Cases: Commissioner v. Portland Cement Co. of Utah, 450 U.S. 156 (1981); United States v. California Portland Cement Co., 413 F.2d 161 (9th Cir. 1969); North Carolina Granite Corp. v. Commissioner, 43 T.C. 149 (1964)
(a) General rule In the case of the mines, wells, and other natural deposits listed in subsection (b), the allowance for depletion under section 611 shall be the percentage, specified in subsection (b), of the gross income from the property excluding from such gross income an amount equal to any rents or royalties paid or incurred by the taxpayer in respect of the property. Such allowance shall not exceed 50 percent (100 percent in the case of oil and gas properties) of the taxpayer’s taxable income from the property (computed without allowance for depletion and without any deduction under section 199A). For purposes of the preceding sentence, the allowable deductions taken into account with respect to expenses of mining in computing the taxable income from the property shall be decreased by an amount equal to so much of any gain which (1) is treated under section 1245 (relating to gain from disposition of certain depreciable property) as ordinary income, and (2) is properly allocable to the property. In no case shall the allowance for depletion under section 611 be less than it would be if computed without reference to this section.
Amended 1962, 1976, 1990, 2004, 2017, 2018
- 2018 Pub. L. 115-141 Pub. L. 115–141 substituted “any deduction under section 199A” for “the deduction under section 199A”.
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 13305(b)(4), struck out “and without the deduction under section 199” after “without allowance for depletion”.
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 11011(d)(3), inserted “and without the deduction under section 199A” after “without the deduction under section 199”.
- 2004 Pub. L. 108-357 Pub. L. 108–357, which directed the insertion of “and without the deduction under section 199” after “without allowances for depletion”, was executed by making the insertion after “without allowance for depletion”, to reflect the probable intent of Congress.
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11522(a), inserted “(100 percent in the case of oil and gas properties)” after “50 percent”.
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1901(b)(3)(K), substituted “ordinary income” for “gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231”.
- 1962 Pub. L. 87-834 Pub. L. 87–834 inserted provisions requiring the allowable deductions taken into account with respect to expenses of mining in computing the taxable income from the property to be decreased by an amount equal to so much of any gain which is treated under section 1245 as gain from the sale or exchange of property which is neither a capital asset nor property described in section 1231, and is properly allocable to the property.
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(b) Percentage depletion rates The mines, wells, and other natural deposits, and the percentages, referred to in subsection (a) are as follows:
Amended 1969
- 1969 Pub. L. 91-172 Pub. L. 91–172, § 501(a), reduced the percentage depletion rate on oil and gas wells from 27½ percent to 22 percent, reduced to 22 percent other minerals formerly receiving percentage depletion at a rate of 23 percent, added molybdenum in the category of minerals subject to the 22 percent depletion rate, reduced to 14 percent the rate on minerals formerly receiving depletion at a 15 percent rate except in the case of domestic gold, silver, oil shale, copper, and iron ore, and inserted provision that for percentage depletion purposes, minerals other than sodium chloride, extracted from brine pumped from a saline perennial lake within the United States are not to be considered minerals from an inexhaustible source.
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(1) 22 percent
Amended 1975
- 1975 Pub. L. 94-12 Pub. L. 94–12, § 501(b)(2)(A), struck out subpar. (A) “oil and gas wells” and redesignated former subpars. (B) and (C) as (A) and (B), respectively.
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(A) sulphur and uranium; and
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(B) if from deposits in the United States—anorthosite, clay, laterite, and nephelite syenite (to the extent that alumina and aluminum compounds are extracted therefrom), asbestos, bauxite, celestite, chromite, corundum, fluorspar, graphite, ilmenite, kyanite, mica, olivine, quartz crystals (radio grade), rutile, block steatite talc, and zircon, and ores of the following metals: antimony, beryllium, bismuth, cadmium, cobalt, columbium, lead, lithium, manganese, mercury, molybdenum, nickel, platinum and platinum group metals, tantalum, thorium, tin, titanium, tungsten, vanadium, and zinc.
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(2) 15 percent If from deposits in the United States—
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(A) gold, silver, copper, and iron ore, and
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(B) oil shale (except shale described in paragraph (5)).
Amended 1964, 1966
- 1966 Pub. L. 89-809 Pub. L. 89–809, § 207(a)(1), inserted “clay, laterite, and nephelite syenite” after “anorthosite”.
- 1964 Pub. L. 88-571 Pub. L. 88–571 inserted “beryllium” after “antimony” in par. (2)(B), and deleted “beryl” after “bauxite” in pars. (2)(B) and (6).
