I 
108TH CONGRESS 
1ST SESSION H. R. 2036
To amend the Internal Revenue Code of 1986 to provide economic incentives 
for the preservation of open space and conservation of natural resources, 
and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
MAY 8, 2003
Mr. ISAKSON 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 
economic incentives for the preservation of open space 
and conservation of natural resources, and for other pur-
poses.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Paul Coverdell Homestead Open Space Preservation and 
Conservation Act of 2003’’. 
(b) AMENDMENT OF 1986 CODE.—Except as other-
wise expressly provided, whenever in this Act an amend-
ment or repeal is expressed in terms of an amendment 
to, or repeal of, a section or other provision, the reference 
shall be considered to be made to a section or other provi-
sion of the Internal Revenue Code of 1986. 
SEC. 2. FINDINGS AND PURPOSE. 
(a) FINDINGS.—Congress finds the following: 
(1) Tax and economic policies have for a sus-
tained period of time inadvertently created financial 
difficulties for our Nation’s farming and ranching 
families that, among other negative impacts, has 
forced a significant number of them to liquidate 
their land holdings. 
(2) This has particularly been the case in areas 
surrounding growing urban centers and resort des-
tinations. 
(3) This has fragmented many of our Nation’s 
large landscapes and disrupted many communities 
that historically derived their cultural and economic 
identities from the land. 
(4) The impact of this has been to deprive 
many areas of open green space, which in turn has 
not only negatively affected our human settlements 
through the resulting sprawl, but has also dramati-
cally reduced the amount of sustaining habitat for 
our natural communities of plants and animals.
(b) PURPOSE.—The purpose of this Act is to provide 
an economic mechanism that will restore and conserve our 
Nation’s natural estate in the form of forests, farms, 
ranches, and wetlands while protecting our waterways and 
our forests and open space in a manner that keeps them 
subject to private ownership and supportive of our sur-
viving but threatened natural communities of plants and 
animals. 
SEC. 3. QUALIFIED CONSERVATION CREDIT. 
(a) IN GENERAL.—Subpart B of part IV of sub-
chapter A of chapter 1 (relating to other credits) is 
amended by adding at the end the following new section: 
‘‘SEC. 30B. QUALIFIED CONSERVATION CREDIT. 
‘‘(a) GENERAL RULE.—There shall be allowed as a 
credit against the tax imposed by this chapter, in the case 
of a qualified conservation organization, the amount of the 
taxpayer’s qualified conservation expenditures for the tax-
able year. 
‘‘(b) QUALIFIED CONSERVATION EXPENDITURES.—
For purposes of this section—
‘‘(1) IN
GENERAL.—The term ‘qualified con-
servation expenditures’ means the sum of the quali-
fied conservation organization’s—
‘‘(A) acquisition costs, plus 
‘‘(B) reserve funds.
‘‘(2) ACQUISITION COSTS.—The term ‘acquisi-
tion costs’ means the sum of—
‘‘(A) the lesser of—
‘‘(i) the total of the amounts that a 
qualified conservation organization paid 
during the taxable year to acquire qualified 
real property interests exclusively for con-
servation purposes, or 
‘‘(ii) the aggregate appraised value of 
the qualified real property interests re-
ferred to in clause (i), plus 
‘‘(B) so much of the transaction costs rea-
sonably incurred during the taxable year in con-
nection with the acquisition of qualified real 
property interests as do not exceed 2 percent of 
the amount determined in subparagraph (A). 
‘‘(3) RESERVE FUNDS.—
‘‘(A) IN
GENERAL.—The term ‘reserve 
funds’ means amounts permanently set aside by 
a qualified conservation organization as an en-
dowment to fund the future costs of enforcing 
and maintaining qualified real property inter-
ests acquired by the qualified conservation orga-
nization exclusively for conservation purposes.
‘‘(B) ENDOWMENT.—The term ‘endow-
ment’ means a restricted fund held in a seg-
regated account, the income and realized appre-
ciation of which may be expended solely for the 
purposes designated under this section, and 
which may be invested solely in qualified invest-
ments (as defined in section 501(c)(21)(D)(ii)). 
