Alternative minimum tax (ANT) provisions in federal omnibus energy legislation likely would increase U.S. exploration and development, a major accounting firm's national director of energy industry taxation says.
"If language proposed in HR 776 by Rep. Bill Archer (R-Tex.) remains intact, producers should benefit substantially because they will be allowed to drill more wells without additional tax" said Coopers & Lybrand's John Swords.
Swords said Archer's proposal through 1997 effectively would.
- Eliminate for independent operators intangible drilling costs (IDCs) and percentage depletion as preference items for calculating AMT.
- Repeal corporate adjustments to current earnings for IDCs and percentage depletion.
"Even temporary elimination of IDCs and percentage depletion preferences in producers' AMT calculations would be a big improvement over current law," Swords said. There is no question the AMT provisions for producers would provide needed incentives to increase domestic drilling over current levels."
Swords said IDC preference elimination is limited to 40% -30% in 1993--of alternative minimum taxable income.
"New investors will not benefit as much as oil producers because of this limitation because they would not yet have oil and gas income," he said.
Although AMT and adjusted current earnings language in HR 776 are favorable, Swords said, other items, including provisions preventing states from setting production limits and preventing exploration on most of the U.S. Outer continental Shelf, could make the overall bill unfavorable to independents. "We hope these provisions will be stricken or favorably changed in the legislative conference on the bill."
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