed 30 million 

gallons per year. The alcohol 

fuels tax credits are includible 

in income. Under present law, 

the only excess credits that 

may be flowed-through from 

cooperatives to cooperative 

patrons are the rehabilitation 

credit (sec. 47), the energy 

property credit (sec. 48(a)), 

and the reforestation credit 

(sec. 48(b)).

of taxpayers claiming it and 

liberalizes the ordering and 

carryforward/carryback rules for 

the small producer ethanol credit; 

(3) allows the small producer 

credit to be claimed against the 

alternative minimum tax; and (4) 

provides that the small producer 

ethanol credit is not treated as 

derived from a passive activity.

Effective date.–date of enactment.

18. Transfer full amount 

of excise tax imposed on 

gasohol to the Highway 

Trust Fund (sec. 2006 of 

the Senate amendment)

In general, 18.3 cents per 

gallon of the gasoline excise 

tax is deposited in the 

Highway Trust Fund and 0.1 

cent per gallon is deposited in 

the Leaking Underground 

Storage Tank Trust Fund (the 

"LUST" rate). In the case of 

gasohol with respect to which 

a reduced excise tax is paid, 

2.5 cents per gallon of the 

No provision. Transfers the 2.5 cents per gallon 

of excise tax on gasohol that 

currently is retained in the 

General Fund to the Highway 

Trust Fund.

Effective date.–October 1, 2003.
20

Provision Present Law House Bill Senate Amendment

reduced tax is retained in the 

General Fund. 

19. Modify income tax 

and excise tax rules 

governing treatment of 

ETBE (sec. 2007 of the 

Senate amendment)

A 53-cents-per-gallon income 

tax credit is allowed for 

ethanol used as a motor fuel 

(the "alcohol fuels credit"). 

The benefit of the alcohol fuels 

tax credit may be claimed as a 

reduction in excise tax 

payments when the ethanol is 

blended with gasoline 

("gasohol"). The reduction is 

based on the amount of ethanol 

contained in the gasohol. The 

Treasury Department 

regulations provide that 

gasohol blenders may claim 

the income tax credit and 

excise tax rate reductions for 

ethanol used in the production 

of ETBE. The regulations also 

provide a special election 

allowing refiners to claim the 

benefit of the excise tax rate 

reductions even though the fuel 

being removed from terminals 

does not contain the requisite 

percentages of ethanol for 

claiming the excise tax rate 

No provision. In lieu of excise tax rate 

reductions for specified gasohol 

blends, a refiner blending ETBE 

and gasoline accrues an excise tax 

credit equal to the amount of the 

alcohol fuels credit or excise tax 

rate reduction otherwise available 

for the ETBE blended fuel. In 

lieu of claiming an income tax 

credit under section 40, the 

refiner may offset its excise tax 

liability for highway motor fuels 

under Code section 4081. 

Alternatively, the credit may be 

transferred to a registered 

position holder and the position 

holder may use the excise tax 

credit to offset its liability for 

excise taxes under those Code 

sections.

Effective date.–date of enactment.
21

Provision Present Law House Bill Senate Amendment

reduction.

20. Income tax credit 

and excise tax rate 

reduction for biodiesel 

fuel mixtures (sec. 2008 

of the Senate amendment)

No income tax credit or excise 

tax rate reduction is provided 

for biodiesel fuels under 

present law.

No provision. Provides an income tax credit (or 

excise tax rate reduction) similar 

to the present-law ethanol 

benefits for biodiesel derived 

from virgin sources and an 

income tax credit only (at a 

reduced rate) for biodiesel 

derived from recycled sources.

Effective date.–fuel sold after 

2002 and before 2006.

21. Tax credit for certain 

"power takeoff" vehicles 

(sec. 2009 of the Senate 

amendment)

Fuel used in vehicles carrying 

equipment that is unrelated to 

the transportation function is 

subject to the Highway Trust 

Fund excise taxes without 

regard to whether the fuel is 

used for transportation or the 

unrelated equipment. An 

exception excepts fuel used by 

non-transportation equipment 

if the fuel used by a separate 

motor, if the vehicle owner can 

allocate fuel used in a manner 

acceptable to the IRS.

No provision.

Provides a $250 income tax credit 

to business owners of highway 

vehicles that consume fuel for 

both transportation and in nontransportation-related equipment, 

using a single motor. Requires 

that by January 1, 2005, the 

Treasury provide by regulation a 

method for exempting from the 

fuels excise tax fuel used to 

power equipment attached to such 

vehicles.
22

Provision Present Law House Bill Senate Amendment

Effective date.–taxable years 

beginning after the date of 

enactment through 2004.

22. Credit for production 

from a clean coal 

technology unit (secs. 

2201 and 2221of the 

Senate amendment)

Present law does not provide a 

production credit for electricity 

generated at facilities that use 

coal as a fuel. However, an 

income tax credit is allowed 

for the production of electricity 

from either qualified wind 

energy, qualified “closed-loop” 

biomass, or qualified poultry 

waste facilities. 

No provision. Provides production credit for 

electricity produced from units 

that have been retrofitted, 

repowered, or replaced with a 

clean coal technology within ten 

years of the date of enactment. 

The credit is 0.34 cents per 

kilowatt-hour of electricity 

produced and is indexed for 

inflation. The taxpayer may 

claim the credit during ten-year 

period commencing from the date 

the unit is placed in service.

A qualifying clean coal 

technology unit must certain 

capacity standards, thermal 

efficiency standards, and 

emissions standards. 

The taxpayer must receive a 

certificate from the Secretary to 

claim credit. The Secretary may 

grant certificates only for 4,000 

megawatts of capacity. No unit 

eligible if the unit’s capacity 
23

Provision Present Law House Bill Senate Amendment

exceeds 300 megawatts. 

Certain persons (public utilities, 

electric cooperatives, Indian 

tribes, and the Tennessee Valley 

Authority) eligible to obtain 

certifications from Secretary for 

credits and sell, trade, or assign 

the credits to any taxpayer. 

Effective date.–effective for 

electricity produced after the date 

of enactment.

