Evergreen Timber is a corporation in the business of producing timber and lumber. Two years ago, a clear-cut area was reforested by Evergreen, planting nursery-grown seedlings. In the current year, Evergreen was forced to replant the entire area after a severe drought killed 80% of the seedlings last year. The loss was not covered by insurance. Evergreen used a deferred reforestation account to capitalize the cost of preparing the site and the seedling planting costs for the project two years ago. Evergreen would like to deduct the costs of replanting the area in the current year as a casualty loss and would like to know if this deduction is allowed.

Read and analyze the following authorities:

• Sec. 165
• Sec. 611
• Reg. Sec. 1.611-3
• Rev. Rul. 81-2
• Rev. Rul. 87-59
• Rev. Rul. 90-61

Can Evergreen deduct the replanting costs as a casualty loss? If so, in what year is the loss deductible? Write a memo to the management of Evergreen detailing the issue, your research, and your recommendations.