[Congressional Record Volume 147, Number 12 (Tuesday, January 30, 2001)]
[Extensions of Remarks]
[Pages E53-E54]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




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

                       Tuesday, January 30, 2001

  Mr. SAM JOHNSON of Texas. Mr. Speaker, today I am joined by 
Representatives McCrery and Watkins in the introduction of legislation 
that will clarify the proper tax 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. Of course, these costs are ultimately 
passed on to American consumers in the form of higher heating prices. 
Consequently, I have been working to bring certainty to the tax 
treatment of natural gas gathering lines. During this time, I have 
corresponded and meet 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 continue 
without any end in sight. As a result, I chose to introduce legislation 
in the 105th and the 106th 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 bill specifically provides that natural gas gathering lines are 
subject to a seven-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 property 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

[[Page E54]]

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 has 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 business 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.

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