1928 BTA LEXIS 3776">*3776 Action of respondent affirmed for lack of evidence of error.
11 B.T.A. 582">*582 Error is alleged in the determination by respondent of a deficiency for the years 1919 and 1920 amounting to $25,724.14. Issue is joined as to the exclusion from invested capital of an amount of $45,136.51 alleged development expense.
FINDINGS OF FACT.
Petitioner is a California corporation with principal office at Bakersfield. In the year 1913 it acquired a lease on certain oil-bearing 11 B.T.A. 582">*583 property located in Kern County, Calif., on which three wells had been drilled, two of which were producing some oil, and the third of which had been abandoned. Petitioner attempted to redrill these wells and finally abandoned two of them, the third being brought up to a production of 20 to 30 barrels a day. In one of these wells additional expense was encountered due to the presence in the well of tools lost by the original driller. Thereafter in 1913 and 1914, petitioner drilled seven additional wells. The cost of developing the wells was charged1928 BTA LEXIS 3776">*3777 to capital account.
It was stipulated that petitioner incurred an operating deficit of $38,325.45, without consideration of depreciation or depletion, in the period April 29, 1913, to December 31, 1914. The production of oil belonging to petitioner was stipulated to be -
| Barrels. | |
| April 29, 1913, to December 31, 1913 | 13,323 |
| Year ending: | |
| December 31, 1914 | 79,140 |
| December 31, 1915 | 109,341 |
| December 31, 1916 | 89,058 |
| December 31, 1917 | 102,529 |
| December 31, 1918 | 88,841 |
| December 31, 1919 | 83,460 |
| December 31, 1920 | 66,021 |
The estimated oil reserves on April 29, 1913, were 969,067 barrels. The price of oil in 1913 was 35 cents and in 1914 varied from 36 1/2 cents to 40 cents.
OPINION.
VAN FOSSAN: The above findings of fact which contain all of the material facts proven at the hearing on the case are entirely inadequate to prove error on respondent's part. It is alleged in the petition that the cost of redrilling old wells and other development work was charged to expense on petitioner's books. Petitioner's bookkeeper testified, however, that the cost of development was charged to capital account. These conflicting statements were not reconciled. 1928 BTA LEXIS 3776">*3778 It was stipulated that petitioner incurred an operating deficit in the years 1913-1914, but there is no testimony as to the items comprising the same. It is so clear as to require no argument in support that the mere fact that an operating deficit was incurred does not warrant the inclusion of such deficit in invested capital. There are certain expenses made for development of a property that may properly be charged to capital account, but the nature of the items and the amounts must be clearly proven. ; ; ; ; ; 11 B.T.A. 582">*584 ; .
Petitioner's case fails for want of proof.
Judgment will be entered for the respondent.