Commissioner of Internal Revenue v. Wilshire Oil Co.

This is a petition by the Commissioner of Internal Revenue to review a decision of the Board of Tax Appeals which revised adversely to the Commissioner his determination of income tax deficiencies for the years 1929 and 1930.

The taxpayer is a California corporation engaged in producing petroleum products from oil and gas leases in Southern California.

Pursuant to section 23 of the Revenue Act of 1928, 26 U.S.C.A. § 23 and note, the taxpayer in its returns for the years in question deducted from its gross income an allowance for depletion on its oil and gas wells. The Commissioner assessed deficiencies based upon his ruling that.that al *972 lowance was in excess of that permitted by statute.

The question before the Board and on this appeal concerns solely the interpretation of the phrase “net income” of an oil company under the depletion provision of the Revenue Act of 1928. The provision is section 114(b)(3), 26 U.S.C.A. § 114 note: “(3) Percentage depletion for oil and gas wells. In the case of oil and gas wells the allowance for depletion shall be 27% per centum of the gross income from the property during the taxable year. Such allowance shall not exceed 50 per centum of…

(dissenting).

I dissent. I adhere to the view expressed by me in the dissenting opinion in Ambassador Petroleum Co. v. Commissioner of Internal Revenue, 9 Cir., 81 F.2d 474, 483 . Notwithstanding that, in view of the majority decision in that case, I would *976 concur in the result in the case at bar on the theory that the language of section 114 (b) 3, of the Revenue Act of 1928, 26 U.S. C.A. § 114 note, is not sufficiently clear to justify a reconsideration of the decision in Ambassador Petroleum Co. v. Com’ r, supra, and that, therefore, the parties should be left to their remedy in the Supreme Court. If I agreed with my brethren that the meaning of the statute involved was entirely clear, I would also agree with their conclusion that the new rule of the Commissioner under the Revenue Act of 1928 could not change the plain language of the statute. However, the statute expressly requires the Commissioner to adopt rules for the determination of the depletion allowance. He has done so. Under those rules so adopted the additional tax determined by the Commissioner accrued. To uphold the tax under the new rule is not inconsistent with the decision of the court in Ambassador…