PS-276-76 Final Regulation

.

~ e d e r e lR~zislerI \'oj. G

-

2401, AirspacwRvle and Aeronautical

Information Dtvision, Air Tmlfrc Hulcs

Officeoi Managcmeat and B u d ~ c tin
accordan- with fhc Papcmuork
.
Reducti~nA d 144 U.S.C 3504lhl) undt-r
corl~roin u m h r 1545-1352. Tho
cslirnatd annual burden p r mponden!
varics from lout 10 six houk. depcndirrg
on individual citcumrt~ces,with an
estimated avcrqc d Five h o w .
Comments concerning ~ b accuracy
c
ot
this burden estimaie and suggcslions for

foil FURTHER IMFORMAraN CONTACT:
Gary E. Davis, ~clcphone(2021 267-

and P r o c e d m &mica Fcdcnl 8096.
Aviation Adminismtim. BM)
~okclion
l o Final RuIe
Independence Avenue. Sly.,
\Ifashington,
20591; ttlephoner (202)
In the linal rule beginning on page
267-Q250-.
:
67584, In-the issue of 'lhursd3~.

fi
Decembers, 1994,thm F M published a
final rule that rwised he description of
jet Route J-37 in the Slate d Louisiana.
the airspaee designation OI jet Rwk .
j-37 the Hobby 084. radial was in error.
This c0rrectiOh h p rh* "*tb%y 084"' radial to m d the "Hobby 090."
radial.
SUPPLEMEHTARY INKHIMA-

'

D w r n b e ~29. 1994, h e lollorr-ing
cuneciron is king made:

.

1. OD page 67584. first wlumn, rnd

this burdun should bc scni to
in the beading. the nemcndment nrrii~bcr rcducing
ibc ~nlcmalRevenue Service, Attn: 1RS
should read "121-246", insicad of
Repns Clearan- Officer, PC:FP,
"121-247".
iVasbinpton. DC 20224. and lo the
Dated: January 4.1995.
Oilicc of Managomen1 and Budget, Attn.
Doruld P. B p r .
Dcsk Qficer for Lhc -mom
of the
Tmnsun.. Dffics oClnrormatianand
. Assi%unt C h ~ C w n s c IOffw
,
o/Chje[
COunreI.
~ ~ u l a tAffoirs.
i j
Washington. DC

-

,

Camction ~TFinflRule
.!MI~ a c9S-571
.
Filed 1 - 9 9 5 : B:45 am1
hceomlingly,pursuant lo the
U L Wc
w
c
H & l E Y
eulhorilydelqated lo me,tbe a i
designation j o t ]el Route 1-37 pub Ishod
3 '

in t h e

7Federal Rcgisltr on December

9,

1994 (59 FR 63718; Federal Regiser
-en(
94-30225, &lumrt 31 is

'

comded as i~lJarvs:
p 7 iComd$l
From Hubby. T X , v i m tlW d tbr Hobby , .
090' md Hmty. LA.266. tedialr: Hmq;
S e m e r , AL; Monlgomcry. hL;S
m
w
92 Lpchburg. VA; GotrlowvI!h, VA:
'.
Brooke. VA: 1NT Brooke DbT. and %It, )JJ,
-226.mdinls: 10 COylk Fmm Kennedy, NY,
Kin&ston,NY: Albany. W. Muwar.HY, !o
ths WT QI
Lhe M s u e O
~a f * -did &ndIb.
Unittd SlatMGnadi~nBodet:
mued Lo W d i n g t a n . W. on Deccmbr
30. '1944.

Hurrtd W.Bkktr,

'

Lfanagrr. Ai~paa-Rulmand AcmmuW
In~armdionDivision.
IFR Daz 35-57? Filed 1-W5:8:15 &a!
DkmG m
M 48lklU

[Docket Ho. 27W; Amdt Ho. 121-246j

Federal Aviatim

~ m mFinal
: rule; corrediok

-

dscument C0nUin~4
corneaion to a final rule, TrafficAlen
and collision avoidance Svstem. TChS
1. published in the ~ e d e r aRegistcr
j
on
&-caber 29, lsgrBATES: This dmxmen~is df&ve
SUMMARY: T h i s

mE TREASURY

Internal R e v e y e Sewkt

26 CFR Pa*

1and 602

Treatment ol Gatn From Disposithn ol

srclions 170.301.312.341.433.751,
1224, end 1502 ufdie Internal &venue
Code of l g S 4 in the Fcdcrrl R q k ~ t IrS
r
FR 39512). These wncnhents ~ - u e
proposed to conform
regulations ra
d o n 105 (a), Ib),md(d(11 and (21
of the T.=mRefom A a of 1876. P&. L.
9MSS.90Slat.1533,md~on --

Member 29, t 9%. n e final
compliance date is h r n b v 3 ' 1 , 1995.
Comments om the rtvisim of
5 lzr.356lbI must be received on or
belore February 27,1995.

.

Certain Natural R t ~ ~ u r Recapture
ce
4OZ(c) or the E
n
m
w Tax A d of 1978.
''r0p.W
Pub:.,I 95-sla.92 Slat. 3202. and to
.
ACEWCY: L n t t d Reqcnue Seruice IIRSJ. make cenain orhtr tdmical
amendments to codurn h e re&
tian s
Tmanuy. to section llc) afthe Act d Septuaber .
.
+ -.
ACTKm: Final q d a t f ~ n s .
12.1966. Pub. L. 84-570.80 Stat. 762.
SUMMARY: T b i s doctrrmant p d d & find 10 sedm 2111bX6) of the Tax Reform
reguhtions d a t i n g tatbe Iw Watmatll nct of 1969,pub. L 91-1 72.83 S ~ I .
57a and to s m i m lM2lcN2). .
of gain bum the dispwiti~noiceriain
110l(d)[2]. 190l[r)(93),and 2110[a) at
natunl nsouta rruptura prnpeny
th* Tax Relonn Act of 1976. $0 Slat.
(secrtiorr 1254 propfly after enactment
1637.1658.17 80.19051. A public
ol the Tax PofonnAct of1986 and oil.
hearing t ~ * shrld on S e p t c m h 9,3986
gas. at geathcrmai property kfom
Alter considering aU cnmrnenls
enaclment of the Ta* Reform Act gf
19B6).Chages to dat rpplcablt tax law regarding the p m p d qulations. the .
proposed regulations (excepl lor ht
wem made by h e Taw Rulorm An.of
provisions
relaring to an elming smalt
1986, the Tax Reform hQ of 1984, the
Energy T u A a of 1978. rbc To* Reform business carpomion (hertinahtr
r e l e d to as an S corporalianJl.a=
Act of 1976, bTax RefA d of
adopted as revised b~ [his Trcasup
I %9, and the A d of Scplenber 12.
decision. The rula under 5 1.751I 966. The ttgulationr provide the
arc darificd. but no
public with guidance in complying ivith l(c#GJ(i~)
s
u
k
i
a
n
t
i
v
e cbengs i s intended except ID .
Ihe changed lax laws.
inwn additional recapture s t d o n s
DATES; ~ e rtgulatioru
w
arc c f k t i v e
undcr cha lntcmol Rm-enue Codc ot
lanuary 10. 1995.
19BG [Code).
For dates of applicability. 5 c c
Because of the substuitial changes
5 1.1 2 5 4 4 .
made to the tax ireatment 01S
FOR FURTHER I N F O R M A M COMACT:
corporations by section S I a l 3 7 1 of the
Brenda M. Slewan (202-622-3120, not
Sukhapitr S Revision A d of 1982. Pub
a t011-free number].
L.97-354.96 Stat 1696. seaion 492 of
the Tax Refom Act 01 1984. Pub. L 98369. 98 Stat. 853, and sections 41 1 and
41 3 of the t a x Xcfonn Act ~t 1986. Pub.
..I 98-51 4 , 1 0 0 Stal, 2225,2227.
The collection of iniormotio~
conmined in h e s e final regulations has 5 1 .I 254-3 of h e proposed regulaiions
(rclaring to an elecking small businessl.
bwn renewed and appmvcd by the

.

TraNe Al& and Colbion A v a e u
System, TCAS I
AdrninisUaLion I F M ) , DOT-

Background
On June 1 i, 19AO. the IRS pyblisbed
propud smttndnlcnls to !he Income
Tax Rcguhlions l2G CFR part 1) undcr

,

I 4 CFR Parts 121,129,and 135

AGENCY:

DEPARTMENT OF

20503.

Z498

I

----

has wr k n adopted. h a s a d , a notice
prgpostd nlltmal;
designated as
5 3.12544, r r h q m e rctapture of
natural molua r m p pmperty
~
by
a S c v d m md irs s h d o l d e r s
trdlil be p r o p 0 4 to codom the
r q u t a b o ~to thw laws.
1. ~n~angiblt
Drilling and Devtloprned

%

~

-

Federal Registcr / VoJ. ,60.No. 6 I Tuesdav, J a n u a c 10. 1995 I ~ k l c sand Regulations

.

is allmard to p m e r s witti a priqtipal
purposcdavcrdi3g~ecap1nreu r h r

~ o m commentators
e
orgue Lhat the
proposed regulations @reinmmisenr

r r - i b p e r m Irvci (a-1~
rpp-dd
computstionufdeplaioaendgaimupon
the s b o f p+rmcrship ail and gas
P r y y u n d e r d m 613Ak)I 7)IDl.
ndar tbe cntiry approach of i h ~
p r o w ~ d a t i o n ssoma
,
m p t u h 01
secdon 12%costs may k sbibcd &am
IL-en
who Jairad the
deduetiorrstoothuparinerJwhodi<
not rrcciw t h -fit
o f rhs
dcductimc. U ~ d e rths aggrcgatr
appmmch. deptndina on &e alkxation
of gab or amOuhl d i d upon d e ;
some section 1254 C D S may
~
notbe
; c t = a p d h u g h totd, P T ~ ~ gain
P
e x c d ~ s t a~amerrb3p
l
5-rn
1254

.

sccl ion 125 4.

~ Racapturt
t
s in a Parhership

n e praposcd regulations r e q k a
pmership to compute tbe amount of
inrangiMtdnlling and development
cons lo btrtcaplrrrcd [entity approach)
- ,- arr&ruLjedtothe subslankin1 economic
effect wt to illrxnte b a t amcuni .
among h e p~rlnusiaaecordancs with
!heir rtspeclive dirtributive s h a r ~as
provided in t h e p m e r s h i p agrcernent

is determined at t h e ~
d
i lewdp if
the Commi=ioaer d c r e m i h~ a ! h e
amount realized or gain recognized born
the djsposilion of section 1254 prupeny

,

Icgislrlive hisioy. Iht m x p n amolmi
shodd be
e v m in s i t u a t j m
where expensing inungibIe drilling and
de~~elopmenr
arsts did not result in
decreaseddeplttiaaMuc;riona
'
Thr final regulations reject huv l m -and instead continue to rollow tha
staluta, w h j b rr wtd a b v e .
that r s e e p h d d t b i m g h 1 e dtilhg a d
dtvdopmmt
art R d u n d by the
m o u n t by %.bid
tbe "dcdtraion for

