I

104TH CONGRESS

2D SESSION H. R. 3345

To amend the Internal Revenue Code of 1986 to reduce the tax incentives

for the production of alcohol for fuel use.

IN THE HOUSE OF REPRESENTATIVES

APRIL 25, 1996

Mr. TATE (for himself, Mr. GIBBONS, Mr. BREWSTER, Mrs. SMITH of Washington, Mr. STARK, Mr. PETE GEREN of Texas, Mr. MEEHAN, Mr. ENGLISH of Pennsylvania, Mr. CASTLE, Mr. BAKER of Louisiana, Mr.

FIELDS of Texas, Mr. COLEMAN, Mr. BARTON of Texas, Mr. GREENWOOD, Mr. BENTSEN, Mr. BAKER of California, Mr. FRANKS of New Jersey, Mr. FRANK of Massachusetts, Mr. WAMP, Mr. CHAPMAN, Mr. ZIMMER, Mr. THOMPSON, Mr. HOEKSTRA, Mr. LIVINGSTON, Ms. GREENE of

Utah, Mr. DAVIS, Mr. MORAN, Mrs. VUCANOVICH, Mr. BLUTE, Mr. SAM

JOHNSON of Texas, Mr. FRELINGHUYSEN, Mr. FOGLIETTA, Mrs. LOWEY,

Mr. LOBIONDO, Mr. STENHOLM, Mr. GENE GREEN of Texas, Mr. HORN,

Mr. LEWIS of California, Mr. SHUSTER, Mr. CHABOT, Mr. MONTGOMERY, Mr. CLINGER, Mr. ACKERMAN, Mr. BONILLA, Mr. ENSIGN, Mr.

MOORHEAD, Mr. MCCRERY, Mr. MICA, Mr. ZELIFF, Mr. SHAYS, Mr.

MILLER of Florida, Mr. SMITH of New Jersey, and Mr. HILLEARY) introduced the following bill; which was referred to the Committee on Ways

and Means

A BILL

To amend the Internal Revenue Code of 1986 to reduce

the tax incentives for the production of alcohol for fuel use.

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

2 This Act may be cited as the ‘‘Drive Away From Eth3 anol Welfare Act of 1996’’.

4 SEC. 2. REDUCTION OF INCENTIVES FOR ALCOHOL FUELS.

5 (a) DENIAL OF CREDIT FOR ALCOHOL USED TO

6 PRODUCE ETHER.—Subsection (b) of section 40 of the

7 Internal Revenue Code of 1986 is amended by adding at

8 the end the following new paragraph:

9 ‘‘(6) DENIAL OF CREDIT FOR ALCOHOL USED

10 TO PRODUCE ETHER.—No credit shall be allowed

11 under this section for alcohol used to produce any

12 ether.’’

13 (b) LIMITATION ON ALCOHOL ELIGIBLE FOR CREDIT

14 FOR ALCOHOL USED AS FUEL—

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

16 40(d)(1) of such Code (defining alcohol) is amended

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

18 the period at the end of clause (ii) and inserting ‘‘,

19 or’’, and by adding at the end the following new

20 clause:

21 ‘‘(iii) alcohol produced by a still (or

22 other distilling apparatus) placed in service

23 after December 31, 1996.’’

24 (2) FUTURE CREDIT LIMITED TO AVERAGE HIS25 TORICAL PRODUCTION.—Section 40 of such Code is
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1 amended by adding at the end the following new

2 subsection:

3 ‘‘(i) EXPANDED PRODUCTION INELIGIBLE FOR

4 CREDIT.—

5 ‘‘(1) IN GENERAL.—Subsection (a) shall apply

6 to alcohol produced after December 31, 1996, only

7 if the alcohol is designated under this subsection by

8 a producer who is registered under section 4101.

