PRIA, Government Policy, Made Personal

Summary

You can deduct development costs you pay in a year for a mine or other natural deposit (but not an oil or gas well) if you pay them after it’s found that the ores or minerals exist in amounts you can sell. Costs for buying or improving things that get depreciation are not covered here, though any depreciation taken counts as a development cost for these rules. You may choose, following IRS rules, to treat those costs as deferred and write them off as the minerals you get are sold. If the mine is still in development, you can only defer the amount that is more than that year’s mineral income. Deferred costs are added to the mine’s basis, but they are ignored when figuring the depletion deduction. For foreign mines (not oil, gas, or geothermal wells), the normal rules don’t apply: you can either put the costs into basis for depletion or, if you don’t, deduct them evenly over 10 taxable years starting when paid.

Title 26, §616

Internal Revenue Code, Source: USLM XML via OLRC

(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).

Notes & Related Subsidiaries

Editorial Notes

Amendments

1988—Subsec. (e). Pub. L. 100–647 substituted “section 59(e)” for “section 58(i)”. 1986—Subsec. (a). Pub. L. 99–514, § 411(b)(2)(C)(i), inserted reference to subsec. (d). Subsecs. (d), (e). Pub. L. 99–514, § 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”.

Statutory Notes and Related Subsidiaries

Effective Date

of 1988 AmendmentAmendment 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 AmendmentAmendment 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 AmendmentAmendment 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.

§616 Development Expenditures

Summary

Title 26, §616

Notes & Related Subsidiaries

Editorial Notes

Amendments

Statutory Notes and Related Subsidiaries

Effective Date

Effective Date

Effective Date

Citations & Metadata