Lucas v. Extension Oil Co.

• Decision Date: 18 February 1931
• Docket Number: No. 5936.,5936.
• Citation: 47 F.2d 65
• Parties: LUCAS, Commissioner of Internal Revenue, v. EXTENSION OIL CO.
• Court: U.S. Court of Appeals — Fifth Circuit

47 F.2d 65 (1931)

LUCAS, Commissioner of Internal Revenue, v. EXTENSION OIL CO.

No. 5936.

Circuit Court of Appeals, Fifth Circuit.

February 18, 1931.

G. A. Youngquist, Asst. Atty. Gen., J. Louis Monarch and A. H. Conner, Sp. Assts. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Percy S. Crewe, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for petitioner.

J. M. McMillin, of Dallas, Tex., for respondent.

Before BRYAN and FOSTER, Circuit Judges, and HUTCHESON, District Judge.

HUTCHESON, District Judge.

The Extension Oil Company, a name under which certain tracts of land had been trusteed, drilled upon for oil, sold, and the proceeds from the drilling and sale of which had been distributed within the year to the unitholders under a declaration of trust, having through its trustees made a fiduciary return of income for the year 1922, such return was by the Commissioner disallowed on the ground that it was an association, and that it should file its return and be taxed as a corporation.

Upon appeal the Board of Tax Appeals, finding and declaring that the Extension Oil Company was not "an association," but a taxable trust, and that it had properly made a fiduciary return, reversed the Commissioner.

This ruling the United States seeks to review, presenting the single question, "Was the taxpayer a trust, and taxable as such, or was it an association, taxable as a corporation, within the meaning of the Revenue Act of 1921, which contains the provision for the taxation of both trusts and corporations, taxes corporations which are `doing business' as such, and provides (Revenue Act 1921, 42 Stat. 227, c. 136, § 2): `The term "corporation" includes associations, joint-stock companies, and insurance companies'?"

It is at once evident that this is one of those cases where "As long as the matter to be considered is debated in artificial terms there is a danger of being led by a technical definition to apply a certain name, and then to deduce consequences which have no relation to the grounds on which the name was applied." Guy v. Donald, 203 U. S. 406, 27 S. Ct. 63, 64, 51 L. Ed. 245, and that its correct decision will depend upon a complete apprehension and recognition of the realities of the case, through an appreciation and understanding of the facts which make it up; and that this is so both as to the question of whether the particular taxpayer is an association, or a trust, and whether it is doing business, a review of the many decisions in the Supreme and inferior courts will show.

Relating to the question of doing business may be consulted, Flint v. Stone Tracy Co., 220 U. S. 107, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312; Zonne v. Minneapolis, 220 U. S. 187, 31 S. Ct. 361, 55 L. Ed. 428; McCoach v. Minehill Ry. Co., 228 U. S. 295, 33 S. Ct. 419, 57 L. Ed. 842; United States v. Emery, 237 U. S. 28, 35 S. Ct. 499, 59 L. Ed. 825; Von Baumbach v. Sargent Land Co., 242 U. S. 503, 37 S. Ct. 201, 61 L. Ed. 460; Edwards v. Chile Copper Co., 270 U. S. 452, 46 S. Ct. 345, 70 L. Ed. 678. And to the question of association or trust, Crocker v. Malley, 249 U. S. 223, 39 S. Ct. 270, 63 L. Ed. 573, 2 A. L. R. 1601; Hecht v. Malley, 265 U. S. 144, 44 S. Ct. 462, 68 L. Ed. 949; Burk Waggoner v. Hopkins, 269 U. S. 110, 46 S. Ct. 48, 70 L. Ed. 183. See, also, Hemphill v. Orloff, 277 U. S. 537, 48 S. Ct. 577, 72 L. Ed. 978. While cases discussing both features are White v. Hornblower (C. C. A.) 27 F.(2d) 777; Neal v. U. S. (D. C.) 26 F.(2d) 708; Id. (C. C. A.) 28 F.(2d) 1022; Little Four Oil & Gas Co. v. Lewellyn (C. C. A.) 35 F.(2d) 149; Harmar Coal Company v. Heiner (C. C. A.) 34 F.(2d) 725, 726; Nunnally Inv. Co. v. Rose (D. C.) 14 F.(2d) 189; Burk-Waggoner v. Hopkins, 269 U. S. 110, 46 S. Ct. 48, 70 L. Ed. 183.

Beyond the general statement that "the word `association' appears to be used in the act in its ordinary meaning. It has been defined as a term used throughout the United States to signify a body of persons united without a charter, but upon the methods and forms used by incorporated bodies for the prosecution of some common enterprise," Hecht v. Malley, 265 U. S. 144, 44 S. Ct. 462, 68 L. Ed. 949, none of these cases attempt any generalized effort at more complete definition. Each of these cases grounds its result upon the controlling facts, and makes it clear that reality, and not fiction, must in each case determine whether the tax is or is not properly laid.

The facts, stripped of all nonessentials, and simply stated, are:

Five men, owning an oil and gas lease which was about to lapse unless drilled, in order to realize on the property trusteed the land in the name of the Extension Oil Company, and in the declaration of trust they named four of the five as truste...