[Senate Report 110-205]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 442
110th Congress                                                   Report
                                 SENATE
 1st Session                                                    110-205

======================================================================



 
               HABITAT AND LAND CONSERVATION ACT OF 2007

                                _______
                                

                October 24, 2007.--Ordered to be printed

                                _______
                                

   Mr. Baucus, from the Committee on Finance, submitted the following

                              R E P O R T

                         [To accompany S. 2223]

    The Committee on Finance, having considered an original 
bill, S. 2223, to amend the Internal Revenue Code of 1986 to 
provide additional tax incentives to promote habitat 
conservation and restoration, and for other purposes, reports 
favorably thereon and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
  I. LEGISLATIVE BACKGROUND...........................................2
 II. EXPLANATION OF THE BILL..........................................2
        A. Make Permanent the Special Rule Encouraging 
            Contributions of Capital Gain Real Property for 
            Conservation Purposes (sec. 2 of the bill and sec. 
            170 of the Code).....................................     2
        B. Provide Tax Credit for Recovery and Restoration of 
            Endangered Species (sec. 3 of the bill and new sec. 
            30D of the Code).....................................     5
        C. Allow Deduction for Endangered Species Recovery 
            Expenditures (sec. 4 of the bill and sec. 175 of the 
            Code)................................................    10
        D. Provide Exclusion for Certain Payments and Programs 
            Relating to Fish and Wildlife (sec. 5 of the bill and 
            sec. 126 of the Code)................................    11
        E. Extend Expensing of Brownfields Remediation Costs 
            (sec. 6 of the bill and sec. 198 of the Code)........    13
        F. Allowance of Section 1031 Treatment for Exchanges 
            Involving Certain Mutual Ditch, Reservoir, or 
            Irrigation Company Stock (sec. 7 of the bill and sec. 
            1031 of the Code)....................................    14
        G. Modification of Effective Date of Leasing Provisions 
            of the American Jobs Creation Act of 2004 (sec. 8 of 
            the bill and sec. 470 of the Code)...................    15
III.BUDGET EFFECTS OF THE BILL.......................................16

IV. VOTES OF THE COMMITTEE...........................................20
 V. REGULATORY IMPACT AND OTHER MATTERS..............................21
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............22

                       I. LEGISLATIVE BACKGROUND

    The Senate Committee on Finance marked up an original bill, 
S. 2223 (the ``Habitat and Land Conservation Act of 2007'') on 
September 21, 2007, and, with a majority and quorum present, 
ordered the bill favorably reported by a voice vote on that 
date.

                      II. EXPLANATION OF THE BILL


A. Make Permanent the Special Rule Encouraging Contributions of Capital 
              Gain Real Property for Conservation Purposes


(Sec. 2 of the bill and sec. 170 of the Code)

                              PRESENT LAW

Charitable contributions generally

    In general, a deduction is permitted for charitable 
contributions, subject to certain limitations that depend on 
the type of taxpayer, the property contributed, and the donee 
organization. The amount of deduction generally equals the fair 
market value of the contributed property on the date of the 
contribution. Charitable deductions are provided for income, 
estate, and gift tax purposes.\1\
---------------------------------------------------------------------------
    \1\Secs. 170, 2055, and 2522, respectively. Unless otherwise 
provided, all section references are to the Internal Revenue Code of 
1986, as amended (the ``Code'').
---------------------------------------------------------------------------
    In general, in any taxable year, charitable contributions 
by a corporation are not deductible to the extent the aggregate 
contributions exceed 10 percent of the corporation's taxable 
income computed without regard to net operating or capital loss 
carrybacks. For individuals, the amount deductible is a 
percentage of the taxpayer's contribution base, which is the 
taxpayer's adjusted gross income computed without regard to any 
net operating loss carryback. The applicable percentage of the 
contribution base varies depending on the type of donee 
organization and property contributed. Cash contributions of an 
individual taxpayer to public charities, private operating 
foundations, and certain types of private nonoperating 
foundations may not exceed 50 percent of the taxpayer's 
contribution base. Cash contributions to private foundations 
and certain other organizations generally may be deducted up to 
30 percent of the taxpayer's contribution base.
    In general, a charitable deduction is not allowed for 
income, estate, or gift tax purposes if the donor transfers an 
interest in property to a charity while also either retaining 
an interest in that property or transferring an interest in 
that property to a noncharity for less than full and adequate 
consideration. Exceptions to this general rule are provided 
for, among other interests, remainder interests in charitable 
remainder annuity trusts, charitable remainder unitrusts, and 
pooled income funds, present interests in the form of a 
guaranteed annuity or a fixed percentage of the annual value of 
the property, and qualified conservation contributions.

Capital gain property

    Capital gain property means any capital asset or property 
used in the taxpayer's trade or business the sale of which at 
its fair market value, at the time of contribution, would have 
resulted in gain that would have been long-term capital gain. 
Contributions of capital gain property to a qualified charity 
are deductible at fair market value within certain limitations. 
Contributions of capital gain property to charitable 
organizations described in section 170(b)(1)(A) (e.g., public 
charities, private foundations other than private non-operating 
foundations, and certain governmental units) generally are 
deductible up to 30 percent of the taxpayer's contribution 
base. An individual may elect, however, to bring all these 
contributions of capital gain property for a taxable year 
within the 50-percent limitation category by reducing the 
amount of the contribution deduction by the amount of the 
appreciation in the capital gain property. Contributions of 
capital gain property to charitable organizations described in 
section 170(b)(1)(B) (e.g., private non-operating foundations) 
are deductible up to 20 percent of the taxpayer's contribution 
base.
    For purposes of determining whether a taxpayer's aggregate 
charitable contributions in a taxable year exceed the 
applicable percentage limitation, contributions of capital gain 
property are taken into account after other charitable 
contributions. Contributions of capital gain property that 
exceed the percentage limitation may be carried forward for 
five years.