11. Raapturt of Distributions an the
Liquidaha of a P a m a h i p .
In geoerairl. the section 3254 m p t m
provisioit~avcdde nonrecognition
depltti6n"clartnd m h s e d o a 6 f t
pro~~sions
in :he W e . However.
"k.auM brvt &en in-d." Thus. h
m i o n I254 I$]Irl s t r t t s that ruler
amount ofmptunbLe h k n g i blu
similar to h e rules o l d o n I 2 4 5
drjlling snd dmiopmgot a ~ isu
and (c) shalt be prescribed bjr .
reduced by only the excess, ii any. PI
q t l a l i o q . ELer;ordingIy. h e h l
the hypothetical msi ar percent age
reylal~onsLirnil ths amount subject lo
depletion dtduaian Icmnpuled as Tr
mptrrre in C-la*-&
msactiims intangiblt &&ng
and deucbpm&
to gain that would be r h ~ o g n i ~ ~ d
msts d j j to deplstiapbad b w n
wihout regad lo section U5& S e d ~ tapiaahd) ~ ~ r b e a m ~ m i a l t h e 1.125.)-2[~)(3] Iists &a bmrlers ln
or
*kim dedllrtjm &it
~ r . h i t h f e ~ % p ~ F f I l m f i d d Wb m
xpeprd
y ddmtd. lislcd involve van~fcrredbasis.
C o n s e q u d y , d e s ihehypdhttic61
Commentatm piat orlt that undu
cost or p m n t a g e dtphim m
w
m
tu

the proposed %ubtjons recaptun Is
greater than &s actual dcplutiaa
.
required upon Ibe liwdativnof a
deductioa claimed. no depletion
partnership inkrest k c a u s e sectiaa
deduaioa i s rurquw. emd all in^^
7 3 2 b ) pmvides Ibu the basis 01
drilling and dewlopmenl wsl~
p r o p e r t y ~ i ~ ~ e d i n r l i q u i d ~ f r a n b mamiumUt
lo
p p e n y are
.
substituia basis equal to tbc h i s 01h e .
recaptpnble,
w e t ' s interest ia the p m t n d p n*6balrogul*timsllle~it#.
Hawoer. under sscticm tZt5fi)(6](A].
.
ramanrzrtPinti~ arding tb. . .*
recapturn upon &a distributiaas of
m
~ h md~ d n l n $ r~dudmin
partnership r a t s in liquidatibn is
limited. AecordingIy, the wmmcntators the mount of neaptunbla int+bEs
drilling and duvtlqment e m s . . . .
suggest that a s i d h r u l a r h d d be
cosk
d o tad $or -ion
3254
IV. Nanproductftt Wells
-.
.
The mmmmta~omsuggest that.
&e final q ~ t i w
a W E k
~
u
m
m
~
t
m
s
t
a
l
..-.
t
-~ ,
mnsislent with atdim 6l3hIdOJID1.
c a ~ e a w o r ~ ' r u g g ~k*
~~.
intanglbledrjllingsaddkd~pm~nt
- . ' :.
thr: find m g d a t i 0 1 1 ~should adapt tho
mtd
-bus p m p y
w&
~ggr%rttappmch They argue that
distrihtedby a ~ p i ~ ~ s p a t t ncosts
e r dIoob1.
bc rub* t o m p b g k T h q :
approach*aparCn*r i s daemed lo k determined by reference should
~~d~ b e
poiat out that, eveaiTr t q a y c r s k u
can mwc readily compute b t h at
10 thd rdjustsd bps'soi h e v p c " y &
;
ta capitalize intangible drilling m d
eami of rbs dbdsaions b e t w r e
the partnership.
d
c
v
e
i
o
p
m
e
n
t
w
t
r
intangible
drilling
pnr-iausly allaaied 10 rbe p-w
and
ISx. Rttapm
A*n
and dtvalopmcnt c o s 01
~
hspprnpriars adjustmeat rcpuimd by
n o n p d u d v e w e b me autaddd ro
section I Z S d ( a H 4 [as tIfM bidom
Ubdttr redIorr 1254[a)[4) in &&S
cru-r
ol b Tur Reform A d of
befmenaamenro~~
T u K a f o m Ad basis k a u s e the operaior norrdly
dedu- rheg~n ~ u n t undw
s
6 U12f Cts61.73e eamtntatorr contmd rbPt ft or 198eJ. iba w u n t or-gibb
4@)(4) on the return for the rim W ' b t e
i s aimeult for 1 prrtoetsbip too. drillhg and dovelop-t m s w~b*
his i n h a t f a n h a m bvindividud
10t w h I P d ~ 4 the U W U I ) ~ , year
nonproductive
ebuacbmeui
well. D I ~
p m n c n In e d d i h l b e y cite d a
Pany.& wbid IBB
d m $0.
One season tot the tnacment of
58(il [es in erl'ecl btfm Lnrctmeat of
depkUw"udcracdina 611 " w d d
.
-ion
1254 m e td prrv~ntthe .
I h c T u R e i u u n A d d t 9 8 6 ~ , ~ h i & . hm~bsanincrcesed"3jnt~hgbIt
conversion DI
iatatqiblt drilling md
allou.adgemnl psrtbmn t o d e d to
drillia md developmeat costs had
developmeal ae
y deduqrd '- .-': amoflire kumgiblo bilIlngand
been t%ar g d t o 8 capird s ~ o u a mher
t
rgsjnst ordinary incorns inlo c a p i d ::. . development msls over r 5 k r n p d d than mnently uptnsed u n d a s d o n
gain in &n
Emitcd risk dtmions ';
and h t t e d p
m to elect lo ammi263Icl. Tho p r o p 0 4 regulatimr.
. tharcfora. q u i r r taxpayers to usa h e
Set W.R R t p - 94458.94Cb Cong.. 1st i .
intangible drilling and dm*lopmcnt
%is. H41975). Fortxamplt, ii well
-.
excess of the hypotheti-1 c o n or
cons wer r 10 year period- S e a i o n
' .
59Ic) now p r i d e s ro mdoguus . . petctntage depletion dduaian over the provc~tobnmprod~ctive~avsinga
n o m o t m e debt to k m n s w o d ~ l m .
amount allowed undw e r a n 611 .
~ d t s i~i l ~d m
Gnsi#enlmitblh%c6mmtntatotr'
[ e i t h c r c o s t o r ~ p e & p ~ ] i a h e taxprpu l p 4 d l . y r - p h
~ g g t r t - Lht W %ulations adopt
determining fie construuive b w s in
~ incams thnr ir Yraitd
gPia
u ~ ~ ~ d h t d e ~ b s c a u P s 4
the qg1?g8tueppr-ch. M p t t i m is
dc Ie~jbn.
d*
dctermirrd mt cbe putnet inel,
s~nbaLi.m~&=. loreclosum ia d e e d m b
pmpaty-aqumdy.cdinq'
However. cbe wulatiom m t t i n art
arguul h
i
.w i - < h a h d i i l g the
dcductionrwauld bs ~ v a t b d
1nriabus~dbprovidi~1gLha1cecaptuml m g u a ~ o t h s ~ a t u ~ r c c o r d i q t o i bincome
e
,

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.ad

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=

Iy

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+

Federal KegistPr

1'01. Go.

NO. 8 1 Tuesday. r~nuery10. 1095i I Rules and

Louisiana Land and Expiomtioa Go,, 92
jnlo capital gains to the extent of the
T.C. at 1348. rnd rbt Claims Court in
l e v t r b cd mounts.
Sduihknd Royolty Co..91-1 U.S.T.C a t
.
h s d e Lorn f o d o s w oi a
87.337. noled that b u n hs Tax
nonrecoune debt, howtvet, a
Reform A d of 1966 amcnded section
nonpmduaive weU provides no
1254 to include within Ihe definition of
opponunity for convertin an ordinary
"oil, gas, w p o & s n a l ptoperl y"
. income stresm into mpita gaia.
properly the b&sisof whi& has betn
Ayordingly, rhc fiml zqplatiuns
edjus~edlor depletion, nonoperatix
provide h a t *don 1254 COWS
attributable to nonpmductivt w d b am mineral interens e r n e within h e ambit
no! rtfnpturebla, ercepi in certain
of section 1254 after 1906.
ljmitd risk situations.
'
Consequently, tbr courts reasoned, the
issue consided in these cares rvould
V. btpmcirtiva
arise only 4th resptct l o pmpeny
Some commentat~rsargue that '
placed la ~ r v i Won
a
1987.
deprrciable costs a s s o d a i d wid
T ~ dE t i ~ have
m ktm
mended
~lllngsbauldn~ksea~t~dl~
totreatah~nuperetingmbtdinttrwt
m
drokbbh
h mlruhnfl as
carved
out
dur owratinn mineral
..
.
.
+

!

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.

difficult 10 identifv the amo~nlof
inlmgible drillingrand developrn@nt
costs that coufd have been deducted as
depraaativn. beau* I t is not current
industfy praclirr to sepmte d * p e l b l e
costs £rum deplehbk msls. La response
to these mmatnts, tha final =@lalions
do not resuitt de~rtcSable
to
sepwaied'£mmd~p'pl&rble
costs in

~moertv
10 which A o n 1251 cost$
broPerlj.&weable. Thus, the final
mulatiom make dear that natural
-ptproperty include a
nonopcmring mineral interest ifh e
nortopliag mineral inwas
w e d OUI OS *a +rating m i n e d
interes k which &on
1254 wts
werr pmprly chargenblt by tbe holder

Regularions

2499

--

and docs not trnnrIer to the property
received in a hke kind exchange or
inrolun~wycanversion. However, under
ths finel regulations m p t u m liabilit
vanrkrs to the p m w y mired by J a

lransleror who received h e kne61ol
the deductions Iw rcctiw 1254 costs.
This result is mnristent with the section
1245@1b)I41 and $1.1245-2(~)(4) rules for
recapture of depreciation. B e u u s e
section 1254bl(l)states that the
regulations should prescriba rules
slmilnr l o rules in wctibn 1245 (b) and
(el for like kind e x h g e s , invoiunlary
conversions, and other nontw8blc
vinsfers, h e find q u b t i a n s more
decaly m l m r tbe d o n 3245
-pure rules lor such ttanwctions..
Ud Filing RquitFmmh
T h e proposed ngulalions ~rovide
allocation rules for &a recapture of
seetian1254casuonthemleuf1
portion 61. OT an undivided Intemd in,
fintural mn p t u m property.
Under the propom3 regulations, a
taxpayer i g required to at-& lo Ihe tax
mum d o c u m t ~ sufficient
t~
to

establish

alloakion of iqtangibla drilling and
development cons to tba dispascd of .
cakulatim tbt bmotheti~aldepletion
of the optmiha m i n d i n t m Sea
. portion UDdivCdad intwesL
5 I . ~ z s & I ( ~ ) ( ~Consistent
.
~5th
the
opinions in he Utj a t 4 m,howmar. notwithtandhg that &a hts~giblu
Prop* Inlensr Subject to
drilling and d8vtlopmmt c w l ~
do not
w
B-Y~
only
Rrcrpturr
In Iecl tclatr 10 &kt pbrtio~ot
wih mp#t to pnrpcrty p l d in
undivided bttCommtntators
~ n d i &a
r pmposed regulations, ~ o c b x m i a r R u b m b q 31, -1986.
ru-t
that i t i s mom petal simply
operaring dnerd interest ia an .'dl.
to q u i r e a t a ~ p a y tlo
r Mate an the tax
gw, or g e u t h ~ m d
property." u well kt vrt. Dispobitiaa
Commeaurom urgo &t the ,
return that h a d o n 1254 mmdo
any nonaperatingminerd interest
. .. not
.-.
reaulotionr slats who is hbb ipt
relate to the propmy diipustd o f and to
rplained by r lessor or sublexlr of a
rethin veri-g
ckmentltion. In
pmpeny to which intangible drillin
and development costr were proper y .
response to &a oommaatPtms'
--: .
cptioa olrbsperroa who &ll m d v r
chargeabla when held by such pcrsan
sn&estioa. Lhe fmd rtgulations conlain
ibe intenst. u. hr cwrmplt. r fprm6uL
prior to tha -tian
01 the lease or
h k and
relention .
In respon- to tbw co-ank h e 5 d
sublease. Is subject to r e m p t ~
fn Houston OiI und Minemlr Corp. v. reguhtiwu pmvide h a t liability for
mw q u ~ a t i o r are
u

-

n.

p-wIxlllb

f

Commissioner, 92 T.C 1331 (19891.

affd, 922 F.2d 283 (5th Cir- 'I991),
b u i s ~ a b amd and Explomrion Go. v.

