Cite as: 506 U. S. 546 (1993)
Syllabus
for making "[a]djustments to basis" in determining the amount of gain or loss a taxpayer must recognize when he sells or otherwise disposes of property. To follow § 1016(a)(2)'s directive that the taxpayer subtract from his original basis in the property "not less than the amount allowable" for exhaustion, wear and tear, obsolescence, amortization, and depletion, a taxpayer must determine whether parts of the item sold are subject to different tax treatments, and must treat those parts as different properties under the section. Depletion and depreciation are two of the major categories of tax treatment, and a review of pertinent Code and regulation provisions reveals that the boundaries between the two are virtually impassable. Thus, if a depletable mineral deposit and depreciable associated equipment are sold together, § 1016 requires the seller to separate them. In light of the incorporation of this rule into § 57(a)(8), and the Hills' failure to identify any exception to the rule, it may be inferred that their tangible costs may not be included in the basis of their depletable mineral deposits. Pp. 553-560. (b) This conclusion is confirmed by the astonishing results of reading § 57(a)(8) in the manner urged by the Hills, whereby the tangible costs at issue here would shelter, over the years a taxpayer owned the capital item they represented, an amount of percentage depletion many times that of the costs themselves. It is hard to believe that Congress would enact a minimum tax to limit the benefit that taxpayers could realize from "items of tax preference," only to define one of those items in a way that would create an even greater proportional tax benefit from investing in tangible items, and to do so in an oblique fashion that, as far as appears, has no precedent in federal income tax history. Pp. 560-561. (c) Contrary to the Hills' contention, two other Treasury Department regulations do not foreclose the foregoing conclusion. First, Treas. Reg. § 1.612-1(b)(1)'s reference, in its title, to a "[s]pecial rul[e]" excluding amounts recoverable through depreciation deductions from the basis for "cost" depletion of mineral property cannot have been intended to indicate that such amounts should, as a general rule, be included in the calculation of basis for percentage depletion, since that would allow the title of one subsection of a regulation to defeat the entire Code framework for determining basis, and since § 1.612-1(b)(1) was issued long before the minimum tax was enacted. Second, excluding tangible costs from the adjusted basis of mineral deposit interests would not run counter to Treas. Reg. § 1.612-4(b)(1), which specifies that certain intangible drilling and development costs are recoverable through depletion, as adjustments to the bases of the mineral deposit interests to which they relate. There is no reason why this regulation's deviation from general
547
Page: Index Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 NextLast modified: October 4, 2007