Intangible Drilling Costs Background Provisions in the tax code allow integrated oil and
gas companies such as Exxon-Mobil and Chevron to immediately deduct 70
percent of their intangible oil costs (IDCs). The other 30 percent must be
deducted over five years. IDCs are generally defined as the cost of wages,
fuel, repairs, hauling, supplies and site preparations associated with
drilling. Under normal tax rules that apply to other businesses, such
"capital" costs are investments in property like buildings or oil wells.
Because these properties last longer than one year, their costs should be
written off over time as the property wears out, or oil is depleted.
Instead, immediate deduction, or expensing, allows companies to write off
costs of machinery and equipment faster than they actually wear out, or
the oil is depleted. The result is that tax bills in the earlier more
profitable life of the investment are lower. Thus, oil and gas companies
save by returning less to taxpayers and the Treasury.
Green Scissors Proposal Repeal the tax provisions permitting oil
and gas producers to immediately deduct "intangible" drilling costs and
amend the provision so the costs are deducted over time. This action would
save $2.4 billion over the next five years.
Project Hurts Taxpayers Immediate expensing of IDCs provides a
tax subsidy for capital investments in the oil and gas industry. Capital
costs covered by IDCs amount to 75 to 90 percent of the cost to get an oil
or gas well into production. The special treatment of oil and gas expenses
effectively sets taxes on oil income to zero.
IDCs also cause investment decisions to be based on tax rather than
economic considerations. While wealthy oil companies save, other taxpayers
pay the bill for the subsidy.
Project Hurts Environment The oil and gas industry enjoys many
special tax breaks, creating incentives for irresponsible treatment of
scarce natural resources and environmentally sensitive areas such as
wetlands, estuaries, and bays.
$ 2.4 billion