DESCRIPTION OF THE CHAIRMAN’S MODIFICATION 

TO THE PROVISIONS OF THE 

“ECONOMIC STIMULUS ACT OF 2008” 

Scheduled for Markup 

by the 

SENATE COMMITTEE ON FINANCE 

on January 30, 2008 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

 

January 30, 2008 

JCX-11-08
i 

CONTENTS 

Page

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

A. Provisions Modifying the Proposals of the Chairman’s Mark............................................ 2 

1. Limitation based on adjusted gross income.................................................................. 2 

2. Expand the rebate to certain recipients of veteran’s disability payments.................... 2 

3. Deny the basic credit and the qualifying child credit to illegal immigrants ................. 2 

4. Modification to definition of high unemployment State............................................... 3 

B. Additional Provisions.......................................................................................................... 4 

1. Extension and modification of energy efficient appliances credit................................ 4 

2. Credit for nonbusiness energy property........................................................................ 5 

3. Taxable income limit on percentage depletion for oil and natural gas produced 

from marginal properties............................................................................................... 6 

4. Credit for residential energy efficient property ............................................................ 7 

5. Extension and modification of credit for the production of electricity production 

credit from renewable resources, and of the credits for producing refined coal 

and Indian coal.............................................................................................................. 8 

6. New energy efficient home credit............................................................................... 15 

7. Extension of energy credit .......................................................................................... 16 

8. Extension and expansion of clean renewable energy bonds....................................... 18 

9. Energy efficient commercial buildings deduction ...................................................... 21 
1 

INTRODUCTION 

This document,1

 prepared by the staff of the Joint Committee on Taxation, provides a 

description of the Chairman’s modification to the provisions of the “Economic Stimulus Act of 

2008,” which is to be marked up by the Senate Committee on Finance on January 30, 2008. 

 1

 This document may be cited as follows: Joint Committee on Taxation, “Description of the 

Chairman’s Modification to the Provisions of the Economic Stimulus Act of 2008” (JCX-11-08), January 

30, 2008. This document can also be found on our website at www.house.gov/jct. 
2 

A. Provisions Modifying the Proposals of the Chairman’s Mark 

1. Limitation based on adjusted gross income2

Under the Chairman’s modification, the amount of the credit (including both the basic 

credit and the qualifying child credit) is phased out at a rate of five percent of adjusted gross 

income above certain income levels. The beginning point of this phase-out range is $150,000 of 

adjusted gross income ($300,000 in the case of joint returns). 

2. Expand the rebate to certain recipients of veteran’s disability payments 

The provision modifies the Chairman’s mark to expand the rebate benefit to disabled 

veterans. The Secretary of the Treasury and the Secretary of Veterans Affairs are directed to 

work together to design and implement a mechanism under which the Department of Veterans 

Affairs will deliver a rebate to individuals receiving veteran’s disability payments. This 

mechanism will be designed to minimize fraud and inadvertent error and to reduce 

administrative complexity in the delivery of the rebate to such individuals. For these purposes 

veteran’s disability payments are amounts received under Chapters 11 (compensation for 

service-connected disability or death) and 15 (disability pension for veterans whose total 

disability is not service-connected) of the U.S. Code. 

3. Deny the basic credit and the qualifying child credit to illegal immigrants 

The provision denies the basic credit and the qualifying child credit to individuals if they 

do not include on their tax return a valid taxpayer identification number for: (1) themselves (and 

if they are married, their spouse); and (2) any children for whom the qualifying child credit is 

claimed. For these purposes, a valid taxpayer identification number is defined as a social 

security number. 

If an individual fails to provide a correct taxpayer identification number, such omission 

will be treated as a mathematical or clerical error. As under present law, the Internal Revenue 

Service (the “IRS”) may summarily assess additional tax due as a result of a mathematical or 

clerical error without sending the taxpayer a notice of deficiency and giving the taxpayer an 

opportunity to petition the Tax Court. Where the IRS uses the summary assessment procedure 

for mathematical or clerical errors, the taxpayer must be given an explanation of the asserted 

error and given 60 days to request that the IRS abate its assessment.

 2

 The Chairman’s modification provides that Members of Congress are not eligible for the rebate. 
3 

4. Modification to definition of high unemployment State3

The modification changes one of the definitions of “high-unemployment States.” In the 

Chairman’s Mark, one possible definition of a high-unemployment State involved three 

conditions: 

• The State’s average Total Unemployment Rate for the previous three months was 6.5 

percent or more. 

• The State’s average Total Unemployment Rate for the previous three months was at 

least 110 percent of the State’s average Total Unemployment Rate for the same three 

months in either of the previous two years. 

• The State must pass a law choosing to have this definition apply. 

In the modification, the second and third requirements are dropped. 

 3

 Description provided by the majority staff of the Senate Committee on Finance. 
4 

B. Additional Provisions 

1. Extension and modification of energy efficient appliances credit 

Present Law

The provision provides a credit for the eligible production of certain energy-efficient 

dishwashers, clothes washers and refrigerators. 

The credit for dishwashers applies to dishwashers produced in 2006 and 2007 that meet 

the Energy Star standards for 2007. The credit amount equals $3 multiplied by 100 times the 

“energy savings percentage,” but may not exceed $100 per dishwasher. The energy saving 

percentage is defined as the change in the energy factor (EF) required by the Energy Star 

program between 2007 and 2005 divide by the EF requirement for 2007. The EF required in 

2005 for the Energy Star program was 0.58 and it was 0.65 in 2007, for a change of 0.07. The 

energy saving percentage is thus 0.07 / 0.65, which when multiplied by 100 times $3 equals 

$32.31 per refrigerator. 

The credit for clothes washers equals $100 for clothes washers manufactured in 2006-

2007 that meet the requirements of the Energy Star program which are in effect for clothes 

washers in 2007. 

