*105 Decision will be entered under Rule 50.
In 1948, the petitioners, by purchase, acquired from the Wingfield brothers 94 1/2 acres of fee land and a waiver of a preference for the summer grazing of 286 head of cattle on what was designated as the Blind Lake Allotment in the Coconino National Forest. As the result of the acquisition of the fee land and the waiver, the said grazing preference was transferred by the Forest Service from the Wingfields to the petitioners, and based on the ownership of the grazing preference by petitioners, the Forest Service issued to them a grazing permit covering the said allotment for the unexpired portion of a 10-year term from 1946 to 1955, inclusive. Under the regulations governing the grazing of livestock on the national forests, it is only to the holders of established grazing preferences that the issuance of annual and term grazing permits is authorized. A grazing preference is without limitation as to time and, subject to contingencies, which may never happen, continues indefinitely. Held, that the grazing privileges so acquired being of indefinite duration, the petitioners may not amortize the payments made to the Wingfields under *106 section 23 (l) of the Internal Revenue Code of 1939.
*980 The respondent determined a deficiency in income tax against the petitioners for the year 1949 of $ 802.30. The question for decision is whether the petitioners may amortize over an 8-year period the cost of acquiring grazing privileges in the Coconino National Forest. Another issue involving the proper deduction for medical expenses is entirely dependent upon the decision of the first issue, and the parties have stipulated that this item*107 may be adjusted by a computation under Rule 50.
FINDINGS OF FACT.
Some of the facts have been stipulated and are found as stipulated.
The petitioners are husband and wife, and reside in Phoenix, Arizona. They filed a joint income tax return for the year 1949 with the collector of internal revenue for the district of Arizona.
V. P. Shufflebarger, sometimes referred to herein as the petitioner, is and for an undisclosed period, including the taxable year, has been an employee of John Jacobs, who, operating under the name of John Jacobs Farms, is in the business of farming and ranching. Petitioner is general manager and interests himself particularly in the harvesting, selling, and shipping activities of the business. The farming operation is devoted to the growing of vegetables and is *981 located at Deer Valley, approximately 12 miles north of Phoenix. Just north of the farming area a cattle-feeding operation is conducted. In this operation, cattle brought from two breeding ranches operated by Jacobs are fed "out" for market.
One of the breeding ranches, the Bar D, is located near Rimrock, in northern Arizona, and was acquired by Jacobs prior to 1948, possibly in 1946 or *108 1947. It is a summer and winter operation and consists of about 125 square miles of land, of which about 600 acres are owned in fee, while the remainder is made up of grazing "allotments" located partly in the Coconino National Forest and partly in the Prescott National Forest and held under grazing permits issued by the Forest Service of the United States Department of Agriculture. 1
*109 *982 The allotment for summer grazing on Jacobs' Bar D Ranch is in the high timber country, whereas the cattle are wintered "under the rim," where the winter headquarters of the ranch are located. The Bar D summer allotment was for 800 head of cattle, but on some undisclosed date a nonuse 2 as to about 160 head had been established, thereby reducing the number of cattle which could be carried on the summer allotment to approximately 640.
In the same general area as the Bar D Ranch was the Lost Eden Ranch, which was owned by D. W. and Kenneth Wingfield. In late*110 1947 or early 1948, the Wingfields had acquired, or were seeking to acquire, a ranch known as the Apache Maid, which, like the Bar D, was a combined summer and winter operation. Their particular interest was in the winter allotment, since the summer allotment they already had was sufficient, or approximately so, for the number of cattle they could carry or wanted to carry. The Bar D Ranch adjoined the Apache Maid, and the Wingfields, at the suggestion of the Forest Service, approached Jacobs, suggesting that he acquire a portion of the summer preference and permit, which was for 800 head of cattle. It was the thought of the Forest Service that Jacobs should have an opportunity to acquire additional summer grazing, to offset the nonuse then in effect with respect to the Bar D allotment.
A conference was held in the Forest Service office in Flagstaff to see what could be worked out. The area under consideration consisted of some 50 sections of land in the Coconino National Forest. The Forest Service, in 1926, had rated every section in the forest as to the number of cattle it should carry, and it currently estimated that the number of cattle the 50-odd sections should carry was*111 489 head.
For the release or waiver of that much of the 800-head allotment, the Wingfields were asking $ 45,000. It was a fine grazing area, but Jacobs did not need it all and he was unwilling to pay $ 45,000 to obtain what he did need.
Petitioner had been buying and feeding a few small lots of cattle at Deer Valley for his own account, and Jacobs inquired if he would be interested in acquiring a portion of the summer allotment the Wingfields desired to dispose of. Petitioner indicated his interest in the matter, provided the cost of the allotment he would receive did not exceed $ 100 for each head of cattle he would be permitted to carry thereon. Jacobs told the Wingfields and the representatives of the Forest Service who petitioner was and of his interest in acquiring a portion of the grazing rights.
*983 The negotiations were continued by Jacobs in his own and petitioner's behalf, and it was agreed that on the basis of the estimate of 489 head of cattle for the area in question the consideration payable to the Wingfields would be at the rate of $ 92 per head. As between petitioner and Jacobs, the tentative division was 280 head for petitioner and 209 for Jacobs.
Within*112 the area which was to be allotted to petitioner were 2 parcels of land which were owned by the Wingfields in fee, 1 for 80 acres and 1 for 14 1/2 acres. As a part of the transaction, the Wingfields were to convey to petitioner the fee of these 2 parcels of land, and in addition to assign a brand known as the K Bar T.
The agreement between petitioner and the Wingfields was in the form of a letter addressed by petitioner to the Wingfields, under date of February 16, 1948, on which, under even date, the Wingfields endorsed their acceptance. The provisions of the agreement, as shown by the letter, were as follows:
You have handed to me Warranty Deed, dated the 9th day of February, 1948, whereby the following described real property, together with all improvements situate thereon, located in the County of Coconino, State of Arizona, to-wit:
The Exchange Survey No. 655, embracing a portion of Section 25, Township 17 North, Range 8 East of the Gila and Salt River Base and Meridian, containing fourteen acres and fifty hundredths of an acre, according to the official Plat of the Survey of the said land, on file in the General Land Office.
