Energy Policy Act of 2005 (Title XIII--Energy Tax Incentives Act of 2005) (P.L. 109-58)

A. Energy Infrastructure Tax Incentives

(sec. 1301 of the House bill)

2. Recovery period for natural gas distribution lines

(sec. 1302 of the House bill and sec. 1515 of the Senate amendment)

3. Recovery period for electric transmission property

(sec. 1303 of the House bill)

4. Amortization of atmospheric pollution control facilities

(sec. 1304 of the House bill)

For a pollution control facility with a useful life greater than 15 years, only the basis attributable to the first 15 years is eligible to be amortized over a 5-year period.

5. Modification of credit for producing fuel from a nonconventional source

(sec. 1305 of the House bill)

Generally the credit has expired, except for certain biomass gas and synthetic fuels sold before January 1, 2008.

The section 29 credit may not exceed the excess of the regular tax liability over the tentative minimum tax. Unused section 29 credits may not be carried forward or carried back to other taxable years. However, to the extent the section 29 credit is disallowed because of the tentative minimum tax, the minimum tax credit allowable in future years is increased by the amount so disallowed.

Generally, the general business credit may not exceed the excess of the taxpayer's net income tax over the greater of the taxpayer's tentative minimum tax or 25 percent of so much of the taxpayer's net regular tax liability as exceeds $25,000. General business credits in excess of this limitation may be carried back one year and forward up to 20 years.

The section 29 credit is not part of the general business credit.

The section 29 credit includes definitional cross-references and a credit limitation relating to the Natural Gas Policy Act of 1978. The Natural Gas Policy Act of 1978 has been repealed.

Makes certain clerical changes in cross-references to the Natural Gas Policy Act of 1978, which has been repealed.

6. Special rules for nuclear decommissioning costs

(sec. 1306 of the House bill)

Accumulations in a qualified fund generally are limited to the amount required to fund post-1984 decommissioning costs of a nuclear powerplant.

7. Arbitrage rules not to apply to prepayments for natural gas

(sec. 1307 of the House bill)

On August 4, 2003, the Treasury Department issued final regulations deeming to be customary, and not in violation of the arbitrage rules, certain prepayments for natural gas and electricity. Generally, a qualified prepayment under the regulations requires that 90 percent of the natural gas or electricity purchased with the prepayment be used for a qualifying use.

Generally, natural gas is used for a qualifying use if it is to be (1) furnished to retail gas customers of the issuing municipal utility who are located in the natural gas service area of the issuing municipal utility, however, gas used to produce electricity for sale is not included under this provision, (2) used by the issuing municipal utility to produce electricity that will be furnished to retail electric service area customers of the issuing utility, (3) used by the issuing municipal utility to produce electricity that will be sold to a utility owned by a governmental person and furnished to the service area retail electric customers of the purchaser, (4) sold to a utility that is owned by a governmental person if the requirements of (1), (2) or (3) are satisfied by the purchasing utility (treating the purchaser as the issuing utility) or (5) used to fuel the pipeline transportation of the prepaid gas supply. Electricity is used for a qualifying use if it is to be (1) furnished to retail service area electric customers of the issuing municipal utility or (2) sold to a municipal utility and furnished to retail electric customers of the purchaser who are located in the electricity service area of the purchaser.

Both governmental gas and electric utilities may take advantage of this regulatory provision.

A contract is a qualified natural gas supply contract if the volume of natural gas secured for any year covered by the prepayment does not exceed the sum of (1) the average annual natural gas purchased (other than for resale) by customers of the utility within the service area of the utility ("retail natural gas consumption") during the testing period, and (2) the amount of natural gas that is needed to fuel transportation of the natural gas to the governmental utility. The testing period is the five-calendar-year period immediately preceding the calendar year in which the bonds are issued. Natural gas used to generate electricity by a governmental utility is counted as retail natural gas consumption if the electricity was sold to retail customers within the service area of the governmental electric utility.

8. Small refiner exception for percentage depletion deduction

(sec. 1308 of the House bill)

The Code allows independent producers to claim percentage depletion deductions rather than deducting the costs of their asset, a producing well, based on actual production from the well (i.e., cost depletion). An independent producer may not have refining operations the runs from which exceed 50,000 barrels on any day in the taxable year during which independent producer status is claimed (sec. 613A(d)(4)).

9. Extension and modification of renewable electricity production tax credit

(secs. 1501 through 1503 of the Senate amendment)

Expiration of "placed in service date"

Except for refined coal facilities, to be a qualified facility the facility must be placed in service by December 31, 2005. A refined coal facility must be placed in service by December 31, 2008.

