New Developments
This section is designed to help you stay up to date on issues that could impact your timberland and the tax treatment of timber. Please check back often for the lastest information!
Tax Tips for Forest Landowners for the 2007 Tax Year
Tax Tips for Forest Landowners for the 2007 Tax Year is the latest in the annual timber tax updates provided by the U.S. Forest Service written this year by Linda Wang, Forest Taxation Specialist, Cooperative Forestry, and John L. Greene, Research Forester, Southern Research Station. It highlights important considerations when owners of forestland prepare their tax return for 2007...|Full Text|
Tax Reduction and Reform Act of 2007 (HR 3970)
Amends Internal Revenue Code provisions relating to individual income tax rates, the alternative minimum tax, partnerships and corporations and extends certain expiring tax credits, deductions, and other tax incentives...|Summary|
Exchange of Timberland by a REIT
The number of property sales that a real estate investment trust (REIT) can make is restricted to prevent them from engaging in ordinary retailing activities such as sales of lots in a development. In Private Letter Ruling 200728037 [not to be cited as precedent, Code Sec. 6110(k)(3)] the IRS concluded that an exchange of timberland for timberland by a REIT did not constitute a sale for purposes of Code Sec. 857(b)(6)(D)(iv). This conclusion is based on taxpayer's representations that (1) the exchange will be treated as a Code Sec. 1031(a), (2) no gain or loss will be recognized as a result of Code Sec. 1031(a), and (3) the exchange will satisfy the requirements for deferred exchanges under Sec. 1.1031(k)-1 of the Income Tax Regulations. The conclusion also referred to the intent of Congress to allow REIT's a safe harbor within which to adjust their real estate holdings.
Editorial Comment: Should this ruling hold up generally it will provide timberland REIT's with the ability to adjust their holdings for reasons of economic efficiency and economies of scale, however, the Sec. 1031 requirement to carryover the basis of the relinquished property to the replacement property will not increase depletion allowance.
Restructuring of US Industrial Timberland Ownership - REITS and TIMO's
The vertically integrated US forest products industry has undergone a major restructuring over the last 20 years. Although globalization of the pulp and paper industry has been a driving force in the last 8 to 10 years, the elimination of the corporate capital gains tax rate in 1986 initiated the process. Cliff Hickman, Forester, Policy Analysis Staff, USDA Forest Service, provides an overview of the role of timber investment management organizations (TIMO's) generally and real estate investment trusts (REITS) in particular on how timberland is managed click here!
Valuation of Family Limited Partnerships (FLP) and Family Limited Liability Companies (FLLC)
The IRS has published on its website "Appeals Settlement Guidelines" for critical issues arising when the estates of individuals establishing FLP's and FLLC's are audited and appeals of IRS's positions result. The issues discussed include (1) the appropriate level of discount from the decedent's prorate share; (2) whether the full fair market value of the FLP or FLLC should be included in the decedent's estate becuase of a lack of substance in the establishment of the FLP or FLLC; (3) whether there is an indirect gift of underlying assets, rather than the FLP or FLLC interests; and (4) whether the accuracy-related penalty for under-appraisal of assets for estate and gift tax purposes should apply. Note that the actual recommendations to auditors are not avialable in this document. Many timberland owners use FLP's or FLLC's to transfer interests to the next generation. Although there are many non-tax benefits from this estate planning tool, if you are relying on this to provide a significant reduction in the value of your gross estate, you will want to consult your estate attorney to assess possible changes in the viability of your current strategy.
Timber Tax Update Presentations
In a continuing effort to provide tax professionals and educators with the latest information on the tax treatment of timber, the U.S. Forest Service presented timber tax update via web conferencing on August 2, 2006...|continue|