I
105TH CONGRESS
1ST SESSION
H. R. 161
To amend the Internal Revenue Code of 1986 to terminate the tax subsidies
for large producers of ethanol used as a fuel.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 7, 1997
Mr. ENGLISH of Pennsylvania (for himself, Mr. FRANK of Massachusetts, and
Mr. MCDERMOTT) introduced the following bill; which was referred to the
Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to terminate
the tax subsidies for large producers of ethanol used
as a fuel.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. TERMINATION AFTER 1998 OF TAX SUBSIDIES
FOR LARGE PRODUCERS OF ETHANOL USED
AS A FUEL.
(a) GENERAL RULE.—Subsection (e) of section 40 of
the Internal Revenue Code of 1986 is amended by adding
at the end the following flush sentence:
‘‘Except in the case of the credit determined under
subsection (a)(3), the preceding sentence shall be
applied by substituting ‘1998’ for ‘2000’ and ‘1999’
for ‘2001’.’’
(b) DENIAL OF CREDIT FOR ALCOHOL USED TO
PRODUCE ETHER.—Subsection (b) of section 40 of such
Code is amended by adding at the end the following new
paragraph:
‘‘(6) DENIAL OF CREDIT FOR ALCOHOL USED
TO PRODUCE ETHER.—No credit shall be allowed
under this section for alcohol used to produce any
ether.’’
(c) CONFORMING REDUCTIONS OF OTHER INCEN-
TIVES FOR ETHANOL FUEL.—
(1) REPEAL OF REDUCED RATE ON ETHANOL
FUEL PRODUCED OTHER THAN FROM PETROLEUM
OR NATURAL GAS.—Subsection (b) of section 4041
of such Code is amended to read as follows:
‘‘(b) EXEMPTION
FOR
OFF-HIGHWAY
BUSINESS
USE.—
‘‘(1) IN GENERAL.—No tax shall be imposed by
subsection (a) or (d)(1) on liquids sold for use or
used in an off-highway business use.
‘‘(2) TAX WHERE OTHER USE.—If a liquid on
which no tax was imposed by reason of paragraph
(1) is used otherwise than in an off-highway busi-
ness use, a tax shall be imposed by paragraph
(1)(B), (2)(B), or (3)(A)(ii) of subsection (a)
(whichever is appropriate) and by the corresponding
provision of subsection (d)(1) (if any).
‘‘(3) OFF-HIGHWAY BUSINESS USE DEFINED.—
For purposes of this subsection, the term ‘off-high-
way business use’ has the meaning given to such
term by section 6421(e)(2); except that such term
shall not, for purposes of subsection (a)(1), include
use in a diesel-powered train.’’
(2) REPEAL OF REDUCED RATE ON ETHANOL
FUEL PRODUCED FROM NATURAL GAS.—Subsection
(m) of section 4041 of such Code is amended—
(A) by striking ‘‘or ethanol’’ each place it
appears (including the heading of paragraph
(2)), and
(B) by striking ‘‘, ethanol, or other alco-
hol’’ in paragraph (2) and inserting ‘‘or other
alcohol (other than ethanol)’’.
(d) CONFORMING AMENDMENTS TO EXCISE TAXES;
FUEL ALCOHOL TAXED IN SAME MANNER AS OTHER
MOTOR FUELS.—
(1) IN
GENERAL.—Paragraph (1) of section
4083(a) of such Code (defining taxable fuel) is
amended by striking ‘‘and’’ at the end of subpara-
graph (A), by striking the period at the end of sub-
paragraph (B) and inserting ‘‘, and’’, and by adding
at the end the following:
‘‘(C) fuel alcohol.’’
(2) FUEL ALCOHOL.—Subsection (a) of section
4083 of such Code is amended by adding at the end
the following new paragraph:
‘‘(4) FUEL ALCOHOL.—The term ‘fuel alcohol’
means any alcohol (including ethanol and meth-
anol)—
‘‘(A) which is produced other than from
petroleum, natural gas, or coal (including peat),
and
‘‘(B) which is withdrawn from the distillery
where produced free of tax under chapter 51 by
reason of section 5181 or so much of section
5214(a)(1) as relates to fuel use.’’
