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File tax extension 9. File tax extension   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. File tax extension Depletion unit. File tax extension Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. File tax extension The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. File tax extension There are two ways of figuring depletion: cost depletion and percentage depletion. File tax extension For mineral property, you generally must use the method that gives you the larger deduction. File tax extension For standing timber, you must use cost depletion. File tax extension Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. File tax extension More than one person can have an economic interest in the same mineral deposit or timber. File tax extension In the case of leased property, the depletion deduction is divided between the lessor and the lessee. File tax extension You have an economic interest if both the following apply. File tax extension You have acquired by investment any interest in mineral deposits or standing timber. File tax extension You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. File tax extension A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. File tax extension A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. File tax extension Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. File tax extension Basis adjustment for depletion. File tax extension   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. File tax extension Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). File tax extension For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. File tax extension You can treat two or more separate interests as one property or as separate properties. File tax extension See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. File tax extension There are two ways of figuring depletion on mineral property. File tax extension Cost depletion. File tax extension Percentage depletion. File tax extension Generally, you must use the method that gives you the larger deduction. File tax extension However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. File tax extension See Oil and Gas Wells , later. File tax extension Cost Depletion To figure cost depletion you must first determine the following. File tax extension The property's basis for depletion. File tax extension The total recoverable units of mineral in the property's natural deposit. File tax extension The number of units of mineral sold during the tax year. File tax extension Basis for depletion. File tax extension   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. File tax extension Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. File tax extension The residual value of land and improvements at the end of operations. File tax extension The cost or value of land acquired for purposes other than mineral production. File tax extension Adjusted basis. File tax extension   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. File tax extension Your adjusted basis can never be less than zero. File tax extension See Publication 551, Basis of Assets, for more information on adjusted basis. File tax extension Total recoverable units. File tax extension   The total recoverable units is the sum of the following. File tax extension The number of units of mineral remaining at the end of the year (including units recovered but not sold). File tax extension The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). File tax extension   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. File tax extension You must include ores and minerals that are developed, in sight, blocked out, or assured. File tax extension You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. File tax extension But see Elective safe harbor for owners of oil and gas property , later. File tax extension Number of units sold. File tax extension   You determine the number of units sold during the tax year based on your method of accounting. File tax extension Use the following table to make this determination. File tax extension    IF you  use . File tax extension . File tax extension . File tax extension THEN the units sold during the year are . File tax extension . File tax extension . File tax extension The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). File tax extension An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. File tax extension   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. File tax extension Figuring the cost depletion deduction. File tax extension   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. File tax extension Step Action Result 1 Divide your property's basis for depletion by total recoverable units. File tax extension Rate per unit. File tax extension 2 Multiply the rate per unit by units sold during the tax year. File tax extension Cost depletion deduction. File tax extension You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. File tax extension Elective safe harbor for owners of oil and gas property. File tax extension   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. File tax extension If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). File tax extension For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. File tax extension irs. File tax extension gov/pub/irs-irbs/irb04-10. File tax extension pdf. File tax extension   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. File tax extension The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. File tax extension The election, if made, is effective for the tax year in which it is made and all later years. File tax extension It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. File tax extension Once revoked, it cannot be re-elected for the next 5 years. File tax extension Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. File tax extension The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . File tax extension Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . File tax extension Gross income. File tax extension   When figuring percentage depletion, subtract from your gross income from the property the following amounts. File tax extension Any rents or royalties you paid or incurred for the property. File tax extension The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. File tax extension A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. File tax extension   Use the following fraction to figure the part of the bonus you must subtract. File tax extension No. File tax extension of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. File tax extension For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. File tax extension Taxable income limit. File tax extension   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. File tax extension   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. File tax extension These deductible items include, but are not limited to, the following. File tax extension Operating expenses. File tax extension Certain selling expenses. File tax extension Administrative and financial overhead. File tax extension Depreciation. File tax extension Intangible drilling and development costs. File tax extension Exploration and development expenditures. File tax extension Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. File tax extension Losses sustained. File tax extension   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. File tax extension Do not deduct any net operating loss deduction from the gross income from the property. File tax extension Corporations do not deduct charitable contributions from the gross income from the property. File tax extension If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. File tax extension See section 1. File tax extension 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. File tax extension Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. File tax extension You are either an independent producer or a royalty owner. File tax extension The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. File tax extension If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. File tax extension For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. File tax extension Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. File tax extension However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. File tax extension For information on figuring the deduction, see Figuring percentage depletion , later. File tax extension Refiners who cannot claim percentage depletion. File tax extension   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. File tax extension The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. File tax extension Related person. File tax extension   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. File tax extension For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. File tax extension A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. File tax extension For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. File tax extension The value of the outstanding stock of a corporation. File tax extension The interest in the profits or capital of a partnership. File tax extension The beneficial interests in an estate or trust. File tax extension Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. File tax