Subpart D - Business Related Credits

26 USC 38 - General business credit

(a) Allowance of credit 
There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of
(1) the business credit carryforwards carried to such taxable year,
(2) the amount of the current year business credit, plus
(3) the business credit carrybacks carried to such taxable year.
(b) Current year business credit 
For purposes of this subpart, the amount of the current year business credit is the sum of the following credits determined for the taxable year:
(1) the investment credit determined under section 46,
(2) the work opportunity credit determined under section 51 (a),
(3) the alcohol fuels credit determined under section 40 (a),
(4) the research credit determined under section 41 (a),
(5) the low-income housing credit determined under section 42 (a),
(6) the enhanced oil recovery credit under section 43 (a),
(7) in the case of an eligible small business (as defined in section 44 (b)), the disabled access credit determined under section 44 (a),
(8) the renewable electricity production credit under section 45 (a),
(9) the empowerment zone employment credit determined under section 1396 (a),
(10) the Indian employment credit as determined under section 45A (a),
(11) the employer social security credit determined under section 45B (a),
(12) the orphan drug credit determined under section 45C (a),
(13) the new markets tax credit determined under section 45D (a),
(14) in the case of an eligible employer (as defined in section 45E (c)), the small employer pension plan startup cost credit determined under section 45E (a),
(15) the employer-provided child care credit determined under section 45F (a),
(16) the railroad track maintenance credit determined under section 45G (a),
(17) the biodiesel fuels credit determined under section 40A (a),
(18) the low sulfur diesel fuel production credit determined under section 45H (a),
(19) the marginal oil and gas well production credit determined under section 45I (a),
(20) the distilled spirits credit determined under section 5011 (a),
(21) the advanced nuclear power facility production credit determined under section 45J (a),
(22) the nonconventional source production credit determined under section 45K (a),
(23) the new energy efficient home credit determined under section 45L (a),
(24) the energy efficient appliance credit determined under section 45M (a),
(25) the portion of the alternative motor vehicle credit to which section 30B (g)(1) applies,
(26) the portion of the alternative fuel vehicle refueling property credit to which section 30C (d)(1) applies,
(27) the Hurricane Katrina housing credit determined under section 1400P (b),
(28) the Hurricane Katrina employee retention credit determined under section 1400R (a),
(29) the Hurricane Rita employee retention credit determined under section 1400R (b),
(30) the Hurricane Wilma employee retention credit determined under section 1400R (c), plus
(31) the mine rescue team training credit determined under section 45N (a).
(c) Limitation based on amount of tax 

(1) In general 
The credit allowed under subsection (a) for any taxable year shall not exceed the excess (if any) of the taxpayers net income tax over the greater of
(A) the tentative minimum tax for the taxable year, or
(B) 25 percent of so much of the taxpayers net regular tax liability as exceeds $25,000.

For purposes of the preceding sentence, the term net income tax means the sum of the regular tax liability and the tax imposed by section 55, reduced by the credits allowable under subparts A and B of this part, and the term net regular tax liability means the regular tax liability reduced by the sum of the credits allowable under subparts A and B of this part.

(2) Empowerment zone employment credit may offset 25 percent of minimum tax 

(A) In general 
In the case of the empowerment zone employment credit credit
(i) this section and section 39 shall be applied separately with respect to such credit, and
(ii) for purposes of applying paragraph (1) to such credit
(I) 75 percent of the tentative minimum tax shall be substituted for the tentative minimum tax under subparagraph (A) thereof, and
(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the empowerment zone employment credit, the New York Liberty Zone business employee credit, and the specified credits).
(B) Empowerment zone employment credit 
For purposes of this paragraph, the term empowerment zone employment credit means the portion of the credit under subsection (a) which is attributable to the credit determined under section 1396 (relating to empowerment zone employment credit).
(3) Special rules for New York Liberty Zone business employee credit 

(A) In general 
In the case of the New York Liberty Zone business employee credit
(i) this section and section 39 shall be applied separately with respect to such credit, and
(ii) in applying paragraph (1) to such credit
(I) the tentative minimum tax shall be treated as being zero, and
(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the New York Liberty Zone business employee credit and the specified credits).
(B) New York Liberty Zone business employee credit 
For purposes of this subsection, the term New York Liberty Zone business employee credit means the portion of work opportunity credit under section 51 determined under section 1400L (a).
(4) Special rules for specified credits 

(A) In general 
In the case of specified credits
(i) this section and section 39 shall be applied separately with respect to such credits, and
(ii) in applying paragraph (1) to such credits
(I) the tentative minimum tax shall be treated as being zero, and
(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the specified credits).
(B) Specified credits 
For purposes of this subsection, the term specified credits means
(i) for taxable years beginning after December 31, 2004, the credit determined under section 40,
(ii) the credit determined under section 45 to the extent that such credit is attributable to electricity or refined coal produced
(I) at a facility which is originally placed in service after the date of the enactment of this paragraph, and
(II) during the 4-year period beginning on the date that such facility was originally placed in service,
(iii) the credit determined under section 45B, and
(iv) the credit determined under section 51.
(5) Special rules 

(A) Married individuals 
In the case of a husband or wife who files a separate return, the amount specified under subparagraph (B) of paragraph (1) shall be $12,500 in lieu of $25,000. This subparagraph shall not apply if the spouse of the taxpayer has no business credit carryforward or carryback to, and has no current year business credit for, the taxable year of such spouse which ends within or with the taxpayers taxable year.
(B) Controlled groups 
In the case of a controlled group, the $25,000 amount specified under subparagraph (B) of paragraph (1) shall be reduced for each component member of such group by apportioning $25,000 among the component members of such group in such manner as the Secretary shall by regulations prescribe. For purposes of the preceding sentence, the term controlled group has the meaning given to such term by section 1563 (a).
(C) Limitations with respect to certain persons 
In the case of a person described in subparagraph (A) or (B) of section 46 (e)(1) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990), the $25,000 amount specified under subparagraph (B) of paragraph (1) shall equal such persons ratable share (as determined under section 46 (e)(2) (as so in effect) of such amount.
(D) Estates and trusts 
In the case of an estate or trust, the $25,000 amount specified under subparagraph (B) of paragraph (1) shall be reduced to an amount which bears the same ratio to $25,000 as the portion of the income of the estate or trust which is not allocated to beneficiaries bears to the total income of the estate or trust.
(d) Ordering rules 
For purposes of any provision of this title where it is necessary to ascertain the extent to which the credits determined under any section referred to in subsection (b) are used in a taxable year or as a carryback or carryforward
(1) In general 
The order in which such credits are used shall be determined on the basis of the order in which they are listed in subsection (b) as of the close of the taxable year in which the credit is used.
(2) Components of investment credit 
The order in which the credits listed in section 46 are used shall be determined on the basis of the order in which such credits are listed in section 46 as of the close of the taxable year in which the credit is used.
(3) Credits no longer listed 
For purposes of this subsection
(A) the credit allowable by section 40, as in effect on the day before the date of the enactment of the Tax Reform Act of 1984, (relating to expenses of work incentive programs) and the credit allowable by section 41 (a), as in effect on the day before the date of the enactment of the Tax Reform Act of 1986, (relating to employee stock ownership credit) shall be treated as referred to in that order after the last paragraph of subsection (b), and
(B) the credit determined under section 46
(i) to the extent attributable to the employee plan percentage (as defined in section 46 (a)(2)(E) as in effect on the day before the date of the enactment of the Tax Reform Act of 1984) shall be treated as a credit listed after paragraph (1) of section 46, and
(ii) to the extent attributable to the regular percentage (as defined in section 46 (b)(1) as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall be treated as the first credit listed in section 46.

26 USC 39 - Carryback and carryforward of unused credits

(a) In general 

(1) 1-year carryback and 20-year carryforward 
If the sum of the business credit carryforwards to the taxable year plus the amount of the current year business credit for the taxable year exceeds the amount of the limitation imposed by subsection (c) of section 38 for such taxable year (hereinafter in this section referred to as the unused credit year), such excess (to the extent attributable to the amount of the current year business credit) shall be
(A) a business credit carryback to the taxable year preceding the unused credit year, and
(B) a business credit carryforward to each of the 20 taxable years following the unused credit year,

and, subject to the limitations imposed by subsections (b) and (c), shall be taken into account under the provisions of section 38 (a) in the manner provided in section 38 (a).

(2) Amount carried to each year 

(A) Entire amount carried to first year 
The entire amount of the unused credit for an unused credit year shall be carried to the earliest of the 21 taxable years to which (by reason of paragraph (1)) such credit may be carried.
(B) Amount carried to other 20 years 
The amount of the unused credit for the unused credit year shall be carried to each of the other 20 taxable years to the extent that such unused credit may not be taken into account under section 38 (a) for a prior taxable year because of the limitations of subsections (b) and (c).
(3) 5-year carryback for marginal oil and gas well production credit 
Notwithstanding subsection (d), in the case of the marginal oil and gas well production credit
(A) this section shall be applied separately from the business credit (other than the marginal oil and gas well production credit),
(B) paragraph (1) shall be applied by substituting each of the 5 taxable years for the taxable year in subparagraph (A) thereof, and
(C) paragraph (2) shall be applied
(i) by substituting 25 taxable years for 21 taxable years in subparagraph (A) thereof, and
(ii) by substituting 24 taxable years for 20 taxable years in subparagraph (B) thereof.
(b) Limitation on carrybacks 
The amount of the unused credit which may be taken into account under section 38 (a)(3) for any preceding taxable year shall not exceed the amount by which the limitation imposed by section 38 (c) for such taxable year exceeds the sum of
(1) the amounts determined under paragraphs (1) and (2) of section 38 (a) for such taxable year, plus
(2) the amounts which (by reason of this section) are carried back to such taxable year and are attributable to taxable years preceding the unused credit year.
(c) Limitation on carryforwards 
The amount of the unused credit which may be taken into account under section 38 (a)(1) for any succeeding taxable year shall not exceed the amount by which the limitation imposed by section 38 (c) for such taxable year exceeds the sum of the amounts which, by reason of this section, are carried to such taxable year and are attributable to taxable years preceding the unused credit year.
(d) Transitional rule 
No portion of the unused business credit for any taxable year which is attributable to a credit specified in section 38 (b) or any portion thereof may be carried back to any taxable year before the first taxable year for which such specified credit or such portion is allowable (without regard to subsection (a)).

26 USC 40 - Alcohol used as fuel

(a) General rule 
For purposes of section 38, the alcohol fuels credit determined under this section for the taxable year is an amount equal to the sum of
(1) the alcohol mixture credit, plus
(2) the alcohol credit, plus
(3) in the case of an eligible small ethanol producer, the small ethanol producer credit.
(b) Definition of alcohol mixture credit, alcohol credit, and small ethanol producer credit 
For purposes of this section, and except as provided in subsection (h)
(1) Alcohol mixture credit 

(A) In general 
The alcohol mixture credit of any taxpayer for any taxable year is 60 cents for each gallon of alcohol used by the taxpayer in the production of a qualified mixture.
(B) Qualified mixture 
The term qualified mixture means a mixture of alcohol and gasoline or of alcohol and a special fuel which
(i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or
(ii) is used as a fuel by the taxpayer producing such mixture.
(C) Sale or use must be in trade or business, etc. 
Alcohol used in the production of a qualified mixture shall be taken into account
(i) only if the sale or use described in subparagraph (B) is in a trade or business of the taxpayer, and
(ii) for the taxable year in which such sale or use occurs.
(D) Casual off-farm production not eligible 
No credit shall be allowed under this section with respect to any casual off-farm production of a qualified mixture.
(2) Alcohol credit 

(A) In general 
The alcohol credit of any taxpayer for any taxable year is 60 cents for each gallon of alcohol which is not in a mixture with gasoline or a special fuel (other than any denaturant) and which during the taxable year
(i) is used by the taxpayer as a fuel in a trade or business, or
(ii) is sold by the taxpayer at retail to a person and placed in the fuel tank of such persons vehicle.
(B) User credit not to apply to alcohol sold at retail 
No credit shall be allowed under subparagraph (A)(i) with respect to any alcohol which was sold in a retail sale described in subparagraph (A)(ii).
(3) Smaller credit for lower proof alcohol 
In the case of any alcohol with a proof which is at least 150 but less than 190, paragraphs (1)(A) and (2)(A) shall be applied by substituting 45 cents for 60 cents.
(4) Small ethanol producer credit 

(A) In general 
The small ethanol producer credit of any eligible small ethanol producer for any taxable year is 10 cents for each gallon of qualified ethanol fuel production of such producer.
(B) Qualified ethanol fuel production 
For purposes of this paragraph, the term qualified ethanol fuel production means any alcohol which is ethanol which is produced by an eligible small ethanol producer, and which during the taxable year
(i) is sold by such producer to another person
(I) for use by such other person in the production of a qualified mixture in such other persons trade or business (other than casual off-farm production),
(II) for use by such other person as a fuel in a trade or business, or
(III) who sells such ethanol at retail to another person and places such ethanol in the fuel tank of such other person, or
(ii) is used or sold by such producer for any purpose described in clause (i).
(C) Limitation 
The qualified ethanol fuel production of any producer for any taxable year shall not exceed 15,000,000 gallons.
(D) Additional distillation excluded 
The qualified ethanol fuel production of any producer for any taxable year shall not include any alcohol which is purchased by the producer and with respect to which such producer increases the proof of the alcohol by additional distillation.
(5) Adding of denaturants not treated as mixture 
The adding of any denaturant to alcohol shall not be treated as the production of a mixture.
(c) Coordination with exemption from excise tax 
The amount of the credit determined under this section with respect to any alcohol shall, under regulations prescribed by the Secretary, be properly reduced to take into account any benefit provided with respect to such alcohol solely by reason of the application of section 4041 (b)(2), section 6426, or section 6427 (e).
(d) Definitions and special rules 
For purposes of this section
(1) Alcohol defined 

(A) In general 
The term alcohol includes methanol and ethanol but does not include
(i) alcohol produced from petroleum, natural gas, or coal (including peat), or
(ii) alcohol with a proof of less than 150.
(B) Determination of proof 
The determination of the proof of any alcohol shall be made without regard to any added denaturants.
(2) Special fuel defined 
The term special fuel includes any liquid fuel (other than gasoline) which is suitable for use in an internal combustion engine.
(3) Mixture or alcohol not used as a fuel, etc. 

(A) Mixtures 
If
(i) any credit was determined under this section with respect to alcohol used in the production of any qualified mixture, and
(ii) any person
(I) separates the alcohol from the mixture, or
(II) without separation, uses the mixture other than as a fuel,

then there is hereby imposed on such person a tax equal to 60 cents a gallon (45 cents in the case of alcohol with a proof less than 190) for each gallon of alcohol in such mixture.

(B) Alcohol 
If
(i) any credit was determined under this section with respect to the retail sale of any alcohol, and
(ii) any person mixes such alcohol or uses such alcohol other than as a fuel,

then there is hereby imposed on such person a tax equal to 60 cents a gallon (45 cents in the case of alcohol with a proof less than 190) for each gallon of such alcohol.

(C) Producer credit 
If
(i) any credit was determined under subsection (a)(3), and
(ii) any person does not use such fuel for a purpose described in subsection (b)(4)(B),

then there is hereby imposed on such person a tax equal to 10 cents a gallon for each gallon of such alcohol.

(D) Applicable laws 
All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under subparagraph (A), (B), or (C) as if such tax were imposed by section 4081 and not by this chapter.
(4) Volume of alcohol 
For purposes of determining under subsection (a) the number of gallons of alcohol with respect to which a credit is allowable under subsection (a), the volume of alcohol shall include the volume of any denaturant (including gasoline) which is added under any formulas approved by the Secretary to the extent that such denaturants do not exceed 5 percent of the volume of such alcohol (including denaturants).
(5) Pass-thru in the case of estates and trusts 
Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
(e) Termination 

(1) In general 
This section shall not apply to any sale or use
(A) for any period after December 31, 2010, or
(B) for any period before January 1, 2011, during which the rates of tax under section 4081 (a)(2)(A) are 4.3 cents per gallon.
(2) No carryovers to certain years after expiration 
If this section ceases to apply for any period by reason of paragraph (1), no amount attributable to any sale or use before the first day of such period may be carried under section 39 by reason of this section (treating the amount allowed by reason of this section as the first amount allowed by this subpart) to any taxable year beginning after the 3-taxable-year period beginning with the taxable year in which such first day occurs.
(f) Election to have alcohol fuels credit not apply 

(1) In general 
A taxpayer may elect to have this section not apply for any taxable year.
(2) Time for making election 
An election under paragraph (1) for any taxable year may be made (or revoked) at any time before the expiration of the 3-year period beginning on the last date prescribed by law for filing the return for such taxable year (determined without regard to extensions).
(3) Manner of making election 
An election under paragraph (1) (or revocation thereof) shall be made in such manner as the Secretary may by regulations prescribe.
(g) Definitions and special rules for eligible small ethanol producer credit 
For purposes of this section
(1) Eligible small ethanol producer 
The term eligible small ethanol producer means a person who, at all times during the taxable year, has a productive capacity for alcohol (as defined in subsection (d)(1)(A) without regard to clauses (i) and (ii)) not in excess of 60,000,000 gallons.
(2) Aggregration 1 rule 
For purposes of the 15,000,000 gallon limitation under subsection (b)(4)(C) and the 60,000,000 gallon limitation under paragraph (1), all members of the same controlled group of corporations (within the meaning of section 267 (f)) and all persons under common control (within the meaning of section 52 (b) but determined by treating an interest of more than 50 percent as a controlling interest) shall be treated as 1 person.
(3) Partnership, S corporations, and other pass-thru entities 
In the case of a partnership, trust, S corporation, or other pass-thru entity, the limitations contained in subsection (b)(4)(C) and paragraph (1) shall be applied at the entity level and at the partner or similar level.
(4) Allocation 
For purposes of this subsection, in the case of a facility in which more than 1 person has an interest, productive capacity shall be allocated among such persons in such manner as the Secretary may prescribe.
(5) Regulations 
The Secretary may prescribe such regulations as may be necessary
(A) to prevent the credit provided for in subsection (a)(3) from directly or indirectly benefiting any person with a direct or indirect productive capacity of more than 60,000,000 gallons of alcohol during the taxable year, or
(B) to prevent any person from directly or indirectly benefiting with respect to more than 15,000,000 gallons during the taxable year.
(6) Allocation of small ethanol producer credit to patrons of cooperative 

(A) Election to allocate 

(i) In general In the case of a cooperative organization described in section 1381 (a), any portion of the credit determined under subsection (a)(3) for the taxable year may, at the election of the organization, be apportioned pro rata among patrons of the organization on the basis of the quantity or value of business done with or for such patrons for the taxable year.
(ii) Form and effect of election An election under clause (i) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year. Such election shall not take effect unless the organization designates the apportionment as such in a written notice mailed to its patrons during the payment period described in section 1382 (d).
(B) Treatment of organizations and patrons 

(i) Organizations The amount of the credit not apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under subsection (a)(3) for the taxable year of the organization.
(ii) Patrons The amount of the credit apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under such subsection for the first taxable year of each patron ending on or after the last day of the payment period (as defined in section 1382 (d)) for the taxable year of the organization or, if earlier, for the taxable year of each patron ending on or after the date on which the patron receives notice from the cooperative of the apportionment.
(iii) Special rules for decrease in credits for taxable year If the amount of the credit of the organization determined under such subsection for a taxable year is less than the amount of such credit shown on the return of the organization for such year, an amount equal to the excess of
(I) such reduction, over
(II) the amount not apportioned to such patrons under subparagraph (A) for the taxable year,

shall be treated as an increase in tax imposed by this chapter on the organization. Such increase shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.

(h) Reduced credit for ethanol blenders 

(1) In general 
In the case of any alcohol mixture credit or alcohol credit with respect to any sale or use of alcohol which is ethanol during calendar years 2001 through 2010
(A) subsections (b)(1)(A) and (b)(2)(A) shall be applied by substituting the blender amount for 60 cents,
(B) subsection (b)(3) shall be applied by substituting the low-proof blender amount for 45 cents and the blender amount for 60 cents, and
(C) subparagraphs (A) and (B) of subsection (d)(3) shall be applied by substituting the blender amount for 60 cents and the low-proof blender amount for 45 cents.
(2) Amounts 
For purposes of paragraph (1), the blender amount and the low-proof blender amount shall be determined in accordance with the following table:
[1] So in original. Probably should be “Aggregation”.

26 USC 40A - Biodiesel and renewable diesel used as fuel

(a) General rule 
For purposes of section 38, the biodiesel fuels credit determined under this section for the taxable year is an amount equal to the sum of
(1) the biodiesel mixture credit, plus
(2) the biodiesel credit, plus
(3) in the case of an eligible small agri-biodiesel producer, the small agri-biodiesel producer credit.
(b) Definition of biodiesel mixture credit, biodiesel credit, and small agri-biodiesel producer credit 
For purposes of this section
(1) Biodiesel mixture credit 

(A) In general 
The biodiesel mixture credit of any taxpayer for any taxable year is 50 cents for each gallon of biodiesel used by the taxpayer in the production of a qualified biodiesel mixture.
(B) Qualified biodiesel mixture 
The term qualified biodiesel mixture means a mixture of biodiesel and diesel fuel (as defined in section 4083 (a)(3)), determined without regard to any use of kerosene, which
(i) is sold by the taxpayer producing such mixture to any person for use as a fuel, or
(ii) is used as a fuel by the taxpayer producing such mixture.
(C) Sale or use must be in trade or business, etc. 
Biodiesel used in the production of a qualified biodiesel mixture shall be taken into account
(i) only if the sale or use described in subparagraph (B) is in a trade or business of the taxpayer, and
(ii) for the taxable year in which such sale or use occurs.
(D) Casual off-farm production not eligible 
No credit shall be allowed under this section with respect to any casual off-farm production of a qualified biodiesel mixture.
(2) Biodiesel credit 

(A) In general 
The biodiesel credit of any taxpayer for any taxable year is 50 cents for each gallon of biodiesel which is not in a mixture with diesel fuel and which during the taxable year
(i) is used by the taxpayer as a fuel in a trade or business, or
(ii) is sold by the taxpayer at retail to a person and placed in the fuel tank of such persons vehicle.
(B) User credit not to apply to biodiesel sold at retail 
No credit shall be allowed under subparagraph (A)(i) with respect to any biodiesel which was sold in a retail sale described in subparagraph (A)(ii).
(3) Credit for agri-biodiesel 
In the case of any biodiesel which is agri-biodiesel, paragraphs (1)(A) and (2)(A) shall be applied by substituting $1.00 for 50 cents.
(4) Certification for biodiesel 
No credit shall be allowed under paragraph (1) or (2) of subsection (a) unless the taxpayer obtains a certification (in such form and manner as prescribed by the Secretary) from the producer or importer of the biodiesel which identifies the product produced and the percentage of biodiesel and agri-biodiesel in the product.
(5) Small agri-biodiesel producer credit 

(A) In general 
The small agri-biodiesel producer credit of any eligible small agri-biodiesel producer for any taxable year is 10 cents for each gallon of qualified agri-biodiesel production of such producer.
(B) Qualified agri-biodiesel production 
For purposes of this paragraph, the term qualified agri-biodiesel production means any agri-biodiesel which is produced by an eligible small agri-biodiesel producer, and which during the taxable year
(i) is sold by such producer to another person
(I) for use by such other person in the production of a qualified biodiesel mixture in such other persons trade or business (other than casual off-farm production),
(II) for use by such other person as a fuel in a trade or business, or
(III) who sells such agri-biodiesel at retail to another person and places such agri-biodiesel in the fuel tank of such other person, or
(ii) is used or sold by such producer for any purpose described in clause (i).
(C) Limitation 
The qualified agri-biodiesel production of any producer for any taxable year shall not exceed 15,000,000 gallons.
(c) Coordination with credit against excise tax 
The amount of the credit determined under this section with respect to any biodiesel shall be properly reduced to take into account any benefit provided with respect to such biodiesel solely by reason of the application of section 6426 or 6427 (e).
(d) Definitions and special rules 
For purposes of this section
(1) Biodiesel 
The term biodiesel means the monoalkyl esters of long chain fatty acids derived from plant or animal matter which meet
(A) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and
(B) the requirements of the American Society of Testing and Materials D6751.
(2) Agri-biodiesel 
The term agri-biodiesel means biodiesel derived solely from virgin oils, including esters derived from virgin vegetable oils from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, and mustard seeds, and from animal fats.
(3) Mixture or biodiesel not used as a fuel, etc. 

(A) Mixtures 
If
(i) any credit was determined under this section with respect to biodiesel used in the production of any qualified biodiesel mixture, and
(ii) any person
(I) separates the biodiesel from the mixture, or
(II) without separation, uses the mixture other than as a fuel,

then there is hereby imposed on such person a tax equal to the product of the rate applicable under subsection (b)(1)(A) and the number of gallons of such biodiesel in such mixture.

(B) Biodiesel 
If
(i) any credit was determined under this section with respect to the retail sale of any biodiesel, and
(ii) any person mixes such biodiesel or uses such biodiesel other than as a fuel,

then there is hereby imposed on such person a tax equal to the product of the rate applicable under subsection (b)(2)(A) and the number of gallons of such biodiesel.

(C) Producer credit 
If
(i) any credit was determined under subsection (a)(3), and
(ii) any person does not use such fuel for a purpose described in subsection (b)(5)(B),

then there is hereby imposed on such person a tax equal to 10 cents a gallon for each gallon of such agri-biodiesel.

(D) Applicable laws 
All provisions of law, including penalties, shall, insofar as applicable and not inconsistent with this section, apply in respect of any tax imposed under subparagraph (A) or (B) as if such tax were imposed by section 4081 and not by this chapter.
(4) Pass-thru in the case of estates and trusts 
Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
(e) Definitions and special rules for small agri-biodiesel producer credit 
For purposes of this section
(1) Eligible small agri-biodiesel producer 
The term eligible small agri-biodiesel producer means a person who, at all times during the taxable year, has a productive capacity for agri-biodiesel not in excess of 60,000,000 gallons.
(2) Aggregation rule 
For purposes of the 15,000,000 gallon limitation under subsection (b)(5)(C) and the 60,000,000 gallon limitation under paragraph (1), all members of the same controlled group of corporations (within the meaning of section 267 (f)) and all persons under common control (within the meaning of section 52 (b) but determined by treating an interest of more than 50 percent as a controlling interest) shall be treated as 1 person.
(3) Partnership, S corporation, and other pass-thru entities 
In the case of a partnership, trust, S corporation, or other pass-thru entity, the limitations contained in subsection (b)(5)(C) and paragraph (1) shall be applied at the entity level and at the partner or similar level.
(4) Allocation 
For purposes of this subsection, in the case of a facility in which more than 1 person has an interest, productive capacity shall be allocated among such persons in such manner as the Secretary may prescribe.
(5) Regulations 
The Secretary may prescribe such regulations as may be necessary
(A) to prevent the credit provided for in subsection (a)(3) from directly or indirectly benefiting any person with a direct or indirect productive capacity of more than 60,000,000 gallons of agri-biodiesel during the taxable year, or
(B) to prevent any person from directly or indirectly benefiting with respect to more than 15,000,000 gallons during the taxable year.
(6) Allocation of small agri-biodiesel credit to patrons of cooperative 

(A) Election to allocate 

(i) In general In the case of a cooperative organization described in section 1381 (a), any portion of the credit determined under subsection (a)(3) for the taxable year may, at the election of the organization, be apportioned pro rata among patrons of the organization on the basis of the quantity or value of business done with or for such patrons for the taxable year.
(ii) Form and effect of election An election under clause (i) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year. Such election shall not take effect unless the organization designates the apportionment as such in a written notice mailed to its patrons during the payment period described in section 1382 (d).
(B) Treatment of organizations and patrons 

(i) Organizations The amount of the credit not apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under subsection (a)(3) for the taxable year of the organization.
(ii) Patrons The amount of the credit apportioned to patrons pursuant to subparagraph (A) shall be included in the amount determined under such subsection for the first taxable year of each patron ending on or after the last day of the payment period (as defined in section 1382 (d)) for the taxable year of the organization or, if earlier, for the taxable year of each patron ending on or after the date on which the patron receives notice from the cooperative of the apportionment.
(iii) Special rules for decrease in credits for taxable year If the amount of the credit of the organization determined under such subsection for a taxable year is less than the amount of such credit shown on the return of the organization for such year, an amount equal to the excess of
(I) such reduction, over
(II) the amount not apportioned to such patrons under subparagraph (A) for the taxable year,

shall be treated as an increase in tax imposed by this chapter on the organization. Such increase shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.

