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HELVERING V. FALK, 291 U. S. 183 (1934)

U.S. Supreme Court

Helvering v. Falk, 291 U.S. 183 (1934)

Helvering v. Falk

No. 225

Argued December 11, 1933

Decided January 15, 1934

291 U.S. 183


1. An iron ore mine, the estimated life of which was nine years, while subject to a fourteen-year lease providing for royalties, was conveyed to trustees to hold during two lives and twenty-one years, with power to manage, sell, lease, mortgage or otherwise dispose thereof. The deed, without setting up a reserve for depletion, directed that all proceeds (less expenses) be distributed to the beneficiaries. Large sums were collected by the trustees as royalties under the lease and distributed to the beneficiaries. Held, the beneficiaries were the owners of the entire economic interest in the mine, and, under the Revenue Acts of 1921, 1924, and 1926, were entitled to an allowance of a deduction for depletion, each in his proportionate share. Distinguishing Anderson v. Wilson, 289 U. S. 20. Pp. 291 U. S. 187, 291 U. S. 189.

2. The plain purpose of the Revenue Act of 1921 (and corresponding provisions of the 1924 and 1926 Acts), in respect to income from mining properties was to tax only that portion of the proceeds remaining after proper allowance for depletion, and the act must be so applied in practice as to carry out that purpose. P. 291 U. S. 187.

3. The immunity from taxation granted by the Revenue Acts (since 1913) to the proceeds of mining property to the extent that they represent actual depletion enures to the beneficial owners of the economic interest. P. 291 U. S. 187.

Page 291 U. S. 184

4. Section 219(b) of the Revenue Act of 1921 (and corresponding sections of the 1924 and 1926 Acts) which directs that, where income is to be distributed to the beneficiaries periodically,

"the tax shall not be paid by the fiduciary, but there shall be included in computing the net income of each beneficiary that part of the income of the estate or trust for its taxable year which, pursuant to the instrument or order governing the distribution, is distributable to such beneficiary,"

was not intended to impose a tax upon that part of the proceeds which represents the return of capital assets, whenever this has been paid over to the beneficiary. Pp. 291 U. S. 188-189.

64 F.2d 171 affirmed.

Certiorari, 290 U.S. 616, to review a judgment reversing orders of the Board of Tax Appeals, 24 B.T.A. 299, which sustained deficiencies determined by the Commissioner.

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