is subject to percentage depletion notwithstanding the 1,000 barrel per day limitation (Comm'r v. Engle, 104 S.Ct. 597 (1984)). The Court left open the possibility that the Treasury Department could promulgate regulations giving effect to the limitation by limiting the period in which depletion may be claimed. The extent of this possible regulatory authority is unclear. Explanation of the Bill The bill would provide that no percentage depletion may be claimed with respect to gross income from any lease bonus, advance royalty, or other amount payable without regard to actual production from the property. Effective Date This amendment would take effect on January 1, 1984. Revenue Effect The provisions of the bill are estimated to increase fiscal year budget receipts by $336 million in 1985, $253 million in 1986, $249 million in 1987, $234 million in 1988, and $215 million in 1989. 14. H.R. 5199-Mr. Stark Applicability of Farming Syndicate Rules of Section 278(b) to Inedible Fruits and Nuts Present Law Under present law, farming syndicates must capitalize the costs of planting, cultivating, maintaining, and developing certain groves, orchards, and vineyards in which fruit or nuts are grown, if the costs are incurred before the grove, orchard, or vineyard bears a crop or yield in commercial quantities (sec. 278(b)). The costs that are required to be capitalized include any amount which would be allowable as a deduction but for this provision. An exception to this capitalization rule is provided for amounts otherwise allowable as deductions which are attributable to a grove, orchard, or vineyard which is replanted after having been lost or damaged while in the hands of the taxpayer by reason of freezing temperatures, disease, drought, pests, or casualty. A farming syndicate is defined generally as including (1) a partnership or other enterprise (other than a corporation which is not an S corporation) engaged in the trade or business of farming if, at any time, interests in the partnership or other enterprise have been offered for sale in an offering required to be registered with a Federal or State agency having authority to regulate the offering of securities for sale, or (2) a partnership or other enterprise (other than a corporation which is not an S corporation) engaged in the trade or business of farming if more than 35 percent of the losses during any period are allocable to limited partners or limited entrepreneurs (sec. 464(c)). Under proposed regulations, for purposes of section 278(b), a grove, orchard, or vineyard in which fruit or nuts are grown in cludes any group of trees, bushes, shrubs, or vines which produce a crop or yield of fruit or nuts. A fruit is defined as a fertilized and developed ovary of a plant, including the seeds, or, in the case of a plant that does not bear seeds, the fertile structure of the plant, and a nut is defined as a hard-shelled fruit. For example, fruits or nuts include apples, avocados, coffee beans, grapes, jojoba beans or seeds, pecans, pistachios, and walnuts (Treas. Prop. Regs. sec. 1.2782(a)(2)). Some taxpayers have argued that because the jojoba is the seed of a fruit, and inedible, the capitalization requirements for farming syndicates under section 278(b) do not apply to farming syndicates investing in jojoba beans. Explanation of the Bill Under the bill, farming syndicates would be required to capitalize the costs of planting, cultivating, maintaining, and developing a grove, orchard, vineyard, or other tract of trees, bushes, shrubs, or vines in which fruit or nuts (whether or not edible) are grown. Thus, the bill would provide that the rules under section 278(b) relating to certain capital expenditures of farming syndicates apply to farming syndicates investing in inedible fruits or nuts such as jojoba beans. Effective Date The bill would apply to amounts paid or incurred after March 20, 1984, in taxable years ending after such date. Revenue Effect The provisions of the bill are estimated to increase fiscal year budget receipts by $11 million in 1985, $10 million in 1986, $10 million in 1987, $11 million in 1988, and $11 million in 1989. O |