I 
109TH CONGRESS 
1ST SESSION 
H. R. 36
To amend the Internal Revenue Code of 1986 to provide for a small agri-
biodiesel producer credit and to improve the small ethanol producer credit. 
IN THE HOUSE OF REPRESENTATIVES 
JANUARY 4, 2005
Mr. KING of Iowa 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 
for a small agri-biodiesel producer credit and to improve 
the small ethanol producer credit.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SMALL AGRI-BIODIESEL PRODUCER CREDIT. 
(a) IN GENERAL.—Subsection (a) of section 40A of 
the Internal Revenue Code of 1986 is amended to read 
as follows: 
‘‘(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, plus 
‘‘(3) in the case of an eligible small agri-bio-
diesel producer, the small agri-biodiesel producer 
credit.’’. 
(b) SMALL AGRI-BIODIESEL PRODUCER CREDIT DE-
FINED.—Subsection (b) of section 40A of such Code is 
amended by adding at the end the following new para-
graph: 
‘‘(5) SMALL AGRI-BIODIESEL PRODUCER CRED-
IT.—
‘‘(A) IN
GENERAL.—The small agri-bio-
diesel producer credit of any eligible small agri-
biodiesel producer for any taxable year is 10 
cents for each gallon of qualified agri-biodiesel 
production of such producer. 
‘‘(B) QUALIFIED AGRI-BIODIESEL PRODUC-
TION.—For purposes of this paragraph, the 
term ‘qualified agri-biodiesel production’ means 
any agri-biodiesel which is produced by an eligi-
ble small agri-biodiesel producer, and which 
during the taxable year—
‘‘(i) is sold by such producer to an-
other person—
‘‘(I) for use by such other person 
in the production of a qualified bio-
diesel mixture in such other person’s 
trade or business (other than casual 
off-farm production), 
‘‘(II) for use by such other per-
son as a fuel in a trade or business, 
or 
‘‘(III) who sells such agri-bio-
diesel at retail to another person and 
places such agri-biodiesel in the fuel 
tank of such other person, or 
‘‘(ii) is used or sold by such producer 
for any purpose described in clause (i). 
‘‘(C) LIMITATION.— The qualified agri-
biodiesel production of any producer for any 
taxable year shall not exceed 15,000,000 gal-
lons.’’. 
(c) DEFINITIONS
AND SPECIAL RULES.—Section 
40A of such Code is amended by redesignating subsection 
(e) as subsection (f) and by inserting after subsection (d) 
the following new subsection: 
‘‘(e) DEFINITIONS AND SPECIAL RULES FOR SMALL 
AGRI-BIODIESEL PRODUCER CREDIT.—For purposes of 
this section—
‘‘(1) ELIGIBLE
SMALL
AGRI-BIODIESEL
PRO-
DUCER.—The term ‘eligible small agri-biodiesel pro-
ducer’ means a person who, at all times during the 
taxable year, has a productive capacity for agri-bio-
diesel not in excess of 60,000,000 gallons. 
‘‘(2) AGGREGATION
RULE.—For purposes of 
the 15,000,000 gallon limitation under subsection 
(b)(5)(C) and the 60,000,000 gallon limitation 
under paragraph (1), all members of the same con-
trolled group of corporations (within the meaning of 
section 267(f)) and all persons under common con-
trol (within the meaning of section 52(b) but deter-
mined by treating an interest of more than 50 per-
cent as a controlling interest) shall be treated as 1 
person. 
‘‘(3) PARTNERSHIP, S
CORPORATIONS, AND 
OTHER
PASS-THRU
ENTITIES.—In the case of a 
partnership, trust, S corporation, or other pass-thru 
entity, the limitations contained in subsection 
(b)(5)(C) and paragraph (1) shall be applied at the 
entity level and at the partner or similar level. 
‘‘(4) ALLOCATION.—For purposes of this sub-
section, in the case of a facility in which more than 
1 person has an interest, productive capacity shall 
be allocated among such persons in such manner as 
the Secretary may prescribe.
‘‘(5) REGULATIONS.—The Secretary may pre-
scribe such regulations as may be necessary—
‘‘(A) to prevent the credit provided for in 
subsection (a)(3) from directly or indirectly 
benefiting any person with a direct or indirect 
productive capacity of more than 60,000,000 
gallons of agri-biodiesel during the taxable year, 
or 
‘‘(B) to prevent any person from directly 
or indirectly benefiting with respect to more 
than 15,000,000 gallons during the taxable 
year. 
