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1040ez on line 9. 1040ez on line   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. 1040ez on line Depletion unit. 1040ez on line Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. 1040ez on line The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. 1040ez on line There are two ways of figuring depletion: cost depletion and percentage depletion. 1040ez on line For mineral property, you generally must use the method that gives you the larger deduction. 1040ez on line For standing timber, you must use cost depletion. 1040ez on line Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. 1040ez on line More than one person can have an economic interest in the same mineral deposit or timber. 1040ez on line In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 1040ez on line You have an economic interest if both the following apply. 1040ez on line You have acquired by investment any interest in mineral deposits or standing timber. 1040ez on line You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. 1040ez on line A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. 1040ez on line A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. 1040ez on line Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. 1040ez on line Basis adjustment for depletion. 1040ez on line   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. 1040ez on line Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). 1040ez on line For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. 1040ez on line You can treat two or more separate interests as one property or as separate properties. 1040ez on line See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. 1040ez on line There are two ways of figuring depletion on mineral property. 1040ez on line Cost depletion. 1040ez on line Percentage depletion. 1040ez on line Generally, you must use the method that gives you the larger deduction. 1040ez on line However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. 1040ez on line See Oil and Gas Wells , later. 1040ez on line Cost Depletion To figure cost depletion you must first determine the following. 1040ez on line The property's basis for depletion. 1040ez on line The total recoverable units of mineral in the property's natural deposit. 1040ez on line The number of units of mineral sold during the tax year. 1040ez on line Basis for depletion. 1040ez on line   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. 1040ez on line Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. 1040ez on line The residual value of land and improvements at the end of operations. 1040ez on line The cost or value of land acquired for purposes other than mineral production. 1040ez on line Adjusted basis. 1040ez on line   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. 1040ez on line Your adjusted basis can never be less than zero. 1040ez on line See Publication 551, Basis of Assets, for more information on adjusted basis. 1040ez on line Total recoverable units. 1040ez on line   The total recoverable units is the sum of the following. 1040ez on line The number of units of mineral remaining at the end of the year (including units recovered but not sold). 1040ez on line The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). 1040ez on line   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. 1040ez on line You must include ores and minerals that are developed, in sight, blocked out, or assured. 1040ez on line You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. 1040ez on line But see Elective safe harbor for owners of oil and gas property , later. 1040ez on line Number of units sold. 1040ez on line   You determine the number of units sold during the tax year based on your method of accounting. 1040ez on line Use the following table to make this determination. 1040ez on line    IF you  use . 1040ez on line . 1040ez on line . 1040ez on line THEN the units sold during the year are . 1040ez on line . 1040ez on line . 1040ez on line The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). 1040ez on line An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. 1040ez on line   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. 1040ez on line Figuring the cost depletion deduction. 1040ez on line   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. 1040ez on line Step Action Result 1 Divide your property's basis for depletion by total recoverable units. 1040ez on line Rate per unit. 1040ez on line 2 Multiply the rate per unit by units sold during the tax year. 1040ez on line Cost depletion deduction. 1040ez on line You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. 1040ez on line Elective safe harbor for owners of oil and gas property. 1040ez on line   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. 1040ez on line If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). 1040ez on line For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. 1040ez on line irs. 1040ez on line gov/pub/irs-irbs/irb04-10. 1040ez on line pdf. 1040ez on line   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. 1040ez on line The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. 1040ez on line The election, if made, is effective for the tax year in which it is made and all later years. 1040ez on line It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. 1040ez on line Once revoked, it cannot be re-elected for the next 5 years. 1040ez on line Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. 1040ez on line The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . 1040ez on line Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . 1040ez on line Gross income. 1040ez on line   When figuring percentage depletion, subtract from your gross income from the property the following amounts. 1040ez on line Any rents or royalties you paid or incurred for the property. 1040ez on line The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. 1040ez on line A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. 1040ez on line   Use the following fraction to figure the part of the bonus you must subtract. 1040ez on line No. 1040ez on line of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. 1040ez on line For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. 1040ez on line Taxable income limit. 1040ez on line   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. 1040ez on line   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. 1040ez on line These deductible items include, but are not limited to, the following. 1040ez on line Operating expenses. 1040ez on line Certain selling expenses. 