Willamette Industries, Inc. v. Commissioner

WILLAMETTE INDUSTRIES, INC. ET AL., 1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Willamette Industries, Inc. v. Commissioner Docket Nos. 5083-76, 5096-76, 5097-76, 5098-76. United States Tax Court T.C. Memo 1980-577; 1980 Tax Ct. Memo LEXIS 6; 41 T.C.M. (CCH) 629; T.C.M. (RIA) 80577; December 30, 1980 *6 Taxpayers elected to treat the cutting of timber as a sale or exchange of a capital asset pursuant to sec. 631(a), I.R.C. 1954. Held: the fair market value of such timber as of January 1, 1971, January 1, 1972, October 1, 1972, and January 1, 1973, determined. Held, further: respondent's determination of the proper amount allocable to the cost of land with standing timber on it, for purposes of computing the taxpayers' depletion deduction under sec. 611, I.R.C. 1954, sustained. Charles P. Duffy and Philip N. Jones, for the petitioners. Gary R. DeFrang and Leo A. Reinikka, Jr., for the respondent. EKMAN MEMORANDUM FINDINGS OF FACT AND OPINION EKMAN, Judge*: In these consolidated cases respondent determined the following deficiencies in Federal income taxes: Docket No. Petitioner Year Deficiency 5083-76 Willamette Industries, Inc. [1971] $ 2,062,358 [1972] 2,596,771 [1973] 2,371,573 5096-76 Hunt Lumber Company, Inc., 10/01/72 [942] Transferor, Willamette 12/31/72 Industries, Inc., Transferee 5097-76 1a*7 Brooks-Willamette Corporation [1973] 52,443 5098-76 Wilmar Plywood, Inc., Transferor, [1973] 21,671 Willamette Industries, Inc., $'Transferee The parties having made concessions, the issues remaining for decision are: 1) the fair market value for purposes of section 631(a), as of January 1, 1971, January 1, 1972, October 1, 1972, and January 1, 1973, of timber cut by the petitioners during their taxable years ended December 31, 1971, December 31, 1972, and December 31, 1973, and 2) the fair market value of land for purposes of computing petitioners' depletion deduction under section 611 for each of the taxable years in question. FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulation of facts, the supplemental stipulations of facts and exhibits attached thereto are incorporated herein by this reference. Willamette Industries, Inc. (hereinafter Willamette or petitioner) is a corporation organized under the laws of the State of Oregon. At the time its petition was filed with this Court its principal office was located in Portland, Oregon. Petitioner filed its consolidated income tax returns for the calendar years 1971 through 1973 with the Internal Revenue Service Center in Ogden, Utah. 2*8 Hunt Lumber Co., Inc. (hereinafter Hunt), was organized under the laws of the State of Louisiana on July 29, 1949. On December 31, 1974, Hunt, which was then a wholly owned subsidiary of petitioner, was dissolved and its assets transferred to petitioner. Petitioner is a transferee of Hunt within the meaning of section 6901. Wilmer Plywood, Inc. (hereinafter Wilmar) formerly Red River Plywood, Inc., was organized under the laws of the State of Oregon on September 8, 1971. On December 31, 1974, Wilmar, which *9 was then a wholly owned subsidiary of petitioner, was dissolved and its assets transferred to petitioner. Petitioner is a transferee of Wilmar within the meaning of section 6901. Beginning in 1959 and continuing through the years in question petitioner and Freres Lumber Co., Inc. were engaged as joint venturers under the name Freres Veneer Co. (hereinafter Freres). During the years in question Freres, Hunt, and petitioner were engaged in the manufacture and sale of timber products. For use in their business they cut timber which they either owned or had a contract right to cut for a period more than 6 months before the beginning of each such year. They computed their income for Federal tax purposes under the accrual method of accounting and for the years in question duly elected to treat the cutting of such timber under the provisions of section 631(a) for Federal income tax purposes. The timber in question was located in the southern United States, primarily in northern Louisiana (hereinafter South), and in Oregon. Inasmuch as material differences exist in the manner in which the parties have delineated those factors relevant to a determination of the fair market value of the *10 timber cut in Oregon and in the South, for purposes of clarity we bifurcate our discussion. SOUTH During the years in question the corporations located in the South cut timber eligible for section 631(a) treatment in the following respective amounts: [1971] Sawtimber Pulpwood Name (MBF) 3 cords Pine Hardwood Pine Hardwood Louisiana Plywood Corp. 12,300 [0] Santiam Southern Co. 12,236 [0] Total 24,536 [1972] Sawtimber Pulpwood Name (MBF) cords Pine Hardwood Pine Hardwood Louisiana Plywood Corp. 10,236 [0] Santiam Southern Co. 7,823 [0] Total 18,059 [0] Taxable Year 10/1/72 to 12/31/72 Sawtimber Pulpwood Name (MBF) cords Pine Hardwood Pine Hardwood Hunt Lumber Co., Inc. 9,856 [374] 1,458 [1973] Sawtimber Pulpwood Name (MBF) cords Pine Hardwood Pine Hardwood Louisiana Plywood Corp. 11,996 [0] Santiam Southern Co. 9,711 [0] Hunt Lumber Co., Inc. 22,958 1,536 6,382 [786] Wilmar Plywood, Inc. 7,232 [0] Total 51,897 2,446 6,382 [786] The sources of supply of the timber cut during the years at issue were United States Forest Service (USFS) sales, contracts with private suppliers including Continental Can Company, Inc.*11 and lands owned by the taxpayers. Sales of timber by the USFS in the South primarily involve selected timber on National Forest lands administered by the USFS. The timber sold consists of those trees within a given area which are selected and marked by the USFS. The USFS prepares a prospectus for each sale which contains in part an estimate of the volume of timber to be cut computed in thousand board feet (MBF) on the Scribner Decimal C scale. Interested purchasers then bid for the right to harvest the timber with the contract awarded to the highest bidder. The purchaser must then cut only those trees selected by the USFS. While the USFS uses the Scribner Decimal C scale to estimate the volume of timber to be sold, petitioner, the State of Louisiana and most members of the timber industry in the South use the Modified Doyle scale to estimate timber volume. The Scribner Decimal C scale results in a higher estimated volume for a given log than does the Modified Doyle scale. Timber cutting contracts with Continental Can Company, Inc. (hereinafter C.C.C.) were a major source of supply for the taxpayers during the years in question. Timber harvested under such contracts make up *12 a substantial portion of the timber to be valued herein. Most of the C.C.C. timber was cut on a clear cut basis in which all trees on a tract are cut. Clear cutting is ordinarily a less expensive method of cutting than selective cutting. Generally, the C.C.C. timber contained a larger volume of wood per acre than USFS timber. C.C.C. timber at issue herein was at least equal in value to the USFS timber sold in the South during the years in question. Petitioner and its related companies operate processing facilities at numerous locations including Ruston, La., Dodson, La., Minden, La., Campti, La., Zwolle, La., Columbia, La., and Danville, La. The timber processed in such facilities came from the general area surrounding the facilities. The geographic area of timber supply for a particular processing facility is dependent on such factors as the availability of timber in the area, competition for the purchase of timber, and the