Kirby Petroleum Co. v. Commissioner,
326 U.S. 599 (1946)

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U.S. Supreme Court

Kirby Petroleum Co. v. Commissioner, 326 U.S. 599 (1946)

Kirby Petroleum Co. v. Commissioner

Argued November 6, 1945

Decided January 28, 1946*

326 U.S. 599


A taxpayer owning fee simple title to certain lands leased the lands for the production of oil, gas, and other minerals for a cash bonus, a royalty in the usual form, and a share of the net profits realized by the lessees from their operations under the lease.


1. The taxpayer is entitled to deduct the depletion allowance permitted under §§ 23 (m) and 114(b)(3) of the Internal Revenue Code from his share of the net profits from the oil extracted from the leased lands, as well as from the income derived from bonuses and royalties. Pp. 326 U. S. 600, 326 U. S. 607.

2. Since the "net profit" payments flow directly from the lessor's economic interest in the oil and partake of the quality of rent, rather than of a sale price, the capital investment of the lessor is reduced by the extraction of the oil, and the lessor is entitled to depletion. Helvering v. O'Donnell, 303 U. S. 370; Helvering v. Elbe Oil Land Development Co., 303 U. S. 372, and Anderson v. Helvering, 310 U. S. 404, differentiated. Pp. 326 U. S. 605-606.

3. The lessor's economic interest in the oil is no less when his right is to share a net profit from its sale than when it is to share the gross receipts. P. 326 U. S. 604.

148 F.2d 80, reversed; 148 F.2d 776, affirmed.

No. 56. Certiorari, 325 U.S. 845, to review a judgment reversing a decision of the Tax Court, 2 T.C. 1258.

No.197. Certiorari, post, p. 703, to review a judgment affirming a decision of the Tax Court.

Page 326 U. S. 600

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