LEGISLATIVE BULLETIN | June 9, 2008

H.R. 6049, the Renewable Energy and Job Creation Act of 2008

Summary and Background 

Senate Democrats are committed to enacting an energy policy that invests in renewable energy, lowers gas prices, makes America more energy independent, reverses global warming and strengthens our national security. In the 110th Congress, the extension and expansion of renewable and energy efficiency tax credits has been a critical component of that goal and Finance Committee Chairman Baucus and Ranking Member Grassley have worked tirelessly to meet that goal. Unfortunately, on multiple occasions, the vast majority of Bush Republicans in the Senate have protected the interests of oil companies and their record profits rather than American taxpayers. 

The Renewable Energy and Job Creation Act of 2008 (H.R. 6049) will give Senate Republicans another opportunity to decide whether or not they support an energy policy that starts taking the initial steps necessary to move away from the failed Bush-Cheney energy policy. A major difference between H.R. 6049 and previous legislation the Senate has considered on energy tax is the exclusion of offsets that would revoke unnecessary taxpayer subsidies for the big oil companies. 

H.R. 6049 also contains equally vital provisions that would put money back in the pockets of America's hard-working middle-class taxpayers and promote job creation, enhance competitiveness, and support the U.S. economy by extending needed tax relief to individuals and businesses.

 

If enacted, H.R. 6049 would: 

• Create renewable energy incentivesby providing almost $20 billion of tax incentives for investment in renewable energy related to energy production, transportation and domestic fuel security, and energy conservation and efficiency;
   
• Extend $27 billion of expiring temporary tax provisionsfor individuals and businesses, including the research and development credit, special rules for active financing income, the state and local sales tax deduction, the deduction for out-of-pocket expenses for teachers, and the deduction for qualified tuition expenses; and
   
• Provide additional tax relief for individuals and businesses, including almost $10 billion of additional tax relief for individuals through an expansion of the refundable child tax credit and a new standard deduction for property taxes. 

The bill would be primarily offset by closing a tax loophole that allows individuals who work for certain offshore corporations, such as hedge fund managers, to defer tax on their compensation and would delay the effective date of a tax benefit that has not yet taken effect for multinational corporations operating overseas. 

This Legislative Bulletin provides a description of major provisions, anticipated amendments, legislative history, the Statement of Administration Policy, and links to related readingresources.

 

Major Provisions 

Energy Tax Incentives 

Energy Production Incentives 

H.R. 6049 would provide renewable energy incentives, including: 

•Renewable energy production tax credit. To provide additional incentives for the production of electricity from renewable resources, which will help limit the environmental consequences of continued reliance on power generated by using fossil fuels, H.R. 6049 would extend the placed-in-service date for wind facilities for one year. The legislation would also extend the placed-in-service date for three years for certain other qualifying facilities; add facilities that generate electricity from marine renewables (e.g., waves and tides) as a new category of qualifying facilities that will benefit from the longer placed-in-service date; and cap the aggregate amount of tax credits that can be earned for these qualifying facilities. 

•Solar energy and fuel cell investment tax credit. To ensure the continued development of alternative energy resources, H.R. 6049would extend the 30 percent investment tax credit for solar energy property and qualified fuel cellproperty and the 10 percent investment tax credit for microturbines for six years. The legislation would also increase the $500 per half kilowatt of capacity cap for qualified fuel cells to$1,500 per half kilowatt of capacity; remove an existing limitation that prevents publicutilities from claiming the investment tax credit; and provide a new 10 percentinvestment tax credit for combined heat and power systems. 

•Residential energy-efficient property credit. To provide an additional incentive to invest in solar electric and fuel cell property, H.R. 6049would raise the cap on the amount of the available credit for such property. The legislation would extend the credit for residential solar property for six years; increase the annual credit cap from $2,000 to $4,000; and include residential small wind equipment and geothermal heat pumps as propertyqualifying for this credit. 

•Sales of electric transmission property. To facilitate the "unbundling" of electric transmission assets held by vertically integrated utilities, H.R. 6049 would extend the present-law deferral of gain on sales of transmission property by vertically integrated electric utilities to approved independent transmission companies. 

