II 

109TH CONGRESS 

2D SESSION S. 2670 

To restore fairness in the provision of incentives for oil and gas production, 

and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

APRIL 27, 2006 

Mr. REID (for Mr. KERRY (for himself, Mr. KOHL, and Mr. LIEBERMAN)) introduced the following bill; which was read twice and referred to the Committee on Finance 

A BILL 

To restore fairness in the provision of incentives for oil 

and gas production, and for other purposes. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; ETC. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Energy Fairness for America Act’’. 

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment 

9 to, or repeal of, a section or other provision, the reference 


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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986. 

3 (c) TABLE OF CONTENTS.—The table of contents for 

4 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. 

5 SEC. 2. TERMINATION OF DEDUCTION FOR INTANGIBLE 

6 DRILLING AND DEVELOPMENT COSTS. 

7 (a) IN GENERAL.—Section 263(c) is amended by 

8 adding at the end the following new sentence: ‘‘This sub9 section shall not apply to any taxable year beginning after 

10 the date of the enactment of this sentence.’’. 

11 (b) CONFORMING AMENDMENTS.—Paragraphs (2) 

12 and (3) of section 291(b) are each amended by striking 

13 ‘‘section 263(c), 616(a),’’ and inserting ‘‘section 616(a)’’. 

14 (c) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years beginning after 

16 the date of the enactment of this Act. 

17 SEC. 3. TERMINATION OF PERCENTAGE DEPLETION AL18 LOWANCE FOR OIL AND GAS WELLS. 

19 (a) IN GENERAL.—Section 613A is amended by add20 ing at the end the following new subsection: 


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1 ‘‘(f) TERMINATION.—For purposes of any taxable 

2 year beginning after the date of the enactment of this sub3 section, the allowance for percentage depletion shall be 

4 zero.’’. 

5 (b) EFFECTIVE DATE.—The amendment made by 

6 this section shall apply to taxable years beginning after 

7 the date of the enactment of this Act. 

8 SEC. 4. TERMINATION OF ENHANCED OIL RECOVERY CRED9 IT. 

10 (a) IN GENERAL.—Section 43 is amended by adding 

11 at the end the following new subsection: 

12 ‘‘(f) TERMINATION.—This section shall not apply to 

13 any taxable year beginning after the date of the enactment 

14 of this subsection.’’. 

15 (b) EFFECTIVE DATE.—The amendment made by 

16 this section shall apply to taxable years beginning after 

17 the date of the enactment of this Act. 

18 SEC. 5. TERMINATION OF CERTAIN PROVISIONS OF THE 

19 ENERGY POLICY ACT OF 2005. 

20 (a) IN GENERAL.—The following provisions of the 

21 Energy Policy Act of 2005 are repealed on and after the 

22 date of the enactment of this Act: 

23 (1) Section 342 (relating to program on oil and 

24 gas royalties in-kind). 


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1 (2) Section 343 (relating to marginal property 

2 production incentives). 

3 (3) Section 344 (relating to incentives for nat4 ural gas production from deep wells in the shallow 

5 waters of the Gulf of Mexico). 

6 (4) Section 345 (relating to royalty relief for 

7 deep water production). 

8 (5) Section 357 (relating to comprehensive in9 ventory of OCS oil and natural gas resources). 

10 (6) Subtitle J of title IX (relating to ultra-deep11 water and unconventional natural gas and other pe12 troleum resources). 

13 (b) TERMINATION OF ALASKA OFFSHORE ROYALTY

14 SUSPENSION.— 

15 (1) IN GENERAL.—Section 8(a)(3)(B) of the 

16 Outer Continental Shelf Lands Act (43 U.S.C. 

17 1337(a)(3)(B)) is amended by striking ‘‘and in the 

18 Planning Areas offshore Alaska’’. 

19 (2) EFFECTIVE DATE.—The amendment made 

20 by this subsection shall take effect on and after the 

21 date of the enactment of this Act. 

