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Summaries - B

Click on the case name for the complete text.

Barclay v. United States
333 F.2d 847, 64-2 USTC ¶ 9547;
13 AFTR 2d 1706 (Ct. Cl. 1904).

Philip Dahl submitted a bid for the purchase of timber on an Indian Reservation. It was his intention that he and his partner, Harold Barclay, would share equally any profit from the sale of the timber. On January 31, 1949, the Assistant Secretary of !he Interior accepted Dahl's bid, and on February 8, 1949, it was approved by the Tribal Council, an act required by Federal law. The final timber sale contract was signed by the Assistant Secretary of the Interior on May 2, 1949. This contract permitted cutting on most of the tract, but some timber had been allotted to individual Indians whose separate consents were required as a condition to cutting. These consents were obtained during the period October 10, 1949 through April 8, 1953. On October 25, 1949, Dahl assigned to Barclay a one-half interest in the limber sale contract. On the same date, the two men held their first meeting as stockholders of a corporation they formed as part of a plan to obtain capital gain treatment from the limber contract. The plan, never formalized in writing, contemplated that Barclay and Dahl would hold the cutting rights, that their partnership would cut the timber and deliver the logs to the corporation; and that the corporation would process the logs and sell the lumber. The corporation would pay Barclay and Dahl the fair market value of the timber, and they would remit stumpage to the Government. The timber sale contract provided for purchase and sale of the timber, a minimum to be cut each year, and a maximum cutting period. Title to timber was reserved in the Government until paid for. Barclay and Dahl reported their income from the arrangement as capital gain under sections 117(a) and 117(k)(2). The Commissioner contended that section 117(k)(2) was not applicable. He argued that the timber sale contract did not confer ownership of the timber on the taxpayers. He also argued that the taxpayers did not hold the timber for more than six months prior to its disposal, because Dahl's ownership did not vest until the contract was signed by the Assistant Secretary on May 2, 1949, and Barclay's ownership did not vest until the assignment from Dahl on October 25, 1949. He argued that if the taxpayers made a disposal of the timber, they did so on October 25, 1949; and that in actuality there was no disposal of standing timber to the corporation, but rather sales of logs, producing ordinary income.
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Barge v. Commissioner
Tax Ct. Mem. Dec. (CCH) 52,001, TC Memo 1997-188, 73 TCM 2615 (1997)

[Gift tax: Valuation: Real property: Fractional interest.] At issue is the valuation of a 25-percent undivided interest in timberland that was the subject of gifts made by donor. R determined a deficiency in Federal gift tax based on her valuation of the interest. Held: Value of interest determined by discounting partition award to present value.
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Balso Foundation v. United States of America
80-2 USTC ¶9581

Private foundation: Excise tax on investment income: Sale of real estate: Capital gain.--The court denied cross motions for summary judgment because on the facts before it the court could not find that the taxpayer was or was not liable for excise tax on investment income resulting from the sale of real estate. The real estate that was sold was unimproved wooded land that the foundation-taxpayer had previously acquired by gift, and the IRS argued that the excise tax was applicable because the land was rental property. The taxpayer argued that it was not rental property and questioned the validity of a regulation stating that capital gains through the appreciation of such property were taxable. The court held that although the taxpayer showed that the land was unused for an extended period before the sale, it did not negate with the certainty necessary for summary judgment the land's potential rental value, especially in light of the fact that the land had been leased as a Girl Scout camp, albeit at a nominal rent. Therefore, the court would not grant summary judgment or consider the validity of the regulation.
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Balso Foundation v. United States of America
83-2 USTC ¶9639 573 F. Supp 191

