I

107TH CONGRESS

1ST SESSION H. R. 1272

To amend the Internal Revenue Code of 1986 to allow taxpayers using

the income forecast method of depreciation to treat costs contingent

on income in the same manner as fixed costs to the extent determined

by reference to the estimated income under such method, and for other

purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 28, 2001

Mr. FOLEY (for himself and Mr. BECERRA) 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 allow taxpayers using the income forecast method of depreciation

to treat costs contingent on income in the same manner

as fixed costs to the extent determined by reference

to the estimated income under such method, 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,
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1 SECTION 1. MODIFICATION OF APPLICATION OF INCOME

2 FORECAST METHOD OF DEPRECIATION IN

3 CERTAIN CASES.

4 (a) TREATMENT OF INCOME-CONTINGENT COSTS.—

5 Subsection (g) of section 167 of the Internal Revenue

6 Code of 1986 (relating to depreciation under income fore7 cast method) is amended by adding at the end the fol8 lowing new paragraph:

9 ‘‘(7) TREATMENT OF INCOME-CONTINGENT

10 COSTS.—

11 ‘‘(A) IN GENERAL.—In the case of prop12 erty for which the depreciation deduction allow13 able under this section is determined under this

14 subsection, the taxpayer may determine the ad15 justed basis of such property solely for purposes

16 of this section by including the estimated in17 come-contingent costs with respect to such

18 property in such basis for the taxable year in

19 which such property is placed in service. Depre20 ciation computed under this paragraph shall be

21 allowable as a deduction notwithstanding sec22 tions 404 and 419.

23 ‘‘(B) ESTIMATED INCOME-CONTINGENT

24 COSTS.—For purposes of this paragraph—

25 ‘‘(i) IN GENERAL.—The term ‘esti26 mated income-contingent costs’ means,
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1 with respect to any property, the amount

2 which would be the income-contingent

3 costs with respect to such property if the

4 income estimated (for purposes of this sub5 section) to be earned in connection with

6 the property before the close of the 10th

7 taxable year referred to in paragraph

8 (1)(A) were earned as of the close of the

9 taxable year in which such property is

10 placed in service.

11 ‘‘(ii) INCOME-CONTINGENT COSTS.—

12 The term ‘income-contingent costs’ means,

13 with respect to any property, costs the

14 amount of which by contract varies with

15 the amount of income earned in connection

16 with such property.

17 ‘‘(C) SPECIAL RULE RELATING TO RE18 COMPUTATION YEARS.—If the adjusted basis of

19 any property is determined under this para20 graph, paragraph (4) shall be applied by sub21 stituting ‘for each taxable year in such period’

22 for ‘for such period’.

23 ‘‘(D) BASIS ADJUSTMENTS.—The Sec24 retary shall prescribe appropriate adjustments

25 to the basis of property for the additional
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1 amounts allowable as a deduction solely by rea2 son of this paragraph.

3 ‘‘(E) COORDINATION WITH SECTION

4 461(H).—For purposes of section 461(h), eco5 nomic performance with respect to income-con6 tingent costs occurs as the services or property

7 are provided to the taxpayer.’’

8 (b) ADDITIONAL RECOMPUTATION YEAR.—Para9 graph (4) of section 167(g) of such Code is amended—

10 (1) by striking ‘‘the 3d and the 10th’’ and in11 serting ‘‘the 3d, 7th, and 10th’’, and

12 (2) by striking ‘‘3d or’’ and inserting ‘‘3d, 7th,

13 or’’.

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

15 this section shall apply to property placed in service after

16 the date of the enactment of this Act.

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