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‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) QUALIFYING
CLEAN
COAL
TECHNOLOGY
UNIT.—The term ‘qualifying clean coal technology
unit’ means a clean coal technology unit of the tax-
payer which—
‘‘(A) on the date of the enactment of this
section was a coal-based electricity generating
steam generator-turbine unit which was not a
clean coal technology unit,
‘‘(B) has a nameplate capacity rating of
not more than 300,000 kilowatts,
‘‘(C) becomes a clean coal technology unit
as the result of the retrofitting, repowering, or
replacement of the unit with clean coal tech-
nology during the 10-year period beginning on
the date of the enactment of this section,
‘‘(D) is not receiving nor is scheduled to re-
ceive funding under the Clean Coal Technology
Program, the Power Plant Improvement Initia-
tive, or the Clean Coal Power Initiative admin-
istered by the Secretary of Energy, and
‘‘(E) receives an allocation of a portion of
the national megawatt capacity limitation under
subsection (e).
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‘‘(2) CLEAN COAL TECHNOLOGY UNIT.—The term
‘clean coal technology unit’ means a unit which—
‘‘(A) uses clean coal technology, including
advanced pulverized coal or atmospheric fluid-
ized bed combustion, pressurized fluidized bed
combustion, integrated gasification combined
cycle, or any other technology for the production
of electricity,
‘‘(B) uses coal to produce 75 percent or
more of its thermal output as electricity,
‘‘(C) has a design net heat rate of at least
500 less than that of such unit as described in
paragraph (1)(A),
‘‘(D) has a maximum design net heat rate
of not more than 9,500, and
‘‘(E) meets the pollution control require-
ments of paragraph (3).
‘‘(3) POLLUTION CONTROL REQUIREMENTS.—
‘‘(A) IN GENERAL.—A unit meets the re-
quirements of this paragraph if—
‘‘(i) its emissions of sulfur dioxide, ni-
trogen oxide, or particulates meet the lower
of the emission levels for each such emission
specified in—
‘‘(I) subparagraph (B), or
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‘‘(II) the new source performance
standards of the Clean Air Act (42
U.S.C. 7411) which are in effect for the
category of source at the time of the
retrofitting, repowering, or replacement
of the unit, and
‘‘(ii) its emissions do not exceed any
relevant emission level specified by regula-
tion pursuant to the hazardous air pollut-
ant requirements of the Clean Air Act (42
U.S.C. 7412) in effect at the time of the ret-
rofitting, repowering, or replacement.
‘‘(B) SPECIFIC LEVELS.—The levels speci-
fied in this subparagraph are—
‘‘(i) in the case of sulfur dioxide emis-
sions, 50 percent of the sulfur dioxide emis-
sion levels specified in the new source per-
formance standards of the Clean Air Act
(42 U.S.C. 7411) in effect on the date of the
enactment of this section for the category of
source,
‘‘(ii) in the case of nitrogen oxide
emissions—
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‘‘(I) 0.1 pound per million Btu of
heat input if the unit is not a cyclone-
fired boiler, and
‘‘(II) if the unit is a cyclone-fired
boiler, 15 percent of the uncontrolled
nitrogen oxide emissions from such
boilers, and
‘‘(iii) in the case of particulate emis-
sions, 0.02 pound per million Btu of heat
input.
‘‘(4) DESIGN NET HEAT RATE.—The design net
heat rate with respect to any unit, measured in Btu
per kilowatt hour (HHV)—
‘‘(A) shall be based on the design annual
heat input to and the design annual net elec-
trical output from such unit (determined without
regard to such unit’s co-generation of steam),
‘‘(B) shall be adjusted for the heat content
of the design coal to be used by the unit if it is
less than 12,000 Btu per pound according to the
following formula:
Design net heat rate = Unit net heat rate X [l-
{((12,000-design coal heat content, Btu per pound)/
1,000) X 0.013}], and
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‘‘(C) shall be corrected for the site reference
conditions of—
‘‘(i) elevation above sea level of 500 feet,
‘‘(ii) air pressure of 14.4 pounds per square inch
absolute (psia),
‘‘(iii) temperature, dry bulb of 63°F,
‘‘(iv) temperature, wet bulb of 54°F, and
‘‘(v) relative humidity of 55 percent.
‘‘(5) HHV.—The term ‘HHV’ means higher
heating value.
‘‘(6) APPLICATION
OF
CERTAIN
RULES.—The
rules of paragraphs (3), (4), and (5) of section 45(d)
shall apply.
‘‘(7) INFLATION ADJUSTMENT FACTOR.—
‘‘(A) IN GENERAL.—The term ‘inflation ad-
justment factor’ means, with respect to a cal-
endar year, a fraction the numerator of which is
the GDP implicit price deflator for the preceding
calendar year and the denominator of which is
the GDP implicit price deflator for the calendar
year 2002.
‘‘(B) GDP IMPLICIT
PRICE
DEFLATOR.—
The term ‘GDP implicit price deflator’ means
the most recent revision of the implicit price
deflator for the gross domestic product as com-
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puted by the Department of Commerce before
March 15 of the calendar year.
‘‘(8) NONCOMPLIANCE WITH POLLUTION LAWS.—
For purposes of this section, a unit which is not in
compliance with the applicable State and Federal pol-
lution prevention, control, and permit requirements
for any period of time shall not be considered to be
a qualifying clean coal technology unit during such
period.
‘‘(e) NATIONAL LIMITATION ON THE AGGREGATE CA-
PACITY
OF
QUALIFYING
CLEAN
COAL
TECHNOLOGY
UNITS.—
‘‘(1) IN GENERAL.—For purposes of subsection
(d)(1)(E), the national megawatt capacity limitation
for qualifying clean coal technology units is 4,000
megawatts.
‘‘(2) ALLOCATION
OF
LIMITATION.—The Sec-
retary shall allocate the national megawatt capacity
limitation for qualifying clean coal technology units
in such manner as the Secretary may prescribe under
the regulations under paragraph (3).
‘‘(3) REGULATIONS.—Not later than 6 months
after the date of the enactment of this section, the Sec-
retary shall prescribe such regulations as may be nec-
essary or appropriate—
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‘‘(A) to carry out the purposes of this sub-
section,
‘‘(B) to limit the capacity of any qualifying
clean coal technology unit to which this section
applies so that the combined megawatt capacity
allocated to all such units under this subsection
when all such units are placed in service during
the 10-year period described in subsection
(d)(1)(C), does not exceed 4,000 megawatts,
‘‘(C) to provide a certification process under
which the Secretary, in consultation with the
Secretary of Energy, shall approve and allocate
the national megawatt capacity limitation—
‘‘(i) to encourage that units with the
highest thermal efficiencies, when adjusted
for the heat content of the design coal and
site reference conditions described in sub-
section (d)(4)(C), and environmental per-
formance be placed in service as soon as
possible,
‘‘(ii) to allocate capacity to taxpayers
that have a definite and credible plan for
placing into commercial operation a quali-
fying 
clean 
coal 
technology 
unit,
including—
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‘‘(I) a site,
‘‘(II) contractual commitments for
procurement and construction or, in
the case of regulated utilities, the
agreement of the State utility commis-
sion,
‘‘(III) filings for all necessary
preconstruction approvals,
‘‘(IV) a demonstrated record of
having successfully completed com-
parable projects on a timely basis, and
‘‘(V) such other factors that the
Secretary determines are appropriate,
‘‘(D) to allocate the national megawatt ca-
pacity limitation to a portion of the capacity of
a qualifying clean coal technology unit if the
Secretary determines that such an allocation
would maximize the amount of efficient produc-
tion encouraged with the available tax credits,
‘‘(E) to set progress requirements and con-
ditional approvals so that capacity allocations
for clean coal technology units that become un-
likely to meet the necessary conditions for quali-
fying can be reallocated by the Secretary to other
clean coal technology units, and
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‘‘(F) to provide taxpayers with opportuni-
ties to correct administrative errors and omis-
sions with respect to allocations and record keep-
ing within a reasonable period after discovery,
taking into account the availability of regula-
tions and other administrative guidance from
the Secretary.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Section
38(b), as amended by this Act, is amended by striking
‘‘plus’’ at the end of paragraph (18), by striking the period
at the end of paragraph (19) and inserting ‘‘, plus’’, and
by adding at the end the following new paragraph:
‘‘(20) the qualifying clean coal technology pro-
duction credit determined under section 45I(a).’’.
(c) TRANSITIONAL RULE.—Section 39(d) (relating to
transitional rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
‘‘(16) NO CARRYBACK OF SECTION 45I CREDIT
BEFORE EFFECTIVE DATE.—No portion of the unused
business credit for any taxable year which is attrib-
utable to the qualifying clean coal technology produc-
tion credit determined under section 45I may be car-
ried back to a taxable year ending on or before the
date of the enactment of section 45I.’’.
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(d) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1, as
amended by this Act, is amended by adding at the end the
following new item:
‘‘Sec. 45I. Credit for production from a qualifying clean coal technology unit.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to production after the date of the enact-
ment of this Act, in taxable years ending after such date.
Subtitle 
B—Incentives 
for 
Early
Commercial Applications of Ad-
vanced Clean Coal Technologies
SEC. 2211. CREDIT FOR INVESTMENT IN QUALIFYING AD-
VANCED CLEAN COAL TECHNOLOGY.
(a) ALLOWANCE OF QUALIFYING ADVANCED CLEAN
COAL TECHNOLOGY UNIT CREDIT.—Section 46 (relating to
amount of credit) is amended by striking ‘‘and’’ at the end
of paragraph (2), by striking the period at the end of para-
graph (3) and inserting ‘‘, and’’, and by adding at the end
the following new paragraph:
‘‘(4) the qualifying advanced clean coal tech-
nology unit credit.’’.
(b) AMOUNT OF QUALIFYING ADVANCED CLEAN COAL
TECHNOLOGY UNIT CREDIT.—Subpart E of part IV of sub-
chapter A of chapter 1 (relating to rules for computing in-
vestment credit) is amended by inserting after section 48
the following new section:
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‘‘SEC. 48A. QUALIFYING ADVANCED CLEAN COAL TECH-
NOLOGY UNIT CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 46, the
qualifying advanced clean coal technology unit credit for
any taxable year is an amount equal to 10 percent of the
applicable percentage of the qualified investment in a quali-
fying advanced clean coal technology unit for such taxable
year.
‘‘(b) QUALIFYING ADVANCED CLEAN COAL TECH-
NOLOGY UNIT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the term ‘qualifying advanced clean coal tech-
nology unit’ means an advanced clean coal technology
unit of the taxpayer—
‘‘(A)(i)(I) in the case of a unit first placed
in service after the date of the enactment of this
section, the original use of which commences
with the taxpayer, or
‘‘(II) in the case of the retrofitting or
repowering of a unit first placed in service before
such date of enactment, the retrofitting or
repowering of which is completed by the tax-
payer after such date, or
‘‘(ii) which is acquired through purchase
(as defined by section 179(d)(2)),
‘‘(B) which is depreciable under section 167,
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paragraph (B). The preceding sentence shall not
apply to any property if the lessee and lessor of such
property make an election under this sentence. Such
an election, once made, may be revoked only with the
consent of the Secretary.
‘‘(3) NONCOMPLIANCE WITH POLLUTION LAWS.—
For purposes of this subsection, a unit which is not
in compliance with the applicable State and Federal
pollution prevention, control, and permit require-
ments for any period of time shall not be considered
to be a qualifying advanced clean coal technology
unit during such period.
‘‘(c) APPLICABLE PERCENTAGE.—For purposes of this
section, with respect to any qualifying advanced clean coal
technology unit, the applicable percentage is the percentage
equal to the ratio which the portion of the national mega-
watt capacity limitation allocated to the taxpayer with re-
spect to such unit under subsection (f) bears to the total
megawatt capacity of such unit.
‘‘(d) ADVANCED CLEAN COAL TECHNOLOGY UNIT.—
For purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘advanced clean
coal technology unit’ means a new, retrofit, or
repowering unit of the taxpayer which—
‘‘(A) is—
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‘‘(i) an eligible advanced pulverized
coal or atmospheric fluidized bed combus-
tion technology unit,
‘‘(ii) an eligible pressurized fluidized
bed combustion technology unit,
‘‘(iii) an eligible integrated gasifi-
cation combined cycle technology unit, or
‘‘(iv) an eligible other technology unit,
and
‘‘(B) meets the carbon emission rate require-
ments of paragraph (6).
