
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: 26USC631]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                     Subchapter I--Natural Resources
 
                      PART III--SALES AND EXCHANGES
 
Sec. 631. Gain or loss in the case of timber, coal, or domestic 
        iron ore
        

(a) Election to consider cutting as sale or exchange

    If the taxpayer so elects on his return for a taxable year, the 
cutting of timber (for sale or for use in the taxpayer's trade or 
business) during such year by the taxpayer who owns, or has a contract 
right to cut, such timber (providing he has owned such timber or has 
held such contract right for a period of more than 1 year) shall be 
considered as a sale or exchange of such timber cut during such year. If 
such election has been made, gain or loss to the taxpayer shall be 
recognized in an amount equal to the difference between the fair market 
value of such timber, and the adjusted basis for depletion of such 
timber in the hands of the taxpayer. Such fair market value shall be the 
fair market value as of the first day of the taxable year in which such 
timber is cut, and shall thereafter be considered as the cost of such 
cut timber to the taxpayer for all purposes for which such cost is a 
necessary factor. If a taxpayer makes an election under this subsection, 
such election shall apply with respect to all timber which is owned by 
the taxpayer or which the taxpayer has a contract right to cut and shall 
be binding on the taxpayer for the taxable year for which the election 
is made and for all subsequent years, unless the Secretary, on showing 
of undue hardship, permits the taxpayer to revoke his election; such 
revocation, however, shall preclude any further elections under this 
subsection except with the consent of the Secretary. For purposes of 
this subsection and subsection (b), the term ``timber'' includes 
evergreen trees which are more than 6 years old at the time severed from 
the roots and are sold for ornamental purposes.

(b) Disposal of timber with a retained economic interest

    In the case of the disposal of timber held for more than 1 year 
before such disposal, by the owner thereof under any form or type of 
contract by virtue of which such owner retains an economic interest in 
such timber, the difference between the amount realized from the 
disposal of such timber and the adjusted depletion basis thereof, shall 
be considered as though it were a gain or loss, as the case may be, on 
the sale of such timber. In determining the gross income, the adjusted 
gross income, or the taxable income of the lessee, the deductions 
allowable with respect to rents and royalties shall be determined 
without regard to the provisions of this subsection. The date of 
disposal of such timber shall be deemed to be the date such timber is 
cut, but if payment is made to the owner under the contract before such 
timber is cut the owner may elect to treat the date of such payment as 
the date of disposal of such timber. For purposes of this subsection, 
the term ``owner'' means any person who owns an interest in such timber, 
including a sublessor and a holder of a contract to cut timber.

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

    In the case of the disposal of coal (including lignite), or iron ore 
mined in the United States, held for more than 1 year before such 
disposal, by the owner thereof under any form of contract by virtue of 
which such owner retains an economic interest in such coal or iron ore, 
the difference between the amount realized from the disposal of such 
coal or iron ore and the adjusted depletion basis thereof plus the 
deductions disallowed for the taxable year under section 272 shall be 
considered as though it were a gain or loss, as the case may be, on the 
sale of such coal or iron ore. If for the taxable year of such gain or 
loss the maximum rate of tax imposed by this chapter on any net capital 
gain is less than such maximum rate for ordinary income, such owner 
shall not be entitled to the allowance for percentage depletion provided 
in section 613 with respect to such coal or iron ore. This subsection 
shall not apply to income realized by any owner as a co-adventurer, 
partner, or principal in the mining of such coal or iron ore, and the 
word ``owner'' means any person who owns an economic interest in coal or 
iron ore in place, including a sublessor. The date of disposal of such 
coal or iron ore shall be deemed to be the date such coal or iron ore is 
mined. In determining the gross income, the adjusted gross income, or 
the taxable income of the lessee, the deductions allowable with respect 
to rents and royalties shall be determined without regard to the 
provisions of this subsection. This subsection shall have no 
application, for purposes of applying subchapter G, relating to 
corporations used to avoid income tax on shareholders (including the 
determinations of the amount of the deductions under section 535(b)(6) 
or section 545(b)(5)). This subsection shall not apply to any disposal 
of iron ore or coal--
        (1) to a person whose relationship to the person disposing of 
    such iron ore or coal would result in the disallowance of losses 
    under section 267 or 707(b), or
        (2) to a person owned or controlled directly or indirectly by 
    the same interests which own or control the person disposing of such 
    iron ore or coal.

