26 U.S.C. § 631 — Gain or loss in the case of timber, coal, or domestic iron ore

submitted 72 years ago by ch. 736 to r/title-26-INTERNAL-REVENUE-CODE · 925 words · no verdicts yet

in plain englishAI-generated · not legal advice

This section provides tax rules for cutting or disposing of timber and for disposing of coal or United States-mined iron ore held for more than one year. It covers elections, gain or loss, depletion basis, valuation and disposal dates, and exceptions.

(a) If the taxpayer elects on the return for a taxable year, cutting timber during that year is treated as a sale or exchange of the cut timber when the taxpayer owns the timber or has a contract right to cut it, and has owned the timber or held the contract right for more than one year. The cutting must be for sale or for use in the taxpayer’s trade or business. The taxpayer recognizes gain or loss equal to the fair market value of the timber minus its adjusted depletion basis in the taxpayer’s hands. Fair market value is measured on the first day of the taxable year in which the timber is cut. After that, it is treated as the taxpayer’s cost of the cut timber for every purpose for which cost is needed. The election applies to all timber owned by the taxpayer or covered by the taxpayer’s cutting contract. It binds the taxpayer for the election year and all later years unless the Secretary permits revocation because of undue hardship. Revocation prevents any later election under this subsection unless the Secretary consents. For this subsection and subsection (b), “timber” includes evergreen trees more than six years old when severed from their roots and sold for ornamental purposes. This section does not define “fair market value,” “adjusted basis,” or “undue hardship.” (b) If an owner disposes of timber held for more than one year before disposal under any kind of contract under which the owner either keeps an economic interest in the timber or makes an outright sale, the amount realized minus the timber’s adjusted depletion basis is treated as gain or loss from selling the timber. In determining a lessee’s gross income, adjusted gross income, or taxable income, deductions for rents and royalties are determined without using this subsection. When the owner keeps an economic interest, the disposal date is treated as the date the timber is cut. But if the owner is paid under the contract before the timber is cut, the owner may elect to treat the payment date as the disposal date. “Owner” means anyone who owns an interest in the timber, including a sublessor and a person holding a contract to cut timber. This section does not define “economic interest,” “adjusted depletion basis,” or “lessee.” (c) If an owner disposes of coal, including lignite, or iron ore mined in the United States, held for more than one year before disposal, under any kind of contract by which the owner keeps an economic interest in the coal or iron ore, the amount realized minus the adjusted depletion basis, plus deductions disallowed for the taxable year under section 272, is treated as gain or loss from selling the coal or iron ore. If, for the taxable year of the gain or loss, the chapter’s maximum tax rate on net capital gain is lower than its maximum rate on ordinary income, the owner cannot claim the percentage-depletion allowance under section 613 for that coal or iron ore. This subsection does not apply to income an owner realizes as a co-adventurer, partner, or principal in mining the coal or iron ore. “Owner” means anyone with an economic interest in coal or iron ore in place, including a sublessor. The disposal date is treated as the date the coal or iron ore is mined. A lessee’s deductions for rents and royalties are determined without using this subsection. This subsection does not apply for purposes of subchapter G concerning corporations used to avoid income tax on shareholders, including determining deductions under sections 535(b)(6) or 545(b)(5). It also does not apply to a disposal of iron ore or coal—(1) to a person whose relationship with the person disposing of it would cause losses to be disallowed under section 267 or 707(b); or (2) to a person directly or indirectly owned or controlled by the same interests that own or control the person disposing of it. This section does not define “economic interest,” “adjusted depletion basis,” “co-adventurer,” or “principal.”

the actual law source: uscode.house.gov ↗public domain

(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 1 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. If a taxpayer makes an election under this subsection, such election shall apply with respect to all timber which is owned by the taxpayer or which the taxpayer has a contract right to cut and shall be binding on the taxpayer for the taxable year for which the election is made and for all subsequent years, unless the Secretary, on showing of undue hardship, permits the taxpayer to revoke his election; such revocation, however, shall preclude any further elections under this subsection except with the consent of the Secretary. For purposes of this subsection and subsection (b), the term “timber” includes evergreen trees which are more than 6 years old at the time severed from the roots and are sold for ornamental purposes.

