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Amend Federal Taxes

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Amend Federal Taxes

Amend federal taxes 9. Amend federal taxes   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. Amend federal taxes Depletion unit. Amend federal taxes Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. Amend federal taxes The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Amend federal taxes There are two ways of figuring depletion: cost depletion and percentage depletion. Amend federal taxes For mineral property, you generally must use the method that gives you the larger deduction. Amend federal taxes For standing timber, you must use cost depletion. Amend federal taxes 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. Amend federal taxes More than one person can have an economic interest in the same mineral deposit or timber. Amend federal taxes In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Amend federal taxes You have an economic interest if both the following apply. Amend federal taxes You have acquired by investment any interest in mineral deposits or standing timber. Amend federal taxes 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. Amend federal taxes 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. Amend federal taxes A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. Amend federal taxes Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. Amend federal taxes Basis adjustment for depletion. Amend federal taxes   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. Amend federal taxes Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). Amend federal taxes For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. Amend federal taxes You can treat two or more separate interests as one property or as separate properties. Amend federal taxes See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. Amend federal taxes There are two ways of figuring depletion on mineral property. Amend federal taxes Cost depletion. Amend federal taxes Percentage depletion. Amend federal taxes Generally, you must use the method that gives you the larger deduction. Amend federal taxes However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. Amend federal taxes See Oil and Gas Wells , later. Amend federal taxes Cost Depletion To figure cost depletion you must first determine the following. Amend federal taxes The property's basis for depletion. Amend federal taxes The total recoverable units of mineral in the property's natural deposit. Amend federal taxes The number of units of mineral sold during the tax year. Amend federal taxes Basis for depletion. Amend federal taxes   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. Amend federal taxes Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. Amend federal taxes The residual value of land and improvements at the end of operations. Amend federal taxes The cost or value of land acquired for purposes other than mineral production. Amend federal taxes Adjusted basis. Amend federal taxes   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. Amend federal taxes Your adjusted basis can never be less than zero. Amend federal taxes See Publication 551, Basis of Assets, for more information on adjusted basis. Amend federal taxes Total recoverable units. Amend federal taxes   The total recoverable units is the sum of the following. Amend federal taxes The number of units of mineral remaining at the end of the year (including units recovered but not sold). Amend federal taxes The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). Amend federal taxes   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. Amend federal taxes You must include ores and minerals that are developed, in sight, blocked out, or assured. Amend federal taxes You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. Amend federal taxes But see Elective safe harbor for owners of oil and gas property , later. Amend federal taxes Number of units sold. Amend federal taxes   You determine the number of units sold during the tax year based on your method of accounting. Amend federal taxes Use the following table to make this determination. Amend federal taxes    IF you  use . Amend federal taxes . Amend federal taxes . Amend federal taxes THEN the units sold during the year are . Amend federal taxes . Amend federal taxes . Amend federal taxes The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). Amend federal taxes An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. Amend federal taxes   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. Amend federal taxes Figuring the cost depletion deduction. Amend federal taxes   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. Amend federal taxes Step Action Result 1 Divide your property's basis for depletion by total recoverable units. Amend federal taxes Rate per unit. Amend federal taxes 2 Multiply the rate per unit by units sold during the tax year. Amend federal taxes Cost depletion deduction. Amend federal taxes You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. Amend federal taxes Elective safe harbor for owners of oil and gas property. Amend federal taxes   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. Amend federal taxes If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). Amend federal taxes For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. Amend federal taxes irs. Amend federal taxes gov/pub/irs-irbs/irb04-10. Amend federal taxes pdf. Amend federal taxes   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. Amend federal taxes The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. Amend federal taxes The election, if made, is effective for the tax year in which it is made and all later years. Amend federal taxes It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. Amend federal taxes Once revoked, it cannot be re-elected for the next 5 years. Amend federal taxes 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. Amend federal taxes 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 . Amend federal taxes Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . Amend federal taxes Gross income. Amend federal taxes   When figuring percentage depletion, subtract from your gross income from the property the following amounts. Amend federal taxes Any rents or royalties you paid or incurred for the property. Amend federal taxes 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. Amend federal taxes A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. Amend federal taxes   Use the following fraction to figure the part of the bonus you must subtract. Amend federal taxes No. Amend federal taxes 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. Amend federal taxes For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. Amend federal taxes Taxable income limit. Amend federal taxes   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. Amend federal taxes   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. Amend federal taxes These deductible items include, but are not limited to, the