Oil & Gas Tax Codes
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.
(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
(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((b) Repealed.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.
(i) Special rules for
intangible drilling and development costs incurred outside the
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.
Sec. 461. General rule for taxable year of deduction
TITLE 26, Subtitle A, CHAPTER 1, Subchapter E, PART II, Subpart C, Sec. 461.
(a) General rule
The amount of any deduction or credit allowed by this subtitle shall be taken for the taxable year which is the proper taxable year under the method of accounting used in computing taxable income.
(i) Special rules for tax shelters
(2) Special rule for spudding of oil or gas wells
(A) In general
In the case of a tax shelter, economic performance with respect to amounts paid during the taxable year for drilling an oil or gas well shall be treated as having occurred within a taxable year if drilling of the well commences before the close of the 90th day after the close of the taxable year.