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Summaries - W

Click on the case name for the complete text.

Wacker v. Commissioner
40 T.C.M. 1009 1980 P-H T.C. Memo ¶ 80,324

Timberland was surveyed to remark obliterated boundary lines. The taxpayer contended that the survey was necessary to prevent loss of land through adverse possession or fines from cutting timber on adjacent tracts. The land was used for cutting timber. The Commissioner of Internal Revenue contended that the surveying cost was not deductible as an ordinary and necessary business expense under Section 162, but was a capital expenditure under Section 263(a).
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Wagar Lumber Co. v. United States
181 F. Supp. 388; 60-1 USTC ¶ 9343; 5 AFTR 2,d 840 (W.D. Wash. 1960).

The taxpayer submitted a written offer to purchase timber to the Commissioner of Indian Affairs who brought the offer to the attention of the Secretary of the Interior by memorandum recommending that the sale be negotiated and that the taxpayer be notified to submit a formal proposal. The Acting Secretary of the Interior approved this recommendation on March 1, 1950. On March 3, 1950, the taxpayer submitted a formal proposal, and a contract for the purchase of the timber was signed on April 5, 1950, by the Assistant Secretary of the Interior. The taxpayer's taxable year commenced on October 1, 1950, less than six months after the Assistant Secretary's signature on April 5, 1950, but more than six months after his approval of the recommendation of the Commissioner on March 3, 1950. The taxpayer treated its cutting during the taxable year as a sale or exchange under section 117(k)(1), contending that the contract of April 5, 1950, only memorialized a contract right acquired on March 1, 1950. Alternatively, the taxpayer contended that the Assistant Secretary's signature of April 5, 1950, related back to March 3, 1950, the date of which the proposed contract was signed by the taxpayer.
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Wagner Mills Inc. v. Commissioner
33 CCH Tax Ct. Mem. 1267, 1974 P-H Tax Ct. Mem. ¶74,274(1974).

Taxpayer entered into two agreements with a citrus nursery to grow orchard-ready trees, a process requiring two to three years after planting with budding required after one year. Taxpayer paid a set rate per tree per month to cover the costs of planting, budding, and maintenance. Other provisions of the contract Placed the risk of loss on taxpayer and stated that the nursery stock was to remain the property of the owner (taxpayer). Taxpayer claimed deductions for the expenses incurred each year under the contract on the theory that they were connected with the development of the trees. The Commissioner determined deficiencies on the ground that the payments were nondeductible capital expenditures relating to the acquisition of orchard-ready trees, thus concluding that the contract payments represented the cost of a capital asset and required capitalization. The Commissioner also contended that the monthly payments were installments on the purchase price of orchard-ready trees.
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Wagner Mills, Inc. v. Commissioner
530 F.2d 827, 76-1 USTC ¶ 9298, 37 AFTR2d 76-1018 (8th Cir. 1976) (aff'g)

Business expenses v. capital expenditure: Farmer: Development costs: Grove upkeep: Citrus grower.--The taxpayer had entered into agreements with a citrus nursery whereby the nursery had agreed to plant and grow a certain number of trees for the taxpayer. During the growing period, the taxpayer assumed the risk of any loss of the nursery stock occasioned by acts of God or of other casualties beyond the growers control. The Court of Appeals upheld the Tax Court's finding that the taxpayer was required to capitalize the costs of acquiring and planting seed and of grafting the bad stock. However, the taxpayer was allowed to deduct the remaining amounts paid pursuant to the contract.
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Waldrip v. United States
81-2 U.S.T.C. ¶9653, 48 AFTR2d 81-6031

Shade trees on the taxpayers' residential property were killed by an attack of southern pine bark beetles and the taxpayers claimed a deduction for this loss under Section 165(c)(3).