‘‘(2) ELIGIBLE ADVANCED PULVERIZED COAL OR
ATMOSPHERIC
FLUIDIZED
BED
COMBUSTION
TECH-
NOLOGY UNIT.—The term ‘eligible advanced pulver-
ized coal or atmospheric fluidized bed combustion
technology unit’ means a clean coal technology unit
using advanced pulverized coal or atmospheric fluid-
ized bed combustion technology which—
‘‘(A) is placed in service after the date of
the enactment of this section and before January
1, 2013, and
‘‘(B) has a design net heat rate of not more
than 8,350 (8,750 in the case of units placed in
service before 2009).
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‘‘(3) ELIGIBLE
PRESSURIZED
FLUIDIZED
BED
COMBUSTION TECHNOLOGY UNIT.—The term ‘eligible
pressurized fluidized bed combustion technology unit’
means a clean coal technology unit using pressurized
fluidized bed combustion technology which—
‘‘(A) is placed in service after the date of
the enactment of this section and before January
1, 2017, and
‘‘(B) has a design net heat rate of not more
than 7,720 (8,750 in the case of units placed in
service before 2009, and 8,350 in the case of
units placed in service after 2008 and before
2013).
‘‘(4) ELIGIBLE INTEGRATED GASIFICATION COM-
BINED CYCLE TECHNOLOGY UNIT.—The term ‘eligible
integrated gasification combined cycle technology
unit’ means a clean coal technology unit using inte-
grated gasification combined cycle technology, with or
without fuel or chemical co-production, which—
‘‘(A) is placed in service after the date of
the enactment of this section and before January
1, 2017,
‘‘(B) has a design net heat rate of not more
than 7,720 (8,750 in the case of units placed in
service before 2009, and 8,350 in the case of
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units placed in service after 2008 and before
2013), and
‘‘(C) has a net thermal efficiency (HHV)
using coal with fuel or chemical co-production of
not less than 43.9 percent (39 percent in the case
of units placed in service before 2009, and 40.9
percent in the case of units placed in service
after 2008 and before 2013).
‘‘(5) ELIGIBLE OTHER TECHNOLOGY UNIT.—The
term ‘eligible other technology unit’ means a clean
coal technology unit using any other technology for
the production of electricity which is placed in service
after the date of the enactment of this section and be-
fore January 1, 2017.
‘‘(6) CARBON EMISSION RATE REQUIREMENTS.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), a unit meets the requirements
of this paragraph if—
‘‘(i) in the case of a unit using design
coal with a heat content of not more than
9,000 Btu per pound, the carbon emission
rate is less than 0.60 pound of carbon per
kilowatt hour, and
‘‘(ii) in the case of a unit using design
coal with a heat content of more than 9,000
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Btu per pound, the carbon emission rate is
less than 0.54 pound of carbon per kilowatt
hour.
‘‘(B) 
ELIGIBLE
OTHER
TECHNOLOGY
UNIT.—In the case of an eligible other technology
unit, subparagraph (A) shall be applied by sub-
stituting ‘0.51’ and ‘0.459’ for ‘0.60’ and ‘0.54’,
respectively.
‘‘(e) GENERAL DEFINITIONS.—Any term used in this
section which is also used in section 45I shall have the
meaning given such term in section 45I.
‘‘(f) NATIONAL LIMITATION ON THE AGGREGATE CA-
PACITY OF ADVANCED CLEAN COAL TECHNOLOGY UNITS.—
‘‘(1) IN GENERAL.—For purposes of subsection
(b)(1)(G), the national megawatt capacity limitation
is—
‘‘(A) for qualifying advanced clean coal
technology units using advanced pulverized coal
or atmospheric fluidized bed combustion tech-
nology, not more than 1,000 megawatts (not
more than 500 megawatts in the case of units
placed in service before 2009),
‘‘(B) for such units using pressurized fluid-
ized bed combustion technology, not more than
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500 megawatts (not more than 250 megawatts in
the case of units placed in service before 2009),
‘‘(C) for such units using integrated gasifi-
cation combined cycle technology, with or with-
out fuel or chemical co-production, not more
than 2,000 megawatts (not more than 1,000
megawatts in the case of units placed in service
before 2009 and not more than 1,500 megawatts
in the case of units placed in service after 2008
and before 2013), and
‘‘(D) for such units using other technology
for the production of electricity, not more than
500 megawatts (not more than 250 megawatts in
the case of units placed in service before 2009).
‘‘(2) ALLOCATION
OF
LIMITATION.—The Sec-
retary shall allocate the national megawatt capacity
limitation for qualifying advanced clean coal tech-
nology units in such manner as the Secretary may
prescribe under the regulations under paragraph (3).
‘‘(3) REGULATIONS.—Not later than 6 months
after the date of the enactment of this section, the Sec-
retary shall prescribe such regulations as may be nec-
essary or appropriate—
‘‘(A) to carry out the purposes of this sub-
section and section 45J,
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‘‘(B) shall include primary criteria of min-
imum design net heat rate, maximum design
thermal efficiency, environmental performance,
and lowest cost to the Government, and
‘‘(C) shall include supplemental criteria as
determined appropriate by the Secretary of En-
ergy.
‘‘(g) QUALIFIED INVESTMENT.—For purposes of sub-
section (a), the term ‘qualified investment’ means, with re-
spect to any taxable year, the basis of a qualifying advanced
clean coal technology unit placed in service by the taxpayer
during such taxable year (in the case of a unit described
in subsection (b)(1)(A)(i)(II), only that portion of the basis
of such unit which is properly attributable to the retro-
fitting or repowering of such unit).
‘‘(h) QUALIFIED PROGRESS EXPENDITURES.—
‘‘(1) INCREASE IN QUALIFIED INVESTMENT.—In
the case of a taxpayer who has made an election
under paragraph (5), the amount of the qualified in-
vestment of such taxpayer for the taxable year (deter-
mined under subsection (g) without regard to this
subsection) shall be increased by an amount equal to
the aggregate of each qualified progress expenditure
for the taxable year with respect to progress expendi-
ture property.
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‘‘(2) PROGRESS
EXPENDITURE
PROPERTY
DE-
FINED.—For purposes of this subsection, the term
‘progress expenditure property’ means any property
being constructed by or for the taxpayer and which it
is reasonable to believe will qualify as a qualifying
advanced clean coal technology unit which is being
constructed by or for the taxpayer when it is placed
in service.
‘‘(3) QUALIFIED PROGRESS EXPENDITURES DE-
FINED.—For purposes of this subsection—
‘‘(A) SELF-CONSTRUCTED
PROPERTY.—In
the case of any self-constructed property, the
term ‘qualified progress expenditures’ means the
amount which, for purposes of this subpart, is
properly chargeable (during such taxable year)
to capital account with respect to such property.
‘‘(B) NONSELF-CONSTRUCTED PROPERTY.—
In the case of nonself-constructed property, the
term ‘qualified progress expenditures’ means the
amount paid during the taxable year to another
person for the construction of such property.
‘‘(4) OTHER DEFINITIONS.—For purposes of this
subsection—
‘‘(A) SELF-CONSTRUCTED PROPERTY.—The
term ‘self-constructed property’ means property
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for which it is reasonable to believe that more
than half of the construction expenditures will be
made directly by the taxpayer.
‘‘(B) NONSELF-CONSTRUCTED PROPERTY.—
The term ‘nonself-constructed property’ means
property which is not self-constructed property.
‘‘(C) CONSTRUCTION, ETC.—The term ‘con-
struction’ includes reconstruction and erection,
and the term ‘constructed’ includes reconstructed
and erected.
‘‘(D) ONLY CONSTRUCTION OF QUALIFYING
ADVANCED CLEAN COAL TECHNOLOGY UNIT TO
BE TAKEN INTO ACCOUNT.—Construction shall be
taken into account only if, for purposes of this
subpart, expenditures therefor are properly
chargeable to capital account with respect to the
property.
‘‘(5) ELECTION.—An election under this sub-
section may be made at such time and in such man-
ner as the Secretary may by regulations prescribe.
Such an election shall apply to the taxable year for
which made and to all subsequent taxable years. Such
an election, once made, may not be revoked except
with the consent of the Secretary.
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‘‘(i) COORDINATION WITH OTHER CREDITS.—This
section shall not apply to any property with respect to
which the rehabilitation credit under section 47 or the en-
ergy credit under section 48 is allowed unless the taxpayer
elects to waive the application of such credit to such prop-
erty.’’.
(c) RECAPTURE.—Section 50(a) (relating to other spe-
cial rules) is amended by adding at the end the following
new paragraph:
‘‘(6) SPECIAL RULES RELATING TO QUALIFYING
ADVANCED
CLEAN
COAL
TECHNOLOGY
UNIT.—For
purposes of applying this subsection in the case of
any credit allowable by reason of section 48A, the fol-
lowing shall apply:
‘‘(A) GENERAL
RULE.—In lieu of the
amount of the increase in tax under paragraph
(1), the increase in tax shall be an amount equal
to the investment tax credit allowed under sec-
tion 38 for all prior taxable years with respect
to a qualifying advanced clean coal technology
unit (as defined by section 48A(b)(1)) multiplied
by a fraction whose numerator is the number of
years remaining to fully depreciate under this
title the qualifying advanced clean coal tech-
nology unit disposed of, and whose denominator
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is the total number of years over which such unit
would otherwise have been subject to deprecia-
tion. For purposes of the preceding sentence, the
year of disposition of the qualifying advanced
clean coal technology unit shall be treated as a
year of remaining depreciation.
‘‘(B) PROPERTY CEASES TO QUALIFY FOR
PROGRESS EXPENDITURES.—Rules similar to the
rules of paragraph (2) shall apply in the case of
qualified progress expenditures for a qualifying
advanced clean coal technology unit under sec-
tion 48A, except that the amount of the increase
in tax under subparagraph (A) of this para-
graph shall be substituted for the amount de-
scribed in such paragraph (2).
‘‘(C) APPLICATION
OF
PARAGRAPH.—This
paragraph shall be applied separately with re-
spect to the credit allowed under section 38 re-
garding a qualifying advanced clean coal tech-
nology unit.’’.
(d) TRANSITIONAL RULE.—Section 39(d) (relating to
transitional rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
‘‘(17) NO CARRYBACK OF SECTION 48A CREDIT
BEFORE EFFECTIVE DATE.—No portion of the unused
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business credit for any taxable year which is attrib-
utable to the qualifying advanced clean coal tech-
nology unit credit determined under section 48A may
be carried back to a taxable year ending on or before
the date of the enactment of section 48A.’’.
(e) TECHNICAL AMENDMENTS.—
(1) Section 49(a)(1)(C) is amended by striking
‘‘and’’ at the end of clause (ii), by striking the period
at the end of clause (iii) and inserting ‘‘, and’’, and
by adding at the end the following new clause:
‘‘(iv) the portion of the basis of any
qualifying advanced clean coal technology
unit attributable to any qualified invest-
ment (as defined by section 48A(g)).’’.
(2) Section 50(a)(4) is amended by striking
‘‘and (2)’’ and inserting ‘‘(2), and (6)’’.
(3) Section 50(c) is amended by adding at the
end the following new paragraph:
‘‘(6) NONAPPLICATION.—Paragraphs (1) and (2)
shall not apply to any qualifying advanced clean coal
technology unit credit under section 48A.’’.
(4) The table of sections for subpart E of part IV
of subchapter A of chapter 1 is amended by inserting
after the item relating to section 48 the following new
item:
‘‘Sec. 48A. Qualifying advanced clean coal technology unit credit.’’.
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(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to periods after the date of the enactment
of this Act, under rules similar to the rules of section 48(m)
of the Internal Revenue Code of 1986 (as in effect on the
day before the date of the enactment of the Revenue Rec-
onciliation Act of 1990).
SEC. 2212. CREDIT FOR PRODUCTION FROM A QUALIFYING
ADVANCED CLEAN COAL TECHNOLOGY UNIT.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business related credits), as
amended by this Act, is amended by adding at the end the
following new section:
‘‘SEC. 45J. CREDIT FOR PRODUCTION FROM A QUALIFYING
ADVANCED CLEAN COAL TECHNOLOGY UNIT.
‘‘(a) GENERAL RULE.—For purposes of section 38, the
qualifying advanced clean coal technology production credit
of any taxpayer for any taxable year is equal to—
‘‘(1) the applicable amount of advanced clean
coal technology production credit, multiplied by
‘‘(2) the applicable percentage (as determined
under section 48A(c)) of the sum of—
‘‘(A) the kilowatt hours of electricity, plus
‘‘(B) each 3,413 Btu of fuels or chemicals,
produced by the taxpayer during such taxable year at
a qualifying advanced clean coal technology unit dur-
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ing the 10-year period beginning on the date the unit
was originally placed in service (or returned to serv-
ice after becoming a qualifying advanced clean coal
technology unit).
