--- kind: "range" citation: "26 C.F.R. §§ 1.43-0–1.43-7" title: "26" from: "1.43-0" to: "1.43-7" count: 8 url: "https://uscodex.org/cfr/26/1.43-0..1.43-7" --- # §1.43-0. Table of contents. This section lists the captions contained in [§§ 1.43-0 through 1.43-7](/cfr/26/1.43-0..1.43-7.md). # §1.43-1. The enhanced oil recovery credit—general rules. - (a) **Claiming the credit—** - (1) **In general.** The enhanced oil recovery credit (the “credit”) is a component of the [section 38](/cfr/26/38.md) general business credit. A taxpayer that owns an operating mineral interest (as defined in [§ 1.614-2(b)](/cfr/26/1.614-2.md?p=b)) in a property may claim the credit for qualified enhanced oil recovery costs (as described in [§ 1.43-4](/cfr/26/1.43-4.md)) paid or incurred by the taxpayer in connection with a qualified enhanced oil recovery project (as described in [§ 1.43-2](/cfr/26/1.43-2.md)) undertaken with respect to the property. A taxpayer that does not own an operating mineral interest in a property may not claim the credit. To the extent a credit included in the current year business credit under [section 38(b)](/cfr/26/38.md?p=b) is unused under [section 38](/cfr/26/38.md), the credit is carried back or forward under the [section 39](/cfr/26/39.md) business credit carryback and carryforward rules. - (2) **Examples.** The following examples illustrate the principles of this [paragraph (a)](#a). - (b) **Amount of the credit.** A taxpayer's credit is an amount equal to 15 percent of the taxpayer's qualified enhanced oil recovery costs for the taxable year, reduced by the phase-out amount, if any, determined under [paragraph (c)](#c) of this section. - (c) **Phase-out of the credit as crude oil prices increase—** - (1) **In general.** The amount of the credit (determined without regard to this [paragraph (c)](#c)) for any taxable year is reduced by an amount which bears the same ratio to the amount of the credit (determined without regard to this [paragraph (c)](#c)) as— - (i) The amount by which the reference price determined under [section 29(d)(2)(C)](/cfr/26/29.md?p=d-2-C) for the calendar year immediately preceding the calendar year in which the taxable year begins exceeds $28 (as adjusted under [paragraph (c)(2)](#c-2) of this section); bears to - (ii) $6. - (2) **Inflation adjustment—** - (i) **In general.** For any taxable year beginning in a calendar year after 1991, an amount equal to $28 multiplied by the inflation adjustment factor is substituted for the $28 amount under [paragraph (c)(1)(i)](#c-1-i) of this section. - (ii) **Inflation adjustment factor.** For purposes of this [paragraph (c)](#c), the inflation adjustment factor for any calendar year is a fraction, the numerator of which is the GNP implicit price deflator for the preceding calendar year and the denominator of which is the GNP implicit price deflator for 1990. The “GNP implicit price deflator” is the first revision of the implicit price deflator for the gross national product as computed and published by the Secretary of Commerce. As early as practicable, the inflation adjustment factor for each calendar year will be published by the Internal Revenue Service in the Internal Revenue Bulletin. - (3) **Examples.** The following examples illustrate the principles of this [paragraph (c)](#c). - (d) **Reduction of associated deductions—** - (1) **In general.** Any deduction allowable under chapter 1 for an expenditure taken into account in computing the amount of the credit determined under [paragraph (b)](#b) of this section is reduced by the amount of the credit attributable to the expenditure. - (2) **Certain deductions by an integrated oil company.** For purposes of determining the intangible drilling and development costs that an integrated oil company must capitalize under [section 291(b)](/cfr/26/291.md?p=b), the amount allowable as a deduction under [section 263(c)](/cfr/26/263.md?p=c) is the deduction allowable after [paragraph (d)(1)](#d-1) of this section is applied. See [§ 1.43-4(b)(2)](/cfr/26/1.43-4.md?p=b-2) (extent to which integrated oil company intangible drilling and development costs are qualified enhanced oil recovery costs). - (e) **Basis adjustment.** For purposes of subtitle A, the increase in the basis of property which would (but for this [paragraph (e)](#e)) result from an expenditure with respect to the property is reduced by the amount of the credit determined under [paragraph (b)](#b) of this section attributable to the expenditure. - (f) **Passthrough entity basis adjustment—** - (1) **Partners' interests in a partnership.** To the extent a partnership expenditure is not deductible under [paragraph (d)(1)](#d-1) of this section or does not increase the basis of property under [paragraph (e)](#e) of this section, the expenditure is treated as an expenditure described in [section 705(a)(2)(B)](/cfr/26/705.md?p=a-2-B) (concerning decreases to basis of partnership interests). Thus, the adjusted bases of the partners' interests in the partnership are decreased (but not below zero). - (2) **Shareholders' stock in an S corporation.