22 SEC. 6. TERMINATION OF CERTAIN TAX PROVISIONS OF 

23 THE ENERGY POLICY ACT OF 2005. 

24 (a) ELECTRIC TRANSMISSION PROPERTY TREATED

25 AS 15-YEAR PROPERTY.—Section 168(e)(3)(E)(vii) is 


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1 amended by inserting ‘‘, and before the date of the enact2 ment of the Energy Fairness for America Act’’ after 

3 ‘‘April 11, 2005’’. 

4 (b) TEMPORARY EXPENSING OF EQUIPMENT USED

5 IN REFINING LIQUID FUELS.—Section 179C(c)(1) is 

6 amended— 

7 (1) by striking ‘‘January 1, 2012’’ and insert8 ing ‘‘the date of the enactment of the Energy Fair9 ness for America Act’’, and 

10 (2) by striking ‘‘January 1, 2008’’ and insert11 ing ‘‘the date of the enactment of the Energy Fair12 ness for America Act’’. 

13 (c) NATURAL GAS DISTRIBUTION LINES TREATED

14 AS 15-YEAR PROPERTY.—Section 168(e)(3)(E)(viii) is 

15 amended by striking ‘‘January 1, 2011’’ and inserting 

16 ‘‘the date of the enactment of the Energy Fairness for 

17 America Act’’. 

18 (d) NATURAL GAS GATHERING LINES TREATED AS

19 7-YEAR PROPERTY.—Section 168(e)(3)(C)(iv) is amended 

20 by inserting ‘‘, and before the date of the enactment of 

21 the Energy Fairness for America Act’’ after ‘‘April 11, 

22 2005’’. 

23 (e) DETERMINATION OF SMALL REFINER EXCEP24 TION TO OIL DEPLETION DEDUCTION.—Section 1328(b) 

25 of the Energy Policy Act of 2005 is amended by inserting 


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1 ‘‘and beginning before the date of the enactment of the 

2 Energy Fairness for America Act’’ after ‘‘this Act’’. 

3 (f) AMORTIZATION OF GEOLOGICAL AND GEO4 PHYSICAL EXPENDITURES.—Section 167(h) is amended 

5 by adding at the end the following new paragraph: 

6 ‘‘(5) TERMINATION.—This subsection shall not 

7 apply to any taxable year beginning after the date 

8 of the enactment of the Energy Fairness for Amer9 ica Act.’’. 

10 (g) EFFECTIVE DATE.—The amendments made by 

11 this section shall take effect on and after the date of the 

12 enactment of this Act. 

13 SEC. 7. REVALUATION OF LIFO INVENTORIES OF LARGE IN14 TEGRATED OIL COMPANIES. 

15 (a) GENERAL RULE.—Notwithstanding any other 

16 provision of law, if a taxpayer is an applicable integrated 

17 oil company for its last taxable year ending in calendar 

18 year 2005, the taxpayer shall— 

19 (1) increase, effective as of the close of such 

20 taxable year, the value of each historic LIFO layer 

21 of inventories of crude oil, natural gas, or any other 

22 petroleum product (within the meaning of section 

23 4611) by the layer adjustment amount, and 


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1 (2) decrease its cost of goods sold for such tax2 able year by the aggregate amount of the increases 

3 under paragraph (1). 

4 If the aggregate amount of the increases under paragraph 

5 (1) exceed the taxpayer’s cost of goods sold for such tax6 able year, the taxpayer’s gross income for such taxable 

7 year shall be increased by the amount of such excess. 

8 (b) LAYER ADJUSTMENT AMOUNT.—For purposes of 

9 this section— 

10 (1) IN GENERAL.—The term ‘‘layer adjustment 

11 amount’’ means, with respect to any historic LIFO 

12 layer, the product of— 

13 (A) $18.75, and 

14 (B) the number of barrels of crude oil (or 

15 in the case of natural gas or other petroleum 

16 products, the number of barrel-of-oil equiva17 lents) represented by the layer. 

