Energy Security Incentive Act of 1989 - Amends the Internal Revenue Code to treat certain geological and geophysical costs and surface casing costs as intangible drilling and development costs that a taxpayer may elect to capitalize or to deduct for income tax purposes.
Exempts oil and gas wells from the application of the net income limitation on percentage depletion.
Revises the percentage depletion allowance applicable to oil and gas wells, retaining a 15 percent minimum, but increasing the percentage incrementally (to a maximum of 30 percent) as the average annual removal price falls below $20.
Permits a percentage depletion income tax deduction for proven oil and gas wells that have been transferred to a new owner.
Repeals provisions that tax as ordinary income any gains from dispositions of oil, gas, or geothermal wells.
Establishes a marginal production income tax credit for producers who maintain economically unproductive oil wells. Applies the credit to domestic crude that is: (1) from stripper well property; (2) heavy oil; or (3) oil recovered through a tertiary recovery method. Fixes the credit at ten percent of the qualified cost (determined in accordance with a formula set forth in this Act) of each barrel produced by the producer during the tax year.
Establishes a crude oil and natural gas exploration and development tax credit. Allows a ten percent credit for qualified investments exceeding $1,000,000, 20 percent for those of $1,000,000 or less. Permits the credit as an offset against both minimum tax liability and regular liability.
Repeals provisions that identify intangible drilling costs as a tax preference item for purposes of determining alternative minimum tax liability and corporate preference reductions.
Increases from 65 to 100 percent the taxable income limitation on the percentage depletion deduction for oil and gas property.
Permits a taxpayer to elect to carry forward to the next succeeding taxable year any portion of excess depletion allowances.
Extends the income tax credit for producing fuel from a nonconventional source to qualified fuels from wells or facilities in service before January 1, 1996. (The change represents a five-year extension of the credit.) Affirms natural gas found in tight sands formations as a qualified fuel with respect to the credit.
HR 658 IH
101st CONGRESS
1st Session
H. R. 658
To amend the Internal Revenue Code of 1986 to provide incentives for oil
and natural gas exploration, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
January 27, 1989
Mr. ANDREWS (for himself, Mr. PICKLE, Mr. MATSUI, Mr. WATKINS, Mr. STENHOLM,
Mr. BUSTAMANTE, Mr. FROST, Mr. LAUGHLIN, Mr. MCCURDY, Mr. BARTON of Texas,
Mr. SARPALIUS, and Mr. HALL of Texas) introduced the following bill; which
was referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide incentives for oil
and natural gas exploration, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the `Energy Security Incentive Act of 1989'.
SEC. 2. TABLE OF CONTENTS.
Sec. 1. Short title.
Sec. 2. Table of contents.
Sec. 3. Geological, geophysical, and surface casing costs treated like
intangible drilling and development costs.
Sec. 4. Net income limitation on percentage depletion not to apply to oil
and gas wells.
Sec. 5. Increase in percentage depletion based on removal price.
Sec. 6. Percentage depletion permitted after transfer of proven property.
Sec. 7. Repeal of recapture provisions dealing with dispositions of oil,
gas, or geothermal property interests.
Sec. 8. Crude oil production credit for maintaining economically marginal
wells.
Sec. 9. Crude oil and natural gas exploration and development credit.
Sec. 10. Removal of intangible drilling costs from the alternative minimum
tax and corporate preference reductions.
Sec. 11. Repeal of taxable income limitation for percentage depletion.
Sec. 12. Election to carry forward depletion deduction in excess of basis.
Sec. 13. Credit for producing fuel from nonconventional sources.
SEC. 3. GEOLOGICAL, GEOPHYSICAL, AND SURFACE CASING COSTS TREATED LIKE
INTANGIBLE DRILLING AND DEVELOPMENT COSTS.
