Court Opinion

ID: 4599796
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:24:08.547107+00
Date Added: 2024-06-11T07:52:11.330771
License: Public Domain

Grogan Manufacturing Company, Petitioner, v. Commissioner of Internal Revenue, RespondentGrogan Mfg. Co. v. CommissionerDocket No. 29050United States Tax Court22 T.C. 161; 1954 U.S. Tax Ct. LEXIS 227; April 28, 1954, Filed April 28, 1954, Filed *227 Decision will be entered for the respondent.  Assuming, without deciding, that income attributable to the natural growth of timber after the acquisition thereof is income from the development of tangible property within the meaning of section 721 (a) (2) (C) of the Internal Revenue Code, as petitioner contends, its claim that income received by it in the taxable years which did result from the growth of timber in prior years was abnormal income attributable to the years in which such growth occurred, must still be denied.  While petitioner did submit evidence for the purpose of establishing the amounts of its income for the taxable years which it claims to have been due to growth in prior years, it offered no such proof as to its income for the 4 previous taxable years which was attributable to timber growth in prior years.  And since it was normal for petitioner to receive income which was due to the growth of timber in prior years, it had no such income which was abnormal as to class, and there is no way of determining, on the record here, that any part of its income in the taxable years which was due to growth in prior years exceeded by more than 125 per cent the average of *228  such income for the 4 previous taxable years, which would have to be the case to enable us to find that its income in the taxable years attributable to timber growth was abnormal in amount.  John A. Osoinach, Esq., for the petitioner.Allen T. Akin, Esq., for the respondent.  Turner, Judge.  TURNER *161  The respondent has disallowed claims for refund of $ 3,051.58 and $ 4,592.82 in excess profits taxes paid by petitioner for the taxable years 1941 and 1942.  The question presented is whether or not petitioner, in each of the taxable years, had abnormal income within the meaning of section 721 (a) (2) (C) of the Internal Revenue Code, "resulting from *162  * * * development of tangible property * * * extending over a period of more than 12 months," by reason of the natural growth of pine timber*229  in preceding years, and, if so, whether any part of such income was attributable to such prior years, under section 721 (b) of the Code, in computing its excess profits tax for the years herein.FINDINGS OF FACT.The petitioner was organized as a corporation under the laws of Texas in 1902 for the purpose of manufacturing yellow pine timber into lumber. Its place of business was at Bivins, Texas.  It was dissolved in 1948, but has remained alive for the purpose of winding up its affairs.  Since 1950, its office has been located in Conroe, Texas.The petitioner kept its books and filed its income and excess profits tax returns on an accrual basis of accounting.  It filed its returns and claims for refund for the years herein with the collector of internal revenue for the second district of Texas.During the years here pertinent the timber processed by petitioner was second growth loblolly pine, sometimes also referred to as old field pine and short leaf pine. Loblolly pine grows naturally from southern Delaware and eastern Maryland over the coastal plain and lower Piedmont sections south and west to southern Arkansas and into eastern Texas.  It is a faster growing pine than either*230  the long leaf or the true short leaf yellow pine, and of the second growth pine cut in the southern States, it supplies approximately as much timber as all other pines added together.Loblolly pine is one of the most prolific seed producers and one of the easiest pines to grow successively on the same land.  The seeds are small and fly long distances, and large areas where long leaf pine formed the bulk of the virgin timber have been reseeded to loblolly. In many areas, however, the timber has been cut to such a small diameter that only scattered immature trees have been left, and for lack of sufficient seeds, cutover lands have thereafter produced broom sedge and a few bushy pines, with some sweet gum and sassafras.  If proper seed trees are kept, loblolly pine comes back well after logging, and numerous cases have been known where tracts of land have been logged at intervals of 12 to 15 years and a good cut of second growth timber obtained.  This was not due, however, to the cutting of trees 10 to 15 years old, but to the cutting of trees that had been left previously and which had grown to merchantable sizes in the interval. Where a good stand of young timber is not left, substantially*231  longer intervals must elapse between cuttings.To get trunks which are long, straight, and free of branches, the pines when young should be grown in thick or well stocked stands.  *163  Later on, thinning will stimulate rapid growth of the trees in diameter; and, where overcrowded, thinning increases growth in height.  Larger trees are thereby developed at a given age and the money returns are usually increased.  Generally the time to begin thinning is when the trees reach diameters of 3 to 6 inches.  The heights are then usually between 25 and 35 feet and the ages from 12 to 15 years.  By proper thinning, new wood is made to grow on fewer trees but each tree will be of a larger size.  A general rule is to wait until the material cut in thinning will pay for the costs of the operation, the timber taken out often being of good value for pulpwood and firewood and, when given a creosote treatment, for poles or posts.  When the aim is to grow timber of fair size and quality, a good plan would be to produce a final marketable stand consisting of approximately 200 trees per acre.  This would give an average interval of about 15 feet between trees, which should be as evenly spaced as*232  possible.The depth and grade of the soil, and particularly its ability to hold moisture during the growing season, greatly affect the rate of growth of the trees. Other factors include forest fires, the ages of the trees, the degree of crowding, and the temperature and rainfall.  Fire in a tract of timber, even though not of such magnitude as to damage the trees of merchantable size, will usually destroy the seedlings and may kill, damage, or greatly retard the growth of the smaller trees. Loblolly pine stands, as they commonly grow, are mostly not fully stocked.  In other places they are overstocked.  Thus stands of timber left to grow as they will do not produce the greatest possible growth.Averages for the height and diameter of loblolly pine on good land, average land, and poor land in both open-grown stands and crowded stands, at the ages of 20, 25, and 30 years, are as follows:Diameter (in inches)Diameter (in inches)of the larger (orof the larger (orNumberHeight (in feet)dominant) trees indominant) trees inof treesAges ofthe open-growncrowded stands6 inchestrees instands 1and overthe standin(years)diameterGoodAveragePoorGoodAveragePoorGoodAveragePooron anlandlandlandlandlandlandlandlandlandacre 22056443210.88.26.97.66.56.22566534012.79.48.09.17.87.22603075614714.210.69.110.48.88.2270*233 For any given tract or lot of timber, the quantity thereof in board feet disclosed by the scaling of the logs will vary widely according to the log rule used.  