633
lowable under subsection (a) is the lessee or the op-
erator of such facility.
‘‘(8) LIMIT ON REDUCTIONS FOR GRANTS, ETC.,
FOR
OPEN-LOOP
BIOMASS
FACILITIES.—If 
the
amount of the credit determined under subsection
(a) with respect to any open-loop biomass facility is
required to be reduced under paragraph (3) of sub-
section (b), the fraction under such paragraph shall
in no event be greater than 1⁄2.
‘‘(9) COORDINATION
WITH
SECTION
29.—The
term ‘qualified facility’ shall not include any facility
the production from which is allowed as a credit
under section 29 for the taxable year or any prior
taxable year.’’.
(d) QUALIFIED ENERGY RESOURCES.—Paragraph
(1) of section 45(c) (relating to qualified energy resources)
is amended to read as follows:
‘‘(1) QUALIFIED
ENERGY
RESOURCES.—The
term ‘qualified energy resources’ means any resource
described in paragraph (3) which is used to generate
electricity at a qualified facility.’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to electricity sold after the date
of the enactment of this Act, in taxable years ending after
such date.
634
SEC. 41003. CREDIT FOR QUALIFIED FUEL CELL POWER
PLANTS.
(a) BUSINESS PROPERTY.—
(1) IN GENERAL.—Subparagraph (A) of section
48(a)(3) (defining energy property) is amended by
striking ‘‘or’’ at the end of clause (i), by adding
‘‘or’’ at the end of clause (ii), and by inserting after
clause (ii) the following new clause:
‘‘(iii) equipment which is part of a
qualified fuel cell power plant,’’.
(2) QUALIFIED FUEL CELL POWER PLANT.—
Subsection (a) of section 48 is amended by redesig-
nating paragraphs (4) and (5) as paragraphs (5)
and (6), respectively, and by inserting after para-
graph (3) the following new paragraph:
‘‘(4) QUALIFIED FUEL CELL POWER PLANT.—
For purposes of this subsection—
‘‘(A) IN
GENERAL.—The term ‘qualified
fuel cell power plant’ means a fuel cell power
plant that has an electricity-only generation ef-
ficiency greater than 30 percent.
‘‘(B) LIMITATION.—The energy credit with
respect to any qualified fuel cell power plant for
any taxable year shall not exceed—
‘‘(i) $500 for each 1⁄2 kilowatt of ca-
pacity of the power plant, reduced by
635
‘‘(ii) the aggregate energy credits al-
lowed with respect to such power plant for
all prior taxable years.
‘‘(C) FUEL
CELL
POWER
PLANT.—The
term ‘fuel cell power plant’ means an integrated
system comprised of a fuel cell stack assembly
and associated balance of plant components
that converts a fuel into electricity using elec-
trochemical means.
‘‘(D) TERMINATION.—Such term shall not
include any property placed in service after De-
cember 31, 2006.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to property placed in
service after December 31, 2003, 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).
(b) NONBUSINESS PROPERTY.—
(1) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable
personal credits) is amended by inserting after sec-
tion 25C the following new section:
636
‘‘SEC. 25D. NONBUSINESS QUALIFIED FUEL CELL POWER
PLANT.
‘‘(a) IN GENERAL.—In the case of an individual,
there shall be allowed as a credit against the tax imposed
by this chapter for the taxable year an amount equal to
10 percent of the qualified fuel cell power plant expendi-
tures which are paid or incurred during such year.
‘‘(b) LIMITATIONS.—The credit allowed under sub-
section (a) with respect to any qualified fuel cell power
plant for any taxable year shall not exceed—
‘‘(1) $500 for each 1⁄2 kilowatt of capacity of
the power plant, reduced by
‘‘(2) the aggregate energy credits allowed with
respect to such power plant for all prior taxable
years.
‘‘(c) QUALIFIED FUEL CELL POWER PLANT EX-
PENDITURES.—For purposes of this section, the term
‘qualified fuel cell power plant expenditures’ means ex-
penditures by the taxpayer for any qualified fuel cell power
plant (as defined in section 48(a)(4))—
‘‘(1) which meets the requirements of subpara-
graphs (B) and (D) of section 48(a)(3), and
‘‘(2) which is installed on or in connection with
a dwelling unit—
‘‘(A) which is located in the United States,
and
637
‘‘(B) which is used by the taxpayer as a
residence.
Such term includes expenditures for labor costs properly
allocable to the onsite preparation, assembly, or original
installation of the property.
‘‘(d) SPECIAL RULES.—For purposes of this section,
rules similar to the rules of section 25C(d) shall apply.
‘‘(e) BASIS ADJUSTMENTS.—For purposes of this
subtitle, if a credit is allowed under this section for any
expenditure with respect to any property, the increase in
the basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by
the amount of the credit so allowed.
‘‘(f) TERMINATION.—This section shall not apply to
any expenditure made after December 31, 2006.’’.
(2) CONFORMING AMENDMENTS.—
(A) Subsection (a) of section 1016 is
amended by striking ‘‘and’’ at the end of para-
graph (28), by striking the period at the end of
paragraph (29) and inserting ‘‘, and’’, and by
adding at the end the following new paragraph:
‘‘(30) to the extent provided in section 25D(e),
in the case of amounts with respect to which a credit
has been allowed under section 25D.’’.
638
(B) The table of sections for subpart A of
part IV of subchapter A of chapter 1 is amend-
ed by inserting after the item relating to section
25C the following new item:
‘‘Sec. 25D. Nonbusiness qualified fuel cell power plant.’’.
(3) EFFECTIVE DATE.—The amendments made
by this subsection shall apply to expenditures paid
or incurred after December 31, 2003, in taxable
years ending after such date.
SEC. 41004. CREDIT FOR ENERGY EFFICIENCY IMPROVE-
MENTS TO EXISTING HOMES.
(a) IN GENERAL.—Subpart A of part IV of sub-
chapter A of chapter 1 (relating to nonrefundable personal
credits) is amended by inserting after section 25D the fol-
lowing new section:
‘‘SEC. 25E. ENERGY EFFICIENCY IMPROVEMENTS TO EXIST-
ING HOMES.
‘‘(a) ALLOWANCE OF CREDIT.—In the case of an in-
dividual, there shall be allowed as a credit against the tax
imposed by this chapter for the taxable year an amount
equal to 20 percent of the amount paid or incurred by
the taxpayer for qualified energy efficiency improvements
installed during such taxable year.
‘‘(b) LIMITATIONS.—
639
‘‘(1) MAXIMUM CREDIT.—The credit allowed by
this section with respect to a dwelling shall not ex-
ceed $2,000.
‘‘(2) PRIOR CREDIT AMOUNTS FOR TAXPAYER
ON SAME DWELLING TAKEN INTO ACCOUNT.—If a
credit was allowed to the taxpayer under subsection
(a) with respect to a dwelling in 1 or more prior tax-
able years, the amount of the credit otherwise allow-
able for the taxable year with respect to that dwell-
ing shall not exceed the amount of $2,000 reduced
by the sum of the credits allowed under subsection
(a) to the taxpayer with respect to the dwelling for
all prior taxable years.
‘‘(c) CARRYFORWARD OF UNUSED CREDIT.—If the
credit allowable under subsection (a) exceeds the limita-
tion imposed by section 26(a) for such taxable year re-
duced by the sum of the credits allowable under this sub-
part (other than this section) for such taxable year, such
excess shall be carried to the succeeding taxable year and
added to the credit allowable under subsection (a) for such
succeeding taxable year.
‘‘(d) QUALIFIED ENERGY EFFICIENCY IMPROVE-
MENTS.—For purposes of this section, the term ‘qualified
energy efficiency improvements’ means any energy effi-
cient building envelope component which meets the pre-
640
scriptive criteria for such component established by the
2000 International Energy Conservation Code (or, in the
case of metal roofs with appropriate pigmented coatings,
meets the Energy Star program requirements), if—
‘‘(1) such component is installed in or on a
dwelling—
‘‘(A) located in the United States, and
‘‘(B) owned and used by the taxpayer as
the taxpayer’s principal residence (within the
meaning of section 121),
‘‘(2) the original use of such component com-
mences with the taxpayer, and
‘‘(3) such component reasonably can be ex-
pected to remain in use for at least 5 years.
If the aggregate cost of such components with respect to
any dwelling exceeds $1,000, such components shall be
treated as qualified energy efficiency improvements only
if such components are also certified in accordance with
subsection (e) as meeting such criteria.
‘‘(e) CERTIFICATION.—The certification described in
subsection (d) shall be—
‘‘(1) determined on the basis of the technical
specifications or applicable ratings (including prod-
uct labeling requirements) for the measurement of
energy efficiency, based upon energy use or building
641
envelope component performance, for the energy effi-
cient building envelope component,
‘‘(2) provided by a local building regulatory au-
thority, a utility, a manufactured home production
inspection primary inspection agency (IPIA), or an
accredited home energy rating system provider who
is accredited by or otherwise authorized to use ap-
proved energy performance measurement methods by
the 
Residential 
Energy 
Services 
Network
(RESNET), and
‘‘(3) made in writing in a manner that specifies
in readily verifiable fashion the energy efficient
building envelope components installed and their re-
spective energy efficiency levels.
‘‘(f) DEFINITIONS AND SPECIAL RULES.—
‘‘(1) TENANT-STOCKHOLDER IN COOPERATIVE
HOUSING CORPORATION.—In the case of an indi-
vidual who is a tenant-stockholder (as defined in sec-
tion 216) in a cooperative housing corporation (as
defined in such section), such individual shall be
treated as having paid his tenant-stockholder’s pro-
portionate share (as defined in section 216(b)(3)) of
the cost of qualified energy efficiency improvements
made by such corporation.
‘‘(2) CONDOMINIUMS.—
642
‘‘(A) IN GENERAL.—In the case of an indi-
vidual who is a member of a condominium man-
agement association with respect to a condo-
minium which he owns, such individual shall be
treated as having paid his proportionate share
of the cost of qualified energy efficiency im-
provements made by such association.
‘‘(B) CONDOMINIUM
MANAGEMENT
ASSO-
CIATION.—For purposes of this paragraph, the
term ‘condominium management association’
means an organization which meets the require-
ments of paragraph (1) of section 528(c) (other
than subparagraph (E) thereof) with respect to
a condominium project substantially all of the
units of which are used as residences.
‘‘(3) BUILDING ENVELOPE COMPONENT.—The
term ‘building envelope component’ means insulation
material or system which is specifically and pri-
marily designed to reduce the heat loss or gain of a
dwelling when installed in or on such dwelling, exte-
rior windows (including skylights) and doors, and
metal roofs with appropriate pigmented coatings
which are specifically and primarily designed to re-
duce the heat gain of a dwelling when installed in
or on such dwelling.
643
‘‘(4) MANUFACTURED HOMES INCLUDED.—For
purposes of this section, the term ‘dwelling’ includes
a manufactured home which conforms to Federal
Manufactured Home Construction and Safety Stand-
ards (section 3280 of title 24, Code of Federal Reg-
ulations, as in effect on April 3, 2003).
‘‘(g) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is allowed under this section for any ex-
penditure with respect to any property, the increase in the
basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by
the amount of the credit so allowed.
‘‘(h) APPLICATION OF SECTION.—This section shall
apply to qualified energy efficiency improvements installed
after December 31, 2003, and before January 1, 2007.’’.
(b) CONFORMING AMENDMENTS.—
(1) Subsection (c) of section 23 is amended by
striking ‘‘section 1400C’’ and inserting ‘‘sections
25E and 1400C’’.
(2) Subsection (a) of section 1016 is amended
by striking ‘‘and’’ at the end of paragraph (29), by
striking the period at the end of paragraph (30) and
inserting ‘‘, and’’, and by adding at the end the fol-
lowing new paragraph:
644
‘‘(31) to the extent provided in section 25E(g),
in the case of amounts with respect to which a credit
has been allowed under section 25E.’’.
(3) Subsection (d) of section 1400C is amended
by inserting ‘‘and section 25E’’ after ‘‘this section’’.
(4) The table of sections for subpart A of part
IV of subchapter A of chapter 1 is amended by in-
serting after the item relating to section 25D the
following new item:
‘‘Sec. 25E. Energy efficiency improvements to existing homes.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after De-
cember 31, 2003.
SEC. 41005. BUSINESS CREDIT FOR CONSTRUCTION OF NEW
ENERGY EFFICIENT HOME.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business related cred-
its) is amended by inserting after section 45F the fol-
lowing new section:
‘‘SEC. 45G. NEW ENERGY EFFICIENT HOME CREDIT.
‘‘(a) IN GENERAL.—For purposes of section 38, in
the case of an eligible contractor, the credit determined
under this section for the taxable year is an amount equal
to the aggregate adjusted bases of all energy efficient
property installed in a qualified new energy efficient home
during construction of such home.
645
‘‘(b) LIMITATIONS.—
‘‘(1) MAXIMUM CREDIT.—
‘‘(A) IN GENERAL.—The credit allowed by
this section with respect to a dwelling shall not
exceed $2,000.
