[Federal Register: November 29, 2007 (Volume 72, Number 229)]
[Proposed Rules]
[Page 67589-67591]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29no07-14]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-155669-04]
RIN 1545-BE73
Information Reporting for Lump-Sum Timber Sales
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations that provide
guidance regarding the information reporting requirements contained in
section 6045(e) of the Internal Revenue Code (Code) on sales or
exchanges of standing timber for lump-sum (outright) payments. The
proposed regulations amend Sec. 1.6045-4 of the Income Tax Regulations
to require real estate reporting persons, as defined in section
6045(e)(2) of the Code, to report lump-sum payments received by sellers
(landowners) for sales or exchanges of standing timber. This action is
being
[[Page 67590]]
taken to make the reporting requirements for lump-sum sales of standing
timber consistent with the reporting requirements applicable to pay-as-
cut timber sales. The proposed regulations do not change the
information reporting requirements that currently apply to sales or
exchanges of standing timber for pay-as-cut (contingent) payments under
section 6050N of the Code.
DATES: Written or electronic comments and requests for a public hearing
must be received by February 27, 2008.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-155669-04), room
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
155669-04), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC, or via the Federal eRulemaking Portal at
http://www.regulations.gov (IRS REG-155669-04).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulation,
Julie Hanlon-Bolton of the Office of Chief Counsel (Procedure and
Administration), at (202) 622-7028; for questions concerning
submissions of comments, contact Kelly Banks at (202) 622-7180.
SUPPLEMENTARY INFORMATION:
Background
This document contains a proposed amendment to the Income Tax
Regulations under section 6045(e). The amendment imposes information
reporting requirements on sales or exchanges of standing timber for
lump-sum payments, commonly referred to as lump-sum or outright timber
sales. A lump-sum contract provides for a pre-set, fixed, and non-
contingent payment in exchange for the right to cut and remove
designated trees. In these transactions, sellers of standing timber
receive fixed payments that are not based on the amount of the timber
actually cut. The sellers do not retain any economic interest in the
timber and bear no risk of loss upon execution of the sales contract.
Sales or exchanges of standing timber for contingent payments,
commonly referred to as pay-as-cut timber sales, allow purchasers to
cut designated trees in exchange for a payment that is based on a
specified rate for each unit of timber actually cut and measured. In
these transactions, sellers of standing timber receive payments that
are contingent on the amount of timber actually cut. The sellers retain
an economic interest in the timber and continue to bear economic risk
associated with the sales contract until the timber is actually cut and
removed.
Because the sellers of standing timber who enter into pay-as-cut
transactions retain an economic interest until the timber is actually
cut and removed, the payments are characterized as timber royalties
reportable under section 6050N on Form 1099-S, ``Proceeds from Real
Estate Transactions.'' See Announcement 90-129, 1990-48 IRB 10.
However, currently, no information reporting obligation applies to
a sale or exchange of standing timber for a lump-sum payment. The
information reporting requirements of section 6050N do not apply to a
sale or exchange of timber for a lump-sum payment because the seller
retains no economic interest and bears no economic risk of loss in the
timber upon execution of the sales contract.
Recognizing the disparate treatment in the reporting of timber sale
and exchange transactions, the Treasury Department has reconsidered the
information reporting requirements under section 6045(e) as they apply
to lump-sum sales or exchanges of standing timber and has decided to
amend the regulations to require information reporting for these
transactions.
Currently, section 6045(e) requires a ``real estate reporting
person,'' as defined in section 6045(e)(2), to make an information
return and furnish a statement to the transferor with respect to a real
estate transaction that consists in whole or in part of the sale or
exchange of ``reportable real estate.'' Section 1.6045-4(b)(2) defines
``reportable real estate'' as, among other things, any present or
future ownership interest in land. Section 1.6045-4(c)(2)(i) provides
that no return of information is required with respect to a sale or
exchange of an interest in timber, provided that the sale or exchange
of such property is not related to the sale or exchange of reportable
real estate.
The preamble to Sec. 1.6045-4 provides background information
concerning the exception for timber sales in Sec. 1.6045-4(c)(2)(i),
stating in pertinent part as follows:
The proposed regulations provided an exception from the
reporting requirements for transactions involving natural resources,
including standing timber. Section 6050N of the Code requires
reporting for certain royalty payments, including timber royalties,
but not for other transactions involving timber. The IRS believes
that the disparity in the reporting requirements for different forms
of timber transactions may be inappropriate. However, this issue was
not addressed in the public comments and was not considered at the
public hearing. Accordingly, the final regulations contain the
exception for natural resource transactions, including standing
timber. The IRS will open a new regulations project to consider the
expansion of the reporting requirements to include sales and
exchanges of standing timber. Any requirements for the reporting of
standing timber will apply only to transactions occurring after the
issuance of such requirements. See 55 FR 51282, TD 8323.