1040ez on line Administrative and financial overhead. 1040ez on line Depreciation. 1040ez on line Intangible drilling and development costs. 1040ez on line Exploration and development expenditures. 1040ez on line Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. 1040ez on line Losses sustained. 1040ez on line   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. 1040ez on line Do not deduct any net operating loss deduction from the gross income from the property. 1040ez on line Corporations do not deduct charitable contributions from the gross income from the property. 1040ez on line If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. 1040ez on line See section 1. 1040ez on line 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. 1040ez on line Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. 1040ez on line You are either an independent producer or a royalty owner. 1040ez on line The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. 1040ez on line If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. 1040ez on line For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. 1040ez on line Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. 1040ez on line However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. 1040ez on line For information on figuring the deduction, see Figuring percentage depletion , later. 1040ez on line Refiners who cannot claim percentage depletion. 1040ez on line   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. 1040ez on line The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. 1040ez on line Related person. 1040ez on line   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. 1040ez on line For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. 1040ez on line A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. 1040ez on line For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. 1040ez on line The value of the outstanding stock of a corporation. 1040ez on line The interest in the profits or capital of a partnership. 1040ez on line The beneficial interests in an estate or trust. 1040ez on line Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. 1040ez on line Retailers who cannot claim percentage depletion. 1040ez on line   You cannot claim percentage depletion if both the following apply. 1040ez on line You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. 1040ez on line Through a retail outlet operated by you or a related person. 1040ez on line To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. 1040ez on line To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. 1040ez on line The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. 1040ez on line   For the purpose of determining if this rule applies, do not count the following. 1040ez on line Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. 1040ez on line Bulk sales of aviation fuels to the Department of Defense. 1040ez on line Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. 1040ez on line Related person. 1040ez on line   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. 1040ez on line Sales through a related person. 1040ez on line   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. 1040ez on line   You are not considered to be selling through a related person who is a retailer if all the following apply. 1040ez on line You do not have a significant ownership interest in the retailer. 1040ez on line You sell your production to persons who are not related to either you or the retailer. 1040ez on line The retailer does not buy oil or natural gas from your customers or persons related to your customers. 1040ez on line There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. 1040ez on line Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. 1040ez on line Transferees who cannot claim percentage depletion. 1040ez on line   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. 1040ez on line For a definition of the term “transfer,” see section 1. 1040ez on line 613A-7(n) of the regulations. 1040ez on line For a definition of the term “interest in proven oil or gas property,” see section 1. 1040ez on line 613A-7(p) of the regulations. 1040ez on line Figuring percentage depletion. 1040ez on line   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. 1040ez on line If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. 1040ez on line If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. 1040ez on line   In addition, there is a limit on the percentage depletion deduction. 1040ez on line See Taxable income limit , later. 1040ez on line Average daily production. 1040ez on line   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. 1040ez on line Partial interest. 1040ez on line   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. 1040ez on line   You have a partial interest in the production from a property if you have a net profits interest in the property. 1040ez on line To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. 1040ez on line To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. 1040ez on line Then multiply the total production from the property by your percentage participation to figure your share of the production. 1040ez on line Example. 1040ez on line Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. 1040ez on line During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. 1040ez on line Javier had expenses of $90,000 attributable to the property. 1040ez on line The property generated a net profit of $110,000 ($200,000 − $90,000). 1040ez on line Pablo received income of $22,000 ($110,000 × . 1040ez on line 20) for his net profits interest. 1040ez on line Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). 1040ez on line Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). 1040ez on line Depletable oil or natural gas quantity. 1040ez on line   Generally, your depletable oil quantity is 1,000 barrels. 1040ez on line Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. 1040ez on line If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. 1040ez on line Example. 1040ez on line You have both oil and natural gas production. 1040ez on line To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. 1040ez on line Your depletable natural gas quantity is 2. 1040ez on line 16 million cubic feet of gas (360 × 6000). 1040ez on line You must reduce your depletable oil quantity to 640 barrels (1000 − 360). 1040ez on line If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. 1040ez on line Also, see Notice 2012-50, available at www. 1040ez on line irs. 1040ez on line gov/irb/2012–31_IRB/index. 