‘‘(B) PRIOR CREDIT AMOUNTS ON SAME
DWELLING TAKEN INTO ACCOUNT.—If a credit
was allowed under subsection (a) with respect
to a dwelling in 1 or more prior taxable years,
the amount of the credit otherwise allowable for
the taxable year with respect to that dwelling
shall not exceed the amount of $2,000 reduced
by the sum of the credits allowed under sub-
section (a) with respect to the dwelling for all
prior taxable years.
‘‘(2) COORDINATION
WITH
REHABILITATION
AND
ENERGY
CREDITS.—For purposes of this
section—
‘‘(A) the basis of any property referred to
in subsection (a) shall be reduced by that por-
tion of the basis of any property which is attrib-
utable to qualified rehabilitation expenditures
(as defined in section 47(c)(2)) or to the energy
percentage of energy property (as determined
under section 48(a)), and
646
‘‘(B) expenditures taken into account
under either section 47 or 48(a) shall not be
taken into account under this section.
‘‘(c) DEFINITIONS.—For purposes of this section—
‘‘(1) ELIGIBLE CONTRACTOR.—The term ‘eligi-
ble contractor’ means the person who constructed
the new energy efficient home, or in the case of a
manufactured home which conforms to Federal
Manufactured Home Construction and Safety Stand-
ards (section 3280 of title 24, Code of Federal Reg-
ulations, as in effect on April 3, 2003), the manufac-
tured home producer of such home.
‘‘(2) ENERGY
EFFICIENT
PROPERTY.—The
term ‘energy efficient property’ means any energy
efficient building envelope component, and any en-
ergy efficient heating or cooling appliance.
‘‘(3) QUALIFIED
NEW
ENERGY
EFFICIENT
HOME.—The term ‘qualified new energy efficient
home’ means a dwelling—
‘‘(A) located in the United States,
‘‘(B) the construction of which is substan-
tially completed after December 31, 2003,
‘‘(C) the original use of which is as a prin-
cipal residence (within the meaning of section
121) which commences with the person who ac-
647
quires such dwelling from the eligible con-
tractor, and
‘‘(D) which is certified to have a level of
annual heating and cooling energy consumption
that is at least 30 percent below the annual
level of heating and cooling energy consumption
of a comparable dwelling constructed in accord-
ance with the standards of the 2000 Inter-
national Energy Conservation Code and to have
building envelope component improvements ac-
count for 1⁄3 of such 30 percent.
‘‘(4) CONSTRUCTION.—The term ‘construction’
includes reconstruction and rehabilitation.
‘‘(5) ACQUIRE.—The term ‘acquire’ includes
purchase and, in the case of reconstruction and re-
habilitation, such term includes a binding written
contract for such reconstruction or rehabilitation.
‘‘(6) BUILDING ENVELOPE COMPONENT.—The
term ‘building envelope component’ means insulation
material or system which is specifically and pri-
marily designed to reduce the heat loss or gain of a
dwelling when installed in or on such dwelling, exte-
rior windows (including skylights) and doors, and
metal roofs with appropriate pigmented coatings
which are specifically and primarily designed to re-
648
duce the heat gain of a dwelling when installed in
or on such dwelling.
‘‘(7) MANUFACTURED HOME INCLUDED.—The
term ‘dwelling’ includes a manufactured home con-
forming to Federal Manufactured Home Construc-
tion and Safety Standards (section 3280 of title 24,
Code of Federal Regulations, as in effect on April 3,
2003).
‘‘(d) CERTIFICATION.—
‘‘(1) METHOD.—A certification described in
subsection (c)(3)(D) shall be determined on the
basis of one of the following methods:
‘‘(A) The technical specifications or appli-
cable ratings (including product labeling re-
quirements) for the measurement of energy effi-
ciency for the energy efficient building envelope
component or energy efficient heating or cooling
appliance, based upon energy use or building
envelope component performance.
‘‘(B) An energy performance measurement
method that utilizes computer software ap-
proved by organizations designated by the Sec-
retary.
‘‘(2) PROVIDER.—Such certification shall be
provided by—
649
‘‘(A) in the case of a method described in
paragraph (1)(A), a local building regulatory
authority, a utility, a manufactured home pro-
duction inspection primary inspection agency
(IPIA), or an accredited home energy rating
systems provider who is accredited by, or other-
wise authorized to use, approved energy per-
formance measurement methods by the Home
Energy Ratings Systems Council or the Na-
tional Association of State Energy Officials, or
‘‘(B) in the case of a method described in
paragraph (1)(B), an individual recognized by
an organization designated by the Secretary for
such purposes.
‘‘(3) FORM.—Such certification shall be made
in writing in a manner that specifies in readily
verifiable fashion the energy efficient building enve-
lope components and energy efficient heating or
cooling appliances installed and their respective en-
ergy efficiency levels, and in the case of a method
described in subparagraph (B) of paragraph (1), ac-
companied by written analysis documenting the
proper application of a permissible energy perform-
ance measurement method to the specific cir-
cumstances of such dwelling.
650
‘‘(4) REGULATIONS.—
‘‘(A) IN GENERAL.—In prescribing regula-
tions under this subsection for energy perform-
ance measurement methods, the Secretary shall
prescribe procedures for calculating annual en-
ergy costs for heating and cooling and cost sav-
ings and for the reporting of the results. Such
regulations shall—
‘‘(i) be based on the National Home
Energy Rating Technical Guidelines of the
National Association of State Energy Offi-
cials, the Home Energy Rating Guidelines
of the Home Energy Rating Systems
Council, or the modified 2001 California
Residential ACM manual,
‘‘(ii) provide that any calculation pro-
cedures be developed such that the same
energy efficiency measures allow a home to
qualify for the credit under this section re-
gardless of whether the house uses a gas
or oil furnace or boiler or an electric heat
pump, and
‘‘(iii) require that any computer soft-
ware allow for the printing of the Federal
tax forms necessary for the credit under
651
this section and explanations for the home-
buyer of the energy efficient features that
were used to comply with the requirements
of this section.
‘‘(B) PROVIDERS.—For purposes of para-
graph (2)(B), the Secretary shall establish re-
quirements for the designation of individuals
based on the requirements for energy consult-
ants and home energy raters specified by the
National Association of State Energy Officials.
‘‘(e) BASIS ADJUSTMENT.—For purposes of this sub-
title, if a credit is determined under this section for any
expenditure with respect to any property, the increase in
the basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by
the amount of the credit so determined.
‘‘(f) APPLICATION OF SECTION.—Subsection (a) shall
apply to dwellings purchased during the period beginning
on January 1, 2004, and ending on December 31, 2006.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 (relating to current
year business credit) is amended by striking ‘‘plus’’ at the
end of paragraph (14), by striking the period at the end
of paragraph (15) and inserting ‘‘, plus’’, and by adding
at the end thereof the following new paragraph:
652
‘‘(16) the new energy efficient home credit de-
termined under section 45G.’’.
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C
(relating to certain expenses for which credits are allow-
able) is amended by adding at the end thereof the fol-
lowing new subsection:
‘‘(d) NEW ENERGY EFFICIENT HOME EXPENSES.—
No deduction shall be allowed for that portion of expenses
for a new energy efficient home otherwise allowable as a
deduction for the taxable year which is equal to the
amount of the credit determined for such taxable year
under section 45G.’’.
(d) LIMITATION ON CARRYBACK.—Subsection (d) of
section 39 is amended by adding at the end the following
new paragraph:
‘‘(11) NO CARRYBACK OF NEW ENERGY EFFI-
CIENT HOME CREDIT BEFORE EFFECTIVE DATE.—
No portion of the unused business credit for any
taxable year which is attributable to the credit deter-
mined under section 45G may be carried back to any
taxable year ending before January 1, 2004.’’.
(e) DEDUCTION FOR CERTAIN UNUSED BUSINESS
CREDITS.—Subsection (c) of section 196 is amended by
striking ‘‘and’’ at the end of paragraph (9), by striking
the period at the end of paragraph (10) and inserting ‘‘,
653
and’’, and by adding after paragraph (10) the following
new paragraph:
‘‘(11) the new energy efficient home credit de-
termined under section 45G.’’.
(f) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
is amended by inserting after the item relating to section
45F the following new item:
‘‘Sec. 45G. New energy efficient home credit.’’.
(g) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after De-
cember 31, 2003.
SEC. 41006. ENERGY CREDIT FOR COMBINED HEAT AND
POWER SYSTEM PROPERTY.
(a) IN GENERAL.—Subparagraph (A) of section
48(a)(3) (defining energy property) is amended by strik-
ing ‘‘or’’ at the end of clause (ii), by adding ‘‘or’’ at the
end of clause (iii), and by inserting after clause (iii) the
following new clause:
‘‘(iv) combined heat and power system
property,’’.
(b) COMBINED HEAT AND POWER SYSTEM PROP-
ERTY.—Subsection (a) of section 48 is amended by redes-
ignating paragraphs (5) and (6) as paragraphs (6) and
(7), respectively, and by inserting after paragraph (4) the
following new paragraph:
654
‘‘(5) COMBINED
HEAT
AND
POWER
SYSTEM
PROPERTY.—For purposes of this subsection—
‘‘(A) COMBINED HEAT AND POWER SYS-
TEM PROPERTY.—The term ‘combined heat and
power system property’ means property com-
prising a system—
‘‘(i) which uses the same energy
source for the simultaneous or sequential
generation of electrical power, mechanical
shaft power, or both, in combination with
the generation of steam or other forms of
useful thermal energy (including heating
and cooling applications),
‘‘(ii) which has an electrical capacity
of more than 50 kilowatts or a mechanical
energy capacity of more than 67 horse-
power or an equivalent combination of elec-
trical and mechanical energy capacities,
‘‘(iii) which produces—
‘‘(I) at least 20 percent of its
total useful energy in the form of
thermal energy, and
‘‘(II) at least 20 percent of its
total useful energy in the form of elec-
655
trical or mechanical power (or com-
bination thereof),
‘‘(iv) the energy efficiency percentage
of which exceeds 60 percent (70 percent in
the case of a system with an electrical ca-
pacity in excess of 50 megawatts or a me-
chanical energy capacity in excess of
67,000 horsepower, or an equivalent com-
bination of electrical and mechanical en-
ergy capacities), and
‘‘(v) which is placed in service after
December 31, 2003, and before January 1,
2007.
‘‘(B) SPECIAL RULES.—
‘‘(i) ENERGY
EFFICIENCY
PERCENT-
AGE.—For 
purposes 
of 
subparagraph
(A)(iv), the energy efficiency percentage of
a system is the fraction—
‘‘(I) the numerator of which is
the total useful electrical, thermal,
and mechanical power produced by
the system at normal operating rates,
and
656
‘‘(II) the denominator of which is
the lower heating value of the primary
fuel source for the system.
‘‘(ii) DETERMINATIONS MADE ON BTU
BASIS.—The energy efficiency percentage
and the percentages under subparagraph
(A)(iii) shall be determined on a Btu basis.
‘‘(iii) INPUT AND OUTPUT PROPERTY
NOT INCLUDED.—The term ‘combined heat
and power system property’ does not in-
clude property used to transport the en-
ergy source to the facility or to distribute
energy produced by the facility.
‘‘(iv) PUBLIC UTILITY PROPERTY.—
‘‘(I) ACCOUNTING
RULE
FOR
PUBLIC
UTILITY
PROPERTY.—If the
combined heat and power system
property is public utility property (as
defined in section 168(i)(1)), the tax-
payer may only claim the credit under
the subsection if, with respect to such
property, the taxpayer uses a normal-
ization method of accounting.
‘‘(II) CERTAIN
EXCEPTION
NOT
TO APPLY.—The matter in paragraph
657
(3) which follows subparagraph (D)
shall not apply to combined heat and
power system property.
‘‘(C) EXTENSION
OF
DEPRECIATION
RE-
COVERY PERIOD.—If a taxpayer is allowed cred-
it under this section for combined heat and
power system property and such property would
(but for this subparagraph) have a class life of
15 years or less under section 168, such prop-
erty shall be treated as having a 22-year class
life for purposes of section 168.’’.
(c) NO CARRYBACK OF ENERGY CREDIT BEFORE
EFFECTIVE DATE.—Subsection (d) of section 39 is
amended by adding at the end the following new para-
graph:
‘‘(12) NO CARRYBACK OF ENERGY CREDIT BE-
FORE EFFECTIVE DATE.—No portion of the unused
business credit for any taxable year which is attrib-
utable to the energy credit with respect to property
described in section 48(a)(5) may be carried back to
a taxable year ending before January 1, 2004.’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
December 31, 2003, in taxable years ending after such
date.
658
SEC. 41007. NEW NONREFUNDABLE PERSONAL CREDITS AL-
LOWED AGAINST REGULAR AND MINIMUM
TAXES.