The NW 1/ 4 N.E. 1">4 NE 1/4; *113 E 1/ 2 N.E. 1">2 NE 1/ 4 N.W. 1">4 NW 1/4; NE 1/ 4 S.E. 1">4 SE 1/ 4 N.W. 1">4 NW 1/4; and the NW 1/ 4 S.W. 1">4 SW 1/ 4 N.E. 1">4 NE 1/4 of Section 10, Township 16 North, Range 8 East of the Gila and Salt River Base and Meridian, containing 80 acres.
is conveyed to me and my wife, Susan J. Shufflebarger. You have also handed to me Waiver of Grazing Privilege (Form 736, U. S. Department of Agriculture, Forest Service) likewise dated the 9th of February, 1948, signed by Messrs. D. W. Wingfield and Kenneth Wingfield, wherein it is recited that you, on said 9th day of February, 1948, sold to Mrs. Shufflebarger and me the real property hereinbefore described, a copy of the deed hereinbefore referred to being attached to such Waiver. Such Waiver further recites that the owners therein referred to surrender all privileges allowed under the permit therein referred to, as to head of cattle.It has been heretofore agreed that I will pay to you the sum of $ 25,760.00, in consideration of the delivery of such deed and such waiver, when the title to the real property described shall be vested*114 in Mrs. Shufflebarger and me, and we shall hold from the Forest Service a permit to graze 280 head of cattle on the forest within the allotment, the base properties of which will be the patented lands described in the deed hereinbefore referred to, and a title policy of insurance to be issued by the Phoenix Title & Trust Company, insuring title to said patented lands in us in the amount of $ 1,000.00.
The allotment on the forest herein referred to is shown on the map hereto attached and included and embraced in the area designated "Shuff".
You have requested, in advance of the completion of the transaction, the payment of such purchase price for such lands and rights. To this we are agreeable.
It is understood and agreed that when the exterior boundaries of said allotment shall have been established, in the event we shall not be permitted to run thereon as many as 280 head of cattle, you will repay to us the sum of $ 92.00 for *984 each head less than 280 which we will be permitted to run on such allotment, and in the event that the boundaries of such allotment are established so that we are permitted to run on such allotment more than 280 head, we will pay to you the sum of*115 $ 92.00 for each head in excess of 280 head which we will be permitted to run on such allotment.
It is further understood and agreed that included in the sale is the following brand, to-wit: K Bar T, and you will forthwith cause said brand to be transferred to me.
Will you kindly indicate your approval of the arrangement herein set forth by signing your names at the foot of the original of this letter and returning the same to me.
The accompanying waiver of grazing privileges, which had been executed by the Wingfields, was on United States Department of Agriculture Forest Service Form 762, and was as follows:
United States Department of Agriculture Forest Service
WAIVER OF GRAZING PRIVILEGES
This MEMORANDUM witnesseth that:
Whereas, the undersigned, D. W. Wingfield and Kenneth Wingfield, under date of March 12, 1948 [sic], received from the United States Department of Agriculture, Forest Service, a permit with established preference to graze 1286 3 head of cattle upon the Coconino National Forest; and
Whereas, such permit is understood to carry with it, in the discretion of the Chief, Forest Service, subject to the reductions stated therein or incident thereto*116 if not included in the face of the permit, and upon the request of the permittee, a continuation of such privilege; and
Whereas, the undersigned, has under date of February 9, 1948, sold to V. P. Shufflebarger and Susan J. Shufflebarger of , head of and the following-described real estate: as shown by attached copy of warranty deed.
Now, Therefore, the undersigned, here and now surrenders unto the United States all privileges heretofore allowed under the aforesaid permit as to head of and head of ; further the undersigned stipulates that they will not at any future time apply for a renewal of the preference herein surrendered.
Executed at Prescott, State of Arizona, this 9th day of February, 1948.
/s/ D. W. Wingfield
/s/ Kenneth Wingfield
Permittee.
Witness:
[s] Reney B. Salmon
Confirmed subject to the requirements outlined on the reverse side hereof, and filed this the 10th day of May,1948.
/s/ Tracy W. Rice
Acting Forest Supervisor, Coconino National Forest.
*117 *985 [Reverse side]
CONDITIONS AND REQUIREMENTS FOR THE APPROVAL OF TRANSFERS OF PREFERENCES
1. A waiver of the preference to the United States on Form 763, signed by the original permittee.
2. A properly executed and recorded or notarized bill of sale, and/or a properly executed and recorded deed or contract to purchase.
3. Any additional documents needed as evidence of any phase of the transaction.
4. Such information as may be required to show character, location, and amount of ranch property upon which the application for renewal is based, and the relationship between such ranch property and the livestock to be grazed.
5. Failure to comply with the following requirements, without prior approval of the Forest Supervisor, may result in cancellation of the preference:
(a) Within 30 days from date of execution of the waiver of grazing privileges the purchased livestock must be removed from lands owned or under lease or permit to the vendor and taken to lands owned by or under lease or permit to the purchaser.
(b) Livestock purchased in connection with transfer of preference must be the same livestock or the same kind of livestock as were grazed under permit by the vendor, *118 and must be more than six months of age at time of purchase.
(c) Where the purchaser does not desire to graze the purchased livestock on national-forest range during the season immediately following purchase, he must furnish the Forest Supervisor with reasons satisfactory to the Supervisor such as the need for normal replacements, beef or lamb sales, culling, or change in kind of livestock.
(d) Base property purchased in connection with transfer of preference must be the land actually used by the vendor as base property and must be used as base property by the purchaser one season immediately following the purchase.
(e) Permitted livestock or base property purchased in connection with transfer of preference must not be resold to the vendor within a period of 3 years following purchase.
(f) Transfer of land under contract to purchase, holding of deeds thereto in escrow, and the mortgaging of ranches and livestock are all recognized as legitimate business transactions. However, such transactions must be carried out in a legitimate manner, and the terms of the contract entered into must be progressively met.
