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Prior to the listing of the Mexican Spotted Owl, petitioner
operated three sawmills in Arizona. At one point, there were
approximately 12 private sector mills operating in Arizona. At
the time of trial, petitioner claimed that it was the only
operating mill in Arizona, and that they were operating on a
"shoestring budget". Petitioner attributes the collapse of the
Arizona logging industry to the listing of the Mexican Spotted
Owl as an endangered species and the issuance of the prohibitory
injunction.
The primary sources of timber in northern Arizona are
controlled by the U.S. Forest Service (USFS), which is vested
with specific regulatory powers. Since the injunction, the USFS
has effectively ceased issuing new timber sales contracts. Since
the injunction was first issued in 1995 there has been
essentially no logging in Arizona. While the injunction, at
times, has allowed for minimal logging, there have been no
changes in the USFS regulatory scheme.
For FYE March 31, 1996, petitioner deducted $185,172 as the
combined balance of the unamortized value of the three covenants
not to compete. The deduction allowed a net operating loss to be
carried back to FYE March 31, 1993, resulting in additional tax
savings in that year. Respondent disallowed the entire deduction
and the net operating loss carryback.
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