[Congressional Record Volume 144, Number 65 (Wednesday, May 20, 1998)]
[Extensions of Remarks]
[Page E910]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




             CLASSIFICATION OF NATURAL GAS GATHERING LINES

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                            HON. SAM JOHNSON

                                of texas

                    in the house of representatives

                        Wednesday, May 20, 1998

  Mr. SAM JOHNSON of Texas. Mr. Speaker, today I have introduced 
legislation, H.R.--to provide much needed certainty with respect to the 
proper depreciation classification of natural gas gathering lines. 
Natural gas gathering lines play an integral role in the production and 
processing of natural gas as they are used to carry gas from the 
wellhead to a gas processing unit or interconnection with a 
transmission pipeline. In many instances, the gathering network for a 
single gas field can consist of hundreds of miles and represents a 
substantial investment for natural gas processors.
  The proper depreciation classification for specific assets is 
determined by reference to the asset guideline class that describes the 
property. Asset class 13.2, subject to a 7-year cost recovery period, 
clearly includes:

       . . . assets used by petroleum and natural gas producers 
     for drilling wells and production of petroleum and natural 
     gas, including gathering pipelines and related production 
     facilities.

  Not only are gathering lines specifically referenced in asset class 
13.2, but gathering lines are integral to the extraction and production 
process. Nonetheless, it has come to my attention that some Internal 
Revenue Service auditors now seek to categorize natural gas gathering 
lines as assets subject to a 15-year cost recovery period under asset 
class 46.0, titled ``Pipeline Transportation.''
  Over the past several years, I have corresponded and met with 
officials of the Department of Treasury seeking clarification of 
Internal Revenue Service policy and the issuance of guidance to 
taxpayers as to the proper treatment of these assets for depreciation 
purposes. These efforts have been to no avail. In the meantime, the 
continued controversy over this issue has imposed significant costs on 
the gas processing industry on audit and in litigation, and has 
resulted in a division of authority among the lower courts as to the 
proper depreciation of these assets. While it is not my intent to 
interfere with ongoing litigation, I do believe that legislation is 
needed to clarify the treatment of these assets under the Internal 
Revenue Code in order to provide certainty to the industry for tax 
planning purposes, and to avoid costly and protracted audits or 
litigation.
  Accordingly, I have introduced legislation that would amend the 
Internal Revenue Code to specifically provide that natural gas 
gathering lines are subject to a 7-year cost recovery period. While I 
believe that this result should be axiomatic under existing law, this 
bill would eliminate any uncertainty surrounding the proper treatment 
of these assets. The bill also includes a proper definition of 
``natural gas gathering lines'' to distinguished these assets from 
pipeline transportation for purposes of depreciation.
  I urge my colleagues to support this important legislation.

                                H.R. --

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR 
                   PROPERTY.

       (a) In General.--Subparagraph (C) of section 168(e)(3) of 
     the Internal Revenue Code of 1986 (relating to classification 
     of certain property) is amended by redesignating clause (ii) 
     as clause (iii) and by inserting after clause (i) the 
     following new clause:
       ``(ii) any natural gas gathering line, and''.
       (b) Natural Gas Gathering Line.--Subsection (i) of section 
     168 of such Code is amended by adding at the end the 
     following new paragraph:
       ``(15) Natural gas gathering line.--The term `natural gas 
     gathering line' means the pipe, equipment, and appurtenances 
     used to deliver natural gas from the wellhead to the point at 
     which such gas first reaches--
       ``(A) a gas processing plant,
       ``(B) an interconnection with an interstate natural-gas 
     company (as defined in section 2(6) of the Natural Gas Act), 
     or
       ``(C) an interconnection with an intrastate transmission 
     pipeline.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to property placed in service before, on, or 
     after the date of the enactment of this Act.

     

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