II 

109TH CONGRESS 

1ST SESSION S. 2100 

To amend the Internal Revenue Code of 1986 to improve the deduction 

for depreciation. 

IN THE SENATE OF THE UNITED STATES 

DECEMBER 14, 2005 

Mr. SMITH (for himself and Mr. KERRY) 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 improve 

the deduction for depreciation. 

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 ‘‘Tax Depreciation, 

5 Modernization, and Simplification Act of 2005’’. 

6 SEC. 2. AUTHORITY TO MODIFY CLASS LIVES. 

7 (a) IN GENERAL.—Paragraph (1) of section 168(i) 

8 of the Internal Revenue Code of 1986 is amended to read 

9 as follows: 

10 ‘‘(1) CLASS LIFE.— 
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1 ‘‘(A) IN GENERAL.—Except as provided in 

2 this section, the term ‘class life’ means the class 

3 life (if any) which would be applicable with re4 spect to any property as of January 1, 1986, 

5 under subsection (m) of section 167, as in ef6 fect on the day before the date of the enact7 ment of the Revenue Reconciliation Act of 1990 

8 (determined without regard to paragraph (4) 

9 thereof and as if the taxpayer had made an 

10 election under such subsection). 

11 ‘‘(B) SECRETARIAL AUTHORITY.— 

12 ‘‘(i) IN GENERAL.—Except as pro13 vided in clause (ii), the Secretary, after 

14 consultation with Congress, may prescribe 

15 by regulation— 

16 ‘‘(I) a new class life for any prop17 erty, or 

18 ‘‘(II) a class life for any property 

19 which does not have a class life within 

20 the meaning of subparagraph (A). 

21 ‘‘(ii) EXCEPTIONS.—Clause (i) shall 

22 not apply to— 

23 ‘‘(I) residential rental property or 

24 nonresidential real property, or 
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1 ‘‘(II) property for which a class 

2 life, classification, or recovery period 

3 is assigned under subsection (e)(3) 

4 (other than subparagraph (C)(v) 

5 thereof) or subparagraph (B), (C), or 

6 (D) of subsection (g)(3). 

7 ‘‘(iii) STANDARDS.—Any class life 

8 prescribed or modified under clause (i) 

9 shall reasonably reflect the anticipated use10 ful life and the anticipated decline in value 

11 over time of the property to the industry 

12 or other group, and shall take into account 

13 when the property is technologically or 

14 functionally obsolete for the original pur15 pose under which it was acquired. 

16 ‘‘(iv) CONSULTATION.—Not later than 

17 60 days before the date on which the Sec18 retary publishes any proposed regulation 

19 under clause (i), the Secretary shall submit 

20 to Congress the proposed regulation to21 gether with a report containing the infor22 mation considered by the Secretary in 

23 modifying or prescribing any class life 

24 under the regulation. 
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1 ‘‘(v) MONITORING.—The Secretary, 

2 through an office established in the Treas3 ury, shall monitor and analyze actual expe4 rience with respect to depreciable assets to 

5 which this subparagraph applies. 

6 ‘‘(C) EFFECT OF MODIFICATION.—Any 

7 class life with respect to any property pre8 scribed or modified under subparagraph (B) 

9 shall be used in classifying such property under 

10 subsection (e) and in applying subsection (g).’’. 

11 (b) APPLICATION OF CONGRESSIONAL REVIEW

12 ACT.—For purposes of applying chapter 8 of title 5, 

13 United States Code, to any regulation prescribed under 

14 section 168(i)(1)(B) of the Internal Revenue Code of 

15 1986, each class life prescribed under such section shall 

16 be considered to be a separate rule. 

17 (c) EFFECTIVE DATE.—The amendment made by 

18 this section shall take effect on the date of the enactment 

19 of this Act. 

20 SEC. 3. ELIMINATION OF MID-QUARTER CONVENTION. 

21 (a) IN GENERAL.—Subsection (d) of section 168 of 

22 the Internal Revenue Code of 1986 is amended— 

23 (1) by striking paragraph (3) and redesignating 

24 paragraph (4) as paragraph (3), and 
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1 (2) in paragraph (3), as redesignated by para2 graph (1), by striking subparagraph (C). 

3 (b) EFFECTIVE DATE.—The amendments made by 

4 this section shall apply to property placed in service after 

5 the date of the enactment of this Act. 

6 SEC. 4. MASS ASSET ACCOUNTING. 

7 (a) IN GENERAL.—Section 168 of the Internal Rev8 enue Code of 1986 is amended by adding at the end the 

9 following new subsection: 

10 ‘‘(l) MASS ASSET ACCOUNTING.— 

11 ‘‘(1) ELECTION.— 

12 ‘‘(A) IN GENERAL.—In lieu of the deduc13 tion otherwise allowed under this section with 

14 respect to an item of qualified property, the 

15 taxpayer may elect to add the adjusted basis of 

16 such property to the mass asset account of the 

17 taxpayer to which such qualified property is as18 signed and to determine the deduction under 

19 this section using the applicable depreciation 

20 method with respect to such mass asset ac21 count. 

