II 

109TH CONGRESS 

1ST SESSION S. 610 

To amend the Internal Revenue Code of 1986 to provide for a small agribiodiesel producer credit and to improve the small ethanol producer credit. 

IN THE SENATE OF THE UNITED STATES 

MARCH 11, 2005 

Mr. TALENT (for himself, Mrs. LINCOLN, Mr. THUNE, Mr. JOHNSON, Mr. 

COLEMAN, Mr. SALAZAR, Mr. HARKIN, Mr. HAGEL, and Mr. BOND) 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 provide 

for a small agri-biodiesel producer credit and to improve 

the small ethanol producer credit.

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 AGRI-BIODIESEL PRODUCER CREDIT. 

4 (a) IN GENERAL.—Subsection (a) of section 40A of 

5 the Internal Revenue Code of 1986 (relating to biodiesel 

6 used as a fuel) is amended to read as follows: 

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

8 the biodiesel fuels credit determined under this section for 

9 the taxable year is an amount equal to the sum of— 
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1 ‘‘(1) the biodiesel mixture credit, plus 

2 ‘‘(2) the biodiesel credit, plus 

3 ‘‘(3) in the case of an eligible small agri-bio4 diesel producer, the small agri-biodiesel producer 

5 credit.’’. 

6 (b) SMALL AGRI-BIODIESEL PRODUCER CREDIT DE7 FINED.—Section 40A(b) of the Internal Revenue Code of 

8 1986 (relating to definition of biodiesel mixture credit and 

9 biodiesel credit) is amended by adding at the end the fol10 lowing new paragraph: 

11 ‘‘(5) SMALL AGRI-BIODIESEL PRODUCER CRED12 IT.— 

13 ‘‘(A) IN GENERAL.—The small agri-bio14 diesel producer credit of any eligible small agri15 biodiesel producer for any taxable year is 10 

16 cents for each gallon of qualified agri-biodiesel 

17 production of such producer. 

18 ‘‘(B) QUALIFIED AGRI-BIODIESEL PRODUC19 TION.—For purposes of this paragraph, the 

20 term ‘qualified agri-biodiesel production’ means 

21 any agri-biodiesel which is produced by an eligi22 ble small agri-biodiesel producer, and which 

23 during the taxable year— 

24 ‘‘(i) is sold by such producer to an25 other person— 
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1 ‘‘(I) for use by such other person 

2 in the production of a qualified bio3 diesel mixture in such other person’s 

4 trade or business (other than casual 

5 off-farm production), 

6 ‘‘(II) for use by such other per7 son as a fuel in a trade or business, 

8 or 

9 ‘‘(III) who sells such agri-bio10 diesel at retail to another person and 

11 places such agri-biodiesel in the fuel 

12 tank of such other person, or 

13 ‘‘(ii) is used or sold by such producer 

14 for any purpose described in clause (i). 

15 ‘‘(C) LIMITATION.—The qualified agri-bio16 diesel production of any producer for any tax17 able year shall not exceed 15,000,000 gallons.’’. 

18 (c) DEFINITIONS AND SPECIAL RULES.—Section 

19 40A of the Internal Revenue Code of 1986 is amended 

20 by redesignating subsection (e) as subsection (f) and by 

21 inserting after subsection (d) the following new subsection: 

22 ‘‘(e) DEFINITIONS AND SPECIAL RULES FOR SMALL

23 AGRI-BIODIESEL PRODUCER CREDIT.—For purposes of 

24 this section— 
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1 ‘‘(1) ELIGIBLE SMALL AGRI-BIODIESEL PRO2 DUCER.—The term ‘eligible small agri-biodiesel pro3 ducer’ means a person who, at all times during the 

4 taxable year, has a productive capacity for agri-bio5 diesel not in excess of 60,000,000 gallons. 

