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•J. 69–001A
‘‘Such term does not include any dividend or interest in-
come which is passive income (as defined in section
904(d)(2)(A)).’’.
(2) SEPARATE APPLICATION OF FOREIGN TAX
CREDIT.—Clause (iii) of section 904(d)(2)(A) is
amended by inserting ‘‘and’’ at the end of subclause
(II), by striking ‘‘, and’’ at the end of subclause
(III) and inserting a period, and by striking
subclause (IV).
(3) TREATMENT UNDER SUBPART F.—
(A) Paragraph (1) of section 954(g) is
amended by adding at the end thereof the fol-
lowing new flush sentence:
‘‘Such term shall not include any foreign personal holding
company income (as defined in subsection (c)).’’.
(B) Paragraph (8) of section 954(b) is
amended by striking ‘‘(1),’’.
(b) TREATMENT OF SHIPPING INCOME.—Subsection
(f) of section 954 is amended by adding at the end thereof
the following new sentence: ‘‘Such term shall not include
any dividend or interest income which is foreign personal
holding company income (as defined in subsection (c)).’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1992.
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SEC. 2322. MODIFICATIONS OF ACCURACY-RELATED PEN-
ALTY.
(a) THRESHOLD REQUIREMENT.—Clause (ii) of sec-
tion 6662(e)(1)(B) (relating to substantial valuation
misstatement under chapter 1) is amended to read as fol-
lows:
‘‘(ii) the net section 482 transfer price
adjustment for the taxable year exceeds
the lesser of $5,000,000 or 10 percent of
the taxpayer’s gross receipts.’’
(b) CERTAIN ADJUSTMENTS EXCLUDED IN DETER-
MINING
THRESHOLD.—Subparagraph (B) of section
6662(e)(3) is amended to read as follows:
‘‘(B) CERTAIN
ADJUSTMENTS
EXCLUDED
IN DETERMINING THRESHOLD.—For purposes
of determining whether the threshold require-
ments of paragraph (1)(B)(ii) are met, the fol-
lowing shall be excluded:
‘‘(i) Any portion of the net increase in
taxable income referred to in subparagraph
(A) which is attributable to any redeter-
mination of a price if—
‘‘(I) it is established that the tax-
payer determined such price in ac-
cordance with a specific pricing meth-
od set forth in the regulations pre-
200
•J. 69–001A
scribed under section 482 and that
the taxpayer’s use of such method was
reasonable,
‘‘(II) the taxpayer has docu-
mentation (which was in existence as
of the time of filing the return) which
sets forth the determination of such
price in accordance with such a meth-
od and which establishes that the use
of such method was reasonable, and
‘‘(III) the taxpayer provides such
documentation to the Secretary within
30 days of a request for such docu-
mentation.
‘‘(ii) Any portion of the net increase
in taxable income referred to in subpara-
graph (A) which is attributable to a rede-
termination of price where such price was
not determined in accordance with such a
specific pricing method if—
‘‘(I) the taxpayer establishes that
none of such pricing methods was
likely to result in a price that would
clearly reflect income, the taxpayer
used another pricing method to deter-
201
•J. 69–001A
mine such price, and such other pric-
ing method was likely to result in a
price that would clearly reflect in-
come,
‘‘(II) the taxpayer has docu-
mentation (which was in existence as
of the time of filing the return) which
sets forth the determination of such
price in accordance with such other
method and which establishes that the
requirements of subclause (I) were
satisfied, and
‘‘(III) the taxpayer provides such
documentation to the Secretary within
30 days of request for such docu-
mentation.
‘‘(iii) Any portion of such net increase
which is attributable to any transaction
solely between foreign corporations unless,
in the case of any such corporations, the
treatment of such transaction affects the
determination of income from sources with-
in the United States or taxable income ef-
fectively connected with the conduct of a
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•J. 69–001A
trade or business within the United
States.’’
(b) COORDINATION WITH REASONABLE CAUSE EX-
CEPTION.—Paragraph (3) of section 6662(e) is amended
by adding at the end thereof the following new subpara-
graph:
‘‘(D) COORDINATION
WITH
REASONABLE
CAUSE
EXCEPTION.—For purposes of section
6664(c) the taxpayer shall not be treated as
having reasonable cause for any portion of an
underpayment attributable to a net section 482
transfer price adjustment unless such taxpayer
meets the requirements of clause (i), (ii), or (iii)
of subparagraph (B) with respect to such por-
tion.’’
(c) CONFORMING AMENDMENT.—Clause (iii) of sec-
tion 6662(h)(2)(A) is amended to read as follows:
‘‘(iii) in paragraph (1)(B)(ii)—
‘‘(I) 
‘$20,000,000’ 
for
‘$5,000,000’, and
‘‘(II) ‘20 percent’ for ‘10 per-
cent’.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1993.
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•J. 69–001A
SEC. 2323. DENIAL OF PORTFOLIO INTEREST EXEMPTION
FOR CONTINGENT INTEREST.
