II 

109TH CONGRESS 

2D SESSION S. 3742 

To amend the Internal Revenue Code of 1986 to provide incentives to encourage investment in the expansion of freight rail infrastructure capacity 

and to enhance modal tax equity. 

IN THE SENATE OF THE UNITED STATES 

JULY 26, 2006 

Mr. LOTT (for himself, Mr. CONRAD, Mr. SMITH, Mr. CRAPO, Mr. INOUYE, 

Mr. HAGEL, Mr. NELSON of Nebraska, Mr. ISAKSON, and Mr. GRAHAM) 

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 

incentives to encourage investment in the expansion of 

freight rail infrastructure capacity and to enhance modal 

tax equity. 

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 ‘‘Freight Rail Infra5 structure Capacity Expansion Act of 2006’’. 


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1 SEC. 2. CREDIT FOR FREIGHT RAIL INFRASTRUCTURE CA2 PACITY EXPANSION PROPERTY. 

3 (a) IN GENERAL.—Subpart D of part IV of sub4 chapter A of chapter 1 of the Internal Revenue Code of 

5 1986 (relating to business-related credits) is amended by 

6 adding at the end the following new section: 

7 ‘‘SEC. 45N. FREIGHT RAIL CAPACITY EXPANSION CREDIT. 

8 ‘‘(a) GENERAL RULE.—For purposes of section 38, 

9 the freight rail capacity expansion credit determined under 

10 this section for the taxable year is an amount equal to 

11 25 percent of the cost of the following property placed in 

12 service during the taxable year: 

13 ‘‘(1) New qualified freight rail infrastructure 

14 property. 

15 ‘‘(2) Qualified locomotive property. 

16 ‘‘(b) NEW QUALIFIED FREIGHT RAIL INFRASTRUC17 TURE PROPERTY.—For purposes of this section— 

18 ‘‘(1) IN GENERAL.—The term ‘new qualified 

19 freight rail infrastructure property’ means qualified 

20 freight rail infrastructure property— 

21 ‘‘(A) the construction or erection of which 

22 is completed by the taxpayer after the date of 

23 the enactment of this section, or 

24 ‘‘(B) which is acquired by the taxpayer 

25 after such date, but only if the original use of 

26 such property commences with the taxpayer. 


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1 ‘‘(2) EXCEPTION FOR PROPERTY REPLACING

2 PROPERTY AT EXISTING LOCATION.—The term ‘new 

3 qualified freight rail infrastructure property’ does 

4 not include property which is replacing existing 

5 property if the property is located at the site of the 

6 existing property. 

7 ‘‘(3) QUALIFIED FREIGHT RAIL INFRASTRUC8 TURE PROPERTY.— 

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

10 freight rail infrastructure property’ means 

11 property used in the movement of freight by 

12 rail— 

13 ‘‘(i) the cost of which is chargeable to 

14 capital account (determined without regard 

15 to section 179E), and 

16 ‘‘(ii) which constitutes— 

17 ‘‘(I) railroad grading or tunnel 

18 bore (as defined in section 168(e)(4)), 

19 ‘‘(II) tunnels or subways, 

20 ‘‘(III) track, including ties, rails, 

21 ballast, or other track material, 

22 ‘‘(IV) bridges, trestles, culverts, 

23 or other elevated or submerged struc24 tures, 


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1 ‘‘(V) terminals, yards, roadway 

2 buildings, fuel stations, or railroad 

3 wharves or docks, including fixtures 

4 attached thereto, and equipment used 

5 exclusively therein, 

6 ‘‘(VI) railroad signal, commu7 nication, or other operating systems, 

8 including components of such systems 

9 that must be installed on locomotives 

10 or other rolling stock, or 

11 ‘‘(VII) intermodal transfer or 

12 transload facilities or terminals, in13 cluding fixtures attached thereto, and 

14 equipment used exclusively therein. 

15 ‘‘(B) EXCLUSIONS.—The term ‘qualified 

16 freight rail infrastructure property’ shall not in17 clude— 

18 ‘‘(i) land, 

19 ‘‘(ii) rolling stock, including loco20 motives, or 

21 ‘‘(iii) property used predominantly 

22 outside the United States, except that this 

23 subparagraph shall not apply to any prop24 erty described in section 168(g)(4). 


