
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: 26USC617]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                     Subchapter I--Natural Resources
 
                           PART I--DEDUCTIONS
 
Sec. 617. Deduction and recapture of certain mining exploration 
        expenditures
        

(a) Allowance of deduction

                          (1) General rule

        At the election of the taxpayer, expenditures paid or incurred 
    during the taxable year for the purpose of ascertaining the 
    existence, location, extent, or quality of any deposit of ore or 
    other mineral, and paid or incurred before the beginning of the 
    development stage of the mine, shall be allowed as a deduction in 
    computing taxable income. This subsection shall apply only with 
    respect to the amount of such expenditures which, but for this 
    subsection, would not be allowable as a deduction for the taxable 
    year. This subsection 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 subsection, as expenditures paid or incurred. In no case shall 
    this subsection apply with respect to amounts paid or incurred for 
    the purpose of ascertaining the existence, location, extent, or 
    quality of any deposit of oil or gas or of any mineral with respect 
    to which a deduction for percentage depletion is not allowable under 
    section 613.

                            (2) Elections

        (A) Method

            Any election under this subsection shall be made in such 
        manner as the Secretary may by regulations prescribe.

        (B) Time and scope

            The election provided by paragraph (1) for the taxable year 
        may be made at any time before the expiration of the period 
        prescribed for making a claim for credit or refund of the tax 
        imposed by this chapter for the taxable year. Such an election 
        for the taxable year shall apply to all expenditures described 
        in paragraph (1) paid or incurred by the taxpayer during the 
        taxable year or during any subsequent taxable year. Such an 
        election may not be revoked unless the Secretary consents to 
        such revocation.

        (C) Deficiencies

            The statutory period for the assessment of any deficiency 
        for any taxable year, to the extent such deficiency is 
        attributable to an election or revocation of an election under 
        this subsection, shall not expire before the last day of the 2-
        year period beginning on the day after the date on which such 
        election or revocation of election is made; and such deficiency 
        may be assessed at any time before the expiration of such 2-year 
        period, notwithstanding any law or rule of law which would 
        otherwise prevent such assessment.

(b) Recapture on reaching producing stage

                            (1) Recapture

        If, in any taxable year, any mine with respect to which 
    expenditures were deducted pursuant to subsection (a) reaches the 
    producing stage, then--
            (A) If the taxpayer so elects with respect to all such mines 
        reaching the producing stage during the taxable year, he shall 
        include in gross income for the taxable year an amount equal to 
        the adjusted exploration expenditures with respect to such 
        mines, and the amount so included in income shall be treated for 
        purposes of this subtitle as expenditures which (i) are paid or 
        incurred on the respective dates on which the mines reach the 
        producing stage, and (ii) are properly chargeable to capital 
        account.
            (B) If subparagraph (A) does not apply with respect to any 
        such mine, then the deduction for depletion under section 611 
        with respect to the property shall be disallowed until the 
        amount of depletion which would be allowable but for this 
        subparagraph equals the amount of the adjusted exploration 
        expenditures with respect to such mine.

                            (2) Elections

        (A) Method

            Any election under this subsection shall be made in such 
        manner as the Secretary may by regulations prescribe.

        (B) Time and scope

            The election provided by paragraph (1) for any taxable year 
        may be made or changed not later than the time prescribed by law 
        for filing the return (including extensions thereof) for such 
        taxable year.

(c) Recapture in case of bonus or royalty

    If an election has been made under subsection (a) with respect to 
expenditures relating to a mining property and the taxpayer receives or 
accrues a bonus or a royalty with respect to such property, then the 
deduction for depletion under section 611 with respect to the bonus or 
royalty shall be disallowed until the amount of depletion which would be 
allowable but for this subsection equals the amount of the adjusted 
exploration expenditures with respect to the property to which the bonus 
or royalty relates.

