Federal Tax

Mineral Properties — Exploration, Acquisition, Development and Disposition (Portfolio 601)

  • This Portfolio explains exploration, analyzes acquisition methods, reviews the determination of the basis of assets, reviews income tax treatment, and describes disposal methods.


Bloomberg Tax Portfolio, Mineral Properties — Exploration, Acquisition, Development and Disposition, No. 601, explains the nature of exploration, analyzes the methods of acquiring mineral properties and the different types of interests that may be held therein, reviews the determination of the basis of assets that are acquired, defines the term “development,” describes the proper income tax treatment of development costs, and describes the ways of disposing of mineral properties or interests therein and the tax consequences that attach to each type of disposition.

The Portfolio also discusses the origin and nature of the “economic interest” concept, a key element in determining the entitlement to depletion deductions and in characterizing both the nature of the transaction when mineral property is disposed of and the tax treatment of the consideration received in the transaction. The Portfolio discusses the extensive litigation in this area, and some of the guidelines for determining who are considered as possessing the economic interest in various types of transactions. It also distinguishes between operating and nonoperating economic interests and describes the various types of nonoperating economic interests and the resulting tax consequences.

Table of Contents

I. Key Terminology
II. Economic Interest Concept
III. Exploration
IV. Development
V. Acquisition and Basis of Mineral Properties
VI. Depletion of Mineral Properties
VII. Dispositions
VIII. Lease vs. Mining Contract
IX. Sale vs. Lease
X. Distinction Between Operating and Nonoperating Interests
XI. Various Types of Nonoperating Interests
XII. Aggregation of Nonoperating and Operating Interests
XIII. Disposition of Nonoperating Interests
XIV. Losses on Nonoperating Interests
XV. Dispositions of Operating Interests
XVI. Like-Kind Exchanges of Mineral Interests
XVII. Domestic Production Activities

Richard Westin
University of Kentucky
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