Source: https://en.m.wikisource.org/wiki/Helvering_v._Twin_Bell_Oil_Syndicate/Opinion_of_the_Court
Timestamp: 2019-04-24 23:13:06+00:00

Document:
Under the Revenue Act of 1926 the taxpayer is entitled, in the case of oil and gas wells, to deduct from gross income an allowance for depletion. The relevant sections of the act are copied in the margin.  The present litigation calls for decision as to the total allowance permitted and its apportionment between lessor and lessee where the income is derived from operation under an oil and gas lease.
The same method was followed in the Revenue Act of 1921.  The general provisions contain no reference to depletion, but under parts 2 and 3 of title 2 the tax is fixed for individuals and corporations and the allowable deductions from gross income are set forth. The paragraphs of the prior act as to depletion of oil and gas wells are literally re-enacted, but, there is inserted in section 214(a)(10) as to individuals and section 234(a)(9) as to corporations, an additional proviso with respect to discovery value.
In the framing of the Revenue Act of 1924  the same arrangement was observed. General definitions are found in title 1; title 2 treats of income tax, and in part 1 of that title are included general provisions applicable to both individual and corporate taxes. Amongst such general provisions in the earlier acts there had been a section entitled 'Basis for determining gain or loss.' In the 1924 Act the draftsman embodied paragraphs similar to those of the earlier act in section 204 (26 USCA § 935 and note), but enlarged the caption to read 'Basis for determining gain or loss, depletion, and depreciation,' and transferred to this section that portion of the depletion provision dealing with the basis of the allowance which had formerly appeared under the heading 'Deductions' in part 2, Individuals, and part 3, Corporations. This added to the old section 204 a new subsection(c) (26 USCA § 935 note), which permits the use of cost or discovery value as the basis of depletion in the case of mines and oil and gas wells. Having transferred these provisions from sections 214(a)(9) and 234(a)(8), 26 USCA §§ 955(a)(9) and note, 986(a)(8), and note, respecting individual and corporate deductions, there remained in those sections the language first found in the Act of 1918, above quoted, including the concluding sentence relating to equitable apportionment between lessor and lessee. The thought apparently was that the authority for the deduction should remain in the sections dealing with all deductions and the formulae for calculating the deduction should be relegated to a general provision applicable alike to corporations and individuals.
^1 Revenue Act of 1926, 44 Stat. 9, 14, 42.
^4 293 U.S. 540, 55 S.Ct. 88, 79 L.Ed. --.
^9 See Senate Report No. 52, 69th Cong., 1st Sess., p. 17.
^11 In framing the Revenue Act of 1928 (45 Stat. 791 (26 USCA § 2001 et seq.)), the draftsman reverted to an arrangement similar to that found in the Revenue Act of 1916. Thus under title 1 an income tax is laid on both individuals and corporations, and in subsequent portions of the act general provisions are contained. In this act the deductions from gross income are found in section 23 under part 2, 'Computation of Net Income' (26 USCA § 2023), and the language of section 214(a)(9) and section 234(a)(8) of the Revenue Act of 1926 (26 USCA §§ 955(a)(9), 986(a)(8) is found only in this section, applicable to both sorts of taxpayers, corporate and individual, as subsection (l) (26 USCA § 2023(l). A new subsection (m) (26 USCA § 2023(m) is added, which states: 'The basis upon which depletion, exhaustion, wear and tear, and obsolescence are to be allowed in respect of any property shall be as provided in section 114 (section 2114).' Section 114 is found in Supplement B (26 USCA § 2114), and so far as material here is the same with respect to gas and oil wells as the analogous portions of section 204(c) of the Act of 1926 (26 USCA § 935(c).
^12 47 Stat. 169 (26 USCA § 3001 et seq.).
^13 Section 114(b)(3), 47 Stat. 202 (26 USCA § 3114(b)(3).
^14 Cong. Record, Vol. 75, Part 10, pp. 11629-11630.
^15 House Conference Report No. 1492, 72d Cong., 1st Sess., p. 14.

References: § 935
 § 935
 § 2001
 § 2023
 § 2023
 § 2023
 § 2114
 § 935
 § 3001
 § 3114