article: SECTION 1. SHORT TITLE. This Act may be cited as the ``Drive Away From Ethanol Welfare Act of 1996''. SEC. 2. REDUCTION OF INCENTIVES FOR ALCOHOL FUELS. (a) Denial of Credit for Alcohol Used To Produce Ether.--Subsection (b) of section 40 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph: ``(6) Denial of credit for alcohol used to produce ether.-- No credit shall be allowed under this section for alcohol used to produce any ether.'' (b) Limitation on Alcohol Eligible for Credit for Alcohol Used as Fuel-- (1) In general.--Subparagraph (A) of section 40(d)(1) of such Code (defining alcohol) is amended by striking ``or'' at the end of clause (i), by striking the period at the end of clause (ii) and inserting ``, or'', and by adding at the end the following new clause: ``(iii) alcohol produced by a still (or other distilling apparatus) placed in service after December 31, 1996.'' (2) Future credit limited to average historical production.--Section 40 of such Code is amended by adding at the end the following new subsection: ``(i) Expanded Production Ineligible for Credit.-- ``(1) In general.--Subsection (a) shall apply to alcohol produced after December 31, 1996, only if the alcohol is designated under this subsection by a producer who is registered under section 4101. ``(2) Designation based on historical production.--The amount of alcohol produced by a producer during any calendar year which may be designated under this subsection by any producer other than an eligible small ethanol producer is the amount equal to the average annual amount of alcohol (as defined in subsection (d)(1)(A) without regard to clause (iii))-- ``(A) which was produced by such producer (other than casual off-farm production) during the 3-year period ending on June 30, 1996, and ``(B) which was sold or used by such producer for any purpose described in clause (i) of subsection (b)(4)(B). For purposes of the preceding sentence, a rule similar to the rule of subsection (b)(4)(D) shall apply. ``(3) Production for less than entire base period.-- ``(A) In general.--If alcohol is produced by a producer for less than the entire 3-year period referred to in paragraph (2)(A), the average referred to in paragraph (2) shall be treated as being equal to 50 percent of the annual productive capacity of such producer as of December 31, 1996. ``(B) Producer may establish higher average production.--In the case of a producer who produced alcohol during at least the last 3 months of such 3- year period, subparagraph (A) shall be applied by substituting for `50 percent' the percentage established by such producer to the satisfaction of the Secretary as the percentage which such producer's normal alcohol production is of its productive capacity. ``(4) Acquisitions and dispositions.--Rules similar to the rules of subparagraphs (A) and (B) of section 41(f)(3) shall apply for purposes of this subsection.'' (3) Conforming amendment.--Paragraph (1) of section 40(g) of such Code is amended by striking ``clauses (i) and (ii)'' and inserting ``clauses (i), (ii), and (iii)''. (c) Reduction of Credit For Ethanol By Reason of Carbon Dioxide Byproduct Benefit.--Subsection (h) of section 40 of such Code is amended-- (1) by striking ``54 cents'' each place it appears and inserting ``51 cents'', and (2) by striking ``40 cents'' each place it appears and inserting ``38.25 cents''. (d) Conforming Reductions of Other Incentives for Ethanol Fuel.-- (1) Repeal of reduced rate on ethanol fuel produced other than from petroleum or natural gas.--Subsection (b) of section 4041 of such Code is amended to read as follows: ``(b) Exemption for Off-Highway Business Use.-- ``(1) In general.--No tax shall be imposed by subsection (a) or (d)(1) on liquids sold for use or used in an off-highway business use. ``(2) Tax where other use.--If a liquid on which no tax was imposed by reason of paragraph (1) is used otherwise than in an off-highway business use, a tax shall be imposed by paragraph (1)(B), (2)(B), or (3)(A)(ii) of subsection (a) (whichever is appropriate) and by the corresponding provision of subsection (d)(1) (if any). ``(3) Off-highway business use defined.--For purposes of this subsection, the term `off-highway business use' has the meaning given to such term by section 6421(e)(2); except that such term shall not, for purposes of subsection (a)(1), include use in a diesel-powered train.'' (2) Repeal of reduced rate on ethanol fuel produced from natural gas.