IC 9011 - A Summary of Current and HIstorical Federal Income Tax Treatment for Mineral Exploration and Development Expenditures

"In this Bureau of Mines report, the Federal income tax treatment of mineral exploration and development expenditures is summarized, and changes in the tax treatment of these expenditures since 1951 are detailed and analyzed. Although no attempt is made to establish causal relationships, major tax changes favorable to exploration and development activities did occur in 1951 and 1966 when the Nation was engaged in military actions and the economy was expanding. More recent changes have been unfavorable to exploration and development and were parts of major tax reform efforts. INTRODUCTIONThis Bureau of Mines report discusses the Federal tax law provisions relating to mineral exploration and development expenditures. These provisions, contained mainly in sections 616 and 617 of the Internal Revenue Code of 1954 (Title 26 of the U.S. Code), apply specifically to minerals (other than oil and gas), and thus are of interest to the Bureau of Mines.Bureau of Mines involvement in this subject stems from the legislative mandate in the 1913 amendments to the Organic Act of 1910 (the Act creating the Bureau) to conduct economic investigations of the mineral industries. Congressional concern with the financial conditions in the economic and mineral industries was expressed more recently in the Mining and Minerals Policy Act of 1970 and in the National Materials and Minerals Policy, Research, and Development Act of 1980. The General Accounting Office recommended in 1976 that the Department of the Interior ""identify and evaluate laws and agency programs that affect maintaining and developing a sound and stable domestic mining and minerals industry"" (17, p. iii). 2Taxes, a source of revenue to governments, are a cost to private firms. Thus, taxes directly affect private sector profits, and unique tax provisions are designed to encourage (or discourage) activities such as agriculture, construction, or mining. Even the international competitiveness of the domestic mineral industries may be affected by taxes because many minerals are traded in world markets."