[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2267 Introduced in House (IH)]
107th CONGRESS
1st Session
H. R. 2267
To amend the Internal Revenue Code of 1986 to encourage energy
production.
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IN THE HOUSE OF REPRESENTATIVES
June 21, 2001
Mr. Largent 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 energy
production.
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.
(a) Short Title.--This Act may be cited as the ``Domestic Energy
Enhancement and Security Act of 2001''.
(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.
SEC. 2. PHASEOUT 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 December 31, 2001, there shall be allowed as a deduction
an amount equal to the alternative tax energy preference
deduction.
``(2) Phaseout 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 $15, 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 2002, the $15 amount under subparagraph (A) shall be
adjusted at the same time and in the same manner as under
section 43(b)(3) by substituting `2001' 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.--
Subparagraph (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, 2001.
SEC. 3. DEPRECIATION ADJUSTMENT NOT TO APPLY TO OIL AND GAS ASSETS.
(a) Depreciation Adjustments.--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, 2001.
SEC. 4. REPEAL CERTAIN ADJUSTMENTS BASED ON ADJUSTED CURRENT EARNINGS
RELATING TO LIFO INVENTORIES, INTANGIBLE DRILLING AND
DEVELOPMENT COST, AND OIL AND GAS PERCENTAGE DEPLETION.
(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,
2001.''
(b) LIFO Inventory Adjustment.--
(1) In general.--Subparagraph (D) of section 56(g)(4) is
amended by striking clause (iii) and by redesignating clause
(iv) as clause (iii).
(2) Effective date.--The amendment made by paragraph (1)
shall apply to taxable years beginning after December 31, 2001.
(c) 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, 2001, clause (i) (and subparagraph
(C)(i)) shall not apply to any deduction for
depletion computed in accordance with section
613A.''
SEC. 5. 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) Credit allowed against minimum tax.--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 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 amendment.--Subclause (II) of section
38(c)(2)(A)(ii) is amended by inserting ``and the enhanced oil
recovery credit'' after ``employer zone employment credit''.
(b) Credit for Producing Fuel From a Nonconventional 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 Enhancement and Security Act of
2001,'' 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, 2001.
SEC. 6. ENHANCED OIL RECOVERY CREDIT EXTENDED TO CERTAIN NONTERTIARY
RECOVERY METHODS.
(a) Purpose.--The purpose of this section is to extend the
productive lives of existing domestic oil and gas wells in order to
recover the 75 percent of the oil and gas that is not recoverable using
primary oil and gas recovery techniques.
(b) In General.--Clause (i) of section 43(c)(2)(A) (defining
qualified enhanced oil recovery project) is amended to read as follows:
``(i) which involves the application (in
accordance with sound engineering principles)
of--
``(I) one 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, or
``(II) one or more qualified
nontertiary recovery methods which are
required to recover oil with
traditionally immobile characteristics
or from formations which have proven to
be uneconomical or noncommercial under
conventional recovery methods,''.
(c) Qualified Nontertiary Recovery Methods.--Section 43(c)(2) is
amended by adding at the end the following new subparagraphs:
``(C) Qualified nontertiary recovery method.--For
purposes of this paragraph--
``(i) In general.--The term `qualified
nontertiary recovery method' means any recovery
method described in clause (ii), (iii), or
(iv), or any combination thereof.
``(ii) Enhanced gravity drainage methods.--
The methods described in this clause are as
follows:
``(I) Horizontal drilling.--The
drilling of horizontal, rather than
vertical, wells to penetrate any
hydrocarbon-bearing formation which has
an average in situ calculated
permeability to fluid flow of not more
than 12 millidarcies and which has been
demonstrated by use of a vertical
wellbore to be uneconomical unless
drilled with lateral horizontal lengths
in excess of 1,000 feet.
``(II) Gravity drainage.--The
production of oil by gravity flow from
drainholes that are drilled from a
shaft or tunnel dug within or below the
oil-bearing zone.
``(iii) Marginally economic reservoir
repressurization methods.--The methods
described in this clause are as follows, except
that this clause shall only apply to the first
1,000,000 barrels produced in any project:
``(I) Cyclic gas injection.--The
increase or maintenance of pressure by
injection of hydrocarbon gas into the
reservoir from which it was originally
produced.
``(II) Flooding.--The injection of
water into an oil reservoir to displace
oil from the reservoir rock and into
the bore of a producing well.
``(iv) Other methods.--Any method used to
recover--
``(I) oil having an average
laboratory measured air permeability of
not more than 100 millidarcies when
averaged over the productive interval
being completed or an in situ
calculated permeability to fluid flow
of not more than 12 millidarcies, or
``(II) oil defined by the
Department of Energy as being immobile.
``(D) Authority to add other nontertiary recovery
methods.--The Secretary shall provide procedures under
which--
``(i) the Secretary may treat methods not
described in clause (ii), (iii), or (iv) of
subparagraph (C) as qualified nontertiary
recovery methods, and
``(ii) a taxpayer may request the Secretary
to treat any method not so described as a
qualified nontertiary recovery method.
The Secretary may only specify methods as qualified
nontertiary recovery methods under this subparagraph if
the Secretary determines that such specification is
consistent with the purposes of subparagraph (C) and
will result in greater production of oil and natural
gas.''
(d) Conforming Amendment.--Clause (iii) of section 43(c)(2)(A) is
amended to read as follows:
``(iii) with respect to which--
``(I) in the case of a tertiary
recovery method, the first injection of
liquids, gases, or other matter
commences after December 31, 1990, and
``(II) in the case of a qualified
nontertiary recovery method, the
implementation of the method begins
after December 31, 2001.''
(e) Effective Date.--The amendments made by this section shall
apply to taxable years ending after December 31, 2001.
SEC. 7. 10-YEAR CARRYBACK FOR PERCENTAGE DEPLETION FOR OIL AND GAS
PROPERTY.
(a) In General.--Paragraph (1) of section 613A(d) (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, 2001, 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, 2001.
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