II

106TH CONGRESS

1ST SESSION S. 1240

To amend the Internal Revenue Code of 1986 to provide a partial inflation

adjustment for capital gains from the sale or exchange of timber.

IN THE SENATE OF THE UNITED STATES

JUNE 17, 1999

Mr. MURKOWSKI (for himself, Mr. BREAUX, Mr. GORTON, Mr. COCHRAN, Mr.

HUTCHINSON, Ms. COLLINS, Mrs. LINCOLN, Mr. SHELBY, Ms. SNOWE,

Mrs. MURRAY, Mr. SESSIONS, Mr. SMITH of Oregon, Mrs. HUTCHISON,

Mr. GRAMS, and Mr. LANDRIEU) introduced the following bill; which was

read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide

a partial inflation adjustment for capital gains from the

sale or exchange of timber.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. PARTIAL INFLATION ADJUSTMENT FOR TIM4 BER.

5 (a) IN GENERAL.—Part I of subchapter P of chapter

6 1 of the Internal Revenue Code of 1986 (relating to treat7 ment of capital gains) is amended by adding at the end

8 the following new section:
2

•S 1240 IS

1 ‘‘SEC. 1203. PARTIAL INFLATION ADJUSTMENT FOR TIM2 BER.

3 ‘‘(a) IN GENERAL.—At the election of any taxpayer

4 who has qualified timber gain for any taxable year, there

5 shall be allowed as a deduction from gross income an

6 amount equal to the qualified percentage of such gain.

7 ‘‘(b) QUALIFIED TIMBER GAIN.—For purposes of

8 this section, the term ‘qualified timber gain’ means gain

9 from the disposition of timber which the taxpayer has

10 owned for more than 1 year.

11 ‘‘(c) QUALIFIED PERCENTAGE.—For purposes of this

12 section, the term ‘qualified percentage’ means the percent13 age (not exceeding 50 percent) determined by

14 multiplying—

15 ‘‘(1) 3 percent, by

16 ‘‘(2) the number of years in the holding period

17 of the taxpayer with respect to the timber.

18 ‘‘(d) ESTATES AND TRUSTS.—In the case of an es19 tate or trust, the deduction under subsection (a) shall be

20 computed by excluding the portion of (if any) the gains

21 for the taxable year from sales or exchanges of capital as22 sets which, under sections 652 and 662 (relating to inclu23 sions of amounts in gross income of beneficiaries of

24 trusts), is includible by the income beneficiaries as gain

25 derived from the sale or exchange of capital assets.’’
3

•S 1240 IS

1 (b) COORDINATION WITH MAXIMUM RATES OF TAX

2 ON NET CAPITAL GAINS.—

3 (1) Section 1(h) of such Code (relating to max4 imum capital gains rate) is amended by adding at

5 the end the following new paragraph:

6 ‘‘(14) QUALIFIED TIMBER GAIN.—For purposes

7 of this section, net capital gain shall be determined

8 without regard to qualified timber gain (as defined

9 in section 1203) with respect to which an election is

10 in effect under section 1203.’’

11 (2) Subsection (a) of section 1201 of such Code

12 (relating to the alternative tax for corporations) is

13 amended by inserting at the end the following new

14 sentence:

15 ‘‘For purposes of this section, net capital gain shall be

16 determined without regard to qualified timber gain (as de17 fined in section 1203) with respect to which an election

18 is in effect under section 1203.’’

19 (c) ALLOWANCE OF DEDUCTION IN COMPUTING AD20 JUSTED GROSS INCOME.—Subsection (a) of section 62 of

21 such Code (relating to definition of adjusted gross income)

22 is amended by inserting after paragraph (17) the following

23 new paragraph:

24 ‘‘(18) PARTIAL INFLATION ADJUSTMENT FOR

25 TIMBER.—The deduction allowed by section 1203.’’
4

•S 1240 IS

1 (d) TECHNICAL AMENDMENTS.—

2 (1) Subparagraph (B) of section 172(d)(2) of

3 such Code is amended to read as follows:

4 ‘‘(B) the exclusion under section 1202 and

5 the deduction under section 1203 shall not be

6 allowed.’’

7 (2) The last sentence of section 453A(c)(3) of

8 such Code is amended by striking ‘‘(whichever is ap9 propriate)’’ and inserting ‘‘or the deduction under

10 section 1203 (whichever is appropriate)’’.

11 (3) Section 641(c)(2)(C) of such Code is

12 amended by inserting after clause (iii) the following

13 new clause:

14 ‘‘(iv) The deduction under section

15 1203.’’

16 (4) The first sentence of section 642(c)(4) of

17 such Code is amended to read as follows: ‘‘To the

18 extent that the amount otherwise allowable as a de19 duction under this subsection consists of gain de20 scribed in section 1202(a) or qualified timber gain

21 (as defined in section 1203(b)), proper adjustment

22 shall be made for any exclusion allowable under sec23 tion 1202, and any deduction allowable under sec24 tion 1203, to the estate or trust.’’
5

•S 1240 IS

1 (5) The last sentence of section 643(a)(3) of

2 such Code is amended to read as follows: ‘‘The ex3 clusion under section 1202 and the deduction under

4 section 1203 shall not be taken into account.’’

5 (6) The last sentence of section 643(a)(6)(C) of

6 such Code is amended by inserting ‘‘(i)’’ before

7 ‘‘there shall’’ and by inserting before the period ‘‘,

8 and (ii) the deduction under section 1203 (relating

9 to partial inflation adjustment for timber) shall not

10 be taken into account’’.

11 (7) Paragraph (4) of section 691(c) of such

12 Code is amended by inserting ‘‘1203,’’ after

13 ‘‘1202,’’.

14 (8) The second sentence of paragraph (2) of

15 section 871(a) of such Code is amended by striking

16 ‘‘section 1202’’ and inserting ‘‘sections 1202 and

17 1203’’.

18 (e) CLERICAL AMENDMENT.—The table of sections

19 for part I of subchapter P of chapter 1 of such Code is

20 amended by adding at the end the following new item:

‘‘Sec. 1203. Partial inflation adjustment for timber.’’

21 (f) EFFECTIVE DATE.—The amendments made by

22 this section shall apply to sales or exchanges after Decem23 ber 31, 1998.

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