(f) Renewable diesel 
For purposes of this title
(1) Treatment in the same manner as biodiesel 
Except as provided in paragraph (2), renewable diesel shall be treated in the same manner as biodiesel.
(2) Exceptions 

(A) Rate of credit 
Subsections (b)(1)(A) and (b)(2)(A) shall be applied with respect to renewable diesel by substituting $1.00 for 50 cents.
(B) Nonapplication of certain credits 
Subsections (b)(3) and (b)(5) shall not apply with respect to renewable diesel.
(3) Renewable diesel defined 
The term renewable diesel means diesel fuel derived from biomass (as defined in section 45K (c)(3)) using a thermal depolymerization process which meets
(A) the registration requirements for fuels and fuel additives established by the Environmental Protection Agency under section 211 of the Clean Air Act (42 U.S.C. 7545), and
(B) the requirements of the American Society of Testing and Materials D975 or D396.
(g) Termination 
This section shall not apply to any sale or use after December 31, 2008.

26 USC 41 - Credit for increasing research activities

(a) General rule 
For purposes of section 38, the research credit determined under this section for the taxable year shall be an amount equal to the sum of
(1) 20 percent of the excess (if any) of
(A) the qualified research expenses for the taxable year, over
(B) the base amount,
(2) 20 percent of the basic research payments determined under subsection (e)(1)(A), and
(3) 20 percent of the amounts paid or incurred by the taxpayer in carrying on any trade or business of the taxpayer during the taxable year (including as contributions) to an energy research consortium for energy research.
(b) Qualified research expenses 
For purposes of this section
(1) Qualified research expenses 
The term qualified research expenses means the sum of the following amounts which are paid or incurred by the taxpayer during the taxable year in carrying on any trade or business of the taxpayer
(A) in-house research expenses, and
(B) contract research expenses.
(2) In-house research expenses 

(A) In general 
The term in-house research expenses means
(i) any wages paid or incurred to an employee for qualified services performed by such employee,
(ii) any amount paid or incurred for supplies used in the conduct of qualified research, and
(iii) under regulations prescribed by the Secretary, any amount paid or incurred to another person for the right to use computers in the conduct of qualified research.

Clause (iii) shall not apply to any amount to the extent that the taxpayer (or any person with whom the taxpayer must aggregate expenditures under subsection (f)(1)) receives or accrues any amount from any other person for the right to use substantially identical personal property.

(B) Qualified services 
The term qualified services means services consisting of
(i) engaging in qualified research, or
(ii) engaging in the direct supervision or direct support of research activities which constitute qualified research.

If substantially all of the services performed by an individual for the taxpayer during the taxable year consists of services meeting the requirements of clause (i) or (ii), the term qualified services means all of the services performed by such individual for the taxpayer during the taxable year.

(C) Supplies 
The term supplies means any tangible property other than
(i) land or improvements to land, and
(ii) property of a character subject to the allowance for depreciation.
(D) Wages 

(i) In general The term wages has the meaning given such term by section 3401 (a).
(ii) Self-employed individuals and owner-employees In the case of an employee (within the meaning of section 401 (c)(1)), the term wages includes the earned income (as defined in section 401(c)(2)) of such employee.
(iii) Exclusion for wages to which work opportunity credit applies The term wages shall not include any amount taken into account in determining the work opportunity credit under section 51 (a).
(3) Contract research expenses 

(A) In general 
The term contract research expenses means 65 percent of any amount paid or incurred by the taxpayer to any person (other than an employee of the taxpayer) for qualified research.
(B) Prepaid amounts 
If any contract research expenses paid or incurred during any taxable year are attributable to qualified research to be conducted after the close of such taxable year, such amount shall be treated as paid or incurred during the period during which the qualified research is conducted.
(C) Amounts paid to certain research consortia 

(i) In general Subparagraph (A) shall be applied by substituting 75 percent for 65 percent with respect to amounts paid or incurred by the taxpayer to a qualified research consortium for qualified research on behalf of the taxpayer and 1 or more unrelated taxpayers. For purposes of the preceding sentence, all persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as related taxpayers.
(ii) Qualified research consortium The term qualified research consortium means any organization which
(I) is described in section 501 (c)(3) or 501 (c)(6) and is exempt from tax under section 501 (a),
(II) is organized and operated primarily to conduct scientific research, and
(III) is not a private foundation.
(D) Amounts paid to eligible small businesses, universities, and Federal laboratories 

(i) In general In the case of amounts paid by the taxpayer to
(I) an eligible small business,
(II) an institution of higher education (as defined in section 3304 (f)), or
(III) an organization which is a Federal laboratory,

for qualified research which is energy research, subparagraph (A) shall be applied by substituting 100 percent for 65 percent.

(ii) Eligible small business For purposes of this subparagraph, the term eligible small business means a small business with respect to which the taxpayer does not own (within the meaning of section 318) 50 percent or more of
(I) in the case of a corporation, the outstanding stock of the corporation (either by vote or value), and
(II) in the case of a small business which is not a corporation, the capital and profits interests of the small business.
(iii) Small business For purposes of this subparagraph
(I) In general The term small business means, with respect to any calendar year, any person if the annual average number of employees employed by such person during either of the 2 preceding calendar years was 500 or fewer. For purposes of the preceding sentence, a preceding calendar year may be taken into account only if the person was in existence throughout the year.
(II) Startups, controlled groups, and predecessors Rules similar to the rules of subparagraphs (B) and (D) of section 220 (c)(4) shall apply for purposes of this clause.
(iv) Federal laboratory For purposes of this subparagraph, the term Federal laboratory has the meaning given such term by section 4(6) of the Stevenson-Wydler Technology Innovation Act of 1980 (15 U.S.C. 3703 (6)), as in effect on the date of the enactment of the Energy Tax Incentives Act of 2005.
(4) Trade or business requirement disregarded for in-house research expenses of certain startup ventures 
In the case of in-house research expenses, a taxpayer shall be treated as meeting the trade or business requirement of paragraph (1) if, at the time such in-house research expenses are paid or incurred, the principal purpose of the taxpayer in making such expenditures is to use the results of the research in the active conduct of a future trade or business
(A) of the taxpayer, or
(B) of 1 or more other persons who with the taxpayer are treated as a single taxpayer under subsection (f)(1).
(c) Base amount 

(1) In general 
The term base amount means the product of
(A) the fixed-base percentage, and
(B) the average annual gross receipts of the taxpayer for the 4 taxable years preceding the taxable year for which the credit is being determined (hereinafter in this subsection referred to as the credit year).
(2) Minimum base amount 
In no event shall the base amount be less than 50 percent of the qualified research expenses for the credit year.
(3) Fixed-base percentage 

(A) In general 
Except as otherwise provided in this paragraph, the fixed-base percentage is the percentage which the aggregate qualified research expenses of the taxpayer for taxable years beginning after December 31, 1983, and before January 1, 1989, is of the aggregate gross receipts of the taxpayer for such taxable years.
(B) Start-up companies 

(i) Taxpayers to which subparagraph applies The fixed-base percentage shall be determined under this subparagraph if
(I) the first taxable year in which a taxpayer had both gross receipts and qualified research expenses begins after December 31, 1983, or
(II) there are fewer than 3 taxable years beginning after December 31, 1983, and before January 1, 1989, in which the taxpayer had both gross receipts and qualified research expenses.
(ii) Fixed-base percentage In a case to which this subparagraph applies, the fixed-base percentage is
(I) 3 percent for each of the taxpayers 1st 5 taxable years beginning after December 31, 1993, for which the taxpayer has qualified research expenses,
(II) in the case of the taxpayers 6th such taxable year, 1/6 of the percentage which the aggregate qualified research expenses of the taxpayer for the 4th and 5th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
(III) in the case of the taxpayers 7th such taxable year, 1/3 of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th and 6th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
(IV) in the case of the taxpayers 8th such taxable year, 1/2 of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th, 6th, and 7th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
(V) in the case of the taxpayers 9th such taxable year, 2/3 of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th, 6th, 7th, and 8th such taxable years is of the aggregate gross receipts of the taxpayer for such years,
(VI) in the case of the taxpayers 10th such taxable year, 5/6 of the percentage which the aggregate qualified research expenses of the taxpayer for the 5th, 6th, 7th, 8th, and 9th such taxable years is of the aggregate gross receipts of the taxpayer for such years, and
(VII) for taxable years thereafter, the percentage which the aggregate qualified research expenses for any 5 taxable years selected by the taxpayer from among the 5th through the 10th such taxable years is of the aggregate gross receipts of the taxpayer for such selected years.
(iii) Treatment of de minimis amounts of gross receipts and qualified research expenses The Secretary may prescribe regulations providing that de minimis amounts of gross receipts and qualified research expenses shall be disregarded under clauses (i) and (ii).
(C) Maximum fixed-base percentage 
In no event shall the fixed-base percentage exceed 16 percent.
(D) Rounding 
The percentages determined under subparagraphs (A) and (B)(ii) shall be rounded to the nearest 1/100th of 1 percent.
(4) Election of alternative incremental credit 

(A) In general 
At the election of the taxpayer, the credit determined under subsection (a)(1) shall be equal to the sum of
(i) 3 percent of so much of the qualified research expenses for the taxable year as exceeds 1 percent of the average described in subsection (c)(1)(B) but does not exceed 1.5 percent of such average,
(ii) 4 percent of so much of such expenses as exceeds 1.5 percent of such average but does not exceed 2 percent of such average, and
(iii) 5 percent of so much of such expenses as exceeds 2 percent of such average.
(B) Election 
An election under this paragraph shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Secretary.
(5) Election of alternative simplified credit 

(A) In general 
At the election of the taxpayer, the credit determined under subsection (a)(1) shall be equal to 12 percent of so much of the qualified research expenses for the taxable year as exceeds 50 percent of the average qualified research expenses for the 3 taxable years preceding the taxable year for which the credit is being determined.
(B) Special rule in case of no qualified research expenses in any of 3 preceding taxable years 

(i) Taxpayers to which subparagraph applies The credit under this paragraph shall be determined under this subparagraph if the taxpayer has no qualified research expenses in any one of the 3 taxable years preceding the taxable year for which the credit is being determined.
(ii) Credit rate The credit determined under this subparagraph shall be equal to 6 percent of the qualified research expenses for the taxable year.
(C) Election 
An election under this paragraph shall apply to the taxable year for which made and all succeeding taxable years unless revoked with the consent of the Secretary. An election under this paragraph may not be made for any taxable year to which an election under paragraph (4) applies.
(6) Consistent treatment of expenses required 

(A) In general 
Notwithstanding whether the period for filing a claim for credit or refund has expired for any taxable year taken into account in determining the fixed-base percentage, the qualified research expenses taken into account in computing such percentage shall be determined on a basis consistent with the determination of qualified research expenses for the credit year.
(B) Prevention of distortions 
The Secretary may prescribe regulations to prevent distortions in calculating a taxpayers qualified research expenses or gross receipts caused by a change in accounting methods used by such taxpayer between the current year and a year taken into account in computing such taxpayers fixed-base percentage.
(7) Gross receipts 
For purposes of this subsection, gross receipts for any taxable year shall be reduced by returns and allowances made during the taxable year. In the case of a foreign corporation, there shall be taken into account only gross receipts which are effectively connected with the conduct of a trade or business within the United States, the Commonwealth of Puerto Rico, or any possession of the United States.
(d) Qualified research defined 
For purposes of this section
(1) In general 
The term qualified research means research
(A) with respect to which expenditures may be treated as expenses under section 174,
(B) which is undertaken for the purpose of discovering information
(i) which is technological in nature, and
(ii) the application of which is intended to be useful in the development of a new or improved business component of the taxpayer, and
(C) substantially all of the activities of which constitute elements of a process of experimentation for a purpose described in paragraph (3).

Such term does not include any activity described in paragraph (4).

(2) Tests to be applied separately to each business component 
For purposes of this subsection
(A) In general 
Paragraph (1) shall be applied separately with respect to each business component of the taxpayer.
(B) Business component defined 
The term business component means any product, process, computer software, technique, formula, or invention which is to be
(i) held for sale, lease, or license, or
(ii) used by the taxpayer in a trade or business of the taxpayer.
(C) Special rule for production processes 
Any plant process, machinery, or technique for commercial production of a business component shall be treated as a separate business component (and not as part of the business component being produced).
(3) Purposes for which research may qualify for credit 
For purposes of paragraph (1)(C)
(A) In general 
Research shall be treated as conducted for a purpose described in this paragraph if it relates to
(i) a new or improved function,
(ii) performance, or
(iii) reliability or quality.
(B) Certain purposes not qualified 
Research shall in no event be treated as conducted for a purpose described in this paragraph if it relates to style, taste, cosmetic, or seasonal design factors.
(4) Activities for which credit not allowed 
The term qualified research shall not include any of the following:
(A) Research after commercial production 
Any research conducted after the beginning of commercial production of the business component.
(B) Adaptation of existing business components 
Any research related to the adaptation of an existing business component to a particular customers requirement or need.
(C) Duplication of existing business component 
Any research related to the reproduction of an existing business component (in whole or in part) from a physical examination of the business component itself or from plans, blueprints, detailed specifications, or publicly available information with respect to such business component.
(D) Surveys, studies, etc. 
Any
(i) efficiency survey,
(ii) activity relating to management function or technique,
(iii) market research, testing, or development (including advertising or promotions),
(iv) routine data collection, or
(v) routine or ordinary testing or inspection for quality control.
(E) Computer software 
Except to the extent provided in regulations, any research with respect to computer software which is developed by (or for the benefit of) the taxpayer primarily for internal use by the taxpayer, other than for use in
(i) an activity which constitutes qualified research (determined with regard to this subparagraph), or
(ii) a production process with respect to which the requirements of paragraph (1) are met.
(F) Foreign research 
Any research conducted outside the United States, the Commonwealth of Puerto Rico, or any possession of the United States.
(G) Social sciences, etc. 
Any research in the social sciences, arts, or humanities.
(H) Funded research 
Any research to the extent funded by any grant, contract, or otherwise by another person (or governmental entity).
(e) Credit allowable with respect to certain payments to qualified organizations for basic research 
For purposes of this section
(1) In general 
In the case of any taxpayer who makes basic research payments for any taxable year
(A) the amount of basic research payments taken into account under subsection (a)(2) shall be equal to the excess of
(i) such basic research payments, over
(ii) the qualified organization base period amount, and
(B) that portion of such basic research payments which does not exceed the qualified organization base period amount shall be treated as contract research expenses for purposes of subsection (a)(1).
(2) Basic research payments defined 
For purposes of this subsection
(A) In general 
The term basic research payment means, with respect to any taxable year, any amount paid in cash during such taxable year by a corporation to any qualified organization for basic research but only if
(i) such payment is pursuant to a written agreement between such corporation and such qualified organization, and
(ii) such basic research is to be performed by such qualified organization.
(B) Exception to requirement that research be performed by the organization 
In the case of a qualified organization described in subparagraph (C) or (D) of paragraph (6), clause (ii) of subparagraph (A) shall not apply.
(3) Qualified organization base period amount 
For purposes of this subsection, the term qualified organization base period amount means an amount equal to the sum of
(A) the minimum basic research amount, plus
(B) the maintenance-of-effort amount.
(4) Minimum basic research amount 
For purposes of this subsection
(A) In general 
The term minimum basic research amount means an amount equal to the greater of
(i) 1 percent of the average of the sum of amounts paid or incurred during the base period for
(I) any in-house research expenses, and
(II) any contract research expenses, or
(ii) the amounts treated as contract research expenses during the base period by reason of this subsection (as in effect during the base period).
(B) Floor amount 
Except in the case of a taxpayer which was in existence during a taxable year (other than a short taxable year) in the base period, the minimum basic research amount for any base period shall not be less than 50 percent of the basic research payments for the taxable year for which a determination is being made under this subsection.
(5) Maintenance-of-effort amount 
For purposes of this subsection
(A) In general 
The term maintenance-of-effort amount means, with respect to any taxable year, an amount equal to the excess (if any) of
(i) an amount equal to
(I) the average of the nondesignated university contributions paid by the taxpayer during the base period, multiplied by
(II) the cost-of-living adjustment for the calendar year in which such taxable year begins, over
(ii) the amount of nondesignated university contributions paid by the taxpayer during such taxable year.
(B) Nondesignated university contributions 
For purposes of this paragraph, the term nondesignated university contribution means any amount paid by a taxpayer to any qualified organization described in paragraph (6)(A)
(i) for which a deduction was allowable under section 170, and
(ii) which was not taken into account
(I) in computing the amount of the credit under this section (as in effect during the base period) during any taxable year in the base period, or
(II) as a basic research payment for purposes of this section.
(C) Cost-of-living adjustment defined 

(i) In general The cost-of-living adjustment for any calendar year is the cost-of-living adjustment for such calendar year determined under section 1 (f)(3), by substituting calendar year 1987 for calendar year 1992 in subparagraph (B) thereof.
(ii) Special rule where base period ends in a calendar year other than 1983 or 1984 If the base period of any taxpayer does not end in 1983 or 1984, section 1 (f)(3)(B) shall, for purposes of this paragraph, be applied by substituting the calendar year in which such base period ends for 1992. Such substitution shall be in lieu of the substitution under clause (i).
(6) Qualified organization 
For purposes of this subsection, the term qualified organization means any of the following organizations:
(A) Educational institutions 
Any educational organization which
(i) is an institution of higher education (within the meaning of section 3304 (f)), and
(ii) is described in section 170 (b)(1)(A)(ii).
(B) Certain scientific research organizations 
Any organization not described in subparagraph (A) which
(i) is described in section 501 (c)(3) and is exempt from tax under section 501 (a),
(ii) is organized and operated primarily to conduct scientific research, and
(iii) is not a private foundation.
(C) Scientific tax-exempt organizations 
Any organization which
(i) is described in
(I) section 501 (c)(3) (other than a private foundation), or
(II) section 501 (c)(6),
(ii) is exempt from tax under section 501 (a),
(iii) is organized and operated primarily to promote scientific research by qualified organizations described in subparagraph (A) pursuant to written research agreements, and
(iv) currently expends
(I) substantially all of its funds, or
(II) substantially all of the basic research payments received by it,

for grants to, or contracts for basic research with, an organization described in subparagraph (A).

(D) Certain grant organizations 
Any organization not described in subparagraph (B) or (C) which
(i) is described in section 501 (c)(3) and is exempt from tax under section 501 (a) (other than a private foundation),
(ii) is established and maintained by an organization established before July 10, 1981, which meets the requirements of clause (i),
(iii) is organized and operated exclusively for the purpose of making grants to organizations described in subparagraph (A) pursuant to written research agreements for purposes of basic research, and
(iv) makes an election, revocable only with the consent of the Secretary, to be treated as a private foundation for purposes of this title (other than section 4940, relating to excise tax based on investment income).
(7) Definitions and special rules 
For purposes of this subsection
(A) Basic research 
The term basic research means any original investigation for the advancement of scientific knowledge not having a specific commercial objective, except that such term shall not include
(i) basic research conducted outside of the United States, and
(ii) basic research in the social sciences, arts, or humanities.
(B) Base period 
The term base period means the 3-taxable-year period ending with the taxable year immediately preceding the 1st taxable year of the taxpayer beginning after December 31, 1983.
(C) Exclusion from incremental credit calculation 
For purposes of determining the amount of credit allowable under subsection (a)(1) for any taxable year, the amount of the basic research payments taken into account under subsection (a)(2)
(i) shall not be treated as qualified research expenses under subsection (a)(1)(A), and
(ii) shall not be included in the computation of base amount under subsection (a)(1)(B).
(D) Trade or business qualification 
For purposes of applying subsection (b)(1) to this subsection, any basic research payments shall be treated as an amount paid in carrying on a trade or business of the taxpayer in the taxable year in which it is paid (without regard to the provisions of subsection (b)(3)(B)).
(E) Certain corporations not eligible 
The term corporation shall not include
(i) an S corporation,
(ii) a personal holding company (as defined in section 542), or
(iii) a service organization (as defined in section 414 (m)(3)).
(f) Special rules 
For purposes of this section
(1) Aggregation of expenditures 

(A) Controlled group of corporations 
In determining the amount of the credit under this section
(i) all members of the same controlled group of corporations shall be treated as a single taxpayer, and
(ii) the credit (if any) allowable by this section to each such member shall be its proportionate shares of the qualified research expenses, basic research payments, and amounts paid or incurred to energy research consortiums, giving rise to the credit.
(B) Common control 
Under regulations prescribed by the Secretary, in determining the amount of the credit under this section
(i) all trades or businesses (whether or not incorporated) which are under common control shall be treated as a single taxpayer, and
(ii) the credit (if any) allowable by this section to each such person shall be its proportionate shares of the qualified research expenses, basic research payments, and amounts paid or incurred to energy research consortiums, giving rise to the credit.

The regulations prescribed under this subparagraph shall be based on principles similar to the principles which apply in the case of subparagraph (A).

(2) Allocations 

(A) Pass-thru in the case of estates and trusts 
Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
(B) Allocation in the case of partnerships 
In the case of partnerships, the credit shall be allocated among partners under regulations prescribed by the Secretary.
(3) Adjustments for certain acquisitions, etc. 
Under regulations prescribed by the Secretary
(A) Acquisitions 
If, after December 31, 1983, a taxpayer acquires the major portion of a trade or business of another person (hereinafter in this paragraph referred to as the predecessor) or the major portion of a separate unit of a trade or business of a predecessor, then, for purposes of applying this section for any taxable year ending after such acquisition, the amount of qualified research expenses paid or incurred by the taxpayer during periods before such acquisition shall be increased by so much of such expenses paid or incurred by the predecessor with respect to the acquired trade or business as is attributable to the portion of such trade or business or separate unit acquired by the taxpayer, and the gross receipts of the taxpayer for such periods shall be increased by so much of the gross receipts of such predecessor with respect to the acquired trade or business as is attributable to such portion.
(B) Dispositions 
If, after December 31, 1983
(i) a taxpayer disposes of the major portion of any trade or business or the major portion of a separate unit of a trade or business in a transaction to which subparagraph (A) applies, and
(ii) the taxpayer furnished the acquiring person such information as is necessary for the application of subparagraph (A),

then, for purposes of applying this section for any taxable year ending after such disposition, the amount of qualified research expenses paid or incurred by the taxpayer during periods before such disposition shall be decreased by so much of such expenses as is attributable to the portion of such trade or business or separate unit disposed of by the taxpayer, and the gross receipts of the taxpayer for such periods shall be decreased by so much of the gross receipts as is attributable to such portion.

(C) Certain reimbursements taken into account in determining fixed-base percentage 
If during any of the 3 taxable years following the taxable year in which a disposition to which subparagraph (B) applies occurs, the disposing taxpayer (or a person with whom the taxpayer is required to aggregate expenditures under paragraph (1)) reimburses the acquiring person (or a person required to so aggregate expenditures with such person) for research on behalf of the taxpayer, then the amount of qualified research expenses of the taxpayer for the taxable years taken into account in computing the fixed-base percentage shall be increased by the lesser of
(i) the amount of the decrease under subparagraph (B) which is allocable to taxable years so taken into account, or
(ii) the product of the number of taxable years so taken into account, multiplied by the amount of the reimbursement described in this subparagraph.
(4) Short taxable years 
In the case of any short taxable year, qualified research expenses and gross receipts shall be annualized in such circumstances and under such methods as the Secretary may prescribe by regulation.
(5) Controlled group of corporations 
The term controlled group of corporations has the same meaning given to such term by section 1563 (a), except that
(A) more than 50 percent shall be substituted for at least 80 percent each place it appears in section 1563 (a)(1), and
(B) the determination shall be made without regard to subsections (a)(4) and (e)(3)(C) of section 1563.
(6) Energy research consortium 

(A) In general 
The term energy research consortium means any organization
(i) which is
(I) described in section 501 (c)(3) and is exempt from tax under section 501 (a) and is organized and operated primarily to conduct energy research, or
(II) organized and operated primarily to conduct energy research in the public interest (within the meaning of section 501 (c)(3)),
(ii) which is not a private foundation,
(iii) to which at least 5 unrelated persons paid or incurred during the calendar year in which the taxable year of the organization begins amounts (including as contributions) to such organization for energy research, and
(iv) to which no single person paid or incurred (including as contributions) during such calendar year an amount equal to more than 50 percent of the total amounts received by such organization during such calendar year for energy research.
(B) Treatment of persons 
All persons treated as a single employer under subsection (a) or (b) of section 52 shall be treated as related persons for purposes of subparagraph (A)(iii) and as a single person for purposes of subparagraph (A)(iv).
(C) Foreign research 
For purposes of subsection (a)(3), amounts paid or incurred for any energy research conducted outside the United States, the Commonwealth of Puerto Rico, or any possession of the United States shall not be taken into account.
(D) Denial of double benefit 
Any amount taken into account under subsection (a)(3) shall not be taken into account under paragraph (1) or (2) of subsection (a).
(E) Energy research 
The term energy research does not include any research which is not qualified research.
(g) Special rule for pass-thru of credit 
In the case of an individual who
(1) owns an interest in an unincorporated trade or business,
(2) is a partner in a partnership,
(3) is a beneficiary of an estate or trust, or
(4) is a shareholder in an S corporation,

the amount determined under subsection (a) for any taxable year shall not exceed an amount (separately computed with respect to such persons interest in such trade or business or entity) equal to the amount of tax attributable to that portion of a persons taxable income which is allocable or apportionable to the persons interest in such trade or business or entity. If the amount determined under subsection (a) for any taxable year exceeds the limitation of the preceding sentence, such amount may be carried to other taxable years under the rules of section 39; except that the limitation of the preceding sentence shall be taken into account in lieu of the limitation of section 38 (c) in applying section 39.