23. Investment credit for 

advanced clean coal 

technology (sec. 3117 of 

the House bill and secs. 

2211 and 2221 of the 

Senate amendment) 

Present law does not provide 

an investment credit for 

electricity generating facilities 

that use coal as a fuel. 

However, a nonrefundable, 10-

percent investment tax credit is 

allowable for (1) equipment 

that uses solar energy to 

generate electricity, to heat or 

cool a structure or provide hot 

water, to provide solar process 

heat; and (2) equipment used 

to produce distribute, or use 

energy derived from a 

geothermal deposit.

Provides a 10 percent tax credit for 

qualified expenses for construction 

of a new power plant using 

advanced clean coal technology, or 

retrofitting and repowering of an 

existing conventional power plant 

with new advanced clean coal 

technology. 

Requires facilities meet certain 

design net heat rate standards. 

Requires that the technology 

reduce certain pollutants by 

specific amounts.

To be a qualified investment in 

Similar to House bill. 

Generally requires facilities to 

meet lower design net heat rate 

standards than does House bill. 

Requires that the technology 

reduce certain pollutants by 

different specified amounts.

Secretary may grant certificates to 

investments only for 4,000 

megawatts of capacity. Not 

more than 1,000 megawatts for 

advanced pulverized coal or 

atmospheric fluidized bed 

combustion technology; not more 
24

Provision Present Law House Bill Senate Amendment

advanced clean coal technology, 

the taxpayer must receive a 

certificate from the Secretary of 

the Treasury. The Secretary may 

grant certificates to investments 

only to the point that 7,500 

megawatts of electricity 

production capacity qualifies for 

the credit.

Certificates are limited for 

different categories of advanced 

clean coal technology. Not more 

than 4,000 megawatts for 

advanced pulverized coal or 

atmospheric fluidized bed 

combustion technology; not more 

than 1,000 megawatts for 

pressurized fluidized bed 

combustion technology; not more 

than 2,000 megawatts for 

integrated gasification combined 

cycle technology, with or without 

fuel or chemical co-production; 

and not more than 2,000 

megawatts of other advanced clean 

coal technology. Not more than 

6,500 megawatts may be placed in 

service before 2009, with sub-

limits by type of technology. 

than 500 megawatts for 

pressurized fluidized bed 

combustion technology; not more 

than 2,000 megawatts for 

integrated gasification combined 

cycle technology, with or without 

fuel or chemical co-production; 

and not more than 500 megawatts 

of other advanced clean coal 

technology. Not more than 2,000 

megawatts may be placed in 

service before 2009, with sub-

limits by type of technology. 

Certain persons (public utilities, 

electric cooperatives, Indian 

tribes, and the Tennessee Valley 

Authority) eligible to obtain 

certifications from Secretary for 

credits and sell, trade, or assign 

the credits to any taxpayer. 

Effective date.–the provision 

would be effective for 

investments made after the date 

of enactment generally with 

respect to property placed in 

service before January 1, 2017 

(before January 1, 2013 in the 

case of advanced pulverized coal 

or atmospheric fluidized bed 
25

Provision Present Law House Bill Senate Amendment

Effective date.–the provision 

would be effective for investments 

made after December 31, 2001 and 

before January 1, 2012.

or atmospheric fluidized bed 

combustion technology).

24. Credit for production 

from advanced clean 

coal facilities (sec. 3118 

of the House bill, sec. 

2212 and 2221 of the 

Senate amendment)

Present law does not provide a 

production credit for electricity 

generated at facilities that use 

coal as a fuel. However, an 

income tax credit is allowed 

for the production of electricity 

from either qualified wind 

energy, qualified “closed-loop” 

biomass, or qualified poultry 

waste facilities.

Provides a production credit for 

electricity produced from a 

qualified advanced clean coal 

technology facility that received an 

investment credit certificate from 

the Secretary. The production 

credit is claimed on the sum of 

each kilowatt-hour of electricity 

produced and the heat value of 

other fuels or chemicals produced 

by the taxpayer at the facility. The 

value of the credit (indexed for 

inflation) varies depending upon 

the year the facility was placed in 

service, the heat content of the coal 

(more or less than 9,000 Btu per 

pound), and the rated thermal 

efficiency of the facility. The 

production credit may be claimed 

for the 10-year period commencing 

with the date the qualifying facility 

is placed in service, with the credit 

allowable in the second five years 

generally less than that allowable 

Similar to House bill.

Value of the credit does not 

depend upon whether the design 

coal has a heat content less than 

9,000 Btu per pound. The design 

net heat rate is adjusted for the 

heat content of the design coal. 

Some differences in rated thermal 

efficiency of facilities compared 

to House bill.

Certain persons (public utilities, 

electric cooperatives, Indian 

tribes, and the Tennessee Valley 

Authority) eligible to obtain 

certifications from Secretary for 

credits and sell, trade, or assign 

the credits to any taxpayer. 

Effective date.–effective for 

electricity produced after the date 

of enactment. 
26

Provision Present Law House Bill Senate Amendment

for the first five years. 

Credit ranges from $.0010 to 

$.0140 cents per kilowatt hour for 

production of electricity from a 

coal-fired power plant using 

advanced clean coal technology.

Effective date.–effective for 

electricity produced after the date 

of enactment.
27

Provision Present Law House Bill Senate Amendment

II. RELIABILITY

1. Natural gas gathering 

lines treated as 7-year 

property (sec. 3201 of the 

House bill and 2302 of the 

Senate amendment)

Rev. Proc. 87-56 includes two 

asset classes that could 

describe natural gas gathering 

lines owned by nonproducers 

of natural gas. Asset class 

46.0, describing pipeline 

transportation, provides a 

recovery period of 15 years. 

Asset class 13.2, describing 

assets used in the exploration 

for and production of 

petroleum and natural gas 

deposits, provides a recovery 

period of seven years. 

Establishes a statutory seven-year 

recovery period for natural gas 

gathering lines. In addition, the 

provision provides that there 

would be no adjustment to the 

allowable amount of depreciation 

for purposes of computing a 

taxpayer’s alternative minimum 

taxable income with respect to 

such property.

