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.

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.

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.

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.

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.

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.

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.

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.

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.

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.