That section provides that the amount of a casualty loss deduction equals the difference between the property's fair market value before and after the casualty but in no event may the deduction exceed the adjusted basis of the property before the loss. Since the difference in pre- and post-casualty fair market value exceeded adjusted basis, the deduction was limited to the adjusted basis figure. However, the taxpayers asserted that they were entitled to deduct costs incurred to clean up the property in addition to the amount of adjusted basis.
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Walker v. Commissioner
101 T.C. 537, Tax Ct. Rep. Dec. (CCH) 49,460 (1993)

[Deductions: Transportation expenses: Regular place of business: Self-employment income: Schedule C: Schedule E. JP, a logger, drove daily from his residence to numerous job sites located throughout the Black Hills National Forest. P worked approximately 6 to 7 hours per day cutting trees. He also worked 7 hours per week at his residence on tool repairs and maintenance. P stored his equipment and supplies and took calls for jobs at his residence as well. R allowed 60 percent of P's vehicle-related expenses, which represented expenses for driving between job sites during the day and for trips to obtain supplies and repairs. R disallowed the remaining 40 percent of P's vehicle-related expenses, which represented expenses incurred in driving between job sites and P's residence.1. Held: P was self-employed and may report income from his business on Schedule C. Held, further, payments to P reported on petitioners' returns as "equipment rental" actually constituted compensation for P's logging activities and must be reported on Schedule C.2. Held, further, pursuant to R's position in Rev. Rul. 90-23 , 1990-1 C.B. 28, expenses related to transportation between a taxpayer's residence and "temporary work locations" are deductible if the taxpayer has one or more "regular places of business". P's residence was a "regular place of business" and his various job sites were "temporary work locations". P's transportation costs are deductible.
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Ward v. United States
428 F.2d 1288 (Ct. C1. 1970); 70-2 USTC ¶ 9518 26 AFTR 2d 70-5138

Plaintiffs each owned a 50 percent interest in a tract of pine timber land acquired for a total purchase price of $8,045. In 1963, a fire destroyed almost the entire tract. The taxpayers stipulated that at the time of the fire the tax basis of the tract had been reduced to zero by other previous losses. The fair market value of the damaged and destroyed timber was $56,058.13 and each taxpayer deducted one-half that amount in his 1963 income tax return, contending that he was entitled to the deduction under Sections 165(a) and (c) as a casualty loss of property not held in connection with a trade or business when such toss is not compensated for by insurance or otherwise. The government argued that the taxpayers were not entitled to the deduction since there was no tax basis in the timber land. The taxpayers also contended in the alternative that the toss of this timber by fire was not a "sale or other disposition of property" under section 165(b).
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Warner Mountains Lumber Co. v. Commissioner
9 T.C. 1171 (1947); Acq. 1948-2 C.B. 4.

A syndicate was formed to acquire an option to purchase timberland with the expectation that the option would be resold for a profit. Because it was unable to sell the option, the syndicate purchased the property at a substantial cost. In order to make principal and interest payments necessary to finance the purchase and to satisfy other costs, the syndicate obtained additional advances of cash from its members. These advances were recorded in "temporary loan accounts" but no interest was actually paid to the members. The syndicate realized little income but it incurred expenses of $75,000 in maintaining and attempting to sell the property. It filed no Federal income tax returns. The syndicate ultimately transferred the property to the petitioner corporation in exchange for its stock in a tax-free transaction. The petitioner realized income from the cutting of timber and it sought to include in its basis for the property all expenditures of the syndicate. The Commissioner denied that most of these expenditures were capital items, and the issue before the Tax Court was the petitioner's basis for the property.
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Watkins v. United States
79-2 U.S.T.C. ¶ 9548 44 AFTR2d 79-5222 (1979)

An individual was convicted of tax evasion. The conviction was appealed, in part on the basis that evidence derived from the individual's election under Sections 631(a) and 1231 was prejudicial. The individual harvested timber in both his own name and on behalf of other logging farms on a contractual basis. Analysis of his accounting records showed that in 1973 he had sold 1.4 million board feet more timber than he had acquired through his logging operation, The taxpayer contended that the excess was obtained from a tract which he had logged on his own account, while the Government contended that it was obtained from a tract being logged on a contract basis. A taxpayer who cuts stolen timber cannot claim Section 631(a)treatment for such timber, because he neither owns the timber nor has a contract right to cut and sell it on his own account. At trial. the taxpayer did not dispute the Government's contention that, the 1.4 million board feet did not qualify for Section 631(a) treatment. The taxpayer argued that the only purpose for presenting the evidence--to counter claims that the timber was harvested legally--no longer existed and was therefore prejudicial.
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Watts v. Erickson
62-2 USTC ¶ 9778; 10 AFTR 2d 5832 (D. Ore. 1962).

