779 
defined in such section), such individual shall be 
treated as having made the individual’s tenant-stock-
holder’s proportionate share (as defined in section 
216(b)(3)) of any expenditures of such corporation. 
‘‘(5) CONDOMINIUMS.— 
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is a member of a condominium man-
agement association with respect to a condo-
minium which the individual owns, such indi-
vidual shall be treated as having made the indi-
vidual’s proportionate share of any expenditures 
of such association. 
‘‘(B) CONDOMINIUM
MANAGEMENT
ASSO-
CIATION.—For purposes of this paragraph, the 
term ‘condominium management association’ 
means an organization which meets the require-
ments of paragraph (1) of section 528(c) (other 
than subparagraph (E) thereof) with respect to 
a condominium project substantially all of the 
units of which are used as residences. 
‘‘(6) ALLOCATION IN CERTAIN CASES.—Except 
in the case of qualified wind energy property expend-
itures, if less than 80 percent of the use of an item 
is for nonbusiness purposes, only that portion of the 
expenditures for such item which is properly allo-
780 
cable to use for nonbusiness purposes shall be taken 
into account. 
‘‘(7) WHEN EXPENDITURE MADE; AMOUNT OF 
EXPENDITURE.— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), an expenditure with respect 
to an item shall be treated as made when the 
original installation of the item is completed. 
‘‘(B) EXPENDITURES PART OF BUILDING 
CONSTRUCTION.—In the case of an expenditure 
in connection with the construction or recon-
struction of a structure, such expenditure shall 
be treated as made when the original use of the 
constructed or reconstructed structure by the 
taxpayer begins. 
‘‘(C) AMOUNT.—The amount of any ex-
penditure shall be the cost thereof. 
‘‘(8) PROPERTY FINANCED BY SUBSIDIZED EN-
ERGY FINANCING.—For purposes of determining the 
amount of expenditures made by any individual with 
respect to any dwelling unit, there shall not be taken 
into account expenditures which are made from sub-
sidized energy financing (as defined in section 
48(a)(4)(C)).
781 
‘‘(9) DENIAL OF DEPRECIATION ON WIND EN-
ERGY PROPERTY FOR WHICH CREDIT ALLOWED.— 
No deduction shall be allowed under section 167 for 
property which uses wind energy to generate elec-
tricity if the taxpayer is allowed a credit under this 
section with respect to such property. 
‘‘(e) BASIS ADJUSTMENTS.—For purposes of this 
subtitle, if a credit is allowed under this section for any 
expenditure with respect to any property, the increase in 
the basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by 
the amount of the credit so allowed. 
‘‘(f) TERMINATION.—The credit allowed under this 
section shall not apply to taxable years beginning after 
December 31, 2006 (December 31, 2008, with respect to 
qualified photovoltaic property expenditures).’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 1016(a) is amended by striking 
‘‘and’’ at the end of paragraph (27), by striking the 
period at the end of paragraph (28) and inserting ‘‘, 
and’’, and by adding at the end the following new 
paragraph: 
‘‘(29) to the extent provided in section 25C(e), 
in the case of amounts with respect to which a credit 
has been allowed under section 25C.’’.
782 
(2) The table of sections for subpart A of part 
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 25B the fol-
lowing new item: 
‘‘Sec. 25C. Residential energy efficient property.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2003. 
SEC. 1302. EXTENSION AND EXPANSION OF CREDIT FOR 
ELECTRICITY PRODUCED FROM CERTAIN RE-
NEWABLE RESOURCES. 
(a) EXPANSION
OF
QUALIFIED
ENERGY
RE-
SOURCES.—Subsection (c) of section 45 (relating to elec-
tricity produced from certain renewable resources) is 
amended to read as follows: 
‘‘(c) QUALIFIED ENERGY RESOURCES.—For pur-
poses of this section— 
‘‘(1) IN GENERAL.—The term ‘qualified energy 
resources’ means— 
‘‘(A) wind, 
‘‘(B) closed-loop biomass, 
‘‘(C) open-loop biomass, 
‘‘(D) geothermal energy, 
‘‘(E) solar energy, 
‘‘(F) small irrigation power, and 
‘‘(G) municipal solid waste.
783 
‘‘(2) 
CLOSED-LOOP
BIOMASS.—The 
term 
‘closed-loop biomass’ means any organic material 
from a plant which is planted exclusively for pur-
poses of being used at a qualified facility to produce 
electricity. 
‘‘(3) OPEN-LOOP BIOMASS.— 
‘‘(A) IN GENERAL.—The term ‘open-loop 
biomass’ means— 
‘‘(i) any agricultural livestock waste 
nutrients, or 
‘‘(ii) any solid, nonhazardous, cel-
lulosic waste material which is segregated 
from other waste materials and which is 
derived from— 
‘‘(I) any of the following forest- 
related resources: mill and harvesting 
residues, 
precommercial 
thinnings, 
slash, and brush, 
‘‘(II) solid wood waste materials, 
including 
waste 
pallets, 
crates, 
dunnage, manufacturing and con-
struction wood wastes (other than 
pressure-treated, 
chemically-treated, 
or painted wood wastes), and land-
scape or right-of-way tree trimmings,
784 
but not including municipal solid 
waste, gas derived from the bio-
degradation of solid waste, or paper 
which is commonly recycled, or 
‘‘(III) agriculture sources, includ-
ing orchard tree crops, vineyard, 
grain, legumes, sugar, and other crop 
by-products or residues. 
Such term shall not include closed-loop biomass. 
‘‘(B) AGRICULTURAL
LIVESTOCK
WASTE 
NUTRIENTS.— 
‘‘(i) IN GENERAL.—The term ‘agricul-
tural livestock waste nutrients’ means agri-
cultural livestock manure and litter, includ-
ing wood shavings, straw, rice hulls, and 
other bedding material for the disposition 
of manure. 
‘‘(ii) AGRICULTURAL
LIVESTOCK.— 
The term ‘agricultural livestock’ includes 
bovine, swine, poultry, and sheep. 
‘‘(4) GEOTHERMAL ENERGY.—The term ‘geo-
thermal energy’ means energy derived from a geo-
thermal deposit (within the meaning of section 
613(e)(2)).
785 
‘‘(5) SMALL
IRRIGATION
POWER.—The term 
‘small irrigation power’ means power— 
‘‘(A) generated without any dam or im-
poundment of water through an irrigation sys-
tem canal or ditch, and 
‘‘(B) the nameplate capacity rating of 
which is not less than 150 kilowatts but is less 
than 5 megawatts. 
‘‘(6) MUNICIPAL
SOLID
WASTE.—The term 
‘municipal solid waste’ has the meaning given the 
term ‘solid waste’ under section 2(27) of the Solid 
Waste Disposal Act (42 U.S.C. 6903).’’. 
(b) EXTENSION AND EXPANSION OF QUALIFIED FA-
CILITIES.— 
(1) IN GENERAL.—Section 45 is amended by 
redesignating subsection (d) as subsection (e) and by 
inserting after subsection (c) the following new sub-
section: 
‘‘(d) QUALIFIED FACILITIES.—For purposes of this 
section— 
‘‘(1) WIND FACILITY.—In the case of a facility 
using wind to produce electricity, the term ‘qualified 
facility’ means any facility owned by the taxpayer 
which is originally placed in service after December 
31, 1993, and before January 1, 2007.
786 
‘‘(2) CLOSED-LOOP BIOMASS FACILITY.— 
‘‘(A) IN GENERAL.—In the case of a facil-
ity using closed-loop biomass to produce elec-
tricity, the term ‘qualified facility’ means any 
facility— 
‘‘(i) owned by the taxpayer which is 
originally placed in service after December 
31, 1992, and before January 1, 2007, or 
‘‘(ii) owned by the taxpayer which be-
fore January 1, 2007, is originally placed 
in service and modified to use closed-loop 
biomass to co-fire with coal, with other bio-
mass, or with both, but only if the modi-
fication is approved under the Biomass 
Power for Rural Development Programs or 
is part of a pilot project of the Commodity 
Credit Corporation as described in 65 Fed. 
Reg. 63052. 
‘‘(B) SPECIAL RULES.—In the case of a 
qualified facility described in subparagraph 
(A)(ii)— 
‘‘(i) the 10-year period referred to in 
subsection (a) shall be treated as beginning 
no earlier than the date of the enactment 
of the Energy Tax Policy Act of 2004,
787 
‘‘(ii) the amount of the credit deter-
mined under subsection (a) with respect to 
the facility shall be an amount equal to the 
amount determined without regard to this 
clause multiplied by the ratio of the ther-
mal content of the closed-loop biomass 
used in such facility to the thermal content 
of all fuels used in such facility, and 
‘‘(iii) if the owner of such facility is 
not the producer of the electricity, the per-
son eligible for the credit allowable under 
subsection (a) shall be the lessee or the op-
erator of such facility. 
‘‘(3) OPEN-LOOP BIOMASS FACILITIES.— 
‘‘(A) IN GENERAL.—In the case of a facil-
ity using open-loop biomass to produce elec-
tricity, the term ‘qualified facility’ means any 
facility owned by the taxpayer which— 
‘‘(i) in the case of a facility using ag-
ricultural livestock waste nutrients— 
‘‘(I) is originally placed in service 
after the date of the enactment of the 
Energy Tax Policy Act of 2004 and 
before January 1, 2007, and
788 
‘‘(II) the nameplate capacity rat-
ing of which is not less than 150 kilo-
watts, and 
‘‘(ii) in the case of any other facility, 
is originally placed in service before Janu-
ary 1, 2007. 
‘‘(B) CREDIT ELIGIBILITY.—In the case of 
any facility described in subparagraph (A), if 
the owner of such facility is not the producer of 
the electricity, the person eligible for the credit 
allowable under subsection (a) shall be the les-
see or the operator of such facility. 
‘‘(4) GEOTHERMAL OR SOLAR ENERGY FACIL-
ITY.—In the case of a facility using geothermal or 
solar energy to produce electricity, the term ‘quali-
fied facility’ means any facility owned by the tax-
payer which is originally placed in service after the 
date of the enactment of the Energy Tax Policy Act 
of 2004 and before January 1, 2007. Such term 
shall not include any property described in section 
48(a)(3) the basis of which is taken into account by 
the taxpayer for purposes of determining the energy 
credit under section 48. 
‘‘(5) SMALL IRRIGATION POWER FACILITY.—In 
the case of a facility using small irrigation power to
789 
produce electricity, the term ‘qualified facility’ 
means any facility owned by the taxpayer which is 
originally placed in service after the date of the en-
actment of the Energy Tax Policy Act of 2004 and 
before January 1, 2007. 
‘‘(6) LANDFILL GAS FACILITIES.—In the case 
of a facility producing electricity from gas derived 
from the biodegradation of municipal solid waste, 
the term ‘qualified facility’ means any facility owned 
by the taxpayer which is originally placed in service 
after the date of the enactment of the Energy Tax 
Policy Act of 2004 and before January 1, 2007. 
‘‘(7) TRASH COMBUSTION FACILITIES.—In the 
case of a facility which burns municipal solid waste 
to produce electricity, the term ‘qualified facility’ 
means any facility owned by the taxpayer which is 
originally placed in service after the date of the en-
actment of the Energy Tax Policy Act of 2004 and 
before January 1, 2007.’’. 
(2) CONFORMING AMENDMENT.—Section 45(e), 
as so redesignated, is amended by striking ‘‘sub-
section (c)(3)(A)’’ in paragraph (7)(A)(i) and insert-
ing ‘‘subsection (d)(1)’’. 
(c) SPECIAL CREDIT RATE AND PERIOD FOR ELEC-
TRICITY
PRODUCED
AND
SOLD
AFTER
ENACTMENT
790 
DATE.—Section 45(b) is amended by adding at the end 
the following new paragraph: 
‘‘(4) CREDIT
RATE
AND
PERIOD
FOR
ELEC-
TRICITY PRODUCED AND SOLD FROM CERTAIN FA-
CILITIES.— 
‘‘(A) CREDIT RATE.—In the case of elec-
tricity produced and sold in any calendar year 
after 2003 at any qualified facility described in 
paragraph (3), (5), (6), or (7) of subsection (d), 
the amount in effect under subsection (a)(1) for 
such calendar year (determined before the ap-
plication of the last sentence of paragraph (2) 
of this subsection) shall be reduced by one- 
third. 
‘‘(B) CREDIT PERIOD.— 
‘‘(i) IN
GENERAL.—Except as pro-
vided in clause (ii), in the case of any facil-
ity described in paragraph (3), (4), (5), 
(6), or (7) of subsection (d), the 5-year pe-
riod beginning on the date the facility was 
originally placed in service shall be sub-
stituted for the 10-year period in sub-
section (a)(2)(A)(ii). 
‘‘(ii) CERTAIN
OPEN-LOOP
BIOMASS 
FACILITIES.—In the case of any facility de-
791 
scribed in subsection (d)(3)(A)(ii) placed in 
service before the date of the enactment of 
this paragraph, the 5-year period begin-
ning on January 1, 2004, shall be sub-
stituted for the 10-year period in sub-
section (a)(2)(A)(ii).’’. 
(d) COORDINATION WITH OTHER CREDITS.—Section 
45(e), as so redesignated, is amended by adding at the 
end the following new paragraph: 
‘‘(8) COORDINATION WITH OTHER CREDITS.— 
The term ‘qualified facility’ shall not include— 
‘‘(A) any property with respect to which a 
credit is allowed under section 25C, and 
‘‘(B) any facility the production from 
which is allowed as a credit under section 45K, 
for the taxable year or any prior taxable year.’’. 
(e) COORDINATION
WITH
SECTION
48.—Section 
48(a)(3) (defining energy property) is amended by adding 
at the end the following new sentence: ‘‘Such term shall 
not include any property which is part of a facility the 
production from which is allowed as a credit under section 
45 for the taxable year or any prior taxable year.’’. 
(f) ELIMINATION
OF
CERTAIN
CREDIT
REDUC-
TIONS.—Section 45(b)(3) (relating to credit reduced for
792 
grants, tax-exempt bonds, subsidized energy financing, 
and other credits) is amended— 
(1) by inserting ‘‘the lesser of 1⁄2 or’’ before ‘‘a 
fraction’’ in the matter preceding subparagraph (A), 
and 
(2) by adding at the end the following new sen-
tence: ‘‘This paragraph shall not apply with respect 
to any facility described in subsection (d)(2)(A)(ii).’’. 
(g) EFFECTIVE DATES.— 
(1) IN
GENERAL.—Except as otherwise pro-
vided in this subsection, the amendments made by 
this section shall apply to electricity produced and 
sold after the date of the enactment of this Act, in 
taxable years ending after such date. 
(2) CERTAIN
BIOMASS
FACILITIES.—With re-
spect 
to 
any 
facility 
described 
in 
section 
45(d)(3)(A)(ii) of the Internal Revenue Code of 
1986, as added by subsection (b)(1), which is placed 
in service before the date of the enactment of this 
Act, the amendments made by this section shall 
apply to electricity produced and sold after Decem-
ber 31, 2003, in taxable years ending after such 
date. 
(3) CREDIT RATE AND PERIOD FOR NEW FA-
CILITIES.—The amendments made by subsection (c)
793 
shall apply to electricity produced and sold after De-
cember 31, 2003, in taxable years ending after such 
date. 
