Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

Download 1040x

Where Amend 1040xFree Tax Help For SeniorsHow Can I File My 2012 State Taxes For Free2010 Tax ReturnTurbo Tax AmendmentHow To File Federal And State Taxes For FreeFree Taxes OnlineAmended 1040 EzIrs Form 1040How To File A Amended Tax Return For 20101040x For Dummies2013 State Tax FormsH&r Block Military Free File1040x FillableFile Past Years Tax Return1040nr Tax Form1040a 2012Filing A Tax AmmendmentIrs E FileHow Do I File A 1040x1040 Ez Tax Form 2011File My 2011 Taxes For FreeWww Onlinetaxes H&rblock ComH&r Block 1040ez2012 1040ezState Income Tax Form 2012Free Filing State Income TaxNeed To File 2011 Tax ReturnFree Tax Filing 2011 State And Federal1040x Amended Form1040 XState Tax Forms 2012Where Can I File Just My State TaxesFile State Return FreeHow To Amend Tax ReturnCan I File 2011 Taxes OnlineFile Tax 1040ez Free OnlineEasy 1040Filing 2009 Taxes Late Online For FreeHow Do I Amend My Taxes

Download 1040x

Download 1040x Index A Administrative adjustment requests, Amended Returns and Administrative Adjustment Requests (AARs) Allocations Built-in gain or loss, Allocations to account for built-in gain or loss. Download 1040x Installment sale, Installment reporting for sale of partnership interest. Download 1040x Amended returns, Amended Returns and Administrative Adjustment Requests (AARs) Assistance (see Tax help) B Built-in gain or loss, Allocations to account for built-in gain or loss. Download 1040x C C corporation, TEFRA, Small Partnerships and the Small Partnership Exception Capital interest, Capital interest. Download 1040x , Capital interest. Download 1040x Comments on publication, Comments and suggestions. Download 1040x Contribution Basis of property, Basis of contributed property. Download 1040x Built-in gain or loss, Allocations to account for built-in gain or loss. Download 1040x Distribution of property, Distribution of contributed property to another partner. Download 1040x Net precontribution gain, Net precontribution gain. Download 1040x Property, Contribution of Property Services, Contribution of Services D Definition, partnership, Forming a Partnership Determining ownership, More than 50% ownership. Download 1040x Distributions Gain or loss, Partner's Gain or Loss Partner's debt, Distribution of partner's debt. Download 1040x Partnership, Partnership Distributions Distributive share Adjusted basis, Adjusted Basis Guaranteed payments, Guaranteed Payments E e-file, IRS e-file (Electronic Filing) Electronic filing, IRS e-file (Electronic Filing) F Family partnership, Family Partnership Form 8275, Form 8275 required. Download 1040x 8308, Information return required of partnership. Download 1040x 8832, Organizations formed after 1996. Download 1040x 8865, Contribution to foreign partnership. Download 1040x G Guaranteed payments, Guaranteed Payments I Insurance, self-employed health, Self-employed health insurance premiums. Download 1040x Inventory items, substantially appreciated, Substantially appreciated inventory items. Download 1040x L Liability Assumption of, Assumption of liability. Download 1040x Partner's assumed by partnership, Partner's liabilities assumed by partnership. Download 1040x Partnership's, Effect of Partnership Liabilities Limited liability company, Limited liability company. Download 1040x Liquidation Constructive, Constructive liquidation. Download 1040x Partner's interest, Complete liquidation of partner's interest. Download 1040x Partner's retirement or death, Liquidation at Partner's Retirement or Death Losses Sales or exchanges, Losses. Download 1040x M Marketable securities, Marketable securities treated as money. Download 1040x N Notice group, TEFRA, Notice group. Download 1040x Notice partner, TEFRA, Notice partner. Download 1040x P Partner's Basis Distributed property, Partner's Basis for Distributed Property Partnership interest, Basis of Partner's Interest Interest Acquired by gift, Interest acquired by gift, etc. Download 1040x Alternative rule, adjusted basis, Alternative rule for figuring adjusted basis. Download 1040x Basis, Basis of Partner's Interest Basis adjustments, Adjusted Basis Book value, Book value of partner's interest. Download 1040x Liquidation of, Complete liquidation of partner's interest. Download 1040x , Liquidation at Partner's Retirement or Death Mandatory basis adjustment, Mandatory adjustment. Download 1040x Sale, exchange, transfer, Sale, Exchange, or Other Transfer Special basis adjustment, Special adjustment to basis. Download 1040x Transactions with partnership, Transactions Between Partnership and Partners Partnership Abandoned or worthless interest, Abandoned or worthless partnership interest. Download 1040x Agreement, Partnership Agreement Basis, contributed property, Basis of contributed property. Download 1040x Capital interest, Capital interest. Download 1040x Defined, Forming a Partnership Exclusion from rules, Exclusion From Partnership Rules Family, Family Partnership Forming, Forming a Partnership Liabilities, Effect of Partnership Liabilities Terminating, Terminating a Partnership Transactions with partner, Transactions Between Partnership and Partners Partnership item, TEFRA, Partnership Item. Download 1040x Precontribution gain, Net precontribution gain. Download 1040x Profits interest, Profits interest. Download 1040x Publications (see Tax help) R Related person, Related person. Download 1040x S Self-employed health insurance, Self-employed health insurance premiums. Download 1040x Short period return, Short period return. Download 1040x Small partnership exception to TEFRA, Small Partnerships and the Small Partnership Exception, Small Partnership TEFRA Election Statute of Limitations and TEFRA, Statute of Limitations and TEFRA Substantially appreciated inventory items, Substantially appreciated inventory items. Download 1040x Suggestions for publication, Comments and suggestions. Download 1040x T Tax help, How To Get Tax Help Tax matters partner, Role of Tax Matters Partner (TMP) in TEFRA Proceedings Tax withholding, foreign person or firm, Withholding on foreign partner or firm. Download 1040x TEFRA, Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) Terminating a partnership, Terminating a Partnership TTY/TDD information, How To Get Tax Help U Uniform Limited Partnership ACT (ULPA), Role of Tax Matters Partner (TMP) in TEFRA Proceedings Unrealized receivables, Unrealized receivables. Download 1040x Prev  Up     Home   More Online Publications
Print - Click this link to Print this page

