560
Opinion of the Court
equipment as "more mineral deposit." If a mineral deposit and associated equipment are sold together, § 1016 requires the seller to separate them for the purpose of determining his gain or loss on the sale, just as §§ 167 and 611 required him to keep them separate for the purpose of calculating his depreciation and depletion deductions. Since, as the Hills point out, a regulation incorporates the § 1016 rule into § 57(a)(8), and since the Hills have identified no exception to this rule, we infer that the Hills' tangible costs may not be included in the basis of depletable mineral deposits for purposes of calculating the amount of percentage depletion subject to the minimum tax.
IV
Our conclusion is confirmed by the astonishing, circuitously achieved results of reading § 57(a)(8) as the taxpayers urge. A regulation that the Hills do not challenge provides that "[i]n no event shall percentage depletion in excess of cost or other basis of the property be credited to the improvements account or the depreciation reserve account." Treas. Reg. § 1.611-2(b)(2). The tangible costs at issue here are recorded in these accounts. Thus, under this regulation, a tangible cost is not itself adjusted for the amount of percentage depletion that on the Hills' theory it would shelter from the minimum tax each year. As a result, the tangible cost would shelter, over the years the taxpayer owned the capital item it represented, an amount of percentage depletion many times that of the cost itself. For example, a $21,000 capital item, subject to straight-line depreciation over 20 years with a salvage value of $1,000, would add $20,000 to the basis of the mineral deposit the first year,11
11 Under § 57(a)(8), percentage depletion is offset by "the adjusted basis of the [mineral deposit interest] at the end of the taxable year." (Emphasis added.) Assuming that the capital item was placed in service at the
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