Green Horizons

New rules for reporting of lump-sum timber sales went into effect May 28, 2009. Prior to this new regulation, only pay-as-cut timber sales were subject to Form 1099 reporting. The IRS cited two reasons for this mandatory reporting: (1) the IRS “has found some taxpayers under-reporting income from lump-sum or outright sales of timber,” and (2) the IRS said the disparate treatment of lump-sum and pay-as-cut timber transactions is not sound tax administration.

TD 9450 outlines the changes to Treasury Regulations §1.6045-4. This section is amended to require purchasers of standing timber in a lump-sum transaction to report the sale or exchange of the timber to the IRS using IRS Form 1099-S (Proceeds from Real Estate Transactions) and to provide the completed form to the seller. The Internal Revenue Code (IRC) section 6045(e)(2) now requires the issuance of this informational form to timber sellers due to the amendment of paragraphs (b)(2)(i)(E), (b)(2)(ii) and (c) (2)(i) of the treasury regulation section 1.6045-4 for sales or exchanges of standing timber for lump-sum payments completed after May 28, 2009. The Form 1099-S is to be provided to the seller by January 31 of the year following the sale and to IRS.

Example: Show-Me Timber Tree Farm hires a consulting forester to cruise and conduct a lump-sum sale by sealed bid of 50 acres of timber. The successful buyer bids $100,000 for the timber. The closing date (timber deed executed and delivered) occurs on June 29, 2009, and a check for $100,000 is delivered to the seller on the same date. The successful buyer must now issue an IRS Form 1099-S to Show-Me Timber by Jan. 31, 2010. The date of June 29, 2009, is placed in Box 1 and the amount of $100,000 goes in Box 2. The description of the timber goes in Box 3 and relevant details for Filer and Transferor are placed in the appropriate boxes. See http://www.irs.gov/irb/2009-24_IRB/ar06.html for more information.