Opinion ID: 348408
Heading Depth: 2
Heading Rank: 2

Heading: Extraction or Severance

Text: 12 The government concedes that peat soil is a natural deposit as that term appears in § 611 of the Code. 1 It does not dispute that as a result of cultivation the peat is subsiding at a rate of 1.1 inches per year nor that in 35 years Belle Glade Farm's peat soil will be exhausted. It does not dispute the jury's finding that half of the farm's purchase price per acre was allocable to the peat. 2 Its sole contention is that as a matter of law Duda is not entitled to depletion deductions for the peat because extraction or severance of a natural deposit is a necessary prerequisite to a § 611 deduction. The government urges that the cost depletion deduction is not available for a natural deposit that is wasting in place. 13 If the taxpayer exhausted the peat by digging it up and selling it to produce income, the government would grant the deduction. 3 Because the taxpayer exhausts the peat in the process of raising vegetables that are sold to produce income, the government would deny the deduction. The government does not argue that the distinction between the two cases is that in one the depletable asset itself is sold while in the other the taxpayer exhausts the asset on its own premises. 4 Instead, the government bases its entire argument on appeal on the notion that the difference between the two cases is that in one the taxpayer extracts the asset while in the other the taxpayer leaves the asset in place. 14 The government's position finds no support whatever in the language of § 611, nor do other provisions of the Code offer a clear answer. The Congress has never expressly required that a taxpayer prove extraction or severance as a prerequisite to a depletion deduction. In the applicable legislative history, Congress simply does not squarely address the question. The issue here is whether Congress's reticence regarding this question is attributable to the axiomatic nature of the answer. That is to say, Congress may have thought it obvious that extraction was bound up with the concept of depletion and never contemplated allowing depletion deductions in other than extraction situations. No court has allowed a depletion deduction when the taxpayer did not extract or sever the depletable asset from the ground. But, of course, no court has ever decided whether a taxpayer is entitled to depletion deductions for peat that is subsiding in place. 5 15 In short, we must decide this case outside the realm of the explicit, the black letter statement, or the certitude, but rather within the web of unarticulated assumptions and judicial inferences from those assumptions. The confluence of legislative history, semantics, and philology cannot write this opinion. We must search hard for a tax loom to solve our loam problem.