(Aug. 16, 1954, ch. 736, 68A Stat. 213; Pub. L. 88-272, title II, 
Sec. 227(a)(1), (b)(1), Feb. 26, 1964, 78 Stat. 97, 98; Pub. L. 94-455, 
title XIV, Sec. 1402(b)(1)(I), (2), (3), title XIX, Sec. 1906(b)(13)(A), 
Oct. 4, 1976, 90 Stat. 1732, 1733, 1834; Pub. L. 98-369, div. A, title 
I, Sec. 178(a), title X, Sec. 1001(c), (e), July 18, 1984, 98 Stat. 712, 
1012; Pub. L. 99-514, title III, Sec. 311(b)(3), Oct. 22, 1986, 100 
Stat. 2219.)


                               Amendments

    1986--Subsec. (c). Pub. L. 99-514 substituted ``If for the taxable 
year of such gain or loss the maximum rate of tax imposed by this 
chapter on any net capital gain is less than such maximum rate for 
ordinary income, such owner'' for ``Such owner''.
    1984--Subsec. (a). Pub. L. 98-369, Sec. 1001(c)(1), (e), substituted 
``on the first day of such year and for a period of more than 6 months 
before such cutting'' for ``for a period of more than 1 year'', 
applicable to property acquired after June 22, 1984, and before Jan. 1, 
1988. See Effective Date of 1984 Amendment note below.
    Subsecs. (b), (c). Pub. L. 98-369, Sec. 1001(c)(2), (e), substituted 
``6 months'' for ``1 year'', applicable to property acquired after June 
22, 1984, and before Jan. 1, 1988. See Effective Date of 1984 Amendment 
note below.
    Pub. L. 98-369, Sec. 178(a), inserted ``or coal'' after ``iron ore'' 
wherever appearing in last sentence of subsec. (c).
    1976--Subsec. (a). Pub. L. 94-455, Sec. 1402(b)(2), provided that 
``9 months'' would be changed to ``1 year''.
    Pub. L. 94-455, Secs. 1402(b)(1)(I), (3), 1906(b)(13)(A), provided 
that ``6 months'' would be changed to ``9 months'' for taxable years 
beginning in 1977 and struck out ``before the beginning of such year'' 
before ``) shall be considered as a sale'' effective for taxable years 
beginning after Dec. 31, 1976, and ``or his delegate'' after 
``Secretary'' wherever appearing.
    Subsec. (b). Pub. L. 94-455, Sec. 1402(b)(2), provided that ``9 
months'' would be changed to ``1 year''.
    Pub. L. 94-455, Sec. 1402(b)(1)(I), provided that ``6 months'' would 
be changed to ``9 months'' for taxable years beginning in 1977.
    Subsec. (c). Pub. L. 94-455, Sec. 1402(b)(2), provided that ``9 
months'' would be changed to ``1 year''.
    Pub. L. 94-455, Sec. 1402(b)(1)(I), provided that ``6 months'' would 
be changed to ``9 months'' for taxable years beginning in 1977.
    1964--Pub. L. 88-272, Sec. 227(b)(1), inserted reference to domestic 
iron ore in heading.
    Subsec. (c). Pub. L. 88-272, Sec. 227(a)(1), inserted ``or domestic 
iron ore'' in heading, ``or iron ore mined in the United States'' after 
``coal (including lignite)'', ``or iron ore'' after ``coal'' wherever 
appearing, and provided that the subsection shall not apply to any 
disposal of iron ore to a person whose relationship to the person 
disposing of such ore would result in the disallowance of losses under 
section 267 of 717(b), or to a person owned or controlled by the same 
interests which own or control the person disposing of such iron ore.