Effective date.–effective for 

property placed in service after 

date of enactment.

Same as House bill but no AMT 

relief.

Effective date.–effective for 

property placed in service after 

date of enactment.

2. Recovery period for 

natural gas distribution 

lines (sec. 3202 of the 

House bill and 2311 of the 

Senate amendment)

Rev. Proc. 87-56 provides that 

natural gas distribution 

pipelines are assigned a 20-

year recovery period.

Establishes a statutory 10-year 

recovery period for natural gas 

distribution lines. In addition, the 

provision provides that there 

would be no adjustment to the 

allowable amount of depreciation 

for purposes of computing a 

taxpayer’s alternative minimum 

taxable income with respect to 

such property.

Establishes a statutory 15-year 

recovery period for natural gas 

distribution pipelines. Provides 

no AMT relief.

Effective date.–effective for 

property placed in service after 

date of enactment.
28

Provision Present Law House Bill Senate Amendment

Effective date.–effective for 

property placed in service after 

date of enactment.

3. Petroleum refining 

property treated as 7-

year property (sec. 3203 

of the House bill)

Rev. Proc. 87-56 provides that 

petroleum refining assets are 

assigned a recovery period of 

10 years.

Establishes a statutory 7-year 

recovery period for petroleum 

refining property. In addition, the 

provision provides that there 

would be no adjustment to the 

allowable amount of depreciation 

for purposes of computing a 

taxpayer’s alternative minimum 

taxable income with respect to 

such property.

Effective date.–effective for 

property place in service after date 

of enactment.

No provision.

4. Expensing of capital 

costs incurred for 

production in complying 

with Environmental 

Protection Agency sulfur 

regulations for small 

refiners (sec. 3204 of the 

House bill and sec. 2303 

of the Senate amendment)

Taxpayers generally recover 

the costs of investments in 

refinery property through 

annual depreciation 

deductions.

Permits small business refiners to 

claim an immediate deduction (i.e., 

expensing) for up to 75 percent of 

the costs paid or incurred for the 

purpose of complying with the 

Highway Diesel Fuel Sulfur 

Control Requirements of the 

Environmental Protection Agency. 

A small business refiner is a 

Substantially the same as the 

House bill.

A small business refiner is a 

taxpayer who employs not more 

than 1,500 employees directly in 

refining and had an average daily 

refinery run less than or equal to 

205,000 barrels per day in the 

preceding year.
29

Provision Present Law House Bill Senate Amendment

taxpayer who employs not more 

than 1,500 employees directly in 

refining and has less than 155,000 

barrels per day (average) of total 

refinery capacity.

Effective date.–effective for 

expenses paid or incurred after the 

date of enactment. 

preceding year.

Deduction reduced, pro rata, for 

taxpayers with average daily 

refinery runs in excess of 155,000 

barrels per day. 

Effective date.–effective for 

expenses paid or incurred after

the date of enactment.

5. Credit for small 

refiners for production 

of diesel fuel in 

compliance with 

Environmental 

Protection Agency sulfur 

regulations for small 

refiners (sec. 3205 of the 

House bill and sec. 2304 

of the Senate amendment)

There is not a credit for the 

production of low-sulfur diesel 

fuel.

Provides that a small business 

refiner may claim credit equal to 

five cents per gallon for each 

gallon of low sulfur diesel fuel 

produced during the taxable year. 

The total production credit claimed 

by the taxpayer is limited to 25 

percent of the capital costs 

incurred to come into compliance 

with the EPA diesel fuel 

requirements.

Recapture of credit for failure to 

comply with EPA regulations, 

cessation of operation, or change 

in ownership.

Effective date.–expenses paid or 

incurred after the date of 

Substantially the same as the 

House bill.

A small business refiner is a 

taxpayer who employs not more 

than 1,500 employees directly in 

refining and had an average daily 

refinery run less than or equal to 

205,000 barrels per day in the 

preceding year.

Credit reduced, pro rata, for 

taxpayers with average daily 

refinery runs in excess of 155,000 

barrels per day. 

No recapture provisions.
30

Provision Present Law House Bill Senate Amendment

enactment. Credit may be apportioned to 

patrons of certain cooperative 

organizations.

Effective date.–expenses paid or 

incurred after the date of 

enactment.

6. Independent producer 

test change from daily 

runs to average daily 

runs (sec. 3206 of the 

House bill and sec. 2305 

of the Senate amendment)

Present law classifies oil and 

gas producers as independent 

producers or integrated 

companies. The Code 

provides numerous special tax 

rules for operations by 

independent producers. An 

independent producer may not 

have refining operations the 

runs from which exceed 

50,000 barrels on any day in 

the taxable year during which 

independent producer status is 

claimed.

Allows refiners with average daily 

refinery runs for the taxable year 

that do not exceed 75,000 barrels 

to qualify as independent 

producers.

Effective date.–taxable years 

beginning after 2001.

Same as House bill, except 

provides a 60,000 barrel average 

daily run.

Effective date.–taxable years 

beginning after 2002.

7. Tax-exempt bonds for 

public power facilities 

(sec. 3207 of the House 

bill and secs. 2401 and 

2405 of the Senate 

amendment)

The Code limits public 

power’s ability to use taxexempt bonds to finance 

output property when more 

than specified amounts of the 

output will be used by private 

Provides special, liberalized 

private business use rules for 

bonds issued by public power 

entities to finance electric output 

facilities when the entities 

participate in qualifying electric 

Requires Treasury study on taxlaw changes appropriate to 

conform tax rules to new industry 

structure (See 10, below.)

Allows modification to amount 

sold under certain existing 
31

Provision Present Law House Bill Senate Amendment

amendment) individuals and businesses on a 

basis other than the basis on 

which the general public uses 

the output. 

industry restructuring 

arrangements. Allows public 

power entities that engage in 

activities beyond those allowed 

under the liberalized private 

business use rules to elect to 

forego certain future issuances of 

tax-exempt bonds for new 

generating capacity while 

preserving the tax-exempt status of 

all other bonds. Modifies current 

rules regarding issuance of taxexempt bonds for the acquisition 

of existing electric output 

facilities. Bond-financed facilities 

must be governmentally owned, 

determined under generally 

applicable tax rules.

