within the categories which are to be exempt from the burdens of taxation, even though they are members of the cooperative agency claiming exemption. There is nothing in the record to show that the petitioner's sales to such patrons were less than 15 per cent of its total sales in the several taxable years. It follows, therefore, that in this respect the petitioner has failed to establish its claim for exemption. South Carolina Produce Assn., 19 B. T. A. 1028; affd., 50 Fed. (2) 742; Fruit Growers Supply Company, 21 B. T. A. 315; affd., 56 Fed. (2d) 90.

The remaining members of the petitioner are farmers' cooperatives. but the evidence fails to disclose that such associations come within the provisions of the exempting statute. We are not advised whether these concerns are marketing or purchasing agents or whether all or any of them combine both functions. Certainly there is no evidence that all the members of each of such organizations are producers of commodities that are marketed through the petitioner as their agent. Even if all the individual members of the farmers' cooperatives which enjoyed membership in the petitioner are producers, it does not follow that the organizations themselves are producers, or even agents of producers. Unless it is shown that title to the farm products marketed through the petitioner remained in the producers thereof until sales were effected by it, we think the conditions contemplated by Congress and prescribed by the statutes are not satisfied. If the member cooperatives bought commodities from its producing members and resold them to petitioner for further sale to the public, it could hardly be argued that petitioner acts as agent for producers. In our opinion the petitioner has failed to prove that any of the members are producers or producers' marketing agents within the meaning of the statutory provisions granting tax exemption to farmers' cooperatives.

The petitioner is a wholesale concern. It does not buy farm supplies as the agent of producers, or even of the component corporate members. It buys its merchandise on the open markets, and out of stocks to which it holds title by purchase it fills orders from its members and others. In these circumstances it is no more the agent of producers than is any other wholesale merchant engaged in selling supplies that are ultimately consumed by producers. In our opinion it is too far removed from producers to be regarded as their agent for selling products or purchasing supplies.

Decision will be entered for the respondent.

27 B. T. A.

GEORGE LEAVENWORTH, PETITIONER, D. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 46611. Promulgated November 7, 1932.

Held, under the facts shown, a loss which the petitioner claims to have sustained through a trespass committed in 1914, upon a timber lease owned by him, which expired June 1, 1922, does not constitute a legal deduction from his 1924 income.

George Leavenworth, pro se.

Maxwell M. Mahaney, Esq., for the respondent.

The respondent asserted a deficiency in petitioner's income tax of $667.64 for the year 1924. The petitioner alleges that the respondent erred in his determination in failing to allow a deduction for depletion in the sum of $200, and deduction of $14,747.38 as a loss sustained in the taxable year.

FINDINGS OF FACT.

The petitioner is an individual, with his principal place of business at Greenville, Mississippi.

On April 28, 1909, the petitioner, through proper deed, acquired the right to cut and remove from the land of one S. R. Hughes and wife, M. E. Hughes, 6,000,000 feet of cottonwood timber within a period of years ending June 1, 1922. In consideration of a clear title to the first 4,000,000 feet of timber which he might cut, the petitioner paid to his grantor the sum of $10,000 in cash. Under the contract the remaining 2,000,000 was to be paid for as and when cut, at the rate of $3.50 per 1,000 feet. The contract further provided that "all trees and timber standing, lying, or being on the lands involved at the expiration of the period of removal should be the property of the grantors."

Subsequent to the execution of the conveyance to petitioner, his grantors sold to one G. W. Hunter the right to remove willow timber from the lands covered by petitioner's contract. In exercising his license to take willow timber from such lands, Hunter wrongfully cut and removed a large number of cottonwood trees. Upon complaint of petitioner's grantor made to Hunter of such unlawful cutting, the latter, in a contract executed and dated April 13, 1914, made a settlement intended to repair the injury and to protect him against any future claims of petitioner growing out of said trespass. In accordance with this settlement, Hunter paid to Mrs. M. E. Hughes the sum of $2,700 in cash; and, in addition, conveyed to her other

cottonwood timber growing upon his lands, conditioned that (1) she convey to petitioner a sufficient quantity of such timber as would make good any deficiency in the quantity to which petitioner might be entitled under his contract of April 28, 1909, and (2) that the petitioner should cut and remove all timber so conveyed to him before the expiration of the 13-year period specified in said contract. To make certain the enforcement of said last named condition, the conveyance provided that on and after the expiration of said contract, to wit, June 1, 1922, all timber not so removed should revert to and become the property of said Hunter.

No assignment was made to the petitioner of the rights to cut timber under this contract until June 1, 1922, the date his rights to cut under the original deed expired. On said date petitioner's grantor executed an instrument in writing which, after reciting the essential facts of the two contracts already mentioned, and further stating that petitioner claimed to have been able to cut only 2,492,286 of the 6,000,000 feet of cottonwood timber he had contracted for, as aforesaid, contained the following:

Now, therefore, in consideration of the premises, I, M. E. Hughes, do hereby convey unto said George Leavenworth, such right and title as I may have the right to transfer and convey unto said Leavenworth under the terms of said instrument dated April 13th, 1914, to 3,507,714 feet of the cottonwood timber on the said Woodstock plantation; the last 2,000,000 feet whereof is to be paid for to me by said Leavenworth at the rate of $3.50 per thousand feet, said payments to be made monthly after cutting, but before the same is removed from said land, as is provided in said contract of date the 28th day of April, 1909.

