Sponsors (8)
Introduced March 20, 2026 by Tracey Mann · Last progress March 20, 2026
The bill boosts after‑tax income and near‑term viability for small and marginal oil and gas producers by expanding and indexing depletion deductions, at the cost of reduced federal revenue, a bias toward continued fossil fuel production over cleaner alternatives, and added tax-administration complexity.
Small oil and gas producers and operators (including small business owners and marginal-well operators) will pay lower federal income taxes because the bill raises the maximum percentage depletion allowance to 25% and doubles the per‑well depletable oil quantity from 1,000 to 2,000 barrels, increasing depletion deductions for marginal properties.
Energy producers (especially small and marginal operators) will be protected from inflation-driven erosion of the depletion formula because the bill indexes the $70 baseline to the Producer Price Index for drilling after 2027.
Producers of marginal wells and related small businesses and communities may see improved cash flow and stronger economic viability for marginal production, which can preserve jobs and local economic activity in producing regions.
All taxpayers and the federal budget will face lower revenue because larger depletion deductions expand tax expenditures, which could increase the deficit or require cuts/offsets elsewhere.
Energy consumers, the public, and climate-affected communities face environmental risks because the tax preference strengthens the economics of fossil fuel production and could slow incentives to invest in cleaner energy.
Taxpayers, financial institutions, and the IRS will incur added complexity and compliance costs due to the commodity-price linkage and PPI indexing, increasing administrative burden and potential disputes over reference prices and averages.
Based on analysis of 2 sections of legislative text.
Increases and indexes percentage depletion benefits for marginal oil and gas properties, raises the depletable oil threshold, and exempts those depletion claims from certain statutory limits.
Changes the tax rules that let small or “marginal” oil and gas producers deduct a percentage of their gross income (percentage depletion). It sets a new sliding “applicable percentage” that starts at 15% and rises with lower oil prices (capped at 25%), raises the volume threshold that defines small oil properties from 1,000 to 2,000 barrels, and exempts these marginal-property depletion amounts from certain existing limits on percentage depletion. The bill also indexes the $70 reference price used in the percentage formula for years after 2027 to a Producer Price Index for drilling wells, and takes effect for taxable years beginning after December 31, 2026. The change increases tax benefits for qualifying small oil and gas producers and may reduce federal tax receipts relative to current law.