Court Opinion

ID: 9636512
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:31:46.774568+00
Date Added: 2024-06-11T18:09:46.608608
License: Public Domain

HUTCHESON, Circuit Judge
(concurring in part and in part dissenting).
The taxpayer’s business as a whole is that of an oil well driller for others. His accounts are kept not upon the basis of one well or another but of all the wells drilled in the year, here fifty. In determining his profit or loss for the year as an oil well driller, he must show his receipts and his expenses as to all the wells drilled, without distinction between whether he receives the stipulated price of the well in cash or by barter. I think it is a distortion of his accounting system and of his income tax rights and obligations to treat one or two wells out of all drilled in the year as isolated transactions instead of as a part of the year’s business as a whole. The drilling of the wells in question must I think be treated, just as the drilling of those drilled for cash, as drilling operations for which the taxpayer has received the prices fixed for other drilling, $9,500, $10,500, and $11,500 and in the drilling of which he has incurred, as ordinary business expenses, the costs claimed. The fact that by barter he got an oil payment instead of cash cannot, I think, change his accounting for tax purposes as to his business as a whole. While therefore I concur in the decision that the Commissioner’s petition was properly denied, I dissent from the decision that the taxpayer’s was also.
The fact, of which the majority makes so much, that he has acquired a capital asset, a depletable income bearing property, must be dealt with, I think, not by denying him his business expenses, but under other sections of the tax laws. If he sells the property, it must be dealt with under those sections which determine gain or loss from sale; if he derives income from the oil operations, it must be dealt with under the sections dealing with such income.
I think the majority’s difficulty is that, looking at the problem with gaze too foreshortened by what it regards as inequitable tax consequences, it is seeing the problem too close up and not at a long enough range. It is looking at the transaction of the drilling for a price and the payment in an oil well as one coalesced transaction instead of, as it is, as two transactions. So regarding it, it is prevented from seeing that, as to the price paid for these wells, as is the case with all the other wells drilled in the year, there are two operations. One of them is the conduct of taxpayer’s business as a driller of wells for others, with the casting up of accounts at the end of the year when, by offsetting expenses against returns, his gain or loss is determined. The other operation is what he does with the money his business thus brings in. He may use it as additional capital, or he may lay it out in whole or in part, as here, in investments outside of his business. The fact that he makes the investment here by a barter arrangement, the drilling of the well for an oil payment interest in it, instead of taking cash and then buying an oil payment with the cash, cannot, I think, alter the fact that he drilled a well in the course of his business and he laid out the price paid for it in the purchase of an investment. His business operations as an oil well driller must be accounted for as one thing, his capital transactions as another. I therefore dissent from the denial of the taxpayer’s petition.