I
105TH CONGRESS
1ST SESSION
H. R. 2175
To amend the Internal Revenue Code of 1986 to provide an investment
credit to promote the conversion of United States coal and domestic
carbonaceous feedstocks into liquid fuels.
IN THE HOUSE OF REPRESENTATIVES
JULY 16, 1997
Mr. HOLDEN 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 provide
an investment credit to promote the conversion of United
States coal and domestic carbonaceous feedstocks into
liquid fuels.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Foreign Oil Displace-
ment Act’’.
SEC. 2. FINDINGS.
Congress finds that—
(1) the strategic interests of the United States
would be served by a reduction in the Nation’s de-
pendence upon imported oil to produce transpor-
tation fuels and other products vital to both the do-
mestic economy and national security;
(2) this goal would be served by the develop-
ment of a viable, commercially competitive synthetic
fuels industry reliant upon domestic coals and other
plentiful, nontraditional carbonaceous feedstocks;
and
(3) temporary financial incentives are required
to foster private investment in the technology, de-
sign, construction, and operation of strategic facili-
ties capable of producing synthetic fuels on a com-
mercial scale.
SEC. 3. CARBONACEOUS FUELS FACILITY CREDIT.
(a) ALLOWANCE OF CARBONACEOUS FUELS FACIL-
ITY CREDIT.—Section 46 of the Internal Revenue Code
of 1986 is amended by striking ‘‘and’’ at the end of para-
graph (2), by striking the period at the end of paragraph
(3) and inserting ‘‘, and’’, and by inserting after para-
graph (3) the following new paragraph:
‘‘(4) the carbonaceous fuels facility credit.’’
(b) AMOUNT OF CARBONACEOUS FUELS FACILITY
CREDIT.—Section 48 of such Code (relating to the energy
credit and the reforestation credit) is amended by adding
after subsection (b) the following new subsection:
‘‘(c) CARBONACEOUS FUELS FACILITY CREDIT.—
‘‘(1) IN GENERAL.—For purposes of section 46,
the carbonaceous fuels facility credit for any taxable
year is an amount equal to 28 percent of the quali-
fied investment in a carbonaceous fuels conversion
facility for such taxable year.
‘‘(2) CARBONACEOUS FUELS CONVERSION FA-
CILITY.—
‘‘(A) IN GENERAL.—For purposes of para-
graph (1), the term ‘carbonaceous fuels conver-
sion facility’ means a facility of the taxpayer—
‘‘(i)(I) the original use of which com-
mences with the taxpayer or the recon-
struction of which is completed by the tax-
payer (but only with respect to that por-
tion of the basis which is properly attrib-
utable to such reconstruction), or
‘‘(II) that is acquired through pur-
chase (as defined by section 179(d)(2)),
‘‘(ii) that is depreciable under section
167,
‘‘(iii) that has a useful life of not less
than 4 years, and
‘‘(iv) that is used to produce a quali-
fied fuel.
‘‘(B) SPECIAL
RULE
FOR
SALE-LEASE-
BACKS.—For purposes of clause (i) of subpara-
graph (A), in the case of a facility that—
‘‘(i) is originally placed in service by a
person, and
‘‘(ii) is sold and leased back by such
person, or is leased to such person, within
3 months after the date such facility was
originally placed in service, for a period of
not less than 12 years,
such facility shall be treated as originally placed
in service not earlier than the date on which
such property is used under the leaseback (or
lease) referred to in clause (ii). The preceding
sentence shall not apply to any property if the
lessee and lessor of such property make an elec-
tion under this sentence. Such an election, once
made, may be revoked only with the consent of
the Secretary.
‘‘(C) QUALIFIED FUEL.—For purposes of
clause (iv) of subparagraph (A), the term
‘qualified fuel’—
‘‘(i) has the meaning given such term
by section 29(c), except that
‘‘(ii) in respect of subparagraph (C) of
paragraph (1) of section 29(c), the term
‘coal’ shall, in addition to lignite, be
deemed to include standard anthracite,
peat, and any byproduct from a coal, culm,
or silt preparation facility that contains
fixed carbon.
‘‘(3) QUALIFIED
INVESTMENT.—For purposes
of paragraph (1), the term ‘qualified investment’
means, with respect to any taxable year, the basis of
a carbonaceous fuels conversion facility placed in
service by the taxpayer during such taxable year.
‘‘(4) QUALIFIED PROGRESS EXPENDITURES.—
‘‘(A) INCREASE
IN
QUALIFIED
INVEST-
MENT.—In the case of a taxpayer who has
made an election under subparagraph (E), the
amount of the qualified investment of such tax-
payer for the taxable year (determined under
paragraph (3) without regard to this sub-
section) shall be increased by an amount equal
to the aggregate of each qualified progress ex-
penditure for the taxable year with respect to
progress expenditure property.
