[Congressional Record (Bound Edition), Volume 145 (1999), Part 2]
[Extensions of Remarks]
[Page 2242]
[From the U.S. Government Publishing Office, www.gpo.gov]




INTRODUCTION OF 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

                      Wednesday, February 10, 1999

  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 on 
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 obvious 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 distinguish these assets from 
pipeline transportation for purposes of depreciation.
  I urge my colleagues to support this important legislation.

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