Private foundations: Tax on investment income: Sale of timberland.--A sale of unimproved timberland by a private foundation resulted in an imposition of the excise tax specified in Code Sec. 4940 because (1) the land in question produced capital gains through appreciation and (2) land, generally, is the type of property that produces rent. While the statute was inartfully drawn in that it only mentioned property "used" for certain listed purposes and the taxpayer's property had not been used to produce rents, Congress intended to impose an excise tax on the noncharitable assets of private foundations. Reg. §56.4940-1(f) did not impermissibly expand the intended coverage of the statute nor was it overly broad.
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Belcher v. Patterson
302 F.2d 289; 62-1 USTC ¶ 9426; 9 AFTR 2d 1316 (5th Cir. 1962).
Rehearing denied 305 F.2d 557; 62-2 USTC ¶ 9585; 10 AFTR 2d 5067 (5th Cir. 1962).
Cert. denied 371 U.S. 921 (1962).
Reversing 60-2 USTC ¶ 9733; 6 AFTR 2d 5697 (N.D. Ala. 1960).
On remand sub nom. Abernathy v. Patterson, 63-2 USTC ¶ 9678; 12 AFTR 2d 5179 (N.D. Ala. 1963).

Issue No.1
During the years 1950 through 1955 a partnership made sales of 80 million board feet of standing timber to a related corporation. These sales were pursuant to a loose oral agreement Or understanding, and the partnership received payment measured by the fair market value of the timber cut. Similar arrangements were made with other purchasers but in a much smaller amount. In its partnership income tax returns for each year, it asserted that its principal activity was real estate and timber. Neither the partners nor the partnership elected to treat the cutting of the timber as a sale or exchange under sections 117(k)(1) or 631(a), However, the partners treated their income from timber sales as capital gain under sections 117(a) and 1221. The Commissioner contended that this was ordinary income on the ground that no election had been made under sections 117(k) (1) and 631(a), no disposal under a contract occurred to satisfy sections 117(k)(2) and 631(b), and the partnership held the timber primarily for sale in its business, thus negating sections 117(a) and 1221. The partnership apparently challenged only the Commissioner's contention that it held timber primarily for sale.

Issue No. 2
In 1950 the partnership sold the Allendale tract for a cash down payment and the vendee's purchase money obligation. In 1953, the partnership foreclosed and reacquired title. The Commissioner contended that gain should have been recognized on the foreclosure in 1953, while the taxpayers contended that they were not required to recognize gain until 1954, when the original purchaser's right of redemption was relinquished. The year contended for by the Commissioner, 1953, was not before the Court, but was the subject of a pending Tax Court proceeding. The Commissioner here evidently sought only to preserve his right to set-off in 1954 in the event of an adverse Tax Court decision as to 1953.

Issue No. 3
Following the above foreclosure, the partnership sold lots from the Allendale tract to the public, fourteen sales being made in 1954-55. The partners reported their income from these sales as capital gain on the ground that the property was held for investment and therefore was a capital asset. The Commissioner contended that the tract was held for sale in the ordinary course of business.

Issue No. 4
The partnership deducted certain reforestation expenses which the Commissioner contended should have been capitalized.

Issue No. 5
The partnership deducted a casualty loss with respect to timber destroyed by fire. The Commissioner challenged the deduction on the ground that the partnership had no basis in the timber destroyed.

Issue No. 6
The partnership's depletion allowance was in controversy.
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Barham v. United States
301 F. Supp. 43; 69-1 USTC ¶9356;
23 AFTR 2d 1347 (D. Ga. 1969).

The taxpayer spent $2,249.00 in clearing unwanted oak trees and brush (with no commercial value) from around young but well established pine trees growing on his tree farm. He deducted this amount as an ordinary and necessary business expense. The government disallowed the deduction on the ground that such "brush control" activities were carried out in order to improve the pines and promote their long-term growth and enhancement. Thus, the government contended, such activities were capital improvements, the cost of which should be added to the basis of the pines (i.e., capitalized) under section 1016 and recovered through depletion when the timber is harvested.
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Barham v. United States of America
429 F.2d 40, 70-2 USTC ¶ 9552, 26 AFTR2d 70-5173 (5th Cir. 1970) (aff'g per curiam)

Capital gain v. ordinary income: Joint venture: Subdivision, development and sale of real estate: Sales in the ordinary course of business.--The income of the taxpayer, realized as a result of his membership in a joint venture formed to purchase, develop, subdivide and sell real estate, was subject to treatment as ordinary income.
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Belcher v. Commissioner
24 T.C.M. 1; P-H T.C. Memo ¶ 165,001 (1965).

