[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1971 Introduced in House (IH)]
106th CONGRESS
1st Session
H. R. 1971
To amend the Internal Revenue Code of 1986 to encourage domestic oil
and gas production, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
May 26, 1999
Mr. Watkins (for himself, Mr. John, and Mr. Watts of Oklahoma)
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 encourage domestic oil
and gas production, 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; AMENDMENT OF 1986 CODE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Domestic Energy
Production Security and Stabilization Act.''
(b) Amendment of 1986 Code.--Except as otherwise expressly
provided, whenever in this Act an amendment or repeal is expressed in
terms of an amendment to, or repeal of, a section or other provision,
the reference shall be considered to be made to a section or other
provision of the Internal Revenue Code of 1986.
(c) Table of Contents.--The table of contents of this Act is as
follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.
Sec. 2. Tax credit for marginal domestic oil and natural gas well
production.
Sec. 3. Phase-out of certain minimum tax preferences relating to energy
production.
Sec. 4. Depreciation adjustment not to apply to oil and gas assets.
Sec. 5. Repeal certain adjustments based on adjusted current earnings
relating to oil and gas assets.
Sec. 6. Enhanced oil recovery credit and credit for producing fuel from
a nonconventional source allowed against
minimum tax.
Sec. 7. 10-year carryback for percentage depletion for oil and gas
property.
Sec. 8. Net income limitation on percentage depletion repealed for oil
and gas properties.
Sec. 9. Election to expense geological and geophysical expenditures and
delay rental payments.
Sec. 10. Waiver of limitations.
SEC. 2. TAX CREDIT FOR MARGINAL DOMESTIC OIL AND NATURAL GAS WELL
PRODUCTION.
(a) Purpose.--The purpose of this section is to prevent the
abandonment of marginal oil and gas wells responsible for half of the
domestic production of oil and gas in the United States.
(b) Credit for Producing Oil and Gas From Marginal Wells.--Subpart
D of part IV of subchapter A of chapter 1 (relating to business
credits) is amended by adding at the end the following new section:
``SEC. 45D. 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 $14 ($1.56 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 for 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 2000,
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 `1999' 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 29(d)(2)(C), and
``(ii) in the case of qualified natural gas
production, the Secretary's 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
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 equivalents.
``(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) Marginal well.--The term `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 equivalents,
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).
``(C) Barrel equivalent.--The term `barrel
equivalent' means, with respect to natural gas, a
conversion ratio of 6,000 cubic feet of natural gas to
1 barrel of crude oil.
``(d) Other Rules.--
``(1) Production attributable to the taxpayer.--In the case
of a 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 taxpayer's 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 marginal well which is eligible
for the credit allowed under section 29 for the taxable year,
no credit shall be allowable under this section unless the
taxpayer elects not to claim the credit under section 29 with
respect to the well.''
(c) Credit Treated as Business Credit.--Section 38(b) is amended by
striking ``plus'' at the end of paragraph (11), by striking the period
at the end of paragraph (12) and inserting ``, plus'', and by adding at
the end the following new paragraph:
``(13) the marginal oil and gas well production credit
determined under section 45D(a).''
(d) Credit Allowed Against Regular and Minimum Tax.--
(1) In general.--Subsection (c) of section 38 (relating to
limitation based on amount of tax) is amended by redesignating
paragraph (3) as paragraph (4) and by inserting after paragraph
(2) the following new paragraph:
``(3) Special rules for marginal oil and gas well
production credit.--
``(A) In general.--In the case of the marginal oil
and gas well production credit--
``(i) this section and section 39 shall be
applied separately with respect to the credit,
and
``(ii) in applying paragraph (1) to the
credit--
``(I) subparagraphs (A) and (B)
thereof shall not apply, 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 marginal
oil and gas well production credit).
``(B) Marginal oil and gas well production
credit.--For purposes of this subsection, the term
`marginal oil and gas well production credit' means the
credit allowable under subsection (a) by reason of
section 45D(a).''
(2) Conforming amendment.--Subclause (II) of section
38(c)(2)(A)(ii) is amended by inserting ``or the marginal oil
and gas well production credit'' after ``employment credit''.
(e) Carryback.--Subsection (a) of section 39 (relating to carryback
and carryforward of unused credits generally) is amended by adding at
the end the following new paragraph:
``(3) 10-year carryback for marginal oil and gas well
production credit.--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 `10 taxable years' for `1 taxable years'
in subparagraph (A) thereof, and
``(C) paragraph (2) shall be applied--
``(i) by substituting `31 taxable years'
for `21 taxable years' in subparagraph (A)
thereof, and
``(ii) by substituting `30 taxable years'
for `20 taxable years' in subparagraph (B)
thereof.''
