Well, here's the revenue ruling.
https://www.irs.gov/pub/irs-drop/rr-09-23.pdf
The code is here,
https://www.law.cornell.edu/uscode/text/26/126
The revenue ruling asks whether the FHPP qualifies as an excludable program under section 126(a), and the IRS answer is yes.
EQIP looks like a different program, with different goals. But it seems to meet the same general principles and to qualify under 126(a)(8):
Any program of a State, possession of the United States, a political subdivision of any of the foregoing, or the District of Columbia under which payments are made to individuals primarily for the purpose of conserving soil, protecting or restoring the environment, improving forests, or providing a habitat for wildlife.
Then, you have to further look at the purpose of the payment, under the revenue ruling and section 126(b):
Under § 126(b), the excludable portion of a payment is limited to the portion that (1) is determined by the Secretary of Agriculture to be made primarily for the purpose of conserving soil and water resources, protecting or restoring the environment, improving forests, or providing a habitat for wildlife, (2) does not increase substantially the annual income derived from the property, and (3) is not properly associated with a deductible expense.
So on the question of whether EQIP is covered by section 126(a)(8), I would suggest yes (based on my 30 second reading of one EQIP web site!!!). But I am not a tax attorney.
Then, you can't exclude the payment as income if the forest management program helps you earn more money from your property. And you can't exclude the payment from income if it is associated with a deductible expense. Not sure what that would be on forest land, you are the expert there. I will imagine for a moment that you need to replant an area, and replanting is normally a business deduction, so if you also get paid for replanting under EQIP, you have to count the payment as income. Or, supposing that the government pays you to clear an area of mature trees to create a habitat for some creature that likes clearings, and you sell the trees. You can't get paid tax-free and also take the income from the trees. (Those might not be the best examples but hopefully you get the idea.)
Hope that helps.
