[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 2670 Introduced in Senate (IS)]








109th CONGRESS
  2d Session
                                S. 2670

  To restore fairness in the provision of incentives for oil and gas 
                  production, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 27, 2006

  Mr. Reid (for Mr. Kerry (for himself, Mr. Kohl, and Mr. Lieberman)) 
introduced the following bill; which was read twice and referred to the 
                          Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  To restore fairness in the provision of incentives for 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; ETC.

    (a) Short Title.--This Act may be cited as the ``Energy Fairness 
for America 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 for this Act is as 
follows:

Sec. 1. Short title; etc.
Sec. 2. Termination of deduction for intangible drilling and 
                            development costs.
Sec. 3. Termination of percentage depletion allowance for oil and gas 
                            wells.
Sec. 4. Termination of enhanced oil recovery credit.
Sec. 5. Termination of certain provisions of the Energy Policy Act of 
                            2005.
Sec. 6. Termination of certain tax provisions of the Energy Policy Act 
                            of 2005.
Sec. 7. Revaluation of LIFO inventories of large integrated oil 
                            companies.
Sec. 8. Modifications of foreign tax credit rules applicable to dual 
                            capacity taxpayers.
Sec. 9. Rules relating to foreign oil and gas income.
Sec. 10. Elimination of deferral for foreign oil and gas extraction 
                            income.

SEC. 2. TERMINATION OF DEDUCTION FOR INTANGIBLE DRILLING AND 
              DEVELOPMENT COSTS.

    (a) In General.--Section 263(c) is amended by adding at the end the 
following new sentence: ``This subsection shall not apply to any 
taxable year beginning after the date of the enactment of this 
sentence.''.
    (b) Conforming Amendments.--Paragraphs (2) and (3) of section 
291(b) are each amended by striking ``section 263(c), 616(a),'' and 
inserting ``section 616(a)''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 3. TERMINATION OF PERCENTAGE DEPLETION ALLOWANCE FOR OIL AND GAS 
              WELLS.

    (a) In General.--Section 613A is amended by adding at the end the 
following new subsection:
    ``(f) Termination.--For purposes of any taxable year beginning 
after the date of the enactment of this subsection, the allowance for 
percentage depletion shall be zero.''.
    (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. 4. TERMINATION OF ENHANCED OIL RECOVERY CREDIT.

    (a) In General.--Section 43 is amended by adding at the end the 
following new subsection:
    ``(f) Termination.--This section shall not apply to any taxable 
year beginning after the date of the enactment of this subsection.''.
    (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. 5. TERMINATION OF CERTAIN PROVISIONS OF THE ENERGY POLICY ACT OF 
              2005.

    (a) In General.--The following provisions of the Energy Policy Act 
of 2005 are repealed on and after the date of the enactment of this 
Act:
            (1) Section 342 (relating to program on oil and gas 
        royalties in-kind).
            (2) Section 343 (relating to marginal property production 
        incentives).
            (3) Section 344 (relating to incentives for natural gas 
        production from deep wells in the shallow waters of the Gulf of 
        Mexico).
            (4) Section 345 (relating to royalty relief for deep water 
        production).
            (5) Section 357 (relating to comprehensive inventory of OCS 
        oil and natural gas resources).
            (6) Subtitle J of title IX (relating to ultra-deepwater and 
        unconventional natural gas and other petroleum resources).
    (b) Termination of Alaska Offshore Royalty Suspension.--
            (1) In general.--Section 8(a)(3)(B) of the Outer 
        Continental Shelf Lands Act (43 U.S.C. 1337(a)(3)(B)) is 
        amended by striking ``and in the Planning Areas offshore 
        Alaska''.
            (2) Effective date.--The amendment made by this subsection 
        shall take effect on and after the date of the enactment of 
        this Act.

SEC. 6. TERMINATION OF CERTAIN TAX PROVISIONS OF THE ENERGY POLICY ACT 
              OF 2005.

