Energy Tax Act
PL 95-618 (H.R.5263), enacted 11/09/1978

92 STAT. 3174 
PUBLIC LAW 95-618—NOV. 9, 1978 
Public Law 95-618 
95th Congress 
An Act 
—^ov- "•> iy78 
ipQ provide tax incentives for the production and conservation of energy, and for 
[H.R. 5263] 
other purposes. 
Be it enacted hy the Senate and House of Representatives 
of the 
Energy Tax Act 
United States of America in Congress assembled^ That (a) item 912.05 
of 1978 
of the Appendix to the Tarijff Schedules of the United States (19 
Bicycle parts, 
U.S.C. 1202) is amended— 
19*UScT2oT°" 
(^) ^y inserting ", and parts thereof" immediately after "Gen-
erator lighting sets for bicycles"; and 
(2) by striking out "12/31/76" and inserting in lieu thereof 
"6/30/80". 
26 use 1 note. 
SECTION 1. SHORT TITLE; ETC. 
(a) SHORT TITLE.—This Act may be cited as the "Energy Tax Act 
of 1978". 
(b) AMENDMENT OF 1954 CODE.—Except as otherwise expressly pro-
vided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other pro-
26 use 1. 
vision of the Internal Revenue Code of 1954. 
(c) TABLE OF CONTENTS.— 
Sec. 1. Short title; etc. 
TITLE I—RESIDENTIAL ENERGY CREDIT 
Sec. 101. Residential energy credit. 
TITLE II—TRANSPORTATION 
c / 
; ! ^ 
PAST I—GAS GUZZLEB TAX 
Sec. 201. Gas guzzler tax. 
PABT II—MoTOB FUELS 
Sec. 221. Exemption from motor fuels excise taxes for certain alcohol fuels. 
Sec. 222. Denial of credit or refund for nonbusiness nonhighway use of gasoline, 
special motor fuels, and lubricating oil. 
PART III—PROVISIONS RBXATED TO BUSES 
Sec. 231. Removal of excise tax on buses. 
Sec. 232. Removal of excise tax on bus parts. 
Sec. 233. Removal of excise tax on fuel, oil, and tires used in connection with 
intercity, local, and school buses. 
PART IV—INCENTIVES FOE VAN POOLING 
Sec. 241. Full investment credit for certain commuter vehicles. 
Sec. 242. Exclusion from gross income of value of qualified transportation pro-
vided by employer. 
TITLE III—CHANGES IN BUSINESS INVESTMENT CREDIT TO ENCOUR-
AGE CONSERVATION OF, OR CONVERSION FROM, OIL AND GAS OR TO 
ENCOURAGE NEW ENERGY TECHNOLOGY 
Sec. 301. Changes in business investment credit. 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3175 
TITLE IV—MISCELLANEOUS PROVISIONS 
Sec. 401. Treatment of intangible drilling costs for purposes of the minimum tax. 
Sec. 402. Option to deduct intangible drilling costs in the case of geothermal 
deposits. 
Sec. 403. Depletion for geothermal deposits and natural gas from geopressurized 
brine. 
Sec. 404. Rerefined lubricating oil. 
TITLE I—RESIDENTIAL ENERGY CREDIT 
SEC. 101. RESIDENTIAL ENERGY CREDIT. 
(a) GENERAL RULE.—Subpart A of part I V of subchapter A of 
, 
chapter 1 (relating to credits allowable) is amended by inserting after 
' 
section 44B the following new section: 
"SEC. 44C. RESIDENTIAL ENERGY CREDIT. 
26 USC 44C. 
"(a) GENERAL RULE.—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 the sum of— 
" (1) the qualified energy conservation expenditures, plus 
" (2) the qualified renewable energy source expenditures. 
"(b) QUALIFIED EXPENDITURES.—For purposes of subsection (a)—• 
"(1) ENERGY CONSERVATION.—In the case of any dwelling unit, 
the qualified energy conservation expenditures are 15 percent of 
so much of the energy conservation expenditures made by the tax-
payer during the taxable year with respect to such unit as does 
not exceed $2,000. 
"(2) RENEWABLE ENERGY SOURCE.—In the case of any dwelling 
unit, the qualified renewable energy source expenditures are the 
following percentages of the renewable energy source expendi-
tures made by the taxpayer during the taxable year with respect to 
such unit: 
"(A) 30 percent of so much of such expenditures as does 
not exceed $2,000, plus 
" (B) 20 percent of so much of such expenditures as exceeds 
$2,000 but does not exceed $10,000. 
"(3) 
PRIOR EXPENDITURES BY TAXPAYER ON SAME RESIDENCE 
TAKEN INTO ACCOUNT.—If for any prior year a credit was allowed 
to the taxpayer under this section with respect to any dwelling 
unit by reason of e n e r ^ conservation expenditures or renewable 
energy source expenditures, paragraph (1) or (2) (whichever 
is appropriate) shall be applied for the taxable year with respect 
to such dwelling unit by reducing each dollar amount contained 
in such paragraph by the prior year expenditures taken into 
account under such paragraph. 
"(4) M I N I M U M DOLLAR AMOUNT.—No credit shall be allowed 
under this section with respect to any return for any taxable year 
if the amount which would (but for this paragraph) be allowed 
with respect to such return is less than $10. 
"(5) APPLICATION WITH OTHER CREDITS.—The credit allowed by 
subsection (a) shall not exceed the tax imposed by this chapter 
for the taxable year, reduced by the sum of the credits allowable 
under a section of this subpart having a lower number or letter 
designation than this section, other than credits allowable by 
sections 31,39, and 43. 
26 USC 31, 39, 
43. 
92 STAT. 3176 
PUBLIC LAW 95-618—NOV. 9, 1978 
"(6) CARRYOVER OF UNUSED CREDIT.— 
" ( A ) I N GENERAL.—If the credit allowable under subsec-
tion (a) for any taxable year exceeds the limitation imposed 
by paragraph (5) 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. 
" ( B ) No CARRYOVER TO TAXABLE YEARS BEGINNING AFTER 
DECEMBER 31, 198 7.—No amount may be carried under sub-
^ 
paragraph (A) to any taxable year beginning after Decem-
ber 31, 1987. 
"(c) DEFINITIONS AND SPECIAL RULES.—For purposes 
of 
this 
section— 
"(1) ENERGY CONSERVATION EXPENDITURES.—The term 'energy 
conservation expenditure' means an expenditure made on or after 
April 20,1977, by the taxpayer for insulation or any other energy-
conserving component (or for the original installation of such 
insulation or other component) installed in or on a dwelling 
unit— 
" (A) which is located in the United States, 
" ( B ) which is used by the taxpayer as his principal 
residence, and 
"(C) the construction of which was substantially completed 
before April 20, 1977. 
"(2) RENEWABLE ENERGY SOURCE EXPENDITURE.— 
" ( A ) I N GENERAL.—The term 'renewable energy source 
expenditure' means an expenditure made on or after April 20, 
1977, by the taxpayer for renewable energy source property 
installed in connection with a dwelling unit— 
"(i) which is located in the United States, and 
"(ii) which is used by the taxpayer as his principal 
residence. 
" ( B ) 
CERTAIN LABOR COSTS INCLUDED.—^The term 'renew-
able energy source expenditure' includes expenditures for 
^ ' 
labor costs properly allocable to the onsite preparation, 
assembly, or original installation of renewable energy source 
property. 
" ( C ) SWIMMING POOL, ETC., USED AS STORAGE MEDIUM.—The 
term 'renewable energy source expenditure' does not include 
any expenditure properly allocable to a swimming pool used 
as an energy storage medium or to any other energy storage 
medium which has a primary function other than the function 
of such storage. 
"(3) INSULATION.—The term 'insulation' means any item— 
" (A) which is specifically and primarily designed to reduce 
when installed in or on a dwelling (or water heater) the heat 
loss or gain of such dwelling (or water heater), 
"(B) the original use of which begins with the taxpayer, 
"(C) which can reasonably be expected to remain in opera-
tion for at least 3 years, and 
" ( D ) which meets the performance and quality standards 
(if any) which— 
"(i) have been prescribed by the Secretary by regu-
lations, and 
"(ii) are in effect at the time of the acquisition of the 
item. 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3177 
"(4) OTHER ENERGY-CONSERVING COMPONENT.—The term 'other 
energy-conserving component' means any item (other than insu-
lation)— 
"(A) which is— 
"(i) a furnace replacement burner designed to achieve 
a reduction in the amount of fuel consumed as a result of 
increased combustion efficiency, 
" (ii) a device for modifying flue openings designed to 
increase the efficiency of operation of the heating system, 
"(iii) an electrical or mechanical furnace ignition sys-
tem, which replaces a gas pilot light, 
"(iv) a storm or thermal window or door for the 
exterior of the dwelling, 
"(v) an automatic energy-saving setback thermostat, 
" (vi) caulking or weatherstripping of an exterior door 
or window, 
"(vii) a meter which displays the cost of energy usage, 
or 
"(viii) an item of the kind which the Secretary speci-
fies by regulations as increasing the energy efficiency of 
the dwelling, 
"(B) the original use of which begins with the taxpayer, 
"(C) which can reasonably be expected to remain in opera-
tion for at least 3 years, and 
"(D) which meets the performance and quality standards 
(if any) which— 
"(i) have been prescribed by the Secretary by regula-
tions, and 
" (ii) are in effect at the time of the acquisition of the 
item. 
"(5) KENEWABLE ENERGY SOURCE PROPERTY.—The term 'renew-
able energy source property' means property— 
"(A) which, when installed in connection with a dwelling, 
> 
transmits or uses— 
"(i) solar energy, energy derived from the geothermal 
deposits (as defined in section 613(e) (3)), or any other Post, p. 3203. 
form of renewable energy which the Secretary specifies 
by regulations, for the purpose of heating or cooling such 
dwelling or providing hot water for use within such 
dwelling, or 
" (ii) wind energy for nonbusiness residential purposes, 
fB) the original use of which begins with the taxpayer, 
^C) which can reasonably be expected to remain in 
operation for at least 5 years, and 
"(D) which meets the performance and quality standards 
(if any) which— 
"(i) have been prescribed by the Secretary by regula-
tions, and 
"(ii) are in effect at the time of the acquisition of the 
property. 
"(6) REGULATIONS.— 
"(A) CRITERIA; CERTIFICATION PROCEDURES.—The Secre-
tary shall by regulations— 
"(i) establish the criteria which are to be used in (I) 
prescribing performance and quality standards under 
paragraphs (3), (4), and (5), or (tl) specifying any 
item under paragraph (4) (A) (viii) or any form of 
renewable energy under paragraph (5) (A) (i), and 
39-194 O—80—pt. 3 
35 : QL3 
"n 
"0 
92 STAT. 3178 
PUBLIC LAW 95-618—NOV. 9, 1978 
"(ii) establish a procedure under which a manufac-
' 
'•'' 
turer of an item may request the Secretary to certify that 
the item will be treated, for purposes of this section, as 
insulation, an energy-conserving component, or renew-
able energy source property. 
"(B) CONSULTATION.—Performance and quality standards 
regulations and other regulations shall be prescribed by the 
Secretary under paragraphs (3), (4), and (5) and under this 
paragraph only after consultation with the Secretary of 
Energy, the Secretary of Housing and Urban Development, 
and other appropriate Federal officers. 
"(7) W H E N EXPENDITURES MADE; AMOUNT OF EXPENDITURES.— 
"(A) I N GENERAL.—Except as provided in subparagraph 
' 
( B ) , an expenditure with respect to an item shall be treated 
as made when original installation of the item is completed. 
" ( B ) 
RENEWABLE ENERGY SOURCE EXPENDITURES.—In the 
case of renewable energy source expenditures in connection 
with the construction or reconstruction of a dwelling, such 
expenditures shall be treated as made when the original use 
' 
of the constructed or reconstructed dwelling by the taxpayer 
begins. 
"(C) AMOUNT.—The amount of any expenditure shall be 
the cost thereof. 
" ( D ) ALLOCATION IN CERTAIN CASES.—If less than 80 per-
* • • 
cent of the use of an item is for nonbusiness residential pur-
poses, only that portion of the expenditures for such item 
•^ 
which is properly allocable to use for nonbusiness residential 
purposes shall be taken into account. For purposes of this 
- 
subparagraph, use for a swimming pool shall be treated as 
use which is not for residential purposes. 
