MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITs.

SEC. 321. MODIFICATION OF SAFE HARBOR RULES FOR TIMBER REITs.(a) Expansion of Prohibited Transaction Safe Harbor.—Section 857(b)(6) (relating to income from prohibited transactions) is amended by redesignating subparagraphs (D) and (E) as subparagraphs (E) and (F), respectively, and by inserting after subparagraph (C) the following new subparagraph:“(D) Certain sales not to constitute prohibited transactions.—For purposes of this part, the term ‘prohibited transaction’ does not include a sale of property which is a real estate asset (as defined in section 856(c)(5)(B)) if—“(i) the trust held the property for not less than 4 years in connection with the trade or business of producing timber,“(ii) the aggregate expenditures made by the trust, or a partner of the trust, during the 4-year period preceding the date of sale which—“(I) are includible in the basis of the property (other than timberland acquisition expenditures), and“(II) are directly related to operation of the property for the production of timber or for the preservation of the property for use as timberland, do not exceed 30 percent of the net selling price of the property,118 STAT. 1474“(iii) the aggregate expenditures made by the trust, or a partner of the trust, during the 4-year period preceding the date of sale which—“(I) are includible in the basis of the property (other than timberland acquisition expenditures), and “(II) are not directly related to operation of the property for the production of timber, or for the preservation of the property for use as timberland,do not exceed 5 percent of the net selling price of the property,“(iv)(I) during the taxable year the trust does not make more than 7 sales of property (other than sales of foreclosure property or sales to which section 1033 applies), or “(II) the aggregate adjusted bases (as determined for purposes of computing earnings and profits) of property (other than sales of foreclosure property or sales to which section 1033 applies) sold during the taxable year does not exceed 10 percent of the aggregate bases (as so determined) of all of the assets of the trust as of the beginning of the taxable year,“(v) in the case that the requirement of clause (iv)(I) is not satisfied, substantially all of the marketing expenditures with respect to the property were made through an independent contractor (as defined in section 856(d)(3)) from whom the trust itself does not derive or receive any income, and“(vi) the sales price of the property sold by the trust is not based in whole or in part on income or profits, including income or profits derived from the sale or operation of such property.”.(b) Effective Date.—The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.