Summaries - R
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Ransburg v.
United States
67-2 USTC ¶9672; 21 AFTR 2d 560 (S.D. Ind. 1967).
The taxpayers owned and operated a Christmas tree farm. Their profits
were taxed at capital gain rates pursuant to their election under section
631 (a) to treat their cutting of the trees as a sale or exchange. The
taxpayers deducted as business expenses costs incurred in pruning and
shearing the trees as well as the costs of weed, brush and insect control.
The Government disallowed the deduction for pruning and shearing costs on
the theory that such costs increased the value 'of the trees and thus
constituted capital expenditures. In addition, the Government contended
that it would be inconsistent with usual tax .policy to permit a taxpayer
to deduct costs incurred in producing a capital gain.
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Ray v. Commissioner
32 T.C. 1244 (1959).
Aff'd 283 F.2d 337; 60-2 USTC ¶ 9739; 6 AFTR 2d 5696 (5th Cir. 1960).
This proceeding involves a deficiency in income tax determined against petitioner for the taxable year 1952 in the amount of $15,564.46.
The principal issue presented is whether petitioner is entitled to
treat, as long-term capital gain pursuant to sections 117(k)(2) or l17(j)
of the Code of 1939, the amount of $40,000 which he received as an
advance payment during the taxable year 1952 for timber to be cut from his
or other land and delivered to the purchaser.
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Ray v. Commissioner
283 F.2d 337; 60-2 USTC ¶ 9739, 6 AFTR 2d 5696 (5th Cir. 1960).
Affirming per curiam 32 T.C. 1244 (1959).
The taxpayer's farming business included removal of turpentine from
pine trees located on his land. When all of the turpentine had been
extracted from a tree, he would cut and sell it as pulpwood. The taxpayer,
as grantor, and Mengel Company, as grantee, entered into a contract which
recited that the taxpayer sold to Mengel all of the pine trees an his
lands. The contract contemplated the cutting and sale of 40,000 cords of
pulpwood at the prevailing market price, against which Mengel made advance
payment of $40,000. The taxpayer was to cut and remove the timber, and
Mengel was to have the right to cut only if the taxpayer defaulted in
cutting. The actual cutting was done by the taxpayer's sons at his
request. The taxpayer was required to pay taxes on the timber and to
protect it from fires, theft and waste. The taxpayer did not elect under
section 117(k)(1) to treat his cutting as a sale or exchange. He did
contend that the $40,000 payment from Mengel was taxable as capital gain
under either section 117 (k)(2) or section 117{j). He argued that his
contract with Mengel was a disposal under a contract pursuant to which he
retained an economic interest in the timber. Alternatively he argued that
the contract with Mengel represented a sale of trees used in his business
within the meaning of section 117(j). The Commissioner contended that the
contract with Mengel did not qualify as a disposal under section 117(k){2)
because the taxpayer retained the right to cut the timber himself. With
respect to section 117(j), the Commissioner argued that the taxpayer had
retained an economic interest in the timber under the contract with Mengel,
thereby precluding the consummation of a sale.
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Regan v. United
States
410 F.2d 744; 69-1 USTC ¶9369, 23 AFTR 2d 1460 (9th Cir. 1969);
Reversing 67-2 USTC ¶ 9728; 20 AFTR 2d 5759 (D. Ore. 1967).
The taxpayer was a member of a joint venture which contracted with the
Forest Service to cut merchantable timber on Government land. The joint
venture agreed to pay a royalty based on a specified stumpage rate per
thousand board feet cut and removed, and further agreed to build access
roads to the timber stand. The joint venture built the access roads and
thereafter transferred to its wholly owned operating corporation the joint
venture's cutting rights in return for the corporation's payment of
specified royalties. The gain realized by the joint venture on the cutting
of the timber was reported by the joint venturers as capital gain under
the provisions of Section 631(b) of the Code which allows capital gain
treatment for gains from disposals of timber where the owner, including
the holder of a cutting contract, retains an economic interest in the
timber being cut. The joint venturers, including the taxpayer, amortized
the cost of the access roads on the basis of the quantity of timber sold.
