Capital Gains Determination
The form of sale that you have selected is a pay-as-cut contract. This is often referred to as a Section 631(b) transaction. In order to determine if the sale qualifies for capital gains treatment there are some other questions that must be answered. You must first determine if you "retained an economic interest" in the timber that was sold.
Economic Interest - You retain an economic interest in timber if you are dependent on the cutting of the timber for the realization of income from the timber, that is you must look to the cutting for your economic return. Under a pay-as-cut contract the buyer tallies the timber cut during a specified period (i.e. one month, three months, etc.), and pays for that amount of timber at the agreed upon unit price within some specified period of time.
Did you have an economic interest in the timber sold?