(4) NONAPPLICATION
OF
AMENDMENTS
TO 
PREEFFECTIVE
DATE
POULTRY
WASTE
FACILI-
TIES.—The amendments made by this section shall 
not apply with respect to any poultry waste facility 
(within the meaning of section 45(c)(3)(C), as in ef-
fect on the day before the date of the enactment of 
this Act) placed in service before January 1, 2004. 
(h) GAO STUDY.—The Comptroller General of the 
United States shall conduct a study on the market viabil-
ity of producing electricity from resources with respect to 
which credit is allowed under section 45 of the Internal 
Revenue Code of 1986 but without such credit. In the case 
of open-loop biomass and municipal solid waste resources, 
the study should take into account savings associated with 
not having to dispose of such resources. In conducting 
such study, the Comptroller shall estimate the dollar value 
of the environmental impact of producing electricity from 
such resources relative to producing electricity from fossil 
fuels using the latest generation of technology. Not later 
than June 30, 2006, the Comptroller shall report on such 
study to the Committee on Ways and Means of the House
794 
of Representatives and the Committee on Finance of the 
Senate. 
SEC. 1303. CREDIT FOR BUSINESS INSTALLATION OF 
QUALIFIED FUEL CELLS. 
(a) IN GENERAL.—Section 48(a)(3)(A) (defining en-
ergy property) is amended by striking ‘‘or’’ at the end of 
clause (i), by adding ‘‘or’’ at the end of clause (ii), and 
by inserting after clause (ii) the following new clause: 
‘‘(iii) qualified fuel cell property,’’. 
(b) QUALIFIED FUEL CELL PROPERTY.—Section 48 
(relating to energy credit; reforestation credit) is amended 
by adding at the end the following new subsection: 
‘‘(c) QUALIFIED FUEL CELL PROPERTY.—For pur-
poses of subsection (a)(3)(A)(iii)— 
‘‘(1) IN
GENERAL.—The term ‘qualified fuel 
cell property’ means a fuel cell power plant which 
generates at least 0.5 kilowatt of electricity using an 
electrochemical process. 
‘‘(2) LIMITATION.—The energy credit with re-
spect to any qualified fuel cell property shall not ex-
ceed an amount equal to $500 for each 0.5 kilowatt 
of capacity of such property. 
‘‘(3) FUEL
CELL
POWER
PLANT.—The term 
‘fuel cell power plant’ means an integrated system, 
comprised of a fuel cell stack assembly and associ-
795 
ated balance of plant components, which converts a 
fuel into electricity using electrochemical means. 
‘‘(4) TERMINATION.—The term ‘qualified fuel 
cell property’ shall not include any property placed 
in service after December 31, 2006.’’. 
(c) ENERGY PERCENTAGE.—Subparagraph (A) of 
section 48(a)(2) (relating to energy percentage) is amend-
ed to read as follows: 
‘‘(A) IN GENERAL.—The energy percent-
age is— 
‘‘(i) in the case of qualified fuel cell 
property, 20 percent, and 
‘‘(ii) in the case of any other energy 
property, 10 percent.’’. 
(d) CONFORMING AMENDMENT.—Section 48(a)(1) is 
amended by inserting ‘‘except as provided in subsection 
(c)(2),’’ before ‘‘the energy’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to periods after December 31, 
2003, 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).
796 
SEC. 1304. CREDIT FOR ENERGY EFFICIENCY IMPROVE-
MENTS TO EXISTING HOMES. 
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal 
credits), as amended by this Act, is amended by inserting 
after section 25C the following new section: 
‘‘SEC. 25D. ENERGY EFFICIENCY IMPROVEMENTS TO EXIST-
ING HOMES. 
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax 
imposed by this chapter for the taxable year an amount 
equal to 20 percent of the amount paid or incurred by 
the taxpayer for qualified energy efficiency improvements 
installed during such taxable year. 
‘‘(b) LIMITATIONS.— 
‘‘(1) MAXIMUM CREDIT.—The credit allowed by 
this section with respect to a dwelling unit shall not 
exceed $2,000. 
‘‘(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER 
ON SAME DWELLING TAKEN INTO ACCOUNT.—If a 
credit was allowed to the taxpayer under subsection 
(a) with respect to a dwelling unit in 1 or more prior 
taxable years, the amount of the credit otherwise al-
lowable for the taxable year with respect to that 
dwelling unit shall be reduced by the sum of the 
credits allowed under subsection (a) to the taxpayer
797 
with respect to the dwelling unit for all prior taxable 
years. 
‘‘(c) QUALIFIED ENERGY EFFICIENCY IMPROVE-
MENTS.—For purposes of this section, the term ‘qualified 
energy efficiency improvements’ means any energy effi-
cient building envelope component which meets the pre-
scriptive criteria for such component established by the 
2000 International Energy Conservation Code, as such 
Code (including supplements) is in effect on the date of 
the enactment of this section (or, in the case of a metal 
roof with appropriate pigmented coatings which meet the 
Energy Star program requirements), if— 
‘‘(1) such component is installed in or on a 
dwelling unit— 
‘‘(A) located in the United States, 
‘‘(B) owned and used by the taxpayer as 
the taxpayer’s principal residence (within the 
meaning of section 121), and 
‘‘(C) which has not been treated as a 
qualified new energy efficient home for pur-
poses of any credit allowed under section 45G, 
‘‘(2) the original use of such component com-
mences with the taxpayer, and 
‘‘(3) such component reasonably can be ex-
pected to remain in use for at least 5 years.
798 
If the aggregate cost of such components with respect to 
any dwelling unit exceeds $1,000, such components shall 
be treated as qualified energy efficiency improvements 
only if such components are also certified in accordance 
with subsection (d) as meeting such prescriptive criteria. 
‘‘(d) CERTIFICATION.—The certification described in 
subsection (c) shall be— 
‘‘(1) determined on the basis of the technical 
specifications or applicable ratings (including prod-
uct labeling requirements) for the measurement of 
energy efficiency (based upon energy use or building 
envelope component performance) for the energy ef-
ficient building envelope component, 
‘‘(2) provided by a local building regulatory au-
thority, a utility, a manufactured home production 
inspection primary inspection agency (IPIA), or an 
accredited home energy rating system provider who 
is accredited by or otherwise authorized to use ap-
proved energy performance measurement methods by 
the 
Residential 
Energy 
Services 
Network 
(RESNET), and 
‘‘(3) made in writing in a manner which speci-
fies in readily verifiable fashion the energy efficient 
building envelope components installed and their re-
spective energy efficiency levels.
799 
‘‘(e) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section— 
‘‘(1) BUILDING ENVELOPE COMPONENT.—The 
term ‘building envelope component’ means— 
‘‘(A) any insulation material or system 
which is specifically and primarily designed to 
reduce the heat loss or gain of a dwelling unit 
when installed in or on such dwelling unit, 
‘‘(B) exterior windows (including sky-
lights), 
‘‘(C) exterior doors, and 
‘‘(D) any metal roof installed on a dwelling 
unit, but only if such roof has appropriate pig-
mented coatings which are specifically and pri-
marily designed to reduce the heat gain of such 
dwelling unit. 
‘‘(2) MANUFACTURED HOMES INCLUDED.—The 
term ‘dwelling unit’ includes a manufactured home 
which conforms to Federal Manufactured Home 
Construction and Safety Standards (section 3280 of 
title 24, Code of Federal Regulations). 
‘‘(3) APPLICATION OF RULES.—Rules similar to 
the rules under paragraphs (3), (4), and (5) of sec-
tion 25C(d) shall apply.
800 
‘‘(f) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is allowed under this section for any ex-
penditure with respect to any property, the increase in the 
basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by 
the amount of the credit so allowed. 
‘‘(g) APPLICATION OF SECTION.—This section shall 
apply to qualified energy efficiency improvements installed 
after December 31, 2003, and before January 1, 2007.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Subsection (a) of section 1016, as amended 
by this Act, is amended by striking ‘‘and’’ at the end 
of paragraph (28), by striking the period at the end 
of paragraph (29) and inserting ‘‘, and’’, and by 
adding at the end the following new paragraph: 
‘‘(30) to the extent provided in section 25D(f), 
in the case of amounts with respect to which a credit 
has been allowed under section 25D.’’. 
(2) The table of sections for subpart A of part 
IV of subchapter A of chapter 1, as amended by this 
Act, is amended by inserting after the item relating 
to section 25C the following new item: 
‘‘Sec. 25D. Energy efficiency improvements to existing homes.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2003.
801 
SEC. 1305. CREDIT FOR CONSTRUCTION OF NEW ENERGY 
EFFICIENT HOMES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) is amended by adding at the end the following new 
section: 
‘‘SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT. 
‘‘(a) IN GENERAL.—For purposes of section 38, in 
the case of an eligible contractor with respect to a quali-
fied new energy efficient home, the credit determined 
under this section for the taxable year with respect to such 
home is an amount equal to the aggregate adjusted bases 
of all energy efficient property installed in such home dur-
ing construction of such home. 
‘‘(b) LIMITATIONS.— 
‘‘(1) MAXIMUM CREDIT.— 
‘‘(A) IN GENERAL.—The credit allowed by 
this section with respect to a dwelling unit shall 
not exceed— 
‘‘(i) in the case of a dwelling unit de-
scribed in clause (i) or (iii) of subsection 
(c)(3)(D), $1,000, and 
‘‘(ii) in the case of a dwelling unit de-
scribed in subsection (c)(3)(D)(ii), $2,000. 
‘‘(B) PRIOR CREDIT AMOUNTS ON SAME 
DWELLING UNIT TAKEN INTO ACCOUNT.—If a
802 
credit was allowed under subsection (a) with re-
spect to a dwelling unit in 1 or more prior tax-
able years, the amount of the credit otherwise 
allowable for the taxable year with respect to 
such dwelling unit shall be reduced by the sum 
of the credits allowed under subsection (a) with 
respect to the dwelling unit for all prior taxable 
years. 
‘‘(2) COORDINATION WITH CERTAIN CREDITS.— 
For purposes of this section— 
‘‘(A) the basis of any property referred to 
in subsection (a) shall be reduced by that por-
tion of the basis of any property which is attrib-
utable to qualified rehabilitation expenditures 
(as defined in section 47(c)(2)) or to the energy 
percentage of energy property (as determined 
under section 48(a)), and 
‘‘(B) expenditures taken into account 
under section 47 or 48(a) shall not be taken 
into account under this section. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligi-
ble contractor’ means— 
‘‘(A) the person who constructed the quali-
fied new energy efficient home, or
803 
‘‘(B) in the case of a qualified new energy 
efficient home which is a manufactured home, 
the manufactured home producer of such home. 
If more than 1 person is described in subparagraph 
(A) or (B) with respect to any qualified new energy 
efficient home, such term means the person des-
ignated as such by the owner of such home. 
‘‘(2) ENERGY
EFFICIENT
PROPERTY.—The 
term ‘energy efficient property’ means any energy 
efficient building envelope component, and any en-
ergy efficient heating or cooling equipment or sys-
tem, which can, individually or in combination with 
other components, result in a dwelling unit meeting 
the requirements of this section. 
‘‘(3) QUALIFIED
NEW
ENERGY
EFFICIENT 
HOME.—The term ‘qualified new energy efficient 
home’ means a dwelling unit— 
‘‘(A) located in the United States, 
‘‘(B) the construction of which is substan-
tially completed after December 31, 2003, 
‘‘(C) the original use of which, after such 
construction, is reasonably expected to be as a 
residence by the person who acquires such 
dwelling unit from the eligible contractor, 
‘‘(D) which is—
804 
‘‘(i) certified to have a level of annual 
heating and cooling energy consumption 
which is at least 30 percent below the an-
nual level of heating and cooling energy 
consumption of a comparable dwelling unit 
constructed in accordance with the stand-
ards of chapter 4 of the 2000 International 
Energy Conservation Code, as such Code 
(including supplements) is in effect on the 
date of the enactment of this section, and 
to have building envelope component im-
provements account for at least 1⁄3 of such 
30 percent, 
‘‘(ii) certified to have a level of annual 
heating and cooling energy consumption 
which is at least 50 percent below such an-
nual level and to have building envelope 
component improvements account for at 
least 1⁄5 of such 50 percent, or 
‘‘(iii) a manufactured home which— 
‘‘(I) conforms to Federal Manu-
factured 
Home 
Construction 
and 
Safety Standards (section 3280 of 
title 24, Code of Federal Regulations), 
and
805 
‘‘(II) meets the applicable stand-
ards required by the Administrator of 
the Environmental Protection Agency 
under 
the 
Energy 
Star 
Labeled 
Homes program. 
‘‘(4) CONSTRUCTION.—The term ‘construction’ 
includes substantial reconstruction and rehabilita-
tion. 
‘‘(5) ACQUIRE.—The term ‘acquire’ includes 
purchase and, in the case of reconstruction and re-
habilitation, such term includes a binding written 
contract for such reconstruction or rehabilitation. 
‘‘(6) BUILDING ENVELOPE COMPONENT.—The 
term ‘building envelope component’ means— 
‘‘(A) any insulation material or system 
which is specifically and primarily designed to 
reduce the heat loss or gain of a dwelling unit 
when installed in or on such dwelling unit, 
‘‘(B) exterior windows (including sky-
lights), 
‘‘(C) exterior doors, and 
‘‘(D) any metal roof installed on a dwelling 
unit, but only if such roof has appropriate pig-
mented coatings which—
806 
‘‘(i) are specifically and primarily de-
signed to reduce the heat gain of such 
dwelling unit, and 
‘‘(ii) meet the Energy Star program 
requirements. 
‘‘(d) CERTIFICATION.— 
‘‘(1) METHOD OF CERTIFICATION.—A certifi-
cation described in subsection (c)(3)(D) shall be de-
termined in accordance with guidance prescribed by 
the Secretary. Such guidance shall specify proce-
dures and methods for calculating energy and cost 
savings. 
‘‘(2) FORM.—A certification described in sub-
section (c)(3)(D) shall be made in writing— 
‘‘(A) in a manner which specifies in readily 
verifiable fashion the energy efficient building 
envelope components and energy efficient heat-
ing or cooling equipment installed and their re-
spective rated energy efficiency performance, 
and 
‘‘(B) in the case of a qualified new energy 
efficient home which is a manufactured home, 
accompanied by such documentation as required 
by the Administrator of the Environmental Pro-
807 
tection Agency under the Energy Star Labeled 
Homes program. 
‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is determined under this section for any 
expenditure with respect to any property, the increase in 
the basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by 
the amount of the credit so determined. 
‘‘(f) APPLICATION OF SECTION.—Subsection (a) shall 
apply to qualified new energy efficient homes acquired 
during the period beginning on January 1, 2004, and end-
ing on December 31, 2006.’’. 
(b) CREDIT MADE PART OF GENERAL BUSINESS 
CREDIT.—Section 38(b) (relating to current year business 
credit) is amended by striking ‘‘plus’’ at the end of para-
graph (14), by striking the period at the end of paragraph 
(15) and inserting ‘‘, plus’’, and by adding at the end the 
following new paragraph: 
‘‘(16) the new energy efficient home credit de-
termined under section 45G(a).’’. 
