*2535 In the absence of evidence establishing a loss upon the sale of capital assets - a coal mine and equipment - in the year 1919, it is held that the respondent did not err in excluding the alleged loss from the computation of the statutory net loss under section 204, Revenue Act of 1918.
*659 This is a proceeding for the redetermination of a deficiency in income and excess-profits taxes for the year 1920, in the sum of $11,801.84, of which amount $4,903.11 is in controversy. It is alleged that the Commissioner erred in his determination (1) of net income for the year 1918 by reason of an insufficient allowance for depletion; (2) of the net loss sustained by petitioner in 1919, and (3) that there was no excess of the 1919 net loss over 1918 net income, deductible from 1920 taxable net income in accordance with section 204, Revenue Act of 1918.
FINDINGS OF FACT.
Petitioner, a Colorado corporation with principal offices in Denver, Colo., prior to and during the taxable years 1918, 1919, and 1920, was engaged in the operation*2536 of certain coal mines located in Huerfano and Boulder Counties, Colorado.
About 1906, prior to the incorporation of petitioner, P. M. Peltier and one Nesbit acquired a lease upon certain raw or undeveloped coal lands in Huerfano County, Colorado, and proceeded to work the same as individuals. Thereafter, petitioner was incorporated with an authorized capital of $50,000, and Peltier and Nesbit transferred said lease to the petitioner in consideration of its capital stock of the par value of $50,000. Petitioner continued to work said property, which was known as the Big Four Mine, and to mine coal therefrom under said lease, upon a royalty basis of 20 cents per ton, until the spring of 1912. In the spring of 1912, the petitioner purchased the fee title to said land for $18,000, all openings and development of the mine having been made by it or Peltier and Nesbit, and all improvements thereon being then owned by it. On March 1, 1913, the property contained two veins of coal, a 4-foot vein underlying 60 acres and a 6-foot vein underlying 80 acres, which had not been worked, and one vein averaging 7 1/2 feet thick, then being worked, of which approximately 15 acres remained unworked. *2537 The recoverable coal in the property was about 1,000 tons per acre foot, or 6,000 tons per acre in the 6-foot vein, 4,000 tons per acre in the 4-foot vein, and 7,500 tons per acre in the 7 1/2-foot vein. The veins were approximately 65 feet apart and the roof of the mine was of sand rock. Slope-mining was the method employed in operating the mine. The improvements on the property at March 1, 1913, in addition to the development work done thereon, consisted of buildings, dwelling houses, tipple, railroad track, mine cars, host, boilers, and other equipment necessary to the operation of a developed mine. *660 The prevailing royalty rate for undeveloped or raw coal lands in Huerfano County, similar to that of petitioner, was not less than 10 cents per ton and varied from that figure to 20 cents per ton. The March 1, 1913, value of the Big Four Mine and equipment was $103,708.81.
The Colorado Fuel & Iron Co. owned coal lands adjoining that of the petitioner, from which it mined coal through the openings and workings of petitioner's Big Four Mine. The Colorado Fuel & Iron Co. could not operate its mine without using the Big Four Mine as an outlet, except by constructing*2538 a shaft approximately 1,300 feet deep. By agreement dated October 20, 1915, the petitioner contracted to sell the Big Four Mine and all equipment thereon to the Colorado Fuel & Iron Co., the actual conveyance and transfer thereof to be deferred pending the conclusion of litigation involving the title to the land. It was agreed that the petitioner should continue in possession of the property and might operate said mine until the conveyance and transfer were made, but the petitioner was obligated to leave standing the pillars supporting certain entries or passages and air courses. In consideration of the conveyance of the land and the transfer of the equipment the petitioner received the right to mine from the lands of the Colorado Fuel & Iron Co., 77,400 tons of coal in lieu of pillars to be left in the Big Four Mine, and such additional tnnage as would, at the rate of 20 cents per ton, equal the agreed value of the equipment. It was agreed between the parties to the contract that the value of the equipment as of April 1, 1914, was $65,520.42, which should be depreciated at the rate of 8 per cent per annum, and that, pending the conveyance of the property, the petitioner, with*2539 the written consent of the Colorado Fuel & Iron Co., could install additional equipment. The value of any additional equipment installed was to be added to the agreed value of the existing equipment and depreciated also at the rate of 8 per cent per annum. It was provided that upon default by petitioner it would pay to the Colorado Fuel & Iron Co., upon demand, 20 cents per ton for all coal mined from the property of the latter.
Sometime in 1919 the petitioner transferred and conveyed all the property - the Big Four Mine and equipment - as provided in said contract of sale, together with certain inventories valued at $3,221.62, to the Colorado Fuel & Iron Co., and received in consideration thereof the sum of $25,000 in cash. The "gross value" of the Big Four Mine and equipment on that date, shown by petitioner's books, was $168,990.07, plus inventories in the sum of $3,221.62, or a total of $172,211.69 for all property transferred. The petitioner, on its *661 records, charged against said sum the following items of credit as having been received upon said sale:
| Depreciation | $15,547.64 |
| Amortization of development | 40,437.02 |
| Royalty coal mined (at 20?? per ton) | 74,669.82 |
| Cash at date of transfer | 25,000.00 |
| Total | 155,654.48 |
*2540 The petitioner also owned the Centennial Mine, located in Boulder County, Colorado, which consisted of three adjoining coal properties. One of the properties, comprising about 280 acres, of which approximately 80 acres was underlaid with a 6-foot vein of coal, was owned by it in fee, having been acquired about 1913, and the other two properties were leased. The coal in the fee property on December 31, 1925, had been entirely exhausted, with the exception of pillars. Between 1913 and December 31, 1925, 845,092 tons of coal were extracted from the entire mine, the fee and leased properties. In 1918, 81,865 tons were extracted. In determining petitioner's 1918 taxable income the respondent computed the allowance for depletion of the fee property upon the basis of 12,098.03 tons of coal extracted in the taxable year 1918.
