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which paragraph (1)(A) applies may be applied
1
as a credit against the payments required to be
2
made in any fiscal year under section 15d(e) of
3
the Tennessee Valley Authority Act of 1933 (16
4
U.S.C. 831n–4(e)) as an annual return on the
5
appropriations investment and an annual re-
6
payment sum.
7
‘‘(B) T
REATMENT OF CREDITS
.—The aggre-
8
gate amount of credits described in paragraph
9
(1)(A) with respect to such person shall be treat-
10
ed in the same manner and to the same extent
11
as if such credits were a payment in cash and
12
shall be applied first against the annual return
13
on the appropriations investment.
14
‘‘(C) C
REDIT CARRYOVER
.—With respect to
15
any fiscal year, if the aggregate amount of cred-
16
its described paragraph (1)(A) with respect to
17
such person exceeds the aggregate amount of pay-
18
ment obligations described in subparagraph (A),
19
the excess amount shall remain available for ap-
20
plication as credits against the amounts of such
21
payment obligations in succeeding fiscal years in
22
the same manner as described in this paragraph.
23
‘‘(5) C
REDIT NOT INCOME
.—Any transfer under
24
paragraph (2) or use under paragraph (3) of any
25
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credit to which paragraph (1)(A) applies shall not be
1
treated as income for purposes of section 501(c)(12).
2
‘‘(6) T
REATMENT
OF
UNRELATED
PERSONS
.—
3
For purposes of this subsection, sales among and be-
4
tween persons described in clauses (i), (ii), (iii), (iv),
5
and (v) of paragraph (1)(A) shall be treated as sales
6
between unrelated parties.’’.
7
(b) E
FFECTIVE
D
ATE
.—The amendment made by this
8
section shall apply to production after the date of the enact-
9
ment of this Act, in taxable years ending after such date.
10
TITLE XXIII—OIL AND GAS
11
PROVISIONS
12
SEC. 2301. OIL AND GAS FROM MARGINAL WELLS.
13
(a) I
N
G
ENERAL
.—Subpart D of part IV of subchapter
14
A of chapter 1 (relating to business credits), as amended
15
by this Act, is amended by adding at the end the following
16
new section:
17
‘‘SEC. 45K. CREDIT FOR PRODUCING OIL AND GAS FROM
18
MARGINAL WELLS.
19
‘‘(a) G
ENERAL
R
ULE
.—For purposes of section 38, the
20
marginal well production credit for any taxable year is an
21
amount equal to the product of—
22
‘‘(1) the credit amount, and
23
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‘‘(2) the qualified credit oil production and the
1
qualified natural gas production which is attributable
2
to the taxpayer.
3
‘‘(b) C
REDIT
A
MOUNT
.—For purposes of this section—
4
‘‘(1) I
N GENERAL
.—The credit amount is—
5
‘‘(A) $3 per barrel of qualified crude oil
6
production, and
7
‘‘(B) 50 cents per 1,000 cubic feet of quali-
8
fied natural gas production.
9
‘‘(2) R
EDUCTION AS OIL AND GAS PRICES IN
-
10
CREASE
.—
11
‘‘(A) I
N GENERAL
.—The $3 and 50 cents
12
amounts under paragraph (1) shall each be re-
13
duced (but not below zero) by an amount which
14
bears the same ratio to such amount (determined
15
without regard to this paragraph) as—
16
‘‘(i) the excess (if any) of the applica-
17
ble reference price over $15 ($1.67 for quali-
18
fied natural gas production), bears to
19
‘‘(ii) $3 ($0.33 for qualified natural
20
gas production).
21
The applicable reference price for a taxable year
22
is the reference price of the calendar year pre-
23
ceding the calendar year in which the taxable
24
year begins.
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‘‘(B) I
NFLATION ADJUSTMENT
.—In the case
1
of any taxable year beginning in a calendar year
2
after 2002, each of the dollar amounts contained
3
in subparagraph (A) shall be increased to an
4
amount equal to such dollar amount multiplied
5
by the inflation adjustment factor for such cal-
6
endar
year
(determined
under
section
7
43(b)(3)(B) by substituting ‘2001’ for ‘1990’).
8
‘‘(C) R
EFERENCE PRICE
.—For purposes of
9
this paragraph, the term ‘reference price’ means,
10
with respect to any calendar year—
11
‘‘(i) in the case of qualified crude oil
12
production, the reference price determined
13
under section 29(d)(2)(C), and
14
‘‘(ii) in the case of qualified natural
15
gas production, the Secretary’s estimate of
16
the annual average wellhead price per 1,000
17
cubic feet for all domestic natural gas.
