Phillips Petroleum and Affiliated Subsidiaries, Petitioner-appellee, v. Commissioner of Internal Revenue, Respondent-appellant, 70 F.3d 1282 (10th Cir. 1995)

Before us are two orders of the United States Tax Court which the Commissioner of Internal Revenue challenges. In the first, Phillips Petroleum Co., 97 T.C. No. 3, a 13 to 3 decision, the Tax Court invalidated a Treasury Department Regulation, 26 C.F.R. 1.863-1(b), which defined the source of natural resources income. Although the regulation was written contemporaneously with the authorizing statute, 26 U.S.C. 863(a), the Tax Court held it conflicted with the express statutory language of 26 U.S.C. 863(b) treating the income as "derived partly from sources within and partly from sources without the United States." In the second order, Phillips Petroleum Co., 101 T.C. No. 6, the Tax Court rejected the Commissioner's method of apportioning Taxpayer's mixed source income under Example (1) and applied Example (2), 26 C.F.R. 1.863-3T. Based on the formulas provided and resulting calculations, the Tax Court ordered the Commissioner to return overpayments to the Taxpayer for the years 1975, 1976, 1977, and 1978. Albeit the Commissioner's objections, our review of the briefs and records does not persuade us the Tax Court erred in either determination. We, therefore, affirm for the reasons set forth in the Tax Court's opinions.