SECTION 2. BACKGROUND AND

DEFINITIONS

.01 Section 45H, which was added to the Code by § 339(a) of the American Jobs Creation Act of 2004 (Public Law No. 108–357), provides a low sulfur diesel fuel production credit for low sulfur diesel fuel produced by a small business refiner. Section 45H(a) provides that the amount of the credit is 5 cents per gallon of low sulfur diesel fuel produced by a small business refiner.

.02 Section 45H(b)(1) provides that the aggregate credit determined under § 45H(a) for any taxable year with respect to any facility shall not exceed—

(1) 25 percent of the qualified capital costs incurred by the small business refiner with respect to the facility, reduced by

(2) The aggregate credits determined under § 45H for all prior taxable years with respect to the facility.

.03 Under § 45H(b)(2), 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 § 45H(b)(1) (25 percentage points) shall be reduced (not below zero) by the product of such number (before the application of § 45H(b)(2)) and the ratio of the excess to 50,000 barrels. .04 Section 45H(c)(1) defines the term “small business refiner” to mean, with re

spect to any taxable year, a refiner of crude oil that meets the following requirements:

(1) Not more than 1,500 individuals are engaged in the refinery operations of the business on any day during the taxable year; and

(2) The average daily domestic refinery run or average retained production for all facilities of the taxpayer for the 1-year period ending on December 31, 2002, did not exceed 205,000 barrels.

.05 Section 45H(c)(2) defines the term “qualified capital costs.” The qualified capital costs with respect to any facility are those costs that are paid or incurred during the applicable period for compliance with the applicable EPA regulations with respect to the facility, including expenditures for the construction of new process operations 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.

.06 Section 45H(c)(3) defines the term “applicable EPA regulations” as the Highway Diesel Fuel Sulfur Control Requirements of the EPA (applicable EPA regulations). Heavy-duty highway vehicles for the 2007 and later model years must be fueled with highway diesel fuel that meets a maximum sulfur standard of 15 parts per million (ppm). The applicable EPA regulations generally require petroleum refiners that produce diesel fuel for heavy-duty highway vehicles to produce this low sulfur diesel fuel beginning June 1, 2006. However, the applicable EPA regulations provide additional time to comply with the 15 ppm sulfur standard under certain circumstances.

.07 Section 45H(c)(4) defines the term “applicable period.” The applicable period with respect to any facility is the period beginning on January 1, 2003, and ending on the earlier of the date that is one year after the date on which the taxpayer must comply with the applicable EPA regulations with respect to that facility, or December 31, 2009.

.08 Section 45H(c)(5) defines the term “low sulfur diesel fuel” as diesel fuel with a sulfur content of 15 ppm or less.

.09 Section 45H(f)(1) provides that no credit for the production of low sulfur

diesel fuel under § 45H shall be allowed unless, not later than the date that 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 EPA, that the taxpayer’s qualified costs with respect to the facility will result in compliance with the applicable EPA regulations.

.10 Section 45H(f)(2) provides that 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 EPA, to determine that the qualified capital costs are necessary for compliance with the applicable EPA regulations.

.11 Under § 45H(f)(3), any application shall be reviewed and notice of certification, if applicable, shall be made within 60 days of receipt of the application. In the event the Secretary does not notify the taxpayer of the results of the certification within this time period, the taxpayer may presume the certification to be issued until so notified.

.12 Section 45H(f)(4) provides that, with respect to the credit allowed under § 45H—

(1) The statutory period for assessment of any deficiency attributable to the credit shall not expire before the end of the 3-year period ending on the date that the review period described in § 45H(f)(3) ends with respect to the taxpayer; and

(2) The deficiency may be assessed before the expiration of the 3-year period notwithstanding the provisions of any other law or rule of law that would otherwise prevent the assessment.

.13 Section 45H is effective for expenses paid or incurred after December 31, 2002, in taxable years ending after that date.