** To the extent an S corporation expenditure is not deductible under [paragraph (d)(1)](#d-1) of this section or does not increase the basis of property under [paragraph (e)](#e) of this section, the expenditure is treated as an expenditure described in [section 1367(a)(2)(D)](/cfr/26/1367.md?p=a-2-D) (concerning decreases to basis of S corporation stock). Thus, the bases of the shareholders' S corporation stock are decreased (but not below zero). - (g) **Examples.** The following examples illustrate the principles of [paragraphs (d) through (f)](#d..f) of this section. # §1.43-2. Qualified enhanced oil recovery project. - (a) **Qualified enhanced oil recovery project.** A “qualified enhanced oil recovery project” is any project that meets all of the following requirements— - (1) The project involves the application (in accordance with sound engineering principles) of one or more qualified tertiary recovery methods (as described in [paragraph (e)](#e) of this section) that is reasonably expected to result in more than an insignificant increase in the amount of crude oil that ultimately will be recovered; - (2) The project is located within the United States (within the meaning of [section 638(1)](/cfr/26/638.md?p=1)); - (3) The first injection of liquids, gases, or other matter for the project (as described in [paragraph (c)](#c) of this section) occurs after December 31, 1990; and - (4) The project is certified under [§ 1.43-3](/cfr/26/1.43-3.md). - (b) **More than insignificant increase.** For purposes of [paragraph (a)(1)](#a-1) of this section, all the facts and circumstances determine whether the application of a tertiary recovery method can reasonably be expected to result in more than an insignificant increase in the amount of crude oil that ultimately will be recovered. Certain information submitted as part of a project certification is relevant to this determination. See [§ 1.43-3(a)(3)(i)(D)](/cfr/26/1.43-3.md?p=a-3-i-D). In no event is the application of a recovery method that merely accelerates the recovery of crude oil considered an application of one or more qualified tertiary recovery methods that can reasonably be expected to result in more than an insignificant increase in the amount of crude oil that ultimately will be recovered. - (c) **First injection of liquids, gases, or other matter—** - (1) **In general.** The “first injection of liquids, gases, or other matter” generally occurs on the date a tertiary injectant is first injected into the reservoir. The “first injection of liquids, gases, or other matter” does not include— - (i) The injection into the reservoir of any liquids, gases, or other matter for the purpose of pretreating or preflushing the reservoir to enhance the efficiency of the tertiary recovery method; or - (ii) **Test or experimental injections.** - (2) **Example.** The following example illustrates the principles of this [paragraph (c)](#c). - (d) **Significant expansion exception—** - (1) **In general.** If a project for which the first injection of liquids, gases, or other matter (within the meaning of [paragraph (c)(1)](#c-1) of this section) occurred before January 1, 1991, is significantly expanded after December 31, 1990, the expansion is treated as a separate project for which the first injection of liquids, gases, or other matter occurs after December 31, 1990. - (2) **Substantially unaffected reservoir volume.** A project is considered significantly expanded if the injection of liquids, gases, or other matter after December 31, 1990, is reasonably expected to result in more than an insignificant increase in the amount of crude oil that ultimately will be recovered from reservoir volume that was substantially unaffected by the injection of liquids, gases, or other matter before January 1, 1991. - (3) **Terminated projects.** Except as otherwise provided in this [paragraph (d)(3)](#d-3), a project is considered significantly expanded if each qualified tertiary recovery method implemented in the project prior to January 1, 1991, terminated more than 36 months before implementing an enhanced oil recovery project that commences after December 31, 1990. Notwithstanding the provisions of the preceding sentence, if a project implemented prior to January 1, 1991, is terminated for less than 36 months before implementing an enhanced oil recovery project that commences after December 31, 1990, a taxpayer may request permission to treat the project that commences after December 31, 1990, as a significant expansion. Permission will not be granted if the Internal Revenue Service determines that a project was terminated to make an otherwise nonqualifying project eligible for the credit. For purposes of [section 43](/cfr/26/43.md), a qualified tertiary recovery method terminates at the point in time when the method no longer results in more than an insignificant increase in the amount of crude oil that ultimately will be recovered. All the facts and circumstances determine whether a tertiary recovery method has terminated. Among the factors considered is the project plan, the unit plan of development, or other similar plan. A tertiary recovery method is not necessarily terminated merely because the injection of the tertiary injectant has ceased. For purposes of this [paragraph (d)(1)](#d-1), a project is implemented when costs that will be taken into account in determining the credit with respect to the project are paid or incurred. - (4) **Change in tertiary recovery method.