‘‘(b) APPLICABLE AMOUNT.—For purposes of this sec-
tion, the applicable amount of advanced clean coal tech-
nology production credit with respect to production from
a qualifying advanced clean coal technology unit shall be
determined as follows:
‘‘(1) Where the qualifying advanced clean coal
technology unit is producing electricity only:
‘‘(A) In the case of a unit originally placed
in service before 2009, if—
‘‘The design net heat rate is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not more than 8,400 .......................................................
$.0060
$.0038
More than 8,400 but not more than 8,550 ....................
$.0025
$.0010
More than 8,550 but less than 8,750 .............................
$.0010
$.0010.
‘‘(B) In the case of a unit originally placed
in service after 2008 and before 2013, if—
‘‘The design net heat rate is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not more than 7,770 .......................................................
$.0105
$.0090
More than 7,770 but not more than 8,125 ....................
$.0085
$.0068
More than 8,125 but less than 8,350 .............................
$.0075
$.0055.
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‘‘(C) In the case of a unit originally placed
in service after 2012 and before 2017, if—
‘‘The design net heat rate is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not more than 7,380 .......................................................
$.0140
$.0115
More than 7,380 but not more than 7,720 ....................
$.0120
$.0090.
‘‘(2) Where the qualifying advanced clean coal
technology unit is producing fuel or chemicals:
‘‘(A) In the case of a unit originally placed
in service before 2009, if—
‘‘The unit design net thermal efficiency (HHV) is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not less than 40.6 percent ..............................................
$.0060
$.0038
Less than 40.6 but not less than 40 percent .................
$.0025
$.0010
Less than 40 but not less than 39 percent ....................
$.0010
$.0010.
‘‘(B) In the case of a unit originally placed
in service after 2008 and before 2013, if—
‘‘The unit design net thermal efficiency (HHV) is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not less than 43.6 percent ..............................................
$.0105
$.0090
Less than 43.6 but not less than 42 percent .................
$.0085
$.0068
Less than 42 but not less than 40.9 percent .................
$.0075
$.0055.
‘‘(C) In the case of a unit originally placed
in service after 2012 and before 2017, if—
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‘‘The unit design net thermal efficiency (HHV) is:
The applicable amount is:
For 1st 5 years of
such service
For 2d 5 years of
such service
Not less than 44.2 percent ..............................................
$.0140
$.0115
Less than 44.2 but not less than 43.9 percent ..............
$.0120
$.0090.
‘‘(c) INFLATION ADJUSTMENT.—For calendar years
after 2003, each amount in paragraphs (1) and (2) of sub-
section (b) shall be adjusted by multiplying such amount
by the inflation adjustment factor for the calendar year in
which the amount is applied. If any amount as increased
under the preceding sentence is not a multiple of 0.01 cent,
such amount shall be rounded to the nearest multiple of 0.01
cent.
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section—
‘‘(1) IN GENERAL.—Any term used in this sec-
tion which is also used in section 45I or 48A shall
have the meaning given such term in such section.
‘‘(2) APPLICABLE
RULES.—The rules of para-
graphs (3), (4), and (5) of section 45(d) shall apply.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Section
38(b), as amended by this Act, is amended by striking
‘‘plus’’ at the end of paragraph (19), by striking the period
at the end of paragraph (20) and inserting ‘‘, plus’’, and
by adding at the end the following new paragraph:
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‘‘(21) the qualifying advanced clean coal tech-
nology production credit determined under section
45J(a).’’.
(c) TRANSITIONAL RULE.—Section 39(d) (relating to
transitional rules), as amended by this Act, is amended by
adding at the end the following new paragraph:
‘‘(18) NO CARRYBACK OF SECTION 45J CREDIT
BEFORE EFFECTIVE DATE.—No portion of the unused
business credit for any taxable year which is attrib-
utable to the qualifying advanced clean coal tech-
nology production credit determined under section
45J may be carried back to a taxable year ending on
or before the date of the enactment of section 45J.’’.
(d) DENIAL OF DOUBLE BENEFIT.—Section 29(d) (re-
lating to other definitions and special rules) is amended
by adding at the end the following new paragraph:
‘‘(9) DENIAL OF DOUBLE BENEFIT.—This section
shall not apply with respect to any qualified fuel the
production of which may be taken into account for
purposes of determining the credit under section
45J.’’.
(e) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1, as
amended by this Act, is amended by adding at the end the
following new item:
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‘‘Sec. 45J. Credit for production from a qualifying advanced clean coal technology
unit.’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to production after the date of the enact-
ment of this Act, in taxable years ending after such date.
Subtitle C—Treatment of Persons
Not Able To Use Entire Credit
SEC. 2221. TREATMENT OF PERSONS NOT ABLE TO USE EN-
TIRE CREDIT.
(a) IN GENERAL.—Section 45I, as added by this Act,
is amended by adding at the end the following new sub-
section:
‘‘(f) TREATMENT OF PERSON NOT ABLE TO USE EN-
TIRE CREDIT.—
‘‘(1) ALLOWANCE OF CREDITS.—
‘‘(A) IN
GENERAL.—Any credit allowable
under this section, section 45J, or section 48A
with respect to a facility owned by a person de-
scribed in subparagraph (B) may be transferred
or used as provided in this subsection, and the
determination as to whether the credit is allow-
able shall be made without regard to the tax-ex-
empt status of the person.
‘‘(B) PERSONS
DESCRIBED.—A person is
described in this subparagraph if the person is—
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‘‘(i) an organization described in sec-
tion 501(c)(12)(C) and exempt from tax
under section 501(a),
‘‘(ii) an organization described in sec-
tion 1381(a)(2)(C),
‘‘(iii) a public utility (as defined in
section 136(c)(2)(B)),
‘‘(iv) any State or political subdivision
thereof, the District of Columbia, or any
agency or instrumentality of any of the
foregoing,
‘‘(v) any Indian tribal government
(within the meaning of section 7871) or any
agency or instrumentality thereof, or
‘‘(vi) the Tennessee Valley Authority.
‘‘(2) TRANSFER OF CREDIT.—
‘‘(A) IN GENERAL.—A person described in
clause (i), (ii), (iii), (iv), or (v) of paragraph
(1)(B) may transfer any credit to which para-
graph (1)(A) applies through an assignment to
any other person not described in paragraph
(1)(B). Such transfer may be revoked only with
the consent of the Secretary.
‘‘(B) REGULATIONS.—The Secretary shall
prescribe such regulations as necessary to insure
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that any credit described in subparagraph (A) is
claimed once and not reassigned by such other
person.
‘‘(C) TRANSFER
PROCEEDS
TREATED
AS
ARISING FROM ESSENTIAL GOVERNMENT FUNC-
TION.—Any proceeds derived by a person de-
scribed in clause (iii), (iv), or (v) of paragraph
(1)(B) from the transfer of any credit under sub-
paragraph (A) shall be treated as arising from
the exercise of an essential government function.
‘‘(3) USE OF CREDIT AS AN OFFSET.—Notwith-
standing any other provision of law, in the case of a
person described in clause (i), (ii), or (v) of para-
graph (1)(B), any credit to which paragraph (1)(A)
applies may be applied by such person, to the extent
provided by the Secretary of Agriculture, as a pre-
payment of any loan, debt, or other obligation the en-
tity has incurred under subchapter I of chapter 31 of
title 7 of the Rural Electrification Act of 1936 (7
U.S.C. 901 et seq.), as in effect on the date of the en-
actment of this section.
‘‘(4) USE BY TVA.—
‘‘(A) IN
GENERAL.—Notwithstanding any
other provision of law, in the case of a person de-
scribed in paragraph (1)(B)(vi), any credit to
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which paragraph (1)(A) applies may be applied
as a credit against the payments required to be
made in any fiscal year under section 15d(e) of
the Tennessee Valley Authority Act of 1933 (16
U.S.C. 831n–4(e)) as an annual return on the
appropriations investment and an annual re-
payment sum.
‘‘(B) TREATMENT OF CREDITS.—The aggre-
gate amount of credits described in paragraph
(1)(A) with respect to such person shall be treat-
ed in the same manner and to the same extent
as if such credits were a payment in cash and
shall be applied first against the annual return
on the appropriations investment.
‘‘(C) CREDIT CARRYOVER.—With respect to
any fiscal year, if the aggregate amount of cred-
its described paragraph (1)(A) with respect to
such person exceeds the aggregate amount of pay-
ment obligations described in subparagraph (A),
the excess amount shall remain available for ap-
plication as credits against the amounts of such
payment obligations in succeeding fiscal years in
the same manner as described in this paragraph.
‘‘(5) CREDIT NOT INCOME.—Any transfer under
paragraph (2) or use under paragraph (3) of any
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credit to which paragraph (1)(A) applies shall not be
treated as income for purposes of section 501(c)(12).
‘‘(6) TREATMENT
OF
UNRELATED
PERSONS.—
For purposes of this subsection, sales among and be-
tween persons described in clauses (i), (ii), (iii), (iv),
and (v) of paragraph (1)(A) shall be treated as sales
between unrelated parties.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to production after the date of the enact-
ment of this Act, in taxable years ending after such date.
TITLE XXIII—OIL AND GAS
PROVISIONS
SEC. 2301. OIL AND GAS FROM MARGINAL WELLS.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business credits), as amended
by this Act, is amended by adding at the end the following
new section:
‘‘SEC. 45K. CREDIT FOR PRODUCING OIL AND GAS FROM
MARGINAL WELLS.
‘‘(a) GENERAL RULE.—For purposes of section 38, the
marginal well production credit for any taxable year is an
amount equal to the product of—
‘‘(1) the credit amount, and
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‘‘(2) the qualified credit oil production and the
qualified natural gas production which is attributable
to the taxpayer.
‘‘(b) CREDIT AMOUNT.—For purposes of this section—
‘‘(1) IN GENERAL.—The credit amount is—
‘‘(A) $3 per barrel of qualified crude oil
production, and
‘‘(B) 50 cents per 1,000 cubic feet of quali-
fied natural gas production.
‘‘(2) REDUCTION AS OIL AND GAS PRICES IN-
CREASE.—
‘‘(A) IN GENERAL.—The $3 and 50 cents
amounts under paragraph (1) shall each be re-
duced (but not below zero) by an amount which
bears the same ratio to such amount (determined
without regard to this paragraph) as—
‘‘(i) the excess (if any) of the applica-
ble reference price over $15 ($1.67 for quali-
fied natural gas production), bears to
‘‘(ii) $3 ($0.33 for qualified natural
gas production).
The applicable reference price for a taxable year
is the reference price of the calendar year pre-
ceding the calendar year in which the taxable
year begins.
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‘‘(B) INFLATION ADJUSTMENT.—In the case
of any taxable year beginning in a calendar year
after 2002, each of the dollar amounts contained
in subparagraph (A) shall be increased to an
amount equal to such dollar amount multiplied
by the inflation adjustment factor for such cal-
endar 
year 
(determined 
under 
section
43(b)(3)(B) by substituting ‘2001’ for ‘1990’).
‘‘(C) REFERENCE PRICE.—For purposes of
this paragraph, the term ‘reference price’ means,
with respect to any calendar year—
‘‘(i) in the case of qualified crude oil
production, the reference price determined
under section 29(d)(2)(C), and
‘‘(ii) in the case of qualified natural
gas production, the Secretary’s estimate of
the annual average wellhead price per 1,000
cubic feet for all domestic natural gas.
‘‘(c) QUALIFIED CRUDE OIL AND NATURAL GAS PRO-
DUCTION.—For purposes of this section—
‘‘(1) IN GENERAL.—The terms ‘qualified crude
oil production’ and ‘qualified natural gas production’
mean domestic crude oil or natural gas which is pro-
duced from a qualified marginal well.
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‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION
WHICH MAY QUALIFY.—
‘‘(A) IN GENERAL.—Crude oil or natural
gas produced during any taxable year from any
well shall not be treated as qualified crude oil
production or qualified natural gas production
to the extent production from the well during the
taxable year exceeds 1,095 barrels or barrel
equivalents.
‘‘(B) PROPORTIONATE REDUCTIONS.—
‘‘(i) SHORT TAXABLE YEARS.—In the
case of a short taxable year, the limitations
under this paragraph shall be proportion-
ately reduced to reflect the ratio which the
number of days in such taxable year bears
to 365.
