
From the U.S. Code Online via GPO Access
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[Laws in effect as of January 2, 2001]
[Document not affected by Public Laws enacted between
  January 2, 2001 and January 28, 2002]
[CITE: 26USC614]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                     Subchapter I--Natural Resources
 
                           PART I--DEDUCTIONS
 
Sec. 614. Definition of property


(a) General rule

    For the purpose of computing the depletion allowance in the case of 
mines, wells, and other natural deposits, the term ``property'' means 
each separate interest owned by the taxpayer in each mineral deposit in 
each separate tract or parcel of land.

(b) Special rules as to operating mineral interests in oil and gas wells 
        or geothermal deposits

    In the case of oil and gas wells or geothermal deposits--

                           (1) In general

        Except as otherwise provided in this subsection--
            (A) all of the taxpayer's operating mineral interests in a 
        separate tract or parcel of land shall be combined and treated 
        as one property, and
            (B) the taxpayer may not combine an operating mineral 
        interest in one tract or parcel of land with an operating 
        mineral interest in another tract or parcel of land.

        (2) Election to treat operating mineral interests as 
                             separate properties

        If the taxpayer has more than one operating mineral interest in 
    a single tract or parcel of land, he may elect to treat one or more 
    of such operating mineral interests as separate properties. The 
    taxpayer may not have more than one combination of operating mineral 
    interests in a single tract or parcel of land. If the taxpayer makes 
    the election provided in this paragraph with respect to any interest 
    in a tract or parcel of land, each operating mineral interest which 
    is discovered or acquired by the taxpayer in such tract or parcel of 
    land after the taxable year for which the election is made shall be 
    treated--
            (A) if there is no combination of interests in such tract or 
        parcel, as a separate property unless the taxpayer elects to 
        combine it with another interest, or
            (B) if there is a combination of interests in such tract or 
        parcel, as part of such combination unless the taxpayer elects 
        to treat it as a separate property.

           (3) Certain unitization or pooling arrangements

        (A) In general

            Under regulations prescribed by the Secretary, if one or 
        more of the taxpayer's operating mineral interests participate, 
        under a voluntary or compulsory unitization or pooling 
        agreement, in a single cooperative or unit plan of operation, 
        then for the period of such participation--
                (i) they shall be treated for all purposes of this 
            subtitle as one property, and
                (ii) the application of paragraphs (1), (2), and (4) in 
            respect of such interests shall be suspended.

        (B) Limitation

            Subparagraph (A) shall apply to a voluntary agreement only 
        if all the operating mineral interests covered by such 
        agreement--
                (i) are in the same deposit, or are in 2 or more 
            deposits the joint development or production of which is 
            logical from the standpoint of geology, convenience, 
            economy, or conservation, and
                (ii) are in tracts or parcels of land which are 
            contiguous or in close proximity.

        (C) Special rule in the case of arrangements entered into a 
                taxable years beginning before January 1, 1964

            If--
                (i) two or more of the taxpayer's operating mineral 
            interests participate under a voluntary or compulsory 
            unitization or pooling agreement entered into in any taxable 
            year beginning before January 1, 1964, in a single 
            cooperative or unit plan of operation,
                (ii) the taxpayer, for the last taxable year beginning 
            before January 1, 1964, treated such interests as two or 
            more separate properties, and
                (iii) it is determined that such treatment was proper 
            under the law applicable to such taxable year,

        such taxpayer may continue to treat such interests in a 
        consistent manner for the period of such participation.

               (4) Manner, time, and scope of election

        (A) Manner and time

            Any election provided in paragraph (2) shall be made for 
        each operating mineral interest, in the manner prescribed by the 
        Secretary by regulations, not later than the time prescribed by 
        law for filing the return (including extensions thereof) for 
        whichever of the following taxable years is the later: The first 
        taxable year beginning after December 31, 1963, or the first 
        taxable year in which any expenditure for development or 
        operation in respect of such operating mineral interest is made 
        by the taxpayer after the acquisition of such interest.

