-CITE-
26 USC Subchapter I - Natural Resources 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
-HEAD-
SUBCHAPTER I - NATURAL RESOURCES
-MISC1-
Part
I. Deductions.
[II. Repealed.]
III. Sales and exchanges.
IV. Mineral production payments.
V. Continental shelf areas.
-End-
-CITE-
26 USC PART I - DEDUCTIONS 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
PART I - DEDUCTIONS
-MISC1-
Sec.
611. Allowance of deduction for depletion.
612. Basis for cost depletion.
613. Percentage depletion.
613A. Limitations on percentage depletion in case of oil and
gas wells.(!1)
614. Definition of property.
[615. Repealed.]
616. Development expenditures.
617. Deduction and recapture of certain mining exploration
expenditures.
AMENDMENTS
1990 - Pub. L. 101-508, title XI, Sec. 11801(b)(7), Nov. 5, 1990,
104 Stat. 1388-522, struck out item for part II "Exclusions from
gross income".
1976 - Pub. L. 94-455, title XIX, Sec. 1901(b)(21)(H), Oct. 4,
1976, 90 Stat. 1798, struck out item 615 "Exploration
expenditures".
1969 - Pub. L. 91-172, title V, Secs. 503(b), 505(c), Dec. 30,
1969, 83 Stat. 631, 634, added items for parts IV and V.
Pub. L. 91-172, title V, Sec. 504(c)(5), Dec. 30, 1969, 83 Stat.
633, substituted "Pre-1970 exploration expenditures" for
"Exploration expenditures" in item 615 and substituted "Deduction
and recapture of certain mining exploration expenditures" for
"Additional exploration expenditures in the case of domestic
mining" in item 617.
1966 - Pub. L. 89-570, Sec. 1(d), Sept. 12, 1966, 80 Stat. 762,
added item 617.
-FOOTNOTE-
(!1) Editorially supplied. Section 613A added by Pub. L. 94-12
without corresponding amendment of part analysis.
-End-
-CITE-
26 USC Sec. 611 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 611. Allowance of deduction for depletion
-STATUTE-
(a) General rule
In the case of mines, oil and gas wells, other natural deposits,
and timber, there shall be allowed as a deduction in computing
taxable income a reasonable allowance for depletion and for
depreciation of improvements, according to the peculiar conditions
in each case; such reasonable allowance in all cases to be made
under regulations prescribed by the Secretary. For purposes of this
part, the term "mines" includes deposits of waste or residue, the
extraction of ores or minerals from which is treated as mining
under section 613(c). In any case in which it is ascertained as a
result of operations or of development work that the recoverable
units are greater or less than the prior estimate thereof, then
such prior estimate (but not the basis for depletion) shall be
revised and the allowance under this section for subsequent taxable
years shall be based on such revised estimate.
(b) Special rules
(1) Leases
In the case of a lease, the deduction under this section shall
be equitably apportioned between the lessor and lessee.
(2) Life tenant and remainderman
In the case of property held by one person for life with
remainder to another person, the deduction under this section
shall be computed as if the life tenant were the absolute owner
of the property and shall be allowed to the life tenant.
(3) Property held in trust
In the case of property held in trust, the deduction under this
section shall be apportioned between the income beneficiaries and
the trustee in accordance with the pertinent provisions of the
instrument creating the trust, or, in the absence of such
provisions, on the basis of the trust income allocable to each.
(4) Property held by estate
In the case of an estate, the deduction under this section
shall be apportioned between the estate and the heirs, legatees,
and devisees on the basis of the income of the estate allocable
to each.
(c) Cross reference
For other rules applicable to depreciation of improvements,
see section 167.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 207; Pub. L. 85-866, title I,
Sec. 35, Sept. 2, 1958, 72 Stat. 1632; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.)
-MISC1-
AMENDMENTS
1976 - Subsec. (a). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
1958 - Subsec. (d)(4). Pub. L. 85-866 substituted "devisees" for
"devises".
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 57, 62, 167, 174,
263, 291, 613, 613A, 616, 617, 642, 691, 703, 776, 834, 901, 1082,
1254, 4940, 7704 of this title.
-End-
-CITE-
26 USC Sec. 612 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 612. Basis for cost depletion
-STATUTE-
Except as otherwise provided in this subchapter, the basis on
which depletion is to be allowed in respect of any property shall
be the adjusted basis provided in section 1011 for the purpose of
determining the gain upon the sale or other disposition of such
property.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 208.)
-End-
-CITE-
26 USC Sec. 613 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 613. Percentage depletion
-STATUTE-
(a) General rule
In the case of the mines, wells, and other natural deposits
listed in subsection (b), the allowance for depletion under section
611 shall be the percentage, specified in subsection (b), of the
gross income from the property excluding from such gross income an
amount equal to any rents or royalties paid or incurred by the
taxpayer in respect of the property. Such allowance shall not
exceed 50 percent (100 percent in the case of oil and gas
properties) of the taxpayer's taxable income from the property
(computed without allowance for depletion). For purposes of the
preceding sentence, the allowable deductions taken into account
with respect to expenses of mining in computing the taxable income
from the property shall be decreased by an amount equal to so much
of any gain which (1) is treated under section 1245 (relating to
gain from disposition of certain depreciable property) as ordinary
income, and (2) is properly allocable to the property. In no case
shall the allowance for depletion under section 611 be less than it
would be if computed without reference to this section.
(b) Percentage depletion rates
The mines, wells, and other natural deposits, and the
percentages, referred to in subsection (a) are as follows:
(1) 22 percent
(A) sulphur and uranium; and
(B) if from deposits in the United States - anorthosite, clay,
laterite, and nephelite syenite (to the extent that alumina and
aluminum compounds are extracted therefrom), asbestos, bauxite,
celestite, chromite, corundum, fluorspar, graphite, ilmenite,
kyanite, mica, olivine, quartz crystals (radio grade), rutile,
block steatite talc, and zircon, and ores of the following
metals: antimony, beryllium, bismuth, cadmium, cobalt, columbium,
lead, lithium, manganese, mercury, molybdenum, nickel, platinum
and platinum group metals, tantalum, thorium, tin, titanium,
tungsten, vanadium, and zinc.
(2) 15 percent
If from deposits in the United States -
(A) gold, silver, copper, and iron ore, and
(B) oil shale (except shale described in paragraph (5)).
(3) 14 percent
(A) metal mines (if paragraph (1)(B) or (2)(A) does not apply),
rock asphalt, and vermiculite; and
(B) if paragraph (1)(B), (5), or (6)(B) does not apply, ball
clay, bentonite, china clay, sagger clay, and clay used or sold
for use for purposes dependent on its refractory properties.
(4) 10 percent
Asbestos (if paragraph (1)(B) does not apply), brucite, coal,
lignite, perlite, sodium chloride, and wollastonite.
(5) 7 1/2 percent
Clay and shale used or sold for use in the manufacture of sewer
pipe or brick, and clay, shale, and slate used or sold for use as
sintered or burned lightweight aggregates.
(6) 5 percent
(A) gravel, peat, pumice, sand, scoria, shale (except shale
described in paragraph (2)(B) or (5)), and stone (except stone
described in paragraph (7));
(B) clay used, or sold for use, in the manufacture of drainage
and roofing tile, flower pots, and kindred products; and
(C) if from brine wells - bromine, calcium chloride, and
magnesium chloride.
(7) 14 percent
All other minerals, including, but not limited to, aplite,
barite, borax, calcium carbonates, diatomaceous earth, dolomite,
feldspar, fullers earth, garnet, gilsonite, granite, limestone,
magnesite, magnesium carbonates, marble, mollusk shells
(including clam shells and oyster shells), phosphate rock,
potash, quartzite, slate, soapstone, stone (used or sold for use
by the mine owner or operator as dimension stone or ornamental
stone), thenardite, tripoli, trona, and (if paragraph (1)(B) does
not apply) bauxite, flake graphite, fluorspar, lepidolite, mica,
spodumene, and talc (including pyrophyllite), except that, unless
sold on bid in direct competition with a bona fide bid to sell a
mineral listed in paragraph (3), the percentage shall be 5
percent for any such other mineral (other than slate to which
paragraph (5) applies) when used, or sold for use, by the mine
owner or operator as rip rap, ballast, road material, rubble,
concrete aggregates, or for similar purposes. For purposes of
this paragraph, the term "all other minerals" does not include -
(A) soil, sod, dirt, turf, water, or mosses;
(B) minerals from sea water, the air, or similar
inexhaustible sources; or
(C) oil and gas wells.
For the purposes of this subsection, minerals (other than sodium
chloride) extracted from brines pumped from a saline perennial lake
within the United States shall not be considered minerals from an
inexhaustible source.
(c) Definition of gross income from property
For purposes of this section -
(1) Gross income from the property
The term "gross income from the property" means, in the case of
a property other than an oil or gas well and other than a
geothermal deposit, the gross income from mining.
(2) Mining
The term "mining" includes not merely the extraction of the
ores or minerals from the ground but also the treatment processes
considered as mining described in paragraph (4) (and the
treatment processes necessary or incidental thereto), and so much
of the transportation of ores or minerals (whether or not by
common carrier) from the point of extraction from the ground to
the plants or mills in which such treatment processes are applied
thereto as is not in excess of 50 miles unless the Secretary
finds that the physical and other requirements are such that the
ore or mineral must be transported a greater distance to such
plants or mills.
(3) Extraction of the ores or minerals from the ground
The term "extraction of the ores or minerals from the ground"
includes the extraction by mine owners or operators of ores or
minerals from the waste or residue of prior mining. The preceding
sentence shall not apply to any such extraction of the mineral or
ore by a purchaser of such waste or residue or of the rights to
extract ores or minerals therefrom.
(4) Treatment processes considered as mining
The following treatment processes where applied by the mine
owner or operator shall be considered as mining to the extent
they are applied to the ore or mineral in respect of which he is
entitled to a deduction for depletion under section 611:
(A) In the case of coal - cleaning, breaking, sizing, dust
allaying, treating to prevent freezing, and loading for
shipment;
(B) in the case of sulfur recovered by the Frasch process -
cleaning, pumping to vats, cooling, breaking, and loading for
shipment;
(C) in the case of iron ore, bauxite, ball and sagger clay,
rock asphalt, and ores or minerals which are customarily sold
in the form of a crude mineral product - sorting,
concentrating, sintering, and substantially equivalent
processes to bring to shipping grade and form, and loading for
shipment;
(D) in the case of lead, zinc, copper, gold, silver, uranium,
or fluorspar ores, potash, and ores or minerals which are not
customarily sold in the form of the crude mineral product -
crushing, grinding, and beneficiation by concentration
(gravity, flotation, amalgamation, electrostatic, or magnetic),
cyanidation, leaching, crystallization, precipitation (but not
including electrolytic deposition, roasting, thermal or
electric smelting, or refining), or by substantially equivalent
processes or combination of processes used in the separation or
extraction of the product or products from the ore or the
mineral or minerals from other material from the mine or other
natural deposit;
(E) the pulverization of talc, the burning of magnesite, the
sintering and nodulizing of phosphate rock, the decarbonation
of trona, and the furnacing of quicksilver ores;
(F) in the case of calcium carbonates and other minerals when
used in making cement - all processes (other than preheating of
the kiln feed) applied prior to the introduction of the kiln
feed into the kiln, but not including any subsequent process;
(G) in the case of clay to which paragraph (5) or (6)(B) of
subsection (b) applies - crushing, grinding, and separating the
mineral from waste, but not including any subsequent process;
(H) in the case of oil shale - extraction from the ground,
crushing, loading into the retort, and retorting, but not
hydrogenation, refining, or any other process subsequent to
retorting; and
(I) any other treatment process provided for by regulations
prescribed by the Secretary which, with respect to the
particular ore or mineral, is not inconsistent with the
preceding provisions of this paragraph.
