Expensing of broadband Internet access expenditures

(a)

In general

Part VI of subchapter B of chapter 1 of the Internal Revenue Code of 1986 (relating to itemized deductions for individuals and corporations) is amended by inserting after section 190 the following new section:

191.

Broadband expenditures

(a)

Treatment of expenditures

(1)

In general

A taxpayer may elect to treat any qualified broadband expenditure which is paid or incurred by the taxpayer as an expense which is not chargeable to capital account. Any expenditure which is so treated shall be allowed as a deduction. (2)

Election

An election under paragraph (1) shall be made at such time and in such manner as the Secretary may prescribe by regulation. (b)

Qualified broadband expenditures

For purposes of this section— (1)

In general

The term qualified broadband expenditure means, with respect to any taxable year, any direct or indirect costs incurred after the date of the enactment of this section and before the date which is 4 years after such date and properly taken into account with respect to— (A)the purchase or installation of qualified equipment (including any upgrades thereto), and (B)the connection of such qualified equipment to any qualified subscriber. (2)

Certain satellite expenditures excluded

Such term shall not include any costs incurred with respect to the launching of any satellite equipment. (3)

Leased equipment

Such term shall include so much of the purchase price paid by the lessor of qualified equipment subject to a lease described in subsection (c)(2)(B) as is attributable to expenditures incurred by the lessee which would otherwise be described in paragraph (1). (4)

Limitation with regard to current generation broadband services

Only 50 percent of the amounts taken into account under paragraph (1) with respect to qualified equipment through which current generation broadband services are provided shall be treated as qualified broadband expenditures. (c)

When expenditures taken into account

For purposes of this section— (1)

In general

Qualified broadband expenditures with respect to qualified equipment shall be taken into account with respect to the first taxable year in which— (A)current generation broadband services are provided through such equipment to qualified subscribers, or (B)next generation broadband services are provided through such equipment to qualified subscribers. (2)

Limitation

(A)

In general

Qualified expenditures shall be taken into account under paragraph (1) only with respect to qualified equipment— (i)the original use of which commences with the taxpayer, and (ii)which is placed in service, after the date of the enactment of this section. (B)

Sale-leasebacks

For purposes of subparagraph (A), if property— (i)is originally placed in service after the date of the enactment of this section by any person, and (ii)sold and leased back by such person within 3 months after the date such property was originally placed in service,

such property shall be treated as originally placed in service not earlier than the date on which such property is used under the leaseback referred to in clause (ii).

(d)

Special allocation rules

(1)

Current generation broadband services

For purposes of determining the amount of qualified broadband expenditures under subsection (a)(1) with respect to qualified equipment through which current generation broadband services are provided, if the qualified equipment is capable of serving both qualified subscribers and other subscribers, the qualified broadband expenditures shall be multiplied by a fraction— (A)the numerator of which is the sum of the number of potential qualified subscribers within the rural areas and the underserved areas which the equipment is capable of serving with current generation broadband services, and (B)the denominator of which is the total potential subscriber population of the area which the equipment is capable of serving with current generation broadband services. (2)

Next generation broadband services

For purposes of determining the amount of qualified broadband expenditures under subsection (a)(1) with respect to qualified equipment through which next generation broadband services are provided, if the qualified equipment is capable of serving both qualified subscribers and other subscribers, the qualified expenditures shall be multiplied by a fraction— (A)the numerator of which is the sum of— (i)the number of potential qualified subscribers within the rural areas and underserved areas, plus (ii)the number of potential qualified subscribers within the area consisting only of residential subscribers not described in clause (i),

which the equipment is capable of serving with next generation broadband services, and

(B)the denominator of which is the total potential subscriber population of the area which the equipment is capable of serving with next generation broadband services. (e)

Definitions

For purposes of this section— (1)

Antenna

The term antenna means any device used to transmit or receive signals through the electromagnetic spectrum, including satellite equipment. (2)

Cable operator

The term cable operator has the meaning given such term by section 602(5) of the Communications Act of 1934 (47 U.S.C. 522(5)). (3)

