§636 — Title 26 Internal Revenue Code | U.S. Code

Summary

Treat production payments from mineral property as loans secured by the property for tax purposes, not as ownership interests. If a payment is for exploration or development, that rule applies only when, under section 613, the person who created the payment would have received the property's gross income. A payment kept on sale counts like a mortgage that financed the purchase. If a lessor keeps a payment in a lease, the lessee is treated as having paid a bonus in installments. "Mineral property" means the same as "property" in section 614(a). The Secretary must write rules to carry out these points.

Title 26, §636

Internal Revenue Code — Source: USLM XML via OLRC

(a)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 preceding sentence shall apply only if and to the extent gross income from the property (for purposes of section 613) would be realized, in the absence of the application of such sentence, by the person creating the production payment.

(b)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 economic interest in the mineral property.

(c)A production payment retained in a mineral property by the lessor in a leasing transaction shall be treated, for purposes of this subtitle, insofar 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)As used in this section, the term “mineral property” has the meaning assigned to the term “property” in section 614(a).

(e)The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.

Notes & Related Subsidiaries

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

August 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

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made by this section shall apply with respect to all mineral production payments which the taxpayer carved out of mineral properties after the beginning of his last taxable year ending before

August 7, 1969. No interest shall be allowed on any refund or credit 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

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made by this section shall apply to such production payments 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 payments carved out and sold by the taxpayer during the 12-month period immediately preceding his taxable year which includes

August 7, 1969, over “(ii) the aggregate amount of production payments carved out before

August 7, 1969, by the taxpayer 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 of 1986 [formerly I.R.C. 1954] [this title], for the taxable year which includes

August 7, 1969, to an amount equal to the amount of deductions (other than any deduction under section 172 of such Code) allowable for such year under such chapter. The preceding sentence shall not apply for purposes of determining the amount of any deduction allowable under section 611 or the amount of foreign tax credit allowable under section 904 of such Code.”

§636 Income tax treatment of mineral production payments

Summary

Title 26, §636

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Amendments

Regulations

Amendments

Amendments

Citations & Metadata