House Ways & Means Committee Issues Report on Taxpayer Certainty & Disaster Tax Relief Act (Part 1 of 6)
Excerpts of the report follow:
TAXPAYER CERTAINTY AND DISASTER TAX RELIEF ACT OF 2019 REPORT...1
I. SUMMARY AND BACKGROUND...16
A. Purpose and Summary... 16
B. Background and Need for Legislation... 16
C. Legislative History... 17
II. EXPLANATION OF THE BILL...17
TITLE I--EXTENSION OF CERTAIN EXPIRING PROVISIONS... 17
A. Tax Relief and Support for Families and Individuals... 17-23
B. Incentives for Employment, Economic Growth, and
C. Incentives for Energy Production, Efficiency, and Green Economy Jobs... 43-63
D. Certain Provisions Expiring at the End of 2019... 64-82
TITLE II--ESTATE AND GIFT TAX... 85
TITLE III--DISASTER TAX RELIEF... 87-103
III.VOTES OF THE COMMITTEE...104
A. Committee Estimate of Budgetary Effects... 114
B.
C. Cost Estimate Prepared by the
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE...127
A. Committee Oversight Findings and Recommendations... 127
B. Statement of General Performance Goals and Objectives. 127
C. Information Relating to Unfunded Mandates... 127
D. Applicability of House Rule XXI, Clause 5(b)... 127
E. Tax Complexity Analysis... 128
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff Benefits... 128
G. Duplication of Federal Programs... 128
H. Hearings... 128
VI. CHANGES IN EXISTING LAW MADE BY THE BILL...128
A. Changes in Existing Law Proposed by the Bill... 128
A. Purpose and Summary
The bill, H.R. 3301, the "Taxpayer Certainty and Disaster Relief Act of 2019" as amended and ordered reported by the
B. Background and Need for Legislation
The responsible stewardship of temporary tax policy is essential to sound tax administration. Temporary tax policy can be used to address a one-time need, to provide transition rules for new policy, and for other valid purposes. However, certainty in tax policy is important. Uncertainty can reduce consumer confidence, increase volatility in the stock market, and threaten investment and job growth in crucial sectors across our economy, including defense, healthcare, finance, and infrastructure.
H.R. 3301 extends 26 provisions that expired in 2017 and 2018. It also prospectively extends six provisions set to expire at the end of 2019. Some of the temporary provisions extended in this bill enhance support for families and individuals. Others provide incentives for employment, economic growth, and community development. Finally, certain provisions in this bill extend incentives for energy production, efficiency, and green economy jobs. The costs of extending these provisions are offset by a reduction to the unified credit against the estate tax, effective
In addition to the extensions of certain provisions as described above, H.R. 3301 provides critical tax relief for communities that have been hurt by natural disasters. This relief not only addresses disasters that occurred in 2018, but also extends to disasters that occur up to 30 days after the date of enactment of the legislation.
C. Legislative History Background
H.R. 3301, the "Taxpayer Certainty and Disaster Tax Relief Act of 2019," was introduced on
Committee hearings
The Subcommittee on Select Revenue Measures held a hearing on Temporary Policy in the Internal Revenue Code on
In addition, the
A number of Members of
Committee action
II. EXPLANATION OF THE BILL
TITLE I--EXTENSION OF CERTAIN EXPIRING PROVISIONS
A. Tax Relief and Support for Families and Individuals
1. exclusion from gross income of discharge of qualified principal residence indebtedness (sec. 101 of the bill and sec. 108(a)(1)(e) of the code) PRESENT LAW/1/
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/1/All discussions of Present Law in this report refer to present law as of the date of the markup (i.e.,
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In general
Gross income includes income that is realized by a debtor from the discharge of indebtedness,/2/ subject to certain exceptions for debtors in Title 11 bankruptcy cases, insolvent debtors, certain student loans, certain farm indebtedness, and certain real property business indebtedness./3/ In cases involving discharges of indebtedness that are excluded from gross income under the exceptions to the general rule, taxpayers generally reduce certain tax attributes, including basis in property, by the amount of the discharge of indebtedness.
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/2/A debt cancellation that constitutes a gift or bequest is not treated as income to the donee debtor. Sec. 102.
/3/Secs. 61(a)(11) and 108.
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The amount of discharge of indebtedness excluded from income by an insolvent debtor not in a Title 11 bankruptcy case cannot exceed the amount by which the debtor is insolvent. In the case of a discharge due to bankruptcy or where the debtor is insolvent, any reduction in basis may not exceed the excess of the aggregate bases of properties held by the taxpayer immediately after the discharge over the aggregate of the liabilities of the taxpayer immediately after the discharge./4/
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/4/Sec. 1017.
