S. 2539

A bill to amend the Internal Revenue Code of 1986 to provide a special depreciation allowance for certain property placed in service during 2008 and 2009.

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II

110th CONGRESS

2d Session

S. 2539

IN THE SENATE OF THE UNITED STATES

January 22 (legislative day, January 3), 2008

Mr. Specter introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to provide a special depreciation allowance for certain property placed in service during 2008 and 2009.

1.

Special depreciation allowance for certain property placed in service during 2008 and 2009

(a)

In general

Subsection (k) of section 168 of the Internal Revenue Code of 1986 is amended to read as follows:

(k)

50 percent bonus depreciation for certain property

(1)

Additional allowance

In the case of any qualified property—

(A)

the depreciation deduction provided by section 167(a) for the taxable year in which such property is placed in service shall include an allowance equal to 50 percent of the adjusted basis of the qualified property, and

(B)

the adjusted basis of the qualified property shall be reduced by the amount of such deduction before computing the amount otherwise allowable as a depreciation deduction under this chapter for such taxable year and any subsequent taxable year.

(2)

Qualified property

For purposes of this subsection—

(A)

In general

The term qualified property means property—

(i)
(I)

to which this section applies which has a recovery period of 20 years or less,

(II)

which is computer software (as defined in section 167(f)(1)(B)) for which a deduction is allowable under section 167(a) without regard to this subsection,

(III)

which is water utility property,

(IV)

which is qualified leasehold improvement property,

(V)

which is qualified restaurant property (as defined in subsection (e)(7), but without regard to subparagraph (A) thereof), or

(VI)

which is qualified retail improvement property,

(ii)

the original use of which commences with the taxpayer on or after the starting date,

(iii)

which is—

(I)

acquired by the taxpayer on or after the starting date and before the ending date, but only if no written binding contract for the acquisition was in effect before the starting date, or

(II)

acquired by the taxpayer pursuant to a written binding contract which was entered into on or after the starting date and before the ending date, and

(iv)

which is placed in service by the taxpayer before the ending date, or, in the case of property described in subparagraph (B) or (C), before the date that is 1 year after the ending date.

(B)

Certain property having longer production periods treated as qualified property

(i)

In general

The term qualified property includes any property if such property—

(I)

meets the requirements of clauses (i), (ii), and (iii) of subparagraph (A),

(II)

has a recovery period of at least 10 years or is transportation property,

(III)

is subject to section 263A, and

(IV)

meets the requirements of clause (ii) or (iii) of section 263A(f)(1)(B) (determined as if such clauses also apply to property which has a long useful life (within the meaning of section 263A(f))).

(ii)

Only pre-ending date basis eligible for additional allowance

In the case of property which is qualified property solely by reason of clause (i), paragraph (1) shall apply only to the extent of the adjusted basis thereof attributable to manufacture, construction, or production before the ending date.

(iii)

Transportation property

For purposes of this subparagraph, the term transportation property means tangible personal property used in the trade or business of transporting persons or property.

(iv)

Application of subparagraph

This subparagraph shall not apply to any property which is described in subparagraph (C).

(C)

Certain aircraft

The term qualified property includes property—

(i)

which meets the requirements of clauses (ii) and (iii) of subparagraph (A),

(ii)

which is an aircraft which is not a transportation property (as defined in subparagraph (B)(iii)) other than for agricultural or firefighting purposes,

(iii)

which is purchased and on which such purchaser, at the time of the contract for purchase, has made a nonrefundable deposit of the lesser of—

(I)

10 percent of the cost, or

(II)

$100,000, and

(iv)

which has—

(I)

an estimated production period exceeding 4 months, and

(II)

a cost exceeding $200,000.

(3)

Exceptions

(A)

Alternative depreciation property

This subsection shall not apply to any property to which the alternative depreciation system under subsection (g) applies, determined—

(i)

without regard to paragraph (7) of subsection (g) (relating to election to have system apply), and

(ii)

after application of section 280F(b) (relating to listed property with limited business use).

