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Summaries - L

Click on the case name for the complete text.

LaCroix v. Commissioner
61 T.C. 471 (1974).

Taxpayers were members of various partnerships which owned citrus trees and claimed deductions for additional first-year depreciation, under section 179, for the year 1967. The Commissioner disallowed the deductions on the ground that citrus trees did not qualify as section 179 property because they were not tangible personal property.
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Lamm Lumber Co. v. Commissioner
45 B.T.A. 1 (1941).
Aff'd 133 F.2d 433; 43-1 USTC ¶ 9286; 30 AFTR 918 (9th Cir. 1943).

ARNOLD: This proceeding involves an income tax deficiency of $16,558.93 for the year 1936, of which $6,953.37 is normal tax and $9,605.56 is surtax on undistributed profits. Petitioner reported a net loss for the calendar year, but respondent, by virtue of various adjustments, determined a net income of $54,089.16. Petitioner challenges respondent's determination in the following particulars' (1) The inclusion in 1936 gross income of $20,000 representing income received as damages for breach of contract; (2) the disallowance of $14,000.04 as salary to petitioner's president; (3) the disallowance of $28,130.50 representing depletion or amortization of a $200,000 deposit allegedly paid in connection with the acquisition of the right to cut certain timber; and (4) the proposed assessment of a surtax on undistributed profits. The facts and opinion with respect to each issue will be treated separately.
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Lamm Lumber Co. v. Commissioner
133 F.2d 433; 43-1 USTC ¶9286; 30 AFTR 918 (9th Cir. 1943).
Affirming 45 B.T.A. 1 (1941).

The taxpayer agreed to purchase land and standing timber for a total price of $3,600,000 under a contract dated August 24, 1929. As required by the contract, the taxpayer deposited $200,000 to be held by the seller for application against the final installment Of the purchase price. In the event of default by the taxpayer, the seller was entitled to terminate the contract and to retain the $200,000 as liquidated damages. The taxpayer performed its obligations in 1930 and 1931, but in 1932 the depression economy prevented further performance under the contract. However, the seller did not give termination notice. Instead, the parties agreed in 1932 to a new contract for sale of part of the timber at a lesser price. Although correspondence between the parties indicated that the seller would retain the $200,000 deposit under the old contract as consideration for the new contract, the new contract itself provided simply that the 1929 contract was void "except that" the seller would retain the $200,000 "without accountability" to the taxpayer. The taxpayer treated the $200,000 as part of its cost of acquiring the 1932 contract and claimed depletion deductions with respect to it. The Commissioner disallowed the claimed depletion on the ground that the $200,000 was forfeited under the 1929 contract rather than paid in consideration for the 1932 contract. He contended that a deduction should have been claimed in the year of forfeiture. The taxpayer contended that the 1929 contract remained valid and enforceable until 1932 because the seller had issued no notice of termination and forfeiture, and that the avoidance of the 1929 contract, including the retention of $200,000 represented consideration for the 1932 contract.
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Lansing v. Commissioner
23 T.C.M. 498; P-H T.C. Memo ¶64,082 (1964).

The G. L. Speier Company held the right to cut timber from certain lands in California. In August 1952, it entered into a written contract with the taxpayer whereby the taxpayer agreed to cut the timber. The contract required the taxpayer to deliver the logs to Speier or to purchasers designated by Speier. In April 1954, the taxpayer paid $100,000 to Speier and Speier relinquished all of its rights under this contract, leaving the taxpayer as the sore party having a right to cut the timber. There was no written evidence of this agreement. The taxpayer continued cutting operations through 1954, 1955 and 1956, making stumpage payments to the owner of the timberland. Speier did not direct the delivery of any logs to any party after 1953. In 1956, the taxpayer assigned his rights under the contract to another party. An attorney for the assignee, acting in an abundance of caution, requested Speier to join in the transaction by executing a written assignment of cutting rights to the taxpayer and by consenting in writing to a further assignment by the taxpayer, which was done. The taxpayer elected in 1955, 1956 and 1957 to treat his cutting as a Sale or exchange Under section 631 (a). The Commissioner contended that the election was not effective because the taxpayer did not have a contract right to cut until Speier executed the written assignment in 1956. He argued that the 1952 written contract between Speier and the taxpayer did not constitute a contract right to cut because Speier controlled the sale of logs. He denied that an oral contract terminating Speier's interest had been concluded in April 1954.
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Laurie v. Commissioner
41 T.C.M. 1482 Tax Ct. Mem. Dec. (CCH) 37,904(M), (P-H)¶81,239

An ice storm severely damaged the taxpayer's property which he used both for residential and recreational purposes. Many trees were destroyed or damaged, recreational trails were ruined, and soil erosion set in due to the loss of trees. The taxpayer claimed a $21,950 casualty loss deduction based on an estimate given by a neighbor, a landscaper, of the cost to repair the storm damage, The Government disallowed the deduction in its entirety, claiming that the taxpayer failed to prove the amount of loss.
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Lawton v. Commissionr
33 T.C. 47 (1959).

