Supreme Court defines "property" for excess percentage depletion AMT.

• Author: Rankin, Jeffrey W.
• Position: Alternative minimum tax - Brief Article

In Hill, 1/25/93, the U.S. Supreme Court unanimously upheld the IRS's position as to the proper method of computing the amount of percentage depletion that constitutes a tax preference subject to the alternative minimum tax (AMT) under old Sec. 57(a)(8) (now Sec. 57(a)(1)).

The Federal Circuit, affirming the Claims Court (now the U.S. Court of Federal Claims), previously held that a taxpayer's adjusted basis for purposes of measuring excess depletion included not only leasehold costs (minerals in place), but also the unrecovered basis in tangible improvements (lease and well equipment) related to the property. (See the Tax Clinic item, "Excess Percentage Depletion AMT - What Does Property Mean?," TTA, Jan. 1992, at 37.)

However, Justice Souter stated that the unrecovered costs of depreciable improvements to a mineral deposit could not be included in the adjusted basis of the property that was offset against the year's percentage depletion in...