Summary of McConnell, Grassley, Kyl and Hatch Substitute Amendment to S. 3098, the Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (TEAMTRA)

FINANCE COMMITTEE REPUBLICAN TAX STAFF SUMMARY
OF MCCONNELL, GRASSLEY, KYL AND HATCH SUBSTITUTE
AMENDMENT TO S. 3098 THE TAX EXTENDERS AND
ALTERNATIVE MINIMUM TAX RELIEF ACT OF 2008
(“TEAMTRA”)

ALTERNATIVE MINIMUM TAX RELIEF

Extension of alternative minimum tax relief for nonrefundable personal credits;Extension of increased alternative minimum tax exemption amount. Certainnonrefundable personal credits (including dependent care, elderly and disabled, HopeScholarship and Lifetime Learning, and the D.C. homebuyer) are allowed only to theextent that a taxpayer has regular income tax liability in excess of the tentative minimumtax, which has the effect of disallowing these credits against AMT. Temporaryprovisions have been enacted which permit these credits to offset the entire regular andAMT liability through the end of 2007. The proposal would allow the nonrefundablepersonal tax credits to the full extent of the individual’s regular tax and alternativeminimum tax through 2008. Currently, a taxpayer receives an exemption of $33,750(individuals) and $45,000 (married filing jointly) under the AMT. Current law also doesnot allow personal credits against the AMT. At the end of last year, H.R. 3996 increasedthe exemptions to $44,350 and $66,250, respectively, and allowed the personal creditsagainst the AMT to hold the number of taxpayers subject to the AMT at bay. Theprovision expired December 31, 2007. The proposal increases the exemption amounts to$46,200 (individuals) and $69,950 (married filing jointly) for 2008. The proposal willalso allow the personal credits against the AMT. The estimated revenue loss of thisproposal is $61.522 billion over ten years.

Increase of AMT refundable credit amount for individuals with long-term unusedcredits for prior year minimum tax liability, etc. Many companies offer IncentiveStock Options (ISOs) as compensation. Under the regular tax, ISOs are not taxed uponexercise. Under the AMT, however, a taxpayer must pay tax on the stock value when theoption is exercised. The economic downturn in 2000 resulted in many individualshaving to pay tax on “phantom income” because the stock prices dropped dramaticallysince the date of exercise. In 2006, Congress provided relief for these situations, butadditional relief is needed to correct this problem. Under current law, an individual isallowed a refundable AMT credit amount that is the greater of (1) the lesser of $5,000 orthe unused AMT credit amount or (2) 20 percent of the unused AMT tax credit. TheAMT credit amount is reduced for those with adjusted gross income (AGI) above$150,000 (joint filers) and $100,000 (single filers). The proposal would allow 50% oflong-term unused minimum tax credits to be refunded over each of two years instead of20% over each of five years, eliminate the income phase-out, and abate anyunderpayment of tax outstanding on the date of enactment related to incentive stockoptions and the AMT including interest. The estimated revenue loss of eliminating theincome phase-out is $966 million over ten years and for the incentive stock optionproposal is $1.325 billion over ten years. The total estimated revenue loss of thisproposal is $2.291 billion over ten years.

EXTENSION OF INDIVIDUAL TAX PROVISIONS

Deduction for State and local sales taxes. The American Jobs Creation Act (AJCA)provided that a taxpayer may elect to take an itemized deduction for State and localgeneral sales taxes in lieu of the itemized deduction. The provision expired on December31, 2007. The proposal would extend the provision to the end of 2009. The proposal iseffective for tax years beginning after December 31, 2007. The estimated revenue loss ofthis proposal is $4.369 billion over ten years.

Deduction of qualified tuition and related expenses. The Economic Growth and TaxRelief Reconciliation Act (EGTRRA) created an above-the-line tax deduction forqualified higher education expenses. The maximum deduction was $4,000 for taxpayerswith AGI of $65,000 or less ($130,000 for joint returns) or $2,000 for taxpayers withAGI of $80,000 or less ($160,000 for joint returns). This deduction expired on December31, 2007. The proposal would extend the deduction to the end of 2009. The proposal iseffective for tax years beginning after December 31, 2007. The estimated revenue loss ofthis proposal is $3.953 billion over ten years.

Deduction for certain expenses of elementary and secondary school teachers. Thebill extends the provision allowing teachers an above-the-line deduction for up to $250for educational expenses. The provision expired on December 31, 2007. The proposalextends the deduction to the end of 2009. The proposal is effective for taxable yearsbeginning after December 31, 2007. The estimated revenue loss of this proposal is $397million over ten years.

