26 U.S.C. § 613A — Limitations on percentage depletion in

Page 1798 TITLE 26—INTERNAL REVENUE CODE § 613A ‘‘(i) the amendments made by subsection (b) [amending this section] shall apply to taxable years with respect to which such election is effec- tive 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 Rev- enue 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 Jan- uary 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 sub- paragraph (F), and shall be made in such form and manner as the Secretary of the Treasury or his del- egate 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 assess- ment of a deficiency attributable to the application of the amendments made by subsection (b) [amend- ing 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.—Ex- cept where otherwise distinctly expressed or mani- festly intended, terms used in this paragraph shall have the same meaning as when used in the Inter- nal Revenue Code of 1986 [this title] (or cor- responding 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 Treas- ury 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 45K 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 de- pletion for clay and shale used in the manufacture of clay products, such election to be effective for all tax- able 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 re- covery is not prevented on Sept. 26, 1961, by operation of any law or rule of law, and also effective for any tax- able 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, § 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 pre- vented 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 re- spect 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 Pub. L. 85–866, title I, § 36(b), Sept. 2, 1958, 72 Stat. 1633, provided for the filing of a claim within 6 months of Sept. 2, 1958, and for the refund or credit of any over- payment, without interest, if such refund or credit, re- sulting 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. § 613A. Limitations on percentage depletion in case of oil and gas wells (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 com- puted 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 sec- tion 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 sec- tion 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. Page 1799 TITLE 26—INTERNAL REVENUE CODE § 613A (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 there- after 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 liabil- ities into account unless the taxpayer dem- onstrates to the contrary by clear and con- vincing 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 Com- mission, the price for which has not been ad- justed 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 Feb- ruary 1, 1975, shall be presumed to take in- creases 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 al- lowance 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 produc- tion of domestic crude oil or natural gas for any taxable year, shall be determined by di- viding 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 par- tial 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 tax- payer’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 mak- ing an election under paragraph (6)(B), the taxpayer’s average daily marginal produc- tion for the taxable year. (B) Tentative quantity For purposes of subparagraph (A), the ten- tative 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 tax- payer’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 pre- scribe. [(5) Repealed. Pub. L. 101–508, title XI, § 11815(a)(1)(C), Nov. 5, 1990, 104 Stat. 1388–557] (6) Oil and natural gas produced from mar- ginal properties (A) In general Except as provided in subsection (d) and subparagraph (B), the allowance for deple- tion 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 with- out regard to paragraph (3)(A)(ii)), and (ii) so much of the taxpayer’s average daily marginal production of domestic nat- ural gas as does not exceed the taxpayer’s depletable natural gas quantity (deter- mined 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. Page 1800 TITLE 26—INTERNAL REVENUE CODE § 613A (B) Election to have paragraph apply to pro rata portion of marginal production If the taxpayer elects to have this subpara- graph apply for any taxable year, the rules of subparagraph (A) shall apply to the aver- age daily marginal production of domestic crude oil or domestic natural gas of the tax- payer to which paragraph (1) would have ap- plied without regard to this