Title 26 Part 1 → §1.615-4
Title 26 → Chapter I → Subchapter A → Part 1 → §1.615-4
Electronic Code of Federal Regulations e-CFR
Title 26 Part 1 → §1.615-4
§1.615-4 Limitation of amount deductible.
(a) Taxable years beginning before July 7, 1960. For any taxable year beginning before July 7, 1960 (including taxable years of less than 12 months), a taxpayer may deduct or defer exploration expenditures paid or incurred in the taxable year in an amount not in excess of $100,000. However, for such taxable years, the taxpayer may not avail himself of the provisions of section 615 for more than four taxable years (including taxable years of less than 12 months and taxable years subject to the Internal Revenue Code of 1939). Such four taxable years need not be consecutive. In determining the number of years in which a taxpayer has availed himself of section 615, a year for which he makes an election to defer exploration expenditures shall count as one year. Any subsequent taxable year in which such deferred expenditures are deducted shall not be taken into account as one of the four years. For purposes of the 4-year limitation, a year in which both a deduction and an election to defer are availed of by the taxpayer shall be taken into account as only one year.
(b) Taxable years beginning after July 6, 1960. For any taxable year beginning after July 6, 1960 (including taxable years of less than 12 months), a taxpayer who is otherwise eligible may deduct or defer exploration expenditures paid or incurred before January 1, 1970, in the lesser of the following amounts:
(1) The amount paid or incurred in the taxable year,
(2) $100,000, or
(3) $400,000 minus all amounts deducted or deferred for taxable years ending after December 31, 1950
For purposes of this paragraph, the number of taxable years for which the taxpayer availed himself of the provisions of section 615 or the corresponding provisions of prior law is immaterial.
(c) Special rules for previously deferred expenditures. In determining whether an election to defer was availed of in applying the limitations of paragraphs (a) and (b) of this section, there shall be taken into account any year with respect to which amounts were deferred but not fully deducted because of a sale or other disposition of the mineral property, even though the balance of the deferred amounts was treated as part of the basis of the mineral property in determining gain or loss from the sale.
(d) Example of application of provisions. The application of the provisions of subparagraphs (a) and (b) of this section may be illustrated by the following example:
(1) Add all yearly amounts deducted or deferred for exploration expenditures by the taxpayer for prior years.
|Year||Expenditures||Deducted or deferred|
|Maximum amount allowable to taxpayer||$400,000|
|Sum of amounts obtained in (1)||340,000|
(e) Transferee of mineral property. (1) Where an individual or corporation transfers any property to the taxpayer and the transfer is one to which any of the subdivisions of this subparagraph apply, the taxpayer shall take into account for purposes of the 4-year limitation described in paragraph (a) of this section, all years that the transferor deducted or deferred exploration expenditures, and for purposes of the $400,000 limitation described in paragraph (b) of this section, all amounts that the transferor deducted or deferred.
(i) The taxpayer acquired any mineral property in a transaction described in section 23(ff)(3) of the Internal Revenue Code of 1939, excluding the reference therein to section 113(a)(13).
(ii) The taxpayer would be entitled under section 381(c)(10) to deduct exploration expenditures if the transferor (or distributor) corporation had elected to defer such expenditures. For example, if the taxpayer acquired any mineral property in a transaction described in section 381(a) (relating to the acquisition of assets through certain corporate liquidations and reorganizations), there shall be taken into account in applying the limitations of paragraph (a) of this section the years in which the transferor exercised the election to defer or deduct exploration expenditures, and there shall be taken into account in applying the limitations of paragraph (b) of this section any amount so deducted or deferred. See also section 381(c)(10) and the regulations thereunder.
(iii) The taxpayer acquired any mineral property under circumstances which make applicable the following sections of the Internal Revenue Code:
(a) Section 334(b)(1), relating to the liquidation of a subsidiary where the basis of the property in the hands of the distributee is the same as it would be in the hands of the transferor.
(b) Section 362 (a) and (b), relating to property acquired by a corporation as paid-in surplus or as a contribution to capital, or in connection with a transaction to which section 351 applies.
(c) Section 372(a), relating to reorganization in certain receiverships and bankruptcy proceedings.
(d) Section 373(b)(1), relating to property of a railroad corporation acquired in certain bankruptcy or recivership proceedings.
(e) Section 1051, relating to property acquired by a corporation that is a member of an affiliated group.
(f) Section 1082, relating to property acquired pursuant to a Securities Exchange Commission order.
(2) For purposes of subparagraph (1) of this paragraph, it is immaterial whether a deduction has been allowed or an election has been made by the transferor with respect to the specific mineral property transferred.
(3) Where a mineral property is acquired under any circumstance except those described in subparagraph (1) of this paragraph, the taxpayer is not required to take into account the election exercised by or deduction allowed to his transferor.
(4) For purposes of applying the limitations imposed by section 615(c): (i) the partner, and not the partnership, shall be considered as the taxpayer (see paragraph (a)(8)(iii) of §1.702-1), and (ii) an electing small business corporation, as defined in section 1371(b), and not its shareholders, shall be considered as the taxpayer.
(5) For purposes of subparagraph (1)(iii)(b) of this paragraph: (i) if mineral property is acquired from a partnership, the transfer shall be considered as having been made by the individual partners, so that the number of years for which section 615 has been availed of by each partner and the amounts which each partner has deducted or deferred under section 615 shall be taken into account, or (ii) if on interest in a partnership having mineral property is transferred, the transfer shall be considered as a transfer of mineral property by the partner or partners relinquishing an interest, so that the number of years for which section 615 has been availed of by each such partner and the amounts which each such partner has deducted or deferred under section 615 shall be taken into account.
(f) Examples. The application of the provisions of this section may be illustrated by the following examples:
[T.D. 6685, 28 FR 11405, Oct. 24, 1963, as amended by T.D. 7192, 37 FR 12939, June 30, 1972]