40S MISC. PUBLICATION 218, U. S. DEPT. OF AGRICULTURE 
ground to be 12,000,000 board feet, the new estimate will be taken 
as the correct balance of timber, and the depletion rate will be changed 
$60,000 
10,000 
$60,000 | 
12,000 
from $6, » to $5 per M board feet, 
The result of this treatment of growth is that the owner of a forest 
who is cutting conservatively, either for a second crop of timber or for 
conversion to permanent forestry on an annual sustained or periodic 
yield basis, will find his depletion rate for that forest gradually reduced 
as the original timber in the account is gradually replaced by timber 
which has become merchantable since the original base for depletion 
was established. This reduction in the depletion base, or money capital 
remaining in the timber account, would be at least in part offset if the 
owner were required to add to capital accounts current expenditures 
which are generally considered as the cost of growing timber, such as 
taxes on cut-over land held for timber growth, cost of protecting and 
administering such land, and the extra logging costs arising from pre- 
cautions taken to secure regeneration and to protect young trees for 
the benefit of the next crop. These items might be treated as capital 
additions instead of current expenses under the present law, but, 
since they are not usually segregated from the ordinary operation 
expenses and the taxpayer naturally prefers to take them as deduc- 
tions from current income, it seems probable that in general they are 
not so capitalized. (The term “‘capitalize” is used in this part in the 
accounting sense, meaning to treat as capital on the books of account.) 
However, when part of the timber that was merchantable at the basic 
depletion date is reserved from felling as a basis for the future crop, its 
depletion value remains in the account as an initial investment in the 
new stand, corresponding to the initial cost of a planted stand. Also, 
when artificial reproduction is used in place of or to supplement 
natural reproduction, the cost of planting has been held to be a capital 
expenditure, not deductible from gross income as current expense, but 
added as capital to the depletion ‘base of the next crop. Presumably 
the same principle would apply to the cost of cultural operations, such 
as pruning and weeding, whether of natural or artificial stands. 
Nevertheless the tendency will be for the timber accounts to show 
values which do not fully reflect the actual cost of growing the timber 
even in planted stands, except in the unusual case where the owner 
has no other income and therefore does not care to charge off the taxes 
and other costs annually. The option of capitalizing the taxes and 
other carrying charges is allowed only with respect to unimproved 
and unproductive real property. 
It is not to the interest of forest owners who, as operators or other- 
wise, are recipients of taxable income, to ask for theoretically correct 
treatment of depletion. This would require that all expenses incurred 
primarily to establish the future crop be capitalized as a basis for 
depletion allowances, or else that they be offset against current deple- 
tion charges. Itis financ dally advantageous to take these expenses as 
deductions from gross income as early as possible. In fact, it has been 
proposed that the present partial inconsistency between the treatrnent 
of natural regeneration and planting should be done away with, not 
by correcting the treatment of natural regeneration through capital- 
ization of the entire cost, but by giving planting cost the legal status 
