Sub-Section 122, Regional Differences

Internal Revenue Manual
Specialized Industry Guidelines - Timber
Sub-Section 122, Regional Differences
Last amended: 6-26-1978

Regional Differences

(1) The special capital gains and depletion provisions of the Code that affect income from timber are uniformly applicable without regard to the geographic region where the income is generated. There are, however, regional differences that tend to make certain issues more important in one part of the country than another.

(2) Broadly speaking, there are two distinct forest regions in the United States, the forests east of the Great Plains, and those west of the Great Plains including Alaska.

(3) The more important contrasting forest characteristics of the two regions are as follows:

(a) About 65% of our sawtimber volume is found in the West, 97% of which is softwood. Red alder is the principal hardwood species. The more important softwood species are Douglas fir; ponderosa, white, and lodgepole pine; hemlock; true firs; spruce; cedar; and redwood.

(b) In the East, 56% of the sawtimber is composed of hardwoods such as the oaks, gums, maple, hickory, yellow poplar, birch, and many others. The principal softwoods are the southern pines, namely, loblolly, shortleaf, longleaf, and slash. Lumber from these species is known in the trade as southern yellow pine. In the northeast, spruce and fir are the most preferred pulpwood species.

(d) For purposes of inventory statistics, sawtimber in the West includes only those trees that are more than 11 inches in diameter at breast height (D.B.H.), that is, the diameter of the tree at 41/2 feet above the ground. In the East, 9 inches D.B.H. is the minimum for sawtimber. Trees smaller than sawtimber trees are, however, used as pulp timber or for fence posts, mine props, and the like.

(e) The total volume of growing stock, including all trees 5 inches D.B.H. and larger, is about 650 billion cubic feet of wood, 52% of which is found in the western forests. The distribution between East and West is shown graphically by the chart in Exhibit 100-3.

(f) A very important difference between East and West sawtimber is that the western trees are generally much larger than those in the East. It is also significant that substantially all of the nation's hardwood sawtimber is in the East. Both of these factors have an important bearing on utilization standards, as well as logging, milling, and marketing practices.

(g) Another important difference is topography. In the West, there are no extensive forest areas on level to gently rolling land to compare with what we find in the southeastern, central, and lake states. In the Rocky Mountain states, timber is usually found only at the higher elevations, from about 7,500 feet in the southern part and 5,000 feet in the northern part. Expensive mountain roads are necessary for reaching such timer. Sophisticated equipment and techniques are required for getting the raw forest products from the stump to the truck.

(h) Finally, the contrasting timberland ownership patterns between the two regions has much to do with explaining why some of the income tax issues that are so important in the East are of little significance in the West. In the West, 87% of the commercial timberland is publicly owned--mostly by the Federal government. By contrast, only about 33% in the East is publicly owned. This means that in the East the taxpayers own the bulk of the land that produces merchantable timber.
(4) In view of the foregoing differences, it is not difficult to understand why such issues as capitalization of reforestation expenditures, allocation of timberland cost, and casualty losses to timber are much more common in the East than in the West.