The taxpayers were members of a partnership which held timber and timberlands. The partnership made regular and continuing sales of timber, substantially all of which were to a corporation owned by the partners. There was no written contract between the partnership and the corporation, but a loose, oral agreement permitted the corporation to cut its requirements of timber from lands owned or leased by the partnership. The partners reported their income in 1953 from these transactions as capital gain under section 117(a). The Commissioner determined deficiencies on the ground that the sale price of timber to the corporation was excessive and that the excess constituted dividend income to the partners. He also reclassified some of the gain as short-term capital gain. The partners denied the validity of the Commissioner's position, and the case involving the 1953 return reached the Tax Court in this posture. A subsequent Court of Appeals decision in a refund suit brought by the taxpayers for 1950-52, and 1954-55 resulted in a holding that the partnership in those years held timber primarily for sale to customers in the ordinary course of business. The Court of Appeals also held that the partnership had not made a disposal to the corporation under section 117(k)(2). The Commissioner thereupon amended his answer in the Tax Court proceeding for 1953 to challenge capital gain treatment for that year. The taxpayers did not reply to the amended answer. They first claimed section 117(k)(2) treatment in their reply brief. Neither the partnership nor the partners elected to treat the cutting of the timber as a sale or exchange under section 117(k)(1) or section 631 (a).
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Belcher v. Patterson
63-2 USTC ¶ 9678, 12 AFTR2d 5179 (N.D. Ala. 1963)
(rem'g sub. nom. Abernathy v. Patterson)

Installment obligations: Disposition: Mortgage foreclosure: Year of gain.---On remand from the Fifth Circuit, the District Court held that the gain realized on the extinguishment of an installment obligation following a mortgage foreclosure of a tract of land sold by a partnership in 1950 was taxable as capital gain in 1954, the year in which the mortgagor transferred its right of redemption in satisfaction, extinguishment and settlement of the installment obligation at other than face value. The gain was not taxable in 1953, the year the foreclosure sale took place, because the mortgagor still had a statutory right of redemption under Alabama law which did not expire for two years, unless relinquished by the mortgagor within the two-year period. The gain realized was taxable as capital gain because the original sale of the tract subject to the mortgage was the sale of a capital asset.
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Belcher v. Patterson
305 F.2d 557, 62-2 USTC ¶ 9585,
10 AFTR2d 5067 (5th Cir. 1962) (denying reh'g)

Capital gains sale of timber: Property held primarily for sale to customers. The gain from the sale of timber held by a partnership was not entitled to capital gain treatment since the partnership's principal activity was the sale of real estate and timber. The gain was ordinary income from the sale of property in the ordinary course of business.
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Beilke v. Commissioner
22 T.C.M. 13; P-H T.C. Memo ¶ 63,005 (1963).

The taxpayer and another individual engaged in the business of growing and selling Scotch pine Christmas trees, the taxpayer contributing seedlings and the other individual land. Each contributed services and equipment and agreed that expenses and net profits would be shared equally. They derived income from the cutting and sale of trees in 1955. A partnership return was filed, but it contained no election to treat the cutting as a sale or exchange under section 631 (al. In his individual return, the taxpayer did make an election under section 631(a). The Commissioner contended that the taxpayer's profit was ordinary income on the ground that the venture was a partnership and that an election under section 631 (al is not effective with respect to partnership income unless made in the partnership return.
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Blomely v. Commissioner
23 T.C.M. 514; P-H T.C. Memo ¶ 64,084 (1964).