extension Retailers who cannot claim percentage depletion. File tax extension   You cannot claim percentage depletion if both the following apply. File tax extension You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. File tax extension Through a retail outlet operated by you or a related person. File tax extension To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. File tax extension To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. File tax extension The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. File tax extension   For the purpose of determining if this rule applies, do not count the following. File tax extension Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. File tax extension Bulk sales of aviation fuels to the Department of Defense. File tax extension Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. File tax extension Related person. File tax extension   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. File tax extension Sales through a related person. File tax extension   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. File tax extension   You are not considered to be selling through a related person who is a retailer if all the following apply. File tax extension You do not have a significant ownership interest in the retailer. File tax extension You sell your production to persons who are not related to either you or the retailer. File tax extension The retailer does not buy oil or natural gas from your customers or persons related to your customers. File tax extension There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. File tax extension Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. File tax extension Transferees who cannot claim percentage depletion. File tax extension   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. File tax extension For a definition of the term “transfer,” see section 1. File tax extension 613A-7(n) of the regulations. File tax extension For a definition of the term “interest in proven oil or gas property,” see section 1. File tax extension 613A-7(p) of the regulations. File tax extension Figuring percentage depletion. File tax extension   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. File tax extension If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. File tax extension If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. File tax extension   In addition, there is a limit on the percentage depletion deduction. File tax extension See Taxable income limit , later. File tax extension Average daily production. File tax extension   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. File tax extension Partial interest. File tax extension   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. File tax extension   You have a partial interest in the production from a property if you have a net profits interest in the property. File tax extension To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. File tax extension To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. File tax extension Then multiply the total production from the property by your percentage participation to figure your share of the production. File tax extension Example. File tax extension Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. File tax extension During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. File tax extension Javier had expenses of $90,000 attributable to the property. File tax extension The property generated a net profit of $110,000 ($200,000 − $90,000). File tax extension Pablo received income of $22,000 ($110,000 × . File tax extension 20) for his net profits interest. File tax extension Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). File tax extension Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). File tax extension Depletable oil or natural gas quantity. File tax extension   Generally, your depletable oil quantity is 1,000 barrels. File tax extension Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. File tax extension If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. File tax extension Example. File tax extension You have both oil and natural gas production. File tax extension To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. File tax extension Your depletable natural gas quantity is 2. File tax extension 16 million cubic feet of gas (360 × 6000). File tax extension You must reduce your depletable oil quantity to 640 barrels (1000 − 360). File tax extension If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. File tax extension Also, see Notice 2012-50, available at www. File tax extension irs. File tax extension gov/irb/2012–31_IRB/index. File tax extension html. File tax extension Business entities and family members. File tax extension   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. File tax extension Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). File tax extension You and your spouse and minor children. File tax extension A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. File tax extension Controlled group of corporations. File tax extension   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. File tax extension They share the depletable quantity. File tax extension A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. File tax extension ” Gross income from the property. File tax extension   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. File tax extension If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. File tax extension   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. File tax extension   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. File tax extension Average daily production exceeds depletable quantities. File tax extension   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. File tax extension Figure your average daily production of oil or natural gas for the year. File tax extension Figure your depletable oil or natural gas quantity for the year. File tax extension Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. File tax extension Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). File tax extension This is your depletion allowance for that property for the year. File tax extension Taxable income limit. File tax extension   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. File tax extension 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. File tax extension For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. File tax extension 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. File tax extension You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. File tax extension Add it to your depletion allowance (before applying any limits) for the following year. File tax extension Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. File tax extension (However, see Electing large partnerships must figure depletion allowance , later. File tax extension ) Each partner or shareholder must decide whether to use cost or percentage depletion. File tax extension If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. File tax extension Partner's or shareholder's adjusted basis. File tax extension   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. File tax extension The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. File tax extension   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. File tax extension However, in some cases, it is figured according to the partner's interest in partnership income. File tax extension   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. File tax extension Recordkeeping. File tax extension Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. File tax extension The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. File tax extension The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. File tax extension Reporting the deduction. File tax extension   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). File tax extension Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). File tax extension The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. File tax extension The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. File tax extension Form 6198, At-Risk Limitations. File tax extension Form 8582, Passive Activity Loss Limitations. File tax extension Electing large partnerships must figure depletion allowance. File tax extension   An electing large partnership, rather than each partner, generally must figure the depletion allowance. File tax extension The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. File tax extension Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. File tax extension   An electing large partnership is one that meets both the following requirements. File tax extension The partnership had 100 or more partners in the preceding year. File tax extension The partnership chooses to be an electing large partnership. File tax extension Disqualified persons. File tax extension   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. File tax extension Disqualified persons must figure it themselves, as explained earlier. File tax extension   All the following are disqualified persons. File tax extension Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). File tax extension Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). File tax