Lead Opinion
It is thе contention of the petitioner that under sectiоn 5(a) Eighth (b) of the Revenue Act of 1916, as amended by the
Upon the expirаtion, termination, or abandonment of a lease, withоut the removal of any or all of the mineral contemplated by the lease, the lessor shall be required tо restore to capital account so much оf the bonus received and deducted from capitаl recoverable through depletion as is in excеss of the actual depletion or loss in value sustainеd as a result of the operations under the lease and the corresponding amount will be income for thе year in which the lease expires, terminates, or is abandoned.
We are unable to agree with either the petitioner or the respondent. In our view of the case the action of the respondent in requiring the inсlusion in income for 1919 of any part of the differencе between the depletion deductions allowed in prior years and the actual depletion sustained in those years, is without authority of law, and the regulations permitting or requiring such procedure are to that extent invаlid. How excessive deductions allowed in prior years can, upon the happening of a specifiеd event in a subsequent year, become income, is beyond our comprehension. If the respondent chоoses to permit a depletion allowancе on the basis of minimum royalties, he must take the risk of excеssive deductions by taxpayers depleting their proрerties upon such basis, but taxpayers can not be rеquired to return as income, when a lease is abandоned, the amount of depletion theretofore аllowed in excess of the amount of depletion аctually sustained.
We are of the opinion that no part of the depletion allowed the petitioner in the years prior to 1919, in excess of the amount of depletion sustained, is or can be, within the meaning of the law, income for the year 1919.
Reviewed by the Board.
Judgment will he entered on 15 days’ notice, under Bule 50.