1. The taxpayer, an operating company for the production of oil,
was assignee of a contract relating to oil land whereby the grantee
agreed to pay to the grantor 50% of net profits from operations.
The contract required the grantee to drill promptly, to account for
production, and to sell the production to the grantor on specified
terms if the grantor desired to purchase. The landowner and the
grantor's transferor retained underlying and overriding
royalties.
Held, under the Revenue Acts of 1934 and 1936, that the
50% payments made by the taxpayer to the grantor were deductible
from the taxpayer's gross income. Pp.
328 U. S. 26,
328 U. S.
32.
2. The contract here involved could not properly be construed as
a sale; it was, rather, an assignment of the right to exploit the
property, with a reservation in the assignor of an economic
interest in the oil. P.
328 U. S.
37.
3. Ownership of a royalty or other economic interest in addition
to the right to net profits is not essential to make the possessor
of a right to a share of the net profit the owner of an economic
interest in the oil in place. P.
328 U. S.
32.
4.
Helvering v. Elbe Oil Land Co., 303 U.
S. 372, distinguished. P.
328 U. S.
36.
150 F.2d 621 reversed.
The Tax Court sustained the Commissioner's determination of a
deficiency in petitioner's income tax. 3
Page 328 U. S. 26
T.C. 1187. The Circuit Court of Appeals affirmed. 150 F.2d 621.
This Court granted certiorari. 326 U.S. 755.
Reversed, p.
328 U. S.
37.
MR. JUSTICE REED delivered the opinion of the Court.
The taxpayer, the petitioner here, is the operating company for
the production of oil from Louisiana lands. The taxpayer acquired a
contract from J. G. Sutton, grantee in the contract, that imposed
upon the grantee the obligation to develop the oil land. For that
purpose the contract transferred to the grantee all oil rights
previously obtained by S.W. Sweeney by a lease from the owners of
the land, the Cameron Parish School Board. Through another
transaction, the grantor in the Sutton contract, the Gulf Refining
Company of Louisiana, acquired these rights from Sweeney. An
underlying oil royalty was retained by the School Board, and an
overriding oil royalty by Sweeney. The contract between Gulf and
Sutton required the grantee-operator, who is now this taxpayer, to
pay to the grantor, Gulf, 50% of the proceeds of the oil produced
and sold from the land, deducting from the proceeds certain
itemized expenses of the producer. Those expenses are so general in
character that it may be said fairly that Gulf was to receive 50%
of the net from operations.
The issue here is the correctness of the taxpayer's manner of
handling this 50% net from operations, paid to Gulf, in its return
for federal income tax for its fiscal years ending during 1936,
1937, and 1938 under the Revenue
Page 328 U. S. 27
Acts of 1934 and 1936. The taxpayer deducted these payments of
50% of net income from its income for each of the years from the
oil sold from the property. It claimed that Gulf retained an
economic interest in the oil in place to the extent of this 50%
payment. The Tax Court upheld the Commissioner's inclusion of an
amount equal to these 50% payments in the taxpayer's gross income.
They were included by the Commissioner in the income on the theory
that the 50% payments represented capital investment by the
taxpayer. That is, they were a part of the cost of the lease. 3
T.C. 1187. If this theory is correct, it is proper to add an
equivalent sum, as the Commissioner did, to the taxpayer's gross
income. [
Footnote 1] The
Circuit Court of Appeals affirmed the Tax Court.
Burton-Sutton
Oil Co. v. Commissioner, 150 F.2d 621.
A decision on the category of expenditures to which these 50%
disbursements belong affects both the operators who make them and
the owners, lessors, vendors, grantors, however they may be
classed, who receive them. If they are capital investments to one,
they are capital sales to the other. If they are rents or royalties
paid out to one, they are rents or royalties received by the other.
[
Footnote 2] The decision below
conflicts in principle with
Commissioner v. Felix Oil Co.,
144 F.2d 276.
Kirby Petroleum Co. v. Commissioner,
326 U. S. 599,
involved payments of a share of net income by a producer, but
differs from this case because the lessor there was a landowner who
reserved a royalty as well as a share in the net profits.
Consequently, we granted certiorari, 327 U.S. 771.
The applicable provisions in the Revenue Acts for 1934 and 1936
and the Regulations thereunder are substantially
Page 328 U. S. 28
the same for the two Acts. We insert below those that seem
pertinent. [
Footnote 3] The
issue of the character of these 50% payments is not settled,
however, by the statutes or regulations. These prescribe the
federal income tax accounting procedure after a determination that
an expenditure
Page 328 U. S. 29
of an operator is or is not a rent, a royalty, or an ordinary
business expense, but throw little light on what is a rent or
royalty.