(d) Gain from dispositions of certain mining property

                          (1) General rule

        Except as otherwise provided in this subsection, if mining 
    property is disposed of the lower of--
            (A) the adjusted exploration expenditures with respect to 
        such property, or
            (B) the excess of--
                (i) the amount realized (in the case of a sale, 
            exchange, or involuntary conversion), or the fair market 
            value (in the case of any other disposition), over
                (ii) the adjusted basis of such property,

    shall be treated as 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 a mining 
        property (other than an undivided interest), the entire amount 
        of the adjusted exploration expenditures with respect to such 
        property shall be treated as attributable 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 mining property (or a portion thereof), a proportionate 
        part of the adjusted exploration expenditures with respect to 
        such property shall be treated as attributable 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 expenditure to the extent the 
    taxpayer establishes to the satisfaction of the Secretary that such 
    expenditure relates neither to the portion (or interest therein) 
    disposed of nor to any mine, in the property held by the taxpayer 
    before the disposition, which has reached the producing stage.

                   (3) Exceptions and limitations

        Paragraphs (1), (2), and (3) of section 1245(b) (relating to 
    exceptions and limitations with respect to gain from disposition of 
    certain depreciable property) shall apply in respect of this 
    subsection in the same manner and with the same effect as if 
    references in section 1245(b) to section 1245 or any provision 
    thereof were references to this subsection or the corresponding 
    provisions of this subsection and as if references to section 1245 
    property were references to mining property.

                    (4) Application of subsection

        This subsection shall apply notwithstanding any other provision 
    of this subtitle.

                 (5) Coordination with section 1254

        This subsection shall not apply to any disposition to which 
    section 1254 applies.

(e) Basis of property

                              (1) Basis

        The basis of any property shall not be reduced by the amount of 
    any depletion which would be allowable but for the application of 
    this section.

                           (2) Adjustments

        The Secretary shall prescribe such regulations as he may deem 
    necessary to provide for adjustments to the basis of property to 
    reflect gain recognized under subsection (d)(1).

(f) Definitions

    For purposes of this section

                (1) Adjusted exploration expenditures

        The term ``adjusted exploration expenditures'' means, with 
    respect to any property or mine--
            (A) the amount of the expenditures allowed for the taxable 
        year and all preceding taxable years as deductions under 
        subsection (a) to the taxpayer or any other person which are 
        properly chargeable to such property or mine and which (but for 
        the election under subsection (a)) would be reflected in the 
        adjusted basis of such property or mine, reduced by
            (B) for the taxable year and for each preceding taxable 
        year, the amount (if any) by which (i) the amount which would 
        have been allowable for percentage depletion under section 613 
        but for the deduction of such expenditures, exceeds (ii) the 
        amount allowable for depletion under section 611,

    properly adjusted for any amounts included in gross income under 
    subsection (b) or (c) and for any amounts of gain to which 
    subsection (d) applied.

                         (2) Mining property

        The term ``mining property'' means any property (within the 
    meaning of section 614 after the application of subsections (c) and 
    (e) thereof) with respect to which any expenditures allowed as a 
    deduction under subsection (a)(1) are properly chargeable.

     (3) Disposal of coal or domestic iron ore with a retained 
                              economic interest

        A transaction which constitutes a disposal of coal or iron ore 
    under section 631(c) shall be treated as a disposition. In such a 
    case, the excess referred to in subsection (d)(1)(B) shall be 
    treated as equal to the gain (if any) referred to in section 631(c).

(g) Special rules relating to partnership property

                 (1) Property distributed to partner

        In the case of any property or mine received by the taxpayer in 
    a distribution with respect to part or all of his interest in a 
    partnership, the adjusted exploration expenditures with respect to 
    such property or mine include the adjusted exploration expenditures 
    (not otherwise included under subsection (f)(1)) with respect to 
    such property or mine immediately prior to such distribution, but 
    the adjusted exploration expenditures with respect to any such 
    property or mine shall be reduced by the amount of gain to which 
    section 751(b) applied realized by the partnership (as constituted 
    after the distribution) on the distribution of such property or 
    mine.

                (2) Property retained by partnership

        In the case of any property or mine held by a partnership after 
    a distribution to a partner to which section 751(b) applied, the 
    adjusted exploration expenditures with respect to such property or 
    mine shall, under regulations prescribed by the Secretary, be 
    reduced by the amount of gain to which section 751(b) applied 
    realized by such partner with respect to such distribution on 
    account of such property or mine.

