1. 1 Meridian Institute Dialogue on Forested Lands and Taxation 18 October 2006 Todd Barker Partner Meridian Institute

2. 2 Meridian Institute is a non-profit organization that helps people solve problems and make informed decisions about complex and controversial societal problems Services Multi-Party Problem Solving Strategy Assessment and Planning Leadership in the Theory and Practice of Collaboration Issues Environment, Natural Resources, Agriculture, Food Security, Science and Technology, Security, and Health Scale Local, national and international levels

3. 3 Meridian Institute – Selected Forestry Projects Millennium Ecosystem Assessment (MA) First and Second International Dialogue on Forest Certification Comparative Analysis of the Forest Stewardship Council (FSC) and Sustainable Forestry Initiative (SFI) Collaborative Adaptive Management Network (CAMNet) Workshop Series on Implementation of ESA Provisions for Private Landowners Multi-Stakeholder Dialogue on Roadless Area Conservation Roundtable on Sustainable Forests Workshop on Assessing the Environmental Outcomes of Community-Based Collaboratives (CBCs) Wyoming Landowner & Sportsmen Forum Loblolly Pine Genome Funding Principal Investigators Meeting

4. 4 Meridian Dialogue Forested Lands and Taxation Goal Outline federal tax-related strategies to eliminate disincentives and promote incentives for private landowners, both industrial and non- industrial, to maintain forests as forests and to prevent further fragmentation in this country. 2 Meetings Consensus building process 30 individuals from national and regional environmental organizations; industrial forest landowners; non-industrial forest landowners; state foresters; the U.S. Forest Service; and experts in forest and tax policy and management

5. 5 Dialogue Topics Covered CAPITAL GAINS CONSERVATION EASEMENTS COST RECOVERY ESTATE TAXES MARKET FORCES AND LAND USE POLICIES

6. 6 Recommendations CONSERVATION EASEMENTS –No. 1 – Income Tax Deduction –No. 2 – Income Tax Deduction –No. 3 – Sale of Easements to Land Trusts or Government Agencies COST RECOVERY –No. 4 – Material Participation –No. 5 – Stewardship, Restoration, and Reforestation –No. 6 – Wilderness Tax Credit ESTATE TAXES –No. 7 – Estate Tax Deferral: An Agreement in Principle –No. 8 – Special Use Valuation –No. 9 – Section 6166, Business Requirement –No. 10 – Conservation Easement (IRC 2031(c)) –No. 11 – Conservation Easement (IRC 2031(c)) –No. 12 – Estate Planning TASK FORCE and INDEPENDENT STUDY –No. 13 – Presidential Task Force and Independent Study

7. 7 Implementation Recommendations 1 and 2 Increase tax deduction for donation of a conservation easement from 30% of income to 50% of income, and provide unlimited carryover of these deductions. Increased the carryover of these deductions from 5 to 15 years. Congress recently enacted changes that increase the tax deduction for donation of a conservation easement from 30% of income to 50% and, for landowners whose income is more than 50% from agriculture including the growing and harvesting of trees, 100% of income. Expires for donations made after December 31, 2007. Recommendation 10 Remove the geographic limitations on estate tax benefits available through IRC 2031(c) (for easement protected lands). Enacted by Congress in 2001

8. 8 Implementation Recommendation 12 Integrate estate planning into both public and private sector education, extension, and cooperative forestry programs designed for non-industrial private landowners. Establishment of a National Timber Tax Website by Purdue University with funding from USFS. Http://www.timbertax.org/estate/estate.asp

9. 9 Property Taxes Cost Recovery Section Recommendation No. 4 – Material Participation Eliminate the requirement of “material participation” for forest landowners and eliminate the distinction between businesses and investors in order to allow all owners to fully deduct management expenses and property taxes related to their forestland as they occur. Recommendation No. 6 – Wilderness Tax Credit Provide a tax credit for the property taxes paid on properties for which an easement has been enacted that requires land to be used in a manner consistent with lands designated as federal wilderness areas (Dialogue members discussed a number in the range of a 100 percent tax credit).

10. 10 Property Taxes Recommendation No. 13 – Presidential Task Force and the Need for an Independent Study Issue (2b) – The feasibility and effectiveness of reforming any state property taxes for forestlands that are still based on “highest and best use” valuation instead of current use valuation, and improving conversion protections on lands receiving preferential tax treatment. Discussion (2b) – A number of forested states have recognized that taxing forestlands based on their development potential (or “highest and best use”) can force landowners to sell off and develop their property…

11. 11 Property Taxes Item (2c) – Some local governments and regional planning entities have been experimenting with mechanisms that may encourage more land- efficient development patterns, or “smart growth.” TDR programs provide a means for landowners in areas planned for maintenance as forestlands to “sell” their development rights to landowners in areas planned for development. “Clustering” programs encourage owners of larger properties to “cluster” development in one portion of the property and protect the remainder, instead of dispersing the development across the property.

12. 12 Meridian Institute Todd Barker E-mail: tbarker@merid.org Telephone: +1-802-899-2625 Http://www.merid.org/pdf/9044FINAL.pdf Meridian Institute Dialogue on Forested Lands and Taxation Http://www.merid.org Meridian Institute Additional Resources