Corr~nissionsr,
92 T.C 1340 119891, a d
SouihIand iloydty 0.
v. United StuW,
91-1 U.5.T.C 3 50,083 (Us. Ct. 1991).
the Internal Rewnue Servim twk l b s
pasition Lhrt d o n 1254 wuir+r

m p t ure of intangible drilling md
development wnr upon rbs disposition
of n nonoprating miauol inter&
carved out ofan operating minemi

inrerest. T h e couru, bowrvsr, held
inslead tbat tkta &spaition o f an
overriding royalty i n t carved
~
out ot

an operating minerrl intertst to whfch
i .tugihlc drOhnl md dcva1opment

dots nor vlrner
~pt&-G~ktbtoverri&l(e)13Hiil ara 611-led to the
ntid pin%# amount &at wmdd partner in the -6
maybe) h i t n n of &1250
manner u tbe
p r o j + y w t + e & d b y t b r ~ ~ ~ p r t vtwoaasgaintowbichmxtim
partner'sshart a1par~rwsbipproperty
1s
; fa~tnl&etval~a.S## 1.12501254(a) w&
apply if (st tbs Sime of
is dettrminsd Sac EL1250c1(21 for
tbt M a n m b b d in d o n 731, rulm similm to thm cnnlained in
11DI11.
( v i ~with rerpefi to m y d l @p w
736,741. or 751. as tbs mse m y bsl the 5 1.1245rl(e)(3)(iiJ.
[jv) l Y j h rwped to trwfmaher

,

J?

'

'

r

01r pamedip beginning sfier
~ 3 1 . 1 9 6 9 . l h 81
-u

to

itlm a f - r d p

nwpwrr p m w y ro ddhd. h e
potential gain i s &a
which
w o u t d b tneted u gaLa to whi&
d o n t2Sllc) luin a b 3 kfon

propacy wgb IOM

h w a r n u p 81

a

t

o

r

e

its kir m w h wrluc

Par. 7. Sections 3 . 1 2 5 4 4 k m g h
of s e d h 751i4 and 1 . 1 2 3 4
added ta r u d as i o U o w r
.5 1 . J u * 9 Tb).d~on-b Iw+sction
1 2 s -pwm
rub
=s seaion Usts rbe maw,xpticm
waiaind id 5$ LUS+-1 thrwgh
'. propmty h h d in &is puagrph
1,125-

IcIt4).
(5) For purpses ofsubtitla A of the
L n d Rmtauo Coda. the M s of any
csnti*l
d u d b e d iapampph
efia-n~rlb~u-~of
c)Il)oftbussctj~iszcm
.
1 9 ~ l w o d d ~ p p l y U I ~ t b r h r o l r b s( 6 ) t i ) I f ( a t t b s ~ o l a n y - a
n dercrlbsd In &731.
referred trr in parr aph {c)[4Jof this

r

4r.lZ5AX

f7
o]pin/ma
drrpwiiion PJ rfahml mourn remyw
pmperr1'.
(a1 10 ssmrJ,

&) afiaih

I11 W o n 1254 cusU

(21 H a d mmurw -plum

-

pmpty+

r t t . u u -may
pwdp
b o w ppny I l l D i q '-'
k ) DiPWjtwnoT&porrim olnshml
i t e m wus wld by the w
p .I its d
d ia p w y a p h {c#4) d ~s
I u r matkd vdur
-PIpropcity.
cQclimlad il(11 Dispoait~onof. porn011 (other thzn an
t d l ew
biil I'Yitb r e p d to
(A) A part^ b d 8 s p d a l basis
undivldd i a t v t r i l d m ~ Y H l r r r ~ u r ~
of Iparbaship h g i d r Phcr
~
. adjustment under
743fiIiP
-Pw*
D c c t m b e r I t . 1 9 6 9 , L b r t e r m ~ c d n~
a[&epmpcrty;
I 2 ) b i r p i t i a n almn undivided i n ~ c m t
receh*abla,J.w purposl~ofthis d m
b
s
i
r
under
d
m
i
3
Z
of
the
(
431 Al!tmrtive a l k t o a rule.
a d redions 73L 736.741. and 751.
property ildistributad to the pannu
[dl Instillment m . t U
also indudes potential g a b from Lann
would maeel Ispecial basis adjustmeat 51.125C2 Erccp!ionsond ~imilotions.
land u defied in &on
1252hI(fL
under docl732(d); o t
[a]Erctprioabrph d d m 1041
l\'i&
resptd tn C4tb it- dpadtnenblp
(C) Oa b c dale a p m w acquird 1
tnmdels
i ~ - m l a n d r o d e h 4 h ieatiilgah partnwshiph~erestbywayofasalaor
I l l &dd d
treated as
exchaup (or m p o n t h e death oianoihar
i s tbt mount that wodd
I t )R n p U L M C ~ ~ ~ L
gain to wbrcb &1zSt~eK11would p d - 1 the p a m a h p awned tbe
b)Exaptlm 600 as&
at death.
apply if (a! t
h time oftbt transadon
property and nn e f e i o n under d o n
( c ) Llmit~tivab r r m u n t q - h

f?

+

&"

d

731, w

d in
732,?36,741. ot
tbc care may Ix)dm item wtrd

754 w i h uBm w$tbrtsp~tt~utbt.

p m n t d u p . tbe pprtocr's &hareofmy

m i p n *

Il) e d d r

-

2 302

---

-,

(21 S p c i o l m l c rot dispos~ignslo crnain

tax excrnpl organiu;ions.
1 3 ) TransIcn dncribed
.
(;),SpuiaI rults for stction 33: ~rsnslen.
id) Limi~ationlor like kind exchang- an!
invaluntsry conversions.
( I I Ccnenl wit.
(2) Disposition a d ncquisilim of b h
nillural - u ~ t maptum ptopcny and

.

'

'

the wie. exchange. or involuntary
c o n ~ e f s ~ oor
n . thc hit m d e t v a h of
the propcny on any oihm disposilion,
exceeds khs adjus~cdbasis of the'

~ c c t i o n61 1 that ~ v a sc o m p ~ t ~
c idh e t
ur;derscclion 612 or sections 61 3 and
6I?A. wilh re5pen lo tha p r a p e ~ ~ ,
would have &en increased jf fie costs

propeny. Hoivever, any amount treated Ipald or incurred after Deccmhr 31,
as ordinary income under the prweding
19751 had been chased to capital
sentence i s not included in b e
accounl rather than deduc~ed.
taxpayer's grass incame jrom the
(iiil Deductions under seijm 5s and
properly lor purposes or senion 613.;
stcrion 291. Amounts mpiraliz~d
athtr pmpmy.
Ceneraiiy. the Iesser o l t h e arnounu
pursuant to a n elcaion undcr saction
j l . 1 3 5 c J S m b n I254 costs immdiately
bescriked in this paragraph la1 i s treated 5gtel or pursuant to sectiotl291(blan
o ~ i wcenuin ocguisitiorrsmated as seclian 1254 cos~sin the y m
as ordinary income even though. in the
Ia)TmnSactio~sin whith b s i s i s determined
of
2251ta), no
in which an amortiwtjon deduction i s
by n t e ~ t n c eIDCOI: or his marLe~value
~vould
bc mtognized upon tbe
claimed under sectioh 59IeH1) or
of propeny tnnslcrred.
(11
derermh& under 5cttjon
disposi~lonundcr any otbsr provision 01 section 291 b112).
Lhe Inlernal Rtvenue M e . For Ihs
l i v l Suspended dedunions. lf a
( 2 ) Basit dsrtminmd under rcction 301(d).
definition af the t e r n smjon 1254 msfs. deduction of a section 1254 cost has
334111. or 3581a)IZ). .
k n suspended as of the date 01
see paragraph @)(I) oI h i s section. For
(3) Basis deleminod wldy under former
slllon
'of stction 1254 prapcrty, the
sectin 3 a l b l l ) a lamer r e l i o n
the*definition of lhc l e n s senion 1254
uCllUn is not mated as a scctian
3J.Ik).
propeHy. oil. gas, or gtblhennal
(41 Basis d a t e m i d by eman
!ha
prope,-ry.and n o r u r d r c s o u r c e m u p r ~ ~1254 cost irit is indudcd inbasis for
appliulion o l =lion lOt4la).
dc1ermifins ein or loss on the
property. see paragraph M ( 2 ) 01 this
@) Gifts and mfiain t a r - f m transactions.
disposition.
the other h a d , ilthe
mtion. For mles relaling to he
U ) Cenenl rule.
disposition d natural r e s o w e m a p t u r e deduction win eventually be claimed, i t
I21 Tranlactionr corcrcd.
i s -ion
1254 cost as of *bedam or
property. S E pyagraphs
~
( b ) ~ )(c),
, and
Icj Cenaia cnnrien death.
disposition. For examph, a deduction
(dl of this section. For exceptions and
(dj Rope* -id In like b n J c ~ c h limitations to the applimtion of section - suspended PWSulht lo the 65 percent of
or involuntary tonversion
1254(4]. s
m $1-12542.
.
taxable income firnibti- d e p n
[~)Ckrrecllrul~ ( ~ l A ~ i o o t i o n o f t k t i ~ 1 2 ~ ~ 0 ~Ib)&finifionc-(11Stctionl254
U1~~g
613A(dH1) may e i l h e r b induded in
mulci~knrtunlrrwrccmaptum.
cus&+i)hpertypJactdinravin
basisupondispositionafIhrpmptrty
'

,

-

-

Federal Register I Voi-' 60, No. 6 1 Tuesday, january 10, 1935 1 Rules and Regu!atbns-

tr

,

b

.

ptapcny wqurrtd

a ~ & r k c r n h r 3 1 , 1 9 8 6 . ~ V i h r e s ~ ot o
r m a y b e d e d u c t t d h ~ g ~ ~ f t s- r t h ~
any properly placed in service by the
y w of dispwition. %c S 1.61 3Ataxpayer after k m b r 31.1986. h e
4 laltll. If i t i s included in tbe ksis then
it b not 8 r d o n 1254 con, but if it i s
term ion 1 254 costs means(A] T h e aggregate amount or
. dedudibk in r later yew it is a section
wnd;pr
cxptnditumr that have been deducted
1254 cost as a l the date of the . disposition
by the taxpayer 6r any pemn under

k) P ~ F E h~n~$ rYe r din
cases to which
r u t i o n 1071 or 1D8lb)spplits.
5 1 . 1 2 5 ~ Spccw rules jar 5 corpomtiam
and h e i r shorchpldcrr. IRmrvdl.

,. ,ts.c-s

rrr,cJ

ond their panncn.
. .
[I) In g t n d .
(b] &termlnarioo of gain trtarcd IS w d l m y ,
income under ,mion lzw upn th
dilparirbn
d Prtutol n-t
mphlrc

pmpvry by Ipmnarhip
(1) G n t t r l

mla

I21 Exctption to partncr lwel rttaplum In
the case of abuaivc d l o u t i o n r

*.

