I

106TH CONGRESS

1ST SESSION H. R. 162

To amend the Internal Revenue Code of 1986 to provide an investment

credit to promote the conversion of United States coal and domestic

carbonaceous feedstocks into liquid fuels.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 6, 1999

Mr. HOLDEN 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 provide

an investment credit to promote the conversion of United

States coal and domestic carbonaceous feedstocks into

liquid fuels.

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 ‘‘Foreign Oil Displace5 ment Act’’.

6 SEC. 2. FINDINGS.

7 Congress finds that—
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1 (1) the strategic interests of the United States

2 would be served by a reduction in the Nation’s de3 pendence upon imported oil to produce transpor4 tation fuels and other products vital to both the do5 mestic economy and national security;

6 (2) this goal would be served by the develop7 ment of a viable, commercially competitive synthetic

8 fuels industry reliant upon domestic coals and other

9 plentiful, nontraditional carbonaceous feedstocks;

10 and

11 (3) temporary financial incentives are required

12 to foster private investment in the technology, de13 sign, construction, and operation of strategic facili14 ties capable of producing synthetic fuels on a com15 mercial scale.

16 SEC. 3. CARBONACEOUS FUELS FACILITY CREDIT.

17 (a) ALLOWANCE OF CARBONACEOUS FUELS FACIL18 ITY CREDIT.—Section 46 of the Internal Revenue Code

19 of 1986 is amended by striking ‘‘and’’ at the end of para20 graph (2), by striking the period at the end of paragraph

21 (3) and inserting ‘‘, and’’, and by inserting after para22 graph (3) the following new paragraph:

23 ‘‘(4) the carbonaceous fuels facility credit.’’

24 (b) AMOUNT OF CARBONACEOUS FUELS FACILITY

25 CREDIT.—Section 48 of such Code (relating to the energy
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1 credit and the reforestation credit) is amended by adding

2 after subsection (b) the following new subsection:

3 ‘‘(c) CARBONACEOUS FUELS FACILITY CREDIT.—

4 ‘‘(1) IN GENERAL.—For purposes of section 46,

5 the carbonaceous fuels facility credit for any taxable

6 year is an amount equal to 28 percent of the quali7 fied investment in a carbonaceous fuels conversion

8 facility for such taxable year.

9 ‘‘(2) CARBONACEOUS FUELS CONVERSION FA10 CILITY.—

11 ‘‘(A) IN GENERAL.—For purposes of para12 graph (1), the term ‘carbonaceous fuels conver13 sion facility’ means a facility of the taxpayer—

14 ‘‘(i)(I) the original use of which com15 mences with the taxpayer or the recon16 struction of which is completed by the tax17 payer (but only with respect to that por18 tion of the basis which is properly attrib19 utable to such reconstruction), or

20 ‘‘(II) that is acquired through pur21 chase (as defined by section 179(d)(2)),

22 ‘‘(ii) that is depreciable under section

23 167,

24 ‘‘(iii) that has a useful life of not less

25 than 4 years, and
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1 ‘‘(iv) that is used to produce a quali2 fied fuel.

3 ‘‘(B) SPECIAL RULE FOR SALE-LEASE4 BACKS.—For purposes of clause (i) of subpara5 graph (A), in the case of a facility that—

6 ‘‘(i) is originally placed in service by a

7 person, and

8 ‘‘(ii) is sold and leased back by such

9 person, or is leased to such person, within

10 3 months after the date such facility was

11 originally placed in service, for a period of

12 not less than 12 years,

13 such facility shall be treated as originally placed

14 in service not earlier than the date on which

15 such property is used under the leaseback (or

16 lease) referred to in clause (ii). The preceding

17 sentence shall not apply to any property if the

18 lessee and lessor of such property make an elec19 tion under this sentence. Such an election, once

20 made, may be revoked only with the consent of

21 the Secretary.