Qualified facilities

Qualified facilities comprise wind energy facilities, closed-loop biomass facilities, open-loop biomass (including agricultural livestock waste nutrients) facilities, geothermal energy facilities, solar energy facilities, small irrigation power facilities, landfill gas facilities, and trash combustion facilities. In addition, an income tax credit is allowed for the production of refined coal.

Credit amount

In general, the amount of the credit is 1.9 cents per kilowatt-hour for 2005. This amount is indexed for inflation. In the case of open-loop biomass facilities (including agricultural livestock waste nutrient facilities), small irrigation power facilities, landfill gas facilities, and trash combustion facilities, the otherwise allowable credit amount is one-half of the otherwise allowable amount (0.9 cents per kilowatt-hour for 2005).

Credit period

In general, taxpayers' may claim credit for production for the 10-year period following the date the facility is placed in service. In the case of open-loop biomass facilities (including agricultural livestock waste nutrient facilities), geothermal energy facilities, solar energy facilities, small irrigation power facilities, landfill gas facilities, and trash combustion facilities, the 10-year credit period is reduced to five years.

Treatment of co-ops

Although coops may claim the credit, there is no provision in the Code that permits cooperatives to pass the income tax credit for electricity production through to their patrons.

Extends the expiration of the "placed in service date" to December 31, 2008 for all qualifying facilities, except solar facilities.

Qualified facilities

Adds three new qualifying energy resources: fuel cells; hydropower; and wave, current, tidal, and ocean thermal energy. Clarifies that a qualifying trash combustion facility includes a new unit that increases electricity production capacity at an existing trash combustion facility.

Credit amount

Provides full credit amount for production from fuel cell and wave, current, tidal, and ocean thermal facilities (1.9 cents per kilowatt-hour for 2005) and one-half the otherwise allowable amount (0.9 cents per kilowatt-hour for 2005) for production from hydropower facilities.

Credit period

Provides a 10-year credit period for all qualifying facilities.

Treatment of co-ops

Allows eligible cooperatives to elect to apportion any portion of the section 45 credit to patrons of such organizations on the basis of the amount of business done by the patrons during the taxable year. An eligible cooperative is defined as a cooperative organization that is owned more than 50 percent by agricultural producers or entities owned by agricultural producers.

10. Clean renewable energy bonds

(sec. 1504 of the Senate amendment)

Financial institutions that hold QZABs are entitled to a nonrefundable tax credit in an amount equal to a credit rate multiplied by the face amount of the bond.

The Treasury Department sets the credit rate at a rate estimated to allow issuance of QZABs at neither discount nor premium. The credit is includable in gross income, and may be claimed against regular income tax and AMT liability.

The arbitrage restrictions that apply to traditional tax-exempt bonds do not apply to QZABs.

There is an annual limitation of $400 million on the amount of QZABs that may be issued in calendar years 1998 through 2005.

CREBs are defined as any bond issued by a qualified issuer if, in addition to the requirements discussed below, 95 percent or more of the proceeds of such bonds are reasonably expected to be used to finance capital expenditures incurred by qualified borrowers for facilities that qualify for the tax credit under section 45 ("qualified projects"), without regard to the placed-in-service date requirements of that section.

"Qualified issuers" include (1) governmental bodies (including Indian tribal governments); (2) the Tennessee Valley Authority; (3) mutual or cooperative electric companies; and (4) clean energy bond lenders. A clean energy bond lender means 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. The term "qualified borrower" includes a governmental body (including an Indian tribal government), the Tennessee Valley Authority, and a mutual or cooperative electric company.

CREBs are subject to the arbitrage restrictions that apply to traditional tax-exempt bonds. In addition, 95 percent or more of the proceeds of CREBs must be spent on qualified projects within the five-year period that begins on the date of issuance, unless such period is extended by the Secretary or unspent proceeds are used to redeem outstanding bonds.

There is a national limitation of $1 billion of CREBs that the Secretary may allocate, in the aggregate, to qualified projects. The authority to issue CREBs expires December 31, 2008.

11. Treatment of certain electric cooperatives

(sec. 1505 of the Senate amendment)

Under present law, income received or accrued by a tax-exempt rural electric cooperative from a "load loss transaction" is treated as income collected from members for the sole purpose of meeting losses and expenses of providing service to its members. Thus, income from load loss transactions is treated as member income in determining whether a rural electric cooperative satisfies the 85-percent test. This rule does not apply to taxable years beginning after December 31, 2006.

For taxable electric cooperatives, the receipt or accrual of income from load loss transactions is treated as income from patrons who are members of the cooperative. Thus, income from a load loss transaction is excludible from the taxable income of a taxable electric cooperative if the cooperative distributes such income pursuant to a pre-existing contract to distribute the income to a patron who is not a member of the cooperative. This rule does not apply to taxable years beginning after December 31, 2006.

