[Congressional Bills 103th Congress] [From the U.S. Government Publishing Office] [S. 374 Introduced in Senate (IS)] 103d CONGRESS 1st Session S. 374 To amend the Internal Revenue Code of 1986 to provide incentives for domestic oil and natural gas exploration and production, and for other purposes. _______________________________________________________________________ IN THE SENATE OF THE UNITED STATES February 16 (legislative day, January 5), 1993 Mr. Nickles (for himself and Mr. Boren) 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 provide incentives for domestic oil and natural gas exploration and production, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE. (a) Short Title.--This Act may be cited as the ``Energy Independence, Infrastructure, and Investment Act of 1993''. (b) Amendment of 1986 Code.--Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. TITLE I--ENERGY INDEPENDENCE INCENTIVES SEC. 101. FEE ON IMPORTED CRUDE OIL AND REFINED PETROLEUM PRODUCTS. (a) In General.--Subtitle E (relating to alcohol, tobacco, and certain other excise taxes) is amended by adding at the end thereof the following new chapter: ``CHAPTER 55--IMPORTED CRUDE OIL AND REFINED PETROLEUM PRODUCTS ``Sec. 5891. Imposition of tax. ``Sec. 5892. Definitions. ``Sec. 5893. Registration. ``Sec. 5894. Procedures; returns; penalties. ``Sec. 5895. Adjustment for inflation. ``SEC. 5891. IMPOSITION OF TAX. ``(a) Imposition of Tax.--In addition to any other tax imposed under this title, an excise tax is hereby imposed on-- ``(1) the first sale within the United States of each barrel (or its equivalent) of-- ``(A) any crude oil, or ``(B) any refined petroleum product, that has been imported into the United States, and ``(2) the use within the United States of each barrel (or its equivalent) of-- ``(A) any crude oil, or ``(B) any refined petroleum product, that has been imported into the United States if no tax has been imposed with respect to such crude oil or refined petroleum product prior to such use. ``(b) Rate of Tax.-- ``(1) Crude oil.--For purposes of paragraphs (1)(A) and (2)(A) of subsection (a) the rate of tax on any barrel (or its equivalent) shall be the excess, if any, of-- ``(A) $25, over ``(B) the energy policy price per barrel of crude oil. ``(2) Refined petroleum product.--For purposes of paragraphs (1)(B) and (2)(B) of subsection (a), the rate of tax on any barrel (or its equivalent) shall be equal to-- ``(A) $3, plus ``(B) the tax determined under paragraph (1) of this subsection. ``(3) Fractional parts of barrels.--In the case of a fraction of a barrel, the tax imposed by subsection (a) shall be the same fraction of the amount of such tax imposed on the whole barrel. ``(c) Determination of Energy Policy Price.-- ``(1) In general.--For purposes of this section, the energy policy price with respect to any week during which the tax under subsection (a) is imposed shall be determined by the Secretary and published in the Federal Register on the first day of such week. ``(2) Basis of Determination.--For purposes of paragraph (1), the energy policy price for any week is the weighted average international price of a barrel of crude oil for the preceding 4 weeks as determined by the Secretary, after consultation with the Administrator of the Energy Information Administration of the Department of Energy, pursuant to the formula for determining such international price as used in publishing the Weekly Petroleum Status Report and as in effect on the date of the enactment of this section. ``(d) Liability for Payment of Tax.-- ``(1) Sales.--The taxes imposed by subsection (a)(1) shall be paid by the first person who sells the crude oil or refined petroleum product within the United States. ``(2) Use.--The taxes imposed by subsection (a)(2) shall be paid by the person who uses the crude oil or refined petroleum product. ``(3) Tax-free exports.-- ``(A) In general.--Under regulations prescribed by the Secretary, no tax shall be imposed under this chapter on the sale of crude oil or refined petroleum product for export or for resale by the purchaser to a second purchaser for export. ``(B) Proof of export.--Where any crude oil or refined petroleum product has been sold free of tax under subparagraph (A), such subparagraph shall cease to apply with respect to the sale of such crude oil or refined petroleum product, unless, within the 6-month period which begins on the date of the sale, the seller receives proof that the crude oil or refined petroleum product has been exported. ``SEC. 5892. DEFINITIONS. ``For purposes of this chapter-- ``(1) Crude oil.