[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[S. 963 Introduced in Senate (IS)]







106th CONGRESS
  1st Session
                                 S. 963

  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

                              May 5, 1999

   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 Forest Land 
Preservation Tax Act of 1999''.
    (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. EXCLUSION FOR LAND SUBJECT TO A QUALIFIED CONSERVATION 
              EASEMENT.

    (a) In General.--Section 2031(c) (relating to estate tax with 
respect to land subject to a qualified conservation easement) is 
amended to read as follows:
    ``(c) Estate Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--
            ``(1) In general.--If the executor makes the election 
        described in paragraph (4), then, except as otherwise provided 
        in this subsection, there shall be excluded from the gross 
        estate the value of land subject to a qualified conservation 
        easement, reduced by the amount of any deduction under section 
        2055(f) with respect to such land.
            ``(2) Treatment of certain indebtedness.--
                    ``(A) In general.--The exclusion provided under 
                paragraph (1) shall not apply to the extent that the 
                land is debt-financed property.
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Debt-financed property.--The term 
                        `debt-financed property' means any property 
                        with respect to which there is acquisition 
                        indebtedness (as defined in clause (ii)) on the 
                        date of the decedent's death.
                            ``(ii) Acquisition indebtedness.--The term 
                        `acquisition indebtedness' means, with respect 
                        to any property, the unpaid amount of--
                                    ``(I) any indebtedness incurred by 
                                the donor in acquiring such property,
                                    ``(II) any indebtedness incurred 
                                before the acquisition of such property 
                                if such indebtedness would not have 
                                been incurred but for such acquisition,
                                    ``(III) any indebtedness incurred 
                                after the acquisition of such property 
                                if such indebtedness would not have 
                                been incurred but for such acquisition 
                                and the incurrence of such indebtedness 
                                was reasonably foreseeable at the time 
                                of such acquisition, and
                                    ``(IV) any indebtedness which 
                                constitutes an extension, renewal, or 
                                refinancing of other indebtedness 
                                described in this clause.
            ``(3) Treatment of retained development right.--
                    ``(A) In general.--Paragraph (1) shall not apply to 
                the value of any development right retained by the 
                donor in the conveyance of a qualified conservation 
                easement.
                    ``(B) Termination of retained development right.--
                If every person in being who has an interest (whether 
                or not in possession) in the land executes an agreement 
                to extinguish permanently some or all of any 
                development rights retained by the donor on or before 
                the date for filing the return of the tax imposed by 
                section 2001, then any tax imposed by section 2001 
                shall be reduced accordingly. Such agreement shall be 
                filed with the return of the tax imposed by section 
                2001. The agreement shall be in such form as the 
                Secretary shall prescribe.
                    ``(C) Additional tax.--Any failure to implement the 
                agreement described in subparagraph (B) not later than 
                the earlier of--
                            ``(i) the date which is 2 years after the 
                        date of the decedent's death, or
                            ``(ii) the date of the sale of such land 
                        subject to the qualified conservation easement,
                shall result in the imposition of an additional tax in 
                the amount of the tax which would have been due on the 
                retained development rights subject to such agreement. 
                Such additional tax shall be due and payable on the 
                last day of the 6th month following such earlier date.
                    ``(D) Development right defined.--For purposes of 
                this paragraph, the term `development right' means any 
                right to use the land subject to the qualified 
                conservation easement in which such right is retained 
                for any commercial purpose which is not subordinate to 
                and directly supportive of the use of such land as a 
                farm for farming purposes (within the meaning of 
                section 2032A(e)(5)).
            ``(4) Election.--The election under this subsection shall 
        be made on or before the due date (including extensions) for 
        filing the return of tax imposed by section 2001 and shall be 
        made on such return.
            ``(5) Calculation of estate tax due.--An executor making 
        the election described in paragraph (4) shall, for purposes of 
        calculating the amount of tax imposed by section 2001, include 
        the value of any development right (as defined in paragraph 
        (3)) retained by the donor in the conveyance of such qualified 
        conservation easement. The computation of tax on any retained 
        development right prescribed in this paragraph shall be done in 
        such manner and on such forms as the Secretary shall prescribe.
            ``(6) Definitions.--For purposes of this subsection--
                    ``(A) Land subject to a qualified conservation 
                easement.--The term `land subject to a qualified 
                conservation easement' means land--
                            ``(i) which was owned by the decedent or a 
                        member of the decedent's family at all times 
                        during the 3-year period ending on the date of 
                        the decedent's death, and
                            ``(ii) with respect to which a qualified 
                        conservation easement has been made by an 
                        individual described in subparagraph (C) as of 
                        the date of the election described in paragraph 
                        (4).
                    ``(B) Qualified conservation easement.--The term 
                `qualified conservation easement' means a qualified 
                conservation contribution (as defined in section 
                170(h)(1)) of a qualified real property interest (as 
                defined in section 170(h)(2)(C)), except that clause 
                (iv) of section 170(h)(4)(A) shall not apply.
                    ``(C) Individual described.--An individual is 
                described in this subparagraph if such individual is--
                            ``(i) the decedent,
                            ``(ii) a member of the decedent's family,
                            ``(iii) the executor of the decedent's 
                        estate, or
                            ``(iv) the trustee of a trust the corpus of 
                        which includes the land to be subject to the 
                        qualified conservation easement.
                    ``(D) Member of the decedent's family.--The term 
                `member of the decedent's family' means any member of 
                the family (as defined in section 2032A(e)(2)) of the 
                decedent.
            ``(7) Treatment of easements granted after death.--In any 
        case in which the qualified conservation easement is granted 
        after the date of the decedent's death and on or before the due 
        date (including extensions) for filing the return of tax 
        imposed by section 2001, the deduction under section 2055(f) 
        with respect to such easement shall be allowed to the estate 
        but only if no charitable deduction is allowed under chapter 1 
        to any person with respect to the grant of such easement.
            ``(8) Application of this section to interests in 
        partnerships, corporations, and trusts.--This subsection shall 
        apply to an interest in a partnership, corporation, or trust if 
        at least 30 percent of the entity is owned (directly or 
        indirectly) by the decedent, as determined under the rules 
        described in section 2057(e)(3).''
    (b) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1999.