** If the application of a tertiary recovery method or methods with respect to an enhanced oil recovery project for which the first injection of liquids, gases, or other matter occurred before January 1, 1991, has not been terminated for more than 36 months, a taxpayer may request a private letter ruling from the Internal Revenue Service whether the application of a different tertiary recovery method or methods after December 31, 1990, that does not affect reservoir volume substantially unaffected by the previous tertiary recovery method or methods, is treated as a significant expansion. All the facts and circumstances determine whether a change in tertiary recovery method is treated as a significant expansion. Among the factors considered are whether the change in tertiary recovery method is in accordance with sound engineering principles and whether the change in method will result in more than an insignificant increase in the amount of crude oil that would be recovered using the previous method. A more intensive application of a tertiary recovery method after December 31, 1990, is not treated as a significant expansion. - (5) **Examples.** The following examples illustrate the principles of this [paragraph (d)](#d). - (e) **Qualified tertiary recovery methods—** - (1) **In general.** For purposes of [paragraph (a)(1)](#a-1) of this section, a “qualified tertiary recovery method” is any one or any combination of the tertiary recovery methods described in [paragraph (e)(2)](#e-2) of this section. To account for advances in enhanced oil recovery technology, the Internal Revenue Service may by revenue ruling prescribe that a method not described in [paragraph (e)(2)](#e-2) of this section is a “qualified tertiary recovery method.” In addition, a taxpayer may request a private letter ruling that a method not described in [paragraph (e)(2)](#e-2) of this section or in a revenue ruling is a qualified tertiary recovery method. Generally, the methods identified in revenue rulings or private letter rulings will be limited to those methods that involve the displacement of oil from the reservoir rock by means of modifying the properties of the fluids in the reservoir or providing the energy and drive mechanism to force the oil to flow to a production well. The recovery methods described in [paragraph (e)(3)](#e-3) of this section are not “qualified tertiary recovery methods.” - (2) **Tertiary recovery methods that qualify—** - (i) **Thermal recovery methods—** - (A) **Steam drive injection.** The continuous injection of steam into one set of wells (injection wells) or other injection source to effect oil displacement toward and production from a second set of wells (production wells); - (B) **Cyclic steam injection—** The alternating injection of steam and production of oil with condensed steam from the same well or wells; and - (C) **In situ combustion.** The combustion of oil or fuel in the reservoir sustained by injection of air, oxygen-enriched air, oxygen, or supplemental fuel supplied from the surface to displace unburned oil toward producing wells. This process may include the concurrent, alternating, or subsequent injection of water. - (ii) **Gas Flood recovery methods—** - (A) **Miscible fluid displacement.** The injection of gas (e.g., natural gas, enriched natural gas, a liquified petroleum slug driven by natural gas, carbon dioxide, nitrogen, or flue gas) or alcohol into the reservoir at pressure levels such that the gas or alcohol and reservoir oil are miscible; - (B) **Carbon dioxide augmented waterflooding.** The injection of carbonated water, or water and carbon dioxide, to increase waterflood efficiency; - (C) **Immiscible carbon dioxide displacement.** The injection of carbon dioxide into an oil reservoir to effect oil displacement under conditions in which miscibility with reservoir oil is not obtained. This process may include the concurrent, alternating, or subsequent injection of water; and - (D) **Immiscible nonhydrocarbon gas displacement.** The injection of nonhydrocarbon gas (e.g., nitrogen) into an oil reservoir, under conditions in which miscibility with reservoir oil is not obtained, to obtain a chemical or physical reaction (other than pressure) between the oil and the injected gas or between the oil and other reservoir fluids. This process may include the concurrent, alternating, or subsequent injection of water. - (iii) **Chemical flood recovery methods—** - (A) **Microemulsion flooding.