Opinion
No. 5945.
April 21, 1931.
Petition for Review of Decisions of the United States Board of Tax Appeals (District of Louisiana).
Petition by Catherine Wilkinson Barnette and another to review decisions of the United States Board of Tax Appeals redetermining income taxes.
Petition denied.
Frank J. Looney, of Shreveport, La. (Frank J. Looney, of Shreveport, La., and Holland Strong, of Washington, D.C., on the brief), for petitioners.
G.A. Youngquist, Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and C.M. Charest, Gen. Counsel, Bureau of Internal Revenue, and E. Riley Campbell, Sp. Atty., Bureau of Internal Revenue, both of Washington, D.C., and J.P. Jackson, Sp. Asst. to Atty. Gen. (G.A. Youngquist, Asst. Atty. Gen., Sewall Key and J.P. Jackson, Sp. Assts. to Atty. Gen., and C.M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Nathan Gammon, Sp. Atty., Bureau of Internal Revenue, both of Washington, D.C., on the brief), for respondent.
Before BRYAN, SIBLEY, and HUTCHESON, Circuit Judges.
This petition for review concerns the income taxes for 1921 of J.M. Foster and W.A. Wilkinson, and turns on oil royalty transactions had in partnership with F.J. Looney. The three claimed certain royalty interests in Louisiana oil lands under one title, and West, Goldstein Walker claimed royalty interests in the same lands arising under an adverse title. The opposing claimants of title were engaged in litigation. The above-named claimants of inconsistent royalty rights compromised their dispute by a writing signed by them all in the form of a recorded deed, the effect of which was to allow West, Goldstein Walker to have the royalties until $200,000 was realized, after which Foster, Looney Wilkinson were to have them. The collector of internal revenue construed the instrument as a purchase by Foster, Looney Wilkinson for $200,000.00 of an outstanding title, thereby making a capital investment of that sum, while they remained at all times the owners of the royalty right, so that the oil which went to pay the $200,000 was considered income chargeable to them as owners, subject to depletion allowance. This decision was contested separately by all three, Looney paying his tax and suing for recovery in the District Court [ 26 F.2d 481], Foster and Wilkinson seeking redetermination by the Board of Tax Appeals. Looney's Case came by appeal to this court. United States v. Looney, 29 F.2d 884. It was there held that the true effect of the compromise was to divide the subject of dispute by giving the royalty right to West, Goldstein Walker until they realized $200,000, after which it was to vest in Foster, Looney Wilkinson, so that Foster, Looney Wilkinson did not own the royalty right during the year 1921, for West, Goldstein Walker were still getting the oil, and the income from the royalty right for that year was that of West, Goldstein Walker and not of Foster, Looney Wilkinson.
No question regarding depletion was decided. The Board of Tax Appeals followed the decision of this court in redetermining the taxes of Foster and Wilkinson, ordering the elimination as income of the oil which West, Goldstein Walker had received, but which the Commissioner had added to the returns. 16 B.T.A. 1390. The Board, however, found that the Commissioner, in adding the oil to the income, had also increased the deduction allowed for depletion at a stated amount per gallon, and it ordered a correction of this deduction also, so that the net reduction of taxable income was only the value of the oil less the depletion allowed in respect of it. This action was clearly right. It having been decided at the instance of the taxpayers that they were not the owners of the royalty right at the time the oil in question was taken, so that it was not their income, it follows that they are not entitled to allowance for the resulting depletion. Depletion is allowed to him who at the time owns the royalty right. Pugh et al. v. United States (C.C.A.) 49 F.2d 76, this day decided. While the taxpayers had sought only a correction in the income charged to them, it was the duty of the Board to make all resulting adjustments and to restate the true tax. There was no error in correcting the depletion allowance also. Blair v. Oesterlein Co., 275 U.S. 220, 227, 48 S. Ct. 87, 72 L. Ed. 249.
Petition denied.