--The term `crude oil' means crude oil other than crude oil produced from a well located in the United States (within the meaning of section 638(2)) or a possession of the United States. ``(2) Barrel.--The term `barrel' means 42 United States gallons. ``(3) Refined petroleum product.--The term `refined petroleum product' shall have the same meaning given to such term by section 3(5) of the Emergency Petroleum Allocation Act of 1973 (15 U.S.C. 752(5)). ``(4) Export.--The term `export' includes shipment to a possession of the United States; and the term `exported' includes shipment to a possession of the United States. ``SEC. 5893. REGISTRATION. ``Every person subject to tax under section 5891 shall, before incurring any liability for tax under such section, register with the Secretary. ``SEC. 5894. PROCEDURES; RETURNS; PENALTIES. ``For purposes of this title, the tax imposed by section 5891 shall be treated in the same manner as the tax imposed by section 4986 (as in effect before its repeal). ``SEC. 5890. ADJUSTMENT FOR INFLATION. ``In the case of any calendar year beginning after 1993, the dollar amount referred to in section 5886(b)(1)(A) and section 5886(b)(2)(A) shall be increased by an amount equal to-- ``(A) such dollar amount, multiplied by ``(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, by substituting `calendar year 1992' for `calendar year 1989' in subparagraph (B) thereof.''. (b) Conforming Amendment.--The table of chapters for subtitle E is amended by adding at the end thereof the following new item: ``Chapter 55. Imported crude oil and refined petroleum products.''. (c) Deductibility of Imported Oil Tax.--The first sentence of section 164(a) (relating to deductions for taxes) is amended by inserting after paragraph (5) the following new paragraph: ``(6) The imported oil taxes imposed by section 5891.''. (d) Effective Date.--The amendments made by this section shall apply with respect to sales and use of imported crude oil or refined petroleum products on or after the date of the enactment of this Act. TITLE II--INFRASTRUCTURE INCENTIVES SEC. 201. INCREASE IN PERCENTAGE DEPLETION FOR STRIPPER WELLS. (a) In General.--Subparagraph (C) of section 613A(c)(6) (relating to oil and natural gas produced from marginal properties) is amended-- (1) by striking ``25 percent'' and inserting ``27.5 percent'' in the matter preceding clause (i), and (2) by striking ``$20'' and inserting ``$28'' in clause (ii). (b) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1992. SEC. 202. NET INCOME LIMITATION ON PERCENTAGE DEPLETION REPEALED FOR OIL AND GAS PROPERTIES. (a) In General.--Section 613(a) (relating to percentage depletion) is amended by striking the second sentence 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 (computed without allowances for depletion).''. (b) Conforming Amendment.--Section 613A(c)(7) (relating to special rules) is amended by striking subparagraph (C) and redesignating subparagraph (D) as subparagraph (C). (c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1992. SEC. 203. CRUDE OIL AND NATURAL GAS EXPLORATION AND DEVELOPMENT CREDIT. (a) Crude Oil and Natural Gas Exploration and Development Credit.-- Subpart B of part IV of subchapter A of chapter 1 (relating to foreign tax credit, etc.) is amended by adding the following new section: ``SEC. 30A. CRUDE OIL AND NATURAL GAS EXPLORATION AND DEVELOPMENT CREDIT. ``(a) General Rule.--There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of-- ``(1) 20 percent of so much of the taxpayer's qualified investment for the taxable year as does not exceed $1,000,000, plus ``(2) 10 percent of so much of such qualified investment for the taxable year as exceeds $1,000,000. ``(b) Qualified Investment.--For purposes of this section, the term `qualified investment' means amounts paid or incurred-- ``(1) for geological and geophysical expenditures incurred for the purpose of ascertaining the existence, location, extent, or quality of any crude oil or natural gas deposit, including core testing and drilling test wells, ``(2) for the purpose of drilling and equipping crude oil and natural gas wells (including pollution control equipment used in connection with such wells), or ``(3) for the purpose of performing secondary or tertiary recovery techniques, on properties located in the United States or in a possession of the United States as defined in section 638 (relating to Continental Shelf areas), but only to the extent that the expenditure is not a qualified cost under section 30B. ``(c) Limitation Based on Amount of Tax.-- ``(1) Liability for Tax.