100 STAT. 2228
PUBLIC LAW 99-514—OCT. 22, 1986 •'^' "(1) ORDINARY INCOME.—If any section 1254 property is dis'.; posed of, the lesser of— ~ "(A) the aggregate amount of— "(i) expenditures which have been deducted by the taxpayer or any person under section 263, 616, or 617 .1 , with respect to such property and which, but for such deduction, would have been included in the adjusted . i basis of such property, and "(ii) the deductions for depletion under section 611 which reduced the adjusted basis of such property, or "(B) the excess of— "(i) in the case of— "(I) a sale, exchange, or involuntary conversion, the amount realized, or "(II) in the case of any other disposition, the fair market value of such property, over "(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. "(2) DISPOSITION OF PORTION OF PROPERTY.—For purposes of
paragraph (1)— "(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 de.^j scribed in paragraph (I)(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. "(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. "(3) SECTION 1254 PROPERTY.—The term 'section 1254 property' means any property (within the meaning of section 614) if— "(A) any expenditures described in paragraph (I)(A) are «" properly chargeable to such property, or "(B) the adjusted basis of such property includes adjustments for deductions for depletion under section 611. "(b) SPECIAL RULES UNDER REGULATIONS.—Under regulations prescribed by the Secretary— "(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 "(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)(l)(A) of this section." (b) COORDINATION WITH SECTION 617(d).—Subsection (d) of section 617 is amended by adding at the end thereof the following new paragraph:
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