~ o ~ 2 6 3 , 6 1 6 . ~ ~ 6 1 t d h ~ (s ~ t ) o

P ~ ~ ~ d y ~ ~ ~
an amount has been previously
lmtbrn
"*
p f o P r t y and
deduction. would have ban included in . ordinery
pwuanl d o n

lii)

J

k'

.
'

t

incame
to
1254. i t is n a a section 1251 cast.

as

the adjusted basis of the pmprty or in
tha adjusted basis of mrtain depreciable
pMpetty associated wim tbe property;

(31Tbs deductions br depletion
(3) Exampler
under d o n 612 har rcduccd rhe
'
It) %!ion 1254 co& 01 m partner.
ad uskd k i n of r h e r p n t y .
(1I Gcncnl mla
PmpeWplacz tr -C
before
12) Scctiou 1131costs af m tmsfJanuary r. I sat. With rsapea ra any
purntr afrrt cermlri xquhtlI~8~.
pmper~y laced In serricb by the
Id] Pmptny d i s h k t 4 :a 8 v*.
wrpqn &[ore ranuuy 1.1967. h e
(1)b gtneml.
term section 12S4 ears mcms[z]~gsngmwof p l n w *~cclionIW .
ale P ~ O M0f~ ~usb
( A )7 % ~
coals with -pact to a m t d
,
rwptumproptrtyhwUbympannmhlp pddor'incurr a A e r B m m k r f 1 .
- 1975,with nrrptn tosufh pm erty, that
'.t25r-.
E ' ~ * ' * ~ * ' ~ ' ~
have been deducted as inungi lo
drilling and devcloprneni cosu undor
5 + . 1 2 5 ~ 1f rnatment ot p i n t r ~ m- .
aspolltlon of natural r-nl
rrropmm
-ion
263Ic) by the taxpaytr or my .
PropsYothtr person (except h a t section 1254
(a] I n gneml. Upon any disposition
costs do not include costs I m d with
m s w to geot hcrmal wells commenced
ol scaion 1254 property or any
disposition ahcr k e r n k t 31.1975 of
hiom O c r o k 1. $978)and that. but for
oil. gas. or geothermal pmpdy, gain Is
the deduction, would be reflmed'in h a
mated as o r d i n q Income in an m o u n t adjusted basis of a e pmpety or in the
equal to rhs lesser of the amounl d lhs
edjusied buis of certain dcp~eciabls
m i o n 1254costs (as defined in
property a s s o d a t d with the pmperty;
paragraph IblI'll of this &on) with
reduced by
- (0)The amount (if any) by which I h o
nsIO Lhe property. or the amount.
any,by which h e amount rcalircd on deduction lor dcplction s l l o w d undcr

.

r n ~

bated

.

tVi1 N~npmdu*

welts. T h e
aBgPcBate m o u n t ofs d a n 1254 costs

paid or i

n

,

d on any prnpen

T

Includes the amouai dinltngib a
drilling and dcvelopmenl costs inclurrd

on nonproduaivt wellc. b u ~only to tbo
1.1 the taxpayer recognizes
income o n the lomlosurc of e
nomcaurss debt the p r o t e z d s . k
which were used to linanca the section
1254 casts wi& nspect to the property.
For this PILTPOJ~,
tht term
n o n p d u d v e well means well hat ' . = ..
dws nM produce oil orgu in .
.
.
cornmesial quanlitla. ineludinp a well
h.1 is drilled for the purpose oi
ascertaining hgexistena. h a t i o n , or
extant of an oil or gasmservoir [e,g., a
.
cislineation weil). T h t term
.nonprvductivt we// does not include M
injectLon well {other thm am i n w o n
ivtll drilled as part ola prow that dms
not rerun in ptoducljon In commchal
*

'

quan1itimL
{vii) Calculation ojomounl described
in paragraph IbHll(iillBl of h i s section
(hypoihctirol deplefion ~ J f s e l H A Irt
) '
geneml. In mlcularing the amount

Federal R q i s i e r / V O ~GO,
. No. 6 i Tumdsy. J a n u a y

10. 1495;

I hlcx and Re~ubticns

---

-,

ir a&tu k
drpletionL no
c ~ inMparagraph fi)[l){ii)(B) of
t h a m i o n . the I P C E P B I ~ ~shdll hpply tbs amount of inhngibb dtiUhqand
d*t.tlO~mnlO D ~ b
St
00mL On b n w 1.
fu!lohj\ins
ru
mpym
11);9. A ~ u l d
iht oil propeny 10 D tor
the % ~ ~ l s ~ - ~ x ~ b l o - i n e a r n 53b10.W
s
and cahlrled section I fk
limitation of d o n 6lSNd)LII.1! b~ maprum rithourrrltrtmz
*$.
.
i ~ 1 - ru m -1 limitation.
'
p w n t d ~ a * t h ) F ' i - ~ limitmtim. h',
laxpayer i s nd r f q d to recnkulak . pnh
on the rrh k rbc eatirr SJC~OMKI.
Ibt
of cvch limitation with re-1
W E Cwrir ia
p p a t t. thr
dl P ~ LP m v ( b , S l ~ . D U lwa .
to any pmpeny not
oL That is,

J

*@

2503

---

opcnttng mincrd iolemst Idcxrikcd in
Pmgr;lpb CbY2)liv)lA)Irl ofthis &MI
in tht same huor prrtlcdland thnt
IrrmimU ( i n n b o b or in pan1niUlout

being d i s p d s d d I&&. a w o h q

.

aft- a
specified perid of time or a given
ambunt of productjoaX bul only i i l h m
Cxiws btltwtmn thc n r l n l t d v i e r an
umgomcnt or plur to avoid m - a p r w
under ccldiah 1254. In such I c a w . \he
rarpsyor't &ion 1254 WS
with
rcspeGt to rhc propcny include rhosp ot
Ihe d a l c d parly.
(B)Ex~mplcTbe kdlonSng m m ple
illuslnts the p m t - i h s of paragraph
(2#iv)(A)(q) of rhis cadion: '
Erampls. Amrrrgcment or pJun i o n~tnid
mp!uce. C,an individual, w n a I#%
nl
:ha nmk orbmb X 6.
m d Y ta On jmlunry
inlercst which i-ted

1, f W 8 , X

a mtcninaou aandrrd uil ~ w d

l a r a X Ca Immodirtcly
t o Y Co.
I Ior rhc wotfiog hmm SOT rmr v.
l11d
00% o l t h r d i n g i n l m tbr?tsafta. la
IftCB, X Ca snd Y 6.
t x p n d S 3 N in
i n u g i b k drilli y and dcvelopruell~-IS

R.S

.

cbs s t . c i d w h k h 5 1 9 7 am
devdWi"f,
dcductrd y X Cm milu e
n zti¶ic). Onlanumy 1.1 999. T
sells Ila 89% hm of
tht wwking Inierrrl io an umlalcd m.
&ad en all Lr f m md m ~ t l w
tha.
rmryamtn~bgwpn)Eb.mndYCabyut
diplrnw ~ t v l g w n ~ i o r v o i d ~ p m m

undercedm ~~~.mimr.
YCamr~
haw beta rllowabb if inmgible
inetude In iu d i254r ~ c U
tbr 5191 d
a
I
,
g
~
.
o
r
y
a
n
c
m
d
p
m
.
drilling ~ b devtlopmsnt
d
casts bad .
inlangiblt U i g and de*pmw
casts
pil.
orgclothd
.
brrn a p h d i n h t f l h remainder is
dadirc~dby X C a
lulu
zem or c
h
s
l
sh u m.
rbe tatin amount . pmpa*mun.
-.
o f ~ ~ m ~ b ~ d f i t ~ g a n d ~ C l o. m
p mWo no~ f ~ t i ~ ~ 1 ' I t h a(4
'P~m~m~the~&is 4 m&uA
.
m i c a by tht &axpayerhimJ*nu.ry inclrrdcradjusme&f.dep&jnn
~ a r ~ b u u b l ' m ~ u ~ r o in
1,~ ~ *
dedudiorrc l3e ed-ad
basir
of
i
(
m
)
.
a
g
e
a
&
m
r
a
.
d
d
m lurrble.
p-y
indudes adjustme~uZw
in PUP.P~ WlHgml ofu
s
me ~011owingr-ph
ma

,

*,

Ibfiomplt.

~ ~ ~ W ~ t b a r g e r b ~ ~ ~ ~ *
roducod by
of dapleticm
dedudiapr; or
mHs arc properly chwgc-.: ; I 4 A )An
arpenditm ifi pmpig dergadbklo
[B] Tbc pmpcrty hpr b c n a n d out
of or k a porliam of proputy the basis
propcny ifcrr whi& b9s h r a d w d re- or
( 1 ) T b e prop* ir an o p m h g
dr.~lopmtnrcosts with %pKl to the
wifh m F to wm de laiw d e d u ~ $ ~ ~
pm;c.w. A dcduurd IRElntaagibl. drilling m b l d
Phi, ~ I I ) ~ y h e ~ l & a - ~ ditura h a b*sn d s d d :
+ad ktlopnmt wsu-mr x ~ s uodm
n
Pxvpny beld by .su-ansfww i s n u unrl
seni~n
W )t.t i r m l t d
01 1#.o08property i s 4 aonoperoting
n w u r a = p W proputp if t l ~
[e+ a n e t pmtu
b m k d m d c dl m m dlKO*bCd i m & t d inproperty was n a t d m m w x -plum
t g r t r n d pmdtdm begm LU 1978. b I ~ T O . i n l e m 0r.n ~ v b b g
u-1
:. p r o d d .odWM joAlao h h of 4ill b u r d h n g .a
propmy in ihe haodr of Ihe kansleror
mined u-t
58 p r h d . m l t i q b S 2 1 0 m 0 l v - , ~ ~ e n P m o ~ g m i P e r l and
ljn
le
rbt
w frsc
r src t
' s~
io t h e p m p n f
i n a m e . A h d prr &oil
g u pmd&
i i dercnniad cr*rb
ia As
aa
lrr opemug
in 1978. A clnimed # perccn1.g dcplttiob
v*llsleror'r basit in tbc p r o w y Icg .r
iaer&sCaiMh
-graph
deduction of S52.ti*. 22% of f24O.(WWJ
gift) m is determined d u scdivn 7 3 2
in-r
the proprny). lf .4 had
Ib)(2)(ir)IA)tll ofthis &D:
Prnputy hdd by a rmnsf~ror.
(3)l'%~
propmy k a U P D O ~ ~ M ~ (vii)
~
t a p i r h i d thl intnn@h drillity 14
Propcrty held by a uaniiemr ool mlwd
minmal inrddmed by a lessor ar
development msu wume that S z W m
ln~
pmpeRy is n a t u d
the costs would ha.+ b m d l ~ o t e dia t
h
sailal-c
if SU& -1
or S U ~ ~ S Y ) ~ . r e ~ o ~mmptur~
dep[trsb(e prop- a d pone ta dcprociablc
r e c o w m p t u r e ppefiy if be
held, prior to the ieast or s u b l q rn
?mPr?y A'S cmt deplrdoo dc.ductjan iJlbt
transtern's bask in iht proptny
opcmting mineral intpread e d h d ja
t-tangible $tilting and dtveloprr.ent cost
p-aph
b)lZ)(ir.]IA)(~] of h i s d m w i v e d is determined umih mkrcnuc to
hd k n capinlirtd xvuld have k n
-~ h tran.sieror's
c
basis in the pmpcny
uL
5 4 2 . W (is: ([S200.003 intaneible dri(ting
tnnslerred
by
the d m r It-g.. LI U h
and drnlupmen~
+ S,Q.M)I1 q u i r j U h
Id)
p r n W y ir omring
Or a
nonopcratir- rnlaerd inlcrrst held ty a kind cxcban el. FOZ purposcr ol lbic
rn-1 x #r.W
h l r d d u e- t i o n l l
.
taxpayer ifa pany relard 10 h e
paragiapb ibfitl. p m v y d n u i b d in
150.000 barrels d estinutd n a v s r a h l e
as
:
t h e m h g of senion thir pnragrapb IbA2llriil is ~rcat~d
merv-LSibi~
I E I D U ~ I i d ~ L than
I
~ - 5 I U P ~ ~ ZIwithid
d c p l t i w d & u a h d S 5 2 a 0 O @ m r m ~ e 2 6 7 f i ) ur d o n 707m)held an
pMinmrvicealtbe~Ihe
illmttsbprinctpboi-trph
IblIl lIviil(hL
h m HMh1do&cion Q!&
1gT6* P h a d ddOd
1977. A iMlCthdZ209.000d
s1o.m.
productive we11 ~ n - i d a y mnd .

