*1 pe reply respondent no makes on these contention based titioner’s cases, de have

but contends prohibition will cided that the writ against the district court

not issue ground juris the absence

diction, question is before where that

it and has been decided. Hammond

Lumber Court, United States District Co. v. 240 F. 927. With agree. Evaporated

this we Cf. Roche v. 21, 26, Ass'n,

Milk despite think 1185. We by petitioner, strong case stated jurisdiction question of its of absence first the district should decided

court. petition de- to issue the writ is

nied. CALDWELL, Appellant,

D. K. CAMPBELL, Jr.,

Ellis former Collector Revenue, Appellee. of Internal

No. 14866. United States Appeals, Court of Fifth Circuit. Worth, Cannon, Tex., B. Fort R. Jan. Bird, Appleman, Weeks, & Cannon Fort Tex., counsel, Worth, appellant. Moxley Sp. Featherston,

C. Asst. to Atty. Gen., Slack, Atty. Ellis N. Asst. to Holland, Atty. Gen., Gen., H. Brian Asst. Ford, Atty., Dallas, John C. Asst. U. S. Tex., Jackson, Sp. Atty. A. Lee Asst. Gen., Floore, Atty., Heard L. U. S. Fort Tex., appellee. Worth, HUTCHESON, Judge, Before Chief RIVES, Judges. BORAH Circuit Judge. HUTCHESON, Chief $322,- The suit was the refund of overpaid 087.45 for the fiscal *2 568 cash, conveyances, plaintiff for cash in to the was entitled

