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[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 1151 Introduced in Senate (IS)]

110th CONGRESS
  1st Session
                                S. 1151

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

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             April 18, 2007

   Mr. Obama introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL

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

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Health Care for 
Hybrids Act''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
    TITLE I--RETIRED EMPLOYEE HEALTH BENEFITS REIMBURSEMENT PROGRAM

Sec. 101. Coordinating task force.
Sec. 102. Establishment of program.
Sec. 103. Reporting.
Sec. 104. Authorization of appropriations.
                        TITLE II--TAX PROVISIONS

Sec. 201. Clarification of economic substance doctrine.
Sec. 202. Penalty for understatements attributable to transactions 
                            lacking economic substance.
Sec. 203. Denial of deduction for interest on underpayments 
                            attributable to noneconomic substance 
                            transactions.

SEC. 2. FINDINGS.

    Congress makes the following findings:
            (1) More than 50 percent of the oil consumed in the United 
        States is imported.
            (2) If present trends continue, foreign oil will represent 
        68 percent of the oil consumed in the United States by 2025.
            (3) The United States has only 3 percent of the world's 
        known oil reserves and the Nation's economic health is 
        dependent on world oil prices.
            (4) World oil prices are overwhelmingly dictated by other 
        countries, which endangers the economic and national security 
        of the United States.
            (5) A major portion of the world's oil supply is controlled 
        by unstable governments and countries that are known to 
        finance, harbor, or otherwise support terrorists and terrorist 
        activities.
            (6) American automakers have lagged behind their foreign 
        competitors in producing hybrid and other energy-efficient 
        automobiles.
            (7) Legacy health care costs associated with retiree 
        workers are an increasing burden on the global competitiveness 
        of American industries.
            (8) Innovative uses of new technology in automobiles 
        manufactured in the United States will--
                    (A) help retain American jobs;
                    (B) support health care obligations for retiring 
                workers in the automotive sector;
                    (C) decrease our Nation's dependence on foreign 
                oil; and
                    (D) address pressing environmental concerns.

    TITLE I--RETIRED EMPLOYEE HEALTH BENEFITS REIMBURSEMENT PROGRAM

SEC. 101. COORDINATING TASK FORCE.

    (a) Establishment.--Not later than 6 months after the date of the 
enactment of this Act, the Secretary of Energy, the Secretary of Health 
and Human Services, the Secretary of Transportation, and the Secretary 
of the Treasury shall establish a task force (referred to in this Act 
as the ``task force'') to administer the program established under 
section 102 (referred to in this Act as the ``program'').
    (b) Membership.--The task force shall be composed representatives 
of the departments headed by the officials referred to in subsection 
(a), who shall be appointed by such officials in equal numbers.

SEC. 102. ESTABLISHMENT OF PROGRAM.

    (a) In General.--Not later than 1 year after the date of the 
enactment of this Act, the task force shall establish a program to 
reimburse eligible domestic automobile manufacturers for the costs 
incurred in providing health benefits to their retired employees. The 
task force shall determine compliance with the assurances under 
subsection (c)(4) through accepted measurements of fuel savings.
    (b) Consultation.--In establishing the program, the task force 
shall consult with representatives from--
            (1) eligible domestic automobile manufacturers;
            (2) unions representing employees of such manufacturers; 
        and
            (3) consumer and environmental groups.
    (c) Eligibility Requirements.--A domestic automobile manufacturer 
seeking reimbursement under the program shall--
            (1) submit an application to the task force at such time, 
        in such manner, and containing such information as the task 
        force shall require;
            (2) certify that such manufacturer is providing full health 
        care coverage to all of its employees;
            (3) provide assurances to the task force that the 
        manufacturer will invest, in an amount equal to not less than 
        50 percent of the amount saved by the manufacturer through the 
        reimbursement of its retiree health care costs under the 
        program, in--
                    (A) the domestic manufacture and commercialization 
                of petroleum fuel reduction technologies, including 
                alternative or flexible fuel vehicles, hybrids, and 
                other state-of-the-art fuel saving technologies;
                    (B) retraining workers and retooling assembly lines 
                for the activities described in subparagraph (A);
                    (C) researching, developing, designing, and 
                commercializing high-performance, fuel-efficient 
                vehicles, and other activities related to diversifying 
                the domestic production of automobiles; and
                    (D) assisting domestic automobile component 
                suppliers to retool their domestic manufacturing plants 
                to produce components for petroleum fuel reduction 
                technologies, including alternative or flexible fuel 
                vehicles and hybrid, advanced diesel, and other state-
                of-the-art fuel saving technologies; and
            (4) provide assurances to the task force that average 
        adjusted fuel economy savings achieved under paragraph (3) will 
        not result in fuel economy decreases in other automobiles 
        manufactured in the United States; and
            (5) provide additional assurances and information as the 
        task force may require, including information needed by the 
        task force to audit the manufacturer's compliance with the 
        requirements of the program.
    (d) Limitation.--Not more than 10 percent of the annual retiree 
health care costs of any domestic automobile manufacturer may be 
reimbursed under the program in any year.
    (e) Termination of Program.--The program shall terminate on 
December 31, 2017.