22 ‘‘(B) ELECTION TO APPLY TO ALL ASSETS

23 OF THE TAXPAYER WITH SAME RECOVERY PE24 RIOD.—An election made under subparagraph 

25 (A) shall be made in such manner as the Sec-
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1 retary may by regulations prescribe and shall 

2 apply to all qualified property of the taxpayer 

3 which has the same applicable recovery period 

4 for such taxable year and all subsequent taxable 

5 years. 

6 ‘‘(C) ELECTION IRREVOCABLE.—Any elec7 tion made under this paragraph shall be irrev8 ocable except with the consent of the Secretary. 

9 The Secretary shall prescribe rules for the prop10 er accounting of assets in a mass asset account 

11 in the case of any such revocation. 

12 ‘‘(2) SPECIAL RULES.— 

13 ‘‘(A) MODIFICATION OF DEPRECIATION

14 METHOD.—In applying the applicable deprecia15 tion method to any mass asset account, sub16 section (b) shall be applied without regard to 

17 paragraph (1)(B) thereof. 

18 ‘‘(B) ADJUSTMENT TO REFLECT HALF19 YEAR CONVENTION.—In applying the deduction 

20 allowable under subsection (a) to any mass 

21 asset account, the amount of the deduction 

22 under subsection (a) shall be— 

23 ‘‘(i) 100 percent of the deduction oth24 erwise allowed under this section in the 

25 case of qualified property placed in service 
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1 before the beginning of the taxable year, 

2 and 

3 ‘‘(ii) 50 percent of the deduction oth4 erwise allowed under this section with re5 spect to qualified property placed in service 

6 during the taxable year. 

7 ‘‘(C) SALE OF QUALIFIED PROPERTY.— 

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

9 sale of any property the adjusted basis of 

10 which has been added to a mass asset ac11 count, the balance of the mass asset ac12 count to which such property was assigned 

13 shall be reduced (but not below zero) by 

14 the amount of the proceeds from such sale. 

15 ‘‘(ii) RECOGNITION OF GAIN.—If the 

16 proceeds from the sale of any property the 

17 adjusted basis of which has been added to 

18 a mass asset account exceed the balance of 

19 such mass asset account, then the excess 

20 shall be treated as ordinary income. 

21 ‘‘(3) QUALIFIED PROPERTY.— 

22 ‘‘(A) IN GENERAL.—For purposes of this 

23 subsection, the term ‘qualified property’ means 

24 any tangible property— 
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1 ‘‘(i) to which an applicable deprecia2 tion method under paragraph (1) or (2) of 

3 subsection (b) applies, and 

4 ‘‘(ii) the cost of which is not more 

5 than $10,000. 

6 ‘‘(B) INFLATION ADJUSTMENT.— 

7 ‘‘(i) IN GENERAL.—In the case of any 

8 taxable year beginning after 2006, the 

9 $10,000 amount under subparagraph 

10 (A)(ii) shall be increased by an amount 

11 equal to— 

12 ‘‘(I) such dollar amount, multi13 plied by 

14 ‘‘(II) the cost-of-living adjust15 ment determined under section 1(f)(3) 

16 for the calendar year in which the tax17 able year begins, determined by sub18 stituting ‘calendar year 2005’ for ‘cal19 endar year 1992’ in subparagraph (B) 

20 thereof. 

21 ‘‘(ii) ROUNDING.—If any amount as 

22 adjusted under the clause (i) is not a mul23 tiple of $1,000, such amount shall be 

24 rounded to the next lowest multiple of 

25 $1,000. 
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1 ‘‘(4) MASS ASSET ACCOUNT.—The term ‘mass 

2 asset account’ means an account of the taxpayer 

3 which reflects the adjusted basis of all qualified 

4 property to which the same applicable depreciation 

5 method and applicable recovery period applies.’’. 

6 (b) EFFECTIVE DATE.—The amendments made by 

7 this section shall apply to property placed in service after 

8 the date of the enactment of this Act. 

9 SEC. 5. PERMANENT EXTENSION OF EXPENSING FOR 

10 SMALL BUSINESSES. 

11 (a) DOLLAR LIMITATION.—Paragraph (1) of section 

12 179(b) of the Internal Revenue Code of 1986 is amended 

13 by striking ‘‘$25,000 ($100,000 in the case of taxable 

14 years beginning after 2002 and before 2008)’’ and insert15 ing ‘‘$100,000’’. 

16 (b) REDUCTION IN LIMITATION.—Paragraph (2) of 

17 section 179(b) of such Code is amended by striking 

18 ‘‘$200,000 ($400,000 in the case of taxable years begin19 ning after 2002 and before 2008)’’ and inserting 

20 ‘‘$400,000’’. 

21 (c) INFLATION ADJUSTMENTS.—Subparagraph (A) 

22 of section 179(b)(5) of such Code is amended by striking 

23 ‘‘and before 2008’’. 

24 (d) ELECTION.—Paragraph (2) of section 179(c) of 

25 such Code is amended by striking ‘‘and before 2008’’. 
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1 (e) COMPUTER SOFTWARE.—Clause (ii) of section 

2 179(d)(1)(A) is amended by striking ‘‘and before 2008’’. 

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