Tax-free distributions from individual retirement plans for charitable purposes.The Pension Protection Act of 2006 (PPA) created a provision allowing taxpayers tomake tax-free contributions from their IRA plans to qualified charitable organizations.This tax benefit expired on December 31, 2007. The proposal would extend theprovision to the end of 2009. The proposal is effective for distributions after December31, 2007. The estimated revenue loss of this proposal is $795 million over ten years.Treatment of certain dividends of regulated investment companies. The bill extendsa provision allowing a regulated investment company (RIC), which is generally a mutualfund, under certain circumstances, to designate all or a portion of a dividend as an“interest-related dividend,” by written notice mailed to its shareholders not later than 60days after the close of its taxable year. In addition, an interest-related dividend receivedby a foreign person generally is exempt from U.S. gross-basis tax under sections 871,881, 1441 and 1442 of the Code. The proposal extends the treatment of interest-relateddividends and short-term capital gain dividends received by a RIC to taxable years of theRIC beginning before January 1, 2010. The proposal is effective for dividends withrespect to taxable years of RICs beginning after December 31, 2007. The estimatedrevenue loss of this proposal is $144 million over ten years.

Stock in RIC for purposes of determining estates of nonresidents not citizens.Although stock issued by a domestic corporation generally is treated as property withinthe United States, stock of a regulated investment company (RIC), which is generally amutual fund, that was owned by a nonresident non-citizen is not deemed property withinthe United States in the proportion that, at the end of the quarter of the RIC’s taxable yearimmediately before a decedent’s date of death, the assets held by the RIC are debtobligations, deposits, or other property that would be treated as situated outside theUnited States if held directly by the estate (the “estate tax look-through rule for RICstock”). This estate tax look-through rule for RIC stock does not apply to estates ofdecedents dying after December 31, 2007. The proposal permits the estate tax lookthroughrule for RIC stock to apply to estates of decedents dying before January 1, 2010.The proposal is effective for decedents dying after December 31, 2007. This proposalhas a negligible revenue effect.

Qualified investment entities. The proposal would extend the inclusion of a regulatedinvestment company (RIC), which is generally a mutual fund, within the definition of a“qualified investment entity” under section 897 of the Code through December 31, 2009,for those situations in which that inclusion otherwise expired at the end of 2007. Theproposal is effective on January 1, 2008. The estimated revenue loss of this proposal is$20 million over ten years.

EXTENSION OF BUSINESS TAX PROVISIONS

Extension and modification of research credit. The bill would extend the research taxcredit equal to 20 percent of the amount by which a taxpayer’s qualified researchexpenses for a taxable year exceed its base amount for that year. The provision expiredDecember 31, 2007. The proposal would extend current law to the end of 2009, increasethe alternative simplified credit from 12% to 14%, and repeal the alternative incrementalresearch credit. The proposal is effective for amounts paid or incurred after December31, 2007. The estimated revenue loss of this proposal is $21.543 billion over ten years.New markets tax credit. Current law provides a credit for taxpayers who hold aqualified equity investment on a credit allowance date. The provision expires December31, 2008. The proposal would extend the provision to the end of 2009. The proposal iseffective for investments made after December 31, 2008. The estimated revenue loss ofthis proposal is $1.315 billion over ten years.

Subpart F exception for active financing income. The U.S. parent of a foreignsubsidiary engaged in a banking, financing, or similar business is eligible for deferral oftax on such subsidiary’s earnings if the subsidiary is predominantly engaged in suchbusiness and conducts substantial activity with respect to such business. The subsidiarymust pass an entity level income test to demonstrate that the income is active income andnot passive income. The provision expires December 31, 2008. The proposal wouldextend the provision to the end of 2009. The proposal is effective for tax years beginningafter December 31, 2008. The estimated revenue loss of this proposal is $3.97 billionover ten years.

Extension of look-thru rule for related controlled foreign corporations. The billallows deferral for certain payments (interest, dividends, rents and royalties) betweencommonly controlled foreign corporations (CFC). This provision allows U.S. taxpayersto deploy capital from one CFC to another without triggering U.S. tax. The provisionexpires December 31, 2008. The proposal extends present law to the end of 2009. Theproposal is effective for tax years beginning after December 31, 2008. The estimatedrevenue loss of this proposal is $611 million over ten years.

