Opinion
Docket No. 3687-76.
1980-11-12
UNION CARBIDE CORPORATION, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT
Fred W. Peel, John F. Mooney, and Robert D. Heyde, for the petitioner. Stanley J. Goldberg and C. Clinton Stretch, for the respondent.
Petitioner mined vanadium and tungsten ore involving a solvent extraction process as to both ores and, subsequent to the use of that process, precipitation (by adjusting the pH of the liquor, adding a reagent, cooling, and filtering) and drying, in the case of vanadium, and crystallization in lieu of precipitation (by heating the product liquor with steaming and filtering) in the case of both ores. Held:
1. Petitioner's solvent extraction process is a mining process because it is “substantially equivalent” to precipitation within the meaning of sec. 613(c)(4)(D), I.R.C. 1954, and is “necessary” to other mining processes within the meaning of the exception clause of sec. 613(c)(5), I.R.C. 1954;
2. Petitioner's precipitation and crystallization processes constitute mining processes named in sec. 613(c)(4)(D), I.R.C. 1954;
3. Petitioner's drying process was a continuation of the extraction process made necessary by the other mining processes. In view of the foregoing, petitioner is entitled to depletion in respect of said processes. Barton Mines Corp. v. Commissioner, 446 F.2d 981 (2d Cir. 1971), affg. in part, revg. in part, and remanding in part53 T.C. 241 (1969), followed in part and distinguished in part.
Petitioner, in computing its foreign tax credit on its consolidated return for the taxable year 1971 (in which several affiliated Western Hemisphere Trade Corporations were included), did not follow the dictates of sec. 1.1502-25(c), Income Tax Regs. Said regulation was held invalid by the Court of Claims in respect of the taxable year 1967 of petitioner ( Union Carbide Corp. v. United States, 222 Ct. Cl. , 612 F.2d 558 (1979)) while the instant case was pending in this Court. Except for the amounts involved, the facts and circumstances were the same for both the 1967 and 1971 taxable years. Held, petitioner's computation of its foreign tax credit is upheld, because respondent is collaterally estopped by the prior decision of the Court of Claims. Fred W. Peel, John F. Mooney, and Robert D. Heyde, for the petitioner. Stanley J. Goldberg and C. Clinton Stretch, for the respondent.
TANNENWALD, Judge:
Respondent determined a deficiency in petitioner's income tax for the year 1971 in the amount of $636,773. By amended answer, respondent increased this deficiency to the amount of $913,652.
Two issues are involved herein: (1) Whether the solvent extraction process, as applied by petitioner to the minerals vanadium and tungsten, was a mining process within the meaning of section 613(c)(4)(D) for the purpose of computing petitioner's percentage depletion allowance and, if solvent extraction should be found to be a nonmining process, whether subsequent processes should necessarily be classified as nonmining under section 1.613-4(g)(2), Income Tax Regs., and (2) whether petitioner erroneously computed the foreign tax credit allowance with respect to Western Hemisphere Trade Corporation members (hereinafter WHTCs) of petitioner's affiliated group of corporations; this issue was raised by respondent's amended answer and involves a purely legal question, including the application of the doctrine of collateral estoppel.
GENERAL FINDINGS OF FACT
Some of the facts have been stipulated. The stipulations of facts and exhibits are incorporated herein by this reference.
Union Carbide Corp. (hereinafter petitioner) is a New York corporation which had its principal office in New York, N.Y., at the time of the filing of the petition herein. Petitioner kept its books and records and filed its U.S. corporate tax returns utilizing the accrual method of accounting. For the taxable year ended December 31, 1971, petitioner and its affiliated corporations filed a consolidated income tax return with the District Director, Manhattan District, New York, N.Y.
FINDINGS OF FACT
Issue 1. Depletion Allowance
Petitioner is engaged in numerous commercial business activities, including the mining and processing of low-grade ores containing minerals such as uranium, vanadium, tungsten, copper, and molybdenum. In 1971, operations at issue herein (involving vanadium and tungsten) were conducted in petitioner's plants located at Rifle, Colo.; Hot Springs, Ark.; and Bishop (Pine Creek), Calif., at each of which locations petitioner had mines. The ores extracted from all three mines were low-grade ores requiring additional processing to concentrate the desired minerals before shipment for industrial use. While the content of the ores processed at these operations varied, the operations were similar in that, during the processing cycle at each location, petitioner utilized the hydrometallurgical process of solvent extraction or ion exchange to recover concentrates of the minerals from the low-grade ores. The solvent extraction circuits at Rifle, Hot Springs, and Bishop were typical of the design and application of the solvent extraction process within the mineral industry.
The processing at each plant resulted in the ultimate recovery of a concentrated form of the desired mineral or minerals after separating it from the gangue (worthless rock in which the mineral occurs) and other impurities in the extracted ore.
Rifle Plant
At the Rifle plant, petitioner processed ore containing vanadium and uranium.
+------------------------+ ¦92-percent kerosene ¦ +------------------------¦ ¦5-percent tertiary amine¦ +------------------------¦ ¦3-percent isodecanol ¦ +------------------------+ The kerosene was the carrier of the tertiary amine, which acted as the extractant. During the extracting stage, the organic solvent flowed in the opposite direction (countercurrent) to the aqueous feed containing the vanadium to be extracted. The amine became bonded with the vanadium ions thereby extracting them from the feed solution. It required a chemical reaction to make this bond. The vanadium ions were then stripped from this organic solution by mixing it with another aqueous solution containing sodium carbonate. The vanadium ions were stripped from the solvent as sodium vanadate. The raffinate from this solvent extraction circuit was discarded as waste.
The stripping stage of the solvent extraction circuit concentrated the vanadium by increasing the equivalent V2O5 content of the solution from approximately 1.6 percent to approximately 15 percent. The solvent extraction circuit excluded several undesired minerals, which were in the ore as mined. Water and such chemicals as sodium sulfate, which had been introduced into the ore during salt roasting, leaching, and gypsum precipitation were also removed by this process.
The specific change in the levels of contaminents present in the feed before and after the solvent extraction circuit at Rifle was as follows:
+---------------------------------------------+ ¦ ¦Presolvent ¦Postsolvent ¦ +------------------+------------+-------------¦ ¦ ¦extraction ¦extraction ¦ +------------------+------------+-------------¦ ¦ ¦ ¦ ¦ +------------------+------------+-------------¦ ¦Sulfate ion ¦2.50% ¦0.30% ¦ +------------------+------------+-------------¦ ¦Chlorides ¦0.30% ¦0.10% ¦ +------------------+------------+-------------¦ ¦Calcium ¦0.14% ¦