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201 Rulings and determination letters. Also Part I 636 1. 636 3. Rev. Proc. 97 55 SECTION 1. PURPOSE This revenue procedure sets forth the conditions under which the Internal Revenue Service will consider issuing an advance ruling that a right to mineral is a production payment as defined in 1.

Section 2. A production payment is presumed to arise out of and be derived from the underlying property interest of a particular production from resource in 1.636 3(a)(4) of the Income Tax Regulations. In determining whether a payment is a production payment under 1.636 3(a)(4), the Internal Revenue Service should consider: 1. The terms and conditions of the ownership and right to extract (including any contractual or fiduciary rights of any shareholder) 2. The purpose of the payment 3. Whether the mining expense of mineral that has been beneficially used in the production from resource has been allocated directly to the production from resource or is reasonably calculated to have been so allocated 4. Whether the payment is an indirect payment under regulations under 1.636 3(b) or 1.636 6 3(b) or is a separate royalty under 1.636 3(c)(2)(A)(ii) (providing a separate royalty or royalty deduction in connection with a separate royalty deduction that is not separate from the amount attributed to the underlying property) 5. Whether the payment results from a lease (or its predecessor) 6. What the right to extract or develop means, as described in Section 3 below 7. Any amount received or incurred as a result of the payment being granted or from the payment being applied back for depreciation or similar purposes, such as a reimbursement of expenses incurred to recover the amount. 8., 8.1., The terms and conditions under which the payment is granted or received 9. Whether a tax deduction under section 219 applies. Section 3. The Internal Revenue Service will consider the following factors when determining whether a right to mineral is a production payment: 1. Whether the right or interest in property to which the payment is made can be identified by a statutory description, including the definition of the term in 1.636 3(a) and 1.636 1(a)(2) in the Income Tax Regulations (which can be found in 1.636 3 of the Income Tax Regulations). Section 4. When there is no statutory description of the property to which the payment is made, the Internal Revenue Service relies upon common law to determine whether there is a property interest or right to extract from mineral to which the payment is made. 2.

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