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Owning Natural Resources (402)
Author: Holmes F. Crouch
Pages: 224
List Price: $19.95
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  • Summary

    OWNING NATURAL RESOURCES (T/G 402) covers the tax laws unique to land and its mineral deposits (including continental shelf areas); the sub division, leasing, exploration and mining thereof; the meaning of "economic interests" therein, and the capital basis of "deposits in place" (for depletion allowance purposes). Also covered:

    • Depletion rules: Cost vs. Percentage
    • Improvements & "receding face" costs
    • Estimating number of recoverable units
    • Why each mine is separate property
    • Rights of landowner & lessee
    • Special rule: Capital gain/Ordinary loss

    Table of Contents
    Owning Natural Resources
    Book:  402
    
    Table of Content
    
    1.  THE “REAL” IN REAL ESTATE                           1-1
    
        Measurement of Land                                 1-2
        Conveyance and Recording                            1-4
        Partitioning of Rights                              1-5
        Section 1221: A “Nondefinition”                     1-7
        What’s the Distinction?                             1-9
        Sample Regulatory Wording                           1-11
        Property “Primarily for Sale”                       1-13
        How “Sale or Exchange” Defined                      1-15
        The “Economic Interest” Test                        1-16
        Sale vs. Lease of Minerals                          1-17
        Easement Grants                                     1-19
    
    2.  TRADE OR BUSINESS PROPERTY                          2-1
    
        Introduction to Section 1231                        2-2
        Timber, Coal, or Iron Ore                           2-4
        The General Rule (Simplified)                       2-5
        Now the Conditions                                  2-6
        Involuntary Conversions                             2-8
        Hypothetical Loss Scenario                          2-9
        Recapture of Net 1231 Losses                        2-11
        Timber and Timber Products                          2-12
        Leases and Leaseholds                               2-13
        Oil, Gas, & Mineral Leases                          2-15
    
    3.  LAND SUBDIVIDED FOR SALE                            3-1
    
        Real Property “Tract” Defined                       3-2
        Regulatory Liberalness                              3-4
        For Noncorporate Owners                             3-5
        Substantial “Evidence” Activities                   3-6
        Three Preconditions Mandated                        3-8
        When Improvements Nonsubstantial”                   3-10
        The 5% Ordinary Income Rule                         3-11
        Nonactive 5-Year Periods                            3-13
        What If Loss on Sales?                              3-15
    
    4.  MINERAL DEPOSITS DEFINED                            4-1
        
        Mineral Lands & Deposits                            4-2
        Tax Code Depletion Sections                         4-4
        Mines vs. Mineral Deposits                          4-6
        Specifics of “Economic Interest”                    4-8
        Why “Mining” Is Defined                             4-9
        May Aggregate or Separate                           4-11
        Timber Depletion: Nonmineral                        4-13
        Geothermal Wells & Deposits                         4-14
        Continental Shelf Areas                             4-15
    
    5.  THE DEPLETION DEDUCTION                             5-1
    
        Applicable Law Introduction                         5-2
        Estimate “Recoverable Units”                        5-4
        Revised Estimates Required                          5-6
        Separate Depletion Accounts                         5-8
        Deductible by Whom?                                 5-10
        Lease vs. Sale Problems                             5-12
        Interesting Case Examples                           5-13
        Basis as Measure of Depletion                       5-14
        Determining Cost of Deposits                        5-16
        Maintaining Normal Output                           5-18
    
    6.  PERCENTAGE DEPLETION                                6-1
    
        Introduction to Section 613                         6-2
        Percentage Depletion Rates                          6-3
        The “Catchall” 14% Rate                             6-5
        Applicable “Gross Income”                           6-7
        First Marketable Product Point                      6-8
        Tug-of-Point War                                    6-11
        Multi-Mineral Products                              6-12
        The 50% Limitation                                  6-13
        Taxable Income from Mining                          6-15
        Where Controversies Arise                           6-17
        Statement Attached to Return                        6-20
        Minimum Guarantee:  Cost Depletion                  6-21
        
    7.  EXPLORATION COST TREATMENT                          7-1
    
        Overview of Section 617                             7-2
        Exploration Expenditures Explained                  7-4
        Certain Expenditures Not Applicable                 7-5
        Must “Elect” to Deduct                              7-6
        Recapture Rules Synopsized                          7-8
        Adjusted Exploration Expenditures                   7-11
        Disposition of Mining Property                      7-12
        Producing Stage Recapture                           7-14
        The 10-Year Election                                7-15
    
    8.  DEVELOPMENT EXPENDITURES                            8-1
    
        Overview of Section 616                             8-2
        Official Guidelines                                 8-3
        Example Court Rulings                               8-5
        Certain Items Not Eligible                          8-6
        Election to Defer                                   8-8
        Excess Over Net Receipts                            8-10
        Manner of Election                                  8-12
        Basis Adjustments Required                          8-13
        Foreign Mineral Deposits                            8-15
    
    9.  OIL & GAS DRILLING                                  9-1
    
        Intangible Drilling Costs                           9-2
        The IDC Expense Option                              9-3
        Nonoptional (Nonintangible) Items                   9-6
        How the Majors Treat IDCs                           9-8
        Nonproductive Wells                                 9-9
        Offshore Platform Challenges                        9-10
        Amortization Option:  5 Years                       9-12
        Foreign Wells                                       9-13
    
    10. OIL & GAS DEPLETION                                 10-1
    
        Introduction to Section 613A                        10-2
        Exception for Independents                          10-3
        Average Daily Production                            10-5
        Maximum Depletable Quantity                         10-6
        Taxable Income Limitations                          10-7
        Effect of “Depletable Quantity”                     10-10
        Partnerships and S Corporations                     10-11
        Retailing/Refining Limitations                      10-12
        Unused Depletion Carried Over                       10-15
    
    11. MINERAL PRODUCTION PAYMENT                          11-1
    
        Qualifications Required                             11-2
        Addressed by Section 636                            11-4
        Mortgage Loan Treatment                             11-6
        The Practical Effect                                11-7
        Exception: Pledges for Exploration                  11-8
        Retained Production Payment: Sale                   11-10
        Examples re Section 636(b)                          11-12
        Retained Production Payment: Lease                  11-13
        Monetary Instrument Role                            11-15
        What is “Economically Equivalent”?                  11-17
    
    12. DISPOSITIONS & RECAPTURES                           12-1
    
        What Is a “Sale”                                    12-2
        Recapture Gain Explained                            12-3
        General Rule:  Ordinary Income                      12-5
        The “Lesser of”; “Excess of”?                       12-6
        Partial Dispositions                                12-8
        Separate Records, Each Owner                        12-10
        Other Recapture Property                            12-12
        Recapture Computations: From 4797                   12-14
        The “Mechanics” of Recapture                        12-15
        What About Loss Computations?                       12-17
        Abandonment of Property                             12-19

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