Commercial mobile Service carrier

The term commercial mobile service carrier means any person authorized to provide commercial mobile radio service as defined in section 20.3 of title 47, Code of Federal Regulations. (4)

Current generation broadband Service

The term current generation broadband service means the transmission of signals at a rate of at least 5,000,000 bits per second to the subscriber and at least 1,000,000 bits per second from the subscriber. (5)

Multiplexing or demultiplexing

The term multiplexing means the transmission of 2 or more signals over a single channel, and the term demultiplexing means the separation of 2 or more signals previously combined by compatible multiplexing equipment. (6)

Next generation broadband Service

The term next generation broadband service means the transmission of signals at a rate of at least 50,000,000 bits per second to the subscriber and at least 10,000,000 bits per second from the subscriber. (7)

Nonresidential subscriber

The term nonresidential subscriber means any person who purchases broadband services which are delivered to the permanent place of business of such person. (8)

Open video system operator

The term open video system operator means any person authorized to provide service under section 653 of the Communications Act of 1934 (47 U.S.C. 573). (9)

Other wireless carrier

The term other wireless carrier means any person (other than a telecommunications carrier, commercial mobile service carrier, cable operator, open video system operator, or satellite carrier) providing current generation broadband services or next generation broadband service to subscribers through the radio transmission of energy. (10)

Packet switching

The term packet switching means controlling or routing the path of any digitized transmission signal which is assembled into packets or cells. (11)

Provider

The term provider means, with respect to any qualified equipment— (A)a cable operator, (B)a commercial mobile service carrier, (C)an open video system operator, (D)a satellite carrier, (E)a telecommunications carrier, or (F)any other wireless carrier,

providing current generation broadband services or next generation broadband services to subscribers through such qualified equipment.

(12)

Provision of services

A provider shall be treated as providing services to 1 or more subscribers if— (A)such a subscriber has been passed by the provider’s equipment and can be connected to such equipment for a standard connection fee, (B)the provider is physically able to deliver current generation broadband services or next generation broadband services, as applicable, to such a subscriber without making more than an insignificant investment with respect to such subscriber, (C)the provider has made reasonable efforts to make such subscribers aware of the availability of such services, (D)such services have been purchased by 1 or more such subscribers, and (E)such services are made available to such subscribers at average prices comparable to those at which the provider makes available similar services in any areas in which the provider makes available such services. (13)

Qualified equipment

(A)

In general

The term qualified equipment means equipment which provides current generation broadband services or next generation broadband services— (i)at least a majority of the time during periods of maximum demand to each subscriber who is utilizing such services, and (ii)in a manner substantially the same as such services are provided by the provider to subscribers through equipment with respect to which no deduction is allowed under subsection (a)(1). (B)

Only certain investment taken into account

Except as provided in subparagraph (C) or (D), equipment shall be taken into account under subparagraph (A) only to the extent it— (i)extends from the last point of switching to the outside of the unit, building, dwelling, or office owned or leased by a subscriber in the case of a telecommunications carrier, (ii)extends from the customer side of the mobile telephone switching office to a transmission/receive antenna (including such antenna) owned or leased by a subscriber in the case of a commercial mobile service carrier, (iii)extends from the customer side of the headend to the outside of the unit, building, dwelling, or office owned or leased by a subscriber in the case of a cable operator or open video system operator, or (iv)extends from a transmission/receive antenna (including such antenna) which transmits and receives signals to or from multiple subscribers, to a transmission/receive antenna (including such antenna) on the outside of the unit, building, dwelling, or office owned or leased by a subscriber in the case of a satellite carrier or other wireless carrier, unless such other wireless carrier is also a telecommunications carrier. (C)

Packet switching equipment

Packet switching equipment, regardless of location, shall be taken into account under subparagraph (A) only if it is deployed in connection with equipment described in subparagraph (B) and is uniquely designed to perform the function of packet switching for current generation broadband services or next generation broadband services, but only if such packet switching is the last in a series of such functions performed in the transmission of a signal to a subscriber or the first in a series of such functions performed in the transmission of a signal from a subscriber. (D)

