*2958 1. A preliminary notice from a collector relative to proposed additional taxes is not a determination of a deficiency and an appeal therefrom does not lie to this Board.
2. Losses claimed are disallowed for lack of evidence of the facts.
3. The respondent erred in including in the income of petitioner an amount which was the income of another.
*1347 This is an appeal from the determination of a deficiency alleged by the petitioner to be set forth by the respondent in his notice of *1348 deficiency dated December 14, 1926. Petitioner alleges that the taxes in controversy amount for the years 1921 and 1922 to $858.10 and $413.99, respectively. Petitioner alleges error in that (1) there has been a failure to allow the deductions of $4,664 in 1921, and of $858 in 1922, on account of worthless oil royalties; (2) the respondent has erred in increasing the income of the petitioner by an amount of $2,175 attributed to the sale of oil royalties in 1921; (3) there has been a failure to allow the deduction of $3,300 bad debts*2959 in 1922.
FINDINGS OF FACT.
The petitioner is now a resident of Texas and he formerly was a resident of El Dorado, Ark.
In the earlier months of 1921 the petitioner and C. R. Hoffer were members of a partnership, each owning a half interest therein, engaged in the buying and selling of oil leases and royalties in Arkansas. This partnership is hereinafter referred to as the partnership.
In 1921 the partnership was dissolved by consent of the partners and a corporation, known as Nichols & Hoffer, Inc., hereinafter referred to as the corporation, was organized. Certain royalty rights, the subject of consideration herein, were turned in to the corporation for stock as hereinafter detailed. After an existence of about five or six months the corporation was dissolved and its assets were distributed to the stockholders. The assets of the corporation were distributed in 1921; its charter was surrendered in 1922.
At the end of 1921 the petitioner was the owner of oil royalty interests in the J. C. Lewis farm located near the central part of Union County, Arkansas. A one sixty-fourth interest had cost the petitioner $350. Another one sixty-fourth interest was acquired by*2960 distribution from the partnership. The cost to the partnership had been $614. During 1921 an offsetting well was drilled in adjoining property within a distance of 500 feet. In addition there were several other holes drilled in the immediate vicinity. No well was drilled on the particular land in which the petitioner held the interests. The test wells proved to be dry and thereafter there was no demand or market for the interests owned by the petitioner. They were unsalable.
In 1921 the petitioner and Hoffer acquired a one sixty-fourth oil royalty interest in 40 acres of the W. C. Sorrell farm, located about three miles north of the Lewis farm in the central part of Union County, Arkansas, paying therefor a total of $2,500 of which the petitioner paid one-half, or $1,250. The lease was turned over to the partnership by the petitioner and Hoffer. Subsequently, in 1921, the partnership turned over the interest to the corporation for stock. *1349 In the latter part of 1921 the interest was turned over to the petitioner by the corporation as a distribution in liquidation. The petitioner took over the interest at an agreed valuation of $2,500, which was the original*2961 cost to the individuals who purchased it. In the first part of the summer of 1921, the drilling of a well on the Sorrel farm was started. It had continued to a depth of 2,100 feet, where some gas was encountered at the time in August, 1921, when the interest was acquired by the petitioner. Later it was drilled to a depth of 3,000 feet and proved dry. Other dry wells were drilled beginning in the late summer of 1921, which were completed prior to the end of that year. Thereupon there was no market for the sale of the interest.
Early in 1921 the partnership acquired at a cost of $1,200 a one thirty-second oil royalty interest in the Polk and Ezzell farm, located about seven or eight miles north and east of the Lewis farm. This interest was turned over to the corporation by the partnership for stock, and upon dissolution of the corporation was turned over to the petitioner at an agreed valuation equaling the original cost to the partnership. An offset well was drilled within 300 feet of the property line, on this tract, and proved to be dry. The territory was "wild-cat" territory and there was no market for the interest thereafter.
In 1921 the petitioner sold a one sixty-fourth*2962 oil royalty interest in the lands in section 6-18-35, to which he held title as trustee for his brother who was the sole beneficial owner. The entire proceeds, amounting to $4,000, were forwarded by the petitioner to his brother. The petitioner received no commission or profit of any kind in the transaction.
A notice of deficiency was mailed to the petitioner by the respondent on December 14, 1926, notifying him of the determination of a deficiency for the year 1921, amounting to $858.10, and of interest due thereon amounting to $248.84. The notice made reference to a letter dated November 11, 1926, to the petitioner from the collector of taxes advising him of the report of a deputy collector wherein additional taxes for the years 1921 and 1922 were recommended, together with interest thereon. In this letter from the collector the petitioner was given opportunity to protest to the collector.
OPINION.
LOVE: The basis for this proceeding is alleged to be a notice of deficiency mailed December 14, 1926. The notice of deficiency in evidence before us was mailed on the specified date but it notifies the petitioner of a deficiency for the year 1921, only. It does not appear*2963 that the additional taxes for 1922, recommended by a deputy collector *1350 have been the subject of a final determination. We have no jurisdiction in this proceeding over the year 1922, and so far as the appeal relates to that year, it is dismissed. See ; .
The petitioner realized no taxable income on the sale by him as trustee for his brother, of the royalty interest in section 6-18-35.
In the first issue for 1921, the petitioner contends for the allowance as deductions from income of losses in value of what are described orally by the petitioner on the stand as "oil royalty rights." It appears that all but one of the rights were purchased in the first part of the taxable year, either by the individual partners who turned them over to a partnership, or by the partnership directly. A short time later, with the one exception, they were turned over to a corporation for stock and after a few months existence, the corporation was dissolved and the rights were distributed to the stockholders. At the end of the same taxable year the rights were deemed valueless according*2964 to the testimony of the petitioner. But he still owned those rights, and it does not appear whether such rights ran indefinitely with the land, or were limited in duration. If, in fact, they ran with the land, then no loss was realized, because they had not been disposed of. As title to royalty rights in oil leases, unless limited by contract, constitutes title to the reality itself, and is no subject to forfeiture, as oil and gas leases, we must hold in this case that they ran with the land and are yet undisposed of. The situation here is different from the situation in the case of , where the petitioner acquired a royalty interest in a specific oil lease. Under such a situation, the lease being subject to forfeiture, and the lease having been abandoned, the royalty rights terminated with the lease. In other words, the royalty rights were limited and did not run with the land, as they apparently do in the instant case.
This case is also different from an ordinary oil lease, which is subject to forfeiture, or abandonment, as was determined in *2965 .
Moreover, in all but one of such transactions, the acquisition of those rights by petitioner passed through several mutations, in all of which he participated. There may be situations wherein a consideration of the net result of the several transactions mentioned is all that is necessary, due to the fact that they all occurred within the same taxable year and the algebraic sum of the several gains or losses would reflect a final loss to the petitioner. This condition does not exist in this case for the reason that originally the petitioner owned one-half interests in all of the partnership assets while at the end we find him possessed of entire interests in some of the assets.
Half interests of the partners have been the subject of indirect exchange. Complete details of the distribution by the corporation *1351 are lacking. Without a full disclosure of all of the facts it is impossible to ascertain what was the cost to the petitioner and, therefore, the losses, if any, can not be ascertained. With respect to all such royalty rights, the respondent contends, and we agree with him, that if the interest runs with the*2966 land, no loss is realized until the interest is disposed of; it is not realized by an arbitrary conclusion that it is worthless. Cf. . It is not here shown and we can not assume that a right was forfeited, or ever was forfeitable. There is nothing to do but sustain the respondent.
Judgment will be entered under Rule 50.