1040ez on line html. 1040ez on line Business entities and family members. 1040ez on line   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. 1040ez on line Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). 1040ez on line You and your spouse and minor children. 1040ez on line A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. 1040ez on line Controlled group of corporations. 1040ez on line   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. 1040ez on line They share the depletable quantity. 1040ez on line A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. 1040ez on line ” Gross income from the property. 1040ez on line   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. 1040ez on line If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. 1040ez on line   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. 1040ez on line   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. 1040ez on line Average daily production exceeds depletable quantities. 1040ez on line   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. 1040ez on line Figure your average daily production of oil or natural gas for the year. 1040ez on line Figure your depletable oil or natural gas quantity for the year. 1040ez on line Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. 1040ez on line Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). 1040ez on line This is your depletion allowance for that property for the year. 1040ez on line Taxable income limit. 1040ez on line   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. 1040ez on line 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. 1040ez on line For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. 1040ez on line 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. 1040ez on line You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. 1040ez on line Add it to your depletion allowance (before applying any limits) for the following year. 1040ez on line Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. 1040ez on line (However, see Electing large partnerships must figure depletion allowance , later. 1040ez on line ) Each partner or shareholder must decide whether to use cost or percentage depletion. 1040ez on line If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. 1040ez on line Partner's or shareholder's adjusted basis. 1040ez on line   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. 1040ez on line The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. 1040ez on line   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. 1040ez on line However, in some cases, it is figured according to the partner's interest in partnership income. 1040ez on line   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. 1040ez on line Recordkeeping. 1040ez on line Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. 1040ez on line The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. 1040ez on line The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. 1040ez on line Reporting the deduction. 1040ez on line   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). 1040ez on line Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). 1040ez on line The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. 1040ez on line The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. 1040ez on line Form 6198, At-Risk Limitations. 1040ez on line Form 8582, Passive Activity Loss Limitations. 1040ez on line Electing large partnerships must figure depletion allowance. 1040ez on line   An electing large partnership, rather than each partner, generally must figure the depletion allowance. 1040ez on line The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. 1040ez on line Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. 1040ez on line   An electing large partnership is one that meets both the following requirements. 1040ez on line The partnership had 100 or more partners in the preceding year. 1040ez on line The partnership chooses to be an electing large partnership. 1040ez on line Disqualified persons. 1040ez on line   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. 1040ez on line Disqualified persons must figure it themselves, as explained earlier. 1040ez on line   All the following are disqualified persons. 1040ez on line Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 1040ez on line Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). 1040ez on line Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. 1040ez on line Average daily production is discussed earlier. 1040ez on line Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. 1040ez on line Natural gas sold under a fixed contract. 1040ez on line   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. 1040ez on line This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. 1040ez on line The contract must have been in effect from February 1, 1975, until the date of sale of the gas. 1040ez on line Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. 1040ez on line Natural gas from geopressured brine. 1040ez on line   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. 1040ez on line This is natural gas that is both the following. 1040ez on line Produced from a well you began to drill after September 1978 and before 1984. 1040ez on line Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. 1040ez on line Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. 1040ez on line Mines and other natural deposits. 1040ez on line   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. 1040ez on line   The following is a list of the percentage depletion rates for the more common minerals. 1040ez on line DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. 1040ez on line Corporate deduction for iron ore and coal. 1040ez on line   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). 1040ez on line Gross income from the property. 1040ez on line   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. 1040ez on line Mining includes all the following. 1040ez on line Extracting ores or minerals from the ground. 1040ez on line Applying certain treatment processes described later. 1040ez on line Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. 1040ez on line Excise tax. 1040ez on line   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. 1040ez on line Extraction. 1040ez on line   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. 1040ez on line This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. 1040ez on line Treatment processes. 1040ez on line   The processes included as mining depend on the ore or mineral mined. 1040ez on line To qualify as mining, the treatment processes must be applied by the mine owner or operator. 