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reduce its section 631(a) gains by the amounts distributed
to its stockholder employees as patronage dividends.
The capital gains in Rev. Rul. 74-24, supra, and
Rev. Rul. 71-439, supra, are similar to the capital gain
realized from the sale of Terra stock in the instant case.
In both rulings, the Commissioner recognizes that “the gain
* * * represents the unrealized appreciation in value of
timber cut during the year”. Rev. Rul. 74-24, supra; Rev.
Rul. 71-439, supra. Both rulings make the point that the
actual realization of the appreciation in the value of the
standing timber would take place when the finished product
is sold. Similarly, the gain from the sale of petitioner's
Terra stock was attributable in large measure to apprecia-
tion in the value of the oil and gas reserves held by
Terra. If petitioner had not been forced to sell the stock
of Terra, the realization of the appreciation in Terra’s
oil and gas reserves would have taken place upon Terra’s
production and sale of oil and gas and would have been
directly related to petitioner’s business of supplying
petroleum products to its patrons.
Respondent’s argument that capital gains and losses
must always be classified as nonpatronage income implies
that there is no transaction out of which capital gains or
losses arise that can be directly related to the
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