(f) Coordination With Section 29.--Section 29(a) is amended by
striking ``There'' and inserting ``At the election of the taxpayer,
there''.
(g) Clerical Amendment.--The table of sections for subpart D of
part IV of subchapter A of chapter 1 is amended by adding at the end
the following item:
``Sec. 45D. Credit for producing oil and
gas from marginal wells.''
(h) Effective Date.--The amendments made by this section shall
apply to production in taxable years beginning after December 31, 1998.
SEC. 3. PHASE-OUT OF CERTAIN MINIMUM TAX PREFERENCES RELATING TO ENERGY
PRODUCTION.
(a) Energy Preferences for Integrated Oil Companies.--Section 56
(relating to alternative minimum taxable income) is amended by adding
at the end the following new subsection:
``(h) Adjustment Based on Energy Preference.--
``(1) In general.--In computing the alternative minimum
taxable income of any taxpayer for any taxable year beginning
after 1998, there shall be allowed as a deduction an amount
equal to the alternative tax energy preference deduction.
``(2) Phase-out of deduction as oil prices increase.--The
amount of the deduction under paragraph (1) (determined without
regard to this paragraph) shall be reduced (but not below zero)
by the amount which bears the same ratio to such amount as--
``(A) the amount by which the reference price for
the calendar year preceding the calendar year in which
the taxable year begins exceeds $14, bears to
``(B) $3.
For purposes of this paragraph, the reference price for any
calendar year shall be determined under section 29(d)(2)(C),
and, in the case of any taxable year beginning in a calendar
year after 2000, the $14 amount under subparagraph (A) shall be
adjusted at the same time and in the same manner as under
section 43(b)(3) by substituting `1999' for `1990'.
``(3) Alternative tax energy preference deduction.--For
purposes of paragraph (1), the term `alternative tax energy
preference deduction' means an amount equal to the sum of--
``(A) the intangible drilling cost preference, and
``(B) the depletion preference.
``(4) Intangible drilling cost preference.--For purposes of
this subsection, the term `intangible drilling cost preference'
means the amount by which alternative minimum taxable income
would be reduced if it were computed without regard to section
57(a)(2).
``(5) Depletion preference.--For purposes of this
subsection, the term `depletion preference' means the amount by
which alternative minimum taxable income would be reduced if it
were computed without regard to section 57(a)(1).
``(6) Alternative minimum taxable income.--For purposes of
paragraphs (1), (4), and (5), alternative minimum taxable
income shall be determined without regard to the deduction
allowable under this subsection and the alternative tax net
operating loss deduction under subsection (a)(4).
``(7) Regulations.--The Secretary may by regulation provide
for appropriate adjustments in computing alternative minimum
taxable income or adjusted current earnings for any taxable
year following a taxable year for which a deduction was allowed
under this subsection to ensure that no double benefit is
allowed by reason of such deduction.''
(b) Repeal of Limit on Reduction for Independent Producers.--
Subparagraphs (E) of section 57(a)(2) (relating to exception for
independent producers) is amended to read as follows:
``(E) Exception for independent producers.--In the
case of any oil or gas well, this paragraph shall not
apply to any taxpayer which is not an integrated oil
company (as defined in section 291(b)(4)).''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1998.
SEC. 4. DEPRECIATION ADJUSTMENT NOT TO APPLY TO OIL AND GAS ASSETS.
(a) In General.--Subparagraph (B) of section 56(a)(1) (relating to
depreciation adjustments) is amended to read as follows:
``(B) Exceptions.--This paragraph shall not apply
to--
``(i) property described in paragraph (1),
(2), (3), or (4) of section 168(f), or
``(ii) property used in the active conduct
of the trade or business of exploring for,
extracting, developing, or gathering crude oil
or natural gas.''
(b) Effective Date.--The amendment made by this section shall apply
to property placed in service in taxable years beginning after December
31, 1998.
SEC. 5. REPEAL CERTAIN ADJUSTMENTS BASED ON ADJUSTED CURRENT EARNINGS
RELATING TO OIL AND GAS ASSETS.
(a) Intangible Drilling Costs.--Clause (i) of section 56(g)(4)(D)
is amended by striking the second sentence and inserting ``In the case
of any oil or gas well, this clause shall not apply in the case of
amounts paid or incurred in taxable years beginning after December 31,
1998.''
(b) Depletion.--Clause (ii) of section 56(g)(4)(F) is amended to
read as follows:
``(ii) Exception for oil and gas wells.--In
the case of any taxable year beginning after
December 31, 1998, clause (i) (and subparagraph
(C)(i)) shall not apply to any deduction for
depletion computed in accordance with section
613A.''
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1998.
