I

105TH CONGRESS

1ST SESSION H. R. 587

To amend the Internal Revenue Code of 1986 to eliminate tax subsidies

for ethanol fuel.

IN THE HOUSE OF REPRESENTATIVES

FEBRUARY 5, 1997

Mr. BENTSEN introduced the following bill; which was referred to the

Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to eliminate

tax subsidies for ethanol fuel.

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

3 SECTION 1. ELIMINATION OF TAX SUBSIDIES FOR ETHA4 NOL FUEL.

5 (a) ELIMINATION OF CREDIT FOR ALCOHOL USED

6 AS FUEL.—

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

8 subchapter A of chapter 1 of the Internal Revenue

9 Code of 1986 is amended by striking section 40 (re10 lating to alcohol used as fuel).
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1 (2) CLERICAL AND CONFORMING AMEND2 MENTS.—

3 (A) Subsection (b) of section 38 of such

4 Code (relating to general business credit) is

5 amended by striking paragraph (3) and by re6 designating paragraphs (4) through (12) as

7 paragraphs (3) through (11), respectively.

8 (B) Paragraph (3) of section 38(d) of such

9 Code (relating to credits no longer listed) is

10 amended by striking ‘‘and’’ at the end of sub11 paragraph (A), by striking the period at the

12 end of subparagraph (B)(ii) and inserting ‘‘,

13 and’’, and by adding at the end the following

14 new subparagraph:

15 ‘‘(C) the credit allowable by section 40, as

16 in effect on the day before the date of the en17 actment of this subparagraph (relating to alco18 hol used as fuel) shall be treated as referred to

19 after the last paragraph of subsection (b) and

20 after any credits treated as referred to by rea21 son of subparagraph (A).’’

22 (C) The table of sections for subpart D of

23 part IV of subchapter A of chapter 1 of such

24 Code is amended by striking the item relating

25 to section 40.
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1 (D)(i) Part II of subchapter B of chapter

2 1 of such Code is amended by striking section

3 87 (relating to alcohol fuel credit).

4 (ii) The table of sections for part II of sub5 chapter B of chapter 1 of such Code is amend6 ed by striking the item relating to section 87.

7 (iii) Subsection (a) of section 56 of such

8 Code (relating to adjustments in computing al9 ternative minimum taxable income) is amended

10 by striking paragraph (8) (relating to section

11 87 not applicable).

12 (E) Subsection (c) of section 196 of such

13 Code (relating to qualified business credits) is

14 amended by striking paragraph (3) and redesig15 nating paragraphs (4) through (7) as para16 graphs (3) through (6), respectively.

17 (F) Section 6501(m) of such Code (relat18 ing to deficiencies attributable to election of

19 certain credits) is amended by striking ‘‘40(f),’’.

20 (b) REDUCTIONS OF OTHER INCENTIVES FOR ETHA21 NOL FUEL.—

22 (1) REPEAL OF REDUCED RATE ON ETHANOL

23 FUEL NOT PRODUCED FROM PETROLEUM OR NATU24 RAL GAS.—Subsection (b) of section 4041 of such

25 Code is amended to read as follows:
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1 ‘‘(b) EXEMPTION FOR OFF-HIGHWAY BUSINESS

2 USE.—

3 ‘‘(1) IN GENERAL.—No tax shall be imposed by

4 subsection (a) or (d)(1) on liquids sold for use or

5 used in an off-highway business use.

6 ‘‘(2) TAX WHERE OTHER USE.—If a liquid on

7 which no tax was imposed by reason of paragraph

8 (1) is used otherwise than in an off-highway busi9 ness use, a tax shall be imposed by paragraph

10 (1)(B), (2)(B), or (3)(A)(ii) of subsection (a)

11 (whichever is appropriate) and by the corresponding

12 provision of subsection (d)(1) (if any).

13 ‘‘(3) OFF-HIGHWAY BUSINESS USE DEFINED.—

14 For purposes of this subsection, the term ‘off-high15 way business use’ has the meaning given to such

16 term by section 6421(e)(2); except that such term

17 shall not, for purposes of subsection (a)(1), include

18 use in a diesel-powered train.’’

19 (2) REPEAL OF REDUCED RATE ON ETHANOL

20 FUEL PRODUCED FROM NATURAL GAS.—Subsection

21 (m) of section 4041 of such Code is amended—

22 (A) by striking ‘‘or ethanol’’ each place it

23 appears (including the heading of paragraph

24 (2)),
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1 (B) in paragraph (2), by striking ‘‘, etha2 nol,’’ and

3 (C) in paragraph (2), by inserting ‘‘(other

4 than ethanol)’’ after ‘‘alcohol’’.

