# Petition for Writ of Certiorari — Heisler v. United States

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1973
- **Citation:** 410 U.S. 927

## Text

Frepy B. Humezn, MD. and Francis Herz,

Petitioners, —

“Unrrep States or Amenica and JosepH M. CULLEN,

District Director of Internal Revenue Service, San
Francisco, California, and RanpotPx THROWER,
Commissioner of Internal Revenue Service,

Washington, D.C.,

Hester, Stewart, Su.ver & Dantes,
P. O. Drawer 3996,
Carmel, California 93921,

Attorneys for Petitioners.

PRINTING CO.- 562 MISSION STREET - SAN FRANCISCO - CA 94108

II

Ill

IV

SOLER ALTARS RE.

Subject Index

versely disposed of by the United States District Court
for the Northern District of California and by the
United States Court of Appeals for the Ninth Circuit
is one that was never considered by this honorable
court and because of their ever increasing importance
ought to be decided by this court ..................

Flast v. Cohen, 392 U.S. 83 (1968) was misread by
the United States Court of Appeals when it held that
on the above authority appellants lack the requisite
standing to raise the issue of the constitutionality of
Title 26 USCA Section 611, et seq. ................

The petitioners were entitled to have their case heard
by a three-judge constitutional court both in accord-
ance with Rule 35 of the Federal Rules of Procedure
and also on the basis of the various decisions of the
EE Shee neete hVenbeEee ed kd mada dh bs meenneeweeecs
The absence of showing that there are others who are
similarly situated to the petitioners does aot justify
the dismissal of a complaint filed as a class suit ......

NE ered hnhcler nein icabh vaned nde curendienca aes

Page
Opimioms below ..... 22... esccecccccscscccccccccccsocecs 2
SE. aN bKn ent elma bG ale ehedadcieseuvneernesecens 2
NY IEEE one winvinscccncsesicnscnvececcencvaseces 2
Statutory provisions involved .................0..ceecceee —
i i x tocnd cathe iss ebbandenecksccncceses 3
Reasons for granting the writ ...................cccecees 12

I The issues here presented by the complaint and ad-

17

20

Table of Authorities Cited

Cases Pages
Eisen v. Carlisle and Jacquelin (CA 2d 1968) 391 F.2d 555 99
Eisner v. Maycomber, 252 U.S. 189 (1920) .............. 15
Flast v. Cohen, 392 U.S. 83 (1968) ............. 17, 18, 19, 20, 91
Flint v. Stone Tracy Co., 220 U.S. 107 (1911) ............ 15
Frothingham v. Mellon, 262 U.S. 447, 43 S.Ct. 597 (1923). 17,18
Griffin v. Illinois, 351 U.S. 12, 76 S.Ct. 585 (1956) ....... 15
Harper v. Virginia, 383 U.S. 633, 86 S.Ct. 1079 .......... 16
Pollock v. Farmers Loan and Trust Company, 157 U.S. 429
(1895) and 158 U.S. 601 (1895) ...................... 15
Richardson v. United States, 3rd Cireuit 465 F.2d 844,
abn nGenn cueccenonncitebedenaceceuce 23
Sierra Club v. Morton, 92 S.Ct. 1361 (April 19, 1972)..... 16

Skinner v. Oklahoma, 316 U.S. 527, 62 S.Ct. 448 (1942) ...14, 15
Strattons Independent v. Hawbert, 213 U.S. 399 ( 1913) .. 15

Weaks v. Bareco Oil Co. (CCA 7 1941) 125 F.2d 84...... 99
Yiek Wo v. Hopkins, 118 U.S. 356 2.2.2.2... ccc ccc cuese 14
Zemel v. Rusk, 381 U.S. 1, 85 S.Ct. 1271, 14 L.Ed.2d 179
SED sk sia cadanes dabebay wake eked ercnn edie 20, 21
Constitutions
United States Constitution:
I a eee ae 8

TaBLe oF AUTHORITIES CITED iii

Rules
Federal Rules of Civil Procedure: Pages
PPP re eT CeT Per Tere, Te EeT Teer eee Tee 2
EE cid sad een Seiden sans adaneetatbonnemnanenss 20
Statutes
Get, GOR, GED x... oe wnescncaccusnsesssccesncassesuess 15
96 USCA:
ees Ee 00 ER. edi iaadkedtecccsnnddpancenncna assim.
SED iin ckptdeunleene nn eenie h Gumanek nies 12
Cr ) i vcleccagencewachan ania abahanen 3, 7, 8, 10, 11
EE oe gc eig gisa gs ie eee ae bee bemenen : ie ; 3
Ee R's. dig ee ceh anes Gynp ae canwue 7, 8, 10,11
i ME A em