22 ‘‘(C) QUALIFIED FUEL.—For purposes of

23 clause (iv) of subparagraph (A), the term

24 ‘qualified fuel’—
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1 ‘‘(i) has the meaning given such term

2 by section 29(c), except that

3 ‘‘(ii) in respect of subparagraph (C) of

4 paragraph (1) of section 29(c), the term

5 ‘coal’ shall, in addition to lignite, be

6 deemed to include standard anthracite,

7 peat, and any byproduct from a coal, culm,

8 or silt preparation facility that contains

9 fixed carbon.

10 ‘‘(3) QUALIFIED INVESTMENT.—For purposes

11 of paragraph (1), the term ‘qualified investment’

12 means, with respect to any taxable year, the basis of

13 a carbonaceous fuels conversion facility placed in

14 service by the taxpayer during such taxable year.

15 ‘‘(4) QUALIFIED PROGRESS EXPENDITURES.—

16 ‘‘(A) INCREASE IN QUALIFIED INVEST17 MENT.—In the case of a taxpayer who has

18 made an election under subparagraph (E), the

19 amount of the qualified investment of such tax20 payer for the taxable year (determined under

21 paragraph (3) without regard to this sub22 section) shall be increased by an amount equal

23 to the aggregate of each qualified progress ex24 penditure for the taxable year with respect to

25 progress expenditure property.
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1 ‘‘(B) PROGRESS EXPENDITURE PROPERTY

2 DEFINED.—For purposes of this paragraph, the

3 term ‘progress expenditure property’ means any

4 property being constructed by or for the tax5 payer and which—

6 ‘‘(i) cannot reasonably be expected to

7 be completed in less than 18 months, and

8 ‘‘(ii) it is reasonable to believe will

9 qualify as a carbonaceous fuels conversion

10 facility which is being constructed by or for

11 the taxpayer when it is placed in service.

12 ‘‘(C) QUALIFIED PROGRESS EXPENDI13 TURES DEFINED.—For purposes of this

14 paragraph—

15 ‘‘(i) SELF-CONSTRUCTED PROP16 ERTY.—In the case of any self-constructed

17 property, the term ‘qualified progress ex18 penditures’ means the amount which, for

19 purposes of this subpart, is properly

20 chargeable (during such taxable year) to

21 capital account with respect to such prop22 erty.

23 ‘‘(ii) NON-SELF-CONSTRUCTED PROP24 ERTY.—In the case of non-self-constructed

25 property, the term ‘qualified progress ex-
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1 penditures’ means the amount paid during

2 the taxable year to another person for the

3 construction of such property.

4 ‘‘(D) OTHER DEFINITIONS.—For purposes

5 of this subsection—

6 ‘‘(i) SELF-CONSTRUCTED PROP7 ERTY.—The term ‘self-constructed prop8 erty’ means property for which it is rea9 sonable to believe that more than half of

10 the construction expenditures will be made

11 directly by the taxpayer.

12 ‘‘(ii) NON-SELF-CONSTRUCTED PROP13 ERTY.—The term ‘non-self-constructed

14 property’ means property which is not self15 constructed property.

16 ‘‘(iii) CONSTRUCTION, ETC.—The

17 term ‘construction’ includes reconstruction

18 and erection, and the term ‘constructed’

19 includes reconstructed and erected.

20 ‘‘(iv) ONLY CONSTRUCTION OF CAR21 BONACEOUS FUELS CONVERSION FACILITY

22 TO BE TAKEN INTO ACCOUNT.—Construc23 tion shall be taken into account only if, for

24 purposes of this subpart, expenditures
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1 therefor are properly chargeable to capital

2 account with respect to the property.

3 ‘‘(E) ELECTION.—An election under this

4 paragraph may be made at such time and in

5 such manner as the Secretary may by regula6 tions prescribe. Such an election shall apply to

7 the taxable year for which made and to all sub8 sequent taxable years. Such an election, once

9 made, may not be revoked except with the con10 sent of the Secretary.

