Temporary and Proposed Regs on the Enhanced Oil Recovery Credit

 DEPARTMENT OF THE TREASURY

 ACTION: Temporary regulations.

 SUMMARY: This document contains temporary regulations that provide procedures whereby an operator or designated owner of an enhanced oil recovery project certifies to the Internal Revenue Service that a project satisfies the requirements of section 43(c) of the Internal Revenue Code. The text of the temporary regulations set forth in this document also serves as the text of the proposed regulations cross-referenced in the notice of proposed rulemaking in the proposed rules section of this issue of the Federal Register.

 DATE: These regulations are effective on January 1, 1991 and generally apply to taxable years beginning after December 31, 1990.

 FOR FURTHER INFORMATION CONTACT: Brenda M. Stewart, (202) 566-4919 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

PAPERWORK REDUCTION ACT

These regulations are being issued without prior notice and public procedure pursuant to the Administrative Procedure Act (5 U.S.C. section 553). For this reason, the collection of information requirement contained in these regulations has been reviewed and, pending receipt and evaluation of public comments, approved by the Office of Management and Budget (OMB) under control number 1545-1292. The estimated average annual burden per respondent is 73 hours.

 These estimates approximate the average time expected to be necessary to collect the information required by this regulation. They are based on the information available to the Internal Revenue Service. Individual respondents may require more time or less time, depending on their particular circumstances.

 For further information on this collection of information requirement, where to submit comments on this requirement, the accuracy of the estimated burden, and where to submit suggestions for reducing this burden, please refer to the preamble to the cross- referenced notice of proposed rulemaking published in the Proposed Rules section of this issue of the Federal Register.

BACKGROUND

 This document amends the Income Tax Regulations (26 CFR part 1) to provide procedures whereby an operator or designated owner of an enhanced oil recovery project certifies to the Internal Revenue Service that a project meets the definition of a qualified enhanced oil recovery project under section 43 of the Internal Revenue Code. The temporary regulations reflect the addition of section 43(c)(2)(B) to the Code by section 11511(a) of the Omnibus Budget Reconciliation Act of 1990, Pub. L. 101-508.

EXPLANATION OF PROVISIONS

 Section 43(c)(2)(B) provides that a project is not treated as a qualified enhanced oil recovery project unless the operator submits a certification at the time and in the manner prescribed by the Secretary. Section 1.43-3T specifies the certification requirements and is being issued as a temporary regulation, effective for taxable years beginning after December 31, 1990. For the first year in which the enhanced oil recovery credit (the "credit") is allowable with respect to a project, the operator, or any operating mineral interest owner designated by the operator ("designated owner"), must submit a petroleum engineer's certification. The temporary regulations require relatively detailed information to be filed in a project's first year. For subsequent years in which the credit is allowable, the operator or designated owner must certify that the project is being implemented substantially in accordance with the petroleum engineer's certification.

 The petroleum engineer's certification and the annual operator's certification must be submitted to the Internal Revenue Service Center, Austin, Texas, not later than the last date prescribed by law (including extensions) for filing the operator's or designated owner's federal income tax return. A failure by the operator or designated owner to timely file a petroleum engineer's certification or an annual operator's certification will not preclude taxpayers from claiming the credit; however, the credit with respect to any project will be allowed only after the appropriate certifications are submitted.

 Upon the termination of a qualified enhanced oil recovery project, a notice of project termination must be submitted to the Internal Revenue Service Center, Austin, Texas, not later than the date prescribed by law (including extensions) for filing the operator's or designated owner's federal income tax return for the year in which the project terminates. The notice of project termination is needed to assist the Internal Revenue Service in ensuring that taxpayers do not continue to claim the credit with respect to a terminated project.

SPECIAL ANALYSES

 It has been determined that these rules are not major rules as defined in Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations, and, therefore, a final Regulatory Flexibility Analysis is not required.

 Pursuant to section 7805(f) of the Internal Revenue Code, these regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

DRAFTING INFORMATION

 The principal author of these regulations is Brenda M. Stewart of the Office of Assistant Chief Counsel (Passthroughs and Special Industries), Internal Revenue Service. However, personnel from other offices of the Internal Revenue Service and Treasury Department participated in developing the regulations, both on matters of substance and style.

LIST OF SUBJECTS

26 CFR 1.37-1 through 1.44A-4

 Credits, Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

 Reporting and recordkeeping requirements.

Treasury Decision 8384

AMENDMENTS TO THE REGULATIONS

Accordingly, title 26, chapter 1, parts 1 and 602, are amended as follows:

PART 1 -- INCOME TAX; TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1953

Paragraph. 1. The authority for part 1 is amended by adding the following citation:

Authority: Sec. 7805, 68A Stat. 917 (26 U.S.C. 7805) * * * Section 1.43-3T also issued under 26 U.S.C. 43(c)(2)(B) * * *

Par. 2. New section 1.43-3T is added to read as follows:

SECTION 1.43-3T CERTIFICATION (TEMPORARY).

(a) Petroleum engineer's certification of a project --

(1) IN GENERAL. A petroleum engineer must certify, under penalties of perjury, that an enhanced oil recovery project meets the requirements of section 43(c)(2)(A). A petroleum engineer's certification must be submitted for each project. The petroleum engineer certifying a project must be duly registered or certified in any state.