In the
Kirby case, we held that a payment of a share of
the net profits from oil production by the operator to the owner of
the land was a rent or royalty, and taxable to the landowner as
income from the oil property. Therefore, the owner could take from
the payment the 27 1/2 percentum allowance for depletion provided
by Section 114(b)(3). The reason given in the
Kirby case
for holding that the payment of a part of the net return from the
property to the landowner was a royalty or rent, [
Footnote 4] was that the owner had a capital
investment -- an economic interest -- in the oil with a possibility
of profit from that interest or investment solely from the
extraction of the oil. As hereinbefore indicated, the landowner in
the
Kirby case had retained also a one-sixth oil royalty,
and had received a bonus. It was conceded that, as both the bonus
and the royalty represented a return for the sale in part of the
lessor's investment in the oil in place, the lessor was entitled to
depletion on both. [
Footnote
5]
The respondent urges that, in the
Kirby case, it was
the lessor's economic interest in some of the oil itself, or its
proceeds, because of the bonus and royalty rights, which made the
net profit payments subject to depletion in the
Page 328 U. S. 30
lessor's hands; that net profits received are not depletable
unless the recipient is entitled also to oil royalties. [
Footnote 6] Consequently, the
Government contends that, in this case, where there is only a share
in profits due to the assignor, Gulf, the
Kirby case
conclusion on the right to depletion should not be extended, but
that the judgment below should be affirmed on the ground that the
profit payment was a part of the purchase price. In dealing with
the operator's exclusion from gross income of agreed payments to
lessors or assignors of leases out of net profits and with the
lessor's or a signor's rights to depletion, the Tax Court has not
followed consistently the principle that a reserved royalty is
necessary to make a net profit payment depletable to the lessor and
deductible from gross income from the property by the operator.
[
Footnote 7] A number of the
Tax
Page 328 U. S. 31
Court cases on depletion and deduction cited in the preceding
note did involve reserved royalties, as well as payments of net
profits. The
Felix Oil Company and
A. B.
Page 328 U. S. 32
Innis did not. We do not agree with the Government that
ownership of a royalty or other economic interest in addition to
the right to net profits is essential to make the possessor of a
right to a share of the net profit the owner of an economic
interest in the oil in place. The decision in
Kirby did
not rest on that point.
To let the character of the net profit payments turn wholly on
the ownership of a royalty of some sort by the one who received the
net profit would make the right to depletion a form of words. No
such mechanical application of a national tax act is desirable.
Compare Burnet v. Harmel, 287 U.
S. 103,
287 U. S.
110-111. This taxpayer's acquisition of Sutton's
contract with Gulf places the taxpayer in Sutton's situation as
operator of the School Board lease. The School Board and Sweeney,
the original parties to the lease, unquestionably have royalties
which would compel a determination that net income payments would
be subject to depletion if paid to them in addition to their
royalties. It does not logically follow, it seems to us, that the
mere receipt of the net income payments by different lessors or
assignors can change the character of the taxpayer's arrangements
from leases to purchases.
It seems generally accepted that it is the owner of a capital
investment or economic interest in the oil in place who is entitled
to the depletion.
Anderson v. Helvering, 310 U.
S. 404,
310 U. S. 407;
Euleon Jock Gracey, 5 T.C. 296, 302;
Kirby Petroleum
Co. v. Commissioner, supra. Whether the instrument creating
the rights is a lease, a sublease, or an assignment has not been
deemed significant from the federal tax viewpoint in determining
whether or not the taxpayer had an economic interest in the oil in
place.
Palmer v. Bender, 287 U. S. 551,
287 U. S.
557-558. Nor has the title to the oil in place been
considered by this Court as decisive of the capital investment of
the taxpayer in the
Page 328 U. S. 33
oil. [
Footnote 8] Technical
title to the property depleted would ordinarily be required for the
application of depletion or depreciation. It is not material
whether the payment to the assignor is in oil or in cash which is
the proceeds of the oil,
Helvering v. Twin Bell Syndicate,
293 U. S. 312,
293 U. S. 321,
nor that some of the payments were in the form of a bonus for the
contract.
Burnet v. Harmel, 287 U.
S. 103,
287 U. S. 111;
Murphy Oil Co. v. Burnet, 287 U.
