I 

110TH CONGRESS 

1ST SESSION H. R. 1920 

To provide incentives to the auto industry to accelerate efforts to develop 

more energy-efficient vehicles to lessen dependence on oil. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 18, 2007 

Mr. INSLEE introduced the following bill; which was referred to the Committee 

on Ways and Means, and in addition to the Committee on Energy and 

Commerce, for a period to be subsequently determined by the Speaker, 

in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned 

A BILL 

To provide incentives to the auto industry to accelerate efforts to develop more energy-efficient vehicles to lessen 

dependence on oil. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Health Care for Hy5 brids Act’’. 

6 SEC. 2. FINDINGS. 

7 Congress makes the following findings: 


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1 (1) The United States imports over half the oil 

2 it consumes. 

3 (2) According to present trends, the United 

4 States’ reliance on foreign oil will increase to 68 per5 cent of total consumption by 2025. 

6 (3) Having only 3 percent of the world’s known 

7 oil reserves, the health of the United States economy 

8 is dependent on world oil prices. 

9 (4) World oil prices are overwhelmingly dictated 

10 by countries other than the United States, thus en11 dangering our economic and national security. 

12 (5) A major portion of the world’s oil supply is 

13 controlled by unstable governments and countries 

14 that are known to finance, harbor, or otherwise sup15 port terrorists and terrorist activities. 

16 (6) American automakers have lagged behind 

17 their foreign competitors in producing hybrid and 

18 other energy-efficient automobiles. 

19 (7) Legacy health care costs associated with re20 tiree workers are an increasing burden on the global 

21 competitiveness of American industries. 

22 (8) Innovative uses of new technology in auto23 mobiles in the United States will help retain Amer24 ican jobs, support health care obligations for retiring 

25 workers in the automotive sector, decrease America’s 


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1 dependence on foreign oil, and address pressing envi2 ronmental concerns. 

3 TITLE I—PROGRAM 

4 SEC. 101. COORDINATING TASK FORCE. 

5 Not later than 6 months after the date of enactment 

6 of this Act, the Secretary of Energy, the Secretary of 

7 Health and Human Services, the Secretary of Transpor8 tation, and the Secretary of the Treasury shall establish, 

9 and appoint an equal number of representatives to, a task 

10 force (referred to in this Act as the ‘‘task force’’) to ad11 minister the program established under this title. 

12 SEC. 102. ESTABLISHMENT OF PROGRAM. 

13 (a) IN GENERAL.—Not later than 1 year after the 

14 date of enactment of this Act, the task force established 

15 under section 101 shall establish a program to reimburse 

16 eligible domestic automobile manufacturers for the costs 

17 incurred in providing health benefits to their retired em18 ployees. 

19 (b) CONSULTATION.—In establishing the program 

20 under subsection (a), the task force shall consult with rep21 resentatives from eligible domestic automobile manufac22 turers, unions representing employees of such manufactur23 ers, and consumer and environmental groups. 

24 (c) ELIGIBLE DOMESTIC AUTOMOBILE MANUFAC25 TURER.—To be eligible to receive reimbursement under 


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1 the program established under subsection (a), a domestic 

2 automobile manufacturer shall— 

3 (1) submit an application to the task force at 

4 such time, in such manner, and containing such in5 formation as the task force shall require; 

6 (2) certify that such manufacturer is providing 

7 full health care coverage to all of its employees; 

8 (3) provide an assurance that the manufacturer 

9 will invest an amount equal to or more than 50 per10 cent of the amount of health savings derived by the 

11 manufacturer as a result of its retiree health care 

12 costs being covered under the program under this 

13 section, in— 

14 (A) the domestic manufacture and com15 mercialization of petroleum fuel reduction tech16 nologies, including alternative or flexible fuel 

17 vehicles, hybrids, and other state-of-the-art fuel 

18 saving technologies; 

19 (B) the retraining of workers and retooling 

20 of assembly lines for such domestic manufac21 ture and commercialization; 

22 (C) research and development, design, 

23 commercialization, and other costs related to 

24 the diversifying of domestic production of autoVerDate Aug 31 2005 18:53 Apr 20, 2007 Jkt 059200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H1920.IH H1920