        (B) Scope

            Any election under paragraph (2) shall be for all purposes 
        of this subtitle and shall be binding on the taxpayer for all 
        subsequent taxable years.

                 (5) Treatment of certain properties

        If, on the day preceding the first day of the first taxable year 
    beginning after December 31, 1963, the taxpayer has any operating 
    mineral interests which he treats under subsection (d) of this 
    section (as in effect before the amendments made by the Revenue Act 
    of 1964), such treatment shall be continued and shall be deemed to 
    have been adopted pursuant to paragraphs (1) and (2) of this 
    subsection (as amended by such Act).

(c) Special rules as to operating mineral interests in mines

            (1) Election to aggregate separate interests

        Except in the case of oil and gas wells and geothermal deposits, 
    if a taxpayer owns two or more separate operating mineral interests 
    which constitute part or all of an operating unit, he may elect (for 
    all purposes of this subtitle)--
            (A) to form an aggregation of, and to treat as one property, 
        all such interests owned by him which comprise any one mine or 
        any two or more mines; and
            (B) to treat as a separate property each such interest which 
        is not included within an aggregation referred to in 
        subparagraph (A).

    For purposes of this paragraph, separate operating mineral interests 
    which constitute part or all of an operating unit may be aggregated 
    whether or not they are included in a single tract or parcel of land 
    and whether or not they are included in contiguous tracts or 
    parcels. For purposes of this paragraph, a taxpayer may elect to 
    form more than one aggregation of operating mineral interests within 
    any one operating unit; but no aggregation may include any operating 
    mineral interest which is a part of a mine without including all of 
    the operating mineral interests which are a part of such mine in the 
    first taxable year for which the election to aggregate is effective, 
    and any operating mineral interest which thereafter becomes a part 
    of such mine shall be included in such aggregation.

      (2) Election to treat a single interest as more than one 
                                  property

        Except in the case of oil and gas wells and geothermal deposits, 
    if a single tract or parcel of land contains a mineral deposit which 
    is being extracted, or will be extracted by means of two or more 
    mines for which expenditures for development or operation have been 
    made by the taxpayer, then the taxpayer may elect to allocate to 
    such mines, under regulations prescribed by the Secretary, all of 
    the tract or parcel of land and of the mineral deposit contained 
    therein, and to treat as a separate property that portion of the 
    tract or parcel of land and of the mineral deposit so allocated to 
    each mine. A separate property formed pursuant to an election under 
    this paragraph shall be treated as a separate property for all 
    purposes of this subtitle (including this paragraph). A separate 
    property so formed may, under regulations prescribed by the 
    Secretary, be included as a part of an aggregation in accordance 
    with paragraphs (1) and (3). The election provided by this paragraph 
    may not be made with respect to any property which is a part of an 
    aggregation formed by the taxpayer under paragraph (1) except with 
    the consent of the Secretary.

                  (3) Manner and scope of election

        The elections provided by paragraphs (1) and (2) shall be made, 
    in accordance with regulations prescribed by the Secretary, not 
    later than the time prescribed for filing the return (including 
    extensions thereof) for the first taxable year--
            (A) in which, in the case of an election under paragraph 
        (1), any expenditure for development or operation in respect of 
        the separate operating mineral interest is made by the taxpayer 
        after the acquisition of such interest, or
            (B) in which, in the case of an election under paragraph 
        (2), expenditures for development or operation of more than one 
        mine in respect of a property are made by the taxpayer after the 
        acquisition of the property.

    An election made under paragraph (1) or (2) for a taxable year shall 
    be binding upon the taxpayer for such year and all subsequent 
    taxable years, except that the Secretary may consent to a different 
    treatment of any interest with respect to which an election has been 
    made.

