IRC Section 631(b)-Reform & Reforestation Expensing Passes Congress !!!

October 11, 2004

The Senate has passed a far-reaching $136 billion corporate tax package that, among other things, helps forest landowners by reforming timber-taxes while closing tax loopholes and bringing U.S. exporters in line with international trade rules. With the 69-17 vote, the legislation that was two years in the making and required a rare weekend session in the Senate to complete, goes to President Bush for his signature.

The Forest Landowners Tax Council has been the lead organization on the IRC Section 631(b) fix for years, having focused on the issue since our establishment in 1996. This tax reform will allow non-industrial private forest landowners capital gains treatment on income from lump-sum stumpage sales. FLTC is pleased to have recruited the interest of Senator Jeff Sessions, of Alabama, and Congressman Mac Collins, of Georgia, early on as the sponsors of 631(b)-correcting language, to have worked with the Joint Committee on Taxation to correctly calculate the measure’s cost to the U.S. Treasury as “negligible,” to have successfully promoted the language added to the JCT’s Tax Simplification List (the only timber/forestry item listed), to have successfully encouraged the Land Trust Alliance — a high-profile environmental group — to write the Senate Finance Committee and the House Ways & Means Committee to request passage, to have successfully worked to have the House of Representatives pass the modification in every Congress since and including the 105th , and to have enlisted the support of numerous allied organizations in the effort.

Other timber-tax provisions added to the JOBS bill (aka: H.R. 4520, FSC/ETI bill) will allow non-industrial private forest landowners capital gains treatment on income from lump-sum stumpage sales (modifying IRC Sec. 631(b)), allow expensing of up to $10,000 for reforestation costs in the year of occurrence with an accelerated amortization rate of 84 months for the remaining costs, allow voluntary election of IRC Section 631(a) by timber industry to help with how they calculate their capital gains on timber, and benefits Real Estate Investment Trusts.

This vote was made possible by a Sunday night agreement to satisfy the concerns of several Democrats threatening to immobilize the Senate with a weeklong filibuster. Sens. Mary Landrieu (D-LA) and Edward Kennedy (D-MA) sought to protect measures left out of the bill, while Sen. Tom Harkin (D-IA) objected to a cut in spending for a farm conservation program linked to drought assistance. In the settlement, the three senators were promised mostly symbolic votes in which the Senate will reaffirm positions it has taken in the past, but which have been opposed by House Republican leaders. Senate Finance Committee Chairman Charles Grassley (R-IA) blamed politics for the difficulties in getting the bill through Congress.

The corporate tax bill grew out of the need for Congress to respond to a World Trade Organization ruling that a $5 billion annual subsidy for U.S. exporters was illegal. As a result, 1,600 American exports to Europe are being hit by penalty tariffs that now stand at 12 percent and are rising by one percentage point a month. The bill became the vehicle for the most significant overhaul of corporate tax law in nearly two decades.

Administration Officials Visit with 2004 Fly-in Participants, then Treasury Clarifies Treatment of Timber Fertilization Costs

June 2, 2004

WASHINGTON, DC — On the morning of June 2, after being welcomed by Vice President Richard Cheney, 2004 FLTC and allied fly-in participants met with other Administration officials. At that time, Greg Jenner, Deputy Assistant Secretary – Department of the Treasury, told the group that an especially interesting announcement would be made by his office; an announcement that would be most welcomed by our delegation; an announcement that he said must remain secret until just a little later. Then, just after noon, the Treasury Department and the Internal Revenue Service issued a guidance to clarify that costs incurred by timber growers for post-establishment fertilization of an established timber stand are deductible expenses. It was not a coincidence that this appropriate and welcome development was officially declared during the assembly of allied forestry organizations in the capital city for the 2004 fly-in.

“Whenever possible we should provide guidance on significant issues rather than developing rules through litigation,” said Jenner. “Taxpayers have been seeking clarification of this issue for a considerable length of time. The lack of guidance has meant that the issue is often settled on audit by negotiation between the taxpayer and the IRS, which is not an appropriate outcome. After reviewing the applicable statutory provisions and court decisions on similar costs, we concluded that we should issue guidance consistent with those authorities to clarify the treatment of these fertilization costs.”

Post-establishment fertilization and other post-establishment practices including fire, disease, insect, and brush control, promote healthy forest development, maximize timber volume, and are performed for the management, maintenance, and protection of the timber stand. There are no significant differences between the costs for post-establishment fertilization and the costs for other post-establishment practices that have previously been held to be deductible expenses. The guidance issued therefore concludes that costs for post-establishment fertilization are deductible expenses.