following. Amend federal taxes Operating expenses. Amend federal taxes Certain selling expenses. Amend federal taxes Administrative and financial overhead. Amend federal taxes Depreciation. Amend federal taxes Intangible drilling and development costs. Amend federal taxes Exploration and development expenditures. Amend federal taxes Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. Amend federal taxes Losses sustained. Amend federal taxes   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. Amend federal taxes Do not deduct any net operating loss deduction from the gross income from the property. Amend federal taxes Corporations do not deduct charitable contributions from the gross income from the property. Amend federal taxes 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. Amend federal taxes See section 1. Amend federal taxes 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. Amend federal taxes Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. Amend federal taxes You are either an independent producer or a royalty owner. Amend federal taxes The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. Amend federal taxes If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. Amend federal taxes 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. Amend federal taxes 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. Amend federal taxes However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. Amend federal taxes For information on figuring the deduction, see Figuring percentage depletion , later. Amend federal taxes Refiners who cannot claim percentage depletion. Amend federal taxes   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. Amend federal taxes 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. Amend federal taxes Related person. Amend federal taxes   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. Amend federal taxes For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. Amend federal taxes A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. Amend federal taxes 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. Amend federal taxes The value of the outstanding stock of a corporation. Amend federal taxes The interest in the profits or capital of a partnership. Amend federal taxes The beneficial interests in an estate or trust. Amend federal taxes 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. Amend federal taxes Retailers who cannot claim percentage depletion. Amend federal taxes   You cannot claim percentage depletion if both the following apply. Amend federal taxes You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. Amend federal taxes Through a retail outlet operated by you or a related person. Amend federal taxes 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. Amend federal taxes 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. Amend federal taxes 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. Amend federal taxes   For the purpose of determining if this rule applies, do not count the following. Amend federal taxes Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. Amend federal taxes Bulk sales of aviation fuels to the Department of Defense. Amend federal taxes 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. Amend federal taxes Related person. Amend federal taxes   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. Amend federal taxes Sales through a related person. Amend federal taxes   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. Amend federal taxes   You are not considered to be selling through a related person who is a retailer if all the following apply. Amend federal taxes You do not have a significant ownership interest in the retailer. Amend federal taxes You sell your production to persons who are not related to either you or the retailer. Amend federal taxes The retailer does not buy oil or natural gas from your customers or persons related to your customers. Amend federal taxes 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. Amend federal taxes 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. Amend federal taxes Transferees who cannot claim percentage depletion. Amend federal taxes   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. Amend federal taxes For a definition of the term “transfer,” see section 1. Amend federal taxes 613A-7(n) of the regulations. Amend federal taxes For a definition of the term “interest in proven oil or gas property,” see section 1. Amend federal taxes 613A-7(p) of the regulations. Amend federal taxes Figuring percentage depletion. Amend federal taxes   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. Amend federal taxes 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%. Amend federal taxes 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. Amend federal taxes   In addition, there is a limit on the percentage depletion deduction. Amend federal taxes See Taxable income limit , later. Amend federal taxes Average daily production. Amend federal taxes   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. Amend federal taxes Partial interest. Amend federal taxes   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. Amend federal taxes   You have a partial interest in the production from a property if you have a net profits interest in the property. Amend federal taxes 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. Amend federal taxes To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. Amend federal taxes Then multiply the total production from the property by your percentage participation to figure your share of the production. Amend federal taxes Example. Amend federal taxes Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. Amend federal taxes During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Amend federal taxes Javier had expenses of $90,000 attributable to the property. Amend federal taxes The property generated a net profit of $110,000 ($200,000 − $90,000). Amend federal taxes Pablo received income of $22,000 ($110,000 × . Amend federal taxes 20) for his net profits interest. Amend federal taxes 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). Amend federal taxes Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). Amend federal taxes Depletable oil or natural gas quantity. Amend federal taxes   Generally, your depletable oil quantity is 1,000 barrels. Amend federal taxes 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. Amend federal taxes 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. Amend federal taxes Example. Amend federal taxes You have both oil and natural gas production. Amend federal taxes To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. Amend federal taxes Your depletable natural gas quantity is 2. Amend federal taxes 16 million cubic feet of gas (360 × 6000). Amend federal taxes You must reduce your depletable oil quantity to 640 barrels (1000 − 360). Amend federal taxes 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. Amend federal taxes Also, see Notice 2012-50, available at www. Amend federal taxes irs. Amend federal taxes