II

104TH CONGRESS

1ST SESSION S. 692

To amend the Internal Revenue Code of 1986 to preserve family-held forest

lands, and for other purposes.

IN THE SENATE OF THE UNITED STATES

APRIL 6 (legislative day, APRIL 5), 1995

Mr. GREGG 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 preserve

family-held forest lands, and for other purposes.

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; AMENDMENT OF 1986 CODE.

4 (a) SHORT TITLE.—This Act may be cited as the

5 ‘‘Family Forestland Preservation Tax Act of 1995’’.

6 (b) AMENDMENT OF 1986 CODE.—Except as other7 wise expressly provided, whenever in this Act an amend8 ment or repeal is expressed in terms of an amendment

9 to, or repeal of, a section or other provision, the reference
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1 shall be considered to be made to a section or other provi2 sion of the Internal Revenue Code of 1986.

3 TITLE I—ESTATE TAX

4 PROVISIONS

5 SEC. 101. ESTATE TAX TREATMENT OF QUALIFIED CON6 SERVATION EASEMENT.

7 (a) IN GENERAL.—Section 2031 (relating to the defi8 nition of gross estate) is amended by redesignating sub9 section (c) as subsection (d) and by inserting after sub10 section (b) the following new subsection:

11 ‘‘(c) EXCLUSION OF CONSERVATION EASEMENT.—

12 ‘‘(1) IN GENERAL.—If an executor elects the

13 application of this subsection, with respect to any

14 real property included in the gross estate, there shall

15 be excluded from the gross estate, the value of a

16 qualified conservation contribution (as defined in

17 section 170(h)(1)) of a qualified real property inter18 est described in section 170(h)(2)(C) in such real

19 property made by the decedent or a member of the

20 decedent’s family.

21 ‘‘(2) CERTAIN CONTRIBUTIONS NOT IN22 CLUDED.—For purposes of paragraph (1), section

23 170(h)(4)(A) shall be applied without regard to

24 clause (iv) thereof in determining whether there is a

25 qualified conservation contribution.
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1 ‘‘(3) FAMILY MEMBER.—For purposes of para2 graph (1), the term ‘member of the decedent’s fam3 ily’ has the same meaning given such term by sec4 tion 2032A(e)(2).

5 ‘‘(4) ELECTION.—An election under paragraph

6 (1) shall be made on the return of tax imposed by

7 section 2001. Such an election, once made, shall be

8 irrevocable.’’

9 (b) CARRYOVER BASIS.—Section 1014(a) (relating to

10 basis of property acquired from a decedent) is amended

11 by striking the period at the end of paragraph (3) and

12 inserting ‘‘, or’’, and by inserting at the end the following

13 new paragraph:

14 ‘‘(4) in the case of property subject to a quali15 fied conservation easement excluded from the gross

16 estate of the decedent under section 2031(c), the

17 basis of the property in the hands of the decedent.’’

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

19 this section shall apply to estates of decedents dying after

20 December 31, 1995, which include land subject to quali21 fied conservation easements granted after December 31,

22 1995.
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1 SEC. 102. SPECIAL ESTATE TAX VALUATION OF FOREST

2 LANDS.

3 (a) IN GENERAL.—Part III of subchapter A of chap4 ter 11 (relating to gross estate) is amended by inserting

5 after section 2032A the following new section:

6 ‘‘SEC. 2032B. VALUATION OF CERTAIN FORESTLAND.

7 ‘‘(a) VALUE BASED ON USE OF PROPERTY AS

8 FORESTLAND.—If—

9 ‘‘(1) the decedent was (at the time of his death)

10 a citizen or resident of the United States, and

11 ‘‘(2) the executor elects the application of this

12 section and files the agreement referred to in sub13 section (d)(2),

14 then, for purposes of this chapter, the value of qualified

15 forestland shall be its value for use as a timber operation,

16 under subsection (b), as qualified forestland.

