House Ways & Means Committee Issues Report on Taxpayer Certainty & Disaster Tax Relief Act (Part 3 of 6)
Continued from Part 2
8. ENERGY-EFFICIENT HOMES CREDIT (
PRESENT LAW
A credit is available to an eligible contractor for each qualified new energy-efficient home that is constructed by the eligible contractor and acquired by a person from such eligible contractor for use as a residence during the taxable year. To qualify as a new energy-efficient home, the home must be: (1) a dwelling located in
Manufactured homes that conform to Federal manufactured home construction and safety standards are eligible for the credit provided all the criteria for the credit are met. The eligible contractor is the person who constructed the home, or in the case of a manufactured home, the producer of such home.
The credit equals
In lieu of meeting the standards of chapter 4 of the 2006 International Energy Conservation Code, manufactured homes certified by a method prescribed by the Administrator of the
The credit applies to homes that are purchased prior to
REASONS FOR CHANGE
The Committee believes that it is in the national interest to conserve energy. The Committee further recognizes that residential energy use for heating and cooling represents a significant share of national energy consumption and accordingly believes that measures to reduce heating and cooling energy requirements have the potential to reduce national energy consumption. The Committee also recognizes that the most cost-effective time to achieve home energy efficiency is when the home is under construction. Therefore, the Committee believes the credit for energy-efficient homes should be extended.
EXPLANATION OF PROVISION
The provision extends the credit for three years, to homes that are acquired prior to
EFFECTIVE DATE
The provision applies to homes acquired after
9. special allowance for second generation biofuel plant property (sec. 130 of the bill and sec. 168(l) of the code)
PRESENT LAW
In general
A taxpayer generally must capitalize the cost of property used in a trade or business or held for the production of income and recover such cost over time through annual deductions for depreciation or amortization./137/ The period for depreciation or amortization generally begins when the asset is placed in service by the taxpayer./138/ Tangible property generally is depreciated under the modified accelerated cost recovery system ("MACRS"), which determines depreciation for different types of property based on an assigned applicable depreciation method, recovery period,/139/ and convention./140/
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/137/See secs. 263(a) and 167. In general, only the tax owner of property (i.e., the taxpayer with the benefits and burdens of ownership) is entitled to claim tax benefits such as cost recovery deductions with respect to the property. In addition, where property is not used exclusively in a taxpayer's business, the amount eligible for a deduction must be reduced by the amount related to personal use. See, e.g., sec. 280A.
/138/See Treas. Reg. secs. 1.167(a)-10(b), 1.167(a)-3, 1.167(a)-14, and 1.197-2(f). See also Treas. Reg. sec. 1.167(a)-11(e)(1)(i).
/139/The applicable recovery period for an asset is determined in part by statute and in part by historic
/140/Sec. 168.
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Special depreciation allowance for second generation biofuel plant property An additional first-year depreciation deduction is allowed equal to 50 percent of the adjusted basis of qualified second generation biofuel plant property for the taxable year in which the property is placed in service./141/ In order to qualify, the property generally must be placed in service before
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/141/Sec. 168(l).
/142/Sec. 168(l)(2)(D).
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The additional first-year depreciation deduction is allowed for both regular tax and alternative minimum tax purposes,/143/ but is not allowed in computed earnings and profits./144/ The additional first-year depreciation deduction is subject to the general rules regarding whether a cost is subject to capitalization under section 263A. The basis of the property and the depreciation allowances in the year of purchase and later years are appropriately adjusted to reflect the additional first-year depreciation deduction./145/
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/143/Sec. 168(l)(5). Note that the corporate minimum tax was repealed for taxable years beginning after
/144/Sec. 312(k)(3).
/145/Sec. 168(l)(1)(B).
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Qualified property Qualified second generation biofuel plant property means depreciable property used in the
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/146/Secs. 168(l)(2)(A) and 40(b)(6)(E).
/147/For example, lignocellulosic or hemicellulosic matter that is available on a renewable or recurring basis includes bagasse (from sugar cane), corn stalks, and switchgrass. See
/148/Sec. 40(b)(6)(F).
/149/Sec. 40(b)(6)(E)(ii) and (iii).
/150/Sec. 40(b)(6)(E)(iii).
