II 

110TH CONGRESS 

1ST SESSION S. 666 

To amend the Internal Revenue Code of 1986 to terminate certain incentives 

for oil and gas. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 16, 2007 

Mr. SCHUMER introduced the following bill; which was read twice and referred 

to the Committee on Finance 

A BILL 

To amend the Internal Revenue Code of 1986 to terminate 

certain incentives for oil and gas. 

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 Industry Tax 

5 Break Repeal Act of 2007’’. 


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1 TITLE I—REPEAL OF OIL 

2 INDUSTRY TAX BREAKS 

3 SEC. 101. 7-YEAR AMORTIZATION OF GEOLOGICAL AND 

4 GEOPHYSICAL EXPENDITURES FOR CERTAIN 

5 MAJOR INTEGRATED OIL COMPANIES. 

6 (a) IN GENERAL.—Subparagraph (A) of section 

7 167(h)(5) of the Internal Revenue Code of 1986 (relating 

8 to special rule for major integrated oil companies) is 

9 amended by striking ‘‘5-year’’ and inserting ‘‘7-year’’. 

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

11 this section shall apply to amounts paid or incurred after 

12 the date of the enactment of this Act. 

13 SEC. 102. LIMITATION ON PERCENTAGE DEPLETION. 

14 (a) IN GENERAL.—Section 613A of the Internal Rev15 enue Code of 1986 is amended by adding at the end the 

16 following new subsection: 

17 ‘‘(f) LIMITATION ON AGGREGATE AMOUNT OF DE18 PLETION.—In the case of any oil or gas well, the allowance 

19 for depletion allowed under section 613 shall not exceed 

20 the basis of the taxpayer in such property.’’. 

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

22 this section shall apply to taxable years beginning after 

23 the date of the enactment of this Act. 


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1 SEC. 103. TERMINATION OF TREATMENT OF NATURAL GAS 

2 DISTRIBUTION LINES AS 15-YEAR PROPERTY. 

3 (a) IN GENERAL.—Section 168(e)(3)(E)(viii) of the 

4 Internal Revenue Code of 1986 is amended by striking 

5 ‘‘January 1, 2011’’ and inserting ‘‘the date of the enact6 ment of the Oil Industry Tax Break Repeal Act of 2007’’. 

7 (b) EFFECTIVE DATE.— 

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

9 this section shall apply to property placed in service 

10 after the date of the enactment of this Act. 

11 (2) EXCEPTION.—The amendments made by 

12 this section shall not apply to any property with re13 spect to which the taxpayer or a related party has 

14 entered into a binding contract for the construction 

15 thereof on or before February 16, 2007, or, in the 

16 case of self-constructed property, has started con17 struction on or before such date. 

18 SEC. 104. TERMINATION OF TEMPORARY EXPENSING FOR 

19 EQUIPMENT USED IN REFINING OF LIQUID 

20 FUELS. 

21 (a) IN GENERAL.—Section 179C(c)(1) of the Inter22 nal Revenue Code of 1986 is amended— 

23 (1) by striking ‘‘January 1, 2012’’ and insert24 ing ‘‘the date of the enactment of the Oil Industry 

25 Tax Break Repeal Act of 2007’’, and 


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1 (2) by striking ‘‘January 1, 2008’’ and insert2 ing ‘‘the date of the enactment of the Oil Industry 

3 Tax Break Repeal Act of 2007’’. 

4 (b) EFFECTIVE DATE.—The amendments made by 

5 this section shall apply to property placed in service after 

6 the date of the enactment of this Act. 

7 SEC. 105. NATURAL GAS GATHERING LINES TREATED AS 15- 

8 YEAR PROPERTY. 

9 (a) IN GENERAL.—Subparagraph (E) of section 

10 168(e)(3) of the Internal Revenue Code of 1986, as 

11 amended by section 2, is amended by inserting ‘‘, and’’ 

12 at the end of clause (vi), by striking the period at the end 

13 of clause (vii) and inserting ‘‘, and’’, and by adding at 

14 the end the following new clause: 

15 ‘‘(viii) any natural gas gathering line 

16 the original use of which commences with 

17 the taxpayer after the date of the enact18 ment of this clause.’’. 