The partnership of which the taxpayers were members granted the Forest Service an easement over land owned by the partnership in order to facilitate an offering by the Forest Service of timber on adjoining land owned by the Government. In accordance with usual practice; the Forest Service offering provided that the successful bidder would be entitled to use the easement subject to the payment of road use fees to the partnership. The partnership was the successful bidder and the amount of the road use fee attributable to each timber sale was credited against the amounts otherwise payable by the partnership to the Forest Service for the timber. The taxpayers reported the amount of the road use fees as long-term capital gain and they deducted an equivalent amount as ordinary and necessary business expense. The Commissioner reclassified the road use fees as ordinary income and denied the deduction of these amounts.
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Western Montana Lumber Company v. Commissioner
20 T.C.M. 1687, Tax Ct. Mem. Dec. (CCH) 25,156(M), (P-H) ¶ 61,326 (1961)

Depreciation: Sawmills: Adjustments by Commissioner: Evidence.--The Tax Court sustained the Commissioner's determination that the proper useful life of certain sawmill equipment for depreciation purposes was 37,500 operating hours, or the equivalent of 40 hours per week for 18 years, with an estimated salvage value of $20,000. The taxpayers produced no evidence to establish that either their prior admissions with respect to proper estimated useful lives and salvage values for depreciable assets or the Commissioner's adjustments were not correct.
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Westvaco Corporation v. United States
81-1 U.S.T.C. ¶ 9101 47 AFTR 2d 81-407 (1980)

The taxpayer owned large acreage of timberland in North Carolina and in South Carolina during 1959 through 1963. Over this period Various tracts of timber were damaged by hurricanes, wildfires, and an ice storm. As a result, certain timber received "mortal injuries," destroying it or rendering it economically unsalable. Other timber received "nonfatal injuries," which were measurable but did not render it economically unsalable and did not result in the actual loss of any units of merchantable timber.

The taxpayer's claimed losses for timber destroyed were determined by multiplying the units of volume destroyed by the fair market value of the timber at the time destroyed, and subtracting its salvage value. The Commissioner of Internal Revenue limited the loss deduction for the timber destroyed to the product obtained by multiplying the Units destroyed by the depletion unit used for determining the gain or loss from the sale or cutting of the timber. The Commissioner totally rejected the taxpayer's claim for loss deduction s resulting from "nonfatally injured" timber.
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Weyerhaeuser Co. v. United States
66-1 USTC ¶ 9417; 17 AFTR 2d 893 (W.D. Wash. 1966).

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.
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Weyerhaeuser Co. v. United States
402 F. 2d 620; 68-2 USTC ¶9629, 22 AFTR 2d 5825 (9th Cir. 1968).
Aff'g in part and rev'g in part, 66-1 USTC ¶9417, 17 AFTR 2d 893 (W. D. Wash. 1966).

Issue No. 1
Weyerhaeuser and Scott Paper Company entered into an agreement calling for the mutual logging of their adjoining lands in the Seattle watershed. The parties agreed that each year they would share equally all the timber products removed during the year from their lands in the watershed and that the party receiving, as its half share, more than its own land had contributed during that year would pay for the excess at certain fixed prices. Additionally, the parties agreed that title to logs and other forest products delivered to the party from whose timber the same were removed would at all times remain in such party but that title to logs and other forest products removed from the timber of one of the timber companies and delivered to the other would pass upon delivery to the latter. In accord with this basic retention of title, each party assumed the risk of loss of part or all of the standing timber on its own land from fire or other causes. Finally, the contract contained no restraints on the parties as to the use or disposition of their respective half shares of the forest products after delivery. Weyerhaeuser used its half share in its manufacturing business. On its tax return, Weyerhaeuser treated one-half of the cutting in the watershed as being made under its Section 631(a) election, even though more than one-half of the timber was cut on land owned by Scott. Weyerhaeuser contended that it rather than Scott was entitled to Section 631(a) treatment on the timber removed from Scott's land and delivered to Weyerhaeuser, since it had an unrestricted right to sell those logs on its own account or to use them in its trade or business, while Scott, because of the requirement that the logs be delivered to Weyerhaeuser, did not.

