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Input: SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

(a) Short Title.--This Act may be cited as the ''Clean Energy Bonds
Act of 2005''.
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, 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
provision of the Internal Revenue Code of 1986.

SEC. 2. CREDIT TO HOLDERS OF CLEAN ENERGY BONDS.

(a) In General.--Part IV of subchapter A of chapter 1 (relating to
credits against tax) is amended by adding at the end the following new
subpart:

''Subpart H--Nonrefundable Credit to Holders of Clean Energy Bonds

''Sec. 54. Credit to holders of clean energy bonds.

''SEC. 54. CREDIT TO HOLDERS OF CLEAN ENERGY BONDS.

''(a) Allowance of Credit.--In the case of a taxpayer who holds a
clean energy bond on a credit allowance date of such bond, which occurs
during the taxable year, there shall be allowed as a credit against the
tax imposed by this chapter for such taxable year an amount equal to
the sum of the credits determined under subsection (b) with respect to
credit allowance dates during such year on which the taxpayer holds
such bond.
''(b) Amount of Credit.--
''(1) In general.--The amount of the credit determined
under this subsection with respect to any credit allowance date
for a clean energy bond is 25 percent of the annual credit
determined with respect to such bond.
''(2) Annual credit.--The annual credit determined with
respect to any clean energy bond is the product of--
''(A) the credit rate determined by the Secretary
under paragraph (3) for the day on which such bond was
sold, multiplied by
''(B) the outstanding face amount of the bond.
''(3) Determination.--For purposes of paragraph (2), with
respect to any clean energy bond, the Secretary shall determine
daily or caused to be determined daily a credit rate which
shall apply to the first day on which there is a binding,
written contract for the sale or exchange of the bond. The
credit rate for any day is the credit rate which the Secretary
or the Secretary's designee estimates will permit the issuance
of clean energy bonds with a specified maturity or redemption
date without discount and without interest cost to the
qualified issuer.
''(4) Credit allowance date.--For purposes of this section,
the term 'credit allowance date' means--
''(A) March 15,
''(B) June 15,
''(C) September 15, and
''(D) December 15.
Such term also includes the last day on which the bond is
outstanding.
''(5) Special rule for issuance and redemption.--In the
case of a bond which is issued during the 3-month period ending
on a credit allowance date, the amount of the credit determined
under this subsection with respect to such credit allowance
date shall be a ratable portion of the credit otherwise
determined based on the portion of the 3-month period during
which the bond is outstanding. A similar rule shall apply when
the bond is redeemed or matures.
''(c) Limitation Based on Amount of Tax.--
''(1) In general.--The credit allowed under subsection (a)
for any taxable year shall not exceed the excess of--
''(A) the sum of the regular tax liability (as
defined in section 26(b)) plus the tax imposed by
section 55, over
''(B) the sum of the credits allowable under this
part (other than subpart C thereof, relating to
refundable credits).
''(2) Carryover of unused credit.--If the credit allowable
under subsection (a) exceeds the limitation imposed by
paragraph (1) 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 taxable year.
''(d) Clean Energy Bond.--For purposes of this section--
''(1) In general.--The term 'clean energy bond' means any
bond issued as part of an issue if--
''(A) the bond is issued by a qualified issuer,
''(B) 95 percent or more of the proceeds from the
sale of such issue are to be used for capital
expenditures incurred by qualified borrowers for 1 or
more qualified projects,
''(C) the qualified issuer designates such bond for
purposes of this section and the bond is in registered
form, and
''(D) the issue meets the requirements of
subsections (e) and (g).
''(2) Qualified project; special use rules.--
''(A) In general.--The term 'qualified project'
means any qualified facility (as determined under
section 45(d) without regard to any placed in service
date) owned by a qualified borrower.
''(B) Refinancing rules.--For purposes of paragraph
(1)(B), a qualified project may be refinanced with
proceeds of a clean energy bond only if the
indebtedness being refinanced (including any obligation
directly or indirectly refinanced by such indebtedness)
was originally incurred by a qualified borrower after
the date of the enactment of this section.
''(C) Reimbursement.--For purposes of paragraph
(1)(B), a clean energy bond may be issued to reimburse
a qualified borrower for amounts paid after the date of
the enactment of this section with respect to a
qualified project, but only if prior to the payment of
such expenditure, the qualified borrower declared its
intent to reimburse such expenditure with the proceeds
of a clean energy bond.
''(D) Treatment of changes in use.--For purposes of
