Sponsors (8)
The bill increases after-tax cash flow for oil and gas producers (especially small/marginal operators) via larger, inflation-protected depletion deductions, at the cost of lower federal revenue, stronger incentives for fossil fuels over clean energy, and additional compliance complexity.
Oil and gas producers — especially small independent operators and marginal-well owners — can claim larger depletion deductions (higher percentage up to 25% and a doubled depletable quantity per unit), increasing after-tax cash flow and lowering taxable income.
Indexing the $70 base by a producer price index preserves the real value of the depletion calculation over time, preventing inflation from eroding the tax relief for producers.
All taxpayers face reduced federal revenue from the expanded depletion rules, which could increase the deficit or force cuts or delays in other government spending and services.
The benefits mainly accrue to fossil fuel producers, likely tilting incentives toward oil and gas over clean-energy investment and worsening long-term environmental and climate outcomes.
The added indexing and reference-price mechanics increase compliance complexity for producers and administrative burden for the IRS (more annual tracking and calculations).
Based on analysis of 2 sections of legislative text.
Amends percentage depletion rules for marginal oil and gas properties: raises the applicable percent, doubles depletable barrels per unit, relaxes income limits, and indexes the price base after 2027.
Official title: Amend the Internal Revenue Code of 1986 to modify certain percentage depletion rules with respect to oil and gas wells.
Introduced May 20, 2026 by Roger Wayne Marshall · Last progress May 20, 2026
Changes how percentage depletion is calculated for marginal oil and gas properties and relaxes limits on using that depletion for taxable income. It raises the base percentage to 15% plus 1 percentage point for each whole dollar by which $70 exceeds the calendar-year reference crude oil price (capped at 25%), increases the per-unit depletable quantity from 1,000 to 2,000 barrels, and indexes the $70 base for years after 2027 using a drilling PPI adjustment. Also exempts the portion of depletion computed under the new formula from certain taxable-income limitations in the Internal Revenue Code. The changes apply to taxable years beginning after December 31, 2026.