Lump-Sum Timber Sale and 1099 Reporting Proposed IRS Regulation

Dr. Linda Wang National Forest Tax Specialist USDA Forest Service

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 (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 Amendment to § (b) (2)

Lump-Sum Timber Sales Proposed 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

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