Rev. Rul. 57-100

Advice has been requested whether the general principles stated in Revenue Ruling 236, C.B. 1953-2, 236, which ruling is directly concerned with the application of section 456 of the Internal Revenue Code of 1939 to the oil and gas extraction industry, are equally applicable to corporations engaged in other mineral enterprises, and, furthermore, whether Code sections 453 and 456 may both be applicable in the same taxable year.

Revenue Ruling 236, supra , states the position of the Internal Revenue Service with respect to the application of section 456 of the Internal Revenue Code of 1939, relating to excess profits tax, to taxpayers engaged in the extraction of petroleum and natural gas. It explains the allocation of abnormal income resulting from exploration, discovery or prospecting.

Section 453, a relief provision for excess output, provides the rules by which exempt excess output may be determined. Section 433(a)(1)(I) provides that normal tax net income will be adjusted in arriving at excess profits net income, by excluding from it the exempt excess output determined under section 453.

Section 456 is also a relief provision but it serves a different purpose. It provides an alternative method of computing the tax under subchapter D. Section 456 requires the elimination of `abnormal income' from the gross income of the taxable year. The excess profits net income, without this `abnormal income,' is then determined; to this is added an amount equal to the tax which would have resulted if the net abnormal income attributable to prior years has been included in the gross income of the prior years. The tax under subchapter D of the Code, for the current taxable year, cannot exceed this amount.

Accordingly, it is the position of the Service that, although Revenue Ruling 236, C.B. 1953-2, 236, is directly concerned with the application of section 456 of the Internal Revenue Code of 1939 to the oil and gas extraction industry, the principles stated therein are equally applicable to corporations engaged in other mineral enterprises. It is further held that the provisions of section 453 of the Code do not prevent the application of section 456(a)(2)(B), except to the extent that the adjustment to the excess profits net income for `exempt excess output' includes a portion of the net abnormal income.