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For all taxpayers, the amount of discharge of indebtedness generally is equal to the difference between the adjusted issue price of the debt being cancelled and the amount used to satisfy the debt. These rules generally apply to the exchange of an old obligation for a new obligation, including a modification of indebtedness that is treated as an exchange (a debt-for-debt exchange).
Qualified principal residence indebtedness An exclusion from gross income is provided for any discharge of indebtedness income by reason of a discharge (in whole or in part) of qualified principal residence indebtedness. Qualified principal residence indebtedness means acquisition indebtedness (within the meaning of section 163(h)(3)(B), except that the dollar limitation is
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/5/Sec. 108(h)(2).
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If immediately before the discharge, only a portion of a discharged indebtedness is qualified principal residence indebtedness, the exclusion applies only to so much of the amount discharged as exceeds the portion of the debt which is not qualified principal residence indebtedness. For example, assume that a principal residence is secured by an indebtedness of
The basis of the individual's principal residence is reduced by the amount excluded from income under the provision.
The qualified principal residence indebtedness exclusion does not apply to a taxpayer in a Title 11 case; instead, the general exclusion rules apply. In the case of an insolvent taxpayer not in a Title 11 case, the qualified principal residence indebtedness exclusion applies unless the taxpayer elects to have the general exclusion rules apply instead.
The exclusion does not apply to the discharge of a loan if the discharge is on account of services performed for the lender or any other factor not directly related to a decline in the value of the residence or to the financial condition of the taxpayer.
The exclusion for qualified principal residence indebtedness is effective for discharges of indebtedness before
REASONS FOR CHANGE
The Committee believes that taxpayers restructuring their acquisition indebtedness on a principal residence or losing their principal residence in a foreclosure are likely, due to their economic circumstances, to lack the necessary liquidity to pay taxes on the resulting discharge of indebtedness. Therefore, the Committee believes the exclusion from gross income for discharges of qualified principal residence indebtedness should be extended.
EXPLANATION OF PROVISION
The provision extends for three additional years (through
EFFECTIVE DATE
The provision generally applies to discharges of indebtedness after
2. treatment of mortgage insurance premiums as qualified residence interest (sec. 102 of the bill and sec. 163(h) of the code) PRESENT LAW
In general
Qualified residence interest is deductible notwithstanding the general rule that personal interest is nondeductible./6/
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/6/Sec. 163(h).
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Acquisition indebtedness Qualified residence interest is interest on acquisition indebtedness with respect to a principal and a second residence of the taxpayer. The maximum amount of acquisition indebtedness is
Qualified mortgage insurance Certain premiums paid or accrued for qualified mortgage insurance by a taxpayer during the taxable year in connection with acquisition indebtedness on a qualified residence of the taxpayer are treated as interest that is qualified residence interest and thus deductible. The amount allowable as a deduction is phased out ratably by 10 percent for each
For this purpose, qualified mortgage insurance means mortgage insurance provided by the
Amounts paid for qualified mortgage insurance that are properly allocable to periods after the close of the taxable year are treated as paid in the period to which they are allocated. No deduction is allowed for the unamortized balance if the mortgage is paid before the end of its term (except in the case of qualified mortgage insurance provided by the
The deduction does not apply with respect to any mortgage insurance contract issued before
Information reporting rules apply to mortgage insurance premiums for premiums paid or accrued during periods to which the deductibility provision applies./7/
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/7/Sec. 6050H(h) and Treas. Reg. sec. 1.6050H-3.
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REASONS FOR CHANGE
The Committee believes that permitting the deduction of mortgage insurance premiums is consistent with the policy underlying the home mortgage interest deduction, i.e., encouraging home ownership. Therefore, the Committee believes the deduction for qualified mortgage insurance premiums should be extended.
EXPLANATION OF PROVISION
The provision extends the deduction for qualified mortgage insurance premiums for three years (with respect to contracts entered into after
EFFECTIVE DATE
The provision applies to amounts paid or accrued after
3. REDUCTION IN MEDICAL EXPENSE DEDUCTION FLOOR (
PRESENT LAW
For taxable years ending before
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/8/Sec. 213. The threshold was amended by the Patient Protection and Affordable Care Act (Pub. L. No. 111-148). For taxable years beginning after
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REASONS FOR CHANGE
The Committee believes that the itemized deduction for unreimbursed medical expenses serves the purpose of allowing taxpayers to offset the cost of unexpected medical expenses that may impose an economic hardship. The Committee believes that extending the availability of the deduction to more taxpayer expenses is consistent with that purpose. Therefore, the Committee believes that the reduced threshold of 7.5 percent of AGI should be extended.