19 (b) ALTERNATIVE SYSTEM.—The table contained in 

20 section 168(g)(3)(B) of such Code (relating to special rule 

21 for property assigned to classes), as amended by section 

22 3, is amended by inserting after the item relating to sub23 paragraph (E)(vii) the following new item: 

‘‘(E)(viii) ................................................................................... 22’’. 

24 (c) CONFORMING AMENDMENT.—Clause (iv) of sec25 tion 168(e)(3) of such Code is amended by inserting ‘‘and 


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1 before the date of the enactment of the Oil Industry Tax 

2 Break Repeal Act of 2007’’ after ‘‘April 11, 2005’’. 

3 (d) EFFECTIVE DATE.— 

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

5 this section shall apply to property placed in service 

6 after the date of the enactment of this Act. 

7 (2) EXCEPTION.—The amendments made by 

8 this section shall not apply to any property with re9 spect to which the taxpayer or a related party has 

10 entered into a binding contract for the construction 

11 thereof on or before February 16, 2007, or, in the 

12 case of self-constructed property, has started con13 struction on or before such date. 

14 SEC. 106. TERMINATION OF DEDUCTION FOR INTANGIBLE 

15 DRILLING AND DEVELOPMENT COSTS. 

16 (a) IN GENERAL.—Section 263(c) of the Internal 

17 Revenue Code of 1986 is amended by adding at the end 

18 the following new sentence: ‘‘This subsection shall not 

19 apply to any taxable year beginning after the date of the 

20 enactment of this sentence.’’. 

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

22 and (3) of section 291(b) of such Code are each amended 

23 by striking ‘‘section 263(c), 616(a),’’ and inserting ‘‘sec24 tion 616(a)’’. 


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

2 this section shall apply to taxable years beginning after 

3 the date of the enactment of this Act. 

4 SEC. 107. TERMINATION OF ENHANCED OIL RECOVERY 

5 CREDIT. 

6 (a) IN GENERAL.—Section 43 of the Internal Rev7 enue Code of 1986 is amended by adding at the end the 

8 following new subsection: 

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

10 any taxable year beginning after the date of the enactment 

11 of this subsection.’’. 

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

13 this section shall apply to taxable years beginning after 

14 the date of the enactment of this Act. 

15 SEC. 108. TERMINATION OF CREDIT FOR PRODUCING OIL 

16 AND GAS FROM MARGINAL WELLS. 

17 (a) IN GENERAL.—Section 45I of the Internal Rev18 enue Code of 1986 is amended by adding at the end the 

19 following new subsection: 

20 ‘‘(e) TERMINATION.—This section shall not apply to 

21 any taxable year beginning after the date of the enactment 

22 of this subsection.’’. 

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

24 this section shall apply to taxable years beginning after 

25 the date of the enactment of this Act. 


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1 SEC. 109. TERMINATION OF TREATMENT OF ALASKA NAT2 URAL GAS PIPELINES AS 7-YEAR PROPERTY. 

3 (a) IN GENERAL.—Section 168(e)(3)(C)(iii) of the 

4 Internal Revenue Code of 1986 is amended by inserting 

5 ‘‘placed in service before the date of the enactment of the 

6 Oil Industry Tax Break Repeal Act of 2007’’ after ‘‘Alas7 ka natural gas pipeline’’. 

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

9 this section shall apply to property placed in service after 

10 the date of the enactment of this Act. 

11 SEC. 110. DENIAL OF DEDUCTION FOR LARGE INTEGRATED 

12 OIL COMPANIES FOR INCOME ATTRIBUTABLE 

13 TO DOMESTIC PRODUCTION OF OIL, NAT14 URAL GAS, OR PRIMARY PRODUCTS THERE15 OF. 

16 (a) IN GENERAL.—Subparagraph (B) of section 

17 199(c)(4) of the Internal Revenue Code of 1986 (relating 

18 to exceptions) is amended by striking ‘‘or’’ at the end of 

19 clause (ii), by striking the period at the end of clause (iii) 

20 and inserting ‘‘, or’’, and by inserting after clause (iii) the 

21 following new clause: 

22 ‘‘(iv) in the case of a taxpayer which 

23 is a large integrated oil company, the sale, 

24 exchange, or other disposition of oil, nat25 ural gas, or any primary product thereof.’’. 


