21 July 2016 Enhanced oil recovery credit returns for 2016 — No increase in marginal production depletion rate The EOR credit is fully available for 2016 after being phased out for 10 years. 2015's significant drop in crude oil prices places the reference price below the inflation adjusted price threshold. Section 43(a) provides an EOR credit equal to 15% of a taxpayer's qualified EOR cost. That credit is phased out if the "reference price" for crude oil during the previous year is greater than $28 multiplied by the "inflation adjustment factor" for the current year. Because the reference price for the 2015 calendar year ($ 44.39) does not exceed $ 28 multiplied by the inflation adjustment factor for the 2015 calendar year ($ 28 multiplied by 1.6464 is $ 46.01), the EOR credit for qualified costs paid or incurred in 2016 is determined without regard to the phase-out for crude oil price increases. The credit is fully available for 2016 production. See Notice 2016-44. Section 613A(c)(6) makes certain volumes of crude oil and gas produced from marginal properties available for percentage depletion. The "applicable percentage" for that depletion is 15%, plus one percentage point for each whole dollar by which $20 exceeds the "reference price" for crude oil for the previous year. Because $20 does not exceed the crude oil reference price for calendar year 2015 ($44.39), the applicable percentage for marginal production remains at 15% for calendar year 2016. See Notice 2016-45. The EOR credit is fully available for 2016 production due to the significant drop in crude oil prices during 2015. The credit had been 100% phased-out starting in 2006.
Document ID: 2016-1265 | |||||
