Federal Tax

Mineral Properties Other Than Gas and Oil — Operation (Portfolio 603)

  • This Portfolio analyzes the tax principles and concepts relevant to the operation and ownership of mineral properties, including nonmetals.


Bloomberg Tax Portfolio, Mineral Properties Other than Gas and Oil — Operation, No. 603, analyzes the tax aspects of the operation and ownership of mineral properties other than oil and gas. The definition of mineral properties includes nonmetals such as clay, coal, and limestone, and metals such as iron, lead, and zinc. Although this Portfolio does not cover oil and gas properties, many of the basic tax concepts governing oil and gas properties apply to mineral properties and are therefore discussed. Likewise, cases and principles applicable to mineral properties frequently apply to oil and gas.

This Portfolio examines the concepts which are of paramount importance in the tax treatment of mineral properties, including: (1) the definition of “property” as set forth in §614 for various tax purposes; (2) the concept of “economic interest”; (3) the §614 principle of “aggregation”; (4) the §611depletion allowance, including cost depletion under §612 and percentage depletion under §613; (5) the election under §617 to expense or capitalize mining exploration expenditures; (6) the election under §616 to expense or capitalize mine development expenditures; (7) the special treatment afforded dispositions of coal and domestic iron ore under §631(c); (8) the tax treatment of miscellaneous mineral payments; and (9) mineral classification.

In addition, the Portfolio summarizes the tax aspects of bonuses, advance royalty payments, and delayed rentals; various tax principles affecting mineral properties such as the alternative minimum tax; the special rules for mining and solid waste reclamation and closing costs; and the mining-related tax credits.

Table of Contents

I. Introduction
II. Economic Interest Concept
III. Property
IV. Depletion
V. Exploration and Development Expenditures
VI. Disposal of Minerals Other Than Coal or Domestic Iron Ore with a Retained Economic Interest
VII. Disposition of Coal and Iron Ore Under § 631(c)
VIII. Miscellaneous Mineral Payments
IX. Mineral Classification
X. Depreciation and Cost Recovery
XI. Alternative Minimum Tax
XII. Uniform Capitalization Rules
XIII. Export of Mineral Properties
XIV. Special Rules for Mining and Solid Waste Reclamation and Closing Costs
XV. Black Lung Benefits Tax
XVI. Abandoned Coal Mine Reclamation Fee
XVII. Domestic Production Activities Deduction
XVIII. Mining Related Tax Credits
XIX. Operations on Indian Lands

Richard Westin
University of Kentucky
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