Willamette Industries, Inc. v. Commissioner

118 T.C. No. 7

UNITED STATES TAX COURT

WILLAMETTE INDUSTRIES, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket Nos. 20094-97, 7712-99. Filed February 12, 2002.

Some of P’s trees were partially damaged and P was
compelled to salvage the trees or they would have been lost
through decay, insects, etc. The damage forced P to harvest
the trees before intended. P had several alternatives for
salvage and chose to process the damaged trees into the end
products that it normally produces. P, under sec. 1033,
I.R.C., seeks to defer only the portion of the gain
attributable to the difference between P’s basis and the
fair market value of the damaged trees in place. P does not
seek to defer the part of the gain attributable to the
processing of the trees or manufacturing of the end
products. R determined that P is not entitled to defer any
gain because P’s ability to use the damaged trees in the
ordinary course of its business resulted in a conversion
that was not “involuntary” within the meaning of sec. 1033,
I.R.C. P contends that it was not its intent to harvest the
trees in the taxable year under consideration and that the
damage caused an involuntary conversion within the meaning
of sec. 1033, I.R.C.
 - 2 -

Held: P’s circumstances meet the threshold
requirements for relief under sec. 1033.

Philip N. Jones and Peter J. Duffy, for petitioner.

William A. McCarthy, for respondent.

OPINION

GERBER, Judge: The parties filed cross-motions for partial

summary judgment.1 The controversy concerns whether petitioner

is entitled to defer gain resulting from the salvage (processing

and sale) of damaged trees under section 1033.2 The parties have

agreed on the salient facts. The controverted issue involves a

legal question that is ripe for summary judgment.3

1
Respondent first moved on Oct. 27, 2000, for partial
summary judgment. The parties subsequently reached an agreed set
of facts and issues. After the agreement, petitioner, on Apr.
26, 2001, filed its motion for partial summary judgment, which
properly frames the issues. Respondent objected to the granting
of petitioner’s motion and, on June 14, 2001, advanced a
cross-motion for partial summary judgment. Petitioner was also
afforded an opportunity to address respondent’s cross-motion.
Accordingly, respondent’s motion for partial summary judgment,
filed Oct. 27, 2000, is deemed moot.
2
All section references are to the Internal Revenue Code in
effect for the years in issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
3
Rule 121; Sundstrand Corp. v. Commissioner, 98 T.C. 518,
520 (1992), affd. 17 F.3d 965 (7th Cir. 1994); Zaentz v.
Commissioner, 90 T.C. 753, 754 (1988); Fla. Peach Corp. v.
Commissioner, 90 T.C. 678, 681 (1988); Naftel v. Commissioner, 85
T.C. 527, 529 (1985).
 - 3 -

Background

Petitioner is an Oregon corporation with its principal

office in Portland, Oregon. Petitioner operates a vertically

integrated forest products manufacturing business, which includes

the ownership and processing of trees (raw materials) at various

types of manufacturing plants, including lumber mills, plywood

plants, and paper mills. The raw materials used in the

manufacturing process are derived from petitioner’s trees and

from trees grown by others. Approximately 40 percent of

petitioner’s timber needs is acquired from petitioner’s

timberland, which comprises 1,253,000 acres of forested land.

Petitioner suffered damage to some of its standing trees

during each of the years in issue, 1992-95. The damage was

caused by wind, ice storms, wildfires, or insect infestations.

The damage left part of petitioner’s damaged trees standing and

part of them fallen. The intended use of the trees was continued

growth and cultivation until maturity, at which time the trees

would have been systematically and efficiently harvested. The

damage occurred prior to the intended time for harvest.

Petitioner salvaged its damaged trees to avoid further loss

(from decay, insects, etc.) by means of the following steps:

(1) Taking down damaged trees that remained standing; (2) cutting

damaged trees into standard length logs; (3) stripping the

branches from the logs; (4) dragging the logs to a pickup point;
 - 4 -

(5) grading and sorting the logs; (6) stacking the logs at a

landing point; and (7) loading the logs onto trucks for further

use or processing.

Petitioner chose to take the seven steps described in the

preceding paragraph, rather than attempting to sell the damaged

trees in place to a third party. Once it performed the seven

steps, its options were to (1) attempt to sell the partially

processed damaged trees to a third party; or (2) complete the

processing of the damaged trees in its own plants in the ordinary

course of its business. Petitioner chose the latter and

completed the processing itself.