in connection with provi- notes, in the of benefits the installment sales and of mineral payments, 44, I.R.C., as to sions of 26 U.S.C.A. Section nature of oil and form 44; that, alternative, and if the had deter- in the which commissioner § gain conveyances they taxable transfers from the that were not mined: plaintiff capital assets, ordinary income, plan, he would the installment of gains gains, only capital realize but such as and when therefrom assigned income, anticipatory assignments the the oil were assignee. gains ordinary for the and made available to his therefrom year 1948, the cash measured fiscal admitting answer, all the facts notes; of the value the discounted and only alleged complaint, took issue in the fair market value had the notes a that legal its conclusions. with receipt $489,433; of their at the date jury upon a to the without Tried plaintiff net tax- derived that consisting undisputed of the ad- facts conveyances in the from the able income allegations pleadings, un- mitted that, $357,311.18; based and amount testimony, documents, and oral contested deficiency thereon, plaintiff a was due any point in contest was not at $288,546.48 with interest. assessment sketchy conflict, and there was brief conveyances was: that The claim judgment opinion,1 and for de- oral and in fact interests were of mineral fendant. capital held for more assets law sales of Seeking judgment recog- gain any of that a reversal months; six that citing plain- many support,2 cases in under the taxable and was nized therefrom insisting: complete- I.R.C., 117, that 26 it is provisions U.S. is here of Section tiff thirty legal foundation, that, indeed, ly 117, that, less than without since C.A. § 3 selling contrary price principles percent was received to settled it is sioner, Cir., claim held: that refund 5 126 F.2d Ortiz Oil 1. This substance 825; law; Commissioner, Cir., complied D. that K. 5 102 with Co. v. F.2d 566, 508, “in truth denied 308 60 Foundation was certiorari U.S. Caldwell foundation; 475, affirming 78, that 84 L.Ed. 37 86 fact” a charitable S.Ct. 656; Cir., royalties Thomas, v. 5 B.T.A. Perkins the transfer of the 954, 655, there- affirmed 301 S.Ct. notes F.2d 911, 57 issuance for 1324; transaction”, Hogg, bona fide 81 L.Ed. v. “not a Sheffield was 1021, expect appellant 124 Tex. 80 77 S.W.2d S.W.2d have “the that did 741; Sheppard paid by charity, truth, v. Stanolind Oil & Gas after mon- *3 viz., ratably basis, installment for him. agreed and as the collection the Appellant points that the the fact to price sale Inter- made. Sec. that the commissioner concedes nal Revenue Code.” meant to find transaction was judgment that the directly The collector cites no case one, not a bona fide the would point, in indeed he admits that there invalid, be the tax- in such event holding, contends, are none he as un- owner to be the payer continue precise this case that facts of der the would re- of the mineral here, outright, of min- as the transfer in and be taxable income alize taxable pay- in-oil in form eral interests conten- with his alternative accordance assignment anticipatory ments is an royalty as it was upon tion argument, because His that income. year. point- So to from royalties of which in-oil out urges ing, confidence con- with would, when re- earned ground attack, viction, his first as grantor, ceived, be income to the holding judge erred in district that the regarded capital and sold cannot be was not bona fide that and, the transaction assets, must transfers of them un- breath, from re- same teachings der of the Earl case4 ceipt notes he received of the cash and assignments anticipatory be treated as Advancing, then, ordinary income. not, think, will at all do. argument, step he thus of his next arguments to both Such run counter think, correctly, convincingly and, we matter, fact and law the fact presents conclusions to it and the carving in that sale out and the or drawn therefrom: payments property retention of in-oil bought large be part and sold constitute a “A. That transfers con- these dealings Texas, in oil in sales used stituted of real cap- taxpayer’s decisions State business law in that and/or contrary, ital held for than six assets more courts are and Federal normally provisions and, months, treatment ac- under Revenue Internal is likewise them taxwise of Section corded gain any contrary. Code, is taxable therefrom gain, long-term capital rather appellee’s understand As we income; ordinary than as brief, so this is where he concedes that thirty per- sold, part or of it is even Since less “B. selling payment, price (30%) of an in-oil where the sale is cent year in cash or within the all the seller owns. received if this is 24849,5 here, evidences of other than as stated effort G.C.M. by consequences pledged are fixed tax of which where such consideration statutory dealing provisions developments.” those gains in further use exchanges prop- ruling, recognizing then, sales or “that after erty.” payment right, holder of an in-oil acquired, repletable has a eco- however Earl, 4. Lucas v. gas place, nomic interest in oil 74 L.Ed. 731. continues: headnote, this is the es- As stated “ ruling: rights Xn-oil sence of are assign- distinguishable received “Consideration interests and payment right operating in-oil shortlived inter- ment of a latter type depletable any ests, definition, out extend to the carved entire place gas gas land, in oil oil and resource content of the terest subject represent dep'“tion and, such, allowance forms of fraction- 1946-1, 4003,6 every p. CB min- CB transfer or I.T. having page opinions every nature, 1950-1 no eral interest of kind or binding consideration, whether more than the donative or force opinions (Cf. lawyer, of which would effect reduce other Bennett, transferor, ad a reductio taxes of the States v. United truly fatal tests the absurdum which a dis page to draw 410 is F.2d 407 at argument. weakness of the taxwise, between tinction, property and pay royalties out “in-oil single appellee and carved Not a case cited Co. supports deci Oil & ments”, which the its view. Rudco Gas a distinction *4 States, F.Supp. 746, Ct. United recog v. federal, do not sions, state and rely most to on which he seems Cl. recognized, If it countenance. nize or strongly, wholly facts. different is principle pervert an correct the