6 ‘‘(2) AGGREGATION RULE.—For purposes of 

7 the 15,000,000 gallon limitation under subsection 

8 (b)(5)(C) and the 60,000,000 gallon limitation 

9 under paragraph (1), all members of the same con10 trolled group of corporations (within the meaning of 

11 section 267(f)) and all persons under common con12 trol (within the meaning of section 52(b) but deter13 mined by treating an interest of more than 50 per14 cent as a controlling interest) shall be treated as 1 

15 person. 

16 ‘‘(3) PARTNERSHIP, S CORPORATION, AND

17 OTHER PASS-THRU ENTITIES.—In the case of a 

18 partnership, trust, S corporation, or other pass-thru 

19 entity, the limitations contained in subsection 

20 (b)(5)(C) and paragraph (1) shall be applied at the 

21 entity level and at the partner or similar level. 

22 ‘‘(4) ALLOCATION.—For purposes of this sub23 section, in the case of a facility in which more than 

24 1 person has an interest, productive capacity shall 
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1 be allocated among such persons in such manner as 

2 the Secretary may prescribe. 

3 ‘‘(5) REGULATIONS.—The Secretary may pre4 scribe such regulations as may be necessary— 

5 ‘‘(A) to prevent the credit provided for in 

6 subsection (a)(3) from directly or indirectly 

7 benefiting any person with a direct or indirect 

8 productive capacity of more than 60,000,000 

9 gallons of agri-biodiesel during the taxable year, 

10 or 

11 ‘‘(B) to prevent any person from directly 

12 or indirectly benefiting with respect to more 

13 than 15,000,000 gallons during the taxable 

14 year. 

15 ‘‘(6) ALLOCATION OF SMALL AGRI-BIODIESEL

16 CREDIT TO PATRONS OF COOPERATIVE.— 

17 ‘‘(A) ELECTION TO ALLOCATE.— 

18 ‘‘(i) IN GENERAL.—In the case of a 

19 cooperative organization described in sec20 tion 1381(a), any portion of the credit de21 termined under subsection (a)(3) for the 

22 taxable year may, at the election of the or23 ganization, be apportioned pro rata among 

24 patrons of the organization on the basis of 
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1 the quantity or value of business done with 

2 or for such patrons for the taxable year. 

3 ‘‘(ii) FORM AND EFFECT OF ELEC4 TION.—An election under clause (i) for any 

5 taxable year shall be made on a timely 

6 filed return for such year. Such election, 

7 once made, shall be irrevocable for such 

8 taxable year. 

9 ‘‘(B) TREATMENT OF ORGANIZATIONS AND

10 PATRONS.— 

11 ‘‘(i) ORGANIZATIONS.—The amount of 

12 the credit not apportioned to patrons pur13 suant to subparagraph (A) shall be in14 cluded in the amount determined under 

15 subsection (a)(3) for the taxable year of 

16 the organization. 

17 ‘‘(ii) PATRONS.—The amount of the 

18 credit apportioned to patrons pursuant to 

19 subparagraph (A) shall be included in the 

20 amount determined under such subsection 

21 for the first taxable year of each patron 

22 ending on or after the last day of the pay23 ment period (as defined in section 

24 1382(d)) for the taxable year of the orga25 nization or, if earlier, for the taxable year 
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1 of each patron ending on or after the date 

2 on which the patron receives notice from 

3 the cooperative of the apportionment. 

4 ‘‘(iii) SPECIAL RULES FOR DECREASE

5 IN CREDITS FOR TAXABLE YEAR.—If the 

6 amount of the credit of the organization 

7 determined under such subsection for a 

8 taxable year is less than the amount of 

9 such credit shown on the return of the or10 ganization for such year, an amount equal 

11 to the excess of— 

12 ‘‘(I) such reduction, over 

13 ‘‘(II) the amount not apportioned 

14 to such patrons under subparagraph 

15 (A) for the taxable year, 

16 shall be treated as an increase in tax im17 posed by this chapter on the organization. 

18 Such increase shall not be treated as tax 

19 imposed by this chapter for purposes of de20 termining the amount of any credit under 

21 this chapter or for purposes of section 

22 55.’’. 