The credit for refrigerators is based on energy savings and year of manufacture. The 

energy savings are determined relative to the energy conservation standards promulgated by the 

Department of Energy that took effect on July 1, 2001. Refrigerators that achieve a 15 to 20 

percent energy saving and that are manufactured in 2006 receive a $75 credit. Refrigerators that 

achieve a 20 to 25 percent energy saving receive a (i) $125 credit if manufactured in 2006-2007. 

Refrigerators that achieve at least a 25 percent energy saving receive a (i) $175 credit if 

manufactured in 2006-2007. 

Appliances eligible for the credit include only those produced in the United States and 

that exceed the average amount of U.S. production from the 3 prior calendar years for each 

category of appliance. In the case of refrigerators, eligible production is U.S. production that 

exceeds 110 percent of the average amount of U.S. production from the 3 prior calendar years. 

A dishwasher is any a residential dishwasher subject to the energy conservation standards 

established by the Department of Energy. A refrigerator must be an automatic defrost 

refrigerator-freezer with an internal volume of at least 16.5 cubic feet to qualify for the credit. A 

clothes washer is any residential clothes washer, including a residential style coin operated 

washer, that satisfies the relevant efficiency standard. 

The taxpayer may not claim credits in excess of $75 million for all taxable years, and 

may not claim credits in excess of $20 million with respect to clothes washers eligible for the 

$50 credit and refrigerators eligible for the $75 credit. A taxpayer may elect to increase the $20 

million limitation described above to $25 million provided that the aggregate amount of credits 

with respect to such appliances, plus refrigerators eligible for the $100 and $125 credits, is 

limited to $50 million for all taxable years. 
5 

Additionally, the credit allowed in a taxable year for all appliances may not exceed two 

percent of the average annual gross receipts of the taxpayer for the three taxable years preceding 

the taxable year in which the credit is determined. 

The credit is part of the general business credit. 

Description of Proposal

The proposal extends and the energy efficient appliances credit for one year, by 

permitting 2008 and 2009 production to qualify under the standards for production in 2007. 

Additionally the $75 million dollar cap is restarted for production after December 31, 2007. 

Effective Date

The proposal applies to appliances produced after December 31, 2007. 

2. Credit for nonbusiness energy property 

Present Law 

Code section 25C provides a 10-percent credit for the purchase of qualified energy 

efficiency improvements to existing homes. A qualified energy efficiency improvement is any 

energy efficiency building envelope component that meets or exceeds the prescriptive criteria for 

such a component established by the 2000 International Energy Conservation Code as 

supplemented and as in effect on August 8, 2005 (or, in the case of metal roofs with appropriate 

pigmented coatings, meets the Energy Star program requirements), and (1) that is installed in or 

on a dwelling located in the United States; (2) owned and used by the taxpayer as the taxpayer’s 

principal residence; (3) the original use of which commences with the taxpayer; and (4) such 

component reasonably can be expected to remain in use for at least five years. The credit is 

nonrefundable. 

Building envelope components are: (1) insulation materials or systems which are 

specifically and primarily designed to reduce the heat loss or gain for a dwelling; (2) exterior 

windows (including skylights) and doors; and (3) metal roofs with appropriate pigmented 

coatings which are specifically and primarily designed to reduce the heat loss or gain for a 

dwelling. 

Additionally, code section 25C provides specified credits for the purchase of specific 

energy efficient property. The allowable credit for the purchase of certain property is (1) $50 for 

each advanced main air circulating fan, (2) $150 for each qualified natural gas, propane, or oil 

furnace or hot water boiler, and (3) $300 for each item of qualified energy efficient property. 

 An advanced main air circulating fan is a fan used in a natural gas, propane, or oil 

furnace originally placed in service by the taxpayer during the taxable year, and which has an 

annual electricity use of no more than two percent of the total annual energy use of the furnace 

(as determined in the standard Department of Energy test procedures). 
6

A qualified natural gas, propane, or oil furnace or hot water boiler is a natural gas, 

propane, or oil furnace or hot water boiler with an annual fuel utilization efficiency rate of at 

least 95. 

Qualified energy-efficient property is: (1) an electric heat pump water heater which yields 

an energy factor of at least 2.0 in the standard Department of Energy test procedure, (2) an 

electric heat pump which has a heating seasonal performance factor (HSPF) of at least 9, a 

seasonal energy efficiency ratio (SEER) of at least 15, and an energy efficiency ratio (EER) of at 

least 13, (3) a geothermal heat pump which (i) in the case of a closed loop product, has an energy 

efficiency ratio (EER) of at least 14.1 and a heating coefficient of performance (COP) of at least 

3.3, (ii) in the case of an open loop product, has an energy efficiency ratio (EER) of at least 16.2 

and a heating coefficient of performance (COP) of at least 3.6, and (iii) in the case of a direct 

expansion (DX) product, has an energy efficiency ratio (EER) of at least 15 and a heating 

coefficient of performance (COP) of at least 3.5, (4) a central air conditioner with energy 

efficiency of at least the highest efficiency tier established by the Consortium for Energy 

Efficiency as in effect on Jan. 1, 2006, and (5) a natural gas, propane, or oil water heater which 

has an energy factor of at least 0.80. 

Under section 25C, the maximum credit for a taxpayer with respect to the same dwelling 

for all taxable years is $500, and no more than $200 of such credit may be attributable to 

expenditures on windows. 

The taxpayer’s basis in the property is reduced by the amount of the credit. Special rules 

apply in the case of condominiums and tenant-stockholders in cooperative housing corporations. 

The credit applies to property placed in service after December 31, 2005 and prior to 

January 1, 2008. 

Description of Proposal

 The proposal extends the nonbusiness energy credit for two years. 

Effective Date

The proposal is effective for expenditures after December 31, 2007, for property placed 

in service prior to January 1, 2010. 