                    Effective Date of 1986 Amendment

    Amendment by Pub. L. 99-514 applicable to taxable years beginning 
after Dec. 31, 1986, see section 311(c) of Pub. L. 99-514, set out as a 
note under section 1201 of this title.


                    Effective Date of 1984 Amendment

    Section 178(b) of Pub. L. 98-369, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(1) In general.--Except as provided in paragraph (2), the 
amendment made by subsection (a) [amending this section] shall apply to 
dispositions after September 30, 1985.
    ``(2) Special rule for fixed contracts.--
        ``(A) In general.--The amendment made by subsection (a) shall 
    not apply to any disposition of an interest in coal by a person to a 
    related person if such coal is subsequently sold before January 1, 
    1990, by either such person--
            ``(i) to a person who is not a related person with respect 
        to either such person, and
            ``(ii) pursuant to a qualified fixed contract.
        ``(B) Allocation where more than 1 contract.--If, for any 
    taxable year, there is a disposition described in subparagraph (A) 
    which is not specifically allocable to a qualified fixed contract or 
    to a contract which is not a qualified fixed contract, such 
    disposition shall be treated as first allocable to the qualified 
    fixed contract.
        ``(C) Qualified fixed contract defined.--The term `qualified 
    fixed contract' means any contract for the sale of coal which--
            ``(i) was entered into before June 12, 1984,
            ``(ii) is binding at all times thereafter, and
            ``(iii) cannot be adjusted to reflect to any extent the 
        increase in liabilities of the person disposing of the coal for 
        tax under chapter 1 of the Internal Revenue Code of 1986 
        [formerly I.R.C. 1954] by reason of the amendment made by 
        subsection (a).
        ``(D) Related person.--For purposes of this paragraph, the term 
    `related person' means a person who bears a relationship to another 
    person described in the last sentence of section 631(c). ''
    Amendment by section 1001(c) of Pub. L. 98-369 applicable to 
property acquired after June 22, 1984, and before Jan. 1, 1988, see 
section 1001(e) of Pub. L. 98-369, set out as a note under section 166 
of this title.


                    Effective Date of 1976 Amendment

    Section 1402(b)(1) of Pub. L. 94-455 provided that the amendment 
made by that section is effective with respect to taxable years 
beginning in 1977.
    Section 1402(b)(2) of Pub. L. 94-455 provided that the amendment 
made by that section is effective with respect to taxable years 
beginning after Dec. 31, 1977.
    Section 1402(b)(3) of Pub. L. 94-455 provided that the amendment 
made by that section is effective with respect to taxable years 
beginning after Dec. 31, 1976.


                    Effective Date of 1964 Amendment

    Amendment by Pub. L. 88-272 applicable with respect to amounts 
received or accrued in taxable years beginning after Dec. 31, 1963, 
attributable to iron ore mined in such years, see section 227(c) of Pub. 
L. 88-272, set out as a note under section 272 of this title.


              Revocation of Elections Under Section 631(a)

    Section 311(d)(2) of Pub. L. 99-514 provided that: ``Any election 
under section 631(a) of the Internal Revenue Code of 1954 made (whether 
by a corporation or a person other than a corporation) for a taxable 
year beginning before January 1, 1987, may be revoked by the taxpayer 
for any taxable year ending after December 31, 1986. For purposes of 
determining whether the taxpayer may make a further election under such 
section, such election (and any revocation under this paragraph) shall 
not be taken into account.''

                  Section Referred to in Other Sections

    This section is referred to in sections 272, 512, 617, 871, 881, 
882, 1231, 1402, 1441 of this title; title 42 section 411.
