II 

113TH CONGRESS 

1ST SESSION S. 278 

To replace the Budget Control Act sequester for fiscal year 2013 by 

eliminating tax loopholes. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 11, 2013 

Mr. WHITEHOUSE (for himself, Mr. HARKIN, Mr. SANDERS, Mr. LEVIN, and 

Mr. MERKLEY) introduced the following bill; which was read twice and 

referred to the Committee on Finance 

A BILL 

To replace the Budget Control Act sequester for fiscal year 

2013 by eliminating tax loopholes. 

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; TABLE OF CONTENTS. 

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

5 ‘‘Job Preservation and Sequester Replacement Act of 

6 2013’’. 

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

8 this Act is as follows: 

Sec. 1. Short title; table of contents. 

TITLE I—ELIMINATION OF SEQUESTRATION FOR FISCAL YEAR 

2013 


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Sec. 101. No sequestration for 2013. 

TITLE II—ELIMINATION OF TAX LOOPHOLES FOR HIGH-INCOME 

TAXPAYERS 

Sec. 201. Minimum tax for high-income earners. 

Sec. 202. Requiring high-income professionals to pay their payroll taxes. 

Sec. 203. Elimination of private jet giveaway. 

TITLE III—ELIMINATION OF TAX LOOPHOLES FOR OFFSHORING 

MANUFACTURERS 

Sec. 301. Ending tax breaks for offshoring manufacturers. 

TITLE IV—ELIMINATION OF TAX LOOPHOLES FOR OIL AND GAS 

COMPANIES 

Sec. 401. Modifications of foreign tax credit rules applicable to major integrated oil companies which are dual capacity taxpayers. 

Sec. 402. Limitation on section 199 deduction attributable to oil, natural gas, 

or primary products thereof. 

Sec. 403. Limitation on deduction for intangible drilling and development costs. 

Sec. 404. Limitation on percentage depletion allowance for oil and gas wells. 

Sec. 405. Limitation on deduction for tertiary injectants. 

Sec. 406. Repeal of outer Continental Shelf deep water and deep gas royalty 

relief. 

1 TITLE I—ELIMINATION OF SE2 QUESTRATION FOR FISCAL 

3 YEAR 2013 

4 SEC. 101. NO SEQUESTRATION FOR 2013. 

5 (a) IN GENERAL.—Section 251A(3)(E) of the Bal6 anced Budget and Emergency Deficit Control Act of 1985 

7 (2 U.S.C. 901a(3)(E)) is amended by striking 

8 ‘‘$24,000,000,000’’ and inserting ‘‘$109,300,000,000’’. 

9 (b) REPEAL OF BUDGET CONTROL ACT SEQUESTER

10 FOR FISCAL YEAR 2013.— 

11 (1) REPEAL.—Section 901(e) of the American 

12 Taxpayer Relief Act of 2012 (Public Law 112–240) 

13 is repealed. 


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1 (2) BBEDCA.—Section 251A of the Balanced 

2 Budget and Emergency Deficit Control Act (2 

3 U.S.C. 901a) is amended— 

4 (A) in paragraph (4), by striking ‘‘On 

5 March 1, 2013, for fiscal year 2013, and in’’ 

6 and inserting ‘‘In’’; 

7 (B) in paragraph (5), by striking ‘‘2013’’ 

8 and inserting ‘‘2014’’; 

9 (C) in paragraph (6), by striking ‘‘2013’’ 

10 and inserting ‘‘2014’’; and 

11 (D) in paragraph (7)— 

12 (i) by striking ‘‘REDUCTIONS.—’’ and 

13 all that follows through ‘‘On the date of 

14 the submission’’ and inserting ‘‘REDUC15 TIONS.—On the date of the submission’’; 

16 and 

17 (ii) by redesignating clauses (i) and 

18 (ii) as subparagraphs (A) and (B), respec19 tively. 

20 TITLE II—ELIMINATION OF TAX 

21 LOOPHOLES FOR HIGH-IN22 COME TAXPAYERS 

23 SEC. 201. MINIMUM TAX FOR HIGH-INCOME EARNERS. 

24 (a) IN GENERAL.—Subchapter A of chapter 1 is 

25 amended by adding at the end the following new part: 


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1 ‘‘PART VIII—FAIR SHARE TAX ON HIGH-INCOME 

2 TAXPAYERS 

‘‘Sec. 59B. Fair share tax. 

3 ‘‘SEC. 59B. FAIR SHARE TAX. 