(h) Termination 

(1) In general 
This section shall not apply to any amount paid or incurred
(A) after June 30, 1995, and before July 1, 1996, or
(B) after December 31, 2007.
(2) Computation of base amount 
In the case of any taxable year with respect to which this section applies to a number of days which is less than the total number of days in such taxable year, the base amount with respect to such taxable year shall be the amount which bears the same ratio to the base amount for such year (determined without regard to this paragraph) as the number of days in such taxable year to which this section applies bears to the total number of days in such taxable year.

26 USC 42 - Low-income housing credit

(a) In general 
For purposes of section 38, the amount of the low-income housing credit determined under this section for any taxable year in the credit period shall be an amount equal to
(1) the applicable percentage of
(2) the qualified basis of each qualified low-income building.
(b) Applicable percentage: 70 percent present value credit for certain new buildings; 30 percent present value credit for certain other buildings 
For purposes of this section
(1) Building placed in service during 1987 
In the case of any qualified low-income building placed in service by the taxpayer during 1987, the term applicable percentage means
(A) 9 percent for new buildings which are not federally subsidized for the taxable year, or
(B) 4 percent for
(i) new buildings which are federally subsidized for the taxable year, and
(ii) existing buildings.
(2) Buildings placed in service after 1987 

(A) In general 
In the case of any qualified low-income building placed in service by the taxpayer after 1987, the term applicable percentage means the appropriate percentage prescribed by the Secretary for the earlier of
(i) the month in which such building is placed in service, or
(ii) at the election of the taxpayer
(I) the month in which the taxpayer and the housing credit agency enter into an agreement with respect to such building (which is binding on such agency, the taxpayer, and all successors in interest) as to the housing credit dollar amount to be allocated to such building, or
(II) in the case of any building to which subsection (h)(4)(B) applies, the month in which the tax-exempt obligations are issued.

A month may be elected under clause (ii) only if the election is made not later than the 5th day after the close of such month. Such an election, once made, shall be irrevocable.

(B) Method of prescribing percentages 
The percentages prescribed by the Secretary for any month shall be percentages which will yield over a 10-year period amounts of credit under subsection (a) which have a present value equal to
(i) 70 percent of the qualified basis of a building described in paragraph (1)(A), and
(ii) 30 percent of the qualified basis of a building described in paragraph (1)(B).
(C) Method of discounting 
The present value under subparagraph (B) shall be determined
(i) as of the last day of the 1st year of the 10-year period referred to in subparagraph (B),
(ii) by using a discount rate equal to 72 percent of the average of the annual Federal mid-term rate and the annual Federal long-term rate applicable under section 1274 (d)(1) to the month applicable under clause (i) or (ii) of subparagraph (A) and compounded annually, and
(iii) by assuming that the credit allowable under this section for any year is received on the last day of such year.
(3) Cross references 

(A) For treatment of certain rehabilitation expenditures as separate new buildings, see subsection (e).
(B) For determination of applicable percentage for increases in qualified basis after the 1st year of the credit period, see subsection (f)(3).
(C) For authority of housing credit agency to limit applicable percentage and qualified basis which may be taken into account under this section with respect to any building, see subsection (h)(7).
(c) Qualified basis; qualified low-income building 
For purposes of this section
(1) Qualified basis 

(A) Determination 
The qualified basis of any qualified low-income building for any taxable year is an amount equal to
(i) the applicable fraction (determined as of the close of such taxable year) of
(ii) the eligible basis of such building (determined under subsection (d)(5)).
(B) Applicable fraction 
For purposes of subparagraph (A), the term applicable fraction means the smaller of the unit fraction or the floor space fraction.
(C) Unit fraction 
For purposes of subparagraph (B), the term unit fraction means the fraction
(i) the numerator of which is the number of low-income units in the building, and
(ii) the denominator of which is the number of residential rental units (whether or not occupied) in such building.
(D) Floor space fraction 
For purposes of subparagraph (B), the term floor space fraction means the fraction
(i) the numerator of which is the total floor space of the low-income units in such building, and
(ii) the denominator of which is the total floor space of the residential rental units (whether or not occupied) in such building.
(E) Qualified basis to include portion of building used to provide supportive services for homeless 
In the case of a qualified low-income building described in subsection (i)(3)(B)(iii), the qualified basis of such building for any taxable year shall be increased by the lesser of
(i) so much of the eligible basis of such building as is used throughout the year to provide supportive services designed to assist tenants in locating and retaining permanent housing, or
(ii) 20 percent of the qualified basis of such building (determined without regard to this subparagraph).
(2) Qualified low-income building 
The term qualified low-income building means any building
(A) which is part of a qualified low-income housing project at all times during the period
(i) beginning on the 1st day in the compliance period on which such building is part of such a project, and
(ii) ending on the last day of the compliance period with respect to such building, and
(B) to which the amendments made by section 201(a) of the Tax Reform Act of 1986 apply. Such term does not include any building with respect to which moderate rehabilitation assistance is provided, at any time during the compliance period, under section 8(e)(2)1 of the United States Housing Act of 1937 (other than assistance under the McKinney-Vento Homeless Assistance Act (as in effect on the date of the enactment of this sentence)).
(d) Eligible basis 
For purposes of this section
(1) New buildings 
The eligible basis of a new building is its adjusted basis as of the close of the 1st taxable year of the credit period.
(2) Existing buildings 

(A) In general 
The eligible basis of an existing building is
(i) in the case of a building which meets the requirements of subparagraph (B), its adjusted basis as of the close of the 1st taxable year of the credit period, and
(ii) zero in any other case.
(B) Requirements 
A building meets the requirements of this subparagraph if
(i) the building is acquired by purchase (as defined in section 179 (d)(2)),
(ii) there is a period of at least 10 years between the date of its acquisition by the taxpayer and the later of
(I) the date the building was last placed in service, or
(II) the date of the most recent nonqualified substantial improvement of the building,
(iii) the building was not previously placed in service by the taxpayer or by any person who was a related person with respect to the taxpayer as of the time previously placed in service, and
(iv) except as provided in subsection (f)(5), a credit is allowable under subsection (a) by reason of subsection (e) with respect to the building.
(C) Adjusted basis 
For purposes of subparagraph (A), the adjusted basis of any building shall not include so much of the basis of such building as is determined by reference to the basis of other property held at any time by the person acquiring the building.
(D) Special rules for subparagraph (B) 

(i) Nonqualified substantial improvement For purposes of subparagraph (B)(ii)
(I) In general The term nonqualified substantial improvement means any substantial improvement if section 167 (k) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) was elected with respect to such improvement or section 168 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) applied to such improvement.
(II) Date of substantial improvement The date of a substantial improvement is the last day of the 24-month period referred to in subclause (III).
(III) Substantial improvement The term substantial improvement means the improvements added to capital account with respect to the building during any 24-month period, but only if the sum of the amounts added to such account during such period equals or exceeds 25 percent of the adjusted basis of the building (determined without regard to paragraphs (2) and (3) of section 1016(a)) as of the 1st day of such period.
(ii) Special rules for certain transfers For purposes of determining under subparagraph (B)(ii) when a building was last placed in service, there shall not be taken into account any placement in service
(I) in connection with the acquisition of the building in a transaction in which the basis of the building in the hands of the person acquiring it is determined in whole or in part by reference to the adjusted basis of such building in the hands of the person from whom acquired,
(II) by a person whose basis in such building is determined under section 1014 (a) (relating to property acquired from a decedent),
(III) by any governmental unit or qualified nonprofit">nonprofit organization (as defined in subsection (h)(5)) if the requirements of subparagraph (B)(ii) are met with respect to the placement in service by such unit or organization and all the income from such property is exempt from Federal income taxation,
(IV) by any person who acquired such building by foreclosure (or by instrument in lieu of foreclosure) of any purchase-money security interest held by such person if the requirements of subparagraph (B)(ii) are met with respect to the placement in service by such person and such building is resold within 12 months after the date such building is placed in service by such person after such foreclosure, or
(V) of a single-family residence by any individual who owned and used such residence for no other purpose than as his principal residence.
(iii) Related person, etc.
(I) Application of section 179 For purposes of subparagraph (B)(i), section 179 (d) shall be applied by substituting 10 percent for 50 percent in section[2] 267(b) and 707(b) and in section 179 (d)(7).
(II) Related person For purposes of subparagraph (B)(iii), a person (hereinafter in this subclause referred to as the related person) is related to any person if the related person bears a relationship to such person specified in section 267 (b) or 707 (b)(1), or the related person and such person are engaged in trades or businesses under common control (within the meaning of subsections (a) and (b) of section 52). For purposes of the preceding sentence, in applying section 267 (b) or 707 (b)(1), 10 percent shall be substituted for 50 percent.
(3) Eligible basis reduced where disproportionate standards for units 

(A) In general 
Except as provided in subparagraph (B), the eligible basis of any building shall be reduced by an amount equal to the portion of the adjusted basis of the building which is attributable to residential rental units in the building which are not low-income units and which are above the average quality standard of the low-income units in the building.
(B) Exception where taxpayer elects to exclude excess costs 

(i) In general Subparagraph (A) shall not apply with respect to a residential rental unit in a building which is not a low-income unit if
(I) the excess described in clause (ii) with respect to such unit is not greater than 15 percent of the cost described in clause (ii)(II), and
(II) the taxpayer elects to exclude from the eligible basis of such building the excess described in clause (ii) with respect to such unit.
(ii) Excess The excess described in this clause with respect to any unit is the excess of
(I) the cost of such unit, over
(II) the amount which would be the cost of such unit if the average cost per square foot of low-income units in the building were substituted for the cost per square foot of such unit.

The Secretary may by regulation provide for the determination of the excess under this clause on a basis other than square foot costs.

(4) Special rules relating to determination of adjusted basis 
For purposes of this subsection
(A) In general 
Except as provided in subparagraphs (B) and (C), the adjusted basis of any building shall be determined without regard to the adjusted basis of any property which is not residential rental property.
(B) Basis of property in common areas, etc., included 
The adjusted basis of any building shall be determined by taking into account the adjusted basis of property (of a character subject to the allowance for depreciation) used in common areas or provided as comparable amenities to all residential rental units in such building.
(C) Inclusion of basis of property used to provide services for certain nontenants 

(i) In general The adjusted basis of any building located in a qualified census tract (as defined in paragraph (5)(C)) shall be determined by taking into account the adjusted basis of property (of a character subject to the allowance for depreciation and not otherwise taken into account) used throughout the taxable year in providing any community service facility.
(ii) Limitation The increase in the adjusted basis of any building which is taken into account by reason of clause (i) shall not exceed 10 percent of the eligible basis of the qualified low-income housing project of which it is a part. For purposes of the preceding sentence, all community service facilities which are part of the same qualified low-income housing project shall be treated as one facility.
(iii) Community service facility For purposes of this subparagraph, the term community service facility means any facility designed to serve primarily individuals whose income is 60 percent or less of area median income (within the meaning of subsection (g)(1)(B)).
(D) No reduction for depreciation 
The adjusted basis of any building shall be determined without regard to paragraphs (2) and (3) of section 1016 (a).
(5) Special rules for determining eligible basis 

(A) Eligible basis reduced by Federal grants 
If, during any taxable year of the compliance period, a grant is made with respect to any building or the operation thereof and any portion of such grant is funded with Federal funds (whether or not includible in gross income), the eligible basis of such building for such taxable year and all succeeding taxable years shall be reduced by the portion of such grant which is so funded.
(B) Eligible basis not to include expenditures where section 167 (k) elected 
The eligible basis of any building shall not include any portion of its adjusted basis which is attributable to amounts with respect to which an election is made under section 167 (k) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990).
(C) Increase in credit for buildings in high cost areas 

(i) In general In the case of any building located in a qualified census tract or difficult development area which is designated for purposes of this subparagraph
(I) in the case of a new building, the eligible basis of such building shall be 130 percent of such basis determined without regard to this subparagraph, and
(II) in the case of an existing building, the rehabilitation expenditures taken into account under subsection (e) shall be 130 percent of such expenditures determined without regard to this subparagraph.
(ii) Qualified census tract
(I) In general The term qualified census tract means any census tract which is designated by the Secretary of Housing and Urban Development and, for the most recent year for which census data are available on household income in such tract, either in which 50 percent or more of the households have an income which is less than 60 percent of the area median gross income for such year or which has a poverty rate of at least 25 percent. If the Secretary of Housing and Urban Development determines that sufficient data for any period are not available to apply this clause on the basis of census tracts, such Secretary shall apply this clause for such period on the basis of enumeration districts.
(II) Limit on MSAs designated The portion of a metropolitan statistical area which may be designated for purposes of this subparagraph shall not exceed an area having 20 percent of the population of such metropolitan statistical area.
(III) Determination of areas For purposes of this clause, each metropolitan statistical area shall be treated as a separate area and all nonmetropolitan areas in a State shall be treated as 1 area.
(iii) Difficult development areas
(I) In general The term difficult development areas means any area designated by the Secretary of Housing and Urban Development as an area which has high construction, land, and utility costs relative to area median gross income.
(II) Limit on areas designated The portions of metropolitan statistical areas which may be designated for purposes of this subparagraph shall not exceed an aggregate area having 20 percent of the population of such metropolitan statistical areas. A comparable rule shall apply to nonmetropolitan areas.
(iv) Special rules and definitions For purposes of this subparagraph
(I) population shall be determined on the basis of the most recent decennial census for which data are available,
(II) area median gross income shall be determined in accordance with subsection (g)(4),
(III) the term metropolitan statistical area has the same meaning as when used in section 143 (k)(2)(B), and
(IV) the term nonmetropolitan area means any county (or portion thereof) which is not within a metropolitan statistical area.
(6) Credit allowable for certain federally-assisted buildings acquired during 10-year period described in paragraph (2)(B)(ii) 

(A) In general 
On application by the taxpayer, the Secretary (after consultation with the appropriate Federal official) may waive paragraph (2)(B)(ii) with respect to any federally-assisted building if the Secretary determines that such waiver is necessary
(i) to avert an assignment of the mortgage secured by property in the project (of which such building is a part) to the Department of Housing and Urban Development or the Farmers Home Administration, or
(ii) to avert a claim against a Federal mortgage insurance fund (or such Department or Administration) with respect to a mortgage which is so secured.

The preceding sentence shall not apply to any building described in paragraph (7)(B).

(B) Federally-assisted building 
For purposes of subparagraph (A), the term federally-assisted building means any building which is substantially assisted, financed, or operated under
(i) section 8 of the United States Housing Act of 1937,
(ii) section 221(d)(3) or 236 of the National Housing Act, or
(iii) section 515 of the Housing Act of 1949,

as such Acts are in effect on the date of the enactment of the Tax Reform Act of 1986.

(C) Low-income buildings where mortgage may be prepaid 
A waiver may be granted under subparagraph (A) (without regard to any clause thereof) with respect to a federally-assisted building described in clause (ii) or (iii) of subparagraph (B) if
(i) the mortgage on such building is eligible for prepayment under subtitle B of the Emergency Low Income Housing Preservation Act of 1987 or under section 502(c) of the Housing Act of 1949 at any time within 1 year after the date of the application for such a waiver,
(ii) the appropriate Federal official certifies to the Secretary that it is reasonable to expect that, if the waiver is not granted, such building will cease complying with its low-income occupancy requirements, and
(iii) the eligibility to prepay such mortgage without the approval of the appropriate Federal official is waived by all persons who are so eligible and such waiver is binding on all successors of such persons.
(D) Buildings acquired from insured depository institutions in default 
A waiver may be granted under subparagraph (A) (without regard to any clause thereof) with respect to any building acquired from an insured depository institution in default (as defined in section 3 of the Federal Deposit Insurance Act) or from a receiver or conservator of such an institution.
(E) Appropriate Federal official 
For purposes of subparagraph (A), the term appropriate Federal official means
(i) the Secretary of Housing and Urban Development in the case of any building described in subparagraph (B) by reason of clause (i) or (ii) thereof, and
(ii) the Secretary of Agriculture in the case of any building described in subparagraph (B) by reason of clause (iii) thereof.
(7) Acquisition of building before end of prior compliance period 

(A) In general 
Under regulations prescribed by the Secretary, in the case of a building described in subparagraph (B) (or interest therein) which is acquired by the taxpayer
(i) paragraph (2)(B) shall not apply, but
(ii) the credit allowable by reason of subsection (a) to the taxpayer for any period after such acquisition shall be equal to the amount of credit which would have been allowable under subsection (a) for such period to the prior owner referred to in subparagraph (B) had such owner not disposed of the building.
(B) Description of building 
A building is described in this subparagraph if
(i) a credit was allowed by reason of subsection (a) to any prior owner of such building, and
(ii) the taxpayer acquired such building before the end of the compliance period for such building with respect to such prior owner (determined without regard to any disposition by such prior owner).
(e) Rehabilitation expenditures treated as separate new building 

(1) In general 
Rehabilitation expenditures paid or incurred by the taxpayer with respect to any building shall be treated for purposes of this section as a separate new building.
(2) Rehabilitation expenditures 
For purposes of paragraph (1)
(A) In general 
The term rehabilitation expenditures means amounts chargeable to capital account and incurred for property (or additions or improvements to property) of a character subject to the allowance for depreciation in connection with the rehabilitation of a building.
(B) Cost of acquisition, etc,3 not included 
Such term does not include the cost of acquiring any building (or interest therein) or any amount not permitted to be taken into account under paragraph (3) or (4) of subsection (d).
(3) Minimum expenditures to qualify 

(A) In general 
Paragraph (1) shall apply to rehabilitation expenditures with respect to any building only if
(i) the expenditures are allocable to 1 or more low-income units or substantially benefit such units, and
(ii) the amount of such expenditures during any 24-month period meets the requirements of whichever of the following subclauses requires the greater amount of such expenditures:
(I) The requirement of this subclause is met if such amount is not less than 10 percent of the adjusted basis of the building (determined as of the 1st day of such period and without regard to paragraphs (2) and (3) of section 1016 (a)).
(II) The requirement of this subclause is met if the qualified basis attributable to such amount, when divided by the number of low-income units in the building, is $3,000 or more.
(B) Exception from 10 percent rehabilitation 
In the case of a building acquired by the taxpayer from a governmental unit, at the election of the taxpayer, subparagraph (A)(ii)(I) shall not apply and the credit under this section for such rehabilitation expenditures shall be determined using the percentage applicable under subsection (b)(2)(B)(ii).
(C) Date of determination 
The determination under subparagraph (A) shall be made as of the close of the 1st taxable year in the credit period with respect to such expenditures.
(4) Special rules 
For purposes of applying this section with respect to expenditures which are treated as a separate building by reason of this subsection
(A) such expenditures shall be treated as placed in service at the close of the 24-month period referred to in paragraph (3)(A), and
(B) the applicable fraction under subsection (c)(1) shall be the applicable fraction for the building (without regard to paragraph (1)) with respect to which the expenditures were incurred.

Nothing in subsection (d)(2) shall prevent a credit from being allowed by reason of this subsection.

(5) No double counting 
Rehabilitation expenditures may, at the election of the taxpayer, be taken into account under this subsection or subsection (d)(2)(A)(i) but not under both such subsections.
(6) Regulations to apply subsection with respect to group of units in building 
The Secretary may prescribe regulations, consistent with the purposes of this subsection, treating a group of units with respect to which rehabilitation expenditures are incurred as a separate new building.
(f) Definition and special rules relating to credit period 

(1) Credit period defined 
For purposes of this section, the term credit period means, with respect to any building, the period of 10 taxable years beginning with
(A) the taxable year in which the building is placed in service, or
(B) at the election of the taxpayer, the succeeding taxable year,

but only if the building is a qualified low-income building as of the close of the 1st year of such period. The election under subparagraph (B), once made, shall be irrevocable.

(2) Special rule for 1st year of credit period 

(A) In general 
The credit allowable under subsection (a) with respect to any building for the 1st taxable year of the credit period shall be determined by substituting for the applicable fraction under subsection (c)(1) the fraction
(i) the numerator of which is the sum of the applicable fractions determined under subsection (c)(1) as of the close of each full month of such year during which such building was in service, and
(ii) the denominator of which is 12.
(B) Disallowed 1st year credit allowed in 11th year 
Any reduction by reason of subparagraph (A) in the credit allowable (without regard to subparagraph (A)) for the 1st taxable year of the credit period shall be allowable under subsection (a) for the 1st taxable year following the credit period.
(3) Determination of applicable percentage with respect to increases in qualified basis after 1st year of credit period 

(A) In general 
In the case of any building which was a qualified low-income building as of the close of the 1st year of the credit period, if
(i) as of the close of any taxable year in the compliance period (after the 1st year of the credit period) the qualified basis of such building exceeds
(ii) the qualified basis of such building as of the close of the 1st year of the credit period,

the applicable percentage which shall apply under subsection (a) for the taxable year to such excess shall be the percentage equal to 2/3 of the applicable percentage which (after the application of subsection (h)) would but for this paragraph apply to such basis.

(B) 1st year computation applies 
A rule similar to the rule of paragraph (2)(A) shall apply to any increase in qualified basis to which subparagraph (A) applies for the 1st year of such increase.
(4) Dispositions of property 
If a building (or an interest therein) is disposed of during any year for which credit is allowable under subsection (a), such credit shall be allocated between the parties on the basis of the number of days during such year the building (or interest) was held by each. In any such case, proper adjustments shall be made in the application of subsection (j).
(5) Credit period for existing buildings not to begin before rehabilitation credit allowed 

(A) In general 
The credit period for an existing building shall not begin before the 1st taxable year of the credit period for rehabilitation expenditures with respect to the building.
(B) Acquisition credit allowed for certain buildings not allowed a rehabilitation credit 

(i) In general In the case of a building described in clause (ii)
(I) subsection (d)(2)(B)(iv) shall not apply, and
(II) the credit period for such building shall not begin before the taxable year which would be the 1st taxable year of the credit period for rehabilitation expenditures with respect to the building under the modifications described in clause (ii)(II).
(ii) Building described A building is described in this clause if
(I) a waiver is granted under subsection (d)(6)(C) with respect to the acquisition of the building, and
(II) a credit would be allowed for rehabilitation expenditures with respect to such building if subsection (e)(3)(A)(ii)(I) did not apply and if subsection (e)(3)(A)(ii)(II) were applied by substituting $2,000 for $3,000.
(g) Qualified low-income housing project 
For purposes of this section
(1) In general 
The term qualified low-income housing project means any project for residential rental property if the project meets the requirements of subparagraph (A) or (B) whichever is elected by the taxpayer:
(A) 20–50 test 
The project meets the requirements of this subparagraph if 20 percent or more of the residential units in such project are both rent-restricted and occupied by individuals whose income is 50 percent or less of area median gross income.
(B) 40–60 test 
The project meets the requirements of this subparagraph if 40 percent or more of the residential units in such project are both rent-restricted and occupied by individuals whose income is 60 percent or less of area median gross income.

Any election under this paragraph, once made, shall be irrevocable. For purposes of this paragraph, any property shall not be treated as failing to be residential rental property merely because part of the building in which such property is located is used for purposes other than residential rental purposes.

(2) Rent-restricted units 

(A) In general 
For purposes of paragraph (1), a residential unit is rent-restricted if the gross rent with respect to such unit does not exceed 30 percent of the imputed income limitation applicable to such unit. For purposes of the preceding sentence, the amount of the income limitation under paragraph (1) applicable for any period shall not be less than such limitation applicable for the earliest period the building (which contains the unit) was included in the determination of whether the project is a qualified low-income housing project.
(B) Gross rent 
For purposes of subparagraph (A), gross rent
(i) does not include any payment under section 8 of the United States Housing Act of 1937 or any comparable rental assistance program (with respect to such unit or occupants thereof),
(ii) includes any utility allowance determined by the Secretary after taking into account such determinations under section 8 of the United States Housing Act of 1937,
(iii) does not include any fee for a supportive service which is paid to the owner of the unit (on the basis of the low-income status of the tenant of the unit) by any governmental program of assistance (or by an organization described in section 501 (c)(3) and exempt from tax under section 501 (a)) if such program (or organization) provides assistance for rent and the amount of assistance provided for rent is not separable from the amount of assistance provided for supportive services, and
(iv) does not include any rental payment to the owner of the unit to the extent such owner pays an equivalent amount to the Farmers Home Administration under section 515 of the Housing Act of 1949.

For purposes of clause (iii), the term supportive service means any service provided under a planned program of services designed to enable residents of a residential rental property to remain independent and avoid placement in a hospital, nursing home, or intermediate care facility for the mentally or physically handicapped. In the case of a single-room occupancy unit or a building described in subsection (i)(3)(B)(iii), such term includes any service provided to assist tenants in locating and retaining permanent housing.

(C) Imputed income limitation applicable to unit 
For purposes of this paragraph, the imputed income limitation applicable to a unit is the income limitation which would apply under paragraph (1) to individuals occupying the unit if the number of individuals occupying the unit were as follows:
(i) In the case of a unit which does not have a separate bedroom, 1 individual.
(ii) In the case of a unit which has 1 or more separate bedrooms, 1.5 individuals for each separate bedroom.

In the case of a project with respect to which a credit is allowable by reason of this section and for which financing is provided by a bond described in section 142 (a)(7), the imputed income limitation shall apply in lieu of the otherwise applicable income limitation for purposes of applying section 142 (d)(4)(B)(ii).

(D) Treatment of units occupied by individuals whose incomes rise above limit 

(i) In general Except as provided in clause (ii), notwithstanding an increase in the income of the occupants of a low-income unit above the income limitation applicable under paragraph (1), such unit shall continue to be treated as a low-income unit if the income of such occupants initially met such income limitation and such unit continues to be rent-restricted.
(ii) Next available unit must be rented to low-income tenant if income rises above 140 percent of income limit If the income of the occupants of the unit increases above 140 percent of the income limitation applicable under paragraph (1), clause (i) shall cease to apply to such unit if any residential rental unit in the building (of a size comparable to, or smaller than, such unit) is occupied by a new resident whose income exceeds such income limitation. In the case of a project described in section 142 (d)(4)(B), the preceding sentence shall be applied by substituting 170 percent for 140 percent and by substituting any low-income unit in the building is occupied by a new resident whose income exceeds 40 percent of area median gross income for any residential unit in the building (of a size comparable to, or smaller than, such unit) is occupied by a new resident whose income exceeds such income limitation.
(E) Units where Federal rental assistance is reduced as tenant’s income increases 
If the gross rent with respect to a residential unit exceeds the limitation under subparagraph (A) by reason of the fact that the income of the occupants thereof exceeds the income limitation applicable under paragraph (1), such unit shall, nevertheless, be treated as a rent-restricted unit for purposes of paragraph (1) if
(i) a Federal rental assistance payment described in subparagraph (B)(i) is made with respect to such unit or its occupants, and
(ii) the sum of such payment and the gross rent with respect to such unit does not exceed the sum of the amount of such payment which would be made and the gross rent which would be payable with respect to such unit if
(I) the income of the occupants thereof did not exceed the income limitation applicable under paragraph (1), and
(II) such units were rent-restricted within the meaning of subparagraph (A).