(a) IN GENERAL- Subsection (c) of section 263 of the Internal Revenue Code
of 1986 (relating to intangible drilling and development costs in the case
of oil and gas wells and geothermal wells) is amended by inserting before
the last sentence the following new sentence: `In the case of oil and
gas wells, the tax treatment which applies to the taxpayer's intangible
drilling and development costs shall also apply to surface casing costs
and to geological and geophysical costs for the purpose of ascertaining the
existence, location, extent, or quality of any deposit of oil or gas within
the United States (within the meaning of section 638(1)) or a possession
of the United States (within the meaning of section 638(2)).'
(b) EFFECTIVE DATE- The amendments made by this section shall apply to
costs paid or incurred after the date of the enactment of this Act in
taxable years ending after such date.
SEC. 4. NET INCOME LIMITATION ON PERCENTAGE DEPLETION NOT TO APPLY TO OIL
AND GAS WELLS.
(a) IN GENERAL- The second sentence of subsection (a) of section 613 of
the Internal Revenue Code of 1986 (relating to percentage depletion) is
amended by striking out `Such allowance' and inserting in lieu thereof
`Except in the case of an oil or gas well, such allowance'.
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to
taxable years beginning after the date of the enactment of this Act.
SEC. 5. INCREASE IN PERCENTAGE DEPLETION BASED ON REMOVAL PRICE.
(a) IN GENERAL- Paragraph (5) of section 613A(c) of the Internal Revenue
Code of 1986 (defining applicable percentage) is amended to read as follows:
`(5) APPLICABLE PERCENTAGE- For purposes of paragraph (1)--
`(A) IN GENERAL- In the case of production during calendar years beginning
after the date of the enactment of this subparagraph--
`If the average annual removal
--
price during the calendar
--The applicable
year is:
--percentage is:
Less than $10
--30
At least $10 but less than $15
--25
At least $15 but less than $20
--20
At least $20
--15.
`(B) AVERAGE ANNUAL REMOVAL PRICE- For purposes of subparagraph (A), the
average annual removal price for any calendar year shall be determined
by dividing the taxpayer's aggregate production of domestic crude oil or
natural gas during such calendar year by the aggregate amount for which
such domestic crude oil or natural gas, as the case may be, was sold
(determined after application of paragraphs (2), (3), and (4) of section
4988(c), as in effect before their repeal) by the taxpayer.'
(b) EFFECTIVE DATE- The amendments made by this section shall apply to
production during calendar years beginning after the date of the enactment
of this Act.
SEC. 6. PERCENTAGE DEPLETION PERMITTED AFTER TRANSFER OF PROVEN PROPERTY.
(a) IN GENERAL- Subsection (c) of section 613A of the Internal Revenue
Code of 1986 (relating to limitations on percentage depletion in case
of oil and gas wells) is amended by striking out paragraphs (9) and (10)
and by redesignating paragraphs (11), (12), and (13) as paragraphs (9),
(10), and (11), respectively.
(b) TECHNICAL AMENDMENT- Paragraph (11) of section 613A(c) of such Code,
as redesignated by subsection (a), is amended by striking out subparagraphs
(C) and (D).
(c) EFFECTIVE DATE- The amendments made by this section shall apply to
production after the date of the enactment of this Act in taxable years
ending after such date.
SEC. 7. REPEAL OF RECAPTURE PROVISIONS DEALING WITH DISPOSITIONS OF OIL,
GAS, OR GEOTHERMAL PROPERTY INTERESTS.
(a) In General-
(1) PROVISIONS IN EFFECT BEFORE TAX REFORM ACT OF 1986- Section 1254
of the Internal Revenue Code of 1986 (relating to gain from disposition
of interest in oil, gas, or geothermal property) shall not apply to any
disposition to which the amendments made by section 413 of the Tax Reform
Act of 1986 do not apply.
(2) PROVISIONS IN EFFECT AFTER TAX REFORM ACT OF 1986- Section 1254 of such
Code, as in effect after the amendments made by the Tax Reform Act of 1986,
is amended--
(A) by striking out `263, 616,' in subsection (a)(1)(A)(i) and inserting
in lieu thereof `616', and
(B) by adding at the end of subsection (a)(3) the following: `The term
`section 1254 property' does not include any oil, gas, or geothermal well.'