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(3) 14 percent
Amended 1960, 1975
- 1975 Pub. L. 94-12 Pub. L. 94–12, § 501(b)(2)(B), substituted “(1)(B)” for “(1)(C)” wherever appearing.
- 1960 Pub. L. 86-564 Pub. L. 86–564, § 302(a)(1), limited the 15 percent allowance for ball clay, bentonite, china clay, and sagger clay to cases where paragraph (5)(B) does not apply, and authorized a 15 percent allowance, if paragraph (5)(B) does not apply, for clay used or sold for use for purposes dependent on its refractory properties.
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(A) metal mines (if paragraph (1)(B) or (2)(A) does not apply), rock asphalt, and vermiculite; and
(B) if paragraph (1)(B), (5), or (6)(B) does not apply, ball clay, bentonite, china clay, sagger clay, and clay used or sold for use for purposes dependent on its refractory properties.
Amended 1966
- 1966 Pub. L. 89-809 Pub. L. 89–809, §§ 207(a)(2), 209(a)(2), substituted “if neither paragraph (2)(B), (5), or (6)(B) applies” for “if paragraph (5)(B) does not apply”.
(4) 10 percent Asbestos (if paragraph (1)(B) does not apply), brucite, coal, lignite, perlite, sodium chloride, and wollastonite.
Amended 1975
- 1975 Pub. L. 94-12 Pub. L. 94–12, § 501(b)(2)(B), substituted “(1)(B)” for “(1)(C)” wherever appearing.
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(5) 7½ percent Clay and shale used or sold for use in the manufacture of sewer pipe or brick, and clay, shale, and slate used or sold for use as sintered or burned lightweight aggregates.
Amended 1960, 1966
- 1966 Pub. L. 89-809 Pub. L. 89–809, § 209(a)(1), added par. (5). Former par. (5) redesignated (6).
- 1960 Pub. L. 86-564 Pub. L. 86–564, § 302(a)(2), substituted provisions authorizing a 5 percent allowance for clay used, or sold for use, in the manufacture of building or paving brick, drainage and roofing tile, sewer pipe, flower pots, and kindred products for provisions which authorized a 5 percent allowance for brick and tile clay.
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(6) 5 percent
Amended 1960, 1964, 1966
- 1966 Pub. L. 89-809 Pub. L. 89–809, §§ 208(a)(1), 209(a)(1), (3), (4), redesignated par. (5) as (6), struck out “mollusk shells (including clam shells and oyster shells),”, substituted “shale (except shale described in paragraph (5)), and stone (except stone described in paragraph (7))” for “shale, and stone, except stone described in paragraph (6)” in subpar. (A), and struck out “building or paving brick,” and “sewer pipe,” in subpar. (B). Former par. (6) redesignated (7).
- 1964 Pub. L. 88-571 Pub. L. 88–571 inserted “beryllium” after “antimony” in par. (2)(B), and deleted “beryl” after “bauxite” in pars. (2)(B) and (6).
- 1960 Pub. L. 86-564 Pub. L. 86–564, § 302(a)(3), struck out provisions which authorized a 15 percent allowance for refractory and fire clay. See subsec. (b)(3) of this section.
(A) gravel, peat, pumice, sand, scoria, shale (except shale described in paragraph (2)(B) or (5)), and stone (except stone described in paragraph (7));
(B) clay used, or sold for use, in the manufacture of drainage and roofing tile, flower pots, and kindred products; and
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(C) if from brine wells—bromine, calcium chloride, and magnesium chloride.
(7) 14 percent All other minerals, including, but not limited to, aplite, barite, borax, calcium carbonates, diatomaceous earth, dolomite, feldspar, fullers earth, garnet, gilsonite, granite, limestone, magnesite, magnesium carbonates, marble, mollusk shells (including clam shells and oyster shells), phosphate rock, potash, quartzite, slate, soapstone, stone (used or sold for use by the mine owner or operator as dimension stone or ornamental stone), thenardite, tripoli, trona, and (if paragraph (1)(B) does not apply) bauxite, flake graphite, fluorspar, lepidolite, mica, spodumene, and talc (including pyrophyllite), except that, unless sold on bid in direct competition with a bona fide bid to sell a mineral listed in paragraph (3), the percentage shall be 5 percent for any such other mineral (other than slate to which paragraph (5) applies) when used, or sold for use, by the mine owner or operator as rip rap, ballast, road material, rubble, concrete aggregates, or for similar purposes. For purposes of this paragraph, the term “all other minerals” does not include—
Amended 1966, 1975
- 1975 Pub. L. 94-12 Pub. L. 94–12, § 501(b)(2) (B), (C), substituted “(1)(B)” for “(1)(C)” in provisions preceding subpar. (A) and added subpar. (C).