available means and cost of transporting the timber to the facility. The fair market values of the timber in question as of the applicable valuation dates as asserted by petitioner and respondent respectively are as follows: January 1, 1971 Pine Sawtimber Hardwood Sawtimber FMV per MBF FMV per MBF Company Petitioners Respondent Petitioners Respondent Louisiana Plywood Corp. $ 93.44 $ 71.00 Santiam Southern Company 90.16 71.00 $ 25.00 $ 25.00 January *13 1, 1972 Pine Sawtimber Hardwood Sawtimber FMV per MBF FMV per MBF Company Petitioners Respondent Petitioners Respondent Louisiana Plywood Corp. $ 111.86 $ 82.00 Santiam Southern Company 107.00 82.00 $ 25.00 $ 25.00 October 1, 1972 Pine Sawtimber Hardwood Sawtimber FMV per MBF FMV per MBF Company Petitioners Respondent Petitioners Respondent Hunt Lumber Co., Inc. $ 115.91 $ 100.00 $ 28.00 $ 30.00 Pulpwood FMV per cord Pine Company Petitioners Respondent Hunt Lumber Co., Inc. $ 6.50 --- * January 1, 1973 Pine Sawtimber Hardwood Sawtimber FMV per MBF FMV per MBF Company Petitioners Respondent Petitioners Respondent Louisiana Plywood, Corp. $ 154.98 $ 110.00 $ 33.50 $ 33.50 Santiam Southern Company 133.60 110.00 33.50 33.50 Wilmar Plywood 133.60 110.00 33.50 --- **14 Hunt Lumber Co. 147.28 110.00 33.50 33.50 Willamette 132.00 110.00 33.50 33.50 Pulpwood FMV per cord Pine Hardwood Company Pet. Resp. Pet. Resp. Louisiana Plywood, Corp. Santiam Southern Company Wilmar Plywood Hunt Lumber Co. $ 6.50 $ 6.50 $ 2.50 $ 2.50 Willamette OREGON During the years in question petitioner and Freres cut Oregon timber eligible for section 631(a) treatment in the following respective amounts: Petitioner Year Board feet [1971] 287,910,050 [1972] 215,630,030 [1973] 268,455,390 Freres Year Bord feet [1971] 46,415,960 [1972] 59,348,300 [1973] 39,295,820 The timber was harvested from tracts located in the Cascade Range Mountains and the Coast Range Mountains of western Oregon.The principal sources of supply of the timber were sales of timber by the United States Forest Service (USFS), the Bureau of Land Management (BLM), private parties and governmental entities, and lands owned by petitioner. USFS Oregon timber to be valued herein is located in the northern part of the Siuslaw National Forest and in the North and South Santiam areas of the Willamette National Forest. USFS timber in Oregon is sold by auction to the high bidder with the total purchase price to be determined on a recovery basis. 4 The successful bidder, having bid a rate per MBF for each species of timber, must pay that rate for that timber which is actually harvested. USFS sale contracts usually require the purchaser of timber *15 to construct mainline roads in the area of the timber purchased. The purchaser receives a credit per MBF, at a rate specified in the contract, for the construction of such roads. The credit rate is based on USFS estimates computed from rates in prior years and not on actual road construction costs. The credit is applied to the required contract payments for the timber. The high bid per MBF for each species of timber at a USFS sale is the total amount bid and includes the road credit. The statistical high bid is the bid per MBF per species of timber less the road credit. The BLM, a division of the Department of the Interior, also sells timber on lands it administers. The BLM timber to be valued herein came in substantial part from lands located in the general proximity of tree farms owned and operated by petitioner. Prior to offering timber for sale, the BLM cruises the tract and prepares estimates as to timber volume, quality, and logging costs. The BLM provides this information to prospective purchasers who submit bids based on a rate per MBF *16 for each species of timber. The sale is awarded to the bidder who submits the highest total bid for all of the timber on the tract. The total amount paid for the timber is not adjusted to reflect the timber actually harvested. Purchasers of BLM timber are required to submit reports to the BLM of the harvest volume but not the grades of the logs harvested. Petitioner and all of the timber suppliers of petitioner use the Scribner Decimal C log scaling method to estimate the quantity of timber sold or harvested. However, the BLM uses a short log scale in computing estimated quantities of timber whereas petitioner and the timber suppliers use a long log scale. A number of differences exist between the short log and long log scales which combine to produce different estimated volume figures when the scales are applied to a given log. Generally, the short log scale produces a higher estimated volume than does the long log scale when applied to the same log. Petitioner and Freres also purchased a substantial volume of timber which was harvested from lands owned by the Avery and Holland interests (hereinafter Avery), and located in the North Santiam River drainage. Avery timber is managed *17 by a forestry consulting firm which also conducts sales of the timber. Prior to sale of the Avery timber the tract to be sold is cruised and the log volumes of particular species and of the grades of timber within each species are estimated. Sealed bids are solicited from prospective purchasers on either a rate per grade of each species or a rate per species of timber. The purchaser pays for the timber actually harvested. Petitioners also purchased a substantial volume of timber from the City of McMinnville, Oregon, which was harvested from lands located near that city. This timber was managed and sold on behalf of the owner by the same consulting firm as was the Avery timber. During the years in question petitioner harvested timber from a tract of approximately 150,000 acres of land located east of Sweet Home, Oregon, in the South Santiam River drainage owned by the Hill interests (hereinafter Hill). A substantial portion of that timber was acquired pursuant to long-term cutting contracts originally entered into during 1946. The contract price paid for timber harvested pursuant to those contracts did not reflect the fair market value of the timber during the years in question. Petitioner *18 also cut timber during the years in question which was purchased from other private parties. A substantial volume of timber purchased from Weyerhaeuser was harvested from lands located in the South Santiam River drainage. The principal tracts of Oregon timberland owned by petitioner from which timber was harvested during the years in question were identified by the parties as Black Rock, Carlton, Corvallis-Alsea, Mohawk, and Snow Peak. Black Rock, consisting of approximately 40,600 acres, is located a short distance west of Dallas, Oregon. Carlton, consisting of approximately 32,480 acres, is located north of Dallas, Oregon, near McMinnville, Oregon. Corvallis-Alsea is located southwest of Corvallis, Oregon, near Philomath, Oregon. Mohawk, consisting of approximately 32,400 acres is located northeast of Springfield, Oregon. Snow Peak, which includes lands identified as Thomas Creek, consists of approximately 55,900 acres and is located adjacent to the Avery timber east of Lebanon, Oregon. The fair market values of the timber cut by petitioner and Freres during 1971, 1972, and 1973 as of the applicable valuation dates, as asserted by petitioner and respondent respectively, are *19 as follows: [1971] FMV per MBF FMV per MBF Tract Species Petitioners Respondent Black Rock - Douglas Fir & Pine $ 101.60 $ 55.00 fee owned Hemlock & Other 63.50 21.00 Cedar 35.00 37.00 Noble Fir 95.00 21.