Maytag v. Comm'r of Internal Revenue
| Decision Date | 30 April 1959 |
| Docket Number | Docket No. 69521. |
| Citation | 32 T.C. 270 |
| Parties | L. B. MAYTAG, AND ESTATE OF CATHERINE B. MAYTAG, DECEASED, LEWIS B. MAYTAG AND THE FIRST NATIONAL BANK OF COLORADO SPRINGS, COLORADO, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
William A. McDonald, C.P.A., for the petitioners.
William J. McNamara, Esq., for the respondent
1. In 1947, petitioners paid a lump sum of $5,000 for an undivided one-half interest in 2 oil and gas leases known as ‘Ownbey’ and ‘Colorado,‘ and 3 Federal oil and gas leases to be acquired from the United States Government, for which application was then pending. At the time of acquisition, all of said leaseholds were contiguous, covering a tract of approximately 6,715 acres in Park County, Colorado, and formed a continuous boundary. In 1950, petitioners surrendered their interest in the Colorado and 2 of the Federal leases; and in 1951, they canceled their interest in the Ownbey lease. The remaining Federal lease, containing 876.8 acres, was canceled February 1, 1953. Petitioners never allocated their aggregate cost to the respective leases on any basis. Prior to and including the taxable year 1953, petitioners did not claim any deduction on their Federal income tax returns with respect to the loss sustained when the underlying leases were surrendered or allowed to lapse. In their petition, for the first time, they claimed a loss in the full amount of $5,000 for the year 1953, alleging that the 5 leases constituted a ‘single property’ for loss deduction purposes under section 23(e)(2) of the 1939 Code. Held, that losses were deductible in the respective years in which the leases were canceled.
Allocation of cost of lease canceled in 1953, and loss deductible in 1953 in relation thereto, determined.
2. During 1953, petitioners, nondealers in securities and real estate, paid a total of.$347.40 in Federal documentary stamp taxes, part of which was applicable to sales of dividend-paying corporate stock and part to the sale of real estate held for rental purposes. During 1954, petitioners also paid the amount of $916.50 in stamp taxes in connection with the sale of dividend-paying corporate stock. Said amounts were deducted as business expenses in petitioners' 1953 and 1954 returns, respectively. Held, that the amounts expended for stamp taxes are selling charges or offsets against the selling price of the aforesaid capital assets, and are not deductible from gross income under sections 23(c)(1)(F) and 164(b)(3) of the 1939 and 1954 Codes, respectively.
This proceeding involves deficiencies in income tax determined against petitioners as follows:
+----------------+
¦Year ¦Amount ¦
+------+---------¦
¦1953 ¦$145.92 ¦
+------+---------¦
¦1954 ¦11.32 ¦
+----------------+
Petitioners claim overpayments in income tax in amounts as follows:
+-----------------+
¦Year ¦Amount ¦
+------+----------¦
¦1953 ¦$2,908.92 ¦
+------+----------¦
¦1954 ¦82.80 ¦
+-----------------+
The principal issues presented for our decision herein are (1) whether petitioners incurred a deductible loss in the amount of $5,000, or any portion thereof, during the taxable year 1953 upon the abandonment of an oil and gas lease; and (2) whether petitioners, nondealers in securities and real estate, may deduct the amounts of.$347.40 and $916.50, representing the cost of Federal documentary stamp taxes paid in the taxable years 1953 and 1954, respectively, in connection with the sale of rental property and corporate stocks, as ordinary and necessary business or nonbusiness expenses under sections 23(c)(1) (F), Code of 1939, and 164(b)(3), Code of 1954.
Some of the facts are stipulated and, as stipulated, are incorporated herein by this reference.
Petitioners are an individual and the estate of his deceased, wife, Catherine B. Maytag. During the taxable years 1953 and 1954, petitioners resided at Broadmoor, Colorado Springs, Colorado. They filed joint income tax returns for those years on a cash basis with the director of internal revenue for the district of Colorado. Catherine B. Maytag died in August 1954.
For simplicity, Catherine B. Maytag, rather than her estate, will be referred to as a petitioner, and she and her husband will hereinafter be called petitioners.
L. B. Maytag is a retired manufacturer who is not presently engaged in any business activities on a full time basis. He is a director of several corporations, has some ranch and real estate holdings, and has participated in several oil ventures.