Qualified conservation contributions

    Qualified conservation contributions are not subject to the 
``partial interest'' rule, which generally bars deductions for 
charitable contributions of partial interests in property. A 
qualified conservation contribution is a contribution of a 
qualified real property interest to a qualified organization 
exclusively for conservation purposes. A qualified real 
property interest is defined as: (1) The entire interest of the 
donor other than a qualified mineral interest; (2) a remainder 
interest; or (3) a restriction (granted in perpetuity) on the 
use that may be made of the real property. Qualified 
organizations include certain governmental units, public 
charities that meet certain public support tests, and certain 
supporting organizations. Conservation purposes include: (1) 
The preservation of land areas for outdoor recreation by, or 
for the education of, the general public; (2) the protection of 
a relatively natural habitat of fish, wildlife, or plants, or 
similar ecosystem; (3) the preservation of open space 
(including farmland and forest land) where such preservation 
will yield a significant public benefit and is either for the 
scenic enjoyment of the general public or pursuant to a clearly 
delineated Federal, State, or local governmental conservation 
policy; and (4) the preservation of an historically important 
land area or a certified historic structure.
    Qualified conservation contributions of capital gain 
property are subject to the same limitations and carryover 
rules of other charitable contributions of capital gain 
property.

Special rule regarding contributions of capital gain real property for 
        conservation purposes

            In general
    Under a temporary provision that is effective for 
contributions made in taxable years beginning after December 
31, 2005,\2\ the 30-percent contribution base limitation on 
contributions of capital gain property by individuals does not 
apply to qualified conservation contributions (as defined under 
present law). Instead, individuals may deduct the fair market 
value of any qualified conservation contribution to an 
organization described in section 170(b)(1)(A) to the extent of 
the excess of 50 percent of the contribution base over the 
amount of all other allowable charitable contributions. These 
contributions are not taken into account in determining the 
amount of other allowable charitable contributions.
---------------------------------------------------------------------------
    \2\Sec. 170(b)(1)(E).
---------------------------------------------------------------------------
    Individuals are allowed to carryover any qualified 
conservation contributions that exceed the 50-percent 
limitation for up to 15 years.
    For example, assume an individual with a contribution base 
of $100 makes a qualified conservation contribution of property 
with a fair market value of $80 and makes other charitable 
contributions subject to the 50-percent limitation of $60. The 
individual is allowed a deduction of $50 in the current taxable 
year for the non-conservation contributions (50 percent of the 
$100 contribution base) and is allowed to carryover the excess 
$10 for up to 5 years. No current deduction is allowed for the 
qualified conservation contribution, but the entire $80 
qualified conservation contribution may be carried forward for 
up to 15 years.
            Farmers and ranchers
    In the case of an individual who is a qualified farmer or 
rancher for the taxable year in which the contribution is made, 
a qualified conservation contribution is allowable up to 100 
percent of the excess of the taxpayer's contribution base over 
the amount of all other allowable charitable contributions.
    In the above example, if the individual is a qualified 
farmer or rancher, in addition to the $50 deduction for non-
conservation contributions, an additional $50 for the qualified 
conservation contribution is allowed and $30 may be carried 
forward for up to 15 years as a contribution subject to the 
100-percent limitation.
    In the case of a corporation (other than a publicly traded 
corporation) that is a qualified farmer or rancher for the 
taxable year in which the contribution is made, any qualified 
conservation contribution is allowable up to 100 percent of the 
excess of the corporation's taxable income (as computed under 
section 170(b)(2)) over the amount of all other allowable 
charitable contributions. Any excess may be carried forward for 
up to 15 years as a contribution subject to the 100-percent 
limitation.\3\
---------------------------------------------------------------------------
    \3\Sec. 170(b)(2)(B).
---------------------------------------------------------------------------
    As an additional condition of eligibility for the 100-
percent limitation, with respect to any contribution of 
property in agriculture or livestock production, or that is 
available for such production, by a qualified farmer or 
rancher, the qualified real property interest must include a 
restriction that the property remain generally available for 
such production. (There is no requirement as to any specific 
use in agriculture or farming, or necessarily that the property 
be used for such purposes, merely that the property remain 
available for such purposes.) Such additional condition does 
not apply to contributions made on or before August 17, 2006.
    A qualified farmer or rancher means a taxpayer whose gross 
income from the trade or business of farming (within the 
meaning of section 2032A(e)(5)) is greater than 50 percent of 
the taxpayer's gross income for the taxable year.
            Termination
    The special rule regarding contributions of capital gain 
real property for conservation purposes does not apply to 
contributions made in taxable years beginning after December 
31, 2007.

                           REASONS FOR CHANGE

    Gifts of conservation easements to organizations that are 
dedicated to maintaining natural habitats, open spaces, or 
traditional agriculture help protect our nation's heritage. The 
charitable tax deduction for such conservation easements has 
proven to be a valuable incentive for making such gifts. The 
Committee believes that the special rule that provides an 
increased incentive to make charitable contributions of partial 
interests in real property for conservation purposes is an 
important way of encouraging conservation and preservation and 
should be made permanent.

                        EXPLANATION OF PROVISION

    The provision makes permanent the special rule regarding 
contributions of capital gain real property for conservation 
purposes.

                             EFFECTIVE DATE

    The provision is effective for contributions made in 
taxable years beginning after December 31, 2007.

   B. Provide Tax Credit for Recovery and Restoration of Endangered 
                                Species


(Sec. 3 of the bill and new sec. 30D of the Code)

                              PRESENT LAW

    Present law does not provide an income tax credit for 
endangered species recovery expenditures.