(b) Conforming Amendment-
(1) Sections 59(e)(5)(A) and 291(b)(3) of such Code are each amended by
striking out `263(c), 616(a),' and inserting in lieu thereof `616(a)'.
(2) The heading for section 1254 of such Code, as amended by the Tax Reform
Act of 1986, is amended by striking out `OIL, GAS, GEOTHERMAL, OR OTHER'
and inserting in lieu thereof `CERTAIN'.
(3) The item relating to section 1254 in the table of sections for part
IV of subchapter P of chapter 1 of such Code is amended to read as follows:
`Sec. 1254. Gain from disposition of interest in certain mineral properties.'
(c) EFFECTIVE DATE- The amendments made by this section shall apply to
dispositions after the date of the enactment of this Act.
SEC. 8. CRUDE OIL PRODUCTION CREDIT FOR MAINTAINING ECONOMICALLY MARGINAL
WELLS.
(a) IN GENERAL- Subpart B of part IV of subchapter A of chapter 1 of the
Internal Revenue Code of 1986 is amended by adding at the end thereof the
following new section:
`SEC. 30. CRUDE OIL PRODUCTION CREDIT FOR MAINTAINING ECONOMICALLY MARGINAL
WELLS.
`(a) ALLOWANCE OF CREDIT- There shall be allowed as credit against the tax
imposed by this chapter for the taxable year to the producer of eligible
crude oil an amount equal to 10 percent of the qualified cost of each barrel
of such oil (or fractional part thereof) produced during the taxable year.
`(b) QUALIFIED COST- For purposes of this section, the term `qualified cost'
means, with respect to each barrel of eligible crude oil, the sum of--
`(1) such barrel's pro rata share of--
`(A) the lease operating expenses (other than business overhead expenses)
paid or incurred by the producer of such barrel during the taxable year
in which such barrel was produced,
`(B) the amount allowed to such producer for such taxable year for
depreciation under sections 167 and 168 with respect to the property used
in the production of such barrel,
`(C) the amount allowed to such producer for such taxable year for
depletion under section 611 (but not in excess of the adjusted basis of
the property), and
`(D) the business overhead expenses paid or incurred during such taxable
year by such producer, plus
`(2) the amount of severance tax paid or incurred by such producer with
respect to such barrel.
`(c) DEFINITIONS- For purposes of this section--
`(1) ELIGIBLE CRUDE OIL- The term `eligible crude oil' means domestic
crude oil which is--
`(A) from a stripper well property within the meaning of the June 1979
energy regulations,
`(B) heavy oil, or
`(C) oil recovered through a tertiary recovery method.
`(2) Other definitions-
`(A) CRUDE OIL- The term `crude oil' has the meaning given to such term
by the June 1979 energy regulations.
`(B) BARREL- The term `barrel' means 42 United States gallons.
`(C) DOMESTIC- The term `domestic' when used with respect to crude oil,
means crude oil produced from a well located in the United States or in
a possession of the United States.
`(D) UNITED STATES- The term `United States' has the meaning given to such
term by paragraph (1) of section 638 (relating to Continental Shelf areas).
`(E) POSSESSION OF THE UNITED STATES- The term `possession of the United
States' has the meaning given to such term by paragraph (2) of section 638.
`(F) HEAVY OIL- The term `heavy oil' means all crude oil which is produced
from a property if crude oil produced and sold from such property during--
`(i) the last month before July 1979 in which crude oil was produced and
sold from such property, or
`(ii) the taxable year had a weighted average gravity of 20 degrees API
or less (corrected to 60 degrees Fahrenheit).
`(G) TERTIARY RECOVERY METHOD- The term `tertiary recovery method' means--
`(i) any method which is described in subparagraphs (1) through (9) of
section 212.78(c) of the October 1979 energy regulations, or
`(ii) any other method to provide tertiary enhanced recovery which is
approved by the Secretary for purposes of this section.
