I 

109TH CONGRESS 

2D SESSION H. R. 5234 

To amend the Internal Revenue Code of 1986 to repeal certain tax incentives 

for oil companies. 

IN THE HOUSE OF REPRESENTATIVES 

APRIL 27, 2006 

Mr. LARSON of Connecticut (for himself, Mr. MCDERMOTT, Mr. HINCHEY, 

Mr. ALLEN, Ms. HOOLEY, Mr. GRIJALVA, Ms. DELAURO, Mr. HONDA, 

Mr. NADLER, and Ms. LEE) 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 repeal 

certain tax incentives for oil companies. 

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. 

4 This Act may be cited as the ‘‘Oil Subsidy Elimi5 nation Act of 2006’’. 

6 SEC. 2. FINDINGS. 

7 The Congress finds the following: 

8 (1) On Friday April 21, 2006, the trading price 

9 for a barrel of oil reached a new record high of 


rfake on PROD1PC77 with BILLS
2 

•HR 5234 IH

1 $75.17. As a result the price of gasoline in many 

2 areas around the country jumped to $3 per gallon 

3 or higher. 

4 (2) According to the Energy Information Ad5 ministration (EIA) of the Department of Energy, 

6 gas prices are expected to rise nationally by at least 

7 another 25 cents in the short term. 

8 (3) Oil companies are receiving record profits 

9 as a result of high gas prices. In 2005, 

10 ExxonMobil—the Nation’s largest oil company— 

11 earned a net income of $36.1 billion, up 31 percent 

12 from the year before. In the fourth quarter of 2005 

13 alone, ExxonMobile earned $10 billion, up from the 

14 previous record of $9.92 billion set by ExxonMobile 

15 in the third quarter of 2005. 

16 (4) While high energy prices are squeezing the 

17 American middle class, oil executives are receiving 

18 record compensation and retirement packages. For 

19 example, the retiring chairman of ExxonMobil was 

20 recently given a $400 million retirement package— 

21 one of the largest in history. 

22 (5) In the 108th and 109th Congresses, the 

23 United States Congress passed, and the President 

24 signed, legislation giving billions in taxpayer dollars 

25 away to the oil industry in the form of tax breaks— 


rfake on PROD1PC77 with BILLS
3 

•HR 5234 IH

1 even as this industry continues to garner record 

2 breaking profits. 

3 (6) At a November 9, 2005, joint hearing of the 

4 Committee on Energy and Natural Resources and 

5 the Committee on Environment and Public Works of 

6 the Senate, the chief executive officers of the top five 

7 oil companies testified that their companies did not 

8 need the Federal tax incentives included in the En9 ergy Policy Act of 2005 (Public Law 109–58). 

10 (7) On April 25, 2006, President Bush stated 

11 ‘‘Record oil prices and large cash flows also mean 

12 that Congress has got to understand that these en13 ergy companies don’t need unnecessary tax breaks 

14 like the write-offs of certain geological and geo15 physical expenditures, or the use of taxpayers’ 

16 money to subsidize energy companies research into 

17 deep water drilling. I’m looking forward to Congress 

18 to take about $2 billion of these tax breaks out of 

19 the budget over a 10-year period of time. Cash flows 

20 are up. Taxpayers don’t need to be paying for cer21 tain of these expenses on behalf of the energy com22 panies.’’. 


rfake on PROD1PC77 with BILLS
4 

•HR 5234 IH

1 SEC. 2. REQUIREMENTS FOR CERTAIN LARGE INTEGRATED 

2 OIL COMPANIES. 

3 (a) REVALUATION OF LIFO INVENTORIES OF LARGE

4 INTEGRATED OIL COMPANIES.— 

5 (1) GENERAL RULE.—Notwithstanding any 

6 other provision of law, if a taxpayer is an applicable 

7 integrated oil company for its last taxable year end8 ing in calendar year 2005, the taxpayer shall— 

9 (A) increase, effective as of the close of 

10 such taxable year, the value of each historic 

11 LIFO layer of inventories of crude oil, natural 

12 gas, or any other petroleum product (within the 

13 meaning of section 4611) by the layer adjust14 ment amount, and 

15 (B) decrease its cost of goods sold for such 

16 taxable year by the aggregate amount of the in17 creases under paragraph (1). 

