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must recapture any exploration costs you elec- ted to deduct. Use either of the following meth- ods.

Method 1—Include the deducted costs in gross income for the tax year the mine rea- ches the producing stage. Your election must be clearly indicated on the return. In- crease your adjusted basis in the mine by the amount included in income. Generally, you must elect this recapture method by the due date (including extensions) of your return. However, if you timely filed your re- turn for the year without making the elec- tion, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding exten- sions). Make the election on your amended return and write “Filed pursuant to section 301.9100-2” on the form where you are in- cluding the income. File the amended re- turn at the same address you filed the origi- nal return.

Method 2—Do not claim any depletion de- duction for the tax year the mine reaches the producing stage and any later tax years until the depletion you would have deduc- ted equals the exploration costs you de- ducted. You also must recapture deducted explora- tion costs if you receive a bonus or royalty from mine property before it reaches the producing stage. Do not claim any depletion deduction for the tax year you receive the bonus or royalty and any later tax years until the depletion you would have deducted equals the exploration costs you deducted. Generally, if you dispose of the mine before you have fully recaptured the exploration costs you deducted, recapture the balance by treating all or part of your gain as ordinary income. Un- der these circumstances, you generally treat as ordinary income all of your gain if it is less than your adjusted exploration costs with respect to the mine. If your gain is more than your adjusted exploration costs, treat as ordinary income only a part of your gain, up to the amount of your ad- justed exploration costs. Foreign exploration costs. If you pay or incur exploration costs for a mine or other natural de- posit located outside the United States, you cannot deduct all the costs in the current year. You can elect to include the costs (other than for an oil, gas, or geothermal well) in the adjus- ted basis of the mineral property to figure cost depletion. (Cost depletion is discussed in chap- ter 9.) If you do not make this election, you must deduct the costs over the 10-year period begin- ning with the tax year in which you pay or incur them. These rules also apply to foreign devel- opment costs. Development Costs You can deduct costs paid or incurred during the tax year for developing a mine or any other natural deposit (other than an oil or gas well) lo- cated in the United States. These costs must be paid or incurred after the discovery of ores or minerals in commercially marketable quantities. Development costs also include depreciation on improvements used in the development of ores or minerals and costs incurred for you by a contractor. Development costs do not include the costs for the acquisition or improvement of depreciable property. Instead of deducting development costs in the year paid or incurred, you can elect to treat the costs as deferred expenses and deduct them ratably as the units of produced ores or minerals benefited by the expenses are sold. This election applies each tax year to expenses paid or incurred in that year. Once made, the election is binding for the year and cannot be revoked for any reason. How to make the election. The election to deduct development costs ratably as the ores or minerals are sold must be made for each mine or other natural deposit by a clear indica- tion on your return or by a statement filed with the IRS office where you file your return. Gener- ally, you must make the election by the due date of the return (including extensions). How- ever, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Clearly indicate the election on your amended return and write “Filed pursuant to section 301.9100-2.” File the amended return at the same address you filed the original re- turn. Foreign development costs. The rules dis- cussed earlier for Foreign exploration costs ap- ply to foreign development costs. Reduced corporate deductions for develop- ment costs. The rules discussed earlier for Reduced corporate deductions for exploration costs also apply to corporate deductions for de- velopment costs. Circulation Costs A publisher can deduct as a current business expense the costs of establishing, maintaining, or increasing the circulation of a newspaper, magazine, or other periodical. For example, a publisher can deduct the cost of hiring extra employees for a limited time to get new sub- scriptions through telephone calls. Circulation costs may be deducted even if they normally would be capitalized. This rule does not apply to the following costs that must be capitalized. • The purchase of land or depreciable prop- erty. • The acquisition of circulation through the purchase of any part of the business of an- other publisher of a newspaper, magazine, or other periodical, including the purchase of another publisher's list of subscribers. Other treatment of circulation costs. If you do not want to deduct circulation costs as a cur- rent business expense, you can elect one of the following ways to recover these costs. • Capitalize all circulation costs that are properly chargeable to a capital account (see chapter 1). • Amortize circulation costs over the 3-year period beginning with the tax year they were paid or incurred. How to make the election. You elect to capi- talize circulation costs by attaching a statement to your return for the first tax year the election applies. Your election is binding for the year it is made and for all later years, unless you get IRS approval to revoke it. Business Start-Up and Organizational Costs Business start-up and organizational costs are generally capital expenditures. However, you can elect to deduct up to $5,000 of business start-up and $5,000 of organizational costs paid or incurred after October 22, 2004. The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Any remaining costs must be amor- tized. For information about amortizing start-up and organizational costs, see chapter 8. Start-up costs include any amounts paid or incurred in connection with creating an active trade or business or investigating the creation or acquisition of an active trade or business. Or- ganizational costs include the costs of creating a corporation or partnership. How to make the election. You elect to de- duct the start-up or organizational costs by claiming the deduction on your income tax re- turn (filed by the due date including extensions) for the tax year in which the active trade or busi- ness begins. For costs paid or incurred after September 8, 2008, you are not required to at- tach a statement to your return to elect to de- duct such costs. However, for start-up or organ- izational costs paid or incurred before September 9, 2008, you may be required to at- tach a statement to your return to elect to de- duct such costs. If you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the re- turn (excluding extensions). Clearly indicate the election on your amended return and write “Filed pursuant to section 301.9100-2.” File the amended return at the same ad- dress you filed the original return. The election applies when figuring taxable income for the current tax year and all subsequent years. Once made, the election is irrevocable. For more in- formation on start-up and organizational costs, see chapter 8. Reforestation Costs Reforestation costs are generally capital expen- ditures. However, you can elect to deduct up to $10,000 ($5,000 if married filing separately; $0 for a trust) of qualifying reforestation costs paid or incurred after October 22, 2004, for each qualified timber property. The remaining costs can be amortized over an 84-month period. For information about amortizing reforestation costs, see chapter 8. Page 26 Chapter 7 Costs You Can Deduct or Capitalize