(d) Operating mineral interests defined

    For purposes of this section, the term ``operating mineral 
interest'' includes only an interest in respect of which the costs of 
production of the mineral are required to be taken into account by the 
taxpayer for purposes of computing the taxable income limitation 
provided for in section 613, or would be so required if the mine, well, 
or other natural deposit were in the production stage.

(e) Special rule as to nonoperating mineral interests

                (1) Aggregation of separate interests

        If a taxpayer owns two or more separate nonoperating mineral 
    interests in a single tract or parcel of land or in two or more 
    adjacent tracts or parcels of land, the Secretary shall, on showing 
    by the taxpayer that a principal purpose is not the avoidance of 
    tax, permit the taxpayer to treat (for all purposes of this 
    subtitle) all such mineral interests in each separate kind of 
    mineral deposit as one property. If such permission is granted for 
    any taxable year, the taxpayer shall treat such interests as one 
    property for all subsequent taxable years unless the Secretary 
    consents to a different treatment.

             (2) Nonoperating mineral interests defined

        For purposes of this subsection, the term ``nonoperating mineral 
    interests'' includes only interests which are not operating mineral 
    interests.

(Aug. 16, 1954, ch. 736, 68A Stat. 210; Pub. L. 85-866, title I, 
Sec. 37(a)-(d), Sept. 2, 1958, 72 Stat. 1633-1637; Pub. L. 88-272, title 
II, Sec. 226(a), (b), Feb. 26, 1964, 78 Stat. 94, 96; Pub. L. 94-455, 
title XIX, Secs. 1901(a)(87)(A)(i), (B), (C), 1906(b)(13)(A), Oct. 4, 
1976, 90 Stat. 1779, 1834; Pub. L. 95-618, title IV, Sec. 403(a)(2)(C), 
(D), Nov. 9, 1978, 92 Stat. 3204; Pub. L. 101-508, title XI, 
Sec. 11522(b)(2), Nov. 5, 1990, 104 Stat. 1388-486.)

                       References in Text

    The Revenue Act of 1964, referred to in subsec. (b)(5), is Pub. L. 
88-272, Feb. 26, 1964, 78 Stat. 19. For complete classification of this 
Act to the Code, see Short Title of 1964 Amendments note set out under 
section 1 of this title and Tables.


