United States v. Hill

PETITIONER: United States
LOCATION: City Council of Hialeah

DOCKET NO.: 91-1421
DECIDED BY: Rehnquist Court (1991-1993)
LOWER COURT: United States Court of Appeals for the Federal Circuit

CITATION: 506 US 546 (1993)
ARGUED: Nov 02, 1992
DECIDED: Jan 25, 1993

Kent L. Jones - on behalf of the Petitioner
Richard B. Robinson - on behalf of the Respondents

Facts of the case


Media for United States v. Hill

Audio Transcription for Oral Argument - November 02, 1992 in United States v. Hill

William H. Rehnquist:

We'll hear argument now in No. 91-1421, United States against William F. Hill.

Mr. Jones.

Kent L. Jones:

Mr. Chief Justice, and may it please the Court:

The question in this case which affects billions of dollars of revenues under the minimum tax is ultimately a quite narrow one: what costs are properly included in the adjusted basis of a depletable mineral deposit?

While the question is a narrow one, its background is somewhat complex.

Since 1926 the tax treatment of mineral deposits has created a sizable incentive or tax preference for mining activities.

The mineral depletion allowance for mineral deposits differs dramatically from the ordinary depreciation of other types of wasting assets.

Percentage depletion exempts from tax a portion of the total income derived from the mineral deposit.

The allowance continues so long as production continues, even long after the total costs of the mineral deposit have been fully recovered.

By 1969 the percentage depletion allowance and other tax preferences had been abused to such an extent that many wealthy taxpayers were able to shield their entire incomes from Federal tax.

Congress enacted the minimum tax to avoid this inequity and to improve the fairness of the tax system as a whole.

William H. Rehnquist:

When did Congress enact the minimum tax?

Kent L. Jones:

The first version of the minimum tax was enacted in 1969.

Sandra Day O'Connor:

Thank you.

Mr. Jones, Congress has recently enacted another change?

Kent L. Jones:


Sandra Day O'Connor:

And by virtue of the most recent change, I guess no minimum tax will be applied to this.

Kent L. Jones:

Under section 1915 of the Energy Policy Act of 1992, which was enacted 2 weeks ago, Congress has exempted the restricted minimum... I'm sorry... percentage depletion allowance for independent oil producers from the coverage of the minimum tax.

Congress left in place the application of the minimum tax to all other types of percentage depletion allowances.

Sandra Day O'Connor:

Well, that certainly indicates that at least the present Congress isn't viewing the situation quite like you do.

Kent L. Jones:

Actually what we think and what I believe the statute reflects is that there are two ways to attack abusive tax preferences.

One is to tax them, which is the way the minimum tax works.

The other is to restrict the availability of the preference.

What Congress has done since 1969 for oil and gas depletion alone is to create a statute, 613(a), which very narrowly restricts the availability of the depletion allowance for that one industry.

Since 1969 Congress has cut the depletion rate applicable to oil production in half, from 27 to 15 percent.

They have removed the availability of oil and gas depletion for all integrated refining and marketing companies, which are the major producers of oil in this country.

They have also restricted, even for independent producers, the amount of depletion from an unlimited quantity, first to 2,000 barrels a day and now to 1,000 barrels a day.

And perhaps most importantly, in section 613(a)(D), Congress has provided that the oil and gas depletion allowance cannot be used to exempt more than 65 percent of the total income of the taxpayer, and so in that manner, Congress has avoided the spectacle of the depletion allowance being used to exempt all of the taxpayer's income, which is the function of the minimum tax.

Sandra Day O'Connor:

Well, Mr. Jones, since I have you interrupted, may I ask one other question?

I thought that the regulation, 1.571(h), was particularly relevant in this case, and yet your brief doesn't really address it or discuss it.