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1 (b) PRIMARY PRODUCT.—Section 199(c)(4)(B) of 

2 such Code is amended by adding at the end the following 

3 flush sentence: 

4 ‘‘For purposes of clause (iv), the term ‘primary 

5 product’ has the same meaning as when used in 

6 section 927(a)(2)(C), as in effect before its re7 peal.’’. 

8 (c) LARGE INTEGRATED OIL COMPANY.—Subsection 

9 (c) of section 199 of such Code is amended by adding at 

10 the end the following new paragraph: 

11 ‘‘(8) LARGE INTEGRATED OIL COMPANY.—For 

12 purposes of this subsection, the term ‘large inte13 grated oil company’ means, with respect to any tax14 able year, an integrated oil company (as defined in 

15 section 291(b)(4)) which— 

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

17 $1,000,000,000 for such taxable year, and 

18 ‘‘(B) has an average daily worldwide pro19 duction of crude oil of at least 500,000 barrels 

20 for such taxable year.’’. 

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

22 this section shall apply to taxable years beginning after 

23 December 31, 2007. 


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1 SEC. 111. REVALUATION OF LIFO INVENTORIES OF LARGE 

2 INTEGRATED OIL COMPANIES. 

3 (a) GENERAL RULE.—Notwithstanding any other 

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

5 oil company for its last taxable year ending in calendar 

6 year 2006, the taxpayer shall— 

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

8 taxable year, the value of each historic LIFO layer 

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

10 petroleum product (within the meaning of section 

11 4611) by the layer adjustment amount, and 

12 (2) decrease its cost of goods sold for such tax13 able year by the aggregate amount of the increases 

14 under paragraph (1). 

15 If the aggregate amount of the increases under paragraph 

16 (1) exceed the taxpayer’s cost of goods sold for such tax17 able year, the taxpayer’s gross income for such taxable 

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

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

20 this section— 

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

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

23 layer, the product of— 

24 (A) $18.75, and 

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

26 in the case of natural gas or other petroleum 


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1 products, the number of barrel-of-oil equiva2 lents) represented by the layer. 

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

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

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

6 redesignation by the Energy Tax Incentives Act of 

7 2005). 

8 (c) APPLICATION OF REQUIREMENT.— 

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

10 Any adjustment required by this section shall not be 

11 treated as a change in method of accounting. 

12 (2) UNDERPAYMENTS OF ESTIMATED TAX.—No 

13 addition to the tax shall be made under section 6655 

14 of the Internal Revenue Code of 1986 (relating to 

15 failure by corporation to pay estimated tax) with re16 spect to any underpayment of an installment re17 quired to be paid with respect to the taxable year 

18 described in subsection (a) to the extent such under19 payment was created or increased by this section. 

20 (d) APPLICABLE INTEGRATED OIL COMPANY.—For 

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

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

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

24 1986) which has an average daily worldwide production 

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


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1 year and which had gross receipts in excess of 

2 $1,000,000,000 for its last taxable year ending during cal3 endar year 2006. For purposes of this subsection all per4 sons treated as a single employer under subsections (a) 

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

6 1986 shall be treated as 1 person and, in the case of a 

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

8 shall apply. 

9 SEC. 112. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 

10 APPLICABLE TO LARGE INTEGRATED OIL 

11 COMPANIES WHICH ARE DUAL CAPACITY 

12 TAXPAYERS. 

13 (a) IN GENERAL.—Section 901 of the Internal Rev14 enue Code of 1986 (relating to credit for taxes of foreign 

15 countries and of possessions of the United States) is 

16 amended by redesignating subsection (m) as subsection 

17 (n) and by inserting after subsection (l) the following new 

18 subsection: 

19 ‘‘(m) SPECIAL RULES RELATING TO LARGE INTE20 GRATED OIL COMPANIES WHICH ARE DUAL CAPACITY

21 TAXPAYERS.— 

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

23 other provision of this chapter, any amount paid or 

24 accrued by a dual capacity taxpayer which is a large 

25 integrated oil company to a foreign country or posVerDate Aug 31 2005 01:59 Feb 27, 2007 Jkt 059200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S666.IS S666

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1 session of the United States for any period shall not 

2 be considered a tax— 

3 ‘‘(A) if, for such period, the foreign coun4 try or possession does not impose a generally 

5 applicable income tax, or 

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

7 the amount (determined in accordance with reg8 ulations) which— 

9 ‘‘(i) is paid by such dual capacity tax10 payer pursuant to the generally applicable 

11 income tax imposed by the country or pos12 session, or 

13 ‘‘(ii) would be paid if the generally ap14 plicable income tax imposed by the country 

15 or possession were applicable to such dual 

16 capacity taxpayer. 

