Commissioner v. P. G. Lake, Inc., 356 U.S. 260 (1958)

Commissioner of Internal Revenue v. P. G. Lake, Inc.

No. 108

Argued March 11, 1958
Decided April 14, 1958
356 U.S. 260

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

Syllabus

1. In each of the five cases here considered together, the taxpayer received present consideration for assignment of a so-called oil payment right (or sulphur payment right) carved out by the taxpayer from a larger mineral interest producing income taxable as ordinary income, subject to a depletion deduction.

Held: the consideration received for the assignment was taxable as ordinary income, subject to a depletion deduction, and not as a long-term capital gain under § 117 of the Internal Revenue Code of 1939. Pp. 261-267.

(a) The present consideration received by the taxpayer was paid for the right to receive future income, not for an increase in the value of the income-producing property. Pp. 264-267.

(b) An earlier administrative practice (reversed in 1946) contrary to this holding will not be presumed to have been known to Congress and incorporated into the law by reenactment, because it was not reflected in any published ruling or regulation. P. 265, n. 5.

(c) Moreover, prior administrative practice is always subject to change through exercise by the administrative agency of its continuing rulemaking power. P. 265, n. 5.

2. In the Fleming case, the taxpayers exchanged oil payment rights for fee simple interests in real estate.

Held: this did not constitute a tax-free exchange of property of like kind within the meaning of § 112(b)(1) of the Internal Revenue Code of 1939. Pp. 267-268.

241 F.2d 65, 69, 71, 78, 84, reversed.