paragraph (1)(B), the proceeds of an issue shall not be
treated as used for a qualified project to the extent
that a qualified borrower takes any action within its
control which causes such proceeds not to be used for a
qualified project. The Secretary shall prescribe
regulations specifying remedial actions that may be
taken (including conditions to taking such remedial
actions) to prevent an action described in the
preceding sentence from causing a bond to fail to be a
clean energy bond.
''(e) Maturity Limitations.--
''(1) Duration of term.--A bond shall not be treated as a
clean energy bond if such bond is issued as part of an issue
and--
''(A) the average maturity of bonds issued as a
part of such issue, exceeds
''(B) 120 percent of the average reasonable
expected economic life of the facilities being financed
with the proceeds from the sale of such issue.
''(2) Determination of averages.--For purposes of paragraph
(1), the determination of averages of an issue and economic
life of any facility shall be determined in accordance with
section 147(b).
''(3) Ratable principal amortization required.--A bond
shall not be treated as a clean energy bond unless it is part
of an issue which provides for an equal amount of principal to
be paid by the qualified issuer during each calendar year that
the issue is outstanding.
''(f) Credit Included in Gross Income.--Gross income includes the
amount of the credit allowed to the taxpayer under this section
(determined without regard to subsection (c)) and the amount so
included shall be treated as interest income.
''(g) Special Rules Relating to Expenditures.--
''(1) In general.--An issue shall be treated as meeting the
requirements of this subsection if--
''(A) at least 95 percent of the proceeds from the
sale of the issue are to be spent for 1 or more
qualified projects within the 5-year period beginning
on the date of issuance of the clean energy bond,
''(B) a binding commitment with a third party to
spend at least 10 percent of the proceeds from the sale
of the issue will be incurred within the 6-month period
beginning on the date of issuance of the clean energy
bond or, in the case of a clean energy bond, the
proceeds of which are to be loaned to 2 or more
qualified borrowers, such binding commitment will be
incurred within the 6-month period beginning on the
date of the loan of such proceeds to a qualified
borrower, and
''(C) such projects will be completed with due
diligence and the proceeds from the sale of the issue
will be spent with due diligence.
''(2) Extension of period.--Upon submission of a request
prior to the expiration of the period described in paragraph
(1)(A), the Secretary may extend such period if the qualified
issuer establishes that the failure to satisfy the 5-year
requirement is due to reasonable cause and the related projects
will continue to proceed with due diligence.
''(3) Failure to spend required amount of bond proceeds
within 5 years.--To the extent that less than 95 percent of the
proceeds of such issue are expended within such 5-year period
(and no extension has been obtained under paragraph (2)), the
qualified issuer shall redeem all of the nonqualified bonds on
the earliest call date subsequent to the expiration of the 5-
year period. If such earliest call date is more than 90 days
subsequent to the expiration of the 5-year period, the
qualified issuer shall establish a yield-restricted defeasance
escrow within such 90 days to retire such nonqualified bonds on
the earlier of the date which is 10 years after the issue date
or the first call date. For purposes of this paragraph, the
term 'nonqualified bonds' means the portion of the outstanding
bonds in an amount that, if the remaining bonds were issued on
the fifth anniversary of the date of the issuance of the issue,
at least 95 percent of the proceeds of the remaining bonds
would be used to provide qualified projects.
''(h) Special Rules Relating to Arbitrage.--
''(1) In general.--A bond which is part of an issue shall
not be treated as a clean energy bond unless, with respect to
the issue of which the bond is a part, the qualified issuer
satisfies the arbitrage rebate requirements of section 148 with
respect to gross proceeds of the issue (other than any amounts
applied in accordance with subsection (g)). For purposes of
such requirements, yield over the term of an issue shall be
determined under the principles of section 148 based on the
qualified issuer's payments of principal, interest (if any),
and fees for qualified guarantees on such issue.
''(2) Exception.--Amounts on deposit in a bona fide debt
service fund with regard to any clean energy bond are not
subject to the arbitrage rebate requirements of section 148.
''(i) Cooperative Electric Company; Qualified Energy Tax Credit
Bond Lender; Governmental Body; Qualified Borrower.--For purposes of
this section--
''(1) Cooperative electric company.--The term 'cooperative
electric company' means a mutual or cooperative electric
company described in section 501(c)(12) or section
1381(a)(2)(C), or a not-for-profit electric utility which has