gov/irb/2012–31_IRB/index. Amend federal taxes html. Amend federal taxes Business entities and family members. Amend federal taxes   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. Amend federal taxes 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). Amend federal taxes You and your spouse and minor children. Amend federal taxes 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. Amend federal taxes Controlled group of corporations. Amend federal taxes   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. Amend federal taxes They share the depletable quantity. Amend federal taxes 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%. Amend federal taxes ” Gross income from the property. Amend federal taxes   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. Amend federal taxes 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. Amend federal taxes   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. Amend federal taxes   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. Amend federal taxes Average daily production exceeds depletable quantities. Amend federal taxes   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. Amend federal taxes Figure your average daily production of oil or natural gas for the year. Amend federal taxes Figure your depletable oil or natural gas quantity for the year. Amend federal taxes Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. Amend federal taxes 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). Amend federal taxes This is your depletion allowance for that property for the year. Amend federal taxes Taxable income limit. Amend federal taxes   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. Amend federal taxes 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. Amend federal taxes For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. Amend federal taxes 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. Amend federal taxes You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. Amend federal taxes Add it to your depletion allowance (before applying any limits) for the following year. Amend federal taxes Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. Amend federal taxes (However, see Electing large partnerships must figure depletion allowance , later. Amend federal taxes ) Each partner or shareholder must decide whether to use cost or percentage depletion. Amend federal taxes 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. Amend federal taxes Partner's or shareholder's adjusted basis. Amend federal taxes   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. Amend federal taxes The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. Amend federal taxes   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. Amend federal taxes However, in some cases, it is figured according to the partner's interest in partnership income. Amend federal taxes   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. Amend federal taxes Recordkeeping. Amend federal taxes 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. Amend federal taxes The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. Amend federal taxes 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. Amend federal taxes Reporting the deduction. Amend federal taxes   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). Amend federal taxes Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). Amend federal taxes The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. Amend federal taxes The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. Amend federal taxes Form 6198, At-Risk Limitations. Amend federal taxes Form 8582, Passive Activity Loss Limitations. Amend federal taxes Electing large partnerships must figure depletion allowance. Amend federal taxes   An electing large partnership, rather than each partner, generally must figure the depletion allowance. Amend federal taxes 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. Amend federal taxes Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. Amend federal taxes   An electing large partnership is one that meets both the following requirements. Amend federal taxes The partnership had 100 or more partners in the preceding year. Amend federal taxes The partnership chooses to be an electing large partnership. Amend federal taxes Disqualified persons. Amend federal taxes   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. Amend federal taxes Disqualified persons must figure it themselves, as explained earlier. Amend federal taxes   All the following are disqualified persons. Amend federal taxes Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Amend federal taxes Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Amend federal taxes 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. Amend federal taxes Average daily production is discussed earlier. Amend federal taxes 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. Amend federal taxes Natural gas sold under a fixed contract. Amend federal taxes   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. Amend federal taxes 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. Amend federal taxes The contract must have been in effect from February 1, 1975, until the date of sale of the gas. Amend federal taxes 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. Amend federal taxes Natural gas from geopressured brine. Amend federal taxes   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. Amend federal taxes This is natural gas that is both the following. Amend federal taxes Produced from a well you began to drill after September 1978 and before 1984. Amend federal taxes Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. Amend federal taxes Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. Amend federal taxes Mines and other natural deposits. Amend federal taxes   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. Amend federal taxes   The following is a list of the percentage depletion rates for the more common minerals. Amend federal taxes 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. Amend federal taxes Corporate deduction for iron ore and coal. Amend federal taxes   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). Amend federal taxes Gross income from the property. Amend federal taxes   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. Amend federal taxes Mining includes all the following. Amend federal taxes Extracting ores or minerals from the ground. Amend federal taxes Applying certain treatment processes described later. Amend federal taxes 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. Amend federal taxes Excise tax. Amend federal taxes   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. Amend federal taxes Extraction. Amend federal taxes   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. Amend federal taxes 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. Amend federal taxes Treatment processes. Amend federal taxes   The processes included as mining depend on the ore or mineral mined. Amend federal taxes To qualify as mining, the