graph (1) to such ultimate vendor, but 
only if such ultimate vendor— 
‘‘(I) is registered under section 
4101, and 
‘‘(II) meets the requirements of 
subparagraph (A), (B), or (D) of sec-
tion 6416(a)(1). 
‘‘(ii) PAYMENTS FOR KEROSENE USED 
IN
NONCOMMERCIAL
AVIATION.—The 
amount which would be paid under para-
graph (1) with respect to any kerosene to 
which subparagraph (B) applies shall be 
paid only to the ultimate vendor of such 
kerosene. A payment shall be made to such 
vendor if such vendor— 
‘‘(I) is registered under section 
4101, and 
‘‘(II) meets the requirements of 
subparagraph (A), (B), or (D) of sec-
tion 6416(a)(1).’’. 
(b) CONFORMING AMENDMENTS.— 
(1) Section 6427(l) is amended by striking 
paragraph (5) and by redesignating paragraph (6) 
as paragraph (5). 
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(2) Section 4082(d)(2)(B) is amended by strik-
ing ‘‘section 6427(l)(6)(B)’’ and inserting ‘‘section 
6427(l)(5)(B)’’. 
(3) Section 6427(i)(4)(A) is amended— 
(A) by striking ‘‘paragraph (4)(B), (5), or 
(6)’’ each place it appears and inserting ‘‘para-
graph (4)(C) or (5)’’, and 
(B) by striking ‘‘(l)(5), and (l)(6)’’ and in-
serting ‘‘(l)(4)(C)(ii), and (l)(5)’’. 
(4) Section 6427(l)(1) is amended by striking 
‘‘paragraph (4)(B)’’ and inserting ‘‘paragraph 
(4)(C)(i)’’. 
(5) Section 9502(d) is amended— 
(A) in paragraph (2), by striking ‘‘and 
(l)(5)’’, and 
(B) in paragraph (3), by striking ‘‘or (5)’’. 
(6) Section 9503(c)(7) is amended— 
(A) by amending subparagraphs (A) and 
(B) to read as follows: 
‘‘(A) 4.3 cents per gallon of kerosene sub-
ject to section 6427(l)(4)(A) with respect to 
which a payment has been made by the Sec-
retary under section 6427(l), and 
‘‘(B) 21.8 cents per gallon of kerosene sub-
ject to section 6427(l)(4)(B) with respect to 
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which a payment has been made by the Sec-
retary under section 6427(l).’’, and 
(B) in the matter following subparagraph 
(B), by striking ‘‘or (5)’’. 
(c) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to kerosene sold after Sep-
tember 30, 2005. 
(2) SPECIAL RULE FOR PENDING CLAIMS.—In 
the case of kerosene sold for use in aviation (other 
than kerosene to which section 6427(l)(4)(C)(ii) of 
the Internal Revenue Code of 1986 (as added by 
subsection (a)) applies or kerosene to which section 
6427(l)(5) of such Code (as redesignated by sub-
section (b)) applies) after September 30, 2005, and 
before the date of the enactment of this Act, the ul-
timate purchaser shall be treated as having waived 
the right to payment under section 6427(l)(1) of 
such Code and as having assigned such right to the 
ultimate vendor if such ultimate vendor has met the 
requirements of subparagraph (A), (B), or (D) of 
section 6416(a)(1) of such Code. 
(d) SPECIAL RULE FOR KEROSENE USED IN AVIA-
TION ON A FARM FOR FARMING PURPOSES.— 
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(1) REFUNDS FOR PURCHASES AFTER DECEM-
BER 31, 2004, AND BEFORE OCTOBER 1, 2005.— 
The Secretary of the Treasury shall pay to the ulti-
mate purchaser of any kerosene which is used in 
aviation on a farm for farming purposes and which 
was purchased after December 31, 2004, and before 
October 1, 2005, an amount equal to the aggregate 
amount of tax imposed on such fuel under section 
4041 or 4081 of the Internal Revenue Code of 1986, 
as the case may be, reduced by any payment to the 
ultimate vendor under section 6427(l)(5)(C) of such 
Code (as in effect on the day before the date of the 
enactment of the Safe, Accountable, Flexible, Effi-
cient Transportation Equity Act: a Legacy for 
Users). 
(2) USE
ON
A
FARM
FOR
FARMING
PUR-
POSES.—For purposes of paragraph (1), kerosene 
shall be treated as used on a farm for farming pur-
poses if such kerosene is used for farming purposes 
(within the meaning of section 6420(c)(3) of the In-
ternal Revenue Code of 1986) in carrying on a trade 
or business on a farm situated in the United States. 
For purposes of the preceding sentence, rules similar 
to the rules of section 6420(c)(4) of such Code shall 
apply. 
