A. T. Cooper, Petitioner, v. Commissioner of Internal Revenue, Respondent

A. T. Cooper, Petitioner, v. Commissioner of Internal Revenue, Respondent. Docket No. 3144. Promulgated July 29, 1927. Tke excess o£ deductions for depletion based on minimum royalties, over tbe actual depletion sustained, does not constitute income to a lessor in tbe year in wbicb tbe lease is abandoned. Frank W. Wilson, O. P. A., for the petitioner. John W. Fisher, Esq., for the respondent. This proceeding is for the redetermination of a deficiency in income tax for the year 1919 in the amount of $1,108.47, and is based upon an alleged error of the respondent in adding to income in that year the difference between the depletion allowed the petitioner upon minimum royalties received by him as one of the lessors of an iron mine, and the actual depletion of the mine when it was abandoned in 1919. FINDINGS OF FACT. The petitioner is the owner of an undivided interest in the fee of an iron mine in Minnesota. This mine was leased on September 4, 1912, on a royalty basis, the lease providing for a minimum payment each year on 50,000 tons of ore. The lease was abandoned by the lessee in the year 1919. In each of the years except 1913 and 1919, the petitioner was paid royalties on the minimum royalty basis, but in none of the years to the time the lease was abandoned did the lessee mine and ship the minimum requirement of the lease. The petitioner in computing the depletion allowance in each year, deducted depletion on the basis of the minimum royalties, which deductions were allowed by the respondent. Upon the abandonment of the lease in 1919 the respondent computed the depletion actually sustained from the date of the lease to its abandonment and deducted the amount thereof from the depletion allowed the petitioner over the same period on the basis of the minimum royalties, and added the difference to income for the vear 1919. The following tables show the royalties reported as income by the petitioner, royalties received by him, tons of ore paid for, tons of ore shipped, depletion claimed by the petitioner, depletion allowed by the respondent, and the petitioner’s income for the year 1919 as computed by the respondent: Net income reported on return_$19, 926. 75 Royalties reported as received_$4, 456. 72 Actual royalties paid to petitioner_ 2, 971.18 Income overstated by_ 1,485. 54 Depletion claimed on return_ 1, 960. 95 Depletion allowed_ 1,163. 01 Income understated by_ 797. 94 Depletion allowed petitioner to date of surrender of lease- 9, 893. 01 Depletion sustained by petitioner to date of surrender of lease_• 4, 533.91 Income understated by. 5, 359.10 26, 083. 79 1,485.54 Total net income subject to tax for the year 1919_ 24, 598. 25 [MAJORITY — Marquette :] OPINION. Marquette : The question here presented is the same as that before the Board in Kittie A. Knapp, 7 B. T. A. 790, and it arises from the same transaction. In that proceeding we held that there is no authority of law for including in a taxpayer’s income in one year excessive depletion allowed as deductions for prior years, and in accordance with our decision therein, we hold that no part of the amounts allowed the petitioner as depletion deductions in the years prior to 1919 should be included in his income for that year. Reviewed by the Board. Judgment will he entered on 15 days' notice, under Bule 50.