Elbe Oil Land Development Co. v. Commissioner

(dissenting).

The majority of the court in reversing the order of the Board of Tax Appeals rely upon the decision of the Supreme Court in Palmer v. Bender, 287 U.S. 551 , 53 S.Ct. 225 , 77 L.Ed. 489 .

In that case the taxpayer very definitely had an economic interest in the oil and faxes were assessed on payments made from oil produced, but here the payments taxed were made in cash and were not dependent upon the production of oil.

The gross income from the property which is subject to the depletion allowance is the gross income from the oil and gas produced. Helvering v. Twin Bell Syndicate, 293 U.S. 312 , 55 S.Ct. 174 , 79 L.Ed. 383 . Here the payments subjected to the tax did not depend upon production but were payable in any event. Commissioner of Internal Revenue v. Fleming (C.C.A.) 82 F.(2d) 324 .

The order of the Board of Tax Appeals should be sustained.

In each of the taxable years 1928 and 1929 the petitioner received the sum of $400,000, being payments under an agreement with the Honolulu Consolidated Oil Company (hereinafter called the Honolulu Company) with reference to the transfer of a large area of oil lands, the exact nature and effect of this agreement being the subject of this controversy.

The petitioner claims that it is' entitled to a depletion allowance of 27% per cent, from each of these two payments by reason of the fact that it had retained an economic interest in the oil in the lands in question, while the Commissioner contends that these two items represent payments of the purchase price of the sale of the lands and, consequently, that no depletion allowance was permissible under the statute, particularly in view of the fact that a previous payment made in 1927 of $350,000 more than covered the cost of the property to the petitioner and that the cost had been allow *128 ed as deduction in estimating its taxable gain derived from the payment.

The Board of Tax Appeals was largely influenced in its decision that the transaction constituted a sale by the fact that the agreement between the petitioner and the…

(concurring).

I concur in the holding that depletion deduction must be here allowed, solely on the ground that, although Palmer v. Bender, 287 U.S. 551 , 53 S.Ct. 225 , 77 L.Ed. 489 , is distinguishable on its facts, the language used therein is general enough to embrace the facts herein.