S. 299,
287 U. S. 302.
Congress, however, has recognized the peculiar character of the
business of extracting natural resources. [
Footnote 9] Leases are a method of exploitation of the
land for oil and payments under leases are "income to the lessor,
like payments of rent." [
Footnote 10] Receipts from oil sales are gross income to
the operator, and subject to statutory deductions. Since lessors as
well as lessees and other transferees of the right to exploit the
land for oil may retain for themselves through their control over
the exploitation of the land valuable benefits arising from and
dependent upon the extraction of the oil, [
Footnote 11] Congress provided as early as the
Revenue Act
Page 328 U. S. 34
of 1918 [
Footnote 12] for
equitable apportionment of the depletion allowance between them to
correct what was said to be an existing inequality in the law or
its administration. [
Footnote
13]
In the present case, the assignor of the petitioner before
assignment had an economic interest in the oil in place through its
control over extraction. Under the contract with petitioner, its
assignor retained a part of this interest -- fifty percent of net.
Like the other holders of such economic interest through royalties,
the petitioner looked to the special depletion allowances of
Section 114(b)(3) to return whatever capital investment it had. The
cost of that investment to the beneficiary of the depletion under
Section 114(b)(3) is unimportant. Depletion depends only upon
production. It is the lessor's, lessee's, or transferee's
"possibility of profit" from the use of his rights over production,
"dependent solely upon the extraction and sale of
Page 328 U. S. 35
the oil," which marks an economic interest in the oil.
See
Kirby Petroleum Co. v. Commissioner, supra, page
326 U. S. 604.
Through retention of certain rights to payments from oil or its
proceeds in himself, each of these assignors of partial
exploitation rights in oil lands has maintained a capital
investment or economic interest in the oil or its proceeds.
[
Footnote 14] As the oil is
extracted and sold, that economic interest in the oil in place is
reduced, and the holder or owner of the interest is entitled to his
equitable proportion of the depletion as rent or royalty. The
operator, of course, may deduct such payments from the gross
receipts.
Of course, such a transferor, whether the landowner or any
intermediate assignor, may completely divest himself of any
interest, economic or otherwise, in the extraction of the oil. As
the record shows no reservation of an economic interest by Sutton,
the assignee of Gulf and the assignor of petitioner, he appears to
have done so in this case.
See Helvering v. Elbe Oil Land
Co., 303 U. S. 372.
While, as pointed out above, the payment of proceeds in cash, the
form of the instrument of transfer and its effect on the title to
the oil under local law are not decisive of the right to
participation in depletion under Sections 23(m) and 114(b)(3),
there must be a determination under federal tax law as to "whether
the transferor has made an absolute sale or has retained" such
economic interest as we have just described in the preceding
paragraph.
Kirby Petroleum Co. v. Commissioner, supra,
page
326 U. S. 606.
We have said that the instrument should be construed as a sale when
a large cash payment was made with a reserved payment that could be
satisfied by future sales of the transferred property without
extraction of the oil. Obviously,
Page 328 U. S. 36
there could be no depletion without extraction.
Anderson v.
Helvering, 310 U. S. 404,
310 U. S. 412.
On the other hand, we have construed an assignment of oil leases
for cash and a deferred payment, "payable out of oil only, if, as
and when produced," as the reservation of an economic interest in
the oil -- not a sale.
Thomas v. Perkins, 301 U.
S. 655.
The Government contends that
Helvering v. Elbe Oil Land
Co., 303 U. S. 372,
controls this case. The transfer of the leases in
Elbe was
held an absolute sale. There, the transfer was for cash, deferred
payments in cash, if the assignee did not take advantage of a
stipulation for abandonment, and a one-third interest in the net
profits of the assignee. It was further provided that Elbe, the
assignor after the transfer, should have "no interest in or to said
properties," except in the case of an abandonment of the property
by the assignee. This provision for the transfer of all interest of
the assignor was emphasized as a significant part of the agreement
for transfer. The issue upon which this Court passed was the
classification of the deferred payments. Were they gross income
from the property, or receipts from a sale of the leases? These
deferred payments were not payable out of oil sales, but were
payable absolutely, unless there was an abandonment. This Court
concluded that the addition of a provision for the payment of a
share of net profits did not qualify "in any way the effect of the
transaction as an absolute sale." Page
303 U. S. 375.
In view of what we have said in this and in the
Kirby
Petroleum case as to the economic interest in the oil of a
recipient of a share of net profits, the holding of
Elbe
should not be extended to the facts of this agreement.
