Johnston v. Commissioner , 38 B.T.A. 1199 ( 1938 )

T. A. JOHNSTON, TRUSTEE, VICTORY LEASE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Johnston v. Commissioner

Docket No. 84693.

United States Board of Tax Appeals

38 B.T.A. 1199; 1938 BTA LEXIS 768;

November 22, 1938, Promulgated

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Where several coowners of undivided interests in a Texas oil and gas lease remained the individual coowners of such interests in real property, but arranged for the development and management of their property through two of such coowners, who in exercising their expressly delegated powers acted in the name of one of them, "T. A. Johnston, Trustee", held that they did not constitute an "association" taxable as a corporation. C. A. Everts et al., Jamison Lease Syndicate,38 B.T.A. 1039">38 B.T.A. 1039.

Samuel A. King, Esq., for the petitioner.

James H. Yeatman, Esq., and M. L. R. Wade, Esq., for the respondent.

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TYSON

This proceeding involves deficiencies in income and excess profits taxes for the calendar year 1933, in the amounts of $610.86 and $222.13, respectively.

On brief respondent concedes error, under authority of Thomas v. Perkins,301 U.S. 655">301 U.S. 655, in including in his determination of the petitioner's gross income the amount of $2,290.10 representing the proceeds from the sale of oil and gas applied to certain oil payments reserved by the assignors of petitioner of the two leases involved herein and in including such amount in his computation of the depletion allowed by him at the rate of 27 percent of the gross income from the property. In the event a recomputation under Rule 50 is necessary, the proper adjustments will be made therein.

The sole remaining issue presents the question of whether, under the facts in this proceeding, petitioner was an association taxable as a corporation during 1933.

FINDINGS OF FACT.

Prior to 1931 T. A. Johnston and John Owen owned undivided interests in certain oil and gas leases in Oklahoma which were operated by Owen and not by Johnston and Owen as partners. In 1931 they became interested in the business of owning and operating oil and gas leases in the east Texas oil field and orally agreed that if either purchased a lease the other could, if he so desired, acquire a one-half interest therein. They further agreed that each would own an undivided one-half interest in such lease as his separate property, that subsequently conveyances of their separate interests from the one holding title as trustee to the other would be made, and that they would not operate as partners. In pursuance of that agreement, they acquired a working interest in several oil and gas leases under assignments, naming as assignee one or the other as trustee. Then, as the individual owners of such leases, they sold and assigned to numerous persons undivided fractional interests therein for the purpose of financing the development thereof. Some of these assignments were recorded and some were not. Johnston and Owen, alone, directed and managed the drilling, development, and production operations and the sale of oil and gas produced from such leases, each of which was operated as a separate enterprise. On behalf of themselves and the purchasers, through assignments of the fractional interests which were not recorded, Johnston and Owen collected from the pipe line company to which the oil and gas were sold their proportion of the gross proceeds from the sales of oil and gas, deducted their pro rata portion of the expenses, and distributed the net proceeds to such purchasers. The purchasers of fractional interests in the leases, who recorded their assignments and signed division orders, collected direct from the pipe line company their proportionate share of the gross proceeds from the sales of oil and gas, and Johnston and Owen billed them for their proportionate share of the operating expenses. Johnston and Owen maintained an office and books of accounts at Tyler, Texas, and they, as individuals, paid the rent and the salaries of their two office employees, in equal proportions.

In pursuance of their oral agreement, Johnston and Owen each acquired one-half of a 7/8 working interest in two oil and gas leases embracing certain lands situated in the original town site of Gladewater, Texas, under an assignment dated December 1, 1931, whereby E. V. Abernathy and A. B. Kirkpatrick, the original lessees, did "bargain, sell, transfer, assign, and convey all rights, title and interest of the original lessee, present owners, in and to said leases, and rights thereunder, in so far as they cover the above two (2) tracts of land, aggregating all of Block No. Thirty-five to T. A. JOHNSTON, TRUSTEE", in consideration of $10 and certain covenants and agreements embraced in the assignments. The assignee bound himself to pay the sum of $12,000 to certain named persons, in specified percentages out of 1/4 of 7/8 of the first oil and gas produced, saved, and sold from the leased premises. The assignee also agreed to begin drilling a well on or before December 30, 1931, and to prosecute the drilling with reasonable diligence to a certain depth. That assignment was subscribed and acknowledged by the assignors before a notary public and was recorded on January 11, 1932, on the record of deeds of Gregg County, Texas. Pursuant to the oral agreement of Johnston and Owen, one-half of the abovementioned $12,000 payment was to be made out of each of their respective individual interests in the proceeds of the oil and gas produced from the lease. Hereinafter such lease will be referred to as the Victory lease.

