II 

109TH CONGRESS 

1ST SESSION S. 962 

To amend the Internal Revenue Code of 1986 to allow a credit to holders 

of qualified bonds issued to finance certain energy projects, and for 

other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 28, 2005 

Mr. GRASSLEY (for himself, Mr. BAUCUS, Mr. BUNNING, Mr. BINGAMAN, Mr. 

CONRAD, Mr. HAGEL, Mr. COLEMAN, Mr. JOHNSON, and Mr. NELSON

of Nebraska) 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 a 

credit to holders of qualified bonds issued to finance 

certain energy projects, 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; AMENDMENT OF 1986 CODE. 

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

5 ‘‘Clean Energy Bonds Act of 2005’’. 

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 SEC. 2. CREDIT TO HOLDERS OF CLEAN ENERGY BONDS. 

5 (a) IN GENERAL.—Part IV of subchapter A of chap6 ter 1 (relating to credits against tax) is amended by add7 ing at the end the following new subpart: 

8 ‘‘Subpart H—Nonrefundable Credit to Holders of 

9 Clean Energy Bonds 

‘‘Sec. 54. Credit to holders of clean energy bonds. 

10 ‘‘SEC. 54. CREDIT TO HOLDERS OF CLEAN ENERGY BONDS. 

11 ‘‘(a) ALLOWANCE OF CREDIT.—In the case of a tax12 payer who holds a clean energy bond on a credit allowance 

13 date of such bond, which occurs during the taxable year, 

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

15 by this chapter for such taxable year an amount equal to 

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

17 with respect to credit allowance dates during such year 

18 on which the taxpayer holds such bond. 

19 ‘‘(b) AMOUNT OF CREDIT.— 

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

21 determined under this subsection with respect to any 

22 credit allowance date for a clean energy bond is 25 

23 percent of the annual credit determined with respect 

24 to such bond. 
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1 ‘‘(2) ANNUAL CREDIT.—The annual credit de2 termined with respect to any clean energy bond is 

3 the product of— 

4 ‘‘(A) the credit rate determined by the Sec5 retary under paragraph (3) for the day on 

6 which such bond was sold, multiplied by 

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

8 bond. 

9 ‘‘(3) DETERMINATION.—For purposes of para10 graph (2), with respect to any clean energy bond, 

11 the Secretary shall determine daily or caused to be 

12 determined daily a credit rate which shall apply to 

13 the first day on which there is a binding, written 

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

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

16 Secretary or the Secretary’s designee estimates will 

17 permit the issuance of clean energy bonds with a 

18 specified maturity or redemption date without dis19 count and without interest cost to the qualified 

20 issuer. 

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

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

23 means— 

24 ‘‘(A) March 15, 

25 ‘‘(B) June 15, 
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1 ‘‘(C) September 15, and 

2 ‘‘(D) December 15. 

3 Such term also includes the last day on which the 

4 bond is outstanding. 

5 ‘‘(5) SPECIAL RULE FOR ISSUANCE AND RE6 DEMPTION.—In the case of a bond which is issued 

7 during the 3-month period ending on a credit allow8 ance date, the amount of the credit determined 

9 under this subsection with respect to such credit al10 lowance date shall be a ratable portion of the credit 

11 otherwise determined based on the portion of the 3- 

12 month period during which the bond is outstanding. 

13 A similar rule shall apply when the bond is redeemed 

14 or matures. 

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

16 ‘‘(1) IN GENERAL.—The credit allowed under 

17 subsection (a) for any taxable year shall not exceed 

18 the excess of— 

19 ‘‘(A) the sum of the regular tax liability 

20 (as defined in section 26(b)) plus the tax im21 posed by section 55, over 

22 ‘‘(B) the sum of the credits allowable 

23 under this part (other than subpart C thereof, 

24 relating to refundable credits). 
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1 ‘‘(2) CARRYOVER OF UNUSED CREDIT.—If the 

2 credit allowable under subsection (a) exceeds the 

3 limitation imposed by paragraph (1) for such taxable 

4 year, such excess shall be carried to the succeeding 

5 taxable year and added to the credit allowable under 

6 subsection (a) for such taxable year. 