Effective date.–date of enactment 

with election for transactions on or 

after April 14, 1996. 

sold under certain existing 

requirements contracts without 

contracts losing benefits of a 

grandfather exception under 

Treasury regulations. 

Effective date.–date of enactment.

8. Dispositions of 

transmission property to 

implement FERC 

restructuring policy (sec. 

3208 of the House bill and 

2404 of the Senate 

amendment)

Generally, a taxpayer 

recognizes gain to the extent 

the sales price (and any other 

consideration received) 

exceeds the seller’s basis in the 

property. The recognized gain 

is subject to current income tax 

Permits a taxpayer to elect to treat 

an electric transmission transaction 

as an involuntary conversion and 

expand the types of replacement 

property that qualify as related or 

similar in use to converted electric 

transmission property. An electric 

Permits a taxpayer to elect to 

recognize gain from an electric 

transmission transaction ratably 

over an eight year period 

beginning in the year of sale. An 

electric transmission transaction 

is the sale or other disposition of 
32

Provision Present Law House Bill Senate Amendment

amendment) unless the gain is deferred or 

not recognized under a special 

tax provision.

Under section 1033, gain 

realized by a taxpayer from an 

involuntary conversion of 

property is deferred to the 

extent the taxpayer purchases 

property similar or related in 

service or use to the converted 

property within the applicable 

period.

transmission transaction is the sale 

or other disposition of property 

used in the trade or business of 

providing electric transmission 

services, or an ownership interest 

in such an entity, to a FERC 

approved transmission company 

prior to January 1, 2009.

Effective date.–effective for 

transactions occurring after the 

date of enactment.

property used in the trade or 

business of providing electric 

transmission services, or an 

ownership interest in such an 

entity, to a FERC approved 

transmission company prior to 

January 1, 2007.

Effective date.–effective for 

transactions occurring after the 

date of enactment.

9. Distributions of stock 

to implement FERC or 

State electric 

restructuring policy (sec. 

3209 of the House bill)

A corporation can distribute 

the stock of a controlled 

corporation in a tax-free 

transaction (a "spin-off") if 

certain requirements are 

satisfied. A corporate-level tax 

is imposed on a spin-off, 

however, if the spin-off is part 

of a plan in which more than 

50 percent of a corporation 

involved in the spin-off is 

acquired (sec. 355(e)).

Creates an exception to section 

355(e) for the acquisition of stock 

(or assets) of any controlled 

corporation in an electric 

transmission transaction. For this 

purpose, an electric transmission 

transaction is defined as the sale or 

other disposition of property used 

in the trade or business of 

providing electric transmission 

services, or an ownership interest 

in an entity whose principal trade 

or business consists of providing 

electric transmission services, to a 

FERC approved transmission 

company prior to January 1, 2009.

No provision.
33

Provision Present Law House Bill Senate Amendment

Effective date.–effective for 

distributions occurring after the 

date of enactment.

10. Ongoing study and 

reports with regard to 

tax issues resulting from 

future restructuring 

decisions (sec. 2401 of the 

Senate amendment)

No provision. No provision. Directs Treasury to conduct an 

ongoing study of tax issues 

resulting from the restructuring of 

the electric service industry. The 

Treasury is to report to the Senate 

Committee on Finance and the 

House Committee on Ways and 

Means at least cooperatives, 

including implications on tax 

exempt bonds and asset 

divestitures.

Effective date.–first report due no 

later than December 31, 2002 

with reports to continue until 

industry restructuring is 

complete.

11. Special rules for 

nuclear 

decommissioning costs 

(sec. 3210 of the House 

bill and sec. 2402 of the 

Senate amendment)

A qualified nuclear 

decommissioning fund (a 

“qualified fund”) is a 

segregated fund established by 

a taxpayer that is used for the 

payment of decommissioning 

Repeals the cost of service 

requirement for deductible 

contributions to a qualified fund. 

Permits a qualified fund to 

accumulate an amount sufficient to 

pay for all decommissioning costs. 

Similar to House bill but does not 

include: 

(1) Ability to accumulate all 

decommissioning costs in a 

qualified fund (i.e., retains 

present law rules that generally 
34

Provision Present Law House Bill Senate Amendment

Senate amendment) costs. Contributions to a 

qualified fund are deductible in 

the year made to the extent that 

these amounts were collected 

as part of the cost of service to 

ratepayers (the “cost of service 

requirement”).

Accumulations in a qualified 

fund generally are limited to 

the amount required to fund 

post-84 decommissioning costs 

of a nuclear powerplant. 

Also permits an exception to 

ratable funding for 

decommissioning costs which, 

under present law, are not 

permitted to be accumulated in a 

qualified fund (generally pre-1984 

decommissioning costs). 

Allows deductible contributions to 

a qualified fund subsequent to the 

end of a nuclear powerplant’s 

estimated useful life. Clarifies that 

no gain or loss would be 

recognized as a result of the 

transfer of a qualified fund in 

connection with the transfer of the 

power plant and provides that all 

nuclear decommissioning costs are 

deductible when paid. 

Effective date.–effective for 

taxable years beginning after 

December 31, 2001. 

present law rules that generally 

permit only post-84 

decommissioning costs to be 

accumulated in a qualified fund). 

(2) Does not permit funding after 

useful life of powerplant.

Effective date.–effective for 

taxable years beginning after 

December 31, 2002.

