Opinion ID: 493685
Heading Depth: 2
Heading Rank: 1

Heading: The Depletion Deduction

Text: 3 Since 1926, Congress has granted a deduction from gross income for mineral depletion, a deduction intended to offset the exhaustion of capital assets by mine owners. 26 U.S.C. Sec. 611; United States v. Cannelton Sewer Pipe Co., 364 U.S. 76, 81 et seq., 80 S.Ct. 1581, 1584, 4 L.Ed.2d 1581 (1960). The deduction was originally available to oil and gas producers only, but subsequent amendments have extended the tax benefit to nearly all mineral producers. In general, the deduction equals the taxpayer's gross income attributable to mining multiplied by a percentage that varies with the particular mineral produced. 26 U.S.C. Sec. 613. 1 If a producer engages in both mining and nonmining activities, the regulations provide a way to calculate the portion of gross income to which the percentage deduction may be applied. See Treas.Reg. Sec. 1.613-4(a-e). Obviously, it is in the taxpayer's interest to characterize as mining as many of its activities as possible, so as to maximize the deduction. The statutory definition of mining at issue in this case appears at Sec. 613(c)(4)(D):[I]n the case of ... minerals which are not customarily sold in the form of the crude mineral product 2 [mining processes include] 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....