The above conditions and requirements have been read by us and are hereby*119 agreed to.
| /s/ | V. P. Shufflebarger | |||
| Witness | /s/ Reney B. Salmon | 2/18/48 | /s/ | Susan J. Shufflebarger |
| (Date) | (Purchaser) | |||
| /s/ | D. W. Wingfield | |||
| Witness | /s/ Margaret E. Bouck | 2/18/48 | /s/ | Kenneth Wingfield |
| (Date) | (Vendor) |
Upon its receipt, the petitioner delivered the waiver, together with the warranty deed covering the two parcels of land which had been *986 acquired by him in fee, to the forest supervisor of the Coconino National Forest, and requested the issuance of a grazing permit to him covering the land which had been so waived by the Wingfields.
Under date of May 10, 1948, the acting forest supervisor for the Coconino National Forest wrote petitioner acknowledging receipt of the waiver and warranty deed and advising him that "on the basis of the above instruments which constitute evidence of a bona fide sale of ranch property, a 286 head grazing preference, *120 which is part of an 800 head grazing preference held by D. W. and Kenneth Wingfield, is being transferred to you," the said preference being for the season June 1 to October 31. Transmitted with the letter of May 10, and bearing the same date, was a term permit for the remainder of the 10-year period 1946 to 1955, inclusive, for the 286 head of cattle to be grazed "within the Blind Lake Allotment." The permit was as follows:
GRAZING PERMIT
Mr. V. P. Shufflebarger
(Name of permittee)
Phoenix, Arizona(Post-office address)
May 10, 1948(Date)
hereinafter called the permittee, is hereby authorized to graze livestock upon lands owned or controlled by the United States within the Coconino National Forest, under the following conditions and requirements:
1. Description of Range. -- The animals shall be grazed upon the area described as follows, or delineated on the attached map, which is a part of this permit:
Blind Lake Allotment, Beaver Creek Ranger District, as shown on map in the Forest Supervisor's Office.
Subject to the regulations, 286 head of cattle for the period 6/1-10/31 represents the permittee's established preference for the remainder of the*121 10-year period 1946-1955, inclusive.
2. Description of permitted use for initial year of issuance:
| Number | Kind of | Term, | Period | ||
| of | Livestock | Annual or | Allotment | ||
| Livestock | Temporary | From -- | To -- | ||
| 286 | C | Term | 6/1 | 10/31 | Blind Lake |
also to lamb head of ewes from to on
(Name of range)
3. This permit is based upon the statements made in the permittee's grazing application dated , 19 . It includes the conditions and requirements outlined on the reverse side hereof.
/s/ Tracy W. Rice
Acting Forest Supervisor.
*987 [Reverse side]
4. Annual Statement Form 861. -- Each year prior to the beginning of the grazing season, the forest supervisor will furnish the permittee a Statement Form 861 showing the kind and number of animals which will be allowed to graze, the period of use approved for the current year, the range to be used, and the grazing fees, and such statement shall become a part of this permit.
5. Payment of Fees. -- The permittee shall deposit with the Regional Fiscal Agent on or before the date specified in the annual Statement Form 861 the amount due for grazing fees. *122 All remittances shall be mailed to the Regional Fiscal Agent as provided in the Statement Form.
6. Validation of Permit. -- The payment of the grazing fees and the return to the permittee of a copy of Statement Form 861 stamped "Paid" shall validate this permit for the number and kind of livestock and period of grazing fixed for the particular year.
7. Definition of "Term," "Annual," and "Temporary." -- (a) The TERM portion of this permit terminates with the last year of the current term permit period; it is effective only if validated annually by Statement Form 861.
(b) The ANNUAL portion of this permit terminates with the year of issuance, but may be renewed or amended annually in whole or in part, through a validating Statement Form 861.
(c) The TEMPORARY portion of this permit is not based on an established preference; it terminates with the year of issuance and is not subject to renewal unless surplus national forest grazing capacity is available.
8. Range Management. -- (a) The permittee shall carry out the provisions of the range management plans or other instructions issued by the forest officer in charge for the area under permit, and shall require his employees*123 to do likewise.
(b) The number of livestock and grazing period specified in the permit or validating Statement Form 861 may be adjusted when determined by the forest officer in charge to be needed for range protection. Except in extreme emergencies, notice of scheduled reductions will be given not later than the close of the summer grazing season.
(c) If in the judgment of the forest officer in charge the forage is not ready to be grazed at the beginning of the designated grazing season, the permittee, upon request of the forest officer, shall defer placing his livestock on the forest range as long as may be necessary to avoid damage to the range. The permittee shall remove his livestock from the forest before the expiration of the designated grazing season if in the judgment of the forest officer in charge further grazing is detrimental to the range.
(d) The permittee shall allow the livestock permitted hereunder to graze only upon lands under the control of the United States within the areas specified in the permit and shall not allow the permitted livestock to intrude on any areas upon which grazing is prohibited.
(e) The permittee shall not allow livestock marked or branded *124 otherwise than as shown in the application upon which this permit is based to be grazed upon national forest land under this permit, except with the approval of the forest supervisor.
9. Cooperative Deposits. -- When requested by the forest supervisor, the permittee shall pay into the cooperative work fund, in accordance with the regulations of the Secretary of Agriculture, an amount not in excess of the usual annual grazing fees for the number of livestock and season of use shown in the Statement Form 861 validating his grazing permit, to be used for protection, improvement, and betterment of the range within any part of the forest.
*988 10. Fire Protection. -- The permittee and his employees shall do all in their power to prevent and suppress fires on or in the vicinity of the national forest; to report promptly all fires that they may discover which they cannot suppress; and to place himself, his employees, and transportation facilities at the disposal of any authorized forest officer for the purpose of fighting fires.
11. General. -- (a) The permittee shall comply with the regulations of the Department of Agriculture and all Federal, State, county, and municipal*125 laws, ordinances, or regulations which are applicable to the area covered by this permit, particularly, but not limited to, those pertaining to fire, sanitation, fish, and game, and shall pay the United States for any damage to its property resulting from this use.