Petitioner relies on section 1033 for involuntary conversion

treatment (deferral of gain).4 Petitioner did not realize income

from harvesting and processing the damaged trees until it sold

the products it manufactured from the damaged trees. Petitioner

is seeking to defer only that portion of the gain attributable to

the difference between its basis and the fair market value of the

damaged trees as of the time its salvage of them began; that is,

the value petitioner contends would have been recognized if it

4
Petitioner on its returns mistakenly claimed involuntary
conversion treatment under sec. 631(a) due to its pro forma use
in prior years’ returns in which sec. 631(a) treatment had been
properly elected and claimed. Petitioner concedes that sec.
631(a) treatment is not available based on the fact that it did
not have a sec. 631(a) election in place during the years in
issue. For the 1992 taxable year, one of petitioner’s
subsidiaries made a valid sec. 631 election, but the subsidiary
was liquidated at the end of the 1992 calendar year. With that
exception, petitioner and its subsidiaries were not entitled to
sec. 631 treatment for the taxable years 1992 through 1995.
 - 5 -

had sold the damaged trees on the open market instead of further

processing and/or milling the damaged trees into finished

products. Petitioner further contends that it is not attempting

to defer any portion of the gain attributable to the processing,

milling, or finishing of products.5 Respondent determined that

petitioner understated income by improperly deferring gain from

the sale of the end product of the damaged trees, as follows:

1992--$647,953; 1993--$2,276,282; 1994--$3,592,035; and

1995--$4,831,462.

Discussion

The specific question we consider is whether petitioner is

disqualified from electing deferral of gain under section 1033

because it processed damaged trees into end or finished products

5
Based on a hypothetical example presented by petitioner,
the majority of the gain deferred would appear to be attributable
to the difference between the fair market value of the damaged
trees and petitioner’s basis. Petitioner posed a hypothetical
example which included the premises that the damaged trees had a
$100 basis and a $475 selling price if sold in place. If the
damaged trees were processed into logs, the processing cost would
be $25 resulting in a $500 selling price. Petitioner further
posits that the cost of milling timber is $100 and that a
finished product would have a $610 selling price, resulting in
$10 of gain from milling. Petitioner argues that, under this
hypothetical, respondent would have allowed a deferral of the
$375 gain if petitioner had sold the damaged trees in place.
Petitioner contends that respondent has denied any deferral
whatsoever, even though the milling of timber into a final
product adds only $10 of additional gain in the context of
petitioner’s hypothetical. We consider here only whether
petitioner is entitled to use sec. 1033. The parties have left
to another day the question of the amount of gain to be deferred
if petitioner’s motion for partial summary judgment is granted.
See infra note 6.
 - 6 -

rather than being compelled simply to sell the damaged trees.6

Respondent contends that under section 1033 the realization

of gain must stem directly or solely from the damage and the

involuntary conversion. More particularly, respondent asserts

that petitioner’s conversion was not “involuntary” because

damaged trees were processed into end products in the ordinary

course of its business. Respondent points out that section 1033

is a relief provision which does not or should not include

petitioner’s situation; i.e., where the damaged trees are

processed in the same manner as undamaged trees. Finally,

respondent contends that section 1033 was not intended for the

long-term deferral of profits from petitioner’s timber processing

and manufacturing business.7

Petitioner argues that its factual situation complies

literally with the requirements of section 1033 allowing deferral

of gain realized from salvaging its damaged trees. Specifically,

6
The parties have isolated this issue from other unresolved
issues, including petitioner’s substantiation of the quantity and
value of the damaged trees; the amount of gain realized from sale
of damaged trees; the amount of gain that may be deferred; and
the determination of the correct year(s) for deferring the gain.
7
Respondent’s contention appears to address the possibility
that petitioner reinvested the proceeds (and deferred gains) from
the sale of the damaged trees in replacement property in the form
of relatively young trees, thereby resulting in lengthy deferral
of the subject gains. Respondent’s contention, however, is more
properly directed at the question of whether petitioner
reinvested the proceeds in qualified replacement property, a
question which is not at issue in the cross-motions for partial
summary judgment.
 - 7 -

petitioner contends that it was compelled (in order to avoid

further damage or loss) to salvage (process) the damaged trees

resulting in an involuntary conversion within the meaning of

section 1033. Petitioner also points out that the conversion was

“involuntary” because the damaged trees were not scheduled for

harvest at the time of the damage. In response to respondent’s

argument, petitioner contends that its choices for salvaging the

damaged trees should not preclude deferral of the portion of the

gain that it was compelled to realize on account of the damage to

its trees. Petitioner emphasizes that it is not attempting to

defer gain from processing and/or milling the damaged trees.

