26 USC 45 - Credit for producing fuel from a nonconventional source

View all text of Subpart D [§ 38 - § 45AA]

§ 45K. Credit for producing fuel from a nonconventional source

(a) Allowance of creditFor purposes of section 38, the nonconventional source production credit determined under this section for the taxable year is an amount equal to—

(1) $3, multiplied by

(2) the barrel-of-oil equivalent of qualified fuels—

(A) sold by the taxpayer to an unrelated person during the taxable year, and

(B) the production of which is attributable to the taxpayer.

(b) Limitations and adjustments

(1) Phaseout of creditThe amount of the credit allowable under subsection (a) shall be reduced by an amount which bears the same ratio to the amount of the credit (determined without regard to this paragraph) as—

(A) the amount by which the reference price for the calendar year in which the sale occurs exceeds $23.50, bears to

(B) $6.

(2) Credit and phaseout adjustment based on inflation

(3) Credit reduced for grants, tax-exempt bonds, and subsidized energy financing

(A) In generalThe amount of the credit allowable under subsection (a) with respect to any project for any taxable year (determined after the application of paragraphs (1) and (2)) shall be reduced by the amount which is the product of the amount so determined for such year and a fraction—

(i) the numerator of which is the sum, for the taxable year and all prior taxable years, of—(I) grants provided by the United States, a State, or a political subdivision of a State for use in connection with the project,(II) proceeds of any issue of State or local government obligations used to provide financing for the project the interest on which is exempt from tax under section 103, and(III) the aggregate amount of subsidized energy financing (within the meaning of section 48(a)(4)(C)) provided in connection with the project, and

(ii) the denominator of which is the aggregate amount of additions to the capital account for the project for the taxable year and all prior taxable years.

(B) Amounts determined at close of year

(4) Credit reduced for energy creditThe amount allowable as a credit under subsection (a) with respect to any project for any taxable year (determined after the application of paragraphs (1), (2), and (3)) shall be reduced by the excess of—

(A) the aggregate amount allowed under section 38 for the taxable year or any prior taxable year by reason of the energy percentage with respect to property used in the project, over

(B) the aggregate amount recaptured with respect to the amount described in subparagraph (A)—

(i) under section 49(b) or 50(a) for the taxable year or any prior taxable year, or

(ii) under this paragraph for any prior taxable year.

The amount recaptured under section 49(b) or 50(a) with respect to any property shall be appropriately reduced to take into account any reduction in the credit allowed by this section by reason of the preceding sentence.

(5) Credit reduced for enhanced oil recovery creditThe amount allowable as a credit under subsection (a) with respect to any project for any taxable year (determined after application of paragraphs (1), (2), (3), and (4)) shall be reduced by the excess (if any) of—

(A) the aggregate amount allowed under section 38 for the taxable year and any prior taxable year by reason of any enhanced oil recovery credit determined under section 43 with respect to such project, over

(B) the aggregate amount recaptured with respect to the amount described in subparagraph (A) under this paragraph for any prior taxable year.

(1) In generalThe term “qualified fuels” means—

(A) oil produced from shale and tar sands,

(B) gas produced from—

(i) geopressured brine, Devonian shale, coal seams, or a tight formation, or

(ii) biomass, and

(C) liquid, gaseous, or solid synthetic fuels produced from coal (including lignite), including such fuels when used as feedstocks.

(2) Gas from geopressured brine, etc.

(A) In general

(B) Special rules for gas from tight formationsThe term “gas produced from a tight formation” shall only include gas from a tight formation—

(i) which, as of April 20, 1977, was committed or dedicated to interstate commerce (as defined in section 2(18) of the Natural Gas Policy Act of 1978, as in effect on the date of the enactment of this clause), or

(ii) which is produced from a well drilled after such date of enactment.

(3) BiomassThe term “biomass” means any organic material other than—

(A) oil and natural gas (or any product thereof), and

(B) coal (including lignite) or any product thereof.

(d) Other definitions and special rulesFor purposes of this section—

(1) Only production within the United States taken into accountSales shall be taken into account under this section only with respect to qualified fuels the production of which is within—

(A) the United States (within the meaning of section 638(1)), or

(B) a possession of the United States (within the meaning of section 638(2)).

