MENDOZA-MARTINEZ v. MACKEY, ON PETITION FOR WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT. No. 54. Decided April 7, 1958. Certiorari granted; judgment vacated; and cause remanded to District Court for determination in light of Trop v. Dulles, ante, p. 86. Reported below: 238 F. 2d 239. John W. Willis for petitioner. Solicitor General Rankin for respondents. PER CURIAM. The petition for writ of certiorari and the motion to substitute William P. Rogers, present Attorney General of the United States, as a party respondent in the place and stead of Herbert Brownell, Jr., resigned, are granted. The judgment of the United States Court of Appeals for the Ninth Circuit is vacated and the cause is remanded to the United States District Court for determination in light of Trop v. Dulles, ante, p. 86, decided March 31, 1958. 356 U.S. Per Curiam. DANDRIDGE v. UNITED STATES. CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT. No. 609. Decided April 7, 1958. Upon consideration of record and confession of error by Solicitor General, judgment of Court of Appeals reversed and case remanded to District Court with directions to permit defendant to change his plea of guilty. 101 U. S. App. D. C. 114, 247 F. 2d 105, reversed. Bernard Dunau and Anastasia Thannhauser Dunau for petitioner. Solicitor General Rankin, Beatrice Rosenberg and Kirby W. Patterson for the United States. PER CURIAM. Upon consideration of the entire record and the confession of error by the Solicitor General, the judgment of the United States Court of Appeals for the District of Columbia Circuit is reversed and the case is remanded to the District Court with directions to permit the defendant to change his plea. COMMISSIONER OF INTERNAL REVENUE ET al. v. P. G. LAKE, INC., ET AL. CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT. No. 108. Argued March 11, 1958.-Decided April 14, 1958. 1. In each of the five cases here considered together, the taxpayer received present consideration for assignment of a so-called oil payment right (or sulphur payment right) carved out by the taxpayer from a larger mineral interest producing income taxable as ordinary income, subject to a depletion deduction. Held: The consideration received for the assignment was taxable as ordinary income, subject to a depletion deduction, and not as a long-term capital gain under § 117 of the Internal Revenue Code of 1939. Pp. 261-267. (a) The present consideration received by the taxpayer was paid for the right to receive future income, not for an increase in the value of the income-producing property. Pp. 264-267. (b) An earlier administrative practice (reversed in 1946) contrary to this holding will not be presumed to have been known to Congress and incorporated into the law by re-enactment, because it was not reflected in any published ruling or regulation. P. 265, n. 5. (c) Moreover, prior administrative practice is always subject to change through exercise by the administrative agency of its continuing rule-making power. P. 265, n. 5. 2. In the Fleming case, the taxpayers exchanged oil payment rights. for fee simple interests in real estate. Held: This did not constitute a tax-free exchange of property of like kind within the meaning of § 112 (b)(1) of the Internal Revenue Code of 1939. Pp. 267-268. 241 F. 2d 65, 69, 71, 78, 84, reversed. John N. Stull argued the cause for petitioners. With him on the brief were Solicitor General Rankin, Assistant Attorney General Rice and Melva M. Graney. 260 Opinion of the Court. Harry C. Weeks and J. Paul Jackson argued the cause for respondents. Mr. Weeks filed a brief for P. G. Lake, Inc., et al., and Mr. Jackson filed a brief for O'Connor et al., respondents. Allen E. Pye filed a brief for Wrather et al., respondents. Peter B. Wells filed a brief for Weed, respondent. MR. JUSTICE DOUGLAS delivered the opinion of the Court. We have here, consolidated for argument, five cases involving an identical question of law. Four are from the Tax Court whose rulings may be found in 24 T. C. 1016 (the Lake case); 24 T. C. 818 (the Fleming case); 24 T. C. 1025 (the Weed case). (Its findings and opinion in the Wrather case are not officially reported.) Those four cases involved income tax deficiencies. The fifth, the O'Connor case, is a suit for a refund originating in the District Court. 143 F. Supp. 240. 143 F. Supp. 240. All five are from the same Court of Appeals, 241 F. 2d 71, 65, 78, 84, 69. The cases are here on writs of certiorari which we granted because of the public importance of the question presented. 353 U. S. 982. The facts of the Lake case are closely similar to those in the Wrather and O'Connor cases. Lake is a corporation engaged in the business of producing oil and gas. It has a seven-eighths working interest in two commercial oil 1 An oil and gas lease ordinarily conveys the entire mineral interest less any royalty interest retained by the lessor. The owner of the lease is said to own the "working interest" because he has the right to develop and produce the minerals. In Anderson v. Helvering, 310 U. S. 404, we described an oil payment as "the right to a specified sum of money, payable out of a specified percentage of the oil, or the proceeds received from the sale of such oil, if, as and when produced." Id., at 410. A royalty interest is "a right to receive a specified percentage of all oil and Opinion of the Court. 356 U.S. and gas leases. In 1950 it was indebted to its president in the sum of $600,000 and in consideration of his cancellation of the debt assigned him an oil payment right in the amount of $600,000, plus an amount equal to interest at 3 percent a year on the unpaid balance remaining from month to month, payable out of 25 percent of the oil attributable to the taxpayer's working interest in the two leases. At the time of the assignment it could have been estimated with reasonable accuracy that the assigned oil payment right would pay out in three or more years. It did in fact pay out in a little over three years. In its 1950 tax return Lake reported the oil payment assignment as a sale of property producing a profit of $600,000 and taxable as a long-term capital gain under § 117 of the Internal Revenue Code of 1939. The Commissioner determined a deficiency, ruling that the purchase price (less deductions not material here) was taxable as ordinary income, subject to depletion. The Wrather case has some variations in its facts. In the O'Connor case the assignors of the oil payments owned royalty interests rather than working interests. But these differences are not material to the question we have for decision. The Weed case is different only because it involves sulphur rights, rather than oil rights. The taxpayer was the owner of a pooled overriding royalty in a deposit known as Boling Dome. The royalty interest entitled gas produced" but, unlike the oil payment, is not limited to a specified sum of money. The royalty interest lasts during the entire term of the lease. Id., at 409. 2 See note 1, supra. 3 Boling Dome is a tract composed of various parcels of land. The owners of the royalty interests in sulphur produced from the separate parcels entered into a pooling agreement by which royalties from sulphur produced anywhere in Boling Dome were distributed pro rata among all the royalty interest holders. In that sense was the interest of each "pooled." |