Petitioner seeks to defer only that portion of the gain

attributable to the difference between its basis in the damaged

trees and their fair market value at the time the process of

salvaging the trees began.
 - 8 -

Section 10338 provides, under certain prescribed

circumstances, for relief from taxpayer’s gains realized from

involuntary conversion of property. The relief provided for

under section 1033 is deferral of the gain from involuntary

conversion, so long as the proceeds are used to acquire qualified

replacement property.

The purpose of section 1033 was described, as follows:

The purpose of the statute is to relieve the taxpayer
of unanticipated tax liability arising from involuntary
* * * [conversion] of his property, by freeing him from
such liability to the extent that he re-establishes his

8
Sec. 1033 provides, in pertinent part, as follows:

(a) SEC. 1033(a). General Rule.–-If property (as a result
of its destruction in whole or in part, theft, seizure, or
requisition or condemnation or threat or imminence thereof) is
compulsorily or involuntarily converted–-

* * * * * * *

(2) Conversion into money.--Into money or into property
not similar or related in service or use to the converted
property, the gain (if any) shall be recognized except to
the extent hereinafter provided in this paragraph:

(A) Nonrecognition of gain.–-If the taxpayer
during the period specified in subparagraph (B), for
the purpose of replacing the property so converted,
purchases other property similar or related in service
or use to the property so converted, or purchases stock
in the acquisition of control of a corporation owning
such other property, at the election of the taxpayer
the gain shall be recognized only to the extent that
the amount realized upon such conversion (regardless of
whether such amount is received in one or more taxable
years) exceeds the cost of such other property or such
stock. Such election shall be made at such time and in
such manner as the Secretary may by regulations
prescribe. * * *
 - 9 -

prior commitment of capital within the period provided
by the statute. The statute is to be liberally
construed to accomplish this purpose. On the other
hand, it was not intended to confer a gratuitous
benefit upon the taxpayer by permitting him to utilize
the involuntary interruption in the continuity of his
investment to alter the nature of that investment tax
free. * * *

Filippini v. United States, 318 F.2d 841, 844 (9th Cir. 1963).

The earliest predecessor of section 1033 was section

214(a)(12) of the Revenue Act of 1921, ch. 136, 42 Stat. 227

(1921 Act). Except for certain modifications not pertinent to

the question we consider, the purpose and substance of section

214(a)(12) of the 1921 Act was the same as the version of section

1033 under consideration in this case.

Only a limited amount of legislative history has accompanied

the enactment of the various involuntary conversion relief

provisions since 1921. The House and Senate reports issued in

connection with section 214(a)(12) of the 1921 Act explained that

the relief “permits the taxpayer to omit or deduct the gains

involuntarily realized, when he proceeds forthwith in good faith

to invest the proceeds of such conversion in the acquisition of

similar property or in establishment of a replacement fund

therefor.” H. Rept. 350, 67th Cong., 1st Sess. 12 (1921), 1939-1

C.B. (Part 2) 168, 177; accord S. Rept. 275, 67th Cong., 1st

Sess. 15 (1921), 1939-1 C.B. (Part 2) 181, 191.

From that limited legislative history, it can be gleaned
 - 10 -

that Congress intended relief from involuntary conversions only

to the extent of the “proceeds of such conversion”, and expected

taxpayers to acquire replacement property within a reasonable

time. Obviously, relief was intended only where the conversion

was involuntary. Although Congress was concerned about the

timeliness and “good faith” of efforts in seeking replacement

property, there was no explanation or particular focus upon the

use of damaged assets in the taxpayer’s business.

Where the complete destruction or loss of property has

occurred, there has been only a limited amount of litigation

about whether a taxpayer should be allowed to defer the attendant

gain.9 Where the destruction or loss to property is partial,

however, additional questions have arisen.