The assignor, Gulf, in the assignment here involved, required
the grantee to drill promptly, to account for production, to pay
over fifty percent of receipts, less agreed
Page 328 U. S. 37
costs and expenses, and to sell the production on defined terms
to grantor, if grantor desired to purchase. This last clause did
not appear in the Elbe contract. Such a transfer of rights to
exploit could not, we think, properly be construed as a sale. It
is, rather, an assignment to the operator, petitioner here, of the
right to exploit the property, [
Footnote 15] with a reservation in the assignor of an
economic interest in the oil.
Reversed.
MR. JUSTICE JACKSON took no part in the consideration or
decision of this case.
MR. JUSTICE BLACK and MR. JUSTICE DOUGLAS dissent.
[
Footnote 1]
The Commissioner and the Tax Court allowed the taxpayer
depletion upon its entire income, so adjusted, under Section
114(b).
[
Footnote 2]
Kirby Petroleum Co. v. Commissioner, 326 U.
S. 599,
326 U. S.
604-605;
Anderson v. Helvering, 310 U.
S. 404,
310 U. S.
407.
[
Footnote 3]
Revenue Act of 1936, Ch. 690, 49 Stat. 1648, 1660, 1686:
"SEC. 23. DEDUCTIONS FROM GROSS INCOME."
"In computing net income there shall be allowed as
deductions:"
"
* * * *"
"(m) DEPLETION -- In the case of mines, oil and gas wells, other
natural deposits, and timber, a reasonable allowance for depletion
and for depreciation of improvements, according to the peculiar
conditions in each case, such reasonable allowance in all cases to
be made under rules and regulations to be prescribed by the
Commissioner, with the approval of the Secretary. . . . In the case
of leases, the deductions shall be equitably apportioned between
the lessor and lessee. . . ."
"SEC. 114. BASIS FOR DEPRECIATION AND DEPLETION."
"
* * * *"
"(b) BASIS FOR DEPLETION --"
"
* * * *"
"(3) PERCENTAGE DEPLETION FOR OIL AND GAS WELLS. -- In the case
of oil and gas wells, the allowance for depletion under section
23(m) shall be 27 1/2 percentum of the gross income from the
property during the taxable year, excluding from such gross income
an amount equal to any rents or royalties paid or incurred by the
taxpayer in respect of the property. . . ."
Treasury Regulations 94, promulgated under the Revenue Act of
1936:
"ART. 23(m)-1 [as amended by T.D. 5413, 1944 Cum.Bull. 124].
Depletion of mines, oil and gas wells, other natural deposits, and
timber; depreciation of improvements. --"
"
* * * *"
"(g) The term 'gross income from the property,' as used in
sections 114(b)(3) and 114(b)(4)(A) and articles 23(m)-1 to
23(m)-28 of Regulation 94 . . . means the following:"
"In the case of oil and gas wells, 'gross income from the
property' as used in section 114(b)(3) means the amount for which
the taxpayer sells the oil and gas in the immediate vicinity of the
well. . . ."
"In all cases, there shall be excluded in determining the 'gross
income from the property' an amount equal to any rents or royalties
which were paid or incurred by the taxpayer in respect of the
property and are not otherwise excluded from the 'gross income from
the property.' . . ."
[
Footnote 4]
A reading of Section 114(b)(3) shows that the "gross income from
the property" means income from the oil and gas wells on the
property.
Helvering v. Twin Bell Syndicate, 293 U.
S. 312;
Helvering v. Mountain Producers Corp.,
303 U. S. 376,
303 U. S. 382.
Other income would not be depletable under that section. "Rents or
royalties" in the section are those payable for the privilege of
extraction.
[
Footnote 5]
Kirby Petroleum Co. v. Commissioner, supra, pp.
326 U. S.
601-602;
Burnet v. Harmel, 287 U.
S. 103,
287 U. S. 111;
Murphy Oil Co. v. Burnet, 287 U.
S. 299,
287 U. S.
302.
[
Footnote 6]
The principle upon which the Tax Court and the Circuit Court of
Appeals decided this case for respondent differs from respondent's
present contention. This principle was that an obligation to pay a
part of net proceeds is a personal covenant of the obligor and was
the purchase price for the assignment.
Burton-Sutton Oil Co. v.
Commissioner, 150 F.2d 621, 622; 3 T.C. 1187, 1194, relying
upon
Quintana Petroleum Co. v. Commissioner, 143 F.2d 588,
590, 591; 44 B.T.A. 624, 627;
Helvering v. Elbe Oil Land
Co., 303 U. S. 372.