‘‘(6) ALLOCATION OF SMALL AGRI-BIODIESEL 
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 
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.—
‘‘(i) ORGANIZATIONS.— The amount 
of the credit not apportioned to patrons 
pursuant to subparagraph (A) shall be in-
cluded in the amount determined under 
subsection (a)(3) for the taxable year of 
the organization. 
‘‘(ii) PATRONS.—The amount of the 
credit apportioned to patrons pursuant to 
subparagraph (A) shall be included in the 
amount determined under such subsection 
for the first taxable year of each patron 
ending on or after the last day of the pay-
ment 
period 
(as 
defined 
in 
section 
1382(d)) for the taxable year of the orga-
nization or, if earlier, for the taxable year 
of each patron ending on or after the date
on which the patron receives notice from 
the cooperative of the apportionment. 
‘‘(iii) SPECIAL RULES FOR DECREASE 
IN CREDITS FOR TAXABLE YEAR.—If the 
amount of the credit of the organization 
determined under such subsection for a 
taxable year is less than the amount of 
such credit shown on the return of the or-
ganization for such year, an amount equal 
to the excess of—
‘‘(I) such reduction, over 
‘‘(II) the amount not apportioned 
to such patrons under subparagraph 
(A) for the taxable year, 
shall be treated as an increase in tax im-
posed by this chapter on the organization. 
Such increase shall not be treated as tax 
imposed by this chapter for purposes of de-
termining the amount of any credit under 
this chapter or for purposes of section 
55.’’. 
(d) SMALL AGRI-BIODIESEL CREDIT NOT A PASSIVE 
ACTIVITY CREDIT.—Clause (i) of section 469(d)(2)(A) of 
such Code, as amended by section 2, is further amended
by striking ‘‘section 40(a)(3)’’ and inserting ‘‘sections 
40(a)(3) and 40A(a)(3)’’. 
(e) SMALL AGRI-BIODIESEL PRODUCER CREDIT NOT 
ADDED BACK TO INCOME UNDER SECTION 87.—Section 
87 of such Code, as amended by section 2, is further 
amended by striking ‘‘and’’ at the end of paragraph (2) 
and by striking paragraph (3) and inserting the following 
new paragraphs: 
‘‘(3) the biodiesel mixture credit determined 
with respect to the taxpayer for the taxable year 
under section 40A(a)(1), and 
‘‘(4) the biodiesel credit determined with re-
spect to the taxpayer for the taxable year under sec-
tion 40A(a)(2).’’. 
(f) CONFORMING AMENDMENTS.—
(1) Paragraph (4) of section 40A(b) of such 
Code is amended by striking ‘‘this section’’ and in-
serting ‘‘paragraph (1) or (2) of subsection (a)’’. 
(2) The heading of subsection (b) of section 
40A of such Code is amended by striking ‘‘AND BIO-
DIESEL CREDIT’’ and inserting ‘‘, BIODIESEL CRED-
IT, AND SMALL AGRI-BIODIESEL PRODUCER CRED-
IT’’. 
(3) Paragraph (3) of section 40A(d) of such 
Code is amended by redesignating subparagraph (C)
as subparagraph (D) and by inserting after subpara-
graph (B) the following new subparagraph: 
‘‘(C) PRODUCER CREDIT.—If—
‘‘(i) any credit was determined under 
subsection (a)(3), and 
‘‘(ii) any person does not use such 
fuel for a purpose described in subsection 
(b)(5)(B), 
then there is hereby imposed on such person a 
tax equal to 10 cents a gallon for each gallon 
of such agri-biodiesel.’’. 
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
the date of the enactment of this Act. 
SEC. 2. IMPROVEMENTS TO SMALL ETHANOL PRODUCER 
CREDIT AND SMALL AGRI-BIODIESEL PRO-
DUCER CREDIT. 
(a) DEFINITION OF SMALL ETHANOL PRODUCER.—
Section 40(g) of the Internal Revenue Code of 1986 (relat-
ing to definitions and special rules for eligible small eth-
anol 
producer 
credit) 
is 
amended 
by 
striking 
‘‘30,000,000’’ each place it appears and inserting 
‘‘60,000,000’’. 
(b) SMALL ETHANOL PRODUCER CREDIT NOT A PAS-
SIVE
ACTIVITY
CREDIT.—Clause 
(i) 
of 
section