‘‘(C) LIMITATION.—The amount of reserve 
funds which may be taken into account under 
paragraph (1)(B) for the taxable year shall not 
exceed 8 percent of the acquisition costs for 
that taxable year. 
‘‘(c) QUALIFIED CONSERVATION ORGANIZATION.—
For purposes of this section, the term ‘qualified conserva-
tion organization’ means, with respect to any taxable 
year—
‘‘(1) an organization which—
‘‘(A) is described in section 170(h)(3), 
‘‘(B) has been in existence for at least 2 
calendar years immediately before the taxable 
year, and
‘‘(C) was organized to serve primarily con-
servation purposes (as defined in section 
170(h)(4)),
‘‘(2) a limited partnership, all the general part-
ners of which are organizations described in para-
graph (1), or 
‘‘(3) a limited liability company, all the man-
agers of which are organizations described in para-
graph (1), 
with respect to which neither the seller of the qualified 
real property interest nor any party related or subordinate 
to the seller (within the meaning of section 672(c)) would 
be a disqualified person (as defined in section 4946) if 
the organization were a private foundation. 
‘‘(d) QUALIFIED REAL PROPERTY INTEREST.—For 
purposes of this section, the term ‘qualified real property 
interest’ has the meaning given such term by section 
170(h)(2)(C). 
‘‘(e) 
EXCLUSIVELY
FOR
CONSERVATION
PUR-
POSES.—For purposes of this section, the term ‘exclusively 
for conservation purposes’ has the meaning given such 
term by section 170(h)(5), except that an acquisition shall 
not be treated as exclusively for conservation purposes un-
less the instrument conveying the qualified real property 
interest expressly provides that the conservation purposes 
may be enforced by both the attorney general of the State 
in which the real property is located and the qualified con-
servation organization.
‘‘(f) APPRAISED VALUE.—For purposes of this sec-
tion, the term ‘appraised value’ means the fair market 
value as determined by a qualified appraisal (as defined 
in section 155(a)(4) of the Deficit Reduction Act of 1984). 
‘‘(g) LIMITATION BASED ON AMOUNT OF TAX.—The 
credit allowed under subsection (a) shall not exceed the 
taxpayer’s liability for income tax (including unrelated 
business income tax) for the taxable year. 
‘‘(h) LIMITATION ON AGGREGATE CREDIT ALLOW-
ABLE WITH RESPECT TO ACQUISITIONS OF QUALIFIED 
REAL PROPERTY INTERESTS LOCATED IN A STATE.—
‘‘(1) CREDIT
MAY
NOT
EXCEED
CREDIT 
AMOUNT ALLOCATED TO ACQUISITION OF QUALIFIED 
REAL PROPERTY INTEREST.—
‘‘(A) IN
GENERAL.—The amount of the 
credit determined under subsection (a) for any 
taxable year with respect to the acquisition of 
any qualified real property interest shall not ex-
ceed the conservation credit dollar amount allo-
cated to such acquisition under this subsection. 
‘‘(B) TIME FOR MAKING ALLOCATION.—An 
allocation shall be taken into account under 
subparagraph (A) only if it is made not later 
than the close of the calendar year in which the 
qualified real property interest is acquired.
‘‘(C) ALLOCATION
REDUCES
AGGREGATE 
AMOUNT
AVAILABLE
TO
AGENCY.—Any con-
servation credit dollar amount allocated to the 
acquisition of any qualified real property inter-
est for any calendar year shall reduce the ag-
gregate conservation credit dollar amount of the 
allocating conservation credit agency for such 
calendar year. 
‘‘(2) CONSERVATION CREDIT DOLLAR AMOUNT 
FOR AGENCIES.—
‘‘(A) IN
GENERAL.—The aggregate con-
servation credit dollar amount which a con-
servation credit agency may allocate for any 
calendar year is the portion of the State con-
servation credit ceiling allocated under this 
paragraph for such calendar year to such agen-
cy. 
