Court Opinion

ID: 4500190
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:48.762712+00
Date Added: 2024-06-11T15:04:30.927433
License: Public Domain

*791OPINION.
Marquette :
It is the contention of the petitioner that under section 5(a) Eighth (b) of the Revenue Act of 1916, as amended by the *792Revenue Act of 1917, she was entitled to a deduction for depletion “ not to exceed the market value in the mine of the product thereof which has been mined and sold during the year for which the return and computation was made ”; and that the respondent was in error •in adding to income for the year 1919, when the lease was abandoned, any greater amount than the difference between the depletion properly allowable to her for prior years under that section of law, and the amount of depletion actually sustained in those years. On the other hand, ,the respondent contends that his action in increasing the petitioner’s income for the year 1919 was proper, and he relies upon article 215(d) of Regulations 45 (1920 Edition), which provides:
Upon the expiration, termination, or abandonment of a lease, without the removal of any or all of the mineral contemplated by the lease, the lessor shall be required to restore to capital account so much of the bonus received and deducted from capital recoverable through depletion as is in excess of the actual depletion or loss in value sustained as a result of the operations under the lease and the corresponding amount will be income for the year in which the lease expires, terminates, or is abandoned.
We are unable to agree with either the petitioner or the respondent. In our view of the case the action of the respondent in requiring the inclusion in income for 1919 of any part of the difference between the depletion deductions allowed in prior years and the actual depletion sustained in those years, is without authority of law, and the regulations permitting or requiring such procedure are to that extent invalid. How excessive deductions allowed in prior years can, upon the happening of a specified event in a subsequent year, become income, is beyond our comprehension. If the respondent chooses to permit a depletion allowance on the basis of minimum royalties, he must take the risk of excessive deductions by taxpayers depleting their properties upon such basis, but taxpayers can not be required to return as income, when a lease is abandoned, the amount of depletion theretofore allowed in excess of the amount of depletion actually sustained.
We are of the opinion that no part of the depletion allowed the petitioner in the years prior to 1919, in excess of the amount of depletion sustained, is or can be, within the meaning of the law, income for the year 1919.
Reviewed by the Board.
Judgment will he entered on 15 days’ notice, under Bule 50.
AruNdell concurs in the result.