18 If the aggregate amount of the increases under 

19 paragraph (1) exceed the taxpayer’s cost of goods 

20 sold for such taxable year, the taxpayer’s gross in21 come for such taxable year shall be increased by the 

22 amount of such excess. 

23 (2) LAYER ADJUSTMENT AMOUNT.—For pur24 poses of this section— 


rfake on PROD1PC77 with BILLS
5 

•HR 5234 IH

1 (A) IN GENERAL.—The term ‘‘layer ad2 justment amount’’ means, with respect to any 

3 historic LIFO layer, the product of— 

4 (i) $18.75, and 

5 (ii) the number of barrels of crude oil 

6 (or in the case of natural gas or other pe7 troleum products, the number of barrel-of8 oil equivalents) represented by the layer. 

9 (B) BARREL-OF-OIL EQUIVALENT.—The 

10 term ‘‘barrel-of-oil equivalent’’ has the meaning 

11 given such term by section 29(d)(5) (as in ef12 fect before its redesignation by the Energy Tax 

13 Incentives Act of 2005). 

14 (3) APPLICATION OF REQUIREMENT.— 

15 (A) NO CHANGE IN METHOD OF ACCOUNT16 ING.—Any adjustment required by this section 

17 shall not be treated as a change in method of 

18 accounting. 

19 (B) UNDERPAYMENTS OF ESTIMATED

20 TAX.—No addition to the tax shall be made 

21 under section 6655 of the Internal Revenue 

22 Code of 1986 (relating to failure by corporation 

23 to pay estimated tax) with respect to any un24 derpayment of an installment required to be 

25 paid with respect to the taxable year described 


rfake on PROD1PC77 with BILLS
6 

•HR 5234 IH

1 in subsection (a) to the extent such under2 payment was created or increased by this sec3 tion. 

4 (4) APPLICABLE INTEGRATED OIL COMPANY.— 

5 For purposes of this subsection, the term ‘‘applica6 ble integrated oil company’’ means an integrated oil 

7 company (as defined in section 291(b)(4) of the In8 ternal Revenue Code of 1986) which has an average 

9 daily worldwide production of crude oil of at least 

10 500,000 barrels for the taxable year and which had 

11 gross receipts in excess of $1,000,000,000 for its 

12 last taxable year ending during calendar year 2005. 

13 For purposes of this subsection all persons treated 

14 as a single employer under subsections (a) and (b) 

15 of section 52 of the Internal Revenue Code of 1986 

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

17 short taxable year, the rule under section 

18 448(c)(3)(B) shall apply. 

19 (b) ELIMINATION OF AMORTIZATION OF GEOLOGICAL

20 AND GEOPHYSICAL EXPENDITURES FOR MAJOR INTE21 GRATED OIL COMPANIES.— 

22 (1) IN GENERAL.—Section 167(h) of the Inter23 nal Revenue Code of 1986 is amended by adding at 

24 the end the following new paragraph: 


rfake on PROD1PC77 with BILLS
7 

•HR 5234 IH

1 ‘‘(5) NONAPPLICATION TO MAJOR INTEGRATED

2 OIL COMPANIES.—This subsection shall not apply 

3 with respect to any expenses paid or incurred for 

4 any taxable year by any integrated oil company (as 

5 defined in section 291(b)(4)) which has an average 

6 daily worldwide production of crude oil of at least 

7 500,000 barrels for such taxable year.’’. 

8 (2) EFFECTIVE DATE.—The amendment made 

9 by this section shall take effect as if included in the 

10 amendment made by section 1329(a) of the Energy 

11 Policy Act of 2005. 

12 (c) MODIFICATIONS OF FOREIGN TAX CREDIT

13 RULES APPLICABLE TO LARGE INTEGRATED OIL COMPA14 NIES WHICH ARE DUAL CAPACITY TAXPAYERS.— 

15 (1) IN GENERAL.—Section 901 of the Internal 

16 Revenue Code of 1986 (relating to credit for taxes 

17 of foreign countries and of possessions of the United 

18 States) is amended by redesignating subsection (m) 

19 as subsection (n), and by inserting after subsection 

20 (l) the following new subsection: 

