Helvering v. Combs
| Decision Date | 16 December 1935 |
| Docket Number | No. 238,238 |
| Parties | HELVERING v. COMBS et al |
| Court | U.S. Supreme Court |
The Attorney General and James W. Morris, Asst. Atty. Gen., for petitioner.
Mr. Dana Latham, of Los Angeles, Cal., for respondents.
The trustees of E. E. Combs Well No. 2 contested the ruling of the Commissioner of Internal Revenue that the taxpayer was taxable as an association, and not as a trust, on its income for the years 1925 and 1926. The Board of Tax Appeals sustained their contention and the Circuit Court of Appeals affirmed the order of the Board. Commissioner of Internal Revenue v. Combs, 76 F.(2d) 682. A writ of certiorari was issued in view of the conflict of decisions to which we have referred in Morrissey v. Commissioner, 296 U.S. 344, 56 S.Ct. 289, 80 L.Ed. 263, decided this day.
The trust was created 'to finance and drill a well for production and sale of oil and other hydro-carbon substances under Oil and Gas Lease dated July 24, 1924.' By the agreement, the Hub Oil Company, a California corporation and owner of the oil and gas lease, assigned to E. E. Combs and Edward Everett, as trustees, all its rights under the lease, subject to a reservation of 6.5 per cent. of all oil, gas, and other hydro-carbon substances which might be produced and of a royalty interest in favor of one Smithson of 2 per cent. The agreement described as beneficiaries 'all persons who may own or acquire portions of the whole beneficial interest' as defined. The assignor agreed to supply to the trustees certain equipment, and one Bailes had already agreed to furnish other equipment and materials and to superintend the operation of drilling the well in consideration of 12 per cent. of the production. The trust was to pay all labor claims and for materials not otherwise provided.
The 'whole beneficial interest' in the trust was defined as .71333 per cent. of gross production, and the beneficiaries were to be paid their pro rata shares, after deduction for the payment of lawful trust obligations, as follows: (a) 25 per cent. of gross production to the beneficiaries who provided money for the trust purposes; (b) .44333 per cent. to E. E. Combs; and (c) 2 per cent. to Edward Everett. Certificates of beneficial interest were to be issued in approved legal form and were to be held in escrow until a producing well was brought in. Thirteen persons were named as beneficiaries, with the amounts contributed and the percentages owned by each, these amounts aggregating $25,000 and the percentage of ownership amounting to 25 per cent. The 'certificate of beneficial interest' recited that the party named was the holder of a beneficial interest under the trust agreement in the amount stated and that the same was transferable only upon the books of the trustees, upon indorsement and surrender of the certificate. The trustees were authorized to hold all property and property rights, the legal title to which might vest in them under the trust, to use the moneys deposited by beneficiaries to pay for labor, casing, and other...
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