treatment processes must be applied by the mine owner or operator. Amend federal taxes For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. Amend federal taxes Transportation of more than 50 miles. Amend federal taxes   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. Amend federal taxes    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. Amend federal taxes 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. Amend federal taxes For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. Amend federal taxes irs. Amend federal taxes gov/irb/2013-01_IRB/ar11. Amend federal taxes html. Amend federal taxes Disposal of coal or iron ore. Amend federal taxes   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. Amend federal taxes You disposed of it after holding it for more than 1 year. Amend federal taxes You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. Amend federal taxes Treat any gain on the disposition as a capital gain. Amend federal taxes Disposal to related person. Amend federal taxes   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. Amend federal taxes A related person (as listed in chapter 2 of Publication 544). Amend federal taxes A person owned or controlled by the same interests that own or control you. Amend federal taxes Geothermal deposits. Amend federal taxes   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. Amend federal taxes A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. Amend federal taxes For percentage depletion purposes, a geothermal deposit is not considered a gas well. Amend federal taxes   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. Amend federal taxes See Gross income from the property , earlier, under Oil and Gas Wells. Amend federal taxes Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. Amend federal taxes Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Amend federal taxes A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. Amend federal taxes Bonuses and advanced royalties. Amend federal taxes   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. Amend federal taxes 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. Amend federal taxes Figuring cost depletion. Amend federal taxes   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. Amend federal taxes 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. Amend federal taxes Figuring percentage depletion. Amend federal taxes   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 . Amend federal taxes 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. Amend federal taxes 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. Amend federal taxes Ending the lease. Amend federal taxes   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. Amend federal taxes Do this for the year the lease ends or is abandoned. Amend federal taxes Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. Amend federal taxes   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. Amend federal taxes Include this amount in income for the year the lease ends. Amend federal taxes Increase your adjusted basis in the property by the amount you include in income. Amend federal taxes Delay rentals. Amend federal taxes   These are payments for deferring development of the property. Amend federal taxes Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. Amend federal taxes These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. Amend federal taxes Timber You can figure timber depletion only by the cost method. Amend federal taxes Percentage depletion does not apply to timber. Amend federal taxes Base your depletion on your cost or other basis in the timber. Amend federal taxes Your cost does not include the cost of land or any amounts recoverable through depreciation. Amend federal taxes Depletion takes place when you cut standing timber. Amend federal taxes You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. Amend federal taxes Figuring cost depletion. Amend federal taxes   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. Amend federal taxes Timber units. Amend federal taxes   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. Amend federal taxes You measure the timber using board feet, log scale, cords, or other units. Amend federal taxes If you later determine that you have more or less units of timber, you must adjust the original estimate. Amend federal taxes   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. Amend federal taxes Depletion unit. Amend federal taxes   You figure your depletion unit each year by taking the following steps. Amend federal taxes Determine your cost or adjusted basis of the timber on hand at the beginning of the year. Amend federal taxes Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. Amend federal taxes Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. Amend federal taxes 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. Amend federal taxes Divide the result of (2) by the result of (3). Amend federal taxes This is your depletion unit. Amend federal taxes Example. Amend federal taxes You bought a timber tract for $160,000 and the land was worth as much as the timber. Amend federal taxes Your basis for the timber is $80,000. Amend federal taxes 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). Amend federal taxes If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). Amend federal taxes When to claim depletion. Amend federal taxes   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). Amend federal taxes 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. Amend federal taxes The inventory is your basis for determining gain or loss in the tax year you sell the timber products. Amend federal taxes Example. Amend federal taxes The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. Amend federal taxes You would deduct $20,000 of the $40,000 depletion that year. Amend federal taxes You would add the remaining $20,000 depletion to your closing inventory of timber products. Amend federal taxes Electing to treat the cutting of timber as a sale or exchange. Amend federal taxes   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. Amend federal taxes You must make the election on your income tax return for the tax year to which it applies. Amend federal taxes 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. Amend federal taxes You generally report the gain as long-term capital gain. Amend federal taxes 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. Amend federal taxes For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Amend federal taxes   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. Amend federal taxes The prior election (and revocation) is disregarded for purposes of making a subsequent election. Amend federal taxes See Form T (Timber), Forest Activities Schedule, for more information. Amend federal taxes Form T. Amend federal taxes   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. Amend federal taxes Prev  Up  Next   Home   More Online Publications
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2013 IRSAC Report Made Available at Public Meeting

