UNION TEXAS INTERNATIONAL CORPORATION, f.k.a. UNION TEXAS PETROLEUM CORPORATION, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent UNION TEXAS PETROLEUM ENERGY CORPORATION SUCCESSOR BY MERGER TO UNION TEXAS PETROLEUM CORPORATION, f.k.a. UNION TEXAS PROPERTIES CORPORATION, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 15182-94, 15183-94
United States Tax Court
May 21, 1998
110 T.C. No. 25
Effective Dec. 31, 1982, P‘s predecessor, OP, entered into an agency agreement with PR, a sister company, to process and sell propane for OP and NP to unrelated third parties. OP and NP retained title to its propane until PR sold it to unrelated third parties. PR also sold its own propane to T, a related retailer.
- Held: P, Energy, is estopped to deny the validity of the Forms 872. Knowledge of the merger is not attributed to R‘s WPT agents; computerized information of the merger was not accessible to them.
- Held: Ps are independent producers, because they did not sell their propane to T.
- Held:
Sec. 4988(b)(3)(A), I.R.C. , requires Ps to compute the NIL in the same manner undersec. 4988(b)(3)(A), I.R.C. andsec. 613, I.R.C.
Jasper George Taylor III, Charles Washington Hall, William H. Caudill, and John B. Kinchen, for petitioners.
Sheri Wilcox, for respondent.
OPINION
PARR, Judge: In these consolidated cases, respondent determined the following deficiencies in windfall profit tax (WPT) for the taxable periods of 1983, 1984, and 1985, respectively: $3,471,045, $3,060,042, and $2,109,854. Respondent determined the deficiencies against Union Texas Petroleum International (International) for 1983 and 1984, and against Union Texas Petroleum Energy (Energy) for 1985. In their petitions, petitioners raised an issue pursuant to section
After concessions by the parties2, the issues for decision are: (1) Whether petitioner, Energy, should be equitably estopped to deny that the limitations period for the taxable periods of 1985 were extended properly under
Some of the facts have been stipulated and are so found. The stipulated facts and the accompanying exhibits are incorporated into our findings by this reference. At the time the petitions in these cases were filed, petitioners’ principal place of business was located in Houston, Texas. For convenience, we present a general background section and combine our findings of fact with our opinion under each separate issue.
General Background
Corporate Structure--1982 Reorganization
Until December 31, 1982, Old Petroleum (Employer Identification Number, hereinafter EIN 74-6044301), a Delaware corporation, was a subsidiary of Allied Corporation (Allied), a New York corporation. Old Petroleum owned and operated 10 natural gas processing plants and held nonoperating interests in additional gas processing plants. During that time, Old Petroleum owned 100 percent of the stock of Texgas Corporation (Texgas), a Delaware corporation, which was in the business of retailing propane.
In a December 31, 1982, reorganization, Allied formed a new corporation called Union Texas Petroleum Holdings, Inc. (Holdings) (EIN 76-0040040) to serve as the parent of Old
Corporate Structure--1984 Reorganization
In a December 31, 1984, reorganization, Old Petroleum transferred all of its domestic oil and gas properties to New Petroleum (EIN 76-0125286), a Delaware corporation and subsidiary of Holdings, then known as Properties. On March 5, 1985, New Petroleum changed its name from Union Texas Properties Corporation to Union Texas Petroleum Corporation. Old Petroleum, presently known as International, currently exists as a Delaware corporation and is the petitioner in the instant case with respect to 1983 and 1984.
Corporate Structure--1991 Reorganization
On October 15, 1991, Holdings became the parent of a new corporation called Union Texas Petroleum Energy Corporation, or
Issue 1. Equitable Estoppel for the Taxable Periods of 1985
1985 Forms 872--Consent To Extend the Time To Assess Tax
In the 1984 reorganization, Old Petroleum transferred its domestic oil and gas properties to New Petroleum, then known as Properties. Thus, the responsibility for filing WPT returns shifted from Old Petroleum to Properties. On March 5, 1985, Properties changed its name to New Petroleum. Despite the name change, New Petroleum continued to file its Forms 720, Quarterly Federal Excise Tax Returns (Forms 720), for the first three taxable quarters of 1985 under the name of Properties.
