should be furnished wherever possible); (g) (for the first year in which the above information is filed for a property which was producing prior to the taxable year covered by the above statement the following information must be furnished) annual production of the tract or of the individual wells, if the latter information is available, from the beginning of its productivity to the beginning of the taxable year for which the return was filed; the average number of wells producing during each year; and the initial daily production of each well; and (r) any other data which will be helpful in determining the reasonableness of the depletion deduction. When a taxpayer has filed adequate maps with the Commissioner he may be relieved of filing further maps of the same properties, provided all additional information necessary for keeping the maps up to date is filed each year. This includes records of dry holes, as well as producing wells, together with logs, depth and thickness of sands, location of new wells, etc. By "production" is meant the net production of oil or gas belonging to the taxpayer. In those leases where no account is kept of the oil or gas used for fuel, the production will necessarily be that remaining after the fuel used in the property has been taken out. In cases of this kind an estimate of the fuel used from each tract should be given for each year. or Omit ART. 219. Discovery of mine. The discovery of a mine or a natural deposit of mineral, whether it be made by an owner of the land or by a lessee, shall be deemed to mean (a) the bona fide discovery of a commercially valuable deposit of ore or mineral of a value materially in excess of the cost of discovery in natural exposure or by drilling or other exploration conducted above or below ground, or (b) the development and proving of a mineral or ore deposit which has been abandoned or apparently worked out, or sold, leased or otherwise disposed of, by an owner or lessee prior to the development of a body of ore or mineral of sufficient size, quality and character to determine it, in connection with the physical and geological conditions of its occurrence, to be a mineable deposit of ore or mineral having a value materially in excess of the cost of the proving and development. In determining whether a discovery has been made the Commissioner will take into account the peculiar conditions of the case, and every taxpayer claiming the value of a mineral deposit on the date of discovery or within 30 days thereafter for purposes of depletion will be required to attach to his return a statement setting forth the conditions and circumstances of the discovery and the size, character and location of the deposit, together with the cost of discovery, its value and the precise method used in determining the value. ART. 220. Discovery of oil and gas wells.-In order to take advantage + of his discovery on or after March 1, 1913, of oil or gas wells, the taxpayer must show (a) that the tract for which such valuation is 1 See p. 316 for modification. Dinet dis claimed was not proven oil land as to the particular sand or zone covery of which is claimed at the time the so-called discovery was made, proven oil land being that which has been shown by finished wells, supplemented by geologic data, to be such that other wells drilled thereon are practically certain to be commercial producers: (b) that the discovery was a bona fide discovery of a commercial well of oil or gas or both of these substances on the property in ques tion, a commercial well being one whose production is such as to offer a reasonable expectation of at least returning the capital invested in such well through the sale of the oil or gas or both derived therefrom during its economic life; and (c) that the fair market value of the property was materially in excess of the cost. ART. 221.1 Proof of discovery of oil and gas wells.-In order to meet the requirements of the preceding article to the satisfaction of the Commissioner the taxpayer will be required, among other things, to submit the following with his return: (a) a map of convenient scale. showing the location of the tract and discovery well in question and of the nearest producing well, and the development for a radius of at least three miles from the tract in question, both on the date of dis covery and on the date when the fair market value was set; (b) i certified copy of the log of the discovery well, showing the location the date drilling began, the date of completion and beginning of production, the formations penetrated, the oil, gas and water sands penetrated, the casing record, including the record of perforations and any other information tending to show the condition of the well and the location of the sand or zone from which the oil or ga is produced on the date the discovery was claimed; (c) the logs of enough other wells drilled prior to the date of completion of the discovery in the vicinity of the discovery well to convince the Commissioner that the sand or zone discovery of which is claime! was not known prior to the so-called discovery; (d) a swor record of production, clearly proving the commercial productivity of the discovery well; (e) a sworn copy of the records, showing the cost of the property; and (f) a full explanation of the metho of determining the value on the date of discovery or within days thereafter, supported by satisfactory evidence of the fairness of this value. ART. 222. Charges to capital and to expense in the case of mine.-In the case of mining operations all expenditures for plant, equipment. development, rent and royalty prior to production, and thereafter all major items of plant and equipment, shall be charged to capital account for purposes of depletion and depreciation. After a mine has been developed and equipped to its normal and regular output capacity, however, the cost of additional minor items of equipment and plant, including mules, motors, mine cars, trackage, cables, trol 1 See p. 316 for modification. ley wire, fans, small tools, etc., necessary to maintain the normal output because of increased length of haul or depth of working consequent on the extraction of mineral, and the cost of replacements of these and similar minor items of worn-out and discarded plant and equipment, may be charged to current expense of operations, unless the taxpayer elects to write off such expenditures through charges for depreciation. ART. 223. Charges to capital and to expense in the case of oil and gas + wells. Such incidental expenses as are paid for wages, fuel, repairs, hauling, etc., in connection with the exploration of the property, drilling of wells, building of pipe lines, and development of the property may at the option of the taxpayer be deducted as an operating expense or charged to the capital account returnable through depletion. If in exercising this option the taxpayer charges these incidental expenses to capital account, in so far as such expense is represented by physical property it may be taken into account in determining a reasonable allowance for depreciation. The cost of drilling nonproductive wells may at the option of the operator be deducted from gross income as an operating expense or charged to capital account returnable through depletion and depreciation as in the case of productive wells. An election once