(b) A clearly established violation of the terms of this permit, the regulations upon which it is based, or the instructions of forest officers issued thereunder, shall constitute grounds for its revocation in whole or in part.
(c) This permit shall terminate whenever the national forest for any reason ceases to exist, or whenever the area described in this permit is needed by the Government for some other form of use.
(d) This permit shall not be assigned in whole or in part.
12. Special Clauses. -- (a)
In addition to the permit, there had also been enclosed in the letter of May 10, 1948, a copy of the waiver which had been executed by the Wingfields in favor of petitioner. Confirmation of the waiver had been endorsed thereon by the acting forest supervisor, also under date of May 10, 1948, and the number "286," indicating the number of cattle covered by the waiver, had been entered in the appropriate space.
The *126 $ 25,760, to cover the allotment for 280 head of cattle, was paid by petitioner to the Wingfields pursuant to their understanding as reflected in the letter of February 16, 1948. On March 4, 1949, he made a further payment of $ 552 to cover the 6 additional head of cattle which it was found the allotment could carry when the exterior boundaries were established.
Accompanying the above permit received from the Forest Service was a map of the Blind Lake Allotment, and the 80-acre tract of fee land which had been acquired by petitioner from the Wingfields was shown on the map as K Bar T Headquarters. The 14 1/2-acre tract was designated as Roundup Park, and was shown as being a little more than 2 miles from the 80-acre tract. These two parcels of land were the same parcels referred to in the agreement of February 16, 1948, between petitioner and the Wingfields as "the base properties," and referred to in the letter of May 10, 1948, from the Forest Service, as the "ranch property," bona fide sale of which had been made by the Wingfields to petitioner. The 14 1/2-acre tract was not fenced, contained no improvements, and access thereto was by a log road and two trails. The 80-acre parcel*127 was fenced, but the improvements thereon were old and badly run down. They consisted of an old log cabin, a small corral, an earthen tank, and a 14-foot well, which was lined with tin barrels and equipped with a hand pump. The summer capacity *989 of the well was about 2 gallons per hour. This fee land was not located in a resort area, nor were there any industries in the vicinity.
The Blind Lake Allotment is located in Coconino County, which is approximately 150 miles north of Phoenix, 40 miles southeast of Flagstaff, and 40 miles northwest of Cottonwood. It consists of approximately 20,000 acres of land, and has an allotment for 286 head of cattle, or approximately 70 acres per animal. The elevation of the allotment is about 7,200 feet and the terrain is mountainous. The winters set in in the latter part of October, they are heavy and cold, and much of the property is inaccessible during that season. There are 2 logging operations in the area, 1 having a mill at Happy Jack, which is a town approximately 6 miles from the fee land, and the other being approximately a mile from the fee land. There is no salable timber on the fee land. Elk, deer, antelope, and other wild*128 game are to be found in the area; during the winter months they migrate to the lower country.
The petitioner operates what he has termed "a steer deal." He buys the cattle as calves at or about the first of each year. He carries them for an average of about 15 months and then sells them on the market for beef. For a period after purchase, they are kept at Deer Valley, where dehorning, branding, and other processing is carried on. Dependent upon the moisture on the desert, which in turn determines the quality of grazing, petitioner moves his cattle for the period from February through May to the New River District, an area approximately 40 miles north of Deer Valley. About the first of June, they are moved to the Blind Lake Allotment, where they remain until any time from the middle to the end of October, dependent upon the weather. They are then brought back to the feed lots in Deer Valley, where they are finished for market. They are ordinarily sold in February or March, but sometimes their sale is as late as April. At Deer Valley, petitioner pays from 12 to 25 cents per steer per day, or approximately $ 3.60 to $ 6 per steer per month, for grazing. For the desert area at*129 New River, the grazing fee is $ 2.50 to $ 3 per head per month.
The charge under petitioner's grazing permit for 286 head of cattle on the Blind Lake Allotment was $ 514.80 for 1948, and $ 629.20 for 1949. The pasture on the Blind Lake Allotment was superior to the desert pasture at New River, and the cattle consistently had a greater gain at Blind Lake than they did on the desert. Petitioner's cattle, on the average, took on added weight of 200 pounds during the 5 months they were grazed on the Blind Lake Allotment.
Pursuant to paragraph 4 of the conditions and requirements specified in the permit, the Forest Service in each of the years 1948 and *990 1949 issued to petitioner the Statement Form 861, specifying the permitted grazing period for the current year, the kind and number of animals allowed to graze, and the amount of the grazing fee. 4 For both years, the grazing period for the Blind Lake Allotment was from June 1 to October 31, and the animals specified were 286 head of cattle.
*130 It has been customary for the holder of a grazing preference and a permit thereunder to obtain a renewal of his permit at the time it expired, and without charge other than the annual payments which would thereafter accrue.
On their income tax return for the year 1948, the petitioners claimed a deduction of $ 3,220, described as "Depreciation and Amortization of Lease." This deduction was 12 1/2 per cent of the $ 25,760 paid by the petitioners to the Wingfields in February 1948, as above set forth.
On their income tax return for the year 1949, the petitioners claimed a deduction of $ 3,067.65, described as "Amortization of Grazing Lease 12 1/2%." This deduction was computed as follows:
| 1948 payment to Wingfields | $ 25,760.00 |
| Less: Portion allocated to real estate and improvements acquired | |
| in fee | 500.00 |
| $ 25,260.00 | |
| Less: Credit made in error | 718.80 |
| Balance | $ 24,541.20 |
| 12 1/2 per cent of such lease balance | 3,067.65 |
In his determination of the deficiency herein, the respondent disallowed the deduction of $ 3,067.65 claimed for the year 1949, on the ground that it was not a proper deduction, under section 23 of the Internal Revenue Code of 1939.
The property and*131 rights acquired by the petitioners in consideration for the payments made by them to the Wingfields were not limited as to time but were of indefinite duration, and were not of a character which will or can be exhausted by the passage of time or by wear and tear resulting from use.
OPINION.
