Burkett v. Commissioner of Internal Revenue
| Decision Date | 28 June 1927 |
| Docket Number | Docket No. 14001. |
| Citation | 7 BTA 560 |
| Parties | JOHN T. BURKETT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
J. W. House, Esq., for the petitioner.
J. Arthur Adams, Esq., for the respondent.
This is a proceeding for the redetermination of a deficiency in income tax for the year 1923, in the amount of $36,653.38. The errors assigned by the petitioner are (1) that the Commissioner refused to tax so much of his income as was derived from an oil and gas lease, under the provisions of section 206 of the Revenue Act of 1921, and (2) that the Commissioner erred in not apportioning the income from said lease equally between petitioner and his wife.
FINDINGS OF FACT.
The petitioner is a resident of Pulaski County, Arkansas, and was at all times herein mentioned, the husband of Sula J. Burkett. On April 13, 1923, the petitioner and his wife, executed, acknowledged and delivered to the Gulf Refining Co. of Louisiana, the following oil and gas lease:
OIL AND GAS LEASE.
John T. Burkett et ux to Gulf Refining Company of La.
Know all men by these presents:
That John T. Burkett and Sula J. Burkett of the County of Ouachita, State of Arkansas, hereinafter called Lessor (whether one or more) have and by these presents do hereby lease, demise and let unto Gulf Refining Company of Louisiana, hereinafter styled Lessee, the tract of land hereinafter described, with the exclusive right of exploiting the same for and producing oil and gas therefrom, and to that end also grant, the exclusive right of drilling and operating thereon for oil and gas, together with rights of way for telephone and telegraph lines and right to lay pipe lines and operate the same for the purpose of conveying water, oil, steam and gas to erect, maintain and use storage tanks, sheds and buildings for the purpose of storing and caring for the minerals which may be produced, and the right to have and use sufficient water, oil, gas, wood and coal from the premises, free of cost, to operate and drill any wells that Lessee may bore or in the treating, so as to make merchantable, such minerals and also such other privileges as are reasonably requisite for the conduct of said operations, and the right to remove, replace and substitute material and machinery, to draw and remove casing from abortive and abandoned wells, and at the termination of this lease, to remove all property placed thereon by Lessee.
This said land is situated in Ouachita County, State of Arkansas, and described as follows:
SW ¼ of SW ¼, Section 6; N ½ of NW ¼; SW ¼ of NW ¼; S ½ of NE ¼; NW ¼ of NE ¼, N ½ of SW ¼, SW ¼ of SW ¼, NW ¼ of SE ¼, SE ¼ of NW ¼, Section 7; N ½ of SW ¼, Section 8; S ½ of NW ¼, SE ¼ of SW ¼, W ½ of SE ¼, Section 16; N ½ of NW ¼, Section 21; all in Township 15 South, Range 16 West, also — NW ¼ of NE ¼, SE ¼ of NE ¼ and E ½ of SE ¼, all in Section 12, Township 15 South, Range 17 West. Also NW ¼ of SW ¼, Section 3, Township 15 South, Range 16 West.
It is agreed that for all purposes of this lease, there are embraced in this lease One Thousand (1,000) acres of land.
PAR. 2. TO HAVE AND TO HOLD unto said Lessee and to Lessee's successors and assigns for the term of seven (7) years from the date hereof and as much longer thereafter as oil or gas (or other minerals, if produced hereunder) are produced from said land. Provided that this lease shall not remain in force longer than fifty (50) years from this date, and provided, further, that a temporary cessation of production due to cleaning out, working over or drilling deeper of any well, or similar causes occuring after production secured, shall not terminate this lease. And lessor covenants that Lessor has good title to said land and will protect Lessee in the quiet and peaceable possession thereof.
PAR. 3. Lessee agrees to begin operations for the drilling of a well on the premises within twelve (12) months from the date hereof, or, failing so to do, Lessee agrees to pay in the manner below stated for each six (6) months' period for which such drilling is delayed, not to exceed eight (8) such periods, the sum of five hundred ($500.00) dollars such payment to be made on or before the beginning of each such period and shall be made by paying the same to the Lessor in person or to the Merchants & Planters Bank of Camden, Arkansas, or Lessee may mail Lessee's check to Lessor in said sum in care of said Bank, payable to Lessor, said Bank being hereby constituted Lessor's agent to receive said funds for Lessor or to receive and deliver said check to said Lessor, as the case may be; in either of the three methods of making such payment Lessee may use Lessee's check and the mailing of said check shall be deemed making payment; if Lessee shall fail to make such payment in advance as above provided, and such failure or defeat shall continue for thirty (30) days after the due date of such payment, Lessor shall have the right to forfeit this lease.
