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Revenue Ruling 55-252, 1955-1 CB 319

REV-RUL, Capital expenditures., Rev. Rul. 55-252, 1955-1 CB 319, (Jan. 01, 1955)

REGULATIONS 118, SECTION 39.24(a)-2: Capital expenditures.

Generally, direct costs incurred in connection with reforestation by planting are capital expenditures, recoverable through depletion as the timber subsequently becomes merchantable and is cut or sold. Compare Mim. 6030, C. B. 1946-2, 45; G. C. M. 6544, C. B. VIII-2, 118 (1929). Such planting costs include:

(a) preparation of the site, including any girdling or brush removal work to afford good growing conditions;

(b) cost of seedlings; and

(c) labor and tool expense, including depreciation of equipment used in planting such as trucks, tree planters, etc.

Indirect expenditures, such as interest paid on money borrowed to satisfy a State law requiring a deposit to guarantee natural reforestation over a specified period of years in lieu of planting, or a service charge on a performance bond in lieu of a cash deposit, may be treated as current deductions for the year in which incurred or capitalized cumulatively in accordance with a proper election by the taxpayer under the provisions of section 39.24(a)-6 of Regulations 118.