Findings

The Congress finds the following: (1)On Friday April 21, 2006, the trading price for a barrel of oil reached a new record high of $75.17. As a result the price of gasoline in many areas around the country jumped to $3 per gallon or higher. (2)According to the Energy Information Administration (EIA) of the Department of Energy, gas prices are expected to rise nationally by at least another 25 cents in the short term. (3)Oil companies are receiving record profits as a result of high gas prices. In 2005, ExxonMobil—the Nation’s largest oil company—earned a net income of $36.1 billion, up 31 percent from the year before. In the fourth quarter of 2005 alone, ExxonMobile earned $10 billion, up from the previous record of $9.92 billion set by ExxonMobile in the third quarter of 2005. (4)While high energy prices are squeezing the American middle class, oil executives are receiving record compensation and retirement packages. For example, the retiring chairman of ExxonMobil was recently given a $400 million retirement package—one of the largest in history. (5)In the 108th and 109th Congresses, the United States Congress passed, and the President signed, legislation giving billions in taxpayer dollars away to the oil industry in the form of tax breaks—even as this industry continues to garner record breaking profits. (6)At a November 9, 2005, joint hearing of the Committee on Energy and Natural Resources and the Committee on Environment and Public Works of the Senate, the chief executive officers of the top five oil companies testified that their companies did not need the Federal tax incentives included in the Energy Policy Act of 2005 (Public Law 109–58). (7)On April 25, 2006, President Bush stated Record oil prices and large cash flows also mean that Congress has got to understand that these energy companies don’t need unnecessary tax breaks like the write-offs of certain geological and geophysical expenditures, or the use of taxpayers’ money to subsidize energy companies research into deep water drilling. I’m looking forward to Congress to take about $2 billion of these tax breaks out of the budget over a 10-year period of time. Cash flows are up. Taxpayers don’t need to be paying for certain of these expenses on behalf of the energy companies..

Requirements for certain large integrated oil companies

(a)

Revaluation of LIFO inventories of large integrated oil companies

(1)

General rule

Notwithstanding any other provision of law, if a taxpayer is an applicable integrated oil company for its last taxable year ending in calendar year 2005, the taxpayer shall— (A)increase, effective as of the close of such taxable year, the value of each historic LIFO layer of inventories of crude oil, natural gas, or any other petroleum product (within the meaning of section 4611) by the layer adjustment amount, and (B)decrease its cost of goods sold for such taxable year by the aggregate amount of the increases under paragraph (1).

If the aggregate amount of the increases under paragraph (1) exceed the taxpayer’s cost of goods sold for such taxable year, the taxpayer’s gross income for such taxable year shall be increased by the amount of such excess.

(2)

Layer adjustment amount

For purposes of this section— (A)

In general

The term layer adjustment amount means, with respect to any historic LIFO layer, the product of— (i)$18.75, and (ii)the number of barrels of crude oil (or in the case of natural gas or other petroleum products, the number of barrel-of-oil equivalents) represented by the layer. (B)

Barrel-of-oil equivalent

The term barrel-of-oil equivalent has the meaning given such term by section 29(d)(5) (as in effect before its redesignation by the Energy Tax Incentives Act of 2005). (3)

Application of requirement

(A)

No change in method of accounting

Any adjustment required by this section shall not be treated as a change in method of accounting. (B)

Underpayments of estimated tax

No addition to the tax shall be made under section 6655 of the Internal Revenue Code of 1986 (relating to failure by corporation to pay estimated tax) with respect to any underpayment of an installment required to be paid with respect to the taxable year described in subsection (a) to the extent such underpayment was created or increased by this section. (4)

Applicable integrated oil company

For purposes of this subsection, the term applicable integrated oil company means an integrated oil company (as defined in section 291(b)(4) of the Internal Revenue Code of 1986) which has an average daily worldwide production of crude oil of at least 500,000 barrels for the taxable year and which had gross receipts in excess of $1,000,000,000 for its last taxable year ending during calendar year 2005. For purposes of this subsection all persons treated as a single employer under subsections (a) and (b) of section 52 of the Internal Revenue Code of 1986 shall be treated as 1 person and, in the case of a short taxable year, the rule under section 448(c)(3)(B) shall apply. (b)

Elimination of amortization of geological and geophysical expenditures for major integrated oil companies

(1)

In general

Section 167(h) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

(5)

Nonapplication to major integrated oil companies

This subsection shall not apply with respect to any expenses paid or incurred for any taxable year by any integrated oil company (as defined in section 291(b)(4)) which has an average daily worldwide production of crude oil of at least 500,000 barrels for such taxable year.

(2)

Effective date

The amendment made by this section shall take effect as if included in the amendment made by section 1329(a) of the Energy Policy Act of 2005. (c)

Modifications of foreign tax credit rules applicable to large integrated oil companies which are dual capacity taxpayers

(1)

In general

Section 901 of the Internal Revenue Code of 1986 (relating to credit for taxes of foreign countries and of possessions of the United States) is amended by redesignating subsection (m) as subsection (n), and by inserting after subsection (l) the following new subsection:

(m)

Special rules relating to large integrated oil companies which are dual capacity taxpayers

(1)

General rule

Notwithstanding any other provision of this chapter, any amount paid or accrued by a dual capacity taxpayer which is a large integrated oil company to a foreign country or possession of the United States for any period shall not be considered a tax— (A)if, for such period, the foreign country or possession does not impose a generally applicable income tax, or (B)to the extent such amount exceeds the amount (determined in accordance with regulations) which— (i)is paid by such dual capacity taxpayer pursuant to the generally applicable income tax imposed by the country or possession, or (ii)would be paid if the generally applicable income tax imposed by the country or possession were applicable to such dual capacity taxpayer.

Nothing in this paragraph shall be construed to imply the proper treatment of any such amount not in excess of the amount determined under subparagraph (B).

(2)

Dual capacity taxpayer

For purposes of this subsection, the term dual capacity taxpayer means, with respect to any foreign country or possession of the United States, a person who— (A)is subject to a levy of such country or possession, and (B)receives (or will receive) directly or indirectly a specific economic benefit (as determined in accordance with regulations) from such country or possession. (3)

Generally applicable income tax

For purposes of this subsection— (A)

In general

The term generally applicable income tax means an income tax (or a series of income taxes) which is generally imposed under the laws of a foreign country or possession on income derived from the conduct of a trade or business within such country or possession. (B)

Exceptions

Such term shall not include a tax unless it has substantial application, by its terms and in practice, to— (i)persons who are not dual capacity taxpayers, and (ii)persons who are citizens or residents of the foreign country or possession. (4)

Large integrated oil company

For purposes of this subsection, the term large integrated oil company means, with respect to any taxable year, an integrated oil company (as defined in section 291(b)(4)) which— (A)had gross receipts in excess of $1,000,000,000 for such taxable year, and (B)has an average daily worldwide production of crude oil of at least 500,000 barrels for such taxable year.

(2)

Effective date

(A)

In general

The amendments made by this subsection shall apply to taxes paid or accrued in taxable years beginning after the date of the enactment of this Act. (B)

Contrary treaty obligations upheld

The amendments made by this subsection shall not apply to the extent contrary to any treaty obligation of the United States.