(5) Treatment processes not considered as mining
Unless such processes are otherwise provided for in paragraph
(4) (or are necessary or incidental to processes so provided
for), the following treatment processes shall not be considered
as "mining": electrolytic deposition, roasting, calcining,
thermal or electric smelting, refining, polishing, fine
pulverization, blending with other materials, treatment effecting
a chemical change, thermal action, and molding or shaping.
(d) Denial of percentage depletion in case of oil and gas wells
Except as provided in section 613A, in the case of any oil or gas
well, the allowance for depletion shall be computed without
reference to this section.
(e) Percentage depletion for geothermal deposits
(1) In general
In the case of geothermal deposits located in the United States
or in a possession of the United States, for purposes of
subsection (a) -
(A) such deposits shall be treated as listed in subsection
(b), and
(B) 15 percent shall be deemed to be the percentage specified
in subsection (b).
(2) Geothermal deposit defined
For purposes of paragraph (1), the term "geothermal deposit"
means a geothermal reservoir consisting of natural heat which is
stored in rocks or in an aqueous liquid or vapor (whether or not
under pressure). Such a deposit shall in no case be treated as a
gas well for purposes of this section or section 613A, and this
section shall not apply to a geothermal deposit which is located
outside the United States or its possessions.
(3) Percentage depletion not to include lease bonuses, etc.
In the case of any geothermal deposit, the term "gross income
from the property" shall, for purposes of this section, not
include any amount described in section 613A(d)(5).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 208; Pub. L. 85-866, title I,
Sec. 36(a), Sept. 2, 1958, 72 Stat. 1633; Pub. L. 86-564, title
III, Sec. 302(a), (b), June 30, 1960, 74 Stat. 291, 292; Pub. L.
87-834, Sec. 13(e), Oct. 16, 1962, 76 Stat. 1034; Pub. L. 88-571,
Sec. 6(a), Sept. 2, 1964, 78 Stat. 860; Pub. L. 89-809, title II,
Secs. 207(a), 208(a), 209(a), (b), Nov. 13, 1966, 80 Stat. 1579,
1580; Pub. L. 91-172, title V, Secs. 501(a), 502(a), Dec. 30, 1969,
83 Stat. 629, 630; Pub. L. 93-499, Sec. 2(a), Oct. 29, 1974, 88
Stat. 1550; Pub. L. 94-12, title V, Sec. 501(b)(1), (2), Mar. 29,
1975, 89 Stat. 53; Pub. L. 94-455, title XIX, Secs. 1901(b)(3)(K),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1793, 1834; Pub. L. 95-618,
title IV, Sec. 403(a)(1), (2)(A), Nov. 9, 1978, 92 Stat. 3203; Pub.
L. 99-514, title IV, Sec. 412(a)(2), Oct. 22, 1986, 100 Stat. 2227;
Pub. L. 101-508, title XI, Secs. 11522(a), 11815(b)(1), (2), Nov.
5, 1990, 104 Stat. 1388-486, 1388-557, 1388-558; Pub. L. 104-188,
title I, Sec. 1704(t)(34), Aug. 20, 1996, 110 Stat. 1889.)
-MISC1-
AMENDMENTS
1996 - Subsec. (e)(1)(B). Pub. L. 104-188 substituted "subsection
(b)." for "subsection (b),".
1990 - Subsec. (a). Pub. L. 101-508, Sec. 11522(a), inserted
"(100 percent in the case of oil and gas properties)" after "50
percent".
Subsec. (e)(1)(B). Pub. L. 101-508, Sec. 11815(b)(2), amended
subpar. (B) generally. Prior to amendment, subpar. (B) read as
follows: "the applicable percentage (determined under the table
contained in paragraph (2)) shall be deemed to be the percentage
specified in subsection (b)."
Subsec. (e)(2) to (4). Pub. L. 101-508, Sec. 11815(b)(1),
redesignated pars. (3) and (4) as (2) and (3), respectively, and
struck out former par. (2) which related to the applicable
percentage depletion for geothermal deposits.
1986 - Subsec. (e)(4). Pub. L. 99-514 added par. (4).
1978 - Subsec. (c)(1). Pub. L. 95-618, Sec. 403(a)(2)(A),
inserted "and other than a geothermal deposit" after "oil or gas
well".
Subsec. (e). Pub. L. 95-618, Sec. 403(a)(1), added subsec. (e).
1976 - Subsec. (a). Pub. L. 94-455, Sec. 1901(b)(3)(K),
substituted "ordinary income" for "gain from the sale or exchange
of property which is neither a capital asset nor property described
in section 1231".
Subsec. (c)(2), (4)(I). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out "or his delegate" after "Secretary".
1975 - Subsec. (b)(1). Pub. L. 94-12, Sec. 501(b)(2)(A), struck
out subpar. (A) "oil and gas wells" and redesignated former
subpars. (B) and (C) as (A) and (B), respectively.
Subsec. (b)(3), (4). Pub. L. 94-12, Sec. 501(b)(2)(B),
substituted "(1)(B)" for "(1)(C)" wherever appearing.
Subsec. (b)(7). Pub. L. 94-12, Sec. 501(b)(2) (B), (C),
substituted "(1)(B)" for "(1)(C)" in provisions preceding subpar.
(A) and added subpar. (C).
Subsec. (d). Pub. L. 94-12, Sec. 501(b)(1), substituted
provisions denying the percentage depletion allowance in the case
of oil and gas wells except as provided in section 613A for
provisions governing the application of percentage depletion rates
to certain taxable years ending in 1954.
1974 - Subsec. (c)(4)(E). Pub. L. 93-499 inserted reference to
decarbonation of trona.
1969 - Subsec. (b). Pub. L. 91-172, Sec. 501(a), reduced the
percentage depletion rate on oil and gas wells from 27 1/2 percent
to 22 percent, reduced to 22 percent other minerals formerly
receiving percentage depletion at a rate of 23 percent, added
molybdenum in the category of minerals subject to the 22 percent
depletion rate, reduced to 14 percent the rate on minerals formerly
receiving depletion at a 15 percent rate except in the case of
domestic gold, silver, oil shale, copper, and iron ore, and
inserted provision that for percentage depletion purposes, minerals
other than sodium chloride, extracted from brine pumped from a
saline perennial lake within the United States are not to be
considered minerals from an inexhaustible source.
Subsec. (c)(4)(H), (I). Pub. L. 91-172, Sec. 502(a), added
subpar. (H) and redesignated former subpar. (H) as (I).
1966 - Subsec. (b)(2)(B). Pub. L. 89-809, Sec. 207(a)(1),
inserted "clay, laterite, and nephelite syenite" after
"anorthosite".
Subsec. (b)(3)(B). Pub. L. 89-809, Secs. 207(a)(2), 209(a)(2),
substituted "if neither paragraph (2)(B), (5), or (6)(B) applies"
for "if paragraph (5)(B) does not apply".
Subsec. (b)(5). Pub. L. 89-809, Sec. 209(a)(1), added par. (5).
Former par. (5) redesignated (6).
Subsec. (b)(6). Pub. L. 89-809, Secs. 208(a)(1), 209(a)(1), (3),
(4), redesignated par. (5) as (6), struck out "mollusk shells
(including clam shells and oyster shells),", substituted "shale
(except shale described in paragraph (5)), and stone (except stone
described in paragraph (7))" for "shale, and stone, except stone
described in paragraph (6)" in subpar. (A), and struck out
"building or paving brick," and "sewer pipe," in subpar. (B).
Former par. (6) redesignated (7).
Subsec. (b)(7). Pub. L. 89-809, Secs. 208(a)(2), 209(a)(1), (5),
redesignated par. (6) as (7) and inserted "mollusk shells
(including clam shells and oyster shells)," after "marble," and
"(other than slate to which paragraph (5) applies)" after "any
other such mineral".
Subsec. (c)(4)(G). Pub. L. 89-809, Sec. 209(b), substituted
"paragraph (5) or (6)(B)" for "paragraph (5)(B)".
1964 - Subsec. (b)(2)(B), (6). Pub. L. 88-571 inserted
"beryllium" after "antimony" in par. (2)(B), and deleted "beryl"
after "bauxite" in pars. (2)(B) and (6).
1962 - Subsec. (a). Pub. L. 87-834 inserted provisions requiring
the allowable deductions taken into account with respect to
expenses of mining in computing the taxable income from the
property to be decreased by an amount equal to so much of any gain
which is treated under section 1245 as gain from the sale or
exchange of property which is neither a capital asset nor property
described in section 1231, and is properly allocable to the
property.
1960 - Subsec. (b)(3). Pub. L. 86-564, Sec. 302(a)(1), limited
the 15 percent allowance for ball clay, bentonite, china clay, and
sagger clay to cases where paragraph (5)(B) does not apply, and
authorized a 15 percent allowance, if paragraph (5)(B) does not
apply, for clay used or sold for use for purposes dependent on its
refractory properties.
Subsec. (b)(5). Pub. L. 86-564, Sec. 302(a)(2), substituted
provisions authorizing a 5 percent allowance for clay used, or sold
for use, in the manufacture of building or paving brick, drainage
and roofing tile, sewer pipe, flower pots, and kindred products for
provisions which authorized a 5 percent allowance for brick and
tile clay.
Subsec. (b)(6). Pub. L. 86-564, Sec. 302(a)(3), struck out
provisions which authorized a 15 percent allowance for refractory
and fire clay. See subsec. (b)(3) of this section.
Subsec. (c)(2). Pub. L. 86-564, Sec. 302(b)(1), substituted "the
treatment processes considered as mining described in paragraph (4)
(and the treatment processes necessary or incidental thereto)" for
"the ordinary treatment processes normally applied by mine owners
or operators in order to obtain the commercially marketable mineral
product or products", and "such treatment processes" for "the
ordinary treatment processes".
Subsec. (c)(4). Pub. L. 86-564, Sec. 302(b)(2), substituted "The
following treatment processes where applied by the mine owner or
operator shall be considered as mining to the extent they are
applied to the ore or mineral in respect of which he is entitled to
a deduction for depletion under section 611" for "The term
'ordinary treatment processes' includes the following" in opening
provisions, included cleaning in subpar. (B), substituted "ores or
minerals which" for "minerals which" and included substantially
equivalent processes in subpar. (C), included uranium and minerals
which are not customarily sold in the form of the crude mineral
product and substituted "from the ore or the mineral or minerals
from other material from the mine or other natural deposit" for
"from the ore, including the furnacing of quicksilver ores" in
subpar. (D), included the furnacing of quicksilver ores in subpar.
