26 U.S.C. § 611 — Allowance of deduction for depletion

Page 1793 TITLE 26—INTERNAL REVENUE CODE § 611 1 Editorially supplied. Section 613A added by Pub. L. 94–12 without corresponding amendment of part analysis. Act of 1986 [Pub. L. 99–514, amending section 368 of this title, repealing this section and enacting provisions set out as notes under sections 368 and 597 of this title] (other than subsection (c)(2)(B) thereof [section 904(c)(2)(B) of Pub. L. 99–514, formerly set out as a note above]) is hereby repealed and the Internal Revenue Code of 1986 shall be applied as if the amendments made by such section had not been enacted.’’ REFERENCES TO FEDERAL SAVINGS AND LOAN INSURANCE CORPORATION Pub. L. 101–73, title XIV, § 1401(c)(7), Aug. 9, 1989, 103 Stat. 550, provided that: ‘‘Any reference to the Federal Savings and Loan Insurance Corporation in section 597 of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of this Act [Aug. 9, 1989]) shall be treated as including a reference to the Resolution Trust Corporation and the FSLIC Resolu- tion Fund.’’ ANNUAL REPORTS ON TRANSACTIONS IN WHICH FEDERAL FINANCIAL ASSISTANCE PROVIDED Pub. L. 101–73, title XIV, § 1403, Aug. 9, 1989, 103 Stat. 551, which required the Secretary of the Treasury to submit annual reports to the Senate and to the Com- mittee on Ways and Means of the House of Representa- tives on transactions with respect to which Federal fi- nancial assistance subject to this section was provided, terminated, effective May 15, 2000, pursuant to section 3003 of Pub. L. 104–66, as amended, set out as a note under section 1113 of Title 31, Money and Finance. See, also, page 142 of House Document No. 103–7. [§ 601. Repealed. Pub. L. 94–455, title XIX, § 1901(a)(85), Oct. 4, 1976, 90 Stat. 1778] Section, act Aug. 16, 1954, ch. 736, 68A Stat. 206, re- lated to a special deduction for bank affiliates. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Repeal effective for 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. Subchapter I—Natural Resources Part I. Deductions. [II. Repealed.] III. Sales and exchanges. IV. Mineral production payments. V. Continental shelf areas. PART I—DEDUCTIONS 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. Editorial Notes AMENDMENTS 1990—Pub. L. 101–508, title XI, § 11801(b)(7), Nov. 5, 1990, 104 Stat. 1388–522, struck out item for part II ‘‘Ex- clusions from gross income’’. 1976—Pub. L. 94–455, title XIX, § 1901(b)(21)(H), Oct. 4, 1976, 90 Stat. 1798, struck out item 615 ‘‘Exploration ex- penditures’’. 1969—Pub. L. 91–172, title V, §§ 503(b), 505(c), Dec. 30, 1969, 83 Stat. 631, 634, added items for parts IV and V. Pub. L. 91–172, title V, § 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 explo- ration expenditures’’ for ‘‘Additional exploration ex- penditures in the case of domestic mining’’ in item 617. 1966—Pub. L. 89–570, § 1(d), Sept. 12, 1966, 80 Stat. 762, added item 617. § 611. Allowance of deduction for depletion (a) General rule In the case of mines, oil and gas wells, other natural deposits, and timber, there shall be al- lowed as a deduction in computing taxable in- come a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case; such rea- sonable 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 devel- opment 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 be- tween 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 com- puted 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 de- duction under this section shall be appor- tioned 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 im- provements, see section 167. (Aug. 16, 1954, ch. 736, 68A Stat. 207; Pub. L. 85–866, title I, § 35, Sept. 2, 1958, 72 Stat. 1632; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.) Page 1794 TITLE 26—INTERNAL REVENUE CODE § 612 Editorial Notes AMENDMENTS 1976—Subsec. (a). Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’. 1958—Subsec. (d)(4). Pub. L. 85–866 substituted ‘‘devi- sees’’ for ‘‘devises’’. Statutory Notes and Related Subsidiaries 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. § 612. Basis for cost depletion Except as otherwise provided in this sub- chapter, the basis on which depletion is to be al- lowed in respect of any property shall be the ad- justed basis provided in section 1011 for the pur- pose of determining the gain upon the sale or other disposition of such property. (Aug. 16, 1954, ch. 736, 68A Stat. 208.) § 613. Percentage depletion (a) General rule In the case of the mines, wells, and other nat- ural deposits listed in subsection (b), the allow- ance 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 al- lowance for depletion and without any deduc- tion under section 199A). 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 disposi- tion of certain depreciable property) as ordinary income, and (2) is properly allocable to the prop- erty. In no case shall the allowance for depletion under section 611 be less than it would be if com- puted 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 sye- nite (to the extent that alumina and alu- minum compounds are extracted therefrom), asbestos, bauxite, celestite, chromite, corun- dum, fluorspar, graphite, ilmenite, kyanite, mica, olivine, quartz crystals (radio grade), ru- tile, 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) 71⁄2 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 para- graph (7)); (B) clay used, or sold for use, in the manu- facture 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 lim- ited to, aplite, barite, borax, calcium carbon- ates, diatomaceous earth, dolomite, feldspar, fullers earth, garnet, gilsonite, granite, lime- stone, 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 di- mension 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, un- less sold on bid in direct competition with a bona fide bid to sell a mineral listed in para- graph (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 pur- poses 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.