26 U.S.C. § 907: Special rules in case of foreign oil and gas income

the amount of the combined foreign oil and gas income for the taxable year, in the case of a corporation, the percentage which is equal to the highest rate of tax specified under section 11(b), or in the case of an individual, a fraction the numerator of which is the tax against which the credit under section 901(a) is taken and the denominator of which is the taxpayer’s entire taxable income. foreign oil and gas extraction income, and foreign oil related income. oil and gas extraction taxes, and any income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid or accrued under section 960) during the taxable year with respect to foreign oil related income (determined without regard to subsection (c)(4)) or loss which would be taken into account for purposes of section 901 without regard to this section. the extraction (by the taxpayer or any other person) of minerals from oil or gas wells, or the sale or exchange of assets used by the taxpayer in the trade or business described in subparagraph (A). the processing of minerals extracted (by the taxpayer or by any other person) from oil or gas wells into their primary products, the transportation of such minerals or primary products, the distribution or sale of such minerals or primary products, the disposition of assets used by the taxpayer in the trade or business described in subparagraph (A), (B), or (C), or the performance of any other related service. interest, to the extent the category of income of such interest is determined under section 904(d)(3), amounts with respect to which taxes are deemed paid under section 960, and the taxpayer’s distributive share of the income of partnerships, first by the amount determined under subparagraph (B), and then by the amount determined under subparagraph (C). the foreign oil and gas extraction income of the taxpayer for the taxable year (determined without regard to this paragraph), or the aggregate amount of foreign oil extraction losses for preceding taxable years beginning after December 31, 1982 , and before January 1, 2009 , over so much of such aggregate amount as was recharacterized under this paragraph (as in effect before and after the date of the enactment of the Energy Improvement and Extension Act of 2008) for preceding taxable years beginning after December 31, 1982 . the combined foreign oil and gas income of the taxpayer for the taxable year (determined without regard to this paragraph), reduced by an amount equal to the reduction under subparagraph (A) for the taxable year, or the aggregate amount of foreign oil and gas losses for preceding taxable years beginning after December 31, 2008 , over so much of such aggregate amount as was recharacterized under this paragraph for preceding taxable years beginning after December 31, 2008 . the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) taken into account in determining the combined foreign oil and gas income for such year, is exceeded by the sum of the deductions properly apportioned or allocated thereto. For purposes of clause (i), the net operating loss deduction allowable for the taxable year under section 172(a) shall not be taken into account. any foreign expropriation loss (as defined in section 172(h) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)) for the taxable year, or any loss for the taxable year which arises from fire, storm, shipwreck, or other casualty, or from theft, For purposes of subparagraph (B)(ii)(I), foreign oil extraction losses shall be determined under this paragraph as in effect on the day before the date of the enactment of the Energy Improvement and Extension Act of 2008. The term “oil and gas extraction taxes” means any income, war profits, and excess profits tax paid or accrued (or deemed to have been paid under section 960) during the taxable year with respect to foreign oil and gas extraction income (determined without regard to paragraph (4)) or loss which would be taken into account for purposes of section 901 without regard to this section. For purposes of this chapter, in determining the amount of taxable income in the case of foreign oil and gas extraction income, if the oil or gas is disposed of, or is acquired other than from the government of a foreign country, at a posted price (or other pricing arrangement) which differs from the fair market value for such oil or gas, such fair market value shall be used in lieu of such posted price (or other pricing arrangement). If the amount of the foreign oil and gas taxes paid or accrued during any taxable year exceeds the limitation provided by subsection (a) for such taxable year (hereinafter in this subsection referred to as the “unused credit year”), such excess shall be deemed to be foreign oil and gas taxes paid or accrued in the first preceding taxable year and in any of the first 10 succeeding taxable years, in that order and to the extent not deemed tax paid or accrued in a prior taxable year by reason of the limitation imposed by paragraph (2). Such amount deemed paid or accrued in any taxable year may be availed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions. the foreign oil and gas taxes paid or accrued during such taxable year, plus the amounts of the foreign oil and gas taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year; or the taxes paid or accrued (or deemed to have been paid under section 960) to all foreign countries and possessions of the United States during such taxable year, the amount of such taxes which were deemed paid or accrued in such taxable year under section 904(c) and which are attributable to taxable years preceding the unused credit year, plus the amount of the foreign oil and gas taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year. In the case of any taxable year which is an unused credit year under this subsection and which is an unused credit year under section 904(c), the provisions of this subsection shall be applied before section 904(c). For purposes of determining the amount of taxes paid or accrued in any taxable year which may be deemed paid or accrued in a preceding or succeeding taxable year under section 904(c), any tax deemed paid or accrued in such preceding or succeeding taxable year under this subsection shall be considered to be tax paid or accrued in such preceding or succeeding taxable year. In the case of any unused credit year beginning before January 1, 2009 , this subsection, as in effect on the day before the date of the enactment of the Energy Improvement and Extension Act of 2008, shall apply to unused oil and gas extraction taxes carried from such unused credit year to a taxable year beginning after December 31, 2008 . In the case of any unused credit year beginning in 2009, the amendments made to this subsection by the Energy Improvement and Extension Act of 2008 shall be treated as being in effect for any preceding year beginning before January 1, 2009 , solely for purposes of determining how much of the unused foreign oil and gas taxes for such unused credit year may be deemed paid or accrued in such preceding year. Except as provided in paragraph (2), the amendments made by this section [amending this section and section 904 of this title ] shall apply to taxable years beginning after December 31, 1982 . If, after applying old sections 907(b) and 904(f)(4) to a taxable year beginning before January 1, 1983 , the taxpayer had a separate basket foreign loss, such loss shall not be recaptured from income of a kind not taken into account in computing the amount of such separate basket foreign loss more rapidly than ratably over the 8-year period (or such shorter period as the taxpayer may select) beginning with the first taxable year beginning after December 31, 1982 . The term ‘separate basket foreign loss’ means any foreign loss attributable to activities taken into account (or not taken into account) in determining foreign oil related income (as defined in old section 907(c)(2)). An ‘old’ section is such section as in effect on the day before the date of the enactment of this Act [ Sept. 3, 1982 ].” The amendments made by this paragraph [amending this section and section 904 of this title ] shall apply, in the case of individuals, to taxable years ending after December 31, 1974 , and, in the case of corporations, to taxable years ending after December 31, 1976 . In the case of any taxable year ending after December 31, 1975 , with respect to foreign oil related income (within the meaning of section 907(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]), the overall limitation provided by section 904(a)(2) of such Code shall apply and the per-country limitation provided by section 904(a)(1) of such Code shall not apply.” The amendment made by subsection (a) [amending this section] shall apply to taxable years ending after December 31, 1976 . The amendment made by subsection (b) [amending this section] shall apply to taxable years ending after December 31, 1974 ; except that the last sentence of section 907(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall only apply to taxable years ending after December 31, 1975 . The amendment made by subsection (c) [enacting provisions set out below] shall apply to taxable years beginning after June 29, 1976 . The amendments made by subsection (d) [amending this section] shall apply to taxes paid or accrued during taxable years ending after the date of the enactment of this Act [ Oct. 4, 1976 ].” the second sentence of section 907(b) shall apply to taxable years ending after December 31, 1975 , and the provisions of section 907(f) shall apply to losses sustained in taxable years ending after December 31, 1975 .” For purposes of section 901 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], there shall be treated as income, war profits, and excess profits taxes to be taken into account under section 907(a) of such Code amounts designated as income taxes of a foreign government by such government (which otherwise would not be treated as taxes for purposes of section 901 of such Code) with respect to production-sharing contracts for the extraction of foreign oil or gas. the product of the foreign oil and gas extraction income (as defined in section 907(c) of such Code) with respect to all such production-sharing contracts multiplied by the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11 of such Code, or the excess of the total amount of foreign oil and gas extraction income (as so defined) for the taxable year multiplied by the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11 of such Code over the amount of any income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid) without regard to paragraph (1) during the taxable year with respect to foreign oil and gas extraction income. The production-sharing contracts taken into account for purposes of paragraph (1) shall be those contracts which were entered into before April 8, 1976 , for the sharing of foreign oil and gas production with a foreign government (or an entity owned by such government) with respect to which amounts claimed as taxes paid or accrued to such foreign government for taxable years beginning before June 30, 1976 , will not be disallowed as taxes. A contract described in the preceding sentence shall be taken into account under paragraph (1) only with respect to amounts (A) paid or accrued to the foreign government before January 1, 1978 , and (B) attributable to income earned before such date.”