*1677 Beneficiaries of a trust, each having a one-fourth interest in the income therefrom and in the residue and receiving royalties directly from the trustee, held to be entitled to deduct from royalties received a reasonable amount for depletion.
*217 These proceedings, consolidated for hearing, are for the redetermination of deficiencies as follows:
| Petitioner | Docket No. | Year | Deficiency |
| Ida L. Kuhn | 32609 | 1925 | $2,125.84 |
| Do | 40267 | 1926 | 2,181.36 |
| John I. Cooper | 32610 | 1925 | 2,305.81 |
| Do | 40115 | 1926 | 2,420.92 |
| Laura M. Price | 40659 | 1926 | 634.50 |
| W. E. Price | 41072 | 1926 | 634.60 |
These proceedings raise the issue as to whether the petitioners are entitled to deduct, from gross income in their income-tax returns, amounts for depletion of the property held under a trust created by John M. Cooper, the father of three of the petitioners and the father-in-law of W. E. Price.
FINDINGS OF FACT.
Ida L. Kuhn, residing at San Diego, Calif., John I. Cooper, residing at Baxter Springs, Kans., and*1678 Laura M. Price, residing at El Paso, Tex., are the children of John M. Cooper, who died a resident of Baxter Springs, Kans., on or about November 18, 1914. W. E. Price is the husband of Laura M. Price.
John M. Copper left a last will and testament by the terms of which he made certain specific legacies, and appointed trustees whom he directed to sell and dispose of all of his estate and distribute the same to his four children, three of whom are petitioners herein, equally over a period of 35 years. He directed that to each one of his four children the sum of $500 should be paid per quarter, but if that amount were not sufficient to distribute the estate within 35 years, then that the trustees should increase the amount so payable quarterly to each one of his children to such an extent as would insure the distribution of the estate in 35 years from the date of his death. In order to make his purpose clear, he provided in clause No. 12 of his will as follows:
I have in mind a purpose to have my estate reduced and paid out to my said children and the bodily heirs of my deceased children at the end of thirty-five years from my death, and in order to provide for and accomplish*1679 this purpose I hereby authorize my trustees at the end of five years from the date of my death, and thereafter from time to time as they may deem best, to make an estimate and adjustment of said estate for the purpose of determining whether or not the estate will last for the period of time by making the payments *218 above provided for, and whether or not the same will be increased by the addition of the income and profits thereto and by advance in the value of property to more than the amount above specified; and if at the time of making said estimates and adjustments my trustees find that the payments above provided for are too large, then they are hereby authorized to reduce the same to such an amount as will meet and carry out my said purpose; and, on the other hand, if they find that the estate is increased by lapsing of shares or by the addition of income and profits or by increase in value so that the estate would not be reduced to the amount above desired and anticipated, then my said trustees are authorized and directed to increase the amount of said payments to such sum and amount as in their judgment will meet and carry out of the purpose anticipated and desired*1680 by me.
At the time of his death, John M. Cooper was the owner of certain real estate and mining tracts which at such time were undeveloped and unproven, being merely prospects. These properties passed to the executors and trustees as part of his residuary estate and were received by them as and for the purposes set out in his will. All of the said mining properties so owned by John M. Cooper had been leased to operating lessees and thereafter new mining leases were made or said old leases continued. During each of the years here in question, namely, 1925 and 1926, the executors and trustees of the estate currently distributed to the beneficiaries all of the royalties received from the operating lessees under the said leases except enough to provide for certain administrative expenses and without diminution for depletion for the extraction of ore by such lessees.
The fiduciary return filed by the trustees for each of the years 1925 and 1926 shows a deduction from gross income of $60,000 for depletion of the corpus of the trust estate. All of the receipts of the trustees were turned over to the beneficiaries with the exception of a small amount held out to pay administrative*1681 expenses. Ida L. Kuhn and John I. Cooper each excluded from gross income, in their returns for 1925 and 1926, $15,000 of the amount received from the trustees as representing allowable depletion to the trust estate, and Laura M. Price and W. E. Price, making returns for 1926 together upon a community property basis, likewise excluded $15,000 from the amounts received by them from the trustees for a like reason. The Commissioner in auditing the petitioners' returns added to the gross incomes the amounts indicated above as having been excluded from their gross incomes and refused to allow the deduction from the gross incomes of any amounts representing depletion of their interests in the trust estate.
OPINION.
SMITH: The sole question presented by these proceedings is whether the petitioners are entitled to deduct from their gross incomes comes *219 any amounts representing allowances for depletion upon the property held in trust for their benefit created by John M. Cooper and from which they derived income. In their income-tax returns each of the beneficiaries under the trust omitted from gross income $15,000 which was received from the trustees. Laura M. Price and*1682 W. E. Price, making returns on a community property basis, each omitted $7,500. In the amendment of the income-tax returns the respondent has added to the gross incomes reported the amounts thus omitted and has refused to allow any amount as a deduction for depletion. The petitioners claim the right to deduct depletion.
The parties have stipulated that if, as a matter of law under the stipulated facts, depletion is an allowable deduction from gross income to these petitioners, then the amounts thereof are those shown in a memorandum and schedule of the engineering subsection of the audit review division introduced in evidence as Exhibit B.
The applicable statute is section 214(a)(9) of the Revenue Act of 1926, which provides:
(a) In computing net income there shall be allowed as deductions:
* * *
(9) 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*1683 the deduction allowed by this paragraph shall be equitably apportioned between the lessor and lessee.
The question presented by these proceedings is the same as was before the Board in , and , in which we held that the beneficiaries were not entitled to deductions for depletion on account of the removal of ore from property forming a part of the corpus of the trust. Here, as there, the beneficiaries of the trust were to receive not only the income of the trust, but had an interest in the corpus as well. The decision of the Board in , was reversed by the ; certiorari denied, . The facts in this case are also substantially the same as obtained in , where we held, following the decision of the court in Merle-Smith v. Commissioner of Internal Revenue, supra, that the beneficiaries were entitled to depletion deductions. In these proceedings we are also of the opinion that they*1684 are entitled to reasonable allowances for depletion in the computation of tax liabilities for the years involved.
Reviewed by the Board.
Judgments will be entered under Rule 50.