(a) IN GENERAL.—
(1) SECTION 25C.—Section 25C(b), as added
by section 41001, is amended by adding at the end
the following new paragraph:
‘‘(3) LIMITATION
BASED
ON
AMOUNT
OF
TAX.—The credit allowed under subsection (a) for
the taxable year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability
(as defined in section 26(b)) plus the tax im-
posed by section 55, over
‘‘(B) the sum of the credits allowable
under this subpart (other than this section and
section 25D and 25E) and section 27 for the
taxable year.’’.
(2) SECTION 25D.—Section 25D(b), as added
by section 103, is amended to read as follows:
‘‘(b) LIMITATIONS.—
‘‘(1) IN GENERAL.—The credit allowed under
subsection (a) with respect to any qualified fuel cell
power plant for any taxable year shall not exceed—
‘‘(A) $500 for each 1⁄2 kilowatt of capacity
of the power plant, reduced by
659
‘‘(B) the aggregate energy credits allowed
with respect to such power plant for all prior
taxable years.
‘‘(2) LIMITATION
BASED
ON
AMOUNT
OF
TAX.—The credit allowed under subsection (a) for
the taxable year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability
(as defined in section 26(b)) plus the tax im-
posed by section 55, over
‘‘(B) the sum of the credits allowable
under this subpart (other than this section and
section 25E) and section 27 for the taxable
year.’’.
(3) SECTION 25E.—Section 25E(b), as added
by section 41004, is amended by adding at the end
the following new paragraph:
‘‘(3) LIMITATION
BASED
ON
AMOUNT
OF
TAX.—The credit allowed under subsection (a) for
the taxable year shall not exceed the excess of—
‘‘(A) the sum of the regular tax liability
(as defined in section 26(b)) plus the tax im-
posed by section 55, over
‘‘(B) the sum of the credits allowable
under this subpart (other than this section) and
section 27 for the taxable year.’’.
660
(b) CONFORMING AMENDMENTS.—
(1) Section 23(b)(4)(B) is amended by inserting
‘‘and sections 25C, 25D, and 25E’’ after ‘‘this sec-
tion’’.
(2) Section 24(b)(3)(B) is amended by striking
‘‘and 25B’’ and inserting ‘‘, 25B, 25C, 25D, and
25E’’.
(3) Section 25(e)(1)(C) is amended by inserting
‘‘25C, 25D, and 25E’’ after ‘‘25B,’’.
(4) Section 25B(g)(2) is amended by striking
‘‘section 23’’ and inserting ‘‘sections 23, 25C, 25D,
and 25E’’.
(5) Section 25E(c), as added by section 41004,
is amended by striking ‘‘section 26(a) for such tax-
able year reduced by the sum of the credits allowable
under this subpart (other than this section)’’ and in-
serting ‘‘subsection (b)(3)’’.
(6) Section 26(a)(1) is amended by striking
‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and
25E’’.
(7) Section 904(h) is amended by striking ‘‘and
25B’’ and inserting ‘‘25B, 25C, 25D, and 25E’’.
(8) Section 1400C(d) is amended by striking
‘‘and 25B’’ and inserting ‘‘25B, 25C, 25D, and
25E’’.
661
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2003.
SEC. 41008. REPEAL OF 4.3-CENT MOTOR FUEL EXCISE
TAXES ON RAILROADS AND INLAND WATER-
WAY TRANSPORTATION WHICH REMAIN IN
GENERAL FUND.
(a) TAXES ON TRAINS.—
(1) IN GENERAL.—Subparagraph (A) of section
4041(a)(1) is amended by striking ‘‘or a diesel-pow-
ered train’’ each place it appears and by striking ‘‘or
train’’.
(2) CONFORMING AMENDMENTS.—
(A) 
Subparagraph 
(C) 
of 
section
4041(a)(1) is amended by striking clause (ii)
and by redesignating clause (iii) as clause (ii).
(B) 
Subparagraph 
(C) 
of 
section
4041(b)(1) is amended by striking all that fol-
lows ‘‘section 6421(e)(2)’’ and inserting a pe-
riod.
(C) Subsection (d) of section 4041 is
amended by redesignating paragraph (3) as
paragraph (4) and by inserting after paragraph
(2) the following new paragraph:
662
‘‘(3) DIESEL FUEL USED IN TRAINS.—There is
hereby imposed a tax of 0.1 cent per gallon on any
liquid other than gasoline (as defined in section
4083)—
‘‘(A) sold by any person to an owner, les-
see, or other operator of a diesel-powered train
for use as a fuel in such train, or
‘‘(B) used by any person as a fuel in a die-
sel-powered train unless there was a taxable
sale of such fuel under subparagraph (A).
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.’’.
(D) Subsection (f) of section 4082 is
amended by striking ‘‘section 4041(a)(1)’’ and
inserting ‘‘subsections (d)(3) and (a)(1) of sec-
tion 4041, respectively’’.
(E) Paragraph (3) of section 4083(a) is
amended by striking ‘‘or a diesel-powered
train’’.
(F) Paragraph (3) of section 6421(f) is
amended to read as follows:
‘‘(3) GASOLINE USED IN TRAINS.—In the case
of gasoline used as a fuel in a train, this section
shall not apply with respect to the Leaking Under-
663
ground Storage Tank Trust Fund financing rate
under section 4081.’’.
(G) Paragraph (3) of section 6427(l) is
amended to read as follows:
‘‘(3) REFUND
OF
CERTAIN
TAXES
ON
FUEL
USED IN DIESEL-POWERED TRAINS.—For purposes
of this subsection, the term ‘nontaxable use’ includes
fuel used in a diesel-powered train. The preceding
sentence shall not apply to the tax imposed by sec-
tion 4041(d) and the Leaking Underground Storage
Tank Trust Fund financing rate under section 4081
except with respect to fuel sold for exclusive use by
a State or any political subdivision thereof.’’.
(b) FUEL USED ON INLAND WATERWAYS.—
(1) IN
GENERAL.—Paragraph (1) of section
4042(b) is amended by adding ‘‘and’’ at the end of
subparagraph (A), by striking ‘‘, and’’ at the end of
subparagraph (B) and inserting a period, and by
striking subparagraph (C).
(2) CONFORMING AMENDMENT.—Paragraph (2)
of section 4042(b) is amended by striking subpara-
graph (C).
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on January 1, 2004.
664
SEC. 41009. REDUCED MOTOR FUEL EXCISE TAX ON CER-
TAIN MIXTURES OF DIESEL FUEL.
(a) IN GENERAL.—Paragraph (2) of section 4081(a)
is amended by adding at the end the following:
‘‘(C) DIESEL-WATER FUEL EMULSION.—In
the case of diesel-water fuel emulsion at least
14 percent of which is water and with respect
to which the emulsion additive is registered by
a United States manufacturer with the Envi-
ronmental Protection Agency pursuant to sec-
tion 211 of the Clean Air Act (as in effect on
March 31, 2003), subparagraph (A)(iii) shall be
applied by substituting ‘19.7 cents’ for ‘24.3
cents’.’’.
(b) SPECIAL RULES
FOR DIESEL-WATER FUEL
EMULSIONS.—
(1) REFUNDS FOR TAX-PAID PURCHASES.—Sec-
tion 6427 is amended by redesignating subsections
(m) through (p) as subsections (n) through (q), re-
spectively, and by inserting after subsection (l) the
following new subsection:
‘‘(m) DIESEL FUEL USED TO PRODUCE EMUL-
SION.—
‘‘(1) IN GENERAL.—Except as provided in sub-
section (k), if any diesel fuel on which tax was im-
posed by section 4081 at the regular tax rate is used
665
by any person in producing an emulsion described in
section 4081(a)(2)(C) which is sold or used in such
person’s trade or business, the Secretary shall pay
(without interest) to such person an amount equal to
the excess of the regular tax rate over the incentive
tax rate with respect to such fuel.
‘‘(2) DEFINITIONS.—For purposes of paragraph
(1)—
‘‘(A) REGULAR TAX RATE.—The term ‘reg-
ular tax rate’ means the aggregate rate of tax
imposed by section 4081 determined without re-
gard to section 4081(a)(2)(C).
‘‘(B) INCENTIVE
TAX
RATE.—The term
‘incentive tax rate’ means the aggregate rate of
tax imposed by section 4081 determined with
regard to section 4081(a)(2)(C).’’.
(2) LATER SEPARATION OF FUEL.—
(A) IN GENERAL.—Section 4081 (relating
to imposition of tax) is amended by redesig-
nating subsections (d) and (e) as subsections
(e) and (f), respectively, and by inserting after
subsection (c) the following new subsection:
‘‘(d) LATER SEPARATION OF FUEL FROM DIESEL-
WATER FUEL EMULSION.—If any person separates the
taxable fuel from a diesel-water fuel emulsion on which
666
tax was imposed under subsection (a) at a rate determined
under subsection (a)(2)(C) (or with respect to which a
credit or payment was allowed or made by reason of sec-
tion 6427), such person shall be treated as the refiner of
such taxable fuel. The amount of tax imposed on any re-
moval of such fuel by such person shall be reduced by the
amount of tax imposed (and not credited or refunded) on
any prior removal or entry of such fuel.’’.
(B) 
CONFORMING
AMENDMENT.—Sub-
section (d) of section 6416 is amended by strik-
ing ‘‘section 4081(e)’’ and inserting ‘‘section
4081(f)’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall take effect on October 1, 2003.
SEC. 41010. REPEAL OF PHASEOUTS FOR QUALIFIED ELEC-
TRIC VEHICLE CREDIT AND DEDUCTION FOR
CLEAN FUEL-VEHICLES.
(a) CREDIT FOR QUALIFIED ELECTRIC VEHICLES.—
Subsection (b) of section 30 (relating to limitations) is
amended by striking paragraph (2) and redesignating
paragraph (3) as paragraph (2).
(b) DEDUCTION FOR CLEAN-FUEL VEHICLES AND
CERTAIN REFUELING PROPERTY.—Paragraph (1) of sec-
tion 179A(b) (relating to qualified clean-fuel vehicle prop-
erty) is amended to read as follows:
667
‘‘(1) QUALIFIED CLEAN-FUEL VEHICLE PROP-
ERTY.— The cost which may be taken into account
under subsection (a)(1)(A) with respect to any
motor vehicle shall not exceed—
‘‘(A) in the case of a motor vehicle not de-
scribed in subparagraph (B) or (C), $2,000,
‘‘(B) in the case of any truck or van with
a gross vehicle weight rating greater than
10,000 pounds but not greater than 26,000
pounds, $5,000, or
‘‘(C) $50,000 in the case of—
‘‘(i) a truck or van with a gross vehi-
cle weight rating greater than 26,000
pounds, or
‘‘(ii) any bus which has a seating ca-
pacity of at least 20 adults (not including
the driver).’’.
SEC. 41011. ALTERNATIVE MOTOR VEHICLE CREDIT.
(a) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 (relating to foreign tax credit, etc.)
is amended by adding at the end the following:
‘‘SEC. 30B. ALTERNATIVE MOTOR VEHICLE CREDIT.
‘‘(a) ALLOWANCE OF CREDIT.—There shall be al-
lowed as a credit against the tax imposed by this chapter
for the taxable year an amount equal to the sum of—
668
‘‘(1) the new qualified fuel cell motor vehicle
credit determined under subsection (b), and
‘‘(2) the advanced lean burn technology motor
vehicle credit determined under subsection (c).
‘‘(b) NEW QUALIFIED FUEL CELL MOTOR VEHICLE
CREDIT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the new qualified fuel cell motor vehicle credit
determined under this subsection with respect to a
new qualified fuel cell motor vehicle placed in service
by the taxpayer during the taxable year is—
‘‘(A) $4,000, if such vehicle has a gross ve-
hicle weight rating of not more than 8,500
pounds,
‘‘(B) $10,000, if such vehicle has a gross
vehicle weight rating of more than 8,500
pounds but not more than 14,000 pounds,
‘‘(C) $20,000, if such vehicle has a gross
vehicle weight rating of more than 14,000
pounds but not more than 26,000 pounds, and
‘‘(D) $40,000, if such vehicle has a gross
vehicle weight rating of more than 26,000
pounds.
‘‘(2) INCREASE FOR FUEL EFFICIENCY.—
669
‘‘(A) IN
GENERAL.—The amount deter-
mined under paragraph (1)(A) with respect to
a new qualified fuel cell motor vehicle which is
a passenger automobile or light truck shall be
increased by—
‘‘(i) $1,000, if such vehicle achieves at
least 150 percent but less than 175 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(ii) $1,500, if such vehicle achieves
at least 175 percent but less than 200 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(iii) $2,000, if such vehicle achieves
at least 200 percent but less than 225 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(iv) $2,500, if such vehicle achieves
at least 225 percent but less than 250 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(v) $3,000, if such vehicle achieves
at least 250 percent but less than 275 per-
cent of the 2000 model year city fuel econ-
omy,
670
‘‘(vi) $3,500, if such vehicle achieves
at least 275 percent but less than 300 per-
cent of the 2000 model year city fuel econ-
omy, and
‘‘(vii) $4,000, if such vehicle achieves
at least 300 percent of the 2000 model
year city fuel economy.
