II

104TH CONGRESS

1ST SESSION S. 508

To amend the Internal Revenue Code of 1986 to modify certain provisions

relating to the treatment of forestry activities.

IN THE SENATE OF THE UNITED STATES

MARCH 7 (legislative day, MARCH 6), 1995

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

COCHRAN, and Mr. CAMPBELL) 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 modify

certain provisions relating to the treatment of forestry

activities.

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 ‘‘Reforestation Tax Act

5 of 1995’’.

6 SEC. 2. PARTIAL INFLATION ADJUSTMENT FOR TIMBER.

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

8 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. 1203. PARTIAL INFLATION ADJUSTMENT FOR TIM4 BER.

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, the term ‘qualified timber gain’ means the

11 lesser of—

12 ‘‘(1) the net capital gain for the taxable year,

13 or

14 ‘‘(2) the net capital gain for the taxable year

15 determined by taking into account only gains and

16 losses from timber.

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

18 section, the term ‘qualified percentage’ means the percent19 age (not exceeding 50 percent) determined by multiply20 ing—

21 ‘‘(1) 3 percent, by

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

23 of the taxpayer with respect to the timber.

24 ‘‘(d) ESTATES AND TRUSTS.—In the case of an es25 tate or trust, the deduction under subsection (a) shall be
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1 computed by excluding the portion (if any) of the gains

2 for the taxable year from sales or exchanges of capital as3 sets which, under sections 652 and 662 (relating to inclu4 sions of amounts in gross income of beneficiaries of

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

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

7 (b) COORDINATION WITH EXISTING LIMITATIONS.—

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

9 (relating to maximum capital gains rate) is amended

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

11 appears the following: ‘‘(other than qualified timber

12 gain with respect to which an election is made under

13 section 1203)’’.

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

15 (relating to alternative tax for corporations) is

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

17 place it appears the following: ‘‘(other than qualified

18 timber gain with respect to which an election is

19 made under section 1203)’’.

20 (c) ALLOWANCE OF DEDUCTION IN COMPUTING AD21 JUSTED GROSS INCOME.—Subsection (a) of section 62 of

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

23 is amended by adding after paragraph (15) the following

24 new paragraph:
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1 ‘‘(16) PARTIAL INFLATION ADJUSTMENT FOR

2 TIMBER.—The deduction allowed by section 1203.’’

3 (d) CONFORMING AMENDMENT.—The table of sec4 tions for part I of subchapter P of chapter 1 of such Code

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

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

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

7 this section shall apply to sales or exchanges after Decem8 ber 31, 1994.

9 SEC. 3. APPLICATION OF PASSIVE LOSS LIMITATIONS TO

10 TIMBER ACTIVITIES.

11 (a) IN GENERAL.—Treasury regulations sections

12 1.469–5T(b)(2) (ii) and (iii) shall not apply to any closely

13 held timber activity if the nature of such activity is such

14 that the aggregate hours devoted to management of the

15 activity for any year is generally less than 100 hours.

16 (b) DEFINITIONS.—For purposes of subsection (a)—

17 (1) CLOSELY HELD ACTIVITY.—An activity

18 shall be treated as closely held if at least 80 percent

19 of the ownership interests in the activity is held—

20 (A) by 5 or fewer individuals, or

21 (B) by individuals who are members of the

22 same family (within the meaning of section

23 2032A(e)(2) of the Internal Revenue Code of

24 1986).
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1 An interest in a limited partnership shall in no event

2 be treated as a closely held activity for purposes of

3 this section.

4 (2) TIMBER ACTIVITY.—The term ‘‘timber ac5 tivity’’ means the planting, cultivating, caring, cut6 ting, or preparation (other than milling) for market,

7 of trees.

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to taxable years beginning after

10 December 31, 1994.

11 SEC. 4. AMORTIZATION OF REFORESTATION EXPENDI12 TURES AND REFORESTATION TAX CREDIT.

13 (a) INCREASE IN MAXIMUM AMORTIZABLE

14 AMOUNT.—Paragraph (1) of section 194(b) of the Inter15 nal Revenue Code of 1986 (relating to maximum dollar

16 amount) is amended—

17 (1) by striking ‘‘The aggregate’’ and inserting

18 ‘‘(A) IN GENERAL.—The aggregate’’,

19 (2) by striking ‘‘$10,000 ($5,000’’ and insert20 ing ‘‘$20,000 ($10,000’’, and

21 (3) by adding at the end the following new sub22 paragraph:

23 ‘‘(B) INFLATION ADJUSTMENT.—

24 ‘‘(i) IN GENERAL.—In the case of any

25 taxable year beginning in a calendar year
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1 after 1995, each dollar amount contained

2 in subparagraph (A) shall be increased by

3 an amount equal to—

4 ‘‘(I) such dollar amount, multi5 plied by

6 ‘‘(II) the cost-of-living adjust7 ment under section 1(f)(3) for the cal8 endar year in which the taxable year

9 begins, determined by substituting

10 ‘calendar year 1994’ for ‘calendar

11 year 1992’ in subparagraph (B) of

12 such section.

13 ‘‘(ii) ROUNDING.—If any increase de14 termined under clause (i) is not a multiple

15 of $50, such amount shall be rounded to

16 the next lowest multiple of $50.’’

17 (b) DECREASE IN AMORTIZATION PERIOD.—

18 (1) IN GENERAL.—Section 194(a) of such Code

19 is amended by striking ‘‘84 months’’ and inserting

20 ‘‘60 months’’.

21 (2) CONFORMING AMENDMENT.—Section

22 194(a) of such Code is amended by striking ‘‘84-

23 month period’’ and inserting ‘‘60-month period’’.
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1 (c) AVAILABILITY OF DEDUCTION AND CREDIT TO

2 TRUSTS.—Subsection (b) of section 194 of such Code is

3 amended—

4 (1) by striking paragraph (3) and redesignating

5 paragraph (4) as paragraph (3), and

6 (2) in paragraph (3) (as so redesignated)—

7 (A) by inserting ‘‘AND TRUSTS’’ after ‘‘ES8 TATES’’ in the heading, and

9 (B) by inserting ‘‘and trusts’’ after ‘‘es10 tates’’ in the text.

11 (d) EFFECTIVE DATE.—

12 (1) AMORTIZATION PROVISIONS.—Except as

13 provided in paragraph (2), the amendments made by

14 this section shall apply to additions to capital ac15 count made after December 31, 1994.

16 (2) TAX CREDIT PROVISIONS.—In the case of

17 the reforestation credit under section 48(b) of the

18 Internal Revenue Code of 1986, the amendments

19 made by this section shall apply to property acquired

20 after December 31, 1994.

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