[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[S. 692 Introduced in Senate (IS)]







104th CONGRESS
  1st Session
                                 S. 692

  To amend the Internal Revenue Code of 1986 to preserve family-held 
                 forest lands, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                April 6 (legislative day, April 5), 1995

   Mr. Gregg introduced the following bill; which was read twice and 
                  referred to the Committee on Finance

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to preserve family-held 
                 forest lands, and for other purposes.

    Be it enacted by the Senate and House of Representatives 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 ``Family Forestland 
Preservation Tax Act of 1995''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment 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 
provision of the Internal Revenue Code of 1986.

                     TITLE I--ESTATE TAX PROVISIONS

SEC. 101. ESTATE TAX TREATMENT OF QUALIFIED CONSERVATION EASEMENT.

    (a) In General.--Section 2031 (relating to the definition of gross 
estate) is amended by redesignating subsection (c) as subsection (d) 
and by inserting after subsection (b) the following new subsection:
    ``(c) Exclusion of Conservation Easement.--
            ``(1) In general.--If an executor elects the application of 
        this subsection, with respect to any real property included in 
        the gross estate, there shall be excluded from the gross 
        estate, the value of a qualified conservation contribution (as 
        defined in section 170(h)(1)) of a qualified real property 
        interest described in section 170(h)(2)(C) in such real 
        property made by the decedent or a member of the decedent's 
        family.
            ``(2) Certain contributions not included.--For purposes of 
        paragraph (1), section 170(h)(4)(A) shall be applied without 
        regard to clause (iv) thereof in determining whether there is a 
        qualified conservation contribution.
            ``(3) Family member.--For purposes of paragraph (1), the 
        term `member of the decedent's family' has the same meaning 
        given such term by section 2032A(e)(2).
            ``(4) Election.--An election under paragraph (1) shall be 
        made on the return of tax imposed by section 2001. Such an 
        election, once made, shall be irrevocable.''
    (b) Carryover Basis.--Section 1014(a) (relating to basis of 
property acquired from a decedent) is amended by striking the period at 
the end of paragraph (3) and inserting ``, or'', and by inserting at 
the end the following new paragraph:
            ``(4) in the case of property subject to a qualified 
        conservation easement excluded from the gross estate of the 
        decedent under section 2031(c), the basis of the property in 
        the hands of the decedent.''
    (c) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1995, which 
include land subject to qualified conservation easements granted after 
December 31, 1995.

SEC. 102. SPECIAL ESTATE TAX VALUATION OF FOREST LANDS.

    (a) In General.--Part III of subchapter A of chapter 11 (relating 
to gross estate) is amended by inserting after section 2032A the 
following new section:

``SEC. 2032B. VALUATION OF CERTAIN FORESTLAND.