17 ‘‘(b) QUALIFIED FORESTLAND.—

18 ‘‘(1) IN GENERAL.—For purposes of this sec19 tion, the term ‘qualified forestland’ means real prop20 erty located in the United States which was acquired

21 from or passed from the decedent to a qualified devi22 see or qualified heir and which, on the date of the

23 decedent’s death, was being used for a qualified for24 est use by the decedent or a member of the dece25 dent’s family, but only if—
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1 ‘‘(A) 25 percent or more of the adjusted

2 value of the gross estate consists of the ad3 justed value of real property which meets the

4 requirements of this paragraph,

5 ‘‘(B) during the 8-year period ending on

6 the date of the decedent’s death there have

7 been periods aggregating 5 years or more dur8 ing which the real property was used for a

9 qualified forest use, and

10 ‘‘(C) such real property is designated in

11 the agreement referred to in subsection (d)(2).

12 ‘‘(2) QUALIFIED FOREST USE.—For purposes

13 of this section, the term ‘qualified forest use’ means

14 the devotion of the property to use in timber oper15 ations.

16 ‘‘(c) TAX TREATMENT OF DISPOSITIONS AND FAIL17 URES TO USE AS QUALIFIED FOREST USE.—

18 ‘‘(1) IMPOSITION OF ADDITIONAL ESTATE TAX

19 (RECAPTURE).—

20 ‘‘(A) IN GENERAL.—If, within 25 years

21 after the decedent’s death and before the death

22 of the qualified devisee or qualified heir—

23 ‘‘(i) the qualified devisee or qualified

24 heir disposes of any interest in qualified

25 forestland,
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1 ‘‘(ii) the qualified devisee or qualified

2 heir ceases to use for the qualified forest

3 use the qualified forestland which was ac4 quired (or passed) from the decedent for

5 an aggregated period of 3 years out of any

6 8-year period, or

7 ‘‘(iii) any depreciable improvements

8 are made to the property, other than those

9 relating to a qualified forest use,

10 then there is hereby imposed an additional es11 tate tax.

12 ‘‘(B) EXCEPTIONS.—Subparagraph (A)

13 shall not apply to—

14 ‘‘(i) a testamentary disposition that it15 self qualifies for special valuation under

16 this section,

17 ‘‘(ii) a disposition by a qualified heir

18 to any other person who agrees to continue

19 devoting the heir’s interest to a qualified

20 forest use and signs the agreement in sub21 section (d)(2) (such person shall thereafter

22 be treated as a qualified devisee with re23 spect to such interest),

24 ‘‘(iii) a disposition by a qualified devi25 see to a qualified heir of such devisee who
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1 agrees to continue devoting the devisee’s

2 interest to a qualified forest use and signs

3 the agreement in subsection (d)(2) (such

4 heir shall thereafter be treated as a quali5 fied devisee with respect to such interest),

6 ‘‘(iv) a disposition of timber used in a

7 timber operation; and

8 ‘‘(v) a disposition (other than by sale)

9 of a qualified conservation contribution (as

10 defined in section 170(h)).

11 ‘‘(2) AMOUNT OF ADDITIONAL TAX.—The

12 amount of the additional tax imposed by paragraph

13 (1)(A) with respect to any interest shall be the

14 amount equal to the lesser of—

15 ‘‘(A) the adjusted tax difference with re16 spect to the estate (within the meaning of sec17 tion 2032A(c)(2)(C), or

18 ‘‘(B) the amount realized from the disposi19 tion of the interest.

20 ‘‘(3) ONLY ONE ADDITIONAL TAX IMPOSED

21 WITH RESPECT TO ANY ONE PORTION.—In the case

22 of an interest acquired from (or passing from) any

23 decedent, if a particular clause of paragraph (1)(A)

24 applies to any portion of an interest, no other clause
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1 of such paragraph shall apply with respect to the

2 same portion of such interest.

3 ‘‘(d) ELECTION; AGREEMENT.—

4 ‘‘(1) ELECTION.—The election under this sec5 tion shall be made on the return of the tax imposed

6 by section 2001. Such election shall be made in such

7 manner as the Secretary shall by regulations pre8 scribe. Such an election, once made, shall be irrev9 ocable.

10 ‘‘(2) AGREEMENT.—The agreement referred to

11 in this paragraph is a written agreement signed by

12 each person in being who has an interest (whether

13 or not in possession) in any property designated in

14 such agreement consenting to the application of sub15 section (c) with respect to such property.