‘‘(B) STATE
CEILING
INITIALLY
ALLO-
CATED TO STATE CONSERVATION CREDIT AGEN-
CIES.—Except as provided in subparagraphs 
(F) and (G), the State conservation credit ceil-
ing for each calendar year shall be allocated to 
the conservation credit agency of such State. If 
there is more than 1 conservation credit agency
of a State, all such agencies shall be treated as 
a single agency. 
‘‘(C) STATE CONSERVATION CREDIT CEIL-
ING.—The State conservation credit ceiling ap-
plicable to any State for any calendar year shall 
be an amount equal to the sum of—
‘‘(i) the lesser of—
‘‘(I) an amount equal to the ag-
gregate annual credit multiplied by a 
fraction, the numerator of which is 
the amount of land located in such 
State that is either used for agricul-
tural purposes or constitutes private 
forest land and the denominator of 
which is the amount of land in all 
States that is either used for agricul-
tural purposes or constitutes private 
forest land, or 
‘‘(II) an amount equal to 4 per-
cent of the aggregate annual credit 
for that year, 
‘‘(ii) the amount (if any) allocated 
under subparagraph (D) to such State by 
the Secretary,
‘‘(iii) the unused State conservation 
credit ceiling (if any) of such State for the 
preceding calendar year, 
‘‘(iv) the amount of the State con-
servation credit ceiling returned in the cal-
endar year, plus 
‘‘(v) the amount (if any) allocated 
under subparagraph (e) to such state by 
the Secretary. 
‘‘For purposes of clause (i), the aggregate an-
nual credit is determined in accordance with the 
following table:
‘‘For the calendar 
The aggregate 
year ending: 
annual credit is: 
December 31, 2004 .......................
$4,000,000,000
December 31, 2005 .......................
$4,500,000,000
December 31, 2006 .......................
$5,000,000,000
December 31, 2007 .......................
$5,500,000,000
December 31, 2008 .......................
$6,000,000,000.
‘‘For purposes of clause (iii), the unused State 
conservation credit ceiling for any calendar year 
is the excess (if any) of the sum of the amounts 
described in clauses (i), (ii), and (iv) over the 
aggregate conservation credit dollar amount al-
located for such year. For purposes of clause 
(iv), the amount of State conservation credit
ceiling returned in the calendar year equals the 
conservation credit dollar amount previously al-
located within the State to any proposed acqui-
sition of a qualified real property interest which 
is not acquired within the period required by 
the terms of the allocation or to any proposed 
acquisition of a qualified real property interest 
with respect to which an allocation is canceled 
by mutual consent of the conservation credit 
agency and the qualified conservation organiza-
tion receiving the allocation. 
‘‘(D) UNUSED AGGREGATE ANNUAL CRED-
IT.—Any portion of the aggregate annual credit 
for a calendar year that is not allocated to a 
State’s conservation credit ceiling because of 
the 4 percent limitation under subparagraph 
(C)(i)(II) shall be allocated by the Secretary 
among the remaining States, subject to such 4 
percent limitation, in proportion to their respec-
tive land used for agricultural purposes and pri-
vate forest land. 
‘‘(E) 
UNUSED
CONSERVATION
CREDIT 
CARRYOVERS
ALLOCATED
AMONG
CERTAIN 
STATES.—
‘‘(i) IN GENERAL.—The unused con-
servation credit carryover of a State for 
any calendar year shall be assigned to the
Secretary for allocation among qualified 
States for the succeeding calendar year. 
‘‘(ii) UNUSED CONSERVATION CREDIT 
CARRYOVER.—For purposes of this para-
graph, the unused conservation credit car-
ryover of a State for any calendar year is 
the excess (if any) of the unused State 
conservation credit ceiling for such year 
(as defined in subparagraph (C)(iii)) over 
the excess (if any) of—
‘‘(I) the aggregate conservation 
credit dollar amount allocated for 
such year, over 
‘‘(II) the sum of the amounts de-
scribed in clauses (i), (ii), and (iv) of 
subparagraph (C). 