Understanding Your 4883C Letter

This letter tells you that the IRS needs more information to verify your identity in order to process your tax return accurately. The contact information below is only for taxpayers who received Letter 4883C.
 


Why are we contacting you?

We received your federal income tax return; however, we need more information to verify your identity in order to process it. The letter you received provides a toll-free IRS Identity Verification telephone number to call.


This contact information is only for taxpayers who received Letter 4883C. The toll-free number is for identity verification only. No other tax-related information, including refund status, is available.


What should you do?

Please call the toll-free IRS Identity Verification telephone number provided in your letter. You will need to have a copy of your prior year tax return and your most recently filed tax return. The toll-free IRS Identity Verification telephone number is available for you to call even if you haven't filed a tax return for this year.
 


 

Page Last Reviewed or Updated: 21-Mar-2014

The Download 1040x

Download 1040x 9. Download 1040x   Depletion Table of Contents Introduction Topics - This chapter discusses: Who Can Claim Depletion? Mineral PropertyCost Depletion Percentage Depletion Oil and Gas Wells Mines and Geothermal Deposits Lessor's Gross Income TimberTimber units. Download 1040x Depletion unit. Download 1040x Introduction Depletion is the using up of natural resources by mining, drilling, quarrying stone, or cutting timber. Download 1040x The depletion deduction allows an owner or operator to account for the reduction of a product's reserves. Download 1040x There are two ways of figuring depletion: cost depletion and percentage depletion. Download 1040x For mineral property, you generally must use the method that gives you the larger deduction. Download 1040x For standing timber, you must use cost depletion. Download 1040x Topics - This chapter discusses: Who can claim depletion Mineral property Timber Who Can Claim Depletion? If you have an economic interest in mineral property or standing timber, you can take a deduction for depletion. Download 1040x More than one person can have an economic interest in the same mineral deposit or timber. Download 1040x In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Download 1040x You have an economic interest if both the following apply. Download 1040x You have acquired by investment any interest in mineral deposits or standing timber. Download 1040x You have a legal right to income from the extraction of the mineral or cutting of the timber to which you must look for a return of your capital investment. Download 1040x A contractual relationship that allows you an economic or monetary advantage from products of the mineral deposit or standing timber is not, in itself, an economic interest. Download 1040x A production payment carved out of, or retained on the sale of, mineral property is not an economic interest. Download 1040x Individuals, corporations, estates, and trusts who claim depletion deductions may be liable for alternative minimum tax. Download 1040x Basis adjustment for depletion. Download 1040x   You must reduce the basis of your property by the depletion allowed or allowable, whichever is greater. Download 1040x Mineral Property Mineral property includes oil and gas wells, mines, and other natural deposits (including geothermal deposits). Download 1040x For this purpose, the term “property” means each separate interest you own in each mineral deposit in each separate tract or parcel of land. Download 1040x You can treat two or more separate interests as one property or as separate properties. Download 1040x See section 614 of the Internal Revenue Code and the related regulations for rules on how to treat separate mineral interests. Download 1040x There are two ways of figuring depletion on mineral property. Download 1040x Cost depletion. Download 1040x Percentage depletion. Download 1040x Generally, you must use the method that gives you the larger deduction. Download 1040x However, unless you are an independent producer or royalty owner, you generally cannot use percentage depletion for oil and gas wells. Download 1040x See Oil and Gas Wells , later. Download 1040x Cost Depletion To figure cost depletion you must first determine the following. Download 1040x The property's basis for depletion. Download 1040x The total recoverable units of mineral in the property's natural deposit. Download 1040x The number of units of mineral sold during the tax year. Download 1040x Basis for depletion. Download 1040x   To figure the property's basis for depletion, subtract all the following from the property's adjusted basis. Download 1040x Amounts recoverable through: Depreciation deductions, Deferred expenses (including deferred exploration and development costs), and Deductions other than depletion. Download 1040x The residual value of land and improvements at the end of operations. Download 1040x The cost or value of land acquired for purposes other than mineral production. Download 1040x Adjusted basis. Download 1040x   The adjusted basis of your property is your original cost or other basis, plus certain additions and improvements, and minus certain deductions such as depletion allowed or allowable and casualty losses. Download 1040x Your adjusted basis can never be less than zero. Download 1040x See Publication 551, Basis of Assets, for more information on adjusted basis. Download 1040x Total recoverable units. Download 1040x   The total recoverable units is the sum of the following. Download 1040x The number of units of mineral remaining at the end of the year (including units recovered but not sold). Download 1040x The number of units of mineral sold during the tax year (determined under your method of accounting, as explained next). Download 1040x   You must estimate or determine recoverable units (tons, pounds, ounces, barrels, thousands of cubic feet, or other measure) of mineral products using the current industry method and the most accurate and reliable information you can obtain. Download 1040x You must include ores and minerals that are developed, in sight, blocked out, or assured. Download 1040x You must