‘‘(ii) WELLS NOT IN PRODUCTION EN-
TIRE YEAR.—In the case of a well which is
not capable of production during each day
of a taxable year, the limitations under this
paragraph applicable to the well shall be
proportionately reduced to reflect the ratio
which the number of days of production
bears to the total number of days in the tax-
able year.
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‘‘(3) DEFINITIONS.—
‘‘(A) QUALIFIED
MARGINAL
WELL.—The
term ‘qualified marginal well’ means a domestic
well—
‘‘(i) the production from which during
the taxable year is treated as marginal pro-
duction under section 613A(c)(6), or
‘‘(ii) which, during the taxable year—
‘‘(I) has average daily production
of not more than 25 barrel equivalents,
and
‘‘(II) produces water at a rate not
less than 95 percent of total well efflu-
ent.
‘‘(B) CRUDE OIL, ETC.—The terms ‘crude
oil’, ‘natural gas’, ‘domestic’, and ‘barrel’ have
the meanings given such terms by section
613A(e).
‘‘(C) BARREL EQUIVALENT.—The term ‘bar-
rel equivalent’ means, with respect to natural
gas, a conversation ratio of 6,000 cubic feet of
natural gas to 1 barrel of crude oil.
‘‘(d) OTHER RULES.—
‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX-
PAYER.—In the case of a qualified marginal well in
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which there is more than one owner of operating in-
terests in the well and the crude oil or natural gas
production exceeds the limitation under subsection
(c)(2), qualifying crude oil production or qualifying
natural gas production attributable to the taxpayer
shall be determined on the basis of the ratio which
taxpayer’s revenue interest in the production bears to
the aggregate of the revenue interests of all operating
interest owners in the production.
‘‘(2) OPERATING
INTEREST
REQUIRED.—Any
credit under this section may be claimed only on pro-
duction which is attributable to the holder of an oper-
ating interest.
‘‘(3) 
PRODUCTION
FROM
NONCONVENTIONAL
SOURCES EXCLUDED.—In the case of production from
a qualified marginal well which is eligible for the
credit allowed under section 29 for the taxable year,
no credit shall be allowable under this section unless
the taxpayer elects not to claim the credit under sec-
tion 29 with respect to the well.
‘‘(4) NONCOMPLIANCE WITH POLLUTION LAWS.—
For purposes of subsection (c)(3)(A), a marginal well
which is not in compliance with the applicable State
and Federal pollution prevention, control, and permit
requirements for any period of time shall not be con-
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sidered to be a qualified marginal well during such
period.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Section
38(b), as amended by this Act, is amended by striking
‘‘plus’’ at the end of paragraph (20), by striking the period
at the end of paragraph (21) and inserting ‘‘, plus’’, and
by adding at the end the following new paragraph:
‘‘(22) the marginal oil and gas well production
credit determined under section 45K(a).’’.
(c) NO CARRYBACK OF MARGINAL OIL AND GAS WELL
PRODUCTION CREDIT BEFORE EFFECTIVE DATE.—Sub-
section (d) of section 39, as amended by this Act, is amend-
ed by adding at the end the following new paragraph:
‘‘(19) NO CARRYBACK OF MARGINAL OIL AND GAS
WELL
PRODUCTION
CREDIT
BEFORE
EFFECTIVE
DATE.—No portion of the unused business credit for
any taxable year which is attributable to the mar-
ginal oil and gas well production credit determined
under section 45K may be carried back to a taxable
year ending on or before the date of the enactment of
section 45K.’’.
(d) COORDINATION WITH SECTION 29.—Section 29(a)
is amended by striking ‘‘There’’ and inserting ‘‘At the elec-
tion of the taxpayer, there’’.
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(e) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1, as
amended by this Act, is amended by adding at the end the
following new item:
‘‘Sec. 45K. Credit for producing oil and gas from marginal wells.’’.
(f) EFFECTIVE DATE.—The amendments made by this
section shall apply to production in taxable years beginning
after the date of the enactment of this Act.
SEC. 2302. NATURAL GAS GATHERING LINES TREATED AS 7-
YEAR PROPERTY.
(a) IN
GENERAL.—Subparagraph (C) of section
168(e)(3) (relating to classification of certain property) is
amended by striking ‘‘and’’ at the end of clause (i), by re-
designating clause (ii) as clause (iii), and by inserting after
clause (i) the following new clause:
‘‘(ii) any natural gas gathering line,
and’’.
(b) NATURAL GAS GATHERING LINE.—Subsection (i)
of section 168, as amended by this Act, is amended by add-
ing at the end the following new paragraph:
‘‘(16) NATURAL
GAS
GATHERING
LINE.—The
term ‘natural gas gathering line’ means—
‘‘(A) the pipe, equipment, and appur-
tenances determined to be a gathering line by the
Federal Energy Regulatory Commission, or
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‘‘(B) the pipe, equipment, and appur-
tenances used to deliver natural gas from the
wellhead or a commonpoint to the point at which
such gas first reaches—
‘‘(i) a gas processing plant,
‘‘(ii) an interconnection with a trans-
mission pipeline certificated by the Federal
Energy Regulatory Commission as an
interstate transmission pipeline,
‘‘(iii) an interconnection with an
intrastate transmission pipeline, or
‘‘(iv) a direct interconnection with a
local distribution company, a gas storage
facility, or an industrial consumer.’’.
(c) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B) is amended by inserting after the item
relating to subparagraph (C)(i) the following new item:
‘‘(C)(ii) ..............................................................................................................
10’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
date of the enactment of this Act, in taxable years ending
after such date.
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SEC. 2303. EXPENSING OF CAPITAL COSTS INCURRED IN
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1 (relating to itemized deductions for individuals and cor-
porations), as amended by this Act, is amended by inserting
after section 179C the following new section:
‘‘SEC. 179D. DEDUCTION FOR CAPITAL COSTS INCURRED IN
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS.
‘‘(a) TREATMENT AS EXPENSE.—
‘‘(1) IN GENERAL.—A small business refiner may
elect to treat any qualified capital costs as an expense
which is not chargeable to capital account. Any quali-
fied cost which is so treated shall be allowed as a de-
duction for the taxable year in which the cost is paid
or incurred.
‘‘(2) LIMITATION.—
‘‘(A) IN
GENERAL.—The aggregate costs
which may be taken into account under this sub-
section for any taxable year may not exceed the
applicable percentage of the qualified capital
costs paid or incurred for the taxable year.
‘‘(B) APPLICABLE PERCENTAGE.—For pur-
poses of subparagraph (A)—
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‘‘(i) IN GENERAL.—Except as provided
in clause (ii), the applicable percentage is
75 percent.
‘‘(ii) REDUCED PERCENTAGE.—In the
case of a small business refiner with average
daily refinery runs for the period described
in subsection (b)(2) in excess of 155,000
barrels, the percentage described in clause
(i) shall be reduced (not below zero) by the
product of such percentage (before the appli-
cation of this clause) and the ratio of such
excess to 50,000 barrels.
‘‘(b) DEFINITIONS.—For purposes of this section—
‘‘(1) QUALIFIED
CAPITAL
COSTS.—The term
‘qualified capital costs’ means any costs which—
‘‘(A) are otherwise chargeable to capital ac-
count, and
‘‘(B) are paid or incurred for the purpose
of complying with the Highway Diesel Fuel Sul-
fur Control Requirement of the Environmental
Protection Agency, as in effect on the date of the
enactment of this section, with respect to a facil-
ity placed in service by the taxpayer before such
date.
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‘‘(2) SMALL
BUSINESS
REFINER.—The term
‘small business refiner’ means, with respect to any
taxable year, a refiner of crude oil, which, within the
refinery operations of the business, employs not more
than 1,500 employees on any day during such taxable
year and whose average daily refinery run for the 1-
year period ending on the date of the enactment of
this section did not exceed 205,000 barrels.
‘‘(c) COORDINATION WITH OTHER PROVISIONS.—Sec-
tion 280B shall not apply to amounts which are treated
as expenses under this section.
‘‘(d) BASIS REDUCTION.—For purposes of this title,
the basis of any property shall be reduced by the portion
of the cost of such property taken into account under sub-
section (a).
‘‘(e) CONTROLLED GROUPS.—For purposes of this sec-
tion, all persons treated as a single employer under sub-
section (b), (c), (m), or (o) of section 414 shall be treated
as a single employer.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 263(a)(1), as amended by this Act, is
amended by striking ‘‘or’’ at the end of subparagraph
(I), by striking the period at the end of subparagraph
(J) and inserting ‘‘, or’’, and by inserting after sub-
paragraph (J) the following new subparagraph:
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‘‘(K) expenditures for which a deduction is
allowed under section 179D.’’.
(2) Section 263A(c)(3) is amended by inserting
‘‘179C,’’ after ‘‘section’’.
(3) Section 312(k)(3)(B), as amended by this
Act, is amended by striking ‘‘or 179C’’ each place it
appears in the heading and text and inserting ‘‘,
179C, or 179D’’.
(4) Section 1016(a), as amended by this Act, is
amended by striking ‘‘and’’ at the end of paragraph
(33), by striking the period at the end of paragraph
(34) and inserting ‘‘, and’’, and by adding at the end
the following new paragraph:
‘‘(35) 
to 
the 
extent 
provided 
in 
section
179D(d).’’.
(5) Section 1245(a), as amended by this Act, is
amended by inserting ‘‘179D,’’ after ‘‘179C,’’ both
places it appears in paragraphs (2)(C) and (3)(C).
(6) The table of sections for part VI of sub-
chapter B of chapter 1, as amended by this Act, is
amended by inserting after section 179C the following
new item:
‘‘Sec. 179D. Deduction for capital costs incurred in complying with Environ-
mental Protection Agency sulfur regulations.’’.
(c) EFFECTIVE DATE.—The amendment made by this
section shall apply to expenses paid or incurred after the
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date of the enactment of this Act, in taxable years ending
after such date.
SEC. 2304. ENVIRONMENTAL TAX CREDIT.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business-related credits), as
amended by this Act, is amended by adding at the end the
following new section:
‘‘SEC. 45L. ENVIRONMENTAL TAX CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, the
amount of the environmental tax credit determined under
this section with respect to any small business refiner for
any taxable year is an amount equal to 5 cents for every
gallon of 15 parts per million or less sulfur diesel produced
at a facility by such small business refiner during such tax-
able year.
‘‘(b) MAXIMUM CREDIT.—
‘‘(1) IN GENERAL.—For any small business re-
finer, the aggregate amount determined under sub-
section (a) for any taxable year with respect to any
facility shall not exceed the applicable percentage of
the qualified capital costs paid or incurred by such
small business refiner with respect to such facility
during the applicable period, reduced by the credit al-
lowed under subsection (a) for any preceding year.
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‘‘(2) APPLICABLE
PERCENTAGE.—For purposes
of paragraph (1)—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (B), the applicable percentage is
25 percent.
‘‘(B) REDUCED PERCENTAGE.—The percent-
age described in subparagraph (A) shall be re-
duced in the same manner as under section
179D(a)(2)(B)(ii).
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) IN GENERAL.—The terms ‘small business re-
finer’ and ‘qualified capital costs’ have the same
meaning as given in section 179D.
‘‘(2) APPLICABLE PERIOD.—The term ‘applicable
period’ means, with respect to any facility, the period
beginning on the day after the date which is 1 year
after the date of the enactment of this section and
ending with the date which is 1 year after the date
on which the taxpayer must comply with the applica-
ble EPA regulations with respect to such facility.
‘‘(3) APPLICABLE EPA REGULATIONS.—The term
‘applicable EPA regulations’ means the Highway
Diesel Fuel Sulfur Control Requirements of the Envi-
ronmental Protection Agency, as in effect on the date
of the enactment of this section.
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‘‘(d) CERTIFICATION.—
‘‘(1) REQUIRED.—Not later than the date which
is 30 months after the first day of the first taxable
year in which the environmental tax credit is allowed
with respect to qualified capital costs paid or in-
curred with respect to a facility, the small business
refiner shall obtain a certification from the Secretary,
in consultation with the Administrator of the Envi-
ronmental Protection Agency, that the taxpayer’s
qualified capital costs with respect to such facility
will result in compliance with the applicable EPA
regulations.
‘‘(2) CONTENTS OF APPLICATION.—An applica-
tion for certification shall include relevant informa-
tion regarding unit capacities and operating charac-
teristics sufficient for the Secretary, in consultation
with the Administrator of the Environmental Protec-
tion Agency, to determine that such qualified capital
costs are necessary for compliance with the applicable
EPA regulations.