Small Landowners and the Environment Could Benefit from Collins Tax Simplification Measure

April 6, 2001

WASHINGTON, DC — Rep. Mac Collins (R-GA) wants to prune the tax code to simplify procedures for small landowners and remove incentives for wasteful logging methods and theft.

Collins has introduced H.R. 1341, a bill that, if enacted, would correct the Internal Revenue Service (IRS) capital gains tax treatment of income from timber harvested on a small landowners’ property; it modifies IRC 631(b). Under current tax law, the IRS puts occasional sellers of timber under the category of “dealers” when it assesses the capital gains on timber being sold. As a result of this classification, small landowners selling timber are forced to choose “pay-as-cut” contracts in order to be allowed capital gains treatment on the income from the sale. But, the preferable “lump-sum” sale allows sellers less risk of waste and theft from unscrupulous buyers. Pay-as-cut contacts allow capital gains treatment, lump-sum sales do not. As a result, the lump-sum seller bears all the risk with a lesser financial advantage, while the buyers have less incentive to properly account for their purchases or to reduce waste. Collins’ bill would fix that.

Collins said removal of the requirement that non-industrial private forest landowners retain an “economic interest” will reduce the risk to small landowners and greatly simplify the tax process. “This is a simple common sense measure which is also supported by the IRS itself,” Collins said. “I urge my colleagues to support this measure.”

Sen. Jeff Sessions Introduces Timber Tax Simplification Bill

March 19, 2001

WASHINGTON – Legislation that would allow more timber owners to be eligible for lower capital gains tax rates was introduced today by U.S. Sen. Jeff Sessions (R-AL).

Titled the Timber Tax Simplification Act of 2001, Sessions said: “Modern timber harvesting techniques have been good for the environment, but the tax code hasn’t kept up with the changes. This modest change in the law will allow timber owners to get more timber to the mill without paying unnecessarily high tax rates on their harvest.”

Section 631(b) of the Internal Revenue Service Code requires timber owners to select either the “lump sum” or the “pay-as-you-cut” method of harvesting. Currently, most owners select the “pay-as-you-cut” method in order that their sales will be taxed at the lower capital gains rates. When owners use the more desirable “lump sum” cutting method, they pass the risk of damaged or diseased timber to the buyer, as well as the risk of fire and insects. This method also allows the seller to receive payment up front, but they are taxed at the higher income tax rates.

It is clear that most professional timber experts favor the “lump sum” sale because it produces the highest bid for the timber and shifts the risk of loss to the buyer.

According to an analysis of the Congressional Joint Committee on Taxation, this modification would result in a negligible change in revenue. The Forest Landowners Tax Council supports the legislation.

[For more information on the Forest Landowners Tax Council contact Frank Stewart at: Tel: 703-549-0347, Fax:703-549-1579, E-Mail:]

Forest Landowners Tax Council Establishes Washington DC Office

July 1, 2000

WASHINGTON, DC – The Forest Landowners Tax Council (FLTC), a non-profit organization established for the benefit of individual forest landowners across the country, announced today the beginning of its presence in Washington, DC. Frank Stewart has been named Executive Director of FLTC.

Charles Tarver, Chairman of FLTC’s board of directors, said, “Stewart has hands-on experience with non-industrial private forest (NIPF) owners’ concerns and issues, as well as with government affairs, communications, and association management.” Tarver continued, “Stewart’s background since childhood is in forestry and forestry-related activities, he’s well known within the forestry community, and there are synergies and efficiencies created by Stewart’s roles with other organizations inside the beltway.” Stewart commented, “I think that FLTC’s location in DC is an appropriate setting for the organization’s national scope and mission to represent the interests of the nation’s ten million private forest landowners.” Tarver said, “Although there are regional differences in the country among land ownership patterns, forest cover types, timber markets, environmental and other issues, forest landowners throughout the nation face the same problems when it comes to the federal tax code.” Stewart continued, “I’m looking forward to working with the Tax Council and to talking with landowners about joining the effort to bring about long-overdue changes to the Internal Revenue Code as it affects non-industrial private forest landowners.”

Stewart will be charged with monitoring the federal government’s activities affecting timber and timberland taxation, building coalitions, developing national membership, building and activating a grassroots advocacy network, and handling the daily management of the Council. FLTC’s mission is to provide an effective and unified voice for non-industrial, private forest landowners on federal tax issues. The Council also provides technical research on proposed changes in timber tax legislation. Membership is open to all individuals, associations, and organizations interested in supporting the purpose of the FLTC.

[For more information on the Forest Landowners Tax Council contact Frank Stewart at: Tel: 703-549-0347, Fax:703-549-1579, E-Mail:]