I

106TH CONGRESS

1ST SESSION H. R. 1986

To amend the Internal Revenue Code of 1986 to clarify the rules relating

to lessee construction allowances and to contributions to the capital

of retailers.

IN THE HOUSE OF REPRESENTATIVES

MAY 27, 1999

Ms. DUNN (for herself, and Mr. SHAW, and Mr. PORTMAN) 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 clarify

the rules relating to lessee construction allowances and

to contributions to the capital of retailers.

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

3 SECTION 1. EXCLUSION FROM GROSS INCOME OF QUALI4 FIED LESSEE CONSTRUCTION ALLOWANCES

5 NOT LIMITED TO SHORT-TERM LEASES.

6 (a) IN GENERAL.—Paragraph (1) of section 110(a)

7 of the Internal Revenue Code of 1986 (relating to quali8 fied lessee construction allowances for short-term leases)

9 is amended to read as follows:
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1 ‘‘(1) under a lease of retail space, and’’.

2 (b) CONFORMING AMENDMENTS.—

3 (1) Section 110(c) of such Code is amended by

4 striking paragraph (2) and by redesignating para5 graph (3) as paragraph (2).

6 (2) The section heading for section 110 of such

7 Code is amended by striking ‘‘FOR SHORT-TERM

8 LEASES’’.

9 (3) The item relating to section 110 in the table

10 of sections for part III of subchapter B of chapter

11 1 of such Code is amended by striking ‘‘for short12 term leases’’.

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

14 this section shall apply to leases entered into after the date

15 of the enactment of this Act.

16 SEC. 2. EXCLUSION FROM GROSS INCOME FOR CERTAIN

17 CONTRIBUTIONS TO THE CAPITAL OF RE18 TAILERS.

19 (a) IN GENERAL.—Section 118 of the Internal Rev20 enue Code of 1986 (relating to contributions to the capital

21 of a corporation) is amended by redesignating subsections

22 (d) and (e) as subsections (e) and (f), respectively, and

23 by inserting after subsection (c) the following new sub24 section:
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1 ‘‘(d) SAFE HARBOR FOR CONTRIBUTIONS TO RE2 TAILERS.—

3 ‘‘(1) GENERAL RULE.—For purposes of this

4 section, the term ‘contribution to the capital of the

5 taxpayer’ includes any amount of money or other

6 property received by the taxpayer if—

7 ‘‘(A) the taxpayer has entered into an

8 agreement to operate (or cause to be operated)

9 a qualified retail business at a particular loca10 tion for a period of at least 15 years,

11 ‘‘(B)(i) immediately after the receipt of

12 such money or other property, the taxpayer

13 owns the land to be used by the taxpayer in

14 carrying on a qualified retail business at such

15 location, or

16 ‘‘(ii) the taxpayer uses such amount to ac17 quire ownership of at least such land, and

18 ‘‘(C) such amount meets the requirements

19 of the expenditure rule of paragraph (2).

20 ‘‘(2) EXPENDITURE RULE.—An amount meets

21 the requirements of this paragraph if—

22 ‘‘(A) an amount equal to such amount is

23 expended for the acquisition of land or for ac24 quisition or construction of other property de25 scribed in section 1231(b)—
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1 ‘‘(i) which was the purpose motivating

2 the contribution, and

3 ‘‘(ii) which is used predominantly in a

4 qualified retail business at the location re5 ferred to in paragraph (1)(A),

6 ‘‘(B) the expenditure referred to in sub7 paragraph (A) occurs before the end of the sec8 ond taxable year after the year in which such

9 amount was received, and

10 ‘‘(C) accurate records are kept of the

11 amounts contributed and expenditures made on

12 the basis of the project for which the contribu13 tion was made and on the basis of the year of

14 the contribution expenditure.

15 ‘‘(3) DEFINITION OF QUALIFIED RETAIL BUSI16 NESS.—

17 ‘‘(A) IN GENERAL.—Except as provided in

18 subparagraph (B), the term ‘qualified retail

19 business’ means a trade or business of selling

20 tangible personal property to the general public.

21 ‘‘(B) SERVICES.—A trade or business shall

22 not fail to be treated as a qualified retail busi23 ness by reason of sales of services if such sales

24 are incident to the sale of tangible personal
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1 property or if the services are de minimis in

2 amount.

3 ‘‘(4) SPECIAL RULES.—

4 ‘‘(A) LEASES OF LAND.—For purposes of

5 paragraph (1)(B)(i), the taxpayer shall be

6 treated as owning the land referred to in such

7 paragraph if the taxpayer is the lessee of such

8 land under a lease having a term of at least 30

9 years and on which only nominal rent is re10 quired.

11 ‘‘(B) CONTROLLED GROUPS.—For pur12 poses of this subsection, all taxpayers treated as

13 a single employer under subsection (a) or (b) of

14 section 52 shall be treated as 1 taxpayer.

15 ‘‘(5) DISALLOWANCE OF DEDUCTIONS AND

16 CREDITS; ADJUSTED BASIS.—Notwithstanding any

17 other provision of this subtitle, no deduction or cred18 it shall be allowed for, or by reason of, the expendi19 ture which constitutes a contribution to capital to

20 which this subsection applies. The adjusted basis of

21 any property acquired with the contributions to

22 which this subsection applies shall be reduced by the

23 amount of the contributions to which this subsection

24 applies.’’
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1 (b) CONFORMING AMENDMENT.—Subsection (e) of

2 section 118 of such Code (as redesignated by subsection

3 (a)) is amended by adding at the end the following flush

4 sentence:

5 ‘‘Rules similar to the rules of the preceding sentence shall

6 apply to any amount treated as a contribution to the cap7 ital of the taxpayer under subsection (d).’’

8 (c) EFFECTIVE DATE.—The amendments made by

9 this section shall apply to amounts received after the date

10 of the enactment of this Act.

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