11 ‘‘(5) COORDINATION WITH OTHER CREDITS.—

12 This subsection shall not apply to any property with

13 respect to which the energy credit or the rehabilita14 tion credit is allowed unless the taxpayer elects to

15 waive the application of such credits to such prop16 erty.’’

17 (c) RECAPTURE.—Subsection (a) of section 50 of

18 such Code is amended by adding at the end the following

19 new paragraph:

20 ‘‘(6) SPECIAL RULES RELATING TO CARBO21 NACEOUS FUELS CONVERSION FACILITY.—For pur22 poses of applying this subsection in the case of any

23 credit allowable by reason of section 48(c), the fol24 lowing shall apply:
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1 ‘‘(A) GENERAL RULE.—In lieu of the

2 amount of the increase in tax under paragraph

3 (1), the increase in tax shall be an amount

4 equal to the investment tax credit allowed under

5 section 38 for all prior taxable years with re6 spect to a carbonaceous fuels conversion facility

7 (as defined by section 48(c)) multiplied by a

8 fraction whose numerator is the number of

9 years remaining to fully depreciate under this

10 title the carbonaceous fuels conversion facility

11 disposed of, and whose denominator is the total

12 number of years over which such facility would

13 otherwise have been subject to depreciation. For

14 purposes of the preceding sentence, the year of

15 disposition of the carbonaceous fuels conversion

16 facility property shall be treated as a year of re17 maining depreciation.

18 ‘‘(B) PROPERTY CEASES TO QUALIFY FOR

19 PROGRESS EXPENDITURES.—Rules similar to

20 the rules of paragraph (2) shall apply in the

21 case of qualified progress expenditures for a

22 carbonaceous fuels conversion facility under sec23 tion 48(c), except that the amount of the in24 crease in tax under subparagraph (A) of this
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1 paragraph shall be substituted in lieu of the

2 amount described in such paragraph (2).

3 ‘‘(C) This paragraph shall be applied sepa4 rately with respect to the credit allowed under

5 section 38 regarding a carbonaceous fuels con6 version facility.’’

7 (d) TECHNICAL AMENDMENTS.—

8 (1) Subparagraph (C) of section 49(a)(1) of

9 such Code is amended by striking ‘‘and’’ at the end

10 of clause (ii), by striking the period at the end of

11 clause (iii) and inserting ‘‘, and’’, and by adding at

12 the end thereof the following new clause:

13 ‘‘(iv) the portion of the basis of any

14 carbonaceous fuels conversion facility at15 tributable to any qualified investment (as

16 defined by section 48(c)(3)).’’

17 (2) Paragraph (4) of section 50(a) of such Code

18 is amended by striking ‘‘and (2)’’ and inserting ‘‘,

19 (2), and (6)’’.

20 (3)(A) The section heading for section 48 of

21 such Code is amended to read as follows:

22 ‘‘SEC. 48. OTHER CREDITS.’’

23 (B) The table of sections for subpart E of part

24 IV of subchapter A of chapter 1 of such Code is

25 amended by striking the item relating to section 48
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1 and inserting the following:

‘‘Sec. 48. Other credits.’’

2 (e) SALE OR ASSIGNMENT OF UNUSED CREDIT

3 AMOUNT.—Section 50 of such Code is amended by adding

4 at the end the following new subsection:

5 ‘‘(e) SALE OR ASSIGNMENT OF UNUSED CARBO6 NACEOUS FUELS FACILITY CREDIT AMOUNT.—

7 ‘‘(1) GENERAL RULE.—Any unused portion of a

8 carbonaceous fuels facility credit may be sold or as9 signed in accordance with regulations prescribed by

10 the Secretary.

11 ‘‘(2) TREATMENT OF SELLER.—

12 ‘‘(A) LIABILITY.—The sale or assignment

13 of any portion of a credit under paragraph (1)

14 shall not relieve the seller or assignor of any

15 penalty or interest charged under this title with

16 respect to such portion.

17 ‘‘(B) BASIS.—The basis of a carbonaceous

18 fuels facility shall not be adjusted by reason of

19 the sale or assignment of a credit under para20 graph (1).