7 ‘‘(d) CLEAN ENERGY BOND.—For purposes of this 

8 section— 

9 ‘‘(1) IN GENERAL.—The term ‘clean energy 

10 bond’ means any bond issued as part of an issue 

11 if— 

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

13 issuer, 

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 subsections (e) and (g). 

23 ‘‘(2) QUALIFIED PROJECT; SPECIAL USE

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

2 project’ means any qualified facility (as deter3 mined under section 45(d) without regard to 

4 any placed in service date) owned by a qualified 

5 borrower. 

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

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

8 refinanced with proceeds of a clean energy bond 

9 only if the indebtedness being refinanced (in10 cluding any obligation directly or indirectly refi11 nanced by such indebtedness) was originally in12 curred by a qualified borrower after the date of 

13 the enactment of this section. 

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

15 paragraph (1)(B), a clean energy bond may be 

16 issued to reimburse a qualified borrower for 

17 amounts paid after the date of the enactment 

18 of this section with respect to a qualified 

19 project, but only if prior to the payment of such 

20 expenditure, the qualified borrower declared its 

21 intent to reimburse such expenditure with the 

22 proceeds of a clean energy bond. 

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

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

25 of an issue shall not be treated as used for a 
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1 qualified project to the extent that a qualified 

2 borrower takes any action within its control 

3 which causes such proceeds not to be used for 

4 a qualified project. The Secretary shall pre5 scribe regulations specifying remedial actions 

6 that may be taken (including conditions to tak7 ing such remedial actions) to prevent an action 

8 described in the preceding sentence from caus9 ing a bond to fail to be a clean energy bond. 

10 ‘‘(e) MATURITY LIMITATIONS.— 

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

12 treated as a clean energy bond if such bond is issued 

13 as part of an issue and— 

14 ‘‘(A) the average maturity of bonds issued 

15 as a part of such issue, exceeds 

16 ‘‘(B) 120 percent of the average reasonable 

17 expected economic life of the facilities being fi18 nanced with the proceeds from the sale of such 

19 issue. 

20 ‘‘(2) DETERMINATION OF AVERAGES.—For pur21 poses of paragraph (1), the determination of aver22 ages of an issue and economic life of any facility 

23 shall be determined in accordance with section 

24 147(b). 
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1 ‘‘(3) RATABLE PRINCIPAL AMORTIZATION RE2 QUIRED.—A bond shall not be treated as a clean en3 ergy bond unless it is part of an issue which pro4 vides for an equal amount of principal to be paid by 

5 the qualified issuer during each calendar year that 

6 the issue is outstanding. 

7 ‘‘(f) CREDIT INCLUDED IN GROSS INCOME.—Gross 

8 income includes the amount of the credit allowed to the 

9 taxpayer under this section (determined without regard to 

10 subsection (c)) and the amount so included shall be treat11 ed as interest income. 

12 ‘‘(g) SPECIAL RULES RELATING TO EXPENDI13 TURES.— 

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

15 meeting the requirements of this subsection if— 

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

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

18 1 or more qualified projects within the 5-year 

19 period beginning on the date of issuance of the 

20 clean energy bond, 

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

22 party to spend at least 10 percent of the pro23 ceeds from the sale of the issue will be incurred 

24 within the 6-month period beginning on the 

25 date of issuance of the clean energy bond or, in 
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1 the case of a clean energy bond, the proceeds 

2 of which are to be loaned to 2 or more qualified 

3 borrowers, such binding commitment will be in4 curred within the 6-month period beginning on 

5 the date of the loan of such proceeds to a quali6 fied borrower, and 

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

8 due diligence and the proceeds from the sale of 

9 the issue will be spent with due diligence. 

