Qualified Mineral InterestBy: Breana Behrens
Qualified mineral interest. A qualified mineral interest is the interest in subsurface oil, gas, or other minerals and the right to access such minerals. This interest is considered an entire real property interest so long as it is divided from the surface estate before the donation of the conservation easement.
General Rule. A private landowner can sell or retain a qualified mineral interest and still be eligible for a charitable deduction for the contribution of a conservation easement. If the ownership of the surface estate and mineral interest first became separated after June 12, 1976, no deduction is permitted for the contribution of a conservation easement unless surface mining on the property is completely prohibited.
So remote as to be negligible. The IRS requires that if there is a possibility of surface mining, the chance of it occurring must be “so remote as to be negligible.” Reports showing that mineral extraction is commercially infeasible or geological data showing no mineral reserves exist on the property are required to fulfill the “so remote as to be negligible” requirement.
Exception for contributions made after July 1984. A contribution made after July 18, 1984 shall not be disqualified if the following requirements are satisfied:
(1) The ownership of the surface estate and mineral interest were separated before June 13, 1976, and remain so separated up to and including the time of the contribution.
(2) The present owner of the mineral interest is not a person whose relationship to the owner of the surface estate is described at the time of the contribution in section 267(b) or section 707(b), and
(3) The probability of extraction or removal of minerals by any surface mining method is so remote as to be negligible.
Consistent with Conservation Purposes. If any type of mining may occur, the conservation easement must be drafted carefully to preserve the conservation purposes as well as the right to extract the oil, gas, or mineral. Regardless of mining method, all mining operations must be consistent with all stated conservation purposes. However, a deduction will not be disallowed when certain methods of mining may have limited, localized impacts on the property, but do not disturb significant conservation purposes of the property.