Multiplexing and demultiplexing equipment

Multiplexing and demultiplexing equipment shall be taken into account under subparagraph (A) only to the extent it is deployed in connection with equipment described in subparagraph (B) and is uniquely designed to perform the function of multiplexing and demultiplexing packets or cells of data and making associated application adaptions, but only if such multiplexing or demultiplexing equipment is located between packet switching equipment described in subparagraph (C) and the subscriber’s premises. (14)

Qualified subscriber

The term qualified subscriber means— (A)with respect to the provision of current generation broadband services— (i)any nonresidential subscriber maintaining a permanent place of business in a rural area or underserved area, or (ii)any residential subscriber residing in a dwelling located in a rural area or underserved area which is not a saturated market, and (B)with respect to the provision of next generation broadband services— (i)any nonresidential subscriber maintaining a permanent place of business in a rural area or underserved area, or (ii)any residential subscriber. (15)

Residential subscriber

The term residential subscriber means any individual who purchases broadband services which are delivered to such individual’s dwelling. (16)

Rural area

The term rural area means any census tract which— (A)is not within 10 miles of any incorporated or census designated place containing more than 25,000 people, and (B)is not within a county or county equivalent which has an overall population density of more than 500 people per square mile of land. (17)

Rural subscriber

The term rural subscriber means any residential subscriber residing in a dwelling located in a rural area or nonresidential subscriber maintaining a permanent place of business located in a rural area. (18)

Satellite carrier

The term satellite carrier means any person using the facilities of a satellite or satellite service licensed by the Federal Communications Commission and operating in the Fixed-Satellite Service under part 25 of title 47 of the Code of Federal Regulations or the Direct Broadcast Satellite Service under part 100 of title 47 of such Code to establish and operate a channel of communications for distribution of signals, and owning or leasing a capacity or service on a satellite in order to provide such point-to-multipoint distribution. (19)

Saturated market

The term saturated market means any census tract in which, as of the date of the enactment of this section— (A)current generation broadband services have been provided by a single provider to 85 percent or more of the total number of potential residential subscribers residing in dwellings located within such census tract, and (B)such services can be utilized— (i)at least a majority of the time during periods of maximum demand by each such subscriber who is utilizing such services, and (ii)in a manner substantially the same as such services are provided by the provider to subscribers through equipment with respect to which no deduction is allowed under subsection (a)(1). (20)

Subscriber

The term subscriber means any person who purchases current generation broadband services or next generation broadband services. (21)

Telecommunications carrier

The term telecommunications carrier has the meaning given such term by section 3(44) of the Communications Act of 1934 (47 U.S.C. 153(44)), but— (A)includes all members of an affiliated group of which a telecommunications carrier is a member, and (B)does not include a commercial mobile service carrier. (22)

Total potential subscriber population

The term total potential subscriber population means, with respect to any area and based on the most recent census data, the total number of potential residential subscribers residing in dwellings located in such area and potential nonresidential subscribers maintaining permanent places of business located in such area. (23)

Underserved area

The term underserved area means— (A)any census tract which is located in— (i)an empowerment zone or enterprise community designated under section 1391, or (ii)the District of Columbia Enterprise Zone established under section 1400, or (B)any census tract— (i)the poverty level of which is at least 30 percent (based on the most recent census data), and (ii)the median family income of which does not exceed— (I)in the case of a census tract located in a metropolitan statistical area, 70 percent of the greater of the metropolitan area median family income or the statewide median family income, and (II)in the case of a census tract located in a nonmetropolitan statistical area, 70 percent of the nonmetropolitan statewide median family income. (24)

Underserved subscriber

The term underserved subscriber means any residential subscriber residing in a dwelling located in an underserved area or nonresidential subscriber maintaining a permanent place of business located in an underserved area. (f)

Special rules

(1)

Property used outside the United States, etc., not qualified

No expenditures shall be taken into account under subsection (a)(1) with respect to the portion of the cost of any property referred to in section 50(b) or with respect to the portion of the cost of any property specified in an election under section 179. (2)

Basis reduction

(A)

In general

For purposes of this title, the basis of any property shall be reduced by the portion of the cost of such property taken into account under subsection (a)(1). (B)

Ordinary income recapture

For purposes of section 1245, the amount of the deduction allowable under subsection (a)(1) with respect to any property which is of a character subject to the allowance for depreciation shall be treated as a deduction allowed for depreciation under section 167. (3)

Coordination with Section 38

No credit shall be allowed under section 38 with respect to any amount for which a deduction is allowed under subsection (a)(1).

