United States v. Pete Johnson, F. Douglas Mavor, Jane Kendle Mavor, Nelson T. Bruce, and Cleo Bruce
Opinion
Opinion
Hamley, J.
This action was brought to recover tax deficiencies, assessed and paid, for the year 1948. Judgment was entered for plaintiffs, and the Government appeals.
The single question presented here is whether, in exercising their right to cut certain timber, the taxpayers were cutting timber “for sale,” within the meaning of § 117 (k) (1) of the Internal Revenue Code of 1939, 26 U.S.C.A. (1939), § 117 (k) (1). If so, as all concede, taxpayers were entitled to capital gains treatment on the proceeds received from such disposition of the logs. The trial court held that the taxpayers were cutting the timber “for sale.”
The facts are not in dispute. Pete Johnson, F. Douglas Mavor, and Nelson T. Bruce (taxpayers) are partners in the Johnson & Mavor Logging Company. On July 23, 1946, the partnership entered into a written contract with Puget Sound Pulp & Timber Co., relating to the timber on part of the timber company’s extensive holdings in Skagit county, Washington. Under this contract, the partnership was granted the right and license to enter upon the described lands and remove all merchantable timber, under the terms and conditions specified in the agreement.