‘‘(3) REVIEW PERIOD.—Any application shall be
reviewed and notice of certification, if applicable,
shall be made within 60 days of receipt of such appli-
cation. In the event the Secretary does not notify the
taxpayer of the results of such certification within
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such period, the taxpayer may presume the certifi-
cation to be issued until so notified.
‘‘(4) STATUTE OF LIMITATIONS.—With respect to
the credit allowed under this section—
‘‘(A) the statutory period for the assessment
of any deficiency attributable to such credit shall
not expire before the end of the 3-year period
ending on the date that the review period de-
scribed in paragraph (3) ends, and
‘‘(B) such deficiency may be assessed before
the expiration of such 3-year period notwith-
standing the provisions of any other law or rule
of law which would otherwise prevent such as-
sessment.
‘‘(e) CONTROLLED GROUPS.—For purposes of this sec-
tion, all persons treated as a single employer under sub-
section (b), (c), (m), or (o) of section 414 shall be treated
as a single employer.
‘‘(f) COOPERATIVE ORGANIZATIONS.—
‘‘(1) APPORTIONMENT OF CREDIT.—In the case
of a cooperative organization described in section
1381(a), any portion of the credit determined under
subsection (a) of this section, for the taxable year
may, at the election of the organization, be appor-
tioned among patrons eligible to share in patronage
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dividends on the basis of the quantity or value of
business done with or for such patrons for the taxable
year. Such an election shall be irrevocable for such
taxable year.
‘‘(2) TREATMENT OF ORGANIZATIONS AND PA-
TRONS.—
‘‘(A) ORGANIZATIONS.—The amount of the
credit not apportioned to patrons pursuant to
paragraph (1) shall be included in the amount
determined under subsection (a) for the taxable
year of the organization.
‘‘(B) PATRONS.—The amount of the credit
apportioned to patrons pursuant to paragraph
(1) shall be included in the amount determined
under subsection (a) for the first taxable year of
each patron ending on or after the last day of
the payment period (as defined in section
1382(d)) for the taxable year of the organization
or, if earlier, for the taxable year of each patron
ending on or after the date on which the patron
receives notice from the cooperative of the appor-
tionment.’’.
(b) CREDIT MADE PART
OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 (relating to general
business credit), as amended by this Act, is amended by
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striking ‘‘plus’’ at the end of paragraph (21), by striking
the period at the end of paragraph (22) and inserting ‘‘,
plus’’, and by adding at the end the following new para-
graph:
‘‘(23) in the case of a small business refiner, the
environmental tax credit determined under section
45L(a).’’.
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C (re-
lating to certain expenses for which credits are allowable),
as amended by this Act, is amended by adding after sub-
section (d) the following new subsection:
‘‘(e) ENVIRONMENTAL TAX CREDIT.—No deduction
shall be allowed for that portion of the expenses otherwise
allowable as a deduction for the taxable year which is equal
to the amount of the credit determined for the taxable year
under section 45L(a).’’.
(d) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1, as
amended by this Act, is amended by adding at the end the
following new item:
‘‘Sec. 45L. Environmental tax credit.’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to expenses paid or incurred after the
date of the enactment of this Act, in taxable years ending
after such date.
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SEC. 2305. DETERMINATION OF SMALL REFINER EXCEP-
TION TO OIL DEPLETION DEDUCTION.
(a) IN GENERAL.—Paragraph (4) of section 613A(d)
(relating to certain refiners excluded) is amended to read
as follows:
‘‘(4) CERTAIN REFINERS EXCLUDED.—If the tax-
payer or 1 or more related persons engages in the re-
fining of crude oil, subsection (c) shall not apply to
the taxpayer for a taxable year if the average daily
refinery runs of the taxpayer and such persons for the
taxable year exceed 60,000 barrels. For purposes of
this paragraph, the average daily refinery runs for
any taxable year shall be determined by dividing the
aggregate refinery runs for the taxable year by the
number of days in the taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2002.
SEC. 2306. MARGINAL PRODUCTION INCOME LIMIT EXTEN-
SION.
Section 613A(c)(6)(H) (relating to temporary suspen-
sion of taxable income limit with respect to marginal pro-
duction), as amended by section 607(a) of the Job Creation
and Worker Assistance Act of 2002, is amended by striking
‘‘2004’’ and inserting ‘‘2007’’.
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SEC. 2307. AMORTIZATION OF GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1, as amended by this Act, is amended by adding at the
end the following new section:
‘‘SEC. 199. AMORTIZATION OF GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES FOR DOMESTIC
OIL AND GAS WELLS.
‘‘A taxpayer shall be entitled to an amortization de-
duction with respect to any geological and geophysical ex-
penses incurred in connection with the exploration for, or
development of, oil or gas within the United States (as de-
fined in section 638) based on a period of 24 months begin-
ning with the month in which such expenses were in-
curred.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
part VI of subchapter B of chapter 1, as amended by this
Act, is amended by adding at the end the following new
item:
‘‘Sec. 199. Amortization of geological and geophysical expenditures for domestic
oil and gas wells.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to costs paid or incurred in taxable
years beginning after December 31, 2002.
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SEC. 2308. AMORTIZATION OF DELAY RENTAL PAYMENTS.
(a) IN GENERAL.—Part VI of subchapter B of chapter
1, as amended by this Act, is amended by adding at the
end the following new section:
‘‘SEC. 199A. AMORTIZATION OF DELAY RENTAL PAYMENTS
FOR DOMESTIC OIL AND GAS WELLS.
‘‘(a) IN GENERAL.—A taxpayer shall be entitled to an
amortization deduction with respect to any delay rental
payments incurred in connection with the development of
oil or gas within the United States (as defined in section
638) based on a period of 24 months beginning with the
month in which such payments were incurred.’’.
‘‘(b) DELAY RENTAL PAYMENTS.—For purposes of this
section, the term ‘delay rental payment’ means an amount
paid for the privilege of deferring development of an oil or
gas well under an oil or gas lease.’’.
(b) CLERICAL AMENDMENT.—The table of sections for
part VI of subchapter B of chapter 1, as amended by this
Act, is amended by adding at the end the following new
item:
‘‘Sec. 199A. Amortization of delay rental payments for domestic oil and gas
wells.’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to amounts paid or incurred in taxable
years beginning after December 31, 2002.
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SEC. 2309. STUDY OF COAL BED METHANE.
(a) IN GENERAL.—The Secretary of the Treasury shall
study the effect of section 29 of the Internal Revenue Code
of 1986 on the production of coal bed methane. Such study
shall be made in conjunction with the study to be under-
taken by the Secretary of the Interior on the effects of coal
bed methane production on surface and water resources, as
provided in section 607 of the Energy Policy Act of 2003.
(b) CONTENTS OF STUDY.—The study under subsection
(a) shall estimate the total amount of credits under section
29 of the Internal Revenue Code of 1986 claimed annually
and in the aggregate which are related to the production
of coal bed methane since the date of the enactment of such
section 29. Such study shall report the annual value of such
credits allowable for coal bed methane compared to the aver-
age annual wellhead price of natural gas (per thousand
cubic feet of natural gas). Such study shall also estimate
the incremental increase in production of coal bed methane
that has resulted from the enactment of such section 29, and
the cost to the Federal Government, in terms of the net tax
benefits claimed, per thousand cubic feet of incremental coal
bed methane produced annually and in the aggregate since
such enactment.
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SEC. 2310. EXTENSION AND MODIFICATION OF CREDIT FOR
PRODUCING 
FUEL 
FROM 
A 
NONCONVEN-
TIONAL SOURCE.
(a) IN GENERAL.—Section 29 is amended by adding
at the end the following new subsection:
‘‘(h) EXTENSION FOR OTHER FACILITIES.—
‘‘(1) OIL AND GAS.—In the case of a well or fa-
cility for producing qualified fuels described in sub-
paragraph (A) or (B) of subsection (c)(1) which was
drilled or placed in service after the date of the enact-
ment of this subsection and before January 1, 2005,
notwithstanding subsection (f), this section shall
apply with respect to such fuels produced at such well
or facility not later than the close of the 3-year period
beginning on the date that such well is drilled or such
facility is placed in service.
‘‘(2) FACILITIES PRODUCING REFINED COAL.—
‘‘(A) IN GENERAL.—In the case of a facility
described in subparagraph (C) for producing re-
fined coal which was placed in service after the
date of the enactment of this subsection and be-
fore January 1, 2007, this section shall apply
with respect to fuel produced at such facility not
later than the close of the 5-year period begin-
ning on the date such facility is placed in serv-
ice.
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‘‘(B) REFINED COAL.—For purposes of this
paragraph, the term ‘refined coal’ means a fuel
which is a liquid, gaseous, or solid synthetic fuel
produced from coal (including lignite) or high
carbon fly ash, including such fuel used as a
feedstock.
‘‘(C) COVERED FACILITIES.—
‘‘(i) IN
GENERAL.—A facility is de-
scribed in this subparagraph if such facility
produces refined coal using a technology
that results in—
‘‘(I) a qualified emission reduc-
tion, and
‘‘(II) a qualified enhanced value.
‘‘(ii) QUALIFIED
EMISSION
REDUC-
TION.—For purposes of this subparagraph,
the term ‘qualified emission reduction’
means a reduction of at least 20 percent of
the emissions of nitrogen oxide and either
sulfur dioxide or mercury released when
burning the refined coal (excluding any di-
lution caused by materials combined or
added during the production process), as
compared to the emissions released when
burning the feedstock coal or comparable
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coal predominantly available in the market-
place as of January 1, 2002.
‘‘(iii) QUALIFIED ENHANCED VALUE.—
For purposes of this subparagraph, the term
‘qualified enhanced value’ means an in-
crease of at least 50 percent in the market
value of the refined coal (excluding any in-
crease caused by materials combined or
added during the production process), as
compared to the value of the feedstock coal.
‘‘(iii) QUALIFYING
ADVANCED
CLEAN
COAL
TECHNOLOGY
FACILITIES
EX-
CLUDED.—A facility described in this sub-
paragraph shall not include a qualifying
advanced clean coal technology facility (as
defined in section 48A(b)).
‘‘(3) WELLS PRODUCING VISCOUS OIL.—
‘‘(A) IN GENERAL.—In the case of a well for
producing viscous oil which was placed in serv-
ice after the date of the enactment of this sub-
section and before January 1, 2005, this section
shall apply with respect to fuel produced at such
well not later than the close of the 3-year period
beginning on the date such well is placed in serv-
ice.
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HR 6 EAS1S/PP
‘‘(B) VISCOUS OIL.—The term ‘‘viscous oil’
means 
heavy 
oil, 
as 
defined 
in 
section
613A(c)(6), except that—
‘‘(i) ‘22 degrees’ shall be substituted for
‘20 degrees’ in applying subparagraph (F)
thereof, and
‘‘(ii) in all cases, the oil gravity shall
be measured from the initial well-head sam-
ples, drill cuttings, or down hole samples.
‘‘(C) WAIVER OF UNRELATED PERSON RE-
QUIREMENT.—In the case of viscous oil, the re-
quirement under subsection (a)(1)(B)(i) of a sale
to an unrelated person shall not apply to any
sale to the extent that the viscous oil is not con-
sumed in the immediate vicinity of the wellhead.
‘‘(4) COALMINE METHANE GAS.—
‘‘(A) IN GENERAL.—This section shall apply
to coalmine methane gas—
‘‘(i) captured or extracted by the tax-
payer after the date of the enactment of this
subsection and before January 1, 2005, and
‘‘(ii) utilized as a fuel source or sold by
or on behalf of the taxpayer to an unrelated
person after the date of the enactment of
this subsection and before January 1, 2005.
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HR 6 EAS1S/PP
‘‘(B) COALMINE METHANE GAS.—For pur-
poses of this paragraph, the term ‘coalmine
methane gas’ means any methane gas which is—
‘‘(i) liberated during qualified coal
mining operations, or
‘‘(ii) extracted up to 5 years in ad-
vance of qualified coal mining operations as
part of a specific plan to mine a coal de-
posit.
‘‘(C) SPECIAL
RULE
FOR
ADVANCED
EX-
TRACTION.—In the case of coalmine methane gas
which is captured in advance of qualified coal
mining operations, the credit under subsection
(a) shall be allowed only after the date the coal
extraction occurs in the immediate area where
the coalmine methane gas was removed.
‘‘(D) NONCOMPLIANCE
WITH
POLLUTION
LAWS.—For purposes of subparagraphs (B) and
(C), coal mining operations which are not in
compliance with the applicable State and Fed-
eral pollution prevention, control, and permit re-
quirements for any period of time shall not be
considered to be qualified coal mining operations
during such period.