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Black Rock - Douglas Fir & Pine 70.90 24.00 Thinning Hemlock & Other 48.30 13.00 Hardwood 12.00 8.00 Special Cull 10.00 5.00 Black Rock - Douglas Fir & Pine 66.00 70.00 BLM - Govt. Hemlock & Other 32.00 29.00 Cedar 50.00 44.00 Noble Fir 32.00 21.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Carlton - Douglas Fir & Pine 74.00 43.00 fee owned Hemlock & Other 42.00 2.00 Cedar 19.00 11.00 Special Culls 15.00 5.00 Utility 7.50 2.00 Carlton - Douglas Fir & Pine 48.00 65.00 BLM Hemlock & Other 25.00 18.00 Cedar 33.00 31.00 Noble Fir 25.00 18.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Hardwood 12.00 8.00 Carlton - Douglas Fir & Pine 44.00 33.00 Coast Govt. Hemlock & Other 24.00 21.00 Cedar 18.00 7.00 Utility 7.50 2.00 Corvallis - Douglas Fir & Pine 104.50 54.00 fee owned Hemlock & Other 60.60 20.00 Cedar 33.50 26.00 Noble Fir 90.00 20.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Hardwood 10.00 8.00 Snow Peak - Douglas Fir & Pine $ 112.75 $ 70.00 fee owned Hemlock & Other 67.00 50.00 Cedar 37.75 30.00 Noble Fir 99.00 50.00 Hardwood 12.00 8.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Snow Peak - Douglas Fir 1.00 20.00 thinning Snow Peak - Douglas Fir & Pine 72.00 35.00 BLM Hemlock & Other 36.00 17.00 Cedar 35.00 17.00 Noble Fir 36.00 25.00 Hardwood 12.00 8.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Thomas Creek - Douglas Fir & Pine 95.00 60.00 fee owned Hemlock & Other 63.00 40.00 Cedar 30.75 30.00 Noble Fir 98.00 40.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Hardwood 12.00 8.00 Thomas Creek - Douglas Fir & Pine 64.00 51.00 Govt. Hemlock & Other 36.00 32.00 Cedar 35.00 32.00 Noble Fir 36.00 32.00 Hardwood 14.50 8.00 Utility 7.50 5.00 Special Cull 15.00 2.00 South Santiam - Douglas Fir & Pine 95.00 55.00 Hill Hemlock & Other 59.00 35.00 Cedar 27.25 20.00 Noble Fir 99.00 35.00 Special Cull 15.00 5.00 Utility 7.50 2.00 South Santiam - Douglas Fir & Pine 59.00 28.00 BLM Hemlock & Other 31.00 16.00 Cedar 30.00 16.00 Special Cull 15.00 5.00 Utility 7.50 2.00 South Santiam - Douglas Fir & Pine $ 96.00 $ 55.00 Weyerhaeuser Hemlock & Other 58.00 35.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Cedar 25.75 20.00 Noble Fir 63.75 35.00 South Santiam - Douglas Fir & Pine 63.00 30.00 USFS Hemlock & Other 31.00 12.00 Cedar 17.00 9.00 Noble Fir 31.00 20.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Row River - Douglas Fir & Pine 123.00 85.00 fee owned Hemlock & Other 73.60 55.00 Cedar 42.50 35.00 Utility 7.50 5.00 Special Cull 15.00 2.00 Mohawk - Douglas Fir & Pine 100.00 50.00 fee owned Hemlock & Other 67.50 23.00 Cedar 33.75 17.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Mohawk - Douglas Fir & Pine 69.00 47.00 BLM Hemlock & Other 38.00 23.00 Cedar 26.75 17.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Springfield - Douglas Fir & Pine 39.00 30.00 Govt. Hemlock & Other 22.00 12.00 Cedar 24.00 10.00 Noble Fir 22.00 12.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Freres Veneer Douglas Fir & Pine 49.00 20.00 Co. - USFS Hemlock & Other 19.00 2.00 Noble Fir 54.00 2.00 Cedar 10.00 2.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Freres Veneer Douglas Fir & Pine $ 53.00 $ 44.00 Co. - BLM Hemlock & Other 27.00 21.00 Hardwood 12.00 8.00 Special Cull 15.00 5.00 Utility 7.50 2.00 Freres Veneer Douglas Fir & Pine 118.40 90.00 Co. - Avery Hemlock & Other 72.00 45.00 Cedar 38.00 25.00 Special Cull 15.00 5.00 Utility 7.50 2.00 *20 1972 FMV per MBF FMV per MBF Tract Species Petitioners Respondent Black Rock - Douglas Fir & Pine 117.00 78.00 fee owned Hemlock & Other 75.00 35.00 Cedar 50.00 20.00 Noble Fir 90.00 35.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Black Rock - Douglas Fir & Pine 68.00 22.00 thinning Hemlock & Other 45.70 19.00 Hardwood 20.00 8.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Black Rock - Douglas Fir & Pine 90.00 76.00 BLM Hemlock & Other 48.50 47.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Carlton - Douglas Fir & Pine 92.00 60.00 fee owned Hemlock & Other 59.00 25.00 Cedar 54.00 10.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Hardwood 20.00 8.00 Carlton - Douglas Fir & Pine 61.00 52.00 BLM Hemlock & Other 64.00 42.00 Cedar 68.00 18.00 Noble Fir 64.00 42.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Hardwood 12.50 8.00 Coast Govern.- Douglas Fir & Pine $ 61.00 $ 71.00 BLM Hemlock & Other 38.00 29.00 Cedar 31.00 26.00 Utility 12.50 5.00 Hardwood 15.00 2.00 Coast Govern.- Douglas Fir & Pine 60.25 49.00 USFS Hemlock & Other 35.00 43.00 Cedar 10.00 8.00 Noble Fir 35.00 43.00 Hardwood 18.00 8.00 Utility 12.50 5.00 Special Cull 25.00 2.00 Corvallis - Douglas Fir & Pine 95.00 53.00 fee owned Hemlock & Other 57.00 15.00 Cedar 33.00 2.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Snow Peak - Douglas Fir & Pine 109.00 75.00 fee owned Hemlock & Other 67.00 40.00 Cedar 53.40 25.00 Noble Fir 79.00 50.00 Hardwood 15.00 8.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Snow Peak - Douglas Fir 20.00 25.00 thinning Snow Peak - Douglas Fir & Pine 91.00 66.00 BLM Hemlock & Other 38.00 35.00 Cedar 42.00 41.00 Noble Fir 49.00 35.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Thomas Creek - Douglas Fir & Pine 108.00 75.00 fee owned Hemlock & Other 74.00 50.00 Cedar 56.60 35.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Thomas Creek - Douglas Fir & Pine $ 103.00 $ 64.00 Govt. Hemlock & Other 45.00 40.00 Cedar 47.50 47.00 Noble Fir 57.00 40.00 Hardwood 15.00 8.00 $12Utility.50 5.00 Special Cull 25.00 2.00 Thomas Creek - Douglas Fir & Pine 114.00 78.00 Holland Hemlock & Other 72.00 45.00 Cedar 55.00 30.00 Special Cull 25.00 5.00 Utility 12.50 2.00 South Santiam - Douglas Fir & Pine 103.00 72.00 Hill Hemlock & Other 64.00 45.00 Cedar 53.60 30.00 Noble Fir 78.50 45.00 Special Cull 25.00 5.00 Utility 12.50 2.00 South Santiam - Douglas Fir & Pine 109.00 39.00 BLM Hemlock & Other 38.00 27.00 Cedar 44.00 23.00 Special Cull 25.00 27.00 Utility 12.50 5.00 Noble Fir 37.50 2.00 South Santiam - Douglas Fir & Pine 100.00 70.00 fee owned Hemlock & Other 60.00 45.00 Cedar 51.00 30.00 Noble Fir 78.00 45.00 Special Cull 25.00 5.00 Utility 12.50 2.00 South Santiam - Douglas Fir & Pine 76.00 64.00 USFS Hemlock & Other 54.00 41.00 Cedar 24.00 16.00 Noble Fir 69.00 41.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Row River - Douglas Fir & Pine 130.00 110.00 fee owned Hemlock & Other 84.00 80.00 Cedar 73.50 50.00 Utility 12.50 5.00 Special Cull 25.00 2.00 Mohawk - Douglas Fir & Pine $ 101.00 $ 52.00 fee owned Hemlock & Other 64.00 17.00 Cedar 48.00 2.00 Noble Fir 64.00 17.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Mohawk - Douglas Fir & Pine 96.00 71.00 BLM Hemlock & Other 58.00 40.00 Cedar 27.00 21.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Springfield - Douglas Fir & Pine 65.50 42.00 USFS Hemlock & Other 34.00 5.00 Cedar 5.00 5.00 Noble Fir 50.00 5.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Freres Veneer Douglas Fir & Pine 75.75 70.00 Co. - USFS Hemlock & Other 45.15 29.00 Noble Fir 50.00 29.00 Cedar 7.00 14.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Freres Veneer Douglas Fir & Pine 92.00 47.00 Co.-BLM Hemlock & Other 44.00 26.00 Noble Fir 44.00 26.00 Cedar 44.00 32.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Hardwood 15.00 8.00 Freres Veneer Douglas Fir & Pine 130.00 90.00 Co.-Avery Hemlock 87.00 55.00 Cedar 53.60 25.00 Special Cull 25.00 5.00 Utility 12.50 2.00 Freres Veneer Douglas Fir 60.00 47.00 Co.