4 ‘‘(a) GENERAL RULE.— 

5 ‘‘(1) PHASE-IN OF TAX.—In the case of any 

6 high-income taxpayer, there is hereby imposed for a 

7 taxable year (in addition to any other tax imposed 

8 by this subtitle) a tax equal to the product of— 

9 ‘‘(A) the amount determined under para10 graph (2), and 

11 ‘‘(B) a fraction (not to exceed 1)— 

12 ‘‘(i) the numerator of which is the ex13 cess of— 

14 ‘‘(I) the taxpayer’s adjusted 

15 gross income, over 

16 ‘‘(II) the dollar amount in effect 

17 under subsection (c)(1), and 

18 ‘‘(ii) the denominator of which is the 

19 dollar amount in effect under subsection 

20 (c)(1). 

21 ‘‘(2) AMOUNT OF TAX.—The amount of tax de22 termined under this paragraph is an amount equal 

23 to the excess (if any) of— 

24 ‘‘(A) the tentative fair share tax for the 

25 taxable year, over 


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1 ‘‘(B) the excess of— 

2 ‘‘(i) the sum of— 

3 ‘‘(I) the regular tax liability (as 

4 defined in section 26(b)) for the tax5 able year, determined without regard 

6 to any tax liability determined under 

7 this section, 

8 ‘‘(II) the tax imposed by section 

9 55 for the taxable year, plus 

10 ‘‘(III) the payroll tax for the tax11 able year, over 

12 ‘‘(ii) the credits allowable under part 

13 IV of subchapter A (other than sections 

14 27(a), 31, and 34). 

15 ‘‘(b) TENTATIVE FAIR SHARE TAX.—For purposes 

16 of this section— 

17 ‘‘(1) IN GENERAL.—The tentative fair share tax 

18 for the taxable year is 30 percent of the excess of— 

19 ‘‘(A) the adjusted gross income of the tax20 payer, over 

21 ‘‘(B) the modified charitable contribution 

22 deduction for the taxable year. 

23 ‘‘(2) MODIFIED CHARITABLE CONTRIBUTION

24 DEDUCTION.—For purposes of paragraph (1)— 


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1 ‘‘(A) IN GENERAL.—The modified chari2 table contribution deduction for any taxable 

3 year is an amount equal to the amount which 

4 bears the same ratio to the deduction allowable 

5 under section 170 (section 642(c) in the case of 

6 a trust or estate) for such taxable year as— 

7 ‘‘(i) the amount of itemized deduc8 tions allowable under the regular tax (as 

9 defined in section 55) for such taxable 

10 year, determined after the application of 

11 section 68, bears to 

12 ‘‘(ii) such amount, determined before 

13 the application of section 68. 

14 ‘‘(B) TAXPAYER MUST ITEMIZE.—In the 

15 case of any individual who does not elect to 

16 itemize deductions for the taxable year, the 

17 modified charitable contribution deduction shall 

18 be zero. 

19 ‘‘(c) HIGH-INCOME TAXPAYER.—For purposes of this 

20 section— 

21 ‘‘(1) IN GENERAL.—The term ‘high-income tax22 payer’ means, with respect to any taxable year, any 

23 taxpayer (other than a corporation) with an adjusted 

24 gross income for such taxable year in excess of 


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1 $1,000,000 (50 percent of such amount in the case 

2 of a married individual who files a separate return). 

3 ‘‘(2) INFLATION ADJUSTMENT.— 

4 ‘‘(A) IN GENERAL.—In the case of a tax5 able year beginning after 2013, the $1,000,000 

6 amount under paragraph (1) shall be increased 

7 by an amount equal to— 

8 ‘‘(i) such dollar amount, multiplied by 

9 ‘‘(ii) the cost-of-living adjustment de10 termined under section 1(f)(3) for the cal11 endar year in which the taxable year be12 gins, determined by substituting ‘calendar 

13 year 2012’ for ‘calendar year 1992’ in sub14 paragraph (B) thereof. 

15 ‘‘(B) ROUNDING.—If any amount as ad16 justed under subparagraph (A) is not a multiple 

17 of $10,000, such amount shall be rounded to 

18 the next lowest multiple of $10,000. 

