69–010 

Calendar No. 442 

110TH CONGRESS REPORT " ! SENATE 1st Session 110–205 

HABITAT AND LAND CONSERVATION ACT OF 2007 

OCTOBER 24, 2007.—Ordered to be printed 

Mr. BAUCUS, from the Committee on Finance, 

submitted the following 

R E P O R T 

[To accompany S. 2223] 

The Committee on Finance, having considered an original bill, S. 

2223, to amend the Internal Revenue Code of 1986 to provide additional tax incentives to promote habitat conservation and restoration, and for other purposes, reports favorably thereon and recommends that the bill do pass. 

CONTENTS 

Page 

I. LEGISLATIVE BACKGROUND .................................................................. 2 

II. EXPLANATION OF THE BILL ................................................................... 2 

A. Make Permanent the Special Rule Encouraging Contributions of 

Capital Gain Real Property for Conservation Purposes (sec. 2 

of the bill and sec. 170 of the Code) ................................................. 2 

B. Provide Tax Credit for Recovery and Restoration of Endangered 

Species (sec. 3 of the bill and new sec. 30D of the Code) ................ 5 

C. Allow Deduction for Endangered Species Recovery Expenditures 

(sec. 4 of the bill and sec. 175 of the Code) ...................................... 10 

D. Provide Exclusion for Certain Payments and Programs Relating 

to Fish and Wildlife (sec. 5 of the bill and sec. 126 of the Code) ... 11 

E. Extend Expensing of Brownfields Remediation Costs (sec. 6 of 

the bill and sec. 198 of the Code) ...................................................... 13 

F. Allowance of Section 1031 Treatment for Exchanges Involving 

Certain Mutual Ditch, Reservoir, or Irrigation Company Stock 

(sec. 7 of the bill and sec. 1031 of the Code) .................................... 14 

G. Modification of Effective Date of Leasing Provisions of the American Jobs Creation Act of 2004 (sec. 8 of the bill and sec. 470 

of the Code) ......................................................................................... 15 

III. BUDGET EFFECTS OF THE BILL ............................................................... 16 

IV. VOTES OF THE COMMITTEE ...................................................................... 20 

V. REGULATORY IMPACT AND OTHER MATTERS ..................................... 21 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED 22 


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1Secs. 170, 2055, and 2522, respectively. Unless otherwise provided, all section references are 

to the Internal Revenue Code of 1986, as amended (the ‘‘Code’’). 

I. LEGISLATIVE BACKGROUND 

The Senate Committee on Finance marked up an original bill, S. 

2223 (the ‘‘Habitat and Land Conservation Act of 2007’’) on September 21, 2007, and, with a majority and quorum present, ordered 

the bill favorably reported by a voice vote on that date. 

II. EXPLANATION OF THE BILL 

A. MAKE PERMANENT THE SPECIAL RULE ENCOURAGING CONTRIBUTIONS OF CAPITAL GAIN REAL PROPERTY FOR CONSERVATION PURPOSES

(Sec. 2 of the bill and sec. 170 of the Code) 

PRESENT LAW

Charitable contributions generally 

In general, a deduction is permitted for charitable contributions, 

subject to certain limitations that depend on the type of taxpayer, 

the property contributed, and the donee organization. The amount 

of deduction generally equals the fair market value of the contributed property on the date of the contribution. Charitable deductions are provided for income, estate, and gift tax purposes.1

In general, in any taxable year, charitable contributions by a corporation are not deductible to the extent the aggregate contributions exceed 10 percent of the corporation’s taxable income computed without regard to net operating or capital loss carrybacks. 

For individuals, the amount deductible is a percentage of the taxpayer’s contribution base, which is the taxpayer’s adjusted gross income computed without regard to any net operating loss carryback. 

The applicable percentage of the contribution base varies depending on the type of donee organization and property contributed. 

Cash contributions of an individual taxpayer to public charities, 

private operating foundations, and certain types of private nonoperating foundations may not exceed 50 percent of the taxpayer’s 

contribution base. Cash contributions to private foundations and 

certain other organizations generally may be deducted up to 30 

percent of the taxpayer’s contribution base. 

In general, a charitable deduction is not allowed for income, estate, or gift tax purposes if the donor transfers an interest in property to a charity while also either retaining an interest in that 

property or transferring an interest in that property to a noncharity for less than full and adequate consideration. Exceptions to 

this general rule are provided for, among other interests, remainder interests in charitable remainder annuity trusts, charitable remainder unitrusts, and pooled income funds, present interests in 

the form of a guaranteed annuity or a fixed percentage of the annual value of the property, and qualified conservation contributions. 

Capital gain property 

Capital gain property means any capital asset or property used 

in the taxpayer’s trade or business the sale of which at its fair marVerDate Aug 31 2005 02:03 Oct 27, 2007 Jkt 069010 PO 00000 Frm 00002 Fmt 6659 Sfmt 6602 E:\HR\OC\SR205.XXX SR205

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ket value, at the time of contribution, would have resulted in gain 

that would have been long-term capital gain. Contributions of capital gain property to a qualified charity are deductible at fair market value within certain limitations. Contributions of capital gain 

property to charitable organizations described in section 

170(b)(1)(A) (e.g., public charities, private foundations other than 

private non-operating foundations, and certain governmental units) 

generally are deductible up to 30 percent of the taxpayer’s contribution base. An individual may elect, however, to bring all these 

contributions of capital gain property for a taxable year within the 

50-percent limitation category by reducing the amount of the contribution deduction by the amount of the appreciation in the capital 

gain property. Contributions of capital gain property to charitable 

organizations described in section 170(b)(1)(B) (e.g., private non-operating foundations) are deductible up to 20 percent of the taxpayer’s contribution base. 