** The injection of a surfactant system (e.g., a surfactant, hydrocarbon, cosurfactant, electrolyte, and water) to enhance the displacement of oil toward producing wells; and - (B) **Caustic flooding.** The injection of water that has been made chemically basic by the addition of alkali metal hydroxides, silicates, or other chemicals. - (iv) **Mobility control recovery method—Polymer augmented waterflooding.** The injection of polymeric additives with water to improve the areal and vertical sweep efficiency of the reservoir by increasing the viscosity and decreasing the mobility of the water injected. Polymer augmented waterflooding does not include the injection of polymers for the purpose of modifying the injection profile of the wellbore or the relative permeability of various layers of the reservoir, rather than modifying the water-oil mobility ratio. - (3) **Recovery methods that do not qualify.** The term “qualified tertiary recovery method” does not include— - (i) **Waterflooding—** The injection of water into an oil reservoir to displace oil from the reservoir rock and into the bore of the producing well; - (ii) **Cyclic gas injection—** The increase or maintenance of pressure by injection of hydrocarbon gas into the reservoir from which it was originally produced; - (iii) **Horizontal drilling—** The drilling of horizontal, rather than vertical, wells to penetrate hydrocarbon bearing formations; - (iv) **Gravity drainage—** The production of oil by gravity flow from drainholes that are drilled from a shaft or tunnel dug within or below the oil bearing zones; and - (v) **Other methods—** Any recovery method not specifically designated as a qualified tertiary recovery method in either [paragraph (e)(2)](#e-2) of this section or in a revenue ruling or private letter ruling described in [paragraph (e)(1)](#e-1) of this section. - (4) **Examples.** The following examples illustrate the principles of this [paragraph (e)](#e). # §1.43-3. Certification - (a) **Petroleum engineer's certification of a project—** - (1) **In general.** A petroleum engineer must certify, under penalties of perjury, that an enhanced oil recovery project meets the requirements of [section 43(c)(2)(A)](/cfr/26/43.md?p=c-2-A). A petroleum engineer's certification must be submitted for each project. The petroleum engineer certifying a project must be duly registered or certified in any State. - (2) **Timing of certification.** The operator of an enhanced oil recovery project or any other operating mineral interest owner designated by the operator (“designated owner”) must submit a petroleum engineer's certification to the Internal Revenue Service Center, Austin, Texas, or such other place as may be designated by revenue procedure or other published guidance, not later than the last date prescribed by law (including extensions) for filing the operator's or designated owner's federal income tax return for the first taxable year for which the enhanced oil recovery credit (the “credit”) is allowable. The operator may designate any other operating mineral interest owner (the “designated owner”) to file the petroleum engineer's certification. - (3) **Content of certification—** - (i) **In general.** A petroleum engineer's certification must contain the following information— - (A) The name and taxpayer identification number of the operator or the designated owner submitting the certification; - (B) A statement identifying the project, including its geographic location; - (C) A statement that the project involves a tertiary recovery method (as defined in [section 43(c)(2)(A)(i)](/cfr/26/43.md?p=c-2-A-i)) and a description of the process used, including— (1) A description of the implementation and operation of the project sufficient to establish that it is implemented and operated in accordance with sound engineering practices; (2) If the project involves the application of a tertiary recovery method approved in a private letter ruling described in [paragraph (e)(1)](/cfr/26/1.43-2.md?p=e-1) of § 1.43-2, a copy of the private letter ruling, and (3) The date on which the first injection of liquids, gases, or other matter occurred or is expected to occur. - (D) A statement that the application of a qualified tertiary recovery method or methods is expected to result in more than an insignificant increase in the amount of crude oil that ultimately will be recovered, including— (1) Data on crude oil reserve estimates covering the project area with and without the enhanced oil recovery process, (2) Production history prior to implementation of the project and estimates of production after implementation of the project, and (3) An adequate delineation of the reservoir, or portion of the reservoir, from which the ultimate recovery of crude oil is expected to be increased as a result of the implementation and operation of the project; and - (E) A statement that the petroleum engineer believes that the project is a qualified enhanced oil recovery project within the meaning of [section 43(c)(2)(A)](/cfr/26/43.md?p=c-2-A). - (ii) **Additional information for significantly expanded projects.