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Reich case: economic implications of depletion allowances

Journal Article · · Geothermics; (United States)
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The Reich case was tried in the 1969 Tax Court of the United States and the Court held that geothermal steam is a gas and is an exhaustible resource at The Geysers field. Accordingly, all geothermal steam producers are now entitled to deduct as current expense the intangible costs of developing and drilling geothermal steam wells and all producers who can demonstrate that their geothermal steam resource is depletable are entitled to what is now a 22 percent depletion allowance. The key expert witness in the case was Dr. Henry J. Ramey, Jr. and a summary is presented of his monograph which was submitted as evidence. His conclusion, based on a reservoir engineering analysis, was that the geothermal resource at the Big Geysers area had, as of 1968, 20 to 46 years of productive life remaining. In the economics discussion, it is demonstrated that the corporate income tax discriminates against risky and capital-intensive industries such as oil and gas and geothermal. The central economic argument in favor of percentage depletion allowances and expensing privileges is that these provisions remove the discriminatory bias of corporate income taxes. The economic consequences of depletion allowances are: a short- and long-run increase in production; a short- and long-run increase in investment in renewal--exploration, discovery, and development; lower prices; a ratio of reserves to output--the Life Index--which tends to be constant; and a short-run increase in profits which encourages the entry of new firms and a long-run situation in which average rates of return are again equalized across industries.
Research Organization:
Univ. of Hawaii, Honolulu
OSTI ID:
7343854
Journal Information:
Geothermics; (United States), Journal Name: Geothermics; (United States) Vol. 4:1-4; ISSN GTMCA
Country of Publication:
United States
Language:
English

Similar Records

Reich, Arthur E. and Carolyn C. Reich vs Commission of Internal Revenue, U. S. Tax Court, July 31, 1969. [Depletion allowances for intangible costs of drilling and developing geothermal steam wells]
Journal Article · Tue Dec 31 23:00:00 EST 1968 · Tax Court Rep.; (United States) · OSTI ID:5198531
Reich, A. E. et al. vs Commissioner of Internal Revenue and G. D. Rowan et al. vs Commissioner of Internal Revenue. U. S. Court of Appeals, Ninth Circuit. January 21, 1972. [Judicial interpretation of IRS tax regulations relative to depletion allowance for geothermal well drilling and development; 26 CFR 1. 263(c), 1. 611(a), and 1. 613(b)]
Journal Article · Fri Dec 31 23:00:00 EST 1971 · Fed. Rep.; (United States) · OSTI ID:5198565
Sensitivity of rates of return and output to alternative tax scenarios: the case of the US Gulf of Mexico OCS
Journal Article · Mon Dec 31 23:00:00 EST 1984 · Energy J.; (United States) · OSTI ID:6016951

Related Subjects

15 GEOTHERMAL ENERGY
150400 -- Geothermal Energy-- Legislation & Regulations
150500* -- Geothermal Energy-- Economics
Industrial
& Business Aspects
29 ENERGY PLANNING, POLICY, AND ECONOMY
299002 -- Energy Planning & Policy-- Geothermal-- (-1989)
ECONOMICS
ENERGY
ENERGY SOURCES
GEOTHERMAL ENERGY
GEOTHERMAL FIELDS
GEYSERS GEOTHERMAL FIELD
LEGAL ASPECTS
RENEWABLE ENERGY SOURCES
RESERVES
RESOURCES
TAXES