- 31 -
that the transaction was essentially an assignment of
expected income for a fixed or determinable period of time,
and, thus, the consideration paid for such right should be
treated as ordinary income, rather than capital gain. Id.
at 265 n.5; see I.T. 4003, 1950-1 C.B. 10, obs. Rev. Rul.
70-277, 1970-1 C.B. 280; I.T. 3935, 1949-1 C.B. 39, obs.
Rev. Rul. 67-123, 1967-1 C.B. 383; G.C.M. 24849, 1946-1
C.B. 66, obs. Rev. Rul. 70-277, 1970-1 C.B. 280.
The owner of the mineral property was permitted to
exclude from income the amounts utilized during the payout
period to pay the production payment, and the owner was
permitted to deduct the expenses attributable to producing
the production payment in the year the expenses were
incurred. Thomas v. Perkins, 301 U.S. 655 (1937); S. Rept.
91-552, at 182 (1969), 1969-3 C.B. 423, 539. The holder of
the production payment, on the other hand, was required to
treat the payments received as income but was permitted to
deduct a reasonable allowance for depletion, pursuant to
section 611(a). United States v. Witte, 306 F.2d 81, 87
n.12 (5th Cir. 1962); S. Rept. 91-552, supra at 182, 1969-3
C.B. at 539.
The above tax treatment applied only if the trans-
action involved a "production payment" or "oil payment";
that is, "the right to a specified sum of money, payable
out of a specified percentage of the oil, or the proceeds
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