248 F.2d 49

William Louis ALBRITTON et al., Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 16307.

United States Court of Appeals Fifth Circuit.

July 26, 1957.

Rehearing Denied Aug. 24, 1957.

B. B. Taylor, Jr., Baton Rouge, La., for petitioner.

Sheldon I. Fink, Lee A. Jackson, Ellis N. Slack, David O. Walter, Attys., Dept, of Justice, Washington, D. C., Charles K. Rice, Asst. Atty. Gen., Dept, of Justice, John Potts Barnes, Chief Counsel, John M. Morawski, Sp. Atty., I.R.S., Washington, D. C., for respondent.

*50Before HUTCHESON, Chief Judge, and TUTTLE and CAMERON, Circuit Judges.

CAMERON, Circuit Judge.

This appeal calls for the decision of an issue which is thus stated in the stipulation of facts upon which the case was tried before the Tax Court: “The sole and only issue in all of these cases to be decided by the Court is whether or not receipts from the extraction of gravel from the lands belonging to the taxpayers constituted ordinary income or income subject to the provisions of the capital gains sections of the Internal Revenue Code.”1 Several leases and several taxpayers operating as partners are involved, but the legal questions presented are identical, and the Tax Court, using one of the contracts as typical of all, decided all of them against the taxpayers and in favor of the Commissioner.2

Decision of the case will turn on the construction of the gravel contracts, it being our duty to determine their “dominant purpose” and the “essential character” of the activities defined by them and performed under them.3 While the descriptive terminology of the contracts is not controlling,4 we cannot ignore or go beyond the language adopted by the parties as the memorial of their agreements. Nor can we hearken to “the technical niceties and recondite distinctions of local law,” Lambert v. Jefferson Lake Sulphur Co., supra [236 F.2d 547]. We look therefore to the language of the contracts, which is clear and unambiguous, to ascertain the intent of the parties who executed them.

The Tax Court in its opinion quoted at length from the contract of August 29, 1947 between taxpayers and one Carruth, and we accept and copy in the margin extracts from it as typical of all of the contracts before us.5 From the *51quoted language it is apparent that it would be difficult to draft an instrument more completely embodying the language of a typical lease. The parties named themselves “lessor” and “lessee;” they called the income “royalty,” using the word several times in the instrument; they provided for forfeiture if operations were suspended, and stated categorically that it was the intention of the parties that operations be commenced at the earliest practical time and carried on thereafter without undue interruption; and they stipulated that the lessors should derive income of a certain percentage of retail value of the sand and gravel removed during operations under the lease.

It is clear, then, that the lessors retained an economic interest in the sand and gravel, conveyed to lessee only a royalty interest, derived income solely from exploitation, and called the cash payment “advanced royalty.” It is manifest, therefore, under a long list of decisions6 that the amounts received by taxpayers from the extraction of sand and gravel from their lands were taxable as ordinary income.

Taxpayers earnestly insist that this case is ruled by our recent decision in Crowell Land & Mineral Corp. v. Commissioner, 1957, 242 F.2d 864, where we held that a gravel contract constituted a sale entitling the taxpayer to capital gains treatment. A reading of that case7 will demonstrate that its facts differ widely from those we are dealing with here and that the case is not authority at all for taxpayer’s position in the case before us. We held there that, construing the instrument as a whole and considering it against the total background of transactions under it, the contract was. *52one of sale. Applying the same tests, we hold that the contracts here are leases of the right to remove sand and gravel, yielding to the landowners nothing but royalty; and that the Tax Court correctly held the income from them liable for tax as ordinary income.

The quotation first appearing (supra fn 2) from the opinion of the Tax Court states that the taxpayer was entitled to use the economic interest retained in the minerals in place “as the ground of a claim for depletion;” and the Commissioner concedes that depletion allowance was proper if properly claimed. The taxpayers filed a motion to reopen the case so that the question of depletion could be developed and passed upon by the Court, but the Tax Court denied the motion without comment. It was based on assertions concerning lack of notice arising from change of attorneys by taxpayers. We think the application of its rules by the Tax Court was too technical and that it ought to have heard the question of depletion and to have determined the character and amount of depletion to which the taxpayers are entitled. For the purpose of such ascertainment and adjudication the judgment of the Tax Court is reversed and remanded; otherwise it is affirmed.

Albritton v. Commissioner
248 F.2d 49

Case Details

Name
Albritton v. Commissioner
Decision Date
Jul 26, 1957
Citations

248 F.2d 49

Jurisdiction
United States

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