‘‘(B) 2000 MODEL YEAR CITY FUEL ECON-
OMY.—For purposes of subparagraph (A), the
2000 model year city fuel economy with respect
to a vehicle shall be determined in accordance
with the following tables:
‘‘(i) In the case of a passenger auto-
mobile:
‘‘If 
vehicle 
inertia 
weight
class is:
The 2000 model year city fuel
economy is:
1,500 or 1,750 lbs ....................................................................
43.7 mpg
2,000 lbs ..................................................................................
38.3 mpg
2,250 lbs ..................................................................................
34.1 mpg
2,500 lbs ..................................................................................
30.7 mpg
2,750 lbs ..................................................................................
27.9 mpg
3,000 lbs ..................................................................................
25.6 mpg
3,500 lbs ..................................................................................
22.0 mpg
4,000 lbs ..................................................................................
19.3 mpg
4,500 lbs ..................................................................................
17.2 mpg
5,000 lbs ..................................................................................
15.5 mpg
5,500 lbs ..................................................................................
14.1 mpg
6,000 lbs ..................................................................................
12.9 mpg
6,500 lbs ..................................................................................
11.9 mpg
7,000 or 8,500 lbs ....................................................................
11.1 mpg.
‘‘(ii) In the case of a light truck:
‘‘If 
vehicle 
inertia 
weight
class is:
The 2000 model year city fuel
economy is:
1,500 or 1,750 lbs ....................................................................
37.6 mpg
2,000 lbs ..................................................................................
33.7 mpg
2,250 lbs ..................................................................................
30.6 mpg
2,500 lbs ..................................................................................
28.0 mpg
671
‘‘If 
vehicle 
inertia 
weight
class is:
The 2000 model year city fuel
economy is:
2,750 lbs ..................................................................................
25.9 mpg
3,000 lbs ..................................................................................
24.1 mpg
3,500 lbs ..................................................................................
21.3 mpg
4,000 lbs ..................................................................................
19.0 mpg
4,500 lbs ..................................................................................
17.3 mpg
5,000 lbs ..................................................................................
15.8 mpg
5,500 lbs ..................................................................................
14.6 mpg
6,000 lbs ..................................................................................
13.6 mpg
6,500 lbs ..................................................................................
12.8 mpg
7,000 or 8,500 lbs ....................................................................
12.0 mpg.
‘‘(C) VEHICLE INERTIA WEIGHT CLASS.—
For purposes of subparagraph (B), the term
‘vehicle inertia weight class’ has the same
meaning as when defined in regulations pre-
scribed by the Administrator of the Environ-
mental Protection Agency for purposes of the
administration of title II of the Clean Air Act
(42 U.S.C. 7521 et seq.).
‘‘(3) NEW QUALIFIED FUEL CELL MOTOR VEHI-
CLE.—For purposes of this subsection, the term
‘new qualified fuel cell motor vehicle’ means a motor
vehicle—
‘‘(A) which is propelled by power derived
from one or more cells which convert chemical
energy directly into electricity by combining ox-
ygen with hydrogen fuel which is stored on
board the vehicle in any form and may or may
not require reformation prior to use,
‘‘(B) which, in the case of a passenger
automobile or light truck—
672
‘‘(i) for 2004 and later model vehicles,
has received a certificate of conformity
under the Clean Air Act and meets or ex-
ceeds the equivalent qualifying California
low emission vehicle standard under sec-
tion 243(e)(2) of the Clean Air Act for
that make and model year, and
‘‘(ii) for 2004 and later model vehi-
cles, has received a certificate that such ve-
hicle meets or exceeds the Bin 5 Tier II
emission level established in regulations
prescribed by the Administrator of the En-
vironmental Protection Agency under sec-
tion 202(i) of the Clean Air Act for that
make and model year vehicle,
‘‘(C) the original use of which commences
with the taxpayer,
‘‘(D) which is acquired for use or lease by
the taxpayer and not for resale, and
‘‘(E) which is made by a manufacturer.
‘‘(c) ADVANCED LEAN BURN TECHNOLOGY MOTOR
VEHICLE CREDIT.—
‘‘(1) IN GENERAL.—For purposes of subsection
(a), the advanced lean burn technology motor vehicle
credit determined under this subsection with respect
673
to a new qualified advanced lean burn technology
motor vehicle placed in service by the taxpayer dur-
ing the taxable year is the credit amount determined
under paragraph (2).
‘‘(2) CREDIT AMOUNT.—
‘‘(A) INCREASE FOR FUEL EFFICIENCY.—
The credit amount determined under this para-
graph shall be—
‘‘(i) $500, if such vehicle achieves at
least 125 percent but less than 150 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(ii) $1,000, if such vehicle achieves
at least 150 percent but less than 175 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(iii) $1,500, if such vehicle achieves
at least 175 percent but less than 200 per-
cent of the 2000 model year city fuel econ-
omy,
‘‘(iv) $2,000, if such vehicle achieves
at least 200 percent but less than 225 per-
cent of the 2000 model year city fuel econ-
omy,
674
‘‘(v) $2,500, if such vehicle achieves
at least 225 percent but less than 250 per-
cent of the 2000 model year city fuel econ-
omy, and
‘‘(vi) $3,000, if such vehicle achieves
at least 250 percent of the 2000 model
year city fuel economy.
For purposes of clause (i), the 2000 model year
city fuel economy with respect to a vehicle shall
be determined using the tables provided in sub-
section (b)(2)(B) with respect to such vehicle.
‘‘(B) 
CONSERVATION
CREDIT.—The
amount determined under subparagraph (A)
with respect to an advanced lean burn tech-
nology motor vehicle shall be increased by—
‘‘(i) $250, if such vehicle achieves a
lifetime fuel savings of at least 1,500 gal-
lons of gasoline, and
‘‘(ii) $500, if such vehicle achieves a
lifetime fuel savings of at least 2,500 gal-
lons of gasoline.
‘‘(C) OPTION TO USE LIKE VEHICLE.—At
the option of the vehicle manufacturer, the in-
crease for fuel efficiency and conservation credit
may be calculated by comparing the new ad-
675
vanced lean-burn technology motor vehicle to a
like vehicle.
‘‘(3) DEFINITIONS.—For purposes of this
subsection—
‘‘(A) ADVANCED LEAN BURN TECHNOLOGY
MOTOR
VEHICLE.—The term ‘advanced lean
burn technology motor vehicle’ means a motor
vehicle with an internal combustion engine
that—
‘‘(i) is designed to operate primarily
using more air than is necessary for com-
plete combustion of the fuel,
‘‘(ii) incorporates direct injection,
‘‘(iii) achieves at least 125 percent of
the 2000 model year city fuel economy,
and
‘‘(iv) for 2004 and later model vehi-
cles, has received a certificate that such ve-
hicle meets or exceeds the Bin 8 Tier II
emission level established in regulations
prescribed by the Administrator of the En-
vironmental Protection Agency under sec-
tion 202(i) of the Clean Air Act for that
make and model year vehicle.
676
‘‘(B) LIKE VEHICLE.—The term ‘like vehi-
cle’ for an advanced lean burn technology motor
vehicle derived from a conventional production
vehicle produced in the same model year means
a model that is equivalent in the following
areas:
‘‘(i) Body style (2-door or 4-door).
‘‘(ii) Transmission (automatic or man-
ual).
‘‘(iii) Acceleration performance (±
0.05 seconds).
‘‘(iv) Drivetrain (2-wheel drive or 4-
wheel drive).
‘‘(v) Certification by the Adminis-
trator of the Environmental Protection
Agency.
‘‘(C) LIFETIME FUEL SAVINGS.—The term
‘lifetime fuel savings’ shall be calculated by di-
viding 120,000 by the difference between the
2000 model year city fuel economy for the vehi-
cle inertia weight class and the city fuel econ-
omy for the new qualified hybrid motor vehicle.
‘‘(d) LIMITATION BASED ON AMOUNT OF TAX.—The
credit allowed under subsection (a) for the taxable year
shall not exceed the excess of—
677
‘‘(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 sub-
part A and sections 27, 29, and 30A for the taxable
year.
‘‘(e) OTHER DEFINITIONS AND SPECIAL RULES.—
For purposes of this section—
‘‘(1) 
CONSUMABLE
FUEL.—The 
term
‘consumable fuel’ means any solid, liquid, or gaseous
matter which releases energy when consumed by an
auxiliary power unit.
‘‘(2) MOTOR VEHICLE.—The term ‘motor vehi-
cle’ has the meaning given such term by section
30(c)(2).
‘‘(3) 2000 MODEL
YEAR
CITY
FUEL
ECON-
OMY.—The 2000 model year city fuel economy with
respect to any vehicle shall be measured under rules
similar to the rules under section 4064(c).
‘‘(4) OTHER TERMS.—The terms ‘automobile’,
‘passenger automobile’, ‘light truck’, and ‘manufac-
turer’ have the meanings given such terms in regula-
tions prescribed by the Administrator of the Envi-
ronmental Protection Agency for purposes of the ad-
678
ministration of title II of the Clean Air Act (42
U.S.C. 7521 et seq.).
‘‘(5) REDUCTION IN BASIS.—For purposes of
this subtitle, if a credit is allowed under this section
for any expenditure with respect to any property, the
increase in the basis of such property which would
(but for this paragraph) result from such expendi-
ture shall be reduced by the amount of the credit so
allowed.
‘‘(6) NO
DOUBLE
BENEFIT.—The amount of
any deduction or credit allowable under this chapter
(other than the credit allowable under this section),
with respect to a vehicle described under subsection
(b), shall be reduced by the amount of credit allowed
under subsection (a) for such vehicle for the taxable
year.
‘‘(7) PROPERTY USED BY TAX-EXEMPT ENTI-
TIES.—In the case of a credit amount which is al-
lowable with respect to a motor vehicle which is ac-
quired by an entity exempt from tax under this
chapter, the person which sells or leases such vehicle
to the entity shall be treated as the taxpayer with
respect to the vehicle for purposes of this section
and the credit shall be allowed to such person, but
only if the person clearly discloses to the entity in
679
any sale or lease document the specific amount of
any credit otherwise allowable to the entity under
this section.
‘‘(8) RECAPTURE.—The Secretary shall, by reg-
ulations, provide for recapturing the benefit of any
credit allowable under subsection (a) with respect to
any property which ceases to be property eligible for
such credit (including recapture in the case of a
lease period of less than the economic life of a vehi-
cle).
‘‘(9) 
PROPERTY
USED
OUTSIDE
UNITED
STATES, ETC., NOT QUALIFIED.—No credit shall be
allowed under subsection (a) with respect to any
property referred to in section 50(b) or with respect
to the portion of the cost of any property taken into
account under section 179.
‘‘(10) ELECTION TO NOT TAKE CREDIT.—No
credit shall be allowed under subsection (a) for any
vehicle if the taxpayer elects to not have this section
apply to such vehicle.
‘‘(11) CARRYFORWARD ALLOWED.—
‘‘(A) IN GENERAL.—If the credit amount
allowable under subsection (a) for a taxable
year exceeds the amount of the limitation under
subsection (d) for such taxable year (referred to
680
as the ‘unused credit year’ in this paragraph),
such excess shall be allowed as a credit
carryforward for each of the 20 taxable years
following the unused credit year.
‘‘(B) RULES.—Rules similar to the rules of
section 39 shall apply with respect to the credit
carryforward under subparagraph (A).
‘‘(12) INTERACTION
WITH
AIR
QUALITY
AND
MOTOR VEHICLE SAFETY STANDARDS.—Unless oth-
erwise provided in this section, a motor vehicle shall
not be considered eligible for a credit under this sec-
tion unless such vehicle is in compliance with—
‘‘(A) the applicable provisions of the Clean
Air Act for the applicable make and model year
of the vehicle (or applicable air quality provi-
sions of State law in the case of a State which
has adopted such provision under a waiver
under section 209(b) of the Clean Air Act), and
‘‘(B) the motor vehicle safety provisions of
sections 30101 through 30169 of title 49,
United States Code.
‘‘(f) REGULATIONS.—
‘‘(1) IN GENERAL.—The Secretary shall pro-
mulgate such regulations as necessary to carry out
the provisions of this section.
681
‘‘(2) DETERMINATION OF MOTOR VEHICLE ELI-
GIBILITY.—The Secretary, in coordination with the
Secretary of Transportation and the Administrator
of the Environmental Protection Agency, shall pre-
scribe such regulations as necessary to determine
whether a motor vehicle meets the requirements to
be eligible for a credit under this section.