SEC. 102. INCREASE IN SPECIAL ESTATE TAX VALUATION; SPECIAL RULES FOR 
              FOREST LANDS.

    (a) Increase In Limit.--
            (1) In general.--Paragraphs (2) and (3) of section 2032A(a) 
        (relating to value based on use under which property qualifies) 
        are each amended by striking ``$750,000'' each place it appears 
        and inserting ``$1,000,000''.
            (2) Inflation adjustment.--Section 2032A(a)(3) is amended--
                    (A) by striking ``1998'' and inserting ``2000'', 
                and
                    (B) by striking ``calendar year 1997'' and 
                inserting ``calendar year 1999''.
    (b) Forest Land Treated as Qualified Real Property.--Section 
2032A(b) (defining qualified real property) is amended by adding at the 
end the following new paragraph:
            ``(6) Special rule for qualified woodlands.--In the case of 
        qualified woodland, paragraph (1) shall be applied without 
        regard to subparagraph (A) or (C)(ii) thereof.''
    (c) Definitions and Failures To Use for Qualified Use.--Section 
2032A(c) (relating to tax treatment of definitions and failures to use 
for qualified use) is amended by adding at the end the following new 
paragraph:
            ``(9) Special rules for qualified woodland.--In the case of 
        qualified woodland--
                    ``(A) this subsection shall be applied by 
                substituting `25 years' for `10 years' in paragraph (1) 
                and by substituting `25-year period' for `10-year 
                period' in paragraph (7)(A)(ii) and subsection 
                (h)(2)(A),
                    ``(B) the qualified heir shall not be treated as 
                disposing of the property or ceasing to use the 
                property for a qualified use if--
                            ``(i) the qualified heir transfers the 
                        property to another person, and
                            ``(ii) such other person (or their 
                        qualified heir) agrees to continue to use the 
                        property for a qualified use and files an 
                        agreement described in subsection (d)(2) with 
                        respect to the property,
                    ``(C) the qualified heir shall be treated as 
                ceasing to use the property for a qualified use if any 
                depreciable improvements are made to the property 
                (other than improvements required for the qualified 
                use), and
                    ``(D) a qualified heir or transferee described in 
                subparagraph (B) shall not be treated as disposing of 
                timber if the disposal is done in accordance with any 
                program described in subsection (e)(13)(E).''
    (d) Qualified Woodland.--Section 2032A(e)(13) is amended by adding 
at the end the following new subparagraph:
                    ``(E) Other requirements.--Real property shall not 
                be treated as qualified woodland unless such property--
                            ``(i) qualifies for a differential use 
                        value assessment program for forest land in the 
                        State in which the property is located, or
                            ``(ii) if a State has no differential use 
                        value assessment program--
                                    ``(I) is forest land,
                                    ``(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.''
    (e) Valuation.--
            (1) In general.--Section 2032A(e) is amended by adding at 
        the end the following new paragraph:
            ``(15) Special rules for valuing forest land.--The value of 
        forest land 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 
                forest land.
                    ``(B) Comparable sales of other forest land which 
                is in the same geographical area and which is 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, determined by 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.''
            (2) Conforming amendment.--Section 2032A(e)(8) is amended 
        by striking ``paragraph (7)(A)'' and inserting ``paragraph 
        (7)(A) or (15)''.
    (f) Effective Date.--The amendments made by this section shall 
apply to estates of decedents dying after December 31, 1999.

