Sunoco, Inc. and Subsidiaries - Page 13

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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.                     

             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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