(3) RATE
OF
TAX.—Clause (i) of section
4081(a)(2)(A) of such Code is amended by inserting
‘‘and in the case of fuel alcohol’’ after ‘‘aviation gas-
oline’’.
(4) SPECIAL RULES FOR IMPOSITION OF TAX.—
Paragraph (1) of section 4081(a) of such Code is
amended by adding at the end the following new
subparagraph:
‘‘(C) SPECIAL
RULES
FOR
FUEL
ALCO-
HOL.—In the case of fuel alcohol—
‘‘(i) the distillery where produced shall
be treated as a refinery, and
‘‘(ii) subparagraph (B) shall be ap-
plied by including transfers by truck or rail
in excess of such minimum quantities as
the Secretary shall prescribe.’’
(5) REPEAL OF REDUCED RATES ON ALCOHOL
FUELS.—
(A) Section 4041 of such Code is amended
by striking subsection (k).
(B) Section 4081 of such Code is amended
by striking subsection (c).
(C) Section 4091 of such Code is amended
by striking subsection (c).
(6) CONFORMING AMENDMENTS.—
(A) Section 40 of such Code is amended by
striking subsection (c).
(B) Paragraph (4) of section 40(d) of such
Code is amended to read as follows:
‘‘(4) VOLUME OF ALCOHOL.—For purposes of
determining under subsection (a) the number of gal-
lons of alcohol with respect to which a credit is al-
lowable under subsection (a), the volume of alcohol
shall include the volume of any denaturant (includ-
ing gasoline) which is added under any formulas ap-
proved by the Secretary to the extent that such de-
naturants do not exceed 5 percent of the volume of
such alcohol (including denaturants).’’
(C) Paragraph (2) of section 4041(a) of
such Code is amended by adding at the end the
following: ‘‘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
and the tax thereon was not credited or re-
funded.’’
(D) Section 6427 of such Code is amended
by striking subsection (f).
(E) Subsection (i) of section 6427 of such
Code is amended by striking paragraph (3).
(F) Paragraph (2) of section 6427(k) of
such Code is amended by striking ‘‘(3)’’.
(G)(i) Paragraph (1) of section 6427(l) of
such Code is amended by striking ‘‘or’’ at the
end of subparagraph (A), by redesignating sub-
paragraph (B) as subparagraph (C), and by in-
serting after subparagraph (A) the following
new subparagraph:
‘‘(B) any fuel alcohol (as defined in section
4083) on which tax has been imposed by sec-
tion 4081, or’’.
(ii) Paragraph (2) of section 6427(l) of
such Code is amended by striking ‘‘and’’ at the
end of subparagraph (A), by redesignating sub-
paragraph (B) as subparagraph (C), and by in-
serting after subparagraph (A) the following
new subparagraph:
‘‘(B) in the case of fuel alcohol (as so de-
fined), any use which is exempt from the tax
imposed by section 4041(a)(2) other than by
reason of a prior imposition of tax, and’’.
(iii) The heading of subsection (l) of sec-
tion 6427 of such Code is amended by inserting
‘‘, FUEL ALCOHOL,’’ after ‘‘DIESEL FUEL’’.
(H) 
Sections 
9503(b)(1)(E) 
and
9508(b)(2) of such Code are each amended by
striking ‘‘and diesel fuel’’ and inserting ‘‘diesel
fuel, and fuel alcohol’’.
(I) Section 9502 of such Code is amended
by striking subsection (e) and by redesignating
subsection (f) as subsection (e).
(J) Subsection (e) of section 9502 of such
Code (as redesignated by subparagraph (I)) is
amended by striking paragraph (2) and by re-
designating paragraph (3) as paragraph (2).
(K) Subsection (b) of section 9503 of such
Code is amended by striking paragraph (5).
