--- kind: "range" citation: "26 C.F.R. §§ 1.43-4–1.43-7" title: "26" from: "1.43-4" to: "1.43-7" count: 4 url: "https://uscodex.org/cfr/26/1.43-4..1.43-7" --- # §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.