Pan-American Life Ins. Co. v. Comm'r of Internal Revenue, Docket Nos. 30070

• Decision Date: 12 August 1955
• Docket Number: 35319.,Docket Nos. 30070
• Citation: 24 T.C. 901
• Parties: PAN-AMERICAN LIFE INSURANCE COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

24 T.C. 901

PAN-AMERICAN LIFE INSURANCE COMPANY, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket Nos. 30070

35319.

Tax Court of the United States.

Filed August 12, 1955.

Royalties on oil and gas leases held not ‘rents' within the meaning of section 201(c)(1), Internal Revenue Code of 1939, and hence not includible in the income of petitioner, a life insurance company. Campbell v. Great National Life Insurance Company, (C.A. 5, 1955) 219 F.2d 693, followed. Solomon S. Goldman, Esq., for the petitioner.

Jackson L. Bailey, Esq., for the respondent.

OPINION.

OPPER, Judge:

For the years 1942 through 1946 respondent determined deficiencies in income tax in the respective amounts of $4,353.98, $4,264.01, $16,719.93, $13,221.25, and $12,753. The sole litigated issue is whether royalties received under oil and gas leases are income to petitioner, a life insurance company, and whether, if so, depletion is an allowable deduction, under the restricted provisions of section 201(c), Internal Revenue Code of 1939.

All of the facts have been stipulated. They are hereby found in accordance with the stipulation, which, as far as here material reads as follows:

1. Petitioner is a life insurance company incorporated under the laws of Louisiana on March 28, 1912. Petitioner filed corporation income tax returns for the taxable years 1942, 1943, 1944, 1945, and 1946 with the then Collector of Internal Revenue at New Orleans, Louisiana.

2. Petitioner is engaged in the business of underwriting life insurance contracts in the United States of America and Central and South America, and is taxable under the provisions of Section 201 of the Internal Revenue Code of 1939.

3. Petitioner acquired, in the conduct of its investment business, certain lands in the States of Louisiana and Texas. Prior to the year 1942, the lands owned by petitioner were leased to oil and gas-producing companies. Under the leases, the lessees conducted successful drilling operations resulting in producing oil and gas wells.

4. During the taxable years 1942 through 1946 the petitioner received royalties in accordance with such leases as follows:

+------------------+
                ¦Year  ¦Amount     ¦
                +------+-----------¦
                ¦1942  ¦$10,534.95 ¦
                +------+-----------¦
                ¦1943  ¦19,121.69  ¦
                +------+-----------¦
                ¦1944  ¦24,426.07  ¦
                +------+-----------¦
                ¦1945  ¦18,206.43  ¦
                +------+-----------¦
                ¦1946  ¦25,135.43  ¦
                +------------------+
                

5. Petitioner did not report in its income tax returns for any of the years 1942 through 1946 the above amounts received by virtue of such oil and gas leases. Petitioner took no deduction for depletion.

6. In the statutory notices of deficiency the Commissioner held that the oil and gas royalties received by petitioner for the taxable years 1942 through 1946, inclusive, are in the nature of rents and are includible in petitioner's taxable income under the provisions of Section 201(c)(1) of the Internal Revenue Code of 1939, and that, since depletion is not one of the deductions listed in Section 201(c)(7) of the Internal Revenue Code of 1939 as being allowable to a life insurance company, no deduction for depletion is allowed for such years.

The income and...