made under this option will control the taxpayer's returns for all subsequent years. Casing-head gas contracts have been construed to be tangible assets and their cost may be added to the capital account returnable through depletion, following the rate set by the oil wells from which the gas is derived, or, if the life of the contract is shorter than the reasonable expectation of the life of the wells furnishing the gas, the capital invested in the contract may be written off through yearly allowances equitably distributed over the life of the contract. All oil produced during the taxable year, whether sold or unsold, must be considered in the computation of the depletion allowance for that year. In computing net income all oil in storage at the beginning and at the end of the taxable year must be inventoried at cost, that is, unit cost plus lifting cost. Where deductions for depreciation or depletion have either on the books of the taxpayer or in his returns of net income been included in the past in expense or other accounts, rather than specifically as depreciation or depletion, or where capital expenditures have been charged to expense in lieu of depreciation or depletion, a statement indicating the extent to which this practice has been carried should accompany the return. ART. 224. Depreciation of improvements in the case of mine.-It shall be optional with the taxpayer, subject to the approval of the Comt missioner, (a) whether the cost or value of the mining property, including ores and minerals, plant and equipment, and charges and 158036-20-6 + additions to capital account not charged to expense and deducted a expense on the returns of the taxpayer, shall be recovered at a rat established by current exhaustion of mineral, or (b) whether th cost or value of the mineral and charges to capital account of ex penditures other than for physical property shall be recovered b appropriate charges based on depletion and the cost or value o plant and equipment shall be recovered by reasonable charges for de preciation calculated by the usual rules for depreciation or accord ing to the peculiar conditions of the taxpayer's case by a metho satisfactory to the Commissioner. Nothing in these regulations shal be interpreted to mean that the value of a mining plant and equip ment may be reduced by depreciation or depletion deductions to sum below the value of the salvage when the property shall hav become obsolete or shall have been abandoned for the purpose o mining, or that any part of the value of land for purposes othe than mining may be recoverable through depletion or depreciation ART. 225. Depreciation of improvements in the case of oil and ga wells. Both owners and lessees operating oil or gas properties will in addition to and apart from the deduction allowable for the deple tion or return of capital as hereinbefore provided, be permitted t deduct a reasonable allowance for depreciation of physical property such as machinery, tools, equipment, pipes, etc., so far as not in con flict with the option exercised by the taxpayer under article 223 The amount deductible on this account shall be such an amount based upon its cost or fair market value as of March 1, 1913, equitably distributed over its useful life as will bring such property to its true salvage value when no longer useful for the purpose for which such property was acquired. Accordingly, where it can be shown to the satisfaction of the Commissioner that the reasonable expectation of the economic life of the oil or gas deposit with which the property is connected is shorter than the normal useful life of the physical prop erty, the amount annually deductible for depreciation may for such property be based upon the length of life of the deposit. See articles 161-170. ART. 226. Depletion and depreciation of oil and gas wells in years be fore 1916. If upon examination it is found that in respect of the entire drilling cost of wells, including physical property and inci dental expenses, between March 1, 1913, and December 31, 1915, a taxpayer has been allowed a reasonable deduction sufficient to provide for the elements of exhaustion, wear and tear, and depletion, it will not be necessary to reopen the returns for years prior to 1916 in order to show separately in these years the portions of such deduc tion representing depletion and depreciation, respectively. Such separation will be required to be made of the reserves for depreciation at January 1, 1916, and proper allocation between depreciation and depletion must be maintained after that date. In any case in which it is found that the deductions taken between March 1, 1913, and December 31, 1915, are not reasonable, amended returns may be required for these years. See article 839. Onut ART. 227. Depletion of timber.-A reasonable deduction from gross income for the depletion of timber and for the depreciation of improvements is permitted, based (a) upon cost if acquired after February 28, 1913, or (b) upon the fair market value as of March 1, 1913, if acquired prior thereto. The essence of this provision is that the owner of timber property, whether it be a leasehold or a freehold, shall secure through an aggregate of annual depletion and depreciation deductions a return of the amount of capital invested by him in the property, or in lieu thereof an amount equal to its fair market value as of March 1, 1913, plus in any case the subsequent cost of plant, equipment and development which is not chargeable to current operating expenses, but not including cut-over land values. ART. 228. Capital recoverable through depletion allowance in the case of timber.-In general, the capital remaining in any year recoverable through depletion allowances may be determined as indicated in articles 202 and 203. In the case of leases the apportionment of deductions between the lessor and lessee should be made as specified in article 204. Where it becomes necessary to determine the cost or fair market value as of March 1, 1913, of the property, the rules laid down in articles 205 and 206 should be followed so far as possible. ART. 229. Computation of allowance for depletion of timber.-An allowance for the depletion of timber in any taxable year shall be based upon the number of feet of stumpage cut during the year and the unit cost of the stumpage at the date of acquisition or the unit market value on March 1, 1913, if acquired prior thereto. The unit market value as of March 1, 1913, shall be the unit price at which the standing timber in its then condition and in view of its then environment could have been sold for cash or its equivalent. The amount of the deduction for depletion in any taxable year shall be the product of the number of feet of stumpage cut during the year multiplied by such unit cost or market value of the stumpage. ART. 230. Revaluation of stumpage not allowed.-The fair market value of stumpage when determined as of March 1, 1913, for the purpose of depletion allowances in the case of timber acquired prior thereto, shall be the basis for determining the depletion deduction for each year during the continuance of the ownership under which the fair market value of the stumpage was fixed, and during such ownership there can be no redetermination of the fair market value of the stumpage for such purpose. However, the unit market value of Oinet |