II 

111TH CONGRESS 

2D SESSION S. 3405 

To amend the Internal Revenue Code of 1986 to eliminate oil and gas 

company preferences. 

IN THE SENATE OF THE UNITED STATES 

MAY 24, 2010 

Mr. MENENDEZ (for himself, Mr. NELSON of Florida, and Mr. MERKLEY) 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 eliminate 

oil and gas company preferences. 

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 ‘‘Close Big Oil Tax 

5 Loopholes Act’’. 

6 SEC. 2. LIMITATION ON DEDUCTION FOR INTANGIBLE 

7 DRILLING AND DEVELOPMENT COSTS. 

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

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

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


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

2 taxable year in which such taxpayer is an applicable large 

3 taxpayer (as defined in section 193(d)(2)).’’. 

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

5 this section shall apply to amounts paid or incurred in tax6 able years beginning after December 31, 2010. 

7 SEC. 3. LIMITATION ON DEDUCTION FOR TERTIARY 

8 INJECTANTS. 

9 (a) IN GENERAL.—Section 193 of the Internal Rev10 enue Code of 1986 is amended by adding at the end the 

11 following new subsection: 

12 ‘‘(d) APPLICATION WITH RESPECT TO CERTAIN

13 LARGE TAXPAYERS.— 

14 ‘‘(1) IN GENERAL.—This section shall not apply 

15 to amounts paid or incurred by a taxpayer in any 

16 taxable year in which such taxpayer is an applicable 

17 large taxpayer. 

18 ‘‘(2) APPLICABLE LARGE TAXPAYER.—For pur19 poses of this section, the term ‘applicable large tax20 payer’ means, with respect to any taxable year, any 

21 taxpayer with gross revenues for such taxable year 

22 in excess of $100,000,000.’’. 

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

24 this section shall apply to amounts paid or incurred in tax25 able years beginning after December 31, 2010. 


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1 SEC. 4. LIMITATION ON EXCEPTION FROM PASSIVE ACTIV2 ITY RULES FOR WORKING INTERESTS IN OIL 

3 OR GAS PROPERTY. 

4 (a) IN GENERAL.—Paragraph (3) of section 469(c) 

5 of the Internal Revenue Code of 1986 is amended— 

6 (1) in subparagraph (A), by striking ‘‘the tax7 payer’’ and inserting ‘‘a taxpayer (other than an a 

8 taxpayer who is an applicable large taxpayer (as de9 fined in section 193(d)(2)) for the taxable year)’’, 

10 and 

11 (2) in subparagraph (B), by inserting ‘‘other 

12 than an a taxpayer who is an applicable large tax13 payer (as so defined) for the taxable year’’ after 

14 ‘‘any taxpayer’’. 

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

16 this section shall apply to taxable years beginning after 

17 December 31, 2010. 

18 SEC. 5. LIMITATION ON PERCENTAGE DEPLETION ALLOW19 ANCE FOR OIL AND GAS WELLS. 

20 (a) IN GENERAL.—Section 613A of the Internal Rev21 enue Code of 1986 is amended by adding at the end the 

22 following new subsection: 

23 ‘‘(f) APPLICATION WITH RESPECT TO CERTAIN

24 LARGE TAXPAYERS.—In the case of any taxable year in 

25 which the taxpayer is an applicable large taxpayer (as deVerDate Mar 15 2010 22:15 May 26, 2010 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S3405.IS S3405

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1 fined in section 193(d)(2)), the allowance for percentage 

2 depletion shall be zero.’’. 

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

4 this section shall apply to taxable years beginning after 

5 December 31, 2010. 

6 SEC. 6. LIMITATION ON DEDUCTION FOR INCOME ATTRIB7 UTABLE TO DOMESTIC PRODUCTION OF OIL, 

8 NATURAL GAS, OR PRIMARY PRODUCTS 

9 THEREOF. 

10 (a) DENIAL OF DEDUCTION.—Paragraph (4) of sec11 tion 199(c) of the Internal Revenue Code of 1986 is 

12 amended by adding at the end the following new subpara13 graph: 

14 ‘‘(E) SPECIAL RULE FOR CERTAIN OIL

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

16 who is an applicable large taxpayer (as defined 

17 in section 193(d)(2)) for the taxable year, the 

18 term ‘domestic production gross receipts’ shall 

19 not include gross receipts from the production, 

20 transportation, or distribution of oil, natural 

21 gas, or any primary product (within the mean22 ing of subsection (d)(9)) thereof.’’. 

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

24 this section shall apply to taxable years beginning after 

25 December 31, 2010. 


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1 SEC. 7. EXPANSION OF 7-YEAR AMORTIZATION OF GEO2 LOGICAL AND GEOPHYSICAL EXPENDITURES 

3 TO APPLICABLE LARGE TAXPAYERS. 

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

5 167(h)(5) of the Internal Revenue Code of 1986 is amend6 ed by inserting ‘‘or an applicable large taxpayer (as de7 fined in section 193(d)(2))’’ after ‘‘major integrated oil 

8 company’’. 

