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mineral property. See section 1.613-5(b) (1) of the regulations for information on how to figure the ordinary gain allocable to the property. Oil and Gas Wells You cannot claim percentage depletion for an oil or gas well unless at least one of the follow- ing applies. • You are either an independent producer or a royalty owner. • The well produces natural gas that is either sold under a fixed contract or produced from geopressured brine. If you are an independent producer or roy- alty owner, see Independent Producers and Royalty Owners next. For information on the depletion deduction for wells that produce natural gas that is either sold under a fixed contract or produced from geopressured brine, see Natural Gas Wells, later. Independent Producers and Royalty Owners If you are an independent producer or royalty owner, you figure percentage depletion using a rate of 15% of the gross income from the prop- erty based on your average daily production of domestic crude oil or domestic natural gas up to your depletable oil or natural gas quantity. How- ever, certain refiners, as explained next, and certain retailers and transferees of proven oil and gas properties, as explained next, cannot claim percentage depletion. For information on figuring the deduction, see Figuring percentage depletion, later. Refiners who cannot claim percentage de- pletion. You cannot claim percentage deple- tion if you or a related person refines crude oil and you and the related person refined more than 75,000 barrels on any day during the tax year based on average (rather than actual) daily refinery runs for the tax year. The average daily refinery run is figured by dividing total refinery runs for the tax year by the total number of days in the tax year. Related person. You and another person are related persons if either of you holds a sig- nificant ownership interest in the other person or if a third person holds a significant ownership interest in both of you. For example, a corporation, partnership, es- tate, or trust and anyone who holds a significant ownership interest in it are related persons. A partnership and a trust are related persons if one person holds a significant ownership inter- est in each of them. For purposes of the related person rules, significant ownership interest means direct or indirect ownership of 5% or more in any one of the following. • The value of the outstanding stock of a corporation. • The interest in the profits or capital of a partnership. • The beneficial interests in an estate or trust. Any interest owned by or for a corporation, partnership, trust, or estate is considered to be owned directly both by itself and proportionately by its shareholders, partners, or beneficiaries. Retailers who cannot claim percentage de- pletion. You cannot claim percentage deple- tion if both the following apply. 1. You sell oil or natural gas or their by-prod- ucts directly or through a related person in any of the following situations. a. Through a retail outlet operated by you or a related person. b. To any person who is required under an agreement with you or a related person to use a trademark, trade name, or service mark or name owned by you or a related person in marketing or distributing oil, natural gas, or their by-products. c. To any person given authority under an agreement with you or a related person to occupy any retail outlet owned, leased, or controlled by you or a related person. 2. The combined gross receipts from sales (not counting resales) of oil, natural gas, or their by-products by all retail outlets taken into account in (1) are more than $5 million for the tax year. For the purpose of determining if this rule applies, do not count the following. • Bulk sales (sales in very large quantities) of oil or natural gas to commercial or indus- trial users. • Bulk sales of aviation fuels to the Depart- ment of Defense. • Sales of oil or natural gas or their by-prod- ucts outside the United States if none of your domestic production or that of a rela- ted person is exported during the tax year or the prior tax year. Related person. To determine if you and another person are related persons, see Rela- ted person under Refiners who cannot claim percentage depletion, earlier. Sales through a related person. You are considered to be selling through a related per- son if any sale by the related person produces gross income from which you may benefit be- cause of your direct or indirect ownership inter- est in the person. You are not considered to be selling through a related person who is a retailer if all the following apply. • You do not have a significant ownership in- terest in the retailer. • You sell your production to persons who are not related to either you or the retailer. • The retailer does not buy oil or natural gas from your customers or persons related to your customers. • There are no arrangements for the retailer to acquire oil or natural gas you produced for resale or made available for purchase by the retailer. • Neither you nor the retailer knows of or controls the final disposition of the oil or natural gas you sold or the original source of the petroleum products the retailer ac- quired for resale. Transferees who cannot claim percentage depletion. You cannot claim percentage de- pletion if you received your interest in a proven oil or gas property by transfer after 1974 and before October 12, 1990. For a definition of the term “transfer,” see section 1.613A-7(n) of the regulations. For a definition of the term “interest in proven oil or gas property,” see section 1.613A-7(p) of the regulations. Figuring percentage depletion. Generally, as an independent producer or royalty owner, you figure your percentage depletion by figuring your average daily production of domestic oil or gas and comparing it to your depletable oil or gas quantity. If your average daily production does not exceed your depletable oil or gas quantity, you figure your percentage depletion by multiplying the gross income from the oil or gas property (as defined under Gross income from the property, later) by 15% (0.15). If your average daily production of domestic oil or gas exceeds your depletable oil or gas quantity, you must make an allocation as explained later un- der Average daily production. In addition, there is a limit on the percentage depletion deduction. See Taxable income limit, later. Average daily production. Figure your aver- age daily production by dividing your total do- mestic production of oil or gas for the tax year by the number of days in your tax year. Partial interest. If you have a partial inter- est in the production from a property, figure your share of the production by multiplying total production from the property by your percent- age of interest in the revenues from the prop- erty. You have a partial interest in the production from a property if you have a net profits interest in the property. To figure the share of produc- tion for your net profits interest, you must first determine your percentage participation (as measured by the net profits) in the gross reve- nue from the property. To figure this percent- age, you divide the income you receive for your net profits interest by the gross revenue from the property. Then multiply the total production from the property by your percentage participa- tion to figure your share of the production. Example. Javier Robles owns oil property in which Pablo Olmos owns a 20% net profits interest. During the year, the property produced 10,000 barrels of oil, which Javier sold for $200,000. Javier had expenses of $90,000 at- tributable to the property. The property gener- ated a net profit of $110,000 ($200,000 − $90,000). Pablo received income of $22,000 ($110,000 × 20% (0.20)) for his net profits inter- est. Pablo determined his percentage participa- tion to be 11% by dividing $22,000 (the income he received) by $200,000 (the gross revenue from the property). Pablo determined his share Chapter 9 Depletion Page 37