Your Client Stone Mining Company Comes To You With A

Your client, Stone Mining Company, comes to you with a tax planning idea. This year’s mining revenues are disappointing, but the company is very optimistic that next year’s mining revenues will increase dramatically. To avoid concern among shareholders, Stone Mining wants to minimize expenses this year to make its income appear higher. Therefore, it plans to claim no depletion expense this year and to claim depletion next year under both the percentage and cost depletion methods. Another alternative it is considering is to claim cost depletion this year because it is lower than the percentage method. Prepare a written memorandum discussing whether either of these plans will succeed.

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