(E), and added subpars. (F) to (H).
Subsec. (c)(5). Pub. L. 86-564, Sec. 302(b)(2), added par. (5).
1958 - Subsec. (d). Pub. L. 85-866 added subsec. (d).
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11522(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section and sections
613A and 614 of this title] shall apply to taxable years beginning
after December 31, 1990."
EFFECTIVE DATE OF 1986 AMENDMENT
Section 412(a)(3) of Pub. L. 99-514 provided that: "The amendment
made by this subsection [amending this section and section 613A of
this title] shall apply to amounts received or accrued after August
16, 1986, in taxable years ending after such date."
EFFECTIVE DATE OF 1978 AMENDMENT
Section 403(c) of Pub. L. 95-618 provided that: "The amendments
made by this section [amending this section and sections 613A and
614 of this title] shall take effect on October 1, 1978, and shall
apply to taxable years ending on or after such date."
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(b)(3)(K) of Pub. L. 94-455 effective
for taxable years beginning after Dec. 31, 1976, see section
1901(d) of Pub. L. 94-455, set out as a note under section 2 of
this title.
EFFECTIVE DATE OF 1975 AMENDMENT
Amendment by Pub. L. 94-12 effective Jan. 1, 1975, applicable to
taxable years ending after Dec. 31, 1974, see section 501(c) of
Pub. L. 94-12, set out as an Effective Note under section 613A of
this title.
EFFECTIVE DATE OF 1974 AMENDMENT
Section 2(b) of Pub. L. 93-499 provided that: "The amendment made
by this section [amending this section] shall apply to taxable
years beginning after December 31, 1970."
EFFECTIVE DATE OF 1969 AMENDMENT
Section 501(b) of Pub. L. 91-172 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after October 9, 1969."
Section 502(b) of Pub. L. 91-172 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[Dec. 30, 1969]."
EFFECTIVE DATE OF 1966 AMENDMENT
Section 207(b) of Pub. L. 89-809 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[Nov. 13, 1966]."
Section 208(b) of Pub. L. 89-809 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after the date of the enactment of this Act
[Nov. 13, 1966]."
Section 209(c) of Pub. L. 89-809 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to taxable years beginning after the date of the enactment of this
Act [Nov. 13, 1966]."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 6(b) of Pub. L. 88-571 provided that: "The amendments
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1963."
EFFECTIVE DATE OF 1962 AMENDMENT
Amendment by Pub. L. 87-834 applicable to taxable years beginning
after Dec. 31, 1962, see section 13(g) of Pub. L. 87-834, set out
as an Effective Date note under section 1245 of this title.
EFFECTIVE DATE OF 1960 AMENDMENT
Section 302(c) of Pub. L. 86-564, as amended by Pub. L. 86-781,
Sec. 4, Sept. 14, 1960, 74 Stat. 1018; Pub. L. 99-514, Sec. 2, Oct.
22, 1986, 100 Stat. 2095, provided that:
"(c) Effective Date. -
"(1) In general. - Except as provided in paragraph (2), the
amendments made by subsections (a) and (b) [amending this
section] shall be applicable only with respect to taxable years
beginning after December 31, 1960.
"(2) Calcium carbonates, etc. -
"(A) Election for past years. - In the case of calcium
carbonates or other minerals when used in making cement, if an
election is made by the taxpayer under subparagraph (C) -
"(i) the amendments made by subsection (b) [amending this
section] shall apply to taxable years with respect to which
such election is effective and
"(ii) provisions having the same effect as the amendments
made by subsection (b) [amending this section] shall be
deemed to be included in the Internal Revenue Code of 1939
and shall apply to taxable years with respect to which such
election is effective in lieu of the corresponding provisions
of such Code.
"(B) Years to which applicable. - An election made under
subparagraph (C) to have the provisions of this paragraph apply
shall be effective for all taxable years beginning before
January 1, 1961, in respect of which -
"(i) the assessment of a deficiency,
"(ii) the refund or credit of an overpayment, or
"(iii) the commencement of a suit for recovery of a refund
under section 7405 of the Internal Revenue Code of 1986
[formerly I.R.C. 1954] [section 7405 of this title],
is not prevented on the date of the enactment of this paragraph
[Sept. 14, 1960] by the operation of any law or rule of law. Such
election shall also be effective for any taxable year beginning
before January 1, 1961, in respect of which an assessment of a
deficiency has been made but not collected on or before the date
of the enactment of this paragraph.
"(C) Time and manner of election. - An election to have the
provisions of this paragraph apply shall be made by the
taxpayer on or before the 60th day after the date of
publication in the Federal Register of final regulations issued
under authority of subparagraph (F), and shall be made in such
form and manner as the Secretary of the Treasury or his
delegate shall prescribe by regulations. Such election, if
made, may not be revoked.
"(D) Statutes of limitation. - Notwithstanding any other law,
the period within which an assessment of a deficiency
attributable to the application of the amendments made by
subsection (b) [amending this section] may be made with respect
to any taxable year to which such amendments apply under an
election made under subparagraph (C), and the period within
which a claim for refund or credit of an overpayment
attributable to the application of such amendments may be made
with respect to any such taxable year, shall not expire prior
to one year after the last day for making an election under
subparagraph (C). An election by a taxpayer under subparagraph
(C) shall be considered as a consent to the application of the
provisions of this subparagraph.
"(E) Terms; applicability of other laws. - Except where
otherwise distinctly expressed or manifestly intended, terms
used in this paragraph shall have the same meaning as when used
in the Internal Revenue Code of 1986 [this title] (or
corresponding provisions of the Internal Revenue Code of 1939)
and all provisions of law shall apply with respect to this
paragraph as if this paragraph were a part of such Code (or
corresponding provisions of the Internal Revenue Code of 1939).
"(F) Regulations. - The Secretary of the Treasury or his
delegate shall prescribe such regulations as may be necessary
to carry out the provisions of this paragraph."
EFFECTIVE DATE OF 1958 AMENDMENT
Amendment by Pub. L. 85-866 applicable to taxable years beginning
after Dec. 31, 1953, and ending after Aug. 16, 1954, see section
1(c)(1) of Pub. L. 85-866, set out as a note under section 165 of
this title.
SAVINGS PROVISION
For provisions that nothing in amendment by section 11815(b)(1),
(2) of Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 29 of this title.
ELECTION FOR CLAY AND SHALE USED IN MANUFACTURE OF CLAY PRODUCTS
Pub. L. 87-312, Sept. 26, 1961, 75 Stat. 674, provided for the
election of, and procedure for, a differing rate of depletion for
clay and shale used in the manufacture of clay products, such
election to be effective for all taxable years beginning before
Jan. 1, 1961, in respect of which the assessment of a deficiency, a
refund or credit of overpayment, or the commencement of a suit for
recovery is not prevented on Sept. 26, 1961, by operation of any
law or rule of law, and also effective for any taxable year
beginning before Jan. 1961, in respect of which an assessment of a
deficiency has been made but not collected on or before Sept. 26,
1961.
ELECTION FOR QUARTZITE AND CLAY USED IN PRODUCTION OF REFRACTORY
PRODUCTS
Pub. L. 87-321, Sec. 2, Sept. 26, 1961, 75 Stat. 683, provided
for an election of, and procedures for, a differing rate of
depletion for quartzite and clay used in production of refractory
products, such election to be effective on and after Jan. 1, 1951,
for all taxable years beginning before Jan. 1, 1961, in respect of
which the assessment of a deficiency, the refund or credit of an
overpayment, or the commencement of a suit for recovery is not
prevented on Sept. 26, 1961, by the operation of any law or rule of
law, and also effective on and after Jan. 1, 1951, for any taxable
year beginning before Jan. 1, 1961, in respect of which an
assessment of a deficiency has been made but not collected on or
before Sept. 26, 1961.
REFUND OR CREDIT OF OVERPAYMENTS; LIMITATIONS; INTEREST
Section 36(b) of Pub. L. 85-866 provided for the filing of a
claim within 6 months of Sept. 2, 1958, and for the refund or
credit of any overpayment, without interest, if such refund or
credit, resulting from the addition of subsec. (d) of this section,
was prevented on Sept. 2, 1958, or within 6 months thereof, by the
operation of any law or rule of law other than certain specified
sections of the Internal Revenue Codes of 1939 and 1954.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 48, 57, 263, 291, 381,
465, 611, 613A, 614, 616, 617, 631, 636, 901, 903, 1082, 1202,
1446, 4612, 4940, 7704 of this title.
-End-
-CITE-
26 USC Sec. 613A 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 613A. Limitations on percentage depletion in case of oil and
gas wells
-STATUTE-
(a) General rule
Except as otherwise provided in this section, the allowance for
depletion under section 611 with respect to any oil or gas well
shall be computed without regard to section 613.
(b) Exemption for certain domestic gas wells
(1) In general
The allowance for depletion under section 611 shall be computed
in accordance with section 613 with respect to -
(A) regulated natural gas, and
(B) natural gas sold under a fixed contract,
and 22 percent shall be deemed to be specified in subsection (b)
of section 613 for purposes of subsection (a) of that section.
(2) Natural gas from geopressured brine
The allowance for depletion under section 611 shall be computed
in accordance with section 613 with respect to any qualified
natural gas from geopressured brine, and 10 percent shall be
deemed to be specified in subsection (b) of section 613 for
purposes of subsection (a) of such section.
(3) Definitions
For purposes of this subsection -
(A) Natural gas sold under a fixed contract
The term "natural gas sold under a fixed contract" means
domestic natural gas sold by the producer under a contract, in
effect on February 1, 1975, and at all times thereafter before
such sale, under which the price for such gas cannot be
adjusted to reflect to any extent the increase in liabilities
of the seller for tax under this chapter by reason of the
repeal of percentage depletion for gas. Price increases after
February 1, 1975, shall be presumed to take increases in tax
liabilities into account unless the taxpayer demonstrates to
the contrary by clear and convincing evidence.
(B) Regulated natural gas
The term "regulated natural gas" means domestic natural gas
produced and sold by the producer, before July 1, 1976, subject
to the jurisdiction of the Federal Power Commission, the price
for which has not been adjusted to reflect to any extent the
increase in liability of the seller for tax under this chapter
by reason of the repeal of percentage depletion for gas. Price
increases after February 1, 1975, shall be presumed to take
increases in tax liabilities into account unless the taxpayer
demonstrates the contrary by clear and convincing evidence.
(C) Qualified natural gas from geopressured brine
The term "qualified natural gas from geopressured brine"
means any natural gas -
(i) which is determined in accordance with section 503 of
the Natural Gas Policy Act of 1978 to be produced from
geopressured brine, and
(ii) which is produced from any well the drilling of which
began after September 30, 1978, and before January 1, 1984.
(c) Exemption for independent producers and royalty owners
(1) In general
Except as provided in subsection (d), the allowance for
depletion under section 611 shall be computed in accordance with
section 613 with respect to -
(A) so much of the taxpayer's average daily production of
domestic crude oil as does not exceed the taxpayer's depletable
oil quantity; and
(B) so much of the taxpayer's average daily production of
domestic natural gas as does not exceed the taxpayer's
depletable natural gas quantity;
and 15 percent shall be deemed to be specified in subsection (b)
of section 613 for purposes of subsection (a) of that section.
