AMENDMENTS TO RULES RELATING TO LIMITATION ON PERCENTAGE DEPLETION IN CASE OF OIL AND GAS WELLS, TRANSFERS OF OIL AND GAS PROPERTY WITHIN THE SAME CONTROLLED GROUP OR FAMILY.

SEC. 2115. AMENDMENTS TO RULES RELATING TO LIMITATION ON PERCENTAGE DEPLETION IN CASE OF OIL AND GAS WELLS, TRANSFERS OF OIL AND GAS PROPERTY WITHIN THE SAME CONTROLLED GROUP OR FAMILY. (a) Retailer Exclusion.— Paragraph (2) of section 613A(d) (relating to the retailer exclusion) is amended by inserting “(excluding bulk sales of such items to commercial or industrial users)” after “natural gas” where it first appeal’s, and by adding at the end thereof the following: “Notwithstanding the preceding sentence this paragraph shall not apply in any case where the combined gross receipts from the sale of such oil, natural gas, or any product derived therefrom, for the taxable year of all retail outlets taken into account for purposes of this paragraph do not exceed $5,000,000. For purposes of this paragraph, sales of oil, natural gas, or any product derived from oil or natural gas shall not include sales made of such items outside the United States, if no domestic production of the taxpayer 90 STAT. 1908or a related person is exported during the taxable year or the immediately preceding taxable year.” (b) Transfer Rule.— (1) In general.— Subparagraph (B) of section 613A(c)(9) (relating to exceptions to the transfer rule) is amended by striking out “or” at the end of clause (i), by striking out the period at the end of clause (ii) and inserting in lieu thereof “, or”, and by adding at the end thereof the following new clause: “(iii) a change of beneficiaries of a trust by reason of the death, birth, or adoption of any vested beneficiary if the transferee was a beneficiary of such trust or is a lineal descendant of the settlor or any other vested beneficiary of such trust, except in the case of any trust where any beneficiary of such trust is a member of the family (as defined in section 267 (c)(4)) of a settlor who created inter vivos and testamentary trusts for members of the family and such settlor died within the last six days of the fifth month in 1970, and the law in the jurisdiction in which such trust was created requires all or a portion of the gross or net proceeds of any royalty or other interest in oil, gas, or other mineral representing any percentage depletion allowance to be allocated to the principal of the trust.” (2) Conforming amendments.— Paragraph (1) of section 613A (d) (relating to the limitation on percentage depletion based upon taxable income) is amended— (A) by striking out subparagraph (A) and inserting in lieu thereof the following: “(A) any depletion on production from an oil or gas property which is subject to the provisions of subsection (c),”, (B) by striking out “and” at the end of subparagraph (B), (C) by striking out the period at the end of subparagraph (C) and inserting in lieu thereof “, and”, and (D) by adding at the end thereof the following new subparagraph: “(D) in the ease of a trust, any distributions to its beneficiary, except in the case of any trust where any beneficiary of such trust is a member of the family (as defined in section 267 (c)(4)) of a settlor who created inter vivos and testamentary trusts for members of the family and such settlor died within the last six days of the fifth month in 1970, and the law in the jurisdiction in which such trust was created requires all or a portion of the gross or net proceeds of any royalty or other interest in oil, gas, or other mineral representing any percentage depletion allowance to be allocated to the principal of the trust.” (c) Partnership Rules.— (1) Subparagraph (D) of section 613A(c)(7) (relating to the computation of depletion in the case of partnerships) is amended to read as follows: “(D) Partnerships.— In the case of a partnership, the depletion allowance shall be computed separately by the partners and not by the partnership. The partnership shall allocate to each partner his proportionate share of the adjusted basis of each partnership oil or gas property. The allocation 90 STAT. 1909is to be made as of the later of the date of acquisition of the oil or gas property by the partnership, or January 1, 1975. A partner’s proportionate share of the adjusted basis of partnership property shall be determined in accordance with his interest in partnership capital or income and, in the case of an agreement described in section 704(c)(2) (relating to effect of a partnership agreement on contributed property), such share shall be determined by taking such agreement into account. Each partner shall separately keep records of his share of the adjusted basis in each oil and gas property of the partnership, adjust such share of tile adjusted basis for any depletion taken on such property, and use such adjusted basis each year in the computation of his cost depletion or in the computation of his gain or loss on the disposition of such property by the partnership. For purposes of section 732 (relating to basis of distributed property other than money), the partnership’s adjusted basis m mineral property shall be an amount equal to the sum of the partners’ adjusted basis in such property as determined under this paragraph.” (2) Subparagraph (G) of section 703(a)(2) (relating to deductions not allowed to a partnership) is amended by striking out “production subject to the provisions of section 613A(c)” and inserting in lieu thereof “wells”. (3) Subsection (a) of section 705 (relating to the determination of basis of a partner’s interest in a partnership) is amended— (A) by striking out “and” in paragraph (1)(C), (B) by striking out the period at the end of paragraph (2) and inserting in lieu thereof “; and”, and (C) by adding at the end thereof the following: “(3) decreased (but not below zero), by the amount of the partner’s deduction for depletion under section 611 with respect to oil and gas wells.” (d) Related Person.— Paragraph (3) of section 613A(d) (relating to the definition of related person) is amended by adding at the end thereof the following: “For purposes of determining a significant ownership interest, an interest owned by or for a corporation, partnership, trust, or estate shall be considered as owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries, as the case may be. (e) Transfers of Oil and Gas Property Within the Same Controlled Group or Family.— Subparagraph (B) of section 613A(c)(9) (relating to transfer of oil or gas property), as amended by subsection (b)(1), is amended— (1) by striking out “or” at the end of clause (ii), (2) by striking out the period at the end of clause (iii) and inserting in lieu thereof a comma, and (3) by adding at the end thereof the following: “(iv) a transfer of property between corporations which are members of the same controlled group of corporations (as defined in paragraph (8)(D)(i)), or “(v) a transfer of property between business entities which are under common control (within the meaning of paragraph (8)(B)) or between related persons in the same family (within the meaning of paragraph (8)(C)), or 90 STAT. 1910 “(vi) a transfer of property between a trust and related persons in the same family (within the meaning of paragraph (8)(C)) to the extent that the beneficiaries of that trust are and continue to be related persons in the family that transferred the property, and to the extent that the tentative oil quantity is allocated among the members of the family (within the meaning of paragraph (8)(C)). Clause (iv) or (v) shall apply only so long as the tentative oil quantity determined under the table contained in paragraph (3)(B) is allocated under paragraph (8) between the transferor and transferee.” (f) Effective Date.— The amendments made by this section shall take effect on January 1, 1975, and shall apply to taxable years ending after December 31, 1974.