was, aof of declaration It a case the case, run it into in the Earl nounced our of Commission- case dividend as ground, collector unsuccess the as the er of Internal Revenue v. First State Campbell fully attempted do in v. Stratford, Cir., of 168 F.2d Bank Prothro, Cir., F.2d 331. corporation a of 7 A.L.R.2d case dealing through deviously emphasis in collector its stockhold- of the treasury Floyd ers, Scofield, Cir., which the as in brief on loss permit- result, taxpayer will is F.2d 594. the ted as these to sell in-oil such All of these cases dealt action thereby taxes, and and reduce his payment devised to avoid of taxes the conclusion, “Obviously here is a case by legally corporation the inade- but exempt trying use, the quate to effect the More desired result. status of a charitable foundation which important still, the transaction the controlled, capital gains the the not, the one was Rudco case provisions the of rev- sale installment oil interest here, of an a real transfer profit”, personal is for his enue laws years. long period It was in of for a revealing. profoundly For it shows at appointment of the stock- effect a mere fallacy complete on which the once the mineral receive the holders to based, argument the real whole sixty ninety corporation for or of the position collector’s unsoundness days in which of the taxable argument requires to an resort since it purported It was made. transfer the of kind. this completely was, therefore, abortive attempt, with in the given broadly those dealt effect, like advanced If Horst, Harrison, the argument Eubank by him, the the would defeat receipt prop- property rights suits into which the al of assignor gas place erty is taxable to him when the which are accrued, whereas, pay- upon commonly divided, depending or received an in-oil employed by right right accounting for him. is a to income a lim- method ment ” pay- assignment the in-oil 'Where the time or amount. ited donative, right is the transaction is ment “ *** practical is no there assignment as an considered future distinguishing short- basis for between come is taxable to donor at such which long-lived payment rights. in-oil lived assigned times income from present position is, therefore, right payment arises. assignment any the Bureau that “Notwithstanding foregoing, G.C.M. payment right (not pledged in-oil supra, apply do and I.T. development), peri- extends over a which payment right assigned depletable in-oil where less than the life od depletable property carved, constitutes the entire interest interest from which expected assignor essentially assignment or a frac- extending tion property". over from such entire interest. life of Therefore, (Emphasis a considera- supplied.) re- tion such in-oil Earl, change statutory rule for not cases,7 invalid under Lucas taxwise supra. appointing Of said: the Earl the court of income the taxation “ * * * opin- the income as his own one collect wereWe from that on which fruits patory ary second in the man who figure, whatever the tax ever construction of the order. sation rived band income from effect paid,’ case determine the issue declared that imposes every another. brief review when skilfully whom it was these view ”. might are attributed to that individual opinion arrangements “the could not It paid kind and in whatever personal services tax of the collector’s salaries, three cases Earl case arrangement by make, then went devised the “revenue earnings then from of their import and reasonable including taxing act was that imposed concluded wages, vesting and contracts they dealt with escaped by him prevent a in it the earned net income holdings is in on to and the different tree three in volumes 311 and 312 U.S. [61 in his grew”.8 act ‘income * “by even which the insistence the hus- * * compen- ** the sal- it.” say antici- money favor, form how- Earl de- a S.Ct. L.Ed. mission, acts, supra ments The next cases to follow were the ownership. general application aries *5 pensation ^[*] meaning the one who earned the provide fully construction upon a second it.’ That was deemed to said that ‘the statute escaped by anticipatory ion that “In the L.Ed. 148] held to be to those the tax devised [282 U.S. paid 239]; Hoeper ^[*] and contracts 284 note of the statute as the case 248.” for instant U.S. See Poe who earned as to 7, supra, personal liability 101, 51 S.Ct. subject prevent the 206, man who tax vesting turned case, taxing of the which, however v. Tax Com- could could 52 v. service attaches to on which the S.Ct. them upon even act. arrange- Seaborn, the tax. to com- revenue tax income not be earned tax salary 58, skil- 120, sal- We 75 mainly collector’s contention is based. Commissioner, In Blair v. 300 U.S. 330, 332, 465, 57 S.Ct. L.Ed. first, dealt with the Horst 5, court, holding, validity that the simple application as- of the and direct signments of by applying the net in- Lucas Earl it to doctrine petitioner negotiable coupons as a benefi- come which which in interest might ciary then, trust was or 1934 and 1935 detached be, negotiable gave dur- thereafter receive to his bonds ing life, question was a of local son who same collected law, they maturity. were valid under them held at that law, held coupons, salaries, Illinois for the reasons were, there these like assignments fully owner, though stated that the received, were income to their Helvering Horst, 112, 7. property right v. 311 TJ.S. 61 S. those who own the or 144, 75; Helvering produced them, Ct. bank, v. Eu- not to those to whom 122, 149, 311 TJ.S. 61 S.Ct. 85 L. their earners owners are under con- 81; Schaffner, Ed. Harrison pay v. 312 .U.S. tract to them. 579, 759, S.Ct. L.Ed. 1055. rule does make “The taxable to one operates another. It Saenger Commissioner, Cir., prevent occurring. this If what is done in page said: E.2d at any case, no what form of matter words Case, “The rule of the Earl while made used, amounts transfer of the graphic by figure figure, is more than a right speech. expression or title to from which the in- of simple an of the springs, come right. truth that earned incomes are income follows the ” ** paid by taxed to and must be those who them, earn and unearned incomes to paid by companies whom he had had received given another to been insurance right assignee agent, In to to receive them. was dis- of an discussing posed holding, opinion