Johnston and Owen entered into a contract with Alex McCutchin to drill a well on the Victory lease in consideration for cash paid and the assignment of an undivided 1/8 of 7/8 interest in that lease. The assignment was executed and recorded. After production commenced, sometime prior to 1933, the payments out of oil proceeds due the lessors, the assignors of the Victory lease, and McCutchin, were paid directly to them by the pipe line company and never passed through the hands of Johnston and Owen.

Johnston and Owen divided their interest in the Victory lease into 64 fractional interests and offered, as the individual owners thereof, to sell a portion of the fractional interests at $625 for each 1/64 interest in the entire Victory lease and the one well to be drilled by McCutchin. Owen handled all of the sales of fractional interests and to each prospective purchaser he orally represented that there would be assigned to the purchaser an undivided fractional interest in the entire lease and one well; that interest constituted real property which the purchaser would own and have title to; that neither Johnston nor Owen could sell or encumber the interest owned by the purchaser nor buy any new properties on behalf of the owners of fractional interests; that if any additional wells were drilled on the Victory lease the purchaser of a fractional interest would be required to pay his proportionate share of the actual drilling costs; that the purchaser's only liability would be for his proportionate part of the actual operating expenses and of the charge of $20 a month for one well or $15 a well for two or more wells a month, made by Johnston and Owen for their individual use towards defraying their office expenses: that the purchaser could, at any time, record his assignment, sign a division order, and receive direct from the purchaser of the oil or gas his proportionate part of the gross proceeds from oil and gas produced, and be billed by Johnston and Owen for his share of the operating expenses, or, that if he did not record his assignment, Johnston and Owen would collect his share of the oil and gas proceeds, deduct his pro rata share of the expenses, and send him a check for his share of the net proceeds, together with an itemized statement; and that Johnston and Owen would direct and manage the development, the production, and the sale of oil and gas produced.

Owen gave each purchaser a receipt for the money paid by him for his interest, which receipt stated that an assignment would be delivered for the fractional interests purchased, and he signed such receipts either as John Owen, or as "John Owen, Trustee." Immediately thereafter, Johnston executed, acknowledged before a notary public, and delivered an assignment to each purchaser of a fractional interest in the Victory lease. The title of record stood in the name of "T. A. Johnston, Trustee," and such assignments were subscribed in that name and each assignment was similar in form to the following:

ASSIGNMENT OF OIL AND GAS LEASE

15th Oct. 1931

Whereas, on the 7th day of Nov. 1931, a certain oil and gas mining lease was made and entered into by and between J. H. Victory, Lucille Victory Janell, C. N. Janell and Neil Victory, E. L. Foshee and wife Tiny P. Foshee, Lessor, and E. V. Abernathy and A. B. Kirkpatrick, Lessee, covering the following described land in the county of Gregg and State of Texas, to-wit:

All of Block No. 35 of the Original townsite of Gladewater, Texas, as per map recorded in Volume A, Page 3, of the Deed Records of Gregg County, Texas.

Said lease being recorded in the office of the County Clerk in and for said County in book File No. 28539, page, and

Whereas, The said lease and all rights thereunder or incident thereto are now owned by T. A. Johnston Trustee insofar as it covers an undivided (7/8) interests in above described lease

Now, Therefore, for and in consideration of One Dollar (and other good and valuable considerations), the receipt of which is hereby acknowledged, the undersigned, the present owner of the said lease and all rights thereunder or incident thereto, does hereby bargain, sell, transfer, assign and convey all rights, title and interest of the original lessee and present owner in and to said lease and rights thereunder, in so far as it covers an undivided (4/64) interest in and to the above described lease together with all personal property used or obtained in connection therewith to A. R. Haas and his heirs, successors and assigns.

