I 

109TH CONGRESS 

2D SESSION H. R. 5300 

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

and for other purposes. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 4, 2006 

Mr. HINCHEY (for himself, Mr. HASTINGS of Florida, Mr. MARKEY, Mr. INSLEE, Mr. MORAN of Virginia, Mr. BLUMENAUER, Mr. SANDERS, Mr. 

MCDERMOTT, Mr. STARK, Mrs. MALONEY, Mr. MCGOVERN, Mr. LARSON

of Connecticut, Mr. SCHIFF, Mr. GRIJALVA, Mrs. CAPPS, Mr. OBERSTAR, 

Mr. RAHALL, Mrs. MCCARTHY, Mr. RANGEL, Mr. GEORGE MILLER of 

California, Mr. DEFAZIO, Mr. MEEHAN, Mr. WEXLER, Ms. DELAURO, 

Ms. WOOLSEY, Mr. TOWNS, Mrs. LOWEY, and Mr. STUPAK) introduced 

the following bill; which was referred to the Committee on Ways and 

Means, and in addition to the Committees on Resources and Science, for 

a period to be subsequently determined by the Speaker, in each case for 

consideration of such provisions as fall within the jurisdiction of the committee concerned 

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’’. 


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1 (b) AMENDMENT OF 1986 CODE.—Except as other2 wise expressly provided, whenever in this Act an amend3 ment or repeal is expressed in terms of an amendment 

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

5 shall be considered to be made to a section or other provi6 sion of the Internal Revenue Code of 1986. 

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

8 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. 

9 SEC. 2. TERMINATION OF DEDUCTION FOR INTANGIBLE 

10 DRILLING AND DEVELOPMENT COSTS. 

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

12 adding at the end the following new sentence: ‘‘This sub13 section shall not apply to any taxable year beginning after 

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

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

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

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

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

19 this section shall apply to taxable years beginning after 

20 the date of the enactment of this Act. 


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1 SEC. 3. TERMINATION OF PERCENTAGE DEPLETION AL2 LOWANCE FOR OIL AND GAS WELLS. 

3 (a) IN GENERAL.—Section 613A is amended by add4 ing at the end the following new subsection: 

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

6 year beginning after the date of the enactment of this sub7 section, the allowance for percentage depletion shall be 

8 zero.’’. 

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

10 this section shall apply to taxable years beginning after 

11 the date of the enactment of this Act. 

12 SEC. 4. TERMINATION OF ENHANCED OIL RECOVERY CRED13 IT. 

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

15 at the end the following new subsection: 

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

17 any taxable year beginning after the date of the enactment 

18 of this subsection.’’. 

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

20 this section shall apply to taxable years beginning after 

21 the date of the enactment of this Act. 

22 SEC. 5. TERMINATION OF CERTAIN PROVISIONS OF THE 

23 ENERGY POLICY ACT OF 2005. 

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

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

26 date of the enactment of this Act: 


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

2 gas royalties in-kind). 

3 (2) Section 343 (relating to marginal property 

4 production incentives). 

5 (3) Section 344 (relating to incentives for nat6 ural gas production from deep wells in the shallow 

7 waters of the Gulf of Mexico). 

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

9 deep water production). 

10 (5) Section 357 (relating to comprehensive in11 ventory of OCS oil and natural gas resources). 

12 (6) Subtitle J of title IX (relating to ultra-deep13 water and unconventional natural gas and other pe14 troleum resources). 

15 (b) TERMINATION OF ALASKA OFFSHORE ROYALTY

16 SUSPENSION.— 

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

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

19 1337(a)(3)(B)) is amended by striking ‘‘and in the 

20 Planning Areas offshore Alaska’’. 

21 (2) EFFECTIVE DATE.—The amendment made 

22 by this subsection shall take effect on and after the 

23 date of the enactment of this Act. 


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1 SEC. 6. TERMINATION OF CERTAIN TAX PROVISIONS OF 

2 THE ENERGY POLICY ACT OF 2005. 

3 (a) ELECTRIC TRANSMISSION PROPERTY TREATED

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

5 amended by inserting ‘‘, and before the date of the enact6 ment of the Energy Fairness for America Act’’ after 

7 ‘‘April 11, 2005’’. 

8 (b) TEMPORARY EXPENSING OF EQUIPMENT USED

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

10 amended— 

11 (1) in subparagraph (B) by striking ‘‘January 

12 1, 2012’’ and inserting ‘‘the date of the enactment 

13 of the Energy Fairness for America Act’’, and 

14 (2) by striking ‘‘January 1, 2008’’ each place 

15 it appears in subparagraph (F) and inserting ‘‘the 

16 date of the enactment of the Energy Fairness for 

17 America Act’’. 

18 (c) NATURAL GAS DISTRIBUTION LINES TREATED

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

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

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

22 America Act’’. 

23 (d) NATURAL GAS GATHERING LINES TREATED AS

24 7-YEAR PROPERTY.—Section 168(e)(3)(C)(iv) is amended 

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


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

2 2005’’. 

