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Skelly (P) was engaged in the natural gas business. Because of adverse determinations by the Oklahoma Corporation Commission, P was forced to refund $505,536.54 to two of its customers for overcharges. P claimed an unrestricted right to these proceeds in the years that they were charged and included these sums in its gross income for the years in question. When P computed its gross income, it took advantage of provisions under 613 that allowed a taxpayer to deduct a fixed percentage of certain receipts to compensate for the depletion of natural resources from which they derive their income; this was 27.5% of the gross income. As such, the actual increase in the years under dispute was $366,513.99. P attempted to deduct the larger amount and the IRS assessed a deficiency. The government won in the district court, but the 10th Circuit reversed. The Supreme Court granted certiorari.

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