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or incurred in 1992, and overburden removal costs of
$7,901,682 that were paid or incurred in 1993.
On June 4, 1993, petitioner sold Cordero to Kennecott.
A joint election was made under section 338(h)(10) to treat
the stock sale as a sale of assets. Cordero claimed
unamortized mine development costs of $41,254,283 as part
of the basis in the assets sold to Kennecott, including
$41,185,210 of unamortized overburden removal costs.
Discussion
Factual and Legal Background
Generally, for Federal income tax purposes, there are
at least two ways for a mining business to treat the costs
of removing overburden during the producing stage of a mine
or other natural deposit located in the United States.
One way is to treat them as costs of producing the ore or
mineral and to include them in the taxpayer’s cost of goods
sold. See sec. 1.61-3(a), Income Tax Regs. Under this
approach, the overburden removal costs, in effect, are
taken into account in computing gross income, as offsets
of sales. See id. Another way is to treat them as
development expenditures that are currently deductible
under section 616(a), or at the election of the taxpayer,
ratably deductible as deferred expenses under section
616(b). Under this second way, the overburden removal
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