(B)

Election out

If a taxpayer makes an election under this subparagraph with respect to any class of property for any taxable year, this subsection shall not apply to all property in such class placed in service during such taxable year.

(4)

Special rules

(A)

Self-constructed property

In the case of a taxpayer manufacturing, constructing, or producing property for the taxpayer's own use, the requirements of paragraph (2)(A)(iii) shall be treated as met if the taxpayer begins manufacturing, constructing, or producing the property after the starting date and before the ending date.

(B)

Sale-leasebacks

For purposes of subparagraph (C) and paragraph (2)(A)(ii), if property is—

(i)

originally placed in service on or after the starting date by a person, and

(ii)

sold and leased back by such person within 3 months after the date such property was originally placed in service,

such property shall be treated as originally placed in service not earlier than the date on which such property is used under the leaseback referred to in subclause (II).
(C)

Syndication

For purposes of paragraph (2)(A)(ii), if—

(i)

property is originally placed in service on or after the starting date by the lessor of such property,

(ii)

such property is sold by such lessor or any subsequent purchaser within 3 months after the date such property was originally placed in service (or, in the case of multiple units of property subject to the same lease, within 3 months after the date the final unit is placed in service, so long as the period between the time the first unit is placed in service and the time the last unit is placed in service does not exceed 12 months), and

(iii)

the user of such property after the last sale during such 3-month period remains the same as when such property was originally placed in service,

such property shall be treated as originally placed in service not earlier than the date of such last sale.
(D)

Limitations related to users and related parties

This subsection shall not apply to any property if—

(i)

the user of such property (as of the date on which such property is originally placed in service) or a person which is related (within the meaning of section 267(b) or 707(b)) to such user or to the taxpayer had a written binding contract in effect for the acquisition of such property at any time before the starting date, or

(ii)

in the case of property manufactured, constructed, or produced for such user's or person's own use, the manufacture, construction, or production of such property began at any time before the starting date.

(5)

Coordination with section 280F

For purposes of section 280F—

(A)

Automobiles

In the case of a passenger automobile (as defined in section 280F(d)(5)) which is qualified property, the Secretary shall increase the limitation under section 280F(a)(1)(A)(i) by $7,650.

(B)

Listed property

The deduction allowable under paragraph (1) shall be taken into account in computing any recapture amount under section 280F(b)(2).

(6)

Deduction allowed in computing minimum tax

For purposes of determining alternative minimum taxable income under section 55, the deduction under subsection (a) for qualified property shall be determined under this section without regard to any adjustment under section 56.

(7)

Starting date; ending date

For purposes of this paragraph—

(A)

Starting date

The term starting date means January 1, 2008.

(B)

Ending date

The term ending date means January 1, 2010.

(8)

Qualified leasehold improvement property

For purposes of this subsection—

(A)

In general

The term qualified leasehold improvement property means any improvement to an interior portion of a building which is nonresidential real property if—

(i)

such improvement is made under or pursuant to a lease (as defined in subsection (h)(7))—

(I)

by the lessee (or any sublessee) of such portion, or

(II)

by the lessor of such portion,

(ii)

such portion is to be occupied exclusively by the lessee (or any sublessee) of such portion, and

(iii)

such improvement is placed in service more than 3 years after the date the building was first placed in service.

(B)

Certain improvements not included

Such term shall not include any improvement for which the expenditure is attributable to—

(i)

the enlargement of the building,

(ii)

any elevator or escalator,

(iii)

any structural component benefitting a common area, and

(iv)

the internal structural framework of the building.

(C)

Definitions and special rules

For purposes of this paragraph—

(i)

Commitment to lease treated as lease

A commitment to enter into a lease shall be treated as a lease, and the parties to such commitment shall be treated as lessor and lessee, respectively.

