New Creek Co. v. Lederer
| Decision Date | 26 March 1923 |
| Docket Number | 8468. |
| Citation | 288 F. 99 |
| Parties | NEW CREEK CO. v. LEDERER, Collector of Internal Revenue. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
At Law. Action by the New Creek Company against Ephraim Lederer Collector of Internal Revenue. On case stated. Judgment for defendant.
Internal revenue 7-- Income tax; deduction for depletion in case of mine.
Income Tax Act 1916, Sec. 12, as amended (Comp. St. 1918, Sec 6336l), allows a deduction in case of mines of a reasonable allowance for depletion, not to exceed the market value in the mine of the product thereof which has been mined and sold during the year, under rules prescribed by the Secretary of the Treasury, provided that, if the mine was owned prior to March 1, 1913, when the allowance shall equal its fair market value on that date no further allowance shall be made. Held that regulation No. 172, which in case of a coal mine owned by the taxpayer prior to March 1, 1913, fixes the allowance per ton by dividing the fair market value of the mine on that date by the estimated number of tons in place on that date is reasonable and valid, and that it applies to royalties received by an owner who leases his mine for operation by the lessee.
Evans, Bayard & Frick, of Philadelphia, Pa., for plaintiff.
George W. Coles, U.S. Dist. Atty., of Philadelphia, Pa., and J. Paul MacElree, Asst. U.S. Dist. Atty., of Westchester, Pa.
The plaintiff sues to recover from the defendant the sum of $5,952.80, with interest from July 19, 1920, income and excess profits tax for 1917, paid under protest, and alleged to have been unlawfully exacted. The facts not being in dispute, the parties have set them out in a case stated.
The plaintiff in 1851 became the owner of coal lands situate in what are now Mineral and Elk counties, W.Va. On March 1, 1913, it was the owner of part of that land which had been found to be underlaid with coal. The land was leased for coal mining on a royalty basis, and during 1917 93,515.18 tons were mined, for which the plaintiff received in royalties $37,565.25. In making its return for income tax, the plaintiff charged that entire amount to depletion. The plaintiff had no interest in the mine equipment, and the entire plant and machinery and all labor employed for the operation of the mines were furnished by the lessees. The fair market value of the coal land as of March 1, 1913, was $199,875, and the quantity of unmined coal underlying the land, estimated as of March 1, 1913, was 9,057,640.32 tons.
The Commissioner of Internal Revenue held that, under the provisions of the Revenue Act of 1916, as amended by the Revenue Act of 1917 (Comp. St. 1918, Sec. 6336l), the deduction for depletion allowable per ton mined was represented by the quotient found by dividing the total estimated number of tons of unmined coal on March 1, 1913, into the sum representing the fair market value of the lands as of that date, or $.022067 per ton. On that basis the plaintiff was allowed for depletion in 1917 the sum of $2,063.60, and the Commissioner thereupon assessed additional income and excess profits tax, amounting to $5,052.87. That sum was paid by the plaintiff under protest on July 19, 1920. Claim for refund was duly made and rejected, and suit brought.
The Revenue Act of 1916 provides as follows:
Under the authority of the act, the Secretary of the Treasury prescribed rules and regulations, the substance of which, as set forth in articles 171 and 172, permit the taxpayer to deduct, in the year in which mined, the actual market value as of March 1, 1913, of the coal mined during the taxable year, based upon its proportion of the value of the entire estimated quantity in place as of March 1, 1913.
To continue reading
Request your trial