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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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