17 Nothing in this paragraph shall be construed to 

18 imply the proper treatment of any such amount not 

19 in excess of the amount determined under subpara20 graph (B). 

21 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur22 poses of this subsection, the term ‘dual capacity tax23 payer’ means, with respect to any foreign country or 

24 possession of the United States, a person who— 


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

2 possession, and 

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

4 indirectly a specific economic benefit (as deter5 mined in accordance with regulations) from 

6 such country or possession. 

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

8 For purposes of this subsection— 

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

10 applicable income tax’ means an income tax (or 

11 a series of income taxes) which is generally im12 posed under the laws of a foreign country or 

13 possession on income derived from the conduct 

14 of a trade or business within such country or 

15 possession. 

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

17 include a tax unless it has substantial applica18 tion, by its terms and in practice, to— 

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

20 taxpayers, and 

21 ‘‘(ii) persons who are citizens or resi22 dents of the foreign country or possession. 

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

24 purposes of this subsection, the term ‘large inte25 grated oil company’ means, with respect to any taxVerDate Aug 31 2005 01:59 Feb 27, 2007 Jkt 059200 PO 00000 Frm 00013 Fmt 6652 Sfmt 6201 E:\BILLS\S666.IS S666

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1 able year, an integrated oil company (as defined in 

2 section 291(b)(4)) which— 

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

4 $1,000,000,000 for such taxable year, and 

5 ‘‘(B) has an average daily worldwide pro6 duction of crude oil of at least 500,000 barrels 

7 for such taxable year.’’. 

8 (b) EFFECTIVE DATE.— 

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

10 this section shall apply to taxes paid or accrued in 

11 taxable years beginning after the date of the enact12 ment of this Act. 

13 (2) CONTRARY TREATY OBLIGATIONS

14 UPHELD.—The amendments made by this section 

15 shall not apply to the extent contrary to any treaty 

16 obligation of the United States. 

17 TITLE II—ENERGY TRUST FUND 

18 SEC. 201. DEDICATION OF RESULTING REVENUES TO THE 

19 ENERGY TRUST FUND. 

20 (a) IN GENERAL.—Subchapter A of chapter 98 of the 

21 Internal Revenue Code of 1986 (relating to trust fund 

22 code) is amended by adding at the end the following new 

23 section: 


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1 ‘‘SEC. 9511. ENERGY TRUST FUND. 

2 ‘‘(a) ESTABLISHMENT.—There is established in the 

3 Treasury of the United States a trust fund to be known 

4 as the ‘Energy Trust Fund’, consisting of such amounts 

5 as may be appropriated or credited to such Fund as pro6 vided in this section or section 9602(b). 

7 ‘‘(b) TRANSFERS TO TRUST.—There are hereby ap8 propriated to the Energy Trust Fund amounts equivalent 

9 to the revenues resulting from the amendment made by 

10 the title I of the Oil Industry Tax Break Repeal Act of 

11 2007. 

12 ‘‘(c) EXPENDITURES.—Amounts in the Energy Trust 

13 Fund shall be available, as provided in appropriation Acts, 

14 only for the purpose of making expenditures— 

15 ‘‘(1) to accelerate the use of clean domestic re16 newable energy resources and alternative fuels; 

17 ‘‘(2) to promote the utilization of energy-effi18 cient products and practices and conservation; and 

19 ‘‘(3) to increase research, development, and de20 ployment of clean renewable energy and efficiency 

21 technologies.’’. 

22 (b) CLERICAL AMENDMENT.—The table of sections 

23 for such subchapter is amended by adding at the end the 

24 following new item: 

‘‘Sec. 9511. Energy Trust Fund.’’. 

Æ 


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