Rev. Rul. 56-614

Advice has been requested whether a decision on the part of a taxpayer, who owns two or more separate operating mineral interests which constitute part or all of an operating unit, not to aggregate such mineral interests under section 614(b) of the Internal Revenue Code of 1954, constitutes an election within the meaning of that section.

Section 614(b) of the Code provides, in part, that if a taxpayer owns two or more separate operating mineral interests which constitute part or all of an operating unit he may elect, for all purposes of subtitle A of the Code, (1) to form one aggregation of, and to treat as one property, any two or more of such interests; and (2) to treat as a separate property each such interest which he does not elect to include within an aggregation.

Paragraph 14 of Treasury Decision 6118, C.B. 1955-1, 698, at 717, contains interim regulations covering section 614(b) of the Code. Treasury Decision 6138, C.B. 1955-2, 891, amends the next to last sentence of paragraph 14 of Treasury Decision 6118, supra . One sentence of the amendment reads as follows:

If the last day prescribed by law for filing the return for a taxable year for which an election was made (including extensions thereof) falls before the last day of the third month following the month in which the regulations under section 614 are published in the Federal Register, consent is hereby given for the taxpayer to change to a different treatment for such taxable year with respect to the interest to which the election was made, provided, an amended return, reflecting the change in treatment, and including the information required by the regulations under section 614 in the case of a change in election, is filed on or before the last day of such third month with the district director for the district in which the original return was filed.

In view of the fact that the taxpayer must make a definite determination concerning each property within any operating unit in order to file the necessary information required by the regulations, it must be concluded that an election has been made as to all properties within any operating unit. The term `election,' as used in the sentence quoted above, substituted by T.D. 6138, supra , is considered to include an election either to aggregate some or all of the separate operating mineral interests in any operating unit or to treat each separate operating interest as a separate property. Under Treasury Decision 6138, supra , the taxpayer is to have the opportunity to reconsider his position upon publication of the final regulations under section 614 of the Code to alleviate the result of decisions made without the guidance of such final regulations.

Accordingly, it is held that where a taxpayer owns two or more separate operating mineral interests which constitute part or all of an operating unit, an election under section 614(b) of the Code is considered to include not only an election to aggregate some or all of the separate operating mineral interests in any operating unit, but a decision to treat each separate operating interest as a separate property.