For a consideration of one dollar, the taxpayer granted, leased and demised certain timberlands to Union Bag and Paper Corporation for a period of 66 years. The agreement referred to the taxpayer as lessor and to Union Bag as lessee and stated that Union Bag agreed to pay the taxpayer an annual rental of $1.75 per acre. Union Bag was granted exclusive use and control of the land, and the right to cut and remove annually a maximum of 2,100 cords of timber of specified sizes. The agreement also recited that Union Bag had the right to cut an additional three cords for each acre of timber then in existence and further that Union Bag had previously paid the taxpayer some $24,000 for these additional removal rights. Union Bag was required to pay all taxes on the timber. The taxpayer treated its annual payments as capital gain under sections 117(a), 117(j) and 117(k}(2) of the 1939 Code and their counterparts under the 1954 Code. The Commissioner contended that the agreement constituted a lease and that the annual payments were rent, taxable as ordinary income. He argued that section 117(k)(2) was not applicable because the taxpayer retained no economic interest in the timber. He argued that sections 117(a} and 117(j)were not applicable because the taxpayer failed to establish the existence or sale of any timber during the taxable years except that relating to the additional three cords per acre, as to which the Commissioner allowed capital gain treatment.
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Longview Fibre v. Commissioner
71 T.C. 33 (1978)

In 1972 and 1973, the taxpayer exported logs cut from its land, using its Domestic International Sales Corporation (DISC) to make the export sales. During the same period the taxpayer had in effect an election to treat the cutting of its timber as a sale or exchange under Section 631(a). The gains on the cuttings were reported as capital gains under Section 1231. Under the authority of Section 994 of the Code, the taxpayer deducted from its taxable income the commissions paid to its DISC for logs exported. The taxpayer computed the amount of the commissions by using the 50 percent of combined taxable income method provided in. Section 994(a)(2). In computing the amount of export income, the taxpayer reduced qualified export receipts by the adjusted basis of the standing timber (later to be exported as logs)and other costs attributable to exported logs. The Government disagreed with the taxpayer's computation, asserting instead that the export receipts should be reduced by the fair market value of the standing timber on the first day of the taxable year. Therefore, less income would be attributable to export receipts and the DISC commission deductible by the taxpayer would be reduced.
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Los Angeles Shipbuilding & Drydock Corporation v. United States
166 F. Supp. 914; 58-2 USTC ¶ 9893; 2 AFTR 2d 6068 (S.D. Calif. 1958).
Rev'd on other grounds 289 F.2d 222; 61-1 USTC ¶ 9329; 7 AFTR 2d 984 (9th Cir. 1961).

In 1932, the taxpayer's predecessor, Lumber, acquired twenty-four timber licenses in British Columbia. Lumber carried these licenses on its books until 1936, when it discovered that they were valueless and determined to abandon them. Accordingly, it failed to pay to the Province of British Columbia the required renewal fees after 1937 in respect of twenty-two licenses and after 1938 in respect of the remaining two. Under provincial law, Lumber had two years from nonpayment of renewal fees in which to reinstate the licenses. For this reason, the taxpayer claimed that abandonment loss deductions were allowable in 1940 and 1941, upon expiration of the reinstatement period. The Government contended that any abandonment loss deduction was allowable prior to 1940 because Lumber had made the decision to abandon in 1937 and 1938. The taxpayer contended that abandonment could not occur until the period for reinstatement had expired.
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Los Angeles Shipbuilding & Drydock Corporation v. United States
289 F.2d 222, 61-1 USTC ¶ 9329, 7 AFTR2d 984 (9th Cir. 1961) (vac'g on other grounds and rem'g)

Deductions: Bad debt losses: Capital investment v. loans: Year of worthlessness: of basis of property by provisions of Bankruptcy Act.--Taxpayer corporation, resulted from a reorganization under Sec. ?7(b) of the Bankruptcy Act, was allowed debt deductions for sums advanced by its predecessor corporation to or on behalf predecessor's wholly owned subsidiary. The advances were loans rather than investments. The debt did not become worthless as of the date of the reorganization, contended by the Commissioner, rather than in a later year. Nor was the amount of deduction to be limited to the fair market value of the debt as of the date of the confirming the final plan of reorganization. Back reference: 1[ 1619.0205.