Also eliminates the sunset date for the rule allowing income from load loss transactions to be treated as member income in determining whether a rural electric cooperative satisfies the 85-percent test. Eliminates the sunset date for the rule permitting taxable electric cooperatives to treat the receipt or accrual of income from load loss transactions as income from patrons who are members of the cooperative.

12. Dispositions of transmission property to implement FERC restructuring policy

(sec. 1506 of the Senate amendment)

13. Credit for production from advanced nuclear power facilities

(sec. 1507 of the Senate amendment)

The Secretary may allocate up to 6,000 megawatts of capacity. A taxpayer may claim no more than $125 million in credits per year per 1,000 megawatts of allocated capacity.

14. Credit for investment in clean coal facilities

(sec. 1508 of the Senate amendment)

The second credit applies to $4 billion of qualified investment in certified gasification projects that convert coal, petroleum residue, biomass, or other materials recovered for their energy or feedstock value into a usable synthesis gas composed of carbon monoxide and hydrogen.

15. Clean energy coal bonds

(sec. 1509 of the Senate amendment)

As an alternative to traditional tax-exempt bonds, States and local governments may issue qualified zone academy bonds ("QZABs") for the purpose of renovating, providing equipment to, developing course materials for use at, or training teachers and other school personnel with respect to certain educational facilities.

Financial institutions that hold QZABs are entitled to a nonrefundable tax credit in an amount equal to a credit rate multiplied by the face amount of the bond.

The Treasury Department sets the credit rate at a rate estimated to allow issuance of QZABs at neither discount nor premium. The credit is includable in gross income, and may be claimed against regular income tax and AMT liability.

The arbitrage restrictions that apply to traditional tax-exempt bonds do not apply to QZABs.

There is an annual limitation of $400 million on the amount of QZABs that may be issued in calendar years 1998 through 2005.

ClECos are defined as any bond issued by a qualified issuer if, in addition to the requirements discussed below, 95 percent or more of the proceeds of such bonds are reasonably expected to be used to finance capital expenditures incurred by qualified borrowers for "certified coal property," defined as any property that is part of a qualifying advanced coal project certified by the Secretary.

"Qualified issuers" include (1) governmental bodies (including Indian tribal governments); (2) the Tennessee Valley Authority; (3) mutual or cooperative electric companies; and (4) clean energy bond lenders. A clean energy bond lender means 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. The term "qualified borrower" includes a governmental body (including an Indian tribal government), the Tennessee Valley Authority, and a mutual or cooperative electric company.

ClECos are subject to the arbitrage restrictions that apply to traditional tax-exempt bonds. In addition, 95 percent or more of the proceeds of ClECos must be spent on qualified projects within the five-year period that begins on the date of issuance, unless such period is extended by the Secretary or unspent proceeds are used to redeem outstanding bonds.

There is a national limitation of $1 billion of ClECos that the Secretary may allocate, in the aggregate, to certified coal property projects. The authority to issue ClECos expires December 31, 2010.

16. Credit for investment in clean coke/cogeneration manufacturing facilities

(sec. 1511 of the Senate amendment)

17. Temporary expensing for equipment used in the refining of liquid fuels

(sec. 1512 of the Senate amendment)

18. Pass through to patrons of deduction for capital costs incurred by small refiner cooperatives in complying with sulfur regulations

(sec. 1513 of the Senate amendment)

The Code also provides that a small business refiner may claim credit equal to five cents per gallon for each gallon of low sulfur diesel fuel produced during the taxable year that is in compliance with the Highway Diesel Fuel Sulfur Control Requirements.

The total production credit claimed by the taxpayer is limited to 25 percent of the capital costs incurred to come into compliance with the EPA diesel fuel requirements. In the case of a qualifying small business refiner that is owned by a cooperative, the cooperative is allowed to elect to pass any production credits to patrons of the organization. Present law does not permit cooperatives to pass through to members the deduction permitted for the costs paid or incurred for the purpose of complying with the Highway Diesel Fuel Sulfur Control Requirements.

19. Modification of enhanced oil recovery credit

(sec. 1514 of the Senate amendment)

The provision also expands the definition of a qualified EOR project to include qualified deep gas well projects.

(sec. 1311 of the House bill and sec. 1527 of the Senate amendment)

Also provides a 15-percent personal tax credit for the purchase of qualified fuel cell power plants. The credit may not exceed $500 for each 0.5 kilowatt of capacity. The credit is nonrefundable.

Labor costs related to installation are qualified expenditures eligible for the credit.

The credit is permitted to be carried forward to the succeeding taxable year.