It is the claim of the petitioners that the grazing privileges acquired in 1948 were property used in their trade or business *991 within the meaning of section 23 (l) of the Internal Revenue Code of 1939; 5 that their adjusted basis therefor was $ 25,821.32, being the amount paid the Wingfields, less $ 490.68, the amount they regard as being properly allocable as the cost of the fee land; that the period over which the useful life of the property will be exhausted is the term of the permit, which as to them was 8 years, namely, 1948 to 1955, inclusive, and as a consequence that they are entitled to a deduction for 1949 of one-eighth of the above adjusted basis, but in any event, $ 3,067.65, the amount claimed by them in their return and in their petition herein.
*132 The respondent does not dispute the claim that the grazing privileges were property used by petitioners in their trade or business, but does take the position that the rights acquired were of indefinite duration and not an asset which is exhausted through use or the passage of time, and, such being the case, that the petitioners are not entitled to any deduction therefor under section 23 (l).
The program for the grazing of livestock on the national forests is administered by the Forest Service of the Department of Agriculture, pursuant to and under the provisions of the Forest Service Manual and the regulations of the Secretary of Agriculture relating thereto and the pertinent provisions of the United States Code. Through a study of the manual and the regulations and the provisions of the Code, the controlling purposes and objectives, the rights and obligations of the participants, the powers and duties of the Forest Service in administering the program, and the procedures to be followed take on a definite and understandable form.
That the grazing of livestock on the national forests is to be regarded as a substantial, well-established, and indefinitely continuing part of the national*133 forests program, is not, according to our reading of the grazing regulations and the Forest Service Manual, open to question. In fact, along with the declared purpose of perpetuating the organic resources on both the national forests and related lands, another of the "leading objects" of the said program is the "stabilization of that part of the livestock industry which makes use of the national forests"; and along with and in promotion of such stabilization is the declared purpose of protecting the "established ranch owner and home builder against unfair competition in the use of the range." The word "stabilization" is from the word "stabilize," which means to make stable, and stable, in turn, means firmly established, constant, durable, permanent. Studied in the light of these purposes *992 and objectives, it seems to us abundantly clear that the statute and the regulations contemplate that once the right to a fair and just allotment of grazing lands has been acquired under the established procedures, that right, subject to some adjustment if it should become necessary for protection of the range or for a more equitable distribution among preference holders, is to be regarded*134 as an indefinitely continuing right.
The program for the use of the national forests for livestock grazing is administered through the establishment, recognition, and utilization of grazing preferences and the issuance of grazing permits. The preferences in and of themselves do not convey or grant the legal right to the use of the range, but they do supply the means whereby the apportionment of the range among the members of the livestock industry making use thereof is effectuated. Of particular significance here, we think, is the fact that it is only to the holders of preferences that the issuance of term or annual grazing permits is authorized, it being provided that the regional forester may authorize the issuance of such permits to "applicants holding established grazing preference and owning commensurate property." Moreover, it is expressly stated that "Preferences in the use of national forest range are approved for the exclusive use and benefit of the persons to whom allowed."
A grazing preference may be acquired in any one of a number of ways, namely, by purchase or inheritance of a permittee's livestock or ranch, or both; by accession as a member of a partnership or a stockholder*135 of a corporation to the pro rata share of such partner or stockholder in a grazing preference and permit held by the partnership or corporation, as the case might be; by "prior use" of land preceding its inclusion in a national forest; by regular use of a forest range under temporary permit for 5 consecutive years; and through restoration of a preference which has theretofore been reduced for range protection.
A preference, once acquired, is not exhausted through use and it is not limited as to time, but is of indefinite duration and continues until canceled or revoked. The grounds for cancellation or revocation are wholly contingent and may never happen, and some are wholly within the control of the preference holder. Cancellation may result where the range is needed for a higher form of use, where it is unsuited to the kind of livestock involved, or where the purchaser of "base" land or livestock fails to meet the local commensurability requirements, or where there has been "a clearly established violation of the terms of the permit, the regulations upon which it is based, or the instructions of forest officers issued thereunder." A preference may be reduced at any time for range*136 protection. It may also be reduced for *993 violation of the regulations, or for a more equitable distribution of the range. Where the reduction has been for range protection, it is provided that such increased grazing capacity as results from the reduction is to be recognized as belonging to the allotment on which the reduction was made. It is also provided that during the period 1946 to 1955 no reduction for distribution is to be made, except in connection with the transfer of the preference, and then only where the preference at the time of the transfer is above the lower limit and where there is urgent need for admission of new applicants, and if it is feasible to adjust the allotment 6 so as to make the range available to those intended to be benefited. Provision is also made that if it becomes necessary to close an area against grazing, through no fault of the permittee entitled to its use, the loss is not to fall entirely on such permittee but is to be levied against other preferences and spread over the forest or subdivision thereof, so that the permittee in question will bear only his proportionate share of the adjustment.
*137 Briefly stated, the position of the petitioners, if we have read their briefs aright, is that the "record shows affirmatively" that the payments to the Wingfields "were made to acquire grazing rights for the current period only" and for the purposes of section 23 (l), supra, that is all they did acquire.
To sustain that position, they rely particularly on the testimony of petitioner V. P. Shufflebarger and on the provisions of the grazing regulations and the Forest Service Manual relating to the expiration and renewal of grazing permits. The testimony of Shufflebarger was that in reaching his decision as to the price he was willing to pay to the Wingfields, he did not consider any period beyond the unexpired term of the current permit, and arguing from the provisions of the grazing regulations and the Forest Service Manual, to the effect that "all grazing permits will automatically expire at the end of a term-period" and that "conditions then obtaining" are to be "thoroughly reviewed" and new permits "issued to an extent compatible with the public interest," the contention is that "within the meaning of the principles announced in the regulations and cases dealing with analogous*138 subjects," there is no right of renewal "which presently and reasonably assures the renewal of the privileges," and, in such circumstances, it follows as a matter of course that, for purposes of section 23 (l), the grazing privileges herein will be exhausted with the running of the term of the current permit. As authority for the proposition stated, the petitioners cite section 29.23 (a)-10 of Regulations *994 111, 7Bonwit Teller & Co. v. Commissioner, 53 F. 2d 381, Alamo Broadcasting Co., 15 T.C. 534">15 T. C. 534, all dealing with leases; Helvering v. Kansas City American Association Baseball Co., 75 F. 2d 600, dealing with a contract for personal services; and Morris Nachman, 12 T.C. 1204">12 T. C. 1204, affd. 191 F. 2d 934, dealing with a liquor license.