And for the same considerations, the undersigned for himself and his heirs, successors and representatives, does covenant with the said assignee his heirs, successors, or assigns, that he is the lawful owner of the said lease and rights and interests thereunder and of the personal property thereon or used in connection therewith; that the undersigned has good right and authority to sell and convey the same, and that said rights, interest and property are free and clear from all liens and incumbrances, and that all rentals and royalties due and payable thereunder have been duly paid.

In Witness Whereof, The undersigned owner and assignor has signed and sealed this instrument this 3rd day of May, 1932.

T. A. Johnston (Seal)

Trustee

(Seal)

(Seal)

By the end of 1933 Johnston and Owen had sold fractional interests in the Victory lease and had delivered the assignments thereof to 27 individuals residing in Indiana, and none of those assignments had been recorded. No certificates or other evidence of interest were issued to the coowners, except the assignments. No purchaser of an interest in the Victory lease passed on the sale of an interest to any other purchaser. Those individuals never held any meetings. They were never consulted by Johnston and Owen, either collectively or separately, as to the development and operation of the property and the distribution of the net proceeds therefrom, but such development and operations were carried out and the distributions were made by Johnston and Owen up to and including 1933 pursuant to an oral understanding had with each purchaser of a fractional interest based upon Owen's representations upon which the sales were made as above set out. Johnston and Owen developed and operated the Victory lease on behalf of themselves as the owners of undivided fractional interests therein, subject to their obligations under the assignment to them dated December 1, 1931, and also on behalf of the 27 purchasers and owners of undivided fractional interests therein. Up to and including 1933, the record title of such interests remained in the name of "T. A. Johnston, Trustee," and all of the various transactions performed by Johnston and Owen as to the Victory lease were carried out in that name.

Johnston Secured the drilling permit and determined the location of the first well on the Victory lease, which was drilled by McCutchin and commenced producing sometime prior to 1933. A second well was also drilled, but the date is not disclosed. Johnston and Owen, individually, owned the office equipment, trucks, cars, etc., used in operation of the property, and paid the office expenses. In instances where their charges of $15 or $20 a well made against the owners of fractional interests were insufficient to meet office expenses, Johnston and Owen paid the difference. Johnston hired the laborers, mechanics, and the so-called lease man or foreman in charge of production on Victory lease, and also a superintendent who devoted part of his time to the Victory lease, and their salaries allocable to the Victory lease were charged to the operating expenses of that lease. No salary was paid to Johnston or Owen for their services. Arrangements for the sale and delivery of the oil and gas produced from the Victory lease to a pipe line company were made by Johnston and Owen.

The pipe line company required the holders of title of record to an oil and gas lease to sign division orders for the payments by the company of the proceeds out of oil and gas produced and sold to the company and the latter made payments only upon the basis of such division orders. Accordingly, the pipe line company's payments of the gross proceeds out of the oil and gas produced from the Victory lease were made directly to the fee owners and lessors, to the assignors, Abernathy and Kirkpatrick, to McCutchin, and to T. A. Johnston, trustee, as per their respective titles of record and their respective division orders.

The pipe line company paid, by checks drawn to the order or T. A. Johnston, trustee, the aggregate of the monthly pro rata shares of Johnston, Owen, and the 27 purchasers and owners of fractional interests, out of the proceeds from oil and gas produced from the Victory lease. Such checks were deposited in the bank account of T. A. Johnston, trustee. Checks were drawn by Johnston on that account for the payment of expenses and for the distribution of the net proceeds to the purchasers of fractional interests, which checks were signed "T. A. Johnson, Trustee." Up to and during 1933 little, if any, distributions of net proceeds were made to Johnston and Owen because the above mentioned $12,000 oil payments to Abernathy and Kirkpatrick were, under the terms of the lease assignment of December 1, 1931, made, half and half, direct to Abernathy and Kirkpatrick from Johnston's and Owen's distributive shares of oil or gas on their respective interests in the Victory lease. For convenience in making distributions, Johnston and Owen applied a common denominator of 1,600 to their original 7/8 interest in the Victory lease, so that 200/1,600 were embraced in the assignment to McCutchin, 824/1,600 were embraced in the various assignments to the purchasers of fractional interests, and the remaining unsold 576/1,600 were owned, one-half each, by, Johnston and Owen, during 1933.

