Section 640, Casualty or Theft Losses
Internal Revenue Manual
Specialized Industry Guidelines - Timber
Section 640, Casualty or Theft Losses
Last amended: 6-26-1978
Casualty or Theft Losses
(1) Owners of timberlands, loggers, lumber and pulp manufacturers and other businesses concerned with the conversion of standing trees into manufactured products are subject to frequent losses caused by casualties. Fire is probably the most common casualty. Boiler explosions, collisions of mobile equipment, wind and ice storms all take their toll.
(2) To determine the amount allowable as a casualty loss, the examiner will need to know the adjusted basis of the property destroyed and the insurance proceeds, if any. Casualty losses to timber property and equipment are treated in the same manner as other business casualties.
(3) Casualty losses of standing timber are often difficult to verify. The assistance of an engineer agent may be required. When an engineer agent is not assisting, the examiner will need to know the quantity, species, and quality of the timber destroyed. The burden is on the taxpayer to substantiate the loss. If the taxpayer is unable or unwilling to do so, no loss is allowable.
(4) The recognized loss of timber intended for sale or for use in the taxpayer's business is the difference between the adjusted basis for depletion of the timber destroyed and any insurance recovery. For the timber to be destroyed, it must be rendered unfit for use. See Rev. Rul. 66-9, 1966-1 C.B. 39, and Rev. Rul. 73-51, 1973-1 C.B. 248.
(5) Theft losses of timber are treated the same as casualty losses. No loss due to casualty or theft may exceed the adjusted basis of the property destroyed or stolen.