Jack J. Grynberg - Page 12




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               Often, State law affects the tax treatment of a transaction.              
          See, e.g., Morgan v. Commissioner, 309 U.S. 78, 80 (1940) (State               
          law creates legal rights in property, and Federal law controls                 
          the taxation of those rights); Blair v. Commissioner, 300 U.S. 5               
          (1937); Bedford v. Commissioner, 5 T.C. 726 (1945).  Indeed,                   
          notwithstanding that petitioner acquired leases of Federal lands,              
          we refer to State law in our analysis of whether he surrendered                
          ownership of his interests.  See Wallis v. Pan Am. Petroleum                   
          Corp., 384 U.S. 63, 67 (1966) (applying State law in a dispute                 
          between private parties involving assignments of Federal oil and               
          gas leases).                                                                   
               The mineral leases covered lands in 10 different States.                  
          Fortunately, the law of these States is substantially the same on              
          the issues framed here.  Under each State’s law, a mineral lease               
          is considered realty;5 thus, under traditional choice of law                   
          principles, the law of the situs State governs questions of valid              



               5See Arizona State Real Estate Dept. v. American Standard                 
          Gas & Oil Leasing Serv. Inc., 580 P.2d 15 (Ariz. Ct. App. 1978);               
          Hagood v. Heckers, 513 P.2d 208 (Colo. 1973); Jaenicke v. David-               
          son, 287 N.W. 472 (Mich. 1939); Bailey v. Federal Land Bank, 40                
          So. 2d 173 (Miss. 1949); Stokes v. Tutvet, 328 P.2d 1096 (Mont.                
          1958); State ex rel. Rausch v. Amerada Petroleum Corp., 49 N.W.2d              
          14 (N.D. 1951); Bolack v. Hedges, 240 P.2d 844 (N.M. 1952);                    
          Harris v. Tucker, 296 P. 397 (Okla. 1931); Chase v. Morgan, 339                
          P.2d 1019 (Utah 1959); Hageman & Pond, Inc. v. Clark, 238 P.2d                 
          919 (Wyo. 1951).                                                               
               Most States which classify a mineral lease as real property               
          also treat an overriding royalty as an interest in land.  See 2                
          Williams & Meyers, Oil and Gas Law, sec. 418.1, at 351 (1998).                 





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