Houston Oil and Minerals Corporation v. Commissioner of Internal Revenue

W. EUGENE DAVIS, Circuit Judge:

The Commissioner of Internal Revenue (Commissioner) appeals the Tax Court’s conclusion that overriding royalty interests in oil and gas leases are not “oil, gas, or geothermal property” under § 1254 of the Internal Revenue Code. 1 We affirm.

I

Houston Oil and Minerals Corporation (HOMC) held mineral leases covering properties in the United States and several foreign countries. Between January 1, 1976, and April 24, 1981, HOMC explored and developed many of these properties, incurring substantial intangible drilling and development costs (IDCs). The Internal…