--The credit allowable under subsection (a) for any taxable year shall not exceed-- ``(A) the sum of-- ``(i) the taxpayer's minimum tax liability under section 55(a) for such taxable year, plus ``(ii) the taxpayer's regular tax liability for such taxable year (as defined in section 26(b)), over ``(B) the sum of the credits allowable against the taxpayer's regular tax liability under subparts A and D of this part and sections 27, 28, 29, and 30. ``(2) Carryback and carryforward of unused credit.-- ``(A) In general.--If the amount of the credit allowed under subsection (a) for any taxable year exceeds the limitation under paragraph (1) for such taxable year (hereinafter in this paragraph referred to as the `unused credit year'), such excess shall be-- ``(i) an oil and gas exploration and development credit carryback to each of the 3 taxable years preceding the unused credit year, and ``(ii) an oil and gas exploration and development credit carryforward to each of the 15 taxable years following the unused credit year, and shall be added to the amount allowable as a credit under subsection (a) for such years. If any portion of such excess is a carryback to a taxable year beginning on or before the date of the enactment of this section, this section shall be deemed to have been in effect for such taxable year for purposes of allowing such carryback as a credit under this section. The entire amount of the unused credit shall be carried to the earliest of the 18 taxable years to which such credit may be carried, and then to each of the other 17 taxable years to the extent that, because of the limitation contained in paragraph (1), such unused credit may not be added for a prior taxable year to which such unused credit may be carried. ``(B) Limitations.--The amount of the unused credit which may be taken into account under subparagraph (A) for any succeeding taxable year shall not exceed the amount by which the limitation provided by paragraph (1) for such taxable year exceeds the sum of-- ``(i) the credit allowable under subsection (a) for such taxable year, and ``(ii) the amounts which, by reason of this paragraph, are added to the amount allowable for such taxable year and which are attributable to taxable years preceding the unused credit year. ``(d) Special Rules.--For purposes of this section-- ``(1) Aggregation of qualified investment expenses.-- ``(A) Controlled groups; common control.--In determining the amount of the credit under this section, all members of the same controlled group of corporations (within the meaning of section 52(a)) and all persons under common control (within the meaning of section 52(b)) shall be treated as a single taxpayer for purposes of this section. ``(B) Apportionment of credit.--The credit (if any) allowable by this section to members of any group (or to any person) described in subparagraph (A) shall be such member's or person's proportionate share of the qualified investment expenses giving rise to the credit determined under regulations prescribed by the Secretary. ``(2) Partnerships, s corporations, estates and trusts.-- ``(A) Partnerships and s corporations.--In the case of a partnership, the credit shall be allocated among partners under regulations prescribed by the Secretary. A similar rule shall apply in the case of an S corporation and its shareholders. ``(B) Pass-thru in the case of estates and trusts.--Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply. ``(3) Adjustments for certain acquisitions and dispositions.--Under regulations prescribed by the Secretary, rules similar to the rules contained in section 41(f)(3) shall apply with respect to the acquisition or disposition of a taxpayer. ``(4) Short taxable years.--In the case of any short taxable year, qualified investment expenses shall be annualized in such circumstances and under such methods as the Secretary may prescribe by regulation. ``(5) Denial of double benefit.-- ``(A) Disallowance of deduction.--Any deduction allowable under this chapter for any costs taken into account in computing the amount of the credit determined under subsection (a) shall be reduced by the amount of such credit attributable to such costs. ``(B) Basis adjustments.--For purposes of this subtitle, if a credit is determined under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditures shall be reduced by the amount of the credit so allowed.''. (b) Clerical Amendment.--The table of sections for subpart B of part IV of subchapter A of chapter 1 is amended by adding at the end thereof the following new item: ``Sec. 30A. Crude oil and natural gas exploration and development credit.''