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depends upon the circumstances of each case. The term
“development”, as used in section 616(a), is not defined
by the Code or the regulations. Nevertheless, in
distinguishing development expenditures, which are
deductible under section 616, from production costs,
which offset gross sales, it is generally understood that
development expenditures are expenditures benefiting an
entire mineral deposit or a large area of a mineral
deposit, such that they provide benefits that extend over
relatively long periods of extraction of the valuable ore
or mineral. See Rev. Rul. 86-83, 1986-1 C.B. 251; Rev.
Rul. 77-308, 1977-2 C.B. 208; Rev. Rul. 67-169, 1967-1
C.B. 159. For Federal income tax purposes, development
expenditures would be treated as capital expenditures but
for the provisions of section 616. See Rev. Rul. 67-169,
supra. Production costs, on the other hand, are costs that
are directly related to the mining of a particular
increment of the mineral or ore deposit and to no other.
See id.
Typically, the costs incurred in removing overburden
in connection with an open pit mine, as opposed to a strip
mine, are treated as development expenditures because
removal of the overburden in that case not only facilitates
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