The taxpayer, an airline pilot, owned a lime grove which was destroyed by freezing weather in 1958. The taxpayer claimed on his return a deductible loss of $2,000, computed on the basis of 200 trees at $10 per tree. The deduction was disallowed by the Commissioner. At the trial, the taxpayer apparently reduced his claim to $1,800, computed on the basis of 400 trees at $4.50 per tree.
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Boeing v. United States
98 F. Supp. 581; 51-2 USTC ¶ 9411;
40 AFTR 1104 (Ct. Cl. 1951).

The taxpayer, an owner of timberlands, entered into a contract in 1922 with the Greenwood Logging Company. Greenwood agreed to cut and remove timber, to sell it at the current market price, and to remit one-third of the gross proceeds to the taxpayer. This timber had been owned by the taxpayer for more than ten years in 1922. The taxpayer also entered into a contract in 1928 with the Crescent Logging Company, under which Crescent agreed to cut and remove timber, to pay fixed rates, to cut a minimum amount each year, to pay for any timber not cut on termination of the contract, to pay taxes on the timber and to bear the risk of loss from fire. Crescent was described as vendee and the taxpayer as vendor. This timber had not been owned by the taxpayer for more than ten years in 1928. On his returns for 1936 and 1937, the taxpayer reported income under the Greenwood and Crescent contracts as capital gain from the sale of capital assets under section 117{a} of the Revenue Act of 1936. The Government contended that the taxpayer's profits were ordinary income. The case was tried following enactment of the Revenue Act of 1943, which made section 117(k)(2} retroactive to all prior revenue laws. The taxpayer contended that section 117(k)(2) applied. The Government contended that Congress intended to restrict the application of section 117(k)(2) to leases of timber or timberlands.
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Bowers v. Commissioner
42 T.C.M. 1659 Tax Ct. Mem. Dec. (CCH) 38,422, (P-H) ¶81,658

The taxpayer's 14 acre tract consisted of 10 acres of unimproved woodlands and 4 acres on which a log house and several outbuildings were constructed. A tornado destroyed 12 trees on the property, seven located near the house and outbuildings. A few days after the tornado struck, a professional arborist appraised the damage. In determining that the loss exceeded $37,000, he valued each lost tree separately by first assigning an initial value based on size and then adjusting that value to reflect the tree's species, condition, and location. Three months after the tornado, the taxpayer had the property as a whole appraised. This appraisal found that the tornado caused a $28,000 reduction in the fair market value of the property and the taxpayer claimed that amount as a casualty loss. The Commissioner disallowed the loss in its entirety on the basis of an appraisal made 4 years later which determined that no reduction in fair market value of the property resulted from the tornado.
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Bratton v. Rountree
76-1 U.S.T:C. ¶9198, 37. AFTR 2d 76-762 (1976)

Taxpayer as a member of a partnership which, in 1956, purchased the leased timber rights to 2,959,000 board feet of timber on a 1,360 acre tract, at a cost of approximately $25.35 per thousand board feet. In the same year, the partnership purchased in fee 8,246 acres of land and timber adjacent to the first tract, and containing 21,896,000 board feet of timber, for $737,747.39.
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Bridges v. United States
70-1 USTC ¶ 12,633, 25 AFTR2d 70-1495 (M.D. Fla. 1969)

Estate tax valuation -- Real estate--Accounts receivable--Notes and loans--Jury determination -- Based on the evidence, the jury found that the estate had correctly valued real estate subject to a timber-cutting contract, as well as various receivables. The Commissioner determined that the real estate had a value of $125,354 and that the receivables a value of $78,551. The jury found that the assets had a value of $682,588 and $59,284, respectively.