19 ‘‘(d) PAYROLL TAX.—For purposes of this section, 

20 the payroll tax for any taxable year is an amount equal 

21 to the excess of— 

22 ‘‘(1) the taxes imposed on the taxpayer under 

23 sections 1401, 1411, 3101, 3201, and 3211(a) (to 

24 the extent such tax is attributable to the rate of tax 

25 in effect under section 3101) with respect to such 


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1 taxable year or wages or compensation received dur2 ing such taxable year, over 

3 ‘‘(2) the deduction allowable under section 

4 164(f) for such taxable year. 

5 ‘‘(e) SPECIAL RULE FOR ESTATES AND TRUSTS.— 

6 For purposes of this section, in the case of an estate or 

7 trust, adjusted gross income shall be computed in the 

8 manner described in section 67(e). 

9 ‘‘(f) NOT TREATED AS TAX IMPOSED BY THIS CHAP10 TER FOR CERTAIN PURPOSES.—The tax imposed under 

11 this section shall not be treated as tax imposed by this 

12 chapter for purposes of determining the amount of any 

13 credit under this chapter (other than the credit allowed 

14 under section 27(a)) or for purposes of section 55.’’. 

15 (b) CLERICAL AMENDMENT.—The table of parts for 

16 subchapter A of chapter 1 is amended by adding at the 

17 end the following new item: 

‘‘PART VIII—FAIR SHARE TAX ON HIGH-INCOME TAXPAYERS’’. 

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

19 this section shall apply to taxable years beginning after 

20 December 31, 2012. 

21 SEC. 202. REQUIRING HIGH-INCOME PROFESSIONALS TO 

22 PAY THEIR PAYROLL TAXES. 

23 (a) IN GENERAL.—Section 1402 of the Internal Rev24 enue Code of 1986 is amended by adding at the end the 

25 following new subsection: 


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1 ‘‘(m) SPECIAL RULES FOR PROFESSIONAL SERVICE

2 BUSINESSES.— 

3 ‘‘(1) SHAREHOLDERS PROVIDING SERVICES TO

4 SPECIFIED S CORPORATIONS.— 

5 ‘‘(A) IN GENERAL.—In the case of an ap6 plicable shareholder who provides substantial 

7 services with respect to a professional service 

8 business referred to in subparagraph (C) of a 

9 specified S corporation— 

10 ‘‘(i) such shareholder shall be treated 

11 as engaged in the trade or business of such 

12 professional service business with respect 

13 to items of income or loss described in sec14 tion 1366 which are attributable to such 

15 business, and 

16 ‘‘(ii) such shareholder’s net earnings 

17 from self-employment shall include such 

18 shareholder’s pro rata share of such items 

19 of income or loss, except that in computing 

20 such pro rata share of such items the ex21 ceptions provided in subsection (a) shall 

22 apply. 

23 ‘‘(B) TREATMENT OF FAMILY MEMBERS.— 

24 Except as otherwise provided by the Secretary, 

25 the applicable shareholder’s pro rata share of 


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1 items referred to in subparagraph (A) shall be 

2 increased by the pro rata share of such items 

3 of each member of such applicable shareholder’s 

4 family (within the meaning of section 

5 318(a)(1)) who does not provide substantial 

6 services with respect to such professional serv7 ice business. 

8 ‘‘(C) SPECIFIED S CORPORATION.—For 

9 purposes of this subsection, the term ‘specified 

10 S corporation’ means— 

11 ‘‘(i) any S corporation which is a 

12 partner in a partnership which is engaged 

13 in a professional service business if sub14 stantially all of the activities of such S cor15 poration are performed in connection with 

16 such partnership, and 

17 ‘‘(ii) any other S corporation which is 

18 engaged in a professional service business 

19 if 75 percent or more of the gross income 

20 of such business is attributable to service 

21 of 3 or fewer shareholders of such corpora22 tion. 

23 ‘‘(D) APPLICABLE SHAREHOLDER.—For 

24 purposes of this paragraph, the term ‘applicable 

25 shareholder’ means any shareholder whose 


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1 modified adjusted gross income for the taxable 

2 year exceeds— 

3 ‘‘(i) in the case of a shareholder mak4 ing a joint return under section 6013 or a 

5 surviving spouse (as defined in section 

6 2(a)), $250,000, 

7 ‘‘(ii) in the case of a married share8 holder (as defined in section 7703) filing a 

9 separate return, half of the dollar amount 

10 determined under clause (i), and 

11 ‘‘(iii) in any other case, $200,000. 

12 ‘‘(2) PARTNERS.— 

13 ‘‘(A) IN GENERAL.—In the case of any 

14 partnership which is engaged in a professional 

15 service business, subsection (a)(13) shall not 

16 apply to any applicable partner who provides 

17 substantial services with respect to such profes18 sional service business. 