Agreement to reduce refund judgment by a specified amount: Stipulation of parties: Computation of interest on overpayment.--In a suit for refund of alleged 1943, the parties stipulated regarding a reduction of any judgment by the amount of a deficiency assessment for the same tax year, made in 1949 but collection which was barred by limitations. The agreement was held to be an agreement to reduce judgment by an agreed amount and could not be an effective agreement to grant the a credit against the barred tax liability. Nor could the doctrine of equitable apply. Interest on the full overpayment from date of payment to refund be included in the judgment. Judgment in the trial court erroneously reduced the after 1949 to interest on the overpayment less the agreed amount of the barred assessment.
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Lowes Lumber Co. v. Commissioner
19 T.C.M. 727; P-H T.C. Memo ¶60,141 (1960).

A. F. Lowes and his wife, acting as partners, owned both timberlands and the stock of a corporation engaged in the logging and sawmill business. The timberlands were acquired by the partnership with funds advanced on open account by the corporation. All cutting on these lands was done by the corporation under cutting contracts with the partnership, and stumpage was credited by the corporation to the account of the partnership, offsetting in part advances made to purchase the timberlands. In computing its taxable income, the corporation included stumpage paid to the partnership as part of its cost of sales. The partners reported their stumpage income under section 1 17(k) (2} and the corporation elected to treat its cutting as a sale or exchange under section 117(k)(1). The Commissioner contended that the timber and timberlands were actually acquired and owned by the corporation rather than the partnership and that title had been taken in the name of the partnership only as part of a plan to minimize taxes; Accordingly, he reduced the corporation's cost of sales by the net stumpage allocable to the partnership. Alternatively, the Commissioner argued that the cutting contracts were mere licenses and not disposals because they did not expressly state that the corporation agreed to buy or to log timber. For the same reason, he contended that the corporation did not become an owner within the meaning of section 1 17(k) (1) until each tree was cut and paid for, a time when it had held the timber for less than six months.
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Lysek v. Commissioner
583 F.2d 1088, 78-2 USTC ¶9792 (9th Cir. 1978)(aff'g)

In 1966, the taxpayer reported a long-term capital gain under Section 631(a). He claimed that approximately 660,000 gross board feet of timber was cut on his property during 1966, and that the timber had a value of about $30 per thousand board feet. The Commissioner contended that the standing timber had a value of $17 per thousand board feet and this value applied only to the extent of 491,620 board feet of net merchantable logs obtained from the timber cut. The taxpayer based his valuation on (a) the average price offered for timber on a contiguous property (b) upon two timber trespass awards one awarded to him and the other assessed and (c) taxpayer's personal opinion and the opinion of his tax adviser, neither of whom qualified as timber valuation experts. The commissioner presented two qualified timber valuation experts, one of whom used the "conversion return" approach, and the other who had inspected and appraised the timber on the contiguous property. In addition, both experts presented photographs and testified concerning sales prices for five comparable timber sales.
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Lysek v. Commissioner
34 TCM 1267, 1975 P-H Tax Ct. Mem. ¶75,293 (1975)

In 1966 the taxpayer reported a long-term capital gain under Section 631(a). He claimed that approximately 660,000 gross board feet of timber was cut on his property during 1966, and that the timber had a value of about $30 per thousand board feet. The Commissioner contended that the standing timber had a value of $17 per thousand board feet and this value applied only to the extent of 491,620 board feet of net merchantable logs obtained from the timber cut. The taxpayer based his valuation on (a) the average price offered for timber on a contiguous property, (b) upon two timber trespass awards, one awarded to him and the other assessed against him, and (c) taxpayer's personal opinion and the opinion of his tax adviser, neither of whom qualified as timber valuation experts. The Commissioner presented two qualified timber valuation experts, one of which used the "conversion return" approach, and the other who had inspected and appraised the timber on the contiguous property. In addition, both experts presented photographs and testified concerning sales prices for five comparable timber sales.
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