paragraph. (C) Applicable percentage For purposes of subparagraph (A), the term ‘‘applicable percentage’’ means the percent- age (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 deter- mined for such calendar year under section 45K(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 cal- endar year in which the taxable year be- gins, 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 re- spect to which the amount determined by di- viding— (i) the average daily production of do- mestic 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 pro- duced from any property if such crude oil had a weighted average gravity of 20 degrees API or less (corrected to 60 degrees Fahr- enheit). (G) Average daily marginal production For purposes of this subsection— (i) the taxpayer’s average daily marginal production of domestic crude oil or nat- ural gas for any taxable year shall be de- termined by dividing the taxpayer’s aggre- gate 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 produc- tion shall be considered to be that amount of such production determined by multi- plying the total production of such prop- erty by the taxpayer’s percentage partici- pation in the revenues from such property. (7) Special rules (A) Production of crude oil in excess of de- pletable 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 deple- tion which would have been allowable under section 613(a) for all of the taxpayer’s oil produced from such property during the tax- able year (computed as if section 613 applied to all of such production at the rate speci- fied in paragraph (1) or (6), as the case may be) as his depletable oil quantity bears to the aggregate number of barrels rep- resenting the average daily production of do- mestic crude oil of the taxpayer for such year. (B) Production of natural gas in excess of de- pletable natural gas quantity If the taxpayer’s average daily production of domestic natural gas exceeds his deplet- able natural gas quantity, the allowance under paragraph (1)(B) with respect to nat- ural 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 taxpayer’s natural gas produced from such property during the tax- able year (computed as if section 613 applied to all of such production at the rate speci- fied 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 aggre- gate number of cubic feet representing the average daily production of domestic nat- ural 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 pur- poses of subparagraphs (A) and (B) the tax- able income from the property, in applying the taxable income limitation in section 613(a), shall be allocated between the oil pro- duction 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 Page 1801 TITLE 26—INTERNAL REVENUE CODE § 613A by the partnership, or January 1, 1975. A partner’s proportionate share of the adjusted basis of partnership property shall be deter- mined in accordance with his interest in partnership capital or income and, in the case of property contributed to the partner- ship by a partner, section 704(c) (relating to contributed property) shall apply in deter- mining such share. Each partner shall sepa- rately keep records of his share of the ad- justed basis in each oil and gas property of the partnership, adjust such share of the ad- justed basis for any depletion taken on such property, and use such adjusted basis each year in the computation of his cost deple- tion or in the computation of his gain or loss on the disposition of such property by the partnership. For purposes of section 732 (re- lating 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 in- terest 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 enti- ties. (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 propor- tion to the respective production of domes- tic 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 cor- porations’’ 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 sub- stituted for ‘‘at least 80 percent’’ each place it appears in section 1563(a), (ii) a person is a related person to an- other person if such persons are members of the same controlled group of corpora- tions 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 indi- vidual 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 nat- ural gas shall be treated as 1 barrel of do- mestic 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 nat- ural 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 allow- ance 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 ad- justed 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 