--Subsection (m) of section 4041 of such Code is amended-- (A) by striking ``or ethanol'' each place it appears (including the heading of paragraph (2)), and (B) by striking ``, ethanol, or other alcohol'' in paragraph (2) and inserting ``or other alcohol (other than ethanol)''. (e) Conforming Amendments To Excise Taxes; Fuel Alcohol Taxed in Same Manner as Other Motor Fuels.-- (1) In general.--Paragraph (1) of section 4083(a) of such Code (defining taxable fuel) is amended by striking ``and'' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ``, and'', and by adding at the end the following: ``(C) fuel alcohol.'' (2) Fuel alcohol.--Subsection (a) of section 4083 of such Code is amended by adding at the end the following new paragraph: ``(4) Fuel alcohol.--The term `fuel alcohol' means any alcohol (including ethanol and methanol)-- ``(A) which is produced other than from petroleum, natural gas, or coal (including peat), and ``(B) which is withdrawn from the distillery where produced free of tax under chapter 51 by reason of section 5181 or so much of section 5214(a)(1) as relates to fuel use. Such term shall not include alcohol designated under section 40(i).'' (3) Rate of tax.--Clause (i) of section 4081(a)(2)(A) of such Code is amended by inserting ``or fuel alcohol'' after ``gasoline''. (4) Special rules for imposition of tax.-- (A) Paragraph (1) of section 4081(a) of such Code is amended by adding at the end the following new subparagraph: ``(C) Special rules for fuel alcohol.--In the case of fuel alcohol-- ``(i) the distillery where produced shall be treated as a refinery, and ``(ii) subparagraph (B) shall be applied by including transfers by truck or rail in excess of such minimum quantities as the Secretary shall prescribe.'' (B) Paragraph (1) of section 4081(b) of such Code is amended by inserting ``(other than fuel alcohol designated under section 40(i))'' after ``taxable fuel''. (5) Repeal of reduced rates on alcohol fuels.-- (A) Section 4041 of such Code is amended by striking subsection (k). (B) Section 4081 of such Code is amended by striking subsection (c). (C) Section 4091 of such Code is amended by striking subsection (c). (6) Conforming amendments.-- (A) Subsection (c) of section 40 of such Code is amended by striking all that follows ``application of'' and inserting ``the last sentence of section 4083(a)(4)''. (B) Paragraph (4) of section 40(d) of such Code is amended to read as follows: ``(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).'' (C) Paragraph (2) of section 4041(a) of such Code is amended by adding at the end the following: ``No tax shall be imposed by this paragraph on the sale or use of any liquid if tax was imposed on such liquid under section 4081 and the tax thereon was not credited or refunded.'' (D) Section 6427 of such Code is amended by striking subsection (f). (E) Subsection (i) of section 6427 of such Code is amended by striking paragraph (3). (F) Paragraph (2) of section 6427(k) of such Code is amended by striking ``(3)''. (G)(i) Paragraph (1) of section 6427(l) of such Code is amended by striking ``or'' at the end of subparagraph (A), by redesignating subparagraph (B) as subparagraph (C), and by inserting after subparagraph (A) the following new subparagraph: ``(B) any fuel alcohol (as defined in section 4083) on which tax has been imposed by section 4081, or''. (ii) Paragraph (2) of section 6427(l) of such Code is amended by striking ``and'' at the end of subparagraph (A), by redesignating subparagraph (B) as subparagraph (C), and by inserting after subparagraph (A) the following new subparagraph: ``(B) in the case of fuel alcohol (as so defined), any use which is exempt from the tax imposed by section 4041(a)(2) other than by reason of a prior imposition of tax, and''. (iii) The heading of subsection (l) of section 6427 of such Code is amended by inserting ``, Fuel Alcohol,'' after ``Diesel Fuel''. (H) Sections 9503(b)(1)(E) and 9508(b)(2) of such Code are each amended by striking ``and kerosene'' and inserting ``kerosene, and fuel alcohol''. (I) Section 9502 of such Code is amended by striking subsection (e) and by redesignating subsection (f) as subsection (e). (J) Subsection (e) of section 9502 of such Code (as redesignated by subparagraph (I)) is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2). (K) Subsection (b) of section 9503 of such Code is amended by striking paragraph (5). (L) Paragraph (3) of section 9503(f) of such Code is amended to read as follows: ``(3) Partially exempt methanol or ethanol fuel.--In the case of a rate of tax determined under section 4041(m), the Highway Trust Fund financing rate is the excess (if any) of the rate so determined over 4.3 cents per gallon.'' (f) Increase in Small Ethanol Producer Credit.