Court Opinion

ID: 4600888
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:26:30.104699+00
Date Added: 2024-06-11T07:59:16.047639
License: Public Domain

J. M. LOFFLAND, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.  T. S. LOFFLAND, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Loffland v. CommissionerDocket Nos. 13425, 13426.United States Board of Tax Appeals10 B.T.A. 14; 1928 BTA LEXIS 4213; January 19, 1928, Promulgated *4213  In determining gain or loss upon a sale of oil properties, depreciation and depletion for the years 1913, 1914, and 1915 should be computed in the method provided by the Revenue Law of 1913.  Charles H. Garnett, Esq., for the petitioners.  T. M. Mather, Esq., for the respondent.  MILLIKEN *14  These proceedings, which were consolidated by agreement, involve the redetermination of deficiencies in income tax for the year 1920, which in the case of J. M. Loffland is $1,744.31, and in the case of T. S. Loffland, $1,711.40.  The only error urged by petitioners is that the respondent, in determining the gain arising from the sale of certain oil and gas leases, added to the cost or value on March 1, 1913, depletion and depreciation actually sustained by petitioners during the years 1913, 1914, and 1915, instead of computing such depletion and depreciation by the method provided by the Act of October 3, 1913.  FINDINGS OF FACT.  Petitioners, J. M. Loffland and T. S. Loffland, were at all times herein mentioned equal partners, doing business under the firm name of Loffland Brothers.  During the year 1920, the partnership sold 12 oil and gas leases and*4214  equipment for the aggregate sum of $92,381.25.  Seven of these were acquired prior to March 1, 1913, and five were acquired subsequent to that date.  The value on March 1, 1913, of leases and equipment acquired prior to that date, plus the cost of leases and equipment subsequent to that date, was $135,488.14.  Respondent, in determining the net profit on the sale of said leases, deducted from said cost or value on March 1, 1913, the amount of $77,522.91, which included depletion in the amount of $38,705.55.  These amounts included depreciation and depletion sustained on the unit of production basis by petitioners during the years 1913, 1914, and 1915.  The net profit derived from said sales as computed by respondent was $34,416.02, of which one-half was attributed to each petitioner.  Computing depletion and depreciation on a unit of production basis for all the years involved, except the years 1913, 1914, and 1915, and computing said deductions for those years on the basis of 5 per cent of the value of the annual production or output of the oil *15  on said leased properties, the aggregate amount of depletion allowable is $30,393.34, the aggregate amount of depreciation allowable*4215  is $27,059.86, and the net profit derived from the sales was $14,346.31, one-half of which is taxable to each petitioner.  The net income of petitioner, T. S. Loffland, for the year 1920, independent of that derived from the profit on the sale of the oil and gas leases and equipment, was $15,070.39, of which the amount of $8,154.62 was derived from corporate dividends.  This petitioner was entitled to a personal exemption of $2,000.  The net income of petitioner, J. M. Loffland, for the year 1920, independent of that derived from the profit on the sale of the oil and gas leases and equipment, was $8,752.19, of which the amount of $8,154.63 was from corporate dividends.  This petitioner was entitled to a personal exemption of $3,000.  OPINION.  MILLIKEN: The facts were stipulated.  They disclose the cost or the value on March 1, 1913, of the oil and gas leases and equipment, and the selling price.  Petitioners admit that respondent's computation of depletion and depreciation is mathematically correct, provided that depletion and depreciation sustained on the unit of production basis during the years 1913, 1914, and 1915 should be added to the selling price or deducted from cost*4216  in determining gain.  On the other hand, respondent admits that petitioner's computation is mathematically correct, if the 5 per cent limitation provided in paragraph B of section II of the Act of October 3, 1913 (38 Stat. 114, 167), applies.  That provision was to the effect that individuals in computing net income for the purpose of the normal tax, were limited in their deductions for exhaustion, wear and tear of property in the case of mines to 5 per cent of the gross value at the mines of the output for the taxable year.  The question presented is decided in ; 6 Am.Fed. Tax Rep. 6754, where it is said: (2, 3) * * * On the other hand, we cannot accept the government's contention that the full amount of depreciation and depletion sustained, whether allowable by law as a deduction from gross income in past years or not, must be deducted from cost in ascertaining gain or loss.  Congress doubtless intended that the deduction to be made from the original cost should be the aggregate amount which the taxpayer was entitled to deduct in the several years.  *4217  Applying the rule laid down in , we find that the net profit of both petitioners, arising from the sale of the oil and gas leases, was $14,346.31, one-half of which should be attributed to each petitioner.  Judgment will be entered on 15 days' notice, under Rule 50.