You can deduct costs paid or incurred during the tax year for developing a mine or any other natural deposit (other than an oil or gas well) located in the United States. These costs must be paid or incurred after the discovery of ores or minerals in commercially marketable quantities. Development costs include those incurred for you by a contractor. Also, development costs include depreciation on improvements used in the development of ores or minerals. They do not include costs of depreciable property.

Instead of deducting development costs in the year paid or incurred, you can choose to treat them as deferred expenses and deduct them ratably as the units of produced ores or minerals related to the expenses are sold. This choice applies each tax year to expenses paid or incurred in that year. Once made, the choice is binding for the year and cannot be revoked for any reason.

How to make the choice. The choice to deduct development costs ratably as the ores or minerals are sold must be made for each mine or other natural deposit by a clear indication on your return or by a statement filed with the IRS office where you file your return. Generally, you must make the choice by the due date of the return (including extensions). However, if you timely filed your return for the year without making the choice, you can still make the choice by filing an amended return within 6 months of the due date of the return (excluding extensions). Clearly indicate the choice on your amended return and write "FILED PURSUANT TO SECTION 301.9100-2." File the amended return at the same address you filed the original return.

Foreign development costs. The rules discussed earlier for foreign exploration costs apply to foreign development costs.

Reduced corporate deductions for development costs. The rules discussed earlier for reduced corporate deductions for exploration costs also apply to corporate deductions for development costs.

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