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An Overview of Tax Considerations in Dealing With Mineral Interests Owned by a Closely Held Corporation

Robert J. Welter, Mineral Taxation (1977)

In general, the tax rules with respect to the acquisition and disposition of mineral interests are not a function of the type of taxpayer which owns the interests. The tax consequences with respect to the acquisition and disposition of mineral interests discussed in the other papers are applicable to individuals, corporations, partnerships and trusts. The special tax considerations in dealing with mineral interests owned by closely held corporations, which is the subject of this paper, result from the desire to have the funds from the disposition of the interests go to the shareholders even though the properties are owned by the corporation. It is this desire that necessitates careful planning of any disposition of mineral interests by a corporation. The tax problem is how to get the funds from the disposition of the corporate properties to the shareholders with the payment of the least tax.

The following hypothetical fact situation will be referred to frequently in discussing these tax considerations:

— Corporation A is owned by husband and wife.

— The total cash investment of the shareholders in the stock of the corporation is $50,000.

— The major asset of Corporation A is land which may contain substantial coal and uranium deposits.

— The corporation's balance sheet is as follows:

Assets $100,000
Liabilities 25,000