Memorandum Opinion
SMITH, Judge: This proceeding is for the redetermination of a deficiency of $2,055.60 in petitioner's income tax for 1938. The only error alleged is the respondent's disallowance of a claimed loss deduction of $4,650 representing the cost to the petitioner of an oil and gas royalty interest which he contends became worthless in 1938. Some of the facts have been stipulated.
Petitioner is a resident of the State of Oklahoma and has his principal office at Tulsa. For the year 1938 he and his wife filed separate income tax returns with the collector of internal revenue for the district of Oklahoma. Petitioner's return showed a taxable net income of $93,562.46 and a tax due of $29,388.08, all of which has been paid.
On March 14, 1942, petitioner paid the collector of internal revenue additional taxes of $1,790.27 and interest thereon of $322.25.
On June 4, 1935, petitioner acquired at a cost of $4,650 six-tenths of a one-eighth royalty interest in a ten-acre tract of land located in1942 Tax Ct. Memo LEXIS 25">*26 the northeast quarter of the southwest quarter of the northeast quarter of section 35, township 2 north, range 6 east, Pontotoc County, Oklahoma. This property was near the southwest corner of a producing area known as the Fitts pool. It was under an oil and gas lease at that time and up until 1942 petitioner received $6 a year as his portion of the rentals paid thereon.
During 1938 the nearest four producing wells to petitioner's royalty, which lay directly between petitioner's royalty and the pool, ran out and were abandoned. Two of these wells had been completed in 1936 and two in 1937. All of them had proven unprofitable. Two other producing wells nearer the pool were abandoned as unprofitable in 1939 and 1940. There has never been any drilling directly on the tract covered by petitioner's royalty or nearer thereto than the abandoned well referred to above.
We find on the evidence before us that petitioner's royalty interest became worthless in 1938 when the four nearby wells were abandoned. Petitioner is entitled to deduct the cost of such royalty interest in his return for 1938 as a loss of that year. See , promulgated1942 Tax Ct. Memo LEXIS 25">*27 November 18, 1942, and , promulgated December 9, 1942.