‘‘(g) TERMINATION.—This section shall not apply to
any property placed in service after—
‘‘(1) in the case of a new qualified fuel cell
motor vehicle (as described in subsection (b)), De-
cember 31, 2012, and
‘‘(2) in the case of any other property, Decem-
ber 31, 2006.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 1016(a) is amended by striking
‘‘and’’ at the end of paragraph (30), by striking the
period at the end of paragraph (31) and inserting ‘‘,
and’’, and by adding at the end the following:
‘‘(32) to the extent provided in section
30B(e)(5).’’.
(2) Section 6501(m) is amended by inserting
‘‘30B(e)(10),’’ after ‘‘30(d)(4),’’.
(3) The table of sections for subpart B of part
IV of subchapter A of chapter 1 is amended by in-
682
serting after the item relating to section 30A the fol-
lowing:
‘‘Sec. 30B. Alternative motor vehicle credit.’’.
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
December 31, 2003, in taxable years ending after such
date.
TITLE II—RELIABILITY
SEC. 42001. NATURAL GAS GATHERING LINES TREATED AS
7-YEAR PROPERTY.
(a) IN GENERAL.—Subparagraph (C) of section
168(e)(3) (relating to classification of certain property) is
amended by striking ‘‘and’’ at the end of clause (i), by
redesignating clause (ii) as clause (iii), and by inserting
after clause (i) the following new clause:
‘‘(ii) any natural gas gathering line,
and’’.
(b) NATURAL GAS GATHERING LINE.—Subsection (i)
of section 168 is amended by adding after paragraph (15)
the following new paragraph:
‘‘(16) NATURAL
GAS
GATHERING
LINE.—The
term ‘natural gas gathering line’ means—
‘‘(A) the pipe, equipment, and appur-
tenances determined to be a gathering line by
the Federal Energy Regulatory Commission, or
683
‘‘(B) the pipe, equipment, and appur-
tenances used to deliver natural gas from the
wellhead or a commonpoint to the point at
which such gas first reaches—
‘‘(i) a gas processing plant,
‘‘(ii) an interconnection with a trans-
mission pipeline certificated by the Federal
Energy Regulatory Commission as an
interstate transmission pipeline,
‘‘(iii) an interconnection with an
intrastate transmission pipeline, or
‘‘(iv) a direct interconnection with a
local distribution company, a gas storage
facility, or an industrial consumer.’’.
(c) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B) is amended by inserting after the
item relating to subparagraph (C)(i) the following:
‘‘(C)(ii) .......................................................................................................
10’’.
(d) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting
before the period the following: ‘‘, or in section
168(e)(3)(C)(ii)’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
the date of the enactment of this Act, in taxable years
ending after such date.
684
SEC. 42002. NATURAL GAS DISTRIBUTION LINES TREATED
AS 15-YEAR PROPERTY.
(a) IN GENERAL.—Subparagraph (E) of section
168(e)(3) (relating to classification of certain property) is
amended by striking ‘‘and’’ at the end of clause (ii), by
striking the period at the end of clause (iii) and by insert-
ing ‘‘, and’’, and by adding at the end the following new
clause:
‘‘(iv) any natural gas distribution
line.’’.
(b) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B) is amended by inserting after the
item relating to subparagraph (E)(iii) the following:
‘‘(E)(iv) ......................................................................................................
20’’.
(c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting
before the period the following: ‘‘, or in section
168(e)(3)(E)(iv)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
the date of the enactment of this Act, in taxable years
ending after such date.
SEC. 42003. ELECTRIC TRANSMISSION PROPERTY TREATED
AS 15-YEAR PROPERTY.
(a) IN GENERAL.—Subparagraph (E) of section
168(e)(3) (relating to classification of certain property) is
685
amended by striking ‘‘and’’ at the end of clause (iii), by
striking the period at the end of clause (iv) and by insert-
ing ‘‘, and’’, and by adding at the end the following new
clause:
‘‘(v) any section 1245 property (as de-
fined in section 1245(a)(3)) used in the
transmission at 69 or more kilovolts of
electricity for sale.’’.
(b) ALTERNATIVE SYSTEM.—The table contained in
section 168(g)(3)(B) is amended by inserting after the
item relating to subparagraph (E)(iv) the following:
‘‘(E)(v) .......................................................................................................
20’’.
(c) ALTERNATIVE MINIMUM TAX EXCEPTION.—Sub-
paragraph (B) of section 56(a)(1) is amended by inserting
before the period the following: ‘‘, or in section
168(e)(3)(E)(v)’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to property placed in service after
the date of the enactment of this Act, in taxable years
ending after such date.
SEC. 42004. EXPENSING OF CAPITAL COSTS INCURRED IN
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS.
(a) IN GENERAL.—Part VI of subchapter B of chap-
ter 1 (relating to itemized deductions for individuals and
686
corporations) is amended by inserting after section 179A
the following new section:
‘‘SEC. 179B. DEDUCTION FOR CAPITAL COSTS INCURRED IN
COMPLYING WITH ENVIRONMENTAL PROTEC-
TION AGENCY SULFUR REGULATIONS.
‘‘(a) TREATMENT AS EXPENSES.—A small business
refiner (as defined in section 45H(c)(1)) may elect to treat
75 percent of qualified capital costs (as defined in section
45H(c)(2)) which are paid or incurred by the taxpayer
during the taxable year as expenses which are not charge-
able to capital account. Any cost so treated shall be al-
lowed as a deduction for the taxable year in which paid
or incurred.
‘‘(b) REDUCED PERCENTAGE.—In the case of a small
business refiner with average daily domestic refinery runs
for the 1-year period ending on March 31, 2003, in excess
of 155,000 barrels, the number of percentage points de-
scribed in subsection (a) shall be reduced (not below zero)
by the product of such number (before the application of
this subsection) and the ratio of such excess to 50,000
barrels.
‘‘(c) BASIS REDUCTION.—
‘‘(1) IN GENERAL.—For purposes of this title,
the basis of any property shall be reduced by the
687
portion of the cost of such property taken into ac-
count under subsection (a).
‘‘(2) ORDINARY
INCOME
RECAPTURE.—For
purposes of section 1245, the amount of the deduc-
tion allowable under subsection (a) with respect to
any property which is of a character subject to the
allowance for depreciation shall be treated as a de-
duction allowed for depreciation under section 167.’’.
(b) CONFORMING AMENDMENTS.—
(1) Section 263(a)(1) is amended by striking
‘‘or’’ at the end of subparagraph (G), by striking the
period at the end of subparagraph (H) and inserting
‘‘; or’’, and by adding at the end the following new
subparagraph:
‘‘(I) expenditures for which a deduction is
allowed under section 179B.’’.
(2) Section 312(k)(3)(B) is amended—
(A) by striking ‘‘section 179 or 179A’’
each place it appears and inserting ‘‘section
179, 179A, or 179B’’, and
(B) in the heading, by striking ‘‘179 OR
179A’’ and inserting ‘‘179, 179A, OR 179B’’.
(3) Section 1016(a) is amended by striking
‘‘and’’ at the end of paragraph (31), by striking the
period at the end of paragraph (32) and inserting ‘‘,
688
and’’, and by adding at the end the following new
paragraph:
‘‘(33) to the extent provided in section
179B(c).’’
(4) Paragraphs (2)(C) and (3)(C) of section
1245(a) are each amended by inserting ‘‘179B,’’
after ‘‘179A,’’.
(5) The table of sections for part VI of sub-
chapter B of chapter 1 is amended by inserting after
the item relating to section 179A the following new
item:
‘‘Sec. 179B. Deduction for capital costs incurred in complying
with Environmental Protection Agency sulfur regu-
lations.’’.
(c) EFFECTIVE DATE.—The amendment made by
this section shall apply to expenses paid or incurred after
March 31, 2003, in taxable years ending after such date.
SEC. 42005. CREDIT FOR PRODUCTION OF LOW SULFUR
DIESEL FUEL.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business-related cred-
its) is amended by adding at the end the following new
section:
‘‘SEC. 45H. CREDIT FOR PRODUCTION OF LOW SULFUR DIE-
SEL FUEL.
‘‘(a) IN GENERAL.—For purposes of section 38, the
amount of the low sulfur diesel fuel production credit de-
689
termined under this section with respect to any facility
of a small business refiner is an amount equal to 5 cents
for each gallon of low sulfur diesel fuel produced during
the taxable year by such small business refiner at such
facility.
‘‘(b) MAXIMUM CREDIT.—
‘‘(1) IN GENERAL.—The aggregate credit deter-
mined under subsection (a) for any taxable year with
respect to any facility shall not exceed—
‘‘(A) 25 percent of the qualified capital
costs incurred by the small business refiner
with respect to such facility, reduced by
‘‘(B) the aggregate credits determined
under this section for all prior taxable years
with respect to such facility.
‘‘(2) REDUCED PERCENTAGE.—In the case of a
small business refiner with average daily domestic
refinery runs for the 1-year period ending on March
31, 2003, in excess of 155,000 barrels, the number
of percentage points described in paragraph (1) shall
be reduced (not below zero) by the product of such
number (before the application of this paragraph)
and the ratio of such excess to 50,000 barrels.
‘‘(c) DEFINITIONS.—For purposes of this section—
690
‘‘(1) SMALL
BUSINESS
REFINER.—The term
‘small business refiner’ means, with respect to any
taxable year, a refiner of crude oil with respect to
which not more than 1,500 persons are engaged in
the refinery operations of the business on any day
during such taxable year and whose average daily
domestic refinery run for the 1-year period ending
on March 31, 2003, did not exceed 205,000 barrels.
‘‘(2) QUALIFIED
CAPITAL
COSTS.—The term
‘qualified capital costs’ means, with respect to any
facility, those costs paid or incurred during the ap-
plicable period for compliance with the applicable
EPA regulations with respect to such facility, includ-
ing expenditures for the construction of new process
operation units or the dismantling and reconstruc-
tion of existing process units to be used in the pro-
duction of low sulfur diesel fuel, associated adjacent
or offsite equipment (including tankage, catalyst,
and power supply), engineering, construction period
interest, and sitework.
‘‘(3) APPLICABLE
EPA
REGULATIONS.—The
term ‘applicable EPA regulations’ means the High-
way Diesel Fuel Sulfur Control Requirements of the
Environmental Protection Agency.
691
‘‘(4) APPLICABLE PERIOD.—The term ‘applica-
ble period’ means, with respect to any facility, the
period beginning on April 1, 2003, and ending with
the date which is 1 year after the date on which the
taxpayer must comply with the applicable EPA regu-
lations with respect to such facility.
‘‘(5) LOW SULFUR DIESEL FUEL.—The term
‘low sulfur diesel fuel’ means diesel fuel with a sul-
fur content of 15 parts per million or less.
‘‘(d) REDUCTION IN BASIS.—For purposes of this
subtitle, if a credit is determined under this section for
any expenditure with respect to any property, the increase
in basis of such property which would (but for this sub-
section) result from such expenditure shall be reduced by
the amount of the credit so determined.
‘‘(e) CERTIFICATION.—
‘‘(1) REQUIRED.—Not later than the date
which is 30 months after the first day of the first
taxable year in which the low sulfur diesel fuel pro-
duction credit is allowed with respect to a facility,
the small business refiner must obtain certification
from the Secretary, in consultation with the Admin-
istrator of the Environmental Protection Agency,
that the taxpayer’s qualified capital costs with re-
692
spect to such facility will result in compliance with
the applicable EPA regulations.
‘‘(2) CONTENTS OF APPLICATION.—An applica-
tion for certification shall include relevant informa-
tion regarding unit capacities and operating charac-
teristics sufficient for the Secretary, in consultation
with the Administrator of the Environmental Protec-
tion Agency, to determine that such qualified capital
costs are necessary for compliance with the applica-
ble EPA regulations.
‘‘(3) REVIEW
PERIOD.—Any application shall
be reviewed and notice of certification, if applicable,
shall be made within 60 days of receipt of such ap-
plication.
‘‘(4) STATUTE OF LIMITATIONS.—With respect
to the credit allowed under this section—
‘‘(A) the statutory period for the assess-
ment of any deficiency attributable to such
credit shall not expire before the end of the 3-
year period ending on the date that the review
period described in paragraph (3) ends, and
‘‘(B) such deficiency may be assessed be-
fore the expiration of such 3-year period not-
withstanding the provisions of any other law or
693
rule of law which would otherwise prevent such
assessment.
‘‘(f) CONTROLLED GROUPS.—For purposes of this
section, all persons treated as a single employer under sub-
section (b), (c), (m), or (o) of section 414 shall be treated
as 1 taxpayer.’’.
(b) CREDIT MADE PART OF GENERAL BUSINESS
CREDIT.—Subsection (b) of section 38 (relating to general
business credit) is amended by striking ‘‘plus’’ at the end
of paragraph (15), by striking the period at the end of
paragraph (16) and inserting ‘‘, plus’’, and by adding at
the end the following new paragraph:
‘‘(17) in the case of a small business refiner,
the low sulfur diesel fuel production credit deter-
mined under section 45H(a).’’.