12. Treatment of certain 

electric cooperatives 

(sec. 3211 of the House 

bill and secs. 2403 and 

2406 of the Senate 

amendment)

No provisions relating to 

electric energy industry 

restructuring, nuclear 

decommissioning transactions, 

involuntary conversions, or 

like-kind exchanges. Present 

Provides that income received or 

accrued by a rural electric 

cooperative from any “open access 

transaction” (other than income 

received or accrued directly or 

indirectly from a member of the 

House bill (with some technical 

revisions), plus: (1) Income from 

certain "asset exchange or 

conversion transactions" (i.e., in 

general, gain that would qualify 

for deferred recognition under 
35

Provision Present Law House Bill Senate Amendment

amendment) law provides that exemption of 

rural electric cooperatives 

under section 501(c)(12) is 

determined without taking into 

account any income from 

cancellation of indebtedness 

income from the prepayment 

of loans under certain 

provisions of the Rural 

Electrification Act of 1936 (as 

in effect on January 1, 1987). 

The exclusion for cancellation 

of indebtedness income applies 

to such income arising in 1987, 

1988, or 1989 on debt that 

either originated with, or is 

guaranteed by, the Federal 

Government.

cooperative) is excluded in 

determining whether a rural 

electric cooperative satisfies the 

85-percent test for tax exemption 

under section 501(c)(12). Provides 

that income received or accrued by 

a rural electric cooperative from 

any “nuclear decommissioning 

transaction” also is excluded in 

determining whether a rural 

electric cooperative satisfies the 

85-percent test for tax exemption 

under section 501(c)(12). Provides 

that income received or accrued by 

a rural electric cooperative from a 

“load loss transaction” is treated 

under 501(c)(12) as income 

collected from members for the 

sole purpose of meeting losses and 

expenses of providing service to its 

members. Provides that similar 

rules apply to the receipt or accrual 

of income from load loss 

transactions of taxable electric 

cooperatives.

Effective date.–taxable years 

beginning after the date of 

enactment.

secs. 1031 or 1033 if the 

replacement property is for 

generating, transmitting, 

distributing or selling electric 

energy or natural gas) is excluded 

in determining whether a rural 

electric cooperative satisfies the 

85-percent test for tax exemption 

under section 501(c)(12); (2) 

Cancellation of indebtedness 

income from discounted 

prepayments of loans, debts, or 

obligations made, insured, or 

guaranteed by the Federal 

government under the Rural 

Electrification Act of 1936 is

excluded in determining whether 

a rural electric cooperative 

satisfies the 85-percent test for 

tax exemption under section 

501(c)(12); (3) Income received 

or accrued indirectly from a 

member by a rural electric 

cooperative from any "open 

access transaction" is treated as 

member income in determining 

whether a rural electric 

cooperative satisfies the 85-

percent test for tax exemption 

under section 501(c)(12); and (4) 
36

Provision Present Law House Bill Senate Amendment

Income from receipts before 2007 

for the construction of line 

extensions to facilitate the 

development of section 29 

qualified nonconventional fuel 

sources is excluded in 

determining whether a rural 

electric cooperative satisfies the 

85-percent test for tax exemption 

under section 501(c)(12).

Effective date.–taxable years 

beginning after the date of 

enactment.
37

Provision Present Law House Bill Senate Amendment

III. PRODUCTION

1. Marginal wells credit 

(sec. 3301 of the House 

bill and sec. 2301 of the 

Senate amendment)

There is no credit for the 

production of oil and gas from 

marginal wells. The costs of 

such production may be 

recovered under the Code's 

depreciation and depletion 

rules and in other cases as a 

deduction for ordinary and 

necessary business expenses.

Creates a new, $3 per barrel credit 

for the production of crude oil and 

a $0.50 per 1,000 cubic feet of 

qualified natural gas production 

from qualified marginal wells. 

The credit is not available for 

production occurring if the 

reference price of oil exceeds $18 

($2.00 for natural gas). The credit 

is reduced proportionately for 

reference prices between $15 and 

$18 ($1.67 and $2.00 for natural 

gas).

Effective date.–production in 

taxable years after 2001.

Same as House Bill.

Effective date.–production in 

taxable years beginning after date 

of enactment.

2. Net income limitation 

on percentage depletion 

for oil and gas property 

and suspension of

limitation based on 65 

percent of taxable 

income (sec. 3302 of the 

House bill and sec. 2306 

of the Senate amendment)

The Code generally limits the 

percentage depletion method 

for oil and gas properties to 

independent producers and 

royalty owners. Generally, 

under the percentage depletion 

method 15 percent of the 

taxpayer's gross income from 

an oil- or gas-producing 

property is allowed as a 

Suspends the 65 percent taxable 

income limitation for taxable years 

beginning after December 31, 

2001, and before January 1, 2007. 

The suspension of the 100-percent 

net-income limitation for marginal 

wells is extended an additional five 

years, through taxable years 

beginning before January 1, 2007. 

(This provision was enacted in 

Suspension of the 100-percent 

net-income limitation for 

marginal wells for same period as 

in House bill.

Effective date.–taxable years after 

2001.
38

Provision Present Law House Bill Senate Amendment

deduction in each taxable year. 

The amount deducted 

generally may not exceed 100 

percent of the net income from 

that property in any year (the 

"net-income limitation"). 

Section 11522(a) of the OBRA 

1990 prospectively changed 

the net-income limitation 

threshold to 100 percent only 

for oil and gas properties, 

effective for taxable years 

beginning after 1990. The 

100-percent net-income 

limitation for marginal wells 

has been suspended for taxable 

years beginning after 

December 31, 1997, and before 

January 1, 2004.

Additionally, the percentage 

depletion deduction for all oil 

and gas properties may not 

exceed 65 percent of the 

taxpayer's overall taxable 

income (determined before 

such deduction and adjusted 

for certain loss carrybacks and 

trust distributions).

(This provision was enacted in 

2002 for taxable years beginning 

before January 1, 2004. (See 

Present Law.)

Effective date.–taxable years after 

2001.
39

Provision Present Law House Bill Senate Amendment

3. Delay rental payments 

(sec. 3303 of the House 

bill and sec. 2308 of the 

Senate amendment)

Present law generally requires 

costs associated with inventory 

and property held for resale to 

be capitalized rather than 

currently deducted as they are 

incurred. Oil and gas producers 

typically contract for mineral 

production in exchange for 

royalty payments. If mineral 

production is delayed, these 

contracts provide for “delay 

rental payments” as a condition 

of their extension. In proposed 

regulations issued in 2000, the 

Treasury Department took the 

position that delay rental 

payments are to be capitalized.

