II 

108TH CONGRESS 

1ST SESSION S. 240

To amend the Internal Revenue Code of 1986 to allow allocation of small 

ethanol producer credit to patrons of cooperative, and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 29, 2003

Mr. FITZGERALD (for himself, Mr. JOHNSON, Mr. HAGEL, and Mr. HARKIN) 

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 allow allocation of small ethanol producer credit to patrons of cooperative, 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. SMALL ETHANOL PRODUCER CREDIT. 

4 (a) ALLOCATION OF ALCOHOL FUELS CREDIT TO

5 PATRONS OF A COOPERATIVE.—Subsection (g) of section 

6 40 of the Internal Revenue Code of 1986 (relating to alco7 hol used as fuel) is amended by adding at the end the 

8 following new paragraph: 
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1 ‘‘(6) ALLOCATION OF SMALL ETHANOL PRO2 DUCER CREDIT TO PATRONS OF COOPERATIVE.—

3 ‘‘(A) ELECTION TO ALLOCATE.—

4 ‘‘(i) IN GENERAL.—In the case of a 

5 cooperative organization described in sec6 tion 1381(a), any portion of the credit de7 termined under subsection (a)(3) for the 

8 taxable year may, at the election of the or9 ganization, be apportioned pro rata among 

10 patrons of the organization on the basis of 

11 the quantity or value of business done with 

12 or for such patrons for the taxable year. 

13 ‘‘(ii) FORM AND EFFECT OF ELEC14 TION.—An election under clause (i) for any 

15 taxable year shall be made on a timely 

16 filed return for such year. Such election, 

17 once made, shall be irrevocable for such 

18 taxable year. 

19 ‘‘(B) TREATMENT OF ORGANIZATIONS AND

20 PATRONS.—The amount of the credit appor21 tioned to patrons under subparagraph (A)—

22 ‘‘(i) shall not be included in the 

23 amount determined under subsection (a) 

24 with respect to the organization for the 

25 taxable year, 
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1 ‘‘(ii) shall be included in the amount 

2 determined under subsection (a) for the 

3 taxable year of each patron for which the 

4 patronage dividends for the taxable year 

5 described in subparagraph (A) are included 

6 in gross income, and 

7 ‘‘(iii) shall be included in gross income 

8 of such patrons for the taxable year in the 

9 manner and to the extent provided in sec10 tion 87. 

11 ‘‘(C) SPECIAL RULES FOR DECREASE IN

12 CREDITS FOR TAXABLE YEAR.—If the amount 

13 of the credit of a cooperative organization de14 termined under subsection (a)(3) for a taxable 

15 year is less than the amount of such credit 

16 shown on the return of the cooperative organi17 zation for such year, an amount equal to the 

18 excess of—

19 ‘‘(i) such reduction, over 

20 ‘‘(ii) the amount not apportioned to 

21 such patrons under subparagraph (A) for 

22 the taxable year, 

23 shall be treated as an increase in tax imposed 

24 by this chapter on the organization. Such in25 crease shall not be treated as tax imposed by 
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1 this chapter for purposes of determining the 

2 amount of any credit under this chapter or for 

3 purposes of section 55.’’. 

4 (b) IMPROVEMENTS TO SMALL ETHANOL PRODUCER

5 CREDIT.—

6 (1) DEFINITION OF SMALL ETHANOL PRO7 DUCER.—Section 40(g) of such Code (relating to 

8 definitions and special rules for eligible small ethanol 

9 producer credit) is amended by striking 

10 ‘‘30,000,000’’ each place it appears and inserting 

11 ‘‘60,000,000’’. 

12 (2) SMALL ETHANOL PRODUCER CREDIT NOT A

13 PASSIVE ACTIVITY CREDIT.—Clause (i) of section 

14 469(d)(2)(A) of such Code is amended by striking 

15 ‘‘subpart D’’ and inserting ‘‘subpart D, other than 

16 section 40(a)(3),’’. 

17 (3) ALLOWING CREDIT AGAINST ENTIRE REG18 ULAR TAX AND MINIMUM TAX.—

19 (A) IN GENERAL.—Subsection (c) of sec20 tion 38 of such Code (relating to limitation 

21 based on amount of tax) is amended by redesig22 nating paragraph (4) as paragraph (5) and by 

23 inserting after paragraph (3) the following new 

24 paragraph: 
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1 ‘‘(4) SPECIAL RULES FOR SMALL ETHANOL

2 PRODUCER CREDIT.—

3 ‘‘(A) IN GENERAL.—In the case of the 

4 small ethanol producer credit—

5 ‘‘(i) this section and section 39 shall 

6 be applied separately with respect to the 

7 credit, and 

8 ‘‘(ii) in applying paragraph (1) to the 

9 credit—

10 ‘‘(I) the amounts in subpara11 graphs (A) and (B) thereof shall be 

12 treated as being zero, and 

13 ‘‘(II) the limitation under para14 graph (1) (as modified by subclause 

15 (I)) shall be reduced by the credit al16 lowed under subsection (a) for the 

17 taxable year (other than the small 

18 ethanol producer credit). 

19 ‘‘(B) SMALL ETHANOL PRODUCER CRED20 IT.—For purposes of this subsection, the term 

21 ‘small ethanol producer credit’ means the credit 

22 allowable under subsection (a) by reason of sec23 tion 40(a)(3).’’. 

24 (B) CONFORMING AMENDMENTS.—Sub25 clause (II) of section 38(c)(2)(A)(ii) and sub-
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1 clause (II) of section 38(c)(3)(A)(ii) are each 

2 amended by inserting ‘‘or the small ethanol pro3 ducer credit’’ after ‘‘employee credit’’. 

4 (4) SMALL ETHANOL PRODUCER CREDIT NOT

5 ADDED BACK TO INCOME UNDER SECTION 87.—Sec6 tion 87 of such Code (relating to income inclusion 

7 of alcohol fuel credit) is amended to read as follows: 

8 ‘‘SEC. 87. ALCOHOL FUEL CREDIT. 

9 ‘‘Gross income includes an amount equal to the sum 

10 of—

11 ‘‘(1) the amount of the alcohol mixture credit 

12 determined with respect to the taxpayer for the tax13 able year under section 40(a)(1), and 

14 ‘‘(2) the alcohol credit determined with respect 

15 to the taxpayer for the taxable year under section 

16 40(a)(2).’’. 

17 (c) CONFORMING AMENDMENT.—Section 1388 of 

18 such Code (relating to definitions and special rules for co19 operative organizations) is amended by adding at the end 

20 the following new subsection: 

21 ‘‘(k) CROSS REFERENCE.—For provisions relating to 

22 the apportionment of the alcohol fuels credit between coop23 erative organizations and their patrons, see section 

24 40(g)(6).’’. 
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1 (d) EFFECTIVE DATE.—The amendments made by 

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act.

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