American Timber Supply and Manufacturing Incentives Act

Summary: American Timber Supply and Manufacturing Incentives Act - Amends the Internal Revenue Code to provide taxpayers a deduction from gross income for qualified timber gain as an investment incentive. Allows such deduction in computing adjusted gross income. 
Provides for applying passive loss limitations to timber activities. 
Provides that export property eligible for certain tax incentives does not include any unprocessed softwood timber for purposes of:  (1) taxation of foreign sales corporations (FSCs); and (2) taxation of domestic international sales corporations (DISCs). 
Requires any income from the sale of such unprocessed timber which was cut from an area in the United States to be sourced in the United States.  Excludes such income from rules under which:  (1) gains, profits, and income involving inventory property purchased in the United States but sold or exchanged elsewhere may be sourced foreign; and (2) income derived from the manufacture of products in the United States and their sale elsewhere may be treated as having a divided source. 
Repeals the deferral from income of the controlled foreign corporation from sales or milling (outside the United States) of unprocessed softwood timber to the extent that any controlled foreign corporation is owned by ten percent or more U.S. shareholders.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``American Timber Supply and 
Manufacturing Incentives Act''.

SEC. 2. INVESTMENT INCENTIVE FOR DOMESTIC TIMBER PRODUCTION.

    (a) In General.--Part I of subchapter P of chapter 1 of the 
Internal Revenue Code of 1986 (relating to treatment of capital gains) 
is amended by adding at the end the following new section:

``SEC. 1202. INVESTMENT INCENTIVE FOR DOMESTIC TIMBER PRODUCTION.

    ``(a) In General.--At the election of any taxpayer who has 
qualified timber gain for any taxable year, there shall be allowed as a 
deduction from gross income an amount equal to the qualified percentage 
of such gain.
    ``(b) Qualified Timber Gain.--For purposes of this section--
            ``(1) In general.--The term `qualified timber gain' means 
        the lesser of--
                    ``(A) the net capital gain for the taxable year, or
                    ``(B) the net capital gain for the taxable year 
                determined by taking into account only gains and losses 
                from qualified timber.
            ``(2) Qualified timber.--The term `qualified timber' means 
        any timber with respect to which the taxpayer has provided 
        assurances (which are satisfactory to the Secretary) that 
        substantially all of the processing of the timber will occur 
        within the United States.
    ``(c) Qualified Percentage.--For purposes of this section, the term 
`qualified percentage' means the percentage (not exceeding 30 percent) 
determined by multiplying--
            ``(1) 2 percent, by
            ``(2) the number of years in the holding period of the 
        taxpayer with respect to the timber.
    ``(d) Estates and Trusts.--In the case of an estate or trust, the 
deduction under subsection (a) shall be computed by excluding the 
portion (if any) of the gains for the taxable year from sales or 
exchanges of capital assets which, under sections 652 and 662 (relating 
to inclusions of amounts in gross income of beneficiaries of trusts), 
is includible by the income beneficiaries as gain derived from the sale 
or exchange of capital assets.''
    (b) Coordination With Existing Limitations.--
            (1) Subsection (h) of section 1 of such Code (relating to 
        maximum capital gains rate) is amended by inserting after ``net 
        capital gain'' each place it appears the following; ``(other 
        than qualified timber gain with respect to which an election is 
        made under section 1202)''.
            (2) Subsection (a) of section 1201 of such Code (relating 
        to alternative tax for corporations) is amended by inserting 
        after ``net capital gain'' each place it appears the following: 
        ``(other than qualified timber gain with respect to which an 
        election is made under section 1202)''.
    (c) Allowance of Deduction in Computing Adjusted Gross Income.--
Subsection (a) of section 62 of such Code (relating to definition of 
adjusted gross income) is amended by adding at the end the following 
new paragraph:
            ``(14) Investment incentive for domestic timber 
        production.--The deduction allowed by section 1202.''
    (d) Conforming Amendment.--The table of sections for part I of 
subchapter P of chapter 1 of such Code is amended by adding at the end 
the following new item:

                              ``Sec. 1202. Investment incentive for 
                                        domestic timber production.''
    (e) Effective Date.--The amendments made by this section shall 
apply to sales or exchanges after the date of the enactment of this 
Act.

SEC. 3. APPLICATION OF PASSIVE LOSS LIMITATIONS TO TIMBER ACTIVITIES.