Extension of 15-year straight-line cost recovery for qualified leaseholdimprovements and qualified restaurant improvements; 15-year straight-line costrecovery for certain improvements to retail space. In the American Jobs Creation Act(AJCA), Congress shortened the cost recovery of certain leasehold improvements andrestaurant property from 39 to 15 years. This shortened cost recovery period expiredDecember 31, 2007. The proposal would extend the provision to the end of 2009 andallow retail owners and new restaurants to receive the shortened recovery period. Theextension is effective for property placed in service after December 31, 2007. Theallowance of the 15 year depreciation to retail and new restaurants is effective forproperty placed in service after the date of enactment through the end of 2009. Theestimated revenue loss of the extension of 15-year straight-line cost recovery for qualifiedleasehold improvements and qualified restaurant improvements is $9.388 billion over tenyears. Estimate pending for the provision providing 15-year straight-line cost recoveryfor certain improvements to retail space.

Enhanced charitable deduction for contributions of food inventory. The bill wouldextend for two years, through 2009, the provision allowing businesses to claim anenhanced deduction for the contribution of food inventory. The proposal is effective forcontributions made after December 31, 2007. The estimated revenue loss of this proposalis $137 million over ten years.

Extension of enhanced charitable deduction for contributions of book inventory.The bill would extend a provision allowing C corporations an enhanced charitablededuction for donations of books to schools, public libraries and literacy programs. Thisprovision expired after December 31, 2007. The proposal extends the provision to theend of 2009. The proposal is effective for contributions made after December 31, 2007.The estimated revenue loss of this proposal is $57 million over ten years.

Modification of tax treatment of certain payments to controlling exemptorganizations. In general, interest, rent, royalties, and annuities paid to a tax–exemptorganization from a controlled entity are treated as unrelated business income of taxexemptorganizations. The Pension Protection Act (PPA) provided that if a payment to atax-exempt organization by a controlled entity is less than fair market value, then thepayment is excludable from the tax-exempt organization’s unrelated business income.The provision expired on December 31, 2007. The proposal would extend the provisionto the end of 2009. The proposal is effective for payments received or accrued afterDecember 31, 2007. The estimated revenue loss of this proposal is $50 million over tenyears.

Basis adjustment to stock of S corporations making charitable contributions ofproperty. Prior to the Pension Protection Act (PPA), if an S corporation made acontribution to a charity, shareholders reduced the basis in their stock by their pro ratashare of the fair market value of the contribution. The PPA provided the amount of ashareholder’s basis reduction in the S corporation stock will be equal to the shareholder’spro rata share of the adjusted basis of the contributed property. The provision expiredDecember 31, 2007. The proposal would extend the provision to the end of 2009. Theproposal would also make a technical correction clarifying the application of thisprovision. The proposal is effective for tax years beginning after December 31, 2007.The estimated revenue loss of this proposal is $134 million over ten years.

Increase in limit on cover over of rum excise tax to Puerto Rico and the VirginIslands. The present law imposes a $13.50 per proof gallon excise tax on distilled spiritsproduced in or imported into the United States. The Code provides a payment to PuertoRico and the Virgin Islands of the excise tax on rum imported into the United States. Thepayment is limited to $10.50 per proof gallon. This was increased to $13.25 per proofgallon during the period July 1, 1999 through December 31, 2007. The proposal wouldextend the provision to the end of 2009. The proposal is effective for articles broughtinto the United States after December 31, 2007. The estimated revenue loss of thisproposal is $192 million over ten years.

Extension of economic development credit for American Samoa. Certain domesticcorporations operating in American Samoa were eligible for a possessions tax credit,which offset their U.S. tax liability on income earned in American Samoa from activebusiness operations, sales of assets used in a business, or certain investments in AmericanSamoa. Further, the credit was held to an economic activity-based limit, measuring thecredit against wages, depreciation, and American Samoa income taxes. The provisionexpired December 31, 2007. The proposal extends the provision to the end of 2009. Theproposal is effective for tax years beginning after December 31, 2007. The estimatedrevenue loss of this proposal is $33 million over ten years.

Extension of mine rescue team training credit. Present law provides a credit of up to$10,000 for the training of mine rescue team members. The provision expires onDecember 31, 2008. The proposal extends present law to the end of 2009. The estimatedrevenue loss of the proposal is $4 million over ten years.