(2) Average daily production
For purposes of paragraph (1) -
(A) the taxpayer's average daily production of domestic crude
oil or natural gas for any taxable year, shall be determined by
dividing his aggregate production of domestic crude oil or
natural gas, as the case may be, during the taxable year by the
number of days in such taxable year, and
(B) in the case of a taxpayer holding a partial interest in
the production from any property (including an interest held in
a partnership) such taxpayer's production shall be considered
to be that amount of such production determined by multiplying
the total production of such property by the taxpayer's
percentage participation in the revenues from such property.
(3) Depletable oil quantity
(A) In general
For purposes of paragraph (1), the taxpayer's depletable oil
quantity shall be equal to -
(i) the tentative quantity determined under subparagraph
(B), reduced (but not below zero) by
(ii) except in the case of a taxpayer making an election
under paragraph (6)(B), the taxpayer's average daily marginal
production for the taxable year.
(B) Tentative quantity
For purposes of subparagraph (A), the tentative quantity is
1,000 barrels.
(4) Daily depletable natural gas quantity
For purposes of paragraph (1), the depletable natural gas
quantity of any taxpayer for any taxable year shall be equal to
6,000 cubic feet multiplied by the number of barrels of the
taxpayer's depletable oil quantity to which the taxpayer elects
to have this paragraph apply. The taxpayer's depletable oil
quantity for any taxable year shall be reduced by the number of
barrels with respect to which an election under this paragraph
applies. Such election shall be made at such time and in such
manner as the Secretary shall by regulations prescribe.
[(5) Repealed. Pub. L. 101-508, title XI, Sec. 11815(a)(1)(C),
Nov. 5, 1990, 104 Stat. 1388-557]
(6) Oil and natural gas produced from marginal properties
(A) In general
Except as provided in subsection (d) and subparagraph (B),
the allowance for depletion under section 611 shall be computed
in accordance with section 613 with respect to -
(i) so much of the taxpayer's average daily marginal
production of domestic crude oil as does not exceed the
taxpayer's depletable oil quantity (determined without regard
to paragraph (3)(A)(ii)), and
(ii) so much of the taxpayer's average daily marginal
production of domestic natural gas as does not exceed the
taxpayer's depletable natural gas quantity (determined
without regard to paragraph (3)(A)(ii)),
and the applicable percentage shall be deemed to be specified
in subsection (b) of section 613 for purposes of subsection (a)
of that section.
(B) Election to have paragraph apply to pro rata portion of
marginal production
If the taxpayer elects to have this subparagraph apply for
any taxable year, the rules of subparagraph (A) shall apply to
the average daily marginal production of domestic crude oil or
domestic natural gas of the taxpayer to which paragraph (1)
would have applied without regard to this paragraph.
(C) Applicable percentage
For purposes of subparagraph (A), the term "applicable
percentage" means the percentage (not greater than 25 percent)
equal to the sum of -
(i) 15 percent, plus
(ii) 1 percentage point for each whole dollar by which $20
exceeds the reference price for crude oil for the calendar
year preceding the calendar year in which the taxable year
begins.
For purposes of this paragraph, the term "reference price"
means, with respect to any calendar year, the reference price
determined for such calendar year under section 29(d)(2)(C).
(D) Marginal production
The term "marginal production" means domestic crude oil or
domestic natural gas which is produced during any taxable year
from a property which -
(i) is a stripper well property for the calendar year in
which the taxable year begins, or
(ii) is a property substantially all of the production of
which during such calendar year is heavy oil.
(E) Stripper well property
For purposes of this paragraph, the term "stripper well
property" means, with respect to any calendar year, any
property with respect to which the amount determined by
dividing -
(i) the average daily production of domestic crude oil and
domestic natural gas from producing wells on such property
for such calendar year, by
(ii) the number of such wells,
is 15 barrel equivalents or less.
(F) Heavy oil
For purposes of this paragraph, the term "heavy oil" means
domestic crude oil produced from any property if such crude oil
had a weighted average gravity of 20 degrees API or less
(corrected to 60 degrees Fahrenheit).
(G) Average daily marginal production
For purposes of this subsection -
(i) the taxpayer's average daily marginal production of
domestic crude oil or natural gas for any taxable year shall
be determined by dividing the taxpayer's aggregate marginal
production of domestic crude oil or natural gas, as the case
may be, during the taxable year by the number of days in such
taxable year, and
(ii) in the case of a taxpayer holding a partial interest
in the production from any property (including any interest
held in any partnership), such taxpayer's production shall be
considered to be that amount of such production determined by
multiplying the total production of such property by the
taxpayer's percentage participation in the revenues from such
property.
(H) Temporary suspension of taxable income limit with respect
to marginal production
The second sentence of subsection (a) of section 613 shall
not apply to so much of the allowance for depletion as is
determined under subparagraph (A) for any taxable year
beginning after December 31, 1997, and before January 1, 2004.
(7) Special rules
(A) Production of crude oil in excess of depletable oil
quantity
If the taxpayer's average daily production of domestic crude
oil exceeds his depletable oil quantity, the allowance under
paragraph (1)(A) with respect to oil produced during the
taxable year from each property in the United States shall be
that amount which bears the same ratio to the amount of
depletion which would have been allowable under section 613(a)
for all of the taxpayer's oil produced from such property
during the taxable year (computed as if section 613 applied to
all of such production at the rate specified in paragraph (1)
or (6), as the case may be) as his depletable oil quantity
bears to the aggregate number of barrels representing the
average daily production of domestic crude oil of the taxpayer
for such year.
(B) Production of natural gas in excess of depletable natural
gas quantity
If the taxpayer's average daily production of domestic
natural gas exceeds his depletable natural gas quantity, the
allowance under paragraph (1)(B) with respect to natural gas
produced during the taxable year from each property in the
United States shall be that amount which bears the same ratio
to the amount of depletion which would have been allowable
under section 613(a) for all of the taxpayers (!1) natural gas
produced from such property during the taxable year (computed
as if section 613 applied to all of such production at the rate
specified in paragraph (1) or (6), as the case may be) as the
amount of his depletable natural gas quantity in cubic feet
bears to the aggregate number of cubic feet representing the
average daily production of domestic natural gas of the
taxpayer for such year.
(C) Taxable income from the property
If both oil and gas are produced from the property during the
taxable year, for purposes of subparagraphs (A) and (B) the
taxable income from the property, in applying the taxable
income limitation in section 613(a), shall be allocated between
the oil production and the gas production in proportion to the
gross income during the taxable year from each.
(D) Partnerships
In the case of a partnership, the depletion allowance shall
be computed separately by the partners and not by the
partnership. The partnership shall allocate to each partner his
proportionate share of the adjusted basis of each partnership
oil or gas property. The allocation is to be made as of the
later of the date of acquisition of the oil or gas property by
the partnership, or January 1, 1975. A partner's proportionate
share of the adjusted basis of partnership property shall be
determined in accordance with his interest in partnership
capital or income and, in the case of property contributed to
the partnership by a partner, section 704(c) (relating to
contributed property) shall apply in determining such share.
Each partner shall separately keep records of his share of the
adjusted basis in each oil and gas property of the partnership,
adjust such share of the adjusted basis for any depletion taken
on such property, and use such adjusted basis each year in the
computation of his cost depletion or in the computation of his
gain or loss on the disposition of such property by the
partnership. For purposes of section 732 (relating to basis of
distributed property other than money), the partnership's
adjusted basis in mineral property shall be an amount equal to
the sum of the partners' adjusted basis in such property as
determined under this paragraph.
(8) Business under common control; members of the same family
(A) Component members of controlled group treated as one
taxpayer
For purposes of this subsection, persons who are members of
the same controlled group of corporations shall be treated as
one taxpayer.
(B) Aggregation of business entities under common control
If 50 percent or more of the beneficial interest in two or
more corporations, trusts, or estates is owned by the same or
related persons (taking into account only persons who own at
least 5 percent of such beneficial interest), the tentative
quantity determined under paragraph (3)(B) shall be allocated
among all such entities in proportion to the respective
production of domestic crude oil during the period in question
by such entities.
(C) Allocation among members of the same family
In the case of individuals who are members of the same
family, the tentative quantity determined under paragraph
(3)(B) shall be allocated among such individuals in proportion
to the respective production of domestic crude oil during the
period in question by such individuals.
(D) Definition and special rules
For purposes of this paragraph -
(i) the term "controlled group of corporations" has the
meaning given to such term by section 1563(a), except that
section 1563(b)(2) shall not apply and except that "more than
50 percent" shall be substituted for "at least 80 percent"
each place it appears in section 1563(a),
(ii) a person is a related person to another person if such
persons are members of the same controlled group of
corporations or if the relationship between such persons
would result in a disallowance of losses under section 267 or
707(b), except that for this purpose the family of an
individual includes only his spouse and minor children.
(iii) the family of an individual includes only his spouse
and minor children, and
(iv) each 6,000 cubic feet of domestic natural gas shall be
treated as 1 barrel of domestic crude oil.
(9) Special rule for fiscal year taxpayers
In applying this subsection to a taxable year which is not a
calendar year, each portion of such taxable year which occurs
during a single calendar year shall be treated as if it were a
short taxable year.
(10) Certain production not taken into account
In applying this subsection, there shall not be taken into
account the production of natural gas with respect to which
subsection (b) applies.
(11) Subchapter S corporations
(A) Computation of depletion allowance at shareholder level
In the case of an S corporation, the allowance for depletion
with respect to any oil or gas property shall be computed
separately by each shareholder.
(B) Allocation of basis
The S corporation shall allocate to each shareholder his pro
rata share of the adjusted basis of the S corporation in each
oil or gas property held by the S corporation. The allocation
shall be made as of the later of the date of acquisition of the
property by the S corporation, or the first day of the first
taxable year of the S corporation to which the Subchapter S
Revision Act of 1982 applies. Each shareholder shall separately
keep records of his share of the adjusted basis in each oil and
gas property of the S corporation, adjust such share of the
adjusted basis for any depletion taken on such property, and
use such adjusted basis each year in the computation of his
cost depletion or in the computation of his gain or loss on the
disposition of such property by the S corporation. In the case
of any distribution of oil or gas property to its shareholders
by the S corporation, the corporation's adjusted basis in the
property shall be an amount equal to the sum of the
shareholders' adjusted bases in such property, as determined
under this subparagraph.
(d) Limitations on application of subsection (c)
(1) Limitation based on taxable income
The deduction for the taxable year attributable to the
application of subsection (c) shall not exceed 65 percent of the
taxpayer's taxable income for the year computed without regard to
-
(A) any depletion on production from an oil or gas property
which is subject to the provisions of subsection (c),
(B) any net operating loss carryback to the taxable year
under section 172,
(C) any capital loss carryback to the taxable year under
section 1212, and
(D) in the case of a trust, any distributions to its
beneficiary, except in the case of any trust where any
beneficiary of such trust is a member of the family (as defined
in section 267(c)(4)) of a settlor who created inter vivos and
testamentary trusts for members of the family and such settlor
died within the last six days of the fifth month in 1970, and
the law in the jurisdiction in which such trust was created
requires all or a portion of the gross or net proceeds of any
royalty or other interest in oil, gas, or other mineral
representing any percentage depletion allowance to be allocated
to the principal of the trust.