extension Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. File tax extension Average daily production is discussed earlier. File tax extension Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. File tax extension Natural gas sold under a fixed contract. File tax extension   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. File tax extension This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. File tax extension The contract must have been in effect from February 1, 1975, until the date of sale of the gas. File tax extension Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. File tax extension Natural gas from geopressured brine. File tax extension   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. File tax extension This is natural gas that is both the following. File tax extension Produced from a well you began to drill after September 1978 and before 1984. File tax extension Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. File tax extension Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. File tax extension Mines and other natural deposits. File tax extension   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. File tax extension   The following is a list of the percentage depletion rates for the more common minerals. File tax extension DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. File tax extension Corporate deduction for iron ore and coal. File tax extension   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). File tax extension Gross income from the property. File tax extension   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. File tax extension Mining includes all the following. File tax extension Extracting ores or minerals from the ground. File tax extension Applying certain treatment processes described later. File tax extension Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. File tax extension Excise tax. File tax extension   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. File tax extension Extraction. File tax extension   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. File tax extension This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. File tax extension Treatment processes. File tax extension   The processes included as mining depend on the ore or mineral mined. File tax extension To qualify as mining, the treatment processes must be applied by the mine owner or operator. File tax extension For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. File tax extension Transportation of more than 50 miles. File tax extension   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. File tax extension    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. File tax extension Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. File tax extension For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. File tax extension irs. File tax extension gov/irb/2013-01_IRB/ar11. File tax extension html. File tax extension Disposal of coal or iron ore. File tax extension   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. File tax extension You disposed of it after holding it for more than 1 year. File tax extension You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. File tax extension Treat any gain on the disposition as a capital gain. File tax extension Disposal to related person. File tax extension   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. File tax extension A related person (as listed in chapter 2 of Publication 544). File tax extension A person owned or controlled by the same interests that own or control you. File tax extension Geothermal deposits. File tax extension   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. File tax extension A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. File tax extension For percentage depletion purposes, a geothermal deposit is not considered a gas well. File tax extension   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. File tax extension See Gross income from the property , earlier, under Oil and Gas Wells. File tax extension Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. File tax extension Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. File tax extension A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. File tax extension Bonuses and advanced royalties. File tax extension   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. File tax extension If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. File tax extension Figuring cost depletion. File tax extension   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. File tax extension To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. File tax extension Figuring percentage depletion. File tax extension   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . File tax extension Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. File tax extension However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. File tax extension Ending the lease. File tax extension   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. File tax extension Do this for the year the lease ends or is abandoned. File tax extension Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. File tax extension   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. File tax extension Include this amount in income for the year the lease ends. File tax extension Increase your adjusted basis in the property by the amount you include in income. File tax extension Delay rentals. File tax extension   These are payments for deferring development of the property. File tax extension Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. File tax extension These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. File tax extension Timber You can figure timber depletion only by the cost method. File tax extension Percentage depletion does not apply to timber. File tax extension Base your depletion on your cost or other basis in the timber. File tax extension Your cost does not include the cost of land or any amounts recoverable through depreciation. File tax extension Depletion takes place when you cut standing timber. File tax extension You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. File tax extension Figuring cost depletion. File tax extension   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. File tax extension Timber units. File tax extension   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. File tax extension You measure the timber using board feet, log scale, cords, or other units. File tax extension If you later determine that you have more or less units of timber, you must adjust the original estimate. File tax extension   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. File tax extension Depletion unit. File tax extension   You figure your depletion unit each year by taking the following steps. File tax extension Determine your cost or adjusted basis of the timber on hand at the beginning of the year. File tax extension Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. File tax extension Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. File tax extension Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. File tax extension Divide the result of (2) by the result of (3). File tax extension This is your depletion unit. File tax extension Example. File tax extension You bought a timber tract for $160,000 and the land was worth as much as the timber. File tax extension Your basis for the timber is $80,000. File tax extension Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). File tax extension If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). File tax extension When to claim depletion. File tax extension   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). File tax extension Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. File tax extension The inventory is your basis for determining gain or loss in the tax year you sell the timber products. File tax extension Example. File tax extension The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. File tax extension You would deduct $20,000 of the $40,000 depletion that year. File tax extension You would add the remaining $20,000 depletion to your closing inventory of timber products. File tax extension Electing to treat the cutting of timber as a sale or exchange. File tax extension   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. File tax extension You must make the election on your income tax return for the tax year to which it applies. File tax extension If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. File tax extension You generally report the gain as long-term capital gain. File tax extension The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. File tax extension For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. File tax extension   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. File tax extension The prior election (and revocation) is disregarded for purposes of making a subsequent election. File tax extension See Form T (Timber), Forest Activities Schedule, for more information. File tax extension Form T. File tax extension   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. File tax extension Prev  Up  Next   Home   More Online Publications
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Tax Relief for Victims of Storms and Floods in Missouri

