35 Miss. Admin. Code Pt. III, Subpt. 5, Ch. 09 — Reforestation Tax Credit

100 Owner and Land Eligibility

# 1.

An eligible owner may be a non-resident; however, eligible lands include only land
located within the State of Mississippi. If one person as a life tenant holds property
with remainder to another person, the life tenant is considered to be the eligible
owner of the property that may qualify as eligible land for reforestation tax credit
purposes. For purposes of this section, eligible lands shall not include leased
property. Accordingly, a lessee cannot qualify as an eligible owner with respect to
costs incurred for reforestation practices on leased land.

# 2.

Land on which cost share assistance was received for a particular practice is not
eligible for the reforestation tax credit for that practice, unless the eligible owner's
adjusted gross income is less than the federal earned income credit level for that
taxable year. The STC will determine the federal earned income credit level each
year based on information provided by the Internal Revenue Service.
101 Credit Limitations
1. When married taxpayers own eligible land jointly and implement a reforestation
plan on that land, they are considered to be one taxpayer for purposes of applying
the limitations on the amount of reforestation tax credit earned on that property.
Each spouse may also qualify as an eligible owner, in their own right, (each being
eligible for the maximum lifetime RTC of $10,000) provided that each spouse
individually had qualified expenditures on eligible land which followed a certified
reforestation plan. When each spouse qualifies as an eligible owner, and a
reforestation tax credit was earned on eligible land owned jointly by the spouses,
each spouse will be considered to have earned one -half of the reforestation tax
credit with respect to the jointly owned property/properties. When married
taxpayers file jointly and each spouse qualifies for the reforestation tax credit, each
spouse must file a separate RTC form to claim their respective reforestation tax
credit. In computing their respective reforestation tax credit on their individual
RTC form, each spouse must use one-half of the total income tax liability reflected
on the combined return and one -half of the total amount of all other credits
available to be claimed on the joint return.
2. In the case of a pass -through entity (partnership or S Corporation), the maximum
qualifying expenditure ($20,000) giving rise to the maximum $10,000 lifetime
reforestation tax credit shall be applied at both the pass-through entity level and at
the investor (partner or shareholder) level. The maximum $10,000 reforestation tax
credit earned by the pass -through entity is allocated to each investor, partner or
shareholder based on their ownership interest.