The respondent determined the statutory net loss sustained by the petitioner in 1919 to be $13,100.12, which was applied to reduce 1918 taxable income.
OPINION.
VAN FOSSAN: The petitioner claims that it sustained a net loss, within the meaning of section 204 of the Revenue Act of 1918, in the year 1919, which exceeded its correct taxable income for the*2541 year 1918, and that such excess net loss is deductible from its 1920 taxable income. The respondent admits that the petitioner sustained a net loss in the year 1919, which was applied in reduction of its 1918 taxable income, but denies that there was any excess net loss deductible from 1920 taxable income. The controversy arises from the differences in the respective computations of 1918 taxable income and 1919 net loss. The petitioner alleges that the respondent incorrectly determined its 1918 taxable income in that he did not allow a sufficient deduction for the depletion of its Centennial Mine and incorrectly determined its 1919 net loss by refusing to include therein the loss sustained upon the sale of its Big Four Mine and equipment in the year 1919. It is alleged that by reason of such errors the respondent incorrectly determined that the 1919 net loss did not exceed the 1918 taxable income and accordingly that there was no excess net loss deductible from 1920 taxable income.
The principal question at issue is whether or not the respondent erred in excluding from the computation of the 1919 net loss, as *662 defined by section 204 of the Revenue Act of 1918, a loss*2542 alleged to have been sustained upon the sale of the Big Four Mine and equipment, capital assets of the petitioner, in the year 1919. It is incumbent upon the petitioner to establish as a basis for the consideration of this question that a loss was sustained upon the sale of said capital assets and the amount thereof.
We have found that the March 1, 1913, value of the Big Four Mine and equipment was $103,708.81. The only evidence of the cost or value of this mine and equipment on the date of sale, 1919, is the testimony of one witness that the petitioner's books show the gross value at that time to be $168,990.07, to which was added the sum of $3,221.62 for inventories, making a total of $172,211.69 for all property conveyed and transferred, as reflected by petitioner's records. No evidence was offered as to the individual items of property, the value or cost thereof, included in the alleged gross value of $168,990.07. There is no segregation whatever of the total alleged value. No evidence was offered of the amount of coal extracted from the Big Four Mine subsequent to March 1, 1913, the recoverable coal remaining in the mine on the date of sale, the additions, if any, to the*2543 equipment of the mine and the cost thereof, or the depletion and depreciation sustained in the operation of the mine between March 1, 1913, and the date of sale. It does not appear whether the value of $168,990.07, as shown by the books, represents the cost of the mine and equipment and additions or the March 1, 1913, value of the mine and equipment plus subsequent additions, less depletion and depreciation. Nor is the evidence sufficiently clear to enable us to determine what was received by the petitioner, in addition to the $25,000 cash payment, as consideration for the sale. The items of depreciation, amortization of development, and royalty coal alleged to have been credited pursuant to the contract of sale are not explained. No evidence was offered relative to the bases upon which the amounts credited for these items were computed nor has it been shown wherein such credits were made pursuant to the contract of sale. So far as that contract disclosed the petitioner was to receive, in addition to 77,400 tons of coal in lieu of pillars to be left in the mine, only an amount of coal equal, at the rate of 20 cents per ton, to the April 1, 1914, value of the equipment, plus the*2544 cost of additions thereto, less depreciation at the rate of 8 per cent per annum. Upon this record we are forced to conclude that the petitioner has not established that it sustained a loss in 1919 upon the sale of the Big Four Mine and equipment to the Colorado Fuel & Iron Co. In the absence of proof of such loss, we find that the respondent did not err in his determination of the net loss as defined in section 204, sustained by the petitioner in 1919.
*663 The petitioner's Centennial Mine in Boulder County included three adjoining properties, only one of which it owned in fee. It is claimed that the respondent erred in his allowance for depletion of the fee property in the year 1918. We have found that the total extraction from the entire mine, the fee and leased properties, from 1913 to December 31, 1925, was 845,092 tons and that the coal in the fee property on the latter date had been entirely exhausted, except for some pillars left as supports. We also have found that 81,865 tons were extracted during the year 1918. There is no evidence, however, of the amount of coal extracted during the year from the leased and fee properties separately, so that we might determined*2545 how much of the 81,865 tons was extracted from the fee property alone. Nor was any evidence submitted as to the value of the property at the date of acquisition. There is no evidence of the basis employed by the respondent in his computation of the depletion allowance, except that the extraction for the year was found to be 12,098.03 tons. It was not shown that the tonnage extracted from the fee property was greater than that used by the respondent. We are, therefore, unable to determine the proper rate and amount of depletion allowable. On the record of the case before us, petitioner has failed to show that the respondent erred in his determination.
Attention is also called to the fact that the Court of Claims in , held that a loss sustained upon the sale of capital assets could not be allowed as a net loss under section 204 of the Revenue Act of 1918.
Judgment will be entered for the respondent.
Considered by MARQUETTE and PHILLIPS.