. (c) Effective Date.--The amendments made by this section shall apply to expenditures paid or incurred after the date of enactment of this Act in taxable years ending after such date. SEC. 204. MARGINAL PRODUCTION CREDIT. (a) In General.--Subpart B of part IV of subchapter A of chapter 1 (relating to foreign tax credit, etc.), as amended by section 203(a), is amended by adding the following new section: ``SEC. 30B. MARGINAL PRODUCTION CREDIT. ``(a) Allowance of Credit.--There shall be allowed as a credit against the tax imposed by this chapter for the taxable year to the producer of eligible crude oil or eligible natural gas an amount equal to 20 percent of the qualified cost of each barrel of such oil or each barrel-of-oil equivalent of such gas (or fractional part thereof) produced during the taxable year. ``(b) Qualified Cost.--For purposes of this section, the term `qualified cost' means, with respect to each barrel of eligible crude oil or each barrel-of-oil equivalent of eligible natural gas, the sum of-- ``(1) such barrel's or barrel-of-oil equivalent's pro rata share of the lease operating expenses (other than business overhead expenses) paid or incurred by the producer of such barrel or barrel-of-oil equivalent during the taxable year in which such barrel or barrel-of-oil equivalent was produced, plus ``(2) the amount of severance tax paid or incurred by such producer with respect to such barrel or barrel-of-oil equivalent. ``(c) Definitions.--For purposes of this section-- ``(1) Eligible crude oil.--The term `eligible crude oil' means domestic crude oil which is-- ``(A) from a stripper well property, ``(B) heavy oil, ``(C) oil recovered through a tertiary recovery method, or ``(D) harsh environment oil. ``(2) Eligible natural gas.--The term `eligible natural gas' means gas, other than gas qualifying for the credit under section 29, which is-- ``(A) from a stripper well property, or ``(B) natural gas recovered through a tertiary recovery method. ``(3) Other definitions.-- ``(A) Crude oil.--The term `crude oil' has the meaning given to such term by the June 1979 energy regulations. ``(B) Barrel.--The term `barrel' means 42 United States gallons. ``(C) Barrel-of-oil equivalent.--The term `barrel- of-oil equivalent' with respect to any natural gas means that amount of such natural gas which has a Btu content of 5.8 million. ``(D) Domestic.--The term `domestic' when used with respect to crude oil, means crude oil produced from a property located in the United States or a possession of the United States. ``(E) United states.--The term `United States' has the meaning given to such term by paragraph (1) of section 638 (relating to Continental Shelf areas). ``(F) Possession of the united states.--The term `possession of the United States' has the meaning given to such term by paragraph (2) of section 638. ``(G) Stripper well property.--The term `stripper well property' has the meaning given to such term by subparagraph (E) of section 613A(c)(6). ``(H) Property.--The term `property' means property as defined in section 614. ``(I) Heavy oil.--The term `heavy oil' means all crude oil which is produced from a property if crude oil produced and sold from such property during-- ``(i) the last month before July 1979 in which crude oil was produced and sold from such property, or ``(ii) the taxable year had a weighted average gravity of 20 degrees API or less (corrected to 60 degrees Fahrenheit). ``(J) Tertiary recovery method.--The term `tertiary recovery method' means-- ``(i) any method which is described in subparagraphs (1) through (9) of section 212.78(c) of the October 1979 energy regulations, or ``(ii) any other method to provide tertiary enhanced recovery (including steam generation) which is approved by the Secretary for purposes of this section. ``(K) Harsh environment oil.--The term `harsh environment oil' means oil produced from a property located north of the 49th parallel or under at least 400 feet of water. ``(L) Severance tax.--The term `severance tax' means a tax imposed by a State or political subdivision thereof with respect to the extraction of crude oil. ``(M) Energy regulations.-- ``(i) In general.--The term `energy regulations' means regulations prescribed under section 4(a) of the Energy Petroleum Allocation Act of 1973 (15 U.S.C. 753(a)). ``(ii) June 1979 energy regulations.--The June 1979 energy regulations shall be the terms of the energy regulations as such terms existed on June 1, 1979. ``(iii) October 1979 energy regulations.