For purposes of determining whether a taxpayer’s aggregate 

charitable contributions in a taxable year exceed the applicable 

percentage limitation, contributions of capital gain property are 

taken into account after other charitable contributions. Contributions of capital gain property that exceed the percentage limitation 

may be carried forward for five years. 

Qualified conservation contributions 

Qualified conservation contributions are not subject to the ‘‘partial interest’’ rule, which generally bars deductions for charitable 

contributions of partial interests in property. A qualified conservation contribution is a contribution of a qualified real property interest to a qualified organization exclusively for conservation purposes. A qualified real property interest is defined as: (1) The entire interest of the donor other than a qualified mineral interest; 

(2) a remainder interest; or (3) a restriction (granted in perpetuity) 

on the use that may be made of the real property. Qualified organizations include certain governmental units, public charities that 

meet certain public support tests, and certain supporting organizations. Conservation purposes include: (1) The preservation of land 

areas for outdoor recreation by, or for the education of, the general 

public; (2) the protection of a relatively natural habitat of fish, 

wildlife, or plants, or similar ecosystem; (3) the preservation of 

open space (including farmland and forest land) where such preservation will yield a significant public benefit and is either for the 

scenic enjoyment of the general public or pursuant to a clearly delineated Federal, State, or local governmental conservation policy; 

and (4) the preservation of an historically important land area or 

a certified historic structure. 

Qualified conservation contributions of capital gain property are 

subject to the same limitations and carryover rules of other charitable contributions of capital gain property. 


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2Sec. 170(b)(1)(E). 

3Sec. 170(b)(2)(B). 

Special rule regarding contributions of capital gain real property for 

conservation purposes 

In general 

Under a temporary provision that is effective for contributions 

made in taxable years beginning after December 31, 2005,2 the 30- 

percent contribution base limitation on contributions of capital gain 

property by individuals does not apply to qualified conservation 

contributions (as defined under present law). Instead, individuals 

may deduct the fair market value of any qualified conservation contribution to an organization described in section 170(b)(1)(A) to the 

extent of the excess of 50 percent of the contribution base over the 

amount of all other allowable charitable contributions. These contributions are not taken into account in determining the amount of 

other allowable charitable contributions. 

Individuals are allowed to carryover any qualified conservation 

contributions that exceed the 50-percent limitation for up to 15 

years. 

For example, assume an individual with a contribution base of 

$100 makes a qualified conservation contribution of property with 

a fair market value of $80 and makes other charitable contributions subject to the 50-percent limitation of $60. The individual is 

allowed a deduction of $50 in the current taxable year for the nonconservation contributions (50 percent of the $100 contribution 

base) and is allowed to carryover the excess $10 for up to 5 years. 

No current deduction is allowed for the qualified conservation contribution, but the entire $80 qualified conservation contribution 

may be carried forward for up to 15 years. 

Farmers and ranchers 

In the case of an individual who is a qualified farmer or rancher 

for the taxable year in which the contribution is made, a qualified 

conservation contribution is allowable up to 100 percent of the excess of the taxpayer’s contribution base over the amount of all 

other allowable charitable contributions. 

In the above example, if the individual is a qualified farmer or 

rancher, in addition to the $50 deduction for non-conservation contributions, an additional $50 for the qualified conservation contribution is allowed and $30 may be carried forward for up to 15 

years as a contribution subject to the 100-percent limitation. 

In the case of a corporation (other than a publicly traded corporation) that is a qualified farmer or rancher for the taxable year in 

which the contribution is made, any qualified conservation contribution is allowable up to 100 percent of the excess of the corporation’s taxable income (as computed under section 170(b)(2)) 

over the amount of all other allowable charitable contributions. 

Any excess may be carried forward for up to 15 years as a contribution subject to the 100-percent limitation.3

As an additional condition of eligibility for the 100-percent limitation, with respect to any contribution of property in agriculture 

or livestock production, or that is available for such production, by 

a qualified farmer or rancher, the qualified real property interest 


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must include a restriction that the property remain generally available for such production. (There is no requirement as to any specific use in agriculture or farming, or necessarily that the property 

be used for such purposes, merely that the property remain available for such purposes.) Such additional condition does not apply 

to contributions made on or before August 17, 2006. 

A qualified farmer or rancher means a taxpayer whose gross income from the trade or business of farming (within the meaning of 

section 2032A(e)(5)) is greater than 50 percent of the taxpayer’s 

gross income for the taxable year. 

Termination 

The special rule regarding contributions of capital gain real property for conservation purposes does not apply to contributions made 

in taxable years beginning after December 31, 2007. 

REASONS FOR CHANGE

Gifts of conservation easements to organizations that are dedicated to maintaining natural habitats, open spaces, or traditional 

agriculture help protect our nation’s heritage. The charitable tax 

deduction for such conservation easements has proven to be a valuable incentive for making such gifts. The Committee believes that 

the special rule that provides an increased incentive to make charitable contributions of partial interests in real property for conservation purposes is an important way of encouraging conservation and preservation and should be made permanent. 

EXPLANATION OF PROVISION

The provision makes permanent the special rule regarding contributions of capital gain real property for conservation purposes. 

EFFECTIVE DATE

The provision is effective for contributions made in taxable years 

beginning after December 31, 2007. 

B. PROVIDE TAX CREDIT FOR RECOVERY AND RESTORATION OF

ENDANGERED SPECIES

(Sec. 3 of the bill and new sec. 30D of the Code) 

PRESENT LAW

Present law does not provide an income tax credit for endangered 

species recovery expenditures. 

REASONS FOR CHANGE

The Endangered Species Act (‘‘ESA’’) of 1973 is a comprehensive 

attempt to protect species at risk of extinction and to consider habitat protection as an integral part of that effort. 

The purpose of the ESA is to conserve the ecosystems upon 

which endangered and threatened species depend and to conserve 

and recover listed species. Under the ESA, species of plants and 

animals (both vertebrate and invertebrate) may be listed as either 

endangered or threatened according to assessments of the risk of 

their extinction. 


