Code of Federal Regulations · Section

§ 1.615-6 — -6 Election To Deduct Under Section 615

26 C.F.R. § 1.615-6

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(a) General rule. The election to deduct or defer exploration expenditures under section 615 shall be made in a statement filed with the director of the Internal Revenue service center with whom the taxpayer's income tax return is required to be filed. If the election is made within the time period prescribed for filing an income tax return (including extensions thereof) for the first taxable year ending after September 12, 1966, during which the taxpayer pays or incurs expenditures which are within the scope of section 615 and which are paid or incurred by him after September 12, 1966, this statement shall be attached to the taxpayer's income tax return for such taxable year. If the election is made after the time prescribed for filing such return but before the expiration of the period (described in paragraph (e) of this section) for making the election under section 615(e), the statement must be signed by the taxpayer or his authorized representative. The statement shall be filed even though the taxpayer charges to capital account all such expenditures paid or incurred by him during such taxable year after such date. The statement shall clearly indicate that the taxpayer elects to have section 615 apply to all amounts deducted or deferred by him with respect to exploration expenditures paid or incurred after September 12, 1966, and before January 1, 1970. If the taxpayer desires, he may file this statement by attaching it to his return for a taxable year prior to the first taxable year ending after September 12, 1966, in which he pays or incurs exploration expenditures. Except as provided in paragraph (b) of this section, if the taxpayer does not file such a statement within the period prescribed by section 615(e) and paragraph (e) of this section, any amounts deducted by him with respect to exploration expenditures paid or incurred after September 12, 1966, will be deemed to have been deducted pursuant to an election under section 617(a).

(b) Exception. The last sentence of paragraph (a) of this section shall not apply if all exploration expenditures paid or incurred by the taxpayer after September 12, 1966, and before January 1, 1970, and deducted by him on his income tax return for the first taxable year ending after September 12, 1966, during which he pays or incurs such expenditures are outside the scope of section 617(a) (as it existed before its amendment by section 504(b) of the Tax Reform Act of 1969). For example, assume that, in his return for his taxable year ending December 31, 1966, a calendar-year taxpayer deducts exploration expenditures paid or incurred after September 12, 1966, and does not attach to his return the statement described in paragraph (a) of this section. However, all of the exploration expenditures paid or incurred by the taxpayer after September 12, 1966, and before the end of the taxable year were paid or incurred with respect to minerals located neither in the United States nor on the Outer Continental Shelf. The taxpayer will be deemed to have made an election under section 615(e) by deducting all or part of those expenditures as expenses in his income tax return.

(c) Information to be furnished. A taxpayer who makes or has made an election under section 615(e) with respect to expenditures paid or incurred after September 12, 1966, and before January 1, 1970, shall indicate clearly on his income tax return for each taxable year for which he deducts any such expenditures the amount of the deduction claimed under section 615 (a) or (b) with respect to each property or mine. The property or mine shall be identified by a description adequate to permit application of the rules of section 615(g) (relating to effect of transfer of mineral property).

(d) Effect of election—(1) In general. A taxpayer who has made or is deemed to have made an election under section 615(e) may not make an election under section 617(a) with respect to expenditures made before January 1, 1970, unless, within the period set forth in section 615(e), he revokes his election under section 615(e). Except as provided in paragraph (a)(2) of § 1.615-2, a taxpayer who makes an election under section 615(e) may not change his treatment of exploration expenditures deducted, deferred, or capitalized pursuant to such election unless he revokes the election made under section 615(e).

(2) Transfer of mineral property. The binding effect of a taxpayer's election under section 615(e) shall not be affected by his receiving property with respect to which deductions have been allowed under section 617(a). However, see section 615(g)(2) and § 1.615-7 for rules under which amounts deducted under section 615 by a transferor may be subject to recapture in the hands of a transferee who has made an election under section 617(a). See § 1.617-3(d)(2)(ii) for rules under which amounts deducted under section 617(a) by a transferor may be subject to recapture in the hands of a transferee who has made an election under section 615(e).

(e) Time for making election under section 615(e). A taxpayer may not make an election under section 615(e) after the expiration of the 3-year period beginning with the date prescribed by section 6072 or other provision of law for filing the taxpayer's income tax return for the first taxable year ending after September 12, 1966, in which the taxpayer pays or incurs expenditures to which section 615(a) would apply if an election were made under section 615(e). This 3-year period shall be determined without regard to any extension of time for filing the taxpayer's income tax return for such year. An election under section 615(e) may not be made after the expiration of the 3-year period even though the taxpayer charged to capital account, or erroneously deducted as development expenditures under section 616, all exploration expenditures paid or incurred by him after September 12, 1966, and before the end of his first taxable year ending after September 12, 1966, in which he paid or incurred such expenditures.

