Pope & Talbot, Inc. v. Commissioner of Internal Revenue

This case involves an appeal from the Tax Court, 60 T.C. 74 (1973), and is concerned with the interaction of sections 1201(a) and 631(a), Internal Revenue Code of 1954, as applied to a taxpayer who elected to consider his cutting of timber as a sale or exchange pursuant to section 631(a). The taxable years in question are 1966 and 1967.

Under section 631(a) the cutting of timber by a taxpayer who has elected its benefits and who meets the 6 months holding period is treated as capital gain to the extent of the difference between the fair market value, determined as of the first day of the taxable year in which cut, and the adjusted basis for depletion of such timber. This fair market value is also treated as the cost of such timber “for all purposes for which such cost is a necessary factor.” In computing the alternative tax, made available by section 1201(a) to corporations whose net long term gains exceed net short term capital losses, capital gains derived from timber cutting may be quite large, other income quite small, and expenses and deductions (including cost of goods sold derived in substantial part from the fair market value of cut timber) quite large. Under…