
    Beacon Coal Co., Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 11894.
    Promulgated November 23, 1927.
    
      
      Garl H. Smith, Esq., for tbe petitioner.
    
      Henry Ba/venel, Esq., for tbe respondent.
   OPINION.

Trussell:

The record of this action shows that during the year 1922 the petitioner in accord with its usual custom accrued upon its books an amount equivalent to 10 cents per ton of coal mined as a reserve to take care of expenses which could not be anticipated in advance. During that same year it charged against this fund $5,531.45 actually expended for labor and material used in making repairs and purchasing repair parts for its mining equipment. This amount of $5,531.45 is an allowable deduction for the year 1922.

The sum of $4,158.39 was accrued upon the petitioner’s books in the year 1921 as the probable amount of expense and damage resulting from the wrecking of several railroad cars and was a proper accruable expense of operations during that year. Of this amount $358.59 was paid during the year for the use of a wrecking crew furnished by the railroad company. On February 6, 1922, a further payment on account of damages to the railroad cars in the amount of $1,924.40 was made and on April 9 the whole matter was adjusted and settled with the additional payment of $1,212.30, thus all the cost and expenses borne by the petitioner on account of the first mentioned accrual was settled for $3,495.09. The difference between this amount and the original accrual, $663.30, should be restored to income for the year 1921 and no amount growing out of this situation should be reflected in the petitioner’s accounts for the year 1922.

Up to the close of the year 1920, petitioner had acquired mining properties and equipment at a cost of $336,904.31. It had estimated that the original coal content of its lands was 350,000 tons and that when mining operations would cease the salvage of its properties would be $60,000. Mining operations began in the year 1919 and for that year and the year 1920 its income and profits-tax returns have been settled and are not here in question. During those years it mined 148,720 tons of coal, and was allowed combined depletion and depreciation deductions for the two years in the amount of $104,104. In arriving at its adjustment for depletion and depreciation for the years 1919 and 1920, it had reduced the cost of its mining properties and equipment by the amount of the estimated salvage, $60,000. Later it developed that this estimated salvage was excessive, and that the true salvage was $40,950.63. On January 1, 1921, after having made adjustments for corrected estimate of salvage the unex-hausted cost of mining properties and equipment was $192,581.43. The estimated recoverable coal remaining in the ground on that date was 201,280 tons. The unit for a composite depletion and depreciation deduction for the year 1921 was therefore found to be 95.672 cents, and the allowable deduction found by applying that unit to the 83,196 tons of coal mined is $79,601.27.

During the year 1922, the petitioner acquired additional coal lands costing $14,050, and additional machinery equipment costing $14,708.87. The new lands acquired were estimated to have a coal content of 53,000 tons. The unexhausted cost of property and equipment for the year 1922 is $141,739.03; the amount of recoverable coal on January 1,1922, found by adding the 53,000 tons contained in the new land acquired and adjusted to correct the estimate in accordance with the actual tons mined resulted in a then coal content of 162,796 tons. The combined unit for depletion and depreciation for the year 1922 is thus found to be 87.066 cents and this unit applied to 97,634 tons of coal mined in that year produces an allowable deduction of $85,005.91.

Carrying this computation through to the close of the petitioner’s business when its mine was exhausted, we find that the allowance for exhaustion for the year 1923, when 64,920 tons of coal were mined, would be $57,778.15, and for the year 1924 when 242 tons of coal were mined and mining operations ceased the deduction for depletion and depreciation would be $215.87, and summarizing the entire operations of this petitioner, it appears that the total cost of its properties and equipment throughout the period of its operations was $367,655.83; that the petitioner recovered through salvage $40,950.63; that the amount recoverable through depletion and depreciation exhaustion is $326,705.20; that the amount recovered by depletion and depreciation deductions will appear as follows:

For the two years of 1919 and 1920_$104,104. 00
For the year 1921_ 79, 501.27
For the year 1922_ 85,005.91
For the year 192S_ 57, 778.15
For the year 1924__ 215. 87
Total_ 326, 705.20

The petitioner’s liability to income and profits taxes for the years 1921 and 1922 should be recomputed in accordance with the foregoing findings of fact and opinion.

Reviewed by the Board.

Judgment will he entered upon 15 days’ notice, pursuant to Rule 50.  