Tom C. Clark

“ The nature of the coal deposits here involved was such that the miners often encountered 'a sandstone roll' which is an outcrop of rock which 'squeezes' out the coal. When one of these situations is encountered the miners must move large amounts of rock to reach the coal seam. During this period, of course, they are receiving no money because they are not delivering merchantable coal to Paragon's tipple. [7] At other times, water might accumulate which would have to be pumped out before work could resume. Again, the contract miners received nothing for this clearing operation. ”

“ An engineer provided by Paragon was used to map out or show each of the contractors the particular direction his mine was to take, the locations of adjacent mines, etc. The single engineer was utilized for all of the mines to ensure that they would not run into each other and also so that no minable coal would be rendered unrecoverable by haphazard mining methods. ”

“ Paragon, on the other hand, says that Congress never intended for contractors mining coal to have a depletable interest as evidenced by statutory enactments adopted subsequent to the tax years involved in Parsons v. Smith, supra; that in the case of a lease the lessor of coal lands is no longer granted a deduction for depletion but is relegated to capital gains treatment only. [4] And, finally, that the expenditures made by the contractors were only for equipment which they depreciated and could not constitute an investment in the coal in place as required under Parsons v. ”

“ For example, an agreement between the owner of an economic interest and another entitling the latter to purchase or process the product upon production or entitling the latter to compensation for extraction or cutting does not convey a depletable economic interest. * * *' Treas.Reg. § 1.611 1 (b) (1) .
Section 611 (b) estabishes an equitable apportionment of such allowance between the lessor and the lessee nin the case of a lease. ”

“ Treas.Reg. 111, § 29.23 (m) -1; and Treas.Reg. 118, § 39.23 (m) -1 (a) - (b) , with Treas.Reg. § 1.611 1 (b) (1) . This Regulation has survived through successive amendments of the Internal Revenue Code and therefore is entitled to great weight. ”