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In order for such property to qualify for the additional first-year depreciation deduction, it must also meet the following requirements: (1) the original use of the property must commence with the taxpayer; and (2) the property must be (i) acquired by purchase (as defined under section 179(d)) by the taxpayer, and (ii) placed in service before
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/151/Sec. 168(l)(2). Requirements relating to actions taken before 2007 are not described herein since they have little (if any) remaining effect.
/152/Sec. 168(l)(4) and (k)(2)(E).
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Exceptions
Property not eligible for the additional first-year depreciation deduction under section 168(l) includes (1) any property to which the additional first-year depreciation allowance under section 168(k) applies,/153/ (2) any property required to be depreciated under the alternative depreciation system of section 168(g),/154/ (3) any property any portion of which is financed with the proceeds of a tax-exempt obligation under section 103,/155/ and (4) any property with respect to which the taxpayer has elected 50-percent expensing under section 179C (relating to election to expense certain refineries)./156/
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/153/Sec. 168(l)(3)(A).
/154/Sec. 168(l)(3)(B).
/155/Sec. 168(l)(3)(C).
/156/Sec. 168(l)(7).
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A taxpayer may elect out of the additional first-year depreciation for any class of property for any taxable year./157/
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/157/Sec. 168(l)(3)(D).
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In addition, recapture rules apply if the property ceases to be qualified second generation biofuel plant property./158/
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/158/Sec. 168(l)(6).
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REASONS FOR CHANGE
The Committee acknowledges that encouraging the manufacturing of biofuels (including algae-based fuels) in
EXPLANATION OF PROVISION
The provision extends the special depreciation allowance for three years, to qualified second generation biofuel plant property placed in service prior to
EFFECTIVE DATE
The provision applies to property placed in service after
10. ENERGY-EFFICIENT COMMERCIAL BUILDINGS DEDUCTION (
PRESENT LAW
In general
Section 179D provides an election under which a taxpayer may take an immediate deduction equal to energy-efficient commercial building property expenditures made by the taxpayer. Energy-efficient commercial building property is defined as property (1) which is installed on or in any building located in
Certain certification requirements must be met in order to qualify for the deduction. The Secretary, in consultation with the Secretary of Energy, will promulgate regulations that describe methods of calculating and verifying energy and power costs using qualified computer software based on the provisions of the 2005 California Nonresidential Alternative Calculation Method Approval Manual.
The Secretary is granted authority to prescribe procedures for the inspection and testing for compliance of buildings that are comparable, given the difference between commercial and residential buildings, to the requirements in the Mortgage Industry National Accreditation Procedures for Home Energy Rating Systems./159/ Individuals qualified to determine compliance shall only be those recognized by one or more organizations certified by the Secretary for such purposes.
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/159/
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For energy-efficient commercial building property expenditures made by a public entity, such as public schools, the deduction may be allocated to the person primarily responsible for designing the property in lieu of the public entity.
If a deduction is allowed under this section, the basis of the property is reduced by the amount of the deduction.
The deduction applies to property placed in service prior to
Partial allowance of deduction (1) System-specific deductions In the case of a building that does not meet the overall building requirement of 50-percent energy savings, a partial deduction is allowed with respect to each separate building system that comprises energy efficient property and which is certified by a qualified professional as meeting or exceeding the applicable system-specific savings targets established by the Secretary. The applicable system-specific savings targets to be established by the Secretary 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
(2) Interim rules for lighting systems In general, in the case of system-specific partial deductions, no deduction is allowed until the Secretary establishes system-specific targets./160/ However, in the case of lighting system retrofits, until such time as the Secretary issues final regulations, the system-specific energy savings target for the lighting system is deemed to be met by a reduction in lighting power density of 40 percent (50 percent in the case of a warehouse) of the minimum requirements in Table 9.3.1.1 or Table 9.3.1.2 of ASHRAE/IESNA Standard 90.1- 2007. Also, in the case of a lighting system that reduces lighting power density by 25 percent, a partial deduction of
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/160/
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REASONS FOR CHANGE
The Committee believes that it is in the national interest to conserve energy. The Committee further recognizes that commercial buildings consume a significant amount of energy resources and that reductions in commercial energy use have the potential to reduce national energy consumption. Therefore, the Committee believes that the energy efficient commercial building deduction should be extended.