9 ‘‘(2) DESIGNATION BASED ON HISTORICAL PRO10 DUCTION.—The amount of alcohol produced by a

11 producer during any calendar year which may be

12 designated under this subsection by any producer

13 other than an eligible small ethanol producer is the

14 amount equal to the average annual amount of alco15 hol (as defined in subsection (d)(1)(A) without re16 gard to clause (iii))—

17 ‘‘(A) which was produced by such producer

18 (other than casual off-farm production) during

19 the 3-year period ending on June 30, 1996, and

20 ‘‘(B) which was sold or used by such pro21 ducer for any purpose described in clause (i) of

22 subsection (b)(4)(B).

23 For purposes of the preceding sentence, a rule simi24 lar to the rule of subsection (b)(4)(D) shall apply.
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1 ‘‘(3) PRODUCTION FOR LESS THAN ENTIRE

2 BASE PERIOD.—

3 ‘‘(A) IN GENERAL.—If alcohol is produced

4 by a producer for less than the entire 3-year pe5 riod referred to in paragraph (2)(A), the aver6 age referred to in paragraph (2) shall be treat7 ed as being equal to 50 percent of the annual

8 productive capacity of such producer as of De9 cember 31, 1996.

10 ‘‘(B) PRODUCER MAY ESTABLISH HIGHER

11 AVERAGE PRODUCTION.—In the case of a pro12 ducer who produced alcohol during at least the

13 last 3 months of such 3-year period, subpara14 graph (A) shall be applied by substituting for

15 ‘50 percent’ the percentage established by such

16 producer to the satisfaction of the Secretary as

17 the percentage which such producer’s normal

18 alcohol production is of its productive capacity.

19 ‘‘(4) ACQUISITIONS AND DISPOSITIONS.—Rules

20 similar to the rules of subparagraphs (A) and (B) of

21 section 41(f)(3) shall apply for purposes of this sub22 section.’’

23 (3) CONFORMING AMENDMENT.—Paragraph (1)

24 of section 40(g) of such Code is amended by striking
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1 ‘‘clauses (i) and (ii)’’ and inserting ‘‘clauses (i), (ii),

2 and (iii)’’.

3 (c) REDUCTION OF CREDIT FOR ETHANOL BY REA4 SON OF CARBON DIOXIDE BYPRODUCT BENEFIT.—Sub5 section (h) of section 40 of such Code is amended—

6 (1) by striking ‘‘54 cents’’ each place it appears

7 and inserting ‘‘51 cents’’, and

8 (2) by striking ‘‘40 cents’’ each place it appears

9 and inserting ‘‘38.25 cents’’.

10 (d) CONFORMING REDUCTIONS OF OTHER INCEN11 TIVES FOR ETHANOL FUEL.—

12 (1) REPEAL OF REDUCED RATE ON ETHANOL

13 FUEL PRODUCED OTHER THAN FROM PETROLEUM

14 OR NATURAL GAS.—Subsection (b) of section 4041

15 of such Code is amended to read as follows:

16 ‘‘(b) EXEMPTION FOR OFF-HIGHWAY BUSINESS

17 USE.—

18 ‘‘(1) IN GENERAL.—No tax shall be imposed by

19 subsection (a) or (d)(1) on liquids sold for use or

20 used in an off-highway business use.

21 ‘‘(2) TAX WHERE OTHER USE.—If a liquid on

22 which no tax was imposed by reason of paragraph

23 (1) is used otherwise than in an off-highway busi24 ness use, a tax shall be imposed by paragraph

25 (1)(B), (2)(B), or (3)(A)(ii) of subsection (a)
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1 (whichever is appropriate) and by the corresponding

2 provision of subsection (d)(1) (if any).

3 ‘‘(3) OFF-HIGHWAY BUSINESS USE DEFINED.—

4 For purposes of this subsection, the term ‘off-high5 way business use’ has the meaning given to such

6 term by section 6421(e)(2); except that such term

7 shall not, for purposes of subsection (a)(1), include

8 use in a diesel-powered train.’’