"(8) PRINCIPAL RESIDENCE.—The determination of whether or 
not a dwelling unit is a taxpayer's princiDal residence shall be 
26 use 1034. 
made under principles similar to those applicable to section 1034, 
except that— 
" ( A ) no ownership requirement shall be imposed, and 
• 
" ( B ) the period for which a dwelling is treated as the 
principal residence of the taxpayer shall include the 30-day 
period ending on the first day on which it would (but for 
this subparagraph) be treated as his principal residence. 
'* (d) SPECIAL RULES.—For purposes of this section— 
" (1) DOLLAR AMOUNTS IN CASE or JOINT OCCUPANCY.—In the case 
of any dwelling unit which is jointly occupied and used during 
any calendar year as a principal residence by 2 or more indi-
viduals— 
" (A) the amount of the credit allowable under subsection 
(a) by reason of energy conservation expenditures or by 
reason of renewable energy source expenditures (as the case 
may be) made during such calendar year by any of such 
individuals with respect to such dwelling unit shall be deter-
mined by treating all of such individuals as one taxpayer 
whose taxable year is such calendar year; and 
, * ' . 
" ( B ) there shall be allowable with respect to such expendi-
tures to each of such individuals a credit under subsection (a) 
for the taxable year in which such calendar year ends in an 
amount which bears the same ratio to the amoimt determined 
under subparagraph (A) as the amount of such expenditures 
^ 
made by such individual during such calendar year bears to 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3179 
the aggregate of such expenditures made by all of such indi- 
'; 
viduals during such calendar year. 
"(2) TENANT-STOCKHOLDER IN COOPERATIVE HOUSING CORPORA-
TION.—In the case of an individual who is a tenant-stockholder 
(as defined in section 216) in a cooperative housing corporation 
26 USC 216. 
(as defined in such section), such individual shall be treated as 
having made his tenant-stockholder's proportionate share (as 
defined in section 216(b)(3)) 
of any expenditures of such 
corporation. 
"(3) 
CONDOMINIUMS.— 
"(A) I N GENERAL.—In the case of an individual who is a 
member of a condominium management association with 
respect to a condominium which ho owns, such individual 
^ 
shall be treated as having made his proportionate share of 
any expenditures of such association. 
" ( B ) 
CONDOMINIUM MANAGEMENT ASSOCIATION.—For pur-
poses 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 sub- 26 USC 528. 
paragraph (E) thereof) with respect to a condominium 
project substantially all of the units of which are used as 
residences. 
" ( 4 ) 1977 EXPENDITURES ALLOWED FOR 197 8.— 
" ( A ) 
N o CREDIT FOR TAXABLE TEARS BEGINNING BEFORE 
1978.—No credit shall be allowed under this section for any 
taxable year beginning before January 1,1978. 
" ( B ) 1977 EXPENDITURES ALLOWED FOR 1978.—In the case of 
the taxpayer's first taxable year beginning after December 31, 
1977, this section shall be applied by taking into account the 
period beginning April 20,1977, and ending on the last day of 
such first taxable year. 
"(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 subsection) result from such expenditure shall be reduced by 
the amount of the credit so allowed. 
"(f) TERMINATION.—This section shall not apply to expenditures 
made after December 31,1985." 
(b) TECHNICAL AND CLERICAL AMENDMENTS.— 
(1) The table of sections for subpart A of part I V of subchap-
ter A of chapter 1 is amended by inserting after the item relating 
to section 44B the following new item: 
"Sec. 44C. Residential energy credit." 
(2) Subsection (c) of section 56 (defining regular tax deduc- 26 USC 56. 
tion) is amended by striking out "credits allowable under—" and 
all that follows and inserting in lieu thereof "credits allowable 
under subpart A of part IV other than under sections 31, 39, and 
43." 
26 USC 31, 39, 
(3) Subsection (a) of section 1016 (relating to adjustments to ^^• 
basis) is amended by inserting after paragraph (20) the follow-
ing new paragraph: 
"(21) to the extent provided in section 44C(e), in the case of Ante, p. 3175. 
property with respect to which a credit has been allowed under 
section 44C;". 
26 USC 1016. 
92 STAT. 3180 
PUBLIC LAW 95-618—NOV. 9, 1978 
26 use 6096. 
(4) Subsection (b) of section 6096 (relating to designation of 
income tax payments to Presidential Election Campaign Fund) 
is amended by striking out "and 44B" and inserting in lieu thereof 
"44B,and44C". 
26 use 44C 
(c) EFFECTIVE DATE.— The amendments made by this section shall 
apply to taxable years ending on or after April 20,1977. 
note 
TITLE II—TRANSPORTATION 
PART I—GAS GUZZLER TAX 
SEC. 201. GAS GUZZLER TAX. 
(a) GENERAL RULE.—Part I of subchapter A of chapter 32 (relat-
ing to motor vehicle excise taxes) is amended by adding at the end 
thereof the following new section: 
26 use 4064. 
"SEC. 4064. GAS GUZZLER TAX. 
"(a) IMPOSITION OF TAX.—There is hereby imposed on the sale by 
the manufacturer of each automobile a tax determined in accordance 
with the following tables: 
" (1) In the case of a 1980 model year automobile : 
"If the fuel economy of the model 
t3i)e in which the automobile falls is: 
/ 
The tax is: 
At least 15 
0 
At least 14 but less than 15 
$200 
At least 13 but less than 14 
300 
Less than 13 
550 
" (2) In the case of a 1981 model year automobile: 
"If the fuel economy of the model 
type in which the automobile falls is: 
The tax is: 
At least 17 
0 
At least 16 but less than 17 
$200 
At least 15 but less than 16 
350 
At least 14 but less than 15 
450 
At least 13 but less than 14 
550 
Less than 13 
650 
" (3) In the case of a 1982 model year automobile: 
"If the fuel economy of the model 
type in which the automobile falls is: 
The tax is: 
At least 18.5 
0 
At least 17.5 but less than 18.5 
$200 
At least 16.5 but less than 17.5 
350 
At least 15.5 but less than 16.5 
450 
At least 14.5 but less than 15.5 
600 
At least 13.5 but less than 14.5 
750 
, 
At least 12.5 but less than 13.5 
950 
- ' ' 
'" 
Less than 12.5 
1,200 
" (4) In the case of a 1983 model year automobile: 
"If the fuel economy of the model 
: *; » 
,,? 
-X'. 
type in which the automobile falls is: 
The tax is: 
At least 19 
- - 
- - 
- 
0 
At least 18 but less than 19 
$350 
At least 17 but less than 18 
500 
At least 16 but less than 17 
650 
••' 
? 
At least 15 but less than 16 
800 
At least 14 but less than 15 
1, 000 
At least 13 but less than 14 
1,250 
> 
Less than 13 
1,550 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3181 
" (5) I n the case of a 1984 model year automobile: 
"If the fuel economy of the model 
type in which the automobile falls is: 
The tax is: 
At least 19.5 
0 
At least 18.5 but less than 19.5 
$450 
At least 17.5 but less than 18.5 
600 
At least 16.5 but less than 17.5 
750 
At least 15.5 but less than 16.5 
950 
At least 14.5 but less than 15.5 
1,150 
At least 13.5 but less than 14.5 
1,450 
At least 12.5 but less than 13,5 
1, 750 
Less than 12.5 
2,150 
" (6) In the case of a 1985 model year automobile: 
"If the fuel economy of the model 
type in which the automobile falls is: 
The tax is: 
At least 21 
- 
0 
At least 20 but less than 21 
$500 
At least 19 but less than 20 
600 
; 
At least 18 but less than 19 
800 
At least 17 but less than 18 
1, 000 
At least 16 but less than 17 
1, 200 
At least 15 but less than 16 
1,500 
At least 14 but less than 15 
1, 800 
At least 13 but less than 14 
2, 200 
Less than 13 
2, 650 
" (7) In the case of a 1986 or later model year automobile: 
"If the fuel economy of the model 
type in which the automobile falls is: 
The tax is: 
At least 22.5 
- 
0 
At least 21.5 but less than 22.5 
$500 
At least 20.5 but less than 21.5 
650 
At least 19.5 but less than 20.5 
850 
At least 18.5 but less than 19.5 
1,050 
At least 17.5 but less than 18.5 
1, 300 
At least 16.5 but less than 17.5 
1, 500 
At least 15.5 but less than 16.5 
1, 850 
At least 14.5 but less than 15,5 
2, 250 
At least 13.5 but less than 14.5 
2, 700 
At least 12.5 but less than 13.5 
3,200 
Less than 12.5 
3, 850 
"(b) DEFINITIONS.—For purposes of this section— 
"(1) AUTOMOBILE.— 
"(A) I N GENERAL.—The term 'automobile' means any 
4-wheeled vehicle propelled by fuel— 
"(i) which is manufactured primarily for use on 
public streets, roads, and hig^hways (except any vehicle 
operated exclusively on a rail or rails), and 
"(ii) which is rated at 6,000 pounds gross vehicle 
weiffht or less. 
" ( B ) EXCEPTION FOR CERTAIN VEHICLES.—The term 'automo-
bile' does not include any vehicle which is treated as a non-
passenger automobile under the rules which were prescribed 
by the Secretary of Transportation for purposes of section 
501 of the Motor Vehicle Information and Cost Savings Act 
(15 IT.S.C. 2001) and which were in efFect on the date of the 
enactment of this section. 
" ( C ) 
EXCEPTION FOR EMERGENCY VEHICLES.—The term 
'automobile' does not include any vehicle sold for use and 
used— 
"(i) as an ambulance or combination 
ambulance-
hearse, 
" (ii) by the United States or by a State or local govern-
ment for police or other law enforcement purposes, or 
92 STAT. 3182 
PUBLIC LAW 95-618—NOV. 9, 1978 
"(iii) for other emergency uses prescribed by the 
Secretary by regulations. 
"(2) 
F U E L ECONOMY.—The term 'fuel economy' means the 
average number of miles traveled by an automobile per gallon of 
gasoline (or equivalent amount of other fuel) consumed, as deter-
mined by the E P A Administrator in accordance with procedures 
established under subsection (c). 
"(3) MODEL TYPE.—The term 'model type' means a particular 
class of automobile as determined by regulation by the E P A 
Administrator. 
"(4) MODEL YEAR.—The term 'model year', with reference to 
any specific calendar year, means a manufacturer's annual pro-
duction period (as determined by the E P A Administrator) which 
includes January 1 of such calendar year. If a manufacturer has 
no annual production period, the term 'model year' means the 
calendar year. 
" (5) MANUFACTURER.—The term 'manufacturer' includes a pro-
ducer or importer. 
"(6) E P A ADMINISTRATOR.—The term ' E P A Administrator' 
means the Administrator of the Environmental 
Protection 
Agency. 
"(7) FUEL.—^The term 'fuel' means gasoline and diesel fuel. 
The Secretary (after consultation with the Secretary of Trans-
portation) may, by regulation, include any product of petroleum 
•^* 
or natural gas within the meaning of such term if he determines 
that such inclusion is consistent with the need of the Nation to 
conserve energy. 
"(c) 
DETERMINATION or F U E L ECONOMY.—For purposes of this 
section— 
"(1) I N GENERAL.—Fuel economy for any model type shall be 
measured in accordance with testing and calculation procedures 
established by the E P A Administrator by regulation. Procedures 
so established shall be the procedures utilized by the E P A 
Administrator for model year 1975 (weighted 55 percent urban 
cycle, and 45 percent highway cycle), or procedures which yield 
comparable results. Procedures under this subsection, to the extent 
practicable, shall require that fuel economy tests be conducted in 
conjunction with emissions tests conducted under section 206 of 
42 use 7540. 
the Clean Air Act. The E P A Administrator shall report any 
measurements of fuel economy to the Secretary. 
"(2) SPECIAL RULE FOR FUELS OTHER THAN GASOLINE.—The E P A 
Administrator shall by regulation determine that quantity of any 
other fuel which is the equivalent of one gallon of gasoline. 
" (3) T I M E BY WHICH REGULATIONS MUST BE ISSUED.—Testing and 
calculation procedures applicable to a model year, and any amend-
ment to such procedures (other than a technical or clerical amend-
ment), shall be pronmlgated not less than 12 months before the 
model year to which such procedures apply. 
