Timber Revitalization and Economic Enhancement (TREE) Act of 2007 - Amends the Internal Revenue Code to: (1) allow a tax deduction for 60% of qualified timber gains; (2) exempt deductible timber gains from the excise tax on the undistributed income of real estate investment trusts (REITs); (3) provide for the treatment of timber gains as qualifying REIT income and for mineral royalty income as qualifying income for timber REITs; and (4) provide special rules relating to income limitations and prohibited transactions for timber REITs.
[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1937 Introduced in House (IH)]
110th CONGRESS
1st Session
H. R. 1937
To amend the Internal Revenue Code of 1986 to allow a deduction for
qualified timber gains and to modernize certain provisions applicable
to timber real estate investment trusts.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
April 19, 2007
Mr. Davis of Alabama (for himself, Mr. Brady of Texas, Mr. McDermott,
Mr. Gingrey, Mr. Bonner, Mr. Crenshaw, Mr. Boyd of Florida, Mr.
Reichert, Mr. Baird, Mrs. McMorris Rodgers, Mr. Scott of Georgia, Mr.
Hastings of Washington, Mr. Jones of North Carolina, and Mr. Walden of
Oregon) 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 allow a deduction for
qualified timber gains and to modernize certain provisions applicable
to timber real estate investment trusts.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Timber Revitalization and Economic
Enhancement (TREE) Act of 2007''.
TITLE I--QUALIFIED TIMBER GAIN
SEC. 101. DEDUCTION FOR QUALIFIED TIMBER GAIN.
(a) In General.--Part I of subchapter P of chapter 1 of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new section:
``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 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.''.
(b) Coordination With Maximum Capital Gains Rates.--
(1) Taxpayers other than corporations.--Paragraph (2) of
section 1(h) of the Internal Revenue Code of 1986 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 respect to
which an election is in effect under section 1203, the
lesser of--
``(i) the amount described in paragraph (1)
of section 1203(a), or
``(ii) the amount described in paragraph
(2) of such section.''.
(2) Corporations.--Section 1201 of such Code is amended by
redesignating subsection (b) as subsection (c) and inserting
after subsection (a) the following new subsection:
``(b) Qualified Timber Gain Not Taken Into Account.--For purposes
of this section, in the case of a corporation 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
qualified timber gain (as defined in section 1203(b)).''.
(c) Deduction Allowed Whether or Not Individual Itemizes Other
Deductions.--Subsection (a) of section 62 of the Internal Revenue Code
of 1986 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) of the Internal Revenue Code of
1986 is amended by adding at the end the following new clause:
``(vii) Deduction for qualified timber
gain.--Clause (i) shall not apply to any
deduction allowed under section 1203.''.
(e) Deduction Allowed in Computing Taxable Income of Electing Small
Business Trusts.--Subparagraph (C) of section 641(c)(2) of the Internal
Revenue Code of 1986 is amended by inserting after clause (iii) the
following new clause:
``(iv) The deduction allowed under section
1203.''.
(f) Treatment of Qualified Timber Gain of Real Estate Investment
Trusts.--Paragraph (3) of section 857(b) of the Internal Revenue Code
of 1986 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 estate investment
trust for any taxable year shall be reduced
(but not below zero) by the real estate
investment trust's qualified timber gain (as
defined in section 1203(b)).
``(ii) Adjustment to shareholder's basis
attributable to deduction for qualified timber
gains.--
``(I) In general.--The adjusted
basis of shares in the hands of the
shareholder shall be increased by the
amount of the deduction allowable under
section 1203(a) as provided in
subclauses (II) and (III).
``(II) Allocation of basis increase
for distributions made during taxable
year.--For any taxable year of a real
estate investment trust for which an
election is in effect under section
1203, in the case of a distribution
made with respect to shares during such
taxable year of amounts attributable to
the deduction allowable under section
1203(a), the adjusted basis of such
shares shall be increased by the amount
of such distributions.
``(III) Allocation of excess.--If
the deduction allowable under section
1203(a) for a taxable year exceeds the
amount of distributions described in
subclause (II), the excess shall be
allocated to every shareholder of the
real estate investment trust at the
close of the trust's taxable year in
the same manner as if a distribution of
such excess were made with respect to
such shares.
``(IV) Designations.--To the extent
provided in regulations, a real estate
investment trust shall designate the
amounts described in subclauses (II)
and (III) in a manner similar to the
designations provided with respect to
capital gains described in
subparagraphs (C) and (D).