(c) BASIS ADJUSTMENT.—Subsection (a) of section 
1016, as amended by this Act, is amended by striking 
‘‘and’’ at the end of paragraph (29), by striking the period 
at the end of paragraph (30) and inserting ‘‘, and’’, and 
by adding at the end the following new paragraph:
808 
‘‘(31) to the extent provided in section 45G(e), 
in the case of amounts with respect to which a credit 
has been allowed under section 45G.’’. 
(d) LIMITATION ON CARRYBACK.— 
(1) IN GENERAL.—Subsection (d) of section 39 
is amended to read as follows: 
‘‘(d) TRANSITIONAL RULE.—No portion of the un-
used business credit for any taxable year which is attrib-
utable to a credit specified in section 38(b) or any portion 
thereof may be carried back to any taxable year before 
the first taxable year for which such specified credit or 
such portion is allowable (without regard to subsection 
(a)).’’. 
(2) EFFECTIVE DATE.—The amendment made 
by paragraph (1) shall apply with respect to taxable 
years ending after December 31, 2002. 
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS 
CREDITS.—Section 196(c) (defining qualified business 
credits) is amended by striking ‘‘and’’ at the end of para-
graph (10), by striking the period at the end of paragraph 
(11) and inserting ‘‘, and’’, and by adding after paragraph 
(11) the following new paragraph: 
‘‘(12) the new energy efficient home credit de-
termined under section 45G(a).’’.
809 
(f) CLERICAL AMENDMENT.—The table of sections 
for subpart D of part IV of subchapter A of chapter 1 
is amended by adding at the end the following new item: 
‘‘Sec. 45G. New energy efficient home credit.’’. 
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years ending after De-
cember 31, 2003. 
SEC. 1306. ENERGY CREDIT FOR COMBINED HEAT AND 
POWER SYSTEM PROPERTY. 
(a) IN GENERAL.—Section 48(a)(3)(A) (defining en-
ergy property), as amended by this Act, is amended by 
striking ‘‘or’’ at the end of clause (ii), by adding ‘‘or’’ at 
the end of clause (iii), and by inserting after clause (iii) 
the following new clause: 
‘‘(iv) combined heat and power system 
property,’’. 
(b) COMBINED HEAT AND POWER SYSTEM PROP-
ERTY.—Section 48 (relating to energy credit; reforestation 
credit), as amended by this Act, is amended by adding 
at the end the following new subsection: 
‘‘(d) COMBINED HEAT AND POWER SYSTEM PROP-
ERTY.—For purposes of subsection (a)(3)(A)(iv)— 
‘‘(1) COMBINED
HEAT
AND
POWER
SYSTEM 
PROPERTY.—The term ‘combined heat and power 
system property’ means property comprising a sys-
tem—
810 
‘‘(A) which uses the same energy source 
for the simultaneous or sequential generation of 
electrical power, mechanical shaft power, or 
both, in combination with the generation of 
steam or other forms of useful thermal energy 
(including heating and cooling applications), 
‘‘(B) which has an electrical capacity of 
not more than 15 megawatts or a mechanical 
energy capacity of not more than 2,000 horse-
power or an equivalent combination of electrical 
and mechanical energy capacities, 
‘‘(C) which produces— 
‘‘(i) at least 20 percent of its total 
useful energy in the form of thermal en-
ergy which is not used to produce electrical 
or mechanical power (or combination 
thereof), and 
‘‘(ii) at least 20 percent of its total 
useful energy in the form of electrical or 
mechanical power (or combination thereof), 
‘‘(D) the energy efficiency percentage of 
which exceeds 60 percent, and 
‘‘(E) which is placed in service before Jan-
uary 1, 2007. 
‘‘(2) SPECIAL RULES.—
811 
‘‘(A) 
ENERGY
EFFICIENCY
PERCENT-
AGE.—For purposes of this subsection, the en-
ergy efficiency percentage of a system is the 
fraction— 
‘‘(i) the numerator of which is the 
total useful electrical, thermal, and me-
chanical power produced by the system at 
normal operating rates, and expected to be 
consumed in its normal application, and 
‘‘(ii) the denominator of which is the 
lower heating value of the fuel sources for 
the system. 
‘‘(B) DETERMINATIONS
MADE
ON
BTU 
BASIS.—The energy efficiency percentage and 
the percentages under paragraph (1)(C) shall 
be determined on a Btu basis. 
‘‘(C) INPUT AND OUTPUT PROPERTY NOT 
INCLUDED.—The term ‘combined heat and 
power system property’ does not include prop-
erty used to transport the energy source to the 
facility or to distribute energy produced by the 
facility. 
‘‘(D) PUBLIC UTILITY PROPERTY.— 
‘‘(i) ACCOUNTING RULE FOR PUBLIC 
UTILITY PROPERTY.—If the combined heat
812 
and power system property is public utility 
property (as defined in section 168(i)(10)), 
the taxpayer may only claim the credit 
under subsection (a) if, with respect to 
such property, the taxpayer uses a normal-
ization method of accounting. 
‘‘(ii) CERTAIN
EXCEPTION
NOT
TO 
APPLY.—The matter in subsection (a)(3) 
which follows subparagraph (D) thereof 
shall not apply to combined heat and 
power system property. 
‘‘(3) SYSTEMS USING BAGASSE.—If a system is 
designed to use bagasse for at least 90 percent of 
the energy source— 
‘‘(A) paragraph (1)(D) shall not apply, but 
‘‘(B) the amount of credit determined 
under subsection (a) with respect to such sys-
tem shall not exceed the amount which bears 
the same ratio to such amount of credit (deter-
mined without regard to this paragraph) as the 
energy efficiency percentage of such system 
bears to 60 percent.’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this subsection shall apply to periods after December 31, 
2003, in taxable years ending after such date, under rules
813 
similar to the rules of section 48(m) of the Internal Rev-
enue Code of 1986 (as in effect on the day before the date 
of the enactment of the Revenue Reconciliation Act of 
1990). 
SEC. 1307. CREDIT FOR ENERGY EFFICIENT APPLIANCES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business-related cred-
its), as amended by this Act, is amended by adding at 
the end the following new section: 
‘‘SEC. 45H. ENERGY EFFICIENT APPLIANCE CREDIT. 
‘‘(a) ALLOWANCE OF CREDIT.—For purposes of sec-
tion 38, the energy efficient appliance credit determined 
under this section for the taxable year is an amount equal 
to the sum of— 
‘‘(1) the tier I appliance amount, and 
‘‘(2) the tier II appliance amount, 
with respect to qualified energy efficient appliances pro-
duced by the taxpayer during the calendar year ending 
with or within the taxable year. 
‘‘(b) APPLIANCE AMOUNTS.—For purposes of sub-
section (a)— 
‘‘(1) TIER I APPLIANCE AMOUNT.—The tier I 
appliance amount is equal to— 
‘‘(A) $100, multiplied by
814 
‘‘(B) an amount (rounded to the nearest 
whole number) equal to the applicable percent-
age of the eligible production. 
‘‘(2) TIER II APPLIANCE AMOUNT.—The tier II 
appliance amount is equal to $150, multiplied by an 
amount equal to the eligible production reduced by 
the amount determined under paragraph (1)(B). 
‘‘(3) APPLICABLE PERCENTAGE.—The applica-
ble percentage is the percentage determined by di-
viding the tier I appliances produced by the taxpayer 
during the calendar year by the sum of the tier I 
and tier II appliances so produced. 
‘‘(4) ELIGIBLE PRODUCTION.—The eligible pro-
duction of qualified energy efficient appliances by 
the taxpayer for any calendar year is the excess of— 
‘‘(A) the number of such appliances which 
are produced by the taxpayer during such cal-
endar year, over 
‘‘(B) 110 percent of the average annual 
number of such appliances which were produced 
by the taxpayer (or any predecessor) during the 
preceding 3-calendar year period. 
‘‘(c) QUALIFIED ENERGY EFFICIENT APPLIANCE.— 
For purposes of this section—
815 
‘‘(1) IN GENERAL.—The term ‘qualified energy 
efficient appliance’ means any tier I appliance or tier 
II appliance which is produced in the United States. 
‘‘(2) TIER I APPLIANCE.—The term ‘tier I ap-
pliance’ means— 
‘‘(A) a clothes washer which is produced 
with at least a 1.50 MEF, and 
‘‘(B) a refrigerator which consumes at 
least 15 percent (20 percent in the case of a re-
frigerator produced after 2006) less kilowatt 
hours per year than the energy conservation 
standards for refrigerators promulgated by the 
Department of Energy and effective on July 1, 
2001. 
‘‘(3) TIER II APPLIANCE.—The term ‘tier II ap-
pliance’ means a refrigerator produced before 2007 
which consumes at least 20 percent less kilowatt 
hours per year than the energy conservation stand-
ards described in paragraph (2)(B). 
‘‘(4) CLOTHES
WASHER.—The term ‘clothes 
washer’ means a residential clothes washer, includ-
ing a residential style coin operated washer. 
‘‘(5) REFRIGERATOR.—The term ‘refrigerator’ 
means an automatic defrost refrigerator-freezer
816 
which has an internal volume of at least 16.5 cubic 
feet. 
‘‘(6) MEF.—The term ‘MEF’ means Modified 
Energy Factor (as determined by the Secretary of 
Energy). 
‘‘(7) PRODUCED.—The term ‘produced’ in-
cludes manufactured. 
‘‘(d) LIMITATION ON MAXIMUM CREDIT.— 
‘‘(1) IN GENERAL.—The amount of credit al-
lowed under subsection (a) with respect to a tax-
payer for any taxable year shall not exceed 
$60,000,000, reduced by the amount of the credit 
allowed under subsection (a) to the taxpayer (or any 
predecessor) for any prior taxable year. 
‘‘(2) 
LIMITATION
BASED
ON
GROSS
RE-
CEIPTS.—The credit allowed under subsection (a) 
with respect to a taxpayer for the taxable year shall 
not exceed an amount equal to 2 percent of the aver-
age annual gross receipts of the taxpayer for the 3 
taxable years preceding the taxable year for which 
the credit is determined. 
‘‘(3) GROSS RECEIPTS.—For purposes of this 
subsection, the rules of paragraphs (2) and (3) of 
section 448(c) shall apply.
817 
‘‘(e) SPECIAL RULES.—For purposes of this sec-
tion— 
‘‘(1) IN GENERAL.—Rules similar to the rules 
of subsections (c), (d), and (e) of section 52 shall 
apply. 
‘‘(2) CONTROLLED GROUPS.— 
‘‘(A) IN GENERAL.—All persons treated as 
a single employer under subsection (a) or (b) of 
section 52 or subsection (m) or (o) of section 
414 shall be treated as a single manufacturer. 
‘‘(B) INCLUSION
OF
FOREIGN
CORPORA-
TIONS.—For purposes of subparagraph (A), in 
applying subsections (a) and (b) of section 52 
to this section, section 1563 shall be applied 
without regard to subsection (b)(2)(C) thereof. 
‘‘(f) VERIFICATION.—The taxpayer shall submit such 
information or certification as the Secretary, after con-
sultation with the Secretary of Energy, determines nec-
essary to claim the credit amount under subsection (a). 
‘‘(g) TERMINATION.—This section shall not apply 
with respect to appliances produced after December 31, 
2007.’’. 
(b) CREDIT MADE PART OF GENERAL BUSINESS 
CREDIT.—Section 38(b) (relating to current year business 
credit), as amended by this Act, is amended by striking
818 
‘‘plus’’ at the end of paragraph (15), by striking the period 
at the end of paragraph (16) and inserting ‘‘, plus’’, and 
by adding at the end the following new paragraph: 
‘‘(17) the energy efficient appliance credit de-
termined under section 45H(a).’’. 
(c) 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. 45H. Energy efficient appliance credit.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to appliances produced after De-
cember 31, 2003, in taxable years ending after such date. 
SEC. 1308. ENERGY EFFICIENT COMMERCIAL BUILDINGS 
DEDUCTION. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 (relating to itemized deductions for individuals and 
corporations) is amended by inserting after section 179A 
the following new section: 
‘‘SEC. 179B. ENERGY EFFICIENT COMMERCIAL BUILDINGS 
DEDUCTION. 
‘‘(a) IN GENERAL.—There shall be allowed as a de-
duction an amount equal to the cost of energy efficient 
commercial building property placed in service during the 
taxable year.
819 
‘‘(b) MAXIMUM AMOUNT OF DEDUCTION.—The de-
duction under subsection (a) with respect to any building 
for the taxable year and all prior taxable years shall not 
exceed an amount equal to the product of— 
‘‘(1) $1.50, and 
‘‘(2) the square footage of the building. 
‘‘(c) DEFINITIONS.—For purposes of this section— 
‘‘(1) ENERGY EFFICIENT COMMERCIAL BUILD-
ING PROPERTY.—The term ‘energy efficient commer-
cial building property’ means property— 
‘‘(A) which is installed on or in a build-
ing— 
‘‘(i) which is located in the United 
States, and 
‘‘(ii) which is the type of structure to 
which the Standard 90.1–2001 is applica-
ble, 
‘‘(B) which is installed as part of— 
‘‘(i) the lighting systems, 
‘‘(ii) the heating, cooling, ventilation, 
and hot water systems, or 
‘‘(iii) the building envelope, and 
‘‘(C) which is certified in accordance with 
subsection (d)(4) as being installed as part of 
a plan designed to reduce the total annual en-
820 
ergy and power costs with respect to the light-
ing systems, heating, cooling, ventilation, and 
hot water systems of the building by 50 percent 
or more in comparison to a reference building 
which meets the minimum requirements of 
Standard 90.1–2001 using methods of calcula-
tion under subsection (d)(2). 
‘‘(2) STANDARD 90.1–2001.—The term ‘Stand-
ard 90.1–2001’ means Standard 90.1–2001 of the 
American Society of Heating, Refrigerating, and Air 
Conditioning Engineers and the Illuminating Engi-
neering Society of North America (as in effect on 
April 2, 2003). 
‘‘(d) SPECIAL RULES.— 
‘‘(1) PARTIAL ALLOWANCE.— 
‘‘(A) IN GENERAL.—Except as provided in 
subsection (f), in the case of a building placed 
in service on or before the date of the enact-
ment of this section, if— 
‘‘(i) the requirement of subsection 
(c)(1)(C) is not met, but 
‘‘(ii) there is a certification in accord-
ance with subsection (d)(4) that any sys-
tem referred to in subsection (c)(1)(B) sat-
isfies the energy-savings targets estab-
821 
lished by the Secretary under subpara-
graph (B) with respect to such system, 
then the requirement of subsection (c)(1)(C) 
shall be treated as met with respect to such sys-
tem, and the deduction under subsection (a) 
shall be allowed with respect to energy efficient 
commercial building property installed as part 
of such system and as part of a plan to meet 
such targets, except that subsection (b) shall be 
applied to such property by substituting ‘$.50’ 
for ‘$1.50’. 
‘‘(B) REGULATIONS.—The Secretary, after 
consultation with the Secretary of Energy, shall 
establish a target for each system described in 
subsection (c)(1)(B) which, if such targets were 
met for all such systems, the building would 
meet the requirements of subsection (c)(1)(C). 