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HR 6 EAS1S/PP
‘‘(5) FACILITIES PRODUCING FUELS FROM AGRI-
CULTURAL AND ANIMAL WASTE.—
‘‘(A) IN GENERAL.—In the case of facility
for producing liquid, gaseous, or solid fuels from
qualified agricultural and animal wastes, in-
cluding such fuels when used as feedstocks, which
was placed in service after the date of the enact-
ment of this subsection and before January 1,
2005, this section shall apply with respect to fuel
produced at such facility not later than the close
of the 3-year period beginning on the date such
facility is placed in service.
‘‘(B) QUALIFIED AGRICULTURAL AND ANI-
MAL WASTE.—For purposes of this paragraph,
the term ‘qualified agricultural and animal
waste’ means agriculture and animal waste, in-
cluding by-products, packaging, and any mate-
rials associated with the processing, feeding, sell-
ing, transporting, or disposal of agricultural or
animal products or wastes, including wood
shavings, straw, rice hulls, and other bedding for
the disposition of manure.
‘‘(6) CREDIT
AMOUNT.—In determining the
amount of credit allowable under this section solely
by reason of this subsection, the dollar amount appli-
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HR 6 EAS1S/PP
cable under subsection (a)(1) shall be $3 (without re-
gard to subsection (b)(2)).’’.
(b) EXTENSION FOR CERTAIN FUEL PRODUCED
AT EXISTING FACILITIES.—Paragraph (2) of section
29(f) (relating to application of section) is amended
by inserting ‘‘(January 1, 2005, in the case of any
coke, coke gas, or natural gas and byproducts pro-
duced by coal gasification from lignite in a facility
described in paragraph (1)(B))’’ after ‘‘January 1,
2003’’.
(c) EFFECTIVE DATE.—The amendment made by this
section shall apply to fuel sold after the date of the enact-
ment of this Act.
SEC. 2311. NATURAL GAS DISTRIBUTION LINES TREATED AS
15-YEAR PROPERTY.
(a) IN
GENERAL.—Subparagraph (E) of section
168(e)(3) (relating to classification of certain property) is
amended by striking ‘‘and’’ at the end of clause (ii), by
striking the period at the end of clause (iii) and by insert-
ing ‘‘, and’’, and by adding at the end the following new
clause:
‘‘(iv) any natural gas distribution
line.’’.
(b) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B), as amended by this Act, is amended
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by adding after the item relating to subparagraph (E)(iii)
the following new item:
‘‘(E)(iv) ..............................................................................................................
20’’.
(c) EFFECTIVE DATE.—The amendments made by this
section shall apply to property placed in service after the
date of the enactment of this Act, in taxable years ending
after such date.
TITLE XXIV—ELECTRIC UTILITY
RESTRUCTURING PROVISIONS
SEC. 2401. ONGOING STUDY AND REPORTS REGARDING TAX
ISSUES RESULTING FROM FUTURE RESTRUC-
TURING DECISIONS.
(a) ONGOING STUDY.—The Secretary of the Treasury,
after consultation with the Federal Energy Regulatory
Commission, shall undertake an ongoing study of Federal
tax issues resulting from nontax decisions on the restruc-
turing of the electric industry. In particular, the study shall
focus on the effect on tax-exempt bonding authority of pub-
lic power entities and on corporate restructuring which re-
sults from the restructuring of the electric industry.
(b) REGULATORY RELIEF.—In connection with the
study described in subsection (a), the Secretary of the Treas-
ury should exercise the Secretary’s authority, as appro-
priate, to modify or suspend regulations that may impede
an electric utility company’s ability to reorganize its cap-
ital stock structure to respond to a competitive marketplace.
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(c) REPORTS.—The Secretary of the Treasury shall re-
port to the Committee on Finance of the Senate and the
Committee on Ways and Means of the House of Representa-
tives not later than December 31, 2002, regarding Federal
tax issues identified under the study described in subsection
(a), and at least annually thereafter, regarding such issues
identified since the preceding report. Such reports shall also
include such legislative recommendations regarding changes
to the private business use rules under subpart A of part
IV of subchapter B of chapter 1 of the Internal Revenue
Code of 1986 as the Secretary of the Treasury deems nec-
essary. The reports shall continue until such time as the
Federal Energy Regulatory Commission has completed the
restructuring of the electric industry.
SEC. 2402. MODIFICATIONS TO SPECIAL RULES FOR NU-
CLEAR DECOMMISSIONING COSTS.
(a) REPEAL OF LIMITATION ON DEPOSITS INTO FUND
BASED
ON COST
OF SERVICE; CONTRIBUTIONS AFTER
FUNDING PERIOD.—Subsection (b) of section 468A is
amended to read as follows:
‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—The
amount which a taxpayer may pay into the Fund for any
taxable year shall not exceed the ruling amount applicable
to such taxable year.’’.
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(b) CLARIFICATION OF TREATMENT OF FUND TRANS-
FERS.—Subsection (e) of section 468A is amended by add-
ing at the end the following new paragraph:
‘‘(8) TREATMENT OF FUND TRANSFERS.—If, in
connection with the transfer of the taxpayer’s interest
in a nuclear power plant, the taxpayer transfers the
Fund with respect to such power plant to the trans-
feree of such interest and the transferee elects to con-
tinue the application of this section to such Fund—
‘‘(A) the transfer of such Fund shall not
cause such Fund to be disqualified from the ap-
plication of this section, and
‘‘(B) no amount shall be treated as distrib-
uted from such Fund, or be includible in gross
income, by reason of such transfer.’’.
(c) DEDUCTION
FOR NUCLEAR DECOMMISSIONING
COSTS WHEN PAID.—Paragraph (2) of section 468A(c) is
amended to read as follows:
‘‘(2) DEDUCTION OF NUCLEAR DECOMMISSIONING
COSTS.—In addition to any deduction under sub-
section (a), nuclear decommissioning costs paid or in-
curred by the taxpayer during any taxable year shall
constitute ordinary and necessary expenses in car-
rying on a trade or business under section 162.’’.
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HR 6 EAS1S/PP
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after Decem-
ber 31, 2002.
SEC. 2403. TREATMENT OF CERTAIN INCOME OF COOPERA-
TIVES.
(a) INCOME FROM OPEN ACCESS AND NUCLEAR DE-
COMMISSIONING TRANSACTIONS.—
(1) IN GENERAL.—Subparagraph (C) of section
501(c)(12) is amended by striking ‘‘or’’ at the end of
clause (i), by striking clause (ii), and by adding at
the end the following new clauses:
‘‘(ii) from any open access transaction
(other than income received or accrued di-
rectly or indirectly from a member),
‘‘(iii) from any nuclear decommis-
sioning transaction,
‘‘(iv) from any asset exchange or con-
version transaction, or
‘‘(v) from the prepayment of any loan,
debt, or obligation made, insured, or guar-
anteed under the Rural Electrification Act
of 1936.’’.
(2) DEFINITIONS AND SPECIAL RULES.—Para-
graph (12) of section 501(c) is amended by adding at
the end the following new subparagraphs:
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‘‘(E) 
For 
purposes 
of 
subparagraph
(C)(ii)—
‘‘(i) The term ‘open access transaction’
means any transaction meeting the open ac-
cess requirements of any of the following
subclauses with respect to a mutual or coop-
erative electric company:
‘‘(I) The provision or sale of
transmission service or ancillary serv-
ices meets the open access requirements
of this subclause only if such services
are provided on a nondiscriminatory
open access basis pursuant to an open
access transmission tariff filed with
and approved by FERC, including an
acceptable reciprocity tariff, or under a
regional 
transmission 
organization
agreement approved by FERC.
‘‘(II) The provision or sale of elec-
tric energy distribution services or an-
cillary services meets the open access
requirements of this subclause only if
such services are provided on a non-
discriminatory open access basis to
end-users served by distribution facili-
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ties owned by the mutual or coopera-
tive electric company (or its members).
‘‘(III) The delivery or sale of elec-
tric energy generated by a generation
facility meets the open access require-
ments of this subclause only if such fa-
cility is directly connected to distribu-
tion facilities owned by the mutual or
cooperative electric company (or its
members) which owns the generation
facility, and such distribution facilities
meet the open access requirements of
subclause (II).
‘‘(ii) Clause (i)(I) shall apply in the
case of a voluntarily filed tariff only if the
mutual or cooperative electric company files
a report with FERC within 90 days after
the date of the enactment of this subpara-
graph relating to whether or not such com-
pany will join a regional transmission or-
ganization.
‘‘(iii) A mutual or cooperative electric
company shall be treated as meeting the
open access requirements of clause (i)(I) if
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a regional transmission organization con-
trols the transmission facilities.
‘‘(iv) References to FERC in this sub-
paragraph shall be treated as including ref-
erences to the Public Utility Commission of
Texas with respect to any ERCOT utility
(as defined in section 212(k)(2)(B) of the
Federal 
Power 
Act 
(16 
U.S.C.
824k(k)(2)(B))) or references to the Rural
Utilities Service with respect to any other
facility not subject to FERC jurisdiction.
‘‘(v) 
For 
purposes 
of 
this
subparagraph—
‘‘(I) The term ‘transmission facil-
ity’ means an electric output facility
(other than a generation facility) that
operates at an electric voltage of 69 kV
or greater. To the extent provided in
regulations, such term includes any
output facility that FERC determines
is a transmission facility under stand-
ards applied by FERC under the Fed-
eral Power Act (as in effect on the date
of the enactment of the Energy Tax In-
centives Act of 2003).
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‘‘(II) The term ‘regional trans-
mission 
organization’ 
includes 
an
independent system operator.
‘‘(III) The term ‘FERC’ means
the Federal Energy Regulatory Com-
mission.
‘‘(F) The term ‘nuclear decommissioning
transaction’ means—
‘‘(i) any transfer into a trust, fund, or
instrument established to pay any nuclear
decommissioning costs if the transfer is in
connection with the transfer of the mutual
or cooperative electric company’s interest in
a nuclear power plant or nuclear power
plant unit,
‘‘(ii) any distribution from any trust,
fund, or instrument established to pay any
nuclear decommissioning costs, or
‘‘(iii) any earnings from any trust,
fund, or instrument established to pay any
nuclear decommissioning costs.
‘‘(G) The term ‘asset exchange or conversion
transaction’ means any voluntary exchange or
involuntary conversion of any property related
to generating, transmitting, distributing, or sell-
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ing electric energy by a mutual or cooperative
electric company, the gain from which qualifies
for deferred recognition under section 1031 or
1033, but only if the replacement property ac-
quired by such company pursuant to such sec-
tion constitutes property which is used, or to be
used, for—
‘‘(i) generating, transmitting, distrib-
uting, or selling electric energy, or
‘‘(ii) producing, transmitting, distrib-
uting, or selling natural gas.’’.
(b) TREATMENT OF INCOME FROM LOAD LOSS TRANS-
ACTIONS.—Paragraph (12) of section 501(c), as amended
by subsection (a)(2), is amended by adding after subpara-
graph (G) the following new subparagraph:
‘‘(H)(i) In the case of a mutual or coopera-
tive electric company described in this para-
graph or an organization described in section
1381(a)(2)(C), income received or accrued from a
load loss transaction shall be treated as an
amount collected from members for the sole pur-
pose of meeting losses and expenses.
‘‘(ii) For purposes of clause (i), the term
‘load loss transaction’ means any wholesale or
retail sale of electric energy (other than to mem-
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bers) to the extent that the aggregate sales during
the recovery period does not exceed the load loss
mitigation sales limit for such period.
‘‘(iii) For purposes of clause (ii), the load
loss mitigation sales limit for the recovery period
is the sum of the annual load losses for each year
of such period.
‘‘(iv) For purposes of clause (iii), a mutual
or cooperative electric company’s annual load
loss for each year of the recovery period is the
amount (if any) by which—
‘‘(I) the megawatt hours of electric en-
ergy sold during such year to members of
such electric company are less than
‘‘(II) the megawatt hours of electric en-
ergy sold during the base year to such mem-
bers.
‘‘(v) For purposes of clause (iv)(II), the
term ‘base year’ means—
‘‘(I) the calendar year preceding the
start-up year, or
‘‘(II) at the election of the electric com-
pany, the second or third calendar years
preceding the start-up year.
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‘‘(vi) For purposes of this subparagraph, the
recovery period is the 7-year period beginning
with the start-up year.
‘‘(vii) For purposes of this subparagraph,
the start-up year is the calendar year which in-
cludes the date of the enactment of this subpara-
graph or, if later, at the election of the mutual
or cooperative electric company—
‘‘(I) the first year that such electric
company offers nondiscriminatory open ac-
cess, or
‘‘(II) the first year in which at least 10
percent of such electric company’s sales are
not to members of such electric company.
