INVEST Act of 2017

To amend the Internal Revenue Code of 1986 to encourage business creation by allowing faster recovery of start-up and organizational expenses, to simplify accounting methods for small businesses, to expand expensing and provide accelerated cost recovery to encourage investment in new plants and equipment, and for other purposes. 1. Short title; amendment of 1986 Code; table of contents (a) Short title This Act may be cited as the Investment in New Ventures and Economic Success Today Act of 2017 INVEST Act of 2017 (b) Amendment of 1986 Code Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c) Table of contents Sec. 1. Short title; amendment of 1986 Code; table of contents. TITLE I—Start-up and organizational business expenses Sec. 101. Unification and expansion of deduction for start-up and organizational expenditures. TITLE II—Accounting methods Sec. 201. Modifications of gross receipts test for use of cash method of accounting by corporations and partnerships. Sec. 202. Clarification of inventory accounting rules for small businesses. Sec. 203. Modification of rules for capitalization and inclusion in inventory costs of certain expenses. Sec. 204. Increase in gross receipts test for construction contract exception to percentage of completion method. TITLE III—Modifications of expensing and cost recovery rules Subtitle A—Expensing rules Sec. 301. Modifications of rules for expensing depreciable business assets. Subtitle B—Cost recovery rules Sec. 311. 50-percent expensing made permanent. Sec. 312. Modifications of treatment of certain farm property. Sec. 313. Secretarial requirement to reexamine economic depreciation for classes of depreciable property. Sec. 314. Modifications to depreciation limitations on luxury automobiles and personal use property. Sec. 315. Reduction in amortization period for intangibles. I Start-up and organizational business expenses 101. Unification and expansion of deduction for start-up and organizational expenditures (a) Unification (1) In general Subsection (a) of section 195 and organizational start-up (2) Organizational expenditures Subsection (c) of section 195 (3) Organizational expenditures The term organizational expenditures (A) is incident to the creation of a corporation or a partnership, (B) is chargeable to capital account, and (C) is of a character which, if expended incident to the creation of a corporation or a partnership having an ascertainable life, would be amortizable over such life. . (3) Conforming amendment Section 195(b)(1) or organizational start-up (b) Dollar amounts and amortization period (1) Dollar amounts (A) Increase Clause (ii) of section 195(b)(1)(A) (i) by striking $5,000 $50,000 (ii) by striking $50,000 $100,000 (B) Adjustment for inflation Paragraph (3) of section 195(b) (3) Adjustment for inflation In the case of any taxable year beginning after December 31, 2018, the $50,000 and $100,000 amounts in paragraph (1)(A)(ii) shall each be increased by an amount equal to— (A) such dollar amount, multiplied by (B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 2017 calendar year 1992 If any amount as increased under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000. . (2) Amortization period Subparagraph (B) of section 195(b)(1) 180-month period 120-month period (3) Allocation of limit to initial start-up and organizational expenditures Section 195(b) (A) by striking If Subject to paragraph (4), if (B) by adding at the end the following new paragraph: (4) Special rules for aggregation of initial expenditures of corporations and partnerships For purposes of paragraph (1), if, at the time a corporation or partnership first begins the active conduct of one or more trades or businesses, a taxpayer has both start-up expenditures with respect to such trades or businesses and organizational expenditures with respect to such entity— (A) any election under paragraph (1) shall cover both such start-up and organizational expenditures, (B) the amount of the deduction under paragraph (1)(A) with respect to all such start-up and organizational expenditures shall not exceed the limitation under clause (ii) of paragraph (1)(A), and (C) the amount of such start-up and organizational expenditures remaining after such deduction shall be amortized under paragraph (1)(B). . (c) Conforming amendments (1) (A) Part VIII of subchapter B of chapter 1 (B) Section 56(g)(4)(D)(ii) Sections 173 and 248 Section 173 (C) Section 170(b)(2)(D)(ii) (except section 248) (D) Section 312(n)(3) Sections 173 and 248 Sections 173 and 195 (E) Section 535(b)(3) (except section 248) (F) Section 545(b)(3) (except section 248) (G) Section 834(c)(7) (except section 248) (H) Section 852(b)(2)(C) (except section 248) (I) Section 857(b)(2)(A) (except section 248) (J) Section 1363(b)(3) section 248 section 195 (K) Section 1375(b)(1)(B)(i) (other than the deduction allowed by section 248, relating to organization expenditures) (L) The table of sections for part VIII of subchapter B of chapter 1 (2) (A) Section 709 709. Treatment of syndication fees No deduction shall be allowed under this chapter to a partnership or to any partner of the partnership for any amounts paid or incurred to promote the sale of (or to sell) an interest in the partnership. . (B) The item relating to section 709 in the table of sections for part I of subchapter K