Internal Revenue Code:Sec. 45I. Credit for producing oil and gas from marginal wells

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Contents


Location


     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 1 - NORMAL TAXES AND SURTAXES
        Subchapter A - Determination of Tax Liability
         PART IV - CREDITS AGAINST TAXES

Statute

SEC. 45I. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL WELLS.

    (a) General Rule.--For purposes of section 38, the marginal well 
    production credit for any taxable year is an amount equal to the product 
    of--
       (1) the credit amount, and
       (2) the qualified crude oil production and the qualified 
        natural gas production which is attributable to the taxpayer.

    (b) Credit Amount.--For purposes of this section--
       (1) In general.--The credit amount is--
          (A) $3 per barrel of qualified crude oil 
              production, and
          (B) 50 cents per 1,000 cubic feet of qualified 
              natural gas production.
       (2) Reduction as oil and gas prices increase.--
          (A) In general.--The $3 and 50 cents amounts under 
              paragraph (1) shall each be reduced (but not below zero) 
              by an amount which bears the same ratio to such amount 
              (determined without regard to this paragraph) as--
             (i) the excess (if any) of the applicable 
                 reference price over $15 ($1.67 for qualified 
                 natural gas production), bears to
             (ii) $3 ($0.33 for qualified natural gas production).
              The applicable reference price for a taxable year is the 
              reference price of the calendar year preceding the 
              calendar year in which the taxable year begins.
          (B) Inflation adjustment.--In the case of any 
              taxable year beginning in a calendar year after 2005, 
              each of the dollar amounts contained in subparagraph (A) 
              shall be increased to an amount equal to such dollar 
              amount multiplied by the inflation adjustment factor for 
              such calendar year (determined under section 43(b)(3)(B) 
              by substituting `2004' for `1990').
          (C) Reference price.--For purposes of this 
              paragraph, the term `reference price' means, with 
              respect to any calendar year--
             (i) in the case of qualified crude oil 
                 production, the reference price determined under 
                 section 45K(d)(2)(C), and
             (ii) in the case of qualified natural gas 
                 production, the Secretary's estimate of the annual 
                 average wellhead price per 1,000 cubic feet for 
                 all domestic natural gas.

    (c) Qualified Crude Oil and Natural Gas Production.--For purposes 
    of this section--
       (1) In general.--The terms `qualified crude oil 
        production' and `qualified natural gas production' mean domestic 
        crude oil or natural gas which is produced from a qualified 
        marginal well.
       (2) Limitation on amount of production which may 
        qualify.--
          (A) In general.--Crude oil or natural gas produced 
              during any taxable year from any well shall not be 
              treated as qualified crude oil production or qualified 
              natural gas production to the extent production from the 
              well during the taxable year exceeds 1,095 barrels or 
              barrel-of-oil equivalents (as defined in section 
              45K(d)(5)).
          (B) Proportionate reductions.--
             (i) Short taxable years.--In the case of a 
                 short taxable year, the limitations under this 
                 paragraph shall be proportionately reduced to 
                 reflect the ratio which the number of days in such 
                 taxable year bears to 365.
             (ii) Wells not in production entire year.--
                 In the case of a well which is not capable of 
                 production during each day of a taxable year, the 
                 limitations under this paragraph applicable to the 
                 well shall be proportionately reduced to reflect 
                 the ratio which the number of days of production 
                 bears to the total number of days in the taxable 
                 year.
       (3) Definitions.--
          (A) Qualified marginal well.--The term `qualified 
              marginal well' means a domestic well--
             (i) the production from which during the 
                 taxable year is treated as marginal production 
                 under section 613A(c)(6), or
             (ii) which, during the taxable year--
                (I) has average daily production 
                    of not more than 25 barrel-of-oil 
                    equivalents (as so defined), and
                (II) produces water at a rate not less than 
                    95 percent of total well effluent.
          (B)  Crude oil, etc.--The terms `crude oil', 
              `natural gas', `domestic', and `barrel' have the 
               meanings given such terms by section 613A(e).

    (d) Other Rules.--
       (1) Production attributable to the taxpayer.--In the case 
        of a qualified marginal well in which there is more than one 
        owner of operating interests in the well and the crude
        oil or natural gas production exceeds the limitation under 
        subsection (c)(2), qualifying crude oil production or qualifying 
        natural gas production attributable to the taxpayer shall be 
        determined on the basis of the ratio which taxpayer's revenue 
        interest in the production bears to the aggregate of the revenue 
        interests of all operating interest owners in the production.
      (2) Operating interest required.--Any credit under this 
        section may be claimed only on production which is attributable 
        to the holder of an operating interest.
      (3) Production from nonconventional sources excluded.--In 
        the case of production from a qualified marginal well which is 
        eligible for the credit allowed under section 45K for the taxable 
        year, no credit shall be allowable under this section unless the 
        taxpayer elects not to claim the credit under section 45K with 
        respect to the well.


Sources

      Pub.L. 108-357, Sec.341, dated October 22, 2004.

Miscellaneous

                             AMENDMENTS



     2005 - Energy Policy Act of 2005.  Sections 45I(b)(2)(C)(i)), is
     amended by striking `section 29(d)(2)(C)' and inserting
     `section 45K(d)(2)(C)'; in subsection (c)(2)(A) by striking
     `section 29(d)(5))' and inserting `section 45K(d)(5))'; and
     in subsection (d)(3) by striking `section 29' both places it
     appears and inserting `section 45K'.
     Effective Dates- the amendments made by this section shall apply
     to credits determined under the Internal Revenue Code of 1986 for
     taxable years ending after December 31, 2005.



References


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