also include probable or prospective ores or minerals that are believed to exist based on good evidence. Download 1040x But see Elective safe harbor for owners of oil and gas property , later. Download 1040x Number of units sold. Download 1040x   You determine the number of units sold during the tax year based on your method of accounting. Download 1040x Use the following table to make this determination. Download 1040x    IF you  use . Download 1040x . Download 1040x . Download 1040x THEN the units sold during the year are . Download 1040x . Download 1040x . Download 1040x The cash method of accounting The units sold for which you receive payment during the tax year (regardless of the year of sale). Download 1040x An accrual method of accounting The units sold based on your inventories and method of accounting for inventory. Download 1040x   The number of units sold during the tax year does not include any for which depletion deductions were allowed or allowable in earlier years. Download 1040x Figuring the cost depletion deduction. Download 1040x   Once you have figured your property's basis for depletion, the total recoverable units, and the number of units sold during the tax year, you can figure your cost depletion deduction by taking the following steps. Download 1040x Step Action Result 1 Divide your property's basis for depletion by total recoverable units. Download 1040x Rate per unit. Download 1040x 2 Multiply the rate per unit by units sold during the tax year. Download 1040x Cost depletion deduction. Download 1040x You must keep accounts for the depletion of each property and adjust these accounts each year for units sold and depletion claimed. Download 1040x Elective safe harbor for owners of oil and gas property. Download 1040x   Instead of using the method described earlier to determine the total recoverable units, you can use an elective safe harbor. Download 1040x If you choose the elective safe harbor, the total recoverable units equal 105% of a property's proven reserves (both developed and undeveloped). Download 1040x For details, see Revenue Procedure 2004-19 on page 563 of Internal Revenue Bulletin 2004-10, available at www. Download 1040x irs. Download 1040x gov/pub/irs-irbs/irb04-10. Download 1040x pdf. Download 1040x   To make the election, attach a statement to your timely filed (including extensions) original return for the first tax year for which the safe harbor is elected. Download 1040x The statement must indicate that you are electing the safe harbor provided by Revenue Procedure 2004-19. Download 1040x The election, if made, is effective for the tax year in which it is made and all later years. Download 1040x It cannot be revoked for the tax year in which it is elected, but may be revoked in a later year. Download 1040x Once revoked, it cannot be re-elected for the next 5 years. Download 1040x Percentage Depletion To figure percentage depletion, you multiply a certain percentage, specified for each mineral, by your gross income from the property during the tax year. Download 1040x The rates to be used and other rules for oil and gas wells are discussed later under Independent Producers and Royalty Owners and under Natural Gas Wells . Download 1040x Rates and other rules for percentage depletion of other specific minerals are found later in Mines and Geothermal Deposits . Download 1040x Gross income. Download 1040x   When figuring percentage depletion, subtract from your gross income from the property the following amounts. Download 1040x Any rents or royalties you paid or incurred for the property. Download 1040x The part of any bonus you paid for a lease on the property allocable to the product sold (or that otherwise gives rise to gross income) for the tax year. Download 1040x A bonus payment includes amounts you paid as a lessee to satisfy a production payment retained by the lessor. Download 1040x   Use the following fraction to figure the part of the bonus you must subtract. Download 1040x No. Download 1040x of units sold in the tax year Recoverable units from the property × Bonus Payments For oil and gas wells and geothermal deposits, more information about the definition of gross income from the property is under Oil and Gas Wells , later. Download 1040x For other property, more information about the definition of gross income from the property is under Mines and Geothermal Deposits , later. Download 1040x Taxable income limit. Download 1040x   The percentage depletion deduction generally cannot be more than 50% (100% for oil and gas property) of your taxable income from the property figured without the depletion deduction and the domestic production activities deduction. Download 1040x   Taxable income from the property means gross income from the property minus all allowable deductions (except any deduction for depletion or domestic production activities) attributable to mining processes, including mining transportation. Download 1040x These deductible items include, but are not limited to, the following. Download 1040x Operating expenses. Download 1040x Certain selling expenses. Download 1040x Administrative and financial overhead. Download 1040x Depreciation. Download 1040x Intangible drilling and development costs. Download 1040x Exploration and development expenditures. Download 1040x Deductible taxes (see chapter 5), but not taxes that you capitalize or take as a credit. Download 1040x Losses sustained. Download 1040x   The following rules apply when figuring your taxable income from the property for purposes of the taxable income limit. Download 1040x Do not deduct any net operating loss deduction from the gross income from the property. Download 1040x Corporations do not deduct charitable contributions from the gross income from the property. Download 1040x If, during the year, you dispose of an item of section 1245 property that was used in connection with mineral property, reduce any allowable deduction for mining expenses by the part of any gain you must report as ordinary income that is allocable to the mineral property. Download 1040x See section 1. Download 1040x 613-5(b)(1) of the regulations for information on how to figure the ordinary gain allocable to the property. Download 1040x Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the