    ``(a) Value Based on Use of Property as Forestland.--If--
            ``(1) the decedent was (at the time of his death) a citizen 
        or resident of the United States, and
            ``(2) the executor elects the application of this section 
        and files the agreement referred to in subsection (d)(2),
then, for purposes of this chapter, the value of qualified forestland 
shall be its value for use as a timber operation, under subsection (b), 
as qualified forestland.
    ``(b) Qualified Forestland.--
            ``(1) In general.--For purposes of this section, the term 
        `qualified forestland' means real property located in the 
        United States which was acquired from or passed from the 
        decedent to a qualified devisee or qualified heir and which, on 
        the date of the decedent's death, was being used for a 
        qualified forest use by the decedent or a member of the 
        decedent's family, but only if--
                    ``(A) 25 percent or more of the adjusted value of 
                the gross estate consists of the adjusted value of real 
                property which meets the requirements of this 
                paragraph,
                    ``(B) during the 8-year period ending on the date 
                of the decedent's death there have been periods 
                aggregating 5 years or more during which the real 
                property was used for a qualified forest use, and
                    ``(C) such real property is designated in the 
                agreement referred to in subsection (d)(2).
            ``(2) Qualified forest use.--For purposes of this section, 
        the term `qualified forest use' means the devotion of the 
        property to use in timber operations.
    ``(c) Tax Treatment of Dispositions and Failures To Use as 
Qualified Forest Use.--
            ``(1) Imposition of additional estate tax (recapture).--
                    ``(A) In general.--If, within 25 years after the 
                decedent's death and before the death of the qualified 
                devisee or qualified heir--
                            ``(i) the qualified devisee or qualified 
                        heir disposes of any interest in qualified 
                        forestland,
                            ``(ii) the qualified devisee or qualified 
                        heir ceases to use for the qualified forest use 
                        the qualified forestland which was acquired (or 
                        passed) from the decedent for an aggregated 
                        period of 3 years out of any 8-year period, or
                            ``(iii) any depreciable improvements are 
                        made to the property, other than those relating 
                        to a qualified forest use,
                then there is hereby imposed an additional estate tax.
                    ``(B) Exceptions.--Subparagraph (A) shall not apply 
                to--
                            ``(i) a testamentary disposition that 
                        itself qualifies for special valuation under 
                        this section,
                            ``(ii) a disposition by a qualified heir to 
                        any other person who agrees to continue 
                        devoting the heir's interest to a qualified 
                        forest use and signs the agreement in 
                        subsection (d)(2) (such person shall thereafter 
                        be treated as a qualified devisee with respect 
                        to such interest),
                            ``(iii) a disposition by a qualified 
                        devisee to a qualified heir of such devisee who 
                        agrees to continue devoting the devisee's 
                        interest to a qualified forest use and signs 
                        the agreement in subsection (d)(2) (such heir 
                        shall thereafter be treated as a qualified 
                        devisee with respect to such interest),
                            ``(iv) a disposition of timber used in a 
                        timber operation; and
                            ``(v) a disposition (other than by sale) of 
                        a qualified conservation contribution (as 
                        defined in section 170(h)).
            ``(2) Amount of additional tax.--The amount of the 
        additional tax imposed by paragraph (1)(A) with respect to any 
        interest shall be the amount equal to the lesser of--
                    ``(A) the adjusted tax difference with respect to 
                the estate (within the meaning of section 
                2032A(c)(2)(C), or
                    ``(B) the amount realized from the disposition of 
                the interest.
            ``(3) Only one additional tax imposed with respect to any 
        one portion.--In the case of an interest acquired from (or 
        passing from) any decedent, if a particular clause of paragraph 
        (1)(A) applies to any portion of an interest, no other clause 
        of such paragraph shall apply with respect to the same portion 
        of such interest.
    ``(d) Election; Agreement.--
            ``(1) Election.--The election under this section shall be 
        made on the return of the tax imposed by section 2001. Such 
        election shall be made in such manner as the Secretary shall by 
        regulations prescribe. Such an election, once made, shall be 
        irrevocable.
            ``(2) Agreement.--The agreement referred to in this 
        paragraph is a written agreement signed by each person in being 
        who has an interest (whether or not in possession) in any 
        property designated in such agreement consenting to the 
        application of subsection (c) with respect to such property.
    ``(e) Definitions; Special Rules.--For purposes of this section--
            ``(1) Qualified devisee.--The term `qualified devisee' 
        means, with respect to any property, a person who acquired such 
        property (or to whom such property passed) from the decedent 
        and who is not a qualified heir of the decedent.
            ``(2) Person.--The term `person' means an individual, 
        partnership, corporation, or governmental entity.
            ``(3) Certain real property included.--In the case of real 
        property which meets the requirements of subparagraph (B) of 
        subsection (b)(1), any depreciable improvements, including 
        roads, which are related to the qualified forest use shall be 
        treated as real property devoted to that use.
            ``(4) Qualified forestland.--The term `qualified 
        forestland' means any real property which--
                    ``(A) qualifies for a differential use value 