KS-MO-2011-34, Aug. 17, 2011

ST. LOUIS — Victims of flooding beginning on June 1, 2011, in parts of Missouri may qualify for tax relief from the Internal Revenue Service.

The President has declared Andrew, Atchison, Buchanan, Holt, Lafayette and Platte counties a federal disaster area. Individuals who reside or have a business in these localities may qualify for tax relief.

As a result, the IRS has postponed until Aug. 1, 2011, certain deadlines occurring from June 1 to Aug. 1 that affect taxpayers who live or have a business in the disaster area. This includes the June 15 deadline for making estimated tax payments.

In addition, the IRS is abating the failure-to-deposit penalties for employment and excise tax deposits due on or after June 1 and on or before June 16, 2011, as long as the deposits were made by June 16, 2011.

If an affected taxpayer receives a penalty notice from the IRS, the taxpayer should call the telephone number on the notice to have the IRS abate any interest and any late filing or late payment penalties that would otherwise apply. Penalties or interest will be abated only for taxpayers who have an original or extended filing, payment or deposit due date, including an extended filing or payment due date, that falls within the postponement period.

The IRS automatically identifies taxpayers located in the covered disaster area and applies automatic filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area must call the IRS disaster hotline at 1-866-562-5227 to request this tax relief.

Covered Disaster Area

The areas listed above constitute a covered disaster area for purposes of Treas. Reg. § 301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected Taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Grant of Relief

Under section 7508A, the IRS has given affected taxpayers until Aug. 1, 2011, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; and employment and certain excise tax returns), or to make tax payments, including estimated tax payments, that have either an original or extended due date occurring on or after June 1 and on or before Aug. 1, 2011.

The IRS also gives affected taxpayers until Aug. 1 to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2007-56, 2007-34 I.R.B. 388 (Aug. 20, 2007), that are due to be performed on or after June 1 and on or before Aug. 1.

This relief also includes the filing of Form 5500 series returns, in the manner described in section 8 of Rev. Proc. 2007-56. The relief described in section 17 of Rev. Proc. 2007-56, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

The postponement of time to file and pay does not apply to information returns in the W-2, 1098, 1099 series, or to Forms 1042-S or 8027. Penalties for failure to timely file information returns can be waived under existing procedures for reasonable cause. Likewise, the postponement does not apply to employment and excise tax deposits. The IRS, however, will abate penalties for failure to make timely employment and excise tax deposits due on or after June 1 and on or before June 16, provided the taxpayer made these deposits by June 16.

Casualty Losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either this year or last year. Claiming the loss on an original or amended return for last year will get the taxpayer an earlier refund, but waiting to claim the loss on this year’s return could result in a greater tax saving, depending on other income factors.

Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684 and its instructions.
Affected taxpayers claiming the disaster loss on last year’s return should put the Disaster Designation, "Missouri/Flooding," at the top of the form so that the IRS can expedite the processing of the refund.

Other Relief

The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned Disaster Designation in red ink at the top of Form 4506, Request for Copy of Tax Return, or Form 4506-T, Request for Transcript of Tax Return, as appropriate, and submit it to the IRS.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case.

Taxpayers may download forms and publications or order them by calling 1-800-TAX-FORM (1-800-829-3676). The IRS toll-free number for general tax questions is 1-800-829-1040.

Related Information:

Recent IRS Disaster Relief Announcements
 

 

Page Last Reviewed or Updated: 20-Feb-2014

The File Tax Extension

File tax extension Publication 597 - Introductory Material Table of Contents Introduction Introduction This publication provides information on the income tax treaty between the United States and Canada. File tax extension It discusses a number of treaty provisions that often apply to U. File tax extension S. File tax extension citizens or residents who may be liable for Canadian tax. File tax extension Treaty provisions are generally reciprocal (the same rules apply to both treaty countries). File tax extension Therefore, a Canadian resident who receives income from the United States may refer to this publication to see if a treaty provision may affect the tax to be paid to the United States. File tax extension This publication does not deal with Canadian income tax laws; nor does it provide Canada's interpretation of treaty articles, definitions, or specific terms not defined in the treaty itself. File tax extension The United States—Canada income tax treaty was signed on September 26, 1980. File tax extension It has been amended by five protocols, the most recent of which generally became effective January 1, 2009. File tax extension In this publication, the term “article” refers to the particular article of the treaty, as amended. File tax extension Prev  Up  Next   Home   More Online Publications