Is Timber Gain Unrelated Business Income?

[Dustyn]

s About Taxes)/Is Timber Gain Unrelated Business Income? Advertisement Expert: Richard Fritzler - 6/12/2005 Hi Richard,

I am a treasurer of a tax-exempt hunting club in Pennsylvania. Our receipts for the fiscal year ended May 31, 2005 consisted of $9,000 of dues from members, $14,000 of interest income from investments, and $55,000 of timber proceeds. The timber sold had a zero cost basis. The hunting club incurred $7,000 to have the timber cut so it appears our hunting club had a $48,000 gain from the sale of the timber.

My question is this. Do you know if the timber gain would be considered unrelated business income subject to federal income tax on Form 990-T?

Your thoughts will be greatly appreciated. Thank you.

Gary Dunlap  

[Ordwald]

Directly from the IRS:

exceptions to the UBTI:

"Gains and losses from disposition of property.   Also excluded from unrelated business taxable income are gains or losses from the sale, exchange, or other disposition of property other than: Stock in trade or other property of a kind that would properly be includable in inventory if on hand at the close of the tax year, Property held primarily for sale to customers in the ordinary course of a trade or business, or

Cutting of timber that an organization has elected to consider as a sale or exchange of the timber.  It should be noted that the last exception relates only to cut timber. The sale, exchange, or other disposition of standing timber is excluded from the computation of unrelated business income, unless it constitutes property held for sale to customers in the ordinary course of business. "

Here is the link for the entire publication:http://www.irs.gov/publications/p598/ch04.html