Organizations that purchase the rights to cut down and remove trees from a tract of land now face new IRS rules requiring them to report the sale on a form 1099.

The rule is an amendment to Internal Revenue Code 6045(e), which went into effect on May 28, 2009. According to the ruling, purchasers of standing timber in a lump sum transaction must report the sale on a form 1099-S, which is used to report real estate transactions.

While this ruling only impacts a narrow spectrum of organizations, accounts payable departments in companies that purchase standing timber in a lump sum payment now have a new reporting obligation. The purchaser must provide the seller and the IRS with a completed 1099-S by Jan. 31 of the following year.

According to information on the IRS website, the change essentially brings the reporting requirements of lump sum standing timber payments in line with those for “pay-as-cut” agreements, which are reported as timber royalties on the 1099-S.

For more information on the rule change, see IRS Bulletin TD9450, “Information Reporting for Lump-Sum Timber Sales.”