[Congressional Record Volume 145, Number 78 (Thursday, May 27, 1999)]
[Extensions of Remarks]
[Pages E1124-E1125]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


STATEMENT FOR THE RECORD ON THE INTRODUCTION OF A BILL TO CLARIFY THAT 
    NATURAL GAS GATHERING LINES ARE 7-YEAR PROPERTY FOR PURPOSES OF 
                              DEPRECIATION

                                 ______
                                 

                            HON. SAM JOHNSON

                                of texas

                    in the house of representatives

                         Thursday, May 27, 1999

  Mr. SAM JOHNSON of Texas. Mr. Speaker, today I am joined by 
Representatives McCrery, Houghton, Watkins, McInnis, and Camp in the 
introduction of legislation that will clarify the proper treatment of 
natural gas gathering lines for purposes of depreciation.
  For several years, a level of uncertainty has hampered the natural 
gas processing industry as well as imposed significant costs on the 
energy industry as a whole. Consequently, I have worked to bring 
certainty to the tax treatment of natural gas gathering lines. During 
this time, I have corresponded and met with a variety of people from 
the Department of Treasury in an effort to secure the issuance of much 
needed guidance for the members of the natural gas processing industry 
regarding the treatment of these assets.
  Unfortunately, I have not received satisfactory responses. Protracted 
Internal Revenue Service audits and litigation on this issue continues 
without any end in sight. As a result, I chose to introduce legislation 
in the 105th Congress in order to clarify that, under current law, 
natural gas gathering lines are properly treated as seven-year assets 
for purposes of depreciation. This year, I introduced similar 
legislation, H.R. 674, as a part of the 106th Congress. Today's bill 
supersedes my earlier bill, H.R. 674, and contains a few minor 
technical changes that are necessary to ensure that this legislation 
achieves its intended effect.
  This bill specifically provides that natural gas gathering lines are 
subject to a seven-

[[Page E1125]]

year cost recovery period. In addition, the legislation includes a 
proper definition of a ``natural gas gathering line'' in order to 
distinguish these assets from pipeline transportation lines for 
depreciation purposes. While I believe this result is clearly the 
correct result under current law, my bill will eliminate any remaining 
uncertainty regarding the treatment of natural gas gathering lines.
  The need for certainty regarding the tax treatment of such a 
substantial investment is obvious in the face of the IRS's and 
Treasury's refusal to properly classify these assets. The Modified 
Accelerated Cost Recovery System (MACRS), the current depreciation 
system, includes ``gathering pipelines and related production 
facilities'' in the Asset Class for assets used in the exploration for 
and production of natural gas subject to a seven-year cost recovery 
period. Despite the plain language of the Asset Class description, the 
IRS and Treasury have repeatedly asserted that only gathering systems 
owned by producers are eligible for seven-year cost recovery and all 
other gathering systems should be treated as transmission pipeline 
assets subject to a fifteen-year cost recovery period.
  The IRS's and the Treasury's position creates the absurd result of 
the same asset receiving disparate tax treatment based solely on who 
owns it. The distinction between gathering and transmission is well-
established and recognized by the Federal Energy Regulatory Commission 
and other regulatory agencies. Their attempt to treat natural gas 
gathering lines as transmission pipelines ignores the integral role of 
gathering systems in production, and the different functional and 
physical attributes of gathering lines as compared to transmission 
pipelines.
  Not surprisingly, the United States Court of Appeals for the Tenth 
Circuit recently held that natural gas gathering systems are subject to 
a seven-year cost recovery period under current law regardless of 
ownership. The potential for costly audits and litigation, however, 
still remains in other areas of the country. Given that even a midsize 
gathering system can consist of 1,200 miles of natural gas gathering 
lines, and that some companies own as much as 18,000 miles of natural 
gas gathering lines, these assets represent a substantial investment 
and expense. The IRS should not force businesses to incur any more 
additional expenses as well. My bill will ensure that these assets are 
properly treated under our country's tax laws.
  I urge my colleagues to join me as cosponsors of this important 
legislation.

                          ____________________