21 ‘‘(m) SPECIAL RULES RELATING TO LARGE INTE22 GRATED OIL COMPANIES WHICH ARE DUAL CAPACITY

23 TAXPAYERS.— 

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

25 other provision of this chapter, any amount paid or 


rfake on PROD1PC77 with BILLS
8 

•HR 5234 IH

1 accrued by a dual capacity taxpayer which is a large 

2 integrated oil company to a foreign country or pos3 session of the United States for any period shall not 

4 be considered a tax— 

5 ‘‘(A) if, for such period, the foreign coun6 try or possession does not impose a generally 

7 applicable income tax, or 

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

9 the amount (determined in accordance with reg10 ulations) which— 

11 ‘‘(i) is paid by such dual capacity tax12 payer pursuant to the generally applicable 

13 income tax imposed by the country or pos14 session, or 

15 ‘‘(ii) would be paid if the generally ap16 plicable income tax imposed by the country 

17 or possession were applicable to such dual 

18 capacity taxpayer. 

19 Nothing in this paragraph shall be construed to 

20 imply the proper treatment of any such amount 

21 not in excess of the amount determined under 

22 subparagraph (B). 

23 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur24 poses of this subsection, the term ‘dual capacity taxVerDate Aug 31 2005 03:17 May 02, 2006 Jkt 049200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H5234.IH H5234

rfake on PROD1PC77 with BILLS
9 

•HR 5234 IH

1 payer’ means, with respect to any foreign country or 

2 possession of the United States, a person who— 

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

4 possession, and 

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

6 indirectly a specific economic benefit (as deter7 mined in accordance with regulations) from 

8 such country or possession. 

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

10 For purposes of this subsection— 

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

12 applicable income tax’ means an income tax (or 

13 a series of income taxes) which is generally im14 posed under the laws of a foreign country or 

15 possession on income derived from the conduct 

16 of a trade or business within such country or 

17 possession. 

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

19 include a tax unless it has substantial applica20 tion, by its terms and in practice, to— 

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

22 taxpayers, and 

23 ‘‘(ii) persons who are citizens or resi24 dents of the foreign country or possession. 


rfake on PROD1PC77 with BILLS
10 

•HR 5234 IH

1 ‘‘(4) LARGE INTEGRATED OIL COMPANY.—For 

2 purposes of this subsection, the term ‘large inte3 grated oil company’ means, with respect to any tax4 able year, an integrated oil company (as defined in 

5 section 291(b)(4)) which— 

6 ‘‘(A) had gross receipts in excess of 

7 $1,000,000,000 for such taxable year, and 

8 ‘‘(B) has an average daily worldwide pro9 duction of crude oil of at least 500,000 barrels 

10 for such taxable year.’’ 

11 (2) EFFECTIVE DATE.— 

12 (A) IN GENERAL.—The amendments made 

13 by this subsection shall apply to taxes paid or 

14 accrued in taxable years beginning after the 

15 date of the enactment of this Act. 

16 (B) CONTRARY TREATY OBLIGATIONS

17 UPHELD.—The amendments made by this sub18 section shall not apply to the extent contrary to 

19 any treaty obligation of the United States. 

20 SEC. 3. REPEAL OF TAX SUBSIDIES ENACTED BY THE EN21 ERGY POLICY ACT OF 2005 FOR OIL AND GAS. 

22 (a) REPEAL.—The following provisions, and amend23 ments made by such provisions, of the Energy Policy Act 

24 of 2005 are hereby repealed: 


rfake on PROD1PC77 with BILLS
11 

•HR 5234 IH

1 (1) Section 1323 (relating to temporary expens2 ing for equipment used in refining of liquid fuels). 

3 (2) Section 1328 (relating to determination of 

4 small refiner exception to oil depletion deduction). 

5 (3) Section 1329 (relating to amortization of 

6 geological and geophysical expenditures). 

7 (b) ADMINISTRATION OF INTERNAL REVENUE CODE

8 OF 1986.—The Internal Revenue Code of 1986 shall be 

9 applied and administered as if the provisions, and amend10 ments, specified in subsection (a) had never been enacted. 

Æ 


rfake on PROD1PC77 with BILLS