1040ez on line For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. 1040ez on line Transportation of more than 50 miles. 1040ez on line   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. 1040ez on line    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. 1040ez on line Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. 1040ez on line For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. 1040ez on line irs. 1040ez on line gov/irb/2013-01_IRB/ar11. 1040ez on line html. 1040ez on line Disposal of coal or iron ore. 1040ez on line   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. 1040ez on line You disposed of it after holding it for more than 1 year. 1040ez on line You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. 1040ez on line Treat any gain on the disposition as a capital gain. 1040ez on line Disposal to related person. 1040ez on line   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. 1040ez on line A related person (as listed in chapter 2 of Publication 544). 1040ez on line A person owned or controlled by the same interests that own or control you. 1040ez on line Geothermal deposits. 1040ez on line   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. 1040ez on line A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. 1040ez on line For percentage depletion purposes, a geothermal deposit is not considered a gas well. 1040ez on line   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. 1040ez on line See Gross income from the property , earlier, under Oil and Gas Wells. 1040ez on line Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. 1040ez on line Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. 1040ez on line A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. 1040ez on line Bonuses and advanced royalties. 1040ez on line   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. 1040ez on line If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. 1040ez on line Figuring cost depletion. 1040ez on line   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. 1040ez on line To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. 1040ez on line Figuring percentage depletion. 1040ez on line   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . 1040ez on line Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. 1040ez on line However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. 1040ez on line Ending the lease. 1040ez on line   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. 1040ez on line Do this for the year the lease ends or is abandoned. 1040ez on line Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. 1040ez on line   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. 1040ez on line Include this amount in income for the year the lease ends. 1040ez on line Increase your adjusted basis in the property by the amount you include in income. 1040ez on line Delay rentals. 1040ez on line   These are payments for deferring development of the property. 1040ez on line Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. 1040ez on line These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. 1040ez on line Timber You can figure timber depletion only by the cost method. 1040ez on line Percentage depletion does not apply to timber. 1040ez on line Base your depletion on your cost or other basis in the timber. 1040ez on line Your cost does not include the cost of land or any amounts recoverable through depreciation. 1040ez on line Depletion takes place when you cut standing timber. 1040ez on line You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. 1040ez on line Figuring cost depletion. 1040ez on line   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. 1040ez on line Timber units. 1040ez on line   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. 1040ez on line You measure the timber using board feet, log scale, cords, or other units. 1040ez on line If you later determine that you have more or less units of timber, you must adjust the original estimate. 1040ez on line   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. 1040ez on line Depletion unit. 1040ez on line   You figure your depletion unit each year by taking the following steps. 1040ez on line Determine your cost or adjusted basis of the timber on hand at the beginning of the year. 1040ez on line Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. 1040ez on line Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. 1040ez on line Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. 1040ez on line Divide the result of (2) by the result of (3). 1040ez on line This is your depletion unit. 1040ez on line Example. 1040ez on line You bought a timber tract for $160,000 and the land was worth as much as the timber. 1040ez on line Your basis for the timber is $80,000. 1040ez on line Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). 1040ez on line If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). 1040ez on line When to claim depletion. 1040ez on line   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). 1040ez on line Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. 1040ez on line The inventory is your basis for determining gain or loss in the tax year you sell the timber products. 1040ez on line Example. 1040ez on line The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. 1040ez on line You would deduct $20,000 of the $40,000 depletion that year. 1040ez on line You would add the remaining $20,000 depletion to your closing inventory of timber products. 1040ez on line Electing to treat the cutting of timber as a sale or exchange. 1040ez on line   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. 1040ez on line You must make the election on your income tax return for the tax year to which it applies. 1040ez on line If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. 1040ez on line You generally report the gain as long-term capital gain. 1040ez on line The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. 1040ez on line For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. 1040ez on line   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. 1040ez on line The prior election (and revocation) is disregarded for purposes of making a subsequent election. 1040ez on line See Form T (Timber), Forest Activities Schedule, for more information. 1040ez on line Form T. 1040ez on line   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. 1040ez on line Prev  Up  Next   Home   More Online Publications
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Contact My Local Office in Oregon

