II 

110TH CONGRESS 

1ST SESSION S. 341 

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

and for other purposes. 

IN THE SENATE OF THE UNITED STATES 

JANUARY 22, 2007 

Mr. KERRY 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 (b) TERMINATION OF ALASKA OFFSHORE ROYALTY

11 SUSPENSION.— 

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

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

14 1337(a)(3)(B)) is amended by striking ‘‘and in the 

15 Planning Areas offshore Alaska’’. 

16 (2) EFFECTIVE DATE.—The amendment made 

17 by this subsection shall take effect on and after the 

18 date of the enactment of this Act. 

19 SEC. 6. TERMINATION OF CERTAIN TAX PROVISIONS OF 

20 THE ENERGY POLICY ACT OF 2005. 

21 (a) ELECTRIC TRANSMISSION PROPERTY TREATED

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

23 amended by inserting ‘‘, and before the date of the enact24 ment of the Energy Fairness for America Act’’ after 

25 ‘‘April 11, 2005’’. 


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1 (b) TEMPORARY EXPENSING OF EQUIPMENT USED

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

3 amended— 

4 (1) by striking ‘‘January 1, 2012’’ and insert5 ing ‘‘the date of the enactment of the Energy Fair6 ness for America Act’’, and 

7 (2) by striking ‘‘January 1, 2008’’ and insert8 ing ‘‘the date of the enactment of the Energy Fair9 ness for America Act’’. 

10 (c) NATURAL GAS DISTRIBUTION LINES TREATED

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

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

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

14 America Act’’. 

15 (d) NATURAL GAS GATHERING LINES TREATED AS

16 7-YEAR PROPERTY.—Section 168(e)(3)(C)(iv) is amended 

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

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

19 2005’’. 

20 (e) DETERMINATION OF SMALL REFINER EXCEP21 TION TO OIL DEPLETION DEDUCTION.—Section 1328(b) 

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

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

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


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1 (f) AMORTIZATION OF GEOLOGICAL AND GEO2 PHYSICAL EXPENDITURES.—Section 167(h) is amended 

3 by adding at the end the following new paragraph: 

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

5 apply to any taxable year beginning after the date 

6 of the enactment of the Energy Fairness for Amer7 ica Act.’’. 

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

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

10 enactment of this Act. 

11 SEC. 7. REVALUATION OF LIFO INVENTORIES OF LARGE IN12 TEGRATED OIL COMPANIES. 

13 (a) GENERAL RULE.—Notwithstanding any other 

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

15 oil company for its last taxable year ending in calendar 

16 year 2006, the taxpayer shall— 

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

18 taxable year, the value of each historic LIFO layer 

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

20 petroleum product (within the meaning of section 

21 4611) by the layer adjustment amount, and 

22 (2) decrease its cost of goods sold for such tax23 able year by the aggregate amount of the increases 

24 under paragraph (1). 


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1 If the aggregate amount of the increases under paragraph 

2 (1) exceed the taxpayer’s cost of goods sold for such tax3 able year, the taxpayer’s gross income for such taxable 

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

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

6 this section— 

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

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

9 layer, the product of— 

10 (A) $18.75, and 

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

12 in the case of natural gas or other petroleum 

13 products, the number of barrel-of-oil equiva14 lents) represented by the layer. 

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

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

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

18 redesignation by the Energy Tax Incentives Act of 

19 2005). 

20 (c) APPLICATION OF REQUIREMENT.— 

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

22 Any adjustment required by this section shall not be 

23 treated as a change in method of accounting. 

24 (2) UNDERPAYMENTS OF ESTIMATED TAX.—No 

25 addition to the tax shall be made under section 6655 


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1 of the Internal Revenue Code of 1986 (relating to 

2 failure by corporation to pay estimated tax) with re3 spect to any underpayment of an installment re4 quired to be paid with respect to the taxable year 

5 described in subsection (a) to the extent such under6 payment was created or increased by this section. 

7 (d) APPLICABLE INTEGRATED OIL COMPANY.—For 

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

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

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

11 1986) which has an average daily worldwide production 

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

13 year and which had gross receipts in excess of 

14 $1,000,000,000 for its last taxable year ending during cal15 endar year 2006. For purposes of this subsection all per16 sons treated as a single employer under subsections (a) 

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

18 1986 shall be treated as 1 person and, in the case of a 

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

20 shall apply. 

21 SEC. 8. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 

22 APPLICABLE TO DUAL CAPACITY TAXPAYERS. 

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

24 taxes of foreign countries and of possessions of the United 

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


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1 subsection (n) and by inserting after subsection (l) the fol2 lowing new subsection: 

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

4 TAXPAYERS.— 

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

6 other provision of this chapter, any amount paid or 

7 accrued by a dual capacity taxpayer to a foreign 

8 country or possession of the United States for any 

9 period shall not be considered a tax— 

10 ‘‘(A) if, for such period, the foreign coun11 try or possession does not impose a generally 

12 applicable income tax, or 

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

14 the amount (determined in accordance with reg15 ulations) which— 

16 ‘‘(i) is paid by such dual capacity tax17 payer pursuant to the generally applicable 

18 income tax imposed by the country or pos19 session, or 

20 ‘‘(ii) would be paid if the generally ap21 plicable income tax imposed by the country 

22 or possession were applicable to such dual 

23 capacity taxpayer. 