The preceding sentence shall apply to any unit only if the result described in clause (ii) is required by Federal statute as of the date of the enactment of this subparagraph and as of the date the Federal rental assistance payment is made.

(3) Date for meeting requirements 

(A) In general 
Except as otherwise provided in this paragraph, a building shall be treated as a qualified low-income building only if the project (of which such building is a part) meets the requirements of paragraph (1) not later than the close of the 1st year of the credit period for such building.
(B) Buildings which rely on later buildings for qualification 

(i) In general In determining whether a building (hereinafter in this subparagraph referred to as the prior building) is a qualified low-income building, the taxpayer may take into account 1 or more additional buildings placed in service during the 12-month period described in subparagraph (A) with respect to the prior building only if the taxpayer elects to apply clause (ii) with respect to each additional building taken into account.
(ii) Treatment of elected buildings In the case of a building which the taxpayer elects to take into account under clause (i), the period under subparagraph (A) for such building shall end at the close of the 12-month period applicable to the prior building.
(iii) Date prior building is treated as placed in service For purposes of determining the credit period and the compliance period for the prior building, the prior building shall be treated for purposes of this section as placed in service on the most recent date any additional building elected by the taxpayer (with respect to such prior building) was placed in service.
(C) Special rule 
A building
(i) other than the 1st building placed in service as part of a project, and
(ii) other than a building which is placed in service during the 12-month period described in subparagraph (A) with respect to a prior building which becomes a qualified low-income building,

shall in no event be treated as a qualified low-income building unless the project is a qualified low-income housing project (without regard to such building) on the date such building is placed in service.

(D) Projects with more than 1 building must be identified 
For purposes of this section, a project shall be treated as consisting of only 1 building unless, before the close of the 1st calendar year in the project period (as defined in subsection (h)(1)(F)(ii)), each building which is (or will be) part of such project is identified in such form and manner as the Secretary may provide.
(4) Certain rules made applicable 
Paragraphs (2) (other than subparagraph (A) thereof), (3), (4), (5), (6), and (7) of section 142 (d), and section 6652 (j), shall apply for purposes of determining whether any project is a qualified low-income housing project and whether any unit is a low-income unit; except that, in applying such provisions for such purposes, the term gross rent shall have the meaning given such term by paragraph (2)(B) of this subsection.
(5) Election to treat building after compliance period as not part of a project 
For purposes of this section, the taxpayer may elect to treat any building as not part of a qualified low-income housing project for any period beginning after the compliance period for such building.
(6) Special rule where de minimis equity contribution 
Property shall not be treated as failing to be residential rental property for purposes of this section merely because the occupant of a residential unit in the project pays (on a voluntary basis) to the lessor a de minimis amount to be held toward the purchase by such occupant of a residential unit in such project if
(A) all amounts so paid are refunded to the occupant on the cessation of his occupancy of a unit in the project, and
(B) the purchase of the unit is not permitted until after the close of the compliance period with respect to the building in which the unit is located.

Any amount paid to the lessor as described in the preceding sentence shall be included in gross rent under paragraph (2) for purposes of determining whether the unit is rent-restricted.

(7) Scattered site projects 
Buildings which would (but for their lack of proximity) be treated as a project for purposes of this section shall be so treated if all of the dwelling units in each of the buildings are rent-restricted (within the meaning of paragraph (2)) residential rental units.
(8) Waiver of certain de minimis errors and recertifications 
On application by the taxpayer, the Secretary may waive
(A) any recapture under subsection (j) in the case of any de minimis error in complying with paragraph (1), or
(B) any annual recertification of tenant income for purposes of this subsection, if the entire building is occupied by low-income tenants.
(h) Limitation on aggregate credit allowable with respect to projects located in a State 

(1) Credit may not exceed credit amount allocated to building 

(A) In general 
The amount of the credit determined under this section for any taxable year with respect to any building shall not exceed the housing credit dollar amount allocated to such building under this subsection.
(B) Time for making allocation 
Except in the case of an allocation which meets the requirements of subparagraph (C), (D), (E), or (F), an allocation shall be taken into account under subparagraph (A) only if it is made not later than the close of the calendar year in which the building is placed in service.
(C) Exception where binding commitment 
An allocation meets the requirements of this subparagraph if there is a binding commitment (not later than the close of the calendar year in which the building is placed in service) by the housing credit agency to allocate a specified housing credit dollar amount to such building beginning in a specified later taxable year.
(D) Exception where increase in qualified basis 

(i) In general An allocation meets the requirements of this subparagraph if such allocation is made not later than the close of the calendar year in which ends the taxable year to which it will 1st apply but only to the extent the amount of such allocation does not exceed the limitation under clause (ii).
(ii) Limitation The limitation under this clause is the amount of credit allowable under this section (without regard to this subsection) for a taxable year with respect to an increase in the qualified basis of the building equal to the excess of
(I) the qualified basis of such building as of the close of the 1st taxable year to which such allocation will apply, over
(II) the qualified basis of such building as of the close of the 1st taxable year to which the most recent prior housing credit allocation with respect to such building applied.
(iii) Housing credit dollar amount reduced by full allocation Notwithstanding clause (i), the full amount of the allocation shall be taken into account under paragraph (2).
(E) Exception where 10 percent of cost incurred 

(i) In general An allocation meets the requirements of this subparagraph if such allocation is made with respect to a qualified building which is placed in service not later than the close of the second calendar year following the calendar year in which the allocation is made.
(ii) Qualified building For purposes of clause (i), the term qualified building means any building which is part of a project if the taxpayers basis in such project (as of the later of the date which is 6 months after the date that the allocation was made or the close of the calendar year in which the allocation is made) is more than 10 percent of the taxpayers reasonably expected basis in such project (as of the close of the second calendar year referred to in clause (i)). Such term does not include any existing building unless a credit is allowable under subsection (e) for rehabilitation expenditures paid or incurred by the taxpayer with respect to such building for a taxable year ending during the second calendar year referred to in clause (i) or the prior taxable year.
(F) Allocation of credit on a project basis 

(i) In general In the case of a project which includes (or will include) more than 1 building, an allocation meets the requirements of this subparagraph if
(I) the allocation is made to the project for a calendar year during the project period,
(II) the allocation only applies to buildings placed in service during or after the calendar year for which the allocation is made, and
(III) the portion of such allocation which is allocated to any building in such project is specified not later than the close of the calendar year in which the building is placed in service.
(ii) Project period For purposes of clause (i), the term project period means the period
(I) beginning with the 1st calendar year for which an allocation may be made for the 1st building placed in service as part of such project, and
(II) ending with the calendar year the last building is placed in service as part of such project.
(2) Allocated credit amount to apply to all taxable years ending during or after credit allocation year 
Any housing credit dollar amount allocated to any building for any calendar year
(A) shall apply to such building for all taxable years in the compliance period ending during or after such calendar year, and
(B) shall reduce the aggregate housing credit dollar amount of the allocating agency only for such calendar year.
(3) Housing credit dollar amount for agencies 

(A) In general 
The aggregate housing credit dollar amount which a housing credit agency may allocate for any calendar year is the portion of the State housing credit ceiling allocated under this paragraph for such calendar year to such agency.
(B) State ceiling initially allocated to State housing credit agencies 
Except as provided in subparagraphs (D) and (E), the State housing credit ceiling for each calendar year shall be allocated to the housing credit agency of such State. If there is more than 1 housing credit agency of a State, all such agencies shall be treated as a single agency.
(C) State housing credit ceiling 
The State housing credit ceiling applicable to any State for any calendar year shall be an amount equal to the sum of
(i) the unused State housing credit ceiling (if any) of such State for the preceding calendar year,
(ii) the greater of
(I) $1.75 ($1.50 for 2001) multiplied by the State population, or
(II) $2,000,000,
(iii) the amount of State housing credit ceiling returned in the calendar year, plus
(iv) the amount (if any) allocated under subparagraph (D) to such State by the Secretary.

For purposes of clause (i), the unused State housing credit ceiling for any calendar year is the excess (if any) of the sum of the amounts described in clauses (ii) through (iv) over the aggregate housing credit dollar amount allocated for such year. For purposes of clause (iii), the amount of State housing credit ceiling returned in the calendar year equals the housing credit dollar amount previously allocated within the State to any project which fails to meet the 10 percent test under paragraph (1)(E)(ii) on a date after the close of the calendar year in which the allocation was made or which does not become a qualified low-income housing project within the period required by this section or the terms of the allocation or to any project with respect to which an allocation is cancelled by mutual consent of the housing credit agency and the allocation recipient.

(D) Unused housing credit carryovers allocated among certain States 

(i) In general The unused housing credit carryover of a State for any calendar year shall be assigned to the Secretary for allocation among qualified States for the succeeding calendar year.
(ii) Unused housing credit carryover For purposes of this subparagraph, the unused housing credit carryover of a State for any calendar year is the excess (if any) of
(I) the unused State housing credit ceiling for the year preceding such year, over
(II) the aggregate housing credit dollar amount allocated for such year.
(iii) Formula for allocation of unused housing credit carryovers among qualified States The amount allocated under this subparagraph to a qualified State for any calendar year shall be the amount determined by the Secretary to bear the same ratio to the aggregate unused housing credit carryovers of all States for the preceding calendar year as such States population for the calendar year bears to the population of all qualified States for the calendar year. For purposes of the preceding sentence, population shall be determined in accordance with section 146 (j).
(iv) Qualified State For purposes of this subparagraph, the term qualified State means, with respect to a calendar year, any State
(I) which allocated its entire State housing credit ceiling for the preceding calendar year, and
(II) for which a request is made (not later than May 1 of the calendar year) to receive an allocation under clause (iii).
(E) Special rule for States with constitutional home rule cities 
For purposes of this subsection
(i) In general The aggregate housing credit dollar amount for any constitutional home rule city for any calendar year shall be an amount which bears the same ratio to the State housing credit ceiling for such calendar year as
(I) the population of such city, bears to
(II) the population of the entire State.
(ii) Coordination with other allocations In the case of any State which contains 1 or more constitutional home rule cities, for purposes of applying this paragraph with respect to housing credit agencies in such State other than constitutional home rule cities, the State housing credit ceiling for any calendar year shall be reduced by the aggregate housing credit dollar amounts determined for such year for all constitutional home rule cities in such State.
(iii) Constitutional home rule city For purposes of this paragraph, the term constitutional home rule city has the meaning given such term by section 146 (d)(3)(C).
(F) State may provide for different allocation 
Rules similar to the rules of section 146 (e) (other than paragraph (2)(B) thereof) shall apply for purposes of this paragraph.
(G) Population 
For purposes of this paragraph, population shall be determined in accordance with section 146 (j).
(H) Cost-of-living adjustment 

(i) In general In the case of a calendar year after 2002, the $2,000,000 and $1.75 amounts in subparagraph (C) shall each be increased by an amount equal to
(I) such dollar amount, multiplied by
(II) the cost-of-living adjustment determined under section 1 (f)(3) for such calendar year by substituting calendar year 2001 for calendar year 1992 in subparagraph (B) thereof.
(ii) Rounding
(I) In the case of the $2,000,000 amount, any increase under clause (i) which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.
(II) In the case of the $1.75 amount, any increase under clause (i) which is not a multiple of 5 cents shall be rounded to the next lowest multiple of 5 cents.
(4) Credit for buildings financed by tax-exempt bonds subject to volume cap not taken into account 

(A) In general 
Paragraph (1) shall not apply to the portion of any credit allowable under subsection (a) which is attributable to eligible basis financed by any obligation the interest on which is exempt from tax under section 103 if
(i) such obligation is taken into account under section 146, and
(ii) principal payments on such financing are applied within a reasonable period to redeem obligations the proceeds of which were used to provide such financing.
(B) Special rule where 50 percent or more of building is financed with tax-exempt bonds subject to volume cap 
For purposes of subparagraph (A), if 50 percent or more of the aggregate basis of any building and the land on which the building is located is financed by any obligation described in subparagraph (A), paragraph (1) shall not apply to any portion of the credit allowable under subsection (a) with respect to such building.
(5) Portion of State ceiling set-aside for certain projects involving qualified nonprofit">nonprofit organizations 

(A) In general 
Not more than 90 percent of the State housing credit ceiling for any State for any calendar year shall be allocated to projects other than qualified low-income housing projects described in subparagraph (B).
(B) Projects involving qualified nonprofit">nonprofit organizations 
For purposes of subparagraph (A), a qualified low-income housing project is described in this subparagraph if a qualified nonprofit">nonprofit organization is to own an interest in the project (directly or through a partnership) and materially participate (within the meaning of section 469 (h)) in the development and operation of the project throughout the compliance period.
(C) Qualified nonprofit">nonprofit organization 
For purposes of this paragraph, the term qualified nonprofit">nonprofit organization means any organization if
(i) such organization is described in paragraph (3) or (4) of section 501 (c) and is exempt from tax under section 501 (a),
(ii) such organization is determined by the State housing credit agency not to be affiliated with or controlled by a for-profit organization;[4] and
(iii) 1 of the exempt purposes of such organization includes the fostering of low-income housing.
(D) Treatment of certain subsidiaries 

(i) In general For purposes of this paragraph, a qualified nonprofit">nonprofit organization shall be treated as satisfying the ownership and material participation test of subparagraph (B) if any qualified corporation in which such organization holds stock satisfies such test.
(ii) Qualified corporation For purposes of clause (i), the term qualified corporation means any corporation if 100 percent of the stock of such corporation is held by 1 or more qualified nonprofit">nonprofit organizations at all times during the period such corporation is in existence.
(E) State may not override set-aside 
Nothing in subparagraph (F) of paragraph (3) shall be construed to permit a State not to comply with subparagraph (A) of this paragraph.
(6) Buildings eligible for credit only if minimum long-term commitment to low-income housing 

(A) In general 
No credit shall be allowed by reason of this section with respect to any building for the taxable year unless an extended low-income housing commitment is in effect as of the end of such taxable year.
(B) Extended low-income housing commitment 
For purposes of this paragraph, the term extended low-income housing commitment means any agreement between the taxpayer and the housing credit agency
(i) which requires that the applicable fraction (as defined in subsection (c)(1)) for the building for each taxable year in the extended use period will not be less than the applicable fraction specified in such agreement and which prohibits the actions described in subclauses (I) and (II) of subparagraph (E)(ii),
(ii) which allows individuals who meet the income limitation applicable to the building under subsection (g) (whether prospective, present, or former occupants of the building) the right to enforce in any State court the requirement and prohibitions of clause (i),
(iii) which prohibits the disposition to any person of any portion of the building to which such agreement applies unless all of the building to which such agreement applies is disposed of to such person,
(iv) which prohibits the refusal to lease to a holder of a voucher or certificate of eligibility under section 8 of the United States Housing Act of 1937 because of the status of the prospective tenant as such a holder,
(v) which is binding on all successors of the taxpayer, and
(vi) which, with respect to the property, is recorded pursuant to State law as a restrictive covenant.
(C) Allocation of credit may not exceed amount necessary to support commitment 

(i) In general The housing credit dollar amount allocated to any building may not exceed the amount necessary to support the applicable fraction specified in the extended low-income housing commitment for such building, including any increase in such fraction pursuant to the application of subsection (f)(3) if such increase is reflected in an amended low-income housing commitment.
(ii) Buildings financed by tax-exempt bonds If paragraph (4) applies to any building the amount of credit allowed in any taxable year may not exceed the amount necessary to support the applicable fraction specified in the extended low-income housing commitment for such building. Such commitment may be amended to increase such fraction.
(D) Extended use period 
For purposes of this paragraph, the term extended use period means the period
(i) beginning on the 1st day in the compliance period on which such building is part of a qualified low-income housing project, and
(ii) ending on the later of
(I) the date specified by such agency in such agreement, or
(II) the date which is 15 years after the close of the compliance period.
(E) Exceptions if foreclosure or if no buyer willing to maintain low-income status 

(i) In general The extended use period for any building shall terminate
(I) on the date the building is acquired by foreclosure (or instrument in lieu of foreclosure) unless the Secretary determines that such acquisition is part of an arrangement with the taxpayer a purpose of which is to terminate such period, or
(II) on the last day of the period specified in subparagraph (I) if the housing credit agency is unable to present during such period a qualified contract for the acquisition of the low-income portion of the building by any person who will continue to operate such portion as a qualified low-income building.

Subclause (II) shall not apply to the extent more stringent requirements are provided in the agreement or in State law.

(ii) Eviction, etc. of existing low-income tenants not permitted The termination of an extended use period under clause (i) shall not be construed to permit before the close of the 3-year period following such termination
(I) the eviction or the termination of tenancy (other than for good cause) of an existing tenant of any low-income unit, or
(II) any increase in the gross rent with respect to such unit not otherwise permitted under this section.
(F) Qualified contract 
For purposes of subparagraph (E), the term qualified contract means a bona fide contract to acquire (within a reasonable period after the contract is entered into) the nonlow-income portion of the building for fair market value and the low-income portion of the building for an amount not less than the applicable fraction (specified in the extended low-income housing commitment) of
(i) the sum of
(I) the outstanding indebtedness secured by, or with respect to, the building,
(II) the adjusted investor equity in the building, plus
(III) other capital contributions not reflected in the amounts described in subclause (I) or (II), reduced by
(ii) cash distributions from (or available for distribution from) the project.

The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this paragraph, including regulations to prevent the manipulation of the amount determined under the preceding sentence.

(G) Adjusted investor equity 

(i) In general For purposes of subparagraph (E), the term adjusted investor equity means, with respect to any calendar year, the aggregate amount of cash taxpayers invested with respect to the project increased by the amount equal to
(I) such amount, multiplied by
(II) the cost-of-living adjustment for such calendar year, determined under section 1 (f)(3) by substituting the base calendar year for calendar year 1987.

An amount shall be taken into account as an investment in the project only to the extent there was an obligation to invest such amount as of the beginning of the credit period and to the extent such amount is reflected in the adjusted basis of the project.

(ii) Cost-of-living increases in excess of 5 percent not taken into account Under regulations prescribed by the Secretary, if the CPI for any calendar year (as defined in section 1 (f)(4)) exceeds the CPI for the preceding calendar year by more than 5 percent, the CPI for the base calendar year shall be increased such that such excess shall never be taken into account under clause (i).
(iii) Base calendar year For purposes of this subparagraph, the term base calendar year means the calendar year with or within which the 1st taxable year of the credit period ends.
(H) Low-income portion 
For purposes of this paragraph, the low-income portion of a building is the portion of such building equal to the applicable fraction specified in the extended low-income housing commitment for the building.
(I) Period for finding buyer 
The period referred to in this subparagraph is the 1-year period beginning on the date (after the 14th year of the compliance period) the taxpayer submits a written request to the housing credit agency to find a person to acquire the taxpayers interest in the low-income portion of the building.
(J) Effect of noncompliance 
If, during a taxable year, there is a determination that an extended low-income housing agreement was not in effect as of the beginning of such year, such determination shall not apply to any period before such year and subparagraph (A) shall be applied without regard to such determination if the failure is corrected within 1 year from the date of the determination.
(K) Projects which consist of more than 1 building 
The application of this paragraph to projects which consist of more than 1 building shall be made under regulations prescribed by the Secretary.
(7) Special rules 

(A) Building must be located within jurisdiction of credit agency 
A housing credit agency may allocate its aggregate housing credit dollar amount only to buildings located in the jurisdiction of the governmental unit of which such agency is a part.
(B) Agency allocations in excess of limit 
If the aggregate housing credit dollar amounts allocated by a housing credit agency for any calendar year exceed the portion of the State housing credit ceiling allocated to such agency for such calendar year, the housing credit dollar amounts so allocated shall be reduced (to the extent of such excess) for buildings in the reverse of the order in which the allocations of such amounts were made.
(C) Credit reduced if allocated credit dollar amount is less than credit which would be allowable without regard to placed in service convention, etc. 

(i) In general The amount of the credit determined under this section with respect to any building shall not exceed the clause (ii) percentage of the amount of the credit which would (but for this subparagraph) be determined under this section with respect to such building.
(ii) Determination of percentage For purposes of clause (i), the clause (ii) percentage with respect to any building is the percentage which
(I) the housing credit dollar amount allocated to such building bears to
(II) the credit amount determined in accordance with clause (iii).
(iii) Determination of credit amount The credit amount determined in accordance with this clause is the amount of the credit which would (but for this subparagraph) be determined under this section with respect to the building if
(I) this section were applied without regard to paragraphs (2)(A) and (3)(B) of subsection (f), and
(II) subsection (f)(3)(A) were applied without regard to the percentage equal to 2/3 of.
(D) Housing credit agency to specify applicable percentage and maximum qualified basis 
In allocating a housing credit dollar amount to any building, the housing credit agency shall specify the applicable percentage and the maximum qualified basis which may be taken into account under this section with respect to such building. The applicable percentage and maximum qualified basis so specified shall not exceed the applicable percentage and qualified basis determined under this section without regard to this subsection.
(8) Other definitions 
For purposes of this subsection
(A) Housing credit agency 
The term housing credit agency means any agency authorized to carry out this subsection.
(B) Possessions treated as States 
The term State includes a possession of the United States.
(i) Definitions and special rules 
For purposes of this section
(1) Compliance period 
The term compliance period means, with respect to any building, the period of 15 taxable years beginning with the 1st taxable year of the credit period with respect thereto.
(2) Determination of whether building is federally subsidized 

(A) In general 
Except as otherwise provided in this paragraph, for purposes of subsection (b)(1), a new building shall be treated as federally subsidized for any taxable year if, at any time during such taxable year or any prior taxable year, there is or was outstanding any obligation the interest on which is exempt from tax under section 103, or any below market Federal loan, the proceeds of which are or were used (directly or indirectly) with respect to such building or the operation thereof.
(B) Election to reduce eligible basis by balance of loan or proceeds of obligations 
A loan or tax-exempt obligation shall not be taken into account under subparagraph (A) if the taxpayer elects to exclude from the eligible basis of the building for purposes of subsection (d)
(i) in the case of a loan, the principal amount of such loan, and
(ii) in the case of a tax-exempt obligation, the proceeds of such obligation.
(C) Special rule for subsidized construction financing 
Subparagraph (A) shall not apply to any tax-exempt obligation or below market Federal loan used to provide construction financing for any building if
(i) such obligation or loan (when issued or made) identified the building for which the proceeds of such obligation or loan would be used, and
(ii) such obligation is redeemed, and such loan is repaid, before such building is placed in service.
(D) Below market Federal loan 
For purposes of this paragraph, the term below market Federal loan means any loan funded in whole or in part with Federal funds if the interest rate payable on such loan is less than the applicable Federal rate in effect under section 1274 (d)(1) (as of the date on which the loan was made). Such term shall not include any loan which would be a below market Federal loan solely by reason of assistance provided under section 106, 107, or 108 of the Housing and Community Development Act of 1974 (as in effect on the date of the enactment of this sentence).
(E) Buildings receiving HOME assistance or Native American housing assistance 

(i) In general Assistance provided under the HOME Investment Partnerships Act (as in effect on the date of the enactment of this subparagraph) or the Native American Housing Assistance and Self-Determination Act of 1996 (25 U.S.C. 4101 et seq.) (as in effect on October 1, 1997) with respect to any building shall not be taken into account under subparagraph (D) if 40 percent or more of the residential units in the building are occupied by individuals whose income is 50 percent or less of area median gross income. Subsection (d)(5)(C) shall not apply to any building to which the preceding sentence applies.
(ii) Special rule for certain high-cost housing areas In the case of a building located in a city described in section 142 (d)(6), clause (i) shall be applied by substituting 25 percent for 40 percent.
(3) Low-income unit 

(A) In general 
The term low-income unit means any unit in a building if
(i) such unit is rent-restricted (as defined in subsection (g)(2)), and
(ii) the individuals occupying such unit meet the income limitation applicable under subsection (g)(1) to the project of which such building is a part.
(B) Exceptions 

(i) In general A unit shall not be treated as a low-income unit unless the unit is suitable for occupancy and used other than on a transient basis.
(ii) Suitability for occupancy For purposes of clause (i), the suitability of a unit for occupancy shall be determined under regulations prescribed by the Secretary taking into account local health, safety, and building codes.
(iii) Transitional housing for homeless For purposes of clause (i), a unit shall be considered to be used other than on a transient basis if the unit contains sleeping accommodations and kitchen and bathroom facilities and is located in a building
(I) which is used exclusively to facilitate the transition of homeless individuals (within the meaning of section 103 of the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11302), as in effect on the date of the enactment of this clause) to independent living within 24 months, and
(II) in which a governmental entity or qualified nonprofit">nonprofit organization (as defined in subsection (h)(5)) provides such individuals with temporary housing and supportive services designed to assist such individuals in locating and retaining permanent housing.
(iv) Single-room occupancy units For purposes of clause (i), a single-room occupancy unit shall not be treated as used on a transient basis merely because it is rented on a month-by-month basis.
(C) Special rule for buildings having 4 or fewer units 
In the case of any building which has 4 or fewer residential rental units, no unit in such building shall be treated as a low-income unit if the units in such building are owned by
(i) any individual who occupies a residential unit in such building, or
(ii) any person who is related (as defined in subsection (d)(2)(D)(iii)) to such individual.
(D) Certain students not to disqualify unit 
A unit shall not fail to be treated as a low-income unit merely because it is occupied
(i) by an individual who is
(I) a student and receiving assistance under title IV of the Social Security Act, or
(II) enrolled in a job training program receiving assistance under the Job Training Partnership Act or under other similar Federal, State, or local laws, or
(ii) entirely by full-time students if such students are
(I) single parents and their children and such parents are not dependents (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof) of another individual and such children are not dependents (as so defined) of another individual other than a parent of such children, or.[5]
(II) married and file a joint return.
(E) Owner-occupied buildings having 4 or fewer units eligible for credit where development plan 

(i) In general Subparagraph (C) shall not apply to the acquisition or rehabilitation of a building pursuant to a development plan of action sponsored by a State or local government or a qualified nonprofit">nonprofit organization (as defined in subsection (h)(5)(C)).
(ii) Limitation on credit In the case of a building to which clause (i) applies, the applicable fraction shall not exceed 80 percent of the unit fraction.
(iii) Certain unrented units treated as owner-occupied In the case of a building to which clause (i) applies, any unit which is not rented for 90 days or more shall be treated as occupied by the owner of the building as of the 1st day it is not rented.
(4) New building 
The term new building means a building the original use of which begins with the taxpayer.
(5) Existing building 
The term existing building means any building which is not a new building.
(6) Application to estates and trusts 
In the case of an estate or trust, the amount of the credit determined under subsection (a) and any increase in tax under subsection (j) shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each.
(7) Impact of tenant’s right of 1st refusal to acquire property 

(A) In general 
No Federal income tax benefit shall fail to be allowable to the taxpayer with respect to any qualified low-income building merely by reason of a right of 1st refusal held by the tenants (in cooperative form or otherwise) or resident management corporation of such building or by a qualified nonprofit">nonprofit organization (as defined in subsection (h)(5)(C)) or government agency to purchase the property after the close of the compliance period for a price which is not less than the minimum purchase price determined under subparagraph (B).
(B) Minimum purchase price 
For purposes of subparagraph (A), the minimum purchase price under this subparagraph is an amount equal to the sum of
(i) the principal amount of outstanding indebtedness secured by the building (other than indebtedness incurred within the 5-year period ending on the date of the sale to the tenants), and
(ii) all Federal, State, and local taxes attributable to such sale.