To keep the period of limitations open while respondent continued to conduct the WPT examination of New Petroleum for the 1985 taxable periods, respondent and New Petroleum began executing a series of Forms 872, the last of which was meant to extend the limitations period to June 30, 1994. At that time, what respondent‘s WPT revenue agents (WPT agents or agents) did
| Extended Date | Date New Petroleum Signed | Date Respondent Signed |
|---|---|---|
| 6/30/93 | 7/22/92 | 8/24/92 |
| 12/31/93 | 1/14/93 | 2/11/93 |
| 6/30/94 | 7/27/93 | 7/30/93 |
Each of these three consents was prepared by respondent‘s Appeals Office in Houston, Texas. Each consent identified the taxpayer as “Union Texas Petroleum Corporation (formerly Union Texas Properties Corporation) (Successor to Union Texas Petroleum Corporation 74-6044301)” and listed the EIN as 76-0125286. The consents should have identified the taxpayer for 1983 and 1984 as Union Texas International Corporation, F.K.A. Union Texas Petroleum Corporation, and for 1985 as Union Texas Petroleum Energy Corporation, successor by merger to Union Texas Petroleum Corporation, F.K.A. Union Texas Properties Corporation. When New Petroleum returned the consents to respondent, the Form 872 extending the assessment date to June 30, 1993, bore Lobliner‘s signature, and the two Forms 872 extending the assessment dates
On March 9, 1992, respondent sent New Petroleum the revenue agent‘s report for the taxable periods of 1985, addressed to Union Texas Petroleum Corporation, F.K.A. Union Texas Properties Corporation, as was the consent. On April 24, 1992, in response to the revenue agent‘s report, Lobliner submitted to respondent a protest of respondent‘s determinations for 1985. The protest was on a preprinted letterhead styled Union Texas Petroleum. The case remained under consideration by respondent‘s Appeals Office until May 26, 1994, when the notice of deficiency for 1985 was issued.7
At no time before the petitions in these cases were filed did anyone representing New Petroleum or Energy directly inform the agents conducting the WPT examination or the Appeals officers considering the cases that New Petroleum was defunct and had no authority to act, that Lobliner and Markowitz were not officers of New Petroleum and did not have authority to execute the Forms 872 for the 1985 taxable periods, that future correspondence
Discussion
Respondent contends that Energy should be estopped to deny the validity of the last three Forms 872 signed by Lobliner and Markowitz on behalf of New Petroleum, because Energy, through its officers, agents or employees, intentionally deceived respondent by failing to disclose New Petroleum‘s merger into Energy, thereby causing respondent to withhold assessment in reliance upon the consents. Energy asserts that it did not make any false representations to, or maintain any misleading silences in connection with, New Petroleum‘s merger into Energy.
Furthermore, Energy claims that when the last three Forms 872 were signed respondent not only knew of New Petroleum‘s merger, but had a convenient means of acquiring such knowledge. Finally, Energy contends that in preparing and executing the last three Forms 872, respondent did not rely on any acts or statements made by Energy‘s representatives, because respondent‘s agents prepared the Forms 872 by looking only at prior Forms 872 and New Petroleum‘s Federal income tax return for the year in issue.
