text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Oil Subsidy Elimination Act of 
  2006''.
  
  SEC. 2. FINDINGS.
  
      The Congress finds the following:
              (1) On Friday April 21, 2006, the trading price for a 
          barrel of oil reached a new record high of $75.17. As a result 
          the price of gasoline in many areas around the country jumped 
          to $3 per gallon or higher.
              (2) According to the Energy Information Administration 
          (EIA) of the Department of Energy, gas prices are expected to 
          rise nationally by at least another 25 cents in the short term.
              (3) Oil companies are receiving record profits as a result 
          of high gas prices. In 2005, ExxonMobil--the Nation's largest 
          oil company--earned a net income of $36.1 billion, up 31 
          percent from the year before. In the fourth quarter of 2005 
          alone, ExxonMobile earned $10 billion, up from the previous 
          record of $9.92 billion set by ExxonMobile in the third quarter 
          of 2005.
              (4) While high energy prices are squeezing the American 
          middle class, oil executives are receiving record compensation 
          and retirement packages. For example, the retiring chairman of 
          ExxonMobil was recently given a $400 million retirement 
          package--one of the largest in history.
              (5) In the 108th and 109th Congresses, the United States 
          Congress passed, and the President signed, legislation giving 
          billions in taxpayer dollars away to the oil industry in the 
          form of tax breaks--even as this industry continues to garner 
          record breaking profits.
              (6) At a November 9, 2005, joint hearing of the Committee 
          on Energy and Natural Resources and the Committee on 
          Environment and Public Works of the Senate, the chief executive 
          officers of the top five oil companies testified that their 
          companies did not need the Federal tax incentives included in 
          the Energy Policy Act of 2005 (Public Law 109-58).
              (7) On April 25, 2006, President Bush stated ``Record oil 
          prices and large cash flows also mean that Congress has got to 
          understand that these energy companies don't need unnecessary 
          tax breaks like the write-offs of certain geological and 
          geophysical expenditures, or the use of taxpayers' money to 
          subsidize energy companies research into deep water drilling. 
          I'm looking forward to Congress to take about $2 billion of 
          these tax breaks out of the budget over a 10-year period of 
          time. Cash flows are up. Taxpayers don't need to be paying for 
          certain of these expenses on behalf of the energy companies.''.
  
  SEC. 2. REQUIREMENTS FOR CERTAIN LARGE INTEGRATED OIL COMPANIES.
  