2. Business fuel cell credit

(sec. 1312 of the House bill and sec. 1528 of the Senate amendment)

Public utility property is not eligible for the credit.

The credit may not exceed $500 for each 0.5 kilowatt of capacity. The taxpayer's basis in the property is reduced by the amount of the credit claimed.

Additionally, provides a 10-percent credit for the purchase of qualifying stationary microturbine power plants. A qualified stationary microturbine power plant must have an electricity-only generation efficiency of not less that 26 percent at International Standard Organization conditions and a capacity of less than 2,000 kilowatts. The credit is limited to the lesser of 10 percent of the basis of the property or $200 for each kilowatt of capacity.

Additionally, for purposes of the fuel cell and microturbine credits, and only in the case of telecommunications companies, the provision removes the present-law section 48 restriction that would prevent telecommunication companies from claiming the new credit due to their status as public utilities.

3. Business solar investment tax credit

(sec. 1529 of the Senate amendment)

4. Reduced motor fuel excise tax rate for diesel fuel blended with water

(sec. 1313 of the House bill)

5. Amortization of delay rental payments

(sec. 1314 of the House bill)

6. Amortization of geological and geophysical expenditures

(sec. 1315 of the House bill)

7. Alternative technology motor vehicle credit

(sec. 1316 of the House bill and sec. 1531 of the Senate amendment)

The maximum amount of the deduction is $50,000 for a truck or van with a gross vehicle weight over 26,000 pounds or a bus with seating capacities of at least 20 adults; $5,000 in the case of a truck or van with a gross vehicle weight between 10,000 and 26,000 pounds; and $2,000 in the case of any other motor vehicle. The deduction is reduced to 25 percent of the otherwise allowable deduction in 2006 and is unavailable for purchases after December 31, 2006.

Advanced lean-burn motor vehicle

The amount of the credit for any vehicle is the sum of an amount for fuel efficiency and an amount for conservation. The fuel efficiency credit is based on a comparison of the fuel efficiency (mpg) of the vehicle to a fuel efficiency of like vehicle.

The fuel efficiency credit is $500 (125% << or = mpg << 150%); $1,000 (150% << or = mpg <<175%); $1,500 (175% << or = mpg <<200%); $2,000 (200% << or = mpg << 225%); $2,500 (225% << or = mpg << 250%); and $3,000 (250% << or = mpg).

The conservation credit is based on estimated lifetime fuel savings of a vehicle. If the vehicle achieves a lifetime motor fuel savings between 1,500 and 2,500 gallons of fuel, the credit amount is $250. If the vehicle achieves a lifetime fuel savings of at least 2,500 gallons of motor fuel, the credit amount is $500.

Fuel cell vehicle

No provision.

Hybrid motor vehicle

No provision.

Alternative fuel motor vehicle

No provision.

Vehicles purchased by exempt persons

In the case of vehicles sold to a tax-exempt person, the taxpayer selling the vehicle may claim the credit.

Fuel economy standards and emissions standards

The amount for fuel efficiency is based on a comparison of the fuel efficiency (mpg) of the vehicle compared to the Environmental Protection Agency's 2000 model year city fuel economy. Qualifying vehicles meet the Environmental Protection Agency's Tier II bin 8 emissions standards.

Advanced lean-burn motor vehicle

No provision.

Fuel cell vehicle

Credit for the purchase of a fuel cell vehicle is determined by a base credit amount that depends upon the weight class of the vehicle and, in the case of automobiles or light trucks, an additional credit amount that depends upon the rated fuel economy of the vehicle compared to a base fuel economy.

The base credit amount is $8,000 for vehicles weighing << or = 8,500 lbs; $10,000 for vehicles weighing 8,500 << lbs. << or = 14,000: $20,000 for vehicles weighing 14,000 << lbs. << or = 26,000: and $40,000 for vehicles weighing > 26,000 lbs. (For a vehicle weighing less than 8,500 pounds and placed in service after December 31, 2009, the $8,000 amount is reduced to $4,000.) The fuel economy credit is $1,000 (150% << or = mpg << 175%); $1,500 (175% << or = mpg << 200%); $2,000 (200% << or = mpg << 225%); $2,500 (225% << or = mpg << 250%); $ 3,000 (250% << or = mpg << 275%); $ 3,500 (275% << or = mpg << 300%); and $ 4,000 (300% << or = mpg).

Hybrid motor vehicle

Taxpayers may claim a credit for the purchase of a qualifying hybrid motor vehicle. The amount of the credit depends upon the fuel economy achieved by the vehicle compared to a base fuel economy. For automobiles and light trucks the amount of the credit is $ 400 (125% << or = mpg << 150%); $ 800 (150% << or = mpg << 175%); $ 1,200 (175% << or = mpg << 200%); $ 1,600 (200% << or = mpg << 225%); $ 2,000 (225% << or = mpg << 250%); and $2,400 (250% << or = mpg).

