Promoting Domestic Energy Production Act

Bill Summary

H.R. 662, titled the Promoting Domestic Energy Production Act, is a targeted, technical amendment to the corporate alternative minimum tax (CAMT) rules enacted in the Inflation Reduction Act. It focuses on how certain oil and gas costs—specifically “intangible drilling and development costs” (IDCs) under section 263(c) of the Internal Revenue Code—are treated when computing adjusted financial statement income (AFSI), the base for the 15 percent CAMT that applies to large corporations. The bill’s core objective is to allow the same tax-favored treatment of IDCs that exists under the regular corporate income tax to be reflected in the CAMT calculation, thereby preventing the CAMT from clawing back those benefits through differences between tax and financial accounting.

Under current law, large corporations (generally those with average annual AFSI of at least $1 billion) calculate CAMT using AFSI derived from their audited financial statements, then make a series of adjustments in Section 56A to reconcile tax and book accounting. For tangible property, the law already adjusts AFSI to remove book depreciation and instead allow tax depreciation, ensuring companies do not face CAMT simply because book and tax depreciation schedules differ. However, the treatment of IDCs—costs like labor, fuel, site preparation, drilling mud, and other non-salvageable expenditures incurred to drill and prepare wells—has been a gray area that, in practice, often disadvantaged oil and gas producers. For regular tax, many producers may immediately expense most IDCs, accelerating cost recovery and incentivizing drilling. On financial statements, those same costs are commonly capitalized and depleted or amortized over time. The mismatch can inflate AFSI relative to taxable income, increasing CAMT liability.

H.R. 662 explicitly extends the AFSI adjustment to cover IDCs. It amends Section 56A(c)(13) to permit a reduction in AFSI by the amount of the tax deduction allowed for IDCs under section 263(c), to the extent those deductions were allowed in computing taxable income for the year. In tandem, it requires that any related book depletion expense recorded on the financial statements for those IDC amounts be disregarded in AFSI, mirroring the existing rule that disregards book depreciation for tangible property subject to tax depreciation. Together, these changes align CAMT treatment of drilling-related costs with their treatment under the regular corporate income tax, aiming to prevent “phantom” CAMT based solely on book-tax timing differences.

A few nuances matter. First, this relief is only relevant for corporations subject to the CAMT—i.e., very large companies. Many independent oil and gas producers are not large enough to be captured by the CAMT, and many operate as pass-throughs not subject to corporate tax at all. Thus, the bill’s direct effect is concentrated on sizable corporate producers and integrated energy companies, although integrated companies remain subject to existing limitations on expensing IDCs (generally, only 70 percent of IDCs can be expensed, with the balance capitalized and recovered over time). H.R. 662 respects those underlying rules; it simply lets whatever portion is deductible for regular tax also reduce AFSI, while taking corresponding book depletion out of AFSI to prevent double counting.

Policy-wise, supporters frame the bill as a technical correction that prevents the CAMT from inadvertently penalizing drilling investments and distorting energy companies’ capital allocation. They argue it enhances energy security and price stability by encouraging domestic production. Opponents view the measure as expanding a fossil-fuel tax preference into the CAMT base, undermining the climate goals and revenue integrity of the Inflation Reduction Act’s minimum tax. They warn it could reduce CAMT receipts and prolong dependence on fossil fuels.

Administratively, the bill would provide clearer rules and reduce compliance friction for affected taxpayers by codifying how IDCs and related book depletion are handled in AFSI. The effective date applies to taxable years beginning after December 31, 2025, giving the Treasury, IRS, and companies time to adjust reporting systems and guidance. In practical terms, if enacted, large corporate producers would see lower AFSI relative to current law when they expense IDCs for tax purposes, potentially reducing or eliminating CAMT they might otherwise owe due to book-tax timing differences. The change is tightly scoped, does not alter who is subject to the CAMT, and does not modify broader depletion or depreciation regimes beyond the AFSI computation.

In sum, H.R. 662 is a bipartisan, industry-specific refinement to the CAMT that aligns book-minimum tax calculations with the longstanding tax expensing of drilling costs. It would likely benefit large corporate oil and gas producers by reducing CAMT exposure tied to IDCs, with budgetary and climate implications that will animate debate across party lines.

Pros

Provides a targeted technical fix to avoid penalizing domestic producers unintentionally via CAMT book-tax mismatches, especially in energy-critical regions with union and middle-class jobs.
Could enhance energy reliability and price stability during transition years, reducing volatility that disproportionately affects low- and middle-income households.
Clarifies complex CAMT rules and reduces compliance burdens, aligning with a broader goal of making the tax system more administrable and predictable.
Maintains the underlying IDC limitations for integrated majors; the bill does not expand the base IDC deduction itself, only its treatment in AFSI, limiting the scope of the concession.
Bipartisan measure with Democratic co-sponsors from energy-producing states, signaling pragmatic willingness to refine IRA implementation without dismantling it.

Corrects what they view as an IRA-created distortion that penalizes investment in domestic energy production through a book-tax mismatch.
Strengthens U.S. energy security and reduces reliance on foreign suppliers by lowering the after-tax cost of drilling projects.
Promotes capital formation and job creation in the energy sector, with potential downstream benefits for consumers via more stable fuel and utility prices.
Provides clarity and predictability in tax accounting, minimizing compliance costs and the risk of surprise CAMT liabilities.
Is a limited, technical fix that respects existing IDC rules while preventing double counting of book depletion and tax deductions.

Cons

Extends a fossil-fuel tax preference into the CAMT base, undermining the IRA’s intent to ensure highly profitable corporations pay at least a minimum tax.
Reduces projected CAMT revenues, potentially affecting funding available for climate and social investments unless offset elsewhere.
Risks incentivizing additional oil and gas drilling, potentially increasing greenhouse gas emissions and complicating national climate commitments.
Creates a sector-specific carveout rather than a technology-neutral approach, reinforcing perceptions of preferential treatment for fossil fuels.
Benefits are concentrated among the largest corporate producers subject to the CAMT, raising equity concerns about who gains from tax relief.

Does not go far enough; rather than a narrow fix, many Republicans prefer repealing the CAMT entirely or undertaking broader pro-growth tax reform.
Applies only to large corporations subject to the CAMT, leaving smaller producers and pass-throughs unaffected and maintaining complexity across the system.
Retains existing IDC limitations for integrated companies, which some may argue continues to disadvantage U.S. majors relative to independents.
Creates another industry-specific adjustment within the CAMT, which critics may see as complicating the code and inviting further carveouts instead of comprehensive reform.
Delayed effective date (post-2025) may limit immediate relief and investment response in the near term.

This bill was introduced on January 23, 2025 in the House.

View on Congress.gov:
https://www.congress.gov/bill/119th-congress/house-bill/662

Jan 23, 2025

Referred to the House Committee on Ways and Means.

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Jan 23, 2025

Introduced in House

Intro-H
Jan 23, 2025

Introduced in House

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This bill has not yet been enacted into law.

Promoting Domestic Energy Production Act

Bill Summary

Pros

Cons

Introduction

History

Referred to the House Committee on Ways and Means.

Introduced in House

Introduced in House

Laws Enacted

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