26 U.S.C. § 45K — Credit for producing fuel from a nonconventional source

(a) Allowance of credit For the general business credit, the "nonconventional source production credit" for the year equals $3 times the barrel-of-oil equivalent of "qualified fuels" that meet two tests: the taxpayer sold them to an unrelated buyer during the year, and their production is credited to the taxpayer. (b) Limitations and adjustments (1) Phaseout: If the "reference price" for the calendar year the sale happened is above $23.50, the credit shrinks. Take the amount by which the reference price beats $23.50. Divide it by $6. Multiply the credit by that fraction and subtract the result from the credit. (2) Inflation adjustment: The $3, $23.50, and $6 figures above all get multiplied each year by an "inflation adjustment factor" — except that for gas from a tight formation, the $3 figure does not get inflation-adjusted. (3) Credit reduced for grants, tax-exempt bonds, and subsidized financing: (A) After steps (1) and (2), the credit shrinks further if the project got outside help paying for it. Add up: government grants for the project, proceeds from tax-exempt state or local bonds used to finance it, and "subsidized energy financing" (defined in section 48(a)(4)(C), not restated here) — counting this year and every earlier year. Divide that sum by the total amount added to the project's capital account, this year and all earlier years. Multiply the credit by that fraction and subtract the result. (B) These totals are measured as of the end of the tax year. (4) Credit reduced for energy credit: The credit shrinks again by any energy-percentage investment credit (under section 38) the taxpayer already claimed on the project's property in this or an earlier year, minus any of that investment credit already "recaptured" (paid back) under sections 49(b) or 50(a), or under this same paragraph in an earlier year. If this paragraph reduces the credit, the amount recaptured later under section 49(b) or 50(a) is reduced to match. (5) Credit reduced for enhanced oil recovery credit: The credit shrinks once more by any enhanced-oil-recovery credit (section 43) already claimed for the project in this or an earlier year, minus any amount already used up under this paragraph in an earlier year. (c) Definition of qualified fuels (1) "Qualified fuels" means: oil from shale or tar sands; gas from geopressured brine, Devonian shale, coal seams, or a tight formation, or from biomass; and synthetic solid, liquid, or gas fuel made from coal (including lignite), even when it's used as a feedstock rather than burned. (2) Gas from geopressured brine, etc.: (A) Normally, whether gas counts as coming from geopressured brine, Devonian shale, coal seams, or a tight formation is decided the way section 503 of the Natural Gas Policy Act of 1978 decided it, as that section read before it was repealed. (B) But "gas from a tight formation" only counts if, as of April 20, 1977, it was already committed to interstate commerce under the Natural Gas Policy Act's definition, or if it comes from a well drilled after the date this rule was enacted. (3) "Biomass" means any organic material except oil, natural gas (or anything made from them), and coal or lignite (or anything made from them). (d) Other definitions and special rules (1) Only fuel produced within the United States (as section 638(1) defines it) or a U.S. possession (as section 638(2) defines it) counts for this credit. (2) Computing the inflation factor and reference price: (A) By April 1 of each year, the Secretary must work out and publish in the Federal Register the inflation adjustment factor and reference price for the year before. (B) The "inflation adjustment factor" for a year is the GNP price deflator for that year divided by the GNP price deflator for 1979. The "GNP implicit price deflator" means the first version of that figure published by the Department of Commerce. (C) The "reference price" for a year is the Secretary's estimate of the average price per barrel, at the wellhead, for domestic crude oil whose price isn't regulated by the government. (3) Production attributable to the taxpayer: If more than one person has an interest in the same property or facility, its production is split among them based on their share of gross sales from it — unless Treasury regulations say otherwise. (4) Gas from Devonian shale, coal seams, geopressured brine, or a tight formation doesn't count toward the credit if it came from a property that was already producing that kind of gas in marketable amounts before January 1, 1980. (5) "Barrel-of-oil equivalent" means the amount of fuel with 5.8 million Btus of energy — except for the synthetic coal fuels in (c)(1)(C), where only Btu content from a source described in that subparagraph counts. (6) A "barrel" means 42 U.S. gallons. (7) Related persons: People count as "related" if they'd be treated as one employer under the section 52(b) regulations. A corporation that's part of a group filing one consolidated tax return is treated as selling to an "unrelated person" if another member of that same group sells the fuel to an actual unrelated buyer. (8) For estates and trusts, rules like the ones in section 52(d) apply, as Treasury regulations prescribe. (e) Application of section This credit only applies to qualified fuels that were produced from a well drilled, or a facility placed in service, after December 31, 1979 and before January 1, 1993 — and that were sold before January 1, 2003. (f) Extension for certain facilities (1) For facilities producing biomass gas or synthetic coal fuels (the fuels in (c)(1)(B)(ii) or (C)): (A) Such a facility still counts as "placed in service before January 1, 1993" if it actually went into service before July 1, 1998, under a binding written contract signed before January 1, 1997. (B) If the facility actually went into service after December 31, 1992, then wherever subsection (e)(2) says fuel must be sold before "January 1, 2003," read that instead as "January 1, 2008" for this facility. (2) This extension does not apply to a facility that makes coke or coke gas, unless the taxpayer is the first one to ever use that facility. (g) Extension for facilities producing coke or coke gas Despite subsection (e): (1) For a facility making coke or coke gas (not from petroleum products) that went into service before January 1, 1993, or between June 30, 1998 and January 1, 2010, the credit still applies to coke and coke gas sold during a set window: starting on the later of January 1, 2006 or the facility's in-service date, and ending 4 years after that start date. (2) Special rules for this extension only: (A) Daily limit: No more than an average of 4,000 barrel-of-oil-equivalents per day (counting only days on or after the facility went into service) can be counted toward the credit for the year. (B) When figuring the phaseout in (b)(2) for fuel sold after 2005, use "2004" in place of "1979" in the inflation-factor formula in (d)(2)(B). (C) No double benefit: This extension doesn't apply to a facility that already got a credit under subsection (f) for this fuel in this or an earlier year. (D) The price phaseout in (b)(1) does not apply to this extension. (E) Coordination with section 45: No credit is allowed here for coke or coke gas made using "steel industry fuel" (defined in section 45(c)(7)) if someone already claimed a section 45 credit for producing that steel industry fuel.