If an amount is disallowed as a deduction for the taxable year by
reason of application of the preceding sentence, the disallowed
amount shall be treated as an amount allowable as a deduction
under subsection (c) for the following taxable year, subject to
the application of the preceding sentence to such taxable year.
For purposes of basis adjustments and determining whether cost
depletion exceeds percentage depletion with respect to the
production from a property, any amount disallowed as a deduction
on the application of this paragraph shall be allocated to the
respective properties from which the oil or gas was produced in
proportion to the percentage depletion otherwise allowable to
such properties under subsection (c).
(2) Retailers excluded
Subsection (c) shall not apply in the case of any taxpayer who
directly, or through a related person, sells oil or natural gas
(excluding bulk sales of such items to commercial or industrial
users), or any product derived from oil or natural gas (excluding
bulk sales of aviation fuels to the Department of Defense) -
(A) through any retail outlet operated by the taxpayer or a
related person, or
(B) to any person -
(i) obligated under an agreement or contract with the
taxpayer or a related person to use a trademark, trade name,
or service mark or name owned by such taxpayer or a related
person, in marketing or distributing oil or natural gas or
any product derived from oil or natural gas, or
(ii) given authority, pursuant to an agreement or contract
with the taxpayer or a related person, to occupy any retail
outlet owned, leased, or in any way controlled by the
taxpayer or a related person.
Notwithstanding the preceding sentence this paragraph shall not
apply in any case where the combined gross receipts from the sale
of such oil, natural gas, or any product derived therefrom, for
the taxable year of all retail outlets taken into account for
purposes of this paragraph do not exceed $5,000,000. For purposes
of this paragraph, sales of oil, natural gas, or any product
derived from oil or natural gas shall not include sales made of
such items outside the United States, if no domestic production
of the taxpayer or a related person is exported during the
taxable year or the immediately preceding taxable year.
(3) Related person
For purposes of this subsection, a person is a related person
with respect to the taxpayer if a significant ownership interest
in either the taxpayer or such person is held by the other, or if
a third person has a significant ownership interest in both the
taxpayer and such person. For purposes of the preceding sentence,
the term "significant ownership interest" means -
(A) with respect to any corporation, 5 percent or more in
value of the outstanding stock of such corporation,
(B) with respect to a partnership, 5 percent or more interest
in the profits or capital of such partnership, and
(C) with respect to an estate or trust, 5 percent or more of
the beneficial interests in such estate or trust.
For purposes of determining a significant ownership interest, an
interest owned by or for a corporation, partnership, trust, or
estate shall be considered as owned directly both by itself and
proportionately by its shareholders, partners, or beneficiaries,
as the case may be.
(4) Certain refiners excluded
If the taxpayer or a related person engages in the refining of
crude oil, subsection (c) shall not apply to such taxpayer if on
any day during the taxable year the refinery runs of the taxpayer
and such person exceed 50,000 barrels.
(5) Percentage depletion not allowed for lease bonuses, etc.
In the case of any oil or gas property to which subsection (c)
applies, for purposes of section 613, the term "gross income from
the property" shall not include any lease bonus, advance royalty,
or other amount payable without regard to production from
property.
(e) Definitions
For purposes of this section -
(1) Crude oil
The term "crude oil" includes a natural gas liquid recovered
from a gas well in lease separators or field facilities.
(2) Natural gas
The term "natural gas" means any product (other than crude oil)
of an oil or gas well if a deduction for depletion is allowable
under section 611 with respect to such product.
(3) Domestic
The term "domestic" refers to production from an oil or gas
well located in the United States or in a possession of the
United States.
(4) Barrel
The term "barrel" means 42 United States gallons.
-SOURCE-
(Added Pub. L. 94-12, title V, Sec. 501(a), Mar. 29, 1975, 89 Stat.
47; amended Pub. L. 94-455, title XIX, Secs. 1901(a)(86),
1906(b)(13)(A), title XXI, Sec. 2115(a)-(c)(1), (d), (e), Oct. 4,
1976, 90 Stat. 1779, 1834, 1907-1909; Pub. L. 95-30, title I, Sec.
102(b)(7), May 23, 1977, 91 Stat. 138; Pub. L. 95-618, title IV,
Sec. 403(a)(2)(B), (b), Nov. 9, 1978, 92 Stat. 3204; Pub. L.
96-603, Sec. 3(a), Dec. 28, 1980, 94 Stat. 3511; Pub. L. 97-354,
Sec. 3(a), Oct. 19, 1982, 96 Stat. 1687; Pub. L. 97-448, title II,
Sec. 202(d), Jan. 12, 1983, 96 Stat. 2396; Pub. L. 98-369, div. A,
title I, Secs. 25(b), 71(b), July 18, 1984, 98 Stat. 506, 589; Pub.
L. 99-514, title I, Sec. 104(b)(9), title IV, Sec. 412(a)(1), Oct.
22, 1986, 100 Stat. 2105, 2227; Pub. L. 101-508, title XI, Secs.
11521(a), (b), 11522(b)(1), 11523(a), (b), 11815(a), Nov. 5, 1990,
104 Stat. 1388-485 to 1388-487, 1388-557; Pub. L. 104-188, title I,
Sec. 1702(e)(2), Aug. 20, 1996, 110 Stat. 1870; Pub. L. 105-34,
title IX, Sec. 972(a), Aug. 5, 1997, 111 Stat. 897; Pub. L.
106-170, title V, Sec. 504(a), Dec. 17, 1999, 113 Stat. 1921; Pub.
L. 107-147, title VI, Sec. 607(a), Mar. 9, 2002, 116 Stat. 60.)
-REFTEXT-
REFERENCES IN TEXT
Section 503 of the Natural Gas Policy Act of 1978, referred to in
subsec. (b)(3)(C)(i), which was classified to section 3413 of Title
15, Commerce and Trade, was repealed by Pub. L. 101-60, Sec.
3(b)(5), July 26, 1989, 103 Stat. 159, effective Jan. 1, 1993.
The Subchapter S Revision Act of 1982, referred to in subsec.
(c)(11)(B), is Pub. L. 97-354, Oct. 19, 1982, 96 Stat. 1669, which
is classified principally to subchapter S (Sec. 1361 et seq.) of
chapter 1 of this title. For complete classification of this Act to
the Code, see Short Title of 1982 Amendments note set out under
section 1 of this title and Tables.
-MISC1-
AMENDMENTS
2002 - Subsec. (c)(6)(H). Pub. L. 107-147 substituted "2004" for
"2002".
1999 - Subsec. (c)(6)(H). Pub. L. 106-170 substituted "January 1,
2002" for "January 1, 2000".
1997 - Subsec. (c)(6)(H). Pub. L. 105-34 added subpar. (H).
1996 - Subsec. (c)(3)(A)(i). Pub. L. 104-188 struck out "the
table contained in" before "subparagraph (B)".
1990 - Subsec. (c)(1). Pub. L. 101-508, Sec. 11815(a)(1)(A),
substituted "15 percent" for "the applicable percentage (determined
in accordance with the table contained in paragraph (5))" in
concluding provisions.
Subsec. (c)(3)(A). Pub. L. 101-508, Sec. 11523(b)(2), struck out
at end "Clause (ii) shall not apply after December 31, 1983."
Subsec. (c)(3)(A)(ii). Pub. L. 101-508, Sec. 11523(b)(1), added
cl. (ii) and struck out former cl. (ii) which read as follows: "the
taxpayer's average daily secondary or tertiary production for the
taxable year."
Subsec. (c)(3)(B). Pub. L. 101-508, Sec. 11815(a)(1)(B), amended
subpar. (B) generally, substituting present provisions for
provisions which set out a phase-out table for determining
tentative quantity in barrels.
Subsec. (c)(5). Pub. L. 101-508, Sec. 11815(a)(1)(C), struck out
par. (5) which provided table of applicable percentages for
purposes of par. (1).
Subsec. (c)(6). Pub. L. 101-508, Sec. 11523(a), amended par. (6)
generally, providing for an increase in percentage depletion
allowance for marginal production, and substituting provisions
relating to oil and gas produced from marginal properties for
former provisions which related to oil and gas resulting from
secondary or tertiary processes.
Subsec. (c)(7)(A), (B). Pub. L. 101-508, Sec. 11815(a)(2)(A),
substituted "specified in paragraph (1)" for "specified in
paragraph (5)".
Subsec. (c)(7)(C). Pub. L. 101-508, Sec. 11522(b)(1), substituted
"taxable income" for "50-percent" before "limitation".
Subsec. (c)(7)(E). Pub. L. 101-508, Sec. 11815(a)(1)(C), struck
out subpar. (E) which provided special rules relating to production
from secondary or tertiary recovery processes.
Subsec. (c)(8)(B), (C). Pub. L. 101-508, Sec. 11815(a)(2)(B),
which directed amendment of subpars. (B) and (C) by substituting
"determined under paragraph (3)(B)" for "determined under the table
contained in paragraph (3)(B)", was executed by making the
substitution for "determined under the table in paragraph (3)(B)"
as the probable intent of Congress.
Subsec. (c)(9). Pub. L. 101-508, Sec. 11815(a)(2)(B), which
directed amendment of par. (9) by substituting "determined under
paragraph (3)(B)" for "determined under the table contained in
paragraph (3)(B)", could not be executed because that phrase did
not appear after execution of amendment by Pub. L. 101-508, Sec.
11521(a). See below.
Pub. L. 101-508, Sec. 11521(a), redesignated par. (11) as (9) and
struck out former par. (9) which related to transfer of oil or gas
property.
Subsec. (c)(10). Pub. L. 101-508, Sec. 11521(a), redesignated
par. (12) as (10) and struck out former par. (10) which related to
transfers by individuals to corporations.
Subsec. (c)(11). Pub. L. 101-508, Sec. 11521(a), redesignated
par. (13) as (11). Former par. (11) redesignated (9).
Subsec. (c)(11)(C), (D). Pub. L. 101-508, Sec. 11521(b), struck
out subpars. (C) and (D) which related to coordination with the
transfer rules of former pars. (9) and (10).
Subsec. (c)(12), (13). Pub. L. 101-508, Sec. 11521(a),
redesignated pars. (12) and (13) as (10) and (11), respectively.
1986 - Subsec. (d)(1). Pub. L. 99-514, Sec. 104(b)(9), struck out
"(reduced in the case of an individual by the zero bracket amount)"
after "taxable income" in introductory provisions.
Subsec. (d)(5). Pub. L. 99-514, Sec. 412(a)(1), added par. (5).
1984 - Subsec. (c)(2). Pub. L. 98-369, Sec. 25(b)(1), struck out
last sentence providing that in applying this paragraph, there
shall not be taken into account any production of crude oil or
natural gas resulting from secondary or tertiary processes (as
defined in regulations prescribed by the Secretary).
Subsec. (c)(3)(A). Pub. L. 98-369, Sec. 25(b)(2), inserted at end
"Clause (ii) shall not apply after December 31, 1983."