‘‘(2) METHODS
OF
CALCULATION.—The Sec-
retary, after consultation with the Secretary of En-
ergy, shall promulgate regulations which describe in 
detail methods for calculating and verifying energy 
and power cost for purposes of this section. 
‘‘(3) NOTICE
TO
OWNER.—Each certification 
required under this section shall include an expla-
nation to the building owner regarding the energy
822 
efficiency features of the building and its projected 
annual energy costs. 
‘‘(4) CERTIFICATION.— 
‘‘(A) IN
GENERAL.—The Secretary shall 
prescribe the manner and method for the mak-
ing of certifications under this section. 
‘‘(B) PROCEDURES.—The Secretary shall 
include as part of the certification process pro-
cedures for inspection and testing by qualified 
individuals described in subparagraph (C) to 
ensure compliance of buildings with energy-sav-
ings plans and targets. Such procedures shall 
be— 
‘‘(i) comparable, given the difference 
between commercial and residential build-
ings, to the requirements in the Mortgage 
Industry National Accreditation Proce-
dures for Home Energy Rating Systems, 
and 
‘‘(ii) fuel neutral such that the same 
energy efficiency measures allow a building 
to be eligible for the deduction under this 
section regardless of whether such building 
uses a gas or oil furnace or boiler, an elec-
tric heat pump, or other fuel source.
823 
‘‘(C) QUALIFIED
INDIVIDUALS.—Individ-
uals qualified to determine compliance shall be 
only those individuals who are recognized by an 
organization certified by the Secretary for such 
purposes. 
‘‘(e) BASIS REDUCTION.—For purposes of this sub-
title, if a deduction is allowed under this section with re-
spect to any energy efficient commercial building property, 
the basis of such property shall be reduced by the amount 
of the deduction so allowed. 
‘‘(f) INTERIM RULES
FOR LIGHTING SYSTEMS.— 
Until such time as the Secretary issues final regulations 
under subsection (d)(1)(B) with respect to property which 
is part of a lighting system— 
‘‘(1) IN GENERAL.—The lighting system target 
under subsection (d)(1)(A)(ii) shall be a reduction in 
lighting power density of 25 percent (50 percent in 
the case of a warehouse) of the minimum require-
ments in Table 9.3.1.1 or Table 9.3.1.2 (not includ-
ing additional interior lighting power allowances) of 
Standard 90.1–2001. 
‘‘(2) REDUCTION IN DEDUCTION IF REDUCTION 
LESS THAN 40 PERCENT.— 
‘‘(A) IN GENERAL.—If, with respect to the 
lighting system of any building other than a
824 
warehouse, the reduction in lighting power den-
sity of the lighting system is not at least 40 
percent, only the applicable percentage of the 
amount of deduction otherwise allowable under 
this section with respect to such property shall 
be allowed. 
‘‘(B) 
APPLICABLE
PERCENTAGE.—For 
purposes of subparagraph (A), the applicable 
percentage is the number of percentage points 
(not greater than 100) equal to the sum of— 
‘‘(i) 50, and 
‘‘(ii) the amount which bears the same 
ratio to 50 as the excess of the reduction 
of lighting power density of the lighting 
system over 25 percentage points bears to 
15. 
‘‘(C) EXCEPTIONS.—This subsection shall 
not apply to any system— 
‘‘(i) the controls and circuiting of 
which do not comply fully with the manda-
tory and prescriptive requirements of 
Standard 90.1–2001 and which do not in-
clude provision for bilevel switching in all 
occupancies except hotel and motel guest
825 
rooms, store rooms, restrooms, and public 
lobbies, or 
‘‘(ii) which does not meet the min-
imum requirements for calculated lighting 
levels as set forth in the Illuminating Engi-
neering Society of North America Lighting 
Handbook, Performance and Application, 
Ninth Edition, 2000. 
‘‘(g) REGULATIONS.—The Secretary shall promul-
gate such regulations as necessary— 
‘‘(1) to take into account new technologies re-
garding energy efficiency and renewable energy for 
purposes of determining energy efficiency and sav-
ings under this section, and 
‘‘(2) to provide for a recapture of the deduction 
allowed under this section if the plan described in 
subsection (c)(1)(C) or (d)(1)(A) is not fully imple-
mented. 
‘‘(h) TERMINATION.—This section shall not apply 
with respect to property placed in service after December 
31, 2007.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 1016(a), as amended by this sec-
tion, is amended by striking ‘‘and’’ at the end of 
paragraph (30), by striking the period at the end of
826 
paragraph (31) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph: 
‘‘(32) to the extent provided in section 
179B(e).’’. 
(2) Section 1245(a) is amended by inserting 
‘‘179B,’’ after ‘‘179A,’’ both places it appears in 
paragraphs (2)(C) and (3)(C). 
(3) Section 1250(b)(3) is amended by inserting 
before the period at the end of the first sentence ‘‘or 
by section 179B’’. 
(4) Section 263(a)(1) is amended by striking 
‘‘or’’ at the end of subparagraph (G), by striking the 
period at the end of subparagraph (H) and inserting 
‘‘, or’’, and by inserting after subparagraph (H) the 
following new subparagraph: 
‘‘(I) expenditures for which a deduction is 
allowed under section 179B.’’. 
(5) Section 312(k)(3)(B) is amended by strik-
ing ‘‘or 179A’’ each place it appears in the heading 
and text and inserting ‘‘, 179A, or 179B’’. 
(c) CLERICAL AMENDMENT.—The table of sections 
for part VI of subchapter B of chapter 1 is amended by 
inserting after section 179A the following new item: 
‘‘Sec. 179B. Energy efficient commercial buildings deduction.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after
827 
the date of the enactment of this Act in taxable years end-
ing after such date. 
SEC. 1309. THREE-YEAR APPLICABLE RECOVERY PERIOD 
FOR DEPRECIATION OF QUALIFIED ENERGY 
MANAGEMENT DEVICES. 
(a) IN GENERAL.—Section 168(e)(3)(A) (defining 3- 
year property) 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) any qualified energy manage-
ment device.’’. 
(b) DEFINITION OF QUALIFIED ENERGY MANAGE-
MENT DEVICE.—Section 168(i) (relating to definitions 
and special rules) is amended by inserting at the end the 
following new paragraph: 
‘‘(15) QUALIFIED
ENERGY
MANAGEMENT
DE-
VICE.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
energy management device’ means any energy 
management device which is placed in service 
before January 1, 2008, by a taxpayer who is 
a supplier of electric energy or a provider of 
electric energy services.
828 
‘‘(B) ENERGY
MANAGEMENT
DEVICE.— 
For purposes of subparagraph (A), the term 
‘energy management device’ means any meter 
or metering device which is used by the tax-
payer— 
‘‘(i) to measure and record electricity 
usage data on a time-differentiated basis 
in at least 4 separate time segments per 
day, and 
‘‘(ii) to provide such data on at least 
a monthly basis to both consumers and the 
taxpayer.’’. 
(c) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) is amended by inserting after the 
item relating to subparagraph (A)(iii) the following: 
‘‘(A) (iv) ....................................................................................................
20’’. 
(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. 
SEC. 1310. CREDIT FOR PRODUCTION FROM ADVANCED NU-
CLEAR POWER FACILITIES. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its), as amended by this Act, is amended by adding after 
section 45K the following new section:
829 
‘‘SEC. 45L. CREDIT FOR PRODUCTION FROM ADVANCED NU-
CLEAR POWER FACILITIES. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
the advanced nuclear power facility production credit of 
any taxpayer for any taxable year is equal to the product 
of— 
‘‘(1) 1.8 cents, multiplied by 
‘‘(2) the kilowatt hours of electricity— 
‘‘(A) produced by the taxpayer at an ad-
vanced nuclear power facility during the 8-year 
period beginning on the date the facility was 
originally placed in service, and 
‘‘(B) sold by the taxpayer to an unrelated 
person during the taxable year. 
‘‘(b) NATIONAL LIMITATION.— 
‘‘(1) IN
GENERAL.—The amount of credit 
which would (but for this subsection and subsection 
(c)) be allowed with respect to any facility for any 
taxable year shall not exceed the amount which 
bears the same ratio to such amount of credit as— 
‘‘(A) the national megawatt capacity limi-
tation allocated to the facility, bears to 
‘‘(B) the total megawatt nameplate capac-
ity of such facility.
830 
‘‘(2) AMOUNT OF NATIONAL LIMITATION.—The 
national megawatt capacity limitation shall be 6,000 
megawatts. 
‘‘(3) ALLOCATION OF LIMITATION.—The Sec-
retary shall allocate the national megawatt capacity 
limitation in such manner as the Secretary may pre-
scribe. 
‘‘(4) REGULATIONS.—Not later than 6 months 
after the date of the enactment of this section, the 
Secretary shall prescribe such regulations as may be 
necessary or appropriate to carry out the purposes 
of this subsection. Such regulations shall provide a 
certification process under which the Secretary, after 
consultation with the Secretary of Energy, shall ap-
prove and allocate the national megawatt capacity 
limitation. 
‘‘(c) OTHER LIMITATIONS.— 
‘‘(1) ANNUAL LIMITATION.—The amount of the 
credit allowable under subsection (a) (after the ap-
plication of subsection (b)) for any taxable year with 
respect to any facility shall not exceed an amount 
which bears the same ratio to $125,000,000 as— 
‘‘(A) the national megawatt capacity limi-
tation allocated under subsection (b) to the fa-
cility, bears to
831 
‘‘(B) 1,000. 
‘‘(2) OTHER
LIMITATIONS.—Rules similar to 
the rules of section 45(b) shall apply for purposes of 
this section, except that paragraph (2) thereof shall 
not apply to the 1.8 cents under subsection (a)(1). 
‘‘(d) ADVANCED NUCLEAR POWER FACILITY.—For 
purposes of this section— 
‘‘(1) IN
GENERAL.—The term ‘advanced nu-
clear power facility’ means any advanced nuclear fa-
cility— 
‘‘(A) which is owned by the taxpayer and 
which uses nuclear energy to produce elec-
tricity, and 
‘‘(B) which is placed in service after the 
date of the enactment of this paragraph and be-
fore January 1, 2021. 
‘‘(2) ADVANCED NUCLEAR FACILITY.—For pur-
poses of paragraph (1), the term ‘advanced nuclear 
facility’ means any nuclear facility the reactor design 
for which is approved after the date of the enact-
ment of this paragraph by the Nuclear Regulatory 
Commission (and such design or a substantially 
similar design of comparable capacity was not ap-
proved on or before such date).
832 
‘‘(e) OTHER RULES TO APPLY.—Rules similar to the 
rules of paragraphs (1), (2), (3), (4), and (5) of section 
45(e) shall apply for purposes of this section.’’. 
(b) CREDIT TREATED AS BUSINESS CREDIT.—Sec-
tion 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: 
‘‘(22) the advanced nuclear power facility pro-
duction credit determined under section 45L(a).’’. 
(c) 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: 
‘‘Sec. 45L. Credit for production from advanced nuclear power facilities.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to production in taxable years be-
ginning after December 31, 2003. 
PART II—FUELS AND ALTERNATIVE MOTOR 
VEHICLES 
SEC. 1311. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE 
TAXES ON RAILROADS AND INLAND WATER-
WAY TRANSPORTATION WHICH REMAIN IN 
GENERAL FUND. 
(a) TAXES ON TRAINS.—
833 
(1) IN GENERAL.—Subparagraph (A) of section 
4041(a)(1) is amended by striking ‘‘or a diesel-pow-
ered train’’ each place it appears and by striking ‘‘or 
train’’. 
(2) CONFORMING AMENDMENTS.— 
(A) 
Subparagraph 
(C) 
of 
section 
4041(a)(1) is amended by striking clause (ii) 
and by redesignating clause (iii) as clause (ii). 
(B) 
Subparagraph 
(C) 
of 
section 
4041(b)(1) is amended by striking all that fol-
lows ‘‘section 6421(e)(2)’’ and inserting a pe-
riod. 
(C) Subsection (d) of section 4041 is 
amended by redesignating paragraph (3) as 
paragraph (4) and by inserting after paragraph 
(2) the following new paragraph: 
‘‘(3) DIESEL FUEL USED IN TRAINS.—There is 
hereby imposed a tax of 0.1 cent per gallon on any 
liquid other than gasoline (as defined in section 
4083)— 
‘‘(A) sold by any person to an owner, les-
see, or other operator of a diesel-powered train 
for use as a fuel in such train, or
834 
‘‘(B) used by any person as a fuel in a die-
sel-powered train unless there was a taxable 
sale of such fuel under subparagraph (A). 
No tax shall be imposed by this paragraph on the 
sale or use of any liquid if tax was imposed on such 
liquid under section 4081.’’. 
(D) Subsection (f) of section 4082 is 
amended by striking ‘‘section 4041(a)(1)’’ and 
inserting ‘‘subsections (d)(3) and (a)(1) of sec-
tion 4041, respectively’’. 
(E) Paragraph (3) of section 4083(a) is 
amended by striking ‘‘or a diesel-powered 
train’’. 
(F) Paragraph (3) of section 6421(f) is 
amended to read as follows: 
‘‘(3) GASOLINE USED IN TRAINS.—In the case 
of gasoline used as a fuel in a train, this section 
shall not apply with respect to the Leaking Under-
ground Storage Tank Trust Fund financing rate 
under section 4081.’’. 
(G) Paragraph (3) of section 6427(l) is 
amended to read as follows: 
‘‘(3) REFUND
OF
CERTAIN
TAXES
ON
FUEL 
USED IN DIESEL-POWERED TRAINS.—For purposes 
of this subsection, the term ‘nontaxable use’ includes
835 
fuel used in a diesel-powered train. The preceding 
sentence shall not apply to the tax imposed by sec-
tion 4041(d) and the Leaking Underground Storage 
Tank Trust Fund financing rate under section 4081 
except with respect to fuel sold for exclusive use by 
a State or any political subdivision thereof.’’. 
(b) FUEL USED ON INLAND WATERWAYS.— 
(1) IN
GENERAL.—Paragraph (1) of section 
4042(b) is amended by adding ‘‘and’’ at the end of 
subparagraph (A), by striking ‘‘, and’’ at the end of 
subparagraph (B) and inserting a period, and by 
striking subparagraph (C). 
(2) CONFORMING AMENDMENT.—Paragraph (2) 
of section 4042(b) is amended by striking subpara-
graph (C). 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on January 1, 2004. 
SEC. 1312. REDUCED MOTOR FUEL EXCISE TAX ON CER-
TAIN MIXTURES OF DIESEL FUEL. 
(a) IN GENERAL.—Paragraph (2) of section 4081(a) 
is amended by adding at the end the following: 
‘‘(C) DIESEL-WATER FUEL EMULSION.—In 
the case of diesel-water fuel emulsion at least 
14 percent of which is water and with respect 
to which the emulsion additive is registered by
836 
a United States manufacturer with the Envi-
ronmental Protection Agency pursuant to sec-
tion 211 of the Clean Air Act (as in effect on 
March 31, 2003), subparagraph (A)(iii) shall be 
applied by substituting ‘19.7 cents’ for ‘24.3 
cents’.’’. 