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As of September 20, 2007, according to the U.S. Fish and Wildlife 

Service (‘‘USFWS’’), a total of 744 species of plants and 607 species 

of animals had been listed as either endangered or threatened in 

the United States and its territories. According to the USFWS, over 

70 percent of the nation’s landscape is in private ownership and 

nearly two-thirds of Federally listed endangered and threatened 

species are found on private lands. With such a large number of 

the country’s listed species dependent upon private lands for their 

survival, and many exclusively so, the goals of the ESA cannot be 

accomplished without the Federal government becoming involved to 

provide incentives for species protection on private lands. For both 

plants and animals, the ESA has few provisions for restoring and 

managing habitats on private lands. Many important habitats require restoration and management because, among other things, 

they have been overrun by invasive species or have been deprived 

of exposure to fire and other natural processes. 

Although the ESA prohibits landowners from harming endangered or threatened species, the Act itself contains only a small 

number of incentives for landowners to undertake the beneficial 

management actions that most species require for recovery. In addition, while most private landowners care about their land and 

want to practice good stewardship, they often lack the time and resources to deal with complex regulations and necessary management activities. 

The Committee believes that tax credits for private landowners 

who voluntarily undertake habitat protection and restoration for 

endangered species will provide some needed incentives to help recover threatened and endangered species. 

EXPLANATION OF PROVISION

In general 

For eligible taxpayers, the provision establishes a credit against 

income taxes for: (1) Costs paid or incurred by an eligible taxpayer 

for the taxable year (reduced by the amount of government financing for conservation of a qualified species, and not including costs 

required by a Federal, State, or local government) pursuant to a 

habitat management plan entered into under certain qualified 

habitat protection agreements (‘‘habitat restoration credit’’) and (2) 

a percentage of the loss in value to real property attributable to an 

easement placed on the property pursuant to such agreements (less 

any amount received in connection with the easement) (‘‘habitat 

protection easement credit’’). The allowable credit amount is 100 

percent of costs paid or incurred and the loss in value to property 

pursuant to qualified perpetual habitat protection agreements; 75 

percent of costs paid or incurred and the loss in value to property 

pursuant to qualified 30-year habitat protection agreements; and 

50 percent of costs paid or incurred pursuant to a qualified habitat 

protection agreement. 

For purposes of the habitat protection easement credit, the loss 

in value is the difference between the fair market value of the real 

property subject to the agreement determined on the day before the 

agreement is entered into less the fair market value of such property determined one day after the agreement is entered into. To 

claim such credit, the eligible taxpayer must own the real property 


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with respect to which the easement is placed, and include on the 

tax return for the taxable year a qualified appraisal (within the 

meaning of section 170(f)(11)(E)) of the real property. The taxpayer’s basis in such property is reduced by the amount of the 

credit allowed. 

The habitat restoration credit is taken into account after other 

credits (sections 21–27, 30, 30B, 30C, and the habitat protection 

easement credit) and may not offset the alternative minimum tax. 

The habitat protection easement credit is taken into account after 

other credits (sections 21–27, 30, 30B, and 30C) and such credit 

may offset the alternative minimum tax. Amounts allowed but in 

excess of either limitation may be carried forward to the succeeding 

taxable year. No deduction is allowed for any amount with respect 

to which a credit is allowed. The Secretary of the Treasury shall 

by regulations provide for the recapture of the credit if such Secretary determines that the eligible taxpayer has failed to carry out 

the duties required by the qualified agreement and there are no 

other available means to remediate such failure. 

The sum of the two credits may not exceed the amount allocated 

to the eligible taxpayer by the Secretary of the Treasury, in consultation with the Secretary of the Interior and the Secretary of 

Commerce, for the calendar year in which the taxpayer’s taxable 

year ends. If the amount allowed as a credit exceeds the amount 

allocated for such year, the excess may be carried forward to the 

next taxable year for which the taxpayer has received an allocation. 

If the amount allocated to a taxpayer for a calendar year exceeds 

the amount allowed as a credit for such year, the difference may 

be carried forward to the next taxable year and treated as allocated 

to the taxpayer for use in such year. No credit is allowed unless 

the appropriate Secretary certifies that a qualified agreement will 

contribute to the recovery of a qualified species. 

The aggregate amount allocated by the Secretary of the Treasury may not exceed in each year 2008 through 2012: $290,000,000 with 

respect to qualified perpetual habitat protection agreements, 

$55,000,000 with respect to qualified 30-year habitat protection 

agreements, and $35,000,000 with respect to qualified habitat protection agreements. No allocation is allowed after 2012, except that 

unallocated amounts with respect to any calendar year are carried 

forward to the allowable allocation for the next calendar year. 

Not later than 180 days after the date of enactment, the Secretary of the Treasury, in consultation with the Secretary of the Interior and the Secretary of Commerce, shall by regulation establish 

a program to process applications from eligible taxpayers and to determine how best to allocate the credit. In allocating the credit, priority shall be given to taxpayers with agreements (1) relating to 

habitats that will significantly increase the likelihood of recovering 

and delisting a species as an endangered species or a threatened 

species (as defined under section 2 of the Endangered Species Act 

of 1973), (2) that are cost-effective and maximize the benefits to a 

qualified species per dollar expended, (3) relating to habitats of 

species that have a Federally approved recovery plan pursuant to 

section 4 of the Endangered Species Act of 1973, (4) relating to 

habitats with the potential to contribute significantly to the improvement of the status of a qualified species, (5) relating to habitats with the potential to contribute significantly to the eradication 


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or control of invasive species that are imperiling a qualified species, 

(6) with habitat management plans that will manage multiple 

qualified species, (7) with habitat management plans that will create adjacent or proximate habitat for the recovery of a qualified 

species, (8) relating to habitats for qualified species with an urgent 

need for protection, (9) with habitat management plans that assist 

in preventing the listing of a species as endangered or threatened 

under the Endangered Species Act of 1973 or a similar State law, 

(10) with habitat management plans that may resolve conflicts between the protection of qualified species and otherwise lawful 

human activities, and (11) with habitat management plans that 

may resolve conflicts between the protection of a qualified species 

and military training or other military operation. 

