Weyerhaeuser Co. v. United States

WEYERHAEUSER CO. v. UNITED STATES
66-1 USTC ¶ 9417; 17 AFTR 2d 893 (W.D. Wash. 1966).

Key Topics
CUTTING AS A SALE OR EXCHANGE
· Failure of proof

Weyerhaeuser and Scott controlled a corporation which held a contract right to cut standing timber. Weyerhaeuser had the right to receive one-half the logs produced. Weyerhaeuser contended that the corporation acted as Weyerhaeuser's agent and that Weyerhaeuser had a contract right to cut one-half of the timber. It thus elected to treat the cutting as a sale or exchange under section 631(a). The Commissioner contended that Weyerhaeuser's only right was to receive one-half of the logs.

Held: For the Commissioner. The evidence in the case to establish agency does not, when taken as a whole, preponderate to any appreciable extent: either for or against the taxpayer and therefore the determination of the Commissioner must prevail.

BOLDT, District Judge: The basic issue presented is whether or not, under the peculiar circumstances of this case, Weyerhaeuser had a contract right to cut one-half of Scott's timber, within the meaning of § 631(a) of the Internal Revenue Code. The contracts between the parties gave Mountain Tree Farm Company, an independent corporate entity, the exclusive right to enter and cut the timber in question. Mountain Tree Farm Company was under joint control of Weyerhaeuser and Scott. Weyerhaeuser contends that Mountain Tree Farm was acting for Weyerhaeuser and was, in effect, Weyerhaeuser's alter ego, when it cut the timber which Weyerhaeuser was to receive from Scott's land. The government contends Weyerhaeuser had only a right to receive one-half of the logs produced from the land, and that Mountain Tree Farm Company was acting for Scott.

In a suit for the refund of taxes, the Commissioner's determination is presumed to be correct, Compton v. United States, 334 F. 2d 212 (4th Cir, 1964), and the taxpayer has the burden of proving by a preponderance of the evidence that the Commissioner is in error. Filippini v. United States, 318 F. 2d 841 (9th Cir. 1963).

The court has carefully considered the briefs, the argument of counsel and the contracts involved in this case. Review of the evidence or recital of the contract provisions would serve no useful purpose, although it may be noted that paragraph VI of the "Logging Contract," Exhibit 3, provides "nothing herein contained shall operate to make [Mountain Tree Farm Company] the agent of [Weyerhaeuser or Scott.]"

After full consideration, the court has concluded there is not an affirmative preponderance of evidence to show the Commissioner's determination was erroneous. Accordingly, the action must be and hereby is ordered dismissed with prejudice and allowance of costs to defendant. Findings, conclusions and judgment to such effect may be submitted at the early' convenience of counsel.

Although not specifically mentioned in the decision entered February 2, 1966, all of the contentions .now urged by plaintiff in its motion for reconsideration were fully reviewed by the court prior to the entry of the Previous decision.

This court has long been aware of the little weight to be given by a District Court to a determination of the Commissioner of Internal Revenue, and the Fulton opinion (Fulton Container Co. v. United States, 355 F. 2d 319 (9th Cir. 1966)) had been read and considered before reaching and entering the previous decision. The direct evidence in this case is not in dispute but conflicting inferences may be drawn there from as to ultimate facts. After careful review of the direct evidence and making inferences reasonably based thereon, the court found the proof on the controlling fact issues in even balance without even slightly greater weight in favor of plaintiff's position. Upon such finding the ruling of the Commissioner under review should not be reversed.

Any possible interpretation of language in the previous decision to the contrary, the court did not then and does not now consider it necessary to decision for plaintiff that Mountain Tree Farm be an agent of plaintiff other than for the limited purpose of cutting the timber in question. Beyond that, no fact concerning agency has been or will be made.

The quotation from Exhibit 3 incidentally referred to in the previous decision had no bearing upon either consideration or determination of the case by the court and is now withdrawn.

A recent Seventh Circuit decision, H-H Ranch v. Commissioner, #15335 (March 16, 1966), lends some supp0rt to Plaintiff's position. However, the ultimate finding and holding of this court is that the, particular circumstances shown by the, evidence in this case, taken as a whole, do not preponderate to any appreciable extent either for or against recovery as sought by plaintiff and therefore the determination of the Commissioner must control.

Plaintiff's motion for reconsideration of the written decision dated February 2, 1966 is hereby denied, The Court's oral decision on the first issue is unchanged.