[Federal Register Volume 68, Number 129 (Monday, July 7, 2003)]
[Rules and Regulations]
[Pages 40129-40130]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17085]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9069]
RIN 1545-BB06


Depreciation of Vans and Light Trucks

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations relating to the 
definition of passenger automobiles for purposes of section 280F(a). 
These temporary regulations affect certain taxpayers that use vans and 
light trucks in their trade or business.

DATES: These regulations are effective July 7, 2003.

FOR FURTHER INFORMATION CONTACT: Bernard P. Harvey, (202) 622-3110 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to 26 CFR part 1 under section 
280F of the Internal Revenue Code of 1986 (Code).

Explanation of Provisions

    Section 280F(a) limits annual depreciation deductions for passenger 
automobiles in order to discourage overspending on passenger 
automobiles purchased for use in business. For the 2003 taxable year, 
these limitations delay a portion of the otherwise allowable 
depreciation deductions for passenger automobiles with a purchase price 
above $15,300 (for passenger automobiles qualifying for additional 
first-year depreciation under section 168(k)(1), added by the Job 
Creation and Worker Assistance Act of 2002 (JCWAA), or under section 
168(k)(4), added by Jobs and Growth Tax Relief Reconciliation Act of 
2003 (JGTRRA), the delay affects depreciation deductions for vehicles 
that cost more than $17,500 or $17,850, respectively). Passenger 
automobiles are defined in section 280F(d)(5)(A) as any 4-wheeled 
vehicle which is manufactured primarily for use on public streets, 
roads, and highways, and which is rated at 6,000 pounds unloaded gross 
vehicle weight (or, in the case of a truck or van, 6,000 pounds gross 
vehicle weight) or less. Section 280F(d)(5)(B) provides exceptions from 
this definition, and allows the Secretary to promulgate regulations to 
exclude trucks and vans from the definition of passenger automobiles.
    While a basic automobile may be fully depreciated over five years 
under these rules, small business advocates have suggested that 
taxpayers with a valid business need for a van or light truck cannot 
fully depreciate a basic van or light truck within the standard five-
year recovery period. Treasury and the IRS recognize that these 
vehicles generally cost more than other passenger automobiles and that 
even the most basic van or light truck may be subject to the section 
280F(a) depreciation limits.
    Some commenters on this issue suggested that the dollar limits on 
trucks and vans should be raised to reflect the higher cost of these 
vehicles. Although there is no general authority in section 280F to 
raise the dollar limits for specific types of vehicle, section 
280F(d)(7) provides for adjustments to the dollar limits to reflect 
automobile price inflation since 1988. Moreover, much of the disparity 
between the cost of vans and light trucks and the cost of other 
passenger automobiles is attributable to the higher rate of price 
inflation for vans and light trucks since 1988. Accordingly, the 
revenue procedure setting forth the inflation-adjusted dollar limits 
for vehicles placed in service in 2003 will respond to the suggestion 
by providing higher dollar limits for vans and light trucks to reflect 
this higher rate of price inflation.
    In addition, as noted above, JCWAA and JGTRRA have provided 
temporary relief by substantially increasing the first-year 
depreciation limits for all new passenger automobiles, including vans 
and light trucks. Thus, a taxpayer electing the 50-percent additional 
first-year depreciation permitted by JGTRRA can recover the full cost 
of a new automobile costing nearly $23,000 over the five-year recovery 
period. The revenue procedure described above would provide an even 
higher limit for new vans and light trucks.
    Comments also suggested that Treasury and the IRS should exercise 
the regulatory authority in section 280F(d)(5)(B)(ii) to provide an 
exclusion from the section 280F(a) depreciation limitations for all 
trucks and vans or for vehicles that are used in a specified manner. 
Treasury and the IRS have concluded that a limited exclusion is 
appropriate so long as it is based on objective factors and does not 
provide an incentive to purchase a truck or van when a less-expensive 
automobile would be sufficient to fulfill the taxpayer's business 
needs. Accordingly, the temporary regulations exclude from the 
definition of passenger automobile any truck or van that is a qualified 
nonpersonal use vehicle as defined in Sec.  1.274-5T(k) of the Income 
Tax Regulations. Qualified nonpersonal use vehicles include not only 
the trucks and vans listed in Sec.  1.274-5T(k)(2), but also trucks and 
vans described in Sec.  1.274-5T(k)(7) (relating to trucks and vans 
that have been specially modified, such as by installation of permanent 
shelving and painting the vehicle to display advertising or the 
company's name, so that they are not likely to be used more than a de 
minimis amount for personal purposes). These specially manufactured or 
modified vehicles do not provide significant elements of personal 
benefit, and a taxpayer is unlikely to purchase these vehicles unless 
motivated by a valid business purpose that could not be met with a 
less-expensive vehicle. We welcome comments on other options that 
provide administrable objective standards and are consistent with the 
statutory purpose.
    The temporary regulations also strike from Sec.  1.280F-6T language 
relating to expired provisions of the Code.

Effective Date

    The temporary regulations apply to property placed in service on or 
after July 7, 2003.

[[Page 40130]]

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. For applicablity 
of the Regulatory Flexibility Act (5 U.S.C. chapter 6), please refer to 
the cross-reference notice of proposed rulemaking published elsewhere 
in this issue of the Federal Register. Pursuant to section 7805(f) of 
the Code, this Treasury decision will be submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business.

Drafting Information

    The principal author of these regulations is Bernard P. Harvey, 
Office of Associate Chief Counsel (Passthroughs and Special 
Industries). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
1. The authority citation for part 1 is amended by adding an entry in 
numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Section 1.280F-6T also issued under 26 U.S.C. 280F. * * *

0
2. Section 1.280F-6T is amended as follows:
0
1. Paragraph (a)(1) is amended by removing the language ``the amount of 
any credit allowable under section 38 to the employee or''.
0
2. Paragraph (c)(3)(iii) is revised.
0
3. Paragraph (d)(3) is amended by removing the language ``investment 
tax credit or'' and ``the investment tax credit and''.
0
4. The authority citation at the end of the section is removed.
    The revision reads as follows:


Sec.  1.280F-6T  Special rules and definitions (temporary).

* * * * *
    (c) * * *
    (3) * * *
    (iii) Truck or van that is a qualified nonpersonal use vehicle as 
defined under Sec.  1.274-5T(k).
* * * * *

Robert E. Wenzel,
Deputy Commissioner for Services and Enforcement.
    Approved: June 27, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 03-17085 Filed 7-3-03; 8:45 am]
BILLING CODE 4830-01-P