9 (2) REPEAL OF REDUCED RATE ON ETHANOL

10 FUEL PRODUCED FROM NATURAL GAS.—Subsection

11 (m) of section 4041 of such Code is amended—

12 (A) by striking ‘‘or ethanol’’ each place it

13 appears (including the heading of paragraph

14 (2)), and

15 (B) by striking ‘‘, ethanol, or other alco16 hol’’ in paragraph (2) and inserting ‘‘or other

17 alcohol (other than ethanol)’’.

18 (e) CONFORMING AMENDMENTS TO EXCISE TAXES;

19 FUEL ALCOHOL TAXED IN SAME MANNER AS OTHER

20 MOTOR FUELS.—

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

22 4083(a) of such Code (defining taxable fuel) is

23 amended by striking ‘‘and’’ at the end of subpara24 graph (A), by striking the period at the end of sub-
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1 paragraph (B) and inserting ‘‘, and’’, and by adding

2 at the end the following:

3 ‘‘(C) fuel alcohol.’’

4 (2) FUEL ALCOHOL.—Subsection (a) of section

5 4083 of such Code is amended by adding at the end

6 the following new paragraph:

7 ‘‘(4) FUEL ALCOHOL.—The term ‘fuel alcohol’

8 means any alcohol (including ethanol and meth9 anol)—

10 ‘‘(A) which is produced other than from

11 petroleum, natural gas, or coal (including peat),

12 and

13 ‘‘(B) which is withdrawn from the distillery

14 where produced free of tax under chapter 51 by

15 reason of section 5181 or so much of section

16 5214(a)(1) as relates to fuel use.

17 Such term shall not include alcohol designated under

18 section 40(i).’’

19 (3) RATE OF TAX.—Clause (i) of section

20 4081(a)(2)(A) of such Code is amended by inserting

21 ‘‘or fuel alcohol’’ after ‘‘gasoline’’.

22 (4) SPECIAL RULES FOR IMPOSITION OF TAX.—

23 (A) Paragraph (1) of section 4081(a) of

24 such Code is amended by adding at the end the

25 following new subparagraph:
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1 ‘‘(C) SPECIAL RULES FOR FUEL ALCO2 HOL.—In the case of fuel alcohol—

3 ‘‘(i) the distillery where produced shall

4 be treated as a refinery, and

5 ‘‘(ii) subparagraph (B) shall be ap6 plied by including transfers by truck or rail

7 in excess of such minimum quantities as

8 the Secretary shall prescribe.’’

9 (B) Paragraph (1) of section 4081(b) of

10 such Code is amended by inserting ‘‘(other than

11 fuel alcohol designated under section 40(i))’’

12 after ‘‘taxable fuel’’.

13 (5) REPEAL OF REDUCED RATES ON ALCOHOL

14 FUELS.—

15 (A) Section 4041 of such Code is amended

16 by striking subsection (k).

17 (B) Section 4081 of such Code is amended

18 by striking subsection (c).

19 (C) Section 4091 of such Code is amended

20 by striking subsection (c).

21 (6) CONFORMING AMENDMENTS.—

22 (A) Subsection (c) of section 40 of such

23 Code is amended by striking all that follows

24 ‘‘application of’’ and inserting ‘‘the last sen25 tence of section 4083(a)(4)’’.
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1 (B) Paragraph (4) of section 40(d) of such

2 Code is amended to read as follows:

3 ‘‘(4) VOLUME OF ALCOHOL.—For purposes of

4 determining under subsection (a) the number of gal5 lons of alcohol with respect to which a credit is al6 lowable under subsection (a), the volume of alcohol

7 shall include the volume of any denaturant (includ8 ing gasoline) which is added under any formulas ap9 proved by the Secretary to the extent that such de10 naturants do not exceed 5 percent of the volume of

11 such alcohol (including denaturants).’’

12 (C) Paragraph (2) of section 4041(a) of

13 such Code is amended by adding at the end the

14 following: ‘‘No tax shall be imposed by this

15 paragraph on the sale or use of any liquid if tax

16 was imposed on such liquid under section 4081

17 and the tax thereon was not credited or re18 funded.’’

