[Congressional Record Volume 155, Number 122 (Thursday, August 6, 2009)]
[Senate]
[Pages S8997-S8999]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. WYDEN:
  S. 1588. A bill to amend the Internal Revenue Code of 1986 to provide 
the same tax treatment for both commercial and noncommercial investors 
in oil and natural gas and related commodities, and for other purposes; 
to the Committee on Finance.
  Mr. WYDEN. Mr. President, businesses like airlines, trucking 
companies, and heating oil distributors buy and sell oil and futures 
contracts because they need to do so to run their day-to-day business 
and hedge their risk against wild swings in oil prices like consumers 
saw last year.
  But there are also buyers and sellers in the market--financial 
speculators--who are simply there to try to make a quick dollar on oil 
as an investment strategy. The explosion of speculators into the 
marketplace has distorted the oil and gas market and driven up the 
price of oil for everybody. When commercial businesses see fuel prices 
go up, they try to consume less. But when speculators see prices go up, 
they buy more and keep driving up demand. This distorts the normal 
supply-demand balance of the markets and digs a huge financial hole for 
average Americans.
  In 2000, speculative trading in the oil futures markets accounted for 
37 percent of crude oil trading on the New York Mercantile Exchange. By 
last summer when prices were approaching $150 a barrel, that number had 
grown to more than 70 percent. I do not think that is a coincidence.
  There are a lot of proposals around to fix the regulatory system to 
prevent trading abuses. Oregon's economy really suffered from abusive 
energy trading by Enron, and I am all for closing trading loopholes. 
But my bill is aimed at something different. It is aimed at the giant 
financial bubble that has been created by people who are simply chasing 
speculative profits in the commodities markets and creating artificial 
demand that is driving up prices.
  The legislation I am introducing today--Stop Tax-breaks for Oil 
Profiteering, STOP, Act of 2009--will let some of the air out of this 
speculative balloon and help create a level playing field among 
companies participating in the commodity markets.
  Under the tax code, commercial traders, those who truly need to buy, 
sell and hedge their purchases of oil, pay taxes on whatever profits 
they make on trading at the same rates as ordinary income. Speculators 
get a much better deal from the TAX CODE. Some, such as pension funds 
or endowments, do not pay any tax whatsoever when they profit on their 
oil or futures investments. Others, like hedge or index funds can get 
lower tax rates by treating some of their trading profits as capital 
gains. Clearly, the deck is stacked against the businesses who really 
buy and use oil. That means it is also stacked against the consumer who 
needs the services and products those businesses provide.
  My proposal removes incentives in the tax code that make such 
investments attractive to both tax-exempt and tax-paying investors. It 
also makes everyone in the United States who is buying and selling oil 
and gas or futures contracts play by essentially the same tax rules 
across the board. Tax-paying entities would lose the ability to treat 
any of these investments as capital gains and be subject to comparable 
tax treatment on oil and gas investments as airlines or trucking 
companies or fuel distributors or other businesses that truly need to 
be in these markets.
  Tax-exempt entities, like pension funds, would be required to pay 
``unrelated-business-income-tax'' on their oil and gas trading gains. 
UBTI already exists as a well-established tax obligation for income 
that is not directly related to the tax exempt purpose of the 
organization. UBTI was created precisely to keep tax exempt 
organizations from competing unfairly with taxpaying businesses, which 
is what they are doing when they enter the commodity markets solely for 
investment income purposes. The bill also includes provisions that 
would prevent tax exempt organizations from investing in off-shore 
funds to try to avoid the new UBTI tax.
  By focusing on tax fairness, my bill would realign the profit 
incentives that are currently attracting non-commercial actors to the 
markets. If speculators are truly in the markets and are wrecking havoc 
with oil and gas prices, this bill will do away with their tax 
subsidies and cause many to leave. It deflates the speculative balloon 
of artificially inflated profits that has made this investment arena so 
attractive.

