Instructions for Form T

Instructions for Form T

(Timber)

Department of the Treasury

Internal Revenue Service

(Rev. December 2013)

Forest Activities Schedule

Section references are to the Internal

Revenue Code unless otherwise noted.

Future Developments

For the latest information about

developments related to Form T

(Timber) and its separate instructions,

such as legislation enacted after it is

published, go to www.irs.gov/timber.

General Instructions

Purpose of Form

Use Form T (Timber), Forest Activities

Schedule, to provide information on

timber accounts when a sale or

deemed sale under sections 631(a),

631(b), or other exchange has

occurred during the tax year.

For additional information

regarding federal income tax rules for

reporting forest-related activities, see

the following publications:

Pub. 225, Farmer’s Tax Guide,

Pub. 535, Business Expenses, and

Pub. 544, Sales and Other

Dispositions of Assets.

Who Must File

Complete and attach Form T to your

income tax return only if you:

Claim a deduction for depletion of

timber,

Elect under section 631(a) to treat

the cutting of timber as a sale or

exchange, or

Make an outright sale of timber

under section 631(b).

Complete Form T in accordance

with sections 194, 611, 631, and

1231, and the related regulations.

Exceptions. You are not required to

file Form T if you only have an

occasional sale of timber (one or two

sales every 3 or 4 years). However,

you must maintain adequate records

of these transactions and other

timber-related activities during the

year, as discussed in Recordkeeping,

below. These transactions may be

treated as an investment for tax

purposes if your property is not held

for use in a trade or business.

Jun 20, 2013

If you are required to file

Form T for the current tax

CAUTION

year (as discussed above

under Who Must File), complete all

the parts of the form that apply.

However, if you are not required to file

Form T but have other forest-related

activities (reportable in Part I

(Acquisitions), Part IV (Reforestation

and Timber Stand Activities), or Part V

(Land Ownership), complete and

attach the appropriate tax form (for

example, Form 4562 to claim

depreciation) or statement to your

income tax return to report these

activities. Also, maintain adequate

records as discussed in

Recordkeeping, below.

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Recordkeeping

Maps. Do not attach maps of your

timber properties to Form T to

substantiate any claimed deduction

for depletion of timber. Instead, you

are required to retain records

sufficient to substantiate your right to

claim the deduction, including a map

(where necessary) to show clearly the

location(s) of timber and land

acquired, timber cut, and timber and

land sold for as long as their contents

may become material in the

administration of any Internal

Revenue law.

Other business records. You must

also keep business records to support

other items reported on your tax return

such as expenses incurred during the

tax year for road construction and for

building drainage structures.

Note. Maintain separate cost

accounts for road construction and

drainage structures, such as ditches

and canals. For example, for roads

constructed for logging timber or to

conduct management activities on fee

land or land held under long-term

cutting contracts, maintain records

showing the number of miles

constructed and how the total

expenditures were either (a)

Cat. No. 39879B

capitalized, (b) amortized, or (c)

claimed as an ordinary expense.

Keep separate records for each

unique stand identifier, depletion

account, block, tract, or geographic

area tributary to a mill or mill complex.

Also, keep records that verify the

basis in property for as long as they

are needed to figure the basis of the

original or replacement property.

Specific Instructions

Part I. Acquisitions

Complete this part if you acquired

timber, timber-cutting contracts, or

forest land during the tax year,

whether the acquisition was by

purchase, exchange, gift, or

inheritance.

How to Report Acquisitions

Report acquisitions during the tax

year (whether taxable or not) of

timber, timber-cutting contracts, or

forest land. Report separately each

acquisition of $10,000 or more.

You may combine acquisitions of

less than $10,000 for each account

and omit lines 2 and 3. For an

acquisition by gift or inheritance, skip

lines 4 through 7.