Extension of election to expense advanced mine safety equipment. Present lawprovides 50% immediate expensing for qualified underground mine safety equipment(that goes above and beyond current safety equipment requirements), including: (1)communications technology enabling miners to remain in constant contact with anindividual above ground; (2) electronic tracking devices that enable an individual aboveground to locate miners in the mine at all times; (3) self-contained self-rescue emergencybreathing apparatuses carried by the miners and additional oxygen supplies stored in themine; and (4) mine atmospheric monitoring equipment to measure levels of carbonmonoxide, methane, and oxygen in the mine. This provision will encourage miningcompanies to invest in safety equipment that goes above and beyond current safetyequipment requirements. The provision expires December 31, 2008. The proposalwould extend present law to the end of 2009. The estimated revenue loss of the proposalover 10 years is $153 million.

Extension of expensing rules for qualified film and television productions. Undercurrent law, a producer can elect to take a single-year deduction of up to $15 million inproduction costs incurred in the U.S. If the production costs are over $15 million, thisdeduction does not apply. The maximum deduction is increased to $20 million if thecosts are significantly incurred in economically depressed areas. No other depreciationor amortization is allowed for a production for which this deduction is taken. Theprovision expires December 31, 2008. The proposal would extend the provision to theend of 2009. The proposal is effective for qualified film and television productionscommencing after December 31, 2008. The estimated revenue loss of this proposal is$10 million over ten years.

Deduction allowable with respect to income attributable to domestic productionactivities in Puerto Rico. The bill extends a provision allowing a section 199 domesticproduction activities deduction for activities in Puerto Rico. This provision expired onDecember 31, 2007. The proposal would extend the provision to the end of 2009. Theproposal is effective for tax years beginning after December 31, 2007. The estimatedrevenue loss of this proposal is $243 million over ten years.

Extension of qualified zone academy bonds. Qualified Zone Activity Bonds (QZABs)help school districts with low-income populations save on interest costs associated withpublic financing school (below the post-secondary level) renovations and repairs.QZABs cannot be used for new construction but can be used for the following activities:renovating and repairing buildings, investing in equipment and up-to-date technology,developing challenging curricula, and training quality teachers. The QZAB provisionexpired on December 31, 2007. The proposal would extend this provision to the end of2009. The proposal is effective for obligations issued after December 31, 2007. Theestimated revenue loss of this proposal is $337 million over ten years.

Indian employment credit. The bill allows a business tax credit for employers ofqualified employees that work and live on or near an Indian reservation. The credit is forwages and health insurance costs paid to qualified employees (up to $20,000) in thecurrent year over the amount paid in 1993. Wages for which the Work Opportunity TaxCredit is available are not qualified wages for the Indian employment tax credit. Thisprovision expired on December 31, 2007. The proposal would extend the provision tothe end of 2009. The proposal is effective for taxable years beginning after December31, 2007. The estimated revenue loss of this proposal is $119 million over ten years.

Accelerated depreciation for business property on Indian reservation. A specialdepreciation recovery period applies to qualified Indian reservation property placed inservice before January 1, 2008. In general, qualified Indian reservation property isproperty used predominantly in the active conduct of a trade or business within an Indianreservation, which is not used outside the reservation on a regular basis and was notacquired from a related person. This proposal would extend the placed-in-service datefor the special depreciation recovery period for qualified Indian reservation property tothe end of 2009. The proposal is effective for property placed in service after December31, 2007. The estimated revenue loss of this proposal is $295 million over ten years.

Railroad track maintenance. The railroad maintenance credit provides Class II andClass III railroads (short-line railroads) with a tax credit equal to 50% of grossexpenditures for maintaining railroad tracks that they own or lease. The credit expired onDecember 31, 2007. The proposal extends the provision to the end of 2009, and allowsthe credit against the AMT. The proposal is effective for expenses paid or incurredduring the taxable year beginning after December 31, 2007. The estimated revenue lossof this proposal is $331 million over ten years.

Seven-year cost recovery period for motorsports racing track facility. The billextends a special 7-year cost recovery period or property used for land improvement andsupport facilities at motorsports entertainment complexes. Absent this provision, the costrecovery period for these facilities would be 15 years. The provision expired onDecember 31, 2007. This proposal extends the provision to the end of 2009. Theproposal is effective for property placed in service after December 31, 2007. Theestimated revenue loss of this proposal is $128 million over ten years.

Expensing of environmental remediation costs. The bill extends a provision allowingfor the expensing of costs associated with cleaning up hazardous sites. The provisionexpired on December 31, 2007. This proposal extends present law to the end of 2009.The proposal is effective for property placed in service after December 31, 2007. Theestimated revenue loss of this proposal is $201 million over ten years.