"(d) SPECIAL RULES FOR SMALL MANUFACTURERS.— 
"(1) I N GENERAL,—If, on the application of a small manufac-
turer, the Secretary determines that it is not feasible for such 
manufacturer to meet the tax-free fuel economy level for the 
model year with respect to all automobiles produced by such 
manufacturer or with respect to a model type produced by such 
manufacturer, the Secretary may by regulation prescribe an 
alternate rate schedule for such model year for all automobiles 
produced by such manufacturer or for such model type, as the 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3183 
case may be. The alternate rate schedule shall be based on the 
maximum feasible fuel economy level which such manufacturer 
can meet for such model year with respect to all automobiles or 
with respect to such model type, as the case may be. 
"(2) 
APPLICATION TO INCLUDE NECESSARY INFORMATION.—^An 
application under this subsection for any model year shall contain 
such information as the Secretary may by regulations prescribe. 
"(3) 
DETERMINATIONS TO BE MADE ONLY AFTER CONSULTATION.— 
Determinations under paragraph (1) shall be made by the Secre-
tary only after consultation with the Secretary of Energy, the 
Secretary of Transportation, and other appropriate 
Federal 
officers. 
" (4) SMALL MANUFACTURER DEFINED.— 
"(A) I N GENERAL.—For purposes of this subsection, the 
term'small manufacturer'means any manufacturer— 
"(i) who manufactured (whether or not in the United 
States) fewer than 10,000 automobiles in the second 
model year preceding the model year for which the deter-
mination under paragraph (1) is being made, and 
"(ii) who can reasonably be expected to manufacture 
(whether or not in the United States) fewer than 10,000 
automobiles in the model year for which the determina-
tion under paragraph (1) is being made. 
" ( B ) SPECIAL 
RULES.—For 
purposes 
of 
subparagraph 
( A ) -
" ( i ) M A N U F A C T U R E R OF AUTOMOBILES PRODUCED ABROAD 
DETERMINED 
WITHOUT 
REGARD TO 
IMPORTATION. 
T h e 
meaning of the term 'manufacturer' shall be determined 
without regard to subsection (b) (5). 
"(ii) 
CONTROLLED GROUPS.—Persons who are members 
of the same controlled group of corporations shall be 
treated as one manufacturer. For purposes of the pre-
ceding sentence, the term 'controlled group of corpora-
tions' has the meaning given to such term by section 
1563(a); except that 'more than 50 percent' shall be sub- 26 USC 1563. 
stituted for 'at least 80 percent' each place it appears in 
section 1563(a)." 
(b) 
REDUCTION I N BASIS OF AUTOMOBILE ON W H I C H GAS GUZZLER 
TAX W A S IMPOSED.—Section 1016 (relating to adjustments to basis) is 26 USC 1016. 
amended by redesignating subsection (d) as subsection (e) and by 
inserting after subsection (c) the following new subsection: 
"(d) 
REDUCTION IN BASIS OF AUTOMOBILE ON W H I C H GAS GUZZLER 
TAX W A S IMPOSED.—If— 
"(1) the taxpayer acquires any automobile with respect to 
which a tax was imposed by section 4064, and 
^nte, p. 3180. 
" (2) the use of such automobile by the taxpayer begins not more 
than 1 year after the date of the Jfirst sale for ultimate use of such 
automobile, 
the basis of such automobile shall be reduced by the amount of the tax 
imposed by section 4064 with respect to such automobile. In the case 
of importation, if the date of entry or withdrawal from warehouse for 
consumption is later than the date of the first sale for ultimate use, 
such later date shall be substituted for the date of such first sale in the 
preceding sentence." 
(c) DENIAL OF CERTAIN EXEMPTIONS AND REFUNDS.— 
(1) TAX-FREE SALES.—Subsection (a) of section 4221 (relating 
26 USC 4221. 
to certain tax-free sales) is amended by adding at the end thereof 
the following new sentence: 
92 STAT. 3184 
PUBLIC LAW 95-618—NOV. 9, 1978 
"Paragraphs (4) and (5) shall not apply to the tax imposed by section 
Ante, p. 3180. 
4064." 
26 use 4293. 
(2) UNITED STATES AXD POSSESSIONS.—Section 4293 (relating to 
exemption for United States and possessions) is amended by 
striking out "tax imposed by section 4121" and inserting in lieu 
thereof "taxes imposed by sections 4064 and 4121". 
(3) DENIAL OF REFUNDS FOR CERTAIN USES.—Paragraph (2) of 
26 use 6416. 
section 6416(b) (relating to tax payments considered overpay-
ments in the case of specified uses and resales) is amended by add-
ing at the end thereof the following new sentence: 
"Subparagraphs (C) and (D) shall not apply in the case of any 
tax paid under section 4064". 
(d) PAYMENT OF TAX IN CASE OF LEASED AUTOMOBILES.—Section 
26 use 4217. 
4217 (relating to leases) is amended by adding at the end thereof the 
following new subsection: 
"(e) LEASES OF AUTOMOBILES SUBJECT TO GAS GUZZLER TAX.— 
(1) I N GENERAL.—In the case of the lease of an automobile the 
sale of which by the manufacturer would be taxable under section 
4064, the foregoing provisions of this section shall not apply, but, 
for purposes of this chapter— 
"(A) the first lease of such automobile by the manufac-
turer shall be considered to be a sale, and 
"(B) any lease of such automobile by the manufacturer 
after the first lease of such automobile shall not be considered 
to be a sale. 
" (2) PAYMENT OF TAX.—In the case of a lease described in para-
graph (1) ( A ) -
"(A) there shall be paid by the manufacturer on each lease 
payment that portion of the total gas guzzler tax which bears 
the same ratio to such total gas guzzler tax as such payment 
bears to the total amount to be paid under such lease, 
"(B) if such lease is canceled, or the automobile is sold or 
otherwise disposed of, before the total gas guzzler tax is pay-
able, there shall be paid by the manufacturer on such cancel-
lation, sale, or disposition the difference between the tax 
imposed under subparagraph (A) on the lease payments and 
the total gas guzzler tax, and 
"(C) if the automobile is sold or otherwise disposed of 
after the total gas guzzler tax is payable, no tax shall be 
imposed under section 4064 on such sale or disposition. 
"(3) DEFINITIONS.—For purposes of this subsection— 
" (A) MANUFACTURER.—The term 'manufacturer' includes a 
producer or importer. 
"(B) TOTAL GAS GUZZLER TAX.—The term 'total gas guzzler 
Ante, p. 3180. 
tax' means the tax imposed by section 4064, computed at the 
rate in effect on the date of the first lease." 
(e) AUTHORITY TO EXTEND REGISTRATION SYSTEM TO EXEMPTION OF 
26 use 4222. 
EMERGENCY VEHICLES.—Subsection (d) of section 4222 (relating to 
registration in the case of certain other exemptions) is amended by 
inserting "4064(b) (1) (C)," after "4063(b),". 
(f) CLERICAL AMENDMENT.—The table of sections for part I of sub-
chapter A of chapter 32 is amended by adding at the end thereof the 
following new item: 
"Sec. 4064. Gas guzzler tax." 
26 use 4064 
(g) EFFECTIVE DATE.—The amendments made by this section shall 
note. 
apply with respect to 1980 and later model year automobiles (as 
26 use 4064. 
defined in section 4064 (b) of the Internal Revenue Code of 1954). 
PUBLIC LAW 95-618--N0V. 9, 1978 
92 STAT. 3185 
PART II—MOTOR FUELS 
SEC. 221. EXEMPTION FROM MOTOR FUELS EXCISE TAXES FOR CER-
TAIN ALCOHOL FUELS. 
(a) GASOLINE MIXED W I T H ALCOHOL.— 
(1) I N GENERAL.—Section 4081 (relating to imposition of tax 
on gasoline) is amended by adding at the end thereof the follow-
ing new subsection: 
"(c) GASOLINE MIXED W I T H ALCOHOL.— 
"(1) I N GENERAL.—Under regulations prescribed by the Secre-
tary, no tax shall be imposed by this section on the sale of any 
gasoline— 
" ( A ) in a mixture with alcohol, if at least 10 percent of the 
mixture is alcohol, or 
"(B) for use in producing a mixture at least 10 percent of 
which is alcohol. 
" (2) LATER SEPARATION OF GASOLINE.—If any person separates 
the gasoline from a mixture of gasoline and alcohol on which tax 
was not imposed by reason of this subsection, such person shall be 
treated as the producer of such gasoline. 
"(3) ALCOHOL DEFINED.—For purposes of this subsection, the 
term 'alcohol' includes methanol and ethanol but does not include 
alcohol produced from petroleum, natural gas, or coal." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to sales after December 31,1978, and before October 1, 
1984. 
(b) ALCOHOL MIXED W I T H SPECIAL F U E L . — 
(1) I N GENERAL.—Section 4041 (relating to imposition of tax 
on special fuels) is amended by adding at the end thereof the fol-
lowing new subsection: 
" (k) FUELS CONTAINING ALCOHOL.— 
"(1) I N GENERAL.—^Under regulations prescribed by the Secre-
tary, no tax shall be imposed by this section on the sale or use of 
any liquid fuel at least 10 percent of which consists of alcohol 
(as denned by section 4081 (c) (3)). 
" (2) LATER SEPARATION.—If any person separates the liquid fuel 
from a mixture of the liquid fuel and alcohol on which tax was 
not imposed by reason of this subsection, such separation shall be 
treated as a sale of the liquid fuel." 
(2) EFFECTIVE DATE.—The amendment made by paragraph (1) 
shall apply to sales or use after December 31, 1978, and before 
October 1,1984. 
(c) REPORTS.— 
(1) ANNUAL REPORT.—On April 1 of each year, beginning with 
April 1, 1980, and ending on April 1, 1984, the Secretary of 
Energy, in consultation with the Secretary of the Treasury and 
the Secretary of Transportation, shall submit to the Congress a 
report on the use of alcohol in fuel. The report shall include— 
(A) a description of the firms engaged in the alcohol fuel 
industry, 
(B) the amount of alcohol fuels sold in each State, and 
the amount of gasoline saved in each State by reason of the 
use of alcohol fuels, 
(C) the revenue loss resulting from the exemptions from 
js,, 
^. tax for alcohol fuels under sections 4041 (k) and 4081(c) of 
the Internal Revenue Code of 1954, and 
26 use 4081. 
•
< ^>£ 
26 use 4081 
note. 
26 use 4041. 
26 use 4041 
note. 
26 use 4041 
note. 
Report to 
Congress. 
26 use 4041, 
4081. 
92 STAT. 3186 
PUBLIC LAW 95-618—NOV. 9, 1978 
26 use 4041, 
4081. 
26 use 4081 
note. 
Legislative 
recommendations 
to congressional 
committees. 
26 use 5001 
et seq. 
(D) the cost of production and the retail cost of alcohol 
fuels as compared to gasoline and special fuels before the 
imposition of any Federal excise taxes. 
Report to 
(2) REPORT.—The report submitted to the Congress on April 1, 
1984, shall contain, in addition to the information required under 
paragraph (1), an analysis of the effect on the alcohol fuel 
industry of the termination of the exemption from excise taxes 
provided under sections 4041 (k) and 4081 (c) of the Internal Rev-
enue Code of 1954. 
(d) EXPEDITION OP CERTAIN ETHANOL PRODUCTION APPLICATIONS.— 
The Secretary of the Treasury shall expedite, to the maximum extent 
possible, action on the application of any person with respect to the 
production of ethanol for use in producing gasoline described in sec-
tion 4081 (c) (or in producing liquid fuel described in section 4041 (k)) 
of the Internal Revenue Code of 1954. Within 6 months after the date 
of the enactment of this Act, the Secretary shall furnish to the 
Committee on Finance, United States Senate, and to the Commit-
tee on Ways and Means, United States House of Representatives, rec-
ommendations for legislation necessary to provide for changes in the 
provisions of chapter 51 of the Internal Revenue Code of 1954 to pro-
vide a simple, expeditious procedure for processing such applications 
and to simplify the regulation of such persons for purposes of such 
chapter consistent with adequate safeguards against the use of such 
applications to avoid or evade compliance with the provisions of such 
chapter relating to distilled spirits procured, dealt in, or used for other 
purposes. 