Issue No. 2
In the years 1954 through 1957, Weyerhaeuser suffered certain losses of property. The losses included the destruction of timber, plant facilities, machinery, equipment, and offices, ail of which had been held for more than six months. The losses were caused by various destructive agencies, including fire, storms, blasts, and beetles. The losses were not insured. Weyerhaeuser took the position that these losses were deductible from ordinary income under the general rule of Section 165. The Internal Revenue Service, on the other hand, took the position that the losses were subject to Section 1231(a) of the Code and were therefore deductible only as capital losses, since Weyerhaeuser's gains subject to Section 1231(a) exceeded' its losses subject to that section for each of the years in question.
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Weyerhaeuser Co. v. United States
94-2 USTC ¶ 50,471, 32 FedCl 80

Casualty losses: Timber losses: Fire: Insects: Casualty gains.--A corporation conducting business in the timber industry was allowed deductions for losses caused by a volcanic eruption and forest fires because they were casualty events, as agreed upon by the parties, and the deductible amounts were provable. The appropriate single identifiable properties were held to be each road and the entire railroad that had been destroyed, not only the damaged portions, and each tree stand. Therefore, the allowable deductions equaled the lesser of the loss attributable to each road, the railroad, and the affected tree stands or their adjusted bases. However, the corporation was not allowed a casualty loss deduction with respect to a southern pine beetle infestation because, while it was a casualty event, the loss amounts were not provable. Although the infestation of beetles in epidemic proportions was a casualty event because it was sudden, unexpected, and unusual, the corporation's methods and confirmation procedures for determining the volume of trees affected and the cause of the loss were inadequate. Finally, since the corporation realized casualty gains when it cut and/or sold any salvageable timber but did not recognize them in the years at issue, they could not be used to offset the recognized casualty losses.
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Weyerhaeuser Co. v. United States
96-2 USTC ¶ 50,420; 92 F3d.
Affirming in part, reversing in part, and remanding a U.S. Court of Federal Claims decision, 94-2 USTC ¶ 50,471, 32 Fed. Cl. 80.

Casualty losses: Timber: Single identifiable property: Depletion block: Gain or loss: Offset: Casualty gains for casualty losses: Salvage value.--A corporation conducting business in the timber industry was allowed deductions for losses resulting from a volcanic eruption and forest fires because those occurrences were casualty events, as agreed upon by the parties, and the deductible amounts were provable. The depletion block, which is the area into which the corporation's timber was aggregated, rather than tree stand, was the appropriate single, identifiable property to use when computing adjusted basis for purposes of the timber casualty loss (Westvaco Corp., Ct. Cls. 81-1 USTC ¶ 9101, followed). Organizing woodlands into depletion blocks met both the accounting needs imposed by the tax code and the operational needs of effective forest management. Also, since the corporation realized salvage gains when it cut and/or sold any damaged timber but did not recognize them in the years at issue, those gains did not have to be used to offset the recognized casualty losses.
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Weyerhaeuser Co. v. United States
97-2 USTC ¶ 50,880 (Cert. denied, 117 S.Ct. 766)
On remand from CA-FC, 96-2 USTC ¶ 50,420, 92 F3d 1148.

Deduction for losses: Casualty losses: Forest fires: Proof of diminution of fair market value: Single, identifiable property: Composite analysis by timber depletion blocks.--A corporation in the timber industry offered sufficient proof to establish the amount of its allowable deduction for casualty losses sustained in a volcanic eruption and subsequent forest fires. The deductible amount was equal to the diminution in the fair market value of its timber depletion blocks. The IRS's contention that the diminution in value of the depletion blocks was different from the sum of the individual diminutions in value suffered by the tree stands within the depletion blocks was rejected. Moreover, a valuation analysis based on individual fires would be substantially similar to the corporation's valuation based on a composite analysis by blocks.
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Willamette Industries v. United States
79-2 U.S.T.C. ¶9520, 44 AFTR2d 79-5321 (1979)

The taxpayer is disputing certain: timber valuations with the Government and requested under the Freedom of Information Act,. 5 U.S.C. § 552, to obtain from the fries of the Internal Revenue Service offices in Portland; Seattle, Shreveport, New Orleans, and Houston copies of essentially all materials for the years !970 to 1976 related to the valuation of timber and timberland. The Government refused the request on the grounds that the materials contain tax return information protected from disclosure by Section 6:103. The taxpayer sued to compel release of the requested materials.
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Willamette Industries v. Commissioner
41 T.C.M. (CCH) 629 1980 P-H T.C. Memo ¶ 80,577

Issue No. 1
The taxpayer elected to treat the cutting of timber during their taxable years 1971 to 1973 as a sale or exchange pursuant to Section 631(a), The timber in question was owned or held under a contract right to cut by the taxpayer directly or through subsidiaries and was located in Louisiana and Oregon. The Commissioner of Internal Revenue challenged the taxpayer's January 1 fair market values used to determine the taxable gains for these three years.

