HR 4184 IH

To amend the Internal Revenue Code of 1986 to implement the recommendation of the National Taxpayer Advocate that the depreciable life of computer software correspond to its actual useful life.

April 5, 2000

Mr. COX (for himself, Mr. DREIER, Mr. DAVIS of Virginia, and Mr. SAM JOHNSON of Texas) introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to implement the recommendation of the National Taxpayer Advocate that the depreciable life of computer software correspond to its actual useful life.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Fairness in Amortization of Software Tax Act of 2000'.

SEC. 2. FINDINGS AND PURPOSE.

(a) FINDINGS- The Congress finds that:

(1) Current tax law requires off-the-shelf or downloaded computer software to be depreciated over 3 years, and all other software to be amortized over 15 years; but in reality software must be upgraded constantly.

(2) The current tax policy discourages businesses from making necessary upgrades to computer software and inhibits their competing effectively in the new economy.

(3) The National Taxpayer Advocate's Annual Report to Congress for 1999 recommends amending section 179 of the tax code to allow taxpayers to deduct software purchases in the year in which the software is placed in service.

(4) Allowing taxpayers engaged in a trade or business to expense software will significantly ease the administrative burdens that the current law imposes, since records of software purchases and their depreciable lives will correspond to the software's actual useful life.

(5) The National Taxpayer Advocate has reported to Congress that as a result of the complexity of existing tax law, the existing 3-year depreciation period is overlooked by many taxpayers. Simplifying deductions for business software would also have the beneficial effect of increasing taxpayer compliance.

(b) PURPOSE- It is the purpose of this Act to--

(1) provide immediate expensing of software, up to the $20,000 limit now provided in section 179 of the tax code, and

(2) provide a 3-year depreciation period for all other software, down from the current 15 years.

SEC. 3. ALL COMPUTER SOFTWARE ELIGIBLE FOR EXPENSING.

(a) IN GENERAL- The heading and first sentence of paragraph (1) of section 179(d) of the Internal Revenue Code of 1986 (relating to section 179 property) are amended to read as follows:

`(1) SECTION 179 PROPERTY- For purposes of this section, the term `section 179 property' means property--

`(A) which is--

`(i) tangible property (to which section 168 applies), or

`(ii) computer software (as defined in section 197(e)(3)(B)) to which section 167 applies,

`(B) which is section 1245 property (as defined in section 1245(a)(3)), and

`(C) which is acquired by purchase for use in the active conduct of a trade or business.'.

(b) No Computer Software Included as Section 197 Intangible-

(1) IN GENERAL- Subparagraph (A) of section 197(e)(3) of such Code is amended to read as follows:

`(A) IN GENERAL- Any computer software.'

(2) CONFORMING AMENDMENT- Subparagraph (B) of section 167(f)(1) of such Code is amended by striking `; except that such term shall not include any such software which is an amortizable section 197 intangible'.

(c) EFFECTIVE DATE- The amendments made by this section shall apply to property placed in service after December 31, 2000.

END