WILLAMETTE INDUSTRIES, INC. V. COMMISSIONER 118 T.C. 126 (2002) CASE BRIEF

WILLAMETTE INDUSTRIES, INC. V. COMMISSIONER

118 T.C. 126 (2002)

NATURE OF THE CASE: Willamette (P) and IRS (D) filed cross-motions for summary judgment in P's petition to determine whether P was entitled to defer gain resulting from the salvage (processing and sale) of damaged trees under I.R.C. 1033.

FACTS: P operates a forest products manufacturing business. P grows, harvests and processes trees into finished products. Approximately 40 percent of P's timber needs are acquired from P's timberland, which comprises 1,253,000 acres of forested land. From 1992-95 its crop of trees was in part damages by wind, ice storms, wildfires, or insect infestations. The damage left part of P's damaged trees standing and part of them fallen. The damage occurred prior to the intended time for harvest. P salvaged and processed what it could. This was in lieu of simply trying to sell the damages tress in place to a third party. P realized income from the damaged trees when it sold the finished products. P used section 1033 for involuntary conversion treatment (deferral of gain). P deferred only that portion of the gain attributable to the difference between its basis and the fair market value of the damaged trees as of the time its salvage of them began; that is, the value P contends would have been recognized if it had sold the damaged trees on the open market instead of further processing and/or milling the damaged trees into finished products. P is not attempting to defer any portion of the gain attributable to the processing, milling, or finishing of products. D determined that P understated income by improperly deferring gain from the sale of the end product of the damaged trees, as follows: 1992 -- $ 647,953; 1993 -- $ 2,276,282; 1994 -- $ 3,592,035; and 1995 -- $ 4,831,462. P petitioned.

ISSUE:

RULE OF LAW:

HOLDING AND DECISION:

LEGAL ANALYSIS:

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