I
107TH CONGRESS
1ST SESSION
H. R. 3042
To amend the Internal Revenue Code of 1986 to provide that the deduction
for depreciation shall be computed on a neutral cost recovery basis.
IN THE HOUSE OF REPRESENTATIVES
OCTOBER 4, 2001
Mr. SMITH of Michigan (for himself, Mr. ARMEY, Mr. DELAY, Mr. SENSEN-
BRENNER, Mrs. KELLY, and Mr. GOODE) 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
that the deduction for depreciation shall be computed
on a neutral cost recovery basis.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Neutral Cost Recovery
Act of 2001’’.
SEC. 2. NEUTRAL COST RECOVERY DEPRECIATION ADJUST-
MENT FOR CERTAIN PROPERTY PLACED IN
SERVICE AFTER DECEMBER 31, 2001.
(a) IN GENERAL.—Section 168 of the Internal Rev-
enue Code of 1986 (relating to accelerated cost recovery
system) is amended by adding at the end thereof the fol-
lowing new subsection:
‘‘(k) DEDUCTION ADJUSTMENT TO ALLOW EQUIVA-
LENT OF EXPENSING FOR CERTAIN PROPERTY PLACED
IN SERVICE AFTER DECEMBER 31, 2001.—
‘‘(1) IN
GENERAL.—In the case of tangible
property placed in service after December 31, 2001,
the deduction under this section with respect to such
property—
‘‘(A) shall be determined by substituting
‘150 percent’ for ‘200 percent’ in subsection
(b)(1) in the case of property to which the 200
percent declining balance method would other-
wise apply, and
‘‘(B) for any taxable year after the taxable
year during which the property is placed in
service shall be—
‘‘(i) the amount determined under this
section for such taxable year without re-
gard to this subparagraph, multiplied by
‘‘(ii) the applicable neutral cost recov-
ery ratio for such taxable year.
‘‘(2) APPLICABLE
NEUTRAL
COST
RECOVERY
RATIO.—For purposes of paragraph (1)—
‘‘(A) IN GENERAL.—The applicable neutral
cost recovery ratio for the property for any tax-
able year is the number determined by—
‘‘(i) dividing—
‘‘(I) the gross domestic product
deflator for the calendar quarter end-
ing in such taxable year which cor-
responds to the calendar quarter dur-
ing which the property was placed in
service by the taxpayer, by
‘‘(II) the gross domestic product
deflator for the calendar quarter dur-
ing which the property was placed in
service by the taxpayer, and
‘‘(ii) then multiplying the number de-
termined under clause (i) by the number
equal to 1.035 to the nth power where ‘n’
is the number of full years in the period
beginning on the 1st day of the calendar
quarter during which the property was
placed in service by the taxpayer and end-
ing on the day before the beginning of the
corresponding calendar quarter ending
during such taxable year.
The applicable neutral cost recovery ratio shall
never be less than 1. The applicable neutral
cost recovery ratio shall be rounded to the near-
est 1⁄1000.
‘‘(B) SPECIAL RULE FOR CERTAIN PROP-
ERTY.—In the case of property described in
paragraph (2) or (3) of subsection (b) or in
subsection (g), the applicable neutral cost recov-
ery ratio shall be determined without regard to
subparagraph (A)(ii).
‘‘(3) GROSS DOMESTIC PRODUCT DEFLATOR.—
For purposes of paragraph (2), the gross domestic
product deflator for any calendar quarter is the im-
plicit price deflator for the gross domestic product
for such quarter (as shown in the first revision
thereof).
‘‘(4) ELECTION
NOT
TO
HAVE
SUBSECTION
APPLY.—This subsection shall not apply to any
property if the taxpayer elects not to have this sub-
section apply to such property. Such an election,
once made, shall be irrevocable.
‘‘(5) CHURNING
TRANSACTIONS.—This sub-
section shall not apply to any property if this section
would not apply to such property were subsection
(f)(5)(A)(ii) applied by substituting ‘2002’ for
‘1981’ and ‘2001’ for ‘1980’.
‘‘(6) ADDITIONAL DEDUCTION NOT TO AFFECT
BASIS OR RECAPTURE.—
‘‘(A) 
IN
GENERAL.—The 
additional
amount determined under this section by reason
of this subsection shall not be taken into ac-
count in determining the adjusted basis of any
property or of any interest in a pass-thru entity
which holds such property and shall not be
treated as a deduction for depreciation for pur-
poses of sections 1245 and 1250.
‘‘(B) PASS-THRU ENTITY DEFINED.—For
purposes of subparagraph (A), the term ‘pass-
thru entity’ means—
‘‘(i) a regulated investment company,
‘‘(ii) a real estate investment trust,
‘‘(iii) an S corporation,
‘‘(iv) a partnership,
‘‘(v) an estate or trust, and
‘‘(vi) a common trust fund.’’
(b) MINIMUM TAX TREATMENT.—
(1) Paragraph (1) of section 56(a) of such Code
is amended by adding at the end thereof the fol-
lowing new subparagraph:
‘‘(E) USE OF NEUTRAL COST RECOVERY
RATIO.—In the case of property to which sec-
tion 168(k) applies and which is placed in serv-
ice after December 31, 2001, the deduction al-
lowable under this paragraph with respect to
such property for any taxable year (after the
taxable year during which the property is
placed in service) shall be—
‘‘(i) the amount so allowable for such
taxable year without regard to this sub-
paragraph, multiplied by
‘‘(ii) the applicable neutral cost recov-
ery ratio for such taxable year (as deter-
mined under section 168(k)).
This subparagraph shall not apply to any prop-
erty with respect to which there is an election
in effect not to have section 168(k)) apply.’’
(2) Subparagraph (C) of section 56(g)(4) of
such Code is amended by adding at the end the fol-
lowing new clause:
‘‘(v) NEUTRAL COST RECOVERY DE-
DUCTION.—Clause (i) shall not apply to
the additional deduction allowable by rea-
son of section 168(k).’’
(c) COORDINATION WITH DEPRECIATION LIMITA-
TION ON CERTAIN AUTOMOBILES.—Clause (i) of section
280F(a)(1)(B) of such Code is amended by adding at the
end the following new sentence: ‘‘For purposes of this
clause, the unrecovered basis of any passenger automobile
shall be treated as including the additional amount deter-
mined under section 168 by reason of subsection (k) there-
of to the extent not allowed as a deduction by reason of
this paragraph for any taxable year in the recovery pe-
riod.’’
(d) EFFECTIVE DATE.—The amendments made by
this section shall apply to taxable years ending after De-
cember 31, 2001.
Æ