The Secretary of the Treasury shall request that the appropriate 

Secretary consider whether to authorize under the Endangered 

Species Act of 1973 takings by an eligible taxpayer of a qualified 

species to which a qualified agreement relates if the takings are incidental to (1) the restoration, enhancement, or management of the 

habitat pursuant to the habitat management plan under the agreement or (2) the use of the property to which the agreement pertains at any time after the expiration of the easement (or specified 

period of time pursuant to a qualified habitat protection agreement), but only if such use will leave the qualified species at least 

as well off on the property as it was before the agreement was 

made. Both types of incidental takings currently are authorized 

under section 10(a)(1) of the Endangered Species Act of 1973 (enhancement of survival permits) and 50 CFR part 17 (safe harbor 

permits). 

The Comptroller General of the United States shall undertake a 

study on the effectiveness of the credits. Such study shall evaluate 

the effectiveness of the credits in encouraging landowners to enter 

into agreements for the protection of the habitats of endangered 

and threatened species, and the degree to which such agreements 

are effective in preserving the habitats of such species and assisting in the recovery of such species, and shall include recommendations for improving the effectiveness of the credits. The Comptroller 

General shall issue an interim report based on such study within 

three years of the date of enactment and a final report within five 

years of such date. 

Definitions 

Eligible taxpayer 

An eligible taxpayer is (1) a taxpayer who owns real property 

that contains habitat of a qualified species and enters into a qualified perpetual habitat protection agreement, a qualified 30-year 

habitat protection agreement, or a qualified habitat protection 

agreement with the appropriate Secretary with respect to such real 

property, and (2) a taxpayer who is a party to a qualified perpetual 

habitat protection agreement, a qualified 30-year habitat protection 

agreement, or a qualified habitat protection agreement and, as part 

of any such agreement, agrees to assume responsibility for some or 

all of the costs paid or incurred as a result of implementing such 

agreement. 


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Qualified agreements 

A qualified perpetual habitat protection agreement is an agreement under which an easement is granted to the appropriate Secretary, the Secretary of Agriculture, the Secretary of Defense, or a 

State to protect the habitat of a qualified species in perpetuity. A 

qualified 30-year habitat protection agreement is an agreement 

under which an easement is granted to the appropriate Secretary, 

the Secretary of Agriculture, the Secretary of Defense, or a State 

to protect the habitat of a qualified species for a period of not less 

than 30 years and less than perpetuity. A qualified habitat protection agreement requires agreement with the appropriate Secretary, 

the Secretary of Agriculture, the Secretary of Defense, or a State 

to protect the habitat of a qualified species for a specified period 

of time. 

In addition, each of the three types of qualified agreement must 

meet the following requirements: (1) The agreement must be consistent with any recovery plan that is applicable and that has been 

approved for a qualified species under section 4 of the Endangered 

Species Act of 1973; (2) the agreement must include a habitat management plan agreed to by the appropriate Secretary and the eligible taxpayer; and (3) the agreement must require that technical assistance with respect to the duties under the habitat management 

plan be provided to the taxpayer by the appropriate Secretary or 

an entity approved by the appropriate Secretary. 

Habitat management plan 

A habitat management plan means, with respect to any habitat, 

a plan that (1) identifies one or more qualified species to which the 

plan applies; (2) is designed to restore or enhance the habitat of a 

qualified species or reduce threats to a qualified species through 

the management of the habitat; (3) describes the threats to the 

qualified species that are intended to be reduced through the plan; 

(4) describes the management practices to be undertaken by the 

taxpayer; (5) provides a schedule of deadlines for undertaking such 

management practices; (6) requires monitoring of the management 

practices and the status of the qualified species; and (7) describes 

the technical assistance to be provided to the taxpayer and identifies the entity that will provide such assistance. 

Qualified species 

A qualified species is any species listed as an endangered species 

or threatened species under the Endangered Species Act of 1973 or 

any species for which a finding has been made under section 4(b)(3) 

of the Endangered Species Act of 1973 that listing under such Act 

may be warranted. 

Taking 

A taking has the meaning given to such term under the Endangered Species Act of 1973. 

Appropriate Secretary 

Appropriate Secretary has the meaning given to the term ‘‘Secretary’’ under section 3(15) of the Endangered Species Act of 1973. 


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4Sec. 175. 

EFFECTIVE DATE

The provision is effective for taxable years beginning after December 31, 2007. 

C. ALLOW DEDUCTION FOR ENDANGERED SPECIES RECOVERY

EXPENDITURES

(Sec. 4 of the bill and sec. 175 of the Code) 

PRESENT LAW

Under present law, a taxpayer engaged in the business of farming may treat expenditures that are paid or incurred by him during 

the taxable year for the purpose of soil or water conservation in respect of land used in farming, or for the prevention or erosion of 

land used in farming, as expenses that are not chargeable to capital account. Such expenditures are allowed as a deduction, not to 

exceed 25 percent of the gross income derived from farming during 

the taxable year.4 Any excess above such percentage is deductible 

for succeeding taxable years, not to exceed 25 percent of the gross 

income derived from farming during such succeeding taxable year. 