16 ‘‘(e) DEFINITIONS; SPECIAL RULES.—For purposes

17 of this section—

18 ‘‘(1) QUALIFIED DEVISEE.—The term ‘qualified

19 devisee’ means, with respect to any property, a per20 son who acquired such property (or to whom such

21 property passed) from the decedent and who is not

22 a qualified heir of the decedent.

23 ‘‘(2) PERSON.—The term ‘person’ means an in24 dividual, partnership, corporation, or governmental

25 entity.
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1 ‘‘(3) CERTAIN REAL PROPERTY INC LUDED.—In

2 the case of real property which meets the require3 ments of subparagraph (B) of subsection (b)(1), any

4 depreciable improvements, including roads, which

5 are related to the qualified forest use shall be treat6 ed as real property devoted to that use.

7 ‘‘(4) QUALIFIED FORESTLAND.—The term

8 ‘qualified forestland’ means any real property

9 which—

10 ‘‘(A) qualifies for a differential use value

11 assessment program for forestland in the State

12 in which the property is located; or

13 ‘‘(B) if a State has no differential use

14 value assessment program—

15 ‘‘(i) is forestland,

16 ‘‘(ii) is a minimum of 10 acres, exclu17 sive of a dwelling unit or other non-forest

18 related structure and its curtilage; and

19 ‘‘(iii) is subject to a forest manage20 ment plan.

21 ‘‘(5) TIMBER OPERATIONS.—The term ‘timber

22 operations’ means the planting, cultivating, caring

23 for, or harvesting of trees in the process of using

24 and conserving renewable forest resources.
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1 ‘‘(6) METHOD OF VALUING FORESTLAND.—The

2 value of forestland shall be determined according to

3 whichever of the following methods results in the

4 least value:

5 ‘‘(A) Assessed land values in a State which

6 provides a differential or use value assessment

7 for forestland.

8 ‘‘(B) Comparable sales of other forestland

9 in the same geographical area far enough re10 moved from a metropolitan or resort area so

11 that nonforest use is not a significant factor in

12 the sales price.

13 ‘‘(C) The capitalization of income which

14 the property can be expected to yield for timber

15 operations over a reasonable period of time

16 under prudent management; using traditional

17 forest management for the area, and taking

18 into account soil capacity, terrain configuration,

19 and similar factors.

20 ‘‘(D) Any other factor which fairly values

21 the timber value of the property.

22 ‘‘(7) APPLICABLE DEFINITIONS AND RULES OF

23 SECTION 2032A.—

24 ‘‘(A) DEFINITIONS.—Except as otherwise

25 provided in this section, any term used in this
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1 section which is also used in section 2032A

2 shall have the meaning given such term by sec3 tion 2032A.

4 ‘‘(B) RULES.—The rules in the following

5 provisions of section 2032A shall apply to this

6 section, by substituting ‘qualified forestland’ for

7 ‘qualified real property’ and ‘qualified forest

8 use’ for ‘qualified use’, and shall apply to quali9 fied devisees as well as qualified heirs:

10 ‘‘(i) Paragraphs (2)(D) (by substitut11 ing ‘paragraph (2)(B)’ for ‘subparagraph

12 (A)(ii)’ in clause (i) thereof), (4), (5), and

13 (7)(A) (by substituting ‘25 years’ for ‘10

14 years’) of subsection (c).

15 ‘‘(ii) Subsection (d)(3).

16 ‘‘(iii) Paragraphs (9), (10), (11), and

17 (14) (by substituting ‘active management’

18 for ‘material participation’) of subsection

19 (e).

20 ‘‘(iv) Subsections (f) and (g).

21 ‘‘(f) SPECIAL RULES FOR INVOLUNTARY CONVER22 SIONS OF QUALIFIED FORESTLAND.—

23 ‘‘(1) TREATMENT OF CONVERTED PROPERTY.—
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1 ‘‘(A) IN GENERAL.—If there is an involun2 tary conversion of an interest in qualified

3 forestland—

4 ‘‘(i) no tax shall be imposed by sub5 section (c) on such conversion if the cost of

6 the qualified replacement property equals

7 or exceeds the amount realized on such

8 conversion; or

9 ‘‘(ii) if clause (i) does not apply, the

10 amount of the tax imposed by subsection

11 (c) on such conversion shall be the amount

12 determined under subparagraph (B).

