Crews v. Commissioner of Internal Revenue, 2197-2202.

• Decision Date: 03 June 1941
• Docket Number: No. 2197-2202.,2197-2202.
• Citation: 120 F.2d 749
• Parties: CREWS v. COMMISSIONER OF INTERNAL REVENUE and five other cases.
• Court: U.S. Court of Appeals — Tenth Circuit

120 F.2d 749 (1941)

CREWS v. COMMISSIONER OF INTERNAL REVENUE and five other cases.

Nos. 2197-2202.

Circuit Court of Appeals, Tenth Circuit.

June 3, 1941.

Albert L. McRill, of Oklahoma City, Okl. (M. F. Priebe, of Enid, Okl., on the brief), for petitioners.

Warren F. Wattles, Sp. Asst. to the Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key, Sp. Asst. to the Atty. Gen., on the brief), for respondent.

Before PHILLIPS, HUXMAN, and MURRAH, Circuit Judges.

PHILLIPS, Circuit Judge.

These cases have been before this court twice heretofore on petitions to review decisions of the Board of Tax Appeals.

On the first appeal, two questions were presented, (1) the proper amount of depletion allowance, and (2) whether certain funds and property embezzled from an escrow account were deductible as a loss. The latter question became immaterial, in view of our holding that such funds and property were never a part of the gross income received by the taxpayers. We held that the gross income received by the taxpayers for the year 1930 was the aggregate of three items, $849,544.37, $355,000, and the amount of certain royalties which, on remand, was stipulated to be $8,911.72. We concluded that the depletion allowance should be 27½ per cent of the aggregate of those three items, or 50 per cent of the net income of the taxpayers from the property, whichever amount was the lesser. We reversed and remanded the cases to the Board for further proceedings in accordance with our opinion. See Crews v. Commissioner, 10 Cir., 89 F.2d 412.

In the computation of the net taxable income on which the deficiencies were based, the Commissioner had deducted $173,000 expended for attorneys' fees, but had made no allowance for depletion. In its first decision, the Board, in arriving at the net income from the property for depletion purposes, deducted the $173,000 item and $387,982.80 expended for development or drilling costs. In computing the net taxable income, the Board in its first decision deducted the $173,000 item and also deducted a depletion allowance of $140,479.83.

On remand, after our first decision, the Board recomputed the net income from the property for depletion purposes. It eliminated as deductions in determining the net income from the property the $173,000 and the $387,982.80 items. It found that the true net income from the property for depletion purposes was $799,418.02, and that 50 per cent thereof was greater than 27½ per cent of the gross income from the property. It allowed a depletion allowance equal to 27½ per cent of the gross income from the property and directed that the tax liabilities be recomputed accordingly. From that decision the Commissioner appealed.

On the second appeal, the Commissioner contended that the development or drilling costs should be deducted in determining the net income from the property for depletion purposes. He made no contention with respect to the attorneys' fees item. In their briefs, the taxpayers contended, as an alternative, if the development or drilling costs were deducted in computing the net income from the property for depletion purposes, the $173,000 item should be deducted as a business expense for the purpose of determining the net taxable income. However, on oral argument of the cases, counsel for the taxpayers did not urge this contention and it was not considered or passed upon in our opinion. We held that the development or drilling costs should be deducted from the gross income in arriving at net income from the property for depletion purposes, and that the proper depletion allowance was $181,955.86, and remanded the cases with instructions to redetermine the tax liabilities in accordance with our opinion. See Commissioner v. Crews, 10 Cir., 108 F.2d 712. The...