10 ‘‘(2) EXTENSION OF PERIOD.—Upon submis11 sion of a request prior to the expiration of the period 

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

13 extend such period if the qualified issuer establishes 

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

15 due to reasonable cause and the related projects will 

16 continue to proceed with due diligence. 

17 ‘‘(3) FAILURE TO SPEND REQUIRED AMOUNT

18 OF BOND PROCEEDS WITHIN 5 YEARS.—To the ex19 tent that less than 95 percent of the proceeds of 

20 such issue are expended within such 5-year period 

21 (and no extension has been obtained under para22 graph (2)), the qualified issuer shall redeem all of 

23 the nonqualified bonds on the earliest call date sub24 sequent to the expiration of the 5-year period. If 

25 such earliest call date is more than 90 days subse-
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1 quent to the expiration of the 5-year period, the 

2 qualified issuer shall establish a yield-restricted de3 feasance escrow within such 90 days to retire such 

4 nonqualified bonds on the earlier of the date which 

5 is 10 years after the issue date or the first call date. 

6 For purposes of this paragraph, the term ‘non7 qualified bonds’ means the portion of the out8 standing bonds in an amount that, if the remaining 

9 bonds were issued on the fifth anniversary of the 

10 date of the issuance of the issue, at least 95 percent 

11 of the proceeds of the remaining bonds would be 

12 used to provide qualified projects. 

13 ‘‘(h) SPECIAL RULES RELATING TO ARBITRAGE.— 

14 ‘‘(1) IN GENERAL.—A bond which is part of an 

15 issue shall not be treated as a clean energy bond un16 less, with respect to the issue of which the bond is 

17 a part, the qualified issuer satisfies the arbitrage re18 bate requirements of section 148 with respect to 

19 gross proceeds of the issue (other than any amounts 

20 applied in accordance with subsection (g)). For pur21 poses of such requirements, yield over the term of an 

22 issue shall be determined under the principles of sec23 tion 148 based on the qualified issuer’s payments of 

24 principal, interest (if any), and fees for qualified 

25 guarantees on such issue. 
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1 ‘‘(2) EXCEPTION.—Amounts on deposit in a 

2 bona fide debt service fund with regard to any clean 

3 energy bond are not subject to the arbitrage rebate 

4 requirements of section 148. 

5 ‘‘(i) COOPERATIVE ELECTRIC COMPANY; QUALIFIED

6 ENERGY TAX CREDIT BOND LENDER; GOVERNMENTAL

7 BODY; QUALIFIED BORROWER.—For purposes of this sec8 tion— 

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

10 term ‘cooperative electric company’ means a mutual 

11 or cooperative electric company described in section 

12 501(c)(12) or section 1381(a)(2)(C), or a not-for13 profit electric utility which has received a loan or 

14 loan guarantee under the Rural Electrification Act. 

15 ‘‘(2) CLEAN ENERGY BOND LENDER.—The 

16 term ‘clean energy bond lender’ means a lender 

17 which is a cooperative which is owned by, or has out18 standing loans to, 100 or more cooperative electric 

19 companies and is in existence on February 1, 2002, 

20 and shall include any affiliated entity which is con21 trolled by such lender. 

22 ‘‘(3) GOVERNMENTAL BODY.—The term ‘gov23 ernmental body’ means any State, territory, posses24 sion of the United States, the District of Columbia, 
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1 Indian tribal government, and any political subdivi2 sion thereof. 

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

4 issuer’ means— 

5 ‘‘(A) a clean energy bond lender, 

6 ‘‘(B) a cooperative electric company, 

7 ‘‘(C) a governmental body, or 

8 ‘‘(D) the Tennessee Valley Authority. 