19 ‘‘(B) APPLICABLE PARTNER.—For pur20 poses of this paragraph, the term ‘applicable 

21 partner’ means any partner whose modified ad22 justed gross income for the taxable year ex23 ceeds— 

24 ‘‘(i) in the case of a partner making 

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1 viving spouse (as defined in section 2(a)), 

2 $250,000, 

3 ‘‘(ii) in the case of a married partner 

4 (as defined in section 7703) filing a sepa5 rate return, half of the dollar amount de6 termined under clause (i), and 

7 ‘‘(iii) in any other case, $200,000. 

8 ‘‘(3) PROFESSIONAL SERVICE BUSINESS.—For 

9 purposes of this subsection, the term ‘professional 

10 service business’ means any trade or business (or 

11 portion thereof) providing services in the fields of 

12 health, law, lobbying, engineering, architecture, ac13 counting, actuarial science, performing arts, con14 sulting, athletics, investment advice or management, 

15 or brokerage services. 

16 ‘‘(4) MODIFIED ADJUSTED GROSS INCOME.— 

17 For purposes of this subsection, the term ‘modified 

18 adjusted gross income’ means adjusted gross in19 come— 

20 ‘‘(A) determined without regard to any de21 duction allowed under section 164(f), and 

22 ‘‘(B) increased by the amount excluded 

23 from gross income under section 911(a)(1). 

24 ‘‘(5) REGULATIONS.—The Secretary shall pre25 scribe such regulations as may be necessary or apVerDate Mar 15 2010 04:51 Feb 20, 2013 Jkt 029200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S278.IS S278

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1 propriate to carry out the purposes of this sub2 section, including regulations which prevent the 

3 avoidance of the purposes of this subsection through 

4 tiered entities or otherwise. 

5 ‘‘(6) CROSS REFERENCE.—For employment tax 

6 treatment of wages paid to shareholders of S cor7 porations, see subtitle C.’’. 

8 (b) CONFORMING AMENDMENT.—Section 211 of the 

9 Social Security Act is amended by adding at the end the 

10 following new subsection: 

11 ‘‘(l) SPECIAL RULES FOR PROFESSIONAL SERVICE

12 BUSINESSES.— 

13 ‘‘(1) SHAREHOLDERS PROVIDING SERVICES TO

14 SPECIFIED S CORPORATIONS.— 

15 ‘‘(A) IN GENERAL.—In the case of an ap16 plicable shareholder who provides substantial 

17 services with respect to a professional service 

18 business referred to in subparagraph (C) of a 

19 specified S corporation— 

20 ‘‘(i) such shareholder shall be treated 

21 as engaged in the trade or business of such 

22 professional service business with respect 

23 to items of income or loss described in sec24 tion 1366 of the Internal Revenue Code of 


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1 1986 which are attributable to such busi2 ness, and 

3 ‘‘(ii) such shareholder’s net earnings 

4 from self-employment shall include such 

5 shareholder’s pro rata share of such items 

6 of income or loss, except that in computing 

7 such pro rata share of such items the ex8 ceptions provided in subsection (a) shall 

9 apply. 

10 ‘‘(B) TREATMENT OF FAMILY MEMBERS.— 

11 Except as otherwise provided by the Secretary 

12 of the Treasury, the applicable shareholder’s 

13 pro rata share of items referred to in subpara14 graph (A) shall be increased by the pro rata 

15 share of such items of each member of such ap16 plicable shareholder’s family (within the mean17 ing of section 318(a)(1) of the Internal Revenue 

18 Code of 1986) who does not provide substantial 

19 services with respect to such professional serv20 ice business. 

21 ‘‘(C) SPECIFIED S CORPORATION.—For 

22 purposes of this subsection, the term ‘specified 

23 S corporation’ means— 

24 ‘‘(i) any S corporation (as defined in 

25 section 1361(a) of the Internal Revenue 


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1 Code of 1986) which is a partner in a 

2 partnership which is engaged in a profes3 sional service business if substantially all 

4 of the activities of such S corporation are 

5 performed in connection with such partner6 ship, and 

7 ‘‘(ii) any other S corporation (as so 

8 defined) which is engaged in a professional 

9 service business if 75 percent or more of 

10 the gross income of such business is attrib11 utable to service of 3 or fewer shareholders 

12 of such corporation. 

