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2008 Tax Update 2008 Tax Update WorkshopWorkshop

U.S. Forest Service U.S. Forest Service

Washington, D.C. Washington, D.C.

August 6, 2008August 6, 2008

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Mark BatsonMark BatsonForest Products Technical Forest Products Technical

AdvisorAdvisor

Mark.W.Batson@IRS.GovMark.W.Batson@IRS.Gov

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Caution:Caution:

The information contained within this The information contained within this presentation represent the views presentation represent the views and/or opinions of the Forest and/or opinions of the Forest Products Technical Products Technical Advisor team.  They are not official Advisor team.  They are not official pronouncements of the law or pronouncements of the law or Internal Revenue Service position Internal Revenue Service position and cannot be used, cited or relied and cannot be used, cited or relied upon as such.upon as such.

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Tax Update TopicTax Update Topic

Reforestation Costs for TrustsReforestation Costs for Trusts

§194 and Qualified Timber §194 and Qualified Timber Property (QTP)Property (QTP)

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Reforestation Costs for Reforestation Costs for TrustsTrusts

• The Gulf Opportunity Zone Act (GOZA) made The Gulf Opportunity Zone Act (GOZA) made technical corrections to the American Jobs technical corrections to the American Jobs Creation Act (AJCA) Creation Act (AJCA) clarifyingclarifying the use of the use of I.R.C.I.R.C. §194 for§194 for trusts and estates: trusts and estates: Estates are now treated similarly to other Estates are now treated similarly to other

taxpayers and allowed a deduction under taxpayers and allowed a deduction under §194§194 (b) and amortization under (b) and amortization under §194(a)§194(a)

Trusts are now allowed to amortize reforestation Trusts are now allowed to amortize reforestation expenditures over 84 months under expenditures over 84 months under §194(a)§194(a), but , but are not allowed a deduction under are not allowed a deduction under §194(b)§194(b)

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§194 and Qualified Timber §194 and Qualified Timber Property (Property (QTP)QTP)

I.R.C. §194(c)(1) defines the term I.R.C. §194(c)(1) defines the term “qualified timber property” as a woodlot “qualified timber property” as a woodlot or other site located within the United or other site located within the United States which will contain trees in States which will contain trees in significant commercial quantities and significant commercial quantities and which is held by the taxpayer for the which is held by the taxpayer for the planting, cultivating, caring for, and planting, cultivating, caring for, and cutting of trees for sale or use in the cutting of trees for sale or use in the commercial production of timber commercial production of timber products.products.

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§194 and Qualified Timber §194 and Qualified Timber Property (QTP)Property (QTP)

The American Jobs Creation Act changed The American Jobs Creation Act changed historical treatment of reforestation costs historical treatment of reforestation costs by:by:• Repealing the 10% Investment Tax Credit for Repealing the 10% Investment Tax Credit for

reforestation costs.reforestation costs.• Treating up to $10,000 of reforestation costs Treating up to $10,000 of reforestation costs

perper “qualified timber property” as deductible “qualified timber property” as deductible expense in the year paid or incurred, expense in the year paid or incurred, §194(b), §194(b), and and

• Allowing amortization of remaining reforestation Allowing amortization of remaining reforestation costs over an 84-month period, §194(a).costs over an 84-month period, §194(a).

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§194 and Qualified Timber §194 and Qualified Timber Property (Property (QTP) QTP)

Notice 2006-47, I.R.B. 2006-20 (May Notice 2006-47, I.R.B. 2006-20 (May 1, 2006)1, 2006) QTP, with QTP, with § 194 election, § 194 election, is not included is not included

in any other timber account (including in any other timber account (including depletion block) for which depletion is depletion block) for which depletion is allowed under allowed under § 611§ 611

QTP account can never become a part of QTP account can never become a part of a depletable account for the purposes of a depletable account for the purposes of a §165(a) deduction a §165(a) deduction