(2) TIMING OF CERTIFICATION. The operator of an enhanced oil recovery project or any other operating mineral interest owner designated by the operator ("designated owner") must submit a petroleum engineer's certification to the Internal Revenue Service Center, Austin, Texas, or such other place as may be designated by revenue procedure or other published guidance, not later than the last date prescribed by law (including extensions) for filing the operator's or designated owner's federal income tax return for the first taxable year for which the enhanced oil recovery credit (the "credit") is allowable. The operator may designate any other operating mineral interest owner (the "designated owner") to file the petroleum engineer's certification.

(3) CONTENT OF CERTIFICATION -- (i) IN GENERAL. A petroleum engineer's certification must contain the following information --

(A) The name and taxpayer identification number of the operator or the designated owner submitting the certification;

(B) A statement identifying the project, including its geographic location;

(C) A statement that the project involves a tertiary recovery method (as defined in section 43(c)(2)(A)(i)) and a description of the process used, including --

(1) A description of the implementation and operation of the project sufficient to establish that it is implemented and operated in accordance with sound engineering practices and

(2) The date on which the first injection of liquids, gases, or other matter occurred or is expected to occur;

(D) A statement that the application of a qualified tertiary recovery method or methods is expected to result in more than an insignificant increase in the amount of crude oil that ultimately will be recovered, including --

(1) Data on crude oil reserve estimates covering the project area with and without the enhanced oil recovery process,

(2) Production history prior to implementation of the project and estimates of production after implementation of the project, and

(3) An adequate delineation of the reservoir, or portion of the reservoir, from which the ultimate recovery of crude oil is expected to be increased as a result of the implementation and operation of the project; and

(E) A statement that the petroleum engineer believes that the project is a qualified enhanced oil recovery project within the meaning of section 43(c)(2)(A).

(ii) ADDITIONAL INFORMATION FOR SIGNIFICANTLY EXPANDED PROJECTS. The petroleum engineer's certification for a project that is significantly expanded must in addition contain --

(A) If the expansion affects acreage that was substantially unaffected by a previously implemented project, a precise delineation of the acreage affected by the previously implemented project;

(B) If the expansion affects a reservoir that was unaffected by a previously implemented project, a precise delineation of the reservoir affected by the previously implemented project; or

(C) If the expansion involves the implementation of an enhanced oil recovery project more than 36 months after the termination of a qualified tertiary recovery method that was applied before January 1, 1991, the date on which the previous tertiary recovery method terminated and an explanation of the data or assumptions relied upon to determine the termination date.

(b) OPERATOR'S CONTINUED CERTIFICATION OF A PROJECT -- (1) IN GENERAL. For each taxable year following the taxable year for which the petroleum engineer's certification is submitted, the operator or designated owner must certify, under penalties of perjury, that an enhanced oil recovery project continues to be implemented substantially in accordance with the petroleum engineer's certification submitted for the project. An operator's certification must be submitted for each project.

(2) TIMING OF CERTIFICATION. The operator or designated owner of an enhanced oil recovery project must submit an operator's certification to the Internal Revenue Service Center, Austin, Texas, or such other place as may be designated by revenue procedure or other published guidance, not later than the last date prescribed by law (including extensions) for filing the operator's or designated owner's federal income tax return for any taxable year after the taxable year for which the petroleum engineer's certification is filed.

(3) CONTENT OF CERTIFICATION. An operator's certification must contain the following information --

(i) The name and taxpayer identification number of the operator or the designated owner submitting the certification;

(ii) A statement identifying the project, including its geographical location and the date on which the petroleum engineer's certification was filed;

(iii) A statement that the project continues to be implemented substantially in accordance with the petroleum engineer's certification (as described in paragraph (a) of this section) submitted for the project; and

(iv) A description of any significant change or anticipated change in the information submitted under paragraph (a)(3) of this section, including a change in the date on which the first injection of liquids, gases, or other matter occurred or is expected to occur.

(c) NOTICE OF PROJECT TERMINATION -- (1) IN GENERAL. If the application of a tertiary recovery method is terminated, the operator or designated owner must submit a notice of project termination to the Internal Revenue Service.

(2) TIMING OF NOTICE. The operator or designated owner of an enhanced oil recovery project must submit the notice of project termination to the Internal Revenue Service Center, Austin, Texas, or such other place as may be designated by revenue procedure or other published guidance, not later than the last date prescribed by law (including extensions) for filing the operator's or designated owner's federal income tax return for the taxable year in which the project terminates.

(3) CONTENT OF NOTICE. A notice of project termination must contain the following information --

(i) The name and taxpayer identification number of the operator or the designated owner submitting the notice;

(ii) A statement identifying the project, including its geographical location and the date on which the petroleum engineer's certification was filed; and

(iii) The date on which the application of the tertiary recovery method was terminated.

(d) FAILURE TO SUBMIT CERTIFICATION. If a petroleum engineer's certification (as described in paragraph (a) of this section) or an operator's certification (as described in paragraph (b) of this section) is not submitted in the time or manner prescribed by this section, the credit will be allowed only after the appropriate certifications are submitted.

(e) EFFECTIVE DATE. Section 1.43-3T is effective for taxable years beginning after December 31, 1990.

PART 602 -- OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Section 602.101 [Amended]

Par 4. Section 602.101(c) is amended by adding the following citation:

Section 1.43-3T(a)(3) . . . . 1545-1292" and "section 1.43-3T(b)(3) . . . . 1545-1292".