                assessment program for forestland in the State in which 
                the property is located; or
                    ``(B) if a State has no differential use value 
                assessment program--
                            ``(i) is forestland,
                            ``(ii) is a minimum of 10 acres, exclusive 
                        of a dwelling unit or other non-forest related 
                        structure and its curtilage; and
                            ``(iii) is subject to a forest management 
                        plan.
            ``(5) Timber operations.--The term `timber operations' 
        means the planting, cultivating, caring for, or harvesting of 
        trees in the process of using and conserving renewable forest 
        resources.
            ``(6) Method of valuing forestland.--The value of 
        forestland shall be determined according to whichever of the 
        following methods results in the least value:
                    ``(A) Assessed land values in a State which 
                provides a differential or use value assessment for 
                forestland.
                    ``(B) Comparable sales of other forestland in the 
                same geographical area far enough removed from a 
                metropolitan or resort area so that nonforest use is 
                not a significant factor in the sales price.
                    ``(C) The capitalization of income which the 
                property can be expected to yield for timber operations 
                over a reasonable period of time under prudent 
                management; using traditional forest management for the 
                area, and taking into account soil capacity, terrain 
                configuration, and similar factors.
                    ``(D) Any other factor which fairly values the 
                timber value of the property.
            ``(7) Applicable definitions and rules of section 2032A.--
                    ``(A) Definitions.--Except as otherwise provided in 
                this section, any term used in this section which is 
                also used in section 2032A shall have the meaning given 
                such term by section 2032A.
                    ``(B) Rules.--The rules in the following provisions 
                of section 2032A shall apply to this section, by 
                substituting `qualified forestland' for `qualified real 
                property' and `qualified forest use' for `qualified 
                use', and shall apply to qualified devisees as well as 
                qualified heirs:
                            ``(i) Paragraphs (2)(D) (by substituting 
                        `paragraph (2)(B)' for `subparagraph (A)(ii)' 
                        in clause (i) thereof), (4), (5), and (7)(A) 
                        (by substituting `25 years' for `10 years') of 
                        subsection (c).
                            ``(ii) Subsection (d)(3).
                            ``(iii) Paragraphs (9), (10), (11), and 
                        (14) (by substituting `active management' for 
                        `material participation') of subsection (e).
                            ``(iv) Subsections (f) and (g).
    ``(f) Special Rules for Involuntary Conversions of Qualified 
Forestland.--
            ``(1) Treatment of converted property.--
                    ``(A) In general.--If there is an involuntary 
                conversion of an interest in qualified forestland--
                            ``(i) no tax shall be imposed by subsection 
                        (c) on such conversion if the cost of the 
                        qualified replacement property equals or 
                        exceeds the amount realized on such conversion; 
                        or
                            ``(ii) if clause (i) does not apply, the 
                        amount of the tax imposed by subsection (c) on 
                        such conversion shall be the amount determined 
                        under subparagraph (B).
                    ``(B) Amount of tax where there is not complete 
                reinvestment.--The amount determined under this 
                subparagraph with respect to any involuntary conversion 
                is the amount of tax which (but for this subsection) 
                would have been imposed on such conversion reduced by 
                an amount which--
                            ``(i) bears the same ratio to such tax, as
                            ``(ii) the cost of the qualified 
                        replacement property bears to the amount 
                        realized on the conversion.
            ``(2) Treatment of replacement property.--For purposes of 
        subsection (c)--
                    ``(A) any qualified replacement property shall be 
                treated in the same manner as if it were a portion of 
                the interest in qualified forestland which was 
                involuntarily converted; except that with respect to 
                such qualified replacement property the 25-year period 
                under paragraph (1) of subsection (c) shall be extended 
                by any period, beyond the 2-year period referred to in 
                section 1033(a)(2)(B)(i), during which the qualified 
                devisee or qualified heir was allowed to replace the 
                qualified forestland;
                    ``(B) any tax imposed by subsection (c) on the 
                involuntary conversion shall be treated as a tax 
                imposed on a partial disposition, and
                    ``(C) subparagraph (A)(ii) of subsection (c)(1) 
                shall be applied by not taking into account periods 
                after the involuntary conversion and before the 
                acquisition of the qualified replacement property.
            ``(3) Definitions and special rules.--For purposes of this 
        subsection--
                    ``(A) Involuntary conversion.--The term 
                `involuntary conversion' means a compulsory or 
                involuntary conversion within the meaning of section 
                1033.
                    ``(B) Qualified replacement property.--The term 
                `qualified replacement property' means--
                            ``(i) in the case of an involuntary 
                        conversion described in section 1033(a)(1), any 
                        real property into which the qualified 
                        forestland is converted, or
                            ``(ii) in the case of an involuntary 
                        conversion described in section 1033(a)(2), any 
                        real property purchased by the qualified 