‘‘(B) PROGRESS EXPENDITURE PROPERTY
DEFINED.—For purposes of this paragraph, the
term ‘progress expenditure property’ means any
property being constructed by or for the tax-
payer and which—
‘‘(i) cannot reasonably be expected to
be completed in less than 18 months, and
‘‘(ii) it is reasonable to believe will
qualify as a carbonaceous fuels conversion
facility which is being constructed by or for
the taxpayer when it is placed in service.
‘‘(C) 
QUALIFIED
PROGRESS
EXPENDI-
TURES DEFINED.—For purposes of this para-
graph—
‘‘(i) 
SELF-CONSTRUCTED
PROP-
ERTY.—In the case of any self-constructed
property, the term ‘qualified progress ex-
penditures’ means the amount which, for
purposes of this subpart, is properly
chargeable (during such taxable year) to
capital account with respect to such prop-
erty.
‘‘(ii) NON-SELF-CONSTRUCTED PROP-
ERTY.—In the case of non-self-constructed
property, the term ‘qualified progress ex-
penditures’ means the amount paid during
the taxable year to another person for the
construction of such property.
‘‘(D) OTHER DEFINITIONS.—For purposes
of this subsection—
‘‘(i) 
SELF-CONSTRUCTED
PROP-
ERTY.—The term ‘self-constructed prop-
erty’ means property for which it is rea-
sonable to believe that more than half of
the construction expenditures will be made
directly by the taxpayer.
‘‘(ii) NON-SELF-CONSTRUCTED PROP-
ERTY.—The 
term 
‘non-self-constructed
property’ means property which is not self-
constructed property.
‘‘(iii) 
CONSTRUCTION, 
ETC.—The
term ‘construction’ includes reconstruction
and erection, and the term ‘constructed’
includes reconstructed and erected.
‘‘(iv) ONLY CONSTRUCTION OF CAR-
BONACEOUS FUELS CONVERSION FACILITY
TO BE TAKEN INTO ACCOUNT.—Construc-
tion shall be taken into account only if, for
purposes of this subpart, expenditures
therefor are properly chargeable to capital
account with respect to the property.
‘‘(E) ELECTION.—An election under this
paragraph may be made at such time and in
such manner as the Secretary may by regula-
tions prescribe. Such an election shall apply to
the taxable year for which made and to all sub-
sequent taxable years. Such an election, once
made, may not be revoked except with the con-
sent of the Secretary.
‘‘(5) COORDINATION WITH OTHER CREDITS.—
This subsection shall not apply to any property with
respect to which the energy credit or the rehabilita-
tion credit is allowed unless the taxpayer elects to
waive the application of such credits to such prop-
erty.’’
(c) RECAPTURE.—Subsection (a) of section 50 of the
Internal Revenue Code of 1986 is amended by adding at
the end the following new paragraph:
‘‘(6) SPECIAL
RULES
RELATING
TO
CARBO-
NACEOUS FUELS CONVERSION FACILITY.—For pur-
poses of applying this subsection in the case of any
credit allowable by reason of section 48(c), the fol-
lowing shall apply:
‘‘(A) GENERAL
RULE.—In lieu of the
amount of the increase in tax under paragraph
(1), the increase in tax shall be an amount
equal to the investment tax credit allowed under
section 38 for all prior taxable years with re-
spect to a carbonaceous fuels conversion facility
(as defined by section 48(c)) multiplied by a
fraction whose numerator is the number of
years remaining to fully depreciate under this
title the carbonaceous fuels conversion facility
disposed of, and whose denominator is the total
number of years over which such facility would
otherwise have been subject to depreciation. For
purposes of the preceding sentence, the year of
disposition of the carbonaceous fuels conversion
facility property shall be treated as a year of re-
maining depreciation.
‘‘(B) PROPERTY CEASES TO QUALIFY FOR
PROGRESS
EXPENDITURES.—Rules similar to
the rules of paragraph (2) shall apply in the
case of qualified progress expenditures for a
carbonaceous fuels conversion facility under sec-
tion 48(c), except that the amount of the in-
crease in tax under subparagraph (A) of this
paragraph shall be substituted in lieu of the
amount described in such paragraph (2).
‘‘(C) This paragraph shall be applied sepa-
rately with respect to the credit allowed under
section 38 regarding a carbonaceous fuels con-
version facility.’’
(d) TECHNICAL AMENDMENTS.—
(1) Subparagraph (C) of section 49(a)(1) of
such Code 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 thereof the following new clause:
‘‘(iv) the portion of the basis of any
carbonaceous fuels conversion facility at-
tributable to any qualified investment (as
defined by section 48(c)(3)).’’
(2) Paragraph (4) of section 50(a) of such Code
is amended by striking ‘‘and (2)’’ and inserting ‘‘,
(2), and (6)’’.
