IPAA Access - Fall/Winter 2017- 2018 - 15

Feature: Tax Facts

Needs to
Retain Support for American Investment
The Tax Code Impacts America's
Energy Production
The federal tax code recognizes the concepts of capital
formation and capital recovery, encouraging investment in
capital-intensive American industries - like oil and natural gas
production. This ensures a stable, American energy supply and a
vibrant manufacturing base.

The Tax Code Works for American Energy
Federal oil and natural gas tax policy works and results
in an increasing amount of American oil and natural gas
development - decreasing the United States' reliance on
imported sources of energy for the first time in decades. Any tax
reform proposal that eliminates key current tax provisions for
independent producers could result in fewer wells drilled and
the premature termination of existing wells in the United States.

Common Business Deductions for
America's Independent Producers are not
Subsidies Deducting Business Expenses
and Receiving Subsidies are Different
Generally, the U.S. Code taxes businesses on net income.
Businesses, across sectors of the economy, are taxed on
earnings after the costs of doing business (expenses) are
deducted. Conversely, subsidies are either targeted reductions
of taxes owed or direct payments from the government.

Expensing Drilling Costs
Independent producers may immediately deduct those
intangible drilling costs (IDCs) associated with drilling for
natural gas and oil that have no salvage value - a provision in
the tax code since 1913. IDCs are 65 to 80 percent of the capital
expenditures of independent producers. Eliminating IDCs will
decrease American jobs and energy production.

Percentage Depletion
All mineral natural resources are eligible for a Percentage
Depletion income tax deduction to reflect the decreasing value
of the resource as it is produced. Percentage Depletion allows
independent producers to reinvest cash into the expenses of
existing wells and redeploy capital to drill new wells. Oil and
natural gas Percentage Depletion is highly limited and only
applies to smaller independent producers and to royalty owners.
These taxpayers, who typically file as individuals, should not be
penalized through tax reforms that will result in the loss of these
important American natural resource assets.

Passive Loss Exception for
Working Interests
The tax code enables working interest owners in oil and
natural gas production to achieve some parity between their
investments and those of corporate shareholders. Counting
any working interest investment losses as active instead
of passive allows individual investors to treat the normal
business deductions from their investment in the same way
as corporations. If tax reform retains the active-passive
distinctions, this exception should be continued.

Tax Reform That Impedes American
Natural Gas and Oil Production is Bad Policy
Congress faces a key question - it can either promote or
impede oil and natural gas development in the United States.
Maintaining oil and natural gas tax provisions is critical to
American development.
Current Congressional tax reform proposals embrace the
concept of encouraging American investment through lower
tax rates and faster depreciation of capital assets. As these
proposals develop the policies that will shape future American
investment, it is essential that they reflect the positive aspects
of the current federal tax code that support the production of
American oil and natural gas.  ●
www.ipaa.org IPAA ACCESS MAGAZINE 15


http://www.ipaa.org

Table of Contents for the Digital Edition of IPAA Access - Fall/Winter 2017- 2018

President’s Message
Tax Reform
Tax Reform Facts
87th Midyear Meeting
On the Road
Index of Advertisers
IPAA Access - Fall/Winter 2017- 2018 - Intro
IPAA Access - Fall/Winter 2017- 2018 - bellyband1
IPAA Access - Fall/Winter 2017- 2018 - bellyband2
IPAA Access - Fall/Winter 2017- 2018 - cover1
IPAA Access - Fall/Winter 2017- 2018 - cover2
IPAA Access - Fall/Winter 2017- 2018 - 3
IPAA Access - Fall/Winter 2017- 2018 - 4
IPAA Access - Fall/Winter 2017- 2018 - 5
IPAA Access - Fall/Winter 2017- 2018 - 6
IPAA Access - Fall/Winter 2017- 2018 - 7
IPAA Access - Fall/Winter 2017- 2018 - 8
IPAA Access - Fall/Winter 2017- 2018 - President’s Message
IPAA Access - Fall/Winter 2017- 2018 - Tax Reform
IPAA Access - Fall/Winter 2017- 2018 - 11
IPAA Access - Fall/Winter 2017- 2018 - 12
IPAA Access - Fall/Winter 2017- 2018 - 13
IPAA Access - Fall/Winter 2017- 2018 - 14
IPAA Access - Fall/Winter 2017- 2018 - Tax Reform Facts
IPAA Access - Fall/Winter 2017- 2018 - 87th Midyear Meeting
IPAA Access - Fall/Winter 2017- 2018 - 17
IPAA Access - Fall/Winter 2017- 2018 - On the Road
IPAA Access - Fall/Winter 2017- 2018 - 19
IPAA Access - Fall/Winter 2017- 2018 - 20
IPAA Access - Fall/Winter 2017- 2018 - 21
IPAA Access - Fall/Winter 2017- 2018 - Index of Advertisers
IPAA Access - Fall/Winter 2017- 2018 - cover3
IPAA Access - Fall/Winter 2017- 2018 - cover4
IPAA Access - Fall/Winter 2017- 2018 - outsert1
IPAA Access - Fall/Winter 2017- 2018 - outsert2
IPAA Access - Fall/Winter 2017- 2018 - outsert3
IPAA Access - Fall/Winter 2017- 2018 - outsert4
https://www.nxtbook.com/naylor/PAAB/PAAT0118
https://www.nxtbook.com/naylor/PAAB/PAAT0317
https://www.nxtbook.com/naylor/PAAB/PAAT0217
https://www.nxtbook.com/naylor/PAAB/PAAT0117
https://www.nxtbook.com/naylor/PAAB/PAAT0316
https://www.nxtbook.com/naylor/PAAB/PAAT0216
https://www.nxtbook.com/naylor/PAAB/PAAT0116
https://www.nxtbook.com/naylor/PAAB/PAAT0315
https://www.nxtbook.com/naylor/PAAB/PAAT0215
https://www.nxtbook.com/naylor/PAAB/PAAT0115
https://www.nxtbookmedia.com