3. Taxable income limit on percentage depletion for oil and natural gas produced from 

marginal properties 

Present Law

The Code permits taxpayers to recover their investments in oil and gas wells through 

depletion deductions. Two methods of depletion are currently allowable under the Code: (1) the 

cost depletion method, and (2) the percentage depletion method. Under the cost depletion 

method, the taxpayer deducts that portion of the adjusted basis of the depletable property which 

is equal to the ratio of units sold from that property during the taxable year to the number of units 

remaining as of the end of taxable year plus the number of units sold during the taxable year. 
7 

Thus, the amount recovered under cost depletion may never exceed the taxpayer's basis in the 

property. 

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 

deduction in each taxable year. The amount deducted generally may not exceed 100 percent of 

the taxable income from that property in any year. For marginal production, the 100-percent 

taxable income limitation has been suspended for taxable years beginning after December 31, 

1997, and before January 1, 2008.4

Marginal production is defined as domestic crude oil and natural gas production from 

stripper well property or from property substantially all of the production from which during the 

calendar year is heavy oil. Stripper well property is property from which the average daily 

production is 15 barrel equivalents or less, determined by dividing the average daily production 

of domestic crude oil and domestic natural gas from producing wells on the property for the 

calendar year by the number of wells. Heavy oil is domestic crude oil with a weighted average 

gravity of 20 degrees API or less (corrected to 60 degrees Fahrenheit). 

Description of Proposal

The proposal extends for two years the present-law taxable income limitation suspension 

provision for marginal production (through taxable years beginning on or before December 31, 

2009). 

Effective Date

The proposal applies to taxable years beginning after December 31, 2007. 

4. Credit for residential energy efficient property 

Present Law

Code section 25D provides a personal tax credit for the purchase of qualified solar 

electric 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 30 percent of qualifying 

expenditures, with a maximum credit for each of these systems of property of $2,000. Section 

25D also provides a 30 percent credit for the purchase of qualified fuel cell power plants. The 

credit for any fuel cell may not exceed $500 for each 0.5 kilowatt of capacity. 

Qualifying solar water heating property means an expenditure for property to heat water 

for use in a dwelling unit located in the United States and used as a residence if at least half of 

the energy used by such property for such purpose is derived from the sun. Qualified solar 

electric property is property that uses solar energy to generate electricity for use in a dwelling 

 4

 Sec 613A(c)(6)(H). 
8 

unit. A qualified fuel cell power plant is an integrated system comprised of a fuel cell stack 

assembly and associated balance of plant components that (1) converts a fuel into electricity 

using electrochemical means, (2) has an electricity-only generation efficiency of greater than 30 

percent. 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. 

The credit is nonrefundable, and the depreciable basis of the property is reduced by the 

amount of the credit. Expenditures for labor costs allocable to onsite preparation, assembly, or 

original installation of property eligible for the credit are eligible expenditures. 

Certain equipment safety requirements need to be met to qualify for the credit. Special 

proration rules apply in the case of jointly owned property, condominiums, and tenantstockholders in cooperative housing corporations. If less than 80 percent of the property is used 

for nonbusiness purposes, only that portion of expenditures that is used for nonbusiness purposes 

is taken into account. 

The credit applies to property placed in service after December 31, 2005 and prior to 

January 1, 2009. 

Description of Proposal

The proposal extends the credit for one year, through December 31, 2009. 

Effective Date

The provision is effective for expenditures made after December 31, 2007.

5. Extension and modification of credit for the production of electricity production credit 

from renewable resources, and of the credits for producing refined coal and Indian coal 

Present Law

In general

An income tax credit is allowed for the production of electricity at qualified facilities 

using qualified energy resources.5

 Qualified energy resources comprise wind, closed-loop 

biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal 

solid waste, and qualified hydropower production. Qualified facilities are, generally, facilities 

that generate electricity using qualified energy resources. To be eligible for the credit, electricity 

produced from qualified energy resources at qualified facilities must be sold by the taxpayer to 

an unrelated person. In addition to the electricity production credit, an income tax credit is 

allowed for the production of refined coal and Indian coal at qualified facilities. 

 5

 Sec. 45. 
9 

Credit amounts and credit period

In general

The base amount of the electricity production credit is 1.5 cents per kilowatt-hour 

(indexed annually for inflation) of electricity produced. The amount of the credit is 2 cents per 

kilowatt-hour for 2007. A taxpayer may generally claim a credit during the 10-year period 

commencing with the date the qualified facility is placed in service. The credit is reduced for 

grants, tax-exempt bonds, subsidized energy financing, and other credits. 

The amount of credit a taxpayer may claim is phased out as the market price of electricity 

(or refined coal in the case of the refined coal production credit) exceeds certain threshold levels. 

The electricity production credit is reduced over a 3 cent phase-out range to the extent the annual 

average contract price per kilowatt hour of electricity sold in the prior year from the same 

qualified energy resource exceeds 8 cents (adjusted for inflation). The refined coal credit is 

reduced over an $8.75 phase-out range as the reference price of the fuel used as feedstock for the 

refined coal exceeds the reference price for such fuel in 2002 (adjusted for inflation). 

Reduced credit amounts and credit periods

Generally, in the case of open-loop biomass facilities (including agricultural livestock 

waste nutrient facilities), geothermal energy facilities, solar energy facilities, small irrigation 

power facilities, landfill gas facilities, and trash combustion facilities, the 10-year credit period is 

reduced to five years commencing on the date the facility was originally placed in service, for 

qualified facilities placed in service before August 8, 2005. However, for qualified open-loop 

biomass facilities (other than a facility described in sec. 45(d)(3)(A)(i) that uses agricultural 

livestock waste nutrients) placed in service before October 22, 2004, the five-year period 

commences on January 1, 2005. In the case of a closed-loop biomass facility modified to co-fire 

with coal, to co-fire with other biomass, or to co-fire with coal and other biomass, the credit 

period begins no earlier than October 22, 2004. 