Pursuant to
Generally speaking, equitable estoppel precludes a party from denying that party‘s own acts or representations which induced another to act to the other‘s detriment. Graff v. Commissioner, 74 T.C. 743, 761 (1980), affd. per curiam 673 F.2d 784 (5th Cir. 1982). The doctrine of equitable estoppel is based on the grounds of public policy, fair dealing, good faith, and justice, and is designed to aid the law in the administration of justice where without its aid injustice might result. Id. The elements of equitable estoppel have been variously described, but for our purposes they may be stated as follows: (1) There must be a false representation or wrongful misleading silence by the party against whom the estoppel is claimed; (2) the error must originate in a statement of fact, not in opinion or a statement of law; (3) the party claiming the benefits of the estoppel must have actually and reasonably relied on the acts or statement of
1. Misrepresentation or Misleading Silence
To sustain equitable estoppel, respondent must show that Energy took “some action” which misled respondent. Century Data Sys. Inc. v. Commissioner, supra at 166. Respondent contends that Energy made false representations or wrongful misleading silences, when it did not tell respondent that New Petroleum had merged out of existence, and that its officers had no power to act. Respondent further contends that the representations were part of a pattern of false representations and misleading silences that caused respondent to believe mistakenly that the period of limitations had been extended. Respondent argues that these material misrepresentations were bolstered by Energy‘s continuing relations with respondent‘s Appeals officers, where 25
We agree with respondent. We are not persuaded by petitioner‘s attempt to obfuscate this issue with the testimony of Joseph Wayne Cliett (Cliett), who was the supervisor of tax audits for Old Petroleum, New Petroleum, Energy, and the other affiliated corporations at the time of trial and during the taxable years in issue. Cliett, as tax supervisor of the Union Texas companies, knew of the tax returns being filed by each of the different Union Texas companies. Moreover, he was responsible for obtaining the appropriate signatures on the Forms 872. Cliett testified that upon receiving the first of the last
We find Cliett‘s testimony to be implausible given his extensive tax and accounting background, coupled with his vast knowledge of petitioners’ business organization and operations. Cliett testified that he has worked nearly 30 years for petitioners or one of their affiliated corporations, that he is the supervisor for tax audits, and he is familiar with the business organization and operations of the Union Texas companies. At trial, Cliett was easily able to identify each Union Texas company, to delineate the various departments within each corporation, and to describe the primary functions of each division within the various corporate departments. Thus, it is most difficult to believe that at the time the last three Forms
Assuming arguendo, that Energy knew of the error contained in the last three Forms 872 (which it does not concede), Energy, in reliance on Century Data Sys., Inc. v. Commissioner, supra at 170, asserts that it was under no affirmative duty to bring respondent‘s mistakes to respondent‘s attention. We disagree and find Energy‘s reliance on Century Data Sys., Inc. v. Commissioner to be misplaced. Energy fails to mention this Court‘s qualification of that proposition; namely, that there is no obligation to correct respondent‘s mistakes provided the “petitioner did nothing to encourage the faulty assumption.” Id. at 171. Here, Energy‘s entire course of conduct encouraged respondent‘s faulty belief that New Petroleum existed at the time the last three Forms 872 were signed. When Lobliner and Markowitz signed the last three consents Energy knew that New Petroleum did not exist, and that Lobliner and Markowitz were not officers of that corporation. Energy not only failed to call this error to respondent‘s attention, but intentionally fostered it by continuing to communicate to the IRS through correspondence that bore the name and EIN of the dissolved corporation. Thus, based on the record and the facts discussed herein, we find that
2. Fact or Law
For equitable estoppel to apply, the misrepresentation or wrongful misleading silence generally must originate in a statement of fact and not in an opinion or a statement of law. Graff v. Commissioner, 74 T.C. at 761.
While it could be argued that the effect of New Petroleum‘s merger into Energy is a legal question, the misrepresentations or silence relate to the facts herein; namely, that at the time the last three Forms 872 were signed New Petroleum existed, and that the individuals signing the consents were its properly authorized officers. Given that Energy‘s misrepresentations or wrongful misleading silences clearly originate in a statement of fact, we find respondent has met his burden with respect to the second element of equitable estoppel.
3. Detrimental Reliance
“It is fundamental to the doctrine of estoppel that the party raising the issue must have been misled in reliance upon the representations of his opponent.” Century Data Sys., Inc. v. Commissioner, 86 T.C. at 166; see also Atlas Oil & Ref. Corp. v. Commissioner, 22 T.C. 552, 559 (1954) (taxpayer must be shown to have taken some action which led Commissioner to postpone until after the period of limitations expired the issuance of a notice of deficiency that he was otherwise prepared to mail on a timely basis).
4. Knowledge of the Facts
To meet the fourth prong of equitable estoppel, the Government must prove not only that respondent was “‘destitute of knowledge of the real facts as to the matter in controversy, but should also have been without convenient or ready means of acquiring such knowledge.‘” Southwestern Inv. Co. v. Commissioner, 19 B.T.A. 30, 47 (1930) (citing Brant v. Virginia Coal and Iron Company, et. al, 93 U.S. 326, 337 (1876)).
Respondent contends that neither the agents nor Appeals officers involved with the WPT audit had actual knowledge of New Petroleum‘s dissolution at the time the last three Forms 872 were signed. Moreover, respondent points to the fact that petitioners stipulated that both Energy and New Petroleum failed to inform the WPT agents of the true situation regarding the merger.