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1 mobiles through the offering of high perform2 ance fuel efficient vehicles; and 

3 (D) assisting domestic automobile compo4 nent suppliers to retool their domestic manufac5 turing plants to produce components for petro6 leum fuel reduction technologies, including al7 ternative or flexible fuel vehicles and hybrid, ad8 vanced diesel, or other state-of-the-art fuel sav9 ing technologies; and 

10 (4) provide additional assurances and informa11 tion as the task force may require, including infor12 mation needed by the task force to audit the manu13 facturer’s compliance with the requirements of the 

14 program. 

15 (d) LIMITATION.—The total amount of cost that may 

16 be reimbursed each year under the program under this 

17 section with respect to any single domestic automobile 

18 manufacturer shall not exceed an amount equal to 10 per19 cent of the retiree health care costs of that manufacturer 

20 for that year. 

21 SEC. 103. REPORTING. 

22 Not later than 6 months after the date of enactment 

23 of this Act, and every 6 months thereafter, the task force 

24 shall submit to Congress a report on any reimbursements 

25 paid under the program under this title and the resulting 


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1 changes in the manufacture and commercialization of fuel 

2 saving technologies implemented by automobile manufac3 turers as a result of such reimbursements. Not later than 

4 1 year after the date of enactment of this Act, the task 

5 force shall submit a report to Congress on the effective6 ness of current consumer incentives available for the pur7 chase of hybrid vehicles in encouraging the purchase of 

8 such vehicles and whether these incentives should be ex9 panded. 

10 SEC. 104. ADDITIONAL ELIGIBILITY REQUIREMENT. 

11 To be eligible to receive financial assistance under 

12 this title, a manufacturer shall provide assurances to the 

13 task force that fuel savings achieved with respect to the 

14 average adjusted fuel economy will not result in decreases 

15 with respect to fuel economy elsewhere in the domestic 

16 fleet. The task force shall determine compliance with such 

17 assurances using accepted measurements of fuel savings. 

18 SEC. 105. AUTHORIZATION OF APPROPRIATIONS. 

19 There are authorized to be appropriated such sums 

20 as may be necessary in each fiscal year to carry out this 

21 title. 

22 SEC. 106. TERMINATION OF PROGRAM. 

23 The program established under section 102 shall ter24 minate on December 31, 2017. 


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1 TITLE II—OFFSETS 

2 SEC. 201. CLARIFICATION OF ECONOMIC SUBSTANCE DOC3 TRINE. 

4 (a) IN GENERAL.—Section 7701 of the Internal Rev5 enue Code of 1986 is amended by redesignating subsection 

6 (p) as subsection (q) and by inserting after subsection (o) 

7 the following new subsection: 

8 ‘‘(p) CLARIFICATION OF ECONOMIC SUBSTANCE

9 DOCTRINE; ETC.— 

10 ‘‘(1) GENERAL RULES.— 

11 ‘‘(A) IN GENERAL.—In any case in which 

12 a court determines that the economic substance 

13 doctrine is relevant for purposes of this title to 

14 a transaction (or series of transactions), such 

15 transaction (or series of transactions) shall have 

16 economic substance only if the requirements of 

17 this paragraph are met. 

18 ‘‘(B) DEFINITION OF ECONOMIC SUB19 STANCE.—For purposes of subparagraph (A)— 

20 ‘‘(i) IN GENERAL.—A transaction has 

21 economic substance only if— 

22 ‘‘(I) the transaction changes in a 

23 meaningful way (apart from Federal 

24 tax effects) the taxpayer’s economic 

25 position, and 


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1 ‘‘(II) the taxpayer has a substan2 tial nontax purpose for entering into 

3 such transaction and the transaction 

4 is a reasonable means of accom5 plishing such purpose. 

6 In applying subclause (II), a purpose of 

7 achieving a financial accounting benefit 

8 shall not be taken into account in deter9 mining whether a transaction has a sub10 stantial nontax purpose if the origin of 

11 such financial accounting benefit is a re12 duction of income tax. 

