< Back to H.R. 2267 (107th Congress, 2001–2002)

Text of the Domestic Energy Enhancement and Security Act of 2001

This bill was introduced on June 21, 2001, in a previous session of Congress, but was not enacted. The text of the bill below is as of Jun 21, 2001 (Introduced).

Source: GPO

HR 2267 IH

107th CONGRESS

1st Session

H. R. 2267

To amend the Internal Revenue Code of 1986 to encourage energy production.

IN THE HOUSE OF REPRESENTATIVES

June 21, 2001

Mr. LARGENT introduced the following bill; which was referred to the Committee on Ways and Means


A BILL

To amend the Internal Revenue Code of 1986 to encourage energy production.

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

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) SHORT TITLE- This Act may be cited as the ‘Domestic Energy Enhancement and Security Act of 2001’.

    (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.

SEC. 2. PHASEOUT OF CERTAIN MINIMUM TAX PREFERENCES RELATING TO ENERGY PRODUCTION.

    (a) ENERGY PREFERENCES FOR INTEGRATED OIL COMPANIES- Section 56 (relating to alternative minimum taxable income) is amended by adding at the end the following new subsection:

    ‘(h) ADJUSTMENT BASED ON ENERGY PREFERENCE-

      ‘(1) IN GENERAL- In computing the alternative minimum taxable income of any taxpayer for any taxable year beginning after December 31, 2001, there shall be allowed as a deduction an amount equal to the alternative tax energy preference deduction.

      ‘(2) PHASEOUT OF DEDUCTION AS OIL PRICES INCREASE- The amount of the deduction under paragraph (1) (determined without regard to this paragraph) shall be reduced (but not below zero) by the amount which bears the same ratio to such amount as--

        ‘(A) the amount by which the reference price for the calendar year preceding the calendar year in which the taxable year begins exceeds $15, bears to

        ‘(B) $3.

      For purposes of this paragraph, the reference price for any calendar year shall be determined under section 29(d)(2)(C), and, in the case of any taxable year beginning in a calendar year after 2002, the $15 amount under subparagraph (A) shall be adjusted at the same time and in the same manner as under section 43(b)(3) by substituting ‘2001’ for ‘1990’.

      ‘(3) ALTERNATIVE TAX ENERGY PREFERENCE DEDUCTION- For purposes of paragraph (1), the term ‘alternative tax energy preference deduction’ means an amount equal to the sum of--

        ‘(A) the intangible drilling cost preference, and

        ‘(B) the depletion preference.

      ‘(4) INTANGIBLE DRILLING COST PREFERENCE- For purposes of this subsection, the term ‘intangible drilling cost preference’ means the amount by which alternative minimum taxable income would be reduced if it were computed without regard to section 57(a)(2).

      ‘(5) DEPLETION PREFERENCE- For purposes of this subsection, the term ‘depletion preference’ means the amount by which alternative minimum taxable income would be reduced if it were computed without regard to section 57(a)(1).

      ‘(6) ALTERNATIVE MINIMUM TAXABLE INCOME- For purposes of paragraphs (1), (4), and (5), alternative minimum taxable income shall be determined without regard to the deduction allowable under this subsection and the alternative tax net operating loss deduction under subsection (a)(4).

      ‘(7) REGULATIONS- The Secretary may by regulation provide for appropriate adjustments in computing alternative minimum taxable income or adjusted current earnings for any taxable year following a taxable year for which a deduction was allowed under this subsection to ensure that no double benefit is allowed by reason of such deduction.’

    (b) REPEAL OF LIMIT ON REDUCTION FOR INDEPENDENT PRODUCERS- Subparagraph (E) of section 57(a)(2) (relating to exception for independent producers) is amended to read as follows:

        ‘(E) EXCEPTION FOR INDEPENDENT PRODUCERS- In the case of any oil or gas well, this paragraph shall not apply to any taxpayer which is not an integrated oil company (as defined in section 291(b)(4)).’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 3. DEPRECIATION ADJUSTMENT NOT TO APPLY TO OIL AND GAS ASSETS.

    (a) DEPRECIATION ADJUSTMENTS- Subparagraph (B) of section 56(a)(1) (relating to depreciation adjustments) is amended to read as follows:

        ‘(B) EXCEPTIONS- This paragraph shall not apply to--

          ‘(i) property described in paragraph (1), (2), (3), or (4) of section 168(f), or

          ‘(ii) property used in the active conduct of the trade or business of exploring for, extracting, developing, or gathering crude oil or natural gas.’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to property placed in service in taxable years beginning after December 31, 2001.

SEC. 4. REPEAL CERTAIN ADJUSTMENTS BASED ON ADJUSTED CURRENT EARNINGS RELATING TO LIFO INVENTORIES, INTANGIBLE DRILLING AND DEVELOPMENT COST, AND OIL AND GAS PERCENTAGE DEPLETION.

    (a) INTANGIBLE DRILLING COSTS- Clause (i) of section 56(g)(4)(D) is amended by striking the second sentence and inserting ‘In the case of any oil or gas well, this clause shall not apply in the case of amounts paid or incurred in taxable years beginning after December 31, 2001.’

    (b) LIFO INVENTORY ADJUSTMENT-

      (1) IN GENERAL- Subparagraph (D) of section 56(g)(4) is amended by striking clause (iii) and by redesignating clause (iv) as clause (iii).

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to taxable years beginning after December 31, 2001.

    (c) DEPLETION- Clause (ii) of section 56(g)(4)(F) is amended to read as follows:

          ‘(ii) EXCEPTION FOR OIL AND GAS WELLS- In the case of any taxable year beginning after December 31, 2001, clause (i) (and subparagraph (C)(i)) shall not apply to any deduction for depletion computed in accordance with section 613A.’

SEC. 5. ENHANCED OIL RECOVERY CREDIT AND CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE ALLOWED AGAINST MINIMUM TAX.

    (a) ENHANCED OIL RECOVERY CREDIT ALLOWED AGAINST REGULAR AND MINIMUM TAX-

      (1) CREDIT ALLOWED AGAINST MINIMUM TAX- Subsection (c) of section 38 (relating to limitation based on amount of tax) is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph:

      ‘(3) SPECIAL RULES FOR ENHANCED OIL RECOVERY CREDIT-

        ‘(A) IN GENERAL- In the case of the enhanced oil recovery credit--

          ‘(i) this section and section 39 shall be applied separately with respect to the credit, and

          ‘(ii) in applying paragraph (1) to the credit--

            ‘(I) subparagraphs (A) and (B) thereof shall not apply, and

            ‘(II) the limitation under paragraph (1) (as modified by subclause (I)) shall be reduced by the credit allowed under subsection (a) for the taxable year (other than the enhanced oil recovery credit).

        ‘(B) ENHANCED OIL RECOVERY CREDIT- For purposes of this subsection, the term ‘enhanced oil recovery credit’ means the credit allowable under subsection (a) by reason of section 43(a).’

      (2) CONFORMING AMENDMENT- Subclause (II) of section 38(c)(2)(A)(ii) is amended by inserting ‘and the enhanced oil recovery credit’ after ‘employer zone employment credit’.

    (b) CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE-

      (1) ALLOWING CREDIT AGAINST MINIMUM TAX- Section 29(b)(6) is amended to read as follows:

      ‘(6) APPLICATION WITH OTHER CREDITS- The credit allowed by subsection (a) for any taxable year shall not exceed--

        ‘(A) the regular tax for the taxable year and the tax imposed by section 55, reduced by

        ‘(B) the sum of the credits allowable under subpart A and section 27.’

      (2) CONFORMING AMENDMENTS-

        (A) Section 53(d)(1)(B)(iii) is amended by inserting ‘as in effect on the date of the enactment of the Domestic Energy Enhancement and Security Act of 2001,’ after ‘29(b)(6)(B),’.

        (B) Section 55(c)(2) is amended by striking ‘29(b)(6),’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.

SEC. 6. ENHANCED OIL RECOVERY CREDIT EXTENDED TO CERTAIN NONTERTIARY RECOVERY METHODS.

    (a) PURPOSE- The purpose of this section is to extend the productive lives of existing domestic oil and gas wells in order to recover the 75 percent of the oil and gas that is not recoverable using primary oil and gas recovery techniques.

    (b) IN GENERAL- Clause (i) of section 43(c)(2)(A) (defining qualified enhanced oil recovery project) is amended to read as follows:

          ‘(i) which involves the application (in accordance with sound engineering principles) of--

            ‘(I) one or more tertiary recovery methods (as defined in section 193(b)(3)) which can reasonably be expected to result in more than an insignificant increase in the amount of crude oil which will ultimately be recovered, or

            ‘(II) one or more qualified nontertiary recovery methods which are required to recover oil with traditionally immobile characteristics or from formations which have proven to be uneconomical or noncommercial under conventional recovery methods,’.

    (c) QUALIFIED NONTERTIARY RECOVERY METHODS- Section 43(c)(2) is amended by adding at the end the following new subparagraphs:

        ‘(C) QUALIFIED NONTERTIARY RECOVERY METHOD- For purposes of this paragraph--

          ‘(i) IN GENERAL- The term ‘qualified nontertiary recovery method’ means any recovery method described in clause (ii), (iii), or (iv), or any combination thereof.

          ‘(ii) ENHANCED GRAVITY DRAINAGE METHODS- The methods described in this clause are as follows:

            ‘(I) HORIZONTAL DRILLING- The drilling of horizontal, rather than vertical, wells to penetrate any hydrocarbon-bearing formation which has an average in situ calculated permeability to fluid flow of not more than 12 millidarcies and which has been demonstrated by use of a vertical wellbore to be uneconomical unless drilled with lateral horizontal lengths in excess of 1,000 feet.

            ‘(II) GRAVITY DRAINAGE- The production of oil by gravity flow from drainholes that are drilled from a shaft or tunnel dug within or below the oil-bearing zone.

          ‘(iii) MARGINALLY ECONOMIC RESERVOIR REPRESSURIZATION METHODS- The methods described in this clause are as follows, except that this clause shall only apply to the first 1,000,000 barrels produced in any project:

            ‘(I) CYCLIC GAS INJECTION- The increase or maintenance of pressure by injection of hydrocarbon gas into the reservoir from which it was originally produced.

