[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.
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