Capital Gains Determination
Next you must determine what your holding period was for the timber sold to determine if the transaction qualifies under Section 631(b).
The timber must have been held for more than one year to qualify as a Section 1231 transaction, i.e. capital gains. The holding period for a pay-as-cut contract runs from the date the timber or contract right to cut timber is acquired until it is considered to have been cut.
The date of disposal is the date the timber is cut. Timber is considered to be "cut" at the time when in the ordinary course of business the quantity of timber felled is first definitely determined. Loggers in almost all regions of the country follow a more-or-less standard procedure. In the west, logs usually pass through a roadside scaling station licensed by the state to scale logs and provide a scale ticket acceptable for all commercial transactions. In the east, logs are usually scaled or weighed at the buying mill and/or at the log landing by the logger or the hauler. IRS regulations specify that deviations from your standard practice simply to obtain a tax advantage are not acceptable.
Was the timber held for more than one year?