(a) GENERAL RULE.—
(1) Subsection (h) of section 871 (relating to
repeal of tax on interest of nonresident alien individ-
uals received from certain portfolio debt invest-
ments) is amended by redesignating paragraphs (4),
(5), and (6) as paragraphs (5), (6), and (7), respec-
tively, and by inserting after paragraph (3) the fol-
lowing new paragraph:
‘‘(4) PORTFOLIO INTEREST NOT TO INCLUDE
CERTAIN CONTINGENT INTEREST.—For purposes of
this subsection—
‘‘(A) IN GENERAL.—Except as otherwise
provided in this paragraph, the term ‘portfolio
interest’ shall not include—
‘‘(i) any interest if the amount of such
interest is determined by reference to—
‘‘(I) any receipts, sales or other
cash flow of the debtor or a related
person,
‘‘(II) any income or profits of the
debtor or a related person,
‘‘(III) any change in value of any
property of the debtor or a related
person, or
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•J. 69–001A
‘‘(IV) any dividend, partnership
distributions, or similar payments
made by the debtor or a related per-
son, or
‘‘(ii) any other type of contingent in-
terest that is identified by the Secretary by
regulation, where a denial of the portfolio
interest exemption is necessary or appro-
priate to prevent avoidance of Federal in-
come tax.
‘‘(B) RELATED PERSON.—The term ‘relat-
ed person’ means any person who is related to
the debtor within the meaning of section 267(b)
or 707(b)(1), or who is a party to any arrange-
ment undertaken for a purpose of avoiding the
application of this paragraph.
‘‘(C) EXCEPTIONS.—Subparagraph (A)(i)
shall not apply to—
‘‘(i) any amount of interest solely by
reason of the fact that the timing of any
interest or principal payment is subject to
a contingency,
‘‘(ii) any amount of interest solely by
reason of the fact that the interest is paid
205
•J. 69–001A
with respect to nonrecourse or limited re-
course indebtedness,
‘‘(iii) any amount of interest all or
substantially all of which is determined by
reference to any other amount of interest
not described in subparagraph (A) (or by
reference to the principal amount of in-
debtedness on which such other interest is
paid),
‘‘(iv) any amount of interest solely by
reason of the fact that the debtor or a re-
lated person enters into a hedging trans-
action to reduce the risk of interest rate or
currency fluctuations with respect to such
interest,
‘‘(v) any amount of interest deter-
mined by reference to—
‘‘(I) changes in the value of prop-
erty (including stock) that is actively
traded (within the meaning of section
1092(d)) other than property de-
scribed in section 897(c)(1) or (g),
‘‘(II) the yield on property de-
scribed in subclause (I), other than a
debt instrument that pays interest de-
206
•J. 69–001A
scribed in subparagraph (A), or stock
or other property that represents a
beneficial interest in the debtor or a
related person, or
‘‘(III) changes in any index of
the value of, or yield on, property de-
scribed in subclause (I), and
‘‘(vi) any other type of interest identi-
fied by the Secretary by regulation.
‘‘(D) EXCEPTION FOR CERTAIN EXISTING
INDEBTEDNESS.—Subparagraph (A) shall not
apply to any interest paid or accrued with re-
spect to any indebtedness with a fixed term—
‘‘(i) which was issued on or before
April 7, 1993, or
‘‘(ii) which was issued after such date
pursuant to a written binding contract in
effect on such date and at all times there-
after before such indebtedness was issued.’’
(2) Subsection (c) of section 881 is amended by
redesignating paragraphs (4), (5), and (6) as para-
graphs (5), (6), and (7), respectively, and by insert-
ing after paragraph (3) the following new para-
graph:
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•J. 69–001A
‘‘(4) PORTFOLIO INTEREST NOT TO INCLUDE
CERTAIN CONTINGENT INTEREST.—For purposes of
this subsection, the term ‘portfolio interest’ shall not
include any interest which is treated as not being
portfolio interest under the rules of section
871(h)(4).’’
(b) CONFORMING AMENDMENTS.—
(1) Clause (ii) of section 871(h)(2)(B) is
amended by striking ‘‘paragraph (4)’’ and inserting
‘‘paragraph (5)’’.
(2) Clause (ii) of section 881(c)(2)(B) is
amended by striking ‘‘section 871(h)(4)’’ and insert-
ing ‘‘section 871(h)(5)’’.
(3) Paragraph (6) of section 881(c) (as redesig-
nated by subsection (a)) is amended by striking
‘‘section 871(h)(5)’’ each place it appears and in-
serting ‘‘section 871(h)(6)’’.
(4) Paragraph (9) of section 1441(c) is amend-
ed by striking ‘‘section 871(h)(3)’’ and inserting
‘‘section 871(h)(3) or (4)’’.
(5) Subsection (a) of section 1442 is amend-
ed—
(A) by striking ‘‘871(h)(3)’’ and inserting
‘‘871(h)(3) or (4)’’, and
208
•J. 69–001A
(B) by striking ‘‘881(c)(3)’’ and inserting
‘‘881(c)(3) or (4)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to interest received after December
31, 1993.
SEC. 2324. REGULATIONS DEALING WITH CONDUIT AR-
RANGEMENTS.
Section 7701 is amended by redesignating subsection
(l) as subsection (m) and by inserting after subsection (k)
the following new subsection:
‘‘(l) REGULATIONS RELATING
TO CONDUIT AR-
RANGEMENTS.—The Secretary may prescribe regulations
recharacterizing any multiple-party financing transaction
as a transaction directly among any 2 or more of such
parties where the Secretary determines that such
recharacterization is appropriate to prevent avoidance of
any tax imposed by this title.’’
Subtitle D—Energy Tax Provision
SEC. 2401. IMPOSITION OF ENERGY TAX BASED ON BTU
CONTENT.
(a) IN GENERAL.—Chapter 36 (relating to other ex-
cise taxes) is amended by redesignating subchapters A and
B as subchapters B and C, respectively, and by inserting
before subchapter B (as so redesignated) the following
new subchapter:
209
•J. 69–001A
‘‘SUBCHAPTER A—ENERGY TAXES
‘‘Part I. Imposition of taxes.
