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date which is 36 months after the date of the enact-
ment of this Act, if—
(A) the average maturity date of the issue
of which the refunding bond is a part is not later
than the average maturity date of the bonds to
be refunded by such issue,
(B) the amount of the refunding bond does
not exceed the outstanding amount of the re-
funded bond, and
(C) the net proceeds of the refunding bond
are used to redeem the refunded bond not later
than 90 days after the date of the issuance of the
refunding bond.
For purposes of subparagraph (A), average maturity
shall be determined in accordance with section
147(b)(2)(A) of such Code.
(7) EFFECTIVE
DATE.—This subsection shall
apply to obligations issued on or after the date which
is 180 days after the date of the enactment of this Act.
(b) ITEMS FROM QUALIFIED HARVESTING ACTIVITIES
NOT SUBJECT TO TAX OR TAKEN INTO ACCOUNT.—
(1) IN
GENERAL.—Income, gains, deductions,
losses, or credits from a qualified harvesting activity
conducted by a qualified organization shall not be
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subject to tax or taken into account under subtitle A
of the Internal Revenue Code of 1986.
(2) LIMITATION.—The amount of income ex-
cluded from gross income under paragraph (1) for
any taxable year shall not exceed the amount used by
the qualified organization to make debt service pay-
ments during such taxable year for qualified forest
conservation bonds.
(3) QUALIFIED
HARVESTING
ACTIVITY.—For
purposes of paragraph (1)—
(A) IN GENERAL.—The term ‘‘qualified har-
vesting activity’’ means the sale, lease, or har-
vesting, of standing timber—
(i) on land owned by a qualified orga-
nization which was acquired with proceeds
of qualified forest conservation bonds, and
(ii) pursuant to a qualified conserva-
tion plan adopted by the qualified organiza-
tion.
(B) EXCEPTIONS.—
(i) CESSATION AS QUALIFIED ORGANI-
ZATION.—The term ‘‘qualified harvesting
activity’’ shall not include any sale, lease,
or harvesting for any period during which
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the organization ceases to qualify as a
qualified organization.
(ii) EXCEEDING
LIMITS
ON
HAR-
VESTING.—The term ‘‘qualified harvesting
activity’’ shall not include any sale, lease,
or harvesting of standing timber on land
acquired with proceeds of qualified forest
conservation bonds to the extent that—
(I) the average annual area of
timber harvested from such land ex-
ceeds 2.5 percent of the total area of
such land, or
(II) the quantity of timber re-
moved from such land exceeds the
quantity which can be removed from
such land annually in perpetuity on a
sustained-yield basis with respect to
such land.
The limitations under subclauses (I) and
(II) shall not apply to post-fire restoration
and rehabilitation or sanitation harvesting
of timber stands which are substantially
damaged by fire, windthrow, or other catas-
trophes, or which are in imminent danger
from insect or disease attack.
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(4) TERMINATION.—This subsection shall not
apply to any qualified harvesting activity of a quali-
fied organization occurring after the date on which—
(A) there is no outstanding qualified forest
conservation bond with respect to such qualified
organization, or
(B) any such bond ceases to be a tax-exempt
bond.
(5) PARTIAL RECAPTURE OF BENEFITS IF HAR-
VESTING LIMIT EXCEEDED.—If, as of the date that
this subsection ceases to apply under paragraph
(4)(B), the average annual area of timber harvested
from the land exceeds the requirement of subclause (I)
or (II) of paragraph (3)(B)(ii), the tax imposed by
chapter 1 of the Internal Revenue Code of 1986 shall
be increased, under rules prescribed by the Secretary
of the Treasury, by the sum of the tax benefits attrib-
utable to such excess and interest at the under-
payment rate under section 6621 of such Code for the
period of the underpayment.
