Tax Question

[Karl Davies]

A client and her accountant have asked a question about forestry
expenses that I can't answer.  Here's the situation:  The property was
harvested in a 16" DBH diameter limit cut 1-2 years ago; but since this
cut left many cull and low-grade trees over 16", it really was a
high-grading operation.  This past spring I marked and tallied those
large low-grade trees, plus more small low-grade trees in what amounts
to a shelterwood seed cut.

Now the question arises of whether to treat my marking fee as an expense
of sale for those low-grade trees (which are being cut now), or as a
reforestation expense.  Given the 10-20%  capital gain tax rate of this
client, her accountant thinks it would be advantageous to claim my fee
as a reforestation expense because it then would be eligible for a 10%
investment tax credit--which is worth more than the value of the fee as
a deduction from returns of sale.

Has anyone on this newsgroup encountered a similar situation?  In this
case, the returns from the sale of those low-grade trees will exceed my
fee for marking and tallying them.  But since these returns will not
amount to much compared to the returns from the high-grading operation,
and since the current operation really is aimed at regeneration rather
than harvest, would it be acceptable to IRS to treat the forester's fee
as a regeneration expense?


--
Karl Davies, Silviculturist
http://www.daviesand.com

Northeastern Forestry Reformation List Server
http://www.daviesand.com/Connections/NEFR_List/