13 ‘‘(B) AMOUNT OF TAX WHERE THERE IS

14 NOT COMPLETE REINVESTMENT.—The amount

15 determined under this subparagraph with re16 spect to any involuntary conversion is the

17 amount of tax which (but for this subsection)

18 would have been imposed on such conversion re19 duced by an amount which—

20 ‘‘(i) bears the same ratio to such tax,

21 as

22 ‘‘(ii) the cost of the qualified replace23 ment property bears to the amount real24 ized on the conversion.
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1 ‘‘(2) TREATMENT OF REPLACEMENT PROP2 ERTY.—For purposes of subsection (c)—

3 ‘‘(A) any qualified replacement property

4 shall be treated in the same manner as if it

5 were a portion of the interest in qualified

6 forestland which was involuntarily converted;

7 except that with respect to such qualified re8 placement property the 25-year period under

9 paragraph (1) of subsection (c) shall be ex10 tended by any period, beyond the 2-year period

11 referred to in section 1033(a)(2)(B)(i), during

12 which the qualified devisee or qualified heir was

13 allowed to replace the qualified forestland;

14 ‘‘(B) any tax imposed by subsection (c) on

15 the involuntary conversion shall be treated as a

16 tax imposed on a partial disposition, and

17 ‘‘(C) subparagraph (A)(ii) of subsection

18 (c)(1) shall be applied by not taking into ac19 count periods after the involuntary conversion

20 and before the acquisition of the qualified re21 placement property.

22 ‘‘(3) DEFINITIONS AND SPECIAL RULES.—For

23 purposes of this subsection—

24 ‘‘(A) INVOLUNTARY CONVERSION.—The

25 term ‘involuntary conversion’ means a compul-
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1 sory or involuntary conversion within the mean2 ing of section 1033.

3 ‘‘(B) QUALIFIED REPLACEMENT PROP4 ERTY.—The term ‘qualified replacement prop5 erty’ means—

6 ‘‘(i) in the case of an involuntary con7 version described in section 1033(a)(1),

8 any real property into which the qualified

9 forestland is converted, or

10 ‘‘(ii) in the case of an involuntary con11 version described in section 1033(a)(2),

12 any real property purchased by the quali13 fied devisee or qualified heir during the pe14 riod specified in section 1033(a)(2)(B) for

15 purposes of replacing the qualified

16 forestland.

17 Such term only includes property which is to be

18 used for the qualified forest use set forth in

19 subsection (b)(2) under which the qualified

20 forestland qualified under subsection (a).

21 ‘‘(4) CERTAIN RULES MADE APPLICABLE.—The

22 rules of the last sentence of section 1033(a)(2)(A)

23 shall apply for purposes of paragraph (3)(B)(ii).

24 ‘‘(g) EXCHANGES OF QUALIFIED FORESTLAND.—
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1 ‘‘(1) TREATMENT OF PROPERTY EX2 CHANGED.—

3 ‘‘(A) EXCHANGES SOLELY FOR QUALIFIED

4 EXCHANGE PROPERTY.—If an interest in quali5 fied forestland is exchanged solely for an inter6 est in qualified exchange property in a trans7 action which qualifies under section 1031, no

8 tax shall be imposed by subsection (c) by reason

9 of such exchange.

10 ‘‘(B) EXCHANGES WHERE OTHER PROP11 ERTY RECEIVED.—If an interest in qualified

12 forestland is exchanged for an interest in quali13 fied exchange property and other property in a

14 transaction which qualifies under section 1031,

15 the amount of the tax imposed by subsection (c)

16 by reason of such exchange shall be the

17 amount of tax which (but for this subpara18 graph) would have been imposed on such

19 exchange under subsection (c)(1), reduced by

20 an amount which—

21 ‘‘(i) bears the same ratio to such tax,

22 as

23 ‘‘(ii) the value of the qualified ex24 change property bears to the value of the

25 qualified forestland exchanged.
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1 For purposes of clause (ii) of the preceding sen2 tence, value shall be determined according to

3 subsection (e)(6).

