F. H. E. OIL CO.
v.
HELVERING, COMMISSIONER OF INTERNAL REVENUE
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F.H.E. Oil Co. deducted certain development expenditures when computing its taxable net income under the Revenue Act of 1932 but refused to deduct those same expenses when applying the statutory 50 percent limitation on its depletion allowance. The Supreme Court affirmed that Treasury Regulations requiring development costs to be deducted from gross income in calculating the depletion limitation were valid and binding on the taxpayer, following its contemporaneous decision in Helvering v. Wilshire Oil Co. establishing the lawfulness of comparable regulations under the 1928 Act.
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Mr. Justice Douglas delivered the opinion of the Court.
This case presents the same issue as is involved in Helvering v. Wilshire Oil Co., ante, p. 90, except that it arises under the Revenue Act of 1932 (47 Stat. 169). In computing its taxable net income under that Act, petitioner deducted certain development expenditures as it had done since its organization in 1925. But it refused to take these same deductions in computing net income for the purpose of applying the 50 per cent limitation on the depletion allowance, as provided in §,114 (b) (3) of the 1932 Act.1 That section, so far as material here, was the same as § 114 (b) (3) of the 1928 Act (45 Stat. 791).-And Treasury Regulations 77, Art. 221 (h) promulgated under the 1932 Act2 defined “net income . . . from the property” as used in §114 (b) (3) so as to require “development costs” of the kind here involved-to be deducted from “gross income from the property.” 3 The Board of Tax Appeals held that petitioner need not deduct these development expenditures in applying the 50 per cent limitation on depletion allowance (36 B. T. A. 1327) and the Circuit Court of Appeals reversed (102 F. 2d 596). Since we have this day decided in Helvering v. Wilshire Oil Co., supra, that comparable regulations under the 1928 Act were lawful, a fortiori those here involved are valid and binding.on petitioner. The judgment of the court below was therefore right and is
Affirmed.
Mr. Justice ButleR and Mr. Justice Reed took no part in the consideration or disposition of this case.
That section provided:
“In the case of oil and gas wells the allowance for depletion shall be 27% per centum of the gross income from the property during the taxable year, 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 per centum of the net income of the taxpayer (computed without allowance for depletion) from the property, except that in no case shall the depletion allowance be less than it would be if computed without reference to this paragraph.”
Section 23 (1) of the Revenue Act of 1932 provided:
“In computing net income there shall be allowed as deductions:
“(l) Depletion. — In the case of mines, oil and gas wells, other natural deposits, and timber, a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case; such reasonable allowance in all cases to be made under rules and regulations to be prescribed by the Commissioner, with the approval of the Secretary. . . .”
Treasury Regulations 77, Art. 221 (h) provided:
“ ‘Net income of the taxpayer (computed without allowance for depletion) from the property,’ as used in section 114 (b) (2), (3), and (4)' and articles 221 to 248, inclusive, means the ‘gross income from the property’ as defined in paragraph (g) less the allowable deductions attributable to the mineral property upon which the depletion is claimed and the allowable deductions attributable to the processes listed in paragraph (g) in so far as they relate to the product of such property, including overhead and operating expenses, development costs properly charged to expense, depreciation, taxes, losses sustained, etc., but excluding any allowance for depletion, ...”
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F. H. E. Oil Co. v. Commissioner of Internal Revenue, 147 F.2d 1002 (5th Cir. 1945)…cost of any unproductive well, after abandoning it and salvaging what is salvable, can be treated as a realized loss is not here in question. Judgment affirmed. WALLER, Circuit Judge, concurring in the result. . In F. H. E. Oil Co. v. Helvering, 308 U.S. 104, 60 S.Ct. 26, 84 L.Ed. 109, the taxpayer had elected to deduct drilling •costs as expense, and had been allowed to do so. No one questioned the propriety of the deduction. The controversy was over another part of the Regulation which required, that…
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Helvering v. Comar Oil Co., 107 F.2d 708 (8th Cir. 1939)…before the Supreme Court on certiorari in both of which this identical issue was involved. The cases referred to were Helvering, Commissioner v. Wilshire Oil Company, Inc., 60 S.Ct. 18, 84 L.Ed.-, and F. H. E. Oil Company v. Helvering, Commissioner, 60 S.Ct. 26, 84 L.Ed. -. Both of these cases were decided by the Supreme Court November 6, 1939; and the decisions were adverse to the contentions of the respondent in the present case. In both cases it was held that the Board of Tax Appeals erred in holding th…
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Commissioner of Internal Revenue v. Crews and five other cases, 108 F.2d 712 (10th Cir. 1939)…the property” in Sec [*713] tion 114(b) (3) of the Revenue Act of 19281 has been set at rest by the decisions of the Supreme Court in Helvering, Commissioner v. Wilshire Oil Company, 60 S. Ct. 18, 84 L.Ed.-, and F. H. E. Oil Company v. Commissioner, 60 S.Ct. 26, 84 L.Ed. -, which 'sustain the contentions of the Commissioner in the instant cases. Hence, the proper depletion allowance is $181,955.-86. The decisions are reversed and the causes are remanded, with instructions to redetermine the tax in accorda…
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- Commissioner of Internal Revenue v. F. H. E. Oil Co., 102 F.2d 596 (5th Cir. 1939)