I

103D CONGRESS

1ST SESSION H. R. 664

To amend the Internal Revenue Code of 1986 to provide incentives for

domestic timber production and manufacturing.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 27, 1993

Mr. DEFAZIO (for himself and Mrs. UNSOELD) introduced the following bill;

which was referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

incentives for domestic timber production and manufacturing.

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 ‘‘Domestic Timber Pro5 duction and Manufacturing Incentives Act’’.

6 SEC. 2. INVESTMENT INCENTIVE FOR DOMESTIC TIMBER

7 PRODUCTION.

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

9 1 of the Internal Revenue Code of 1986 (relating to treat-
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1 ment of capital gains) is amended by adding at the end

2 the following new section:

3 ‘‘SEC. 1202. INVESTMENT INCENTIVE FOR DOMESTIC TIM4 BER PRODUCTION.

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

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

7 shall be allowed as a deduction from gross income an

8 amount equal to the qualified percentage of such gain.

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

10 this section—

11 ‘‘(1) IN GENERAL.—The term ‘qualified timber

12 gain’ means the lesser of—

13 ‘‘(A) the net capital gain for the taxable

14 year, or

15 ‘‘(B) the net capital gain for the taxable

16 year determined by taking into account only

17 gains and losses from qualified timber.

18 ‘‘(2) QUALIFIED TIMBER.—The term ‘qualified

19 timber’ means any timber with respect to which the

20 taxpayer has provided assurances (which are satis21 factory to the Secretary) that substantially all of the

22 processing of the timber will occur within the United

23 States.

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

25 section, the term ‘qualified percentage’ means the percent-
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1 age (not exceeding 50 percent) determined by multiply2 ing—

3 ‘‘(1) 2 percent, by

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

5 of the taxpayer with respect to the timber.

6 ‘‘(d) ESTATES AND TRUSTS.—In the case of an es7 tate or trust, the deduction under subsection (a) shall be

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

9 for the taxable year from sales or exchanges of capital as10 sets which, under sections 652 and 662 (relating to inclu11 sions of amounts in gross income of beneficiaries of

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

13 derived from the sale or exchange of capital assets.’’

14 (b) COORDINATION WITH EXISTING LIMITATIONS.—

15 (1) Subsection (h) of section 1 of such Code

16 (relating to maximum capital gains rate) is amended

17 by inserting after ‘‘net capital gain’’ each place it

18 appears the following; ‘‘(other than qualified timber

19 gain with respect to which an election is made under

20 section 1202)’’.

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

22 (relating to alternative tax for corporations) is

23 amended by inserting after ‘‘net capital gain’’ each

24 place it appears the following: ‘‘(other than qualified
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1 timber gain with respect to which an election is

2 made under section 1202)’’.

3 (c) ALLOWANCE OF DEDUCTION IN COMPUTING AD4 JUSTED GROSS INCOME.—Subsection (a) of section 62 of

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

6 is amended by adding at the end the following new para7 graph:

8 ‘‘(14) INVESTMENT INCENTIVE FOR DOMESTIC

9 TIMBER PRODUCTION.—The deduction allowed by

10 section 1202.’’

11 (d) CONFORMING AMENDMENT.—The table of sec12 tions for part I of subchapter P of chapter 1 of such Code

13 is amended by adding at the end the following new item:

‘‘Sec. 1202. Investment incentive for domestic timber production.’’

14 (e) EFFECTIVE DATE.—The amendments made by

15 this section shall apply to sales or exchanges after the date

16 of the enactment of this Act.

17 SEC. 3. APPLICATION OF PASSIVE LOSS LIMITATIONS TO

18 TIMBER ACTIVITIES.

19 (a) DETERMINATION OF MATERIAL PARTICIPA20 TION.—Subsection (h) of section 469 of the Internal Reve21 nue Code of 1986 (defining material participation) is

22 amended by adding at the end the following new para23 graph:

24 ‘‘(6) TREATMENT OF TIMBER ACTIVITIES.—
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1 ‘‘(A) IN GENERAL.—A taxpayer shall be

2 treated as materially participating in any tim3 ber activity for a taxable year if—

4 ‘‘(i) the taxpayer’s participation in the

5 activity for such year constitutes substan6 tially all of the participation in the activity

7 of all individuals for such year, other than

8 individuals—

9 ‘‘(I) who are not owners of inter10 ests in the activity,

11 ‘‘(II) who are retained and com12 pensated directly by the taxpayer, and

13 ‘‘(III) whose activities are subject

14 to the oversight, supervision, and con15 trol of the taxpayer, or

16 ‘‘(ii) based on all of the facts and cir17 cumstances, the taxpayer participates in

18 the activity on a regular, continuous, and

19 substantial basis during such year, except

20 that for purposes of this clause—

21 ‘‘(I) the taxpayer shall not be re22 quired to participate in the activity

23 for any minimum period of time dur24 ing such year, and
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1 ‘‘(II) the performance of services

2 by individuals who are not owners of

3 interests in the activity shall not be

4 considered if the services are routinely

5 provided by individuals specializing in

6 such services and such services are

7 subject to the oversight, supervision,

8 and control of the taxpayer.

9 ‘‘(B) PARTNERS AND S CORPORATION

10 SHAREHOLDERS.—Subject to paragraph (2),

11 the determination of whether a partner or S

12 corporation shareholder shall be treated as ma13 terially participating in any timber activity of

14 the partnership or S corporation shall be based

15 upon the combined participation of all of the

16 partners or shareholders in the activity.

17 ‘‘(C) TIMBER ACTIVITY.—For purposes of

18 this paragraph, the term ‘timber activity’ means

19 the planting, cultivating, caring, cutting, or

20 preparation (other than milling) for market, of

21 trees.’’.

22 (b) EFFECTIVE DATE.—The amendment made by

23 this section shall apply to taxable years beginning after

24 the date of the enactment of this Act.

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