Court Opinion

ID: 4628388
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:03:15.337737+00
Date Added: 2024-06-11T07:57:12.312138
License: Public Domain

ETHEL P. YOUNG, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Young v. CommissionerDocket No. 38868.United States Board of Tax Appeals24 B.T.A. 815; 1931 BTA LEXIS 1590; November 16, 1931, Promulgated *1590  DEPLETION - OIL WELL ACQUIRED BY GIFT. - On June 1, 1922, petitioner acquired by gift a one-third of one-sixth interest in and to all of the minerals, oil and gas in and under certain property known to be oil-bearing and owned in fee by her father and mother.  Held, that depletion is based upon the fair market value of the petitioner's interest in the property at the date she acquired it.  Angie E. Reid,22 B.T.A. 1150">22 B.T.A. 1150, followed.  A. Calder Mackay, Esq., and Thomas R. Dempsey, Esq., for the petitioner.  B. M. Coon, Esq., for the respondent.  TRAMMELL *816  The respondent has determined that, petitioner having acquired her interest in certain oil-bearing property by gift after January 1, 1921, the basis for depletion is as it would have been for the purpose of determining gain or loss in hands of the preceding owner and that, such basis being nil, this petitioner is not entitled to set up any value as a basis for computing depletion.  The respondent has disallowed a deduction for depletion based upon the fair market value of petitioner's interest in the oil-bearing property at the time she acquired it on June 1, 1922, and*1591  determined a deficiency of $2,433.56 in petitioner's income tax for the calendar year 1923.  The petitioner contends that the respondent's determination is erroneous.  FINDINGS OF FACT.  The petitioner is a resident of Carmel-by-the-Sea, Calif.OnJune 1, 1922, and for a number of years prior thereto the petitioner's father, Samuel Pickler, owned in fee certain real property located in Signal Hill, Los Angeles County, Calif.On or about May 2, 1921, the said Samuel Pickler and his wife, Ida M. Pickler, entered into an oil and gas lease covering the said property with the Shell Oil Company of California, wherein the latter was given the right to explore for and drill and produce oil and gas and other hydrocarbon substances, and the lessors retained a one-sixth interest in and to all of the oil and gas and other hydrocarbon substances produced, saved and sold from said property.  During the month of May, 1922, oil was discovered on the said property in what is known as the Alamitos Sand, and Samuel Pickler became entitled to and was granted a value of the discovery well.  On June 1, 1922, petitioner received as a gift from Samuel Pickler and his wife, a one-third interest*1592  in and to all of the minerals, oil and gas in and under the said property, subject to the aforesaid lease with the Shell Oil Company.  On and after June 1, 1922, petitioner had an interest of one-third of one-sixth of all of the oil, gas and other hydrocarbon substances produced and sold from the said property and also the same interest in the remaining recoverable oil, gas and other minerals.  The fair market value of petitioner's interest in the oil, gas and other hydrocarbon substances in, on and/or under the said property was $42,209.89 on June 1, 1922, and on the same date her interest in the remaining recoverable oil from the said property was 54,718 barrels.  The petitioner's share of the total production from the *817  said property from June 1, 1922, to December 31, 1922, was 15,201.23 barrels.  On January 1, 1923, due to a new discovery of oil in what is known as the Brown Sand on the said property, petitioner became entitled to an added value of $79,536.80 and an additional recoverable oil of 81,160 barrels as her one-third of one-sixth interest for the purpose of computing depletion.  The petitioner's share of the total production from the said property during the*1593  year 1923 was 44,736.07 barrels.  OPINION.  TRAMMEL: The decision of the one issue involved in this proceeding is controlled by , wherein we held that under the Revenue Act of 1921, which governs in the instant case, the donee of an interest in property known to be oil bearing is entitled to an allowance for depletion based upon the fair market value of the property interest at the date of acquisition.  The respondent's determination is erroneous and this petitioner is to a deduction, from her gross income for 1923, of depletion computed in accordance with this decision and the findings of fact hereinbefore set forth.  Judgment will be entered under Rule 50.