I.R.C. § 1254(a) General Rule
I.R.C. § 1254(a)(1) Ordinary Income —
If any section 1254 property is disposed of, the lesser of—
I.R.C. § 1254(a)(1)(A) —
the aggregate amount of—
I.R.C. § 1254(a)(1)(A)(i) —
expenditures which have been deducted by the taxpayer or any person under section
263, 616, or 617 with respect to such property and which, but for such deduction, would have been
included in the adjusted basis of such property, and
I.R.C. § 1254(a)(1)(A)(ii) —
the deductions for depletion under section 611 which reduced the adjusted basis of such property, or
I.R.C. § 1254(a)(1)(B) —
the excess of—
I.R.C. § 1254(a)(1)(B)(i) —
in the case of—
I.R.C. § 1254(a)(1)(B)(i)(I) —
a sale, exchange, or involuntary conversion, the amount realized, or
I.R.C. § 1254(a)(1)(B)(i)(II) —
in the case of any other disposition, the fair market value of such property, over
I.R.C. § 1254(a)(1)(B)(ii) —
the adjusted basis of such property,
shall be treated as gain which is
ordinary income. Such gain shall be recognized notwithstanding any other provision
of this subtitle.
I.R.C. § 1254(a)(2) Disposition Of Portion Of Property —
For purposes of paragraph (1)—
I.R.C. § 1254(a)(2)(A) —
In the case of the disposition of a portion of section 1254 property (other than
an undivided interest), the entire amount of the aggregate expenditures or deductions
described in paragraph (1)(A) with respect to such property shall be treated as allocable
to such portion to the extent of the amount of the gain to which paragraph (1) applies.
I.R.C. § 1254(a)(2)(B) —
In the case of the disposition of an undivided interest in a section 1254 property
(or a portion thereof), a proportionate part of the expenditures or deductions described
in paragraph (1)(A) with respect to such property shall be treated as allocable to
such undivided interest to the extent of the amount of the gain to which paragraph
(1) applies.
This paragraph shall not apply to any expenditures to
the extent the taxpayer establishes to the satisfaction of the Secretary
that such expenditures do not relate to the portion (or interest therein) disposed
of.
I.R.C. § 1254(a)(3) Section 1254 Property —
The term “section 1254 property” means any property
(within the meaning of section 614)
if—
I.R.C. § 1254(a)(3)(A) —
any expenditures described in paragraph
(1)(A) are properly chargeable to such property, or
I.R.C. § 1254(a)(3)(B) —
the adjusted basis of such property includes adjustments for deductions for depletion
under section 611.
I.R.C. § 1254(a)(4) Adjustment For Amounts Included In Gross Income Under Section 617(b)(1)(A) —
The amount of the expenditures referred to in paragraph
(1)(A)(i) shall be properly adjusted for amounts included in gross income under section
617(b)(1)(A).
I.R.C. § 1254(b) Special Rules Under Regulations —
Under regulations prescribed by the Secretary—
I.R.C. § 1254(b)(1) —
rules similar to the rule of subsection
(g) of section 617 and to the rules of subsections (b) and (c) of section 1245 shall be applied for purposes of this section; and
I.R.C. § 1254(b)(2) —
in the case of the sale or exchange of stock in an S corporation, rules similar
to the rules of section 751 shall be applied to that portion of the excess of the amount realized over the adjusted
basis of the stock which is attributable to expenditures referred to in subsection
(a)(1)(A) of this section.
(Added Pub. L. 94-455, title II, 205(a), Oct. 4, 1976, 90 Stat. 1533, and amended Pub. L. 95-618, title IV, 402(c)(1)-(3), Nov. 9, 1978, 92 Stat. 3202; Pub. L. 97-354, 5(a)(37), Oct. 19, 1982, 96 Stat. 1696; Pub. L. 99-514, title IV, 413(a), Oct. 22, 1986, 100 Stat. 2227;
Pub. L. 100-647, title I, 1004(c), Nov. 10, 1988, 102 Stat. 3387.)
BACKGROUND NOTES
AMENDMENTS
1988--Subsec. (a)(4). Pub. L. 100-647 added par. (4).
1986--Pub. L. 99-514 amended section generally, substituting “geothermal, or other mineral properties”
for “or geothermal property” in section catchline, revising and restating subsec.
(a), pars. (1) to (4) as pars. (1) to (3), and reenacting subsec. (b) without change
except for substituting “rule of subsection (g)” for “rules of subsection
(g)” in par. (1).
1982--Subsec. (b)(2). Pub. L. 97-354 substituted “an S corporation"
for “an electing small business corporation (as defined in section 1371(b))”.
1978--Pub. L. 95-618, 402(c)(3), substituted “oil, gas, or geothermal"
for “oil or gas” in section catchline.
Subsec. (a)(1), (2). Pub. L. 95-618, 402(c)(1), substituted “oil, gas, or geothermal property” for “oil or gas property”
wherever appearing.
Subsec. (a)(3). Pub. L. 95-618, 402(c)(2), substituted “Oil, gas, or geothermal"
for “Oil or gas” in heading and in text substituted “The term ‘oil, gas, or geothermal
property’ means” for “The term ‘oil or gas property’
means”.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
EFFECTIVE DATE OF 1986 AMENDMENT
Section 413(c) of Pub. L. 99-514 provided that:
“(1) In general.--The amendments made by this section
[amending sections 617 and 1254 of this title] shall apply to any disposition of property
which is placed in service by the taxpayer after December 31, 1986.
“(2) Exception for binding contracts.--The amendments made by this section shall not
apply to any disposition of property placed in service after December 31, 1986, if
such property was acquired pursuant to a written contract which was entered into before
September 26, 1985, and which was binding at all times thereafter.”
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-354 applicable to taxable years beginning after Dec. 31, 1982, see section 6(a) of Pub. L. 97-354, set out as an Effective Date note under section 1361 of this title.
EFFECTIVE DATE OF 1978 AMENDMENT
Amendment by Pub. L. 95-618 applicable with respect to wells commenced on or after Oct. 1, 1978, in taxable years
ending on or after such date, see section 402(e) of Pub. L. 95-618, set out as a note under section 263 of this title.
EFFECTIVE DATE
Section 205(e) of Pub. L. 94-455 provided that: “The amendments made by this section
[enacting this section and amending sections 163, 170, 301, 312, 341, 453, and 751
of this title] shall apply with respect to taxable years ending after December 31,
1975.”