-- The October 1979 Energy Regulations shall be the terms of the energy regulations as such terms existed on October 30, 1979. ``(iv) Continued application of regulations after decontrol.--Energy regulations shall be treated as continuing in effect without regard to decontrol of oil prices or any other termination of the application of such regulations. ``(d) Special Rule for Offshore Wells.--In the case of eligible crude oil or eligible natural gas produced from a property located under at least 400 feet (but less than 1,200 feet) of water, the percentage determined under the following table shall be substituted for `20 percent' in subsection (a): ``If distance (in feet) of the property under water is-- At least But less than The percentage is-- 400 600 5 percent 600 900 10 percent 900 1,200 15 percent ``(e) Limitation Based on Amount of Tax.-- ``(1) Liability for Tax.--The credit allowable under subsection (a) for any taxable year shall not exceed-- ``(A) the sum of-- ``(i) the taxpayer's minimum tax liability under section 55(a) for such taxable year, plus ``(ii) the taxpayer's regular tax liability for such taxable year (as defined in section 26(b)), over ``(B) the sum of the credits allowable against the taxpayer's regular tax liability under subparts A and D of this part and sections 27, 28, 29, 30, and 30A. ``(2) Carryback and carryforward of unused credit.-- ``(A) In general.--If the amount of the credit allowed under subsection (a) for any taxable year exceeds the limitation under paragraph (1) for such taxable year (hereinafter in this paragraph referred to as the `unused credit year'), such excess shall be-- ``(i) an oil and gas production credit carryback to each of the 3 taxable years preceding the unused credit year, and ``(ii) an oil and gas production credit carryforward to each of the 15 taxable years following the unused credit year, and shall be added to the amount allowable as a credit under subsection (a) for such years. If any portion of such excess is a carryback to a taxable year beginning on or before the date of the enactment of this section, this section shall be deemed to have been in effect for such taxable year for purposes of allowing such carryback as a credit under this section. The entire amount of the unused credit shall be carried to the earliest of the 18 taxable years to which such credit may be carried, and then to each of the other 17 taxable years to the extent that, because of the limitation contained in paragraph (1), such unused credit may not be added for a prior taxable year to which such unused credit may be carried. ``(B) Limitations.--The amount of the unused credit which may be taken into account under subparagraph (A) for any succeeding taxable year shall not exceed the amount by which the limitation provided by paragraph (1) for such taxable year exceeds the sum of-- ``(i) the credit allowable under subsection (a) for such taxable year, and ``(ii) the amounts which, by reason of this paragraph, are added to the amount allowable for such taxable year and which are attributable to taxable years preceding the unused credit year.''. (b) Clerical Amendment.--The table of sections for subpart B of part IV of subchapter A of chapter 1, as amended by section 203(b), is amended by adding at the end thereof the following new item: ``Sec. 30B. Marginal production credit.''. (c) Effective Date.--The amendments made by this section shall apply to expenditures paid or incurred after the date of enactment of this Act in taxable years ending after such date. SEC. 205. EXPANSION OF ENHANCED OIL RECOVERY CREDIT. (a) In General.--Section 43(a) (relating to enhanced oil recovery credit) is amended to read as follows: ``(a) General Rule.--For purposes of section 38, the enhanced oil recovery credit for any taxable year is an amount equal to-- ``(1) 15 percent of the taxpayer's qualified enhanced oil recovery costs for such taxable year, plus ``(2) in the case of a taxpayer (other than an integrated oil company as defined in section 291(b)(4)), 15 percent of the taxpayer's advanced secondary recovery costs for such taxable year.''. (b) Advanced Secondary Recovery Costs, Etc.--Section 43(c) (defining qualified enhanced oil recovery costs) is amended by redesignating paragraphs (3) and (4) as paragraphs (4) and (5), respectively, and by inserting after paragraph (2) the following new paragraph: ``(3) Advanced secondary recovery costs.-- ``(A) In general.