SEC. 6. ENHANCED OIL RECOVERY CREDIT AND CREDIT FOR PRODUCING FUEL FROM
A NONCONVENTIONAL SOURCE ALLOWED AGAINST MINIMUM TAX.
(a) Enhanced Oil Recovery Credit Allowed Against Regular and
Minimum Tax.--
(1) Allowing credit against minimum tax.--Subsection (c) of
section 38 (relating to limitation based on amount of tax), as
amended by section 2(d), is amended by redesignating
paragraph (4) as paragraph (5) and by inserting after paragraph (3) the
following new paragraph:
``(4) Special rules for enhanced oil recovery credit.--
``(A) In general.--In the case of the enhanced oil
recovery credit--
``(i) this section and section 39 shall be
applied separately with respect to the credit,
and
``(ii) in applying paragraph (1) to the
credit--
``(I) subparagraphs (A) and (B)
thereof shall not apply, 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 enhanced
oil recovery credit).
``(B) Enhanced oil recovery credit.--For purposes
of this subsection, the term `enhanced oil recovery
credit' means the credit allowable under subsection (a)
by reason of section 43(a).''
(2) Conforming amendments.--
(A) Subclause (II) of section 38(c)(2)(A)(ii), as
amended by section 2(d), is amended by striking ``or
the marginal oil and gas well production credit'' and
inserting ``, the marginal oil and gas well production
credit, or the enhanced oil recovery credit''.
(B) Subclause (II) of section 38(c)(3)(A)(ii), as
added by section 2(d), is amended by inserting ``or the
enhanced oil recovery credit'' after ``recovery
credit''.
(b) Credit for Producing Fuel From a Non-conventional Source.--
(1) Allowing credit against minimum tax.--Section 29(b)(6)
is amended to read as follows:
``(6) Application with other credits.--The credit
allowed by subsection (a) for any taxable year shall
not exceed--
``(A) the regular tax for the taxable year
and the tax imposed by section 55, reduced by
``(B) the sum of the credits allowable
under subpart A and section 27.''
(2) Conforming amendments.--
(A) Section 53(d)(1)(B)(iii) is amended by
inserting ``as in effect on the date of the enactment
of the Domestic Energy Production Security and
Stabilization Act,'' after ``29(b)(6)(B),''.
(B) Section 55(c)(2) is amended by striking
``29(b)(6),''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1998.
SEC. 7. 10-YEAR CARRYBACK FOR PERCENTAGE DEPLETION FOR OIL AND GAS
PROPERTY.
(a) In General.--Subsection (d)(1) of section 613A (relating to
limitations on percentage depletion in case of oil and gas wells) is
amended to read as follows:
``(1) Limitation based on taxable income.--
``(A) In general.--The deduction for the taxable
year attributable to the application of subsection (c)
shall not exceed so much of the taxpayer's taxable
income for the year as the taxpayer elects computed
without regard to--
``(i) any depletion on production from an
oil or gas property which is subject to the
provisions of subsection (c),
``(ii) any net operating loss carryback to
the taxable year under section 172,
``(iii) any capital loss carryback to the
taxable year under section 1212, and
``(iv) in the case of a trust, any
distributions to its beneficiary, except in the
case of any trust where any beneficiary of such
trust is a member of the family (as defined in
section 267(c)(4)) of a settlor who created
inter vivos and testamentary trusts for members
of the family and such settlor died within the
last six days of the fifth month in 1970, and
the law in the jurisdiction in which such trust
was created requires all or a portion of the
gross or net proceeds of any royalty or other
interest in oil, gas, or other mineral
representing any percentage depletion allowance
to be allocated to the principal of the trust.
``(B) Carrybacks and carryforwards.--
``(i) In general.--If an amount is
disallowed as a deduction for the taxable year
(in this subparagraph referred to as the
`unused depletion year') by reason of
application of subparagraph (A), the disallowed
amount shall be treated as an amount allowable
as a deduction under subsection (c) for--
``(I) any of the 10 taxable years
preceding the unused depletion year,
and
``(II) the taxable year following
the unused depletion year,
subject to the application of subparagraph (A)
to such taxable year.
``(ii) Election to waive carryback.--Any
taxpayer entitled to a carryback period under
this subparagraph may elect to relinquish such
carryback for any of the taxable years to which
it would apply. Such election made in any
taxable year may be revised in the succeeding
taxable year in such manner as the Secretary
may prescribe.
``(C) Allocation of disallowed amounts.--For
purposes of basis adjustments and determining whether
cost depletion exceeds percentage depletion with
respect to the production from a property, any amount
disallowed as a deduction on the application of this
paragraph shall be allocated to the respective properties from which
the oil or gas was produced in proportion to the percentage depletion
otherwise allowable to such properties under subsection (c).''