(h) Special rules for foreign exploration

    In the case of any expenditures paid or incurred before the 
development stage for the purpose of ascertaining the existence, 
location, extent, or quality of any deposit of ore or other mineral 
(other than an oil, gas, or geothermal well) located outside the United 
States--
        (1) subsection (a) 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.

(i) Cross reference

            For election of 10-year amortization of expenditures 
        allowable as a deduction under this section, see section 59(e).

(Added Pub. L. 89-570, Sec. 1(a), Sept. 12, 1966, 80 Stat. 759; amended 
Pub. L. 91-172, title V, Sec. 504(b), Dec. 30, 1969, 83 Stat. 632; Pub. 
L. 94-455, title XIX, Secs. 1901(a)(89), (b)(3)(K), (21)(C)-(E), 
1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1779, 1793, 1797, 1834; Pub. L. 
97-248, title II, Sec. 201(d)(9)(D), formerly Sec. 201(c)(9)(D), 
Sec. 224(c)(8), Sept. 3, 1982, 96 Stat. 420, 489, renumbered 
Sec. 201(d)(9)(D), Pub. L. 97-448, title III, Sec. 306(a)(1)(A)(i), Jan. 
12, 1983, 96 Stat. 2400; Pub. L. 99-514, title IV, Secs. 411(b)(2)(B), 
413(b), Oct. 22, 1986, 100 Stat. 2226, 2228; Pub. L. 100-647, title I, 
Sec. 1007(g)(7), Nov. 10, 1988, 102 Stat. 3435; Pub. L. 101-508, title 
XI, Sec. 11801(a)(27), (c)(13), Nov. 5, 1990, 104 Stat. 1388-521, 1388-
527.)


                               Amendments

    1990--Subsecs. (i), (j). Pub. L. 101-508 redesignated subsec. (j) as 
(i) and struck out former subsec. (i) which related to deduction of 
certain pre-1970 exploration expenditures.
    1988--Subsec. (j). Pub. L. 100-647 substituted ``section 59(e)'' for 
``section 58(i)''.
    1986--Subsec. (d)(5). Pub. L. 99-514, Sec. 413(b), added par. (5).
    Subsec. (h). Pub. L. 99-514, Sec. 411(b)(2)(B), amended subsec. (h) 
generally, substituting provisions relating to special rules for foreign 
exploration for provisions relating to limitations.
    1982--Subsec. (h)(3)(B). Pub. L. 97-248, Sec. 224(c)(8), inserted 
``338,'' after ``334(b),''.
    Subsec. (j). Pub. L. 97-248, Sec. 201(d)(9)(D), formerly 
Sec. 201(c)(9)(D), added subsec. (j).
    1976--Subsec. (a)(2)(A). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck 
out ``or his delegate'' after ``Secretary''.
    Subsec. (a)(2)(B). Pub. L. 94-455, Secs. 1901(a)(89), 
1906(b)(13)(A), substituted ``may not be revoked unless'' for ``may not 
be revoked after the last day of the third month following the month in 
which the final regulations issued under the authority of this 
subsection are published in the Federal Register, unless'', and struck 
out ``or his delegate'' after ``Secretary''.
    Subsec. (b)(2)(A). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out 
``or his delegate'' after ``Secretary''.
    Subsec. (d)(1). Pub. L. 94-455, Sec. 1901(b)(3)(K), substituted 
``ordinary income'' for ``gain from the sale or exchange of property 
which is neither a capital asset nor property described in section 
1231''.
    Subsecs. (d)(2), (e)(2), (g)(2). Pub. L. 94-455, 
Sec. 1906(b)(13)(A), struck out ``or his delegate'' after ``Secretary''.
    Subsec. (h)(1). Pub. L. 94-455, Sec. 1901(b)(21)(C), substituted 
``and subsection (a) of section 615 (as in effect before the enactment 
of the Tax Reform Act of 1976)'' for ``and section 615(a) and the 
amounts which are or have been treated as deferred expenses under 
section 615(b)''.
    Subsec. (h)(3). Pub. L. 94-455, Sec. 1901(b)(21)(D), struck out 
``and all amounts treated as deferred expenses which were paid or 
incurred'' after ``amounts deducted'' in introductory provisions, 
redesignated subpar. (C) as (B), and in subpar. (B) as so redesignated, 
substituted ``374(b)(1)'' for ``373(b)(1)''. Former subpar. (B), which 
related to the application of par. (2)(B) where the taxpayer would be 
entitled under section 381(c)(10) to deduct expenses deferred under 
section 615(b) had the distributor or transferor corporation elected to 
defer such expenses, was struck out.
    Subsec. (i). Pub. L. 94-455, Sec. 1901(b)(21)(E), added subsec. (i).
    1969--Pub. L. 91-172, Sec. 504(b)(1), substituted ``Deduction and 
recapture of certain mining exploration expenditures'' for ``Additional 
exploration expenditures in the case of domestic mining'' in heading.
    Subsec. (a)(1). Pub. L. 91-172, Sec. 504(b)(2), struck out reference 
to United States, the Outer Continental Shelf and the Outer Continental 
Shelf Lands Act from general rule dealing with allowance of deductions 
for expenditures in ascertaining the existence, location, extent, or 
quality of any deposit of ore or other mineral.
    Subsec. (h). Pub. L. 91-172, Sec. 504(b)(3), substituted provisions 
imposing limitations on the operation of this section for provision 
making cross reference to subsecs. (f) and (g) of section 615.


