[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: 26CFR1.613A-2]

[Page 438-439]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.613A-2  Exemption for certain domestic gas wells.

    (a) The allowance for depletion under section 611 shall be computed 
in accordance with section 613 with respect to:
    (1) Regulated natural gas (as defined in paragraph (c) of Sec. 
1.613A-7),
    (2) Natural gas sold under a fixed contract (as defined in paragraph 
(d) of Sec. 1.613A-7), and
    (3) Any geothermal deposit in the United States or in a possession 
of the United States that is determined to be a gas well within the 
meaning of former section 613(b)(1)(A) (as in effect before enactment of 
the Tax Reduction Act of 1975) for taxable years ending after December 
31, 1974, and before October 1, 1978 (see section 613(e) for depletion 
on geothermal deposits thereafter),
    (b) For taxable years ending after September 30, 1978, the allowance 
for depletion under section 611 shall be computed in accordance with 
section 613 with respect to any qualified natural gas from geopressured 
brine (as defined in paragraph (e) of Sec. 1.613A-7), and 10 percent 
shall be deemed to be specified in section 613(b) for purposes of 
section 613(a).
    (c) For special rules applicable to partnerships, S corporations, 
trusts, and estates, see paragraphs (e), (f), and (g) of Sec. 1.613A-3.
    (d) The provisions of this section may be illustrated by the 
following examples:

    Example 1. A is a producer of natural gas which is sold by A under a 
contract in effect on February 1, 1975. The contract provides for an 
increase in the price of the gas sold

[[Page 439]]

under the contract to the highest price paid to a producer for natural 
gas in the area. The gas sold by A qualifies under section 613A(b)(1)(B) 
for percentage depletion as gas sold under a fixed contract until its 
price increases, but is presumed not to qualify thereafter unless A 
demonstrates by clear and convincing evidence that the price increase in 
no event takes increases in tax liabilities into account.
    Example 2. B is a producer of natural gas which is sold by B under a 
contract in effect on February 1, 1975. The contract provides that 
beginning January 1, 1980, the price of the gas may be renegotiated. 
Such a provision does not disqualify gas from qualifying for the 
exemption under section 613A(b)(1)(B) with respect to the gas sold prior 
to January 1, 1980. However, gas sold on or after January 1, 1980, does 
not qualify for the exemption whether or not the price of the gas is 
renegotiated.

[T.D. 8348, 56 FR 21939, May 13, 1991, as amended by T.D. 8437, 57 FR 
43899, Sept. 23, 1992; 58 FR 6678, Feb. 1, 1993]