[[Page S8998]]

  If speculators are not a problem, then this bill will help prove the 
theory that the wild swings in oil prices of the past year truly can be 
blamed on supply and demand.
  The bill would only cover the oil and natural gas markets, and 
related products like gasoline and diesel fuel, and be in effect for 
the next 4 years. However, after 3 years, it would require the Treasury 
Department to issue a report analyzing the impact of these changes on 
these markets, making recommendations on what changes to make.
  Other proposals on oil speculation focus on regulation of the market 
or limiting the amounts of oil traders could purchase. These approaches 
are ``top down'' efforts to prevent trading abuses and financial 
investors from swamping the market. This bill approaches the problem 
from the bottom line up. Willy Sutton, the bank robber was asked why he 
robbed banks, to which he is said to have replied, ``It's where the 
money is.'' That is why this bill focuses on the flow of financial 
investment funds into the oil and gas markets, it's where the 
speculation is.
  In these tough economic times, I believe consumers need protection 
from people who try to game the system to pad their own pockets. By 
putting an end to the imbalances in the tax code that currently feed 
oil profiteers, the STOP Act will be good for American businesses and 
consumers. I hope my colleagues will join me in protecting our economy 
and leveling the playing field in the oil and gas markets by voting in 
favor of the STOP Act.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 1588

       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 ``Stop Tax-breaks for Oil 
     Profiteering Act'' or the ``STOP Act''.

     SEC. 2. CAPITAL GAIN OR LOSS FROM SALE OR EXCHANGE OF OIL OR 
                   NATURAL GAS AND RELATED COMMODITIES TREATED AS 
                   SHORT-TERM CAPITAL GAIN OR LOSS.

       (a) Gain or Loss on Applicable Commodities.--
       (1) In general.--Part IV of subchapter P of chapter 1 of 
     the Internal Revenue Code of 1986 (relating to special rules 
     for determining capital gains and losses) is amended by 
     adding at the end the following new section:

     ``SEC. 1261. CAPITAL GAIN OR LOSS FROM SALE OR EXCHANGE OF 
                   OIL OR NATURAL GAS AND RELATED COMMODITIES 
                   TREATED AS SHORT-TERM CAPITAL GAIN OR LOSS.

       ``(a) General Rule.--If a taxpayer has gain or loss from 
     the sale or exchange of any applicable commodity which, 
     without regard to this section, would be treated as long-term 
     capital gain or loss, such gain or loss shall, 
     notwithstanding any other provision of this title, be treated 
     as short-term capital gain or loss.
       ``(b) Applicable Commodity.--For purposes of this section--
       ``(1) In general.--The term `applicable commodity' means--
       ``(A) oil or natural gas (or any primary product of oil or 
     natural gas) which is actively traded (within the meaning of 
     section 1092(d)(1)),
       ``(B) a specified index (within the meaning of section 
     1221(b)(1)(B)(ii)) a substantial portion of which is, as of 
     the date the taxpayer acquires its position with respect to 
     such specified index, based on 1 or more commodities 
     described in subparagraph (A),
       ``(C) any notional principal contract with respect to any 
     commodity described in subparagraph (A) or (B), and
       ``(D) any evidence of an interest in, or a derivative 
     instrument in, any commodity described in subparagraph (A), 
     (B), or (C), including any option, forward contract, futures 
     contract, short position, and any similar instrument in such 
     a commodity.
       ``(2) Exception for certain section 1256 contracts.--Such 
     term shall not include a section 1256 contract (as defined in 
     section 1256(b)) which is required to be marked to market 
     under section 1256(a).
       ``(c) Special Rule for Certain Partnership Interests.--For 
     purposes of this section, if a taxpayer recognizes gain or 
     loss on the sale or exchange of any interest in a 
     partnership, the portion of such gain or loss which is 
     attributable to unrecognized gain or loss with respect to 1 
     or more applicable commodities shall be treated as short-term 
     capital gain or loss. The preceding sentence shall not apply 
     if the taxpayer is otherwise required to treat such portion 
     of gain or loss as ordinary income or loss.
       ``(d) Application.--This section shall apply to any 
     applicable commodity acquired after August 31, 2009, and 
     before January 1, 2014.''.
       (2) Conforming amendments.--
       (A) Section 1222 of such Code is amended by striking the 
     last sentence thereof.
       (B) The table of sections for part IV of subchapter P of 
     chapter 1 of such Code is amended by adding at the end the 
     following new item:

