SB4033 amends section 613(b)(1)(B) of the Internal Revenue Code to place “rare earths (in this subparagraph defined as the 15 lanthanide elements), scandium” into the list of minerals eligible for the 22 percent percentage depletion allowance. The change clarifies that those lanthanides, plus scandium, qualify for the existing percentage-based depletion deduction used by extractive industries.
Why it matters: percentage depletion is a powerful tax subsidy because it lets producers deduct a statutory percentage of gross income from the mineral property (rather than a cost-basis depletion). Making rare earths and scandium eligible lowers taxes for existing and prospective domestic producers and therefore directly alters investment incentives in U.S. mining and processing of critical minerals.
At a Glance
What It Does
The bill inserts a new entry into the list of minerals subject to the 22% percentage depletion rate by naming the 15 lanthanide elements and scandium. It does not change the 22% rate itself or the rest of section 613’s structure; it simply makes those specific elements eligible for percentage depletion.
Who It Affects
Operators and owners of properties that extract or sell the specified rare earth elements and scandium, plus investors and lenders financing extraction or processing facilities. Federal tax administrators and Treasury budget analysts will also be affected because the change alters revenue and compliance patterns.
Why It Matters
This is an explicit tax incentive targeted at critical-minerals supply chains. It reduces the after-tax cost of domestic extraction/processing and may shift investment toward U.S. projects, with downstream effects for manufacturers reliant on rare-earth inputs (defense, EV motors, electronics). It also creates a direct fiscal trade-off for the federal budget.
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What This Bill Actually Does
SB4033 is narrowly tailored: instead of creating a new credit or grant program, it relies on an existing, well-known tax mechanism — percentage depletion — and extends that benefit to particular critical minerals. Percentage depletion allows an owner or operator of an extraction property to deduct a fixed percentage of gross income attributable to the property as a depletion allowance; unlike cost-basis depletion, it does not require tracking capital recovery tied to basis.
By adding the 15 lanthanide elements and scandium to the list in section 613(b)(1)(B), the bill makes proceeds from those elements eligible for the 22% statutory deduction that currently applies to other listed minerals.
The bill’s text defines the scope of “rare earths” for this amendment very explicitly as “the 15 lanthanide elements,” and it inserts scandium alongside them. That choice matters because it pins eligibility to a chemically defined set of elements and excludes elements not on that list unless otherwise covered.
The amendment is surgical: it amends a subparagraph within section 613 and leaves the rest of the percentage depletion regime unchanged. Existing rules that control who may claim percentage depletion (for example, limits that apply to certain taxpayers or formulas that tie depletion to gross income) remain in force unless separately amended by law.Operationally, miners and processors of the newly covered elements will treat gross income from those properties as eligible for the 22% percentage depletion calculation in taxable years beginning after enactment.
The IRS will need to update forms and guidance to reflect the new eligibility and to advise taxpayers on how to segregate gross income by mineral type. The bill does not include compliance or enforcement details, nor does it alter environmental or permitting rules that govern whether those extraction projects may proceed in practice.
The Five Things You Need to Know
SB4033 amends Internal Revenue Code section 613(b)(1)(B) to add “rare earths (defined as the 15 lanthanide elements), scandium” to the list of minerals eligible for the 22% percentage depletion allowance.
The bill defines “rare earths” for this purpose specifically as the 15 lanthanide elements, and separately lists scandium rather than relying on broader or common-market definitions.
The amendment applies to taxable years beginning after the date of enactment, making it forward-looking for tax accounting and investment planning.
The change uses percentage depletion — a deduction calculated on gross income from the property — not a change in corporate rate or an investment tax credit, so it directly reduces taxable income for producers.
The bill is narrowly drafted: it amends only the subparagraph listing minerals and does not modify other percentage depletion rules, caps, or eligibility restrictions elsewhere in section 613.
Section-by-Section Breakdown
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Short title
Gives the Act the name “Critical Minerals Investment Tax Modernization Act of 2026.” This is purely caption language and has no substantive effect on tax law mechanics, but it frames the measure as an industrial-policy tool rather than a broad tax reform.
Add rare earths and scandium to 22% depletion list
This subsection edits the text of section 613(b)(1)(B) by inserting the phrase that places the 15 lanthanide elements and scandium before the existing reference to tantulum. Practically, that insertion makes receipts attributable to those specified elements eligible for the 22% percentage depletion deduction. Because the amendment operates by changing the statutory list, it creates a clear statutory basis for taxpayers to claim percentage depletion on those elements where they previously could not.
Effective date — forward application
Declares that the amendment applies to taxable years beginning after enactment. For taxpayers and planners this means projects must consider the change prospectively: income recognized in taxable years that begin after the law takes effect can be treated under the new rule, while earlier years remain governed by the pre-existing language.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Domestic rare-earth and scandium miners and processors — They can claim a 22% percentage depletion allowance against gross income from the specified elements, lowering taxable income and improving project economics, which can accelerate development or expansion.
- Investors and lenders in U.S. critical-minerals projects — Reduced tax burden improves projected returns and may ease financing terms, making marginal projects bankable.
- Downstream manufacturers reliant on rare-earth inputs (defense contractors, EV motor and generator makers, permanent-magnet manufacturers) — Strengthened domestic supply prospects reduce supply-chain risk and potentially lower long-run input costs.
Who Bears the Cost
- Federal Treasury — The deduction will reduce corporate and pass-through tax receipts from producers of these elements, producing a fiscal cost that budget analysts will need to estimate.
- IRS and Treasury compliance units — The Service must update guidance, forms, and audit approaches to define and verify gross income allocations for individual lanthanide elements and scandium; that creates administrative burden and potential dispute points.
- Local communities and environmental regulators — By making extraction more profitable, the change may accelerate proposals for new mines and processing facilities, increasing pressure on permitting agencies and raising the potential for environmental and social costs that are not addressed in the tax text.
Key Issues
The Core Tension
The central dilemma is whether to use a broad, longstanding tax deduction (percentage depletion) to accelerate strategic domestic supply of critical minerals: the mechanism effectively and quickly lowers the cost of extraction, supporting industrial policy goals, but it also creates fiscal costs, potential windfalls to current producers, and stronger incentives for mining projects before environmental, social, and permitting issues are resolved.
The bill is narrowly drafted and mechanically simple, but that simplicity hides several unanswered questions. First, the statutory definition — limiting “rare earths” to the 15 lanthanides and listing scandium separately — departs from some commercial definitions that also include yttrium and other associated elements; the choice could raise edge disputes about whether particular ores or concentrates qualify.
Second, percentage depletion is an income-based allowance calculated on gross receipts from the property and interacts with multiple other provisions in section 613 (for example, statutory caps, exclusions for publicly traded partnerships in some contexts, and anti-abuse rules). By amending only the mineral list, the bill leaves those interactions intact but unaddressed; implementation may require Treasury guidance to prevent inconsistent application or taxpayer gaming.
Finally, using a depletion allowance as an industrial policy lever creates trade-offs. It rewards extraction at the tax level but does not attach environmental standards, reclamation requirements, or local benefit conditions; those non-tax controls remain in separate regulatory processes that may lag behind any tax-driven investment surge.
The fiscal cost is also concentrated and measurable, but the bill contains no offset or sunset, so long-term revenue impacts and distributional effects (e.g., windfalls to existing owners of developed deposits) could be significant and hard to predict without a formal revenue estimate.
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