5 (c) TAX OF FUEL ALCOHOL TO SAME EXTENT AS

6 OTHER MOTOR FUELS.—

7 (1) TREATMENT AS TAXABLE FUEL.—Para8 graph (1) of section 4083(a) of such Code (defining

9 taxable fuel) is amended by striking ‘‘and’’ at the

10 end of subparagraph (A), by striking the period at

11 the end of subparagraph (B) and inserting ‘‘, and’’,

12 and by adding at the end the following:

13 ‘‘(C) fuel alcohol.’’

14 (2) DEFINITION OF FUEL ALCOHOL.—Sub15 section (a) of section 4083 of such Code is amended

16 by adding at the end the following new paragraph:

17 ‘‘(4) FUEL ALCOHOL.—The term ‘fuel alcohol’

18 means any alcohol (including ethanol and meth19 anol)—

20 ‘‘(A) which is produced other than from

21 petroleum, natural gas, or coal (including peat),

22 and

23 ‘‘(B) which is withdrawn from the distillery

24 where produced free of tax under chapter 51 by
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1 reason of section 5181 or so much of section

2 5214(a)(1) as relates to fuel use.’’

3 (3) RATE OF TAX.—Clause (i) of section

4 4081(a)(2)(A) of such Code is amended by inserting

5 ‘‘or fuel alcohol’’ after ‘‘gasoline’’.

6 (4) SPECIAL RULES FOR IMPOSITION OF TAX.—

7 Paragraph (1) of section 4081(a) of such Code is

8 amended by adding at the end the following new

9 subparagraph:

10 ‘‘(C) SPECIAL RULES FOR FUEL ALCO11 HOL.—In the case of fuel alcohol—

12 ‘‘(i) the distillery where produced shall

13 be treated as a refinery, and

14 ‘‘(ii) subparagraph (B) shall be ap15 plied by including transfers by truck or rail

16 in excess of such minimum quantities as

17 the Secretary shall prescribe.’’

18 (5) REPEAL OF REDUCED RATES ON ALCOHOL

19 FUELS.—

20 (A) Section 4041 of such Code is amended

21 by striking subsection (k).

22 (B) Section 4081 of such Code is amended

23 by striking subsection (c).

24 (C) Section 4091 of such Code is amended

25 by striking subsection (c).
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1 (6) CONFORMING AMENDMENTS.—

2 (A) Paragraph (2) of section 4041(a) of

3 such Code is amended by adding at the end the

4 following: ‘‘No tax shall be imposed by this

5 paragraph on the sale or use of any liquid if tax

6 was imposed on such liquid under section 4081

7 and the tax thereon was not credited or re8 funded.’’

9 (B) Section 6427 of such Code is amended

10 by striking subsection (f).

11 (C) Subsection (i) of section 6427 of such

12 Code is amended by striking paragraph (3).

13 (D) Paragraph (2) of section 6427(k) of

14 such Code is amended by striking ‘‘(3)’’.

15 (E)(i) Paragraph (1) of section 6427(l) of

16 such Code is amended by striking ‘‘or’’ at the

17 end of subparagraph (A), by redesignating sub18 paragraph (B) as subparagraph (C), and by in19 serting after subparagraph (A) the following

20 new subparagraph:

21 ‘‘(B) any fuel alcohol (as defined in section

22 4083) on which tax has been imposed by sec23 tion 4081, or’’.

24 (ii) Paragraph (2) of section 6427(l) of

25 such Code is amended by striking ‘‘and’’ at the
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1 end of subparagraph (A), by redesignating sub2 paragraph (B) as subparagraph (C), and by in3 serting after subparagraph (A) the following

4 new subparagraph:

5 ‘‘(B) in the case of fuel alcohol (as so de6 fined), any use which is exempt from the tax

7 imposed by section 4041(a)(2) other than by

8 reason of a prior imposition of tax, and’’.

9 (iii) The heading of subsection (l) of sec10 tion 6427 of such Code is amended by inserting

11 ‘‘, FUEL ALCOHOL,’’ after ‘‘DIESEL FUEL’’.

12 (F) Sections 9503(b)(1)(E) and

13 9508(b)(2) of such Code are each amended by

14 striking ‘‘and diesel fuel’’ and inserting ‘‘diesel

15 fuel, and fuel alcohol’’.

16 (G) Subsection (e) of section 9502 of such

17 Code is amended by striking paragraph (2).

18 (H) Subsection (f) of section 9502 of such

19 Code is amended by striking paragraph (2) and

20 by redesignating paragraph (3) as paragraph

21 (2).

22 (I) Subsection (b) of section 9503 of such

23 Code is amended by striking paragraph (5).

24 (J) Paragraph (3) of section 9503(f) of

25 such Code is amended to read as follows:
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1 ‘‘(3) PARTIALLY EXEMPT METHANOL OR ETHA2 NOL FUEL.—In the case of a rate of tax determined

3 under section 4041(m), the Highway Trust Fund fi4 nancing rate is the excess (if any) of the rate so de5 termined over—

6 ‘‘(A) 5.55 cents per gallon after September

7 30, 1993, and before October 1, 1995, and

8 ‘‘(B) 4.3 cents per gallon after September

9 30, 1995.’’

