To amend the Internal Revenue Code of 1986 to repeal certain tax incentives for oil companies.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Oil Subsidy Elimination Act of 
2006''.

SEC. 2. FINDINGS.

    The Congress finds the following:
            (1) On Friday April 21, 2006, the trading price for a 
        barrel of oil reached a new record high of $75.17. As a result 
        the price of gasoline in many areas around the country jumped 
        to $3 per gallon or higher.
            (2) According to the Energy Information Administration 
        (EIA) of the Department of Energy, gas prices are expected to 
        rise nationally by at least another 25 cents in the short term.
            (3) Oil companies are receiving record profits as a result 
        of high gas prices. In 2005, ExxonMobil--the Nation's largest 
        oil company--earned a net income of $36.1 billion, up 31 
        percent from the year before. In the fourth quarter of 2005 
        alone, ExxonMobile earned $10 billion, up from the previous 
        record of $9.92 billion set by ExxonMobile in the third quarter 
        of 2005.
            (4) While high energy prices are squeezing the American 
        middle class, oil executives are receiving record compensation 
        and retirement packages. For example, the retiring chairman of 
        ExxonMobil was recently given a $400 million retirement 
        package--one of the largest in history.
            (5) In the 108th and 109th Congresses, the United States 
        Congress passed, and the President signed, legislation giving 
        billions in taxpayer dollars away to the oil industry in the 
        form of tax breaks--even as this industry continues to garner 
        record breaking profits.
            (6) At a November 9, 2005, joint hearing of the Committee 
        on Energy and Natural Resources and the Committee on 
        Environment and Public Works of the Senate, the chief executive 
        officers of the top five oil companies testified that their 
        companies did not need the Federal tax incentives included in 
        the Energy Policy Act of 2005 (Public Law 109-58).
            (7) On April 25, 2006, President Bush stated ``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.''.

SEC. 2. REQUIREMENTS FOR CERTAIN LARGE INTEGRATED OIL COMPANIES.

    (a) Revaluation of LIFO Inventories of Large Integrated Oil 
Companies.--
            (1) 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--
                    (A) 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
                    (B) 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.
            (2) Layer adjustment amount.--For purposes of this 
        section--
                    (A) In general.--The term ``layer adjustment 
                amount'' means, with respect to any historic LIFO 
                layer, the product of--
                            (i) $18.75, and
                            (ii) 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.
                    (B) 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).
            (3) Application of requirement.--
                    (A) No change in method of accounting.--Any 
                adjustment required by this section shall not be 
                treated as a change in method of accounting.
                    (B) 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.
            (4) Applicable integrated oil company.--For purposes of 
        this subsection, 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.
    (b) Elimination of Amortization of Geological and Geophysical 
Expenditures for Major Integrated Oil Companies.--
            (1) In general.--Section 167(h) of the Internal Revenue 
        Code of 1986 is amended by adding at the end the following new 
        paragraph:
            ``(5) Nonapplication to major integrated oil companies.--
        This subsection shall not apply with respect to any expenses 
        paid or incurred for any taxable year by any integrated oil 
        company (as defined in section 291(b)(4)) which has an average 
        daily worldwide production of crude oil of at least 500,000 
        barrels for such taxable year.''.
            (2) Effective date.--The amendment made by this section 
        shall take effect as if included in the amendment made by 
        section 1329(a) of the Energy Policy Act of 2005.
    (c) Modifications of Foreign Tax Credit Rules Applicable to Large 
Integrated Oil Companies Which Are Dual Capacity Taxpayers.--
            (1) In general.--Section 901 of the Internal Revenue Code 
        of 1986 (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 Large Integrated Oil Companies 
Which Are Dual Capacity Taxpayers.--
            ``(1) General rule.--Notwithstanding any other provision of 
        this chapter, any amount paid or accrued by a dual capacity 
        taxpayer which is a large integrated oil company 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.
            ``(4) Large integrated oil company.--For purposes of this 
        subsection, the term `large integrated oil company' means, with 
        respect to any taxable year, an integrated oil company (as 
        defined in section 291(b)(4)) which--
                    ``(A) had gross receipts in excess of 
                $1,000,000,000 for such taxable year, and
                    ``(B) has an average daily worldwide production of 
                crude oil of at least 500,000 barrels for such taxable 
                year.''
            (2) Effective date.--
                    (A) In general.--The amendments made by this 
                subsection shall apply to taxes paid or accrued in 
                taxable years beginning after the date of the enactment 
                of this Act.
                    (B) Contrary treaty obligations upheld.--The 
                amendments made by this subsection shall not apply to 
                the extent contrary to any treaty obligation of the 
                United States.

SEC. 3. REPEAL OF TAX SUBSIDIES ENACTED BY THE ENERGY POLICY ACT OF 
              2005 FOR OIL AND GAS.

    (a) Repeal.--The following provisions, and amendments made by such 
provisions, of the Energy Policy Act of 2005 are hereby repealed:
            (1) Section 1323 (relating to temporary expensing for 
        equipment used in refining of liquid fuels).
            (2) Section 1328 (relating to determination of small 
        refiner exception to oil depletion deduction).
            (3) Section 1329 (relating to amortization of geological 
        and geophysical expenditures).
    (b) Administration of Internal Revenue Code of 1986.--The Internal 
Revenue Code of 1986 shall be applied and administered as if the 
provisions, and amendments, specified in subsection (a) had never been 
enacted.

Summary: Oil Subsidy Elimination Act of 2006 - Requires oil companies with annual gross receipts of $1 billion or more and average daily crude oil production levels of at least 500,000 barrels to revalue, according to a specified formula, their 2005 LIFO inventories of crude oil, natural gas, or other petroleum products. Amends the Internal Revenue Code to deny large integrated oil companies: (1) amortization of geological and geophysical expenditures. And (2) foreign tax credits for certain payments made to foreign countries. Repeals provisions of the Energy Policy Act of 2005 relating to: (1) expensing of crude oil refinery property. (2) exemptions from limitations on oil depletion deductions for certain small crude oil refiners, and (3) amortization of geological and geophysical expenditures.