In June 1947, petitioners, through James L. Taylor, paid a lump sum amount of $5,000 for an undivided one-half interest in 2 oil and gas leases, known as the ‘Ownbey’ and ‘Colorado,‘ and assignments of 3 Federal oil and gas leases to be acquired from the United States of America through the Bureau of Land Management, Department of Interior. All of said property was located in Park County, Colorado. At the time of acquisition of the interests in said leases by petitioners, the tracts covered by said leases consisted of a total of approximately 6,715 acres which were contiguous and formed a continuous boundary.
The first of the leases (an interest in which was assigned to petitioners in 1947), hereinafter called the Ownbey lease, was entered into on May 3, 1946, by and between John L. and Irene Ownbey, as lessors, and R. W. Kramer, as lessee. The Ownbey lease covered approximately 3,200 acres of land, and ran for a primary term of 5 years.
On May 14, 1946, R. W. Kramer assigned approximately 1,280 acres of property included in the Ownbey lease to C. C. Rasmussen. On June 13, 1947, C. C. Rasmussen, ‘in consideration of One Dollar (and other good and valuable considerations),‘ assigned all of his right, title, and interest in the 1,280 acres of property included in the Ownbey lease to the petitioners. Petitioners made all payments by check to C. C. Rasmussen but all dealings were made directly with Taylor. On May 28, 1951, petitioners surrendered all of their interest in the 1,280 acres of property included in the Ownbey lease to John L. and Irene Ownbey.
The second of the leases assigned to petitioners in June 1947, hereinafter called the Colorado lease, was entered into on May 1, 1946, by and between the State of Colorado, as lessor, and C. C. Rasmussen, as lessee. The lease covered approximately 2,240 acres of land and ran for a primary term of 5 years.
On June 11, 1947, Rasmussen assigned all of his right, title, and interest in the Colorado lease to petitioners. In 1950, the Colorado lease was allowed to lapse for nonpayment of rental due November 1, 1950.
On February 1, 1948, Clifford L. Feldt, as lessee, entered into a lease agreement with the United States of America as lessor, through the Bureau of Land Management, Department of Interior, under which the lessee obtained the exclusive right and privilege for a period of 5 years to drill for and extract oil and gas deposits on approximately 876.8 acres of land situated in Park County, Colorado. On February 1, 1953, said lease, D-053968, was canceled for nonpayment of rental for the year commencing February 1, 1953.
Likewise, on February 1, 1948, Rasmussen, as lessee, entered into a lease agreement with the United States of America, as lessor, which contained substantially the same provisions as lease D-053968, under which the lessee obtained the exclusive right and privilege to drill for extract oil and gas deposits on approximately 2,240 acres of land situated in Park County, Colorado. On December 27, 1950, said lease, D-053969, was canceled for nonpayment of rental for the year commencing February 1, 1951.
Also, on February 1, 1948, Rasmussen, as lessee, entered into a lease agreement with the United States of America, as lessor, which contained substantially the same provisions as lease D-053968, under which the lessee obtained the exclusive right and privilege to drill for and extract oil and gas deposits on approximately 78.44 acres of land situated in Park County, Colorado. On December 27, 1950, said lease, D-054041, was canceled for nonpayment of rental for the year commencing February 1, 1951.
Petitioners executed no written cross-assignments of any portion of their interest in the Ownbey and Colorado leases. Feldt and Rasmussen executed no written assignments or cross-assignments of any portion of their respective interests in Federal leases D-053968, D-053969, and D-054041. No agreements of the kind known in the oil and gas industry as unitization agreements were entered into by petitioners with respect to development of the Ownbey and Colorado leases nor the Federal oil and gas leases.
From the beginning of the transaction whereby the 5 leases were acquired by petitioners and Taylor, they had a verbal understanding that they would share in the profits on a 50-50 basis of any oil that might be discovered under the entire tract which covered approximately 6,715.24 acres.
Petitioners never allocated their aggregate cost to the 5 leases on any basis. There was never any drilling done on any part of said acreage by petitioners or Taylor.
During the years 1947 to 1951, inclusive, when one-half of the delay rental became due on the Ownbey, Colorado, and Federal Government leases, the amounts due were paid by petitioners as follows:
+----------------------------------------------------+
¦Year ¦Ownbey and Colorado leases ¦Federal leases ¦
+------+----------------------------+----------------¦
¦1947 ¦$140 ¦ ¦
+------+----------------------------+----------------¦
¦1948 ¦600 ¦ ¦
+------+----------------------------+----------------¦
¦1949 ¦600 ¦ ¦
+------+----------------------------+----------------¦
¦1950 ¦460 ¦$110.00 ¦
+------+----------------------------+----------------¦
¦1951 ¦...To continue reading
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