Except in the case of Federal income taxes, there shall not be taken into account under clause (ii) any additional tax attributable to the application of clause (ii).

(j) Recapture of credit 

(1) In general 
If
(A) as of the close of any taxable year in the compliance period, the amount of the qualified basis of any building with respect to the taxpayer is less than
(B) the amount of such basis as of the close of the preceding taxable year,

then the taxpayers tax under this chapter for the taxable year shall be increased by the credit recapture amount.

(2) Credit recapture amount 
For purposes of paragraph (1), the credit recapture amount is an amount equal to the sum of
(A) the aggregate decrease in the credits allowed to the taxpayer under section 38 for all prior taxable years which would have resulted if the accelerated portion of the credit allowable by reason of this section were not allowed for all prior taxable years with respect to the excess of the amount described in paragraph (1)(B) over the amount described in paragraph (1)(A), plus
(B) interest at the overpayment rate established under section 6621 on the amount determined under subparagraph (A) for each prior taxable year for the period beginning on the due date for filing the return for the prior taxable year involved.

No deduction shall be allowed under this chapter for interest described in subparagraph (B).

(3) Accelerated portion of credit 
For purposes of paragraph (2), the accelerated portion of the credit for the prior taxable years with respect to any amount of basis is the excess of
(A) the aggregate credit allowed by reason of this section (without regard to this subsection) for such years with respect to such basis, over
(B) the aggregate credit which would be allowable by reason of this section for such years with respect to such basis if the aggregate credit which would (but for this subsection) have been allowable for the entire compliance period were allowable ratably over 15 years.
(4) Special rules 

(A) Tax benefit rule 
The tax for the taxable year shall be increased under paragraph (1) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted.
(B) Only basis for which credit allowed taken into account 
Qualified basis shall be taken into account under paragraph (1)(B) only to the extent such basis was taken into account in determining the credit under subsection (a) for the preceding taxable year referred to in such paragraph.
(C) No recapture of additional credit allowable by reason of subsection (f)(3) 
Paragraph (1) shall apply to a decrease in qualified basis only to the extent such decrease exceeds the amount of qualified basis with respect to which a credit was allowable for the taxable year referred to in paragraph (1)(B) by reason of subsection (f)(3).
(D) No credits against tax 
Any increase in tax under this subsection shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under this chapter.
(E) No recapture by reason of casualty loss 
The increase in tax under this subsection shall not apply to a reduction in qualified basis by reason of a casualty loss to the extent such loss is restored by reconstruction or replacement within a reasonable period established by the Secretary.
(F) No recapture where de minimis changes in floor space 
The Secretary may provide that the increase in tax under this subsection shall not apply with respect to any building if
(i) such increase results from a de minimis change in the floor space fraction under subsection (c)(1), and
(ii) the building is a qualified low-income building after such change.
(5) Certain partnerships treated as the taxpayer 

(A) In general 
For purposes of applying this subsection to a partnership to which this paragraph applies
(i) such partnership shall be treated as the taxpayer to which the credit allowable under subsection (a) was allowed,
(ii) the amount of such credit allowed shall be treated as the amount which would have been allowed to the partnership were such credit allowable to such partnership,
(iii) paragraph (4)(A) shall not apply, and
(iv) the amount of the increase in tax under this subsection for any taxable year shall be allocated among the partners of such partnership in the same manner as such partnerships taxable income for such year is allocated among such partners.
(B) Partnerships to which paragraph applies 
This paragraph shall apply to any partnership which has 35 or more partners unless the partnership elects not to have this paragraph apply.
(C) Special rules 

(i) Husband and wife treated as 1 partner For purposes of subparagraph (B)(i), a husband and wife (and their estates) shall be treated as 1 partner.
(ii) Election irrevocable Any election under subparagraph (B), once made, shall be irrevocable.
(6) No recapture on disposition of building (or interest therein) where bond posted 
In the case of a disposition of a building or an interest therein, the taxpayer shall be discharged from liability for any additional tax under this subsection by reason of such disposition if
(A) the taxpayer furnishes to the Secretary a bond in an amount satifactory[6] to the Secretary and for the period required by the Secretary, and
(B) it is reasonably expected that such building will continue to be operated as a qualified low-income building for the remaining compliance period with respect to such building.
(k) Application of at-risk rules 
For purposes of this section
(1) In general 
Except as otherwise provided in this subsection, rules similar to the rules of section 49 (a)(1) (other than subparagraphs (D)(ii)(II) and (D)(iv)(I) thereof), section 49 (a)(2), and section 49 (b)(1) shall apply in determining the qualified basis of any building in the same manner as such sections apply in determining the credit base of property.
(2) Special rules for determining qualified person 
For purposes of paragraph (1)
(A) In general 
If the requirements of subparagraphs (B), (C), and (D) are met with respect to any financing borrowed from a qualified nonprofit">nonprofit organization (as defined in subsection (h)(5)), the determination of whether such financing is qualified commercial financing with respect to any qualified low-income building shall be made without regard to whether such organization
(i) is actively and regularly engaged in the business of lending money, or
(ii) is a person described in section 49 (a)(1)(D)(iv)(II).
(B) Financing secured by property 
The requirements of this subparagraph are met with respect to any financing if such financing is secured by the qualified low-income building, except that this subparagraph shall not apply in the case of a federally assisted building described in subsection (d)(6)(B) if
(i) a security interest in such building is not permitted by a Federal agency holding or insuring the mortgage secured by such building, and
(ii) the proceeds from the financing (if any) are applied to acquire or improve such building..[7]
(C) Portion of building attributable to financing 
The requirements of this subparagraph are met with respect to any financing for any taxable year in the compliance period if, as of the close of such taxable year, not more than 60 percent of the eligible basis of the qualified low-income building is attributable to such financing (reduced by the principal and interest of any governmental financing which is part of a wrap-around mortgage involving such financing).
(D) Repayment of principal and interest 
The requirements of this subparagraph are met with respect to any financing if such financing is fully repaid on or before the earliest of
(i) the date on which such financing matures,
(ii) the 90th day after the close of the compliance period with respect to the qualified low-income building, or
(iii) the date of its refinancing or the sale of the building to which such financing relates.

In the case of a qualified nonprofit">nonprofit organization which is not described in section 49 (a)(1)(D)(iv)(II) with respect to a building, clause (ii) of this subparagraph shall be applied as if the date described therein were the 90th day after the earlier of the date the building ceases to be a qualified low-income building or the date which is 15 years after the close of a compliance period with respect thereto.

(3) Present value of financing 
If the rate of interest on any financing described in paragraph (2)(A) is less than the rate which is 1 percentage point below the applicable Federal rate as of the time such financing is incurred, then the qualified basis (to which such financing relates) of the qualified low-income building shall be the present value of the amount of such financing, using as the discount rate such applicable Federal rate. For purposes of the preceding sentence, the rate of interest on any financing shall be determined by treating interest to the extent of government subsidies as not payable.
(4) Failure to fully repay 

(A) In general 
To the extent that the requirements of paragraph (2)(D) are not met, then the taxpayers tax under this chapter for the taxable year in which such failure occurs shall be increased by an amount equal to the applicable portion of the credit under this section with respect to such building, increased by an amount of interest for the period
(i) beginning with the due date for the filing of the return of tax imposed by chapter 1 for the 1st taxable year for which such credit was allowable, and
(ii) ending with the due date for the taxable year in which such failure occurs,

determined by using the underpayment rate and method under section 6621.

(B) Applicable portion 
For purposes of subparagraph (A), the term applicable portion means the aggregate decrease in the credits allowed to a taxpayer under section 38 for all prior taxable years which would have resulted if the eligible basis of the building were reduced by the amount of financing which does not meet requirements of paragraph (2)(D).
(C) Certain rules to apply 
Rules similar to the rules of subparagraphs (A) and (D) of subsection (j)(4) shall apply for purposes of this subsection.
(l) Certifications and other reports to Secretary 

(1) Certification with respect to 1st year of credit period 
Following the close of the 1st taxable year in the credit period with respect to any qualified low-income building, the taxpayer shall certify to the Secretary (at such time and in such form and in such manner as the Secretary prescribes)
(A) the taxable year, and calendar year, in which such building was placed in service,
(B) the adjusted basis and eligible basis of such building as of the close of the 1st year of the credit period,
(C) the maximum applicable percentage and qualified basis permitted to be taken into account by the appropriate housing credit agency under subsection (h),
(D) the election made under subsection (g) with respect to the qualified low-income housing project of which such building is a part, and
(E) such other information as the Secretary may require.

In the case of a failure to make the certification required by the preceding sentence on the date prescribed therefor, unless it is shown that such failure is due to reasonable cause and not to willful neglect, no credit shall be allowable by reason of subsection (a) with respect to such building for any taxable year ending before such certification is made.

(2) Annual reports to the Secretary 
The Secretary may require taxpayers to submit an information return (at such time and in such form and manner as the Secretary prescribes) for each taxable year setting forth
(A) the qualified basis for the taxable year of each qualified low-income building of the taxpayer,
(B) the information described in paragraph (1)(C) for the taxable year, and
(C) such other information as the Secretary may require.

The penalty under section 6652 (j) shall apply to any failure to submit the return required by the Secretary under the preceding sentence on the date prescribed therefor.

(3) Annual reports from housing credit agencies 
Each agency which allocates any housing credit amount to any building for any calendar year shall submit to the Secretary (at such time and in such manner as the Secretary shall prescribe) an annual report specifying
(A) the amount of housing credit amount allocated to each building for such year,
(B) sufficient information to identify each such building and the taxpayer with respect thereto, and
(C) such other information as the Secretary may require.

The penalty under section 6652 (j) shall apply to any failure to submit the report required by the preceding sentence on the date prescribed therefor.

(m) Responsibilities of housing credit agencies 

(1) Plans for allocation of credit among projects 

(A) In general 
Notwithstanding any other provision of this section, the housing credit dollar amount with respect to any building shall be zero unless
(i) such amount was allocated pursuant to a qualified allocation plan of the housing credit agency which is approved by the governmental unit (in accordance with rules similar to the rules of section 147 (f)(2) (other than subparagraph (B)(ii) thereof)) of which such agency is a part,
(ii) such agency notifies the chief executive officer (or the equivalent) of the local jurisdiction within which the building is located of such project and provides such individual a reasonable opportunity to comment on the project,
(iii) a comprehensive market study of the housing needs of low-income individuals in the area to be served by the project is conducted before the credit allocation is made and at the developers expense by a disinterested party who is approved by such agency, and
(iv) a written explanation is available to the general public for any allocation of a housing credit dollar amount which is not made in accordance with established priorities and selection criteria of the housing credit agency.
(B) Qualified allocation plan 
For purposes of this paragraph, the term qualified allocation plan means any plan
(i) which sets forth selection criteria to be used to determine housing priorities of the housing credit agency which are appropriate to local conditions,
(ii) which also gives preference in allocating housing credit dollar amounts among selected projects to
(I) projects serving the lowest income tenants,
(II) projects obligated to serve qualified tenants for the longest periods, and
(III) projects which are located in qualified census tracts (as defined in subsection (d)(5)(C)) and the development of which contributes to a concerted community revitalization plan, and
(iii) which provides a procedure that the agency (or an agent or other private contractor of such agency) will follow in monitoring for noncompliance with the provisions of this section and in notifying the Internal Revenue Service of such noncompliance which such agency becomes aware of and in monitoring for noncompliance with habitability standards through regular site visits.
(C) Certain selection criteria must be used 
The selection criteria set forth in a qualified allocation plan must include
(i) project location,
(ii) housing needs characteristics,
(iii) project characteristics, including whether the project includes the use of existing housing as part of a community revitalization plan,
(iv) sponsor characteristics,
(v) tenant populations with special housing needs,
(vi) public housing waiting lists,
(vii) tenant populations of individuals with children, and
(viii) projects intended for eventual tenant ownership.
(D) Application to bond financed projects 
Subsection (h)(4) shall not apply to any project unless the project satisfies the requirements for allocation of a housing credit dollar amount under the qualified allocation plan applicable to the area in which the project is located.
(2) Credit allocated to building not to exceed amount necessary to assure project feasibility 

(A) In general 
The housing credit dollar amount allocated to a project shall not exceed the amount the housing credit agency determines is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the credit period.
(B) Agency evaluation 
In making the determination under subparagraph (A), the housing credit agency shall consider
(i) the sources and uses of funds and the total financing planned for the project,
(ii) any proceeds or receipts expected to be generated by reason of tax benefits,
(iii) the percentage of the housing credit dollar amount used for project costs other than the cost of intermediaries, and
(iv) the reasonableness of the developmental and operational costs of the project.

Clause (iii) shall not be applied so as to impede the development of projects in hard-to-develop areas. Such a determination shall not be construed to be a representation or warranty as to the feasibility or viability of the project.

(C) Determination made when credit amount applied for and when building placed in service 

(i) In general A determination under subparagraph (A) shall be made as of each of the following times:
(I) The application for the housing credit dollar amount.
(II) The allocation of the housing credit dollar amount.
(III) The date the building is placed in service.
(ii) Certification as to amount of other subsidies Prior to each determination under clause (i), the taxpayer shall certify to the housing credit agency the full extent of all Federal, State, and local subsidies which apply (or which the taxpayer expects to apply) with respect to the building.
(D) Application to bond financed projects 
Subsection (h)(4) shall not apply to any project unless the governmental unit which issued the bonds (or on behalf of which the bonds were issued) makes a determination under rules similar to the rules of subparagraphs (A) and (B).
(n) Regulations 
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations
(1) dealing with
(A) projects which include more than 1 building or only a portion of a building,
(B) buildings which are placed in service in portions,
(2) providing for the application of this section to short taxable years,
(3) preventing the avoidance of the rules of this section, and
(4) providing the opportunity for housing credit agencies to correct administrative errors and omissions with respect to allocations and record keeping within a reasonable period after their discovery, taking into account the availability of regulations and other administrative guidance from the Secretary.
[1] See References in Text note below.
[2] So in original. Probably should be “sections”.
[3] So in original. Probably should be “etc.,”.
[4] So in original. The semicolon probably should be a comma.
[5] So in original. The period probably should not appear.
[6] So in original. Probably should be “satisfactory”.
[7] So in original.

26 USC 43 - Enhanced oil recovery credit

(a) General rule 
For purposes of section 38, the enhanced oil recovery credit for any taxable year is an amount equal to 15 percent of the taxpayers qualified enhanced oil recovery costs for such taxable year.
(b) Phase-out of credit as crude oil prices increase 

(1) In general 
The amount of the credit determined under subsection (a) for any taxable year shall be reduced by an amount which bears the same ratio to the amount of such credit (determined without regard to this paragraph) as
(A) the amount by which the reference price for the calendar year preceding the calendar year in which the taxable year begins exceeds $28, bears to
(B) $6.
(2) Reference price 
For purposes of this subsection, the term reference price means, with respect to any calendar year, the reference price determined for such calendar year under section 45K (d)(2)(C).
(3) Inflation adjustment 

(A) In general 
In the case of any taxable year beginning in a calendar year after 1991, there shall be substituted for the $28 amount under paragraph (1)(A) an amount equal to the product of
(i) $28, multiplied by
(ii) the inflation adjustment factor for such calendar year.
(B) Inflation adjustment factor 
The term inflation adjustment factor means, with respect to any calendar year, a fraction the numerator of which is the GNP implicit price deflator for the preceding calendar year and the denominator of which is the GNP implicit price deflator for 1990. For purposes of the preceding sentence, the term GNP implicit price deflator means the first revision of the implicit price deflator for the gross national product as computed and published by the Secretary of Commerce. Not later than April 1 of any calendar year, the Secretary shall publish the inflation adjustment factor for the preceding calendar year.
(c) Qualified enhanced oil recovery costs 
For purposes of this section
(1) In general 
The term qualified enhanced oil recovery costs means any of the following:
(A) Any amount paid or incurred during the taxable year for tangible property
(i) which is an integral part of a qualified enhanced oil recovery project, and
(ii) with respect to which depreciation (or amortization in lieu of depreciation) is allowable under this chapter.
(B) Any intangible drilling and development costs
(i) which are paid or incurred in connection with a qualified enhanced oil recovery project, and
(ii) with respect to which the taxpayer may make an election under section 263 (c) for the taxable year.
(C) Any qualified tertiary injectant expenses (as defined in section 193 (b)) which are paid or incurred in connection with a qualified enhanced oil recovery project and for which a deduction is allowable for the taxable year.
(D) Any amount which is paid or incurred during the taxable year to construct a gas treatment plant which
(i) is located in the area of the United States (within the meaning of section 638 (1)) lying north of 64 degrees North latitude,
(ii) prepares Alaska natural gas for transportation through a pipeline with a capacity of at least 2,000,000,000,000 Btu of natural gas per day, and
(iii) produces carbon dioxide which is injected into hydrocarbon-bearing geological formations.
(2) Qualified enhanced oil recovery project 
For purposes of this subsection
(A) In general 
The term qualified enhanced oil recovery project means any project
(i) which involves the application (in accordance with sound engineering principles) of 1 or more tertiary recovery methods (as defined in section 193 (b)(3)) which can reasonably be expected to result in more than an insignificant increase in the amount of crude oil which will ultimately be recovered,
(ii) which is located within the United States (within the meaning of section 638 (1)), and
(iii) with respect to which the first injection of liquids, gases, or other matter commences after December 31, 1990.
(B) Certification 
A project shall not be treated as a qualified enhanced oil recovery project unless the operator submits to the Secretary (at such times and in such manner as the Secretary provides) a certification from a petroleum engineer that the project meets (and continues to meet) the requirements of subparagraph (A).
(3) At-risk limitation 
For purposes of determining qualified enhanced oil recovery costs, rules similar to the rules of section 49 (a)(1), section 49(a)(2), and section 49 (b) shall apply.
(4) Special rule for certain gas displacement projects 
For purposes of this section, immiscible non-hydrocarbon gas displacement shall be treated as a tertiary recovery method under section 193 (b)(3).
(5) Alaska natural gas 
For purposes of paragraph (1)(D)
(A) In general 
The term Alaska natural gas means natural gas entering the Alaska natural gas pipeline (as defined in section 168 (i)(16) (determined without regard to subparagraph (B) thereof)) which is produced from a well
(i) located in the area of the State of Alaska lying north of 64 degrees North latitude, determined by excluding the area of the Alaska National Wildlife Refuge (including the continental shelf thereof within the meaning of section 638 (1)), and
(ii) pursuant to the applicable State and Federal pollution prevention, control, and permit requirements from such area (including the continental shelf thereof within the meaning of section 638 (1)).
(B) Natural gas 
The term natural gas has the meaning given such term by section 613A (e)(2).
(d) Other rules 

(1) Disallowance of deduction 
Any deduction allowable under this chapter for any costs taken into account in computing the amount of the credit determined under subsection (a) shall be reduced by the amount of such credit attributable to such costs.
(2) Basis adjustments 
For purposes of this subtitle, if a credit is determined under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed.
(e) Election to have credit not apply 

(1) In general 
A taxpayer may elect to have this section not apply for any taxable year.
(2) Time for making election 
An election under paragraph (1) for any taxable year may be made (or revoked) at any time before the expiration of the 3-year period beginning on the last date prescribed by law for filing the return for such taxable year (determined without regard to extensions).
(3) Manner of making election 
An election under paragraph (1) (or revocation thereof) shall be made in such manner as the Secretary may by regulations prescribe.

26 USC 44 - Expenditures to provide access to disabled individuals

(a) General rule 
For purposes of section 38, in the case of an eligible small business, the amount of the disabled access credit determined under this section for any taxable year shall be an amount equal to 50 percent of so much of the eligible access expenditures for the taxable year as exceed $250 but do not exceed $10,250.
(b) Eligible small business 
For purposes of this section, the term eligible small business means any person if
(1) either
(A) the gross receipts of such person for the preceding taxable year did not exceed $1,000,000, or
(B) in the case of a person to which subparagraph (A) does not apply, such person employed not more than 30 full-time employees during the preceding taxable year, and
(2) such person elects the application of this section for the taxable year.

For purposes of paragraph (1)(B), an employee shall be considered full-time if such employee is employed at least 30 hours per week for 20 or more calendar weeks in the taxable year.

(c) Eligible access expenditures 
For purposes of this section
(1) In general 
The term eligible access expenditures means amounts paid or incurred by an eligible small business for the purpose of enabling such eligible small business to comply with applicable requirements under the Americans With Disabilities Act of 1990 (as in effect on the date of the enactment of this section).
(2) Certain expenditures included 
The term eligible access expenditures includes amounts paid or incurred
(A) for the purpose of removing architectural, communication, physical, or transportation barriers which prevent a business from being accessible to, or usable by, individuals with disabilities,
(B) to provide qualified interpreters or other effective methods of making aurally delivered materials available to individuals with hearing impairments,
(C) to provide qualified readers, taped texts, and other effective methods of making visually delivered materials available to individuals with visual impairments,
(D) to acquire or modify equipment or devices for individuals with disabilities, or
(E) to provide other similar services, modifications, materials, or equipment.
(3) Expenditures must be reasonable 
Amounts paid or incurred for the purposes described in paragraph (2) shall include only expenditures which are reasonable and shall not include expenditures which are unnecessary to accomplish such purposes.
(4) Expenses in connection with new construction are not eligible 
The term eligible access expenditures shall not include amounts described in paragraph (2)(A) which are paid or incurred in connection with any facility first placed in service after the date of the enactment of this section.
(5) Expenditures must meet standards 
The term eligible access expenditures shall not include any amount unless the taxpayer establishes, to the satisfaction of the Secretary, that the resulting removal of any barrier (or the provision of any services, modifications, materials, or equipment) meets the standards promulgated by the Secretary with the concurrence of the Architectural and Transportation Barriers Compliance Board and set forth in regulations prescribed by the Secretary.
(d) Definition of disability; special rules 
For purposes of this section
(1) Disability 
The term disability has the same meaning as when used in the Americans With Disabilities Act of 1990 (as in effect on the date of the enactment of this section).
(2) Controlled groups 

(A) In general 
All members of the same controlled group of corporations (within the meaning of section 52 (a)) and all persons under common control (within the meaning of section 52 (b)) shall be treated as 1 person for purposes of this section.
(B) Dollar limitation 
The Secretary shall apportion the dollar limitation under subsection (a) among the members of any group described in subparagraph (A) in such manner as the Secretary shall by regulations prescribe.
(3) Partnerships and S corporations 
In the case of a partnership, the limitation under subsection (a) shall apply with respect to the partnership and each partner. A similar rule shall apply in the case of an S corporation and its shareholders.
(4) Short years 
The Secretary shall prescribe such adjustments as may be appropriate for purposes of paragraph (1) of subsection (b) if the preceding taxable year is a taxable year of less than 12 months.
(5) Gross receipts 
Gross receipts for any taxable year shall be reduced by returns and allowances made during such year.
(6) Treatment of predecessors 
The reference to any person in paragraph (1) of subsection (b) shall be treated as including a reference to any predecessor.
(7) Denial of double benefit 
In the case of the amount of the credit determined under this section
(A) no deduction or credit shall be allowed for such amount under any other provision of this chapter, and
(B) no increase in the adjusted basis of any property shall result from such amount.
(e) Regulations 
The Secretary shall prescribe regulations necessary to carry out the purposes of this section.

26 USC 44A - Renumbered 21]

26 USC 44B - Repealed. Pub. L. 98369, div. A, title IV, 474(m)(1), July 18, 1984, 98 Stat. 833]

Section, added Pub. L. 95–30, title II, § 202(a), May 23, 1977, 91 Stat. 141; amended Pub. L. 95–600, title III, § 321(b)(1), Nov. 6, 1978, 92 Stat. 2834; Pub. L. 96–222, title I, § 103(a)(6)(G)(i), (ii), Apr. 1, 1980, 94 Stat. 210, related to credit for employment of certain new employees.

26 USC 44C - Renumbered 23]

26 USC 44D - Renumbered 29]

26 USC 44E - Renumbered 40]

26 USC 44F - Renumbered 30]

26 USC 44G - Renumbered 41]

26 USC 44H - Renumbered 45C]

26 USC 45 - Electricity produced from certain renewable resources, etc.

(a) General rule 
For purposes of section 38, the renewable electricity production credit for any taxable year is an amount equal to the product of
(1) 1.5 cents, multiplied by
(2) the kilowatt hours of electricity
(A) produced by the taxpayer
(i) from qualified energy resources, and
(ii) at a qualified facility during the 10-year period beginning on the date the facility was originally placed in service, and
(B) sold by the taxpayer to an unrelated person during the taxable year.
(b) Limitations and adjustments 

(1) Phaseout of credit 
The amount of the credit determined under subsection (a) shall be reduced by an amount which bears the same ratio to the amount of the credit (determined without regard to this paragraph) as
(A) the amount by which the reference price for the calendar year in which the sale occurs exceeds 8 cents, bears to
(B) 3 cents.
(2) Credit and phaseout adjustment based on inflation 
The 1.5 cent amount in subsection (a), the 8 cent amount in paragraph (1), the $4.375 amount in subsection (e)(8)(A), and in subsection (e)(8)(B)(i) the reference price of fuel used as a feedstock (within the meaning of subsection (c)(7)(A)) in 2002 shall each be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale occurs. If any amount as increased under the preceding sentence is not a multiple of 0.1 cent, such amount shall be rounded to the nearest multiple of 0.1 cent.
(3) Credit reduced for grants, tax-exempt bonds, subsidized energy financing, and other credits 
The amount of the credit determined under subsection (a) with respect to any project for any taxable year (determined after the application of paragraphs (1) and (2)) shall be reduced by the amount which is the product of the amount so determined for such year and the lesser of 1/2 or a fraction
(A) the numerator of which is the sum, for the taxable year and all prior taxable years, of
(i) grants provided by the United States, a State, or a political subdivision of a State for use in connection with the project,
(ii) proceeds of an issue of State or local government obligations used to provide financing for the project the interest on which is exempt from tax under section 103,
(iii) the aggregate amount of subsidized energy financing provided (directly or indirectly) under a Federal, State, or local program provided in connection with the project, and
(iv) the amount of any other credit allowable with respect to any property which is part of the project, and
(B) the denominator of which is the aggregate amount of additions to the capital account for the project for the taxable year and all prior taxable years.

The amounts under the preceding sentence for any taxable year shall be determined as of the close of the taxable year. This paragraph shall not apply with respect to any facility described in subsection (d)(2)(A)(ii).

