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Economic Interests and Depletion Allowable (Aggregations)

Ream V. Miller, Proceedings of 1st Annual Rocky Mountain Mineral Law Institute (1955)

The mineral interests operating and non-operating whether working interest, royalty, oil payment, net profits or carried interest to which I shall refer, are all assumed to constitute economic interests as that somewhat illusory term has been defined by the courts and by the Service. The regulations1 provide that:
An economic interest is possessed in every case in which the taxpayer has acquired, by investment, any interest in mineral in place ... and secures, by any form of legal relationship, income derived from the severance and sale of the mineral ... to which he must look for a return of his capital.
Because the statutory depletion allowance with respect to minerals is based on a certain percentage of the gross income from the property limited to 50 per cent of the taxable income therefrom, one of the first essentials is the proper separation of these mineral interests into units of propertyin other words, to ascertain exactly what is meant by the term property. [416]
THE “PROPERTY”
Under 1939 Code
The 1939 Code and prior law did not define the termit being left to administrative regulation and judicial decision. Thus the regulations2 under the 1939 Code state:
The property ... means the interest owned by the taxpayer in any mineral property. The taxpayer's interest in each separate mineral property is a separate property; but, where two or more m