Mantle v. Commissioner

*146 In this proceeding the petitioner seeks a redetermination of his income taxes for the years 1919 and 1920 for which the Commissioner has determined deficiencies of $6,090.19 and $6,647.86, respectively. The petitioner assigned error on the part of the Commissioner in failing to allow an adequate value at March 1, 1913, of a mining claim owned on that date.

FINDINGS OF FACT.

Petitioner is an individual residing at Butte, Mont., whose office address is 16 West Broadway, Butte, Mont.

The petitioner, on December 2, 1912, purchased from P. S. Passmore the mineral rights, below a certain depth from the surface, of a claim known as the Hope Claim, located in Butte, Mont., for a price of $8,250. P. S. Passmore was bank clerk in Butte who had acquired an option on these mineral rights from the owners, and who entered into an agreement with the petitioner for the sale of his rights in November, 1912. Soon after the acquisition of the claim by the petitioner*3304 he entered the Hope Claim in a book which he regularly kept for the listing of his properties. This book and listing was kept by the petitioner in his own hand writing, and its function was to serve not only as a memorandum for himself but as a standing set of instructions to his confidential agent and nephew, M. A. Burger, for the guidance of the latter in selling such properties. The Hope Claim he listed in this book at a valuation of $100,000.

The petitioner was the owner of the Hope mineral rights, although the property was held in the name of Wesley T. Shirley. On the 5th day of July, 1918, the petitioner, through Wesley T. Shirley, entered into an agreement for the sale of his interest in the Hope Claim. The total price stated in the agreement was $150,000, to be paid as follows:

*3305 This agreement was referred to in the instrument as a lease and option to purchase. The lessee or purchasing party was not bound to complete the purchase, but in the event of his failure to meet any *147 of the requirements contained in the instrument he forfeited all payments previously made. The Commissioner determined that the March 1, 1913, value of the mineral rights in the Hope Claim was $8,250, and computed profit upon the sale of such rights.

The Hope Claim was located in section 14, just west of the city limits of Butte, and just west of Missoula Gulch. At the time of purchase by the petitioner and at the time of sale its surface was covered by buildings.

The petitioner did not acquire any of the surface of the Hope Claim nor any rights in or to the surface. He therefore had no means of entrance to the property, and the only way that the property could be operated was by purchasing surface rights on the property or mining beneath the property from an entrance in an adjacent property.

The Hope mining claim had been operated as a silver mine prior to 1890, but like many similar mines in that district had ceased to be a paying property when zinc was encountered*3306 at a certain depth below the surface in such quantities as to make the cost prohibitive. The mine had been idle from about 1890.

About 1909, 1910, and 1911 interest in the zinc-silver-lead properties west of Butte was materially revived on account of development and notoriety of the oil flotation process. This process led operators in Butte to believe that these properties could be made very profitable, and in 1912 the Butte and Superior Mining Co. built a flotation plant at the northeast edge of the Butte Hill.

On account of this activity mining claims in this section which previously had not been considered of value became very valuable, and many purchases were made of undeveloped claims from 1911 to 1915.

In February, 1913, the Gambrinus Claim, located southeast from the Hope Claim, and containing about 11 acres, was sold for about $15,000 an acre. The surface indications on this claim were about the same as the surface indications on the Hope Claim. Other sales west of Missoula Gulch ranged from $5,000 to $7,000 an acre prior to March 1, 1913.

The fair market value at March 1, 1913, of the mineral rights in the Hope Claim owned on that date by the petitioner was*3307 $100,000.

OPINION.

LOVE: The only issue in this case is the fair market value at March 1, 1913, of the mineral rights in the Hope Claim as a basis for determining profit on the sale of such rights in 1918.

Petitioner has introduced testimony showing transactions in somewhat similar properties in this section prior to March 1, 1913, in an *148 effort to show that there existed a market for undeveloped mineral claims at about $5,000 an acre. The transactions introduced ranged from $5,000 to $15,000 an acre. The claims in this section which were in a general class with the Hope Claim had surface outcroppings of veins sometimes strongly marked. In the case of the Hope Claim the vein was exposed at several points and indicated a vein about 15 feet wide. A similar surface showing existed on the Gambrinus Claim.

While there may be some characteristics common to the claim in question and the other claims named in the record, it is apparent to us that a comparison by this Board is impossible, since sufficient information therefor is not contained in the record, and since so many elements enter into a comparison of this nature that it is doubtful if any determination could*3308 be reached except by experts on the ground.

Petitioner has further introduced the testimony of several witnesses who were familiar with the property and who had dealt in this class of property, or had knowledge of purchases and sales at or about March 1, 1913. Those witnesses were familiar with the process known as the flotation process, being operated in the Butte vicinity, and it was shown by these witnesses that the introduction of the flotation process as a commercial success stimulated activity in respect to these properties and greatly increased their market value. These witnesses sustained the contention of the petitioner that the value of the property rights in question was at least $100,000 at March 1, 1913.

Respondent has endeavored to discount the testimony of these witnesses in respect to the value of the mineral rights in the Hope Claim, alleging that the ores contained therein consisted of lead, zinc and copper, and maintaining that the presence of copper which would be contained in the concentrates resulting from flotation would make the concentrates of such a character that they could not be commercially treated at that time. We fail to find any evidence in*3309 the record as to the character of the ore in the Hope Claim other than that it was referred to as a silver zinc property. There was evidence introduced that the claims lying immediately adjacent to the Hope Claim, known as the Anselmo Group, contained ores bearing zinc and copper, but it was not shown that the Hope Claim was similar. It is also true that testimony shows that copper was predominant in the ores in the central part of Butte but gradually decreased in amount toward the west, and at Missoula Gulch and westward was of minor importance. It has not been shown that the ores in the Hope Claim could not be successfully treated by the flotation system in its state of development at March 1, 1913.

*149 The only evidence relied upon by the Commissioner other than the argument above indicated as to the value of the Hope Claim was its purchase price of $8,250 in 1912. It is alleged that this transaction was at arms-length between a willing buyer and a willing seller, both of whom resided in Butte, and who were in a position to become familiar with the progress of flotation and the market values of claims of this type. While this testimony is pursuasive, in our opinion*3310 it has been overcome by the testimony of the witnesses who are undoubtedly qualified to express an opinion of value. The fact that the petitioner entered in his book in 1912 a minimum sale price of $100,000 would also tend to indicate that the petitioner looked upon the purchase price as a distinct bargain and not a figure representing fair market value.

After a review of all the testimony and arguments submitted we are convinced that the mineral rights acquired by the petitioner in the Hope Claim had a fair market value at March 1, 1913, of $100,000, which value should be used as a basis in computing the profits realized during the years in question. There was no question raised as to amount, or time of receipt, of the sale price.

Judgment will be entered under Rule 50.