II 

110TH CONGRESS 

1ST SESSION S. 1508 

To amend the Internal Revenue Code of 1986 to extend and expand various 

tax incentives for production of renewable energy and clean energy 

sources, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

MAY 24, 2007 

Mr. DORGAN introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to extend 

and expand various tax incentives for production of renewable energy and clean energy sources, and for other 

purposes. 

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; ETC. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Clean Energy Production Tax Incentives Act of 2007’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 


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1 to, or repeal of, a section or other provision, the reference 

2 shall be considered to be made to a section or other provi3 sion of the Internal Revenue Code of 1986. 

4 (c) TABLE OF CONTENTS.—The table of contents for 

5 this Act is as follows: 

Sec. 1. Short title; etc. 

TITLE I—CLEAN ENERGY PRODUCTION TAX INCENTIVES 

Sec. 101. Extension of and increase in renewable electricity production credit. 

Sec. 102. Modifications to credit for clean renewable energy bonds. 

Sec. 103. Extension of qualifying advanced clean coal project credit. 

Sec. 104. Clean coal energy bonds. 

Sec. 105. Credit for capture and storage or use of carbon dioxide. 

Sec. 106. Carbon dioxide capture bonds. 

Sec. 107. Incentives for investment in electric transmission property. 

Sec. 108. Electric transmission property bonds. 

Sec. 109. Extension and modification of investment credit for qualified fuel cell 

property, qualified microturbine property, and solar property. 

TITLE II—REVENUE PROVISIONS 

Sec. 201. Tax treatment of controlled foreign corporations established in tax 

havens. 

Sec. 202. Taxation of income of controlled foreign corporations attributable to 

imported property. 

Sec. 203. Modification of effective date of leasing provisions of the American 

Jobs Creation Act of 2004. 

Sec. 204. Clarification of economic substance doctrine. 

Sec. 205. Penalty for understatements attributable to transactions lacking economic substance, etc. 

Sec. 206. Denial of deduction for interest on underpayments attributable to 

noneconomic substance transactions. 

6 TITLE I—CLEAN ENERGY 

7 PRODUCTION TAX INCENTIVES 

8 SEC. 101. EXTENSION OF AND INCREASE IN RENEWABLE 

9 ELECTRICITY PRODUCTION CREDIT. 

10 (a) EXTENSION.—Paragraphs (1), (2), (3), (4), (5), 

11 (6), (7), and (9) of section 45(d) (relating to qualified fa12 cilities) is amended by striking ‘‘January 1, 2009’’ each 

13 place it appears and inserting ‘‘January 1, 2019’’. 


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1 (b) INCREASE IN CREDIT RATE.— 

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

3 45(a) is amended by striking ‘‘1.5 cents’’ and insert4 ing ‘‘2.1 cents’’. 

5 (2) MODIFICATION OF INFLATION ADJUST6 MENT.— 

7 (A) IN GENERAL.—Section 45(e)(2)(B) 

8 (defining inflation adjustment factor) is amend9 ed by inserting ‘‘(calendar year 2006 in the 

10 case of the 2.1 cent amount in subsection (a))’’ 

11 after ‘‘1992’’. 

12 (B) CONFORMING AMENDMENT.—Para13 graph (2) of section 45(b) is amended by strik14 ing ‘‘1.5 cent’’ and inserting ‘‘2.1 cent’’. 

15 (3) EFFECTIVE DATE.—The amendments made 

16 by this subsection shall apply to electricity produced 

17 and sold after the date of the enactment of this Act. 

18 SEC. 102. MODIFICATIONS TO CREDIT FOR CLEAN RENEW19 ABLE ENERGY BONDS. 

20 (a) INCREASE IN AMOUNT OF BONDS DESIGNATED; 

21 10 YEAR EXTENSION.— 

22 (1) IN GENERAL.—Subsection (f) of section 54 

23 is amended to read as follows: 

24 ‘‘(f) LIMITATION ON AMOUNT OF BONDS DES25 IGNATED.— 


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1 ‘‘(1) NATIONAL LIMITATION.—There is a na2 tional clean renewable energy bond limitation for 

3 each calendar year. Such limitation is 

4 $1,000,000,000 for 2008, 2009, 2010, 2011, 2012, 

5 2013, 2014, 2015, 2016, and 2017, and zero there6 after. 

7 ‘‘(2) ALLOCATION BY SECRETARY.—The na8 tional clean renewable energy bond limitation for a 

9 calendar year shall be allocated by the Secretary 

10 among qualified projects in such manner as the Sec11 retary determines appropriate, except that the Sec12 retary may not allocate more than $625,000,000 of 

13 such limitation for each calendar year to finance 

14 qualified projects of qualified borrowers which are 

15 governmental bodies.’’. 

16 (2) CONFORMING AMENDMENT.—Section 54 is 

17 amended by striking subsection (m). 

18 (b) ADDITIONAL PERIOD FOR REIMBURSEMENT OF

19 COSTS PAID BY BORROWER.—Section 54(d)(2)(C) is 

20 amended by striking clause (iii) and inserting the following 

21 new clause: 

22 ‘‘(iii) the reimbursement is made not 

23 later than 18 months after the date the 

24 original expenditure is paid or, if later, the 


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1 date that the project is placed in service or 

2 abandoned. 

3 In no event may the reimbursement under 

4 clause (iii) be made more than 3 years after the 

5 date the original expenditure is paid.’’. 

6 (c) CLARIFICATION OF RATABLE PRINCIPAL AMORTI7 ZATION REQUIREMENT.— 

8 (1) IN GENERAL.—Paragraph (5) of section 

9 54(l) is amended to read as follows: 

10 ‘‘(5) RATABLE PRINCIPAL AMORTIZATION RE11 QUIRED.—A bond shall not be treated as a clean re12 newable energy bond unless it is part of an issue 

13 which provides for an equal amount of principal to 

14 be paid by the qualified issuer during each 12-month 

15 period that the issue is outstanding (other than the 

16 first 12-month period).’’. 

17 (2) CONFORMING AMENDMENT.—The third sen18 tence of section 54(e)(2) is amended by striking 

19 ‘‘subsection (l)(6)’’ and inserting ‘‘Subsection 

20 (l)(5)’’. 

21 (d) MAXIMUM TERM OF ISSUE.—The second sen22 tence of section 54(e)(2) is amended by inserting ‘‘the 

23 greater of 15 years or’’ after ‘‘Such maximum term shall 

24 be’’. 

25 (e) EFFECTIVE DATE.— 


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1 (1) IN GENERAL.—Except as provided in para2 graph (2), the amendments made by this section 

3 shall apply to obligations issued after December 31, 

4 2006. 

5 (2) ANNUAL BOND LIMITATION.—The amend6 ments made by subsection (a) shall apply to obliga7 tions issued after December 31, 2007. 

8 SEC. 103. EXTENSION OF QUALIFYING ADVANCED CLEAN 

9 COAL PROJECT CREDIT. 

10 (a) IN GENERAL.—Paragraph (3) of section 

11 48A(d)(3) (relating to aggregate credits) is amended to 

12 read as follows: 

13 ‘‘(3) AGGREGATE CREDIT LIMITATIONS.— 

14 ‘‘(A) INITIAL ALLOCATIONS.— 

15 ‘‘(i) IN GENERAL.—The aggregate 

16 credits allowed under subsection (a) for 

17 projects certified by the Secretary under 

18 paragraph (2) with respect to which an ap19 plication has been accepted under para20 graph (2)(C) before January 1, 2008, may 

21 not exceed $1,300,000,000. 

22 ‘‘(ii) PARTICULAR PROJECTS.—Of the 

23 dollar amount in clause (i), the Secretary 

24 is authorized to certify— 


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1 ‘‘(I) $800,000,000 for integrated 

2 gasification combined cycle projects, 

3 and 

4 ‘‘(II) $500,000,000 for projects 

5 which use other advanced coal-based 

6 generation technologies. 

7 ‘‘(iii) PRIORITIES.—The Secretary 

8 shall give high priority to projects that in9 corporate capture and long-term storage of 

10 carbon dioxide, including carbon dioxide 

11 enhanced oil recovery. 

12 ‘‘(iv) CARRYOVER.— 

13 ‘‘(I) IN GENERAL.—If the dollar 

14 amount under clause (i) exceeds the 

15 amount allocated to all projects for 

16 which an application has been accept17 ed before January 1, 2008, the dollar 

18 amount under subparagraph (B)(i) 

19 for calendar year 2007 shall be in20 creased by the amount of such excess. 

21 ‘‘(II) ALLOCATION.—Any amount 

22 redistributed under clause (i) shall be 

23 allocated to the same category under 

24 subparagraph (B)(ii) as the category 


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1 of the original project to which it was 

2 allocated. 

3 ‘‘(B) ANNUAL ALLOCATION.— 

4 ‘‘(i) IN GENERAL.—In the case of 

5 projects with respect to which an applica6 tion has been accepted under paragraph 

7 (2)(C) in any calendar year after 2007 and 

8 before 2018, the aggregate credits allowed 

9 under subsection (a) for all projects ac10 cepted in such calendar year may not ex11 ceed $750,000,000. 

12 ‘‘(ii) PARTICULAR PROJECTS.—Of the 

13 dollar amount in clause (i) with respect to 

14 any calendar year, the Secretary is author15 ized to certify— 

16 ‘‘(I) $550,000,000 for integrated 

17 gasification combined cycle projects, 

18 and 

19 ‘‘(II) $200,000,000 for projects 

20 which use other advanced coal-based 

21 generation technologies. 

22 ‘‘(iii) PRIORITIES.—The Secretary 

23 shall give high priority to projects that in24 corporate capture and long-term storage of 

25 carbon dioxide, including for carbon dioxVerDate Aug 31 2005 20:54 May 27, 2007 Jkt 059200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1508.IS S1508

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1 ide enhanced oil recovery, permanent geo2 logical storage, or other purposes. 

3 ‘‘(iv) CARRYOVERS.—If for any cal4 endar year the dollar amount under sub5 clause (I) or (II) of clause (ii) exceeds the 

6 amount allocated to all projects for which 

7 an application has been accepted during 

8 such calendar year, such dollar amount for 

9 the following calendar year shall be in10 creased by the amount of such excess. 

11 ‘‘(C) REDISTRIBUTIONS.— 

12 ‘‘(i) IN GENERAL.—If any dollar 

13 amount allocated to a project under this 

14 paragraph has been revoked pursuant to 

15 paragraph (2)(D), then the dollar amount 

16 under subparagraph (B)(i) for the next 

17 available calendar year shall be increased 

18 by the amount of the dollar amount so re19 voked. 

20 ‘‘(ii) ALLOCATION.—Any amount re21 distributed under clause (i) shall be allo22 cated to the same category under subpara23 graph (B)(ii) as the category of the origi24 nal project to which it was allocated.’’. 

25 (b) CONFORMING AMENDMENTS.— 


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1 (1) APPLICATION DEADLINE.—The second sen2 tence of section 48A(d)(3)(A) is amended to read as 

3 follows: ‘‘No application may be submitted for cer4 tification under this paragraph after December 31, 

5 2017.’’ 

6 (2) REVIEW AND REDISTRIBUTION.—Subsection 

7 (d) of section 48A is amended by striking paragraph 

8 (4). 

9 (c) EFFECTIVE DATE.—The amendments made by 

10 this section shall take effect on the date of the enactment 

11 of this Act. 

12 SEC. 104. CLEAN COAL ENERGY BONDS. 

13 (a) IN GENERAL.—Subpart H of part IV of sub14 chapter A of chapter 1 is amended by adding at the end 

15 the following new section: 

16 ‘‘SEC. 54A. CREDIT TO HOLDERS OF CLEAN COAL ENERGY 

17 BONDS. 

18 ‘‘(a) ALLOWANCE OF CREDIT.—If a taxpayer holds 

19 a clean coal energy bond on 1 or more credit allowance 

20 dates of the bond occurring during any taxable year, there 

21 shall be allowed as a credit against the tax imposed by 

22 this chapter for the taxable year an amount equal to the 

23 sum of the credits determined under subsection (b) with 

24 respect to such dates. 

25 ‘‘(b) AMOUNT OF CREDIT.— 


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1 ‘‘(1) IN GENERAL.—The amount of the credit 

2 determined under this subsection with respect to any 

3 credit allowance date for a clean coal energy bond is 

4 25 percent of the annual credit determined with re5 spect to such bond. 

6 ‘‘(2) ANNUAL CREDIT.—The annual credit de7 termined with respect to any clean coal energy bond 

8 is the product of— 

9 ‘‘(A) the credit rate determined by the Sec10 retary under paragraph (3) for the day on 

11 which such bond was sold, multiplied by 

12 ‘‘(B) the outstanding face amount of the 

13 bond. 