In the case of open-loop biomass facilities (including agricultural livestock waste nutrient 

facilities), small irrigation power facilities, landfill gas facilities, trash combustion facilities, and 

qualified hydropower facilities the otherwise allowable credit amount is 0.75 cent per kilowatthour, indexed for inflation measured after 1992 (currently 1 cent per kilowatt-hour for 2007). 

Credit applicable to refined coal

The amount of the credit for refined coal is $4.375 per ton (also indexed for inflation 

after 1992 and equaling $5.877 per ton for 2007). 

Credit applicable to Indian coal

A credit is available for the sale of Indian coal to an unrelated third part from a qualified 

facility for a seven-year period beginning on January 1, 2006, and before January 1, 2013. The 

amount of the credit for Indian coal is $1.50 per ton for the first four years of the seven-year 

period and $2.00 per ton for the last three years of the seven-year period. Beginning in calendar 
10 

years after 2006, the credit amounts are indexed annually for inflation using 2005 as the base 

year; for 2007 the Indian coal credit is $1.544 per ton. 

Other limitations on credit claimants and credit amounts

In general, in order to claim the credit, a taxpayer must own the qualified facility and sell 

the electricity produced by the facility (or refined coal or Indian coal, with respect to those 

credits) to an unrelated party. A lessee or operator may claim the credit in lieu of the owner of 

the qualifying facility in the case of qualifying open-loop biomass facilities and in the case of 

closed-loop biomass facilities modified to co-fire with coal, to co-fire with other biomass, or to 

co-fire with coal and other biomass. In the case of a poultry waste facility, the taxpayer may 

claim the credit as a lessee or operator of a facility owned by a governmental unit. 

For all qualifying facilities, other than closed-loop biomass facilities modified to co-fire 

with coal, to co-fire with other biomass, or to co-fire with coal and other biomass, the amount of 

credit a taxpayer may claim is reduced by reason of grants, tax-exempt bonds, subsidized energy 

financing, and other credits, but the reduction cannot exceed 50 percent of the otherwise 

allowable credit. In the case of closed-loop biomass facilities modified to co-fire with coal, to 

co-fire with other biomass, or to co-fire with coal and other biomass, there is no reduction in 

credit by reason of grants, tax-exempt bonds, subsidized energy financing, and other credits. 

The credit for electricity produced from renewable sources is a component of the general 

business credit.6 Generally, the general business credit for any taxable year may not exceed the 

amount by which the taxpayer’s net income tax exceeds the greater of the tentative minimum tax 

or so much of the net regular tax liability as exceeds $25,000. Excess credits may be carried 

back one year and forward up to 20 years. 

A taxpayer’s tentative minimum tax is treated as being zero for purposes of determining 

the tax liability limitation with respect to the section 45 credit for electricity produced from a 

facility (placed in service after October 22, 2004) during the first four years of production 

beginning on the date the facility is placed in service. 

Qualified facilities

Wind energy facility

A wind energy facility is a facility that uses wind to produce electricity. To be a qualified 

facility, a wind energy facility must be placed in service after December 31, 1993, and before 

January 1, 2009. 

Closed-loop biomass facility

A closed-loop biomass facility is a facility that uses any organic material from a plant 

which is planted exclusively for the purpose of being used at a qualifying facility to produce 

 6

 Sec. 38(b)(8). 
11 

electricity. In addition, a facility can be a closed-loop biomass facility if it is a facility that is 

modified to use closed-loop biomass to co-fire with coal, with other biomass, or with both coal 

and other biomass, but only if the modification is approved under the Biomass Power for Rural 

Development Programs or is part of a pilot project of the Commodity Credit Corporation. 

To be a qualified facility, a closed-loop biomass facility must be placed in service after 

December 31, 1992, and before January 1, 2009. In the case of a facility using closed-loop 

biomass but also co-firing the closed-loop biomass with coal, other biomass, or coal and other 

biomass, a qualified facility must be originally placed in service and modified to co-fire the 

closed-loop biomass at any time before January 1, 2009. 

Open-loop biomass (including agricultural livestock waste nutrients) facility

An open-loop biomass facility is a facility that uses open-loop biomass to produce 

electricity. For purposes of the credit, open-loop biomass is defined as (1) any agricultural 

livestock waste nutrients or (2) any solid, nonhazardous, cellulosic waste material or any lignin 

material that is segregated from other waste materials and which is derived from: 

• forest-related resources, including mill and harvesting residues, precommercial 

thinnings, slash, and brush; 

• solid wood waste materials, including waste pallets, crates, dunnage, manufacturing 

and construction wood wastes, and landscape or right-of-way tree trimming; or 

• agricultural sources, including orchard tree crops, vineyard, grain, legumes, sugar, 

and other crop by-products or residues. 

Agricultural livestock waste nutrients are defined as agricultural livestock manure and 

litter, including bedding material for the disposition of manure. Wood waste materials do not 

qualify as open-loop biomass to the extent they are pressure treated, chemically treated, or 

painted. In addition, municipal solid waste, gas derived from the biodegradation of solid waste, 

and paper which is commonly recycled do not qualify as open-loop biomass. Open-loop 

biomass does not include closed-loop biomass or any biomass burned in conjunction with fossil 

fuel (co-firing) beyond such fossil fuel required for start up and flame stabilization. 

In the case of an open-loop biomass facility that uses agricultural livestock waste 

nutrients, a qualified facility is one that was originally placed in service after October 22, 2004, 

and before January 1, 2009, and has a nameplate capacity rating which is not less than 150 

kilowatts. In the case of any other open-loop biomass facility, a qualified facility is one that was 

originally placed in service before January 1, 2009. 

Geothermal facility

A geothermal facility is a facility that uses geothermal energy to produce electricity. 

Geothermal energy is energy derived from a geothermal deposit that is a geothermal reservoir 

consisting of natural heat that is stored in rocks or in an aqueous liquid or vapor (whether or not 

under pressure). To be a qualified facility, a geothermal facility must be placed in service after 

October 22, 2004 and before January 1, 2009. 
12 

Solar facility

A solar facility is a facility that uses solar energy to produce electricity. To be a qualified 

facility, a solar facility must be placed in service after October 22, 2004, and before January 1, 

2006. 

