[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: 26CFR1.632-1]

[Page 544-545]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.632-1  Tax on sale of oil or gas properties.

    (a) If the taxpayer, by prospecting and locating claims or by 
exploring or discovering undeveloped claims, has demonstrated the 
principal value of oil or gas property, which prior to his efforts had a 
relatively minor value, the portion of the tax (or, in the case of 
taxable years beginning before Jan. 1, 1971, the surtax) imposed by 
section 1 attributable to a sale of such property, or of any interest of 
the taxpayer therein, shall not exceed 33 percent (or, in the case of 
taxable year beginning before Jan. 1, 1971, 30 percent) of the selling 
price of such property or such interest. Shares of stock in a 
corporation owning oil or gas property do not constitute an interest in 
such property. To determine the application of section 632 to a 
particular case, the taxpayer should first compute the tax (or surtax) 
imposed by section 1 upon his entire taxable income, including the 
taxable income from any sale of such property or interest therein, 
without regard to section 632. The proportion of the tax (or surtax) so 
computed, indicated by the ratio which the taxpayer's taxable income 
from the sale of the property or interest therein, computed as 
prescribed in this section, bears to his total taxable income is the 
portion of the tax attributable to such sale and, if it exceeds 33 
percent (or 30 percent) of the selling price of such property or 
interest, such portion of the tax (or surtax) shall be reduced to that 
amount.
    (b) In determining the portion of the taxable income attributable to 
the sale of such oil or gas property or interest therein, the taxpayer 
shall allocate to the gross income derived from such

[[Page 545]]

sale, and to the gross income derived from all other sources, the 
expenses, losses, and other deductions properly appertaining thereto and 
shall apply any general expenses, losses, and deductions (which cannot 
properly be otherwise allocated) ratably to the gross income from all 
sources. The gross income derived from the sale of such oil or gas 
property or interest therein, less the deductions properly appertaining 
thereto and less its proportion of any general deductions, shall be the 
taxable income attributable to such sale. The taxpayer shall submit with 
his return a statement fully explaining the manner in which such 
expenses, losses, and deductions are allocated or apportioned.

[T.D. 6500, 25 FR 11737, Nov. 26, 1960, as amended by T.D. 7117, 36 FR 
9421, May 25, 1971]

                       Mineral Production Payments