COMMISSIONER OF INT. REVENUE v. Brier Hill Collieries, 5634

• Decision Date: 09 June 1931
• Docket Number: 5651.,No. 5634,5634
• Citation: 50 F.2d 777
• Parties: COMMISSIONER OF INTERNAL REVENUE v. BRIER HILL COLLIERIES. BRIER HILL COLLIERIES v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Sixth Circuit

50 F.2d 777 (1931)

COMMISSIONER OF INTERNAL REVENUE v. BRIER HILL COLLIERIES.

BRIER HILL COLLIERIES v. COMMISSIONER OF INTERNAL REVENUE.

Nos. 5634, 5651.

Circuit Court of Appeals, Sixth Circuit.

June 9, 1931.

Andrew D. Sharpe, of Washington, D. C. (G. A. Youngquist, Atty. Gen., and Sewall Key, C. M. Charest, and Frank M. Thompson, all of Washington, D. C., on the brief), for Commissioner of Internal Revenue.

Frank F. Nesbit, of Washington, D. C., for Brier Hill Collieries.

Sidney P. Simpson, of New York City, amicus curiæ.

Before MOORMAN, HICKS, and HICKENLOOPER, Circuit Judges.

MOORMAN, Circuit Judge.

These cases involve income and profit taxes of the Brier Hill Collieries, which owns and operates coal mines in Overton county, Tenn. In No. 5634 the Commissioner seeks a review of the decision of the Board of Tax Appeals allowing capital depletion at the rate of 10 cents per ton of coal mined. No. 5651 is an appeal by the taxpayer from the decision of the Board (1) excluding from invested capital a part of the property paid in to the taxpayer in exchange for its capital stock, and (2) holding that amounts expended for steel rails, mine cars, switches, and trolley wires for the mines were not deductible as operating expenses.

In case 5634, the Commissioner allowed depletion for the years 1918 to 1923, inclusive, at the rate of 3.1 cents per ton of coal mined. The Board of Tax Appeals concluded "from all the evidence submitted" that the rate should be 10 cents per ton of coal mined. The Commissioner contends that this conclusion of the Board is not supported by the evidence. Both parties agree that the capital value is to be determined as of March 1, 1913. The main witness as to value as of that date was C. D. Clark, an engineer of wide experience in appraising values of coal properties, who testified that some of the properties in the section where this property was situated were leased in 1913 for more than 10 cents per ton royalty and others in 1920 for 20 cents a ton and higher. The acreage here in question had been partially developed on March 1, 1913; spur tracks had been built; and the coal was above the average in value. Clark thought that the property could have been leased at that time upon a royalty basis of 15 cents or 20 cents a ton. Other evidence fixed as nearly as possible the tonnage then in the property, as well as the probable length of time that it would require, under normal operations, to exhaust it.

It is of course true that the probable rental rate as of March 1, 1913, is not the measure of the depletion rate for subsequent years, since, even if the mines had been leased, the value of the coal in place would have to be arrived at by reducing the royalties to be received to their worth as of the basic date. Reineke v. Spalding, 280 U. S. 227, 50 S. Ct. 96, 74 L. Ed. 385. Lacking evidence of saleable value, the royalty rates at which the property could have been leased afford perhaps the most dependable basis for determining capital value. There is nothing in the record to indicate that the rates testified to by Clark were too high, and the Commissioner does not attack the decision of the Board upon the ground that there was error in reducing them to their value as of March 1, 1913. Whether the Board used them as the basis of its decision does not appear, but, in the absence of a showing that they were incorrect, the Board was justified in discounting them to the basic date and determining the value accordingly. Assuming that it did so, we find no reason for disturbing its finding.

Case No. 5651 involves taxes for 1918, 1919, and 1920. For each of those years the Commissioner and Board disallowed an item of $50,319.93 claimed by the taxpayer as a part of its invested capital. The claim was based on the following facts: The taxpayer was organized in 1904, and in October of that year issued its capital stock in exchange for the assets of the Crawford Coal & Iron Company, assuming its debts and liabilities. The assets of the Crawford Company consisted of coal and timber lands and also certain personal property used at its mines. The personal property, as carried on the books of the Crawford Company, exceeded the liabilities of that company by more than $50,000. In taking over the property, the taxpayer credited this excess to capital on its books. The Board disallowed it as a capital item. We reach a different conclusion. The Board has frequently held that the balance sheets of predecessor and successor corporations are evidence of asset values. Fidelity Storage & Warehouse Co., 2 B. T. A. 371; Munising Motor Co., 1 B. T. A. 286; Northeastern Oil & Gas Co., 5 B. T. A. 332. Not only did the books of the Crawford Company show these values, but the same items at the same...