-State Hemlock & Other 41.00 26.00 Hardwood 18.00 8.00 Special Cull 25.00 5.00 Utility 12.50 2.00 *21 1973 FMV per MBF FMV per MBF Tract Species Petitioners Respondent Black Rock - Douglas Fir $ 194.00 $ 100.00 fee owned Hemlock & Other 182.00 39.00 Cedar 100.00 77.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Black Rock - Douglas Fir 117.00 49.00 thinning Hemlock & Other 139.00 19.00 Cedar 100.00 19.00 Hardwood 25.00 5.00 Utility 10.00 2.00 Black Rock - Douglas Fir 138.00 114.00 BLM Hemlock & Other 73.00 60.00 Cedar 61.00 60.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Carlton - Douglas Fir 161.00 130.00 fee owned Hemlock & Other 182.00 60.00 Cedar 109.00 50.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Carlton - Douglas Fir 142.00 109.00 BLM Hemlock & Other 80.00 57.00 Cedar 86.00 73.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Carlton - Douglas Fir 140.00 86.00 thinning Hemlock & Other 148.00 46.00 Cedar 101.00 61.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Coast Govern.- Douglas Fir 128.50 90.00 USFS Hemlock & Other 107.50 71.00 Cedar 41.70 35.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Corvallis - Douglas Fir $ 200.00 $ 130.00 fee owned Hemlock & Other 172.00 50.00 Cedar 117.00 68.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Snow Peak - Douglas Fir 235.00 120.00 fee owned Hemlock & Other 179.00 70.00 Cedar 127.80 35.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Snow Peak - Douglas Fir 93.60 54.00 thinning Snow Peak - Douglas Fir 125.00 106.00 BLM Hemlock & Other 66.00 52.00 Cedar 78.00 58.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Snow Peak - Douglas Fir 204.00 111.00 Holland Hemlock & Other 183.00 53.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Thomas Creek - Douglas Fir 194.00 112.00 fee owned Hemlock & Other 175.00 80.00 Cedar 116.00 40.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Thomas Creek - Douglas Fir 127.00 108.00 BLM Hemlock & Other 70.00 59.00 Cedar 87.00 65.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 South Santiam - Douglas Fir 200.00 110.00 Hill Hemlock & Other 181.00 75.00 Cedar 113.50 35.00 Special Cull 25.00 5.00 Utility 10.00 2.00 South Santiam - Douglas Fir $ 124.50 $ 120.00 BLM Hemlock & Other 64.00 61.00 Cedar 81.00 67.00 Special Cull 25.00 5.00 Utility 10.00 2.00 South Santiam - Douglas Fir 165.00 105.00 fee owned Hemlock & Other 170.00 75.00 Cedar 110.00 35.00 Special Cull 25.00 5.00 Utility 10.00 2.00 South Santiam - Douglas Fir 144.25 120.00 USFS Hemlock & Other 106.70 94.00 Cedar 38.70 4.00 Hardwood 25.00 8.0 Special Cull 25.00 5.00 Utility 10.00 2.00 Mohawk - Douglas Fir 169.00 79.00 fee owned Hemlock & Other 163.00 72.00 Cedar 136.50 45.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Mohawk - BLM Douglas Fir 144.00 109.00 Hemlock & Other 75.00 99.00 Cedar 55.00 71.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Mohawk - Douglas Fir 121.00 60.00 thinning Hemlock & Other 90.00 60.00 Springfield - Douglas Fir 143.00 127.00 BLM Hemlock & Other 83.00 66.00 Cedar 83.00 67.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Springfield - Douglas Fir 116.00 110.00 USFS Hemlock & Other 68.85 28.00 Cedar 13.55 32.00 Special Cull 19.00 5.00 Utility 7.00 2.00 Freres Veneer Douglas Fir & Pine $ 153.00 $ 76.00 Co.-USFS Hemlock & Other 113.20 75.00 Cedar 46.00 2.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Freres Veneer Douglas Fir & Pine 116.00 126.00 Co.-BLM Hemlock & Other 64.00 64.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Freres Veneer Douglas Fir & Pine 267.00 250.00 Co.-Avery Hemlock & Other 213.00 200.00 Cedar 138.70 120.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Freres Veneer Douglas Fir & Pine 142.00 126.00 Co.-State Hemlock & Other 113.00 64.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 Molalla - Douglas Fir 210.00 125.00 fee owned Hemlock & Other 186.00 85.00 Cedar 120.50 40.00 Special Cull 25.00 5.00 Utility 10.00 2.00 City of Douglas Fir 172.00 168.00 McMinnville Hemlock & Other 164.00 44.00 Cedar 109.00 23.00 Hardwood 25.00 8.00 Special Cull 25.00 5.00 Utility 10.00 2.00 *22 OPINION Section 631(a)5*23 provides that a taxpayer may elect to treat the cutting of certain timber as a sale or exchange of a capital asset. Capital gain or loss is recognized by the taxpayer in an amount equal to the fair market value of the timber as of the first day of the taxable year in which the timber is cut less the taxpayer's adjusted basis for depletion of the timber. At issue herein is the fair market value of the timber eligible for section 631(a) treatment cut by the taxpayers as of January 1, 1971, January 1, 1972, October 1, 1972, and January 1, 1973. In making the determination of the fair market value of timber eligible for section 631(a) treatment, the normal standard is the hypothetical price at which the timber would be sold in a transaction between a willing seller and a willing buyer both of whom have the most reliable and accurate information available on the valuation date. Section 1.631-1(d)(2), Income Tax Regs.Buse v. Commissioner,71 T.C. 1129 (1979). Among the factors which deserve due consideration in reaching a determination of the fair market value of timber on a given date are the character, quality, quantity, and location of the timber, as well as its accessibility. Disinterested appraisals of its value are also valid considerations. See section 1.611-3(f), Income Tax Regs. The best indicia *24 of the fair market value of timber for section 631(a) purposes are contemporaneous sales of comparable timber. The choice of comparable sales requires specific knowledge of the timber to be valued and the timber actually sold. While a precise method of choosing comparable sales is incapable of universal application, certain factors affecting the price a willing buyer would pay a willing seller should always be considered. The geographical market area from which comparable sales may be chosen must be delineated. Ideally the comparable sale will be from a tract in close geographic proximity to the timber to be valued and within the feasible area of supply of the processing facility to which the section 631(a) timber is shipped. The quantity of the timber sold must be reasonably comparable with the subject timber. The method by which the comparable timber is sold must also be considered and the contractual terms of the sale analyzed. The topography of the tract and path of transport must be reviewed. While sales on the valuation date would preclude the necessity for consideration of changes in the market place, a large sample of comparable sales is needed to insure a valid indication *25 of the fair market value of the timber. Consequently the time period from which comparables are chosen should be expanded to include sales occurring before and after the valuation date. No set time period from which comparable sales may be taken is universally applicable inasmuch as the objective is to obtain a sufficiently large sample of comparable sales to insure against distortion. Once the comparable sales are selected, each sale must be individually adjusted to reflect equivalent quality, quantity, accessibility, and location. Buse v. Commissioner,supra at 1129.Economic trends in the sale price of timber must be considered and adjustments made for such trends. SOUTH We have been assisted in our determination of the fair market value of the southern timber by the opinions of three experts, two for petitioner and one for respondent. In addition, the individual in charge of acquiring timber for petitioner and managing petitioner's southern timber during the years in question provided valuable testimony. We find varying degrees of weakness in the methods of analysis used by the witnesses and conclude that none of their opinions is alone dispositive of the valuation issue. A *26 few comments concerning the valuation methods are illustrative. The experts differed as to the proper method of converting estimated volumes of USFS timber computed by the use of the Scribner Decimal C scale to equivalent volumes using the Modified Doyle scale. The USFS timber volume was estimated at the time the timber was offered for sale. Petitioner presented evidence of the harvested volume of USFS timber computed under the Modified Doyle scale. Inasmuch as the timber grew during the period between the sale and harvest, an adjustment for growth was obviously necessary to compute accurately the differences in the scales. Respondent's expert erred in failing to make a proper adjustment for such growth. The parties also disagreed concerning the proper method of valuing the C.C.C. timber. USFS timber is often of a higher quality than private timber sold in the South. Respondent's expert maintained that inasmuch as the C.C.C. timber was purchased from a private party, only sales of private timber provided suitable comparables for computing the proper weighted average to use in valuing the timber. However, we find that the C.C.C. timber was at least equal in value to the USFS *27 timber. Clearly, absent factors such as differences in the method of sale, it is the character of the timber to be valued, not the identity of the seller, which determines appropriate comparable sales of timber. Some of the tracts of timber used as comparable sales by respondent's expert were small tracts which clearly are not comparable with the tracts of timber to be valued. Certain sales of USFS timber were conducted to promote small business by excluding certain potential purchasers. Such sales are not proper comparables and should not have been used by respondent's expert. One of the petitioner's experts considered private sales information obtained by interviewing individuals who attended the sales. Such unverifiable information is of little assistance to us in determining the value of the timber in question. We find the opinion of the individual who was in charge of petitioner's southern timber during the years in question of particular assistance. He clearly possessed the requisite familiarity with the character of the harvested timber to select comparable sales. Moreover, he was directly involved in petitioner's acquisition of timber during the years in question and exhibited *28 a comprehensive knowledge of the timber market. However, we recognize that he is not a totally disinterested witness in fixing the fair market value of petitioner's timber eligible for section 631(a) treatment. In summary, based on the evidence presented, considering the above noted factors and exercising our own independent judgment, we conclude that the fair market value of the southern timber eligible for section 631 (a) treatment was as follows: January 1, 1971 Sawtimber Sawtimber FMV per MBF FMV per MBF Company Pine Hardwood Louisiana Plywood Corp. $ 81.00 Santiam Southern Company 79.50 $ 25.00 January 1, 1972 Sawtimber Sawtimber FMV per MBF FMV per MBF Company Pine Hardwood Louisiana Plywood Corp. $ 104.00 Santiam Southern Company 102.00 $ 25.00 October 1, 1972 Sawtimber Sawtimber Pulpwood FMV per MBF FMV per MBF cords Company Pine Hardwood Pine Hardwood Hunt Lumber Co., Inc. $ 115.91 $ 29.00 $ 6.50 January 1, 1973 Sawtimber Sawtimber Pulpwood FMV per MBF FMV per MBF cords Company Pine Hardwood Pine Hardwood Louisiana Plywood Corp. $ 129.00 $ 33.50 Santiam Southern Company 130.00 33.50 Wilmar Plywood 129.00 33.50 Hunt Lumber Co. 129.00 33.50 $ 6.50 $ 2.50 Willamette 129.00 33.50 OREGON Four expert witnesses, two for each of the parties, testified *29 concerning the fair market value of the Oregon timber on the respective valuation dates. In addition, the individual in charge of appraising all timber acquired and harvested by petitioner during the years in question testified concerning the timber to be valued. While the testimony of these witnesses was extremely helpful in making our determination, we find none of their opinions determinative as to the fair market value of the timber in question. Some particular areas of weakness in the experts' methodology are evident and deserve comment. There was sharp disagreement between the parties concerning the proper period from which to obtain comparable sales. One of petitioner's experts felt that due to the cyclical nature of the timber industry the proper period was from 6 months before to 6 months after the valuation date. One of respondent's experts felt that due to sharply rising prices in the market place and the large number of comparable sales occurring during the second quarter of the years in question the proper period was from 3 months before to 3 months after the valuation date. We feel that to some extent both individuals miss the point. We are not seeking to obtain *30 an average value which reflects the cyclical nature of the timber industry. Nor do we feel constrained, because of a rising market, to exclude comparable sales occurring 3 months and one day after the valuation date. Rather, we seek a sufficient number of comparable sales to reflect accurately the fair market value of the timber on the valuation date. See Martin Timber Co., Inc. v. Commissioner,T.C. Memo 1972-255. If a rising or falling market serves to distort the price of a comparable sale, the individual sale should be adjusted. Sales of the Avery timber gave rise to marked differences in the experts' opinions as to the fair market value of a portion of that timber which was purchased from private parties. The Avery timber was marketed in an unusual manner in that it was sold on a sealed bid recovery basis with purchasers bidding a price for grades within a species of timber. In addition, the timber was of extremely high quality. One of respondent's experts felt the fairly uncommon marketing method precluded the use of sales of Avery timber as comparable sales for any timber other than Avery timber, while one of petitioner's experts felt the Avery timber was the best available *31 evidence of comparable sales. We feel that both experts erred. Sales of Avery timber are valid comparable sales but the prices obtained must be adjusted to reflect the unusual method of sale. One of respondent's experts utilized a conversion return method of analysis utilizing the selling prices of logs to value the timber in question. We agree with petitioner that the comparable sales method of calculating value is a better method than the conversion return. See Buse v. Commissioner,supra at 1136-1137, Ellingson Timber Co. v. Commissioner,T.C. Memo 1977-197. Respondent correctly argues that the conversion return method is a useful means of checking value determined using the comparable sales approach. However, we afford little weight to an opinion based entirely on a conversion return approach, even as a check on the opinions of other experts. One of respondent's experts acknowledged that timber which could be exported during the years in question was more valuable than timber which was subject to governmental prohibitions against export. However, he then calculated that portion of the export market share which petitioner could capture based on the ratio of the exportable *32 timber harvested by petitioner to the total exportable timber harvested in the area during the years in question. The practical effect of the expert's calculation was to reduce to a minimum the quantity of timber which was valued by the use of comparable sales of export timber. We think the value of exportable timber should clearly reflect the higher price obtainable for export timber within the framework of the comparable sales method. Buse v. Commissioner,supra at 1137. Experts for the parties agreed that an adjustment was necessary to compare sales of BLM timber with volumes estimated using the short log scale with timber harvested from BLM lands by petitioner with volumes estimated using the long log scale. Respondent's expert maintained that the proper adjustment was to increase the bid rate of BLM sales by 10 percent. Petitioner's expert felt the proper adjustment was an increase of 18 percent. The clear preponderance of the evidence presented in this case supports the 18 percent adjustment utilized by petitioner's expert. The parties expended a great deal of time and effort deriding the respective opinions of their opponent's experts. Respondent argued that one of petitioner's *33 experts distorted the cost of comparable sales of USFS timber by failing to make an adjustment for road credits. While we agree that an adjustment for road credits is necessary, we find the method of adjustment used by petitioner's expert to be as effective as that used by respondent's expert. Petitioner argued that one of respondent's experts evidenced a certain bias in valuing the timber acquired from the Hill interests. We are not persuaded that such criticism is justified by the record. We find the experts have done an admirable job of estimating the value of an enormous quantity of timber. We do not feel that any shortcomings in the presentation of this case are those of the respective experts. This Court has repeatedly stated that issues of valuation are more satisfactorily resolved by the parties themselves than by the Court, and has urged the parties to seek to dispose of such issues without litigation. This case, is a prime example of the type of situation to which the Court has referred, 6*34 and the posture of the parties herein is aptly described by the Court in Buffalo Tool and Die Manufacturing Co., Inc. v. Commissioner,74 T.C. 441, 451-452 (1980): The existing record reeks of stubbornness rather than flexibility on the part of both parties, based upon "an overzealous effort * * * to infuse a talismanic precision" into their respective views as to valuation. See Messing v. Commissioner, 48 T.C. at 512. We are convinced that the valuation issue is capable of resolution by the parties themselves through an agreement which will reflect a compromise Solomon-like adjustment, thereby saving the expenditure of time, effort, and money by the parties and the Court -- a process not likely to produce a better result. Indeed, each of the parties should keep in mind that, in the final analysis, the Court may find the evidence of valuation by one of the parties sufficiently more convincing than that of the other party, so that the final result will produce a significant financial defeat for one or the other, rather than a middle-of-the-road compromise which we suspect each of the parties expects the Court to reach. * * * We are unable, as were the experts, to bring "talismanic precision" to the valuation of the timber *35 eligible for section 631(a) treatment. We have carefully considered the testimony presented, resolved the differences in methodology of the experts over which the parties were at loggerheads and ultimately exercised our own judgment in determining the fair market value of the timber on the respective valuation dates. We conclude that the fair market value on the respective dates of the Oregon timber eligible for section 631(a) treatment was as follows: VALUES - 1971 FAIR MARKET VALUE PER THOUSAND FEET DOUGLAS FIR HEMLOCK AND TRACT & PINE OTHER CEDAR NOBLE FIR Black Rock - fee owned $ 90.00 $ 60.00 $ 33.00 $ 89.00 - thinning 60.00 40.00 - BLM - Govt. 66.00 31.00 48.00 29.00 Carlton - fee owned 70.00 40.00 17.00 - BLM 43.00 22.00 32.00 23.00 - Coast Govt. 43.00 23.50 16.00 Corvallis - fee owned 100.00 55.00 33.00 80.00 Snow Peak - fee owned 105.00 65.00 35.00 90.00 - Thinning 20.00 - BLM 45.00 33.00 32.00 33.50 Thomas Creek - fee owned 90.00 60.00 30.50 90.00 Govt. 60.00 34.00 34.00 34.00 South Santiam - Hill 90.00 57.00 26.00 90.00 - BLM 58.00 23.00 26.00 - Weyerhaeuser 90.00 55.00 24.00 60.00 - U.S.F.S. 45.00 18.50 10.00 30.00 Row River - fee owned 115.00 70.00 40.00 Mchawk - fee owned 90.00 65.00 30.00 - BLM 50.00 30.00 25.00 Springfield - Govt. 37.00 20.00 22.00 20.00 Freres Veneer - U.S.F.S. 45.00 17.00 8.00 50.00 Co. - BLM 50.00 25.00 - Avery 115.00 65.00 35.00 *36 TRACT SPECIAL CULLS UTILITY HARDWOOD Black Rock - fee owned $ 10.00 $ 5.00 - thinning 8.00 $ 10.00 - BLM - Govt. 7.00 4.00 Carlton - fee owned 12.00 5.00 - BLM 12.00 6.00 11.00 - Coast Govt. 5.00 Corvallis - fee owned 10.00 7.00 10.00 Snow Peak - fee owned 12.00 6.00 11.00 - Thinning - BLM 12.00 6.00 11.00 Thomas Creek - fee owned 12.00 6.00 11.00 - Govt. 12.00 6.00 12.00 South Santiam - Hill 12.00 6.00 - BLM 10.00 4.00 - Weyerhaeuser 12.00 6.00 - U.S.F.S. 12.00 6.00 Row River - fee owned 12.00 6.00 Mchawk - fee owned 12.00 6.00 - BLM 12.00 6.00 Springfield - Govt. 12.00 6.00 Freres Veneer - U.S.F.S. 12.00 6.00 Co. - BLM 12.00 6.00 11.00 - Avery 12.00 6.00 VALUES - 1972 FAIR MARKET VALUE PER THOUSAND FEET DOUGLAS FIR HEMLOCK AND TRACT & PINE OTHER CEDAR NOBLE FIR Black Rock - fee owned $ 110.00 $ 65.00 $ 45.00 $ 70.00 - thinning 65.00 40.00 - BLM 80.00 48.00 Carlton - fee owned 85.00 55.00 40.00 - BLM 56.00 50.00 33.50 50.00 Coast Govt. - BLM 61.00 33.75 27.00 - U.S.F.S. 58.00 38.00 9.00 40.00 Corvallis - fee owned 67.50 42.00 30.00 Snow Peak - fee owned 96.70 60.00 50.00 75.00 - thinning 23.00 - BLM 85.00 37.00 42.00 47.00 Thomas Creek - fee owned 95.00 65.00 50.00 - Govt. 100.00 43.00 47.50 55.00 - Holland 105.00 65.00 53.00 South Santiam - Hill 95.00 60.00 50.00 75.00 - BLM 100.00 35.00 40.00 20.00 - fee owned 90.00 55.00 46.00 70.00 - U.S.F.S. 72.00 50.00 22.00 65.00 Row River - fee owned 125.00 84.00 70.00 Mohawk - fee owned 90.00 55.00 40.00 55.00 - BLM 93.00 55.00 25.00 Springfield - U.S.F.S. 60.00 30.00 5.00 40.00 Freres Veneer - U.S.F.S. 75.00 43.00 10.00 40.00 Co. - BLM 85.00 40.00 40.00 40.00 - Avery 125.00 80.00 50.00 - State 55.00 37.00 *37 TRACT SPECIAL CULLS UTILITY HARDWOOD Black Rock - fee owned $ 22.00 $ 10.00 $ - thinning 20.00 10.00 15.00 - BLM 22.00 10.00 Carlton - fee owned 22.00 10.00 15.00 - BLM 15.00 10.00 10.00 Coast Govt. - BLM 10.00 12.00 - U.S.F.S. 20.00 10.00 15.00 Corvallis - fee owned 20.00 10.00 Snow Peak - fee owned 15.00 10.00 12.00 - thinning - BLM 20.00 10.00 Thomas Creek - fee owned 20.00 10.00 - Govt. 20.00 10.00 12.00 - Holland 20.00 10.00 South Santiam - Hill 20.00 10.00 - BLM 26.00 10.00 - fee owned 20.00 10.00 - U.S.F.S. 20.00 10.00 Row River - fee owned 20.00 10.00 Mohawk - fee owned 20.00 10.00 - BLM 20.00 10.00 Springfield - U.S.F.S. 20.00 10.00 Freres Veneer - U.S.F.S. 20.00 10.00 Co. - BLM 20.00 10.00 12.00 - Avery 20.00 10.00 - State 20.00 10.00 15.00 VALUES - 1973 FAIR MARKET VALUE PER THOUSAND FEET DOUGLAS FIR HEMLOCK AND TRACT & PINE OTHER CEDAR NOBLE FIR Black Rock - fee owned $ 170.00 $ 16.00 $ 90.00 - thinning 90.00 100.00 80.00 - BLM 125.00 70.00 61.00 Carlton - fee owned 150.00 150.00 95.00 - BLM 130.00 70.00 80.00 - thinning 130.00 130.00 