Source: https://supreme.justia.com/cases/federal/us/303/372/
Timestamp: 2019-04-23 04:40:40+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 303 › Helvering v. Elbe Oil Land Development Co.
Helvering v. Elbe Oil Land Development Co.
The taxpayer sold all of its interest in certain oil and gas properties in consideration of cash down and deferred payments in several stated amounts, the agreement further providing that, when the vendee had been reimbursed for expenditures in acquisition, development and operation, the taxpayer should receive one-third of the net profits of production and operation of the properties.
1. That there was an absolute sale divesting the taxpayer of all interest or investment in the properties, including oil and gas in place. P. 303 U. S. 375.
2. The provision for payment from profits was merely a personal covenant of the vendee. Id.
3. The taxpayer is not entitled under the Revenue Act of 1928, § 114(b)(3), to a deduction for depletion computed on the cash payments. Id.
Neither the cash payments nor the agreement for a share of subsequent profits constituted an advance royalty, or a "bonus" in the nature of an advance royalty, within the decisions recognizing a right to the depletion allowance with respect to payments of that sort.
4. The words "gross income from the property," as used in the statute governing the allowance for depletion, mean gross income received from the operation of the oil and gas wells by one who has a capital investment therein, not income from the sale of the oil and gas properties themselves. P. 303 U. S. 375.
Certiorari, 302 U.S. 677, to review the reversal of a decision of the Board of Tax Appeals, 34 B.T.A. 333, sustaining the Commissioner's disallowance of deductions for depletion.
Court of Appeals, reversing the decision of the Board of Tax Appeals (34 B.T.A. 333), sustained respondent's claim. 91 F.2d 127. Certiorari was granted because of an asserted conflict with the decision of the Circuit Court of Appeals for the Fifth Circuit in Commissioner v. Fleming, 82 F.2d 324.
except as provided by paragraph 9 [relating to abandonment of the purchase and reconveyance]."
The first payment of $350,000 was received by respondent in 1927, and, being greater than the cost of all the properties transferred, respondent reported as taxable income the difference between that cost basis and the amount received. In its income tax returns for the years 1928 and 1929, respondent reported the payments of $400,000 received in each of the years, and claimed 27 1/2 percent. thereof as an allowance for depletion. This is the claim which has been sustained below.
received from the operation of the oil and gas wells by one who has a capital investment therein, not income from the sale of the oil and gas properties themselves. See Darby-Lynde Co. v. Alexander, 51 F.2d 56, 59. We conclude that, as respondent disposed of the properties, retaining no investment therein, it was not entitled to make the deduction claimed for depletion. Palmer v. Bender, 287 U. S. 551, 287 U. S. 557; Helvering v. Twin Bell Syndicate, 293 U. S. 312, 293 U. S. 321; Thomas v. Perkins, 301 U. S. 655, 301 U. S. 661; Helvering v. Bankline Oil Co., ante, p. 303 U. S. 362; Helvering v. O'Donnell, supra.
The judgment of the Circuit Court of Appeals is reversed, and the cause is remanded for further proceedings in conformity with this opinion.

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