Section 510, General
Internal Revenue Manual
Specialized Industry Guidelines - Timber
Section 510, General
Last amended: 6-26-1978
General
(1) Every taxpayer who claims a deduction for depletion of timber or depreciation of plants and other improvements, is required to file a completed Form T (Timber), Forest Industries Schedules. The form should be attached to the taxpayer's income tax return.
(2) Form T contains pertinent information regarding timber acquired, sold, or cut. It shows the changes that have occurred during the taxable year in each timber and land account. It shows important facts concerning the quantities of logs and other raw timber products used or sold. It shows changes in the taxpayer's properties subject to depreciation. It includes a description of the evidence relied upon by the taxpayer for estimating fair market value for purposes of IRC 631(a). In substance, Form T is the means by which the Internal Revenue Service encourages taxpayers to record and furnish the information needed to determine the validity of deductions claimed for depletion, depreciation, and various items of expense.
(3) Section 1.611-3(h) of the regulations lists the information to be included on the Form T. The form itself is self-explanatory. The examiner should study the form very carefully to obtain a better understanding of a taxpayer's operations. Taxpayers should also be encouraged to study the form so that they will be alerted to the kinds of records needed for filing a correct return.
(4) If the Form T is missing, you should request that it be submitted by the taxpayer. It is important that taxpayers be made aware that the use of Form T makes it easier to determine the income tax consequences of the timber transactions and forest management activities engaged in during the year.
(5) The examiner may request the assistance of a timber engineer to help establish the reasonableness of the taxpayer's fair market values and timber depletion. If this is done, Form T will be required by the engineer. From the information provided, the engineer agent can decide what additional information is required from the taxpayer. Changes in accounting methods or operating procedures will be revealed. Changes in timber quantities, incomplete purchase and sale data, combinations and divisions of timber accounts and other important changes in procedures will be evident.