Section 29 of the Internal Revenue Code specifies a credit of $3 for each barrel-of-oil equivalent (BOE.) of qualified fuel produced from a non-conventional source which is attributable to the taxpayer (through his or her interest in any legitimate manner - an ownership interest, limited partnership, royalty trust, etc.).
The credit is reduced as the average annual price of domestic oil falls within the $6 range starting at $23.50 and ending at $29.50. For example, if the average price of oil were $25.50, the credit would be $2.
Each year, the $3 BOE credit and the $6 phase-out range are multiplied by a inflation adjustment factor (IAF). The IAF for a given tax year is defined as the GNP implicit price deflator for the year divided by the GNP implicit price deflator for 1979, as reported by the Commerce Department.
The average price of oil for a given tax year -- or the reference price as it is called in the tax code -- is the Secretary of the Treasury's estimate of the annual average wellhead price per barrel of oil for all domestic crude oil not subject to regulation by the United States. Every year, the Secretary reports this reference price in the Federal Register.
The following table shows the relevant factors for prior years.