[Congressional Record Volume 147, Number 43 (Wednesday, March 28, 2001)]
[Extensions of Remarks]
[Pages E465-E466]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




    INTRODUCTION OF THE ``CELLULAR TELECOMMUNICATIONS DEPRECIATION 
                          CLARIFICATION ACT''

                                 ______
                                 

                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                       Wednesday, March 28, 2001

  Mr. CRANE. Mr. Speaker, I am pleased to join with Representative Neal 
and Ms. Johnson, Ms. Dunn, and Mr. Johnson of the Committee on Ways and 
Means in introducing the ``Cellular Telecommunications Depreciation 
Clarification Act.'' This legislation will amend the Internal Revenue 
Code to clarify that cellular telecommunications equipment is 
``qualified technological equipment'' as defined in section 168(i)(2).
  When an asset used in a trade or business or for the production of 
income has a useful life that extends beyond the taxable year, the 
costs of acquiring or producing the asset generally must be capitalized 
and recovered through depreciation or amortization deductions over the 
expected useful life of the property. The cost of most tangible 
depreciable property placed in service after 1986 is recovered on an 
accelerated basis using the modified accelerated cost recovery system, 
or MACRS. Under MACRS, assets are grouped into classes of personal 
property and real property, and each class is assigned a recovery 
period and depreciation method.
  For MACRS property, the class lives and recovery periods for various 
assets are prescribed by a table published by the Internal Revenue 
Service found in Rev. Proc. 87-56, 1987-2 C.B. 674. This table lists 
various Asset Classes, along with their respective class lives and 
recovery periods. Rev. Proc. 87-56 does not specifically address the 
treatment of cellular assets, but rather addresses assets used in 
traditional wireline telephone communications.
  These wireline class lives were created in 1977 and have remained 
basically unchanged since that time. In 1986, Congress added a category 
for computer-based telephone switching equipment, but there are no 
asset classes specifically for cellular communications equipment in 
Rev. Proc. 87-56. This is largely due to the fact that the commercial 
cellular industry was in its infancy in 1986 and 1987. Since the 
cellular industry was not specifically addressed in Rev. Proc. 87-56, 
the cellular industry has no clear, definitive guidance regarding the 
class lives and recovery periods of cellular assets. Therefore, the 
Internal Revenue Service and cellular companies have been left to 
resolve depreciation treatment on an ad hoc basis for these assets as 
the industy has rapidly progressed.

[[Page E466]]

  The result is that both cellular telecommunications companies and the 
Internal Revenue Service are expending significant resources in 
auditing and settling disputes involving the depreciation of cellular 
telecommunications equipment. This process is obviously costly and 
inefficient for taxpayers and the Service, but it also leaves affected 
companies with a great deal of uncertainty as to the tax treatment, and 
therefore expected after-tax return, they can expect on their
  The Treasury Department's ``Report to the Congress on Depreciation 
Recovery Periods and Methods'' tacitly acknowledges this point. In its 
discussion about how to treat assets used in newly-emerging industries, 
such as the cellular telecommunications industry, the report states:

       [t]he IRS normally will attempt to identify those 
     characteristics of the new activity that most nearly match 
     the characteristics of existing asset classes. However, this 
     practice may eventually become questionable in a system where 
     asset classes are seldom, if ever, reviewed and revised. The 
     cellular phone industry, which did not exist when the current 
     asset classes were defined, is a case in point. This 
     industry's assets differ in many respects from those used by 
     wired telephone service, and may not fit well into the 
     existing definitions for telephony-related classes.

  Rather than force cellular telecommunications equipment into wireline 
telephony ``transmission'' or ``distribution'' classes, a better 
solution would clarify that cellular telecommunications equipment is 
``qualified technological equipment.'' The Internal Revenue Code 
currently defines qualified technological equipment as any computer or 
peripheral equipment and any high technology telephone station 
equipment installed on a customer's premises.
  The cellular telecommunications industry has been one of the fastest 
growing industries in the United States since the mid-1980s, as 
evidenced by the following statistics:
  The domestic subscriber population has grown from less than 350,000 
in 1985 to 86 million by 1999, and is projected to grow to 175 million 
by 2007.
  The industry directly provided 4,334 jobs in 1986, which grew to over 
155,000 directly provided jobs and one million indirectly created jobs 
by 1999.
  Capital expenditures on cellular assets exceeded $15 billion in 1999.
  The rapid technological progress exhibited by the cellular 
telecommunications industry illustrates how the tax code needs to be 
flexible to adapt to future technologies and technological changes. 
Continued rapid advancement is on the horizon, including wireless fax, 
high-speed data, video capability, and a multitude of wireless Internet 
services. It is impossible in 2001 to anticipate properly the new 
equipment that will support this growth even two years hence. I urge my 
colleagues to support this important clarification to the tax law.

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