For a qualifying hybrid motor vehicle weighing more than 8,500 pounds, the amount of credit is determined by the estimated increase in fuel economy and the incremental cost of the hybrid vehicle compared to a comparable conventional vehicle. The credit amount is 20 percent of incremental cost for a vehicle that achieves a fuel economy increase of 30% << or = mpg increase << 40%; the credit is equal to 30 percent of incremental cost for a vehicle that achieves a fuel economy increase of 40% << or = mpg increase << 50%; and the credit is 40% of incremental cost for a vehicle that achieves a fuel economy increase of 50% or more. For vehicles weighing 8,500 << lbs. << or = 14,000, the maximum incremental cost is $ 7,500. For vehicles weighing 14,000 << lbs. << or = 26,000, the maximum incremental cost is $ 15,000. For vehicles weighing > 26,000 lbs., the maximum incremental cost is $30,000.

Alternative fuel motor vehicle

Taxpayers may claim a credit for the purchase of a new alternative fuel vehicle equal to 50 percent of the incremental cost of such vehicle, plus an additional 30 percent if the vehicle meets certain emissions standards, subject to limitations on the amount of allowable incremental cost. For vehicles weighing << or = 8,500 lbs., the maximum incremental cost is $ 5,000. For vehicles weighing 8,500 << lbs. << or = 14,000, the maximum incremental cost is $ 10,000. For vehicles weighing 14,000 << lbs. << or = 26,000, the maximum incremental cost is $ 25,000. For vehicles weighing > 26,000 lbs., the maximum incremental cost is $40,000.

Mixed fuel vehicles also qualify. A vehicle that operates on a mixed fuel that is at least 75 percent alternative fuel is eligible for 70 percent of the otherwise allowable alternative fuel vehicle credit. A vehicle that operates on a mixed fuel that is at least 90 percent alternative fuel is eligible for 90 percent of the otherwise allowable alternative fuel vehicle credit.

Alternative fuels comprise compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid fuel that is at least 85 percent methanol.

Vehicles purchased by exempt persons

Same as House bill.

Fuel economy standards and emissions standards

Base fuel economy is the EPA 2002 model year city fuel economy rating for vehicles of various weight classes. Qualifying hybrid vehicles with a gross vehicle weight rating of 8,500 pounds must meet Tier II bin 5 emissions standards.

8. Electric vehicle credit

(sec. 1532 of the Senate amendment)

Modifies present law to provide for a credit equal to the lesser of $ 1,500 or 10 percent of the manufacturer's suggested retail price of certain smaller electric vehicles that conform to the Motor Vehicle Safety Standard 500.

Provides a credit equal to $ 4,000 for purchase of automobiles or light trucks (weight << or = 8,500 lbs.). This credit is increased to $ 6,000 if the vehicle has an estimated driving range of at least 100 miles on a single charge or if it is capable of a payload capacity of at least 1,000 pounds.

For larger vehicles the credit is $ 10,000 (8,500 << lbs. << or = 14,000); $ 20,000 (14,000 << lbs. << or = 26,000); or $ 40,000 (26,000 << lbs.). In the case of vehicles sold to a tax-exempt person, the taxpayer selling the vehicle may claim the credit.

9. Alternative fuel refueling property credit

(sec. 1533 of the Senate amendment)

For the purpose of sec. 179A clean fuels comprise natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, electricity, and any other fuel at least 85 percent of which is methanol, ethanol, or any other alcohol or ether.

Alternative fuels are any fuel at least 85 percent of the volume of which consists of ethanol, natural gas, compressed natural gas, liquefied natural gas, liquefied petroleum gas, and hydrogen and any mixture of diesel fuel and biodiesel containing at least 20 percent biodiesel.

In the case of refueling property installed on property owned or used by a tax-exempt person, the taxpayer that installs the property may claim the credit.

10. Excise tax credit and imposition of tax on alternative fuels

(sec. 1534 of the Senate amendment)

11. Extension of excise tax provisions and income tax credit for biodiesel

(sec. 1535 of the Senate amendment)

12. Credit for energy efficiency improvements to existing homes

(sec. 1317 of the House bill and sec. 1524 of the Senate amendment)

Building envelope components are: (1) insulation materials or systems which are specifically and primarily designed to reduce the heat loss or gain for a dwelling; (2) exterior windows (including skylights) and doors; and (3) metal roofs with appropriate pigmented coatings which are specifically and primarily designed to reduce the heat loss or gain for a dwelling.