                    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

    Amendment by section 411(b)(2)(B) of 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.
    Amendment by section 413(b) of Pub. L. 99-514 applicable to any 
disposition of property placed in service by taxpayer after Dec. 31, 
1986, but inapplicable if such property was acquired pursuant to written 
contract entered into before Sept. 26, 1985, and binding at all times 
thereafter, see section 413(c) of Pub. L. 99-514, set out as a note 
under section 1254 of this title.


                    Effective Date of 1982 Amendment

    Amendment by section 201(d)(9)(D) of 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.
    Amendment by section 224(c)(8) of Pub. L. 97-248 applicable to any 
target corporation with respect to which the acquisition date occurs 
after Aug. 31, 1982, with special rules for certain acquisitions before 
Sept. 1, 1982, and certain acquisitions of financial institutions in 
which there was a binding contract on July 22, 1982, to acquire control, 
see section 224(d) of Pub. L. 97-248, set out as an Effective Date note 
under section 338 of this title.


                    Effective Date of 1976 Amendment

    Amendment by section 1901(a)(89), (b)(3)(K), (21)(C)-(E) of Pub. L. 
94-455 effective for taxable years beginning after Dec. 31, 1976, see 
section 1901(d) of Pub. L. 94-455, set out as a note under section 2 of 
this title.


                    Effective Date of 1969 Amendment

    Amendment by Pub. L. 91-172 applicable with respect to exploration 
expenditures paid or incurred after Dec. 31, 1969, and for purposes of 
this section, elections under section 615(e) of this title, effective 
with respect to exploration expenditures paid or incurred before Jan. 1, 
1970, to be treated as an election under subsec. (a) of this section 
with respect to exploration expenditures paid or incurred after Dec. 31, 
1969, see section 504(d) of Pub. L. 91-172, set out as a note under 
section 243 of this title.


                             Effective Date

    Section 3 of Pub. L. 89-570 provided that: ``The amendments made by 
this Act [enacting this section and amending sections 170, 301, 312, 
341, 453, 615, 703, and 751 of this title] shall apply to taxable years 
ending after the date of the enactment of this Act [Sept. 12, 1966] but 
only in respect of expenditures paid or incurred after such date.''


                            Savings Provision

    For provisions that nothing in amendment by Pub. L. 101-508 be 
construed to affect treatment of certain transactions occurring, 
property acquired, or items of income, loss, deduction, or credit taken 
into account prior to Nov. 5, 1990, for purposes of determining 
liability for tax for periods ending after Nov. 5, 1990, see section 
11821(b) of Pub. L. 101-508, set out as a note under section 29 of this 
title.

                  Section Referred to in Other Sections

    This section is referred to in sections 56, 59, 170, 263A, 291, 312, 
703, 751, 1254, 1363 of this title.