The scaling rules commonly used are the Doyle, the Scribner, and the Doyle-Scribner, the Doyle-Scribner being the *164  Doyle rule for timber up to 27 inches in diameter and the Scribner for timber over that diameter, although the Scribner gives a less scale than the Doyle for logs 28 inches and over, and the Doyle less than the Scribner for logs less than 28 inches.  And while the Scribner is fairer than the Doyle for logs below 28 inches, careful sawing should result in a cut of 10 to 20 per cent more lumber than the Scribner rule gives for second growth timber. For small timber, such as second growth usually is, the International rule gives log volumes which are close to the board feet of lumber which can be sawed out by using good methods.  A log measuring*234  10 inches in diameter inside the bark at the small end and 16 feet in length, when carefully sawed by a circular saw of ordinary thickness, should turn out 64 board feet. The same log scaled by the Doyle rule shows 36 board feet.A sampling of many well stocked or medium dense stands of loblolly pine of different ages and taking into account all trees measuring 6 inches in diameter and over, shows amounts of saw timber per acre measured in board feet, when protected from fire and rightly thinned, as follows:Logs scaled by theMill tally, or actualDoyle-Scribner rulecut (in bd. ft.)(in bd. ft.)Age of trees(years)GoodAveragePoorGoodAveragePoorlandlandlandlandlandland2014,7008002522,6009,4008,6001,9003029,10016,2007,30016,1006,8006503534,20022,10012,80022,60011,8003,200Generally speaking, it is a mistake to cut loblolly pine under 25 to 30 years of age, since between the ages of 18 to 25 years the trees are growing at about their fastest rate.Much, if not most, of the timber cut by petitioner and manufactured into lumber during the years here pertinent has been*235  referred to as "option timber." 1 The petitioner would enter into a contract with the landowner whereunder it would acquire the right to enter upon the land and cut and remove all trees down to a specified minimum, usually 8 inches in diameter, 12 inches above the ground.  The right *165  in most cases would run for a specified period of 2 to 3 years, but it sometimes ran for as much as 10 years.  The right so obtained was that of cutting all trees which at the date of cutting had attained the specified minimum size, regardless of what their sizes were as of the date of the contract.  Some, if not all, of petitioner's timber contracts contained provisions giving a right to an extension or extensions of time for the cutting of the timber, upon the payment of a specified fee or rental.*236  Petitioner also acquired during the years herein some considerable quantity of logs by purchase from the owners or loggers after the logs had been cut.  Petitioner had substantial holdings of timberland which it owned in fee, but little, if any, of the timber from its fee lands was cut prior to the late 1940's.In acquiring timber under timber contracts, it was petitioner's practice to cruise the timber and estimate the amount of timber then on the tract which was of the specified minimum in size, or over.  The price paid to the landowner was entered by petitioner in the timber account on its general ledger as the cost of timber, and usually the estimated footage on the tract in question was also entered on the ledger.  2 Petitioner did not buy any timber under an arrangement whereby the total price paid was to be fixed and determined by the actual scaling of the saw logs when cut.*237  After acquiring a timber contract, petitioner would have the boundary lines of the tract run by a surveyor, and often employed some person residing in the vicinity to look out for and advise petitioner of fires or depredations.  During 1941 and 1942 petitioner employed some 15 to 20 local residents for such duties and, in some cases, to keep underbrush cut along boundary lines and to paint outside boundary trees. These part-time employees were paid from $ 10 to $ 100 per individual per year, usually in quarterly payments.Petitioner also cooperated with the Texas Forestry Association in its fire prevention program, paying the association an amount equaling 3 cents for each acre of its holdings.There were no serious forest fires in any tracts owned by petitioner, or to which it had any rights, during the years 1930 to 1942.  Neither was there any infestation by insects or tree diseases in its timber during that time.  It did have timber losses from thievery.*166  Aside from such promotion of growth as might be said to have resulted from the above protective measures, the petitioner indulged in no program and engaged in no activities to develop and promote the growth of timber*238  which it owned or timber to which or in which it had cutting rights.  It did not plant seed or cultivate seedlings, and it did not engage in any timber thinning program.  It carried on no program of selective cutting. Such growth as did occur resulted from the operation and effect of the forces of nature, and not from affirmative action by petitioner.Petitioner's surveying and timber expenses during the years 1930 to 1942, inclusive, and which were included in its administrative expenses for those years, were as follows:YearAmount1930$ 2,096.76 1931772.95 1932607.74 1933435.50 19341,053.76 1935894.90 19361,696.28 19371,037.40 1938$ 1,508.41 19392,075.57 19401,480.98 19413,183.13 19411 (485.00)19422,207.66 19421 (137.50)During the years 1941 and 1942 petitioner cut and removed timber from 115 tracts of land which it did not own.  The timber or timber rights had been acquired for 1 tract as early as 1930; for 2 tracts in 1934; and for the other tracts, 1 or more in each of the years 1935 to 1941, inclusive. The timber on 70 of the above tracts was cut out exclusively in 1941, *239  and on 38, exclusively in 1942.  From the remaining 7 tracts, timber was cut in 2 or more years.In 1941 and from tracts on which it had acquired timber or timber rights during the years 1930 and 1934 to 1940, inclusive, petitioner cut saw logs which, by the Doyle-Scribner scale, measured 12,101,800 3 board feet, of which 10,806,300 3 board feet were cut from the said tracts exclusive of those on which the timber or timber rights were acquired in 1940.In 1942 and from tracts on which it had acquired timber or timber rights in 1930, 1935, 1937, and 1939 to 1941, inclusive, petitioner cut saw logs which, by the Doyle-Scribner scale, measured 10,858,100 3*167  board feet, of which 9,457,250 3 board feet were cut from the said tracts exclusive of those on which the timber or timber rights were acquired in 1941.