1. Forest Health Protection Cost Share Tax Update
Updated August 2009

2. National Forest Tax Specialist USDA Forest Service lwang@fs.fed.us
Dr. Linda Wang
National Forest Tax Specialist
USDA Forest Service

3. Forest Health Protection Cost Share
Forest Health Protection program cost share provide treatment for:
southern pine beetle
western bark beetle
forest diseases
invasive plants
or other major insect infestations
10 million cost share authorized annual program

4. Cost Share Tax Treatment
Generally governmental cost share payment are taxable income
However, qualified cost share payment may be excluded from a taxpayer’s income (Tax Code §126)
10 million cost share authorized annual program

5. Sec. 126 Income Exclusion An example
Mr. Smith received $3,000 cost share payment (shown on Form 1099-G) from qualified forestry program to manage his timberland.
He may elect to exclude all or part of the $3,000 from his income, using the IRS formula, under the tax regulation of §126

6. Sec. 126 Income Exclusion Examples of Qualified Programs
Forest Land Enhancement Program cost share
Environmental Quality Incentive Program cost share
Various state forestry programs
Forestry Development Program NC
Reforestation of Timberlands Act Program VA
Forest Improvement Program CA
Forest Renewal Program SC
Forestry Development Program IL

7. Filing for Sec. 126 Exclusion Forest Health Protection Cost Share
First step
The Secretary of Department of Agriculture has approved the Forest Health Protection cost share
(Tax Code §126 (b)(1)(A))
(USDA Reg. 7 CFR part 14)
The Secretary of Agriculture makes a determination whether cost-share payments made to participants are for the purpose of “conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife” (26 U.S.C. 126 (b)(1)(A)). As per Department regulations (7 CFR 114 should be “7 CFR 14”, a typo), the Department considers the program authority, associated regulations, current program policies and procedures, descriptions of practices or measures for which payments are made, and any other pertinent program information, when making this determination.

8. Filing for Sec. 126 Exclusion Forest Health Protection Cost Share
Second step
The Forest Health Protection cost share program is approved by the IRS
Revenue ruling was issued by the IRS (IRB )

9. Forest Health Protection Cost Share Approved for Sec. 126
For more information,
please go to front page