following applies. Download 1040x You are either an independent producer or a royalty owner. Download 1040x The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. Download 1040x If you are an independent producer or royalty owner, see Independent Producers and Royalty Owners , next. Download 1040x For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells , later. Download 1040x Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the property based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. Download 1040x However, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. Download 1040x For information on figuring the deduction, see Figuring percentage depletion , later. Download 1040x Refiners who cannot claim percentage depletion. Download 1040x   You cannot claim percentage depletion if you or a related person refine crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. Download 1040x The average daily refinery run is computed by dividing total refinery runs for the tax year by the total number of days in the tax year. Download 1040x Related person. Download 1040x   You and another person are related persons if either of you holds a significant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. Download 1040x For example, a corporation, partnership, estate, or trust and anyone who holds a significant ownership interest in it are related persons. Download 1040x A partnership and a trust are related persons if one person holds a significant ownership interest in each of them. Download 1040x For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. Download 1040x The value of the outstanding stock of a corporation. Download 1040x The interest in the profits or capital of a partnership. Download 1040x The beneficial interests in an estate or trust. Download 1040x Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. Download 1040x Retailers who cannot claim percentage depletion. Download 1040x   You cannot claim percentage depletion if both the following apply. Download 1040x You sell oil or natural gas or their by-products directly or through a related person in any of the following situations. Download 1040x Through a retail outlet operated by you or a related person. Download 1040x To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. Download 1040x To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. Download 1040x The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. Download 1040x   For the purpose of determining if this rule applies, do not count the following. Download 1040x Bulk sales (sales in very large quantities) of oil or natural gas to commercial or industrial users. Download 1040x Bulk sales of aviation fuels to the Department of Defense. Download 1040x Sales of oil or natural gas or their by-products outside the United States if none of your domestic production or that of a related person is exported during the tax year or the prior tax year. Download 1040x Related person. Download 1040x   To determine if you and another person are related persons, see Related person under Refiners who cannot claim percentage depletion, earlier. Download 1040x Sales through a related person. Download 1040x   You are considered to be selling through a related person if any sale by the related person produces gross income from which you may benefit because of your direct or indirect ownership interest in the person. Download 1040x   You are not considered to be selling through a related person who is a retailer if all the following apply. Download 1040x You do not have a significant ownership interest in the retailer. Download 1040x You sell your production to persons who are not related to either you or the retailer. Download 1040x The retailer does not buy oil or natural gas from your customers or persons related to your customers. Download 1040x There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. Download 1040x Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer acquired for resale. Download 1040x Transferees who cannot claim percentage depletion. Download 1040x   You cannot claim percentage depletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. Download 1040x For a definition of the term “transfer,” see section 1. Download 1040x 613A-7(n) of the regulations. Download 1040x For a definition of the term “interest in proven oil or gas property,” see section 1. Download 1040x 613A-7(p) of the regulations. Download 1040x Figuring percentage depletion. Download 1040x   Generally, as an independent producer or royalty owner, you figure your percentage depletion by computing your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. Download 1040x If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (defined later) by 15%. Download 1040x If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later under Average daily production. Download 1040x   In addition, there is a limit on the percentage depletion deduction. Download 1040x See Taxable income limit , later. Download 1040x Average daily production. Download 1040x   Figure your average daily production by dividing your total domestic production of oil or gas for the tax year by the number of days in your tax year. Download 1040x Partial interest. Download 1040x   If you have a partial interest in the production from a property, figure your share of the production by multiplying total production from the property by your percentage of interest in the revenues from the property. Download 1040x   You have a partial interest in the production from a property if you have a net profits interest in the property. Download 1040x To figure the share of production for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross revenue from the property. Download 1040x To figure this percentage, you divide the income you receive for your net profits interest by the gross revenue from the property. Download 1040x Then multiply the total production from the property by your percentage participation to figure your share of the production. Download 1040x Example. Download 1040x Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. Download 1040x During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Download 1040x Javier had expenses of $90,000 attributable to the property. Download 1040x The