I

104TH CONGRESS

1ST SESSION H. R. 199

To amend the Internal Revenue Code of 1986 to provide that the deduction

for depreciation shall be computed on a neutral cost recovery basis,

and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 4, 1995

Mr. SMITH of Michigan (for himself, Mr. BLUTE, Mr. CUNNINGHAM, Mr. EVERETT, Mr. ISTOOK, Mr. KASICH, Mr. KNOLLENBERG, Mr. LINDER, Mr.

MANZULLO, and Mr. CHRYSLER) introduced the following bill; which was

referred to the Committee on Ways and Means

A BILL

To amend the Internal Revenue Code of 1986 to provide

that the deduction for depreciation shall be computed

on a neutral cost recovery basis, and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Neutral Cost Recovery

5 Act of 1995’’.
2

•HR 199 IH

1 SEC. 2. NEUTRAL COST RECOVERY DEPRECIATION ADJUST2 MENT FOR CERTAIN PROPERTY PLACED IN

3 SERVICE AFTER DECEMBER 31, 1994.

4 (a) IN GENERAL.—Section 168 of the Internal Reve5 nue Code of 1986 (relating to accelerated cost recovery

6 system) is amended by adding at the end thereof the fol7 lowing new subsection:

8 ‘‘(k) DEDUCTION ADJUSTMENT TO ALLOW EQUIVA9 LENT OF EXPENSING FOR CERTAIN PROPERTY PLACED

10 IN SERVICE AFTER DECEMBER 31, 1994.—

11 ‘‘(1) IN GENERAL.—In the case of tangible

12 property placed in service after December 31, 1994,

13 the deduction under this section with respect to such

14 property—

15 ‘‘(A) shall be determined by substituting

16 ‘150 percent’ for ‘200 percent’ in subsection

17 (b)(1) in the case of property to which the 200

18 percent declining balance method would other19 wise apply, and

20 ‘‘(B) for any taxable year after the taxable

21 year during which the property is placed in

22 service shall be—

23 ‘‘(i) the amount determined under this

24 section for such taxable year without re25 gard to this subparagraph, multiplied by
3

•HR 199 IH

1 ‘‘(ii) the applicable neutral cost recov2 ery ratio for such taxable year.

3 ‘‘(2) APPLICABLE NEUTRAL COST RECOVERY

4 RATIO.—For purposes of paragraph (1)—

5 ‘‘(A) IN GENERAL.—The applicable neutral

6 cost recovery ratio for the property for any tax7 able year is the number determined by—

8 ‘‘(i) dividing—

9 ‘‘(I) the gross domestic product

10 deflator for the calendar quarter end11 ing in such taxable year which cor12 responds to the calendar quarter dur13 ing which the property was placed in

14 service by the taxpayer, by

15 ‘‘(II) the gross domestic product

16 deflator for the calendar quarter dur17 ing which the property was placed in

18 service by the taxpayer, and

19 ‘‘(ii) then multiplying the number de20 termined under clause (i) by the number

21 equal to 1.035 to the nth power where ‘n’

22 is the number of full years in the period

23 beginning on the 1st day of the calendar

24 quarter during which the property was

25 placed in service by the taxpayer and end-
4

•HR 199 IH

1 ing on the day before the beginning of the

2 corresponding calendar quarter ending

3 during such taxable year.

4 The applicable neutral cost recovery ratio shall

5 never be less than 1. The applicable neutral

6 cost recovery ratio shall be rounded to the nearest 1 7 ⁄1000.

8 ‘‘(B) SPECIAL RULE FOR CERTAIN PROP9 ERTY.—In the case of property described in

10 paragraph (2) or (3) of subsection (b) or in

11 subsection (g), the applicable neutral cost recov12 ery ratio shall be determined without regard to

13 subparagraph (A)(ii).

14 ‘‘(3) GROSS DOMESTIC PRODUCT DEFLATOR.—

15 For purposes of paragraph (2), the gross domestic

16 product deflator for any calendar quarter is the im17 plicit price deflator for the gross domestic product

18 for such quarter (as shown in the first revision

19 thereof).