``Sec. 1261. Capital gain or loss from sale or exchange of oil or 
              natural gas and related commodities treated as short-term 
              capital gain or loss.''.
       (b) Application to Section 1256 Contracts.--
       (1) In general.--Section 1256(f) of the Internal Revenue 
     Code of 1986 (relating to special rules) is amended by adding 
     at the end the following new paragraph:
       ``(6) Special rules for certain commodity contracts.--
       ``(A) All gain or loss from commodity contracts treated as 
     short-term gain or loss.--In the case of a section 1256 
     contract which is an applicable commodity, subsection (a)(3) 
     shall be applied to any gain or loss with respect to such 
     contract--
       ``(i) by substituting `100 percent' for `40 percent' in 
     subparagraph (A) thereof, and
       ``(ii) without regard to subparagraph (B) thereof.
       ``(B) Treatment of mixed straddles.--A taxpayer may not 
     make an election under subsection (d), or an election under 
     the regulations prescribed pursuant to section 1092(b)(2), 
     with respect to any mixed straddle if any position forming a 
     part of such straddle is a section 1256 contract which is an 
     applicable commodity. For purposes of this subparagraph, if 
     any section 1256 contract which is part of a straddle is an 
     applicable commodity, any other section 1256 contract which 
     is part of such straddle shall be treated as an applicable 
     commodity.
       ``(C) Applicable commodity.--For purposes of this 
     paragraph, the term `applicable commodity' has the meaning 
     given such term by section 1261(b), except that such section 
     shall be applied without regard to paragraph (2) thereof.
       ``(D) Application.--This paragraph shall apply to any 
     applicable commodity acquired after August 31, 2009, and 
     before January 1, 2014.''.
       (2) Special rule for loss carrybacks.--Section 1212(c) of 
     such Code (relating to carryback of losses from section 1256 
     contracts to offset prior gains from such contracts) is 
     amended by redesignating paragraph (7) as paragraph (8) and 
     by inserting after paragraph (6) the following new paragraph:
       ``(7) Special rule for losses all of which are treated as 
     short-term.--If any portion of the net section 1256 contracts 
     loss for any taxable year is attributable to a net loss from 
     contracts to which section 1256(f)(6) applies--
       ``(A) this subsection shall be applied first to such 
     portion of such net section 1256 contracts loss and then to 
     the remainder of such loss, and
       ``(B) in applying this subsection to such portion--
       ``(i) notwithstanding paragraph (1)(B), all of the loss 
     attributable to such portion and allowed as a carryback shall 
     be treated as a short-term capital loss, and
       ``(ii) notwithstanding paragraph (6)(A), all of the loss 
     attributable to such portion and allowed as a carryback shall 
     be treated for purposes of applying paragraph (6) as a short-
     term capital gain for the loss year.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to applicable commodities acquired after August 
     31, 2009, in taxable years ending after such date.

     SEC. 3. GAINS AND LOSSES FROM OIL AND NATURAL GAS AND RELATED 
                   COMMODITIES TREATED AS UNRELATED BUSINESS 
                   TAXABLE INCOME.

