Commissioner of Internal Revenue v. Alta Mines

• Decision Date: 24 December 1943
• Docket Number: No. 2769.,2769.
• Citation: 139 F.2d 580
• Parties: COMMISSIONER OF INTERNAL REVENUE v. ALTA MINES, Inc.
• Court: U.S. Court of Appeals — Tenth Circuit

139 F.2d 580 (1943)

COMMISSIONER OF INTERNAL REVENUE v. ALTA MINES, Inc.

No. 2769.

Circuit Court of Appeals, Tenth Circuit.

December 24, 1943.

Carlton Fox, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key and Samuel H. Levy, Sp. Assts. to Atty. Gen., on the brief), for petitioner.

Carl J. Sigfrid, of Denver, Colo., for respondent.

Before PHILLIPS, BRATTON, and MURRAH, Circuit Judges.

BRATTON, Circuit Judge.

The question is whether under section 114(b) (4), Title 26, Internal Revenue Code 1940 ed., 26 U.S.C.A. Int.Rev.Code, § 114(b) (4), the deduction of respondent for depletion for the fiscal year ended March 31, 1940, should have been computed on the basis of cost or percentage.

The statute provides that in the case of metal mines the taxpayer making his first return under the chapter "in respect of a property" shall state whether he elects to have his allowance for depletion computed with or without regard to percentage depletion; that the allowance shall be computed according to the election thus made; that in the event the taxpayer fails to make such statement in the return, the allowance shall be computed without reference to percentage; that the method of computation, once determined in that manner, shall be applied in the case of the property for all taxable years in which it is in the hands of the taxpayer, or of any other person if the basis of such property in his hands for purposes of determining gain is the same as that of the taxpayer; and that such right of election shall be considered as a continuation of like provisions contained in earlier revenue acts. And section 19.23(m)-5, Treasury Regulations 103, promulgated under the Internal Revenue Code, provides that for the purpose of the statute, the taxpayer's first return "in respect of a property" is the return for the first taxable year for which he has any item of income or deduction with respect to such property.

Respondent was incorporated in July, 1936; it is engaged in the business of mining and concentrating gold, silver, and other metals; its accounting period ends on March 31st of each year; and its books of account are kept on an accrual basis. Its first return was for the fiscal year ended March 31, 1937, and was filed on May 18, 1938. It failed to show any items of gross income or deductions and did not contain any statement of election concerning the method of computing the allowance for depletion. An affidavit was attached to the return, stating that respondent did not carry on any operations except the construction of mill buildings and mine development work prior to March 31, 1937, that it had no income, and that for such reason no return was filed. A return was seasonably filed for the fiscal year ended March 31, 1938. It recited that it covered the first period of operation of the properties and contained the statement that respondent elected to have its depletion allowance computed on the percentage basis. Depletion for that fiscal year was recorded on the books of respondent; it was not deducted in the return since the return showed a net loss; but the balance sheet as of the end of the year reflected the deduction. In the return for the fiscal year ended March 31, 1939, a deduction for depletion was claimed but the method used in computing it was not disclosed. And in the return for the fiscal year ended March 31, 1940, a deduction for depletion was claimed, based on cost. The Commissioner of Internal Revenue allowed a deduction, computed on the basis of percentage of adjusted gross income, and a deficiency resulted. On redetermination, the Tax Court sustained respondent; and the Commissioner sought review.

The deduction for depletion in the case of metal mines is allowed as a matter of legislative grace, and a taxpayer seeking to invoke the provisions of the statute authorizing it must bring himself within the provisions of the statute. New Colonial Co. v. Helvering, 292 U.S. 435, 54 S.Ct. 788, 78 L.Ed. 1348; White v. United States, 305 U.S. 281, 59 S.Ct. 179, 83 L.Ed. 172; Deputy v. Du Pont, 308 U.S. 488, 60 S.Ct. 363, 84 L.Ed. 416; Helvering v. Northwest Steel Mills, 311 U.S. 46, 61 S.Ct. 109, 85 L.Ed. 29; Helvering v. Ohio Leather Co., 317 U.S. 102, 63 S.Ct. 103.

Section 114(b) (4), supra, gives to a taxpayer engaged in the business of mining metals the...