Domestic Oil and Gas Preservation Act

Summary: Domestic Oil and Gas Preservation Act - Amends the Internal Revenue Code to allow an election to treat geological and geophysical expenses incurred in connection with the exploration for, or development of, domestic oil or gas as expenses which are not chargeable to capital account. 
Repeals provisions relating to a limitation regarding the percentage depletion in the case of oil and gas wells. 
Allows an election to treat delay rental payments (amounts paid for the privilege of deferring development of an oil or gas well) incurred in connection with the development of domestic oil or gas as payments that are not chargeable to capital account, allowing any payments so treated as a deduction. 
Requires, in the case of a tax shelter, treating economic performance regarding amounts paid during the taxable year for drilling an oil or gas well as having occurred within a taxable year if drilling commences before the close of the 180th (currently, the 90th) day after the close of the taxable year. 
Amends provisions relating to an enhanced oil recovery credit to include hydro injection in the definition of "qualified enhanced oil recovery project."

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Domestic Oil and Gas Preservation 
Act''.

SEC. 2. ELECTION TO EXPENSE GEOLOGICAL AND GEOPHYSICAL EXPENDITURES.

    (a) In General.--Section 263 of the Internal Revenue Code of 1986 
(relating to capital expenditures) is amended by adding at the end the 
following new subsection:
    ``(j) Geological and Geophysical Expenditures for Domestic Oil and 
Gas Wells.--Notwithstanding subsection (a), a taxpayer may elect to 
treat geological and geophysical expenses incurred in connection with 
the exploration for, or development of, oil or gas within the United 
States (as defined in section 638) as expenses which are not chargeable 
to capital account. Any expenses so treated shall be allowed as a 
deduction in the taxable year in which paid or incurred.''
    (b) Conforming Amendment.--Section 263A(c)(3) of the Internal 
Revenue Code of 1986 is amended by inserting ``263(j),'' after 
``263(i),''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to expenses paid or incurred after the date of enactment 
        of this Act.
            (2) Transition rule.--In the case of any expenses described 
        in section 263(j) of the Internal Revenue Code of 1986, as 
        added by this section, which were paid or incurred on or before 
        the date of enactment of this Act, the taxpayer may elect, at 
        such time and in such manner as the Secretary of the Treasury 
        may prescribe, to amortize the unamortized portion of such 
        expenses over the 36-month period beginning with the month in 
        which the date of enactment of this Act occurs. For purposes of 
        this paragraph, the unamortized portion of any expense is the 
        amount remaining unamortized as of the first day of the 36-
        month period.

SEC. 3. ELIMINATION OF NET INCOME LIMITATION ON PERCENTAGE DEPLETION 
              FOR OIL AND GAS.

    (a) Elimination.--
            (1) In general.--Section 613A(d)(1) of the Internal Revenue 
        Code of 1986 (relating to the limitation based on taxable 
        income for percentage depletion in the case of oil and gas 
        wells) is repealed.
            (2) Other production.--The second sentence of section 
        613(a) of the Internal Revenue Code of 1986 (relating to 
        percentage depletion) is amended to read as follows: ``Except 
        in the case of oil and gas wells, such allowance shall not 
        exceed 50 percent of the taxpayer's taxable income from the 
        property (computed without allowance for depletion).''
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to taxable years beginning after December 31, 1997.
            (2) Transition rule.--
                    (A) Deduction.--To the extent a deduction under 
                section 613A of the Internal Revenue Code of 1986 is 
                disallowed under subsection (d)(1) of such section for 
                any taxable year ending on or before December 31, 1997, 
                the amount so disallowed shall be treated as an amount 
                allowable as a deduction under subsection (c) of such 
                section for the first taxable year beginning after 
                December 31, 1997.
                    (B) Certain adjustments.--The last sentence of 
                subsection (d)(1) of section 613A of such Code, as in 
                effect immediately before the repeal made by subsection 
                (a)(1) of this section, shall apply with respect to 
                amounts allowable as a deduction under subsection (c) 
                of such section by reason of subparagraph (A) of this 
                paragraph.

SEC. 4. ELECTION TO EXPENSE DELAY RENTAL PAYMENTS.

    (a) In General.--Section 263 of the Internal Revenue Code of 1986 
(relating to capital expenditures), as amended by section 2(a), is 
amended by adding at the end the following new subsection:
    ``(k) Delay Rental Payments for Domestic Oil and Gas Wells.--
            ``(1) In general.--Notwithstanding subsection (a), a 
        taxpayer may elect to treat delay rental payments incurred in 
        connection with the development of oil or gas within the United 
        States (as defined in section 638) as payments which are not 
        chargeable to capital account. Any payments so treated shall be 
        allowed as a deduction in the taxable year in which paid or 
        incurred.
            ``(2) Delay rental payments.--For purposes of paragraph 
        (1), the term `delay rental payment' means an amount paid for 
        the privilege of deferring development of an oil or gas well.''
    (b) Conforming Amendment.--Section 263A(c)(3) of the Internal 
Revenue Code of 1986, as amended by section 2(b), is amended by 
inserting ``263(k),'' after ``263(j),''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to payments made or incurred after the date of enactment 
        of this Act.
            (2) Transition rule.--In the case of any payments described 
        in section 263(k) of the Internal Revenue Code of 1986, as 
        added by this section, which were made or incurred on or before 
        the date of enactment of this Act, the taxpayer may elect, at 
        such time and in such manner as the Secretary of the Treasury 
        may prescribe, to amortize the unamortized portion of such 
        payments over the 36-month period beginning with the month in 
        which the date of enactment of this Act occurs. For purposes of 
        this paragraph, the unamortized portion of any payment is the 
        amount remaining unamortized as of the first day of the 36-
        month period.

SEC. 5. EXTENSION OF SPUDDING RULE.

    (a) In General.--Section 461(i)(2)(A) of the Internal Revenue Code 
of 1986 (relating to special rule for spudding of oil or gas wells) is 
amended by striking ``90th day'' and inserting ``180th day''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 1997.

SEC. 6. HYDRO INJECTION INCLUDED AS TERTIARY RECOVERY METHOD.

    (a) In General.--Section 43(c)(2) of the Internal Revenue Code of 
1986 (defining qualified enhanced oil recovery project) is amended by 
adding at the end the following new subparagraph:
                    ``(C) Tertiary recovery method.--For purposes of 
                subparagraph (A), the term `tertiary recovery method' 
                shall include hydro injection.''
    (b) Effective Date.-- The amendment made by subsection (a) shall 
apply with respect to injections commencing after December 31, 1997.