II

103D CONGRESS

2D SESSION S. 2477

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

SEPTEMBER 29 (legislative day, SEPTEMBER 12), 1994

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 1994’’.

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 LAND SUBJECT TO

6 QUALIFIED CONSERVATION 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 LAND SUBJECT TO A CONSERVA12 TION EASEMENT.—

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

14 application of this subsection, there shall be excluded

15 from the gross estate the value of any real prop16 erty—

17 ‘‘(A) which is used in timber operations (as

18 defined in section 2032A(e)(13)(C)), and

19 ‘‘(B) which is subject to a qualified con20 servation easement (reduced by the amount of

21 any indebtedness to which such land is subject).

22 ‘‘(2) REAL PROPERTY SUBJECT TO QUALIFIED

23 CONSERVATION EASEMENT.—For purposes of this

24 subsection:
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1 ‘‘(A) IN GENERAL.—Real property shall be

2 treated as subject to a qualified conservation

3 easement if the decedent or a member of the

4 decedent’s family has made a qualified con5 servation contribution (as defined in section

6 170(h)(1)) of a qualified real property interest

7 described in section 170(h)(2)(C) in such real

8 property.

9 ‘‘(B) CERTAIN CONTRIBUTIONS NOT IN10 CLUDED.—For purposes of subparagraph (A),

11 section 170(h)(4)(A) shall be applied without

12 regard to clause (iv) thereof in determining

13 whether there is a qualified conservation con14 tribution.

15 ‘‘(C) FAMILY MEMBER.—For purposes of

16 subparagraph (A), the term ‘member of the de17 cedent’s family’ has the same meaning given

18 such term by section 2032A(e)(2).

19 ‘‘(3) ELECTION.—An election under paragraph

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

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

22 irrevocable.’’

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

24 basis of property acquired from a decedent) is amended

25 by striking the period at the end of paragraph (3) and
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1 inserting ‘‘, or’’, and by inserting at the end the following

2 new paragraph:

3 ‘‘(4) in the case of property excluded from the

4 gross estate of the decedent under section 2031(c),

5 the basis of the property in the hands of the dece6 dent.’’

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

8 this section shall apply to estates of decedents dying after

9 December 31, 1994, which include land subject to quali10 fied conservation easements granted after December 31,

11 1994.

12 SEC. 102. INCREASE IN RECAPTURE PERIOD FOR SPECIAL

13 ESTATE TAX VALUATION OF FOREST LANDS.

14 (a) IN GENERAL.—Section 2032A(c)(7) is amended

15 by adding at the end the following new subparagraph:

16 ‘‘(E) LONGER PERIOD FOR WOODLANDS.—

17 In the case of any real property which is used

18 in timber operations (as defined in subsection

19 (e)(13)(C)), paragraph (1) shall be applied by

20 substituting ‘25 years’ for ‘10 years’.’’

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

22 this section shall apply to estates of decedents dying after

23 December 31, 1994.
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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) CONFORMING AMENDMENT.—The table of sec7 tions for part I of subchapter P of chapter 1 is amended

8 by 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, 1994.

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 2032A(e)(13)(C).

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) CONFORMING AMENDMENT.—The table of sec5 tions for part III of subchapter B of chapter 1 is amended

6 by striking the item relating to section 137 and by insert7 ing the following new items after the item relating to sec8 tion 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, 1994.

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, 1994.

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