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2 504

Federal Register

V d . 60.

property tran~fe~wd
by the uansfcror
was placed in service by t h e tranderor.
(3) Disposjtion--(i) Ceneml mle. The
term dispositiw has tho same meaning
as in section 1245, dacng to gain from
disposirions of cenain depreciable

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iji) Exceptions. The t e r n disposition
does not include(A1 Any transacljan lhat is merely a'
financing device. such as a mortgage or
a production payment that is mated as
a loan under section 635 and the
re ulations rbertunder;

$1 Any abandonment (except t h a ~an
abandonment is a dispsiiion ;a rhg
exmnl the taxpayer recognizes income
on &e foreclosure of a ncnrecoursa
debt);
(C) Any creation ofn lease or sublease
of natural resource recapture property:
(DlAny termination or eeleclion 01 Lhe
stalus of an S toqmmljon;
I€)Any uniliza~ionor
arrangement

. (F)Any expiration or reversion 0f an
operating mineral interesl that expires .
orreverts by i b o m renns, in whole o t

in art: Or
~y converiion 0i.n overking
royalty interest that. at the option of the
grantor QC suc~e~sox
in i n t e ~ s t c, a n v t n s
to an operating mineral intered B her a
certain amount of productioa:
(iii] Special nrlefor cdnying
amngemtnls. In a carrying
arrangement, Ijabjliiy for section 1254
costs afVlbutabltt o tbo entire opemting
mineral interet held by the carrying
party prior 10 reversion or conversion

&I

remains ottribuiable to the f~duced
operating mined interest relajned by
the canying patty ahar a podan of the
operating mineral interest has reverted
to h e carried party or alter the
convc~dionof an ovemdirrg royalty .
inrerest that, at &a oplion cl the p t a t
or successor in inlareg, convens t0.m
operaling mineral interest aher a cenain
amount ofproduction.
(c) Diswdlion oJ u porfion of n a t d
~ s o u r c crtcapturc propeHp-iE 1
Disppsjtjofi of a p H i o n loher than on
undivided inrerest) of n o t u d remum
recoplure pmpeny-(il Norural n s o u m
rccopture properly subject fo the genemI
TUIES O{ 3 r.1~54-I.or plupvsts of
section 1254~a)(l)
and paragraph [a] ool
15issectioh. except as ~ r ~ v i d eind
puagraphs [c]{l) Pi) and (3) or hi^
scaion, in the case of the disposition of
a ponion [that is not an undivided
intenst) a l natural reroum rccapturu
propefi y, the enlire amount of the
secrion 1254 cosls with respect to tbc
natural resource maplure propcny is
treated as allocabla to b a t ponian of the
propeny to che txtcnt ofthe amount of
gain 10 which section 1254(a1( 1 ) applies.

No. 6

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I Tuesday. J ; l r ~ v a r y - i O . 1095 I Rulcs a n d Kequliltions

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If &heamount oitbe gain to which
rcsourcn recap! we propen y [or a
section 1254(a)(l)applies is less than
partion dlercon, a proportionate part of
the amount of the section 1254 costs
thc scction 1254 costs with respect to
with respect to the natural resource
the narural resource rewprure ptopeny
recapture propefly. the balance oft he
is treated as a I l ~ a b I eto the transfer;cd
section 1254 costs remaining aAer
~lndividedintctesk to &e extcnr of chc
alloca!jon to rhc ponion of the p r o p f l y amrsunt o r gain t o which section
that was disposed of remains subpct to
1254IalIf 1 applies. For example. assume
reeapture by I h e laxpayer under swtian that A owns an 8 P s c r e tract of land
1254(8)[11 upon disposition 01the
with mspect 10 which A has deductd
remaining portion of the propcfiy. Fot ' intangible d:ilIing and develnpmenr
example, assume that A owns an 80-acre cosls under s e c t i ~ n2631~).If A sells an
tract of land with r e s p m to which A
undivided ?O percenl intcrwt in the 80.
has deducted intangible drilling and
acre tract. 4 0 percent ofLhc smclion 1 2 5 1
dcvelopment costs undtx section 263k). costs w i ~ hrespect to the 80,acm tract is
IZA setis h e north 40 acm. the entire
atlocabin to therransierrtrd i O percent
m o u n t of lhe section 1254 costs with
Interest in the 80-acre tract. Hawevcr. if
rcspect lo the 80-acre iract i s maled as
h e amount oZ gain recognized on the
allcable to the 40sacre ponion sold Ito wlc of Ihe 4 0 percent undividd intercst
theextent of the amount of gain to
were equal to only 35 percent of the which section t254(a](lj appUa].
amaunl of section 1254 costs
(Li) No(um1 fe$&urccrecoplure
awibutable to the 80-acre tract. only 35
property ~ u b j m
to Lhe exceptions md erccnt o i the spction 1254 cos~s3 0 d d
Ijmit~tionsof S 1.125t2.For purposes
Ee lreared as a~uibutableto h e - ,
ofseaion 1Zji[~)[l)and
(a]
undivided 4 0 percent interest. Sec
of this section. exceot as provided in
paragraph (el(?] of this sectior. for an
G g t e p b b)(3] ot &i6 &tion. in tb.
altcrnativr: allmation rule.
cass of t h e disposition of a portion (that
(iil Natuml resauxe re~optu*
is not an undivided interest1 of natural
p r ~ p e r t ysubject !(Ithc exceptions a n d
resource m p t propedy to which - limitations of 5 1.1254-2.For p-m
section 1254(a](1) does not apply by
of sccrion 1254(a)(lIand paragraph {a) reason 01th application of 5 1 . 1 2 5 + 2
of chis section. except as provided in
(cmrhin nonrecognition tranwclions).
paragraph &K3] of this section, in the
tha following rule for allocation orcosts caw DI a dispsition of an undivided
applies. An m o u n t of the section 1254 interest in natural resource recapture
costs thal bears the sarire ratio to the
property [or a ponion lhereoi) to which
#tire amount otsu& COSU Hi& mped section 1254 (a1[11 does not appiy by
lo r h s entire natural resource rerzrpture
reason o f § t.1254-2. e prbportionsta
propefly as the value 01 h a proptny
pan of tbe M i o n 1254 costs wih
transferred bears to the value of the
respect to t h e nalwsl reMurCe recapture
entire mtural r e s o w recapture
,
property is waled as allocablt to the
pmperty is treated ns r l l m b l e to the
tmnsferred undivided interest. see
portion of the natual ttmme m p t u r e paragraph Id(31of & i s =tion for an
property transferred. T h e b l o n c r of the al~emativeallocaiion rule.
m i a n 1254 costs remaining aher
(3)Allernolivt al~ocotionr u j H i ) Jn
al1ocdlion to that ponion oiU'ie
generol. The ntles lor the allocation of
Dblsimed property remaim subjed to
recapture by the taxpayer under section costs set forth in seclion 1254Ia)(2) and
paragraphs [c)(z) and (21 of ~3issection .
1251(a)[1) upon disposition of the
d 0 not apply with mpcl to section
remaining poni~nof the pmprty. For
1251 costs lhat the taxpayer establishm
example. assume that A owns an 8 0 - r m to
Ihc satisfanion or t h e Commissioner
tract of land with respect to which A
do not relate to h e t r a n s f ~ draperty
has dtduded intangible drilling and
deuebpment costs under section 263[c). Ercept ir provided in paragrsP~s
(c)(3){ii)
and (iii) ot t h i s section. a
lf A gives sway the n o d 40 acres. and
taxpaytr
may saiisfy h i s requirement
if 60 p e m h t of the value of t h e 00.atrrt
only by receiving a private Ietier ruling
tract were ottributabla to the north 4 0
from the lnternal Revenue Serviq b a t ' ,
acres given aWBy, 80 perccnt of h e
the scaion 1254 cosls do not relare t~ . .
section 1254 costs witb c e s p d to the
.
.
rhe transfwrcd property.
80-acre ma i s aHocable to thc north 4 0
{ii
]
Podion
ujpmpcrty.
Upon
the
acres iven away.
transfer of B porlion of a rlatursl
12) Lporition o / n n undibided
re5ourcn rewrture pmperIy [other !bm
inleresl-4i) Noturn1 resource nxop!urc
propew su b j d to the general rules oJ an undivided intetestl with respect 10
which secllon 1254 casts have h t n
6 r .125?-1. For purposes OF seclion
incurred. a taxpayer may treat s d o n
1254(a1~1),except as provided in
1254 casts as not relaling to Be paragraphs @ ] ( 2 J ( i iand
)
b)(3) oithis
transferred
portion if !he translemd
scction. in rhe case oftha disposition 6 i
pvrrion dms not include any pan ofanc
an undivided lntercst in natunl
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Federal Rcgistcr
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\'d. GO. NO. 6 / Tuesday,

depos:i wilh rcspcd 10which

5 1 . 1 ? 5 4 - l [ ~ ) ( l ) ( i i lond Ic)lZllii) for

I~CCOSIS

w e r e incuaed.
(iii) ~ n d i t i d e dintend.

Upon &e
transfer of an undivided interns! in a
nntur.1 resourn reuplurr pmpMy w i h
r c s p ~to
t whi& section 1254 mstshave
bmn ~ncurred,4 taxpayer may t m d
cosu as n d relating to tho transfcmd .
. . -'interest if the undivided intwsst is en
undivided interest in podon of the
nstuml resource recapture pr~ptfiyv
and
. . h e portlm would k ebigiblc. for the
.
alterna~iveallmation rule under - p-a
a h [c)[3!(ii! of this &Lion.
(iv~&brtanlmfion. !I a Uxpaym mau
.' d o n 1254 msts incurrsd ~ 5 t hmpect
..
to a natwal resourn nciplure pmpcny
as noi relaring to a transiermd intercst
.
in m portion of lhe prop~rty.the
taxpaycr must indicate on his o t b r tax
ntm that he costs do not relato to ihc
transfend ponion and maintain !ha
.
and supporling evidence that
substantiale this position.
(dl lnstollmcnt m e l h d . Gain h m a
disposition to which d o n 1254(1)(1)
applies is reported on the Installment
mehoci ilthat mehod o r h m i x npplio
under section 453 or 453A of the
lntemal Revenue Code and the
regulations hereunder. f i e pofiion of.
each installment p a p - : as mporied
that represents income I o h r
interest) is v e a ~ d
as gain which
section 1254(a)(1] applies until dl 0 f h
g& [to which &on
1254!1W1)
a p p l i s ] has bean repafled. and Iht
ponian fit any] of h e income
.
is hca ~
~as g&
t to
dwhi& cectim
12s4(al(1)d o n not apply. For traatmrht
of amounts as interest on certain
deferred ayments, see sections 483.
1274. a n i t b e nguldon8 ihereundu.
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locuary TO. 799.5 1

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Rules and
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2505

Rcjiuls[ians

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apply lo B dispo~itlono f n ~ ~ u m l

~ p p o n i o m e nof
t scaion 1254 c o l s on rcsource recapture propny to an
a gilt 01 a ponion of narurnI tesourcc
oqaniar ion Iothcr than a coopcmiivo
m a turn ptopcrry.
dcscribcd in scclion 521) tha~is cxcmpt
D ~ P M Lrunradiom. I t a
from tho lax iimpn*d bymchapter I uf 11,e
disposition 01natural resource rccnptuw lnlcrnnl Rorenue Qda. Thc prcccdily
propeny is. in part r sale or cxehangc
scnlcnce docs not oppIy to n disposition .
is h a t e d of natural m o u r n m p t u r e propcdy 10
and in p a a gin, che gain
as ordinary income pursuant 10 section
an organization describd in setlion 1
7254(8)(1) i s the lower of rhe s ~ t i o n
(a)(2) or &)(z) (dating to imposition of
3 254 costa with nspect to the property
ta* on unrelatcd lusincss inconlc
or b e exorthe amouni realized
Aaritsblt. ctc., o~urizalions)ir.
upon tba dispsilion of h e property
immediarely d e r ~ h disposition.
c
Ihc
over tba s d i ~ s t dbasis ofthe property. oqsnizaLion usas thc ptopefiy in an
In LC
au of a rrurslr subjsb lo
unrelated trade or business ss dcfiaed in
section 1011b) (relating to b a ~ a i n
sales section 513.11 m y pmpeny with tespm
10 charikble oqanizationsl. h e adius~ed to which gain is no1 rccqnized by
basis tor purposes of the preceding
*wan of the exceplion of this
semen- i s the odjusred basis for
paragraph Ic)12) mases to bc uscd in an
dbterrnining gain or bss undw section
unrelated trndc or business oI the
lolllb].
ovanization acquiring the pro erty. h u t

+

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I b ) ~ x ~ t i o n j o r k s f c r s o f d w f h .oganiwtinfiis.fwpurporcs section
1254. trcated as having dispoxd or ~ h c
propmy on the dateof ~ h assolion.
c
I31 Tmnijcn dcscnnkd.ne
transfen
referred l o in paragraph (~)[1]
d this

Except as provided in sation 691
(relating 10 income in mspect of a
d d c n t ) . no gain IS t c q n i zed under
' ~ e d i o n1251(al(l) upon a transfcr at
ses 01 this patagtaph.