13 ‘‘(D) APPLICABLE SHAREHOLDER.—For 

14 purposes of this paragraph, the term ‘applicable 

15 shareholder’ means any shareholder whose 

16 modified adjusted gross income for the taxable 

17 year exceeds— 

18 ‘‘(i) in the case of a shareholder mak19 ing a joint return under section 6013 of 

20 the Internal Revenue Code of 1986 or a 

21 surviving spouse (as defined in section 2(a) 

22 of such Code), $250,000, 

23 ‘‘(ii) in the case of a married share24 holder (as defined in section 7703 of such 

25 Code) filing a separate return, half of the 


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1 dollar amount determined under clause (i), 

2 and 

3 ‘‘(iii) in any other case, $200,000. 

4 ‘‘(2) PARTNERS.— 

5 ‘‘(A) IN GENERAL.—In the case of any 

6 partnership which is engaged in a professional 

7 service business, subsection (a)(12) shall not 

8 apply to any applicable partner who provides 

9 substantial services with respect to such profes10 sional service business. 

11 ‘‘(B) APPLICABLE PARTNER.—For pur12 poses of this paragraph, the term ‘applicable 

13 partner’ means any partner whose modified ad14 justed gross income for the taxable year ex15 ceeds— 

16 ‘‘(i) in the case of a partner making 

17 a joint return under section 6013 of the 

18 Internal Revenue Code of 1986 or a sur19 viving spouse (as defined in section 2(a) of 

20 such Code), $250,000, 

21 ‘‘(ii) in the case of a married partner 

22 (as defined in section 7703 of such Code) 

23 filing a separate return, half of the dollar 

24 amount determined under clause (i), and 

25 ‘‘(iii) in any other case, $200,000. 


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1 ‘‘(3) PROFESSIONAL SERVICE BUSINESS.—For 

2 purposes of this subsection, the term ‘professional 

3 service business’ means any trade or business (or 

4 portion thereof) providing services in the fields of 

5 health, law, lobbying, engineering, architecture, ac6 counting, actuarial science, performing arts, con7 sulting, athletics, investment advice or management, 

8 or brokerage services. 

9 ‘‘(4) MODIFIED ADJUSTED GROSS INCOME.— 

10 For purposes of this subsection, the term ‘modified 

11 adjusted gross income’ means adjusted gross income 

12 as determined under section 62 of the Internal Rev13 enue Code of 1986— 

14 ‘‘(A) determined without regard to any de15 duction allowed under section 164(f) of such 

16 Code, and 

17 ‘‘(B) increased by the amount excluded 

18 from gross income under section 911(a)(1) of 

19 such Code.’’. 

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

21 this section shall apply to taxable years beginning after 

22 December 31, 2012. 

23 SEC. 203. ELIMINATION OF PRIVATE JET GIVEAWAY. 

24 (a) IN GENERAL.—Subparagraph (C) of section 

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1 ed by striking ‘‘and’’ at the end of clause (iv), by redesig2 nating clause (v) as clause (vi), and by inserting after 

3 clause (iv) the following new clause: 

4 ‘‘(v) any general aviation aircraft, 

5 and’’. 

6 (b) CLASS LIFE.—Paragraph (3) of section 168(g) 

7 of the Internal Revenue Code of 1986 is amended by in8 serting after subparagraph (E) the following new subpara9 graph: 

10 ‘‘(F) GENERAL AVIATION AIRCRAFT.—In 

11 the case of any general aviation aircraft, the re12 covery period used for purposes of paragraph 

13 (2) shall be 12 years.’’. 

14 (c) GENERAL AVIATION AIRCRAFT.—Subsection (i) 

15 of section 168 of the Internal Revenue Code of 1986 is 

16 amended by inserting after paragraph (19) the following 

17 new paragraph: 

18 ‘‘(20) GENERAL AVIATION AIRCRAFT.—The 

19 term ‘general aviation aircraft’ means any airplane 

20 or helicopter (including airframes and engines) not 

21 used in commercial or contract carrying of pas22 sengers or freight, but which primarily engages in 

23 the carrying of passengers.’’. 


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1 (d) EFFECTIVE DATE.—This section shall be effec2 tive for property placed in service after December 31, 

3 2012. 