In C.G. Willis, Inc. v. Commissioner, 41 T.C. 468 (1964),

affd. 342 F.2d 996 (3d Cir. 1965), the taxpayer’s ship was

damaged in a 1957 collision, and the insurance company paid

$100,000 to the taxpayer. The insurance payment was

approximately $9,000 less than the taxpayer’s basis in the ship,

and, accordingly, no gain was realized for 1957. In 1958,

however, the taxpayer sold the damaged, but unrepaired, ship for

an amount which exceeded the remaining basis by approximately

$86,000. Under those circumstances, it was held that the 1958

9
More often, the controversies focus upon which property
had been converted and/or the definition of “replacement
property.”
 - 11 -

sale was not an “involuntary conversion” within the meaning of

section 1033 so that the gain had to be recognized and could not

be deferred. In so holding, it was explained that the damage to

the taxpayer’s ship was insufficient to compel the taxpayer to

sell and, accordingly, the sale was not involuntary. Id. at 476.

In that setting, “involuntary conversion” under section 1033 was

defined to mean “that the taxpayer’s property, through some

outside force or agency beyond his control, is no longer useful

or available to him for his purposes.” Id.; see also Wheeler v.

Commissioner, 58 T.C. 459, 462-463 (1972) (where it was held that

the taxpayer’s choice to destroy his building was not an

involuntary conversion).

In S.H. Kress & Co. v. Commissioner, 40 T.C. 142, 153

(1963), we held that condemnation of the taxpayer’s property was

imminent and unavoidable, and that the only realistic

alternatives were to either await condemnation or to sell to an

appropriate buyer. We found that those circumstances met the

“compulsorily or involuntarily converted” requirement of section

1033, (citing Masser v. Commissioner, 30 T.C. 741 (1958)).

Accordingly, even though a taxpayer has choices or alternatives a

disposition may be deemed involuntary so that section 1033 relief

remains available.

Masser v. Commissioner, supra, involved section 112(f)(1) of

the Internal Revenue Code of 1939 (another predecessor of section
 - 12 -

1033). In Masser, the taxpayer operated an interstate trucking

business from two proximately positioned pieces of business

realty that were used as part of a single economic unit. One of

the properties was subject to imminent condemnation, but the

taxpayer sold both parcels. In that circumstance, we held that

both pieces of realty were involuntarily converted and the gain

from both could be deferred.

Those cases reveal two general elements as being necessary

to qualify for deferral of gain under section 1033. First, a

taxpayer’s property must be involuntarily damaged, and second the

property must no longer be available for the taxpayer’s intended

business purposes for the property.

The Commissioner issued a revenue ruling that specifically

focused on whether gain from the sale of trees damaged by a

hurricane qualified under section 1033. In that ruling it was

held that the gain on sale of uprooted trees was “voluntary” and,

in addition, that there was no direct conversion into money in

the circumstances expressed in the ruling. See Rev. Rul. 72-372,

1972-2 C.B. 471. The principal rationale for the holding of Rev.

Rul. 72-372, supra, was that the hurricane did not cause the

conversion of the trees into cash or other property directly

resulting in gain from the damage.

In a second ruling, however, the 1972 ruling was revoked.

See Rev. Rul. 80-175, 1980-2 C.B. 230. The 1980 ruling permitted
 - 13 -

deferral of gain from the sale of damaged trees. The factual

predicate for both rulings was as follows:

the taxpayer was the owner of timberland. As a result
of a hurricane, a considerable number of trees were
uprooted. The timber was not insured, and once downed,
was subject to decay or being rendered totally
worthless by insects within a relatively short period
of time. The taxpayer was, however, able to sell the
damaged timber and realized a gain from such sale. The
proceeds of the sale were used to purchase other
standing timber.

The rationale articulated in Rev. Rul. 80-175, supra, is

that gain is “postponed on the theory that the taxpayer was

compelled to dispose of property and had no economic choice in

the matter” and that the taxpayer “was compelled by the

destruction of the timber to sell it for whatever the taxpayer

could or suffer a total loss.” Id., 1980-2 C.B. at 231.

Accordingly, the taxpayer in the 1980 ruling was found to have

met the two part test; i.e., that the damage was involuntary and

the timber was no longer available for the taxpayer’s intended

business purpose. Most significantly, the 1980 ruling eliminated

the requirement that the damage-causing event convert the

property directly into cash or other property.

The 1980 ruling also contained a comparison with the holding

in C.G. Willis, Inc. v. Commissioner, supra, as follows:

In the present case, the downed timber was not
repairable and was generally no longer useful to the
taxpayer in the context of its original objective. The
destruction caused by the hurricane forced the taxpayer
to sell the downed timber for whatever price it could
 - 14 -

get. Unlike the situation in Willis, the sale of the
downed timber was dictated by the damage caused by the
hurricane. [Rev. Rul. 80-175, supra, 1980-2 C.B. at
232.]

