W. M. Yeaman and Ramona Yeaman v. United States

We are here presented with the question whether funds derived from oil and gas leases should be characterized as long-term capital gain from the sale of those leases, or as proceeds from the production of oil and considered ordinary income, subject to an allowance for depletion. *•

Plaintiffs filed a complaint claiming that they were entitled to refunds for the years 1970 and 1971, denied by the I.R.S. The district court determined that plaintiffs were not entitled to capital gain treatment concerning such proceeds and, consequently, were not entitled to the claimed refunds. We affirm.

This dispute stems from transactions occurring during the 1950’s. In July 1951, the holder (A. G. Bailey Co., Ltd.) of an undivided 37.5 per cent interest in two oil and gas leases on property in the province of Alberta, Canada, entered into an agreement (entitled the “Buck Lake Participation Agreement”) with an individual named R. M. Hardy, Sr., whereby Hardy acquired a 17.5 per cent interest in the undivided 37.5 per cent interest in the “net proceeds of production” from all subsequent drilling. In August 1951, Hardy entered into an agreement with Mr. Yeaman and a third party, whereby the three…