[Congressional Record Volume 151, Number 10 (Thursday, February 3, 2005)]
[Senate]
[Page S984]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

  By Mrs. HUTCHISON:
  S. 280. A bill to amend the Internal Revenue Code of 1986 to provide 
for the amortization of delay rental payments and geological and 
geophysical expenditures; to the Committee on Finance.
  Mrs. HUTCHISON. Mr. President, I rise today to offer a bill that will 
bolster our energy independence by clarifying current tax law regarding 
domestic oil and gas production.
  We need to promote domestic energy supplies because we are 
increasingly dependent on foreign oil to meet our energy needs. We 
currently import almost 60 percent from foreign countries. Promoting 
domestic production is both an economic and national security issue.
  The rational treatment of costs associated with exploration and 
production of energy resources is vital to attracting and retaining 
financing in an inherently capital-intensive industry. The bill I am 
introducing helps in this regard by allowing accelerated deduction of 
geological and geophysical (G&G) costs and delay rental payments. 
Specifically, this legislation will allow these expenses to be 
amortized over a 2 year period. This will encourage further development 
of the United States oil and gas industry.
  There is no reason G&G expenditures should be considered capital 
expenditures with a long amortization period rather than treating them 
more like research and development costs. Our current tax code 
needlessly limits the ability of domestic producers to develop our 
national petroleum reserves.
  Congress also needs to clarify that delay rental payments are 
deductible as ordinary and necessary business expenses. This is 
important for developers who cannot afford to run continuous operations 
on the properties they hold. The current uncertainty of how these costs 
are to be treated has led to costly litigation; prompt clarification 
will eliminate needless administrative burdens on taxpayers and the 
Internal Revenue Service.
  I urge my colleagues to support this bill as an important step in 
developing energy independence. I ask unanimous consent that the text 
of the bill be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 280

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. AMORTIZATION OF DELAY RENTAL PAYMENTS.

       (a) In General.--Section 167 of the Internal Revenue Code 
     of 1986 (relating to depreciation) is amended by 
     redesignating subsection (h) as subsection (i) and by 
     inserting after subsection (g) the following new subsection:
       ``(h) Amortization of Delay Rental Payments for Domestic 
     Oil and Gas Wells.--
       ``(1) In general.--Any delay rental payment paid or 
     incurred in connection with the development of oil or gas 
     wells within the United States (as defined in section 638) 
     shall be allowed as a deduction ratably over the 24-month 
     period beginning on the date that such payment was paid or 
     incurred.
       ``(2) Half-year convention.--For purposes of paragraph (1), 
     any payment paid or incurred during the taxable year shall be 
     treated as paid or incurred on the mid-point of such taxable 
     year.
       ``(3) Exclusive method.--Except as provided in this 
     subsection, no depreciation or amortization deduction shall 
     be allowed with respect to such payments.
       ``(4) Treatment upon abandonment.--If any property to which 
     a delay rental payment relates is retired or abandoned during 
     the 24-month period described in paragraph (1), no deduction 
     shall be allowed on account of such retirement or abandonment 
     and the amortization deduction under this subsection shall 
     continue with respect to such payment.
       ``(5) Delay rental payments.--For purposes of this 
     subsection, the term `delay rental payment' means an amount 
     paid for the privilege of deferring development of an oil or 
     gas well under an oil or gas lease.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     beginning after the date of the enactment of this Act.

     SEC. 2. AMORTIZATION OF GEOLOGICAL AND GEOPHYSICAL 
                   EXPENDITURES.

       (a) In General.--Section 167 of the Internal Revenue Code 
     of 1986 (relating to depreciation), as amended by this Act, 
     is amended by redesignating subsection (i) as subsection (j) 
     and by inserting after subsection (h) the following new 
     subsection:
       ``(i) Amortization of Geological and Geophysical 
     Expenditures.--
       ``(1) In general.--Any geological and geophysical expenses 
     paid or incurred in connection with the exploration for, or 
     development of, oil or gas within the United States (as 
     defined in section 638) shall be allowed as a deduction 
     ratably over the 24-month period beginning on the date that 
     such expense was paid or incurred.
       ``(2) Special rules.--For purposes of this subsection, 
     rules similar to the rules of paragraphs (2), (3), and (4) of 
     subsection (h) shall apply.''.
       (b) Conforming Amendment.--Section 263A(c)(3) of the 
     Internal Revenue Code of 1986 is amended by inserting 
     ``167(h), 167(i),'' after ``under section''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     beginning after the date of the enactment of this Act.
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