Document: 359 U.S. 215 79 S.Ct. 656 3 L.Ed.2d 747 Emory W. PARSONS, Erma M. Parsons, Howard H. et al., Petitioners,v.Francis R. SMITH, Former Collector of Internal Revenue for the First District Pennsylvania. George HUSS, Russell Huss and Wesley Huss, Petitioners, v. Francis Nos. 218, 305. Argued March 4, 1959. Decided April 6, Mr. Sherwin T. McDowell, Philadelphia, Pa., petitioners Parsons al. David Berger, A. Heffron, New York City, respondent. Justice WHITTAKER delivered opinion Court. 1 These tax refund cases present question whether petitioners, in No. 218 305, are entitled to an allowance depetion on amounts received by them under contracts with owners coal-bearing lands strip mining coal from those delivery it landowners. The were heard same courts below. Court ruled that had no depletable interest place rendered judgment respondent collector each case. Appeals affirmed both judgments. Cir., 255 F.2d 595, 599. Because asserted conflict principles applicable decisions this Court, we granted certiorari cases. 358 814, 50, 56. 2 pertinent facts case found not challenged here. In substance, they as follows: 218. Petitioners members a partnership ('Parsons') which, until transactions involved here, was primarily engaged road building. Rockhill Coal Co. ('Rockhill') owned bituminous Much located relatively near surface therefore removable process.1 1942 expressed desire mine Rockhill's lands, but refused sign written contract offered because firm did wish be bound 'which would take long time, since, if opportunity opened up, (it) wanted go back building.' It then agreed would, did, proceed oral agreement. Under agreement such sites seams, within generally described area designated Rockhill. furnish at its own expense all equipment, facilities labor which thought necessary deliver cars fixed point. For ton so mined pay stated amount money.2 authorized keep or sell any required Rickhill. definite term, nor obligate tract exhaustion, but, contrary, 'if quit, terminate arrangement giving ten-day notice.' However, thus canceled 'Parsons previously gone removing overburden (thereby performing heavy part work, well meeting wages expenses doing), have privilege taking out (so uncovered) being paid (even though) took more than ten days.' Operations continued without notice termination August 1, 1950, when gave 'quit' work September ceased these operations date. Large stripable still remained thereon another contractor. Parsons' investment equipment used ran low 1943 $60,000 high 1947 $250,000. movable there is evidence usable elsewhere other purposes. 4 ('Huss') business coal. Philadelphia Reading & Iron ('Reading') anthracite Schuylkill County, could removed mining. 1944 entered into contract3 undertook areas, Reading's land, might lying deeper prescribed distance surface. colliery. sum.4 That sum 'full compensation full performance furnishing material, labor, power, tools, machinery, implements work.' expressly terminable time upon 30 days' 'without specifying reason therefor' liability 'any loss anticipated profits damages whatever.' This right exercised. July 1947, most strippable covered lay stipulated surface, mutual Huss' $100,000 $500,000. All some 5 Whether deduction gross income shall permitted depletion mineral deposits, therein, entirely matter grace.5 We must look, first provisions purposes statutes construing see what interests depletion, and, next, interest. 6 §§ 23(m) 114(b)(4)(A) Code 1939, 26 U.S.C. (1952 ed.) § (1946 114(b)(4) (A), U.S.C.A. 23(m), 114(b)(4)(A). Section directs reasonable made 'in mines, * according peculiar conditions case; rules regulations Commissioner, approval Secretary,' '(i)n leases deductions equitably apportioned between lessor lessee.' And provides be, percentum (mining)6 property during taxable year, excluding rents royalties incurred taxpayer respect property.' 7 purpose plain has been many times declared '(It) recognition fact deposits wasting assets intended owner up production.' Helvering Bankline Oil Co., 303 362, 366, 58 616, 618, 82 L.Ed. 897. United States Ludey, 274 295, 302, 47 608, 610, 71 1054; Elbe Land Development 372, 375, 621, 622, 904; Anderson Helvering, 310 404, 408, 60 952, 954; Kirby Petroleum 326 599, 603, 66 409, 411, 90 343. '(The depletion) exclusion designed permit recoupment owner's capital minerals exhausted, unimpaired.' Commissioner Southwest Exploration 350 308, 312, 76 395, 100 347. Save application only standing timber, 'the does differ depreciation.' page 303, 611. short, make tax-free recovery depleting asset. 