SEC. 222. DENIAL OF CREDIT OR REFUND FOR NONBUSINESS NON-
HIGHWAY USE OF GASOLINE, SPECIAL MOTOR FUELS, 
AND LUBRICATING OIL. 
(a) I N GENERAL.— 
(1) GASOLINE.— 
26 use 6421. 
(A) So much of the first sentence of section 6421(a) (relat-
ing to nonhighway uses) as precedes "the Secretary" is 
amended to read as follows: "Except as provided in subsec-
tion (i), if gasoline is used in a qualified business use,". 
(B) Subsection (d) of section 6421 (relating to definitions) 
is amended by adding at the end thereof the following new 
paragraph: 
" ( 3 ) Q U A L I F I E D BUSINESS USE.— 
" ( A ) I N GENERAL.—The term'qualified business use'mcaus 
any use by a person in a trade or business of such person or 
26 use 212. 
in an activity of such person described in section 212 (relat-
ing to production of income) otherwise than as a fuel in a 
highway vehicle— 
"(i) which (at the time of such use), is registered, or 
is required to be registered, for highway use under the 
laws of any State or foreign country, or 
"(ii) which, in the case of a highway vehicle owned by 
the United States, is used on the highway. 
" ( B ) EXCEPTION FOR USE I N MOTORBOATS.—The term 'quali-
fied business use' does not include any use in a motorboat. 
" ( C ) 
COMMERCIAL 
FISHING 
VESSELS.—For 
provisions 
exempting from tax gasoline, special motor fuels, and lubri-
cating oil used for commercial fishing vessels, see— 
26 use 4221. 
"(i) subsections (a)(3) and (d)(3) of section 4221 
,; 
(relating to certain tax-free sales), 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3187 
"(ii) section 6416(b) (2) (B) (relating to refund or 26USC6416. 
;•! 
credit in case of certain uses), and 
"(iii) section 4041(g)(1) 
(relating to exemptions 26USC4041. 
from tax on special fuels)." 
(2) 
SPECIAL MOTOR FUELS.—Subsection (b) of section 4041 
(relating to special motor fuels) is amended by striking out the 
' 
second and third sentences and inserting in lieu thereof the 
following: 
"In the case of a liquid taxable under this subsection sold for use, or 
used, in a qualified business use, the tax imposed by paragraph (1) or 
by paragraph (2) shall be 2 cents a gallon. If a liquid on which tax 
was imposed by paragraph (1) at the rate of 2 cents a gallon by reason 
of the preceding sentence is used otherwise than in a qualified busi-
ness use, a tax of 2 cents a gallon shall be imposed under paragraph 
(2). For purposes of this subsection, the term 'qualified business use' 
has the meamng given to such term bj/^ section 6421 (d) (3)." 
26 USC 6421. 
(3) LUBRICATING OIL.—^Subsection (a) of section 6424 (relating 26 USC 6424. 
to lubricating oil not used in highway motor vehicles) is amended 
by striking out "is used otherwise than in a highway motor vehi-
cle" and inserting in lieu thereof "is used in a qualified business 
use (within the meaning of section 6421(d) (3))". 
(b) ETTECTIVE DATE.—The amendments made by subsection (a) 26 USC 4041 
shall apply with respect to uses after December 31,1978. 
°°*®-
PART III—PROVISIONS RELATED TO BUSES 
SEC. 231. REMOVAL OF EXCISE TAX ON BUSES. 
(a) GENERAL EuLE.—Paragraph (6) of section 4063(a) (relating 26 USC 4063. 
to exemption for local transit buses) is amended to read as follows: 
" (6) BUSES.—The tax imposed under section 4061 (a) shall not 26 USC 4061. 
apply in the case of any automobile bus chassis or automobile bus 
body." 
(b) FLOOR STOCKS REruNDS.— 
26 USC 4063 
(1) I N GENERAL.—Where, before the day after the date of the 
enactment of this Act, any tax-repealed article (as defined in sub-
section (e)) has been sold by the manufacturer, producer, or 
importer and on such day is held by a dealer and has not been used 
and is intended for sale, there shall be credited or refunded (with-
out interest) to the manufacturer, producer, or importer an 
, amount equal to the tax paid by such manufacturer, producer, or 
importer on his sale of the article, if— 
(A) claim for such credit or refund is filed with the Secre-
tary of the Treasury before the first day of the 10th calendar 
month beginning after the day after the date of the enactment 
of this Act based upon a request submitted to the manufac-
turer, producer, or importer before the first day of the 7th 
. .,, 
calendar month beginning after the day after the date of the 
enactment of this Act by the dealer who held the article in 
respect of which the credit or refunds is claimed; and 
(B) on or before the first day of such 10th calendar month 
reimbursement has been made to the dealer by the manufac-
turer, producer, or importer in an amount equal to the tax 
paid on the article or written consent has been obtained from 
the dealer to allowance of the credit or refund. 
(2) LIMITATION ON ELIGIBILITT FOR CREDIT OR REFUND.—No man-
ufacturer, producer, or importer shall be entitled to credit or 
refund under paragraph (1) unless he has in his possession such 
note. 
92 STAT. 3188 
PUBLIC LAW 95-618—NOV. 9, 1978 
dfJt; •-•''..• '-> 
evidence of the inventories with respect to which the credit or 
refund is claimed as may be required by regulations prescribed b}' 
1
4 #r >c J •/ 
J 
the Secretary of the Treasury under this subsection. 
(3) OTHER LAWS APPLICABLE.—All provisions of law, including 
penalties, applicable with respect to the taxes imposed by section 
26 use 4061. 
4061(a) of the Internal Eevenue Code of 1954 shall, insofar as 
applicable and not inconsistent with paragraphs (1) and (2) of 
this subsection, apply in respect of the credits and refunds pro-
i 
vided for in paragraph (1) to the same extent as if the credits or 
refunds constituted overpayments of the tax. 
(c) REFUNDS W I T H EESPECT TO CERTAIN CONSUMER PURCHASES.— 
(1) I N GENERAL.—Except as otherwise provided in paragraph 
(2), where on or after April 20, 1977, and on or before the date 
of the enactment of this Act, a tax-repealed article (as defined in 
subsection (e)) has been sold to an ultimate purchaser, there shall 
• •'"••''. ' 
be credited or refunded (without interest) to the manufacturer, 
' i • 
i 
producer, or importer of such article an amount equal to the tax 
paid by such manufacturer, producer, or importer on his sale of 
the article. 
', 
(2) LIMITATION ON ELIGIBILITY FOR CREDIT O
R REFUND.—No man-
ufacturer, producer, or importer shall be entitled to a credit or 
! '• 
refund under paragraph (1) with respect to an article unless— 
'•'- 
(A) he has in his possession such evidence of the sale of 
the article to an ultimate purchaser, and of the reimbursement 
of the tax to such purchaser, as may be required by regulations 
prescribed by the Secretary of the Treasury under this 
subsection; 
.Kc. * 
J d% - 
(B) claim for such credit or refund is filed with the Sec-
retary of the Treasury before the first day of the 10th cal-
.1 c. >'!*" ;:: 
endar month beginning after the day after the date of the 
enactment of this Act based upon information submitted to 
the manufacturer, producer, or importer before the first day 
r
S
.
:
)
w 
w .;; 
of the 7th calendar month beginning after the day after the 
' 
. 
date of the enactment of this Act by the person who sold the 
article (in respect of which the credit or refund is claimed) 
to the ultimate purchaser; and 
t 
(C) on or before the first day of such 10th calendar month 
reimbursement has been made to the ultimate purchaser in 
J 
an amount equal to the tax paid on the article. 
(3) OTHER LAWS APPLICABIJE.—All provisions of laws, including 
penalties, applicable with respect to the taxes imposed by section 
4061(a) of such Code shall, insofar as applicable and not incon-
sistent with paragraph (1) or (2) of this subsection, apply with 
respect to the credits and refunds provided for in paragraph (1) 
to the same extent as if the credits or refunds constituted over-
payment of the tax. 
(d) CERTAIN USES BY MANUFACTURER, ETC.—Any tax paid by leason 
26 use 4218. 
of section 4218(a) of such Code (relating to use by manufacturer or 
importer considered sale) on any tax-repealed article shall be deemed 
an overpayment of such tax if the tax was imposed on such article 
by reason of such section 4218(a) on or after April 20, 1977. 
(e) DEFINITIONS.—For purposes of this section— 
; 
(1) The term "dealer" includes a wholesaler, jobber, distributor, 
or retailer. 
(2) An article shall be considered as "held by a dealer" if title 
thereto has passed to such dealer (whether or not delivery to 
, 
him has been made) and if, for purposes of consumption, title to 
PUBLIC L
AW 95-618—NOV. 9, 1978 
92 STAT. 3189 
such article or possession thereof has not at any time been trans-
ferred to any person other than a dealer. 
^' 
(3) The term "tax-repealed article" means an article on which 
a tax was imposed by section 4061 (a) of such Code (as in effect on 26 USC 4061. 
the day before the date of the enactment of this Act) and which 
is exempted from such tax by paragraph (6) of section 4063(a) 
of such Code (as amended by subsection (a) of this section). 
26 USC 4063. 
(f) TECHNICAL AND CONFORMING AMENDMENTS.— 
(1) The heading for paragraph (1) of section 6412(a) (relat- 26 USC 6412. 
ing to floor stocks refunds) is amended by striking out "AND 
BUSES". 
(2) Subsection (d) of section 4222 (relating to registration in 26 USC 4222. 
case of certain other exemptions) is amended by striking out 
"4063(a) (6) or (7)" and inserting in lieu thereof "4063(a) (7)". 
(g) EFFECTIVE DATE.— 
26 USC 4063 
(1) The amendments made by subsections (a) and (f) shall "
o
*
®
-
apply with respect to articles sold after the date of the enactment 
of this Act. 
, ^ 
>P : <
y 
(2) For purposes of paragraph (1), an article shall not be con-
sidered sold on or before the date of the enactment of this Act 
unless possession or right to possession passes to the purchaser on 
or before such date. 
(3) In the case of— 
' ,. '--
(A) a lease, 
(B) a contract for the sale of an article providing that the 
price shall be paid by installments and title to the article sold 
does not pass until a future date notwithstanding partial 
payment by installments, 
(C) a conditional sale, or 
(D) a chattel mortgage arrangement providing that the 
•, .. > i .c 
sale price shall be paid in installments, 
entered into on or before the date of the enactment of this Act, 
payments made after such date with respect to the article leased 
or sold shall, for purposes of this subsection, be considered as pay-
ments made with respect to an article sold after such date, if the 
^.y j : f'; 
lessor or vendor establishes that the amount of payments payable 
after such date with respect to such article has been reduced by an 
amount equal to that portion of the tax applicable with respect to 
the lease or sale of such article which is due and payable after such 
date. If the lessor or vendor does not establish that the payments 
have been so reduced, they shall be treated as payments made in 
respect of an article sold on or before the date of the enactment of 
this Act. 
SEC. 
2
3
2
. 
REMOVAL 
OF 
EXCISE 
TAX 
ON 
BUS 
PARTS. 
(a) EXEMPT SALES.—Subsection (e) of section 4221 (relating to 26 USC 4221. 
special rules for certain tax-free sales) is amended by adding at the 
end thereof the following new paragraph: 
" (6) Bus P
A
R
T
S A
N
D ACCESSORIES.—Under regulations prescribed 
by the Secretary, the tax imposed by section 4061(b) shall not 
apply to any part or accessory which is sold for use by the pur-
chaser on or in connection with an automobile bus." 
(b) REFUND FOR CERTAIN SALES OF BUS PARTS.—Subparagraph (I) 
of section 6416(b)(2) (relating to refund for specified uses and 26 USC 6416. 
resales) is amended to read as follows: 
"(I) in the case of any article taxable under section 4061 
(b), sold for use by the purchaser on or in connection with an 
automobile bus;". 
92 STAT. 3190 
PUBLIC LAW 95-618—NOV. 9, 1978 
26 u s e 4221 
(c) EFrECTiVE D A T E . — T h e amendments made by this section shall 
°°*®- 
apply to sales on or after the first day of the first calendar month begin-
ning more than 10 days after the date of the enactment of this Act. 
SEC. 233. REMOVAL OF EXCISE TAX ON FUEL, OIL, AND TIRES USED 
IN CONNECTION WITH INTERCITY, LOCAL, AND SCHOOL 
BUSES. 
