Jay H. Floyd and Julia M. Floyd v. Commissioner of Internal Revenue

I respectfully dissent.

In this case the taxpayer sold the working interest, reserving an overriding royalty and an oil payment. The oil payment was payable out of 5/ie of production until $7,500 should be received from the first well drilled on each forty-acre tract on 840 acres, or a total amount of $157,500. Later, the taxpayer sold his entire interest in the oil payment for $75,000. Tax treatment of the $75,-000 as ordinary income subject to depletion results in a deficiency of $6,865. Implicit, therefore, in the Commissioner’s position is the notion that the taxpayer sacrificed $82,500 of…