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Summaries - D

Click on the case name for the complete text.

Deer Park Pine Industries, Inc. v. Squire
Memorandum of Law, 60-2 USTC ¶ 9608; 6 AFTR 2d 5349 (WI). Wash. 1960).

The taxpayer elected to treat its cutting of timber during the years 1950 through 1953 as a sale or exchange under section 117(k)(1). Its valuation of the timber cut during those years was contested by the Commissioner. At the trial, foresters testifying for the taxpayer differed widely from those testifying for the Government as to the valuation of the timber.
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Draper v. United States
60-1 USTC ¶ 9284,5 AFTR 2d 842 (E.D. Wash. 1960).

The taxpayer elected to treat his cutting of timber as a sale or exchange pursuant to section 117(k)(1). However, the fair market value assigned by the taxpayer to the cut timber was contested by the Commissioner.
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Drey v. United States
535 F. Supp. 287 82-2 USTC ¶9422 49 AFTR2d 82-1386

By Exchange Scenic Easement Deed, the taxpayers voluntarily contributed to the United States an easement in a 300-foot strip of wooded riverfront land within the boundaries of the Ozark National Scenic Riverways. This strip which was part of a larger parcel of property, consisted of 961,47 acres of mostly wooded land to which the taxpayer retained fee ownership. The taxpayers subsequently conveyed to a charitable foundation the fee ownership to the land encumbered by the easement. On their 1974 tax return the taxpayers claimed a charitable contribution of $275,000 for this latter conveyance. The taxpayers' based this amount on appraisals that found that the value of their remaining contiguous land had been reduced by $275,000, since such lands access to the river had been cut off. The appraisals also concluded that the value of the fee interest conveyed was minimal. This method of valuation, which takes into account "severance damages," is appropriate in valuing the loss from condemnations. The government argued that severance damages cannot be taken into account when valuing a charitable contribution. The government's expert appraised the fee interest on the basis of the timber contained on the fee, reducing this amount by 45 percent to account for restrictions on use of the 300-foot strip, including restrictions on the cutting of timber. This value, $38,000, was increased by $7,000, the value of a tract containing an old school house. No severance damages were included.
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Drey v. United States
705 F.2d 965 83-1 USTC ¶9219 51 AFTR2d 83-769
Affirming 535 F.Supp 287 82-2 USTC ¶9422 49 AFTR2d 82-1386

By Exchange Scenic Easement Deed, the taxpayers voluntarily conveyed to the United States an easement in a 300-foot strip of wooded riverfront land within the boundaries of the Ozark National Scenic Riverways. This strip, which was part of a larger parcel of property, consisted of 961.47 acres of mostly wooded land to which the taxpayer retained fee ownership. The taxpayers subsequently conveyed to a charitable foundation the fee ownership of the land, encumbered by the easement, on their 1974 tax return, the taxpayers claimed a charitable contribution of $275,000 for this latter conveyance. The taxpayers based this amount on appraisals which found that the value of their remaining contiguous !and had been reduced by $275,000, resulting from such land's diminished access to the river. The appraisals Concluded that the value of the fee interest conveyed was minimal.

This method of valuation which takes into account "severance damages", is appropriate in valuing the loss from condemnations. The government argued that severance damages cannot be taken into account when valuing a Charitable contribution. The government's expert appraised the fee interest on the basis of the timber contained on the fee, reducing this amount by 45 percent to account for restrictions on use of the 300-foot strip, including restrictions on the cutting of timber. This value, $38,000, was increased by $7,000, the value of a tract containing an old school house. No severance damages were included.
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Drey v. United States
61-1 USTC ¶ 9116; 7 AFTR 2d 333 (E.D. Mo. 1960).

Issue No. I
The taxpayer owned about 125,000 acres of timberland at an average cost of $4.12 per acre. In determining his basis for depletion, he allocated 50 cents :per acre to the cost of land and the balance of cost to merchantable timber. The Government contended that $.1.00 should be allocated to land and the balance to timber. At the trial, expert testimony was presented by both parties. Neither of the Government's witnesses was familiar with land values in the area. One testified that his only experience in the area was buying land for the Government in the 1930's, and the other saw the property on only two occasions. By contrast, the taxpayer's witnesses were familiar with land and timber prices in the area. One of the Government witnesses testified that immature timber was not a factor and that he had considered it so negligible that he lumped it in with merchantable timber.