Extension of work opportunity tax credit for Hurricane Katrina employees. Theproposal extends through August 28, 2009 the work opportunity tax credit for certainHurricane Katrina employees employed within the core disaster area. The proposal iseffective on August 28, 2007. The estimated revenue loss of this proposal is $29 millionover ten years.

Extension of increased rehabilitation credit for structures in the Gulf OpportunityZone. The Gulf Opportunity Zone Act of 2005 increased the rehabilitation credit, withinthe Gulf Opportunity Zone, from 10 percent to 13 percent of qualified expenditures forany qualified rehabilitated building other than a certified historic structure. It alsoincreased the credit from 20 percent to 26 percent of qualified expenditures for anycertified historic structure. This provision is currently set to expire at the end of 2008.This proposal would extend the provision through December 31, 2010. Estimatepending.

EXTENSION OF TAX ADMINISTRATION PROVISIONS

Permanent authority for undercover operations. IRS’s authorization to use proceedsit receives from undercover operations to offset necessary expenses incurred in suchoperations expires on December 31, 2007. Undercover operations are an integral part ofIRS efforts to detect and prove noncompliance. The temporary status of this provisioncreates uncertainty as the IRS plans its undercover efforts from year to year. Theproposal permanently authorizes the IRS to return funds collected through undercoveroperations back into the IRS undercover program. The proposal is effective on the dateof enactment. The proposal raises less than $500,000 over ten years.

Permanent disclosures of certain tax return information. The bill would makepermanent the provision that permits the IRS to disclose information to state agencies forthe purpose of developing a combined employment tax reporting program. The proposalis effective for disclosures after December 31, 2007. This proposal is estimated to haveno revenue effect.

Disclosure of information relating to terrorist activities. The bill would makepermanent the current-law terrorist activity provisions. The proposal is effective fordisclosures after December 31, 2007. This proposal is estimated to have no revenueeffect.

EXTENSION OF CLEAN ENERGY PRODUCTION INCENTIVES

Extension and Modification of Renewable Energy Production Tax Credit. Identicalto the Ensign-Cantwell Energy bill, this bill extends the placed-in-service date for oneyear (through December 31, 2009). The bill also includes a new category of qualifyingfacilities that generate electricity from marine renewables (e.g., waves and tides). The billclarifies the availability of the credit with respect to certain sales of electricity toregulated public utilities, and updates the definition of an open-loop biomass facility, thedefinition of a trash combustion facility, and the definition of a non-hydroelectric dam.The estimated revenue loss of this proposal is $3.652 billion over ten years.

Extension and Modification of Solar Energy and Fuel Cell Investment Tax Credit.The bill extends the 30% investment tax credit for solar energy property and qualifiedfuel cell property and the 10% investment tax credit for microturbines for eight years(through 2016). It also repeals the $500 per half kilowatt of capacity cap for qualified fuelcells. The bill removes an existing limitation that prevents public utilities from claimingthe investment tax credit. The bill also allows these credits to be used to offset thealternative minimum tax (AMT). The estimated revenue loss of this proposal is $1.774billion over 10 years.

Extension and Modification of the Residential Energy-Efficient Property Credit.The bill extends the credit for residential solar property for one year (through December31, 2009), and repeals the annual credit cap (currently $2,000). The bill also allows thecredit to be used to offset the AMT. The estimated revenue loss of this proposal is $126million over ten years.

New Clean Renewable Energy Bonds (“CREBs”). The bill authorizes $400 million ofnew clean renewable energy bonds to finance facilities that generate electricity fromwind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, qualifiedhydropower, landfill gas, marine renewable and trash combustion facilities. This $400million authorization is subdivided, 1/3 for qualifying projects of public power providers;and 1/3 for qualifying projects of electric cooperatives. The estimated revenue loss ofthis proposal is $206 million over 10 years.

Sales of Electric Transmission Property. The bill extends the present-law deferral ofgain on sales of transmission property by vertically integrated electric utilities to FERCapprovedindependent transmission companies. Rather than recognizing the full amountof gain in the year of sale, this provision allows gain on such sales to be recognizedratably over an 8-year period. The rule applies to sales before January 1, 2010. Thisproposal is revenue neutral over 10 years.

EXTENSION OF INCENTIVES TO IMPROVE ENERGY EFFICIENCY

Extension and modification of credit for energy efficiency improvements to existinghomes. The bill extends the tax credits for energy-efficient existing homes for two years(from December 31, 2007 through December 31, 2009) and includes energy-efficientbiomass fuel stoves as a new class of energy-efficient property eligible for a consumertax credit of $300. The estimated revenue loss of this proposal is $1.819 billion over 10years.