Small irrigation facility

A small irrigation power facility is a facility that generates electric power through an 

irrigation system canal or ditch without any dam or impoundment of water. The installed 

capacity of a qualified facility must be at least 150 kilowatts but less than five megawatts. To be 

a qualified facility, a small irrigation facility must be originally placed in service after 

October 22, 2004, and before January 1, 2009. 

Landfill gas facility

A landfill gas facility is a facility that uses landfill gas to produce electricity. Landfill gas 

is defined as methane gas derived from the biodegradation of municipal solid waste. To be a 

qualified facility, a landfill gas facility must be placed in service after October 22, 2004, and 

before January 1, 2009. 

Trash combustion facility

Trash combustion facilities are facilities that burn municipal solid waste (garbage) to 

produce steam to drive a turbine for the production of electricity. To be a qualified facility, a 

trash combustion facility must be placed in service after October 22, 2004 and before January 1, 

2009. A qualified trash combustion facility includes a new unit, placed in service after 

October 22, 2004, that increases electricity production capacity at an existing trash combustion 

facility. A new unit generally would include a new burner/boiler and turbine. The new unit may 

share certain common equipment, such as trash handling equipment, with other pre-existing units 

at the same facility. Electricity produced at a new unit of an existing facility qualifies for the 

production credit only to the extent of the increased amount of electricity produced at the entire 

facility. 

Hydropower facility

A qualifying hydropower facility is (1) a facility that produced hydroelectric power (a 

hydroelectric dam) prior to August 8, 2005, at which efficiency improvements or additions to 

capacity have been made after such date and before January 1, 2009, that enable the taxpayer to 

produce incremental hydropower or (2) a facility placed in service before August 8, 2005, that 

did not produce hydroelectric power (a nonhydroelectric dam) on such date, and to which 

turbines or other electricity generating equipment have been added after such date and before 

January 1, 2009. 

At an existing hydroelectric facility, the taxpayer may claim credit only for the 

production of incremental hydroelectric power. Incremental hydroelectric power for any taxable 

year is equal to the percentage of average annual hydroelectric power produced at the facility 

attributable to the efficiency improvement or additions of capacity determined by using the same 
13 

water flow information used to determine an historic average annual hydroelectric power 

production baseline for that facility. The Federal Energy Regulatory Commission will certify the 

baseline power production of the facility and the percentage increase due to the efficiency and 

capacity improvements. 

At a nonhydroelectric dam, the facility must be licensed by the Federal Energy 

Regulatory Commission and meet all other applicable environmental, licensing, and regulatory 

requirements and the turbines or other generating devices must be added to the facility after 

August 8, 2005 and before January 1, 2009. In addition there must not be any enlargement of the 

diversion structure, or construction or enlargement of a bypass channel, or the impoundment or 

any withholding of additional water from the natural stream channel. 

Refined coal facility

A qualifying refined coal facility is a facility producing refined coal that is placed in 

service after October 22, 2004 and before January 1, 2009. Refined coal is a qualifying liquid, 

gaseous, or solid fuel produced from coal (including lignite) or high-carbon fly ash, including 

such fuel used as a feedstock. A qualifying fuel is a fuel that when burned emits 20 percent less 

nitrogen oxides and either SO2 or mercury than the burning of feedstock coal or comparable coal 

predominantly available in the marketplace as of January 1, 2003, and if the fuel sells at prices at 

least 50 percent greater than the prices of the feedstock coal or comparable coal. In addition, to 

be qualified refined coal the fuel must be sold by the taxpayer with the reasonable expectation 

that it will be used for the primary purpose of producing steam. 

Indian coal facility

A qualified Indian coal facility is a facility which is placed in service before January 1, 

2009, that produces coal from reserves that on June 14, 2005, were owned by a Federally 

recognized tribe of Indians or were held in trust by the United States for a tribe or its members. 
14 

Summary of credit rate and credit period by facility type

Table 1.–Summary of Section 45 Credit for Electricity Produced 

from Certain Renewable Resources and Refined Coal 

Eligible electricity 

production or coal 

production activity 

Credit amount for 

2007 (cents per 

kilowatt-hour; 

dollars per ton) 

Credit period for 

facilities placed 

in service on or 

before August 8, 

2005 (years from 

placed-in-service 

date) 

Credit period 

facilities placed in 

service after 

August 8, 2005 

(years from 

placed-in-service 

date) 

Wind 2 10 10 

Closed-loop biomass 2 101 10 

Open-loop biomass 

 (including agricultural 

 livestock waste nutrient 

 facilities) 

1 52 10 

Geothermal 

Solar (pre-2006 facilities only) 

Small irrigation power 

Municipal solid waste 

 (including landfill gas 

 facilities and trash 

 combustion facilities) 

Qualified hydropower 

2 

2 

1 

1 

1 

5 

5 

5 

5 

N/A 

10 

10 

10 

10 

10 

Refined Coal 5.877 10 10 

Indian Coal 1.544 73 73

1

 In the case of certain co-firing closed-loop facilities, the credit period begins no earlier than October 22, 

2004. 

2

 For certain facilities placed in service before October 22, 2004, the 5-year credit period commences on 

January 1, 2005. 

3

 For Indian coal, the credit period begins for coal sold after January 1, 2006. 

Taxation of cooperatives and their patrons

For Federal income tax purposes, a cooperative generally computes its income as if it 

were a taxable corporation, with one exception--the cooperative may exclude from its taxable 

income distributions of patronage dividends. Generally, cooperatives that are subject to the 

cooperative tax rules of subchapter T of the Code7 are permitted a deduction for patronage 

dividends from their taxable income only to the extent of net income that is derived from 

transactions with patrons who are members of the cooperative.8

 The availability of such 

 7

 Sec. 1381, et seq. 

