I

103D CONGRESS

1ST SESSION H. R. 1997

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

domestic timber production and manufacturing, and to deny the benefits

of certain export subsidies in the case of exports of unprocessed timber.

IN THE HOUSE OF REPRESENTATIVES

MAY 5, 1993

Mr. DEFAZIO 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, and to deny the benefits of certain export subsidies in the case of exports of unprocessed timber.

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 ‘‘American Timber Sup5 ply and Manufacturing Incentives Act’’.
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1 SEC. 2. INVESTMENT INCENTIVE FOR DOMESTIC TIMBER

2 PRODUCTION.

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

4 1 of the Internal Revenue Code of 1986 (relating to treat5 ment of capital gains) is amended by adding at the end

6 the following new section:

7 ‘‘SEC. 1202. INVESTMENT INCENTIVE FOR DOMESTIC TIM8 BER PRODUCTION.

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—

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

16 gain’ means the lesser of—

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

18 year, or

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

20 year determined by taking into account only

21 gains and losses from qualified timber.

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

23 timber’ means any timber with respect to which the

24 taxpayer has provided assurances (which are satis25 factory to the Secretary) that substantially all of the
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1 processing of the timber will occur within the United

2 States.

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

4 section, the term ‘qualified percentage’ means the percent5 age (not exceeding 30 percent) determined by multiply6 ing—

7 ‘‘(1) 2 percent, by

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

9 of the taxpayer with respect to the timber.

10 ‘‘(d) ESTATES AND TRUSTS.—In the case of an es11 tate or trust, the deduction under subsection (a) shall be

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

13 for the taxable year from sales or exchanges of capital as14 sets which, under sections 652 and 662 (relating to inclu15 sions of amounts in gross income of beneficiaries of

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

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

18 (b) COORDINATION WITH EXISTING LIMITATIONS.—

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

20 (relating to maximum capital gains rate) is amended

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

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

23 gain with respect to which an election is made under

24 section 1202)’’.
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1 (2) Subsection (a) of section 1201 of such Code

2 (relating to alternative tax for corporations) is

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

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

5 timber gain with respect to which an election is

6 made under section 1202)’’.

7 (c) ALLOWANCE OF DEDUCTION IN COMPUTING AD8 JUSTED GROSS INCOME.—Subsection (a) of section 62 of

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

10 is amended by adding at the end the following new para11 graph:

12 ‘‘(14) INVESTMENT INCENTIVE FOR DOMESTIC

13 TIMBER PRODUCTION.—The deduction allowed by

14 section 1202.’’

15 (d) CONFORMING AMENDMENT.—The table of sec16 tions for part I of subchapter P of chapter 1 of such Code

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

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

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

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

20 of the enactment of this Act.

21 SEC. 3. APPLICATION OF PASSIVE LOSS LIMITATIONS TO

22 TIMBER ACTIVITIES.

23 (a) DETERMINATION OF MATERIAL PARTICIPA24 TION.—Subsection (h) of section 469 of the Internal Reve25 nue Code of 1986 (defining material participation) is
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1 amended by adding at the end the following new para2 graph:

3 ‘‘(6) TREATMENT OF TIMBER ACTIVITIES.—

4 ‘‘(A) IN GENERAL.—A taxpayer shall be

5 treated as materially participating in any tim6 ber activity for a taxable year if—

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

8 activity for such year constitutes substan9 tially all of the participation in the activity

10 of all individuals for such year, other than

11 individuals—

12 ‘‘(I) who are not owners of inter13 ests in the activity,

14 ‘‘(II) who are retained and com15 pensated directly by the taxpayer, and

16 ‘‘(III) whose activities are subject

17 to the oversight supervision, and con18 trol of the taxpayer, or

19 ‘‘(ii) based on all of the facts and cir20 cumstances, the taxpayer participates in

21 the activity on a regular, continuous, and

22 substantial basis during such year, except

23 that for purposes of this clause—

24 ‘‘(I) the taxpayers shall not be

25 required to participate in the activity
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1 for any minimum period of time dur2 ing such year, and

3 ‘‘(II) the performance of services

4 by individuals who are not owners of

5 interests in the activity shall not be

6 considered if the services are routinely

7 provided by individuals specializing in

8 such services and such services are

9 subject to the oversight, supervision,

10 and control of the taxpayer.