13 ‘‘(ii) SPECIAL RULE WHERE TAX14 PAYER RELIES ON PROFIT POTENTIAL.—A 

15 transaction shall not be treated as having 

16 economic substance by reason of having a 

17 potential for profit unless— 

18 ‘‘(I) the present value of the rea19 sonably expected pre-tax profit from 

20 the transaction is substantial in rela21 tion to the present value of the ex22 pected net tax benefits that would be 

23 allowed if the transaction were re24 spected, and 


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1 ‘‘(II) the reasonably expected 

2 pre-tax profit from the transaction ex3 ceeds a risk-free rate of return. 

4 ‘‘(C) TREATMENT OF FEES AND FOREIGN

5 TAXES.—Fees and other transaction expenses 

6 and foreign taxes shall be taken into account as 

7 expenses in determining pre-tax profit under 

8 subparagraph (B)(ii). 

9 ‘‘(2) SPECIAL RULES FOR TRANSACTION WITH

10 TAX-INDIFFERENT PARTIES.— 

11 ‘‘(A) SPECIAL RULES FOR FINANCING

12 TRANSACTIONS.—The form of a transaction 

13 which is in substance the borrowing of money 

14 or the acquisition of financial capital directly or 

15 indirectly from a tax-indifferent party shall not 

16 be respected if the present value of the deduc17 tions to be claimed with respect to the trans18 action is substantially in excess of the present 

19 value of the anticipated economic returns of the 

20 person lending the money or providing the fi21 nancial capital. A public offering shall be treat22 ed as a borrowing, or an acquisition of financial 

23 capital, from a tax-indifferent party if it is rea24 sonably expected that at least 50 percent of the 


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1 offering will be placed with tax-indifferent par2 ties. 

3 ‘‘(B) ARTIFICIAL INCOME SHIFTING AND

4 BASIS ADJUSTMENTS.—The form of a trans5 action with a tax-indifferent party shall not be 

6 respected if— 

7 ‘‘(i) it results in an allocation of in8 come or gain to the tax-indifferent party in 

9 excess of such party’s economic income or 

10 gain, or 

11 ‘‘(ii) it results in a basis adjustment 

12 or shifting of basis on account of over13 stating the income or gain of the tax-indif14 ferent party. 

15 ‘‘(3) DEFINITIONS AND SPECIAL RULES.—For 

16 purposes of this subsection— 

17 ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 

18 The term ‘economic substance doctrine’ means 

19 the common law doctrine under which tax bene20 fits under subtitle A with respect to a trans21 action are not allowable if the transaction does 

22 not have economic substance or lacks a business 

23 purpose. 

24 ‘‘(B) TAX-INDIFFERENT PARTY.—The 

25 term ‘tax-indifferent party’ means any person 


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1 or entity not subject to tax imposed by subtitle 

2 A. A person shall be treated as a tax-indifferent 

3 party with respect to a transaction if the items 

4 taken into account with respect to the trans5 action have no substantial impact on such per6 son’s liability under subtitle A. 

7 ‘‘(C) EXCEPTION FOR PERSONAL TRANS8 ACTIONS OF INDIVIDUALS.—In the case of an 

9 individual, this subsection shall apply only to 

10 transactions entered into in connection with a 

11 trade or business or an activity engaged in for 

12 the production of income. 

13 ‘‘(D) TREATMENT OF LESSORS.—In apply14 ing paragraph (1)(B)(ii) to the lessor of tan15 gible property subject to a lease— 

16 ‘‘(i) the expected net tax benefits with 

17 respect to the leased property shall not in18 clude the benefits of— 

19 ‘‘(I) depreciation, 

20 ‘‘(II) any tax credit, or 

21 ‘‘(III) any other deduction as 

22 provided in guidance by the Secretary, 

23 and 

24 ‘‘(ii) subclause (II) of paragraph 

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1 mining whether any of such benefits are al2 lowable. 

3 ‘‘(4) OTHER COMMON LAW DOCTRINES NOT AF4 FECTED.—Except as specifically provided in this 

5 subsection, the provisions of this subsection shall not 

6 be construed as altering or supplanting any other 

7 rule of law, and the requirements of this subsection 

8 shall be construed as being in addition to any such 

9 other rule of law. 