Subsec. (c)(7)(D). Pub. L. 98-369, Sec. 71(b), substituted
"property contributed to the partnership by a partner, section
704(c) (relating to contributed property) shall apply in
determining such share" for "an agreement described in section
704(c)(2) (relating to effect of partnership agreement on
contributed property), such share shall be determined by taking
such agreement into account" in fourth sentence.
Subsec. (c)(7)(E). Pub. L. 98-369, Sec. 25(b)(3), inserted at end
"This subparagraph shall not apply after December 31, 1983."
Subsec. (c)(9)(A). Pub. L. 98-369, Sec. 25(b)(4), substituted
"this subsection" for "paragraph (1)".
1983 - Subsec. (c)(10)(E). Pub. L. 97-448, Sec. 202(d)(1),
inserted provision that "oil and gas property" includes, in the
case of any property, necessary production equipment for such
property which is in place when the property is transferred.
Subsec. (d)(2). Pub. L. 97-448, Sec. 202(d)(2), inserted
"(excluding bulk sales of aviation fuels to the Department of
Defense)" after "any product derived from oil or natural gas".
1982 - Subsec. (c)(13). Pub. L. 97-354 added par. (13).
1980 - Subsec. (c)(10) to (12). Pub. L. 96-603 added par. (10)
and redesignated former pars. (10) and (11) as (11) and (12),
respectively.
1978 - Subsec. (b)(1)(C). Pub. L. 95-618, Sec. 403(a)(2)(B),
struck out subpar. (C) which related to a computation in accordance
with section 613 with respect to any geothermal deposit in the
United States or in a possession of the United States which is
determined to be a gas well.
Subsec. (b)(2), (3). Pub. L. 95-618, Sec. 403(b)(1), (2), added
par. (2), redesignated former par. (2) as (3) and, as so
redesignated, added subpar. (C).
1977 - Subsec. (d)(1). Pub. L. 95-30 inserted "(reduced in the
case of an individual by the zero bracket amount)" after "the
taxpayer's taxable income" in introductory provisions.
1976 - Subsec. (b)(1)(C). Pub. L. 94-455, Sec. 1901(a)(86)(A),
struck out "within the meaning of section 613(b)(1)(A)" after
"determined to be a gas well".
Subsec. (c)(2), (4). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (c)(6)(A)(i). Pub. L. 94-455, Sec. 1901(a)(86)(B),
substituted "determined without" for "determined with".
Subsec. (c)(7)(D). Pub. L. 94-455, Sec. 2115(c)(1), inserted
provision relating to the method to be employed by the partners in
computing the depletion allowance.
Subsec. (c)(7)(E). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck
out "or his delegate" after "Secretary".
Subsec. (c)(9)(B). Pub. L. 94-455, Sec. 2115(b)(1), (e), added
cls. (iii) to (vi) and provision following cl. (vi).
Subsec. (d)(1). Pub. L. 94-455, Sec. 2115(b)(2), substituted in
subpar. (A) reference to any depletion on production from an oil or
gas property which is subject to the provisions of subsection (c)
for reference to depletion with respect to production of oil and
gas subject to the provisions of subsection (c), and added subpar.
(D).
Subsec. (d)(2). Pub. L. 94-455, Sec. 2115(a), inserted
"(excluding bulk sales of such items to commercial or industrial
users)" before ", or any product derived" and inserted provisions
following subpar. (B) relating to the application of this paragraph
where combined gross receipts from the sale of oil, natural gas, or
any product derived therefrom, for the taxable year of all retail
outlets taken into account do not exceed $5,000,000 and relating to
the exclusion of sales made outside the United States.
Subsec. (d)(3). Pub. L. 94-455, Sec. 2115(d), inserted provision
following subpar. (C) relating to the determination of a
significant ownership interest of a corporation, partnership,
trust, or estate.
EFFECTIVE DATE OF 2002 AMENDMENT
Pub. L. 107-147, title VI, Sec. 607(b), Mar. 9, 2002, 116 Stat.
60, provided that: "The amendment made by subsection (a) [amending
this section] shall apply to taxable years beginning after December
31, 2001."
EFFECTIVE DATE OF 1999 AMENDMENT
Pub. L. 106-170, title V, Sec. 504(b), Dec. 17, 1999, 113 Stat.
1921, provided that: "The amendment made by this section [amending
this section] shall apply to taxable years beginning after December
31, 1999."
EFFECTIVE DATE OF 1997 AMENDMENT
Section 972(b) of Pub. L. 105-34 provided that: "The amendment
made by subsection (a) [amending this section] shall apply to
taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by Pub. L. 104-188 effective, except as otherwise
expressly provided, as if included in the provision of the Revenue
Reconciliation Act of 1990, Pub. L. 101-508, title XI, to which
such amendment relates, see section 1702(i) of Pub. L. 104-188, set
out as a note under section 38 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11521(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section] shall apply
to transfers after October 11, 1990."
Amendment by section 11522(b)(1) of Pub. L. 101-508 applicable to
taxable years beginning after Dec. 31, 1990, see section 11522(c)
of Pub. L. 101-508, set out as a note under section 613 of this
title.
Section 11523(c) of Pub. L. 101-508 provided that: "The
amendments made by this section [amending this section] shall apply
to taxable years beginning after December 31, 1990."
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 104(b)(9) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 151(a) of
Pub. L. 99-514, set out as a note under section 1 of this title.
Amendment by section 412(a)(1) of Pub. L. 99-514 applicable to
amounts received or accrued after Aug. 16, 1986, in taxable years
ending after such date, see section 412(a)(3) of Pub. L. 99-514,
set out as a note under section 613 of this title.
EFFECTIVE DATE OF 1984 AMENDMENT
Section 25(c)(2) of Pub. L. 98-369 provided that: "The amendments
made by subsection (b) [amending this section] shall take effect on
January 1, 1984."
Amendment by section 71(b) of Pub. L. 98-369 applicable with
respect to property contributed to the partnership after Mar. 31,
1984, in taxable years ending after such date, see section 71(c) of
Pub. L. 98-369, set out as a note under section 704 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by section 202(d)(1) of Pub. L. 97-448 applicable to
transfers in taxable years ending after Dec. 31, 1974, but only for
purposes of applying this section to periods after Dec. 31, 1979,
and amendment by section 202(d)(2) of Pub. L. 97-448 applicable to
bulk sales after Sept. 18, 1982, see section 203(b)(3) of Pub. L.
97-448, set out as a note under section 6652 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning
after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as
an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1980 AMENDMENT
Section 3(b) of Pub. L. 96-603, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "The
amendments made by subsection (a) [amending this section] shall
apply to transfers in taxable years ending after December 31, 1974,
but only for purposes of applying section 613A of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] to periods after
December 31, 1979."
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-618 effective on Oct. 1, 1978, and
applicable to taxable years ending on or after such date, see
section 403(c) of Pub. L. 95-618, set out as a note under section
613 of this title.
EFFECTIVE DATE OF 1977 AMENDMENT
Amendment by Pub. L. 95-30 applicable to taxable years beginning
after Dec. 31, 1976, see section 106(a) of Pub. L. 95-30, set out
as a note under section 1 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1901(a)(86) of Pub. L. 94-455 effective for
taxable years beginning after Dec. 31, 1976, see section 1901(d) of
Pub. L. 94-455, set out as a note under section 2 of this title.
Section 2115(f) of Pub. L. 94-455 provided that: "The amendments
made by this section [amending this section and sections 703 and
705 of this title] shall take effect on January 1, 1975, and shall
apply to taxable years ending after December 31, 1974."
EFFECTIVE DATE
Section 501(c) of Pub. L. 94-12 provided that: "The amendments
made by this section [enacting this section and amending sections
613 and 703 of this title] shall take effect on January 1, 1975,
and shall apply to taxable years ending after December 31, 1974."
SAVINGS PROVISION
For provisions that nothing in amendment by section 11815(a) of
Pub. L. 101-508 be construed to affect treatment of certain
transactions occurring, property acquired, or items of income,
loss, deduction, or credit taken into account prior to Nov. 5,
1990, for purposes of determining liability for tax for periods
ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101-508,
set out as a note under section 29 of this title.
-TRANS-
TRANSFER OF FUNCTIONS
Federal Power Commission terminated and its functions, personnel,
property, funds, etc., transferred to Secretary of Energy (except
for certain functions which were transferred to Federal Energy
Regulatory Commission) by sections 7151(b), 7171(a), 7172(a), 7291,
and 7293 of Title 42, The Public Health and Welfare.
-MISC2-
COORDINATION WITH OTHER PROVISION
Section 403(d) of Pub. L. 95-618 provided that: "Any allowance
for depletion allowed by reason of the amendments made by
subsection (b) [amending this section] shall not be treated as a
credit, exemption, deduction, or comparable adjustment applicable
to the computation of any Federal tax which is specifically
allowable with respect to any high-cost natural gas (or category
thereof) for purposes of section 107(d) of the Natural Gas Policy
Act of 1978 [section 3317(d) of Title 15, Commerce and Trade]."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 57, 291, 613, 705,
776, 954, 993, 1202, 1367, 1446, 4994 of this title; title 42
section 6247b.
-FOOTNOTE-
(!1) So in original. Probably should be "taxpayer's".
-End-
-CITE-
26 USC Sec. 614 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 614. Definition of property
-STATUTE-
(a) General rule
For the purpose of computing the depletion allowance in the case
of mines, wells, and other natural deposits, the term "property"
means each separate interest owned by the taxpayer in each mineral
deposit in each separate tract or parcel of land.
(b) Special rules as to operating mineral interests in oil and gas
wells or geothermal deposits
In the case of oil and gas wells or geothermal deposits -
(1) In general
Except as otherwise provided in this subsection -
(A) all of the taxpayer's operating mineral interests in a
separate tract or parcel of land shall be combined and treated
as one property, and
(B) the taxpayer may not combine an operating mineral
interest in one tract or parcel of land with an operating
mineral interest in another tract or parcel of land.
(2) Election to treat operating mineral interests as separate
properties
If the taxpayer has more than one operating mineral interest in
a single tract or parcel of land, he may elect to treat one or
more of such operating mineral interests as separate properties.
The taxpayer may not have more than one combination of operating
mineral interests in a single tract or parcel of land. If the
taxpayer makes the election provided in this paragraph with
respect to any interest in a tract or parcel of land, each
operating mineral interest which is discovered or acquired by the
taxpayer in such tract or parcel of land after the taxable year
for which the election is made shall be treated -
(A) if there is no combination of interests in such tract or
parcel, as a separate property unless the taxpayer elects to
combine it with another interest, or
(B) if there is a combination of interests in such tract or
parcel, as part of such combination unless the taxpayer elects
to treat it as a separate property.
(3) Certain unitization or pooling arrangements
(A) In general
Under regulations prescribed by the Secretary, if one or more
of the taxpayer's operating mineral interests participate,
under a voluntary or compulsory unitization or pooling
agreement, in a single cooperative or unit plan of operation,
then for the period of such participation -
(i) they shall be treated for all purposes of this subtitle
as one property, and
(ii) the application of paragraphs (1), (2), and (4) in
respect of such interests shall be suspended.
(B) Limitation
Subparagraph (A) shall apply to a voluntary agreement only if
all the operating mineral interests covered by such agreement -
(i) are in the same deposit, or are in 2 or more deposits
the joint development or production of which is logical from
the standpoint of geology, convenience, economy, or
conservation, and
(ii) are in tracts or parcels of land which are contiguous
or in close proximity.