Issue No. 2
The taxpayer sold his timber by the "stumpage" method; that is, he sold the timber as it stood in the forest and the purchaser bore all expenses of cutting it and hauling the logs to the mill. The taxpayer employed a full-time forester and other employees. In connection with sales of standing timber, his employees would cruise the areas to be cut, mark out the sections ready for cutting, and inspect the cutting to prevent purchasers from cutting unmarked timber or from damaging young growth. Actual selling of the timber was done by the taxpayer. The taxpayer deducted as expenses the salaries paid to his employees, as well as other operating expenses. The Government contended that 20% of these costs were sales expenses which should have been offset against capital gains from the sale of the timber.
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Dyal v. United States
64-1 USTC ¶ 9196; 13 AFTR 2d 446 (S.D. Ga. 1963).
Rev'd 342 F.2d 248; 65-1 USTC ¶ 9285; 15 AFTR 2d 490 (5th Cir. 1965).

SCARLETT, District Judge: These actions were timely filed on May 26, 1961 for the recovery of income taxes and assessed interest in the total amount of $4,860.18 plus statutory interest for the years 1956 through 1958. The issue presented in each case is the treatment of receipts from lands leased by the plaintiffs in 1941 and 1946 for terms of 99 years to Union Bag & Paper Corporation. The Government contended that such annual payments were ordinary income from rents while the taxpayers urged that the payments be treated as capital gains from the sale or disposal of timber in which they had retained an economic interest.

At the conclusion of the plaintiffs' evidence in these cases, which were consolidated for trial, the Court granted defendant's Motion for Directed Verdicts in view of the following findings of fact and conclusions of law which demonstrate that no issue triable by jury was presented:
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Dyal v. United States
342 F.2d 248; 65-1 USTC ¶ 9285; 15 AFTR 2d 490 (5th Cir. 1965).
Reversing 64-1 USTC ¶ 9196; 13 AFTR 2d 446 (S.D. Ga. 1963).

Timberlands owned by the taxpayers were leased to Union Bag and Paper Corporation for a period of 99 years for purposes of tree farming operations. The lease agreement referred to the taxpayers as lessors and to Union Bag as lessee and called for annual rental equal to 5% of the value of the land payable in all events. Union Bag obtained exclusive use and control of the land for logging, mining, farming, water, hunting and other broad purposes. It was not to cut any timber within the first seven years and thereafter was to cut only the estimated annual growth. Union Bag was required to pay all taxes assessed against the land and timber. The taxpayers treated the annual payments as capital gain under sections 631(b), 1221 and 1231. The Commissioner contended that the agreement constituted a lease and that the annual payments were rent, taxable as ordinary income. He argued that section 631(b) was not applicable because the taxpayers did not retain an economic interest in the timber, and that sections 1221 and 1231 were inapplicable because the taxpayers had sold nothing. The taxpayers contended that even if they failed to retain an economic interest as required by section 631{b), the annual payments were capital gain to the extent of the market value of the timber in existence at the time that the lease was executed, citing Revenue Rulings 62-81 and 62-82 and Code sections 1221 and 1231.
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Dyalwood, Inc. v. United States
79-1 U.S.T.C. ¶ 9172, 43 AFTR2d 79-571 (1979)

In 1961 Dyalwood, Inc. purchased for a lump sum amount the cutting rights on an 11,000 acre tract for three years. The full amount of the payment was loaned to Dyalwood by St. Regis in exchange for a mortgage on the timber. Interest was to be paid in cash, but the principal was in effect paid off with timber. For each cord of wood delivered to St. Regis, Dyalwood's loan account was credited for $9. Dyalwood hired a contractor to do the cutting and deliver the wood to St. Regis.

Dyalwood contended that all payments received from St. Regis after the first six month's deliveries qualified as long-term capital gains under Section 1231 and Section 631. Qualification under Section 631 was based on the assertion that in addition to the mortgage, there was an informal agreement between St. Regis and Dyalwood under which all of the timber was to go to St. Regis. Dyalwood thus contended that the timber was disposed of pursuant to an agreement qualifying under Section 631(b). The Government contended that the requirements of Section 631(b) were not satisfied because the agreement did not constitute a disposal.
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