Big W. Oil & Gas Co. v. Commissioner

BIG WESTERN OIL & GAS CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Big W. Oil & Gas Co. v. Commissioner

Docket No. 7150.

United States Board of Tax Appeals

9 B.T.A. 427; 1927 BTA LEXIS 2597;

November 29, 1927, Promulgated

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1. Profit from sale of interest in oil and gas leases held not taxable in 1919.

2. Determination of respondent as to depletion approved.

H. J. Wightman, Esq., for the petitioner.

Granville S. Borden, Esq., for the respondent.

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SIEFKIN

This is a proceeding for the redetermination of deficiencies in income and profits taxes for the years 1919 and 1920 in the respective amounts of $3,633.53 and $2,732.31. Petitioner alleges as errors action of respondent in (1) including in 1919 income a profit realized from the sale of an interest in an oil and gas lease; (2) in allowing as a deduction in 1919 only $10,800.77, instead of $29,873.85 as depletion of oil and gas properties; and (3) in allowing as a similar deduction in 1920 only $5,004.59, instead of $12,334.96.

FINDINGS OF FACT.

Petitioner is a Colorado corporation organized in March, 1917, with its principal office and place of business at Trinidad. It drilled eight holes on the Della Wilson lease, five of which were producing oil wells and the balance were dry holes. It also drilled two dry holes on the Cy Johnson lease. When the first two holes were drilled, the company was in debt about $19,000 and to liquidate this indebtedness, by contract, it sold a half interest in three oil and gas leases and personal property thereon for the sum of $19,375.

The amount of $15,285.56 of the total consideration of $19,375 named in the instrument was paid by personal checks of Gibney to the various creditors of petitioner at the time of the purchase of the property in August, 1918. The balance of $4,089.44 was paid to petitioner by the purchasers on August 23, 1918, and was deposited in the petitioner's account in a bank in Trinidad, Colo.

In its income and profits-tax returns for 1919 and 1920, petitioner deducted as depletion 10 per cent of the gross proceeds of oil production, on estimates that the life of the oil wells was 10 years.

Such estimates were based upon general hearsay in the oil field, its officers who made the estimates having no experience with oil properties.

OPINION.

SIEFKIN: The evidence is clear that the sale of the leases in question was instituted and completed in the year 1918 and the entire consideration paid to petitioner or its creditors in that year. The respondent erred in including the profit from the sale in 1919.

As to depletion, the evidence is too slight to justify us in disturbing the allowances of the respondent, and we must approve his determination in that respect.

Judgment will be entered upon 15 days' notice, under Rule 50.

Considered by MORRIS and MURDOCK.