Court Opinion

ID: 4489830
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:02:03.276231+00
Date Added: 2024-06-11T15:03:55.358352
License: Public Domain

Smith,
dissenting: The basis for depletion laid down in section 214 (á) (10) of the Bevenue Act of 1918 is:
In the case of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case, based upon cost including cost of development not otherwise deducted: * * *.
What was the cost to Ostenberg and Beinbold of their interests in the Jesse Lake mineral deposit? The findings of fact show that each of these individuals originally advanced $3,333.33 for one-third of the capital stock of the Potash Products Co. These amounts were not paid for capital stock, but were simply loans to the corporation in consideration of which they received the shares of stock. The loans were repaid to them in 1915. They never invested a dollar additional for any interests either in the acquisition of shares of stock of the company or for their interests in the mineral claims. There is no evidence that there was paid to them upon the dissolution of the corporation as a liquidating dividend a one-ninth interest in the claims found to have a value at that time of $5,000,000.
The amount of the allowance for depreciation (also depletion) is the sum which should be set aside for the taxable year, in order that, at the end of *748the useful life of the plant in the business, the aggregate sums set aside will (with the salvage value) suffice to provide an amount equal to the original cost. (United States v. Ludey, 274 U. S. 295.)
Since Ostenberg and Reinbold had no investment in their interests in the Jesse Lake mineral claims, I am at a loss to understand the basis for allowing them any deduction for depletion.
The. findings of fact show that Ostenberg was an investor in the stocks and bonds of numerous corporations. Section 204 of the Revenue Act of 1921 defines a net loss as one resulting “ from the operation of any trade or business.” In my opinion the findings do not warrant a conclusion that Ostenberg was engaged in the “ operation ” of any trade or business. There is no finding that there was any establishment or office in which any trade or business was carried on by Ostenberg. ■ In my opinion an investor in stocks and bonds of corporations for profit for himself is not entitled to the benefits of section 204 of the applicable taxing Act, and I do not see how this case can be differentiated from the case of the ordinary investor.