I 
108TH CONGRESS 
1ST SESSION H. R. 1634
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 
APRIL 3, 2003
Mr. SHAW (for himself, Mr. NEAL of Massachusetts, Mr. ENGLISH, Mr. 
RAMSTAD, Mr. BECERRA, Mr. FOLEY, Mr. HAYWORTH, Mr. LEWIS of 
Georgia, Mr. RANGEL, Mr. LEWIS of Kentucky, Mr. WELLER, Mr. 
STARK, Mrs. JOHNSON of Connecticut, Mr. HERGER, Mr. SAM JOHNSON 
of Texas, Mr. MATSUI, Mr. LARSON of Connecticut, Mr. LUCAS of Ken-
tucky, Mr. ISAKSON, Mr. MCKEON, Mr. KOLBE, Mr. TERRY, Mr. FROST, 
Mr. WELDON of Florida, Mrs. MYRICK, Mr. KELLER, Mr. BARTLETT of 
Maryland, Mr. SMITH of Michigan, Mr. PRICE of North Carolina, Mr. 
GREEN of Wisconsin, Mr. GARY G. MILLER of California, Mr. WICKER, 
Ms. HARRIS, Mr. SIMMONS, Mr. UPTON, Mr. UDALL of Colorado, Mr. 
GRIJALVA, Mr. DOOLITTLE, Mr. SHERMAN, Mr. DEAL of Georgia, Mr. 
GOODE, Mr. BLUMENAUER, Mr. CASE, Ms. GINNY BROWN-WAITE of 
Florida, Mr. BROWN of South Carolina, Mr. MANZULLO, Mr. WILSON of 
South Carolina, and Mrs. BLACKBURN) 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.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. RECOVERY PERIOD FOR DEPRECIATION OF 
CERTAIN LEASEHOLD IMPROVEMENTS. 
(a) 10-YEAR
RECOVERY
PERIOD.—Subparagraph 
(D) of section 168(e)(3) of the Internal Revenue Code of 
1986 (relating to 10-year property) is amended by striking 
‘‘and’’ at the end of clause (i), by striking the period at 
the end of clause (ii) and inserting ‘‘, and’’, and by adding 
at the end the following new clause: 
‘‘(iii) any qualified leasehold improve-
ment property.’’. 
(b) QUALIFIED LEASEHOLD IMPROVEMENT PROP-
ERTY.—Subsection (e) of section 168 of such Code is 
amended by adding at the end the following new para-
graph: 
‘‘(6) QUALIFIED
LEASEHOLD
IMPROVEMENT 
PROPERTY.—
‘‘(A) IN
GENERAL.—The term ‘qualified 
leasehold improvement property’ means any im-
provement to an interior portion of a building 
which is nonresidential real property if—
‘‘(i) such improvement is made under 
or pursuant to a lease (as defined in sub-
section (h)(7))—
‘‘(I) by the lessee (or any subles-
see) of such portion, or
‘‘(II) by the lessor of such por-
tion, 
‘‘(ii) such portion is to be occupied ex-
clusively by the lessee (or any sublessee) of 
such portion, and 
‘‘(iii) such improvement is placed in 
service more than 3 years after the date 
the building was first placed in service. 
‘‘(B) CERTAIN
IMPROVEMENTS
NOT
IN-
CLUDED.—Such term shall not include any im-
provement for which the expenditure is attrib-
utable to—
‘‘(i) the enlargement of the building, 
‘‘(ii) any elevator or escalator, 
‘‘(iii) any structural component bene-
fiting a common area, and 
‘‘(iv) the internal structural frame-
work of the building. 
‘‘(C) DEFINITIONS AND SPECIAL RULES.—
For purposes of this paragraph—
‘‘(i) COMMITMENT TO LEASE TREAT-
ED
AS
LEASE.—A commitment to enter 
into a lease shall be treated as a lease, and 
the parties to such commitment shall be 
treated as lessor and lessee, respectively.
‘‘(ii) RELATED PERSONS.—A lease be-
tween related persons shall not be consid-
ered a lease. For purposes of the preceding 
sentence, 
the 
term 
‘related 
persons’ 
means—
‘‘(I) members of an affiliated 
group (as defined in section 1504), 
and 
‘‘(II) persons having a relation-
ship described in subsection (b) of 
section 267; except that, for purposes 
of this clause, the phrase ‘80 percent 
or more’ shall be substituted for the 
phrase ‘more than 50 percent’ each 
place it appears in such subsection. 
‘‘(D) IMPROVEMENTS MADE BY LESSOR.—
‘‘(i) IN GENERAL.—In the case of an 
improvement made by the person who was 
the lessor of such improvement when such 
improvement was placed in service, such 
improvement shall be qualified leasehold 
improvement property (if at all) only so 
long as such improvement is held by such 
person.
‘‘(ii) EXCEPTION
FOR
CHANGES
IN 
FORM
OF
BUSINESS.—Property shall not 
cease to be qualified leasehold improve-
ment property under clause (i) by reason 
of—
‘‘(I) death, 
‘‘(II) a transaction to which sec-
tion 381(a) applies, 
‘‘(III) a mere change in the form 
of conducting the trade or business so 
long as the property is retained in 
such trade or business as qualified 
leasehold improvement property and 
the taxpayer retains a substantial in-
terest in such trade or business, 
‘‘(IV) the acquisition of such 
property in an exchange described in 
section 1031, 1033, 1038, or 1039 to 
the extent that the basis of such prop-
erty includes an amount representing 
the adjusted basis of other property 
owned by the taxpayer or a related 
person, or 
‘‘(V) the acquisition of such 
property by the taxpayer in a trans-
action described in section 332, 351, 
361, 721, or 731 (or the acquisition 
of such property by the taxpayer from 
the transferee or acquiring corpora-
tion in a transaction described in such 
section), to the extent that the basis 
of the property in the hands of the 
taxpayer is determined by reference to 
its basis in the hands of the trans-
feror or distributor. 
‘‘(iii) RELATED
PERSON.—For pur-
poses of this subparagraph, a person (here-
after in this clause referred to as the ‘re-
lated person’) is related to any person if 
the related person bears a relationship to 
such person specified in section 267(b) or 
707(b)(1), or the related person and such 
person are engaged in trades or businesses 
under common control (within the meaning 
of subsections (a) and (b) of section 52).’’. 
(c) REQUIREMENT TO USE STRAIGHT LINE METH-
OD.—Paragraph (3) of section 168(b) of such Code is 
amended by adding at the end the following new subpara-
graph:
‘‘(G) 
Qualified 
leasehold 
improvement 
property described in subsection (e)(6).’’. 
(d) ALTERNATIVE SYSTEM.—The table contained in 
section 168(g)(3)(B) of such Code is amended by inserting 
after the item relating to subparagraph (D)(ii) the fol-
lowing new item:
‘‘(D)(iii) .................................................................................
10’’.
(e) EFFECTIVE DATE.—The amendments made by 
this section shall apply to qualified leasehold improvement 
property placed in service after September 11, 2004.
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