`(H) SEVERANCE TAX- The term `severance tax' means a tax imposed by a State
or political subdivision thereof with respect to the extraction of crude oil.
`(I) Energy regulations-
`(i) IN GENERAL- The term `energy regulations' means regulations prescribed
under section 4(a) of the Energy Petroleum Allocation Act of 1973 (15
U.S.C. 753(a)).
`(ii) JUNE 1979 ENERGY REGULATIONS- The June 1979 energy regulations shall
be the terms of the energy regulations as such terms existed on June 1, 1979.
`(iii) OCTOBER 1979 ENERGY REGULATIONS- The October 1979 energy regulations
shall be the terms of the energy regulations as such terms existed on
October 30, 1979.
`(iv) CONTINUED APPLICATION OF REGULATIONS AFTER DECONTROL- Energy
regulations shall be treated as continuing in effect without regard to
decontrol of oil prices or any other termination of the application of
such regulations.
`(d) Limitation Based on Amount of Tax-
`(1) LIABILITY FOR TAX- The credit allowable under subsection (a) for any
taxable year shall not exceed the excess (if any) of--
`(A) the sum of--
`(i) the taxpayer's tentative minimum tax liability under section 55(b)
for such taxable year determined without regard to this section, plus
`(ii) the taxpayer's regular tax liability for such taxable year (as
defined in section 26(b)), over
`(B) the sum of the credits allowable against the taxpayer's regular tax
liability under part IV (other than section 43 and this section).
`(2) APPLICATION OF THE CREDIT- Each of the following amounts shall be
reduced by the full amount of the credit determined under paragraph (1):
`(A) the taxpayer's tentative minimum tax under section 55(b) for the
taxable year, and
`(B) the taxpayer's regular tax liability (as defined in section 26(b))
reduced by the sum of the credits allowable under part IV (other than
section 43 and this section).
If the amount of the credit determined under paragraph (1) exceeds the amount
described in subparagraph (B) of paragraph (2), then the excess shall be
deemed to be the adjusted net minimum tax for such taxable year for purposes
of section 53.
`(3) Carryback and carryforward of unused credit-
`(A) IN GENERAL- If the amount of the credit allowed under subsection (a)
for any taxable year exceeds the limitation under paragraph (1) for such
taxable year (hereinafter in this paragraph referred to as the `unused
credit year'), such excess shall be--
`(i) an oil production credit carryback to each of the 7 taxable years
preceding the unused credit year, and
`(ii) an oil production credit carryforward to each of the 15 taxable
years following the unused credit year,
and shall be added to the amount allowable as a credit under subsection (a)
for such years. If any portion of such excess is a carryback to a taxable
year beginning on or before the date of the enactment of this section,
this section shall be deemed to have been in effect for such taxable year
for purposes of allowing such carryback as a credit under this section. The
entire amount of the unused credit shall be carried to the earliest of the
22 taxable years to which such credit may be carried, and then to each of
the other 21 taxable years to the extent that, because of the limitation
contained in subparagraph (B), such unused credit may not be added for a
prior taxable year to which such unused credit may be carried.
`(B) LIMITATIONS- The amount of the unused credit which may be taken into
account under subparagraph (A) for any succeeding taxable year shall not
exceed the amount by which the limitation provided by paragraph (1) for
such taxable year exceeds the sum of--
`(i) the credit allowable under subsection (a) for such taxable year, and
`(ii) the amounts which, by reason of this paragraph, are added to the
amount allowable for such taxable year and which are attributable to
taxable years preceding the unused credit year.
`(e) 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) CLERICAL AMENDMENT- The table of sections for subpart B of part IV
of subchapter A of chapter 1 of such Code is amended by adding at the end
thereof the following new item:
`Sec. 30. Crude oil production credit for maintaining marginally economic
wells.'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to oil
produced in taxable years beginning after the date of enactment of this Act.
SEC. 9. CRUDE OIL AND NATURAL GAS EXPLORATION AND DEVELOPMENT CREDIT.