,

= d e n are h n s l e s of natural rcsoum
recapturn property in which thc basis of
hnsiw
resourte m p t u r e , rht natural
1properly
p r o p ~ that,
y
in the hands of the
in the hands of the
is . .
transferee, has ..basis determined under deicmzlned by reference 10 ils baiir in
the pmvisions of d i m 101 4(a)
the hands o f the trurslcror by reawn 91
(mlatin to basis of property a c q u u d
ihe application or miy of the f 0 1 l ~ l r - i ~ ~
h r n a d d e o f l b . a u of
~ h e do.* of provisions:
tbt transferor. See f 1.125&3t8)(41 a d
.
(i] Scdion 332 (relaring to ccaain
(e) for the determination of polcntial
figuidatiom ~ T s u b r i d i a r i ~ ~ .
m p t u m OI d o n 1254 msts on
(-,raphIclldl of tbis raron.
pmpny acquired in a tmnrler a? deathSectinn 351 ( n l a \ i ~ g10 tmn~1~110
{c)timito~ion
fwerrtoin
mation cpntrplled by tnnslcror).
rrunsaN~n.--ll) Gcnrral rule. Upon I
a iii Section 361 (relatingto cxchangcs
pursuant to mnnin corporate
transfer d l proptny described in
par;tWpb (c)(3)of this m i i o n , the
mrpanizatiansl.
amount of gain mated as o r d i r y
Iiv) M P
721 (rtlating
~
lo lransfcn
income by rhe rransfemr w d c r ~celion to t partnership in exchange for a
4t.fzM
and
I Z S S ( I ) ( I ~may no! exceed the amount
partnership intenrri).
I v l Smtion 731 (relating to
[a) Exception far gifis and section
' at gain q n i m d to h e mnskror on
104 1 tronsJers-41) G e n d d c . No
the transfer (delcmined without regard distributions by n partnership lo a
to section 1254). In the case o f r mnslet partner). For purpostr of this paragraph.
gain is recognized under seclim
1 2 5 4 ( a ) I 1 ) n p o n r d i s p o f i ~ o n o f ~ Wo 1 b o L b p r t ~ r p l r e s o u r c e ~ p t u ~
the basis BJ natural m o u r n reeaptue
recoucb recapture pmpcrty by 1 gih W
property md property that is not natual properly distributed by partnership 10
byatransfatinwhiebnoga~n~b~ resourct~pt~ptopertyinane
a pattner is deemed to k determined by
mbmnm to tho adjuwed basis of such
is recognized pursuant to rreelion 1041
transaction. [he amount rcalired from
[rtlating to m s F e r s b e t m a s ~ o ~ s # ) . l h e disposition of h e natural msource
property to t
h amtrship.
Forpurposesofthispmgraphta),tht
mptmpropertyisdeemedtobe
(4) Spctia/ w f n fur r ~ ~ t i 332
en
rtrm gift means, except 10 the eaeal &at equal to the #mount thai beam h a sama rmnsftrs. In the u s e ofa distribution in
complcte LiquiBtion of r subsidjar>.80
puagmph Ia)I2) oitbis &ion applits.
ratio t o &e total amount realized as the
a ~ransferor natural resource
f i r market value ofthe natural resourcu which sktion 332 applies. the
p:operty that, in the hands of the
m p t u r t property bears 10h e aggregate limitation provided in this paragraph ( c )
is confined to instanccr i n which the
L-ansferee,has a basis decenined under lair market value of all t h e propcrry
basis ofthe maturd ~ s o u r m
reaprurc
h e pmvisions d sections 1015la) or Id) mnsferred. TIM preceding senlcnec is
propcrty in the hands of h e ~ranstcrce
tnlating to basis ol properly acquired by applicd solely lor purporcs of
i s dctcrmincd. under s m i o n 33-I(L)(I],
gift). For rules concerning the paential computing
~ H i a of
n the total gain
b!+reference to iu basis in the hands of
reduction in the mount 01 the
to smioa
(&ermined wibour
the mnsfcror.Thus, for example, thc
hariteble con~rjbulionin the case of
1254) that may be recqnized as
lirnilation may apply in rcsp- ol a
na~uralrcs~urcerecapture pmpcrty. see ordinary income under section
liquidatmg disLribution of natural
. d o n 17D(eJand 5 1.170A-rl. See
1254(aWl).
resource recapture propen). by a
5 I. f2544b#?1 for determinotion of
(2 1 Special rule [or disposirions lo
subsidiary corporation lo thc a x n t
potential recapbure ofsection 1254 costs ccflain Iax-cxempt oqonizations
Paragraph (c)(l) of this scaion docs not corporation, but does not app y in
on property acquimd by giH. Seo

2 : Z Z 'dnatural
nT

at death

a

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w n SPncq s.uoSJd ay) u! h a d a d u! rou s! w p m l m ivadwd a r n l d m
~ o s m
w a e u 10 u o ~ i n q g y p
aWdeXu a a n o w (emieu ayl ol w s a 3
&qrep!n !I c 0 1 dldde PU mop
w f i o s a t-nll~ulow r!
b~adold
V l t w s m 3 +SZL wnW5 10 tunom . .agl pnn[rA ~ a q ~ t rnr te av
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ar11'Isuoptp!nb!l a i ~ o d l o sutnuas os 10 ~!mos
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Federal Regislet I Vo!. tSO. No. G I Tuesday. janrrary 10, 1995 I Rules and Regulations
- .

.--

( i i ) T h e partner's share of !ha amount.
il any. by which thc amount rcalizcd

i s a c ~ u i r e dfrom 4 dcmdcnl prior 10

2507

- intangible drilling and dcrcLopmcnt mslr
will b c nilpcaard 10 penncr K. and rhat nil
olher ttems ofIncomc. gain. or b r r will bc
aliocaird cquall?t htwtcn he two panam.
Arsunte these a l l a t i d n s hot-e ~ u b ~ a n t i g )
ccononric c f k t under seclioa 704(b) nnd the

upon tho sale. fix~hanpc,01 involuntary
.-. eschangd or involuntary c o r r v c r s i o d l 1 conversion. or the fair markc1 vdiuc of
the property upon any other disposition.
Geneml rule, If natural rcsourca
cxcwds the adjusted basis of r b
rcca lure property is disposed of in a
r~guli~rians
thercundcr. T h s partnership
Bcqorms 8 least cvvcrirq underelaped
Like -nd exchange under recem 1032
pmpcfis*
{2)E.vccption fa porfnrr ler0el
acwngr l m r t d )n !he Unlltd Stmrm h r
or invalunurp. conversion under secUon
S5O.OM. Ir, 1997. the prtnershlp Incum
m p i u * in the mse oj abusitft
1033, &en immndiately ahex the
S 5 0 . m oi inrmgiblc drilling nnd
aljocotions. Paragraph b)(l)or this
disposition lhs a m o w l of Fedibn 1254
developmcnt wsLs the! anatloca~cdto
section does nor apply In dttcrrnining
C O S ~ Swith fespect to any natural
pMnet K. Thr p~nncnhipa h has 536.060
the
arnount
h
a
t
e
d
as
ordinary
incom
n s o m recapture property ecquimd for
01 d~plctiondcdur!ions, which an a l l w l e d
h e property w f e r r t d i s an amount
under section 1254 upon a disposi~ion equally betwen K bad L On January 1. 188B.
or s ~ i o fn254 propeny by a
equal lbthe w n e m h i p sells the geothermal propcny
(i) The amount of redon 1254 cbsts
partnthhip if the partnership has
10 on unrelrtd third v
y for $1W.000 and
wi& respect lo h a natural mourca
allocatad the amount rcalitcd w gain
mognizes a @in gI S 1 4 0 . W (S16O.WO
rcta ture property disposed oI;minus
nmoua! rralited less 520,009 o d j u s t d basis
recognized born the disposiljon ~viriLha
I I The m o u n t 01my gain taken into
(550,OC)Ounadjusled bask less 530.000
1.5
principal purpose oiavoiding hc
deplctioa deducrbnsl). T h i s gain i s rllocatcd
Bccounl ns vrdinary income undcr
re~qniiion
oi ordinary income under
equally b l w c n K nnd L Becoesc K's section
section 1254(a)(1) by Ihe transferor upon section 1254, I n such c8se. the amount
1254
f e S .ocKI and L's rmction I254
h e dis ositioa.
orgain on the disposition r c c a p t d BS
cmls ma S15.00Q, K r e q n i z n S t 5 . m as
(2) A location ofrpetion 1254 costs
ordinary income under scaiorr 1254 i s
ordiner)-incomc uadcr $-ion 1254(a) a d L
mmong mufiipjt noturd rcswtce
dc~erminedat the artnership leccl.
recqnizts 5 1 5 . W at o r d i n q income under
recoprue pmperties mguld. 1C more
(11E x a m p l n d c provisions of
section 1?S4ia]. The t m a i n i n g S 5 , ~
oigaia
than one p a w l of natural r ~ ~ o u r ~ c paragraphs (a) and (b) 01 this sccdon are slfwtrd to K ~ n 5d5 S . W a1gmia . H o u r 4
recapture property is acquired at the
lo L ir chuociujrcd k-ilbwrmud !a
illustrated by the lollowing examplcs
same tjrnc from the same penon in r
srclion 1254.
which assume that capital accounts w
mnsaction rciemd to in paragraph
maintained in accotdance w i h s s l i o ~ ' Ecornple 3. Sadion 5gcl d&'on
,
cupitdize intangible drillin and
(dl(l) of &is section, the total arnount of 70Q(b)and the regularions thereunder:
dee,apmer*
p-en%ip
~.i
section 1254 MsU with msptct to,tha
fion;p~c1 fin- J-I - p t u d n
.
equal purulca. On )muuy 3.1995. th.
parcels i s rllocattd 10 the parcels i n
gemml. A. B,abd C.have equal insmts in
pannenhip pluehaws m undtveloped oil
propottion to tbeir m-ve
adjurld
capital tn Putnership ABC I h m t nor formed
and gas pmpprty h a S10Q.Q00. The
bases.
on I u n u q I. rQa5.The pannership ccquirrd pennerrhip alloatts the property's bas&
[e) Property tmnsJemd in cases b
E n unkr*lapcd d m w f i c oil pmpcny on
equallyamong the we=
so
, sach panner
rshith sectibn 1071 or 1081 fbl ~ p p l i t ~ . J a n u q 1.1985, for SI20.W. The
ir rl)r~7!mdSZROO ~lbsi*.
L Pnuuy '1995.
Rules similar to the nriw ofce&on
partnership aII-ttd the propany's b a i s 10
the partnership incurs 5240.000 af lntangbblc
each panqsr in pmponi~n
lo ibe prtner's
I Z I S ~ ) ( Sshall
]
apply under section
dritling and develnpment w t s w i t h r e s ~
interest in partoenhip capital, so
1254.
to Iht propcny, The partnership elects ro
panntr wm allocs~cd540,000 orbsir- 1n
deduct the intagibta dtiliirrg and
4 1.12Spclal w k s l w S corporations 1985. the pannenhip incurred 560.000 of
drrclopmml
txpcnsa vndcr seaion
productis wtll inraagible drilling and
and their sharthohrs. f Reurn*.
-.
2GS(c). hch putner i s alloc~tadS 4 . m or
depelopmen~cesa wilh ~ s p to
m tht
inrangible & i U i q and dtvalopment ask.
$1.9S
w nrlcs for partntrrhips
. pmpcrty. The p m c r r h i p cMed ro deduct
ef &e partnan. H.tlects undti section
~ n their
d
pamen.
the inlinfiibl~
drilling and dekeloprneni co~u One
$%el 10 mpttulire b t S4.hOO share of
OE S X ~ R S V under
L
seetion 2 6 3 4 ~ ) b
. cb
(a) I n general. Tbis section provides
in~angibltdrillin&w d druelopmtm c ~ s t r . ,
partner deduaed S2a.Wo of tht tntangibh
rules Tor applying Lht pta\*sicn~'oi
Therefon, H i s permiutd 10 unonitc tria
drilirng
and
devckpmcnt
costs- AsSumC that
d o n 1254 to paneships and their
due at intangible drilline rind
deplaioo allorr-ableundtr r e t ~ i o n
partners upon the dispositionor natural 813A[c)(7)(0) for c u h pannsr for 1965 w-s'
d ~ ~ c l o p m ctno sl l r ovtt M months H [ a k a
resautce recaptw prapedy by t h e
a S ~ a m n i w ~ i dtduaion
on
in tW5. €&
SsO.OoO. O n I a n u w 1.1886. the partntrrhip
ofthe nrnaining 49 p u r n m dcducr.r his
pamaerrhip and cenaia dislrlbutiortsol sold thc oil pmpmg 10an unrclated third
M.@Msham af inlangiblt drillingmd
pmpeny by a pameship. Set &on
p n y for 5210.OLK1. Ejch partncr'~rllmblr
;3l and Vlr rrplatims Ihereundet lor
s h m of Le lmounr h o l i t t d is Sf0.000. Each dtrciopmsnt ems in 1995. Assume that
dcpic~ionallon-able rot each panner under
purner's basis in the oil propcfly at t h e end
mler concerning the treament of gain
section G I ~ A ( c # ~ Ml w
D tOP5
~
is S 1 . W . On
of
1985
i
s
SJO.1XlO
($10,000
cmi-SlO.OW
upon Lhe uanrfet ol a pamenhip
Membur 31,I 995. iht pvtnenhip -11s the
deplctioa deductions cls~med].Each plnacr
interest.
pmprtg lor f 3 W . W . Each panncr i s
hu r gain als+o.Wonrhe sdt of lhr oi)
Cb) Determindion of gain !mated us
pmpny
1S:O.W omount m a l i ~ ~ d - S 3 0 ~allocetsd S b . W o f u n o u realized. E d
ordinary income under section 125r
parlner t h a ~deducted rht intsngiblt dtilling
rdjurtrd basis in ~ hoil
t propeny). hrsurne
upon the dfsposilioa of noturai nsaurce 1ha1coch panner's depletion allowsnn
and de$*tkprncntcostl has a basis in the oil
pmpenyak the tnd d 1945ds1.oo~1sa.coo
recapfun properly byu prlnership-(tl u.~uldnot have h e n inacastd ilrhc
c o s ~ 51.DOD dtpletion dtductbons
Genernl mlc. Upan r dispod~ion01
~ntmgflledrilling and dcvelopmenr msls
claimed). W dl ~htrcparlnrn has a g i n
natuzal remme rtcsptu~epropefiy by a bad k c n capikmlized. Eaeb pmntr's stclion
of S 5 . m on the sale of the ail property
1254 costs u i ~ respa
h
lo ~ h property
r
a n
parinershjp. the amount rreeted as
(SG,DOO amount rcalizod - 5 r . m rdius~cd
S20,DMI. Thus. A. 8 , and C tach must mat
ordinary income undtr =lion 1254 i s
b;rririntheprnpcrt).~:Thcs~~im125~wstr ,
SZO.DUD
of
gain
rt~ognized
as
ordinary
determined at h e parmer Itvel. Each
o i each prmer h i t dtduclcd in;angibL
inccrne
under
s
t
~
x
i
o
n
1254(a).
parvler must mcognize as ordinary
Erornplc 2. Specid alfmlion af inian~ible drilling and dtvtlapm*nt costs are SS.8W

