‘‘(ii) any net operating loss carryback
to the taxable year under section 172,
‘‘(iii) any capital loss carryback to the
taxable year under section 1212, and
‘‘(iv) in the case of a trust, any dis-
tributions to its beneficiary, except in the
case of any trust where any beneficiary of
such trust is a member of the family (as
defined in section 267(c)(4)) of a settlor
who created inter vivos and testamentary
trusts for members of the family and such
settlor died within the last six days of the
fifth month in 1970, and the law in the ju-
risdiction in which such trust was created
requires all or a portion of the gross or net
proceeds of any royalty or other interest in
oil, gas, or other mineral representing any
percentage depletion allowance to be allo-
cated to the principal of the trust.
‘‘(B) 
CARRYBACKS
AND
CARRYFOR-
WARDS.—
‘‘(i) IN GENERAL.—If an amount is
disallowed as a deduction for the taxable
year (in this subparagraph referred to as
the ‘unused depletion year’) by reason of
application of subparagraph (A), the dis-
allowed amount shall be treated as an
amount allowable as a deduction under
subsection (c) for—
‘‘(I) any of the 10 taxable years
preceding the unused depletion year,
and
‘‘(II) the taxable year following
the unused depletion year,
subject to the application of subparagraph
(A) to such taxable year.
‘‘(ii) 
ELECTION
TO
WAIVE
CARRYBACK.—Any taxpayer entitled to a
carryback period under this subparagraph
may elect to relinquish such carryback for
any of the taxable years to which it would
apply. Such election made in any taxable
year may be revised in the succeeding tax-
able year in such manner as the Secretary
may prescribe.
‘‘(C) 
ALLOCATION
OF
DISALLOWED
AMOUNTS.—For purposes of basis adjustments
and determining whether cost depletion exceeds
percentage depletion with respect to the produc-
tion from a property, any amount disallowed as
a deduction on the application of this para-
graph shall be allocated to the respective prop-
erties from which the oil or gas was produced
in proportion to the percentage depletion other-
wise allowable to such properties under sub-
section (c).’’
(b) EFFECTIVE DATE.—The amendment made by
this section shall apply to taxable years beginning after
December 31, 1998, and to any taxable year beginning
on or before such date to the extent necessary to apply
section 613A(d)(1) of the Internal Revenue Code of 1986
(as added by subsection (a)).
SEC. 8. NET INCOME LIMITATION ON PERCENTAGE DEPLE-
TION REPEALED FOR OIL AND GAS PROP-
ERTIES.
(a) IN GENERAL.—Section 613(a) (relating to per-
centage depletion) is amended by striking the second sen-
tence and inserting: ‘‘Except in the case of oil and gas
properties, such allowance shall not exceed 50 percent of
the taxpayer’s taxable income from the property (com-
puted without allowances for depletion).’’
(b) CONFORMING AMENDMENTS.—
(1) Section 613A(c)(7) (relating to special
rules) is amended by striking subparagraph (C) and
redesignating subparagraph (D) as subparagraph
(C).
(2) Section 613A(c)(6) (relating to oil and nat-
ural gas produced from marginal properties) is
amended by striking subparagraph (H).
(c) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years beginning after
December 31, 1998.
SEC. 9. ELECTION TO EXPENSE GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES AND DELAY RENT-
AL PAYMENTS.
(a) PURPOSE.—The purpose of this section is to rec-
ognize that geological and geophysical expenditures and
delay rentals are ordinary and necessary business expenses
that should be deducted in the year the expense is in-
curred.
(b) ELECTION TO EXPENSE GEOLOGICAL AND GEO-
PHYSICAL EXPENDITURES.—
(1) IN GENERAL.—Section 263 (relating to cap-
ital expenditures) is amended by adding at the end
the following new subsection:
‘‘(j) GEOLOGICAL
AND
GEOPHYSICAL
EXPENDI-
TURES FOR OIL AND GAS WELLS.—Notwithstanding sub-
section (a), a taxpayer may elect to treat geological and
geophysical expenses incurred in connection with the ex-
ploration for, or development of, oil or gas as expenses
which are not chargeable to capital account. Any expenses
so treated shall be allowed as a deduction in the taxable
year in which paid or incurred.’’
(2) 
CONFORMING
AMENDMENT.—Section
263A(c)(3) is amended by inserting ‘‘263(j),’’ after
‘‘263(i),’’.
(3) EFFECTIVE DATE.—
(A) IN GENERAL.—The amendments made
by this subsection shall apply to expenses paid
or incurred after the date of the enactment of
this Act.
(B) TRANSITION
RULE.—In the case of
any expenses described in section 263(j) of the
Internal Revenue Code of 1986, as added by
this subsection, which were paid or incurred on
or before the date of the enactment of this Act,
the taxpayer may elect, at such time and in
such manner as the Secretary of the Treasury
may prescribe, to amortize the suspended por-
tion of such expenses over the 36-month period
beginning with the month in which the date of
the enactment of this Act occurs. For purposes
of this subparagraph, the suspended portion of
any expense is that portion of such expense
which, as of the first day of the 36-month pe-
riod, has not been included in the cost of a
property or otherwise deducted.
(c) ELECTION TO EXPENSE DELAY RENTAL PAY-
MENTS.—
(1) IN GENERAL.—Section 263 (relating to cap-
ital expenditures), as amended by subsection (b)(1),
is amended by adding at the end the following new
subsection:
‘‘(k) DELAY RENTAL PAYMENTS FOR DOMESTIC OIL
AND GAS WELLS.—
‘‘(1) IN GENERAL.—Notwithstanding subsection
(a), a taxpayer may elect to treat delay rental pay-
ments incurred in connection with the development
of oil or gas within the United States (as defined in
section 638) as payments which are not chargeable
to capital account. Any payments so treated shall be
allowed as a deduction in the taxable year in which
paid or incurred.
‘‘(2) DELAY RENTAL PAYMENTS.—For purposes
of paragraph (1), the term ‘delay rental payment’
means an amount paid for the privilege of deferring
the drilling of an oil or gas well under an oil or gas
lease.’’
(2) 
CONFORMING
AMENDMENT.—Section
263A(c)(3), as amended by subsection (b)(2), is
amended by inserting ‘‘263(k),’’ after ‘‘263(j),’’.
(3) EFFECTIVE DATE.—
(A) IN GENERAL.—The amendments made
by this subsection shall apply to payments made
or incurred after the date of the enactment of
this Act.
(B) TRANSITION
RULE.—In the case of
any payments described in section 263(k) of the
Internal Revenue Code of 1986, as added by
this subsection, which were made or incurred on
or before the date of the enactment of this Act,
the taxpayer may elect, at such time and in
such manner as the Secretary of the Treasury
may prescribe, to amortize the suspended por-
tion of such payments over the 36-month period
beginning with the month in which the date of
the enactment of this Act occurs. For purposes
of this subparagraph, the suspended portion of
any payment is that portion of such payment
which, as of the first day of the 36-month pe-
riod, has not been included in the cost of a
property or otherwise deducted.
SEC. 10. WAIVER OF LIMITATIONS.
If refund or credit of any overpayment of tax result-
ing from the application of the amendments made by this
Act is prevented at any time before the close of the 1-
year period beginning on the date of the enactment of this
Act by the operation of any law or rule of law (including
res judicata), such refund or credit may nevertheless be
made or allowed if claim therefor is filed before the close
of such period.
Æ