Sunoco, Inc. and Subsidiaries - Page 15

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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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