10 ‘‘(5) REGULATIONS.—The Secretary shall pre11 scribe such regulations as may be necessary or ap12 propriate to carry out the purposes of this sub13 section. Such regulations may include exemptions 

14 from the application of this subsection.’’. 

15 (b) EFFECTIVE DATE.—The amendments made by 

16 this section shall apply to transactions entered into after 

17 the date of the enactment of this Act. 

18 SEC. 202. PENALTY FOR UNDERSTATEMENTS ATTRIB19 UTABLE TO TRANSACTIONS LACKING ECO20 NOMIC SUBSTANCE, ETC. 

21 (a) IN GENERAL.—Subchapter A of chapter 68 of the 

22 Internal Revenue Code of 1986 is amended by inserting 

23 after section 6662A the following new section: 


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1 ‘‘SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIB2 UTABLE TO TRANSACTIONS LACKING ECO3 NOMIC SUBSTANCE, ETC. 

4 ‘‘(a) IMPOSITION OF PENALTY.—If a taxpayer has an 

5 noneconomic substance transaction understatement for 

6 any taxable year, there shall be added to the tax an 

7 amount equal to 40 percent of the amount of such under8 statement. 

9 ‘‘(b) REDUCTION OF PENALTY FOR DISCLOSED

10 TRANSACTIONS.—Subsection (a) shall be applied by sub11 stituting ‘20 percent’ for ‘40 percent’ with respect to the 

12 portion of any noneconomic substance transaction under13 statement with respect to which the relevant facts affect14 ing the tax treatment of the item are adequately disclosed 

15 in the return or a statement attached to the return. 

16 ‘‘(c) NONECONOMIC SUBSTANCE TRANSACTION UN17 DERSTATEMENT.—For purposes of this section— 

18 ‘‘(1) IN GENERAL.—The term ‘noneconomic 

19 substance transaction understatement’ means any 

20 amount which would be an understatement under 

21 section 6662A(b)(1) if section 6662A were applied 

22 by taking into account items attributable to non23 economic substance transactions rather than items 

24 to which section 6662A would apply without regard 

25 to this paragraph. 


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1 ‘‘(2) NONECONOMIC SUBSTANCE TRANS2 ACTION.—The term ‘noneconomic substance trans3 action’ means any transaction if— 

4 ‘‘(A) there is a lack of economic substance 

5 (within the meaning of section 7701(p)(1)) for 

6 the transaction giving rise to the claimed ben7 efit or the transaction was not respected under 

8 section 7701(p)(2), or 

9 ‘‘(B) the transaction fails to meet the re10 quirements of any similar rule of law. 

11 ‘‘(d) RULES APPLICABLE TO COMPROMISE OF PEN12 ALTY.— 

13 ‘‘(1) IN GENERAL.—If the 1st letter of pro14 posed deficiency which allows the taxpayer an oppor15 tunity for administrative review in the Internal Rev16 enue Service Office of Appeals has been sent with 

17 respect to a penalty to which this section applies, 

18 only the Commissioner of Internal Revenue may 

19 compromise all or any portion of such penalty. 

20 ‘‘(2) APPLICABLE RULES.—The rules of para21 graphs (2) and (3) of section 6707A(d) shall apply 

22 for purposes of paragraph (1). 

23 ‘‘(e) COORDINATION WITH OTHER PENALTIES.—Ex24 cept as otherwise provided in this part, the penalty imVerDate Aug 31 2005 18:53 Apr 20, 2007 Jkt 059200 PO 00000 Frm 00014 Fmt 6652 Sfmt 6201 E:\BILLS\H1920.IH H1920

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1 posed by this section shall be in addition to any other pen2 alty imposed by this title. 

3 ‘‘(f) CROSS REFERENCES.— 

4 ‘‘(1) For coordination of penalty with under5 statements under section 6662 and other special 

6 rules, see section 6662A(e). 