(b) SPECIAL RULES
FOR DIESEL-WATER FUEL 
EMULSIONS.— 
(1) REFUNDS FOR TAX-PAID PURCHASES.—Sec-
tion 6427 is amended by redesignating subsections 
(m) through (p) as subsections (n) through (q), re-
spectively, and by inserting after subsection (l) the 
following new subsection: 
‘‘(m) DIESEL FUEL USED
TO PRODUCE EMUL-
SION.— 
‘‘(1) IN GENERAL.—Except as provided in sub-
section (k), if any diesel fuel on which tax was im-
posed by section 4081 at the regular tax rate is used 
by any person in producing an emulsion described in 
section 4081(a)(2)(C) which is sold or used in such 
person’s trade or business, the Secretary shall pay 
(without interest) to such person an amount equal to 
the excess of the regular tax rate over the incentive 
tax rate with respect to such fuel.
837 
‘‘(2) DEFINITIONS.—For purposes of paragraph 
(1)— 
‘‘(A) REGULAR TAX RATE.—The term ‘reg-
ular tax rate’ means the aggregate rate of tax 
imposed by section 4081 determined without re-
gard to section 4081(a)(2)(C). 
‘‘(B) INCENTIVE
TAX
RATE.—The term 
‘incentive tax rate’ means the aggregate rate of 
tax imposed by section 4081 determined with 
regard to section 4081(a)(2)(C).’’. 
(2) LATER SEPARATION OF FUEL.— 
(A) IN GENERAL.—Section 4081 (relating 
to imposition of tax) is amended by redesig-
nating subsections (d) and (e) as subsections 
(e) and (f), respectively, and by inserting after 
subsection (c) the following new subsection: 
‘‘(d) LATER SEPARATION OF FUEL FROM DIESEL- 
WATER FUEL EMULSION.—If any person separates the 
taxable fuel from a diesel-water fuel emulsion on which 
tax was imposed under subsection (a) at a rate determined 
under subsection (a)(2)(C) (or with respect to which a 
credit or payment was allowed or made by reason of sec-
tion 6427), such person shall be treated as the refiner of 
such taxable fuel. The amount of tax imposed on any re-
moval of such fuel by such person shall be reduced by the
838 
amount of tax imposed (and not credited or refunded) on 
any prior removal or entry of such fuel.’’. 
(B) 
CONFORMING
AMENDMENT.—Sub-
section (d) of section 6416 is amended by strik-
ing ‘‘section 4081(e)’’ and inserting ‘‘section 
4081(f)’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall take effect on January 1, 2004. 
SEC. 1313. SMALL ETHANOL PRODUCER CREDIT. 
(a) ALLOCATION OF ALCOHOL FUELS CREDIT TO 
PATRONS OF A COOPERATIVE.—Section 40(g) (relating to 
definitions and special rules for eligible small ethanol pro-
ducer credit) is amended by adding at the end the fol-
lowing new paragraph: 
‘‘(6) ALLOCATION
OF
SMALL
ETHANOL
PRO-
DUCER CREDIT TO PATRONS OF COOPERATIVE.— 
‘‘(A) ELECTION TO ALLOCATE.— 
‘‘(i) IN GENERAL.—In the case of a 
cooperative organization described in sec-
tion 1381(a), any portion of the credit de-
termined under subsection (a)(3) for the 
taxable year may, at the election of the or-
ganization, be apportioned pro rata among 
patrons of the organization on the basis of
839 
the quantity or value of business done with 
or for such patrons for the taxable year. 
‘‘(ii) FORM
AND
EFFECT
OF
ELEC-
TION.—An election under clause (i) for any 
taxable year shall be made on a timely 
filed return for such year. Such election, 
once made, shall be irrevocable for such 
taxable year. 
‘‘(B) TREATMENT OF ORGANIZATIONS AND 
PATRONS.—The amount of the credit appor-
tioned to patrons under subparagraph (A)— 
‘‘(i) shall not be included in the 
amount determined under subsection (a) 
with respect to the organization for the 
taxable year, and 
‘‘(ii) shall be included in the amount 
determined under subsection (a) for the 
taxable year of each patron for which the 
patronage dividends for the taxable year 
described in subparagraph (A) are included 
in gross income. 
‘‘(C) SPECIAL RULE.—If the amount of a 
credit which has been apportioned to any pa-
tron under this paragraph is decreased for any 
reason—
840 
‘‘(i) such amount shall not increase 
the tax imposed on such patron, and 
‘‘(ii) the tax imposed by this chapter 
on such organization shall be increased by 
such amount. 
The increase under clause (ii) shall not be 
treated as tax imposed by this chapter for pur-
poses of determining the amount of any credit 
under this chapter or for purposes of section 
55.’’. 
(b) DEFINITION OF SMALL ETHANOL PRODUCER.— 
Section 40(g) (relating to definitions and special rules for 
eligible small ethanol producer credit) is amended by strik-
ing ‘‘30,000,000’’ each place it appears and inserting 
‘‘60,000,000’’. 
(c) CONFORMING AMENDMENT.—Section 1388 (re-
lating to definitions and special rules for cooperative orga-
nizations) is amended by adding at the end the following 
new subsection: 
‘‘(k) CROSS REFERENCE.—For provisions relating to 
the apportionment of the alcohol fuels credit between coop-
erative organizations and their patrons, see section 
40(g)(6).’’.
841 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003. 
SEC. 1314. INCENTIVES FOR BIODIESEL. 
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) is amended by inserting after section 40 the following 
new section: 
‘‘SEC. 40A. BIODIESEL USED AS FUEL. 
‘‘(a) GENERAL RULE.—For purposes of section 38, 
the biodiesel fuels credit determined under this section for 
the taxable year is an amount equal to the sum of— 
‘‘(1) the biodiesel mixture credit, plus 
‘‘(2) the biodiesel credit. 
‘‘(b) DEFINITION OF BIODIESEL MIXTURE CREDIT 
AND BIODIESEL CREDIT.—For purposes of this section— 
‘‘(1) BIODIESEL MIXTURE CREDIT.— 
‘‘(A) IN GENERAL.—The biodiesel mixture 
credit of any taxpayer for any taxable year is 
50 cents for each gallon of biodiesel used by the 
taxpayer in the production of a qualified bio-
diesel mixture. 
‘‘(B) QUALIFIED
BIODIESEL
MIXTURE.— 
The term ‘qualified biodiesel mixture’ means a
842 
mixture of biodiesel and a taxable fuel (within 
the meaning of section 4083(a)(1)) which— 
‘‘(i) is sold by the taxpayer producing 
such mixture to any person for use as a 
fuel, or 
‘‘(ii) is used as a fuel by the taxpayer 
producing such mixture. 
‘‘(C) SALE OR USE MUST BE IN TRADE OR 
BUSINESS, ETC.—Biodiesel used in the produc-
tion of a qualified biodiesel mixture shall be 
taken into account— 
‘‘(i) only if the sale or use described 
in subparagraph (B) is in a trade or busi-
ness of the taxpayer, and 
‘‘(ii) for the taxable year in which 
such sale or use occurs. 
‘‘(D) CASUAL OFF-FARM PRODUCTION NOT 
ELIGIBLE.—No credit shall be allowed under 
this section with respect to any casual off-farm 
production of a qualified biodiesel mixture. 
‘‘(2) BIODIESEL CREDIT.— 
‘‘(A) IN GENERAL.—The biodiesel credit of 
any taxpayer for any taxable year is 50 cents 
for each gallon of biodiesel which is not in a 
mixture and which during the taxable year—
843 
‘‘(i) is used by the taxpayer as a fuel 
in a trade or business, or 
‘‘(ii) is sold by the taxpayer at retail 
to a person and placed in the fuel tank of 
such person’s vehicle. 
‘‘(B) USER CREDIT NOT TO APPLY TO BIO-
DIESEL SOLD AT RETAIL.—No credit shall be 
allowed under subparagraph (A)(i) with respect 
to any biodiesel which was sold in a retail sale 
described in subparagraph (A)(ii). 
‘‘(3) CREDIT
FOR
AGRI-BIODIESEL.—In the 
case of any biodiesel which is agri-biodiesel, para-
graphs (1)(A) and (2)(A) shall be applied by sub-
stituting ‘$1.00’ for ‘50 cents’. 
‘‘(4) 
CERTIFICATION
FOR
BIODIESEL.—No 
credit shall be allowed under this section unless the 
taxpayer obtains a certification (in such form and 
manner as prescribed by the Secretary) from the 
producer of the biodiesel which identifies the product 
produced and the percentage of biodiesel and agri- 
biodiesel in the product. 
‘‘(c) COORDINATION WITH CREDIT AGAINST EXCISE 
TAX.—The amount of the credit determined under this 
section with respect to any biodiesel shall be properly re-
duced to take into account any benefit provided with re-
844 
spect to such biodiesel solely by reason of the application 
of section 6426. 
‘‘(d) DEFINITIONS AND SPECIAL RULES.—For pur-
poses of this section— 
‘‘(1) BIODIESEL.—The term ‘biodiesel’ means 
the monoalkyl esters of long chain fatty acids de-
rived from plant or animal matter which meet— 
‘‘(A) the registration requirements for 
fuels and fuel additives established by the Envi-
ronmental Protection Agency under section 211 
of the Clean Air Act (42 U.S.C. 7545), and 
‘‘(B) the requirements of the American So-
ciety of Testing and Materials D6751. 
‘‘(2) AGRI-BIODIESEL.—The term ‘agri-bio-
diesel’ means biodiesel derived solely from virgin oils, 
including esters derived from virgin vegetable oils 
from corn, soybeans, sunflower seeds, cottonseeds, 
canola, crambe, rapeseeds, safflowers, flaxseeds, rice 
bran, and mustard seeds, and from animal fats. 
‘‘(3) MIXTURE OR BIODIESEL NOT USED AS A 
FUEL, ETC.— 
‘‘(A) MIXTURES.—If— 
‘‘(i) any credit was determined under 
this section with respect to biodiesel used
845 
in the production of any qualified biodiesel 
mixture, and 
‘‘(ii) any person— 
‘‘(I) separates the biodiesel from 
the mixture, or 
‘‘(II) without separation, uses the 
mixture other than as a fuel, 
then there is hereby imposed on such person a 
tax equal to the product of the rate applicable 
under subsection (b)(1)(A) and the number of 
gallons of such biodiesel in such mixture. 
‘‘(B) BIODIESEL.—If— 
‘‘(i) any credit was determined under 
this section with respect to the retail sale 
of any biodiesel, and 
‘‘(ii) any person mixes such biodiesel 
or uses such biodiesel other than as a fuel, 
then there is hereby imposed on such person a 
tax equal to the product of the rate applicable 
under subsection (b)(2)(A) and the number of 
gallons of such biodiesel. 
‘‘(C) APPLICABLE LAWS.—All provisions of 
law, including penalties, shall, insofar as appli-
cable and not inconsistent with this section, 
apply in respect of any tax imposed under sub-
846 
paragraph (A) or (B) as if such tax were im-
posed by section 4081 and not by this chapter. 
‘‘(4) PASS-THRU IN THE CASE OF ESTATES AND 
TRUSTS.—Under regulations prescribed by the Sec-
retary, rules similar to the rules of subsection (d) of 
section 52 shall apply. 
‘‘(e) TERMINATION.—This section shall not apply to 
any sale or use after December 31, 2005.’’. 
(b) CREDIT TREATED AS PART OF GENERAL BUSI-
NESS CREDIT.—Section 38(b) (relating to current year 
business credit) is amended by striking ‘‘plus’’ at the end 
of paragraph (16), by striking the period at the end of 
paragraph (17) and inserting ‘‘, plus’’, and by adding at 
the end the following new paragraph: 
‘‘(18) the biodiesel fuels credit determined 
under section 40A(a).’’. 
(c) CONFORMING AMENDMENTS.— 
(1)(A) Section 87 is amended to read as fol-
lows: 
‘‘SEC. 87. ALCOHOL AND BIODIESEL FUELS CREDITS. 
‘‘Gross income includes— 
‘‘(1) the amount of the alcohol fuels credit de-
termined with respect to the taxpayer for the taxable 
year under section 40(a), and
847 
‘‘(2) the biodiesel fuels credit determined with 
respect to the taxpayer for the taxable year under 
section 40A(a).’’. 
(B) The item relating to section 87 in the table 
of sections for part II of subchapter B of chapter 1 
is amended by striking ‘‘fuel credit’’ and inserting 
‘‘and biodiesel fuels credits’’. 
(2) Section 196(c), as amended by this Act, is 
amended by striking ‘‘and’’ at the end of paragraph 
(11), by striking the period at the end of paragraph 
(12) and inserting ‘‘, and’’, and by adding at the 
end the following new paragraph: 
‘‘(13) the biodiesel fuels credit determined 
under section 40A(a).’’. 
(3) The table of sections for subpart D of part 
IV of subchapter A of chapter 1 is amended by add-
ing after the item relating to section 40 the fol-
lowing new item: 
‘‘Sec. 40A. Biodiesel used as fuel.’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to fuel produced, and sold or used, 
after December 31, 2003, in taxable years ending after 
such date.
848 
SEC. 1315. ALCOHOL FUEL AND BIODIESEL MIXTURES EX-
CISE TAX CREDIT. 
(a) IN GENERAL.—Subchapter B of chapter 65 (re-
lating to rules of special application) is amended by insert-
ing after section 6425 the following new section: 
‘‘SEC. 6426. CREDIT FOR ALCOHOL FUEL AND BIODIESEL 
MIXTURES. 
‘‘(a) ALLOWANCE OF CREDITS.—There shall be al-
lowed as a credit against the tax imposed by section 4081 
an amount equal to the sum of— 
‘‘(1) the alcohol fuel mixture credit, plus 
‘‘(2) the biodiesel mixture credit. 
‘‘(b) ALCOHOL FUEL MIXTURE CREDIT.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the alcohol fuel mixture credit is the product 
of the applicable amount and the number of gallons 
of alcohol used by the taxpayer in producing any al-
cohol fuel mixture for sale or use in a trade or busi-
ness of the taxpayer. 
‘‘(2) APPLICABLE AMOUNT.—For purposes of 
this subsection— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the applicable amount is 52 
cents (51 cents in the case of any sale or use 
after 2004).
849 
‘‘(B) MIXTURES
NOT
CONTAINING
ETH-
ANOL.—In the case of an alcohol fuel mixture 
in which none of the alcohol consists of ethanol, 
the applicable amount is 60 cents. 
‘‘(3) ALCOHOL FUEL MIXTURE.—For purposes 
of this subsection, the term ‘alcohol fuel mixture’ 
means a mixture of alcohol and a taxable fuel 
which— 
‘‘(A) is sold by the taxpayer producing 
such mixture to any person for use as a fuel, 
‘‘(B) is used as a fuel by the taxpayer pro-
ducing such mixture, or 
‘‘(C) is removed from the refinery by a 
person producing such mixture. 
‘‘(4) OTHER
DEFINITIONS.—For purposes of 
this subsection— 
‘‘(A) ALCOHOL.—The term ‘alcohol’ in-
cludes methanol and ethanol but does not in-
clude— 
‘‘(i) alcohol produced from petroleum, 
natural gas, or coal (including peat), or 
‘‘(ii) alcohol with a proof of less than 
190 (determined without regard to any 
added denaturants).