9 (b) CONFORMING AMENDMENT.—The heading for 

10 paragraph (5) of section 167(h) of such Code is amended 

11 by inserting ‘‘AND APPLICABLE LARGE TAXPAYERS’’ after 

12 ‘‘OIL COMPANIES’’. 

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

14 this section shall apply to amounts paid or incurred in tax15 able years beginning after December 31, 2010. 

16 SEC. 8. TAX ON CRUDE OIL AND NATURAL GAS PRODUCED 

17 FROM THE OUTER CONTINENTAL SHELF IN 

18 THE GULF OF MEXICO. 

19 (a) IN GENERAL.—Subtitle E of the Internal Rev20 enue Code of 1986 (relating to alcohol, tobacco, and cer21 tain other excise taxes) is amended by adding at the end 

22 the following new chapter: 


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1 ‘‘CHAPTER 56—TAX ON SEVERANCE OF 

2 CRUDE OIL AND NATURAL GAS FROM 

3 THE OUTER CONTINENTAL SHELF IN 

4 THE GULF OF MEXICO 

‘‘Sec. 5896. Imposition of tax. 

‘‘Sec. 5897. Taxable crude oil or natural gas and removal price. 

‘‘Sec. 5898. Special rules and definitions. 

5 ‘‘SEC. 5896. IMPOSITION OF TAX. 

6 ‘‘(a) IN GENERAL.—In addition to any other tax im7 posed under this title, there is hereby imposed a tax equal 

8 to 13 percent of the removal price of any taxable crude 

9 oil or natural gas removed from the premises during any 

10 taxable period. 

11 ‘‘(b) CREDIT FOR FEDERAL ROYALTIES PAID.— 

12 ‘‘(1) IN GENERAL.—There shall be allowed as a 

13 credit against the tax imposed by subsection (a) with 

14 respect to the production of any taxable crude oil or 

15 natural gas an amount equal to the aggregate 

16 amount of royalties paid under Federal law with re17 spect to such production. 

18 ‘‘(2) LIMITATION.—The aggregate amount of 

19 credits allowed under paragraph (1) to any taxpayer 

20 for any taxable period shall not exceed the amount 

21 of tax imposed by subsection (a) for such taxable pe22 riod. 


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1 ‘‘(c) TAX PAID BY PRODUCER.—The tax imposed by 

2 this section shall be paid by the producer of the taxable 

3 crude oil or natural gas. 

4 ‘‘SEC. 5897. TAXABLE CRUDE OIL OR NATURAL GAS AND RE5 MOVAL PRICE. 

6 ‘‘(a) TAXABLE CRUDE OIL OR NATURAL GAS.—For 

7 purposes of this chapter, the term ‘taxable crude oil or 

8 natural gas’ means crude oil or natural gas which is pro9 duced from Federal submerged lands on the outer Conti10 nental Shelf in the Gulf of Mexico pursuant to a lease 

11 entered into with the United States which authorizes the 

12 production. 

13 ‘‘(b) REMOVAL PRICE.—For purposes of this chap14 ter— 

15 ‘‘(1) IN GENERAL.—Except as otherwise pro16 vided in this subsection, the term ‘removal price’ 

17 means— 

18 ‘‘(A) in the case of taxable crude oil, the 

19 amount for which a barrel of such crude oil is 

20 sold, and 

21 ‘‘(B) in the case of taxable natural gas, the 

22 amount per 1,000 cubic feet for which such 

23 natural gas is sold. 

24 ‘‘(2) SALES BETWEEN RELATED PERSONS.—In 

25 the case of a sale between related persons, the reVerDate Mar 15 2010 22:15 May 26, 2010 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S3405.IS S3405

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1 moval price shall not be less than the constructive 

2 sales price for purposes of determining gross income 

3 from the property under section 613. 

4 ‘‘(3) OIL OR GAS REMOVED FROM PROPERTY

5 BEFORE SALE.—If crude oil or natural gas is re6 moved from the property before it is sold, the re7 moval price shall be the constructive sales price for 

8 purposes of determining gross income from the prop9 erty under section 613. 

10 ‘‘(4) REFINING BEGUN ON PROPERTY.—If the 

11 manufacture or conversion of crude oil into refined 

12 products begins before such oil is removed from the 

13 property— 

14 ‘‘(A) such oil shall be treated as removed 

15 on the day such manufacture or conversion be16 gins, and 

17 ‘‘(B) the removal price shall be the con18 structive sales price for purposes of determining 

19 gross income from the property under section 

20 613. 

21 ‘‘(5) PROPERTY.—The term ‘property’ has the 

22 meaning given such term by section 614. 

23 ‘‘SEC. 5898. SPECIAL RULES AND DEFINITIONS. 