       (a) In General.--Section 512(b) of the Internal Revenue 
     Code of 1986 (relating to modifications to unrelated business 
     taxable income) is amended by adding at the end the following 
     new paragraph:
       ``(20) Treatment of gains or losses from commodities.--
       ``(A) In general.--Notwithstanding paragraph (5) or any 
     other provision of this part--
       ``(i) income, gain, or loss of an organization with respect 
     to any applicable commodity shall not be excluded but shall 
     be taken into account as income, gain, or loss from an 
     unrelated trade or business, and
       ``(ii) all deductions directly connected with such income 
     or gain shall be allowed.
       ``(B) Exception for ordinary income and losses.--
     Subparagraph (A) shall not apply to any income, gain, or loss 
     of an organization which, if not excluded under this title 
     and without regard to subparagraph (A), would be treated as 
     ordinary income or loss.
       ``(C) Look-thru in the case of foreign corporations.--
       ``(i) In general.--If an organization owns directly or 
     indirectly stock in a foreign corporation, the organization's 
     pro rata share of any income, gain, or loss of such 
     corporation (and any deductions directly connected with such 
     income or gain) with respect to 1 or more applicable 
     commodities shall be taken into account under subparagraph 
     (A) in the same manner as if such commodities were held 
     directly by the organization. Any such item shall be taken 
     into account for the taxable year of the organization in 
     which the item arises without regard to whether there was an 
     actual distribution to the organization with respect to the 
     item. For purposes of this clause, the rule under section 
     1261(c) shall apply in determining the income, gain,

[[Page S8999]]

     or loss of the foreign corporation with respect to applicable 
     commodities.
       ``(ii) Sale of interests in corporation.--If a taxpayer 
     recognizes gain or loss on the sale or exchange of any share 
     of stock in a foreign corporation, the portion of such gain 
     or loss which is attributable to unrecognized gain or loss 
     with respect to 1 or more applicable commodities shall be 
     taken into account under subparagraph (A) in the same manner 
     as if such commodities were sold or exchanged directly by the 
     organization.
       ``(iii) No double counting.--The Secretary shall prescribe 
     such rules as are necessary to ensure that any item of 
     income, gain, loss, or deduction described in clause (i) or 
     (ii) is taken into account only once for purposes of this 
     paragraph.
       ``(D) Applicable commodity.--For purposes of this 
     paragraph, the term `applicable commodity' has the meaning 
     given such term by section 1261(b), except that such section 
     shall be applied without regard to paragraph (2) thereof.
       ``(E) Regulations.--The Secretary shall prescribe such 
     regulations as are necessary to carry out the provisions of 
     this paragraph, including regulations--
       ``(i) to prevent the avoidance of the purposes of this 
     paragraph through the use of pass-thru entities or tiered 
     structures, and
       ``(ii) to provide that this paragraph shall not apply to 
     ownership interests of organizations in foreign corporations 
     in cases where the income or gain of the foreign corporation 
     from any applicable commodity is otherwise subject to tax 
     imposed by this chapter.
       ``(F) Application.--This paragraph shall apply to any 
     applicable commodity acquired after August 31, 2009, and 
     before January 1, 2014.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to applicable commodities acquired after August 
     31, 2009, in taxable years ending after such date.

     SEC. 4. STUDY OF TAX TREATMENT OF COMMODITIES AND SECTION 
                   1256 CONTRACTS.

       (a) Study.--The Secretary of the Treasury, or the 
     Secretary's delegate, shall conduct a study of the Federal 
     income tax treatment of section 1256 contracts under section 
     1256 of the Internal Revenue Code of 1986 and of applicable 
     commodities under sections 1261, 1256(f)(6), and 512(b)(20) 
     of such Code. Such study shall include an analysis of--
       (1) the average annual number of sales or exchanges of such 
     contracts and commodities, including the number of sales and 
     exchanges involving organizations exempt from Federal income 
     taxation under such Code,
       (2) whether the amendments made by this Act have had any 
     effect on the number or type of such sales and exchanges,
       (3) the effect of tax policy on the operation of the 
     commodities exchanges and on the demand for, and price of, 
     commodities, particularly with respect to oil and natural 
     gas, and
       (4) such other matters with respect to such tax treatment 
     as the Secretary determines appropriate.
       (b) Report.--The Secretary shall, not later than January 1, 
     2012, report the results of the study conducted under 
     subsection (a) to the Committee on Finance of the Senate and 
     the Committee on Ways and Means of the House of 
     Representatives, together with such legislative 
     recommendations as the Secretary determines appropriate with 
     respect to the Federal income tax treatment of section 1256 
     contracts and applicable commodities.
                                 ______