18 (2) BARREL-OF-OIL EQUIVALENT.—The term 

19 ‘‘barrel-of-oil equivalent’’ has the meaning given 

20 such term by section 29(d)(5) (as in effect before its 

21 redesignation by the Energy Tax Incentives Act of 

22 2005). 

23 (c) APPLICATION OF REQUIREMENT.— 


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1 (1) NO CHANGE IN METHOD OF ACCOUNTING.— 

2 Any adjustment required by this section shall not be 

3 treated as a change in method of accounting. 

4 (2) UNDERPAYMENTS OF ESTIMATED TAX.—No 

5 addition to the tax shall be made under section 6655 

6 of the Internal Revenue Code of 1986 (relating to 

7 failure by corporation to pay estimated tax) with re8 spect to any underpayment of an installment re9 quired to be paid with respect to the taxable year 

10 described in subsection (a) to the extent such under11 payment was created or increased by this section. 

12 (d) APPLICABLE INTEGRATED OIL COMPANY.—For 

13 purposes of this section, the term ‘‘applicable integrated 

14 oil company’’ means an integrated oil company (as defined 

15 in section 291(b)(4) of the Internal Revenue Code of 

16 1986) which has an average daily worldwide production 

17 of crude oil of at least 500,000 barrels for the taxable 

18 year and which had gross receipts in excess of 

19 $1,000,000,000 for its last taxable year ending during cal20 endar year 2005. For purposes of this subsection all per21 sons treated as a single employer under subsections (a) 

22 and (b) of section 52 of the Internal Revenue Code of 

23 1986 shall be treated as 1 person and, in the case of a 

24 short taxable year, the rule under section 448(c)(3)(B) 

25 shall apply. 


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1 SEC. 8. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 

2 APPLICABLE TO DUAL CAPACITY TAXPAYERS. 

3 (a) IN GENERAL.—Section 901 (relating to credit for 

4 taxes of foreign countries and of possessions of the United 

5 States) is amended by redesignating subsection (m) as 

6 subsection (n) and by inserting after subsection (l) the fol7 lowing new subsection: 

8 ‘‘(m) SPECIAL RULES RELATING TO DUAL CAPACITY

9 TAXPAYERS.— 

10 ‘‘(1) GENERAL RULE.—Notwithstanding any 

11 other provision of this chapter, any amount paid or 

12 accrued by a dual capacity taxpayer to a foreign 

13 country or possession of the United States for any 

14 period shall not be considered a tax— 

15 ‘‘(A) if, for such period, the foreign coun16 try or possession does not impose a generally 

17 applicable income tax, or 

18 ‘‘(B) to the extent such amount exceeds 

19 the amount (determined in accordance with reg20 ulations) which— 

21 ‘‘(i) is paid by such dual capacity tax22 payer pursuant to the generally applicable 

23 income tax imposed by the country or pos24 session, or 

25 ‘‘(ii) would be paid if the generally ap26 plicable income tax imposed by the country 


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1 or possession were applicable to such dual 

2 capacity taxpayer. 

3 Nothing in this paragraph shall be construed to 

4 imply the proper treatment of any such amount 

5 not in excess of the amount determined under 

6 subparagraph (B). 

7 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur8 poses of this subsection, the term ‘dual capacity tax9 payer’ means, with respect to any foreign country or 

10 possession of the United States, a person who— 

11 ‘‘(A) is subject to a levy of such country or 

12 possession, and 

13 ‘‘(B) receives (or will receive) directly or 

14 indirectly a specific economic benefit (as deter15 mined in accordance with regulations) from 

16 such country or possession. 

17 ‘‘(3) GENERALLY APPLICABLE INCOME TAX.— 

18 For purposes of this subsection— 

19 ‘‘(A) IN GENERAL.—The term ‘generally 

20 applicable income tax’ means an income tax (or 

21 a series of income taxes) which is generally im22 posed under the laws of a foreign country or 

23 possession on income derived from the conduct 

24 of a trade or business within such country or 

25 possession. 


