Lansing v. Commissioner of Internal Revenue, 033064 FEDTAX, 2013-62

Docket Nº:2013-62.
Opinion Judge:ARUNDELL, Judge:
Party Name:DEAN LANSING and VIRGINIA L. BARBA, Formerly Known as VIRGINIA LANSING, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Attorney:Maurice J. Hindin and Alvin D. McNeil, for the petitioners. Donald G. Daiker, for the respondent.
Case Date:March 30, 1964
Court:United States Tax Court
 
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23 T.C.M. (CCH) 498 (1964)

T.C. Memo. 1964-82

DEAN LANSING and VIRGINIA L. BARBA, Formerly Known as VIRGINIA LANSING, Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 2013-62.

United States Tax Court.

March 30, 1964

For the calendar years 1955, 1956, and 1957 petitioners reported certain conceded gains from three tracts of timber (Travers, Section 33, and Wilson) as long-term capital gain. The respondent determined that the gains were ordinary income. As to the Travers tract, it is held that petitioner Dean Lansing had contract rights to cut and the right to sell the timber cut under the contract on his own account for a period of more than 6 months before the beginning of each year and that petitioners are, therefore, entitled to the benefits of section 631(a), I.R.C. 1954. Volney L. Pinkerton, 28 T.C. 910, followed. As to the gains from the Section 33 and Wilson tracts, the respondent's determination is approved for lack of proof in Section 33, and disapproved in Wilson on the ground that on the basis of the record it appears we should leave the conceded gain as petitioners reported it, namely, as long-term capital gain.

Maurice J. Hindin and Alvin D. McNeil, for the petitioners.

Donald G. Daiker, for the respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION.

ARUNDELL, Judge:

Respondent determined deficiencies in income tax for the calendar years 1955, 1956, and 1957 in the amounts of $69,271.62, $80,858.45, and $70,046.91, respectively, plus an addition to tax under section 6654, I.R.C. 1954, for 1955 of $1,089.84.

The pleadings present a number of issues. Petitioners have agreed to all the adjustments except those relating to whether the gain from three tracts of timber (Travers, Section 33, and Wilson) is to be taxed as ordinary income or capital gain. Respondent has conceded that the statute of limitations bars assessment of any tax as against petitioner Virginia L. Barba for the year 1955. Some of the facts were stipulated.

FINDINGS OF FACT.

The stipulated facts, together with the exhibits attached to the stipulation, are so found and are incorporated herein by this reference.

During the calendar years 1955, 1956, and 1957, petitioners were husband and wife. They filed joint Federal income tax returns for the calendar years 1955, 1956, and 1957 with the district director of internal revenue at San Francisco, California.

Re: Travers Tract.

On May 16, 1950, Raymond E. Travers and Juanita F. Travers, husband and wife, entered into an agreement with G. L. Speier Co. (referred to in the agreement as an individual) whereby G. L. Speier Co. acquired ‘ the right to cut and remove all merchantable redwood and fir timber, standing, lying and being on that real property situate in the County of Humboldt, State of California, described as follows:’ (said description includes the timber lands referred to in this proceeding as the Travers tract).

On February 16, 1951, the Travers entered into an agreement with G. L. Speier. This agreement generally constituted a renewal, under substantially the same terms, of the agreement executed on May 16, 1950.

On October 9, 1951, the Travers entered into an agreement with Speier. This agreement provided for the fixing of a definite sale price for certain burned and unburned timber on the property that was described in the two contracts between the same parties, dated May 16, 1950, and February 16, 1951.

On August 19, 1952, Speier entered into an agreement with Dean Lansing, hereinafter sometimes referred to as petitioner or as Lansing. (In this agreement G. L. Speier Co. is referred to as a corporation.) This contract, in part, reads as follows:

THIS AGREEMENT, Made this 19th day of August, 1952, by and between G. L. SPEIER, an individual, the party of the first part, and hereinafter referred to as Speier, and DEAN LANSING, an individual, the party of the second part, and hereinafter referred to as Lansing,

WITNESSETH:

WHEREAS Speier is purchasing certain merchantable timber from Raymond E. Travers and Juanita F. Travers, his wife, pursuant to a written agreement, dated May 16, 1950, as modified by Agreements dated February _ _, 1951 and _ _, 1951, and

WHEREAS the parties hereto desire to provide for the logging of said timber by Lansing so as to insure an adequate supply of logs to sawmills in which Speier is interested,

NOW, THEREFORE, IT IS AGREED as follows:

1. Speier hereby gives and grants to Lansing the exclusive right and privilege of entering upon those certain premises described in the aforesaid Travers agreements and to remove therefrom all merchantable redwood and fir timber, standing, lying and being thereon. Lansing agrees to commence logging operations within a reasonable time and to perform directly or by subcontractor the entire logging operation, including the falling, bucking, peeling, yarding, loading and transporting of all merchantable redwood and fir logs developed thereby.

