I 

108TH CONGRESS 

2D SESSION H. R. 4165 

To amend the Internal Revenue Code of 1986 to provide tax incentives 

to encourage the use of biodiesel as fuel. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 2, 2004 

Mr. SMITH of Michigan introduced the following bill; which was referred to 

the Committee on Ways and Means 

A BILL 

To amend the Internal Revenue Code of 1986 to provide 

tax incentives to encourage the use of biodiesel as 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. INCENTIVES FOR BIODIESEL. 

4 (a) CREDIT FOR BIODIESEL USED AS A FUEL.—Sub5 part D of part IV of subchapter A of chapter 1 of the 

6 Internal Revenue Code of 1986 (relating to business re7 lated credits) is amended by inserting after section 40 the 

8 following new section: 
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1 ‘‘SEC. 40A. BIODIESEL USED AS FUEL. 

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

3 the biodiesel fuels credit determined under this section for 

4 the taxable year is an amount equal to the biodiesel mix5 ture credit. 

6 ‘‘(b) DEFINITION OF BIODIESEL MIXTURE CRED7 IT.—For purposes of this section— 

8 ‘‘(1) BIODIESEL MIXTURE CREDIT.— 

9 ‘‘(A) IN GENERAL.—The biodiesel mixture 

10 credit of any taxpayer for any taxable year is 

11 the sum of the products of the biodiesel mixture 

12 rate for each qualified biodiesel mixture and the 

13 number of gallons of such mixture of the tax14 payer for the taxable year. 

15 ‘‘(B) BIODIESEL MIXTURE RATE.—For 

16 purposes of subparagraph (A), the biodiesel 

17 mixture rate for each qualified biodiesel mixture 

18 shall be— 

19 ‘‘(i) in the case of a mixture with only 

20 biodiesel V, 1 cent for each whole percent21 age point (not exceeding 10 percentage 

22 points) of biodiesel V in such mixture, and 

23 ‘‘(ii) in the case of a mixture with bio24 diesel NV, or a combination of biodiesel V 

25 and biodiesel NV, 0.5 cent for each whole 

26 percentage point (not exceeding 10 per-
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1 centage points) of such biodiesel in such 

2 mixture. 

3 ‘‘(2) QUALIFIED BIODIESEL MIXTURE.— 

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

5 biodiesel mixture’ means a mixture of diesel 

6 and biodiesel V or biodiesel NV which— 

7 ‘‘(i) is sold by the taxpayer producing 

8 such mixture to any person for use as a 

9 fuel, or 

10 ‘‘(ii) is used as a fuel by the taxpayer 

11 producing such mixture. 

12 ‘‘(B) SALE OR USE MUST BE IN TRADE OR

13 BUSINESS, IN OFF-HIGHWAY USE, ETC.— 

14 ‘‘(i) IN GENERAL.—Biodiesel V or bio15 diesel NV used in the production of a 

16 qualified biodiesel mixture shall be taken 

17 into account— 

18 ‘‘(I) only if the sale or use de19 scribed in subparagraph (A) is in a 

20 trade or business of the taxpayer, 

21 ‘‘(II) for the taxable year in 

22 which such sale or use occurs, and 

23 ‘‘(III) only if the sale or use de24 scribed in subparagraph (A) is ulti25 mately for use in a vehicle which at 
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1 the time of use will not be registered 

2 and is not required to be registered 

3 for highway use under the laws of any 

4 State or foreign country. 

5 ‘‘(ii) CERTIFICATION FOR BIODIESEL

6 V.—Biodiesel V used in the production of 

7 a qualified biodiesel mixture shall be taken 

8 into account only if the taxpayer described 

9 in subparagraph (A) obtains a certification 

10 from the producer of the biodiesel V which 

11 identifies the product produced. 

12 ‘‘(C) CASUAL OFF-FARM PRODUCTION NOT

13 ELIGIBLE.—No credit shall be allowed under 

14 this section with respect to any casual off-farm 

15 production of a qualified biodiesel mixture. 

16 ‘‘(c) DEFINITIONS AND SPECIAL RULES.—For pur17 poses of this section— 

18 ‘‘(1) BIODIESEL V DEFINED.—The term ‘bio19 diesel V’ means the monoalkyl esters of long chain 

20 fatty acids derived solely from virgin vegetable oils 

21 for use in compressional-ignition (diesel) engines. 