23 (d) SMALL AGRI-BIODIESEL CREDIT NOT A PASSIVE

24 ACTIVITY CREDIT.—Clause (i) of section 469(d)(2)(A) of 

25 the Internal Revenue Code of 1986, as amended by section 
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1 2, is amended by striking ‘‘section 40(a)(3)’’ and inserting 

2 ‘‘sections 40(a)(3) and 40A(a)(3)’’. 

3 (e) SMALL AGRI-BIODIESEL PRODUCER CREDIT NOT

4 ADDED BACK TO INCOME UNDER SECTION 87.—Section 

5 87 of the Internal Revenue Code of 1986, as amended by 

6 section 2, is amended by striking ‘‘and’’ at the end of 

7 paragraph (2) and by striking paragraph (3) and inserting 

8 the following new paragraphs: 

9 ‘‘(3) the biodiesel mixture credit determined 

10 with respect to the taxpayer for the taxable year 

11 under section 40A(a)(1), and 

12 ‘‘(4) the biodiesel credit determined with re13 spect to the taxpayer for the taxable year under sec14 tion 40A(a)(2).’’. 

15 (f) CONFORMING AMENDMENTS.— 

16 (1) Paragraph (4) of section 40A(b) of the In17 ternal Revenue Code of 1986 is amended by striking 

18 ‘‘this section’’ and inserting ‘‘paragraph (1) or (2) 

19 of subsection (a)’’. 

20 (2) The heading of subsection (b) of section 

21 40A of such Code is amended by striking ‘‘AND BIO22 DIESEL CREDIT’’ and inserting ‘‘, BIODIESEL CRED23 IT, AND SMALL AGRI-BIODIESEL PRODUCER CRED24 IT’’. 
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1 (3) Paragraph (3) of section 40A(d) of such 

2 Code is amended by redesignating subparagraph (C) 

3 as subparagraph (D) and by inserting after subpara4 graph (B) the following new subparagraph: 

5 ‘‘(C) PRODUCER CREDIT.—If— 

6 ‘‘(i) any credit was determined under 

7 subsection (a)(3), and 

8 ‘‘(ii) any person does not use such 

9 fuel for a purpose described in subsection 

10 (b)(5)(B), 

11 then there is hereby imposed on such person a 

12 tax equal to 10 cents a gallon for each gallon 

13 of such agri-biodiesel.’’. 

14 (g) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years beginning after 

16 the date of the enactment of this Act. 

17 SEC. 2. IMPROVEMENTS TO SMALL ETHANOL PRODUCER 

18 CREDIT. 

19 (a) DEFINITION OF SMALL ETHANOL PRODUCER.—

20 Section 40(g) of the Internal Revenue Code of 1986 (relat21 ing to definitions and special rules for eligible small eth22 anol producer credit) is amended by striking 

23 ‘‘30,000,000’’ each place it appears and inserting 

24 ‘‘60,000,000’’. 
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1 (b) SMALL ETHANOL PRODUCER CREDIT NOT A

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

3 469(d)(2)(A) of the Internal Revenue Code of 1986 is 

4 amended by striking ‘‘subpart D’’ and inserting ‘‘subpart 

5 D, other than section 40(a)(3),’’. 

6 (c) SMALL ETHANOL PRODUCER CREDIT NOT

7 ADDED BACK TO INCOME UNDER SECTION 87.—Section 

8 87 of the Internal Revenue Code of 1986 (relating to in9 come inclusion of alcohol and biodiesel fuels credits) is 

10 amended by redesignating paragraph (2) as paragraph (3) 

11 and by striking paragraph (1) and inserting the following: 

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

13 determined with respect to the taxpayer for the tax14 able year under section 40(a)(1), 

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

16 to the taxpayer for the taxable year under section 

17 40(a)(2), and’’. 

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

19 this section shall apply to taxable years beginning after 

20 the date of the enactment of this Act.

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