•New Clean Renewable Energy Bonds. To encourage the development of facilities that produce electricity from renewable resources will help limit the environmental consequences of continued reliance on power generated using fossil fuels, H.R. 6049 would authorize $2 billion of new clean renewable energy bonds to finance facilities that generate electricity from certain resources.

 

H.R. 6049 also provides for carbon mitigation measures, including: 

• Carbon capture and sequestration (CCS) demonstration projects. If electricity continues to be produced from coal, then it must be done in as clean and efficient a manner as possible. To provide additional investment incentives to encourage the construction of advanced coal facilities that both capture and sequester carbon dioxide and reduce the emissions of other pollutants, H.R. 6049 would provide $1.5 billion in tax credits for the creation of advanced coal electricity projects and certain coal gasification projects that demonstrate the greatest potential for CCS technology. 
   
• Refund of certain coal excise taxes unconstitutionally collected from exporters. Courts have determined that the Export Clause of the U.S. Constitution prevents the imposition of the coal excise tax on exported coal and, therefore, taxes collected on such exported coal are subject to a claim for refund. H.R. 6049 would create a new procedure under which certain coal producers and exporters may claim a refund of these excise taxes that were imposed on coal exported from the United States.
   
• Carbon audit of the tax code. To aid decisionmakers in the formulation of tax policies aimed at reducing emissions and mitigating climate change, H.R. 6049 directs the Secretary of the Treasury to request that the National Academy of Sciences undertake a comprehensive review of the federal tax code to identify the types of specific tax provisions that have the largest effects on carbon and other greenhouse gas emissions and to estimate the magnitude of those effects.
   
• Solvency for the Black Lung Disability Trust Fund. To bring the Black Lung Disability Trust Fund out of debt, H.R. 6049 would enactthe President's budget proposal that the current excise tax rate should continue to apply beyond 2013 until all amounts borrowed from the general fund of the Treasury have been repaid with interest.

 

Transportation and Domestic Fuel Security Provisions 

•Allowance for property to produce cellulosic alcohol. Under current law, taxpayers are allowed to immediately write off 50 percent of the cost of facilities that produce cellulosic ethanol if such facilities are placed in service before January 1, 2013. To promote technology-neutral policies, H.R. 6049 would allow this write-off to be available for the production of other cellulosic biofuels in addition to cellulosic ethanol. 

•Biodiesel production tax credit and renewable diesel tax credit. To encourage the development and use of biodiesel and renewable diesel incentives, H.R. 6049 wouldextend the $1 pergallon production tax credits for biodiesel and the small biodiesel producer credit of 10 cents pergallon. The bill would also extend the $1 per gallonproduction tax credit for diesel fuel created from biomass. 

•Plug-in electric drive vehicle credit. Toencourage further investments in advanced technology vehicles,H.R. 6049would establish a new credit for each qualified plug-in electric drive vehicle placed in service during each taxable year by a taxpayer. The base amount of the credit is $3,000. 

•Incentives for idling reduction units and advanced insulation for heavy trucks. Becauseidling of the main drive engine of heavy trucks consumes significant amounts of fuel, H.R. 6049 would provide an exemption from the heavy vehicle excise tax for the cost of idling reduction units. The bill would also exempt the installation of advanced insulation, which can reduce the need for energy consumption by transportation vehicles carrying refrigerated cargo. 

•Restructuring of New York Liberty Zone tax credits. H.R. 6049would implement a proposal included in the President's Fiscal Year 2009 Budget to provide the City of New York and the State of New York with tax credits for expenditures made for transportation infrastructure projects connecting with the New York Liberty Zone. 

•Fringe benefit for bicycle commuters. Bicycle commuting achieves both goals of reducing fossil fuel reliance and encouraging conservation. H.R. 6049 would allow employers to provide employees who commute to work using a bicycle limited fringe benefits to offset the costs of such commuting. 

