S.Amdt. 4438

SA 4438. Mrs. LINCOLN (for herself and Mr. Smith) submitted an
amendment intended to be proposed to amendment SA 4387 submitted by Mr.
Dodd (for himself and Mr. Shelby) to the bill H.R. 3221, moving the
United States toward greater energy independence and security,
developing innovative new technologies, reducing carbon emissions,
creating green jobs, protecting consumers, increasing clean renewable
energy production, and modernizing our energy infrastructure, and to
amend the Internal Revenue Code of 1986 to provide tax incentives for
the production of renewable energy and energy conservation; which was
ordered to lie on the table; as follows:

On page 82, between lines 7 and 8, insert the following:

TITLE VII--TIMBER PROVISIONS

SEC. 700. AMENDMENTS TO 1986 CODE.

Except as otherwise expressly provided, whenever in this
title an amendment or repeal is expressed in terms of an
amendment to, or repeal of, a section or other provision, the
reference shall be considered to be made to a section or
other provision of the Internal Revenue Code of 1986.

SEC. 701. DEDUCTION FOR QUALIFIED TIMBER GAIN.

(a) In General.--Part I of subchapter P of chapter 1 is
amended by adding at the end the following new section:

``SEC. 1203. DEDUCTION FOR QUALIFIED TIMBER GAIN.

``(a) In General.--In the case of a taxpayer which elects
the application of this section for a taxable year, there
shall be allowed a deduction against gross income in an
amount equal to 60 percent of the lesser of--
``(1) the taxpayer's qualified timber gain for such year,
or
``(2) the taxpayer's net capital gain for such year.
``(b) Qualified Timber Gain.--For purposes of this section,
the term `qualified timber gain' means, with respect to any
taxpayer for any taxable year, the excess (if any) of--
``(1) the sum of the taxpayer's gains described in
subsections (a) and (b) of section 631 for such year, over
``(2) the sum of the taxpayer's losses described in such
subsections for such year.
``(c) Special Rules for Pass-Thru Entities.--
``(1) In the case of any qualified timber gain of a pass-
thru entity (as defined in section 1(h)(10)) other than a
real estate investment trust, the election under this section
shall be made separately by each taxpayer subject to tax on
such gain.
``(2) In the case of any qualified timber gain of a real
estate investment trust, the election under this section
shall be made by the real estate investment trust.
``(d) Election.--An election under this section may be made
only with respect to the first taxable year beginning after
the date of the enactment of this section.''.
(b) Coordination With Maximum Capital Gains Rates.--
(1) Taxpayers other than corporations.--Paragraph (2) of
section 1(h) is amended to read as follows:
``(2) Reduction of net capital gain.--For purposes of this
subsection, the net capital gain for any taxable year shall
be reduced (but not below zero) by the sum of--
``(A) the amount which the taxpayer takes into account as
investment income under section 163(d)(4)(B)(iii), and
``(B) in the case of a taxable year with respect to which
an election is in effect under section 1203, the lesser of--
``(i) the amount described in paragraph (1) of section
1203(a), or
``(ii) the amount described in paragraph (2) of such
section.''.
(2) Corporations.--Section 1201 is amended by redesignating
subsection (b) as subsection (c) and inserting after
subsection (a) the following new subsection:
``(b) Qualified Timber Gain Not Taken Into Account.--For
purposes of this section, in the case of a corporation with
respect to which an election is in effect under section 1203,
the net capital gain for any taxable year shall be reduced
(but not below zero) by the corporation's qualified timber
gain (as defined in section 1203(b)).''.
(c) Deduction Allowed Whether or Not Individual Itemizes
Other Deductions.--Subsection (a) of section 62 is amended by
inserting before the last sentence the following new
paragraph:
``(22) Qualified timber gains.--The deduction allowed by
section 1203.''.
(d) Deduction Allowed in Computing Adjusted Current
Earnings.--Subparagraph (C) of section 56(g)(4) is amended by
adding at the end the following new clause:
``(vii) Deduction for qualified timber gain.--Clause (i)
shall not apply to any deduction allowed under section
1203.''.
(e) Deduction Allowed in Computing Taxable Income of
Electing Small Business Trusts.--Subparagraph (C) of section
641(c)(2) is amended by inserting after clause (iii) the
following new clause:
``(iv) The deduction allowed under section 1203.''.
(f) Treatment of Qualified Timber Gain of Real Estate
Investment Trusts.--Paragraph (3) of section 857(b) is
amended by inserting after subparagraph (F) the following new
subparagraph:
``(G) Treatment of qualified timber gain.--For purposes of
this part, in the case of a real estate investment trust with
respect to which an election is in effect under section
1203--
``(i) Reduction of net capital gain.--The net capital gain
of the real estate investment trust for any taxable year
shall be reduced (but not below zero) by the real estate
investment trust's qualified timber gain (as defined in
section 1203(b)).
``(ii) Adjustment to shareholder's basis attributable to
deduction for qualified timber gains.--

