Rev. Rul. 60-176

The Internal Revenue Service has reconsidered its position with respect to the allowance of depletion, under section 23(m) of the Internal Revenue Code of 1939, on tailings piles, culm banks, or other mine dumps of waste material from prior mining operations.

In the extraction of ores or minerals from the ground, tailings piles, culm banks, and dumps of waste materials are accumulated. Revenue Ruling 4, C.B. 1953-1, 48, holds that depletion is not allowable on such piles, banks or dumps.

In Kennedy Mining and Milling Co. v. Commissioner , 43 B.T.A. 617, affirmed 125 Fed.(2d) 399, nonacquiescence, C.B. 1941-1, 16, the United States Board of Tax Appeals (now the Tax Court of the United States) allowed percentage depletion to the mine owner-operator measured by income received from the sale of additional minerals extracted by such owner-operator from tailings piles, consisting of the residue of ores previously mined and treated by him for the extraction of minerals. The Service took the position that the dection was not allowable on the grounds that the extraction of the minerals from the tailings did not constitute mining and that, since unit depletion had been allowed at the time of the original mining operations, the taxpayer might recover more than his depletable capital interest.

The courts held in the Kennedy Mining and Milling Co. , case that the income derived by the taxpayer from reworking the tailings was regarded as income from mining just as was the income from his original mining operations. The time which elapsed between the original mining and the reworking of the tailings was regarded as irrelevant.

Accordingly, it is held that percentage depletion is allowable to a taxpayer on income earned from the reworking of tailings piles, culm banks, or other dumps of waste material from prior mining operations where the taxpayer was the owner of the same economic interest in the mine both when the original mining operations took place and at the time of the subsequent reworking of such piles or dumps.

Revenue Ruling 4, supra , is hereby modified to accord with the foregoing and acquiescence, page 4 of this Bulletin, is substituted for nonacquiescence in the Kennedy Mining and Milling Co. , case.