‘‘(viii) A company shall not fail to be treat-
ed as a mutual or cooperative company for pur-
poses of this paragraph or as a corporation oper-
ating on a cooperative basis for purposes of sec-
tion 1381(a)(2)(C) by reason of the treatment
under clause (i).
‘‘(ix) In the case of a mutual or cooperative
electric company, income from any open access
transaction received, or accrued, indirectly from
a member shall be treated as an amount collected
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from members for the sole purpose of meeting
losses and expenses.’’.
(c) EXCEPTION FROM UNRELATED BUSINESS TAX-
ABLE INCOME.—Subsection (b) of section 512 (relating to
modifications) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(18) TREATMENT OF MUTUAL OR COOPERATIVE
ELECTRIC COMPANIES.—In the case of a mutual or
cooperative electric company described in section
501(c)(12), there shall be excluded income which is
treated as member income under subparagraph (H)
thereof.’’.
(d) CROSS REFERENCE.—Section 1381 is amended by
adding at the end the following new subsection:
‘‘(c) CROSS REFERENCE.—
‘‘For treatment of income from load loss trans-
actions of organizations described in subsection
(a)(2)(C), see section 501(c)(12)(H).’’.
(e) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
SEC. 2404. SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION OR
STATE ELECTRIC RESTRUCTURING POLICY.
(a) IN GENERAL.—Section 451 (relating to general
rule for taxable year of inclusion) is amended by adding
at the end the following new subsection:
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‘‘(i) SPECIAL RULE FOR SALES OR DISPOSITIONS TO
IMPLEMENT FEDERAL ENERGY REGULATORY COMMISSION
OR STATE ELECTRIC RESTRUCTURING POLICY.—
‘‘(1) IN GENERAL.—For purposes of this subtitle,
if a taxpayer elects the application of this subsection
to a qualifying electric transmission transaction in
any taxable year—
‘‘(A) any ordinary income derived from
such transaction which would be required to be
recognized under section 1245 or 1250 for such
taxable year (determined without regard to this
subsection), and
‘‘(B) any income derived from such trans-
action in excess of such ordinary income which
is required to be included in gross income for
such taxable year,
shall be so recognized and included ratably over the
8-taxable year period beginning with such taxable
year.
‘‘(2) 
QUALIFYING
ELECTRIC
TRANSMISSION
TRANSACTION.—For purposes of this subsection, the
term ‘qualifying electric transmission transaction’
means any sale or other disposition before January 1,
2007, of—
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‘‘(A) property used by the taxpayer in the
trade or business of providing electric trans-
mission services, or
‘‘(B) any stock or partnership interest in a
corporation or partnership, as the case may be,
whose principal trade or business consists of pro-
viding electric transmission services,
but only if such sale or disposition is to an inde-
pendent transmission company.
‘‘(3) INDEPENDENT TRANSMISSION COMPANY.—
For purposes of this subsection, the term ‘independent
transmission company’ means—
‘‘(A) a regional transmission organization
approved by the Federal Energy Regulatory
Commission,
‘‘(B) a person—
‘‘(i) who the Federal Energy Regu-
latory Commission determines in its au-
thorization of the transaction under section
203 of the Federal Power Act (16 U.S.C.
824b) is not a market participant within
the meaning of such Commission’s rules ap-
plicable to regional transmission organiza-
tions, and
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‘‘(ii) whose transmission facilities to
which the election under this subsection ap-
plies are under the operational control of a
Federal Energy Regulatory Commission-ap-
proved regional transmission organization
before the close of the period specified in
such authorization, but not later than the
close of the period applicable under para-
graph (1), or
‘‘(C) in the case of facilities subject to the
exclusive jurisdiction of the Public Utility Com-
mission of Texas, a person which is approved by
that Commission as consistent with Texas State
law regarding an independent transmission or-
ganization.
‘‘(4) ELECTION.—An election under paragraph
(1), once made, shall be irrevocable.
‘‘(5) NONAPPLICATION OF INSTALLMENT SALES
TREATMENT.—Section 453 shall not apply to any
qualifying electric transmission transaction with re-
spect to which an election to apply this subsection is
made.’’.
(b) EFFECTIVE DATE.—The amendment made by this
section shall apply to transactions occurring after the date
of the enactment of this Act.
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SEC. 2405. APPLICATION OF TEMPORARY REGULATIONS TO
CERTAIN OUTPUT CONTRACTS.
In the application of section 1–141–7(c)(4) of the
Treasury Temporary Regulations to output contracts en-
tered into after February 22, 1998, with respect to an issuer
participating in open access with respect to the issuer’s
transmission facilities, an output contract in existence on
or before such date that is amended after such date shall
be treated as a contract entered into after such date only
if the amendment increases the amount of output sold under
such contract by extending the term of the contract or in-
creasing the amount of output sold, but such treatment as
a contract entered into after such date shall begin on the
effective date of the amendment and shall apply only with
respect to the increased output to be provided under such
contract.
SEC. 2406. TREATMENT OF CERTAIN DEVELOPMENT IN-
COME OF COOPERATIVES.
(a) IN
GENERAL.—Subparagraph (C) of section
501(c)(12), as amended by this Act, is amended by striking
‘‘or’’ at the end of clause (iv), by striking the period at the
end of clause (v) and insert ‘‘, or’’, and by adding at the
end the following new clause:
‘‘(vi) from the receipt before January
1, 2007, of any money, property, capital, or
any other contribution in aid of construc-
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tion or connection charge intended to facili-
tate the provision of electric service for the
purpose of developing qualified fuels from
nonconventional sources (within the mean-
ing of section 29).’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to taxable years beginning after the date
of the enactment of this Act.
TITLE XXV—ADDITIONAL
PROVISIONS
SEC. 2501. EXTENSION OF ACCELERATED DEPRECIATION
AND WAGE CREDIT BENEFITS ON INDIAN RES-
ERVATIONS.
(a) SPECIAL RECOVERY PERIOD FOR PROPERTY ON
INDIAN RESERVATIONS.—Section 168(j)(8) (relating to ter-
mination), as amended by section 613(b) of the Job Cre-
ation and Worker Assistance Act of 2002, is amended by
striking ‘‘2004’’ and inserting ‘‘2005’’.
(b) INDIAN EMPLOYMENT CREDIT.—Section 45A(f)
(relating to termination), as amended by section 613(a) of
the Job Creation and Worker Assistance Act of 2002, is
amended by striking ‘‘2004’’ and inserting ‘‘2005’’.
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SEC. 2502. STUDY OF EFFECTIVENESS OF CERTAIN PROVI-
SIONS BY GAO.
(a) STUDY.—The Comptroller General of the United
States shall undertake an ongoing analysis of—
(1) the effectiveness of the alternative motor vehi-
cles and fuel incentives provisions under title II and
the conservation and energy efficiency provisions
under title III, and
(2) the recipients of the tax benefits contained in
such provisions, including an identification of such
recipients by income and other appropriate measure-
ments.
Such analysis shall quantify the effectiveness of such provi-
sions by examining and comparing the Federal Govern-
ment’s forgone revenue to the aggregate amount of energy
actually conserved and tangible environmental benefits
gained as a result of such provisions.
(b) REPORTS.—The Comptroller General of the United
States shall report the analysis required under subsection
(a) to Congress not later than December 31, 2002, and an-
nually thereafter.
SEC. 2503. CREDIT FOR PRODUCTION OF ALASKA NATURAL
GAS.
(a) IN GENERAL.—Subpart D of part IV of subchapter
A of chapter 1 (relating to business related credits), as
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amended by this Act, is amended by adding at the end the
following new section:
‘‘SEC. 45M. ALASKA NATURAL GAS.
‘‘(a) IN GENERAL.—For purposes of section 38, the
Alaska natural gas credit of any taxpayer for any taxable
year is the credit amount per 1,000,000 Btu of Alaska nat-
ural gas entering any intake or tie-in point which was de-
rived from an area of the State of Alaska lying north of
64 degrees North latitude, which is attributable to the tax-
payer and sold by or on behalf of the taxpayer to an unre-
lated person during such taxable year (within the meaning
of section 45).
‘‘(b) CREDIT AMOUNT.—For purposes of this section—
‘‘(1) IN
GENERAL.—The credit amount per
1,000,000 Btu of Alaska natural gas entering any in-
take or tie-in point which was derived from an area
of the State of Alaska lying north of 64 degrees North
latitude (determined in United States dollars), is the
excess of—
‘‘(A) $3.25, over
‘‘(B) the average monthly price at the
AECO C Hub in Alberta, Canada, for Alaska
natural gas for the month in which occurs the
date of such entering.
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‘‘(2) INFLATION
ADJUSTMENT.—In the case of
any taxable year beginning in a calendar year after
the first calendar year ending after the date described
in subsection (g)(1), the dollar amount contained in
paragraph (1)(A) shall be increased to an amount
equal to such dollar amount multiplied by the infla-
tion adjustment factor for such calendar year (deter-
mined under section 43(b)(3)(B) by substituting ‘the
calendar year ending before the date described in sec-
tion 45M(g)(1)’ for ‘1990’).
‘‘(c) ALASKA NATURAL GAS.—For purposes of this sec-
tion, the term ‘Alaska natural gas’ means natural gas enter-
ing any intake or tie-in point which was derived from an
area of the State of Alaska lying north of 64 degrees North
latitude produced in compliance with the applicable State
and Federal pollution prevention, control, and permit re-
quirements from the area generally known as the North
Slope of Alaska (including the continental shelf thereof
within the meaning of section 638(l)), determined without
regard to the area of the Alaska National Wildlife Refuge
(including the continental shelf thereof within the meaning
of section 638(l)).
‘‘(d) RECAPTURE.—
‘‘(1) 
IN
GENERAL.—With 
respect 
to 
each
1,000,000 Btu of Alaska natural gas entering any in-
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take or tie-in point which was derived from an area
of the State of Alaska lying north of 64 degrees North
latitude after the date which is 3 years after the date
described in subsection (g)(1), if the average monthly
price described in subsection (b)(1)(B) exceeds 150
percent of the amount described in subsection
(b)(1)(A) for the month in which occurs the date of
such entering, the taxpayer’s tax under this chapter
for the taxable year shall be increased by an amount
equal to the lesser of—
‘‘(A) such excess, or
‘‘(B) the aggregate decrease in the credits
allowed under section 38 for all prior taxable
years which would have resulted if the Alaska
natural gas credit received by the taxpayer for
such years had been zero.
‘‘(2) SPECIAL RULES.—
‘‘(A) TAX BENEFIT RULE.—The tax for the
taxable year shall be increased under paragraph
(1) only with respect to credits allowed by reason
of this section which were used to reduce tax li-
ability. In the case of credits not so used to re-
duce tax liability, the carryforwards and
carrybacks under section 39 shall be appro-
priately adjusted.
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‘‘(B) NO CREDITS AGAINST TAX.—Any in-
crease in tax under this subsection shall not be
treated as a tax imposed by this chapter for pur-
poses of determining the amount of any credit
under this chapter or for purposes of section 55.
‘‘(e) APPLICATION OF RULES.—For purposes of this
section, rules similar to the rules of paragraphs (3), (4),
and (5) of section 45(d) shall apply.
‘‘(f) NO DOUBLE BENEFIT.—The amount of any de-
duction or other credit allowable under this chapter for any
fuel taken into account in computing the amount of the
credit determined under subsection (a) shall be reduced by
the amount of such credit attributable to such fuel.
‘‘(g) APPLICATION OF SECTION.—This section shall
apply to Alaska natural gas entering any intake or tie-in
point which was derived from an area of the State of Alaska
lying north of 64 degrees North latitude for the period—
‘‘(1) beginning with the later of—
‘‘(A) January 1, 2010, or
‘‘(B) the initial date for the interstate
transportation of such Alaska natural gas, and
‘‘(2) except with respect to subsection (d), ending
with the date which is 15 years after the date de-
scribed in paragraph (1).’’.
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(b) CREDIT TREATED AS BUSINESS CREDIT.—Section
38(b), as amended by this Act, is amended by striking
‘‘plus’’ at the end of paragraph (22), by striking the period
at the end of paragraph (23) and inserting ‘‘, plus’’, and
by adding at the end the following new paragraph:
‘‘(24) The Alaska natural gas credit determined
under section 45M(a).’’.
