|
Tax Codes Applicable to Gas and Oil Investments
Sec. 263.
Capital expenditures
(a) General rule
No deduction shall be allowed for -
(1) Any amount paid out for new buildings or for permanent improvements or betterment made to increase the value of any property or estate. This paragraph shall not apply to -
(A) expenditures for the development of mines or deposits deductible under section 616,
(B) research and experimental expenditures deductible under section 174,
(C) soil and water conservation expenditures deductible under section 175,
(D) expenditures by farmers for fertilizer, etc., deductible under section 180,
(E) expenditures for removal of architectural and transportation barriers to the handicapped and elderly which the taxpayer elects to deduct under section 190,
(F) expenditures for tertiary injectants with respect to which a deduction is allowed under section 193; (FOOTNOTE 1) or (FOOTNOTE 1) So in original. The semicolon probably should be a comma.
(G) expenditures for which a deduction is allowed under section 179.
(2) Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made.
( (b) Repealed. Pub. L. 101-508, title XI, Sec. 11801(a)(16), Nov. 5, 1990, 104 Stat. 1388-520)
(c) Intangible drilling and development costs in the case of oil and gas wells and geothermal wells Notwithstanding subsection (a), and except as provided in subsection (i), regulations shall be prescribed by the Secretary under this subtitle corresponding to the regulations which granted the option to deduct as expenses intangible drilling and development costs in the case of oil and gas wells and which were recognized and approved by the Congress in House Concurrent Resolution 50, Seventy-ninth Congress. Such regulations shall also grant the option to deduct as expenses intangible drilling and development costs in the case of wells drilled for any geothermal deposit (as defined in section 613(e)(2)) to the same extent and in the same manner as such expenses are deductible in the case of oil and gas wells. This subsection shall not apply with respect to any costs to which any deduction is allowed under section 59(e) or 291.
(d) Expenditures in connection with certain railroad rolling stock
In the case of expenditures in connection with the rehabilitation of a unit of railroad rolling stock (except a locomotive) used by a domestic common carrier by railroad which would, but for this subsection, be properly chargeable to capital account, such expenditures, if during any 12-month period they do not exceed an amount equal to 20 percent of the basis of such unit in the hands of the taxpayer, shall, at the election of the taxpayer, be treated (notwithstanding subsection (a)) as deductible repairs under section 162 or 212. An election under this subsection shall be made for any taxable year at such time and in such manner as the Secretary prescribes by regulations. An election may not be made under this subsection for any taxable year to which an election under subsection (e) applies to railroad rolling stock (other than locomotives).
( (e) Repealed. Pub. L. 97-34, title II, Sec. 201(c), Aug. 13, 1981, 95 Stat. 219)
(f) Railroad ties
In the case of a domestic common carrier by rail (including a railroad switching or terminal company) which uses the retirement-replacement method of accounting for depreciation of its railroad track, expenditures for acquiring and installing replacement ties of any material (and fastenings related to such ties) shall be accorded the same tax accounting treatment as expenditures for replacement ties of wood (and fastenings related to such ties).
(g) Certain interest and carrying costs in the case of straddles
(1) General rule
No deduction shall be allowed for interest and carrying charges properly allocable to personal property which is part of a straddle (as defined in section 1092(c)). Any amount not allowed as a deduction by reason of the preceding sentence shall be chargeable to the capital account with respect to the personal property to which such amount relates.
(2) Interest and carrying charges defined
For purposes of paragraph (1), the term ''interest and carrying charges'' means the excess of -
(A) the sum of –
i) interest on indebtedness incurred or continued to purchase or carry the personal property, and
(ii) all other amounts (including charges to insure, store, or transport the personal property) paid or incurred to carry the personal property, over
(B) the sum of -
(i) the amount of interest (including original issue discount) includible in gross income for the taxable year with respect to the property described in subparagraph (A),
(ii) any amount treated as ordinary income under section 1271(a)(3)(A), 1278, or 1281(a) with respect to such property for the taxable year,
(iii) the excess of any dividends includible in gross income with respect to such property for the taxable year over the amount of any deduction allowable with respect to such dividends under section 243, 244, or 245, and
(iv) any amount which is a payment with respect to a security loan (within the meaning of section 512(a)(5)) includible in gross income with respect to such property for the taxable year. For purposes of subparagraph (A), the term ''interest'' includes any amount paid or incurred in connection with personal property used in a short sale.
(3) Exception for hedging transactions
This subsection shall not apply in the case of any hedging transaction (as defined in section 1256(e)).
(4) Application with other provisions
(A) Subsection (c)
In the case of any short sale, this subsection shall be applied after subsection (h).
(B) Section 1277 or 1282
In the case of any obligation to which section 1277 or 1282 applies, this subsection shall be applied after section 1277 or 1282.
(h) Payments in lieu of dividends in connection with short sales
(1) In general If -
(A) a taxpayer makes any payment with respect to any stock used by such taxpayer in a short sale and such payment is in lieu of a dividend payment on such stock, and
(B) the closing of such short sale occurs on or before the 45th day after the date of such short sale, then no deduction shall be allowed for such payment. The basis of the stock used to close the short sale shall be increased by the amount not allowed as a deduction by reason of the preceding sentence.
