Industry Specialization Program Summary

Industry Specialization Program Papers related to Forest Products

Deductibility of Losses of Timber Attacked by Pine Beetles
Publication Date: June 06, 1993
Section 165 -- Deduction for Losses

Summary: The IRS National Director of Appeals has approved settlement guidelines based on the ISP paper, "Losses of Timber Following an Epidemic Attack of Southern Pine Beetles," which addressed the deductibility of losses of timber following an epidemic attack of southern pine beetles.
The Service determined that no deduction on the basis of casualty is allowable but that a loss is allowable under section 165(a) for any timber loss in excess of normal expected mortality losses, to the extent the taxpayer can establish that timber deteriorated to the point of being unsalvageable. The basis for the Service's position is GCM 39427.
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Losses of Timber Following an Epidemic Attack of Southern Pine Beetles
Publication Date: March 08, 1996
Section 165 -- Deduction for Losses

Summary: In a revised ISP paper for the forest products industry, the Service has analyzed the tax treatment of losses of timber following an epidemic attack of southern pine beetles.
According to the paper, Rev. Rul. 87-59, 1987-2 C.B. 59, continues to be the Service's position on the casualty and non- casualty loss issues related to losses of timber from an epidemic attack of pine beetles. The paper states that because the event causing the loss is not sudden, no deduction is allowable. Taxpayers are permitted to deduct under section 165(a), however, any timber lost in excess of normal, expected mortality losses, to the extent they can establish through objective facts that the timber had deteriorated to the point of being unsalvageable as of a determinable date.
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Depreciation and Investment Tax Credit for Logging Road Costs
Publication Date: October 31, 1991
Section 167 -- Depreciation Deduction

Issues: In an ISP paper for the forest products industry, the Service has examined whether any portion of a firm's costs in constructing logging roads on its own land should be considered a non-depreciable cost not subject to either a section 167(a) depreciation deduction or an investment credit. The Service's position is that the issue depends on whether the road has a determinable or indefinite useful life. The Service notes that terminology used to describe the road is not the determining factor.
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Settlement Guidelines for Logging Roads - Depreciation and Investment
Publication Date: June 23, 1993
Depreciation: Tangibles: Logging, Truck Roadbeds.

Issues: What portion, if any, of the cost incurred by the taxpayer in constructing logging roads on its own land, should be considered as a non-depreciable cost and therefore not subject to either a deduction for depreciation under IRC 167(a) or the investment credit under IRC 48(a)? Note that the ITC generally is not applicable to roads placed in service after 1985.
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Capitalizing Reforestation Costs
Note: This ISP Paper was Decoordinated on July 31, 1995

Issues: Should the portions of the salaries of foresters engaged in the planning and supervision of reforestation be capitalized?
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ISP Settlement Guidelines For Capitalizing Reforestation Costs
Publication Date: May 21, 1993
Capital Expenditures (Deductible v. Not Deductible): Allocation Between Capital Expenditure and Expense
Back reference: Decoordinated Issue Paper

Issues: Should portions of the salaries of foresters engaged in the planning and supervision of reforestation be capitalized?
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Computation of Timber Casualty Losses
Publication Date: October 31, 1991

Issues: When timber is damaged or destroyed in a qualifying casualty loss, what is the "single, identifiable property" for purposes of computing the basis limitation? Is it the marketable units of affected timber (i.e., board feet or cords) or the entire timber tract .
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Settlement Guidelines for Computation of Timber Casualty Losses
Publication Date: October 25, 1995

Issues: When timber is damaged or destroyed in a qualifying casualty loss, what is the "single, identifiable property" for purposes of computing the basis limitation? Is it the marketable units of affected timber (i.e., board feet or cords) or the entire timber tract?
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Plantation Losses Due to Severe Drought
Note: This ISP Paper was Decoordinated on March 3, 1992

Issues: (1) Does the unexpected and unusual seedling mortality (which required the taxpayer to replant) caused by a severe and prolonged drought give rise to a casualty loss deductible under Section 165(a) of the Internal Revenue Code? The seedlings were not insured. (2) If not, is a deduction allowable under Section 165(a) as a noncasualty loss? (3) If a deduction is allowable, how should it be computed and treated?
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Expenditures for Replanting Forest Plantations That Fail
Publication Date: October 31, 1991
Note: This ISP Paper was Decoordinated on July 31, 1995

Issues: Whether the costs of replanting areas where the initial planting was unsuccessful and the poor survival rate of planted tree seedlings was not due to a casualty should be:

(1) Allowed as an ordinary and necessary business expense under Section 162;
(2) Allowed as a loss under Section 165(a); or
(3) Treated as a capital expenditure under Regs. 1.611-3(a) in a manner identical to the original planting costs.

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Settlement Guidelines for Expenditures for Replanting Forest Plantations that Fail
Publication Date: May 20, 1993
Back reference: Decoordinated Issue Paper (above)

Issues: Whether the costs of replanting areas where the initial planting was unsuccessful and the poor survival rate of planted tree seedlings was not due to a casualty should be:

(1) Allowed as an ordinary and necessary business expense under Section 162;
(2) Allowed as a loss under Section 165(a); or
(3) Treated as a capital expenditure under Regs. Section 1.611-3(a) in a manner identical to the original planting costs.

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