The IRS has found that some taxpayers are underreporting income
from lump-sum or outright sales of timber, resulting in a loss of tax
revenue. Additionally, the Treasury Department and the IRS do not think
that the disparate treatment of lump-sum and pay-as-cut timber
transactions for information reporting purposes is in the interests of
sound tax administration. Based on considerations of tax policy and
sound tax administration, the Treasury Department has decided to amend
the regulations under section 6045(e) to require information reporting
for sales or exchanges of standing timber for lump-sum payments.
This amendment provides that sales or exchanges of standing timber
for lump-sum payments are ``reportable real estate'' transactions under
Sec. 1.6045-4(b)(2) and, thus, shall be reported as provided in
section 6045(e) and the regulations.
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collection of information should be
sent to the Office of Management and Budget, Attn: Desk Officer for the
Department of Treasury, Office of Information and Regulatory Affairs,
Washington, DC 20503, with copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC
20224. Comments on the collection of information should be received by
February 27, 2008. The Treasury Department is interested in comments on
the following:
Whether the proposed collection of information is necessary for the
proper performance of the function of the IRS, including whether the
information will have practical utility;
[[Page 67591]]
The accuracy of the estimated burden associated with the proposed
collection of information (see below);
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collections of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of service to provide information.
The collection of information affected by this proposed regulation
is described in Sec. 1.6045-4. The collection of information is
mandatory. The likely respondents are for-profit corporations and small
business entities.
Estimated total annual reporting burden: 10,000 hours.
Estimated average annual burden hours per respondent: .5 hours.
Estimated number of respondents: 20,000.
Estimated frequency of responses: annually.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any Internal Revenue Law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Proposed Effective Date
These amendments shall apply to sales or exchanges of standing
timber for lump-sum payments completed on or after the date of
publication of a Treasury decision adopting these rules as final
regulations in the Federal Register.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It has also
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. Chapter 5) does not apply to these regulations. It is hereby
certified that collection of information in this regulation will not
have a significant economic impact on a substantial number of small
entities. This certification is based on the fact that the collection
of information burden imposed by these regulations flows directly from
section 6045(e) of the Code. Moreover, requiring information reporting
as described in the preamble with regard to sales or exchanges of
standing timber for lump-sum payments imposes minimal burden in time or
expense. Therefore, a Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C. Chapter 6) is not required. The
IRS invites comments on the accuracy of this certification. Pursuant to
section 7805(f) of the Code, this notice of proposed rulemaking has
been submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Comments and Request for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comments that are submitted timely to the
IRS. The IRS and the Treasury Department request comments on the
clarity of the proposed rules and how they can be made easier to
understand. All comments will be available for public inspection and
copying.
A public hearing may be scheduled if requested by any person who
timely submits comments. If a public hearing is scheduled, notice of
the date, time and place for the hearing will be published in the
Federal Register.
Drafting Information
The principal author of these regulations is Julie A. Hanlon-Bolton
of the Office of Associate Chief Counsel (Procedure and
Administration). However, other personnel from the IRS and the Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.6045-4 is amended by:
1. Redesignating paragraphs (b)(2)(i), (b)(2)(ii), (b)(2)(iii), and
(b)(2)(iv) as paragraphs (b)(2)(i)(A), (b)(2)(i)(B), (B)(2)(i)(C), and
(b)(2)(i)(D), respectively.
2. Adding paragraph (b)(2)(i)(E).
3. Redesignating paragraph (b)(2) introductory text as (b)(2)(i)
introductory text.
4. Designating the undesignated text as paragraph (b)(2)(ii).
5. Adding a new last sentence at the end of newly designated
paragraph (b)(2)(ii).
6. Revising paragraph (c)(2)(i) and paragraph (s).
The revisions and additions read as follows:
Sec. 1.6045-4 Information reporting on real estate transactions with
dates of closing on or after January 1, 1991.
* * * * *
(b) * * *
(2)* * * (i) * * *
(E) Any non-contingent interest in standing timber.
(ii) * * * Further, the term ownership interest includes any
contractual interest in a sale or exchange of standing timber for a
lump-sum payment that is fixed and not contingent.
* * * * *
(c) * * *
(2) * * *
(i) An interest in surface or subsurface natural resources (for
example, water, ores, and other natural deposits) or crops, whether or
not such natural resources or crops are severed from the land. For
purposes of this section, the terms ``natural resources'' and ``crops''
do not include standing timber.
* * * * *
(s) Effective/applicability date. This section applies for real
estate transactions with dates of closing (as determined under
paragraph (h)(2)(ii) of this section) that occur on or after January 1,
1991. The amendments to paragraphs (b)(2)(i)(e), (b)(2)(ii) and
(c)(2)(i) of this section shall apply to sales or exchanges of standing
timber for lump-sum payments completed after the date specified in the
final regulations.
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E7-23098 Filed 11-28-07; 8:45 am]
BILLING CODE 4830-01-P