Parkey v. Commissioner of Internal Revenue, Docket No. 24829
| Decision Date | 09 May 1929 |
| Docket Number | 32620,Docket No. 24829,32621. |
| Citation | 16 BTA 441 |
| Parties | JAMES R. PARKEY AND SALLIE T. PARKEY, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Robert Ash, Esq., for the petitioners.
L. A. Luce, Esq., for the respondent.
These proceedings were consolidated and involve the redetermination of deficiencies in income tax. In the proceedings of James R. Parkey the deficiencies are for the years 1923 and 1925 in the respective amounts of $2,865.22 and $1,829.15. In the proceeding of Sallie T. Parkey the deficiency is for the year 1923 and in the amount of $12.74.
Petitioner, James R. Parkey, alleges that the respondent erred in refusing to determine that the sale of oil leases on petitioner's land constituted sales of capital assets where the lands were owned for a period in excess of two years, and, in the alternative, that (1) if the sales of such leases were not the sales of capital assets, then they were sales of personal property and as such would be community income in the State of Texas even though the land itself was separate property of the husband, and (2) if the sales of leases were not sales of capital assets and if they were not sales of personal property, then the bonuses received for leasing the land should be considered as prepaid royalty. Petitioner, Sallie T. Parkey, asserts that the bonuses received for leases on community property should be considered as prepaid royalty. The facts were stipulated and from the stipulation we make the following findings of fact.
FINDINGS OF FACT.
The petitioners, James R. Parkey and Sallie T. Parkey, are residents of Mankins, Archer County, Tex.
James R. Parkey, one of the petitioners herein, acquired in 1888 title in fee simple to certain land in the "American Tribune New Colony Subdivision," "S. P. R. R. Surveys," and the "Day Land & Cattle Co. Survey" in Archer County, Tex. In that year James R. Parkey, who was unmarried, moved on the said land and engaged in cattle raising and farming. At that time no oil had been discovered in the locality.
Subsequent to 1888 and prior to 1916, the said James R. Parkey married Sallie T. Parkey, the other petitioner herein. In 1916 the said James R. Parkey purchased certain additional land which was a part of the "Dallas County School Lands Subdivision" in Archer County, Texas.
The petitioners were married and lived together during all of the years 1923, 1924 and 1925. Each petitioner filed separate income-tax returns for the said years, including therein certain sums as community income and certain amounts as separate income.
Copies of said "oil and gas leases" are filed in the record. The material provisions of said leases are similar. One of said leases reads:
THIS CONTRACT AND AGREEMENT, made and entered into this the 18th day of January, A. D. 1923, by and between J. R. Parkey, of Archer County, Texas, party of the first part, hereinafter called lessor, and the Texhoma Oil & Refining Company, a corporation, organized and existing under and by virtue of the laws of the State of Texas, party of the second part, hereinafter called lessee, witnesseth;
That the said lessor for and in consideration of the sum of Thirty Seven Thousand Five Hundred ($37,500.00) Dollars, cash in hand paid, the receipt of which is hereby acknowledged, and the further consideration of the payment to lessor of thirty seven thousand five hundred ($37,500.00) Dollars out of the proceeds received from the sale of seven sixteenths (7/16) of the first oil produced and saved from the hereinafter described land, and of the convenants and agreements, hereinafter contained on the part of lessee to be paid, kept and performed, has granted, conveyed, demised, leased and let, and by these presents does grant, demise, convey, lease and let, unto the said Texhoma Oil and Refining Company, for the sole and only purpose of mining and operating for oil and gas, and of laying pipe lines and of building tanks, powers, stations and structures thereon to produce, save and take care of said products, all that certain tract of land situated in the County of Archer, and State of Texas, described as follows to-wit:
* * * * * * *
It is agreed that this lease shall remain in force for a term of one (1) year from this date, and as long thereafter as oil or gas, or either of them, is produced from said land by lessee.
