Kaiser Steel Corporation v. United States

Kaiser Steel Corporation (“Kaiser”) sued to recover a refund of federal income taxes for its fiscal years 1949 and 1950. From a judgment for the Government, Kaiser appeals.

The action involves the determination of the appropriate percentage depletion allowance to which Kaiser was entitled by reason of its mining of iron ore and coking coal which it consumed in manufacturing steel at its Fontana, California, plant. Kaiser attacks the findings of the District court, claiming error in the inclusion and exclusion of certain market data in computing Kaiser’s constructive gross income from its mining operations.

The federal income tax statutes have long authorized an allowance against gross income for depletion from mining computed as a percentage of the gross income from mining. For the integrated miner-manufacturers, such as Kaiser, gross income from mining must be created constructively. Constructive gross mining income is the amount which would have been earned if the miner-manufacturer were “disintegrated” and the raw minerals were sold by its mining division as a separate entity to its manufacturing division, likewise a separate entity. The Treasury Regulations, as interpreted…