11 ‘‘(B) PARTNERS AND S CORPORATION

12 SHAREHOLDERS.—Subject to paragraph (2),

13 the determination of whether a partner or S

14 corporation shareholder shall be treated as ma15 terially participating in any timber activity of

16 the partnership or S corporation shall be based

17 upon the combined participation of all of the

18 partners or shareholders in the activity.

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

20 this paragraph, the term ‘timber activity’ means

21 the planting, cultivating, caring, cutting, or

22 preparation (other than milling) for market, of

23 trees.’’
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1 ‘‘(b) EFFECTIVE DATE.—The amendment made by

2 this section shall apply to taxable years beginning after

3 the date of the enactment of this Act.

4 SEC. 4. DENIAL OF CERTAIN EXPORT SUBSIDIES.

5 (a) FOREIGN SALES CORPORATION.—Paragraph (2)

6 of section 927(a) of the Internal Revenue Code of 1986

7 (relating to exclusion of certain property) is amended by

8 striking ‘‘or’’ at the end of subparagraph (C), by striking

9 the period at the end of subparagraph (D) and inserting

10 ‘‘, or’’, and by adding at the end thereof the following:

11 ‘‘(E) any unprocessed timber.

12 For purposes of subparagraph (E), the term ‘un13 processed timber’ has the same meaning as that

14 given to it in the Customs and Trade Act of 1990

15 (104 Stat. 629).’’

16 (b) DOMESTIC INTERNATIONAL SALE CORPORA17 TIONS.—Paragraph (2) of section 993(c) of such Code (re18 lating to exclusion of certain property) is amended by

19 striking ‘‘or’’ at the end of subparagraph (C), by striking

20 the period at the end of subparagraph (D) and inserting,

21 ‘‘, or’’, and by adding after subparagraph (D) the follow22 ing:

23 ‘‘(E) any unprocessed timber.

24 For purposes of subparagraph (E), the term ‘un25 processed timber’ has the same meaning as that
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1 given to it in the Customs and Trade Act of 1990

2 (104 Stat. 629).’’

3 (c) TITLE-PASSAGE RULE.—Subsection (b) of section

4 865 of such Code (relating to source rules for personal

5 property sales) is amended by adding at the end thereof

6 the following: ‘‘Notwithstanding the preceding sentence,

7 any income from the sale of any unprocessed timber which

8 is a softwood and was cut from an area in the United

9 States shall be sourced in the United States and the rules

10 of sections 862(a)(6) and 863(b) shall not apply to any

11 such income. For purposes of the preceding sentence, the

12 term ‘‘unprocessed timber’’ has the same meaning as that

13 given to it in the Customs and Trade Act of 1990 (104

14 Stat. 629).’’

15 (d) ELIMINATION OF DEFERRAL.—Subsection (d) of

16 section 954 of such Code is amended by adding at the

17 end thereof the following new paragraph:

18 ‘‘(4) SPECIAL RULE FOR CERTAIN TIMBER

19 PRODUCTS.—For purposes of subsection (a)(2), the

20 term ‘foreign base company sales income’ includes

21 any income (whether in the form of profits, commis22 sions, fees, or otherwise) derived in connection

23 with—

24 ‘‘(A) the sale of any unprocessed timber

25 referred to in section 865(b), or
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1 ‘‘(B) the milling of any such timber out2 side the United States.

3 Subpart G shall not apply to any amount treated as

4 subpart F income by reason of this paragraph.’’

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

6 this section shall apply to sales, exchanges, or other dis7 positions after the date of the enactment of this Act.

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