Modifying provisions relating to leasing.

1. Rewrites section 472 through section 476

   Replaces

   Removes section 472 through section 476.

   Inserted: SEC. 472. CLASS LIVES FOR UTILITY GRADING COSTS.

   Inserted: (a) Gas Utility Property.--Section 168(e)(3)(E) (defining 15-year property) is amended by striking "and" at the end of clause (ii), by striking the period at the end of clause (iii) and inserting ", and", and by adding at the end the following new clause:

   Inserted: "(iv) initial clearing and grading land improvements with respect to gas utility property.".

   Inserted: (b) Electric Utility Property.--Section 168(e)(3) is amended by adding at the end the following new subparagraph:

   Inserted: "(F) 20-year property.--The term '20-year property' means initial clearing and grading land improvements with respect to any electric utility transmission and distribution plant.".

   Inserted: (c) Conforming Amendments.--The table contained in section 168(g)(3)(B) is amended--

   Inserted: (1) by inserting "or (E)(iv)" after "(E)(iii)", and

   Inserted: (2) by adding at the end the following new item:

   Inserted: "(F).......................................................25".....

   Inserted: (d) Effective Date.--The amendments made by this section shall apply to property placed in service after the date of the enactment of this Act.

   Inserted: SEC. 473. EXPANSION OF LIMITATION ON DEPRECIATION OF CERTAIN PASSENGER AUTOMOBILES.

   Inserted: (a) In General.--Section 179(b) (relating to limitations) is amended by adding at the end the following new paragraph:

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   Inserted: "(6) Limitation on cost taken into account for certain passenger vehicles.--

   Inserted: "(A) In general.--The cost of any sport utility vehicle for any taxable year which may be taken into account under this section shall not exceed $25,000.

   Inserted: "(B) Sport utility vehicle.--For purposes of subparagraph (A)--

   Inserted: "(i) In general.--The term 'sport utility vehicle' means any 4-wheeled vehicle which--

   Inserted: "(I) is manufactured primarily for use on public streets, roads, and highways,

   Inserted: "(II) is not subject to section 280F, and

   Inserted: "(III) is rated at not more than 14,000 pounds gross vehicle weight.

   Inserted: "(ii) Certain vehicles excluded.--Such term does not include any vehicle which--

   Inserted: "(I) does not have the primary load carrying device or container attached,

   Inserted: "(II) has a seating capacity of more than 12 individuals,

   Inserted: "(III) is designed for more than 9 individuals in seating rearward of the driver's seat,

   Inserted: "(IV) is equipped with an open cargo area, or a covered box not readily accessible from the passenger compartment, of at least 72.0 inches in interior length, or

   Inserted: "(V) has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.".

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to property placed in service after the date of the enactment of this Act.

   Inserted: SEC. 474. CONSISTENT AMORTIZATION OF PERIODS FOR INTANGIBLES.

   Inserted: (a) Start-Up Expenditures.--

   Inserted: (1) Allowance of deduction.--Paragraph (1) of section 195(b) (relating to start-up expenditures) is amended to read as follows:

   Inserted: "(1) Allowance of deduction.--If a taxpayer elects the application of this subsection with respect to any start-up expenditures--

   Inserted: "(A) the taxpayer shall be allowed a deduction for the taxable year in which the active trade or business begins in an amount equal to the lesser of--

   Inserted: "(i) the amount of start-up expenditures with respect to the active trade or business, or

   Inserted: "(ii) $5,000, reduced (but not below zero) by the amount by which such start-up expenditures exceed $50,000, and

   Inserted: "(B) the remainder of such start-up expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins.".

   Inserted: (2) Conforming amendment.--Subsection (b) of section 195 is amended by striking "Amortize" and inserting "Deduct" in the heading.

   Inserted: (b) Organizational Expenditures.--Subsection (a) of section 248 (relating to organizational expenditures) is amended to read as follows:

   Inserted: "(a) Election to Deduct.--If a corporation elects the application of this subsection (in accordance with regulations prescribed by the Secretary) with respect to any organizational expenditures--

   Inserted: "(1) the corporation shall be allowed a deduction for the taxable year in which the corporation begins business in an amount equal to the lesser of--

   Inserted: "(A) the amount of organizational expenditures with respect to the taxpayer, or

   Inserted: "(B) $5,000, reduced (but not below zero) by the amount by which such organizational expenditures exceed $50,000, and

   Inserted: "(2) the remainder of such organizational expenditures shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the corporation begins business.".

   Inserted: (c) Treatment of Organizational and Syndication Fees or Partnerships.--

   Inserted: (1) In general.--Section 709(b) (relating to amortization of organization fees) is amended by redesignating paragraph (2) as paragraph (3) and by amending paragraph (1) to read as follows:

   Inserted: "(1) Allowance of deduction.--If a taxpayer elects the application of this subsection (in accordance with regulations prescribed by the Secretary) with respect to any organizational expenses--

   Inserted: "(A) the taxpayer shall be allowed a deduction for the taxable year in which the partnership begins business in an amount equal to the lesser of--

   Inserted: "(i) the amount of organizational expenses with respect to the partnership, or

   Inserted: "(ii) $5,000, reduced (but not below zero) by the amount by which such organizational expenses exceed $50,000, and

   Inserted: "(B) the remainder of such organizational expenses shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the partnership begins business.