EXPLANATION OF PROVISION
The provision extends for two years the threshold for deducting medical expenses of 7.5 percent of AGI. The 7.5- percent threshold applies for purposes of the AMT as well as the regular tax. The provision applies for taxable years beginning before
EFFECTIVE DATE
The provision applies to taxable years ending after
4. DEDUCTION OF QUALIFIED TUITION AND RELATED EXPENSES (
PRESENT LAW
An individual is allowed a deduction for qualified tuition and related expenses for higher education paid by the individual during the taxable year./9/ The deduction is allowed in computing adjusted gross income. The term qualified tuition and related expenses is defined in the same manner as for the American Opportunity and Lifetime Learning credits, and includes tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction for a personal exemption,/10/ at an eligible institution of higher education for courses of instruction of such individual at such institution./11/ The expenses must be in connection with enrollment at an institution of higher education during the taxable year, or with an academic period beginning during the taxable year or during the first three months of the next taxable year. The deduction is not available for tuition and related expenses paid for elementary or secondary education.
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/9/Sec. 222.
/10/Notwithstanding that the exemption amount is zero for taxable years beginning after
/11/The deduction generally is not available for expenses with respect to a course or education involving sports, games, or hobbies, and is not available for student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual's academic course of instruction. Secs. 222(d)(1) and 25A(f).
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The maximum deduction is
The amount of qualified tuition and related expenses must be reduced by certain scholarships, educational assistance allowances, and other amounts paid for the benefit of such individual,/12/ as well as by the amount of such expenses taken into account for purposes of determining any exclusion from gross income of (1) income from certain
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/12/Secs. 222(d)(1) and 25A(g)(2).
/13/Sec. 222(c). These reductions are the same as those that apply to the American Opportunity and Lifetime Learning credits.
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The deduction is not available for taxable years beginning after
REASONS FOR CHANGE
The Committee believes that the deduction for qualified tuition mitigates the effect of rising tuition costs on students and their families. The Committee further believes that the deduction provides an important financial incentive for individuals to pursue higher education. Therefore, the Committee believes the qualified tuition deduction should be extended.
EXPLANATION OF PROVISION
The provision extends the qualified tuition deduction for three years, through 2020.
EFFECTIVE DATE
The provision applies to taxable years beginning after
5. BLACK LUNG DISABILITY TRUST FUND EXCISE TAX (
PRESENT LAW
Before
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/14/Sec. 4121.
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After
REASONS FOR CHANGE
The Government Accountability Office has reported that the expenditures of the
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/15/Government Accountability Office, Black Lung Benefits Program: Options for Improving Trust Fund Finances, (GAO 18-351, May 2018).
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EXPLANATION OF PROVISION
The provision reinstates the increased rates on coal through
EFFECTIVE DATE
The provision applies on and after the first day of the first calendar month beginning after the date of enactment.
B. Incentives for Employment, Economic Growth, and
PRESENT LAW
In general, a credit against income tax liability is allowed to employers for the first
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/16/Sec. 45A.
/17/Sec. 280C(a).
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Qualified wages means wages paid or incurred by an employer for services performed by a qualified employee. A qualified employee means any employee who is an enrolled member of an Indian tribe or the spouse of an enrolled member of an Indian tribe, who performs substantially all of the services within an Indian reservation, and whose principal place of abode while performing such services is on or near the reservation in which the services are performed. An "Indian reservation" is a reservation as defined in section 3(d) of the Indian Financing Act of 1974/18/ or section 4(10) of the Indian Child Welfare Act of 1978./19/ For purposes of the preceding sentence, section 3(d) is applied by treating "former Indian reservations in
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/18/Pub. L. No. 93-262.
/19/Pub. L. No. 95-608.
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An employee is not treated as a qualified employee for any taxable year of the employer if the total amount of wages paid or incurred by the employer with respect to such employee during the taxable year exceeds an amount determined at an annual rate of
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/20/See Instructions for Form 8845, Indian Employment Credit (2017).
/21/Sec. 51(i)(1).
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The wage credit is available for wages paid or incurred in taxable years beginning on or before
REASONS FOR CHANGE
To further encourage employment on Indian reservations, the Committee believes the Indian employment credit should be extended.