10 (d) EFFECTIVE DATES.—

11 (1) GENERAL RULE.—Except as provided in

12 paragraph (2), the amendments made by this section

13 shall take effect on the date of the enactment of this

14 Act.

15 (2) ELIMINATION OF SECTION 40 CREDIT.—The

16 amendments made by subsection (a) shall apply to

17 alcohol produced after the date of the enactment of

18 this Act.

19 (e) FLOOR STOCK TAXES.—

20 (1) IMPOSITION OF TAX.—In the case of fuel al21 cohol which is held on the date of the enactment of

22 this Act by any person, there is hereby imposed a

23 floor stocks tax of 18.4 cents per gallon.

24 (2) LIABILITY FOR TAX AND METHOD OF PAY25 MENT.—
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1 (A) LIABILITY FOR TAX.—A person hold2 ing fuel alcohol on the date of the enactment of

3 this Act to which the tax imposed by paragraph

4 (1) applies shall be liable for such tax.

5 (B) METHOD OF PAYMENT.—The tax im6 posed by paragraph (1) shall be paid in such

7 manner as the Secretary shall prescribe.

8 (C) TIME FOR PAYMENT.—The tax im9 posed by paragraph (1) shall be paid on or be10 fore the date which is 6 months after the date

11 of the enactment of this Act.

12 (3) DEFINITIONS.—For purposes of this sub13 section—

14 (A) FUEL ALCOHOL.—The term ‘‘fuel alco15 hol’’ has the meaning given such term by sec16 tion 4083 of the Internal Revenue Code of

17 1986, as amended by this section.

18 (B) HELD BY A PERSON.—Fuel alcohol

19 shall be considered as ‘‘held by a person’’ if

20 title thereto has passed to such person (whether

21 or not delivery to the person has been made).

22 (C) SECRETARY.—The term ‘‘Secretary’’

23 means the Secretary of the Treasury or his del24 egate.
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1 (4) EXCEPTION FOR EXEMPT USES.—The tax

2 imposed by paragraph (1) shall not apply to fuel al3 cohol held by any person exclusively for any use to

4 the extent a credit or refund of the tax imposed by

5 section 4081 of the Internal Revenue Code of 1986

6 is allowable for such use.

7 (5) EXCEPTION FOR FUEL HELD IN VEHICLE

8 TANK.—No tax shall be imposed by paragraph (1)

9 on fuel alcohol held in the tank of a motor vehicle

10 or motorboat.

11 (6) EXCEPTION FOR CERTAIN AMOUNTS OF

12 FUEL.—

13 (A) IN GENERAL.—No tax shall be im14 posed by paragraph (1) on fuel alcohol held on

15 the date of the enactment of this Act by any

16 person if the aggregate amount of fuel alcohol

17 held by such person on such date does not ex18 ceed 2,000 gallons. The preceding sentence

19 shall apply only if such person submits to the

20 Secretary (at the time and in the manner re21 quired by the Secretary) such information as

22 the Secretary shall require for purposes of this

23 paragraph.
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1 (B) EXEMPT FUEL.—For purposes of sub2 paragraph (A), there shall not be taken into ac3 count fuel held by any person which is exempt

4 from the tax imposed by paragraph (1) by rea5 son of paragraph (4) or (5).

6 (C) CONTROLLED GROUPS.—For purposes

7 of this paragraph—

8 (i) CORPORATIONS.—

9 (I) IN GENERAL.—All persons

10 treated as a controlled group of cor11 porations shall be treated as 1 person.

12 (II) CONTROLLED GROUP OF

13 CORPORATIONS.—The term ‘‘con14 trolled group of corporations’’ has the

15 meaning given to such term by sub16 section (a) of section 1563 of such

17 Code; except that for such purposes

18 the phrase ‘‘more than 50 percent’’

19 shall be substituted for the phrase ‘‘at

20 least 80 percent’’ each place it ap21 pears in such subsection.

22 (ii) NONINCORPORATED PERSONS

23 UNDER COMMON CONTROL.—Under regula24 tions prescribed by the Secretary, prin25 ciples similar to the principles of clause (i)
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1 shall apply to a group of persons under

2 common control where 1 or more of such

3 persons is not a corporation.

4 (7) OTHER LAWS APPLICABLE.—All provisions

5 of law, including penalties, applicable with respect to

6 the taxes imposed by section 4081 of such Code

7 shall, insofar as applicable and not inconsistent with

8 the provisions of this subsection, apply with respect

9 to the floor stock taxes imposed by paragraph (1) to

10 the same extent as if such taxes were imposed by

11 such section 4081.

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