12

On April 21, 1970, the United States District Judge
denied—without opinion—the application to convene
a three-judge Court and further granted the Motion
to Dismiss filed by the Respondents. (TR 75)

On the same date the Judgment was entered to the
effect that the petitioners’ complaint be dismissed
with prejudice. (TR 73)

Petitioners filed their Notice of Appeal on June 18,
1970 (TR 76), Designation of Contents of Record
on Appeal (TR 78 and 79), Statement of Points
Relied Upon on Appeal by Plaintiffs-Appellants (‘TR
80), their Cost Bond on Appeal (TR 81).

REASONS FOR GRANTING THE WRIT
I

THE ISSUES HERE PRESENTED BY THE COMPLAINT AND
ADVERSELY DISPOSED OF BY THE UNITED STATES DIs-
TRICT COURT FOR THE NORTHERN DISTRICT OF CALI-
FORNIA AND BY THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT IS ONE THAT WAS NEVER CON-
SIDERED BY THIS HONORABLE COURT AND BECAUSE OP
THEIR EVER INCREASING IMPORTANCE OUGHT TO BE
DECIDED BY THIS COURT.

Title 26 USCA Section 611, subsection (a) under
the heading of General Rule provides, among others,

that—
‘‘in the cause of mines, oil and gas wells, other
natural deposits, and timber, there shall be al-
lowed as a deduction in computing taxable in-
come a reasonable allowance for depletion or for
depreciation of improvements, according to the
peculiar conditions in each ease . . .”

Peta. oa PREC OAM CB Be SF Db EAR A PA BS COP PB I PS ABA VR DA

13

The term “‘other natural deposits” distinguishes be-
tween mines, oil and gas wells on the one hand and
timber on the other. Furthermore, Congress provided
that a “reasonable allowance for depreciation of im-
provements be granted” and ‘‘according to the pecu-
liar conditions in each case.”

Petitioners in their complaint argued that the
“other natural deposits” included their ‘‘natural re-
sources”, i.c., their ability to earn a livelihood. They
also claimed that the statutory term as used in 26
USCA 611 ‘‘for depreciation of improvements” in-
dudes the improvement which they made upon their
“natural deposits” by obtaining advanced education
in schools and outside. They also set forth in their
Complaint that since they are within the reach of the
Biblical age of three score years and ten it is to be
expected that their ‘‘natural deposits” and the ‘‘im-
provements thereof” will be gradually depleted and
in a foreseeable time will undoubtedly wholly disap-
pear. They further claimed in their Complaint with
more truth than poetry that unlike the output of
mines, oil and gas wells which may or may not be
depleted, their ‘natural deposits” will, in absence of
a miracle, undoubtedly disappear by total depletion.

Petitioners’ request for refund filed with the Dis-
trict Director of Internal Revenue, pursuant to the
provisions of Form 843 of the Internal Revenue
Code of 1954, which claim for refund was denied,
and the Complaint charged that such denial is con-
trary to due process and contrary to the equal pro-
tection of the law.

PEN cae ca. ™
Sa PPS, Oa HLA Ct. on ae ee — . - - =
ee I PE OL PO LOG ESS ORE EOS LOM IES LOPE ILE TES GSD din BF

edad

|

14

The Complaint then presented the constitutional
issue of stating that if the interpretation of the Dis.
trict Director of Internal Revenue is upheld by the
Court then Title 26 USCA Section 611, et seq., ig
unconstitutional because it represents insidious dis.
crimination and class legislation which is clearly
arbitrary and has no rational justification.

Neither of the above issues, i.e., whether human
depletion is included in Title 26 USCA Section 611,
et seq., nor the question of the constitutionality of
the above Code if human depletion is not included
was ever considered by this Honorable Court, The
lack of consideration and decision by this Honorable
Court justifies the granting of certiorari to review
the judgment below.

The United States Court of Appeals agreed that
the District Court had jurisdiction over the refund
claim presented by Petitioners to the Internal Reve-
nue Service, however, it held that—

“The Appellants, however, do not fit within the
statute. Their bodies and skills are not among
the ‘other natural deposits’ for which the In-
ternal Revenue Code allows a deduction for per-
centage depletion.”

