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IRS, IDC's, and Farmouts: A Critical Analysis

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Publication Date: May 1977

Publisher(s): Heritage Foundation (Washington, D.C.)

Author(s): Milton R. Copulos

Topic: Banking and finance (Taxation and tax policy)
Energy (Petroleum industry)

Keywords: Taxes

Type: Report


In an attempt to alleviate the problem of individuals with high incomes paying little or no taxes, the Congress inadvertently placed a major barrier along the path towards energy sufficiency. With the enactment of certain provisions of the Tax Reform Act of 1976, Intangible Drilling Costs became a tax preference item. This change in the tax policies regarding IDCs has seriously reduced the amount of investment capital available for exploration and development in the oil industry. While there have been some moves attempting to alleviate the inequities created by the 1976 Act, they do not appear to present a complete solution to the problem. At present there remains a significant barrier to the availability of risk capital to independent drillers.