(a) REPAYMENT OF TAX ON GASOLINE AND OTHER MOTOR FUEI^S USED 
BY INTERCITY, LOCAL, OR SCHOOL BUSES.— 
26 use 6421. 
(1) GASOLINE.—Subsection (b) of section 6421 (relating to 
local transit systems) is amended to read as follows: 
,. 
^ 
" (b) INTERCITY, LOCAL, OR SCHOOL BUSES.— 
"(1) ALLOWANCE.—Except as provided in paragraph (2) and 
subsection (i), if gasoline is used in an automobile bus while 
engaged in— 
'^ 
" ( A ) furnishing (for compensation) passenger land trans-
portation available to the general public, or 
" ( B ) the transportation of students and employees of 
26 use 4221. 
schools (as defined in the last sentence of section 4221 (d) (7) 
the Secretary shall pay (without interest) to the ultimate pur-
chaser of such gasoline an amount equal to the product of the 
number of gallons of gasoline so used multiplied by the rate at 
26 use 4081. 
which tax was imposed on such gasoline by section 4081. 
"(2) 
LIMITATION I N CASE or NONSCHEDULED INTERCITY OR LOCAL 
BUSES.—Paragraph (1) (A) shall not apply in respect of gasoline 
used in any automobile bus while engaged in furnishing trans-
portation which is not scheduled and not along regular routes 
unless the seating capacity of such bus is at least 20 adults (not 
including the driver)." 
26 use 6427. 
(2) OTHER FUELS.—Subsection (b) of section 6427 (relating to 
local transit systems) is amended to read as follows: 
"(b) 
INTERCITY, LOCAL, O
R SCHOOL BUSES.— 
"(1) ALLOWANCE.—Except as provided in paragraph (2) and 
subsection (g), if any fuel on the sale of which tax was imposed 
26 use 4041. 
by subsection (a) or (b) of section 4041 is used in an automobile 
bus while engaged in— 
" ( A ) furnishing (for compensation) passenger land trans-
portation available to the general public, or 
"(B) the transportation of students and employees of 
schools (as defined in the last sentence of section 4221(d) 
(T)(C)), 
the Secretary shall pay (without interest) to the ultimate pur-
chaser of such fuel an amount equal to the product of the number 
of gallons of such fuel so used multiplied by the rate at which tax 
was imposed on such fuel by subsection (a) or (b) of section 4041. 
" ( 2 ) L I M I T A T I O N IN CASE OF NONSCHEDULED INTERCITY OR LOCAL 
BUSES.—Paragraph (1) (A) shall not apply in respect of fuel used 
} 
in any automobile bus while engaged in furnishing transportation 
which is not scheduled and not along regular routes unless the 
seating capacity of such bus is at least 20 adults (not including the 
driver)." 
(3) T E C H N I C A L AMENDMENTS.— 
26 use 6421. 
(A) Subsection (d) of section 6421 is amended— 
(i) by strikin/^ out paragraph (2), and 
. 
(ii) by redesignating paragraph (3) (as added by 
Ante, p. 3186. 
section 222(a) (1) ( B ) ) as paragraph (2). 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3191 
(B) The last sentence of section 4041(b) (as added by 26USC4041. 
section 222(a)(2)) is amended by striking out "6421(d) 
(3)" and inserting in lieu thereof "6421(d) (2)-'. 
(C) Subsection (c) of section 4483 is amended by inserting 26 USC 4483. 
"(as m effect on the day before the date of the enactment of 
the Energy Tax Act of 1978)" after "section 6421(b) (2)". 
(b) REPAYMENT OF TAX ON LUBRICATING OIL USED IN INTERCITY, 
LOCAL, OR SCHOOL BUSES.— 
(1) I N GENERAL.—Subsection (a) of section 6424 (relating to 26 USC 6424. 
lubricating oil not used in highway motor vehicles) is amended 
to read as follows: 
"(a) PAYMENTS.—Except as provided in subsection (f), if lubricat-
ing oil (other than cutting oils, as defined in section 4092(b), and 26 USC 4092. 
other than oil which has previously been used) is used— 
(1) in a qualified business use (as defined in section 6421(d) 26 USC 6421. 
(2)), or 
" (2) in a qualified bus (as defined in section 4221 (d) (7)), 
26 USC 4221. 
the Secretary shall pay (without interest) to the ultimate purchaser 
of such lubricating oil an amount equal to 6 cents for each gallon of 
lubricating oil so used." 
(2) TECHNICAL AND CONFORMING AMENDMENTS.— 
(A) The section heading for section 6424 is amended by 26 USC 6424. 
striking out "NOT USED IN HIGHWAY MOTOR VEHICLES" and 
inserting in lieu thereof "USED FOR CERTAIN NONTAXABLE 
PURPOSES". 
(B) The table of sections for subchapter B of chapter 65 26 USC 6411. 
(relating to rules of special application) is amended by strik-
ing out "not used in highway motor vehicles" in the item relating 
to section 6424 and inserting in lieu thereof "used for certain 
nontaxable purposes", 
(C) Paragraph (3) of section 39(a) (relating to certain 26 USC 39. 
uses of gasoline, special fuels, and lubricating oil) is amended 
by striking out "otherwise than in a highway motor vehicle" 
and inserting in lieu thereof "for certain nontaxable 
purposes". 
(D) Sections 6504(9) and 6675(a) are each amended by 26 USC 65(H, 
striking out "not used in highway motor vehicles" and 6675. 
inserting in lieu thereof "used for certain nontaxable pur- 
c 
poses". 
(E) Paragraph (3) of section 209(f) of the Highway Kev- 23USC 120note. 
enue Act of 1956 is amended by striking out "lubricating oil 
not used in highway motor vehicles" and inserting in lieu 
thereof "lubricating oil used for certain nontaxable pur-
poses". 
(c) TIRES, TUBES, A
N
D TREAD RUBBER.— 
(1) I N GENERAL.—Paragraph (5) of section 4221(e) (relating 26 USC 4221. 
to school buses) is amended to read as follows: 
"(5) TIRES, TUBES, A
N
D 
TOEAD 
R
U
B
B
E
R U
S
E
D O
N INTERCITY, LOCAL, 
AND S
C
H
O
O
L BUSES.—Under regulations prescribed by 
the 
Secretary— 
"(A) the taxes imposed by paragraphs (1) and (3) of 
section 4071(a) shall not apply in the case of tires or inner 26 USC 4071, 
tubes for tires sold for use by the purchaser on or in connec-
tion with a qualified bus, and 
"(B) the tax imposed by paragraph (4) of section 4071 
(a) shall not apply in the case of tread rubber sold for use 
by the purchaser in the recapping or retreading of any tire to 
92 STAT. 3192 
PUBLIC LAW 95-618—NOV. 9, 1978 
• > 
be used by the purchaser on or in connection with a qualified 
bus." 
26 use 4221. 
(2) QUALIFIED BUS DEFINED.—Subsection (d) of section 4221 
(relating to definitions) is amended by adding at the end thereof 
the following new paragraph: 
"(7) 
QUALIFIED BUS.— 
" ( A ) I N GENERAL.—The term'qualified bus'lueaus— 
"(i) an intercity or local bus, and 
• • ' ' 
• 
"(ii) a school bus. 
" ( B ) INTERCITY OR LOCAL BUS.—The term 'intercity or local 
bus' means any automobile bus which is used predominantly 
in furnishing (for compensation) passenger land transporta-
'-'''•"• 
^ 
tion available to the general public if— 
"(i) such transportation is scheduled and along reg-
ular routes, or 
"(ii) the seating capacity of such bus is at least 20 
adults (not including the driver). 
"(C) SCHOOL BUS.—The term 'school bus' means any auto-
mobile bus substantially all the use of which is in transport-
ing students and employees of schools. For purposes of the 
preceding sentence, the term 'school' means an educational 
* 
' 
organization which normally maintains a regular faculty 
and curriculum and normally has a regularly enrolled body 
of pupils or students in attendance at the place where its 
educational activities are carried on." 
26 use 6416. 
(3) TECHNICAL AMENDMENT.—Paragraph (2) of section 6416 
(b) (relating to specified uses and resales) is amended by striking 
out the period at the end of subparagraph (K) and inserting in 
lieu thereof a semicolon and by inserting after subparagraph (K) 
the following new subparagraphs: 
" ( L ) in the case of any tire or inner tube taxable under 
26 use 4071. 
paragraph (1) or (3) of section 4071(a), sold to any person 
for use as described in section 4221 ( e ) ( 5 ) ( A ) ; or 
"(M) in the case of tread rubber taxable under paragraph 
(4) of section 4071(a), used in the recapping or retreading 
of a tire sold to any person for use on or in connection with 
a qualified bus (as defined in section 4221(d) (7))." 
26 use 39 note. 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
take effect on the first day of the first calendar month which begins 
more than 10 days after the date of the enactment of this Act, 
PART IV—INCENTIVES FOR VAN POOLING 
SEC. 241. FULL INVESTMENT 
CREDIT FOR CERTAIN 
COMMUTER 
VEHICLES. 
26 use 46. 
(a) I N GENERAL.—Subsection (c) of section 46 (relating to qualified 
investment) is amended by adding at the end thereof the following new 
paragraph : 
"(6) SPECIAL RULE FOR COMMUTER HIGHWAY VEHICLES.— 
"(A) I N GENERAL.—ISTotwithstanding paragraph (2), in 
the case of a commuter highway vehicle the useful life of 
- •
"
* ' 
' 
which is 3 years or more, the applicable percentage for pur-
'K -i 
poses of paragraph (1) shall be 100 percent. 
" ( B ) 
DEFINITION OF COMMUTER HIGHWAY VEHICLE.—For 
• 
purposes of subparagraph (A), the term 'commuter highway 
• -; 
vehicle'means a highway vehicle— 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3193 
"(i) the seating capacity of which is at least 8 adults 
(not including the driver), 
" (ii) at least 80 percent of the mileage use of which can 
reasonably be expected to be (I) for purposes of trans-
porting the taxpayer's employees between their resi-
dences and their place of employment, and (II) on trips 
during which the number of employees transported for 
such purposes is at least one-half of the adult seating 
capacity of such vehicle (not including the driver), 
"(iii) which is acquired by the taxpayer on or after 
the date of the enactment of the Energy Tax Act of 
1978, and placed in service by the taxpayer before Ante, p. 3174. 
January 1,1986, and 
"(iv) with respect to which the taxpayer makes an 
election under this paragraph on his return for the tax-
able year in which such vehicle is placed in service." 
(b) AMENDMENTS OF THE RECAPTURE RULES.— 
(1) Subsection (a) of section 47 (relating to recapture in case 26 USC 47. 
of certain dispositions, etc., of section 38 property) is amended by 
redesignating paragraph (4) as paragraph (5) and by inserting 
after paragraph (3) the following new paragraph: 
" ( 4 ) S P E C I A L RULES FOR COMMUTER HIGHWAY VEHICLES.— 
" (A) USEFUL LIFE.—For purposes of this subsection, 3 years 
shall be treated as the useful life which was taken into 
account in computing the credit under section 38 with respect 26 USC 38. 
to any commuter highway vehicle (as defined in section 46 
(c)(6)(B)). 
Ante, p. 3192. 
"(B) CHANGE IN USE.—If less than 80 percent of the mile-
age use of any commuter highway vehicle by the taxpayer 
during that portion of any taxable year which is within the 
first 36 months of the operation of such vehicle by the tax-
payer meets the requirements of section 46(c) (6) (B), then 
the tax under this chapter for such taxable year shall be 
increased by an amount equal to the aggregate decrease in the 
credits allowed under section 38 for all prior taxable years 
which would have resulted solely from treating such vehicle, 
for purposes of determining qualified investment, as not 
being a commuter highway vehicle. If the application of this 
subparagraph to any property is followed by the application 
of paragraph (1) to such property, proper adjustment shall 
be made in applying paragraph (1)." 
(2) Paragraph (5) of section 47(a) (as redesignated by sub-
paragraph (A)) is amended by striking out "paragraph (2)" and 
inserting in lieu thereof "paragraph (2) or (4)". 
(3) Subparagraph (B) of section 47(a) (6) is amended by strik-
ing out "paragraph (4)" and inserting in lieu thereof "paragraph 
(5)". 
SEC. 242. EXCLUSION FROM GROSS INCOME OF VALUE OF QUALI-
FIED TRANSPORTATION PROVIDED BY EMPLOYER. 