Allows delay rental payments to be 

deducted in the year paid or 

incurred.

Effective date.–amounts paid or 

incurred in taxable years after 

2001.

Two year amortization 

(prospective only).

Effective date.–amounts paid or 

incurred in taxable years after 

2002.

4. Geological and 

geophysical costs (sec. 

3304 of the House bill and 

sec. 2307 of the Senate 

amendment)

Capital expenditures are not 

currently deductible as 

ordinary and necessary 

business expenses, but are 

allocated to the cost of the 

property. Courts have held 

that geological and 

geophysical costs are capital, 

and therefore, are allocable to 

the cost of the property 

acquired or retained. The costs 

Allows geological and geophysical 

costs incurred in domestic oil and 

gas exploration to be deducted in 

the year paid or incurred. 

Effective date.–costs paid or 

incurred in taxable years after 

2001.

Two year amortization 

(prospective only).

Effective date.–costs paid or 

incurred in taxable years after 

2002.
40

Provision Present Law House Bill Senate Amendment

attributable to such exploration 

are allocable to the cost of the 

property acquired or retained.

5. Five year carryback 

for net operating losses 

from oil and gas 

properties (sec. 3305 of 

the House bill)

NOLs generally can be carried 

back two years and carried 

forward 20 years to offset 

taxable income in such years. 

The Job Creation and Worker 

Assistance Act of 2002 

extended the general NOL 

carryback period to five years 

for net operating losses arising 

in taxable years ending in 2001 

and 2002. Different rules also 

apply with respect to NOLs 

arising in certain 

circumstances (such as from 

farming losses, Presidentially 

declared disasters, and 

specified liability losses).

Provides a special five-year 

carryback for certain eligible oil 

and gas losses.

Effective date.–NOLs for taxable 

years after 2001.

No provision.

6. Extension and 

expansion of credit for 

producing fuel from a 

nonconventional source

(sec. 3306 of the House 

bill and secs. 2309 and 

2310 of the Senate 

Fuels produced from "nonconventional sources" and sold 

to unrelated parties are eligible 

for an income tax credit equal 

to $3 (adjusted for inflation 

since 1979, credit value $6.14 

per barrel for 2000) per barrel 

Permits section 29 credit for 

production of certain nonconventional fuels produced at 

wells placed in service after the 

date of enactment and before 

January 1, 2007. Qualifying fuels 

are oil from shale or tar sands, and 

Permits section 29 credit at a rate 

of $3.00 per barrel of oil 

equivalent (unindexed) for 

production of certain nonconventional fuels produced at 

wells placed in service after the 

date of enactment and before 
41

Provision Present Law House Bill Senate Amendment

amendment) or BTU oil barrel equivalent 

(sec. 29). Qualified fuels 

include: (1) oil produced from 

shale and tar sands; (2) gas 

produced from geopressured 

brine, Devonian shale, coal 

seams, tight formations ("tight 

sands"), or biomass; and (3) 

liquid, gaseous, or solid 

synthetic fuels produced from 

coal (including lignite).

Credit is available only with 

respect to fuels produced from 

wells drilled or facilities placed 

in service after December 31, 

1979, and before January 1, 

1993. An exception extends 

the January 1, 1993 expiration 

date for facilities producing 

gas from biomass and 

synthetic fuel from coal if the 

facility producing the fuel is 

placed in service before July 1, 

1998, pursuant to a binding 

contract entered into before 

January 1, 1997. 

Credit may be claimed for 

qualified fuels produced and 

sold before January 1, 2003 (in

gas from geopressured brine, 

Devonian shale, coal seams or a 

tight formation. The value of the 

credit is $3.00 for production in 

2001 and 2002 and is indexed for 

inflation commencing with the 

credit amount for 2003. The credit 

may be claimed for production 

from the well for each of the first 

four years of production, but not 

for any production occurring after 

December 31, 2009.

Permits production from certain 

existing wells (any well drilled 

after December 31, 1979 and 

before January 1, 1993) to claim a 

credit equal to the newly, reindexed value of $3.00 for 

production in 2003 through 2006. 

Permits landfill gas sold to a third 

party from facilities placed in 

service after June 30, 1998 and 

before January 1, 2007 to be 

eligible for the taxpayer to claim 

five years of credit from the later 

of the date of enactment or the date 

the facility is placed in service. 

January 1, 2005. Qualifying fuels 

are oil from shale or tar sands, 

and gas from geopressured brine, 

Devonian shale, coal seams or a 

tight formation. The value of the 

credit is $3.00 per barrel of oil 

equivalent, unindexed, for three 

years of production commencing 

when the facility is placed in 

service. 

Extends the present-law credit 

through December 31, 2004 for 

production from existing facilities 

producing coke, coke gas, or 

natural gas and by-products 

produced by coal gasification 

from lignite.

Permits credit for production of 

“refined coal” from facilities 

placed in service after the date of 

enactment and before January 1, 

2007. “Refined coal” must meet 

emissions reduction targets and 

have market value 50 percent 

greater than feedstock coal. 

Credit value is $3.00 per barrel of 

oil equivalent, unindexed, for five 

years of production commencing 

when the facility is placed in 
42

Provision Present Law House Bill Senate Amendment

the case of non-conventional 

sources subject to the January 

1, 1993 expiration date) or 

January 1, 2008 (in the case of 

biomass gas and synthetic fuel 

facilities eligible for the 

extension period).

Effective date.–effective for fuel 

sold from qualifying wells and 

facilities after the date of 

enactment.

The taxpayer may not claim any 

credit for production in excess of a 

daily average of 200,000 cubic feet 

of gas (or barrel of oil equivalent) 

from a qualifying well or facility.

service. 

Permits credit for production of 

“viscous oil” from facilities 

placed in service after the date of 

enactment and before January 1, 

2005. Qualifying viscous oil may 

be sold to a related party. Credit 

value is $3.00 per barrel of oil 

equivalent, unindexed, for three 

years of production commencing 

when the facility is placed in 

service. 