(4) Credit rate and period for electricity produced and sold from certain facilities 

(A) Credit rate 
In the case of electricity produced and sold in any calendar year after 2003 at any qualified facility described in paragraph (3), (5), (6), (7), or (9) of subsection (d), the amount in effect under subsection (a)(1) for such calendar year (determined before the application of the last sentence of paragraph (2) of this subsection) shall be reduced by one-half.
(B) Credit period 

(i) In general Except as provided in clause (ii) or clause (iii), in the case of any facility described in paragraph (3), (4), (5), (6), or (7) of subsection (d), the 5-year period beginning on the date the facility was originally placed in service shall be substituted for the 10-year period in subsection (a)(2)(A)(ii).
(ii) Certain open-loop biomass facilities In the case of any facility described in subsection (d)(3)(A)(ii) placed in service before the date of the enactment of this paragraph, the 5-year period beginning on January 1, 2005, shall be substituted for the 10-year period in subsection (a)(2)(A)(ii).
(iii) Termination Clause (i) shall not apply to any facility placed in service after the date of the enactment of this clause.
(c) Resources 
For purposes of this section:
(1) In general 
The term qualified energy resources means
(A) wind,
(B) closed-loop biomass,
(C) open-loop biomass,
(D) geothermal energy,
(E) solar energy,
(F) small irrigation power,
(G) municipal solid waste, and
(H) qualified hydropower production.
(2) Closed-loop biomass 
The term closed-loop biomass means any organic material from a plant which is planted exclusively for purposes of being used at a qualified facility to produce electricity.
(3) Open-loop biomass 

(A) In general 
The term open-loop biomass means
(i) any agricultural livestock waste nutrients, or
(ii) any solid, nonhazardous, cellulosic waste material or any lignin material which is derived from
(I) any of the following forest-related resources: mill and harvesting residues, precommercial thinnings, slash, and brush,
(II) solid wood waste materials, including waste pallets, crates, dunnage, manufacturing and construction wood wastes (other than pressure-treated, chemically-treated, or painted wood wastes), and landscape or right-of-way tree trimmings, but not including municipal solid waste, gas derived from the biodegradation of solid waste, or paper which is commonly recycled, or
(III) agriculture sources, including orchard tree crops, vineyard, grain, legumes, sugar, and other crop by-products or residues.

Such term shall not include closed-loop biomass or biomass burned in conjunction with fossil fuel (cofiring) beyond such fossil fuel required for startup and flame stabilization.

(B) Agricultural livestock waste nutrients 

(i) In general The term agricultural livestock waste nutrients means agricultural livestock manure and litter, including wood shavings, straw, rice hulls, and other bedding material for the disposition of manure.
(ii) Agricultural livestock The term agricultural livestock includes bovine, swine, poultry, and sheep.
(4) Geothermal energy 
The term geothermal energy means energy derived from a geothermal deposit (within the meaning of section 613 (e)(2)).
(5) Small irrigation power 
The term small irrigation power means power
(A) generated without any dam or impoundment of water through an irrigation system canal or ditch, and
(B) the nameplate capacity rating of which is not less than 150 kilowatts but is less than 5 megawatts.
(6) Municipal solid waste 
The term municipal solid waste has the meaning given the term solid waste under section 2(27)1 of the Solid Waste Disposal Act (42 U.S.C. 6903).
(7) Refined coal 

(A) In general 
The term refined coal means a fuel which
(i) is a liquid, gaseous, or solid fuel produced from coal (including lignite) or high carbon fly ash, including such fuel used as a feedstock,
(ii) is sold by the taxpayer with the reasonable expectation that it will be used for[2] purpose of producing steam,
(iii) is certified by the taxpayer as resulting (when used in the production of steam) in a qualified emission reduction, and
(iv) is produced in such a manner as to result in an increase of at least 50 percent in the market value of the refined coal (excluding any increase caused by materials combined or added during the production process), as compared to the value of the feedstock coal.
(B) Qualified emission reduction 
The term qualified emission reduction means a reduction of at least 20 percent of the emissions of nitrogen oxide and either sulfur dioxide or mercury released when burning the refined coal (excluding any dilution caused by materials combined or added during the production process), as compared to the emissions released when burning the feedstock coal or comparable coal predominantly available in the marketplace as of January 1, 2003.
(8) Qualified hydropower production 

(A) In general 
The term qualified hydropower production means
(i) in the case of any hydroelectric dam which was placed in service on or before the date of the enactment of this paragraph, the incremental hydropower production for the taxable year, and
(ii) in the case of any nonhydroelectric dam described in subparagraph (C), the hydropower production from the facility for the taxable year.
(B) Determination of incremental hydropower production 

(i) In general For purposes of subparagraph (A), incremental hydropower production for any taxable year shall be equal to the percentage of average annual hydropower production at the facility attributable to the efficiency improvements or additions of capacity placed in service after the date of the enactment of this paragraph, determined by using the same water flow information used to determine an historic average annual hydropower production baseline for such facility. Such percentage and baseline shall be certified by the Federal Energy Regulatory Commission.
(ii) Operational changes disregarded For purposes of clause (i), the determination of incremental hydropower production shall not be based on any operational changes at such facility not directly associated with the efficiency improvements or additions of capacity.
(C) Nonhydroelectric dam 
For purposes of subparagraph (A), a facility is described in this subparagraph if
(i) the facility is licensed by the Federal Energy Regulatory Commission and meets all other applicable environmental, licensing, and regulatory requirements,
(ii) the facility was placed in service before the date of the enactment of this paragraph and did not produce hydroelectric power on the date of the enactment of this paragraph, and
(iii) turbines or other generating devices are to be added to the facility after such date to produce hydroelectric power, but only if there is not any enlargement of the diversion structure, or construction or enlargement of a bypass channel, or the impoundment or any withholding of any additional water from the natural stream channel.
(9) Indian coal 

(A) In general 
The term Indian coal means coal which is produced from coal reserves which, on June 14, 2005
(i) were owned by an Indian tribe, or
(ii) were held in trust by the United States for the benefit of an Indian tribe or its members.
(B) Indian tribe 
For purposes of this paragraph, the term Indian tribe has the meaning given such term by section 7871 (c)(3)(E)(ii).
(d) Qualified facilities 
For purposes of this section:
(1) Wind facility 
In the case of a facility using wind to produce electricity, the term qualified facility means any facility owned by the taxpayer which is originally placed in service after December 31, 1993, and before January 1, 2009.
(2) Closed-loop biomass facility 

(A) In general 
In the case of a facility using closed-loop biomass to produce electricity, the term qualified facility means any facility
(i) owned by the taxpayer which is originally placed in service after December 31, 1992, and before January 1, 2009, or
(ii) owned by the taxpayer which before January 1, 2009, is originally placed in service and modified to use closed-loop biomass to co-fire with coal, with other biomass, or with both, but only if the modification is approved under the Biomass Power for Rural Development Programs or is part of a pilot project of the Commodity Credit Corporation as described in 65 Fed. Reg. 63052.
(B) Special rules 
In the case of a qualified facility described in subparagraph (A)(ii)
(i) the 10-year period referred to in subsection (a) shall be treated as beginning no earlier than the date of the enactment of this clause, and
(ii) if the owner of such facility is not the producer of the electricity, the person eligible for the credit allowable under subsection (a) shall be the lessee or the operator of such facility.
(3) Open-loop biomass facilities 

(A) In general 
In the case of a facility using open-loop biomass to produce electricity, the term qualified facility means any facility owned by the taxpayer which
(i) in the case of a facility using agricultural livestock waste nutrients
(I) is originally placed in service after the date of the enactment of this subclause and before January 1, 2009, and
(II) the nameplate capacity rating of which is not less than 150 kilowatts, and
(ii) in the case of any other facility, is originally placed in service before January 1, 2009.
(B) Credit eligibility 
In the case of any facility described in subparagraph (A), if the owner of such facility is not the producer of the electricity, the person eligible for the credit allowable under subsection (a) shall be the lessee or the operator of such facility.
(4) Geothermal or solar energy facility 
In the case of a facility using geothermal or solar energy to produce electricity, the term qualified facility means any facility owned by the taxpayer which is originally placed in service after the date of the enactment of this paragraph and before January 1, 2009 (January 1, 2006, in the case of a facility using solar energy). Such term shall not include any property described in section 48 (a)(3) the basis of which is taken into account by the taxpayer for purposes of determining the energy credit under section 48.
(5) Small irrigation power facility 
In the case of a facility using small irrigation power to produce electricity, the term qualified facility means any facility owned by the taxpayer which is originally placed in service after the date of the enactment of this paragraph and before January 1, 2009.
(6) Landfill gas facilities 
In the case of a facility producing electricity from gas derived from the biodegradation of municipal solid waste, the term qualified facility means any facility owned by the taxpayer which is originally placed in service after the date of the enactment of this paragraph and before January 1, 2009.
(7) Trash combustion facilities 
In the case of a facility which burns municipal solid waste to produce electricity, the term qualified facility means any facility owned by the taxpayer which is originally placed in service after the date of the enactment of this paragraph and before January 1, 2009. Such term shall include a new unit placed in service in connection with a facility placed in service on or before the date of the enactment of this paragraph, but only to the extent of the increased amount of electricity produced at the facility by reason of such new unit.
(8) Refined coal production facility 
In the case of a facility that produces refined coal, the term refined coal production facility means a facility which is placed in service after the date of the enactment of this paragraph and before January 1, 2009.
(9) Qualified hydropower facility 
In the case of a facility producing qualified hydroelectric production described in subsection (c)(8), the term qualified facility means
(A) in the case of any facility producing incremental hydropower production, such facility but only to the extent of its incremental hydropower production attributable to efficiency improvements or additions to capacity described in subsection (c)(8)(B) placed in service after the date of the enactment of this paragraph and before January 1, 2009, and
(B) any other facility placed in service after the date of the enactment of this paragraph and before January 1, 2009.
(C) Credit period.— 
In the case of a qualified facility described in subparagraph (A), the 10-year period referred to in subsection (a) shall be treated as beginning on the date the efficiency improvements or additions to capacity are placed in service.
(10) Indian coal production facility 
In the case of a facility that produces Indian coal, the term Indian coal production facility means a facility which is placed in service before January 1, 2009.
(e) Definitions and special rules 
For purposes of this section
(1) Only production in the United States taken into account 
Sales shall be taken into account under this section only with respect to electricity the production of which is within
(A) the United States (within the meaning of section 638 (1)), or
(B) a possession of the United States (within the meaning of section 638 (2)).
(2) Computation of inflation adjustment factor and reference price 

(A) In general 
The Secretary shall, not later than April 1 of each calendar year, determine and publish in the Federal Register the inflation adjustment factor and the reference price for such calendar year in accordance with this paragraph.
(B) Inflation adjustment factor 
The term inflation adjustment factor means, with respect to a calendar year, a fraction the numerator of which is the GDP implicit price deflator for the preceding calendar year and the denominator of which is the GDP implicit price deflator for the calendar year 1992. The term GDP implicit price deflator means the most recent revision of the implicit price deflator for the gross domestic product as computed and published by the Department of Commerce before March 15 of the calendar year.
(C) Reference price 
The term reference price means, with respect to a calendar year, the Secretarys determination of the annual average contract price per kilowatt hour of electricity generated from the same qualified energy resource and sold in the previous year in the United States. For purposes of the preceding sentence, only contracts entered into after December 31, 1989, shall be taken into account.
(3) Production attributable to the taxpayer 
In the case of a facility in which more than 1 person has an ownership interest, except to the extent provided in regulations prescribed by the Secretary, production from the facility shall be allocated among such persons in proportion to their respective ownership interests in the gross sales from such facility.
(4) Related persons 
Persons shall be treated as related to each other if such persons would be treated as a single employer under the regulations prescribed under section 52 (b). In the case of a corporation which is a member of an affiliated group of corporations filing a consolidated return, such corporation shall be treated as selling electricity to an unrelated person if such electricity is sold to such a person by another member of such group.
(5) Pass-thru in the case of estates and trusts 
Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
[(6) Repealed. Pub. L. 109–58, title XIII, § 1301(f)(3), Aug. 8, 2005, 119 Stat. 990] 
(7) Credit not to apply to electricity sold to utilities under certain contracts 

(A) In general 
The credit determined under subsection (a) shall not apply to electricity
(i) produced at a qualified facility described in subsection (d)(1) which is originally placed in service after June 30, 1999, and
(ii) sold to a utility pursuant to a contract originally entered into before January 1, 1987 (whether or not amended or restated after that date).
(B) Exception 
Subparagraph (A) shall not apply if
(i) the prices for energy and capacity from such facility are established pursuant to an amendment to the contract referred to in subparagraph (A)(ii),
(ii) such amendment provides that the prices set forth in the contract which exceed avoided cost prices determined at the time of delivery shall apply only to annual quantities of electricity (prorated for partial years) which do not exceed the greater of
(I) the average annual quantity of electricity sold to the utility under the contract during calendar years 1994, 1995, 1996, 1997, and 1998, or
(II) the estimate of the annual electricity production set forth in the contract, or, if there is no such estimate, the greatest annual quantity of electricity sold to the utility under the contract in any of the calendar years 1996, 1997, or 1998, and
(iii) such amendment provides that energy and capacity in excess of the limitation in clause (ii) may be
(I) sold to the utility only at prices that do not exceed avoided cost prices determined at the time of delivery, or
(II) sold to a third party subject to a mutually agreed upon advance notice to the utility.

For purposes of this subparagraph, avoided cost prices shall be determined as provided for in 18 CFR 292.304(d)(1) or any successor regulation.

(8) Refined coal production facilities 

(A) Determination of credit amount 
In the case of a producer of refined coal, the credit determined under this section (without regard to this paragraph) for any taxable year shall be increased by an amount equal to $4.375 per ton of qualified refined coal
(i) produced by the taxpayer at a refined coal production facility during the 10-year period beginning on the date the facility was originally placed in service, and
(ii) sold by the taxpayer
(I) to an unrelated person, and
(II) during such 10-year period and such taxable year.
(B) Phaseout of credit 
The amount of the increase determined under subparagraph (A) shall be reduced by an amount which bears the same ratio to the amount of the increase (determined without regard to this subparagraph) as
(i) the amount by which the reference price of fuel used as a feedstock (within the meaning of subsection (c)(7)(A)) for the calendar year in which the sale occurs exceeds an amount equal to 1.7 multiplied by the reference price for such fuel in 2002, bears to
(ii) $8.75.
(C) Application of rules 
Rules similar to the rules of the subsection (b)(3) and paragraphs (1) through (5) of this subsection shall apply for purposes of determining the amount of any increase under this paragraph.
(9) Coordination with credit for producing fuel from a nonconventional source 

(A) In general 
The term qualified facility shall not include any facility which produces electricity from gas derived from the biodegradation of municipal solid waste if such biodegradation occurred in a facility (within the meaning of section 45K) the production from which is allowed as a credit under section 45K for the taxable year or any prior taxable year.
(B) Refined coal facilities 
The term refined coal production facility shall not include any facility the production from which is allowed as a credit under section 45K for the taxable year or any prior taxable year (or under section 29,1 as in effect on the day before the date of enactment of the Energy Tax Incentives Act of 2005, for any prior taxable year).
(10) Indian coal production facilities 

(A) Determination of credit amount 
In the case of a producer of Indian coal, the credit determined under this section (without regard to this paragraph) for any taxable year shall be increased by an amount equal to the applicable dollar amount per ton of Indian coal
(i) produced by the taxpayer at an Indian coal production facility during the 7-year period beginning on January 1, 2006, and
(ii) sold by the taxpayer
(I) to an unrelated person, and
(II) during such 7-year period and such taxable year.
(B) Applicable dollar amount 

(i) In general The term applicable dollar amount for any taxable year beginning in a calendar year means
(I) $1.50 in the case of calendar years 2006 through 2009, and
(II) $2.00 in the case of calendar years beginning after 2009.
(ii) Inflation adjustment In the case of any calendar year after 2006, each of the dollar amounts under clause (i) shall be equal to the product of such dollar amount and the inflation adjustment factor determined under paragraph (2)(B) for the calendar year, except that such paragraph shall be applied by substituting 2005 for 1992.
(C) Application of rules 
Rules similar to the rules of the subsection (b)(3) and paragraphs (1), (3), (4), and (5) of this subsection shall apply for purposes of determining the amount of any increase under this paragraph.
(D) Treatment as specified credit 
The increase in the credit determined under subsection (a) by reason of this paragraph with respect to any facility shall be treated as a specified credit for purposes of section 38 (c)(4)(A) during the 4-year period beginning on the later of January 1, 2006, or the date on which such facility is placed in service by the taxpayer.
(11) Allocation of credit to patrons of agricultural cooperative 

(A) Election to allocate 

(i) In general In the case of an eligible cooperative organization, any portion of the credit determined under subsection (a) for the taxable year may, at the election of the organization, be apportioned among patrons of the organization on the basis of the amount of business done by the patrons during the taxable year.
(ii) Form and effect of election An election under clause (i) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year. Such election shall not take effect unless the organization designates the apportionment as such in a written notice mailed to its patrons during the payment period described in section 1382 (d).
(B) Treatment of organizations and patrons 
The amount of the credit apportioned to any patrons under subparagraph (A)
(i) shall not be included in the amount determined under subsection (a) with respect to the organization for the taxable year, and
(ii) shall be included in the amount determined under subsection (a) for the first taxable year of each patron ending on or after the last day of the payment period (as defined in section 1382 (d)) for the taxable year of the organization or, if earlier, for the taxable year of each patron ending on or after the date on which the patron receives notice from the cooperative of the apportionment.
(C) Special rules for decrease in credits for taxable year 
If the amount of the credit of a cooperative organization determined under subsection (a) for a taxable year is less than the amount of such credit shown on the return of the cooperative organization for such year, an amount equal to the excess of
(i) such reduction, over
(ii) the amount not apportioned to such patrons under subparagraph (A) for the taxable year,

shall be treated as an increase in tax imposed by this chapter on the organization. Such increase shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter.

(D) Eligible cooperative defined 
For purposes of this section the term eligible cooperative means a cooperative organization described in section 1381 (a) which is owned more than 50 percent by agricultural producers or by entities owned by agricultural producers. For this purpose an entity owned by an agricultural producer is one that is more than 50 percent owned by agricultural producers.
[1] See References in Text note below.
[2] So in original. The word “the” probably should follow.

26 USC 45A - Indian employment credit

(a) Amount of credit 
For purposes of section 38, the amount of the Indian employment credit determined under this section with respect to any employer for any taxable year is an amount equal to 20 percent of the excess (if any) of
(1) the sum of
(A) the qualified wages paid or incurred during such taxable year, plus
(B) qualified employee health insurance costs paid or incurred during such taxable year, over
(2) the sum of the qualified wages and qualified employee health insurance costs (determined as if this section were in effect) which were paid or incurred by the employer (or any predecessor) during calendar year 1993.
(b) Qualified wages; qualified employee health insurance costs 
For purposes of this section
(1) Qualified wages 

(A) In general 
The term qualified wages means any wages paid or incurred by an employer for services performed by an employee while such employee is a qualified employee.
(B) Coordination with work opportunity credit 
The term qualified wages shall not include wages attributable to service rendered during the 1-year period beginning with the day the individual begins work for the employer if any portion of such wages is taken into account in determining the credit under section 51.
(2) Qualified employee health insurance costs 

(A) In general 
The term qualified employee health insurance costs means any amount paid or incurred by an employer for health insurance to the extent such amount is attributable to coverage provided to any employee while such employee is a qualified employee.
(B) Exception for amounts paid under salary reduction arrangements 
No amount paid or incurred for health insurance pursuant to a salary reduction arrangement shall be taken into account under subparagraph (A).
(3) Limitation 
The aggregate amount of qualified wages and qualified employee health insurance costs taken into account with respect to any employee for any taxable year (and for the base period under subsection (a)(2)) shall not exceed $20,000.
(c) Qualified employee 
For purposes of this section
(1) In general 
Except as otherwise provided in this subsection, the term qualified employee means, with respect to any period, any employee of an employer if
(A) the employee is an enrolled member of an Indian tribe or the spouse of an enrolled member of an Indian tribe,
(B) substantially all of the services performed during such period by such employee for such employer are performed within an Indian reservation, and
(C) the principal place of abode of such employee while performing such services is on or near the reservation in which the services are performed.
(2) Individuals receiving wages in excess of $30,000 not eligible 
An employee shall not be treated as a qualified employee for any taxable year of the employer if the total amount of the wages paid or incurred by such employer to such employee during such taxable year (whether or not for services within an Indian reservation) exceeds the amount determined at an annual rate of $30,000.
(3) Inflation adjustment 
The Secretary shall adjust the $30,000 amount under paragraph (2) for years beginning after 1994 at the same time and in the same manner as under section 415 (d), except that the base period taken into account for purposes of such adjustment shall be the calendar quarter beginning October 1, 1993.
(4) Employment must be trade or business employment 
An employee shall be treated as a qualified employee for any taxable year of the employer only if more than 50 percent of the wages paid or incurred by the employer to such employee during such taxable year are for services performed in a trade or business of the employer. Any determination as to whether the preceding sentence applies with respect to any employee for any taxable year shall be made without regard to subsection (e)(2).
(5) Certain employees not eligible 
The term qualified employee shall not include
(A) any individual described in subparagraph (A), (B), or (C) of section 51 (i)(1),
(B) any 5-percent owner (as defined in section 416 (i)(1)(B)), and
(C) any individual if the services performed by such individual for the employer involve the conduct of class I, II, or III gaming as defined in section 4 of the Indian Gaming Regulatory Act (25 U.S.C. 2703), or are performed in a building housing such gaming activity.
(6) Indian tribe defined 
The term Indian tribe means any Indian tribe, band, nation, pueblo, or other organized group or community, including any Alaska Native village, or regional or village corporation, as defined in, or established pursuant to, the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.) which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians.
(7) Indian reservation defined 
The term Indian reservation has the meaning given such term by section 168 (j)(6).
(d) Early termination of employment by employer 

(1) In general 
If the employment of any employee is terminated by the taxpayer before the day 1 year after the day on which such employee began work for the employer
(A) no wages (or qualified employee health insurance costs) with respect to such employee shall be taken into account under subsection (a) for the taxable year in which such employment is terminated, and
(B) the tax under this chapter for the taxable year in which such employment is terminated shall be increased by the aggregate credits (if any) allowed under section 38 (a) for prior taxable years by reason of wages (or qualified employee health insurance costs) taken into account with respect to such employee.
(2) Carrybacks and carryovers adjusted 
In the case of any termination of employment to which paragraph (1) applies, the carrybacks and carryovers under section 39 shall be properly adjusted.
(3) Subsection not to apply in certain cases 

(A) In general 
Paragraph (1) shall not apply to
(i) a termination of employment of an employee who voluntarily leaves the employment of the taxpayer,
(ii) a termination of employment of an individual who before the close of the period referred to in paragraph (1) becomes disabled to perform the services of such employment unless such disability is removed before the close of such period and the taxpayer fails to offer reemployment to such individual, or
(iii) a termination of employment of an individual if it is determined under the applicable State unemployment compensation law that the termination was due to the misconduct of such individual.
(B) Changes in form of business 
For purposes of paragraph (1), the employment relationship between the taxpayer and an employee shall not be treated as terminated
(i) by a transaction to which section 381 (a) applies if the employee continues to be employed by the acquiring corporation, or
(ii) by reason of a mere change in the form of conducting the trade or business of the taxpayer if the employee continues to be employed in such trade or business and the taxpayer retains a substantial interest in such trade or business.
(4) Special rule 
Any increase in tax under paragraph (1) shall not be treated as a tax imposed by this chapter for purposes of
(A) determining the amount of any credit allowable under this chapter, and
(B) determining the amount of the tax imposed by section 55.
(e) Other definitions and special rules 
For purposes of this section
(1) Wages 
The term wages has the same meaning given to such term in section 51.
(2) Controlled groups 

(A) All employers treated as a single employer under section (a) or (b) of section 52 shall be treated as a single employer for purposes of this section.
(B) The credit (if any) determined under this section with respect to each such employer shall be its proportionate share of the wages and qualified employee health insurance costs giving rise to such credit.
(3) Certain other rules made applicable 
Rules similar to the rules of section 51 (k) and subsections (c), (d), and (e) of section 52 shall apply.
(4) Coordination with nonrevenue laws 
Any reference in this section to a provision not contained in this title shall be treated for purposes of this section as a reference to such provision as in effect on the date of the enactment of this paragraph.
(5) Special rule for short taxable years 
For any taxable year having less than 12 months, the amount determined under subsection (a)(2) shall be multiplied by a fraction, the numerator of which is the number of days in the taxable year and the denominator of which is 365.
(f) Termination 
This section shall not apply to taxable years beginning after December 31, 2007.

26 USC 45B - Credit for portion of employer social security taxes paid with respect to employee cash tips

(a) General rule 
For purposes of section 38, the employer social security credit determined under this section for the taxable year is an amount equal to the excess employer social security tax paid or incurred by the taxpayer during the taxable year.
(b) Excess employer social security tax 
For purposes of this section
(1) In general 
The term excess employer social security tax means any tax paid by an employer under section 3111 with respect to tips received by an employee during any month, to the extent such tips
(A) are deemed to have been paid by the employer to the employee pursuant to section 3121 (q) (without regard to whether such tips are reported under section 6053), and
(B) exceed the amount by which the wages (excluding tips) paid by the employer to the employee during such month are less than the total amount which would be payable (with respect to such employment) at the minimum wage rate applicable to such individual under section 6(a)(1) of the Fair Labor Standards Act of 1938 (as in effect on January 1, 2007, and determined without regard to section 3(m) of such Act).
(2) Only tips received for food or beverages taken into account 
In applying paragraph (1), there shall be taken into account only tips received from customers in connection with the providing, delivering, or serving of food or beverages for consumption if the tipping of employees delivering or serving food or beverages by customers is customary.
(c) Denial of double benefit 
No deduction shall be allowed under this chapter for any amount taken into account in determining the credit under this section.
(d) Election not to claim credit 
This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.

