26 U.S.C. § 43 — Enhanced oil recovery credit

(a) General rule. For purposes of the general business credit in section 38, a taxpayer's enhanced oil recovery credit for a taxable year equals 15% of their qualified enhanced oil recovery costs for that year. (b) Phase-out as crude oil prices increase. (1) The credit shrinks as oil prices go up. Here's the formula: take the "reference price" for the calendar year before the one your taxable year begins in, and subtract $28 from it. Divide that result by $6. That fraction is how much of the credit gets cut. For example, if the reference price is $31, that's $3 over $28, divided by $6 — so the credit is cut by half. (2) "Reference price" has the meaning given in section 45K(d)(2)(C) of this title. (3) The $28 figure is adjusted for inflation. (A) For any taxable year starting after 1991, instead of using $28 flat, multiply $28 by that year's "inflation adjustment factor." (B) The inflation adjustment factor is a fraction: the top number is the GNP implicit price deflator for the previous calendar year, and the bottom number is the GNP implicit price deflator for 1990. The Secretary of the Treasury must publish this factor by April 1 of each year, based on the first revision of the deflator the Secretary of Commerce publishes. (c) Qualified enhanced oil recovery costs. (1) This term covers four kinds of spending: (A) money spent on tangible property that's an essential part of a qualified enhanced oil recovery project and that can be depreciated or amortized; (B) intangible drilling and development costs connected to a qualified project, for which the taxpayer could elect treatment under section 263(c); (C) qualified tertiary injectant expenses (as section 193(b) defines them) connected to a qualified project, if a deduction is otherwise allowed for them; and (D) money spent to build a gas treatment plant north of 64 degrees North latitude in the United States, that prepares Alaska natural gas for a pipeline carrying at least 2 trillion Btu of gas per day, and that produces carbon dioxide which gets injected into oil-bearing rock formations. (2) A "qualified enhanced oil recovery project" is a project that (A) uses one or more tertiary recovery methods (as section 193(b)(3) defines them) that can reasonably be expected to meaningfully increase how much crude oil gets recovered, is located in the United States, and started its first injection of liquids or gases after December 31, 1990. (B) The project doesn't count as qualified unless the operator submits a certification from a petroleum engineer, in the manner the Secretary requires, confirming the project meets these standards — and keeps meeting them. (3) Rules like those in section 49(a)(1), 49(a)(2), and 49(b) — which limit credits based on how much money a taxpayer actually has at risk — apply here too. (4) Displacing oil with a non-hydrocarbon gas that doesn't mix with the oil counts as a tertiary recovery method under section 193(b)(3). (5) "Alaska natural gas" means gas entering the Alaska natural gas pipeline (as section 168(i)(16) defines it, except for one part of that definition) that comes from a well located north of 64 degrees North latitude in Alaska — not counting the Alaska National Wildlife Refuge — and that is produced under the pollution prevention and permit rules that apply to that area. "Natural gas" itself has the meaning given in section 613A(e)(2). (d) Other rules. (1) If a taxpayer takes this credit for certain costs, they must reduce any tax deduction they'd otherwise get for those same costs by the amount of the credit. (2) Similarly, if this credit reduces the taxpayer's basis in a property, that increase in basis gets cut by the amount of the credit. (e) Election to have the credit not apply. (1) A taxpayer can choose not to use this credit for a taxable year. (2) That choice — or a decision to undo it — can be made any time up to three years after the deadline (not counting extensions) for filing the tax return for that year. (3) The Secretary will issue regulations spelling out exactly how to make or revoke this election.