its reasons for so a com- in a brief court, departing panion Helvering Horst, in no manner note case to detracting Commissioner, 7, supra, presenting from Blair v. and as issues not distinguishable dealt with them in manner to make from those in that case. applies court, clear the distinction which here The in the Eubank case [311 gist put between the of an interest 150] pro- from which the income decision thus: right purpose assignments ceeds and of a mere come, saying: to receive “No appears other than to on confer assignees power to collect emphasized “This was in Blair commissions, they did Commissioner, V. year. in the taxable The Govern- S.Ct. 81 L.Ed. on which respondent have briefed ment and respondent relies, the dis- where argued the case here gift tinction was taken between a assignments assumption that obligation from an income derived voluntary transfers the as- gift compensation and a to income-producing property. signees right to collect In the commissions as and when be- case the circumstances of payable, and the record af- came the trust other. fords no basis thought identified, to be so *6 equitable ownership length the with the “For the reasons at stated of property the ben- opinion case, which alone in Horst in the the from eficiary derived to receive his we hold that the commissions were power the income and his to com- assignor taxable as income the of disposition it, gift- year mand that a paid." (Em- the in when of by beneficiary phasis supplied.) be- the income the of only gift came as of effective Finally, Schaffner, in Harrison v. ownership property produc- the of 7, supra, note it an was held that as- ing gift it. Since the was deemed signment, by beneficiary the life gift to be a the the in- of testamentary trust, of the income of come it was held to be the in- from year following the trust for the the property, come of the owner of the assignment assignor was taxable to the donee, was the who not the donor year by in the when received the as- —a refinement which was unneces- signee. departing from, at all Not crit- sary respondent’s if contention here icizing, limiting its decision in the right, clearly inapplica- but one reaffirming it, Blair held, but the court gifts wages. of ble to interest or following Helvering Clifford, Unlike income thus derived 331, from 60 S.Ct. obligation an interest or gift “by beneficiary the of compensation, the income the part a trust of some of the income de- regarded as no more the trust was trust rived from the the the donor than would income of day, period a month in- crop the rent a lease or a disposition no such substantial volves on a the leasehold raised after farm camouflage property as to the trust given away. or the had been farm reality enjoying that he is ben- Commissioner, supra, Blair v. income from the trust of efit of the 57 S.Ct. L.Ed. he continues to be the benefi- which * *" 465, and cases cited. enjoys ciary, quite as much as he (Emphasis supplied.) wages benefits of interest or which he Helvering Eubank, gives 7, supra, away note as in the Horst Eubanks commissions, enough a case of renewal which It is cases. hearty question tax- present case accord. find applicable parted principles substance, point has which of payer, those in gives property to involved in the transactions no substantial interest here specified payments me A of that more concern. solution other than the question depends upon gifts which, in- nature like other they simple come, those are donor.” transactions. Were [312 taxable sup- realty ma- (Emphasis U.S. plied.) of interests 761.] sales appeared they holds, jority and as they, form, in substance or were every In eases what one these assignments reality, of income? appoint- all that was involved was the money which, ment someone to collect pierce uncover the form and To by appointer, if have collected would transactions, is nec- precise realities been to him. none of them essary more of to review by an held that was it un- disclosed situation factual income, as here produced disputed which tree The oil evidence. would, interests, ac- mineral owned were terests which oil Hawkins, owner Texas, for to the counted Van long-life located East mon- company them fields, which fields and other Texas kind, reasonably ey be treated production rather cer- merely period twenty-five the transferor income of tain for a years of at least owner, remained had because Caldwell K. D. income. have been Foundation of the tax- was the creature payer controlled him. Just be- us, then, that clear to seems transactions, fore these its total assets commission whole idea back only $14,176.78. Except amounted and con actions er’s the collector’s differing agreed for the amounts attempted denial of tentions an conveyances money, sums of each of the principle This taxation. fundamental of oil to the Foundation *7 taxpayer is to take is that a any contained an identical limitation as fol- legal with his course lows: lightens his or lessens business which conveyance “This shall be effec- load, that an ar fact tax rangement August 1, tive as of 7 A.M. 1948 reduces taxes of no and shall remain until effect such validity,9 determining if moment times as the Trustees D. K. only it is clear that transaction was Foundation, Caldwell their succes- sham, if it was real and not a assigns, and sors have received purported be, real ef what it to proceeds gas of oil or transfer of tax fective title produced, and marketed from saved payer to another. mineral above mentioned factual judgment without The aggregate terests, sum the total reversed and basis. Fifty Thousand Three Hundred with directions is remanded cause ($350,000.00) Dollars. And No/100 plaintiff. judgment for the enter K. after said D. Caldwell Foun- dation has received said total sum Judge, RIVES, dissents. Circuit Fifty Hundred of Three Thousand ($350,000.00) Dollars, and No/100 Judge (dissenting). RIVES, Circuit then interests herein- legal principles conveyed set forth shall above revert to and With majority opinion Caldwell, with such in said revest D. K. assigns.” clarity vigor, I am heirs admirable Commissioner, Corp. Commissioner, Cir., West 5 5 Of. 214 er 216 page 303, 300 at and the Friedland- F.2d 757. F.2d 574 provided taxpayer, payable proceeds notes oil sales to be The conveyances, Foundation, were as by the several the cash

