Section 210, IRC 631(a)
Internal Revenue Manual
Specialized Industry Guidelines - Timber
Section 210, IRC 631(a)
Last amended: 6-26-1978
IRC 631(a)
(1) The timber industry differs from other manufacturing industries in several major respects. One principal difference is that IRC 631(a) makes it possible for the taxpayer that cuts his/her own timber, to treat such cutting as a sale or exchange of the timber on the first day of the taxable year in which it was cut, provided the holding period requirement is satisfied. The fair market value of the timber, as of the first day of the taxable year, is estimated and the difference between the fair market value and the adjusted basis of the timber is reported on the tax return as long-term capital gain or loss. The same fair market value is required to be used as the cost of that timber in lieu of its actual cost in determining the amount of ordinary income that the taxpayer realizes on the sale of his finished products, or included in inventory if the finished products are not sold in that year.
(2) The taxpayer's sales and purchases of standing timber should be examined to test the reasonableness of the fair market value claimed in the IRC 631(a) computation. If the prices paid or received under such arm's-length transactions are inconsistent with the fair market value claimed, it may be advisable to request engineering assistance in accordance with IRM 4216.