(2) Computation of inflation adjustment factor and reference price

(A) In general

(B) Inflation adjustment factor

(3) Production attributable to the taxpayer

(4) Gas from geopressured brine, Devonian shale, coal seams, or a tight formation

(5) Barrel-of-oil equivalent

(6) Barrel defined

(7) Related persons

(8) Pass-thru in the case of estates and trusts

(e) Application of sectionThis section shall apply with respect to qualified fuels—

(1) which are—

(A) produced from a well drilled after December 31, 1979, and before January 1, 1993, or

(B) produced in a facility placed in service after December 31, 1979, and before January 1, 1993, and

(2) which are sold before January 1, 2003.

(f) Extension for certain facilities

(1) In generalIn the case of a facility for producing qualified fuels described in subparagraph (B)(ii) or (C) of subsection (c)(1)—

(A) for purposes of subsection (e)(1)(B), such facility shall be treated as being placed in service before January 1, 1993, if such facility is placed in service before July 1, 1998, pursuant to a binding written contract in effect before January 1, 1997, and

(B) if such facility is originally placed in service after December 31, 1992, paragraph (2) of subsection (e) shall be applied with respect to such facility by substituting “January 1, 2008” for “January 1, 2003”.

(2) Special rule

(g) Extension for facilities producing coke or coke gasNotwithstanding subsection (e)—

(1) In generalIn the case of a facility for producing coke or coke gas (other than from petroleum based products) which was placed in service before January 1, 1993, or after June 30, 1998, and before January 1, 2010, this section shall apply with respect to coke and coke gas produced in such facility and sold during the period—

(A) beginning on the later of January 1, 2006, or the date that such facility is placed in service, and

(B) ending on the date which is 4 years after the date such period began.

(2) Special rulesIn determining the amount of credit allowable under this section solely by reason of this subsection—

(A) Daily limit

(B) Extension period to commence with unadjusted credit amount

(D) Nonapplication of phaseout

(E) Coordination with section 45

(Added Pub. L. 96–223, title II, § 231(a), Apr. 2, 1980, 94 Stat. 268, § 44D; amended Pub. L. 97–34, title VI § 611(a), Aug. 13, 1981, 95 Stat. 339; Pub. L. 97–354, § 5(a)(1), Oct. 19, 1982, 96 Stat. 1692; Pub. L. 97–448, title II, § 202(a), Jan. 12, 1983, 96 Stat. 2396; renumbered § 29 and amended Pub. L. 98–369, div. A, title IV, §§ 471(c), 474(h), title VI, § 612(e)(1), title VII, § 722(d)(1), (2), July 18, 1984, 98 Stat. 826, 831, 912, 973; Pub. L. 99–514, title VII, § 701(c)(3), title XVIII, § 1879(c)(1), Oct. 22, 1986, 100 Stat. 2340, 2906; Pub. L. 100–647, title VI, § 6302, Nov. 10, 1988, 102 Stat. 3755; Pub. L. 101–508, title XI, §§ 11501(a), (b)(1), (c)(1), 11813(b)(1), 11816, Nov. 5, 1990, 104 Stat. 1388–479, 1388–550, 1388–558; Pub. L. 102–486, title XIX, § 1918, Oct. 24, 1992, 106 Stat. 3025; Pub. L. 104–188, title I, §§ 1205(d)(3), 1207(a), Aug. 20, 1996, 110 Stat. 1776; renumbered § 45K and amended Pub. L. 109–58, title XIII, §§ 1321(a), 1322(a)(1), (3)(E), (F), (b), Aug. 8, 2005, 119 Stat. 1010–1012; Pub. L. 109–135, title IV, §§ 402(g), 412(l), Dec. 21, 2005, 119 Stat. 2611, 2637; Pub. L. 109–432, div. A, title II, § 211(a), (b), Dec. 20, 2006, 120 Stat. 2947, 2948; Pub. L. 110–343, div. B, title I, § 108(d)(2), Oct. 3, 2008, 122 Stat. 3821; Pub. L. 113–295, div. A, title II, § 210(a), Dec. 19, 2014, 128 Stat. 4031.)