ad- justed basis for any depletion taken on such property, and use such adjusted basis each year in the computation of his cost deple- tion 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’ ad- justed 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 attrib- utable 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 deduction allowable under section 199A, (C) any net operating loss carryback to the taxable year under section 172, Page 1802 TITLE 26—INTERNAL REVENUE CODE § 613A (D) any capital loss carryback to the tax- able year under section 1212, and (E) 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 sec- tion 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 allow- ance 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 fol- lowing taxable year, subject to the application of the preceding sentence to such taxable year. For purposes of basis adjustments and deter- mining whether cost depletion exceeds per- centage depletion with respect to the produc- tion from a property, any amount disallowed as a deduction on the application of this para- graph shall be allocated to the respective properties from which the oil or gas was pro- duced in proportion to the percentage deple- tion 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 re- lated person, sells oil or natural gas (excluding bulk sales of such items to commercial or in- dustrial 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 con- tract 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 distrib- uting oil or natural gas or any product de- rived 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 con- trolled 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 pur- poses 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 pro- duction of the taxpayer or a related person is exported during the taxable year or the imme- diately 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 in- terest’’ means— (A) with respect to any corporation, 5 per- cent 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 own- ership 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, part- ners, or beneficiaries, as the case may be. (4) Certain refiners excluded If the taxpayer or one or more related per- sons engages in the refining of crude oil, sub- section (c) shall not apply to the taxpayer for a taxable year if the average daily refinery runs of the taxpayer and such persons for the taxable year exceed 75,000 barrels. For pur- poses of this paragraph, the average daily re- finery runs for any taxable year shall be deter- mined by dividing the aggregate refinery runs for the taxable year by the number of days in the taxable year. (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 sepa- rators 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 sec- tion 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. Page 1803 TITLE 26—INTERNAL REVENUE CODE § 613A (Added Pub. L. 94–12, title V, § 501(a), Mar. 29, 1975, 89 Stat. 47; amended Pub. L. 94–455, title XIX, §§ 1901(a)(86), 1906(b)(13)(A), title XXI, § 2115(a)–(c)(1), (d), (e), Oct. 4, 1976, 90 Stat. 1779, 1834, 1907–1909; Pub. L. 95–30, title I, § 102(b)(7), May 23, 1977, 91 Stat. 138; Pub. L. 95–618, title IV, § 403(a)(2)(B), (b), Nov. 9, 1978, 92 Stat. 3204; Pub. L. 96–603, § 3(a), Dec. 28, 1980, 94 Stat. 3511; Pub. L. 97–354, § 3(a), Oct. 19, 1982, 96 Stat. 1687; Pub. L. 97–448, title II, § 202(d), Jan. 12, 1983, 96 Stat. 2396; Pub. L. 98–369, div. A, title I, §§ 25(b), 71(b), July 18, 1984, 98 Stat. 506, 589; Pub. L. 99–514, title I, § 104(b)(9), title IV, § 412(a)(1), Oct. 22, 1986, 100 Stat. 2105, 2227; Pub. L. 101–508, title XI, §§ 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, § 1702(e)(2), Aug. 20, 1996, 110 Stat. 1870; Pub. L. 105–34, title IX, § 972(a), Aug. 5, 1997, 111 Stat. 897; Pub. L. 106–170, title V, § 504(a), Dec. 17, 1999, 113 Stat. 1921; Pub. L. 107–147, title VI, § 607(a), Mar. 9, 2002, 116 Stat. 60; Pub. L. 108–311, title III, § 314(a), Oct. 4, 2004, 118 Stat. 1181; Pub. L. 109–58, title XIII, §§ 1322(a)(3)(B), 1328(a), Aug. 8, 2005, 119 Stat. 1011, 1019; Pub. L. 109–135, title IV, § 403(a)(18), Dec. 21, 2005, 119 Stat. 2619; Pub. L. 109–432, div. A, title I, § 118(a), Dec. 20, 2006, 120 Stat. 2942; Pub. L. 110–343, div. B, title II, § 210, Oct. 3, 2008, 122 Stat. 3840; Pub. L. 111–312, title VII, § 706(a), Dec. 17, 2010, 124 Stat. 3311; Pub. L. 115–97, title I, §§ 11011(d)(4), 13305(b)(5), Dec. 22, 2017, 131 Stat. 2071, 2126; Pub. L. 115–141, div. U, title IV, § 401(a)(136), (b)(26), Mar. 