22 Such term shall include esters derived from vege23 table oils from corn, soybeans, sunflower seeds, cot24 tonseeds, canola, crambe, rapeseeds, safflowers, 

25 flaxseeds, rice bran, and mustard seeds. 
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1 ‘‘(2) BIODIESEL NV DEFINED.—The term ‘bio2 diesel nv’ means the monoalkyl esters of long chain 

3 fatty acids derived from nonvirgin vegetable oils or 

4 animal fats for use in compressional-ignition (diesel) 

5 engines. 

6 ‘‘(3) REGISTRATION REQUIREMENTS.—The 

7 terms ‘biodiesel V’ and ‘biodiesel NV’ shall only in8 clude a biodiesel which meets— 

9 ‘‘(A) the registration requirements for 

10 fuels and fuel additives established by the 

11 Environmental Protection Agency under 

12 section 211 of the Clean Air Act (42 

13 U.S.C. 7545), and 

14 ‘‘(B) the requirements of the Amer15 ican Society of Testing and Materials 

16 D6751. 

17 ‘‘(4) BIODIESEL MIXTURE NOT USED AS A

18 FUEL, ETC.— 

19 ‘‘(A) IMPOSITION OF TAX.—If— 

20 ‘‘(i) any credit was determined under 

21 this section with respect to biodiesel V or 

22 biodiesel NV used in the production of any 

23 qualified biodiesel mixture, and 

24 ‘‘(ii) any person— 
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1 ‘‘(I) separates such biodiesel 

2 from the mixture, or 

3 ‘‘(II) without separation, uses the 

4 mixture other than as a fuel, 

5 then there is hereby imposed on such per6 son a tax equal to the product of the bio7 diesel mixture rate applicable under sub8 section (b)(1)(B) and the number of gal9 lons of the mixture. 

10 ‘‘(B) APPLICABLE LAWS.—All provisions of 

11 law, including penalties, shall, insofar as appli12 cable and not inconsistent with this section, 

13 apply in respect of any tax imposed under sub14 paragraph (A) as if such tax were imposed by 

15 section 4081 and not by this chapter. 

16 ‘‘(5) PASS-THRU IN THE CASE OF ESTATES AND

17 TRUSTS.—Under regulations prescribed by the Sec18 retary, rules similar to the rules of subsection (d) of 

19 section 52 shall apply. 

20 ‘‘(d) ELECTION TO HAVE BIODIESEL FUELS CREDIT

21 NOT APPLY.— 

22 ‘‘(1) IN GENERAL.—A taxpayer may elect to 

23 have this section not apply for any taxable year. 

24 ‘‘(2) TIME FOR MAKING ELECTION.—An elec25 tion under paragraph (1) for any taxable year may 
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1 be made (or revoked) at any time before the expira2 tion of the 3-year period beginning on the last date 

3 prescribed by law for filing the return for such tax4 able year (determined without regard to extensions). 

5 ‘‘(3) MANNER OF MAKING ELECTION.—An elec6 tion under paragraph (1) (or revocation thereof) 

7 shall be made in such manner as the Secretary may 

8 by regulations prescribe.’’. 

9 (b) CREDIT TREATED AS PART OF GENERAL BUSI10 NESS CREDIT.—Section 38(b) of such Code is amended 

11 by striking ‘‘plus’’ at the end of paragraph (14), by strik12 ing the period at the end of paragraph (15) and inserting 

13 ‘‘, plus’’, and by adding at the end the following new para14 graph: 

15 ‘‘(16) the biodiesel fuels credit determined 

16 under section 40A(a).’’. 

17 (c) CONFORMING AMENDMENTS.— 

18 (1) Section 39(d) of such Code is amended by 

19 adding at the end the following new paragraph: 

20 ‘‘(11) NO CARRYBACK OF BIODIESEL FUELS

21 CREDIT BEFORE JANUARY 1, 2004.—No portion of 

22 the unused business credit for any taxable year 

23 which is attributable to the biodiesel fuels credit de24 termined under section 40A may be carried back to 

25 a taxable year beginning before January 1, 2004.’’. 
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1 (2) Section 196(c) of such Code is amended by 

2 striking ‘‘and’’ at the end of paragraph (9), by strik3 ing the period at the end of paragraph (10), and by 

4 adding at the end the following new paragraph: 

5 ‘‘(11) the biodiesel fuels credit determined 

6 under section 40A(a).’’. 

7 (3) Section 6501(m) of such Code is amended 

8 by inserting ‘‘40A(e),’’ after ‘‘40(f),’’. 

9 (4) The table of sections for subpart D of part 

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

11 amended by adding after the item relating to section 

12 40 the following new item: 

‘‘Sec. 40A. Biodiesel used as fuel.’’. 

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

14 this subsection shall apply to taxable years beginning after 

15 December 31, 2003. 

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