Dingman v. United States, 19893.

Decision Date21 July 1970
Docket NumberNo. 19893.,19893.
Citation429 F.2d 70
PartiesAloyius T. and Gladys DINGMAN, Appellees, v. UNITED STATES of America, Appellant.
CourtU.S. Court of Appeals — Eighth Circuit

David E. Carmack, Atty., Dept. of Justice, Washington, D. C., for appellant, and filed brief; Johnnie M. Walters, Asst. Atty. Gen., and Lee A. Jackson and Grant W. Wiprud, Attys., Washington, D. C., and Robert G. Renner, U. S. Atty., Minneapolis, Minn., and Joseph T. Walbran, Asst. U. S. Atty., were on the brief with Mr. Carmack.

Dennis M. Mathisen, of Lindquist & Vennum, Minneapolis, Minn., for appellee, and filed brief; David E. Krause, Minneapolis, Minn., was on the brief with Mr. Mathisen.

Before MATTHES, Chief Judge, and LAY and HEANEY, Circuit Judges.

HEANEY, Circuit Judge.

The government appeals from the decision of the District Court granting the taxpayers' request for a tax refund. The issue posed is a narrow and often litigated one: Whether payments received for fill taken from the taxpayers' land should be treated as capital gains or as ordinary income subject to depletion allowances.

In 1943, the taxpayers purchased a 145-acre tract of land upon which they constructed and operated a riding stable. In 1964, the State of Minnesota condemned a five-acre strip of that tract for the purpose of constructing a section of Highway 47. The Barton Contracting Company, the highway contractor, contacted the taxpayers with respect to the acquisition of fill to raise the grade of the highway. The taxpayers were willing to sell fill to Barton but wanted to ensure that the removal of fill would not damage the marketability of the property for use as industrial building sites.

After negotiation, an agreement was reached whereby: (1) The Caswell Engineering Company was to be employed to determine the amount and location of fill available for removal. (2) Barton was to remove 300,000 cubic yards of fill, if that amount of fill was available, provided that no materials were to be removed without Caswell's approval. (3) Barton was to pay Caswell's fees and costs if it took less than 200,000 cubic yards of fill or if less than that amount of fill was available to take. The taxpayers agreed to pay these costs if more than 200,000 cubic yards of fill was taken. (4) Barton was to pay the initial survey costs of the engineering company if less than 100,000 cubic yards of fill was found to be removable. (5) Barton was to have the right to remove the fill until Highway 47 was completed for a mile on either side of the taxpayers' property. (6) Barton was to pay the taxpayers at the rate of $0.15 per cubic yard of fill removed. The quantity removed was to be determined by the Minnesota Highway Department and payments to the taxpayers were to be in accordance with payments from the Highway Department to Barton.

Shortly after the contract was entered into, a letter of agreement was sent by the taxpayers' attorneys and was signed by Barton. In substance, the letter: (1) clarified the fact that payment for the materials purchased in no way depended upon payment by the State Highway Department although their determinations would, as a matter of convenience, control the amount and timing of payment from Barton to the taxpayers; (2) indicated that the contract called for a minimum purchase of 300,000 cubic yards of fill, if available, and then increased that minimum to 400,000 cubic yards, if available; and (3) reiterated the taxpayers' concern with preparing the property for possible sale.

On their 1965 income tax return, the taxpayers reported $30,300 of income as "sale of farm soil in place" and treated the sum as a capital gain. Upon audit of the return, the Commissioner of Internal Revenue determined that the payments should have been treated as ordinary income, thus increasing the taxpayers' liability by $4,005.33. Thereafter, the Commissioner assessed a tax and interest deficiency against the taxpayers of $4,332.34. The taxpayers paid the deficiency, filed their claim for refund and, after six months, brought this action for recovery of taxes.

The District Court held for the taxpayers stating:

"By the Agreement Barton was obligated to take all the fill on Dingman\'s property which could be removed without lowering the value of the property as a building site, up to 400,000 cubic yards. Barton was also obligated to pay Dingman fifteen cents per cubic yard. The Agreement was, in effect, a sale of all the fill available on Dingmans property, not a lease of mining or extraction rights. Barton was obligated to pay for all the fill available on the land, even though the exact amount available would not be determined until after the contract was signed and the engineering survey made."

It is clear, and the parties so concede, that this case is controlled by the "economic interest" test. The "economic interest" test provides that payments received for minerals are ordinary income subject to depletion allowance if the taxpayer (1) has acquired by investment any interest in the natural deposit, and (2) looks to the extraction of the mineral for the return of his capital. Commissioner of Internal Revenue v. Southwest Explor. Co., 350 U.S. 308, 76 S.Ct. 395, 100 L.Ed. 347 (1956); Palmer v. Bender, 287 U.S. 551, 53 S.Ct. 225, 77 L.Ed. 489 (1933); Burnet v. Harmel, 287 U.S. 103, 53 S.Ct. 74, 77 L.Ed. 199 (1932); Rabiner v. Bacon, 373 F.2d 537 (8th Cir. 1967). Only the second aspect of this test is relevant to our determination.

We start with the premise that in reviewing the lower court's interpretation of the contract between the...

To continue reading

Request your trial
12 cases
  • Pleasanton Gravel Co. v. Comm'r of Internal Revenue
    • United States
    • U.S. Tax Court
    • June 30, 1975
    ...Gitzinger v. United States, 404 F.2d 191, 193 (6th Cir.); Schreiber v. United States, 382 F.2d 553, 554 (7th Cir.); Dingman v. United States, 429 F.2d 70, 72 (8th Cir.); Samuel L. Green, 35 T.C. 1065. Where, as here, it is not disputed that petitioner acquired an interest in the deposits th......
  • Lesher v. Comm'r of Internal Revenue
    • United States
    • U.S. Tax Court
    • November 26, 1979
    ...deposits other than oil. E.g., Hartman Tobacco Co. v. United States, 471 F.2d 1327 (2d Cir. 1973) (sand and gravel); Dingman v. United States, 429 F.2d 70 (8th Cir. 1970) (sand and gravel); Laudenslager v. Commissioner, 305 F.2d 686 (3d Cir. 1962), affg. a Memorandum Opinion of this Court (......
  • Estate of Walker v. CIR
    • United States
    • U.S. Court of Appeals — Third Circuit
    • July 12, 1972
    ...so conditioned capital gain accrues, Richard L. Ellis, 56 T.C. 1079 (1971); otherwise, ordinary income is generated. Dingman v. United States, 429 F.2d 70 (8th Cir. 1970); Laudenslager v. Commissioner of Internal Revenue, 305 F.2d 686 (3d Cir. Where the parties differ in this case is in the......
  • Frito-Lay, Inc. v. So Good Potato Chip Co.
    • United States
    • U.S. Court of Appeals — Eighth Circuit
    • September 3, 1976
    ...F.2d 738, 740 (8th Cir. 1973); Motor Carriers Council v. Local Union No. 600, 486 F.2d 650, 653 (8th Cir. 1973); Dingman v. United States, 429 F.2d 70, 72 (8th Cir. 1970). Second, the same exhibits (the disputed packages) are before this Court as were before the District Court. The trial ju......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT