§ 1254. Gain from disposition of interest in oil, gas, geothermal, or other mineral properties

Legislative history

Reconstructed from this section’s Code source credit and amendment notes, resolved against the local Statutes at Large. Editorial notes are evidence, not the law that made the change.

1. 1976

   Pub. L. 94–455 title II § 205(a) · 90 Stat. 1520

   Enacted · 26 U.S.C. § 1254

   Added Pub. L. 94–455, title II, § 205(a), Oct. 4, 1976, 90 Stat. 1533

   Source evidence

   Code source credit
   Added Pub. L. 94–455, title II, § 205(a), Oct. 4, 1976, 90 Stat. 1533

   Enacted provision · exact public law section
   (a) Recapture Rules.— Part IV of subchapter P of chapter 1 (relating to special rules for determining capital gains and losses) is amended by adding at the end thereof the following new section: “SEC. 1254. GAIN FROM DISPOSITION OF INTEREST IN OIL OR GAS PROPERTY. “(a) General Rule.— “(1) Ordinary income.— If oil or gas property is disposed of after December 31, 1975, the lower of— “(A) the aggregate amount of expenditures after December 31, 1975, which are allocable to such property and which have been deducted as intangible drilling and development 26 USC 263. costs under section 263(c) by the taxpayer or any other person and winch (but for being so deducted) would be reflected in the adjusted basis of such property, adjusted as provided in paragraph (4), or “(B) the excess of— “(i) the amount realized (in the case of a sale, exchange, or involuntary conversion), or the fair market value of the interest (in the case of any other disposition, over “(ii) the adjusted basis of such interest, shall be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. “(2) Disposition of portion of property.— For purposes of paragraph (1)— “(A) in the case of the disposition of a portion of an oil or gas property (other than an undivided interest), the entire amount of the aggregate expenditures described in paragraph (1)(A) with respect to such property shall be treated as allocable to such portion to the extent of the amount of the gain to which paragraph (1) applies. “(B) in the case of the disposition of an undivided interest in an oil or gas property (or a portion thereof), a proportionate part, of the expend!tines described in paragraph (1)(A) with respect to such property shall be treated as allocable to such undivided interest to the extent of the amount of the gain to which paragraph (1) applies. This paragraph shall not apply to any expenditures to the extent the taxpayer establishes to the satisfaction of the Secretary that such expenditures do not relate to the portion (or interest therein) disposed of. “(3) Oil or gas property.— The term ‘oil or gas property’ means any property (within the meaning of section 614) with respect to which any expenditures described in paragraph (1)(A) are properly chargeable. “(4) Special rule for paragraph (1)(a).— In applying paragraph (1)(A), the amount deducted for intangible drilling and development costs and allocable to the interest disposed of shall be reduced by the amount (if any) by which the deduction for depletion under section 611 with respect to such interest would have been increased if such costs incurred (after December 31, 1975) had been charged to capital account rather than, deducted. “(b) Special Rules Under Regulations.— Under regulations prescribed by the Secretary— “(1) rules similar to the rules of subsection (g) of section 617 and to the rules of subsections (b) and (c) of section 1245 shall be applied for purposes of this section; and “(2) in the case of the sale or exchange of stock in an electing small business corporation (as defined in section 1371 (b)), rules similar to the rules of section 751 shall be applied to that portion of the excess of the amount realized over the adjusted basis of the stock which is attributable to expenditures referred to in subsection (a)(1)(A) of this section.”

2. 1978

   Energy Tax Act of 1978

   Pub. L. 95–618 § 402(c)(3) · 92 Stat. 3174

   Substituted · 26 U.S.C. § 1254

   Pub. L. 95–618, § 402(c)(3), substituted “oil, gas, or geothermal” for “oil or gas” in section catchline

   Source evidence

   Code amendment note
   Pub. L. 95–618, § 402(c)(3), substituted “oil, gas, or geothermal” for “oil or gas” in section catchline.

   Enacted provision · exact public law section
   (3) The section heading of section 1254 is amended by striking out “OIL OR GAS” and inserting in lieu thereof “OIL, GAS, OR GEOTHERMAL”.

3. 1978

   Energy Tax Act of 1978

   Pub. L. 95–618 § 402(c)(1) · 92 Stat. 3174

   Substituted · 26 U.S.C. § 1254(a)(1); 26 U.S.C. § 1254(a)(2)

   Pub. L. 95–618, § 402(c)(1), substituted “oil, gas, or geothermal property” for “oil or gas property” wherever appearing

   Source evidence

   Code amendment note
   Subsec. (a)(1), (2). Pub. L. 95–618, § 402(c)(1), substituted “oil, gas, or geothermal property” for “oil or gas property” wherever appearing.

   Enacted provision · exact public law section
   (1) 26 USC 1254. Paragraphs (1) and (2) of section 1254(a) (relating to gain from disposition of interest in oil or gas property) are each amended by striking out “oil or gas property” each place it appears and inserting in lieu thereof “oil. gas, or geothermal property”.

4. 1978

   Energy Tax Act of 1978

   Pub. L. 95–618 § 402(c)(2) · 92 Stat. 3174

   1. Substituted · 26 U.S.C. § 1254(a)(3)

      Pub. L. 95–618, § 402(c)(2), substituted “Oil, gas, or geothermal” for “Oil or gas”

   2. Substituted · 26 U.S.C. § 1254(a)(3)

      Pub. L. 95–618, § 402(c)(2), substituted “The term ‘oil, gas, or geothermal property’ means” for “The term ‘oil or gas property’ means”

   Source evidence

   Code amendment note
   Subsec. (a)(3). Pub. L. 95–618, § 402(c)(2), substituted “Oil, gas, or geothermal” for “Oil or gas” in heading and in text substituted “The term ‘oil, gas, or geothermal property’ means” for “The term ‘oil or gas property’ means”.

   Enacted provision · exact public law section
   (2) Paragraph (3) of section 1254(a) (defining oil or gas property) is amended to read as follows: “(3) Oil, gas, or geothermal property.— The term ‘oil, gas, or geothermal property’ means any property (within the meaning 26 USC 614. of section 614) with respect to which any expenditures described in paragraph (1)(A) are properly chargeable.”

5. 1982

   Subchapter S Revision Act of 1982

   Pub. L. 97–354 § 5(a)(37) · 96 Stat. 1669

   Substituted · 26 U.S.C. § 1254(b)(2)

   Pub. L. 97–354 substituted “an S corporation” for “an electing small business corporation (as defined in section 1371(b))”

   Source evidence

   Code amendment note
   Subsec. (b)(2). Pub. L. 97–354 substituted “an S corporation” for “an electing small business corporation (as defined in section 1371(b))”.

   Enacted provision · exact public law section
   (37) Section 1254(b)(2).— Paragraph (2) of section 1254(b) 26 USC 1254. (relating to special rules for gain from dispositions of interest in oil, gas, or geothermal property) is amended by striking out “an electing small business corporation (as defined in section 1371(b)),” and inserting in lieu thereof “an S corporation.”

6. 1986

   Tax Reform Act of 1986

   Pub. L. 99–514 title IV § 413(a) · 100 Stat. 2085

   1. Amended · 26 U.S.C. § 1254

      Pub. L. 99–514 amended section generally

   2. Substituted · 26 U.S.C. § 1254

      Pub. L. 99–514 substituting “geothermal, or other mineral properties” for “or geothermal property” in par. (1)

   3. Substituted · 26 U.S.C. § 1254

      Pub. L. 99–514 substituting “rule of subsection (g)” for “rules of subsection (g)” in par. (1)

   Source evidence

   Code amendment note
   Pub. L. 99–514 amended section generally, substituting “geothermal, or other mineral properties” for “or geothermal property” in section catchline, revising and restating subsec. (a), pars. (1) to (4) as pars. (1) to (3), and reenacting subsec. (b) without change except for substituting “rule of subsection (g)” for “rules of subsection (g)” in par. (1).

   Enacted provision · exact public law section
   (a) General Rule.— Section 1254 is amended to read as follows: “SEC. 1254. GAIN FROM DISPOSITION OF INTEREST IN OIL, GAS, GEOTHERMAL, OR OTHER MINERAL PROPERTIES. “(a) General Rule.— “(1) Ordinary income.— If any section 1254 property is disposed of, the lesser of— “(A) the aggregate amount of— “(i) expenditures which have been deducted by the taxpayer or any person under section 263, 616, or 617 with respect to such property and which, but for such deduction, would have been included in the adjusted basis of such property, and “(ii) the deductions for depletion under section 611 which reduced the adjusted basis of such property, or “(B) the excess of— “(i) in the case of— “(I) a sale, exchange, or involuntary conversion, the amount realized, or “(II) in the case of any other disposition, the fair market value of such property, over “(ii) the adjusted basis of such property, shall be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle. “(2) Disposition of portion of property.— For purposes of paragraph (1)— “(A) In the case of the disposition of a portion of section 1254 property (other than an undivided interest), the entire amount of the aggregate expenditures or deductions described in paragraph (1)(A) with respect to such property shall be treated as allocable to such portion to the extent of the amount of the gain to which paragraph (1) applies. “(B) In the case of the disposition of an undivided interest in a section 1254 property (or a portion thereof), a proportionate part of the expenditures or deductions described in paragraph (1)(A) with respect to such property shall be treated as allocable to such undivided interest to the extent of the amount of the gain to which paragraph (1) applies. This paragraph shall not apply to any expenditures to the extent the taxpayer establishes to the satisfaction of the Secretary that such expenditures do not relate to the portion (or interest therein) disposed of. “(3) Section 1254 property.— The term ‘section 1254 property’ means any property (within the meaning of section 614) if— “(A) any expenditures described in paragraph (1)(A) are properly chargeable to such property, or “(B) the adjusted basis of such property includes adjustments for deductions for depletion under section 611. “(b) Special Rules Under Regulations.— Under regulations prescribed by the Secretary— “(1) rules similar to the rule of subsection (g) of section 617 and to the rules of subsections (b) and (c) of section 1245 shall be applied for purposes of this section; and “(2) in the case of the sale or exchange of stock in an S corporation, rules similar to the rules of section 751 shall be applied to that portion of the excess of the amount realized over the adjusted basis of the stock which is attributable to expenditures referred to in subsection (a)(1)(A) of this section.”

   Effective date note
   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.

7. 1988

   Technical and Miscellaneous Revenue Act of 1988

   Pub. L. 100–647 title I § 1004(c) · 102 Stat. 3342

   Added · 26 U.S.C. § 1254(a)(4)

   Pub. L. 100–647 added par. (4)

   Source evidence

   Code amendment note
   Subsec. (a)(4). Pub. L. 100–647 added par. (4).

   Enacted provision · exact public law section
   (c) Amendment Related to Section 413 of the Reform Act.— Subsection (a) of section 1254 of the 1986 Code is amended by adding at the end thereof the following new paragraph: “(4) Adjustment for amounts included in gross income under section 617(b)(1)(A).— The amount of the expenditures referred to in paragraph (1)(A)(i) shall be properly adjusted for amounts included in gross income under section 617(b)(1)(A).”

   Effective date note
   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.

10 of 10 references resolved to an enrolled provision