                        devisee or qualified heir during the period 
                        specified in section 1033(a)(2)(B) for purposes 
                        of replacing the qualified forestland.
                Such term only includes property which is to be used 
                for the qualified forest use set forth in subsection 
                (b)(2) under which the qualified forestland qualified 
                under subsection (a).
            ``(4) Certain rules made applicable.--The rules of the last 
        sentence of section 1033(a)(2)(A) shall apply for purposes of 
        paragraph (3)(B)(ii).
    ``(g) Exchanges of Qualified Forestland.--
            ``(1) Treatment of property exchanged.--
                    ``(A) Exchanges solely for qualified exchange 
                property.--If an interest in qualified forestland is 
                exchanged solely for an interest in qualified exchange 
                property in a transaction which qualifies under section 
                1031, no tax shall be imposed by subsection (c) by 
                reason of such exchange.
                    ``(B) Exchanges where other property received.--If 
                an interest in qualified forestland is exchanged for an 
                interest in qualified exchange property and other 
                property in a transaction which qualifies under section 
                1031, the amount of the tax imposed by subsection (c) 
                by reason of such exchange shall be the amount of tax 
                which (but for this subparagraph) would have been 
                imposed on such exchange under subsection (c)(1), 
                reduced by an amount which--
                            ``(i) bears the same ratio to such tax, as
                            ``(ii) the value of the qualified exchange 
                        property bears to the value of the qualified 
                        forestland exchanged.
                For purposes of clause (ii) of the preceding sentence, 
                value shall be determined according to subsection 
                (e)(6).
            ``(2) Treatment of qualified exchange property.--For 
        purposes of subsection (c)--
                    ``(A) any interest in qualified exchange property 
                shall be treated in the same manner as if it were a 
                portion of the interest in qualified forestland which 
                was exchanged; and
                    ``(B) any tax imposed by subsection (c) by reason 
                of the exchange shall be treated as a tax imposed on a 
                partial disposition.
            ``(3) Qualified exchange property.--For purposes of this 
        subsection, the term `qualified exchange property' means real 
        property which is to be used for a qualified forest use set 
        forth in subsection (b)(2) under which the real property 
        exchanged therefor originally qualified under subsection (a).''
    (b) Conforming Amendments.--
            (1) Section 1014(a)(3), as amended by section 101(b), is 
        amended by inserting ``or 2032B'' after ``2032A''.
            (2) Section 1016(c) is amended--
                    (A) by inserting ``or 2032B(c)(1)'' after 
                ``2032A(c)(1)'' in paragraphs (1), (3), (4), and 
                (5)(B),
                    (B) by inserting ``or qualified devisee'' after 
                ``qualified heir'' in paragraph (1),
                    (C) by inserting ``or 2032B(f)(3)(B)'' after 
                ``2032A(h)(3)(B)'' in paragraph (4), and
                    (D) by inserting ``or 2032B(g)(3)'' after 
                ``2032A(i)(3)'' in paragraph (4).
            (3) Section 1040 is amended--
                    (A) by inserting ``or qualified devisee (within the 
                meaning of section 2032B(e)(1))'' before ``any 
                property'' in subsection (a), and
                    (B) by inserting ``or 2032B'' after ``2032A'' in 
                subsections (a) and (b).
            (4) Section 1223(12)(C) is amended by inserting ``or 
        qualified devisee (within the meaning of section 2032B(e)(1))'' 
        before ``with respect''.
            (5) Section 2013 is amended--
                    (A) by inserting ``or 2032B'' after ``2032A'' each 
                place it appears in subsection (f) and the heading 
                thereof, and
                    (B) by inserting ``or 2032B(c)'' after ``2032A(c)'' 
                both places it appears in subsection (f).
            (6) Section 2035(d)(3)(B) is amended by inserting ``or 
        section 2032B (relating to special valuation of certain 
        forestland)'' after ``real property)''.
            (7) Section 2056A(b)(10)(A) is amended by inserting 
        ``2032B,'' after ``2032A,''.
            (8) Section 2624(b) is amended by striking ``sections 2032 
        and 2032A'' and inserting ``sections 2032, 2032A, and 2032B''.
            (9) Section 2663(1) is amended by striking ``section 
        2032A(c)'' and inserting ``sections 2032A(c) and 2032B(c)''.
            (10) Section 6324B is amended--
                    (A) by striking subsection (a) and inserting the 
                following new subsection:
    ``(a) General Rules.--
            ``(1) Section 2032a.--In the case of any interest in 
        qualified real property (within the meaning of section 
        2032A(b)), an amount equal to the adjusted tax difference 
        attributable to such interest (within the meaning of section 
        2032A(c)(2)(B)) shall be a lien in favor of the United States 
        on property in which such interest exists.
            ``(2) Section 2032b.--In the case of any interest in 
        qualified forestland (within the meaning of section 2032B(b)), 
        an amount equal to the adjusted tax difference with respect to 
        the estate (within the meaning of section 2032A(c)(2)(C)) shall 
        be a lien in favor of the United States on property in which 
        such interest exists.'',
                    (B) by inserting ``or 2032B'' after ``2032A'' both 
                places it appears in subsection (b),
                    (C) by inserting ``or 2032B(c)'' after ``2032A(c)'' 
                in subsection (b)(2), and
                    (D) by adding at the end of subsection (c) the 
                following new paragraph:
            ``(3) Qualified forestland.--For purposes of this section, 
        the term `qualified forestland' includes qualified replacement 
        property (within the meaning of section 2032B(f)(3)(B)) and 
        qualified exchange property (within the meaning of section 
        2032B(g)(3)).''
    (c) Clerical Amendment.--The table of sections for part III of 
subchapter A of chapter 11 is amended by adding at the end the 
following new item:

                              ``Sec. 2032B. Valuation of certain 
                                        forestland.''
    (d) Effective Date.--The amendment made by this section shall apply 
to estates of decedents dying after December 31, 1995.

                     TITLE II--INCOME TAX TREATMENT

SEC. 201. PARTIAL INFLATION ADJUSTMENT FOR TIMBER.

    (a) In General.--Part I of subchapter P of chapter 1 (relating to 
treatment of capital gains) is amended by adding at the end the 
following new section:

``SEC. 1203. PARTIAL INFLATION ADJUSTMENT FOR TIMBER.

    ``(a) In General.--At the election of any taxpayer who has 
qualified timber gain for any taxable year, there shall be allowed as a 
deduction from gross income an amount equal to the qualified percentage 
of such gain.
    ``(b) Qualified Timber Gain.--For purposes of this section, the 
term `qualified timber gain' means the lesser of--
            ``(1) the net capital gain for the taxable year, or
            ``(2) the net capital gain for the taxable year determined 
        by taking into account only gains and losses from timber.
    ``(c) Qualified Percentage.--For purposes of this section, the term 
`qualified percentage' means the percentage (not exceeding 50 percent) 
determined by multiplying--
            ``(1) 3 percent, by
            ``(2) the number of years in the holding period of the 
        taxpayer with respect to the timber.
    ``(d) Estates and Trusts.--In the case of an estate or trust, the 
deduction under subsection (a) shall be computed by excluding the 
portion (if any) of the gains for the taxable year from sales or 
exchanges of capital assets which, under sections 652 and 662 (relating 
to inclusions of amounts in gross income of beneficiaries of trusts), 
is includible by the income beneficiaries as gain derived from the sale 
or exchange of capital assets.''
    (b) Coordination With Existing Limitations.--
            (1) Subsection (h) of section 1 (relating to maximum 
        capital gains rate) is amended by inserting after ``net capital 
        gain'' each place it appears the following: ``(other than 
        qualified timber gain with respect to which an election is made 
        under section 1203)''.
            (2) Subsection (a) of section 1201 (relating to alternative 
        tax for corporations) is amended by inserting after ``net 
        capital gain'' each place it appears the following: ``(other 
        than qualified timber gain with respect to which an election is 
        made under section 1203)''.
    (c) Allowance of Deduction in Computing Adjusted Gross Income.--
Subsection (a) of section 62 (relating to definition of adjusted gross 
income) is amended by adding after paragraph (15) the following new 
paragraph:
            ``(16) Partial inflation adjustment for timber.--The 
        deduction allowed by section 1203.''
    (d) Clerical Amendment.--The table of sections for part I of 
subchapter P of chapter 1 is amended by adding at the end the following 
new item:

                              ``Sec. 1203. Partial inflation adjustment 
                                        for timber.''
    (e) Effective Date.--The amendments made by this section shall 
apply to sales or exchanges after December 31, 1995.