Extension and modification of tax credit for energy efficient new homes. The billextends the energy efficient new homes credit for two years (through December 31,2010), and permits the eligible contractor to claim the credit on a home built for personaluse as a residence. The estimated revenue loss of this proposal is $102 million over 10years.

Extension and modification of energy efficient commercial buildings deduction.Modification and extension of energy efficient appliance credit for appliancesproduced after 2007. The bill extends the energy-efficient commercial buildingsdeduction for one year (through December 31, 2009), increases the maximum deductionto $2.25 per square foot, and allows a partial deduction of $0.75 per square foot forbuilding systems. The estimated revenue loss of this proposal is $242 million over 10years. The bill would modify the existing energy-efficient appliance credit and extendthis credit for three years (through the end of 2010). The estimated revenue loss of thisproposal is $323 million over 10 years.

CARBON MITIGATION PROVISIONS

Expansion and modification of advanced coal project investment credit and coalgasification investment credit. The bill would provide $1.5 billion of tax credits for thecreation of advanced coal electricity projects and certain coal gasification projects thatdemonstrate the greatest potential for carbon capture and sequestration (CCS)technology. Of these $1.5 billion of incentives, $1.25 billion would be awarded toadvanced coal electricity projects and $250 million would be awarded to certain coalgasification projects. These tax credits would be awarded by Treasury through anapplication process, with applicants demonstrating the greatest CO² sequestrationpercentage receiving the highest priority. Also, additional priority will be given toresearch partnerships with eligible educational institutions. Applications will not beconsidered unless they can demonstrate that either their advanced coal electricity projectwould capture and sequester at least 65% of the facility’s CO² emissions or that their coalgasification project would capture and sequester at least 75% of the facility’s CO²emissions. Once these credits are awarded, recipients failing to meet these minimumlevels of carbon capture and sequestration would forfeit these tax credits. The estimatedrevenue loss of this proposal is $1.423 billion over 10 years.

Temporary increase in coal excise tax. The bill would extend the coal excise tax.Under current law, an excise tax is imposed on coal at a rate of $1.10 per ton for coalfrom underground mines and $0.55 per ton for coal from surface mines (the aggregate taxper ton capped at 4.4 percent of the amount sold by the producer). Receipts from this taxare deposited in the Black Lung Disability Trust Fund, which is used to paycompensation, medical and survivor benefits to eligible miners and their survivors and tocover costs of program administration. The Trust Fund is permitted to borrow from thegeneral fund any amounts necessary to make authorized expenditures if excise taxreceipts do not provide sufficient funding. Reduced rates of excise tax apply after theearlier of December 31, 2013 or the date on which the Black Lung Disability Trust Fundhas repaid, with interest, all amounts borrowed from the general fund of the Treasury.The bill extends the excise tax until December 31, 2018 or until the repayment. Afterrepayment, the reduced excise tax rates of $0.50 per ton for coal from underground minesand $0.25 per ton for coal from surface mines would apply (aggregate tax per ton cappedat 2 percent of the amount sold by the producer). The proposal is estimated to raise$1.287 billion over 10 years.

Special rules for refund of the coal excise tax to certain coal producers andexporters. The Courts have determined that the Export Clause of the U.S. Constitutionprevents the imposition of the coal excise tax on exported coal and, therefore, taxescollected on such exported coal are subject to a claim for refund. The bill would create anew procedure under which certain coal producers and exporters may claim a refund ofthese excise taxes that were imposed on coal exported from the United States. Under thisprocedure, coal producers or exporters that exported coal during the period beginning onor after October 1, 1990 and ending on or before the date of enactment of the bill, mayobtain a refund (plus interest) from the Treasury of excise taxes paid on such exportedcoal and any interest accrued from the date of overpayment. The estimated revenue lossof this proposal is $199 million over 10 years.

TRANSPORTATION AND FUEL PROVISIONS

Inclusion of cellulosic biofuel in bonus depreciation for biomass ethanol plantproperty. Under current law, taxpayers are allowed to immediately write off 50% of thecost of facilities that produce cellulosic ethanol if such facilities are placed in servicebefore January 1, 2013. The provision is clarified to be technology neutral and wouldallow the bonus depreciation to be available for the production of other cellulosicbiofuels in addition to cellulosic ethanol. This proposal is estimated to be revenueneutral over 10 years.

