Rev. Rul. 54-109

Advice has been requested as to the processes in the manufacture of brick and tile and kindred products from shale and brick and tile clay that are included under the term "ordinary treatment processes" as used in section 39.23(m)-1(f) of Regulations 118, and section 114(b)(4)(B) of the Internal Revenue Code.

The various treatment processes involved in the manufacture of such products are as follows:

(1) The mineral is first extracted from the earth, usually from open pits.

(2) It is transported to the plant, generally by dumpcars or trucks.

(3) The mineral is there dumped into bins or sheds for storage or directly into a crusher or granulator where the large chunks are reduced to small workable sizes.

(4) In some cases, secondary grinding is required.

(5) The mineral is then conveyed to a pugmill where it is mixed to the proper consistency usually with the addition of water and/or other materials.

(6) The mixed product is then formed into the shape desired, usually by an extrusion or molding machine.

(7) These raw forms are then processed for the removal of excessive moisture and are then burned in kilns.

(8) Finally, the finished products are drawn from the kiln and loaded for shipment or storage.

Based on these facts, the first four processes are "ordinary treatment processes" within the meaning of section 114(b)(4)(B) of the Code, and section 39.23(m)-1(f) of Regulations 118. The mixing of the mineral in the pugmill with water where this is done to separate out sand or other materials from the clay or shale is also considered to be an "ordinary treatment process"; other actions in the pugmill, as well as the succeeding processes listed above, are not considered to be "ordinary treatment processes."

As to the computation of the gross and net income from the property for percentage depletion purposes after the costs of mining and manufacturing have been segregated, see sections 29.23(m)-1 (f) and (g) of Regulations 111, and sections 39.23(m)-1 (e) and (g) of Regulations 118.