Fred L. And Mary A. Engle v. Commissioner of Internal Revenue

PELL, Circuit Judge.

Taxpayers Fred and Mary Engle appeal from a decision of the United States Tax Court upholding a determination by the Commissioner that they were not entitled to a percentage depletion allowance on two oil and gas leases for the year 1975. The Engles had received advance royalties as a result of their assigning the leases during the taxable year. No physical extraction of oil or gas from the depletable properties had occurred during 1975. The Tax Court held that 26 U.S.C. § 613A(c) (1976) 1 permits the percentage depletion deduction only if there is some physical extraction…