California Enhanced Oil Recovery Credit

Enhanced Oil Recovery Credit
2021 California Form 3546 Enhanced Oil Recovery Credit
CALIFORNIA FORM

TAXABLE YEAR

2021

Enhanced Oil Recovery Credit

Attach to your California tax return.

3546
□ SSN or ITIN □ CA Corporation no. □ FEIN

Name(s) as shown on your California tax return

California Secretary of State file number

Available Credit
1 Qualified enhanced oil recovery costs. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Current year credit. Multiply line 1 by 5.00% (.0500) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 Pass-through enhanced oil recovery credit from Schedule K-1 (100S, 541, 565, or 568). See instructions. 3
4 Total current year enhanced oil recovery credit. Add line 2 and line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
5 Credit carryover from 2020. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 Total available enhanced oil recovery credit. Add line 4 and line 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 a Credit claimed. Enter the amount of the credit claimed on the current year tax return. See instructions.
(Do not include any assigned credit claimed on form FTB 3544, Part B.) . . . . . . . . . . . . . . . . . . . . . . . . . 7a
b Total credit assigned. Enter the total amount from form FTB 3544, Part A, column (g).
If you are not a corporation, enter -0-. See instructions.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7b
8 Credit carryover available for future years. Add line 7a and line 7b, subtract the result from line 6. . . . . . . . 8

General Information
California allows an enhanced oil recovery
credit similar to the federal enhanced oil
recovery credit under Internal Revenue
Code (IRC) Section 43, with exceptions.
Unless specifically identified otherwise,
references in these instructions are to
the IRC as of January 1, 2015, and to
the California Revenue and Taxation
Code (R&TC).
Credit Limitation – For taxable years
beginning on or after January 1, 2020,
and before January 1, 2023, there is
a $5,000,000 limitation on the application
of business credits for taxpayers. The
total of all business credits including
the carryover of any business credit for
the taxable year may not reduce the “net
tax”, for personal income tax filers, or
the “tax”, for corporate filers, by more
than $5,000,000. For taxpayers included
in a combined report, the limitation is
applied at the group level.
The business credits disallowed due to
the limitation may be carried over. The
carryover period for disallowed credits
is extended by the number of taxable
years the credit was not allowed. This
limitation does not apply to all credits, get
Schedule P (100, 100W, 540, 540NR,
or 541), Alternative Minimum Tax and
Credit Limitations, and Form 100S,
S Corporation Tax Booklet for more
information.

A

Purpose

Use form FTB 3546, Enhanced Oil
Recovery Credit, to figure the current
year credit and any carryover credit for
For Privacy Notice, get FTB 1131 EN-SP.

qualified enhanced oil recovery costs for
qualified oil recovery projects located
within California. Also use this form to
claim pass-through enhanced oil recovery
credits you received from S corporations,
estates, trusts, partnerships, or limited
liability companies (LLCs) classified as
partnerships.
S corporations, estates, trusts,
partnerships, and LLCs classified as
partnerships should complete form
FTB 3546 to figure the amount of
credit to pass through to shareholders,
beneficiaries, partners, or members.
Attach this form to Form 100S, California
S Corporation Franchise or Income Tax
Return; Form 541, California Fiduciary
Income Tax Return; Form 565, Partnership
Return of Income; or Form 568, Limited
Liability Company Return of Income.
Show the pass-through credit for each
shareholder, beneficiary, partner, or
member on Schedule K-1 (100S, 541,
565, or 568), Share of Income,
Deductions, Credits, etc.

B

Description

The California enhanced oil recovery
credit is available for taxable years
beginning on or after January 1, 1996.
The tentative enhanced oil recovery credit
is equal to 5.00% (representing 1/3 of
the federal enhanced oil recovery credit)
of the qualified enhanced oil recovery
costs for qualified oil recovery projects
located within California. See General
Information F, Limitations, for limitations
on the enhanced oil recovery credit.