*139 Not only are we unable to agree that for the payments to the Wingfields the petitioners acquired "grazing rights for the current period only," but to the contrary, it is in our opinion abundantly clear that the property, rights, or privileges so acquired were of indefinite duration, and, such being the case, are not subject to the allowance for "exhaustion, wear and tear" provided by section 23 (l). By the same token, the lease and personal service contract cases, cited and relied on by the petitioners, are not in point.
The rights in or relating to the grazing of livestock on the national forests have been variously referred to as grazing rights and grazing privileges, and on the facts and under the law and the regulations relating thereto, such grazing rights or privileges represent a composite whole. Making up that whole are the grazing preference, which in the instant case is based or dependent on the ownership of the fee lands, and the various grazing permits, both original and any or all renewals, the issuance of which is in turn dependent upon the holding or owning of the grazing preference.
It is true, of course, that the current permit does by its own terms and under the*140 grazing regulations expire at the end of the 1955 grazing season and will have to be renewed, and if the property, rights, and privileges acquired by the petitioners for the payments made to the Wingfields had been limited to and restricted by the current permit term, the argument advanced would be more understandable. For the payments in question, the petitioners received from the Wingfields the warranty deed to the fee lands, an assignment of the K Bar T Brand, and the waiver of the preference for the grazing of 286 head of cattle on the Coconino National Forest, the said waiver carrying a stipulation by the Wingfields that they would not at any future time apply for a renewal of the said preference. On the basis of such purchase and acquisition of the fee lands and of the "286 head grazing preference," the preference was transferred to and established in the petitioners, *995 and the preference having been so acquired, the Forest Service issued the grazing permit for the unexpired term as a matter of course.
Certainly the life of the fee lands and the K Bar T Brand is not limited by or restricted to the term of the permit, although we do agree with the petitioners that the*141 value and usefulness of the fee lands as such, and separate and apart from the grazing preference, are relatively unimportant, any substantial value they might have had being derived from their relation to the grazing preference, in that they were accepted by the Forest Service as satisfying the "base" or commensurate property requirement for the transfer of the grazing preference. Accordingly, we also agree with the petitioners' view and conclusion that the parties, namely, they and the Wingfields, "quite obviously and logically fixed the consideration paid in terms of the effective waiver of preference."
As already noted, the life of a grazing preference is not delimited by the term of the current grazing permit, but is of indefinite duration and continues until canceled or revoked. It may be adjusted up or down for the protection or a more equitable distribution of the range, and there are contingencies the occurrence of which could cause its termination, but those contingencies are not geared to any term period or the passage of time, and they may never happen. Furthermore, the parties are in agreement that there is no exhaustion from wear and tear through use. It is of course*142 true, as stated above, that a preference does not of itself convey a legal right to the use of the national forest range, but it does supply the means whereby and through which the apportionment of the range among the members of the livestock industry making use thereof is effectuated. Moreover, it is only to holders of "established grazing preference" that the Forest Service is authorized to issue term or annual permits and renewals thereof. In other words, the holding of a grazing preference is the sine qua non of the grazing permit, whether it be an original issuance or a renewal, and in that connection, it is significant, we think, that though provision is made in the grazing regulations and the Forest Service Manual for the "sales and transfers" of preferences, there is no comparable provision relating to or providing for the sale or transfer of grazing permits thereunder. The reason, we think, is clear, and is that the preference is the dominant element of the grazing privileges, and in the absence of contingencies, which may never happen, the grazing permit, as the facts show was true in this case, and renewals thereof follow the preference as a matter of course.
The*143 petitioners, in making their argument, appear to have proceeded on the premise that, unless a later or extended life is assured by the terms and wording of the current permit itself, it must follow as a matter of law, under the regulations and cases cited above, that *996 for the purposes of section 23 (l) the useful life of the grazing privileges is limited to the term of the grazing permit. That reasoning does appear to have been dispositive of the lease and personal service contract cases cited and relied on, since in those cases the rights of the parties were evidenced in toto by the lease or contract, and there was present no right which resembled or was in any way comparable to the grazing preference, which, as we have already indicated, is an important and dominant element of that composite whole, namely, the grazing rights or privileges which the petitioners acquired and which are here in issue.
In so restricting and limiting their argument to the terms and provisions of the grazing permit, the petitioners have failed to show or demonstrate just how or on what basis the provisions of section 23 (l) are to be applied to the grazing preference. The nearest approach to*144 a consideration of the problem we have been able to find, is a summary reference in their reply brief, to the effect that since at the end of the permit term the "conditions then obtaining" are to be "thoroughly reviewed, and new permits issued to an extent compatible with the public interest," and since conditions which will then obtain were "unknown and unknowable in 1949, the year at issue," there is no ground for a factual finding that they, the petitioners, "are reasonably certain of a renewal of their permit or a continuation of their preference beyond 1955." (Emphasis supplied.)
