Forest Health Protection Cost Share Tax Update

Dr. Linda Wang National Forest Tax Specialist USDA Forest Service

Forest Health Management Cost Share  Forest Health Management program cost share was authorized to prevent and control:  gypsy moth  southern pine beetle  spruce budworm infestations or  or other major insect infestations (§ 8(i)(1)(A) of the Cooperative Forestry Assistance Act of 1978)

Cost Share Tax Treatment  Generally governmental cost share payment are taxable income  However, qualified cost share payment may be excluded from a taxpayer’s income (Tax Code §126)

Sec. 126 Income Exclusion An example  Mr. Smith received $3,000 cost share payment (shown on Form 1099-G) from qualified forestry program to manage his timberland.  He may elect to exclude all or part of the $3,000 from his income, using the IRS formula, under the tax regulation of §126

Sec. 126 Income Exclusion Examples of Qualified Programs  Forest Land Enhancement Program cost share  Environmental Quality Incentive Program cost share  Various state forestry programs Forestry Development Program NC Reforestation of Timberlands Act Program VA Forest Improvement Program CA Forest Renewal Program SC Forestry Development Program IL

Filing for Sec. 126 Exclusion Forest Health Management Cost Share  First step The Secretary of Department of Agriculture has approved the Forest Health Management cost share (Tax Code §126 (b)(1)(A)) (USDA Reg. 7 CFR part 14)

Filing for Sec. 126 Exclusion Forest Health Management Cost Share  Second step  The Forest Health Management cost share program is under review by the IRS  If approved, a revenue ruling will be issued to qualify Forest Health Management cost share for Sec. 126