# Petition for Writ of Certiorari — Burnet v. Thompson Oil & Gas Co. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_0021%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1931 - **Citation:** 283 U.S. 301 ## Text %, he, “use “: a aS 08, ee oem ee ; mS » fe- SS " ee oF, ‘ Sag . re vi enk pie bac Ng I WRIT OF't F BS 8 ings teen & oa vm t ’ Yaa vite te ae ; : 7 FP a Se jo) MOOROENONE. 6 2 os hire ensceesdeee Mie ogame aeeneeeis 1. Specification of errors....~......---.-----.------- eUiekins ome Reasons for granting the writ.....>-.----- ote ora in tea Sati 4. Brief in support of petition: Se tater ae * Pee Opinions below. -...---- sntgibstvdnnssdiwinendwammnwed 6. SUI i. os. ons wenn nndkinumslanon seanmedae & fe easton sresentell « . cnn c nena vaeennseenwehadaguwannne ae .. Statutes and regulations... ......--.--.--------------+-- eters let PMNMOR on 5 oon oie anaes cece cest ese Ken weeaweee 9 Argument... .. .- 22-2 -- 2-22-22 5223 nnn ne on enon ees ae Conclusion... . . ..- ++ -- 22-2 sn esse osseee seen ennne Be at : CITATIONS : Rites v. Gage, 280 U, 8. 327. .---- Mi hae se oneriacec genic 14 _- Burns v. Commissioner, 31 F. (2d) 399, certiorari denied, — 4 BROW. Bs ABA Lois. census - see cnctcee sce cakg onesies. TRY 2 _ DeLoss v. Commissioner, 28 F. (24) , EERE EIS "Doyle v: Mitchell Brothers Co.; 247 U. 8. 179_......----.- me oe Goldfield Consol. Mines Co. v. Scott, 247 U. 8. 126.....-... 12... Kentucky Tobacco Produicts Co. v. Lucas, & F. (2d) 723-..~ Heel |. Lynch v. Alworth-Stephens Co., 267 U. 8. 364__........--- en be j : Mae Cosel, Co, 5. Latent 108 Pot: OO See eee 265 U. 8. 581.-..- fain Swe bree Ales = “oe Seawihe « Se A Ree 12 | Stanton v Baltic Mining Co., 240 U. 8. 108 enicih tide osini ae United States v. Biwabik Mining Co., 247 U. 8. im. pe? Bes.’ - United States Vv. Ludey, 274 U. 8. $0630. Heenan sesenene: 4, 13 ‘Yon Baumbach v. Sargent Land Co., 242 U, 8. 503. ee wa ee Hovenue Act of 1016, ¢. 468, Sec. 12 (a), 89 Stat, 756, 167-768 yd aes ~ Revenue act of 1918, ° 18, 234 (@) @), 40-Btat. 1057, 1077, 4078... wk 1-8, 10,14 68, art. B00 —reenespnemsny sires o~ 14 : Pre 8 © Sm Rt a ove 0 re a & Gas Company / "The Solicitor General, on behalf of the Commis. | nih oe tetibaad Reva, prays that’s Writ ‘of “certiorari ‘issue to Teview the judgment” of ‘the: | ‘Tenth Cire, entered inthe sbovecaube om Apr 5, 1930 (R: 39), reversing the | of States Board of Tax Appeals. R16) - ae ibaa ie Tete *® oe’, feos depletion: is aiarialiy computed under Section 234 (a) (9) of the Revenue Act of 1918 with ~ respect to an oil lease aequired prior to March 1, . 1913, the Commissioner. is required to deduct from . the value ofthe lease on March 1, 1913, plus. the. : cost of capital additions thereafter, (1) the fatal sone depletion sustained since.March 1, 1913, or (2) © merely the depletion allowed as deductions from i "gross income since that date: - oie respondent owned an oil and gas mining: _. lease acquired prior to Mareh 1, 1913. On that date . the recoverable oil reserves embraced by the lease were 278,000 barrels, and the value thereof was $156,645, or, $.56347 per barrel. In\the last. ten __ . -months of 1913, in 1914 and 1915, the; respondent 9 - extracted 162,717.03 barrels of oil, and, atthe uit rate mentioned, sustained depletion of its oil-in the amount of $91,686.15; "During this same period the depletion allowed. respondent from its gross | ‘Seemn amounted to only. $6,322.02, because the Revenue Act of 1913, then in force, restricted the annual deduc i D allowed for-depletion to 5% of the RS: peedeion. of. the, respondent, which | for’ this = eriod totaled Pla 40.44. - AY 14-15; see, infra, oo Be) my | a is Gc ie alate of ‘ - Ma lean at cot $9000, by whic its of re q ere remiaine jeddins thiginabveenrs 115,283 bar- qa _—_, thely:having a: March 1) 1913 value of $64,958.85. By adding to this oot March 1, 1913 value the ; oes eee : ‘ pa : Phe Pata . cost of the extension of the lease, and by increasing ‘ the remaining oil reserves by the additional 300,000 . barrels the Commissioner found a new total recoy- - erable Teserve of 415,283, barrels, having abasic. value or cost’ si sete or sa per, barrel. ae (R. 15-16.) ae ~ In 1916 