19 (D) Section 6427 of such Code is amended

20 by striking subsection (f).

21 (E) Subsection (i) of section 6427 of such

22 Code is amended by striking paragraph (3).

23 (F) Paragraph (2) of section 6427(k) of

24 such Code is amended by striking ‘‘(3)’’.
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1 (G)(i) Paragraph (1) of section 6427(l) of

2 such Code is amended by striking ‘‘or’’ at the

3 end of subparagraph (A), by redesignating sub4 paragraph (B) as subparagraph (C), and by in5 serting after subparagraph (A) the following

6 new subparagraph:

7 ‘‘(B) any fuel alcohol (as defined in section

8 4083) on which tax has been imposed by sec9 tion 4081, or’’.

10 (ii) Paragraph (2) of section 6427(l) of

11 such Code is amended by striking ‘‘and’’ at the

12 end of subparagraph (A), by redesignating sub13 paragraph (B) as subparagraph (C), and by in14 serting after subparagraph (A) the following

15 new subparagraph:

16 ‘‘(B) in the case of fuel alcohol (as so de17 fined), any use which is exempt from the tax

18 imposed by section 4041(a)(2) other than by

19 reason of a prior imposition of tax, and’’.

20 (iii) The heading of subsection (l) of sec21 tion 6427 of such Code is amended by inserting

22 ‘‘, FUEL ALCOHOL,’’ after ‘‘DIESEL FUEL’’.

23 (H) Sections 9503(b)(1)(E) and

24 9508(b)(2) of such Code are each amended by
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1 striking ‘‘and kerosene’’ and inserting ‘‘ker2 osene, and fuel alcohol’’.

3 (I) Section 9502 of such Code is amended

4 by striking subsection (e) and by redesignating

5 subsection (f) as subsection (e).

6 (J) Subsection (e) of section 9502 of such

7 Code (as redesignated by subparagraph (I)) is

8 amended by striking paragraph (2) and by re9 designating paragraph (3) as paragraph (2).

10 (K) Subsection (b) of section 9503 of such

11 Code is amended by striking paragraph (5).

12 (L) Paragraph (3) of section 9503(f) of

13 such Code is amended to read as follows:

14 ‘‘(3) PARTIALLY EXEMPT METHANOL OR ETHA15 NOL FUEL.—In the case of a rate of tax determined

16 under section 4041(m), the Highway Trust Fund fi17 nancing rate is the excess (if any) of the rate so de18 termined over 4.3 cents per gallon.’’

19 (f) INCREASE IN SMALL ETHANOL PRODUCER CRED20 IT.—Subparagraph (A) of section 40(b)(4) of such Code

21 is amended by striking ‘‘10 cents’’ and inserting ‘‘13

22 cents’’.

23 (g) EFFECTIVE DATE.—

24 (1) AMENDMENTS RELATING TO CREDIT.—The

25 amendments made by subsections (a), (b), (c), and
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1 (f) shall apply to alcohol produced after December

2 31, 1996, in taxable years ending after such date.

3 (2) AMENDMENTS RELATING TO EXCISE

4 TAXES.—The amendments made by subsections (d)

5 and (e) shall take effect on January 1, 1997.

6 (3) STILLS PLACED IN SERVICE PURSUANT TO

7 BINDING CONTRACTS.—For purposes of subsections

8 (d)(1)(A)(iii) and (i)(3)(A) of section 40 of the In9 ternal Revenue Code of 1986, as amended by this

10 section, a still (or other distilling apparatus) shall be

11 treated as placed in service before January 1, 1997,

12 if such still (or other apparatus)—

13 (A) is constructed or acquired by the tax14 payer pursuant to a written contract which was

15 binding on April 30, 1996, and at all times

16 thereafter before such construction or acquisi17 tion, and

18 (B) is placed in service before January 1,

19 1998.