14 ‘‘(3) DETERMINATION.—For purposes of para15 graph (2), with respect to any clean coal energy 

16 bond, the Secretary shall determine daily or cause to 

17 be determined daily a credit rate which shall apply 

18 to the first day on which there is a binding, written 

19 contract for the sale or exchange of the bond. The 

20 credit rate for any day is the credit rate which the 

21 Secretary or the Secretary’s designee estimates will 

22 permit the issuance of clean coal energy bonds with 

23 a specified maturity or redemption date without dis24 count and without interest cost to the qualified 

25 issuer. 


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1 ‘‘(4) CREDIT ALLOWANCE DATE.—For purposes 

2 of this section, the term ‘credit allowance date’ 

3 means— 

4 ‘‘(A) March 15, 

5 ‘‘(B) June 15, 

6 ‘‘(C) September 15, and 

7 ‘‘(D) December 15. 

8 ‘‘Such term also includes the last day on which the 

9 bond is outstanding. 

10 ‘‘(5) SPECIAL RULE FOR ISSUANCE AND RE11 DEMPTION.—In the case of a bond which is issued 

12 during the 3-month period ending on a credit allow13 ance date, the amount of the credit determined 

14 under this subsection with respect to such credit al15 lowance date shall be a ratable portion of the credit 

16 otherwise determined based on the portion of the 3- 

17 month period during which the bond is outstanding. 

18 A similar rule shall apply when the bond is redeemed 

19 or matures. 

20 ‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—The 

21 credit allowed under subsection (a) for any taxable year 

22 shall not exceed the excess of— 

23 ‘‘(1) the sum of the regular tax liability (as de24 fined in section 26(b)) plus the tax imposed by sec25 tion 55, over 


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1 ‘‘(2) the sum of the credits allowable under this 

2 part (other than subpart C, this subpart and section 

3 1400N(l)). 

4 ‘‘(d) CLEAN COAL ENERGY BOND.—For purposes of 

5 this section— 

6 ‘‘(1) IN GENERAL.—The term ‘clean coal en7 ergy bond’ means any bond issued as part of an 

8 issue if— 

9 ‘‘(A) the bond is issued by a qualified 

10 issuer pursuant to an allocation by the Sec11 retary to such issuer of a portion of the na12 tional clean coal energy bond limitation under 

13 subsection (f)(2), 

14 ‘‘(B) 95 percent or more of the proceeds 

15 from the sale of such issue are to be used for 

16 capital expenditures incurred by qualified bor17 rowers for 1 or more qualified projects, 

18 ‘‘(C) the qualified issuer designates such 

19 bond for purposes of this section and the bond 

20 is in registered form, and 

21 ‘‘(D) the issue meets the requirements of 

22 subsection (h). 

23 ‘‘(2) QUALIFIED PROJECT; SPECIAL USE

24 RULES.— 


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1 ‘‘(A) IN GENERAL.—The term ‘qualified 

2 project’ means a qualifying advanced coal 

3 project (as defined in section 48A(c)(1)) placed 

4 in service by a qualified borrower. 

5 ‘‘(B) REFINANCING RULES.—For purposes 

6 of paragraph (1)(B), a qualified project may be 

7 refinanced with proceeds of a clean coal energy 

8 bond only if the indebtedness being refinanced 

9 (including any obligation directly or indirectly 

10 refinanced by such indebtedness) was originally 

11 incurred by a qualified borrower after the date 

12 of the enactment of this section. 

13 ‘‘(C) REIMBURSEMENT.—For purposes of 

14 paragraph (1)(B), a clean coal energy bond 

15 may be issued to reimburse a qualified borrower 

16 for amounts paid after the date of the enact17 ment of this section with respect to a qualified 

18 project, but only if— 

19 ‘‘(i) prior to the payment of the origi20 nal expenditure, the qualified borrower de21 clared its intent to reimburse such expendi22 ture with the proceeds of a clean coal en23 ergy bond, 

24 ‘‘(ii) not later than 60 days after pay25 ment of the original expenditure, the qualiVerDate Aug 31 2005 20:54 May 27, 2007 Jkt 059200 PO 00000 Frm 00014 Fmt 6652 Sfmt 6201 E:\BILLS\S1508.IS S1508

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1 fied issuer adopts an official intent to re2 imburse the original expenditure with such 

3 proceeds, and 

4 ‘‘(iii) the reimbursement is made not 

5 later than 18 months after the date the 

6 original expenditure is paid or, if later, the 

7 date that the project is placed in service or 

8 abandoned. 

9 In no event may the reimbursement under 

10 clause (iii) be made more than 3 years after the 

11 date the original expenditure is paid. 

12 ‘‘(D) TREATMENT OF CHANGES IN USE.— 

13 For purposes of paragraph (1)(B), the proceeds 

14 of an issue shall not be treated as used for a 

15 qualified project to the extent that a qualified 

16 borrower takes any action within its control 

17 which causes such proceeds not to be used for 

18 a qualified project. The Secretary shall pre19 scribe regulations specifying remedial actions 

20 that may be taken (including conditions to tak21 ing such remedial actions) to prevent an action 

22 described in the preceding sentence from caus23 ing a bond to fail to be a clean coal energy 

24 bond. 

25 ‘‘(e) MATURITY LIMITATIONS.— 


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1 ‘‘(1) DURATION OF TERM.—A bond shall not be 

2 treated as a clean coal energy bond if the maturity 

3 of such bond exceeds the maximum term determined 

4 by the Secretary under paragraph (2) with respect 

5 to such bond. 

6 ‘‘(2) MAXIMUM TERM.—During each calendar 

7 month, the Secretary shall determine the maximum 

8 term permitted under this paragraph for bonds 

9 issued during the following calendar month. Such 

10 maximum term shall be the greater of 15 years or 

11 the term which the Secretary estimates will result in 

12 the present value of the obligation to repay the prin13 cipal on the bond being equal to 50 percent of the 

14 face amount of such bond. Such present value shall 

15 be determined without regard to the requirements of 

16 subsection (l)(5) and using as a discount rate the 

17 average annual interest rate of tax of tax-exempt ob18 ligations having a term of 10 years or more which 

19 are issued during the month. If the term as so deter20 mined is not a multiple of a whole year, such term 

21 shall be rounded to the next highest whole year. 

22 ‘‘(f) LIMITATION ON AMOUNT OF BONDS DES23 IGNATED.— 


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1 ‘‘(1) NATIONAL LIMITATION.—There is a na2 tional clean coal energy bond limitation of 

3 $5,000,000,000. 

4 ‘‘(2) ALLOCATION BY SECRETARY.—The Sec5 retary shall allocate the amount described in para6 graph (1) among qualified projects in such manner 

7 as the Secretary determines appropriate, except that 

8 the Secretary may not allocate more than 

9 $3,125,000,000 of the national clean coal energy 

10 bond limitation to finance qualified projects of quali11 fied borrowers which are public power entities. 

12 ‘‘(g) CREDIT INCLUDED IN GROSS INCOME.—Gross 

13 income includes the amount of the credit allowed to the 

14 taxpayer under this section (determined without regard to 

15 subsection (c)) and the amount so included shall be treat16 ed as interest income. 

17 ‘‘(h) SPECIAL RULES RELATING TO EXPENDI18 TURES.— 

19 ‘‘(1) IN GENERAL.—An issue shall be treated as 

20 meeting the requirements of this subsection if, as of 

21 the date of issuance, the qualified issuer reasonably 

22 expects— 

23 ‘‘(A) at least 95 percent of the proceeds 

24 from the sale of the issue are to be spent for 

25 1 or more qualified projects within the 5-year 


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1 period beginning on the date of issuance of the 

2 clean energy bond, 

3 ‘‘(B) a binding commitment with a third 

4 party to spend at least 10 percent of the pro5 ceeds from the sale of the issue will be incurred 

6 within the 6-month period beginning on the 

7 date of issuance of the clean energy bond or, in 

8 the case of a clean energy bond the proceeds of 

9 which are to be loaned to 2 or more qualified 

10 borrowers, such binding commitment will be in11 curred within the 6-month period beginning on 

12 the date of the loan of such proceeds to a quali13 fied borrower, and 

14 ‘‘(C) such projects will be completed with 

15 due diligence and the proceeds from the sale of 

16 the issue will be spent with due diligence. 

17 ‘‘(2) EXTENSION OF PERIOD.—Upon submis18 sion of a request prior to the expiration of the period 

19 described in paragraph (1)(A), the Secretary may 

20 extend such period if the qualified issuer establishes 

21 that the failure to satisfy the 5-year requirement is 

22 due to reasonable cause and the related projects will 

23 continue to proceed with due diligence. 

24 ‘‘(3) FAILURE TO SPEND REQUIRED AMOUNT

25 OF BOND PROCEEDS WITHIN 5 YEARS.—To the exVerDate Aug 31 2005 20:54 May 27, 2007 Jkt 059200 PO 00000 Frm 00018 Fmt 6652 Sfmt 6201 E:\BILLS\S1508.IS S1508

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1 tent that less than 95 percent of the proceeds of 

2 such issue are expended by the close of the 5-year 

3 period beginning on the date of issuance (or if an 

4 extension has been obtained under paragraph (2), by 

5 the close of the extended period), the qualified issuer 

6 shall redeem all of the nonqualified bonds within 90 

7 days after the end of such period. For purposes of 

8 this paragraph, the amount of the nonqualified 

9 bonds required to be redeemed shall be determined 

10 in the same manner as under section 142. 

11 ‘‘(i) SPECIAL RULES RELATING TO ARBITRAGE.—A 

12 bond which is part of an issue shall not be treated as a 

13 clean coal energy bond unless, with respect to the issue 

14 of which the bond is a part, the qualified issuer satisfies 

15 the arbitrage requirements of section 148 with respect to 

16 proceeds of the issue. 

17 ‘‘(j) COOPERATIVE ELECTRIC COMPANY; CLEAN

18 COAL ENERGY BOND LENDER; PUBLIC POWER ENTITY; 

19 QUALIFIED BORROWER.—For purposes of this section— 

20 ‘‘(1) COOPERATIVE ELECTRIC COMPANY.—The 

21 term ‘cooperative electric company’ means a mutual 

22 or cooperative electric company described in section 

23 501(c)(12) or section 1381(a)(2)(C), or a not-for24 profit electric utility which has received a loan or 

25 loan guarantee under the Rural Electrification Act. 


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1 ‘‘(2) CLEAN COAL ENERGY BOND LENDER.— 

2 The term ‘clean coal energy bond lender’ means a 

3 lender which is a cooperative which is owned by, or 

4 has outstanding loans to, 100 or more cooperative 

5 electric companies and is in existence on February 

6 1, 2002, and shall include any affiliated entity which 

7 is controlled by such lender. 

8 ‘‘(3) PUBLIC POWER ENTITY.—The term ‘public 

9 power entity’ means a State utility with a service ob10 ligation, as such terms are defined in section 217 of 

11 the Federal Power Act (as in effect on the date of 

12 the enactment of this paragraph). 

13 ‘‘(4) QUALIFIED ISSUER.—The term ‘qualified 

14 issuer’ means— 

15 ‘‘(A) a clean coal energy bond lender, 

16 ‘‘(B) a cooperative electric company, or 

17 ‘‘(C) a public power entity. 

18 ‘‘(5) QUALIFIED BORROWER.—The term ‘quali19 fied borrower’ means— 

20 ‘‘(A) a mutual or cooperative electric com21 pany described in section 501(c)(12) or 

22 1381(a)(2)(C), or 

23 ‘‘(B) a public power entity. 

24 ‘‘(k) SPECIAL RULES RELATING TO POOL BONDS.— 

25 No portion of a pooled financing bond may be allocable 


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1 to any loan unless the borrower has entered into a written 

2 loan commitment for such portion prior to the issue date 

3 of such issue. 

4 ‘‘(l) OTHER DEFINITIONS AND SPECIAL RULES.— 

5 For purposes of this section— 

6 ‘‘(1) BOND.—The term ‘bond’ includes any ob7 ligation. 

8 ‘‘(2) POOLED FINANCING BOND.—The term 

9 ‘pooled financing bond’ shall have the meaning given 

10 such term by section 149(f)(4)(A). 

11 ‘‘(3) PARTNERSHIP; S CORPORATION; AND

12 OTHER PASS-THRU ENTITIES.— 

13 ‘‘(A) IN GENERAL.—Under regulations 

14 prescribed by the Secretary, in the case of a 

15 partnership, trust, S corporation, or other pass16 thru entity, rules similar to the rules of section 

17 41(g) shall apply with respect to the credit al18 lowable under subsection (a). 

19 ‘‘(B) NO BASIS ADJUSTMENT.—Rules simi20 lar to the rules under section 1397E(l) shall 

21 apply. 