24 Nothing in this paragraph shall be construed to 

25 imply the proper treatment of any such amount 


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1 not in excess of the amount determined under 

2 subparagraph (B). 

3 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur4 poses of this subsection, the term ‘dual capacity tax5 payer’ means, with respect to any foreign country or 

6 possession of the United States, a person who— 

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

8 possession, and 

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

10 indirectly a specific economic benefit (as deter11 mined in accordance with regulations) from 

12 such country or possession. 

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

14 For purposes of this subsection— 

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

16 applicable income tax’ means an income tax (or 

17 a series of income taxes) which is generally im18 posed under the laws of a foreign country or 

19 possession on income derived from the conduct 

20 of a trade or business within such country or 

21 possession. 

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

23 include a tax unless it has substantial applica24 tion, by its terms and in practice, to— 


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

2 taxpayers, and 

3 ‘‘(ii) persons who are citizens or resi4 dents of the foreign country or posses5 sion.’’ 

6 (b) EFFECTIVE DATE.— 

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

8 this section shall apply to taxes paid or accrued in 

9 taxable years beginning after the date of the enact10 ment of this Act. 

11 (2) CONTRARY TREATY OBLIGATIONS

12 UPHELD.—The amendments made by this section 

13 shall not apply to the extent contrary to any treaty 

14 obligation of the United States. 

15 SEC. 9. RULES RELATING TO FOREIGN OIL AND GAS IN16 COME. 

17 (a) SEPARATE BASKET FOR FOREIGN TAX CRED18 IT.—Paragraph (1) of section 904(d), as in effect for 

19 years beginning after 2006, is amended by striking ‘‘and’’ 

20 at the end of subparagraph (A), by striking the period 

21 at the end of subparagraph (B) and inserting ‘‘, and’’, 

22 and by adding at the end the following: 

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

24 (b) DEFINITION.—Section 904(d)(2), as in effect for 

25 years after 2006, is amended by redesignating subparaVerDate Aug 31 2005 03:58 Jan 23, 2007 Jkt 059200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S341.IS S341

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1 graphs (J) and (K) as subparagraphs (K) and (L) and 

2 by inserting after subparagraph (I) 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) TRANSITIONAL RULES.— 

23 (A) SEPARATE BASKET TREATMENT.—Any 

24 taxes paid or accrued in a taxable year begin25 ning on or before the date of the enactment of 


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1 this Act, with respect to income which was de2 scribed in subparagraph (B) of section 

3 904(d)(1) of such Code (as in effect on the day 

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

5 shall be treated as taxes paid or accrued with 

6 respect to foreign oil and gas income to the ex7 tent the taxpayer establishes to the satisfaction 

8 of the Secretary of the Treasury that such 

9 taxes were paid or accrued with respect to for10 eign oil and gas income. 

11 (B) CARRYOVERS.—Any unused oil and 

12 gas extraction taxes which under section 907(f) 

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

14 allowable as a carryover to the taxpayer’s first 

15 taxable year beginning after the date of the en16 actment of this Act (without regard to the limi17 tation of paragraph (2) of such section 907(f) 

18 for first taxable year) shall be allowed as 

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

20 the same manner as if such taxes were unused 

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

22 foreign oil and gas extraction income. 

23 (C) LOSSES.—The amendment made by 

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

25 and gas extraction losses arising in taxable 


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1 years beginning on or before the date of the en2 actment of this Act. 

3 SEC. 10. ELIMINATION OF DEFERRAL FOR FOREIGN OIL 

4 AND GAS EXTRACTION INCOME. 

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

6 954(g) (defining foreign base company oil related income) 

7 is amended to read as follows: 

8 ‘‘(1) IN GENERAL.—Except as otherwise pro9 vided in this subsection, the term ‘foreign oil and 

10 gas income’ means any income of a kind which 

11 would be taken into account in determining the 

12 amount of— 

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

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

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

16 in section 907(c)).’’ 

17 (b) CONFORMING AMENDMENTS.— 

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

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

20 amended by striking ‘‘base company oil related in21 come’’ each place it appears (including in the head22 ing of subsection (b)(8)) and inserting ‘‘oil and gas 

23 income’’. 


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

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

3 inserting ‘‘oil and gas income’’. 

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

5 section 954 is amended by striking ‘‘FOREIGN BASE

6 COMPANY OIL RELATED INCOME’’ and inserting 

7 ‘‘FOREIGN OIL AND GAS INCOME’’. 

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

9 amended by striking ‘‘foreign base company oil re10 lated income’’ and inserting ‘‘foreign oil and gas in11 come’’. 

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

13 this section shall apply to taxable years of foreign corpora14 tions beginning after the date of the enactment of this 

15 Act, and to taxable years of United States shareholders 

16 ending with or within such taxable years of foreign cor17 porations. 

Æ 


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