[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.


_______________________________________________________________________


                    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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