SEC. 103. REPORTING.

    (a) Reimbursement Reports.--Not later than 6 months after the date 
of the enactment of this Act, and every 6 months thereafter, the task 
force shall submit a report to Congress that--
            (1) identifies the reimbursements paid under the program; 
        and
            (2) describes the changes in the manufacture and 
        commercialization of fuel saving technologies implemented by 
        automobile manufacturers as a result of such reimbursements.
    (b) Consumer Incentives.--Not later than 1 year after the date of 
the enactment of this Act, the task force shall submit a report to 
Congress that--
            (1) indicates the effectiveness of financial incentives 
        available to consumers for the purchase of hybrid vehicles in 
        encouraging such purchases; and
            (2) recommends whether such incentives should be expanded.

SEC. 104. AUTHORIZATION OF APPROPRIATIONS.

    There are authorized to be appropriated such sums as may be 
necessary in each of fiscal years 2008 through 2018 to carry out this 
title.

                        TITLE II--TAX PROVISIONS

SEC. 201. CLARIFICATION OF ECONOMIC SUBSTANCE DOCTRINE.

    (a) In General.--Section 7701 of the Internal Revenue Code of 1986 
is amended--
            (1) by redesignating subsection (p) as subsection (q); and
            (2) by inserting after subsection (o) the following:
    ``(p) Clarification of Economic Substance Doctrine.--
            ``(1) General rules.--
                    ``(A) In general.--In any case in which a court 
                determines that the economic substance doctrine is 
                relevant for purposes of this title to a transaction 
                (or series of transactions), such transaction (or 
                series of transactions) shall have economic substance 
                only if the requirements of this paragraph are met.
                    ``(B) Definition of economic substance.--For 
                purposes of subparagraph (A):
                            ``(i) In general.--A transaction has 
                        economic substance only if--
                                    ``(I) the transaction changes in a 
                                meaningful way (apart from Federal tax 
                                effects) the taxpayer's economic 
                                position, and
                                    ``(II) the taxpayer has a 
                                substantial nontax purpose for entering 
                                into such transaction and the 
                                transaction is a reasonable means of 
                                accomplishing such purpose.
                        In applying subclause (II), a purpose of 
                        achieving a financial accounting benefit shall 
                        not be taken into account in determining 
                        whether a transaction has a substantial nontax 
                        purpose if the origin of such financial 
                        accounting benefit is a reduction of income 
                        tax.
                            ``(ii) Special rule where taxpayer relies 
                        on profit potential.--A transaction shall not 
                        be treated as having economic substance by 
                        reason of having a potential for profit 
                        unless--
                                    ``(I) the present value of the 
                                reasonably expected pre-tax profit from 
                                the transaction is substantial in 
                                relation to the present value of the 
                                expected net tax benefits that would be 
                                allowed if the transaction were 
                                respected, and
                                    ``(II) the reasonably expected pre-
                                tax profit from the transaction exceeds 
                                a risk-free rate of return.
                    ``(C) Treatment of fees and foreign taxes.--Fees 
                and other transaction expenses and foreign taxes shall 
                be taken into account as expenses in determining pre-
                tax profit under subparagraph (B)(ii).
            ``(2) Special rules for transaction with tax-indifferent 
        parties.--
                    ``(A) Special rules for financing transactions.--