8

 Sec. 1382. 
15 

deductions from taxable income has the effect of allowing the cooperative to be treated like a 

conduit with respect to profits derived from transactions with patrons who are members of the 

cooperative. For taxable years ending on or before August 8, 2005, cooperatives may not pass 

any portion of the income tax credit for electricity production through to their patrons. 

For taxable years ending after August 8, 2005, eligible cooperatives may elect to pass any 

portion of the credit through to their patrons. An eligible cooperative is defined as a cooperative 

organization that is owned more than 50 percent by agricultural producers or entities owned by 

agricultural producers. The credit may be apportioned among patrons eligible to share in 

patronage dividends on the basis of the quantity or value of business done with or for such 

patrons for the taxable year. The election must be made on a timely filed return for the taxable 

year, and once made, is irrevocable for such taxable year. The amount of the credit apportioned 

to patrons is not included in the organization’s credit for the taxable year of the organization. The 

amount of the credit apportioned to a patron is included in the taxable year the patron with or 

within which the taxable year of the organization ends. If the amount of the credit for any 

taxable year is less than the amount of the credit shown on the cooperative’s return for such 

taxable year, an amount equal to the excess of the reduction in the credit over the amount not 

apportioned to patrons for the taxable year is treated as an increase in the cooperative’s tax. The 

increase is not treated as tax imposed for purposes of determining the amount of any tax credit. 

Description of Proposal

The proposal extends through December 31, 2009, the period during which certain 

facilities may be placed in service as qualified facilities for purposes of the electricity production 

and refined coal credits. The placed in service date extension applies for all qualified facilities, 

except for qualified solar and Indian coal facilities. 

Effective Date

The extension is effective for qualified facilities placed in service after December 31, 

2008. 

6. New energy efficient home credit 

Present Law

The new energy efficient home credit is available to an eligible contractor for the 

construction of a qualified new energy-efficient home. To qualify as a new energy-efficient 

home, the home must be: (1) a dwelling located in the United States, (2) substantially completed 

after August 8, 2005, and (3) certified in accordance with guidance prescribed by the Secretary 

to achieve either a 30-percent or 50-percent reduction in heating and cooling energy 

consumption compared to a comparable dwelling constructed in accordance with the standards of 

chapter 4 of the 2003 International Energy Conservation Code as in effect (including 

supplements) on August 8, 2005, and any applicable Federal minimum efficiency standards for 

heating and cooling equipment. 

The credit equals $1,000 in the case of a new home that meets the 30 percent standard 

and $2,000 in the case of a new home that meets the 50 percent standard. 
16 

 With respect to homes that meet the 30-percent standard, one-third of such 30 percent 

savings must come from the building envelope, and with respect to homes that meet the 50-

percent standard, one-fifth of such 50 percent savings must come from the building envelope. 

Only manufactured homes are eligible for the $1,000 credit. In lieu of meeting the 30 

percent efficiency improvement relative to the standards of chapter 4 of the 2003 International 

Energy Conservation Code, manufactured homes certified by a method prescribed by the 

Administrator of the Environmental Protection Agency under the Energy Star Labeled Homes 

program are eligible for the $1,000 credit provided criteria (1) and (2), above, are met. 

 Manufactured homes are homes that conform to Federal manufactured home 

construction and safety standards. The eligible contractor is the person who constructed the 

home, or in the case of a manufactured home, the producer of such home. The credit is part of 

the general business credit. 

The credit applies to homes whose construction is substantially completed after 

December 31, 2005, and which are purchased after December 31, 2005 and prior to January 1, 

2009. 

Description of Proposal

The proposal extends the energy efficient new homes credit for one year, through 

December 31, 2009. 

Effective Date

The provision is effective for homes purchased after December 31, 2008.

7. Extension of energy credit 

Present Law

In general

A nonrefundable, 10-percent business energy credit is allowed for the cost of new 

property that is equipment that either (1) uses solar energy to generate electricity, to heat or cool 

a structure, or to provide solar process heat, or (2) is used to produce, distribute, or use energy 

derived from a geothermal deposit, but only, in the case of electricity generated by geothermal 

power, up to the electric transmission stage. Property used to generate energy for the purposes of 

heating a swimming pool is not eligible solar energy property. 

The energy credit is a component of the general business credit9 and as such is subject to 

the alternative minimum tax. An unused general business credit generally may be carried back 

 9

 Sec. 38(b)(1). 
17 

one year and carried forward 20 years.10 The taxpayer’s basis in the property is reduced by the 

amount of the credit claimed. For projects whose construction time is expected to equal or 

exceed two years, the credit may be claimed as progress expenditures are made on the project, 

rather than during the year the property is placed in service. Similarly, the credit only applies to 

expenditures made after the effective date of the provision. 

In general, property that is public utility property is not eligible for the credit. Public 

utility property is property that is used predominantly in the trade or business of the furnishing or 

sale of (1) electrical energy, water, or sewage disposal services, (2) gas through a local 

distribution system, or (3) telephone service, domestic telegraph services, or other 

communication services (other than international telegraph services), if the rates for such 

furnishing or sale have been established or approved by a State or political subdivision thereof, 

by an agency or instrumentality of the United States, or by a public service or public utility 

commission. This rule is waived in the case of telecommunication companies’ purchases of fuel 

cell and microturbine property. 

Special rules for solar energy property 

The credit for solar energy property is increased to 30 percent in the case of periods after 

December 31, 2005 and prior to January 1, 2009. Additionally, equipment that uses fiber-optic 

distributed sunlight to illuminate the inside of a structure is solar energy property eligible for the 

30-percent credit. 

Fuel cells and microturbines

The business energy credit also applies for the purchase of qualified fuel cell power 

plants, but only for periods after December 31, 2005 and prior to January 1, 2009. The credit 

rate is 30 percent. 

