Sub-Section 712, Forest Roads
Internal Revenue Manual
Specialized Industry Guidelines - Timber
Sub-Section 712, Forest Roads
Last amended: 6-26-1978
Forest Roads
(1) The treatment of expenditures incurred for road construction in connection with timber operations depends upon the purpose and character of the road. There are two kinds of roads for income tax purposes, namely, permanent roads and temporary roads.
(2) A permanent road is one that a taxpayer builds on his/her own lands for the purpose of providing access over an indefinite period of time. A temporary road is one that the taxpayer expects to abandon after the road has served its limited purpose such as for logging a specific quantity of timber or for use during a specific contract or lease term.
(3) In connection with expenditures for permanent roads, expenditures for surveying, right-of-way clearing, grubbing, blasting, grading and ditching should be placed in a nondepreciable land improvement account. The depreciable components of permanent roads include surfacing, culverts, trestles, and bridges. Expenditures for such items are recoverable through annual depreciation allowance, computed under one of the methods of depreciation provided under DRC 167(b).
(4) The cost of roads or other facilities includes the depreciation of equipment used in their construction. Taxpayers may, correctly, charge labor, materials, and overhead to such improvements, but fail to include the depreciation sustained on their own equipment used in the construction.
(5) If the life of a temporary road depends on the logging of a certain quantity of timber, the unit-of-production method of depreciation is perhaps the most logical means of apportioning costs to operations.