[Federal Register Volume 72, Number 229 (Thursday, November 29, 2007)]
[Proposed Rules]
[Pages 67589-67591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-23098]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-155669-04]
RIN 1545-BE73


Information Reporting for Lump-Sum Timber Sales

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations that provide 
guidance regarding the information reporting requirements contained in 
section 6045(e) of the Internal Revenue Code (Code) on sales or 
exchanges of standing timber for lump-sum (outright) payments. The 
proposed regulations amend Sec.  1.6045-4 of the Income Tax Regulations 
to require real estate reporting persons, as defined in section 
6045(e)(2) of the Code, to report lump-sum payments received by sellers 
(landowners) for sales or exchanges of standing timber. This action is 
being

[[Page 67590]]

taken to make the reporting requirements for lump-sum sales of standing 
timber consistent with the reporting requirements applicable to pay-as-
cut timber sales. The proposed regulations do not change the 
information reporting requirements that currently apply to sales or 
exchanges of standing timber for pay-as-cut (contingent) payments under 
section 6050N of the Code.

DATES: Written or electronic comments and requests for a public hearing 
must be received by February 27, 2008.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-155669-04), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
155669-04), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or via the Federal eRulemaking Portal at 
http://www.regulations.gov (IRS REG-155669-04).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulation, 
Julie Hanlon-Bolton of the Office of Chief Counsel (Procedure and 
Administration), at (202) 622-7028; for questions concerning 
submissions of comments, contact Kelly Banks at (202) 622-7180.

SUPPLEMENTARY INFORMATION:

Background

    This document contains a proposed amendment to the Income Tax 
Regulations under section 6045(e). The amendment imposes information 
reporting requirements on sales or exchanges of standing timber for 
lump-sum payments, commonly referred to as lump-sum or outright timber 
sales. A lump-sum contract provides for a pre-set, fixed, and non-
contingent payment in exchange for the right to cut and remove 
designated trees. In these transactions, sellers of standing timber 
receive fixed payments that are not based on the amount of the timber 
actually cut. The sellers do not retain any economic interest in the 
timber and bear no risk of loss upon execution of the sales contract.
    Sales or exchanges of standing timber for contingent payments, 
commonly referred to as pay-as-cut timber sales, allow purchasers to 
cut designated trees in exchange for a payment that is based on a 
specified rate for each unit of timber actually cut and measured. In 
these transactions, sellers of standing timber receive payments that 
are contingent on the amount of timber actually cut. The sellers retain 
an economic interest in the timber and continue to bear economic risk 
associated with the sales contract until the timber is actually cut and 
removed.
    Because the sellers of standing timber who enter into pay-as-cut 
transactions retain an economic interest until the timber is actually 
cut and removed, the payments are characterized as timber royalties 
reportable under section 6050N on Form 1099-S, ``Proceeds from Real 
Estate Transactions.'' See Announcement 90-129, 1990-48 IRB 10.
    However, currently, no information reporting obligation applies to 
a sale or exchange of standing timber for a lump-sum payment. The 
information reporting requirements of section 6050N do not apply to a 
sale or exchange of timber for a lump-sum payment because the seller 
retains no economic interest and bears no economic risk of loss in the 
timber upon execution of the sales contract.
    Recognizing the disparate treatment in the reporting of timber sale 
and exchange transactions, the Treasury Department has reconsidered the 
information reporting requirements under section 6045(e) as they apply 
to lump-sum sales or exchanges of standing timber and has decided to 
amend the regulations to require information reporting for these 
transactions.
    Currently, section 6045(e) requires a ``real estate reporting 
person,'' as defined in section 6045(e)(2), to make an information 
return and furnish a statement to the transferor with respect to a real 
estate transaction that consists in whole or in part of the sale or 
exchange of ``reportable real estate.'' Section 1.6045-4(b)(2) defines 
``reportable real estate'' as, among other things, any present or 
future ownership interest in land. Section 1.6045-4(c)(2)(i) provides 
that no return of information is required with respect to a sale or 
exchange of an interest in timber, provided that the sale or exchange 
of such property is not related to the sale or exchange of reportable 
real estate.
    The preamble to Sec.  1.6045-4 provides background information 
concerning the exception for timber sales in Sec.  1.6045-4(c)(2)(i), 
stating in pertinent part as follows:

    The proposed regulations provided an exception from the 
reporting requirements for transactions involving natural resources, 
including standing timber. Section 6050N of the Code requires 
reporting for certain royalty payments, including timber royalties, 
but not for other transactions involving timber. The IRS believes 
that the disparity in the reporting requirements for different forms 
of timber transactions may be inappropriate. However, this issue was 
not addressed in the public comments and was not considered at the 
public hearing. Accordingly, the final regulations contain the 
exception for natural resource transactions, including standing 
timber. The IRS will open a new regulations project to consider the 
expansion of the reporting requirements to include sales and 
exchanges of standing timber. Any requirements for the reporting of 
standing timber will apply only to transactions occurring after the 
issuance of such requirements. See 55 FR 51282, TD 8323.