Estate tax -- Gross estate -- Transfers in contemplation of death -- Jury trial -- In its charge to the jury, the court discussed the applicable law, pointed out where the burden of proof lay, and enumerated the factors to be considered by the jury. Based upon the evidence, the jury found that numerous gifts, totaling $60,275, to certain relatives were made in contemplation of death.
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Bridges v. Commissioner
64 T.C. 968 (1975)

The taxpayers, heirs of a decedent who died in 1962, were bequeathed a tract of timberland encumbered by a lease agreement and timber-cutting contract. The timberland was included in decedent's estate (at a value of $682,588.54) for federal tax purposes. The taxpayers received $73,453.73 in each of 1963 and 1964 as payments under the ground lease and timber-cutting contract. These amounts constituted long-term capital gains and were classified as income in respect of a decedent under Section 691. Where a taxpayer receives income in respect of a decedent, Section 691(c) allows a deduction for the estate tax attributable to the inclusion in decedent's estate of such items of income. The Commissioner contended that the taxpayers must offset the Section 691(c) deductions in this case against their long-term capital gains before computing the 50% deduction for capital gains under Section 1202. The taxpayers contended that the Section 691(c) deductions were allowable in full against adjusted gross income. The effect of the Commissioner's position was to allow only 50% of the Section 691 (c) deductions.
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Bridges v. Commissioner
38 T.C.M. 1126 (1979)

J, T. Bridges, Sr. owned approximately 16,324 acres of timberland in the states of Florida and Georgia, On December 29, 1958, Mr. Bridges and his wife entered into a timber cutting contract and lease agreement with Owens-Illinois. Owens-Illinois was granted the exclusive right to cut and remove all timber of every species for a period of 66 years. The lease agreement required Owens-Illinois, at its cost and expense, to manage and operate the lands for production of timber in accord with the best forestry practices. In addition, the contract included the sale of 9,221,579 board feet of pine timber suitable for saw logs at the time the contract was executed. Mr. Bridges received $276,647,37 in cash for this timber at the time the contract was executed.

Mr. Bridges died on April 6, 1962, His will left an individual one-half interest in the timberlands to his wife, and an individual one-eighth interest to each of his four children. These heirs reported amounts received under the timber cutting contract as capital gains. The Commissioner contended that under the terms of Rev. Rul. 62-81, 1962-1 C.B. 153, the gains realized constituted sales of timber entitled to capital gains treatment only to the extent of the fair market value of the timber existing at the time the contract was executed, This fair market value was $718~093.37 according to the Commissioner. As of January or February 1965 the payments received by Mr. Bridges, his estate, and his heirs had exceeded this amount. Accordingly, the Commissioner determined that a portion of the payments received in 1965 and all of the payments received thereafter, constituted ordinary income. Furthermore the Commissioner contended that the fair market value to which Rev. Rul. 62-81 applied did not include the 9,221,579 board feet of pine sawtimber. The heirs argued that the fair market value of the timber was $2,867,111, including the value of the sawtimber, and that this entire amount, was subject to capital gains under Rev. Rul. 62-81. Thus, the question for the Court was the fair market value of the timber subject to the cutting contract on the date the contract was executed.
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Broadhead v. Commissioner
25 T.C.M. 133; P-H T.C. Memo ¶66,026 (1966).

Issue No. 1
In 1955, the taxpayer granted two timber companies the right to cut standing timber owned by him. He received payments under these contracts in 1955 and 1956 which, after deduction of depletion, resulted in a loss to him. However, the taxpayer deducted the entire loss in 1956 when the cutting rights were terminated. The Commissioner contended that the loss should have been apportioned between 1955 and 1956 on the basis of the timber cut and paid for in each year. The taxpayer argued that the timber cutting contracts were speculative and that he was not required to report gain or loss until completion of the cutting.

Issue No. 2
In 1956, the taxpayer acquired an unimproved tract of timberland. In preparation for logging a marshy area, he acquired two draglines and employed them in ditching operations. A mortgage on the property required that a dragline be continuously engaged in the construction of canals and roadways. The taxpayer deducted as an expense the cost of freight and monthly installments paid on the draglines. The Commissioner disallowed these deductions, contending that the cost of the draglines should be capitalized and depreciated and that the allowable depreciation should be added to the cost of the land rather than deducted. The taxpayer conceded that the draglines were capital assets but contended that depreciation was allowable as a deduction.