In their office at Tyler, Texas, Johnston and Owen maintained books of account of their various oil and gas lease transactions. As to the Victory lease, three accounts were maintained. An account under the heading of "Victory, No. 1" showed the names of the 27 purchasers of fractional interests, the number of fractional interests owned by each of them, and the monthly distributions to each of them, respectively. An account under the heading of "Victory Well No. 1, Gladewater, T.A.J., Trustee" itemized operating costs by dates and amounts. Another account also under the heading of "Victory Well No. 1, Gladewater, T.A.J., Trustee" itemized the monthly totals of the oil runs in barrels, the total gross proceeds therefrom, the 1/8 royalty received by the fee owners and lessors, the 1/4 of 7/8 received by Abernathy and Kirkpatrick, the 1/8 of 7/8 received by McCutchin, the remaining amount of the gross proceeds received by T. A. Johnston, trustee, the expenses deducted, the total net proceeds for distribution to the purchasers of fractional interests, and the remaining net amounts distributable to Johnston and Owen on account of their respective interests in the Victory lease. A monthly statement of receipts, deductions, and net distributions was sent to each purchaser of a fractional interest, with a check for his or her distributive share of the proceeds from the sales of oil and gas.

Each owner of a fractional interest in the Victory lease was free tomake a conveyance thereof at any time and the development and operation of the lease by Johnston and Owen continued uninterrupted by either a conveyance of a fractional interest or the death of the owner of such an interest. When the owner of an unrecorded fractional interest desired to make a sale or transfer thereof he could deliver his original assignment, marked canceled, and request that an additional assignment be made to the party to whom he desired to sell. Immediately there would be executed by T. A. Johnston, trustee, a new assignment in the same form as that above quoted and delivered to the new assignee of such fractional interest. Thereupon, the new owner's name would be entered on Johnston's and Owen's books in place of the prior owner of such transferred interest. In the event of the death of the owner of an unrecorded fractional interest, Johnston and Owen withheld the distribution of the decedent's pro rata share of the net proceeds until they had received an order of court showing the decedent's heir or heirs entitled thereto and they would then change their record of owners of fractional interests accordingly. The owners of recorded fractional interests could make sales or transfers thereof simply by their own assignments.

In 1934 Johnston's and Owen's respective undivided interests in the Victory lease were assigned to each of them individually by T. A. Johnston, trustee, and since then each has received payment of his pro rata share of the oil proceeds from the Victory lease direct from the pipe line company.

On or about February 5, 1934, T. A. Johnston and John Owen and most of the purchasers of unrecorded fractional interests in the Victory lease executed a written agreement for the purpose of avoiding the possibility ofJohnston and Owen being held personally liable for any mistakes in judgment in operating the Victory lease, and, as stated in the agreement, to set forth the extent of their powers. The written agreement, in substance, confirmed the original oral understanding Johnston and Owen had with each purchaser of a fractional interest at the time the sales were made byOwen. Six of those purchasers of fractional interests did not sign that written agreement, which was as follows:

STATE OF TEXAS

COUNTY OF SMITH

THIS AGREEMENT made and entered into on this the 1st day of February, 1934, by and between T. A. Johnston, Trustee, and John Owen, Trustee, hereinafter designed as the Trustees, and Parties on attached list hereinafter designated as the beneficiaries,

WITNESSETH: The Trustees hold the legal title to a certain oil and gas lease and leasehold estate situated in the county of Gregg State of Texas, and described as follows:

* * *

The beneficiaries having invested certain sums of money in said oil and gas leasehold estate are entitled respectively to beneficial interests in same in the fractional amount set out in the list hereto attached, marked Exhibit "A", and hereby referred to for all purposes.

