Fingeland’s Forest Choppers is a corporation engaged in the production of timber and lumber. Two years ago, Fingeland’s reforested a clear-cut area by planting nursery-grown seedlings. Last year, a severe drought kills 80% of the seedlings, forcing Fingeland’s to replant the entire area in the current year. The loss is not covered by insurance. Fingeland’s had capitalized the cost of preparing the site for reforestation and the seedling planting costs in a deferred reforestation account two years ago.
Fingeland’s would like to know whether it can deduct as a casualty loss the costs it incurred to replant the clear-cut area in the current year.
Read and analyze the following authorities, and determine whether Fingeland’s can deduct the costs as a casualty loss, and if so, in what year the loss is deductible.
Sec. 165.
Sec. 611.
Reg. Sec. 1.611-3.
Rev. Rul. 81-2.
Rev. Rul. 87-59.
Rev. Rul. 90-61.
Write a memorandum to your supervisor explaining your conclusions on Fingeland’s deduction of the costs of replanting the clear-cut area in the current year.