§616 — Development expenditures
17 cases·3 followed·5 distinguished·9 cited—18% support
Statute Text — 26 U.S.C. §616
Except as provided in subsections (b) and (d), there shall be allowed as a deduction in computing taxable income all expenditures paid or incurred during the taxable year for the development of a mine or other natural deposit (other than an oil or gas well) if paid or incurred after the existence of ores or minerals in commercially marketable quantities has been disclosed. This section shall not apply to expenditures for the acquisition or improvement of property of a character which is subject to the allowance for depreciation provided in section 167, but allowances for depreciation shall be considered, for purposes of this section, as expenditures.
At the election of the taxpayer, made in accordance with regulations prescribed by the Secretary, expenditures described in subsection (a) paid or incurred during the taxable year shall be treated as deferred expenses and shall be deductible on a ratable basis as the units of produced ores or minerals benefited by such expenditures are sold. In the case of such expenditures paid or incurred during the development stage of the mine or deposit, the election shall apply only with respect to the excess of such expenditures during the taxable year over the net receipts during the taxable year from the ores or minerals produced from such mine or deposit. The election under this subsection, if made, must be for the total amount of such expenditures, or the total amount of such excess, as the case may be, with respect to the mine or deposit, and shall be binding for such taxable year.
The amount of expenditures which are treated under subsection (b) as deferred expenses shall be taken into account in computing the adjusted basis of the mine or deposit, except that such amount, and the adjustments to basis provided in section 1016(a)(9), shall be disregarded in determining the adjusted basis of the property for the purpose of computing a deduction for depletion under section 611.
In the case of any expenditures paid or incurred with respect to the development of a mine or other natural deposit (other than an oil, gas, or geothermal well) located outside of the United States—
subsections (a) and (b) shall not apply, and
such expenditures shall—
at the election of the taxpayer, be included in adjusted basis for purposes of computing the amount of any deduction allowable under section 611 (without regard to section 613), or
if subparagraph (A) does not apply, be allowed as a deduction ratably over the 10-taxable year period beginning with the taxable year in which such expenditures were paid or incurred.
For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 59(e).
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.616-1 Development expenditures
- Treas. Reg. §Treas. Reg. §1.616-1(a) General rule.
- Treas. Reg. §Treas. Reg. §1.616-1(b) Expenditures to which section 616 is not applicable.
- Treas. Reg. §Treas. Reg. §1.616-1(c) Mine or other natural deposit.
- Treas. Reg. §Treas. Reg. §1.616-2 Election to defer
- Treas. Reg. §Treas. Reg. §1.616-2(a) General rule.
- Treas. Reg. §Treas. Reg. §1.616-2(b) Producing stage; definition of.
- Treas. Reg. §Treas. Reg. §1.616-2(c) Expenditures made by the owner who retains a nonoperating interest.
- Treas. Reg. §Treas. Reg. §1.616-2(d) Losses from abandonment.
- Treas. Reg. §Treas. Reg. §1.616-2(e) Effect of election.
- Treas. Reg. §Treas. Reg. §1.616-2(f) Computation of amount of deduction.
- Treas. Reg. §Treas. Reg. §1.616-3 Time for making election with respect to returns due on or before May 2, 1960
17 Citing Cases
The Commissioner has historically argued that deferred section 616 development costs are part of the adjusted basis used in calculating the section 57(a)(1) preference on the basis of the reference to section 1016 in section 1.57-l(h)(3), Income Tax Regs., and the references to deferred section 616 development costs in section 1016(a)(9) and (20).
ies agree that these amounts are deductible unless disallowed by sec. 183. Respondent does not assert that any of petitioner’s mining expenses with respect to the taxable years 1991 through 1994 should be disallowed as a result of the application of sec. 616 or 617. 3Expenses claimed on returns filed on behalf of JEI. B. Zila Royalties and Stock Options From 1989 through 1998, petitioner reported royalty income from Zila as follows: - 16 - Year Royalty Income 1989 $82,933 1990 185,578 1991 213,5