20 ‘‘(4) ELECTION NOT TO HAVE SUBSECTION

21 APPLY.—This subsection shall not apply to any

22 property if the taxpayer elects not to have this sub23 section apply to such property. Such an election,

24 once made, shall be irrevocable.
5

•HR 199 IH

1 ‘‘(5) CHURNING TRANSACTIONS.—This sub2 section shall not apply to any property if this section

3 would not apply to such property were subsection

4 (f)(5)(A)(ii) applied by substituting ‘1995’ for

5 ‘1981’ and ‘1994’ for ‘1980’.

6 ‘‘(6) ADDITIONAL DEDUCTION NOT TO AFFECT

7 BASIS OR RECAPTURE.—

8 ‘‘(A) IN GENERAL.—The additional

9 amount determined under this section by reason

10 of this subsection shall not be taken into ac11 count in determining the adjusted basis of any

12 property or of any interest in a pass-thru entity

13 which holds such property and shall not be

14 treated as a deduction for depreciation for pur15 poses of sections 1245 and 1250.

16 ‘‘(B) PASS-THRU ENTITY DEFINED.—For

17 purposes of subparagraph (A), the term ‘pass18 thru entity’ means—

19 ‘‘(i) a regulated investment company,

20 ‘‘(ii) a real estate investment trust,

21 ‘‘(iii) an S corporation,

22 ‘‘(iv) a partnership,

23 ‘‘(v) an estate or trust, and

24 ‘‘(vi) a common trust fund.’’

25 (b) MINIMUM TAX TREATMENT.—
6

•HR 199 IH

1 (1) Paragraph (1) of section 56(a) of such Code

2 is amended by adding at the end thereof the follow3 ing new subparagraph:

4 ‘‘(E) USE OF NEUTRAL COST RECOVERY

5 RATIO.—In the case of property to which sec6 tion 168(k) applies and which is placed in serv7 ice after December 31, 1994, the deduction al8 lowable under this paragraph with respect to

9 such property for any taxable year (after the

10 taxable year during which the property is

11 placed in service) shall be—

12 ‘‘(i) the amount so allowable for such

13 taxable year without regard to this sub14 paragraph, multiplied by

15 ‘‘(ii) the applicable neutral cost recov16 ery ratio for such taxable year (as deter17 mined under section 168(k)).

18 This subparagraph shall not apply to any prop19 erty with respect to which there is an election

20 in effect not to have section 168(k)) apply.’’

21 (2) Subparagraph (C) of section 56(g)(4) of

22 such Code is amended by adding at the end the fol23 lowing new clause:

24 ‘‘(v) NEUTRAL COST RECOVERY DE25 DUCTION.—Clause (i) shall not apply to
7

•HR 199 IH

1 the additional deduction allowable by rea2 son of section 168(k).’’

3 (c) COORDINATION WITH DEPRECIATION LIMITA4 TION ON CERTAIN AUTOMOBILES.—Clause (i) of section

5 280F(a)(1)(B) of such Code is amended by adding at the

6 end the following new sentence: ‘‘For purposes of this

7 clause, the unrecovered basis of any passenger automobile

8 shall be treated as including the additional amount deter9 mined under section 168 by reason of subsection (k) there10 of to the extent not allowed as a deduction by reason of

11 this paragraph for any taxable year in the recovery pe12 riod.’’

13 (d) EFFECTIVE DATE.—The amendments made by

14 this section shall apply to taxable years ending after De15 cember 31, 1994.

16 SEC. 3. INCREASE IN EXPENSE TREATMENT FOR SMALL

17 BUSINESSES.

18 (a) GENERAL RULE.—Paragraph (1) of section

19 179(b) of the Internal Revenue Code of 1986 (relating to

20 dollar limitation) is amended by striking ‘‘$17,500’’ and

21 inserting ‘‘$25,000’’.

22 (b) EFFECTIVE DATE.—The amendment made by

23 subsection (a) shall apply to taxable years beginning after

24 December 31, 1995.

Æ