                           REASONS FOR CHANGE

    The Endangered Species Act (``ESA'') of 1973 is a 
comprehensive attempt to protect species at risk of extinction 
and to consider habitat protection as an integral part of that 
effort.
    The purpose of the ESA is to conserve the ecosystems upon 
which endangered and threatened species depend and to conserve 
and recover listed species. Under the ESA, species of plants 
and animals (both vertebrate and invertebrate) may be listed as 
either endangered or threatened according to assessments of the 
risk of their extinction.
    As of September 20, 2007, according to the U.S. Fish and 
Wildlife Service (``USFWS''), a total of 744 species of plants 
and 607 species of animals had been listed as either endangered 
or threatened in the United States and its territories. 
According to the USFWS, over 70 percent of the nation's 
landscape is in private ownership and nearly two-thirds of 
Federally listed endangered and threatened species are found on 
private lands. With such a large number of the country's listed 
species dependent upon private lands for their survival, and 
many exclusively so, the goals of the ESA cannot be 
accomplished without the Federal government becoming involved 
to provide incentives for species protection on private lands. 
For both plants and animals, the ESA has few provisions for 
restoring and managing habitats on private lands. Many 
important habitats require restoration and management because, 
among other things, they have been overrun by invasive species 
or have been deprived of exposure to fire and other natural 
processes.
    Although the ESA prohibits landowners from harming 
endangered or threatened species, the Act itself contains only 
a small number of incentives for landowners to undertake the 
beneficial management actions that most species require for 
recovery. In addition, while most private landowners care about 
their land and want to practice good stewardship, they often 
lack the time and resources to deal with complex regulations 
and necessary management activities.
    The Committee believes that tax credits for private 
landowners who voluntarily undertake habitat protection and 
restoration for endangered species will provide some needed 
incentives to help recover threatened and endangered species.

                        EXPLANATION OF PROVISION

In general

    For eligible taxpayers, the provision establishes a credit 
against income taxes for: (1) Costs paid or incurred by an 
eligible taxpayer for the taxable year (reduced by the amount 
of government financing for conservation of a qualified 
species, and not including costs required by a Federal, State, 
or local government) pursuant to a habitat management plan 
entered into under certain qualified habitat protection 
agreements (``habitat restoration credit'') and (2) a 
percentage of the loss in value to real property attributable 
to an easement placed on the property pursuant to such 
agreements (less any amount received in connection with the 
easement) (``habitat protection easement credit''). The 
allowable credit amount is 100 percent of costs paid or 
incurred and the loss in value to property pursuant to 
qualified perpetual habitat protection agreements; 75 percent 
of costs paid or incurred and the loss in value to property 
pursuant to qualified 30-year habitat protection agreements; 
and 50 percent of costs paid or incurred pursuant to a 
qualified habitat protection agreement.
    For purposes of the habitat protection easement credit, the 
loss in value is the difference between the fair market value 
of the real property subject to the agreement determined on the 
day before the agreement is entered into less the fair market 
value of such property determined one day after the agreement 
is entered into. To claim such credit, the eligible taxpayer 
must own the real property with respect to which the easement 
is placed, and include on the tax return for the taxable year a 
qualified appraisal (within the meaning of section 
170(f)(11)(E)) of the real property. The taxpayer's basis in 
such property is reduced by the amount of the credit allowed.
    The habitat restoration credit is taken into account after 
other credits (sections 21-27, 30, 30B, 30C, and the habitat 
protection easement credit) and may not offset the alternative 
minimum tax. The habitat protection easement credit is taken 
into account after other credits (sections 21-27, 30, 30B, and 
30C) and such credit may offset the alternative minimum tax. 
Amounts allowed but in excess of either limitation may be 
carried forward to the succeeding taxable year. No deduction is 
allowed for any amount with respect to which a credit is 
allowed. The Secretary of the Treasury shall by regulations 
provide for the recapture of the credit if such Secretary 
determines that the eligible taxpayer has failed to carry out 
the duties required by the qualified agreement and there are no 
other available means to remediate such failure.
    The sum of the two credits may not exceed the amount 
allocated to the eligible taxpayer by the Secretary of the 
Treasury, in consultation with the Secretary of the Interior 
and the Secretary of Commerce, for the calendar year in which 
the taxpayer's taxable year ends. If the amount allowed as a 
credit exceeds the amount allocated for such year, the excess 
may be carried forward to the next taxable year for which the 
taxpayer has received an allocation. If the amount allocated to 
a taxpayer for a calendar year exceeds the amount allowed as a 
credit for such year, the difference may be carried forward to 
the next taxable year and treated as allocated to the taxpayer 
for use in such year. No credit is allowed unless the 
appropriate Secretary certifies that a qualified agreement will 
contribute to the recovery of a qualified species.
    The aggregate amount allocated by the Secretary of the 
Treasury may not exceed in each year 2008 through 2012: 
$290,000,000 with respect to qualified perpetual habitat 
protection agreements, $55,000,000 with respect to qualified 
30-year habitat protection agreements, and $35,000,000 with 
respect to qualified habitat protection agreements. No 
allocation is allowed after 2012, except that unallocated 
amounts with respect to any calendar year are carried forward 
to the allowable allocation for the next calendar year.
    Not later than 180 days after the date of enactment, the 
Secretary of the Treasury, in consultation with the Secretary 
of the Interior and the Secretary of Commerce, shall by 
regulation establish a program to process applications from 
eligible taxpayers and to determine how best to allocate the 
credit. In allocating the credit, priority shall be given to 
taxpayers with agreements (1) relating to habitats that will 
significantly increase the likelihood of recovering and 
delisting a species as an endangered species or a threatened 
species (as defined under section 2 of the Endangered Species 
Act of 1973), (2) that are cost-effective and maximize the 
benefits to a qualified species per dollar expended, (3) 
relating to habitats of species that have a Federally approved 
recovery plan pursuant to section 4 of the Endangered Species 
Act of 1973, (4) relating to habitats with the potential to 
contribute significantly to the improvement of the status of a 
qualified species, (5) relating to habitats with the potential 
to contribute significantly to the eradication or control of 
invasive species that are imperiling a qualified species, (6) 
with habitat management plans that will manage multiple 
qualified species, (7) with habitat management plans that will 
create adjacent or proximate habitat for the recovery of a 
qualified species, (8) relating to habitats for qualified 
species with an urgent need for protection, (9) with habitat 
management plans that assist in preventing the listing of a 
species as endangered or threatened under the Endangered 
Species Act of 1973 or a similar State law, (10) with habitat 
management plans that may resolve conflicts between the 
protection of qualified species and otherwise lawful human 
activities, and (11) with habitat management plans that may 
resolve conflicts between the protection of a qualified species 
and military training or other military operation.
    The Secretary of the Treasury shall request that the 
appropriate Secretary consider whether to authorize under the 
Endangered Species Act of 1973 takings by an eligible taxpayer 
of a qualified species to which a qualified agreement relates 
if the takings are incidental to (1) the restoration, 
enhancement, or management of the habitat pursuant to the 
habitat management plan under the agreement or (2) the use of 
the property to which the agreement pertains at any time after 
the expiration of the easement (or specified period of time 
pursuant to a qualified habitat protection agreement), but only 
if such use will leave the qualified species at least as well 
off on the property as it was before the agreement was made. 
Both types of incidental takings currently are authorized under 
section 10(a)(1) of the Endangered Species Act of 1973 
(enhancement of survival permits) and 50 CFR part 17 (safe 
harbor permits).
    The Comptroller General of the United States shall 
undertake a study on the effectiveness of the credits. Such 
study shall evaluate the effectiveness of the credits in 
encouraging landowners to enter into agreements for the 
protection of the habitats of endangered and threatened 
species, and the degree to which such agreements are effective 
in preserving the habitats of such species and assisting in the 
recovery of such species, and shall include recommendations for 
improving the effectiveness of the credits. The Comptroller 
General shall issue an interim report based on such study 
within three years of the date of enactment and a final report 
within five years of such date.