(c) DENIAL OF DOUBLE BENEFIT.—Section 280C
(relating to certain expenses for which credits are allow-
able) is amended by adding after subsection (d) the fol-
lowing new subsection:
‘‘(e) LOW
SULFUR
DIESEL
FUEL
PRODUCTION
CREDIT.—No deduction shall be allowed for that portion
of the expenses otherwise allowable as a deduction for the
taxable year which is equal to the amount of the credit
determined for the taxable year under section 45H(a).’’.
694
(d) BASIS ADJUSTMENT.—Section 1016(a) (relating
to adjustments to basis) is amended by striking ‘‘and’’ at
the end of paragraph (32), by striking the period at the
end of paragraph (33) and inserting ‘‘, and’’, and by add-
ing at the end the following new paragraph:
‘‘(34) in the case of a facility with respect to
which a credit was allowed under section 45H, to
the extent provided in section 45H(d).’’.
(e) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
is amended by adding at the end the following new item:
‘‘Sec. 45H. Credit for production of low sulfur diesel fuel.’’.
(f) EFFECTIVE DATE.—The amendments made by
this section shall apply to expenses paid or incurred after
March 31, 2003, in taxable years ending after such date.
SEC. 42006. DETERMINATION OF SMALL REFINER EXCEP-
TION TO OIL DEPLETION DEDUCTION.
(a) IN GENERAL.—Paragraph (4) of section 613A(d)
(relating to certain refiners excluded) is amended to read
as follows:
‘‘(4) CERTAIN
REFINERS
EXCLUDED.—If the
taxpayer or a related person engages in the refining
of crude oil, subsection (c) shall not apply to the
taxpayer for a taxable year if the average daily refin-
ery runs of the taxpayer and the related person for
the taxable year exceed 75,000 barrels. For purposes
695
of this paragraph, the average daily refinery runs for
any taxable year shall be determined by dividing the
aggregate refinery runs for the taxable year by the
number of days in the taxable year.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 2003.
SEC. 42007. SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION
OR STATE ELECTRIC RESTRUCTURING POL-
ICY.
(a) IN GENERAL.—Section 451 (relating to general
rule for taxable year of inclusion) is amended by adding
at the end the following new subsection:
‘‘(i) SPECIAL RULE FOR SALES OR DISPOSITIONS TO
IMPLEMENT FEDERAL ENERGY REGULATORY COMMIS-
SION OR STATE ELECTRIC RESTRUCTURING POLICY.—
‘‘(1) IN GENERAL.—In the case of any quali-
fying electric transmission transaction to which the
taxpayer elects the application of this section, quali-
fied 
gain 
from 
such 
transaction 
shall 
be
recognized—
‘‘(A) in the taxable year which includes the
date of such transaction to the extent the
696
amount 
realized 
from 
such 
transaction
exceeds—
‘‘(i) the cost of exempt utility property
which is purchased by the taxpayer during
the 4-year period beginning on such date,
reduced (but not below zero) by
‘‘(ii) any portion of such cost pre-
viously taken into account under this sub-
section, and
‘‘(B) ratably over the 8-taxable year period
beginning with the taxable year which includes
the date of such transaction, in the case of any
such gain not recognized under subparagraph
(A).
‘‘(2) QUALIFIED GAIN.—For purposes of this
subsection, the term ‘qualified gain’ means, with re-
spect to any qualifying electric transmission trans-
action in any taxable year—
‘‘(A) any ordinary income derived from
such transaction which would be required to be
recognized under section 1245 or 1250 for such
taxable year (determined without regard to this
subsection), and
‘‘(B) any income derived from such trans-
action in excess of the amount described in sub-
697
paragraph (A) which is required to be included
in gross income for such taxable year (deter-
mined without regard to this subsection).
‘‘(3) QUALIFYING
ELECTRIC
TRANSMISSION
TRANSACTION.—For purposes of this subsection, the
term ‘qualifying electric transmission transaction’
means any sale or other disposition before January
1, 2007, of—
‘‘(A) property used in the trade or business
of providing electric transmission services, or
‘‘(B) any stock or partnership interest in a
corporation or partnership, as the case may be,
whose principal trade or business consists of
providing electric transmission services,
but only if such sale or disposition is to an inde-
pendent transmission company.
‘‘(4) 
INDEPENDENT
TRANSMISSION
COM-
PANY.—For purposes of this subsection, the term
‘independent transmission company’ means—
‘‘(A) an independent transmission provider
approved by the Federal Energy Regulatory
Commission,
‘‘(B) a person—
‘‘(i) who the Federal Energy Regu-
latory Commission determines in its au-
698
thorization of the transaction under section
203 of the Federal Power Act (16 U.S.C.
824b) or by declaratory order is not a
market participant within the meaning of
such Commission’s rules applicable to inde-
pendent transmission providers, and
‘‘(ii) whose transmission facilities to
which the election under this subsection
applies are under the operational control of
a Federal Energy Regulatory Commission-
approved independent transmission pro-
vider before the close of the period speci-
fied in such authorization, but not later
than the close of the period applicable
under subsection (a)(2)(B) as extended
under paragraph (2), or
‘‘(C) in the case of facilities subject to the
jurisdiction of the Public Utility Commission of
Texas—
‘‘(i) a person which is approved by
that Commission as consistent with Texas
State law regarding an independent trans-
mission provider, or
‘‘(ii) a political subdivision or affiliate
thereof whose transmission facilities are
699
under the operational control of a person
described in clause (i).
‘‘(5) EXEMPT
UTILITY
PROPERTY.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘exempt
utility property’ means property used in the
trade or business of—
‘‘(i) generating, transmitting, distrib-
uting, or selling electricity, or
‘‘(ii) producing, transmitting, distrib-
uting, or selling natural gas.
‘‘(B) NONRECOGNITION OF GAIN BY REA-
SON OF ACQUISITION OF STOCK.—Acquisition of
control of a corporation shall be taken into ac-
count under this subsection with respect to a
qualifying electric transmission transaction only
if the principal trade or business of such cor-
poration is a trade or business referred to in
subparagraph (A).
‘‘(6) 
SPECIAL
RULE
FOR
CONSOLIDATED
GROUPS.—In the case of a corporation which is a
member of an affiliated group filing a consolidated
return, any exempt utility property purchased by an-
other member of such group shall be treated as pur-
700
chased by such corporation for purposes of applying
paragraph (1)(A).
‘‘(7) 
TIME
FOR
ASSESSMENT
OF
DEFI-
CIENCIES.—If the taxpayer has made the election
under paragraph (1) and any gain is recognized by
such taxpayer as provided in paragraph (1)(B),
then—
‘‘(A) the statutory period for the assess-
ment of any deficiency, for any taxable year in
which any part of the gain on the transaction
is realized, attributable to such gain shall not
expire prior to the expiration of 3 years from
the date the Secretary is notified by the tax-
payer (in such manner as the Secretary may by
regulations prescribe) of the purchase of exempt
utility property or of an intention not to pur-
chase such property, and
‘‘(B) such deficiency may be assessed be-
fore the expiration of such 3-year period not-
withstanding any law or rule of law which
would otherwise prevent such assessment.
‘‘(8) PURCHASE.—For purposes of this sub-
section, the taxpayer shall be considered to have
purchased any property if the unadjusted basis of
701
such property is its cost within the meaning of sec-
tion 1012.
‘‘(9) ELECTION.—An election under paragraph
(1) shall be made at such time and in such manner
as the Secretary may require and, once made, shall
be irrevocable.’’.
(b) EFFECTIVE DATE.—The amendments made by
this section shall apply to transactions occurring after the
date of the enactment of this Act, in taxable years ending
after such date.
SEC. 42008. MODIFICATIONS TO SPECIAL RULES FOR NU-
CLEAR DECOMMISSIONING COSTS.
(a) REPEAL
OF LIMITATION
ON DEPOSITS INTO
FUND BASED ON COST OF SERVICE; CONTRIBUTIONS
AFTER FUNDING PERIOD.—Subsection (b) of section
468A is amended to read as follows:
‘‘(b) LIMITATION ON AMOUNTS PAID INTO FUND.—
‘‘(1) IN GENERAL.—The amount which a tax-
payer may pay into the Fund for any taxable year
shall not exceed the ruling amount applicable to
such taxable year.
‘‘(2) CONTRIBUTIONS
AFTER
FUNDING
PE-
RIOD.—Notwithstanding any other provision of this
section, a taxpayer may pay into the Fund in any
taxable year after the last taxable year to which the
702
ruling amount applies. Payments may not be made
under the preceding sentence to the extent such pay-
ments would cause the assets of the Fund to exceed
the nuclear decommissioning costs allocable to the
taxpayer’s current or former interest in the nuclear
power plant to which the Fund relates. The limita-
tion under the preceding sentence shall be deter-
mined by taking into account a reasonable rate of
inflation for the nuclear decommissioning costs and
a reasonable after-tax rate of return on the assets
of the Fund until such assets are anticipated to be
expended.’’.
(b) CLARIFICATION
OF
TREATMENT
OF
FUND
TRANSFERS.—Subsection (e) of section 468A is amended
by adding at the end the following new paragraph:
‘‘(8) TREATMENT OF FUND TRANSFERS.—If, in
connection with the transfer of the taxpayer’s inter-
est in a nuclear power plant, the taxpayer transfers
the Fund with respect to such power plant to the
transferee of such interest and the transferee elects
to continue the application of this section to such
Fund—
‘‘(A) the transfer of such Fund shall not
cause such Fund to be disqualified from the ap-
plication of this section, and
703
‘‘(B) no amount shall be treated as distrib-
uted from such Fund, or be includible in gross
income, by reason of such transfer.’’.
(c) TREATMENT
OF CERTAIN DECOMMISSIONING
COSTS.—
(1) IN GENERAL.—Section 468A is amended by
redesignating subsections (f) and (g) as subsections
(g) and (h), respectively, and by inserting after sub-
section (e) the following new subsection:
‘‘(f) TRANSFERS INTO QUALIFIED FUNDS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(b), any taxpayer maintaining a Fund to which this
section applies with respect to a nuclear power plant
may transfer into such Fund up to an amount equal
to the excess of the total nuclear decommissioning
costs with respect to such nuclear power plant over
the portion of such costs taken into account in de-
termining the ruling amount in effect immediately
before the transfer.
‘‘(2) 
DEDUCTION
FOR
AMOUNTS
TRANS-
FERRED.—
‘‘(A) IN GENERAL.—Except as provided in
subparagraph (C), the deduction allowed by
subsection (a) for any transfer permitted by
this subsection shall be allowed ratably over the
704
remaining estimated useful life (within the
meaning of subsection (d)(2)(A)) of the nuclear
power plant beginning with the taxable year
during which the transfer is made.
‘‘(B) DENIAL
OF
DEDUCTION
FOR
PRE-
VIOUSLY DEDUCTED AMOUNTS.—No deduction
shall be allowed for any transfer under this sub-
section of an amount for which a deduction was
previously allowed or a corresponding amount
was not included in gross income. For purposes
of the preceding sentence, a ratable portion of
each transfer shall be treated as being from
previously deducted or excluded amounts to the
extent thereof.
‘‘(C) TRANSFERS OF QUALIFIED FUNDS.—
If—
‘‘(i) any transfer permitted by this
subsection is made to any Fund to which
this section applies, and
‘‘(ii) such Fund is transferred there-
after,
any deduction under this subsection for taxable
years ending after the date that such Fund is
transferred shall be allowed to the transferor
for the taxable year which includes such date.
705
‘‘(D) SPECIAL RULES.—
‘‘(i) GAIN
OR
LOSS
NOT
RECOG-
NIZED.—No gain or loss shall be recog-
nized on any transfer permitted by this
subsection.
‘‘(ii) TRANSFERS
OF
APPRECIATED
PROPERTY.—If appreciated property is
transferred in a transfer permitted by this
subsection, the amount of the deduction
shall be the adjusted basis of such prop-
erty.
‘‘(3) NEW RULING AMOUNT REQUIRED.—Para-
graph (1) shall not apply to any transfer unless the
taxpayer requests from the Secretary a new schedule
of ruling amounts in connection with such transfer.
‘‘(4) NO
BASIS
IN
QUALIFIED
FUNDS.—Not-
withstanding any other provision of law, the tax-
payer’s basis in any Fund to which this section ap-
plies shall not be increased by reason of any transfer
permitted by this subsection.’’.
(2) NEW RULING AMOUNT TO TAKE INTO AC-
COUNT TOTAL COSTS.—Subparagraph (A) of section
468A(d)(2) is amended to read as follows:
‘‘(A) fund the total nuclear decommis-
sioning costs with respect to such power plant
706
over the estimated useful life of such power
plant, and’’.
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 2003.
SEC. 42009. TREATMENT OF CERTAIN INCOME OF CO-
OPERATIVES.
