Credit for Oil and Gas Production From Marginal Wells

Instructions for Form 8904

Department of the Treasury
Internal Revenue Service

(Rev. December 2018)

Credit for Oil and Gas Production From Marginal Wells

Carryback and Carryforward of
Unused Credit

Section references are to the Internal Revenue Code
unless otherwise noted.

General Instructions
Future Developments

For the latest information about developments related to
Form 8904 and its instructions, such as legislation
enacted after they were published, go to IRS.gov/
Form8904.

Purpose of Form

The section 45I credit for oil and gas production from
marginal wells is applicable for tax years beginning in
2017 for qualified natural gas production (the credit
remains phased out for crude oil production). The credit is
part of the section 38 general business credit.
At the time these instructions were printed, the
credit for qualified natural gas production for tax
CAUTION years beginning in 2018 had not been
determined. Go to IRS.gov/Form8904 for the latest
information.

!

Partnerships and S corporations must file this form to
claim the credit. All other taxpayers aren’t required to
complete or file this form if the only source of the credit is
a partnership or S corporation. Instead, they can report
the credit directly on Form 3800, General Business Credit.
For tax years beginning in 2017, use the 2017 Form 3800,
Part III, line 1zz.

Amount of Credit

The credit is generally $3 per barrel of qualified crude oil
production and $0.50 per 1,000 cubic feet of qualified
natural gas production. The $3 and $0.50 amounts are
subject to a statutory reduction and must be adjusted by
the inflation adjustment factor (IAF) for the calendar year.
The reduction and IAF for each calendar year will be
provided in the Internal Revenue Bulletin (IRB). For tax
years beginning in 2017, the credit amount is $0.51 per
thousand cubic feet of qualified natural gas production.
See Notice 2018-52, available in IRB-2018-22.
An owner of a marginal well may claim the credit any
time within 3 years from the due date (excluding
extensions) of its return on either its original or an
amended return. If you filed your 2017 return on or before
October 2, 2018, and either didn't claim the credit or
claimed the credit in an amount that differs from the
amount determined using the credit amount stated in
Notice 2018-52, you may file an amended return using the
applicable credit amount stated in that notice.

Oct 24, 2018

If you have an unused credit after carrying it back to each
of the preceding 5 tax years (not just 1), then carry it
forward to each of the 20 tax years after the year of the
credit.

Definitions
Qualified marginal well means a domestic well with the
production from which during the tax year:
• Is treated as marginal production under section 613A(c)
(6); or
1. Has average daily production of not more than 25
barrel-of-oil equivalents (as defined in section 45K(d)(5)),
and
2. Produces water at a rate not less than 95% of total
well effluent.
Crude oil, natural gas, domestic, and barrel have the
meanings defined in section 613A(e).

Other Rules
Production attributable to the taxpayer. If a qualified
marginal well has more than one owner of operating
interests in the well and the crude oil or natural gas
production exceeds the limitation under section 45I(c)(2),
qualifying crude oil production or qualifying natural gas
production attributable to the taxpayer is determined on
the basis of the ratio of the taxpayer's revenue interest in
the production to the aggregate of the revenue interests of
all operating interest owners in the production.
Maximum production. Crude oil or natural gas
produced during any tax year from any well won't be
treated as qualified crude oil production or qualified
natural gas production to the extent production from the
well during the tax year exceeds 1,095 barrels or
barrel-of-oil equivalents (as defined in section 45K(d)(5)).
For short tax years, the maximum qualified production
is proportionately reduced by the ratio of the number of
days in the short tax year to 365 days.
If a well isn't capable of production during each day of a
tax year, the maximum qualified production applicable to
the well is proportionately reduced by the ratio of the
number of days of production to the total number of days
in the tax year.
Operating interest required. The credit may be claimed
only on production which is attributable to the holder of an
operating interest.
Production from nonconventional sources excluded.
For production from a qualified marginal well which is
eligible for the section 45K nonconventional source fuel
credit for the tax year, no credit is allowable unless an

Cat. No. 70462A

• Schedule K-1 (Form 1065), Partner's Share of Income,
Deductions, Credits, etc., box 15 (code P); and
• Schedule K-1 (Form 1120S), Shareholder's Share of
Income, Deductions, Credits, etc., box 13 (code P).

election is made not to claim the section 45K credit for
that well.

Specific Instructions

Partnerships and S corporations must report the credit
on line 7. All other filers figuring a separate credit on
earlier lines must also report the credit on line 7. All others
not using earlier lines to figure a separate credit can report
the credit directly on Form 3800, as explained under
Purpose of Form, earlier.

Line 2

For tax years beginning in 2017, enter the credit amount
of $0.51 on line 2.

Lines 4, 5, and 6

Reserved for future use.

Line 7

Enter total credit for oil and gas production from marginal
wells from:
Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the
United States. You are required to give us the information. We need it to ensure that you’re complying with these laws
and to allow us to figure and collect the right amount of tax.
You aren’t required to provide the information requested on a form that is subject to the Paperwork Reduction Act
unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be
retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax
returns and return information are confidential, as required by section 6103.

h

The time needed to complete and file this form will vary depending on individual circumstances. The estimated burden
for individual and business taxpayers filing this form is approved under OMB control number 1545-0074 and 1545-0123
and is included in the estimates shown in the instructions for their individual and business income tax return. The
estimated burden for all other taxpayers who file this form is shown below.
Recordkeeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Learning about the law or the form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preparing and sending the form to the IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 hr., 54 min.
30 min.
33 min.

If you have comments concerning the accuracy of these time estimates or suggestions for making this form simpler,
we would be happy to hear from you. See the instructions for the tax return with which this form is filed.

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Instructions for Form 8904 (Rev. December 2018)