22 ‘‘(4) BONDS HELD BY REGULATED INVEST23 MENT COMPANIES.—If any clean coal energy bond is 

24 held by a regulated investment company, the credit 

25 determined under subsection (a) shall be allowed to 


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1 shareholders of such company under procedures pre2 scribed by the Secretary. 

3 ‘‘(5) RATABLE PRINCIPAL AMORTIZATION RE4 QUIRED.—A bond shall not be treated as a clean 

5 coal energy bond unless it is part of an issue which 

6 provides for one-half of the principal amount of the 

7 issue to be paid in equal amounts in each 12-month 

8 period the issue in outstanding (excluding the first 

9 2 12-month periods the issue is outstanding) prior 

10 to the year in which the issue matures. 

11 ‘‘(6) REPORTING.—Issuers of clean coal energy 

12 bonds shall submit reports similar to the reports re13 quired under section 149(e). 

14 ‘‘(m) TERMINATION.—This section shall not apply 

15 with respect to any bond issued after December 31, 

16 2017.’’. 

17 (b) REPORTING.—Subsection (d) of section 6049 (re18 lating to returns regarding payments of interest) is 

19 amended by adding at the end the following new para20 graph: 

21 ‘‘(9) REPORTING OF CREDIT ON CLEAN COAL

22 ENERGY BONDS.— 

23 ‘‘(A) IN GENERAL.—For purposes of sub24 section (a), the term ‘interest’ includes amounts 

25 includible in gross income under section 54A(g) 


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1 and such amounts shall be treated as paid on 

2 the credit allowance date (as defined in section 

3 54A(b)(4)). 

4 ‘‘(B) REPORTING TO CORPORATIONS, 

5 ETC.—Except as otherwise provided in regula6 tions, in the case of any interest described in 

7 subparagraph (A), subsection (b)(4) shall be 

8 applied without regard to subparagraphs (A), 

9 (H), (I), (J), (K), and (L)(i) of such subsection. 

10 ‘‘(C) REGULATORY AUTHORITY.—The Sec11 retary may prescribe such regulations as are 

12 necessary or appropriate to carry out the pur13 poses of this paragraph, including regulations 

14 which require more frequent or more detailed 

15 reporting.’’. 

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

17 for subpart H of part IV of subchapter A of chapter 1 

18 is amended by adding at the end the following new item: 

‘‘Sec. 54A. Credit to holders of clean coal energy bonds.’’. 

19 (d) ISSUANCE OF REGULATIONS.—The Secretary of 

20 the Treasury shall issues regulations required under sec21 tion 54A of the Internal Revenue Code of 1986 (as added 

22 by this section) not later than 120 days after the date 

23 of the enactment of this Act. 


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

2 this section shall apply to bonds issued after December 

3 31, 2007. 

4 SEC. 105. CREDIT FOR CAPTURE AND STORAGE OR USE OF 

5 CARBON DIOXIDE. 

6 (a) TAX CREDIT FOR CARBON DIOXIDE CAPTURED

7 FROM INDUSTRIAL SOURCES AND USED IN ENHANCED

8 OIL AND NATURAL GAS RECOVERY, AND FOR OTHER

9 PURPOSES.— 

10 (1) IN GENERAL.—Subpart D of part IV of 

11 subchapter A of chapter 1 (relating to business cred12 its) is amended by adding at the end the following 

13 new section: 

14 ‘‘SEC. 45O. CREDIT FOR CAPTURE AND STORAGE OR USE 

15 OF CARBON DIOXIDE. 

16 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

17 the captured carbon dioxide tertiary injectant credit for 

18 any taxable year is an amount equal to the product of— 

19 ‘‘(1) the credit amount, and 

20 ‘‘(2) the qualified captured carbon dioxide 

21 which is attributable to the taxpayer. 

22 ‘‘(b) CREDIT AMOUNT.—For purposes of this sec23 tion— 


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1 ‘‘(1) IN GENERAL.—The credit amount is $0.75 

2 per 1,500 standard cubic feet of qualified captured 

3 carbon dioxide. 

4 ‘‘(2) INFLATION ADJUSTMENT.—In the case of 

5 any taxable year beginning in a calendar year after 

6 2007, there shall be substituted for the $0.75 

7 amount under paragraph (1) an amount equal to the 

8 product of— 

9 ‘‘(A) $0.75, multiplied by 

10 ‘‘(B) the inflation adjustment factor for 

11 such calendar year determined under section 

12 43(b)(3)(B) for such calendar year, determined 

13 by substituting ‘2006’ for ‘1990’. 

14 ‘‘(3) CREDIT AMOUNT FOR CAPTURE AND STOR15 AGE.—In the case of carbon dioxide which is quali16 fied captured carbon dioxide by reason of subsection 

17 (c)(1)(D)(i), paragraphs (1) and (2) shall be applied 

18 by substituting ‘$1.00’ for ‘$0.75’ each place it ap19 pears. 

20 ‘‘(c) QUALIFIED CAPTURED CARBON DIOXIDE.—For 

21 purposes of this section— 

22 ‘‘(1) IN GENERAL.—The term ‘qualified cap23 tured carbon dioxide’ means carbon dioxide captured 

24 within the United States (within the meaning of sec25 tion 638(1)) or a possession of the United States 


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1 (within the meaning of section 638(2)) from an an2 thropogenic source that— 

3 ‘‘(A) would otherwise be released into the 

4 atmosphere as industrial emission of green5 house gas, 

6 ‘‘(B) is measurable at the source of cap7 ture, 

8 ‘‘(C) is compressed, treated, and (if nec9 essary) transported via pipeline, and 

10 ‘‘(D) is— 

11 ‘‘(i) permanently sequestered in saline 

12 or other underground formations, or 

13 ‘‘(ii) sold or used as a tertiary 

14 injectant in a qualified enhanced oil or nat15 ural gas recovery project and permanently 

16 sequestered in geological formations as a 

17 result of such project. 

18 ‘‘(2) RECYCLED CARBON DIOXIDE.—The term 

19 ‘qualified captured carbon dioxide’ includes the ini20 tial deposit of captured carbon dioxide used as a ter21 tiary injectant. Such term does not include carbon 

22 dioxide that is re-captured, recycled, and re-injected 

23 as part of the enhanced oil or natural gas recovery 

24 project. 


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1 ‘‘(3) ANTHROPOGENIC SOURCE.—An anthropo2 genic source of carbon dioxide is an industrial 

3 source, including any coal or natural gas fired elec4 trical generating power station, and facilities related 

5 to such source. 

6 ‘‘(4) QUALIFIED ENHANCED OIL OR NATURAL

7 GAS RECOVERY PROJECT.—The term ‘qualified en8 hanced oil or natural gas recovery project’ has the 

9 meaning given the term ‘qualified enhanced oil re10 covery project’ by section 43(c)(2), by substituting 

11 ‘crude oil or natural gas’ for ‘crude oil’ in subpara12 graph (A)(i) thereof. 

13 ‘‘(5) TERTIARY INJECTANT.—The term ‘ter14 tiary injectant’ has the same meaning as when used 

15 in section 193(b)(1).’’. 

16 (2) CREDIT TREATED AS PART OF GENERAL

17 BUSINESS CREDIT.—Section 38(b) (relating to gen18 eral business credit) is amended by striking ‘‘plus’’ 

19 at the end of paragraph (30), by striking the period 

20 at the end of paragraph (31) and inserting ‘‘, plus’’, 

21 and by adding at the end of following new para22 graph: 

23 ‘‘(32) the captured carbon dioxide tertiary 

24 injectant credit determined under section 45O(a).’’. 


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1 (3) CLERICAL AMENDMENT.—The table of sec2 tions for subpart B of part IV of subchapter A of 

3 chapter 1 is amended by adding at the end the fol4 lowing new item: 

‘‘Sec. 45O. Credit for capture and storage or use of carbon dioxide.’’. 

5 (4) EFFECTIVE DATE.—The amendments made 

6 by this subsection shall apply to taxable years begin7 ning after the date of the enactment of this Act. 

8 (b) CLASS LIFE OF CARBON DIOXIDE DISTRIBUTION

9 PIPELINES.— 

10 (1) IN GENERAL.—Subparagraph (D) of section 

11 168(e)(3) (relating to 10-year property) is amended 

12 by striking ‘‘and’’ at the end of clause (i), by strik13 ing the period at the end of clause (ii) and inserting 

14 ‘‘, and’’, and by adding at the end the following new 

15 clause: 

16 ‘‘(iii) any pipeline used primarily for 

17 the distribution of carbon dioxide for use 

18 as a tertiary injectant (within the meaning 

19 of section 193(b)(1)) for a qualified en20 hanced oil or natural gas recovery project 

21 (as defined in section 45O(c)(4)) and the 

22 original use of which commences with the 

23 taxpayer after the date of the enactment of 

24 Clean Energy Production Tax Incentives 

25 Act of 2007.’’. 


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1 (2) EFFECTIVE DATE.—The amendments made 

2 by this section shall apply to property placed in serv3 ice after the date of the enactment of this Act. 

4 SEC. 106. CARBON DIOXIDE CAPTURE BONDS. 

5 (a) IN GENERAL.—Subpart H of part IV of sub6 chapter A of chapter 1, as amended by this Act, is amend7 ed by adding at the end the following new section: 

8 ‘‘SEC. 54B. CREDIT TO HOLDERS OF CARBON DIOXIDE CAP9 TURE BONDS. 

10 ‘‘(a) ALLOWANCE OF CREDIT.—If a taxpayer holds 

11 a carbon dioxide capture bond on 1 or more credit allow12 ance dates of the bond occurring during any taxable year, 

13 there shall be allowed as a credit against the tax imposed 

14 by this chapter for the taxable year an amount equal to 

15 the sum of the credits determined under subsection (b) 

16 with respect to such dates. 

17 ‘‘(b) AMOUNT OF CREDIT.— 

18 ‘‘(1) IN GENERAL.—The amount of the credit 

19 determined under this subsection with respect to any 

20 credit allowance date for a carbon dioxide capture 

21 bond is 25 percent of the annual credit determined 

22 with respect to such bond. 

23 ‘‘(2) ANNUAL CREDIT.—The annual credit de24 termined with respect to any carbon dioxide capture 

25 bond is the product of— 


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1 ‘‘(A) the credit rate determined by the Sec2 retary under paragraph (3) for the day on 

3 which such bond was sold, multiplied by 

4 ‘‘(B) the outstanding face amount of the 

5 bond. 

6 ‘‘(3) DETERMINATION.—For purposes of para7 graph (2), with respect to any carbon dioxide cap8 ture bond, the Secretary shall determine daily or 

9 cause to be determined daily a credit rate which 

10 shall apply to the first day on which there is a bind11 ing, written contract for the sale or exchange of the 

12 bond. The credit rate for any day is the credit rate 

13 which the Secretary or the Secretary’s designee esti14 mates will permit the issuance of carbon dioxide cap15 ture bonds with a specified maturity or redemption 

16 date without discount and without interest cost to 

17 the qualified issuer. 

18 ‘‘(4) CREDIT ALLOWANCE DATE.—For purposes 

19 of this section, the term ‘credit allowance date’ 

20 means— 

21 ‘‘(A) March 15, 

22 ‘‘(B) June 15, 

23 ‘‘(C) September 15, and 

24 ‘‘(D) December 15. 


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1 ‘‘Such term also includes the last day on which the 

2 bond is outstanding. 

3 ‘‘(5) SPECIAL RULE FOR ISSUANCE AND RE4 DEMPTION.—In the case of a bond which is issued 

5 during the 3-month period ending on a credit allow6 ance date, the amount of the credit determined 

7 under this subsection with respect to such credit al8 lowance date shall be a ratable portion of the credit 

9 otherwise determined based on the portion of the 3- 

10 month period during which the bond is outstanding. 

11 A similar rule shall apply when the bond is redeemed 

12 or matures. 

13 ‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—The 

14 credit allowed under subsection (a) for any taxable year 

15 shall not exceed the excess of— 

16 ‘‘(1) the sum of the regular tax liability (as de17 fined in section 26(b)) plus the tax imposed by sec18 tion 55, over 

19 ‘‘(2) the sum of the credits allowable under this 

20 part (other than subpart C, this subpart and section 

21 1400N(l)). 

22 ‘‘(d) CARBON DIOXIDE CAPTURE BOND.—For pur23 poses of this section— 


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1 ‘‘(1) IN GENERAL.—The term ‘carbon dioxide 

2 capture bond’ means any bond issued as part of an 

3 issue if— 

4 ‘‘(A) the bond is issued by a qualified 

5 issuer pursuant to an allocation by the Sec6 retary to such issuer of a portion of the na7 tional carbon dioxide capture bond limitation 

8 under subsection (f)(2), 

9 ‘‘(B) 95 percent or more of the proceeds 

10 from the sale of such issue are to be used for 

11 capital expenditures incurred by qualified bor12 rowers for 1 or more qualified projects, 

13 ‘‘(C) the qualified issuer designates such 

14 bond for purposes of this section and the bond 

15 is in registered form, and 

16 ‘‘(D) the issue meets the requirements of 

17 subsection (h). 