850 
Such term also includes an alcohol gallon equiv-
alent of ethyl tertiary butyl ether or other 
ethers produced from such alcohol. 
‘‘(B) TAXABLE FUEL.—The term ‘taxable 
fuel’ has the meaning given such term by sec-
tion 4083(a)(1). 
‘‘(5) TERMINATION.—This subsection shall not 
apply to any sale, use, or removal for any period 
after December 31, 2010. 
‘‘(c) BIODIESEL MIXTURE CREDIT.— 
‘‘(1) IN GENERAL.—For purposes of this sec-
tion, the biodiesel mixture credit is the product of 
the applicable amount and the number of gallons of 
biodiesel used by the taxpayer in producing any bio-
diesel mixture for sale or use in a trade or business 
of the taxpayer. 
‘‘(2) APPLICABLE AMOUNT.—For purposes of 
this subsection— 
‘‘(A) IN GENERAL.—Except as provided in 
subparagraph (B), the applicable amount is 50 
cents. 
‘‘(B) AMOUNT
FOR
AGRI-BIODIESEL.—In 
the case of any biodiesel which is agri-biodiesel, 
the applicable amount is $1.00.
851 
‘‘(3) BIODIESEL
MIXTURE.—For purposes of 
this section, the term ‘biodiesel mixture’ means a 
mixture of biodiesel and a taxable fuel which— 
‘‘(A) is sold by the taxpayer producing 
such mixture to any person for use as a fuel, 
‘‘(B) is used as a fuel by the taxpayer pro-
ducing such mixture, or 
‘‘(C) is removed from the refinery by a 
person producing such mixture. 
‘‘(4) 
CERTIFICATION
FOR
BIODIESEL.—No 
credit shall be allowed under this section unless the 
taxpayer obtains a certification (in such form and 
manner as prescribed by the Secretary) from the 
producer of the biodiesel which identifies the product 
produced and the percentage of biodiesel and agri- 
biodiesel in the product. 
‘‘(5) OTHER DEFINITIONS.—Any term used in 
this subsection which is also used in section 40A 
shall have the meaning given such term by section 
40A. 
‘‘(6) TERMINATION.—This subsection shall not 
apply to any sale, use, or removal for any period 
after December 31, 2005. 
‘‘(d) MIXTURE NOT USED AS A FUEL, ETC.— 
‘‘(1) IMPOSITION OF TAX.—If—
852 
‘‘(A) any credit was determined under this 
section with respect to alcohol or biodiesel used 
in the production of any alcohol fuel mixture or 
biodiesel mixture, respectively, and 
‘‘(B) any person— 
‘‘(i) separates the alcohol or biodiesel 
from the mixture, or 
‘‘(ii) without separation, uses the mix-
ture other than as a fuel, 
then there is hereby imposed on such person a 
tax equal to the product of the applicable 
amount and the number of gallons of such alco-
hol or biodiesel. 
‘‘(2) APPLICABLE LAWS.—All provisions of law, 
including penalties, shall, insofar as applicable and 
not inconsistent with this section, apply in respect of 
any tax imposed under paragraph (1) as if such tax 
were imposed by section 4081 and not by this sec-
tion. 
‘‘(e) COORDINATION WITH EXEMPTION FROM EX-
CISE TAX.—Rules similar to the rules under section 40(c) 
shall apply for purposes of this section.’’. 
(b) REGISTRATION REQUIREMENT.—Section 4101(a) 
(relating to registration) is amended by inserting ‘‘and 
every person producing biodiesel (as defined in section
853 
40A(d)(1)) 
or 
alcohol 
(as 
defined 
in 
section 
6426(b)(4)(A))’’ after ‘‘4091’’. 
(c) ADDITIONAL AMENDMENTS.— 
(1) Section 40(c) is amended by striking ‘‘or 
section 4091(c)’’ and inserting ‘‘section 4091(c), or 
section 6426’’. 
(2) Section 40(e)(1) is amended— 
(A) by striking ‘‘2007’’ in subparagraph 
(A) and inserting ‘‘2010’’, and 
(B) by striking ‘‘2008’’ in subparagraph 
(B) and inserting ‘‘2011’’. 
(3) Section 40(h) is amended— 
(A) by striking ‘‘2007’’ in paragraph (1) 
and inserting ‘‘2010’’, and 
(B) by striking ‘‘, 2006, or 2007’’ in the 
table contained in paragraph (2) and inserting 
‘‘through 2010’’. 
(4)(A) Subpart C of part III of subchapter A 
of chapter 32 is amended by adding at the end the 
following new section: 
‘‘SEC. 4104. INFORMATION REPORTING FOR PERSONS 
CLAIMING CERTAIN TAX BENEFITS. 
‘‘(a) IN GENERAL.—The Secretary shall require any 
person claiming tax benefits under the provisions of sec-
tion 34, 40, 40A, 4041(b)(2), 4041(k), 4081(c), 6426, or
854 
6427(f) to file a quarterly return (in such manner as the 
Secretary may prescribe) providing such information relat-
ing to such benefits and the coordination of such benefits 
as the Secretary may require to ensure the proper admin-
istration and use of such benefits. 
‘‘(b) ENFORCEMENT.—With respect to any person 
described in subsection (a) and subject to registration re-
quirements under this title, rules similar to rules of section 
4222(c) shall apply with respect to any requirement under 
this section.’’. 
(B) The table of sections for subpart C of part 
III of subchapter A of chapter 32 is amended by 
adding at the end the following new item: 
‘‘Sec. 4104. Information reporting for persons claiming certain tax benefits.’’. 
(5) Section 6427(i)(3) is amended— 
(A) by adding at the end of subparagraph 
(A) the following new flush sentence: 
‘‘In the case of an electronic claim, this sub-
paragraph shall be applied without regard to 
clause (i).’’, and 
(B) by striking ‘‘20 days of the date of the 
filing of such claim’’ in subparagraph (B) and 
inserting ‘‘45 days of the date of the filing of 
such claim (20 days in the case of an electronic 
claim)’’.
855 
(6) Section 9503(b)(1) is amended by adding at 
the end the following new flush sentence: 
‘‘For purposes of this paragraph, taxes received 
under sections 4041 and 4081 shall be determined 
without reduction for credits under section 6426.’’. 
(d) CLERICAL AMENDMENT.—The table of sections 
for subchapter B of chapter 65 is amended by inserting 
after the item relating to section 6425 the following new 
item: 
‘‘Sec. 6426. Credit for alcohol fuel and biodiesel mixtures.’’. 
(e) EFFECTIVE DATES.— 
(1) IN GENERAL.—Except as provided in para-
graphs (2) and (3), the amendments made by this 
section shall apply to fuel sold, used, or removed 
after December 31, 2003. 
(2) SUBSECTION
(c)(4).—The amendments 
made by subsection (c)(4) shall take effect on Janu-
ary 1, 2004. 
(3) SUBSECTION
(c)(5).—The amendments 
made by subsection (c)(5) shall apply to claims filed 
after December 31, 2004. 
(f) FORMAT
FOR FILING.—The Secretary of the 
Treasury shall prescribe the electronic format for filing 
claims described in section 6427(i)(3)(B) of the Internal 
Revenue Code of 1986 (as amended by subsection 
(c)(5)(A)) not later than December 31, 2004.
856 
SEC. 1316. NONAPPLICATION OF EXPORT EXEMPTION TO 
DELIVERY OF FUEL TO MOTOR VEHICLES RE-
MOVED FROM UNITED STATES. 
(a) IN GENERAL.—Section 4221(d)(2) (defining ex-
port) is amended by adding at the end the following new 
sentence: ‘‘Such term does not include the delivery of a 
taxable fuel (as defined in section 4083(a)(1)) into a fuel 
tank of a motor vehicle which is shipped or driven out 
of the United States.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 4041(g) (relating to other exemp-
tions) is amended by adding at the end the following 
new sentence: ‘‘Paragraph (3) shall not apply to the 
sale for delivery of a liquid into a fuel tank of a 
motor vehicle which is shipped or driven out of the 
United States.’’. 
(2) Clause (iv) of section 4081(a)(1)(A) (relat-
ing to tax on removal, entry, or sale) is amended by 
inserting ‘‘or at a duty-free sales enterprise (as de-
fined in section 555(b)(8) of the Tariff Act of 
1930)’’ after ‘‘section 4101’’. 
(c) EFFECTIVE DATE.—The amendments made by 
this section shall apply to sales or deliveries made after 
the date of the enactment of this Act.
857 
SEC. 1317. REPEAL OF PHASEOUTS FOR QUALIFIED ELEC-
TRIC VEHICLE CREDIT AND DEDUCTION FOR 
CLEAN FUEL-VEHICLES. 
(a) CREDIT FOR QUALIFIED ELECTRIC VEHICLES.— 
Subsection (b) of section 30 (relating to limitations) is 
amended by striking paragraph (2) and redesignating 
paragraph (3) as paragraph (2). 
(b) DEDUCTION FOR CLEAN-FUEL VEHICLES AND 
CERTAIN REFUELING PROPERTY.—Paragraph (1) of sec-
tion 179A(b) (relating to qualified clean-fuel vehicle prop-
erty) is amended to read as follows: 
‘‘(1) QUALIFIED CLEAN-FUEL VEHICLE PROP-
ERTY.—The cost which may be taken into account 
under subsection (a)(1)(A) with respect to any 
motor vehicle shall not exceed— 
‘‘(A) in the case of a motor vehicle not de-
scribed in subparagraph (B) or (C), $2,000, 
‘‘(B) in the case of any truck or van with 
a gross vehicle weight rating greater than 
10,000 pounds but not greater than 26,000 
pounds, $5,000, or 
‘‘(C) $50,000 in the case of— 
‘‘(i) a truck or van with a gross vehi-
cle weight rating greater than 26,000 
pounds, or
858 
‘‘(ii) any bus which has a seating ca-
pacity of at least 20 adults (not including 
the driver).’’. 
(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. 
SEC. 1318. ALTERNATIVE MOTOR VEHICLE CREDIT. 
(a) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 (relating to foreign tax credit, etc.) 
is amended by adding at the end the following: 
‘‘SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT. 
‘‘(a) ALLOWANCE OF CREDIT.—There shall be al-
lowed as a credit against the tax imposed by this chapter 
for the taxable year an amount equal to the sum of— 
‘‘(1) the new qualified fuel cell motor vehicle 
credit determined under subsection (b), 
‘‘(2) the new advanced lean burn technology 
motor vehicle credit determined under subsection (c), 
‘‘(3) the new qualified hybrid motor vehicle 
credit determined under subsection (d), and 
‘‘(4) the new qualified alternative fuel motor ve-
hicle credit determined under subsection (e). 
‘‘(b) NEW QUALIFIED FUEL CELL MOTOR VEHICLE 
CREDIT.—
859 
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), the new qualified fuel cell motor vehicle credit 
determined under this subsection with respect to a 
new qualified fuel cell motor vehicle placed in service 
by the taxpayer during the taxable year shall be de-
termined in accordance with the following table: 
‘‘In the case of a vehicle which 
has a gross vehicle weight rat-
ing of— 
The new qualified fuel cell 
motor vehicle credit is— 
Not more than 8,500 lbs .................................................................... $4,000 
More than 8,500 lbs but not more than 14,000 lbs ..........................$10,000 
More than 14,000 lbs but not more than 26,000 lbs ........................$20,000 
More than 26,000 lbs .........................................................................$40,000. 
‘‘(2) INCREASE FOR FUEL EFFICIENCY.— 
‘‘(A) IN
GENERAL.—The amount deter-
mined under paragraph (1) with respect to a 
new qualified fuel cell motor vehicle which is a 
passenger automobile or light truck shall be in-
creased by the additional credit amount. 
‘‘(B) ADDITIONAL CREDIT AMOUNT.—For 
purposes of subparagraph (A), the additional 
credit amount shall be determined in accord-
ance with the following table: 
‘‘In the case of a vehicle which 
achieves a fuel economy (ex-
pressed as a percentage of the 
2002 model year city fuel econ-
omy) of— 
The additional credit 
amount is— 
At least 150 percent but less than 175 percent ................................ $1,000 
At least 175 percent but less than 200 percent ................................ $1,500 
At least 200 percent but less than 225 percent ................................ $2,000 
At least 225 percent but less than 250 percent ................................ $2,500 
At least 250 percent but less than 275 percent ................................ $3,000 
At least 275 percent but less than 300 percent ................................ $3,500 
At least 300 percent .......................................................................... $4,000.
860 
‘‘(3) NEW QUALIFIED FUEL CELL MOTOR VEHI-
CLE.—For purposes of this subsection, the term 
‘new qualified fuel cell motor vehicle’ means a motor 
vehicle— 
‘‘(A) which is propelled by power derived 
from one or more cells which convert chemical 
energy directly into electricity by combining ox-
ygen with hydrogen fuel which is stored on 
board the vehicle in any form and may or may 
not require reformation prior to use, 
‘‘(B) which, in the case of a passenger 
automobile or light truck, has received— 
‘‘(i) a certificate of conformity under 
the Clean Air Act and meets or exceeds the 
equivalent qualifying California low emis-
sion 
vehicle 
standard 
under 
section 
243(e)(2) of the Clean Air Act for that 
make and model year, and 
‘‘(ii) a certificate that such vehicle 
meets or exceeds the Bin 5 Tier II emis-
sion standard established in regulations 
prescribed by the Administrator of the En-
vironmental Protection Agency under sec-
tion 202(i) of the Clean Air Act for that 
make and model year vehicle,
861 
‘‘(C) the original use of which commences 
with the taxpayer, 
‘‘(D) which is acquired for use or lease by 
the taxpayer and not for resale, and 
‘‘(E) which is made by a manufacturer. 
‘‘(c) NEW ADVANCED LEAN BURN TECHNOLOGY 
MOTOR VEHICLE CREDIT.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), the new advanced lean burn technology motor 
vehicle credit determined under this subsection with 
respect to a new advanced lean burn technology 
motor vehicle placed in service by the taxpayer dur-
ing the taxable year is the credit amount determined 
under paragraph (2). 
‘‘(2) CREDIT AMOUNT.— 
‘‘(A) FUEL ECONOMY.—The credit amount 
determined under this paragraph shall be deter-
mined in accordance with the following table: 
‘‘In the case of a vehicle which 
achieves a fuel economy (ex-
pressed as a percentage of the 
2002 model year city fuel econ-
omy) of— 
The credit amount is— 
At least 125 percent but less than 150 percent ................................
$400 
At least 150 percent but less than 175 percent ................................
$800 
At least 175 percent but less than 200 percent ................................ $1,200 
At least 200 percent but less than 225 percent ................................ $1,600 
At least 225 percent but less than 250 percent ................................ $2,000 
At least 250 percent .......................................................................... $2,400. 
‘‘(B) 
CONSERVATION
CREDIT.—The 
amount determined under subparagraph (A)
862 
with respect to a new advanced lean burn tech-
nology motor vehicle shall be increased by the 
conservation credit amount determined in ac-
cordance with the following table: 
‘‘In the case of a vehicle which 
achieves a lifetime fuel savings 
(expressed in gallons of gaso-
line) of— 
The conservation credit 
amount is— 
At least 1,200 but less than 1,800 ....................................................
