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INTRODUCTION
On October 3, 2008, President Bush signed emergency legislation "[t]o provide authority for the Federal Government to purchase and insure certain types of troubled assets for the purposes of providing stability to and preventing disruption in the economy and financial system and protecting taxpayers, to amend the Internal Revenue Code of 1986 to provide incentives for energy production and conservation, to extend certain expiring provisions, to provide individual income tax relief, and for other purposes." * The legislation includes the Energy Improvement and Extension Act of 2008 (the "Energy Act"), which extends existing incentives for investments in alternative energy and provides new alternative energy incentives.2 The Energy Act also contains revenue-raising provisions applicable to the oil and gas industry, including an amendment to §907, effective for taxable years beginning after December 3 1 , 2008. The Energy Act extends the special foreign tax credit limitation under §907(a) for foreign income taxes associated with foreign oil and gas extraction income ("FOGEI") to foreign income taxes associated with foreign oil related income ("FORI").3 Beginning in 2009 (for a calendar year taxpayer), foreign income taxes associated with "combined foreign oil and gas income" ("FOGI") are allowed as credits against U.S. tax liability only to the extent they do not exceed the maximum U.S. tax rate applied to the amount of FOGI.
The Energy Act amendment to §907(a) reflects an apparent concern by Congress that taxpayers were characterizing certain high-taxed income and the associated taxes as FORI rather than FOGEI, which avoided the limitation on creditable FOGEI taxes. High taxes allocable to income characterized as FORI then could be used to offset U.S. tax on other lowtaxed foreign-source income. Based on a preliminary revenue estimate released by the Senate Finance Committee in September 2008, the §907 amendment is projected to increase federal tax revenues by $2.23 billion over 10 years.4
This article considers the potential impact of the §907 amendment on foreign tax credits arising from foreign oil and gas operations. The article first describes the statutory rules in effect immediately prior to the effective date of the Energy Act and the Energy Act changes to §907. It then provides a history of §907 and the related §901 dual capacity taxpayer regulations. Finally, the article provides examples...