and 1917 the enipleibinah sjeciiaa bids 49 452 is heous and. 39,204 barrels. of oil, respectivelyyom -which it sustained ‘depletion. in. the - ‘respective Se amounts of $11,307.69 and $8,964.39. During 1918 : the respondent produced { 33,697 barrels, upon which - “it sustained-depletion in the amount pf $7,705.16, determined at the unit rate of $.22866. per barrel, = which amount the Commissioner allowed as a de- - se duction from gross income for 1918... ae se is the depletion allemnnte for 1918 which is here j in. question. he 2 ge ee -, Respondent contended that the unit rate. of: de- ae ae pletion. per barrel for 1918 should: have been based - . Wpon the original March - ‘1, 1913 value of 1€ oil - reserves, plus the cost of the extension of the lease, _ and less only that portion of the depletion sustained _ in 1918, 1914 and 1915 which was allowed to it) as ay S deductions (i. e.;, $6,322.02). ‘The Commissioner, in ie - determining the capital value of the total reserve ae . upon which depletion for 1918 should be based, a adopted the March 1, 1913 a tie of ‘the reserve, plus ee thé cost of the extension of the lease, less the full amount of the:depletion’ sustained in ithe years. _ 1913, 1914/an saat e, sities belting that Ve / ‘ ) : raise ose es # the éditine apton atin noe years should ‘be deducted’ from the: original March 4, 1913 value .. ‘whether’ allowable as deduetions or not. ~ “Note: No question is here raised as q the correctness of the _ .amount of depletion deducte by the Commissioner _ for 1916 and. aE in ph eaaaern : the depletion allow- ance for 1918, , Fhe ‘Board of Tax Apivinin 8 tained the Com- missioner. (R. 20.) Thé Circuit Qourt of Appeals, relying upon United States v. Ludey) 274U. $2295, held that in determining in 1918 the \value or cost — of the reserves then recoverable through depletion _ ‘allowances there should be deducted from the otigitial March 1, 1913 value or cost only so much of the depletion sustained between March 1,1913 and December 31,1917 as was legally aliowable as | deductions during that: period, and, accordingly, : _Peversed the decision of the Board. (Rk. 32-38. ) _ SPECIFICATION oF ERRORS ‘The: Circuit ‘Court -of Appeals erred in holding. that the capital value. in 1918 of. oil-mining prop- - erties, acquired prior fo March 1, 1913, recoverable through depletion allowances, is the March 1, 1913, .value_of the oil reserves, plus the cost of cman '.. additions and minus only the depletion of the re- serves in prior years which were allowed as dedue- tions from STOss income of such years.. at Se 2 + . "REASONS FOR GRANTING THE WRIT = 1. The effect of the decision tude is to over- throw evens which Exve been i in sured for ten pay 5 yeareand ohict halve received Tegidlative « approvai through the reenactment of Section 234 (a) (9) of the Revenue Act. of 1918 ‘in later revenue acts without substantial . change. Regulations 62, Ar- ticle 202, construing. Section 234 (a) (9). of. the Revenue Act of 1921: ; Regulations 65, Article 202, “ construing Section. 934 (a) (8) of the Revenue Act of 1924; Regylations 69, Article: 202, construing - Section 234 (a) (8) of the Revenue Act of 1926. _ 2. The decision below authorizes a deduction i in ‘1918 for depletion actually sustained in earlier years. This is in conflict with the settled principle that losses are deductible only for the year in which sustained (DeLoss \. Commissioner, 28 F. (2d) 803... » (C..C0. A. 2d); Burns y. Commissioner, 31 F. (2d) 399 (C..C. A, 5th). ce iorari denied, 280 U.S, 424), -and defeats the purpose of Section II, B of the ‘Revenue ‘Act of 1913 which limited depletion dedue- tions in the case. of mines to om of: the Bes value * of the production. ak. 3. The instant. case presents a question of statu- tory construction which is of present importance i in : = administering tax laws, since it is inyolved in nu- merous cases now pending in the courts, the Board © OU en eaten ot Malalaal He. 4% enue. Wherefore, it is respectfully emitted that the petition should be granted. 2 Sass feet ae THomas D. Spain, = eat, Solicitor General. = JULY, ts ace nicest . ; ~ , , : 4 e F BRIEF IN SUPPORT OF PETITION | OPINIONS BELOW eres | | The findings of fact and opinion of the Board of . ‘Tax Appeals (R. 14-21) are reported in15B.T: A. . 