    (a) Electric Transmission Property Treated as 15-Year Property.--
Section 168(e)(3)(E)(vii) is amended by inserting ``, and before the 
date of the enactment of the Energy Fairness for America Act'' after 
``April 11, 2005''.
    (b) Temporary Expensing of Equipment Used in Refining Liquid 
Fuels.--Section 179C(c)(1) is amended--
            (1) by striking ``January 1, 2012'' and inserting ``the 
        date of the enactment of the Energy Fairness for America Act'', 
        and
            (2) by striking ``January 1, 2008'' and inserting ``the 
        date of the enactment of the Energy Fairness for America Act''.
    (c) Natural Gas Distribution Lines Treated as 15-Year Property.--
Section 168(e)(3)(E)(viii) is amended by striking ``January 1, 2011'' 
and inserting ``the date of the enactment of the Energy Fairness for 
America Act''.
    (d) Natural Gas Gathering Lines Treated as 7-Year Property.--
Section 168(e)(3)(C)(iv) is amended by inserting ``, and before the 
date of the enactment of the Energy Fairness for America Act'' after 
``April 11, 2005''.
    (e) Determination of Small Refiner Exception to Oil Depletion 
Deduction.--Section 1328(b) of the Energy Policy Act of 2005 is amended 
by inserting ``and beginning before the date of the enactment of the 
Energy Fairness for America Act'' after ``this Act''.
    (f) Amortization of Geological and Geophysical Expenditures.--
Section 167(h) is amended by adding at the end the following new 
paragraph:
            ``(5) Termination.--This subsection shall not apply to any 
        taxable year beginning after the date of the enactment of the 
        Energy Fairness for America Act.''.
    (g) Effective Date.--The amendments made by this section shall take 
effect on and after the date of the enactment of this Act.

SEC. 7. REVALUATION OF LIFO INVENTORIES OF LARGE INTEGRATED OIL 
              COMPANIES.

    (a) 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--
            (1) 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
            (2) 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.
    (b) Layer Adjustment Amount.--For purposes of this section--
            (1) In general.--The term ``layer adjustment amount'' 
        means, with respect to any historic LIFO layer, the product 
        of--
                    (A) $18.75, and
                    (B) 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.
            (2) 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).
    (c) Application of Requirement.--
            (1) No change in method of accounting.--Any adjustment 
        required by this section shall not be treated as a change in 
        method of accounting.
            (2) 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.
    (d) Applicable Integrated Oil Company.--For purposes of this 
section, 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.

SEC. 8. MODIFICATIONS OF FOREIGN TAX CREDIT RULES APPLICABLE TO DUAL 
              CAPACITY TAXPAYERS.

    (a) In General.--Section 901 (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 Dual Capacity Taxpayers.--
            ``(1) General rule.--Notwithstanding any other provision of 
        this chapter, any amount paid or accrued by a dual capacity 
        taxpayer 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.''
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxes paid or accrued in taxable years beginning after 
        the date of the enactment of this Act.
            (2) Contrary treaty obligations upheld.--The amendments 
        made by this section shall not apply to the extent contrary to 
        any treaty obligation of the United States.

SEC. 9. RULES RELATING TO FOREIGN OIL AND GAS INCOME.