18
‘‘(c) Q
UALIFIED
C
RUDE
O
IL AND
N
ATURAL
G
AS
P
RO
-
19
DUCTION
.—For purposes of this section—
20
‘‘(1) I
N GENERAL
.—The terms ‘qualified crude
21
oil production’ and ‘qualified natural gas production’
22
mean domestic crude oil or natural gas which is pro-
23
duced from a qualified marginal well.
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‘‘(2) L
IMITATION ON AMOUNT OF PRODUCTION
1
WHICH MAY QUALIFY
.—
2
‘‘(A) I
N GENERAL
.—Crude oil or natural
3
gas produced during any taxable year from any
4
well shall not be treated as qualified crude oil
5
production or qualified natural gas production
6
to the extent production from the well during the
7
taxable year exceeds 1,095 barrels or barrel
8
equivalents.
9
‘‘(B) P
ROPORTIONATE REDUCTIONS
.—
10
‘‘(i) S
HORT TAXABLE YEARS
.—In the
11
case of a short taxable year, the limitations
12
under this paragraph shall be proportion-
13
ately reduced to reflect the ratio which the
14
number of days in such taxable year bears
15
to 365.
16
‘‘(ii) W
ELLS NOT IN PRODUCTION EN
-
17
TIRE YEAR
.—In the case of a well which is
18
not capable of production during each day
19
of a taxable year, the limitations under this
20
paragraph applicable to the well shall be
21
proportionately reduced to reflect the ratio
22
which the number of days of production
23
bears to the total number of days in the tax-
24
able year.
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‘‘(3) D
EFINITIONS
.—
1
‘‘(A) Q
UALIFIED
MARGINAL
WELL
.—The
2
term ‘qualified marginal well’ means a domestic
3
well—
4
‘‘(i) the production from which during
5
the taxable year is treated as marginal pro-
6
duction under section 613A(c)(6), or
7
‘‘(ii) which, during the taxable year—
8
‘‘(I) has average daily production
9
of not more than 25 barrel equivalents,
10
and
11
‘‘(II) produces water at a rate not
12
less than 95 percent of total well efflu-
13
ent.
14
‘‘(B) C
RUDE OIL
,
ETC
.—The terms ‘crude
15
oil’, ‘natural gas’, ‘domestic’, and ‘barrel’ have
16
the meanings given such terms by section
17
613A(e).
18
‘‘(C) B
ARREL EQUIVALENT
.—The term ‘bar-
19
rel equivalent’ means, with respect to natural
20
gas, a conversation ratio of 6,000 cubic feet of
21
natural gas to 1 barrel of crude oil.
22
‘‘(d) O
THER
R
ULES
.—
23
‘‘(1) P
RODUCTION ATTRIBUTABLE TO THE TAX
-
24
PAYER
.—In the case of a qualified marginal well in
25
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HR 6 EAS1S/PP
which there is more than one owner of operating in-
1
terests in the well and the crude oil or natural gas
2
production exceeds the limitation under subsection
3
(c)(2), qualifying crude oil production or qualifying
4
natural gas production attributable to the taxpayer
5
shall be determined on the basis of the ratio which
6
taxpayer’s revenue interest in the production bears to
7
the aggregate of the revenue interests of all operating
8
interest owners in the production.
9
‘‘(2) O
PERATING
INTEREST
REQUIRED
.—Any
10
credit under this section may be claimed only on pro-
11
duction which is attributable to the holder of an oper-
12
ating interest.
13
‘‘(3) P
RODUCTION
FROM
NONCONVENTIONAL
14
SOURCES EXCLUDED
.—In the case of production from
15
a qualified marginal well which is eligible for the
16
credit allowed under section 29 for the taxable year,
17
no credit shall be allowable under this section unless
18
the taxpayer elects not to claim the credit under sec-
19
tion 29 with respect to the well.
20
‘‘(4) N
ONCOMPLIANCE WITH POLLUTION LAWS
.—
21
For purposes of subsection (c)(3)(A), a marginal well
22
which is not in compliance with the applicable State
23
and Federal pollution prevention, control, and permit
24
requirements for any period of time shall not be con-
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sidered to be a qualified marginal well during such
1
period.’’.
2
(b) C
REDIT
T
REATED AS
B
USINESS
C
REDIT
.—Section
3
38(b), as amended by this Act, is amended by striking
4
‘‘plus’’ at the end of paragraph (20), by striking the period
5
at the end of paragraph (21) and inserting ‘‘, plus’’, and
6
by adding at the end the following new paragraph:
7
‘‘(22) the marginal oil and gas well production
8
credit determined under section 45K(a).’’.