--The term `advanced secondary recovery costs' means any of the following: ``(i) Any amount paid or incurred during the taxable year for tangible property-- ``(I) which is an integral part of a qualified advanced secondary recovery project, and ``(II) with respect to which depreciation (or amortization in lieu of depreciation) is allowable under this chapter. ``(ii) Any intangible drilling and development costs-- ``(I) which are paid or incurred in connection with a qualified advanced secondary recovery project, and ``(II) with respect to which the taxpayer may make an election under section 263(c) for the taxable year. ``(iii) Any qualified secondary advanced injectant expenses which are paid or incurred in connection with a qualified advanced secondary recovery project. ``(B) Qualified advanced secondary recovery project.--The term `qualified advanced secondary recovery project' means any project which meets the requirements of subparagraph (C) and which involves 1 of the following advanced secondary recovery methods: ``(i) A method which is used to produce unrecovered oil which remains in a reservoir after conventional production because of heterogeneity and mobility differences between oil and water. ``(ii) A reservoir characterization technique which pinpoints the location of new well sites without regard to traditional spacing requirements (including advanced well logging, advanced geophysical detection technologies, advanced geocellular reservoir computer modeling, and precision drilling). ``(iii) A drilling method in which the wellbore is deviated from the vertical by a short- or long-range radius technique at a direction parallel to the bedding plane. ``(iv) Any other advanced secondary recovery method approved by the Secretary for purposes of this section. ``(C) Requirements for qualified advanced secondary recovery project.-- ``(i) In general.--A project meets the requirements of a qualified advanced secondary recovery project if-- ``(I) such project involves the application (in accordance with sound engineering principles) of 1 or more advanced secondary recovery methods which can reasonably be expected to result in more than an insignificant increase in the amount of crude oil which will ultimately be recovered, ``(II) such project is located within the United States (within the meaning of section 638(1)), and ``(III) such project commences after December 31, 1992. ``(ii) Certification.--A project shall not be treated as a qualified advanced secondary recovery project unless the operator submits to the Secretary (at such times and in such manner as the Secretary provides) a certification from a petroleum engineer that the project meets (and continues to meet) the requirements of clause (i).''. (c) No Double Certification.--Section 43(c), as amended by subsection (b), is amended by adding at the end thereof the following new paragraph: ``(6) Only 1 certification allowed.--For purposes of this section, the term `qualified enhanced oil recovery project' shall not include any project which is certified as a qualified advanced secondary recovery project under paragraph (3) and the term `qualified advanced secondary recovery project' shall not include any project which is certified as an enhanced oil recovery project under paragraph (2).''. (d) Conforming Amendments.-- (1) Paragraph (4) of section 43(c), as redesignated, is amended by inserting ``and qualified advanced secondary recovery costs'' after ``qualified enhanced oil recovery costs''. (2) The heading for subsection (c) of section 43 is amended by inserting ``and Qualified Advanced Secondary Recovery Costs'' after ``Costs''. (e) Effective Date.-- (1) In general.--The amendments made by this section shall apply in the case of amounts paid or incurred in taxable years beginning after December 31, 1992. (2) Expansion of projects.--For purposes of section 43(c)(3)(C)(i)(III) of the Internal Revenue Code of 1986 (as added by subsection (b)), any significant expansion after December 31, 1992, of a project begun before January 1, 1993, shall be treated as a project which commences after December 31, 1992. SEC. 206. EXPANSION OF STRIPPER WELL DEFINITION. (a) In General.--Clause (i) of section 613A(c)(6)(E) (defining stripper well property) is amended by striking ``15'' and inserting ``25''. (b) Effective Date.--The amendment made by this section shall apply to expenditures paid or incurred after the date of enactment of this Act in taxable years ending after such date. TITLE III--INVESTMENT INCENTIVES SEC. 301. AMORTIZATI0N OF GEOLOGICAL AND GEOPHYSICAL COSTS. (a) In General.--Section 263 (relating to capital expenditures) is amended by adding at the end the following new subsection: ``(j) Special Rule for Certain Geological and Geophysical Costs.