7 ‘‘(2) For reporting of penalty imposed under 

8 this section to the Securities and Exchange Commis9 sion, see section 6707A(e).’’. 

10 (b) COORDINATION WITH OTHER UNDERSTATE11 MENTS AND PENALTIES.— 

12 (1) The second sentence of section 

13 6662(d)(2)(A) of the Internal Revenue Code of 1986 

14 is amended by inserting ‘‘and without regard to 

15 items with respect to which a penalty is imposed by 

16 section 6662B’’ before the period at the end. 

17 (2) Subsection (e) of section 6662A of the In18 ternal Revenue Code of 1986 is amended— 

19 (A) in paragraph (1), by inserting ‘‘and 

20 noneconomic substance transaction understate21 ments’’ after ‘‘reportable transaction under22 statements’’ both places it appears, 

23 (B) in paragraph (2)(A), by inserting ‘‘and 

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1 statement’’ after ‘‘reportable transaction under2 statement’’, 

3 (C) in paragraph (2)(B), by inserting 

4 ‘‘6662B or’’ before ‘‘6663’’, 

5 (D) in paragraph (2)(C)(i), by inserting 

6 ‘‘or section 6662B’’ before the period at the 

7 end, 

8 (E) in paragraph (2)(C)(ii), by inserting 

9 ‘‘and section 6662B’’ after ‘‘This section’’, 

10 (F) in paragraph (3), by inserting ‘‘or non11 economic substance transaction understate12 ment’’ after ‘‘reportable transaction understate13 ment’’, and 

14 (G) by adding at the end the following new 

15 paragraph: 

16 ‘‘(3) NONECONOMIC SUBSTANCE TRANSACTION

17 UNDERSTATEMENT.—For purposes of this sub18 section, the term ‘noneconomic substance trans19 action understatement’ has the meaning given such 

20 term by section 6662B(c).’’. 

21 (3) Paragraph (2) of section 6707A(e) of the 

22 Internal Revenue Code of 1986 is amended— 

23 (A) by striking ‘‘or’’ at the end of subpara24 graph (B), and 


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1 (B) by striking subparagraph (C) and in2 serting the following new subparagraphs: 

3 ‘‘(C) is required to pay a penalty under 

4 section 6662B with respect to any noneconomic 

5 substance transaction, or 

6 ‘‘(D) is required to pay a penalty under 

7 section 6662(h) with respect to any transaction 

8 and would (but for section 6662A(e)(2)(C)) 

9 have been subject to penalty under section 

10 6662A at a rate prescribed under section 

11 6662A(c) or under section 6662B,’’. 

12 (c) CLERICAL AMENDMENT.—The table of sections 

13 for part II of subchapter A of chapter 68 of the Internal 

14 Revenue Code of 1986 is amended by inserting after the 

15 item relating to section 6662A the following new item: 

‘‘Sec. 6662B. Penalty for understatements attributable to transactions lacking 

economic substance, etc.’’. 

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

17 this section shall apply to transactions entered into after 

18 the date of the enactment of this Act. 

19 SEC. 203. DENIAL OF DEDUCTION FOR INTEREST ON UN20 DERPAYMENTS ATTRIBUTABLE TO NON21 ECONOMIC SUBSTANCE TRANSACTIONS. 

22 (a) IN GENERAL.—Section 163(m) of the Internal 

23 Revenue Code of 1986 (relating to interest on unpaid 


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1 taxes attributable to nondisclosed reportable transactions) 

2 is amended— 

3 (1) by striking ‘‘attributable’’ and all that fol4 lows and inserting the following: ‘‘attributable to— 

5 ‘‘(1) the portion of any reportable transaction 

6 understatement (as defined in section 6662A(b)) 

7 with respect to which the requirement of section 

8 6664(d)(2)(A) is not met, or 

9 ‘‘(2) any noneconomic substance transaction 

10 understatement (as defined in section 6662B(c)).’’; 

11 and 

12 (2) by inserting ‘‘and noneconomic substance 

13 transactions’’ after ‘‘transactions’’. 

14 (b) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to transactions after the date of 

16 the enactment of this Act in taxable years ending after 

17 such date. 

Æ 


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