concurring: For the reasons set forth in my concurring opinion in Engle v. Commissioner, 76 T.C. 915, 927 (1981), I concur in the holding and rationale of the majority opinion. However, I again feel a need to briefly address some of the statements made in the dissenting opinion.
The dissent perceives in the majority opinion an implication that percentage depletion would not be allowed with respect to both past and future production. I, of course, agree that future possible production cannot support a present percentage depletion deduction. Because there was no actual past production in the case before us, the majority was not compelled to, and did not, make a holding concerning the legal effect of such a situation. The majority opinion, read as a whole, certainly supports the conclusion I have reached that both past and present actual production will support a present-year percentage depletion deduction. I have elaborated this theory at length elsewhere,1 so I will not dwell on it here.
The dissent is troubled by the perceived implication of the majority opinion that lease bonuses are not payments for oil or gas, and that such an implication is contrary to established case law. The majority implies no such thing. No one denies that lease bonuses are payments for oil or gas. However, it is equally undeniable that, as the majority states at page 955 of its opinion, lease bonuses are not paid with respect to production. In fact, bonus payments are paid and retained regardless of whether oil or gas is found or produced. Burnet v. Harmel, 287 U.S. 103, 111 (1932). Sales of oil and gas necessarily imply production but payments to the owner of a mineral interest for the privilege of exploring for oil or gas do not in any way imply that oil or gas has been produced or that it even exists. Under section 613A, I.R.C. 1954,2 there no longer exists any percentage depletion without actual production. Since lease bonuses are not paid and received “with respect to” actual, existing production, they are no longer subject to percentage depletion.
Finally, I would reemphasize one of the major practical problems with the dissent’s proposed interpretation, i.e., how to convert bonuses into units of production for purposes of determining a taxpayer’s average daily production under section 613A(c). What prices would one use to convert a $10,000 (or $100,000) bonus into a number of barrels of oil or into a quantity of cubic feet of gas? The dissent never addresses, let alone answers, this question. The question is not answered under the controlling law, probably because no one foresaw an interpretation such as the dissent’s that would require such a conversion. The majority’s approach avoids the necessity of asking such unanswerable, and uncontemplated, questions.
Engle v. Commissioner, 76 T.C. 915, 928-930 (1981)(Goffe, J., concurring).
AI1 section references are to the Internal Revenue Code of 1954 as amended.