(a) I N GENERAL.—Part I I I of subchapter B of chapter 1 (relating 26 USC 101. 
to items specifically excluded from gross income) is amended by 
redesignating section 124 as 125, and by inserting after section 123 the 26 USC 124, 
following new section: 
125. 
«SEC. 124. QUALIFIED TRANSPORTATION PROVIDED BY EMPLOYER. 26 USC 124. 
" (a) GENERAL RULE.—Gross income of an employee does not include 
the value of qualified transportation provided by the employer between 
the employee's residence and place of employment. 
39-194 O—80—pt. 3 
36 : QL3 
92 STAT. 3194 
PUBLIC LAW 95-618—NOV. 9, 1978 
"(b) QUALIFIED TRANSPORTATION.—For purposes of this section, the 
term 'qualified transportation' means transportation in a commuter 
Ante, p. 3192. 
highway vehicle (as defined in section 46(c) (6) (B) but without regard 
to clause (iii) or (iv) thereof). 
"(c) ADDITIONAL REQtjiREMP:NTS.—Subsection (a) does not apply 
to the value of transportation provided by an employer unless— 
"(1) such transportation is provided under a separate Avritten 
plan of the employer which does not discriminate in favor of 
employees who are officers, shareholders, or highly compensated 
employees, and 
"(2) the plan provides that the value of such transportation is 
; 
. 
provided in addition to (and not in lieu of) any compensation 
otherwise payable to the employee. 
"(d) DEFINITIONS.—For purposes of this section— 
"(1) PROVIDED BY THE EMPLOYER.—Transportation shall bo con-
sidered to be provided by an employer if the ti-ansportation is 
furnished in a commuter highway vehicle (described in subsection 
(b)) operated by or for the employer. 
"(2) EMPLOYEE.—The term 'employee' does not include an indi-
26 use 401. 
vidual who is an employee (within the meaning of section 401 
" (e) EFFECTIVE DATE.—Subsection (a) applies with respect to quali-
fied transportation provided in taxable years beginnin*!; after Decem-
bei- 31,1978, and before January 1,1986". 
(b) CLERICAL AMENDMENT.—The table of sections for such part is 
amended by striking out the last item and inserting in lieu thereof the 
, , 
following: 
"Sec. 124. Qualified transportation provided by employer. 
"Sec. 125. Cross references to other Acts." 
26 use 124note. 
(c) TRANSITION RULE.—The plan requirements of section 124(c) of 
Supra. 
the Intei-nal Revenue Code of 1954 shall be considered to be met with 
respect to transportation provided before July 1, 1979, if there is a 
plan meeting such requirements of the employer in effect on that date. 
TITLE III—CHANGES IN BUSINESS IN-
VESTMENT CREDIT TO ENCOURAGE 
CONSERVATION OF, OR CONVERSION 
FROM, OIL AND GAS OR TO ENCOURAGE 
NEW ENERGY TECHNOLOGY 
SEC. 301. CHANGES IN BUSINESS INVESTMENT CREDIT. 
(a) 
AMOUNT OF CREDIT; ALLOWANCE OF ENERGY PERCENTAGE.— 
26 use 46. 
(1) I N GENERAL.—Paragraph (2) of section 46(a) (relating to 
amount of credit for current taxable year) is amended to read 
as follows: 
"(2) AMOUNT OF CREDIT.— 
" ( A ) I N GENERAL.—The amount of the credit determined 
under this paragraph for the taxable year shall be an amount 
equal to the sum of the following percentages of the qualified 
investment (as determined under subsections (c) and (d)) : 
" (i) the regular percentage, 
"(ii) in the case of energy property, the energy per-
centage, and 
"(iii) t h e E S O P p e r c e n t a g e . 
= 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3195 
"(B) KEGULAR PERCENTAGE.—^For purposes of this para-
graph, the regular percentage is— 
"(i) 10 percent with respect to the period beginning 
on January 21,1975, and ending on December 31,1980, or 
" (ii) 7 percent with respect to the period beginning on 
January 1,1981. 
"(C) ENERGY PERCENTAGE.—For purposes of this para-
graph, the energy percentage is— 
" (i) 10 percent with respect to the period beginning on 
October 1, 1978, and ending on December 31, 1982, or 
" (ii) zero with respect to any other period. 
"(D) 
SPECIAL RULE FOR CERTAIN ENERGY PROPERTY.—For 
purposes of this paragraph, the regular percentage shall not 
apply to any energy property which, but for section 48 (1) (1), Infra. 
would not be section 38 property. 
26 USC 38. 
"(E) ESOP PERCENTAGE.—For purposes of this para-
graph, the ESOP percentage is— 
"(i) with respect to the period beginning on Janu-
ary 21,1975, and ending on December 31,1980,1 percent, 
and 
"(ii) with respect to the period beginning on Janu-
aiy 1, 1977, and ending on December 31, 1980, an addi-
tional percentage (not in excess of ^ of 1 percent) which 
results in an amount equal to the amount determined 
under section 301(e) of the Tax Reduction Act of 1975. 26 USC 46 note. 
This subparagraph shall a^ply to a corporation only if it 
' 
meets the requirements of sdbtion 301(d) of the Tax Reduc-
tion Act of 1975 and only if it elects (at such time, in such 26 USC 46 note, 
form, and in such manner as the Secretary prescribes) to have 
this subparagraph apply." 
(2) CONFORMING AMENDMENTS.— 
(A) Subparagraph (A) of section 46(c) (3) (relating to 26 USC 46. 
public utility property) is amended to read as follows: 
"(A) For the period beginning on January 1, 1981, in the 
case of any property which is public utility property, the 
amount of the qualified investment shall be % of the amount 
determined under paragraph (1). The preceding sentence 
shall not apply for purposes of applying the energy 
percentage." 
(B) The first sentence of section 46(f)(8) (relating to 
prohibition of immediate flow through) is amended by 
striking out "and the Tax Reform Act of 1976" and insert- 26 USC 1 note, 
ing in lieu thereof ", the Tax Reform Act of 1976, and the 
Energy Tax Act of 1978". 
Ante, p. 3174. 
(b^ DEFINITIONS AND TRANSITIONAL RULES.—Section 48 (relating to 
26 USC 48. 
definitions and special rules) is amended by redesignating subsection 
(1) as subsection (n) and by inserting after subsection (k) the follow-
ing new subsections: 
"(1) ENERGY PROPERTY.—For purposes of this subpart— 
" (1) TREATMENT AS SECTION 3 8 PROPERTY.—For the period begin-
ning on October 1,1978, and ending on December 31, 1982— 
" (A) any energy property shall be treated as meeting the 
requirements of paragraph (1) of subsection (a), and 
"(B) paragraph (3) of subsection (a) shall not apply to 
; ^ 
any energy property. 
92 STAT. 3196 
PUBLIC LAW 95-618—NOV. 9, 1978 
"(2) ENERGY PKOPKRTY DEFINED.—The term 'enerj2;y pioperty' 
means property— 
"(A) which is— 
" (i) alternative energy property, 
:-n 
, . 
"(ii) solar wind energy property, 
" (iii) specially defined energy property, 
ffif!fT ^i;* ir 
"(iv) recycling equipment, 
" (V) shale oil equipment, or 
"(vi) equipment for producing natural gas from geo-
pressured brine, 
"(B) (i) the construction, reconstruction, or erection of 
-. : 
which is completed by the taxpayer after September .SO, ir*78. 
or 
c 
. 
"(ii) which is acquired after September 80. 1978, if the 
• 
.-, ; ; 
original use of such property commences with the taxpayer 
and commences after such date, and 
"(C) with respect to which depreciation (or amortization 
in lieu of depreciation) is allowable, and which has a useful 
life (determined as of the time such property is placed in 
service) of 3 years or more. 
" ( 3 ) 
ALTERNATIVE ENERGY PROPERTY.— 
"(A) IN GFNERAL.—The term 'alternative energy property' 
means— 
"(i) a boiler the primary fuel for which will be an 
-., , :^,s t'A 
alternate substance, 
"(ii) a burner (including necessary on-site equipment 
to bring the alternate substance to the burner) for a com-
.. ,, 
bustor other than a boiler if the primary fuel for such 
burner will be an alternate substance, 
"(iii) equipment for converting an alternate substance 
into a synthetic liquid, gaseous, or solid fuel (other than 
coke or coke gas), 
"(iv) equipment designed to modify existing equip-
ment which uses oil or natural gas as a fuel or as feed-
stock so that such equipment will use either a substance 
other than oil and natural gas, or oil mixed with a sub-
stance other than oil and natural gas (where such other 
substance will provide not less than 25 percent of the 
fuel or feedstock), 
"(v) equipment which uses coal (including lignite) as 
a feedstock for the manufacture of chemicals or other 
products (other than coke or coke gas), 
"(vi) pollution control equipment required (by Fed-
eral, State, or local regulations) to be installed on or in 
^ , 
connection with equipment described in clause (i), (ii). 
(iii), (iv), or (v), 
"(vii) equipment used for the unloading, transfer, 
storage, reclaiming from storage, and preparation 
(including, but not limited to, washing, crushing, drying, 
and weighing) at the point of use of an alternate sub-
stance for use in equipment described in clause (i), (ii), 
(iii), (iv), (v), or (vi), and 
"(viii) equipment used to produce, distribute, or use 
energy derived from a geothermal deposit (within the 
Post, p. 3203. 
^' 
meaning of section 613 (e) (3)), but only, in the case of 
electricity generated by geothermal power, up to (but 
not including) the electrical transmission stage. 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3197 
" ( B ) EXCLUSION FOR PUBLIC UTILITY PROPERTY.—The terms 
'alternative energy property', 'solar or wind energy property', 
and 'recycling equipment' do not include property which is 
public utility property 
(within the meaning of section 
46(f)(5)). 
26 use 46. 
" ( C ) 
ALTERNATE SUBSTANCE.—The term 'alternate sub-
stance' means any substance other than— 
"(i) oil and natural gas, and 
"(ii) any product of oil and natural gas. 
" ( D ) SPECIAL RULE FOR CERTAIN POLLUTION CONTROL EQUIP-
MENT.—The term 'pollution control equipment' does not 
include any equipment which— 
"(i) is installed on or in connection with property 
which, as of October 1, 1978, was using coal (including 
lignite), and 
"(ii) was required to be installed by Federal, State, or 
local regulations in effect on such date. 
"(4) SOLAR OR WIND ENERGY PROPERTY.—The term 'solar or 
' 
wind energy property' means any equipment which uses solar 
or wind energy— 
"(A) to generate electricity, or 
" ( B ) to heat or cool (or provide hot water for use in) 
a structure. 
"(5) 
SPECIALLY DEFINED ENERGY PROPERTY.—The 
term 
'specially defined energy property' means— 
" (A) a recuperator, 
"(B) a heat wheel, 
"(C) a regenerator, 
" ( D ) a heat exchanger, 
" ( E ) a waste heat boiler, 
" ( F ) a heat pipe, 
" ( G ) an automatic energy control system, 
^CH) a turbulator, 
" ( I ) a preheater, 
" ( J ) a combustible gas recovery system, 
" (K) an economizer, or 
"(L) any other property of a kind specified by the 
Secretary by regulations, 
the principal purpose of which is reducing the amount of 
. * , 
energy consumed in any existing industrial or commercial 
process and which is installed in connection with an existing 
industrial or commercial facility. 
" ( 6 ) 
R E C Y C L I N G EQUIPMENT.— 
" ( A ) I N GENERAL.—The term 'recycling equipment' 
means any equipment which is used exclusively— 
"(i) to sort and prepare solid waste for recycling, 
r, 
or 
" (ii) in the recycling of solid waste. 
" ( B ) 
CERTAIN EQUIPMENT NOT INCLUDED.—The term 
'recycling equipment' does not include— 
" (i) any equipment used in a process after the first 
marketable product is produced, or 
"(ii) in the case of recycling iron or steel, any 
equipment used to reduce the waste to a molten state 
and in any process thereafter. 
" ( C ) 
10 PERCENT VIRGIN MATERIAL ALLOWED.—Any 
equipment used in the recycling of material which 
92 STAT. 3198 
PUBLIC LAW 95-618—NOV. 9, 1978 
includes some virgin materials shall not be treated as 
failing to meet the exclusive use requirements of sub-
paragraph (A) if the amount of such virgin materials is 
i 
' 
10 percent or less. 
