Unanimous - Consent Agreement - S.2845

CONGRESSIONAL RECORD
SENATE
Oct. 9, 2004

UNANIMOUS-CONSENT AGREEMENT-S. 2845
SECTION 422

Mr. SMITH. Mr. President, I would like to ask if the Chairman of the Committee on Finance would entertain additional questions regarding the American Jobs Creation Act of 2004.

Mr. GRASSLEY. Mr. President, I would be glad to take questions from the Senator from Oregon.

Mr. SMITH. I ask for additional clarification regarding the conferees' intent with respect to the rule in section 422 of the American Jobs Creation Act of 2004 that disallows deductions for expenses "properly allocated and apportioned to the deductible portion." I would ask for clarification of the type of expenses that may be "properly allocated and apportioned". Would it be reasonable to say that properly allocable and apportioned expenses would not include general and administrative costs not directly related to generating the income being repatriated and such indirect expenses as research and development costs, interest, state and local income taxes, sales and marketing costs, depreciation, and amortization.

Mr. GRASSLEY. Yes, your understanding is correct. I would add that directly related expenses would include, but is not limited to, stewardship costs and directly related legal and accounting fees.

Mr. SMITH. Thank you Mr. Chairman. Under the conference report's provision on the temporary dividends received deduction, the amount that may be brought back to the United States may be determined by the reference to the "applicable financial statement". In general, this term looks to the most recently certified financial statement filed on or before June 30, 2003. In the case of a taxpayer that subsequently re-filed or restated its pre-July 1, 2003 certified financial statement, it is not clear how this would be determined. Is it the legislative intent to lock in the earnings permanently reinvested amount from the most recent pre-June 30, 2003 financial statement, which had been certified, regardless of any subsequent restatement?

Mr. GRASSLEY. The applicable financial statement is the most recent statement that had been certified, and filed with the Securities and Exchange Commission if required, on or before June 30, 2003. However, in the event of a subsequent restatement of a financial statement that had been certified, and filed if required, on or before June 30, 2003, if the subsequent restatement contains a lower permanently reinvested amount, then the lower amount shall apply.

Mr. SMITH. I thank the chairman for this clarification.

IRS

Mr. SANTORUM. Mr. President, I read with great interest an exchange of letters in the House between my colleague from Pennsylvania, Mr. ENGLISH and the chairman of the Committee on Ways and Means, regarding regulations issued by the Internal Revenue Service under section 263(g) of the Internal Revenue Code in the context of the Conference Report on H.R. 4520.

The issue raised in their discussion relates to the IRS decision in regulations published on January 17, 2001, to expand its authority under that section. Without at this point questioning the IRS interpretation of the law, the colloquy notes that the IRS has in some case imposed its new interpretation retroactively. The colloquy urges the Department of Treasury to take the position that the new interpretation should be applied only on a prospective basis.

I rise to agree with my friends in the House. Our practice in Congress is to give taxpayers notice when we intend to change the law in ways that could affect ongoing transactions that were undertaken in reliance on the law as it existed. Certainly Treasury can and should follow the same rules.

I hope the Treasury Department will take note and act accordingly.

BUSINESS AIRCRAFT

Mr. BROWNBACK. I want to thank the distinguished chairman of the Committee on Finance, as well as the chairman of the Ways & Means Committee, Mr. THOMAS, and all the conferees on H.R. 4520, for retaining the provision allowing business aircraft purchased this year to qualify for bonus depreciation if the aircraft is delivered and placed in service in 2005.

This provision is important to the hard-working Kansans who build these aircraft. Provisions such as this will help to further bolster our rebounding economy with respect to expensive and complicated equipment like business aircraft. Without bonus depreciation, there is a risk of a shortage of orders for delivery next year with a resulting impact on employment.

It would have been better if this legislation had been enacted earlier this year, but, even now, this provision will allow manufacturers several extra weeks to take orders for delivery by the end of 2005. That should help to ensure that there will be planes to build in 2005.

I ask the chairman a technical question on the effective date of this provision.

Mr. GRASSLEY. I thank the Senator from Kansas for his kind words, and would be happy to respond

Mr. BROWNBACK. The effective date of the placed-in-service-extension, section 336 of the conference report, states that the amendments "shall take effect as if included in the amendments made by section 101 of the Job Creation and Worker Assistance Act of 2002." I believe that this means only that, if a purchaser orders a plane for delivery in 2005, the limitations on the amount of the deposit, time for construction and purchase price must be met. It does not mean that taxpayers who did not or will not take delivery and place the aircraft in service after December 31, 2004, would retroactively be subjected to these limitations. The limitations apply only if a taxpayer wishes to take advantage of the extended placed-in service period. Does the Chairman agree with this interpretation?

