DocketNumber: Civ. Nos. 64-32 to 64-36
Citation Numbers: 267 F. Supp. 40
Judges: Kilkenny
Filed Date: 3/14/1967
Status: Precedential
Modified Date: 11/26/2022
OPINION
In 1947, the plaintiffs organized Giustina Brothers Partnership (the partnership), and the partnership became the owner of extensive timber lands in Oregon. The partners also controlled Giustina Brothers Lumber Company (the corporation), an Oregon corporation. On July 1, 1948, the partnership entered into a contract with the corporation which provided for the sale by the partnership to the corporation of certain standing timber, which was to be cut and removed by the corporation. This contract, later modified by a supplementary agreement on April 1, 1957, provided that the corporation would pay the real property taxes on all timber lands covered by the contract, in addition to the agreed price for the timber. In actual practice, how
The reimbursements to the partnership from the corporation constitute the subject of this litigation. Although the partnership claimed a deduction from ordinary income for the real property taxes paid by it for the period in question here, it treated the sums reimbursed to it by the corporation for real property taxes paid as “amounts realized from the disposal of timber”, thus increasing the capital gains it realized from the disposal of timber. The Commissioner determined that the reimbursements received were not amounts realized from the disposal of timber within the meaning of Section 631(b) of the Internal Revenue Code of 1954,
The identical contracts were before the Court in Giustina v. United States, 190 F.Supp. 303 (D.Or.1960), in which the Court held that the contract between the partnership and the corporation was a “disposal” of timber and that the partnership did retain an “economic interest” in the timber, thus holding that the predecessor of § 631(b) was satisfied. The trial court’s decision was affirmed in United States v. Giutina, 313 F.2d 710 (9th Cir. 1963). Here, the Government concedes that the amounts realized by the partnership from the disposal of timber are entitled to capital gains treatment, but it argues that the reimbursements to the partnership for real estate taxes paid, cannot be considered as “amounts realized” from the “disposal of timber” within the meaning of § 631(b). In arriving at a conclusion, I must weigh and give particular significance to the fact that the corporation is obligated to pay the real estate taxes without reference to the amount of timber that might be cut. For that matter, it is required to pay the taxes even though it never cut the timber.
Willamette Valley Lbr. Co. v. United States, 252 F.Supp. 199 (D.Or.1966),
I believe it unnecessary to pass on the legal issue of whether the partnership retained an economic interest, as required by the same section of the Internal Revenue Code.
As a consequence of the above, the plaintiffs are not allowed to treat the tax reimbursements they received from the corporation as capital gains. Such reimbursements must be treated as ordinary income.
The agreed facts and this opinion shall serve as my findings. Counsel shall prepare, serve and submit an appropriate judgment in each case.
It is so ordered.
ORDER DENYING MOTION FOR REHEARING AND RECONSIDERATION
I have again analyzed Willamette Valley Lumber Co. v. United States, 252 F. Supp. 199 (D.Or.1966), in the light of the arguments on the motion for rehearing and reconsideration. Nothing of a new or a novel theory was advanced in the arguments of plaintiffs’ counsel, nor can I find anything in Willamette which points to a result other than that stated in the original opinion.
Therefore, the motion for rehearing and reconsideration must be denied.
It is so ordered.
. “SEC. 631. GAIN OK LOSS IN THE CASE OF TIMBER OR COAL. *****
(b) Disposal of timber with, a retained economic interest—
In the case of the disposal of timber held for more than 6 months before such disposal, by the owner thereof under any form or type of contract by virtue of which such owner retains an economic interest in such timber, the difference between the amount realized from the disposal of such timber and the adjusted depletion basis thereof, shall be considered as though it were a gain or loss, as the case may be, on the sale of such timber. In determining the gross income, the adjusted gross income, or the taxable income of the lessee, the deductions allowable with respect to rents and royalties shall be determined without regard to the provisions of this subsection. The date of disposal of such timber shall be deemed to be the date such timber is cut, but if payment is made to the owner under the contract before such timber is cut the owner may elect to treat the date of such payment as the date of disposal of such timber. For purposes of this subsection, the term ‘owner’ means any person who owns an interest in such timber, including a sublessor and a holder of a contract to cut timber.” 26 U.S.C. § 631(b) (1954 ed.). * * * * *
. Contract, Paragraph 2(c) provides: “Buyer shall pay such other taxes and assessments as shall accrue with reference to each said parcel of land.”