For an acquisition or lease of

timber-cutting rights on a pay-as-cut

basis, except for those under which all

cutting is completed within the tax

year, do not complete lines 4 through

8. Instead, list the provisions of the

purchase or lease agreement,

including the number of years from

the effective date to the expiration

date, annual minimum cut or payment,

and the payment rates for different

kinds of timber and forest products.

Follow the format of lines 1 through 9

on additional sheets if necessary.

What Is Included in Each

Account

You must include your timber in one

or more accounts. Generally, each

account must include all your timber

that is located in one “block.” A block

may be:

1. An operational unit that includes

all timber that would logically go to a

single point of manufacture,

2. A logging unit that includes all

timber that would logically be

removed by a single logging

development, or

3. An area established by the

geographical or political boundaries of

logical management areas. Timber

acquired under a cutting contract may

not be included in part of a block, but

should be kept in a separate account.

For exceptional cases, the timber in

a given block may be divided into two

or more accounts. See Regulations

section 1.611-3(d) for more

information.

Part II. Timber Depletion

Complete this part for each timber

account that has changed in quantity

or dollar amount. A timber account

may change in quantity or dollar

amount as a result of acquisitions,

dispositions, the cutting of timber,

capitalized expenditures, casualty or

theft losses, corrections, additions for

growth, and transfers from other

accounts. Use this part to figure

depletion for timber cut or the basis

for timber sold or lost during the tax

year. A depletion schedule is required

to be maintained for all types of timber

ownership.

Lines 1 through 6

Provide data for each timber account

separately. Account for any changes

that have occurred during the tax

year. Attach as many additional pages

as needed. If you deplete on a block

basis, combine new purchases with

the opening balances and use the

average depletion rate shown on

line 8, column (b), for all timber cut or

sold, regardless of how long held.

Line 14, column (b)

The casualty loss limitation is

determined by the decrease in fair

market value (FMV) of the Single

Identifiable Property (block) before

and after the casualty event, not to

exceed the basis in the affected block.

Keep FMV appraisals in your records

to support the claimed loss (see

Recordkeeping, earlier).

Line 18a

If you are making the 631(a) election,

or have made the election in a prior

tax year, check the “Yes” box on

line 18a.

Note. The 631(a) election cannot be

made on an amended return.

You must maintain the following

records.

Adjusted basis for depletion.

Maintain records that show the

adjusted basis for depletion, fair

market value (FMV), and gain or loss

for each sale or exchange of standing

timber for which you have a section

631(a) election. The records must

show the adjusted basis for depletion

and the FMV of the timber as of the

first day of the tax year in which timber

was cut. The records must show

these amounts by species and unit

rates if these transactions are

reported on a species basis. The gain

or loss on standing timber is reported

on Form 4797, Sales of Business

Property.

Date of acquisition. The records

must provide the date of acquisition of

timber that was cut in the tax year, if

acquired after March 1, 1913; the

quantity of timber remaining (adjusted

for growth, correction of estimates,

changes in use, and any change in

the log rule or other measure used);

and the adjusted basis at the

beginning of the tax year. The records

must state the acreage cut, the

amount of timber cut from the

applicable block during the tax year,

and the log rule or other method used

to determine the quantity of timber

cut. If depletion accounts are kept by

separate tracts or purchases, give the

information separately for each tract

or timber purchase.

If an average depletion rate based

on the average value or cost of a

timber block was used in earlier years,

the adjusted basis referred to in

section 631(a) is the average basis

shown on line 8, column (b), after

adjustment.

Characteristics of the timber. The

records must describe in detail the

characteristics of the timber that affect

its value, such as total quantity,

species, quality, quantity per acre,

size of the average tree, logging

conditions, and distance to markets.

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Valuation evidence. The records

must provide evidence in the form of

actual sales of comparable timber as

of the valuation date, along with other

valuation evidence used. Include a

computation showing the difference

between the cost (excluding timber or

stumpage cost) and value of the

primary wood product (logs or other

roundwood, chips, etc.) at the mill or

plant. Give detailed evidence that

permits a comparison with the timber

on which you report a value.