EXPLANATION OF PROVISION
The provision extends the Indian employment credit for three years (through taxable years beginning before
EFFECTIVE DATE
The provision applies to taxable years beginning after
2. RAILROAD TRACK MAINTENANCE CREDIT (
In general
A business tax credit is allowed for 50 percent of qualified railroad track maintenance expenditures paid or incurred by an eligible taxpayer during taxable years beginning before
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/22/Sec. 45G(a) and (f). An eligible taxpayer generally claims the railroad track maintenance credit by filing Form 8900, Qualified Railroad Track Maintenance Credit. If a taxpayer's only source of the credit is a partnership or S corporation, the taxpayer may report the credit directly on Form 3800, General Business Credit (see Part III, line 4g).
/23/Sec. 45G(e)(2) and Treas. Reg. sec. 1.45G-1(f). See also Notice 2013-20, 2013-15 I.R.B. 902,
/24/Sec. 38(c)(4).
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Limitation The railroad track maintenance credit is limited to the product of
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/25/Double track is treated as multiple lines of railroad track, rather than as a single line of railroad track (i.e., one mile of single track is one mile, but one mile of double track is two miles). Treas. Reg. sec. 1.45G-1(b)(9).
/26/A Class II or Class III owns railroad track if the railroad track is subject to the allowance for depreciation under section 167 by such Class II or Class III railroad. Treas. Reg. sec. 1.45G-1(b)(2). Railroad track generally has a seven-year MACRS recovery period. Sec. 168(e)(3)(C)(i) and asset class 40.4 of
/27/Sec. 45G(b)(1).
/28/Treas. Reg. sec. 1.45G-1(c)(2)(iii).
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Assignments
Each mile of railroad track may be taken into account only once, either by the owner of such mile or by the owner's assignee, in computing the per-mile limitation./29/ Any assignment of a mile of railroad track may be made only once per taxable year of the Class II or Class III railroad, and is treated as made at the close of such taxable year./30/ Such assignment is taken into account for the taxable year of the assignee that includes the date that such assignment is treated as effective. However, assignments, including related expenditures paid or incurred, for taxable years ending after
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/29/Sec. 45G(b)(2). See also Treas. Reg. sec. 1.45G-1(d).
/30/An assignor must file Form 8900 with its timely filed (including extensions) Federal income tax return for the taxable year for which it assigns any mile of eligible railroad track, even if it is not itself claiming the railroad track maintenance credit for that taxable year. Treas. Reg. sec. 1.45G-1(d)(4). Both the assignor and the assignee must attach a statement to Form 8900 detailing the information required by Treas. Reg. sec. 1.45G-1(d)(4).
/31/Bipartisan Budget Act of 2018, Pub. L. No. 115-123, Division D, Title I, Subtitle B, sec. 40302(b)(2),
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Eligible taxpayer
An eligible taxpayer means any Class II or Class III railroad, and any person (including a Class I railroad)/32/ who transports property using the rail facilities/33/ of a Class II or Class III railroad or who furnishes railroad-related property/34/ or services/35/ to a Class II or Class III railroad, but only with respect to miles of railroad track assigned to such person by such railroad under the provision./36/
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/32/The
/33/Rail facilities of a Class II or Class III railroad are railroad yards, tracks, bridges, tunnels, wharves, docks, stations, and other related assets that are used in the transport of freight by a railroad and owned or leased by that railroad. Treas. Reg. sec. 1.45G- 1(b)(6).
/34/Railroad-related property is property that is unique to railroads and provided directly to a Class II or Class III railroad. See Treas. Reg. sec. 1.45G-1(b)(7) for a detailed description.
/35/Railroad-related services are services that are provided directly to, and are unique to, a railroad and that relate to railroad shipping, loading and unloading of railroad freight, or repairs of rail facilities or railroad-related property. See Treas. Reg. sec. 1.45G- 1(b)(8) for a detailed description.
/36/Sec. 45G(c).
