I

104TH CONGRESS

1ST SESSION H. R. 2647

To amend the Internal Revenue Code of 1986 to terminate the tax subsidies

for large producers of ethanol used as a fuel.

IN THE HOUSE OF REPRESENTATIVES

NOVEMBER 16, 1995

Mr. ENGLISH of Pennsylvania (for himself, Mr. MONTGOMERY, Mr. MILLER

of Florida, and Mr. ZIMMER) 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 terminate

the tax subsidies for large producers of ethanol used

as a fuel.

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

3 SECTION 1. TERMINATION AFTER 1997 OF TAX SUBSIDIES

4 FOR LARGE PRODUCERS OF ETHANOL USED

5 AS A FUEL.

6 (a) GENERAL RULE—Subsection (e) of section 40 of

7 the Internal Revenue Code of 1986 is amended by adding

8 at the end the following flush sentence:
2

•HR 2647 IH

1 ‘‘Except in the case of the credit determined under

2 subsection (a)(3), the preceding sentence shall be

3 applied by substituting ‘1997’ for ‘2000’ and ‘1998’

4 for ‘2001’.’’

5 (b) DENIAL OF CREDIT FOR ALCOHOL USED TO

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

7 Code is amended by adding at the end the following new

8 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 (c) CONFORMING REDUCTIONS OF OTHER INCEN14 TIVES FOR ETHANOL FUEL.—

15 (1) REPEAL OF REDUCED RATE ON ETHANOL

16 FUEL PRODUCED OTHER THAN FROM PETROLEUM

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

18 of such Code is amended to read as follows:

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

20 USE.—

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

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

23 used in an off-highway business use.

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

25 which no tax was imposed by reason of paragraph
3

•HR 2647 IH

1 (1) is used otherwise than in an off-highway busi2 ness use, a tax shall be imposed by paragraph

3 (1)(B), (2)(B), or (3)(A)(ii) of subsection (a)

4 (whichever is appropriate) and by the corresponding

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

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

7 For purposes of this subsection, the term ‘off-high8 way business use’ has the meaning given to such

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

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

11 use in a diesel-powered train.’’

12 (2) REPEAL OF REDUCED RATE ON ETHANOL

13 FUEL PRODUCED FROM NATURAL GAS.—Subsection

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

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

16 appears (including the heading of paragraph

17 (2)), and

18 (B) by striking ‘‘, ethanol, or other alco19 hol’’ in paragraph (2) and inserting ‘‘or other

20 alcohol (other than ethanol)’’.

21 (d) CONFORMING AMENDMENTS TO EXCISE TAXES;

22 FUEL ALCOHOL TAXED IN SAME MANNER AS OTHER

23 MOTOR FUELS.—

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

25 4083(a) of such Code (defining taxable fuel) is
4

•HR 2647 IH

1 amended by striking ‘‘and’’ at the end of subpara2 graph (A), by striking the period at the end of sub3 paragraph (B) and inserting ‘‘, and’’, and by adding

4 at the end the following:

5 ‘‘(C) fuel alcohol.’’

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

7 4083 of such Code is amended by adding at the end

8 the following new paragraph:

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

10 means any alcohol (including ethanol and meth11 anol)—

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

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

14 and

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

16 where produced free of tax under chapter 51 by

17 reason of section 5181 or so much of section

18 5214(a)(1) as relates to fuel use.’’

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 Paragraph (1) of section 4081(a) of such Code is

24 amended by adding at the end the following new

25 subparagraph:
5

•HR 2647 IH

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 (5) REPEAL OF REDUCED RATES ON ALCOHOL

10 FUELS.—

11 (A) Section 4041 of such Code is amended

12 by striking subsection (k).

13 (B) Section 4081 of such Code is amended

14 by striking subsection (c).

15 (C) Section 4091 of such Code is amended

16 by striking subsection (c).

17 (6) CONFORMING AMENDMENTS.—

18 (A) Section 40 of such Code is amended by

19 striking subsection (c).

20 (B) Paragraph (4) of section 40(d) of such

21 Code is amended to read as follows:

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

23 determining under subsection (a) the number of gal24 lons of alcohol with respect to which a credit is al25 lowable under subsection (a), the volume of alcohol
6

•HR 2647 IH

1 shall include the volume of any denaturant (includ2 ing gasoline) which is added under any formulas ap3 proved by the Secretary to the extent that such de4 naturants do not exceed 5 percent of the volume of

5 such alcohol (including denaturants).’’

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

7 such Code is amended by adding at the end the

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

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

10 was imposed on such liquid under section 4081

11 and the tax thereon was not credited or re12 funded.’’

13 (D) Section 6427 of such Code is amended

14 by striking subsection (f).

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

16 Code is amended by striking paragraph (3).

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

18 such Code is amended by striking ‘‘(3)’’.

19 (G)(i) Paragraph (1) of section 6427(l) of

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

21 end of subparagraph (A), by redesignating sub22 paragraph (B) as subparagraph (C), and by in23 serting after subparagraph (A) the following

24 new subparagraph:
7

•HR 2647 IH

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

2 4083) on which tax has been imposed by sec3 tion 4081, or’’.

