*1283 Loss resulting from abandonment of a mining development determined and allowed.
*588 The respondent asserts a deficiency in income tax for the year 1927 in the amount of $9,233.31. The only issue is whether petitioner sustained a deductible loss in the taxable year when it abandoned certain exploratory workings on its coal-bearing properties. The pertinent facts are included in a stipulation of the parties, which the Board accepts and adopts as its findings of fact.
FINDINGS OF FACT.
The petitioner is a Colorado corporation organized June 16, 1914, for the purpose, among other things, of developing and operating coal mines.
*589 In August, 1914, petitioner acquired certain coal lands in Routt County, Colorado, on which a seam of coal known as the Wadge seam had theretofore been opened for mining, and, since said date, petitioner has been continuously and is now engaged in mining coal therefrom.
In the year 1927 there remained in this Wadge seam sufficient tonnage to last over fifty years from 1927, at the average yearly rate of mining, *1284 namely, 200,000 tons per year. The depletion rate per ton on this seam as established by the valuation division, mining section, income tax unit, is not contested by petitioner.
The geology of Routt County, Colorado, shows the existence of another seam about 150 feet under the Wadge seam, known as the Wolf Creek seam. The existence of this seam was known both to the petitioner and the mining section of the income tax unit at the time of the valuation of the Wadge seam, but in view of the known facts that the seam varied considerably in thickness and quality over the county, it was thought that there were insufficient data on file to warrant the assignment of any value to the coal.
In 1921 petitioner decided to prospect the Wolf Creek seam and for this purpose started a slope about 500 feet north of the Wadge opening. If this coal was found to be commercially mineable, a vertical shaft was to be sunk for mining and the slope was intended to be used as a manway and air course. Work continued on the slope in a desultory fashion until sometime in 1927, when the Wolf Creek seam was reached.
In 1927 petitioner endeavored to create a market for the coal from this seam in the*1285 city of Denver and elsewhere. However, due to the inferior quality of the coal and notwithstanding the fact that it was offered at less than cost of mining, petitioner's efforts were unavailing.
As a result of its inability to create a market for the coal from this seam, petitioner in June, 1927, ceased mining coal from said seam, dismantled the tipple erected for the purpose of preparing coal for market, salvaged the equipment therefrom, abandoned the slope, and allowed it to fill with water.
The surface of the coal property in question was not abandoned or sold by the petitioner, because it was required in the petitioner's mining operations on theWadge seam, and its value had been and was included as a factor in the establishment of the depletion rate on that seam.
The total cost incurred in the development and exploration of the Wolf Creek seam amounted to $67,913.65, all of which was capitalized on petitioner's books and none of which was allowed as a deduction prior to 1927, either through depletion or otherwise. The *590 salvage recovered in 1927 amounted to $2,534.24. The petitioner contends that it is entitled to a deduction of $65,379.41 as a loss sustained*1286 on the abandonment of this property in 1927, computed in the following manner:
| Total cost of development and exploration | $67,913.65 |
| Less: Salvage recovered | 2,534.24 |
| Loss claimed | 65,379.41 |
In the determination of the petitioner's net income for 1927 no deduction was allowed in this respect.
OPINION.
LANSDON: In its income-tax return for 1927 the petitioner deducted the amount of $67,827.47 representing the cost of the exploration of the Wolf Creek coal seam in the circumstances set forth in the stipulation. Upon audit of such return the respondent disallowed this item and also the amount of $63.58 representing excessive depletion of the Wolf Creek seam, made other minor adjustments not in controversy and determined the deficiency under review. Petitioner now admits that the loss claimed should be reduced by the amount of $2,534.24 representing salvage realized from the sale of portions of the equipment used in the abandoned development and that an item of $503.80 representing worthless debts charged off in the taxable year was properly disallowed. Since no evidence as to the correct amount of depletion sustained in the operation of the petitioner's mine*1287 in the taxable year was adduced by stipulation or otherwise, the amounts representing salvage, bad debts and depletion will be the elements of a settlement under Rule 50 in conformity with the admissions set forth above.
The petitioner claims the right to deduct the cost, less salvage, of its abandoned development as a loss sustained in the year of abandonment and relies on our report in , which appears to be exactly in point and in conformity with purposes and meaning of article 143 of Regulations 69. Cf. ; ; and .
In our opinion the petitioner sustained a deductible loss in the taxable year equal to the capitalized cost of the development of the abandoned mine, less the salvage realized from the disposition of equipment used in the exploration and no longer suitable for any work in which it was engaged.
Decision will be entered under Rule 50.