21 ‘‘(3) TREATMENT OF ACQUIRER.—

22 ‘‘(A) CREDIT CLAIMED.—The credit (or

23 portion thereof) acquired under paragraph (1)

24 may be claimed only by the person acquiring

25 such credit in the taxable year of such person
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1 in which such sale or assignment occurred and

2 only if such person notifies the Secretary of the

3 derivative source of such credit.

4 ‘‘(B) LIABILITY.—Such person shall not be

5 subject to any penalty or interest in respect of

6 such credit for which the seller or assignor re7 mains subject under paragraph (2)(A).

8 ‘‘(C) ORDERING RULE.—

9 ‘‘(i) IN GENERAL.—Such credit shall

10 be treated as a credit under this part al11 lowable to such person and shall be used

12 after the order of all other credits specified

13 by section 38(d).

14 ‘‘(ii) LIMITATION ON

15 CARRYFORWARDS.—No amount of a credit

16 acquired under paragraph (1) may be

17 treated as a business carryforward in any

18 taxable year beginning after December 31,

19 2012.

20 ‘‘(4) REGULATIONS.—Not later than 1 year

21 after the date of the enactment of the Foreign Oil

22 Displacement Act, the Secretary shall prescribe reg23 ulations to carry out this subsection.’’

24 (f) EFFECTIVE DATE.—The amendments made by

25 this section shall apply to periods after the date of the
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1 enactment of this Act under rules similar to the rules of

2 section 48(m) of the Internal Revenue Code of 1986 (as

3 in effect on the day before the date of the enactment of

4 the Revenue Reconciliation Act of 1990).

5 SEC. 4. EXEMPTION FROM MANUFACTURERS EXCISE TAX

6 ON FUELS.

7 (a) GASOLINE.—Subsection (a) of section 4083 of the

8 Internal Revenue Code of 1986 is amended by adding at

9 the end the following new paragraph:

10 ‘‘(4) QUALIFIED CARBONACEOUS FUEL.—

11 ‘‘(A) EXEMPTION.—For taxable years be12 ginning after 90 days after the date of the en13 actment of this paragraph and ending before

14 December 31, 2012, the terms ‘taxable fuel’,

15 ‘gasoline’, and ‘diesel fuel’ do not include quali16 fied carbonaceous fuel or that portion of a

17 blend that is qualified carbonaceous fuel.

18 ‘‘(B) QUALIFIED CARBONACEOUS FUEL

19 DEFINED.—For purposes of subparagraph (A),

20 the term ‘qualified carbonaceous fuel’ means

21 qualified fuel produced by a carbonaceous fuels

22 conversion facility.

23 ‘‘(C) OTHER DEFINITIONS.—For purposes

24 of subparagraph (B), the terms ‘qualified fuel’

25 and ‘carbonaceous fuels conversion facility’ have
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1 the meaning given such terms by section

2 48(c)(2).’’

3 (b) AVIATION FUEL.—Subsection (a) of section 4093

4 of such Code is amended by adding at the end the follow5 ing new sentence: ‘‘Such term does not include qualified

6 carbonaceous fuel (as defined by section 4083(a)(4)).’’

7 (c) RETAIL USES.—Section 4041 of such Code is

8 amended by adding at the end the following new sub9 section:

10 ‘‘(n) CERTAIN CARBONACEOUS FUEL.—

11 ‘‘(1) EXEMPTION.—For taxable years beginning

12 after 90 days after the date of the enactment of this

13 subsection and ending before December 31, 2012, no

14 tax shall be imposed under this section on qualified

15 carbonaceous fuel or that portion of a blend that is

16 qualified carbonaceous fuel.

17 ‘‘(2) QUALIFIED CARBONACEOUS FUEL DE18 FINED.—For purposes of paragraph (1), the term

19 ‘qualified carbonaceous fuel’ has the meaning given

20 such term by section 4083(a)(4).’’

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

22 this section shall apply to fuels produced after the date

23 of the enactment of this Act.

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