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The terms Class II or Class III railroad have the meanings given by the
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/37/Sec. 45G(e)(1) and Treas. Reg. sec. 1.45G-1(b)(1). The
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Qualified railroad track maintenance expenditures Qualified railroad track maintenance expenditures are defined as gross expenditures (whether or not otherwise chargeable to capital account/38/) for maintaining railroad track (including roadbed, bridges, and related track structures) owned or leased as of
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/38/All or some of the qualified railroad track maintenance expenditures may be required to be capitalized under section 263(a) as a tangible or intangible asset. See, e.g., Treas. Reg. sec. 1.263(a)- 4(d)(8), which requires the capitalization of amounts paid or incurred by a taxpayer to produce or improve real property owned by another (except to the extent the taxpayer is selling services at fair market value to produce or improve the real property) if the real property can reasonably be expected to produce significant economic benefits for the taxpayer. The basis of the tangible or intangible asset includes the capitalized amount of the qualified railroad track maintenance expenditures. Treas. Reg. sec. 1.45G-1(e)(1). Note that for purposes of Treas. Reg. sec. 1.263(a)-4(d)(8), real property includes property that is affixed to real property and that will ordinarily remain affixed for an indefinite period of time. Treas. Reg. sec. 1.263(a)-4(d)(8)(iii). Intangible assets described in Treas. Reg. sec. 1.263(a)-4(d)(8) are generally depreciable ratably over 25 years. See Treas. Reg. sec. 1.167(a)-3.
/39/Sec. 45G(d); Treas. Reg. sec. 1.45G-1(b)(5).
/40/Treas. Reg. sec. 1.45G-1(c)(3)(ii).
/41/Treas. Reg. sec. 1.45G-1(c)(3).
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BASIS ADJUSTMENT
Basis of the railroad track must be reduced (but not below zero) by an amount equal to 100 percent of the taxpayer's qualified railroad track maintenance tax credit determined for the taxable year./42/ The basis reduction is taken into account before the depreciation deduction with respect to such railroad track is determined for the taxable year for which the railroad track maintenance credit is allowable./43/ If all or some of the qualified railroad track maintenance expenditures paid or incurred by an eligible taxpayer during the taxable year is capitalized under section 263(a) to more than one asset, whether tangible or intangible, the reduction to the basis of these assets is allocated among each of the assets subject to the reduction in proportion to the unadjusted basis of each asset at the time the qualified railroad track maintenance expenditures are paid or incurred during that taxable year./44/
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/42/Sec. 45G(e)(3). See also sec. 1016(a)(29) and Treas. Reg. Sec. 1.45G-1(e).
/43/Treas. Reg. sec. 1.45G-1(e)(2).
/44/Ibid.
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REASONS FOR CHANGE
The Committee believes that Class II and Class III railroads are an important part of the nation's railway system. Therefore, the Committee believes that this incentive for railroad track maintenance expenditures should be extended.
EXPLANATION OF PROVISION
The provision extends the present law credit for three years, for qualified railroad track maintenance expenditures paid or incurred during taxable years beginning before
EFFECTIVE DATE
The provision generally applies to expenditures paid or incurred during taxable years beginning after
The provision also provides a safe harbor that treats assignments, including related expenditures paid or incurred, for taxable years beginning on or after
3. MINE RESCUE TEAM TRAINING CREDIT (
PRESENT LAW
An eligible employer may claim a general business credit against income tax with respect to each qualified mine rescue team employee equal to the lesser of (1) 20 percent of the amount paid or incurred by the taxpayer during the taxable year with respect to the training program costs of the qualified mine rescue team employee (including the wages of the employee while attending the program) or (2)
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/45/Sec. 45N(a).
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A qualified mine rescue team employee is any full-time employee of the taxpayer who is a miner eligible for more than six months of a taxable year to serve as a mine rescue team member by virtue of either having completed the initial 20-hour course of instruction prescribed by the Mine Safety and
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/46/Sec. 45N(b).
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An eligible employer is any taxpayer which employs individuals as miners in underground mines in
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/47/Sec. 45N(c).
/48/Section 3306(b) defines wages for purposes of Federal Unemployment Tax.
/49/Sec. 45N(d).
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No deduction is allowed for the portion of the expenses otherwise deductible that is equal to the amount of the credit./50/ The credit does not apply to taxable years beginning after
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/50/Sec. 280C(e).
/51/Sec. 45N(e).
/52/Sec. 38(c). Note that the corporate alternative minimum tax was repealed for taxable years beginning after
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REASONS FOR CHANGE
The Committee believes that mine rescue teams help ensure the safety of those operating in and around a mine in the event of an accident. Therefore, the Committee believes that this incentive for costs incurred to train mine rescue teams should be extended.