This ipse dixit holding does not square with the oft
repeated holdings of this Court that Congress in-
tended by enacting Title 26 USCA Sections 611, et
seq. to enact a constitutionally permissible law and
not one which constitutionally discriminates in favor
of material holdings as against the ability to earn a
living. Yick Wo v. Hopkins, 118 U.S. 356; Skinner _

15

». Oklahoma, 316 U.S. 527, 62 S.Ct. 448 (1942) and
Grifin v. Minois, 351 U.S, 12, 76 S.Ct. 585 (1956).

From debate in Congress it appears that in fact
intended to tax incomes uniformly throughout the
United States. Such intention is shown by 28
Stat. 509, 553. While it is true that this Court invali-
dated that statute in Pollock v. Farmers Loan and
Trust Company, 157 U.S. 429 (1895) and 158 USS.
601 (1895), the reasoning behind that holding appears
to he quite tenuous, if not totally abandoned in the
face of subsequent decisions of this Court.

Uniform taxation was incorporated in the Six-
teenth Amendment to the Constitution which was
ratified in 1913. Without reversing Pollock, supra,
this Court sustained corporate income tax as an
excise ‘measured by income ... on the privilege of
doing business in corporate form.” Flint v. Stone
Tracy Co., 220 U.S. 107 (1911).

Petitioners claim that their ability to earn a living
must be construed to be among ‘‘the other natural
deposits” referred to in Title 26 USCA Sec. 611,
which clearly is in line with the holdings of this
Court in which it describes income as the ‘“‘gain
derived from capital, from labor, or from both com-
bined”, including therein the “profit gained through
a sale or conversion of capital assets.” See Strattons
Independent v. Hawbert, 213 U.S. 399 (1913) and
Eisner v. Maycomber, 252 U.S. 189 (1920).

The uniform taxation intended by Congress is with-
out question and so is the inclusion of human effort
in the depletion provision. This is shown by the In-

16

ternal Revenue Act in the 1920’s providing for a 25%
deduction of the earned income from the total tax.
able income. While it is true that this recognition
of human ability to earn a living as a “‘natura] Te-
source” for taxation purposes was reduced and later
wholly disappeared was the result not of Congres.
sional intent but of the new dialectics which made
material values supreme at the cost of all others,
However, as Mr. Justice Douglas said in Harper y,
Virginia, 383 U.S. 633, 86 S.Ct. 1079:

“The Equal Protection Clause is not shackled
by the political theory of a particular era, In
determining what lines of unconstitutionality are
discriminatory, we have never been confined to
historic notions of equality, any more than we
have restricted due process to a fixed catalogue
of what was at a given time deemed to be the
limits of fundamental rights.”

The Internal Revenue Service in rejecting Peti-
tioners’ claim for refund based on the depletion al-
lowance allocated to their ability to make a living is
not in line with the dissent of Mr. Justice Blackman
in Sterra Club v. Morton, 92 S.Ct. 1361 (April 19,
1972), who said:

‘Must our law be so rigid and our procedural
concepts so inflexible that we render ourselves
helpless when the existing methods and the con-
stitutional concepts do not quite fit and do not
prove to be entirely adequate for new issues.”

Petitioners submit that the decision below ought to
be reviewed and that therefore the Petition for a
Writ of Certiorari ought to be granted.

17

II

7 v. COHEN, 392 U.S. 83 (1968) WAS MISREAD BY THE
UNITED STATES COURT OF APPEALS WHEN IT HELD
THAT ON THE ABOVE AUTHORITY APPELLANTS LACK
THE REQUISITE STANDING TO RAISE THE ISSUE OF THE
CONSTITUTIONALITY OF TITLE 26 USCA SECTION 611,

ET SEQ.

The Court below held that
‘on the claim that 26 USCA’ Sections 611, ef
seq. are unconstitutional, the Heislers lacked the
requisite standing to raise this issue.” Flast v.
Cohen, supra.

The above further ipse dixit does not express the
thoughts as were expressed by this Court speaking
through Chief Justice Warren. Flast, supra, as Pe-
titioners submit, stands for a holding that they have
standing even by the interpretation of the law by the
sole dissenter, Mr. Justice Harlan, As we read Jus-
tice Harlan’s dissent, he would have classified Peti-
tioners as ‘‘non-Hohfeldian” plaintiffs who have stand-
ing to complain not qua taxpayers, but as ‘*private
attorneys general.” Reading the majority opinion in
Flast, supra, it is clear that the Court set for itself
the task

“tg decide whether the Frothingham barrier

should be lowered when a taxpayer attacks a

federal statute .. .”

