Nielson-True Partnership, True Oil Company, Tax Matters Partner v. Commissioner , 109 T.C. No. 6 ( 1997 )

109 T.C. No. 6UNITED STATES TAX COURT
NIELSON-TRUE PARTNERSHIP, TRUE OIL COMPANY,
TAX MATTERS PARTNER, Petitioner v. COMMISSIONER
OF INTERNAL REVENUE, Respondent
Docket Nos. 12069-95, 3980-96. Filed September 9, 1997.
P owned an interest in two wells in the same tight
formation gas field. The field had been established
under statutory procedures as a tight formation field.
One well had been certified as producing tight
formation gas under the established Federal statutory
procedures, and the other had not. Congress provided a
tax credit incentive to develop, among other fuels,
tight formation gas. Sec. 29(c)(2)(A), I.R.C.,
requires that, as a prerequisite to the credit, "the
determination of whether any gas is produced from * * *
a tight formation shall be made in accordance with
section 503 of the Natural Gas Policy Act of 1978
[NGPA]", Pub. L. 95-621, 92 Stat. 3350, 3397, 15 U.S.C.
sec. 3413 (1988). NGPA sec. 503 was also the
procedural route to qualifying individual tight
formation gas wells for incentive (higher than ceiling)
price treatment administered by the Federal Energy
Regulatory Commission (FERC). Under NGPA sec. 503,
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related statutes, and FERC regulations, determinations
concerning tight formation gas were required for both
the field in which a well was situated and the
individual well. R determined that sec. 29, through
reference to NGPA sec. 503, required individual well-
category determinations to qualify for the tax credit.
P contends and R does not deny that but for the lack of
a certification under NGPA sec. 503, the well in
question would meet the qualifications for tight
formation gas. P contends that meeting the
qualification by definition (in substance) should
suffice and that actual certification is unnecessary.
Held: Sec. 29, I.R.C., when read in conjunction
with the provisions of NGPA sec. 503 and related
materials, requires an individual well tight formation
gas determination under the procedures of NGPA sec. 503
as prerequisite to tax credit eligibility.
Douglas A. Pluss and Ronald M. Morris, for petitioner.
Richard D. D'Estrada, for respondent.
GERBER, Judge: Respondent mailed to True Oil Co.
(petitioner), as tax matters partner, notices of final
partnership administrative adjustment with respect to Nielson-
True Partnership for the taxable years 1991 and 1992. The sole
adjustment and issue concerns respondent's disallowance of
section 291 credits in the amounts of $10,170 and $4,394 for 1991
and 1992, respectively.2
1
Unless otherwise indicated, section references are to the
Internal Revenue Code in effect for the taxable years at issue,
and Rule references are to this Court's Rules of Practice and
Procedure.
2
These cases were consolidated for purposes of trial,
briefing, and opinion.
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FINDINGS OF FACT3
On October 14, 1983, True Oil Co., the tax matters partner,
and Nielson Enterprises, Inc., a Delaware corporation, formed the
Nielson-True partnership. The partnership's principal place of
business was Casper, Wyoming, at the time the petition was filed.
The primary objective of the partnership was to drill two wells
in the "J" Sand formation in the Wattenberg Field in northern
Colorado, a gas field covering parts of several counties,
including Weld County, Colorado. Wells were drilled in Weld
County, known as the Alvin Vonasek "B" well (the Vonasek well)
and the Castor Hanson True well (the Hanson well). These wells
draw from the "J" Sand formation and produce only gas.
The Federal Energy Regulatory Commission (FERC or the
Commission) made an administrative determination that the "J"
Sand formation in the Wattenberg Field was a tight formation and
that the gas produced from that formation was tight formation
natural gas.4 The Commission's determination was pursuant to the
3
The parties' stipulated facts and exhibits are
incorporated by this reference.
4
A "tight formation" is a sedimentary layer of rock
cemented together in a manner that greatly hinders the
flow of any gas through the rock. Because such a
formation is characterized by low permeability, wells
drilled into gas-bearing formations of this kind
usually produce at very low rates. To stimulate
production from these formations, producers must use
expensive enhanced recovery techniques. [Citation
omitted.]
(continued...)