SEC. 202. EXCLUSION OF GAIN FROM SALE OF INTERESTS IN FOREST LANDS.

    (a) In General.--Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by 
redesignating section 137 as section 138 and by inserting after section 
136 the following new section:

``SEC. 137. SALES OF INTERESTS IN CERTAIN FOREST LANDS.

    ``(a) Exclusion.--
            ``(1) In general.--Gross income shall not include the 
        applicable percentage of any qualified timber gain.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the term `applicable percentage' means--
                    ``(A) 35 percent, or
                    ``(B) in the case of qualified timber gain from the 
                sale of a qualified real property interest described in 
                section 170(h)(2)(C), 100 percent.
    ``(b) Limitation.--The total amount of gain which may be excluded 
from gross income under subsection (a) for any taxable year shall not 
exceed the sum of--
            ``(1) the amount of qualified timber gain described in 
        subsection (a)(2)(B), plus
            ``(2) $800,000.
    ``(c) Qualified Timber Gain.--For purposes of this section--
            ``(1) In general.--The term `qualified timber gain' means 
        gain from the sale or exchange of a qualified real property 
        interest in real property which is used in timber operations to 
        a governmental unit described in section 170(c)(1) for 
        conservation purposes.
            ``(2) Qualified real property interest.--The term 
        `qualified real property interest' has the meaning given such 
        term by section 170(h)(2).
            ``(3) Timber operations.--The term `timber operations' has 
        the meaning given such term by section 2032B(e)(5).
            ``(4) Conservation purposes.--The term `conservation 
        purposes' has the meaning given such term by section 
        170(h)(4)(A) (without regard to clause (iv) thereof).
    ``(d) Special Rule for Sales to Nongovernmental Entities.--
            ``(1) In general.--Subsection (a) shall apply to the sale 
        or exchange to a qualified organization described in section 
        170(h)(3) if such interest is transferred during the 2-year 
        period beginning on the date of the sale or exchange to a 
        governmental unit described in section 170(c)(1).
            ``(2) Time for exclusion.--If the transfer to which 
        paragraph (1) applies occurs in a taxable year after the 
        taxable year in which the sale or exchange occurred--
                    ``(A) no exclusion shall be allowed under 
                subsection (a) for the taxable year of the sale or 
                exchange, but
                    ``(B) the taxpayer's tax for the taxable year of 
                the transfer shall be reduced by the amount of the 
                reduction in the taxpayer's tax for the taxable year of 
                the sale or exchange which would have occurred if 
                subparagraph (A) had not applied.''
    (b) Clerical Amendment.--The table of sections for part III of 
subchapter B of chapter 1 is amended by striking the item relating to 
section 137 and by inserting the following new items after the item 
relating to section 136:

                              ``Sec. 137. Sales of interests in certain 
                                        forest lands.
                              ``Sec. 138. Cross references to other 
                                        Acts.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.

SEC. 203. APPLICATION OF PASSIVE LOSS LIMITATIONS TO TIMBER ACTIVITIES.

    (a) In General.--Treasury regulations sections 1.469-5T(b)(2) (ii) 
and (iii) shall not apply to any closely held timber activity if the 
nature of such activity is such that the aggregate hours devoted to 
management of the activity for any year is generally less than 100 
hours.
    (b) Definitions.--For purposes of subsection (a)--
            (1) Closely held activity.--An activity shall be treated as 
        closely held if at least 80 percent of the ownership interests 
        in the activity is held--
                    (A) by 5 or fewer individuals, or
                    (B) by individuals who are members of the same 
                family (within the meaning of section 2032A(e)(2) of 
                the Internal Revenue Code of 1986).
        An interest in a limited partnership shall in no event be 
        treated as a closely held activity for purposes of this 
        section.
            (2) Timber activity.--The term ``timber activity'' means 
        the planting, cultivating, caring, cutting, or preparation 
        (other than milling) for market, of trees.
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1995.
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