GAIN FROM DISPOSITION OF INTEREST IN OIL OR GAS PROPERTY.

SEC. 205. GAIN FROM DISPOSITION OF INTEREST IN OIL OR GAS PROPERTY. (a) Recapture Rules.— Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by adding at the end thereof the following new section: “SEC. 1254. GAIN FROM DISPOSITION OF INTEREST IN OIL OR GAS PROPERTY. “(a) General Rule.— “(1) Ordinary income.— If oil or gas property is disposed of after December 31, 1975, the lower of— 90 STAT. 1534 “(A) the aggregate amount of expenditures after December 31, 1975, which are allocable to such property and which have been deducted as intangible drilling and development costs under section 263(c) by the taxpayer or any other person and winch (but for being so deducted) would be reflected in the adjusted basis of such property, adjusted as provided in paragraph (4), or “(B) the excess of— “(i) the amount realized (in the case of a sale, exchange, or involuntary conversion), or the fair market value of the interest (in the case of any other disposition, over “(ii) the adjusted basis of such interest, shall be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. “(2) Disposition of portion of property.— For purposes of paragraph (1)— “(A) in the case of the disposition of a portion of an oil or gas property (other than an undivided interest), the entire amount of the aggregate expenditures described in paragraph (1)(A) with respect to such property shall be treated as allocable to such portion to the extent of the amount of the gain to which paragraph (1) applies. “(B) in the case of the disposition of an undivided interest in an oil or gas property (or a portion thereof), a proportionate part, of the expend!tines described in paragraph (1)(A) with respect to such property shall be treated as allocable to such undivided interest to the extent of the amount of the gain to which paragraph (1) applies. This paragraph shall not apply to any expenditures to the extent the taxpayer establishes to the satisfaction of the Secretary that such expenditures do not relate to the portion (or interest therein) disposed of. “(3) Oil or gas property.— The term ‘oil or gas property’ means any property (within the meaning of section 614) with respect to which any expenditures described in paragraph (1)(A) are properly chargeable. “(4) Special rule for paragraph (1)(a).— In applying paragraph (1)(A), the amount deducted for intangible drilling and development costs and allocable to the interest disposed of shall be reduced by the amount (if any) by which the deduction for depletion under section 611 with respect to such interest would have been increased if such costs incurred (after December 31, 1975) had been charged to capital account rather than, deducted. “(b) Special Rules Under Regulations.— Under regulations prescribed by the Secretary— “(1) rules similar to the rules of subsection (g) of section 617 and to the rules of subsections (b) and (c) of section 1245 shall be applied for purposes of this section; and “(2) in the case of the sale or exchange of stock in an electing small business corporation (as defined in section 1371 (b)), rules similar to the rules of section 751 shall be applied to that portion of the excess of the amount realized over the adjusted basis of the stock which is attributable to expenditures referred to in subsection (a)(1)(A) of this section.” 90 STAT. 1535 (b) Partnerships.— Section 751(c) (relating to definition of unrealized receivables) is amended by striking out “and farm land (as defined in section 1232(a))” and inserting in lieu thereof “farm land (as defined in section 1252(a)), and an oil or gas property (described in section 1254)”, and by striking out “or 1252(a)” and inserting in lien thereof “1252 (a), or 1254 (a)”. (c) Technical Amendments.— (1) The following provisions are each amended by striking out “or 1252(a)” and inserting in lieu thereof “1252(a), or 1254 (a)”- (A) the second sentence of section 170(e)(1); (B) section 301(b)(1)(B)(ii); (C) section 301(d)(2)(B); (D) section 312(c)(3); and (E) section 453(d)(4)(B). (2) Section 341(e)(12) is amended by striking out “and 1252 (a)” and inserting in lieu thereof “1252(a), and 1254(a)”. (3) Section 163(d)(3)(A)(iii) is amended by striking out “and 1250” and inserting in lieu thereof “1250, and 1254”. (d) Clerical Amendment.— The table of sections for part IV of subchapter P of chapter 1 is amended by adding at the end thereof the following new item: “Sec. 1254. Gain from disposition of interest in oil or gas property.” (e) Effective Date.— The amendments made by this section shall apply with respect to taxable years ending after December 31, 1975.