4 ‘‘(2) TREATMENT OF QUALIFIED EXCHANGE

5 PROPERTY.—For purposes of subsection (c)—

6 ‘‘(A) any interest in qualified exchange

7 property shall be treated in the same manner as

8 if it were a portion of the interest in qualified

9 forestland which was exchanged; and

10 ‘‘(B) any tax imposed by subsection (c) by

11 reason of the exchange shall be treated as a tax

12 imposed on a partial disposition.

13 ‘‘(3) QUALIFIED EXCHANGE PROPERTY.—For

14 purposes of this subsection, the term ‘qualified ex15 change property’ means real property which is to be

16 used for a qualified forest use set forth in subsection

17 (b)(2) under which the real property exchanged

18 therefor originally qualified under subsection (a).’’

19 (b) CONFORMING AMENDMENTS.—

20 (1) Section 1014(a)(3), as amended by section

21 101(b), is amended by inserting ‘‘or 2032B’’ after

22 ‘‘2032A’’.

23 (2) Section 1016(c) is amended—
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1 (A) by inserting ‘‘or 2032B(c)(1)’’ after

2 ‘‘2032A(c)(1)’’ in paragraphs (1), (3), (4), and

3 (5)(B),

4 (B) by inserting ‘‘or qualified devisee’’

5 after ‘‘qualified heir’’ in paragraph (1),

6 (C) by inserting ‘‘or 2032B(f)(3)(B)’’ after

7 ‘‘2032A(h)(3)(B)’’ in paragraph (4), and

8 (D) by inserting ‘‘or 2032B(g)(3)’’ after

9 ‘‘2032A(i)(3)’’ in paragraph (4).

10 (3) Section 1040 is amended—

11 (A) by inserting ‘‘or qualified devisee

12 (within the meaning of section 2032B(e)(1))’’

13 before ‘‘any property’’ in subsection (a), and

14 (B) by inserting ‘‘or 2032B’’ after

15 ‘‘2032A’’ in subsections (a) and (b).

16 (4) Section 1223(12)(C) is amended by insert17 ing ‘‘or qualified devisee (within the meaning of sec18 tion 2032B(e)(1))’’ before ‘‘with respect’’.

19 (5) Section 2013 is amended—

20 (A) by inserting ‘‘or 2032B’’ after

21 ‘‘2032A’’ each place it appears in subsection (f)

22 and the heading thereof, and

23 (B) by inserting ‘‘or 2032B(c)’’ after

24 ‘‘2032A(c)’’ both places it appears in subsection

25 (f).
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1 (6) Section 2035(d)(3)(B) is amended by in2 serting ‘‘or section 2032B (relating to special valu3 ation of certain forestland)’’ after ‘‘real property)’’.

4 (7) Section 2056A(b)(10)(A) is amended by in5 serting ‘‘2032B,’’ after ‘‘2032A,’’.

6 (8) Section 2624(b) is amended by striking

7 ‘‘sections 2032 and 2032A’’ and inserting ‘‘sections

8 2032, 2032A, and 2032B’’.

9 (9) Section 2663(1) is amended by striking

10 ‘‘section 2032A(c)’’ and inserting ‘‘sections

11 2032A(c) and 2032B(c)’’.

12 (10) Section 6324B is amended—

13 (A) by striking subsection (a) and insert14 ing the following new subsection:

15 ‘‘(a) GENERAL RULES.—

16 ‘‘(1) SECTION 2032A.—In the case of any inter17 est in qualified real property (within the meaning of

18 section 2032A(b)), an amount equal to the adjusted

19 tax difference attributable to such interest (within

20 the meaning of section 2032A(c)(2)(B)) shall be a

21 lien in favor of the United States on property in

22 which such interest exists.