   Inserted: "(2) Dispositions before close of amortization period.--In any case in which a partnership is liquidated before the end of the period to which paragraph (1)(B) applies, any deferred expenses attributable to the partnership which were not allowed as a deduction by reason of this section may be deducted to the extent allowable under section 165.".

   Inserted: (2) Conforming amendment.--Subsection (b) of section 709 is amended by striking "Amortization" and inserting "Deduction" in the heading.

   Inserted: (d) Effective Date.--The amendments made by this section shall apply to amounts paid or incurred after the date of the enactment of this Act.

   Inserted: SEC. 475. REFORM OF TAX TREATMENT OF LEASING OPERATIONS.

   Inserted: (a) Clarification of Recovery Period for Tax-Exempt Use Property Subject to Lease.--Subparagraph (A) of section 168(g)(3) (relating to special rules for determining class life) is amended by inserting "(notwithstanding any other subparagraph of this paragraph)" after "shall".

   Inserted: (b) Limitation on Depreciation Period for Software Leased to Tax-Exempt Entity.--Paragraph (1) of section 167(f) is amended by adding at the end the following new subparagraph:

   Inserted: "(C) Tax-exempt use property subject to lease.--In the case of computer software which would be tax-exempt use property as defined in subsection (h) of section 168 if such section applied to computer software, the useful life under subparagraph (A) shall not be less than 125 percent of the lease term (within the meaning of section 168(i)(3))."

   Inserted: (c) Lease Term To Include Related Service Contracts.--Subparagraph (A) of section 168(i)(3) (relating to lease term) is amended by striking "and" at the end of clause (i), by redesignating clause (ii) as clause (iii), and by inserting after clause (i) the following new clause:

   Inserted: "(ii) the term of a lease shall include the term of any service contract or similar arrangement (whether or not treated as a lease under section 7701(e))--

   Inserted: "(I) which is part of the same transaction (or series of related transactions) which includes the lease, and

   Inserted: "(II) which is with respect to the property subject to the lease or substantially similar property, and".

   Inserted: (d) Effective Date.--The amendments made by this section shall apply to leases entered into after December 31, 2003.

   Inserted: SEC. 476. LIMITATION ON DEDUCTIONS ALLOCABLE TO PROPERTY USED BY GOVERNMENTS OR OTHER TAX-EXEMPT ENTITIES.

   Inserted: (a) In General.--Subpart C of part II of subchapter E of chapter 1 (relating to taxable year for which deductions taken) is amended by adding at the end the following new section:

   Inserted: "SEC. 470. LIMITATIONS ON LOSSES FROM TAX-EXEMPT USE PROPERTY.

   Inserted: "(a) Limitation on Losses.--Except as otherwise provided in this section, a tax-exempt use loss for any taxable year shall not be allowed.

   Inserted: "(b) Disallowed Loss Carried to Next Year.--Any tax-exempt use loss with respect to any tax-exempt use property which is disallowed under subsection (a) for any taxable year shall be treated as a deduction with respect to such property in the next taxable year.

   Inserted: "(c) Definitions.--For purposes of this section--

   Inserted: "(1) Tax-exempt use loss.--The term 'tax-exempt use loss' means, with respect to any taxable year, the amount (if any) by which--

   Inserted: "(A) the sum of--

   Inserted: "(i) the aggregate deductions (other than interest) directly allocable to a tax-exempt use property, plus

   Inserted: "(ii) the aggregate deductions for interest properly allocable to such property, exceed

   Inserted: "(B) the aggregate income from such property.

   Inserted: "(2) Tax-exempt use property.--The term 'tax-exempt use property' has the meaning given to such term by section 168(h) (without regard to paragraph (1)(C) or (3)(C) thereof and determined as if property described in section 167(f)(1)(B) were tangible property).

   Inserted: "(d) Exception for Certain Leases.--This section shall not apply to any lease of property which meets the requirements of all of the following paragraphs:

   Inserted: "(1) Property not financed with tax-exempt bonds.--A lease of property meets the requirements of this paragraph if no part of the property was financed (directly or indirectly) from the proceeds of an obligation the interest on which is exempt from tax under section 103(a) and which (or any refunding bond of which) is outstanding when the lease is entered into. The Secretary may by regulations provide for a de minimis exception from this paragraph.

   Inserted: "(2) Availability of funds.--

   Inserted: "(A) In general.--A lease of property meets the requirements of this paragraph if (at any time during the lease term) not more than an allowable amount of funds are--

   Inserted: "(i) subject to any arrangement referred to in subparagraph (B), or

   Inserted: "(ii) otherwise reasonably expected to remain available, to or for the benefit of the lessor or any lender, or to or for the benefit of the lessee to satisfy the lessee's obligations or options under the lease.