(c) DEFINITIONS.—For purposes of this section—
(1) QUALIFIED CONSERVATION PLAN.—The term
‘‘qualified conservation plan’’ means a multiple land
use program or plan which—
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(A) is designed and administered primarily
for the purposes of protecting and enhancing
wildlife and fish, timber, scenic attributes, recre-
ation, and soil and water quality of the forest
and forest land,
(B) mandates that conservation of forest
and forest land is the single-most significant use
of the forest and forest land, and
(C) requires that timber harvesting be con-
sistent with—
(i) restoring and maintaining reference
conditions for the region’s ecotype,
(ii) restoring and maintaining a rep-
resentative sample of young, mid, and late
successional forest age classes,
(iii) maintaining or restoring the re-
sources’ ecological health for purposes of
preventing damage from fire, insect, or dis-
ease,
(iv) maintaining or enhancing wildlife
or fish habitat, or
(v) enhancing research opportunities
in sustainable renewable resource uses.
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(2) CONSERVATION RESTRICTION.—The conserva-
tion restriction described in this paragraph is a re-
striction which—
(A) is granted in perpetuity to an unrelated
person which is described in section 170(h)(3) of
such Code and which, in the case of a nongovern-
mental unit, is organized and operated for con-
servation purposes,
(B) meets the requirements of clause (ii) or
(iii)(II) of section 170(h)(4)(A) of such Code,
(C) obligates the qualified organization to
pay the costs incurred by the holder of the con-
servation restriction in monitoring compliance
with such restriction, and
(D) requires an increasing level of conserva-
tion benefits to be provided whenever cir-
cumstances allow it.
(3) 
QUALIFIED
ORGANIZATION.—The 
term
‘‘qualified 
organization’’ 
means 
a 
nonprofit
organization—
(A) substantially all the activities of which
are charitable, scientific, or educational, includ-
ing acquiring, protecting, restoring, managing,
and developing forest lands and other renewable
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resources for the long-term charitable, edu-
cational, scientific, and public benefit,
(B) which periodically conducts educational
programs designed to inform the public of envi-
ronmentally sensitive forestry management and
conservation techniques,
(C) which has at all times a board of
directors—
(i) at least 20 percent of the members
of which are representatives of the conserva-
tion community,
(ii) at least 20 percent of the members
of which are public officials, and
(iii) not more than one-third of the
members of which are individuals who are
or were at any time within 5 years before
the beginning of a term of membership on
the board, an employee of, independent con-
tractor with respect to, officer of, director of,
or held a material financial interest in, a
commercial forest products enterprise with
which the qualified organization has a con-
tractual or other financial arrangement,
(D) the bylaws of which require at least
two-thirds of the members of the board of direc-
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tors to vote affirmatively to approve the qualified
conservation plan and any change thereto, and
(E) upon dissolution, is required to dedicate
its assets to—
(i) an organization described in section
501(c)(3) of such Code which is organized
and operated for conservation purposes, or
(ii) a governmental unit described in
section 170(c)(1) of such Code.
(4) UNRELATED PERSON.—The term ‘‘unrelated
person’’ means a person who is not a related person.
(5) RELATED PERSON.—A person shall be treat-
ed as related to another person if—
(A) such person bears a relationship to such
other person described in section 267(b) (deter-
mined without regard to paragraph (9) thereof),
or 707(b)(1), of such Code, determined by sub-
stituting ‘‘25 percent’’ for ‘‘50 percent’’ each
place it appears therein, and
(B) in the case such other person is a non-
profit organization, if such person controls di-
rectly or indirectly more than 25 percent of the
governing body of such organization.
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SEC. 12212. DEDUCTION FOR QUALIFIED TIMBER GAIN.
(a) IN GENERAL.—Part I of subchapter P of chapter
1 is amended by adding at the end the following new sec-
tion:
‘‘SEC. 1203. DEDUCTION FOR QUALIFIED TIMBER GAIN.
‘‘(a) IN GENERAL.—In the case of a taxpayer which
elects the application of this section for a taxable year, there
shall be allowed a deduction against gross income in an
amount equal to 60 percent of the lesser of—
‘‘(1) the taxpayer’s qualified timber gain for
such year, or
‘‘(2) the taxpayer’s net capital gain for such
year.