‘‘Part II. Tax rates; applicable Btu factors.
‘‘Part III. Tax-free sales; refunds of tax for certain sales and
uses.
‘‘Part IV. Use taxes; floor stocks taxes; administrative provisions;
definitions and special rules.
‘‘Part I—Imposition of Taxes
‘‘Sec. 4441. Taxable refined petroleum products.
‘‘Sec. 4442. Natural gas.
‘‘Sec. 4443. Coal.
‘‘Sec. 4444. Certain electricity.
‘‘SEC. 4441. TAXABLE REFINED PETROLEUM PRODUCTS.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax on any taxable refined petroleum product—
‘‘(1) removed from any United States refinery,
or
‘‘(2) entered into the United States for con-
sumption, use, or warehousing.
‘‘(b) RATE OF TAX.—
‘‘(1) IN GENERAL.—The amount of the tax im-
posed by subsection (a) on each barrel of any tax-
able refined petroleum product shall be the sum of—
‘‘(A) the base rate, and
‘‘(B) the supplemental rate,
multiplied by the applicable Btu factor for such
product.
‘‘(2) ONLY BASE RATE APPLIES TO LIQUEFIED
PETROLEUM GASES.—In the case of any liquefied
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•J. 69–001A
petroleum gas, subparagraph (B) of paragraph (1)
shall not apply.
‘‘(c) LIABILITY FOR TAX.—
‘‘(1) REMOVAL.—
‘‘(A) IN GENERAL.—Except as provided in
paragraph (2), the tax imposed by subsection
(a)(1) shall be paid by the operator of the
United States refinery.
‘‘(B) PRODUCTS REMOVED FROM NATURAL
GAS
PROCESSING
OR
FRACTIONATION
PLANTS.—In the case of a product removed
from a natural gas processing or fractionation
plant, the tax imposed by subsection (a)(1)
shall be paid by the person receiving the prod-
uct at the time of removal, and the operator of
such plant shall collect such tax from such
person.
‘‘(2) IMPORTATION.—The tax imposed by sub-
section (a)(2) shall be paid by the person entering
the product into the United States for consumption,
use, or warehousing.
‘‘(d) TAXABLE REFINED PETROLEUM PRODUCT.—
For purposes of this subchapter, the term ‘taxable refined
petroleum product’ means—
‘‘(1) aviation gasoline,
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•J. 69–001A
‘‘(2) motor gasoline (including blending compo-
nents of gasoline),
‘‘(3) kerosene-type jet fuel,
‘‘(4) naphtha-type jet fuel,
‘‘(5) distillate fuel oil,
‘‘(6) kerosene,
‘‘(7) residual fuel oil,
‘‘(8) petroleum coke,
‘‘(9) butane,
‘‘(10) propane, and
‘‘(11) to the extent provided in regulations
prescribed by the Secretary, any other petroleum
product.
‘‘(e) CREDIT OR REFUND WHERE PRIOR TAX IM-
POSED.—If tax was imposed under this section with re-
spect to any taxable refined petroleum product and such
product is received at any United States refinery other
than for use as a fuel, credit or refund (without interest)
of such tax shall be allowed or made to the operator of
such refinery.
‘‘(f) OTHER DEFINITIONS.—For purposes of this
subchapter—
‘‘(1) UNITED
STATES
REFINERY.—The term
‘United States refinery’ means any facility in the
United States—
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•J. 69–001A
‘‘(A) at which crude oil or any petroleum
product is refined, or
‘‘(B) which is a natural gas processing or
fractionation plant.
‘‘(2) BARREL.—The term ‘barrel’ means 42
United States gallons measured at 60 degrees Fahr-
enheit. In the case of a taxable refined petroleum
product which is not a liquid at such temperature,
the term ‘barrel’ means a volume determined under
regulations prescribed by the Secretary on the basis
of an equivalence to a barrel of oil.
‘‘SEC. 4442. NATURAL GAS.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax on natural gas removed in the United States from any
pipeline (not part of a local distribution system)—
‘‘(1) for transmission to ultimate users through
a local distribution system, or
‘‘(2) for use prior to entry into a local distribu-
tion system.
‘‘(b) RATE OF TAX.—
‘‘(1) IN GENERAL.—The amount of the tax im-
posed by subsection (a) on each MCF of natural gas
shall be the base rate multiplied by the applicable
Btu factor.
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•J. 69–001A
‘‘(2) AUTHORITY
TO
USE
ACTUAL
BTU
CON-
TENT.—To the extent provided in regulations pre-
scribed by the Secretary, the amount of the tax im-
posed by subsection (a) shall be the base rate for
each million Btu’s of the actual Btu content of the
natural gas.
‘‘(c) LIABILITY FOR, AND COLLECTION OF, TAX.—
‘‘(1) LIABILITY FOR TAX.—
‘‘(A) The tax imposed by subsection (a)(1)
shall be paid by the operator of the local dis-
tribution system.
‘‘(B) The tax imposed by subsection (a)(2)
shall be paid by the person receiving the natu-
ral gas at the time of removal.
‘‘(2) COLLECTION
OF
TAX.—The operator of
the pipeline shall collect the tax imposed by sub-
section (a) from the person liable for payment of
such tax.
