Rev. Rul. 61-194

In order to facilitate the audit and examination of income tax returns involving aggregation of operating mineral interests, the procedure prescribed herein may be followed at the option of taxpayers involved.

Sections 1.614-2(d)(2), 1.614-3(f)(5), and 1.614-4(e) of the Income Tax Regulations provide for the manner in which taxpayers are to make certain elections required under section 614(b), (c), and (d) of the Internal Revenue Code of 1954 with respect to the treatment of separate operating mineral interests. The elections must be made within the time prescribed by law for filing the return (including extensions of time therefor). Where such time falls before May 1, 1961, the election must be made no later than such date or within the period of an extension granted pursuant to section 1.614-7 of the regulations. The elections are binding on the taxpayer for the first taxable year for which the election is effective and all subsequent taxable years unless consent to a different treatment is obtained from the Commissioner of Internal Revenue.

The election for such first taxable year forms the basis for the treatment of such operating mineral interests for subsequent taxable years and for the treatment of subsequent additions and acquisitions of other separate operating mineral interests.

The regulations require that the elections under the applicable provisions of the Code must be made by a statement attached to the income tax return, amended return if necessary, or, if appropriate, claim for refund or credit, of the taxpayer for the taxable year for which the elections are effective. The statement must include a general description, accompanied by appropriately marked maps, if necessary, which accurately circumscribe the scope of the aggregation and identify the properties to be treated separately as well as a description of the operating unit in sufficient detail to show that the aggregated operating mineral interests are properly within a single operating unit.

The question whether a taxpayer has properly identified and selected the separate operating mineral interests which he elected to aggregate or treat separately for the first taxable year is a matter to be determined in the audit and examination of the taxpayer's return for such year. In the case of elections for the first taxable year to which the elections are effective, the statement of election, identification of properties and election thereto, and computation of depletion must be complete in all detail. However, where the statement of election required by regulations under section 614 of the Code is filed, setting forth sufficient information to identify the operating mineral interests involved and the elections applicable to such interests, the mere failure to submit therewith an amended return or claim for refund or credit or the details and computation of depletion allowable for the taxable period subsequent to the first taxable year for which the election is applicable will not be construed as invalidating such elections, provided the taxpayer upon request files an amended return, if necessary, and, if appropriate, a claim for refund or credit, and provided that the taxpayer upon request makes such details or computations for subsequent years available to the Service within a reasonable length of time.

This procedure will be followed only where the taxpayer further indicates in the statement attached to the amended return or claim that (1) he will submit whatever waivers of the statute of limitation on assessment are requested by the district director for the years involved, and (2) he will file the necessary details and computations for taxable years subsequent to the first taxable year for which the elections are effective as soon as practical upon completion of the examination of the return for such first taxable year.

It is emphasized that this procedure does not affect the time for filing the elections under section 614(b), (c), or (d) of the Code, including elections with respect to operating mineral interests added or acquired after the first taxable year for which an election is effective.

¹ Based on Technical Information Release 337, dated September 13, 1961.