998. The opinion of the, Circuit Court. of ~Apaenle ; (R. 32-38) is not yet reported. -JURISDICTION. - omhe order of the Circuit Court of Apical #64 revers- ing the decisién of the Board of Tax Appeals ' was: . entered on April 5, 1930. (R. 39.) Jurisdiction — is conferred upon this Court by Section 240(a) of _ the Judicial Code, as amended by the Act of Febru- : ary 13, 1925. ee QUESTION PRESENTED Whether under Section 234(a) (9) of ice linvenne » Act of 1918 in determining for any taxable year the capital value recoverable through depletion al- lowances of oil-mining properties acquired prior to March 1, 1913, there should be. deducted from the March 1, 1913 value the amount of. depletion ac- tually sustained in, earlier years or only so much. of such depletion as was allowable as deductions in those years. : : ! STATUTES AND REGULATIONS a re “The ‘Reventtie Act of : 1913, e. 16, 38 Stat. 114, 167 provides i in part: © SECTION i. * 4 bemreties Berane, That in ccmupntine amietbenai oY Pe there shall be allowed as deductions: * * * sixth, a reasonable. allowance for the ex-. ‘haustion, wear and tear of property arising _. out of its use or employment i in the. business, not to exceed, in the case. of mines, 5 per eentum of the gross value at the mine of the | _\. output for the year for me the computa- : tion is made, > ea “The Revenue Act of 1916, e¢. 463, 39 Stat, 156, ‘167-768, provides i In part: : Sec. 12. (a) In the. case of a. corpora oes tion * * *~ such net income shail be as- . certained by deducting — _— the at ml - amount of its income we * * i : _* * Second. All Teancs actually sustained and sherund oliniheteceoeasiet nen sated by insurance or otherwise, ineluding . (a) in the case of oil and.gas wells a yenacnable allowance fot actual reduction Bralprtapne piusarung tay spire sokooa Ses by the fush flow, but by the settled fb tion or regular flow; * Min even Ae of 518 18, 408i 1051, 1077, 1078, provides in part: Sxo. 234. (a) That in peas the net income of a corporation — to the: tax” a B88 80-—2 = = z Se ae 6 the value as of the basie date of the lessee’s : 3 of ih . + - ‘ ee 4 “ . % is ay , ye i 8 -: “ e eee % NS ne o x < * imposed by seition 290 there aba be a lomnd ne, Aaghensionm oe > oes pee * | (9) Jn the eaie of mines, oil and gas will; ithe setae toatl ad reasonable -allowance for depletion ahd i . - \depreciation of improvements, according to - the peculiar conditions in each case, based upon cost including cost of development not . otherwise deducted: Provided, That in the ease of such properties acquired prior to Mareh 1, 1913, the fair market value of the property (or the taxpayer’s interest therein) on that date shall be taken in liew of costs ' up to that date: * * * such reasonable allowance in ene above cases’to besmade . under rules and regulations to be prescribed _by the Commissioner with the approval of E _ the Secretary. gf Beate: F _. Regulations. 45, promulgated J ahuary 28, 1921 a “under the Revenue Act of 1918, provides: | Pfc ee Arr. 208. Capital recoverable Pesouinik de- : i pletion deductions: in the case of lessee.— . “(ay In thé ase’ of a lessee; the capital re- saa maining in any year recoverable through de- — 9). spletion - ‘and: depreciation’ ‘deductions is (1) a -_/ equity’in the property plus (2) subsequent = allowable capital additions but minus (3)de- pletion and depreciation d, whether = 200) egailly:allowable oy not, from the basie date : to the taxable year.. The capital recoverable = Pied ten months of 1913, and. ¢ di rin i odes $91,686.15, were pase ds “Du . this same period the annual deductions all if ved tained 278,000 barrels of oil, valued at § dese _ spondent from its gross income on account of de ple. : tion” totaled $6,322.02- said amount | en oes provided. that the prior roe ion tained, whether. I egally. allowable 0 or “not”? s GREE Ee ae 7 *e ft i if < a a “ee fave we a2 of Pe : Ee a - , "s “ . 