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Natural Gas Policy Act of 1978 (NGPA), Pub. L. 95-621, sec. 503,
92 Stat. 3350, 3397, 15 U.S.C. sec. 3413 (1988).
An unrelated corporation responsible for operating the wells
in the Wattenberg Field submitted a well-category determination
application to the local regulatory authority in Colorado for the
Vonasek well. In response, the State agency determined that the
Vonasek well was producing gas from a tight formation. This
determination became final and was not overturned or reversed by
FERC. The Vonasek and Hanson wells were part of a group of over
300 wells managed by the same operator. The individual wells in
the group were routinely submitted for a well determination by
the operator. Due to an oversight, no well-category
determination application was filed with the Colorado local
regulatory authority with respect to the Hanson well.
During 1991 and 1992, the partnership had a working interest
in the Vonasek and Hanson wells. Respondent allowed the
nonconventional fuels tax credits under section 29 for the
Vonasek well for 1991 and 1992. However, for the same tax years,
respondent disallowed the claimed tax credits for the Hanson well
4
(...continued)
Williams Natural Gas Co. v. FERC, 872 F.2d 438, 441 n.1 (D.C.
Cir. 1989) (quoting Order No. 99, Regulations Covering High-Cost
Natural Gas Produced From Tight Formations, 45 Fed. Reg. 56,034(Apr. 22, 1980)); see also Midwest Gas Users Association v. FERC,
833 F.2d 341, 345 (D.C. Cir. 1987); Pennzoil Co. v. FERC, 671
F.2d 119, 120 (5th Cir. 1982).
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on the grounds that no submission for a determination was made
for the Hanson well.
OPINION
This is a case of first impression stemming from
respondent's disallowance of a section 29 nonconventional fuels
tax credit (credit). The issue we consider is whether the Hanson
well qualifies for the credit even though it was not certified
under the procedures contained in NGPA sec. 503. The parties
approach the solution to this issue from different perspectives.
Respondent contends that the statutes involved expressly and
unambiguously require that a well-category determination must be
obtained from the specified authorities for entitlement to the
credit. Petitioner, contending that the statute is ambiguous,
construes the statute, when read in conjunction with the
legislative history and other indicators of congressional intent,
as permitting the credit without a formal procedural
determination if the well otherwise meets the definitional
requirements under the referenced statutory framework.
Section 29, formerly section 44D,5 was enacted by the Crude
Oil Windfall Profit Tax Act of 1980 (COWPTA), Pub. L. 96-223,
sec. 231, 94 Stat. 229, 268. This section was entitled "Credit
5
Congress enacted sec. 44D in 1980. See Crude Oil Windfall
Profit Tax Act of 1980, Pub. L. 96-223, sec. 231(a), 94 Stat.
268. In the Deficit Reduction Act of 1984, Pub. L. 98-369, sec.
471(c)(1), 98 Stat. 826, Congress redesignated sec. 44D as sec.
29.
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For Producing Fuel From A Nonconventional Source", and it was
intended to encourage the development of alternative energy
sources and to provide producers of alternative fuels with
protection against significant decreases in the average wellhead
price for uncontrolled domestic oil. See S. Rept. 96-394, at 87
(1979), 1980-3 C.B. 131, 205; H. Conf. Rept. 96-817, at 139
(1980), 1980-3 C.B. 245, 299; see also Texaco Inc. v.
Commissioner, 101 T.C. 571, 574-575 (1993).
Section 29(a) provides for a tax credit for qualified fuels
produced by a taxpayer and sold to an unrelated person. Section
29(c)(1)(B)(i) lists gas produced from a tight formation as one
of the qualified fuels. Section 29(c)(2)(A), in pertinent part,
states that "the determination of whether any gas is produced
from * * * a tight formation shall be made in accordance with
section 503 of the * * * [NGPA]."
The parties differ in their interpretations of the term
"determination". Respondent contends that, as a prerequisite to
obtaining the credit, a tight formation well-category
determination must be obtained by compliance with the application
and approval procedures of NGPA section 503. Respondent concedes
that the local regulatory authority and the Commission provided
determinations that the Wattenberg Field "J" Sand formation
contained tight formation gas. Respondent also concedes that the
Hanson well was drilled in the Wattenberg Field "J" Sand
formation and produced gas that would meet FERC's standards as
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tight formation gas. Respondent's position relies solely on the
absence of a well-category determination under NGPA section 503
for the Hanson well.
