552
Opinion of the Court
the Code requires a taxpayer to calculate as a "tax preference" "[w]ith respect to each [interest in a mineral deposit],4 the excess of the deduction for depletion allowable under section 611 for the taxable year over the adjusted basis of the [mineral deposit interest] at the end of the taxable year (determined without regard to the depletion deduction for the taxable year)." In turn, § 56 of the Code requires a taxpayer to pay an extra minimum tax of 15% on the amount by which the sum of the enumerated tax-preference items in § 57(a) exceeds the specific deductions permitted by § 56. Because the amount subject to the extra tax is reduced dollar for dollar by every outlay that can be added to the adjusted basis of the mineral deposit interest, a taxpayer would like as long a list of eligible outlays as possible.
In this case the dispute is about the inclusion in the adjusted basis of certain tangible drilling and development costs, as defined by the Treasury Regulations implementing §§ 263(c) and 612 of the Code. Section 263(c) grants taxpayers an option to deduct against current income certain "intangible drilling and development costs." The regulations limit the costs recoverable under that option by distinguishing "intangible costs" from costs for "capital items," which the parties refer to as "tangible costs":
"The option with respect to intangible drilling and development costs does not apply to expenditures by which the taxpayer acquires tangible property ordi-4 Section 57(a)(8) applies to "each property (as defined in section 614)." Section 614(a) defines "property," "[f]or the purpose of computing the depletion allowance in the case of mines, wells, and other natural deposits," as "each separate interest owned by the taxpayer in each mineral deposit in each separate tract or parcel of land." (The remainder of § 614 provides detailed rules about when a taxpayer may, and sometimes must, combine separate interests and treat them as one "property.") Section 1.614-1(a) of the Treasury Department regulations makes the definition in § 614 applicable "[f]or purposes of subtitle A of the [Internal Revenue] Code."
Page: Index Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 NextLast modified: October 4, 2007