‘‘(d) DEFINITIONS.—For purposes of this sub-
chapter—
‘‘(1) NATURAL GAS.—The term ‘natural gas’
includes synthetic natural gas produced from coal or
from natural gas liquids.
‘‘(2) MCF.—The term ‘MCF’ means 1,000
cubic feet of natural gas measured at a pressure of
214
•J. 69–001A
14.73 pounds per square inch (absolute) and a tem-
perature of 60 degrees Fahrenheit.
‘‘(e) TAX ON ENTRY INTO LOCAL DISTRIBUTION
SYSTEM WHERE NO PRIOR TAX.—
‘‘(1) IN GENERAL.—There is hereby imposed a
tax (computed as provided in subsection (b)) on the
entry of natural gas into any local distribution sys-
tem in the United States if no tax has been imposed
by subsection (a) before such entry.
‘‘(2) LIABILITY FOR TAX.—The tax imposed by
this subsection shall be paid by the operator of the
local distribution system.
‘‘SEC. 4443. COAL.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax on coal received at any facility in the United States
for use as a fuel at such facility.
‘‘(b) RATE OF TAX.—The amount of the tax imposed
by subsection (a) shall be the base rate for each million
Btu’s of the actual Btu content of the coal. For purposes
of the preceding sentence, the actual Btu content of any
coal shall be determined under procedures prescribed by
the Secretary.
‘‘(c) LIABILITY FOR TAX.—
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•J. 69–001A
‘‘(1) IN GENERAL.—Except as provided in this
subsection, the tax imposed by subsection (a) shall
be paid by the operator of the facility.
‘‘(2) COAL RECEIVED AT SMALL FACILITIES.—
If the ultimate vendor of coal received at a facility
receives a certificate from the operator of such facil-
ity (or otherwise determines) that such facility re-
ceived less than 1,000 tons of coal during the pre-
ceding calendar year, the tax imposed by subsection
(a) shall be paid by the ultimate vendor.
‘‘(3) RESIDENTIAL PROPERTY.—In the case of
coal received at a residential property (as defined in
section 4448(b)(1)(B)), the tax imposed by sub-
section (a) shall be paid by the ultimate vendor.
‘‘(d) EXCEPTION FOR COAL USED TO PRODUCE SYN-
THETIC NATURAL GAS.—The tax imposed by this section
shall not apply to coal received for use in the manufacture
or production of synthetic natural gas or any other syn-
thetic fuel specified in regulations prescribed by the Sec-
retary.
‘‘SEC. 4444. CERTAIN ELECTRICITY.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax on—
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•J. 69–001A
‘‘(1) the entry of any electricity generated at a
hydropower or nuclear power facility in the United
States—
‘‘(A) into a transmission system, or
‘‘(B) into a distribution system if not pre-
viously entered into a transmission system,
‘‘(2) the use of electricity generated in the
United States which was not subject to tax under
paragraph (1), and
‘‘(3) the transmission into the United States of
electricity which is generated outside the United
States.
‘‘(b) RATES OF TAX.—
‘‘(1) IN GENERAL.—Except as provided in para-
graph (2), the amount of the tax imposed by sub-
section (a) on each kilowatt hour of electricity shall
be the base rate multiplied by the applicable Btu
factor for electricity.
‘‘(2) IMPORTED
ELECTRICITY.—If the person
liable for the tax imposed by subsection (a)(3) estab-
lishes to the satisfaction of the Secretary that—
‘‘(A) the electricity was not generated by
hydropower or nuclear power, and
‘‘(B) the average Btu content per kilowatt
hour of the fuel used to generate the electricity
217
•J. 69–001A
was less than the applicable per unit Btu
amount otherwise applicable,
such lesser amount shall be used for purposes of
paragraph (1).
‘‘(c) LIABILITY FOR TAX.—
‘‘(1) ENTRY OR USE.—The taxes imposed by
paragraphs (1) and (2) of subsection (a) shall be
paid by the operator of the generating facility.
‘‘(2) IMPORTATION.—The tax imposed by sub-
section (a)(3) shall be paid by the contract pur-
chaser of the electricity as of the time of trans-
mission into the United States.
‘‘(d) EXCEPTIONS.—
‘‘(1) CERTAIN
IMPORTED
ELECTRICITY.—The
tax imposed by subsection (a)(3) shall not apply to
electricity transmitted into the United States if the
person otherwise liable for such tax establishes to
the satisfaction of the Secretary that such electricity
was not generated using any fossil fuel, hydropower,
or nuclear power.
‘‘(2) ELECTRICITY GENERATED FROM PUMPED
STORAGE, ETC.—The tax imposed by this section
shall not apply to electricity generated in the United
States from any hydropower source created by elec-
tricity.
218
•J. 69–001A
‘‘(3) USE TAX EXCEPTION.—The Secretary may
provide by regulations that the tax imposed by sub-
section (a)(2) shall not apply in cases where the Sec-
retary determines that such an exception is war-
ranted, after taking into account the protection of
revenues to the United States from this subchapter
and the ease of administration for both taxpayers
and the Secretary.
‘‘(e) CROSS REFERENCE.—
‘‘For special rules relating to independent power
producers, see section 4454(b).
‘‘Part II—Tax Rates; Applicable Btu Factors
‘‘Sec. 4446. Tax rates.
‘‘Sec. 4447. Applicable Btu factors.
‘‘SEC. 4446. TAX RATES.
‘‘(a) BASE
RATE.—For purposes of this sub-
chapter—
‘‘(1) PHASE-IN RATES.—Effective during—
‘‘(A) the 1-year period beginning on July
1, 1994, the base rate is 8.6 cents, and
‘‘(B) the 1-year period beginning on July
1, 1995, the base rate is 17.2 cents.