90.00 Coast Govt. - U.S.F.S. 105.00 100.00 40.00 Corvallis - fee owned 180.00 165.00 100.00 Snow Peak - fee owned 200.00 150.00 120.00 - thinning 85.00 - BLM 120.00 60.00 73.00 - Holland 190.00 170.00 Thomas Creek - fee owned 180.00 165.00 110.00 - BLM 123.00 65.00 80.00 South Santiam - Hill 180.00 170.00 100.00 - BLM 122.00 63.00 80.00 - fee owned 150.00 150.00 90.00 - U.S.F.S. 130.00 100.00 35.00 Mohawk - fee owned 150.00 150.00 130.00 - BLM 135.00 80.00 60.00 - thinning 115.00 80.00 Springfield - BLM 140.00 80.00 80.00 - U.S.F.S. 115.00 60.00 20.00 Freres Veneer - U.S.F.S. 145.00 100.00 35.00 Co. - BLM 120.00 64.00 - Avery 260.00 210.00 130.00 - State 140.00 110.00 Molalla - fee owned 200.00 170.00 100.00 City of McMinnville - 170.00 160.00 100.00 *38 TRACT SPECIAL CULLS UTILITY HARDWOOD Black Rock - fee owned $ 21.00 $ 8.00 $ 23.00 - thinning 8.00 20.00 - BLM 20.00 8.00 Carlton - fee owned 22.00 8.00 - BLM 20.00 8.00 20.00 - thinning 20.00 8.00 20.00 Coast Govt. - U.S.F.S. 20.00 8.00 20.00 Corvallis - fee owned 20.00 8.00 20.00 Snow Peak - fee owned 20.00 8.00 - thinning - BLM 20.00 8.00 20.00 - Holland 20.00 8.00 20.00 Thomas Creek - fee owned 20.00 8.00 20.00 - BLM 20.00 8.00 20.00 South Santiam - Hill 20.00 8.00 - BLM 20.00 8.00 - fee owned 20.00 8.00 - U.S.F.S. 20.00 8.00 20.00 Mohawk - fee owned 20.00 8.00 - BLM 20.00 8.00 - thinning Springfield - BLM 20.00 8.00 20.00 - U.S.F.S. 15.00 5.00 Freres Veneer - U.S.F.S. 20.00 8.00 Co. - BLM 20.00 8.00 - Avery 20.00 8.00 - State 20.00 8.00 20.00 Molalla - fee owned 20.00 8.00 City of McMinnville - 20.00 8.00 20.00 The remaining issue before the Court concerns the proper amount allocable to the cost of land with standing timber on it acquired during the years in question for purposes of computing petitioner's allowable depletion deduction under section 611. Section 6117 provides that a reasonable allowance for depletion of timber shall be allowed as a deduction pursuant to regulations promulgated by the Secretary. The starting point for purposes of computing the depletion deduction *39 is the determination of the adjusted basis of the timber for depletion. See section 612. Timber's adjusted basis for depletion is the cost or other basis determined under section 1012 (relating to the basis of property), adjusted as provided in section 1016 (relating to adjustments to basis), and the regulations under such sections. Section 1.612-1(a), Income Tax Regs. The adjusted basis of timber does not include the cost or value of land on which the timber is located. Section 1.612-1(b)(1)(ii), Income Tax Regs. During each of the years in question, the petitioner purchased tracts of timberland in Oregon and in the South. Pursuant to section 1.611-3, Income Tax Regs., petitioner filed a Form T-Timber and made an allocation of each purchase price among *40 the land, the merchantable timber, and the young unmerchantable timber located on each tract of timberland. In the notice of deficiency, respondent determined that, due to an understatement of the amount of the purchase price attributable to land and an overstatement of the amount attributable to timber, excessive depletion deductions were claimed by petitioner. Specifically, respondent disallowed $ 50,000 of the claimed depletion deductions for each of the years in question. Petitioner contends that respondent's determination is erroneous and wholly speculative, and in support of its contention points to respondent's disallowance of precisely $ 50,000 of the claimed depletion deduction for each of the years in question. Petitioner argues further that such a speculative basis is insufficient to sustain the presumption of correctness ordinarily afforded to respondent's determination under Welch v. Helvering,290 U.S. 111 (1933), and Rule 142(a), Tax Court Rules of Practice and Procedure. Petitioner relies on Weimerskirch v. Commissioner,596 F.2d 358 (9th Cir. 1979) revg. 67 T.C. 672 (1977), and United States v. Janis,428 U.S. 433 (1976). In the alternative, petitioner argues *41 that if the burden of proving the amount properly allocable to the land in question rests on petitioner, it has met its burden of proof. Regarding petitioner's initial argument we think petitioner's reliance on Weimerskirch v. Commissioner,supra, and United States v. Janis,supra, is misplaced. In Janis the Los Angeles police department seized certain gambling records of the taxpayers and informed an agent of the Internal Revenue Service that the taxpayer had been arrested for bookmaking. The agent analyzed the seized records, which analysis formed the sole basis for an assessment against the taxpayer. See United States v. Janis,supra at 437-438. The issue in Janis was whether evidence seized by a state criminal law enforcement officer in good faith, but nonetheless unconstitutionally, is admissible in a civil proceeding by or against the United States. United States v. Janis,supra at 435. The Supreme Court held that the exclusionary rule, [based on the individual's Fourth Amendment right to be free from unreasonable searches and seizures] should not be extended to forbid the use, in the civil proceeding of one sovereign, of evidence seized by a criminal law enforcement agent *42 of another sovereign. United States v. Janis,supra at 461. Petitioner bases its argument on dictum in Janis to the effect that a determination of tax due without rational foundation and excessive may be one not properly subject to the usual rule concerning the burden of proof in tax cases. Weimerskirch v. Commissioner,8 which was decided by this Court prior to the Supreme Court decision in Janis, involved a deficiency based on alleged heroin sales. The revenue agent therein based his calculation of unreported income in part on the statement of two confidential informers. After reviewing the factual basis for the agent's determination in camera, but without disclosing the information to the taxpayer, the trial judge ruled that respondent's determination was not arbitrary and unreasonable. Relying heavily on the Supreme Court's dictum in Janis, the Ninth Circuit, to which an appeal of this case will lie, reversed our decision in Weimerskirch.The Ninth Circuit held: "A deficiency determination which is not supported by the proper foundation of substantive evidence is clearly arbitrary and erroneous." Weimerskirch v. Commissioner,596 F.2d at 362. *43 It is not necessary herein that we attempt to deal with such a broadly stated rule. See Jackson v. Commissioner,73 T.C. 394, 404 (1979). Weimerskirch is inapposite to the instant case. 9 The issue in Weimerskirch concerned unreported income. At issue herein is respondent's disallowance of a portion of the depletion deduction claimed by petitioner. See Rockwell v. Commissioner,512 F.2d 882 (9th Cir. 1975), affg. a Memorandum Opinion of this Court. Respondent has presented substantive evidence concerning the value of the land in question. The individual whose opinion formed the basis for respondent's determination testified concerning the method by which he valued the land and his opinion as to that value. We note the improbability of the overstatement of amounts properly allocable to land resulting in an excessive depletion deduction in the amount of exactly $ 50,000 per year for each of the years in question. However, such improbability alone is insufficient to strip the presumption of correctness from respondent's *44 determination where, as here, respondent presents substantive evidence in support of his determination. This is not one of those rare