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The Questionable Origins and Longevity of the Tree Act

February 2009

Citation: ELR 10101

Author: Richard A. Westin

On May 22, 2008, a phenomenal event occurred in the taxation of timber: regular business corporations became entitled--for one year--to claim a tax rate of not over 15% on various kinds of dispositions of timber. The change arose under the Timber Revitalization and Economic Enhancement Act of 2007, known as the TREE Act, which was enacted as a component of the Food, Conservation, and Energy Act of 2008, popularly known as the Farm Bill.

The heart of the TREE Act provisions is a reduction of the tax rate regular (C2) corporations pay on their on "qualified timber gain" to 15% for a one-year period starting May 22, 2008. The trees disposed of must be held for over 15 years. The benefit of the new law extends to corporate timber-cutting companies with suitably aged cutting contracts. Ordinarily, no such income would be taxed as capital gains (subject to a 15% ceiling rate otherwise available only for noncorporate taxpayers), but instead as ordinary income, taxable at rates up to 35%. There were also significant revenue-reducing amendments to the taxation of timber transactions by real estate investment trusts, which are not discussed here. The tantalizing question is whether this legislative nose under the tent flap will become a permanent feature of the Internal Revenue Code (IRC), as is often the case with "temporary" provisions.

Richard A. Westin is a Professor of Law at University of Kentucky Law School.

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