‘‘(iii) FORMULA FOR ALLOCATION OF 
UNUSED
CONSERVATION
CREDIT 
CARRYOVERS
AMONG
QUALIFIED 
STATES.—The amount allocated under this 
subparagraph to a qualified State for any 
calendar year shall be the amount deter-
mined by the Secretary to bear the same 
ratio to the aggregate unused conservation 
credit carryovers of all States for the pre-
ceding calendar year as such State’s land 
used for agricultural purposes and private 
forest land for the calendar year bears to 
the land used for agricultural purposes of 
all qualified States for the calendar year. 
‘‘(iv) QUALIFIED
STATE.—For pur-
poses of this subparagraph, the term 
‘qualified State’ means, with respect to a 
calendar year, any State—
‘‘(I) which has adopted a state-
wide conservation plan designed to 
preserve the natural estate in the 
form of forests, farms, ranches, and 
wetlands located within the bound-
aries of that State, 
‘‘(II) which allocated its entire 
State conservation credit ceiling for 
the preceding calendar year, and 
‘‘(III) for which a request is 
made (not later than May 1 of the 
calendar year) to receive an allocation 
under clause (iii).
‘‘(F) SPECIAL
RULE
FOR
STATES
WITH 
CONSTITUTIONAL
HOME
RULE
CITIES.—For 
purposes of this subsection—
‘‘(i) IN
GENERAL.—The aggregate 
conservation credit dollar amount for any 
constitutional home rule city for any cal-
endar year shall be an amount which bears 
the same ratio to the State conservation 
credit ceiling for such calendar year as—
‘‘(I) the land used for agricul-
tural purposes and private forest land 
within a 25-mile radius of such city, 
bears to 
‘‘(II) the land used for agricul-
tural purposes and private forest land 
in the entire State. 
‘‘(ii) COORDINATION WITH OTHER AL-
LOCATIONS.—In the case of any state 
which contains 1 or more constitutional 
home rule cities, for purposes of applying 
this paragraph with respect to conservation 
credit agencies in such State other than 
constitutional home rule cities, the State 
conservation credit ceiling for any calendar 
year shall be reduced by the aggregate con-
servation credit dollar amounts determined 
for such year for all constitutional home 
rule cities in such State.
‘‘(iii) CONSTITUTIONAL
HOME
RULE 
CITY.—For purposes of this subparagraph, 
the term ‘constitutional home rule city’ has 
the meaning given such term by section 
146(d)(3)(C). 
‘‘(G) STATE
MAY
PROVIDE
FOR
DIF-
FERENT
ALLOCATION.—Rules similar to the 
rules of section 146(e) (other than paragraph 
(2)(B) thereof) shall apply for purposes of this 
paragraph. 
‘‘(H) LAND
USED
FOR
AGRICULTURAL 
PURPOSES AND PRIVATE FOREST LAND.—For 
purposes of this paragraph—
‘‘(i) LAND USED FOR AGRICULTURAL 
PURPOSES.—The term ‘land used for agri-
cultural purposes’ means the number of 
acres classified as land in farms in the 
1997 Census of Agriculture conducted by 
the United States Department of Agri-
culture. 
‘‘(ii) PRIVATE
FOREST
LAND.—The 
term ‘private forest land’ means the num-
ber of acres classified as private forest 
land in the 1997 Forest Inventory and 
Analysis conducted by the United States
Forest Service, excluding any acres so clas-
sified therein that are also included as land 
in farms in the 1997 Census of Agriculture 
described in clause (i). 
‘‘(I) SECRETARY.—For purposes of this 
paragraph, the term ‘Secretary’ means the Sec-
retary of Agriculture and the Secretary of the 
Interior, acting pursuant to jointly established 
rules and procedures. 
‘‘(3) SPECIAL RULES.—
‘‘(A) INTERESTS MUST BE LOCATED WITH-
IN JURISDICTION OF CREDIT AGENCY.—A con-
servation credit agency may allocate its aggre-
gate conservation credit dollar amount only 
with respect to acquisitions of qualified real 
property interests located in the jurisdiction of 
the governmental unit of which such agency is 
a part. 
