96 STAT. 2394
PUBLIC LAW 97-448—JAN. 12, 1983 as produced by the parties to such agreement in proportion to their respective shares (determined after reduction for such cost recovery oil) of the production of the crude oil covered by such agreement. "(ii) CLAUSE (i) NOT TO APPLY BEFORE PAYOUT.—In the
26 USC 4996.
case of any property, clause (i) shall only apply for— "(I) the first taxable period in which, under the agreement with respect to such property, one or more persons receives a share described in subsection (h)(1)(B), and "(II) all subsequent taxable periods to which such agreement applies.". (B) Subparagraph (A) of such paragraph (1) is amended by striking out "subparagraph (B)" and inserting in lieu thereof "subparagraphs (B) and (C)". (C) Section 4996 (relating to other definitions and special rules) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection: "(h) TERMS USED IN SUBSECTION (a)(1)(B).—For purposes of subsec-
26 USC 4988.
tion (a)(l)(B) and this subsection— "(1) NET PROFITS AGREEMENT.—The term 'net profits agreement' means an agreement entered into (or renewed) after March 31, 1982, and providing for sharing part or all of the production of crude oil from a property where— "(A) 1 or more persons are to be reimbursed for qualified costs by the allocation of cost recovery oil, and "(B) 1 or more persons are to receive a share of any production of crude oil from the property remaining after reduction for the cost recovery oil referred to in subparagraph (A). "(2) COST RECOVERY OIL DEFINED.—The term 'cost recovery oil' means crude oil produced from the property which is allocated to a person as reimbursement for qualified costs paid or incurred with respect to the property. The Secretary shall by regulation prescribe rules for allocating the cost recovery oil to the oil produced from the property. "(3) QUALIFIED COSTS.—The term 'qualified costs' means any amount paid or incurred for exploring for, or developing or producing, 1 or more oil or gas wells on the property. "(4) SCOPE OF AGREEMENT.—A net profits agreement shall be treated as covering only shares of production of crude oil held by persons who hold economic interests in the property (determined without regard to subsection (a)(1)(B))." (D) Subsection (b) of section 4988 (relating to net income limitation on windfall profit) is amended by adding at the end thereof the following new paragraph: "(6) COST RECOVERY OIL COVERED BY NET PROFITS AGREEMENT.—
For purposes of paragraph (2), if any person is treated under section 4996(a)(1)(B) as the producer of any portion of the cost recovery oil covered by a net profits agreement (within the meaning of section 4996(h))— "(A) such person (and only such person) shall include in his gross income from the property the gross income from such portion, and
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