-- Geological and geophysical costs for the purpose of ascertaining the existence, location, extent, or quality of any deposit of oil or gas within the United States (within the meaning of section 638(1)) or a possession of the United States (within the meaning of section 638(2)) shall be allowed as a deduction ratably over the 5-year period beginning with the taxable year in which such costs were paid or incurred.''. (b) Effective Date.--The amendment made by this section shall apply to costs paid or incurred after the date of the enactment of this Act in taxable years ending after such date. SEC. 302. DEPRECIATION ADJUSTMENTS NOT TO APPLY TO ENVIRONMENTAL PROPERTY. (a) In General.--Subparagraph (B) of section 56(a)(1) (relating to depreciation adjustments) is amended to read as follows: ``(B) Exception.--With respect to any oil or gas producer, this paragraph shall not apply to-- ``(i) property described in paragraph (1), (2), (3), or (4) of section 168(f), or ``(ii) environmental improvement assets (as defined in section 59(k)).''. (b) Environmental Improvement Assets.--Section 59 (relating to definition and special rules) is amended by adding at the end the following new subsection: ``(k) Environmental Improvement Assets.-- ``(1) In general.--For purposes of section 56(a)(1)(B)(ii), the term `environmental improvement asset' means tangible property which is-- ``(A) of a character subject to the allowance for depreciation provided in section 167 or is nondepreciable real property; ``(B) used for, or is functionally related to property used for, one or more of the following purposes-- ``(i) source reduction, ``(ii) solid waste minimization, ``(iii) waste conversion or recycling, ``(iv) reduction of environmental hazards, ``(v) compliance with environmental permits, rules, and similar requirements, ``(vi) prevention, containment or control of unplanned releases, or ``(vii) the manufacture, distribution and sale of alternate fuels and blending stocks or fuel additives for reformulated fuels, and ``(C) located and used exclusively in the United States during the taxable year. If only a portion of property described in subparagraphs (A) and (C) is described in subparagraph (B), such portion shall be treated as an environmental improvement asset. ``(2) Other definitions.--For purposes of this subsection-- ``(A) Source reduction.--The term `source reduction' means reduction of the amount of regulated substances or other pollutants from fixed or mobile sources released into the environment if such reduction reduces hazards to public health or environment. ``(B) Waste minimization.--The term `waste minimization' means the reduction in the generation of, or the recovery of commercially usable products from, residual materials which are classified as, or which if disposed would be classified as, solid wastes (within the meaning of the Resource Conservation and Recovery Act). ``(C) Waste conversion or recycling.--The term `waste conversion or recycling' means the processing or conversion of liquid, solid, or gaseous wastes into fuel, energy, or other commercially usable products, and the production of such products if production occurs at the same facility as the conversion. ``(D) Abatement of environmental hazards.--The term `abatement of environmental hazards' includes the abatement, reduction, monitoring, or stabilization of potential human exposure to toxic chemicals, hazardous or extremely hazardous substances, or harmful radiation. ``(E) Unplanned releases.--The term `unplanned releases' means any release of regulated substances (except federally permitted releases), including indoor releases. ``(F) Regulated substance.--The term `regulated substance' includes any substance the release or emission of which is prohibited, limited, or regulated by Federal or State law or by Federal regulations (as determined without regard to whether a particular release would have been prohibited or limited). ``(G) Release.--The term `release' means any spilling, leaking, pouring, discharging, escaping, dumping, or disposing into the environment, including the abandonment or discarding of barrels or other closed receptacles.''. (c) Conforming Amendment.--Subparagraph (A) of section 56(g)(4) is amended by adding at the end the following new clause: ``(vi) This subparagraph shall not apply to environmental improvement assets (as defined in section 59(k)).''. (d) Effective Date.--The amendments made by this section shall apply to property placed in service in taxable years beginning after December 31, 1992. <all> S 374 IS----2 S 374 IS----3