18 ‘‘(2) QUALIFIED PROJECT; SPECIAL USE

19 RULES.— 

20 ‘‘(A) QUALIFIED PROJECT.—The term 

21 ‘qualified project’ means a project placed in 

22 service by a qualified borrower for the proc23 essing of qualified captured carbon dioxide (as 

24 defined in section 45O(c)(1)). 


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1 ‘‘(B) REFINANCING RULES.—For purposes 

2 of paragraph (1)(B), a qualified project may be 

3 refinanced with proceeds of a carbon dioxide 

4 capture bond only if the indebtedness being re5 financed (including any obligation directly or 

6 indirectly refinanced by such indebtedness) was 

7 originally incurred by a qualified borrower after 

8 the date of the enactment of this section. 

9 ‘‘(C) REIMBURSEMENT.—For purposes of 

10 paragraph (1)(B), a carbon dioxide capture 

11 bond may be issued to reimburse a qualified 

12 borrower for amounts paid after the date of the 

13 enactment of this section with respect to a 

14 qualified project, but only if— 

15 ‘‘(i) prior to the payment of the origi16 nal expenditure, the qualified borrower de17 clared its intent to reimburse such expendi18 ture with the proceeds of a carbon dioxide 

19 capture bond, 

20 ‘‘(ii) not later than 60 days after pay21 ment of the original expenditure, the quali22 fied issuer adopts an official intent to re23 imburse the original expenditure with such 

24 proceeds, and 


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1 ‘‘(iii) the reimbursement is made not 

2 later than 18 months after the date the 

3 original expenditure is paid or, if later, the 

4 date that the project is placed in service or 

5 abandoned. 

6 In no event may the reimbursement under 

7 clause (iii) be made more than 3 years after the 

8 date the original expenditure is paid. 

9 ‘‘(D) TREATMENT OF CHANGES IN USE.— 

10 For purposes of paragraph (1)(B), the proceeds 

11 of an issue shall not be treated as used for a 

12 qualified project to the extent that a qualified 

13 borrower takes any action within its control 

14 which causes such proceeds not to be used for 

15 a qualified project. The Secretary shall pre16 scribe regulations specifying remedial actions 

17 that may be taken (including conditions to tak18 ing such remedial actions) to prevent an action 

19 described in the preceding sentence from caus20 ing a bond to fail to be a carbon dioxide cap21 ture bond. 

22 ‘‘(e) MATURITY LIMITATIONS.— 

23 ‘‘(1) DURATION OF TERM.—A bond shall not be 

24 treated as a carbon dioxide capture bond if the ma25 turity of such bond exceeds the maximum term deVerDate Aug 31 2005 20:54 May 27, 2007 Jkt 059200 PO 00000 Frm 00034 Fmt 6652 Sfmt 6201 E:\BILLS\S1508.IS S1508

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1 termined by the Secretary under paragraph (2) with 

2 respect to such bond. 

3 ‘‘(2) MAXIMUM TERM.—During each calendar 

4 month, the Secretary shall determine the maximum 

5 term permitted under this paragraph for bonds 

6 issued during the following calendar month. Such 

7 maximum term shall be the greater of 15 years or 

8 the term which the Secretary estimates will result in 

9 the present value of the obligation to repay the prin10 cipal on the bond being equal to 50 percent of the 

11 face amount of such bond. Such present value shall 

12 be determined without regard to the requirements of 

13 subsection (l)(5) and using as a discount rate the 

14 average annual interest rate of tax of tax-exempt ob15 ligations having a term of 10 years or more which 

16 are issued during the month. If the term as so deter17 mined is not a multiple of a whole year, such term 

18 shall be rounded to the next highest whole year. 

19 ‘‘(f) LIMITATION ON AMOUNT OF BONDS DES20 IGNATED.— 

21 ‘‘(1) NATIONAL LIMITATION.—There is a na22 tional carbon dioxide capture bond limitation of 

23 $5,000,000,000. 

24 ‘‘(2) ALLOCATION BY SECRETARY.—The Sec25 retary, in consultation with the Secretary of Energy, 


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1 shall allocate the amount described in paragraph (1) 

2 among qualified projects in such manner as the Sec3 retary determines appropriate, except that the Sec4 retary may not allocate more than $3,125,000,000 

5 of the national carbon dioxide capture bond limita6 tion to finance qualified projects of qualified bor7 rowers which are public power entities. 

8 ‘‘(g) CREDIT INCLUDED IN GROSS INCOME.—Gross 

9 income includes the amount of the credit allowed to the 

10 taxpayer under this section (determined without regard to 

11 subsection (c)) and the amount so included shall be treat12 ed as interest income. 

13 ‘‘(h) SPECIAL RULES RELATING TO EXPENDI14 TURES.— 

15 ‘‘(1) IN GENERAL.—An issue shall be treated as 

16 meeting the requirements of this subsection if, as of 

17 the date of issuance, the qualified issuer reasonably 

18 expects— 

19 ‘‘(A) at least 95 percent of the proceeds 

20 from the sale of the issue are to be spent for 

21 1 or more qualified projects within the 5-year 

22 period beginning on the date of issuance of the 

23 clean energy bond, 

24 ‘‘(B) a binding commitment with a third 

25 party to spend at least 10 percent of the proVerDate Aug 31 2005 20:54 May 27, 2007 Jkt 059200 PO 00000 Frm 00036 Fmt 6652 Sfmt 6201 E:\BILLS\S1508.IS S1508

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1 ceeds from the sale of the issue will be incurred 

2 within the 6-month period beginning on the 

3 date of issuance of the clean energy bond or, in 

4 the case of a clean energy bond the proceeds of 

5 which are to be loaned to 2 or more qualified 

6 borrowers, such binding commitment will be in7 curred within the 6-month period beginning on 

8 the date of the loan of such proceeds to a quali9 fied borrower, and 

10 ‘‘(C) such projects will be completed with 

11 due diligence and the proceeds from the sale of 

12 the issue will be spent with due diligence. 

13 ‘‘(2) EXTENSION OF PERIOD.—Upon submis14 sion of a request prior to the expiration of the period 

15 described in paragraph (1)(A), the Secretary may 

16 extend such period if the qualified issuer establishes 

17 that the failure to satisfy the 5-year requirement is 

18 due to reasonable cause and the related projects will 

19 continue to proceed with due diligence. 

20 ‘‘(3) FAILURE TO SPEND REQUIRED AMOUNT

21 OF BOND PROCEEDS WITHIN 5 YEARS.—To the ex22 tent that less than 95 percent of the proceeds of 

23 such issue are expended by the close of the 5-year 

24 period beginning on the date of issuance (or if an 

25 extension has been obtained under paragraph (2), by 


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1 the close of the extended period), the qualified issuer 

2 shall redeem all of the nonqualified bonds within 90 

3 days after the end of such period. For purposes of 

4 this paragraph, the amount of the nonqualified 

5 bonds required to be redeemed shall be determined 

6 in the same manner as under section 142. 

7 ‘‘(i) SPECIAL RULES RELATING TO ARBITRAGE.—A 

8 bond which is part of an issue shall not be treated as a 

9 carbon dioxide capture bond unless, with respect to the 

10 issue of which the bond is a part, the qualified issuer satis11 fies the arbitrage requirements of section 148 with respect 

12 to proceeds of the issue. 

13 ‘‘(j) COOPERATIVE ELECTRIC COMPANY; CARBON DI14 OXIDE CAPTURE BOND LENDER; GOVERNMENTAL BODY; 

15 QUALIFIED BORROWER.—For purposes of this section— 

16 ‘‘(1) COOPERATIVE ELECTRIC COMPANY.—The 

17 term ‘cooperative electric company’ means a mutual 

18 or cooperative electric company described in section 

19 501(c)(12) or section 1381(a)(2)(C), or a not-for20 profit electric utility which has received a loan or 

21 loan guarantee under the Rural Electrification Act. 

22 ‘‘(2) CARBON DIOXIDE CAPTURE BOND LEND23 ER.—The term ‘carbon dioxide capture bond lender’ 

24 means a lender which is a cooperative which is 

25 owned by, or has outstanding loans to, 100 or more 


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1 cooperative electric companies and is in existence on 

2 February 1, 2002, and shall include any affiliated 

3 entity which is controlled by such lender. 

4 ‘‘(3) GOVERNMENTAL BODY.—For purposes of 

5 this section, the term ‘governmental body’ means 

6 any State, territory, possession of the United States, 

7 the District of Columbia, Indian tribal government, 

8 and any political subdivision thereof. 

9 ‘‘(4) QUALIFIED ISSUER.—The term ‘qualified 

10 issuer’ means— 

11 ‘‘(A) a carbon dioxide capture bond lender, 

12 ‘‘(B) a cooperative electric company, or 

13 ‘‘(C) a governmental body. 

14 ‘‘(5) QUALIFIED BORROWER.—The term ‘quali15 fied borrower’ means— 

16 ‘‘(A) a mutual or cooperative electric com17 pany described in section 501(c)(12) or 

18 1381(a)(2)(C), or 

19 ‘‘(B) a governmental body. 

20 ‘‘(k) SPECIAL RULES RELATING TO POOL BONDS.— 

21 No portion of a pooled financing bond may be allocable 

22 to any loan unless the borrower has entered into a written 

23 loan commitment for such portion prior to the issue date 

24 of such issue. 


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1 ‘‘(l) OTHER DEFINITIONS AND SPECIAL RULES.— 

2 For purposes of this section— 

3 ‘‘(1) BOND.—The term ‘bond’ includes any ob4 ligation. 

5 ‘‘(2) POOLED FINANCING BOND.—The term 

6 ‘pooled financing bond’ shall have the meaning given 

7 such term by section 149(f)(4)(A). 

8 ‘‘(3) PARTNERSHIP; S CORPORATION; AND

9 OTHER PASS-THRU ENTITIES.— 

10 ‘‘(A) IN GENERAL.—Under regulations 

11 prescribed by the Secretary, in the case of a 

12 partnership, trust, S corporation, or other pass13 thru entity, rules similar to the rules of section 

14 41(g) shall apply with respect to the credit al15 lowable under subsection (a). 

16 ‘‘(B) NO BASIS ADJUSTMENT.—Rules simi17 lar to the rules under section 1397E(l) shall 

18 apply. 

19 ‘‘(4) BONDS HELD BY REGULATED INVEST20 MENT COMPANIES.—If any carbon dioxide capture 

21 bond is held by a regulated investment company, the 

22 credit determined under subsection (a) shall be al23 lowed to shareholders of such company under proce24 dures prescribed by the Secretary. 


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1 ‘‘(5) RATABLE PRINCIPAL AMORTIZATION RE2 QUIRED.—A bond shall not be treated as a carbon 

3 dioxide capture bond unless it is part of an issue 

4 which provides for an equal amount of principal to 

5 be paid by the qualified issuer during each calendar 

6 year that the issue is outstanding. 

7 ‘‘(6) REPORTING.—Issuers of carbon dioxide 

8 capture bonds shall submit reports similar to the re9 ports required under section 149(e). 

10 ‘‘(m) TERMINATION.—This section shall not apply 

11 with respect to any bond issued after December 31, 

12 2017.’’. 

13 (b) REPORTING.—Subsection (d) of section 6049 (re14 lating to returns regarding payments of interest), as 

15 amended by this Act, is amended by adding at the end 

16 the following new paragraph: 

17 ‘‘(10) REPORTING OF CREDIT ON CARBON DI18 OXIDE CAPTURE BONDS.— 

19 ‘‘(A) IN GENERAL.—For purposes of sub20 section (a), the term ‘interest’ includes amounts 

21 includible in gross income under section 54B(g) 

22 and such amounts shall be treated as paid on 

23 the credit allowance date (as defined in section 

24 54B(b)(4)). 


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1 ‘‘(B) REPORTING TO CORPORATIONS, 

2 ETC.—Except as otherwise provided in regula3 tions, in the case of any interest described in 

4 subparagraph (A), subsection (b)(4) shall be 

5 applied without regard to subparagraphs (A), 

6 (H), (I), (J), (K), and (L)(i) of such subsection. 

7 ‘‘(C) REGULATORY AUTHORITY.—The Sec8 retary may prescribe such regulations as are 

9 necessary or appropriate to carry out the pur10 poses of this paragraph, including regulations 

11 which require more frequent or more detailed 

12 reporting.’’. 

