26 U.S.C. § 631 — Gain or loss in the case of timber, coal, or

Page 1813 TITLE 26—INTERNAL REVENUE CODE § 631 [PART II—REPEALED] [§ 621. Repealed. Pub. L. 101–508, title XI, § 11801(a)(28), Nov. 5, 1990, 104 Stat. 1388–521] Section, act Aug. 16, 1954, ch. 736, 68A Stat. 212, re- lated to payments to encourage exploration, develop- ment, and mining for defense purposes. Statutory Notes and Related Subsidiaries SAVINGS PROVISION For provisions that nothing in repeal by 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 liabil- ity for tax for periods ending after Nov. 5, 1990, see sec- tion 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. PART III—SALES AND EXCHANGES Sec. 631. Gain or loss in the case of timber, coal, or do- mestic iron ore. [632. Repealed.] Editorial Notes AMENDMENTS 1976—Pub. L. 94–455, title XIX, § 1901(b)(22)(A), Oct. 4, 1976, 90 Stat. 1798, struck out item 632 ‘‘Sale of oil or gas properties’’. 1964—Pub. L. 88–272, title II, § 227(b)(2), Feb. 26, 1964, 78 Stat. 98, inserted reference to domestic iron ore in item 631. § 631. Gain or loss in the case of timber, coal, or domestic iron ore (a) Election to consider cutting as sale or ex- change If the taxpayer so elects on his return for a taxable year, the cutting of timber (for sale or for use in the taxpayer’s trade or business) dur- ing such year by the taxpayer who owns, or has a contract right to cut, such timber (providing he has owned such timber or has held such con- tract right for a period of more than 1 year) shall be considered as a sale or exchange of such timber cut during such year. If such election has been made, gain or loss to the taxpayer shall be recognized in an amount equal to the difference between the fair market value of such timber, and the adjusted basis for depletion of such tim- ber in the hands of the taxpayer. Such fair mar- ket value shall be the fair market value as of the first day of the taxable year in which such timber is cut, and shall thereafter be considered as the cost of such cut timber to the taxpayer for all purposes for which such cost is a nec- essary factor. If a taxpayer makes an election under this subsection, such election shall apply with respect to all timber which is owned by the taxpayer or which the taxpayer has a contract right to cut and shall be binding on the taxpayer for the taxable year for which the election is made and for all subsequent years, unless the Secretary, on showing of undue hardship, per- mits the taxpayer to revoke his election; such revocation, however, shall preclude any further elections under this subsection except with the consent of the Secretary. For purposes of this subsection and subsection (b), the term ‘‘tim- ber’’ includes evergreen trees which are more than 6 years old at the time severed from the roots and are sold for ornamental purposes. (b) Disposal of timber In the case of the disposal of timber held for more than 1 year before such disposal, by the owner thereof under any form or type of con- tract by virtue of which such owner either re- tains an economic interest in such timber or makes an outright sale of such timber, the dif- ference between the amount realized from the disposal of such timber and the adjusted deple- tion basis thereof, shall be considered as though it were a gain or loss, as the case may be, on the sale of such timber. In determining the gross in- come, the adjusted gross income, or the taxable income of the lessee, the deductions allowable with respect to rents and royalties shall be de- termined without regard to the provisions of this subsection. In the case of disposal of timber with a retained economic interest, the date of disposal of such timber shall be deemed to be the date such timber is cut, but if payment is made to the owner under the contract before such timber is cut the owner may elect to treat the date of such payment as the date of disposal of such timber. For purposes of this subsection, the term ‘‘owner’’ means any person who owns an interest in such timber, including a sublessor and a holder of a contract to cut timber. (c) Disposal of coal or domestic iron ore with a retained economic interest In the case of the disposal of coal (including lignite), or iron ore mined in the United States, held for more than 1 year before such disposal, by the owner thereof under any form of contract by virtue of which such owner retains an eco- nomic interest in such coal or iron ore, the dif- ference between the amount realized from the disposal of such coal or iron ore and the ad- justed depletion basis thereof plus the deduc- tions disallowed for the taxable year under