(b) Disposal of timber

In the case of the disposal of timber held for more than 1 year before such disposal, by the owner thereof under any form or type of contract by virtue of which such owner either retains an economic interest in such timber or makes an outright sale of such timber, the difference between the amount realized from the disposal of such timber and the adjusted depletion basis thereof, shall be considered as though it were a gain or loss, as the case may be, on the sale of such timber. In determining the gross income, the adjusted gross income, or the taxable income of the lessee, the deductions allowable with respect to rents and royalties shall be determined without regard to the provisions of this subsection. In the case of disposal of timber with a retained economic interest, the date of disposal of such timber shall be deemed to be the date such timber is cut, but if payment is made to the owner under the contract before such timber is cut the owner may elect to treat the date of such payment as the date of disposal of such timber. For purposes of this subsection, the term “owner” means any person who owns an interest in such timber, including a sublessor and a holder of a contract to cut timber.

In the case of the disposal of coal (including lignite), or iron ore mined in the United States, held for more than 1 year before such disposal, by the owner thereof under any form of contract by virtue of which such owner retains an economic interest in such coal or iron ore, the difference between the amount realized from the disposal of such coal or iron ore and the adjusted depletion basis thereof plus the deductions disallowed for the taxable year under section 272 shall be considered as though it were a gain or loss, as the case may be, on the sale of such coal or iron ore. If for the taxable year of such gain or loss the maximum rate of tax imposed by this chapter on any net capital gain is less than such maximum rate for ordinary income, such owner shall not be entitled to the allowance for percentage depletion provided in section 613 with respect to such coal or iron ore. This subsection shall not apply to income realized by any owner as a co-adventurer, partner, or principal in the mining of such coal or iron ore, and the word “owner” means any person who owns an economic interest in coal or iron ore in place, including a sublessor. The date of disposal of such coal or iron ore shall be deemed to be the date such coal or iron ore is mined. In determining the gross income, the adjusted gross income, or the taxable income of the lessee, the deductions allowable with respect to rents and royalties shall be determined without regard to the provisions of this subsection. This subsection shall have no application, for purposes of applying subchapter G, relating to corporations used to avoid income tax on shareholders (including the determinations of the amount of the deductions under section 535(b)(6) or section 545(b)(5)). This subsection shall not apply to any disposal of iron ore or coal—

(1)

to a person whose relationship to the person disposing of such iron ore or coal would result in the disallowance of losses under section 267 or 707(b), or

(2)

to a person owned or controlled directly or indirectly by the same interests which own or control the person disposing of such iron ore or coal.

Source credit: (Aug. 16, 1954, ch. 736, 68A Stat. 213; Pub. L. 88–272, title II, § 227(a)(1), (b)(1), Feb. 26, 1964, 78 Stat. 97, 98; Pub. L. 94–455, title XIV, § 1402(b)(1)(I), (2), (3), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1732, 1733, 1834; Pub. L. 98–369, div. A, title I, § 178(a), title X, § 1001(c), (e), July 18, 1984, 98 Stat. 712, 1012; Pub. L. 99–514, title III, § 311(b)(3), Oct. 22, 1986, 100 Stat. 2219; Pub. L. 108–357, title III, § 315(a), (b), Oct. 22, 2004, 118 Stat. 1469.)

history & why it existsrecord from the source credit

1954Enacted · Act of Aug. 16, 1954, ch. 736
1964Amended · Pub. L. 88-272 · 78 Stat. 97, 98
1976Amended · Pub. L. 94-455 · 90 Stat. 1732, 1733, 1834
1984Amended · Pub. L. 98-369 · 98 Stat. 712, 1012
1986Amended · Pub. L. 99-514 · 100 Stat. 2219
2004Amended · Pub. L. 108-357 · 118 Stat. 1469

A history note hasn’t been published yet. The record shows enactment by ch. 736 on 1954-08-16.

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