The taxpayer in the 1980 ruling apparently intended to grow

trees and/or hold timberland for sale at a particular maturity.

The hurricane caused the taxpayer to involuntarily sell/use the

trees prior to the time intended for harvest or sale. The

taxpayer’s intended purpose or use was only affected as to

timing, and the sale was prior to the time the taxpayer intended

to sell or harvest.

Returning to the disagreement here, petitioner contends

that, at the time of the damage, it did not intend to harvest the

damaged trees, so that the conversion was involuntary and within

the meaning of the statute.10 Petitioner argues that a taxpayer

may not have a choice as to whether to dispose of damaged

property, but a taxpayer may have a choice as to how to dispose

of damaged property.

Respondent contends that petitioner should not be entitled

to such deferral because of its choice to further process the

10
Petitioner also relies on the published revenue rulings
and on a number of private letter rulings (PLRs), which it
contends permitted sec. 1033 deferral in factual circumstances
substantially similar to those we consider here. On brief, the
parties devoted a relatively large portion of their arguments to
discussing the PLRs. Although we have considered the rationale
used by the parties in discussing the rulings, the parties and
the Court are statutorily proscribed from citing the PLRs as
precedent. See sec. 6110(k)(3).
 - 15 -

trees into logs or finished products, its original intention.

Respondent’s position in this case is a reversion to the

requirement of the 1972 ruling that the sale (conversion to cash)

be the direct result of the damage-causing event. For more than

21 years, the Commissioner’s ruling position has permitted

section 1033 deferral even though the conversion is not directly

into cash.

Petitioner in this case is effectively no different from the

taxpayer in the 1980 ruling.11 Petitioner’s conversion was

involuntary, and petitioner was forced to act or suffer complete

loss of the damaged trees. Section 1033 could be interpreted to

permit either a direct or an indirect conversion. The case law

permits indirect conversion, but the Commissioner’s 1972 ruling

denied relief because the trees damaged by the hurricane were

sold by the taxpayer. The Commissioner, in revoking the 1972

ruling has permitted, since 1980, section 1033 relief where there

is a sale (a voluntary act) of the damaged property. Respondent

has denied relief here because petitioner processed rather than

sold the damaged trees.

The critical factor is that petitioner was compelled to

harvest the damaged trees prior to the time it had intended. The

11
Respondent has not argued that the 1980 ruling was not in
accord with sec. 1033 or the case law. Respondent’s position in
this case, however, does not comport with the outcome or
reasoning of the 1980 ruling.
 - 16 -

possibility that the partial damage to petitioner’s trees might

have been relatively small or resulted in a nominal amount of

reduction in gain is not a reason to deny relief. In addition,

if petitioner’s salvage efforts were more successful than other

taxpayers that is not a reason for denial of relief under section

1033.

Petitioner’s circumstances fulfill the statutory purpose and

intent. There was unanticipated tax liability due to various

casualties that damaged the trees. Petitioner seeks to defer the

gain that was occasioned by the damage and which it had

reinvested in like property. Petitioner had not planned to

harvest the damaged trees. Identical to the taxpayer’s situation

in the 1980 ruling, petitioner’s trees were damaged by forces

without its control, and petitioner was compelled to salvage its

damaged trees prior to the intended date for harvest, sale,

and/or processing into end products. Unlike the taxpayer in C.G.

Willis v. Commissioner, supra, petitioner was forced to salvage

(process or sell) the damaged trees or suffer a total loss.

Respondent’s attempt to distinguish petitioner’s situation

from the ruling does not reconcile with the rationale of the 1980

ruling, the underlying statute, and case law. The taxpayer in

the ruling and petitioner were both forced to salvage the damaged

trees or suffer the imminent and total loss of the damaged trees.

The taxpayer in the ruling and petitioner were prematurely forced
 - 17 -

to salvage (sell or use) the damaged trees. The damaged trees

were used in their businesses, but not in the same manner as they

would normally have done. In the 1980 ruling, the taxpayer was

forced to sell the trees under unintended business conditions.

Likewise, petitioner was forced to use the damaged trees, albeit

in its manufacturing process, under unintended business

conditions; i.e. before maturity and/or before the time at which

the trees would normally be ready for efficient harvest.