‘‘(2) PERMANENT
UNINDEXED
RATE.—Effec-
tive on and after July 1, 1996, the base rate is 25.7
cents.
‘‘(3) INDEXED RATES.—
219
•J. 69–001A
‘‘(A) IN GENERAL.—Effective during any
calendar year after 1997, the base rate under
paragraph (2) shall be increased by an amount
equal to—
‘‘(i) 25.7 cents, multiplied by
‘‘(ii) the inflation adjustment for such
calendar year.
‘‘(B) INFLATION ADJUSTMENT.—For pur-
poses of subparagraph (A), the inflation adjust-
ment for any calendar year is the percentage (if
any) by which—
‘‘(i) the GDP deflator for the preced-
ing calendar year, exceeds
‘‘(ii) the GDP deflator for 1996.
‘‘(C) GDP 
DEFLATOR
FOR
CALENDAR
YEAR.—For purposes of subparagraph (B), the
GDP deflator for any calendar year is the GDP
deflator for the second calendar quarter of such
year.
‘‘(D) GDP DEFLATOR.—For purposes of
subparagraph (C), the term ‘GDP deflator’
means the most recent revision of the implicit
price deflator for the gross domestic product as
computed and published by the Department of
220
•J. 69–001A
Commerce before November 15 of the calendar
year referred to in subparagraph (B)(i).
‘‘(b) SUPPLEMENTAL RATE.—For purposes of this
subchapter—
‘‘(1) PHASE-IN RATES.—Effective during—
‘‘(A) the 1-year period beginning on July
1, 1994, the supplemental rate is 11.4 cents,
and
‘‘(B) the 1-year period beginning on July
1, 1995, the supplemental rate is 22.8 cents.
‘‘(2) PERMANENT
UNINDEXED
RATE.—Effec-
tive on and after July 1, 1996, the supplemental
rate is 34.2 cents.
‘‘(3) INDEXED
RATES.—Effective during any
calendar year after 1997, the supplemental rate
under paragraph (2) shall be increased by an
amount equal to—
‘‘(A) 34.2 cents, multiplied by
‘‘(B) the inflation adjustment for such cal-
endar 
year 
determined 
under 
subsection
(a)(3)(B).
‘‘(c) ROUNDING.—If any increase determined under
subsection (a)(3) or (b)(3) is not a multiple of 0.1 cent,
such increase shall be rounded to the nearest multiple of
0.1 cent.
221
•J. 69–001A
‘‘SEC. 4447. APPLICABLE BTU FACTORS.
‘‘(a) IN GENERAL.—For purposes of this subchapter,
the applicable Btu factor with respect to any petroleum
product, natural gas, or electricity is—
‘‘(1) the applicable per unit Btu amount deter-
mined under subsection (b), divided by
‘‘(2) 1,000,000.
‘‘(b) APPLICABLE PER UNIT BTU AMOUNT.—For
purposes of this subchapter—
‘‘(1) PETROLEUM PRODUCTS.—
‘‘(A) IN GENERAL.—
The applicable per unit
Btu amount is the follow-
‘‘In the case of:
ing amount per barrel:
Aviation gasoline ............................................
5,048,000
Motor gasoline (including blending compo-
nents of gasoline) ...........................................
5,267,000
Kerosene-type jet fuel ....................................
5,670,000
Naphtha-type jet fuel .....................................
5,355,000
Distillate fuel oil ............................................
5,852,000
Kerosene ........................................................
5,670,000
Residual fuel oil .............................................
6,486,000
Petroleum coke ..............................................
6,024,000
Butane ...........................................................
4,326,000
Propane ..........................................................
3,836,000.
‘‘(B) MIXTURES.—Any mixture which in-
cludes a taxable refined petroleum product shall
be treated as specified in subparagraph (A)
and—
‘‘(i) if more than 1 such product is in-
cluded in such mixture, the applicable per
unit Btu amount shall be the weighted av-
erage of the applicable per unit Btu
222
•J. 69–001A
amounts for the taxable refined petroleum
products included in the mixture, and
‘‘(ii) if any substance is included in
the mixture which is not a taxable refined
petroleum product, the Btu content of such
product shall be disregarded for purposes
of subsection (c) and its volume shall be
disregarded.
‘‘(2) NATURAL
GAS.—In the case of natural
gas, the applicable per unit Btu amount is
1,031,000 per MCF.
‘‘(3) ELECTRICITY.—In the case of electricity,
the applicable Btu amount is 10,335 per kilowatt
hour.
‘‘(c) ADJUSTMENTS TO PER UNIT BTU AMOUNTS.—
‘‘(1) PETROLEUM AND NATURAL GAS.—
‘‘(A) IN GENERAL.—If the Secretary deter-
mines that the applicable per unit Btu amount
then in effect for any petroleum product or nat-
ural gas does not properly reflect the Btu con-
tent per unit for such substance (in the cir-
cumstances where taxable events under this
subchapter occur with respect to such sub-
stance), the Secretary may modify the applica-
ble per unit Btu amount for such substance.
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•J. 69–001A
Any such modification shall be effective as of
the date prescribed by the Secretary.
‘‘(B) MODIFICATION OF LIST OF PETRO-
LEUM PRODUCTS.—The Secretary may modify,
as appropriate, the list of petroleum products
for which applicable per unit Btu amounts are
separately determined.