The taxpayer deducted her share of the amortized costs as ordinary and
necessary business expenses. The Government contended that the cost of the
access roads should have been treated as an offset to the capital gain
realized on the disposal of the timber.
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Regan v.
United States
67-2 USTC ¶9728; 20 AFTR 2(1 5759 (D. Ore. 1967).
The taxpayer was a member of a joint venture which sold standing limber
on a stumpage basis. The cost of constructing access roads to the timber
was amortized on the basis of the quantity of timber sold and deducted
from ordinary income. The Government contended that the road costs should
have been treated as an offset to the capital gain realized on the
disposal of the timber.
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Reems v. Commissioner
67 TCM 3050, T.C. Memo. 1994-253
(timber issues only)
Business expenses: Timber farm: Start-up expenditures: Amortization of.--Expenses incurred by an individual who had decided to engage in the timber business were nondeductible start-up expenditures. The active business of forestry had not begun by the end of the tax year. Further, since no regular harvesting or selling of timber had begun, the individual was unable to claim an amortization deduction with respect to the start-up expenditures.
Penalties: Negligence.--The negligence penalty was not imposed on an individual who incurred nondeductible start-up expenditures relating to a timber business where disputed items were matters of legitimate contention.
Penalties: Substantial understatement: Accuracy-related penalty.--The
substantial understatement penalty applied to an individual who incurred
nondeductible start-up expenditures relating to a timber business where he
failed to present any substantial authority supporting his claim or attach
any significant statements to his return. The accuracy-related penalty was
imposed, pending computation of the underpayment under Tax Court Rule 155,
where no special exception to the imposition of penalties applied and the
individual offered no proof to the contrary.
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Reese v.
Commissioner
13 T.C.M. 823; P-H T.C. Memo ¶ 54,240 (1954).
From 1937 to 1942 the taxpayer owned and operated sawmills and stave
mills, invested in real estate, and built houses for rental purposes. From
1942 to 1946, he managed two corporations which owned timberlands,
timber cutting contracts and stave mills. In 1946, the taxpayer
purchased the assets of these corporations, and during 1947 and 1948, he
made 28 purchases and 20 sales of timber and timberland. The sales were
made for varying purposes, including (1) exchanges of timber tracts to
obtain closer supplies of timber; (2) to obtain cash to pay a note; (3) to
satisfy a landowner's request that timber cutting be terminated; (4) to
comply with an agreement the taxpayer made when purchasing the assets of
the two corporations; and (5) to dispose of cut-over and burned-over
timber[ands. The taxpayer did not advertise the properties for sale, and,
except when pressed with the need for cash to retire a bank note, did not
list the property with a real estate agent. The Commissioner contended
that the taxpayer's profits from these sales were ordinary income from the
sale of property held primarily for sale to customers in the ordinary
course of the taxpayer's trade or business.
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[Depletion: Allowance: Gain or loss: Timber: Pooling: Clear reflection
of income: Accounting methods.]P, a large timber user, combined its Oregon
and California timber into a single block for purposes of computing its
depletion under secs. 611 and LK:S631 631 , I.R.C. R determined and
contends that: (1) P's approach is not permissible under the
regulations; (2) even if P's approach is permissible, it is not the
method which most clearly reflects income; and (3) in any event sec.
1.611-3(d)(5) , Income Tax Regs., provides R with discretional authority
to change timber accounts even where they may be kept under permissible
methods. P contends that: (1) its approach is permissible under the
regulations; (2) its approach clearly reflects income and meets GAAP, and
its accountant's approval; and (3) R abused her discretion. Held:
The pooling of P's Oregon and California timber was within the ambit of
the regulations. (The standards for deciding whether there has been
compliance with sec. 1.611 .3(d)(1), Income Tax Regs., are established and
discussed.) Held further: P's method for depletion resulted in a
clear reflection of income and R does not have absolute or unconditional
authority to change a taxpayer's method for computing timber depletion. Held
further: R abused her discretion in attempting to change P's pooling
approach for timber depletion.