Face-to-face Tax Help

IRS Taxpayer Assistance Centers (TACs) are your source for personal tax help when you believe your tax issue can only be handled face-to-face. No appointment is necessary.

Keep in mind, many questions can be resolved online without waiting in line. Through IRS.gov you can:
• Set up a payment plan.
• Get a transcript of your tax return.
• Make a payment.
• Check on your refund.
• Find answers to many of your tax questions.

We are now referring all requests for tax return preparation services to other available resources. You can take advantage of free tax preparation through Free File, Free File Fillable Forms or through a volunteer site in your community. To find the nearest volunteer site location or to get more information about Free File, go to the top of the page and enter “Free Tax Help” in the Search box.

If you have a tax account issues and feel that it requires talking with someone face-to-face, visit your local TAC.

Caution:  Many of our offices are located in Federal Office Buildings. These buildings may not allow visitors to bring in cell phones with camera capabilities.

Multilingual assistance is available in every office. Hours of operation are subject to change.

Before visiting your local office click on "Services Provided" in the chart below to see what services are available. Services are limited and not all services are available at every TAC office and may vary from site to site. You can get these services on a walk-in basis.

City  Street Address  Days/Hours of Service  Telephone* 
Bend 

250 NW Franklin Ave.
Bend, OR  97701

Monday-Friday 8:30 a.m.- 4:30 p.m.
(Closed for lunch 12:30 p.m. - 1:30 p.m.)

 

Services Provided

(541) 706-5732
Eugene 211 E 7th           
Eugene, OR 97401

Monday-Friday 8:30 a.m.- 4:30 p.m.

 

Services Provided

(541) 342-8766
Medford 960 Ellendale Dr.
Medford, OR 97504

Monday-Friday 8:30 a.m.- 4:30 p.m.
(Closed for lunch 12:00 noon - 1:30 p.m.)

 

Services Provided

(541) 282-1350
Portland 1220 SW Third Ave.
Portland, OR  97204
 

Monday-Friday 8:30 a.m.- 4:30 p.m.

 

Services Provided

(503) 265-3501
Salem

1660 Oak St. S.E.
Salem, OR  97301

Monday-Friday 8:30 a.m.- 4:30 p.m.

 

Services Provided

(503) 587-3101

* Note: The phone numbers in the chart above are not toll-free for all locations. When you call, you will reach a recorded business message with information about office hours, locations and services provided in that office. If face-to-face assistance is not a priority for you, you may also get help with IRS letters or resolve tax account issues by phone, toll free at 1-800-829-1040 (individuals) or 1-800-829-4933 (businesses). 

For information on where to file your tax return please see Where to File Addresses

The Taxpayer Advocate Service: Call (503) 265-3591 in the Portland area or 1-877-777-4778 elsewhere, or see  Publication 1546, The Taxpayer Advocate Service of the IRS. For further information, see  Tax Topic 104.

Partnerships

IRS and organizations all over the country are partnering to assist taxpayers. Through these partnerships, organizations are also achieving their own goals. These mutually beneficial partnerships are strengthening outreach efforts and bringing education and assistance to millions.

For more information about these programs for individuals and families, contact the Stakeholder Partnerships, Education and Communication Office at:

Internal Revenue Service
100 SW Main Street, MS 0180
Portland, OR 97204

For more information about these programs for businesses, your local Stakeholder Liaison office establishes relationships with organizations representing small business and self-employed taxpayers. They provide information about the policies, practices and procedures the IRS uses to ensure compliance with the tax laws. To establish a relationship with us, use this list to find a contact in your state:

Stakeholder Liaison (SL) Phone Numbers for Organizations Representing Small Businesses and Self-employed Taxpayers.