‘‘(2) ELECTRICITY.—If the Secretary deter-
mines that the applicable per unit Btu amount then
in effect for electricity differs by more than 1 per-
cent from the national average Btu content per kilo-
watt hour of fossil fuel used to generate electricity,
such national average shall be the applicable per
unit Btu amount for such electricity effective as of
the date prescribed by the Secretary.
‘‘Part III—Tax-Free Exports; Refunds of Tax for
Certain Sales and Uses
‘‘Sec. 4448. Tax-free exports; refunds for certain sales and uses.
‘‘SEC. 4448. TAX-FREE EXPORTS; REFUNDS FOR CERTAIN
SALES AND USES.
‘‘(a) EXPORTS.—No tax shall be imposed under part
I on any taxable energy source which is exported by the
person otherwise liable for such tax.
‘‘(b) REFUNDS TO ULTIMATE VENDORS IN CERTAIN
CASES.—Under regulations prescribed by the Secretary—
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•J. 69–001A
‘‘(1) HOME HEATING OIL.—
‘‘(A) IN
GENERAL.—If tax was imposed
under this subchapter with respect to any No.
2 distillate fuel oil and such fuel oil is delivered
to any residential property for use in heating
such property, the Secretary shall pay to the ul-
timate vendor of such fuel oil an amount equal
to the product of the supplemental rate and the
applicable Btu factor per barrel of the fuel oil
so delivered.
‘‘(B) RESIDENTIAL PROPERTY.—For pur-
poses of this paragraph, the term ‘residential
property’ means any building which consists
primarily of 1 or more dwelling units used for
residential purposes other than on a transient
basis.
‘‘(2) INTERNATIONAL COMMERCIAL TRANSPOR-
TATION.—
‘‘(A) IN
GENERAL.—If tax was imposed
under this subchapter with respect to any tax-
able refined petroleum product and such prod-
uct is sold for use by the purchaser for inter-
national commercial transportation, the Sec-
retary shall pay to the ultimate vendor of such
product an amount equal to the tax so imposed.
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•J. 69–001A
‘‘(B) 
INTERNATIONAL
COMMERCIAL
TRANSPORTATION.—For purposes of subpara-
graph (A), the term ‘international commercial
transportation’ means transportation in the
trade or business of transporting persons or
property for hire—
‘‘(i) by any vessel actually engaged in
foreign trade or trade between the United
States and any of its possessions, or
‘‘(ii) by aircraft from a point within
the United States to a point outside the
United States and outside the 225-mile
zone (as defined in section 4262(c)(2)).
‘‘(3) VENDOR
REQUIREMENTS.—A payment
may be made under this subsection to a vendor only
if the vendor establishes that such vendor—
‘‘(A) has not included the tax in the price
of the product, and
‘‘(B) has not collected the tax from the
purchaser of such product.
‘‘(c) REFUNDS TO ULTIMATE USERS IN CERTAIN
CASES.—Under regulations prescribed by the Secretary—
‘‘(1) IN GENERAL.—If tax was imposed under
this subchapter with respect to any taxable energy
source and such source is used by any person in an
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•J. 69–001A
exempt use, the Secretary shall pay to such person
an amount equal to the tax so imposed.
‘‘(2) EXEMPT USE.—For purposes of this sub-
section, the term ‘exempt use’ means—
‘‘(A) export,
‘‘(B) in the case of any taxable refined pe-
troleum product or natural gas—
‘‘(i) any qualified nonfuel use, or
‘‘(ii) use (other than as a fuel) in the
manufacture or production of methanol or
ether derivatives of ethanol or methanol,
‘‘(C) the use of natural gas or coal in en-
hanced heavy oil recovery, and
‘‘(D) the use of any taxable refined petro-
leum product in the production of synthetic nat-
ural gas or other synthetic fuels identified in
regulations prescribed by the Secretary.
‘‘(3) SPECIAL
RULE
FOR
EXPORTED
ELEC-
TRICITY.—For purposes of this subsection, in the
case of electricity—
‘‘(A) this subsection shall apply to all elec-
tricity exported from the United States which
was 
generated 
using 
hydropower, 
nuclear
power, or any fossil fuel, and
227
•J. 69–001A
‘‘(B) the rate of tax taken into account
under paragraph (1) shall be the rate applicable
under section 4444(b)(1).
‘‘(4) QUALIFIED NONFUEL USE.—For purposes
of this subsection, the term ‘qualified nonfuel use’
means any use other than use—
‘‘(A) as a fuel, or
‘‘(B) in the manufacture or production of
any fuel.
‘‘(5) ENHANCED HEAVY OIL RECOVERY.—For
purposes of this subsection, natural gas or coal shall
be treated as used in enhanced heavy oil recovery if
such gas or coal is used in a qualified enhanced oil
recovery project (as defined in section 43(c)(2) with-
out regard to subparagraph (A)(iii) thereof) for the
recovery of oil having a weighted average gravity of
20 degrees API or less (corrected to 60 degrees
Fahrenheit). In the case of natural gas or coal which
is used to produce both steam and electricity subject
to tax under section 4444(a)(1), only the portion of
the natural gas or coal not allocable to the produc-
tion of such electricity (determined on the basis of
the proportionate Btu content of the electricity and
the steam) shall be treated as used in such project.
