Rev. Rul. 56-59

The Internal Revenue Service has reconsidered the definition of `refractory and fire clay' as stated in Revenue Ruling 54-550, C.B. 1954-2, 164.

Revenue Ruling 54-550, supra , defines `refractory and fire clay' as a clay having a pyrometric cone equivalent of 15 or higher. It also holds that a clay having a pyrometric cone equivalent of less than 15 will not be considered a frfractory or fire clay unless used or sold for recognized refractory purposes, such as (but not necessarily restricted to) ladle lining.

A number of minerals accorded percentage depletion, for example, brick and tile clay, stone, and calcium carbonates, are capable of being placed in more than one percentage depletion classification for the reason that they have no precise mineralogical description to distinguish them from certain other minerals in a higher or lower percentage depletion classification. Therefore, in order to distinguish and classify such minerals for the purpose of percentage depletion it is necessary to employ the end-use test. See Rev. Rul. 54-443, C.B. 1954-2, 164, with respect to quartzite; Rev. Rul. 55-67, C.B. 1955-1, 357 with respect to gypsum; and Rev. Rul. 55-700, C.B. 1955-2, 569, with respect to dolomite.

In the case of clay, it has been found that in some parts of the United States the clay ordinarily used for the manufacture of common brick and tile has a cone equivalent in excess of 15. On the other hand, it is recognized that under certain circumstances fire clay may be used in conjunction with ordinary clay and still be used for refractory purposes, such as, when a certain amount of fire clay is blended with ordinary clay in order to produce the vitrified clay sewer pipe which requires some clay of a better quality than the ordinary tile.

In view of the above, it follows that in determining the percentage depletion applicable to clay the end-use test must be employed. For example, clay used or sold for use in the manufacture of common bricks is entitled to 5 percent depletion, while clay used or sold for use as refractory clay is entitled to 15 percent depletion.

Accordingly, a clay will be considered a `refractory and fire clay' only if it is used or sold for use for a recognized refractory purpose. In this connection, fire clays used to enable sewer pipe to retain its shape and dimensions under extremely high temperatures required for vitrification is considered to be used as refractory clay.

Revenue Ruling, 54-550, C.B. 1954-2, 164, is hereby revoked.