4 TITLE III—ELIMINATION OF TAX 

5 LOOPHOLES FOR OFFSHOR6 ING MANUFACTURERS 

7 SEC. 301. ENDING TAX BREAKS FOR OFFSHORING MANU8 FACTURERS. 

9 (a) GENERAL RULE.—Subsection (a) of section 954 

10 of the Internal Revenue Code of 1986 is amended by strik11 ing the period at the end of paragraph (5) and inserting 

12 ‘‘, and’’, by redesignating paragraph (5) as paragraph (4), 

13 and by adding at the end the following new paragraph: 

14 ‘‘(5) imported property income for the taxable 

15 year (determined under subsection (j) and reduced 

16 as provided in subsection (b)(5)).’’. 

17 (b) DEFINITION OF IMPORTED PROPERTY IN18 COME.—Section 954 of the Internal Revenue Code of 1986 

19 is amended by adding at the end the following new sub20 section: 

21 ‘‘(j) IMPORTED PROPERTY INCOME.— 

22 ‘‘(1) IN GENERAL.—For purposes of subsection 

23 (a)(5), the term ‘imported property income’ means 

24 income (whether in the form of profits, commissions, 

25 fees, or otherwise) derived in connection with— 


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1 ‘‘(A) manufacturing, producing, growing, 

2 or extracting imported property; 

3 ‘‘(B) the sale, exchange, or other disposi4 tion of imported property; or 

5 ‘‘(C) the lease, rental, or licensing of im6 ported property. 

7 Such term shall not include any foreign oil and gas 

8 extraction income (within the meaning of section 

9 907(c)) or any foreign oil related income (within the 

10 meaning of section 907(c)). 

11 ‘‘(2) IMPORTED PROPERTY.—For purposes of 

12 this subsection— 

13 ‘‘(A) IN GENERAL.—Except as otherwise 

14 provided in this paragraph, the term ‘imported 

15 property’ means property which is imported 

16 into the United States by the controlled foreign 

17 corporation or a related person. 

18 ‘‘(B) IMPORTED PROPERTY INCLUDES CER19 TAIN PROPERTY IMPORTED BY UNRELATED

20 PERSONS.—The term ‘imported property’ in21 cludes any property imported into the United 

22 States by an unrelated person if, when such 

23 property was sold to the unrelated person by 

24 the controlled foreign corporation (or a related 

25 person), it was reasonable to expect that— 


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1 ‘‘(i) such property would be imported 

2 into the United States; or 

3 ‘‘(ii) such property would be used as 

4 a component in other property which would 

5 be imported into the United States. 

6 ‘‘(C) EXCEPTION FOR PROPERTY SUBSE7 QUENTLY EXPORTED.—The term ‘imported 

8 property’ does not include any property which is 

9 imported into the United States and which— 

10 ‘‘(i) before substantial use in the 

11 United States, is sold, leased, or rented by 

12 the controlled foreign corporation or a re13 lated person for direct use, consumption, 

14 or disposition outside the United States; or 

15 ‘‘(ii) is used by the controlled foreign 

16 corporation or a related person as a com17 ponent in other property which is so sold, 

18 leased, or rented. 

19 ‘‘(D) EXCEPTION FOR CERTAIN AGRICUL20 TURAL COMMODITIES.—The term ‘imported 

21 property’ does not include any agricultural com22 modity which is not grown in the United States 

23 in commercially marketable quantities. 

24 ‘‘(3) DEFINITIONS AND SPECIAL RULES.— 


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1 ‘‘(A) IMPORT.—For purposes of this sub2 section, the term ‘import’ means entering, or 

3 withdrawal from warehouse, for consumption or 

4 use. Such term includes any grant of the right 

5 to use intangible property (as defined in section 

6 936(h)(3)(B)) in the United States. 

7 ‘‘(B) UNITED STATES.—For purposes of 

8 this subsection, the term ‘United States’ in9 cludes the Commonwealth of Puerto Rico, the 

10 Virgin Islands of the United States, Guam, 

11 American Samoa, and the Commonwealth of 

12 the Northern Mariana Islands. 

13 ‘‘(C) UNRELATED PERSON.—For purposes 

14 of this subsection, the term ‘unrelated person’ 

15 means any person who is not a related person 

16 with respect to the controlled foreign corpora17 tion. 

18 ‘‘(D) COORDINATION WITH FOREIGN BASE

19 COMPANY SALES INCOME.—For purposes of this 

20 section, the term ‘foreign base company sales 

21 income’ shall not include any imported property 

22 income.’’. 

