Anderson v. Commissioner

30 B.T.A. 597, 1934 BTA LEXIS 1299

• Court: United States Board of Tax Appeals
• Decided: May 1, 1934
• Docket: Docket No. 64360.
• Status: Published

Opinions

OPINION.

Sternhagen :

The Commissioner determined a deficiency of $2,639 in petitioner’s income tax for 1929.

1. The petitioner claims the deduction of approximately $14,000 as a “ loss sustained during the taxable year and not compensated for by insurance or otherwise * * * incurred in trade or business.” (Revenue Act of 1928, sec. 23 (e) (1)). The amount claimed represents the uninsured part of his liability for damage for death resulting from his negligent driving of his own automobile. If allowable at all, such a loss must be the proximate result of the business (cf. Kornhauser v. United States, 276 U.S. 145); and such a finding of fact is not justified by the evidence. The petitioner, the sole witness, testified that in order to procure the prompt services of a laborer to do some cement work in the floor of a building of which he was the owner and lessor, he was driving his own Cadillac car a distance of 220 miles in the nighttime with a friend when the collision occurred for which he was liable. We think the payment of the judgment is too remote to be characterized as a loss incurred in business.

2. The respondent affirmatively pleads that $142,000 received by petitioner in the taxable year is ordinary net income and not statutory capital gain, as petitioner in his return treated it. In Schedule D of his return the petitioner called this amount “ oil royalty.” As such, it was clearly to be treated as ordinary income and not capital gain, Burnet v. Harmel, 281 U.S. 108. But the petitioner contends that the designation “ oil royalty ” was a mistake and that the amounts were received as a consideration for several mineral deeds, all of which are in evidence, transferring to various persons fractional “ interests in and to all of the oil, gas, and other minerals in and under and that may be produced from the following described lands situated in Seminole County, State of Oklahoma.” The descriptions vary in form in the several instruments, some calling the interest conveyed an “ interest in the royalty,” but no point is made of these differences. The petitioner continued to own the fee to the land. He contends that these transactions were sales of capital assets and legally different from the leases considered in earlier cases.

While it may be true that there is a technical difference between a mineral deed in Oklahoma given for a single consideration, and an oil or mining lease in Texas or some other state given for either periodic royalties or a single “ bonus,” the practical effect of both is substantially the same and the legal distinction is overridden in applying a nationally uniform Federal income tax. We find it impossible to interpret Burnet v. Harmel, supra, as meaning anything else. Oil leases in Texas are called sales, but the proceeds were held to be ordinary income even though paid in lump. We can see no essential, practical, or economic difference when in Oklahoma a land owner conveys to another the lesser estate of an interest in the subterranean contents and the right to produce it.

The decisions in J. E. Murphy, 9 B.T.A. 610, and J. D. Reynolds, 10 B.T.A. 651, were cited in Ferguson v. Commissioner, 45 Fed. (2d) 573, and support the petitioner’s view. But they must give way before the broader principle of Burnet v. Harmel, supra. The recent opinion of the General Counsel in G.C.M. 12118, Cumulative Bulletin XII-2, which is contrary to his affirmative claim here, seems to us to be incorrect.

Following, as we think, the purport of Burnet v. Harmel., supra, we hold the $142,000 to be ordinary income, and sustain the respondent’s affirmative claim for the resulting increase in the deficiency. Cf. Alexander v. King, 46 Fed. (2d) 235.

Reviewed by the Board.

Judgment uMl be entered under Rule 50.

TRAmmell concurs in the result.