*240  According to its books of account, petitioner in 1941 sawed 15,077,119 board feet, Doyle-Scribner scale, of saw logs into lumber, producing 17,593,298 board feet of lumber and showing an overrun of lumber over log scale of 2,516,179 board feet. Included in the timber so processed into lumber were 1,436,548 board feet of "contract" logs, which petitioner did not log but purchased from others after they had been cut.According to its books of account, petitioner in 1942 sawed 13,931,395 board feet, Doyle-Scribner scale, of saw logs into lumber, producing 15,080,868 board feet of lumber and showing an overrun of lumber over log scale of 1,149,473 board feet. Included in the timber so processed into lumber were 943,998 board feet of "contract" logs, which petitioner did not log but purchased from others after they had been cut.As to 46 tracts on which petitioner acquired the timber or timber rights in the years 1930 to 1939, inclusive, and from which the timber was cut exclusively in 1941, the contract year, the estimated footage at the date of the contract, price then paid, including commissions, cost per thousand board feet, rentals or extension payments, the actual cut of logs, *241  Doyle-Scribner scale, and the percentage of cut to estimated footage at contract date, were as follows: *168 CostEstimatedPrice paid,estimatedfeet atincludingfootage per M,Contract yeardate ofcommissionsincludingcontractcommissions1934143,000$ 214.50$ 1.501935150,000300.002.00193516,00035.002.19193566,000165.002.50193532,50087.502,69193540,000100.002.501935201,000627.003.111936380,0001,130.002.97193670,000175.002.50193686,000258.003.00193670,000210.003.001936104,000360.003.46193670,000240.003.49193659,000170.002.88193670,000200.002.86193775,000250.003.331938300,000715.002.381939160,000682.504.27193910,00035.003.50193925,00075.003.00193930,000100.003.33193950,000166.663.331939140,000500.003.571939155,000459.002.96193950,000150.003.00193935,000105.003.00193915,00042.002.80193930,000154.005.13193930,00066.002.20193987,000375.004.311939133,000375.002.75193970,000210.003.00193930,00090.003.00193910,00030.003.00193940,000137.503.44193920,00062.503.13193945,000175.003.89193965,000200.003.08193952,000159.003.06193910,00035.003.50193940,000175.004.38193980,000375.004.69193940,000150.003.75193935,000100.002.86193930,00085.004.00193935,000100.002.86193960,000150.002.50193950,000175.003.50*242 PercentageRentals orof cut toContract yearextensionFeet cutestimated footagepaymentsat contractdate1934$ 85.80415,750291193557.50395,700264193526.0062,500389193580.00145,500220193514.00118,000363193580.00166,5004161935247.50356,5001771936195.00745,0001961936155.00300,000429193654.0096,0001121936128.00482,000689193684.00240,000231193654.00115,000164193645.0078,0001321936236,500338193781,2501081938100.00305,7501021939270,50016919399,25093193919,00076193915.0049,750166193948,000961939125,000891939292,750189193959,000118193925,750193916,300109193955,750186193984,750283193937.5097,5001121939220,000165193978,000111193938,25012819397,20072193919,75049193940,500203193912.5040,50090193959,00091193961,00011719399,25093193938,750971939175,250219193937,50094193978,500224193935.0035,250118193940.0029,50084193972,000120193968,250137*243  As to the 18 tracts on which petitioner acquired the timber or timber rights in 1940 or prior years and from which the timber was cut exclusively in 1942, the contract year, the estimated footage at the contract date, the price, including commissions, paid therefor, the cost per thousand of estimated board feet, the rentals or extension payments, the actual cut of logs, Doyle-Scribner scale, and the percentage of cut to estimated footage at contract date, were as follows: *169 CostEstimatedPrice paid,estimatedfeet atincludingfootage per M,Contract yeardate ofcommissionsincludingcontractcommissions1935170,000$ 340.00$ 2.001937332,0001,328.004.00193992,000290.253.15193985,000150.001.76193990,000200.002.22194035,000115.003.291940133,300810.006.081940112,5002,000.0017.781940100,000325,003.25194015,00055.003.67194030,00075.002.501940110,000325.002.951940115,000450.003.91194035,000106.003.02194044,000175.003.98194060,000225.003.75194050,000210.004.201940120,000600.005.00PercentageRentals orof cut toContract yearextensionFeet cutestimated footagepaymentsat contractdate1935$ 115.00197,0001161937160.00482,5001451939147,000160193918.00198,000233193925.00185,750206194035,7501021940128.00165,0001241940311,2502771940115,500116194038,250255194031,0001031940205,500187194060.00225,500196194030,50087194012.5039,750901940148,000247194047,500961940154,500129*244  By years, the total estimated footage as of the contract dates, the total of the contract prices, plus commissions paid, and the average cost of such estimated footage per thousand board feet of timber on the tracts cut exclusively in 1941, were as follows: 4TotalAverage costestimatedTotal costestimatedYear of contractsfootage contractincludingfootagedatecommissionsper M1934143,000$ 214.50$ 1.501935505,5001,314.502.601936909,0002,743.003.00193775,000250.003.331938300,000715.002.3819391,662,0005,694.163.43Total3,594,500$ 10,931.16$ 3.04*245  By years, the total estimated footage as of the contract dates, the total of the contract prices, plus commissions paid, and the average cost of such estimated footage per thousand board feet of timber on the tracts cut exclusively in 1942, were as follows: 5*170 TotalAverage costestimatedTotal costestimatedYear of contractsfootage contractincludingfootagedatecommissionsper M1935170,000$ 340.00$ 2.001937332,0001,328.004.001939267,000640.252.401940959,8005,471.001 5.70Total1,728,800$ 7,779.25$ 4.50Total, omitting Connallytract1,616,3005,779.253.58*246  Taking into account all tracts from which petitioner cut timber in the years 1941 and 1942, and in respect of which it had acquired the timber or timber rights during the years 1930 to 1941, inclusive, and including the extension or rental payments thereafter made as a part of the cost of the estimated footage, as shown by petitioner's records, in the trees of permitted sizes as of the contract dates, the total of such estimated footage as of the contract dates, the total cost, including extension or rental payments, and the average of such cost per thousand board feet by years, were as follows:FeetCost perYear acquiredpurchasedTotal costM feet19306,800,000$ 39,500.00$ 5.81193345,000105.002.3419344,368,00020,292.674.6519356,769,70021,653.303.2019365,004,00026,203.005.241937407,0001,738.004.271938300,000815.002.7219392,007,0006,781.413.3819401,839,8009,050.254.9219411,840,5009,232.005.02Total29,381,000$ 135,370.63$ 4.61The weighted average of cost per thousand board feet from the above table for the estimated footage in the trees of the permitted sizes at the contract dates*247  from 1930 to 1939, inclusive, was $ 4.56 per thousand, and from 1930 to 1940, inclusive, was $ 4.58 per thousand.Prices of pine stumpage in Texas from 1937 to 1943, inclusive, per thousand board feet, as reported by the United States Department of Agriculture, were as follows: *171 Long leaf pineShort leaf pineYearAllSecondPrice rangeAllSecondPrice rangesalesgrowthall salessalesgrowthall sales1937$ 6.50$ 6.50N$ 5.08$ 5.08$ 1.00-$ 7.001938NNN4.224.201.50-10.001939NNN5.405.211.28-10.0019406.00NN5.205.201.00-10.0019418.008.00N6.666.671.50-12.001942NNN7.77NN19439.709.70$ 5.00-$ 14.008.348.230.80-20.00Southern yellow pine (speciesnot reported)All southern pineYearAllSecondPrice rangeAllSecondPrice rangesalesgrowthall salessalesgrowthall sales1937$ 4.21$ 3.54$ 1.00-$ 5.50$ 5.49$ 5.52$ 1.00-$ 7.0019383.915.191.43-7.90 4.034.711.43-10.0019396.115.562.00-8.00 5.745.281.28-10.0019406.736.731.35-10.005.435.431.00-10.0019416.016.021.00-12.106.346.341.00-12.1019427.22NNNNN19437.907.903.48-12.508.128.060.80-20.00*248  Note: N = Not available.In 1941, petitioner sold a small quantity of stumpage which it owned or to which it had timber rights at a price of from $ 10 to $ 12.50 per thousand board feet.Petitioner carried standing timber in a timber account on its general ledger at cost.  