Russell Redhouse, Jr. v. Commissioner of Internal Revenue

Russell Redhouse Jr. (Redhouse or taxpayer), a limited partner in Tennessee Coal Resources, Ltd. (TCR), filed a petition in the United States Tax Court seeking rede-termination of deficiencies in his federal income tax for the 1976 taxable year. The Tax Court consolidated Redhouse’s case with those of other TCR partners and sustained the Commissioner’s determination of deficiencies. Wendland v. Commissioner, 79 T.C. 355 (1983). Redhouse, a California resident, here appeals the decision entered against him pursuant to I.R.C. § 7482. The other partners, all Florida residents, have filed an appeal in the Eleventh Circuit.

In this appeal, Redhouse challenges the retroactive application of Treas.Reg. § 1.612-3(b)(3), T.D. 7523, 1978- 1 C.B. 192 , to a coal mining lease acquired on December 31, 1976. We find such application permissible and therefore affirm the decision of the Tax Court.

FACTS

Redhouse is a limited partner in TCR, a partnership formed on December 30, 1976. On December 31, 1976, TCR acquired a coal mine by transferring $650,000 cash and a nonrecourse note for $2,350,000 to L.D. Rowlette, the lessor of the mine. TCR characterized the entire amount as an advance royalty…