EXPLANATION OF PROVISION
The provision extends the deduction for three years, through
EFFECTIVE DATE
The provision applies to property placed in service after
11. special rule for sales or dispositions to implement ferc or state electric restructuring policy for qualified electric utilities (sec. 132 of the bill and sec. 451(k) of the code)
PRESENT LAW
A taxpayer selling property generally realizes gain to the extent the sales price (and any other consideration received) exceeds the taxpayer's basis in the property./161/ The realized gain is subject to current income tax/162/ unless the recognition of the gain is deferred or excluded from income under a special tax provision./163/
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/161/See sec. 1001.
/162/See secs. 61 and 451.
/163/See, e.g., secs. 453, 1031, and 1033.
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One such special tax provision permits taxpayers to elect to recognize gain from qualifying electric transmission transactions ratably over an eight-year period beginning in the year of sale if the amount realized from such sale is used to purchase exempt utility property within the applicable period/164/ (the "reinvestment property")./165/ If the amount realized exceeds the amount used to purchase reinvestment property, any realized gain is recognized to the extent of such excess in the year of the qualifying electric transmission transaction.
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/164/The applicable period for a taxpayer to reinvest the proceeds is four years after the close of the taxable year in which the qualifying electric transmission transaction occurs.
/165/Sec. 451(k).
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A qualifying electric transmission transaction is the sale or other disposition of property used by a qualified electric utility to an independent transmission company prior to
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/166/Sec. 451(k)(3).
/167/Sec. 3(23), 16 U.S.C. sec. 796, defines "transmitting utility" as any electric utility, qualifying cogeneration facility, qualifying small power production facility, or Federal power marketing agency that owns or operates electric power transmission facilities that are used for the sale of electric energy at wholesale.
/168/Sec. 3(22), 16 U.S.C. sec. 796, defines "electric utility" as any person or State agency (including any municipality) that sells electric energy; such term includes the
/169/Sec. 451(k)(6).
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In general, an independent transmission company is defined as: (1) an independent transmission provider/170/ approved by the
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/170/For example, a regional transmission organization, an independent system operator, or an independent transmission company.
/171/16 U.S.C. sec. 824b.
/172/Sec. 451(k)(4).
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Exempt utility property is defined as: (1) property used in the trade or business of (i) generating, transmitting, distributing, or selling electricity or (ii) producing, transmitting, distributing, or selling natural gas; or (2) stock in a controlled corporation whose principal trade or business consists of the activities described in (1)./173/ Exempt utility property does not include any property that is located outside of
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/173/Sec. 451(k)(5).
/174/Sec. 451(k)(5)(C).
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If a taxpayer is a member of an affiliated group of corporations filing a consolidated return, the reinvestment property may be purchased by any member of the affiliated group (in lieu of the taxpayer)./175/
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/175/Sec. 451(k)(7).
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REASONS FOR CHANGE
The Committee believes that the "unbundling" of electric transmission assets held by vertically integrated utilities, with the transmission assets ultimately placed under the ownership or control of independent transmission providers (or other similarly-approved operators), continues to be an important policy. To continue facilitating the implementation of this policy, the Committee believes it is appropriate to assist taxpayers in moving forward with industry restructuring by continuing to provide a tax deferral for gain associated with certain dispositions of electric transmission assets. The Committee believes this provision will encourage the sale of transmission property from electric utilities to independent transmission companies to improve transmission management and facilitate competitive transmission markets.
EXPLANATION OF PROVISION
The provision extends for three years, through
EFFECTIVE DATE
The provision applies to dispositions after
12. EXTENSION AND CLARIFICATION OF EXCISE TAX CREDITS RELATING TO ALTERNATIVE FUELS (
PRESENT LAW
The Code provides two per-gallon excise tax credits with respect to alternative fuel: the alternative fuel credit, and the alternative fuel mixture credit. For this purpose, the term "alternative fuel" means liquefied petroleum gas, P Series fuels (as defined by the Secretary of Energy under 42 U.S.C. sec. 13211(2)), compressed or liquefied natural gas, liquefied hydrogen, liquid fuel derived from coal through the
For coal-to-liquids produced after
The alternative fuel credit is allowed against section 4041 liability, and the alternative fuel mixture credit is allowed against section 4081 liability./176/ Neither credit is allowed unless the taxpayer is registered with the Secretary. The alternative fuel credit is generally
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/176/Relating to the excise tax imposed upon removal of gasoline, aviation gasoline, diesel fuel and kerosene.