``(V) Definitions.--As used in this
subparagraph, the terms `share' and
`shareholder' shall include beneficial
interests and holders of beneficial
interests, respectively.
``(iii) Earnings and profits deduction for
qualified timber gains.--The deduction
allowable under section 1203(a) for a taxable
year shall be allowed as a deduction in
computing the earnings and profits of the real
estate investment trust for such taxable year.
The earnings and profits of any such
shareholder which is a corporation shall be
appropriately adjusted in accordance with
regulations prescribed by the Secretary.''.
(g) Loss Attributable to Basis Adjustment for Deduction for
Qualified Timber Gain of Real Estate Investment Trusts.--
(1) Section 857(b)(8) of the Internal Revenue Code of 1986
is amended by redesignating subparagraphs (B) and (C) as
subparagraphs (C) and (D), respectively, and by inserting after
subparagraph (A) the following new subparagraph:
``(B) Loss attributable to basis adjustment for
deduction for qualified timber gain.--If--
``(i) a shareholder of a real estate
investment trust receives a basis adjustment
provided under subsection (b)(3)(G)(ii), and
``(ii) the taxpayer has held such share or
interest for 6 months or less,
then any loss on the sale or exchange of such share or
interest shall, to the extent of the amount described
in clause (i), be disallowed.''.
(2) Subparagraph (D) of section 857(b)(8) of such Code, as
redesignated by paragraph (1), is amended by striking
``subparagraph (A)'' and inserting ``subparagraphs (A) and
(B)''.
(h) Conforming Amendments.--
(1) Subparagraph (B) of section 172(d)(2) of the Internal
Revenue Code of 1986 is amended to read as follows:
``(B) the exclusion under section 1202, and the
deduction under section 1203, shall not be allowed.''.
(2) Paragraph (4) of section 642(c) of such Code is amended
by striking the first sentence and inserting ``To the extent
that the amount otherwise allowable as a deduction under this
subsection consists of gain described in section 1202(a) or
qualified timber gain (as defined in section 1203(b)), proper
adjustment shall be made for any exclusion allowable to the
estate or trust under section 1202 and for any deduction
allowable to the estate or trust under section 1203.''
(3) Paragraph (3) of section 643(a) of such Code is amended
by striking the last sentence and inserting ``The exclusion
under section 1202 and the deduction under section 1203 shall
not be taken into account.''.
(4) Subparagraph (C) of section 643(a)(6) of such Code is
amended to read as follows:
``(C) Paragraph (3) shall not apply to a foreign
trust. In the case of such a trust--
``(i) there shall be included gains from
the sale or exchange of capital assets, reduced
by losses from such sales or exchanges to the
extent such losses do not exceed gains from
such sales or exchanges, and
``(ii) the deduction under section 1203
shall not be taken into account.''.
(5) Paragraph (4) of section 691(c) of such Code is amended
by inserting ``1203,'' after ``1202,''.
(6) Paragraph (2) of section 871(a) of such Code is amended
by inserting ``or 1203,'' after ``1202,''.
(7) The table of sections for part I of subchapter P of
chapter 1 of such Code is amended by adding at the end the
following new item:
``Sec. 1203. Deduction for qualified timber gain.''.
(i) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment
of this Act.
(2) Taxable years which include date of enactment.--In the
case of any taxable year which includes the date of the
enactment of this Act, for purposes of the Internal Revenue
Code of 1986, the taxpayer's qualified timber gain shall not
exceed the excess that would be described in section 1203(b) of
such Code, as added by this section, if only dispositions of
timber after such date were taken into account.
SEC. 102. EXCISE TAX NOT APPLICABLE TO SECTION 1203 DEDUCTION OF REAL
ESTATE INVESTMENT TRUSTS.
(a) In General.--Subparagraphs (A) and (B) of section 4981(b)(1) of
the Internal Revenue Code of 1986 are amended to read as follows:
``(A) 85 percent of the real estate investment
trust's ordinary income, without regard to any
deduction allowable under section 1203, for such
calendar year, plus
``(B) 95 percent of the real estate investment
trust's capital gain net income, reduced for any
deduction allowable under section 1203, for such
calendar year.''.
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment
of this Act.
(2) Taxable years which include date of enactment.--In the
case of any taxable year which includes the date of the
enactment of this Act, for purposes of the Internal Revenue
Code of 1986, the taxpayer's qualified timber gain shall not
exceed the excess that would be described in section 1203(b) of
such Code, as added by this Act, if only dispositions of timber
after such date were taken into account.