Credits for biodiesel and renewable diesel; Clarification that credits for fuel aredesigned to provide an incentive for United States production. The bill extends forone year (through December 31, 2009) the $1.00 per gallon production tax credits forbiodiesel and the small biodiesel producer credit of 10 cents per gallon. The bill alsoextends for one year (through December 31, 2009) the $1.00 per gallon production taxcredit for diesel fuel created from biomass. The bill eliminates the current-law disparityin credit for biodiesel and agri-biodiesel and eliminates the requirement that renewablediesel fuel must be produced using a thermal depolymerization process. As a result, thecredit will be available for any diesel fuel created from biomass without regard to theprocess used so long as the fuel is usable as home heating oil, as a fuel in vehicles. Thebill also clarifies that the $1 per gallon production credit for renewable diesel is limited todiesel fuel that is produced solely from biomass. Diesel fuel that is created by coprocessingbiomass with other feedstocks (e.g., petroleum) will be eligible for the 50 centper gallon tax credit for alternative fuels. Biodiesel that is imported and sold for exportwill not be eligible for the credit effective May 15, 2008. The estimated revenue loss ofthis proposal is $401 million over 10 years.

Credit for alternative fuels. The bill extends the 50 cent excise tax credit for alternativefuels from September 30, 2009 until December 31, 2009. The estimated revenue loss ofthis proposal is pending.

Credit for alternative jet fuel. Adds Alternative Jet Fuel as a new credit of $1.00 pergallon and may be produced by any feedstock described in the Alternative Fuel TaxCredit -- This would include jet fuel derived from biomass, natural gas, coal, propane andhydrogen. Requirements include that it must be produced to the DOD specification formilitary Jet Fuel or an ASTM specification for aviation turbine fuel. The proposal iseffective for fuels produced after December 31, 2008 and expires September 30, 2014.(the same expiration as Hydrogen in the underlying alternative fuel credit. Thisadditional time frame is needed because alternative jet fuel is still a nascent technologyand is currently undergoing test by the U.S. Air Force). The estimated revenue loss ofthis proposal is pending.

Credit for new qualified plug-in electric drive motor vehicles. The bill establishes anew credit for qualified plug-in electric drive vehicles. The base amount of the credit is$2,500. If the qualified vehicle draws propulsion from a battery with at least 5 kilowatthours of capacity, the credit amount is increased by $400, plus another $400 for eachkilowatt hour of battery capacity in excess of 5 kilowatt hours up to 15 kilowatt hours.Taxpayers may claim the full amount of the allowable credit up to the end of the firstcalendar quarter after the quarter in which the total number of qualified plug-in electricdrive vehicles sold in the U.S. is at least 250,000. The credit is reduced in followingcalendar quarters. The credit is available against the alternative minimum tax (AMT).The estimated revenue loss of this proposal is $ 760 million over 10 years.

Exclusion from heavy truck tax for idling reduction units and advanced insulation.The bill provides an exemption from the heavy vehicle excise tax for the cost of idlingreduction units, such as auxiliary power units (APUs), which are designed to eliminatethe need for truck engine idling (e.g., to provide heating, air conditioning, or electricity)at vehicle rest stops or other temporary parking locations. The bill also exempts theinstallation of advanced insulation, which can reduce the need for energy consumption bytransportation vehicles carrying refrigerated cargo. Both of these exemptions are intendedto reduce carbon emissions in the transportation sector. The estimated revenue loss ofthis proposal is $95 million over 10 years.

Alternative fuel vehicle refueling property credit. The bill increases the 30%alternative refueling property credit (capped at $30,000) to 50% (capped at $50,000). Theprovision provides a tax credit to businesses (e.g., gas stations) that install alternative fuelpumps such as CNG. The bill also extends this credit through the end of 2010. Theestimated revenue loss of this proposal is $154 million over ten years.

Percentage depletion for marginal well production. The bill extends the temporarysuspension of percentage depletion for the producers of oil and gas from marginal wellslocated in the United States (through December 31, 2009). A marginal well is an oil wellthat produces less then 15 barrels or less per day or heavy oil and is owned by anindependent producer. The estimated revenue loss of this proposal is $198 million overten years.