of chapter 1 organization and (d) Clerical amendments (1) The heading of section 195 expenditures and organizational expenditures (2) The item relating to section 195 in the table of contents of part VI of subchapter B of chapter 1 Sec. 195. Start-up and organizational expenditures. . (e) Effective date The amendments made by this section shall apply to elections which first take effect for taxable years beginning after December 31, 2017. II Accounting methods 201. Modifications of gross receipts test for use of cash method of accounting by corporations and partnerships (a) Modifications of gross receipts test (1) In general So much of section 448(c) as precedes paragraph (2) is amended to read as follows: (c) Gross receipts test (1) In general A corporation or partnership meets the gross receipts test of this subsection for any taxable year if the average annual gross receipts of such entity for the 3-taxable-year period ending with the taxable year which precedes such taxable year does not exceed the applicable dollar limit. . (2) Applicable dollar limit Subsection (c) of section 448 (4) Applicable dollar limit (A) In general The applicable dollar limit is $15,000,000. (B) Adjustment for inflation In the case of any taxable year beginning after December 31, 2018, the $15,000,000 amount under subparagraph (A) shall be increased by an amount equal to— (i) such dollar amount, multiplied by (ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 2017 calendar year 1992 If any amount as increased under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000. . (3) Change in method of accounting Paragraph (7) of section 448(d) (A) by striking In the case of If a taxpayer changes its method of accounting because the taxpayer is prohibited from using the cash receipts and disbursement method of accounting by reason of subsection (a) or is no longer prohibited from using such method by reason of such subsection— (B) by inserting and , and (4) Conforming amendments (A) Paragraph (3) of section 448(b) (3) Entities satisfying gross receipts test Paragraphs (1) and (2) of subsection (a) shall not apply to any corporation or partnership for any taxable year if such entity meets the gross receipts test of subsection (c) for the taxable year. . (B) Clause (iii) of section 172(b)(1)(E) , applied by substituting $5,000,000 the applicable dollar limit section 448(c) (b) Application of modifications to farming corporations (1) In general Paragraph (1) of section 447(d) (1) In general A corporation meets the requirements of this subsection for any taxable year with respect to its gross receipts if the corporation meets the gross receipts test of section 448(c) for the taxable year. . (2) Family corporations Paragraph (2) of section 447(d) (A) by striking subparagraph (A) and inserting the following: (A) In general In the case of a family corporation, in applying section 448(c) for purposes of paragraph (1)— (i) paragraph (1) of section 448(c) shall be applied by substituting the applicable family corporation limit for the applicable dollar limit, and (ii) the rules of subparagraph (B) shall apply in computing gross receipts. , (B) Clause (i) of section 447(d)(2)(B) the last sentence of paragraph (1) paragraph (2) of section 448(c) (C) by adding at the end the following new subparagraph: (D) Applicable family corporation limit (i) In general The applicable family corporation limit is $25,000,000. (ii) Adjustment for inflation In the case of any taxable year beginning after December 31, 2018, the $25,000,000 amount under clause (i) shall be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting calendar year 2017 calendar year 1992 If any amount as increased under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the nearest multiple of $1,000. . (3) Change in method of accounting Section 447(f) (A) by striking In the case of If a taxpayer changes its method of accounting because the taxpayer is required to use an accrual method of accounting by reason of subsection (a) or is no longer required to use such method by reason of such subsection— (B) by striking paragraph (2) and inserting: (2) such change shall be treated as initiated by the taxpayer, and . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 202. Clarification of inventory accounting rules for small businesses (a) Clarification of inventory rules (1) In general Section 471 (c) Small business taxpayers not required To use inventories (1) In general A qualified taxpayer shall not be required to use inventories under this section for a taxable year. (2) Treatment of taxpayers not using inventories A qualified taxpayer who is not required under this subsection to use inventories with respect to any property for a taxable year beginning after December 31, 2017, may treat such property as an incidental material or supply for such taxable year. (3) Qualified taxpayer For purposes of this subsection, the term qualified taxpayer (4) Coordination with section 481 If a taxpayer changes its method of accounting because the taxpayer is not required to use inventories by reason of paragraph (1) or is required to use inventories because such paragraph no longer applies to the taxpayer— (A) such change shall be treated as initiated by the taxpayer, and (B) such change shall be treated as made with the consent of the Secretary. . (2) Conforming amendment Subsection (c) of section 263A (8) Exclusion from inventory rules Nothing in this section shall require the use of inventories for any taxable year by a qualified taxpayer (within the meaning of section 471(c)(3)) who is not required to use inventories under section 471 for such taxable year. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 203. Modification of rules for capitalization and inclusion in inventory costs of certain expenses (a) Gross receipts exception To apply to property produced by the taxpayer Section 263A(b) (2) Property acquired for resale Real or personal property described in section 1221(a)(1) which is acquired by the taxpayer for resale. (3) Exception for small businesses This section shall not apply to any property produced or acquired by the taxpayer during any taxable year if the taxpayer is a qualified taxpayer (as defined in section 471(c)(3)) for the taxable year. (4) Films, sound recordings, books, etc For purposes of this subsection, the term tangible personal property (5) Coordination with section 481 If a taxpayer changes its method of accounting because this section does not apply to the taxpayer by reason of the exception under paragraph (3) or this section applies to the taxpayer because such exception no longer applies to the taxpayer— (A) such change shall be treated as initiated by the taxpayer, and (B) such change shall be treated as made with the consent of the Secretary. . (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2017. 204. Increase in gross receipts test for construction contract exception to percentage of completion method (a) Increase (1) In general Clause (ii) of section 460(e)(1)(B) (ii) who meets the gross receipts test of section 448(c) for the taxable year in which such contract is entered into. . (2) Conforming amendments (A) Paragraph (2) of section 460(e) (2) Additional rules for determining gross receipts For purposes of paragraph (1)(B)(ii), the Secretary shall prescribe regulations which provide attribution rules similar to section 448(c) and which take into account gross receipts of taxpayers who engage in construction contracts through partnerships, joint ventures, and corporations and which would otherwise not be taken into account under such section. . (B) Section 460(e) (C) The last sentence of section 56(a)(3) section 460(e)(6) section 460(e)(5) (b) Coordination with section 481 Section 460(e), as amended by subsection (a), is amended by adding at the end the following: (6) Coordination with section 481 If a taxpayer changes its method of accounting because subsections (a), (b), and (c) (1) and (2) do not apply by reason of the exception under paragraph (1)(B) or such subsections apply to the taxpayer because such exception no longer applies to the taxpayer— (A) such change shall be treated as initiated by the taxpayer, (B) such change shall be treated as made with the consent of the Secretary, and (C) such change shall be permitted only on a cut-off basis and no adjustments under section 481(a) shall be made. . (c) Effective date The amendment made by this section shall apply to contracts entered into after December 31, 2017, in taxable years ending after such date. III Modifications of expensing and cost recovery rules A Expensing rules 301. Modifications of rules for expensing depreciable business assets (a) Increase in limitation (1) Dollar limitation Section 179(b)(1) by striking $500,000 $2,000,000 (2) Reduction in limitation Section 179(b)(2) $2,000,000 $3,000,000 (3) Inflation adjustments (A) In general Subparagraph (A) of section 179(b)(6) (i) by striking 2015 2018 (ii) by striking calendar year 2014 calendar year 2017 (B) Sport utility vehicles Section 179(b)(6) (i) by striking paragraphs (1) and (2) paragraphs (1), (2), and (5)(A) (ii) by inserting (($100 in the case of any increase in the amount under paragraph (5)(A)) $10,000 (b) Section 179 property To include qualified real property (1) In general Subparagraph (B) of section 179(d)(1) (B) which is— (i) section 1245 property (as defined in section 1245(a)(3)), or (ii) qualified real property (as defined in subsection (f)), and . (2) Qualified real property defined Section 179(f) (f) Qualified real property For purposes of this subsection, the term qualified real property (1) any qualified improvement property described in section 168(k)(3), and (2) any of the following improvements to nonresidential real property placed in service after the date such property was first placed in service: (A) Roofs. (B) Heating, ventilation, and air-conditioning property. (C) Fire protection and alarm systems. (D) Security systems. . (c) Repeal of exclusion for certain property The last sentence of section 179(d)(1) (other than paragraph (2) thereof) section 50(b) (d) Effective date The amendments made by this section shall apply to property placed in service in taxable years beginning after December 31, 2017. B Cost recovery rules 311. 