Estate Taxes on Range Rights
Stockmen continued to buy, sell, trade, inherit and mortgage "public" range rights as part and parcel of the ranch unit. Banks and lending institutions continued to view range rights as real property and collateralized those range rights for loan purposes. Private investment in range improvements by the ranchers in fencing, water facilities, livestock handling facilities, roads etc. increased the rancher's private property rights claims.
In Scufflebarger v. Commissioner of Internal Revenue (24 TC 980-1955) the court upheld the Internal Revenue Service's consideration of grazing rights as part of a stockman's estate for tax purposes. The IRS taxes the value of grazing rights on federal lands as part of the rancher's real property. For tax, ranch sale and collateral definition for bank financing purposes, the value of the grazing rights are capitalized into the value of the ranch unit. Typical grant bargains and sale deeds sell "certain real and personal property, water rights and privileges, grazing leases, rights and privileges..."
A letter from Attorney Richard P Chamberlain, Internal Revenue Service, to R.B. Tippeconnic, Forest Supervisor, Coronado National Forest, Tucson, Ariz., dated Aug 25, 1988, IRS correspondence code no. 1235-4208PX, now located in the files of the Coronado National Forest states:
"We are aware of the Forest Service policy that National Forest Service grazing permits have no value. However, the Federal tax statutes require us to value the assets of a decedent or donor based on their 'fair market value.' Even though you do not place value on leases, the ranchers do whenever they buy or sell a ranch. Every ranch with substantial leases sells on an animal unit basis considering the grazing leases, and every reputable fee appraiser places a value on them despite your regulations.
"For the Internal Revenue Service to value the leases does place government agencies in an inconsistent position. But the greatest inconsistency is for the taxpayers to rely upon your regulations to claim the grazing rights have no value for tax purposes, and then to universally place a value on them when they sell or mortgage their ranches.
"It would appear that the market place is the best indication of whether or not there is a market value for the leases. As long as the market place says there is a value, a fair evaluation of a ranch cannot be made without considering the price a willing buyer would pay for the grazing leases."