** The petroleum engineer's certification for a project that is significantly expanded must in addition contain— - (A) If the expansion affects reservoir volume that was substantially unaffected by a previously implemented project, an adequate delineation of the reservoir volume affected by the previously implemented project; - (B) If the expansion involves the implementation of an enhanced oil recovery project more than 36 months after the termination of a qualified tertiary recovery method that was applied before January 1, 1991, the date on which the previous tertiary recovery method terminated and an explanation of the data or assumptions relied upon to determine the termination date; - (C) If the expansion involves the implementation of an enhanced oil recovery project less than 36 months after the termination of a qualified tertiary recovery method that was applied before January 1, 1991, a copy of a private letter ruling from the Internal Revenue Service that the project implemented after December 31, 1990 is treated as a significant expansion; or - (D) If the expansion involves the application after December 31, 1990, of a tertiary recovery method or methods that do not affect reservoir volume that was substantially unaffected by the application of a different tertiary recovery method or methods before January 1, 1991, a copy of a private letter ruling from the Internal Revenue Service that the change in tertiary recovery method is treated as a significant expansion. - (b) **Operator's continued certification of a project—** - (1) **In general.** For each taxable year following the taxable year for which the petroleum engineer's certification is submitted, the operator or designated owner must certify, under penalties of perjury, that an enhanced oil recovery project continues to be implemented substantially in accordance with the petroleum engineer's certification submitted for the project. An operator's certification must be submitted for each project. - (2) **Timing of certification.** The operator or designated owner of an enhanced oil recovery project must submit an operator's certification to the Internal Revenue Service Center, Austin, Texas, or such other place as may be designated by revenue procedure or other published guidance, not later than the last date prescribed by law (including extensions) for filing the operator's or designated owner's federal income tax return for any taxable year after the taxable year for which the petroleum engineer's certification is filed. - (3) **Content of certification.** An operator's certification must contain the following information— - (i) The name and taxpayer identification number of the operator or the designated owner submitting the certification; - (ii) A statement identifying the project including its geographic location and the date on which the petroleum engineer's certification was filed; - (iii) A statement that the project continues to be implemented substantially in accordance with the petroleum engineer's certification (as described in [paragraph (a)](#a) of this section) submitted for the project; and - (iv) A description of any significant change or anticipated change in the information submitted under [paragraph (a)(3)](#a-3) of this section, including a change in the date on which the first injection of liquids, gases, or other matter occurred or is expected to occur. - (c) **Notice of project termination—** - (1) **In general.** If the application of a tertiary recovery method is terminated, the operator or designated owner must submit a notice of project termination to the Internal Revenue Service. - (2) **Timing of notice.** The operator or designated owner of an enhanced oil recovery project must submit the notice of project termination to the Internal Revenue Service Center, Austin, Texas, or such other place as may be designated by revenue procedure or other published guidance, not later than the last date prescribed by law (including extensions) for filing the operator's or designated owner's federal income tax return for the taxable year in which the project terminates. - (3) **Content of notice.** A notice of project termination must contain the following information— - (i) The name and taxpayer identification number of the operator or the designated owner submitting the notice; - (ii) A statement identifying the project including its geographic location and the date on which the petroleum engineer's certification was filed; and - (iii) **The date on which the application of the tertiary recovery method was terminated.** - (d) **Failure to submit certification.** If a petroleum engineer's certification (as described in [paragraph (a)](#a) of this section) or an operator's certification (as described in [paragraph (b)](#b) of this section) is not submitted in the time or manner prescribed by this section, the credit will be allowed only after the appropriate certifications are submitted. # §1.43-4. Qualified enhanced oil recovery costs. - (a) **Qualifying costs—** - (1) **In general.