(a) INCOME FROM OPEN ACCESS AND NUCLEAR DE-
COMMISSIONING TRANSACTIONS.—
(1) IN GENERAL.—Subparagraph (C) of section
501(c)(12) is amended by striking ‘‘or’’ at the end
of clause (i), by striking clause (ii), and by adding
at the end the following new clauses:
‘‘(ii) from any provision or sale of
transmission service or ancillary services if
such services are provided on a non-
discriminatory open access basis under an
independent transmission provider agree-
ment approved by FERC (other than in-
come received or accrued directly or indi-
rectly from a member),
‘‘(iii) from any nuclear decommis-
sioning transaction, or
‘‘(iv) from any asset exchange or con-
version transaction.’’.
707
(2) DEFINITIONS AND SPECIAL RULES.—Para-
graph (12) of section 501(c) is amended by adding
at the end the following new subparagraphs:
‘‘(E) For purposes of subparagraph (C)(ii),
the term ‘FERC’ means the Federal Energy
Regulatory Commission and references to such
term shall be treated as including the Public
Utility Commission of Texas with respect to
any ERCOT utility (as defined in section
212(k)(2)(B) of the Federal Power Act (16
U.S.C. 824k(k)(2)(B))).
‘‘(F) 
For 
purposes 
of 
subparagraph
(C)(iii), the term ‘nuclear decommissioning
transaction’ means—
‘‘(i) any transfer into a trust, fund, or
instrument established to pay any nuclear
decommissioning costs if the transfer is in
connection with the transfer of the mutual
or cooperative electric company’s interest
in a nuclear power plant or nuclear power
plant unit,
‘‘(ii) any distribution from any trust,
fund, or instrument established to pay any
nuclear decommissioning costs, or
708
‘‘(iii) any earnings from any trust,
fund, or instrument established to pay any
nuclear decommissioning costs.
‘‘(G) 
For 
purposes 
of 
subparagraph
(C)(iv), the term ‘asset exchange or conversion
transaction’ means any voluntary exchange or
involuntary conversion of any property related
to generating, transmitting, distributing, or sell-
ing electric energy by a mutual or cooperative
electric company, the gain from which qualifies
for deferred recognition under section 1031 or
1033, but only if the replacement property ac-
quired by such company pursuant to such sec-
tion constitutes property which is used, or to be
used, for—
‘‘(i) generating, transmitting, distrib-
uting, or selling electric energy, or
‘‘(ii) producing, transmitting, distrib-
uting, or selling natural gas.’’.
(b) TREATMENT
OF INCOME FROM LOAD LOSS
TRANSACTIONS, ETC.—Paragraph (12) of section 501(c),
as amended by subsection (a)(2), is amended by adding
after subparagraph (G) the following new subparagraph:
‘‘(H)(i) In the case of a mutual or coopera-
tive electric company described in this para-
709
graph or an organization described in section
1381(a)(2)(C), income received or accrued from
a load loss transaction shall be treated as an
amount collected from members for the sole
purpose of meeting losses and expenses.
‘‘(ii) For purposes of clause (i), the term
‘load loss transaction’ means any wholesale or
retail sale of electric energy (other than to
members) to the extent that the aggregate sales
during the recovery period do not exceed the
load loss mitigation sales limit for such period.
‘‘(iii) For purposes of clause (ii), the load
loss mitigation sales limit for the recovery pe-
riod is the sum of the annual load losses for
each year of such period.
‘‘(iv) For purposes of clause (iii), a mutual
or cooperative electric company’s annual load
loss for each year of the recovery period is the
amount (if any) by which—
‘‘(I) the megawatt hours of electric
energy sold during such year to members
of such electric company are less than
‘‘(II) the megawatt hours of electric
energy sold during the base year to such
members.
710
‘‘(v) For purposes of clause (iv)(II), the
term ‘base year’ means—
‘‘(I) the calendar year preceding the
start-up year, or
‘‘(II) at the election of the electric
company, the second or third calendar
years preceding the start-up year.
‘‘(vi) For purposes of this subparagraph,
the recovery period is the 7-year period begin-
ning with the start-up year.
‘‘(vii) For purposes of this subparagraph,
the start-up year is the calendar year which in-
cludes the date of the enactment of this sub-
paragraph or, if later, at the election of the mu-
tual or cooperative electric company—
‘‘(I) the first year that such electric
company offers nondiscriminatory open ac-
cess, or
‘‘(II) the first year in which at least
10 percent of such electric company’s sales
are not to members of such electric com-
pany.
‘‘(viii) A company shall not fail to be treat-
ed as a mutual or cooperative company for pur-
poses of this paragraph or as a corporation op-
711
erating on a cooperative basis for purposes of
section 1381(a)(2)(C) by reason of the treat-
ment under clause (i).
‘‘(ix) For purposes of subparagraph (A), in
the case of a mutual or cooperative electric
company, income received, or accrued, indirectly
from a member shall be treated as an amount
collected from members for the sole purpose of
meeting losses and expenses.’’.
(c) EXCEPTION FROM UNRELATED BUSINESS TAX-
ABLE INCOME.—Subsection (b) of section 512 (relating to
modifications) is amended by adding at the end the fol-
lowing new paragraph:
‘‘(18) TREATMENT OF MUTUAL OR COOPERA-
TIVE ELECTRIC COMPANIES.—In the case of a mu-
tual or cooperative electric company described in sec-
tion 501(c)(12), there shall be excluded income
which is treated as member income under subpara-
graph (H) thereof.’’.
(d) CROSS REFERENCE.—Section 1381 is amended
by adding at the end the following new subsection:
712
‘‘(c) CROSS REFERENCE.—
‘‘For treatment of income from load loss trans-
actions of organizations described in subsection
(a)(2)(C), see section 501(c)(12)(H).’’.
(e) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
the date of the enactment of this Act.
SEC. 42010. ARBITRAGE RULES NOT TO APPLY TO PREPAY-
MENTS FOR NATURAL GAS.
(a) IN GENERAL.—Subsection (b) of section 148 (re-
lating to higher yielding investments) is amended by add-
ing at the end the following new paragraph:
‘‘(4) SAFE
HARBOR
FOR
PREPAID
NATURAL
GAS.—
‘‘(A) IN GENERAL.—The term ‘investment-
type property’ does not include a prepayment
under a qualified natural gas supply contract.
‘‘(B) QUALIFIED
NATURAL
GAS
SUPPLY
CONTRACT.—For purposes of this paragraph,
the term ‘qualified natural gas supply contract’
means any contract to acquire natural gas for
resale by a utility owned by a governmental
unit if the amount of gas permitted to be ac-
quired under the contract by the utility during
any year does not exceed the sum of—
‘‘(i) the annual average amount dur-
ing the testing period of natural gas pur-
713
chased (other than for resale) by cus-
tomers of such utility who are located
within the service area of such utility, and
‘‘(ii) the amount of natural gas to be
used to transport the prepaid natural gas
to the utility during such year.
‘‘(C) NATURAL GAS USED TO GENERATE
ELECTRICITY.—Natural gas used to generate
electricity shall be taken into account in deter-
mining 
the 
average 
under 
subparagraph
(B)(i)—
‘‘(i) only if the electricity is generated
by a utility owned by a governmental unit,
and
‘‘(ii) only to the extent that the elec-
tricity is sold (other than for resale) to
customers of such utility who are located
within the service area of such utility.
‘‘(D) ADJUSTMENTS
FOR
CHANGES
IN
CUSTOMER BASE.—
‘‘(i) NEW
BUSINESS
CUSTOMERS.—
If—
‘‘(I) after the close of the testing
period and before the date of issuance
of the issue, the utility owned by a
714
governmental unit enters into a con-
tract to supply natural gas (other
than for resale) for a business use at
a property within the service area of
such utility, and
‘‘(II) the utility did not supply
natural gas to such property during
the testing period or the ratable
amount of natural gas to be supplied
under the contract is significantly
greater than the ratable amount of
gas supplied to such property during
the testing period,
then a contract shall not fail to be treated
as a qualified natural gas supply contract
by reason of supplying the additional nat-
ural gas under the contract referred to in
subclause (I).
‘‘(ii) LOST CUSTOMERS.—The average
under subparagraph (B)(i) shall not exceed
the annual amount of natural gas reason-
ably expected to be purchased (other than
for resale) by persons who are located
within the service area of such utility and
715
who, as of the date of issuance of the
issue, are customers of such utility.
‘‘(E) RULING REQUESTS.—The Secretary
may increase the average under subparagraph
(B)(i) for any period if the utility owned by the
governmental unit establishes to the satisfaction
of the Secretary that, based on objective evi-
dence of growth in natural gas consumption or
population, such average would otherwise be in-
sufficient for such period.
‘‘(F) ADJUSTMENT
FOR
NATURAL
GAS
OTHERWISE ON HAND.—
‘‘(i) IN GENERAL.—The amount oth-
erwise permitted to be acquired under the
contract for any period shall be reduced
by—
‘‘(I) the applicable share of nat-
ural gas held by the utility on the
date of issuance of the issue, and
‘‘(II) the natural gas (not taken
into account under subclause (I))
which the utility has a right to ac-
quire during such period (determined
as of the date of issuance of the
issue).
716
‘‘(ii) APPLICABLE SHARE.—For pur-
poses of the clause (i), the term ‘applicable
share’ means, with respect to any period,
the natural gas allocable to such period if
the gas were allocated ratably over the pe-
riod to which the prepayment relates.
‘‘(G) INTENTIONAL ACTS.—Subparagraph
(A) shall cease to apply to any issue if the util-
ity owned by the governmental unit engages in
any intentional act to render the volume of nat-
ural gas acquired by such prepayment to be in
excess of the sum of—
‘‘(i) the amount of natural gas needed
(other than for resale) by customers of
such utility who are located within the
service area of such utility, and
‘‘(ii) the amount of natural gas used
to transport such natural gas to the utility.
‘‘(H) TESTING PERIOD.—For purposes of
this paragraph, the term ‘testing period’ means,
with respect to an issue, the most recent 5 cal-
endar years ending before the date of issuance
of the issue.
717
‘‘(I) SERVICE AREA.—For purposes of this
paragraph, the service area of a utility owned
by a governmental unit shall be comprised of—
‘‘(i) any area throughout which such
utility provided at all times during the
testing period—
‘‘(I) in the case of a natural gas
utility, natural gas transmission or
distribution services, and
‘‘(II) in the case of an electric
utility, electricity distribution services,
‘‘(ii) any area within a county contig-
uous to the area described in clause (i) in
which retail customers of such utility are
located if such area is not also served by
another utility providing natural gas or
electricity services, as the case may be, and
‘‘(iii) any area recognized as the serv-
ice area of such utility under State or Fed-
eral law.’’.
(b) PRIVATE LOAN FINANCING TEST NOT TO APPLY
TO PREPAYMENTS FOR NATURAL GAS.—Paragraph (2) of
section 141(c) (providing exceptions to the private loan fi-
nancing test) is amended by striking ‘‘or’’ at the end of
subparagraph (A), by striking the period at the end of
718
subparagraph (B) and inserting ‘‘, or’’, and by adding at
the end the following new subparagraph:
‘‘(C) is a qualified natural gas supply con-
tract (as defined in section 148(b)(4)).’’.
(c) EFFECTIVE DATE.—The amendment made by
this section shall apply to obligations issued after the date
of the enactment of this Act.
TITLE III—PRODUCTION
SEC. 43001. OIL AND GAS FROM MARGINAL WELLS.
(a) IN GENERAL.—Subpart D of part IV of sub-
chapter A of chapter 1 (relating to business credits) is
amended by adding at the end the following:
‘‘SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM
MARGINAL WELLS.
‘‘(a) GENERAL RULE.—For purposes of section 38,
the marginal well production credit for any taxable year
is an amount equal to the product of—
‘‘(1) the credit amount, and
‘‘(2) the qualified credit oil production and the
qualified natural gas production which is attrib-
utable to the taxpayer.
‘‘(b) CREDIT
AMOUNT.—For purposes of this
section—
‘‘(1) IN GENERAL.—The credit amount is—
719
‘‘(A) $3 per barrel of qualified crude oil
production, and
‘‘(B) 50 cents per 1,000 cubic feet of
qualified natural gas production.
‘‘(2) REDUCTION AS OIL AND GAS PRICES IN-
CREASE.—
‘‘(A) IN GENERAL.—The $3 and 50 cents
amounts under paragraph (1) shall each be re-
duced (but not below zero) by an amount which
bears the same ratio to such amount (deter-
mined without regard to this paragraph) as—
‘‘(i) the excess (if any) of the applica-
ble reference price over $15 ($1.67 for
qualified natural gas production), bears to
‘‘(ii) $3 ($0.33 for qualified natural
gas production).
The applicable reference price for a taxable
year is the reference price of the calendar year
preceding the calendar year in which the tax-
able year begins.
‘‘(B) INFLATION
ADJUSTMENT.—In the
case of any taxable year beginning in a calendar
year after 2003, each of the dollar amounts
contained in subparagraph (A) shall be in-
creased to an amount equal to such dollar
720
amount multiplied by the inflation adjustment
factor for such calendar year (determined under
section 43(b)(3)(B) by substituting ‘2002’ for
‘1990’).