EXPLANATION OF PROVISION
The provision extends the credit for three years through taxable years beginning before
EFFECTIVE DATE
The provision applies to taxable years beginning after
4. seven-year recovery period for motorsports entertainment complexes (sec. 114 of the bill and sec. 168(i)(15) of the code)
PRESENT LAW
In general
A taxpayer generally must capitalize the cost of property used in a trade or business or held for the production of income and recover such cost over time through annual deductions for depreciation or amortization./53/ The period for depreciation or amortization generally begins when the asset is placed in service by the taxpayer./54/ Tangible property generally is depreciated under the modified accelerated cost recovery system ("MACRS"), which determines depreciation for different types of property based on an assigned applicable depreciation method, recovery period, and convention./55/
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/53/See secs. 263(a) and 167. In general, only the tax owner of property (i.e., the taxpayer with the benefits and burdens of ownership) is entitled to claim tax benefits such as cost recovery deductions with respect to the property. In addition, where property is not used exclusively in a taxpayer's business, the amount eligible for a deduction must be reduced by the amount related to personal use. See, e.g., sec. 280A.
/54/See Treas. Reg. secs. 1.167(a)-10(b), -3, -14, and 1.197-2(f). See also Treas. Reg. sec. 1.167(a)-11(e)(1)(i).
/55/Sec. 168.
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The applicable recovery period for an asset is determined in part by statute and in part by historic
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/56/Exercising authority granted by
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The MACRS recovery periods applicable to most tangible personal property range from three to 20 years. The depreciation methods generally applicable to tangible personal property are the 200-percent and 150-percent declining balance methods,/57/ switching to the straight line method for the first taxable year where using the straight line method with respect to the adjusted basis as of the beginning of that year yields a larger depreciation allowance.
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/57/Under the declining balance method, the depreciation rate is determined by dividing the appropriate percentage (here 150 or 200) by the appropriate recovery period. This leads to accelerated depreciation when the declining balance percentage is greater than 100. The table below illustrates depreciation for an asset with a cost of
View table at https://www.congress.gov/congressional-report/116th-congress/house-report/379/1?s=1&r=4
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Real property
The recovery periods for most real property are 39 years for nonresidential real property and 27.5 years for residential rental property./58/ The straight line depreciation method is required for the aforementioned real property./59/ In addition, nonresidential real and residential rental property are both subject to the mid-month convention, which treats all property placed in service during any month (or disposed of during any month) as placed in service (or disposed of) on the mid-point of such month./60/ All other property generally is subject to the half-year convention, which treats all property placed in service during any taxable year (or disposed of during any taxable year) as placed in service (or disposed of) on the mid- point of such taxable year./61/
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/58/Sec. 168(c).
/59/Sec. 168(b)(3).
/60/Sec. 168(d)(2) and (d)(4)(B).
/61/Sec. 168(d)(1) and (d)(4)(A). However, if substantial property is placed in service during the last three months of a taxable year, a special rule requires use of the mid-quarter convention, which treats all property placed in service (or disposed of) during any quarter as placed in service (or disposed of) on the mid-point of such quarter. Sec. 168(d)(3) and (d)(4)(C). Nonresidential real property, residential rental property, and railroad grading or tunnel bore are not taken into account for purposes of the mid-quarter convention.
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Land improvements (such as roads and fences) are generally recovered using the 150-percent declining balance method, a recovery period of 15 years, and the half-year convention./62/ An exception exists for the theme and amusement park industry, whose assets are generally assigned a recovery period of seven years by asset class 80.0 of
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/62/Sec. 168(b)(2)(A) and asset class 00.3 of
/63/This asset class includes assets used in the provision of rides, attractions, and amusements in activities defined as theme and amusement parks, and includes appurtenances associated with a ride, attraction, amusement or theme setting within the park such as ticket booths, facades, shop interiors, and props, special purpose structures, and buildings other than warehouses, administration buildings, hotels, and motels. It also includes all land improvements for or in support of park activities (e.g., parking lots, sidewalks, waterways, bridges, fences, landscaping, etc.) and support functions (e.g., food and beverage retailing, souvenir vending and other nonlodging accommodations) if owned by the park and provided exclusively for the benefit of park patrons. Theme and amusement parks are defined as combinations of amusements, rides, and attractions which are permanently situated on park land and open to the public for the price of admission. This asset class is a composite of all assets used in this industry except transportation equipment (general purpose trucks, cars, airplanes, etc., which are included in asset classes with the prefix 00.2), assets used in the provision of administrative services (asset classes with the prefix 00.1), and warehouses, administration buildings, hotels and motels.
/64/
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Although racetrack facilities are excluded from asset class 80.0, the statute assigns a recovery period of seven years to motorsports entertainment complexes placed in service before
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/65/Sec. 168(e)(3)(C)(ii) and (i)(15)(D).