received a loan or loan guarantee under the Rural
Electrification Act.
''(2) Clean energy bond lender.--The term 'clean energy
bond lender' means a lender which is a cooperative which is
owned by, or has outstanding loans to, 100 or more cooperative
electric companies and is in existence on February 1, 2002, and
shall include any affiliated entity which is controlled by such
lender.
''(3) Governmental body.--The term 'governmental body'
means any State, territory, possession of the United States,
the District of Columbia, Indian tribal government, and any
political subdivision thereof.
''(4) Qualified issuer.--The term 'qualified issuer'
means--
''(A) a clean energy bond lender,
''(B) a cooperative electric company,
''(C) a governmental body, or
''(D) the Tennessee Valley Authority.
''(5) Qualified borrower.--The term 'qualified borrower'
means--
''(A) a cooperative electric company,
''(B) a governmental body, or
''(C) the Tennessee Valley Authority.
''(j) Special Rules Relating to Pool Bonds.--No portion of a pooled
financing bond may be allocable to loan unless the borrower has entered
into a written loan commitment for such portion prior to the issue date
of such issue.
''(k) Other Definitions and Special Rules.--For purposes of this
section--
''(1) Bond.--The term 'bond' includes any obligation.
''(2) Pooled financing bond.--The term 'pooled financing
bond' shall have the meaning given such term by section
149(f)(4)(A).
''(3) Partnership; s corporation; and other pass-thru
entities.--Under regulations prescribed by the Secretary, in
the case of a partnership, trust, S corporation, or other pass-
thru entity, rules similar to the rules of section 41(g) shall
apply with respect to the credit allowable under subsection
(a).
''(4) Bonds held by regulated investment companies.--If any
clean energy bond is held by a regulated investment company,
the credit determined under subsection (a) shall be allowed to
shareholders of such company under procedures prescribed by the
Secretary.
''(5) Treatment for estimated tax purposes.--Solely for
purposes of sections 6654 and 6655, the credit allowed by this
section to a taxpayer by reason of holding a clean energy bond
on a credit allowance date shall be treated as if it were a
payment of estimated tax made by the taxpayer on such date.
''(6) Reporting.--Issuers of clean energy bonds shall
submit reports similar to the reports required under section
149(e).
''(l) Termination.--This section shall not apply with respect to
any bond issued after December 31, 2008.''.
(b) Reporting.--Subsection (d) of section 6049 (relating to returns
regarding payments of interest) is amended by adding at the end the
following new paragraph:
''(8) Reporting of credit on clean energy bonds.--
''(A) In general.--For purposes of subsection (a),
the term 'interest' includes amounts includible in
gross income under section 54(f) and such amounts shall
be treated as paid on the credit allowance date (as
defined in section 54(b)(4)).
''(B) Reporting to corporations, etc.--Except as
otherwise provided in regulations, in the case of any
interest described in subparagraph (A), subsection
(b)(4) shall be applied without regard to subparagraphs
(A), (H), (I), (J), (K), and (L)(i) of such subsection.
''(C) Regulatory authority.--The Secretary may
prescribe such regulations as are necessary or
appropriate to carry out the purposes of this
paragraph, including regulations which require more
frequent or more detailed reporting.''.
(c) Clerical Amendments.--
(1) The table of subparts for part IV of subchapter A of
chapter 1 is amended by adding at the end the following new
item:

''subpart h. nonrefundable credit to holders of clean energy bonds.''.
(2) Section 6401(b)(1) is amended by striking ''and G'' and
inserting ''G, and H''.
(d) Issuance of Regulations.--The Secretary of Treasury shall issue
regulations required under section 54 of the Internal Revenue Code of
1986 (as added by this section) not later than 120 days after the date
of the enactment of this Act.
(e) Effective Date.--The amendments made by this section shall
apply to bonds issued after the date of the enactment of this Act.
Output:
Clean Energy Bonds Act of 2005 - Amends the Internal Revenue Code to allow holders of clean energy bonds a nonrefundable tax credit of 25 percent of an annual credit amount as determined by the Secretary of the Treasury. Defines "clean energy bond" as any bond issued by a clean energy bond lender, a cooperative electric company, a governmental body, or the Tennessee Valley Authority (TVA) that is used for capital expenditures for specified projects for producing electricity from certain renewable resources, such as wind, biomass, solar energy, small irrigation power, and municipal solid waste.

Sets forth rules for maturity limitations, arbitrage, and expenditures, including a requirement that 95 percent of proceeds from the sale of a bond issue be spent on a renewable resource project within five years from the date of a bond issuance. Terminates the authority to issue clean energy bonds after 2008.