II

106TH CONGRESS

1ST SESSION S. 879

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

APRIL 26, 1999

Mr. CONRAD (for himself, Mr. MACK, Mr. NICKLES, Mr. ROBB, and Mr. BAUCUS) 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. RECOVERY PERIOD FOR DEPRECIATION OF

4 CERTAIN LEASEHOLD IMPROVEMENTS.

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

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

7 1986 (relating to 10-year property) is amended by striking

8 ‘‘and’’ at the end of clause (i), by striking the period at
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1 the end of clause (ii) and inserting ‘‘, and’’, and by adding

2 at the end the following new clause:

3 ‘‘(iii) any qualified leasehold improve4 ment property.’’.

5 (b) QUALIFIED LEASEHOLD IMPROVEMENT PROP6 ERTY.—Subsection (e) of section 168 of such Code is

7 amended by adding at the end the following new para8 graph:

9 ‘‘(6) QUALIFIED LEASEHOLD IMPROVEMENT

10 PROPERTY.—

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

12 leasehold improvement property’ means any im13 provement to an interior portion of a building

14 which is nonresidential real property if—

15 ‘‘(i) such improvement is made under

16 or pursuant to a lease (as defined in sub17 section (h)(7))—

18 ‘‘(I) by the lessee (or any subles19 see) of such portion, or

20 ‘‘(II) by the lessor of such por21 tion,

22 ‘‘(ii) such portion is to be occupied ex23 clusively by the lessee (or any sublessee) of

24 such portion, and
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1 ‘‘(iii) such improvement is placed in

2 service more than 3 years after the date

3 the building was first placed in service.

4 ‘‘(B) CERTAIN IMPROVEMENTS NOT IN5 CLUDED.—Such term shall not include any im6 provement for which the expenditure is attrib7 utable to—

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

9 ‘‘(ii) any elevator or escalator,

10 ‘‘(iii) any structural component bene11 fiting a common area, and

12 ‘‘(iv) the internal structural frame13 work of the building.

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

15 For purposes of this paragraph—

16 ‘‘(i) COMMITMENT TO LEASE TREAT17 ED AS LEASE.—A commitment to enter

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

19 the parties to such commitment shall be

20 treated as lessor and lessee, respectively.

21 ‘‘(ii) RELATED PERSONS.—A lease be22 tween related persons shall not be consid23 ered a lease. For purposes of the preceding

24 sentence, the term ‘related persons’

25 means—
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1 ‘‘(I) members of an affiliated

2 group (as defined in section 1504),

3 and

4 ‘‘(II) persons having a relation5 ship described in subsection (b) of

6 section 267; except that, for purposes

7 of this clause, the phrase ‘80 percent

8 or more’ shall be substituted for the

9 phrase ‘more than 50 percent’ each

10 place it appears in such subsection.’’

11 (c) REQUIREMENT TO USE STRAIGHT LINE METH12 OD.—Paragraph (3) of section 168(b) of such Code is

13 amended by adding at the end the following new subpara14 graph:

15 ‘‘(G) Qualified leasehold improvement

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

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

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

19 after the item relating to subparagraph (D)(ii) the fol20 lowing new item:

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

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

22 this section shall apply to qualified leasehold improvement

23 property placed in service after the date of the enactment

24 of this Act.

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