sec- tion 272 shall be considered as though it were a gain or loss, as the case may be, on the sale of such coal or iron ore. If for the taxable year of such gain or loss the maximum rate of tax im- posed by this chapter on any net capital gain is less than such maximum rate for ordinary in- come, such owner shall not be entitled to the al- lowance for percentage depletion provided in section 613 with respect to such coal or iron ore. This subsection shall not apply to income real- ized by any owner as a co-adventurer, partner, or principal in the mining of such coal or iron ore, and the word ‘‘owner’’ means any person who owns an economic interest in coal or iron ore in place, including a sublessor. The date of disposal of such coal or iron ore shall be deemed to be the date such coal or iron ore is mined. In determining the gross income, the adjusted gross income, or the taxable income of the les- see, the deductions allowable with respect to rents and royalties shall be determined without regard to the provisions of this subsection. This subsection shall have no application, for pur- poses of applying subchapter G, relating to cor- porations used to avoid income tax on share- holders (including the determinations of the amount of the deductions under section 535(b)(6) Page 1814 TITLE 26—INTERNAL REVENUE CODE § 631 or section 545(b)(5)). This subsection shall not apply to any disposal of iron ore or coal— (1) to a person whose relationship to the per- son disposing of such iron ore or coal would re- sult in the disallowance of losses under section 267 or 707(b), or (2) to a person owned or controlled directly or indirectly by the same interests which own or control the person disposing of such iron ore or coal. (Aug. 16, 1954, ch. 736, 68A Stat. 213; Pub. L. 88–272, title II, § 227(a)(1), (b)(1), Feb. 26, 1964, 78 Stat. 97, 98; Pub. L. 94–455, title XIV, § 1402(b)(1)(I), (2), (3), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1732, 1733, 1834; Pub. L. 98–369, div. A, title I, § 178(a), title X, § 1001(c), (e), July 18, 1984, 98 Stat. 712, 1012; Pub. L. 99–514, title III, § 311(b)(3), Oct. 22, 1986, 100 Stat. 2219; Pub. L. 108–357, title III, § 315(a), (b), Oct. 22, 2004, 118 Stat. 1469.) Editorial Notes AMENDMENTS 2004—Subsec. (b). Pub. L. 108–357, in heading, struck out ‘‘with a retained economic interest’’ after ‘‘tim- ber’’, in first sentence, substituted ‘‘either retains an economic interest in such timber or makes an outright sale of such timber’’ for ‘‘retains an economic interest in such timber’’, and, in third sentence, substituted ‘‘In the case of disposal of timber with a retained economic interest, the date of disposal’’ for ‘‘The date of dis- posal’’. 1986—Subsec. (c). Pub. L. 99–514 substituted ‘‘If for the taxable year of such gain or loss the maximum rate of tax imposed by this chapter on any net capital gain is less than such maximum rate for ordinary income, such owner’’ for ‘‘Such owner’’. 1984—Subsec. (a). Pub. L. 98–369, § 1001(c)(1), (e), sub- stituted ‘‘on the first day of such year and for a period of more than 6 months before such cutting’’ for ‘‘for a period of more than 1 year’’, applicable to property ac- quired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below. Subsecs. (b), (c). Pub. L. 98–369, § 1001(c)(2), (e), sub- stituted ‘‘6 months’’ for ‘‘1 year’’, applicable to prop- erty acquired after June 22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment note below. Pub. L. 98–369, § 178(a), inserted ‘‘or coal’’ after ‘‘iron ore’’ wherever appearing in last sentence of subsec. (c). 1976—Subsec. (a). Pub. L. 94–455, § 1402(b)(2), provided that ‘‘9 months’’ would be changed to ‘‘1 year’’. Pub. L. 94–455, §§ 1402(b)(1)(I), (3), 1906(b)(13)(A), pro- vided that ‘‘6 months’’ would be changed to ‘‘9 months’’ for taxable years beginning in 1977 and struck out ‘‘be- fore the beginning of such year’’ before ‘‘) shall be con- sidered as a sale’’ effective for taxable years beginning after Dec. 31, 1976, and ‘‘or his delegate’’ after ‘‘Sec- retary’’ wherever appearing. Subsec. (b). Pub. L. 94–455, § 1402(b)(2), provided that ‘‘9 months’’ would be changed to ‘‘1 year’’. Pub. L. 94–455, § 1402(b)(1)(I), provided that ‘‘6 months’’ would be changed to ‘‘9 months’’ for taxable years beginning in 1977. Subsec. (c). Pub. L. 94–455, § 1402(b)(2), provided that ‘‘9 months’’ would be changed to ‘‘1 year’’. Pub. L. 94–455, § 1402(b)(1)(I), provided that ‘‘6 months’’ would be changed to ‘‘9 months’’ for taxable years beginning in 1977. 