Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 60-47

1960-1 C.B. 250

Sec. 611

IRS Headnote

If a mineral property or timber property is held in trust, the allowable deduction for depletion is to be apportioned between the income beneficiaries and the trustee on the basis of the trust income from such property allocable to each, unless the governing instrument (or local law) requires or permits the trustee to maintain a reserve for depletion in any amount. No effect shall be given to any allocation of the depletion deduction which gives any beneficiary or the trustee a share of such deduction greater than his pro rata share of the trust income, irrespective of any provisions in the trust instrument, except where the trust instrument or local law requires or permits the trustee to maintain a reserve for depletion.

Revenue Ruling 56-105, C.B. 1956-1, 209, revoked.

Full Text

Rev. Rul. 60-47

The Internal Revenue Service has reconsidered Revenue Ruling 56-105, C.B. 1956-1, 209, relating to the allocation of the depletion allowance between the income beneficiaries and the trust in the case of property held in trust.

Revenue Ruling 56-105 holds that where the manner in which the deduction for depletion may be apportioned and allocated between the income beneficiaries and the trust is, under the terms of the turst instrument, within the sole discretion of the trustees, they may properly allocate all of the depletion deduction to the beneficiaries and retain none for the trust although a substantial portion of the income from the depletable asset is retained by the trust.

In connection with the development of the regulations under section 611 of the Internal Revenue Code of 1954, the Service has reconsidered the question of the proper allocation of the allowable depletion deduction between income beneficiaries and trustees.

Section 1.611-1(c)(4) of the Income Tax Regulations, T.D. 6446, page 208, this Bulletin, provides as follows:

(4) Mineral or timber property held in trust .-If a mineral property or timber property is held in trust, the allowable deduction for depletion is to be apportioned between the income beneficiaries and the trustee on the basis of the trust income from such property allocable to each, unless the governing instrument (or local law) requires or permits the trustee to maintain a reserve for depletion in any amount. In the latter case, the deduction is first allocated to the trustee to the extent that income is set aside for a depletion reserve, and any part of the deduction in excess of the income set aside for the reserve shall be apportioned between the income beneficiaries and the trustee on the basis of the trust income (in excess of the income set aside for the reserve) allocable to each. For example:

(i) If under the trust instrument or local law the income of a trust computed without regard to depletion is to be distributed to a named beneficiary, the beneficiary is entitled to the deduction to the exclusion of the trustee.

(ii) If under the trust instrument or local law the income of a trust is to be distributed to a named beneficiary, but the trustee is directed to maintain a reserve for depletion in any amount, the deduction is allowed to the trustee (except to the extent that income set aside for the reserve is less than the allowable deduction). The same result would follow if the trustee sets aside income for a depletion reserve pursuant to discretionary authority to do so in the governing instrument. No effect be given to any allocation of the depletion deduction which gives any beneficiary or the trustee a share of such deduction greater than his pro rata share of the trust income, irrespective of any provisions in the trust instrument, except as otherwise provided in this paragraph when the trust instrument or local law requires or permits the trustee to maintain a reserve for depletion.

Accordingly, since Revenue Ruling 56-105, C.B. 1956-1, 209, is not in accord with the above cited regulations section, it is hereby revoked. However, under the authority of section 7805(b) of the Code, the Service will not disturb the allocation or apportionment by a trustee of the depletion allowance made in reliance on Revenue Ruling 56-105 and reflected in the trust return filed prior to January 21, 1960, the date of publication of Treasury Decision 6446, page 208, this Bulletin.