20 (h) FLOOR STOCK TAXES.—

21 (1) IMPOSITION OF TAX.—In the case of fuel al22 cohol which is held on January 1, 1997, by any per23 son, there is hereby imposed a floor stocks tax of

24 18.4 cents per gallon.
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1 (2) LIABILITY FOR TAX AND METHOD OF PAY2 MENT.—

3 (A) LIABILITY FOR TAX.—A person hold4 ing fuel alcohol on January 1, 1997, to which

5 the tax imposed by paragraph (1) applies shall

6 be liable for such tax.

7 (B) METHOD OF PAYMENT.—The tax im8 posed by paragraph (1) shall be paid in such

9 manner as the Secretary shall prescribe.

10 (C) TIME FOR PAYMENT.—The tax im11 posed by paragraph (1) shall be paid on or be12 fore June 30, 1997.

13 (3) DEFINITIONS.—For purposes of this sub14 section—

15 (A) FUEL ALCOHOL.—The term ‘‘fuel alco16 hol’’ has the meaning given such term by sec17 tion 4083 of the Internal Revenue Code of

18 1986, as amended by this section.

19 (B) HELD BY A PERSON.—Fuel alcohol

20 shall be considered as ‘‘held by a person’’ if

21 title thereto has passed to such person (whether

22 or not delivery to the person has been made).

23 (C) SECRETARY.—The term ‘‘Secretary’’

24 means the Secretary of the Treasury or his del25 egate.
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1 (4) EXCEPTION FOR EXEMPT USES.—The tax

2 imposed by paragraph (1) shall not apply to fuel al3 cohol held by any person exclusively for any use to

4 the extent a credit or refund of the tax imposed by

5 section 4081 of the Internal Revenue Code of 1986

6 is allowable for such use.

7 (5) EXCEPTION FOR FUEL HELD IN VEHICLE

8 TANK.—No tax shall be imposed by paragraph (1)

9 on fuel alcohol held in the tank of a motor vehicle

10 or motorboat.

11 (6) EXCEPTION FOR CERTAIN AMOUNTS OF

12 FUEL.—

13 (A) IN GENERAL.—No tax shall be im14 posed by paragraph (1) on fuel alcohol held on

15 January 1, 1997, by any person if the aggre16 gate amount of fuel alcohol held by such person

17 on such date does not exceed 2,000 gallons.

18 The preceding sentence shall apply only if such

19 person submits to the Secretary (at the time

20 and in the manner required by the Secretary)

21 such information as the Secretary shall require

22 for purposes of this paragraph.

23 (B) EXEMPT FUEL.—For purposes of sub24 paragraph (A), there shall not be taken into ac25 count fuel held by any person which is exempt
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1 from the tax imposed by paragraph (1) by rea2 son of paragraph (4) or (5).

3 (C) CONTROLLED GROUPS.—For purposes

4 of this paragraph—

5 (i) CORPORATIONS.—

6 (I) IN GENERAL.—All persons

7 treated as a controlled group shall be

8 treated as 1 person.

9 (II) CONTROLLED GROUP.—The

10 term ‘‘controlled group’’ has the

11 meaning given to such term by sub12 section (a) of section 1563 of such

13 Code; except that for such purposes

14 the phrase ‘‘more than 50 percent’’

15 shall be substituted for the phrase ‘‘at

16 least 80 percent’’ each place it ap17 pears in such subsection.

18 (ii) NONINCORPORATED PERSONS

19 UNDER COMMON CONTROL.—Under regula20 tions prescribed by the Secretary, prin21 ciples similar to the principles of clause (i)

22 shall apply to a group of persons under

23 common control where 1 or more of such

24 persons is not a corporation.
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1 (7) OTHER LAWS APPLICABLE.—All provisions

2 of law, including penalties, applicable with respect to

3 the taxes imposed by section 4081 of such Code

4 shall, insofar as applicable and not inconsistent with

5 the provisions of this subsection, apply with respect

6 to the floor stock taxes imposed by paragraph (1) to

7 the same extent as if such taxes were imposed by

8 such section 4081.

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