Ames v. United States

• Decision Date: 13 April 1964
• Docket Number: 18765.,No. 18764,18764
• Citation: 330 F.2d 770
• Parties: Winifred Paul AMES, Appellant, v. UNITED STATES of America, Appellee. Alfred PAUL, Jr., and Virginia Paul, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

330 F.2d 770 (1964)

Winifred Paul AMES, Appellant, v. UNITED STATES of America, Appellee.

Alfred PAUL, Jr., and Virginia Paul, Appellants, v. UNITED STATES of America, Appellee.

Nos. 18764, 18765.

United States Court of Appeals Ninth Circuit.

April 13, 1964.

William Lee McLane, Jr., Nola McLane, Phoenix, Ariz., and Thaddeus Rojek, Washington, D. C., for appellants.

Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Melva M. Graney, and Michael Mulroney, Attys., Dept. of Justice, Washington, D. C., and Charles A. Muecke, U. S. Atty., Phoenix, Ariz., for appellee.

Before ORR, HAMLEY and BROWNING, Circuit Judges.

HAMLEY, Circuit Judge.

These are actions by taxpayers for the refund of federal income taxes alleged to have been erroneously paid for the taxable years 1954, 1955 and 1956. Judgments were entered awarding plaintiffs part of the refunds sought. They appeal.

During the years in question the taxpayers owned and operated the Paul Lime Plant, a partnership, at Paul Spur, Arizona. Their business was the quarrying and processing of calcinable limestone and silica. The principal product of the quarry was crushed limestone between 3/8" and 1½" in size. The partnership did not sell this limestone but used it in its adjacent plant to make calcined lime, which it then sold.

Under sections 611 and 613 of the Internal Revenue Code of 1954, 26 U.S.C. §§ 611 and 613 (1958), the taxpayers were entitled to a percentage depletion allowance of fifteen per cent of their gross income from mining this limestone.

The method of computing gross income from the mining of crude mineral product is specified in Treasury Regulation 118 (1939 Code), § 39.23(m)-1. Paragraph (e) (3) thereunder provides, among other things, that if the product is processed (as this limestone was processed into calcined lime) before it is sold by the taxpayer, the gross income from the mining of the mineral is to be constructively computed. Under the regulation this is to be accomplished by determining the "representative market or field price" as of the date of the taxpayer's sale of the processed product, of a mineral product of like kind and grade, if there is such a representative market or field price.¹

The taxpayers and the Commissioner of Internal Revenue were in agreement that the gross income from mining the 3/8" to 1½" crushed limestone had to be constructively computed in accordance with the formula set out in this Treasury Regulation. They were in disagreement, however, as to the representative market or field price for this product during the years in question. This led to the refund suits now before us on this appeal.

The trial court found that, during the taxable years, there existed in Arizona a representative market price for 3/8" to 1½" calcinable limestone such as was produced by the Paul Lime Plant of $1.79 per ton. The court therefore concluded that the taxpayers are entitled to have their taxable income for those years recomputed to reflect a depletion allowance deduction calculated upon that representative market price.

The sole question presented on this appeal is whether the trial court erred in finding the representative market price to be $1.79 per ton, rather than $2.50 per ton for 1954, $2.75 per ton for 1955, and $3.00 per ton for 1956, as contended for by the taxpayers.

During the years in issue, Hoopes & Company was a competitor of the taxpayers, with an Arizona plant located 150 miles north of the Paul Lime Plant. On August 21, 1959, the District Director of Internal Revenue for the District of Arizona, issued a thirty-day letter to Hoopes and Company in which, for the purpose of recomputing depletion allowance, the market price of "calcinable limestone materials" was determined to be $2.50 per ton in 1954, $2.75 per ton in 1955, and $3.00 per ton in 1956. Taxpayers contend that these are the figures the district court should have accepted in determining the representative market price of 3/8" to 1½" crushed limestone mined by them in those years.

However, there was testimony by Joe Aneas, a truck driver, that in each of these years he purchased 3/8" to 1½" crushed limestone from Hoopes & Company for $2.50 per cubic yard. He also testified that, while he never weighed a cubic yard of such limestone, he thought it weighed "around 2,800 pounds to the yard."² This would mean that he paid about $1.79 per ton.³

In addition, there was evidence, and the trial court so found, that during the years in question the taxpayers themselves sold substantial quantities of "chat" (3/16" to 3/8" crushed limestone) for prices ranging from $1.74 to $1.97 per ton, and substantial quantities of "flux" (minus 3/16" crushed limestone containing some dirt and debris) for prices ranging from $1.10 to $1.14 per ton.

This testimony concerning actual sales by Hoopes & Company, and by the taxpayers provides the basis for the $1.79 per ton figure as found by the court and here defended by the United States.⁴

The taxpayers argue that the testimony of Aneas cannot be regarded as substantial evidence in support of the findings, in view of its asserted nature and quality. They believe that Aneas was uncertain as to what constituted a cubic yard of crushed limestone. Reading his evidence as a whole we do not think this is a necessary conclusion. The taxpayers argue that he testified only as to purchases from Hoopes & Company in 1957, whereas the taxable years in issue were 1954 through 1956. But the statement of the witness, relied upon by the taxpayers, was in effect modified by his later testimony that he made such purchases in 1952 through 1956.

The taxpayers assert that Aneas had bills and statements in his possession at the trial pertaining to his purchases from Hoopes & Company, but the Government "never offered the items into evidence." The taxpayers, however, had the burden of proof. Roybark v. United States, 9 Cir., 218 F.2d 164, 166. And without regard to the burden of proof, the taxpayers could have put the bills and statements in evidence if it had been in their interests to do so. The same observations are appropriate with regard to the taxpayers' complaint that the Government refused to examine Mr. Hoopes concerning the sale of crushed limestone by Hoopes & Company to Aneas.

The taxpayers' attack upon the testimony of Aneas is also directed to the fact that he had not weighed a cubic yard of 3/8" to 1½" crushed limestone, and that his figure of 2,800 pounds was based on his estimate. Here...