As to the grazing preference, the petitioners, we think, are ignoring or mistaking the law, their burden of proof, and the facts of record. Generally, it is to be noted that the allowance for exhaustion under section 23 (l) is to be confined to property of a nature which when or as used in the taxpayer's business "gradually approaches a point where its usefulness is exhausted," and further, the exhaustion allowance is to be limited and restricted to "the cost or other basis of the property in respect of which the allowance is made." Secs. 29.23 (l)-2 and 29.23 (l)-4 of Regs. 111. With respect *145 to intangibles, the applicability of section 23 (l) is specifically covered by section 29.23 (l)-3 of the said regulations, and it is therein provided that intangibles used in the trade or business, or in the production of income, may be the subject of a depreciation allowance, provided such use in the trade or business or in the production of income "is definitely limited in duration," but if not so limited, "will not usually be a proper subject of such an allowance. If, however, an intangible asset acquired through capital outlay is known from experience to be of value in the business or in the production of income for only a limited period, the length of which can be estimated from experience with reasonable certainty, such intangible may be the subject of a depreciation allowance, provided the facts are fully shown in the return or prior thereto *997 to the satisfaction of the Commissioner." Accordingly, in the case of an intangible which, as in the case of the grazing preference, not only is not "definitely limited in duration," but as to its useful life is limited only by contingencies, which may never happen, the fact that the conditions which will obtain at the end of*146 the current permit term "were unknown and unknowable in 1949, the year at issue," refutes, rather than supports, the conclusion contended for. The question is not whether the evidence will support a factual finding that the life of the preference will continue beyond 1955, but whether the evidence will support a factual finding that "from experience" it is reasonably certain that the grazing preference will be of value "only" for the period of the current permit term.
Actually, the petitioners have made no apparent effort to make the showing required of them under section 29.23 (l)-3, supra, but, calling attention to the fact that the current permit expires at the end of its specified term and will have to be renewed, argue that section 23 (l) applies to the payments made to the Wingfields. There is no showing that "from experience" it is "known" that the grazing preference, or, to use the comprehensive term, the grazing privileges, will be of value in their business or in the production of income for only a limited period, or that the length thereof can "from experience" and "with reasonable certainty" be estimated to be the current permit term, or any other limited period.
*147 It is not necessary here, however, to rest our decision on a failure of proof on the part of the petitioners, since as we view the evidence the grazing rights and privileges will "with reasonable certainty" be of value in their business as long as they desire them to be. It would, we think, come as a distinct and severe shock to the holders of established grazing preferences -- even including the petitioners themselves -- if with any color of authority they should be told that their grazing preferences carried no reasonable certainty that their grazing rights or privileges thereunder would not continue beyond the current permit term. The petitioner himself admitted, on cross-examination, that it was his understanding that permits are customarily renewed at the end of the permit period, and the grazing regulations and the Forest Service Manual indicate a long history of grazing on the national forests under the authority of the Forest Service permits. In fact, the Forest Service Manual shows that even today the grants of privilege for the grazing of livestock upon the national forests are made under the Act of June 4, 1897. It is obvious, we think, that a grazing right or privilege*148 which on the basis of experience and with reasonable certainty would expire at the end of a grazing permit term, more specifically the current permit term, would be inimical to and not in promotion of such expressly declared "leading objects" of the *998 range management program as the "stabilization of that part of the livestock industry which makes use of the national forests" and the protection of "the established ranch owner and home builder against unfair competition in the use of the range." To say the least, there would be little inducement to become a home builder or the owner of an "established" ranch, as, for instance, the Bar D, the Lost Eden, or the Apache Maid, if the permanency thereof should be dependent upon a grazing program no more certain in duration than that portrayed by the petitioners for the purposes of this case.
Furthermore, we think that the grazing permit itself is in harmony with and not in refutation of the conclusion that the life of the grazing privileges is not limited to the term of the current permit. Aside from the recitation of matters which are specified by and derived from the established grazing preference, such as the kind and number *149 of livestock, the grazing season of the year for which the preference has been established, and the national forest to which the grazing privileges relate, the grazing permit in practical effect serves as a means for prescribing the details incident to the day-to-day and season-to-season grazing of livestock on the allotment involved during the permit term, such as the requirements relating to the annual grazing fees and the payment thereof, the observance of range management plans, or other instructions, and the duties of the permit holder as to fire prevention. In short, the permits supply the details whereunder and whereby the grazing program is currently administered and the purposes underlying the establishment of the indefinite grazing privileges are carried out. Moreover, we do not regard the requirement that at the end of the permit term "the conditions then obtaining" are to be thoroughly reviewed, and new permits "issued to an extent compatible with the public interest" as being persuasive or indicative of a conclusion that there is a likelihood, to say nothing of a reasonable certainty, that the life of the grazing privileges will expire with the term of the permit or *150 actually be affected thereby. Under the grazing regulations, the conditions existing are subject to review not only at the end of the permit term, but during and at the end of each year, and, so far as we have been able to find or have been shown, there is little, if any, difference in substance between the actual review of existing conditions with respect to the grazing preference and that which is to be made at the end of the permit term. As to the dependency for permit renewal on compatibility "with the public interest," it would appear that in light of the above-declared "leading objects" of the grazing program, such as the stabilization of the livestock industry and the protection of the established ranch owner and the home builder, the public interest would be served by the renewal of grazing permits, rather than *999 otherwise. In the circumstances, we are satisfied that the term permit does not and was not intended to delimit the life of established grazing privileges as we are concerned with them here.
Another indication that a dominant purpose and intent of the national forest grazing program is the protection of preference and permit holders in their grazing rights*151 and privileges against possible contingencies is to be found in the provision of the Forest Service Manual to the effect that if it should become necessary to close an area against the grazing of livestock but through no fault of the permittee who has had the use of it, the loss is not to fall entirely upon such permittee, but sufficient reduction may be levied against other preferences and spread over the forest or subdivision thereof so that the said permittee will bear only his proportionate share of the adjustment. It would thus appear that unless the whole forest or the subdivision encompassing the Blind Lake Allotment should be closed to grazing at the end of the original permit term, the petitioner could, at the most, suffer a reduction of his grazing preference and of his permit, if required for protection or a more equitable distribution of the range, and not a termination thereof.
On the facts, and under the law and the regulations which govern the grazing of livestock on the national forests, it is our conclusion and we hold that the rights, property, and privileges acquired by the petitioners in return for the payments made to the Wingfields are not limited as to time*152 but, subject only to contingencies, which may never happen, could continue forever, and the payments made to the Wingfields in their acquisition are not subject to the exhaustion allowance provided under section 23 (l). See and compare Morris Nachman, supra. Compare also Mid-State Products Co., 21 T. C. 696, 714, and X-Pando Corporation, 7 T.C. 48">7 T. C. 48.