23 ‘‘(2) SECTION 2032B.—In the case of any inter24 est in qualified forestland (within the meaning of

25 section 2032B(b)), an amount equal to the adjusted
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1 tax difference with respect to the estate (within the

2 meaning of section 2032A(c)(2)(C)) shall be a lien

3 in favor of the United States on property in which

4 such interest exists.’’,

5 (B) by inserting ‘‘or 2032B’’ after

6 ‘‘2032A’’ both places it appears in subsection

7 (b),

8 (C) by inserting ‘‘or 2032B(c)’’ after

9 ‘‘2032A(c)’’ in subsection (b)(2), and

10 (D) by adding at the end of subsection (c)

11 the following new paragraph:

12 ‘‘(3) QUALIFIED FORESTLAND.—For purposes

13 of this section, the term ‘qualified forestland’ in14 cludes qualified replacement property (within the

15 meaning of section 2032B(f)(3)(B)) and qualified

16 exchange property (within the meaning of section

17 2032B(g)(3)).’’

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

19 for part III of subchapter A of chapter 11 is amended

20 by adding at the end the following new item:

‘‘Sec. 2032B. Valuation of certain forestland.’’

21 (d) EFFECTIVE DATE.—The amendment made by

22 this section shall apply to estates of decedents dying after

23 December 31, 1995.
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1 TITLE II—INCOME TAX

2 TREATMENT

3 SEC. 201. PARTIAL INFLATION ADJUSTMENT FOR TIMBER.

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

5 1 (relating to treatment of capital gains) is amended by

6 adding at the end the following new section:

7 ‘‘SEC. 1203. PARTIAL INFLATION ADJUSTMENT FOR TIM8 BER.

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

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

11 shall be allowed as a deduction from gross income an

12 amount equal to the qualified percentage of such gain.

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

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

15 lesser of—

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

17 or

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

19 determined by taking into account only gains and

20 losses from timber.

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

22 section, the term ‘qualified percentage’ means the percent23 age (not exceeding 50 percent) determined by multiply24 ing—

25 ‘‘(1) 3 percent, by
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1 ‘‘(2) the number of years in the holding period

2 of the taxpayer with respect to the timber.

3 ‘‘(d) ESTATES AND TRUSTS.—In the case of an es4 tate or trust, the deduction under subsection (a) shall be

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

6 for the taxable year from sales or exchanges of capital as7 sets which, under sections 652 and 662 (relating to inclu8 sions of amounts in gross income of beneficiaries of

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

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

11 (b) COORDINATION WITH EXISTING LIMITATIONS.—

12 (1) Subsection (h) of section 1 (relating to max13 imum capital gains rate) is amended by inserting

14 after ‘‘net capital gain’’ each place it appears the

15 following: ‘‘(other than qualified timber gain with re16 spect to which an election is made under section

17 1203)’’.

18 (2) Subsection (a) of section 1201 (relating to

19 alternative tax for corporations) is amended by in20 serting after ‘‘net capital gain’’ each place it appears

21 the following: ‘‘(other than qualified timber gain

22 with respect to which an election is made under sec23 tion 1203)’’.

24 (c) ALLOWANCE OF DEDUCTION IN COMPUTING AD25 JUSTED GROSS INCOME.—Subsection (a) of section 62
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1 (relating to definition of adjusted gross income) is amend2 ed by adding after paragraph (15) the following new para3 graph:

4 ‘‘(16) PARTIAL INFLATION ADJUSTMENT FOR

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

6 (d) CLERICAL AMENDMENT.—The table of sections

7 for part I of subchapter P of chapter 1 is amended by

8 adding at the end the following new item:

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

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

10 this section shall apply to sales or exchanges after Decem11 ber 31, 1995.

12 SEC. 202. EXCLUSION OF GAIN FROM SALE OF INTERESTS

13 IN FOREST LANDS.

14 (a) IN GENERAL.—Part III of subchapter B of chap15 ter 1 (relating to items specifically excluded from gross

16 income) is amended by redesignating section 137 as sec17 tion 138 and by inserting after section 136 the following

18 new section:

19 ‘‘SEC. 137. SALES OF INTERESTS IN CERTAIN FOREST

20 LANDS.

21 ‘‘(a) EXCLUSION.—

22 ‘‘(1) IN GENERAL.—Gross income shall not in23 clude the applicable percentage of any qualified tim24 ber gain.
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1 ‘‘(2) APPLICABLE PERCENTAGE.—For purposes

2 of paragraph (1), the term ‘applicable percentage’

3 means—

4 ‘‘(A) 35 percent, or

5 ‘‘(B) in the case of qualified timber gain

6 from the sale of a qualified real property inter7 est described in section 170(h)(2)(C), 100 per8 cent.