- 1966 Pub. L. 89-809 Pub. L. 89–809, §§ 208(a)(2), 209(a)(1), (5), redesignated par. (6) as (7) and inserted “mollusk shells (including clam shells and oyster shells),” after “marble,” and “(other than slate to which paragraph (5) applies)” after “any other such mineral”.
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(A) soil, sod, dirt, turf, water, or mosses;
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(B) minerals from sea water, the air, or similar inexhaustible sources; or
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(C) oil and gas wells.
For the purposes of this subsection, minerals (other than sodium chloride) extracted from brines pumped from a saline perennial lake within the United States shall not be considered minerals from an inexhaustible source.
(c) Definition of gross income from property For purposes of this section—
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(1) Gross income from the property The term “gross income from the property” means, in the case of a property other than an oil or gas well and other than a geothermal deposit, the gross income from mining.
Amended 1978
- 1978 Pub. L. 95-618 Pub. L. 95–618, § 403(a)(2)(A), inserted “and other than a geothermal deposit” after “oil or gas well”.
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(2) Mining The term “mining” includes not merely the extraction of the ores or minerals from the ground but also the treatment processes considered as mining described in paragraph (4) (and the treatment processes necessary or incidental thereto), and so much of the transportation of ores or minerals (whether or not by common carrier) from the point of extraction from the ground to the plants or mills in which such treatment processes are applied thereto as is not in excess of 50 miles unless the Secretary finds that the physical and other requirements are such that the ore or mineral must be transported a greater distance to such plants or mills.
Amended 1960, 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
- 1960 Pub. L. 86-564 Pub. L. 86–564, § 302(b)(1), substituted “the treatment processes considered as mining described in paragraph (4) (and the treatment processes necessary or incidental thereto)” for “the ordinary treatment processes normally applied by mine owners or operators in order to obtain the commercially marketable mineral product or products”, and “such treatment processes” for “the ordinary treatment processes”.
(3) Extraction of the ores or minerals from the ground The term “extraction of the ores or minerals from the ground” includes the extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. The preceding sentence shall not apply to any such extraction of the mineral or ore by a purchaser of such waste or residue or of the rights to extract ores or minerals therefrom.
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(4) Treatment processes considered as mining The following treatment processes where applied by the mine owner or operator shall be considered as mining to the extent they are applied to the ore or mineral in respect of which he is entitled to a deduction for depletion under section 611:
Amended 1960
- 1960 Pub. L. 86-564 Pub. L. 86–564, § 302(b)(2), substituted “The following treatment processes where applied by the mine owner or operator shall be considered as mining to the extent they are applied to the ore or mineral in respect of which he is entitled to a deduction for depletion under section 611” for “The term ‘ordinary treatment processes’ includes the following” in opening provisions, included cleaning in subpar. (B), substituted “ores or minerals which” for “minerals which” and included substantially equivalent processes in subpar. (C), included uranium and minerals which are not customarily sold in the form of the crude mineral product and substituted “from the ore or the mineral or minerals from other material from the mine or other natural deposit” for “from the ore, including the furnacing of quicksilver ores” in subpar. (D), included the furnacing of quicksilver ores in subpar. (E), and added subpars. (F) to (H).
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(A) In the case of coal—cleaning, breaking, sizing, dust allaying, treating to prevent freezing, and loading for shipment;
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(B) in the case of sulfur recovered by the Frasch process—cleaning, pumping to vats, cooling, breaking, and loading for shipment;
(C) in the case of iron ore, bauxite, ball and sagger clay, rock asphalt, and ores or minerals which are customarily sold in the form of a crude mineral product—sorting, concentrating, sintering, and substantially equivalent processes to bring to shipping grade and form, and loading for shipment;
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(D) in the case of lead, zinc, copper, gold, silver, uranium, or fluorspar ores, potash, and ores or minerals which are not customarily sold in the form of the crude mineral product—crushing, grinding, and beneficiation by concentration (gravity, flotation, amalgamation, electrostatic, or magnetic), cyanidation, leaching, crystallization, precipitation (but not including electrolytic deposition, roasting, thermal or electric smelting, or refining), or by substantially equivalent processes or combination of processes used in the separation or extraction of the product or products from the ore or the mineral or minerals from other material from the mine or other natural deposit;
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(E) the pulverization of talc, the burning of magnesite, the sintering and nodulizing of phosphate rock, the decarbonation of trona, and the furnacing of quicksilver ores;
Amended 1974
- 1974 Pub. L. 93-499 Pub. L. 93–499 inserted reference to decarbonation of trona.