3 (e) DETERMINATION OF SMALL REFINER EXCEP4 TION TO OIL DEPLETION DEDUCTION.—Section 1328(b) 

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

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

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

8 (f) AMORTIZATION OF GEOLOGICAL AND GEO9 PHYSICAL EXPENDITURES.—Section 167(h) is amended 

10 by adding at the end the following new paragraph: 

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

12 apply to any taxable year beginning after the date 

13 of the enactment of the Energy Fairness for Amer14 ica Act.’’. 

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

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

17 enactment of this Act. 

18 SEC. 7. REVALUATION OF LIFO INVENTORIES OF LARGE IN19 TEGRATED OIL COMPANIES. 

20 (a) GENERAL RULE.—Notwithstanding any other 

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

22 oil company for its last taxable year ending in calendar 

23 year 2005, the taxpayer shall— 

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

25 taxable year, the value of each historic LIFO layer 


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

2 petroleum product (within the meaning of section 

3 4611) by the layer adjustment amount, and 

4 (2) decrease its cost of goods sold for such tax5 able year by the aggregate amount of the increases 

6 under paragraph (1). 

7 If the aggregate amount of the increases under paragraph 

8 (1) exceed the taxpayer’s cost of goods sold for such tax9 able year, the taxpayer’s gross income for such taxable 

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

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

12 this section— 

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

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

15 layer, the product of— 

16 (A) $18.75, and 

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

18 in the case of natural gas or other petroleum 

19 products, the number of barrel-of-oil equiva20 lents) represented by the layer. 

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

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

23 such term by section 29(d)(5) of the Internal Rev24 enue Code of 1986 (as in effect before its redesigna25 tion by the Energy Tax Incentives Act of 2005). 


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1 (c) APPLICATION OF REQUIREMENT.— 

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

3 Any adjustment required by this section shall not be 

4 treated as a change in method of accounting. 

5 (2) UNDERPAYMENTS OF ESTIMATED TAX.—No 

6 addition to the tax shall be made under section 6655 

7 of the Internal Revenue Code of 1986 (relating to 

8 failure by corporation to pay estimated tax) with re9 spect to any underpayment of an installment re10 quired to be paid with respect to the taxable year 

11 described in subsection (a) to the extent such under12 payment was created or increased by this section. 

13 (d) APPLICABLE INTEGRATED OIL COMPANY.—For 

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

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

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

17 1986) which has an average daily worldwide production 

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

19 year and which had gross receipts in excess of 

20 $1,000,000,000 for its last taxable year ending during cal21 endar year 2005. For purposes of this subsection all per22 sons treated as a single employer under subsections (a) 

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

24 1986 shall be treated as 1 person and, in the case of a 


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

2 such Code shall apply. 

3 SEC. 8. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 

4 APPLICABLE TO DUAL CAPACITY TAXPAYERS. 

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

6 taxes of foreign countries and of possessions of the United 

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

8 subsection (n) and by inserting after subsection (l) the fol9 lowing new subsection: 

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

11 TAXPAYERS.— 

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

13 other provision of this chapter, any amount paid or 

14 accrued by a dual capacity taxpayer to a foreign 

15 country or possession of the United States for any 

16 period shall not be considered a tax— 

17 ‘‘(A) if, for such period, the foreign coun18 try or possession does not impose a generally 

19 applicable income tax, or 

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

21 the amount (determined in accordance with reg22 ulations) which— 

23 ‘‘(i) is paid by such dual capacity tax24 payer pursuant to the generally applicable 


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1 income tax imposed by the country or pos2 session, or 

3 ‘‘(ii) would be paid if the generally ap4 plicable income tax imposed by the country 

5 or possession were applicable to such dual 

6 capacity taxpayer. 

7 Nothing in this paragraph shall be construed to 

8 imply the proper treatment of any such amount 

9 not in excess of the amount determined under 

10 subparagraph (B). 

11 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur12 poses of this subsection, the term ‘dual capacity tax13 payer’ means, with respect to any foreign country or 

14 possession of the United States, a person who— 

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

16 possession, and 

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

18 indirectly a specific economic benefit (as deter19 mined in accordance with regulations) from 

20 such country or possession. 

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

22 For purposes of this subsection— 

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

24 applicable income tax’ means an income tax (or 

25 a series of income taxes) which is generally imVerDate Aug 31 2005 18:18 May 07, 2006 Jkt 049200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H5300.IH H5300

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1 posed under the laws of a foreign country or 

2 possession on income derived from the conduct 

3 of a trade or business within such country or 

4 possession. 

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

6 include a tax unless it has substantial applica7 tion, by its terms and in practice, to— 

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

9 taxpayers, and 

10 ‘‘(ii) persons who are citizens or resi11 dents of the foreign country or posses12 sion.’’ 

13 (b) EFFECTIVE DATE.— 

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

15 this section shall apply to taxes paid or accrued in 

16 taxable years beginning after the date of the enact17 ment of this Act. 