(3)(A) The section heading for section 48 of
such Code is amended to read as follows:
‘‘SEC. 48. OTHER CREDITS.’’
(B) The table of sections for subpart E of part
IV of subchapter A of chapter 1 of such Code is
amended by striking the item relating to section 48
and inserting the following:
‘‘Sec. 48. Other credits.’’
(e) SALE
OR ASSIGNMENT
OF UNUSED CREDIT
AMOUNT.—Section 50 of such Code is amended by adding
at the end the following new subsection:
‘‘(e) SALE
OR ASSIGNMENT
OF UNUSED CARBO-
NACEOUS FUELS FACILITY CREDIT AMOUNT.—
‘‘(1) GENERAL RULE.—Any unused portion of a
carbonaceous fuels facility credit may be sold or as-
signed in accordance with regulations prescribed by
the Secretary.
‘‘(2) TREATMENT OF SELLER.—
‘‘(A) LIABILITY.—The sale or assignment
of any portion of a credit under paragraph (1)
shall not relieve the seller or assignor of any
penalty or interest charged under this title with
respect to such portion.
‘‘(B) BASIS.—The basis of a carbonaceous
fuels facility shall not be adjusted by reason of
the sale or assignment of a credit under para-
graph (1).
‘‘(3) TREATMENT OF ACQUIRER.—
‘‘(A) CREDIT
CLAIMED.—The credit (or
portion thereof) acquired under paragraph (1)
may be claimed only by the person acquiring
such credit in the taxable year of such person
in which such sale or assignment occurred and
only if such person notifies the Secretary of the
derivative source of such credit.
‘‘(B) LIABILITY.—Such person shall not be
subject to any penalty or interest in respect of
such credit for which the seller or assignor re-
mains subject under paragraph (2)(A).
‘‘(C) ORDERING RULE.—
‘‘(i) IN GENERAL.—Such credit shall
be treated as a credit under this part al-
lowable to such person and shall be used
after the order of all other credits specified
by section 38(d).
‘‘(ii) 
LIMITATION
ON
CARRYFORWARDS.—No amount of a credit
acquired under paragraph (1) may be
treated as a business carryforward in any
taxable year beginning after December 31,
2010.
‘‘(4) REGULATIONS.—Not later than 1 year
after the date of the enactment of the Foreign Oil
Displacement Act, the Secretary shall prescribe reg-
ulations to carry out this subsection.’’
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to periods after the date of the
enactment of this Act under rules similar to the rules of
section 48(m) of the Internal Revenue Code of 1986 (as
in effect on the day before the date of the enactment of
the Revenue Reconciliation Act of 1990).
SEC. 4. EXEMPTION FROM MANUFACTURERS EXCISE TAX
ON FUELS.
(a) GASOLINE.—Subsection (a) of section 4083 of the
Internal Revenue Code of 1986 is amended by adding at
the end the following new paragraph:
‘‘(4) QUALIFIED CARBONACEOUS FUEL.—
‘‘(A) EXEMPTION.—For taxable years be-
ginning after 90 days after the date of the en-
actment of this paragraph and ending before
December 31, 2010, the terms ‘taxable fuel’,
‘gasoline’, and ‘diesel fuel’ do not include quali-
fied carbonaceous fuel or that portion of a
blend that is qualified carbonaceous fuel.
‘‘(B) QUALIFIED
CARBONACEOUS
FUEL
DEFINED.—For purposes of subparagraph (A),
the term ‘qualified carbonaceous fuel’ means
qualified fuel produced by a carbonaceous fuels
conversion facility.
‘‘(C) OTHER DEFINITIONS.—For purposes
of subparagraph (B), the terms ‘qualified fuel’
and ‘carbonaceous fuels conversion facility’ have
the meaning given such terms by section
48(c)(2).’’
(b) AVIATION FUEL.—Subsection (a) of section 4093
of such Code is amended by adding at the end the follow-
ing new sentence: ‘‘Such term does not include qualified
carbonaceous fuel (as defined by section 4083(a)(4)).’’
(c) RETAIL USES.—Section 4041 of such Code is
amended by adding at the end the following new sub-
section:
‘‘(n) CERTAIN CARBONACEOUS FUEL.—
‘‘(1) EXEMPTION.—For taxable years beginning
after 90 days after the date of the enactment of this
subsection and ending before December 31, 2010, no
tax shall be imposed under this section on qualified
carbonaceous fuel or that portion of a blend that is
qualified carbonaceous fuel.
‘‘(2) QUALIFIED
CARBONACEOUS
FUEL
DE-
FINED.—For purposes of paragraph (1), the term
‘qualified carbonaceous fuel’ has the meaning given
such term by section 4083(a)(4).’’