A qualified fuel cell power plant is an integrated system composed of a fuel cell stack 

assembly and associated balance of plant components that (1) converts a fuel into electricity 

using electrochemical means, and (2) has an electricity-only generation efficiency of greater than 

30 percent and a capacity of at least on-half kilowatt. The credit may not exceed $500 for each 

0.5 kilowatt of capacity. 

The business energy credit also applies for the purchase of qualifying stationary 

microturbine power plants, but only for periods after December 31, 2005 and prior to January 1, 

2009. The credit is limited to the lesser of 10 percent of the basis of the property or $200 for 

each kilowatt of capacity. 

A qualified stationary microturbine power plant is an integrated system comprised of a 

gas turbine engine, a combustor, a recuperator or regenerator, a generator or alternator, and 

associated balance of plant components that converts a fuel into electricity and thermal energy. 

Such system also includes all secondary components located between the existing infrastructure 

 10 Sec. 39. 
18 

for fuel delivery and the existing infrastructure for power distribution, including equipment and 

controls for meeting relevant power standards, such as voltage, frequency and power factors. 

Such system must have an electricity-only generation efficiency of not less that 26 percent at 

International Standard Organization conditions and a capacity of less than 2,000 kilowatts. 

Additionally, for purposes of the fuel cell and microturbine credits, and only in the case 

of telecommunications companies, the general present-law section 48 restriction that would 

otherwise prohibit telecommunication companies from claiming the new credit due to their status 

as public utilities is waived. 

Description of Proposal

The proposal extends the otherwise expiring credits and credit rates for one year, through 

December 31, 2009. 

Effective Date

The proposal is effective on the date of enactment. 

8. Extension and expansion of clean renewable energy bonds 

Present law

Tax-exempt bonds

Interest on State and local governmental bonds generally is excluded from gross income 

for Federal income tax purposes if the proceeds of the bonds are used to finance direct activities 

of these governmental units or if the bonds are repaid with revenues of the governmental units. 

Activities that can be financed with these tax-exempt bonds include the financing of electric 

power facilities (i.e., generation, transmission, distribution, and retailing). 

Interest on State or local government bonds to finance activities of private persons 

(“private activity bonds”) is taxable unless a specific exception is contained in the Code (or in 

non-Code provision of a revenue Act). The term “private person” generally includes the Federal 

Government and all other individuals and entities other than States or local governments. The 

Code includes exceptions permitting States or local governments to act as conduits providing 

tax-exempt financing for certain private activities. In most cases, the aggregate volume of these 

tax-exempt private activity bonds is restricted by annual aggregate volume limits imposed on 

bonds issued by issuers within each State. For calendar year 2007, the State volume cap, which 

is indexed for inflation, equals $85 per resident of the State, or $256.24 million, if greater. 

The tax exemption for State and local bonds also does not apply to any arbitrage bond.11 

An arbitrage bond is defined as any bond that is part of an issue if any proceeds of the issue are 

reasonably expected to be used (or intentionally are used) to acquire higher yielding investments 

 11 Secs. 103(a) and (b)(2). 
19 

or to replace funds that are used to acquire higher yielding investments.12 In general, arbitrage 

profits may be earned only during specified periods (e.g., defined “temporary periods”) before 

funds are needed for the purpose of the borrowing or on specified types of investments (e.g., 

“reasonably required reserve or replacement funds”). Subject to limited exceptions, investment 

profits that are earned during these periods or on such investments must be rebated to the Federal 

Government. 

An issuer must file with the IRS certain information about the bonds issued by them in 

order for that bond issue to be tax-exempt.13 Generally, this information return is required to be 

filed no later the 15th day of the second month after the close of the calendar quarter in which the 

bonds were issued. 

Clean renewable energy bonds

As an alternative to traditional tax-exempt bonds, States and local governments may issue 

clean renewable energy bonds (“CREBs”). CREBs are defined as any bond issued by a qualified 

issuer if, in addition to the requirements discussed below, 95 percent or more of the proceeds of 

such bonds are used to finance capital expenditures incurred by qualified borrowers for qualified 

projects. “Qualified projects” are facilities that qualify for the tax credit under section 45 (other 

than Indian coal production facilities), without regard to the placed-in-service date requirements 

of that section.14 The term “qualified issuers” includes (1) governmental bodies (including 

Indian tribal governments); (2) mutual or cooperative electric companies (described in section 

501(c)(12) or section 1381(a)(2)(C), or a not-for-profit electric utility which has received a loan 

or guarantee under the Rural Electrification Act); and (3) clean renewable energy bond lenders. 

The term “qualified borrower” includes a governmental body (including an Indian tribal 

government) and a mutual or cooperative electric company. A clean renewable energy bond 

lender means a cooperative which is owned by, or has outstanding loans to, 100 or more 

cooperative electric companies and is in existence on February 1, 2002. 

Unlike tax-exempt bonds, CREBs are not interest-bearing obligations. Rather, the 

taxpayer holding CREBs on a credit allowance date is entitled to a tax credit. The amount of the 

credit is determined by multiplying the bond’s credit rate by the face amount on the holder’s 

bond. The credit rate on the bonds is determined by the Secretary and is to be a rate that permits 

issuance of CREBs without discount and interest cost to the qualified issuer. The credit accrues 

quarterly and is includible in gross income (as if it were an interest payment on the bond), and 

can be claimed against regular income tax liability and alternative minimum tax liability. 

 12 Sec. 148. 

13 Sec. 149(e). 

14 In addition, Notice 2006-7 provides that qualified projects include any facility owned by a 

qualified borrower that is functionally related and subordinate to any facility described in sections 

45(d)(1) through (d)(9) and owned by such qualified borrower. 
20 

CREBs are subject to a maximum maturity limitation. The maximum maturity is the 

term which the Secretary estimates will result in the present value of the obligation to repay the 

principal on a CREBs being equal to 50 percent of the face amount of such bond. The discount 

rate used to determine the present value amount is the average annual interest rate of tax-exempt 

obligations having a term of 10 years or more which are issued during the month the CREBs are 

issued. In addition, the Code requires level amortization of CREBs during the period such bonds 

are outstanding. 