24 ‘‘(a) ADMINISTRATIVE REQUIREMENTS.— 


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1 ‘‘(1) WITHHOLDING AND DEPOSIT OF TAX.— 

2 The Secretary shall provide for the withholding and 

3 deposit of the tax imposed under section 5896 on a 

4 quarterly basis. 

5 ‘‘(2) RECORDS AND INFORMATION.—Each tax6 payer liable for tax under section 5896 shall keep 

7 such records, make such returns, and furnish such 

8 information (to the Secretary and to other persons 

9 having an interest in the taxable crude oil or natural 

10 gas) with respect to such oil as the Secretary may 

11 by regulations prescribe. 

12 ‘‘(3) TAXABLE PERIODS; RETURN OF TAX.— 

13 ‘‘(A) TAXABLE PERIOD.—Except as pro14 vided by the Secretary, each calendar year shall 

15 constitute a taxable period. 

16 ‘‘(B) RETURNS.—The Secretary shall pro17 vide for the filing, and the time for filing, of the 

18 return of the tax imposed under section 5896. 

19 ‘‘(b) DEFINITIONS.—For purposes of this chapter— 

20 ‘‘(1) PRODUCER.—The term ‘producer’ means 

21 the holder of the economic interest with respect to 

22 the crude oil or natural gas. 

23 ‘‘(2) CRUDE OIL.—The term ‘crude oil’ includes 

24 crude oil condensates and natural gasoline. 


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1 ‘‘(3) PREMISES AND CRUDE OIL PRODUCT.— 

2 The terms ‘premises’ and ‘crude oil product’ have 

3 the same meanings as when used for purposes of de4 termining gross income from the property under sec5 tion 613. 

6 ‘‘(c) ADJUSTMENT OF REMOVAL PRICE.—In deter7 mining the removal price of oil or natural gas from a prop8 erty in the case of any transaction, the Secretary may ad9 just the removal price to reflect clearly the fair market 

10 value of oil or natural gas removed. 

11 ‘‘(d) REGULATIONS.—The Secretary shall prescribe 

12 such regulations as may be necessary or appropriate to 

13 carry out the purposes of this chapter.’’. 

14 (b) DEDUCTIBILITY OF TAX.—The first sentence of 

15 section 164(a) of the Internal Revenue Code of 1986 (re16 lating to deduction for taxes) is amended by inserting 

17 after paragraph (5) the following new paragraph: 

18 ‘‘(6) The tax imposed by section 5896(a) (after 

19 application of section 5896(b)) on the severance of 

20 crude oil or natural gas from the outer Continental 

21 Shelf in the Gulf of Mexico.’’. 

22 (c) CLERICAL AMENDMENT.—The table of chapters 

23 for subtitle E of such Code is amended by adding at the 

24 end the following new item: 

‘‘CHAPTER 56. Tax on severance of crude oil and natural gas 

from the outer Continental Shelf in the Gulf of 

Mexico.’’. 


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

2 this section shall apply to crude oil or natural gas removed 

3 after the date of the enactment of this Act. 

4 SEC. 9. MODIFICATIONS OF FOREIGN TAX CREDIT RULES 

5 APPLICABLE TO LARGE INTEGRATED OIL 

6 COMPANIES WHICH ARE DUAL CAPACITY 

7 TAXPAYERS. 

8 (a) IN GENERAL.—Section 901 of the Internal Rev9 enue Code of 1986 (relating to credit for taxes of foreign 

10 countries and of possessions of the United States) is 

11 amended by redesignating subsection (m) as subsection 

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

13 subsection: 

14 ‘‘(m) SPECIAL RULES RELATING TO LARGE INTE15 GRATED OIL COMPANIES WHICH ARE DUAL CAPACITY

16 TAXPAYERS.— 

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

18 other provision of this chapter, any amount paid or 

19 accrued by a dual capacity taxpayer which is a large 

20 integrated oil company to a foreign country or pos21 session of the United States for any period shall not 

22 be considered a tax— 

23 ‘‘(A) if, for such period, the foreign coun24 try or possession does not impose a generally 

25 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 possession. 

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

18 purposes of this subsection, the term ‘large inte19 grated oil company’ means, with respect to any tax20 able year, an integrated oil company (as defined in 

21 section 291(b)(4)) which— 

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

23 $1,000,000,000 for such taxable year, and 


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1 ‘‘(B) has an average daily worldwide pro2 duction of crude oil of at least 500,000 barrels 

3 for such taxable year.’’. 

4 (b) EFFECTIVE DATE.— 

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

6 this section shall apply to taxes paid or accrued in 

7 taxable years beginning after the date of the enact8 ment of this Act. 

9 (2) CONTRARY TREATY OBLIGATIONS

10 UPHELD.—The amendments made by this section 

11 shall not apply to the extent contrary to any treaty 

12 obligation of the United States. 

Æ 


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