In Paramount Warrior, Inc. v. Commissioner, T.C. Memo. 1976-400, affd. without published opinion 608 F.2d 522 (5th Cir. 1979), a case which is in many respects similar to the instant case, we declined to decide whether the notification of a merger in correspondence with one of respondent‘s service centers, or in a parent company‘s consolidated return, constituted sufficient knowledge on the part of respondent, because we found as a fact that the field agents involved with the examination had actual knowledge that the corporation, on whose behalf the Forms 872 were signed, had merged out of existence. Id. In the instant case, we are faced with precisely the question deferred in Paramount Warrior.
Energy asserts that the two groups of documents filed with respondent‘s Austin Service Center should be considered notice of New Petroleum‘s dissolution, and therefore such knowledge should be attributable to the WPT agents who conducted the examination and who drafted the last three Forms 872. The first group of documents on which Energy relies consists of the 1991 consolidated Form 1120 filed by Holdings along with the merger documents attached thereto. The second group of documents consists of the 1991 employment tax returns (Forms 940 and 941) filed in New Petroleum‘s name. Energy argues that the WPT agents
Respondent contends that the revenue agents and Appeals officers involved in the WPT cases could not have been expected to learn of New Petroleum‘s merger from the information submitted to the Austin Service Center in Holding‘s 1991 Form 1120. For income tax purposes, New Petroleum was a member of a consolidated group headed by Holdings. Accordingly, the statement of merger and certificate of merger which New Petroleum filed were attached to Holdings’ Form 1120 as pages 573 and 574, respectively, of a 632-page consolidated Federal income tax return. The income tax return was filed under the name and EIN of Holdings, which was different from Energy‘s EIN. Moreover, neither page 573 nor page 574 contained Energy‘s EIN. Thus, respondent contends that the computer transcripts requested by the WPT agents using New Petroleum‘s EIN did not reflect the changes in its corporate status shown on Holdings’ Form 1120.
We agree with respondent. It is stipulated that the Austin Service Center received Holdings’ Form 1120 on September 8, 1992, after the first of the three Forms 872 was signed. However, an inspection of the actual Form 1120 reveals that the return was not surveyed by the income tax examination group until January 14, 1995, nearly 18 months after the last consent in issue was signed. Thus, based on the facts discussed herein, we shall not attribute knowledge of New Petroleum‘s merger, which may have been acquired by revenue agents conducting an unrelated income
With respect to the information available to the WPT agents in the IRS’ computer system, the record establishes that although a computer updating procedure existed for income tax return audits which would have reflected a change in New Petroleum‘s corporate status, there was no such system in place for audits of WPT or employment tax returns. At trial, Revenue Agent Bruce Rhames (Agent Rhames), the group manager assigned to conduct the WPT examination for 1985, credibly testified that where, as in the instant cases, the income tax returns were not under his control and something changed which did not pertain exactly to his taxpayer, such as a change in the taxpayer‘s name, its EIN, or the amount of tax paid, he was not notified of the change. Rhames explained that New Petroleum‘s merger into Energy
Respondent‘s argument rests on the premise that any knowledge of New Petroleum‘s merger obtained by personnel at the Austin Service Center should not be attributed to the WPT agents, because respondent did not have a computer system in place at the time the last three Forms 872 were drafted, which would have enabled the agents to access this information easily. We agree with respondent. See also Southwestern Inv. Co. v. Commissioner, 19 B.T.A. 30 (1930) (citing Brant v. Virginia Coal & Iron Co., 93 U.S. 326, 337 (1876); cf. Abeles v. Commissioner, 91 T.C. 1019 (1988).
In Abeles v. Commissioner, supra at 1035, our decision turned on the then-existing availability of computer-generated information using the taxpayer‘s Social Security number. There, we held that for purposes of determining whether a notice of deficiency has been properly mailed to the taxpayer‘s last known address, an agent issuing a deficiency notice generally is charged with knowledge of a taxpayer‘s last known address which appears on the taxpayer‘s most recently filed tax return. In Abeles, we found as a fact that the then-existing computer capabilities of the IRS were such that an agent responsible for issuing a notice of deficiency had the ability to conduct, within a few moments, a search of the IRS computer files for a more recent address for the taxpayer. Id. at 1033-1035. In so
Here, the IRS’ computer system did not provide the ability to conduct within a reasonable time a cross-check of the taxpayer‘s income tax, WPT, and employment tax returns that would have revealed the taxpayer‘s change in corporate status, using a single EIN. Thus, Abeles v. Commissioner, supra, while analogous, is clearly distinguishable from the case at hand.