At trial, two expert witnesses testified for the taxpayer and one for the Government with regard to the Louisiana timber. The individual in charge of acquiring timber for the taxpayer also testified. These experts differed as to the proper method of converting estimated volumes of U.S. Forest Service (USFS) timber based on Scribner Decimal C scale. They also disagreed over the proper method of valuing timber on corporate land as compared to timber on USFS land. The Government witness maintained that since these two types of owners manage their timber differently, comparable sales for one type of ownership should not be used in the valuation of the other type.

Four expert witnesses, two for each of the parties, testified with regard to the Oregon timber. The individual in charge of acquiring timber for the taxpayer also testified. These experts differed as to the proper period from which to obtain comparable sales. Differences also existed with regard to the quality of timber for comparable sales and the way in which the timber was sold. Disagreement also existed regarding the affect of export quality timber on the value of tracts containing such timber, log scale conversion procedures, and the affect of road credits on the value of USFS timber.

Issue No. 2
During the years in question the taxpayer purchased tracts of timberland in the South and in Oregon. Form T was filed showing the allocation of each purchase price among the land, the merchantable timber and the young unmerchantable timber. The Commissioner of Internal Revenue challenged the depletion deductions claimed, based on the alleged low estimates of land value used by the taxpayer. Taxpayer apparently offered no proof as to how the allocations were made for the land in the South. The allocation method used for the Oregon tract was based on valuations made by the Oregon Department of Revenue each year for property tax purposes, but were adjusted by the taxpayer to reflect the character and quality of each individual tract valued. Taxpayer offered no proof as to how these adjustments were made.

At trial taxpayer's principal contention was that the adjustments were speculative because they amounted to precisely $50,000 each year, and thus were insufficient to sustain the presumption of correctness.
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Willamette Industries, Inc. v. United States
81-2 U.S.T.C. ¶9633, 48 AFTR2d 81-6045

The taxpayer made a request under the Freedom of Information Act, ("FOIA"), 5 U.S.C. §552, to obtain documents showing how the Internal Revenue Service determined the fair market value of timber used as the basis for making tax assessments against timber harvested by the taxpayer. Specifically, the taxpayer sought (1) IRS findings relating to the fair market value of timber in western Oregon and northern Louisiana for the relevant tax years and compilations of private timber sales data used by the IRS as evidence of comparable sales in valuing the timber. The taxpayer argued that it was entitled to obtain these documents since they constituted final opinions of an agency." In addition, the taxpayer argued that an exemption from FOIA disclosure applicable to "return information" did not apply because the information sought did not identify any particular taxpayer. The government contended that the materials sought were not "final opinions", but only preliminary studies subject to agency approval and that, in any event, the exemption from disclosure for "return information" applied.
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Willamette Industries, Inc. v. United States
689 F.2d 865, 82-2 USTC ¶9625, 50 AFTR2d 82-5991
Affirming 530 F.Supp. 904 81-2 USTC ¶9633, 48 AFTR2d 81-6045 (Cert. denied)

The taxpayer made a request under the Freedom of Information Act, ("FOIA"), 5 U.S.C. §552, to obtain documents showing how the Internal Revenue Service determined the fair market value of timber used as the basis for making tax assessments against timber harvested by the taxpayer. Specifically, the taxpayer sought (1) IRS findings relating to the fair market value of timber in western Oregon and northern Louisiana for the relevant tax years, and (2) compilations of private timber sales data used by the IRS as evidence of comparable sales in valuing the timber; The taxpayer argued that it was entitled to obtain these documents since they constituted final "opinions of an agency." In addition, the taxpayer argued that an exemption from FOIA disclosure applicable to "return information" did not apply because the information sought did not identify any particular taxpayer. The government contended that the materials sought were not "final opinions," but only preliminary studies subject to agency approval and that, in any event, the exemption from disclosure for "return information" applied.
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Willamette Valley Lumber Co. v. United States
252 F. Supp. 199; 66-I USTC ¶ 9258, 17 AFTR 2d 418 (D. Ore. 1966).