Petitioner proposes several arguments, the main thrust of
which is that the use of the term "determination" in the statute
does not result in the requirement of a well-category
determination from FERC or under NGPA section 503. Petitioner
contends that the NGPA section 503 reference in section 29
provides a means to a substantive definition for tight formation
gas and was not intended to require an actual certification under
the NGPA. We agree with respondent.
Section 29 does not literally support the result petitioner
seeks. The use of the term "determination" and the reference in
section 29(c)(2) to NGPA section 503 would require a reading of
both sections to fully understand the requirements and meaning of
section 29. In construing a statute, courts seek the plain and
literal meaning of the language. United States v. Locke, 471
U.S. 84, 95-96 (1985); United States v. American Trucking
Associations, Inc., 310 U.S. 534, 543 (1940). In that regard,
words in revenue acts are generally interpreted in their
"ordinary, everyday senses". Commissioner v. Soliman, 506 U.S.
168, 174 (1993) (quoting Malat v. Riddell, 383 U.S. 569, 571
(1966) (quoting Crane v. Commissioner, 331 U.S. 1, 6 (1947))).
On the other hand, words with a recognized legal or
judicially settled meaning are generally presumed to have been so
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utilized, unless such an interpretation will lead to absurd
results. See United States v. Locke, supra at 93, 95-96; United
States v. Merriam, 263 U.S. 179, 187 (1923); Lenz v.
Commissioner, 101 T.C. 260, 265 (1993) (citing United States v.
American Trucking Associations, Inc., supra at 542-543).
Our principal objective in interpreting any statute is to
determine Congress' intent in using the statutory language being
construed. United States v. American Trucking Associations,
Inc., supra at 542; Helvering v. Stockholms Enskilda Bank, 293
U.S. 84, 93-94 (1934); General Signal Corp. v. Commissioner, 103
T.C. 216, 240 (1994). In order to interpret Congress' intent
here, we must analyze section 29 and the NGPA section referenced
in section 29.
With these general principles in mind, we consider the
phrase "the determination of whether any gas is produced from
* * * a tight formation shall be made in accordance with section
503 of the Natural Gas Policy Act of 1978."6 Section 29 does not
6
This phrase appears in section 29(c) in the following
manner:
SEC. 29(c). Definition of Qualified Fuels.--For
purposes of this section--
(1) In general.--The term "qualified fuels"
means--
(A) oil produced from shale and tar sands,
(B) gas produced from--
(continued...)
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contain a definition of tight formation gas for purposes of the
nonconventional fuels tax credit. Section 29 simply provides
that the "determination" of "whether any gas is produced from
* * * a tight formation shall be made in accordance with [NGPA]
section 503". By way of contrast, another part of section 29
references NGPA section 2(18), 92 Stat. 3354, 15 U.S.C. sec. 3301
(1988), as providing the definition of the phrase "committed or
dedicated to interstate commerce". See sec. 29(c)(2)(B)(i).
NGPA section 5037 contains procedures by which particular
types of natural gas may qualify for certain price incentives
6
(...continued)
(i) geopressured brine, Devonian shale,
coal seams, or a tight formation, or
(ii) biomass, and
(C) liquid, gaseous, or solid synthetic fuels
produced from coal (including lignite), including
such fuels when used as feedstocks.
(2) Gas from geopressured brine, etc.--
(A) In general.--Except as provided in
subparagraph (B), the determination of whether any
gas is produced from geopressured brine, Devonian
shale, coal seams, or a tight formation shall be
made in accordance with section 503 of the Natural
Gas Policy Act of 1978. [Emphasis added.]
7
We note that the Natural Gas Wellhead Decontrol Act of
1989 (Decontrol Act), Pub. L. 101-60, sec. 3(b)(5), 103 Stat.
157, 159, eliminated wellhead and nonprice controls on the first
sale of natural gas. Sec. (3)(b)(5) of the Decontrol Act
repealed the Natural Gas Policy Act of 1978 (NGPA), Pub. L. 95-
621, sec. 503, 92 Stat. 3350, 3397, 15 U.S.C. sec. 3413 (1988),
effective Jan. 1, 1993.
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regulated by FERC. NGPA section 503, however, does not contain a
specific reference to or definition of "tight formation gas".
