TREASURY REGULATIONS

(a) Transfer before election by transferor. (1) If mineral property is transferred in a transaction as a result of which the basis of the property in the hands of the transferee is determined in whole or in part by reference to the basis in the hands of the transferor and the transferor had not made an election under either section 615(e) or 617(a) at the time of the transfer, no election made by the transferor after the transfer shall apply with respect to expenditures properly chargeable to the transferred property which were paid or incurred before the date of the transfer.

(2) For purposes of subparagraph (1) of this paragraph, a transferor of mineral property who made an election under section 617(a) or section 615(e) before the transfer but who revokes such election after such transfer and does not make an election under either section before the expiration of the 3-year period prescribed by section 6072 or other provision of law for filing his income tax return for the taxable year in which such transfer occurred shall be treated with respect to such property as not having made an election under either section.

(b) Transfer after election by transferor. If a transferee who at the time of the transfer of a mineral property has not made an election under section 617(a) receives property in a transaction in which the basis of such property in his hands is determined in whole or in part by reference to its basis in the hands of the transferor and with respect to such property the transferor has deducted expenditures under section 617(a), the adjusted exploration expenditures properly chargeable to the property immediately after the transfer shall be treated as expenditures allowed as deductions under section 617(a) to the transferee. See section 617 and the regulations thereunder.

(c) Transfer after election by transferee. (1) If a transferee who makes an election under section 617(a) receives before January 1, 1970, mineral property in a transaction in which the basis of such property in his hands is determined in whole or in part by reference to the basis of the property in the hands of the transferor and the transferor had in effect at the time of the transfer an election under section 615(e), an amount equal to the total of the amounts allowed as deductions to the transferor under section 615 with respect to the transferred mineral property shall be treated as expenditures allowed as deductions under section 617(a) to the transferee. The preceding sentence shall not apply to expenditures which would not have been reflected in the basis of the property in the hands of the transferor had the transferor not made the section 615(e) election.

(2) Any expenditures with respect to the transferred property deferred by the transferor under section 615(b) which are not allowed as deductions to him prior to transfer of the property may not be deducted by the transferee and in his hands shall be charged to capital account.