(C) Special rule in the case of arrangements entered into a
taxable years beginning before January 1, 1964
If -
(i) two or more of the taxpayer's operating mineral
interests participate under a voluntary or compulsory
unitization or pooling agreement entered into in any taxable
year beginning before January 1, 1964, in a single
cooperative or unit plan of operation,
(ii) the taxpayer, for the last taxable year beginning
before January 1, 1964, treated such interests as two or more
separate properties, and
(iii) it is determined that such treatment was proper under
the law applicable to such taxable year,
such taxpayer may continue to treat such interests in a
consistent manner for the period of such participation.
(4) Manner, time, and scope of election
(A) Manner and time
Any election provided in paragraph (2) shall be made for each
operating mineral interest, in the manner prescribed by the
Secretary by regulations, not later than the time prescribed by
law for filing the return (including extensions thereof) for
whichever of the following taxable years is the later: The
first taxable year beginning after December 31, 1963, or the
first taxable year in which any expenditure for development or
operation in respect of such operating mineral interest is made
by the taxpayer after the acquisition of such interest.
(B) Scope
Any election under paragraph (2) shall be for all purposes of
this subtitle and shall be binding on the taxpayer for all
subsequent taxable years.
(5) Treatment of certain properties
If, on the day preceding the first day of the first taxable
year beginning after December 31, 1963, the taxpayer has any
operating mineral interests which he treats under subsection (d)
of this section (as in effect before the amendments made by the
Revenue Act of 1964), such treatment shall be continued and shall
be deemed to have been adopted pursuant to paragraphs (1) and (2)
of this subsection (as amended by such Act).
(c) Special rules as to operating mineral interests in mines
(1) Election to aggregate separate interests
Except in the case of oil and gas wells and geothermal
deposits, if a taxpayer owns two or more separate operating
mineral interests which constitute part or all of an operating
unit, he may elect (for all purposes of this subtitle) -
(A) to form an aggregation of, and to treat as one property,
all such interests owned by him which comprise any one mine or
any two or more mines; and
(B) to treat as a separate property each such interest which
is not included within an aggregation referred to in
subparagraph (A).
For purposes of this paragraph, separate operating mineral
interests which constitute part or all of an operating unit may
be aggregated whether or not they are included in a single tract
or parcel of land and whether or not they are included in
contiguous tracts or parcels. For purposes of this paragraph, a
taxpayer may elect to form more than one aggregation of operating
mineral interests within any one operating unit; but no
aggregation may include any operating mineral interest which is a
part of a mine without including all of the operating mineral
interests which are a part of such mine in the first taxable year
for which the election to aggregate is effective, and any
operating mineral interest which thereafter becomes a part of
such mine shall be included in such aggregation.
(2) Election to treat a single interest as more than one property
Except in the case of oil and gas wells and geothermal
deposits, if a single tract or parcel of land contains a mineral
deposit which is being extracted, or will be extracted by means
of two or more mines for which expenditures for development or
operation have been made by the taxpayer, then the taxpayer may
elect to allocate to such mines, under regulations prescribed by
the Secretary, all of the tract or parcel of land and of the
mineral deposit contained therein, and to treat as a separate
property that portion of the tract or parcel of land and of the
mineral deposit so allocated to each mine. A separate property
formed pursuant to an election under this paragraph shall be
treated as a separate property for all purposes of this subtitle
(including this paragraph). A separate property so formed may,
under regulations prescribed by the Secretary, be included as a
part of an aggregation in accordance with paragraphs (1) and (3).
The election provided by this paragraph may not be made with
respect to any property which is a part of an aggregation formed
by the taxpayer under paragraph (1) except with the consent of
the Secretary.
(3) Manner and scope of election
The elections provided by paragraphs (1) and (2) shall be made,
in accordance with regulations prescribed by the Secretary, not
later than the time prescribed for filing the return (including
extensions thereof) for the first taxable year -
(A) in which, in the case of an election under paragraph (1),
any expenditure for development or operation in respect of the
separate operating mineral interest is made by the taxpayer
after the acquisition of such interest, or
(B) in which, in the case of an election under paragraph (2),
expenditures for development or operation of more than one mine
in respect of a property are made by the taxpayer after the
acquisition of the property.
An election made under paragraph (1) or (2) for a taxable year
shall be binding upon the taxpayer for such year and all
subsequent taxable years, except that the Secretary may consent
to a different treatment of any interest with respect to which an
election has been made.
(d) Operating mineral interests defined
For purposes of this section, the term "operating mineral
interest" includes only an interest in respect of which the costs
of production of the mineral are required to be taken into account
by the taxpayer for purposes of computing the taxable income
limitation provided for in section 613, or would be so required if
the mine, well, or other natural deposit were in the production
stage.
(e) Special rule as to nonoperating mineral interests
(1) Aggregation of separate interests
If a taxpayer owns two or more separate nonoperating mineral
interests in a single tract or parcel of land or in two or more
adjacent tracts or parcels of land, the Secretary shall, on
showing by the taxpayer that a principal purpose is not the
avoidance of tax, permit the taxpayer to treat (for all purposes
of this subtitle) all such mineral interests in each separate
kind of mineral deposit as one property. If such permission is
granted for any taxable year, the taxpayer shall treat such
interests as one property for all subsequent taxable years unless
the Secretary consents to a different treatment.
(2) Nonoperating mineral interests defined
For purposes of this subsection, the term "nonoperating mineral
interests" includes only interests which are not operating
mineral interests.
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 210; Pub. L. 85-866, title I,
Sec. 37(a)-(d), Sept. 2, 1958, 72 Stat. 1633-1637; Pub. L. 88-272,
title II, Sec. 226(a), (b), Feb. 26, 1964, 78 Stat. 94, 96; Pub. L.
94-455, title XIX, Secs. 1901(a)(87)(A)(i), (B), (C),
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1779, 1834; Pub. L. 95-618,
title IV, Sec. 403(a)(2)(C), (D), Nov. 9, 1978, 92 Stat. 3204; Pub.
L. 101-508, title XI, Sec. 11522(b)(2), Nov. 5, 1990, 104 Stat.
1388-486.)
-REFTEXT-
REFERENCES IN TEXT
The Revenue Act of 1964, referred to in subsec. (b)(5), is Pub.
L. 88-272, Feb. 26, 1964, 78 Stat. 19. For complete classification
of this Act to the Code, see Short Title of 1964 Amendments note
set out under section 1 of this title and Tables.
-MISC1-
AMENDMENTS
1990 - Subsec. (d). Pub. L. 101-508 substituted "taxable income"
for "50 percent".
1978 - Subsec. (b). Pub. L. 95-618, Sec. 403(a)(2)(C), inserted
"or geothermal deposits" after "gas wells" in heading and
introductory provisions.
Subsec. (c). Pub. L. 95-618, Sec. 403(a)(2)(D), substituted "oil
and gas wells and geothermal deposits" for "oil and gas wells"
wherever appearing.
1976 - Subsecs. (b)(3)(A), (4)(A), (e). Pub. L. 94-455, Sec.
1906(b)(13)(A), struck out "or his delegate" after "Secretary".
Subsec. (c)(2). Pub. L. 94-455, Secs. 1901(a)(87)(B),
1906(b)(13)(A), struck out "or his delegate" after "Secretary"
wherever appearing and ", but the provisions of paragraph (4) shall
not apply with respect to such separate property" after "in
accordance with paragraphs (1) and (3)".
Subsec. (c)(3). Pub. L. 94-455, Sec. 1901(a)(87)(C), among other
changes, struck out references to the first taxable year beginning
after Dec. 31, 1957, and provisions relating to elections for
taxable years beginning before Jan. 1, 1958, relating to election
after final regulations, and relating to statute of limitations.
Subsec. (c)(4). Pub. L. 94-455, Sec. 1901(a)(87)(A)(i), struck
out par. (4) which related to a special rule as to deductions under
section 615(a) of this title prior to aggregation.
1964 - Subsec. (b). Pub. L. 88-272, Sec. 226(a), amended subsec.
(b) generally, and among other changes, substituted provisions
stating that except as otherwise provided, all of the taxpayer's
operating mineral interests in a separate tract or parcel of land
will be combined and treated as one property, that the taxpayer may
not combine any operating mineral interest in one tract or parcel
of land with an operating mineral interest in another tract or
parcel of land, that if he has more than one operating mineral
interest in a single tract of land he may elect to treat one or
more of such interests as separate properties, limited, however, to
one combination of interests in a single tract of land, and
providing, in the event the election in par. (2) is made with
respect to any tract of land, for the treatment of interests
discovered or acquired by the taxpayer in such a tract after the
taxable year for which the election is made, for provisions which
permitted a taxpayer who owned two or more separate operating
mineral interests which constituted all or a part of an operating
unit, to elect to form one aggregation and treat as one property
any two or more of these interests, treating as separate properties
any interests which he did not include in the one aggregation, to
aggregate separate interests whether or not in a single tract of
land, or contiguous tracts of land, and which forbade him to form
more than one aggregation within a single operating unit, inserted
provisions in par. (3) relating to unitization or pooling
arrangements, and in par (5), providing that if the taxpayer has
operating mineral interests on the day preceding the first day of
the first taxable year beginning after Dec. 31, 1963, which he
treats under subsec. (d) of this section as in effect before
amendment by Pub. L. 88-272, he shall continue such treatment and
it shall be deemed adopted pursuant to pars. (1) and (2) of this
subsection, and struck out provisions defining "operating mineral
interests", and providing for termination of election with respect
to mines, excepting oil and gas wells. For definition of "operating
mineral interests", see subsec. (d) of this section.
Subsec. (c). Pub. L. 88-272, Sec. 226(b)(1), (2), struck out par.
(5) which defined operating mineral interests, and "1958" before
"Special rules" in heading.
Subsec. (d). Pub. L. 88-272, Sec. 226(b)(3), amended subsec. (d)
generally, substituting the definition of operating mineral
interests, for provisions relating to the 1939 Code treatment
respecting operating mineral interest in case of oil and gas wells.
Subsec. (e)(2). Pub. L. 88-272, Sec. 226(b)(4), struck out
"within the meaning of subsection (b)(3)" at end.
1958 - Subsec. (b)(4). Pub. L. 85-866, Sec. 37(a), added par.
(4).
Subsecs. (c) to (e). Pub. L. 85-866, Sec. 37(b)-(d), added
subsecs. (c) and (d), redesignated former subsec. (c) as (e), and
substituted in first sentence of par. (1) "or in two or more
adjacent tracts" for "or in two or more contiguous tracts" and
"shall, on showing by the taxpayer that a principal purpose is not
the avoidance of tax, permit the taxpayer to treat (for all
purposes of this subtitle) all such mineral interests in each
separate kind of mineral deposit as one property" for "may, on
showing of undue hardship, permit the taxpayer to treat (for all
purposes of this subtitle) all such mineral interests as one
property".
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 applicable to taxable years
beginning after Dec. 31, 1990, see section 11522(c) of Pub. L.