9 ‘‘(5) QUALIFIED BORROWER.—The term ‘quali10 fied borrower’ means— 

11 ‘‘(A) a cooperative electric company, 

12 ‘‘(B) a governmental body, or 

13 ‘‘(C) the Tennessee Valley Authority. 

14 ‘‘(j) SPECIAL RULES RELATING TO POOL BONDS.— 

15 No portion of a pooled financing bond may be allocable 

16 to loan unless the borrower has entered into a written loan 

17 commitment for such portion prior to the issue date of 

18 such issue. 

19 ‘‘(k) OTHER DEFINITIONS AND SPECIAL RULES.— 

20 For purposes of this section— 

21 ‘‘(1) BOND.—The term ‘bond’ includes any ob22 ligation. 

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

24 ‘pooled financing bond’ shall have the meaning given 

25 such term by section 149(f)(4)(A). 
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1 ‘‘(3) PARTNERSHIP; S CORPORATION; AND

2 OTHER PASS-THRU ENTITIES.—Under regulations 

3 prescribed by the Secretary, in the case of a partner4 ship, trust, S corporation, or other pass-thru entity, 

5 rules similar to the rules of section 41(g) shall apply 

6 with respect to the credit allowable under subsection 

7 (a). 

8 ‘‘(4) BONDS HELD BY REGULATED INVEST9 MENT COMPANIES.—If any clean energy bond is held 

10 by a regulated investment company, the credit deter11 mined under subsection (a) shall be allowed to 

12 shareholders of such company under procedures pre13 scribed by the Secretary. 

14 ‘‘(5) TREATMENT FOR ESTIMATED TAX PUR15 POSES.—Solely for purposes of sections 6654 and 

16 6655, the credit allowed by this section to a tax17 payer by reason of holding a clean energy bond on 

18 a credit allowance date shall be treated as if it were 

19 a payment of estimated tax made by the taxpayer on 

20 such date. 

21 ‘‘(6) REPORTING.—Issuers of clean energy 

22 bonds shall submit reports similar to the reports re23 quired under section 149(e). 
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1 ‘‘(l) TERMINATION.—This section shall not apply 

2 with respect to any bond issued after December 31, 

3 2008.’’. 

4 (b) REPORTING.—Subsection (d) of section 6049 (re5 lating to returns regarding payments of interest) is 

6 amended by adding at the end the following new para7 graph: 

8 ‘‘(8) REPORTING OF CREDIT ON CLEAN ENERGY

9 BONDS.— 

10 ‘‘(A) IN GENERAL.—For purposes of sub11 section (a), the term ‘interest’ includes amounts 

12 includible in gross income under section 54(f) 

13 and such amounts shall be treated as paid on 

14 the credit allowance date (as defined in section 

15 54(b)(4)). 

16 ‘‘(B) REPORTING TO CORPORATIONS, 

17 ETC.—Except as otherwise provided in regula18 tions, in the case of any interest described in 

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

20 applied without regard to subparagraphs (A), 

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

22 ‘‘(C) REGULATORY AUTHORITY.—The Sec23 retary may prescribe such regulations as are 

24 necessary or appropriate to carry out the pur25 poses of this paragraph, including regulations 
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1 which require more frequent or more detailed 

2 reporting.’’. 

3 (c) CLERICAL AMENDMENTS.— 

4 (1) The table of subparts for part IV of sub5 chapter A of chapter 1 is amended by adding at the 

6 end the following new item: 

‘‘SUBPART H. NONREFUNDABLE CREDIT TO HOLDERS OF CLEAN ENERGY

BONDS.’’. 

7 (2) Section 6401(b)(1) is amended by striking 

8 ‘‘and G’’ and inserting ‘‘G, and H’’. 

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

10 Treasury shall issue regulations required under section 54 

11 of the Internal Revenue Code of 1986 (as added by this 

12 section) not later than 120 days after the date of the en13 actment of this Act. 

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

15 this section shall apply to bonds issued after the date of 

16 the enactment of this Act. 

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