$250 
At least 1,800 but less than 2,400 ....................................................
$500 
At least 2,400 but less than 3,000 ....................................................
$750 
At least 3,000 .................................................................................... $1,000. 
‘‘(3) NEW ADVANCED LEAN BURN TECHNOLOGY 
MOTOR VEHICLE.—For purposes of this subsection, 
the term ‘new advanced lean burn technology motor 
vehicle’ means a passenger automobile or a light 
truck— 
‘‘(A) with an internal combustion engine 
which— 
‘‘(i) is designed to operate primarily 
using more air than is necessary for com-
plete combustion of the fuel, 
‘‘(ii) incorporates direct injection, 
‘‘(iii) achieves at least 125 percent of 
the 2002 model year city fuel economy, 
‘‘(iv) for 2004 and later model vehi-
cles, has received a certificate that such ve-
hicle meets or exceeds—
863 
‘‘(I) in the case of a vehicle hav-
ing a gross vehicle weight rating of 
6,000 pounds or less, the Bin 5 Tier 
II emission standard established in 
regulations prescribed by the Adminis-
trator of the Environmental Protec-
tion Agency under section 202(i) of 
the Clean Air Act for that make and 
model year vehicle, and 
‘‘(II) in the case of a vehicle hav-
ing a gross vehicle weight rating of 
more than 6,000 pounds but not more 
than 8,500 pounds, the Bin 8 Tier II 
emission standard which is so estab-
lished. 
‘‘(B) the original use of which commences 
with the taxpayer, 
‘‘(C) which is acquired for use or lease by 
the taxpayer and not for resale, and 
‘‘(D) which is made by a manufacturer. 
‘‘(4) LIFETIME FUEL SAVINGS.—For purposes 
of this subsection, the term ‘lifetime fuel savings’ 
means, in the case of any new advanced lean burn 
technology motor vehicle, an amount equal to the ex-
cess (if any) of—
864 
‘‘(A) 120,000 divided by the 2002 model 
year city fuel economy for the vehicle inertia 
weight class, over 
‘‘(B) 120,000 divided by the city fuel econ-
omy for such vehicle. 
‘‘(d) NEW QUALIFIED HYBRID MOTOR VEHICLE 
CREDIT.— 
‘‘(1) IN GENERAL.—For purposes of subsection 
(a), the new qualified hybrid motor vehicle credit de-
termined under this subsection with respect to a new 
qualified hybrid motor vehicle placed in service by 
the taxpayer during the taxable year is the credit 
amount determined under paragraph (2). 
‘‘(2) CREDIT AMOUNT.— 
‘‘(A) CREDIT
AMOUNT
FOR
PASSENGER 
AUTOMOBILES
AND
LIGHT
TRUCKS.—In the 
case of a new qualified hybrid motor vehicle 
which is a passenger automobile or light truck 
and which has a gross vehicle weight rating of 
not more than 8,500 pounds, the amount deter-
mined under this paragraph is the sum of the 
amounts determined under clauses (i) and (ii). 
‘‘(i) FUEL
ECONOMY.—The amount 
determined under this clause is the amount 
which would be determined under sub-
865 
section (c)(2)(A) if such vehicle were a ve-
hicle referred to in such subsection. 
‘‘(ii) CONSERVATION
CREDIT.—The 
amount determined under this clause is the 
amount which would be determined under 
subsection (c)(2)(B) if such vehicle were a 
vehicle referred to in such subsection. 
‘‘(B) CREDIT AMOUNT FOR OTHER MOTOR 
VEHICLES.— 
‘‘(i) IN GENERAL.—In the case of any 
new qualified hybrid motor vehicle to which 
subparagraph (A) does not apply, the 
amount determined under this paragraph 
is the amount equal to the applicable per-
centage of the qualified incremental hybrid 
cost of the vehicle as certified under clause 
(v). 
‘‘(ii) APPLICABLE PERCENTAGE.—For 
purposes of clause (i), the applicable per-
centage is— 
‘‘(I) 20 percent if the vehicle 
achieves an increase in city fuel econ-
omy relative to a comparable vehicle 
of at least 30 percent but less than 40 
percent,
866 
‘‘(II) 30 percent if the vehicle 
achieves such an increase of at least 
40 percent but less than 50 percent, 
and 
‘‘(III) 40 percent if the vehicle 
achieves such an increase of at least 
50 percent. 
‘‘(iii) QUALIFIED
INCREMENTAL
HY-
BRID COST.—For purposes of this subpara-
graph, the qualified incremental hybrid 
cost of any vehicle is equal to the amount 
of the excess of the manufacturer’s sug-
gested retail price for such vehicle over 
such price for a comparable vehicle, to the 
extent such amount does not exceed— 
‘‘(I) $7,500, if such vehicle has a 
gross vehicle weight rating of not 
more than 14,000 pounds, 
‘‘(II) $15,000, if such vehicle has 
a gross vehicle weight rating of more 
than 14,000 pounds but not more 
than 26,000 pounds, and 
‘‘(III) $30,000, if such vehicle 
has a gross vehicle weight rating of 
more than 26,000 pounds.
867 
‘‘(iv) COMPARABLE
VEHICLE.—For 
purposes of this subparagraph, the term 
‘comparable vehicle’ means, with respect to 
any new qualified hybrid motor vehicle, 
any vehicle which is powered solely by a 
gasoline or diesel internal combustion en-
gine and which is comparable in weight, 
size, and use to such vehicle. 
‘‘(v) CERTIFICATION.—A certification 
described in clause (i) shall be made by the 
manufacturer and shall be determined in 
accordance with guidance prescribed by the 
Secretary. Such guidance shall specify pro-
cedures and methods for calculating fuel 
economy savings and incremental hybrid 
costs. 
‘‘(3) NEW
QUALIFIED
HYBRID
MOTOR
VEHI-
CLE.—For purposes of this subsection— 
‘‘(A) IN GENERAL.—The term ‘new quali-
fied hybrid motor vehicle’ means a motor vehi-
cle— 
‘‘(i) which draws propulsion energy 
from onboard sources of stored energy 
which are both—
868 
‘‘(I) an internal combustion or 
heat engine using consumable fuel, 
and 
‘‘(II) a rechargeable energy stor-
age system, 
‘‘(ii) which, in the case of a vehicle to 
which paragraph (2)(A) applies, has re-
ceived a certificate of conformity under the 
Clean Air Act and meets or exceeds the 
equivalent qualifying California low emis-
sion 
vehicle 
standard 
under 
section 
243(e)(2) of the Clean Air Act for that 
make and model year, and 
‘‘(I) in the case of a vehicle hav-
ing a gross vehicle weight rating of 
6,000 pounds or less, the Bin 5 Tier 
II emission standard established in 
regulations prescribed by the Adminis-
trator of the Environmental Protec-
tion Agency under section 202(i) of 
the Clean Air Act for that make and 
model year vehicle, and 
‘‘(II) in the case of a vehicle hav-
ing a gross vehicle weight rating of 
more than 6,000 pounds but not more
869 
than 8,500 pounds, the Bin 8 Tier II 
emission standard which is so estab-
lished, 
‘‘(iii) which has a maximum available 
power of at least— 
‘‘(I) 4 percent in the case of a ve-
hicle to which paragraph (2)(A) ap-
plies, 
‘‘(II) 10 percent in the case of a 
vehicle which has a gross vehicle 
weight rating or more than 8,500 
pounds and not than 14,000 pounds, 
and 
‘‘(III) 15 percent in the case of a 
vehicle in excess of 14,000 pounds, 
‘‘(iv) which, in the case of a vehicle to 
which paragraph (2)(B) applies, has an in-
ternal combustion or heat engine which 
has received a certificate of conformity 
under the Clean Air Act as meeting the 
emission standards set in the regulations 
prescribed by the Administrator of the En-
vironmental Protection Agency for 2004 
through 2007 model year diesel heavy duty
870 
engines or ottocycle heavy duty engines, as 
applicable, 
‘‘(v) the original use of which com-
mences with the taxpayer, 
‘‘(vi) which is acquired for use or 
lease by the taxpayer and not for resale, 
and 
‘‘(vii) which is made by a manufac-
turer. 
Such term shall not include any vehicle which 
is not a passenger automobile or light truck if 
such vehicle has a gross vehicle weight rating of 
less than 8,500 pounds. 
‘‘(B) CONSUMABLE FUEL.—For purposes 
of subparagraph (A)(i)(I), the term ‘consumable 
fuel’ means any solid, liquid, or gaseous matter 
which releases energy when consumed by an 
auxiliary power unit. 
‘‘(C) MAXIMUM AVAILABLE POWER.— 
‘‘(i) 
CERTAIN
PASSENGER
AUTO-
MOBILES AND LIGHT TRUCKS.—In the case 
of a vehicle to which paragraph (2)(A) ap-
plies, the term ‘maximum available power’ 
means the maximum power available from 
the rechargeable energy storage system,
871 
during a standard 10 second pulse power 
or equivalent test, divided by such max-
imum power and the SAE net power of the 
heat engine. 
‘‘(ii) OTHER
MOTOR
VEHICLES.—In 
the case of a vehicle to which paragraph 
(2)(B) applies, the term ‘maximum avail-
able power’ means the maximum power 
available from the rechargeable energy 
storage system, during a standard 10 sec-
ond pulse power or equivalent test, divided 
by the vehicle’s total traction power. For 
purposes of the preceding sentence, the 
term ‘total traction power’ means the sum 
of the peak power from the rechargeable 
energy storage system and the heat engine 
peak power of the vehicle, except that if 
such storage system is the sole means by 
which the vehicle can be driven, the total 
traction power is the peak power of such 
storage system. 
‘‘(e) NEW QUALIFIED ALTERNATIVE FUEL MOTOR 
VEHICLE CREDIT.— 
‘‘(1) ALLOWANCE OF CREDIT.—Except as pro-
vided in paragraph (5), the new qualified alternative
872 
fuel motor vehicle credit determined under this sub-
section is an amount equal to the applicable percent-
age of the incremental cost of any new qualified al-
ternative fuel motor vehicle placed in service by the 
taxpayer during the taxable year. 
‘‘(2) APPLICABLE PERCENTAGE.—For purposes 
of paragraph (1), the applicable percentage with re-
spect to any new qualified alternative fuel motor ve-
hicle is— 
‘‘(A) 40 percent, plus 
‘‘(B) 30 percent, if such vehicle— 
‘‘(i) has received a certificate of con-
formity under the Clean Air Act and meets 
or exceeds the most stringent standard 
available for certification under the Clean 
Air Act for that make and model year vehi-
cle (other than a zero emission standard), 
or 
‘‘(ii) has received an order certifying 
the vehicle as meeting the same require-
ments as vehicles which may be sold or 
leased in California and meets or exceeds 
the most stringent standard available for 
certification under the State laws of Cali-
fornia (enacted in accordance with a waiv-
873 
er granted under section 209(b) of the 
Clean Air Act) for that make and model 
year vehicle (other than a zero emission 
standard). 
For purposes of the preceding sentence, in the case 
of any new qualified alternative fuel motor vehicle 
which has a gross vehicle weight rating of more than 
14,000 pounds, the most stringent standard avail-
able shall be such standard available for certification 
on the date of the enactment of the Energy Tax Pol-
icy Act of 2003. 
‘‘(3) INCREMENTAL
COST.—For purposes of 
this subsection, the incremental cost of any new 
qualified alternative fuel motor vehicle is equal to 
the amount of the excess of the manufacturer’s sug-
gested retail price for such vehicle over such price 
for a gasoline or diesel fuel motor vehicle of the 
same model, to the extent such amount does not ex-
ceed— 
‘‘(A) $5,000, if such vehicle has a gross ve-
hicle weight rating of not more than 8,500 
pounds, 
‘‘(B) $10,000, if such vehicle has a gross 
vehicle weight rating of more than 8,500 
pounds but not more than 14,000 pounds,
874 
‘‘(C) $25,000, if such vehicle has a gross 
vehicle weight rating of more than 14,000 
pounds but not more than 26,000 pounds, and 
‘‘(D) $40,000, if such vehicle has a gross 
vehicle weight rating of more than 26,000 
pounds. 
‘‘(4) NEW
QUALIFIED
ALTERNATIVE
FUEL 
MOTOR
VEHICLE.—For purposes of this sub-
section— 
‘‘(A) IN GENERAL.—The term ‘new quali-
fied alternative fuel motor vehicle’ means any 
motor vehicle— 
‘‘(i) which is only capable of operating 
on an alternative fuel, 
‘‘(ii) the original use of which com-
mences with the taxpayer, 
‘‘(iii) which is acquired by the tax-
payer for use or lease, but not for resale, 
and 
‘‘(iv) which is made by a manufac-
turer. 
‘‘(B) ALTERNATIVE FUEL.—The term ‘al-
ternative fuel’ means compressed natural gas, 
liquefied natural gas, liquefied petroleum gas,
875 
hydrogen, and any liquid at least 85 percent of 
the volume of which consists of methanol. 
‘‘(5) CREDIT FOR MIXED-FUEL VEHICLES.— 
‘‘(A) IN
GENERAL.—In the case of a 
mixed-fuel vehicle placed in service by the tax-
payer during the taxable year, the credit deter-
mined under this subsection is an amount equal 
to— 
‘‘(i) in the case of a 75/25 mixed-fuel 
vehicle, 70 percent of the credit which 
would have been allowed under this sub-
section if such vehicle was a qualified alter-
native fuel motor vehicle, and 
‘‘(ii) in the case of a 90/10 mixed-fuel 
vehicle, 90 percent of the credit which 
would have been allowed under this sub-
section if such vehicle was a qualified alter-
native fuel motor vehicle. 
‘‘(B) MIXED-FUEL
VEHICLE.—For pur-
poses of this subsection, the term ‘mixed-fuel 
vehicle’ means any motor vehicle described in 
subparagraph (C) or (D) of paragraph (3), 
which— 
‘‘(i) is certified by the manufacturer 
as being able to perform efficiently in nor-
876 
mal operation on a combination of an al-
ternative fuel and a petroleum-based fuel, 
‘‘(ii) either— 
‘‘(I) has received a certificate of 
conformity under the Clean Air Act, 
or 
‘‘(II) has received an order certi-
fying the vehicle as meeting the same 
requirements as vehicles which may be 
sold or leased in California and meets 
or exceeds the low emission vehicle 
standard under section 88.105–94 of 
title 40, Code of Federal Regulations, 
for that make and model year vehicle, 
‘‘(iii) the original use of which com-
mences with the taxpayer, 
‘‘(iv) which is acquired by the tax-
payer for use or lease, but not for resale, 
and 
‘‘(v) which is made by a manufac-
turer. 
‘‘(C) 75/25
MIXED-FUEL
VEHICLE.—For 
purposes of this subsection, the term ‘75/25 
mixed-fuel vehicle’ means a mixed-fuel vehicle 
which operates using at least 75 percent alter-
877 
native fuel and not more than 25 percent petro-
leum-based fuel. 