Finally, we address Energy‘s argument that respondent easily could have determined that New Petroleum had merged out of existence by checking with the Delaware secretary of state, which as of December 17, 1991, had the certificate of merger on file. In making this argument, Energy relies on Badger Materials, Inc. v. Commissioner, 40 T.C. 725, 733 (1963), withdrawn and modified in part by Badger Materials, Inc. v. Commissioner, 40 T.C. 1061 (1963) for the proposition that filing of merger documents with the secretary of state constitutes notice of merger to the IRS. We disagree and find Energy‘s reliance on Badger Materials, Inc. to be misplaced. In Badger Materials, Inc., the taxpayer corporation was dissolved and generally ceased to exist. Following the dissolution, the treasurer of the defunct corporation executed consents purporting to extend the period for assessment of Federal income tax. Within the period of
However, the facts in Badger Materials, are distinguishable from the facts herein. In Badger Materials, we found as fact that there was no lack of knowledge of the corporation‘s dissolution on the part of the IRS. Energy argues that Badger Materials stands for the proposition that the Government had knowledge of the corporation‘s merger at the time the consent forms were signed, because the corporation had filed articles of dissolution with the secretary of state of Wisconsin, thus making the matter “public record“. However, the filing of dissolution documents was merely one fact that this Court relied on in holding for the taxpayers. There, the taxpayer corporation also filed a final Federal income tax return with the IRS under its own name and listing its EIN. The return included a statement concerning the liquidation and a copy of the minutes of the stockholder‘s meeting adopting the plan of dissolution. Here, as previously discussed, the statement of merger and the certificate of merger filed by New Petroleum were attached as pages 573 and
Finally, although neither party addresses this point, we note that the returns under audit herein for the taxable periods of 1985 were New Petroleum‘s Quarterly Federal Excise Tax Returns (Form 720). On Form 720, there is a line which states that if the taxpayer will not be liable for returns in succeeding quarters, then the word “FINAL” should be entered. Had New Petroleum entered the word “FINAL” on the appropriate line, that might have been sufficient to put respondent on notice of New Petroleum‘s merger into Energy. However, Energy‘s failure to introduce into evidence New Petroleum‘s final 1991 Form 720 leads us to infer that no such entry appears on the form. See Wichita Terminal Elevator Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), affd. 162 F.2d 513 (10th Cir. 1947).
Thus, based on the record and the facts discussed herein, we hold that Energy is equitably estopped to deny that the limitations period for the taxable periods of 1985 was extended properly under section 6501(c)(4).8
Background
Pursuant to the 1982 reorganization, Old Petroleum contributed all of the assets of its hydrocarbons division to Products, including all of the stock of Texgas. In exchange, Old Petroleum received the stock of Products, which it then distributed to Holdings, the parent company of Products and Old Petroleum. Thereafter, Products owned 100 percent of the stock of Texgas, a retailer of propane,10 and Old Petroleum no longer owned stock in Products or Texgas. In the December 31, 1984, reorganization, Old Petroleum transferred all of its domestic oil and gas properties to New Petroleum, which was also a subsidiary of Holdings. Petroleum, Products, and Texgas were related persons within the meaning of section 613A(d)(3).
Petroleum was in the oil and gas exploration and production business. Products was in the business of processing and marketing oil and natural gas and their derivatives, including propane, for Petroleum as well as for unrelated oil and gas producers.
Petroleum produced natural gas from individual wells, which went to 10 different processing plants. From 3 of the 10 processing plants, Petroleum moved its propane by pipeline to a storage terminal at Mont Belvieu, Texas. By exchange agreements, Petroleum exchanged the volumes of propane at the 7 other plants for a like volume of propane held by Products. Petroleum‘s use of the exchange agreements as a substitute for physical transportation was both economically efficient and a common practice in the oil and gas industry. Moreover, the propane owned by Petroleum and Products satisfied strict industry standards so that the propane volumes could be easily commingled and exchanged.