REASONS FOR CHANGE

The goal of the Endangered Species Act of 1973 is to recover listed species and the ecosystems on which they depend to levels 

where protection under such Act is no longer necessary. Recovery 

is the process by which the decline of an endangered species is arrested or reversed, and threats removed or reduced so that the species’ long-term survival in the wild can be ensured. Section 4(f)(1) 

of such Act directs the appropriate Secretary to develop and implement recovery plans for the conservation and survival of endangered and threatened species, unless the appropriate Secretary 

finds that such a plan will not promote the conservation of the species. To the maximum extent practicable, the recovery plan must 

incorporate a description of management actions to achieve the 

plan’s goals, objective and measurable criteria for determining the 

removal of species from the endangered species list, and estimate 

the time required and cost to carry out the recovery plan. The appropriate Secretary may procure the services of appropriate private 

and public agencies in developing and implementing a recovery 

plan. 

According to an April 6, 2006, General Accountability Office report entitled ‘‘Endangered Species: Time and Costs to Recover Species Are Largely Unknown,’’ as of January 2006, the Fish and 

Wildlife Service and the National Marine Fisheries Service had finalized and approved 558 recovery plans covering 1,049 species, or 

about 82 percent of the 1,272 endangered or threatened species 

protected in the United States at that time. Recovery plans contain 

management measures that landowners can adopt on their land 

that will aid in the recovery of endangered or threatened species, 

resulting in a public benefit. Such are similar to measures undertaken for soil and water conservation, which are entitled to a tax 

deduction. The Committee believes that certain expenses of taxpayers made pursuant to a recovery plan under the Endangered 


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5 16 U.S.C. 1533(f)(B). 

6Sec. 126. 

Species Act should be treated similarly to expenditures by farmers 

made for soil and water conservation. 

EXPLANATION OF PROVISION

The provision provides that expenditures paid or incurred by a 

taxpayer engaged in the business of farming for the purpose of 

achieving site-specific management actions pursuant to the Endangered Species Act of 1973 5 to be treated the same as expenditures 

for the purpose of soil or water conservation in respect of land used 

in farming, or for the prevention or erosion of land used in farming, 

i.e., such expenditures are treated as not chargeable to capital account and are deductible subject to the limitation that the deduction may not exceed 25 percent of the farmer’s gross income derived from farming during the taxable year. 

EFFECTIVE DATE

The provision is effective for expenditures paid or incurred after 

the date of enactment. 

D. PROVIDE EXCLUSION FOR CERTAIN PAYMENTS AND PROGRAMS

RELATING TO FISH AND WILDLIFE

(Sec. 5 of the bill and sec. 126 of the Code) 

PRESENT LAW

Under present law, gross income does not include the excludable 

portion of payments made to taxpayers by the Federal and State 

governments for a share of the cost of improvements to property 

under certain conservation programs.6

The excludable portion is the portion (or all) of a payment made 

under such programs that is determined by the Secretary of Agriculture to be made primarily for the purpose of conserving soil and 

water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife, and is determined 

by the Secretary of the Treasury as not increasing substantially the 

annual income derived from the property. The excludable portion 

does not include that portion of any payment that is properly associated with an amount that is allowable as a deduction for the taxable year in which such amount is paid or incurred. 

Applicable conservation programs include (1) the rural clean 

water program authorized by section 208(j) of the Federal Water 

Pollution Control Act, (2) the rural abandoned mine program authorized by section 406 of the Surface Mining Control and Reclamation Act of 1977, (3) the water bank program authorized by 

the Water Bank Act, (4) the emergency conservation measures program authorized by title IV of the Agricultural Credit Act of 1978, 

(5) the agriculture conservation program authorized by the Soil 

Conservation and Domestic Allotment Act, (6) the great plains conservation program authorized by section 16 of the Soil Conservation and Domestic Policy Act, (7) the resource conservation and development program authorized by the Bankhead-Jones Farm Tenant Act and by the Soil Conservation and Domestic Allotment Act, 


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(8) the forestry incentives program authorized by section 4 of the 

Cooperative Forestry Assistance Act of 1978, (9) any small watershed program administered by the Secretary of Agriculture which 

is determined by the Secretary of the Treasury or his delegate to 

be substantially similar to the type of programs described in items 

(1) through (8), and (10) any program of a State, possession of the 

United States, a political subdivision of any of the foregoing, or the 

District of Columbia under which payments are made to individuals primarily for the purpose of conserving soil, protecting or restoring the environment, improving forests, or providing a habitat 

for wildlife. 

REASONS FOR CHANGE

Currently, there are a few Federal programs aimed at encouraging landowners to protect and aid in the recovery of endangered 

or threatened species. Partners for Fish and Wildlife is a national 

voluntary cost-share program implemented by the U.S. Fish and 

Wildlife Service to protect, enhance, and restore important fish and 

wildlife habitats on private lands through partnerships with landowners. The Landowner’s Incentive Program provides funding for 

states to staff their programs and to fund conservation work with 

private landowners to restore and maintain habitat for endangered, 

threatened, and other imperiled species. State Wildlife Grant funds 

are used to address species and their habitats that are identified 

in State Comprehensive Wildlife Conservation Plans/Strategies 

(also known as Wildlife Action Plans). Priority for use of these 

funds is on those species of greatest conservation need. The Private 

Stewardship Grant Program provides Federal grants on a competitive basis to individuals and groups engaged in voluntary conservation efforts on private lands that benefit Federally listed endangered or threatened species, candidate species or other at-risk species. Private landowners and groups working with private landowners are able to submit proposals directly to the U.S. Fish and 

Wildlife Service for funding to support these efforts. Each grant 

must be matched by at least 10 percent of the total project cost in 

either non Federal dollars or in-kind contributions. 

The Committee believes that payments received by taxpayers 

under the Partners for Fish and Wildlife Program, the Landowner 

Incentive Program, the State Wildlife Grants Program, and the Private Stewardship Grants Program are similar to payments made 

under other government programs that are excludable from gross 

income under present law. Accordingly, the Committee believes it 

is appropriate to extend the present law exclusion to payments 

under these programs. 