                The form of a transaction which is in substance the 
                borrowing of money or the acquisition of financial 
                capital directly or indirectly from a tax-indifferent 
                party shall not be respected if the present value of 
                the deductions to be claimed with respect to the 
                transaction is substantially in excess of the present 
                value of the anticipated economic returns of the person 
                lending the money or providing the financial capital. A 
                public offering shall be treated as a borrowing, or an 
                acquisition of financial capital, from a tax-
                indifferent party if it is reasonably expected that at 
                least 50 percent of the offering will be placed with 
                tax-indifferent parties.
                    ``(B) Artificial income shifting and basis 
                adjustments.--The form of a transaction with a tax-
                indifferent party shall not be respected if--
                            ``(i) it results in an allocation of income 
                        or gain to the tax-indifferent party in excess 
                        of such party's economic income or gain, or
                            ``(ii) it results in a basis adjustment or 
                        shifting of basis on account of overstating the 
                        income or gain of the tax-indifferent party.
            ``(3) Definitions and special rules.--For purposes of this 
        subsection:
                    ``(A) Economic substance doctrine.--The term 
                `economic substance doctrine' means the common law 
                doctrine under which tax benefits under subtitle A with 
                respect to a transaction are not allowable if the 
                transaction does not have economic substance or lacks a 
                business purpose.
                    ``(B) Tax-indifferent party.--The term `tax-
                indifferent party' means any person or entity not 
                subject to tax imposed by subtitle A. A person shall be 
                treated as a tax-indifferent party with respect to a 
                transaction if the items taken into account with 
                respect to the transaction have no substantial impact 
                on such person's liability under subtitle A.
                    ``(C) Exception for personal transactions of 
                individuals.--In the case of an individual, this 
                subsection shall apply only to transactions entered 
                into in connection with a trade or business or an 
                activity engaged in for the production of income.
                    ``(D) Treatment of lessors.--In applying paragraph 
                (1)(B)(ii) to the lessor of tangible property subject 
                to a lease--
                            ``(i) the expected net tax benefits with 
                        respect to the leased property shall not 
                        include the benefits of--
                                    ``(I) depreciation,
                                    ``(II) any tax credit, or
                                    ``(III) any other deduction as 
                                provided in guidance by the Secretary, 
                                and
                            ``(ii) subclause (II) of paragraph 
                        (1)(B)(ii) shall be disregarded in determining 
                        whether any of such benefits are allowable.
            ``(4) Other common law doctrines not affected.--Except as 
        specifically provided in this subsection, the provisions of 
        this subsection shall not be construed as altering or 
        supplanting any other rule of law, and the requirements of this 
        subsection shall be construed as being in addition to any such 
        other rule of law.
            ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be necessary or appropriate to carry out the 
        purposes of this subsection. Such regulations may include 
        exemptions from the application of this subsection.''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 202. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE.

    (a) In General.--Subchapter A of chapter 68 of the Internal Revenue 
Code of 1986 is amended by inserting after section 6662A the following:

``SEC. 6662B. PENALTY FOR UNDERSTATEMENTS ATTRIBUTABLE TO TRANSACTIONS 
              LACKING ECONOMIC SUBSTANCE.