Said property has heretofore been operated by the Trustees under a verbal understanding with the beneficiaries, which operations here been satisfactory to all parties, but it is now deemed best that the extent of their powers should be set forth in writing so that nomisunderstandings will arise with reference thereto and therefore all said parties here and now agree as follows:

That the Trustees shall have full charge and the control, management and operation of said leasehold estate and that they are fully authorized and empowered to carry on any development that may be required upon said property and are further authorized and empowered to operate and maintain said property as it seems best to them for the continued operation and preservation of same. That said trustees may expend such monies in the development of said property, the purchase of necessary equipment and the hiring of labor as may be necessary to effect this end, in the economic and businesslike operation of said lease.

The trustees are hereby authorized and empowered to sell the oil, gas and casinghead gas produced from the well or wells drilled on said property to such pipe line companies or other purchasers of same as they may think best; to execute and deliver necessary division orders or transfer orders required in the marketing of said products; and to collect and receipt for the proceeds of all of the oil and gas including the interest of the beneficiaries therein after same has been sold; and to enter into any other necessary contracts or agreements that may be required to carry on and protect said leasehold estate.

The trustees shall each month, as soon as practical, after the receipt of monthly checks for the proceeds of oil and gas sold from said property, furnish to each beneficiary an itemized statement showing all receipts and disbursements for the preceding month; and at the same time the trustees shall remit to each beneficiary his prorata part of the income for said period after deducting therefrom the prorata portion of such monthly expenses due by each beneficiary. In this connection it is distinctly understood that each beneficiary must pay his prorata part of the expense of the operation and maintenance of said property, in the proportion that his interest bears to the entire leasehold estate.

The trustees bind and obligate themselves to develop, operate and maintain said leasehold estate in a first class, good and workmanlike manner and to do each and everything that may be required with due diligence, using their best judgment in the management, control and operation of said property. And in the exercise of this authority the decision of the trustees shall be final, but they shall not be held in any way responsible for errors in judgment.

The beneficiaries do each and every one hereby ratify and confirm each and every act of said trustees lawfully done in the management and operation of said property.

This Trustees' agreement shall be co-extensive with the life of said leasehold estate and shall be binding upon the parties hereto, their respective heirs, successors and assigns.

WITNESS OUR HANDS this the 5th day of February, 1934.

The instrument was signed by interest holders, as for example, "Interest 1/64 Schuyler C. Mowrer", and by "John Owen, Trustee" and "T. A. Johnston, Trustee."

For the calendar year 1933 a fiduciary return of income, form 1041, was filed by T. A. Johnston, trustee, showing the gross income and operating expenses of four leases, including theVictory lease, and a list of the distributees of all of the net income therefrom.

The respondent's deficiency notice, determining the deficiencies in controversy, was addressed to "T. A. Johnston, Trustee, Victory Lease", and the petitioner herein was filed in that name.

OPINION.

TYSON: The assignment of the Victory lease, executed by Abernathy and Kirkpatrick on December 1, 1931, constituted a conveyance of legal title to an interest in real property to T. A. Johnston, trustee. See C. A. Everts et al., Jamison Lease Syndicate,38 B.T.A. 1039">38 B.T.A. 1039, and the authorities cited therein. The uncontradicted facts herein establish that, under the terms of a prior agreement of Johnston and Owen, Johnston, as trustee, acquired and held the title to the Victory lease during the taxable year on behalf of himself as to a one-half undivided interest therein and on behalf of John Owen as to a one-half undivided interest therein and that one-half of the oil payments reserved by the assignors of the lease would be taken out of the respective interests of Johnston and Owen in the lease.

Johnston and Owen, as the individual owners of a 7/8 interest in the Victory lease, offered to sell for cash undivided fractional interests in that lease and the well to be drilled thereon and each purchaser understood that, under an assignment, he or she would become the owner of an undivided fractional interest in real property. The assignments, duly executed, acknowledged, and delivered by T. A. Johnston, trustee, as assignor, whereby he did "bargain, sell, transfer, assign and convey all rights, title and interest of the original lessee and present owner" in and to an undivided fractional interest in the Victory lease to each purchaser, his heirs, and assigns, constituted a valid conveyance of title to an interest in real property to each of such purchasers; and this is true as between the parties despite the lack of recordation of the assignment or conveyance. See C. A. Everts et al., Jamison Lease Syndicate, supra.