Definitions

            Eligible taxpayer
    An eligible taxpayer is (1) a taxpayer who owns real 
property that contains habitat of a qualified species and 
enters into a qualified perpetual habitat protection agreement, 
a qualified 30-year habitat protection agreement, or a 
qualified habitat protection agreement with the appropriate 
Secretary with respect to such real property, and (2) a 
taxpayer who is a party to a qualified perpetual habitat 
protection agreement, a qualified 30-year habitat protection 
agreement, or a qualified habitat protection agreement and, as 
part of any such agreement, agrees to assume responsibility for 
some or all of the costs paid or incurred as a result of 
implementing such agreement.
            Qualified agreements
    A qualified perpetual habitat protection agreement is an 
agreement under which an easement is granted to the appropriate 
Secretary, the Secretary of Agriculture, the Secretary of 
Defense, or a State to protect the habitat of a qualified 
species in perpetuity. A qualified 30-year habitat protection 
agreement is an agreement under which an easement is granted to 
the appropriate Secretary, the Secretary of Agriculture, the 
Secretary of Defense, or a State to protect the habitat of a 
qualified species for a period of not less than 30 years and 
less than perpetuity. A qualified habitat protection agreement 
requires agreement with the appropriate Secretary, the 
Secretary of Agriculture, the Secretary of Defense, or a State 
to protect the habitat of a qualified species for a specified 
period of time.
    In addition, each of the three types of qualified agreement 
must meet the following requirements: (1) The agreement must be 
consistent with any recovery plan that is applicable and that 
has been approved for a qualified species under section 4 of 
the Endangered Species Act of 1973; (2) the agreement must 
include a habitat management plan agreed to by the appropriate 
Secretary and the eligible taxpayer; and (3) the agreement must 
require that technical assistance with respect to the duties 
under the habitat management plan be provided to the taxpayer 
by the appropriate Secretary or an entity approved by the 
appropriate Secretary.
            Habitat management plan
    A habitat management plan means, with respect to any 
habitat, a plan that (1) identifies one or more qualified 
species to which the plan applies; (2) is designed to restore 
or enhance the habitat of a qualified species or reduce threats 
to a qualified species through the management of the habitat; 
(3) describes the threats to the qualified species that are 
intended to be reduced through the plan; (4) describes the 
management practices to be undertaken by the taxpayer; (5) 
provides a schedule of deadlines for undertaking such 
management practices; (6) requires monitoring of the management 
practices and the status of the qualified species; and (7) 
describes the technical assistance to be provided to the 
taxpayer and identifies the entity that will provide such 
assistance.
            Qualified species
    A qualified species is any species listed as an endangered 
species or threatened species under the Endangered Species Act 
of 1973 or any species for which a finding has been made under 
section 4(b)(3) of the Endangered Species Act of 1973 that 
listing under such Act may be warranted.
            Taking
    A taking has the meaning given to such term under the 
Endangered Species Act of 1973.
            Appropriate Secretary
    Appropriate Secretary has the meaning given to the term 
``Secretary'' under section 3(15) of the Endangered Species Act 
of 1973.

                             EFFECTIVE DATE

    The provision is effective for taxable years beginning 
after December 31, 2007.