18 (2) CONTRARY TREATY OBLIGATIONS

19 UPHELD.—The amendments made by this section 

20 shall not apply to the extent contrary to any treaty 

21 obligation of the United States. 

22 SEC. 9. RULES RELATING TO FOREIGN OIL AND GAS IN23 COME. 

24 (a) SEPARATE BASKET FOR FOREIGN TAX CRED25 IT.— 


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

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

3 section with respect to certain categories of income), 

4 as in effect for years beginning before 2007, is 

5 amended by striking ‘‘and’’ at the end of subpara6 graph (H), by redesignating subparagraph (I) as 

7 subparagraph (J), and by inserting after subpara8 graph (H) the following new subparagraph: 

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

10 (2) 2007 AND AFTER.—Paragraph (1) of sec11 tion 904(d), as in effect for years beginning after 

12 2006, is amended by striking ‘‘and’’ at the end of 

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

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

15 adding at the end the following: 

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

17 (b) DEFINITION.— 

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

19 section 904(d), as in effect for years beginning be20 fore 2007, is amended by redesignating subpara21 graphs (H) and (I) as subparagraphs (I) and (J), 

22 respectively, and by inserting after subparagraph 

23 (G) the following new subparagraph: 


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1 ‘‘(H) FOREIGN OIL AND GAS INCOME.— 

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

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

4 (2) 2007 AND AFTER.—Section 904(d)(2), as in 

5 effect for years after 2006, is amended by redesig6 nating subparagraphs (J) and (K) as subparagraphs 

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

8 the following: 

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

10 purposes of this section— 

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

12 oil and gas income’ has the meaning given 

13 such term by section 954(g). 

14 ‘‘(ii) COORDINATION.—Passive cat15 egory income and general category income 

16 shall not include foreign oil and gas income 

17 (as so defined).’’. 

18 (c) CONFORMING AMENDMENTS.— 

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

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

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

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

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

24 (d) EFFECTIVE DATES.— 


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

2 this section shall apply to taxable years beginning 

3 after the date of the enactment of this Act. 

4 (2) YEARS AFTER 2006.—The amendments 

5 made by subsections (a)(2) and (b)(2) shall apply to 

6 taxable years beginning after December 31, 2006. 

7 (3) TRANSITIONAL RULES.— 

8 (A) SEPARATE BASKET TREATMENT.—Any 

9 taxes paid or accrued in a taxable year begin10 ning on or before the date of the enactment of 

11 this Act, with respect to income which was de12 scribed in subparagraph (I) of section 

13 904(d)(1) of the Internal Revenue Code of 

14 1986 (as in effect on the day before the date 

15 of the enactment of this Act), shall be treated 

16 as taxes paid or accrued with respect to foreign 

17 oil and gas income to the extent the taxpayer 

18 establishes to the satisfaction of the Secretary 

19 of the Treasury that such taxes were paid or 

20 accrued with respect to foreign oil and gas in21 come. 

22 (B) CARRYOVERS.—Any unused oil and 

23 gas extraction taxes which under section 907(f) 

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

25 allowable as a carryover to the taxpayer’s first 


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1 taxable year beginning after the date of the en2 actment of this Act (without regard to the limi3 tation of paragraph (2) of such section 907(f) 

4 for first taxable year) shall be allowed as 

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

6 the same manner as if such taxes were unused 

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

8 foreign oil and gas extraction income. 

9 (C) LOSSES.—The amendment made by 

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

11 and gas extraction losses arising in taxable 

12 years beginning on or before the date of the en13 actment of this Act. 

14 SEC. 10. ELIMINATION OF DEFERRAL FOR FOREIGN OIL 

15 AND GAS EXTRACTION INCOME. 

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

17 954(g) (defining foreign base company oil related income) 

18 is amended to read as follows: 

19 ‘‘(1) IN GENERAL.—Except as otherwise pro20 vided in this subsection, the term ‘foreign oil and 

21 gas income’ means any income of a kind which 

22 would be taken into account in determining the 

23 amount of— 

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

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


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

2 in section 907(c)).’’. 

3 (b) CONFORMING AMENDMENTS.— 

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

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

6 amended by striking ‘‘base company oil related in7 come’’ each place it appears (including in the head8 ing of subsection (b)(6)) and inserting ‘‘oil and gas 

9 income’’. 

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

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

12 inserting ‘‘oil and gas income’’. 

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

14 section 954 is amended by striking ‘‘FOREIGN BASE

15 COMPANY OIL RELATED INCOME’’ and inserting 

16 ‘‘FOREIGN OIL AND GAS INCOME’’. 

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

18 amended by striking ‘‘foreign base company oil re19 lated income’’ and inserting ‘‘foreign oil and gas in20 come’’. 

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

22 this section shall apply to taxable years of foreign corpora23 tions beginning after the date of the enactment of this 

24 Act, and to taxable years of United States shareholders 


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1 ending with or within such taxable years of foreign cor2 porations. 

Æ 


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