In the Flast, supra, case Chief Justice Warren
followed the commentators when he analyzed the
Frothingham holding and stated that

“the concrete reasons given for denying standing
to a federal taxpayer suggest that the court’s

&
;
&«

18

holding rests on something less than a constity.
tional foundation . . . the petitioner in Frothing.
ham was denied standing not because she was a
taxpayer but because her tax bill was not large
enough.”
and then he added

“‘to the extent that Frothingham has been rm.
jected as resting on policy considerations, it has
been classified as depending on assumptions not
consistent with modern conditions.”

Even when applying the yardstick used in Froth-
ingham, Petitioners submit that their interest in the
issues expressed monetarily is not a minescule one
since their claim for refund was in the respective
amounts of $1,239.37, $1,443.69 and $2,560.45 for the
years of 1965, 1966 and 1967, and as the Complaint
alleges that they expected that their claim for refund
for the years following 1967 would be not less than
$2,500.00. However, it is submitted that this yardstick
was substantially abandoned in the Flast, supra, hold-
ing where it was held that:

“‘Standing has been called one of ‘the most amor-
phous (concepts) in the entire domain of public
law,’ some of the complexities peculiar to stand-
ing problems result because standing ‘serves, on
occasion, as a shorthand expression for all the
various elements of justiciability.’ In addition,
there are at work in the standing doctrine the
many subtle pressures which tend to cause policy
considerations to blend into constitutional limi-
tations.”

19

and further that

“Despite the complexities and uncertainties, some
meaningful form can be given to the jurisdic-
tional limitations placed on federal court power
by the concept of standing. The fundamental
aspect of standing is that it focuses on the party
seeking to get his complaint before a federal
court and not on the issues he wishes to have
adjudicated. The ‘gist of the question of stand-
ing’ is whether the party seeking relief has ‘al-
leged such a personal stake in the outcome of the
controversy as to assure that concrete adverse-
ness which sharpens the presentation of issues
upon which the court so largely depends for
illumination of difficult constitutional questions’.
Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691,
703, 8 L.Ed. 2d 663 (1962). In other words, when
standing is placed in issue in a case, the question
is whether the person whose standing is chal-
lenged is a proper party to request an adjudica-
tion of a particular issue and not whether the
issue itself is justiciable.”

Petitioners submit that here, as in the Flast case,

supra,

“their complaint contains sufficient allegations
under the criteria we (The Supreme Court) have
outlined (in the Flast case) to give them stand-
ing to invoke a federal court’s jurisdiction for
an adjudication on the merits.”

The Court below erred when it held that Petitioners
had no standing and to review that holding a Petition
for Certiorari ought to be granted.

Itt

THE PETITIONERS WERE ENTITLED TO HAVE THETR cage
HEARD BY A THREEJUDGE OONSTITUTIONAL Covnr
BOTH IN ACOORDANCE WITH RULE 35 OF THE FEDERA,
RULES OF PROCEDURE AND ALSO ON THE BASIS OP rap
VARIOUS DECISIONS OF THE COURTS.

Petitioners’ complaint carried two thrusts. The first
argued that under the assumption of the constitution.
ality of a congressional enactment they ought to be
not excluded from the benefit of the law as the In.
ternal Revenue Service by refusing to grant their
refund did do. Secondly they claimed that if the
Court should hold the interpretation of the Internal
Revenue Service proper, then it must hold that Title
26 USCA Section 611, et seq., is unconstitutional as
class legislation. Petitioners submit that this two
pronged claim should have prompted the District
Court to convene a three-man court and that such
claim was upheld by the Supreme Court of the
United States in Flast, supra, when it was said by
the majority of the Court, with one member dissent-
ing, that

“‘the government argues that a three-judge court
should not have been convened because appellants
question not the constitutionality of the Elemen-
tary and Secondary Education Act of 1965, bat
its administration. The decision in Zemel v. Rusk,
381 U.S. 1, 85 S.Ct. 1271, 14 L.Ed.2d 179 (1965),
is dispositive on this issue. It is true that ap-
pellants’ complaint states a non-constitutional
ground for relief, namely, that appellees’ actions
in approving the expenditure of federal funds
for allegedly unconstitutional programs are in
excess of their authority under the Act. How-