    C. Allow Deduction for Endangered Species Recovery Expenditures


(Sec. 4 of the bill and sec. 175 of the Code)

                              PRESENT LAW

    Under present law, a taxpayer engaged in the business of 
farming may treat expenditures that are paid or incurred by him 
during the taxable year for the purpose of soil or water 
conservation in respect of land used in farming, or for the 
prevention or erosion of land used in farming, as expenses that 
are not chargeable to capital account. Such expenditures are 
allowed as a deduction, not to exceed 25 percent of the gross 
income derived from farming during the taxable year.\4\ Any 
excess above such percentage is deductible for succeeding 
taxable years, not to exceed 25 percent of the gross income 
derived from farming during such succeeding taxable year.
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    \4\Sec. 175.
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                           REASONS FOR CHANGE

    The goal of the Endangered Species Act of 1973 is to 
recover listed species and the ecosystems on which they depend 
to levels where protection under such Act is no longer 
necessary. Recovery is the process by which the decline of an 
endangered species is arrested or reversed, and threats removed 
or reduced so that the species' long-term survival in the wild 
can be ensured. Section 4(f)(1) of such Act directs the 
appropriate Secretary to develop and implement recovery plans 
for the conservation and survival of endangered and threatened 
species, unless the appropriate Secretary finds that such a 
plan will not promote the conservation of the species. To the 
maximum extent practicable, the recovery plan must incorporate 
a description of management actions to achieve the plan's 
goals, objective and measurable criteria for determining the 
removal of species from the endangered species list, and 
estimate the time required and cost to carry out the recovery 
plan. The appropriate Secretary may procure the services of 
appropriate private and public agencies in developing and 
implementing a recovery plan.
    According to an April 6, 2006, General Accountability 
Office report entitled ``Endangered Species: Time and Costs to 
Recover Species Are Largely Unknown,'' as of January 2006, the 
Fish and Wildlife Service and the National Marine Fisheries 
Service had finalized and approved 558 recovery plans covering 
1,049 species, or about 82 percent of the 1,272 endangered or 
threatened species protected in the United States at that time. 
Recovery plans contain management measures that landowners can 
adopt on their land that will aid in the recovery of endangered 
or threatened species, resulting in a public benefit. Such are 
similar to measures undertaken for soil and water conservation, 
which are entitled to a tax deduction. The Committee believes 
that certain expenses of taxpayers made pursuant to a recovery 
plan under the Endangered Species Act should be treated 
similarly to expenditures by farmers made for soil and water 
conservation.

                        EXPLANATION OF PROVISION

    The provision provides that expenditures paid or incurred 
by a taxpayer engaged in the business of farming for the 
purpose of achieving site-specific management actions pursuant 
to the Endangered Species Act of 1973\5\ to be treated the same 
as expenditures for the purpose of soil or water conservation 
in respect of land used in farming, or for the prevention or 
erosion of land used in farming, i.e., such expenditures are 
treated as not chargeable to capital account and are deductible 
subject to the limitation that the deduction may not exceed 25 
percent of the farmer's gross income derived from farming 
during the taxable year.
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    \5\16 U.S.C. 1533(f)(B).
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                             EFFECTIVE DATE

    The provision is effective for expenditures paid or 
incurred after the date of enactment.

D. Provide Exclusion for Certain Payments and Programs Relating to Fish 
                              and Wildlife


(Sec. 5 of the bill and sec. 126 of the Code)

                              PRESENT LAW

    Under present law, gross income does not include the 
excludable portion of payments made to taxpayers by the Federal 
and State governments for a share of the cost of improvements 
to property under certain conservation programs.\6\
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    \6\Sec. 126.
---------------------------------------------------------------------------
    The excludable portion is the portion (or all) of a payment 
made under such programs that is determined by the Secretary of 
Agriculture to be made primarily for the purpose of conserving 
soil and water resources, protecting or restoring the 
environment, improving forests, or providing a habitat for 
wildlife, and is determined by the Secretary of the Treasury as 
not increasing substantially the annual income derived from the 
property. The excludable portion does not include that portion 
of any payment that is properly associated with an amount that 
is allowable as a deduction for the taxable year in which such 
amount is paid or incurred.
    Applicable conservation programs include (1) the rural 
clean water program authorized by section 208(j) of the Federal 
Water Pollution Control Act, (2) the rural abandoned mine 
program authorized by section 406 of the Surface Mining Control 
and Reclamation Act of 1977, (3) the water bank program 
authorized by the Water Bank Act, (4) the emergency 
conservation measures program authorized by title IV of the 
Agricultural Credit Act of 1978, (5) the agriculture 
conservation program authorized by the Soil Conservation and 
Domestic Allotment Act, (6) the great plains conservation 
program authorized by section 16 of the Soil Conservation and 
Domestic Policy Act, (7) the resource conservation and 
development program authorized by the Bankhead-Jones Farm 
Tenant Act and by the Soil Conservation and Domestic Allotment 
Act, (8) the forestry incentives program authorized by section 
4 of the Cooperative Forestry Assistance Act of 1978, (9) any 
small watershed program administered by the Secretary of 
Agriculture which is determined by the Secretary of the 
Treasury or his delegate to be substantially similar to the 
type of programs described in items (1) through (8), and (10) 
any program of a State, possession of the United States, a 
political subdivision of any of the foregoing, or the District 
of Columbia under which payments are made to individuals 
primarily for the purpose of conserving soil, protecting or 
restoring the environment, improving forests, or providing a 
habitat for wildlife.