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•J. 69–001A
‘‘(d) METHANE RECOVERED FROM BIOMASS
OR
COAL MINING.—
‘‘(1) IN GENERAL.—If—
‘‘(A) methane is recovered from biomass or
in conjunction with room and pillar or long wall
coal mining operations, and
‘‘(B) such methane is entered into any
pipeline the removal from which would subject
such methane to the tax imposed by section
4442(a),
the Secretary shall pay to the person so entering
such methane an amount equal to the amount of tax
which would be imposed under section 4442(a) on
such methane if such entry were a taxable event
under such section.
‘‘(2) RECAPTURE
OF
CREDIT
FOR
METHANE
RECOVERED
FROM
COAL
MINING
IN
CERTAIN
CASES.—
‘‘(A) IN GENERAL.—If—
‘‘(i) the Secretary has made a pay-
ment under paragraph (1) with respect to
methane recovered from coal mining oper-
ations before the date the actual mining
commences, and
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•J. 69–001A
‘‘(ii) the actual mining commences
more than 10 years after the date such
methane was first recovered,
then the tax under this chapter of the person
to whom such payments were made for the tax-
able year in which such 10th year ends shall be
increased by the aggregate of such payments to
such person plus interest at the underpayment
rate under section 6621 for the periods begin-
ning on the dates such payments were made.
‘‘(B) NO FURTHER PAYMENTS UNTIL MIN-
ING COMMENCES.—If there is an increase in tax
under subparagraph (A) with respect to any
payments for methane recovered from any site,
no further payments shall be made under this
subsection with respect to methane recovered
from such site until actual mining commences
at such site.
‘‘(C) NO CREDITS AGAINST TAX, ETC.—
Any increase in tax under this paragraph shall
not be taken into account in determining the
amount of any credit allowable under part IV of
subchapter A of chapter 1 or in determining the
amount of the tax imposed by section 55.
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•J. 69–001A
‘‘(e) PRODUCTION OF COKE FOR STEEL.—If tax was
imposed under this subchapter with respect to any coal
and such coal is used by any person to produce coke for
use in the reduction of iron-bearing ores in the iron and
steel process, the Secretary shall pay to such person an
amount equal to the base rate for each million Btu’s of
the actual Btu content of the coke produced.
‘‘(f) PRODUCTION OF CALCINED COKE.—If tax was
imposed under this subchapter with respect to any petro-
leum product and such product is used by any person to
produce calcined coke, the Secretary shall pay to such per-
son an amount equal to the base rate for each million
Btu’s of the actual Btu content of the coke produced.
‘‘Part IV—Use Taxes; Floor Stocks Taxes; Administra-
tive Provisions; Definitions and Special Rules
‘‘Sec. 4451. Tax on certain uses.
‘‘Sec. 4452. Floor stocks taxes.
‘‘Sec. 4453. Administrative provisions.
‘‘Sec. 4454. Definitions and special rules.
‘‘SEC. 4451. TAX ON CERTAIN USES.
‘‘(a) GENERAL RULE.—There is hereby imposed a
tax on the use of any fossil fuel (other than coal)—
‘‘(1) in the manufacture or production of a fuel
other than at a United States refinery, or
‘‘(2) as a fuel.
231
•J. 69–001A
The preceding sentence shall not apply if tax was imposed
under this subchapter before such use and such tax is not
credited or refunded.
‘‘(b) RATE OF TAX.—
‘‘(1) IN GENERAL.—Except as otherwise pro-
vided in this subsection, the amount of tax imposed
by subsection (a) shall be the amount which would
be imposed under the appropriate section of part I
if such use were a taxable event under such section.
‘‘(2) CRUDE OIL AND OTHER PRODUCTS NOT
TAXED
ON
REMOVAL
OR
IMPORTATION.—The
amount of the tax imposed by subsection (a) on
crude oil or other product not subject to tax under
part I shall be the base rate (increased by the sup-
plemental rate in the case of crude oil or any petro-
leum product other than any liquefied petroleum
gas, isopentane, and natural gasoline) for each mil-
lion Btu’s of the Btu content of such oil or product.
‘‘(3) AUTHORITY
TO
PRESCRIBE
APPLICABLE
PER UNIT BTU AMOUNTS.—In the case of crude oil
or any other product for which an applicable per
unit Btu amount is not prescribed for purposes of
part I, the Secretary may prescribe such an amount,
and, if so prescribed, such amount shall apply for
purposes of paragraph (2).
232
•J. 69–001A
‘‘(c) LIABILITY FOR TAX.—The taxes imposed by
subsection (a) shall be paid by the person using the fuel.
‘‘(d) EXCEPTIONS.—
‘‘(1) IN GENERAL.—The tax imposed by this
section shall not apply to—
‘‘(A) any use to which paragraph (1) or
(2) of section 4448(b) applies,
‘‘(B) any exempt use (as defined in section
4448(c)),
‘‘(C) any methane for which a payment
may be made under section 4448(d),
‘‘(D) any use to which section 4448(e) ap-
plies, and
‘‘(E) any use to which section 4448(f) ap-
plies.
‘‘(2) USE ON PRODUCTION PREMISES.—
‘‘(A) IN GENERAL.—The tax imposed by
this section shall not apply to any use of crude
oil or natural gas on the premises where pro-
duced for producing crude oil or natural gas.
‘‘(B) CRUDE OIL USED ON PREMISES.—
For purposes of subparagraph (A), crude oil
shall be treated as used on the premises where
produced if it is used before entry at the lease
233
•J. 69–001A
automatic custody transfer point (or its manual
equivalent).