<)*• 
"(I)) 
CERTAIN 
EQUIPMENT INCLUDED.—The term 
'recycling equipment' includes any equipment which is 
used in the conversion of solid waste into a fuel or into 
useful energy such as steam, electricity, or hot water. 
"(7) SHALE OIL EQUIPMENT.—The term 'shale oil equip-
ment' means equipment for producing or extracting oil from 
oil-bearing shale rock but does not include equipment for 
hydrogenation, refining, or other process subsequent to 
retorting. 
"(8) 
EQUIPMENT FOR PRODUCING NATURAL GAS FROM GEOPRES-
suRED BRINE.—The term 'equipment for producing natural gas 
from geopressured brine' means equipment which is used exclu-
sively to extract natural gas described in section 613A(b)(3) 
26USC613A. 
(C)(i). 
"(9) EQUIPMENT MUST MEET CERTAIN STANDARDS TO QUALIFY.— 
Equipment qualifies under paragraph (3), (4), (5), (6), (T),or 
(8) only if it meets the performance and quality standards (if 
any) which— 
" (A) have been prescribed by the Secretary by regulations 
(after consultation with the Secretary of Energy), and 
"(B) are in effect at the time of the acquisition of the 
property. 
"(10) EXISTING.—For purposes of this subsection, the term 
'existing'means— 
"(A) when used in connection with a facility, 50 percent 
or more of the basis of such facility is attributable to con-
struction, reconstruction, or erection before October 1, 1978, 
or 
"(B) when used in connection with an industrial or com-
mercial process, such process was carried on in the facility as 
of October 1,1978. 
"(11) 
SPECIAL RULE FOR PROPERTY FINANCED BY INDUSTRIAL 
DEVELOPMENT BONDS.—In the case of property which is financed 
in whole or in part by the proceeds of an industrial development 
26 use 103. 
bond (within the meaning of section 103(b) (2)) the interest on 
which is exempt from tax under section 103, the energy percent-
age shall be 5 percent. 
"(12) INDUSTRIAL INCLUDES AGRICULTURAL.—^The term 'indus-
trial' includes agricultural, 
"(m) 
APPLICATION OF CERTAIN TRANSITIONAL RULES.—^Where the 
application of any provision of subsection (1) of this section or 
Ante, p. 3194; 
subsection (a) (2) or (c) (3) of section 46 is expressed in terms of a 
26 use 46. 
period, such provision shall apply only to— 
"(1) property to which section 46(d) does not apply, the con-
struction, reconstruction, or erection of which is completed by the 
taxpayer on or after the first day of such period, but only to the 
extent of the basis thereof attributable to the construction, recon-
struction, or erection during such period, 
"(2) property to which section 46(d) does not apply, acquired 
by the taxpayer during such period and placed in service by the 
taxpayer during such period, and 
"(3) property to which section 46(d) applies, but only to the 
extent of the qualified investment (as determined under subsec-
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 31!?9 
tions (c) and (d) of section 46) with respect to qualified progress 26 USC 46. 
expenditures made during such period." 
(c) 
SPECIAL 
RULES FOR APPLYING 
LIMITATION 
BASED ON TAX 
LIABILITY— 
(1) Subsection (a) of section 46 is amended by adding at the 
end thereof the following new paragraph: 
"(10) SPECIAL RULES I N THE CASE or ENERGY PROPERTY.—Under 
Regulations, 
regulations prescribed by the Secretary— 
" ( A ) 
I N GENERAL.—This subsection and subsection (b) 
shall be applied separately— 
"(i) first with respect to so much of the credit 
allowed by section 38 as is not attributable to the energy 
26 USC 38. 
percentage, 
"(ii) second with resjpect to so much of the credit 
allowed by section 38 as ^ attributable to the application 
of the energy percentage'to energy property (other than 
solar or wind energy property), and 
"(iii) then with respect to so much of the credit 
allowed by section 38 as is attributable to the applica-
tion of the energy percentage to solar or wind energy 
property. 
" ( B ) RULES OF APPLICATION FOR ENERGY PROPERTY OTHER 
THAN SOLAR OR WIND ENERGY PROPERTY.—In applying this sub-
section and subsection (b) for taxable years ending after 
September 30, 1978, with respect to so much of the credit 
allowed by section 38 as is described in subparagraph (A) 
( i i ) -
"(i) paragraph (3) (C) shall be applied by substitut-
ing '100 percent' for '50 percent', 
"(ii) paragraphs (7), (8), and (9) shall not apply, 
and 
"(iii) the liability for tax shall be the amount deter-
mined under paragraph (4) reduced by so much of the 
credit allowed by section 38 as is described in subpara-
graph (A) (i). 
"(C) 
REFUNDABLE 
CREDIT FOR SOLAR OR WIND 
ENERGY 
PROPERTY.—In the case of so much of the credit allowed by 
section 38 as is described in subparagraph (A) (iii) — 
"(i) paragraph (3) shall not apply, and 
"(ii) for purposes of this title (other than section 38, 
this subpart, and chapter 63), such credit shall be treated 
26 USC 31, 
as if it were allowed by section 39 and not by sec- 6201. 
tion38." 
26 USC 39. 
(2) Section 6401 (relating to amounts treated as overpay- 
26 USC 6401. 
ments) is amended by adding at the end thereof the following new 
subsection: 
" ( d ) CROSS REFERENCE.— 
Tor rule allowing refund for excess investment credit attribut-
able to solar or wind energy property, see section 46(a) (10) (€)." 
(d) DENIAL OF INVESTMENT TAX CREDIT FOR CERTAIN PROPERTY.— 
(1) A I R CONDITIONING, SPACE HEATERS, ETC.—Subparagraph 
(A) of section 48 (a) (1) (defining section 38 property) is amended 26 USC 48. 
to read as follows: 
" ( A ) tangible personal property (other than an air condi-
tioning or heating unit), or". 
92 STAT. 3200 
PUBLIC LAW 95-618—NOV. 9, 1978 
(2) BOILERS FUELED BY OIL OR GAS.—Subsection (a) of section 
26 use 48. 
48 (defining section 38 property) is amended by adding at the end 
thereof the following new paragraph: 
" (10) BOILERS FUELED BY OIL OR GAS.— 
" ( A ) I N GENERAL.—The term 'section 38 property' does 
not include any boiler primarily fueled by petroleum or petro-
^ 
. . • 
. 
, 
leum products (including natural gas) unless the use of coal 
is precluded by Federal air pollution regulations (or by State 
* 
air pollution regulations in effect on October 1,1978) or unless 
the use of such boiler will be an exempt use within the meaning 
of subparagraph (B). 
"(B) EXEMPT USE DEFINED.—For purposes of subparagraph 
(A), the term 'exempt use' means— 
" (i) use in an apartment, hotel, motel, or other residen-
tial facility, 
" (ii) use in a vehicle, aircraft, or vessel, or in transpor-
tation by pipeline, 
" (iii) use on a farm for farming purposes (within the 
26 use 6420. 
meaning of section 6420 (c)), 
"(iv) use in— 
" ( I ) a shopping center, 
" ( I I ) an office building, 
" ( I I I ) a wholesale or retail establishment, 
" ( I V ) any other facility which is not an integral 
part of manufacturing, processing, or mining, or 
"(V) any facility for the production of electric 
power having a heat rate of less than 9,500 Btu's per 
J , .. 
kilowatt hour and which is capable of converting to 
synthetic fuels (as certified by the Secretary), 
j 
"(v) use in the exploration for, or the development, 
extraction, transmission, or storage of, crude oil, natural 
:,v* ,
^ 
gas, or natural gas liquids, and 
"(vi) use in Hawaii. 
Except as provided in clauses (iv) (V) and (vi) of the preced-
ing sentence, the term 'exempt use' does not include use of a 
boiler which is public utility property (within the meaning 
26 use 46. 
/ : 
of section 46 (f) (51))." 
(3) 
DENIAL OF RAPID DEPRECIATION FOR BOILERS FUELED BY OIL 
26 use 167. 
OR GAS.—Section 167 (relating to depreciation) is amended by 
redesignating subsection (p) as subsection (r) and by inserting 
after subsection (o) the following new subsection: 
"(p) 
STRAIGHT L I N E METHOD FOR BOILERS FUELED BY O I L OR GAS.-— 
26 use 48. 
In the case of any boiler which, by reason of section 48 (a) (10), is not 
section 38 property— 
"(1) subsections (b), (j), and (1) shall not apply, and 
"(2) the term 'reasonable allowance' as used in subsection (a) 
shall mean only an allowance computed under the straight line 
method using a useful life equal to the class life prescribed by the 
Secretary under subsection (m) which is applicable to such prop-
erty (determined without regard to the last sentence of subsec-
tion ( m ) ( l ) ) . " 
26 use 48 note. 
(4) 
EFFECTIVE DATE.— 
(A) I N GENERAL.—The amendments made by this subsec-
tion shall apply to property which is placed in service after 
September 30, 1978. 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3201 
(B) BINDING coNTRd^cTs.—The amendments made by this 
subsection shall not apply to property which is constructed, 
reconstructed, erected, or acquired pui-suant to a conti-act 
which, on October 1, 1978, and at all times thereafter, was 
binding on the taxpayer, 
(e) DEI'KECIATION ALLOWANCE IN CASE OF RETIREMENT OR REPLACE-
MENT OF CERTAIN O I L AND GAS BOILERS, E T C . — 
(1) I N GENERAL.—Section 167 is amended by insertino; after 
26 USC 167. 
-•':-. 
subsection (p) the following new subsection: 
"(q) 
RETIREMENT OR REPLACEMENT OF CERTAIN BOILERS, ETC., 
FUELED BY O I L OR GAS.— 
" (1) I N GENERAL.—If— 
"(A) a boiler or other combustor was in use on October 1, 
1978, and as of such date the principal fuel for such combustor 
was petroleum or petroleum products (includingnatural gas), 
and 
"(B) the taxpayer establishes to the satisfaction of the 
Secretary that such combustor will be retired or replaced on 
or before the date specified by the taxpayer, 
then for the period beginning with the taxable year in which sub-
paragraph (B) is satisfied, the term 'reasonable allowance' as 
used in subsection (a) includes an allowance under the straight 
line method using a useful life equal to the period ending with the 
date established under subparagraph (B). 
• • ' 
"(2) INTEREST.—If the retirement or replacement of any com-
bustor does not occur on or before the date referred to in para- 
-' 
' * 
graph ( 1 ) ( B ) -
" ( A ) this subsection shall cease to apply with respect to 
^ 
such combustor as of such date, and 
"(B) interest at the rate determined under section 6621 on 26 USC 6621. 
the amount of the tax benefit arising from the application of 
this subsection with respect to such combustor shall be due 
and payable for the period during which such tax benefit was 
' 
available to the taxpayer and ending on the date referred to 
in paragraph (1) (B)." 
(2) EFFECTIVE DATE.—The amendment made by paragraph 
26 USC 167 note. 
(1) shall apply to taxable years ending after the date of the 
enactment of this Act. 
TITLE IV—MISCELLANEOUS PROVISIONS 
SEC. 401. TREATMENT OF INTANGIBLE DRILLING COSTS FOR PUR-
POSES OF THE MINIMUM TAX. 
Subsection (b) of section 308 of the Tax Reduction and Simplifica-
tion Act of 1977 is amended by striking out ", and before January 1, 26 USC 57 note. 
1978". 
SEC. 402. OPTION TO DEDUCT INTANGIBLE DRILLING COSTS IN THE 
CASE OF GEOTHERMAL DEPOSITS. 
(a) I N GENERAL.—Subsection (c) of section 263 (relating to 26 USC 263. 
intangible drilling and and development costs in the case of oil and 
gas wells) is amended— 
(1) by adding at the end thereof the following new sentence: 
"Such regulations shall also grant the option to deduct as expenses 
intangible drilling and development costs in the case of wells 
drilled for any geothermal deposit (as defined in section 613(e) 
Post, p. 3203. 
92 STAT. 3202 
PUBLIC LAW 95-618—NOV. 9, 1978 
(3)) to the same extent and in the same manner as such expenses 
are deductible in the case of oil and ^as wells.", and 
(2) by amending the subsection heading to read as follows: 
" (c) INTANGIBLE DRILLING AND DEVKLOPMENT COSTS IN THE CASE OF 
O I L AND GAS WELLS AND GEOTIHERMAL WELLS.—". 