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100 
(3) TIME FOR FILING CLAIMS.—No claim shall 
be allowed under paragraph (1) unless the ultimate 
purchaser files such claim before the date that is 3 
months after the date of the enactment of this Act. 
(4) NO DOUBLE BENEFIT.—No amount shall be 
paid under paragraph (1) or section 6427(l) of the 
Internal Revenue Code of 1986 with respect to any 
kerosene described in paragraph (1) to the extent 
that such amount is in excess of the tax imposed on 
such kerosene under section 4041 or 4081 of such 
Code, as the case may be. 
(5) APPLICABLE LAWS.—For purposes of this 
subsection, rules similar to the rules of section 
6427(j) of the Internal Revenue Code of 1986 shall 
apply. 
SEC. 252. DEDUCTION FOR QUALIFIED TIMBER GAIN. 
(a) IN GENERAL.—Part I of subchapter P of chapter 
1 is amended by adding at the end the following new sec-
tion: 
‘‘SEC. 1203. DEDUCTION FOR QUALIFIED TIMBER GAIN. 
‘‘(a) IN GENERAL.—In the case of a taxpayer which 
elects the application of this section for a taxable year, 
there shall be allowed a deduction against gross income 
equal to 60 percent of the lesser of— 
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101 
‘‘(1) the taxpayer’s qualified timber gain for 
such year, or 
‘‘(2) the taxpayer’s net capital gain for such 
year. 
‘‘(b) QUALIFIED TIMBER GAIN.—For purposes of 
this section, the term ‘qualified timber gain’ means, with 
respect to any taxpayer for any taxable year, the excess 
(if any) of— 
‘‘(1) the sum of the taxpayer’s gains described 
in subsections (a) and (b) of section 631 for such 
year, over 
‘‘(2) the sum of the taxpayer’s losses described 
in such subsections for such year. 
‘‘(c) SPECIAL RULES FOR PASS-THRU ENTITIES.— 
In the case of any qualified timber gain of a pass-thru 
entity (as defined in section 1(h)(10))— 
‘‘(1) the election under this section shall be 
made separately by each taxpayer subject to tax on 
such gain, and 
‘‘(2) the Secretary may prescribe such regula-
tions as are appropriate to apply this section to such 
gain. 
‘‘(d) TERMINATION.—No disposition of timber after 
December 31, 2007, shall be taken into account under 
subsection (b).’’. 
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102 
(b) COORDINATION WITH MAXIMUM CAPITAL GAINS 
RATES.— 
(1) 
TAXPAYERS
OTHER
THAN
CORPORA-
TIONS.—Paragraph (2) of section 1(h) is amended 
to read as follows: 
‘‘(2) REDUCTION OF NET CAPITAL GAIN.—For 
purposes of this subsection, the net capital gain for 
any taxable year shall be reduced (but not below 
zero) by the sum of— 
‘‘(A) the amount which the taxpayer takes 
into account as investment income under sec-
tion 163(d)(4)(B)(iii), and 
‘‘(B) in the case of a taxable year with re-
spect to which an election is in effect under sec-
tion 1203, the lesser of— 
‘‘(i) the amount described in para-
graph (1) of section 1203(a), or 
‘‘(ii) the amount described in para-
graph (2) of such section.’’. 
(2) CORPORATIONS.—Section 1201 is amended 
by redesignating subsection (b) as subsection (c) and 
inserting after subsection (a) the following new sub-
section: 
‘‘(b) QUALIFIED TIMBER GAIN NOT TAKEN INTO 
ACCOUNT.—For purposes of this section, in the case of 
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103 
a corporation with respect to which an election is in effect 
under section 1203, the net capital gain for any taxable 
year shall be reduced (but not below zero) by the corpora-
tion’s qualified timber gain (as defined in section 
1203(b)).’’. 
(c) DEDUCTION ALLOWED WHETHER OR NOT INDI-
VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) 
of section 62, as amended by this Act, is amended by in-
serting before the last sentence the following new para-
graph: 
‘‘(22) QUALIFIED TIMBER GAINS.—The deduc-
tion allowed by section 1203.’’. 
(d) DEDUCTION
ALLOWED
IN
COMPUTING
AD-
JUSTED CURRENT EARNINGS.—Subparagraph (C) of sec-
tion 56(g)(4) is amended by adding at the end the fol-
lowing new clause: 
‘‘(vii) DEDUCTION
FOR
QUALIFIED 
TIMBER GAIN.—Clause (i) shall not apply 
to any deduction allowed under section 
1203.’’. 
(e) DEDUCTION ALLOWED IN COMPUTING TAXABLE 
INCOME OF ELECTING SMALL BUSINESS TRUSTS.—Sub-
paragraph (C) of section 641(c)(2) is amended by insert-
ing after clause (iii) the following new clause: 
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104 
‘‘(iv) The deduction allowed under 
section 1203.’’. 