            ‘(II) FLOODING- The injection of water into an oil reservoir to displace oil from the reservoir rock and into the bore of a producing well.

          ‘(iv) OTHER METHODS- Any method used to recover--

            ‘(I) oil having an average laboratory measured air permeability of not more than 100 millidarcies when averaged over the productive interval being completed or an in situ calculated permeability to fluid flow of not more than 12 millidarcies, or

            ‘(II) oil defined by the Department of Energy as being immobile.

        ‘(D) AUTHORITY TO ADD OTHER NONTERTIARY RECOVERY METHODS- The Secretary shall provide procedures under which--

          ‘(i) the Secretary may treat methods not described in clause (ii), (iii), or (iv) of subparagraph (C) as qualified nontertiary recovery methods, and

          ‘(ii) a taxpayer may request the Secretary to treat any method not so described as a qualified nontertiary recovery method.

        The Secretary may only specify methods as qualified nontertiary recovery methods under this subparagraph if the Secretary determines that such specification is consistent with the purposes of subparagraph (C) and will result in greater production of oil and natural gas.’

    (d) CONFORMING AMENDMENT- Clause (iii) of section 43(c)(2)(A) is amended to read as follows:

          ‘(iii) with respect to which--

            ‘(I) in the case of a tertiary recovery method, the first injection of liquids, gases, or other matter commences after December 31, 1990, and

            ‘(II) in the case of a qualified nontertiary recovery method, the implementation of the method begins after December 31, 2001.’

    (e) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years ending after December 31, 2001.

SEC. 7. 10-YEAR CARRYBACK FOR PERCENTAGE DEPLETION FOR OIL AND GAS PROPERTY.

    (a) IN GENERAL- Paragraph (1) of section 613A(d) (relating to limitations on percentage depletion in case of oil and gas wells) is amended to read as follows:

      ‘(1) LIMITATION BASED ON TAXABLE INCOME-

        ‘(A) IN GENERAL- The deduction for the taxable year attributable to the application of subsection (c) shall not exceed so much of the taxpayer’s taxable income for the year as the taxpayer elects computed without regard to--

          ‘(i) any depletion on production from an oil or gas property which is subject to the provisions of subsection (c),

          ‘(ii) any net operating loss carryback to the taxable year under section 172,

          ‘(iii) any capital loss carryback to the taxable year under section 1212, and

          ‘(iv) in the case of a trust, any distributions to its beneficiary, except in the case of any trust where any beneficiary of such trust is a member of the family (as defined in section 267(c)(4)) of a settlor who created inter vivos and testamentary trusts for members of the family and such settlor died within the last six days of the fifth month in 1970, and the law in the jurisdiction in which such trust was created requires all or a portion of the gross or net proceeds of any royalty or other interest in oil, gas, or other mineral representing any percentage depletion allowance to be allocated to the principal of the trust.

        ‘(B) CARRYBACKS AND CARRYFORWARDS-

          ‘(i) IN GENERAL- If an amount is disallowed as a deduction for the taxable year (in this subparagraph referred to as the ‘unused depletion year’) by reason of application of subparagraph (A), the disallowed amount shall be treated as an amount allowable as a deduction under subsection (c) for--

            ‘(I) any of the 10 taxable years preceding the unused depletion year, and

            ‘(II) the taxable year following the unused depletion year, subject to the application of subparagraph (A) to such taxable year.

          ‘(ii) ELECTION TO WAIVE CARRYBACK- Any taxpayer entitled to a carryback period under this subparagraph may elect to relinquish such carryback for any of the taxable years to which it would apply. Such election made in any taxable year may be revised in the succeeding taxable year in such manner as the Secretary may prescribe.

        ‘(C) ALLOCATION OF DISALLOWED AMOUNTS- For purposes of basis adjustments and determining whether cost depletion exceeds percentage depletion with respect to the production from a property, any amount disallowed as a deduction on the application of this paragraph shall be allocated to the respective properties from which the oil or gas was produced in proportion to the percentage depletion otherwise allowable to such properties under subsection (c).’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2001, and to any taxable year beginning on or before such date to the extent necessary to apply section 613A(d)(1) of the Internal Revenue Code of 1986 (as added by subsection (a)).

SEC. 8. NET INCOME LIMITATION ON PERCENTAGE DEPLETION REPEALED FOR OIL AND GAS PROPERTIES.

    (a) IN GENERAL- Section 613(a) (relating to percentage depletion) is amended by striking the second sentence and inserting: ‘Except in the case of oil and gas properties, such allowance shall not exceed 50 percent of the taxpayer’s taxable income from the property (computed without allowances for depletion).’

    (b) CONFORMING AMENDMENTS-

      (1) Section 613A(c)(7) (relating to special rules) is amended by striking subparagraph (C) and redesignating subparagraph (D) as subparagraph (C).

      (2) Section 613A(c)(6) (relating to oil and natural gas produced from marginal properties) is amended by striking subparagraph (H).

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.