2. It is agreed that all sawmill logs, both redwood and fir, developed by Lansing shall be delivered by Lansing to G. L. Speier Co., a corporation, or to such other locations in the vicinity of Arcata, California as Speier may from time to time direct. All fir peeler logs shall be delivered by Lansing to Arcata Plywood Company, Arcata, California.

3. In consideration therefor, Speier agrees to pay to Lansing at the time and in the manner hereinafter set forth the market prices prevailing at the time of delivery for such logs, less the sum of $8.00 per 1000 feet, Standard Spaulding Scale. In the case of fir logs delivered by Lansing, the same shall be scaled by the Standard Spaulding Scale which shall be the basis of payment; redwood logs shall be scaled by the Humboldt Scale which shall be the basis of payment.

(a) The parties stipulate that the sum of $8.00 per 1000 feet, Standard Spaulding Scale, being deducted from the market price as aforesaid is the fair and reasonable value of the stumpage.

(e) It is acknowledged and stipulated that the parties do not hereby intend to assign the rights, privileges and/or obligations of Speier under the said agreement between Speier and Travers and Travers, but simply to provide for the exclusive irrevocable logging of said property by Lansing.

(f) That for so long as Lansing faithfully performs this agreement, Lansing shall have and enjoy all the rights, privileges and benefits which Speier is able to extend, grant or convey pursuant to said Travers agreements, including, but not limited to, the use of roads and rights of way and the right to log other and additional timber which Speier may hereafter obtain pursuant to the terms and provisions of said Travers agreements.

(h) Speier warrants and represents that he has not heretofore assigned or conveyed any of his rights, privileges or benefits extended to Speier in the aforesaid Travers agreements.

14. Speier agrees to sell and Lansing agrees to buy all that certain logging equipment mentioned in Schedule A, attached hereto, incorporated herein and made a part hereof, for the total purchase price of $38,250.00.

15. Speier agrees to sell and Lansing agrees to purchase that certain logging camp (G. L. Speier Co. Camp #10) more particularly identified in Schedule B, attached hereto, incorporated herein, and made a part hereof, for the total purchase price of $26,290.00.

16. Lansing agrees that he will, at his own proper cost and expense, maintain fire and comprehensive insurance upon the properties described in Schedules A and B, attached hereto, and hereinabove referred to in the foregoing Sections 14 and 15, in a sum not less than the unpaid (sic) balance of the purchase price.

17. Lansing agrees to log and deliver not less than 20,000,000 feet of logs per year from said properties, and further agrees to log and deliver a minimum of 1,000,000 feet of logs each and every month hereafter during the term of this agreement, except for the months of December, January, February and March should weather conditions during said months make it impossible to log and deliver said minimum amounts. The obligations of Lansing contained in this said section shall be suspended by fire, acts of God or other acts and things beyond the control of Lansing, except usual winter weather conditions.

18. This agreement shall continue until November 1, 1960.

19. The provisions hereto and hereof shall inure and be binding upon the executors, administrators, heirs and assigns of the parties hereto. It is agreed, however, that Lansing may not assign this Agreement without the prior written consent of Speier, but Speier agrees that he will not unreasonably withhold such consent.

On October 30, 1952, Speier and petitioner entered into an agreement, modifying the above August 19, 1952, agreement as follows:

1. It is agreed that anything in the referenced agreement to the contrary, Lansing may at any time sell and deliver peeler logs to such buyer as he may desire, provided that he can thereby obtain a better price than he could obtain from Arcata Plywood Company.

During the year 1951 and prior to August 19, 1952, petitioner was in the general timber business. He bought and sold timber and also bought timber, logged the same, and sold the logs.

Prior to entering into the August 19, 1952 agreement, petitioner owned some logging equipment of his own, consisting in part of two tractors, chain saws and pick-ups. He did not own or operate any sawmills personally.

G. L. Speier Co. was a corporation. Speier was its principal stockholder and president. Speier handled his Travers contracts through and for the use of the...

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