(L) Paragraph (3) of section 9503(f) of
such Code is amended to read as follows:
‘‘(3) PARTIALLY EXEMPT METHANOL OR ETHA-
NOL FUEL.—In the case of a rate of tax determined
under section 4041(m), the Highway Trust Fund fi-
nancing rate is the excess (if any) of the rate so de-
termined over—
‘‘(A) 5.55 cents per gallon after September
30, 1993, and before October 1, 1995, and
‘‘(B) 4.3 cents per gallon after September
30, 1995.’’
(e) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 1999.
(f) FLOOR STOCK TAXES.—
(1) IMPOSITION OF TAX.—In the case of fuel al-
cohol which is held on January 1, 1999, by any per-
son, there is hereby imposed a floor stocks tax of
18.4 cents per gallon.
(2) LIABILITY FOR TAX AND METHOD OF PAY-
MENT.—
(A) LIABILITY FOR TAX.—A person hold-
ing fuel alcohol on January 1, 1999, to which
the tax imposed by paragraph (1) applies shall
be liable for such tax.
(B) METHOD OF PAYMENT.—The tax im-
posed by paragraph (1) shall be paid in such
manner as the Secretary shall prescribe.
(C) TIME
FOR
PAYMENT.—The tax im-
posed by paragraph (1) shall be paid on or be-
fore June 30, 1999.
(3) DEFINITIONS.—For purposes of this sub-
section—
(A) FUEL ALCOHOL.—The term ‘‘fuel alco-
hol’’ has the meaning given such term by sec-
tion 4083 of the Internal Revenue Code of
1986, as amended by this section.
(B) HELD
BY
A
PERSON.—Fuel alcohol
shall be considered as ‘‘held by a person’’ if
title thereto has passed to such person (whether
or not delivery to the person has been made).
(C) SECRETARY.—The term ‘‘Secretary’’
means the Secretary of the Treasury or his del-
egate.
(4) EXCEPTION FOR EXEMPT USES.—The tax
imposed by paragraph (1) shall not apply to fuel al-
cohol held by any person exclusively for any use to
the extent a credit or refund of the tax imposed by
section 4081 of the Internal Revenue Code of 1986
is allowable for such use.
(5) EXCEPTION FOR FUEL HELD IN VEHICLE
TANK.—No tax shall be imposed by paragraph (1)
on fuel alcohol held in the tank of a motor vehicle
or motorboat.
(6) EXCEPTION
FOR
CERTAIN
AMOUNTS
OF
FUEL.—
(A) IN
GENERAL.—No tax shall be im-
posed by paragraph (1) on fuel alcohol held on
January 1, 1999, by any person if the aggre-
gate amount of fuel alcohol held by such person
on such date does not exceed 2,000 gallons.
The preceding sentence shall apply only if such
person submits to the Secretary (at the time
and in the manner required by the Secretary)
such information as the Secretary shall require
for purposes of this paragraph.
(B) EXEMPT FUEL.—For purposes of sub-
paragraph (A), there shall not be taken into ac-
count fuel held by any person which is exempt
from the tax imposed by paragraph (1) by rea-
son of paragraph (4) or (5).
(C) CONTROLLED GROUPS.—For purposes
of this paragraph—
(i) CORPORATIONS.—
(I) IN
GENERAL.—All persons
treated as a controlled group shall be
treated as 1 person.
(II) CONTROLLED
GROUP.—The
term ‘‘controlled group’’ has the
meaning given to such term by sub-
section (a) of section 1563 of such
Code; except that for such purposes
the phrase ‘‘more than 50 percent’’
shall be substituted for the phrase ‘‘at
least 80 percent’’ each place it ap-
pears in such subsection.
(ii) 
NONINCORPORATED
PERSONS
UNDER COMMON CONTROL.—Under regula-
tions prescribed by the Secretary, prin-
ciples similar to the principles of clause (i)
shall apply to a group of persons under
common control where 1 or more of such
persons is not a corporation.
(7) OTHER LAWS APPLICABLE.—All provisions
of law, including penalties, applicable with respect to
the taxes imposed by section 4081 of such Code
shall, insofar as applicable and not inconsistent with
the provisions of this subsection, apply with respect
to the floor stock taxes imposed by paragraph (1) to
the same extent as if such taxes were imposed by
such section 4081.
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