Muldavin v. Commissioner, Docket No. 152-92.
| Decision Date | 01 December 1997 |
| Docket Number | Docket No. 153-92.,Docket No. 23660-92.,Docket No. 23624-92.,Docket No. 152-92. |
| Citation | 74 T.C.M. 1279 |
| Parties | Roger Muldavin, et al.<SMALL><SUP>1</SUP></SMALL> v. Commissioner. |
| Court | U.S. Tax Court |
Roger Muldavin, pro se. Lynn M. Brimer, for the respondent.
Respondent determined deficiencies in and additions to Federal income taxes as follows:
This case was submitted by the parties fully stipulated under Rule 122.2 The stipulation of facts and attached exhibits are incorporated herein by this reference. The submission was accompanied by a stipulation of settled issues and by an explanation by the parties that the sole issue for decision, with the possible exception, according to petitioners, of jurisdictional matters, is whether petitioners are entitled to an oil depletion allowance in excess of 15 percent of their reported royalty income.
Petitioners are husband and wife. They resided in Arcadia, Michigan, at the time the petitions herein were filed. They filed their Federal income tax returns at the Covington, Kentucky, Service Center.
Prior to petitioners' marriage, Jean Muldavin (Mrs. Muldavin) owned in fee simple a piece of property in Manistee County, Michigan (the property). On June 19, 1968, she entered into an oil and gas lease with J. L. Orr, whereby Orr as lessee had the exclusive right to produce oil on the property in exchange for which:
The lessee shall deliver to the credit of the lessor as royalty, free of cost, in the pipe line to which lessee may connect its wells the equal one-eighth part of all oil produced and saved from the leased premises, or at the lessee's option, may pay to the lessor for such one-eighth royalty the market price for oil of like grade and gravity prevailing on the day such oil is run into the pipe line, or into storage tanks.
Subsequent to petitioners' marriage, Mrs. Muldavin transferred her interest in the property to Roger and Jean Muldavin as husband and wife. At some point, Shell Oil Company (Shell) became the successor in interest of J. L. Orr. On June 26, 1975, petitioners' fractional interest in the oil produced and saved from the property was 79.39/80.00 of one-eighth royalty interest (or 0.1240468 in decimal).
During the years at issue, petitioners received and reported on their tax returns gross royalty income from the well identified as Muldavin 2-13 in the following amounts:
Year Amount
1985 ..................... $598,561
1986 ..................... 419,957
1987 ..................... 287,085
1988 ..................... 169,347
1989 ..................... 157,944
In respondent's determinations, the foregoing amounts were reduced to take into account windfall profit taxes, depletion allowance at 15 percent, legal fees, and State severance taxes.
In order to enable us better to focus on the question of the proper depletion allowance, we first address the following other issues raised by petitioners:
(1) They contend that our jurisdiction is defective because respondent lacked authority to issue the deficiency notices involved herein. Those assertions are similar to those raised by tax protesters which have been uniformly rejected by cases too numerous to cite. They are totally without merit.
(2) They assert that three of the deficiency notices are untimely. This contention is directly contrary to the stipulation of settled issues and, accordingly, is rejected.
(3) They seek to have us reopen years prior to 1985 in order to give petitioners the benefit for those years of what they claim is more favorable treatment in the stipulation of settled issues for the years before us. We reject this attempt for the simple reason that, in the apparent absence of any pending deficiency notices and petitions for the earlier years, we are without jurisdiction to deal with petitioners' assertions. We note in passing that it would appear that the period of limitations has long since expired in respect of any overpayments of taxes for those earlier years.
(4) They seek to have us deal with levies and liens in respect of matters not involved in this proceeding and apparently relating to the windfall profit excise taxes for other years, in particular 1980. Here again, we are without jurisdiction in respect of any such levies or liens. Beyond this, we have no jurisdiction in respect of a year not before us3 or in respect of windfall profit taxes which are apparently not subject to an existing separate notice of deficiency. See Logan v. Commissioner [Dec. 43,117], 86 T.C. 1222, 1225-1230 (1986). In this connection, we note that petitioners have offered no explanation which would indicate how any windfall profit taxes for earlier years would affect our determination of the taxes owed in respect of the years before us.
(5) They appear to be asking us to decide that they should not be considered in the category of producer for purposes of the windfall profit tax; that issue has previously been decided against them for the years 1980 through 1984 based upon the same documents relating to their arrangement with Shell as are involved herein. Muldavin v. Commissioner [Dec. 47,651(M)], T.C. Memo. 1991-481, affd. without published opinion 977 F.2d 582 (6th Cir. 1992). As far as we can determine, there were no changes between facts or law applicable to that case and those applicable herein with the result that petitioners would be collaterally estopped from relitigating the "producer" issue even if it were assumed to be within our jurisdiction. Commissioner v. Sunnen [48-1 USTC ¶ 9230], 333 U.S. 591 (1948).
(6) They devote a considerable portion of their brief to asserting that there are facts relating to the windfall profit taxes paid by Shell which need to be established in order to determine the correct amounts attributable to petitioners. To the extent that petitioners may be questioning only the amounts allowed by respondent for such taxes in the years before us, separately from the depletion allowance, we note that no reference to this point was made in the submission of this case fully stipulated. Such submission precludes the use of further evidence by a party absent the consent of the other party and/or an appropriate order of the Court. Rule 143(b). The fact that the case was submitted fully stipulated does not relieve petitioners of their burden of proof as to facts necessary to sustain their position. See Meunier v. Commissioner [Dec. 47,611(M)], T.C. Memo. 1991-446. While the full impact of petitioners' assertions is not easily determined, we are satisfied that there are no extraordinary circumstances which would justify our reopening this fully stipulated case and ordering a trial.
To the extent that the facts and arguments which petitioners set forth are directed toward obtaining a decision from us that Shell withheld too large a portion of windfall profit taxes in respect of their share of the oil production, we simply have no jurisdiction to resolve this apparent dispute with Shell.
(7) They seek damages for alleged errors by respondent in the handling of their tax matters. The simple answer to this contention is that we are without jurisdiction to consider their requests.
We now turn to an analysis of the issue as to whether petitioners are entitled to a depletion allowance in excess of 15 percent of their gross royalty income.
As we see it, there are two prongs to petitioners' position. First, they contend that, as owners of the land, they are entitled to the entire percentage depletion allowance given that Shell as an integrated oil producer is not entitled to such an allowance. Second, they contend that their percentage depletion allowance should be calculated on the basis of the "market price"4 as provided in section 1.613-3(a), Income Tax Regs. For reasons hereinafter set forth, we reject both contentions.
Section 611(a) provides for a reasonable allowance for depletion in the case of oil wells. Section 611(b) provides that "In the case of a lease, the deduction under this section shall be equitably apportioned between the lessor and lessee." With exceptions not applicable to petitioners, the depletion allowance for oil wells is, with respect to a limited quantity of the taxpayer's average daily production of oil, 15 percent "of the gross income from the property excluding from such gross income an amount equal to any rents or royalties paid or incurred by the taxpayer in respect of the property". Secs. 613(a), 613A(c)(1).
It has long been decided that the "gross...
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