Rev. Rul. 59-415

Advice has been requested with respect to the computation of depreciation for Federal income tax purposes in the case of an aggregation of separate operating mineral interests under section 614 of the Internal Revenue Code of 1954.

The statute provides that the aggregated property shall be considered as one property for all purposes of subtitle A of the Code. It has been urged that the language of the statute requires that only one computation of depreciation can be made in the case of an aggregated property. In other words, this interpretation would require that all lease and well equipment on several leases which have been aggregated as one property be placed in one account and a single computation of depreciation be made.

In accounting for depreciation for Federal income tax purposes, the situation with regard to an aggregated property is no different from that of property acquired as a unit. In such cases, it is not necessary to have all depreciable property, even of the same kind and class, in one account if conditions are such that maintenance of more than one account will more clearly reflect the facts.

For example, the depreciation of well equipment on a leasehold containing two reservoirs which have been consistently treated by the taxpayer as a single property need not be determined in a single computation, since the useful life of the equipment serving the two reservoirs may be completely different. It would be much more realistic to separately compute the depreciation on the well equipment serving each reservoir.

Accordingly, it is held that an election to aggregate under section 614 of the Code does not have the effect of requiring one computation for depreciation for Federal income tax purposes. However, the sum of the depreciation in any one year with respect to the various depreciable accounts applicable to the separate properties aggregated must be used in computing the limitation of depletion from the aggregated property.