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RLC Industries Co. and Subsidiaries,
Successor to Roseburg Lumber Co. and Subsidiaries v. Commissioner
95-2 USTC ¶50,328 (CA-9), 58 F3d 413,
Affirming 98 TC 457
Methods of accounting: Method regularly employed: Timber industry:
Aggregating timber: Block method.--For purposes of calculating a
depletion allowance, a timber company was allowed to aggregate its timber
in Oregon and California into one accounting block because the timber in
the two states comprised a common logical management area. Aggregating the
timber into one block allowed the timber company to average the very
different cost bases in the two states and, thus, to claim a larger
aggregate depletion allowance. The IRS argued that the timber did not meet
the requirements of a single block under Reg. §1.611-3(d)(1). The IRS
also claimed that even if the requirements had been met, the IRS had a
good and substantial reason for dividing the timber into two blocks under
Reg. §1.611-3(d)(5) because the amount of the depletion allowance was
unreasonable in comparison to the actual basis of the timber. The IRS's
disallowance of the aggregated depletion allowance was not entitled to
substantial deference by the Tax Court because the IRS was not
interpreting its own regulations. Instead, the IRS applied the regulations
to a particular set of facts, which was a judicial, not a legislative,
function. Therefore, the Tax Court properly made an independent finding
that the timber company's holdings comprised a common logical management
area. Furthermore, Reg. §1.611-3(d)(5) was found to be invalid because it
was not consistent with the rulemaking authority granted to the IRS under
Code Sec. 611(a). The IRS was not given an overriding power by the statute
to decide whether a particular taxpayer's depletion allowance was
reasonable.
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Robinson
Land & Lumber Co. v. United States
112 F. Supp. 33; 53-1 USTC ¶ 9364;
43 AFTR I012 (S. D. Ala. 1953).
The taxpayer owned large areas of timberland and engaged in the
business of cutting timber and manufacturing it into lumber. In 1946,
there was a wide divergence of opinion among its employees as to the
quantity of timber remaining on its lands. It needed an accurate estimate
on which to plan its operations and on which to compute depletion
allowances. Consequently, it hired an independent contractor to perform a
10 per cent cruise of the timber. The taxpayer deducted as an expense the
cost of the timber cruise. The Government contended that the cost of the
cruise was a capital expenditure and that it should be capitalized.
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Robinson
v. Commissioner
12 T.C. 246 (1949).
Aff'd 181 F.2d 17; 50-I USTC ¶9269; 39 AFTR 197 (5th Cir. 1950),
The respondent determined deficiencies in income tax as follows:
| Petitioner | Year | Deficiency |
| R. G. Robinson | 1943 | $3,707.27 |
| Martha G. Robinson | 1943 | $3,682.27 |
The deficiencies result from certain adjustments made in petitioners'
income from the year 1942. Due to the forgiveness feature applicable to
the years 1942 and 1943, the deficiencies relate only to the latter year.
Petitioners contest only one of the adjustments made by respondent and
they raise only one issue by their pleadings: Are they entitled to deduct
as a loss for the year 1942 an amount of $10,000 which they contend was
lost through the purchase of certain timber rights in Florida? The returns
for the period here involved were filed with the collector of internal
revenue for the district of Louisiana, at New Orleans, Such returns were
made on a community property basis.
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Robinson
v. Commissioner
181 F.2d 17; 50-1 USTC ¶ 9269; 39 AFTR 197 (5th Cir. 1950).
Affirming 12 T.C. 246 (1949).