50-percent expensing made permanent (a) In general Section 168(k)(2) (2) Qualified property For purposes of this subsection— (A) In general The term qualified property (i) (I) to which this section applies which has a recovery period of 20 years or less, (II) which is computer software (as defined in section 167(f)(1)(B)) for which a deduction is allowable under section 167(a) without regard to this subsection, (III) which is water utility property, or (IV) which is qualified improvement property, and (ii) the original use of which commences with the taxpayer. (B) Exception for alternative depreciation property The term qualified property (i) without regard to paragraph (7) of subsection (g) (relating to election to have system apply), and (ii) after application of section 280F(b) (relating to listed property with limited business use). (C) Special rules (i) Sale-leasebacks For purposes of clause (ii) and subparagraph (A)(ii), if property is— (I) originally placed in service by a person, and (II) sold and leased back by such person within 3 months after the date such property was originally placed in service, such property shall be treated as originally placed in service not earlier than the date on which such property is used under the leaseback referred to in subclause (II). (ii) Syndication For purposes of subparagraph (A)(ii), if— (I) property is originally placed in service by the lessor of such property, (II) such property is sold by such lessor or any subsequent purchaser within 3 months after the date such property was originally placed in service (or, in the case of multiple units of property subject to the same lease, within 3 months after the date the final unit is placed in service, so long as the period between the time the first unit is placed in service and the time the last unit is placed in service does not exceed 12 months), and (III) the user of such property after the last sale during such 3-month period remains the same as when such property was originally placed in service, such property shall be treated as originally placed in service not earlier than the date of such last sale. (D) Coordination with section 280F For purposes of section 280F— (i) Automobiles In the case of a passenger automobile (as defined in section 280F(d)(5)) which is qualified property, the Secretary shall increase the limitation under section 280F(a)(1)(A)(i) to an amount equal to the lesser of— (I) 50 percent of the adjusted basis of such automobile, or (II) $25,000. (ii) Listed property The deduction allowable under paragraph (1) shall be taken into account in computing any recapture amount under section 280F(b)(2). (iii) Inflation adjustment In the case of any taxable year beginning in a calendar year after 2018, the $25,000 amount in clause (i) shall be increased by an amount equal to— (I) such dollar amount, multiplied by (II) the automobile price inflation adjustment determined under section 280F(d)(7)(B)(i) for the calendar year in which such taxable year begins by substituting 2017 1987 If any increase under the preceding sentence is not a multiple of $100, such increase shall be rounded to the nearest multiple of $100. (E) Deduction allowed in computing minimum tax For purposes of determining alternative minimum taxable income under section 55, the deduction under section 167 for qualified property shall be determined without regard to any adjustment under section 56. . (b) Conforming amendments (1) Amendments related to 50-percent expensing (A) Each of the following provisions are amended by striking (2)(F) (2)(D) (i) Subparagraphs (A)(i), (B)(i), and (D)(ii)(I) of section 168(k)(4). (ii) Section 168(k)(7). (B) Section 168(k)(5) (i) in subparagraph (A)— (I) by striking before January 1, 2020 (II) by striking before such date (ii) in subparagraph (B)(ii)— (I) by inserting crop or will have more than one (II) by inserting a marketable crop or yield of begins bearing (iii) by striking (2)(G) (2)(E) (iv) by striking subparagraph (F). (C) Section 168(k), as amended by subparagraphs (A)(ii) and (D), is amended by striking paragraph (6) and by redesignating paragraph (7) as paragraph (6). (D) Section 168(k)(7), as in effect before the amendments made by subparagraphs (A)(ii) and (C), is amended by striking paragraphs (1) and (2)(F) paragraphs (1), (2)(F), and (4) (E) Section 168(k) acquired after December 31, 2007, and before January 1, 2020 (F) Subsections (e)(7)(B), (k)(4), (l)(3)(A), (m)(2)(B)(i), and (n)(2)(B)(i) of section 168 are each amended by striking bonus depreciation 50-percent expensing (2) Other conforming amendments (A) Section 168(l)(3)(B) subsection (k)(2)(D) subsection (k)(2)(B) (B) Section 168(l)(4) subsection (k)(2)(E) subsection (k)(2)(C) (C) Section 168(l)(5) subsection (k)(2)(G) subsection (k)(2)(E) (D) Section 460(c)(6)(B) which— which has a recovery period of 7 years or less. (c) Effective dates (1) In general The amendments made by this section shall apply to property placed in service after December 31, 2017, in taxable years ending after such date. (2) Certain technical corrections (A) The amendments made by subsection (b)(1)(B)(ii) shall apply to specified plants planted or grafted after December 31, 2015. (B) The amendment made by subsection (b)(1)(D) shall apply to property placed in service after December 31, 2015, in taxable years ending after such date. 312. Modifications of treatment of certain farm property (a) Treatment of certain farm property as 5-Year property Clause (vii) of section 168(e)(3)(B) after December 31, 2008, and which is placed in service before January 1, 2010 (b) Repeal of required use of 150-Percent declining balance method Section 168(b)(2) (c) Effective date The amendments made by this section shall apply to property placed in