(b) M I N I M U M TAX ON INTANGIBLE DRILIJNG ('OSTS IN THE CASE OF 
GEOTHERMAL WELLS.— 
26 use 57. 
(1) Paragraph (11) of section o7(a) (relating to intangible 
drilling costs) is amended by striking out "oil and gas properties" 
each place it appears (including in the heading of subparagraph 
(C)) and inserting in lieu thereof "oil, gas, and geothermal 
properties". 
(2) Clause (i) of section 57(a) (11) (B) is amended by striking 
out "oil and gas wells" and inserting in lieu thereof "oil, gas, and 
geothermal wells". 
(3) Paragraph (11) of section 57(a) is amended by adding at 
the end thereof the following new subparagraph: 
s 
" ( D ) 
PARAGRAPH APPLIED SEPARATELY WITH RESPECT TO 
GEOTHERMAL PROPERTIES AND OIL AND GAS PROPERTIES.—This 
paragraph shall be applied separately with respect to— 
"(i) all oil and gas properties which are not described 
in clause (ii),and 
"(ii) all properties which are geothermal deposits (as 
Post, p. 3203. 
defined in section 613 (e) (3))." 
(c) GAIN FROM DISPOSITION OF INTERESTS IN GEOTHERMAL WELLS.— 
26 use 1254. 
(1) Paragraphs (1) and (2) of section 1254(a) (relating to gain 
from disposition of interest in oil or gas property) are each 
amended by striking out "oil or gas property" each place it appears 
and inserting in lieu thereof "oil, gas, or geothermal property". 
i i\ 
(2) Paragraph (3) of section 1254(a) (defining oil or gas prop-
erty) is amended to read as follows: 
"(3) 
OIL, GAS, OR GEOTHERMAL PROPERTY.—The term 'oil, gas, 
or 
geothermal property' means any property (within the meaning 
26 use 614. 
of section 614) with respect to which any expenditures described 
in paragraph (1) (A) are properly chargeable." 
? 
; 
(3) The section heading of section 1254 is amended by striking 
out "OIL OR GAS" and inserting in lieu thereof "OIL, GAS, OR 
GEOTHERMAL", 
(4) The table of sections for part I V of subchapter P of chapter 
26 use 1231. 
1 is amended by striking out "oil or gas" in the item relating to 
section 1254 and inserting in lieu thereof "oil, gas, or geothermal". 
26 use 751. 
(5) Subsection (c) of section 751 (relating to unrealized receiv-
ables) is amended by striking out "oil and gas property" and 
inserting in lieu thereof "oil, gas, or geothermal property". 
(d) 
APPLICATION OF AT R I S K RULES TO GEOTHERMAL DEPOSITS.— 
26 use 465. 
(1) Paragraph (1) of section 465(c) (defining activities to 
which at risk rules apply) is amended by striking out "or" at the 
end of subparagraph (C), by adding ", or" at the end of subpara-
^ a p h (D), and by inserting after subparagraph (D) the follow-
y> 
m g new subparagraph: 
" ( E ) exploring for, or exploiting, geothermal deposits (as 
defined in section 613 (e) (3))". 
(2) Paragraph (2) of section 465(c) is amended by striking 
out "or" at the end of subparagraph (C), by adding "or" at the 
end of subparagraph (D), and by inserting after subparagraph 
j
u
> ; ; 
5
1
^ 
(D) the following new subparagraph: 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3203 
" ( E ) geothermal property (as determined under section 
Ql^\» ^ 
26 use 614. 
(e) EFFECTIVE DATE.— 
26 USC 263 note. 
(1) I N GENERAL.—The amendments made by this section shall 
apply with respect to wells commenced on or after October 1,1978, 
in taxable years ending on or after such date. 
• n 
(2) ELECTION.—The taxpayer may elect to capitalize or deduct 
any costs to which section 263 (c) of the Internal Eevenue Code of 
1954 applies by reason of the amendments made by this section. 26 USC 263. 
Any such election shall be made before the expiration of the time 
for filing claim for credit or refund of any overpayment of tax 
imposed by chapter 1 of such Code with respect to the taxpayer's 
first taxable year to which the amendments made by this section 
apply and for which he pays or incurs costs to which such section 
263(c) applies by reason oi the amendments made by this section. 
Any election under this paragraph may be changed or revoked 
at any time before the expiration of the time referred to in the 
preceding sentence, but after the expiration of such time such 
election may not be changed or revoked. 
SEC. 403. DEPLETION FOR GEOTHERMAL DEPOSITS AND NATURAL 
GAS FROM GEOPRESSURED BRINE. 
(a) GEOTHERMAL DEPOSITS.— 
(1) I N GENERAL.—Section 613 (relating to percentage deple- 26 USC 613. 
tion) is amended by adding at the end thereof the following 
new subsection: 
"(e) PERCENTAGE DEPLETION FOR GEOTHERMAL DEPOSITS.— 
" (1) I N GENERAL.—In the case of geothermal deposits located in 
the United States or in a possession of the United States, for 
purposes of subsection (a)— 
"(A) such deposits shall be treated as listed in subsection 
(b),and 
" ( B ) the applicable percentage (determined under the 
table contained in paragraph (2)) shall be deemed to be the 
percentage specified in subsection (b). 
"(2) 
APPLICABLE PERCENTAGE.—For purposes of 
paragraph 
"In the case of taxable years 
The applicable 
beginning in calendar year— 
percentage is— 
1978, 1979, or 1980 
22 
1981 
20 
1982 
18 
1983 
16 
1984 and thereafter 
15 
"(3) 
GEOTHERMAL DEPOSIT DEFINED.—For purposes of para-
graph (1), the term 'geothermal deposit' means a geothermal 
reservoir consisting of natural heat which is stored in rocks or 
in an aqueous liquid or vapor (whether or not under pressure). 
Such a deposit shall in no case be treated as a gas well for pur-
poses of this section or section 613A, and this section shall not 26 USC 613A. 
apply to a geothermal deposit which is located outside the United 
States or its possessions." 
(2) T E C H N I C A L AMENDMENTS.— 
(A) Paragraph (1) of section 613(c) (defining gross 
income from the property) is amended by inserting "and 
other than a geothermal deposit" after "oil or gas well". 
92 STAT. 3204 
PUBLIC LAW 95-618—NOV. 9, 1978 
26 use 613A. 
26 use 614. 
26 use 613A. 
26 use 611. 
26 use 613. 
Supra. 
Post, p. 3397. 
26 use 613 note. 
26 use 613A 
note. 
Post, p. 3366. 
26 use 4093. 
(B) Paragraph (1) of section 613A(b) is amended— 
(i) by inserting "and" at the end of subparagraph 
(A), 
, 
, 
(ii) by striking out "and" at the end of subparagraph 
(B),and 
(iii) by st riking out subparagraph (C). 
(C) Subsection (b) of section 614 (relating to special 
rules as to operating mineral interest in oil and gas wells) is 
amended— 
(i) by inserting "OR GEOTHERMAL DEPOSITS" after "GAS 
WELLS" in the subsection heading, and 
(ii) by inserting "or geothermal deposits" after "gas 
wells" in so much of the text as precedes paragraph (1) 
thereof. 
(D) Subsection (c) of section 614 is amended by striking 
out "oil and gas wells" each place it appears and inserting 
in lieu thereof "oil and gas wells and geothermal deposits". 
(b) NATURAL GAS FROM GEOPRESSURED BRINE.— 
(1) I N GENERAL.—Subsection (b) of section 613A (relating to 
exemption for certain domestic gas wells) is amended by redesig-
nating paragraph (2) as paragraph (3) and by inserting after 
paragraph (1) the following new paragraph: 
"(2) NATURAL GAS FROM GEOPRESSURED BRINE.—The allowance 
for depletion under section 611 shall be computed in accordance 
with section 613 with respect to any qualified natural gas from 
geopressured brine, and 10 percent shall be deemed to be specified 
in subsection (b) of section 613 for purposes of subsection (a) of 
such section." 
(2) QUALIFIED NATURAL GAS FROM GEOPRESSURED BRINE.—Para-
graph (3) of section 613A(b) (as redesignated by paragraph (1)) 
is amended by adding at the end thereof the following new 
subparagraph: 
"(C) QUALIFIED NATURAL GAS FROM GEOPRESSURED BRINE.— 
The term 'qualified natural gas from geopressured brine' 
means any natural gas— 
;*'• 
"(i) which is determined in accordance with section 
503 of the Natural Gas Policy Act of 1978 to be produced 
,fj 
from geopressured brine, and 
"(ii) which is produced from any well the drilling of 
which began after September 30, 1978, and before Jan-
uary 1, 1984." 
(c) EFFECTIVE DATE.—The amendments made by this section shall 
take effect on October 1,1978, and shall apply to taxable years ending 
on or after such date. 
(d) COORDINATION W I T H OTHER PROVISION.—Any allowance for 
depletion allowed by reason of the amendments made by subsection (b) 
shall not be treated as a credit, exemption, deduction, or comparable 
adjustment applicable to the computation of any Federal tax which is 
specifically allowable with respect to any high-cost natural gas (or 
category thereof) for purposes of section 107(d) of the Natural Gas 
Policy Act of 1978. 
SEC. 404. REREFINED LUBRICATING OIL. 
(a) I N GENERAL.—Section 4093 (relating to exemption of sales to 
producers) is amended to read as follows: 
PUBLIC LAW 95-618—NOV. 9, 1978 
92 STAT. 3205 
"SEC. 4093. EXEMPTIONS. 
"(a) SALES TO MANUFACTURERS OR PRODUCERS FOR RESALE.—Under 
regulations prescribed by the Secretary, no tax shall be imposed by 
section 4091 on lubricating oils sold to a manufacturer or producer 
26 USC 4091. 
of lubricating oils for resale by him. 
"(b) U S E IN PRODUCING REREFINED O I L . — 
"(1) SALES TO REREFINERS.—Under regulations prescribed by 
the Secretary, no tax shall be imposed by section 4091 on lubricat-
ing oil sold for use in mixing with used or waste lubricating oil 
< 
which has been cleaned, renovated, or rerefined. Any person to 
whom lubricating oil is sold tax-free under this paragraph shall 
be treated as the producer of such lubricating oil. 
"(2) U S E IN PRODUCING REREFINED OIL.—Under regulations pre-
scribed by the Secretary, no tax shall be imposed by section 4091 
'• >; 
on lubricating oil used in producing rerefined oil to the extent that 
' 
the amount of such lubricating oil does not exceed 55 percent of 
such rerefined oil. 
"(3) REREFINED OIL DEFINED.—For purposes of this subsection, 
the term 'rerefined oil' means oil 25 percent or more of which is 
used or waste lubricating oil which has been cleaned, renovated, 
or rerefiined." 
(b) CONFORMING AMENDMENT.—Section 4092(a) is amended by 
26 USC 4092. 
striking out "4093" and inserting in lieu thereof "4093 (a)". 
(c) CLERICAL AMENDMENT.—The table of sections for subpart B of 
part I I I of subchapter A of chapter 32 is amended by striking out the 26 USC 4091. 
item relating to section 4093 and inserting in lieu thereof the f (Slowing: 
"Sec. 4093. Exemptions." 
(d) EFFECTIVE DATE.—The amendments made by this section shall 
26 USC 4093 
apply to sales on or after the first day of the first calendar month 
"
^
o
*
®
-
beginning more than 10 days after the date of the enactment of this 
Act. 
Approved November 9, 1978. 
LEGISLATIVE HISTORY: 
HOUSE REPORTS: No. 95-435 (Comm. on Ways and Means) and No. 95-1773 (Comm. 
of Conference). 
SENATE REPORTS: No. 95-529 (Comm. on Finance) and No. 95-1324 (Comm. of 
Conference). 
CONGRESSIONAL RECORD: 
Vol. 123 (1977): July 18, considered and passed House. 
Oct. 25-29, 31, considered and passed Senate, amended. 
Vol. 124 (1978): Oct. 15, Senate and House agreed to conference report. 
WEEKLY COMPILATION OF PRESIDENTIAL DOCUMENTS: 
Vol. 14, No. 45 (1978): Nov. 9, Presidential statement.