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

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

6 end of subparagraph (A), by redesignating sub7 paragraph (B) as subparagraph (C), and by in8 serting after subparagraph (A) the following

9 new subparagraph:

10 ‘‘(B) in the case of fuel alcohol (as so de11 fined), any use which is exempt from the tax

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

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

14 (iii) The heading of subsection (l) of sec15 tion 6427 of such Code is amended by inserting

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

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

18 9508(b)(2) of such Code are each amended by

19 striking ‘‘and diesel fuel’’ and inserting ‘‘diesel

20 fuel, and fuel alcohol’’.

21 (I) Section 9502 of such Code is amended

22 by striking subsection (e) and by redesignating

23 subsection (f) as subsection (e).

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

25 Code (as redesignated by subparagraph (I)) is
8

•HR 2647 IH

1 amended by striking paragraph (2) and by re2 designating paragraph (3) as paragraph (2).

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

4 Code is amended by striking paragraph (5).

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

6 such Code is amended to read as follows:

7 ‘‘(3) PARTIALLY EXEMPT METHANOL OR ETHA8 NOL FUEL.—In the case of a rate of tax determined

9 under section 4041(m), the Highway Trust Fund fi10 nancing rate is the excess (if any) of the rate so de11 termined over—

12 ‘‘(A) 5.55 cents per gallon after September

13 30, 1993, and before October 1, 1995, and

14 ‘‘(B) 4.3 cents per gallon after September

15 30, 1995.’’

16 (e) EFFECTIVE DATE.—The amendments made by

17 this section shall take effect on January 1, 1998.

18 (f) FLOOR STOCK TAXES.—

19 (1) IMPOSITION OF TAX.—In the case of fuel al20 cohol which is held on January 1, 1998, by any per21 son, there is hereby imposed a floor stocks tax of

22 18.4 cents per gallon.

23 (2) LIABILITY FOR TAX AND METHOD OF PAY24 MENT.—
9

•HR 2647 IH

1 (A) LIABILITY FOR TAX.—A person hold2 ing fuel alcohol on January 1, 1998, to which

3 the tax imposed by paragraph (1) applies shall

4 be liable for such tax.

5 (B) METHOD OF PAYMENT.—The tax im6 posed by paragraph (1) shall be paid in such

7 manner as the Secretary shall prescribe.

8 (C) TIME FOR PAYMENT.—The tax im9 posed by paragraph (1) shall be paid on or be10 fore June 30, 1998.

11 (3) DEFINITIONS.—For purposes of this sub12 section—

13 (A) FUEL ALCOHOL.—The term ‘‘fuel alco14 hol’’ has the meaning given such term by sec15 tion 4083 of the Internal Revenue Code of

16 1986, as amended by this section.

17 (B) HELD BY A PERSON.—Fuel alcohol

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

19 title thereto has passed to such person (whether

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

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

22 means the Secretary of the Treasury or his del23 egate.

24 (4) EXCEPTION FOR EXEMPT USES.—The tax

25 imposed by paragraph (1) shall not apply to fuel al-
10

•HR 2647 IH

1 cohol held by any person exclusively for any use to

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

3 section 4081 of the Internal Revenue Code of 1986

4 is allowable for such use.

5 (5) EXCEPTION FOR FUEL HELD IN VEHICLE

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

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

8 or motorboat.

9 (6) EXCEPTION FOR CERTAIN AMOUNTS OF

10 FUEL.—

11 (A) IN GENERAL.—No tax shall be im12 posed by paragraph (1) on fuel alcohol held on

13 January 1, 1998, by any person if the aggre14 gate amount of fuel alcohol held by such person

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

16 The preceding sentence shall apply only if such

17 person submits to the Secretary (at the time

18 and in the manner required by the Secretary)

19 such information as the Secretary shall require

20 for purposes of this paragraph.

21 (B) EXEMPT FUEL.—For purposes of sub22 paragraph (A), there shall not be taken into ac23 count fuel held by any person which is exempt

24 from the tax imposed by paragraph (1) by rea25 son of paragraph (4) or (5).
11

•HR 2647 IH

1 (C) CONTROLLED GROUPS.—For purposes

2 of this paragraph—

3 (i) CORPORATIONS.—

4 (I) IN GENERAL.—All persons

5 treated as a controlled group shall be

6 treated as 1 person.

7 (II) CONTROLLED GROUP.—The

8 term ‘‘controlled group’’ has the

9 meaning given to such term by sub10 section (a) of section 1563 of such

11 Code; except that for such purposes

12 the phrase ‘‘more than 50 percent’’

13 shall be substituted for the phrase ‘‘at

14 least 80 percent’’ each place it ap15 pears in such subsection.

16 (ii) NONINCORPORATED PERSONS

17 UNDER COMMON CONTROL.—Under regula18 tions prescribed by the Secretary, prin19 ciples similar to the principles of clause (i)

20 shall apply to a group of persons under

21 common control where 1 or more of such

22 persons is not a corporation.

23 (7) OTHER LAWS APPLICABLE.—All provisions

24 of law, including penalties, applicable with respect to

25 the taxes imposed by section 4081 of such Code
12

•HR 2647 IH

1 shall, insofar as applicable and not inconsistent with

2 the provisions of this subsection, apply with respect

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

4 the same extent as if such taxes were imposed by

5 such section 4081.

Æ