Changes how certain drilling and development depreciation, depletion, and expense deductions are treated when calculating “adjusted financial statement income” for tax purposes. The amendment to the Internal Revenue Code specifies which drilling- and development-related deductions should be included on, or disregarded from, financial statements used to compute that adjusted income.

The change applies to taxable years beginning after December 31, 2025, and will affect companies that claim drilling and development cost deductions, the tax and accounting professionals who prepare returns and financial statements for them, and IRS administration of those rules.