9 ‘‘(b) LIMITATION.—The total amount of gain which

10 may be excluded from gross income under subsection (a)

11 for any taxable year shall not exceed the sum of—

12 ‘‘(1) the amount of qualified timber gain de13 scribed in subsection (a)(2)(B), plus

14 ‘‘(2) $800,000.

15 ‘‘(c) QUALIFIED TIMBER GAIN.—For purposes of

16 this section—

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

18 gain’ means gain from the sale or exchange of a

19 qualified real property interest in real property

20 which is used in timber operations to a governmental

21 unit described in section 170(c)(1) for conservation

22 purposes.

23 ‘‘(2) QUALIFIED REAL PROPERTY INTEREST.—

24 The term ‘qualified real property interest’ has the

25 meaning given such term by section 170(h)(2).
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1 ‘‘(3) TIMBER OPERATIONS.—The term ‘timber

2 operations’ has the meaning given such term by sec3 tion 2032B(e)(5).

4 ‘‘(4) CONSERVATION PURPOSES.—The term

5 ‘conservation purposes’ has the meaning given such

6 term by section 170(h)(4)(A) (without regard to

7 clause (iv) thereof).

8 ‘‘(d) SPECIAL RULE FOR SALES TO NONGOVERN9 MENTAL ENTITIES.—

10 ‘‘(1) IN GENERAL.—Subsection (a) shall apply

11 to the sale or exchange to a qualified organization

12 described in section 170(h)(3) if such interest is

13 transferred during the 2-year period beginning on

14 the date of the sale or exchange to a governmental

15 unit described in section 170(c)(1).

16 ‘‘(2) TIME FOR EXCLUSION.—If the transfer to

17 which paragraph (1) applies occurs in a taxable year

18 after the taxable year in which the sale or exchange

19 occurred—

20 ‘‘(A) no exclusion shall be allowed under

21 subsection (a) for the taxable year of the sale

22 or exchange, but

23 ‘‘(B) the taxpayer’s tax for the taxable

24 year of the transfer shall be reduced by the

25 amount of the reduction in the taxpayer’s tax
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1 for the taxable year of the sale or exchange

2 which would have occurred if subparagraph (A)

3 had not applied.’’

4 (b) CLERICAL AMENDMENT.—The table of sections

5 for part III of subchapter B of chapter 1 is amended by

6 striking the item relating to section 137 and by inserting

7 the following new items after the item relating to section

8 136:

‘‘Sec. 137. Sales of interests in certain forest lands.

‘‘Sec. 138. Cross references to other Acts.’’

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

10 this section shall apply to taxable years beginning after

11 December 31, 1995.

12 SEC. 203. APPLICATION OF PASSIVE LOSS LIMITATIONS TO

13 TIMBER ACTIVITIES.

14 (a) IN GENERAL.—Treasury regulations sections

15 1.469–5T(b)(2) (ii) and (iii) shall not apply to any closely

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

17 that the aggregate hours devoted to management of the

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

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

20 (1) CLOSELY HELD ACTIVITY.—An activity

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

22 of the ownership interests in the activity is held—

23 (A) by 5 or fewer individuals, or
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1 (B) by individuals who are members of the

2 same family (within the meaning of section

3 2032A(e)(2) of the Internal Revenue Code of

4 1986).

5 An interest in a limited partnership shall in no event

6 be treated as a closely held activity for purposes of

7 this section.

8 (2) TIMBER ACTIVITY.—The term ‘‘timber ac9 tivity’’ means the planting, cultivating, caring, cut10 ting, or preparation (other than milling) for market,

11 of trees.

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

13 this section shall apply to taxable years beginning after

14 December 31, 1995.

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