CCA 200935028: CO2 well acquisition costs were not deductible under § 193

Plain-English summary

This Chief Counsel Advice describes the denial of a taxpayer's request to deduct costs associated with CO2 wells under IRC § 193. It distinguishes acquisition costs from drilling costs. The drilling costs were allowable under IRC § 616(a) and therefore could not also be deducted under § 193. The acquisition costs were not deductible under § 193 because that provision is limited to tertiary injectants actually injected during the taxable year, while the taxpayer would inject the CO2 over multiple years.

Ruling snapshot

• Question: Can acquisition and drilling costs for CO2 wells be deducted under IRC § 193?
• Outcome: Advice given, proposed denial
• Key authorities: IRC §§ 193 and 616(a).

Full text (IRS public release)

ID: CCA_2009010610074329 Number: 200935028
Release Date: 8/28/2009
Office: ----------------
UILC: 193.00-00

From: --------------
Sent: Tuesday, January 06, 2009 10:07:45 AM
To: -----------------
Cc:
Subject: RE: 6 pages

Hello,

Yes, we denied taxpayer's request to deduct the costs under section 193. There were two types of costs involved in the request -- costs related to the acquisition of CO2 wells and costs related to drilling of CO2 wells. We said that costs related to drilling CO2 wells are allowed as deduction under section 616(a), and thus may not be deducted under 193. The acquisition costs of CO2 wells are not allowed as deduction under 193 because the 193 deduction is limited to the costs of tertiary injectants actually injected during that taxable year. The total amount of acquisition costs relate to CO2 that the taxpayer will inject over multiple years in its tertiary recovery method.

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