
From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC1254]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                 Subchapter P--Capital Gains and Losses
 
     PART IV--SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
 
Sec. 1254. Gain from disposition of interest in oil, gas, 
        geothermal, or other mineral properties
        

(a) General rule

                         (1) Ordinary income

        If any section 1254 property is disposed of, the lesser of--
            (A) the aggregate amount of--
                (i) expenditures which have been deducted by the 
            taxpayer or any person under section 263, 616, or 617 with 
            respect to such property and which, but for such deduction, 
            would have been included in the adjusted basis of such 
            property, and
                (ii) the deductions for depletion under section 611 
            which reduced the adjusted basis of such property, or

            (B) the excess of--
                (i) in the case of--
                    (I) a sale, exchange, or involuntary conversion, the 
                amount realized, or
                    (II) in the case of any other disposition, the fair 
                market value of such property, over

                (ii) the adjusted basis of such property,

    shall be treated as gain which is ordinary income. Such gain shall 
    be recognized notwithstanding any other provision of this subtitle.

               (2) Disposition of portion of property

        For purposes of paragraph (1)--
            (A) In the case of the disposition of a portion of section 
        1254 property (other than an undivided interest), the entire 
        amount of the aggregate expenditures or deductions described in 
        paragraph (1)(A) with respect to such property shall be treated 
        as allocable to such portion to the extent of the amount of the 
        gain to which paragraph (1) applies.
            (B) In the case of the disposition of an undivided interest 
        in a section 1254 property (or a portion thereof), a 
        proportionate part of the expenditures or deductions described 
        in paragraph (1)(A) with respect to such property shall be 
        treated as allocable to such undivided interest to the extent of 
        the amount of the gain to which paragraph (1) applies.

    This paragraph shall not apply to any expenditures to the extent the 
    taxpayer establishes to the satisfaction of the Secretary that such 
    expenditures do not relate to the portion (or interest therein) 
    disposed of.

                      (3) Section 1254 property

        The term ``section 1254 property'' means any property (within 
    the meaning of section 614) if--
            (A) any expenditures described in paragraph (1)(A) are 
        properly chargeable to such property, or
            (B) the adjusted basis of such property includes adjustments 
        for deductions for depletion under section 611.

     (4) Adjustment for amounts included in gross income under 
                            section 617(b)(1)(A)

        The amount of the expenditures referred to in paragraph 
    (1)(A)(i) shall be properly adjusted for amounts included in gross 
    income under section 617(b)(1)(A).

(b) Special rules under regulations

    Under regulations prescribed by the Secretary--
        (1) rules similar to the rule of subsection (g) of section 617 
    and to the rules of subsections (b) and (c) of section 1245 shall be 
    applied for purposes of this section; and
        (2) in the case of the sale or exchange of stock in an S 
    corporation, rules similar to the rules of section 751 shall be 
    applied to that portion of the excess of the amount realized over 
    the adjusted basis of the stock which is attributable to 
    expenditures referred to in subsection (a)(1)(A) of this section.

(Added Pub. L. 94-455, title II, Sec. 205(a), Oct. 4, 1976, 90 Stat. 
1533; amended Pub. L. 95-618, title IV, Sec. 402(c)(1)-(3), Nov. 9, 
1978, 92 Stat. 3202; Pub. L. 97-354, Sec. 5(a)(37), Oct. 19, 1982, 96 
Stat. 1696; Pub. L. 99-514, title IV, Sec. 413(a), Oct. 22, 1986, 100 
Stat. 2227; Pub. L. 100-647, title I, Sec. 1004(c), Nov. 10, 1988, 102 
Stat. 3387.)


                               Amendments

    1988--Subsec. (a)(4). Pub. L. 100-647 added par. (4).
    1986--Pub. L. 99-514 amended section generally, substituting 
``geothermal, or other mineral properties'' for ``or geothermal 
property'' in section catchline, revising and restating subsec. (a), 
pars. (1) to (4) as pars. (1) to (3), and reenacting subsec. (b) without 
change except for substituting ``rule of subsection (g)'' for ``rules of 
subsection (g)'' in par. (1).
    1982--Subsec. (b)(2). Pub. L. 97-354 substituted ``an S 
corporation'' for ``an electing small business corporation (as defined 
in section 1371(b))''.
    1978--Pub. L. 95-618, Sec. 402(c)(3), substituted ``oil, gas, or 
geothermal'' for ``oil or gas'' in section catchline.
    Subsec. (a)(1), (2). Pub. L. 95-618, Sec. 402(c)(1), substituted 
``oil, gas, or geothermal property'' for ``oil or gas property'' 
wherever appearing.
    Subsec. (a)(3). Pub. L. 95-618, Sec. 402(c)(2), substituted ``Oil, 
gas, or geothermal'' for ``Oil or gas'' in heading and in text 
substituted ``The term `oil, gas, or geothermal property' means'' for 
``The term `oil or gas property' means''.


                    Effective Date of 1988 Amendment

    Amendment 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 Amendment

    Section 413(c) of Pub. L. 99-514 provided that:
    ``(1) In general.--The amendments made by this section [amending 
this section and section 617 of this title] shall apply to any 
disposition of property which is placed in service by the taxpayer after 
December 31, 1986.
    ``(2) Exception for binding contracts.--The amendments made by this 
section shall not apply to any disposition of property placed in service 
after December 31, 1986, if such property was acquired pursuant to a 
written contract which was entered into before September 26, 1985, and 
which was binding at all times thereafter.''


                    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 1978 Amendment

    Amendment by Pub. L. 95-618 applicable with respect to wells 
commenced on or after Oct. 1, 1978, in taxable years ending on or after 
such date, see section 402(e) of Pub. L. 95-618, set out as a note under 
section 263 of this title.


                             Effective Date

    Section 205(e) of Pub. L. 94-455 provided that: ``The amendments 
made by this section [enacting this section and amending sections 163, 
170, 301, 312, 341, 453, and 751 of this title] shall apply with respect 
to taxable years ending after December 31, 1975.''

                  Section Referred to in Other Sections

    This section is referred to in sections 59, 291, 617, 751 of this 
title.