The taxpayer purchased timber cutting rights and he annually deducted a
part of the cost of the cutting rights as cost of goods sold. After the
entire cost had been deducted, but before all the timber was cut, the
taxpayer relinquished his right to cut the balance of the timber in
settlement of claims against him. He claimed an additional deduction of
$10,000 as a loss incurred on the relinquishment. The Commissioner
disallowed the deduction on the ground that the taxpayer had previously
recovered his entire cost basis in the cutting rights. The taxpayer
admitted that his previous returns indicated full recovery of his basis,
but denied that the earlier deductions were proper.
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Estate of Carolyn J. Rogers, Deceased., John A. Rogers, III, Executor v. Commissioner
T.C. Memo. 2000-133; Docket No. 2796-97
The Commissioner determined a deficiency of $305,997 in the Federal
estate tax of the Estate of Carolyn J. Rogers (decedent). After concessions
by the parties, the issue remaining for decision is the valuation of decedent's
qualified and elected real property under section 2032A. There are two questions
for determination: 1) Whether petitioner can value the real property under
the provisions of section 2032A(e)(7) or must value the property under section
2032A(e)(8), which requires a determination of whether the leases submitted
by petitioner, entered into in 1968 and 1969, are leases of comparable land
for the 5 most recent calendar years ending before the date of decedent's death;
2) If petitioner can value one or more tracts of the property under section
2032A(e)(7).
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Rogers v.
Commissioner
46 T.C.M. 789 Tax Ct. Mem. Dec. (CCH) 40,290(M), (P-H) ¶83,420
(Timber issues only)
The taxpayers were stockholders of a Subchapter S corporation which was
engaged in the manufacture and sale of timber products. The corporation
purchased from private persons, timberland within a four county area of
New York State and, after holding the land for a minimum of six months,
harvested the timber pursuant "to a unique harvesting practice":
It hauled to its mill a greater length of each tree than was customary in
the region. Additionally, the company sought to maximize lumber production
with little regard to the quality of lumber produced, and thus used unique
milling practices--such as sawing only two rather than the customary four
sides from a log before sawing it into boards. After the timber was
milled, the resulting lumber was graded, weighed, and the daily volume
calculated by multiplying the weight of the lumber by a factor that varied
according to species and quality. From these figures, the annual lumber
production was calculated and used for purposes of Section 631(a) as the
volume of timber cut during the year. The Commissioner determined that the
fair market value of the standing timber cut by the company was lower than
that which was claimed by the taxpayer.
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Rogers v. Commissioner
38 T.C. 785, Tax Ct. Rep. (CCH) 25,638, (P-H) ¶ 38.78 (1962), nonacq.
1963-2 C.B. 6
[Gross income: Gift of property v. anticipatory assignment of income:
Charitable contribution: Equity in timber land.]--Petitioners made a gift
to charity of a $10,000 equity in a stand of timber. Later petitioner
Stuart A. Rogers sold the stand as agent for the charity and for himself
for $16,000, $10,000 payable directly to the charity. Held,
petitioners did not realize income upon the sale as there was a gift of
property and not an anticipatory assignment of income.
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Rosenthal
v. Commissioner
48 T.C. ___ No. 50 (1967).
The taxpayers were members of a joint venture which owned a timber
tract consisting of 24,600 acres. As of January 1, 1960, the timber on the
tract had a basis of $212,-000, and the land had a basis of $113,000. On
March 2, 1960, an ice storm struck the property, partially destroying saw
timber, pulpwood and young growth, and thereby reducing the value of the
entire tract of timber by $130,000. The joint venture deducted $130,000 as
a casualty loss, but the Commissioner reduced the allowable deduction to
$17,-315.48. The Commissioner computed the deduction by dividing the total
estimated board feet of saw timber on the tract before the storm
(58,445,000) into the total basis of the timber ($212,000) and multiplied
that result by the number of board feet of saw timber actually destroyed
by the storm (4,757,100). He disallowed any deduction with respect to the
pulpwood and young growth on the theory that neither of those two
categories of timber had a basis. The taxpayers contended that the entire
reduction in the timber's market value ($130,000) was deductible since the
reduction in market value did not exceed the total basis in the timber
($212,000).
