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

Summary

You can deduct costs you pay to develop a mine or other natural deposit (but not an oil or gas well) from your taxable income if the ore or mineral has been shown to exist in commercially marketable amounts. Costs to buy or improve property that you normally depreciate under section 167 are not covered here, although any depreciation you take is treated as a development cost for these rules. You may choose, under rules set by the Secretary, to treat development costs as deferred and deduct them little by little as the units of ore or mineral are sold. During the development stage, that choice only applies to the amount by which expenses exceed that year’s net receipts from the mine. Deferred amounts increase the mine’s adjusted basis but are ignored when figuring depletion under section 611. For mines outside the United States, the regular rules above do not apply; those foreign development costs can either be added to basis for computing depletion under section 611 (ignoring section 613) if you elect, or else must be deducted evenly over 10 taxable years starting when paid. See section 59(e) for the 10-year amortization election.

Title 26, §616

Internal Revenue Code — Source: USLM XML via OLRC

(a)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)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)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)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)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

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