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:: Placer Mining Industry - Chapter 9 - Sale of Claims
Information
on sales
and
other
transfers
of
mining
claims
can be
obtained
from the
files
maintained
at the
Department
of
Natural
Resources.
All
transfers
must be
recorded
and a
copy of
the
recorded
document
supplied
to the
state.
These
documents
include
quitclaim
deeds,
warranty
deeds,
and
contracts
of sale.
They
provide
the
names of
the
seller,
buyer,
which
property
is
transferred,
and the
terms of
the
transfer.
The
documents
may not
contain
the true
sales
price.
Usually
the
documents
indicate
that the
property
was
transferred
for
$10.00
and/or
other
good and
valuable
consideration.
After
the
information
derived
from
these
documents
is
obtained,
an RTVUE
of the
sellers
return
can be
requested
and
examined
to
verify
if the
sale has
been
reported.
If there
is no
sale
apparent
on the
return,
further
research
is
warranted.
This can
be
achieved
by a
third-party
contact
with the
buyer.
However,
it may
be
advisable
to probe
further
to
guarantee
that
there is
no
collusion
between
the
buyer
and
seller
or to
verify
that the
transaction
was at
arms
length.
Since
the
purchase
price or
fair
market
value
establishes
the
basis
for the
buyer in
the
majority
of
transactions,
there is
some
incentive
for the
buyer to
give
correct
information.
Research
of sales
of
property
may also
reveal a
non-filer,
so it is
advisable
to
review
both the
seller's
and the
buyer's
returns.
IRC
section
617(d)(1)
states:
Except
as
otherwise
provided
in this
subsection,
if
mining
property
is
disposed
of, the
lower
of-
-
the
adjusted
exploration
expenditures
with
respect
to
such
property,
or
-
the
excess
of
-
the amount realized (in the case of a sale, exchange, or involuntary conversion), or the fair market value (in the case of any other disposition), over
-
the adjusted basis of such property, shall be treated as ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle.
Treas.
Reg.
section
1.617-4(a)(2)
states:
In the
case of
a sale,
exchange,
or
involuntary
conversion
of
mining
property,
the gain
to which
[IRC]
section
617(d)(1)
applies
is the
lower of
the
adjusted
exploration
expenditures
with
respect
to such
property
or the
excess
of the
amount
realized
upon the
disposition
of the
property
over the
adjusted
basis of
the
property.
In the
case of
a
disposition
of
mining
property
other
than by
a manner
described
in the
preceding
sentence,
the gain
to which
[IRC]
section
617(d)(1)
applies
is the
lower of
the
adjusted
exploration
expenditures
with
respect
to such
property
* * * on
the date
of
disposition
over the
adjusted
basis of
the
property.
IRC
section
617(f)(1)
states:
* * *
The term
"adjusted
exploration
expenditures"
means,
with
respect
to any
property
or mine-
-
the
amount
of
the
expenditures
allowed
for
the
taxable
year
and
all
preceding
taxable
years
as
deductions
under
subsection
(a)
to
the
taxpayer
or
any
other
person
which
are
properly
chargeable
to
such
property
or
mine
and
which
(but
for
the
election
under
subsection
(a))
would
be
reflected
in
the
adjusted
basis
of
such
property
or
mine,
reduced
by
-
for
the
taxable
year
and
for
each
preceding
taxable
year,
the
amount
(if
any)
by
which
-
the amount which would have been allowable for percentage depletion under [IRC] section 613 but for the deduction of such expenditures, exceeds
-
the amount allowable for depletion under [IRC] section 611, properly adjusted for any amounts included in gross income under subsection (b) or (c) and for any amounts of gain to which subsection (d) applied.
Because
a large
percentage
of
Schedule
C gold
mines
never
claim to
reach
the
production
stage,
depletion
is
rarely
claimed.
It is
unlikely
that
there
will be
any
recapture
of
exploration
and
development
expenses.
The
computation
described
by IRC
section
617(f)(1),
regarding
adjusted
exploration
expenditures,
will
generally
not be a
consideration
when
determining
the gain
on the
sale of
a
particular
claim;
however,
it must
be
considered.
It is
important
to
determine
the
amount
of
exploration
and
development
expenditures
previously
deducted
pertaining
to a
particular
claim or
group of
claims.
The
taxpayer
is
required
to
supply
copies
of all
returns
which
include
exploration
or
development
expenditures
pertaining
to the
claim or
claims
sold and
be able
to
segregate
the
expenses
by
claim.
This
information
can then
be used
to
determine
if a
gain
exists.
The
basis of
the
claim
must
also be
determined
in order
to
ascertain
if there
is any
excess
basis.
Once
determined,
the
formula
per IRC
section
617(d)(1)
can be
applied.
Also see
IRC
section
1254 for
property
placed
in
service
after
1986.
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