Court Opinion

ID: 4590664
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:04:06.575233+00
Date Added: 2024-06-11T07:50:30.812355
License: Public Domain

WESTERN AMERICAN OIL CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Western Am. Oil Co. v. CommissionerDocket No. 14452.United States Board of Tax Appeals10 B.T.A. 17; 1928 BTA LEXIS 4215; January 19, 1928, Promulgated *4215  1.  Net loss determined for the year 1919.  2.  Net income received by lessee from the operation of an oil well upon Osago Indian Reservation held to be taxable.  3.  Actual cash value of property at time paid in for stock excluded from invested capital for want of evidence of value.  Claude Collard, C.P.A., for the petitioner.  Shelby S. Faulkner, Esq., for the respondent.  MILLIKEN *18  This proceeding results from the determination by respondent of a deficiency in income and profits taxes for the year 1920, in the sum of $1,240.83.  In the petition filed, six errors are alleged: (1) The failure of respondent to allow as a deduction from gross income adequate depletion on discovery revaluation in relation to the Rose Thompson and McMillan oil and gas leases.  (2) The failure of respondent to allow as a deduction from gross income the full amount of a net loss for the year 1919.  (3) The failure of respondent to allow as a deduction from gross income a loss arising from the sale of the Rentie lease in the sum of $5,208.42.  (4) The failure of respondent to exclude from income earnings from an Osage Indian oil and gas lease known*4216  as the Amanda Slaughter McMillan lease.  (5) The failure of respondent to determine the correct invested capital for the year 1920.  (6) The failure of respondent to determine and compute the tax for the year 1920 under the provisions of sections 327 and 328 of the Revenue Act of 1918.  At the hearing of this proceeding, counsel for petitioner specifically waived assignments of error numbered (1), (3), and (6).  FINDINGS OF FACT.  Petitioner is a corporation duly organized under the laws of the State of Oklahoma, with its principal office at Bartlesville.  In computing the net loss for the year 1919, respondent determined the amount thereof to be $4,523.04 and that all of said sum should be carried forward to the year 1920 and applied against and reduce the taxable income for the year 1920.  Petitioner contends that the said 1919 net loss should be increased by the sum of $225.65, and that said sum should be carried forward and applied against and reduce the net income for the year 1920.  The said difference of $225.65 represents allowable depletion deduction based upon discovery valuation in relation to the Rose Thompson lease.  Petitioner, on October 10, 1919, obtained*4217  as a lessee an oil mining lease from the Osage Tribe of Indians in Oklahoma, which lease was duly approved by the Secretary of the Interior.  The total amount of income received by petitioner during the year 1920 from the operation of said lease was the sum of $4,354.13, and the operating expense in relation thereto was the sum of $845.33.  The outstanding and issued capital stock of petitioner, at the beginning, throughout, and at the end of the year 1920, was $100,000.  The *19  total capital stock was issued in 1911 for property, equipment and a leasehold comprising the west half of the northwest quarter of section 6, township 25, range 14.  OPINION MILLIKEN: The parties have stipulated that the difference of $225.65 between the net loss determined for 1919 by the respondent and that claimed by the petitioner represents an allowable deduction for depletion, based upon discovery revaluation in relation to a lease owned by petitioner.  It is clear that the deduction allowable for depletion would correspondingly reduce the net income for the year 1919, and correspondingly increase the net loss for the year 1919 to be carried forward to the year 1920.  The net loss allowed*4218  by respondent for the year 1920, should be increased by $225.65.  The fourth assignment of error relates to the exclusion from income for the year 1920 of earnings from an Osage Indian oil and gas lease, of which the petitioner was the lessee.  The same question which is thus before us was presented to the United States Supreme Court in Heiner v. Colonial Trust Co. and decided adversely to the position taken by petitioner.  . The fifth assignment of error alleges that the respondent did not correctly determine invested capital for the year 1920.  Section 326 of the Revenue Act of 1918 defines the term "invested capital." In the case at bar, the total outstanding capital stock was issued for leaseholds and equipment.  In such instances, the statute provides that the same may be included in invested capital to the extent of the actual cash value of such property at the time paid in for stock.  There being no evidence as to the actual cash value of the tangible assets paid in for stock, we accordingly can not determine invested capital or decide that the determination made by the respondent was in error.  Judgment will be entered on 15 days' notice,*4219  under Rule 50.