‘‘(b) QUALIFIED TIMBER GAIN.—For purposes of this
section, the term ‘qualified timber gain’ means, with respect
to any taxpayer for any taxable year, the excess (if any)
of—
‘‘(1) the sum of the taxpayer’s gains described in
subsections (a) and (b) of section 631 for such year,
over
‘‘(2) the sum of the taxpayer’s losses described in
such subsections for such year.
‘‘(c) SPECIAL RULES FOR PASS-THRU ENTITIES.—
‘‘(1) In the case of any qualified timber gain of
a pass-thru entity (as defined in section 1(h)(10))
other than a real estate investment trust, the election
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under this section shall be made separately by each
taxpayer subject to tax on such gain.
‘‘(2) In the case of any qualified timber gain of
a real estate investment trust, the election under this
section shall be made by the real estate investment
trust.
‘‘(d) ELECTION.—An election under this section may
be made only with respect to the first taxable year begin-
ning after the date of the enactment of this section.’’.
(b) COORDINATION WITH MAXIMUM CAPITAL GAINS
RATES.—
(1) TAXPAYERS OTHER THAN CORPORATIONS.—
Paragraph (2) of section 1(h) is amended to read as
follows:
‘‘(2) REDUCTION OF NET CAPITAL GAIN.—For
purposes of this subsection, the net capital gain for
any taxable year shall be reduced (but not below zero)
by the sum of—
‘‘(A) the amount which the taxpayer takes
into account as investment income under section
163(d)(4)(B)(iii), and
‘‘(B) in the case of a taxable year with re-
spect to which an election is in effect under sec-
tion 1203, the lesser of—
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‘‘(i) the amount described in para-
graph (1) of section 1203(a), or
‘‘(ii) the amount described in para-
graph (2) of such section.’’.
(2) CORPORATIONS.—Section 1201 is amended
by redesignating subsection (b) as subsection (c) and
inserting after subsection (a) the following new sub-
section:
‘‘(b) QUALIFIED TIMBER GAIN NOT TAKEN INTO AC-
COUNT.—For purposes of this section, in the case of a cor-
poration with respect to which an election is in effect under
section 1203, the net capital gain for any taxable year shall
be reduced (but not below zero) by the corporation’s quali-
fied timber gain (as defined in section 1203(b)).’’.
(c) DEDUCTION ALLOWED WHETHER OR NOT INDI-
VIDUAL ITEMIZES OTHER DEDUCTIONS.—Subsection (a) of
section 62 is amended by inserting before the last sentence
the following new paragraph:
‘‘(22) QUALIFIED TIMBER GAINS.—The deduction
allowed by section 1203.’’.
(d) DEDUCTION ALLOWED IN COMPUTING ADJUSTED
CURRENT
EARNINGS.—Subparagraph 
(C) 
of 
section
56(g)(4) is amended by adding at the end the following new
clause:
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‘‘(vii) DEDUCTION
FOR
QUALIFIED
TIMBER GAIN.—Clause (i) shall not apply
to any deduction allowed under section
1203.’’.
(e) DEDUCTION ALLOWED IN COMPUTING TAXABLE IN-
COME OF ELECTING SMALL BUSINESS TRUSTS.—Subpara-
graph (C) of section 641(c)(2) is amended by inserting after
clause (iii) the following new clause:
‘‘(iv) The deduction allowed under sec-
tion 1203.’’.
(f) TREATMENT OF QUALIFIED TIMBER GAIN OF REAL
ESTATE INVESTMENT TRUSTS.—Paragraph (3) of section
857(b) is amended by inserting after subparagraph (F) the
following new subparagraph:
‘‘(G) TREATMENT
OF
QUALIFIED
TIMBER
GAIN.—For purposes of this part, in the case of
a real estate investment trust with respect to
which an election is in effect under section
1203—
‘‘(i) REDUCTION
OF
NET
CAPITAL
GAIN.—The net capital gain of the real es-
tate investment trust for any taxable year
shall be reduced (but not below zero) by the
real estate investment trust’s qualified tim-
ber gain (as defined in section 1203(b)).