    The IRS has found that some taxpayers are underreporting income 
from lump-sum or outright sales of timber, resulting in a loss of tax 
revenue. Additionally, the Treasury Department and the IRS do not think 
that the disparate treatment of lump-sum and pay-as-cut timber 
transactions for information reporting purposes is in the interests of 
sound tax administration. Based on considerations of tax policy and 
sound tax administration, the Treasury Department has decided to amend 
the regulations under section 6045(e) to require information reporting 
for sales or exchanges of standing timber for lump-sum payments.
    This amendment provides that sales or exchanges of standing timber 
for lump-sum payments are ``reportable real estate'' transactions under 
Sec.  1.6045-4(b)(2) and, thus, shall be reported as provided in 
section 6045(e) and the regulations.

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of Treasury, Office of Information and Regulatory Affairs, 
Washington, DC 20503, with copies to the Internal Revenue Service, 
Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 
20224. Comments on the collection of information should be received by 
February 27, 2008. The Treasury Department is interested in comments on 
the following:
    Whether the proposed collection of information is necessary for the 
proper performance of the function of the IRS, including whether the 
information will have practical utility;

[[Page 67591]]

    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collections of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of service to provide information.
    The collection of information affected by this proposed regulation 
is described in Sec.  1.6045-4. The collection of information is 
mandatory. The likely respondents are for-profit corporations and small 
business entities.
    Estimated total annual reporting burden: 10,000 hours.
    Estimated average annual burden hours per respondent: .5 hours.
    Estimated number of respondents: 20,000.
    Estimated frequency of responses: annually.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any Internal Revenue Law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Proposed Effective Date

    These amendments shall apply to sales or exchanges of standing 
timber for lump-sum payments completed on or after the date of 
publication of a Treasury decision adopting these rules as final 
regulations in the Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It has also 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. Chapter 5) does not apply to these regulations. It is hereby 
certified that collection of information in this regulation will not 
have a significant economic impact on a substantial number of small 
entities. This certification is based on the fact that the collection 
of information burden imposed by these regulations flows directly from 
section 6045(e) of the Code. Moreover, requiring information reporting 
as described in the preamble with regard to sales or exchanges of 
standing timber for lump-sum payments imposes minimal burden in time or 
expense. Therefore, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act (5 U.S.C. Chapter 6) is not required. The 
IRS invites comments on the accuracy of this certification. Pursuant to 
section 7805(f) of the Code, this notice of proposed rulemaking has 
been submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Comments and Request for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The IRS and the Treasury Department request comments on the 
clarity of the proposed rules and how they can be made easier to 
understand. All comments will be available for public inspection and 
copying.
    A public hearing may be scheduled if requested by any person who 
timely submits comments. If a public hearing is scheduled, notice of 
the date, time and place for the hearing will be published in the 
Federal Register.

Drafting Information

    The principal author of these regulations is Julie A. Hanlon-Bolton 
of the Office of Associate Chief Counsel (Procedure and 
Administration). However, other personnel from the IRS and the Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 1.6045-4 is amended by:

    1. Redesignating paragraphs (b)(2)(i), (b)(2)(ii), (b)(2)(iii), and 
(b)(2)(iv) as paragraphs (b)(2)(i)(A), (b)(2)(i)(B), (B)(2)(i)(C), and 
(b)(2)(i)(D), respectively.
    2. Adding paragraph (b)(2)(i)(E).
    3. Redesignating paragraph (b)(2) introductory text as (b)(2)(i) 
introductory text.
    4. Designating the undesignated text as paragraph (b)(2)(ii).
    5. Adding a new last sentence at the end of newly designated 
paragraph (b)(2)(ii).
    6. Revising paragraph (c)(2)(i) and paragraph (s).
    The revisions and additions read as follows:


Sec.  1.6045-4  Information reporting on real estate transactions with 
dates of closing on or after January 1, 1991.

* * * * *
    (b) * * *
    (2)* * * (i) * * *
    (E) Any non-contingent interest in standing timber.
    (ii) * * * Further, the term ownership interest includes any 
contractual interest in a sale or exchange of standing timber for a 
lump-sum payment that is fixed and not contingent.
* * * * *
    (c) * * *
    (2) * * *
    (i) An interest in surface or subsurface natural resources (for 
example, water, ores, and other natural deposits) or crops, whether or 
not such natural resources or crops are severed from the land. For 
purposes of this section, the terms ``natural resources'' and ``crops'' 
do not include standing timber.
* * * * *
    (s) Effective/applicability date. This section applies for real 
estate transactions with dates of closing (as determined under 
paragraph (h)(2)(ii) of this section) that occur on or after January 1, 
1991. The amendments to paragraphs (b)(2)(i)(e), (b)(2)(ii) and 
(c)(2)(i) of this section shall apply to sales or exchanges of standing 
timber for lump-sum payments completed after the date specified in the 
final regulations.

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E7-23098 Filed 11-28-07; 8:45 am]
BILLING CODE 4830-01-P