Tier II Issue - Enhanced Oil Recovery Credit IDD #3
LMSB-04-0210-007
Impacted IRM 4.51.2
March 18, 2010
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MEMORANDUM FOR |
INDUSTRY DIRECTORS, LMSB |
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FROM: |
Keith M. Jones |
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SUBJECT: |
Industry Director Directive #3 Tier II Issue Enhanced Oil Recovery Credit Status Changed to Monitoring |
Effective immediately, the status of the Enhanced Oil Recovery (EOR) Credit issue is changed from active to monitoring. In monitoring status, the EOR Credit issue can be resolved by examiners applying existing guidance without the extensive coordination required for issues in active status.
Background/Strategic Importance:
The EOR Credit under IRC section 43 became a Tier II issue after two major areas of controversy arose – “significant expansion projects” and “tertiary injectant costs.” These highly factual issues were present on a significant number of examinations and claims, and in large dollar amounts. EOR Credit Directive #1 was issued on May 2, 2007 and provided direction to the field on the issue, including audit techniques, audit evaluation, and LMSB position. EOR Credit Directive #2 was issued on May 11, 2009 and provided supplemental guidance based on experience gained during examinations since the issuance of IDD #1.
Due to rising domestic crude oil prices, the EOR credit became completely “phased out” starting in tax year 2005, and has remained completely phased out through tax year 2009. See IRS Notice 2009-73. As a result, the number of cases where the EOR credit is being examined has decreased to a very small number. At current oil prices the credit could remain completely phased out for many years.
The IMT believes that the guidance provided for the examination of the EOR Credit issue is sufficiently well established so that extensive coordination for issues in active status is no longer necessary. Accordingly, with the issuance of this directive, the status of the EOR Credit issue is changed from active to monitoring.
Examination Guidance:
Field personnel examining the EOR issue can apply the guidance provided by Treas. Reg. § 1.43, Rev Rul 2003-82, Industry Director Directive #1, and Industry Director Directive #2 dated May 2, 2007 and May 11, 2009, respectively.
Issue Tracking:
|
UIL Code |
43.01-00 |
EOR Credit |
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SAIN |
604-06 |
General Business Credit |
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Second Tier SAIN |
335 |
EOR Credit |
Questions regarding this directive should be addressed to Robert McCann, Petroleum Industry Technical Advisor or 713-209-4464.
This Directive is not an official pronouncement of law and should not be used, cited, or relied upon as such.
cc: Commissioner, LMSB
Deputy Commissioner, Operations, LMSB
Deputy Commissioner, International, LMSB
Director, Planning, Quality, Analysis & Support, LMSB
Director, Research & Workload Identification, LMSB
Division Counsel, LMSB
Directors, Field Operations, LMSB
Chief, Appeals
Commissioner, SBSE
