## Facts

- Corra Resources, Ltd., an investment vehicle for Edwin and Genevieve Corra, acquired a coal mining lease interest in 1978 granting rights to mine in Pikeville, Kentucky.
- Corra paid $77,500 in prepaid royalties, hired a mining contractor, and engaged a manager for its lease interests.
- Additional royalty obligations were reflected in a nonrecourse promissory note; after its last cash payment in January 1980, Corra retained the right to benefit if mining produced profits exceeding the note obligations.
- The venture was marketed with promised tax benefits; Corra claimed deductions producing more than $250,000 in tax savings.
- No coal was mined, and investors received shifting explanations for the lack of production.
- The IRS examined the investors’ returns beginning in 1981 and later assessed deficiencies.
- Corra petitioned the Tax Court and agreed to be bound by a test case involving the same venture; the IRS prevailed and the deductions were disallowed.
- Corra then claimed a new deduction: a 1981 loss for abandonment of the lease, seeking to deduct the $77,500 prepaid royalty after its accountant advised in 1981 to disengage from the venture.
- Corra did not terminate the lease, provide notice of surrender or abandonment to counterparties, or otherwise take formal steps in 1981 to relinquish its lease rights; the lease later expired by its terms in 1986.

## Issues

1. Whether a taxpayer may claim an abandonment loss deduction under I.R.C. § 165 for a mining lease in 1981 based solely on an internal decision to withdraw, without any outward, identifiable act terminating or relinquishing the lease rights in that year.

## Decision

- The Seventh Circuit affirmed the Tax Court’s judgment for the Commissioner.
- Corra was not entitled to a 1981 abandonment loss deduction because it took no definitive, observable act in 1981 demonstrating abandonment of the lease.
- Advice to “have nothing further to do with the venture,” without formal surrender or comparable action, did not fix a loss in 1981.

## Legal Principles

- A loss deduction under I.R.C. § 165 must be “evidenced by closed and completed transactions” and “fixed by identifiable events.”
- Abandonment requires both (1) intent to abandon and (2) an affirmative act that objectively manifests abandonment in a specific tax year.
- Mere internal intent, pessimism about an investment, or cessation of interest is insufficient where the taxpayer retains legal rights and a contingent opportunity for future benefit.

## Conclusion

Because Corra retained its lease rights and undertook no outward act in 1981 to surrender or terminate them, no identifiable abandonment event occurred that year; therefore, Corra could not claim a § 165 abandonment loss for 1981, and the deficiency determination was upheld.


Corra Resources, Ltd. v. Commissioner, 945 F.2d 224 (7th Cir. 1991)