[Congressional Bills 106th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2402 Introduced in House (IH)]







106th CONGRESS
  1st Session
                                H. R. 2402

   To amend the Internal Revenue Code of 1986 to establish a 15-year 
 recovery period for franchise property, to provide a shorter recovery 
period for the depreciation of certain leasehold improvements, to allow 
  capital gain treatment on the transfer of a franchise in connection 
   with the transfer of an existing business, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             June 30, 1999

 Mr. Lewis of Kentucky (for himself, Mr. English, Ms. Dunn, Mr. Camp, 
 Mr. Ramstad, Mr. Hayworth, Mr. Paul, and Mr. Northup) 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 establish a 15-year 
 recovery period for franchise property, to provide a shorter recovery 
period for the depreciation of certain leasehold improvements, to allow 
  capital gain treatment on the transfer of a franchise in connection 
   with the transfer of an existing business, and for other purposes.

    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 ``Small Business Franchise Tax Relief 
Act of 1999''.

SEC. 2. CLASS LIFE FOR FRANCHISE OPERATIONS.

    (a) In General.--Section 168(e)(3)(E) of the Internal Revenue Code 
of 1986 (classifying certain property as 15-year property) is amended 
by striking ``and'' at the end of clause (ii), by striking the period 
at the end of clause (iii) and inserting ``, and'', and by adding at 
the end the following new clause:
                            ``(iv) any section 1250 property which is a 
                        franchise operation subject to section 1253.''.
    (b) Conforming Amendment.--Subparagraph (B) of section 168(g)(3) of 
such Code is amended by inserting after the item relating to 
subparagraph (E)(iii) in the table contained therein the following new 
item:

  ``(E)(iv)..........................................      20 ''.      

    (c) Effective Date.--The amendments made by this section shall 
apply to property which is placed in service on or after the date of 
the enactment of this Act and to which section 168 of the Internal 
Revenue Code of 1986 applies after the amendment made by section 201 of 
the Tax Reform Act of 1986. A taxpayer may elect (in such form and 
manner as the Secretary of the Treasury may prescribe) to have such 
amendments apply with respect to any property placed in service before 
such date and to which such section so applies.

SEC. 3. 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.''
    (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.

SEC. 4. TREATMENT OF TRANSFERS OF FRANCHISES IN CONNECTION WITH 
              TRANSFER OF EXISTING BUSINESS OPERATION.

    (a) Capital Gain Treatment.--Section 1253 of the Internal Revenue 
Code of 1986 (relating to transfers of franchises, trademarks, and 
trade names) is amended by adding at the end the following new 
subsection:
    ``(f) Exception for Transfers of Franchises In Connection With 
Existing Business Operation.--
            ``(1) In general.--Subsection (a) shall not apply to the 
        transfer of a franchise to an eligible transferee if--
                    ``(A) the trade or business which is the subject 
                matter of the franchise has been actively carried on 
                for not less than 2 years as of the date of the 
                transfer,
                    ``(B) the transferee acquires the right to operate 
                such trade or business in connection with such 
                transfer, and
                    ``(C) the transferee and the transferor are not 
                related persons (as defined in section 197(f)(9)(C)).
            ``(2) Eligible transferee.--For purposes of paragraph (1), 
        the term `eligible transferee' means--
                    ``(A) an individual,
                    ``(B) any domestic corporation all of the stock in 
                which is owned by an individual and the members of such 
                individual's family (within the meaning of section 
                267(c)(4)),
                    ``(C) a corporation--
                            ``(i) which meets the requirements of 
                        section 1361(b) (determined by substituting 
                        `35' for `75' in paragraph (1) thereof), and
                            ``(ii) which meets the requirements of 
                        section 1202(d) (determined by treating such 
                        transfer as the issuance referred to in such 
                        section), or, in the case of a corporation 
                        which is not a C corporation, would meet such 
                        requirements (as so determined) were it a C 
                        corporation, or
                    ``(D) a partnership which would meet the 
                requirements of subparagraph (B) or (C) if it were a 
                corporation and interests in the profits or capital of 
                the partnership were stock.''.
    (b) Exception From Ordinary Income Recapture on Disposition of 
Amortized Franchise Cost.--Paragraph (7) of section 197(f) of such Code 
is amended by adding at the end the following new sentence: ``The 
preceding sentence shall not apply to any franchise to which section 
1253(a) does not apply by reason of section 1253(f).''
    (c) Maximum Rate of Tax.--Subsection (a) of section 1201 of such 
Code (relating to alternative tax for corporations) is amended by 
striking ``plus'' at the end of paragraph (1) and by striking paragraph 
(2) and inserting the following new paragraphs:
            ``(2) 20 percent of the lesser of--
                    ``(A) the net capital gain determined by taking 
                into account only gain and loss attributable to 
                transfers of franchises to which section 1253(a) does 
                not apply by reason of section 1253(f), or
                    ``(B) the net capital gain (or, if less, taxable 
                income) for the taxable year, plus
            ``(3) 35 percent of the excess (if any) of--
                    ``(A) the net capital gain (or, if less, taxable 
                income) for the taxable year, over
                    ``(B) the amount of net capital gain taken into 
                account under paragraph (2).''.
    (d) Effective Date.--The amendments made by this section shall 
apply to transfers after the date of the enactment of this Act.
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