Murphy Oil Co. v. Burnet, 287 U.S. 299 (1932)
Murphy Oil Co. v. Burnet
No. 80
Argued November 18, 1932
Decided December 5, 1932
287 U.S. 299
CERTIORARI TO THE CIRCUIT COURT OF APPEALS
FOR THE NINTH CIRCUIT
Syllabus
1. Under the Revenue Act of 1918, bonus and royalties received by the lessor under an oil lease are taxable, after making the allowed deductions, as income. Burnet v. Harmel, ante, p. 103. P. 301.
2. The bonus and royalties paid the lessor both may involve return of capital investment in oil in the ground. P. 302.
3. A distinction between royalty and bonus, which would allow a depletion deduction on the former, but tax the latter in full as income, when received, making no allowance for reasonably anticipated production of oil on the leased premises, would deny the "reasonable allowance for depletion" provided by § 234(a)(9) of the Revenue Act of 1918. P. 302.
4. Article 215 of Treasury Regulations 45, as amended November 13, 1926, provides that, when the lessor receives a bonus in addition to royalties, under an oil lease, there shall be allowed as a depletion deduction in respect cf the bonus an amount equal to that proportion of the cost or value of the property on the basic date which the amount of the bonus bears to the sum of the bonus and the royalties expected to be received, and that such allowance shall be deducted from the amount remaining to be recovered by the lessor through depletion, and the remainder be recoverable through depletion deductions on the basis of royalties thereafter received. Held, a reasonable formula for allocating bonus to anticipated depletion where the estimates involved in its application are reasonable. P. 303.
5. Where the facts do not justify a finding that bonus plus expected royalties will exceed the invested capital, it is consistent with the amended rule, supra, and not unreasonable, to allocate bonus paid in earlier years and not returned for taxation entirely to depletion allowance, and thus reduce proportionately the amount of depletion allowance per barrel of royalty oil extracted in later years. P. 306.
6. In view of the state of the record in this case, the Circuit Court of Appeals did not abuse its discretion in not remanding the case to the Board of Tax Appeals because of the Commissioner’s failure to find the "expected royalties." P. 308.
7. Repeated reenactments of a taxing provision under which Treasury Regulations had been adopted for its enforcement held persuasive that the regulations conformed to the statute, and were approved by Congress. P. 307.
8. Burnet v. Thompson Oil & Gas. Co., 283 U.S. 301, distinguished. P. 307.
55 F.2d 17 affirmed.
Certiorari to review the affirmance of a decision of the Board of Tax Appeals, 15 B.T.A. 1195, sustaining income tax assessments.