23 (c) SEPARATE APPLICATION OF LIMITATIONS ON

24 FOREIGN TAX CREDIT FOR IMPORTED PROPERTY IN25 COME.— 


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1 (1) IN GENERAL.—Paragraph (1) of section 

2 904(d) of the Internal Revenue Code of 1986 is 

3 amended by striking ‘‘and’’ at the end of subpara4 graph (A), by redesignating subparagraph (B) as 

5 subparagraph (C), and by inserting after subpara6 graph (A) the following new subparagraph: 

7 ‘‘(B) imported property income, and’’. 

8 (2) IMPORTED PROPERTY INCOME DEFINED.— 

9 Paragraph (2) of section 904(d) of such Code is 

10 amended by redesignating subparagraphs (I), (J), 

11 and (K) as subparagraphs (J), (K), and (L), respec12 tively, and by inserting after subparagraph (H) the 

13 following new subparagraph: 

14 ‘‘(I) IMPORTED PROPERTY INCOME.—The 

15 term ‘imported property income’ means any in16 come received or accrued by any person which 

17 is of a kind which would be imported property 

18 income (as defined in section 954(j)).’’. 

19 (3) CONFORMING AMENDMENT.—Clause (ii) of 

20 section 904(d)(2)(A) of such Code is amended by in21 serting ‘‘or imported property income’’ after ‘‘pas22 sive category income’’. 

23 (d) TECHNICAL AMENDMENTS.— 

24 (1) Clause (iii) of section 952(c)(1)(B) of the 

25 Internal Revenue Code of 1986 is amended— 


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1 (A) by redesignating subclauses (II), (III), 

2 (IV), and (V) as subclauses (III), (IV), (V), and 

3 (VI), and 

4 (B) by inserting after subclause (I) the fol5 lowing new subclause: 

6 ‘‘(II) imported property in7 come,’’. 

8 (2) The last sentence of paragraph (4) of sec9 tion 954(b) of such Code is amended by striking 

10 ‘‘subsection (a)(5)’’ and inserting ‘‘subsection 

11 (a)(4)’’. 

12 (3) Paragraph (5) of section 954(b) of such 

13 Code is amended by striking ‘‘and the foreign base 

14 company oil related income’’ and inserting ‘‘the for15 eign base company oil related income, and the im16 ported property income’’. 

17 (e) EFFECTIVE DATE.—The amendments made by 

18 this section shall apply to taxable years of foreign corpora19 tions beginning after the date of the enactment of this 

20 Act, and to taxable years of United States shareholders 

21 within which or with which such taxable years of such for22 eign corporations end. 


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1 TITLE IV—ELIMINATION OF TAX 

2 LOOPHOLES FOR OIL AND 

3 GAS COMPANIES 

4 SEC. 401. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 

5 APPLICABLE TO MAJOR INTEGRATED OIL 

6 COMPANIES WHICH ARE DUAL CAPACITY 

7 TAXPAYERS. 

8 (a) IN GENERAL.—Section 901 of the Internal Rev9 enue Code of 1986 is amended by redesignating subsection 

10 (n) as subsection (o) and by inserting after subsection (m) 

11 the following new subsection: 

12 ‘‘(n) SPECIAL RULES RELATING TO MAJOR INTE13 GRATED OIL COMPANIES WHICH ARE DUAL CAPACITY

14 TAXPAYERS.— 

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

16 other provision of this chapter, any amount paid or 

17 accrued by a dual capacity taxpayer which is a 

18 major integrated oil company (as defined in section 

19 167(h)(5)(B)) to a foreign country or possession of 

20 the United States for any period shall not be consid21 ered a tax— 

22 ‘‘(A) if, for such period, the foreign coun23 try or possession does not impose a generally 

24 applicable income tax, or 


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

2 the amount (determined in accordance with reg3 ulations) which— 

4 ‘‘(i) is paid by such dual capacity tax5 payer pursuant to the generally applicable 

6 income tax imposed by the country or pos7 session, or 

8 ‘‘(ii) would be paid if the generally ap9 plicable income tax imposed by the country 

10 or possession were applicable to such dual 

11 capacity taxpayer. 

12 Nothing in this paragraph shall be construed to 

13 imply the proper treatment of any such amount not 

14 in excess of the amount determined under subpara15 graph (B). 

16 ‘‘(2) DUAL CAPACITY TAXPAYER.—For pur17 poses of this subsection, the term ‘dual capacity tax18 payer’ means, with respect to any foreign country or 

19 possession of the United States, a person who— 

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

21 possession, and 

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

23 indirectly a specific economic benefit (as deter24 mined in accordance with regulations) from 

25 such country or possession. 