   Inserted: "(B) Arrangements.--The arrangements referred to in this subparagraph are--

   Inserted: "(i) a defeasance arrangement, a loan by the lessee to the lessor or any lender, a deposit arrangement, a letter of credit collateralized with cash or cash equivalents, a payment undertaking agreement, a lease prepayment, a sinking fund arrangement, or any similar arrangement (whether or not such arrangement provides credit support), and

   Inserted: "(ii) any other arrangement identified by the Secretary in regulations.

   Inserted: "(C) Allowable amount.--

   Inserted: "(i) In general.--Except as otherwise provided in this subparagraph, the term 'allowable amount' means an amount equal to 20 percent of the lessor's adjusted basis in the property at the time the lease is entered into.

   Inserted: "(ii) Higher amount permitted in certain cases.--To the extent provided in regulations, a higher percentage shall be permitted under clause (i) where necessary because of the credit-worthiness of the lessee. In no event may such regulations permit a percentage of more than 50 percent.

   Inserted: "(iii) Option to purchase.--If under the lease the lessee has the option to purchase the property for other than the fair market value of the property (determined at the time of exercise), the allowable amount at the time such option may be exercised may not exceed 50 percent of the price at which such option may be exercised.

   Inserted: "(3) Lessor must make substantial equity investment.--A lease of property meets the requirements of this paragraph if--

   Inserted: "(A) the lessor--

   Inserted: "(i) has at the time the lease is entered into an unconditional at-risk equity investment (as determined by the Secretary) in the property of at least 20 percent of the lessor's adjusted basis in the property as of that time, and

   Inserted: "(ii) maintains such investment throughout the term of the lease, and

   Inserted: "(B) the fair market value of the property at the end of the lease term is reasonably expected to be equal to at least 20 percent of such basis.

   Inserted: "(4) Lessee may not bear more than minimal risk of loss.--

   Inserted: "(A) In general.--A lease of property meets the requirements of this paragraph if there is no arrangement under which more than a minimal risk of loss (as determined under regulations) in the value of the property is borne by the lessee.

   Inserted: "(B) Certain arrangements fail requirement.--In no event will the requirements of this paragraph be met if there is any arrangement under which the lessee bears--

   Inserted: "(i) any portion of the loss that would occur if the fair market value of the leased property at the time the lease is terminated were 25 percent less than its projected fair market value at the end of the lease term, or

   Inserted: "(ii) more than 50 percent of the loss that would occur if the fair market value of the leased property at the time the lease is terminated were zero.

   Inserted: "(5) Regulatory requirements.--A lease of property meets the requirements of this paragraph if such lease of property meets such requirements as the Secretary may prescribe by regulations.

   Inserted: "(e) Special Rules.--

   Inserted: "(1) Treatment of former tax-exempt use property.--

   Inserted: "(A) In general.--In the case of any former tax-exempt use property--

   Inserted: "(i) any deduction allowable under subsection (b) with respect to such property for any taxable year shall be allowed only to the extent of any net income (without regard to such deduction) from such property for such taxable year, and

   Inserted: "(ii) any portion of such unused deduction remaining after application of clause (i) shall be treated as a deduction allocable to such property in the next taxable year.

   Inserted: "(B) Former tax-exempt use property.--For purposes of this subsection, the term 'former tax-exempt use property' means any property which--

   Inserted: "(i) is not tax-exempt use property for the taxable year, but

   Inserted: "(ii) was tax-exempt use property for any prior taxable year.

   Inserted: "(2) Disposition of entire interest in property.--If during the taxable year a taxpayer disposes of the taxpayer's entire interest in tax-exempt use property (or former tax-exempt use property), rules similar to the rules of section 469(g) shall apply for purposes of this section.

   Inserted: "(3) Coordination with section 469.--This section shall be applied before the application of section 469.

   Inserted: "(f) Other Definitions.--For purposes of this section--

   Inserted: "(1) Related parties.--The terms 'lessor', 'lessee', and 'lender' include any related party (within the meaning of section 197(f)(9)(C)(i)).

   Inserted: "(2) Lease term.--The term 'lease term' has the meaning given to such term by section 168(i)(3).

   Inserted: "(3) Lender.--The term 'lender' means, with respect to any lease, a person that makes a loan to the lessor which is secured (or economically similar to being secured) by the lease or the leased property.

   Inserted: "(4) Loan.--The term 'loan' includes any similar arrangement.

   Inserted: "(g) Regulations.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the provisions of this section, including regulation which--

   Inserted: "(1) allow in appropriate cases the aggregation of property subject to the same lease, and

   Inserted: "(2) provide for the determination of the allocation of interest expense for purposes of this section."

   Inserted: (b) Conforming Amendment.--The table of sections for subpart C of part II of subchapter E of chapter 1 is amended by adding at the end the following new item:

   Inserted: "Sec. 470. Limitations on losses from tax-exempt use property."

   Inserted: (c) Effective Date.--The amendments made by this section shall apply to leases entered into after December 31, 2003.

   Original wording

   Strike sections 472 through 476 and insert:

Read automatically from the Congressional Record. Check the original before relying on it.

As printed