NGPA section 503 does contain reference to several categories of
natural gas which are covered under its procedures, including
"high-cost natural gas". See 15 U.S.C. sec. 3413(a)(1)(D).
NGPA section 503 was enacted in 1978 and did not
specifically mention tight formation gas. The introduction of
tight formation gas to the price incentive provisions, including
NGPA section 503, did not occur until some later time. The
introduction of tight formation gas into this scenario occurred
as described in Williams Natural Gas Co. v. FERC, 872 F.2d 438,
441 (D.C. Cir. 1989), as follows:
NGPA section 107(c)(5) gives the * * * [FERC] the power
to prescribe an incentive price for high-cost natural
gas which does not fit within the categories enumerated
in section 107(c)(1)-(4). On July 16, 1979, President
Carter recommended the establishment of incentives for
the production of "tight formation" natural gas. After
conducting a rulemaking, * * * [FERC] promulgated
regulations establishing incentive prices for tight
formation gas. [Fn. ref. omitted.]
The courts thereafter held that NGPA section 503 is the
procedural mechanism for the determination of whether a
particular well's production qualifies for the price incentive as
tight formation gas vis-a-vis the NGPA section 503 category
"high-cost natural gas". See, e.g., Williston Basin Interstate
Pipeline Co. v. FERC, 816 F.2d 777, 780 (D.C. Cir. 1987).
NGPA section 503 contains a four-step process by which
determinations may be obtained. First, the local regulatory
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authority (local authority) recommended that a field be
designated as a tight formation.8 Second, FERC could affirm,
reverse, remand, issue a preliminary finding, or take no action
on the local authority's recommendation. If no action was taken
by FERC, the local authority's recommendation became final 45
days after receipt of the recommendation by FERC. If FERC issued
preliminary findings but failed to take further action, the local
authority's recommendation became final 120 days after the date
FERC's preliminary finding was issued. The third procedural step
permitted an interested producer to petition the local authority
for its recommendation that a particular well within the
designated tight formation field should be classified as a tight
formation well. Fourth, FERC could affirm, reverse, remand,
issue a preliminary finding, or take no action on the local
authority's recommendation with respect to a specific well. As
in step 2, the local authority's individual tight formation well
recommendation became final 45 days from the date FERC received
the recommendation unless FERC issued a preliminary finding. In
the event that FERC issued a preliminary finding, FERC had 120
days from the preliminary finding to take further action or the
8
NGPA sec. 503, 15 U.S.C. sec. 3413(c)(1), defines the
local regulatory authority as the "Federal or State agency having
regulatory jurisdiction with respect to the production of natural
gas."
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local authority's recommendation became final.9 Finally,
judicial review was available under NGPA section 503, but only in
the event that FERC remanded or reversed the local authority's
recommendation. 15 U.S.C. sec. 3413(b)(4).
For purposes of obtaining the gas price incentives, the
four-step process outlined above is mandatory and not severable
or elective. A well owner may not qualify merely by producing
from a well located in a field that has been determined to be a
tight formation. In addition to a field determination, the well
owner must obtain a determination that each well produces tight
formation gas. See, e.g., Enserch Exploration, Inc. v. FERC, 887
F.2d 81, 82 (5th Cir. 1989); FERC Order No. 479, issued July 29,
1987, 52 Fed. Reg. 29003 (Aug. 5, 1987).
Regulations under the NGPA indicate that the Wattenberg "J"
Sand formation had been finally determined to contain tight
formation gas. See 18 C.F.R. sec. 271.703(d)(11) (1988). The
Wattenberg "J" field is located north and east of Denver and
underlies approximately 703,000 acres situated within four
different counties. See 18 C.F.R. sec. 271.703(d)(11)(i).
Accordingly, it is a relatively large area within which many
wells may be situated. The parties do not dispute and the case
law supports the principle that to be entitled to the price
9
See Ecee, Inc. v. FERC, 645 F.2d 339, 345-353 (5th Cir.
1981), for a discussion of the statutory division of
responsibilities between the Commission and the local authority.
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incentives administered by FERC under NGPA section 107(c)(5), 92
Stat. 3366, 15 U.S.C. sec. 3317 (1988), a well owner would be
required to obtain a determination, under the NGPA section 503
procedures with respect to each individual well, that it produced
"tight formation gas". The question is whether that same
requirement ensues for the tax credit from the section 29
reference to a determination under NGPA section 503.
