Tax Reform Act of 1981

Tax Reform Act of 1981 - Amends the Internal Revenue Code to repeal the percentage depletion allowable for independent oil and gas producers and royalty owners.

Repeals the tax treatment of intangible drilling and development costs for oil and gas wells (except nonproductive wells) as currently deductible expenses. Requires such costs to be capitalized and amortized over a 168-month period.

Denies the foreign tax credit for foreign oil and gas extraction taxes. Treats income from the extraction of foreign oil and gas, for purposes of the limitation on such credit, as income from sources within the United States. Allows a deduction for such taxes.

Repeals the exemption from taxation of a domestic international sales corporation (DISC). Terminates DISC status for any corporation for taxable years beginning after December 31, 1980.

Includes in the gross income of a U.S. shareholder of a controlled foreign corporation, with specified exceptions, the taxpayer's pro rata share of the corporation's undistributed profits for the taxable year. Terminates the inclusion of certain amounts in the gross income of such a shareholder with respect to taxable years beginning after December 31, 1980.

Disallows the deduction for entertainment, amusement, or recreation expenses related to the active conduct of the taxpayer's trade or business. Reduces to one-half of the expenses the amount allowable as a deduction for business meals.