26 USC 45C - Clinical testing expenses for certain drugs for rare diseases or conditions

(a) General rule 
For purposes of section 38, the credit determined under this section for the taxable year is an amount equal to 50 percent of the qualified clinical testing expenses for the taxable year.
(b) Qualified clinical testing expenses 
For purposes of this section
(1) Qualified clinical testing expenses 

(A) In general 
Except as otherwise provided in this paragraph, the term qualified clinical testing expenses means the amounts which are paid or incurred by the taxpayer during the taxable year which would be described in subsection (b) of section 41 if such subsection were applied with the modifications set forth in subparagraph (B).
(B) Modifications 
For purposes of subparagraph (A), subsection (b) of section 41 shall be applied
(i) by substituting clinical testing for qualified research each place it appears in paragraphs (2) and (3) of such subsection, and
(ii) by substituting 100 percent for 65 percent in paragraph (3)(A) of such subsection.
(C) Exclusion for amounts funded by grants, etc. 
The term qualified clinical testing expenses shall not include any amount to the extent such amount is funded by any grant, contract, or otherwise by another person (or any governmental entity).
(D) Special rule 
For purposes of this paragraph, section 41 shall be deemed to remain in effect for periods after June 30, 1995, and before July 1, 1996, and periods after December 31, 2007.
(2) Clinical testing 

(A) In general 
The term clinical testing means any human clinical testing
(i) which is carried out under an exemption for a drug being tested for a rare disease or condition under section 505(i) of the Federal Food, Drug, and Cosmetic Act (or regulations issued under such section),
(ii) which occurs
(I) after the date such drug is designated under section 526 of such Act, and
(II) before the date on which an application with respect to such drug is approved under section 505(b) of such Act or, if the drug is a biological product, before the date on which a license for such drug is issued under section 351 of the Public Health Service Act;[1] and
(iii) which is conducted by or on behalf of the taxpayer to whom the designation under such section 526 applies.
(B) Testing must be related to use for rare disease or condition 
Human clinical testing shall be taken into account under subparagraph (A) only to the extent such testing is related to the use of a drug for the rare disease or condition for which it was designated under section 526 of the Federal Food, Drug, and Cosmetic Act.
(c) Coordination with credit for increasing research expenditures 

(1) In general 
Except as provided in paragraph (2), any qualified clinical testing expenses for a taxable year to which an election under this section applies shall not be taken into account for purposes of determining the credit allowable under section 41 for such taxable year.
(2) Expenses included in determining base period research expenses 
Any qualified clinical testing expenses for any taxable year which are qualified research expenses (within the meaning of section 41 (b)) shall be taken into account in determining base period research expenses for purposes of applying section 41 to subsequent taxable years.
(d) Definition and special rules 

(1) Rare disease or condition 
For purposes of this section, the term rare disease or condition means any disease or condition which
(A) affects less than 200,000 persons in the United States, or
(B) affects more than 200,000 persons in the United States but for which there is no reasonable expectation that the cost of developing and making available in the United States a drug for such disease or condition will be recovered from sales in the United States of such drug.

Determinations under the preceding sentence with respect to any drug shall be made on the basis of the facts and circumstances as of the date such drug is designated under section 526 of the Federal Food, Drug, and Cosmetic Act.

(2) Special limitations on foreign testing 

(A) In general 
No credit shall be allowed under this section with respect to any clinical testing conducted outside the United States unless
(i) such testing is conducted outside the United States because there is an insufficient testing population in the United States, and
(ii) such testing is conducted by a United States person or by any other person who is not related to the taxpayer to whom the designation under section 526 of the Federal Food, Drug, and Cosmetic Act applies.
(B) Special limitation for corporations to which section 936 applies 
No credit shall be allowed under this section with respect to any clinical testing conducted by a corporation to which an election under section 936 applies.
(3) Certain rules made applicable 
Rules similar to the rules of paragraphs (1) and (2) of section 41 (f) shall apply for purposes of this section.
(4) Election 
This section shall apply to any taxpayer for any taxable year only if such taxpayer elects (at such time and in such manner as the Secretary may by regulations prescribe) to have this section apply for such taxable year.
[1] So in original. The semicolon probably should be a comma.

26 USC 45D - New markets tax credit

(a) Allowance of credit 

(1) In general 
For purposes of section 38, in the case of a taxpayer who holds a qualified equity investment on a credit allowance date of such investment which occurs during the taxable year, the new markets tax credit determined under this section for such taxable year is an amount equal to the applicable percentage of the amount paid to the qualified community development entity for such investment at its original issue.
(2) Applicable percentage 
For purposes of paragraph (1), the applicable percentage is
(A) 5 percent with respect to the first 3 credit allowance dates, and
(B) 6 percent with respect to the remainder of the credit allowance dates.
(3) Credit allowance date 
For purposes of paragraph (1), the term credit allowance date means, with respect to any qualified equity investment
(A) the date on which such investment is initially made, and
(B) each of the 6 anniversary dates of such date thereafter.
(b) Qualified equity investment 
For purposes of this section
(1) In general 
The term qualified equity investment means any equity investment in a qualified community development entity if
(A) such investment is acquired by the taxpayer at its original issue (directly or through an underwriter) solely in exchange for cash,
(B) substantially all of such cash is used by the qualified community development entity to make qualified low-income community investments, and
(C) such investment is designated for purposes of this section by the qualified community development entity.

Such term shall not include any equity investment issued by a qualified community development entity more than 5 years after the date that such entity receives an allocation under subsection (f). Any allocation not used within such 5-year period may be reallocated by the Secretary under subsection (f).

(2) Limitation 
The maximum amount of equity investments issued by a qualified community development entity which may be designated under paragraph (1)(C) by such entity shall not exceed the portion of the limitation amount allocated under subsection (f) to such entity.
(3) Safe harbor for determining use of cash 
The requirement of paragraph (1)(B) shall be treated as met if at least 85 percent of the aggregate gross assets of the qualified community development entity are invested in qualified low-income community investments.
(4) Treatment of subsequent purchasers 
The term qualified equity investment includes any equity investment which would (but for paragraph (1)(A)) be a qualified equity investment in the hands of the taxpayer if such investment was a qualified equity investment in the hands of a prior holder.
(5) Redemptions 
A rule similar to the rule of section 1202 (c)(3) shall apply for purposes of this subsection.
(6) Equity investment 
The term equity investment means
(A) any stock (other than nonqualified preferred stock as defined in section 351 (g)(2)) in an entity which is a corporation, and
(B) any capital interest in an entity which is a partnership.
(c) Qualified community development entity 
For purposes of this section
(1) In general 
The term qualified community development entity means any domestic corporation or partnership if
(A) the primary mission of the entity is serving, or providing investment capital for, low-income communities or low-income persons,
(B) the entity maintains accountability to residents of low-income communities through their representation on any governing board of the entity or on any advisory board to the entity, and
(C) the entity is certified by the Secretary for purposes of this section as being a qualified community development entity.
(2) Special rules for certain organizations 
The requirements of paragraph (1) shall be treated as met by
(A) any specialized small business investment company (as defined in section 1044 (c)(3)), and
(B) any community development financial institution (as defined in section 103 of the Community Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 4702)).
(d) Qualified low-income community investments 
For purposes of this section
(1) In general 
The term qualified low-income community investment means
(A) any capital or equity investment in, or loan to, any qualified active low-income community business,
(B) the purchase from another qualified community development entity of any loan made by such entity which is a qualified low-income community investment,
(C) financial counseling and other services specified in regulations prescribed by the Secretary to businesses located in, and residents of, low-income communities, and
(D) any equity investment in, or loan to, any qualified community development entity.
(2) Qualified active low-income community business 

(A) In general 
For purposes of paragraph (1), the term qualified active low-income community business means, with respect to any taxable year, any corporation (including a nonprofit">nonprofit corporation) or partnership if for such year
(i) at least 50 percent of the total gross income of such entity is derived from the active conduct of a qualified business within any low-income community,
(ii) a substantial portion of the use of the tangible property of such entity (whether owned or leased) is within any low-income community,
(iii) a substantial portion of the services performed for such entity by its employees are performed in any low-income community,
(iv) less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is attributable to collectibles (as defined in section 408 (m)(2)) other than collectibles that are held primarily for sale to customers in the ordinary course of such business, and
(v) less than 5 percent of the average of the aggregate unadjusted bases of the property of such entity is attributable to nonqualified financial property (as defined in section 1397C (e)).
(B) Proprietorship 
Such term shall include any business carried on by an individual as a proprietor if such business would meet the requirements of subparagraph (A) were it incorporated.
(C) Portions of business may be qualified active low-income community business 
The term qualified active low-income community business includes any trades or businesses which would qualify as a qualified active low-income community business if such trades or businesses were separately incorporated.
(3) Qualified business 
For purposes of this subsection, the term qualified business has the meaning given to such term by section 1397C (d); except that
(A) in lieu of applying paragraph (2)(B) thereof, the rental to others of real property located in any low-income community shall be treated as a qualified business if there are substantial improvements located on such property, and
(B) paragraph (3) thereof shall not apply.
(e) Low-income community 
For purposes of this section
(1) In general 
The term low-income community means any population census tract if
(A) the poverty rate for such tract is at least 20 percent, or
(B) 
(i) in the case of a tract not located within a metropolitan area, the median family income for such tract does not exceed 80 percent of statewide median family income, or
(ii) in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80 percent of the greater of statewide median family income or the metropolitan area median family income.

Subparagraph (B) shall be applied using possessionwide median family income in the case of census tracts located within a possession of the United States.

(2) Targeted populations 
The Secretary shall prescribe regulations under which 1 or more targeted populations (within the meaning of section 103(20) of the Riegle Community Development and Regulatory Improvement Act of 1994 (12 U.S.C. 4702 (20))) may be treated as low-income communities. Such regulations shall include procedures for determining which entities are qualified active low-income community businesses with respect to such populations.
(3) Areas not within census tracts 
In the case of an area which is not tracted for population census tracts, the equivalent county divisions (as defined by the Bureau of the Census for purposes of defining poverty areas) shall be used for purposes of determining poverty rates and median family income.
(4) Tracts with low population 
A population census tract with a population of less than 2,000 shall be treated as a low-income community for purposes of this section if such tract
(A) is within an empowerment zone the designation of which is in effect under section 1391, and
(B) is contiguous to 1 or more low-income communities (determined without regard to this paragraph).
(5) Modification of income requirement for census tracts within high migration rural counties 

(A) In general 
In the case of a population census tract located within a high migration rural county, paragraph (1)(B)(i) shall be applied by substituting 85 percent for 80 percent.
(B) High migration rural county 
For purposes of this paragraph, the term high migration rural county means any county which, during the 20-year period ending with the year in which the most recent census was conducted, has a net out-migration of inhabitants from the county of at least 10 percent of the population of the county at the beginning of such period.
(f) National limitation on amount of investments designated 

(1) In general 
There is a new markets tax credit limitation for each calendar year. Such limitation is
(A) $1,000,000,000 for 2001,
(B) $1,500,000,000 for 2002 and 2003,
(C) $2,000,000,000 for 2004 and 2005, and
(D) $3,500,000,000 for 2006, 2007, and 2008.
(2) Allocation of limitation 
The limitation under paragraph (1) shall be allocated by the Secretary among qualified community development entities selected by the Secretary. In making allocations under the preceding sentence, the Secretary shall give priority to any entity
(A) with a record of having successfully provided capital or technical assistance to disadvantaged businesses or communities, or
(B) which intends to satisfy the requirement under subsection (b)(1)(B) by making qualified low-income community investments in 1 or more businesses in which persons unrelated to such entity (within the meaning of section 267 (b) or 707 (b)(1)) hold the majority equity interest.
(3) Carryover of unused limitation 
If the new markets tax credit limitation for any calendar year exceeds the aggregate amount allocated under paragraph (2) for such year, such limitation for the succeeding calendar year shall be increased by the amount of such excess. No amount may be carried under the preceding sentence to any calendar year after 2014.
(g) Recapture of credit in certain cases 

(1) In general 
If, at any time during the 7-year period beginning on the date of the original issue of a qualified equity investment in a qualified community development entity, there is a recapture event with respect to such investment, then the tax imposed by this chapter for the taxable year in which such event occurs shall be increased by the credit recapture amount.
(2) Credit recapture amount 
For purposes of paragraph (1), the credit recapture amount is an amount equal to the sum of
(A) the aggregate decrease in the credits allowed to the taxpayer under section 38 for all prior taxable years which would have resulted if no credit had been determined under this section with respect to such investment, plus
(B) interest at the underpayment rate established under section 6621 on the amount determined under subparagraph (A) for each prior taxable year for the period beginning on the due date for filing the return for the prior taxable year involved.

No deduction shall be allowed under this chapter for interest described in subparagraph (B).

(3) Recapture event 
For purposes of paragraph (1), there is a recapture event with respect to an equity investment in a qualified community development entity if
(A) such entity ceases to be a qualified community development entity,
(B) the proceeds of the investment cease to be used as required of subsection (b)(1)(B), or
(C) such investment is redeemed by such entity.
(4) Special rules 

(A) Tax benefit rule 
The tax for the taxable year shall be increased under paragraph (1) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted.
(B) No credits against tax 
Any increase in tax under this subsection shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.
(h) Basis reduction 
The basis of any qualified equity investment shall be reduced by the amount of any credit determined under this section with respect to such investment. This subsection shall not apply for purposes of sections 1202, 1400B, and 1400F.
(i) Regulations 
The Secretary shall prescribe such regulations as may be appropriate to carry out this section, including regulations
(1) which limit the credit for investments which are directly or indirectly subsidized by other Federal tax benefits (including the credit under section 42 and the exclusion from gross income under section 103),
(2) which prevent the abuse of the purposes of this section,
(3) which provide rules for determining whether the requirement of subsection (b)(1)(B) is treated as met,
(4) which impose appropriate reporting requirements,
(5) which apply the provisions of this section to newly formed entities, and
(6) which ensure that non-metropolitan counties receive a proportional allocation of qualified equity investments.

26 USC 45E - Small employer pension plan startup costs

(a) General rule 
For purposes of section 38, in the case of an eligible employer, the small employer pension plan startup cost credit determined under this section for any taxable year is an amount equal to 50 percent of the qualified startup costs paid or incurred by the taxpayer during the taxable year.
(b) Dollar limitation 
The amount of the credit determined under this section for any taxable year shall not exceed
(1) $500 for the first credit year and each of the 2 taxable years immediately following the first credit year, and
(2) zero for any other taxable year.
(c) Eligible employer 
For purposes of this section
(1) In general 
The term eligible employer has the meaning given such term by section 408 (p)(2)(C)(i).
(2) Requirement for new qualified employer plans 
Such term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for which the credit under this section is otherwise allowable for a qualified employer plan of the employer, the employer or any member of any controlled group including the employer (or any predecessor of either) established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan.
(d) Other definitions 
For purposes of this section
(1) Qualified startup costs 

(A) In general 
The term qualified startup costs means any ordinary and necessary expenses of an eligible employer which are paid or incurred in connection with
(i) the establishment or administration of an eligible employer plan, or
(ii) the retirement-related education of employees with respect to such plan.
(B) Plan must have at least 1 participant 
Such term shall not include any expense in connection with a plan that does not have at least 1 employee eligible to participate who is not a highly compensated employee.
(2) Eligible employer plan 
The term eligible employer plan means a qualified employer plan within the meaning of section 4972 (d).
(3) First credit year 
The term first credit year means
(A) the taxable year which includes the date that the eligible employer plan to which such costs relate becomes effective, or
(B) at the election of the eligible employer, the taxable year preceding the taxable year referred to in subparagraph (A).
(e) Special rules 
For purposes of this section
(1) Aggregation rules 
All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (m) or (o) of section 414, shall be treated as one person. All eligible employer plans shall be treated as 1 eligible employer plan.
(2) Disallowance of deduction 
No deduction shall be allowed for that portion of the qualified startup costs paid or incurred for the taxable year which is equal to the credit determined under subsection (a).
(3) Election not to claim credit 
This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.

26 USC 45F - Employer-provided child care credit

(a) In general 
For purposes of section 38, the employer-provided child care credit determined under this section for the taxable year is an amount equal to the sum of
(1) 25 percent of the qualified child care expenditures, and
(2) 10 percent of the qualified child care resource and referral expenditures,

of the taxpayer for such taxable year.

(b) Dollar limitation 
The credit allowable under subsection (a) for any taxable year shall not exceed $150,000.
(c) Definitions 
For purposes of this section
(1) Qualified child care expenditure 

(A) In general 
The term qualified child care expenditure means any amount paid or incurred
(i) to acquire, construct, rehabilitate, or expand property
(I) which is to be used as part of a qualified child care facility of the taxpayer,
(II) with respect to which a deduction for depreciation (or amortization in lieu of depreciation) is allowable, and
(III) which does not constitute part of the principal residence (within the meaning of section 121) of the taxpayer or any employee of the taxpayer,
(ii) for the operating costs of a qualified child care facility of the taxpayer, including costs related to the training of employees, to scholarship programs, and to the providing of increased compensation to employees with higher levels of child care training, or
(iii) under a contract with a qualified child care facility to provide child care services to employees of the taxpayer.
(B) Fair market value 
The term qualified child care expenditures shall not include expenses in excess of the fair market value of such care.
(2) Qualified child care facility 

(A) In general 
The term qualified child care facility means a facility
(i) the principal use of which is to provide child care assistance, and
(ii) which meets the requirements of all applicable laws and regulations of the State or local government in which it is located, including the licensing of the facility as a child care facility.

Clause (i) shall not apply to a facility which is the principal residence (within the meaning of section 121) of the operator of the facility.

(B) Special rules with respect to a taxpayer 
A facility shall not be treated as a qualified child care facility with respect to a taxpayer unless
(i) enrollment in the facility is open to employees of the taxpayer during the taxable year,
(ii) if the facility is the principal trade or business of the taxpayer, at least 30 percent of the enrollees of such facility are dependents of employees of the taxpayer, and
(iii) the use of such facility (or the eligibility to use such facility) does not discriminate in favor of employees of the taxpayer who are highly compensated employees (within the meaning of section 414 (q)).
(3) Qualified child care resource and referral expenditure 

(A) In general 
The term qualified child care resource and referral expenditure means any amount paid or incurred under a contract to provide child care resource and referral services to an employee of the taxpayer.
(B) Nondiscrimination 
The services shall not be treated as qualified unless the provision of such services (or the eligibility to use such services) does not discriminate in favor of employees of the taxpayer who are highly compensated employees (within the meaning of section 414 (q)).
(d) Recapture of acquisition and construction credit 

(1) In general 
If, as of the close of any taxable year, there is a recapture event with respect to any qualified child care facility of the taxpayer, then the tax of the taxpayer under this chapter for such taxable year shall be increased by an amount equal to the product of
(A) the applicable recapture percentage, and
(B) the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted if the qualified child care expenditures of the taxpayer described in subsection (c)(1)(A) with respect to such facility had been zero.
(2) Applicable recapture percentage 

(A) In general 
For purposes of this subsection, the applicable recapture percentage shall be determined from the following table: The applicable If the recapture event recapture occurs in: percentage is: Years 13 100 Year 4 85 Year 5 70 Year 6 55 Year 7 40 Year 8 25 Years 9 and 10 10 Years 11 and thereafter 0.
(B) Years 
For purposes of subparagraph (A), year 1 shall begin on the first day of the taxable year in which the qualified child care facility is placed in service by the taxpayer.
(3) Recapture event defined 
For purposes of this subsection, the term recapture event means
(A) Cessation of operation 
The cessation of the operation of the facility as a qualified child care facility.
(B) Change in ownership 

(i) In general Except as provided in clause (ii), the disposition of a taxpayers interest in a qualified child care facility with respect to which the credit described in subsection (a) was allowable.
(ii) Agreement to assume recapture liability Clause (i) shall not apply if the person acquiring such interest in the facility agrees in writing to assume the recapture liability of the person disposing of such interest in effect immediately before such disposition. In the event of such an assumption, the person acquiring the interest in the facility shall be treated as the taxpayer for purposes of assessing any recapture liability (computed as if there had been no change in ownership).
(4) Special rules 

(A) Tax benefit rule 
The tax for the taxable year shall be increased under paragraph (1) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted.
(B) No credits against tax 
Any increase in tax under this subsection shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.
(C) No recapture by reason of casualty loss 
The increase in tax under this subsection shall not apply to a cessation of operation of the facility as a qualified child care facility by reason of a casualty loss to the extent such loss is restored by reconstruction or replacement within a reasonable period established by the Secretary.
(e) Special rules 
For purposes of this section
(1) Aggregation rules 
All persons which are treated as a single employer under subsections (a) and (b) of section 52 shall be treated as a single taxpayer.
(2) Pass-thru in the case of estates and trusts 
Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
(3) Allocation in the case of partnerships 
In the case of partnerships, the credit shall be allocated among partners under regulations prescribed by the Secretary.
(f) No double benefit 

(1) Reduction in basis 
For purposes of this subtitle
(A) In general 
If a credit is determined under this section with respect to any property by reason of expenditures described in subsection (c)(1)(A), the basis of such property shall be reduced by the amount of the credit so determined.
(B) Certain dispositions 
If, during any taxable year, there is a recapture amount determined with respect to any property the basis of which was reduced under subparagraph (A), the basis of such property (immediately before the event resulting in such recapture) shall be increased by an amount equal to such recapture amount. For purposes of the preceding sentence, the term recapture amount means any increase in tax (or adjustment in carrybacks or carryovers) determined under subsection (d).
(2) Other deductions and credits 
No deduction or credit shall be allowed under any other provision of this chapter with respect to the amount of the credit determined under this section.

26 USC 45G - Railroad track maintenance credit

(a) General rule 
For purposes of section 38, the railroad track maintenance credit determined under this section for the taxable year is an amount equal to 50 percent of the qualified railroad track maintenance expenditures paid or incurred by an eligible taxpayer during the taxable year.
(b) Limitation 

(1) In general 
The credit allowed under subsection (a) for any taxable year shall not exceed the product of
(A) $3,500, multiplied by
(B) the sum of
(i) the number of miles of railroad track owned or leased by the eligible taxpayer as of the close of the taxable year, and
(ii) the number of miles of railroad track assigned for purposes of this subsection to the eligible taxpayer by a Class II or Class III railroad which owns or leases such railroad track as of the close of the taxable year.
(2) Assignments 
With respect to any assignment of a mile of railroad track under paragraph (1)(B)(ii)
(A) such assignment may be made only once per taxable year of the Class II or Class III railroad and shall be treated as made as of the close of such taxable year,
(B) such mile may not be taken into account under this section by such railroad for such taxable year, and
(C) such assignment shall be taken into account for the taxable year of the assignee which includes the date that such assignment is treated as effective.
(c) Eligible taxpayer 
For purposes of this section, the term eligible taxpayer means
(1) any Class II or Class III railroad, and
(2) any person who transports property using the rail facilities of a Class II or Class III railroad or who furnishes railroad-related property or services to a Class II or Class III railroad, but only with respect to miles of railroad track assigned to such person by such Class II or Class III railroad for purposes of subsection (b).
(d) Qualified railroad track maintenance expenditures 
For purposes of this section, the term qualified railroad track maintenance expenditures means gross expenditures (whether or not otherwise chargeable to capital account) for maintaining railroad track (including roadbed, bridges, and related track structures) owned or leased as of January 1, 2005, by a Class II or Class III railroad (determined without regard to any consideration for such expenditures given by the Class II or Class III railroad which made the assignment of such track).
(e) Other definitions and special rules 

(1) Class II or Class III railroad 
For purposes of this section, the terms Class II railroad and Class III railroad have the respective meanings given such terms by the Surface Transportation Board.
(2) Controlled groups 
Rules similar to the rules of paragraph (1) of section 41 (f) shall apply for purposes of this section.
(3) Basis adjustment 
For purposes of this subtitle, if a credit is allowed under this section with respect to any railroad track, the basis of such track shall be reduced by the amount of the credit so allowed.
(f) Application of section 
This section shall apply to qualified railroad track maintenance expenditures paid or incurred during taxable years beginning after December 31, 2004, and before January 1, 2008.

26 USC 45H - Credit for production of low sulfur diesel fuel

(a) In general 
For purposes of section 38, the amount of the low sulfur diesel fuel production credit determined under this section with respect to any facility of a small business refiner is an amount equal to 5 cents for each gallon of low sulfur diesel fuel produced during the taxable year by such small business refiner at such facility.
(b) Maximum credit 

(1) In general 
The aggregate credit determined under subsection (a) for any taxable year with respect to any facility shall not exceed
(A) 25 percent of the qualified costs incurred by the small business refiner with respect to such facility, reduced by
(B) the aggregate credits determined under this section for all prior taxable years with respect to such facility.
(2) Reduced percentage 
In the case of a small business refiner with average daily domestic refinery runs for the 1-year period ending on December 31, 2002, in excess of 155,000 barrels, the number of percentage points described in paragraph (1) shall be reduced (not below zero) by the product of such number (before the application of this paragraph) and the ratio of such excess to 50,000 barrels.
(c) Definitions and special rule 
For purposes of this section
(1) Small business refiner 
The term small business refiner means, with respect to any taxable year, a refiner of crude oil
(A) with respect to which not more than 1,500 individuals are engaged in the refinery operations of the business on any day during such taxable year, and
(B) the average daily domestic refinery run or average retained production of which for all facilities of the taxpayer for the 1-year period ending on December 31, 2002, did not exceed 205,000 barrels.
(2) Qualified costs 
The term qualified costs means, with respect to any facility, those costs paid or incurred during the applicable period for compliance with the applicable EPA regulations with respect to such facility, including expenditures for the construction of new process operation units or the dismantling and reconstruction of existing process units to be used in the production of low sulfur diesel fuel, associated adjacent or offsite equipment (including tankage, catalyst, and power supply), engineering, construction period interest, and sitework.
(3) Applicable EPA regulations 
The term applicable EPA regulations means the Highway Diesel Fuel Sulfur Control Requirements of the Environmental Protection Agency.
(4) Applicable period 
The term applicable period means, with respect to any facility, the period beginning on January 1, 2003, and ending on the earlier of the date which is 1 year after the date on which the taxpayer must comply with the applicable EPA regulations with respect to such facility or December 31, 2009.
(5) Low sulfur diesel fuel 
The term low sulfur diesel fuel means diesel fuel with a sulfur content of 15 parts per million or less.
(d) Special rule for determination of refinery runs 
For purposes[1] this section and section 179B (b), in the calculation of average daily domestic refinery run or retained production, only refineries which on April 1, 2003, were refineries of the refiner or a related person (within the meaning of section 613A (d)(3)), shall be taken into account.
(e) Certification 

(1) Required 
No credit shall be allowed unless, not later than the date which is 30 months after the first day of the first taxable year in which the low sulfur diesel fuel production credit is determined with respect to a facility, the small business refiner obtains certification from the Secretary, after consultation with the Administrator of the Environmental Protection Agency, that the taxpayers qualified costs with respect to such facility will result in compliance with the applicable EPA regulations.
(2) Contents of application 
An application for certification shall include relevant information regarding unit capacities and operating characteristics sufficient for the Secretary, after consultation with the Administrator of the Environmental Protection Agency, to determine that such qualified costs are necessary for compliance with the applicable EPA regulations.
(3) Review period 
Any application shall be reviewed and notice of certification, if applicable, shall be made within 60 days of receipt of such application. In the event the Secretary does not notify the taxpayer of the results of such certification within such period, the taxpayer may presume the certification to be issued until so notified.
(4) Statute of limitations 
With respect to the credit allowed under this section
(A) the statutory period for the assessment of any deficiency attributable to such credit shall not expire before the end of the 3-year period ending on the date that the review period described in paragraph (3) ends with respect to the taxpayer, and
(B) such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.
(f) Cooperative organizations 

(1) Apportionment of credit 

(A) In general 
In the case of a cooperative organization described in section 1381 (a), any portion of the credit determined under subsection (a) for the taxable year may, at the election of the organization, be apportioned among patrons eligible to share in patronage dividends on the basis of the quantity or value of business done with or for such patrons for the taxable year.
(B) Form and effect of election 
An election under subparagraph (A) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year.
(2) Treatment of organizations and patrons 

(A) Organizations 
The amount of the credit not apportioned to patrons pursuant to paragraph (1) shall be included in the amount determined under subsection (a) for the taxable year of the organization.
(B) Patrons 
The amount of the credit apportioned to patrons pursuant to paragraph (1) shall be included in the amount determined under subsection (a) for the first taxable year of each patron ending on or after the last day of the payment period (as defined in section 1382 (d)) for the taxable year of the organization or, if earlier, for the taxable year of each patron ending on or after the date on which the patron receives notice from the cooperative of the apportionment.
(3) Special rule 
If the amount of a credit which has been apportioned to any patron under this subsection is decreased for any reason
(A) such amount shall not increase the tax imposed on such patron, and
(B) the tax imposed by this chapter on such organization shall be increased by such amount.