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1 ‘‘(B) EXCEPTIONS.—Such term shall not 

2 include a tax unless it has substantial applica3 tion, by its terms and in practice, to— 

4 ‘‘(i) persons who are not dual capacity 

5 taxpayers, and 

6 ‘‘(ii) persons who are citizens or resi7 dents of the foreign country or posses8 sion.’’ 

9 (b) EFFECTIVE DATE.— 

10 (1) IN GENERAL.—The amendments made by 

11 this section shall apply to taxes paid or accrued in 

12 taxable years beginning after the date of the enact13 ment of this Act. 

14 (2) CONTRARY TREATY OBLIGATIONS

15 UPHELD.—The amendments made by this section 

16 shall not apply to the extent contrary to any treaty 

17 obligation of the United States. 

18 SEC. 9. RULES RELATING TO FOREIGN OIL AND GAS IN19 COME. 

20 (a) SEPARATE BASKET FOR FOREIGN TAX CRED21 IT.— 

22 (1) YEARS BEFORE 2007.—Paragraph (1) of 

23 section 904(d) (relating to separate application of 

24 section with respect to certain categories of income), 

25 as in effect for years beginning before 2007, is 


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1 amended by striking ‘‘and’’ at the end of subpara2 graph (H), by redesignating subparagraph (I) as 

3 subparagraph (J), and by inserting after subpara4 graph (H) the following new subparagraph: 

5 ‘‘(I) foreign oil and gas income, and’’. 

6 (2) 2007 AND AFTER.—Paragraph (1) of sec7 tion 904(d), as in effect for years beginning after 

8 2006, is amended by striking ‘‘and’’ at the end of 

9 subparagraph (A), by striking the period at the end 

10 of subparagraph (B) and inserting ‘‘, and’’, and by 

11 adding at the end the following: 

12 ‘‘(C) foreign oil and gas income.’’ 

13 (b) DEFINITION.— 

14 (1) YEARS BEFORE 2007.—Paragraph (2) of 

15 section 904(d), as in effect for years beginning be16 fore 2007, is amended by redesignating subpara17 graphs (H) and (I) as subparagraphs (I) and (J), 

18 respectively, and by inserting after subparagraph 

19 (G) the following new subparagraph: 

20 ‘‘(H) FOREIGN OIL AND GAS INCOME.— 

21 The term ‘foreign oil and gas income’ has the 

22 meaning given such term by section 954(g).’’ 

23 (2) 2007 AND AFTER.—Section 904(d)(2), as in 

24 effect for years after 2006, is amended by redesig25 nating subparagraphs (J) and (K) as subparagraphs 


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1 (K) and (L) and by inserting after subparagraph (I) 

2 the following: 

3 ‘‘(J) FOREIGN OIL AND GAS INCOME.—For 

4 purposes of this section— 

5 ‘‘(i) IN GENERAL.—The term ‘foreign 

6 oil and gas income’ has the meaning given 

7 such term by section 954(g). 

8 ‘‘(ii) COORDINATION.—Passive cat9 egory income and general category income 

10 shall not include foreign oil and gas income 

11 (as so defined).’’ 

12 (c) CONFORMING AMENDMENTS.— 

13 (1) Section 904(d)(3)(F)(i) is amended by 

14 striking ‘‘or (E)’’ and inserting ‘‘(E), or (I)’’. 

15 (2) Section 907(a) is hereby repealed. 

16 (3) Section 907(c)(4) is hereby repealed. 

17 (4) Section 907(f) is hereby repealed. 

18 (d) EFFECTIVE DATES.— 

19 (1) IN GENERAL.—The amendments made by 

20 this section shall apply to taxable years beginning 

21 after the date of the enactment of this Act. 