(2) Longer period in case of extraordinary dividends
If the payment described in paragraph (1)(A) is in respect of an extraordinary dividend, paragraph (1)(B) shall be applied by substituting ''the day 1 year after the date of such short sale'' for ''the 45th day after the date of such short sale''.
(3) Extraordinary dividend
For purposes of this subsection, the term ''extraordinary dividend'' has the meaning given to such term by section 1059(c); except that such section shall be applied by treating the amount realized by the taxpayer in the short sale as his adjusted basis in the stock.
(4) Special rule where risk of loss diminished
The running of any period of time applicable under paragraph (1)(B) (as modified by paragraph (2)) shall be suspended during any period in which
(A) the taxpayer holds, has an option to buy, or is under a contractual obligation to buy, substantially identical stock or securities, or
(B) under regulations prescribed by the Secretary, a taxpayer has diminished his risk of loss by holding 1 or more other positions with respect to substantially similar or related property.
(5) Deduction allowable to extent of ordinary income from amounts
paid by lending broker for use of collateral
(A) In general
Paragraph (1) shall apply only to the extent that the payments or distributions with respect to any short sale exceed the amount which -
(i) is treated as ordinary income by the taxpayer, and
(ii) is received by the taxpayer as compensation for the use of any collateral with respect to any stock used in such short sale.
(B) Exception not to apply to extraordinary dividends
Subparagraph (A) shall not apply if one or more payments or distributions is in respect of an extraordinary dividend.
(6) Application of this subsection with subsection (g) In the case of any short sale, this subsection shall be applied before subsection (g).
(i) Special rules for intangible drilling and development costs
incurred outside the United States
In the case of intangible drilling and development costs paid or incurred with respect to an oil, gas, or geothermal well located outside the United States -
(1) subsection (c) shall not apply, and
(2) such costs shall -
(A) at the election of the taxpayer, be included in adjusted basis for purposes of computing the amount of any deduction allowable under section 611 (determined without regard to section 613), or
(B) if subparagraph (A) does not apply, be allowed as a deduction ratably over the 10-taxable year period beginning with the taxable year in which such costs were paid or incurred. This subsection shall not apply to costs paid or incurred with respect to a nonproductive well.
This newsletter is solely for petroleum industry professionals, financial professionals, and accredited investors capable of funding high risk - high return ventures. Participants should consult with their own tax advisors. 7 August 2003
26 USC Sec. 611 01/06/03
Sec. 611. Allowance of deduction for depletion
-STATUTE-
(a) General rule
In the case of mines, oil and gas wells, other natural deposits, and timber, there shall be allowed as a deduction in computing taxable income a reasonable allowance for depletion and for
depreciation of improvements, according to the peculiar conditions in each case; such reasonable allowance in all cases to be made under regulations prescribed by the Secretary. For purposes of this
part, the term "mines" includes deposits of waste or residue, the extraction of ores or minerals from which is treated as mining under section 613(c). In any case in which it is ascertained as a result of operations or of development work that the recoverable units are greater or less than the prior stimate thereof, then such prior estimate (but not the basis for depletion ) shall be revised and the allowance under this section for subsequent taxable years shall be based on such revised estimate. (b) Special rules
(1) Leases
In the case of a lease, the deduction under this section shall be equitably apportioned between the lessor and lessee.
(2) Life tenant and remainderman
In the case of property held by one person for life with remainder to another person, the deduction under this section shall be computed as if the life tenant were the absolute owner of the property and shall be allowed to the life tenant.
(3) Property held in trust
In the case of property held in trust, the deduction under this section shall be apportioned between the income beneficiaries and the trustee in accordance with the pertinent provisions of the instrument creating the trust, or, in the absence of such provisions, on the basis of the trust income allocable to each.
(4) Property held by estate
In the case of an estate, the deduction under this section shall be apportioned between the estate and the heirs, legatees, and devisees on the basis of the income of the estate allocable to each.
(c) Cross reference
For other rules applicable to depreciation of improvements, see section 167.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 207; Pub. L. 85-866, title I,
Sec. 35, Sept. 2, 1958, 72 Stat. 1632; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (a). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
1958 - Subsec. (d)(4). Pub. L. 85-866 substituted "devisees" for
"devises".
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 57, 62, 167, 174,
263, 291, 613, 613A, 616, 617, 642, 691, 703, 776, 834, 901, 1082,
1254, 4940, 7704 of this title.
Sec 469 c.3
Passive activity losses and credits limited
(c)(3) Working interests in oil and gas property
(A) In general
The term ''passive activity'' shall not include any working interest in any oil or gas property which the taxpayer holds directly or through an entity which does not limit the liability of the taxpayer with respect to such interest.
(B) Income in subsequent years
If any taxpayer has any loss for any taxable year from a working interest in any oil or gas property which is treated as a loss which is not from a passive activity, then any net income from such property (or any property the basis of which is determined in whole or in part by reference to the basis of such property) for any succeeding taxable year shall be treated as income of the taxpayer which is not from a passive activity.
|