•Alternative refueling stations tax credit. Widespread adoption of advanced technology and alternative-fuel vehicles is necessary to transform automotive transportation in the United States to be cleaner, more fuel efficient, and less reliant on petroleum fuels. H.R. 6049 would increase the 30 percent alternative refueling property credit (capped at $30,000) to 50 percent (capped at $50,000). The credit provides a tax credit to businesses (e.g., gas stations) that install alternative fuel pumps, such as fuel pumps that dispense E85 fuel.

 

Energy Conservation and Efficiency Provisions 

H.R. 6049 contains measures that are intended to reduce national energy consumption, which in turn will decrease reliance on foreign suppliers of oil and reduce pollution in general, including: 

•Qualified Energy Conservation Bonds. H.R. 6049 would create a new category of tax credit bonds to finance state and local government programs and initiatives designed to reduce greenhouse gas emissions; 

•Energy-efficiency improvements to existing homes credit. H.R. 6049 wouldextend the tax credits for energy-efficient existing homes and includes energy-efficient biomass fuel stoves as a new class of energy efficientproperty eligible for a consumer tax credit of $300; 

•Energy-efficient commercial buildings. H.R. 6049 wouldextend the energy-efficient commercial buildings deduction for five years; 

•Energy-efficient appliance credit. H.R. 6049 wouldmodify the existing energy-efficient appliance credit and extend this credit for three years; 

•Accelerated depreciation for smart meters and smart grid systems. Under current law, taxpayers are generally able to recover the cost of smart electric meters and smart electric grid systems over the course of 20 years. H.R. 6049 would cut the cost recovery time in half by allowing taxpayers to recover the cost of this property over a ten-year period; and 

•Qualified green building and sustainable design project bond. H.R. 6049wouldextend the authority to issue qualified green building and sustainabledesign project bonds through the end of 2012.

 

Extension of Temporary Tax Provisions 

Extenders Primarily Affecting Individuals 

• State and local taxes. Millions of taxpayers live in Alaska, Florida, Nevada, Washington, South Dakota, Tennessee, Texas and Wyoming - states that have deductible sales taxes but no state income tax. To continue to provide similar federal tax treatment to residents of states that rely on sales taxes rather than income taxes to fund state and local governmental functions, H.R. 6049 would extend the option of deducting state and local sales taxes in lieu of deducting state and local income taxes. 
   
• Tuition deduction.The average cost of a public, four-year college education has soared by 61 percent during the Bush Administration. (The College Board, Trends in College Pricing 2007,available here)To mitigate the impact of rising tuition costs on students and their families and to provide an incentive for individuals to pursue higher education, H.R. 6049 would extend the above-the-line tax deduction for qualified education expenses. The deduction is reduced to $2,000 for couples filing jointly with incomes between $130,000 and $160,000.
   
•  Regulated investment company dividends.H.R. 6049 would extend the tax treatment of interest-related dividends, short-term capital gain dividends, and other special rules applicable to foreign shareholders that invest in regulated investment companies.
   
• Distributions from individual retirement plans for charitable purposes. To increase giving to charitable organizations, H.R. 6049 would extend the provision that permits tax-free charitable contributions from an Individual Retirement Account (IRA) of up to $100,000 per taxpayer , per taxable year.
   
• Elementary and secondary schoolteachers' out-of-pocket expenses. Since 2002, teachers have been able to deduct up to $250 a year for money that they spend out of their own pockets to buy supplies for their classrooms. More than three million teachers nationwide have taken advantage of this deduction each year. H.R. 6049 would extend this tax deduction for one year for teachers and other school professionals for expenses paid or incurred for books, certain supplies and supplementary materials used by the educator in the classroom.
   
• Group legal services plans. The bill reinstates a provision that allows individuals to exclude certain amounts received under qualified group legal services plans from income.

 

Extenders Primarily Affecting Businesses 

•Research and development tax credit. Research can be the basis for new products, industries, and jobs for the domestic economy. To encourage firms to increase their spending on research and experimentation, H.R. 6049extends the research tax credit. 

