United States v. Skelly Oil Co.
United States Supreme Court
394 U.S. 678 (1969)
Skelly Oil (plaintiff), a natural gas producer, was ordered to refund over $500,000 in overcharges after the Supreme Court invalidated the pricing order under which it had originally collected the money, and Skelly had already claimed a 27.5 percent depletion deduction against that income in the years it was received, meaning it was taxed on only about 72.5 percent of the total amount. When Skelly sought to deduct the entire refunded amount in the year of repayment, the Commissioner (defendant) reduced the allowed deduction to account for the portion already offset by the depletion allowance, and Skelly sued for a refund after paying the reduced deduction's resulting tax.
Whether a taxpayer who refunds previously received income, on which it had already claimed a depletion allowance reducing its taxable portion, may deduct the full refunded amount in the year of repayment, or whether the deduction must be reduced by the previously claimed depletion allowance.