``(I) In general.--The adjusted basis of shares in the
hands of the shareholder shall be increased by the amount of
the deduction allowable under section 1203(a) as provided in
subclauses (II) and (III).
``(II) Allocation of basis increase for distributions made
during taxable year.--For any taxable year of a real estate
investment trust for which an election is in effect under
section 1203, in the case of a distribution made with respect
to shares during such taxable year of amounts attributable to
the deduction allowable under section 1203(a), the adjusted
basis of such shares shall be increased by the amount of such
distributions.
``(III) Allocation of excess.--If the deduction allowable
under section 1203(a) for a taxable year exceeds the amount
of distributions described in subclause (II), the excess
shall be allocated to every shareholder of the real estate
investment trust at the close of the trust's taxable year in
the same manner as if a distribution of such excess were made
with respect to such shares.
``(IV) Designations.--To the extent provided in
regulations, a real estate investment trust shall designate
the amounts described in subclauses (II) and (III) in a
manner similar to the designations provided with respect to
capital gains described in subparagraphs (C) and (D).
``(V) Definitions.--As used in this subparagraph, the terms
`share' and `shareholder'

[[Page S2643]]

shall include beneficial interests and holders of beneficial
interests, respectively.

``(iii) Earnings and profits deduction for qualified timber
gains.--The deduction allowable under section 1203(a) for a
taxable year shall be allowed as a deduction in computing the
earnings and profits of the real estate investment trust for
such taxable year. The earnings and profits of any such
shareholder which is a corporation shall be appropriately
adjusted in accordance with regulations prescribed by the
Secretary.''.
(g) Loss Attributable to Basis Adjustment for Deduction for
Qualified Timber Gain of Real Estate Investment Trusts.--
(1) Section 857(b)(8) is amended by redesignating
subparagraphs (B) and (C) as subparagraphs (C) and (D),
respectively, and by inserting after subparagraph (A) the
following new subparagraph:
``(B) Loss attributable to basis adjustment for deduction
for qualified timber gain.--If--
``(i) a shareholder of a real estate investment trust
receives a basis adjustment provided under subsection
(b)(3)(G)(ii), and
``(ii) the taxpayer has held such share or interest for 6
months or less,

then any loss on the sale or exchange of such share or
interest shall, to the extent of the amount described in
clause (i), be disallowed.''.
(2) Subparagraph (D) of section 857(b)(8), as redesignated
by paragraph (1), is amended by striking ``subparagraph (A)''
and inserting ``subparagraphs (A) and (B)''.
(h) Conforming Amendments.--
(1) Subparagraph (B) of section 172(d)(2) is amended to
read as follows:
``(B) the exclusion under section 1202, and the deduction
under section 1203, shall not be allowed.''.
(2) Paragraph (4) of section 642(c) is amended by striking
the first sentence and inserting ``To the extent that the
amount otherwise allowable as a deduction under this
subsection consists of gain described in section 1202(a) or
qualified timber gain (as defined in section 1203(b)), proper
adjustment shall be made for any exclusion allowable to the
estate or trust under section 1202 and for any deduction
allowable to the estate or trust under section 1203.''
(3) Paragraph (3) of section 643(a) is amended by striking
the last sentence and inserting ``The exclusion under section
1202 and the deduction under section 1203 shall not be taken
into account.''.
(4) Subparagraph (C) of section 643(a)(6) is amended to
read as follows:
``(C) Paragraph (3) shall not apply to a foreign trust. In
the case of such a trust--
``(i) there shall be included gains from the sale or
exchange of capital assets, reduced by losses from such sales
or exchanges to the extent such losses do not exceed gains
from such sales or exchanges, and
``(ii) the deduction under section 1203 shall not be taken
into account.''.
(5) Paragraph (4) of section 691(c) is amended by inserting
``1203,'' after ``1202,''.
(6) Paragraph (2) of section 871(a) is amended by inserting
``or 1203,'' after ``1202,''.
(7) The table of sections for part I of subchapter P of
chapter 1 is amended by adding at the end the following new
item:

``Sec. 1203. Deduction for qualified timber gain.''.

(i) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.

SEC. 702. EXCISE TAX NOT APPLICABLE TO SECTION 1203 DEDUCTION
OF REAL ESTATE INVESTMENT TRUSTS.

(a) In General.--
(1) Ordinary income.--Subparagraph (B) of section
4981(e)(1) is amended to read as follows:
``(B) by not taking into account--
``(i) any gain or loss from the sale or exchange of capital
assets (determined without regard to any reduction that would
be applied for purposes of section 857(b)(3)(G)(i)), and
``(ii) any deduction allowable under section 1203, and''.
(2) Capital gain net income.--Section 4981(e)(2) is amended
by adding at the end the following new subparagraph:
``(D) Qualified timber gain.--The amount determined under
subparagraph (A) shall be determined without regard to any
reduction that would be applied for purposes of section
857(b)(3)(G)(i) but shall be reduced for any deduction
allowable under section 1203 for such calendar year.''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.

SEC. 703. TIMBER REIT MODERNIZATION.