/66/Sec. 168(i)(15)(A).
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A motorsports entertainment complex also includes ancillary facilities, land improvements (e.g., parking lots, sidewalks, waterways, bridges, fences, and landscaping), support facilities (e.g., food and beverage retailing, souvenir vending, and other nonlodging accommodations), and appurtenances associated with such facilities and related attractions and amusements (e.g., ticket booths, race track surfaces, suites and hospitality facilities, grandstands and viewing structures, props, walls, facilities that support the delivery of entertainment services, other special purpose structures, facades, shop interiors, and buildings)./67/ Such ancillary and support facilities must be (1) owned by the taxpayer who owns the motorsports entertainment complex, and (2) provided for the benefit of patrons of the motorsports entertainment complex.
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/67/Sec. 168(i)(15)(B).
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A motorsports entertainment complex does not include any transportation equipment, administrative services assets, warehouses, administrative buildings, hotels, or motels./68/
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/68/Sec. 168(i)(15)(C).
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REASONS FOR CHANGE
The Committee believes that certain depreciation incentives encourage State and local economic development. Therefore, the Committee believes that the seven-year recovery period for motorsports entertainment complex property should be extended.
EXPLANATION OF PROVISION
The provision extends the seven-year recovery period for motorsports entertainment complexes for three years to apply to property placed in service before
EFFECTIVE DATE
The provision applies to property placed in service after
5. accelerated depreciation for business property on indian reservations (sec. 115 of the bill and sec. 168(j) of the code)
PRESENT LAW
With respect to certain property used in connection with the conduct of a trade or business within an Indian reservation, depreciation deductions under section 168(j) are determined using the following recovery periods: View table at https://www.congress.gov/congressional-report/116th-congress/house-report/379/1?s=1&r=4 "Qualified Indian reservation property" eligible for accelerated depreciation includes property described in the table above which is (1) used by the taxpayer predominantly in the active conduct of a trade or business within an Indian reservation; (2) not used or located outside the reservation on a regular basis; (3) not acquired (directly or indirectly) by the taxpayer from a person who is related to the taxpayer;/70/ and (4) is not property placed in service for purposes of conducting or housing certain gaming activities./71/
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/69/Section 168(j)(2) does not provide shorter recovery periods for water utility property, residential rental property, or railroad grading and tunnel bores.
/70/For these purposes, the term "related persons" is defined in section 465(b)(3)(C).
/71/Sec. 168(j)(4)(A).
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Certain "qualified infrastructure property" may be eligible for the accelerated depreciation, even if located outside an Indian reservation, provided that the purpose of such property is to connect with qualified infrastructure property located within the reservation (e.g., roads, power lines, water systems, railroad spurs, and communications facilities)./72/
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/72/Sec. 168(j)(4)(C).
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An "Indian reservation" means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U.S.C. 1452(d))/73/ or section 4(10) of the Indian Child Welfare Act of 1978 (25 U.S.C. 1903(10))./74/ For purposes of the preceding sentence, section 3(d) is applied by treating "former Indian reservations in
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/73/Pub. L. No. 93-262.
/74/Pub. L. No. 95-608.
/75/Sec. 168(j)(6).
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The depreciation deduction allowed for regular tax purposes is also allowed for purposes of the alternative minimum tax./76/
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/76/Sec. 168(j)(3). Note that the corporate alternative minimum tax was repealed for taxable years beginning after
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The accelerated depreciation for qualified Indian reservation property is available with respect to property placed in service before
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/77/Sec. 168(j)(9).
/78/Sec. 168(j)(8).
--
REASONS FOR CHANGE
To further encourage economic development within and expand employment opportunities on Indian reservations, the Committee believes accelerated depreciation for qualified Indian reservation property should be extended.
EXPLANATION OF PROVISION
The provision extends for three years the accelerated depreciation for qualified Indian reservation property to apply to property placed in service before
EFFECTIVE DATE
The provision applies to property placed in service after
6. EXPENSING RULES FOR CERTAIN PRODUCTIONS (
PRESENT LAW
Under section 181, a taxpayer may elect/79/ to deduct up to
--
/79/See Treas. Reg. sec. 1.181-2 for rules on making (and revoking) an election under section 181.
/80/For purposes of determining whether a production is eligible for section 181 expensing, a qualified film or television production is treated as commencing on the first date of principal photography. The date on which a qualified live theatrical production commences is the date of the first public performance of such production for a paying audience.