22 (2) YEARS AFTER 2006.—The amendments 

23 made by paragraphs (1)(B) and (2)(B) shall apply 

24 to taxable years beginning after December 31, 2006. 

25 (3) TRANSITIONAL RULES.— 


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1 (A) SEPARATE BASKET TREATMENT.—Any 

2 taxes paid or accrued in a taxable year begin3 ning on or before the date of the enactment of 

4 this Act, with respect to income which was de5 scribed in subparagraph (I) of section 

6 904(d)(1) of such Code (as in effect on the day 

7 before the date of the enactment of this Act), 

8 shall be treated as taxes paid or accrued with 

9 respect to foreign oil and gas income to the ex10 tent the taxpayer establishes to the satisfaction 

11 of the Secretary of the Treasury that such 

12 taxes were paid or accrued with respect to for13 eign oil and gas income. 

14 (B) CARRYOVERS.—Any unused oil and 

15 gas extraction taxes which under section 907(f) 

16 of such Code (as so in effect) would have been 

17 allowable as a carryover to the taxpayer’s first 

18 taxable year beginning after the date of the en19 actment of this Act (without regard to the limi20 tation of paragraph (2) of such section 907(f) 

21 for first taxable year) shall be allowed as 

22 carryovers under section 904(c) of such Code in 

23 the same manner as if such taxes were unused 

24 taxes under such section 904(c) with respect to 

25 foreign oil and gas extraction income. 


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1 (C) LOSSES.—The amendment made by 

2 subsection (c)(3) shall not apply to foreign oil 

3 and gas extraction losses arising in taxable 

4 years beginning on or before the date of the en5 actment of this Act. 

6 SEC. 10. ELIMINATION OF DEFERRAL FOR FOREIGN OIL 

7 AND GAS EXTRACTION INCOME. 

8 (a) GENERAL RULE.—Paragraph (1) of section 

9 954(g) (defining foreign base company oil related income) 

10 is amended to read as follows: 

11 ‘‘(1) IN GENERAL.—Except as otherwise pro12 vided in this subsection, the term ‘foreign oil and 

13 gas income’ means any income of a kind which 

14 would be taken into account in determining the 

15 amount of— 

16 ‘‘(A) foreign oil and gas extraction income 

17 (as defined in section 907(c)), or 

18 ‘‘(B) foreign oil related income (as defined 

19 in section 907(c)).’’ 

20 (b) CONFORMING AMENDMENTS.— 

21 (1) Subsections (a)(5), (b)(5), and (b)(6) of 

22 section 954, and section 952(c)(1)(B)(ii)(I), are each 

23 amended by striking ‘‘base company oil related in24 come’’ each place it appears (including in the headVerDate Aug 31 2005 20:18 May 03, 2006 Jkt 049200 PO 00000 Frm 00015 Fmt 6652 Sfmt 6201 E:\BILLS\S2670.IS S2670

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1 ing of subsection (b)(8)) and inserting ‘‘oil and gas 

2 income’’. 

3 (2) Subsection (b)(4) of section 954 is amended 

4 by striking ‘‘base company oil-related income’’ and 

5 inserting ‘‘oil and gas income’’. 

6 (3) The subsection heading for subsection (g) of 

7 section 954 is amended by striking ‘‘FOREIGN BASE

8 COMPANY OIL RELATED INCOME’’ and inserting 

9 ‘‘FOREIGN OIL AND GAS INCOME’’. 

10 (4) Subparagraph (A) of section 954(g)(2) is 

11 amended by striking ‘‘foreign base company oil re12 lated income’’ and inserting ‘‘foreign oil and gas in13 come’’. 

14 (c) EFFECTIVE DATE.—The amendments made by 

15 this section shall apply to taxable years of foreign corpora16 tions beginning after the date of the enactment of this 

17 Act, and to taxable years of United States shareholders 

18 ending with or within such taxable years of foreign cor19 porations. 

Æ 


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