** Except as provided in [paragraph (e)](#e) of this section, amounts paid or incurred in any taxable year beginning after December 31, 1990, that are qualified tertiary injectant expenses (as described in [paragraph (b)(1)](#b-1) of this section), intangible drilling and development costs (as described in [paragraph (b)(2)](#b-2) of this section), and tangible property costs (as described in [paragraph (b)(3)](#b-3) of this section) are “qualified enhanced oil recovery costs” if the amounts are paid or incurred with respect to an asset which is used for the primary purpose (as described in [paragraph (c)](#c) of this section) of implementing an enhanced oil recovery project. Any amount paid or incurred in any taxable year beginning before January 1, 1991, in connection with an enhanced oil recovery project is not a qualified enhanced oil recovery cost. - (2) **Costs paid or incurred for an asset which is used to implement more than one qualified enhanced oil recovery project or for other activities.** Any cost paid or incurred during the taxable year for an asset which is used to implement more than one qualified enhanced oil recovery project is allocated among the projects in determining the qualified enhanced oil recovery costs for each qualified project for the taxable year. Similarly, any cost paid or incurred during the taxable year for an asset which is used to implement a qualified enhanced oil recovery project and which is also used for other activities (for example, an enhanced oil recovery project that is not a qualified enhanced oil recovery project) is allocated among the qualified enhanced oil recovery project and the other activities to determine the qualified enhanced oil recovery costs for the taxable year. See [§ 1.613-5(a)](/cfr/26/1.613-5.md?p=a). Any cost paid or incurred for an asset which is used to implement a qualified enhanced oil recovery project and which is also used for other activities is not required to be allocated under this [paragraph (a)(2)](#a-2) if the use of the property for nonqualifying activities is de minimis (e.g., not greater than 10%). Costs are allocated under this [paragraph (a)(2)](#a-2) only if the asset with respect to which the costs are paid or incurred is used for the primary purpose of implementing an enhanced oil recovery project. See [paragraph (c)](#c) of this section. Any reasonable allocation method may be used. A method that allocates costs based on the anticipated use in a project or activity is a reasonable method. - (b) **Costs defined—** - (1) **Qualified tertiary injectant expenses.** For purposes of this section, “qualified tertiary injectant expenses” means any costs that are paid or incurred in connection with a qualified enhanced oil recovery project and that are deductible under [section 193](/cfr/26/193.md) for the taxable year. See [section 193](/cfr/26/193.md) and [§ 1.193-1](/cfr/26/1.193-1.md). Qualified tertiary injectant expenses are taken into account in determining the credit with respect to the taxable year in which the tertiary injectant expenses are deductible under [section 193](/cfr/26/193.md). - (2) **Intangible drilling and development costs.** For purposes of this section, “intangible drilling and development costs” means any intangible drilling and development costs that are paid or incurred in connection with a qualified enhanced oil recovery project and for which the taxpayer may make an election under [section 263(c)](/cfr/26/263.md?p=c) for the taxable year. Intangible drilling and development costs are taken into account in determining the credit with respect to the taxable year in which the taxpayer may deduct the intangible drilling and development costs under [section 263(c)](/cfr/26/263.md?p=c). For purposes of this [paragraph (b)(2)](#b-2), the amount of the intangible drilling and development costs for which an integrated oil company may make an election under [section 263(c)](/cfr/26/263.md?p=c) is determined without regard to [section 291(b)](/cfr/26/291.md?p=b). - (3) **Tangible property costs—** - (i) **In general.** For purposes of this section, “tangible property costs” means an amount paid or incurred during a taxable year for tangible property that is an integral part of a qualified enhanced oil recovery project and that is depreciable or amortizable under chapter 1. An amount paid or incurred for tangible property is taken into account in determining the credit with respect to the taxable year in which the cost is paid or incurred. - (ii) **Integral part.** For purposes of this [paragraph (b)](#b), tangible property is an integral part of a qualified enhanced oil recovery project if the property is used directly in the project and is essential to the completeness of the project. All the facts and circumstances determine whether tangible property is used directly in a qualified enhanced oil recovery project and is essential to the completeness of the project. Generally, property used to acquire or produce the tertiary injectant or property used to transport the tertiary injectant to a project site is property that is an integral part of the project. - (4) **Examples.