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Timber and The tax-wise owner of timber can realize capital gain from sales, exchanges or utilization of his timber. This is permitted under sections 631 and 1231 of the 1954 Code (and its predecessor provisions under the 1939 Code). This article will discuss some of the tax planning problems which may be encountered in obtaining the advantages of section 631. Space limitations do not permit as full a discussion as may be desirable, but a list of additional references is appended. Need for Legislation Before discussing the present rules of section 631, some historical perspective should be helpful. Prior to 1944, a mill operator could obtain a capital gain benefit only by an outright sale of timber which was a capital asset or an asset used in his trade or business. Also an investor could obtain a capital gain benefit only by an outright sale of timber. Neither could obtain a capital gain benefit if he was a dealer. Since private sales of timber usually involve a considerable amount of money, an outright sale was difficult to conclude. To overcome this problem timber was sold on a pay-as- you-cut basis. That is, a cutting contract was executed granting timber cutting rights for a unit price per thousand board feet (MBF). This procedure raised the question of whether the consideration was for the sale of tim-the amounts —Every citizen •a declaration estimated tax • more and he: eexceeding-*- d or a widow rates; pis; 111 not entitled entitled to file ed income of >y be expected re mare man ubject to with-totton.— Your Vpril 15, 1963. in Instructions rtor of Internal no legal rested States, file ttons. Internal • estimated tax n, or in equal fune 15, 1963, i, 1964. The i declaration, le to Interna) is designed to if any, against sated tax by bn line 5 and ly your 1962 :h installment snt, divide the 3f installments tion on line 6. d wife may file ing cases: No • the husband are separated arate mainte-ars. If a joint i not made for uch year may r the husband them in such sast two-thirds ling or fishing, •e January 15, wait until Jan-mure balance xi tion). How-or before Feb-that time, you to file a declaration later. In sue filing is as follows: June 15, if the April' 1 and before June 2; Septerr. occurs after June 1 and before Se 15, 1964, if the change occurs The estimated tax may be paid L on the remaining payment dates. If by January 31, 4964, you fil tax return and pay in full the bal< on or before January 15, 1964, yi any required amended declaratioi declaration which would be due January 15, 1964; or (c) pay th estimated tax. 8. Amended declaration.—If, a declaration, you find that your < stantially increased or decrease change in your income or exempt an amended declaration on or t date—June 15, 1963, September ary 15, 1964. For this purpose, U on back of the bill if one is mailec tax payments. If you do not r» Form 1040-ES (Amended) from ai Service office. Any amended declaration shot District Director with whom the was filed even if you move to c whether or not you expect to file yc tax return for 1963 in that aistri 9. Additional charge for failu Income tax.—An additional chc imposed by law for underpayment mated tax except in certain situ does not apply if each installmer (a) is at least 70 percent (66%% ermen) of the amount due, (b) is would have been paid if based year, or (c) is based on a tax cor income for last year and this year's ttons. For additional exceptions Form 2210. 10. Your 1962 income tax.—Th line 1(a), Form 1040-ES, Is an am line 12, less the total of any ami 15c, d, e, and f on page 1, Form 1 11. How to estimate your fa made a 1962 return on Form 1C income, exemptions, and deductio same, enter on line 1(b) of your amount shown on line 1 (a). If yoi to be $5,000 or more, use Form 10 with related instructions, to assii your tax for 1963. If your income (line 9, page 1, Fc to be less than $5,000, to find yo may use the tax table in the insfa and the dividends received cred come credit if applicable. You may include estimated se your declaration of estimated tax ber or a royalty. The Treasury related timber (a natural resource) to mineral deposits and held, as in the case of mineral leases, that the payment represented a royalty and as such was ordinary income despite the fact that the timber was a capital asset in the hands of the taxpayer. This situation depressed the wood products industry because investors wanted to make only outright sales of timber and small operators could not meet the terms. Mill operators with their own stands of timber were reluctant to cut and create ordinary income out of the appreciation accruing during a long holding period. To a certain extent this resulted in mill operators selling blocks of timber back and forth to attain a tax saving even though such sales would result in an economic loss because of the location of the exchanged timber. Congress concluded that the law discriminated against taxpayers who disposed of timber by cutting it as opposed to those who sold it outright. In order to eliminate this discrimination, the Senate added to the Revenue Act of 1943 an election which permitted the taxpayer who for more than 6 months before the beginning of the year had owned timber or had a contract to cut timber to treat 36 THE QUARTERLY
Object Description
Title |
Timber and taxation |
Author |
Gullixson, Stanley |
Subject |
Timber -- Accounting Forests and forestry -- Taxation -- United States |
Personal Name |
Gullixson, Stanley |
Portrait |
Gullixson, Stanley |
Office/Department |
Touche, Ross, Bailey & Smart. Portland Office |
Citation |
Quarterly, Vol. 09, no. 3 (1963, September), p. 36-41 |
Date-Issued | 1963 |
Source | Originally published by: Touche, Ross, Bailey & Smart |
Rights | Copyright and permission to republish held by: Deloitte |
Type | Text |
Format | PDF image with OCR under text, scanned at 400dpi |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi. Digital Accounting Collection |
Date-Digitally Created | 2009 |
Language | eng |
Identifier | Quarterly_1963_September-p36-41 |