
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: 26USC636]

 
                     TITLE 26--INTERNAL REVENUE CODE
 
                        Subtitle A--Income Taxes
 
                  CHAPTER 1--NORMAL TAXES AND SURTAXES
 
                     Subchapter I--Natural Resources
 
                  PART IV--MINERAL PRODUCTION PAYMENTS
 
Sec. 636. Income tax treatment of mineral production payments


(a) Carved-out production payments

    A production payment carved out of mineral property shall be 
treated, for purposes of this subtitle, as if it were a mortgage loan on 
the property, and shall not qualify as an economic interest in the 
mineral property. In the case of a production payment carved out for 
exploration or development of a mineral property, the preceding sentence 
shall apply only if and to the extent gross income from the property 
(for purposes of section 613) would be realized, in the absence of the 
application of such sentence, by the person creating the production 
payment.

(b) Retained production payment on sale of mineral property

    A production payment retained on the sale of a mineral property 
shall be treated, for purposes of this subtitle, as if it were a 
purchase money mortgage loan and shall not qualify as an economic 
interest in the mineral property.

(c) Retained production payment on lease of mineral property

    A production payment retained in a mineral property by the lessor in 
a leasing transaction shall be treated, for purposes of this subtitle, 
insofar as the lessee (or his successors in interest) is concerned, as 
if it were a bonus granted by the lessee to the lessor payable in 
installments. The treatment of the production payment in the hands of 
the lessor shall be determined without regard to the provisions of this 
subsection.

(d) Definition

    As used in this section, the term ``mineral property'' has the 
meaning assigned to the term ``property'' in section 614(a).

(e) Regulations

    The Secretary shall prescribe such regulations as may be necessary 
to carry out the purposes of this section.

(Added Pub. L. 91-172, title V, Sec. 503(a), Dec. 30, 1969, 83 Stat. 
630; amended Pub. L. 94-455, title XIX, Sec. 1906(b)(13)(A), Oct. 4, 
1976, 90 Stat. 1834.)


                               Amendments

    1976--Subsec. (e). Pub. L. 94-455 struck out ``or his delegate'' 
after ``Secretary''.


                             Effective Date

    Section 503(c) of Pub. L. 91-172, as amended by Pub. L. 99-514, 
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
    ``(1) General rule.--The amendments made by this section [enacting 
this section] shall apply with respect to mineral production payments 
created on or after August 7, 1969, other than mineral production 
payments created before January 1, 1971, pursuant to a binding contract 
entered into before August 7, 1969.
    ``(2) Election.--At the election of the taxpayer (made at such time 
and in such manner as the Secretary of the Treasury or his delegate 
prescribes by regulations), the amendments made by this section shall 
apply with respect to all mineral production payments which the taxpayer 
carved out of mineral properties after the beginning of his last taxable 
year ending before August 7, 1969. No interest shall be allowed on any 
refund or credit of any overpayment resulting from such election for any 
taxable year ending before August 7, 1969.
    ``(3) Special rule.--With respect to a taxpayer who does not elect 
the treatment provided in paragraph (2) and who carves out one or more 
mineral production payments on or after August 7, 1969, during the 
taxable year which includes such date, the amendments made by this 
section shall apply to such production payments only to the extent the 
aggregate amount of such production payments exceeds the lesser of--
        ``(A) the excess of
            ``(i) the aggregate amount of production payments carved out 
        and sold by the taxpayer during the 12-month period immediately 
        preceding his taxable year which includes August 7, 1969, over
            ``(ii) the aggregate amount of production payments carved 
        out before August 7, 1969, by the taxpayer during his taxable 
        year which includes such date, or
        ``(B) the amount necessary to increase the amount of the 
    taxpayer's gross income, within the meaning of chapter 1 of subtitle 
    A of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] [this 
    title], for the taxable year which includes August 7, 1969, to an 
    amount equal to the amount of deductions (other than any deduction 
    under section 172 of such Code) allowable for such year under such 
    chapter.
The preceding sentence shall not apply for purposes of determining the 
amount of any deduction allowable under section 611 or the amount of 
foreign tax credit allowable under section 904 of such Code.''
