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On this point, we agree with respondent. As discussed
above, petitioner treated the overburden removal costs
incurred by Cordero at the Gillette mine as a development
expenditure on its returns for the years in issue. This
meant, depending on the year involved, that 80 to 85
percent of the aggregate overburden removal costs incurred
during the taxable year was deducted against taxable income
under section 616(a). See sec. 291(b)(1). The remainder
was capitalized and was amortized over 5 years, beginning
with the year in which the costs were paid or incurred.
See sec. 291(b)(1) and (2). Petitioner now proposes to
treat the overburden removal costs incurred during 1983,
1984, and 1986 as production costs that can fully offset
gross receipts as part of petitioner’s costs of goods sold.
The difference between treating overburden removal
costs as a development expenditure and treating them as a
production cost is summarized in the following schedule:
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