21

ever, the complaint also requests an alternative
and constitutional ground for relief, namely, a
declaration that, if appellees’ actions ‘are within
the authority and intent of the Act, the Act is
to that extent unconstitutional and void.’ The

Court noted in Zemel v. Rusk, supra, ‘[W]Je have
often held that a litigant need not abandon his
nonconstitutional arguments in order to obtain
a three-judge court.’ (citing cases) The complaint
in this ease falls within that rule.”
Petitioners submit that their Complaint falls within
the rule set forth in Zemel and quoted with approval
in Flast, supra, and that, in consequence, they were
entitled to a hearing before a three-judge court and
the holding of the United States Court of Appeals
to the contrary requires the granting of a writ of
certiorari.

IV

THE ABSENCE OF SHOWING THAT THERE ARE OTHERS WHO
ARE SIMILARLY SITUATED TO THE PETITIONERS DOES
NOT JUSTIFY THE DISMISSAL OF A COMPLAINT FILED AS
A CLASS SUIT.

The holding of the United States Court of Appeals
states :
“The Appellants styled their action a class action.
However, there was no showing that any other
members of the purported class filed the requisite
demands for refund. 26 U.S.C. §7422.”

Petitioners admit that in their Complaint they made
no showing that other members of the class did file
the requisite demands for refund. However, they
maintain that such a showing is not required. They
believe that they complied with the requirement of

22

the law when in their Complaint they set forth tha
the issues are presented on their own behalf:

‘*.. . as well as on behalf of each and all of the
persons similarly situated whether employed or
self-employed and support themselves and their
families by their labor, be it manual or otherwise,
such persons are so numerous as to make it im-
practical to bring them all before the court. . ..
the named plaintiffs fairly insure adequate rep.
resentation of all... .”

Petitioners believe that that was all that was re.
quired of them to do notwithstanding the argy-
ment of the respondents. There was no showing that
there are not others who filed their refund claim with
the Internal Revenue Service under 26 U.S.C. §7422,
Therefore, they submitted that the Court erred to
dismiss the class suit since the usual and customary
procedure would have been for the District Court
to set a reasonable date within which to amend the
Complaint and bring in the additional name of those
plaintiffs who qualified within the class. The dis-
missal of the class claim out of hand was error.

As it was said that Rule 23 pertaining to class
actions is a remedial rule that should be liberally
construed and applied. This treatment was accorded
original Rule 23 (See Weaks v. Bareco Oil Co. (CCA
7 1941) 125 F.2d 84) and the comparable construction
and application of the revised rule was found to be
proper among others in Eisen v. Carlisle and Jacquelin
(CA 2d 1968) 391 F.2d 555 where it was said:

“But to dismiss a class suit in its insipiency be
fore claimants have been given an effective op-

23

portunity to join would be a disservice to the
class action as envisioned in the new rule. Indeed
we hold that the new rule should be given a
liberal rather than a restrictive interpretation,
Escott v. Barchris Construction Corporation 340
F.2d 731, 733 (2nd Cireuit 1965) Cert. denied
999 U.S. 816, 86 S.Ct. 37, 15 L.Ed.2d 63 (1966)
and that dismissal in limine of a particular pro-
ceeding as not a proper class action is justified
only by a clear showing to that effect and after
a proper appraisal of all the factors enumerated
on the face of the rule itself.” See also Richard-
son v. United States, 3rd Circuit 465 F.2d 844,
decided July 20, 1972.

This holding supports Petitioners’ contention as to
the propriety of the class suit.

CONCLUSION
For the reasons set forth a Writ of Certiorari
should issue to review the judgment of the Opinion
of the United States Court of Appeals for the Ninth
Circuit.
Executed in Carmel, California, this 14th day of
November, 1972.

Respectfully submitted,

Francis HEISLER,

HEIsLER, STEWART, SILVER & DANIELS,
Attorneys for Petitioners.

(Appendices Follow)

SNES 2 TRISTE WI - “ - SENET S TS De aes aa regal

Appendix |

No. 26,121

United States Court of Appeals
for the Ninth Circuit

; Friedy B. Heisler, M.D., and
Francis Heisler,
Plaintiffs and Appellants,
vs.