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

14 for subpart H of part IV of subchapter A of chapter 1, 

15 as amended by this Act, is amended by adding at the end 

16 the following new item: 

‘‘Sec. 54B. Credit to holders of carbon dioxide capture bonds.’’. 

17 (d) ISSUANCE OF REGULATIONS.—The Secretary of 

18 the Treasury shall issues regulations required under sec19 tion 54B of the Internal Revenue Code of 1986 (as added 

20 by this section) not later than 120 days after the date 

21 of the enactment of this Act. 

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

23 this section shall apply to bonds issued after December 

24 31, 2007. 


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1 SEC. 107. INCENTIVES FOR INVESTMENT IN ELECTRIC 

2 TRANSMISSION PROPERTY. 

3 (a) ELECTRIC TRANSMISSION PROPERTY INVEST4 MENT TAX CREDIT.— 

5 (1) IN GENERAL.—Subpart D of part IV of 

6 subchapter A of chapter 1 (relating to business re7 lated credits), as amended by this Act, is amended 

8 by adding at the end the following new section: 

9 ‘‘SEC. 45P. ELECTRIC TRANSMISSION PROPERTY INVEST10 MENT CREDIT. 

11 ‘‘(a) IN GENERAL.—For purposes of section 38, the 

12 amount of the electric transmission property investment 

13 credit determined under this section for any taxable year 

14 in the credit period shall be an amount equal to the appli15 cable percentage of the basis of each qualified electric 

16 transmission property. 

17 ‘‘(b) APPLICABLE PERCENTAGE.—For purposes of 

18 this section— 

19 ‘‘(1) IN GENERAL.—The term ‘applicable per20 centage’ means the appropriate percentage pre21 scribed by the Secretary for the first month of the 

22 credit period with respect to qualified electric trans23 mission property. 

24 ‘‘(2) METHOD OF PRESCRIBING PERCENT25 AGES.—The percentages prescribed by the Secretary 

26 for any month shall be percentages which will yield 


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•S 1508 IS

1 over a 10-year period amounts of credit under sub2 section (a) which have a present value equal to 80 

3 percent of the basis of the qualified electric trans4 mission property. 

5 ‘‘(3) METHOD OF DISCOUNTING.—The present 

6 value under paragraph (2) shall be determined— 

7 ‘‘(A) as of the last day of the 1st year of 

8 the 10-year period referred to in paragraph (2), 

9 ‘‘(B) by using a discount rate equal to 72 

10 percent of the average of the annual Federal 

11 mid-term rate and the annual Federal long12 term rate applicable under section 1274(d)(1) 

13 to the month applicable under subparagraph 

14 (A) or (B) of paragraph (1) and compounded 

15 annually, and 

16 ‘‘(C) by assuming that the credit allowable 

17 under this section for any year is received on 

18 the last day of such year. 

19 ‘‘(c) QUALIFIED ELECTRIC TRANSMISSION PROP20 ERTY; QUALIFIED INTERSTATE ELECTRIC TRANSMISSION

21 INVESTMENT PROJECT; COMPLIANCE PERIOD.—For pur22 poses of this section— 

23 ‘‘(1) QUALIFIED ELECTRIC TRANSMISSION

24 PROPERTY.—The term ‘qualified electric trans25 mission property’ means any section 1245 property 


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•S 1508 IS

1 (as defined in section 1245(a)(3)) used in the trans2 mission at 230 or more kilovolts of electricity for 

3 sale which is part of a qualified interstate electric 

4 transmission investment project at all times during 

5 the period— 

6 ‘‘(A) beginning on the 1st day in the com7 pliance period on which such property is part of 

8 such an investment project, and 

9 ‘‘(B) ending on the last day of the compli10 ance period with respect to such property. 

11 ‘‘(2) QUALIFIED INTERSTATE ELECTRIC TRANS12 MISSION INVESTMENT PROJECT.—The term ‘quali13 fied interstate electric transmission investment 

14 project’ means any investment project which consists 

15 of the construction of property used in the interstate 

16 transmission electricity and which is certified by the 

17 Secretary under subsection (e). 

18 ‘‘(3) COMPLIANCE PERIOD.—The term ‘compli19 ance period’ means, with respect to any building, the 

20 period of 10 taxable years beginning with the 1st 

21 taxable year of the credit period with respect there22 to. 

23 ‘‘(d) DEFINITION AND SPECIAL RULES RELATING TO

24 CREDIT PERIOD.— 


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1 ‘‘(1) CREDIT PERIOD DEFINED.—For purposes 

2 of this section, the term ‘credit period’ means, with 

3 respect to any property, the period of 10 taxable 

4 years beginning with the taxable year in which the 

5 property is first placed in service. 

6 ‘‘(2) SPECIAL RULE FOR 1ST YEAR OF CREDIT

7 PERIOD.— 

8 ‘‘(A) IN GENERAL.—The credit allowable 

9 under subsection (a) with respect to any prop10 erty for the 1st taxable year of the credit period 

11 shall be determined by multiplying such credit 

12 by the fraction— 

13 ‘‘(i) the numerator of which is the 

14 number of full months of such year during 

15 which such property was in service, and 

16 ‘‘(ii) the denominator of which is 12. 

17 ‘‘(B) DISALLOWED 1ST YEAR CREDIT AL18 LOWED IN 11TH YEAR.—Any reduction by rea19 son of subparagraph (A) in the credit allowable 

20 (without regard to subparagraph (A)) for the 

21 1st taxable year of the credit period shall be al22 lowable under subsection (a) for the 1st taxable 

23 year following the credit period. 

24 ‘‘(e) CERTIFICATION OF QUALIFIED INTERSTATE

25 ELECTRIC TRANSMISSION INVESTMENT PROJECTS.— 


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1 ‘‘(1) IN GENERAL.—Not later than 180 days 

2 after the date of the enactment of this Act, the Sec3 retary, in consultation with the Secretary of Energy, 

4 shall establish a program identifying criteria for the 

5 certification of qualified interstate electric trans6 mission investment projects. 

7 ‘‘(2) CERTIFICATION.— 

8 ‘‘(A) APPLICATION PERIOD.—Each appli9 cant for certification under this paragraph shall 

10 submit an application meeting the requirements 

11 of subparagraph (B). 

12 ‘‘(B) REQUIREMENTS FOR APPLICATIONS

13 FOR CERTIFICATION.—An application under 

14 subparagraph (A) shall contain such informa15 tion as the Secretary may require in order to 

16 make a determination to accept or reject an ap17 plication for certification. Any information con18 tained in the application shall be protected as 

19 provided in section 552(b)(4) of title 5, United 

20 States Code. 

21 ‘‘(C) TIME TO ACT UPON APPLICATIONS

22 FOR CERTIFICATION.—The Secretary shall issue 

23 a determination as to whether an applicant has 

24 met the requirements established under paraVerDate Aug 31 2005 20:54 May 27, 2007 Jkt 059200 PO 00000 Frm 00047 Fmt 6652 Sfmt 6201 E:\BILLS\S1508.IS S1508

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1 graph (1) within 60 days following the date of 

2 submittal of the application for certification. 

3 ‘‘(D) PERIOD OF ISSUANCE.—An applicant 

4 which receives a certification shall have 5 years 

5 from the date of issuance of the certification in 

6 order to place the project in service and if such 

7 project is not placed in service by that time pe8 riod then the certification shall no longer be 

9 valid. 

10 ‘‘(3) AGGREGATE CREDITS.—The aggregate 

11 credits allowed under subsection (a) for projects cer12 tified by the Secretary under paragraph (2) may not 

13 exceed $2,500,000,000. 

14 ‘‘(f) CREDITS FOR ELECTRIC COOPERATIVES AND

15 STATE AND LOCAL GOVERNMENTS.— 

16 ‘‘(1) ALLOWANCE OF CREDIT.—Any credit 

17 which would be allowable under subsection (a) with 

18 respect to an organization described in paragraph 

19 (4) shall be treated as a credit allowable under sub20 part C to such organization. 

21 ‘‘(2) USE OF CREDIT.—An organization de22 scribed in paragraph (4) may assign, trade, sell, or 

23 otherwise transfer any credit allowable to such orga24 nization under subsection (a) to any taxpayer. 


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1 ‘‘(3) CREDIT NOT INCOME.—A transfer under 

2 paragraph (2) of any credit allowable under sub3 section (a) shall not result in income for purposes of 

4 section 511. 

5 ‘‘(4) ORGANIZATION DESCRIBED.—An organiza6 tion is described in this paragraph if such organiza7 tion is— 

8 ‘‘(A) a State or local government, or 

9 ‘‘(B) a mutual or cooperative electric com10 pany which is described in section 501(c)(12) 

11 and exempt from tax under section 501(a). 

12 ‘‘(g) CERTIFICATIONS AND OTHER REPORTS TO SEC13 RETARY.— 

14 ‘‘(1) CERTIFICATION WITH RESPECT TO 1ST

15 YEAR OF CREDIT PERIOD.—Following the close of 

16 the 1st taxable year in the credit period with respect 

17 to any qualified electric transmission property, the 

18 taxpayer shall certify to the Secretary (at such time 

19 and in such form and in such manner as the Sec20 retary prescribes)— 

21 ‘‘(A) the taxable year, and calendar year, 

22 in which such property was first placed in serv23 ice, 

24 ‘‘(B) the basis of such property as of the 

25 beginning of the credit period, and 


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1 ‘‘(C) such other information as the Sec2 retary may require. 

3 In the case of a failure to make the certification re4 quired by the preceding sentence on the date pre5 scribed therefor, unless it is shown that such failure 

6 is due to reasonable cause and not to willful neglect, 

7 no credit shall be allowable by reason of subsection 

8 (a) with respect to such property for any taxable 

9 year ending before such certification is made. 

10 ‘‘(2) ANNUAL REPORTS TO THE SECRETARY.— 

11 The Secretary may require taxpayers to submit an 

12 information return (at such time and in such form 

13 and manner as the Secretary prescribes) for each 

14 taxable year setting forth— 

15 ‘‘(A) the basis for the taxable year of each 

16 qualified electric transmission property of the 

17 taxpayer, and 

18 ‘‘(B) such other information as the Sec19 retary may require. 

20 ‘‘(h) REGULATIONS.—The Secretary shall prescribe 

21 such regulations as may be necessary or appropriate to 

22 carry out the purposes of this section, including regula23 tions for recapturing the credit allowed under this section 

24 where appropriate.’’. 


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1 (2) CREDIT TREATED AS PART OF GENERAL

2 BUSINESS CREDIT.—Section 38(b), as amended by 

3 this Act, is amended by striking ‘‘plus’’ at the end 

4 of paragraph (31), by striking the period at the end 

5 of paragraph (32) and inserting ‘‘, plus’’, and by 

6 adding at the end the following new paragraph: 

7 ‘‘(33) the electric transmission property invest8 ment credit determined under section 45P(a).’’. 

9 (3) CLERICAL AMENDMENT.—The table of sec10 tions for subpart B of part IV of subchapter A of 

11 chapter 1 of such Code, as amended by this Act, is 

12 amended by adding at the end the following new 

13 item: 

‘‘Sec. 45P. Electric transmission property investment credit.’’. 

14 (b) ELECTRIC TRANSMISSION PROPERTY TREATED

15 AS 10-YEAR PROPERTY.— 

16 (1) IN GENERAL.—Subparagraph (D) of section 

17 168(e)(3) (relating to 10-year property), as amended 

18 by this Act, is amended by striking ‘‘and’’ at the end 

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

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

21 the end the following new clause: 

22 ‘‘(iv) any section 1245 property (as 

23 defined in section 1245(a)(3)) used in the 

24 transmission at 230 or more kilovolts of 

25 electricity for sale and the original use of 


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1 which commences with the taxpayer after 

2 the date of the enactment of this clause.’’. 

3 (2) CONFORMING AMENDMENT.—Subparagraph 

4 (E) of section 168(e)(3) is amended by inserting 

5 ‘‘and before the date of the enactment of the Clean 

6 Energy Production Tax Incentives Act of 2007’’. 

7 (3) EFFECTIVE DATE.—The amendments made 

8 by this subsection shall apply to property placed in 

9 service after the date of the enactment of this Act. 

10 SEC. 108. ELECTRIC TRANSMISSION PROPERTY BONDS. 

11 (a) IN GENERAL.—Subpart H of part IV of sub12 chapter A of chapter 1, as amended by this Act, is amend13 ed by adding at the end the following new section: 

14 ‘‘SEC. 54C. CREDIT TO HOLDERS OF ELECTRIC TRANS15 MISSION PROPERTY BONDS. 

16 ‘‘(a) ALLOWANCE OF CREDIT.—If a taxpayer holds 

17 an electric transmission property bond on 1 or more credit 

18 allowance dates of the bond occurring during any taxable 

19 year, there shall be allowed as a credit against the tax 

20 imposed by this chapter for the taxable year an amount 

21 equal to the sum of the credits determined under sub22 section (b) with respect to such dates. 