                           REASONS FOR CHANGE

    Currently, there are a few Federal programs aimed at 
encouraging landowners to protect and aid in the recovery of 
endangered or threatened species. Partners for Fish and 
Wildlife is a national voluntary cost-share program implemented 
by the U.S. Fish and Wildlife Service to protect, enhance, and 
restore important fish and wildlife habitats on private lands 
through partnerships with landowners. The Landowner's Incentive 
Program provides funding for states to staff their programs and 
to fund conservation work with private landowners to restore 
and maintain habitat for endangered, threatened, and other 
imperiled species. State Wildlife Grant funds are used to 
address species and their habitats that are identified in State 
Comprehensive Wildlife Conservation Plans/Strategies (also 
known as Wildlife Action Plans). Priority for use of these 
funds is on those species of greatest conservation need. The 
Private Stewardship Grant Program provides Federal grants on a 
competitive basis to individuals and groups engaged in 
voluntary conservation efforts on private lands that benefit 
Federally listed endangered or threatened species, candidate 
species or other at-risk species. Private landowners and groups 
working with private landowners are able to submit proposals 
directly to the U.S. Fish and Wildlife Service for funding to 
support these efforts. Each grant must be matched by at least 
10 percent of the total project cost in either non Federal 
dollars or in-kind contributions.
    The Committee believes that payments received by taxpayers 
under the Partners for Fish and Wildlife Program, the Landowner 
Incentive Program, the State Wildlife Grants Program, and the 
Private Stewardship Grants Program are similar to payments made 
under other government programs that are excludable from gross 
income under present law. Accordingly, the Committee believes 
it is appropriate to extend the present law exclusion to 
payments under these programs.

                        EXPLANATION OF PROVISION

    The provision expands the exclusion to include the 
excludable portion of payments made under the Partners for Fish 
and Wildlife Program authorized by the Partners for Fish and 
Wildlife Act, the Landowner Incentive Program, the State 
Wildlife Grants Program, and the Private Stewardship Grants 
Program authorized by the Fish and Wildlife Act of 1956.

                             EFFECTIVE DATE

    The provision is effective for payments received after the 
date of enactment.

          E. Extend Expensing of Brownfields Remediation Costs


(Sec. 6 of the bill and sec. 198 of the Code)

                              PRESENT LAW

    Present law allows a deduction for ordinary and necessary 
expenses paid or incurred in carrying on any trade or 
business.\7\ Treasury regulations provide that the cost of 
incidental repairs that neither materially add to the value of 
property nor appreciably prolong its life, but keep it in an 
ordinarily efficient operating condition, may be deducted 
currently as a business expense. Section 263(a)(1) limits the 
scope of section 162 by prohibiting a current deduction for 
certain capital expenditures. Treasury regulations define 
``capital expenditures'' as amounts paid or incurred to 
materially add to the value, or substantially prolong the 
useful life, of property owned by the taxpayer, or to adapt 
property to a new or different use. Amounts paid for repairs 
and maintenance do not constitute capital expenditures. The 
determination of whether an expense is deductible or 
capitalizable is based on the facts and circumstances of each 
case.
---------------------------------------------------------------------------
    \7\Sec. 162.
---------------------------------------------------------------------------
    Taxpayers may elect to treat certain environmental 
remediation expenditures that would otherwise be chargeable to 
capital account as deductible in the year paid or incurred.\8\ 
The deduction applies for both regular and alternative minimum 
tax purposes. The expenditure must be incurred in connection 
with the abatement or control of hazardous substances at a 
qualified contaminated site. In general, any expenditure for 
the acquisition of depreciable property used in connection with 
the abatement or control of hazardous substances at a qualified 
contaminated site does not constitute a qualified environmental 
remediation expenditure. However, depreciation deductions 
allowable for such property, which would otherwise be allocated 
to the site under the principles set forth in Commissioner v. 
Idaho Power Co.\9\ and section 263A, are treated as qualified 
environmental remediation expenditures.
---------------------------------------------------------------------------
    \8\Sec. 198.
    \9\418 U.S. 1 (1974).
---------------------------------------------------------------------------
    A ``qualified contaminated site'' (a so-called 
``brownfield'') generally is any property that is held for use 
in a trade or business, for the production of income, or as 
inventory and is certified by the appropriate State 
environmental agency to be an area at or on which there has 
been a release (or threat of release) or disposal of a 
hazardous substance. Both urban and rural property may qualify. 
However, sites that are identified on the national priorities 
list under the Comprehensive Environmental Response, 
Compensation, and Liability Act of 1980 (``CERCLA'')\10\ cannot 
qualify as targeted areas. Hazardous substances generally are 
defined by reference to sections 101(14) and 102 of CERCLA, 
subject to additional limitations applicable to asbestos and 
similar substances within buildings, certain naturally 
occurring substances such as radon, and certain other 
substances released into drinking water supplies due to 
deterioration through ordinary use, as well as petroleum 
products defined in section 4612(a)(3) of the Code.
---------------------------------------------------------------------------
    \10\Pub. L. No. 96-510 (1980).
---------------------------------------------------------------------------
    In the case of property to which a qualified environmental 
remediation expenditure otherwise would have been capitalized, 
any deduction allowed under section 198 is treated as a 
depreciation deduction and the property is treated as section 
1245 property. Thus, deductions for qualified environmental 
remediation expenditures are subject to recapture as ordinary 
income upon a sale or other disposition of the property. In 
addition, sections 280B (demolition of structures) and 468 
(special rules for mining and solid waste reclamation and 
closing costs) do not apply to amounts that are treated as 
expenses under this provision.
    Eligible expenditures are those paid or incurred before 
January 1, 2008.
    The Gulf Opportunity Zone Act of 2005\11\ added section 
1400N(g) to the Code, which extended for two years (through 
December 31, 2007) the expensing of environmental remediation 
expenditures paid or incurred to abate contamination at 
qualified contaminated sites located in the Gulf Opportunity 
Zone. As a result of the extension of section 198 contained in 
the Tax Relief and Health Care Act of 2006,\12\ eligible 
expenditures covered under both section 1400N(g) and section 
198 must be paid or incurred prior to January 1, 2008.
---------------------------------------------------------------------------
    \11\Pub. L. No. 109-135 (2005).
    \12\Pub. L. No. 109-432 (2006).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that the expensing of brownfields 
remediation costs promotes the goal of environmental 
remediation and promotes new investment and employment 
opportunities by lowering the net capital cost of a development 
project. Therefore, the Committee believes it is appropriate to 
extend the present law provision permitting the expensing of 
these environmental remediation costs.