Additional information. The records

must include the following additional

information:

1. Location of the sawmill, log

market, or other point of delivery of

the logs or wood to the user or buyer.

2. The total MBF, log scale, cords,

or other units of timber cut, and the

length and diameter of the average

log or the average number of units per

tree.

3. The percentage of rough

lumber grades, by species,

manufactured from the timber during

the year, or, if cut timber is sold as

logs, the percentage of log grades, by

species.

Timber owned or held under a con­

tract right to cut. Show the amount

of timber owned, or held under a

contract right to cut, for a period of

more than 1 year. Show separately

the quantity of timber cut that was

held for less than 1 year. The scale of

logs purchased during the year must

be shown by species and quantity and

excluded from the quantity shown as

cut under section 631(a) in Part II,

line 17. Also show the number, cost,

and point of delivery of purchased

logs by species and grade.

Line 18b

If you are revoking your 631(a)

election, check the “Yes” box.

If you made a section 631(a)

election for any tax year ending before

October 23, 2004, you can revoke that

election without the consent of the

IRS for any tax year ending after

October 22, 2004. The prior election

(and revocation) is disregarded for

purposes of making a subsequent

election. Unless this special rule

applies, or the election was made for

a tax year beginning before 1987, you

can only revoke a section 631(a)

election with IRS consent.

Part III. Profit or Loss From

Land and Timber Sales

spraying, and thinning) applied to a

timber stand regardless of age.

Report each sale involving total

consideration of $10,000 or more.

You may combine sales of less than

$10,000 for each timber or land

account and omit lines 2 and 3 for

each combined small sale.

By entering an amount on this line,

you are indicating that you have

elected to deduct qualifying

reforestation expenses that were paid

or incurred after October 22, 2004, for

each qualified timber property under

section 194(b). You must complete

line 1 of Part IV listing the following:

The account, block, tract, area or

stand identification number for each

qualified timber property (QTP);

The kind of activity (burning,

chopping, spraying, planting, seeding,

thinning, pruning, fertilizing, etc.);

The number of acres treated; and

The total expenditures.

Complete this part to report all

dispositions of timber, timber-cutting

contracts, or forest land during the tax

year (whether taxable or not). Do not

report dispositions by gift or

distributions made by an estate or to a

beneficiary.

Outright sales of timber. Certain

rules under section 631(b) allow the

landowner to treat outright sales of

timber as capital gain. The rules

extending capital gains treatment to

outright sales of timber are similar to

certain disposals of timber under a

contract with a retained economic

interest. However, for outright sales,

the date of disposal is not deemed to

be the date timber is cut because the

owner may elect to treat the payment

date as the date of disposal. For more

information, see section 631(b) and

Pub. 544.

Timber­cutting contract. For a sale

or lease of timber-cutting rights on a

pay-as-cut basis, that will be paid for

at intervals during the cutting period

according to the number of units cut,

complete lines 4, 7, and 8, only for

accounts that must be reported on

your current year income tax return.

Instead of completing lines 5a, 5b,

and 6, briefly state the provisions of

the sale or lease agreement, including

the number of years from the effective

date to the expiration date, annual

minimum cut or payment, and the

payment rates for the different kinds

of timber and forest products. You

may combine small sales or leases of

timber-cutting rights on a pay-as-cut

basis that were completed within the

tax year. Follow the format of lines 1

through 8 on additional sheets if

necessary.

Part IV. Reforestation and

Timber Stand Activities

Summarize your expenditures for

reforestation and timber stand

activities during the tax year. Timber

stand activities include all silvicultural

prescriptions (such as burning,

Line 4a. Reforestation

Expenses

The aggregate amount of

reforestation expenses which can be

claimed on line 4a for any tax year

cannot exceed $10,000 ($5,000 if

your filing status is married filing

separately) for each qualified timber

property for any tax year. The

remaining costs (line 4b) can be

amortized over an 84-month period

using the half-year convention under

section 194(a). For more information

on reforestation costs, see Pub. 535.