(ii)

Related persons

A lease between related persons shall not be considered a lease. For purposes of the preceding sentence, the term related persons means—

(I)

members of an affiliated group (as defined in section 1504), and

(II)

persons having a relationship described in subsection (b) of section 267; except that, for purposes of this clause, the phrase 80 percent or more shall be substituted for the phrase more than 50 percent each place it appears in such subsection.

(9)

Qualified retail improvement property

(A)

In general

The term qualified retail improvement property means any improvement to an interior portion of a building which is nonresidential real property if—

(i)

such portion is open to the general public and is used in the trade or business of selling tangible personal property or services to the general public, and

(ii)

such improvement is placed in service more than 3 years after the date the building was first placed in service.

(B)

Certain improvements not included

Such term shall not include any improvement for which the expenditure is attributable to—

(i)

the enlargement of the building,

(ii)

any elevator or escalator, or

(iii)

the internal structural framework of the building.

.

(b)

Coordination with cellulosic biomass ethanol plant property

Paragraph (4) of section 168(l) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:

(D)

Bonus depreciation property

Such term shall not include any property to which subsection (k) applies.

.

(c)

Conforming amendments

(1)

Section 168(e)(6) of the Internal Revenue Code of 1986 is amended by striking section 168(k)(3) and inserting section 168(k)(8).

(2)

Section 168(l) of such Code is amended—

(A)

in paragraph (4), by striking 168(k)(2)(D)(i) and inserting 169(k)(3)(A).

(B)

by striking paragraph (5) and inserting the following:

(5)

Special rules

For purposes of this subsection, rules similar to the rules of paragraph (4) of section 168(k) shall apply, except that in applying such paragraph—

(A)

the starting date shall be one day after the date of the enactment of subsection (l),

(B)

the ending date shall be January 1, 2013, and

(C)

qualified cellulosic biomass ethanol plant property shall be substituted for qualified property in clause (iv) thereof.

, and

(C)

in paragraph (6), by striking 168(k)(2)(G) and inserting 168(k)(6).

(3)

Section 1400L(b)(2) of such Code is amended—

(A)

in subparagraph (A)(i)(I), by inserting (determined without regard to subclauses (V) and (VI) thereof) after 168(k)(2)(A)(i),

(B)

in subparagraph (C)(ii), by striking 168(k)(2)(D)(i) and inserting 168(k)(3)(A),

(C)

in subparagraph (C)(iv), by striking 168(k)(2)(D)(iii) and inserting 168(k)(3)(B), and

(D)

in subparagraph (E), by striking 168(k)(2)(G) and inserting 168(k)(6).

(4)

Section 1400L(c) of such Code is amended—

(A)

in paragraph (2), by striking 168(k)(3) and inserting 168(k)(8), and

(B)

in paragraph (5), by striking 168(k)(2)(D)(iii) and inserting 168(k)(3)(B).

(5)

Section 1400N(d) of such Code is amended—

(A)

in paragraph (2)(A)(i)(I), by inserting (determined without regard to subclauses (V) and (VI) thereof) after 168(k)(2)(A)(i), and

(B)

in paragraph (2)(B)(i), by striking 168(k)(2)(D)(i) and inserting 168(k)(3)(A),

(C)

by striking paragraph (3) and inserting the following:

(5)

Special rules

For purposes of this subsection, rules similar to the rules of paragraph (4) of section 168(k) shall apply, except that in applying such paragraph—

(A)

the starting date shall be August 28, 2005,

(B)

the ending date shall be January 1, 2008, and

(C)

qualified Gulf Opportunity Zone property shall be substituted for qualified property in clause (iv) thereof.

, and

(D)

in paragraph (4), by striking 168(k)(2)(G) and inserting 168(k)(6), and

(E)

in paragraph (6)(B)(ii)(II), by inserting (determined without regard to subclauses (V) and (VI) thereof) after 168(k)(2)(A)(i).

(d)

Effective date

The amendments made by this section shall apply to property placed in service after December 31, 2007.