In the case of expenditures that exceed $1,000, certain certification requirements must be met in order to qualify for the credit.

The credit is nonrefundable.

13. Energy efficient commercial building deduction

(sec. 1521 of the Senate amendment)

In the case of a building that does not meet the overall building requirement of a 50-percent energy savings, a partial deduction is allowed with respect to each separate building system of energy efficient property that is certified to meet the applicable system-specific savings targets established by the Secretary of the Treasury. The system-specific targets are those that would result in a total annual energy savings with respect to the whole building of 50 percent, if each of the separate systems met the system specific target. The separate building systems are (1) the interior lighting system, (2) the heating, cooling, ventilation and hot water systems, and (3) the building envelope. The maximum allowable deduction is $0.75 per square foot for each separate system. Special interim rules exist for the lighting system to qualify for the partial deduction.

14. Deduction for business energy property

(sec. 1523 of the Senate amendment)

15. Energy efficient new homes

(sec. 1522 of the Senate amendment)

The credit equals $1,000 in the case of a new home that meets the 30 percent standard and $2,000 in the case of a new home that meets the 50 percent standard. Manufactured homes certified by a method prescribed by the Administrator of the Environmental Protection Agency under the Energy Star Labeled Homes program are eligible for the $1,000 credit.

16. Energy credit for combined heat and power system property

(sec. 1525 of the Senate amendment)

CHP property is property: (1) that uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy; (2) that has an electrical capacity of not more than 15 megawatts or a mechanical energy capacity of no more than 2000 horsepower; (3) that produces at least 20 percent of its total useful energy in the form of thermal energy that is not used to produce electrical or mechanical power, and produces at least 20 percent of its total useful energy in the form of electrical or mechanical power (or a combination thereof); and (4) the energy efficiency percentage of which exceeds 60 percent.

Additionally, the provision provides that systems whose fuel source is at least 90 percent bagasse and that would qualify for the credit but for the failure to meet the efficiency standard are eligible for a credit that is reduced in proportion to the degree to which the system fails to meet the efficiency standard.

17. Energy efficient appliances

(sec. 1526 of the Senate amendment)

Dishwashers

The credit for dishwashers applies to dishwashers produced in 2006 and 2007 that meet the Energy Star standards for 2007. The credit amount equals $3 multiplied by the percentage by which the efficiency of the 2007 standards (not yet known) exceeds that of the 2005 standards. The credit may not exceed $100 per dishwasher.

Clothes washers

The credit for clothes washers equals (1) $50 for clothes washers manufactured in 2005 that have a modified energy factor (MEF) of at least 1.42, (2) $100 for clothes washers manufactured in 2005-2007 that meet the requirements of the Energy Star program which are in effect for clothes washers in 2007, or (3) the lesser of (i) $200 or (ii) $10 multiplied by the average of the energy and water savings percentages of the 2010 Energy Star standards relative to the 2007 Energy Star standards, for clothes washers manufactured in 2008-2010 that meet the requirements of the Energy Star program which are in effect for clothes washers in 2010.

Refrigerators

The credit for refrigerators is based on energy savings and year of manufacture. The energy savings are determined relative to the energy conservation standards promulgated by the Department of Energy that took effect on July 1, 2001.

Refrigerators that achieve a 15 to 20 percent energy saving and that are manufactured in 2005 or 2006 receive a $75 credit. Refrigerators that achieve a 20 to 25 percent energy saving receive a (i) $125 credit if manufactured in 2005-2007, or (ii) $100 credit if manufactured in 2008.

Refrigerators that achieve at least a 25 percent energy saving receive a (i) $175 credit if manufactured in 2005-2007, or (ii) $150 credit if manufactured in 2008-2010.

Credit limitations

Appliances eligible for the credit include only those that exceed the average amount of production from the 3 prior calendar years for each category of appliance. In the case of refrigerators, eligible production is production that exceeds 110 percent of the average amount of production from the 3 prior calendar years. Proration rules apply in the case of credits for 2005 production.

The taxpayer may not claim credits in excess of $75 million for all taxable years, and may not claim credits in excess of $20 million with respect to clothes washers eligible for the $50 credit and refrigerators eligible for the $75 credit. A taxpayer may elect to increase the $20 million limitation described above to $25 million provided that the aggregate amount of credits with respect to such appliances, plus refrigerators eligible for the $100 and $125 credits, is limited to $50 million for all taxable years.

(sec. 1321 of the House bill)

After 2005, personal credits (other than the child credit, adoption credit and savers credit) are not allowed against AMT.