Petitioner argues that the statutory ambiguity permits its
use of the legislative history and other pertinent material to
interpret the intent of the statute. Although we agree that in
this instance we must look beyond the statutory language, it is
difficult to reach the conclusion proposed by petitioner,
considering the statutory language and case precedent concerning
NGPA section 503. For example, could Congress, by incorporating
the reference to NGPA section 503 in section 29, have intended
that one procedural standard would be applied to determine
whether a well is a tight formation well for price incentives and
that a different approach and procedural standard would apply for
income tax credits where both programs are to be governed
procedurally pursuant to NGPA section 503? This must be the case
for petitioner to prevail.
A statutory term should be given its common and ordinary
meaning, unless persuasive evidence or context indicates
otherwise. Commissioner v. Soliman, 506 U.S. at 174;
Commissioner v. Brown, 380 U.S. 563, 570-571 (1965). The word
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"determination" has been generally defined to mean the act of
settling a dispute, suit, or other question by an authoritative
decision, or the ascertainment or establishment of the extent,
quality, position, or character of something. Webster's II New
Riverside University Dictionary 369 (1984). In the legal sense,
a "determination" is a "decision of a court or administrative
agency" and, also, a "judgment and decision after weighing [all]
the [relevant] facts." Black’s Law Dictionary 450 (6th ed.
1990). Consequently, we do not find the term "determination"
made in accordance with NGPA section 503 to be ambiguous.
Section 29(c)(2) cannot be literally interpreted in a manner
other than that it requires a determination under the procedures
of NGPA section 503.
Petitioner's contention that a well-category determination
is not a prerequisite for eligibility for the tax credit is not a
plausible literal interpretation of section 29. That is
especially so when NGPA section 503 is considered in tandem with
section 29, wherein it is referenced. Certainly, section 29 does
not mean that respondent possessed the expertise or statutory
authority to make determinations of whether gas was from a tight
formation for tax credit purposes.10 Petitioner's approach does
10
Congress considered granting but did not grant authority
to the U.S. Department of the Treasury to make determinations
under NGPA sec. 503 in the Tax Simplification Act of 1993. See
infra note 12. These determinations by the U.S. Department of
the Treasury were to be made consistent with NGPA sec. 503.
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not comport with the overall statutory design for obtaining the
benefit of the tax credit.
Petitioner relied heavily on the legislative history to
present its position. Petitioner contends that the legislative
history reveals Congress' intent that section 29 required that a
well meet the definition of a tight formation as utilized by FERC
in the NGPA section 503 administrative process. Although the
legislative history does contain some references to possibilities
for employing definitions established by FERC, those references
do not provide a basis for holding that the term "determination"
should be interpreted differently from its usual and established
meaning. Our examination of petitioner's argument leads us to
the same conclusion whether or not we consider the statute to be
ambiguous. In addition, we may seek out any reliable evidence as
to the legislative purpose even where the statute is clear.
United States v. American Trucking Associations, Inc., 310 U.S.
at 543-544; Centel Communications Co. v. Commissioner, 92 T.C.
612, 628 (1989), affd. 920 F.2d 1335 (7th Cir. 1990).
Congress enacted the NGPA in response to a generally growing
demand for natural gas and rising prices for energy in the late
seventies and early eighties. Williams Natural Gas Co. v. FERC,
872 F.2d at 440; ANR Pipeline Co. v. FERC, 870 F.2d 717, 719
(D.C. Cir. 1989). Producers of gas from tight formations could
qualify for incentive gas prices higher than the ceiling. These
incentive prices were valuable when uncontrolled gas prices were
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high but did little to encourage development of high-cost tight
formation gas when prices were low. See Texaco Inc. v.
Commissioner, 101 T.C. 571 (1993). Consequently, in enacting the
nonconventional energy production tax credit under section 29
(formerly section 44D), Congress provided an additional incentive
to compensate for the extra costs and risks of producing high-
cost fuel, including tight formation gas. See S. Rept. 96-394,
at 87 (1979), 1980-3 C.B. 131, 205.