‘‘(C) NATURAL GAS USED ON PREMISES.—
For purposes of subparagraph (A), natural gas
shall be treated as used on the premises where
produced if it is used before entry into a natu-
ral gas processing or fractionation plant or into
an interstate or intrastate transmission pipe-
line.
‘‘(3) CRUDE OIL USED AT REFINERY, ETC.—
The tax imposed by this section shall not apply to—
‘‘(A) any use of crude oil or any petroleum
product (other than natural gas) at a United
States refinery, or
‘‘(B) any use of natural gas at a natural
gas processing or fractionation plant.
‘‘(4) OTHERWISE TAXABLE EVENT OCCURRING
BEFORE
EFFECTIVE
DATE.—The tax imposed by
this section shall not apply to any use if no tax
would be imposed by this section on such use were
this subchapter in effect for all periods before
July 1, 1994.
‘‘(e) TREATMENT OF NATURAL GAS LOST IN TRANS-
MISSION.—For purposes of this section, natural gas lost
234
•J. 69–001A
in transmission by pipeline shall be treated as used as a
fuel for such pipeline.
‘‘SEC. 4452. FLOOR STOCKS TAXES.
‘‘(a) IMPOSITION OF TAX.—There is hereby imposed
a tax on any taxable fuel which on any tax-increase date
is held in the United States by any person.
‘‘(b) AMOUNT OF TAX.—The amount of the tax im-
posed by subsection (a) on any taxable fuel with respect
to any tax-increase date shall be equal to the excess (if
any) of—
‘‘(1) the amount of tax which would be imposed
under part I if a taxable event with respect to such
fuel had occurred on such date, over
‘‘(2) the prior tax (if any) imposed by this sub-
chapter on such fuel.
‘‘(c) LIABILITY FOR TAX.—The person holding the
taxable fuel on any tax-increase date shall pay the tax im-
posed by subsection (a).
‘‘(d) EXCEPTIONS.—The tax imposed by subsection
(a) shall not apply to—
‘‘(1) any taxable refined petroleum product—
‘‘(A) held (other than for use as a fuel)
within a United States refinery, or
235
•J. 69–001A
‘‘(B) held for use by the holder in inter-
national commercial transportation (as defined
in section 4448(b)(2)),
‘‘(2) any natural gas which has not been re-
moved as described in section 4442(a) and which is
not held in any local distribution system, and
‘‘(3) any coal held other than at the facility
where it is to be used as a fuel.
‘‘(e) CREDIT AGAINST TAX.—
‘‘(1) IN GENERAL.—Each person shall be al-
lowed $200 as a credit against the taxes imposed by
subsection (a) with respect to each tax-increase date.
Such credit shall not exceed the amount of taxes im-
posed by subsection (a) for which such person is lia-
ble with respect to such date.
‘‘(2) CONTROLLED GROUPS.—For purposes of
paragraph (1)—
‘‘(A) all persons who are treated as a sin-
gle employer under subsection (a) or (b) of sec-
tion 52 shall be treated as 1 taxpayer, and
‘‘(B) the $200 amount specified in para-
graph (1) shall be apportioned among such per-
sons under regulations prescribed by the Sec-
retary.
‘‘(f) DEFINITIONS.—For purposes of this section—
236
•J. 69–001A
‘‘(1) TAXABLE FUEL.—The term ‘taxable fuel’
means any taxable refined petroleum product, natu-
ral gas, or coal.
‘‘(2) TAX-INCREASE DATE.—The term ‘tax-in-
crease date’ means—
‘‘(A) July 1, 1994,
‘‘(B) July 1, 1995,
‘‘(C) July 1, 1996, and
‘‘(D) January 1 of each calendar year for
which there is an increase in a rate of tax by
reason of subsection (a)(3) or (b)(3) of section
4446 (relating to inflation adjustment).
‘‘(f) DUE DATE.—The tax imposed by subsection (a)
shall be paid on or before the close of the 7-month period
beginning on the tax-increase date.
‘‘SEC. 4453. ADMINISTRATIVE PROVISIONS.
‘‘(a) RULES RELATING TO REFUNDS FOR EXEMPT
AND OTHER USES.—
‘‘(1) PERIOD FOR FILING CLAIMS.—No pay-
ment shall be made under section 4448 unless, with-
in 2 years after the date that the event occurs giving
rise to a right to such payment, a claim therefor is
filed by the person entitled to such payment.
253
•J. 69–001A
(1) SUBSTANTIAL
UNDERSTATEMENT
PEN-
ALTY.—Clause (ii) of section 6662(d)(2)(B) (relat-
ing to reduction for understatement due to position
of taxpayer or disclosed item) is amended to read as
follows:
‘‘(ii) any item if—
‘‘(I) the relevant facts affecting
the item’s tax treatment are ade-
quately disclosed in the return or in a
statement attached to the return, and
‘‘(II) there is a reasonable basis
for the tax treatment of such item by
the taxpayer.’’
(2) RETURN PREPARER PENALTY.—Paragraph
(3) of section 6694(a) (relating to understatement of
taxpayer’s liability by income tax return preparer) is
amended to read as follows:
‘‘(3) the requirements of subclauses (I) and (II)
of section 6662(d)(2)(B)(ii) are not satisfied with
respect to such position,’’.
(b) SPECIAL TAX SHELTER RULE.—Subclause (II)
of section 6662(d)(2)(C)(i) (relating to special rules for
tax shelters) is amended by inserting before the period at
the end thereof the following: ‘‘and the reasonably antici-
pated after-tax benefits from the taxpayer’s investment in