(b)

Special rule for mutual or cooperative telephone companies

Section 512(b) of the Internal Revenue Code of 1986 (relating to modifications) is amended by adding at the end the following new paragraph:

(20)

Special rule for mutual or cooperative telephone companies

A mutual or cooperative telephone company which for the taxable year satisfies the requirements of section 501(c)(12)(A) may elect to reduce its unrelated business taxable income for such year, if any, by an amount that does not exceed the qualified broadband expenditures which would be taken into account under section 191 for such year by such company if such company was not exempt from taxation. Any amount which is allowed as a deduction under this paragraph shall not be allowed as a deduction under section 191 and the basis of any property to which this paragraph applies shall be reduced under section 1016(a)(38).

(c)

Conforming amendments

(1)Section 263(a)(1) of the Internal Revenue Code of 1986 (relating to capital expenditures) is amended by striking or at the end of subparagraph (J), by striking the period at the end of subparagraph (K) and inserting , or, and by adding at the end the following new subparagraph:

(L)expenditures for which a deduction is allowed under section 191.

(2)Section 1016(a) of such Code is amended by striking and at the end of paragraph (36), by striking the period at the end of paragraph (37) and inserting , and, and by adding at the end the following new paragraph:

(38)to the extent provided in section 191(f)(2).

(3)The table of sections for part VI of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 190 the following new item:

Sec. 191. Broadband expenditures.

(d)

Designation of census tracts

(1)

In general

The Secretary of the Treasury shall, not later than 90 days after the date of the enactment of this Act, designate and publish those census tracts meeting the criteria described in paragraphs (16), (22), and (23) of section 191(e) of the Internal Revenue Code of 1986 (as added by this section). In making such designations, the Secretary of the Treasury shall consult with such other departments and agencies as the Secretary determines appropriate. (2)

Saturated market

(A)

In general

For purposes of designating and publishing those census tracts meeting the criteria described in subsection (e)(19) of such section 191— (i)the Secretary of the Treasury shall prescribe not later than 30 days after the date of the enactment of this Act the form upon which any provider which takes the position that it meets such criteria with respect to any census tract shall submit a list of such census tracts (and any other information required by the Secretary) not later than 60 days after the date of the publication of such form, and (ii)the Secretary of the Treasury shall publish an aggregate list of such census tracts and the applicable providers not later than 30 days after the last date such submissions are allowed under clause (i). (B)

No subsequent lists required

The Secretary of the Treasury shall not be required to publish any list of census tracts meeting such criteria subsequent to the list described in subparagraph (A)(ii). (e)

Other regulatory matters

(1)

Prohibition

No Federal or State agency or instrumentality shall adopt regulations or ratemaking procedures that would have the effect of eliminating or reducing any deduction or portion thereof allowed under section 191 of the Internal Revenue Code of 1986 (as added by this section) or otherwise subverting the purpose of this section. (2)

Treasury regulatory authority

It is the intent of Congress in providing the election to deduct qualified broadband expenditures under section 191 of the Internal Revenue Code of 1986 (as added by this section) to provide incentives for the purchase, installation, and connection of equipment and facilities offering expanded broadband access to the Internet for users in certain low income and rural areas of the United States, as well as to residential users nationwide, in a manner that maintains competitive neutrality among the various classes of providers of broadband services. Accordingly, the Secretary of the Treasury shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of section 191 of such Code, including— (A)regulations to determine how and when a taxpayer that incurs qualified broadband expenditures satisfies the requirements of section 191 of such Code to provide broadband services, and (B)regulations describing the information, records, and data taxpayers are required to provide the Secretary to substantiate compliance with the requirements of section 191 of such Code. (f)

Effective date

The amendments made by this section shall apply to expenditures incurred after the date of the enactment of this Act.