Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 67-35

1967-1 C.B. 159

Section 501 -- Tax Exempt Organizations

Sec. 616

Full Text

Rev. Rul. 67-35

The Internal Revenue Service will not follow the decision of the U.S. Court of Claims in Kennecott Copper Corporation v. United States , 347 F.2d 275 (1965), in the disposition of analogous cases.

In Kennecott the court held that costs incurred by the taxpayer for the acquisition of stripping rights to surface lands adjoining producing properties of the taxpayer, the right to mine copper from beneath those lands, the right to dump waste on certain other lands, and various other rights, were deductible expenditures attributable to further development of the properties of the taxpayer already being operated by it.

The Service position is that expenditures of the character of those in issue in Kennecott are actually capital expenditures incurred for the acquisition of additional rights, to be recovered through depletion. It is the view of the Service that development expenditures under section 616(a) of the Internal Revenue Code of 1954 are limited to those resulting directly from such physical mining process or activities as the driving of shafts, tunnels, galleries, and similar operations undertaken to make the ore or mineral in place accessible for production operations.

Accordingly, the Service will continue to treat expenditures of the character of those in issue in Kennecott as capital in nature and not deductible as development expenditures under section 616(a) of the Code.