23, 2018, 132 Stat. 1190, 1203.) Editorial Notes REFERENCES IN TEXT Section 503 of the Natural Gas Policy Act of 1978, re- ferred to in subsec. (b)(3)(C)(i), which was classified to section 3413 of Title 15, Commerce and Trade, was re- pealed by Pub. L. 101–60, § 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 (§ 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. AMENDMENTS 2018—Subsec. (c)(6)(H). Pub. L. 115–141, § 401(b)(26), struck out subpar. (H) which related to temporary sus- pension of taxable income limit with respect to mar- ginal production. Subsec. (c)(7)(B). Pub. L. 115–141, § 401(a)(136), sub- stituted ‘‘taxpayer’s natural gas’’ for ‘‘taxpayers nat- ural gas’’. 2017—Subsec. (d)(1). Pub. L. 115–97, § 13305(b)(5), redes- ignated subpars. (C) to (F) as (B) to (E), respectively, and struck out former subpar. (B) which read as fol- lows: ‘‘any deduction allowable under section 199,’’. Pub. L. 115–97, § 11011(d)(4), added subpar. (C) and re- designated former subpars. (C) to (E) as (D) to (F), re- spectively. 2010—Subsec. (c)(6)(H)(ii). Pub. L. 111–312 substituted ‘‘January 1, 2012’’ for ‘‘January 1, 2010’’. 2008—Subsec. (c)(6)(H). Pub. L. 110–343 substituted ‘‘for any taxable year—’’ for ‘‘for any taxable year be- ginning after December 31, 1997, and before January 1, 2008.’’ and added cls. (i) and (ii). 2006—Subsec. (c)(6)(H). Pub. L. 109–432 substituted ‘‘2008’’ for ‘‘2006’’. 2005—Subsec. (c)(6)(C). Pub. L. 109–58, § 1322(a)(3)(B), substituted ‘‘section 45K(d)(2)(C)’’ for ‘‘section 29(d)(2)(C)’’ in concluding provisions. Subsec. (d)(1)(B) to (E). Pub. L. 109–135 added subpar. (B) and redesignated former subpars. (B) to (D) as (C) to (E), respectively. Subsec. (d)(4). Pub. L. 109–58, § 1328(a), reenacted head- ing without change and amended text of par. (4) gen- erally. Prior to amendment, text read as follows: ‘‘If the taxpayer or a related person engages in the refining of crude oil, subsection (c) shall not apply to such tax- payer if on any day during the taxable year the refin- ery runs of the taxpayer and such person exceed 50,000 barrels.’’ 2004—Subsec. (c)(6)(H). Pub. L. 108–311 substituted ‘‘2006’’ for ‘‘2004’’. 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, § 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, § 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, § 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, § 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, § 11815(a)(1)(C), struck out par. (5) which provided table of applicable percent- ages for purposes of par. (1). Subsec. (c)(6). Pub. L. 101–508, § 11523(a), amended par. (6) generally, providing for an increase in percentage depletion allowance for marginal production, and sub- stituting provisions relating to oil and gas produced from marginal properties for former provisions which related to oil and gas resulting from secondary or ter- tiary processes. Subsec. (c)(7)(A), (B). Pub. L. 101–508, § 11815(a)(2)(A), substituted ‘‘specified in paragraph (1)’’ for ‘‘specified in paragraph (5)’’. Subsec. (c)(7)(C). Pub. L. 101–508, § 11522(b)(1), sub- stituted ‘‘taxable income’’ for ‘‘50-percent’’ before ‘‘limitation’’. Subsec. (c)(7)(E). Pub. L. 101–508, § 11815(a)(1)(C), struck out subpar. (E) which provided special rules re- lating to production from secondary or tertiary recov- ery processes. Subsec. (c)(8)(B), (C). Pub. L. 101–508, § 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, § 11815(a)(2)(B), which directed amendment of par. (9) by substituting ‘‘deter- mined 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 exe- cution of amendment by Pub. L. 101–508, § 11521(a). See below. Pub. L. 101–508, § 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, § 11521(a), redesignated par. (12) as (10) and struck out former par. (10) which re- lated to transfers by individuals to corporations. Subsec. (c)(11). Pub. L. 101–508, § 11521(a), redesignated par. (13) as (11). Former par. (11) redesignated (9). Subsec. (c)(11)(C), (D). Pub. L. 101–508, § 11521(b), struck out subpars. (C) and (D) which related to coordi- Page 1804 TITLE 26—INTERNAL REVENUE CODE § 613A nation with the transfer rules of former pars. (9) and (10). Subsec. (c)(12), (13). Pub. L. 101–508, § 11521(a), redesig- nated pars. (12) and (13) as (10) and (11), respectively. 1986—Subsec. (d)(1). Pub. L. 99–514, § 104(b)(9), struck out ‘‘(reduced in the case of an individual by the zero bracket amount)’’ after ‘‘taxable income’’ in introduc- tory provisions. Subsec. (d)(5). Pub. L. 99–514, § 412(a)(1), added par. (5). 