•Indian employment credit. To encourage economic development in and employment on Indian reservations, H.R. 6049would extend the business tax credit for employers of qualified employees that work and live on or near an Indian reservation. The credit is for wages and health insurance costs paid to qualified employees (up to $20,000) in the current year over the amount paid in 1993. 

New markets tax credit. To encourage investment in economically underdeveloped areas throughout the country, H.R. 6049would extend the new markets tax credit, which permits taxpayers to receive a credit against federal income taxes for making qualified equity investments in designated Community Development Entities. 

• Railroad track maintenance. To enable small and mid-sized railroads to update and upgrade their track capacities in order to promote railroads as an alternative to shipping freight on roadways, H.R. 6049would extend a 50 percent general business credit for qualified railroad track maintenance expenditures. 
   
• Leasehold improvements. In recognition of the fact that leaseholds and restaurants have shorter lives than industrial and commercial structures in general, H.R. 6049would extend the special 15-year cost recovery period for qualified leasehold and restaurant improvements. Absent an extension of this provision, the cost recovery period for these facilities would be 39 years.
   
• Motorsports entertainment complexes. To encourage economic development, H.R. 6049would extend the special seven-year cost recovery period for property used for land improvement and support facilities at motorsports entertainment complexes. Absent an extension of this provision, the cost recovery period for these facilities would be 15 years.
   
• Indian reservation business property. To encourage economic development within Indian reservations and expand employment opportunities on such reservations, H.R. 6049would extend the placed-in-service date for the special depreciation recovery period for qualified Indian reservation property.
   
• Brownfields clean-up. To promote the goal of environmental remediation and promote new investment and employment opportunities by lowering the net capital cost of a development project, H.R. 6049would extend the provision that allows for the immediate expensing (rather than over time as a depreciation) of costs associated with cleaning up hazardous sites.
   
• Domestic production activities in Puerto Rico. To encourage investment in Puerto Rico, H.R. 6049would extend the provision extending special domestic production activities rules afforded to manufacturing activities in the United States to activities in Puerto Rico.
   
• Qualified zone academy bonds. School districts use Qualified Zone Academy bonds (QZAB) as an innovative way to fund school renovation in economically distressed areas at a much lower cost. Investors receive a federal tax credit in lieu of an interest payment, and, over the life of the bond, the district can save 50 percent. H.R. 6049 would allow an additional $400 million of QZAB issuing authority to state and local governments, which can be used to finance renovations, equipment purchases, developing course material, and training teachers and personnel at a qualified zone academy.
   
• District of Columbiainvestment.H.R. 6049would extend a package of tax incentives (including a wage credit, additional Section 179 expensing, tax-exempt financing, zero-percent capital gains for certain assets, and the $5,000 first-time homebuyer credit for individuals) for businesses and individual residents within certain economically depressed census tracts within the District of Columbia that have been designated as the District of Columbia Enterprise Zone.
   
• American Samoaeconomic development. To encourage investment in American Samoa, H.R. 6049would extend the tax credit providing certain domestic corporations operating in American Samoa with a possessions tax credit to offset their U.S. tax liability on certain income related to business operations earned in American Samoa.
   
• Food inventory contributions to charitable organizations. To encourage contributions of food to charitable organizations, H.R. 6049would extend the provision allowing unincorporated businesses to claim an enhanced deduction for the contribution of certain food inventory.
   
• Book contributions to public schools. To encourage contributions of books to public schools, H.R. 6049would extend the provision allowing C Corporations to claim an enhanced deduction for contributions of book inventory to public schools (kindergarten through grade 12).
   
• Computer donations for educational purposes. To encourage contributions of computer technology and equipment to public libraries and educational organizations, H.R. 6049would extend an enhanced deduction that encourages businesses to contribute computer equipment and software to elementary, secondary, and post-secondary schools.
   
• Basis Adjustment to Stock of an S Corporation Making Charitable Contributions of Property. H.R. 6049would extend the provision allowing S Corporation shareholders to take into account their pro rata share of charitable deductions even if such deductions would exceed such shareholder's adjusted basis in the S Corporation. H.R. 6049would also make a technical correction clarifying the application of this provision.
   
