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used for drilling by petitioner. All of the Eason rigs were
subject to the Suits agreement.
In 1993, CDC was audited by the State of Texas. Gary
Golden, an auditor for sales and use tax for the State of Texas,
audited CDC for its fourth quarter of 1987 and its first quarter
of 1988, relative to a possible use tax liability.
Jennifer Leigh Nance audited CDC for the State of Texas
Comptroller's office for the 4-year period from April 1, 1988,
through March 31, 1992. Ms. Nance proposed a sales and use tax
liability against CDC because the rigs were being depreciated on
petitioner's Federal income tax returns and were not in an
inventory account of CDC.
In audit questionnaires in the Texas use tax proceeding, CDC
described its business operations as “oil and gas drilling” in
1988 and “oil and gas operations” in 1991.
ULTIMATE FINDING OF FACT
CDC was engaged in the conduct of an active trade or
business at all relevant times prior to its acquisition by
Samson.
CDC continued to carry on, after December 31, 1986,
substantially the same trade or business it had conducted before
December 31, 1986.
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