received face amount follows: consideration Face Amount of1 Cash to Oil Proceeds

Location Payable by *8 only were trans- ordinary oil time these income. He need it, rights “convey” for re- had no facilities ferred to the oil storing resale, ceiving year, years, years, or oil for one ten thirteen may period expected be the oil of time as such other it receipts produced. pro- report profitable, his as most sold gains. course, capital an owner constituted Of such sales ceeds royalty the Founda- interests stands only oil sources footing taxpayer, other Its other as- notes. same tion could exception deple- speaking, comparatively were, with the sets which he Foundation ac- tion allowance to nominal value. analogous the oil be- law. situation quired dominion over no long produced. lessor under a Its of an it was fore say thirty year, lease, term, profits who sells from the land to limited notes, say specified rent ten number of dol- some of annual the extent pe- over or thirteen them. Would that be as the lars of the fruits or of varying from months to 154 transfer the tree riod right grew? Lum to re- which See v. Com- return for months. per cent the notes the Commissioner of were determined Internal Rev Eleven belonged to others. have enue to 356; missioner, F.2d 3d Taxa- Income

Mertens Law of Federal

tion, Sec. 18.12. is trans- itself

Unless the

ferred, eco- more substantial some ap- corpus than nomic interest pears it facts of this from the taxpayer is mere- seems me that collecting

ly of his some Schaffner, Harrison v. in advance. See

1055. The in that case was specified in dollars from amounts year the income of trust fol- for the

lowing assignment. Does make

any difference that time involved was one instead of from nine to years, present thirteen case? long not, I think so as the transfer nothing

passes substantially more than income, collect future many

when so attributes own- ership remain in the transferor as to

justify the conclusion that he continued to be the owner of the oil meaning

terests within the of Section 22(a) Code, of the Internal Revenue 22(a). U.S.C.A. § respectfully dissent. therefore

I NEVAREZ, individ- Valenzuela

Armando Mag- ually next friend of Maria and as al., Valenzuela, minor, Ap- et dalena pellants, *9 BROWNELL, Jr., Attorney Gen-

Herbert States, etc., United eral of the Appellee. 15153.

No. Appeals, Court of

United States Fifth Circuit.

Jan. 24, 1955.

Rehearing Feb. Denied notes 643; Co., Tex.Civ.App., execution, 125 S.W.2d and when he needed their County Stephens Mid-Kansas Oil & ey, v. Gas called notes before he Co., 113 Tex. 254 S.W. 29 had been A. and before the due 566; Dunn, L.R. Tennant v. 130 produced, thought Tex. as he and used such notes 53; payment, necesary Thomas 110 S.W.2d v. Peckham for the was Co., Cir., instance, 115 F.2d 685. had Oil income tax which him”; against assessed been notes were he “(1) payment interest, An oil whether merely for what “substituted pay- be a or a ‘earved-out’ ‘reserved’ oil already Therefore, cal- “the owned”. partakes ment, nature a ter- market value of the reasonable culation of the notes minerals; minable interest receipt at the time of their “(2) realty; is an interest in ** taxable income that was “(3) interest, holder such amount the method alone, or it the allowance fixing amount of used in was tax;” depletion statutory percentage judgment should en- respect proceeds production the defendant. tered payment interest; oil attributable Commissioner, v. 2. Blair S. “(4) sale, exchange 465; Campbell transfer or v. Ct. pay- 331; Cir., retained or a carved-out Prothro, F.2d either Commis- pro- Laird, ment for more than eost does not Internal v. Revenue sioner depletable proper- 498; Fleming Campbell, Cir., duce ty, F.2d gain realty, 549; from the sale but Lee Commis- 205 F.2d purchaser, indebtedness of in the Texas cases declared recognized gain court, be re- realized and must result- of this decisions ing judgment reportable therefrom on an versed to enter with directions

Notes

Received Notes be Received Taxpayer Taxpayer Property Foundation $233,000 $350,000 500 No. 1 Texas $ E. 237,000 356,100 400 2 Texas No. E. 135,000 1,000 136,000 Hawkins 380,000 572,000 1,000 Van 20,000 31,000 500 Coke periods as follows: approximate out Required for Months Required Pay Out of Face Months Location of Oil Amount Pay Out Transferred Proceeds Consideration Property 131 88 No. I Texas E. ' 117 Texas No. E. Hawkins (cid:127)Van Coke got income, taxpayer warranty statutory ceive this Other concededly imme- had an implied the words notes from the use $489,433.00. value “grant" “convey”, diate fair market Ver- Art. 1297 Statutes, con- Civil non’s Revised that, proc- this It seems me warranty veyances title. no contained taxpayer his or- ess could convert lien taxpayer vendor’s retained a dinary properties in- from these payment to secure on the oil capital gain, there then hereafter notes. necessity no for an owner will be Foundation, at testified that there- receive