property generated a net profit of $110,000 ($200,000 − $90,000). Download 1040x Pablo received income of $22,000 ($110,000 × . Download 1040x 20) for his net profits interest. Download 1040x Pablo determined his percentage participation to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). Download 1040x Pablo determined his share of the oil production to be 1,100 barrels (10,000 barrels × 11%). Download 1040x Depletable oil or natural gas quantity. Download 1040x   Generally, your depletable oil quantity is 1,000 barrels. Download 1040x Your depletable natural gas quantity is 6,000 cubic feet multiplied by the number of barrels of your depletable oil quantity that you choose to apply. Download 1040x If you claim depletion on both oil and natural gas, you must reduce your depletable oil quantity (1,000 barrels) by the number of barrels you use to figure your depletable natural gas quantity. Download 1040x Example. Download 1040x You have both oil and natural gas production. Download 1040x To figure your depletable natural gas quantity, you choose to apply 360 barrels of your 1000-barrel depletable oil quantity. Download 1040x Your depletable natural gas quantity is 2. Download 1040x 16 million cubic feet of gas (360 × 6000). Download 1040x You must reduce your depletable oil quantity to 640 barrels (1000 − 360). Download 1040x If you have production from marginal wells, see section 613A(c)(6) of the Internal Revenue Code to figure your depletable oil or natural gas quantity. Download 1040x Also, see Notice 2012-50, available at www. Download 1040x irs. Download 1040x gov/irb/2012–31_IRB/index. Download 1040x html. Download 1040x Business entities and family members. Download 1040x   You must allocate the depletable oil or gas quantity among the following related persons in proportion to each entity's or family member's production of domestic oil or gas for the year. Download 1040x Corporations, trusts, and estates if 50% or more of the beneficial interest is owned by the same or related persons (considering only persons that own at least 5% of the beneficial interest). Download 1040x You and your spouse and minor children. Download 1040x A related person is anyone mentioned in the related persons discussion under Nondeductible loss in chapter 2 of Publication 544, except that for purposes of this allocation, item (1) in that discussion includes only an individual, his or her spouse, and minor children. Download 1040x Controlled group of corporations. Download 1040x   Members of the same controlled group of corporations are treated as one taxpayer when figuring the depletable oil or natural gas quantity. Download 1040x They share the depletable quantity. Download 1040x A controlled group of corporations is defined in section 1563(a) of the Internal Revenue Code, except that, for this purpose, the stock ownership requirement in that definition is “more than 50%” rather than “at least 80%. Download 1040x ” Gross income from the property. Download 1040x   For purposes of percentage depletion, gross income from the property (in the case of oil and gas wells) is the amount you receive from the sale of the oil or gas in the immediate vicinity of the well. Download 1040x If you do not sell the oil or gas on the property, but manufacture or convert it into a refined product before sale or transport it before sale, the gross income from the property is the representative market or field price (RMFP) of the oil or gas, before conversion or transportation. Download 1040x   If you sold gas after you removed it from the premises for a price that is lower than the RMFP, determine gross income from the property for percentage depletion purposes without regard to the RMFP. Download 1040x   Gross income from the property does not include lease bonuses, advance royalties, or other amounts payable without regard to production from the property. Download 1040x Average daily production exceeds depletable quantities. Download 1040x   If your average daily production for the year is more than your depletable oil or natural gas quantity, figure your allowance for depletion for each domestic oil or natural gas property as follows. Download 1040x Figure your average daily production of oil or natural gas for the year. Download 1040x Figure your depletable oil or natural gas quantity for the year. Download 1040x Figure depletion for all oil or natural gas produced from the property using a percentage depletion rate of 15%. Download 1040x Multiply the result figured in (3) by a fraction, the numerator of which is the result figured in (2) and the denominator of which is the result figured in (1). Download 1040x This is your depletion allowance for that property for the year. Download 1040x Taxable income limit. Download 1040x   If you are an independent producer or royalty owner of oil and gas, your deduction for percentage depletion is limited to the smaller of the following. Download 1040x 100% of your taxable income from the property figured without the deduction for depletion and the deduction for domestic production activities under section 199 of the Internal Revenue Code. Download 1040x For a definition of taxable income from the property, see Taxable income limit , earlier, under Mineral Property. Download 1040x 65% of your taxable income from all sources, figured without the depletion allowance, the deduction for domestic production activities, any net operating loss carryback, and any capital loss carryback. Download 1040x You can carry over to the following year any amount you cannot deduct because of the 65%-of-taxable-income limit. Download 1040x Add it to your depletion allowance (before applying any limits) for the following year. Download 1040x Partnerships and S Corporations Generally, each partner or S corporation shareholder, and not the partnership or S corporation, figures the depletion allowance separately. Download 1040x (However, see Electing large partnerships must figure depletion allowance , later. Download 1040x ) Each partner or shareholder must decide whether to use cost or percentage depletion. Download 1040x If a partner or shareholder uses percentage depletion, he or she must apply the 65%-of-taxable-income limit using his or her taxable income from all sources. Download 1040x