Respondent also argues that petitioner is not entitled to

defer gain because “there were no actual sales of damaged

timber.” Respondent argues that section 1033 requires a sale or

conversion of the damaged property into money or property similar

in use to the damaged property. Section 1033 simply requires

that property be involuntarily converted into money or property.

There is no requirement, as argued by respondent, that the

deferred gain be derived in a particular manner; i.e., only from

a distress sale. Based on the holding of Rev. Rul. 80-175, 1980-

2 C.B. 230, it is unlikely that respondent would have questioned

the deferral of gain if petitioner had been forced to sell the

damaged trees in place.12

12
If we were to approve respondent’s approach, taxpayers,
who were unable to sell damaged assets without some additional
processing would be denied sec. 1033 relief. That distinction
could not have been intended and certainly was not expressed in
the legislation.
 - 18 -

Finally, respondent contends that section 1033 was intended

to provide relief for taxpayers who experience “destruction [of

property] in whole or in part”. Although respondent agrees that

petitioner had a casualty, damage to the trees, and petitioner

was compelled to salvage them, respondent infers that

petitioner’s situation is somehow not directly affected by the

destruction. Respondent contends that petitioner’s gain is

voluntary or not caused by the damage because petitioner is able

to process the logs into finished products.

Admittedly, petitioner’s circumstances may appear more

favorable than might have been expected after a “casualty”, but

the statute does not have a quantitative threshold. Petitioner

is not seeking a windfall in the form of the deferral of gain

from processing and/or making the finished products. Nor is

petitioner attempting to “utilize the involuntary interruption in

the continuity of his investment to alter the nature of that

investment tax free.” Filippini v. United States, 318 F.2d at

844. Petitioner is seeking to defer the unexpected gain that

resided in trees that it had not, at the time of the damage,

intended to harvest and to reinvest that gain in trees that will

fulfill petitioner’s intended purpose.13 Such deferral was the

13
Contrary to the import of respondent’s argument,
petitioner did not intend to harvest trees that happen to become
diseased or damaged. Petitioner intended to efficiently and
(continued...)
 - 19 -

intended purpose for the enactment ofsection 1033.

Respondent argues that the purpose of section 1033 may be

better served where a taxpayer is unable to process damaged

property into the taxpayer’s usual product(s). But that

disability is not a threshold for relief or a requirement of the

statute. Section 1033 is a relief provision, and we are to

construe it liberally to effect its purpose. Davis v. United

States, 589 F.2d 446, 450 (9th Cir. 1979); Asjes v. Commissioner,

74 T.C. 1005, 1014 (1980).14

Respondent would have this Court impose its own judgment as

to which taxpayer deserves relief. So, for example, if a

taxpayer, like the one in the 1980 ruling, was growing trees for

eventual sale, relief is available even though the taxpayer sells

the damaged trees to its usual customers. Under respondent’s

suggested approach, petitioner would not be entitled to relief

because it had choices other than sale; i.e., to further process

the damaged trees. Petitioner, under respondent’s approach,

13
(...continued)
systematically harvest trees and to maximize its profit. It was
not petitioner’s intent to randomly cull and process trees that
happened to become damaged.
14
Respondent also argues that, if petitioner is entitled to
sec. 1033 relief in the circumstances of this case, the “narrowly
tailored relief provision” will become difficult to administer
(with respect to the deferral aspects) and permit relief whether
or not it is needed. These arguments, made for purposes of
emphasis, do not persuade us that the statute withholds relief in
this situation.
 - 20 -

would be deprived of relief from involuntarily generated gain

merely because of happenstance. Under that type of reasoning,

petitioner would be denied relief merely because it was a grower

of trees and also a manufacturer of products using trees, whereas

a similarly situated grower of trees without the ability to use

the damaged trees to make products would be entitled to relief,

even though its damaged trees might ultimately be manufactured

into products by others. The line respondent asks us to draw

would be illusive and a matter of conjecture.

Petitioner was growing its trees for harvest when they

reached a certain maturity. The damage occurred outside of

petitioner’s control and forced petitioner to salvage its trees

earlier than intended. That situation is indistinguishable from

the circumstances set forth in Rev. Rul. 80-175, 1980-2 C.B. 230,

where the taxpayer’s trees were felled by a hurricane. The fact

that the damage was sufficiently partial so as to result in a

substantial amount of deferral is not a reason, under the

statute, to deny relief.

We read the statute in light of respondent’s Rev. Rul. 80-

175, supra, which has been outstanding for 22 years.

In view of the foregoing,

Appropriate orders will be

issued.