Rev. Rul. 57-288

The Internal Revenue Service has been requested to reconsider its position with respect to the percentage depletion rate allowable for dolomite in the light of the decision of the Tax Court of the United States in the case of Virginian Limestone Corporation v. Commissioner 26 T.C. 553, acquiescence page 9, this Bulletin.

Heretofore, the Service has followed the position set forth in Revenue Ruling 55-700, C.B. 1955-2, 569, to the effect that, for purposes of the Internal Revenue Code of 1939, the application of the end-use test was proper in the determination of the percentage depletion rates allowable for dolomite used or sold for use as metallurgical grade and chemical grade limestone or as stone proper. That ruling was based on the theory that there is no clear line of distinction between dolomite and limestone, as one grades into the other in relation to the amount of magnesium it contains.

In the Virginian Limestone case, the Tax Court of the United States held that dolomite is entitled to a flat rate of ten percent, the depletion rate prescribed for dolomite by section 114(b)(4) of the Internal Revenue Code of 1939. The findings of fact in that case read in part as follows:

All of the rock quarried and sold by petitioner was dolomite, within the commonly understood commercial meaning of that term. The term `dolomite,' when used with reference to rock, is one of specific designation, and has reference to a particular class of sedimentary rock, commonly known by that name, which is rich in magnesium carbonate; whereas, `stone' and `limestone' are terms of more general classification, and may refer to rocks which contain little or no magnesium carbonate.

All of petitioner's rock was of essentially the same chemical and mineral composition. It has a high magnestium carbonate content, ranging from about 35 to about 42 percent; and its average chemical composition, stated in terms of carbonates, was about 37 to 40 percent magnesium carbonate, and about 52 to 56 percent calcium carbonate.

The interpretation by the court in the Virginian Limestone case, that the percentage allowance for dolomite is specifically prescribed for in section 114(b) of the 1939 Code, obviates the necessity of applying the end-use test. Accordingly, it is now recognized by the Service that a calcium magnesium carbonate of the composition determined by the Tax Court of the United States to be dolomite is entitled to the rate specified in section 114(b)(4) of the 1939 Code, irrespective of its use.

In view of the above, Revenue Ruling 55-700, C.B. 1955-2, 569, is modified to the extent that any limestone rock which has a magnesium carbonate content of 35 percent or higher shall be designated as dolomite and entitled to percentage depletion at a flat rate of ten percent irrespective of its use. Any limestone rock which does not contain magnesium carbonates, in accordance with the foregoing specification, will continue to be classified on the basis of the end-use test as set forth in Revenue Ruling 55-700, supra . Revenue Ruling 56-582, C.B. 1956-2, 981, to the extent that it refers to dolomite is also modified.