To amend the Internal Revenue Code of 1986 to provide a shorter recovery period for the depreciation of certain leasehold improvements.

June 22, 2001

Mr. CONRAD (for himself, Mr. NICKLES, Mr. BREAUX, Mr. DORGAN, Mr. FITZGERALD, Mr. HATCH, Mr. HELMS, Mr. HUTCHINSON, Mr. JOHNSON, Mr. KYL, Mr. SCHUMER, Mr. TORRICELLI, and Mrs. LINCOLN) introduced the following bill; which was read twice and referred to the Committee on Finance

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 Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Business Property Economic Revitalization Act of 2001'.

SEC. 2. 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 improvement property.'.

(b) QUALIFIED LEASEHOLD IMPROVEMENT PROPERTY- Subsection (e) of section 168 of such Code is amended by adding at the end the following new paragraph:

`(6) QUALIFIED LEASEHOLD IMPROVEMENT PROPERTY-

`(A) IN GENERAL- The term `qualified leasehold improvement property' means any improvement 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 subsection (h)(7))--

`(I) by the lessee (or any sublessee) of such portion, or

`(II) by the lessor of such portion,

`(ii) such portion is to be occupied exclusively 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 INCLUDED- Such term shall not include any improvement for which the expenditure is attributable to--

`(i) the enlargement of the building,

`(ii) any elevator or escalator,

`(iii) any structural component benefiting a common area, and

`(iv) the internal structural framework of the building.

`(C) DEFINITIONS AND SPECIAL RULES- For purposes of this paragraph--

`(i) COMMITMENT TO LEASE TREATED 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 between related persons shall not be considered 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 relationship 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 improvement property under clause (i) by reason of--

`(I) death,

`(II) a transaction to which section 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 interest 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 property 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 transaction described in section 332, 351, 361, 721, or 731 (or the acquisition of such property by the taxpayer from the transferee or acquiring corporation 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 transferor or distributor.

`(iii) RELATED PERSON- For purposes of this subparagraph, a person (hereafter in this clause referred to as the `related 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 METHOD- Paragraph (3) of section 168(b) of such Code is amended by adding at the end the following new subparagraph:

`(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 following 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 the date of the enactment of this Act.

END