‘‘(C) REFERENCE PRICE.—For purposes of
this paragraph, the term ‘reference price’
means, with respect to any calendar year—
‘‘(i) in the case of qualified crude oil
production, the reference price determined
under section 29(d)(2)(C), and
‘‘(ii) in the case of qualified natural
gas production, the Secretary’s estimate of
the annual average wellhead price per
1,000 cubic feet for all domestic natural
gas.
‘‘(c) QUALIFIED CRUDE OIL
AND NATURAL GAS
PRODUCTION.—For purposes of this section—
‘‘(1) IN GENERAL.—The terms ‘qualified crude
oil production’ and ‘qualified natural gas production’
mean domestic crude oil or natural gas which is pro-
duced from a qualified marginal well.
‘‘(2) LIMITATION ON AMOUNT OF PRODUCTION
WHICH MAY QUALIFY.—
‘‘(A) IN GENERAL.—Crude oil or natural
gas produced during any taxable year from any
721
well shall not be treated or qualified crude oil
production or qualified natural gas production
to the extent production from the well during
the taxable year exceeds 1,095 barrels or barrel
equivalents.
‘‘(B) PROPORTIONATE REDUCTIONS.—
‘‘(i) SHORT TAXABLE YEARS.—In the
case of a short taxable year, the limitations
under this paragraph shall be proportion-
ately reduced to reflect the ratio which the
number of days in such taxable year bears
to 365.
‘‘(ii) WELLS NOT IN PRODUCTION EN-
TIRE YEAR.—In the case of a well which is
not capable of production during each day
of a taxable year, the limitations under
this paragraph applicable to the well shall
be proportionately reduced to reflect the
ratio which the number of days of produc-
tion bears to the total number of days in
the taxable year.
‘‘(3) DEFINITIONS.—
‘‘(A) QUALIFIED
MARGINAL
WELL.—The
term ‘qualified marginal well’ means a domestic
well—
722
‘‘(i) the production from which during
the taxable year is treated as marginal
production under section 613A(c)(6), or
‘‘(ii) which, during the taxable year—
‘‘(I) has average daily production
of not more than 25 barrel equiva-
lents, and
‘‘(II) produces water at a rate
not less than 95 percent of total well
effluent.
‘‘(B) CRUDE OIL, ETC.—The terms ‘crude
oil’, ‘natural gas’, ‘domestic’, and ‘barrel’ have
the meanings given such terms by section
613A(e).
‘‘(C) BARREL
EQUIVALENT.—The term
‘barrel equivalent’ means, with respect to nat-
ural gas, a conversation ratio of 6,000 cubic
feet of natural gas to 1 barrel of crude oil.
‘‘(d) OTHER RULES.—
‘‘(1) PRODUCTION ATTRIBUTABLE TO THE TAX-
PAYER.—In the case of a qualified marginal well in
which there is more than one owner of operating in-
terests in the well and the crude oil or natural gas
production exceeds the limitation under subsection
(c)(2), qualifying crude oil production or qualifying
723
natural gas production attributable to the taxpayer
shall be determined on the basis of the ratio which
taxpayer’s revenue interest in the production bears
to the aggregate of the revenue interests of all oper-
ating interest owners in the production.
‘‘(2) OPERATING
INTEREST
REQUIRED.—Any
credit under this section may be claimed only on
production which is attributable to the holder of an
operating interest.
‘‘(3) PRODUCTION
FROM
NONCONVENTIONAL
SOURCES
EXCLUDED.—In the case of production
from a qualified marginal well which is eligible for
the credit allowed under section 29 for the taxable
year, no credit shall be allowable under this section
unless the taxpayer elects not to claim the credit
under section 29 with respect to the well.’’.
(b) CREDIT TREATED AS BUSINESS CREDIT.—Sec-
tion 38(b) is amended by striking ‘‘plus’’ at the end of
paragraph (16), by striking the period at the end of para-
graph (17) and inserting ‘‘, plus’’, and by adding at the
end the following:
‘‘(18) the marginal oil and gas well production
credit determined under section 45I(a).’’.
724
(c) CARRYBACK.—Subsection (a) of section 39 (relat-
ing to carryback and carryforward of unused credits gen-
erally) is amended by adding at the end the following:
‘‘(3) 10-YEAR CARRYBACK FOR MARGINAL OIL
AND GAS WELL PRODUCTION CREDIT.—In the case
of the marginal oil and gas well production credit—
‘‘(A) this section shall be applied sepa-
rately from the business credit (other than the
marginal oil and gas well production credit),
‘‘(B) paragraph (1) shall be applied by
substituting ‘10 taxable years’ for ‘1 taxable
years’ in subparagraph (A) thereof, and
‘‘(C) paragraph (2) shall be applied—
‘‘(i) by substituting ‘31 taxable years’
for ‘21 taxable years’ in subparagraph (A)
thereof, and
‘‘(ii) by substituting ‘30 taxable years’
for ‘20 taxable years’ in subparagraph (A)
thereof.’’.
(d) COORDINATION WITH SECTION 29.—Section
29(a) is amended by striking ‘‘There’’ and inserting ‘‘At
the election of the taxpayer, there’’.
(e) CLERICAL AMENDMENT.—The table of sections
for subpart D of part IV of subchapter A of chapter 1
is amended by adding at the end the following:
‘‘Sec. 45I. Credit for producing oil and gas from marginal wells.’’.
726
(c) EFFECTIVE DATE.—The amendment made by
subsection (a) shall apply to taxable years beginning after
December 31, 2003.
SEC. 43003. AMORTIZATION OF DELAY RENTAL PAYMENTS.
(a) IN GENERAL.—Section 167 (relating to deprecia-
tion) is amended by redesignating subsection (h) as sub-
section (i) and by inserting after subsection (g) the fol-
lowing new subsection:
‘‘(h) AMORTIZATION OF DELAY RENTAL PAYMENTS
FOR DOMESTIC OIL AND GAS WELLS.—
‘‘(1) IN GENERAL.—Any delay rental payment
paid or incurred in connection with the development
of oil or gas wells within the United States (as de-
fined in section 638) shall be allowed as a deduction
ratably over the 24-month period beginning on the
date that such payment was paid or incurred.
‘‘(2) HALF-YEAR CONVENTION.—For purposes
of paragraph (1), any payment paid or incurred dur-
ing the taxable year shall be treated as paid or in-
curred on the mid-point of such taxable year.
‘‘(3) EXCLUSIVE METHOD.—Except as provided
in this subsection, no depreciation or amortization
deduction shall be allowed with respect to such pay-
ments.
727
‘‘(4) TREATMENT
UPON
ABANDONMENT.—If
any property to which a delay rental payment relates
is retired or abandoned during the 24-month period
described in paragraph (1), no deduction shall be al-
lowed on account of such retirement or abandon-
ment and the amortization deduction under this sub-
section shall continue with respect to such payment.
‘‘(5) DELAY RENTAL PAYMENTS.—For purposes
of this subsection, the term ‘delay rental payment’
means an amount paid for the privilege of deferring
development of an oil or gas well under an oil or gas
lease.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to amounts paid or incurred in tax-
able years beginning after December 31, 2003.
SEC. 43004. AMORTIZATION OF GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES.
(a) IN GENERAL.—Section 167 (relating to deprecia-
tion) is amended by redesignating subsection (i) as sub-
section (j) and by inserting after subsection (h) the fol-
lowing new subsection:
‘‘(i) AMORTIZATION
OF GEOLOGICAL
AND GEO-
PHYSICAL EXPENDITURES.—
‘‘(1) IN
GENERAL.—Any geological and geo-
physical expenses paid or incurred in connection
728
with the exploration for, or development of, oil or
gas within the United States (as defined in section
638) shall be allowed as a deduction ratably over the
24-month period beginning on the date that such ex-
pense was paid or incurred.
‘‘(2) SPECIAL
RULES.—For purposes of this
subsection, rules similar to the rules of paragraphs
(2), (3), and (4) of subsection (h) shall apply.’’.
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to costs paid or incurred in taxable
years beginning after December 31, 2003.
SEC. 43005. EXTENSION AND MODIFICATION OF CREDIT
FOR PRODUCING FUEL FROM A NONCONVEN-
TIONAL SOURCE.
(a) IN GENERAL.—Section 29 is amended by adding
at the end the following new subsection:
‘‘(h) EXTENSION FOR OTHER FACILITIES.—
‘‘(1) EXTENSION FOR OIL AND CERTAIN GAS.—
In the case of a well for producing qualified fuels de-
scribed in subparagraph (A) or (B)(i) of subsection
(c)(1)—
‘‘(A) APPLICATION OF CREDIT FOR NEW
WELLS.—Notwithstanding subsection (f), this
section shall apply with respect to such fuels—
729
‘‘(i) which are produced from a well
drilled after the date of the enactment of
this subsection and before January 1,
2007, and
‘‘(ii) which are sold not later than the
close of the 4-year period beginning on the
date that such well is drilled, or, if earlier,
January 1, 2010.
‘‘(B) EXTENSION
OF
CREDIT
FOR
OLD
WELLS.—Subsection (f)(2) shall be applied by
substituting ‘2007’ for ‘2003’ with respect to
wells described in subsection (f)(1)(A) with re-
spect to such fuels.
‘‘(2) EXTENSION FOR FACILITIES PRODUCING
QUALIFIED FUEL FROM LANDFILL GAS.—
‘‘(A) IN GENERAL.—In the case of a facil-
ity for producing qualified fuel from landfill gas
which was placed in service after June 30,
1998, and before January 1, 2007, this section
shall apply to fuel produced at such facility dur-
ing the 5-year period beginning on the later
of—
‘‘(i) the date such facility was placed
in service, or
730
‘‘(ii) the date of the enactment of this
subsection.
‘‘(B) REDUCTION OF CREDIT FOR CERTAIN
LANDFILL FACILITIES.—In the case of a facility
to which paragraph (1) applies and which is lo-
cated at a landfill which is required pursuant to
section 60.751(b)(2) or section 60.33c of title
40, Code of Federal Regulations (as in effect on
April 3, 2003) to install and operate a collec-
tion and control system which captures gas gen-
erated within the landfill, subsection (a)(1)
shall be applied to gas so captured by sub-
stituting ‘$2’ for ‘$3’ for the taxable year dur-
ing which such system is required to be in-
stalled and operated.
‘‘(3) SPECIAL
RULES.—In determining the
amount of credit allowable under this section solely
by reason of this subsection—
‘‘(A) DAILY LIMIT.—The amount of quali-
fied fuels sold during any taxable year which
may be taken into account by reason of this
subsection with respect to any project shall not
exceed an average barrel-of-oil equivalent of
200,000 cubic feet of natural gas per day. Days
before the date the project is placed in service
731
shall not be taken into account in determining
such average.
‘‘(B) EXTENSION PERIOD TO COMMENCE
WITH UNADJUSTED CREDIT AMOUNT.—In the
case of fuels sold during 2003, the dollar
amount applicable under subsection (a)(1) shall
be $3 (without regard to subsection (b)(2)). In
the case of fuels sold after 2003, subparagraph
(B) of subsection (d)(2) shall be applied by sub-
stituting ‘2003’ for ‘1979’.’’.
(b) TREATMENT AS BUSINESS CREDIT.—
(1) CREDIT MOVED TO SUBPART RELATING TO
BUSINESS
RELATED
CREDITS.—The Internal Rev-
enue Code of 1986 is amended by redesignating sec-
tion 29 as section 45J and by moving section 45J
(as so redesignated) from subpart B of part IV of
subchapter A of chapter 1 to the end of subpart D
of part IV of subchapter A of chapter 1.
(2) CREDIT TREATED AS BUSINESS CREDIT.—
Section 38(b) is amended by striking ‘‘plus’’ at the
end of paragraph (17), by striking the period at the
end of paragraph (18) and inserting ‘‘, plus’’, and
by adding at the end the following:
‘‘(19) the nonconventional source production
credit determined under section 45J(a).’’.
768
ance. Payments under this section may only be made upon
receipt by the Secretary of an incentive payment applica-
tion establishing an applicant as either—
(1) a qualifying advanced power system tech-
nology facility; or
(2) a qualifying security and assured power fa-
cility.
(b) INCENTIVES.—Subject to availability of funds, a
payment of 1.8 cents per kilowatt-hour shall be paid to
the owner or operator of a qualifying advanced power sys-
tem technology facility under this section for electricity
generated at such facility. An additional 0.7 cents per kilo-
watt-hour shall be paid to the owner or operator of a quali-
fying security and assured power facility for electricity
generated at such facility. Any facility qualifying under
this section shall be eligible for an incentive payment for
up to, but not more than, the first 10,000,000 kilowatt-
hours produced in any fiscal year.
(c) ELIGIBILITY.—For purposes of this section—
(1) the term ‘‘qualifying advanced power system
technology facility’’ means a facility using an ad-
vanced fuel cell, turbine, or hybrid power system or
power storage system to generate or store electric
energy; and