Issue No. 3
In 1956, a fire swept 10,000 of the taxpayer's 73,000 acres of timberland in North Carolina. The taxpayer reported the loss of timber at $15 per acre and the loss from damage to the land at $2.84 per acre, computing a total casualty loss of $178,400. The taxpayer took the position that he was entitled to deduct the loss in value limited only by his basis in the entire 73,000 acres. The Commissioner allocated the taxpayer's basis in the 73,000 acres between land and timber, determining a basis of $13.77 per acre in timber and a basis of $3.43 per acre in the land. He ascertained the acreage of timber and the acreage of land destroyed, assigned the above basis, and computed a casualty loss of only $35,413. The taxpayer conceded that basis should be allocated between timber and land, but contended that a much greater portion of the property had been destroyed.

Issue No. 4
Most of the timber cut by the taxpayer from his extensive holdings was used in his sawmill operations. On a few occasions, he sold tracts or cutting rights to various purchasers. Most of these sales were made when cash was required to meet charges on the land or when sawmill operations were unprofitable. The taxpayer did not solicit purchasers, hold himself out as a dealer in timberlands, or advertise timberlands for sale. The sales were not numerous and many were made to the same buyer, who sought out the taxpayer and requested that the sales be made. The taxpayer sold three tracts of land in 1958 and one in 1959 and reported his profit as capital gain. The Commissioner contended that the taxpayer was in the trade or business of buying and selling timberland and reclassified the gain as ordinary income.
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Broadhead Estate v. Commissioner
391 F. 2d 841; 68-1 USTC ¶ 9249;
21 AFTR 2d 851 (5th Cir. 1968).

In 1955, the taxpayer purchased all the standing timber on a tract of timber. Prior to the expiration of six months, the taxpayer entered into agreements with contract cutters to have the timber cut. Although the agreements provided for payment on a per unit cut basis, the taxpayer did not qualify for capital gain treatment under Section 631(b). Timber was cut in both 1955 and 1956 with taxpayer receiving payments in both years. The total amount of the payments was less than the timber's adjusted basis for depletion, and hence the taxpayer had a loss on the transaction. The taxpayer deducted the full amount of the loss in 1956, the year the cutting terminated. The Commissioner of Internal Revenue did not allow the full deduction of the loss in 1956. Instead, he allocated the amount of the loss to both 1955 and 1956 according to the amount of timber cut in each of the two years.
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Broadhead Estate v. Commissioner
31 T.C.M. 951; P.H.T.C. Memo ¶ 72, 195 (1972)

From 1951 to 1960 the decedent acquired substantial timberlands in several states. Up through at least 1958, he had attempted to arrange timber cut, ting operations on his lands. Such activities, however, ceased prior to 1961. Although decedent never advertised to sell lands, on many occasions he talked to a real estate salesman about selling his land as well as buying other land.

In 1961 the decedent sold three tracts of real estate consisting separately of 36,000 acres, 6,740 acres and 4,000 acres of timberland. In 1963, he sold four different parcels of land, consisting of 40 acres, 23,000 acres, 6,740 acres and some timberland. The decedent reported the gain on the sales as long-term capital gain. The Commissioner determined that the income from these sales of property was taxable as ordinary income on the ground that these properties were held primarily for sale to customers in the ordinary course of his trade or business.
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Broadhead Estate v. Commissioner
31 CCH Tax Ct. Mem. 951, 1972 P-H Tax Ct. Mem. ¶72,195 (1972).
On motion for reconsideration, 32 CCH Tax Ct. Mem. 1047,
1973 P-H Tax Ct. Mem. ¶73,222 (1973).

Prior to 1961, decedent acquired timberlands on which he attempted to arrange timber cutting operations. All such attempts ceased by 1961, but decedent continued to consider the possibility of engaging in further real estate transactions. In 1961 and afterward, decedent sold several tracts and reported the gain as long-term capital gain. The Commissioner determined that the properties had been held primarily for sale to customers in the ordinary course of trade or business and that the proceeds were taxable as ordinary income.
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Brown v. Commissioner
40 T.C. 861 (1963).