The increase under subparagraph (B) shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter or for purposes of section 55.

(g) Election to not take credit 
No credit shall be determined under subsection (a) for the taxable year if the taxpayer elects not to have subsection (a) apply to such taxable year.
[1] So in original. Probably should be followed by “of”.

26 USC 45I - Credit for producing oil and gas from marginal wells

(a) General rule 
For purposes of section 38, the marginal well production credit for any taxable year is an amount equal to the product of
(1) the credit amount, and
(2) the qualified crude oil production and the qualified natural gas production which is attributable to the taxpayer.
(b) Credit amount 
For purposes of this section
(1) In general 
The credit amount is
(A) $3 per barrel of qualified crude oil production, and
(B) 50 cents per 1,000 cubic feet of qualified natural gas production.
(2) Reduction as oil and gas prices increase 

(A) In general 
The $3 and 50 cents amounts under paragraph (1) shall each be reduced (but not below zero) by an amount which bears the same ratio to such amount (determined without regard to this paragraph) as
(i) the excess (if any) of the applicable reference price over $15 ($1.67 for qualified natural gas production), bears to
(ii) $3 ($0.33 for qualified natural gas production).

The applicable reference price for a taxable year is the reference price of the calendar year preceding the calendar year in which the taxable year begins.

(B) Inflation adjustment 
In the case of any taxable year beginning in a calendar year after 2005, each of the dollar amounts contained in subparagraph (A) shall be increased to an amount equal to such dollar amount multiplied by the inflation adjustment factor for such calendar year (determined under section 43 (b)(3)(B) by substituting 2004 for 1990).
(C) Reference price 
For purposes of this paragraph, the term reference price means, with respect to any calendar year
(i) in the case of qualified crude oil production, the reference price determined under section 45K (d)(2)(C), and
(ii) in the case of qualified natural gas production, the Secretarys estimate of the annual average wellhead price per 1,000 cubic feet for all domestic natural gas.
(c) Qualified crude oil and natural gas production 
For purposes of this section
(1) In general 
The terms qualified crude oil production and qualified natural gas production mean domestic crude oil or natural gas which is produced from a qualified marginal well.
(2) Limitation on amount of production which may qualify 

(A) In general 
Crude oil or natural gas produced during any taxable year from any well shall not be treated as qualified crude oil production or qualified natural gas production to the extent production from the well during the taxable year exceeds 1,095 barrels or barrel-of-oil equivalents (as defined in section 45K (d)(5)).
(B) Proportionate reductions 

(i) Short taxable years In the case of a short taxable year, the limitations under this paragraph shall be proportionately reduced to reflect the ratio which the number of days in such taxable year bears to 365.
(ii) Wells not in production entire year In the case of a well which is not capable of production during each day of a taxable year, the limitations under this paragraph applicable to the well shall be proportionately reduced to reflect the ratio which the number of days of production bears to the total number of days in the taxable year.
(3) Definitions 

(A) Qualified marginal well 
The term qualified marginal well means a domestic well
(i) the production from which during the taxable year is treated as marginal production under section 613A (c)(6), or
(ii) which, during the taxable year
(I) has average daily production of not more than 25 barrel-of-oil equivalents (as so defined), and
(II) produces water at a rate not less than 95 percent of total well effluent.
(B) Crude oil, etc. 
The terms crude oil, natural gas, domestic, and barrel have the meanings given such terms by section 613A (e).
(d) Other rules 

(1) Production attributable to the taxpayer 
In the case of a qualified marginal well in which there is more than one owner of operating interests in the well and the crude oil or natural gas production exceeds the limitation under subsection (c)(2), qualifying crude oil production or qualifying natural gas production attributable to the taxpayer shall be determined on the basis of the ratio which taxpayers revenue interest in the production bears to the aggregate of the revenue interests of all operating interest owners in the production.
(2) Operating interest required 
Any credit under this section may be claimed only on production which is attributable to the holder of an operating interest.
(3) Production from nonconventional sources excluded 
In the case of production from a qualified marginal well which is eligible for the credit allowed under section 45K for the taxable year, no credit shall be allowable under this section unless the taxpayer elects not to claim the credit under section 45K with respect to the well.

26 USC 45J - Credit for production from advanced nuclear power facilities

(a) General rule 
For purposes of section 38, the advanced nuclear power facility production credit of any taxpayer for any taxable year is equal to the product of
(1) 1.8 cents, multiplied by
(2) the kilowatt hours of electricity
(A) produced by the taxpayer at an advanced nuclear power facility during the 8-year period beginning on the date the facility was originally placed in service, and
(B) sold by the taxpayer to an unrelated person during the taxable year.
(b) National limitation 

(1) In general 
The amount of credit which would (but for this subsection and subsection (c)) be allowed with respect to any facility for any taxable year shall not exceed the amount which bears the same ratio to such amount of credit as
(A) the national megawatt capacity limitation allocated to the facility, bears to
(B) the total megawatt nameplate capacity of such facility.
(2) Amount of national limitation 
The aggregate amount of national megawatt capacity limitation allocated by the Secretary under paragraph (3) shall not exceed 6,000 megawatts.
(3) Allocation of limitation 
The Secretary shall allocate the national megawatt capacity limitation in such manner as the Secretary may prescribe.
(4) Regulations 
Not later than 6 months after the date of the enactment of this section, the Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection. Such regulations shall provide a certification process under which the Secretary, after consultation with the Secretary of Energy, shall approve and allocate the national megawatt capacity limitation.
(c) Other limitations 

(1) Annual limitation 
The amount of the credit allowable under subsection (a) (after the application of subsection (b)) for any taxable year with respect to any facility shall not exceed an amount which bears the same ratio to $125,000,000 as
(A) the national megawatt capacity limitation allocated under subsection (b) to the facility, bears to
(B) 1,000.
(2) Phaseout of credit 

(A) In general 
The amount of the credit determined under subsection (a) shall be reduced by an amount which bears the same ratio to the amount of the credit (determined without regard to this paragraph) as
(i) the amount by which the reference price (as defined in section 45 (e)(2)(C)) for the calendar year in which the sale occurs exceeds 8 cents, bears to
(ii) 3 cents.
(B) Phaseout adjustment based on inflation 
The 8 cent amount in subparagraph (A) shall be adjusted by multiplying such amount by the inflation adjustment factor (as defined in section 45 (e)(2)(B)) for the calendar year in which the sale occurs. If any amount as increased under the preceding sentence is not a multiple of 0.1 cent, such amount shall be rounded to the nearest multiple of 0.1 cent.
(d) Advanced nuclear power facility 
For purposes of this section
(1) In general 
The term advanced nuclear power facility means any advanced nuclear facility
(A) which is owned by the taxpayer and which uses nuclear energy to produce electricity, and
(B) which is placed in service after the date of the enactment of this paragraph and before January 1, 2021.
(2) Advanced nuclear facility 
For purposes of paragraph (1), the term advanced nuclear facility means any nuclear facility the reactor design for which is approved after December 31, 1993, by the Nuclear Regulatory Commission (and such design or a substantially similar design of comparable capacity was not approved on or before such date).
(e) Other rules to apply 
Rules similar to the rules of paragraphs (1), (3), (4), and (5) of section 45 (e) shall apply for purposes of this section.

26 USC 45K - Credit for producing fuel from a nonconventional source

(a) Allowance of credit 
For purposes of section 38, the nonconventional source production credit determined under this section for the taxable year is an amount equal to
(1) $3, multiplied by
(2) the barrel-of-oil equivalent of qualified fuels
(A) sold by the taxpayer to an unrelated person during the taxable year, and
(B) the production of which is attributable to the taxpayer.
(b) Limitations and adjustments 

(1) Phaseout of credit 
The amount of the credit allowable under subsection (a) shall be reduced by an amount which bears the same ratio to the amount of the credit (determined without regard to this paragraph) as
(A) the amount by which the reference price for the calendar year in which the sale occurs exceeds $23.50, bears to
(B) $6.
(2) Credit and phaseout adjustment based on inflation 
The $3 amount in subsection (a) and the $23.50 and $6 amounts in paragraph (1) shall each be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale occurs. In the case of gas from a tight formation, the $3 amount in subsection (a) shall not be adjusted.
(3) Credit reduced for grants, tax-exempt bonds, and subsidized energy financing 

(A) In general 
The amount of the credit allowable under subsection (a) with respect to any project for any taxable year (determined after the application of paragraphs (1) and (2)) shall be reduced by the amount which is the product of the amount so determined for such year and a fraction
(i) the numerator of which is the sum, for the taxable year and all prior taxable years, of
(I) grants provided by the United States, a State, or a political subdivision of a State for use in connection with the project,
(II) proceeds of any issue of State or local government obligations used to provide financing for the project the interest on which is exempt from tax under section 103, and
(III) the aggregate amount of subsidized energy financing (within the meaning of section 48 (a)(4)(C)) provided in connection with the project, and
(ii) the denominator of which is the aggregate amount of additions to the capital account for the project for the taxable year and all prior taxable years.
(B) Amounts determined at close of year 
The amounts under subparagraph (A) for any taxable year shall be determined as of the close of the taxable year.
(4) Credit reduced for energy credit 
The amount allowable as a credit under subsection (a) with respect to any project for any taxable year (determined after the application of paragraphs (1), (2), and (3)) shall be reduced by the excess of
(A) the aggregate amount allowed under section 38 for the taxable year or any prior taxable year by reason of the energy percentage with respect to property used in the project, over
(B) the aggregate amount recaptured with respect to the amount described in subparagraph (A)
(i) under section 49 (b) or 50 (a) for the taxable year or any prior taxable year, or
(ii) under this paragraph for any prior taxable year.

The amount recaptured under section 49 (b) or 50 (a) with respect to any property shall be appropriately reduced to take into account any reduction in the credit allowed by this section by reason of the preceding sentence.

(5) Credit reduced for enhanced oil recovery credit 
The amount allowable as a credit under subsection (a) with respect to any project for any taxable year (determined after application of paragraphs (1), (2), (3), and (4)) shall be reduced by the excess (if any) of
(A) the aggregate amount allowed under section 38 for the taxable year and any prior taxable year by reason of any enhanced oil recovery credit determined under section 43 with respect to such project, over
(B) the aggregate amount recaptured with respect to the amount described in subparagraph (A) under this paragraph for any prior taxable year.
(c) Definition of qualified fuels 
For purposes of this section
(1) In general 
The term qualified fuels means
(A) oil produced from shale and tar sands,
(B) gas produced from
(i) geopressured brine, Devonian shale, coal seams, or a tight formation, or
(ii) biomass, and
(C) liquid, gaseous, or solid synthetic fuels produced from coal (including lignite), including such fuels when used as feedstocks.
(2) Gas from geopressured brine, etc. 

(A) In general 
Except as provided in subparagraph (B), the determination of whether any gas is produced from geopressured brine, Devonian shale, coal seams, or a tight formation shall be made in accordance with section 503 of the Natural Gas Policy Act of 1978 (as in effect before the repeal of such section).
(B) Special rules for gas from tight formations 
The term gas produced from a tight formation shall only include gas from a tight formation
(i) which, as of April 20, 1977, was committed or dedicated to interstate commerce (as defined in section 2(18) of the Natural Gas Policy Act of 1978, as in effect on the date of the enactment of this clause), or
(ii) which is produced from a well drilled after such date of enactment.
(3) Biomass 
The term biomass means any organic material other than
(A) oil and natural gas (or any product thereof), and
(B) coal (including lignite) or any product thereof.
(d) Other definitions and special rules 
For purposes of this section
(1) Only production within the United States taken into account 
Sales shall be taken into account under this section only with respect to qualified fuels the production of which is within
(A) the United States (within the meaning of section 638 (1)), or
(B) a possession of the United States (within the meaning of section 638 (2)).
(2) Computation of inflation adjustment factor and reference price 

(A) In general 
The Secretary shall, not later than April 1 of each calendar year, determine and publish in the Federal Register the inflation adjustment factor and the reference price for the preceding calendar year in accordance with this paragraph.
(B) Inflation adjustment factor 
The term inflation adjustment factor means, with respect to a calendar year, a fraction the numerator of which is the GNP implicit price deflator for the calendar year and the denominator of which is the GNP implicit price deflator for calendar year 1979. The term GNP implicit price deflator means the first revision of the implicit price deflator for the gross national product as computed and published by the Department of Commerce.
(C) Reference price 
The term reference price means with respect to a calendar year the Secretarys estimate of the annual average wellhead price per barrel for all domestic crude oil the price of which is not subject to regulation by the United States.
(3) Production attributable to the taxpayer 
In the case of a property or facility in which more than 1 person has an interest, except to the extent provided in regulations prescribed by the Secretary, production from the property or facility (as the case may be) shall be allocated among such persons in proportion to their respective interests in the gross sales from such property or facility.
(4) Gas from geopressured brine, Devonian shale, coal seams, or a tight formation 
The amount of the credit allowable under subsection (a) shall be determined without regard to any production attributable to a property from which gas from Devonian shale, coal seams, geopressured brine, or a tight formation was produced in marketable quantities before January 1, 1980.
(5) Barrel-of-oil equivalent 
The term barrel-of-oil equivalent with respect to any fuel means that amount of such fuel which has a Btu content of 5.8 million; except that in the case of qualified fuels described in subparagraph (C) of subsection (c)(1), the Btu content shall be determined without regard to any material from a source not described in such subparagraph.
(6) Barrel defined 
The term barrel means 42 United States gallons.
(7) Related persons 
Persons shall be treated as related to each other if such persons would be treated as a single employer under the regulations prescribed under section 52 (b). In the case of a corporation which is a member of an affiliated group of corporations filing a consolidated return, such corporation shall be treated as selling qualified fuels to an unrelated person if such fuels are sold to such a person by another member of such group.
(8) Pass-thru in the case of estates and trusts 
Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
(e) Application of section 
This section shall apply with respect to qualified fuels
(1) which are
(A) produced from a well drilled after December 31, 1979, and before January 1, 1993, or
(B) produced in a facility placed in service after December 31, 1979, and before January 1, 1993, and
(2) which are sold before January 1, 2003.
(f) Extension for certain facilities 

(1) In general 
In the case of a facility for producing qualified fuels described in subparagraph (B)(ii) or (C) of subsection (c)(1)
(A) for purposes of subsection (e)(1)(B), such facility shall be treated as being placed in service before January 1, 1993, if such facility is placed in service before July 1, 1998, pursuant to a binding written contract in effect before January 1, 1997, and
(B) if such facility is originally placed in service after December 31, 1992, paragraph (2) of subsection (e) shall be applied with respect to such facility by substituting January 1, 2008 for January 1, 2003.
(2) Special rule 
Paragraph (1) shall not apply to any facility which produces coke or coke gas unless the original use of the facility commences with the taxpayer.
(g) Extension for facilities producing coke or coke gas 
Notwithstanding subsection (e)
(1) In general 
In the case of a facility for producing coke or coke gas (other than from petroleum based products) which was placed in service before January 1, 1993, or after June 30, 1998, and before January 1, 2010, this section shall apply with respect to coke and coke gas produced in such facility and sold during the period
(A) beginning on the later of January 1, 2006, or the date that such facility is placed in service, and
(B) ending on the date which is 4 years after the date such period began.
(2) Special rules 
In determining the amount of credit allowable under this section solely by reason of this subsection
(A) Daily limit 
The amount of qualified fuels sold during any taxable year which may be taken into account by reason of this subsection with respect to any facility shall not exceed an average barrel-of-oil equivalent of 4,000 barrels per day. Days before the date the facility is placed in service shall not be taken into account in determining such average.
(B) Extension period to commence with unadjusted credit amount 
For purposes of applying subsection (b)(2) to the $3 amount in subsection (a), in the case of fuels sold after 2005, subsection (d)(2)(B) shall be applied by substituting 2004 for 1979.
(C) Denial of double benefit 
This subsection shall not apply to any facility producing qualified fuels for which a credit was allowed under this section for the taxable year or any preceding taxable year by reason of subsection (f).
(D) Nonapplication of phaseout 
Subsection (b)(1) shall not apply.

26 USC 45L - New energy efficient home credit

(a) Allowance of credit 

(1) In general 
For purposes of section 38, in the case of an eligible contractor, the new energy efficient home credit for the taxable year is the applicable amount for each qualified new energy efficient home which is
(A) constructed by the eligible contractor, and
(B) acquired by a person from such eligible contractor for use as a residence during the taxable year.
(2) Applicable amount 
For purposes of paragraph (1), the applicable amount is an amount equal to
(A) in the case of a dwelling unit described in paragraph (1) or (2) of subsection (c), $2,000, and
(B) in the case of a dwelling unit described in paragraph (3) of subsection (c), $1,000.
(b) Definitions 
For purposes of this section
(1) Eligible contractor 
The term eligible contractor means
(A) the person who constructed the qualified new energy efficient home, or
(B) in the case of a qualified new energy efficient home which is a manufactured home, the manufactured home producer of such home.
(2) Qualified new energy efficient home 
The term qualified new energy efficient home means a dwelling unit
(A) located in the United States,
(B) the construction of which is substantially completed after the date of the enactment of this section, and
(C) which meets the energy saving requirements of subsection (c).
(3) Construction 
The term construction includes substantial reconstruction and rehabilitation.
(4) Acquire 
The term acquire includes purchase.
(c) Energy saving requirements 
A dwelling unit meets the energy saving requirements of this subsection if such unit is
(1) certified
(A) to have a level of annual heating and cooling energy consumption which is at least 50 percent below the annual level of heating and cooling energy consumption of a comparable dwelling unit
(i) which is constructed in accordance with the standards of chapter 4 of the 2003 International Energy Conservation Code, as such Code (including supplements) is in effect on the date of the enactment of this section, and
(ii) for which the heating and cooling equipment efficiencies correspond to the minimum allowed under the regulations established by the Department of Energy pursuant to the National Appliance Energy Conservation Act of 1987 and in effect at the time of completion of construction, and
(B) to have building envelope component improvements account for at least 1/5 of such 50 percent,
(2) a manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (part 3280 of title 24, Code of Federal Regulations) and which meets the requirements of paragraph (1), or
(3) a manufactured home which conforms to Federal Manufactured Home Construction and Safety Standards (part 3280 of title 24, Code of Federal Regulations) and which
(A) meets the requirements of paragraph (1) applied by substituting 30 percent for 50 percent both places it appears therein and by substituting 1/3 for 1/5 in subparagraph (B) thereof, or
(B) meets the requirements established by the Administrator of the Environmental Protection Agency under the Energy Star Labeled Homes program.
(d) Certification 

(1) Method of certification 
A certification described in subsection (c) shall be made in accordance with guidance prescribed by the Secretary, after consultation with the Secretary of Energy. Such guidance shall specify procedures and methods for calculating energy and cost savings.
(2) Form 
Any certification described in subsection (c) shall be made in writing in a manner which specifies in readily verifiable fashion the energy efficient building envelope components and energy efficient heating or cooling equipment installed and their respective rated energy efficiency performance.
(e) Basis adjustment 
For purposes of this subtitle, if a credit is allowed under this section in connection with any expenditure for any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so determined.
(f) Coordination with investment credit 
For purposes of this section, expenditures taken into account under section 47 or 48 (a) shall not be taken into account under this section.
(g) Termination 
This section shall not apply to any qualified new energy efficient home acquired after December 31, 2008.

26 USC 45M - Energy efficient appliance credit

(a) General rule 

(1) In general 
For purposes of section 38, the energy efficient appliance credit determined under this section for any taxable year is an amount equal to the sum of the credit amounts determined under paragraph (2) for each type of qualified energy efficient appliance produced by the taxpayer during the calendar year ending with or within the taxable year.
(2) Credit amounts 
The credit amount determined for any type of qualified energy efficient appliance is
(A) the applicable amount determined under subsection (b) with respect to such type, multiplied by
(B) the eligible production for such type.
(b) Applicable amount 

(1) In general 
For purposes of subsection (a)
(A) Dishwashers 
The applicable amount is the energy savings amount in the case of a dishwasher which
(i) is manufactured in calendar year 2006 or 2007, and
(ii) meets the requirements of the Energy Star program which are in effect for dishwashers in 2007.
(B) Clothes washers 
The applicable amount is $100 in the case of a clothes washer which
(i) is manufactured in calendar year 2006 or 2007, and
(ii) meets the requirements of the Energy Star program which are in effect for clothes washers in 2007.
(C) Refrigerators 

(i) 15 percent savings The applicable amount is $75 in the case of a refrigerator which
(I) is manufactured in calendar year 2006, and
(II) consumes at least 15 percent but not more than 20 percent less kilowatt hours per year than the 2001 energy conservation standards.
(ii) 20 percent savings The applicable amount is $125 in the case of a refrigerator which
(I) is manufactured in calendar year 2006 or 2007, and
(II) consumes at least 20 percent but not more than 25 percent less kilowatt hours per year than the 2001 energy conservation standards.
(iii) 25 percent savings The applicable amount is $175 in the case of a refrigerator which
(I) is manufactured in calendar year 2006 or 2007, and
(II) consumes at least 25 percent less kilowatt hours per year than the 2001 energy conservation standards.
(2) Energy savings amount 
For purposes of paragraph (1)(A)
(A) In general 
The energy savings amount is the lesser of
(i) the product of
(I) $3, and
(II) 100 multiplied by the energy savings percentage, or
(ii) $100.
(B) Energy savings percentage 
For purposes of subparagraph (A), the energy savings percentage is the ratio of
(i) the EF required by the Energy Star program for dishwashers in 2007 minus the EF required by the Energy Star program for dishwashers in 2005, to
(ii) the EF required by the Energy Star program for dishwashers in 2007.
(c) Eligible production 

(1) In general 
Except as provided in paragraphs[1] (2), the eligible production in a calendar year with respect to each type of energy efficient appliance is the excess of
(A) the number of appliances of such type which are produced by the taxpayer in the United States during such calendar year, over
(B) the average number of appliances of such type which were produced by the taxpayer (or any predecessor) in the United States during the preceding 3-calendar year period.
(2) Special rule for refrigerators 
The eligible production in a calendar year with respect to each type of refrigerator described in subsection (b)(1)(C) is the excess of
(A) the number of appliances of such type which are produced by the taxpayer in the United States during such calendar year, over
(B) 110 percent of the average number of appliances of such type which were produced by the taxpayer (or any predecessor) in the United States during the preceding 3-calendar year period.
(d) Types of energy efficient appliance 
For purposes of this section, the types of energy efficient appliances are
(1) dishwashers described in subsection (b)(1)(A),
(2) clothes washers described in subsection (b)(1)(B),
(3) refrigerators described in subsection (b)(1)(C)(i),
(4) refrigerators described in subsection (b)(1)(C)(ii), and
(5) refrigerators described in subsection (b)(1)(C)(iii).
(e) Limitations 

(1) Aggregate credit amount allowed 
The aggregate amount of credit allowed under subsection (a) with respect to a taxpayer for any taxable year shall not exceed $75,000,000 reduced by the amount of the credit allowed under subsection (a) to the taxpayer (or any predecessor) for all prior taxable years.
(2) Amount allowed for 15 percent savings refrigerators 
In the case of refrigerators described in subsection (b)(1)(C)(i), the aggregate amount of the credit allowed under subsection (a) with respect to a taxpayer for any taxable year shall not exceed $20,000,000.
(3) Limitation based on gross receipts 
The credit allowed under subsection (a) with respect to a taxpayer for the taxable year shall not exceed an amount equal to 2 percent of the average annual gross receipts of the taxpayer for the 3 taxable years preceding the taxable year in which the credit is determined.
(4) Gross receipts 
For purposes of this subsection, the rules of paragraphs (2) and (3) of section 448 (c) shall apply.
(f) Definitions 
For purposes of this section
(1) Qualified energy efficient appliance 
The term qualified energy efficient appliance means
(A) any dishwasher described in subsection (b)(1)(A),
(B) any clothes washer described in subsection (b)(1)(B), and
(C) any refrigerator described in subsection (b)(1)(C).
(2) Dishwasher 
The term dishwasher means a residential dishwasher subject to the energy conservation standards established by the Department of Energy.
(3) Clothes washer 
The term clothes washer means a residential model clothes washer, including a residential style coin operated washer.
(4) Refrigerator 
The term refrigerator means a residential model automatic defrost refrigerator-freezer which has an internal volume of at least 16.5 cubic feet.
(5) EF 
The term EF means the energy factor established by the Department of Energy for compliance with the Federal energy conservation standards.
(6) Produced 
The term produced includes manufactured.
(7) 2001 energy conservation standard 
The term 2001 energy conservation standard means the energy conservation standards promulgated by the Department of Energy and effective July 1, 2001.
(g) Special rules 
For purposes of this section
(1) In general 
Rules similar to the rules of subsections (c), (d), and (e) of section 52 shall apply.
(2) Controlled group 

(A) In general 
All persons treated as a single employer under subsection (a) or (b) of section 52 or subsection (m) or (o) of section 414 shall be treated as a single producer.
(B) Inclusion of foreign corporations 
For purposes of subparagraph (A), in applying subsections (a) and (b) of section 52 to this section, section 1563 shall be applied without regard to subsection (b)(2)(C) thereof.
(3) Verification 
No amount shall be allowed as a credit under subsection (a) with respect to which the taxpayer has not submitted such information or certification as the Secretary, in consultation with the Secretary of Energy, determines necessary.
[1] So in original. Probably should be “paragraph”.

26 USC 45N - Mine rescue team training credit

(a) Amount of credit 
For purposes of section 38, the mine rescue team training credit determined under this section with respect to each qualified mine rescue team employee of an eligible employer for any taxable year is an amount equal to the lesser of
(1) 20 percent of the amount paid or incurred by the taxpayer during the taxable year with respect to the training program costs of such qualified mine rescue team employee (including wages of such employee while attending such program), or
(2) $10,000.
(b) Qualified mine rescue team employee 
For purposes of this section, the term qualified mine rescue team employee means with respect to any taxable year any full-time employee of the taxpayer who is
(1) a miner eligible for more than 6 months of such taxable year to serve as a mine rescue team member as a result of completing, at a minimum, an initial 20-hour course of instruction as prescribed by the Mine Safety and Health Administrations Office of Educational Policy and Development, or
(2) a miner eligible for more than 6 months of such taxable year to serve as a mine rescue team member by virtue of receiving at least 40 hours of refresher training in such instruction.
(c) Eligible employer 
For purposes of this section, the term eligible employer means any taxpayer which employs individuals as miners in underground mines in the United States.
(d) Wages 
For purposes of this section, the term wages has the meaning given to such term by subsection (b) of section 3306 (determined without regard to any dollar limitation contained in such section).
(e) Termination 
This section shall not apply to taxable years beginning after December 31, 2008.