2. Allow certain business energy credits against the alternative minimum tax

(sec. 1322 of the House bill and 1548(c) of the Senate amendment)

(sec. 1541 of the Senate amendment)

2. Modify research credit for research relating to energy

(sec. 1542 of the Senate amendment)

Also provides that 100 percent of amounts paid or incurred by the taxpayer to eligible small businesses, universities, and Federal laboratories for qualified energy research would constitute qualified research expenses as contract research expenses, rather than 65 percent of qualified research expenditures allowed under present law.

An eligible small business is a business in which the taxpayer does not own a 50-percent or greater interest and the business has employed, on average, 500 or fewer employees in the two preceding calendar years.

3. Small agri-biodiesel producer credit

(sec. 1543 of the Senate amendment)

Consistent with the other biodiesel incentives, as extended by section 1535 of the Senate amendment, the small agri-biodiesel producer credit sunsets after December 31, 2010.

4. Small ethanol producer credit

(sec. 1544 of the Senate amendment)

5. Qualified recycling equipment credit

(sec. 1545 of the Senate amendment)

For the purposes of (1), qualified recycling equipment includes equipment that is utilized at commercial or public venues, including recycling collection centers, where the equipment is utilized to sort or process qualified recyclable materials for such purpose.

For the purpose of (2), only the cost of each piece of equipment as exceeds $400,000 is eligible for the credit.

6. Five-year net operating loss carryback period for electric utilities

(sec. 1546 of the Senate amendment)

7. Credit for qualifying pollution control equipment

(sec. 1547 of the Senate amendment)

8. Credit for production of coal owned by Indian tribes

(sec. 1548 of the Senate amendment)

9. Replacement stoves meeting environmental standards in non-attainment areas

(sec. 1549 of the Senate amendment)

10. Exemption of bulk beds for farm crops from the Federal excise tax on heavy trucks and trailers

(sec. 1550 of the Senate amendment)

11. National Academy of Sciences study

(sec. 1551 of the Senate amendment)

12. Income tax exclusion for employer-provided reimbursement for certain fuel costs of rural carpoolers

(sec. 1552 of the Senate amendment)

13. Three-year applicable recovery period for depreciation of qualified energy management devices

(sec. 1553 of the Senate amendment)

Additionally, the original use of the energy management device must commence with the taxpayer and the purchase must be subject to a binding written contract entered into after June 23, 2005.

14. Exception from volume cap for certain cooling facilities

(sec. 1554 of the Senate amendment)

The volume of most qualified private activity bonds that State and local governments may issue in each calendar year, including bonds issued for local district heating or cooling facilities, is generally restricted by State volume caps. These volume caps are indexed for inflation. For calendar year 2005, the State volume cap is the greater of $ 80 per resident or $ 239 million.

(sec. 1561 of the Senate amendment)

In general, the tax on aviation-grade kerosene is imposed upon the removal of such kerosene from a refinery, terminal, or upon entry into the United States. In general, tax is imposed at the 21.8 cents-per-gallon rate and a refund or credit is available if a reduced rate applies. Aviation-grade kerosene may be removed at the applicable reduced rate if such kerosene is removed from a refinery or terminal directly into the fuel tank of an aircraft for use in commercial aviation or for an exempt use. Certain refueler trucks, tankers, and tank wagons are treated as part of a terminal for purposes of this rule. Revenues from the tax on aviation-grade kerosene are credited to the Airport and Airway Trust Fund.

Provides that kerosene is taxed at 21.8 cents per gallon if removed from a qualified refueler truck, tanker, or tank wagon without regard to the present law requirement that the terminal fueling such vehicle be located in a secured area of an airport. Clarifies that the present-law refueler truck, tanker, and tank wagon rule applies to removals of kerosene directly into the wing of an aircraft for an exempt use.

Provides that the Highway Trust Fund initially is credited with all taxes collected at the 24.3 cents per gallon rate. Requires that the Highway Trust Fund transfer to the Airport and Airway Trust Fund amounts equivalent to taxes received for the aviation use of kerosene, based on claims for payment made to the Secretary.

2. Repeal of ultimate vendor refund claims with respect to farming

(sec. 1562 of the Senate amendment)

3. Refunds of excise taxes on exempt sales of taxable fuel by credit card

(sec. 1563 of the Senate amendment)

Under a special, long-standing, administrative procedure for certain credit card sales, the oil company which paid the tax on the gasoline to the IRS is treated as the only person eligible to make the refund claim if it reimburses the ultimate vendor for the tax. In the case of diesel fuel or kerosene used in a nontaxable use, the ultimate purchaser is generally the proper excise tax refund claimant. However, in the case of diesel fuel or kerosene used by a State or local government, a registered ultimate vendor may generally claim the refund.