101-508, set out as a note under section 613 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-618 effective Oct. 1, 1978, and
applicable to taxable years ending on or after such date, see
section 403(c) of Pub. L. 95-618, set out as a note under section
613 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Section 1901(a)(87)(A)(ii) of Pub. L. 94-455, as amended by Pub.
L. 99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
"The amendment made by clause (i) [amending this section] shall
apply with respect to elections to form aggregations of operating
mineral interests made under section 614(c)(1) of the Internal
Revenue Code of 1986 [formerly I.R.C. 1954] for taxable years
beginning after December 31, 1976."
EFFECTIVE DATE OF 1964 AMENDMENT
Section 226(d) of Pub. L. 88-272 provided that: "The amendments
made by subsections (a) and (b) [amending this section] shall apply
to taxable years beginning after December 31, 1963."
EFFECTIVE DATE OF 1958 AMENDMENT
Section 37(e) of Pub. L. 85-866 provided that: "The amendments
made by subsections (a) and (c) [amending this section] shall apply
with respect to taxable years beginning after December 31, 1953,
and ending after August 16, 1954. The amendments made by subsection
(b) [amending this section] shall apply with respect to taxable
years beginning after December 31, 1957, except that such
amendments shall, at the election of the taxpayer made in
conformity with such amendments, apply with respect to taxable
years beginning after December 31, 1953, and ending after August
16, 1954. The amendment made by subsection (d) [amending this
section] shall apply with respect to taxable years beginning after
December 31, 1957, except that with respect to any taxpayer such
amendment shall, at the election of the taxpayer, apply with
respect to taxable years beginning after December 31, 1953, and
ending after August 16, 1954."
ALLOCATION OF BASIS IN CERTAIN CASES
Section 226(c) of Pub. L. 88-272, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: "For purposes
of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] -
"(1) Fair market value rule. - Except as provided in paragraph
(2), if a taxpayer has a section 614(b) aggregation, then the
adjusted basis (as of the first day of the first taxable year
beginning after December 31, 1963) of each property included in
such aggregation shall be determined by multiplying the adjusted
basis of the aggregation by a fraction -
"(A) the numerator of which is the fair market value of such
property, and
"(B) the denominator of which is the fair market value of
such aggregation.
For purposes of this paragraph, the adjusted basis and the fair
market value of the aggregation, and the fair market value of
each property included therein, shall be determined as of the day
preceding the first day of the first taxable year which begins
after December 31, 1963.
"(2) Allocation of adjustments, etc. - If the taxpayer makes an
election under this paragraph with respect to any section 614(b)
aggregation, then the adjusted basis (as of the first day of the
first taxable year beginning December 31, 1963) of each property
included in such aggregation shall be the adjusted basis of such
property at the time it was first included in the aggregation by
the taxpayer, adjusted for that portion of those adjustments to
the basis of the aggregation which are reasonably attributable to
such property. If, under the preceding sentence, the total of the
adjusted bases of the interests included in the aggregation
exceeds the adjusted basis of the aggregation (as of the day
preceding the first day of the first taxable year which begins
after December 31, 1963), the adjusted bases of the properties
which include such interests shall be adjusted, under regulations
prescribed by the Secretary of the Treasury or his delegate, so
that the total of the adjusted bases of such interests equals the
adjusted basis of the aggregation. An election under this
paragraph shall be made at such time and in such manner as the
Secretary of the Treasury or his delegate shall by regulations
prescribe.
"(3) Definitions. - For purposes of this subsection -
"(A) Section 614(b) aggregation. - The term 'section 614(b)
aggregation' means any aggregation to which section
614(b)(1)(A) of the Internal Revenue Code of 1986 (as in effect
before the amendments made by subsection (a) of this section)
applied for the day preceding the first day of the first
taxable year beginning after December 31, 1963.
"(B) Property. - The term 'property' has the same meaning as
is applicable, under section 614 of the Internal Revenue Code
of 1986, to the taxpayer for the first taxable year beginning
after December 31, 1963."
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 57, 291, 465, 468, 617,
636, 1016, 1254 of this title.
-End-
-CITE-
26 USC Sec. 615 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
[Sec. 615. Repealed. Pub. L. 94-455, title XIX, Sec. 1901(a)(88),
Oct. 4, 1976, 90 Stat. 1779]
-MISC1-
Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 211; July 6,
1960, Pub. L. 86-594, Sec. 1, 74 Stat. 333; Sept. 12, 1966, Pub. L.
89-570, Sec. 2(a), 80 Stat. 763; Dec. 30, 1969, Pub. L. 91-172,
title V, Sec. 504(a), 83 Stat. 632, related to pre-1970 exploration
expenditures.
EFFECTIVE DATE OF REPEAL
Repeal effective with respect to taxable years beginning after
Dec. 31, 1976, see section 1901(d) of Pub. L. 94-455, set out as an
Effective Date of 1976 Amendment note under section 2 of this
title.
-End-
-CITE-
26 USC Sec. 616 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 616. Development expenditures
-STATUTE-
(a) In general
Except as provided in subsections (b) and (d), there shall be
allowed as a deduction in computing taxable income all expenditures
paid or incurred during the taxable year for the development of a
mine or other natural deposit (other than an oil or gas well) if
paid or incurred after the existence of ores or minerals in
commercially marketable quantities has been disclosed. This section
shall not apply to expenditures for the acquisition or improvement
of property of a character which is subject to the allowance for
depreciation provided in section 167, but allowances for
depreciation shall be considered, for purposes of this section, as
expenditures.
(b) Election of taxpayer
At the election of the taxpayer, made in accordance with
regulations prescribed by the Secretary, expenditures described in
subsection (a) paid or incurred during the taxable year shall be
treated as deferred expenses and shall be deductible on a ratable
basis as the units of produced ores or minerals benefited by such
expenditures are sold. In the case of such expenditures paid or
incurred during the development stage of the mine or deposit, the
election shall apply only with respect to the excess of such
expenditures during the taxable year over the net receipts during
the taxable year from the ores or minerals produced from such mine
or deposit. The election under this subsection, if made, must be
for the total amount of such expenditures, or the total amount of
such excess, as the case may be, with respect to the mine or
deposit, and shall be binding for such taxable year.
(c) Adjusted basis of mine or deposit
The amount of expenditures which are treated under subsection (b)
as deferred expenses shall be taken into account in computing the
adjusted basis of the mine or deposit, except that such amount, and
the adjustments to basis provided in section 1016(a)(9), shall be
disregarded in determining the adjusted basis of the property for
the purpose of computing a deduction for depletion under section
611.
(d) Special rules for foreign development
In the case of any expenditures paid or incurred with respect to
the development of a mine or other natural deposit (other than an
oil, gas, or geothermal well) located outside of the United States
-
(1) subsections (a) and (b) shall not apply, and
(2) such expenditures shall -
(A) at the election of the taxpayer, be included in adjusted
basis for purposes of computing the amount of any deduction
allowable under section 611 (without regard to section 613), or
(B) if subparagraph (A) does not apply, be allowed as a
deduction ratably over the 10-taxable year period beginning
with the taxable year in which such expenditures were paid or
incurred.
(e) Cross reference
For election of 10-year amortization of expenditures
allowable as a deduction under subsection (a), see section
59(e).
-SOURCE-
(Aug. 16, 1954, ch. 736, 68A Stat. 212; Pub. L. 94-455, title XIX,
Sec. 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97-248,
title II, Sec. 201(d)(9)(C), formerly Sec. 201(c)(9)(C), Sept. 3,
1982, 96 Stat. 420, renumbered Sec. 201(d)(9)(C), Pub. L. 97-448,
title III, Sec. 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub.
L. 99-514, title IV, Sec. 411(b)(2)(A), (C)(i), Oct. 22, 1986, 100
Stat. 2226; Pub. L. 100-647, title I, Sec. 1007(g)(7), Nov. 10,
1988, 102 Stat. 3435.)
-MISC1-
AMENDMENTS
1988 - Subsec. (e). Pub. L. 100-647 substituted "section 59(e)"
for "section 58(i)".
1986 - Subsec. (a). Pub. L. 99-514, Sec. 411(b)(2)(C)(i),
inserted reference to subsec. (d).
Subsecs. (d), (e). Pub. L. 99-514, Sec. 411(b)(2)(A), added
subsec. (d) and redesignated former subsec. (d) as (e).
1982 - Subsec. (d). Pub. L. 97-248 added subsec. (d).
1976 - Subsec. (b). Pub. L. 94-455 struck out "or his delegate"
after "Secretary".
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise
provided, as if included in the provision of the Tax Reform Act of
1986, Pub. L. 99-514, to which such amendment relates, see section
1019(a) of Pub. L. 100-647, set out as a note under section 1 of
this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to costs paid or incurred
after Dec. 31, 1986, in taxable years ending after such date, with
transition rule, see section 411(c) of Pub. L. 99-514 set out as a
note under section 263 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to taxable years beginning
after Dec. 31, 1982, see section 201(e)(1) of Pub. L. 97-248, set
out as a note under section 5 of this title.
-SECREF-
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 56, 59, 263, 263A, 291,
312, 381, 1016, 1254 of this title.
-End-
-CITE-
26 USC Sec. 617 01/19/04
-EXPCITE-
TITLE 26 - INTERNAL REVENUE CODE
Subtitle A - Income Taxes
CHAPTER 1 - NORMAL TAXES AND SURTAXES
Subchapter I - Natural Resources
PART I - DEDUCTIONS
-HEAD-
Sec. 617. Deduction and recapture of certain mining exploration
expenditures
-STATUTE-
(a) Allowance of deduction
(1) General rule
At the election of the taxpayer, expenditures paid or incurred
during the taxable year for the purpose of ascertaining the
existence, location, extent, or quality of any deposit of ore or
other mineral, and paid or incurred before the beginning of the
development stage of the mine, shall be allowed as a deduction in
computing taxable income. This subsection shall apply only with
respect to the amount of such expenditures which, but for this
subsection, would not be allowable as a deduction for the taxable
year. This subsection shall not apply to expenditures for the
acquisition or improvement of property of a character which is
subject to the allowance for depreciation provided in section
167, but allowances for depreciation shall be considered, for
purposes of this subsection, as expenditures paid or incurred. In
no case shall this subsection apply with respect to amounts paid
or incurred for the purpose of ascertaining the existence,
location, extent, or quality of any deposit of oil or gas or of
any mineral with respect to which a deduction for percentage
depletion is not allowable under section 613.
(2) Elections
(A) Method
Any election under this subsection shall be made in such
manner as the Secretary may by regulations prescribe.
(B) Time and scope
The election provided by paragraph (1) for the taxable year
may be made at any time before the expiration of the period
prescribed for making a claim for credit or refund of the tax
imposed by this chapter for the taxable year. Such an election
for the taxable year shall apply to all expenditures described
in paragraph (1) paid or incurred by the taxpayer during the
taxable year or during any subsequent taxable year. Such an
election may not be revoked unless the Secretary consents to
such revocation.
(C) Deficiencies
The statutory period for the assessment of any deficiency for
any taxable year, to the extent such deficiency is attributable
to an election or revocation of an election under this
subsection, shall not expire before the last day of the 2-year
period beginning on the day after the date on which such
election or revocation of election is made; and such deficiency
may be assessed at |