The taxpayer purchased standing timber under a contract which permitted it also to use the land on which the timber was located to obtain access to other timber it was cutting. The contract required the taxpayer to pay ad valorem taxes on both the timber and the !and. The landowner paid the taxes on both the timber and the land in the first instance and then billed the taxpayer. The taxpayer deducted these taxes for approximately twelve years and then was challenged by the Government on the ground that the tax payments were an additional cost of the timber and should be capitalized.
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Willey v. Commissioner
9 T.C.M. 1109, tax Ct. Mem. Dec. (CCH) 18,001(M), (P-H) ¶ 50,299 (1950)

1. [Capital gain v. ordinary income: Sale of timber.]--Respondent did not err in holding that money received by petitioner during the taxable year for sale of timber was ordinary income and not a capital gain.

2. [Tax Court procedure: Failure to properly allege error.]--Where petitioner failed properly to allege error in respondent's treatment of an item for the taxable year, and there has been no motion to conform the pleadings to the proof, the respondent must be sustained.
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Willey v. Commissioner
10 T.C.M. 267 Tax Ct. Mem. Dec. (CCH) 18,202(M). (P-H) ¶ 51,072 (1951)

[Procedure: Amendment of petition.]--Amended pleadings to conform to the proof having been duly filed; held, petitioner erroneously included $7,226.05 in his taxable income for 1944.
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Willey v. Commissioner
199 F.2d 375, 52-2 USTC ¶ 9517 (6th Cir. 1952) (aff'g per curiam)

Tax Court procedure: Amendment of petition.- After the Tax Court had entered a decision against the taxpayer for his failure to plead that the Commissioner had erred in determining a deficiency, taxpayer's subsequent motion for leave to amend the petition was granted.

Gross income: Cash basis.- Income received in 1945 on a sale made in 1944 was not includible in a cash basis taxpayer's 1944 gross income.
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Wilmington Trust Co. v. United States
79-1 U.S.T.C. ¶ 9223, 43 AFTR2d 79-801

This is a consolidation of suits for refund of income taxes for the years 1964-1970 brought by members of a partnership known as Wilmon Timberlands, During the course of the litigation one of the partners died and his executor, Wilmington Trust Co., was substituted as a plaintiff. Wilmon owned and managed in various years between 35,700 and 45,000 acres of timberland in Alabama. The timber was actively managed as an investment.

Wilmon retained between 9 and 11 full-time employees. A forester and office manager were salaried. Hourly employees included a timber management crew working under the direction of the forester, two individuals who maintained the roads and bridges, and a timber scaler. The timber management crew conducted timber growth studies, made insect-damage surveys, repainted boundary lines, and various other activities related to the maintenance, growth, and development of the timber and the timberlands. In addition, some portion of their time was spent in activities directly related to the sales of timber, such as marking the timber to be sold, soliciting bids, supervising performance of the cutting contracts, and scaling the logs removed.

Wilmon treated all of its land and timber management expenses as ordinary and necessary business expenses and deducted them from ordinary income. The Commissioner of Internal Revenue disagreed with the deduction of the expenses which were directly related to the sale of the timber, contending that they could only be offset against the capital gain on the sale of timber.
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Wilmington Trust Co. v. United States
79-2 U.S.T.C. ¶ 9707, 45 AFTR2d 80-301 (Ct, Cl, 11-14-79)

In this case, the Court of Claims responds to the recommendation of Trial Judge Miller in Wilmington Trust Co. v. United States (see immediately preceding case) and Trial Judge Browne in McMullan v. United States

The facts of Wilmington Trust are as described on page 179 of this volume. The facts of McMullan are described in Volume 15. In brief, McMullan involved taxpayers who jointly owned land which produced income from oil, gas, coal and timber. The income from the timber, about 80 percent of the total, was received from cutting contracts and was treated by the taxpayers as capital gain under Section 631(b) of the Internal Revenue Code. All of the taxpayers' costs of managing the land, including expenses directly related to the sale of the timber under the cutting contracts (i.e., a disposal of timber with a retained economic interest) were treated as ordinary and necessary business expenses and deducted by the taxpayers from ordinary income. The Internal Revenue Service disagreed with the taxpayers' deduction of the expenses directly related to the acquisition, negotiation and management of the timber cutting contracts, contending that these expenses (salaries of foresters for marking timber, legal fees for drafting contracts, etc.) were capital expenditures rather than deductible expenses and as such should be treated for tax purposes as an offset against the taxpayers' capital gains on the timber disposals.
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Wilson v. Commissioner
26 T.C. 474 (1956); Nonacq. 1962-2 C.B. 7.

