296 U.S. 365 (1935), 238, Helvering v. Combs

Docket Nº:No. 238
Citation:296 U.S. 365, 56 S.Ct. 287, 80 L.Ed. 275
Party Name:Helvering v. Combs
Case Date:December 16, 1935
Court:United States Supreme Court

Page 365

296 U.S. 365 (1935)

56 S.Ct. 287, 80 L.Ed. 275




No. 238

United States Supreme Court

Dec. 16, 1935

Argued November 22, 1935




A common enterprise, under a trust instrument, for acquisition of an oil lease, drilling and operation of an oil well, sale of the products, sale of the well, and distribution of income among the beneficiaries held taxable on income as an "association" under the Revenue Act of 1926, upon the authority of Morrissey v. Commissioner, ante, p. 344. P. 368.

76 F.2d 682 reversed.

Page 366

Certiorari to review a judgment affirming a decision of the Board of Tax Appeals which overruled an assessment of income taxes laid on a trust as an "association."

HUGHES, J., lead opinion

MR. CHIEF JUSTICE HUGHES delivered the opinion of the Court.

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 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, ante, p. 344.

The trust was created "to finance and drill a well for production and sale of oil and other hydrocarbon 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 percent of all oil, gas, and other hydrocarbon substances which might be produced and of a royalty interest in favor of one Smithson of 2 percent. The agreement described as beneficiaries "all persons who may own or acquire portions of the whole beneficial interest" as defined. The

Page 367

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 percent 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 percent 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 percent of gross production to the beneficiaries who provided...

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