When it "bought" a tract of timber, the cost was charged to that account.  There was no segregation of standing timber on the books according to individual tracts, and as timber was cut, it was charged out of the timber account, not according to the cost of the timber actually cut, but "at the average of the entire timber price." 6 Petitioner's books of account were designed to show the cost and profit on the basis of the actual cut in board feet of lumber produced, including the overrun.  Neither the footage of the logs cut from the individual tracts nor the actual cost thereof per thousand board feet was shown in, or could be computed from, the entries appearing in the books of account.*249  There was no segregation of, or way of segregating, the lumber produced and sold, according to the source of the logs sawed into lumber.It was not petitioner's practice to record the annual growth of timber on its books each year.  In connection with tax settlements, it did, on one or more occasions, enter additional footage on its books purporting to cover growth.  In 1941 it added an additional 13,103,909 *172  feet. Such additions to cover accretion would result in a wider spread of timber costs and in a reduction of the average cost per thousand board feet of its entire timber holdings.In the operation of its mill, petitioner regularly worked 2 shifts, a day shift and a night shift, of 8 to 10 hours each.  Based on a 10-hour day, the capacity of the mill was 1,250,000 board feet of lumber per month.Generally speaking, petitioner had been able to sell all of the lumber it produced.  7 Due to the beginning of the "defense era," there was an increased demand and higher price for lumber in 1941 and 1942.  Petitioner's lumber production and sales in board feet and the net selling price per thousand board feet for the years 1937 through 1942 were as follows:Net sellingFeet ofFeet ofprice per MYearlumber cutlumber soldfeet193715,756,47013,930,030$ 26.22193815,296,46915,309,40523.47193915,680,49315,185,92225.70194015,570,62516,858,36826.94194117,593,29817,324,44333.82194215,080,86818,317,25435.83*250 According to petitioner's books of account, its totals of net sales of lumber, freight out, net proceeds of sales, cost of lumber sold, gross income from sales of lumber, administrative expenses, selling and shipping expenses, and net profit on the sale of lumber, for the years 1937 to 1942, inclusive, were as follows:193719381939Net sales of lumber$ 365,245.56 $ 359,357.29 $ 390,255.06Freight out61,352.81 70,984.91 62,607.61Net proceeds of sales303,892.75 288,372.38 327,647.45Cost of lumber sold247,889.93 253,667.83 249,015.15Gross income -- lumber sales56,002.82 34,704.55 78,632.30Administrative expenses33,030.09 33,715.85 32,030.18Selling and shipping expenses36,647.47 34,512.15 39,360.37Total operating expenses69,677.56 68,228.00 71,390.55Net profit on lumber($ 13,674.74)($ 33,523.45)$ 7,241.75*251 194019411942Net sales of lumber$ 454,178.84$ 585,987.79$ 656,294.39Freight out60,705.8065,587.9587,449.26Net proceeds of sales393,473.04520,399.84568,845.13Cost of lumber sold295,893.09337,700.80402,562.29Gross income -- lumber sales97,579.95182,699.04166,282.84Administrative expenses29,807.1667,653.5162,323.90Selling and shipping expenses45,008.9861,161.5364,457.31Total operating expenses74,816.14128,815.04126,781.21Net profit on lumber$ 22,763.81$ 53,884.00$ 39,501.63According to petitioner's books of account, its sales, costs and profits per thousand board feet of lumber sold, for the years 1937 to 1942, inclusive, were as follows: *173 193719381939Net selling price$ 26.22 $ 23.47 $ 25.70Freight out4.40 4.64 4.12Net proceeds21.82 18.83 21.58Cost of stumpage processed into lumber3.00 3.09 3.00Logging cost9.33 8.63 8.56Manufacturing cost7.25 6.68 7.06Total cost of lumber manufactured during year19.58 16.76 16.34Cost of lumber sold during year (determined by use of lumber inventory)17.79 16.57 16.40Gross income from sales4.03 2.26 5.18Administrative expenses2.37 2.20 2.11Selling and shipping expenses2.63 2.25 2.59Total operating expenses5.00 4.45 4.70Net profit on sales($ 0.97)($ 2.19)$ 0.48*252 194019411942Net selling price$ 26.94$ 33.82$ 35.83Freight out3.603.784.77Net proceeds23.3430.0431.06Cost of stumpage processed into lumber3.342.963.25Logging cost7.339.5910.54Manufacturing cost8.459.0110.41Total cost of lumber manufactured during year17.6119.7723.16Cost of lumber sold during year (determined by use of lumber inventory)17.5519.4921.98Gross income from sales5.7910.559.08Administrative expenses1.773.903.40Selling and shipping expenses2.673.533.52Total operating expenses4.447.436.92Net profit on sales$ 1.35$ 3.12$ 2.16The petitioner sold its lumber through a sales agency.  The commission paid during the years 1937 to 1941 was 4 per cent of the sales price f. o. b. the mill.  Changes in the amounts of the commissions on sales, which constituted a part of the selling and shipping expenses during the years 1937 to 1942, inclusive, were the result of changes both in the sales prices and the volume of lumber sold.  The increase in the volume of lumber sold was due in part to efficient management.  There was no change in petitioner's *253  management between 1935 and the end of 1942.Petitioner was a member of the Southern Pine Association, an association of lumber mills, which advised its members about Government activities, efficiency of machinery used in the lumber industry, and forestry problems.  The Southern Pine Association is supported by payments made to it by its members based upon each one thousand board feet of lumber shipped.On February 4, 1946, petitioner filed a claim for relief under section 721 of the Internal Revenue Code and for the refund of $ 3,051.58 of the excess profits tax paid by it for 1941.  The basis of the claim was that so much of its 1941 income as was attributable to the growth of timber on the various tracts between the contract dates and the dates of cutting for processing into lumber was abnormal income under section 721 (a) (2) (C) of the Code, and, for excess profits tax purposes, such abnormal income was attributable, under section 721, to the years in which the growth occurred.  