occasions where this Court will look behind a notice of deficiency to examine the evidence used or the propriety of the Commissioner's procedure in making the determination. See Greenberg's Express, Inc. v. Commissioner,62 T.C. 324 (1974). Nor has petitioner established that respondent's determination is wholly without foundation. The taxable years at issue are not the only years over which the parties have disagreed concerning the correct amount of Federal income taxes owed by petitioner. In a settlement agreement concerning prior taxable years respondent agreed to an allocation to land which comports with the allocations on the Form T's filed for the years at issue. Petitioner argues that respondent has failed to prove that the value of land increased in value from the prior years to the years in question. We find this argument wholly without merit. Land acquired by petitioner during prior taxable years is not at issue here and amounts allocated to the cost of such land in settlement agreements have no relevance to the determination of the *45 proper amount to be allocated to land acquired during 1971, 1972, and 1973. Moreover, the acceptance of such prior allocations of value does not serve to bind respondent for the years here in controversy. Meneguzzo v. Commissioner,43 T.C. 824 (1965). Petitioner next argues that if the burden of proof concerning the value of the timberland in question is to be borne by it, it has met that burden by presenting evidence sufficient to prove the value of the land. We cannot agree. Petitioner asserts on brief that timberland valuations made by the Oregon Department of Revenue each year for property tax purposes formed the basis for the allocation of value to the timberland as reported by petitioner on the Form T's filed for the years in question. On brief petitioner explains, in general terms, the method by which the Oregon Department of Revenue values timberland and states that adjustments were made by petitioner to the values shown on the Oregon Department of Revenue schedules to reflect the character and quality of each of its tracts of land. Petitioner submitted an exhibit containing standardized schedules of land values for eight general classes of forest land as determined by *46 the Oregon Department of Revenue for each of the counties in which petitioner had timberland during the years in question. Petitioner also presented the Form T's filed for the years in question which contain petitioner's ultimate determinations of the value of the land. Without substantive evidence of the basis for property tax value assessments such assessments are generally of limited utility in valuing land. See Emmet v. Commissioner,11 T.C. 90 (1948). However, even if such assessments are viewed as a solid foundation upon which to base a determination of the value of the timberland, we find that petitioner has not demonstrated the method by which the timberland here in question was valued. Petitioner did not present specific evidence of how its land was classified to conform with the eight classes of timberland utilized by the Oregon Department of Revenue nor did it submit proof of the actual adjustments it made to the standardized values fixed by the Oregon Department of Revenue. In effect, petitioner requests that we determine that the land values reported on the Form T's are correct without providing evidence of how those values were arrived at. We are therefore unable *47 to find from the present record that petitioner had carried its burden of proving that respondent's determination of values is erroneous. Welch v. Helvering,supra,Rule 142(a), Tax Court Rules of Practice and Procedure. Accordingly, we hold for respondent on this issue. Decisions will be entered under Rule 155. Footnotes 1. Cases of the following petitioners are consolidated herewith: Willamette Industries, Inc., docket No. 5083-76; Hunt Lumber Company, Inc., Transferor, Willamette Industries, Inc., Transferee, docket No. 5096-76; Brooks-Willamette Corporation, docket No. 5097-76; Wilmar Plywood, Inc., Transferor, Willamette Industries, Inc., Transferee, docket No. 5098-76.↩ *. By order of the Chief Judge dated June 30, 1980, these consolidated cases were reassigned from Judge William H. Quealy to Judge Sheldon V. Ekman↩. 1a. Due to concessions by the parties all issues in Docket No. 5097-76 have been settled. 2. For the taxable years ended December 31, 1971, 1972, and 1973, Willamette's consolidated returns also included the income of its subsidiaries Western Kraft Corp., Western Kraft East, Inc., Santiam Southern Co., Wimer Logging Co., Willamette National Lumber Co., Wimer Trucking Co., and Duraflake South, Inc.; its consolidated income tax return for the year 1971 also included the income of its subsidiary Western Corrugated, Inc.; its consolidated income tax return for the years 1971 and 1972 also included the income of its subsidiary Rebmit, Inc.; and its consolidated income tax return for the year 1973 also included the income of its subsidiaries Hunt Lumber Co., Inc., and Louisiana Plywood Corp. 3. MBF denotes a unit of measurement describing one thousand board feet of timber. The volumes shown are computed using the Modified Doyle scale.↩ *. Respondent has not determined a fair market value as of the indicated date for this timber which was harvested by Hunt Lumber Co., Inc. and Wilmar Plywood, Inc.↩ *. Respondent has not determined a fair market value as of the indicated date for this timber which was harvested by Hunt Lumber Co., Inc. and Wilmar Plywood, Inc. 4. For a discussion of the procedure followed by the USFS in selling timber see Ellingson Timber Co. v. Commissioner,T.C. Memo 1977-197↩. 5. Sec. 631(ae provides in part: (a) Election to Consider Cutting as Sale or Exchange.--If the taxpayer so elects on his return for a taxable year, the cutting of timber (for sale or for use in the taxpayer's trade or business) during such year by the taxpayer who owns, or has a contract right to cut, such timber (providing he has owned such timber or has held such contract right for a period of more than 6 months before the beginning of such year) shall be considered as a sale or exchange of such timber cut during such year. If such election has been made, gain or loss to the taxpayer shall be recognized in an amount equal to the difference between the fair market value of such timber, and the adjusted basis for depletion of such timber in the hands of the taxpayer. Such fair market value shall be the fair market value as of the first day of the taxable year in which such timber is cut, and shall thereafter be considered as the cost of such cut timber to the taxpayer for all purposes for which such cost is a necessary factor. * * * 6. This case required two weeks of trial, and produced 1,000 pages of transcript, and over 500 pages of briefs, exclusive of documentary exhibits. 7. Sec. 611(a) provides in pertinent part: (a) General Rule.--In the case of mines, oil and gas wells, other natural deposits, and timber, there shall be allowed as a deduction in computing taxable income a reasonable allowance for depletion and for depreciation of improvements, according to the peculiar conditions in each case; such reasonable allowance in all cases to be made under regulations prescribed by the Secretary. * * *↩ 8. 67 T.C. 672 (1977), revd. 596 F.2d 358↩ (9th Cir. 1979). 9. Consequently, the rule of Golsen v. Commissioner,54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir. 1971), cert. denied 404 U.S. 940↩ (1971), has no application herein.