CREBs also are subject to the arbitrage requirements of section 148 that apply to 

traditional tax-exempt bonds. Principles under section 148 and the regulations thereunder apply 

for purposes of determining the yield restriction and arbitrage rebate requirements applicable to 

CREBs. 

In addition to the above requirements, at least 95 percent of the proceeds of CREBs must 

be spent on qualified projects within the five-year period that begins on the date of issuance. To 

the extent less than 95 percent of the proceeds are used to finance qualified projects during the 

five-year spending period, bonds will continue to qualify as CREBs if unspent proceeds are used 

within 90 days from the end of such five-year period to redeem bonds. The five-year spending 

period may be extended by the Secretary upon the qualified issuer’s request demonstrating that 

the failure to satisfy the five-year requirement is due to reasonable cause and the projects will 

continue to proceed with due diligence. 

Issuers of CREBs are required to report issuance to the IRS in a manner similar to the 

information returns required for tax-exempt bonds. There is a national CREB limitation of $1.2 

billion. The maximum amount of CREBs that may be allocated to qualified projects of 

governmental bodies is $750 million. CREBs must be issued before January 1, 2009. 

Description of Proposal

The proposal extends and modifies the CREBs program. The proposal authorizes an 

additional $400 million of CREBs that may be issued and extends the authority to issue such 

bonds through 2009. 

The proposal also modifies the amortization requirement for CREBs. Under the 

proposal, amortization is not required until after the first 12-month period the bonds are 

outstanding. 

Effective Date

The proposal is effective for bonds issued after the date of enactment. 
21 

9. Energy efficient commercial buildings deduction 

Present Law

In general

Code section 179D provides a deduction equal to energy-efficient commercial building 

property expenditures made by the taxpayer. Energy-efficient commercial building property 

expenditures is defined as property (1) which is installed on or in any building located in the 

United States that is within the scope of Standard 90.1-2001 of the American Society of Heating, 

Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of 

North America (“ASHRAE/IESNA”), (2) which is installed as part of (i) the interior lighting 

systems, (ii) the heating, cooling, ventilation, and hot water systems, or (iii) the building 

envelope, and (3) which is certified as being installed as part of a plan designed to reduce the 

total annual energy and power costs with respect to the interior lighting systems, heating, 

cooling, ventilation, and hot water systems of the building by 50 percent or more in comparison 

to a reference building which meets the minimum requirements of Standard 90.1-2001 (as in 

effect on April 2, 2003). The deduction is limited to an amount equal to $1.80 per square foot of 

the property for which such expenditures are made. The deduction is allowed in the year in 

which the property is placed in service. 

Certain certification requirements must be met in order to qualify for the deduction. The 

Secretary, in consultation with the Secretary of Energy, will promulgate regulations that describe 

methods of calculating and verifying energy and power costs using qualified computer software 

based on the provisions of the 2005 California Nonresidential Alternative Calculation Method 

Approval Manual or, in the case of residential property, the 2005 California Residential 

Alternative Calculation Method Approval Manual. 

The Secretary shall prescribe procedures for the inspection and testing for compliance of 

buildings that are comparable, given the difference between commercial and residential 

buildings, to the requirements in the Mortgage Industry National Accreditation Procedures for 

Home Energy Rating Systems. Individuals qualified to determine compliance shall only be those 

recognized by one or more organizations certified by the Secretary for such purposes. 

For energy-efficient commercial building property expenditures made by a public entity, 

such as public schools, the Secretary shall promulgate regulations that allow the deduction to be 

allocated to the person primarily responsible for designing the property in lieu of the public 

entity. 

If a deduction is allowed under this section, the basis of the property shall be reduced by 

the amount of the deduction. 

The deduction is effective for property placed in service after December 31, 2005 and 

prior to January 1, 2009. 
22 

Partial allowance of deduction

In the case of a building that does not meet the overall building requirement of a 50-

percent energy savings, a partial deduction is allowed with respect to each separate building 

system that comprises energy efficient property and which is certified by a qualified professional 

as meeting or exceeding the applicable system-specific savings targets established by the 

Secretary of the Treasury. The applicable system-specific savings targets to be established by 

the Secretary are those that would result in a total annual energy savings with respect to the 

whole building of 50 percent, if each of the separate systems met the system specific target. The 

separate building systems are (1) the interior lighting system, (2) the heating, cooling, ventilation 

and hot water systems, and (3) the building envelope. The maximum allowable deduction is 

$0.60 per square foot for each separate system. 

Interim rules for lighting systems

In the case of system-specific partial deductions, in general no deduction is allowed until 

the Secretary establishes system-specific targets15. However, in the case of lighting system 

retrofits, until such time as the Secretary issues final regulations, the system-specific energy 

savings target for the lighting system is deemed to be met by a reduction in Lighting Power 

Density of 40 percent (50 percent in the case of a warehouse) of the minimum requirements in 

Table 9.3.1.1 or Table 9.3.1.2 of ASHRAE/IESNA Standard 90.1-2001. Also, in the case of a 

lighting system that reduces lighting power density by 25 percent, a partial deduction of 30 cents 

per square foot is allowed. A pro-rated partial deduction is allowed in the case of a lighting 

system that reduces lighting power density between 25 percent and 40 percent. Certain lighting 

level and lighting control requirements must also be met in order to qualify for the partial 

lighting deductions under the interim rule. 

Description of Proposal

The provision extends the energy efficient commercial buildings deduction for one year, 

through December 31, 2009. 

Effective Date

The provision is effective on the date of enactment. 

 15 IRS Notice 2006-52 has set a target of a 16 2/3 percent reduction in total energy and power 

costs for each of the three subsystems.