Resources

Explore the legal, scientific, and financial foundation of the water depletion deduction — including IRS guidance, valuation methodology, and downloadable resources.

Farm Advisors Whitepaper

IRS Authorities

Grounded in IRS-recognized guidance. Key authorities include:

  • Internal Revenue Code §611 – Deduction for depletion of natural resources, including groundwater.

    • Authorizes cost depletion for capitalized water resources consumed during farming operations.

  • United States v. Shurbet (347 F.2d 103 (5th Cir. 1965) – Landmark case establishing groundwater as a depletable asset under federal tax law.

    • Recognizes that water may be depreciated as part of land with a determinable depletable supply.

  • Revenue Ruling 65-296 (1965)– IRS acceptance of groundwater depreciation when capitalized in farmland.

    • Affirms that a portion of land cost attributable to groundwater may be recovered through depletion.

  • Revenue Procedure 66-11 (1966) – Provides IRS examiners with procedures for calculating depletion on depletable resources.

    • Applies to groundwater when basis and depletion are properly substantiated.

  • Revenue Ruling 82-214 (1982) – Clarifies geographic applicability of water depletion beyond the Southern High Plains.

    • Extends availability of groundwater depletion deduction to any region with measurable depletion, including the Ogallala Aquifer.

  • IRS Publication 225 (Farmer’s Tax Guide; 2024) – Farmer’s Tax Guide; affirms deductibility of groundwater depletion when IRS criteria are met.

    • Provides practical guidance on depletion claims under IRC §611 for farmers.

Tax Filing Links & Forms

Tools commonly used when claiming or adjusting the deduction:

  • Form 3115 – Application for Change in Accounting Method

    • Used to claim a “catch-up” deduction when groundwater depletion was not recognized in earlier years — especially when the land was acquired more than 3–4 years ago and amending past returns is no longer practical.

    • This method allows taxpayers to recover prior depletion in the current year without reopening old returns, under IRC §481(a).

  • Filing Forms for Retroactive Deductions: Depending on your entity type, different forms are used to apply the deduction retroactively, if the land transfer occurred within the past 3 years:

  • IRS Publication 225 (Farmer’s Tax Guide; 2024)

    • ○ Covers depreciation, cost depletion under §611, and rules related to natural resource recovery.

Contact Our Team

Have Questions? Let’s Talk.

Whether you’re a landowner, CPA, or estate planner, we’re here to help you evaluate the opportunity and support your filing process.