                        EXPLANATION OF PROVISION

    The provision extends the present law expensing provision 
under section 198 for three years through December 31, 2010.

                             EFFECTIVE DATE

    The provision is effective for expenditures paid or 
incurred after December 31, 2007.

F. Allowance of Section 1031 Treatment for Exchanges Involving Certain 
          Mutual Ditch, Reservoir, or Irrigation Company Stock


(Sec. 7 of the bill and sec. 1031 of the Code)

                              PRESENT LAW

    An exchange of property, like a sale, generally is a 
taxable event. However, no gain or loss is recognized if 
property held for productive use in a trade or business or for 
investment is exchanged for property of a ``like-kind'' which 
is to be held for productive use in a trade or business or for 
investment.\13\ If section 1031 applies to an exchange of 
properties, the basis of the property received in the exchange 
is equal to the basis of the property transferred, decreased by 
any money received by the taxpayer, and further adjusted for 
any gain or loss recognized on the exchange. In general, 
section 1031 does not apply to any exchange of stock in trade 
or other property held primarily for sale; stocks, bonds or 
notes; other securities or evidences of indebtedness or 
interest; interests in a partnership; certificates of trust or 
beneficial interests; or choses in action.\14\
---------------------------------------------------------------------------
    \13\Sec. 1031(a)(1).
    \14\Sec. 1031(a)(2).
---------------------------------------------------------------------------

                           REASONS FOR CHANGE

    The Committee believes that section 1031 should be 
clarified to remove any doubt that an exchange of shares in 
mutual ditch, reservoir, and irrigation company stock qualifies 
for tax deferral treatment under section 1031. The Committee 
intends this clarification would be for cases in which the 
highest court or a statute of the State in which the company is 
organized recognize such shares as constituting or representing 
real property or an interest in real property.

                        EXPLANATION OF PROVISION

    The provision provides that the general exclusion from 
section 1031 treatment for stocks shall not apply to shares in 
a mutual ditch, reservoir, or irrigation company, if at the 
time of the exchange: (1) The company is an organization 
described in section 501(c)(12)(A) (determined without regard 
to the percentage of its income that is collected from its 
members for the purpose of meeting losses and expenses); and 
(2) the shares in the company have been recognized by the 
highest court of the State in which such company was organized 
or by applicable State statute as constituting or representing 
real property or an interest in real property.

                             EFFECTIVE DATE

    The provision is effective for transfers after the date of 
enactment.

G. Modification of Effective Date of Leasing Provisions of the American 
                       Jobs Creation Act of 2004


(Sec. 8 of the bill and sec. 470 of the Code)

                              PRESENT LAW

    Present law provides for the deferral of losses 
attributable to certain tax exempt use property, generally 
effective for leases entered into after March 12, 2004. The 
deferral provision does not apply to property located in the 
United States that is subject to a lease with respect to which 
a formal application: (1) Was submitted for approval to the 
Federal Transit Administration (an agency of the Department of 
Transportation) after June 30, 2003, and before March 13, 2004; 
(2) was approved by the Federal Transit Administration before 
January 1, 2006; and (3) includes a description and the fair 
market value of such property (the ``qualified transportation 
property exception'').

                           REASONS FOR CHANGE

    The Committee is aware that certain leasing transactions 
entered into with foreign lessees prior to March 12, 2004, are 
continuing to provide a tax benefit to the taxpayers who 
participated in such transactions. The Committee finds these 
transactions and their continuing tax benefit to be 
inappropriate.

                        EXPLANATION OF PROVISION

    The provision changes the effective date of the loss 
deferral rules with respect to certain leases. Under the 
provision, the loss deferral rules also apply to leases entered 
into on or before March 12, 2004, if the lessee is a foreign 
person or entity. With respect to such leases, losses are 
deferred starting in taxable years beginning after December 31, 
2006.
    No inference is intended regarding the appropriate present 
law tax treatment of transactions entered into prior to March 
12, 2004, if the lessee is not a foreign person or entity. In 
addition, it is intended that the provision shall not be 
construed as altering or supplanting the present-law tax rules 
providing that a taxpayer is treated as the owner of leased 
property only if the taxpayer acquires and retains significant 
and genuine attributes of an owner of the property, including 
the benefits and burdens of ownership. The provision also is 
not intended to affect the scope of any other present-law tax 
rules or doctrines applicable to purported leasing 
transactions.

                             EFFECTIVE DATE

    The provision is effective as if included in the provisions 
of the American Jobs Creation Act of 2004 to which it relates.

                    III. BUDGET EFFECTS OF THE BILL


                         A. Committee Estimates

    In compliance with paragraph 11(a) of rule XXVI of the 
Standing Rules of the Senate, the following statement is made 
concerning the estimated budget effects of the revenue 
provisions of the ``Habitat and Land Conservation Act of 2007'' 
as reported.


                B. Budget Authority and Tax Expenditures


Budget authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that no provisions of the bill as reported 
involve new or increased budget authority.

Tax expenditures

    In compliance with section 308(a)(2) of the Budget Act, the 
Committee states that the revenue-reducing provisions of the 
bill involve increased tax expenditures (see revenue table in 
Part A., above). The revenue-increasing provisions of the bill 
involve reduced tax expenditures (see revenue table in part A, 
above).

            C. Consultation With Congressional Budget Office

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget Office 
submitted the following statement on this bill:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, October 22, 2007.
Hon. Max Baucus,
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for the Habitat and Land 
Conservation Act of 2007.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Barbara 
Edwards.
            Sincerely,
                                         Robert A. Sunshine
                                   (For Peter R. Orszag, Director).
    Enclosure.

