Attorney-at-Law

WHAT’S MINES IS MINES

In Uncategorized on 08/22/2017 at 17:24

That primordial conglomerate, Mitsubishi, formed in the Meiji days, survived war, depression and occupation, to reach US Tax Court fighting about depletion allowance for calcium carbonate, and depletion of “nominating” materials, in Mitsubishi Cement Corporation & Subsidiaries, A Delaware Corporation, 2017 T. C. Memo. 160, filed 8/21/17. I’m a day late but not a dollar short, as I was closing one deal and working on a contract for another yesterday; something has to pay for my internet time.

Anyway, Mitsubishi is fighting whether depletion is 15% or 14% for CaCO3, which apparently they dig up to make the aforementioned cement. And they’re also jousting about additives that they buy from others: is all this part of mining, or something else? Miners are favored by the tax laws.

“In adjusting petitioner’s depletion deduction, respondent used a percentage depletion rate of 14% under section 613(b)(7) rather than the 15% rate that petitioner had used.  Respondent also contends that in determining its depletion deduction petitioner incorrectly computed its gross income from mining.” 2017 T. C. Memo. 160, at p. 6.

Judge Cohen digs up the battle between statute and reg. Statute wins.

“Section 613(b)(7) provides that for ‘minerals * * * including * * * calcium carbonates’ 14% shall be the percentage applied to the gross income from mining to determine the depletion deduction.  Section 1.613-2(a)(3), Income Tax Regs., provides that 15% is the applicable percentage depletion rate for ‘minerals listed in this subparagraph’, which includes calcium carbonates.  Petitioner calculated its depletion deductions for the tax years in issue using the 15% depletion rate provided in the regulations.” 2017 T. C. Memo. 160, at p. 7.

IRS conceded the point in the Reg. says Mitsubishi. No, says Judge Cohen, the Reg was superseded by the statutory enactment that brought in the 14%. Anyway, Congress’ intent was clear, so the Reg is out.

Likewise, Mitsubishi didn’t mine the additives. So their mining income must be determined by the ratio of mined costs to non-mined costs, the proportionate profits method. Even though both the CaCO3 and the other stuff go into the blend, nonmined isn’t mined, and “nominating” costs are something else.

“Petitioner argues that if we should conclude that the costs of the additive minerals may not be included in its mining costs, then we should conclude alternatively that they are ‘nominating costs’, as that term appears in section 1.613-4(d)(3)(ii), Income Tax Regs., and on that basis exclude them from the proportionate profits formula entirely.  Petitioner has not provided and we have not found any definition of ‘nominating’ within the context of the Code sections dealing with depletion.  We agree with respondent that the word ‘nominating’ as it appears in section 1.613-4(d)(3)(ii), Income Tax Regs., is a typographical error. The word “nominating” appears nowhere else in section 1.613-4, Income Tax Regs., and petitioner does not cite any other Code section or regulation where that term is used or defined.  Section 1.613-4, Income Tax Regs., addresses at length the treatment of ‘mining’ and ‘nonmining’ costs, and from the context of the relevant subparagraph we conclude that ‘nominating’ is simply a misspelling of ‘nonmining’.  The word ‘nonmining’ is, in fact, used in section 1.613-4(d)(3)(ii), Income Tax Regs., as that regulation is reproduced in T.D. 7170, 1972 1 C.B. 178, 183.” 2017 T. C. Memo. 160, at pp. 16-17.

AutoCorrect goes underground?

Anyway, there’ll have to be a beancount to work out Mitsubishi’s correct mining and nonmining income.

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