I

107TH CONGRESS

1ST SESSION H. R. 1030

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

period for the depreciation of certain leasehold improvements.

IN THE HOUSE OF REPRESENTATIVES

MARCH 14, 2001

Mr. SHAW (for himself, Mr. RANGEL, Mrs. JOHNSON of Connecticut, Mr.

STARK, Mr. HOUGHTON, Mr. MATSUI, Mr. HERGER, Mr. COYNE, Mr.

RAMSTAD, Mr. CARDIN, Mr. CAMP, Mr. LEWIS of Georgia, Mr. JOHNSON

of Texas, Mr. NEAL, Mr. ENGLISH, Mr. BECERRA, Mr. WATKINS, Mrs.

THURMAN, Mr. HAYWORTH, Mr. MCINNIS, Mr. FOLEY, Mr. POMEROY,

Mr. RILEY, Mrs. KELLY of New York, Mr. NETHERCUTT, Mr. GARY

MILLER of California, Mr. GOODE, Mr. DOYLE, Mr. GREEN of Wisconsin,

Mr. STUMP, Mr. SHOWS, Mr. BLUMENAUER, Mr. FILNER, Mr. BENTSEN,

Mr. GUTKNECHT, Mr. CLEMENT, Mr. TERRY, Mr. UDALL of New Mexico, Mr. DICKS, Mr. BONIOR, Mr. TOM DAVIS of Virginia, Mr. EHRLICH,

Ms. PRYCE, Mrs. MYRICK, Mr. CHAMBLISS, Mr. BUYER, Mr. SANDLIN,

Mr. DOOLITTLE, Mr. LARSON, Mr. MILLER of Florida, Mr. REYNOLDS,

Mr. DEUTSCH, Mr. ISAKSON, Mr. DAVIS of Florida, Mr. WELDON of

Florida, Mr. GREENWOOD, Mr. KOLBE, Mr. COX, Mr. WEXLER, Mr.

FROST, Mr. WATT, Mr. SOUDER, Mr. MALONEY, Mr. HALL of Ohio, Ms.

CARSON, and Mr. GREEN of Texas) 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 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,
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1 SECTION 1. RECOVERY PERIOD FOR DEPRECIATION OF

2 CERTAIN 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, or

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 (c) REQUIREMENT TO USE STRAIGHT LINE METH17 OD.—Paragraph (3) of section 168(b) of such Code is

18 amended by adding at the end the following new subpara19 graph:

20 ‘‘(G) Qualified leasehold improvement

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

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

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

24 after the item relating to subparagraph (D)(ii) the fol25 lowing new item:

‘‘(D)(iii) ................................................................................. 10’’.
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1 (e) EFFECTIVE DATE.—The amendments made by

2 this section shall apply to qualified leasehold improvement

3 property placed in service after the date of the enactment

4 of this Act.

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