S. 2223--Habitat and Land Conservation Act of 2007

    The Habitat and Land Conservation Act of 2007 would provide 
tax relief to individuals and corporations that make charitable 
contributions or expenditures for conservation of endangered 
species and would extend the rules that allow businesses to 
immediately deduct remediation costs of real property that 
could not be reused due to environmental contaminants 
(brownfields sites). The bill also would accelerate the 
effective date for provisions of the American Jobs Creation Act 
of 2004 (AJCA) that provided for loss deferral rules for 
certain tax-exempt property involved in so-called sale-in, 
lease-out (``SILO'') transactions.
    The Joint Committee on Taxation (JCT) estimates that 
enacting the bill would increase revenues by $2.5 billion over 
the 2008-2012 period and by $53 million over the 2008-2017 
period. CBO estimates that implementing the legislation would 
cost less than $500,000 per year over the 2008-2012 period, 
assuming the availability of appropriated funds.
    JCT has determined that the tax provisions of the bill 
contain one private-sector mandate as defined in the Unfunded 
Mandates Reform Act (UMRA): modification of the effective date 
for the provisions of AJCA regarding leasing (SILO) 
transactions. CBO has reviewed the non-tax provision of the 
bill (section 3(b)) and determined that it contains no private-
sector mandates as defined in UMRA. CBO and JCT have determined 
that the bill contains no intergovernmental mandates.
    The estimated revenue effects are summarized below.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                By fiscal year, in millions of dollars--
                                              ----------------------------------------------------------------------------------------------------------
                                                                                                                                       2008-
                                                2008    2009     2010     2011    2012    2013     2014     2015     2016     2017      2012   2008-2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Revenues...........................   2,388     381     -150     -108      -4     -49     -131     -458     -801    -1,016    2,506       53
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Joint Committee on Taxation.

    The Habitat and Land Conservation Act of 2007 would provide 
income tax credits for certain costs related to habitat 
restoration and habitat protection easements for endangered 
species. It also would make permanent the provisions that 
expire on December 31, 2007, that reduce the limitations for 
deducting charitable contributions of certain conservation 
property. The bill also would allow farmers to immediately 
deduct certain capital expenditures for endangered species 
recovery to the same extent that they can deduct capital 
expenditures related to soil and water conservation. JCT 
estimates that these three provisions would reduce revenues by 
$62 million in 2008, by $1.1 billion over the 2008-2012 period, 
and by $2.5 billion over the 2008-2017 period.
    The bill would extend for three years, to December 31, 
2010, the rules that allow taxpayers to immediately deduct 
remediation costs for brownfields. JCT estimates that this 
provision would reduce revenues by $227 million in 2008, by 
$971 million over the 2008-2012 period, and by $630 million 
over the 2008-2017 period.
    The bill would accelerate the effective date for provisions 
of AJCA that provided for loss deferral rules for certain tax-
exempt property involved in SILO transactions. JCT estimates 
that this provision would increase revenues by $2.7 billion in 
2008, by $4.6 billion over the 2008-2012 period, and by $3.2 
billion over the 2008-2017 period.
    The legislation also would require a five-year study by the 
Government Accountability Office (GAO) on the endangered 
species recovery and restoration credit. This study would 
include an evaluation of the tax credit for the restoration and 
enhancement of species habitat and the development of 
recommendations to improve effectiveness of the credit. Based 
on the costs of similar efforts, CBO estimates that preparing 
the study would cost less than $500,000 annually over the 2008-
2012 period.
    The CBO staff contacts for this estimate are Barbara 
Edwards (for revenues) and Matthew Pickford (for GAO costs). 
The estimate was approved by Peter H. Fontaine, Assistant 
Director for Budget Analysis, and G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee states that, with a 
majority and quorum present, the ``Habitat and Land 
Conservation Act of 2007'' was ordered favorably reported by a 
voice vote on September 21, 2007.

                 V. REGULATORY IMPACT AND OTHER MATTERS


                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact that might be 
incurred in carrying out the provisions of the bill as amended.

Impact on individuals and businesses, personal privacy and paperwork

    The bill includes provisions to extend present law tax 
benefits, expand eligibility for other benefits, and create new 
benefits. The bill also includes a provision expanding the loss 
limitation on leases with foreign entities. These provisions 
generally do not impose increased regulatory burdens on 
individuals or businesses. Taxpayers who elect to take 
advantage of certain provisions of the bill will need to keep 
records to demonstrate that they qualify for the tax treatment 
provided by the bill. One provision in the bill allows 
taxpayers to apply for a tax credit allocation relating to 
habitat protection and restoration. Taxpayers receiving an 
allocation must enter into certain qualified agreements in 
order to claim the credit.
    The provisions of the bill do not impact personal privacy.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the following tax 
provision of the reported bill contains a Federal private 
sector mandate within the meaning of Public Law No. 104-4, the 
Unfunded Mandates Reform Act of 1995: Modifying the effective 
date for the application of the American Jobs Creation Act of 
(``AJCA'') 2004 leasing (``SILO'') provision--apply loss 
limitation to leases with foreign entities regardless of when 
the lease was entered into. The tax provisions of the reported 
bill do not impose a Federal intergovernmental mandate on 
State, local, or tribal governments within the meaning of 
Public Law No. 104-4, the Unfunded Mandates Reform Act of 1995.
    The costs required to comply with the Federal private 
sector mandate generally is no greater than the aggregate 
estimated budget effects of the provision.

                       C. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (the ``IRS Reform Act'') 
requires the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Department of the 
Treasury) to provide a tax complexity analysis. The complexity 
analysis is required for all legislation reported by the Senate 
Committee on Finance, the House Committee on Ways and Means, or 
any committee of conference if the legislation includes a 
provision that directly or indirectly amends the Internal 
Revenue Code (the ``Code'') and has widespread applicability to 
individuals or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that have ``widespread applicability'' to 
individuals or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary, in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                  
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