II 

109TH CONGRESS 

1ST SESSION S. 1791 

To amend the Internal Revenue Code of 1986 to allow a deduction for 

qualified timber gains. 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 29, 2005 

Mr. SMITH (for himself and Mrs. LINCOLN) 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 allow a 

deduction for qualified timber gains. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Timber Tax Act of 

5 2005’’. 

6 SEC. 2. DEDUCTION FOR QUALIFIED TIMBER GAIN. 

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

8 1 of the Internal Revenue Code of 1986 is amended by 

9 adding at the end the following new section: 
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1 ‘‘SEC. 1203. DEDUCTION FOR QUALIFIED TIMBER GAIN. 

2 ‘‘(a) IN GENERAL.—In the case of a taxpayer which 

3 elects the application of this section for a taxable year, 

4 there shall be allowed a deduction against gross income 

5 equal to 60 percent of the lesser of— 

6 ‘‘(1) the taxpayer’s qualified timber gain for 

7 such year, or 

8 ‘‘(2) the taxpayer’s net capital gain for such 

9 year. 

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

11 this section, the term ‘qualified timber gain’ means, with 

12 respect to any taxpayer for any taxable year, the excess 

13 (if any) of— 

14 ‘‘(1) the sum of the taxpayer’s gains described 

15 in subsections (a) and (b) of section 631 for such 

16 year, over 

17 ‘‘(2) the sum of the taxpayer’s losses described 

18 in such subsections for such year. 

19 ‘‘(c) SPECIAL RULES FOR PASS-THRU ENTITIES.— 

20 In the case of any qualified timber gain of a pass-thru 

21 entity (as defined in section 1(h)(10)), the election under 

22 this section shall be made separately by each taxpayer sub23 ject to tax on such gain.’’. 

24 (b) COORDINATION WITH MAXIMUM CAPITAL GAINS

25 RATES.— 
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1 (1) TAXPAYERS OTHER THAN CORPORA2 TIONS.—Paragraph (2) of section 1(h) of the Inter3 nal Revenue Code of 1986 is amended to read as fol4 lows: 

5 ‘‘(2) REDUCTION OF NET CAPITAL GAIN.—For 

6 purposes of this subsection, the net capital gain for 

7 any taxable year shall be reduced (but not below 

8 zero) by the sum of— 

9 ‘‘(A) the amount which the taxpayer takes 

10 into account as investment income under sec11 tion 163(d)(4)(B)(iii), and 

12 ‘‘(B) the lesser of— 

13 ‘‘(i) the amount described in para14 graph (1) of section 1203(a), or 

15 ‘‘(ii) the amount described in para16 graph (2) of such section.’’. 

17 (2) CORPORATIONS.—Section 1201 of such 

18 Code is amended by redesignating subsection (b) as 

19 subsection (c) and inserting after subsection (a) the 

20 following new subsection: 

21 ‘‘(b) QUALIFIED TIMBER GAIN NOT TAKEN INTO

22 ACCOUNT.—For purposes of this section, in the case of 

23 a corporation with respect to which an election is in effect 

24 under section 1203, the net capital gain for any any tax25 able year shall be reduced (but not below zero) by the cor-
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1 poration’s qualified timber gain (as defined in section 

2 1203(b)).’’. 

3 (c) DEDUCTION ALLOWED WHETHER OR NOT INDI4 VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) 

5 of section 62 of the Internal Revenue Code of 1986 is 

6 amended by inserting before the last sentence the fol7 lowing new paragraph: 

8 ‘‘(21) QUALIFIED TIMBER GAINS.—The deduc9 tion allowed by section 1203.’’. 

10 (d) DEDUCTION ALLOWED IN COMPUTING AD11 JUSTED CURRENT EARNINGS.—Subparagraph (C) of sec12 tion 56(g)(4) of the Internal Revenue Code of 1986 is 

13 amended by adding at the end the following new clause: 

14 ‘‘(vii) DEDUCTION FOR QUALIFIED

15 TIMBER GAIN.—Clause (i) shall not apply 

16 to any deduction allowed under section 

17 1203.’’. 

18 (e) DEDUCTION ALLOWED IN COMPUTING TAXABLE

19 INCOME OF ELECTING SMALL BUSINESS TRUSTS.—Sub20 paragraph (C) of section 641(c)(2) of the Internal Rev21 enue Code of 1986 is amended by inserting after clause 

22 (iii) the following new clause: 

23 ‘‘(iv) The deduction allowed under 

24 section 1203.’’. 

25 (f) CONFORMING AMENDMENTS.— 
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1 (1) Subparagraph (B) of section 172(d)(2) of 

2 the Internal Revenue Code of 1986 is amended to 

3 read as follows: 

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

5 the deduction under section 1203 shall not be 

6 allowed.’’. 

7 (2) Paragraph (4) of section 642(c) of such 

8 Code is amended by striking the first sentence and 

9 inserting the following: ‘‘To the extent that the 

10 amount otherwise allowable as a deduction under 

11 this subsection consists of gain described in section 

12 1202(a) or qualified timber gain (as defined in sec13 tion 1203(b)), proper adjustment shall be made for 

14 any exclusion allowable to the estate or trust under 

15 section 1202 and for any deduction allowable to the 

16 estate or trust under section 1203.’’ 

17 (3) Paragraph (3) of section 643(a) of such 

18 Code is amended by striking the last sentence and 

19 inserting the following: ‘‘The exclusion under section 

20 1202 and the deduction under section 1203 shall not 

21 be taken into account.’’ 

22 (4) Subparagraph (C) of section 643(a)(6) of 

23 such Code is amended to read as follows: 

24 ‘‘(C) Paragraph (3) shall not apply to a 

25 foreign trust. In the case of such a trust— 
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1 ‘‘(i) there shall be included gains from 

2 the sale or exchange of capital assets, re3 duced by losses from such sales or ex4 changes to the extent such losses do not 

5 exceed gains from such sales or exchanges, 

6 and 

7 ‘‘(ii) the deduction under section 1203 

8 shall not be taken into account.’’. 

9 (5) Paragraph (4) of section 691(c) of such 

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

11 ‘‘1202,’’. 

12 (6) Paragraph (2) of section 871(a) of such 

13 Code is amended by inserting ‘‘and 1203’’ after 

14 ‘‘section 1202’’. 

15 (7) The table of sections for part I of sub16 chapter P of chapter 1 of such Code is amended by 

17 adding at the end the following new item: 

‘‘Sec. 1203. Deduction for qualified timber gain.’’. 

18 (g) EFFECTIVE DATE.— 

19 (1) IN GENERAL.—The amendments made by 

20 this section shall apply to taxable years ending after 

21 the date of the enactment of this Act. 

22 (2) TAXABLE YEARS WHICH INCLUDE DATE OF

23 ENACTMENT.—In the case of any taxable year which 

24 includes the date of the enactment of this Act, for 

25 purposes of the Internal Revenue Code of 1986, the 
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1 taxpayer’s qualified timber gain shall not exceed the 

2 excess that would be described in section 1203(b) of 

3 such Code, as added by this section, if only disposi4 tions of timber after such date were taken into ac5 count. 

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