(c) ALLOWING CREDIT AGAINST ENTIRE REGULAR
TAX AND MINIMUM TAX.—
(1) IN GENERAL.—Subsection (c) of section 38
(relating to limitation based on amount of tax), as
amended by this Act, is amended by redesignating
paragraph (5) as paragraph (6) and by inserting
after paragraph (4) the following new paragraph:
‘‘(5) SPECIAL RULES FOR ALASKA NATURAL GAS
CREDIT.—
‘‘(A) IN GENERAL.—In the case of the Alas-
ka natural gas credit—
‘‘(i) this section and section 39 shall be
applied separately with respect to the cred-
it, and
‘‘(ii) in applying paragraph (1) to the
credit—
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‘‘(I) the amounts in subpara-
graphs (A) and (B) thereof shall be
treated as being zero, and
‘‘(II) the limitation under para-
graph (1) (as modified by subclause
(I)) shall be reduced by the credit al-
lowed under subsection (a) for the tax-
able year (other than the Alaska nat-
ural gas credit).
‘‘(B) ALASKA NATURAL GAS CREDIT.—For
purposes of this subsection, the term ‘Alaska nat-
ural gas credit’ means the credit allowable under
subsection (a) by reason of section 45M(a).’’.
(2) CONFORMING AMENDMENTS.—Subclause (II)
of section 38(c)(2)(A)(ii), as amended by this Act,
subclause (II) of section 38(c)(3)(A)(ii), as amended
by 
this 
Act, 
and 
subclause 
(II) 
of 
section
38(c)(4)(A)(ii), as added by this Act, are each amend-
ed by inserting ‘‘or the Alaska natural gas credit’’
after ‘‘producer credit’’.
(d) CLERICAL AMENDMENT.—The table of sections for
subpart D of part IV of subchapter A of chapter 1, as
amended by this Act, is amended by adding at the end the
following new item:
‘‘Sec. 45M. Alaska natural gas.’’.
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SEC. 2504. SALE OF GASOLINE AND DIESEL FUEL AT DUTY-
FREE SALES ENTERPRISES.
(a) PROHIBITION.—Section 555(b) of the Tariff Act of
1930 (19 U.S.C. 1555(b)) is amended—
(1) by redesignating paragraphs (6) through (8)
as paragraphs (7) through (9), respectively; and
(2) by inserting after paragraph (5) the fol-
lowing:
‘‘(6) Any gasoline or diesel fuel sold at a duty-
free sales enterprise shall be considered to be entered
for consumption into the customs territory of the
United States.’’.
(b) CONSTRUCTION.—The amendments made by this
section shall not be construed to create any inference with
respect to the interpretation of any provision of law as such
provision was in effect on the day before the date of enact-
ment of this Act.
(c) EFFECTIVE DATE.—The amendments made by this
section shall take effect on the date of enactment of this Act.
SEC. 2505. TREATMENT OF DAIRY PROPERTY.
(a) QUALIFIED DISPOSITION
OF DAIRY PROPERTY
TREATED AS INVOLUNTARY CONVERSION.—
(1) IN GENERAL.—Section 1033 (relating to in-
voluntary conversions) is amended by designating
subsection (k) as subsection (l) and inserting after
subsection (j) the following new subsection:
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‘‘(k) QUALIFIED DISPOSITION TO IMPLEMENT BOVINE
TUBERCULOSIS ERADICATION PROGRAM.—
‘‘(1) IN GENERAL.—For purposes of this subtitle,
if a taxpayer elects the application of this subsection
to a qualified disposition:
‘‘(A) TREATMENT AS INVOLUNTARY CONVER-
SION.—Such disposition shall be treated as an
involuntary conversion to which this section ap-
plies.
‘‘(B) MODIFICATION OF SIMILAR PROPERTY
REQUIREMENT.—Property to be held by the tax-
payer either for productive use in a trade or
business or for investment shall be treated as
property similar or related in service or use to
the property disposed of.
‘‘(C) EXTENSION OF PERIOD FOR REPLAC-
ING PROPERTY.—Subsection (a)(2)(B)(i) shall be
applied by substituting ‘4 years’ for ‘2 years’.
‘‘(D) WAIVER OF UNRELATED PERSON RE-
QUIREMENT.—Subsection (i) (relating to replace-
ment property must be acquired from unrelated
person in certain cases) shall not apply.
‘‘(E) EXPANDED CAPITAL GAIN FOR CATTLE
AND
HORSES.—Section 1231(b)(3)(A) shall be
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applied by substituting ‘1 month’ for ‘24
months’.
‘‘(2) QUALIFIED DISPOSITION.—
‘‘(A) IN
GENERAL.—For purposes of this
subsection, the term ‘qualified disposition’ means
the disposition of dairy property which is cer-
tified by the Secretary of Agriculture as having
been the subject of an agreement under the bovine
tuberculosis eradication program, as imple-
mented pursuant to the Declaration of Emer-
gency Because of Bovine Tuberculosis (65 Fed-
eral Register 63,227 (2000)).
‘‘(B) PAYMENTS RECEIVED IN CONNECTION
WITH THE BOVINE TUBERCULOSIS ERADICATION
PROGRAM.—For purposes of this subsection, any
amount received by a taxpayer in connection
with an agreement under such bovine tuber-
culosis eradication program shall be treated as
received in a qualified disposition.
‘‘(C) TRANSMITTAL OF CERTIFICATIONS.—
The Secretary of Agriculture shall transmit cop-
ies of certifications under this paragraph to the
Secretary.
‘‘(3) ALLOWANCE OF THE ADJUSTED BASIS OF
CERTIFIED DAIRY PROPERTY AS A DEPRECIATION DE-
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DUCTION.—The adjusted basis of any property cer-
tified under paragraph (2)(A) shall be allowed as a
depreciation deduction under section 167 for the tax-
able year which includes the date of the certification
described in paragraph (2)(A).
‘‘(4) DAIRY
PROPERTY.—For purposes of this
subsection, the term ‘dairy property’ means all tan-
gible or intangible property used in connection with
a dairy business or a dairy processing plant.
‘‘(5) SPECIAL
RULES
FOR
CERTAIN
BUSINESS
ORGANIZATIONS.—
‘‘(A) S CORPORATIONS.—In the case of an
S corporation, gain on a qualified disposition
shall not be treated as recognized for the pur-
poses of section 1374 (relating to tax imposed on
certain built-in gains).
‘‘(B) PARTNERSHIPS.—In the case of a
partnership which dissolves in anticipation of a
qualified disposition (including in anticipation
of receiving the amount described in paragraph
(2)(B)), the dairy property owned by the part-
ners of such partnership at the time of such dis-
position shall be treated, for the purposes of this
section and notwithstanding any regulation or
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rule of law, as owned by such partners at the
time of such disposition.
‘‘(6) TERMINATION.—This subsection shall not
apply to dispositions made after December 31, 2006.’’.
(2) EFFECTIVE DATE.—The amendment made by
this subsection shall apply to dispositions made and
amounts received in taxable years ending after May
22, 2001.
(b) DEDUCTION
OF QUALIFIED RECLAMATION EX-
PENDITURES.—
(1) IN GENERAL.—Part VI of subchapter B of
chapter 1 (relating to itemized deductions for individ-
uals and corporations), as amended by this Act, is
amended by adding at the end the following new sec-
tion:
‘‘SEC. 199B. EXPENSING OF DAIRY PROPERTY RECLAMA-
TION COSTS.
‘‘(a) IN GENERAL.—Notwithstanding section 280B (re-
lating to demolition of structures), a taxpayer may elect
to treat any qualified reclamation expenditure which is
paid or incurred by the taxpayer as an expense which is
not chargeable to capital account. Any expenditure which
is so treated shall be allowed as a deduction for the taxable
year in which it is paid or incurred.
‘‘(b) QUALIFIED RECLAMATION EXPENDITURE.—
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‘‘(1) IN GENERAL.—For purposes of this sub-
paragraph, the term ‘qualified reclamation expendi-
ture’ means amounts otherwise chargeable to capital
account and paid or incurred to convert any real
property certified under section 1033(k)(2) (relating
to qualified disposition) into unimproved land.
‘‘(2) SPECIAL RULE FOR EXPENDITURES FOR DE-
PRECIABLE PROPERTY.—A rule similar to the rule of
section 198(b)(2) (relating to special rule for expendi-
tures for depreciable property) shall apply for pur-
poses of paragraph (1).
‘‘(c) DEDUCTION RECAPTURED
AS ORDINARY IN-
COME.—Rules similar to the rules of section 198(e) (relating
to deduction recaptured as ordinary income on sale, etc.)
shall apply with respect to any qualified reclamation ex-
penditure.
‘‘(d) TERMINATION.—This section shall not apply to
expenditures paid or incurred after December 31, 2006.’’.
(2) CLERICAL AMENDMENT.—The table of sec-
tions for part VI of subchapter B of chapter 1, as
amended by this Act, is amended by adding at the
end the following new item:
‘‘Sec. 199B. Expensing of dairy property reclamation costs.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to expenditures paid or
incurred in taxable years ending after May 22, 2001.
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SEC. 2506. CLARIFICATION OF EXCISE TAX EXEMPTIONS
FOR AGRICULTURAL AERIAL APPLICATORS.
(a) NO WAIVER BY FARM OWNER, TENANT, OR OPER-
ATOR
NECESSARY.—Subparagraph 
(B) 
of 
section
6420(c)(4) (relating to certain farming use other than by
owner, etc.) is amended to read as follows:
‘‘(B) if the person so using the gasoline is
an aerial or other applicator of fertilizers or
other substances and is the ultimate purchaser of
the gasoline, then subparagraph (A) of this para-
graph shall not apply and the aerial or other ap-
plicator shall be treated as having used such gas-
oline on a farm for farming purposes.’’.
(b) EXEMPTION INCLUDES FUEL USED BETWEEN AIR-
FIELD AND FARM.—Section 6420(c)(4), as amended by sub-
section (a), is amended by adding at the end the following
new flush sentence:
‘‘For purposes of this paragraph, in the case of an
aerial applicator, gasoline shall be treated as used on
a farm for farming purposes if the gasoline is used
for the direct flight between the airfield and 1 or more
farms.’’.
(c) EXEMPTION FROM TAX ON AIR TRANSPORTATION
OF PERSONS FOR FORESTRY PURPOSES EXTENDED TO
FIXED-WING AIRCRAFT.—Subsection (f) of section 4261 (re-
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lating to tax on air transportation of persons) is amended
to read as follows:
‘‘(f) EXEMPTION FOR CERTAIN USES.—No tax shall be
imposed under subsection (a) or (b) on air transportation—
‘‘(1) by helicopter for the purpose of transporting
individuals, equipment, or supplies in the exploration
for, or the development or removal of, hard minerals,
oil, or gas, or
‘‘(2) by helicopter or by fixed-wing aircraft for
the purpose of the planting, cultivation, cutting, or
transportation of, or caring for, trees (including log-
ging operations),
but only if the helicopter or fixed-wing aircraft does not
take off from, or land at, a facility eligible for assistance
under the Airport and Airway Development Act of 1970,
or otherwise use services provided pursuant to section 44509
or 44913(b) or subchapter I of chapter 471 of title 49,
United States Code, during such use. In the case of heli-
copter transportation described in paragraph (1), this sub-
section shall be applied by treating each flight segment as
a distinct flight.’’.
(d) EFFECTIVE DATE.—The amendments made by this
section shall apply to fuel use or air transportation after
December 31, 2001, and before January 1, 2003.
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SEC. 2507. MODIFICATION OF RURAL AIRPORT DEFINITION.
(a) IN GENERAL.—Clause (ii) of section 4261(e)(1)(B)
(defining rural airport) is amended by striking the period
at the end of subclause (II) and inserting ‘‘, or’’ and by
adding at the end the following new subclause:
‘‘(III) is not connected by paved
roads to another airport.’’.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to calendar years beginning after 2002.
SEC. 2508. EXEMPTION FROM TICKET TAXES FOR TRANS-
PORTATION PROVIDED BY SEAPLANES.
(a) IN GENERAL.—The taxes imposed by sections 4261
and 4271 shall not apply to transportation by a seaplane
with respect to any segment consisting of a takeoff from,
and a landing on, water.
(b) EFFECTIVE DATE.—The amendments made by this
section shall apply to calendar years beginning after 2002.
DIVISION I—IRAQ OIL IMPORT
RESTRICTION
TITLE XXVI—IRAQ OIL IMPORT
RESTRICTION
SEC. 2601. SHORT TITLE AND FINDINGS.
(a) SHORT TITLE.—This title can be cited as the ‘‘Iraq
Petroleum Import Restriction Act of 2003’’.
(b) FINDINGS.—Congress finds that—
(1) the Government of the Republic of Iraq—