Commissioner of Internal Revenue v. Crichton

• Decision Date: 09 August 1941
• Docket Number: No. 9800.,9800.
• Citation: 122 F.2d 181
• Parties: COMMISSIONER OF INTERNAL REVENUE v. CRICHTON.
• Court: U.S. Court of Appeals — Fifth Circuit

122 F.2d 181 (1941)

COMMISSIONER OF INTERNAL REVENUE v. CRICHTON.

No. 9800.

Circuit Court of Appeals, Fifth Circuit.

August 9, 1941.

Richard H. Demuth, Sewall Key, and Warren F. Wattles, Sp. Assts. to the Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., and J. P. Wenchel, Chief Counsel, Bureau of Internal Revenue, and Irving M. Tullar, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for petitioner.

Felix O. Rousset and Leo L. Dubourg, both of New Orleans, La., for respondent.

Before FOSTER, HUTCHESON, and HOLMES, Circuit Judges.

HUTCHESON, Circuit Judge.

In 1936, respondent and her three children, owning, in undivided interests, a tract of unimproved country land and an improved city lot, effected an exchange of interests. Her children transferred to respondent their undivided interest in the city lot. Respondent transferred to her children, as of equal value, an undivided 3/12 interest in the "oil, gas and other minerals, in, on and under, and that may be produced from" the country land. The ½ interest conveyed to respondent had a value of $15,357.77. The interest respondent transferred to her children had a cost basis of zero.

Respondent treating the exchange as one of property for property of like kind and therefore nontaxable under Section 112 (b) (1),¹ Revenue Act of 1936, 26 U.S.C. A.Int.Rev.Acts, page 855, did not report any profit therefrom. The commissioner, of the opinion that the exchange resulted in a capital gain of $15,357.71, under Section 117, Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts, page 873, determined a deficiency of $628.66 acccordingly.

The Board² of the opinion that the exchange was "solely in kind", disagreed with the commissioner and on redetermination fixed the deficiency at $86.46. The commissioner is here insisting that the Board has wrongfully decided the question. We do not think so. We agree with the Board that whatever difficulty there might have been, if the statute stood alone, in determining the meaning of the very general words it uses, as applied to the facts of this case, that difficulty vanishes in the light of Treasury Regulation 94,³ if that regulation is valid, and we think it quite clear that it is. As was the case with regard to the statute considered in Helvering v. Reynolds Tobacco Co., 306 U.S. 110, 113, 59 S.Ct. 423, 425, 83 L.Ed. 536, so here, the section "is so general in its terms as to render an interpretative regulation appropriate."

As was the case there, so here, "the administrative construction embodied in the regulation has for many years, been uniform with respect to each of the revenue acts, * * *, as evidenced by Treasury rulings and regulations, and decisions of the Board of Tax Appeals."

The commissioner concedes, as he must, that under Louisiana law, mineral rights are interests not in personal but in real property, and that the rights exchanged were real rights. In the light therefore of the rule the regulation lays down, of the examples given in the illustrations it puts forth, and of the construction which, under its interpretation, ...