• Hurricane Katrina employees. To encourage employers to hire individuals who were affected by Hurricane Katrina, H.R. 6049would extend the provision that expired in August 2007 that allowed employers to claim the work opportunity tax credit for hiring employees employed within the core disaster area of Hurricane Katrina.
   
• Active financing exception. H.R. 6049 would extend the active financing exception from Subpart F foreign personal holding company income, foreign base company services income, and insurance income for certain income that is derived in the active conduct of a banking, financing or similar business, or in the conduct of an insurance business..
   
• Payments between related controlled foreign corporations. H.R. 6049 would extend current law look-through treatment of payments between related controlled foreign corporations under current foreign personal company income rules. Under the ''look-through rule'' dividends, interest, rents, and royalties received by one controlled foreign corporation (CFC) from a related CFC are not treated as foreign personal holding company income to the extent attributable or properly allocable to income of the payor that is neither subpart F nor treated as ECI.
   
• Film and television productions. To encourage domestic film production, H.R. 6049would extend special expensing rules for U.S. film and television productions. 

 

Other Extenders 

•Disclosures of certain tax return information.H.R. 6049would permanently extend disclosure provisions relating to terrorist activities to assist in the country's investigations of and response to terrorism. 

• Undercover IRS operations. To provide the IRS with an important enforcement tool similar to that provided to other law enforcement agencies, H.R. 6049 would extend the authorization for the IRS to engage in certain activities related to undercover operations.
   
• "Cover over" of tax on rum. Given the current fiscal needs of Puerto Rico and the U.S. Virgin Islands, H.R. 6049would extend the provision providing for an increased rebate of certain taxes on distilled spirits produced in or imported into the United States from Puerto Rico and the U.S. Virgin Islands.
   
• Mental health parity requirements applicable to group health plans. Current law requires certain group health plans to provide the same coverage for mental health benefits that they provide for medical and surgical health benefits. H.R. 6049wouldextend the imposition of a $100-per-day excise tax on group health plans that fail to comply with this requirement.

 

Additional Tax Relief

Tax Relief for Individuals 

• Standard deduction for real property taxes. To help lessen the impact of rising state and local property tax bills on certain individuals who are not able to take the standard deduction, H.R. 6049 would provide an additional standard deduction for state and local real property taxes paid or accrued by taxpayers who claim the regular standard deduction in 2008.
   
• Refundable child credit. H.R. 6049would increase the eligibility for the refundable child tax credit in 2008. The changes in this legislation increase the credit for families who lose a part of the credit due to inflation.
   
• AMT credit allowance against incentive stock options. Exercise of incentive stock options is a preference in the individual alternative minimum tax. In the past,many individuals exercised these options and there were dramatic reductions in the value of thestock after exercise, resulting in a minimum tax liability far exceeded anygain from the exercise of the option. H.R. 6049 would waive past underpayments and wouldguarantee that minimum tax actually paid on the exercise of these options would be returned tothe taxpayer.

 

Tax Relief for Businesses 

• Attorney-advanced expenses and court costs in contingency fee cases treatment. To provide for tax fairness, H.R. 6049 would provide for uniform treatment of attorney-advanced expenses and court costs in contingency fee cases.
   
• Film and television productions tax incentives. Taxpayers have not been able to take full advantage of tax incentives that are intended to encourage film and television companies to produce films here in the United States rather than overseas because of a number of technical issues. H.R. 6049 would fix these issues.
   
• Penalty on understatement of taxpayer's liability by tax return preparer. To harmonize the standards of conduct for taxpayers and return preparers, H.R. 6049 would conform the respective penalty standards.

 

Gulf Opportunity Zone Incentives 

H.R. 6049 would allow taxpayers in affected Gulf Opportunity (GO) Zone areas to amend prior returns to take into account receipt of hurricane-related recovery grants; waive the start-construction deadline for certain property eligible for bonus depreciation in the GO Zone; and allow projects in two additional counties in Alabama to qualify for tax-exempt bond financing.