Mr. GRASSLEY. The Senator is correct. The new provision is not intended to apply to aircraft placed in service before January 1, 2005 and does not limit or deny bonus depreciation for aircraft or any other asset that would qualify under the general rules. I would refer the senator to page 30 of the Conference Report. On that page, the conferees clearly state that this provision "will modify the treatment only of property placed in service during calendar year 2005,"

Mr. BROWNBACK. I ask the chairman for a further clarification. Section 336 of the conference report includes amendment of clause (iv) of Internal Revenue Code section 168(k)(2)(A) to apply the additional year to place an asset in service to assets described in subparagraphs (B) and (C). Subparagraph (B) of the Code applies to certain property having longer production periods. Section 336 of the bill adds subparagraph (C). I would like to be sure that, by using the word "and", the conferees did not intend that a business aircraft would have to be described in both the existing subparagraph (B) and the new subparagraph (C) in order to qualify for the additional year to place the aircraft in service. As the chairman knows, the standards for qualification are substantially different under the two subparagraphs.
Mr. GRASSLEY. I agree that the drafting is not as clear as it might have been. However, it is very clear from all the legislative history that, by adding the new subparagraph, we intended to add a new class of property, business aircraft, to those assets which qualify for the additional year to be placed in service. We did not intend that aircraft which qualify under subparagraph © must also qualify under subparagraph (B).

Mr. BROWNBACK. I would like to ask the chairman to address one final point. As the chairman knows, an amendment added to the Senate bill during floor debate temporarily reversed a Tax Court decision, affirmed by the Eighth Circuit Court of Appeals, concerning the limitation of business deductions for personal entertainment use of a business aircraft. This provision was drastically expanded and made permanent in the conference report. I am very concerned that this provision will have a substantial negative impact on the sales of new aircraft because, much of the business deduction for a new aircraft in its first few years is depreciation. In the same bill that Congress extends the period to place an aircraft in service and still qualify for bonus depreciation, Congress also reverses current law and limits depreciation and other business deductions, even when an employee has income imputed to him for any personal use of the aircraft.

I can understand that the facts of the tax court case that was intended to be reversed involved a high percentage of nonbusiness use. However, it would seem to me that some sort of de minimis amount of personal travel treated as taxable compensation should be allowed without reducing otherwise applicable business deductions. I can also understand limiting deductions for incremental operating costs incurred for a personal flight, but the aircraft depreciates whether it is in the air or on the ground. I do not see the rationale for this extraordinary provision in the conference agreement far beyond the scope of the original Senate provision. The section which the conference report amends concerns entertainment facilities such as hunting and fishing lodges which have no other use than for business or personal entertainment. An aircraft is purchased by a business because they have a business need to be served. It is not the same thing as a hunting lodge. It is difficult for me to believe that, if a court addressed the specific question of whether a business aircraft were an "entertainment facility" under present law, that it would rule against the taxpayer.

I hope that the chairman would be willing to consider a de minimis rule or other modification to limit the scope of this limitation in future tax legislation to allow occasional personal use without limiting otherwise deductible business expense deductions relating to the ownership and use of a business aircraft.

Mr. GRASSLEY: I appreciate the Senator's concerns and will keep them in mind in the future, although I would not anticipate repeal of the full provision included in this conference report.
SECTION 422

Mr. SMITH. Mr. President, I ask if the chairman of the Committee on Finance would entertain additional questions regarding the American Jobs Creation Act of 2004.

Mr. GRASSLEY. Mr. President, I would be glad to take a question from the Senator from Oregon.

Mr. SMITH. Mr. President, I have a question about how to interpret one of the rules contained in section 422 of the conference agreement for the American Jobs Creation Act. Would the chairman please clarify what the rule that disallows deductions for expenses "properly allocated and apportioned to the deductible portion" of the dividend is intended to cover?

Mr. GRASSLEY. I thank the Senator from Oregon for his question. The rule and the statement of managers contain some ambiguity as to which deductions are disallowed. The intent of the rule is to disallow only deductions for expenses that relate directly to generating the dividend income in question.