EXPLANATION OF PROVISION

The provision expands the exclusion to include the excludable 

portion of payments made under the Partners for Fish and Wildlife 

Program authorized by the Partners for Fish and Wildlife Act, the 

Landowner Incentive Program, the State Wildlife Grants Program, 

and the Private Stewardship Grants Program authorized by the 

Fish and Wildlife Act of 1956. 


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7Sec. 162. 

8Sec. 198. 

9 418 U.S. 1 (1974). 

10Pub. L. No. 96–510 (1980). 

EFFECTIVE DATE

The provision is effective for payments received after the date of 

enactment. 

E. EXTEND EXPENSING OF BROWNFIELDS REMEDIATION COSTS

(Sec. 6 of the bill and sec. 198 of the Code) 

PRESENT LAW

Present law allows a deduction for ordinary and necessary expenses paid or incurred in carrying on any trade or business.7

Treasury regulations provide that the cost of incidental repairs 

that neither materially add to the value of property nor appreciably 

prolong its life, but keep it in an ordinarily efficient operating condition, may be deducted currently as a business expense. Section 

263(a)(1) limits the scope of section 162 by prohibiting a current deduction for certain capital expenditures. Treasury regulations define ‘‘capital expenditures’’ as amounts paid or incurred to materially add to the value, or substantially prolong the useful life, of 

property owned by the taxpayer, or to adapt property to a new or 

different use. Amounts paid for repairs and maintenance do not 

constitute capital expenditures. The determination of whether an 

expense is deductible or capitalizable is based on the facts and circumstances of each case. 

Taxpayers may elect to treat certain environmental remediation 

expenditures that would otherwise be chargeable to capital account 

as deductible in the year paid or incurred.8 The deduction applies 

for both regular and alternative minimum tax purposes. The expenditure must be incurred in connection with the abatement or 

control of hazardous substances at a qualified contaminated site. In 

general, any expenditure for the acquisition of depreciable property 

used in connection with the abatement or control of hazardous substances at a qualified contaminated site does not constitute a qualified environmental remediation expenditure. However, depreciation 

deductions allowable for such property, which would otherwise be 

allocated to the site under the principles set forth in Commissioner 

v. Idaho Power Co.9 and section 263A, are treated as qualified environmental remediation expenditures. 

A ‘‘qualified contaminated site’’ (a so-called ‘‘brownfield’’) generally is any property that is held for use in a trade or business, 

for the production of income, or as inventory and is certified by the 

appropriate State environmental agency to be an area at or on 

which there has been a release (or threat of release) or disposal of 

a hazardous substance. Both urban and rural property may qualify. 

However, sites that are identified on the national priorities list 

under the Comprehensive Environmental Response, Compensation, 

and Liability Act of 1980 (‘‘CERCLA’’) 10 cannot qualify as targeted 

areas. Hazardous substances generally are defined by reference to 

sections 101(14) and 102 of CERCLA, subject to additional limitations applicable to asbestos and similar substances within buildings, certain naturally occurring substances such as radon, and cerVerDate Aug 31 2005 02:03 Oct 27, 2007 Jkt 069010 PO 00000 Frm 00013 Fmt 6659 Sfmt 6602 E:\HR\OC\SR205.XXX SR205

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11Pub. L. No. 109–135 (2005). 12Pub. L. No. 109–432 (2006). 

tain other substances released into drinking water supplies due to 

deterioration through ordinary use, as well as petroleum products 

defined in section 4612(a)(3) of the Code. 

In the case of property to which a qualified environmental remediation expenditure otherwise would have been capitalized, any deduction allowed under section 198 is treated as a depreciation deduction and the property is treated as section 1245 property. Thus, 

deductions for qualified environmental remediation expenditures 

are subject to recapture as ordinary income upon a sale or other 

disposition of the property. In addition, sections 280B (demolition 

of structures) and 468 (special rules for mining and solid waste reclamation and closing costs) do not apply to amounts that are treated as expenses under this provision. 

Eligible expenditures are those paid or incurred before January 

1, 2008. 

The Gulf Opportunity Zone Act of 2005 11 added section 1400N(g) 

to the Code, which extended for two years (through December 31, 

2007) the expensing of environmental remediation expenditures 

paid or incurred to abate contamination at qualified contaminated 

sites located in the Gulf Opportunity Zone. As a result of the extension of section 198 contained in the Tax Relief and Health Care Act 

of 2006,12 eligible expenditures covered under both section 

1400N(g) and section 198 must be paid or incurred prior to January 1, 2008. 

REASONS FOR CHANGE

The Committee believes that the expensing of brownfields remediation costs promotes the goal of environmental remediation and 

promotes new investment and employment opportunities by lowering the net capital cost of a development project. Therefore, the 

Committee believes it is appropriate to extend the present law provision permitting the expensing of these environmental remediation costs. 

EXPLANATION OF PROVISION

The provision extends the present law expensing provision under 

section 198 for three years through December 31, 2010. 

EFFECTIVE DATE

The provision is effective for expenditures paid or incurred after 

December 31, 2007. 

F. ALLOWANCE OF SECTION 1031 TREATMENT FOR EXCHANGES INVOLVING CERTAIN MUTUAL DITCH, RESERVOIR, OR IRRIGATION

COMPANY STOCK

(Sec. 7 of the bill and sec. 1031 of the Code) 

PRESENT LAW

An exchange of property, like a sale, generally is a taxable event. 

