United States v. Knox-Powell-Stockton Co.

This is an appeal from an order of the District Court confirming the order of a referee in bankruptcy which rejected a claim of the United States for income taxes assessed against the bankrupt corporation for the year 1930.

The bankrupt corporation, hereinafter called the taxpayer, was, during the times material to be considered, engaged in drilling oil wells upon lands situate in the city of Los Angeles, Cal., and in selling oil and gas therefrom. As a means of financing its operations, it entered into certain agreements evidenced in transferable certificates, each in form as follows:

Here, as in the case of Rogan v. Blue Ridge Oil Company, Ltd. (C.C.A.) 83 F.(2d) 420 , today decided, the certificate holder’s share is to furnish funds for operation after completion of the well.

During 1930, taxpayer received as consideration for the contracts evidenced by these certificates $298,100, less $34,687.78 commissions. Asserting this to be income, the United States filed a claim below for $34,109.11 assessed as income tax on the total consideration for the contracts. The trustee in bankruptcy and the District Court, in denying the claim, ruled that the receipts did not constitute…