- United States of America and Joseph
- M.Cullen, District Director of Inter-
nal Revenue Service, ete., et al.,
Defendants and Appellees. |

[June 21, 1972]

On Appeal from the United States District Court
for the Northern District of California

Before: CHAMBERS, BROWNING and KILKENNY,
Cireuit Judges.
~ Per curiam:
In this tax case the district court had jurisdiction
over the refund claim under 28 U.S.C. § 1346(a) (1).
The appellants, however, do not fit within the statute.

- Their bodies and skills are not among the “other nat-

ii

ural deposits” for which the Internal Revenue Coy
allows a deduction for percentage depletion.

On the claim that 26 U.S.C. sections 611 et 64,
are unconstitutional, the Heislers lack the requisite
standing to raise this issue. Flast v. Cohen, 392 Ug
83 (1968).

The appellants style their lawsuit a class action,
However, there is no showing that any other men-
bers of the purported class filed the requisite demands
for refund. 26 U.S.C. § 7422.

The judgment is affirmed.

Appendix 2

STATUTORY PROVISIONS
(Title 26 USCA)

(611. Allowance of deduction for depletion

(a) General rule-—In the case of mines, oil and
gas wells, other natural deposits, and timber, there
shall be allowed as a deduction

in computing taxable income a reasonable allow-
ance for depletion and for depreciation of im-
provements, according to the peculiar conditions
in each case; such reasonable allowance in all
cases to be made under regulations prescribed by
the Secretary or his delegate. For purposes of
this part, the term “mines” includes deposits of
waste or residue, the extraction of ores or min-
erals from which is treated as mining under sec-
tion 613(¢). In any case in which it is ascertained
as a result of operations or of development work
that the recoverable units are greater or less than
the prior estimate thereof, then such prior esti-
mate (but not the basis for depletion) shall he
revised and the allowance under this section for
subsequent taxable years shall be based on such
revised estimate.

(b) Special rules.—
(1) Leases——In the case of a lease, the

deduction under this section shall be equi-

tably apportioned between the lessor and
lessee.

iv

(2) Life tenant and remainderman—y
the case of property held by one person for
life with remainder to another person, the
deduction under this section shall be com.
puted as if the life tenant were the absolute
owner of the property and shall be allowed
to the life tenant.

(3) Property held in trust—In the cage
of property held in trust, the deduction
under this section shall be apportioned be
tween the income beneficiaries and the trus-
tee in accordance with the pertinent provi-
sions of the instrument creating the trust, or,
in the absence of such provisions, on the
basis of the trust income allocable to each.

(4) Property held by estate.—In the case
of an estate, the deduction under this section
shall be apportioned between the estate and
the heirs, legatees, and devisees on the basis
of the income of the estate allocable to each.

(c) Cross reference.—

For other rules applicable to depreciation
of improvements, see section 167.

Aug. 16, 1954, ¢. 736, 68A Stat. 207; Sept. 2, 1958,
Pub.L, 85-866, Title I, § 35, 72 Stat. 1632.

§612. Basis for cost depletion

Except as otherwise provided in this subchapter,
the basis on which depletion is to allowed in respect
of any property shall be the adjusted basis provided

section 1011 for the purpose of determining the
pon the sale or other disposition of such prop-
Aug. 16, 1954, ¢. 736, 68A Stat. 208.

in
gain u
erty.

(613. Percentage ge depletion

(a) General rule-—In the case of the mines, wells,
and other natural deposits listed in subsection (b),
the allowance for depletion under section 611 shall
he the percentage, specified in subsection (b), of the
gross Income from the property excluding from such
gross Income an amount equal to any rents or
royalties paid or incurred by the taxpayer in respect
of the property. Such allowance shall not exceed 50
percent of the taxpayer’s taxable income from the
property (computed without allowance for depletion).
For purposes of the preceding sentence, the allowable
deductions taken into account with respect to ex-
penses of mining in computing the taxable income
from the property shall be decreased by an amount
equal to so much of any gain which (1) is treated
under section 1245 (relating to gain from disposition
of certain depreciable property) as gain from the sale
or exchange of property which is neither a capital
asset nor property described in section 1231, and (2)
is properly allocable to the property. In no case shall
the allowance for depletion under section 611 be less
than it would be if computed without reference to
this section.

(b) Percentage depletion rates—The mines, wells,
and other natural deposits, and the percentages, re-
ferred to in subsection (a) are as follows:

Lee NR

SSVI PE ESOS IP NT RE MR

(1) 27% percent—oil and gas wells.

