New Idria Quicksilver Min. Co. v. COM'R OF INTERNAL REV.
| Citation | 144 F.2d 918 |
| Decision Date | 22 September 1944 |
| Docket Number | No. 10589-10592.,10589-10592. |
| Parties | NEW IDRIA QUICKSILVER MINING CO. v. COMMISSIONER OF INTERNAL REVENUE. KLAU MINE, Inc., v. SAME. OAT HILL MINE, Inc., v. SAME. WILD HORSE QUICKSILVER MINING CO. v. SAME. |
| Court | United States Courts of Appeals. United States Court of Appeals (9th Circuit) |
Robert M. Searls, of San Francisco, Cal., for petitioners.
Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewell Key, and Warren F. Wattles, Sp. Assts. to Atty. Gen., for respondent.
Before GARRECHT, MATHEWS, and STEPHENS, Circuit Judges.
Four petitions for review have been consolidated for hearing here. Three of the petitioners are owners and operators of a cinnabar mine or mines. One is a lessee and operator of such mines. In their respective returns of income and excess profits taxes for the years 1939, 1940 and 1941, each petitioner, relying on the statutory definition of gross income, computed percentage depletion on the total amount received from gross sales of mercury (or quicksilver) flasked, and claimed 15 percent of such gross income as a deduction. The Commissioner notified each that "allowable depletion, based on 15 percent of the gross income from the property as defined in law and regulations, has been determined" in a lesser amount than the taxpayer had computed it, resulting in determination of a deficiency. In each case, the Tax Court sustained the Commissioner's method of computing percentage depletion by deducting from gross income the cost of transporting, furnacing, condensing, cleaning, etc., in amounts agreed upon together with an assumed profit which was determined by applying to the total profits from sales of quicksilver the percentage which the cost of each operation bore to the total cost of all operations involved in getting the quicksilver to market.
The questions for review are whether petitioners correctly computed percentage depletion in rendering their income tax returns for the years in question; whether the petitioner New Idria Quicksilver Mining Company was entitled to deduct percentage depletion on ore mined from certain dumps on its property; and whether petitioner Oat Mill Mining Company was entitled to deduct as an operating expense a certain service charge deposit required by a power company serving electric energy.
At these mines, with the exception of the metal obtained from the dumps on the New Idria Quicksilver Mining Company property, the mercury was obtained from crude cinnabar ore brought to the surface from underground mining operations. The ore in the mine is broken down by blasting, and then sorted. Only the cinnabar ore is hauled to the surface to be crushed into particles of about two inches. The crushed cinnabar ore is carred to furnaces on the property, where the ore is heated to a temperature of 1200 Fahrenheit. The heat disintegrates the ore and drives the quicksilver off in vapors. The quicksilver as released in vapors is drawn by means of suction into a condenser system. The buckets which collect the condensed mercury are emptied on tables, where slack lime is mixed with the product to cleanse it and also to free the quicksilver. After this final step, the mercury is flasked for market.
Experiments have been made over periods of time with different methods of gravity and flotation in order to concentrate the cinnabar ore before furnacing but they were not successful. The evidence is undisputed that there are no mills in the United States which purchase the crude cinnabar ore and there is no market for it.
Section 114(b) (4), Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 114, contains the statutory measure of depletion of quicksilver mines:
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"(b) Basis for depletion
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* * *" Italics our own.
Treasury Regulations 103 interpret Section 114(b) (4) of the Internal Revenue Code:
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"When used in these sections (19.23(m)-1 to 19.23(m)-28, inclusive) covering depletion and depreciation —
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"(4) In the case of lead, zinc, copper, gold, or silver ores and ores which are not customarily sold in the form of the crude mineral product — crushing, concentrating (by gravity or flotation), and other processes to the extent...
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