** The following examples illustrate the principles of this [paragraph (b)](#b). Assume for each of these examples that the qualified enhanced oil recovery costs are paid or incurred with respect to an asset which is used for the primary purpose of implementing an enhanced oil recovery project. - (c) **Primary purpose—** - (1) **In general.** For purposes of this section, a cost is a qualified enhanced oil recovery cost only if the cost is paid or incurred with respect to an asset which is used for the primary purpose of implementing one or more enhanced oil recovery projects, at least one of which is a qualified enhanced oil recovery project. All the facts and circumstances determine whether an asset is used for the primary purpose of implementing an enhanced oil recovery project. For purposes of this [paragraph (c)](#c), an enhanced oil recovery project is a project that satisfies the requirements of [paragraphs (a)](#a) (1) and (2) of [section 1.43-2](/cfr/26/1.43-2.md). - (2) **Tertiary injectant costs.** Tertiary injectant costs generally satisfy the primary purpose test of this [paragraph (c)](#c). - (3) **Intangible drilling and development costs.** Intangible drilling and development costs paid or incurred with respect to a well that is used in connection with the recovery of oil by primary or secondary methods are not qualified enhanced oil recovery costs. Except as provided in this [paragraph (c)(3)](#c-3), a well used for primary or secondary recovery is not used for the primary purpose of implementing an enhanced oil recovery project. A well drilled for the primary purpose of implementing an enhanced oil recovery project is not considered to be used for primary or secondary recovery, notwithstanding that some primary or secondary production may result when the well is drilled, provided that such primary or secondary production is consistent with the unit plan of development or other similar plan. All the facts and circumstances determine whether primary or secondary recovery is consistent with the unit plan of development or other similar plan. - (4) **Tangible property costs.** Tangible property costs must be paid or incurred with respect to property which is used for the primary purpose of implementing an enhanced oil recovery project. If tangible property is used partly in a qualified enhanced oil recovery project and partly in another activity, the property must be primarily used to implement the qualified enhanced oil recovery project. - (5) **Offshore drilling platforms.** Amounts paid or incurred in connection with the acquisition, construction, transportation, erection, or installation of an offshore drilling platform (regardless of whether the amounts are intangible drilling and development costs) that is used in connection with the recovery of oil by primary or secondary methods are not qualified enhanced oil recovery costs. An offshore drilling platform used for primary or secondary recovery is not used for the primary purpose of implementing an enhanced oil recovery project. - (6) **Examples.** The following examples illustrate the principles of this [paragraph (c)](#c). - (d) **Costs paid or incurred prior to first injection—** - (1) **In general.** Qualified enhanced oil recovery costs may be paid or incurred prior to the date of the first injection of liquids, gases, or other matter (within the meaning of [§ 1.43-2(c)](/cfr/26/1.43-2.md?p=c)). If the first injection of liquids, gases, or other matter occurs on or before the date the taxpayer files the taxpayer's federal income tax return for the taxable year with respect to which the costs are allowable, the costs may be taken into account on that return. If the first injection of liquids, gases, or other matter is expected to occur after the date the taxpayer files that return, costs may be taken into account on that return if the Internal Revenue Service issues a private letter ruling to the taxpayer that so permits. - (2) **First injection after filing of return for taxable year costs are allowable.** Except as provided in [paragraph (d)(3)](#d-3) of this section, if the first injection of liquids, gases, or other matter occurs or is expected to occur after the date the taxpayer files the taxpayer's federal income tax return for the taxable year with respect to which the costs are allowable, the costs may be taken into account on an amended return (or in the case of a Coordinated Examination Program taxpayer, on a written statement treated as a qualified return) after the earlier of— - (i) The date the first injection of liquids, gases, or other matter occurs; or - (ii) The date the Internal Revenue Service issues a private letter ruling that provides that the taxpayer may take costs into account prior to the first injection of liquids, gases, or other matter. - (3) **First injection more than 36 months after close of taxable year costs are paid or incurred.