However, no gain or loss is recognized if property held for productive use in a trade or business or for investment is exchanged for 


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13Sec. 1031(a)(1). 14Sec. 1031(a)(2). 

property of a ‘‘like-kind’’ which is to be held for productive use in 

a trade or business or for investment.13 If section 1031 applies to 

an exchange of properties, the basis of the property received in the 

exchange is equal to the basis of the property transferred, decreased by any money received by the taxpayer, and further adjusted for any gain or loss recognized on the exchange. In general, 

section 1031 does not apply to any exchange of stock in trade or 

other property held primarily for sale; stocks, bonds or notes; other 

securities or evidences of indebtedness or interest; interests in a 

partnership; certificates of trust or beneficial interests; or choses in 

action.14

REASONS FOR CHANGE

The Committee believes that section 1031 should be clarified to 

remove any doubt that an exchange of shares in mutual ditch, reservoir, and irrigation company stock qualifies for tax deferral treatment under section 1031. The Committee intends this clarification 

would be for cases in which the highest court or a statute of the 

State in which the company is organized recognize such shares as 

constituting or representing real property or an interest in real 

property. 

EXPLANATION OF PROVISION

The provision provides that the general exclusion from section 

1031 treatment for stocks shall not apply to shares in a mutual 

ditch, reservoir, or irrigation company, if at the time of the exchange: (1) The company is an organization described in section 

501(c)(12)(A) (determined without regard to the percentage of its 

income that is collected from its members for the purpose of meeting losses and expenses); and (2) the shares in the company have 

been recognized by the highest court of the State in which such 

company was organized or by applicable State statute as constituting or representing real property or an interest in real property. 

EFFECTIVE DATE

The provision is effective for transfers after the date of enactment. 

G. MODIFICATION OF EFFECTIVE DATE OF LEASING PROVISIONS OF

THE AMERICAN JOBS CREATION ACT OF 2004 

(Sec. 8 of the bill and sec. 470 of the Code) 

PRESENT LAW

Present law provides for the deferral of losses attributable to certain tax exempt use property, generally effective for leases entered 

into after March 12, 2004. The deferral provision does not apply to 

property located in the United States that is subject to a lease with 

respect to which a formal application: (1) Was submitted for approval to the Federal Transit Administration (an agency of the Department of Transportation) after June 30, 2003, and before March 

13, 2004; (2) was approved by the Federal Transit Administration 


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before January 1, 2006; and (3) includes a description and the fair 

market value of such property (the ‘‘qualified transportation property exception’’). 

REASONS FOR CHANGE

The Committee is aware that certain leasing transactions entered into with foreign lessees prior to March 12, 2004, are continuing to provide a tax benefit to the taxpayers who participated 

in such transactions. The Committee finds these transactions and 

their continuing tax benefit to be inappropriate. 

EXPLANATION OF PROVISION

The provision changes the effective date of the loss deferral rules 

with respect to certain leases. Under the provision, the loss deferral rules also apply to leases entered into on or before March 12, 

2004, if the lessee is a foreign person or entity. With respect to 

such leases, losses are deferred starting in taxable years beginning 

after December 31, 2006. 

No inference is intended regarding the appropriate present law 

tax treatment of transactions entered into prior to March 12, 2004, 

if the lessee is not a foreign person or entity. In addition, it is intended that the provision shall not be construed as altering or supplanting the present-law tax rules providing that a taxpayer is 

treated as the owner of leased property only if the taxpayer acquires and retains significant and genuine attributes of an owner 

of the property, including the benefits and burdens of ownership. 

The provision also is not intended to affect the scope of any other 

present-law tax rules or doctrines applicable to purported leasing 

transactions. 

EFFECTIVE DATE

The provision is effective as if included in the provisions of the 

American Jobs Creation Act of 2004 to which it relates. 

III. BUDGET EFFECTS OF THE BILL 

A. COMMITTEE ESTIMATES

In compliance with paragraph 11(a) of rule XXVI of the Standing 

Rules of the Senate, the following statement is made concerning 

the estimated budget effects of the revenue provisions of the ‘‘Habitat and Land Conservation Act of 2007’’ as reported. 


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B. BUDGET AUTHORITY AND TAX EXPENDITURES

Budget authority 

In compliance with section 308(a)(1) of the Budget Act, the Committee states that no provisions of the bill as reported involve new 

or increased budget authority. 

Tax expenditures 

In compliance with section 308(a)(2) of the Budget Act, the Committee states that the revenue-reducing provisions of the bill involve increased tax expenditures (see revenue table in Part A., 

above). The revenue-increasing provisions of the bill involve reduced tax expenditures (see revenue table in part A, above). 

C. CONSULTATION WITH CONGRESSIONAL BUDGET OFFICE

In accordance with section 403 of the Budget Act, the Committee 

advises that the Congressional Budget Office submitted the following statement on this bill: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, October 22, 2007. 

Hon. MAX BAUCUS, 

Chairman, Committee on Finance, 

U.S. Senate, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for the Habitat and Land Conservation Act of 2007. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Barbara Edwards. 

Sincerely, 

ROBERT A. SUNSHINE

(For Peter R. Orszag, Director). 

Enclosure. 

S. 2223—Habitat and Land Conservation Act of 2007 

The Habitat and Land Conservation Act of 2007 would provide 

tax relief to individuals and corporations that make charitable contributions or expenditures for conservation of endangered species 

and would extend the rules that allow businesses to immediately 

deduct remediation costs of real property that could not be reused 

due to environmental contaminants (brownfields sites). The bill 

also would accelerate the effective date for provisions of the American Jobs Creation Act of 2004 (AJCA) that provided for loss deferral rules for certain tax-exempt property involved in so-called salein, lease-out (‘‘SILO’’) transactions. 

The Joint Committee on Taxation (JCT) estimates that enacting 

the bill would increase revenues by $2.5 billion over the 2008–2012 

period and by $53 million over the 2008–2017 period. CBO estimates that implementing the legislation would cost less than 

$500,000 per year over the 2008–2012 period, assuming the availability of appropriated funds. 