Partner's or shareholder's adjusted basis. Download 1040x   The partnership or S corporation must allocate to each partner or shareholder his or her share of the adjusted basis of each oil or gas property held by the partnership or S corporation. Download 1040x The partnership or S corporation makes the allocation as of the date it acquires the oil or gas property. Download 1040x   Each partner's share of the adjusted basis of the oil or gas property generally is figured according to that partner's interest in partnership capital. Download 1040x However, in some cases, it is figured according to the partner's interest in partnership income. Download 1040x   The partnership or S corporation adjusts the partner's or shareholder's share of the adjusted basis of the oil and gas property for any capital expenditures made for the property and for any change in partnership or S corporation interests. Download 1040x Recordkeeping. Download 1040x Each partner or shareholder must separately keep records of his or her share of the adjusted basis in each oil and gas property of the partnership or S corporation. Download 1040x The partner or shareholder must reduce his or her adjusted basis by the depletion allowed or allowable on the property each year. Download 1040x The partner or shareholder must use that reduced adjusted basis to figure cost depletion or his or her gain or loss if the partnership or S corporation disposes of the property. Download 1040x Reporting the deduction. Download 1040x   Information that you, as a partner or shareholder, use to figure your depletion deduction on oil and gas properties is reported by the partnership or S corporation on Schedule K-1 (Form 1065) or on Schedule K-1 (Form 1120S). Download 1040x Deduct oil and gas depletion for your partnership or S corporation interest on Schedule E (Form 1040). Download 1040x The depletion deducted on Schedule E is included in figuring income or loss from rental real estate or royalty properties. Download 1040x The instructions for Schedule E explain where to report this income or loss and whether you need to file either of the following forms. Download 1040x Form 6198, At-Risk Limitations. Download 1040x Form 8582, Passive Activity Loss Limitations. Download 1040x Electing large partnerships must figure depletion allowance. Download 1040x   An electing large partnership, rather than each partner, generally must figure the depletion allowance. Download 1040x The partnership figures the depletion allowance without taking into account the 65-percent-of-taxable-income limit and the depletable oil or natural gas quantity. Download 1040x Also, the adjusted basis of a partner's interest in the partnership is not affected by the depletion allowance. Download 1040x   An electing large partnership is one that meets both the following requirements. Download 1040x The partnership had 100 or more partners in the preceding year. Download 1040x The partnership chooses to be an electing large partnership. Download 1040x Disqualified persons. Download 1040x   An electing large partnership does not figure the depletion allowance of its partners that are disqualified persons. Download 1040x Disqualified persons must figure it themselves, as explained earlier. Download 1040x   All the following are disqualified persons. Download 1040x Refiners who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Download 1040x Retailers who cannot claim percentage depletion (discussed under Independent Producers and Royalty Owners , earlier). Download 1040x Any partner whose average daily production of domestic crude oil and natural gas is more than 500 barrels during the tax year in which the partnership tax year ends. Download 1040x Average daily production is discussed earlier. Download 1040x Natural Gas Wells You can use percentage depletion for a well that produces natural gas that is either Sold under a fixed contract, or Produced from geopressured brine. Download 1040x Natural gas sold under a fixed contract. Download 1040x   Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%. Download 1040x This is domestic natural gas sold by the producer under a contract that does not provide for a price increase to reflect any increase in the seller's tax liability because of the repeal of percentage depletion for gas. Download 1040x The contract must have been in effect from February 1, 1975, until the date of sale of the gas. Download 1040x Price increases after February 1, 1975, are presumed to take the increase in tax liability into account unless demonstrated otherwise by clear and convincing evidence. Download 1040x Natural gas from geopressured brine. Download 1040x   Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 10%. Download 1040x This is natural gas that is both the following. Download 1040x Produced from a well you began to drill after September 1978 and before 1984. Download 1040x Determined in accordance with section 503 of the Natural Gas Policy Act of 1978 to be produced from geopressured brine. Download 1040x Mines and Geothermal Deposits Certain mines, wells, and other natural deposits, including geothermal deposits, qualify for percentage depletion. Download 1040x Mines and other natural deposits. Download 1040x   For a natural deposit, the percentage of your gross income from the property that you can deduct as depletion depends on the type of deposit. Download 1040x   The following is a list of the percentage depletion rates for the more common minerals. Download 1040x DEPOSITS RATE Sulphur, uranium, and, if from deposits in the United States, asbestos, lead ore, zinc ore, nickel ore, and mica 22% Gold, silver, copper, iron ore, and certain oil shale, if from deposits in the United States 15% Borax, granite, limestone, marble, mollusk shells, potash, slate, soapstone, and carbon dioxide produced from a well 14% Coal, lignite, and sodium chloride 10% Clay and shale used or sold for use in making sewer pipe or bricks or used or sold for use as sintered or burned lightweight aggregates 7½% Clay used or sold for use in making drainage and roofing tile, flower pots, and kindred products, and gravel, sand, and stone (other than stone used or sold for use by a mine owner or operator as dimension or ornamental stone) 5%   You can