A partnership agreed in 1946 to purchase timber under a contract which required it to pay the seller a specified price per thousand board feet, to complete removal within six years and to pay the taxes on the timber. Title to the logs was to remain in the seller until paid for. In 1948, the partnership agreed with a controlled corporation that the latter would cut and remove the timber, paying the partnership a specified price per thousand board feet. This arrangement could be discontinued at any time by mutual consent of the parties. The corporation hired an independent logger to do the actual logging, delivered the logs to the mill, received payment for them, and paid the agreed price to the partnership. The partners reported their distributive shares of income from this operation as long-term capital gain under section 117(k)(2), or alternatively under section 117 (a). The Commissioner denied the applicability of section 117(k)(2) on the grounds that the partnership was not the owner of the timber and that its transaction with the corporation was not a disposal within the meaning of section 117(k)(2). He also denied applicability of section 117(a) on the ground that the partnership had not sold the cutting contract to the corporation.
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Wineberg v. Commissioner
20 T.C.M. 1715; P-H T.C. Memo ¶61,336 (1961).
Aff'd 326 F.2d 157; 64-1 USTC ¶9156, 13 AFTR 2d 323 (9th Cir. 1963).
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Wineberg v. Commissioner
326 F.2d 157; 64-1 USTC ¶ 9156; 13 AFTR 2d 323 (9th Cir. 1963).
Affirming 20 T.C.M. 1715; P-H T.C. Memo ¶ 61,336 (1961).

Issue No. 1
The taxpayer began purchasing timberlands in the late 1920's and by 1950 had accumulated between 50,000 and 100,000 acres. About 1940 he began selling some of his timber while retaining the land. During the years 1948 through 1957 the taxpayer made 107 separate sales of timber. He maintained an office in his home, and later on rented quarters under the assumed name Wineberg Timber Company. He employed several persons who assisted in his timber sale activities and received inquiries from prospective purchasers of timber. The taxpayer did not advertise timber for sale, but he did advertise for the purchase of logged-over lands or timberlands. Persons engaged in the timber business knew that the taxpayer bought and sold timber and timberlands, and a high percentage of his total income was derived from timber sales, in some transactions, the taxpayer exchanged timber for timberlands. The taxpayer treated his profits from his timber sales as capital gain. He treated the exchanges as nontaxable exchanges of like-kind property. The Commissioner contended that the taxpayer held the timber for sale to customers in the ordinary course of his trade or business. Accordingly, he disallowed capital gain treatment except where the transaction qualified under Section 117(k)(2) and he disallowed like-kind exchange treatment.

Issue No. 2
The taxpayer sold timber under a contract which recited that the taxpayer agreed to sell and the buyer to purchase the timber on a described tract. The buyer agreed to pay a total of $30,000, payable $5,000 on execution of the contract, $5,000 on the day the buyer began logging, and the balance of $20,000 at the rate of $20 per thousand board feet for all logs removed from the tract. The contract specified a time limit for removal of the timber. The taxpayer later accommodated the buyer by allowing him to pay the $20,000 as logs were sold. The taxpayer contended that this contract constituted a disposal of timber with a retained economic interest within the meaning of section 117(k)(2). The Commissioner argued that the contract constituted an outright sale of the timber for an agreed price with no retention of an economic interest.

Issue No. 3
In a cutting contract, the taxpayer permitted the purchaser to use existing logging roads for the term of the contract in return for a payment of $4,000. The taxpayer contended that he had granted an easement, which was under state law an interest in land, and that the consideration received constituted proceeds from the sale of an interest in real property. The Commissioner contended that the proceeds represented rental income.
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Wirkkala v. United States
181 F. Supp. 338; 60-1 USTC ¶ 9344; 5 AFTR 2d 837 (W.D. Wash. 1960).

Under a contract with Weyerhaeuser Company, the taxpayers acquired title to and the right to cut all timber on a described tract of land. They were required to pay for all the timber whether removed or not. All of the incidents of ownership, whether advantageous or not, were obtained by them. However, Weyerhaeuser retained the option of first refusal to purchase the logs at current market price. If Weyerhaeuser did not choose to exercise its option, the taxpayers were free to sell the logs on such terms, conditions and price as they saw fit. The taxpayers elected under sections 117(k)(1)and 631(a) to treat their cutting of the timber as a sale or exchange. The Government contended that the taxpayers were neither owners of the timber nor the holders of a contract right to cut but were merely contract service loggers not qualified to elect under sections 117(k)(1) or 631(a).
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