A bill to amend the Internal Revenue Code of 1986 to expand the expense treatment for small businesses and to reduce the depreciation recovery period for restaurant buildings and franchise operations, and for other purposes.

Summary: Small Business Tax Fairness Act of 2001 - Amends the Internal Revenue Code to: (1) increase the amount of section 179 property which may be expensed and permit the expensing of computer software; and (2) classify restaurants and franchise operations as 15-year property.

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Small Business Tax 
Fairness Act of 2001''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. EXPANSION OF EXPENSE TREATMENT FOR SMALL BUSINESSES.

    (a) In General.--Section 179(b)(1) is amended to read as follows:
            ``(1) Dollar limitation.--
                    ``(A) In general.--The aggregate cost which may be 
                taken into account under subsection (a) for any taxable 
                year shall not exceed $100,000.
                    ``(B) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 2001, 
                the dollar amount contained in subparagraph (A) shall 
                be increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        by substituting `calendar year 2000' for 
                        `calendar year 1992' in subparagraph (B) 
                        thereof.
                If any amount as adjusted under this subparagraph is 
                not a multiple of $1,000, such amount shall be rounded 
                to the nearest multiple of $1,000.''.
    (b) Expansion of Phase-Out of Limitation.--Section 179(b)(2) is 
amended to read as follows:
            ``(2) Reduction in limitation.--
                    ``(A) In general.--The limitation under paragraph 
                (1) for any taxable year shall be reduced (but not 
                below zero) by the amount by which the cost of section 
                179 property for which a deduction is allowable 
                (without regard to this subsection) under subsection 
                (a) for such taxable year exceeds $400,000.''
                    ``(B) Inflation adjustment.--In the case of any 
                taxable year beginning in a calendar year after 2001, 
                the dollar amount contained in subparagraph (A) shall 
                be increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        by substituting `calendar year 2000' for 
                        `calendar year 1992' in subparagraph (B) 
                        thereof.
                If any amount as adjusted under this subparagraph is 
                not a multiple of $10,000, such amount shall be rounded 
                to the nearest multiple of $10,000.''.
    (c) Time of Deduction.--The second sentence of section 179(a) 
(relating to election to expense certain depreciable business assets) 
is amended by inserting ``(or, if the taxpayer elects, the preceding 
taxable year if the property was purchased in such preceding year)'' 
after ``service''.
    (d) Computer Software Eligible for Expensing.--
            (1) In general.--The heading and first sentence of section 
        179(d)(1) are amended to read as follows:
            ``(1) Section 179 property.--For purposes of this section, 
        the term `section 179 property' means property--
                    ``(A) which is--
                            ``(i) tangible property to which section 
                        168 applies, or
                            ``(ii) computer software (as defined in 
                        section 197(e)(3)(B)) to which section 167 
                        applies,
                    ``(B) which is section 1245 property (as defined in 
                section 1245(a)(3)), and
                    ``(C) which is acquired by purchase for use in the 
                active conduct of a trade or business.''.
            (2) No computer software included as section 197 
        intangible.--
                    (A) In general.--Section 197(e)(3)(A) is amended to 
                read as follows:
                    ``(A) In general.--Any computer software.''.
                    (B) Conforming amendment.--Section 167(f)(1)(B) is 
                amended by striking ``; except that such term shall not 
                include any such software which is an amortizable 
                section 197 intangible''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2000.

SEC. 3. DEPRECIATION RECOVERY PERIOD FOR RESTAURANT BUILDINGS AND 
              FRANCHISE OPERATIONS.

    (a) 15-Year Recovery Period.--Section 168(e)(3)(E) (relating to 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 a 
comma, and by adding at the end the following new clauses:
                            ``(iv) any section 1250 property which is a 
                        retail restaurant facility or an improvement 
                        thereto, and
                            ``(v) any section 1250 property which is a 
                        franchise operation subject to section 1253.''.
    (b) Retail Restaurant Facility.--Section 168(e) (relating to 
classification of property) is amended by adding at the end the 
following new paragraph:
            ``(6) Retail restaurant facility.--The term `retail 
        restaurant facility' means any building if--
                    ``(A) more than 50 percent of the building's square 
                footage is devoted to preparation of, and seating for 
                on-premises consumption of, prepared meals, and
                    ``(B) the building is owned by--
                            ``(i) the person operating the meal 
                        preparation facility in such building, or
                            ``(ii) a person who is related (within the 
                        meaning of section 267(b) or 707(b)(1)) to the 
                        person described in clause (i).''
    (c) Alternative System.--The table contained in section 
168(g)(3)(B) is amended by inserting after the item relating to 
subparagraph (E)(iii) the following new items:

``(E)(iv)...................................................        15 
``(E)(v)....................................................      15''.
    (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 and to all improvements made after the date of enactment.