Lump-Sum Timber Sale and 1099 Reporting

1
Lump-Sum Timber Sale and 1099 Reporting

• Proposed IRS Regulation

2
Dr. Linda Wang

• National Forest Tax Specialist
• USDA Forest Service
• lwang_at_fs.fed.us

3
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

4
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

5
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

6
Current Reporting Requirement

• Lump-sum timber sale is not subject to Form 1099
  reporting
• (Section 1.6045-4 (c) (2) (i))

7
Proposed IRS Regulation

• Under the proposed rule, lump-sum timber sale or
  exchange will be required to be reported to the
  IRS

Source REG-155669-04
Amendment to 1.6045-4 (b) (2)
8
Lump-Sum Timber SalesProposed 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-155669-04
9
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-155669-04