On July 25, 2025, the Internal Revenue Service (IRS) released Private Letter Ruling 202530002, where it summarized the requirements for aggregating separate nonoperating mineral interests into a single property under Section 614(e) of the Internal Revenue Code (Code) and Section 1.614-5(d) of the Treasury Regulations (Regulations) for purposes of computing the depletion deduction. Under Section 611(a) of the Code, a taxpayer may take a deduction for the depletion of natural resources when determining taxable income from production, permitting a taxpayer to account for the reduction of reserves.
The allowance for depletion, whether it be via cost depletion under Section 612 of the Code or percentage depletion under Section 613 of the Code, depends in part either on the basis in the property for cost depletion, or the gross income from the property for percentage depletion. With respect to mines, wells, and other natural resources, Section 614(a) of the Code defines “property” as “each separate interest owned by the taxpayer in each mineral deposit in each separate tract or parcel of land,” while each “interest” a taxpayer owns is an economic interest in a mineral deposit which is generally, per Section 1.614-1(a)(2) of the Regulations, a working or operating interest, royalty interest, or profits interest. The subject taxpayer owned mineral royalty interests via separate leases, each covering a distinct tract of land – seemingly each a separate “property” for purposes of Section 614 of the Code. However, Section 614(e) of the Code provides that a taxpayer who owns two or more separate nonoperating mineral interests in a single tract of land or in two or more adjacent tracts is, upon the requisite showing, permitted to treat the mineral interests in each deposit as one “property”. The subject taxpayer, who is not responsible for the costs of exploration, development, or production, owns nonoperating mineral interests.
Per Section 1.614-5(d) of the Regulations, a taxpayer owning nonoperating interests in two or more adjacent tracts of land (i.e., tracts that are, depending on the facts and circumstances, “in reasonably close proximity to each other”) can make the requisite showing to the IRS for permission to aggregate by establishing that the avoidance of tax is not a principal purpose for aggregation. Section 1.614-5(d) of the Regulations further states that a substantial reduction in tax from the aggregation of interests is evidence that the principal purpose of aggregation is tax avoidance.
In PLR 202530002, the IRS summarized the three-step process, derived from Section 614(e) of the Code and Section 1.614-5 of the Regulations, that a taxpayer must follow to obtain permission to aggregate nonoperating mineral interests. Specifically, a taxpayer must:
- Submit to the IRS an application for permission to aggregate the interests within 90 days after the beginning of the first taxable year for which aggregation is desired, or within 90 days after the acquisition of one of the properties to be included in the aggregation (Section 1.614-5(e)(1) of the Regulations);
- Include with the application a description of the interests within the tract(s), accompanied by maps appropriately marked and accurately circumscribing the scope of the aggregation (Section 1.614-5(e)(4) of the Regulations); and
- Establish, through the inclusion in the application of a complete statement of facts upon which the taxpayer relies, that a principal purpose for aggregating the interests is not tax avoidance (Sections 1.614-5(d) and (e) of the Regulations).
In PLR 202530002, the taxpayer represented that the principal purpose of the request to aggregate was not tax avoidance, but instead to reduce the administrative burden caused by calculating depletion without aggregation and to implement consistent treatment for accounting and income tax purposes. Finding that the taxpayer satisfied the requirements of Section 614(e) of the Code and Section 1.614-5 of the Regulations, the IRS consented to the taxpayer aggregating its separate nonoperating mineral interests located at the two leased properties. PLR 202530002, in addition to summarizing the time-sensitive requirements for a taxpayer to aggregate nonoperating mineral interests into a single property for purposes of computing depletion under Section 611 of the Code, can serve as a useful reminder to mineral interest owners that the principal purpose of a requested aggregation cannot be the avoidance of tax. In the case of the subject taxpayer, the reduction of the administrative burden of depletion calculations, coupled with the ability to implement consistent treatment for accounting and income tax purposes as a result of aggregation, constituted a sufficient principal purpose.
For further questions regarding this topic, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Jack Aguillard and visit our Tax practice page.