52 STAT.] 75TH CONG. , 3D SESS.-CH. 289-MAY 28, 1938 (b) BASIS FOR DEPLETION.- Basisfordepi (1) GENERAL RULE. -T he basis upon which depletion is to be General rule. allowed in respect of any property shall be the adjusted basis provided in section 113 (b) for the purpose of determining the Ane, p. 493 gain upon the sale or other disposition of such property, except as provided in paragraphs (2), (3), and (4) of this subsection. (2) DISCOVERY VALUE IN CASE OF MINES.-In the case of mines Disovry v (other than metal, coal, or sulphur mines) discovered by the taxpayer after February 28, 1913, the basis for depletion shall be the fair market value of the property at the date of discovery or within thirty days thereafter, if such mines were not acquired as the result of purchase of a proven tract or lease, and if the fair market value of the property is materially disproportionate to the cost. The depletion allowance under section 23 (m) Mai"um based on discovery value provided in this paragraph shall not Ante, p.462. exceed 50 per centum of the net income of the taxpayer (com- puted without allowance for depletion) from the property upon which the discovery was made, except that in no case shall the depletion allowance under section 23 (m) be less than it would be if computed without reference to discovery value. Discoveries Minerals inc shall include minerals in commercial quantities contained within a vein or deposit discovered in an existing mine or mining tract by the taxpayer after February 28, 1913, if the vein or deposit thus discovered was not merely the uninterrupted extension of a continuing commercial vein or deposit already known to exist, and if the discovered minerals are of sufficient value and quantity that they could be separately mined and marketed at a profit. (3) PERCENTAGE DEPLETION FOR OIL AND GAS WELL. -- In the case ,tio frent a of oil and gas wells the allowance for depletion under section weus. 23 (m) shall be 271/2 per centum of the gross income from the property during the taxable year, excluding from such gross income an amount equal to any rents or royalties paid or incurred by the taxpayer in respect of the property. Such allowance mancem shall not exceed 50 per centum of the net income of the taxpayer (computed without allowance for depletion) from the property, except that in no case shall the depletion allowance under section 23 (m) be less than it would be if computed without reference to this paragraph. (4) PERCENTAGE DEPLETION FOR COAL AND METAL MINES AND tlonfroalnt SULPHUR. - The allowance for depletion under section 23 (m) mines and sp shall be, in the case of coal mines, 5 per centum, in the case of metal mines, 15 per centum, and, in the case of sulphur mines or deposits, 23 per centum, of the gross income from the property during the taxable year, excluding from such gross income an amount equal to any rents or royalties paid or incurred by the taxpayer in respect of the property. Such allowance shall not aucMeIim exceed 50 per centum of the net income of the taxpayer (com- puted without allowance for depletion) from the property. A taxpayer making his first return under this title in respect Election b: of a property shall state whether he elects to have the depletion tion a allowance for such property for the taxable year for which the return is made computed with or without regard to percentage depletion, and the depletion allowance in respect of such prop- erty for such year shall be computed according to the election thus made. If the taxpayer fails to make such statement in Computatiol the return, the depletion allowance for such property for such year shall be computed without reference to percentage depletion. The method, determined as above, of computing the depletion letion. alue in allow- Inded. deple- nd gas allow- deple- d metal ihur. allow- y tax- mnputa- , ifno 495
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