PAR. 4. In the case of change of ownership of the land herein leased, or some part thereof, whether by descent and partition, devise, conveyance or otherwise, the above designated Bank shall become the Trustee for all the owners to receive and distribute the rentals among them, and the payment of the rentals to such Bank shall prevent forfeiture of this lease. In case such Bank shall refuse to receive such payment, or shall go out of business, the Lessor or successors in interest, shall have the right to designate in writing some Bank as Trustee, and until such designation is made and Lessee notified in writing such rentals shall not be due and no forfeiture of this lease can be declared if such rental is paid within thirty (30) days after receipt of such notice by lessee.
PAR. 5. If while this lease is in force, as herein provided, Lessee shall have begun operations in attempt to find oil or gas, then without making any further payment, Lessee may continue such attempt, and may make as many attempts as Lessee pleases, but if Lessee shall abandon such attempts or ninety (90) days without finding oil or gas in paying quantities Lessee shall resume payment of the rentals falling due after the completion or abandonment of such well, at the next ensuing rental period beginning after such completion or abandonment provided Lessee shall have at least ninety (90) days from the date of such abandonment of operations in which to make such payment and on resuming payment of rentals Lessee shall have the right to continue making the same or of beginning operations for the drilling of a well and to alternate such rights.
PAR. 6. If operations shall not be begun on or before the expiration of five (5) years from this date, this lease shall wholly terminate, but if, prior to the termination of such five (5) years, Lessee shall have begun operations in attempt to find oil or gas and is engaged in such operations at the end of the five-year period, then Lessee shall have the right to continue such operations and also to make as many additional attempts to find oil or gas as Lessee desires beyond the expiration of said five year period; provided, however, that these attempts so extending such rights beyond such five years must be successive in the sense that, until oil or gas be found in paying quantities, not more than sixty (60) days shall elapse between the abandonment of work on one well and the beginning of operations on another, and provided further that this right to make attempts before the discovery of oil or gas, shall not continue in any event longer than seven (7) years from the date hereof.
PAR. 1. If oil shall be found on said premises Lessee shall deliver as royalty to Lessor, free of expense, one-eighth ( 1/8 ) part of the oil saved from that produced, after deducting such part as may be used for drilling and operating on the land and treating the oil or gas so as to make it merchantable; such delivery to be made either into tanks supplied by Lessor with connections by Lessor provided, or into any pipe line that may be connected with the well; or Lessee may, at Lessee's option, buy such royalty oil, paying the current market price in the field at the time of production. If lessee shall operate so as to save and utilize casinghead gas from said premises, then Lessee shall pay as royalty to Lessor one-eighth ( 1/8 ) part of the value of such gas, calculated at the rate of four (4) cents per one thousand (1,000) cubic feet of the casinghead gas, calculation as to quantity to be made on the basis of four (4) ounces pressure above atmospheric pressure at the temperature of sixty (60) degrees Fahrenheit, as royalty on such casinghead gas, and such royalty accruing in each six months (period beginning from the date hereof to be paid within thirty (30) days after expiration of such period. If any well on said premises produces gas in paying quantities and such gas is used or marketed off the premises by lessee then lessee shall pay as royalty to lessor one-eighth ( 1/8 ) part of the value of such gas so used, calculated at the rate of two (2) cents per one thousand cubic feet.
PAR. 2. If, as result of any explorations under this contract, any other minerals than oil or gas shall be found in quantities deemed by the lessee to be paying, then lessee shall have the optional right to mine for and produce the same, applying to the Lessor, what, under all the circumstances, may be a reasonable royalty.
PAR. 3. All money royalties may be paid to Lessor as provided in Paragraph 3 of Section 1 hereof. Should the interest owned by Lessor in said land prove to be less than the whole, the royalties and rentals to be paid hereunder shall be paid to the Lessor in proportion only that Lessor's interest is to the entire interest or whole.
PAR. 1. It is agreed that, without the valid written consent of both partie...
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