The taxpayer, not otherwise engaged in the timber business, considered the purchase of a tract of timberland: After incurring the expense of a timber cruise, he decided not to buy the property. He claimed that the cost of the cruise was deductible under section 165(c)(2) as a loss incurred in a transaction entered into for profit. The Commissioner disallowed the deduction.
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Brown Wood Preserving Co. v. United States
58-2 USTC ¶ 9604, 2 AFTR 2d 5013 (W.D. Ky. 1958).
Rev'd 275 F.2d 525; 60-1 USTC ¶ 9316; 5 AFTR 2d 953 (6th Cir. 1960).
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Brown Wood Preserving Co. v. United States
275 F.2d 525; 60-1 USTC ¶ 9316; 5 AFTR 2d 953 (6th Cir. 1960).
Reversing 58-2 USTC 1 9604, 2 AFTR 2d 5013 (W.D. Ky. 1958).

The taxpayer, an owner of standing pine, executed leases which granted the lessee the right to remove turpentine from standing timber in consideration for a percentage of the lessee's gross receipts from the sale of turpentine. The taxpayer reported its share of the profit as long-term capital gain on the theory that turpentine is a component part of timber and that the leases constituted a disposal of that component with a retained economic interest under section 117(k)(2). The Commissioner conceded that turpentine is obtained from trees, but he contended that turpentine is not timber, that its extraction and sale is not a disposal of timber and that the legislative history of section 117(k) does not justify such an interpretation.
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Brownell Est. v. Commissioner
44 TCM 1550, Tax Ct. Mem. Dec. (CCH) 39,459(M), (P-H) ¶ 82,632 (1982)

Estate tax: Gross estate: Transfers in contemplation of death: Pre-1977 transfers: Incompetent decedent: Transfers made pursuant to court order: Life motives.--Inter vivos transfers made to beneficiaries of an incompetent decedent pursuant to a court order, imputed to the decedent and not made in contemplation of death, were not includible in her estate. The Court noted that the value of the property given to the decedent's children was very small compared to the total value of her estate and that the decedent had a long-established policy of making gifts to her children. The Court determined that the personal nature of the property involved and the reasonable desire on the part of the decedent to avoid the burden of storing the property showed that the gifts were not made to avoid estate taxes on her estate.

Estate tax: Valuation: Stock: Restricted: Blockage discount.--The estate tax value of a decedent's shares of stock in a publicly held corporation was less than the market price for such shares on the valuation date because the decedent's shares consisted of unregistered, restricted stock that could not be sold to the general public under federal securities laws. The stock was restricted because the decedent was a member of the group that controlled the corporation, as was demonstrated by an expert witness for the estate. In addition, the corporation would neither have repurchased the decedent's shares nor have registered them, so that the decedent could have sold them at market price.
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Burns v. United States
174 F. Supp. 203, 59-2 USTC ¶ 9514,
3 AFTR2d 1520 (N.D. Ohio 1959)

Casualty loss: Destruction of tree afflicted with Dutch Elm disease.--Taxpayer may not deduct, as a casualty loss, the determined $2,600 value of an elm tree and the $211 cost of its removal after it became afflicted with Dutch Elm disease. Such loss is not within the class of "other casualty" in Sec. 23(e)(3), which has reference to casualties similar to those from fire, storm, or shipwreck. Loss from disease is not a casualty. The element of suddenness is lacking. The loss is distinguishable from termite losses in that the damage to the property is inflicted by the termites themselves, whereas the beetle inflicts little or no damage but acts merely as a carrier of the Dutch Elm disease. The action of the disease is a progressive one. The reason for removing the tree before this progressive force ran its natural course was to prevent the spread of the disease to other trees in the area.
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Burns v. United States
284 F.2d 436, 61-1 USTC ¶ 9127,
6 AFTR2d 6036 (6th Cir. 1960)

Casualty losses: Trees: Dutch Elm disease. The removal and destruction of an elm tree, because it had become infected with Dutch Elm disease, did not in a casualty loss. The decision of the District Court, which had held that a occasioned by a disease is not a casualty loss, affirmed per curium.
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Burroughs and Collins Company v. United States
68-1 USTC ¶ 9389;
21 AFTR 2d 1423 (D.S.C. 1968).

