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Summaries - T

Click on the case name for the complete text.

Tesche v. Commissioner
33 T.C. 122 (1959); Acq. 1960-2 C.B. 7.

In operating his tree nursery, the taxpayer produced juniper plants by grafting branches (called scion wood) from older juniper trees (scion wood trees) onto root stock. The scion wood trees were normally productive for about five years, after which they were culled and either destroyed or sold to gardeners. Culled trees were not advertised for sale and were sold only upon inquiry from gardeners. Gross receipts from scion wood trees averaged 23 % of the taxpayer's gross sales in 1954-56. The taxpayer reported his profit from the sale of scion wood trees as long-term capital gain under section 1231. The Commissioner contended that the trees were held primarily for sale to customers in the ordinary course of the taxpayer's trade or business and that the gain from their sale was to be treated as ordinary income.
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Three State Lumber Co. v. Commissioner
4 T.C.M. 955; P-H T.C. Memo ¶45,311 (1945).
Rev'd 158 F.2d 61; 46-2 USTC ¶ 9398; 35 AFTR 357 (7th Cir. 1946).

The Commissioner determined a deficiency in excess profits tax for the calendar year 1941 in the amount of $10,939.35 and a penalty of $2,734,84 for failure to file a return. The petitioner contends that the Commissioner erred in holding that gains of $86,813.03, realized by the petitioner during the taxable year, constituted ordinary income subject to excess profits tax instead of gains from sales of capital assets held for more than 18 months which are expressly excluded from excess profits tax, and in determining that a penalty was due for failure to file an excess profits tax return.
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Three State Lumber Co. v. Commissioner
158 F.2d 61; 46-2 USTC ¶ 9398; 35 AFTR 357 (7th Cir. 1946)
Reversing 4 T.C.M. 955; P-H T.C. Memo ¶45,311 (1945).

The taxpayer acquired many acres of timberland from which it completed timber removal in 1919. It then disposed of its sawmill, equipment and remaining lumber. It sold some 17,000 acres of former timberland between 1919 and 1935. These sales were the result of aggressive sales activity by personnel employed for this purpose. Land was sold in many transactions, involving blocks as small as ten acres. The taxpayer advertised the land, maintained a sales office on the land, and financed land purchases. It reported its profit from the land sales as capital gain. The Commissioner contended that the land was held by the taxpayer primarily for sale to customers in the ordinary course of its business and that the gain was thus ordinary income. The taxpayer argued that its sales of land were merely part of the orderly liquidation of its assets following termination of the lumber business.
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Timber Conservation Co. v. United States
208 F. Supp. 626; 62-2 USTC ¶ 9578; 10 AFTR 2d 5036 (D. Ore. 1962).

The taxpayer an owner of Oregon timberlands, contracted with independent loggers for the cutting of timber under so-called log contracts and tie-mill contracts. Under the log contracts, the loggers were required to cut and remove the timber, to deliver the timber to purchasers designated by the taxpayer, and to pay taxes on the timber. These contracts used words of purchase and sale and did not reserve title in the taxpayer. The fie-mill contracts required the loggers to cut and remove timber and to market the timber only through a corporation related to the taxpayer. They provided that the loggers acquired no interest in the timber except the right to cut and remove under the contract. Title was reserved in the taxpayers until the finished products were loaded onto cars, at which point title passed to the loggers. Words of "sale" and "purchase" were not used. Under both types of contract, both the price to be paid by the loggers to the taxpayer and the price to be received by the loggers on resale were fixed in the contract. The taxpayer contended that its profits under the contracts resulted from a disposal under section 631(b). The Commissioner contended that the taxpayer had not conveyed to the loggers sufficient rights to constitute a disposal under section 631(b). He argued that the loggers were merely performing services for a fixed compensation.
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James D. and Beverly H. Turner v. Commissioner.
Dkt. No. 5165-04 , 126 TC, No. 16, May 16, 2006.

Charitable contributions: Qualified conservation easements: Open space: Historical structure.A married couple was not entitled to a charitable deduction for a qualified conservation easement limiting the development of unimproved real estate to a certain number of residences. The number of residences that could be built on the property was already limited by local zoning laws and the fact that approximately half of the property was designated as a floodplain area where development could not occur. Moreover, the taxpayers failed to meet the requirement that the granting of the easement was for conservation purposes. The easement did not preserve open space because nothing limited the size of the development that occurred or the ability of landowners to seek rezoning to denser development classifications. The easement also did not preserve a historically important land area or a certified historic structure. There was no certified historic structure on the property that could be preserved. In addition, the property's proximity to a site with a historical structure did not make it a historically important land area.

Civil penalties: Negligence: Reasonable cause. —Because a married couple's claimed charitable deduction failed to qualify as a qualified conservation easement, they were liable for a 20-percent accuracy-related penalty due to negligence. The taxpayers could not rely on an appraiser's report regarding the value of the deduction as reasonable cause for the negligence. The report was based on erroneous assumptions that the taxpayers' property could be fully developed in the absence of the easement; however, the taxpayers were heavily involved in the development of the property and were fully aware that the easement would be limited to only a portion of the land.
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