(a) CRUDE OIL AND NATURAL GAS EXPLORATION AND DEVELOPMENT CREDIT- Subpart
B of part IV of subchapter A of chapter 1 of the Internal Revenue Code
of 1986, as amended by section 8, is amended by adding at the end thereof
the following new section:
`SEC. 30A. CRUDE OIL AND NATURAL GAS EXPLORATION AND DEVELOPMENT CREDIT.
`(a) GENERAL RULE- For purposes of section 38, the crude oil and natural
gas exploration and development credit determined under this section for
any taxable year shall be an amount equal to the sum of--
`(1) 20 percent of so much of the taxpayer's qualified investment for the
taxable year as does not exceed $1,000,000, plus
`(2) 10 percent of so much of such qualified investment for the taxable
year as exceeds $1,000,000.
`(b) QUALIFIED INVESTMENT- For purposes of this section, the term `qualified
investment' means amounts paid or incurred--
`(1) for the purpose of ascertaining the existence, location, extent, or
quality of any crude oil or natural gas deposit, including core testing
and drilling test wells,
`(2) for the purpose of developing a property on which there is a reservoir
capable of commercial production and such amounts are paid or incurred in
connection with activities which are intended to result in the recovery
of crude oil or natural gas on such property, or
`(3) for the purpose of performing secondary or tertiary recovery technique
on a well located in the United States or in a possession of the United
States as defined in section 638.
`(c) LIMITATION BASED ON AMOUNT OF TAX-
`(1) LIABILITY FOR TAX- The credit allowable under subsection (a) for any
taxable year shall not exceed the excess (if any) of--
`(A) the sum of--
`(i) the taxpayer's tentative minimum tax liability under section 55(b)
for such taxable year determined without regard to this section, plus
`(ii) the taxpayer's regular tax liability for such taxable year (as
defined in section 26(b)), over
`(B) the sum of the credits allowable against the taxpayer's regular tax
liability under part IV (other than section 43 and this section).
`(2) APPLICATION OF THE CREDIT- Each of the following amounts shall be
reduced by the full amount of the credit determined under paragraph (1):
`(A) the taxpayer's tentative minimum tax under section 55(b) for the
taxable year, and
`(B) the taxpayer's regular tax liability (as defined in section 26(b))
reduced by the sum of the credits allowable under part IV (other than
section 43 and this section).
If the amount of the credit determined under paragraph (1) exceeds the amount
described in subparagraph (B) of paragraph (2), then the excess shall be
deemed to be the adjusted net minimum tax for such taxable year for purposes
of section 53.
`(3) Carryback and carryforward of unused credit-
`(A) IN GENERAL- If the amount of the credit allowed under subsection (a)
for any taxable year exceeds the limitation under paragraph (1) for such
taxable year (hereinafter in this paragraph referred to as the `unused
credit year'), such excess shall be--
`(i) an oil production credit carryback to each of the 7 taxable years
preceding the unused credit year, and
`(ii) an oil production credit carryforward to each of the 15 taxable
years following the unused credit year,
and shall be added to the amount allowable as a credit under subsection (a)
for such years. If any portion of such excess is a carryback to a taxable
year beginning on or before the date of the enactment of this section,
this section shall be deemed to have been in effect for such taxable year
for purposes of allowing such carryback as a credit under this section. The
entire amount of the unused credit shall be carried to the earliest of the
22 taxable years to which such credit may be carried, and then to each of
the other 21 taxable years to the extent that, because of the limitation
contained in subparagraph (B), such unused credit may not be added for a
prior taxable year to which such unused credit may be carried.
`(B) LIMITATIONS- The amount of the unused credit which may be taken into
account under subparagraph (A) for any succeeding taxable year shall not
exceed the amount by which the limitation provided by paragraph (1) for
such taxable year exceeds the sum of--
`(i) the credit allowable under subsection (a) for such taxable year, and
`(ii) the amounts which, by reason of this paragraph, are added to the
amount allowable for such taxable year and which are attributable to
taxable years preceding the unused credit year.