-

e,

-

!

-.

.,

-

-

income under section 1254 the lcsser
drilling ond deeloprnenl costs. K and L form IS4,BM) intangible drilling and developmcnt
ofcosis deducted + S 1 . w depltrion
a pafinemhip on January 1.1997. lo acquire
(i)The partner's secrion 1254 cosls
~ C ~ U C I ~ O Fclaimed].
LS
Because tach pmner's
and d t ~ e l o pa geothermal property as
ibjth respect to the propefiy disposed ok defined under sccrion 613[e)lZ) t h e
s ~ t i u n1254 cosa (55.800) exceed each
paflnc~'schiueol unouni realized It%< tach
parrnership a m t m t n l p r o d d ~rhala11
01

,

2508

Federal

bgidet

I V O ~ 60.
.

NO. 6

I Tuesday. lanuary 10. 1995 1 Rules and R@ulations
-

-

-

dp~ttk
d rll (55.000). **tb
c ~ t ~ w i d ~ s F t o P r Q p e f l Y b e ~ d bpY~ c ~ ~ ~ p ~ g r a p h i d ) ( Z 1 I i ] ~ A ) o Z
partmat must w-at h u S 5 . W gain mu t h e p a e n h i p i s zero on h a
his scction and of orhers under
o n h ~ ~ l a ~ I l h * ~ ~ P ~ P acuisitiondate.
f i Y ~ ~ ~ y
p a t a p p h (dI(ZWil(0) of this -ion.
i n ~ undw
~ m -ion
IZU(~Lb u m 1 l
8ii) ori is determind by mama * j
. (A) W ~ W panenhip
~ m ~ f l * ~ ~ ' * 1
Lbl
oppljcgfl~nO{ ~ C C ~ Jf OO f~~ ( b # 9 LU 811
dcrermhs a pamerbs
1354 d s
54.oT iprnrrdbk b t i l i n g md
in~etertin a panneahlp (hat b d d r
by using written data provided by a
dorel p=alud .m"ud
04 t ~ o
natural rtsource rmaptu* PmpnY is
p m w showing tkr partner5 -ion
a r t h a w h 1995, tbl USCO of
acquired belore ths death ol Bu
I254 costs with wpect to natuml
u m m ~i ad
~ r a g i bdrllltg
l
a d
dtctdenlTh e amauntdthe mkfW3 mmuet recapture property held by be
dercbpmew t d s Mjwl~ddLI !-!'I bPfb
in the oii p m v y fbuefmw. at Ibt errd
pmner's s t c ~ o n1 3 4 C W b h'kb H S p e g m e r s h i p un1-s (be pam+rs&p
1995 H'r bui~
in b q oil
5.1Mo
tQ Pro eny h~
pmersbip shall knorvs ac bas rearon to know h a t the
t f i 2 m on + *Am u=
i n l ~ g i b h i m ~ t ua
m o u n t . g-y.
- written data is inaccurate, U a
d f i l i y u d ~ ~ 0 ~ ~ 8 Ins- k
sectios 1254 costs dedudd by the
pamenhip doe^ not d v u written
jnwgr Ir d r 1 1 b g and d o u a k p m e n t mtranjfeice ~=-rbcrnm
rimdtnt's. dam upom whkb i t may rely, the
~ d n + Sd 1 m h p k h n dsdvcdcrr
drn4)l +
u b d h. o i l ,
dea&+
taent
L5ep-crsbip
must use Lht assum tions
.
panntr's h l e r c t t (dolormimed u d e r
pmperry I,,IW 166m rmaun,wlitpd
pmvidcd
in
pangmph
M
X
I
H
~
Y
ol
&
this
1% mu scaion 1024Iall is q u i d lo be
s4840 pdiurtdbarls) w,
section in dettmining a patner's
reduced under s e f t i l~O l J I b ~ ( 9 )
am $1,96415i m u a g i b k d r i l l i m ~and
W o n f 2% cask.
dwelopnwt rerr umertixed + SIPOO
(-1aLrng 10 adjusmmts 10b s i s r h e a
(B)A
li
A putner dp
deplniw deductloas d a i m d L B c u I+'$
r dmdrni).
o p n y i s rcqulcd b.bm th.d e ~ hdoa no, ua -rrcn data pvnwl lo
I & O ~ 1254 ml*lll9w)
w* *b.n ihc
of
of unoun~waliud 1H'r o d w t d b r b
( i v l C p m ~ r r c u D n , M r ~ m - p~~8pbYI~~IiMldIbl.uc5mtm
determine putncr's section 1254 ~
t
s (~1.160).H must ~ * n Iht
t Sl
d g;lb
If an Interest in a p a ~ e r S b i pir
recoylred u e t d i iacom. us& wction
murk llse iht following usumptiona to
,
Uelurcmd in a w f e r that i s m @a.a
IZS~~SL
da,,,o
pan wlc or exchange and pgrt gih, or
costs:
(c) Sean 1255 mrfs 010@transfer that dcsclibsd in restion
I¶) The par(ner dedu~edhis or hw
[ t ) Ceneml ntle, A pmer's m i a n
I ~ I ( A ) . the amwnt of the -sf1259 costs w i b -pta to property heM p-et-s
1254
dh -ped
s h a of
~ ~tiductions under secllotr
.
r2631~1,616,
b ~ ~ e p va
t a617
u sfor
Dd
I hde cfiRr
~ m a in by a pmershlp inJude aII of b
t"PtQputyh.ldb~*Panqtrsbi~
p~cr's
1254 c m *3arespect
immcdietdy afict the tr;lmferiS U1 '
.deductifin for sucb amwah.
in
to the p m w y in the b d s oftb*
mount equd t e
tbe
d
expenditures
under
w
o
n
p m ~ r s b i pS.n h a t ~ s of
e pmwy
(A) Tbe a m o u t or the m f e m r
canlributed io r p a r m d u p h a
p-er*s dao
3x4
with=pcfl 263Ic) ot 616. Q e partnersbipslscted to
Vansadion d d b d in
721.
to the pmprty h m e o t o i y
h , mpim'i~cm* moun~s:
p~tner'ssection 1251
include all tnnsfer;
minus
I21The p-er
was B O rubjea.to'ha
~
following limitations ~ t m
hped to ihm of t h e ~ e t ' s s e c t i o a1254 cm*wirh
(0)The amount QF w y gdn
relo Lhe propenp
10
recognized as ordinary incomo under - -8fs
depletioa allowance under
..
seaion 61 I . except lo the extent a
conm'butioa. Soctldn f .1254-1lbl(~~[JvI. section 1254 b the tr;msl*moprtm?r
~rhich
~ r n v i dm
e lta
~ a e m i n g ihc- limitation applied at the pmerspig
upon the v ~ n sr.
leve1: the taxable income Iimbtiocr of
fd] Pmpcrcy diztn'butcd to a prtne*
t reamem d suspended ddudions.
-t1) In general. The sadion 1254 costs for s m i o n 613IaJ: the depletablt quantity
spplkr to amwntp a d dedudibk
-. any natural resourcr ~acaptumpropedy - limitations d $-ion 6 13A(ch or the
P U ~ M It o &on
70dtdJ.
-- 12) Scdion 1251 cds& of u ~ I L T ~ W - -iv+d
by patlntr- in Idistribution . limitatims oisecrion 613A[d](2)+ (3). - - .panner qher m a i n a c q u i s i l i o M i l
. d t h w p t to p ~ ror
l B U D S intcred
~~
. and (41 Iexdusioa of m i l e n and
Basis d~emrmnedunder scaion 101 2 1f in a n w e & i o i n c l u d e . .
tofinem].
(i)khse&a~s of h v pannm' a pcmm acquim an intcmr in a
$ l.
lb4 P H e v e dare ot reguhtianr
s c d o n 1254 costs wirh rcsto the
parincrship that hdds namni rcsaum
!b3 i1.1254-1 Lhrough 1.12s-3
recapirc properly (transreme p-erl
na-I
resource reuptrrre p t O P 9
orid 5 1.3254-5 nre eBecrivs with r a p e d
and Ibn UW~ESSSpr19w1sbasis for b immedhkely priw to b e distribution:
to m y dispositim ofmrurai-.
interest is daitrminsd by rehrcna to its m d u d b y
.
. (ii) n a m u n t o i m y g a b 13cn into m a p t u n propany txrrrtrrirrg after
.
tmt (wihin h e meaning d -ion
Marcb 13.1995. The rule in f 1.1254account rr ordinary income undtr
10121,the amount d L b e m = h
'
1bJ122fiv)[All2), relaling to 8
partner's ion 1254 cmC*with mqJUt section 751 by rbc pmfint~hipor thc
nonopcrati?g m i n e d interest c-rued
to the pmperty held
Lbt partneehip ' p m s n (or ewrsritu!ed rRer lht
out of nn operating mineral ihterest w i ~
disrribution) on he distribution of&*
i s ~ r on
o &e acquisition date.
rospecl to which an txpndlhue 4as . ".
I i t 1 Basis detemined h y m n of the natural wsourct reapturn prrrpvdy.
( 2 1 A g g m p t e ajparinem srctlon 1254 ' k n dcduc~td.is ~ f f c d i v wit3
t
respecf "
a pplicd tion ojsectidn IOI.I[O]. U a
to any dispodtion oc&ng
abet&&t
(rvrs&ms w e r acquires aa Inlet& in cosis rvifh respect to nuturd E$OUrC&
13.1905 of property (wi~hinche
recaptum properly held by o
a partnership h a t holds nolwml
pannership-(l] In @nerd. Tha
meaning ofmtion6141 that i s p l a d
n r o u ~ c e~ u p t u f pe r o p c ~ yfrom r
amrqate of panntn' seaion 1234 COSUin scrvice by the tarpayeranet .
dmdenr and &e uanriem p o h w ' s
Dccemkr a 1,1986.
is cqud la the sum of t x b pirulcr'~ '
basis i s deftrmined. by mason of lht
application ofsmtion 1014fe). solejy by 5tdion I254 costs. T b e pamenhip
must dctekino tach parher's section
reicrrnce ro the lair markei Y ~ U of
F L h
Par. 8. In5 l.lsoz-14. tha Gm
1 2 5 4 costs undcr either aragraph
partnersup iniexs! oa the d3tc 01 the
scnlenm of paragraph (c)[ll is arncndJ
Idl(tllliil(A1(wrillen data or p m v p h
d ~ d e n t ' death
s
or on rbe appljuble
l;d)(z)[i)[B] ~ a s r u m p t i oof
~ ]h i s section. by rcrnoving ihs language "or
dare provid~din =don 2032 (daring
1250(a)(l)"and adding "f 250 Co)(sI or
The pmnership may determine tbc
to alternate valrrathr~date). lhe amount
1255(3)(1)" in 11splace.
scction 1254 cr#ls of some ot the
of he trvrsIcrec p w e r ' s m i u n 1234
pytp~~'l