(f) CONFORMING AMENDMENTS.— 
(1) Subparagraph (B) of section 172(d)(2) is 
amended to read as follows: 
‘‘(B) the exclusion under section 1202 and 
the deduction under section 1203 shall not be 
allowed.’’. 
(2) Paragraph (4) of section 642(c) is amended 
by striking the first sentence and inserting the fol-
lowing: ‘‘To the extent that the amount otherwise al-
lowable as a deduction under this subsection consists 
of gain described in section 1202(a) or qualified tim-
ber gain (as defined in section 1203(b)), proper ad-
justment shall be made for any exclusion allowable 
to the estate or trust under section 1202 and for 
any deduction allowable to the estate or trust under 
section 1203.’’. 
(3) Paragraph (3) of section 643(a) is amended 
by striking the last sentence and inserting the fol-
lowing: ‘‘The exclusion under section 1202 and the 
deduction under section 1203 shall not be taken into 
account.’’. 
(4) Subparagraph (C) of section 643(a)(6) is 
amended to read as follows: 
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105 
‘‘(C) Paragraph (3) shall not apply to a 
foreign trust. In the case of such a trust— 
‘‘(i) there shall be included gains from 
the sale or exchange of capital assets, re-
duced by losses from such sales or ex-
changes to the extent such losses do not 
exceed gains from such sales or exchanges, 
and 
‘‘(ii) the deduction under section 1203 
shall not be taken into account.’’. 
(5) Paragraph (4) of section 691(c) is amended 
by inserting ‘‘1203,’’ after ‘‘1202,’’. 
(6) Paragraph (2) of section 871(a) is amended 
by striking ‘‘section 1202’’ and inserting ‘‘sections 
1202 and 1203’’. 
(7) The table of sections for part I of sub-
chapter P of chapter 1 is amended by adding at the 
end the following new item: 
‘‘Sec. 1203. Deduction for qualified timber gain.’’. 
(g) EFFECTIVE DATE.— 
(1) IN GENERAL.—The amendments made by 
this section shall apply to taxable years ending after 
the date of the enactment of this Act. 
(2) TAXABLE YEARS WHICH INCLUDE DATE OF 
ENACTMENT.—In the case of any taxable year which 
includes the date of the enactment of this Act, for 
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106 
purposes of the Internal Revenue Code of 1986, the 
taxpayer’s qualified timber gain shall not exceed the 
excess that would be described in section 1203(b) of 
such Code, as added by this section, if only disposi-
tions of timber after such date were taken into ac-
count. 
SEC. 253. CREDIT TO HOLDERS OF RURAL RENAISSANCE 
BONDS. 
(a) IN GENERAL.—Subpart H of part IV of sub-
chapter A of chapter 1 (relating to credits against tax) 
is amended by adding at the end the following new section: 
‘‘SEC. 54A. CREDIT TO HOLDERS OF RURAL RENAISSANCE 
BONDS. 
‘‘(a) ALLOWANCE OF CREDIT.—In the case of a tax-
payer who holds a rural renaissance bond on a credit al-
lowance date of such bond, which occurs during the tax-
able year, there shall be allowed as a credit against the 
tax imposed by this chapter for such taxable year an 
amount equal to the sum of the credits determined under 
subsection (b) with respect to credit allowance dates dur-
ing such year on which the taxpayer holds such bond. 
‘‘(b) AMOUNT OF CREDIT.— 
‘‘(1) IN GENERAL.—The amount of the credit 
determined under this subsection with respect to any 
credit allowance date for a rural renaissance bond is 
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107 
25 percent of the annual credit determined with re-
spect to such bond. 
‘‘(2) ANNUAL CREDIT.—The annual credit de-
termined with respect to any rural renaissance bond 
is the product of— 
‘‘(A) the credit rate determined by the Sec-
retary under paragraph (3) for the day on 
which such bond was sold, multiplied by 
‘‘(B) the outstanding face amount of the 
bond. 
‘‘(3) DETERMINATION.—For purposes of para-
graph (2), with respect to any rural renaissance 
bond, the Secretary shall determine daily or caused 
to be determined daily a credit rate which shall 
apply to the first day on which there is a binding, 
written contract for the sale or exchange of the 
bond. The credit rate for any day is the credit rate 
which the Secretary or the Secretary’s designee esti-
mates will permit the issuance of rural renaissance 
bonds with a specified maturity or redemption date 
without discount and without interest cost to the 
qualified issuer. 
‘‘(4) CREDIT ALLOWANCE DATE.—For purposes 
of this section, the term ‘credit allowance date’ 
means— 
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108 
‘‘(A) March 15, 
‘‘(B) June 15, 
‘‘(C) September 15, and 
‘‘(D) December 15. 