Turning to the legislative history, the nonconventional
fuels tax credit first appeared in COWPTA. The conference
committee report states:
For purposes of the credit, the definition of
natural gas from geopressured brine, coal seams, and
Devonian shale is the same as that determined by the
Federal Energy Regulatory Commission (FERC) under the
Natural Gas Policy Act of 1978 (NGPA). Until FERC
defines the term "tight formation" under section
107(c)(5) of the NGPA, tight sands gas is defined in
terms of average matrix permeability to gas. [H. Conf.
Rept. 96-817, at 138 (1980), 1980-3 C.B. 245, 298.]
In addition, the conference report for the COWPTA stated:
Conference agreement.--The conference agreement
adopts a modified version of the Senate amendment.
This provision is intended to provide producers of
alternative fuels with protection against significant
decreases in the average wellhead price for the
uncontrolled domestic oil, with which alternative fuels
frequently compete. * * *
* * * * * * *
Sources eligible for the credit, and the
definitions of those sources, generally are the same as
those in the Senate amendment. Natural gas produced
from a tight formation, however, has the same
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definition as that determined by the FERC under the
NGPA * * * [Id. at 139-140, 1980-3 C.B. at 299-300.]
Finally, the staff of the Joint Committee's General Explanation
of COWPTA contains the statement that
For purposes of the credit, the definition of
natural gas from geopressured brine, Devonian shale,
coal seams, or a tight formation is that determined by
the Federal Energy Regulatory Commission in accordance
with section 503 of the Natural Gas Policy Act of 1978
(NGPA). * * *
Staff of Joint Comm. on Taxation, General Explanation of the
Crude Oil Windfall Profit Tax Act of 1980, at 81 (J. Comm. Print
1981).
Accordingly, portions of the legislative history contain the
expectation that FERC would create a definition of tight
formation gas to be utilized for purposes of obtaining the tax
credit. Petitioner contends that, by use of the term
"determination", Congress intended to incorporate the definition
to be promulgated by FERC, rather than to require a well-category
determination for each specific well under NGPA section 503. We
could agree that Congress expected that FERC would ultimately
define "tight formation" gas. But Congress' choice of the term
"determination", rather than "definition", in section 29 leaves
petitioner's contentions without statutory support or substance.
Petitioner also argues that Congress retained the
"determined in accordance with section 503" language of section
29(c)(2)(A) even though the statutory authority under the NGPA to
make determinations under section 503 for most new tight
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formation gas was revoked by the Natural Gas Wellhead Decontrol
Act of 1989 (Decontrol Act), Pub. L. 101-60, sec. 3(b)(5), 103
Stat. 157, 159, effective January 1, 1993. In other words,
petitioner argues that FERC and the relevant local regulatory
agencies did not have the authority to issue well-category
determinations after that date. Petitioner also argues that, as
a general matter, the Omnibus Budget Reconciliation Act of 1990,
Pub. L. 101-508, sec. 11501, 104 Stat. 1388-479, extended and
liberalized the availability of the tax credit for tight
formation gas for wells drilled before January 1, 1993. In that
regard, the section 29 credit for tight formation gas is
allowable beyond January 1, 1993.
Conversely, respondent points out that FERC announced that
it would continue processing well-category determinations until
January 1, 1993, in order for producers to qualify for
nonconventional fuels tax credits. FERC Order No. 523, 55 Fed.
Reg. 17425 (Apr. 25, 1990). Respondent also relies on
legislative history in connection with the repeal of the
incentive-pricing provisions of the NGPA containing the statement
that the repeal was not intended to affect the availability of
the nonconventional fuels tax credit. See S. Rept. 101-39, at 9
(1989). Finally, respondent points out that Congress considered
making the nonconventional fuels tax credit permanent but
extended for only 2 years the time within which a well had to be
drilled to qualify. This extension was intended to coincide with
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the effective date of the repeal of the NGPA, so that the
processing of well-category determinations could be continued.
Consequently, respondent argues this leads to the conclusion that
FERC and other local regulatory agencies were authorized to make
well-category determinations.11
11
These circumstances were described in Marathon Oil Co. v.
