*2305 DEPLETION. - Respondent's disallowance of certain deductions from gross income by petitioner as representing depletion of timber, sustained.
*364 These two proceedings, consolidated for hearing and decision, involve deficiencies in income and profits taxes determined by respondent for years and in amounts as follows:
| 1920 | $361.05 |
| 1921 | 234.51 |
| 1922 | 586.14 |
| 1923 | 349.57 |
| 1924 | 43.58 |
| Total | 1,574.85 |
Petitioner questions the deficiencies for the first four years mentioned. The one issue raised is the disallowance by respondent in *365 each of these years of amounts deducted from gross income by petitioner as representing depletion.
FINDINGS OF FACT.
Petitioner is a Florida corporation located at Jacksonville and was organized in 1914 with an authorized capital stock of $140,000 by the seven sons of R. G. Skinner, these individuals having inherited upon his death 20,000 acres of land near Jacksonville and which land they conveyed to the petitioner upon its organization in exchange for all of its capital stock. The land in*2306 question had a value at that time of $140,000, and was "cut over" land, the merchantable timber having been completely exhausted in 1913.
It was the intention of the Skinner brothers through petitioner to hold this property and ultimately clear it up and dispose of it for farming purposes. During the years 1921 to 1923, inclusive, petitioner had various offers from parties desiring to cut cordwood, fence posts, railroad ties, etc., from the small second growth timber. Such cutting was a clearing up of the land as intended by petitioner and through arrangements with these parties it was enabled to have work of this character done not only without cost to it but to obtain a return from the work. In the several years in question petitioner sold none of the real property in question, but received from parties cutting this small timber certain amounts which it included in its returns for each of said years as follows:
| 1920 | $3,610.46 |
| 1921 | 2,295.08 |
| 1922 | 4,685.80 |
| 1923 | 2,473.00 |
In each of the years 1920, 1921, and 1922, petitioner in its return deducted from gross income as a depletion allowance the exact amount received in such year from the cutting of this timber. *2307 For the year 1923 petitioner deducted as depletion the sum of $2,273.50.
Petitioner upon acquiring the land in question had set it up on its books at a cost of $140,000. Subsequently it set up an account on these books of $32,000, of such cost and which it designated as a "Reserve for Depletion." The amounts deducted in the taxable years in question as depletion were charged on the books against such reserve.
OPINION.
TRUSSELL: Petitioner's contention is not entirely clear, but as we gather it the insistence is that the sums deducted were not in fact as depletion but that the disposals of certain of the second growth timber were capital transactions and not until the return equals the *366 capital cost can it be considered income; that amounts received from such a source now must await the ultimate disposal of the property to determine to what extent they represent taxable gains.
Such a theory can not be sustained. Section 234(a)(9) of the Revenue Acts of 1918 and 1921 provide for a reasonable allowance for depletion of timber. Through such deductions the taxpayer may recover the capital cost represented by the timber disposed of and determine the extent to which*2308 the return from such disposition represents taxable gain.
Petitioner correctly included in its gross income the amounts received from these sales of timber and the question is to what extent its deductions for depletion are sustained. These deductions are disallowed in full, the burden of proof is upon petitioner and the record contains no proof upon which we could find any allowance for depletion, it being silent as to the total amount of timber, the proportion of the cost represented thereby or the amount cut. On the other hand, it is indicated that none of the cost is represented by this timber, the property being entirely cut over and timber of any value exhausted at the time acquired by petitioner and that the cutting of this second growth timber, instead of tending to exhaust the value of the property, increased its value for the one purpose for which it was held, this being its ultimate sale as farming property.
Judgment will be entered for the respondent.