As Products sold Petroleum‘s propane, the accounting group recorded those sales as Petroleum‘s sales in accordance with Petroleum‘s accounting practices, which were customary in the oil and gas business and were consistently applied. Petroleum‘s
As agent for Petroleum, Products collected from third party purchasers payments due to Petroleum, and it was responsible for pursuing any unpaid propane bills. If, however, a bill remained unpaid, it was Petroleum, not Products, that had to bear the loss. For the taxable years in issue, Petroleum, Products, and Texgas had the following volumes and values of propane production:
| Parties | Propane Sales Volume (gallons) | Propane Sales Value |
|---|---|---|
| 1983 | ||
| Old Petroleum | 8,521,279 | $3,918,477 |
| Products | 290,982,398 | 142,699,588 |
| Texgas | 152,234,737 | 131,469,955 |
| 1984 | ||
| Old Petroleum | 5,349,081 | 1$2,307,907 |
| Products | 351,855,506 | 161,166,870 |
| Texgas | 159,090,931 | 136,352,438 |
| 1985 | ||
| New Petroleum | 7,930,188 | $2,994,311 |
| Products | 289,494,801 | 116,275,633 |
| Texgas | 151,400,579 | 124,263,589 |
For 1983, 1984, and 1985, respectively, Products sold 155,614,505, 156,887,148, and 155,225,544 gallons of propane to Texgas. Given that Products was able to obtain all the propane
Discussion
Respondent determined for the taxable years in issue that pursuant to
Respondent‘s argument is premised on the presumption that the 1982 reorganization was a “scheme” developed by Petroleum‘s tax department to allow Petroleum to qualify as an independent producer for the taxable years in issue. To foster the illusion that Petroleum‘s propane was being sold to unrelated third parties, respondent argues, Old Petroleum entered into the service agreement and exchange agreements with Products to disguise the fact that Petroleum was selling propane through Texgas. Thus, respondent contends that Products did not act as Petroleum‘s agent, but that it acquired (took title to) Petroleum‘s propane and subsequently sold the propane to Texgas.
We disagree. A taxpayer is generally free to structure its business transactions as it pleases, though motivated by tax reduction considerations, provided the transaction is imbued with a sufficient business purpose. Gregory v. Helvering, 293 U.S. 465 (1935); Casebeer v. Commissioner, 909 F.2d 1360 (9th Cir. 1990), affg. in part, revg. in part and remanding T.C. Memo. 1987-628; Rice‘s Toyota World, Inc. v. Commissioner, 81 T.C. 184, 196 (1983), affd. on this issue, revd. in part 752 F.2d 89 (4th Cir. 1985). On brief respondent seems to be arguing that Petroleum devised the 1982 reorganization to obtain tax benefits associated with independent producer status. Respondent, however, does not argue that the reorganization was devoid of economic substance, nor does respondent challenge the validity of Petroleum‘s corporate structure. Rather, respondent asks us to disregard the provision of the service agreement which establishes that Petroleum was to retain title to its propane until Products sold the propane on Petroleum‘s behalf to unrelated third parties. We decline to do so.13
Issue 3. Recomputation of Petroleum‘s WPT NIL Computations
Background
On its original Federal income tax returns for each of the taxable years in issue, Petroleum claimed percentage depletion as an independent producer. With certain statutory modifications, Petroleum‘s original percentage depletion NIL calculations paralleled its original WPT NIL calculations. When calculating
In the petitions filed in these cases, petitioners asserted for the first time that they should be permitted to modify their allocation process for computing the WPT NIL.14 During May and September of 1995, petitioners provided respondent with a revised apportionment formula for computing the WPT NIL. To the amounts that were included in overhead in their original computations, petitioners contend that they should be permitted to include as additional overhead six new categories of indirect costs, which petitioners claim are attributable to the mining process. In their revised computations, petitioners also changed their method for allocating overhead among producing properties and between gas and oil on a single property from actual revenue to production, using a conversion ratio derived from relative market prices of gas and oil.
