Blumrosen v. Commissioner , 19 B.T.A. 240 ( 1930 )

R. M. BLUMROSEN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Blumrosen v. Commissioner

Docket No. 36123.

United States Board of Tax Appeals

19 B.T.A. 240; 1930 BTA LEXIS 2441;

March 11, 1930, Promulgated

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Under the Revenue Act of 1921, held that the donee of an oil lease is entitled to depletion upon the basis of the fair market value of the lease when acquired by the donee.

George S. Atkinson, Esq., and Luke B. Garvin, C.P.A., for the petitioner.

O. J. Tall, Esq., and R. B. Cannon, Esq., for the respondent.

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MARQUETTE

This proceeding is for the redetermination of deficiencies in income tax asserted by the respondent in the amount of $302.68 for the year 1923 and the amount of $32.49 for the year 1924. Errors alleged are:

1. The deficiency for 1923 was determined more than four years after the date of filing the income-tax return for that year;

2. The respondent improperly computed income tax on $6,579.65 for 1923, and on $2,165.89 for 1924, as additional taxable income for those years;

3. Respondent computed income and profits taxes on the conversion of property acquired by the petitioner by gift;

4. Respondent disallowed depletion based upon the fair market value of property, acquired by gift by the petitioner, as of the date of acquisition by the petitioner;

5. Respondent disallowed depletion to the petitioner, on property acquired by gift, upon the same basis as allowable on said property in the hands of the donor.

FINDINGS OF FACT.

The petitioner is a resident of Corsicana, Tex. On June 14, 1923, he received by deed or gift an interest of one-sixth of one-eighth royalty, or a one forty-eighth royalty interest in oil in certain proven oil lands. During the year 1923 he received from said interest, on account of oil produced and sold from said lands, the amount of $6,579.65.

On June 14, 1923, the royalty interest so given to petitioner had a present fair market value of $15,268.50.

The one forty-eighth royalty interest of the petitioner in said reserves amounted to 11,310 barrels of oil. There were produced from petitioner's said reserves, 7,883.49 barrels of oil during 1923, for which the petitioner received $6,579.65. The oil so produced had a fair market value of $10,642.71 on June 14, 1923.

The respondent has not allowed to the petitioner any depletion for the year 1923 on account of the oil produced and sold, as set out above.

At the hearing the petitioner waived the issue raised as to the statute of limitations, and the parties agreed that there is a deficiency for the year 1924 amounting to $32.49.

OPINION.

MARQUETTE: The petitioner contends that he is entitled to allowance for depletion of his royalty interest in oil lands for the year 1923. He received his royalty interest by gift June 14, 1923.

Section 202(a)(2) of the Revenue Act of 1921 provides:

That the basis for ascertaining the gain derived or loss sustained from a sale or other disposition of property, real, personal, or mixed, acquired after February 28, 1913, shall be the cost of such property; except that -

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(2) In the case of such property acquired by gift after December 31, 1920, the basis shall be the same as that which it would have in the hands of the donor or the last preceding owner by whom it was not acquired by gift. * * *

The respondent contends that under the section just quoted any profit on the sale of the petitioner's property here involved should be determined on the same basis as it would be if it was sold by the donor; that the petitioner must use for depletion the basis which the donor would use in computing gain or loss, and that since the donor was not entitled to any 1913 value or to any discovery value, then the petitioner, who was the donee, is on the same basis and is not entitled to depletion allowance.

This very question was before the Board and was decided in . In discussing and determining the question, it was said:

* * * There are, however, other considerations which lead us to believe that the paragraph quoted does not control in the case of depletion claimed under the 1921 Act. The reports of the Congressional Committees (67th Cong., 1st sess., H.R. 350; S. 275) disclose that the paragraph in question was added for the purpose of subjecting gains to income tax and preventing evasion by means of gifts. The provision was designed to deal with a sale by the donee, and there is nothing to indicate that Congress intended that it should affect the basis for depletion deductions. The provisions of the Revenue Act of 1921 with respect to depletion are, so far as is here material, the same as are contained in the Revenue Act of 1918. Sec. 214(a)(10). It provided that the allowance for depletion should be based upon cost, with the exceptions therein noted. Since the section fixes the basis on which depletion is to be allowed, there is no necessity of referring to other sections to fix the basis. * * *

We consider that decision controlling in the present proceeding and this petitioner is entitled to allowance for depletion for the year 1923 based upon the fair market value of his royalty interest on the date he acquired it, namely, June 14, 1923.

The respondent's determination of a deficiency amounting to $32.49 for the year 1924 is sustained.

Reviewed by the Board.

Judgment will be entered under Rule 50.

SMITH and VAN FOSSAN dissent.