The Internal Revenue Service Advisory Council (IRSAC) is holding its annual public meeting today in Washington, D.C., and will release its annual report that includes recommendations on a wide range of tax administration issues.

“Members of IRSAC devote significant amounts of their own time to provide us with valuable feedback regarding current issues of tax administration,” said Acting IRS Commissioner Danny Werfel. “We appreciate their important contribution.”

IRSAC is an advisory group to the entire agency. IRSAC’s primary purpose is to provide an organized public forum for senior IRS executives and representatives of the public to discuss relevant tax issues.

IRSAC draws its members from the tax professional community and members of academia. Based on its findings and discussions, IRSAC made several recommendations on a broad array of issues and concerns including:

  • The IRS needs sufficient funding to operate efficiently, provide timely and useful guidance to taxpayers and enforce current Law, so that respect for our voluntary tax system is maintained
  • The IRS should continue to expand voluntary correction programs to facilitate taxpayers self-reporting prior year non-compliance
  • Reducing Processing time for Form 2848, Power of Attorney and Declaration of Representative
  • Review the Transcript Request Policy for the Practitioner Priority Service (PPS) Toll-Free Line
  • Risk Assessing Large Taxpayers
  • Schedule M-3, Net Operating (Loss) Reconciliation for Corporations with Total assets with $10 million or more
  • Strategies to Increase use of On-line Payment Agreements
  • Modifications to Notice CP2030
  • Guidance to Practitioners regarding Professional Obligations
  • Treasury Circular 230 Enrollment of Former Internal Revenue Service Employees

IRSAC is administered by the National Public Liaison Office of the IRS. Today’s meeting is being held at the Melrose Hotel, 2430 Pennsylvania Ave, NW, Washington, DC.

View the 2013 Internal Revenue Service Advisory Council Public Report online.

 

Page Last Reviewed or Updated: 20-Nov-2013

The Amend Federal Taxes

Amend federal taxes Publication 510 - Additional Material Prev  Up  Next   Home   More Online Publications