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Sub-Section 215, The Holding Period

Internal Revenue Manual
Specialized Industry - Timber
Sub-Section 215, The Holding Period
Last amended: 8-4-1981

The Holding Period

(1) The date the timber was acquired by the taxpayer is an important factor that is sometimes difficult to determine. Unless the right to cut was obtained more than six months before the beginning of the taxable year (for years beginning in 1977, more than 9 months before the timber is cut; for years beginning after 1977, more than 12 months before the timber is cut), the taxpayer is not entitled to consider the cutting as a sale or exchange.

(2) Taxpayers who acquire cutting rights under U.S. Forest Service timber sale contracts are required to recognize the contract award date as the date the holding period begins. The agent should be skeptical when taxpayers attempt to establish their acquisition date as other than the award date.

(3) At times, the holding period may be lengthened by shifting the scaling or measuring point of the logs. Timber is considered cut when the quantity felled is first definitely determined, rather than at the time of felling. See Section 1.631-1(a)(2) of the regulations. If the taxpayer has changed scaling points for recently acquired timber, the examiner should find out why this was done. The taxpayer is required to be consistent in the scaling point in the process of exploitation. The scaling point may not be changed merely to realize a tax advantage.

(4) During a period of declining stumpage values, a taxpayer might gain a tax advantage by rushing the scaling date on certain timber felled late in the taxable year. For example, logs from timber felled by a calendar year taxpayer in late November, 1977 would, according to usual practice, be scaled at the mill upon delivery in January, 1978. January 1, 1978 values would then apply; but with the knowledge that stumpage values had declined significantly since 1-1-77, the taxpayer could possibly scale the logs at the yarding point in December and thereby realize a tax advantage. Such a change in scaling point is not allowable. See Rev. Rul. 58-135, 1958-1 C.B. 519. Also see Rev. Rul. 73-267, 1973-1 C.B. 307, and Rev. Rul. 73-489, 1973-2 C.B. 208.

(5) By a similar tactic, the scaling date might be delayed in order to take advantage of a rising market.