8 Although sentence 'In lessee' presupposes 'that may allowed cases' (Palmer Bender, 287 551, 557, 53 225, 226, 77 489), statute 'must read light requirement apportionment single allowance' (Helvering Twin Bell Syndicate, 293 321, 55 174, 178, 383), two persons 'cannot income' (Commissioner 309, 396). follows earned their contracts, allowable landowners correspondingly reduced. 9 Dealing specifically problem practically identical predecessors 114, said Palmer 226: 'The language broad enough provide, least, every acquired, investment, oil place, secures, form legal relationship, derived extraction oil, he look return his capital.' Ourt further 'dependent particular taxpayer's depleted, (and that) (i)t retained share produced. If so, economic depleted production.'7 Ibid. (Emphasis added.) went hold lessee producing properties, reserving assignment royalty 'one-eighth produced saved,' against 10 Five years later, 1938, reaffirmed test laid down added: 'But phrase 'economic interest' taken embracing mere advantage production, through contractual relation owner, one who deposit.' 367, 618. Applying principle, held processor who, gas wells, acquired wet heads extract gasoline therefrom, paying percentage proceeds sales, processing operations, subject deduction. 11 Act adopted almost literally quoted tests administratively applied determining allowance. See Treas.Reg. 103, 19.23(m)—1, 23, 1939. language, immaterial changes, ever since. During here involved, regulation force 111, 29.23(m)—1, part, provides: 12 'Under (the 114) timber annual deductions. An possessed severance sale capital. But person deposit possess merely because, possesses production *.' 13 Such consistently interpreted Commissioner. 14 do dispute controlling principles, rather contend come allow They argue coal, particularly contributing organizations skills project they, effect, in, thereby operations. 15 different view. stands admitted before apart place. Their rests contracts. Is anything indicate distinguished acquisition operations? think quite not. 16 By completely cause short notice, simply provide latter points, consideration undertaking per ton. Surely agreements show suggest actually capial way surrender factually assert otherwise. claim contrary based wholly fiction. As stated, use doing should regarded making fiction cannot indulged negated facts. 17 To recapitulate, opposed (1) petitioners' investments movable—not place; (2) recoverable depreciation—not depletion; (3) notice; (4) agree (5) times, even after mined, belonged landowners, landowners; (6) delivered, was, (255 600), (labor) work'; (7) thus, sums become due delivering 'was personal covernant purport grant (petitioners) (coal place).' O'Donnell, 370, 619, 620, 903. acquire fictionally having done so. 18 'Undoubtedly, (their) obtained (coal), sufficient. (coal) place.' 368, 619. Of course, parties provided so—apparently design. Instead, independent contractors, unit prices. '(Petitioners thus) bargaining (mining) profit constitute place' 620), 'no suffered (petitioners are) statutory 618). judgments affirmed. 19 Affirmed. Strip earth. general, performed stripping off earth, known overburden, lies over uncovered. contemplated event increase union wage scale increased several occasions cover higher costs material work. like parties, identical, except areas prices will unnecessary treat individually. however operation sufficiently costs. 617, 897; 954, 84 1277; 397, 114(b)(4)(B) term 'gross property' means mining.' (B), 114(b)(4)(B). recognized subsequent decision treated subject. 371, 903, said: interest, is, 226; 178; Thomas Perkins, 301 655, 661, 57 911, 913, 81 1324; supra.' 375 376, words property,' governing mean wells properties themselves.' 408—409, repeated statement last quoted. 343, necessarily reduced extracted.' Burton-Sutton 328 25, 32, 861, 866, 1062, 'It seems accepted depletion.' 314, 398, reannounced substantially rule where has: 'acquired, place,' secured relationship 'income extration factors, usually considered together, 'an interest."

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