service after December 31, 2017, in taxable years ending after such date. 313. Secretarial requirement to reexamine economic depreciation for classes of depreciable property (a) In general Paragraph (1) of section 168(i) (1) Class life (A) In general Except as provided in this section, the term class life (B) Secretarial authority to modify Rev. Proc. 87–56 (i) In general The Secretary, through the Office of Tax Analysis and in consultation with the Bureau of Economic Analysis of the Department of Commerce, shall conduct an on-going study to— (I) determine, and develop a schedule of, the economic depreciation of the major categories of depreciable property (other than specified property) to approximate constant straight-line depreciation, and (II) develop recommendations regarding the proper economic depreciation for specified property. (ii) Report Not later than December 31, 2020, and not less frequently than every 5 years after such date, the Secretary shall submit to the Committee on Finance of the Senate and to the Committee on Ways and Means of the House of Representatives— (I) any schedule developed under clause (i)(I), and (II) any recommendations developed under clause (i)(II). (iii) Effective date of schedules Any schedule developed under clause (i)(I) and submitted to Congress under clause (ii) shall take effect with respect to property placed in service on or after first day of the first calendar year beginning at least 1 year after the date such schedule is submitted. (C) Treatment under Congressional Review Act For purposes of applying chapter 8 (D) Specified property For purposes of subparagraph (B), the term specified property (i) any property which is classified under subsection (e)(3) (other than subparagraph (C)(v) thereof), or (ii) any nonresidential real property, residential rental property, railroad grading or tunnel bore, or water utility property. . (b) Effective date The amendment made by this section shall take effect on the date of the enactment of this Act. 314. Modifications to depreciation limitations on luxury automobiles and personal use property (a) Luxury automobiles (1) In general 280F(a)(1)(A) is amended— (A) by striking $2,560 $10,000 (B) by striking $4,100 $16,000 (C) by striking $2,450 $9,600 (D) by striking $1,475 $5,760 (2) Conforming amendments (A) Clause (ii) of section 280F(a)(1)(B) $1,475 $5,760 (B) Paragraph (7) of section 280F(d) (i) by striking 1988 2018 (ii) by striking 1987 2017 (b) Removal of computer equipment from listed property (1) In general Section 280F(d)(4)(A) and (2) Conforming amendment Section 280F(d)(4) (c) Effective date The amendments made by this section shall apply to property placed in service after December 31, 2017, in taxable years ending after such date. 315. Reduction in amortization period for intangibles (a) In general Section 197(a) In the case of such an intangible acquired after the date of the enactment of the INVEST Act of 2017 10-year period 15-year period (b) Application of anti-Churning rules Section 197(f)(9) (G) Application to INVEST Act changes If subparagraph (A) or (F) would apply to any section 197 intangible if— (i) the date of the enactment of the INVEST Act of 2017 the date of the enactment of this section (ii) May 17, 2017 July 25, 1991 then the last sentence of subsection (a) (relating to 10-year amortization) shall not apply to the transferee of such intangible. . (c) Conforming amendment Section 197(e)(4)(D)(i) (10 years in the case of a right acquired after the date of the enactment of the INVEST Act of 2017 15 years (d) Effective date The amendments made by this section apply to acquisitions after the date of the enactment of this Act in taxable years ending after such date.

Summary: Investment in New Ventures and Economic Success Today Act of 2017 or the INVEST Act of 2017 This bill amends the Internal Revenue Code to modify various tax deductions, accounting methods, expensing rules, and cost recovery rules that apply to businesses. The bill replaces several existing provisions relating to deductions for start-up and organizational business expenses with a consolidated deduction. The new provision applies to all business types, increases the dollar limitations for expenses that may be deducted, and reduces the amortization period for costs that exceed the expensing limit. With respect to accounting methods, the bill modifies the requirements for using the cash accounting method, inventory accounting rules for small businesses, and accounting rules that apply to certain construction contracts. The bill modifies the expensing and cost recovery rules to: increase the dollar limitation for the expensing of certain depreciable business assets, modify the rules that apply to the expensing of costs related to real property, make permanent the rule that allows businesses to elect to expense 50% of the cost of certain property and recover the remaining cost under the current depreciation rules, modify the depreciation rules for farm machinery and equipment, require the Department of the Treasury to update the schedule of class lives for depreciable property, modify the depreciation rules for luxury automobiles, modify the depreciation rules for computer or peripheral equipment used for personal purposes, and reduce the amortization period for intangible property acquired by a business.