It was claimed that its timber had increased at a flat rate of 5 per cent per year during the interval between the contract date for each tract and the date of cutting. Computation of the growth footage*254  claimed was not made by applying the 5 per cent rate to the estimated footage on the tracts as of the contract dates, however, but by working from the footage actually cut in the taxable year; that is, actual footage cut from a tract on *174  which the contract had been acquired 2 years prior thereto was treated as being 110 per cent of the footage as of the contract date.  In arriving at the amount of income which, for the purposes of its claim, it attributed to growth, a rate of $ 4.90 per thousand board feet was applied to the amount of the growth footage which had been determined by using the 5 per cent growth rate.  The $ 4.90 per thousand board feet was represented as the price at which it had bought substantial amounts of stumpage in 1941.Also on February 4, 1946, petitioner filed a claim for relief under section 721 of the Code and for refund of $ 4,592.82 of the excess profits tax paid by it for the year 1942.  The basis of the claim was the same as that for the 1941 claim, except that the rate per thousand board feet applied in computing the amount of profit attributable to growth was $ 4.77 per thousand board feet, which was represented as the price at which it had*255  bought substantial amounts of stumpage in 1942.The respondent, in his consideration of the above claims, determined that the natural growth of timber did not constitute "development of tangible property" within the meaning of section 721 (a) (2) (C), and denied the claims for refund.OPINION.It is the claim of the petitioner that a portion of its income in each of the taxable years 1941 and 1942 was the result of growth of its timber during the intervals between the dates of acquisition and the dates of harvesting, and that in computing its excess profits tax for those years, it is entitled, under section 721 of the Internal Revenue Code, to have such portion of its income attributed to the years in which the growth occurred.That trees under natural conditions do grow, is not open to question.  We think, also, that the record amply shows that petitioner, under its established methods of operation, was able, by reason of the continuing growth of the timber owned by it or to which it had cutting rights, to harvest greater quantities thereof than would have been the case if it had logged the tracts immediately after acquisition, or had been limited, when the tracts were logged, to*256  the footage in the trees of the permitted sizes as of the dates of acquisition.As to the portion or quantity of the timber cut in 1941 and 1942 which was attributable to such growth or the amount of the income resulting therefrom, the evidence of record does not readily lend itself to definite or satisfactory findings or conclusions.  From Farmers' Bulletin No. 1517, United States Department of Agriculture, made of record by petitioner, we know generally that a loblolly pine in an open-grown stand, on average land, will have attained the permitted size for cutting herein at the age of 20 years, while in a *175  crowded stand it will require close to 30 years to attain that size.  8 In numerous cases tracts of land have been logged at intervals of 12 to 15 years and a good cut of second growth timber obtained.  That was not due, however, to the cutting of trees 10 to 15 years old, but to the cutting of trees which had been left previously and which had grown to the proper size in the interval, since, if a good stand of young timber is not left, substantially longer intervals must elapse between cuttings. We also know that where loblolly pine is left in its reseeding and growth*257  to the processes of nature the land is likely to be understocked or overstocked, and that stands of timber left to grow as they will do not produce the best growth; and further, that thinning and proper cutting over a period of time will result in a substantially increased yield.  The rainfall, the depth and grade of the soil, and particularly its ability to hold moisture during the growing season, greatly affect the rate of growth of the trees, and generally loblolly pine should not be cut under 25 to 30 years of age, since the trees are, in the usual case, growing at their fastest rate between the ages of 18 to 25 years.*258  As to petitioner's holdings, we are advised as to practically none of the above facts, except that it did not undertake thinning operations or indulge in selective cutting, and that such growth as did occur resulted from the operation and effect of the forces of nature and not from affirmative action on petitioner's part.  Possibly the soil, in the main, was average east Texas soil, but that is only surmise.  We do know that the timber was second growth, but we are not advised as to whether it was largely in open-grown stands or in crowded stands.  We have no information as to the time, average or otherwise, when the tracts were last logged prior to petitioner's acquisition of interests therein, how closely they had been logged, or whether at the time of acquisition the trees on the tracts were, in the main, of the permitted sizes for cutting or were saplings or seedlings.  We have been supplied with the number of tracts from which timber was cut in the said years, the dates on which the timber or timber rights were acquired, and the footage, Doyle-Scribner scale, of the logs actually cut and removed from the tracts in each of the taxable years.  As to most of the tracts, we have *259  also been fairly definitely supplied with purported estimates of footage in timber of the permitted sizes on the tracts as of the dates of acquisition. Petitioner does not base its computation of the quantity of growth timber claimed on these purported estimates, however, and, as will more clearly appear hereafter, *176  we do not regard them as indicative of the quantities of saw timber on the tracts at the contract dates.Abandoning the flat 5 per cent growth rate contended for in its claims for relief and refund, the petitioner now takes the position that the quantity of timber cut in each of the years 1941 and 1942 which represented growth is, for the purposes here, to be determined at the rate of 8 per cent per annum, compounded annually.  In applying that rate, however, it does not work from a footage figure for the timber on the tracts as of the dates of acquisition but works progressively backwards from the timber actually cut and removed from the tracts in the taxable years, by assuming that the actual cut represented 108 per cent of the quantity of saw timber which would have been harvested 12 months earlier, and so on, back to the date of acquisition. The residuum *260  left by such a computation as the amount of saw timber on any given tract as of the date of acquisition would in most instances bear little resemblance to the amount shown by petitioner's records as the estimate thereof as of the contract date.  