§ 57. Items of tax preference
(a)
General rule
For purposes of this part, the items of tax preference determined under this section are—
(1)
Depletion
With respect to each property (as defined in section
614), the excess of the deduction for depletion allowable under section
611 for the taxable year over the adjusted basis of the property at the end of the taxable year (determined without regard to the depletion deduction for the taxable year). Effective with respect to taxable years beginning after December 31, 1992, this paragraph shall not apply to any deduction for depletion computed in accordance with section
613A
(c).
(2)
Intangible drilling costs
(A)
In general
With respect to all oil, gas, and geothermal properties of the taxpayer, the amount (if any) by which the amount of the excess intangible drilling costs arising in the taxable year is greater than 65 percent of the net income of the taxpayer from oil, gas, and geothermal properties for the taxable year.
(B)
Excess intangible drilling costs
For purposes of subparagraph (A), the amount of the excess intangible drilling costs arising in the taxable year is the excess of—
(C)
Net income from oil, gas, and geothermal properties
For purposes of subparagraph (A), the amount of the net income of the taxpayer from oil, gas, and geothermal properties for the taxable year is the excess of—
(D)
Paragraph applied separately with respect to geothermal properties and oil and gas properties
This paragraph shall be applied separately with respect to—
(E)
Exception for independent producers
In the case of any oil or gas well—
(i)
In general
In the case of any taxable year beginning after December 31, 1992, this paragraph shall not apply to any taxpayer which is not an integrated oil company (as defined in section
291
(b)(4)).
(ii)
Limitation on benefit
The reduction in alternative minimum taxable income by reason of clause (i) for any taxable year shall not exceed 40 percent (30 percent in case of taxable years beginning in 1993) of the alternative minimum taxable income for such year determined without regard to clause (i) and the alternative tax net operating loss deduction under section
56
(a)(4).
(5)
Tax-exempt interest
(A)
In general
Interest on specified private activity bonds reduced by any deduction (not allowable in computing the regular tax) which would have been allowable if such interest were includible in gross income.
(C)
Specified private activity bonds
(i)
In general
For purposes of this part, the term “specified private activity bond” means any private activity bond (as defined in section
141) which is issued after August 7, 1986, and the interest on which is not includible in gross income under section
103.
(ii)
Exception for qualified 501(c)(3) bonds
For purposes of clause (i), the term “private activity bond” shall not include any qualified 501(c)(3) bond (as defined in section
145).
(iii)
Exception for certain housing bonds
For purposes of clause (i), the term “private activity bond” shall not include any bond issued after the date of the enactment of this clause if such bond is—
(I)
an exempt facility bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide qualified residential rental projects (as defined in section
142
(d)),
The preceding sentence shall not apply to any refunding bond unless such preceding sentence applied to the refunded bond (or in the case of a series of refundings, the original bond).
(iv)
Exception for refundings
For purposes of clause (i), the term “private activity bond” shall not include any refunding bond (whether a current or advance refunding) if the refunded bond (or in the case of a series of refundings, the original bond) was issued before August 8, 1986.
(v)
Certain bonds issued before September 1, 1986
For purposes of this subparagraph, a bond issued before September 1, 1986, shall be treated as issued before August 8, 1986, unless such bond would be a private activity bond if—
(vi)
Exception for bonds issued in 2009 and 2010
(I)
In general
For purposes of clause (i), the term “private activity bond” shall not include any bond issued after December 31, 2008, and before January 1, 2011.
(6)
Accelerated depreciation or amortization on certain property placed in service before January 1, 1987
The amounts which would be treated as items of tax preference with respect to the taxpayer under paragraphs (2), (3), (4), and (12) of this subsection (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986). The preceding sentence shall not apply to any property to which section
56
(a)(1) or (5) applies.
(7)
Exclusion for gains on sale of certain small business stock
An amount equal to 7 percent of the amount excluded from gross income for the taxable year under section
1202.
(b)
Straight line recovery of intangibles defined
For purposes of paragraph (2) of subsection (a)—
(1)
In general
The term “straight line recovery of intangibles”, when used with respect to intangible drilling and development costs for any well, means (except in the case of an election under paragraph (2)) ratable amortization of such costs over the 120-month period beginning with the month in which production from such well begins.
(2)
Election
If the taxpayer elects with respect to the intangible drilling and development costs for any well, the term “straight line recovery of intangibles” means any method which would be permitted for purposes of determining cost depletion with respect to such well and which is selected by the taxpayer for purposes of subsection (a)(2).