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1998, and to any taxable
year beginning on or before such date to the extent necessary to apply
section 613A(d)(1) of the Internal Revenue Code of 1986 (as added by
subsection (a)).
SEC. 8. NET INCOME LIMITATION ON PERCENTAGE DEPLETION REPEALED FOR OIL
AND GAS PROPERTIES.
(a) In General.--Section 613(a) (relating to percentage depletion)
is amended by striking the second sentence and inserting: ``Except in
the case of oil and gas properties, such allowance shall not exceed 50
percent of the taxpayer's taxable income from the property (computed
without allowances for depletion).''
(b) Conforming Amendments.--
(1) Section 613A(c)(7) (relating to special rules) is
amended by striking subparagraph (C) and redesignating
subparagraph (D) as subparagraph (C).
(2) Section 613A(c)(6) (relating to oil and natural gas
produced from marginal properties) is amended by striking
subparagraph (H).
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1998.
SEC. 9. ELECTION TO EXPENSE GEOLOGICAL AND GEOPHYSICAL EXPENDITURES AND
DELAY RENTAL PAYMENTS.
(a) Purpose.--The purpose of this section is to recognize that
geological and geophysical expenditures and delay rentals are ordinary
and necessary business expenses that should be deducted in the year the
expense is incurred.
(b) Election To Expense Geological and Geophysical Expenditures.--
(1) In general.--Section 263 (relating to capital
expenditures) is amended by adding at the end the following new
subsection:
``(j) Geological and Geophysical Expenditures for Oil and Gas
Wells.--Notwithstanding subsection (a), a taxpayer may elect to treat
geological and geophysical expenses incurred in connection with the
exploration for, or development of, oil or gas as expenses which are
not chargeable to capital account. Any expenses so treated shall be
allowed as a deduction in the taxable year in which paid or incurred.''
(2) Conforming amendment.--Section 263A(c)(3) is amended by
inserting ``263(j),'' after ``263(i),''.
(3) Effective date.--
(A) In general.--The amendments made by this
subsection shall apply to expenses paid or incurred
after the date of the enactment of this Act.
(B) Transition rule.--In the case of any expenses
described in section 263(j) of the Internal Revenue
Code of 1986, as added by this subsection, which were
paid or incurred on or before the date of the enactment
of this Act, the taxpayer may elect, at such time and
in such manner as the Secretary of the Treasury may
prescribe, to amortize the suspended portion of such
expenses over the 36-month period beginning with the
month in which the date of the enactment of this Act
occurs. For purposes of this subparagraph, the
suspended portion of any expense is that portion of
such expense which, as of the first day of the 36-month
period, has not been included in the cost of a property
or otherwise deducted.
(c) Election To Expense Delay Rental Payments.--
(1) In general.--Section 263 (relating to capital
expenditures), as amended by subsection (b)(1), is amended by
adding at the end the following new subsection:
``(k) Delay Rental Payments for Domestic Oil and Gas Wells.--
``(1) In general.--Notwithstanding subsection (a), a
taxpayer may elect to treat delay rental payments incurred in
connection with the development of oil or gas within the United
States (as defined in section 638) as payments which are not
chargeable to capital account. Any payments so treated shall be
allowed as a deduction in the taxable year in which paid or
incurred.
``(2) Delay rental payments.--For purposes of paragraph
(1), the term `delay rental payment' means an amount paid for
the privilege of deferring the drilling of an oil or gas well
under an oil or gas lease.''
(2) Conforming amendment.--Section 263A(c)(3), as amended
by subsection (b)(2), is amended by inserting ``263(k),'' after
``263(j),''.
(3) Effective date.--
(A) In general.--The amendments made by this
subsection shall apply to payments made or incurred
after the date of the enactment of this Act.
(B) Transition rule.--In the case of any payments
described in section 263(k) of the Internal Revenue
Code of 1986, as added by this subsection, which were
made or incurred on or before the date of the enactment
of this Act, the taxpayer may elect, at such time and
in such manner as the Secretary of the Treasury may
prescribe, to amortize the suspended portion of such
payments over the 36-month period beginning with the
month in which the date of the enactment of this Act
occurs. For purposes of this subparagraph, the
suspended portion of any payment is that portion of
such payment which, as of the first day of the 36-month
period, has not been included in the cost of a property
or otherwise deducted.
SEC. 10. WAIVER OF LIMITATIONS.
If refund or credit of any overpayment of tax resulting from the
application of the amendments made by this Act is prevented at any time
before the close of the 1-year period beginning on the date of the
enactment of this Act by the operation of any law or rule of law
(including res judicata), such refund or credit may nevertheless be
made or allowed if claim therefor is filed before the close of such
period.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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