Extension and modification of election to expense certain refineries. The bill extendsthe temporary Refinery expensing for two years (through January 1, 2014) the placed-inservicerequirement and the building construction contract requirement through 2009.The proposal provides 50% bonus depreciation for costs incurred for a new refinery or anexisting refinery to increase total capacity by 5% or process nonconventional feedstocksat a rate equal or greater to 25% of the total throughput of the refinery. The bill alsoclarifies that fuel derived from shale and tar sands would qualify as a nonconventionalfeedstock. The estimated revenue loss of this proposal is $922 million over 10 years.Treatment of qualified alcohol fuel mixtures and qualified biodiesel fuel mixtures astaxable fuels. The bill includes qualified alternative fuel mixtures made from alcohol orbiodiesel as taxable fuels when the credit is claimed. The provision recognizes that theRenewable Fuel Standard will be moving 35 billion gallons of alternative fuel into themarket and that the alternative fuel should be included in the excise tax that funds thehighway Trust Fund. The proposal is estimated to raise $24 million over 10 years.

ADDITIONAL TAX RELIEF

Income averaging for amounts received in connection with the Exxon Valdezlitigation. The bill would allow commercial fishermen and other individuals whoselivelihoods were negatively impacted by the 1989 Exxon Valdez oil spill to average anysettlement or judgment-related income that they receive in connection with pendinglitigation in the federal courts over three years for federal tax purposes. The bill wouldalso allow these individuals to use these funds to make contributions to retirementaccounts. The proposal is effective on the date of enactment. The estimated revenue lossof the proposal is $223 million over ten years.

Certain GO Zone incentives. In 2005, Congress provided 50% bonus depreciation forareas affected by Hurricanes Katrina, Rita and Wilma. There are two deadlines.Taxpayers must start construction by the end of 2007 and must finish construction by theend of 2008. The proposal eliminates the start construction date allowing businesses whoconstruct and finish a project in 2008 to qualify for Go Zone bonus depreciation. Theproposal is effective for property placed in service after December 31, 2007.

Additionally, in 2005, Congress provided additional tax-exempt bond authority toimprove and rehab homes destroyed by Hurricanes Katrina, Rita and Wilma. Theproposal adds Colbert County and Dallas County in Alabama to the areas that can utilizeGo Zone bonds. The proposal is effective as if included in the provisions of the GulfOpportunity Zone Act of 2005 to which it relates. The estimated revenue loss of theproposal is $311 million over ten years.

Election to accelerate AMT and R and D credits in lieu of bonus depreciation.Taxpayers that make qualified investments between April 1, 2008 and December 31,2008, but elect out of bonus depreciation provided in the 2008 stimulus bill instead mayutilize accumulated AMT or R&D credits, without regard to regular tax or minimum taxliability, in an amount equal to the benefit intended to be provided by bonus depreciation.The estimated revenue loss of the proposal is $1.378 billion over ten years.

Modification to exclusion for gain from certain small business stock. The bill wouldprovide a 100% exclusion, instead of the current law 50% exclusion, for capital gains forqualified small business stock acquired after the date of enactment and prior to January 1,2010. Estimate pending.

OTHER PROVISIONS

Secure rural schools and community self-determination program. The bill wouldreauthorize the Secure Rural Schools program through 2011. It also adjusts the fundingdistribution formula to make it more equitable, by taking into account historic paymentlevels to counties, average income levels in counties and acreage of federal land. Finally,the provision also provides for full funding for the Payment in Lieu of Taxes program for2009. The estimated revenue loss of the proposal is $3.264 billion over ten years.

Transfer of interest earned by abandoned mine reclamation fund. The Coal ActFairness Alliance is composed of Super Reachback Companies that fully paid Coal Actpremiums. As a result of the decision in Eastern Enterprises v. Apfel, 524 U.S. 498(1998), these companies sought a refund of monies paid to the United Mine Workers ofAmerica - Combined Fund. In 2006, the Super Reachback Companies received a refundin the amount of $27 million (see 30 U.S.C. 1232(i)(C)). The Super ReachbackCompanies, however, did not receive any interest payments on the premiums that theCompanies paid to the Combined Fund. In Mary Helen Coal Corp. v. Hudson, 235 F.3d207 (4th Cir. 2000), the Fourth Circuit examined whether interest on the premiumpayments that were refunded as a result of the Supreme Court’s decision in EasternEnterprises was appropriate. The court held that a refund of the interest on the premiumpayments was appropriate for the final judgment companies as an element of theircomplete compensation and to give full effect to the Eastern Enterprises decision. In thecase of the Super Reachback Companies, the lost interest on the premiums amount to $9million. The estimated revenue loss of the proposal is $9 million over 10 years.

RESERVED SECTION

A section has been reserved for spending reductions and appropriate revenueraisers for new tax relief policy.

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