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Property was landlocked and dependent on private access rights;
the Timber Property had an internal road system and direct access
to public roads.
B. Holding Company Status
In its 1990 and 1991 Forms 1120, U.S. Corporation Income Tax
Return, Johnco was designated a personal holding company,
consistent with the nature of Johnco's business. Johnco had only
one employee, Andrew, who served as its president and chief
operating officer. Over 80 percent of Johnco's gross revenue was
derived from the sale of timber. Johnco harvested timber from
the Timber Property very conservatively. The amount of timber
harvested annually was limited to an amount approximately equal
to, or less than, the Timber Property's annual growth.4 Johnco
did not actually cut the timber that was harvested or employ
personnel or own any of the equipment necessary to harvest
timber. Potential buyers placed bids with Johnco to purchase
timber and were responsible for its cutting and transportation
off the Timber Property. Although Andrew was the sole employee
of Johnco, management of the timber on the Timber Property was
generally handled by an outside consulting forester, who
monitored the property and advised Johnco regarding the specifics
of harvesting timber, for a commission based on timber sales.
Until late 1990, Johnco's outside consulting forester had been
4 Limiting the annual harvest to annual growth is referred
to as "sustainable yield"; this method maintains an approximately
constant volume of timber in place. Harvesting less than annual
growth results in an increase in timber volume on a given tract.
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Last modified: May 25, 2011