Estate of Ervin A. Reinke, Deceased Marion Reinke, Personal Representative Marion Reinke v. Commissioner of Internal Revenue

FRIEDMAN, Senior Circuit Judge.

This case involves the federal income tax treatment of payments received under coal lease agreements pursuant to which coal was removed from the land by strip mining. The dispute relates to payments that reflected only the surface rights the appellants had in the land. The appellants contend that the payments were for damages inflicted on the land by the mining, and therefore constituted a return of capital up to the amount of their basis in the land and capital gains thereafter. The Tax Court held, however, that the payments constituted ordinary income. It…