If you do not elect to deduct

reforestation expenses under section

194(b), all reforestation expenses will

be capitalized in a deferred timber

depletion account.

Reforestation expenses are direct

costs incurred for reforestation by

planting or artificial or natural seeding.

This includes costs for the preparation

of the site, of seeds or seedlings, and

for labor and tools, including

depreciation of equipment such as

tractors, trucks, tree planters, and

similar machines used in planting or

seeding.

Reimbursements under govern­

mental reforestation cost­sharing

programs. If you have been

reimbursed under any governmental

reforestation cost-sharing program,

you may not claim these expenses

unless the amount reimbursed has

been included in your income.

Qualified timber property (QTP).

Any qualified timber property subject

to section 194(b) may not be

combined with any other qualified

timber property account (depletion

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block) for which depletion is allowed

or for casualty losses (that is, lines 13

and 14 of Part II) or other purposes.

The qualified timber property account

must be maintained until after the

timber is disposed of through sale,

harvest, or other transaction.

For each qualified timber property

(QTP), keep detailed information to

support reforestation costs, showing

treatments and dates of application.

Each qualified timber property is

required to have a unique stand

identifier. Retain this information for

your records. Report expenses such

as supplies, labor, overhead,

transportation, tools, and depreciation

on equipment.

Site preparation. Report all

expenses incurred during the tax year

for preparing the land for planting or

seeding (including natural seeding).

Include expenses for clearing the land

of brush and culling trees by burning,

disking, chopping, shearing and

piling, spraying with herbicides, or

other measures taken to aid

successful site reforestation. Report

this information separately for each

unique stand identifier, depletion

account, block, tract, or operating

area tributary to a mill or mill complex.

Report contract work separately from

your employees' work.

Planting or seeding. Report the

expenses you incurred during the tax

year for planting seedlings or sowing

seed to reforest the land. Report this

information separately for each

unique stand identifier, depletion

account, block, tract, or operating

area tributary to a mill or mill complex.

Report contract work separately from

your employees' work.

Other silvicultural activities.

Report all expenditures that must be

capitalized and items that you elect to

capitalize. Also, list on a separate

attachment items that are treated as

current deductions (including, but not

limited to, weed control, pruning,

fertilization, thinning, insect and

disease control). Report this

information separately for each

unique stand identifier, depletion

account, block, tract, or operating

area tributary to a mill or mill complex.

Report contract work separately from

your employees' work.

For more information, see section

194 and Regulations section 1.194-3.

Part V. Land Ownership

Complete this part to show all

changes in your land account,

including sales or exchanges, during

the tax year. Attach as many

additional sheets as needed, following

the format of lines 1 through 6.

Paperwork Reduction Act Notice.

We ask for the information on this

form to carry out the Internal Revenue

laws of the United States. You are

required to give us the information.

We need it to ensure that you are

complying with these laws and to

allow us to figure and collect the right

amount of tax.

You are not required to provide the

information requested on a form that

is subject to the Paperwork Reduction

Act unless the form displays a valid

OMB control number. Books or

records relating to a form or its

instructions must be retained as long

as their contents may become

material in the administration of any

Internal Revenue law. Generally, tax

returns and return information are

confidential, as required by section

6103.

The time needed to complete and

file this form will vary depending on

individual circumstances. The

estimated burden for individual

taxpayers filing this form is approved

under OMB control number

1545-0074 and is included in the

estimates shown in the instructions for

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their individual income tax return. The

estimated burden for all other

taxpayers who file this form is shown

below.

Recordkeeping . . . . . . . . 34 hr., 12 min.

Learning about the law or

the form . . . . . . . . . . . . .

42 min.

Preparing and sending

the form to the IRS . . . . . 1 hr., 17 min.

If you have comments concerning

the accuracy of these time estimates

or suggestions for making this form

simpler, we would be happy to hear

from you. See the instructions for the

tax return with which this form is filed.