546
OCTOBER TERM, 1992
Syllabus
certiorari to the united states court of appeals for the federal circuit
No. 91-1421. Argued November 2, 1992—Decided January 25, 1993
Under § 57(a)(8) of the Internal Revenue Code of 1954, 26 U. S. C. § 57(a)(8)
(1976 ed.), "the excess of the deduction for depletion . . . over the adjusted basis of" "property (as defined in [§ ]614)" is an "ite[m] of tax preference" on which a taxpayer must pay a "minimum tax" for the tax year in question. See § 56(a). In computing the minimum taxes due on their interests in oil and gas deposits for tax years 1981 and 1982, respondents Hill calculated their depletion allowances according to the "percentage depletion" method, and included in the interests' adjusted bases the unrecovered costs of certain depreciable tangible items used in drilling and development (machinery, tools, pipes, etc.), as identified in § 1.612-4(c)(1) of the applicable Treasury Department regulations. The Commissioner of Internal Revenue disputed that inclusion, and assessed larger minimum taxes based on the exclusion of the tangible costs from the mineral interests' adjusted bases. The Hills paid the resulting deficiencies and filed a refund claim, which the Commissioner denied. The Claims Court granted summary judgment for the Hills in their ensuing refund suit, and the Court of Appeals affirmed.
Held: The term "adjusted basis," as used in § 57(a)(8), does not include the depreciable drilling and development costs identified in Treas. Reg. § 1.612-4(c)(1). Pp. 553-564. (a) The definitional scheme established by the Code and accompanying regulations suggests strongly that the "property" with which § 57(a)(8) is concerned excludes just those improvements that the Hills wish to include in adjusted basis. Section 614(a) defines "property" for § 57(a)(8)'s purposes as "each separate interest owned by the taxpayer in each mineral deposit." Treasury Reg. § 1.611-1(d)(4) defines "mineral deposit" as "minerals in place," while Treas. Reg. § 1.611-1(d)(3) defines "mineral enterprise" to include "the mineral deposit or deposits and improvements, if any, used in . . . the production of oil and gas." (Emphasis added.) Because these regulatory definitions were well established when Congress passed § 57(a)(8), it is reasonable to assume that Congress relied on the accepted distinction between them in its reference to "mineral deposit" in § 614. This conclusion is confirmed by Treas. Reg. § 1.57-1(h)(3)'s incorporation into § 57(a)(8) of § 1016 of the Code, 26 U. S. C. § 1016 (1976 ed. and Supp. V), which provides the rules
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