By use of the 8 per cent rate, compounded, petitioner now asks that we find that of the timber cut in 1941, covered by contracts bearing dates from 1930 to 1939, inclusive, the amount to be regarded as growth timber is 3,622,703 feet, as against 2,266,664 feet on its refund claim.  And of the timber cut in 1942, from tracts covered by contracts bearing dates from 1930 to 1940, inclusive, it now asks for a finding of 3,651,414 feet, as against 2,277,969 feet on its refund claim.  This change of position is based on opinion testimony to the effect that the rate of growth for pine timber in east Texas is from 8 to 11 per cent per annum.  No reference was made in the testimony, however, to any rate compounded annually.  Although the opinion expressed was that of one of petitioner's directors, no explanation is offered as to why in making its claims for relief and refund, which were the claims administratively considered by the respondent, the growth*261  rate was represented to be a flat 5 per cent per annum.The petitioner has likewise abandoned the method used in its refund claims for computing the amounts of its profits for the years 1941 and 1942 which it claims resulted from growth.  It has discarded its claim that the profit attributable to growth is to be arrived at by applying the rates at which it was buying stumpage in those years to the footage of the claimed growth timber harvested.  Its position now is that the cost per thousand board feet of the timber on the various tracts decreased as the quantity of saw timber thereon was increased by growth, and that the amount of the profit for each of the taxable years which is to be attributed to growth is to be found by applying the amount by which its cost per thousand board feet was so decreased to the total footage of timber actually cut from the tracts in the taxable years.*177  Aside from any question of its soundness, a major difficulty with that approach is that the cost figures used by petitioner in arriving at the margin by which it claims its cost per thousand board feet of the timber cut was decreased by reason of timber growth are not substantiated by the evidence*262  for what they are represented to be.  As the cost of the saw timber on the tracts as of the dates of acquisition, the petitioner has used $ 4.56 per thousand feet for the tracts from which timber was cut in 1941, and $ 4.58 for the tracts from which timber was cut in 1942.  In arriving at the figures stated, petitioner has treated its total outlay, including original cost, commissions, and subsequent extension payments, as the cost of the saw timber on the tracts as of the dates of acquisition and none of it as the cost of the growth timber actually harvested, and as to the quantity of the saw timber on the tracts as of the dates of acquisition, it ignores the results shown both by its growth figure of 5 per cent flat, as used in its claims for refund, and its presently claimed growth figure of 8 per cent, compounded annually, and treats the amounts shown by its original estimates as being the quantity of timber of the permitted sizes on the tracts when acquired.  Aside from this inconsistency as to the portions of the timber cut which represented growth timber and timber "purchased," it is apparent from the evidence, we think, that the estimates of the quantity of saw timber on the*263  tracts as of the contract dates are unrealistic to such a degree that they may not be accepted as representing the quantities of timber of the permitted sizes which actually were there as of those dates.  To illustrate, the percentage of actual cut to estimate on the tracts logged exclusively in 1941 varied from a high of 689 per cent, for a tract on which the timber or timber rights were acquired 5 years before, to a low of 49 per cent, for a tract on which the timber or timber rights were acquired 2 years previously.  Variations between these two extremes show almost any result which may be imagined.  Although the record discloses that petitioner had no serious forest fires or infestations by insects or tree diseases in its timber during the period from 1930 to 1942, the evidence shows that as to 12 out of 31 of the tracts having contract dates in 1939, the actual cut 2 years later did not equal the estimates, the percentages ranging from the 49 per cent figure, previously mentioned, to 96 per cent.  In contrast, as to 9 of those remaining, the percentages ranged from 166 per cent to 283 per cent.  The facts being as they are, the only reasonable conclusion would seem to be that*264  either those who made the original estimates were not so expert as represented, or the results carried into petitioner's records by reason of those estimates were prompted by some consideration other than that of undertaking to show substantially the correct amount of timber of the permitted sizes actually on the tracts as of the contract dates.*178  As the cost per thousand board feet for all of the timber cut in 1941 and 1942 from the tracts in question, including both growth timber and timber "purchased," the petitioner has used in the above computation, $ 2.56 per thousand board feet as "1941 cost of timber used" and $ 3.25 per thousand as "1942 cost of timber used." The record shows that these figures represent the average cost per thousand of "the entire timber price" as shown by the timber account on petitioner's books, at the time of charge-out, which was either at the end of each month or the end of the year.  In arriving at the rates for charging-out timber when cut, the entire timber price was spread to cover the quantities of timber which, for income tax purposes, had been added from time to time to cover accretion by timber growth, as well as the quantity of timber*265  shown by petitioner's records as having been purchased.  In other words, as we understand them, the figures indicated represented the rate per thousand board feet at which petitioner's entire timber holdings, including the estimated quantities as of the dates of acquisition as well as the amounts added for accretion, stood on the petitioner's books as of the dates of charge-out.  We do not know the range of the dates of acquisition of the timber still in the account in 1941 and 1942, the range of the prices at which the various estimates of timber were carried into the timber account, whether or not the timber on petitioner's fee lands was included, and, if so, what adjustment was made for the land itself, or how the quantities which had been added to cover accretion had been arrived at or whether the amounts so added bear any relationship to the 5 per cent rate, as shown by petitioner on its claims for relief and refund, the 8 per cent rate, compounded annually, now contended for on brief, or some other rate.  