                               Amendments

    1990--Subsec. (d). Pub. L. 101-508 substituted ``taxable income'' 
for ``50 percent''.
    1978--Subsec. (b). Pub. L. 95-618, Sec. 403(a)(2)(C), inserted ``or 
geothermal deposits'' after ``gas wells'' in heading and introductory 
provisions.
    Subsec. (c). Pub. L. 95-618, Sec. 403(a)(2)(D), substituted ``oil 
and gas wells and geothermal deposits'' for ``oil and gas wells'' 
wherever appearing.
    1976--Subsecs. (b)(3)(A), (4)(A), (e). Pub. L. 94-455, 
Sec. 1906(b)(13)(A), struck out ``or his delegate'' after ``Secretary''.
    Subsec. (c)(2). Pub. L. 94-455, Secs. 1901(a)(87)(B), 
1906(b)(13)(A), struck out ``or his delegate'' after ``Secretary'' 
wherever appearing and ``, but the provisions of paragraph (4) shall not 
apply with respect to such separate property'' after ``in accordance 
with paragraphs (1) and (3)''.
    Subsec. (c)(3). Pub. L. 94-455, Sec. 1901(a)(87)(C), among other 
changes, struck out references to the first taxable year beginning after 
Dec. 31, 1957, and provisions relating to elections for taxable years 
beginning before Jan. 1, 1958, relating to election after final 
regulations, and relating to statute of limitations.
    Subsec. (c)(4). Pub. L. 94-455, Sec. 1901(a)(87)(A)(i), struck out 
par. (4) which related to a special rule as to deductions under section 
615(a) of this title prior to aggregation.
    1964--Subsec. (b). Pub. L. 88-272, Sec. 226(a), amended subsec. (b) 
generally, and among other changes, substituted provisions stating that 
except as otherwise provided, all of the taxpayer's operating mineral 
interests in a separate tract or parcel of land will be combined and 
treated as one property, that the taxpayer may not combine any operating 
mineral interest in one tract or parcel of land with an operating 
mineral interest in another tract or parcel of land, that if he has more 
than one operating mineral interest in a single tract of land he may 
elect to treat one or more of such interests as separate properties, 
limited, however, to one combination of interests in a single tract of 
land, and providing, in the event the election in par. (2) is made with 
respect to any tract of land, for the treatment of interests discovered 
or acquired by the taxpayer in such a tract after the taxable year for 
which the election is made, for provisions which permitted a taxpayer 
who owned two or more separate operating mineral interests which 
constituted all or a part of an operating unit, to elect to form one 
aggregation and treat as one property any two or more of these 
interests, treating as separate properties any interests which he did 
not include in the one aggregation, to aggregate separate interests 
whether or not in a single tract of land, or contiguous tracts of land, 
and which forbade him to form more than one aggregation within a single 
operating unit, inserted provisions in par. (3) relating to unitization 
or pooling arrangements, and in par (5), providing that if the taxpayer 
has operating mineral interests on the day preceding the first day of 
the first taxable year beginning after Dec. 31, 1963, which he treats 
under subsec. (d) of this section as in effect before amendment by Pub. 
L. 88-272, he shall continue such treatment and it shall be deemed 
adopted pursuant to pars. (1) and (2) of this subsection, and struck out 
provisions defining ``operating mineral interests'', and providing for 
termination of election with respect to mines, excepting oil and gas 
wells. For definition of ``operating mineral interests'', see subsec. 
(d) of this section.
    Subsec. (c). Pub. L. 88-272, Sec. 226(b)(1), (2), struck out par. 
(5) which defined operating mineral interests, and ``1958'' before 
``Special rules'' in heading.
    Subsec. (d). Pub. L. 88-272, Sec. 226(b)(3), amended subsec. (d) 
generally, substituting the definition of operating mineral interests, 
for provisions relating to the 1939 Code treatment respecting operating 
mineral interest in case of oil and gas wells.
    Subsec. (e)(2). Pub. L. 88-272, Sec. 226(b)(4), struck out ``within 
the meaning of subsection (b)(3)'' at end.
    1958--Subsec. (b)(4). Pub. L. 85-866, Sec. 37(a), added par. (4).
    Subsecs. (c) to (e). Pub. L. 85-866, Sec. 37(b)-(d), added subsecs. 
(c) and (d), redesignated former subsec. (c) as (e), and substituted in 
first sentence of par. (1) ``or in two or more adjacent tracts'' for 
``or in two or more contiguous tracts'' and ``shall, on showing by the 
taxpayer that a principal purpose is not the avoidance of tax, permit 
the taxpayer to treat (for all purposes of this subtitle) all such 
mineral interests in each separate kind of mineral deposit as one 
property'' for ``may, on showing of undue hardship, permit the taxpayer 
to treat (for all purposes of this subtitle) all such mineral interests 
as one property''.


                    Effective Date of 1990 Amendment

    Amendment by Pub. L. 101-508 applicable to taxable years beginning 
after Dec. 31, 1990, see section 11522(c) of Pub. L. 101-508, set out as 
a note under section 613 of this title.


                    Effective Date of 1978 Amendment

    Amendment by Pub. L. 95-618 effective Oct. 1, 1978, and applicable 
to taxable years ending on or after such date, see section 403(c) of 
Pub. L. 95-618, set out as a note under section 613 of this title.


                    Effective Date of 1976 Amendment

    Section 1901(a)(87)(A)(ii) of Pub. L. 94-455, as amended by Pub. L. 
99-514, Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``The 
amendment made by clause (i) [amending this section] shall apply with 
respect to elections to form aggregations of operating mineral interests 
made under section 614(c)(1) of the Internal Revenue Code of 1986 
[formerly I.R.C. 1954] for taxable years beginning after December 31, 
1976.''