[
Footnote 7]
In
W. S. Green, 26 B.T.A. 1017, the lessor was allowed
depletion on a net income payment in addition to his royalty on the
ground that the net income payment was like a bonus.
In
Marrs McLean, 41 B.T.A. 565, 573, which was decided
after the
Elbe case, the Tax Court said a transfer of
leases for cash and a share of the profits was a sale. Where only a
three-fourths interest in the lease was transferred and the
transferor was to have one-fourth of the net profits, depletion was
allowed the assignor.
In
Felix Oil Co., T.C.Docket No. 107148, decided
December 18, 1942, a lessor corporation that had leased its oil
lands for a cash payment plus 50% of the net profits as defined in
the lease and no royalty, was held to have "retained an interest in
the oil in place" through its ownership of the land.
"Clearly, petitioner retained an interest in the oil produced
because it could compel the lessee to sell 50 percent of the
production elsewhere if it became dissatisfied with amounts
realized by the lessee."
Memorandum op., p. 13.
See Commissioner v. Felix Oil
Co., 144 F.2d 276, 277, affirming.
Compare A. B.
Innis, T.C. Docket Nos. 2735-2736, June 29, 1945.
In
Kirby Petroleum Co., 2 T.C. 1258, 1261, the Tax
Court relied on the latter ruling in
Marrs McLean and held
that the lessor could deplete its net profits payment, as well as
its royalty. It later explained this ruling as based on the Kirby
Company's retention of a "one-sixth oil royalty, thus reserving to
itself an interest in the oil in place."
Estate of Dan A.
Japhet, 3 T.C. 86, 93.
In the
Japhet case, depletion on net profits from an
assignee's operation was denied as assignor of a lease who had
received a cash payment but had not reserved a royalty. It was said
no "economic interest" was reserved.
In
A. B. Innis, T.C.Docket Nos. 2735-2736, June 29,
1945, a similar problem arose as to deductibility by gold lease
operators from their gross income of a share in net profits paid to
the sublessor of the lease. The Tax Court found no difference
between such a payment to a sublessor and one to a lessor. Both
were said to have economic interests, and therefore depletable
rights.
Felix Oil Co., supra, was followed and
Quintana Pet. Co. v. Comm'r, supra, distinguished as a
sale by assignment, rather than sublease.
Williams Bar Dredging
Co. is in accord. T.C.Docket Nos. 3284, 4074, June 30,
1945.
In
Quintana Petroleum Co., 44 B.T.A. 624, an
operator-assignee acquired an oil lease by an agreement that called
for payment by the assignee to the assignor of one-fourth of the
net proceeds from the leased property, with no reservation of
royalty. The Board concluded that the assignment was a purchase,
and no deduction of the amount of net profits paid was allowable.
See also Quintana Petroleum Co. v. Commissioner, 143 F.2d
588.
In
Euleon Jock Gracey, 5 T.C. 296, 302, decided June
21, 1945, the Tax Court, under similar circumstances, followed
Quintana and held an operator-assignee was entitled to
depletion of gross production, but could not exclude that net
profit payment to his assignee from his gross, as the transfer of
the lease, in consideration of a net profit payment only, was a
sale.
[
Footnote 8]
287 U.S. at
287 U. S.
557:
"The language of the statute is broad enough to provide at
least, for every case in which the taxpayer has acquired, by
investment, any interest in the oil in place, and secures, by any
form of legal relationship, income derived from the extraction of
the oil, to which he must look for a return of his capital."
287 U.S. at
287 U. S.
558:
"Even though legal ownership of it, in a technical sense,
remained in their lessor, they, as lessees, nevertheless acquired
an economic interest in it which represented their capital
investment and was subject to depletion under the statute."
Lynch v. Alworth-Stephens Co., 267 U.
S. 364;
Burnet v. Harmel, 287 U.
S. 103,
287 U. S.
109-110;
Bankers' Pocahontas Coal Co. v.
Burnet, 287 U. S. 308;
Kirby Petroleum Co. v. Commissioner, supra, p.
326 U. S.
603..
[
Footnote 9]
Stratton's Independence v. Howbert, 231 U.
S. 399,
231 U. S.
413-414.
[
Footnote 10]
Burnet v. Harmel, 287 U. S. 103,
287 U. S.
107-108.
[
Footnote 11]
See Lynch v. Alworth-Stephens Co., 267 U.
S. 364,
267 U. S. 370;
Palmer v. Bender, 287 U. S. 551,
287 U. S.
556.