                     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 applicable 
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 the sale or 
        exchange of--
                    ``(A) any standing timber (or the right to sever 
                any standing timber), or
                    ``(B) any qualified woodland (as defined in section 
                2032A(e)(13)(B)) or any interest therein.
Such term shall not include any gain excludable from gross income under 
section 139.
    ``(c) Applicable Percentage.--For purposes of this section, the 
term `applicable 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 adding at the end the 
        following new paragraph:
            ``(14) Qualified timber gain.--For purposes of this 
        subsection, net capital gain shall be determined without regard 
        to 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 adding at the end the 
        following flush sentence:
``For purposes of this section, net capital gain shall be determined 
without regard to 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 inserting after paragraph (17) the following new 
paragraph:
            ``(18) 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, 1999.

SEC. 202. EXCLUSION OF GAIN FROM SALES OF INTERESTS IN FOREST LAND FOR 
              CONSERVATION PURPOSES.

    (a) In General.--Part III of subchapter B of chapter 1 (relating to 
items specifically excluded from gross income) is amended by 
redesignating section 139 as section 140 and by inserting after section 
138 the following new section:

``SEC. 139. SALES OF INTERESTS IN CERTAIN FOREST LAND FOR CONSERVATION 
              PURPOSES.

    ``(a) Exclusion.--
            ``(1) In general.--Gross income shall not include the 
        applicable percentage of any gain from a qualified timber sale.
            ``(2) Applicable percentage.--For purposes of paragraph 
        (1), the term `applicable percentage' means--
                    ``(A) 35 percent, or
                    ``(B) in the case of a qualified timber sale of a 
                qualified real property interest described in section 
                170(h)(2)(C), 100 percent.
    ``(b) Limitation.--
            ``(1) In general.--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--
                    ``(A) the amount of gain from a qualified timber 
                sale described in subsection (a)(2)(B), plus
                    ``(B) $800,000 ($400,000 in the case of a married 
                individual filing a separate return).
            ``(2) Aggregation rule.--For purposes of paragraph (1)(B), 
        all persons treated as a single employer under subsection (a) 
        or (b) of section 52 shall be treated as one taxpayer.
    ``(c) Qualified Timber Sale.--For purposes of this section--
            ``(1) In general.--The term `qualified timber sale' means 
        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) Special rule for sales to nongovernmental entities.--
                    ``(A) In general.--The term `qualified timber sale' 
                shall include a sale or exchange to a qualified 
                organization described in section 170(h)(3) if such 
                interest is transferred to a governmental unit 
                described in section 170(c)(1) during the 2-year period 
                beginning on the date of the sale or exchange.
                    ``(B) 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--
                            ``(i) no exclusion shall be allowed under 
                        subsection (a) for the taxable year of the sale 
                        or exchange, but
                            ``(ii) 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.
    ``(d) Other Definitions.--For purposes of this section--
            ``(1) Qualified real property interest.--The term 
        `qualified real property interest' has the meaning given such 
        term by section 170(h)(2).
            ``(2) Timber operations.--The term `timber operations' has 
        the meaning given such term by section 2032A(e)(13)(C).
            ``(3) Conservation purposes.--The term `conservation 
        purposes' has the meaning given such term by section 
        170(h)(4)(A) (without regard to clause (iv) thereof).''
    (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 139 and inserting the following new items:

                              ``Sec. 139. Sales of interests in certain 
                                        forest land for conservation 
                                        purposes.
                              ``Sec. 140. Cross references to other 
                                        Acts.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1999.

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.--This section shall apply to taxable years 
beginning after December 31, 1999.
                                 <all>