/81/Sec. 181(a)(2)(A). See Treas. Reg. sec. 1.181-1 for rules on determining eligible production costs. Eligible production costs under section 181 include participations and residuals paid or incurred. Treas. Reg. sec. 1.181-1(a)(3)(i). The special rule in section 167(g)(7) that allows taxpayers using the income forecast method of depreciation to include participations and residuals that have not met the economic performance requirements in the adjusted basis of the property for the taxable year the property is placed in service does not apply for purposes of section 181. Treas. Reg. sec. 1.181-1(a)(8). Thus, under section 181, a taxpayer may only include participations and residuals actually paid or incurred in eligible production costs. Further, production costs do not include the cost of obtaining a production after its initial release or broadcast. See Treas. Reg. sec. 1.181-1(a)(3). For this purpose, "initial release or broadcast" means the first commercial exhibition or broadcast of a production to an audience. Treas. Reg. sec. 1.181-1(a)(7). Thus, e.g., a taxpayer may not expense the purchase of an existing film library under section 181. See T.D. 9551, 76 Fed. Reg. 64816,
/82/Sec. 181(a)(2)(B).
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A section 181 election may only be made by an owner of the production./83/ An owner of a production is any person that is required under section 263A to capitalize the costs of producing the production into the cost basis of the production, or that would be required to do so if section 263A applied to that person./84/ In addition, the aggregate production costs of a qualified production that is co-produced include all production costs, regardless of funding source, in determining if the applicable dollar limit is exceeded. Thus, the term "aggregate production costs" means all production costs paid or incurred by any person, whether paid or incurred directly by an owner or indirectly on behalf of an owner./85/ The costs of the production in excess of the applicable dollar limitation are capitalized and recovered under the taxpayer's method of accounting for the recovery of such property once placed in service./86/
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/83/Treas. Reg. sec. 1.181-1(a).
/84/Treas. Reg. sec. 1.181-1(a)(2)(i).
/85/Treas. Reg. sec. 1.181-1(a)(4). See Treas. Reg. sec. 1.181- 2(c)(3) for the information required to be provided to the
/86/
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A qualified film, television, or live theatrical production means any production of a motion picture (whether released theatrically or directly to video cassette or any other format), television program, or live staged play if at least 75 percent of the total compensation expended on the production is for services performed in
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/87/Sec. 181(d)(3)(A).
/88/Sec. 181(d)(3)(B). Participations and residuals are defined as, with respect to any property, costs the amount of which by contract varies with the amount of income earned in connection with such property. See also Treas. Reg. sec. 1.181-3(c).
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Each episode of a television series is treated as a separate production, and only the first 44 episodes of a particular series qualify under the provision./89/ Qualified productions do not include sexually explicit productions as referenced by section 2257 of title 18 of the
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/89/Sec. 181(d)(2)(B).
/90/Sec. 181(d)(2)(C).
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A qualified live theatrical production is defined as a live staged production of a play (with or without music) which is derived from a written book or script and is produced or presented by a commercial entity in any venue which has an audience capacity of not more than 3,000, or a series of venues the majority of which have an audience capacity of not more than 3,000./91/ In addition, qualified live theatrical productions include any live staged production which is produced or presented by a taxable entity no more than 10 weeks annually in any venue which has an audience capacity of not more than 6,500./92/ In general, in the case of multiple live- staged productions, each such live-staged production is treated as a separate production. Similar to the exclusion for sexually explicit productions from the definition of qualified film or television productions, qualified live theatrical productions do not include stage performances that would be excluded by section 2257(h)(1) of title 18 of the
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/91/Sec. 181(e)(2)(A).
/92/Sec. 181(e)(2)(D).
/93/Sec. 181(e)(2)(E).
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For purposes of recapture under section 1245, any deduction allowed under section 181 is treated as if it were a deduction allowable for amortization./94/ Thus, the deduction under section 181 may be subject to recapture as ordinary income in the taxable year in which (1) the taxpayer revokes a section 181 election, (2) the production fails to meet the requirements of section 181, or (3) the taxpayer sells or otherwise disposes of the production./95/
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/94/Sec. 1245(a)(2)(C). For a discussion of the recapture rules applicable to depreciation and amortization deductions, see
/95/See Treas. Reg. sec. 1.181-4.
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REASONS FOR CHANGE
To further encourage investment in and financing of domestic film, television, and certain live theatrical productions, the Committee believes that section 181 should be extended.
Continues with Part 2 of 6
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