** If the first injection of liquids, gases, or other matter occurs more than 36 months after the close of the taxable year in which costs are paid or incurred, the taxpayer may take the costs into account in determining the credit only if the Internal Revenue Service issues a private letter ruling to the taxpayer that so provides. - (4) **Injections in volumes less than the volumes specified in the project plan.** For purposes of this [paragraph (d)](#d), injections in volumes significantly less than the volumes specified in the project plan, the unit plan of development, or another similar plan do not constitute the first injection of liquids, gases, or other matter. - (5) **Examples.** The following examples illustrate the provisions of [paragraph (d)](#d) of this section. - (e) **Other rules—** - (1) **Anti-abuse rule.** Costs paid or incurred with respect to an asset that is acquired, used, or transferred in a manner designed to duplicate or otherwise unreasonably increase the amount of the credit are not qualified enhanced oil recovery costs, regardless of whether the costs would otherwise be creditable for a single taxpayer or more than one taxpayer. - (2) **Costs paid or incurred to acquire a project.** A purchaser of an existing qualified enhanced oil recovery project may claim the credit for any [section 43](/cfr/26/43.md) costs in excess of the acquisition cost. However, costs paid or incurred to acquire an existing qualified enhanced oil recovery project (or an interest in an existing qualified enhanced oil recovery project) are not eligible for the credit. - (3) **Examples.** The following examples illustrate the principles of [paragraph (e)](#e) of this section. # §1.43-5. At-risk limitation. [Reserved] # §1.43-6. Election out of section 43. - (a) **Election to have the credit not apply—** - (1) **In general.** A taxpayer may elect to have [section 43](/cfr/26/43.md) not apply for any taxable year. The taxpayer may revoke an election to have [section 43](/cfr/26/43.md) not apply for any taxable year. An election to have [section 43](/cfr/26/43.md) not apply (or a revocation of an election to have [section 43](/cfr/26/43.md) not apply) for any taxable year is effective only for the taxable year to which the election relates. - (2) **Time for making the election.** A taxpayer may make an election under [paragraph (a)](#a) of this section to have [section 43](/cfr/26/43.md) not apply (or revoke an election to have [section 43](/cfr/26/43.md) not apply) for any taxable year at any time before the expiration of the 3-year period beginning on the last date prescribed by law (determined without regard to extensions) for filing the return for the taxable year. The time for making the election (or revoking the election) is prescribed by [section 43(e)(2)](/cfr/26/43.md?p=e-2) and may not be extended under [§ 1.9100-1](/cfr/26/1.9100-1.md). - (3) **Manner of making the election.** An election (or revocation) under [paragraph (a)(1)](#a-1) of this section is made by attaching a statement to the taxpayer's federal income tax return or an amended return (or, in the case of a Coordinated Examination Program taxpayer, on a written statement treated as a qualified amended return) for the taxable year for which the election (or revocation) applies. The taxpayer must indicate whether the taxpayer is electing to not have [section 43](/cfr/26/43.md) apply or is revoking such an election and designate the project or projects to which the election (or revocation) applies. For any taxable year, the last election (or revocation) made by a taxpayer within the period prescribed in [paragraph (a)(2)](#a-2) of this section determines whether [section 43](/cfr/26/43.md) applies for that taxable year. - (b) **Election by partnerships and S corporations.** For partnerships and S corporations, an election to have [section 43](/cfr/26/43.md) not apply (or a revocation of an election to have [section 43](/cfr/26/43.md) not apply) for any taxable year is made, in accordance with the requirements of [paragraph (a)](#a) of this section, by the partnership or S corporation with respect to the qualified enhanced oil recovery costs paid or incurred by the partnership or S corporation for the taxable year to which the election relates. # §1.43-7. Effective date of regulations. The provisions of §§ [1.43-1](/cfr/26/1.43-1.md), [1.43-2](/cfr/26/1.43-2.md) and [1.43-4 through 1.43-7](/cfr/26/1.43-4..1.43-7.md) are effective with respect to costs paid or incurred after December 31, 1991, in connection with a qualified enhanced oil recovery project. The provisions of [§ 1.43-3](/cfr/26/1.43-3.md) are effective for taxable years beginning after December 31, 1990. For costs paid or incurred after December 31, 1990, and before January 1, 1992, in connection with a qualified enhanced oil recovery project, taxpayers must take reasonable return positions taking into consideration the statute and its legislative history.