/177/With respect to any nonliquid alternative fuel (e.g., compressed natural gas), "gasoline gallon equivalent" means the amount of such fuel having a Btu (British thermal unit) content of 124,800 (higher heating value). For liquefied petroleum gas, the credit is determined by reference to the energy equivalent of a gallon gasoline, and for liquidized natural gas, it is the energy equivalent of a gallon of diesel.
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The alternative fuel mixture credit is
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/178/It has been argued that, for purposes of the alternative fuel mixture credit, butane is liquefied petroleum gas. The term "liquefied petroleum gas" is not defined for purposes of section 6426. Butane is a gasoline blendstock under section 48.4081-1(c)(3)(i) of the Treasury regulations and, therefore, is gasoline for purposes of section 4083. In Revenue Ruling 2018-2, the
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A person may file a claim for payment equal to the amount of the alternative fuel credit (but not the alternative fuel mixture credit). The alternative fuel credit must first be applied to the applicable excise tax liability under section 4041, and any excess credit may be taken as a payment. The payment provision for alternative fuel expired after
REASONS FOR CHANGE
The alternative fuel mixture credit first appeared as part of the
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/179/
/180/Pub. L. No. 109-59, sec. 11113.
/181/For example, see, H. Rpt. No. 110-658, at page 76: Alternative fuels are a significant component of establishing the nation's independence from foreign oil. The fuel incentives were not intended to subsidize fuels with no nexus to
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More than a decade after its enactment, in late 2016 or early 2017, promotional literature appeared urging taxpayers to assert on amended returns that butane (a standard component chemical present in all gasoline), when blended with gasoline, constituted an alternative fuel mixture. The theory behind this aggressive tax position is that the butane in the mixture was a form of liquefied petroleum gas, an alternative fuel./182/ The Code does not provide a definition of liquefied petroleum gas for purposes of the alternative fuel mixture credit. The use of butane as an ingredient in gasoline predates the enactment of the alternative fuel mixture credit by many years and
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/182/Taxpayers have filed several lawsuits recently challenging the
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Others have claimed that butane mixed with propane is an alternative fuel mixture, asserting that butane is the taxable fuel component of the mixture. However, the presence of butane in propane does not further the goals of the mixture credit and the amount that can be added to propane for sale is significantly limited by industry standards./183/ It is the understanding of the Committee that butane is being added in minor amounts to the propane sold simply to qualify for the alternative mixture credit. Such practice does not further the goals of energy independence.
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/183/Propane for sale must adhere to commercial and international grades and standards for purity. U.S.
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It is the Committee's understanding that if the taxpayers' claims (including lawsuits) are successful, the government stands to lose tens of billions of dollars in revenue resulting from amended returns seeking to retroactively take advantage of the unintended loophole for prior years, and also an additional estimated
For the foregoing reasons, the Committee has determined that it must close this unintended loophole to protect the public fisc and to prevent a windfall resulting from erroneous interpretations of the law. The Committee believes that once the loophole is properly closed, it is appropriate to extend the incentives. Such an extension will encourage the use and development of alternative motor fuels as substitutes for traditional motor fuels, and will reduce reliance on traditional motor fuels by displacing a significant portion of that traditional volume with alternative fuels included as part of an alternative fuel mixture.
EXPLANATION OF PROVISION
The provision extends the alternative fuel credit and related payment provisions, and the alternative fuel mixture credit through
The provision creates a special rule to address claims regarding excise tax credits and claims for payment for alternative fuel sold or used during the period beginning on
The provision also makes it clear that for purposes of the alternative fuel mixtures credit, an alternative fuel mixture is not a mixture that includes liquefied petroleum gas, compressed or liquefied natural gas, or compressed or liquefied gas derived from biomass.
EFFECTIVE DATE
The provision generally applies to fuel sold or used after
13. OIL SPILL LIABILITY TRUST FUND RATE (
Continues with Part 4 of 6
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House Ways & Means Committee Issues Report on Taxpayer Certainty & Disaster Tax Relief Act (Part 4 of 6)
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