S 2674 — A bill to amend the Internal Revenue Code of 1986 to eliminate the taxable income limit on percentage depletion for oil and natural gas produced from marginal properties.

(a) General rule Except as otherwise provided in this section, the allowance for depletion under section 611 with respect to any oil or gas well shall be computed without regard to section 613. (b) Exemption for certain domestic gas wells (1) In general The allowance for depletion under section 611 shall be computed in accordance with section 613 with respect to— (A) regulated natural gas, and (B) natural gas sold under a fixed contract, and 22 percent shall be deemed to be specified in subsection (b) of section 613 for purposes of subsection (a) of that section. (2) Natural gas from geopressured brine The allowance for depletion under section 611 shall be computed in accordance with section 613 with respect to any qualified natural gas from geopressured brine, and 10 percent shall be deemed to be specified in subsection (b) of section 613 for purposes of subsection (a) of such section. (3) Definitions For purposes of this subsection— (A) Natural gas sold under a fixed contract The term “natural gas sold under a fixed contract” means domestic natural gas sold by the producer under a contract, in effect on February 1, 1975, and at all times thereafter before such sale, under which the price for such gas cannot be adjusted to reflect to any extent the increase in liabilities of the seller for tax under this chapter by reason of the repeal of percentage depletion for gas. Price increases after February 1, 1975, shall be presumed to take increases in tax liabilities into account unless the taxpayer demonstrates to the contrary by clear and convincing evidence. (B) Regulated natural gas The term “regulated natural gas” means domestic natural gas produced and sold by the producer, before July 1, 1976, subject to the jurisdiction of the Federal Power Commission, the price for which has not been adjusted to reflect to any extent the increase in liability of the seller for tax under this chapter by reason of the repeal of percentage depletion for gas. Price increases after February 1, 1975, shall be presumed to take increases in tax liabilities into account unless the taxpayer demonstrates the contrary by clear and convincing evidence. (C) Qualified natural gas from geopressured brine The term “qualified natural gas from geopressured brine” means any natural gas— (i) which is determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine, and (ii) which is produced from any well the drilling of which began after September 30, 1978, and before January 1, 1984. (c) Exemption for independent producers and royalty owners (1) In general Except as provided in subsection (d), the allowance for depletion under section 611 shall be computed in accordance with section 613 with respect to— (A) so much of the taxpayer’s average daily production of domestic crude oil as does not exceed the taxpayer’s depletable oil quantity; and (B) so much of the taxpayer’s average daily production of domestic natural gas as does not exceed the taxpayer’s depletable natural gas quantity; and 15 percent shall be deemed to be specified in subsection (b) of section 613 for purposes of subsection (a) of that section. (2) Average daily production For purposes of paragraph (1)— (A) the taxpayer’s average daily production of domestic crude oil or natural gas for any taxable year, shall be determined by dividing his aggregate production of domestic crude oil or natural gas, as the case may be, during the taxable year by the number of days in such taxable year, and (B) in the case of a taxpayer holding a partial interest in the production from any property (including an interest held in a partnership) such taxpayer’s production shall be considered to be that amount of such production determined by multiplying the total production of such property by the taxpayer’s percentage participation in the revenues from such property. (3) Depletable oil quantity (A) In general For purposes of paragraph (1), the taxpayer’s dep...