Rev. Rul. 55-244

Advice has been requested whether the decision of the United States Court of Appeals for the Fifth Circuit in the case of United States v. Cherokee Brick & Tile Company, 218 Fed. (2d) 424, will affect the position of the Internal Revenue Service as set forth in Revenue Ruling 54-109, C. B. 1954-1, 62, as to the "ordinary treatment processes" with respect to the manufacture of brick and tile from brick and tile clay which are to be included within the meaning of section 114(b)(4)(B) of the Internal Revenue Code of 1939 and section 613(c) of the Internal Revenue Code of 1954.

In the Cherokee Brick & Tile Company case, affirming the decision of the court below, the Court of Appeals held that ordinary treatment process normally applied to clay, in order to obtain the first commercially marketable mineral product, include transforming the clay into brick or tile by molding machine, by burning the units in kilns, and by loading the burnt brick and tile for shipment.

In Revenue Ruling 54-109, supra, the Internal Revenue Service considered the processes involved in the manufacture of brick and tile and kindred products from shale and brick and tile clay. It was specifically held that processes such as transforming clay into brick by extrusion or molding machine, burning units in kilns and loading for shipment or storage were not "ordinary treatment processes" as that phrase is used in section 114(b)(4)(B) of the 1939 Code (section 613(G)(4) of the 1954 Code) to define the term "mining".

Section 613(b)(5)(A) of the 1954 Code, section 114(b)(4)(A) of the 1939 Code) permits a percentage depletion allowance for mines and natural deposits of brick and tile clay but not of brick and tile as such. The fact that a particular taxpayer does not sell the clay to others for brick but sells only the completely manufactured brick cannot transform manufacturing processes into ordinary treatment processes.

Accordingly, the Revenue Service will adhere to the position set forth in Revenue Ruling 54-109 as to the processes properly includible in the term "ordinary treatment processes" with respect to the manufacture of brick and tile from brick and tile clay for percentage depletion purposes.

The fact that the Government did not apply for certiorari in the Cherokee Brick & Tile Company case does not represent an acceptance of the decision by the Internal Revenue Service. See also Revenue Ruling 55-78, page 357, this Bulletin, wherein it is held that furnacing or heating in rotary kilns, removal from the kilns and cooling, crushing and screening and loading for shipment, are not includible in the "ordinary treatment processes" applicable to the manufacture of lightweight aggregate from shale and slate