‘‘(D) 90/10
MIXED-FUEL
VEHICLE.—For 
purposes of this subsection, the term ‘90/10 
mixed-fuel vehicle’ means a mixed-fuel vehicle 
which operates using at least 90 percent alter-
native fuel and not more than 10 percent petro-
leum-based fuel. 
‘‘(f) LIMITATION ON NUMBER OF NEW QUALIFIED 
HYBRID AND ADVANCED LEAN-BURN TECHNOLOGY VE-
HICLES ELIGIBLE FOR CREDIT.— 
‘‘(1) IN GENERAL.—In the case of a qualified 
vehicle sold during the phaseout period, only the ap-
plicable percentage of the credit otherwise allowable 
under subsection (c) or (d) shall be allowed. 
‘‘(2) PHASEOUT PERIOD.—For purposes of this 
subsection, the phaseout period is the period begin-
ning with the second calendar quarter following the 
calendar quarter which includes the first date on 
which the number of qualified vehicles manufactured 
by the manufacturer of the vehicle referred to in 
paragraph (1) sold for use in the United States after 
the date of the enactment of this section is at least 
80,000.
878 
‘‘(3) APPLICABLE PERCENTAGE.—For purposes 
of paragraph (1), the applicable percentage is— 
‘‘(A) 50 percent for the first 2 calendar 
quarters of the phaseout period, 
‘‘(B) 25 percent for the 3d and 4th cal-
endar quarters of the phaseout period, and 
‘‘(C) 0 percent for each calendar quarter 
thereafter. 
‘‘(4) CONTROLLED GROUPS.— 
‘‘(A) IN GENERAL.—For purposes of this 
subsection, all persons treated as a single em-
ployer under subsection (a) or (b) of section 52 
or subsection (m) or (o) of section 414 shall be 
treated as a single manufacturer. 
‘‘(B) INCLUSION
OF
FOREIGN
CORPORA-
TIONS.—For purposes of subparagraph (A), in 
applying subsections (a) and (b) of section 52 
to this section, section 1563 shall be applied 
without regard to subsection (b)(2)(C) thereof. 
‘‘(5) QUALIFIED
VEHICLE.—For purposes of 
this subsection, the term ‘qualified vehicle’ means 
any new qualified hybrid motor vehicle and any new 
advanced lean burn technology motor vehicle.
879 
‘‘(g) LIMITATION BASED ON AMOUNT OF TAX.—The 
credit allowed under subsection (a) for the taxable year 
shall not exceed the excess of— 
‘‘(1) the sum of the regular tax liability (as de-
fined in section 26(b)) plus the tax imposed by sec-
tion 55, over 
‘‘(2) the sum of the credits allowable under sub-
part A and sections 27 and 30 for the taxable year. 
‘‘(h) OTHER DEFINITIONS AND SPECIAL RULES.— 
For purposes of this section— 
‘‘(1) MOTOR VEHICLE.—The term ‘motor vehi-
cle’ has the meaning given such term by section 
30(c)(2). 
‘‘(2) OTHER TERMS.—The terms ‘automobile’, 
‘passenger automobile’, ‘light truck’, and ‘manufac-
turer’ have the meanings given such terms in regula-
tions prescribed by the Administrator of the Envi-
ronmental Protection Agency for purposes of the ad-
ministration of title II of the Clean Air Act (42 
U.S.C. 7521 et seq.). 
‘‘(3) 2002 MODEL
YEAR
CITY
FUEL
ECON-
OMY.— 
‘‘(A) IN GENERAL.—The 2002 model year 
city fuel economy with respect to a vehicle shall
880 
be determined in accordance with the following 
tables: 
‘‘(i) In the case of a passenger auto-
mobile: 
‘‘(ii) In the case of a light truck: 
‘‘(B) VEHICLE INERTIA WEIGHT CLASS.— 
For purposes of subparagraph (A), the term 
‘vehicle inertia weight class’ has the same 
meaning as when defined in regulations pre-
scribed by the Administrator of the Environ-
mental Protection Agency for purposes of the 
administration of title II of the Clean Air Act 
(42 U.S.C. 7521 et seq.). 
‘‘(4) FUEL ECONOMY.—Fuel economy with re-
spect to any vehicle shall be measured under rules 
similar to the rules under section 4064(c). 
‘‘(5) REDUCTION IN BASIS.—For purposes of 
this subtitle, if a credit is allowed under this section 
for any expenditure with respect to any property, the 
increase in the basis of such property which would 
(but for this paragraph) result from such expendi-
ture shall be reduced by the amount of the credit so 
allowed. 
‘‘(6) NO
DOUBLE
BENEFIT.—The amount of 
any deduction or credit allowable under this chapter
881 
(other than the credits allowable under this section 
and section 30) shall be reduced by the amount of 
credit allowed under subsection (a) for such vehicle 
for the taxable year. 
‘‘(7) RECAPTURE.—The Secretary shall, by reg-
ulations, provide for recapturing the benefit of any 
credit allowable under subsection (a) with respect to 
any property which ceases to be property eligible for 
such credit (including recapture in the case of a 
lease period of less than the economic life of a vehi-
cle). 
‘‘(8) 
PROPERTY
USED
OUTSIDE
UNITED 
STATES, ETC., NOT QUALIFIED.—No credit shall be 
allowed under subsection (a) with respect to any 
property referred to in section 50(b) or with respect 
to the portion of the cost of any property taken into 
account under section 179. 
‘‘(9) ELECTION
NOT
TO
TAKE
CREDIT.—No 
credit shall be allowed under subsection (a) for any 
vehicle if the taxpayer elects to not have this section 
apply to such vehicle. 
‘‘(10) BUSINESS
CARRYOVERS
ALLOWED.—If 
the credit allowable under subsection (a) for a tax-
able year exceeds the limitation under subsection (g) 
for such taxable year, such excess (to the extent of
882 
the credit allowable with respect to property subject 
to the allowance for depreciation) shall be allowed as 
a credit carryback and carryforward under rules 
similar to the rules of section 39. 
‘‘(11) INTERACTION
WITH
MOTOR
VEHICLE 
SAFETY STANDARDS.—Unless otherwise provided in 
this section, a motor vehicle shall not be considered 
eligible for a credit under this section unless such 
vehicle is in compliance with the motor vehicle safety 
provisions of sections 30101 through 30169 of title 
49, United States Code. 
‘‘(i) REGULATIONS.— 
‘‘(1) IN GENERAL.—The Secretary shall pro-
mulgate such regulations as necessary to carry out 
the provisions of this section. 
‘‘(2) DETERMINATION OF MOTOR VEHICLE ELI-
GIBILITY.—The Secretary, after coordination with 
the Secretary of Transportation and the Adminis-
trator of the Environmental Protection Agency, shall 
prescribe such regulations as necessary to determine 
whether a motor vehicle meets the requirements to 
be eligible for a credit under this section. 
‘‘(j) TERMINATION.—This section shall not apply to 
any property placed in service after—
883 
‘‘(1) in the case of a new qualified alternative 
fuel motor vehicle, December 31, 2006, 
‘‘(2) in the case of a new advanced lean burn 
technology motor vehicle or a new qualified hybrid 
motor vehicle, December 31, 2008, and 
‘‘(3) in the case of a new qualified fuel cell 
motor vehicle, December 31, 2012.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 30(d) (relating to special rules) is 
amended by adding at the end the following new 
paragraphs: 
‘‘(5) NO DOUBLE BENEFIT.—No credit shall be 
allowed under this section for any motor vehicle for 
which a credit is also allowed under section 30B.’’. 
(2) Section 1016(a), as amended by this Act, is 
amended by striking ‘‘and’’ at the end of paragraph 
(31), by striking the period at the end of paragraph 
(32) and inserting ‘‘, and’’, and by adding at the 
end the following: 
‘‘(33) to the extent provided in section 
30B(h)(5).’’. 
(3) Section 6501(m) is amended by inserting 
‘‘30B(h)(9),’’ after ‘‘30(d)(4),’’. 
(4) The table of sections for subpart B of part 
IV of subchapter A of chapter 1 is amended by in-
884 
serting after the item relating to section 30A the fol-
lowing: 
‘‘Sec. 30B. Alternative motor vehicle credit.’’. 
(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. 
(d) STICKER INFORMATION REQUIRED AT RETAIL 
SALE.— 
(1) IN GENERAL.—The Secretary of the Treas-
ury shall issue regulations under which each quali-
fied vehicle sold at retail shall display a notice— 
(A) that such vehicle is a qualified vehicle, 
and 
(B) that the buyer may not benefit from 
the credit allowed under section 30B of the In-
ternal Revenue Code of 1986 if such buyer has 
insufficient tax liability. 
(2) QUALIFIED
VEHICLE.—For purposes of 
paragraph (1), the term ‘‘qualified vehicle’’ means a 
vehicle with respect to which a credit is allowed 
under section 30B of the Internal Revenue Code of 
1986.
885 
SEC. 1319. MODIFICATIONS OF DEDUCTION FOR CERTAIN 
REFUELING PROPERTY. 
(a) IN GENERAL.—Subsection (f) of section 179A is 
amended to read as follows: 
‘‘(f) TERMINATION.—This section shall not apply to 
any property placed in service— 
‘‘(1) in the case of property relating to hydro-
gen, after December 31, 2011, and 
‘‘(2) in the case of any other property, after 
December 31, 2008.’’. 
(b) INCENTIVE FOR PRODUCTION OF HYDROGEN AT 
QUALIFIED CLEAN-FUEL VEHICLE REFUELING PROP-
ERTY.—Section 179A(d) (defining qualified clean-fuel ve-
hicle refueling property) is amended by adding at the end 
the following new flush sentence: 
‘‘In the case of clean-burning fuel which is hydrogen pro-
duced from another clean-burning fuel, paragraph (3)(A) 
shall be applied by substituting ‘production, storage, or 
dispensing’ for ‘storage or dispensing’ both places it ap-
pears.’’. 
(c) INCREASE IN LOCATION EXPENDITURES.—Sec-
tion 179A(b)(2)(A)(i) is amended by striking ‘‘$100,000’’ 
and inserting ‘‘$150,000’’. 
(d) NONBUSINESS USE OF QUALIFIED CLEAN-FUEL 
VEHICLE REFUELING PROPERTY.—Section 179A(d) is 
amended by striking paragraph (1) and by redesignating
886 
paragraphs (2) and (3) as paragraphs (1) and (2), respec-
tively. 
(e) 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. 
Subtitle B—Reliability 
SEC. 1321. 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 
redesignating 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 
adding after paragraph (15) 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
887 
‘‘(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 for which a certificate as 
an interstate transmission pipeline has 
been issued by the Federal Energy Regu-
latory Commission, 
‘‘(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: 
‘‘(C) (ii) .....................................................................................................
14’’. 
(d) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting 
before the period the following: ‘‘, or in section 
168(e)(3)(C)(ii)’’. 
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to property placed in service after
888 
the date of the enactment of this Act, in taxable years 
ending after such date. 
SEC. 1322. 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) is amended by inserting after the 
item relating to subparagraph (E)(iii) the following: 
‘‘(E) (iv) ....................................................................................................
35’’. 
(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. 
SEC. 1323. ELECTRIC TRANSMISSION PROPERTY TREATED 
AS 15-YEAR PROPERTY. 
(a) IN GENERAL.—Subparagraph (E) of section 
168(e)(3) (relating to classification of certain property), 
as amended by this Act, is amended by striking ‘‘and’’ 
at the end of clause (iii), by striking the period at the
889 
end of clause (iv) and by inserting ‘‘, and’’, and by adding 
at the end the following new clause: 
‘‘(v) any section 1245 property (as de-
fined in section 1245(a)(3)) used in the 
transmission at 69 or more kilovolts of 
electricity for sale the original use of which 
commences with the taxpayer after the 
date of the enactment of this clause.’’. 
(b) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) is amended by inserting after the 
item relating to subparagraph (E)(iv) the following: 
‘‘(E) (v) .....................................................................................................
30’’. 
(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. 
SEC. 1324. EXPENSING OF CAPITAL COSTS INCURRED IN 
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS. 
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 (relating to itemized deductions for individuals and 
corporations), as amended by this Act, is amended by in-
serting after section 179B the following new section:
890 
‘‘SEC. 179C. DEDUCTION FOR CAPITAL COSTS INCURRED IN 
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS. 
‘‘(a) TREATMENT AS EXPENSES.—A small business 
refiner (as defined in section 45I(c)(1)) may elect to treat 
75 percent of qualified capital costs (as defined in section 
45I(c)(2)) which are paid or incurred by the taxpayer dur-
ing the taxable year as expenses which are not chargeable 
to capital account. Any cost so treated shall be allowed 
as a deduction for the taxable year in which paid or in-
curred. 
‘‘(b) REDUCED PERCENTAGE.—In the case of a small 
business refiner with average daily domestic refinery runs 
for the 1-year period ending on December 31, 2002, in 
excess of 155,000 barrels, the number of percentage 
points described in subsection (a) shall be reduced (not 
below zero) by the product of such number (before the 
application of this subsection) and the ratio of such excess 
to 50,000 barrels. 
‘‘(c) BASIS REDUCTION.— 
‘‘(1) IN GENERAL.—For purposes of this title, 
the basis of any property shall be reduced by the 
portion of the cost of such property taken into ac-
count under subsection (a). 
‘‘(2) ORDINARY
INCOME
RECAPTURE.—For 
purposes of section 1245, the amount of the deduc-
891 
tion allowable under subsection (a) with respect to 
any property which is of a character subject to the 
allowance for depreciation shall be treated as a de-
duction allowed for depreciation under section 167.’’. 
‘‘(d) COORDINATION WITH OTHER PROVISIONS.— 
Section 280B shall not apply to amounts which are treated 
as expenses under this section.’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 263(a)(1), as amended by this Act, 
is amended by striking ‘‘or’’ at the end of subpara-
graph (H), by striking the period at the end of sub-
paragraph (I) and inserting ‘‘; or’’, and by adding 
at the end the following new subparagraph: 
‘‘(J) expenditures for which a deduction is 
allowed under section 179C.’’. 
(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 179B’’ each place 
it appears in the heading and text and inserting 
‘‘179B, or 179C’’. 
(4) Section 1016(a), as amended by this Act, is 
amended by striking ‘‘and’’ at the end of paragraph 
(32), by striking the period at the end of paragraph
1050 
thereafter shall be equal to the product ob-
tained by multiplying— 
‘‘(I) the number of gallons of 
gasoline that the Administrator esti-
mates will be sold or introduced into 
commerce in the calendar year; and 
‘‘(II) the ratio that— 
‘‘(aa) 5.0 billion gallons of 
renewable fuels; bears to 
‘‘(bb) the number of gallons 
of gasoline sold or introduced 
into commerce in calendar year 
2012. 
‘‘(3) NON-CONTIGUOUS STATE OPT-IN.—Upon 
the petition of a non-contiguous State, the Adminis-
trator may allow the renewable fuel program estab-
lished by subtitle A of title XV of the Energy Policy 
Act of 2003 to apply in such non-contiguous State 
at the same time or any time after the Adminis-
trator promulgates regulations under paragraph (2). 
The Administrator may promulgate or revise regula-
tions under paragraph (2), establish applicable per-
centages under paragraph (4), provide for the gen-
eration of credits under paragraph (6), and take 
such other actions as may be necessary to allow for