    (a) Determination of Material Participation.--Subsection (h) of 
section 469 of the Internal Revenue Code of 1986 (defining material 
participation) is amended by adding at the end the following new 
paragraph:
            ``(6) Treatment of timber activities.--
                    ``(A) In general.--A taxpayer shall be treated as 
                materially participating in any timber activity for a 
                taxable year if--
                            ``(i) the taxpayer's participation in the 
                        activity for such year constitutes 
                        substantially all of the participation in the 
                        activity of all individuals for such year, 
                        other than individuals--
                                    ``(I) who are not owners of 
                                interests in the activity,
                                    ``(II) who are retained and 
                                compensated directly by the taxpayer, 
                                and
                                    ``(III) whose activities are 
                                subject to the oversight supervision, 
                                and control of the taxpayer, or
                            ``(ii) based on all of the facts and 
                        circumstances, the taxpayer participates in the 
                        activity on a regular, continuous, and 
                        substantial basis during such year, except that 
                        for purposes of this clause--
                                    ``(I) the taxpayers shall not be 
                                required to participate in the activity 
                                for any minimum period of time during 
                                such year, and
                                    ``(II) the performance of services 
                                by individuals who are not owners of 
                                interests in the activity shall not be 
                                considered if the services are 
                                routinely provided by individuals 
                                specializing in such services and such 
                                services are subject to the oversight, 
                                supervision, and control of the 
                                taxpayer.
                    ``(B) Partners and s corporation shareholders.--
                Subject to paragraph (2), the determination of whether 
                a partner or S corporation shareholder shall be treated 
                as materially participating in any timber activity of 
                the partnership or S corporation shall be based upon 
                the combined participation of all of the partners or 
                shareholders in the activity.
                    ``(C) Timber activity.--For purposes of this 
                paragraph, the term `timber activity' means the 
                planting, cultivating, caring, cutting, or preparation 
                (other than milling) for market, of trees.''
    ``(b) Effective Date.--The amendment made by this section shall 
apply to taxable years beginning after the date of the enactment of 
this Act.

SEC. 4. DENIAL OF CERTAIN EXPORT SUBSIDIES.

    (a) Foreign Sales Corporation.--Paragraph (2) of section 927(a) of 
the Internal Revenue Code of 1986 (relating to exclusion of certain 
property) is amended by striking ``or'' at the end of subparagraph (C), 
by striking the period at the end of subparagraph (D) and inserting ``, 
or'', and by adding at the end thereof the following:
                    ``(E) any unprocessed timber.
        For purposes of subparagraph (E), the term `unprocessed timber' 
        has the same meaning as that given to it in the Customs and 
        Trade Act of 1990 (104 Stat. 629).''
    (b) Domestic International Sale Corporations.--Paragraph (2) of 
section 993(c) of such Code (relating to exclusion of certain property) 
is amended by striking ``or'' at the end of subparagraph (C), by 
striking the period at the end of subparagraph (D) and inserting, ``, 
or'', and by adding after subparagraph (D) the following:
                    ``(E) any unprocessed timber.
        For purposes of subparagraph (E), the term `unprocessed timber' 
        has the same meaning as that given to it in the Customs and 
        Trade Act of 1990 (104 Stat. 629).''
    (c) Title-Passage Rule.--Subsection (b) of section 865 of such Code 
(relating to source rules for personal property sales) is amended by 
adding at the end thereof the following: ``Notwithstanding the 
preceding sentence, any income from the sale of any unprocessed timber 
which is a softwood and was cut from an area in the United States shall 
be sourced in the United States and the rules of sections 862(a)(6) and 
863(b) shall not apply to any such income. For purposes of the 
preceding sentence, the term ``unprocessed timber'' has the same 
meaning as that given to it in the Customs and Trade Act of 1990 (104 
Stat. 629).''
    (d) Elimination of Deferral.--Subsection (d) of section 954 of such 
Code is amended by adding at the end thereof the following new 
paragraph:
            ``(4) Special rule for certain timber products.--For 
        purposes of subsection (a)(2), the term `foreign base company 
        sales income' includes any income (whether in the form of 
        profits, commissions, fees, or otherwise) derived in connection 
        with--
                    ``(A) the sale of any unprocessed timber referred 
                to in section 865(b), or
                    ``(B) the milling of any such timber outside the 
                United States.
        Subpart G shall not apply to any amount treated as subpart F 
        income by reason of this paragraph.''
    (e) Effective Date.--The amendments made by this section shall 
apply to sales, exchanges, or other dispositions after the date of the 
enactment of this Act.