26 U.S.C. § 1254: Gain from disposition of interest in oil, gas, geothermal, or other mineral properties

expenditures which have been deducted by the taxpayer or any person under section 263, 616, or 617 with respect to such property and which, but for such deduction, would have been included in the adjusted basis of such property, and the deductions for depletion under section 611 which reduced the adjusted basis of such property, or a sale, exchange, or involuntary conversion, the amount realized, or in the case of any other disposition, the fair market value of such property, over the adjusted basis of such property, In the case of the disposition of a portion of section 1254 property (other than an undivided interest), the entire amount of the aggregate expenditures or deductions described in paragraph (1)(A) with respect to such property shall be treated as allocable to such portion to the extent of the amount of the gain to which paragraph (1) applies. In the case of the disposition of an undivided interest in a section 1254 property (or a portion thereof), a proportionate part of the expenditures or deductions described in paragraph (1)(A) with respect to such property shall be treated as allocable to such undivided interest to the extent of the amount of the gain to which paragraph (1) applies. any expenditures described in paragraph (1)(A) are properly chargeable to such property, or the adjusted basis of such property includes adjustments for deductions for depletion under section 611. The amount of the expenditures referred to in paragraph (1)(A)(i) shall be properly adjusted for amounts included in gross income under section 617(b)(1)(A). rules similar to the rule of subsection (g) of section 617 and to the rules of subsections (b) and (c) of section 1245 shall be applied for purposes of this section; and in the case of the sale or exchange of stock in an S corporation, rules similar to the rules of section 751 shall be applied to that portion of the excess of the amount realized over the adjusted basis of the stock which is attributable to expenditures referred to in subsection (a)(1)(A) of this section. The amendments made by this section [amending this section and section 617 of this title ] shall apply to any disposition of property which is placed in service by the taxpayer after December 31, 1986 . The amendments made by this section shall not apply to any disposition of property placed in service after December 31, 1986 , if such property was acquired pursuant to a written contract which was entered into before September 26, 1985 , and which was binding at all times thereafter.”