‘‘(B) AGENCY ALLOCATIONS IN EXCESS OF 
LIMIT.—If the aggregate conservation credit 
dollar amounts allocated by a conservation cred-
it agency for any calendar year exceed the por-
tion of the State conservation credit ceiling allo-
cated to such agency for such calendar year, the 
conservation credit dollar amounts so allocated
shall be reduced (to the extent of such excess) 
for acquisitions of qualified real property inter-
ests in the reverse order in which the alloca-
tions of such amounts were made. 
‘‘(4) CONSERVATION
CREDIT
AGENCY.—For 
purposes of this subsection, the term ‘conservation 
credit agency’ means any agency authorized to carry 
out this subsection.
‘‘(i) REGULATIONS.—Except as provided in sub-
section (h)(2)(I), the Secretary shall prescribe such regu-
lations as may be necessary to carry out the purposes of 
this section. 
‘‘(j) TERMINATION.—Subparagraph (A) of subsection 
(h)(1) shall not apply to any amount allocated after De-
cember 31, 2008.’’. 
(b) RECOGNITION OF GAIN.—Section 1001 (relating 
to determination of amount of and recognition of gain or 
loss) is amended by adding at the end the following new 
subsection: 
‘‘(f) QUALIFIED REAL PROPERTY INTERESTS.—Gain 
shall be recognized on the sale of a qualified real property 
interest (as defined in section 30B(d)) to a qualified con-
servation organization (as defined in section 30B(c)) ex-
clusively for conservation purposes (as defined in section 
30B(e)) only to the extent that the amount realized on
the sale exceeds the taxpayer’s adjusted basis in the entire 
property to which the qualified real property interest re-
lates.’’. 
(c) BASIS ADJUSTMENT.—Section 1016 (relating to 
adjustments to basis) is amended by redesignating sub-
section (e) as subsection (f) and by inserting after sub-
section (d) the following new subsection: 
‘‘(e) ADJUSTMENTS TO BASIS OF CERTAIN REAL 
PROPERTY.—If the taxpayer has sold a qualified real 
property interest in a transaction to which section 1001(f) 
applies, then the taxpayer’s basis in the remaining prop-
erty shall be reduced (but not below zero) by the amount 
realized on the sale.’’. 
(d) CONFORMING AMENDMENTS.—
(1) PASSIVE LOSS RULES INAPPLICABLE.—Sec-
tion 469(d)(2)(A)(i) is amended to read as follows: 
‘‘(i) subpart D (other than section 
30B) of part IV of subchapter A, or’’. 
(2) UNRELATED BUSINESS INCOME TAX.—Sec-
tion 511(a)(1) is amended by striking ‘‘section 11.’’ 
and inserting ‘‘section 11, less any credits to which 
the organization is entitled under section 30B.’’. 
(3) DENIAL
OF
CHARITABLE
CONTRIBUTION 
DEDUCTION.—Section 170(e) is amended by adding 
at the end the following new paragraph:
‘‘(7) SPECIAL RULE FOR CONTRIBUTIONS OF 
INTERESTS IN QUALIFIED CONSERVATION ORGANIZA-
TIONS.—No deduction shall be allowed for the con-
tribution of an interest in a qualified conservation 
organization (as defined in section 30B(c)) that has 
acquired 1 or more qualified real property interests 
in transactions to which section 30B applies.’’. 
(4) CLASSIFICATION
AS
PARTNERSHIP.—Sec-
tion 761(a) is amended by adding at the end the fol-
lowing new sentence: ‘‘Such term also includes an 
organization described in either section 30B(c)(2) or 
section 30B(c)(3).’’. 
(5) CLERICAL AMENDMENT.—The table of sec-
tions for subpart B of part IV of subchapter A of 
chapter 1 is amended by adding at the end the fol-
lowing new item:
‘‘Sec. 30B. Qualified conservation credit.’’.
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2003.
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