[Congressional Record (Bound Edition), Volume 149 (2003), Part 18]
[Extensions of Remarks]
[Page 25296]
[From the U.S. Government Publishing Office, www.gpo.gov]




  A BILL TO MODIFY THE APPLICATION OF THE PASSIVE LOSS LIMITATIONS TO 
                           TIMBER ACTIVITIES

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                           HON. WALLY HERGER

                             of california

                    in the house of representatives

                        Monday, October 20, 2003

  Mr. HERGER. Mr. Speaker, I am introducing legislation today to help 
small and family owned timber owners comply with the passive activity 
rules as set out in the Internal Revenue Code and the Treasury 
Department regulations. The current rules require a taxpayer owning 
timber to devote at least 500 hours per year to the tree growing 
business or 100 hours of personal work under an unpredictable ``facts 
and circumstances'' test.
  While the typical small grower assumes huge risk from pests, fire and 
wind and costs such as local property taxes, clearing and pest control, 
he or she would be hard pressed to devote even 100 hours a year to 
working in the forest. With little or no income in the years between 
harvests, small timber owners' expenditures become passive losses 
deductible many, many years in the future, severely impacting the 
owners' already modest cash flow.
  My bill would provide a narrow exception to small (80 percent owned 
by no more than 5 people) and family timber owners. The bill would 
provide an exception for these taxpayers performing fewer than 100 
hours or in the instance when the owners manage a third party to 
perform the needed services.
  We must create a self-sustaining resource of trees to ensure raw 
materials for paper products as well as to provide a continuing supply 
of reasonably affordable building materials for consumers. And it is 
increasingly obvious that our most reliable source will be the millions 
of acres of privately owned forestlands. Timber farming is a long-term, 
high-risk venture, subject to the uncertainties of disease, fire and a 
highly unpredictable marketplace. My bill will ensure that small timber 
holders continue to be a viable part of this essential industry.

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