26 U.S.C. § 616

Development expenditures

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(a) In general

Except as provided in subsections (b) and (d), there shall be allowed as a deduction in computing taxable income all expenditures paid or incurred during the taxable year for the development of a mine or other natural deposit (other than an oil or gas well) if paid or incurred after the existence of ores or minerals in commercially marketable quantities has been disclosed. This section shall not apply to expenditures for the acquisition or improvement of property of a character which is subject to the allowance for depreciation provided in section 167, but allowances for depreciation shall be considered, for purposes of this section, as expenditures.

(b) Election of taxpayer

At the election of the taxpayer, made in accordance with regulations prescribed by the Secretary, expenditures described in subsection (a) paid or incurred during the taxable year shall be treated as deferred expenses and shall be deductible on a ratable basis as the units of produced ores or minerals benefited by such expenditures are sold. In the case of such expenditures paid or incurred during the development stage of the mine or deposit, the election shall apply only with respect to the excess of such expenditures during the taxable year over the net receipts during the taxable year from the ores or minerals produced from such mine or deposit. The election under this subsection, if made, must be for the total amount of such expenditures, or the total amount of such excess, as the case may be, with respect to the mine or deposit, and shall be binding for such taxable year.

The amount of expenditures which are treated under subsection (b) as deferred expenses shall be taken into account in computing the adjusted basis of the mine or deposit, except that such amount, and the adjustments to basis provided in section 1016(a)(9), shall be disregarded in determining the adjusted basis of the property for the purpose of computing a deduction for depletion under section 611.

(d) Special rules for foreign developmentIn the case of any expenditures paid or incurred with respect to the development of a mine or other natural deposit (other than an oil, gas, or geothermal well) located outside of the United States—(1) subsections (a) and (b) shall not apply, and(2) such expenditures shall—(A) at the election of the taxpayer, be included in adjusted basis for purposes of computing the amount of any deduction allowable under section 611 (without regard to section 613), or(B) if subparagraph (A) does not apply, be allowed as a deduction ratably over the 10-taxable year period beginning with the taxable year in which such expenditures were paid or incurred.(e) Cross reference

For election of 10-year amortization of expenditures allowable as a deduction under subsection (a), see section 59(e).

(Aug. 16, 1954, ch. 736, 68A Stat. 212; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 97–248, title II, § 201(d)(9)(C), formerly § 201(c)(9)(C), Sept. 3, 1982, 96 Stat. 420, renumbered § 201(d)(9)(C), Pub. L. 97–448, title III, § 306(a)(1)(A)(i), Jan. 12, 1983, 96 Stat. 2400; Pub. L. 99–514, title IV, § 411(b)(2)(A), (C)(i), Oct. 22, 1986, 100 Stat. 2226; Pub. L. 100–647, title I, § 1007(g)(7), Nov. 10, 1988, 102 Stat. 3435.)Editorial NotesAmendments

1988—Subsec. (e). Pub. L. 100–647 substituted “section 59(e)” for “section 58(i)”.

1986—Subsec. (a). Pub. L. 99–514, § 411(b)(2)(C)(i), inserted reference to subsec. (d).

Subsecs. (d), (e). Pub. L. 99–514, § 411(b)(2)(A), added subsec. (d) and redesignated former subsec. (d) as (e).

1982—Subsec. (d). Pub. L. 97–248 added subsec. (d).

1976—Subsec. (b). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

Statutory Notes and Related SubsidiariesEffective Date of 1988 Amendment

Amendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Effective Date of 1986 Amendment

Amendment by Pub. L. 99–514 applicable to costs paid or incurred after Dec. 31, 1986, in taxable years ending after such date, with transition rule, see section 411(c) of Pub. L. 99–514 set out as a note under section 263 of this title.

Effective Date of 1982 Amendment

Amendment by Pub. L. 97–248 applicable to taxable years beginning after Dec. 31, 1982, see section 201(e)(1) of Pub. L. 97–248, set out as a note under section 5 of this title.

Notes of Decisions

Cited in 9 cases, 1939–2003 · leading case: Ernest J. Saviano and Margaret Saviano v. Commissioner of Internal Revenue

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Ernest J. Saviano and Margaret Saviano v. Commissioner of Internal Revenue (1985) ca7 · cites it 3× “Appellant deducted that payment from his income taxes in 1978 as a mining expense under 26 U.S.C. § 616 (a). That deduction is not at issue in this appeal.”

David L. Kennedy (88-1254) v. Commissioner of Internal Revenue, Joseph D. Auberger and Wanda Auberger (88-1255) v. Commi (1989) ca6 · cites it 2× “IME assured investors via literature and a tax opinion letter that this procedure would render each investor a “miner” in 1978 for federal income tax purposes, enabling him to deduct, pursuant to section 616(a) of the Internal Revenue Code (IRC), 26 U.S.C. § 616 (a), 4 his…”

American Electric Power Company, Inc. v. United States (2003) ca6 “at 1254 (quoting 26 U.S.C. § 616 (a)). This court upheld the tax court’s disallowance of the claimed deduction because the underlying transaction was a factual sham: “[T]here is no evidence showing that any amounts invested by the taxpayers were spent on mining development of…”

Edward M. Becker and Alice M. Becker v. Commissioner of Internal Revenue (1989) ca8 · cites it 2× “The investors then deducted their initial investment and the proceeds from the gold option sale from their income taxes as mining expenses under 26 U.S.C. § 616 (a). Although the foregoing description outlines the purported manner in which the Gold for Tax Dollars plan operated,…”

Larry R. Adkins and Sondra Adkins v. Commissioner of Internal Revenue (1989) ca7 “” 26 U.S.C. § 616 (a). Hoping to convince ordinary investors to become miners, the plan advertised (for 1979) a 4:1 ratio of income deduction to cash investment: the “miner” who put up $5,000 could deduct $20,000 from taxable income that year.”

Braude v. Commissioner (1986) ca4 “The amendment stated two alternative theories for the deficiency: first, the claimed liability under the promissory note by which the taxpayers had paid the mining expenses was too contingent to constitute payment within the meaning of 26 U.S.C. § 616 (a) (1982) and, second, the…”

True v. United States (1986) wyd “1969), which involved analogous concepts where haulage road built for development but also used in production of a mine was considered a development cost for purposes of 26 U.S.C. § 616 . The Court is, therefore, of the opinion that where equipment is obtained and initially used…”

Philadelphia & Reading Corp. v. United States (1979) cc “§ 351 (1976) 1 is entitled to amortize development expenses which the transferor incurred with respect to such property and elected to defer under 26 U.S.C. § 616 (b) (1976). 2 We conclude that such a transferee is so entitled and hold for plaintiffs.”

Harrison v. Commissioner (1939) ca6 “, 26 U.S.C.A. § 616 . Counsel was justified in'believing that if a hearing was to be had he would be notified.”

— 26 U.S.C. § 616(a) — 1 case

David L. Kennedy (88-1254) v. Commissioner of Internal Revenue, Joseph D. Auberger and Wanda Auberger (88-1255) v. Commi (1989) ca6 “IME assured investors via literature and a tax opinion letter that this procedure would render each investor a “miner” in 1978 for federal income tax purposes, enabling him to deduct, pursuant to section 616(a) of the Internal Revenue Code (IRC), 26 U.S.C. § 616 (a), 4 his…”

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