23 ‘‘(b) AMOUNT OF CREDIT.— 

24 ‘‘(1) IN GENERAL.—The amount of the credit 

25 determined under this subsection with respect to any 


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1 credit allowance date for an electric transmission 

2 property bond is 25 percent of the annual credit de3 termined with respect to such bond. 

4 ‘‘(2) ANNUAL CREDIT.—The annual credit de5 termined with respect to any electric transmission 

6 property bond is the product of— 

7 ‘‘(A) the credit rate determined by the Sec8 retary under paragraph (3) for the day on 

9 which such bond was sold, multiplied by 

10 ‘‘(B) the outstanding face amount of the 

11 bond. 

12 ‘‘(3) DETERMINATION.—For purposes of para13 graph (2), with respect to any electric transmission 

14 property bond, the Secretary shall determine daily or 

15 cause to be determined daily a credit rate which 

16 shall apply to the first day on which there is a bind17 ing, written contract for the sale or exchange of the 

18 bond. The credit rate for any day is the credit rate 

19 which the Secretary or the Secretary’s designee esti20 mates will permit the issuance of electric trans21 mission property bonds with a specified maturity or 

22 redemption date without discount and without inter23 est cost to the qualified issuer. 


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1 ‘‘(4) CREDIT ALLOWANCE DATE.—For purposes 

2 of this section, the term ‘credit allowance date’ 

3 means— 

4 ‘‘(A) March 15, 

5 ‘‘(B) June 15, 

6 ‘‘(C) September 15, and 

7 ‘‘(D) December 15. 

8 ‘‘Such term also includes the last day on which the 

9 bond is outstanding. 

10 ‘‘(5) SPECIAL RULE FOR ISSUANCE AND RE11 DEMPTION.—In the case of a bond which is issued 

12 during the 3-month period ending on a credit allow13 ance date, the amount of the credit determined 

14 under this subsection with respect to such credit al15 lowance date shall be a ratable portion of the credit 

16 otherwise determined based on the portion of the 3- 

17 month period during which the bond is outstanding. 

18 A similar rule shall apply when the bond is redeemed 

19 or matures. 

20 ‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—The 

21 credit allowed under subsection (a) for any taxable year 

22 shall not exceed the excess of— 

23 ‘‘(1) the sum of the regular tax liability (as de24 fined in section 26(b)) plus the tax imposed by sec25 tion 55, over 


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1 ‘‘(2) the sum of the credits allowable under this 

2 part (other than subpart C, this subpart and section 

3 1400N(l)). 

4 ‘‘(d) ELECTRIC TRANSMISSION PROPERTY BOND.— 

5 For purposes of this section— 

6 ‘‘(1) IN GENERAL.—The term ‘electric trans7 mission property bond’ means any bond issued as 

8 part of an issue if— 

9 ‘‘(A) the bond is issued by a qualified 

10 issuer pursuant to an allocation by the Sec11 retary to such issuer of a portion of the na12 tional electric transmission property bond limi13 tation under subsection (f)(2), 

14 ‘‘(B) 95 percent or more of the proceeds 

15 from the sale of such issue are to be used for 

16 capital expenditures incurred by qualified bor17 rowers for 1 or more qualified projects, 

18 ‘‘(C) the qualified issuer designates such 

19 bond for purposes of this section and the bond 

20 is in registered form, and 

21 ‘‘(D) the issue meets the requirements of 

22 subsection (h). 

23 ‘‘(2) QUALIFIED PROJECT; SPECIAL USE

24 RULES.— 


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1 ‘‘(A) IN GENERAL.—The term ‘qualified 

2 project’ means a project for the installation of 

3 any section 1245 property (as defined in section 

4 1245(a)(3)) used in the transmission at 230 or 

5 more kilovolts of electricity for sale and placed 

6 in service by a qualified borrower. 

7 ‘‘(B) REFINANCING RULES.—For purposes 

8 of paragraph (1)(B), a qualified project may be 

9 refinanced with proceeds of an electric trans10 mission property bond only if the indebtedness 

11 being refinanced (including any obligation di12 rectly or indirectly refinanced by such indebted13 ness) was originally incurred by a qualified bor14 rower after the date of the enactment of this 

15 section. 

16 ‘‘(C) REIMBURSEMENT.—For purposes of 

17 paragraph (1)(B), an electric transmission 

18 property bond may be issued to reimburse a 

19 qualified borrower for amounts paid after the 

20 date of the enactment of this section with re21 spect to a qualified project, but only if— 

22 ‘‘(i) prior to the payment of the origi23 nal expenditure, the qualified borrower de24 clared its intent to reimburse such expendiVerDate Aug 31 2005 20:54 May 27, 2007 Jkt 059200 PO 00000 Frm 00056 Fmt 6652 Sfmt 6201 E:\BILLS\S1508.IS S1508

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1 ture with the proceeds of an electric trans2 mission property bond, 

3 ‘‘(ii) not later than 60 days after pay4 ment of the original expenditure, the quali5 fied issuer adopts an official intent to re6 imburse the original expenditure with such 

7 proceeds, and 

8 ‘‘(iii) the reimbursement is made not 

9 later than 18 months after the date the 

10 original expenditure is paid or, if later, the 

11 date that the project is placed in service or 

12 abandoned. 

13 In no event may the reimbursement under 

14 clause (iii) be made more than 3 years after the 

15 date the original expenditure is paid. 

16 ‘‘(D) TREATMENT OF CHANGES IN USE.— 

17 For purposes of paragraph (1)(B), the proceeds 

18 of an issue shall not be treated as used for a 

19 qualified project to the extent that a qualified 

20 borrower takes any action within its control 

21 which causes such proceeds not to be used for 

22 a qualified project. The Secretary shall pre23 scribe regulations specifying remedial actions 

24 that may be taken (including conditions to tak25 ing such remedial actions) to prevent an action 


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1 described in the preceding sentence from caus2 ing a bond to fail to be an electric transmission 

3 property bond. 

4 ‘‘(e) MATURITY LIMITATIONS.— 

5 ‘‘(1) DURATION OF TERM.—A bond shall not be 

6 treated as an electric transmission property bond if 

7 the maturity of such bond exceeds the maximum 

8 term determined by the Secretary under paragraph 

9 (2) with respect to such bond. 

10 ‘‘(2) MAXIMUM TERM.—During each calendar 

11 month, the Secretary shall determine the maximum 

12 term permitted under this paragraph for bonds 

13 issued during the following calendar month. Such 

14 maximum term shall be the greater of 15 years or 

15 the term which the Secretary estimates will result in 

16 the present value of the obligation to repay the prin17 cipal on the bond being equal to 50 percent of the 

18 face amount of such bond. Such present value shall 

19 be determined without regard to the requirements of 

20 subsection (l)(6) and using as a discount rate the 

21 average annual interest rate of tax of tax-exempt ob22 ligations having a term of 10 years or more which 

23 are issued during the month. If the term as so deter24 mined is not a multiple of a whole year, such term 

25 shall be rounded to the next highest whole year. 


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1 ‘‘(f) LIMITATION ON AMOUNT OF BONDS DES2 IGNATED.— 

3 ‘‘(1) NATIONAL LIMITATION.—There is a na4 tional electric transmission property bond limitation 

5 of $2,500,000,000. 

6 ‘‘(2) ALLOCATION BY SECRETARY.—The Sec7 retary, in consultation with the Secretary of Energy, 

8 shall allocate the amount described in paragraph (1) 

9 among qualified projects in such manner as the Sec10 retary determines appropriate, except that the Sec11 retary may not allocate more than $1,560,000,000 

12 of the national electric transmission property bond 

13 limitation to finance qualified projects of qualified 

14 borrowers which are public power entities. 

15 ‘‘(g) CREDIT INCLUDED IN GROSS INCOME.—Gross 

16 income includes the amount of the credit allowed to the 

17 taxpayer under this section (determined without regard to 

18 subsection (c)) and the amount so included shall be treat19 ed as interest income. 

20 ‘‘(h) SPECIAL RULES RELATING TO EXPENDI21 TURES.— 

22 ‘‘(1) IN GENERAL.—An issue shall be treated as 

23 meeting the requirements of this subsection if, as of 

24 the date of issuance, the qualified issuer reasonably 

25 expects— 


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1 ‘‘(A) at least 95 percent of the proceeds 

2 from the sale of the issue are to be spent for 

3 1 or more qualified projects within the 5-year 

4 period beginning on the date of issuance of the 

5 clean energy bond, 

6 ‘‘(B) a binding commitment with a third 

7 party to spend at least 10 percent of the pro8 ceeds from the sale of the issue will be incurred 

9 within the 6-month period beginning on the 

10 date of issuance of the clean energy bond or, in 

11 the case of a clean energy bond the proceeds of 

12 which are to be loaned to 2 or more qualified 

13 borrowers, such binding commitment will be in14 curred within the 6-month period beginning on 

15 the date of the loan of such proceeds to a quali16 fied borrower, and 

17 ‘‘(C) such projects will be completed with 

18 due diligence and the proceeds from the sale of 

19 the issue will be spent with due diligence. 

20 ‘‘(2) EXTENSION OF PERIOD.—Upon submis21 sion of a request prior to the expiration of the period 

22 described in paragraph (1)(A), the Secretary may 

23 extend such period if the qualified issuer establishes 

24 that the failure to satisfy the 5-year requirement is 


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1 due to reasonable cause and the related projects will 

2 continue to proceed with due diligence. 

3 ‘‘(3) FAILURE TO SPEND REQUIRED AMOUNT

4 OF BOND PROCEEDS WITHIN 5 YEARS.—To the ex5 tent that less than 95 percent of the proceeds of 

6 such issue are expended by the close of the 5-year 

7 period beginning on the date of issuance (or if an 

8 extension has been obtained under paragraph (2), by 

9 the close of the extended period), the qualified issuer 

10 shall redeem all of the nonqualified bonds within 90 

11 days after the end of such period. For purposes of 

12 this paragraph, the amount of the nonqualified 

13 bonds required to be redeemed shall be determined 

14 in the same manner as under section 142. 

15 ‘‘(i) SPECIAL RULES RELATING TO ARBITRAGE.—A 

16 bond which is part of an issue shall not be treated as an 

17 electric transmission property bond unless, with respect to 

18 the issue of which the bond is a part, the qualified issuer 

19 satisfies the arbitrage requirements of section 148 with 

20 respect to proceeds of the issue. 

21 ‘‘(j) COOPERATIVE ELECTRIC COMPANY; ELECTRIC

22 TRANSMISSION PROPERTY BOND LENDER; PUBLIC

23 POWER ENTITY; QUALIFIED BORROWER.—For purposes 

24 of this section— 


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1 ‘‘(1) COOPERATIVE ELECTRIC COMPANY.—The 

2 term ‘cooperative electric company’ means a mutual 

3 or cooperative electric company described in section 

4 501(c)(12) or section 1381(a)(2)(C), or a not-for5 profit electric utility which has received a loan or 

6 loan guarantee under the Rural Electrification Act. 

7 ‘‘(2) ELECTRIC TRANSMISSION PROPERTY BOND

8 LENDER.—The term ‘electric transmission property 

9 bond lender’ means a lender which is a cooperative 

10 which is owned by, or has outstanding loans to, 100 

11 or more cooperative electric companies and is in ex12 istence on February 1, 2002, and shall include any 

13 affiliated entity which is controlled by such lender. 

14 ‘‘(3) PUBLIC POWER ENTITY.—The term ‘public 

15 power entity’ means a State utility with a service ob16 ligation, as such terms are defined in section 217 of 

17 the Federal Power Act (as in effect on the date of 

18 the enactment of this paragraph). 

19 ‘‘(4) QUALIFIED ISSUER.—The term ‘qualified 

20 issuer’ means— 

21 ‘‘(A) an electric transmission property 

22 bond lender, 

23 ‘‘(B) a cooperative electric company, or 

24 ‘‘(C) a public power entity. 


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1 ‘‘(5) QUALIFIED BORROWER.—The term ‘quali2 fied borrower’ means— 

3 ‘‘(A) a mutual or cooperative electric com4 pany described in section 501(c)(12) or 

5 1381(a)(2)(C), or 

6 ‘‘(B) a public power entity. 

7 ‘‘(k) SPECIAL RULES RELATING TO POOL BONDS.— 

8 No portion of a pooled financing bond may be allocable 

9 to any loan unless the borrower has entered into a written 

10 loan commitment for such portion prior to the issue date 

11 of such issue. 

12 ‘‘(l) OTHER DEFINITIONS AND SPECIAL RULES.— 

13 For purposes of this section— 

14 ‘‘(1) BOND.—The term ‘bond’ includes any ob15 ligation. 