Page Last Reviewed or Updated: 28-Mar-2014

The 1040ez On Line

1040ez on line Publication 3920 - Introductory Material Table of Contents Introduction Useful Items - You may want to see: Introduction This publication explains some of the provisions of the Victims of Terrorism Tax Relief Act of 2001. 1040ez on line Under this Act, the federal income tax liability of those killed in the following attacks is forgiven for certain tax years. 1040ez on line The April 19, 1995, attack on the Alfred P. 1040ez on line Murrah Federal Building (Oklahoma City attack). 1040ez on line The September 11, 2001, attacks on the World Trade Center, the Pentagon, and United Airlines Flight 93 in Somerset County, Pennsylvania (September 11 attacks). 1040ez on line Terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002 (anthrax attacks). 1040ez on line The Act also provides other types of relief. 1040ez on line For example, it provides that the following amounts are not included in income. 1040ez on line Payments from the September 11th Victim Compensation Fund of 2001. 1040ez on line Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. 1040ez on line Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. 1040ez on line Death benefits paid by an employer to the survivor of an employee if the benefits are paid because the employee died as a result of a terrorist attack. 1040ez on line Debt cancellations made after September 10, 2001, and before January 1, 2002, because an individual died as a result of the September 11 attacks or anthrax attacks. 1040ez on line Worksheet A. 1040ez on line Figuring the Tax To Be Forgiven (For Decedents Who Filed a Return as Single, Married Filing Separately, Head of Household, or Qualifying Widow(er))         (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for tax forgiveness. 1040ez on line 1       2 Enter the total tax from the decedent's income tax return. 1040ez on line See Table 1 on page 5 for the line number for years before 2002. 1040ez on line 2       3 Enter the following taxes, if any, shown on the decedent's income tax return. 1040ez on line (These taxes are not eligible for forgiveness. 1040ez on line )           a Self-employment tax. 1040ez on line 3a         b Social security and Medicare tax on tip income not reported to employer. 1040ez on line 3b         c Tax on excess contributions to IRAs, Coverdell education savings accounts (formerly Ed IRAs), or Archer MSAs (formerly medical savings accounts). 1040ez on line 3c         d Tax on excess accumulation in qualified retirement plans. 1040ez on line 3d         e Household employment taxes. 1040ez on line 3e         f Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. 1040ez on line 3f         g Tax on golden parachute payments. 1040ez on line 3g       4 Add lines 3a through 3g. 1040ez on line 4       5 Tax to be forgiven. 1040ez on line Subtract line 4 from line 2. 1040ez on line 5       Note. 1040ez on line If the total of columns (A), (B), and (C) of line 5 (including any amounts shown on line 15 of Worksheet B) is less than $10,000, also complete Worksheet C. 1040ez on line Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040ez on line If filing Form 1040X for an eligible year, enter the amount from line 5 above on Form 1040X in column B of line 10 as a decrease in tax. 1040ez on line The IRS will determine the amount to be refunded. 1040ez on line Worksheet A. 1040ez on line Figuring the Tax To Be Forgiven (For Decedents Who Filed a Return as Single, Married Filing Separately, Head of Household, or Qualifying Widow(er))         (A) First Eligible Year (1994 or 2000) (B) Second Eligible Year (1995 or 2001) (C) Third Eligible Year (1996 or 2002) 1 Enter the years eligible for tax forgiveness. 1040ez on line 1       2 Enter the total tax from the decedent's income tax return. 1040ez on line See Table 1 on page 5 for the line number for years before 2002. 1040ez on line 2       3 Enter the following taxes, if any, shown on the decedent's income tax return. 1040ez on line (These taxes are not eligible for forgiveness. 1040ez on line )           a Self-employment tax. 1040ez on line 3a         b Social security and Medicare tax on tip income not reported to employer. 1040ez on line 3b         c Tax on excess contributions to IRAs, Coverdell education savings accounts (formerly Ed IRAs), or Archer MSAs (formerly medical savings accounts). 1040ez on line 3c         d Tax on excess accumulation in qualified retirement plans. 1040ez on line 3d         e Household employment taxes. 1040ez on line 3e         f Uncollected social security and Medicare or RRTA tax on tips or group-term life insurance. 1040ez on line 3f         g Tax on golden parachute payments. 1040ez on line 3g       4 Add lines 3a through 3g. 1040ez on line 4       5 Tax to be forgiven. 1040ez on line Subtract line 4 from line 2. 1040ez on line 5       Note. 1040ez on line If the total of columns (A), (B), and (C) of line 5 (including any amounts shown on line 15 of Worksheet B) is less than $10,000, also complete Worksheet C. 1040ez on line Attach the computation of the tax to be forgiven or a copy of this worksheet to the decedent's final income tax return or amended tax return (Form 1040X) for each year listed on line 1. 1040ez on line If filing Form 1040X for an eligible year, enter the amount from line 5 above on Form 1040X in column B of line 10 as a decrease in tax. 1040ez on line The IRS will determine the amount to be refunded. 1040ez on line Useful Items - You may want to see: Publication 547 Casualties, Disasters, and Thefts 559 Survivors, Executors, and Administrators Form (and Instructions) 706 United States Estate (and Generation- Skipping Transfer) Tax Return 1040 U. 1040ez on line S. 1040ez on line Individual Income Tax Return 1040NR U. 1040ez on line S. 1040ez on line Nonresident Alien Income Tax Return 1040X Amended U. 1040ez on line S. 1040ez on line Individual Income Tax Return 1041 U. 1040ez on line S. 1040ez on line Income Tax Return for Estates and Trusts 1310 Statement of Person Claiming Refund Due a Deceased Taxpayer 4506 Request for Copy or Transcript of Tax Form Prev  Up  Next   Home   More Online Publications