5 ger . eS Ber ee foe OMS ee fee Q ; '. We REP OeS Cee at + . a | 2» ee that’ any of the anes used by’ ie ‘Commissioner Were erroneous and it is not deniad that the oil re- " gerve has been actually depleted in the amount by. which it was reduced ‘by the Commissioner i in com- - puting the 1918 allowance. Respondent” 's conten: _ tion is that.the original March 1, 1913 value should . ‘not have been reduced by the actual amount of de- pletion sustained’ prior to 1918, but only by the amount which Congress in prior years permitted to ‘ be deducted from gross income. In. determining 1 : the annual depletion allowances for 1918 ‘and sub- ; sequent years, the resporident would thus increase the value of the remaining gil as fixed by the Com- “missioner by. more than $85,000, although it is con-. ceded that the remaining oil: has been’ seins pa "valued by the Commissioner. The question is one of statutory construction. Section’ 234 (a) (9) provides for “a reasonable allowance’? for depletion to be made ‘‘under rules and regulations to. be prescribed ‘by the Commis- - sioner with the approval of the Secretary. "Phe _ regulations in question | were made pursuant to this ~~ statutory authority and the depletion allowance . ‘made in this case was strictly i in accord with the » ‘regulations. But it is contended that the 1918 allowance was not a reasonable one because it’ was “not based. upon the theory that there must ulti- | : . ; mately be returned to the taxpayer in depletion eine allowances: his ‘entire original capital investment : free from tax. Cee as | : | = oe a e In‘ the years 1913 to 1915, ‘incite when $01, Oe 686.15 of depletion was actually sustained, the Revenue Act of 1913 limited the ‘annual depletion oe deduction to “not to exceed, in the case of mines, 5: per centum of the gross value at the mine of the _ output for the year for which the computation ee made.”’ (See p. 7, supra.) The validity of this — arbitrary. limit. was sustained 4 in Stanton v. Baltic | -. Mining Co., 240 U. 8. 103, Since. the decision. “a the court below authorizes an allowance in 1918 for : depletion actually sustained. in earlier years, the necessary effect of that decision.is to give to the taxpayer in 1918.a deduction which the statute ‘ex: ; oe pressly prohibited him from taking i in earlier years. ’ There is nothing in the 1918: Act which provid : that all depletion sustained in any prior year w . Was not allowable as a deduction from gross income ee, - in such year should, in effect, be allowed aspartof | -the depletion deductions in later years, so that when the asset is finally. exhausted its full value _. mist have. been allowed as deductions from gross , _ income. The, 1918 Act merely provides, for ‘‘area- ‘ sonable allowance” and. it is. submitted that this , ¢an not be interpreted to mean more than a reason- . able allowance based upon the exhaustion, which actually occurs during the. year for which the tax ae | : | As determined... bo 8 _ » ct is now well. settled that an owner: of oil pt : Inining. properties is ‘not entitled as.a matter of | right. ‘to make any. deduction from arom income on. - pate. — in the basic value of th® remaining : reserve. effect of the decisjon below is to in- | y ce 7y ‘ _abcount of the extinction and sale of the mineral “ which’ ‘produces: the income. Lynch-v. Alworth- . _ Stephens Co., 267 U.S. 864; Von Baumbach v. Sar- | gent Land Co., 242 U. S. 503; Goldfield Consol. Mines Co. ¥. Scott, 247 U.S. 126; United States v. - Biwabik Mining o:, 247 U- 8. 116; New Creek Co. _v, Lederer, 295 Fed, 433, 435, certiorari denied, 265 U. 8. 581. The bei sayei is entitled only to what _ the'statute gives. Kentucky Tobacto Products Co. ”. Lucas, 5 ¥. (2d) 723, 728. In the Corporation _ Tax. Law-of 1909, ¢. 6, 36 Stat: 11, 112, Congress . failed to make: provision for any deduction on act- count of depletion of mineral reserves. In later Acts provision was made for depletion deductions, oe but im none of the Acts since 1913: has © gress : evidenced any intention ofoffsetting the limnit dal-— . lowanee' provided by the 1913 Act by a€omntensu- _ erease. fictitiously the value of the respondent’s re-.- ‘maining reserve by the $85,000. difference between the depletion’ sustained and that allowed under the 1918 Act. ‘By that decision a-value is attributed ee \ing-reservein excess of its conceded value, ‘dea a deduction is permitted i in 1918 which was ‘not ee Pits Saas - spanatiith id think youn ‘This is contrary to the ac- — principle that losses are "deductible only for in 1 hich ae aes . sioner (0. 