Just why, for the purposes of this proposed computation, the petitioner chose to use the above figures as the cost per thousand board feet of the timber actually cut from the*266  various tracts is not readily apparent, particularly since the record does show as to most of the tracts from which timber was cut in 1941 and 1942 the total cost of the timber cut, which cut included both the growth timber and timber "purchased," and with such figures there would be no difficulty, certainly, as to the tracts cut exclusively in 1941 and 1942 in showing the actual cost per thousand board feet of the timber harvested.From the above, we think it apparent that by reason of certain variances between the factual representations in the claims for relief filed by petitioner with the respondent, and administratively considered by him, and the claims now made in this proceeding, a lurking question is whether the situation here falls within and is controlled by our holding in Blum Folding Paper Box Co., 4 T.C. 795">4 T. C. 795. It is also apparent, we think, that even though the amount of petitioner's *179  cut of timber in the taxable years was in some part due to enhancement by natural growth occurring during the interval between the dates of acquisition and the dates of harvest, petitioner has not established either the quantity of such growth or the*267  amount of its income in the taxable years which resulted therefrom, and any determination of such amounts by us would of necessity be after the manner indicated in Cohan v. Commissioner, 39 F. 2d 540. The fact that petitioner did have income in some amount resulting from the growth of timber, as claimed, would not, however, establish its right to the relief sought, or any part thereof.  The income still must be abnormal income within the meaning of section 721 (a) (1), 9 and the net abnormal income or some portion thereof must be attributable, under section 721 (b), 9 to prior years in which the growth occurred.*268  Under section 721 (a) (1), the existence and amounts of abnormal income are to be determined according to classes of gross income, and under that section abnormal income means income of any class of the taxpayer's gross income if it is abnormal for the taxpayer to derive income of such class, or, if the income is of a class which it is normal for the taxpayer to receive but the amount of gross income of such class for the taxable year is in excess of 125 per centum of the average amount of such gross income for the 4 previous taxable years, then the excess is, for the purposes of section 721, to be regarded as abnormal income.  In section 721 (a) (2), Congress has listed various situations in which, for the purposes of section 721 (a) (1), income is to be regarded as a separate class of income, one such separate class of income being described in section 721 (a) (2) (C)10 "as the income resulting from * * * development of tangible property * * * extending over a period of more than 12 months."*269 *180   The petitioner has bottomed its claims for refund and the presentation of its case here on the proposition that a portion of its income in 1941 and 1942 was attributable to the natural growth of timber between the dates of acquisition and the dates of harvesting, and that such growth was the "development of tangible property" within the meaning of section 721 (a) (2) (C), making such part of the income as did result from growth 11 abnormal income, which, for excess profits tax purposes, is to be attributed to the years in which such growth occurred.In denying petitioner's claims for refund, the respondent determined that the natural growth of the timber between the dates of acquisition and the dates of harvest was not the "development" of the property by the taxpayer within the meaning of section 721 (a) (2) (C), as claimed.  In so concluding, he relied on the provision*270  in section 35.721-7 of Regulations 112, to the effect that the "development" relied upon must be that of the taxpayer.The difficulty with the claim so made is that it does not follow that such income as may, on the record here, be said to have resulted from the growth of timber during the period it or the timber rights were owned by petitioner, was abnormal income under the statute, even if it should be conceded or assumed that the natural growth during the period of its ownership was the "development of tangible property" within the meaning of section 721 (a) (2) (C).  That would merely mean that the income which did result from the growth of timber was a separate class of income, and whether or to what extent it was abnormal income under the statute would be dependent upon the results after application of section 721 (a) (1).  In that respect, the record amply shows that such of the petitioner's 1941 and 1942 income as may be said to have resulted from growth was not abnormal as to class, since it was, and had been, perfectly normal over the years for petitioner, under its established methods of operation, to harvest timber from tracts in respect of which it had previously acquired*271  the timber or timber rights, and to realize income on and from such increase as had occurred by reason of the natural growth of the timber between the dates of acquisition and the dates of cutting or logging.  If, then, there was abnormal income in the taxable years from growth, it was not because it was abnormal as to class but because petitioner's gross income which was from growth was abnormal in amount when compared with the average amount of the gross income from growth for its 4 previous taxable years.While the petitioner did undertake to prove the portion of its income for 1941 and 1942 which was the result of growth of the timber *181  after the dates of its acquisition of the timber or timber rights, and it takes the position that the proof on which it relies does reasonably establish such income, it has not offered any proof to show the amount of the income received by it in the 4 previous taxable years which was due to timber growth during the holding period, and it is accordingly not possible to determine the amount, if any, of abnormal income realized by the petitioner in the years before us which could be said to have resulted from such growth or development.  And*272  being unable to say that petitioner had any abnormal income, as claimed, it becomes unnecessary to consider and decide the portions of petitioner's 1941 and 1942 income which might be said to have been the result of the growth of the timber in prior years, or to determine as a matter of law whether the income for the taxable years from growth timber was income resulting from the development of tangible property within the meaning of section 721 (a) (2) (C).Reviewed by the Special Division.Decision will be entered for the respondent.  Footnotes1. Diameters are measured outside the bark, at a height of 4 1/2 feet above the ground, or breast high.↩2. The trees on the better qualities of land are fewer and larger in diameter, the number on the poorer lands is greater and the trees are smaller in diameter.↩1. While generally in the course of the trial the reference was to the purchase of timber, as if ownership thereof had been acquired as of the date of the contract with the landowner, we have no way of knowing whether or to what extent petitioner actually became the owner of timber in place at such date, since none of the timber contracts, nor the terms covering that phase of the transactions, were made of record.  