Smith, Kaufman and Mulligan, Circuit Judges.
Charles M. Bernuth, Shirley P. Bernuth, Elizabeth von Bernuth, and the Estate of Carl von Bernuth have appealed from a decision of the Tax Court, 57 T.C. 225 (1971), sustaining the Commissioner's determination of deficiencies in their income taxes for the year 1959. The question presented for review is whether appellants were entitled to claimed deductions for "intangible drilling and development costs" for several oil and gas wells in which they had fractional interests. For the reasons stated below, we answer that question in the negative, and affirm the decision of the Tax Court.
The facts below, while complex, were stipulated. Since they are outlined exhaustively in the opinion of the Tax Court, we shall summarize them but briefly here. Three of the appellants, Charles M. Bernuth and Carl and Elizabeth von Bernuth, entered into oil and gas ventures promoted by Barnwell Production Company, a Louisiana partnership.*fn1 Each taxpayer acquired from Barnwell fractional working interests (ownership) in oil and gas leases in Pike County, Mississippi, and agreed to participate in the drilling of wells on the leaseholds. The agreements provided that each taxpayer would pay Barnwell a fixed sum for his participation in the drilling of a well at a specified location to a particular depth. In addition, each taxpayer agreed to pay his share of the costs of completing and readying for commercial production any well which proved successful.
The agreements set out the price of a full 100 per cent working interest in each well, the percentage participation of each taxpayer, the full "turnkey to casing point" drilling cost,*fn2 the cost to each taxpayer of his fractional working interest, and the taxpayer's fractional share of the drilling costs. For the four wells in controversy, the figures in the participation agreements can be summarized by the following table:
Fred Bacot Eugene W Eugene W Eugene W
Interest $15,000 $15,000 $15,000 $15,000
Cost*fn* $205,000 $205,000 $205,000 $205,000
Percentage Participation 4.00 4.00 ...