7361213

C

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California and Federal
Differences

The federal enhanced oil recovery credit
under IRC Section 43 and the California
enhanced oil recovery credit under R&TC
Sections 17052.8 and 23604 are generally
the same, except that:
1. The California credit is equal to 5.00%
of the qualified enhanced oil recovery
costs for qualified oil recovery projects
located within California. The federal
credit is equal to 15.00% of the
qualified enhanced oil recovery costs
for qualified oil recovery projects
located within the United States.
It includes the seabed and subsoil
adjacent to the territorial waters of
the United States as defined under
IRC Section 638(1).
2. California does not allow the enhanced
oil recovery credit for the following
taxpayers:
• Taxpayers who are retailers of oil
or natural gas (excluding bulk sales
of aviation fuels) and sell directly
or through a related person to the
Department of Defense. See IRC
Sections 613A(d)(2) and 613A(d)(3)
for more information.
• Taxpayers (or related persons) who
are refiners of crude oil and, on any
day during the taxable year, whose
daily refinery output exceeded
50,000 barrels. See IRC Section
613A(d)(4) for more information.
3. Taxpayers may carry over the California
credit for 15 years. The credit is subject
to limitations described in General
Information F, Limitations. The federal
FTB 3546 2021 Side 1

credit is part of the general business
credit subject to the limitations
imposed by IRC Section 38.

D

Definitions

Qualified enhanced oil recovery costs –
1. Any amount the taxpayer pays or
incurs during the taxable year for
tangible property located within
California:
• That is an integral part of a qualified
enhanced oil recovery project in
California.
• For which depreciation (or
amortization) is allowable.
2. Any intangible drilling and
development costs:
• The taxpayer pays or incurs
in connection with a qualified
enhanced oil recovery project
located within California.
• For which the taxpayer elects to
capitalize and amortize such costs
under IRC Section 263(c) and R&TC
Sections 17201 and 24423.
3. Any qualified tertiary injectant expenses
the taxpayer pays or incurs in connection
with a qualified enhanced oil recovery
project located within California.
For California Personal Income Tax Law
and Corporation Tax Law purposes,
taxpayers must capitalize and deduct
tertiary injectant costs through
depreciation because California has
not conformed to the provisions of
IRC Section 193.
Qualified enhanced oil recovery project –
Any project located within California
involving the application of one or more
tertiary recovery methods defined in
IRC Section 193(b)(3), and mentioned
below, that you can reasonably expect to
result in more than an insignificant increase
in the amount of crude oil recovery.
Tertiary recovery methods – Methods
qualifying for the credit include miscible
fluid displacement, steam drive injection,
microemulsion flooding, in situ
combustion, polymer-augmented water
flooding, cyclic-steam injection, alkaline
(or caustic) flooding, carbonated water
flooding, immiscible nonhydrocarbon gas
displacement, or any other method the
Secretary of the Treasury approves.

E

Basis

You must reduce the basis of property by
the amount of the credit attributable to
that property. You must make the basis
adjustment for the taxable year in which
the credit is allowed.
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FTB 3546 Instructions 2021

F

Limitations

Credit limitation – For taxable years
beginning on or after January 1, 2020,
and before January 1, 2023, there is
a $5,000,000 limitation on the application
of business credits for taxpayers. The
total of all business credits including
the carryover of any business credit
for the taxable year may not reduce the
“net tax”, for personal income tax filers,
or the “tax”, for corporate filers, by more
than $5,000,000. For taxpayers included
in a combined report, the limitation is
applied at the group level.
The business credits disallowed due to
the limitation may be carried over. The
carryover period for disallowed credits is
extended by the number of taxable years
the credit was not allowed. This limitation
does not apply to all credits, get Schedule
P (100, 100W, 540, 540NR, or 541), and
Form 100S Booklet for more information.
Federal election – If a taxpayer has
no federal enhanced oil recovery credit
due to making an election for an item of
property under IRC Section 43(e), which
is an election not to apply IRC Section 43
for federal tax purposes, the election is
binding and irrevocable for California
purposes. The California enhanced oil
recovery credit with respect to that item of
property is zero.
Ineligible taxpayers – Certain refiners of
crude oil, taxpayers that are not permitted
to compute their depletion allowance
under IRC Section 613 because they
are retailers of oil or natural gas, and
certain related parties, cannot claim the
California Enhanced Oil Recovery Credit.
See IRC Sections 613A(d)(2) through
613A(d)(4) for more information on
ineligible taxpayers.
Reduced credit – The credit is reduced
when the reference price, determined
under IRC Section 45K(d)(2)(C), exceeds
$28 per barrel. The $28 value is adjusted
for inflation for years after 1991. If the
reference price exceeds the base value
of $28 (as adjusted by inflation) by more
than $6, the credit is zero. For 2021, there
is no reduction of the credit.
Other limitations – If an item of property
qualifies the taxpayer to take the enhanced
oil recovery credit as well as any other
California credit, the taxpayer must make
an election on the original tax return for
each year stating which credit is being
claimed. Such an election cannot be
revoked except with the written consent of
the Franchise Tax Board (FTB).

