Rev. Rul. 82-214

The Internal Revenue Service has reviewed its position on cost depletion for ground water as stated in Rev. Rul. 65-296, C.B. 1965-2 181. Rev. Rul. 65-296 announced that it would follow the decision in the U.S. Court of Appeals for the 5th Circuit in United States v. Marvin Shurbet, 347 F.2d 103 (1965) and would allow cost depletion to taxpayers in the Southern High Plains under facts similar to those in the Shurbet case.

The availability of ground water from the Ogallala Formation has been the subject of extensive studies that indicate that ground water in areas of the Ogallala Formation, in addition to the Southern High Plains, is being depleted.

Accordingly, cost depletion in those areas will be allowed to taxpayers under facts similar to those in the Shurbet case when it can be demonstrated that the ground water is being depleted and that the rate of recharge is so low that, once extracted, the ground water would be lost to the taxpayer and immediately succeeding generations.

Therefore, Rev. Rul. 65-296 is hereby amplified to include taxpayers who extract ground water from areas of the Ogallala Formation other than the Southern High Plains. In computing cost depletion under this Revenue Ruling, the guidelines provided in Rev. Proc. 66-11, 1966-1 C.B. 624, should be followed.

Furthermore, the basis in ground water must be adjusted as provided in section 1016(a)(2) of the Internal Revenue Code for any cost depletion deductions that were in fact claimed and allowed. See Rev. Rul. 67-451, 1967-2 C.B. 267. However, under the authority of section 7805(b), for taxable years ending prior to December 13, 1982, taxpayers extracting ground water for irrigation farming from areas in the Ogallala Formation outside the Southern High Plains will not be required to reduce their basis in ground water by cost depletion that was allowable but not claimed and allowed.