[
Footnote 12]
40 Stat. 1057, 1067, 1078, §§ 214(a)(10), 234(a)(9).
[
Footnote 13]
H.Rep. No.767, 65th Cong., 2d Sess., September 3, 1918,
Deductions (5) and for corporations, Deductions (4).
The inequality referred to under the Revenue Act of 1916, 39
Stat. 759, Sec. 5, Eighth (a), arose from the preferred treatment
given the owner over the lessee.
See Hearings, House
Committee on Ways and Means, 65th Cong., 2d Sess., pp. 455, 516,
517, 523-528, 530, 531. Regulations 33, Income Tax, promulgated
January 2, 1918, Art. 170; Regulations 45, 1920 ed., Income Tax,
promulgated January 28, 1921, Art. 201.
The applicable law for allowance of depletion in oil and gas
wells appears in Sec. 114(b)(3). It is identical with Internal
Revenue Code, Sec. 114(b)(3). This section is the result of
administrative experience with oil and gas depletion. Hearings,
Sen.Com. on Finance, 69th Cong., 1st Sess., pp. 177, 178; Hearings,
House Com. on Ways and Means, 69th Cong., p. 1006.
See
H.Rep. No.1, 69th Cong., 1st Sess., December 7, 1925, Discovery
Value; § 204(c)(2), 44 Stat. 16. For discussion,
see Helvering
v. Twin Bell Syndicate, 293 U. S. 312, and
Kirby Petroleum Co. v. Commissioner, supra, 326 U. S.
602-603. Depletion is now an arbitrary percentage
allowance based on production from the wells without regard to cost
or value of the property.
[
Footnote 14]
A participation in net profits disassociated from an economic
interest does not enable a recipient of such profits to benefit
from depletion.
Helvering v. O'Donnell, 303 U.
S. 370.
[
Footnote 15]
See the discussion of
Felix Oil Co. in
note 7 supra.
MR. JUSTICE FRANKFURTER.
The tortuous process by which the result in this case has
evidently to be reached by the Court justifies calling attention
again to the present unsatisfactory state of tax litigation. It is,
of course, idle to expect that the complexities of our economic
life permit revenue measures to be drawn with such simplicity and
particularity as to avoid much litigation. But it is not a counsel
of perfection to assume that a system of judicial oversight of
fiscal administration can be devised sufficiently rational to avoid
the unedifying series of cases relating to income from oil
operations culminating, for the present at least, in this case. The
Court made a brave effort in
Dobson v. Commissioner,
320 U. S. 489, to
meet some of the difficulties of the present distribution of
judicial authority in tax cases by lodging practical finality in a
Tax Court decision unless it invokes a "clear-cut mistake of law."
Id. at
320 U. S. 502.
An attempt to give adequate scope to such a doctrine of judicial
abstention by dealing with the practicalities of
Page 328 U. S. 38
tax matters, instead of relying on the grab-bag concepts of
"law" and "fact" as a basis of review has not, however, commended
itself to the Court.
See Trust of Bingham v. Commissioner,
325 U. S. 365.
To be sure, even the adoption of this view would not make the
Tax Court the Exchequer Court of the country, inasmuch as tax
litigation can go through the district courts as well as through
the Tax Court. It would, however, largely centralize review in the
Tax Court of Treasury determinations, assuming that the bulk of tax
litigation will continue to find its way to the Tax Court.
It is suggested that the Tax Court makes differentiations from
case to case which, to the uninitiated, look suspiciously like
conflicting opinions. But it is impossible to escape nice
distinctions in the application of complicated tax legislation.
And, so far as over-nice distinctions are to be made, I do not see
that it helps the administration of law for this Court, rather than
the Tax Courts, to make them.
Nothing better illustrates the gossamer lines that have been
drawn by this Court in tax cases than the distinction made in the
Court's opinion between
Helvering v. Elbe Oil Land Co.,
303 U. S. 372, and
this case. To draw such distinctions, which hardly can be held in
the mind longer than it takes to state them, does not achieve the
attainable certainty that is such a desideratum in tax matters, nor
does it make generally for respect of law. Perhaps it is inherent
in the scheme which Congress has provided for review of tax
litigation that we have such an unsatisfactory series of decisions
as those which are sought to be reconciled by the present opinion.
If so, then the call for legislation voiced in responsible quarters
to reform the situation may well be heeded.
See e.g.,
Griswold, The Need for a Court of Tax Appeals (1944) 57 Harv.L.Rev.
1153.