TURKEY RUN FUELS v. United States
Citation | 139 F. Supp. 43 |
Decision Date | 07 March 1956 |
Docket Number | Civ. A. No. 15622. |
Parties | TURKEY RUN FUELS, Inc., Plaintiff, v. UNITED STATES of America, Defendant. |
Court | United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania) |
MacCoy, Evans & Lewis, by Richard W. Ledwith, Philadelphia, Pa., for plaintiff.
W. Wilson White, U. S. Atty., Philadelphia, Pa., for defendant.
The taxpayer in this case is the owner of coal land in Shenandoah, Schuylkill County, Pennsylvania, and "coal, culm and refuse banks" located thereon, which have been accumulated over many years in the mining of the property. In recent years it has become profitable to extract and sell the coal from the banks.
The taxpayer plaintiff claimed a depletion allowance on the income from the sale of the coal from the refuse banks in its 1948 and 1949 income tax returns. The Commissioner of Internal Revenue disallowed the claims for depletion allowance and assessed deficiencies against the plaintiff. Plaintiff paid the alleged deficiencies and has filed this suit to recover them.
Section 23 of The Internal Revenue Code of 1939, former 26 U.S.C.A. § 23, provides:
Section 114(b) (4) (A), former 26 U.S. C.A. § 114(b) (4) (A), provides:
"The allowance for depletion under section 23(m) shall be, in the case of coal mines, 5 per centum * * *."
If the plaintiff had removed the coal and refuse from the ground in 1948 and 1949 there would be no question about its right to a depletion allowance even if the refuse had not been separated immediately from the coal. The difficulty here comes from the fact that the mining and the accumulation of the coal and refuse banks on the mining property started many years ago—in 1870—and the extraction of the coal from the banks started only in recent years, giving the taxpayer aspects of both a miner and a processor of mine wastes.
In 1870 John Gilbert and Peter W. Sheafer were joint owners of the land involved in the present case. In that year they started to mine coal from it. The mining has continued to the present time. Since the death of Gilbert and Sheafer their heirs and the heirs of their heirs have become the successors in the ownership of the land and the refuse banks thereon. On December 1, 1938, the Gilbert and Sheafer heirs conveyed title to the land and the banks to a corporation which they had formed, wholly owned by them, known as West Shenandoah Land Co. When the heirs conveyed the property to the corporation they received no money consideration, but instead each heir received stock in the corporation in exactly the same relative proportion as his ownership in the land had been. Later West Shenandoah Land Co. created a wholly owned subsidiary, Turkey Run Fuels, Inc., plaintiff herein, to which it conveyed title to the property on December 30, 1939. In 1948 and 1949 Turkey Run Fuels, Inc. was still the owner of the property and it still was a wholly owned subsidiary of West Shenandoah Land Co.
In Commissioner of Internal Revenue v. Kennedy Mining & Milling Co., 9 Cir., 1942, 125 F.2d 399 the taxpayer had been the owner and operator of a gold mine since before 1913. Beginning in 1914 and continuing to 1935 the taxpayer deposited mine tailings on its land which resulted from its mining and milling operations. The gold content of the tailings was not considered sufficient to be extracted profitably until 1935. In 1935 the taxpayer because of improved conditions started to rework the tailings to extract the gold therefrom. The Commissioner denied the taxpayer's claim to a depletion allowance, but the Board reversed the Commissioner and allowed the claim for depletion. The Circuit Court of Appeals affirmed, saying, 125 F.2d at page 400:
In New Idria Quicksilver Mining Co. v. Commissioner, 9 Cir., 1944, 144 F.2d 918...
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