    (a) Separate Basket for Foreign Tax Credit.--
            (1) Years before 2007.--Paragraph (1) of section 904(d) 
        (relating to separate application of section with respect to 
        certain categories of income), as in effect for years beginning 
        before 2007, is amended by striking ``and'' at the end of 
        subparagraph (H), by redesignating subparagraph (I) as 
        subparagraph (J), and by inserting after subparagraph (H) the 
        following new subparagraph:
                    ``(I) foreign oil and gas income, and''.
            (2) 2007 and after.--Paragraph (1) of section 904(d), as in 
        effect for years beginning after 2006, is amended by striking 
        ``and'' at the end of subparagraph (A), by striking the period 
        at the end of subparagraph (B) and inserting ``, and'', and by 
        adding at the end the following:
                    ``(C) foreign oil and gas income.''
    (b) Definition.--
            (1) Years before 2007.--Paragraph (2) of section 904(d), as 
        in effect for years beginning before 2007, is amended by 
        redesignating subparagraphs (H) and (I) as subparagraphs (I) 
        and (J), respectively, and by inserting after subparagraph (G) 
        the following new subparagraph:
                    ``(H) Foreign oil and gas income.--The term 
                `foreign oil and gas income' has the meaning given such 
                term by section 954(g).''
            (2) 2007 and after.--Section 904(d)(2), as in effect for 
        years after 2006, is amended by redesignating subparagraphs (J) 
        and (K) as subparagraphs (K) and (L) and by inserting after 
        subparagraph (I) the following:
                    ``(J) Foreign oil and gas income.--For purposes of 
                this section--
                            ``(i) In general.--The term `foreign oil 
                        and gas income' has the meaning given such term 
                        by section 954(g).
                            ``(ii) Coordination.--Passive category 
                        income and general category income shall not 
                        include foreign oil and gas income (as so 
                        defined).''
    (c) Conforming Amendments.--
            (1) Section 904(d)(3)(F)(i) is amended by striking ``or 
        (E)'' and inserting ``(E), or (I)''.
            (2) Section 907(a) is hereby repealed.
            (3) Section 907(c)(4) is hereby repealed.
            (4) Section 907(f) is hereby repealed.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after the date of the 
        enactment of this Act.
            (2) Years after 2006.--The amendments made by paragraphs 
        (1)(B) and (2)(B) shall apply to taxable years beginning after 
        December 31, 2006.
            (3) Transitional rules.--
                    (A) Separate basket treatment.--Any taxes paid or 
                accrued in a taxable year beginning on or before the 
                date of the enactment of this Act, with respect to 
                income which was described in subparagraph (I) of 
                section 904(d)(1) of such Code (as in effect on the day 
                before the date of the enactment of this Act), shall be 
                treated as taxes paid or accrued with respect to 
                foreign oil and gas income to the extent the taxpayer 
                establishes to the satisfaction of the Secretary of the 
                Treasury that such taxes were paid or accrued with 
                respect to foreign oil and gas income.
                    (B) Carryovers.--Any unused oil and gas extraction 
                taxes which under section 907(f) of such Code (as so in 
                effect) would have been allowable as a carryover to the 
                taxpayer's first taxable year beginning after the date 
                of the enactment of this Act (without regard to the 
                limitation of paragraph (2) of such section 907(f) for 
                first taxable year) shall be allowed as carryovers 
                under section 904(c) of such Code in the same manner as 
                if such taxes were unused taxes under such section 
                904(c) with respect to foreign oil and gas extraction 
                income.
                    (C) Losses.--The amendment made by subsection 
                (c)(3) shall not apply to foreign oil and gas 
                extraction losses arising in taxable years beginning on 
                or before the date of the enactment of this Act.

SEC. 10. ELIMINATION OF DEFERRAL FOR FOREIGN OIL AND GAS EXTRACTION 
              INCOME.

    (a) General Rule.--Paragraph (1) of section 954(g) (defining 
foreign base company oil related income) is amended to read as follows:
            ``(1) In general.--Except as otherwise provided in this 
        subsection, the term `foreign oil and gas income' means any 
        income of a kind which would be taken into account in 
        determining the amount of--
                    ``(A) foreign oil and gas extraction income (as 
                defined in section 907(c)), or
                    ``(B) foreign oil related income (as defined in 
                section 907(c)).''
    (b) Conforming Amendments.--
            (1) Subsections (a)(5), (b)(5), and (b)(6) of section 954, 
        and section 952(c)(1)(B)(ii)(I), are each amended by striking 
        ``base company oil related income'' each place it appears 
        (including in the heading of subsection (b)(8)) and inserting 
        ``oil and gas income''.
            (2) Subsection (b)(4) of section 954 is amended by striking 
        ``base company oil-related income'' and inserting ``oil and gas 
        income''.
            (3) The subsection heading for subsection (g) of section 
        954 is amended by striking ``Foreign Base Company Oil Related 
        Income'' and inserting ``Foreign Oil and Gas Income''.
            (4) Subparagraph (A) of section 954(g)(2) is amended by 
        striking ``foreign base company oil related income'' and 
        inserting ``foreign oil and gas income''.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years of foreign corporations beginning after the date 
of the enactment of this Act, and to taxable years of United States 
shareholders ending with or within such taxable years of foreign 
corporations.
                                 <all>