Grandview Mines v. Commissioner of Internal Revenue

Grandview Mines has petitioned for review of a decision of the Tax Court which denied petitioner a redetermination of alleged deficiencies in income and excess profits taxes for the years 1950 through 1953. At issue is the extent of petitioner’s right to claim percentage depletion allowance. More specifically, the question posed by this petition may be stated as follows: Where the owner of mineral property grants to another the right to extract minerals in return for a percentage of net profits, has the owner the right to a depletion allowance upon a corresponding percentage of the gross income of the operator? The Commissioner ruled that the owner was limited to depletion allowance upon the net profits received by him. The Tax Court affirmed this ruling.

Section 114(b)(4)(A) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 114 (b)(4)(A), dealing with the basis for percentage depletion allowance, provides:

Grandview Mines is the owner of mineral property in the Metaline Mining District, Pend Oreille County, Washington. On June 5, 1936, it entered into an agreement with American Zinc, Lead and Smelting Company by which it granted American an option to buy its concentrating…