(F) in the case of calcium carbonates and other minerals when used in making cement—all processes (other than preheating of the kiln feed) applied prior to the introduction of the kiln feed into the kiln, but not including any subsequent process;
(G) in the case of clay to which paragraph (5) or (6)(B) of subsection (b) applies—crushing, grinding, and separating the mineral from waste, but not including any subsequent process;
Amended 1966
- 1966 Pub. L. 89-809 Pub. L. 89–809, § 209(b), substituted “paragraph (5) or (6)(B)” for “paragraph (5)(B)”.
(H) in the case of oil shale—extraction from the ground, crushing, loading into the retort, and retorting (including in situ retorting), but not hydrogenation, refining, or any other process subsequent to retorting; and
Amended 1969, 2005
- 2005 Pub. L. 109-135 Pub. L. 109–135 inserted “(including in situ retorting)” after “and retorting”.
- 1969 Pub. L. 91-172 Pub. L. 91–172, § 502(a), added subpar. (H) and redesignated former subpar. (H) as (I).
(I) any other treatment process provided for by regulations prescribed by the Secretary which, with respect to the particular ore or mineral, is not inconsistent with the preceding provisions of this paragraph.
Amended 1969, 1976
- 1976 Pub. L. 94-455 Pub. L. 94–455, § 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
- 1969 Pub. L. 91-172 Pub. L. 91–172, § 502(a), added subpar. (H) and redesignated former subpar. (H) as (I).
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(5) Treatment processes not considered as mining Unless such processes are otherwise provided for in paragraph (4) (or are necessary or incidental to processes so provided for), the following treatment processes shall not be considered as “mining”: electrolytic deposition, roasting, calcining, thermal or electric smelting, refining, polishing, fine pulverization, blending with other materials, treatment effecting a chemical change, thermal action, and molding or shaping.
Amended 1960
- 1960 Pub. L. 86-564 Pub. L. 86–564, § 302(b)(2), added par. (5).
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(d) Denial of percentage depletion in case of oil and gas wells Except as provided in section 613A, in the case of any oil or gas well, the allowance for depletion shall be computed without reference to this section.
Amended 1958, 1975
- 1975 Pub. L. 94-12 Pub. L. 94–12, § 501(b)(1), substituted provisions denying the percentage depletion allowance in the case of oil and gas wells except as provided in section 613A for provisions governing the application of percentage depletion rates to certain taxable years ending in 1954.
- 1958 Pub. L. 85-866 Pub. L. 85–866 added subsec. (d).
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(e) Percentage depletion for geothermal deposits
Amended 1978, 1986, 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11815(b)(1), redesignated pars. (3) and (4) as (2) and (3), respectively, and struck out former par. (2) which related to the applicable percentage depletion for geothermal deposits.
- 1986 Pub. L. 99-514 Pub. L. 99–514 added par. (4).
- 1978 Pub. L. 95-618 Pub. L. 95–618, § 403(a)(1), added subsec. (e).
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(1) In general In the case of geothermal deposits located in the United States or in a possession of the United States, for purposes of subsection (a)—
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(A) such deposits shall be treated as listed in subsection (b), and
(B) 15 percent shall be deemed to be the percentage specified in subsection (b).
Amended 1990, 1996
- 1996 Pub. L. 104-188 Pub. L. 104–188 substituted “subsection (b).” for “subsection (b),”.
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11815(b)(2), amended subpar. (B) generally. Prior to amendment, subpar. (B) read as follows: “the applicable percentage (determined under the table contained in paragraph (2)) shall be deemed to be the percentage specified in subsection (b).”
(2) Geothermal deposit defined For purposes of paragraph (1), the term “geothermal deposit” means a geothermal reservoir consisting of natural heat which is stored in rocks or in an aqueous liquid or vapor (whether or not under pressure). Such a deposit shall in no case be treated as a gas well for purposes of this section or section 613A, and this section shall not apply to a geothermal deposit which is located outside the United States or its possessions.
Amended 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11815(b)(1), redesignated pars. (3) and (4) as (2) and (3), respectively, and struck out former par. (2) which related to the applicable percentage depletion for geothermal deposits.
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(3) Percentage depletion not to include lease bonuses, etc. In the case of any geothermal deposit, the term “gross income from the property” shall, for purposes of this section, not include any amount described in section 613A(d)(5).
Amended 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11815(b)(1), redesignated pars. (3) and (4) as (2) and (3), respectively, and struck out former par. (2) which related to the applicable percentage depletion for geothermal deposits.