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

2 For purposes of this subsection— 

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

4 applicable income tax’ means an income tax (or 

5 a series of income taxes) which is generally im6 posed under the laws of a foreign country or 

7 possession on income derived from the conduct 

8 of a trade or business within such country or 

9 possession. 

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

11 include a tax unless it has substantial applica12 tion, by its terms and in practice, to— 

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

14 taxpayers, and 

15 ‘‘(ii) persons who are citizens or resi16 dents of the foreign country or posses17 sion.’’. 

18 (b) EFFECTIVE DATE.— 

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

20 this section shall apply to taxes paid or accrued in 

21 taxable years beginning after the date of the enact22 ment of this Act. 

23 (2) CONTRARY TREATY OBLIGATIONS

24 UPHELD.—The amendments made by this section 


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1 shall not apply to the extent contrary to any treaty 

2 obligation of the United States. 

3 SEC. 402. LIMITATION ON SECTION 199 DEDUCTION ATTRIB4 UTABLE TO OIL, NATURAL GAS, OR PRIMARY 

5 PRODUCTS THEREOF. 

6 (a) DENIAL OF DEDUCTION.—Paragraph (4) of sec7 tion 199(c) of the Internal Revenue Code of 1986 is 

8 amended by adding at the end the following new subpara9 graph: 

10 ‘‘(E) SPECIAL RULE FOR CERTAIN OIL

11 AND GAS INCOME.—In the case of any taxpayer 

12 who is a major integrated oil company (as de13 fined in section 167(h)(5)(B)) for the taxable 

14 year, the term ‘domestic production gross re15 ceipts’ shall not include gross receipts from the 

16 production, transportation, or distribution of 

17 oil, natural gas, or any primary product (within 

18 the meaning of subsection (d)(9)) thereof.’’. 

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

20 this section shall apply to taxable years beginning after 

21 December 31, 2012. 

22 SEC. 403. LIMITATION ON DEDUCTION FOR INTANGIBLE 

23 DRILLING AND DEVELOPMENT COSTS. 

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

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


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

2 apply to amounts paid or incurred by a taxpayer in any 

3 taxable year in which such taxpayer is a major integrated 

4 oil company (as defined in section 167(h)(5)(B)).’’. 

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

6 this section shall apply to amounts paid or incurred in tax7 able years beginning after December 31, 2012. 

8 SEC. 404. LIMITATION ON PERCENTAGE DEPLETION AL9 LOWANCE FOR OIL AND GAS WELLS. 

10 (a) IN GENERAL.—Section 613A of the Internal Rev11 enue Code of 1986 is amended by adding at the end the 

12 following new subsection: 

13 ‘‘(f) APPLICATION WITH RESPECT TO MAJOR INTE14 GRATED OIL COMPANIES.—In the case of any taxable year 

15 in which the taxpayer is a major integrated oil company 

16 (as defined in section 167(h)(5)(B)), the allowance for 

17 percentage depletion shall be zero.’’. 

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

19 this section shall apply to taxable years beginning after 

20 December 31, 2012. 

21 SEC. 405. LIMITATION ON DEDUCTION FOR TERTIARY 

22 INJECTANTS. 

23 (a) IN GENERAL.—Section 193 of the Internal Rev24 enue Code of 1986 is amended by adding at the end the 

25 following new subsection: 


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1 ‘‘(d) APPLICATION WITH RESPECT TO MAJOR INTE2 GRATED OIL COMPANIES.—This section shall not apply to 

3 amounts paid or incurred by a taxpayer in any taxable 

4 year in which such taxpayer is a major integrated oil com5 pany (as defined in section 167(h)(5)(B)).’’. 

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

7 this section shall apply to amounts paid or incurred in tax8 able years beginning after December 31, 2012. 

9 SEC. 406. REPEAL OF OUTER CONTINENTAL SHELF DEEP 

10 WATER AND DEEP GAS ROYALTY RELIEF. 

11 (a) IN GENERAL.—Sections 344 and 345 of the En12 ergy Policy Act of 2005 (42 U.S.C. 15904, 15905) are 

13 repealed. 

14 (b) ADMINISTRATION.—The Secretary of the Interior 

15 shall not be required to provide for royalty relief in the 

16 lease sale terms beginning with the first lease sale held 

17 on or after the date of enactment of this Act for which 

18 a final notice of sale has not been published. 

Æ 


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