1964—Pub. L. 88–272, § 227(b)(1), inserted reference to domestic iron ore in heading. Subsec. (c). Pub. L. 88–272, § 227(a)(1), inserted ‘‘or do- mestic iron ore’’ in heading, ‘‘or iron ore mined in the United States’’ after ‘‘coal (including lignite)’’, ‘‘or iron ore’’ after ‘‘coal’’ wherever appearing, and pro- vided that the subsection shall not apply to any dis- posal of iron ore to a person whose relationship to the person disposing of such ore would result in the dis- allowance of losses under section 267 of 717(b), or to a person owned or controlled by the same interests which own or control the person disposing of such iron ore. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2004 AMENDMENT Pub. L. 108–357, title III, § 315(c), Oct. 22, 2004, 118 Stat. 1469, provided that: ‘‘The amendments made by this section [amending this section] shall apply to sales after December 31, 2004.’’ EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, see section 311(c) of Pub. L. 99–514, set out as a note under section 593 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Pub. L. 98–369, div. A, title I, § 178(b), July 18, 1984, 98 Stat. 712, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the amendment made by subsection (a) [amending this section] shall apply to dispositions after September 30, 1985. ‘‘(2) SPECIAL RULE FOR FIXED CONTRACTS.— ‘‘(A) IN GENERAL.—The amendment made by sub- section (a) shall not apply to any disposition of an in- terest in coal by a person to a related person if such coal is subsequently sold before January 1, 1990, by ei- ther such person— ‘‘(i) to a person who is not a related person with respect to either such person, and ‘‘(ii) pursuant to a qualified fixed contract. ‘‘(B) ALLOCATION WHERE MORE THAN 1 CONTRACT.—If, for any taxable year, there is a disposition described in subparagraph (A) which is not specifically allo- cable to a qualified fixed contract or to a contract which is not a qualified fixed contract, such disposi- tion shall be treated as first allocable to the qualified fixed contract. ‘‘(C) QUALIFIED FIXED CONTRACT DEFINED.—The term ‘qualified fixed contract’ means any contract for the sale of coal which— ‘‘(i) was entered into before June 12, 1984, ‘‘(ii) is binding at all times thereafter, and ‘‘(iii) cannot be adjusted to reflect to any extent the increase in liabilities of the person disposing of the coal for tax under chapter 1 of the Internal Rev- enue Code of 1986 [formerly I.R.C. 1954] by reason of the amendment made by subsection (a). ‘‘(D) RELATED PERSON.—For purposes of this para- graph, the term ‘related person’ means a person who bears a relationship to another person described in the last sentence of section 631(c). ’’ Amendment by section 1001(c) of Pub. L. 98–369 appli- cable to property acquired after June 22, 1984, and be- fore Jan. 1, 1988, see section 1001(e) of Pub. L. 98–369, set out as a note under section 166 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Pub. L. 94–455, title XIV, § 1402(b)(1), Oct. 4, 1976, 90 Stat. 1731, provided that the amendment made by that section is effective with respect to taxable years begin- ning in 1977. Pub. L. 94–455, title XIV, § 1402(b)(2), Oct. 4, 1976, 90 Stat. 1732, provided that the amendment made by that section is effective with respect to taxable years begin- ning after Dec. 31, 1977. Pub. L. 94–455, title XIV, § 1402(b)(3), Oct. 4, 1976, 90 Stat. 1733, provided that the amendment made by that section is effective with respect to taxable years begin- ning after Dec. 31, 1976. EFFECTIVE DATE OF 1964 AMENDMENT Amendment by Pub. L. 88–272 applicable with respect to amounts received or accrued in taxable years begin- Page 1815 TITLE 26—INTERNAL REVENUE CODE § 636 ning after Dec. 31, 1963, attributable to iron ore mined in such years, see section 227(c) of Pub. L. 88–272, set out as a note under section 272 of this title. REVOCATION OF ELECTIONS UNDER SECTION 631(a) Pub. L. 108–357, title I, § 102(c), Oct. 22, 2004, 118 Stat. 1428, provided that: ‘‘Any election under section 631(a) of the Internal Revenue Code of 1986 made for a taxable year ending on or before the date of the enactment of this Act [Oct. 22, 2004] may be revoked by the taxpayer for any taxable year ending after such date. For pur- poses of determining whether such taxpayer may make a further election under such section, such election (and any revocation under this section) shall not be taken into account.’’ Pub. L. 99–514, title III, § 311(d)(2), Oct. 22, 1986, 100 Stat. 2220, provided that: ‘‘Any election under section 631(a) of the Internal Revenue Code of 1954 made (whether by a corporation or a person other than a cor- poration) for a taxable year beginning before January 1, 1987, may be revoked by the taxpayer for any taxable year ending after December 31, 1986. For purposes of de- termining whether the taxpayer may make a further election under such section, such election (and any rev- ocation under this paragraph) shall not be taken into account.’’ [§ 632. Repealed. Pub. L. 94–455, title XIX, § 1901(a)(90), Oct. 4, 1976, 90 Stat. 1779] Section, acts Aug. 16, 1954, ch. 736, 68A Stat. 214; Dec. 30, 1969, Pub. L. 91–172, title VIII, § 803(d)(4), 83 Stat. 684, related to tax in case of sale of oil and gas properties. 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. PART IV—MINERAL PRODUCTION PAYMENTS Sec. 636. Income tax treatment of mineral production payments. Editorial Notes AMENDMENTS 1969—Pub. L. 91–172, title V, § 503(a), Dec. 30, 1969, 83 Stat. 630, added part heading and section analysis. § 636. Income tax treatment of mineral produc- tion payments (a) Carved-out production payments A production payment carved out of mineral property shall be treated, for purposes of this subtitle, as if it were a mortgage loan on the property, and shall not qualify as an economic interest in the mineral property. In the case of a production payment carved out for exploration or development of a mineral property, the pre- ceding sentence shall apply only if and to the extent gross income from the property (for pur- poses of section 613) would be realized, in the ab- sence of the application of such sentence, by the person creating the production payment. (b) Retained production payment on sale of min- eral property A production payment retained on the sale of a mineral property shall be treated, for purposes of this subtitle, as if it were a purchase money mortgage loan and shall not qualify as an eco- nomic interest in the mineral property. (c) Retained production payment on lease of mineral property A production payment retained in a mineral property by the lessor in a leasing transaction shall be treated, for purposes of this subtitle, in- sofar as the lessee (or his successors in interest) is concerned, as if it were a bonus granted by the lessee to the lessor payable in installments. The treatment of the production payment in the hands of the lessor shall be determined without regard to the provisions of this subsection. (d) Definition As used in this section, the term ‘‘mineral property’’ has the meaning assigned to the term ‘‘property’’ in section 614(a). (e) Regulations The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section. (Added Pub. L. 91–172, title V, § 503(a), Dec. 30, 1969, 83 Stat. 630; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834.) Editorial Notes AMENDMENTS 1976—Subsec. (e). Pub. L. 94–455 struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE Pub. L. 91–172, title V, § 503(c), Dec. 30, 1969, 83 Stat. 631, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘(1) GENERAL RULE.—The amendments made by this section [enacting this section] shall apply with respect to mineral production payments created on or after Au- gust 7, 1969, other than mineral production payments created before January 1, 1971, pursuant to a binding contract entered into before August 7, 1969. ‘‘(2) ELECTION.—At the election of the taxpayer (made at such time and in such manner as the Secretary of the Treasury or his delegate prescribes by regulations), the amendments made by this section shall apply with respect to all mineral production payments which the taxpayer carved out of mineral properties after the be- ginning of his last taxable year ending before August 7, 1969. No interest shall be allowed on any refund or cred- it of any overpayment resulting from such election for any taxable year ending before August 7, 1969. ‘‘(3) SPECIAL RULE.—With respect to a taxpayer who does not elect the treatment provided in paragraph (2) and who carves out one or more mineral production payments on or after August 7, 1969, during the taxable year which includes such date, the amendments made by this section shall apply to such production pay- ments only to the extent the aggregate amount of such production payments exceeds the lesser of— ‘‘(A) the excess of ‘‘(i) the aggregate amount of production pay- ments carved out and sold by the taxpayer during the 12-month period immediately preceding his tax- able year which includes August 7, 1969, over ‘‘(ii) the aggregate amount of production pay- ments carved out before August 7, 1969, by the tax- payer during his taxable year which includes such date, or ‘‘(B) the amount necessary to increase the amount of the taxpayer’s gross income, within the meaning of chapter 1 of subtitle A of the Internal Revenue Code