[Congressional Record Volume 152, Number 48 (Thursday, April 27, 2006)]
[Senate]
[Pages S3712-S3714]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REID (for Mr. Kerry):
  S. 2672. A bill to amend the Internal Revenue Code of 1986 to provide 
that oil and gas companies will not be eligible for the effective rate 
reductions enacted in 2004 for domestic manufacturers; to the Committee 
on Finance.

  Mr. REID (for Mr. Kerry). Mr. President, the Energy Policy Act of 
2005 contained $2.6 billion over 10 years in tax breaks for oil and gas 
companies. The bill also contained a $1.5 billion fund for an oil 
consortium that brings the total handouts for oil companies to more 
than $4 billion over ten years. These giveaways are on top of at least 
$6 billion in tax breaks already available to the oil industry through 
2009. And these new tax breaks come at a time when the world's largest 
energy companies are reaping record-setting profits.
  Just this week, President Bush said: ``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.''
  Not long ago, we heard the top oil executives testify before Congress 
that they don't need the tax breaks either.
  Today I am introducing the Energy Fairness for America Act and the 
Restore a Rational Tax Rate on Petroleum Production Act of 2006. These 
bills repeal tax breaks for oil companies, close corporate tax 
loopholes that benefit oil companies, and repeal the new domestic 
manufacturing deduction for oil and gas companies.
  The Energy Fairness for America Act will repeal provisions approved 
in the recent Energy Policy Act, as well as pre-existing handouts. 
Instead of providing tax breaks to oil companies, the Energy Fairness 
for America Act will save at least $28 billion for tax payers. This 
money can then go to provide relief to consumers suffering from higher 
energy costs as well as investments in efficiency and renewable 
technologies that can benefit all Americans.
  The Restore a Rational Tax Rate on Petroleum Production Act of 2006 
would repeal the new manufacturing deduction for oil and gas companies 
that was enacted by Congress in 2004. Congressman McDermott is 
introducing companion legislation in the House. This domestic 
manufacturing deduction was designed to replace export-related tax 
benefits that were successfully challenged by the European Union.
  Producers of oil and gas did not benefit from this tax break. Initial 
legislation proposed to address the repeal of the export-related tax 
benefits and to replace with a new domestic manufacturing deduction 
only provided the deduction to industries that benefited from the 
export-related tax benefits. However, the final product extended the 
deduction to include the oil and gas industry.
  This legislation repeals the 2004 manufacturing deduction for oil and 
gas companies because these industries suffered no detriment from the 
repeal of export-related tax benefits. At a time when oil companies are 
reporting record profits, there is no valid reason to reward them with 
a tax deduction.
  Many Members of Congress including myself support a windfall profits 
tax and providing this deduction to oil and gas companies operates as a 
reverse windfall profits tax. This deduction lowers the tax rate on the 
windfall profits they are currently enjoying. Without Congressional 
action, this benefit will increase. The domestic manufacturing 
deduction is currently three percent and is schedule to increase to six 
percent in 2007 and nine percent in 2010. This means that next year oil 
companies that are benefiting from this deduction will see their 
benefits double and triple in 2010.
  I urge my colleagues to support both the Energy Fairness for America 
Act and the Restore a Rational Tax Rate on Petroleum Production Act of 
2006. We owe it to the American people to eliminate tax benefits to the 
oil industry at a time of record profits, record gas prices, and a 
projected record deficit.
  I ask unanimous consent that the text of these bills be printed in 
the Record.
  There being no objection, the bills were ordered to be printed in the 
Record, as follows:

                                S. 2670

       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''.

[[Page S3713]]

       (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

[[Page S3714]]

     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.
                                  ____


                                S. 2672

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Restore a Rational Tax Rate 
     on Petroleum Production Act of 2006''.

     SEC. 2. FINDINGS.

       The Congress finds that--
       (1) like many other countries, the United States has long 
     provided export-related benefits under its tax law,
       (2) producers and refiners of oil and natural gas were 
     specifically denied the benefits of those export-related tax 
     provisions,
       (3) those export-related tax provisions were successfully 
     challenged by the European Union as being inconsistent with 
     our trade agreements,
       (4) the Congress responded by repealing the export-related 
     benefits and enacting a substitute benefit that was an 
     effective rate reduction for United States manufacturers,
       (5) producers and refiners of oil and natural gas were made 
     eligible for the rate reduction even though they suffered no 
     detriment from repeal of the export-related benefits, and
       (6) the decision to provide the effective rate reduction to 
     producers and refiners of oil and natural gas has operated as 
     a reverse windfall profits tax, lowering the tax rate on the 
     windfall profits they are currently enjoying.

     SEC. 3. DENIAL OF DEDUCTION FOR INCOME ATTRIBUTABLE TO 
                   DOMESTIC PRODUCTION OF OIL, NATURAL GAS, OR 
                   PRIMARY PRODUCTS THEREOF.

       (a) In General.--Subparagraph (B) of section 199(c)(4) of 
     the Internal Revenue Code of 1986 (relating to exceptions) is 
     amended by striking ``or'' at the end of clause (ii), by 
     striking the period at the end of clause (iii) and inserting 
     ``, or'', and by inserting after clause (iii) the following 
     new clause:
       ``(iv) the production, refining, processing, 
     transportation, or distribution of oil, natural gas, or any 
     primary product thereof.''.
       (b) Conforming Amendments.--Section 199(c)(4) of such Code 
     is amended--
       (1) in subparagraph (A)(i)(III) by striking ``electricity, 
     natural gas,'' and inserting ``electricity'', and
       (2) in subparagraph (B)(ii) by striking ``electricity, 
     natural gas,'' and inserting ``electricity''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2005.
                                 ______