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the possible exception, according to petitioners, of
jurisdictional matters, is whether petitioners are entitled to an
oil depletion allowance in excess of 15 percent of their reported
royalty income.
Background
Petitioners are husband and wife. They resided in Arcadia,
Michigan, at the time the petitions herein were filed. They
filed their Federal income tax returns at the Covington,
Kentucky, Service Center.
Prior to petitioners' marriage, Jean Muldavin (Mrs.
Muldavin) owned in fee simple a piece of property in Manistee
County, Michigan (the property). On June 19, 1968, she entered
into an oil and gas lease with J. L. Orr, whereby Orr as lessee
had the exclusive right to produce oil on the property in
exchange for which:
The lessee shall deliver to the credit of the
lessor as royalty, free of cost, in the pipe line to
which lessee may connect its wells the equal one-eighth
part of all oil produced and saved from the leased
premises, or at the lessee's option, may pay to the
lessor for such one-eighth royalty the market price for
oil of like grade and gravity prevailing on the day
such oil is run into the pipe line, or into storage
tanks.
Subsequent to petitioners' marriage, Mrs. Muldavin transferred
her interest in the property to Roger and Jean Muldavin as
husband and wife. At some point, Shell Oil Company (Shell)
became the successor in interest of J. L. Orr. On June 26, 1975,
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