Permits credit for production of 

“coalmine methane gas” captured 

or extracted from a coal mine and 

sold after the date of enactment 

and before January 1, 2005. 

Qualifying coalmine methane gas 

is gas liberated during mining 

operations or extracted up to five 

years in advance of mining 

operations. Credit value is $3.00 

per barrel of oil equivalent, 

unindexed, for three years of 

production commencing when the 

facility is placed in service.

Permits credit for production of 

liquid, gaseous, or solid fuels 
43

Provision Present Law House Bill Senate Amendment

produced from agricultural and 

animal wastes from facilities 

placed in service after the date of 

enactment and before January 1, 

2005. Credit value is $3.00 per 

barrel of oil equivalent, 

unindexed, for three years of 

production commencing when the 

facility is placed in service.

Directs Treasury to study effect 

sec. 29 has had on the production 

of coal bed methane.

Effective date.–effective for fuel 

sold after the date of enactment.

7. Allow certain business 

credits against the 

alternative minimum tax 

(sec. 3307 of the House 

bill and secs. 2005(b)(3) 

and 2503(c) of the Senate 

amendment)

Most business credits are not 

allowed against the alternative 

minimum tax.

Makes the minimum tax limitation 

inapplicable to the business energy 

credits added by the bill. These 

credits include the credit for 

efficient appliances, the credit for 

construction of new energy 

efficient homes, the environmental 

tax credit, the credit for oil and gas 

production from marginal wells 

and the credit for production from 

qualifying advanced clean coal 

technology

Allows the small ethanol 

producer credit and the Alaska 

natural gas credit to be claimed 

against the entire regular tax and 

the alternative minimum tax; 

other business credits may not be 

claimed against the alternative 

minimum tax.
44

Provision Present Law House Bill Senate Amendment

8. Intangible drilling 

costs (IDCs) (sec. 3308 of 

the House bill)

Certain IDCs are an alternative 

minimum tax preference.

Repeals alternative minimum tax 

preference for IDCs of 

independent producers.

Effective date.–taxable years 

beginning in 2002, 2003, and 

2004.

No provision.

9. Enhanced oil recovery 

credit (sec. 43) (sec. 3309 

of the House bill)

The credit is not allowed 

against the alternative 

minimum tax.

Allows the enhanced oil recovery 

credit against the alternative 

minimum tax.

Effective date.–taxable years 

beginning in 2002, 2003, and 

2004.

No provision.

10. Accelerated 

depreciation and wage 

credit benefits for 

businesses on Indian 

reservations (sec. 3310 of 

the House bill and sec. 

2501 of the Senate 

amendment)

Two tax incentives exist to 

encourage investment on 

Indian reservations: a 20 

percent general business credit 

for qualifying wages and costs 

paid to employees that work on 

an Indian reservation, and 

special depreciation recovery 

periods for qualified Indian 

reservation property. Both 

provisions expire on

Extends the accelerated 

depreciation incentive years 

through December 31, 2006, but 

only with respect to property that 

is part of a facility for (1) the 

generation or transmission of 

electricity (2) an oil or gas well, 

(3) the transmission or refining of 

oil or gas, or (4) the production of 

any qualified fuel. 

Extends the Indian employment 

Wage credit and accelerated 

depreciation incentives extended 

through December 31, 2005, for 

all types of businesses (not just 

energy). 
45

Provision Present Law House Bill Senate Amendment

December 31, 2004. credit incentive through December 

31, 2006, but only in the case of 

wages paid for services performed 

at a facility for (1) the generation 

or transmission of electricity (2) an 

oil or gas well, (3) the transmission 

or refining of oil or gas, or (4) the 

production of any qualified fuel.
46

Provision Present Law House Bill Senate Amendment

IV. ADDITIONAL

PROVISIONS

1. Arbitrage rules not to 

apply to prepayments 

for natural gas (sec. 3213 

of the House bill)

Restrictions are imposed on 

the ability of States or local 

governments to invest the 

proceeds of tax-exempt bonds 

for profit (the "arbitrage 

restrictions"). One such 

restriction limits the use of 

bond proceeds to acquire 

"investment-type property." 

The term investment-type 

property includes the 

acquisition of property in a 

transaction involving a 

prepayment. A prepayment 

can produce prohibited 

arbitrage profits when the 

discount received for 

prepaying the costs exceeds the 

yield on the tax-exempt bonds. 

In general, prohibited 

prepayments include all 

prepayments that are not 

customary in an industry by 

both beneficiaries of taxexempt bonds and other 

persons using taxable 

financing for the same type of 

Similar to the Treasury 

regulations, except (1) the 

exception applies only if at least 85 

percent of the purchased natural 

gas is to be used by governmental 

utilities in the State where the 

issuer of the bonds is located; (2) 

the limits on customers are not as 

restrictive and (3) the use of swap 

transactions is not as limited.

Effective date.–Bonds issued after 

October 22, 1986, except 85 

percent limit applies only to bonds 

issued after date of enactment.

No provision.
47

Provision Present Law House Bill Senate Amendment

transaction.

The Treasury Department has 

issued regulations deeming to 

be customary, and not in 

violation of the arbitrage rules, 

certain prepayments for natural 

gas that are reasonably 

expected to be used by 

customers that public gas 

authorities are obligated to 

serve.

2. GAO study of 

effectiveness of 

alternative motor 

vehicles and fuel 

incentives (sec. 2502 of 

the Senate amendment)

No provision. No provision. Directs Comptroller General to 

study effectiveness of alternative 

motor vehicle and fuel incentives 

and conservation and energy 

efficiency incentives. In addition, 

study to examine distribution of 

beneficiaries. Compare revenue 

cost to energy conserved and 

environmental benefits. Annual 

reports beginning by December 

31, 2002.

Effective date.–date of enactment.