(2) 23 percent—

(A) sulfur and uranium; and

(B) if from deposits in the United Stat,
—anorthosite clay, laterite, and
syenite (to the extent that alumina and ap.
minum compounds are extracted therefrom),
asbestos, bauxite, celestite, chromite, coryp.
dum, fluorspar, graphite, ilmenite, kyanit,
mica, olivine, quartz chystals (radio grade),
rutile, block steatite tale, and zircon, and ons
of the following metals: antimony, beryllium,
bismuth, cadmium, cobalt, columbium, lead,
lithium, manganese, mercury, nickel, plati-
num and platinum group metals, tantalum,
thorium, tin, titanium, tungsten, vanadium
and zinc.

(3) 15 percent—

(A) metal mines (if paragraph (2) (B)
does not apply), rock asphalt, and vermie-
lite; and

(B) if neither paragraph (2) (B), (5) o
(6) (B) applies, ball clay, bentonite, chin
clay, sagger clay, and clay used or sold for use
for purposes dependent on its refractory prop-
erties,

(4) 10 percent—asbestos (if paragraph (2)
(B) does not apply), brucite, coal, lignite, per-
lite, sodium chloride, and wollastonite.

vii

(5) 7% pereent—clay and shale used or sold
for use in the manufacture of sewer pipe or
prick, and clay, shale, and slate used or sold for
use as sintered or burned lightweight aggregetes.

(6) 5 pereent—

(A) gravel, peat, pumice, sand, scoria,
shale (except shale described in paragraph
(5)), and stone, (except stone described in
paragraph (7));

(B) clay used, or sold for use, in the man-
ufacture of drainage and roofing tile, flower
pots, and kindred products; and

(C) if from brine wells—bromine, calcium
chloride, and magnesium chloride.

(7) 15 pereent—all other minerals (including,
but not limited to, aplite, barite, borax, calcium
carbonates, diatomaceous earth, dolomite, felds-
par, fullers earth, garnet, gilsonite, granite, lime-
stone, magnesite, magnesium carbonates, marble,
mollusk shells (including clam shells and oyster
shells), phosphate rock, potash, quartzite, slate,
soapstone, stone (used or sold for use by the mine
owner or operator as dimension stone or orna-
mental stone), thenardite, tripoli, trona, and (if
paragraph (2)(B) does not apply) bauxite, flake
graphite, fluorspar, lepidolite, mica, spodumene,
and tale, including pyrophyllite), except that,
unless sold on bid in direct competition with a
bona fide bid to sell a mineral listed in paragraph
(3), the percentage shall be 5 percent for any

such other mineral (other than slate to whia
paragraph (5) applies) when used, or sold fy
use, by the mine owner or operator as rip mp
ballast, road material, rubble, concrete
or for similar purposes. For purposes of thi,
paragraph, the term ‘‘all other minerals” does ng
include—
(A) soil, sod, dirt, turf, water, or moses.
or
(B) minerals from sea water, the air, ¢
inilar inexhaustibl
(ce) Definition of gross income from property—
For purposes of this secticn—
(1) Gross income from the property —The

term “‘gross income from the property” mean.
in the case of a property other than an oil or gas
well, the gross income from mining.

(2) Mining.—The term “‘mining” includes no
merely the extraction of the ores or minerak
from the ground but also the treatment processes
considered as mining described in paragraph (4)
(and the treatment processes necessary or ine-
dental thereto), and so much of the transport of
ores or minerals (whether or not by comma
carrier) from the point of extraction from th
ground to the plants or mills in which such treat-
ment processes are applied thereto as is not in ex-
cess of 50 miles unles the Secretary or his delegate
finds that the physical and other requirements

—

wreFenTwrTsset»

are such that the ore or mineral must be trans-
ported a greater distance to such plants or mills.
(3) Extraction of the ores or minerals from
the ground.—The term “extraction of the ores
or minerals from the ground” includes the ex-
traction by mine owners or operators of ores
or minerals from the waste or residue of prior
mining. The preceding sentence shall not apply
to any such extraction of the mineral or ore by
a purchaser of such waste or residue or of the
rights to extract ores or minerals therefrom.
(4) Treatment processes considered as mining.
—The following treatment processes where ap-
plied by the mine owner or operator shall be
considered as mining to the extent they are ap-
plied to the ore or mineral in respect of which
he is entitled to a deduction for depletion under
section 611:

(A) in the ease of coal—cleaning, break-
ing, sizing, dust allaying, treating to prevent
freezing, and loading for shipment:

(B) in the case of sulfur reeovered hy the
Frasch process—cleaning, pumping to vats,
cooling, breaking, and loading for shipment;

(C) in the ease of iron ore, bauxite, ball
and sagger clay, rock asphalt, and ores or
minerals which are eustomarily sold in the
form of a ernde mineral product—sorting,
coneentrating, sintering, and substantially

equivalent processes to bring to shipping
grade and form, and loading for shipment,

(D) in the case of lead, zine, copper, gold,
silver, uranium, or fluorspar ores, potash, anj
ores or minerals which are not
sold in the form of the crude mineral prj.
uct—crushing, grinding, and beneficiation by
concentration (gravity, flotation, amalgams.
tion, electrostatic, or magnetic), cyanidation,
leaching, crystallization, precipitation (byt
not including electrolytic deposition, roast.
ing, thermal or electric smelting, or refining),
or by substantially equivalent processes or
combination of processes used in the separa-
tion or extraction of the product or produets
from the ore or the mineral or minerals from
other material from the mine or other natural
deposit ;

(E) the pulverization of tale, the burning
of magnesite, the sintering and nodulizing of
phosphate rock, and the furnacing of quick-
silver ores;

(F) in the case of calcium carbonates and
other minerals when used in making cement
—all processes (other than pre-heating of the
kiln feed) applied prior to the introduction
of the kiln feed into the kiln, but not inelud-
ing any subsequent process;

(G) in the case of clay to which paragraph
(5) or (6)(B) of subsection (b) applies—

xi

crushing, grinding, and separating the min-
eral from waste, but not including any sub-
sequent process; and

(H) any other treatment process provided
for by regulations prescribed by the Secre-
tary or his delegate which, with respect to
the particular ore or mineral, is not incon-
sistent with the preceding provisions of this
paragraph.

(5) Treatment processes not considered as
mining—Unless such processes are otherwise
provided for in paragraph (4) (or are necessary
or incidental to processes so provided for), the
following treatment processes shall not be con-
sidered as “mining”: electrolytic deposition,
roasting, calcining, thermal or electric smelting,
refining, polishing, fine pulverization, blending
with other materials, treatment effecting a chem-
ieal change, thermal action, and molding or
shaping.

(d) Application of percentage depletion rates to
certain tarable years ending tn 1954.—

(1) General rule—At the election of the tax-
payer of any property (within the meaning of
the Internal Revenue Code of 1939), the percent-
age specified in subsection (b) in the case of any
mine, well, or other natural deposit listed in such
subsection shall apply to a taxable year ending

h after December 31, 1953, to which the Internal
Revenue Code of 1939 applies.

~~ oe FQ Se onrTrewaa TA Pr Tse Tse er CUR

, 38o& f= &

(2) Method of computation—The allowang
for depletion, in respect of any property fo
which an election is made under paragraph (1)
for any taxable year, shall be an amount equl
to the sum of—

(A) that portion of a tentative allowance,
computed under the Internal Revenue Code
of 1939 without regard to paragraph (1) of
this subsection, which the number of days
in such taxable year before January 1, 1954,
bears to the total number of days in such
taxable year; plus

(B) that portion of a tentative allowance,
computed under the Internal Revenue Code
of 1939 (as modified solely by the applica.
tion of paragraph (1) of this subsection),
which the number of days in such taxable
year after December 31, 1953, bears to the
total number of days in such taxable year.

Aug. 16, 1954, e. 736, 68A Stat. 208; Sept. 2, 1958, Pub.
L, 85-866, Title I, § 36(a), 72 Stat. 1633; Tune 30, 1960,
Pub.L. 86-564, Title III, § 302(a), (b), 74 Stat, 291.
Oct. 16, 1962, Pub.L. 87-834, §13(e), 76 Stat. 1034.
Sept. 2, 1964, Pub.L. 88-571; §6(a), 78 Stat. 96:
Nov. 13, 1966, Pub.L.. 89-809, Title IT, §§ 207(a),
208(a), 209(a), (b), 0 Stat. 1579, 1580.

208(a), 209(a), (b), 80 Stat. 1579, 1580.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385606_1716%3A1. Public record. Not legal advice.