[Congressional Record Volume 141, Number 28 (Monday, February 13, 1995)]
[Extensions of Remarks]
[Page E323]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

                             [[Page E323]]

        CORRECTION OF TAX RULES WILL ENCOURAGE BETTER FORESTRY, 
ENVIRONMENTALLY SENSITIVE MANAGEMENT, AND A STRENGTHENED RESOURCE BASE 
                      FOR THE U.S. TIMBER INDUSTRY

                                 ______


                             HON. RON WYDEN

                               of oregon

                    in the house of representatives

                        Monday, February 13, 1995
  Mr. WYDEN. Mr. Speaker, the debate in this House concerning Tax Code 
reforms traditionally has been focused on two primary issues: Is the 
current tax law fair, and does the code encourage economic growth and 
new jobs?
  Today, I want to suggest that we address one other question: does the 
code encourage sustained management of an increasingly threatened 
national treasure--our 350 million acres of privately owned, commercial 
forest land.
  Global warming, the deforestation of tropical timberlands, and our 
own efforts to preserve our dwindling supply of native, old growth 
timberlands have all lead us to reevaluate our planet's crucial need 
for trees.
  As many of my colleagues are aware, I have for years advocated the 
position that our Tax Code contains severe disincentives for private 
forestry. With many of my colleagues from the Congressional Forestry 
2000 Task Force, I have worked for reasonable changes in the law to 
overturn unfair obstacles to small woodlot owners who wish to keep 
their lands in long-term, sustained-yield, timber production.
  Today, I and 16 of my colleagues reintroduce legislation which takes 
dead aim at one of the most egregious of the code's disincentives to 
private forestry, IRS passive loss rules. Our bill, the Forest 
Stewardship Act of 1995, puts our tax policy on the side of jobs, 
wildlife conservation and proper timber management--where the code 
always should have been.
  This bill will restore to tens of thousands of small woodlot owners 
the right to deduct reasonable business expenses in managing their 
nonindustrial private timberlands. Incredibly, the Internal Revenue 
Service in the mid-1980s stripped these woodlot owners of this 
favorable tax treatment even though it would cost States like Oregon, 
which has more than 42,000 tree farmers, an untold number of timber 
industry jobs and undercut proper forest management.
  I believe the IRS' position is entirely inconsistent with the intent 
and will of Congress in enacting the 1986 tax reforms. At the heart of 
the problem is the agency's stringent rule on material participation, 
the test that separates passive investors from active managers. Under 
the IRS' interpretation, which is based on an inflexible hours-per-year 
activity standard, many tree growers have been unfairly barred from 
deducting costs of doing business. That means they can't even use 
professional foresters to help manage their lands without endangering 
their active status under the law. The resulting mismanagement can mean 
less timber, inadequate conservation measures, and, ultimately, loss of 
the lands from the timber base.
  This bill redefines the code to allow these farmers to deduct normal 
business expenses.
  I'm proud to be joined in this effort by a bipartisan coalition of 
cospnsors--Representatives Herger, Callahan, Deal, Cramer, Cooley, 
Emerson, DeFazio, Stupak, Klug, Wilson, Oberstar, Spratt, Hayes, Furse, 
Chapman, and Richard Baker--who have worked very hard with me in 
crafting this legislation.
  I would also point out that besides having the broad support of major 
timber associations representing both tree growers and the wood 
products manufacturing industry, this legislation has been advocated by 
environmental organizations including the Sierra Club, One Thousand 
Friends of Oregon, the Audubon Society, and others.
  Mr. Speaker, it is not often that both the timber products industry 
and the environmental community agree on congressional legislation 
effecting forests management. The reason both of these often warring 
factions back this bill is quite simple: they understand that this 
narrow Tax Code change will: First, encourage better forest management 
by allowing tree growers to deduct the cost of professional forestry 
consultants; and two, discourage tree farmers from converting their 
increasingly valuable lands to non-forest uses.
  As a consequence, wildlife habitat, watersheds, recreational values, 
and timber resources will be preserved.
  In Oregon, we have something in excess of 3.3 million acres in small 
woodlot management. Our State forecasts on future timber needs already 
have identified these acres as an increasingly important source of 
trees for our mills. Already, these woodlands account for more than 10 
percent of our tree harvest--public and private--in Oregon.
  My colleagues, these forestlands account for real dollars, and real 
jobs. Discouraging their best-use management will have real, long-term, 
adverse impacts on employment and, consequently, IRS tax collections. 
No less a conservationist organization than our own One Thousand 
Friends of Oregon has sued the IRS, asking that the agency reconsider 
its regulations in this area.
  I urge my colleagues to join us in cosponsoring the vital 
legislation.


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