find a complete list of minerals and their percentage depletion rates in section 613(b) of the Internal Revenue Code. Download 1040x Corporate deduction for iron ore and coal. Download 1040x   The percentage depletion deduction of a corporation for iron ore and coal (including lignite) is reduced by 20% of: The percentage depletion deduction for the tax year (figured without this reduction), minus The adjusted basis of the property at the close of the tax year (figured without the depletion deduction for the tax year). Download 1040x Gross income from the property. Download 1040x   For property other than a geothermal deposit or an oil or gas well, gross income from the property means the gross income from mining. Download 1040x Mining includes all the following. Download 1040x Extracting ores or minerals from the ground. Download 1040x Applying certain treatment processes described later. Download 1040x Transporting ores or minerals (generally, not more than 50 miles) from the point of extraction to the plants or mills in which the treatment processes are applied. Download 1040x Excise tax. Download 1040x   Gross income from mining includes the separately stated excise tax received by a mine operator from the sale of coal to compensate the operator for the excise tax the mine operator must pay to finance black lung benefits. Download 1040x Extraction. Download 1040x   Extracting ores or minerals from the ground includes extraction by mine owners or operators of ores or minerals from the waste or residue of prior mining. Download 1040x This does not apply to extraction from waste or residue of prior mining by the purchaser of the waste or residue or the purchaser of the rights to extract ores or minerals from the waste or residue. Download 1040x Treatment processes. Download 1040x   The processes included as mining depend on the ore or mineral mined. Download 1040x To qualify as mining, the treatment processes must be applied by the mine owner or operator. Download 1040x For a listing of treatment processes considered as mining, see section 613(c)(4) of the Internal Revenue Code and the related regulations. Download 1040x Transportation of more than 50 miles. Download 1040x   If the IRS finds that the ore or mineral must be transported more than 50 miles to plants or mills to be treated because of physical and other requirements, the additional authorized transportation is considered mining and included in the computation of gross income from mining. Download 1040x    If you wish to include transportation of more than 50 miles in the computation of gross income from mining, request an advance ruling from the IRS. Download 1040x Include in the request the facts about the physical and other requirements that prevented the construction and operation of the plant within 50 miles of the point of extraction. Download 1040x For more information about requesting an advance ruling, see Revenue Procedure 2013-1, available at www. Download 1040x irs. Download 1040x gov/irb/2013-01_IRB/ar11. Download 1040x html. Download 1040x Disposal of coal or iron ore. Download 1040x   You cannot take a depletion deduction for coal (including lignite) or iron ore mined in the United States if both the following apply. Download 1040x You disposed of it after holding it for more than 1 year. Download 1040x You disposed of it under a contract under which you retain an economic interest in the coal or iron ore. Download 1040x Treat any gain on the disposition as a capital gain. Download 1040x Disposal to related person. Download 1040x   This rule does not apply if you dispose of the coal or iron ore to one of the following persons. Download 1040x A related person (as listed in chapter 2 of Publication 544). Download 1040x A person owned or controlled by the same interests that own or control you. Download 1040x Geothermal deposits. Download 1040x   Geothermal deposits located in the United States or its possessions qualify for a percentage depletion rate of 15%. Download 1040x A geothermal deposit is a geothermal reservoir of natural heat stored in rocks or in a watery liquid or vapor. Download 1040x For percentage depletion purposes, a geothermal deposit is not considered a gas well. Download 1040x   Figure gross income from the property for a geothermal steam well in the same way as for oil and gas wells. Download 1040x See Gross income from the property , earlier, under Oil and Gas Wells. Download 1040x Percentage depletion on a geothermal deposit cannot be more than 50% of your taxable income from the property. Download 1040x Lessor's Gross Income In the case of leased property, the depletion deduction is divided between the lessor and the lessee. Download 1040x A lessor's gross income from the property that qualifies for percentage depletion usually is the total of the royalties received from the lease. Download 1040x Bonuses and advanced royalties. Download 1040x   Bonuses and advanced royalties are payments a lessee makes before production to a lessor for the grant of rights in a lease or for minerals, gas, or oil to be extracted from leased property. Download 1040x If you are the lessor, your income from bonuses and advanced royalties received is subject to an allowance for depletion, as explained in the next two paragraphs. Download 1040x Figuring cost depletion. Download 1040x   To figure cost depletion on a bonus, multiply your adjusted basis in the property by a fraction, the numerator of which is the bonus and the denominator of which is the total bonus and royalties expected to be received. Download 1040x To figure cost depletion on advanced royalties, use the computation explained earlier under Cost Depletion , treating the number of units for which the advanced royalty is received as the number of units sold. Download 1040x Figuring percentage depletion. Download 1040x   In the case of mines, wells, and other natural deposits other than gas, oil, or geothermal property, you may use the percentage rates discussed earlier under Mines and Geothermal Deposits . Download 1040x Any bonus or advanced royalty payments are generally part of the gross income from the property to which the rates are applied in making the calculation. Download 1040x However, for oil, gas, or geothermal property, gross income