(f) Revocation of section 615(e) election—(1) Manner of revoking election. A taxpayer may revoke an election made by him under section 615(e) by filing with the director of the Internal Revenue service center with whom the taxpayer's income tax return is required to be filed, within the period set forth in subparagraph (2) of this paragraph, a statement, signed by the taxpayer or his authorized representative, which sets forth that the taxpayer is revoking the election previously made by him with respect to exploration expenditures paid or incurred after September 12, 1966, and states with whom and where the document making the election was filed. Such revocation shall be a revocation for all taxable years for which the taxpayer's election was in effect and the taxpayer revoking such an election shall file amended income tax returns, reflecting any increase or decrease in tax attributable to the revocation of election. In applying the revocation of election to the years affected there shall be taken into account the effect that any adjustments resulting from the revocation of election shall have on other items affected thereby (such as the deduction for charitable contributions, the foreign tax credit, net operating loss, and other deductions or credits the amount of which is limited by the taxpayer's income) and the effect that adjustments of any such items have on items in other taxable years.

(2) Time for revoking election under section 615(e). An election under section 615(e) may be revoked at any time before the expiration of the 3-year period described in paragraph (e) of this section. Such an election may not be revoked after the expiration of the 3-year period.

(3) Additional information to be furnished by a transferor of mineral property. If, before revoking his election, the taxpayer has transferred any mineral property with respect to which he deducted exploration expenditures paid or incurred after September 12, 1966, and before January 1, 1970, to another person in a transaction as a result of which the basis of such property in the hands of the transferee is determined by reference to the basis in the hands of the transferor, the statement submitted pursuant to subparagraph (1) of this paragraph shall state that such property has been so transferred and shall identify the transferee, the property transferred, and the date of the transfer. The preceding sentence shall not apply in the case of any mineral property transferred after December 31, 1969.

(g) Taxable years beginning before September 13, 1966, and ending after September 12, 1966—(1) In general. An election made under section 615(e) applies only to expenditures paid or incurred after September 12, 1966. The income tax treatment of exploration expenditures paid or incurred before September 13, 1966, will be determined in accordance with the provisions of section 615 prior to its amendment by the Act of September 12, 1966 (Public Law 89-570, 80 Stat. 759). If a taxpayer makes an election under section 615(e) in his income tax return for a taxable year which begins before September 13, 1966, and which ends after September 12, 1966, amounts deducted and amounts deferred under section 615 with respect to expenditures paid or incurred during such taxable year but before September 13, 1966, will be taken into account in determining whether the $100,000 limitation set forth in section 615(a) is reached during the taxable year. Similarly, a taxpayer who makes an election under section 615(e) shall take into account expenditures deducted or deferred under section 615 for the period prior to September 13, 1966, in determining when the $400,000 overall limitation set forth in section 615(c) is reached. The fact that a taxpayer deducts or defers under section 615 exploration expenditures paid or incurred prior to September 13, 1966, shall not affect his right to make an election under section 617(a) to deduct under section 617 expenditures paid or incurred after September 12, 1966.

(2) Allocation in case of inadequate records. If a taxpayer pays or incurs exploration expenditures during a taxable year beginning before September 13, 1966, and ending after September 12, 1966, but his records as to any mine or property are inadequate to permit a determination of the amount paid or incurred during the portion of the year ending after September 12, 1966, and the amount paid or incurred on or before such date, the exploration expenditures, as to which the records are inadequate, paid or incurred with respect to the mine or property during the taxable year shall be allocated to each part year (that is, the part occurring before September 13, 1966, and the part occurring after September 12, 1966) in the same ratio which the number of days in each such part year bears to the number of days in the entire taxable year. For example, if the records of a calendar year taxpayer for 1966 are inadequate to permit a determination of the amount of exploration expenditures paid or incurred with respect to a certain mine or property after September 12, 1966, and the amount paid or incurred before September 13, 1966, 255/365 of the total exploration expenditures paid or incurred by the taxpayer with respect to the mine or property during 1966 shall be allocated to the period beginning January 1, 1966, and ending September 12, 1966, and 110/365 of the total exploration expenditures paid or incurred with respect to the mine or property during 1966 shall be allocated to the period beginning September 13, 1966, and ending December 31, 1966.

(3) Partnership elections. With respect to exploration expenditures paid or incurred by a partnership before September 13, 1966, the option to deduct under section 615(a) and the election to defer under section 615(b) shall be made by the partnership, rather than by the individual partners. With respect to exploration expenditures paid or incurred by a partnership after September 12, 1966, all elections under sections 615 and 617 as to the tax treatment of a partner's distributive share of exploration expenditures paid or incurred by a partnership of which he is a member shall be made by the individual partner, rather than by the partnership. See section 703(b) and the regulations thereunder.

26 C.F.R. § 1.615-5 26 C.F.R. § 1.615-7

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