Harold Schudel and Paula J. Schudel, Paul N. Goodmonson and Margaret Goodmonson v. Commissioner of Internal Revenue

Appellants, growers of Christmas trees, appeal from a Tax Court decision sustaining income tax deficiencies asserted by the Commissioner of Internal Revenue for calendar years 1967, 1968, and 1969. The dispute turns upon the interpretation of section 631(a) of the Internal Revenue Code of 1954 ( 26 U.S.C. § 631 (a)).

Section 631(a) 1 allows timber owners who cut their own timber to treat the cutting as a “sale or exchange” and hence as a taxable event on which capital gain or loss may be computed pursuant to section 1231. The gain or loss from the hypothetical sale for tax purposes is the difference between the adjusted basis and “the fair market value as of the first day of the taxable year in which such timber is cut.”

Appellants’ tax year began January 1. Each year they cut the trees in November, for sale during the Christmas season. By the terms of the statute, gain or loss on the trees when cut is to be measured by their *1302 fair market value on the preceding January 1, almost a year earlier. The trees grew during this period. When cut in November the trees were of premium grade. The Tax Court found that on the preceding January 1, the same trees would have been graded as…

dissenting:

I respectfully dissent on the following grounds:

(1) The appellants did not question the validity of the regulation in the Tax Court, nor do they challenge its validity on this appeal. In all fairness to the trial judge, we should not write on an issue which was not urged before him, nor should we write on the validity of the regulation without proper briefing and argument.

(2) The regulation was promulgated by the Commissioner almost forty years ago. Since that time the Congress has reenacted 26 U.S.C. § 631 (a) on at least three occasions, using precisely the same language on when the fair market value of the timber should be fixed, the latest reenactment being in 1976. 90 Stat. 1732 , 1733. Needless to say, we must assume that the Congress was familiar with the interpretation placed on the statute by the Commissioner. None *1304 theless, it did not see fit to change the pertinent language of the statute. See Chemehuevi Tribe of Indians v. Federal Power Commission, 420 U.S. 395, 408-10 , 95 S.Ct. 1066 , 35 L.Ed.2d 279 (1975). The spectre of horribles suggested by the majority that the timber might be destroyed by fire, pest, or disease between January 1st and…

563 F.2d 1300 77-2 USTC P 9746 Harold SCHUDEL and Paula J. Schudel, Paul N. Goodmonson and Margaret Goodmonson, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. Nos. 75-1183 and 75-1186. United States Court of Appeals, Ninth Circuit. Oct. 28, 1977. William H. Kinsey, Souther, Spaulding, Kinsey, Williamson & Schwabe, Portland, Or., argued for petitioners-appellants. Robert T. Duffy, Tax Div., U. S. Dept. of Justice, Washington, D. C., argued for respondent-appellee. Appeal from a Decision of the Tax Court of the United States. Before BROWNING and KILKENNY, Circuit Judges, and VAN PELT, * District Judge. PER CURIAM: 1 Appellants, growers of Christmas trees, appeal from a Tax Court decision sustaining income tax deficiencies asserted by the Commissioner of Internal Revenue for calendar years 1967, 1968, and 1969. The dispute turns upon the interpretation of section 631(a) of the Internal Revenue Code of 1954 ( 26 U.S.C. § 631 (a)). 2 Section 631(a) 1 allows timber owners who cut their own timber to treat the cutting as a "sale or exchange" and hence as a taxable event on which capital gain or loss may be computed pursuant to section 1231. The…