                    Effective Date of 1964 Amendment

    Section 226(d) of Pub. L. 88-272 provided that: ``The amendments 
made by subsections (a) and (b) [amending this section] shall apply to 
taxable years beginning after December 31, 1963.''


                    Effective Date of 1958 Amendment

    Section 37(e) of Pub. L. 85-866 provided that: ``The amendments made 
by subsections (a) and (c) [amending this section] shall apply with 
respect to taxable years beginning after December 31, 1953, and ending 
after August 16, 1954. The amendments made by subsection (b) [amending 
this section] shall apply with respect to taxable years beginning after 
December 31, 1957, except that such amendments shall, at the election of 
the taxpayer made in conformity with such amendments, apply with respect 
to taxable years beginning after December 31, 1953, and ending after 
August 16, 1954. The amendment made by subsection (d) [amending this 
section] shall apply with respect to taxable years beginning after 
December 31, 1957, except that with respect to any taxpayer such 
amendment shall, at the election of the taxpayer, apply with respect to 
taxable years beginning after December 31, 1953, and ending after August 
16, 1954.''


                  Allocation of Basis in Certain Cases

    Section 226(c) of Pub. L. 88-272, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ``For purposes of 
the Internal Revenue Code of 1986 [formerly I.R.C. 1954]--
        ``(1) Fair market value rule.--Except as provided in paragraph 
    (2), if a taxpayer has a section 614(b) aggregation, then the 
    adjusted basis (as of the first day of the first taxable year 
    beginning after December 31, 1963) of each property included in such 
    aggregation shall be determined by multiplying the adjusted basis of 
    the aggregation by a fraction--
            ``(A) the numerator of which is the fair market value of 
        such property, and
            ``(B) the denominator of which is the fair market value of 
        such aggregation.
    For purposes of this paragraph, the adjusted basis and the fair 
    market value of the aggregation, and the fair market value of each 
    property included therein, shall be determined as of the day 
    preceding the first day of the first taxable year which begins after 
    December 31, 1963.
        ``(2) Allocation of adjustments, etc.--If the taxpayer makes an 
    election under this paragraph with respect to any section 614(b) 
    aggregation, then the adjusted basis (as of the first day of the 
    first taxable year beginning December 31, 1963) of each property 
    included in such aggregation shall be the adjusted basis of such 
    property at the time it was first included in the aggregation by the 
    taxpayer, adjusted for that portion of those adjustments to the 
    basis of the aggregation which are reasonably attributable to such 
    property. If, under the preceding sentence, the total of the 
    adjusted bases of the interests included in the aggregation exceeds 
    the adjusted basis of the aggregation (as of the day preceding the 
    first day of the first taxable year which begins after December 31, 
    1963), the adjusted bases of the properties which include such 
    interests shall be adjusted, under regulations prescribed by the 
    Secretary of the Treasury or his delegate, so that the total of the 
    adjusted bases of such interests equals the adjusted basis of the 
    aggregation. An election under this paragraph shall be made at such 
    time and in such manner as the Secretary of the Treasury or his 
    delegate shall by regulations prescribe.
        ``(3) Definitions.--For purposes of this subsection--
            ``(A) Section 614(b) aggregation.--The term `section 614(b) 
        aggregation' means any aggregation to which section 614(b)(1)(A) 
        of the Internal Revenue Code of 1986 (as in effect before the 
        amendments made by subsection (a) of this section) applied for 
        the day preceding the first day of the first taxable year 
        beginning after December 31, 1963.
            ``(B) Property.--The term `property' has the same meaning as 
        is applicable, under section 614 of the Internal Revenue Code of 
        1986, to the taxpayer for the first taxable year beginning after 
        December 31, 1963.''

                  Section Referred to in Other Sections

    This section is referred to in sections 57, 291, 465, 468, 617, 636, 
1016, 1254 of this title.