FERC, 68 F.3d 1376, 1377-1378 (D.C. Cir. 1995), as follows:
Effective January 1, 1993, the Natural Gas
Wellhead Decontrol Act of 1989 repealed NGPA price
controls on wellhead sales of natural gas. As a result
of the Decontrol Act, the Commission eliminated
incentive prices for tight formation gas produced from
wells "spudded" * * * or "recompleted" after May 12,
1990. A year later, however, the Omnibus Budget
Revenue Reconciliation Act of 1990 instituted a tax
credit for natural gas from newly drilled wells in
tight formations. In order to be eligible for the tax
credit, the natural gas must (1) be produced from a
well drilled or a facility placed in service after
December 31, 1979 and before January 1, 1993 and (2) be
sold before January 1, 2003. The Budget Act further
provides that "the determination of whether any gas is
produced from * * * a tight formation shall be made in
accordance with section 503 * * * [NGPA]." Thereafter,
the Commission [FERC] announced its intention to
continue to process the initial determinations of
agencies despite their loss of regulatory significance,
until January 1, 1993. The Commission later extended
this deadline to April 30, 1994 so long as the
application for an initial determination was filed with
the agency by December 31, 1992. However, the
Commission said that it "will not accept determinations
where the well was spudded or recompletion commenced on
or after January 1, 1993." Explaining the reason for
continuing to review agency determinations for a
transition period, the Commission stated that "while
NGPA Section 107 well category determinations have no
price consequence, they are necessary to obtain the
Section 29 tax credit." [Citations omitted.]
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We are persuaded that Congress intended to couple the
eligibility for the section 29 credit with the obtaining of well-
category determinations under NGPA section 503. In particular,
the legislative history of the Decontrol Act indicates that the
repeal of FERC's determination review providing for incentive
pricing in NGPA section 503 was not intended to affect the
availability of the nonconventional fuels tax credit. S. Rept.
101-39, supra at 9.12
Equally significant, the aforementioned congressional action
illustrates an understanding that section 29 was linked with a
procedural determination under NGPA section 503. Petitioner's
perspective is that the FERC determination process was left in
place to continue the process of defining tight formation gas.
Even if that was the basic reason for extension, the section 29
statutory language plainly requires a "determination" under NGPA
section 503.
12
See also Staff of Joint Comm. on Taxation, Technical
Explanation of the Tax Simplification Act of 1993, at 204 (J.
Comm. Print 1993). (The Tax Simplification Act of 1993 was not
enacted.) That report contains the statement that
In order to ensure that qualifying gas production
from such wells in fact will receive the credit, it is
believed necessary to continue the well and formation
determination process for periods after * * * [the
Commission] discontinues its role in this process. [Id.
at 205; emphasis added.]
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Petitioner also relies on Rev. Rul. 93-54, 1993-2 C.B. 3,13
for the proposition that a well-category determination is not
necessary to qualify for the tax credit. In Rev. Rul. 93-54,
supra, the Commissioner held that if a well is drilled after
December 31, 1979, and prior to January 1, 1993, but is
"recompleted" after January 1, 1993, and if the "recompletion"
does not involve additional drilling to deepen or extend the
well, the production qualifies for the tax credit.14 Rev. Rul.
93-54, supra, however, does not concern the question of whether a
determination must be obtained under NGPA section 503 in order to
be entitled to the tax credit. The ruling assumes prior
qualification, and under the circumstances described, holds that
further qualification is unnecessary. It should also be noted
that petitioner's argument is also undermined by timing, because
the Commissioner issued this ruling after the repeal of section
29. Petitioner references other weaker arguments (analogous and
tangential materials) in support of its position that section 29
should not be read as requiring an individual well-category
determination by FERC. Petitioner's arguments individually or
13
It is noted that we treat the Commissioner's rulings as
having no more authority than that of the position of a party.
See Gordon v. Commissioner, 88 T.C. 630, 635 (1987); Estate of
Lang v. Commissioner, 64 T.C. 404, 407 (1975), affd. in part and
revd. in part 613 F.2d 770 (9th Cir. 1980).
14
Petitioner defines "recompletion" by means of the
example: "the well was later completed into a different,
shallower reservoir".
- 22 -
collectively are insufficient to overcome the use of the term
"determination" and the requirement of a specific well-category
determination under NGPA section 503.
Accordingly, we hold that an individual well-category
determination must be obtained in order to qualify for the
section 29 tax credit attributable to tight formation gas.
To reflect the foregoing,
Decisions will be entered
for respondent.