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trees into logs or finished products, its original intention.
Respondent’s position in this case is a reversion to the
requirement of the 1972 ruling that the sale (conversion to cash)
be the direct result of the damage-causing event. For more than
21 years, the Commissioner’s ruling position has permitted
section 1033 deferral even though the conversion is not directly
into cash.
Petitioner in this case is effectively no different from the
taxpayer in the 1980 ruling.11 Petitioner’s conversion was
involuntary, and petitioner was forced to act or suffer complete
loss of the damaged trees. Section 1033 could be interpreted to
permit either a direct or an indirect conversion. The case law
permits indirect conversion, but the Commissioner’s 1972 ruling
denied relief because the trees damaged by the hurricane were
sold by the taxpayer. The Commissioner, in revoking the 1972
ruling has permitted, since 1980, section 1033 relief where there
is a sale (a voluntary act) of the damaged property. Respondent
has denied relief here because petitioner processed rather than
sold the damaged trees.
The critical factor is that petitioner was compelled to
harvest the damaged trees prior to the time it had intended. The
11 Respondent has not argued that the 1980 ruling was not in
accord with sec. 1033 or the case law. Respondent’s position in
this case, however, does not comport with the outcome or
reasoning of the 1980 ruling.
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Last modified: May 25, 2011