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B

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P

Fcdcml Rt7ister I \*d.
GO. No. 6

I Tuesday, j n ~ r l a r y 1 0 , 1!1!1S

1 lil:!c5 2nd Krgulations

2509
-.

~lotifica!i n n o f c ~ t r a ccxpinliuns
l
or
PART 602-mg C O ~ O CjUtSEf7S
L
ruupcncr
in
the
Fcdcrd
scntcc.
ond
lo
UHDER M E PAPERWORK
mvise tht 1 ~ x of29
1
CfS( '142.5, ~ h l c h
FIEDUCnOFIACT
a a o i ~ ~ p n i tho
c s il1astr;ltion o i r o t m FPar, 8. Thc s u t h ~ d v
citslioa
ogncy's mgulotiou (lo CMi
53 i n
1i02 c o o h u c s to rwd as

follows:

1425.21.

~ ~ l h o n ' q26
- . U.5.G 75Qs.
Far. 19. S&ion 602.101 (c]i s
m e n d e d by adding ht'fol)o%%.inl:
c n l r j in
~ numrieal order to I ~ table
C

-

to read as follows':

-stale tbcwlrvice r e q u c s ~ ~m
dd

9 ~112101'OYB Conuol -n
e

m

[c)

-

*

.iaformatiau in,amanner u+hi&aids in
entry ofdata intoFbdC$ computer
-&.
The revised v ~ n ofa Form F~mtnt 5 3 is shown bclow in this rule lor

o

*

CFFl pan
lified arrd d e # W

.

puqof identifimlioo.
A summa9 of informa[ion pcrtainhg
to F b m F-53 i s as Idlows:
F m raulber; f U C S F-53.0MB

O m

..
3.1254-: (cH31 ..................-+...a.
1.1254-5(6)(2)

..........................

1545,352

307li-ODOS.

f 5d%1%2

Frqucn~''on
h ~ - s ~ o n d c nPanies
t:
to e F~duml
Sc~ordispu~corgric\~ance.

,

. Approved: ~ o ~ m 22,
& t1994.
k l i e B. ~mmucb.
A i ~ i ~ t o Secmion.
nl
of the Tmsur?IFR Doc, 9 5 1 7 2 Filed 1-5;
8:45 unl

.

FEDERAL MEDIATION Rub
CONClUATlON SERVLCE

-

29 GPR PaR 1425

\Ieushingtnn, DC 2 0 5 0 3 .
RL,6drlon F,mi(llity
Dr(i.sNion
3001,

Thc FMCS finds that this'rulc t r i l l
have 110s i p i f i c m l economic iGpd on
a subslantial numhr of small cniitim
M-ithinlhc n l c a ~ i n golscclion f (a) uf 1 1 ~
Iicguleror). Flcxibili~yAct. Pub. L. 3 6
354.94 9 a t . llG4 15 U.S.C G05(g)].artd
1s-ill so ccniry to thr! Chicl Counscl [nr
A d ~ o c a e !of
~ the Small Busirless
hdfllin1slr;iliun T h i s condusion has
I m n rcadtd h a u s e the proposcd rule
docs nut. i n ilsclt, imppsc ens
additional economic requircnlcnts uprtn
small cnQties.Accordingly. 110
tcguhtr~r).OcxiLility ~rwl?.sis
is
rcquimd. .
List of Subjects in 2 0 CFR Par! 142s
Adrninistn!i~-P
p m i c e and
prwcdurc. mllttctive Irarpining. h h r n~anagcn~cnt
rclatinns.

.

Ertculive Order f 2291

Mediation Assistance In the F-1

*tor
. AeErrev: Federal Mediation end

nudgct. Attcnt ion,

Omrcr tot 1-lctCS.O M rmrn

OLli orsun: Volunlary.
b i r d : Dcccmbor 14.1994.
&in% ~ p ~ m d m i t600
ld~
~l p 0 n m
wek
per year; epproximalely 100 rcportiilg
Rimcfor. FhfCC.
hours per year: approximatelf 15
minuter pcr response.
.
~ccordin~l!-.-29
CFR
1425 is
amcndtd as f01lorss:h'eed and Use: The inlomalion is
n w d d lo advise FMCS of Federal
*tar disputes pursuant to 29 CFR Part PAM 142S--MEDiAf10H ASSLST&NC&
11425paragrdph 1425.3. It i s wed in .
WE FEDERAL SERVICE
orderto mid-& a s s i ~ e n t of
s -es 16
1. The authority citation i ~ 29
r CFR
FhKS rnedirton.
Pa'art 1425 i s
10read 1s l o l l o ~ ~ :
Cemment*: No comments ncrc
nrccivcd on he proposed form as k is
no change itvm c-irtinp form.

hlagaret h i i l n a Kidurdraa,
Gmrnissianer oflniental fimnue.

uCODE - 1 4

Form F-53 is m d c araikhle toarsisl
Fcdcral agcncia and I a h r organizations
to obtain FMCS sc%iccs. as procidcd lor
in the Titk S U.S.C W i o n 7119(a].
nac revision of Farm F-53 alkar
p d i c s io marc cleprly aad acruralcly

hlana~cmr.ntaad

&sl;

.

II

Conclliaaion Sen-im-

hmm: Final rule.

-

SUMMARY:This final nrle is-published in
order to renew Form F-33. hfoticr to

fedeml Mediation and Conciliation
Scnqce.

Pursuant lo the Papnvotk Redudion
Act (45 U.S.C Chapter 35). rlreF~dcm1
3lsdiotion and Conciliation S o n b

submitted i t s final rule 10 the OIfiec or
hianagtment and Budget (OM83on
Yovcmbtr 2. I 994 and m i v t d Ils
appmval on Eovcmber 23.1094 lo:lhe
use 01F-53 thmugh November 30.1997.
EFFECTWE DATE: Fcbruary 9.1995-

This m k is not a "major rule'' undcr
E x ~ u t i v Order
e
1229 1 buss i t i s not
likaiy to wult In [I) an a ~ u acffect
l
on
the economy of 51w million or more;
(2) rr major increase in costs or p r i for
~
cansumem, icdividual industries.
Fcdanl, State or local govsmmcn\
agcncics, or geogruphic regions: or 131 a
significanl decline in p d u c t i v i t y .
imovmlion. ut the ability oi Unitd
Stales-based enterprises to compete

~ i 3toreign-based
)
enterprises in
donles~icor expon markets.
Accodingly.no
u l a l o impad
~
a n d p i s i s requiz.

-

(a) h drder that ~e Service may

prnride assistance to Ihc panics, the
pan!. initiating nqotiations shall tlk a
nolice 1%-ith
the FMCS Nvtjw Prucessins
Unit. 2100 K Street, N.W.. Ll'ashingron.
D.C. 20427. at least 30 da!-s prior rob
cspiratian or modification date of m
exiwing agrrement, or 30 days prior to
the reopcner dale of an exislink
agmmcnt. In the cased an initial
agrcerncnt the notice shall h filed
within 30 days after commendng
ncpatiatibns.

(h) I'miet engaging in mid-term or
Psprwnr):I i t d u ~ t i mAct Nu!icm
impacc endhr implcrncntation
.
Largaiilring are cncouragcd to scnd ;l
The colleciion o f iniormation in this
nolicc 10 FMCS if assistance is desired.
mle \\-u
submitted to the Olficc of
Such noricc may be sent by c~lherparty
Mann~emcn
and
~ Budget under sccdon
FOR FURtHEfl INFOAMATION CONTACT:
3 503(hlo[ the Papenvork Reduct ion A d or may bz submitled joindy. I n rrt~jardlo.
Eilecn Hullman, (102)653-5305.
such tzo~icesaM e f listing should Lc
-144 G.5.C. 33j01 et s q . t Comments
SVPPLEUENTARY IHFDAMATIOH: h'or*ernfm rn~ardingany aspect 01this jnformalion gcncrsi in nature s.g.. smokin; policicr.
or Altcrnatire IVorl: Schedules (,41\'S).
4.1094. FMCS publisheda notice or
collection should bc submitted ro the
(c) Parlies requesting griclbanct!
Fedcrol Mcdia~iodand Concilialion
proposed ralcmaking in the Federal
mediation nust send a request sigr~ctl
Register ( 5 9 FA 55268). This nolicr! WDS
Sawicc, 2100 K Sbect. KIV..
by both ihe union and the agency
pub!ished in order ro e x ~ c n dl31CS
Ii'arhingron. DC 20427. Attention:
in\~.ol\.cd.Receipt of such mqdcst d ~ e s
Form F-53,which is u=d for
Eileen B. Hoffman. and Iht Office or

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