TAX TREATMENT OF COAL ROYALTIES.

SEC. 325. TAX TREATMENT OF COAL ROYALTIES. (a) Definition of Property Used in the Trade or Business.—Section 117 (j) (1) (relating to the definition of property used in the trade or business) is hereby amended by adding after the word “timber” in the second sentence thereof the following: “or coal”. (b) Gain or Loss Upon Certain Disposals of Timber or Coal.—Section 117 (k) (2) (relating to the disposal of timber) is hereby amended to read as follows: “(2) In the case of the disposal of timber or coal (including lignite), held for more than 6 months prior to such disposal, by the owner thereof under any form or type of contract by virtue of which the owner retains an economic interest in such timber or coal, the difference between the amount received for such timber or coal and the adjusted depletion basis thereof shall be considered as though it were a gain or loss, as the case may be, upon the sale of such timber or coal. Such owner shall not be entitled to the allowance for percentage depletion provided for in section 114 (b) (4) with respect to such coal. This paragraph shall not apply to income realized by the owner as a co-adventurer, partner, or principal in the mining of such coal. The date of disposal of such coal shall be deemed to be the date such coal is mined. In determining the gross income, the adjusted gross income, or the net income of the lessee, the deductions allowable with respect to rents and royalties shall be determined without regard to the provisions of this paragraph. This paragraph shall have no application, in the case of coal, for the purposes of applying sec- 65 Stat. 502 tion 102 or subchapter A of chapter 2 (including the computation under section 117 (c) (1) of a tax in lieu of the tax imposed by section 500).” (c) Clerical Amendment.—The heading to section 117 (k) (relating to the gain or loss upon the cutting of timber) is hereby amended to read as follows: “(k) Gain or Loss in the Case of Timber or Coal.—”. (d) Technical Amendment.—Section 481 (a) (4) is hereby amended by striking out “cutting or disposal of timber” and inserting in lieu thereof “cutting of timber, or the disposal of timber or coal,”. (e) Conforming Amendments.— (1) Section 433 (relating to computation of excess profits net income) is hereby amended by inserting at the end thereof the following new subsection: “(d) Gain or Loss Upon Certain Disposals of Coal in Base Period.—For the purpose of subsection (b), the excess profits net income shall be computed as if the provisions of section 117 (j) and (k) (2) which relate to disposals of coal were a part of the law applicable to the taxable year for which excess profits net income is computed.” (2) Section 440 (a) (1) (relating to definition of “inadmissible assets”) is hereby amended by striking out “and” at the end of subparagraph (A); by striking out the period at the end of subparagraph (B) and inserting in lieu thereof and”; and by adding at the end thereof the following new subparagraph: “(C) The economic interest referred to in the provisions of section 117 (k) (2) relating to coal if the taxpayer is subject to such provisions with respect to the income from such coal.” (3) The amendments made by this subsection shall be applicable in computing the tax under subchapter D of chapter 1 for taxable years ending after December 31, 1950. (g) Effective Date.—Except as provided in subsection (e), the amendments made by this section shall be applicable only with respect to taxable years ending after December 31, 1950 (whether the contract was made on, before, or after such date), but shall apply only with respect to amounts received or accrued after such date.