At the time each purchaser became the owner of an undivided fractional interest in the Victory lease, he or she had an oral understanding that neither Johnston nor Owen would have any authority to sell or encumber his or her fractional interest; that Johnston and Owen would direct and manage the development and operation of the Victory lease and the sale of oil and gas produced therefrom; the he or she, as such owner, would be personally liable for his or her proportionate share of the operating expenses; that if such owner did not record his or her assignment, Johnston and Owen would collect his or her share of the gross proceeds from oil and gas sales, deduct his or her proportion of the operating expenses, and distribute his or her pro rata share of the net proceeds; and, further, that such owner of a fractional interest could, at any time, record his or her assignment and thereupon, as an owner having title of record, he or she could sign a division order and collect direct from the pipe line company his or her pro rata share of the gross proceeds. The terms of that oral understanding were carried out and, since in the instant case none of the 27 purchasers and owners of fractional interests recorded the assignments of such interests, Johnston and Owen collected the gross proceeds from the sales of oil and gas on behalf of themselves and such owners, deducted the operating expenses, disbursed to the owners their respective shares of the net proceeds, maintained books of account, and rendered an accounting to each owner. Since title of record stood in the name of "T. A. Johnston, Trustee," up to and including 1933, all of the transactions of Johnston and Owen in regard to the Victory lease were carried out in the name of "T. A. Johnston, Trustee." The coowners of fractional interests in the Victory lease, as a group, had no form organization empowered to direct, control, or participate in the development or management of that lease and they never held any meetings, nor were any certificates or evidence of interest other than the above mentioned assignments ever issued to them.

The sole question presented is whether, upon the facts herein, petitioner was, during 1933, an "association" within the meaning of that word as used in section 1111(a)(2) of the Revenue Act of 1932, and thus made subject to tax as a corporation.

In the recent case of C. A. Everts et al., Jamison Lease Syndicate, supra, and upon facts which in many respects were quite similar to those in the instant case, a similar issue was presented. The numerous authorities cited, considered, and quoted from in that opinion are equally applicable here, and we do not deem it necessary to again enter into a lengthy discussion of such authorities. In that case, Everts, as the individual owner of a one-half interest in a Texas oil and gas lease, sold fractional interests therein, and we held that under the assignments of such interests the purchasers acquired title to an interest in real property and became tenants in common of fractional undivided interests in the oil and gas lease. On behalf of himself, as the owner of unsold fractional interests, and on behalf of the other coowners, under powers of attorney given him, Everts directed, controlled and managed the development and production operations, the sale of oil and gas produced, the collection of the gross proceeds, the payment of operating costs, and the distribution of the net proceeds, and rendered an accounting to the coowners, and we concluded that there existed merely the relation of principal and agent as between each tenant in common and Everts. We held therein that there was no aggregation of individuals or separate entity having the attributes of a corporation and that the owners of the fractional interests in the lease there involved were tenants in common in their relations with each other and did not constitute an association taxable as a corporation.

