65 T.C. 415 (1975), 1261-74, Holbrook v. Commissioner of Internal Revenue
|Citation:||65 T.C. 415|
|Opinion Judge:||FEATHERSTON, Judge:|
|Party Name:||MAYO HOLBROOK AND VERNA HOLBROOK, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT|
|Attorney:||William H. Beck, for the petitioners. Robert P. Ruwe, for the respondent.|
|Case Date:||November 26, 1975|
|Court:||United States Tax Court|
Held, petitioners are not entitled to a percentage depletion deduction in 1970 with respect to income derived from coal mining under a nonexclusive and nontransferable license which was subject to termination without cause by giving the licensee 10 days' notice.
Respondent determined a deficiency of $12,605.40 in petitioners' Federal income tax for 1970. The issues to be decided are: (1) Whether petitioners are entitled to a percentage depletion deduction under sections 611 and 613, with respect to income derived from coal mining operations; and, if so, (2) whether petitioners' gross income as determined for
purposes of sections 611 and 613 must be reduced in the amount of certain transportation costs incurred during the year in issue.
FINDINGS OF FACT
Petitioners Mayo and Verna Holbrook, husband and wife, were legal residents of Whitesburg, Ky., when their petition was filed. Petitioners filed a joint Federal income tax return for 1970 with the District Director of Internal Revenue, Louisville, Ky.
Petitioner Mayo Holbrook (hereinafter referred to as Holbrook) was engaged in the business of coal mining for a number of years. On March 23, 1967, his wife, petitioner Verna Holbrook (hereinafter Mrs. Holbrook), as licensee, executed a document entitled license No. 145 with the Kentucky River Coal Corp. (hereinafter Kentucky River), as licensor. The document provided in pertinent part:
WITNESSETH: That for and in consideration of the performance by the Licensee of the provisions hereinafter set forth, the Licensor hereby gives and grants to the Licensee the license, right, and permission, at the sole cost and expense of the Licensee, and subject to the provisions hereinafter set out, to mine coal from the No. Whitesburg seam of coal on the following tract of land, to wit:
Lying and being in Letcher County, Kentucky, on the waters of Smoot Creek * * *
The terms of this license are as follows:
1. Licensee will begin work immediately and will prosecute the mining of the coal hereunder with due diligence during the life of this license.
4. Licensor will furnish at its cost all necessary mining engineering, but Licensor shall in no event be responsible for the conduct or manner of mining nor any of the other cost incident thereto, nor for the employing, hiring, firing, controlling or directing any of the employees of Licensee working in said mine or mines, nor any other activity connected with the mining and selling of the said coal.
5. Licensee shall have the right to use so much of the surface and/or mining rights in and on said boundary for the mining of the coal covered hereby as may be vested in Licensor, but such rights shall not be exclusive and Licensor reserves the right to use or grant to others the joint use of said surface and/or mining rights.
6. Licensee agrees to mine all of the mineable and merchantable coal covered hereby in a good and workmanlike manner, and according to the laws of Kentucky and the United States applicable to such mining.
8. Title to the coal covered hereby shall not pass until the same has been reduced to physical possession by Licensee.
10. This license shall continue in force until all of the mineable and merchantable coal covered hereby is mined and paid for unless the same is sooner revoked. This license is revocable at the pleasure of the Licensor, and may be revoked by Licensor at any time, with or without cause, by giving to the Licensee Ten Days written notice in person, or by mail, or by posting the same at any mine portal or opening on the premises. The Licensee may likewise surrender and terminate this license by giving Licensor Ten Days written notice, in person or by certified mail. And in the event of...
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