 

Revenue Provisions 

Current inclusion of deferred compensation paid by certain tax indifferent parties. To close a tax loophole that allows individuals whowork for certain offshore corporations (such as hedge fund managers) to defer tax on their compensation, H.R. 6049 would tax individuals on a current basis if such individuals receive deferred compensation from a tax indifferent party. 

Current law generally allows executives and other employees to defer paying tax on compensation until the compensation is paid. This deferral is made possible by rules that require the corporation paying the deferred compensation to defer the deduction that relates to this compensation until the compensation is paid. Matching the timing of the deduction with the income inclusion ensures that the executive is not able to achieve the tax benefits of deferred compensation at the expense of the Treasury. Instead, the corporation paying the compensation bears the expense of paying deferred compensation as a result of the deferred deduction. Where an individual is paid deferred compensation by a tax indifferent party (such as an offshore corporation in a tax haven jurisdiction), there is no offsetting deduction that can be deferred. As a result, individuals receiving deferred compensation from a tax indifferent party are able to achieve the tax benefits of deferred compensation at the expense of the Treasury. 

Delay of implementation of worldwide allocation of interest. In 2004, Congress provided taxpayers with an election to take advantage of a liberalized rule for allocating interest expense between United States sources and foreign sources for purposes of determining a taxpayer's foreign tax credit limitation. Although enacted in 2004, this election is not available to taxpayers until taxable years beginning after 2008. H.R. 6049would delay the phase-in of this new liberalized rule for ten years (for taxable years beginning after 2018).

 

Legislative History 

On May 14, 2008, Representative Charles Rangel introduced H.R. 6049 in the House of Representatives. The bill was referred to the Committee on Ways and Means, which marked up the bill on May 15, 2008, and ordered the bill, as amended, favorably reported. On May 21, 2008, the House of Representatives approved the bill by recorded vote: 263-160 (Roll No. 344). 

On June 5, 2008, H.R. 6049was received in the Senate, read the first time, and placed on Senate Legislative Calendar under Read the First Time. 

The Senate is expected to consider H.R. 6049 in June 2008.

 

Possible Amendments 

The DPC will distribute information on amendments as it becomes available.

 

Statement of Administration Policy 

On May 21, 2008, the Administration released its Statement of Administration Position (SAP) on H.R. 6049. While "[t]he Administration supports the extension of the tax credit for research and experimentation (R&E) expenses, tax relief provisions for members of the military and veterans, incentives for charitable giving, subpart F active financing and look-through exceptions, and the new markets tax credit...due to other objections to the bill, should it be presented to the President in its current form, his senior advisors would recommend a veto." (emphasis original). 

The SAP can be accessed here.

Related Reading

• Senate Committee on Finance, Summary of the Clean Renewable Energy and Conservation Tax Act of 2007, available here.
• U.S. House of Representatives, Report to Accompany H.R. 6049 (House Report 110-658) (May 20, 2008), available here.
• Joint Committee on Taxation, Estimated Revenue Effects of Chairman's Amendment in the Nature of a Substitute to H.R. 6049, the "Energy and Tax Extenders Act of 2008," available here.
• CRS, Certain Temporary Tax Provisions ('Extenders') Expired in 2007, available here.
• CRS, Charitable Contributions of Food Inventory: Proposals for Change, available here
• CRS, Energy Efficiency and Renewable Energy Legislation in the 110th Congress, available here.
• CRS, Energy Tax Policy: History and Current Issues, available here.
• CRS, Federal Deductibility of State and Local Taxes, available here.
• CRS, New Markets Tax Credit: An Introduction, available here.
• CRS, Qualified Charitable Distributions from Individual Retirement Accounts: A Fact Sheet, available here
• CRS, Research and Experimentation Tax Credit: Current Status and Selected Issues for Congress, available here
• CRS, Tax Credit Bonds: A Brief Explanation, available here.
• CRS, The Tax Deduction for Classroom Expenses of Elementary and Secondary School Teachers, available here.
• CRS, Taxation of Hedge Fund and Private Equity Managers, available here.
• CRS, The Work Opportunity Tax Credit (WOTC), available here.

DPC