(b) CLERICAL AMENDMENT- The table of sections for subpart B of part IV
of subchapter A of chapter 1 of such Code, as amended by section 8, is
amended by adding at the end thereof the following new item:
`Sec. 30A. Crude oil and natural gas exploration and development credit.'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to
expenditures paid or incurred in taxable years beginning after the date
of the enactment of this Act.
SEC. 10. REMOVAL OF INTANGIBLE DRILLING COSTS FROM THE ALTERNATIVE MINIMUM
TAX AND CORPORATE PREFERENCE REDUCTIONS.
(a) ALTERNATIVE MINIMUM TAX- Sections 57(a)(2) and 57(b) of the Internal
Revenue Code of 1986 are hereby repealed.
(b) Corporate Preference Items-
(1) IN GENERAL- Paragraph (1) of section 291(b)(1) of the Internal Revenue
Code of 1986 is amended to read as follows:
`(1) IN GENERAL- The amount allowable as a deduction for any taxable year
under section 616(a) or 617(a) (determined without regard to this section)
shall be reduced by 30 percent.'
(2) Conforming amendments-
(A) Paragraphs (2) and (3) of section 291(b) of such Code are each amended
by striking out `263(c), 616(a),' and inserting in lieu thereof `616(a)'.
(B) Section 291(b) of such Code is amended by striking out paragraph (4)
and by redesignating paragraph (5) as paragraph (4).
(C) Section 59(e)(2) of such Code is amended by striking out subparagraph (C)
and by redesignating subparagraphs (D) and (E) as subparagraphs (C) and (D).
(D) Section 263(c) of such Code is amended by striking out the last sentence.
(c) EFFECTIVE DATE- The repeal made by this section shall apply to costs
paid or incurred after the date of the enactment of this Act, in taxable
years ending after such date.
SEC. 11. REPEAL OF TAXABLE INCOME LIMITATION ON PERCENTAGE DEPLETION.
(a) IN GENERAL- Section 613(A)(d)(1) of the Internal Revenue Code of 1986 is
amended by deleting `65 percent' and inserting in lieu thereof `100 percent'.
(b) EFFECTIVE DATE- The amendments made by this section shall apply to
the taxable years beginning after the date of the enactment of this Act.
SEC. 12. ELECTION TO CARRY FORWARD DEPLETION DEDUCTION IN EXCESS OF BASIS.
(a) IN GENERAL- Section 59 of the Internal Revenue Code of 1986 (relating
to other definitions and special rules for minimum tax) is amended by
adding at the end thereof the following new subsection:
`(j) Optional Carryforward of Excess Depletion Allowances-
`(1) IN GENERAL- For purposes of this title, a taxpayer may elect to
treat any portion of the excess amount described in section 57(a)(1)
for any taxable year as a deduction arising in the succeeding taxable year.
`(2) NO OTHER DEDUCTION ALLOWED- No deduction shall be allowed under any
other section for any amount to which an election under this subsection
applies for the taxable year.
`(3) ELECTION; PREFERENCE ITEMS- Rules similar to the rules of paragraphs (4)
and (6) of subsection (e) shall apply to amounts to which this subsection
applies.'
(b) EFFECTIVE DATE- The amendment made by this section shall apply to
taxable years beginning after the date of the enactment of this Act.
SEC. 13. CREDIT FOR PRODUCING FUEL FROM NONCONVENTIONAL SOURCES.
(a) 5-YEAR EXTENSION- Clauses (i) and (ii) of section 29(f)(1)(A) of the
Internal Revenue Code of 1986 are each amended by striking out `January 1,
1991' and inserting in lieu thereof `January 1, 1996'.
(b) TIGHT SANDS GAS ELIGIBLE FOR CREDIT- Section 29(c)(2) of the Internal
Revenue Code of 1986 is amended to read as follows:
`(2) GAS FROM GEOPRESSURED BRINE, ETC- 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.'
(c) EFFECTIVE DATE- The amendment made by subsection (b) shall apply to
gas produced after the date of the enactment of this Act.
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
See H.R.5835.
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