Lump-Sum Timber Sale and 1099 Reporting

Proposed IRS Regulation

Dr. Linda Wang

National Forest Tax Specialist

USDA Forest Service

lwang@fs.fed.us

Two Timber Sale Methods

• Lump-sum sale– “Outright timber sale”

– Seller is paid a pre-set, fixed amount for the sale or exchange of standing timber

– The total dollar amount received by the seller is independent of the amount of timber actually cut

Pay-as-Cut Timber Sale

• Seller is paid based on the amount of timber actually cut

• Seller continue to bear risk of loss until timber is cut

• Sale agreement typically specifies unit price for the timber removed

Current Reporting Requirement

• Pay-as-cut timber sale is required to be reported to the IRS (IRC §6050N)

• The form that is used for this reporting is Form 1099-S

Current Reporting Requirement

• Lump-sum timber sale is not subject to Form 1099 reporting

(Section 1.6045-4 (c) (2) (i))

Proposed IRS Regulation

• Under the proposed rule, lump-sum timber sale or exchange will be required to be reported to the IRS

Source: REG-155669-04

Amendment to §1.6045-4 (b) (2)

Lump-Sum Timber SalesProposed IRS Regulation

• Date Proposed: November 29, 2007• Comment deadline: by Feb. 27, 2008• Effective date: after the final regulations

adopted in the Federal Register

Source: REG-155669-04

Rationale for Proposed Rule

• “The IRS has found that some taxpayers are underreporting income from lump-sum or outright sales of timber.”

• Disparate treatment of lump-sum and pay-as-cut timber transactions is not sound tax administration.

Source: REG-155669-04