(a) In General.--Section 856(c)(5) is amended by adding
after subparagraph (G) the following new subparagraph:
``(H) Treatment of timber gains.--
``(i) In general.--Gain from the sale of real property
described in paragraph (2)(D) and (3)(C) shall include gain
which is--

``(I) recognized by an election under section 631(a) from
timber owned by the real estate investment trust, the cutting
of which is provided by a taxable REIT subsidiary of the real
estate investment trust;
``(II) recognized under section 631(b); or
``(III) income which would constitute gain under subclause
(I) or (II) but for the failure to meet the 1-year holding
period requirement.

``(ii) Special rules.--

``(I) For purposes of this subtitle, cut timber, the gain
of which is recognized by a real estate investment trust
pursuant to an election under section 631(a) described in
clause (i)(I) or so much of clause (i)(III) as relates to
clause (i)(I), shall be deemed to be sold to the taxable REIT
subsidiary of the real estate investment trust on the first
day of the taxable year.
``(II) For purposes of this subtitle, income described in
this subparagraph shall not be treated as gain from the sale
of property described in section 1221(a)(1).

``(iii) Termination.--This subparagraph shall not apply to
dispositions after the termination date.''.
(b) Termination Date.--Subsection (c) of section 856 is
amended by adding at the end the following new paragraph:
``(8) Termination date.--For purposes of this subsection,
the term `termination date' means the last day of the first
taxable year beginning after the date of the enactment of
this paragraph.''.
(c) Effective Date.--The amendments made by subsection (a)
shall apply to dispositions in taxable years beginning after
the date of the enactment of this Act.

SEC. 704. MINERAL ROYALTY INCOME QUALIFYING INCOME FOR TIMBER
REITS.

(a) In General.--Section 856(c)(2) is amended by striking
``and'' at the end of subparagraph (G), by inserting ``and''
at the end of subparagraph (H), and by adding after
subparagraph (H) the following new subparagraph:
``(I) mineral royalty income earned in the first taxable
year beginning after the date of the enactment of this
subparagraph from real property owned by a timber real estate
investment trust held, or once held, in connection with the
trade or business of producing timber by such real estate
investment trust;''.
(b) Timber Real Estate Investment Trust.--Section
856(c)(5), as amended by this Act, is amended by adding after
subparagraph (H) the following new subparagraph:
``(I) Timber real estate investment trust.--The term
`timber real estate investment trust' means a real estate
investment trust in which more than 50 percent in value of
its total assets consists of real property held in connection
with the trade or business of producing timber.''.
(c) Effective Date.--The amendments by this section shall
apply to taxable years beginning after the date of the
enactment of this Act.

SEC. 705. MODIFICATION OF TAXABLE REIT SUBSIDIARY ASSET TEST
FOR TIMBER REITS.

(a) In General.--Section 856(c)(4)(B)(ii) is amended by
inserting ``(in the case of a quarter which closes on or
before the termination date, 25 percent in the case of a
timber real estate investment trust)'' after ``not more than
20 percent of the value of its total assets is represented by
securities of one or more taxable REIT subsidiaries''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after the date of the
enactment of this Act.

SEC. 706. SAFE HARBOR FOR TIMBER PROPERTY.

(a) In General.--Section 857(b)(6) (relating to income from
prohibited transactions) is amended by adding at the end the
following new subparagraph:
``(G) Special rules for sales to qualified organizations.--
``(i) In general.--In the case of sale of a real estate
asset (as defined in section 856(c)(5)(B)) to a qualified
organization (as defined in section 170(h)(3)) exclusively
for conservation purposes (within the meaning of section
170(h)(1)(C)), subparagraph (D) shall be applied--

``(I) by substituting `2 years' for `4 years' in clause
(i), and
``(II) by substituting `2-year period' for `4-year period'
in clauses (ii) and (iii).

``(ii) Termination.--This subparagraph shall not apply to
sales after the termination date.''.
(b) Prohibited Transactions.--Section 857(b)(6)(D)(v) is
amended by inserting ``or, in the case of a sale on or before
the termination date, a taxable REIT subsidiary'' after
``independent contractor (as defined in section 856(d)(3))
from whom the trust itself does not derive or receive any
income''.
(c) Sales That Are Not Prohibited Transactions.--Section
857(b)(6), as amended by subsection (a), is amended by adding
at the end the following new subparagraph:
``(H) Sales of property that are not a prohibited
transaction.--In the case of a sale on or before the
termination date, the sale of property which is not a
prohibited transaction through application of subparagraph
(D) shall be considered property held for investment or for
use in a trade or business and not property described in
section 1221(a)(1) for all purposes of this subtitle.''.
(d) Termination Date.--Section 857(b)(6), as amended by
subsections (a) and (c), is amended by adding at the end the
following new subparagraph:
``(I) Termination date.--For purposes of this paragraph,
the term `termination date' means the last day of the first
taxable year beginning after the date of the enactment of
this subparagraph.''.
(e) Effective Date.--The amendments made by this section
shall apply to dispositions in taxable years beginning after
the date of the enactment of this Act.
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