does not include lease bonuses, advanced royalties, or other amounts payable without regard to production from the property. Download 1040x Ending the lease. Download 1040x   If you receive a bonus on a lease that ends or is abandoned before you derive any income from mineral extraction, include in income the depletion deduction you took. Download 1040x Do this for the year the lease ends or is abandoned. Download 1040x Also increase your adjusted basis in the property to restore the depletion deduction you previously subtracted. Download 1040x   For advanced royalties, include in income the depletion claimed on minerals for which the advanced royalties were paid if the minerals were not produced before the lease ended. Download 1040x Include this amount in income for the year the lease ends. Download 1040x Increase your adjusted basis in the property by the amount you include in income. Download 1040x Delay rentals. Download 1040x   These are payments for deferring development of the property. Download 1040x Since delay rentals are ordinary rent, they are ordinary income that is not subject to depletion. Download 1040x These rentals can be avoided by either abandoning the lease, beginning development operations, or obtaining production. Download 1040x Timber You can figure timber depletion only by the cost method. Download 1040x Percentage depletion does not apply to timber. Download 1040x Base your depletion on your cost or other basis in the timber. Download 1040x Your cost does not include the cost of land or any amounts recoverable through depreciation. Download 1040x Depletion takes place when you cut standing timber. Download 1040x You can figure your depletion deduction when the quantity of cut timber is first accurately measured in the process of exploitation. Download 1040x Figuring cost depletion. Download 1040x   To figure your cost depletion allowance, you multiply the number of timber units cut by your depletion unit. Download 1040x Timber units. Download 1040x   When you acquire timber property, you must make an estimate of the quantity of marketable timber that exists on the property. Download 1040x You measure the timber using board feet, log scale, cords, or other units. Download 1040x If you later determine that you have more or less units of timber, you must adjust the original estimate. Download 1040x   The term “timber property” means your economic interest in standing timber in each tract or block representing a separate timber account. Download 1040x Depletion unit. Download 1040x   You figure your depletion unit each year by taking the following steps. Download 1040x Determine your cost or adjusted basis of the timber on hand at the beginning of the year. Download 1040x Adjusted basis is defined under Cost Depletion in the discussion on Mineral Property. Download 1040x Add to the amount determined in (1) the cost of any timber units acquired during the year and any additions to capital. Download 1040x Figure the number of timber units to take into account by adding the number of timber units acquired during the year to the number of timber units on hand in the account at the beginning of the year and then adding (or subtracting) any correction to the estimate of the number of timber units remaining in the account. Download 1040x Divide the result of (2) by the result of (3). Download 1040x This is your depletion unit. Download 1040x Example. Download 1040x You bought a timber tract for $160,000 and the land was worth as much as the timber. Download 1040x Your basis for the timber is $80,000. Download 1040x Based on an estimated one million board feet (1,000 MBF) of standing timber, you figure your depletion unit to be $80 per MBF ($80,000 ÷ 1,000). Download 1040x If you cut 500 MBF of timber, your depletion allowance would be $40,000 (500 MBF × $80). Download 1040x When to claim depletion. Download 1040x   Claim your depletion allowance as a deduction in the year of sale or other disposition of the products cut from the timber, unless you choose to treat the cutting of timber as a sale or exchange (explained below). Download 1040x Include allowable depletion for timber products not sold during the tax year the timber is cut as a cost item in the closing inventory of timber products for the year. Download 1040x The inventory is your basis for determining gain or loss in the tax year you sell the timber products. Download 1040x Example. Download 1040x The facts are the same as in the previous example except that you sold only half of the timber products in the cutting year. Download 1040x You would deduct $20,000 of the $40,000 depletion that year. Download 1040x You would add the remaining $20,000 depletion to your closing inventory of timber products. Download 1040x Electing to treat the cutting of timber as a sale or exchange. Download 1040x   You can elect, under certain circumstances, to treat the cutting of timber held for more than 1 year as a sale or exchange. Download 1040x You must make the election on your income tax return for the tax year to which it applies. Download 1040x If you make this election, subtract the adjusted basis for depletion from the fair market value of the timber on the first day of the tax year in which you cut it to figure the gain or loss on the cutting. Download 1040x You generally report the gain as long-term capital gain. Download 1040x The fair market value then becomes your basis for figuring your ordinary gain or loss on the sale or other disposition of the products cut from the timber. Download 1040x For more information, see Timber in chapter 2 of Publication 544, Sales and Other Dispositions of Assets. Download 1040x   You may revoke an election to treat the cutting of timber as a sale or exchange without IRS's consent. Download 1040x The prior election (and revocation) is disregarded for purposes of making a subsequent election. Download 1040x See Form T (Timber), Forest Activities Schedule, for more information. Download 1040x Form T. Download 1040x   Complete and attach Form T (Timber) to your income tax return if you claim a deduction for timber depletion, choose to treat the cutting of timber as a sale or exchange, or make an outright sale of timber. Download 1040x Prev  Up  Next   Home   More Online Publications