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1 ‘‘(4) LEASED PROPERTY.—For purposes of de2 termining whether property subject to a lease is new 

3 qualified freight rail infrastructure property, such 

4 property shall be treated as originally placed in serv5 ice not earlier than the date the property is used 

6 under the lease but only if such property is leased 

7 within 3 months after the property is placed in serv8 ice by the lessor. 

9 ‘‘(c) QUALIFIED LOCOMOTIVE PROPERTY.— 

10 ‘‘(1) IN GENERAL.—For purposes of this sec11 tion, the term ‘qualified locomotive property’ means 

12 a locomotive which— 

13 ‘‘(A) meets the Environmental Protection 

14 Agency’s emission standards for locomotives 

15 and locomotive engines (as in effect on Decem16 ber 31, 2005), and 

17 ‘‘(B) is owned by, or leased to, a taxpayer 

18 which meets the capacity expansion requirement 

19 of paragraph (2) for the taxable year in which 

20 the locomotive is placed in service. 

21 ‘‘(2) CAPACITY EXPANSION REQUIREMENT.—A 

22 taxpayer meets the requirements of this paragraph 

23 with respect to any locomotive only if, on the last 

24 day of the taxable year in which such locomotive is 

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1 motives owned by, or leased to, the taxpayer exceeds 

2 the total horsepower of all locomotives owned by, or 

3 leased to, the taxpayer on the last day of the pre4 ceding taxable year. A determination under this 

5 paragraph shall be made pursuant to such reports as 

6 the Secretary, in consultation with the Surface 

7 Transportation Board, may prescribe. 

8 ‘‘(3) SPECIAL RULES FOR THE LEASING OF LO9 COMOTIVES.—In the case of the leasing of loco10 motives— 

11 ‘‘(A) only the lessor is eligible for the cred12 it, and 

13 ‘‘(B) total horsepower under paragraph (2) 

14 shall be determined with respect to all loco15 motives owned by, or leased to, the lessee. 

16 ‘‘(d) OTHER DEFINITIONS AND SPECIAL RULES.— 

17 ‘‘(1) DEFINITIONS.—For purposes of this sec18 tion— 

19 ‘‘(A) RAILROAD SIGNAL, COMMUNICATION, 

20 OR OTHER OPERATING SYSTEM.—The term 

21 ‘railroad signal, communication, or other oper22 ating system’ means an appliance, method, de23 vice, or system (including hardware and soft24 ware) which is used to operate a railroad or to 

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1 ations, including a signal, an interlocker, an 

2 automatic train stop, or a train control or cab3 signal device. 

4 ‘‘(B) INTERMODAL TRANSFER OR

5 TRANSLOAD FACILITY OR TERMINAL.—The 

6 term ‘intermodal transfer or transload facility 

7 or terminal’ means a facility or terminal pri8 marily utilized in the transfer of freight be9 tween rail and any other mode of transpor10 tation. 

11 ‘‘(2) COORDINATION WITH OTHER CREDITS.— 

12 The cost of any property taken into account in de13 termining the credit under this section may not be 

14 taken into account in determining a credit under any 

15 other provision of this title. 

16 ‘‘(3) BASIS ADJUSTMENT.—If a credit is deter17 mined under this section with respect to the cost of 

18 any qualified freight rail infrastructure property or 

19 qualified locomotive property, the basis of such prop20 erty shall be reduced by the amount of the credit so 

21 determined. 

22 ‘‘(4) RECAPTURE.—The benefit of any credit 

23 allowable under subsection (a) shall, under regula24 tions prescribed by the Secretary, be recaptured with 

25 respect to any qualified locomotive property that is 


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1 sold or otherwise disposed of by the taxpayer during 

2 the 5-year period beginning on the date on which 

3 such property is placed in service. 

4 ‘‘(e) TERMINATION.—This section shall not apply to 

5 any property placed in service after December 31, 2011.’’. 

6 (b) CREDIT ALLOWED AS BUSINESS CREDIT.—Sec7 tion 38(b) of the Internal Revenue Code of 1986 (relating 

8 to current year business credit) is amended by striking 

9 ‘‘and’’ at the end of paragraph (29), by striking the period 

10 at the end of paragraph (30) and inserting ‘‘, and’’, and 

11 by adding at the end the following new paragraph: 

12 ‘‘(31) the freight rail capacity expansion credit 

13 determined under section 45N.’’. 