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Rosenthal
v. Commissioner
69-1 USTC ¶9430; 23 AFTR 2d 1496 (2d Cir. 1969).
Affirming 48 T.C. 515 (1967).
The taxpayers were members of a joint venture which owned a timber
tract consisting of 24,600 acres. As of January 1, 1960, the timber on the
tract had a basis of $212,000, and the land had a basis of $113,000. On
March 2, 1960, an ice storm struck the property, partially destroying saw
timber, pull> wood and young growth, and reducing the value of the
entire tract of timber by $130,000. The members of the joint venture
deducted the $130,000 as a casualty loss, but the Commissioner reduced the
allowable deduction to $17,315.48. The Commissioner computed the deduction
by dividing the total estimated board feet of saw timber on the tract
before the storm (58,445,000) into the total basis of the timber
($212,000) and multiplied that result by the number of board feet of saw
timber actually destroyed by the storm (4,757,100). He disallowed any
deduction with respect to the pulpwood and young growth on the theory that
neither of those two categories of timber had a cost basis. The taxpayers
contended that the entire reduction in the timber's market value
($130,000) was deductible since the reduction in market value did not
exceed the total basis in the timber ($212,000).
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Ruecker v.
Commissioner
41 T.C.M. 1587 Tax Ct. Mem. Dec. (CCH) 37,931 (M), (P-H) ¶81,257
The taxpayers claimed a $2,000 casualty loss under Section 165(c)(3)
for the death of plants, shrubs and lawn located on their landscaped
residential property. The loss occurred because the taxpayers were unable
to irrigate their property due to restrictions on water use imposed by
local authorities during a severe drought. The government argued that a
drought does not constitute a casualty under Section 165(c)(3) since the
resulting deterioration and loss of the lawn, shrubs and plants was
gradual rather than sudden.
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Rutland v.
Tomlinson
63-1 USTC ¶9173; 11 AFTR 2d 500 (M.D. Fla. 1962).
Aff'd per curiam 327 F.2d 668; 64-1 USTC ¶ 9267; 13 AFTR 2d 744
(5th Cir. 1964).
The taxpayer, whose business activities included men's clothing,
ranching, citrus growing and banking, purchased real estate on which there
was a substantial stand of timber. He did not advertise the timber for
sale, list it with a broker or sales agent, or devote more than a small
amount of time to his timber activities, but he did make continued and
repeated sales of timber over a period of years, the proceeds from which
exceeded $100,000. The taxpayer treated this income as capital gain. The
Commissioner contended that it was instead ordinary income on the
ground that the taxpayer held the timber for sale to customers in the
ordinary course of his trade or business.
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Rutland v. Tomlison
327 F.2d 668, 64-1 USTC ¶ 9267, 13 AFTR2d 744 (5th Cir. 1964)
Affirming District Court, 63-1 USTC ¶ 9173
Deduction: Taxes paid to drainage district: Sole bondholder of district.--A taxpayer who owned all of the outstanding bonds issued by a drainage district and approximately 95% of the land located within the district was entitled to deduct taxes paid to the district which were levied for the purpose of defraying maintenance charges and interest upon the bonds. The district was a validly created political subdivision of the state, the taxpayer had had nothing to do with establishment of the district and the taxpayer and the district were not one in the same person. The Birch Ranch and Oil Co., (CA-9) 51-2 USTC ¶9506, 192 F. 2d 924, followed. District Court affirmed.
Ordinary income v. capital gain: Sales in the ordinary course of
business: Timber.--The taxpayer was in the business of selling timber,
although he engaged in other businesses, and timber on his land was held
for sale in the ordinary course of business. The timber was not a capital
asset under Code Sec. 1221 or entitled to capital gain treatment under
Code Sec. 1231. District Court affirmed.
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