--Subparagraph (A) of section 40(b)(4) of such Code is amended by striking ``10 cents'' and inserting ``13 cents''. (g) Effective Date.-- (1) Amendments relating to credit.--The amendments made by subsections (a), (b), (c), and (f) shall apply to alcohol produced after December 31, 1996, in taxable years ending after such date. (2) Amendments relating to excise taxes.--The amendments made by subsections (d) and (e) shall take effect on January 1, 1997. (3) Stills placed in service pursuant to binding contracts.--For purposes of subsections (d)(1)(A)(iii) and (i)(3)(A) of section 40 of the Internal Revenue Code of 1986, as amended by this section, a still (or other distilling apparatus) shall be treated as placed in service before January 1, 1997, if such still (or other apparatus)-- (A) is constructed or acquired by the taxpayer pursuant to a written contract which was binding on April 30, 1996, and at all times thereafter before such construction or acquisition, and (B) is placed in service before January 1, 1998. (h) Floor Stock Taxes.-- (1) Imposition of tax.--In the case of fuel alcohol which is held on January 1, 1997, by any person, there is hereby imposed a floor stocks tax of 18.4 cents per gallon. (2) Liability for tax and method of payment.-- (A) Liability for tax.--A person holding fuel alcohol on January 1, 1997, to which the tax imposed by paragraph (1) applies shall be liable for such tax. (B) Method of payment.--The tax imposed by paragraph (1) shall be paid in such manner as the Secretary shall prescribe. (C) Time for payment.--The tax imposed by paragraph (1) shall be paid on or before June 30, 1997. (3) Definitions.--For purposes of this subsection-- (A) Fuel alcohol.--The term ``fuel alcohol'' has the meaning given such term by section 4083 of the Internal Revenue Code of 1986, as amended by this section. (B) Held by a person.--Fuel alcohol shall be considered as ``held by a person'' if title thereto has passed to such person (whether or not delivery to the person has been made). (C) Secretary.--The term ``Secretary'' means the Secretary of the Treasury or his delegate. (4) Exception for exempt uses.--The tax imposed by paragraph (1) shall not apply to fuel alcohol held by any person exclusively for any use to the extent a credit or refund of the tax imposed by section 4081 of the Internal Revenue Code of 1986 is allowable for such use. (5) Exception for fuel held in vehicle tank.--No tax shall be imposed by paragraph (1) on fuel alcohol held in the tank of a motor vehicle or motorboat. (6) Exception for certain amounts of fuel.-- (A) In general.--No tax shall be imposed by paragraph (1) on fuel alcohol held on January 1, 1997, by any person if the aggregate amount of fuel alcohol held by such person on such date does not exceed 2,000 gallons. The preceding sentence shall apply only if such person submits to the Secretary (at the time and in the manner required by the Secretary) such information as the Secretary shall require for purposes of this paragraph. (B) Exempt fuel.--For purposes of subparagraph (A), there shall not be taken into account fuel held by any person which is exempt from the tax imposed by paragraph (1) by reason of paragraph (4) or (5). (C) Controlled groups.--For purposes of this paragraph-- (i) Corporations.-- (I) In general.--All persons treated as a controlled group shall be treated as 1 person. (II) Controlled group.--The term ``controlled group'' has the meaning given to such term by subsection (a) of section 1563 of such Code; except that for such purposes the phrase ``more than 50 percent'' shall be substituted for the phrase ``at least 80 percent'' each place it appears in such subsection. (ii) Nonincorporated persons under common control.--Under regulations prescribed by the Secretary, principles similar to the principles of clause (i) shall apply to a group of persons under common control where 1 or more of such persons is not a corporation. (7) Other laws applicable.--All provisions of law, including penalties, applicable with respect to the taxes imposed by section 4081 of such Code shall, insofar as applicable and not inconsistent with the provisions of this subsection, apply with respect to the floor stock taxes imposed by paragraph (1) to the same extent as if such taxes were imposed by such section 4081.
summary: Drive Away from Ethanol Welfare Act of 1996 - Amends the Internal Revenue Code to repeal the credit for alcohol used to produce any ether. Limits other tax incentives to produce alcohol for use as fuel. Reduces the credit for any alcohol which is ethanol.