Sub-Section 216, Determining Fair Market Value
Internal Revenue Manual
Specialized Industry Guidelines - Timber
Sub-Section 216, Determining Fair Market Value
Last amended: 6-26-1978
Determining Fair Market Value
(1) The question of fair market value is always interesting and often frustrating. It is a question of fact. Fair market value is a definite amount, but it can never be proven, only approximated. It is based on a hypothetical transaction between hypothetical bargainers. It is an amount in cash or its equivalent, derived from the objective, intelligent consideration of all the evidence having a bearing on the question.
(2) For value determination with respect to IRC 631(a) timber transactions,
section 1.631-1(d)(2) of the regulations states:
"The fair market value of the timber as of the first day of the taxable
year in which such timber is cut shall be determined, subject to approval
or revision by the district director upon examination of the taxpayer's
return, by the taxpayer in the light of the most reliable and accurate information
available with reference to the condition of the property as it existed at
that date, regardless of all subsequent changes, such as changes in surrounding
circumstances, methods of exploitation, degree of utilization, etc. The value
sought will be the selling price, assuming a transfer between a willing seller
and a willing buyer as of that particular day."
(3) Many factors must be considered in estimating the fair market value of standing timber. Some of the more important factors are location, accessibility, topography, soil, drainage, species, age, size, stand density and quality. Stumpage values are also sensitive to the degree of competition for timber in a particular area. An area with a heavy concentration of forest products industries will more than likely show top stumpage values.