The taxpayer, a corporation, owned several tracts of timber. In the tax years in question, 1961 and 1962, it followed its usual procedure of having designated trees cut from its tracts by buyers of timber. The procedure would be as follows: The taxpayer's forester would designate certain trees on a specific tract to be cut. The buyer's agent would then cruise the timber to determine what unit price would be offered for the designated timber. The taxpayer's agent and the buyer's agent would then discuss the price, usually in the field where the timber was to be cut, and would enter into an oral agreement on the unit price. Afterwards, the buyer would come in and cut the designated timber. The agreed price per unit was paid after the logs were scaled and measured. The taxpayer treated its gain from its disposals of timber as capital gain under Section 631(b). The Government, however, took the position that the oral cutting arrangements made between the taxpayer's agent and the buyer's agent were not binding contracts as required by Section 631(b). The Government contended that the buyer was free to terminate his cutting at any time, and that the so-called contracts would not have been enforced had a dispute arisen between the parties.
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Bussabarger v. Commissioner
52 TC 819, 08/14/1969

A number of adjustments reflected in the notice of deficiency were agreed to or not contested by petitioners. The issues which remain for consideration are:

(1) Whether salary, FICA, and pension fund payments made by the petitioner Dr. Robert A. Bussabarger in 1963 and 1964 to his former medical secretary, Janice Edwards, are deductible as ordinary and necessary business expenses;
(2) Whether petitioners are entitled to deductions for the expense of Christmas parties hosted by Dr. Bussabarger in 1963 and 1964, in excess of the amounts allowed by respondent;
(3) Whether sums advanced to Janice Edwards and George Walters in years prior to those before the Court are properly deductible as either business or nonbusiness bad debts in 1963 or 1964;
(4) Whether petitioners are entitled to deduct as business expenses the cost of fishing trips taken by Dr. Bussabarger in 1963;
(5) Whether petitioners are entitled to deductions for automobile expenses and depreciation, in excess of the amounts allowed by respondent;
(6) Whether expenses incurred by Dr. Bussabarger in 1964 in connection with a "timber farm" owned by him are deductible as business expenses; and
(7) Whether petitioners are liable for the addition to tax imposed by section 6651(a) of the Internal Revenue Code of 1954 for failure to file their return for 1963 timely.

Buse v. Commissioner
71T. C. 1129 (1979) Acq. 1980-23 I.R.B. 5

On May 29, 1969, the taxpayer acquired from the State of Washington, Department of Natural Resources, a contract right to cut certain timber. The original contract required removal of the timber by December 31, 1971. Sometime during Septembers 1971, Buse made an oral request for an extension of the sale. The first written correspondence concerning an extension was two memoranda between officials in the Department of Natural Resources dated January 24, 1972. An extension to December 31, 1972, was granted on February 7, 1972, and executed by the Commissioner of the Department of Natural Resources on February 24, 1972. By letter dated November 2, 1972, Buse's agent requested a further extension of the sale. An extension to December 31, 1973, was granted by the Commissioner of the Department of Natural Resources in a letter to Buse dated February 8, 1973. Buse paid the fee and made an additional deposit as required by the agreement and it was executed by the Commissioner on April 10, 1973.

The contract provided that timber not removed in the time period specified reverts back to the state. The Government contended that since the extension agreements for 1972 and 1973 were not executed before the termination dates specified, Buse did not own the timber between December 31, 1971, and February 24, 1972, and between December 31, 1972, and April 10, 1973. If the Government's contention was correct, Buse's ownership of the timber would be interrupted and the requisite six-month holding period to qualify under Section 63 l(a) would not be met. A second issue was the fair market value of the timber on the first day of Buse's tax year, May l, for 1971, 1972, and 1973 for the purpose of reporting timber cut under Section 631(a).
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