Inger Lisa (Davis) Schiavenza v. United States

The taxpayer sought a deduction for intangible drilling costs on her 1977 tax return pursuant to section 263(c) of the Internal Revenue Code, 26.U.S.C. § 263(c) (1976), and Treasury Regulation § 1.612-4 (1965), 26 C.F.R. § 1.612-4 (1983). The Commissioner of Internal Revenue disallowed the $5,002 deduction and the taxpayer paid a deficiency of $1,129. Thereafter the taxpayer instituted an action in district court for refund of the deficiency assessment. The government moved for summary judgment on the grounds that (1) the money advanced by the taxpayer was neither actually used nor irretrievably committed for payment of intangible drilling costs, and (2) taxpayer was not an “operator” under the regulation and therefore not entitled to deduct any such costs. The district court granted summary judgment for the government on the basis of the first contention but did not address the issue of whether the taxpayer was an “operator.” The taxpayer appeals. We affirm in part and reverse in part.

BACKGROUND

In 1977 appellant taxpayer invested $5,000 in Nevada Energy and Heating Partnership (NEHP), a partnership organized by Harry Margolis to develop geothermal ener gy in Nevada. Margolis,…