Discussion
Respondent determined the following deficiencies in WPT for the taxable periods of 1983, 1984, and 1985, respectively:
In response to phased decontrol of crude oil prices announced by President Carter in April 1979, and increased worldwide crude oil prices, Congress determined that the additional revenues of “windfall” that U.S. oil producers would thereby receive were an appropriate object of taxation. H. Rept. 96-304 at 7 (1979), 1980-3 C.B. 81, 91; S. Rept. 96-394 at 6 (1979), 1980-3 C.B. 131, 142. Consequently, Congress enacted the Crude Oil Windfall Profit Tax Act of 1980 (Windfall Profit Tax Act), Pub. L. 96-223, 94 Stat. 229, which from March 1, 1980, until its repeal effective August 23, 1988, imposed an excise on the “windfall profit” from certain crude oil produced in the
Pursuant to
The term “taxable income from the property” generally has the same meaning that it has for purposes of the NIL on the deduction for percentage depletion under
Taxable income from the property, pursuant to
all allowable deductions (excluding any deduction for depletion) which are attributable to mining processes, including mining transportation, with respect to which depletion is claimed. These deductible items include operating expenses, certain selling expenses, administrative and financial overhead, depreciation, taxes deductible under section 162 or 164, losses sustained, intangible drilling and development * * * expenditures, etc. * * * Expenditures which may be attributable both to the mineral property upon which depletion is claimed and to other activities shall be properly apportioned to the mineral property and to such other activities. Furthermore, where a taxpayer has more than one mineral property, deductions which are not directly attributable to a specific mineral property shall be properly apportioned among the several properties. * * *
Accordingly,
We disagree. Given that petitioners claimed the benefits of percentage depletion and are subject to the WPT, they are faced with the dilemma of explaining what authority permits them to compute an NIL for percentage depletion purposes and an NIL for WPT purposes, both of which are calculated under
Finally, we note that petitioners’ reliance on Shell Oil Co. v. Commissioner, supra, is misplaced, because in that case the
Thus, based on the record and the facts discussed herein, we hold that petitioners are not entitled to recompute Petroleum‘s WPT NIL computations for the taxable periods of 1983, 1984, and 1985, where the recomputations do not follow the percentage depletion calculations claimed on their original Federal income tax returns.
To reflect the foregoing,
Decisions will be entered under Rule 155.
Notes
SEC. 613A(d)(2). Retailers Excluded.--Subsection (c) shall not apply in the case of any taxpayer who directly, or through a related person, sells oil or natural gas (excluding bulk sales of such items to commercial or industrial users), or any product derived from oil or natural gas (excluding bulk sales of aviation fuels to the Department of Defense)--
(A) through any retail outlet operated by the taxpayer or a related person, or
(B) to any person--
- obligated under an agreement or contract with the taxpayer or a related person to use a trademark, trade name, or service mark or name owned by such taxpayer or related persons, in marketing or distributing oil or natural gas or any product derived from oil or natural gas, or
- given authority, pursuant to an agreement or contract with the taxpayer or a related person to occupy any retail outlet owned, leased, or in any way controlled by the taxpayer or a related person.
Notwithstanding the preceding sentence this paragraph shall not apply in any case where the combined gross receipts from the sale of such oil, natural gas, or any product derived therefrom, for the taxable year of all retail outlets taken into account for purposes of this paragraph do not exceed $5,000,000. * * *
(2) * * * A taxpayer shall be deemed to be selling oil or natural gas (or a derivative product) through a retail outlet operated by a related person in any case in which a related person who operates a retail outlet acquires for resale oil or natural gas (or a derivative product) which the taxpayer produced or caused to be made available for acquisition by the related person pursuant to an arrangement whereby some or all of the taxpayer‘s production is marketed. * * * [Emphasis added.]
| Taxable Period Ended | Amount |
|---|---|
| Mar. 31, 1983 | $898,508 |
| June 30, 1983 | 882,297 |
| Sept. 30, 1983 | 865,264 |
| Dec. 31, 1983 | 824,976 |
| Mar. 31, 1984 | 874,332 |
| June 30, 1984 | 594,829 |
| Sept. 30, 1984 | 649,637 |
| Dec. 31, 1984 | 941,244 |
| Mar. 31, 1985 | 554,711 |
| June 30, 1985 | 516,123 |
| Sept. 30, 1985 | 535,574 |
| Dec. 31, 1985 | 503,446 |
| Total | 8,640,941 |
SEC. 4988(b)(3). Taxable income from the property.--For purposes of this subsection--
(A) In general.--Except as otherwise provided in this paragraph, the taxable income from the property shall be determined under section 613(a). [Emphasis added.]