ELIMINATION OF THE DIFFERENT TREATMENT OF FOREIGN OIL AND GAS EXTRACTION INCOME AND FOREIGN OIL RELATED INCOME FOR PURPOSES OF THE FOREIGN TAX CREDIT.

SEC. 402. ELIMINATION OF THE DIFFERENT TREATMENT OF FOREIGN OIL AND GAS EXTRACTION INCOME AND FOREIGN OIL RELATED INCOME FOR PURPOSES OF THE FOREIGN TAX CREDIT.(a) In General.—Subsections (a) and (b) of section 907 (relating to special rules in case of foreign oil and gas income) are amended to read as follows:“(a) Reduction in Amount Allowed as Foreign Tax Under Section 901.—In applying section 901, the amount of any foreign oil and gas taxes paid or accrued (or deemed to have been paid) during the taxable year which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of—“(1) the amount of the combined foreign oil and gas income for the taxable year,“(2) multiplied by—“(A) in the case of a corporation, the percentage which is equal to the highest rate of tax specified under section 11(b), or“(B) in the case of an individual, a fraction the numerator of which is the tax against which the credit under section 901(a) is taken and the denominator of which is the taxpayer’s entire taxable income.“(b) Combined Foreign Oil and Gas Income; Foreign Oil and Gas Taxes.—For purposes of this section—“(1) Combined foreign oil and gas income.—The term ‘combined foreign oil and gas income’ means, with respect to any taxable year, the sum of—“(A) foreign oil and gas extraction income, and“(B) foreign oil related income.“(2) Foreign oil and gas taxes.—The term ‘foreign oil and gas taxes’ means, with respect to any taxable year, the sum of—“(A) oil and gas extraction taxes, and“(B) any income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid or accrued under section 902 or 960) during the taxable year with respect to foreign oil related income (determined without regard to subsection (c)(4)) or loss which would be taken into account for purposes of section 901 without regard to this section.”.(b) Recapture of Foreign Oil and Gas Losses.—Paragraph (4) of section 907(c) (relating to recapture of foreign oil and gas extraction losses by recharacterizing later extraction income) is amended to read as follows:“(4) Recapture of foreign oil and gas losses by recharacterizing later combined foreign oil and gas income.—“(A) In general.—The combined foreign oil and gas income of a taxpayer for a taxable year (determined without regard to this paragraph) shall be reduced—“(i) first by the amount determined under subparagraph (B), and“(ii) then by the amount determined under subparagraph (C).122 STAT. 3853The aggregate amount of such reductions shall be treated as income (from sources without the United States) which is not combined foreign oil and gas income.“(B) Reduction for pre-2009 foreign oil extraction losses.—The reduction under this paragraph shall be equal to the lesser of—“(i) the foreign oil and gas extraction income of the taxpayer for the taxable year (determined without regard to this paragraph), or“(ii) the excess of—“(I) the aggregate amount of foreign oil extraction losses for preceding taxable years beginning after December 31, 1982, and before January 1, 2009, over“(II) so much of such aggregate amount as was recharacterized under this paragraph (as in effect before and after the date of the enactment of the Energy Improvement and Extension Act of 2008) for preceding taxable years beginning after December 31, 1982.“(C) Reduction for post-2008 foreign oil and gas losses.—The reduction under this paragraph shall be equal to the lesser of—“(i) the combined foreign oil and gas income of the taxpayer for the taxable year (determined without regard to this paragraph), reduced by an amount equal to the reduction under subparagraph (A) for the taxable year, or“(ii) the excess of—“(I) the aggregate amount of foreign oil and gas losses for preceding taxable years beginning after December 31, 2008, over“(II) so much of such aggregate amount as was recharacterized under this paragraph for preceding taxable years beginning after December 31, 2008.“(D) Foreign oil and gas loss defined.—“(i) In general.—For purposes of this paragraph, the term ‘foreign oil and gas loss’ means the amount by which—“(I) the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) taken into account in determining the combined foreign oil and gas income for such year, is exceeded by“(II) the sum of the deductions properly apportioned or allocated thereto.“(ii) Net operating loss deduction not taken into account.—For purposes of clause (i), the net operating loss deduction allowable for the taxable year under section 172(a) shall not be taken into account.“(iii) Expropriation and casualty losses not taken into account.—For purposes of clause (i), there shall not be taken into account—122 STAT. 3854“(I) any foreign expropriation loss (as defined in section 172(h) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)) for the taxable year, or“(II) any loss for the taxable year which arises from fire, storm, shipwreck, or other casualty, or from theft,to the extent such loss is not compensated for by insurance or otherwise.“(iv) Foreign oil extraction loss.—For purposes of subparagraph (B)(ii)(I), foreign oil extraction losses shall be determined under this paragraph as in effect on the day before the date of the enactment of the Energy Improvement and Extension Act of 2008.”.(c) Carryback and Carryover of Disallowed Credits.—Section 907(f) (relating to carryback and carryover of disallowed credits) is amended—(1) by striking “oil and gas extraction taxes” each place it appears and inserting “foreign oil and gas taxes”, and(2) by adding at the end the following new paragraph:“(4) Transition rules for pre-2009 and 2009 disallowed credits.—“(A) Pre-2009 credits.—In the case of any unused credit year beginning before January 1, 2009, this subsection shall be applied to any unused oil and gas extraction taxes carried from such unused credit year to a year beginning after December 31, 2008—“(i) by substituting ‘oil and gas extraction taxes’ for ‘foreign oil and gas taxes’ each place it appears in paragraphs (1), (2), and (3), and“(ii) by computing, for purposes of paragraph (2)(A), the limitation under subparagraph (A) for the year to which such taxes are carried by substituting ‘foreign oil and gas extraction income’ for ‘foreign oil and gas income’ in subsection (a).“(B) 2009 credits.—In the case of any unused credit year beginning in 2009, the amendments made to this subsection by the Energy Improvement and Extension Act of 2008 shall be treated as being in effect for any preceding year beginning before January 1, 2009, solely for purposes of determining how much of the unused foreign oil and gas taxes for such unused credit year may be deemed paid or accrued in such preceding year.”.(d) Conforming Amendment.—Section 6501(i) is amended by striking “oil and gas extraction taxes” and inserting “foreign oil and gas taxes”.(e) Effective Date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2008.