Court Opinion

ID: 4633306
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:13:39.210167+00
Date Added: 2024-06-11T07:58:02.053069
License: Public Domain

JOHN W. BLODGETT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Blodgett v. CommissionerDocket No. 35356.United States Board of Tax Appeals13 B.T.A. 1388; 1928 BTA LEXIS 3057; November 2, 1928, Promulgated *3057  Amount received from sale of dead and down timber in 1923 held to be taxable as capital gain where petitioner was not engaged in logging or lumbering business, such timber not being considered petitioner's "stock in trade" or property includable in inventory.  Mark Norris, Esq., and Oscar E. Waer, Esq., for the petitioner.  J. E. Marshall, Esq., for the respondent.  SIEFKIN*1388  This is a proceeding for the redetermination of a deficiency in income taxes for the calendar year 1923 in the amount of $1,893.14.  The assignment of error relates to the refusal of the respondent to classify the sum of $4,174.60 received by the petitioner as capital gain rather than ordinary income.  At the hearing this contention as to $141.31 of said amount was waived by the petitioner.  FINDINGS OF FACT.  The petitioner is a resident of Grand Rapids, Mich.  For a number of years he has been connected as a stockholder and officer with a number of corporations in which he has the controlling and guiding interest.  He has also invested the proceeds from Mississippi timber lands, given to him by his father many years prior to 1913, as such proceeds came in. *3058  His books and income-tax returns have been kept and made on a cash receipts and disbursements basis.  As an individual the petitioner has never been engaged in lumbering or logging operations or in handling lumber, logs, ties or other forest products; has never been engaged in any business in which a stock in trade was kept or in which an inventory was necessary.  The only timber lands ever purchased by the petitioner were a few scattering 40-acre tracts acquired years ago in order to block up or make more accessible the holdings acquired from his father and a piece of timber land on Vancouver Island to which he took title in 1920 as an investment as his share in a partnership enterprise with an old friend who induced him to buy and give him an interest in it.  In 1923 E. P. Stone, who acted as the petitioner's agent in Mississippi in conserving the timber, looking after trespasses, paying taxes and, in general, overseeing the property, disposed of dead and down timber for $4,018.29, and sold cut-over land for $15, transmitting such sums to the petitioner who, on his income-tax return, treated the amounts as gains derived from the sale of capital assets and taxable as a capital*3059  gain.  The respondent, in determining the *1389  deficiency herein, excluded the amount as a capital gain and included it as ordinary net income taxable under the normal and surtax rates.  The sale of the dead and down timber in 1923 was made to salvage such timber which would otherwise have become worthless.  In 1923 the petitioner contracted with reference to the standing timber on the Mississippi timber lands from which the dead and down timber was sold in that year.  The contract provided tha the vendees were to cut the standing timber and pay for it as sold by them on the basis of a certain percentage of the gross selling price.  It is not the custom of timber operators to inventory annually dead and down timber.  It would be impracticable, due to rapid deterioration and to the fact that dead and down timber in a large tract is marketable only to a limited degree, depending upon the accessibility to transportation.  OPINION.  SIEFKIN: The refusal of the respondent to treat the amount of $4,033.29 as taxable at the 12 1/2 per cent rate under section 206 of the Revenue Act of 1921 arises from his position that the petitioner, in selling the dead and down timber from*3060  his timber lands, was disposing of - stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year.  It is hard to believe that the dead and down timber upon timber lands owned for many years by the petitioner are part of his "stock in trade" or would "properly be included in the inventory." It is clear from the evidence that the petitioner's business is not the lumber business, as an individual, and that except for his interests through his interests in corporations, the two tracts of timber land were held by him as investments and not dealt with by him as a timber or logging business.  The contract of 1923 with respect to the timber on the Mississippi tract was, considering all its terms, a contract of sale of the entire standing timber and did not constitute the other contracting parties agents of the petitioner so that, through them, he was engaged in lumbering operations.  We conclude that the amount of $4,033.29 received in 1923 was properly taxable at the rate for a capital gain.  Judgment will be entered under Rule 50.