§ 907. Special rules in case of foreign oil and gas income
(a)
Reduction in amount allowed as foreign tax under section
901
In applying section
901, the amount of any foreign oil and gas taxes paid or accrued (or deemed to have been paid) during the taxable year which would (but for this subsection) be taken into account for purposes of section
901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of—
(b)
Combined foreign oil and gas income; foreign oil and gas taxes
For purposes of this section—
(1)
Combined foreign oil and gas income
The term “combined foreign oil and gas income” means, with respect to any taxable year, the sum of—
(2)
Foreign oil and gas taxes
The term “foreign oil and gas taxes” means, with respect to any taxable year, the sum of—
(B)
any income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid or accrued under section
902 or
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.
(c)
Foreign income definitions and special rules
For purposes of this section—
(1)
Foreign oil and gas extraction income
The term “foreign oil and gas extraction income” means the taxable income derived from sources without the United States and its possessions from—
(2)
Foreign oil related income
The term “foreign oil related income” means the taxable income derived from sources outside the United States and its possessions from—
(A)
the processing of minerals extracted (by the taxpayer or by any other person) from oil or gas wells into their primary products,
(3)
Dividends, interest, partnership distribution, etc.
The term “foreign oil and gas extraction income” and the term “foreign oil related income” include—
(A)
dividends and interest from a foreign corporation in respect of which taxes are deemed paid by the taxpayer under section
902,
to the extent such dividends, interest, amounts, or distributive share is attributable to foreign oil and gas extraction income, or to foreign oil related income, as the case may be; except that interest described in subparagraph (A) shall not be taken into account in computing foreign oil and gas extraction income but shall be taken into account in computing foreign oil-related income.
(4)
Recapture of foreign oil and gas losses by recharacterizing later combined foreign oil and gas income
(A)
In general
The combined foreign oil and gas income of a taxpayer for a taxable year (determined without regard to this paragraph) shall be reduced—
The aggregate amount of such reductions shall be treated as income (from sources without the United States) which is not combined foreign oil and gas income.
(B)
Reduction for pre-2009 foreign oil extraction losses
The reduction under this paragraph shall be equal to the lesser of—
(i)
the foreign oil and gas extraction income of the taxpayer for the taxable year (determined without regard to this paragraph), or
(C)
Reduction for post-2008 foreign oil and gas losses
The reduction under this paragraph shall be equal to the lesser of—
(D)
Foreign oil and gas loss defined
(i)
In general
For purposes of this paragraph, the term “foreign oil and gas loss” means the amount by which—
(ii)
Net operating loss deduction not taken into account
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.
(iii)
Expropriation and casualty losses not taken into account
For purposes of clause (i), there shall not be taken into account—
(I)
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
(II)
any loss for the taxable year which arises from fire, storm, shipwreck, or other casualty, or from theft,
to the extent such loss is not compensated for by insurance or otherwise.
(5)
Oil and gas extraction taxes
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
902 or
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.
(d)
Disregard of certain posted prices, etc.
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).
(f)
Carryback and carryover of disallowed credits
(1)
In general
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 year,[2] 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.
(2)
Limitation
The amount of the unused foreign oil and gas taxes which under paragraph (1) may be deemed paid or accrued in any preceding or succeeding taxable year shall not exceed the lesser of—
(A)
the amount by which the limitation provided by subsection (a) for such taxable year exceeds the sum of—
(B)
the amount by which the limitation provided by section
904 for such taxable year exceeds the sum of—
(i)
the taxes paid or accrued (or deemed to have been paid under section
902 or
960) to all foreign countries and possessions of the United States during such taxable year,
(3)
Special rules
(A)
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).
(B)
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.
(4)
Transition rules for pre-2009 and 2009 disallowed credits
(A)
Pre-2009 credits
In the case of any unused credit year beginning before January 1, 2009, this subsection shall be applied to any unused oil and gas extraction taxes carried from such unused credit year to a year beginning after December 31, 2008—
(B)
2009 credits
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.
[1] So in original. The period probably should be a comma.
[2] So in original. Probably should be “years,”.