    ``(a) Imposition of Penalty.--If a taxpayer has an noneconomic 
substance transaction understatement for any taxable year, there shall 
be added to the tax an amount equal to 40 percent of the amount of such 
understatement.
    ``(b) Reduction of Penalty for Disclosed Transactions.--Subsection 
(a) shall be applied by substituting `20 percent' for `40 percent' with 
respect to the portion of any noneconomic substance transaction 
understatement with respect to which the relevant facts affecting the 
tax treatment of the item are adequately disclosed in the return or a 
statement attached to the return.
    ``(c) Noneconomic Substance Transaction Understatement.--For 
purposes of this section--
            ``(1) In general.--The term `noneconomic substance 
        transaction understatement' means any amount which would be an 
        understatement under section 6662A(b)(1) if section 6662A were 
        applied by taking into account items attributable to 
        noneconomic substance transactions rather than items to which 
        section 6662A would apply without regard to this paragraph.
            ``(2) Noneconomic substance transaction.--The term 
        `noneconomic substance transaction' means any transaction if--
                    ``(A) there is a lack of economic substance (within 
                the meaning of section 7701(p)(1)) for the transaction 
                giving rise to the claimed benefit or the transaction 
                was not respected under section 7701(p)(2), or
                    ``(B) the transaction fails to meet the 
                requirements of any similar rule of law.
    ``(d) Rules Applicable to Compromise of Penalty.--
            ``(1) In general.--If the 1st letter of proposed deficiency 
        which allows the taxpayer an opportunity for administrative 
        review in the Internal Revenue Service Office of Appeals has 
        been sent with respect to a penalty to which this section 
        applies, only the Commissioner of Internal Revenue may 
        compromise all or any portion of such penalty.
            ``(2) Applicable rules.--The rules of paragraphs (2) and 
        (3) of section 6707A(d) shall apply for purposes of paragraph 
        (1).
    ``(e) Coordination With Other Penalties.--Except as otherwise 
provided in this part, the penalty imposed by this section shall be in 
addition to any other penalty imposed by this title.
    ``(f) Cross References.--
            ``(1) For coordination of penalty with understatements 
        under section 6662 and other special rules, see section 
        6662A(e).
            ``(2) For reporting of penalty imposed under this section 
        to the Securities and Exchange Commission, see section 
        6707A(e).''.
    (b) Coordination With Other Understatements and Penalties.--
            (1) The second sentence of section 6662(d)(2)(A) of the 
        Internal Revenue Code of 1986 is amended by inserting ``and 
        without regard to items with respect to which a penalty is 
        imposed by section 6662B'' before the period at the end.
            (2) Subsection (e) of section 6662A of the Internal Revenue 
        Code of 1986 is amended--
                    (A) in paragraph (1), by inserting ``and 
                noneconomic substance transaction understatements'' 
                after ``reportable transaction understatements'' both 
                places it appears,
                    (B) in paragraph (2)(A), by inserting ``and a 
                noneconomic substance transaction understatement'' 
                after ``reportable transaction understatement'',
                    (C) in paragraph (2)(B), by inserting ``6662B or'' 
                before ``6663'',
                    (D) in paragraph (2)(C)(i), by inserting ``or 
                section 6662B'' before the period at the end,
                    (E) in paragraph (2)(C)(ii), by inserting ``and 
                section 6662B'' after ``This section'',
                    (F) in paragraph (3), by inserting ``or noneconomic 
                substance transaction understatement'' after 
                ``reportable transaction understatement'', and
                    (G) by adding at the end the following new 
                paragraph:
            ``(3) Noneconomic substance transaction understatement.--
        For purposes of this subsection, the term `noneconomic 
        substance transaction understatement' has the meaning given 
        such term by section 6662B(c).''.
            (3) Paragraph (2) of section 6707A(e) of the Internal 
        Revenue Code of 1986 is amended--
                    (A) by striking ``or'' at the end of subparagraph 
                (B), and
                    (B) by striking subparagraph (C) and inserting the 
                following new subparagraphs:
                    ``(C) is required to pay a penalty under section 
                6662B with respect to any noneconomic substance 
                transaction, or
                    ``(D) is required to pay a penalty under section 
                6662(h) with respect to any transaction and would (but 
                for section 6662A(e)(2)(C)) have been subject to 
                penalty under section 6662A at a rate prescribed under 
                section 6662A(c) or under section 6662B,''.
    (c) Clerical Amendment.--The table of sections for part II of 
subchapter A of chapter 68 of the Internal Revenue Code of 1986 is 
amended by inserting after the item relating to section 6662A the 
following:

``Sec. 6662B. Penalty for understatements attributable to transactions 
                            lacking economic substance, etc.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transactions entered into after the date of the enactment of 
this Act.

SEC. 203. DENIAL OF DEDUCTION FOR INTEREST ON UNDERPAYMENTS 
              ATTRIBUTABLE TO NONECONOMIC SUBSTANCE TRANSACTIONS.

    (a) In General.--Section 163(m) of the Internal Revenue Code of 
1986 (relating to interest on unpaid taxes attributable to nondisclosed 
reportable transactions) is amended--
            (1) by striking ``attributable'' and all that follows and 
        inserting the following: ``attributable to--
            ``(1) the portion of any reportable transaction 
        understatement (as defined in section 6662A(b)) with respect to 
        which the requirement of section 6664(d)(2)(A) is not met, or
            ``(2) any noneconomic substance transaction understatement 
        (as defined in section 6662B(c)).''; and
            (2) by inserting ``and noneconomic substance transactions'' 
        after ``transactions''.
    (b) Effective Date.--The amendments made by this section shall 
apply to transactions after the date of the enactment of this Act in 
taxable years ending after such date.
                                 <all>
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