[Congressional Record Volume 145, Number 64 (Wednesday, May 5, 1999)]
[Senate]
[Pages S4799-S4801]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GREGG:
  S. 963, A bill to amend the Internal Revenue Code of 1986 to preserve 
family-held forest lands, and for other purposes; to the Committee on 
Finance.


            family forest land preservation tax act of 1999

  Mr. GREGG. Mr. President, I rise today to introduce the Family 
Forestland Preservation Tax Act of 1999. This bill amends several key 
tax provisions to help landowners keep their lands in long-term private 
forest ownership and management. Without these changes, many landowners 
will continue to be forced to sell or change the use of their land.

  This bill derives from four years of work by the Northern Forest 
Lands Council (NFLC). The NFLC was created in 1990 to seek ways for 
Maine, New Hampshire, Vermont, and New York to maintain the 
``traditional patterns of land ownership and use'' in the forest that 
covers this nation's Northeast. The Northern Forest is a 26-million-
acre stretch of land, home to one million residents and within a two-
hour drive of 70 million people. Nearly 85% of the Forest is privately 
owned. Times have changed, however, and social and economic forces have 
begun to affect the traditional patterns of land use with more and more 
land being marketed for development.
  This bill will help maintain traditional patterns and, thus, preserve 
the forest by adjusting several estate tax provisions. This bill would 
allow heirs to make postmortem donations of conservation easements on 
undeveloped estate land and allow the valuation of undeveloped land at 
current use value for estate tax purposes if the owner or heir agrees 
to maintain the land in its current use for a period of twenty-five 
years. This bill also would establish a partial inflation adjustment 
for timber sales by allowing a tax credit not to exceed 50%. This will 
encourage landowners to maintain their timberland for long-term 
stewardship, which is both economically and environmentally desirable. 
Also, the bill would eliminate the requirement that landowners 
generally must work 100-hours-per-year in forest management on their 
forest properties to be allowed to deduct normal management expenses 
from timber activities against nonpassive income. Currently, landowners 
are required to capitalize these losses until timber is harvested. This 
legislation, though prompted by the NFLC's work, will benefit not only 
the four states that make up the Northern Forest, but also all states 
with forestland and all who enjoy the multiple uses of forestland. I 
urge my colleagues to support this bill, which will not only protect 
the historic current use patterns, but also allow the rustic beauty of 
our forests to be enjoyed by all.
  I ask unanimous consent that a copy of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 963

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

[[Page S4800]]

     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:

[[Page S4801]]

       ``(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.
                                 ______