F.-K. Land Co. v. Commissioner of Internal Revenue

The petitioner appealed to the Board of Tax Appeals from the proposed action of the Commissioner fixing its income tax for the year 1930. During that year the taxpayer had received a payment of $130,000 as a bonus on an oil lease executed by it in that year, which had been assigned to the Superior Oil Company. By the terms of the lease the taxpayer was to receive a royalty of one-sixth of the oil and gas produced, or one-seventh if the production was 500 barrels or less per day.

The fair market value of the land on March 1, 1913, was $104,000, which constituted the depletable base under section 114 of the Revenue Act of 1928, c. 852, 45 Stat. 791 , 821 ( 26 U.S.C.A. § 114 note). The Commissioner refused any deduction from the bonus for depletion, but in view of the decision of the Supreme Court in Herring v. Com’r, 293 U.S. 322, 323 , 55 S.Ct. 179 , 79 L.Ed. 389 , he conceded before the Board of Tax Appeals that the petitioner was entitled to a dedüction of 27% per cent, of the $130,000 bonus and this amount was accordingly allowed by the Board of Tax Appeals for depletion. The petitioner, however, contends that in view of the uncertainty as to whether or not it will ever receive…