[Code of Federal Regulations]
[Title 26, Volume 7]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.613-7]

[Page 435-437]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.613-7  Application of percentage depletion rates provided in 
section 613(b) to certain taxable years ending in 1954.

    (a) Election of taxpayer. In the case of any taxable year ending 
after December 31, 1953, to which the Internal Revenue Code of 1939 is 
applicable, the taxpayer may elect in accordance with section 613(d) and 
this section to apply the appropriate percentage depletion rate 
specified in section 613 in respect of any mineral property (within the 
meaning of the 1939 Code). In the case of mines, wells, or other natural 
deposits listed in section 613(b), the election may be made by the 
taxpayer irrespective of whether his depletion allowance with respect to 
the property for the taxable year was computed upon the basis of cost, 
discovery value, or upon a percentage of gross income from the property. 
Once made, the election shall be irrevocable with respect to the 
property for which it is exercised. The election may be made for any 
mineral property of the taxpayer and need not be made for all such 
properties. Gross income from the property and net income from the 
property shall have the same meaning as those terms are used in 26 CFR 
(1939) 39.23(m)-1 (Regulations 118).
    (b) Computation of depletion allowance. The depletion allowance for 
any taxable year with respect to any property for which the taxpayer 
makes the election under section 613(d) shall be an amount equal to the 
sum of:

[[Page 436]]

    (1) That portion of a tentative allowance, computed under the 
provisions of the Internal Revenue Code of 1939 (without regard to 
paragraph (1) of section 613(d)), which the number of days in the 
taxable year prior to January 1, 1954, bears to the total number of days 
in such taxable year; plus
    (2) That portion of a tentative allowance, computed by using the 
appropriate percentage depletion rate specified in section 613(b) (but 
otherwise computed under the provisions of the Internal Revenue Code of 
1939), which the number of days in the taxable year after December 31, 
1953, bears to the total number of days in such taxable year.

In the case of any taxable year beginning after December 31, 1953, and 
ending before August 17, 1954, the depletion allowance with respect to 
any property for which the taxpayer makes the election under section 
613(d) shall be computed under the provisions of the Internal Revenue 
Code of 1939, except that the appropriate percentage depletion rate 
specified in section 613(b) shall be used. In making such computation, 
gross income from the property and net income from the property shall be 
determined in the same manner as specified in paragraph (a) of this 
section.
    (c) Examples. The provisions of this section may be illustrated by 
the following examples:

    Example 1. A is a taxpayer who reports income on the basis of a 
taxable year ending June 30. For the taxable year ended June 30, 1954, A 
had gross income from a uranium property in the amount of $100,000 and 
his depletion allowance was computed with reference to percentage 
depletion. His net income from this property, for purposes of limiting 
the depletion allowance, was $40,000. The 15-percent rate of depletion 
provided for in the Internal Revenue Code of 1939 for metal mines 
resulted in a depletion allowance for the taxable year of $15,000. 
Percentage depletion computed with reference to the 23-percent rate 
provided for uranium under section 613(b) is $23,000 ($100,000 times 23 
percent). However, the allowance computed on this basis is limited to 
$20,000 (50 percent of A's net income from the property). If A exercises 
the election provided for in section 613(d) his depletion allowance for 
the taxable year is the aggregate of $7,561.64 (184/365 times $15,000) 
plus $9,917.80 (181/365 times $20,000) or $17,479.44
    Example 2. Assume the same facts as in example 1 except that A's 
depletion allowance was computed on the basis of cost and amounted to 
$17,500. If the election is made, A's allowance for the taxable year is 
the aggregate of $8,821.92 (184/365 times $17,500) plus $9,917.80 (181/
365 times $20,000) or $18,739.72.

    (d) Requirement for making election. (1) The election under section 
613(d) shall be made by filing a statement with the district director 
with whom the income tax return was filed for the taxable year to which 
the election is applicable. Such statement shall indicate that an 
election is being made under section 613(d), shall contain a 
recomputation of the depletion allowance and the tax liability for all 
taxable years affected by the exercise of the election, and shall be 
accompanied either by a claim for refund or credit or by an amended 
return or returns, whichever is appropriate.
    (2) If the treatment of any item upon which a tax previously 
determined was based, or if the application of any provisions of the 
internal revenue laws with respect to such tax, depends upon the amount 
of income (e.g., charitable contributions, foreign tax credit, dividends 
received credit, and medical expenses), readjustment in these 
particulars will be necessary as part of any recomputation in conformity 
with the change in the amount of the income which results solely from 
the making of the election under section 613(d).
    (e) Administrative provisions; etc. (1) Section 36(b) of the 
Technical Amendments Act of 1958 (72 Stat. 1633) provides as follows:

    Sec. 36. Percentage depletion rates for certain taxable years ending 
in 1954. * * *
    (b) Statute of limitations, etc.; interest. If refund or credit of 
any overpayment resulting from the application of the amendment made by 
subsection (a) of this section is prevented on the date of the enactment 
of this Act, or within 6 months from such date, by the operation of any 
law or rule of law (other than section 3760 of the Internal Revenue Code 
of 1939 or section 7121 of the Internal Revenue Code of 1954, relating 
to closing agreements, and other than section 3761 of the Internal 
Revenue Code of 1939 or section 7122 of the Internal Revenue Code of 
1954, relating to compromises), refund or credit of such overpayment 
may, nevertheless, be made or allowed if claim therefor is filed within 
6 months from such date. No interest shall be paid on any overpayment 
resulting from the

[[Page 437]]

application of the amendment made by subsection (a) of this section.

    (2) If refund or credit of any overpayment resulting from the 
application of section 613(d) is prevented on September 2, 1958, or on 
or before March 2, 1959, by the operation of any law or rule of law 
(other than section 3760 of the Internal Revenue Code of 1939 or section 
7121 of the Internal Revenue Code of 1954, relating to closing 
agreements, and other than section 3761 of the Internal Revenue Code of 
1939 or section 7122 of the Internal Revenue Code of 1954, relating to 
compromises), refund or credit of such overpayment may, nevertheless, be 
made or allowed if claim therefor is filed on or before March 2, 1959. 
If such refund or credit is not prevented on or before March 2, 1959, 
the time for filing claim therefor shall be governed by the rules of law 
generally applicable to credits and refunds.
    (3) The amount of any refund or credit which is allowable by reason 
of section 613(d) shall not exceed the decrease in income tax liability 
resulting solely from the application of the percentage rates specified 
in section 613(b). No interest shall be allowed or paid on any 
overpayment resulting from the application of section 613(d).
    (4) For purposes of this section the decrease in income tax 
liability shall be the amount by which the tax previously determined (as 
defined in section 3801(d) of the Internal Revenue Code of 1939) exceeds 
the tax as recomputed under section 613(d) and this section.
    (f) Adjustment to basis. Proper adjustment shall be made to the 
basis of any property as required by section 113(b)(1) of the Internal 
Revenue Code of 1939 and 26 CFR (1939) 39.113(b)(1)-1(c) (Regulations 
118) to reflect any change in the depletion allowance resulting from the 
application of section 613(d) of the Internal Revenue Code of 1954.

[T.D. 6500, 25 FR 11737, Nov. 26, 1960. Redesignated by T.D. 7170, 37 FR 
5374, Mar. 15, 1972]