Willamette Industries, Inc. - Page 4




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          (5) grading and sorting the logs; (6) stacking the logs at a                
          landing point; and (7) loading the logs onto trucks for further             
          use or processing.                                                          
               Petitioner chose to take the seven steps described in the              
          preceding paragraph, rather than attempting to sell the damaged             
          trees in place to a third party.  Once it performed the seven               
          steps, its options were to (1) attempt to sell the partially                
          processed damaged trees to a third party; or (2) complete the               
          processing of the damaged trees in its own plants in the ordinary           
          course of its business.  Petitioner chose the latter and                    
          completed the processing itself.                                            
               Petitioner relies on section 1033 for involuntary conversion           
          treatment (deferral of gain).4  Petitioner did not realize income           
          from harvesting and processing the damaged trees until it sold              
          the products it manufactured from the damaged trees.  Petitioner            
          is seeking to defer only that portion of the gain attributable to           
          the difference between its basis and the fair market value of the           
          damaged trees as of the time its salvage of them began; that is,            
          the value petitioner contends would have been recognized if it              

               4 Petitioner on its returns mistakenly claimed involuntary             
          conversion treatment under sec. 631(a) due to its pro forma use             
          in prior years’ returns in which sec. 631(a) treatment had been             
          properly elected and claimed.  Petitioner concedes that sec.                
          631(a) treatment is not available based on the fact that it did             
          not have a sec. 631(a) election in place during the years in                
          issue.  For the 1992 taxable year, one of petitioner’s                      
          subsidiaries made a valid sec. 631 election, but the subsidiary             
          was liquidated at the end of the 1992 calendar year.  With that             
          exception, petitioner and its subsidiaries were not entitled to             
          sec. 631 treatment for the taxable years 1992 through 1995.                 



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