Georgia-Pacific Corporation v. United States

Georgia-Pacific Corp. appeals from the dismissal of its tax refund suit. Georgia-Pacific claimed that it was entitled under Int.Rev.Code § 631(b) to long-term capital gains treatment on the sale of standing timber. The district court held that under Treas.Reg. § 1.1502-13(c)(4), governing affiliated corporations filing consolidated tax returns, Georgia-Pacific was required to treat the gain as ordinary income. Georgia-Pacific contends on appeal that the regulation is not applicable because the transaction was not a “deferred intercompany transaction” and the purchaser was not entitled to claim depletion when the timber was cut. We affirm.

I. Facts

In 1973, Georgia-Pacific Corp. entered into a timber-cutting contract with its wholly-owned subsidiary, Timber, Inc. (Timber), under which Timber agreed to cut a fixed amount of standing timber on certain lands owned by Georgia-Pacific for $150 per thousand board feet. The contract refers to Georgia-Pacific as the “seller” and Timber as the “buyer.” Payment is required upon removal of the timber and title passes from seller to buyer upon payment. The contract does not specify which party bears the risk of loss prior to payment, except…