Such term also includes the last day on which the 
bond is outstanding. 
‘‘(5) SPECIAL RULE FOR ISSUANCE AND RE-
DEMPTION.—In the case of a bond which is issued 
during the 3-month period ending on a credit allow-
ance date, the amount of the credit determined 
under this subsection with respect to such credit al-
lowance date shall be a ratable portion of the credit 
otherwise determined based on the portion of the 3- 
month period during which the bond is outstanding. 
A similar rule shall apply when the bond is redeemed 
or matures. 
‘‘(c) LIMITATION BASED ON AMOUNT OF TAX.—The 
credit allowed under subsection (a) for any 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 this 
part (other than subpart C and this section). 
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109 
‘‘(d) RURAL RENAISSANCE BOND.—For purposes of 
this section— 
‘‘(1) IN
GENERAL.—The term ‘rural renais-
sance bond’ means any bond issued as part of an 
issue if— 
‘‘(A) the bond is issued by a qualified 
issuer, 
‘‘(B) 95 percent or more of the proceeds 
from the sale of such issue are to be used for 
capital expenditures incurred for 1 or more 
qualified projects, 
‘‘(C) the qualified issuer designates such 
bond for purposes of this section and the bond 
is in registered form, and 
‘‘(D) the issue meets the requirements of 
subsections (e) and (h). 
‘‘(2) 
QUALIFIED
PROJECT; 
SPECIAL
USE 
RULES.— 
‘‘(A) IN
GENERAL.—The term ‘qualified 
project’ means 1 or more projects described in 
subparagraph (B) located in a rural area. 
‘‘(B) PROJECTS
DESCRIBED.—A project 
described in this subparagraph is— 
‘‘(i) a water or waste treatment 
project, 
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110 
‘‘(ii) an affordable housing project, 
‘‘(iii) a community facility project, in-
cluding hospitals, fire and police stations, 
and nursing and assisted-living facilities, 
‘‘(iv) a value-added agriculture or re-
newable energy facility project for agricul-
tural producers or farmer-owned entities, 
including any project to promote the pro-
duction, processing, or retail sale of eth-
anol (including fuel at least 85 percent of 
the volume of which consists of ethanol), 
biodiesel, animal waste, biomass, raw com-
modities, or wind as a fuel, 
‘‘(v) a distance learning or telemedi-
cine project, 
‘‘(vi) a rural utility infrastructure 
project, including any electric or telephone 
system, 
‘‘(vii) a project to expand broadband 
technology, 
‘‘(viii) a rural teleworks project, and 
‘‘(ix) any project described in any pre-
ceding clause carried out by the Delta Re-
gional Authority. 
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111 
‘‘(C) SPECIAL
RULES.—For purposes of 
this paragraph— 
‘‘(i) any project described in subpara-
graph (B)(iv) for a farmer-owned entity 
may be considered a qualified project if 
such entity is located in a rural area, or in 
the case of a farmer-owned entity the 
headquarters of which are located in a 
nonrural area, if the project is located in 
a rural area, and 
‘‘(ii) any project for a farmer-owned 
entity which is a facility described in sub-
paragraph (B)(iv) for agricultural pro-
ducers may be considered a qualified 
project regardless of whether the facility is 
located in a rural or nonrural area. 
‘‘(3) SPECIAL USE RULES.— 
‘‘(A) REFINANCING RULES.—For purposes 
of paragraph (1)(B), a qualified project may be 
refinanced with proceeds of a rural renaissance 
bond only if the indebtedness being refinanced 
(including any obligation directly or indirectly 
refinanced by such indebtedness) was originally 
incurred after the date of the enactment of this 
section. 
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112 
‘‘(B) REIMBURSEMENT.—For purposes of 
paragraph (1)(B), a rural renaissance bond 
may be issued to reimburse a borrower for 
amounts paid after the date of the enactment 
of this section with respect to a qualified 
project, but only if— 
‘‘(i) prior to the payment of the origi-
nal expenditure, the borrower declared its 
intent to reimburse such expenditure with 
the proceeds of a rural renaissance bond, 
‘‘(ii) not later than 60 days after pay-
ment of the original expenditure, the quali-
fied issuer adopts an official intent to re-
imburse the original expenditure with such 
proceeds, and 
‘‘(iii) the reimbursement is made not 
later than 18 months after the date the 
original expenditure is paid. 
‘‘(C) TREATMENT OF CHANGES IN USE.— 
For purposes of paragraph (1)(B), the proceeds 
of an issue shall not be treated as used for a 
qualified project to the extent that a borrower 
takes any action within its control which causes 
such proceeds not to be used for a qualified 
project. The Secretary shall prescribe regula-
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