JCT has determined that the tax provisions of the bill contain 

one private-sector mandate as defined in the Unfunded Mandates 


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Reform Act (UMRA): modification of the effective date for the provisions of AJCA regarding leasing (SILO) transactions. CBO has 

reviewed the non-tax provision of the bill (section 3(b)) and determined that it contains no private-sector mandates as defined in 

UMRA. CBO and JCT have determined that the bill contains no 

intergovernmental mandates. 

The estimated revenue effects are summarized below. 

By fiscal year, in millions of dollars— 

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008– 

2012 

2008– 

2017 

Estimated Revenues ........... 2,388 381 ¥150 ¥108 ¥4 ¥49 ¥131 ¥458 ¥801 ¥1,016 2,506 53 

Source: Joint Committee on Taxation. 

The Habitat and Land Conservation Act of 2007 would provide 

income tax credits for certain costs related to habitat restoration 

and habitat protection easements for endangered species. It also 

would make permanent the provisions that expire on December 31, 

2007, that reduce the limitations for deducting charitable contributions of certain conservation property. The bill also would allow 

farmers to immediately deduct certain capital expenditures for endangered species recovery to the same extent that they can deduct 

capital expenditures related to soil and water conservation. JCT estimates that these three provisions would reduce revenues by $62 

million in 2008, by $1.1 billion over the 2008–2012 period, and by 

$2.5 billion over the 2008–2017 period. 

The bill would extend for three years, to December 31, 2010, the 

rules that allow taxpayers to immediately deduct remediation costs 

for brownfields. JCT estimates that this provision would reduce 

revenues by $227 million in 2008, by $971 million over the 2008–

2012 period, and by $630 million over the 2008–2017 period. 

The bill would accelerate the effective date for provisions of 

AJCA that provided for loss deferral rules for certain tax-exempt 

property involved in SILO transactions. JCT estimates that this 

provision would increase revenues by $2.7 billion in 2008, by $4.6 

billion over the 2008–2012 period, and by $3.2 billion over the 

2008–2017 period. 

The legislation also would require a five-year study by the Government Accountability Office (GAO) on the endangered species recovery and restoration credit. This study would include an evaluation of the tax credit for the restoration and enhancement of species habitat and the development of recommendations to improve 

effectiveness of the credit. Based on the costs of similar efforts, 

CBO estimates that preparing the study would cost less than 

$500,000 annually over the 2008–2012 period. 

The CBO staff contacts for this estimate are Barbara Edwards 

(for revenues) and Matthew Pickford (for GAO costs). The estimate 

was approved by Peter H. Fontaine, Assistant Director for Budget 

Analysis, and G. Thomas Woodward, Assistant Director for Tax 

Analysis. 

IV. VOTES OF THE COMMITTEE 

In compliance with paragraph 7(b) of rule XXVI of the Standing 

Rules of the Senate, the Committee states that, with a majority 

and quorum present, the ‘‘Habitat and Land Conservation Act of 


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2007’’ was ordered favorably reported by a voice vote on September 

21, 2007. 

V. REGULATORY IMPACT AND OTHER MATTERS 

A. REGULATORY IMPACT

Pursuant to paragraph 11(b) of rule XXVI of the Standing Rules 

of the Senate, the Committee makes the following statement concerning the regulatory impact that might be incurred in carrying 

out the provisions of the bill as amended. 

Impact on individuals and businesses, personal privacy and paperwork 

The bill includes provisions to extend present law tax benefits, 

expand eligibility for other benefits, and create new benefits. The 

bill also includes a provision expanding the loss limitation on 

leases with foreign entities. These provisions generally do not impose increased regulatory burdens on individuals or businesses. 

Taxpayers who elect to take advantage of certain provisions of the 

bill will need to keep records to demonstrate that they qualify for 

the tax treatment provided by the bill. One provision in the bill allows taxpayers to apply for a tax credit allocation relating to habitat protection and restoration. Taxpayers receiving an allocation 

must enter into certain qualified agreements in order to claim the 

credit. 

The provisions of the bill do not impact personal privacy. 

B. UNFUNDED MANDATES STATEMENT

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104–4). 

The Committee has determined that the following tax provision 

of the reported bill contains a Federal private sector mandate within the meaning of Public Law No. 104–4, the Unfunded Mandates 

Reform Act of 1995: Modifying the effective date for the application 

of the American Jobs Creation Act of (‘‘AJCA’’) 2004 leasing 

(‘‘SILO’’) provision—apply loss limitation to leases with foreign entities regardless of when the lease was entered into. The tax provisions of the reported bill do not impose a Federal intergovernmental mandate on State, local, or tribal governments within the 

meaning of Public Law No. 104–4, the Unfunded Mandates Reform 

Act of 1995. 

The costs required to comply with the Federal private sector 

mandate generally is no greater than the aggregate estimated 

budget effects of the provision. 

C. TAX COMPLEXITY ANALYSIS

Section 4022(b) of the Internal Revenue Service Restructuring 

and Reform Act of 1998 (the ‘‘IRS Reform Act’’) requires the Joint 

Committee on Taxation (in consultation with the Internal Revenue 

Service and the Department of the Treasury) to provide a tax complexity analysis. The complexity analysis is required for all legislation reported by the Senate Committee on Finance, the House 

Committee on Ways and Means, or any committee of conference if 

the legislation includes a provision that directly or indirectly 


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amends the Internal Revenue Code (the ‘‘Code’’) and has widespread applicability to individuals or small businesses. 

The staff of the Joint Committee on Taxation has determined 

that a complexity analysis is not required under section 4022(b) of 

the IRS Reform Act because the bill contains no provisions that 

have ‘‘widespread applicability’’ to individuals or small businesses. 

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS 

REPORTED 

In the opinion of the Committee, it is necessary, in order to expedite the business of the Senate, to dispense with the requirements 

of paragraph 12 of rule XXVI of the Standing Rules of the Senate 

(relating to the showing of changes in existing law made by the bill 

as reported by the Committee). 

Æ 


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