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a gross income from the property which excludes amounts received
for transportation or refining, etc. Petitioners do not fall
within the category of an integrated producer. See Exxon Corp.
and Subsidiaries v. United States, 88 F.3d 968, 970 (Fed. Cir.
1996); Exxon Corp. v. Commissioner, supra, and cases discussed
therein.
Another of petitioners' arguments is that their lease
agreement with Shell provides that petitioners should receive
their royalty income "free of cost", which petitioners construe
to mean that Shell should bear the liability for all taxes
related to the lease, including those imposed on them. This
argument fails because, whatever the scope of the phrase "free of
cost", the agreement of one party to pay the other's taxes is not
binding on respondent and does not alter liability for such taxes
under the Code. Pesch v. Commissioner, 78 T.C. 100, 129 (1982);
Neeman v. Commissioner, 13 T.C. 397, 399 (1949), affd. 200 F.2d
560 (2d Cir. 1952); Humbert v. Commissioner, 24 B.T.A. 828, 829
(1931).
Petitioners seek to share Shell's status as an integrated
oil producer in order to be able to utilize a "market price"
measurement for percentage depletion allowance but without regard
to the fact that an integrated producer was not entitled to
percentage depletion during the taxable years before us under
section 613A (effective for taxable years commencing after
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