[Congressional Record Volume 145, Number 78 (Thursday, May 27, 1999)]
[Senate]
[Page S6319]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. NICKLES:
  S. 1166. A bill to amend the Internal Revenue Code of 1986 to clarify 
that natural gas gathering lines are 7-year property for purposes of 
depreciation; to the Committee on Finance.


                 natural gas classification legislation

  Mr. NICKLES. Mr. President, today I have introduced legislation to 
clarify the proper depreciation of natural gas gathering lines. While 
depreciation is an arcane and technical area of the tax laws, continued 
uncertainty regarding the proper depreciation of these assets is having 
real and adverse impacts on members of the natural gas industry.
  The purpose of this bill is quite simple--to clarify that natural gas 
gathering lines are assets that are properly depreciated over seven 
years. The legislation would codify the seven-year treatment of these 
assets as well as providing a sufficient definition for the term 
``natural gas gathering line'' to distinguish these lines from 
transmission pipelines for depreciation purposes.
  I believe that these assets should currently be depreciated over 
seven years under existing law, and that this is the long standing 
practice of members of the industry. However, it has come to my 
attention that the Internal Revenue Service has been asserting both on 
audits and in litigation that seven-year depreciation is available only 
for gathering assets owned by producers. The IRS has asserted that all 
other gathering equipment is to be depreciated as transmission 
pipelines over a fifteen-year period. This confounding position ignores 
not only the plain language of the asset class guidelines governing 
depreciation, but would result in disparate treatment of the same 
assets based upon ownership for no discernible policy reason. Moreover, 
this position ignores the fundamental distinction between gathering and 
transmission of natural gas long enshrined in energy regulation and 
recognized by the Federal Energy Regulatory Commission as well as other 
state and federal regulatory bodies.
  Nonetheless, the IRS' position on this issue has resulted in the past 
in a division of authority among the lower courts. Although the United 
States Court of Appeals for the Tenth Circuit recently held that the 
seven-year cost recovery period was properly applied to natural gas 
gathering systems under existing law, this legislation is needed to 
provide certainty and uniformity regarding the proper depreciation of 
these assets throughout the country. With extensive gathering systems 
totaling many thousands of miles, we cannot afford to allow the proper 
depreciation of these substantial investments to remain subjects of 
dispute. I urge my fellow Senators to join me in securing the adoption 
of this important legislation.
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