9
(c) N
O
C
ARRYBACK OF
M
ARGINAL
O
IL AND
G
AS
W
ELL
10
P
RODUCTION
C
REDIT
B
EFORE
E
FFECTIVE
D
ATE
.—Sub-
11
section (d) of section 39, as amended by this Act, is amend-
12
ed by adding at the end the following new paragraph:
13
‘‘(19) N
O CARRYBACK OF MARGINAL OIL AND GAS
14
WELL
PRODUCTION
CREDIT
BEFORE
EFFECTIVE
15
DATE
.—No portion of the unused business credit for
16
any taxable year which is attributable to the mar-
17
ginal oil and gas well production credit determined
18
under section 45K may be carried back to a taxable
19
year ending on or before the date of the enactment of
20
section 45K.’’.
21
(d) C
OORDINATION
W
ITH
S
ECTION
29.—Section 29(a)
22
is amended by striking ‘‘There’’ and inserting ‘‘At the elec-
23
tion of the taxpayer, there’’.
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(e) C
LERICAL
A
MENDMENT
.—The table of sections for
1
subpart D of part IV of subchapter A of chapter 1, as
2
amended by this Act, is amended by adding at the end the
3
following new item:
4
‘‘Sec. 45K. Credit for producing oil and gas from marginal wells.’’.
(f) E
FFECTIVE
D
ATE
.—The amendments made by this
5
section shall apply to production in taxable years beginning
6
after the date of the enactment of this Act.
7
SEC. 2302. NATURAL GAS GATHERING LINES TREATED AS 7-
8
YEAR PROPERTY.
9
(a) I
N
G
ENERAL
.—Subparagraph (C) of section
10
168(e)(3) (relating to classification of certain property) is
11
amended by striking ‘‘and’’ at the end of clause (i), by re-
12
designating clause (ii) as clause (iii), and by inserting after
13
clause (i) the following new clause:
14
‘‘(ii) any natural gas gathering line,
15
and’’.
16
(b) N
ATURAL
G
AS
G
ATHERING
L
INE
.—Subsection (i)
17
of section 168, as amended by this Act, is amended by add-
18
ing at the end the following new paragraph:
19
‘‘(16) N
ATURAL
GAS
GATHERING
LINE
.—The
20
term ‘natural gas gathering line’ means—
21
‘‘(A) the pipe, equipment, and appur-
22
tenances determined to be a gathering line by the
23
Federal Energy Regulatory Commission, or
24
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‘‘(B) the pipe, equipment, and appur-
1
tenances used to deliver natural gas from the
2
wellhead or a commonpoint to the point at which
3
such gas first reaches—
4
‘‘(i) a gas processing plant,
5
‘‘(ii) an interconnection with a trans-
6
mission pipeline certificated by the Federal
7
Energy Regulatory Commission as an
8
interstate transmission pipeline,
9
‘‘(iii) an interconnection with an
10
intrastate transmission pipeline, or
11
‘‘(iv) a direct interconnection with a
12
local distribution company, a gas storage
13
facility, or an industrial consumer.’’.
14
(c) A
LTERNATIVE
S
YSTEM
.—The table contained in
15
section 168(g)(3)(B) is amended by inserting after the item
16
relating to subparagraph (C)(i) the following new item:
17
‘‘(C)(ii) ..............................................................................................................
10’’.
(d) E
FFECTIVE
D
ATE
.—The amendments made by this
18
section shall apply to property placed in service after the
19
date of the enactment of this Act, in taxable years ending
20
after such date.
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SEC. 2303. EXPENSING OF CAPITAL COSTS INCURRED IN
1
COMPLYING WITH ENVIRONMENTAL PROTEC-
2
TION AGENCY SULFUR REGULATIONS.
3
(a) I
N
G
ENERAL
.—Part VI of subchapter B of chapter
4
1 (relating to itemized deductions for individuals and cor-
5
porations), as amended by this Act, is amended by inserting
6
after section 179C the following new section:
7
‘‘SEC. 179D. DEDUCTION FOR CAPITAL COSTS INCURRED IN
8
COMPLYING WITH ENVIRONMENTAL PROTEC-
9
TION AGENCY SULFUR REGULATIONS.
10
‘‘(a) T
REATMENT AS
E
XPENSE
.—
11
‘‘(1) I
N GENERAL
.—A small business refiner may
12
elect to treat any qualified capital costs as an expense
13
which is not chargeable to capital account. Any quali-
14
fied cost which is so treated shall be allowed as a de-
15
duction for the taxable year in which the cost is paid
16
or incurred.
17
‘‘(2) L
IMITATION
.—
18
‘‘(A) I
N
GENERAL
.—The aggregate costs
19
which may be taken into account under this sub-
20
section for any taxable year may not exceed the
21
applicable percentage of the qualified capital
22
costs paid or incurred for the taxable year.
23
‘‘(B) A
PPLICABLE PERCENTAGE
.—For pur-
24
poses of subparagraph (A)—
25
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