      (a) Revaluation of LIFO Inventories of Large Integrated Oil 
  Companies.--
              (1) General rule.--Notwithstanding any other provision of 
          law, if a taxpayer is an applicable integrated oil company for 
          its last taxable year ending in calendar year 2005, the 
          taxpayer shall--
                      (A) increase, effective as of the close of such 
                  taxable year, the value of each historic LIFO layer of 
                  inventories of crude oil, natural gas, or any other 
                  petroleum product (within the meaning of section 4611) 
                  by the layer adjustment amount, and
                      (B) decrease its cost of goods sold for such 
                  taxable year by the aggregate amount of the increases 
                  under paragraph (1).
          If the aggregate amount of the increases under paragraph (1) 
          exceed the taxpayer's cost of goods sold for such taxable year, 
          the taxpayer's gross income for such taxable year shall be 
          increased by the amount of such excess.
              (2) Layer adjustment amount.--For purposes of this 
          section--
                      (A) In general.--The term ``layer adjustment 
                  amount'' means, with respect to any historic LIFO 
                  layer, the product of--
                              (i) $18.75, and
                              (ii) the number of barrels of crude oil (or 
                          in the case of natural gas or other petroleum 
                          products, the number of barrel-of-oil 
                          equivalents) represented by the layer.
                      (B) Barrel-of-oil equivalent.--The term ``barrel-
                  of-oil equivalent'' has the meaning given such term by 
                  section 29(d)(5) (as in effect before its redesignation 
                  by the Energy Tax Incentives Act of 2005).
              (3) Application of requirement.--
                      (A) No change in method of accounting.--Any 
                  adjustment required by this section shall not be 
                  treated as a change in method of accounting.
                      (B) Underpayments of estimated tax.--No addition to 
                  the tax shall be made under section 6655 of the 
                  Internal Revenue Code of 1986 (relating to failure by 
                  corporation to pay estimated tax) with respect to any 
                  underpayment of an installment required to be paid with 
                  respect to the taxable year described in subsection (a) 
                  to the extent such underpayment was created or 
                  increased by this section.
              (4) Applicable integrated oil company.--For purposes of 
          this subsection, the term ``applicable integrated oil company'' 
          means an integrated oil company (as defined in section 
          291(b)(4) of the Internal Revenue Code of 1986) which has an 
          average daily worldwide production of crude oil of at least 
          500,000 barrels for the taxable year and which had gross 
          receipts in excess of $1,000,000,000 for its last taxable year 
          ending during calendar year 2005. For purposes of this 
          subsection all persons treated as a single employer under 
          subsections (a) and (b) of section 52 of the Internal Revenue 
          Code of 1986 shall be treated as 1 person and, in the case of a 
          short taxable year, the rule under section 448(c)(3)(B) shall 
          apply.
      (b) Elimination of Amortization of Geological and Geophysical 
  Expenditures for Major Integrated Oil Companies.--
              (1) In general.--Section 167(h) of the Internal Revenue 
          Code of 1986 is amended by adding at the end the following new 
          paragraph:
              ``(5) Nonapplication to major integrated oil companies.--
          This subsection shall not apply with respect to any expenses 
          paid or incurred for any taxable year by any integrated oil 
          company (as defined in section 291(b)(4)) which has an average 
          daily worldwide production of crude oil of at least 500,000 
          barrels for such taxable year.''.
              (2) Effective date.--The amendment made by this section 
          shall take effect as if included in the amendment made by 
          section 1329(a) of the Energy Policy Act of 2005.
      (c) Modifications of Foreign Tax Credit Rules Applicable to Large 
  Integrated Oil Companies Which Are Dual Capacity Taxpayers.--
              (1) In general.--Section 901 of the Internal Revenue Code 
          of 1986 (relating to credit for taxes of foreign countries and 
          of possessions of the United States) is amended by 
          redesignating subsection (m) as subsection (n), and by 
          inserting after subsection (l) the following new subsection:
      ``(m) Special Rules Relating to Large Integrated Oil Companies 
  Which Are Dual Capacity Taxpayers.--
              ``(1) General rule.--Notwithstanding any other provision of 
          this chapter, any amount paid or accrued by a dual capacity 
          taxpayer which is a large integrated oil company to a foreign 
          country or possession of the United States for any period shall 
          not be considered a tax--
                      ``(A) if, for such period, the foreign country or 
                  possession does not impose a generally applicable 
                  income tax, or
                      ``(B) to the extent such amount exceeds the amount 
                  (determined in accordance with regulations) which--
                              ``(i) is paid by such dual capacity 
                          taxpayer pursuant to the generally applicable 
                          income tax imposed by the country or 
                          possession, or
                              ``(ii) would be paid if the generally 
                          applicable income tax imposed by the country or 
                          possession were applicable to such dual 
                          capacity taxpayer.
                  Nothing in this paragraph shall be construed to imply 
                  the proper treatment of any such amount not in excess 
                  of the amount determined under subparagraph (B).
              ``(2) Dual capacity taxpayer.--For purposes of this 
          subsection, the term `dual capacity taxpayer' means, with 
          respect to any foreign country or possession of the United 
          States, a person who--
                      ``(A) is subject to a levy of such country or 
                  possession, and
                      ``(B) receives (or will receive) directly or 
                  indirectly a specific economic benefit (as determined 
                  in accordance with regulations) from such country or 
                  possession.
              ``(3) Generally applicable income tax.--For purposes of 
          this subsection--
                      ``(A) In general.--The term `generally applicable 
                  income tax' means an income tax (or a series of income 
                  taxes) which is generally imposed under the laws of a 
                  foreign country or possession on income derived from 
                  the conduct of a trade or business within such country 
                  or possession.
                      ``(B) Exceptions.--Such term shall not include a 
                  tax unless it has substantial application, by its terms 
                  and in practice, to--
                              ``(i) persons who are not dual capacity 
                          taxpayers, and
                              ``(ii) persons who are citizens or 
                          residents of the foreign country or possession.
              ``(4) Large integrated oil company.--For purposes of this 
          subsection, the term `large integrated oil company' means, with 
          respect to any taxable year, an integrated oil company (as 
          defined in section 291(b)(4)) which--
                      ``(A) had gross receipts in excess of 
                  $1,000,000,000 for such taxable year, and
                      ``(B) has an average daily worldwide production of 
                  crude oil of at least 500,000 barrels for such taxable 
                  year.''
              (2) Effective date.--
                      (A) In general.--The amendments made by this 
                  subsection shall apply to taxes paid or accrued in 
                  taxable years beginning after the date of the enactment 
                  of this Act.
                      (B) Contrary treaty obligations upheld.--The 
                  amendments made by this subsection shall not apply to 
                  the extent contrary to any treaty obligation of the 
                  United States.
  
  SEC. 3. REPEAL OF TAX SUBSIDIES ENACTED BY THE ENERGY POLICY ACT OF 
                2005 FOR OIL AND GAS.
  
      (a) Repeal.--The following provisions, and amendments made by such 
  provisions, of the Energy Policy Act of 2005 are hereby repealed:
              (1) Section 1323 (relating to temporary expensing for 
          equipment used in refining of liquid fuels).
              (2) Section 1328 (relating to determination of small 
          refiner exception to oil depletion deduction).
              (3) Section 1329 (relating to amortization of geological 
          and geophysical expenditures).
      (b) Administration of Internal Revenue Code of 1986.--The Internal 
  Revenue Code of 1986 shall be applied and administered as if the 
  provisions, and amendments, specified in subsection (a) had never been 
  enacted.
target: Oil Subsidy Elimination Act of 2006 - Requires oil companies with annual gross receipts of $1 billion or more and average daily crude oil production levels of at least 500,000 barrels (defined as large integrated oil companies) to revalue, according to a specified formula, their 2005 LIFO inventories of crude oil, natural gas, or other petroleum products.
  
  Amends the Internal Revenue Code to deny large integrated oil companies: (1) amortization of geological and geophysical expenditures; and (2) foreign tax credits for certain payments made to foreign countries.
  
  Repeals provisions of the Energy Policy Act of 2005 relating to: (1) expensing of crude oil refinery property; (2) exemptions from limitations on oil depletion deductions for certain small crude oil refiners; and (3) amortization of geological and geophysical expenditures.
feat_title: To amend the Internal Revenue Code of 1986 to repeal certain tax incentives for oil companies.