# 3.

Where more than one person has an undivided ownership interest in eligible land,
and two or more of the interest holders implement a reforestation plan on that land,
for purposes of this section, the project will be considered a joint venture and
treated in the same manner as a partnership. Accordingly, the joint venture will be
considered the eligible owner and the maximum qualifying expenditure limitation
shall be applied at the joint venture level as in other pass-through entity situations.
102 Applications
1. For purposes of computing eligible costs on which the RTC is computed, total
expenditures made during the taxable year on all eligible acres must be reduced by
the amount of any cost-sharing proceeds received from federal and/or state forestry
incentives programs with respect to such eligible acres.
2. Reforestation costs generally must be capitalized and included in the adjusted basis
of the qualified timber property. Any reforestation costs incurred and paid during a
tax year must be reduced by the amount of any federal and/or state cost -sharing
proceeds received, and the adjusted basis of the property decreased accordingly. If
the taxpayer claims investment tax credit and reforestation amortization deductions
with respect to qualifying reforestation expenditures for Federal income tax
purposes, the basis of the qualified timber property (for State purposes) shall first be
reduced by 50% of the federal investment tax credit. In addition, the adjusted basis
of the property must be reduced by 100% of the reforestation tax credit earned with
respect to that property. With respect to the property on which the Federal
investment tax credit and reforestation amortization deductions are claimed,
amortization for State purposes may be claimed on the portion of the qualifying
state reforestation expenditures (after being reduced by the Federal investment tax
credit adjustment and the RTC earned) which exceeds the basis of the Federal
qualifying reforestation expenditures (after being reduced by the Federal investment
tax credit adjustment and the Federal amortization to be claimed.) Amortization for
state purposes is to be computed in the same manner as for Federal purposes.
103 Verification and Certification
1. The RTC is based on eligible expenditures made during each taxable year (as
limited in the statute) for seedlings, seed/acorns, seeding, planting by hand or
machine, site preparation, and post -planting site preparation on all eligible acres.
When an approved reforestation practice, as defined in the statute, is completed in
the taxable year, the RTC may be computed and claimed with respect to all of the
eligible costs of the completed practice. Verification by a qualified forester that the
reforestation practice(s) were completed and that the reforestation prescription or
plan was followed is required in order to claim the reforestation tax credit. A
determination must be made on a year by year basis to determine if the costs
incurred during that year are eligible expenditures for approved reforestation
practices for eligible tree species on eligible lands. The fact that expenditures made
under a prescription or plan during one year do not qualify (for example: some cost
share assistance was received and the taxpayer's adjusted gross income exceeded
the federal earned income credit level) does not mean that expenditures made under
the same prescription or plan in the subsequent or prior year would not qualify for
the credit (for example: some cost share assistance was received in the subsequent
year, but, in that year, the taxpayer's adjusted gross income was less than the federal
earned income credit level). In the event that RTC is earned with respect to a
practice completed during a taxable year, and the overall prescription or plan is, for
any reason, not subsequently completed in its entirety, any RTC previously earned
must be recaptured in full.
2. When a pass -through entity (generally, a partnership or S Corporation) is the
eligible owner and makes expenditures qualifying for the RTC, the credit is passed
through to the investors who may utilize the credit to offset all or a portion of their
income tax liability. The Schedule K -1 issued by the pass -through entity to the
investor should indicate the investor's allocated RTC. Also, a copy of the pass -
through entity's RTC form containing the certification of a qualified forester as
required by the statute, should be furnished to the investor to substantiate his claim
for the credit on his income tax return. A copy of the RTC form provided by the
pass-through entity should be attached to the investor's RTC form prepared and
filed with the investor's income tax return. Regulation 803 provides that an income
tax credit allowed to an S corporation may be passed on to the shareholders but may
only be used to offset and reduce tax on income of the S corporation allocated to
the shareholders. Similar restrictions are implied with respect to income tax credits
allowed to partnerships and other pass-through entities which are passed on to their
investors. Notwithstanding this statement in Regulation 803 and the similar
implied restrictions relating to partnerships and other pass -through entities, the
reforestation tax credit received from pass -through entities may, subject to the
limitations stated in Section 27 -7-22.15, be used by investors to offset all or a
portion of their income tax liability.
104 Record Keeping
Since the RTC may be carried forward and claimed until such time as 100% of the credit is
utilized, the taxpayer must maintain appropriate records to substantiate the amount of the
credit earned, by year, up to the maximum lifetime $10,000 credit; copies of the
reforestation prescription(s) or plan(s); copies of the RTC forms containing the signature of
the forester certifying the completion of the prescription or plan; and copies of all RTC
forms filed so that the utilization of the credit against tax liability can be verified. When
claiming RTC carried over from an earlier year or years, a copy of the RTC form
containing the original certification of a qualified forester for the tax year in which the
RTC was earned should be attached to the RTC form filed for the current year.
Recordkeeping is extremely important since failure to adequately document the credit may
result in the disallowance of the credit claimed.
105 Other
In order to provide statistical information concerning the participation in reforestation
activities, a copy of the "Reforestation Tax Credit - Cost Worksheet" (page 2 only of each
RTC form filed), must be mailed to the Mississippi Forestry Commission at the address
shown on the form.
106 Example 1
During taxable year 1, Taxpayer incurs qualifying reforestation costs in the amount of
$15,000. All of the costs incurred qualify for federal investment credit and reforestation
amortization and for the Mississippi reforestation tax credit. The taxpayer elects to claim
the investment tax credit and to amortize the maximum expenditure ($10,000) for federal
tax purposes. Taxpayer also claims a reforestation tax credit of $7,500 ($15,000 X 50%)
for Mississippi tax purposes. The taxpayer must make the following basis adjustments and
is entitled to reforestation amortization deductions for both federal and state purposes as
shown below:
Year Item Amortization Basis
Federal State
Qualifying Reforestation Costs $15,000 $15,000
Investment Credit (Federal) -500 -500
Reforestation Tax Credit Earned -7,500
Remaining Basis 14,500 7,000
Federal Amortization to be Claimed 9,500
Remaining Basis After Federal Amortization 5,000 -5,000
State Amortization to be Claimed 2,000
1 Amortization: $9,500/84 = 113 x 6 months 679
Amortization: $2,000/84 = 24 x 6 months 142
2 Amortization: $9,500/84 = 113 x 12 months 1,357
Amortization: $2,000/84 = 24 x 12 months 286
3 Amortization: $9,500/84 = 113 x 12 months 1,357
Amortization: $2,000/84 = 24 x 12 months 286
4 Amortization: $9,500/84 = 113 x 12 months 1,357
Amortization: $2,000/84 = 24 x 12 months 286
5 Amortization: $9,500/84 = 113 x 12 months 1,357
Amortization: $2,000/84 = 24 x 12 months 286
6 Amortization: $9,500/84 = 113 x 12 months 1,357
Amortization: $2,000/84 = 24 x 12 months 286
7 Amortization: $9,500/84 = 113 x 12 months 1,357
Amortization: $2,000/84 = 24 x 12 months 286
8 Amortization: $9,500/84 = 113 x 6 months 679
Amortization: $2,000/84 = 24 x 6 months 142
Adjusted Basis (After federal amortization period) $5,000 $5,000
107 Example 2
During year 1, Taxpayer has a reforestation prescription prepared which includes site
preparation, planting seedlings by machine, and post -planting site preparation, on a 100
acre plot of land. In the fall of year 1, site preparation work was completed at a cost of
$12,500. In the spring of year 2, planting of the seedlings was completed at a cost of
$6,400. Later in year 2, post -planting site preparation was performed at a cost of $4,000,
completing all of the reforestation practices contained in the p rescription. For year 1,
Taxpayer has eligible expenditures of $12,500. Upon certification by a qualified forester
that site preparation work was completed and that the reforestation prescription was
followed, Taxpayer may determine the amount of RTC earned for year 1. For year 2,
Taxpayer has eligible expenditures of $10,400. Upon certification by a qualified forester
that the prescription practices were completed and that the reforestation prescription was
followed, Taxpayer may determine the amount of RTC earned for year 2. A RTC Form
must be filed for each year covering the practices completed and each RTC Form must be
signed by a qualified forester certifying that the practices were completed in accordance
with the prescription or plan. In the event that Taxpayer chooses not to complete the
prescription plan in Year 2 and uses the property for other purposes, the RTC earned in
year 1 must be recaptured.
108 (Reserved)
109 (Reserved)
Subpart 06 Losses