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U.S. Supreme Court

Helvering v. Elbe Oil Land Development Co., 303 U.S. 372 (1938)

Helvering v. Elbe Oil Land Development Co.

No. 446

Argued February 10, 1938

Decided March 7, 1938

303 U.S. 372


The taxpayer sold all of its interest in certain oil and gas properties in consideration of cash down and deferred payments in several stated amounts, the agreement further providing that, when the vendee had been reimbursed for expenditures in acquisition, development and operation, the taxpayer should receive one-third of the net profits of production and operation of the properties.

Held: chanroblesvirtualawlibrary

Page 303 U. S. 373

1. That there was an absolute sale divesting the taxpayer of all interest or investment in the properties, including oil and gas in place. P. 303 U. S. 375.

2. The provision for payment from profits was merely a personal covenant of the vendee. Id.

3. The taxpayer is not entitled under the Revenue Act of 1928, § 114(b)(3), to a deduction for depletion computed on the cash payments. Id.

Neither the cash payments nor the agreement for a share of subsequent profits constituted an advance royalty, or a "bonus" in the nature of an advance royalty, within the decisions recognizing a right to the depletion allowance with respect to payments of that sort.

4. The words "gross income from the property," as used in the statute governing the allowance for depletion, mean gross income received from the operation of the oil and gas wells by one who has a capital investment therein, not income from the sale of the oil and gas properties themselves. P. 303 U. S. 375.

91 F.2d 127 reversed.

Certiorari, 302 U.S. 677, to review the reversal of a decision of the Board of Tax Appeals, 34 B.T.A. 333, sustaining the Commissioner's disallowance of deductions for depletion.

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