On June 27 following the execution of this last instrument, the petitioner advised Hunter of his intention to cut timber from the latter's lands in virtue of the rights conveyed to him under that assignment. To this Hunter objected and sued out an injunction against petitioner and his grantor, based upon the ground that all rights in either defendant under said contract had lapsed on June 1, 1922. The suit was finally decided in favor of Hunter by the Supreme Court of Tennessee on June 9, 1924 (Hunter v. Hughes, 100 So. 371). It adjudicated no issues, however, between the parties excepting the right of petitioner to cut timber from the lands of Hunter after June 1, 1922, the date on which, under the terms of both assignments the title to all such timber reverted to Hunter.

OPINION.

LANSDON: The petitioner relies on the cited decisions of the Supreme Court of Tennessee and contends that the effect of the decree was such as to establish a loss to him in 1924 of his timber rights measured at their fair market value on March 1, 1913. We

are unable to agree with the petitioner's construction of that decision. The single issue involved there was the petitioner's right to cut standing timber on land belonging to Hunter, in virtue of a written instrument which fixed a time limit for such cutting and specifically provided that after said date the title to all uncut timber should revest in said Hunter. It was a denial of the petitioner's claim of title to any uncut timber on Hunter's land, but in no sense a denial of his right for a money judgment against Hunter for taking timber from the Hughes' lands which he owned, or upon which he held an option, if he had such a right.

upon

There is no proof as to how much cottonwood timber Hunter cut from the lands covered by petitioner's contract, or that such cutting actually created a deficiency in quantity to the extent that petitioner could not have recovered the whole 6,000,000 feet claimed, but this case has been submitted to us by both parties to this controversy the theory that the trespass created such a deficiency and that the petitioner had a cause of action against Hunter for the value of the timber taken. Assuming that a cause of action arose in favor of petitioner against Hunter, as indicated, we think it equally clear that petitioner had a cause of action against Mrs. M. E. Hughes, who became his indemnitor through her contract with Hunter, in which she received $2,700 in cash and an assignment of timber rights in consideration of her agreement to make good any loss he might sustain through Hunter's trespass. Ruohs v. Traders Fire Ins. Co., 111 Tenn. 405; 78 S. W. 85; Princess Amusement Co. v. Wells, 271 Fed. 226; National Transit Co. v. Davis, 6 Fed. (2d) 729; Gooch v. Buford, 262 Fed. 894; Silver King Coalition Mines Co. v. Silver King, 204 Fed. 166; Barker v. Pullman Palace Car Co., 124 Fed. 555; Union Pacific Ry. Co. v. Durant, 95 U. S. 576; Hendrick v. Lindsay,

93 U. S. 143.

The right of action against Hunter accrued in 1914, when the acts of trespass were committed. Emil Stern, 5 B. T. A. 89; Parker Wire Goods Co., 8 B. T. A. 448. Under the laws of Tennessee the petitioner could sue in tort for damages for such trespass, or upon an implied promise to pay the value of the timber taken. Whittaker v. Poston, 120 Tenn. 207; 110 S. W. 1019. At the latest the statute of limitations would have barred suit in six years, or at some time in 1920, so that whatever loss the petitioner suffered through his failure or inability to procure reimbursement from Hunter, if the loss is to be determined by that test, must have been sustained in that year and not in 1924, when Hunter's suit against him terminated.

Respecting petitioner's contract with his grantors, that terminated in 1922, and on June 1 of that year it was definitely known, or at best the petitioner then claimed, that the deficiency in timber which

resulted in the loss existed. Obviously the loss, if any, was then a recognized fact; and the only question thereafter was one connected with recoupment, or payment for said loss. Bankers Pocahontas Coal Co., 18 B. T. A. 901. Hughes attempted to make such payment, in kind, by conveyance of timber to petitioner under the Hunter settlement. The court held that the petitioner received nothing through that attempt, which left the parties exactly in their original position respecting the alleged deficiency. In addition to the timber rights which Hunter conveyed to Hughes for petitioner's benefit, he also paid $2,700 in cash for a guarantee that Hughes would save him harmless from any claims made by petitioner. Other than the fruitless settlement, just noted, there is nothing in the record to show what attempt, if any, the petitioner ever made to hold Hughes to that indemnity agreement, or to secure an accounting of the cash paid by Hunter for his benefit. As hereinbefore pointed out, petitioner's loss in timber, if any, occurred at the time Hunter cut and removed the timber in 1914, and his rights, if any, for an accounting with his grantors matured when it was definitely known that a deficiency in timber existed or would exist at the expiration of his contract on June 1, 1922. If the contract of settlement had the effect of postponing that loss, as claimed by him, then it would seem that no loss could be attributed to him until he had exhausted his legal remedies against his grantors, who had agreed to make good the deficiency in their contract with Hunter. The record would indicate that petitioner's grantors were at all times solvent and good for any judgment he might have procured against them, or to otherwise discharge any orders that a court might make in an action brought on the contract. The statute of limitations had not run on such an action in 1924 and it can not be said that his rights against them were concluded in that year. We think, however, for reasons hereinabove stated, that whatever loss the petitioner sustained in the transactions here considered was sustained prior to the taxable year and that the issue respecting the year of its deduction must be decided in favor of the respondent.

At the hearing the respondent confessed error in disallowing depletion of timber rights claimed in the taxable year and, accordingly, that issue is decided in favor of the petitioner.

Decision will be entered under Rule 50.

27 B. T. A.