In consideration of the premises, the said lessee covenants and agrees.
1. To deliver to the credit of lessor, free of cost, in the tanks or pipe lines to which he may connect his wells, the equal one eighth ( 1/8 ) part of all oil produced and saved from the leased premises.
2. To pay the lessor one eighth ( 1/8 ) of the value at the well, for the gas from each well where gas only is found, while the same is being used off the premises, and lessor to have gas free of cost from any such well for all stoves and all inside lights, in the principal dwelling house on said land during the same time by making his own connections with the well at his own risk and expense.
3. To pay lessor for gas produced from any oil well and used off premises at the rate of one eighth ( 1/8 ) of the value at the well, for the time during which such gas shall be used.
4. Lessee agrees to begin the drilling of a well on the above described land as soon as the well now being drilled by it on the Zane Cetti land has been completed or abandoned, and agrees to begin the drilling of a second well within thirty (30) days after the completion of the first well, and agrees to begin the drilling of a third well within thirty (30) days thereafter the completion of the second well.
The first well hereinabove referred to is to be drilled upon the Southwest quarter (SW 1/4) of the Southeast quarter (S. E. ¼) of said section No. 1 above described.
It is also understood and agreed that each of said above mentioned three wells is to be drilled to a depth of 1800 feet, unless oil or gas is found at a lesser depth and below 1000 ft. In the event oil is found and produced in paying quantities upon the above described land from any well drilled thereon by the lessee, then lessee agrees to develop said lease with due diligence until the same has been fully developed.
If said lessor owns a less interest in the above described land than the entire and undivided fee simple estate therein, the royalties herein provided shall be paid the lessor only in proportion which his interest bears to the whole and undivided fee.
Lessee shall have the right to use, free of cost, gas, oil and water produced on said land for its operations therein except water from tanks of lessor.
When requested by lessor, lessee shall bury its pipe lines below plow depth.
No well shall be drilled nearer than 200 feet to the house or barn now on said premises without the consent of the lessor.
Lessee shall pay for damages caused by its operations to growing crops on said land.
Lessee shall have the right at any time to remove all machinery and fixtures placed on said premises including the right to draw and remove casing.
If the estate of either party hereto is assigned and the privilege of assigning in whole or in part is expressly allowed the covenants hereof shall extend to the assigns and successive assigns, but no change in the ownership of the land or assignment of rentals or royalties shall be binding on the lessee until after the lessee has been furnished a written transfer or assignment or a true copy thereof.
Lessor hereby warrants and agrees to defend the title to the lands herein described, and agrees that the lessee shall have the right at any time to redeem for lessor, by payment, any mortgage taxes, or other liens on the above described lands, in the event of default of payment by lessor, and be subrogated to the rights of the holder thereof.
In testimony whereof, we sign, this the 18th day of January A. D. 1923.
In some of the "oil and gas leases" the nominal rather than the actual consideration paid to petitioners in consideration of the execution of the agreements is stated. The following statement shows the full cash consideration received by the petitioners in the years designated:
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Year | Lessee | Exhibit | Lands | Acreage | Consideration
-----------------|--------------------------------------|---------|------------------------------|----------|--------------
1923 | | | | |
| | | | |
Separate _______ | Texhoma ____________________________ | A | S. P. R. R ________________ | 500 | $37,500.00
| W. T. Hoppes _______________________ | B | Amer. Trib ________________ | 40 | 4,000.00
| | | | | _____________
| Separate property proceeds, | _______ | ____________________________ | ________ | 41,500.00
| 1923. | | | | =============
Community ______ | Empire _____________________________ | C | Dal. Co. Sch. Lds _________ | 2,000 | 15,000.00
| Empire _____________________________ | D | Dal. Co. Sch. Lds _________ | 2,000 | 15,000.00
| | | | | _____________
| Community property proceeds, | _______ | ___________________________ | ________ | 30,000.00
| 1923....To continue reading
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