0. A. 24), 28 F. (2a) 803 Burns v. Com mer (C. ©. A. 5th); 31 F. (24) a buna | aa i Rice Sy i 2 st Se ~DeLoss v. Commis- a : é 5 * Et Discs see : Pay & : > . pa r . is ¥ E iia is Z s . a _ he court’ below recognized that its decision ‘re- sulted in attributing an excessive value to the: | maining’ reserve,’ but thought that result was os required by the decision in United States v. Ludey, Be : supra. That ease involved the question of gain or loss_upon a sale of oil properties. As long: ago Doyle v. Mitchell Brothers Co., 247 U. 8.179, we _ was’ settled that in order todetermine* whether ~ - there has been gain or loss upon the sale of capital -. assets there must be withdrawn from the gross pro- - .eeeds an amount sufficient. to-restore the capital value that: existed at the beginning. Only the — - amount remaining is in¢ome. _Accordingly it was necessary in the Ludey case to compute: the de- - pleted cost by deducting from the original ‘cost only "the actual amount of depletion which ‘had been _ ‘allowed theretofore. In determining gain or loss _ from a sale the taxpayer must get back his cost, and depletion enters into the calculation for the purpose of determining how much of his cost has already been returned to him. For this purpose _ the sustained depletion is not important. ‘There-- _ : | fore, this Court, i in the Ludey case, decided that the in original cost, must’ be reduced: only to’ the extent _ that, it had alréady been recovered in the form of ee allowed depletion. But. it does not follow that the > same rule applies in this case, where no question. of “ gain or loss is involved and where the only question, eee = oo a what allowance Congress, intended the e taxpayer 8 is - to have as a a deduction £ from ie income. 7 ee - Section 234 (a) (9). of: the 1918 Act: does’ pape f provide a deduction of the precise. amount of — actual depletion. _Nor does the section attempt to ' . provide how the annual allowance shall be deter oe mined. This depends upon many variable factors. ~ _ . which are impossible of exact ascertainment. * Ai ' cordingly, Congress merely provided for a ‘‘reason- © able allowance,” to be made under rules and regula- __ _ tions prescribed by the Treasury Department. Un- —_ der this specific statutory authority the Treasury _ zi Department. promulgated the aes which © -- have been referred to aboy . These regulations ' have been in force for ten y rs ang: have received _ legislative approval through re-enactment: of’ the pertinent provision of th@M918: Act in subsequent — > revenue acts without substantial change. (SeeReg- ° . ulations 62, Article 202, cbnstruing Section 234 (a) +. °(9) of the Revenue- Act O€ 1921; Regulations 65, . . Article 202, construing Section 234 (a)! (8) of the . Revenue Act of 1924; ulations 69, Article 202, — a ectic t (8) of the Reyenue Act. - Sadie i they providearéasonable — - ate allowance for. depletion and that} under tlt settled . | tule the regulations--should not be disturbed. * Brewster: ines Se $2327. dhe aoe 67} . rg: , ay ia " CONCLUSION esate te ee “The decision ‘below. overturns ‘Pogue ‘of ‘ x . “ * : | and ‘uncertainty in the administrat ion of the tax ie : laws. PY cabs, evobring in the ageregate large — ‘ oe te : i tot a Ben ~ ‘ * ¢. by Se sums of money, are affected by the decision: In _. view of this and the need for a definite rule for the _ a guidance of the courts and the Treasury Depart- | ment it is respectfully submitted that. the _—, ee | : should be granted. tee Pema D. Pesce; ee as, _ Solicitor General. / G. A. Younaguist, - ae _ Assistant Attorney General. ‘Sewath Key, - ae d J. Louis MonarcH, > Special | Asiotpnt to the Attorney General. af; ‘Pav. D. Mum, . ° - oY ce ee oe ope ae Attorney. C. M. ‘Cnarest, Loe : General Counsel, 7 * Bureau of Internal Revenue, | a JOHN. MacO. Hupson, - 8 pecial Attorney, SN ae ee Bureau of I nternal Revenue, ae te ae ‘ oi: —— : Jour, 1930 . ees eae EY --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386008_0021%3A2. Public record. Not legal advice.