16 ‘‘(2) POOLED FINANCING BOND.—The term 

17 ‘pooled financing bond’ shall have the meaning given 

18 such term by section 149(f)(4)(A). 

19 ‘‘(3) PARTNERSHIP; S CORPORATION; AND

20 OTHER PASS-THRU ENTITIES.— 

21 ‘‘(A) IN GENERAL.—Under regulations 

22 prescribed by the Secretary, in the case of a 

23 partnership, trust, S corporation, or other pass24 thru entity, rules similar to the rules of section 


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1 41(g) shall apply with respect to the credit al2 lowable under subsection (a). 

3 ‘‘(B) NO BASIS ADJUSTMENT.—Rules simi4 lar to the rules under section 1397E(l) shall 

5 apply. 

6 ‘‘(4) BONDS HELD BY REGULATED INVEST7 MENT COMPANIES.—If any electric transmission 

8 property bond is held by a regulated investment 

9 company, the credit determined under subsection (a) 

10 shall be allowed to shareholders of such company 

11 under procedures prescribed by the Secretary. 

12 ‘‘(5) RATABLE PRINCIPAL AMORTIZATION RE13 QUIRED.—A bond shall not be treated as an electric 

14 transmission property bond unless it is part of an 

15 issue which provides for an equal amount of prin16 cipal to be paid by the qualified issuer during each 

17 calendar year that the issue is outstanding. 

18 ‘‘(6) REPORTING.—Issuers of electric trans19 mission property bonds shall submit reports similar 

20 to the reports required under section 149(e). 

21 ‘‘(m) TERMINATION.—This section shall not apply 

22 with respect to any bond issued after December 31, 

23 2017.’’. 

24 (b) REPORTING.—Subsection (d) of section 6049 (re25 lating to returns regarding payments of interest), as 


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1 amended by this Act, is amended by adding at the end 

2 the following new paragraph: 

3 ‘‘(11) REPORTING OF CREDIT ON ELECTRIC

4 TRANSMISSION PROPERTY BONDS.— 

5 ‘‘(A) IN GENERAL.—For purposes of sub6 section (a), the term ‘interest’ includes amounts 

7 includible in gross income under section 54C(g) 

8 and such amounts shall be treated as paid on 

9 the credit allowance date (as defined in section 

10 54C(b)(4)). 

11 ‘‘(B) REPORTING TO CORPORATIONS, 

12 ETC.—Except as otherwise provided in regula13 tions, in the case of any interest described in 

14 subparagraph (A), subsection (b)(4) shall be 

15 applied without regard to subparagraphs (A), 

16 (H), (I), (J), (K), and (L)(i) of such subsection. 

17 ‘‘(C) REGULATORY AUTHORITY.—The Sec18 retary may prescribe such regulations as are 

19 necessary or appropriate to carry out the pur20 poses of this paragraph, including regulations 

21 which require more frequent or more detailed 

22 reporting.’’. 

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

24 for subpart H of part IV of subchapter A of chapter 1, 


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1 as amended by this Act, is amended by adding at the end 

2 the following new item: 

‘‘Sec. 54C. Credit to holders of electric transmission property bonds.’’. 

3 (d) ISSUANCE OF REGULATIONS.—The Secretary of 

4 the Treasury shall issues regulations required under sec5 tion 54C of the Internal Revenue Code of 1986 (as added 

6 by this section) not later than 120 days after the date 

7 of the enactment of this Act. 

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

9 this section shall apply to bonds issued after December 

10 31, 2007. 

11 SEC. 109. EXTENSION AND MODIFICATION OF INVESTMENT 

12 CREDIT FOR QUALIFIED FUEL CELL PROP13 ERTY, QUALIFIED MICROTURBINE PROP14 ERTY, AND SOLAR PROPERTY. 

15 (a) EXTENSION.— 

16 (1) QUALIFIED FUEL CELL PROPERTY.—Sub17 paragraph (E) of section 48(c)(1) is amended by 

18 striking ‘‘December 31, 2008’’ and inserting ‘‘De19 cember 31, 2018’’. 

20 (2) QUALIFIED MICROTURBINE PROPERTY.— 

21 Subparagraph (E) of section 48(c)(2) is amended by 

22 striking ‘‘December 31, 2008’’ and inserting ‘‘De23 cember 31, 2018’’. 


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1 (3) SOLAR PROPERTY.—Subclause (II) of sec2 tion 48(a)(2)(i) is amended by striking ‘‘January 1, 

3 2009’’ and inserting ‘‘January 1, 2019’’. 

4 (b) SOLAR INVESTMENT CREDIT ALLOWED FOR

5 PUBLIC UTILITY PROPERTY.— 

6 (1) IN GENERAL.—The second sentence of sec7 tion 48(a)(3) of the Internal Revenue Code of 1986 

8 is amended by inserting ‘‘(other than property de9 scribed in subparagraph (A)(i))’’ before ‘‘shall not’’. 

10 (2) EFFECTIVE DATE.—The amendment made 

11 by this subsection shall apply to periods after the 

12 date of the enactment of this Act, in taxable years 

13 ending after such date, under rules similar to the 

14 rules of section 48(m) of the Internal Revenue Code 

15 of 1986 (as in effect on the day before the date of 

16 the enactment of the Revenue Reconciliation Act of 

17 1990). 

18 TITLE II—REVENUE PROVISIONS 

19 SEC. 201. TAX TREATMENT OF CONTROLLED FOREIGN COR20 PORATIONS ESTABLISHED IN TAX HAVENS. 

21 (a) IN GENERAL.—Subchapter C of chapter 80 (re22 lating to provisions affecting more than one subtitle) is 

23 amended by adding at the end the following new section: 


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1 ‘‘SEC. 7875. CONTROLLED FOREIGN CORPORATIONS IN TAX 

2 HAVENS TREATED AS DOMESTIC CORPORA3 TIONS. 

4 ‘‘(a) GENERAL RULE.—If a controlled foreign cor5 poration is a tax-haven CFC, then, notwithstanding sec6 tion 7701(a)(4), such corporation shall be treated for pur7 poses of this title as a domestic corporation. 

8 ‘‘(b) TAX-HAVEN CFC.—For purposes of this sec9 tion— 

10 ‘‘(1) IN GENERAL.—The term ‘tax-haven CFC’ 

11 means, with respect to any taxable year, a foreign 

12 corporation which— 

13 ‘‘(A) was created or organized under the 

14 laws of a tax-haven country, and 

15 ‘‘(B) is a controlled foreign corporation 

16 (determined without regard to this section) for 

17 an uninterrupted period of 30 days or more 

18 during the taxable year. 

19 ‘‘(2) EXCEPTION.—The term ‘tax-haven CFC’ 

20 does not include a foreign corporation for any tax21 able year if substantially all of its income for the 

22 taxable year is derived from the active conduct of 

23 trades or businesses within the country under the 

24 laws of which the corporation was created or orga25 nized. 


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1 ‘‘(c) TAX-HAVEN COUNTRY.—For purposes of this 

2 section— 

3 ‘‘(1) IN GENERAL.—The term ‘tax-haven coun4 try’ means any of the following: 

‘‘Andorra Guernsey Panama 

Anguilla Isle of Man Samoa 

Antigua and Barbuda Jersey San Marino 

Aruba Liberia Federation of 

Commonwealth of the Principality of Saint ChristBahamas Liechtenstein opher

Bahrain Republic of the and Nevis 

Barbados Maldives Saint Lucia 

Belize Malta Saint Vincent 

Bermuda Republic of the and the 

British Virgin Islands Marshall Islands Grenadines 

Cayman Islands Mauritius Republic of the 

Cook Islands Principality of Monaco Seychelles 

Cyprus Montserrat Tonga 

Commonwealth of the Republic of Nauru Turks and Caicos 

Dominica Netherlands Republic of 

Gibraltar Antilles Vanuatu 

Grenada Niue 

5 ‘‘(2) SECRETARIAL AUTHORITY.—The Secretary 

6 may remove or add a foreign jurisdiction from the 

7 list of tax-haven countries under paragraph (1) if 

8 the Secretary determines such removal or addition is 

9 consistent with the purposes of this section.’’. 

10 (b) CONFORMING AMENDMENT.—The table of sec11 tions for subchapter C of chapter 80 is amended by adding 

12 at the end the following new item: 

‘‘Sec. 7875. Controlled foreign corporations in tax havens treated as domestic 

corporations.’’. 

13 (c) EFFECTIVE DATE.—The amendments made by 

14 this section shall apply to taxable years beginning after 

15 December 31, 2008. 


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1 SEC. 202. TAXATION OF INCOME OF CONTROLLED FOREIGN 

2 CORPORATIONS ATTRIBUTABLE TO IM3 PORTED PROPERTY. 

4 (a) GENERAL RULE.—Subsection (a) of section 954 

5 (defining foreign base company income) is amended by 

6 striking ‘‘and’’ at the end of paragraph (4), by striking 

7 the period at the end of paragraph (5) and inserting ‘‘, 

8 and’’, and by adding at the end the following new para9 graph: 

10 ‘‘(6) imported property income for the taxable 

11 year (determined under subsection (j) and reduced 

12 as provided in subsection (b)(5)).’’. 

13 (b) DEFINITION OF IMPORTED PROPERTY IN14 COME.—Section 954 is amended by adding at the end the 

15 following new subsection: 

16 ‘‘(j) IMPORTED PROPERTY INCOME.— 

17 ‘‘(1) IN GENERAL.—For purposes of subsection 

18 (a)(6), the term ‘imported property income’ means 

19 income (whether in the form of profits, commissions, 

20 fees, or otherwise) derived in connection with— 

21 ‘‘(A) manufacturing, producing, growing, 

22 or extracting imported property; 

23 ‘‘(B) the sale, exchange, or other disposi24 tion of imported property; or 

25 ‘‘(C) the lease, rental, or licensing of im26 ported property. 


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1 Such term shall not include any foreign oil and gas 

2 extraction income (within the meaning of section 

3 907(c)) or any foreign oil related income (within the 

4 meaning of section 907(c)). 

5 ‘‘(2) IMPORTED PROPERTY.—For purposes of 

6 this subsection— 

7 ‘‘(A) IN GENERAL.—Except as otherwise 

8 provided in this paragraph, the term ‘imported 

9 property’ means property which is imported 

10 into the United States by the controlled foreign 

11 corporation or a related person. 

12 ‘‘(B) IMPORTED PROPERTY INCLUDES CER13 TAIN PROPERTY IMPORTED BY UNRELATED

14 PERSONS.—The term ‘imported property’ in15 cludes any property imported into the United 

16 States by an unrelated person if, when such 

17 property was sold to the unrelated person by 

18 the controlled foreign corporation (or a related 

19 person), it was reasonable to expect that— 

20 ‘‘(i) such property would be imported 

21 into the United States; or 

22 ‘‘(ii) such property would be used as 

23 a component in other property which would 

24 be imported into the United States. 


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1 ‘‘(C) EXCEPTION FOR PROPERTY SUBSE2 QUENTLY EXPORTED.—The term ‘imported 

3 property’ does not include any property which is 

4 imported into the United States and which— 

5 ‘‘(i) before substantial use in the 

6 United States, is sold, leased, or rented by 

7 the controlled foreign corporation or a re8 lated person for direct use, consumption, 

9 or disposition outside the United States; or 

10 ‘‘(ii) is used by the controlled foreign 

11 corporation or a related person as a com12 ponent in other property which is so sold, 

13 leased, or rented. 

14 ‘‘(D) EXCEPTION FOR CERTAIN AGRICUL15 TURAL COMMODITIES.—The term ‘imported 

16 property’ does not include any agricultural com17 modity which is not grown in the United States 

18 in commercially marketable quantities. 

19 ‘‘(3) DEFINITIONS AND SPECIAL RULES.— 

20 ‘‘(A) IMPORT.—For purposes of this sub21 section, the term ‘import’ means entering, or 

22 withdrawal from warehouse, for consumption or 

23 use. Such term includes any grant of the right 

24 to use intangible property (as defined in section 

25 936(h)(3)(B)) in the United States. 


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1 ‘‘(B) UNITED STATES.—For purposes of 

2 this subsection, the term ‘United States’ in3 cludes the Commonwealth of Puerto Rico, the 

4 Virgin Islands of the United States, Guam, 

5 American Samoa, and the Commonwealth of 

6 the Northern Mariana Islands. 

7 ‘‘(C) UNRELATED PERSON.—For purposes 

8 of this subsection, the term ‘unrelated person’ 

9 means any person who is not a related person 

10 with respect to the controlled foreign corpora11 tion. 