If the credit card issuer is not registered, or if either condition (1) or (2) above is not met (or if the ultimate purchaser is not exempt), then the credit card issuer is required to collect an amount equal to the tax from the ultimate purchaser, and only an (exempt) ultimate purchaser may claim a credit or payment from the IRS.

An unregistered credit card issuer that does not collect an amount equal to the tax from the exempt entity is liable for present-law penalties for failure to register.

The present-law refund amount and timing rules applicable to ultimate vendors, including the special rules for electronic claims, apply to refunds to credit card issuers under the provision.

The provision also conforms present-law penalty provisions to the new rules.

4. Recertification of exempt status

(sec. 1564 of the Senate amendment)

Treasury Regulations specify the required evidence, part of which generally consists of certificates from the ultimate purchaser.

A State or local government includes any political subdivision of a State, or the District of Columbia. A nonprofit educational organization 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 regularly carried on, and which is exempt from income tax.

In order for a nonprofit educational organization to claim exemption from tax on covered articles, or for any person to claim a credit or refund of tax on such articles based upon the nonprofit educational status of an organization, the State in which such organization is providing educational services must certify that such organization is in good standing.

The provision covers Federal excise taxes on sales of liquids for use as fuel (including taxable fuels), compressed natural gas (except if sold for use on school buses or intracity buses), heavy trucks and trailers, and tires (except for tires sold for use on qualified buses). The provision does not cover Federal excise taxes on sales of coal, recreational equipment (bows and arrows, sport fishing equipment and firearms), and vaccines.

5. Reregistration in event of change in ownership

(sec. 1565 of the Senate amendment)

6. Treatment of deep draft vessels

(sec. 1566 of the Senate amendment)

The transfer of taxable fuel in bulk to a vessel operated by an unregistered vessel operator who is required to register is subject to tax, i.e., such transfers are not eligible for the bulk transfer exemption.

Provides that the bulk transfer exemption is not available for transfers of taxable fuel in bulk to a deep-draft vessel operated by an unregistered vessel operator unless such transfer is for entry into the United States.

7. Reconciliation of on-loaded cargo to entered cargo

(sec. 1567 of the Senate amendment)

For this purpose, not later than one year after the date of enactment, all filers of required cargo information for such taxable fuels, must provide such information to Customs through its approved electronic data interchange system.

8. Taxation of gasoline blendstocks and kerosene

(sec. 1568 of the Senate amendment)

Generally, the exemption from tax applies if a gasoline blend stock (1) is not used to produce finished gasoline, (2) is received at an approved terminal or refinery, or (3) in bulk transfer to an industrial user.

Treasury regulations provide that kerosene does not include any liquid that is an excluded liquid. An "excluded liquid" is (1) any liquid that contains less than four percent normal paraffins, or (2) any liquid that has a distillation range of 125 degrees Fahrenheit or less, sulfur content of 10 ppm or less, and minimum color of +27 Saybolt. These liquids are commonly known as "mineral spirits" and are obtained by distillation of crude oil.

9. Nonapplication of export exemption to delivery of fuel to motor vehicles removed from United States

(sec. 1569 of the Senate amendment)

Imposes a tax on the sale of taxable fuel at a duty-free sales enterprise unless there was a prior taxable removal, or entry of such fuel.

10. Impose assessable penalty on dealers of adulterated fuel

(sec. 1570 of the Senate amendment)

In addition, under present law, untaxed fuel additives, including certain contaminants, may displace taxed diesel fuel in a mixture.

11. Oil Spill Liability Trust Fund

(sec. 1571 of the Senate amendment)

The tax will be suspended during a calendar quarter if the Secretary estimates that, as of the close of the preceding calendar quarter, the unobligated balance in the Oil Spill Liability Trust Fund exceeds $ 3 billion.

The tax terminates after December 31, 2014.

12. Extension of leaking underground storage tank trust fund financing rate

(sec. 1572 of the Senate amendment)

Although the American Jobs Creation Act of 2004 repealed, over a prescribed period, the deficit reduction tax rate of 4.3-cent-per-gallon on diesel fuel used in diesel-powered trains, and in barges operating on inland waterways, such fuel remains subject to LUST Fund rate of 0.1 cents per gallon. Diesel fuel and kerosene that is to be used for a nontaxable purpose will not be taxed upon removal from the terminal if it is dyed to indicate its nontaxable purpose.

The Code requires the LUST Trust Fund to reimburse the General Fund for certain refund and credit claims related to the nontaxable use of fuel (only to the extent attributable to the LUST Trust fund financing rate).

13. Tire excise tax modification

(sec. 1573 of the Senate amendment)

² Joint Committee on Taxation, Comparison of the Revenue Effects of the Tax Provisions of H.R. 6 as Passed by the House and as Amended by the Senate (JCX-53-05), July 19, 2005.