14 (c) COORDINATION WITH SECTION 55.—Section 

15 38(c)(4)(B) of the Internal Revenue Code of 1986 is 

16 amended by striking ‘‘and’’ at the end of clause (i), by 

17 striking the period at the end of clause (ii)(II) and insert18 ing ‘‘, and’’, and by adding at the end the following new 

19 clause: 

20 ‘‘(iii) for taxable years beginning after 

21 the date of the enactment of this clause, 

22 the credit determined under section 45N.’’. 

23 (d) CLERICAL AMENDMENT.—The table of sections 

24 for subpart D of part IV of subchapter A of chapter 1 

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1 serting after the item relating to section 45M the following 

2 new item: 

‘‘Sec. 45N. Freight rail capacity expansion credit.’’. 

3 SEC. 3. EXPENSING OF FREIGHT RAIL INFRASTRUCTURE 

4 PROPERTY. 

5 (a) IN GENERAL.—Part VI of subchapter B of chap6 ter 1 of the Internal Revenue Code of 1986 (relating to 

7 itemized deductions for individuals and corporations) is 

8 amended by inserting after section 179D the following new 

9 section: 

10 ‘‘SEC. 179E. ELECTION TO EXPENSE QUALIFIED FREIGHT 

11 RAIL INFRASTRUCTURE PROPERTY. 

12 ‘‘(a) ALLOWANCE OF DEDUCTION.— 

13 ‘‘(1) IN GENERAL.—A taxpayer may elect to 

14 treat any amount paid or incurred for the acquisi15 tion, construction, or erection of qualified freight rail 

16 infrastructure property (as defined in section 

17 45N(b)(3)) as an amount not chargeable to capital 

18 account. Any amount so treated shall be allowed as 

19 a deduction for the taxable year in which such prop20 erty was placed in service. 

21 ‘‘(2) COORDINATION WITH CREDIT.—The 

22 amount to which the election under paragraph (1) 

23 applies with respect to any property shall be reduced 

24 by an amount equal to the amount of any reduction 

25 in the basis of the property under section 45N(d)(3). 


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1 ‘‘(b) ELECTION.—An election under subsection (a) 

2 shall be made, with respect to each class of property for 

3 each taxable year, at such time and in such manner as 

4 the Secretary may prescribe by regulation. If a taxpayer 

5 makes such an election with respect to any class of prop6 erty for any taxable year, the election shall apply to all 

7 qualified freight rail infrastructure property in such class 

8 placed in service during such taxable year. An election 

9 under this section shall not affect the character of any 

10 property for the purposes of section 45N. 

11 ‘‘(c) DEDUCTION ALLOWED IN COMPUTING MINIMUM

12 TAX.—For purposes of determining alternative minimum 

13 taxable income under section 55, the deduction under sub14 section (a) for qualified freight rail infrastructure property 

15 shall be determined under this section without regard to 

16 any adjustment under section 56. 

17 ‘‘(d) TERMINATION.—This section shall not apply to 

18 any property placed in service after December 31, 2011.’’. 

19 (b) DEDUCTION FOR CAPITAL EXPENDITURES.— 

20 Section 263(a)(1) of the Internal Revenue Code of 1986 

21 (relating to capital expenditures) is amended by striking 

22 ‘‘or’’ at the end of subparagraph (J), by striking the pe23 riod at the end of subparagraph (K) and inserting ‘‘, or’’ 

24 and by adding at the end the following new subparagraph: 


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1 ‘‘(L) expenditures for which a deduction is 

2 allowed under section 179E.’’. 

3 (c) TECHNICAL AND CLERICAL AMENDMENTS.— 

4 (1) Section 312(k)(3)(B) of the Internal Rev5 enue Code of 1986 is amended by striking ‘‘or 

6 179D’’ each place it appears in the text or heading 

7 thereof and inserting ‘‘179D, or 179E’’. 

8 (2) Paragraphs (2)(C) and (3)(C) of section 

9 1245(a) of such Code are each amended by inserting 

10 ‘‘179E,’’ after ‘‘179D,’’. 

11 (3) The table of sections for part VI of sub12 chapter B of chapter 1 of such Code is amended by 

13 inserting after the item relating to section 179D the 

14 following new item: 

‘‘Sec. 179E. Election to expense qualified freight rail infrastructure property.’’. 

15 SEC. 4. EFFECTIVE DATE. 

16 The amendments made by sections 2 and 3 shall 

17 apply to property placed in service after December 31, 

18 2006. 

Æ 


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