Whether or not the petitioner "ignored the possibility of renewals in computing the consideration" he was willing to pay the Wingfields, or whether he has or has not made up his mind to apply for a renewal of the term permit, are, in the circumstances, of no controlling importance. The price he was willing to pay was as to him a subjective matter, and the limitations with respect thereto which he may have placed upon himself could in no way restrict or confine the life of the rights acquired to a limited term, where the facts were otherwise, and even if he should decide not to continue in his present venture and not to apply for renewal of his permit, he would still have the privilege of selling or disposing of his unwanted fee lands and grazing*153 preference, as was the case with the Wingfields. His recovery or loss of his investment would be the result of and would occur in the year of such sale or other disposition of the property, which, taxwise, would be governed by the gain or loss provisions of the Code, not section *1000 23 (l). And in the event a sale, exchange, or other disposition of the property should fail to materialize and abandonment should be decided upon, the loss of his cost due to such abandonment would likewise occur in the year of abandonment, which could not be the year herein.
Decision will be entered under Rule 50.
Footnotes
1. By the Act of June 4, 1897, the Secretary of Agriculture is empowered to authorize the grazing of livestock upon the national forests, and he in turn has delegated that authority to the Chief of the Forest Service and has promulgated grazing regulations, which appear in the Range Management Chapter of the Forest Service Manual. The "leading objects" of the grazing regulations are expressly stated to be (1) perpetuation of the organic resources on both national forest and related land through wise use, protection, and development; (2) the best practical social and economic correlation of the use of national forest range with adjacent land; (3) stabilization of that part of the livestock industry which makes use of the national forests; (4) cooperation with users through a decentralized administration organized and authorized to settle local problems in accordance with local conditions; and (5) protection of the established ranch owner and home builder against unfair competition in the use of the range.
Under the regulations, national forests on which grazing is allowed are divided into range allotments, which in turn are allocated "as appears most equitable" among the holders of grazing permits. Range allotments are established to conform to natural grazing units, regard being had for topography, water, adaptability of forage for different classes of livestock, present ownership of improvements and ranch property, and the demand for forest range.
Term permits are for a period of 10 years, and currently all of them are for the 10-year period beginning with the calendar year 1946. Upon their expiration, new permits are to be issued "to an extent compatible with the public interest," after review of "the conditions then obtaining."
Permits are issued "to applicants holding established grazing preference and owning commensurate ranch property." And while "a preference conveys no legal right to the use of national-forest range," it does entitle "the holder to special consideration over other applicants who have not established preferences." A preference is of indefinite duration and continues until canceled or revoked. A preference may be obtained in a number of ways, namely, by purchase or inheritance of a permittee's livestock or ranch, or both; by accession as a member of a partnership or stockholder of a corporation to the pro rata share of such partner or stockholder in a grazing preference and permit held by the partnership or corporation, as the case might be; by "prior use" of land preceding its inclusion in a national forest; by regular use of a forest range under temporary permit for 5 consecutive years; and through restoration of a preference which has theretofore been reduced for range protection.
Provisions of the regulation in describing property which qualifies as "commensurate" are directed primarily to "yearlong" operations. It is said that property qualifies as "commensurate" property when "it is a recognized livestock operating base and is complementary to national forest range in rounding out a properly balanced yearlong livestock operation," and where land supplies the basis for grazing privileges, "the commensurability of a given property will be measured in terms of its ability to support the permitted livestock * * * during the time they are not permitted on the national forest." One principle to be taken into account in establishing commensurability of base land is that on "yearlong ranges" it must provide suitable headquarters for the ranch operations. "The amount and character of land and other facilities needed in a properly balanced livestock operation vary widely in different localities. For this reason the various ownership requirements will be established locality by locality in cooperation with the users concerned in accordance with the best information existing or obtainable with reference to the social and economic situation applicable to the community under consideration."↩
2. A period of nonuse as to a designated number of cattle may be established for range protection, and to the extent range conditions have improved at the end of the period, the nonuse will be discontinued. Such periods of nonuse will not normally be permitted to exceed 5 years, and if at the end of that time the grazing capacity has not increased, the preference will usually be adjusted. Presumably, the nonuse in this instance was for range protection.↩
1. Show total number of livestock for which preference is established.↩
3. The number of cattle and the confirmation were left blank when the waiver was executed on February 9, 1948.↩
4. The grazing fee for any year is an amount which bears the same ratio to the average livestock prices paid producers in the 11 Western States in the preceding year as the 1931 base fees for grazing bear to the base livestock prices. The 1931 base fees for grazing on the national forests were derived from a study of rentals paid to private persons, corporations, states, Indian Reservations, and other Government agencies for use of comparable grazing lands, allowance being made for cases showing abnormal competition or involving considerations other than use of the forage. The base livestock prices are the average prices received by producers in the 11 Western States for the period 1921 to 1930, inclusive. Forest Service Manual, vol. 3, sec. C5-2.↩
5. SEC. 23. DEDUCTIONS FROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
* * * *
(l) Depreciation. -- A reasonable allowance for exhaustion, wear and tear (including a reasonable allowance for obsolescence) --
(1) of property used in the trade or business * * *↩
6. Presumably, this qualification is based on the fact that allotments being geographic divisions of the range into natural grazing units, they are not always readily susceptible of any practical reallocation among other preference holders in the particular national forest.↩
7. Sec. 29.23 (a)-10. Rentals. -- If a leasehold is acquired for business purposes for a specified sum, the purchaser may take as a deduction in his return an aliquot part of such sum each year, based on the number of years the lease has to run. * * *
In cases in which the lease contains an unexercised option of renewal, the matter of spreading such depreciation or amortization over the term of the original lease, together with the renewal period or periods, depends upon the facts in the particular case. As a general rule, unless the lease has been renewed or the facts show with reasonable certainty that the lease will be renewed, the cost or other basis of the lease or the cost of improvements shall be spread only over the number of years the lease has to run, without taking into account any right of renewal.↩