*2556 Depletion deductions for a given year may not be revised upon the basis of facts determined in subsequent years.
*584 The Commissioner determined a deficiency in income and profits taxes for the calendar year 1920 in the amount of $1,834.50. The petitioner alleges that the Commissioner erred in refusing to allow depletion in the amount of $4,300, based upon the cost of a lease and also in refusing to allow $21,500 to be included in invested capital to represent the cost of the lease.
FINDINGS OF FACT.
The petitioner is incorporated under the laws of Tennessee and has its principal place of business at Tracy City, Tenn.
A person or persons named Staub owned a large tract of mountainous coal-bearing land in Tennessee. For some years C. E. Werner had looked after this land for his friends, the Staubs, without receiving any consideration for his services. Having in mind the organization of the petitioner and the obtaining of a lease for the Staub land through Werner, several individuals were permitted to do and did some development work*2557 on the Staub property at a cost to them which is not shown by the evidence. Upon the organization of the petitioner, it entered into a lease contract with the executors of the estate of Rosina Staub, dated May 1, 1918, under the terms of which the petitioner was allowed to mine the coal from a tract of approximately *585 2,000 acres of the land and to otherwise use the premises for certain purposes incident to the mining of the coal, all for a period of eight years unless the lease were canceled sooner, and the petitioner was required to pay a royalty of 10 cents a ton for all coal mined and to pay a minimum royalty of not less than $100 a month.
The petitioner did not pay the Staubs anything for entering into this lease. At this time however, it issued $16,000 par value of its stock to the individuals who had done the development work on the property and at the same time issued $21,500 par value of its stock to C. E. Werner for securing the lease. A few months thereafter $11,000 par value of additional stock was sold for cash at par. Some of this stock was purchased by individuals who had not theretofore been stockholders in the petitioner. When the petitioner acquired*2558 the lease there were one or more mine openings, a tipple, tram road and about a mile of standard-gauge railroad on the property. Part of these improvements had not been put on the property by the organizers of the petitioner.
Under this lease from 1918 to 1921, inclusive, the tonnage of coal mined by the petitioner during each year was as follows:
| Tons | |
| 1918 | 3,372.5 |
| 1919 | 4,033.3 |
| 1920 | 13,884.3 |
| 1921 | 8,201.9 |
In December, 1921, the petitioner sold its entire interest in its property for $12,000. It sold because it had discovered that the coal was pinching out in places and that further operations would probably not be profitable. The purchaser from December, 1921, to and including April, 1923, mined 7,262.22 tons of coal from the property.
In its return for the year 1922 the petitioner included in its invested capital $21,500 to represent the amount paid for the lease, and deducted $4,300 from its gross income representing exhaustion of the lease. The respondent in his determination of the deficiency disallowed both items.
OPINION.
MURDOCK: Counsel for the petitioner has made no oral argument of his case and has filed no brief. At the hearing*2559 he contended that Werner transferred the lease to the petitioner for $21,500 of its capital stock, the lease was worth $21,500, and the company paid that for it in its stock. In the petition a somewhat different allegation appears, to wit, that Werner entered into an agreement for the execution of a lease on very favorable terms and upon the organization of the petitioner had the lease executed to that company. The *586 facts are that the petitioner entered into the lease contract with the Staubs and paid the latter nothing for the lease, $21,500 par value of the petitioner's stock was issued to Werner for his services in securing the lease, and, furthermore, the lease cost Werner nothing and was acquired by him after March 3, 1917. Under section 331 of the Revenue Act of 1918 the lease could not be allowed any value for the purpose of determining invested capital, since at the time it was acquired by the corporation Werner acquired more than 50 per cent of the stock of the petitioner. So it is apparent in any event that on the question of invested capital the determination of the Commissioner must be approved, and it is not necessary for us to consider or decide what otherwise*2560 might have been the effect upon invested capital of the circumstances surrounding the acquisition of this lease and the issuance of the stock.
The petitioner further contends that it is entitled to exhaustion of the lease based upon the cost of the lease, the total number of tons of merchantable coal underlying the lease, and the number of tons mined in the year in question. It contends that the total number of tons of merchantable coal underlying the leasehold can now be accurately determined from the number of tons mined by the two companies, as set forth in our findings of fact. We have heretofore held that a taxpayer is not permitted to revise a deduction of this kind for a given year on the basis of facts determined in subsequent years. ; . See also , affirming the District Court case of the same name in . The only information which we have as to the probable recoverable tonnage under the lease estimated as of 1920 was introduced by the respondent over the objection of the petitioner*2561 and consists of a report supposed to have been made by the petitioner in a booklet entitled "Form E schedule for Valuation of Coal Properties To Determine Invested Capital, Depletion, and Profit and Loss from Sale of Capital Assets," dated August 30, 1923, in which, under the heading "Tons recoverable," the figure 375,000 appears. Unless we regard this report as evidence submitted by the respondent against his own interest, at least one of the factors for the determination of a depletion allowance would be missing. Another necessary factor for the determination of such an allowance would be the cost to the petitioner of the thing being depleted. From our findings of fact it is apparent that the lease cost the petitioner nothing. It is true that the petitioner issued $21,500 par value of its capital stock to Werner in consideration of his services, but we do not know what his services were reasonably worth or the fair market value of the stock issued to him and we are not satisfied from the evidence what amount, if any, represents the value of the lease at the time acquired by the petitioner *587 over and above the rent or royalty reserved. Several witnesses testified in*2562 regard to such value of the lease at the time acquired. Their testimony however did not disclose that any one of them was qualified to give an opinion of this value or that the values given by them were entitled to serious consideration by this Board. Under the circumstances we are unable to say that the petitioner for the year 1920 was entitled to a deduction in any certain amount for exhaustion of this lease.
Judgment will be entered for the respondent.