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Rev. Rul. 76-6, 1976-1 CB 176

REV-RUL, Reimbursements under the forestry incentives program., Rev. Rul. 76-6, 1976-1 CB 176, (Jan. 01, 1976)

Section 611.--Allowance of Deduction for Depletion

26 CFR 1.611-3: Rules applicable to timber.
(Also Sections 61, 263; 1.61-1, 1.263(a)-1.)

[IRS Headnote] Reimbursements under the forestry incentives program.--
Cost sharing payments received from the Federal government under the forestry incentives program of the Agriculture and Consumer Protection Act of 1973 are includible in income, and the total costs of reforestation (not diminished by such payments) are to be capitalized as a cost of timber.

Advice has been requested regarding the treatment for Federal income tax purposes of a cost sharing payment received from the Federal government under the forestry incentives program (F.I.P.) of the Agriculture and Consumer Protection Act of 1973, Pub. L. No. 93-86.

The taxpayer reforested his nonindustrial private forest land by planting tree seedlings and paid the total costs of such reforestation. Under the cost sharing provisions of F.I.P., the taxpayer received a reimbursement from the Federal government equal to 75 percent of his total reforestation costs.

Section 61 of the Internal Revenue Code of 1954 provides, in general, that gross income means all income from whatever source derived, unless excludable by law.

Section 263 of the Code provides, in pertinent part, that no deduction from income is allowable for any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made.

Section 1.611-3(a) of the Income Tax Regulations provides, in pertinent part, that amounts paid or incurred in connection with the planting of timber (including planting for Christmas tree purposes) shall be capitalized and recoverable through depletion allowances.

Government payments and cost sharing benefits received by farmers and ranchers under soil conservation and similar programs have been held to be income. Baboquivari Cattle Co. v. Commissioner, 135 F 2d 114 (9th Cir. 1943), 1943 C.B. 1013; Roy L. Harding, 29 CCH Tax Ct. Mem. 789 (1970); Clara Driscoll, 3 CCH Tax Ct. Mem. 73 (1944).

Similarly, in the instant case, the F.I.P. payment is includible in the taxpayer's gross income in the year received, and the total costs of reforestation (not diminished by the F.I.P. payment) are to be capitalized as a cost of timber, recoverable through allowances for depletion as the timber is cut, or as adjusted basis for gain or loss in the event of sale or other disposition of the timber by the taxpayer.