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TITLE 26-INTERNAL REVENUE CODE § 616. Development expenditures (a) In general Except as provided in subsection (b), there shall be allowed as a deduction in computing taxable income all expenditures paid or in- curred during the taxable year for the develop- ment of a mine or other natural deposit (other than an oil or gas well) if paid or incurred after the existence of ores or minerals in commercial- ly marketable quantities has been disclosed. This section shall not apply to expenditures for the acquisition or improvement of property of a character which is subject to the allowance for depreciation provided in section 167, but allowances for depreciation shall be considered, for purposes of this section, as expenditures. (b) Election of taxpayer At the election of the taxpayer, made in ac- cordance with regulations prescribed by the Secretary, expenditures described in subsection (a) paid or incurred during the taxable year shall be treated as deferred expenses and shall be deductible on a ratable basis as the units of produced ores or minerals benefited by such ex- penditures are sold. In the case of such expen- ditures paid or incurred during the develop- Ynent stage of the mine or deposit, the election shall apply only with respect to the excess of such expenditures during the taxable year over the net receipts during the taxable year from the ores or minerals produced from such mine or deposit. The election under this subsection, if made, must be for the total amount of such expenditures, or the total amount of such excess, as the case may be, with respect to the mine or deposit, and shall be binding for such taxable year. (c) Adjusted basis of mine or deposit The amount of expenditures which are treat- ed under subsection (b) as deferred expenses shall be taken into account in computing the adjusted basis of the mine or deposit, except that such amount, and the adjustments to basis provided in section 1016(a)(9), shall be disre- garded in determining the adjusted basis of the property for the purpose of computing a deduc- tion for depletion under section 611. (Aug. 16, 1954, ch. 736, 68A Stat. 212; Oct. 4, 1976, Pub. L. 94-455, title XIX, § 1906(b)(13)(A), 90 Stat. 1834.) AMENDMENTS 1976-Subsec. (b). Pub. L. 94-455 struck out "or his delegate" following "Secretary". CROSS Ru'ERNcEs Exception from denial of deduction for capital ex- penditures, see section 263 of this title. S c ioN RErmEIU TO IN OTHER SECTIONS This section is referred to in sections 263, 381, 1016 of this title. § 617. Deduction and recapture of certain mining ex- ploration expenditures (a) Allowance of deduction (1) General rule At the election of the taxpayer, expendi- tures paid or incurred during the taxable year for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral, and paid or incurred before the beginning of the development stage of the mine, shall be allowed as a deduc- tion in computing taxable income. This sub- section shall apply only with respect to the amount of such expenditures which, but for this subsection, would not be allowable as a deduction for the taxable year. This subsec- tion shall not apply to expenditures for the acquisition or improvement of property of a character which is subject to the allowance for depreciation provided in section 167, but allowances for depreciation shall be consid- ered, for purposes of this subsection, as ex- penditures paid or Incurred. In no case shall this subsection apply with respect to amounts paid or incurred for the purpose of ascertain- ing the existence, location, extent, or quality of any deposit of oil or gas or of any mineral with respect to which a deduction for per- centage depletion is not allowable under sec- tion 613. (2) Elections (A) Method Any election under this subsection shall be made in such manner as the Secretary may by regulations prescribe. (B) Time and scope The election provided by paragraph (1) for the taxable year may be made at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for the taxable year. Such an election for the taxable year shall apply to all expendi- tures described in paragraph (1) paid or in- curred by the taxpayer during the taxable year or during any subsequent taxable year. Such an election may not be revoked unless the Secretary consents to such revocation. (C) Deficiencies The statutory period for the assessment of any deficiency for any taxable year, to the extent such deficiency is attributable to an election or revocation of an election under this subsection, shall not expire before the last day of the 2-year period be- ginning on the day after the date on which such election or revocation of election is made; and such deficiency may be assessed at any time before the expiration of such 2- year period, notwithstanding any law or rule of law which would otherwise prevent such assessment. () Recapture on reaching producing stage (1) Recapture If, in any taxable year, any mine with re- spect to which expenditures were deducted pursuant to subsection (a) reaches the pro- ducing stage, then- (A) If the taxpayer so elects with respect to all such mines reaching the producing stage during the taxable year, he shall in- clude in gross income for the taxable year an amount equal to the adjusted explora- tion expenditures with respect to such mines, and the amount so included in income shall be treated for purposes of this subtitle as expenditures which (I) are paid Page 452 § 616