II

107TH CONGRESS

1ST SESSION S. 1087

To amend the Internal Revenue Code of 1986 to provide a shorter recovery

period for the depreciation of certain leasehold improvements.

IN THE SENATE OF THE UNITED STATES

JUNE 22, 2001

Mr. CONRAD (for himself, Mr. NICKLES, Mr. BREAUX, Mr. DORGAN, Mr.

FITZGERALD, Mr. HATCH, Mr. HELMS, Mr. HUTCHINSON, Mr. JOHNSON, Mr. KYL, Mr. SCHUMER, Mr. TORRICELLI, and Mrs. LINCOLN) 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 shorter recovery period for the depreciation of certain

leasehold improvements.

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 ‘‘Business Property

5 Economic Revitalization Act of 2001’’.
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1 SEC. 2. RECOVERY PERIOD FOR DEPRECIATION OF CER2 TAIN LEASEHOLD IMPROVEMENTS.

3 (a) 10-YEAR RECOVERY PERIOD.—Subparagraph

4 (D) of section 168(e)(3) of the Internal Revenue Code of

5 1986 (relating to 10-year property) is amended by striking

6 ‘‘and’’ at the end of clause (i), by striking the period at

7 the end of clause (ii) and inserting ‘‘, and’’, and by adding

8 at the end the following new clause:

9 ‘‘(iii) any qualified leasehold improve10 ment property.’’.

11 (b) QUALIFIED LEASEHOLD IMPROVEMENT PROP12 ERTY.—Subsection (e) of section 168 of such Code is

13 amended by adding at the end the following new para14 graph:

15 ‘‘(6) QUALIFIED LEASEHOLD IMPROVEMENT

16 PROPERTY.—

17 ‘‘(A) IN GENERAL.—The term ‘qualified

18 leasehold improvement property’ means any im19 provement to an interior portion of a building

20 which is nonresidential real property if—

21 ‘‘(i) such improvement is made under

22 or pursuant to a lease (as defined in sub23 section (h)(7))—

24 ‘‘(I) by the lessee (or any subles25 see) of such portion, or
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1 ‘‘(II) by the lessor of such por2 tion,

3 ‘‘(ii) such portion is to be occupied ex4 clusively by the lessee (or any sublessee) of

5 such portion, and

6 ‘‘(iii) such improvement is placed in

7 service more than 3 years after the date

8 the building was first placed in service.

9 ‘‘(B) CERTAIN IMPROVEMENTS NOT IN10 CLUDED.—Such term shall not include any im11 provement for which the expenditure is attrib12 utable to—

13 ‘‘(i) the enlargement of the building,

14 ‘‘(ii) any elevator or escalator,

15 ‘‘(iii) any structural component bene16 fiting a common area, and

17 ‘‘(iv) the internal structural frame18 work of the building.

19 ‘‘(C) DEFINITIONS AND SPECIAL RULES.—

20 For purposes of this paragraph—

21 ‘‘(i) COMMITMENT TO LEASE TREAT22 ED AS LEASE.—A commitment to enter

23 into a lease shall be treated as a lease, and

24 the parties to such commitment shall be

25 treated as lessor and lessee, respectively.
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1 ‘‘(ii) RELATED PERSONS.—A lease be2 tween related persons shall not be consid3 ered a lease. For purposes of the preceding

4 sentence, the term ‘related persons’

5 means—

6 ‘‘(I) members of an affiliated

7 group (as defined in section 1504),

8 and

9 ‘‘(II) persons having a relation10 ship described in subsection (b) of

11 section 267; except that, for purposes

12 of this clause, the phrase ‘80 percent

13 or more’ shall be substituted for the

14 phrase ‘more than 50 percent’ each

15 place it appears in such subsection.

16 ‘‘(D) IMPROVEMENTS MADE BY LESSOR.—

17 ‘‘(i) IN GENERAL.—In the case of an

18 improvement made by the person who was

19 the lessor of such improvement when such

20 improvement was placed in service, such

21 improvement shall be qualified leasehold

22 improvement property (if at all) only so

23 long as such improvement is held by such

24 person.
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1 ‘‘(ii) EXCEPTION FOR CHANGES IN

2 FORM OF BUSINESS.—Property shall not

3 cease to be qualified leasehold improve4 ment property under clause (i) by reason

5 of—

6 ‘‘(I) death,

7 ‘‘(II) a transaction to which sec8 tion 381(a) applies,

9 ‘‘(III) a mere change in the form

10 of conducting the trade or business so

11 long as the property is retained in

12 such trade or business as qualified

13 leasehold improvement property and

14 the taxpayer retains a substantial in15 terest in such trade or business,

16 ‘‘(IV) the acquisition of such

17 property in an exchange described in

18 section 1031, 1033, 1038, or 1039 to

19 the extent that the basis of such prop20 erty includes an amount representing

21 the adjusted basis of other property

22 owned by the taxpayer or a related

23 person, or

24 ‘‘(V) the acquisition of such

25 property by the taxpayer in a trans-
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1 action described in section 332, 351,

2 361, 721, or 731 (or the acquisition

3 of such property by the taxpayer from

4 the transferee or acquiring corpora5 tion in a transaction described in such

6 section), to the extent that the basis

7 of the property in the hands of the

8 taxpayer is determined by reference to

9 its basis in the hands of the trans10 feror or distributor.

11 ‘‘(iii) RELATED PERSON.—For pur12 poses of this subparagraph, a person (here13 after in this clause referred to as the ‘re14 lated person’) is related to any person if

15 the related person bears a relationship to

16 such person specified in section 267(b) or

17 707(b)(1), or the related person and such

18 person are engaged in trades or businesses

19 under common control (within the meaning

20 of subsections (a) and (b) of section 52).’’.

21 (c) REQUIREMENT TO USE STRAIGHT LINE METH22 OD.—Paragraph (3) of section 168(b) of such Code is

23 amended by adding at the end the following new subpara24 graph:
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1 ‘‘(G) Qualified leasehold improvement

2 property described in subsection (e)(6).’’.

3 (d) ALTERNATIVE SYSTEM.—The table contained in

4 section 168(g)(3)(B) of such Code is amended by inserting

5 after the item relating to subparagraph (D)(ii) the fol6 lowing new item:

‘‘(D)(iii) ................................................................................. 10’’.

7 (e) EFFECTIVE DATE.—The amendments made by

8 this section shall apply to qualified leasehold improvement

9 property placed in service after the date of the enactment

10 of this Act.

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