S corporations may claim only 1/3 of
the credit against the 1.5% entity-level
tax (3.5% for financial S corporations),
the remaining 2/3 must be disregarded
and may not be used as carryover.
S corporations can pass through 100% of
the credit to their shareholders.
If a taxpayer owns an interest in a
disregarded business entity [a single
member limited liability company
(SMLLC) not recognized by California,
and for tax purposes treated as a sole
proprietorship owned by an individual or a
branch owned by a corporation], the credit
amount received from the disregarded
entity is limited to the difference between
the taxpayer’s regular tax figured with the
income of the disregarded entity, and the
taxpayer’s regular tax figured without the
income of the disregarded entity.
For more information on SMLLC, get
Form 568.
If the disregarded entity reports a loss,
the taxpayer may not claim the credit this
year but can carry over the credit amount
received from the disregarded entity.
This credit cannot reduce the minimum
franchise tax (corporations and
S corporations), annual tax (limited
partnerships, limited liability partnerships,
and LLCs classified as partnerships), the
alternative minimum tax (corporations,
exempt organizations, individuals,
and fiduciaries), the built-in gains tax
(S corporations), or the excess net
passive income tax (S corporations).
If a C corporation had unused credit
carryovers when it elected S corporation
status, the carryovers were reduced to 1/3
and transferred to the S corporation. The
remaining 2/3 were disregarded. The
allowable carryovers may be used to offset
the 1.5% tax on net income in accordance
with the respective carryover rules.
These C corporation carryovers may not
be passed through to shareholders. For
more information, get Schedule C (100S),
S Corporation Tax Credits.
This credit cannot reduce regular tax below
the tentative minimum tax. Get Schedule
P (100, 100W, 540, 540NR, or 541) for
more information.
If this credit is taken in lieu of any
deduction otherwise allowable for the
same costs, the deduction must be
reduced by the amount of credit claimed
for the current taxable year (the amount
shown on line 7a).
This credit is not refundable.

G

Assignment of Credits

Assigned credits to affiliated
corporations – Credit earned by members
of a combined reporting group may be
assigned to an affiliated corporation that is
an eligible member of the same combined
reporting group. A credit assigned
may only be claimed by the affiliated
corporation against its tax liability. For
more information, get form FTB 3544,
Assignment of Credit, or go to ftb.ca.gov
and search for credit assignment.

H

Carryover

If the available credit exceeds the current
year tax liability, the unused credit may
be carried over to succeeding years. The
maximum carryover period is 15 years.
Apply the carryover to the earliest taxable
year possible. In no event can you carry
the credit back to apply against a prior
year’s tax.
If you have a carryover, retain all records
that document this credit and carryover
used in prior years. The FTB may require
access to these records.

booklet. Use credit code 203 when you
claim this credit.
Line 7b – Total credit assigned
Corporations that assign credit to
other corporations within the same
combined reporting group must complete
form FTB 3544, Part A, Election to Assign
Credit Within Combined Reporting Group.
Enter the total amount of credit assigned
from form FTB 3544, Part A, column (g)
on this line.

Franchise Tax Board Privacy
Notice on Collection
Our privacy notice can be found in
annual tax booklets or online. Go to
ftb.ca.gov/privacy to learn about
our privacy policy statement, or
go to ftb.ca.gov/forms and search
for 1131 to locate FTB 1131 EN-SP,
Franchise Tax Board Privacy Notice on
Collection. To request this notice by
mail, call 800.338.0505 and enter form
code 948 when instructed.

Specific Line Instructions
Available Credit
Line 1 – Qualified enhanced oil recovery
costs
Enter the total qualified enhanced oil
recovery costs paid or incurred during
the taxable year beginning on or after
January 1, 2021, for qualified enhanced oil
recovery projects located within California.
Line 3 – Pass-through enhanced oil
recovery credit from Schedule K-1
If you received more than one
pass-through credit from S corporations,
estates, trusts, partnerships, or LLCs
classified as partnerships, add the
amounts and enter the total on line 3.
Attach a schedule showing the name and
tax identification numbers of the entities
from which you received the credit.
Line 5 – Credit carryover from 2020
Enter the amount from your 2020 form
FTB 3546, line 8.
Line 7a – Credit claimed
Do not include assigned credits claimed
on form FTB 3544, Part B, List of
Assigned Credit Received and/or Claimed
by Assignee.
This amount may be less than the amount
on line 6 if your credit is limited by your
tax liability. For more information, see
General Information F, Limitations, and
refer to the credit instructions in your tax
FTB 3546 Instructions 2021

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