12 ‘‘(D) COORDINATION WITH FOREIGN BASE

13 COMPANY SALES INCOME.—For purposes of this 

14 section, the term ‘foreign base company sales 

15 income’ shall not include any imported property 

16 income.’’. 

17 (c) SEPARATE APPLICATION OF LIMITATIONS ON

18 FOREIGN TAX CREDIT FOR IMPORTED PROPERTY IN19 COME.— 

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

21 904(d) (relating to separate application of section 

22 with respect to certain categories of income) is 

23 amended by striking ‘‘and’’ at the end of subpara24 graph (A), by redesignating subparagraph (B) as 


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1 subparagraph (C), and by inserting after subpara2 graph (A) the following new subparagraph: 

3 ‘‘(B) imported property income, and’’. 

4 (2) IMPORTED PROPERTY INCOME DEFINED.— 

5 Paragraph (2) of section 904(d) is amended by re6 designating subparagraphs (I) and (J) as subpara7 graphs (J) and (K), respectively, and by inserting 

8 after subparagraph (H) the following new subpara9 graph: 

10 ‘‘(I) IMPORTED PROPERTY INCOME.—The 

11 term ‘imported property income’ means any in12 come received or accrued by any person which 

13 is of a kind which would be imported property 

14 income (as defined in section 954(j)).’’. 

15 (3) CONFORMING AMENDMENT.—Clause (ii) of 

16 section 904(d)(2)(A) is amended by inserting ‘‘or 

17 imported property income’’ after ‘‘passive category 

18 income’’. 

19 (d) TECHNICAL AMENDMENTS.— 

20 (1) Clause (iii) of section 952(c)(1)(B) (relating 

21 to certain prior year deficits may be taken into ac22 count) is amended— 

23 (A) by redesignating subclauses (II), (III), 

24 (IV), and (V) as subclauses (III), (IV), (V), and 

25 (VI), and 


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1 (B) by inserting after subclause (I) the fol2 lowing new subclause: 

3 ‘‘(II) imported property in4 come,’’. 

5 (2) Paragraph (5) of section 954(b) (relating to 

6 deductions to be taken into account) is amended by 

7 striking ‘‘and the foreign base company oil related 

8 income’’ and inserting ‘‘the foreign base company oil 

9 related income, and the imported property income’’. 

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

11 this section shall apply to taxable years of foreign corpora12 tions beginning after the date of the enactment of this 

13 Act, and to taxable years of United States shareholders 

14 within which or with which such taxable years of such for15 eign corporations end. 

16 SEC. 203. MODIFICATION OF EFFECTIVE DATE OF LEASING 

17 PROVISIONS OF THE AMERICAN JOBS CRE18 ATION ACT OF 2004. 

19 (a) LEASES TO FOREIGN ENTITIES.—Section 849(b) 

20 of the American Jobs Creation Act of 2004 is amended 

21 by adding at the end the following new paragraph: 

22 ‘‘(5) LEASES TO FOREIGN ENTITIES.—In the 

23 case of tax-exempt use property leased to a tax-ex24 empt entity which is a foreign person or entity, the 

25 amendments made by this part shall apply to taxable 


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1 years beginning after December 31, 2006, with re2 spect to leases entered into on or before March 12, 

3 2004.’’. 

4 (b) EFFECTIVE DATE.—The amendment made by 

5 this section shall take effect as if included in the enact6 ment of the American Jobs Creation Act of 2004. 

7 SEC. 204. CLARIFICATION OF ECONOMIC SUBSTANCE DOC8 TRINE. 

9 (a) IN GENERAL.—Section 7701 is amended by re10 designating subsection (o) as subsection (p) and by insert11 ing after subsection (n) the following new subsection: 

12 ‘‘(o) CLARIFICATION OF ECONOMIC SUBSTANCE

13 DOCTRINE; ETC.— 

14 ‘‘(1) GENERAL RULES.— 

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

16 a court determines that the economic substance 

17 doctrine is relevant for purposes of this title to 

18 a transaction (or series of transactions), such 

19 transaction (or series of transactions) shall have 

20 economic substance only if the requirements of 

21 this paragraph are met. 

22 ‘‘(B) DEFINITION OF ECONOMIC SUB23 STANCE.—For purposes of subparagraph (A)— 

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

25 economic substance only if— 


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1 ‘‘(I) the transaction changes in a 

2 meaningful way (apart from Federal 

3 tax effects) the taxpayer’s economic 

4 position, and 

5 ‘‘(II) the taxpayer has a substan6 tial nontax purpose for entering into 

7 such transaction and the transaction 

8 is a reasonable means of accom9 plishing such purpose. 

10 In applying subclause (II), a purpose of 

11 achieving a financial accounting benefit 

12 shall not be taken into account in deter13 mining whether a transaction has a sub14 stantial nontax purpose if the origin of 

15 such financial accounting benefit is a re16 duction of income tax. 

17 ‘‘(ii) SPECIAL RULE WHERE TAX18 PAYER RELIES ON PROFIT POTENTIAL.—A 

19 transaction shall not be treated as having 

20 economic substance by reason of having a 

21 potential for profit unless— 

22 ‘‘(I) the present value of the rea23 sonably expected pre-tax profit from 

24 the transaction is substantial in rela25 tion to the present value of the exVerDate Aug 31 2005 20:54 May 27, 2007 Jkt 059200 PO 00000 Frm 00077 Fmt 6652 Sfmt 6201 E:\BILLS\S1508.IS S1508

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1 pected net tax benefits that would be 

2 allowed if the transaction were re3 spected, and 

4 ‘‘(II) the reasonably expected 

5 pre-tax profit from the transaction ex6 ceeds a risk-free rate of return. 

7 ‘‘(C) TREATMENT OF FEES AND FOREIGN

8 TAXES.—Fees and other transaction expenses 

9 and foreign taxes shall be taken into account as 

10 expenses in determining pre-tax profit under 

11 subparagraph (B)(ii). 

12 ‘‘(2) SPECIAL RULES FOR TRANSACTIONS WITH

13 TAX-INDIFFERENT PARTIES.— 

14 ‘‘(A) SPECIAL RULES FOR FINANCING

15 TRANSACTIONS.—The form of a transaction 

16 which is in substance the borrowing of money 

17 or the acquisition of financial capital directly or 

18 indirectly from a tax-indifferent party shall not 

19 be respected if the present value of the deduc20 tions to be claimed with respect to the trans21 action is substantially in excess of the present 

22 value of the anticipated economic returns of the 

23 person lending the money or providing the fi24 nancial capital. A public offering shall be treat25 ed as a borrowing, or an acquisition of financial 


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1 capital, from a tax-indifferent party if it is rea2 sonably expected that at least 50 percent of the 

3 offering will be placed with tax-indifferent par4 ties. 

5 ‘‘(B) ARTIFICIAL INCOME SHIFTING AND

6 BASIS ADJUSTMENTS.—The form of a trans7 action with a tax-indifferent party shall not be 

8 respected if— 

9 ‘‘(i) it results in an allocation of in10 come or gain to the tax-indifferent party in 

11 excess of such party’s economic income or 

12 gain, or 

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

14 or shifting of basis on account of over15 stating the income or gain of the tax-indif16 ferent party. 

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

18 purposes of this subsection— 

19 ‘‘(A) ECONOMIC SUBSTANCE DOCTRINE.— 

20 The term ‘economic substance doctrine’ means 

21 the common law doctrine under which tax bene22 fits under subtitle A with respect to a trans23 action are not allowable if the transaction does 

24 not have economic substance or lacks a business 

25 purpose. 


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1 ‘‘(B) TAX-INDIFFERENT PARTY.—The 

2 term ‘tax-indifferent party’ means any person 

3 or entity not subject to tax imposed by subtitle 

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

5 party with respect to a transaction if the items 

6 taken into account with respect to the trans7 action have no substantial impact on such per8 son’s liability under subtitle A. 

9 ‘‘(C) EXCEPTION FOR PERSONAL TRANS10 ACTIONS OF INDIVIDUALS.—In the case of an 

11 individual, this subsection shall apply only to 

12 transactions entered into in connection with a 

13 trade or business or an activity engaged in for 

14 the production of income. 

15 ‘‘(D) TREATMENT OF LESSORS.—In apply16 ing paragraph (1)(B)(ii) to the lessor of tan17 gible property subject to a lease— 

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

19 respect to the leased property shall not in20 clude the benefits of— 

21 ‘‘(I) depreciation, 

22 ‘‘(II) any tax credit, or 

23 ‘‘(III) any other deduction as 

24 provided in guidance by the Secretary, 

25 and 


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1 ‘‘(ii) subclause (II) of paragraph 

2 (1)(B)(ii) shall be disregarded in deter3 mining whether any of such benefits are al4 lowable. 

5 ‘‘(4) OTHER COMMON LAW DOCTRINES NOT AF6 FECTED.—Except as specifically provided in this 

7 subsection, the provisions of this subsection shall not 

8 be construed as altering or supplanting any other 

9 rule of law, and the requirements of this subsection 

10 shall be construed as being in addition to any such 

11 other rule of law. 

12 ‘‘(5) REGULATIONS.—The Secretary shall pre13 scribe such regulations as may be necessary or ap14 propriate to carry out the purposes of this sub15 section. Such regulations may include exemptions 

16 from the application of this subsection.’’. 

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

18 this section shall apply to transactions entered into after 

19 the date of the enactment of this Act. 

20 SEC. 205. PENALTY FOR UNDERSTATEMENTS ATTRIB21 UTABLE TO TRANSACTIONS LACKING ECO22 NOMIC SUBSTANCE, ETC. 

23 (a) IN GENERAL.—Subchapter A of chapter 68 is 

24 amended by inserting after section 6662A the following 

25 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(o)(1)) for 

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

8 section 7701(o)(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 20:54 May 27, 2007 Jkt 059200 PO 00000 Frm 00083 Fmt 6652 Sfmt 6201 E:\BILLS\S1508.IS S1508

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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.— 

‘‘(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).’’. 

4 (b) COORDINATION WITH OTHER UNDERSTATE5 MENTS AND PENALTIES.— 

6 (1) The second sentence of section 

7 6662(d)(2)(A) is amended by inserting ‘‘and without 

8 regard to items with respect to which a penalty is 

9 imposed by section 6662B’’ before the period at the 

10 end. 

11 (2) Subsection (e) of section 6662A is amend12 ed— 

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

14 noneconomic substance transaction understate15 ments’’ after ‘‘reportable transaction under16 statements’’ both places it appears, 

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

18 a noneconomic substance transaction under19 statement’’ after ‘‘reportable transaction under20 statement’’, 

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

22 ‘‘6662B or’’ before ‘‘6663’’, 


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

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

3 end, 

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

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

6 (F) in paragraph (3), by inserting ‘‘or non7 economic substance transaction understate8 ment’’ after ‘‘reportable transaction understate9 ment’’, and 

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

11 paragraph: 

12 ‘‘(4) NONECONOMIC SUBSTANCE TRANSACTION

13 UNDERSTATEMENT.—For purposes of this sub14 section, the term ‘noneconomic substance trans15 action understatement’ has the meaning given such 

16 term by section 6662B(c).’’. 

17 (3) Subsection (e) of section 6707A is amend18 ed— 

19 (A) by striking ‘‘or’’ at the end of subpara20 graph (B), and 

21 (B) by striking subparagraph (C) and in22 serting the following new subparagraphs: 

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

24 section 6662B with respect to any noneconomic 

25 substance transaction, or 


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

2 section 6662(h) with respect to any transaction 

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

4 have been subject to penalty under section 

5 6662A at a rate prescribed under section 

6 6662A(c) or under section 6662B,’’. 

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

8 for part II of subchapter A of chapter 68 is amended by 

9 inserting after the item relating to section 6662A the fol10 lowing new item: 

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

economic substance, etc.’’. 

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

12 this section shall apply to transactions entered into after 

13 the date of the enactment of this Act. 

14 SEC. 206. DENIAL OF DEDUCTION FOR INTEREST ON UN15 DERPAYMENTS ATTRIBUTABLE TO NON16 ECONOMIC SUBSTANCE TRANSACTIONS. 

17 (a) IN GENERAL.—Section 163(m) (relating to inter18 est on unpaid taxes attributable to nondisclosed reportable 

19 transactions) is amended— 

20 (1) by striking ‘‘attributable’’ and all that fol21 lows and inserting the following: ‘‘attributable to— 

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

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


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1 with respect to which the requirement of section 

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

3 ‘‘(2) any noneconomic substance transaction 

4 understatement (as defined in section 6662B(c)).’’, 

5 and 

6 (2) by inserting ‘‘And Noneconomic Substance 

7 Transactions’’ in the heading thereof after ‘‘Trans8 actions’’. 

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

10 this section shall apply to transactions after the date of 

11 the enactment of this Act in taxable years ending after 

12 such date. 

Æ 


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