TITLE II--TIMBER REIT MODERNIZATION
SEC. 201. TIMBER GAIN QUALIFYING INCOME FOR REITS.
(a) In General.--Section 856(c)(5) of the Internal Revenue Code of
1986 is amended by adding after subparagraph (G) the following new
subparagraph:
``(H) Treatment of timber gains.--
``(i) In general.--For purposes of this
part, gain from the sale of real property
described in paragraph (2)(D) and (3)(C) shall
include gain which is--
``(I) recognized by an election
under section 631(a) from timber owned
by the real estate investment trust,
the cutting of which is provided by a
taxable REIT subsidiary of the real
estate investment trust;
``(II) recognized under section
631(b); or
``(III) income which would
constitute gain under subclause (I) or
(II) but for the failure to meet the 1-
year holding period requirement.
``(ii) Special rules.--
``(I) For purposes of this
subtitle, cut timber, the gain of which
is recognized by a real estate
investment trust pursuant to an
election under section 631(a) described
in clause (i)(I) or so much of clause
(i)(III) as relates to clause (i)(I),
shall be deemed to be sold to the
taxable REIT subsidiary of the real
estate investment trust on the first
day of the taxable year.
``(II) For purposes of this
subtitle, income described in this
subparagraph shall not be treated as
gain from the sale of property
described in section 1221(a)(1).''.
(b) Effective Date.--The amendments made by this section shall
apply to dispositions after the date of the enactment of this Act.
SEC. 202. MINERAL ROYALTY INCOME QUALIFYING INCOME FOR TIMBER REITS.
(a) In General.--Section 856(c)(2) of the Internal Revenue Code of
1986 is amended by adding after subparagraph (H) the following new
subparagraph:
``(I) mineral royalty income from real property
owned by a timber real estate investment trust (as
defined in paragraph (5)(I)) held, or once held, in
connection with the trade or business of producing
timber by such real estate investment trust;''.
(b) Timber Real Estate Investment Trust.--Section 856(c)(5) of the
Internal Revenue Code of 1986 is amended by adding after subparagraph
(H) the following new subparagraph:
``(I) Timber real estate investment trust.--The
term `timber real estate investment trust' means a real
estate investment trust in which more than 50 percent
in value of its total assets consists of real property
held in connection with the trade or business of
producing timber.''.
(c) Effective Dates.--
(1) Subsection (a).--The amendment made by subsection (a)
shall apply to income earned after the date of the enactment of
this Act.
(2) Subsection (b).--The amendments made by subsection (b)
shall apply to taxable years ending after the date of the
enactment of this Act.
SEC. 203. CONFORMING TAXABLE REIT SUBSIDIARY ASSET TEST FOR TIMBER
REITS.
(a) In General.--Section 856(c)(4)(B)(ii) of the Internal Revenue
Code of 1986 is amended by inserting ``(25 percent in the case of a
timber real estate investment trust)'' after ``not more than 20 percent
of the value of its total assets is represented by securities of one or
more taxable REIT subsidiaries''.
(b) Effective Date.--The amendment made by this section shall be
effective after the date of the enactment of this Act.
SEC. 204. SAFE HARBOR FOR TIMBER PROPERTY.
(a) In General.--Section 857(b)(6) of the Internal Revenue Code of
1986 (relating to income from prohibited transactions) is amended--
(1) by striking ``4 years'' in subparagraph (D)(i) and
inserting ``2 years'', and
(2) by striking ``4-year period'' in subparagraphs (D)(ii)
and (D)(iii) and inserting ``2-year period''.
(b) Prohibited Transactions.--Section 857(b)(6)(D)(v) of such Code
is amended by inserting ``or a taxable REIT subsidiary'' after
``independent contractor (as defined in section 856(d)(3)) from whom
the trust itself does not derive or receive any income''.
(c) Sales That Are Not Prohibited Transactions.--Section 857(b)(6)
of such Code is amended by adding at the end the following new
subparagraph:
``(G) Sales of property that are not a prohibited
transaction.--The sale of property which is not a
prohibited transaction through application of
subparagraph (D) shall be considered property held for
investment or for use in a trade or business and not
property described in section 1221(a)(1) for all
purposes of this subtitle.''.
(d) Effective Date.--The amendments made by this section shall be
effective for dispositions after the date of the enactment of this Act.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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