§636 — Income tax treatment of mineral production payments

29 cases·6 followed·3 distinguished·1 questioned·1 criticized·1 limited·2 overruled·15 cited—21% support

Statute Text — 26 U.S.C. §636

(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.

Treasury Regulations

Treas. Reg. §Treas. Reg. §1.636-1 Treatment of production payments as loans
Treas. Reg. §Treas. Reg. §1.636-1(a) In general.
Treas. Reg. §Treas. Reg. §1.636-1(b) Exception.
Treas. Reg. §Treas. Reg. §1.636-1(c) Treatment upon disposition or termination of mineral property burdened by production payment.
Treas. Reg. §Treas. Reg. §1.636-1(i) §1.636-1(i)
Treas. Reg. §Treas. Reg. §1.636-2 Production payments retained in leasing transactions
Treas. Reg. §Treas. Reg. §1.636-2(a) Treatment by lessee.
Treas. Reg. §Treas. Reg. §1.636-2(b) Treatment by lessor.
Treas. Reg. §Treas. Reg. §1.636-2(c) Example.
Treas. Reg. §Treas. Reg. §1.636-3 Definitions
Treas. Reg. §Treas. Reg. §1.636-3(a) Production payment.
Treas. Reg. §Treas. Reg. §1.636-3(b) Property.
Treas. Reg. §Treas. Reg. §1.636-3(c) Transfer.
Treas. Reg. §Treas. Reg. §1.636-4 Effective dates of section 636
Treas. Reg. §Treas. Reg. §1.636-4(a) §1.636-4(a)
Treas. Reg. §Treas. Reg. §1.636-4(b) §1.636-4(b)
Treas. Reg. §Treas. Reg. §1.636-4(c) Time and manner of making election.
Treas. Reg. §Treas. Reg. §1.636-4(d) Revocation of election.
Treas. Reg. §Treas. Reg. §1.636-4(e) Special rule.
Treas. Reg. §Treas. Reg. §1.636-4(i) §1.636-4(i)

29 Citing Cases

FOLLOWED Jerry R. & Carolyn M. Webb, Petitioner 106 T.C. No. 22 · 1996

Respondent acknowledges that section 1.451-5(g), Income Tax Regs., provides an exception to the general rule in section 1.451-1(a), Income Tax Regs., for certain advance payments treated as mortgage loans pursuant to section 636(a).

Stephen R. & Mary K. Herbel, Petitioner 106 T.C. No. 22 · 1996

Petitioners never explicitly argue that section 636 governs the settlement between Malibu and Arkla.

Charles F. & Susan G. Glass, Petitioner 124 T.C. No. 16 · 2005

636.3 (2002) (“Wildlife habitat means the aquatic and terrestrial environments required for wildlife to complete their life cycles, including air, food, cover, water, and spatial requirements.”). A community may be defined in this context as “A group of plants and animals living and interacting with one another in a specific region under relat

Shawn Jeffrey Hintz, Petitioner · 2005

d at 60 percent or higher or for retirees with disabilities associated with the award of a Purple Heart decoration. CRSC was not authorized until the passage of the Bob Stump National Defense Authorization Act for Fiscal Year 2003, Pub. L. 107-314, sec. 636, 116 Stat. 2574. Since the tax year at issue in the present case, 2001, is prior to the authorization of such compensation, petitioner’s reference to CRSC is erroneous. - 9 - normal basic training ribbons such as: Good conduct medal, expert b

United States v. Michael Meyer · Cir.

United States v. Michael Meyer 439 F.3d 855 · Cir.

Freede v. Commissioner 86 T.C. 340 · 1986

Graf v. Commissioner 80 T.C. 944 · 1983

Brountas v. Commissioner 74 T.C. 1062 · 1980

Waddell v. Commissioner 86 T.C. 848 · 1986

Brountas v. Commissioner 73 T.C. 491 · 1979

Brannen v. Commissioner 78 T.C. 471 · 1982

Herbel v. Commissioner 106 T.C. 392 · 1996

Ellison v. Commissioner 80 T.C. 378 · 1983

Fox v. Commissioner 80 T.C. 972 · 1983

Veltor Underground, LLC v. SBA · Cir.

Disabled American Veterans v. Commissioner 94 T.C. 60 · 1990

Yates v. Commissioner 92 T.C. 1215 · 1989

Watnick v. Commissioner 90 T.C. 326 · 1988

Gulf Oil Corp. v. Commissioner 87 T.C. 135 · 1986

Gulf Oil Corp. v. Commissioner 86 T.C. 115 · 1986

Gulf Oil Corp. v. Commissioner 86 T.C. 937 · 1986

Saviano v. Commissioner 80 T.C. 955 · 1983

Johnson Investment & Rental Co. v. Commissioner 70 T.C. 895 · 1978

Larsen v. Commissioner 66 T.C. 478 · 1976

Glass v. CIR · Cir.

Goodrich v. United States 3 F.4th 776 · Cir.

Charles and Susan Glass v. Commissioner of Internal Revenue 471 F.3d 698 · Cir.

Wilson v. Commissioner 705 F.3d 980 · Cir.