In the instant case, as in the Everts case, the assignments constituted conveyances of legal and equitable title to fractional interests in the Victory lease and the assignees became tenants in common of undivided interests in that lease. In that case, Evarts remained the individual owner of the unsold fractional interests in the lease there involved, and in the instant case, Johnston and Owen remained the individual beneficial owners of the unsold fractional interests in the Victory lease, although the record title was in T. A. Johnston, trustee. Up to and including 1933, the only fractional interests as to which legal title was held by T. A. Johnston, as trustee, were those interests beneficially owned by Johnston and Owen, and in 1934 their respective interests were assigned to them individually in conformity with their prior agreement that the lease should be paid for and owned by them individually, half and half. In the Everts case, Everts carried out all of the transactions as to development, operation, sale of oil and gas produced, and distribution of the net proceeds on behalf of himself and the other coowners of the lease there involved, and in the instant case Johnston and Owen carried out such transactions in a similar manner as to the lease here involved. In that case, as here, there was no limitation upon the personal liability as tenants in common of the various coowners of the lease. In that case, as here, there was no meeting of the interest holders. In that case, Everts acted as an agent under a written power of attorney from each coowner which expressly delegated Everts' powers and he carried out his various transactions in his individual name or in the name of the Everts Drilling Co., a sole proprietorship. In the instant case, up to and including 1933, Johnston and Owen carried out expressly delegated powers under an oral understanding with each coowner, but since title of record to the lease remained in the name of "T. A. Johnston, Trustee," all of their transactions as to the Victory lease were carried out in that name. The bank account in which receipts from the operation of the lease were deposited was in that name and the disbursements to the coowners of fractional interests for their distributive shares were made by checks signed "T. A. Johnston, Trustee," drawn on that account.

These latter facts are the only distinguishing ones as between the Everts case and the instant case. However, we do not regard such distinction as justifying an ultimate conclusion different from that reached in the Everts case. While Johnston and Owen acted in the name of "T. A. Johnston, Trustee" in exercising certain delegated powers in the operation of the lease on behalf of the coowners thereof and with the consent and agreement of such coowners, that fact is not determinative of the real status of Johnston or Johnston and Owen in their business relations with the coowners in such operation. The use of the word "trustee" appended to Johnston's name can not be held to have the effect of actually making him, or Johnston and Owen, trustee or trustees. What Johnston and Owen and the coowners owners of interests in the lease characterized the capacity in which Johnston or Johnston and Owen acted is not controlling. That capacity and the relations between the parties are controlled by the terms of the agreement creating them. Cf. Titcomb v. Richter,93 Atl. 526; 89 Conn. 226">89 Conn. 226; Witthoft v. Commercial Development & Investment Co.,268 Pac. 31-35; 46 Idaho, 313; Nwell v. Oswald,274 Pac. 423 (Dist. Ct. of Apps. Cal.); 96 Calif.App.Rep. 536 (rehearing denied; hearing denied by Supreme Court). McLean v. Ficke,62 N.W. 753">62 N.W. 753; 94 Iowa, 283; Rowe v. Rand,12 N.E. 377">12 N.E. 377; 111 Ind. 206">111 Ind. 206. Trudie T. Munger,16 B.T.A. 168">16 B.T.A. 168, and authorities cited therein. The relation between Johnston and Owen and the coowners of the lease herein, under the terms of the agreement between them, was that of principal and agent and not that of trustees.

While Johnston and Owen acted under the name of "T. A. Johnston, Trustees," in performing their delegated authority in carrying out the actual operation of the lease on behalf of each coowner no trust, as a concrete entity, separate and apart from the individual interest holders, was created, for each coowner remained the individual owner of his or her interest as tenant in common of real property and could have, at any time, recorded his or her assignment, signed a division order, and received his or her pro rata share of the gross proceeds direct from the pipe line company. In Helvering v. Coleman-Gilbert Associates,296 U.S. 369">296 U.S. 369, the Supreme Court said that the five individual owners of realty who there formed a combination to conduct their joint business enterprise and to avoid partition of their undivided interests in the realty, had been coowners of realty, but they preferred to become associates under their indenture of trust, and through a trust entity they secured centralized management, continuity, limited liability, and shares of beneficial interest constituting personal property, and that, thus, they had created an "association" taxable as a corporation. Here, the coowners of undivided interests in the Victory lease have continued, throughout the taxable year, to be the individual coowners of interests in real property and as such entitled to receive their respective pro rata shares of proceeds from the production of oil and gas therefrom. Here, we do not find an aggregation of individuals or an entity having attributes analogous to those of a corporation.

Upon the facts herein, we conclude that there did not exist, during 1933, an "association" taxable as a corporation within the meaning of the applicable statute. C. A. Everts et al., Jamison Lease Syndicate, supra, and the authorities cited therein.

Decision will be entered for the petitioner.