1984—Subsec. (c)(2). Pub. L. 98–369, § 25(b)(1), struck out last sentence providing that in applying this para- graph, there shall not be taken into account any pro- duction of crude oil or natural gas resulting from sec- ondary or tertiary processes (as defined in regulations prescribed by the Secretary). Subsec. (c)(3)(A). Pub. L. 98–369, § 25(b)(2), inserted at end ‘‘Clause (ii) shall not apply after December 31, 1983.’’ Subsec. (c)(7)(D). Pub. L. 98–369, § 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 part- nership agreement on contributed property), such share shall be determined by taking such agreement into ac- count’’ in fourth sentence. Subsec. (c)(7)(E). Pub. L. 98–369, § 25(b)(3), inserted at end ‘‘This subparagraph shall not apply after December 31, 1983.’’ Subsec. (c)(9)(A). Pub. L. 98–369, § 25(b)(4), substituted ‘‘this subsection’’ for ‘‘paragraph (1)’’. 1983—Subsec. (c)(10)(E). Pub. L. 97–448, § 202(d)(1), in- serted 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, § 202(d)(2), inserted ‘‘(ex- cluding bulk sales of aviation fuels to the Department of Defense)’’ after ‘‘any product derived from oil or nat- ural 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, § 403(a)(2)(B), struck out subpar. (C) which related to a computation in accordance with section 613 with respect to any geo- thermal 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, § 403(b)(1), (2), added par. (2), redesignated former par. (2) as (3) and, as so re- designated, 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 in- troductory provisions. 1976—Subsec. (b)(1)(C). Pub. L. 94–455, § 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, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (c)(6)(A)(i). Pub. L. 94–455, § 1901(a)(86)(B), sub- stituted ‘‘determined without’’ for ‘‘determined with’’. Subsec. (c)(7)(D). Pub. L. 94–455, § 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, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Subsec. (c)(9)(B). Pub. L. 94–455, § 2115(b)(1), (e), added cls. (iii) to (vi) and provision following cl. (vi). Subsec. (d)(1). Pub. L. 94–455, § 2115(b)(2), substituted in subpar. (A) reference to any depletion on production from an oil or gas property which is subject to the pro- visions of subsection (c) for reference to depletion with respect to production of oil and gas subject to the pro- visions of subsection (c), and added subpar. (D). Subsec. (d)(2). Pub. L. 94–455, § 2115(a), inserted ‘‘(ex- cluding bulk sales of such items to commercial or in- dustrial users)’’ before ‘‘, or any product derived’’ and inserted provisions following subpar. (B) relating to the application of this paragraph where combined gross re- ceipts from the sale of oil, natural gas, or any product derived therefrom, for the taxable year of all retail out- lets taken into account do not exceed $5,000,000 and re- lating to the exclusion of sales made outside the United States. Subsec. (d)(3). Pub. L. 94–455, § 2115(d), inserted provi- sion following subpar. (C) relating to the determination of a significant ownership interest of a corporation, partnership, trust, or estate. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by section 11011(d)(4) of Pub. L. 115–97 ap- plicable to taxable years beginning after Dec. 31, 2017, see section 11011(e) of Pub. L. 115–97, set out as a note under section 62 of this title. Amendment by section 13305(b)(5) of Pub. L. 115–97 ap- plicable to taxable years beginning after Dec. 31, 2017, except as provided by transition rule, see section 13305(c) of Pub. L. 115–97, set out as a note under section 74 of this title. EFFECTIVE DATE OF 2010 AMENDMENT Pub. L. 111–312, title VII, § 706(b), Dec. 17, 2010, 124 Stat. 3312, provided that: ‘‘The amendment made by this section [amending this section] shall apply to tax- able years beginning after December 31, 2009.’’ EFFECTIVE DATE OF 2006 AMENDMENT Pub. L. 109–432, div. A, title I, § 118(b), Dec. 20, 2006, 120 Stat. 2942, provided that: ‘‘The amendment made by subsection (a) [amending this section] shall apply to taxable years beginning after December 31, 2005.’’ EFFECTIVE DATE OF 2005 AMENDMENTS Amendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title. Amendment by section 1322(a)(3)(B) of Pub. L. 109–58 applicable to credits determined under the Internal Revenue Code of 1986 for taxable years ending after Dec. 31, 2005, see section 1322(c)(1) of Pub. L. 109–58, set out as a note under section 45K of this title. Pub. L. 109–58, title XIII, § 1328(b), Aug. 8, 2005, 119 Stat. 1020, provided that: ‘‘The amendment made by this section [amending this section] shall apply to tax- able years ending after the date of the enactment of this Act [Aug. 8, 2005].’’ EFFECTIVE DATE OF 2004 AMENDMENT Pub. L. 108–311, title III, § 314(b), Oct. 4, 2004, 118 Stat. 1181, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply to tax- able years beginning after December 31, 2003.’’ EFFECTIVE DATE OF 2002 AMENDMENT Pub. L. 107–147, title VI, § 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, § 504(b), Dec. 17, 1999, 113 Stat. 1921, provided that: ‘‘The amendment made by this sec- tion [amending this section] shall apply to taxable years beginning after December 31, 1999.’’ EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105–34, title IX, § 972(b), Aug. 5, 1997, 111 Stat. 898, provided that: ‘‘The amendment made by sub- section (a) [amending this section] shall apply to tax- able 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 pro- Page 1805 TITLE 26—INTERNAL REVENUE CODE § 614 vision 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 Pub. L. 101–508, title XI, § 11521(c), Nov. 5, 1990, 104 Stat. 1388–486, 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. Pub. L. 101–508, title XI, § 11523(c), Nov. 5, 1990, 104 Stat. 1388–487, 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 ap- plicable 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 ap- plicable to amounts received or accrued after Aug. 16, 1986, in taxable years ending after such date, see sec- tion 412(a)(3) of Pub. L. 99–514, set out as a note under section 613 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98–369, div. A, title I, § 25(c)(2), July 18, 1984, 98 Stat. 507, 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 applica- ble with respect to property contributed to the partner- ship 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 ap- plicable 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 sec- tion 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 Pub. L. 96–603, § 3(b), Dec. 28, 1980, 94 Stat. 3513, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘The amendments made by sub- section (a) [amending this section] shall apply to trans- fers in taxable years ending after December 31, 1974, but only for purposes of applying section 613A of the Inter- nal Revenue Code of 1986 [formerly I.R.C. 1954] to peri- ods 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 ef- fective 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. Pub. L. 94–455, title XXI, § 2115(f), Oct. 4, 1976, 90 Stat. 1910, 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 Pub. L. 94–12, title V, § 501(c), Mar. 29, 1975, 89 Stat. 53, 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 401(b)(26) of Pub. L. 115–141 be construed to affect treat- ment of certain transactions occurring, property ac- quired, or items of income, loss, deduction, or credit taken into account prior to Mar. 23, 2018, for purposes of determining liability for tax for periods ending after Mar. 23, 2018, see section 401(e) of Pub. L. 115–141, set out as a note under section 23 of this title. For provisions that nothing in amendment by section 11815(a) of Pub. L. 101–508 be construed to affect treat- ment of certain transactions occurring, property ac- quired, 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 45K of this title. TRANSFER OF FUNCTIONS The Federal Power Commission was terminated, and its functions, personnel, property, funds, etc., were transferred to the Secretary of Energy (except for cer- tain functions which were transferred to the Federal Energy Regulatory Commission) by sections 7151(b), 7171(a), 7172(a), 7291, and 7293 of Title 42, The Public Health and Welfare. COORDINATION WITH OTHER PROVISION Pub. L. 95–618, title IV, § 403(d), Nov. 9, 1978, 92 Stat. 3204, provided that: ‘‘Any allowance for depletion al- lowed by reason of the amendments made by subsection (b) [amending this section] shall not be treated as a credit, exemption, deduction, or comparable adjust- ment 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].’’ § 614. Definition of property (a) General rule For the purpose of computing the depletion al- lowance 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 inter- ests in oil and gas wells or geothermal depos- its In the case of oil and gas wells or geothermal deposits— (1) In general Except as otherwise provided in this sub- section— (A) all of the taxpayer’s operating mineral interests in a separate tract or parcel of land