1. 1 2008 Tax Update Workshop U.S. Forest Service Washington, D.C. August 6, 2008

2. 2 Mark Batson Forest Products Technical Advisor Mark.W.Batson@IRS.Gov

3. 3 Caution: The information contained within this presentation represent the views and/or opinions of the Forest Products Technical Advisor team. They are not official pronouncements of the law or Internal Revenue Service position and cannot be used, cited or relied upon as such. The information contained within this presentation represent the views and/or opinions of the Forest Products Technical Advisor team. They are not official pronouncements of the law or Internal Revenue Service position and cannot be used, cited or relied upon as such.

4. 4 Tax Update Topic Reforestation Costs for Trusts Reforestation Costs for Trusts §194 and Qualified Timber Property (QTP) §194 and Qualified Timber Property (QTP)

5. 5 Reforestation Costs for Trusts The Gulf Opportunity Zone Act (GOZA) made technical corrections to the American Jobs Creation Act (AJCA) clarifying the use of I.R.C. §194 for trusts and estates: The Gulf Opportunity Zone Act (GOZA) made technical corrections to the American Jobs Creation Act (AJCA) clarifying the use of I.R.C. §194 for trusts and estates:  Estates are now treated similarly to other taxpayers and allowed a deduction under §194 (b) and amortization under §194(a)  Trusts are now allowed to amortize reforestation expenditures over 84 months under §194(a), but are not allowed a deduction under §194(b)

6. 6 §194 and Qualified Timber Property (QTP) I.R.C. §194(c)(1) defines the term “qualified timber property” as a woodlot or other site located within the United States which will contain trees in significant commercial quantities and which is held by the taxpayer for the planting, cultivating, caring for, and cutting of trees for sale or use in the commercial production of timber products. I.R.C. §194(c)(1) defines the term “qualified timber property” as a woodlot or other site located within the United States which will contain trees in significant commercial quantities and which is held by the taxpayer for the planting, cultivating, caring for, and cutting of trees for sale or use in the commercial production of timber products.

7. 7 §194 and Qualified Timber Property (QTP) The American Jobs Creation Act changed historical treatment of reforestation costs by: The American Jobs Creation Act changed historical treatment of reforestation costs by: Repealing the 10% Investment Tax Credit for reforestation costs. Repealing the 10% Investment Tax Credit for reforestation costs. Treating up to $10,000 of reforestation costs per “qualified timber property” as deductible expense in the year paid or incurred, §194(b), and Treating up to $10,000 of reforestation costs per “qualified timber property” as deductible expense in the year paid or incurred, §194(b), and Allowing amortization of remaining reforestation costs over an 84-month period, §194(a). Allowing amortization of remaining reforestation costs over an 84-month period, §194(a).

8. 8 §194 and Qualified Timber Property (QTP) Notice 2006-47, I.R.B. 2006-20 (May 1, 2006) Notice 2006-47, I.R.B. 2006-20 (May 1, 2006)  QTP, with § 194 election, is not included in any other timber account (including depletion block) for which depletion is allowed under § 611  QTP account can never become a part of a depletable account for the purposes of a §165(a) deduction