3. Credit for production 

of Alaska natural gas 

No provision. However, 

natural gas produced from 

No provision. Provides a credit equal to excess 

of $3.25 (indexed for inflation) 
48

Provision Present Law House Bill Senate Amendment

(sec. 2503 of the Senate 

amendment)

"non-conventional sources" is 

eligible for an income tax 

credit equal to $3 (adjusted for 

inflation since 1979, credit 

value $6.14 per barrel for 

2000) per barrel or BTU oil 

barrel equivalent (sec. 29). 

per 1 million Btu of Alaska 

natural gas over average monthly 

price at Alberta, Canada pipeline 

hub. If price at hub exceeds 

$4.875 (indexed), any prior 

credits recaptured. Credit applies 

beginning later of January 1, 

2010 or initial date of interstate 

transportation of Alaska natural 

gas. Credit claimed against 

regular and minimum tax.

Effective date.–date of enactment.

4. Sale of gasoline and 

diesel fuel at duty-free 

sales enterprises (sec. 

2504 of the Senate 

amendment)

As a general rule, no tax is 

imposed on the sale by the 

manufacturer of an article for 

export, or for resale by the 

purchaser to a second 

purchaser for export, but only 

if such exportation of use is to 

occur before any other use 

(sec. 4221(a)). The Code 

further provides that if gasoline 

is sold to any person for the 

previously described purposes, 

the government is to pay such 

person an amount equal to the 

number of gallons of gasoline 

so sold multiplied by the rate 

No provision. Amends section 1555(b) of Title 

19 to treat gasoline sold from a 

duty free enterprise as entering 

into the territory of customs, i.e., 

not for export.
49

Provision Present Law House Bill Senate Amendment

of tax (sec. 6421(c)). Under 19 

USC 1555(B)(8)(D), a duty 

free enterprise is defined as a 

person that sells duty free 

merchandise that is delivered 

from a bonded warehouse to an 

exit point for exportation by 

individuals departing from the 

customs territory.

5. Treatment of certain 

dispositions of dairy 

property to implement 

bovine tuberculosis 

eradication program 

(sec. 2505 of the Senate 

amendment)

Generally, a taxpayer may 

elect not to recognize gain with 

respect to property that is

involuntarily converted if the 

taxpayer acquires within an 

applicable period (generally 

the period ending two years 

after the end of the taxable 

year in which the first gain on 

the conversion is realized) 

property similar or related in 

service or use.

No provision. The Senate amendment extends 

involuntary conversion treatment 

to qualified dispositions of dairy 

property pursuant to the bovine 

tuberculosis eradication program. 

Treats any property acquired and 

held by the taxpayer either for 

productive use in a trade or 

business or for investment as 

property similar or related in use 

to the converted property. Extend 

the applicable acquisition period 

from two to four years and 

permits replacement property to 

be acquired from related parties. 

In addition to deferring gain, the 

amendment permits an ordinary 

loss equal to the adjusted basis of 

the converted property.
50

Provision Present Law House Bill Senate Amendment

Finally, the amendment allows 

expensing for amounts paid or 

incurred by the taxpayer to 

convert any real property into 

unimproved land pursuant to the 

bovine tuberculosis eradification 

program.

Effective date.–generally 

effective for dispositions made 

and amounts received in taxable 

years beginning after May 22, 

2001 but shall not apply to 

dispositions made after December 

31, 2006.

6. Expand exemption 

from aviation fuels 

excise taxes for aerial 

applicators (see 2506 of 

the Senate amendment)

Excise taxes are imposed on 

aviation gasoline (19.4 cents 

per gallon) and jet fuel (21.9 

cents per gallon) (secs. 4081 

and 4091). Fuel used on a 

farm for farming purposes is 

exempt from tax. Aerial 

applicators (crop dusters) are 

allowed to claim the exemption 

on behalf of farm owners and 

operators, e.g., in the case of 

aviation gasoline if the owners 

or operators give written 

consent to the aerial 

No provision. Expands the present-law 

exception to include fuel used 

between farms and base airfields, 

and provides that the aerial 

applicator is the exclusive party 

entitled to the refund.

Effective date.–transportation 

after 2001 and before 2003.
51

Provision Present Law House Bill Senate Amendment

applicators. This exemption 

applies only to fuel consumed 

in the airplane while operating 

over the farm, i.e., fuel 

consumed traveling to and 

from the farm is not exempt.

7. Expand definition of 

rural airports exempt 

from the tax imposed on 

each segment of a flight 

(sec. 2507 of the Senate 

amendment)

Most domestic air passenger 

transportation is subject to a 

two-part excise tax. First, an 

ad valorem tax is imposed at 

the rate of 7.5 percent of the 

amount paid for the 

transportation. Second, a 

flight segment tax of $3.00 per 

segment is imposed. The 

flight segment component of 

the tax does not apply to 

segments to or from qualified 

"rural airports." A rural airport 

is defined as an airport that (1) 

in the second preceding 

calendar year had fewer than 

100,000 commercial passenger

departures, and (2) either (a) is 

not located within 75 miles of 

another airport that had more 

than 100,000 such departures 

in that year, or (b) is eligible 

for payments under the Federal 

No provision. Expands the definition of rural 

airport to include otherwise 

qualified airports that are within 

75 miles of a larger airport, but 

are not connected by paved road 

to such an airport. 

Effective date.–January 1, 2003.
52

Provision Present Law House Bill Senate Amendment

"essential air service" program.

8. Exempt 

transportation by 

seaplane from ticket 

taxes (sec. 2508 of the 

Senate amendment)

Most domestic air passenger 

transportation is subject to a 

two-part excise tax. First, an 

ad valorem tax is imposed at 

the rate of 7.5 percent of the 

amount paid for the 

transportation. Second, a 

flight segment tax of $3.00 per 

segment is imposed. 

Noncommercial aviation is 

subject to a higher fuel excise 

excise tax, but not the ticket 

tax.

Commercial aviation also is 

subject to a 4.4-cents-pergallon fuels excise tax.

No provision. Reclassifies seaplane flights as 

noncommercial aviation, subject 

only to fuels excise tax. 

Effective date.–January 1, 2003.