One of petitioner's witnesses did testify, however, that practically all of the timber cut during the years herein "was from option timber," which, he explained, was timber which under the contract petitioner "just owned the timber rights alone." Whether there was severance in contemplation of law as of the contract dates or title was obtained at the time of actual severance and removal, is not shown.↩2. The record does not show whether or to what extent the "option timber" was paid for at so much per thousand on the basis of the quantity estimated, as against lump-sum prices of so many dollars for all of the timber of the permitted sizes on the tract, without any reference to the estimated board feet. It is to be noted, however, that the prices paid for many of the tracts were in round figures, and it was the testimony of petitioner's general auditor that in checking records to verify some schedules prepared for him, "the ledger would show the money, but not always the number of feet bought."↩1. Capitalized by revenue agent's report.↩3. Possibly some additional footage in each of the above categories was cut in each year, ranging from 900 additional feet in the total of such footage cut in 1942, to six to seven hundred thousand additional feet in the total of such footage cut in 1941, but the evidence with respect thereto does not lend itself to a satisfactory determination of fact therefrom.  Presumably the only records ever maintained by petitioner in its regular course of business and in which information as to the cut from the various tracts was recorded, were the log scale books, which did not constitute a part of petitioner's regular books of account and which were destroyed sometime prior to the trial herein.  For the purpose of supplying petitioner's general auditor with the data for filing the claims for refund herein, petitioner's bookkeeper had prepared schedules from the log scale books and other records purporting to show the estimated board feet on each tract as of the date of acquisition of the timber or timber rights, the cost, including commissions, subsequent payments for rentals or extensions of time for cutting, and the board feet by the Doyle-Scribner rule in the logs cut from each tract. Petitioner's general accountant undertook a check of his own to verify the schedules which had been prepared and, as a result of that check, changes were made in the figures relating to certain tracts which indicated an over-all increase in the footage of timber cut. On the witness stand, he undertook an explanation of the adjustments made by him, the basis therefor, the source of information, and the reasons for his conclusions.  In several respects, his testimony not only was not clear but contained unexplained discrepancies as between the data relied on and the effect given thereto.  In one or more instances, he could not remember the reason or factual basis for the adjustment made.  The above totals as to the cut of timber from the various tracts in the taxable years 1941 and 1942 cover the tracts in respect of which the general auditor undertook no adjustment of the schedules which had been prepared by the bookkeeper. In other words, the totals show the cut from the tracts to the extent the bookkeeper and the auditor were in agreement both as to years and footage.↩4. This table includes only the tracts to the extent the schedules prepared by petitioner's bookkeeper and those prepared by its general auditor were in agreement both as to years and footage. Rentals or extension payments have not been included as a part of the cost of the estimated footage of timber of the permitted sizes as of the contract date nor in arriving at the rate per thousand feet, since if petitioner had cut the timber immediately there would have been neither extension payments nor growth sufficient to add any footage to the trees of the permitted sizes and since extension payments when made would more logically and reasonably relate to the growth occurring thereafter, including the trees which during the extended periods would attain the permitted sizes for cutting.↩5. See footnote 4, supra↩.1. Omitting the Mrs. W. C. Connally tract, where the estimated footage at the date of contract was 112,500 feet, the amount paid was $ 2,000, and the average per thousand of estimated feet was $ 17.78, which was more than $ 10 over the price paid for any other timber, the average per thousand board feet estimated stumpage or 1940 contracts was $ 4.10.↩6. According to petitioner's general auditor, the charge-out of the timber cut from the timber account was as of the end of the year.  According to its bookkeeper, it was as of the end of each month.↩7. It was the testimony of petitioner's bookkeeper that it had always been able to sell all of the lumber it "could produce or wanted to produce."↩8. This data is taken from Table 1 appearing on page 5 of the said Bulletin, part of which is set out in our Findings of Fact.  A somewhat slower growth for loblolly on a per acre basis seems to be indicated by Table 5, page 11, of the same Bulletin, showing the "amount of saw timber per acre * * * in well set, or medium dense, stands protected from fire and rightly thinned," part of which table is also shown in our Findings of Fact.↩9. SEC. 721. ABNORMALITIES IN INCOME IN TAXABLE PERIOD.(a) Definitions.  -- For the purposes of this section -- (1) Abnormal income.  -- The term "abnormal income" means income of any class includible in the gross income of the taxpayer for any taxable year under this subchapter if it is abnormal for the taxpayer to derive income of such class, or, if the taxpayer normally derives income of such class but the amount of such income of such class includible in the gross income of the taxable year is in excess of 125 per centum of the average amount of the gross income of the same class for the four previous taxable years, or, if the taxpayer was not in existence for four previous taxable years, the taxable years during which the taxpayer was in existence.* * * *(b) Amount attributable to other years.  -- The amount of the net abnormal income that is attributable to any previous or future taxable year or years shall be determined under regulations prescribed by the Commissioner with the approval of the Secretary. * * *↩10. SEC. 721. ABNORMALITIES IN INCOME IN TAXABLE PERIOD.(a) Definitions.  -- For the purposes of this section -- * * * *(2) Separate classes of income.  -- Each of the following subparagraphs shall be held to describe a separate class of income: * * * *(C) Income resulting from exploration, discovery, prospecting, research, or development of tangible property, patents, formulae, or processes, or any combination of the foregoing, extending over a period of more than 12 months; * * *↩11. In its reply brief, the petitioner specifically disavowed any claim for relief "as to income arising from the timber originally purchased."↩