Last year, the federal government enacted the most substantial tax reform legislation since 1986 in Public Law 115-97, commonly referred to as the Tax Cuts and Jobs Act of 2017 (TCJA). Of the many business-friendly changes, the amendments to section 168(k) of the Internal Revenue Code (Code) allowing immediate expensing for certain business assets should lower the cost of certain investments and increase the liquidity of investing companies by reducing overall tax liability. 

The new law, however, left many questions to be resolved by regulations. On August 3, 2018, the Department of the Treasury and the Internal Revenue Service (IRS) released proposed regulations implementing amendments to section 168(k) of the Code. With these proposed regulations, the Treasury and the IRS have clarified the requirements for depreciable property to qualify for the additional first year depreciation deduction provided by section 168(k). While the proposed regulations do address a number of issues created by the TCJA amendments to section 168(k), a number of open items remain, particularly beyond the 2017 tax year.

History of Bonus Depreciation

First introduced in 1981, section 168 was added to the Code to provide accelerated depreciation as a tax incentive designed to encourage economic growth.¹ The Code’s depreciation rules coupled with section 179’s full expensing provisions for investments under $1 million, allowed for near-immediate cost recovery of certain property for certain taxpayers. Five years later, Congress used the 1986 tax reform to lengthen class recovery periods but increase the rate of depreciation.² And in 2002, section 168(k)’s “bonus” depreciation was born. The Job Creation and Worker Assistance Act’s bonus depreciation allowance was intended as stimulus to address the 2001 recession and the economic aftermath of September 11, 2001.³ Since 2002, Congress has passed at least 10 laws enhancing or extending depreciation allowances.⁴ The Tax Relief, Unemployment Compensation Reauthorization, and Job Creation Act of 2010 bumped the bonus depreciation allowance up to 100% in 2011,⁵ but subsequently fell to 50% in 2012 and remained there until the 2017 amendments to section 168(k) in the TCJA.

TCJA Amendments to Section 168(k)

The 2017 amendments to section 168(k) reinstate the 100% first-year bonus depreciation rate, thus allowing taxpayers to fully expense certain “qualified property” acquired and placed in service after September 27, 2017, and before January 1, 2023.⁶ For qualified property placed in service after 2022, the bonus depreciation rate decreases by 20% each calendar year until the provision expires in 2027. The new law also extends the placed-in-service and phase-down terms by one year for aircraft and other property with longer production periods. Property acquired before September 28, 2017, and placed in service after September 27, 2017 remains subject to the pre-TCJA depreciation and phase-down rules. Taxpayers have the option to elect out of the immediate expensing provision for certain classes of property.⁷ For qualified property placed in service during the first taxable year ending after September 27, 2017, they can elect to apply the traditional 50% rate.⁸

“Qualified property” generally refers to tangible depreciable property with a recovery period of 20 years or less whose “original use” began with the taxpayer. Importantly, the TCJA expanded the definition of “qualified property” in two ways.

First, the TCJA expands this definition to include film, television and theatre productions.⁹ These items were previously addressed by section 181, which provides elective expensing of up to $20 million per production when the production satisfied specific service requirements. Generally, elective expensing is available if the production meets a qualified compensation test under which at least 75% of the total compensation is attributable to compensation for “services performed in the United States by actors, directors, producers, and other relevant production personnel.”¹⁰

Second, the TCJA expands the definition of qualified property by modifying the original use requirement, so that bonus depreciation also applies to certain used property in addition to new property.¹¹ Used property may qualify for bonus depreciation if the taxpayer acquired the used property in an arm’s-length transaction from an unrelated party and did not use the property before obtaining it, consistent with the requirements of sections 179(d)(2)-(3).¹²

It is important to note that the TCJA also narrowed the definition of qualified property and excludes certain property used by businesses with floor plan financing indebtedness and by specified public and other utilities that is placed in service after December 31, 2017.¹³

In addition, the TCJA consolidated several types of real property with accelerated recovery classes into one.¹⁴ Under prior law, non-residential real property and residential rental property had Modified Accelerated Cost Recovery System (MACRS) recovery periods of 39 and 27.5 years, respectively. Qualified leasehold improvement, restaurant and retail improvement property, however, enjoyed an accelerated 15-year recovery period. Prior section 168(k) defined “qualified property” as including “qualified improvement property” (QIP), which was first introduced in the PATH Act.¹⁵ In broad terms, QIP includes interior improvements to non-residential real property made after the cabuilding is first placed in service. Qualified property did not include any property required to be depreciated under the alternative depreciation system (ADS). 

In an attempt to provide uniform tax treatment of these different types of real property, the TCJA eliminated the separate definitions of qualified leasehold improvement, qualified restaurant and qualified retail improvement property from section 168(e)(3).¹⁶ The amendment consolidates the three property types into a redefined QIP category, and moves the new QIP from section 168(k) into section 168(e)(6). As explained below, Congress, apparently inadvertently, did not assign QIP the previously applicable 15-year MACRS recovery period, thus precluding such property from being eligible for expensing, absent a statutory technical correction. For property placed in service after 2017, the TCJA reduced the ADS recovery period of residential rental property from 40 to 30 years. The prior rules regarding qualified leasehold improvement, retail improvement and restaurant property remained effective until December 31, 2017. After 2017, QIP means, “any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service.”¹⁷

Finally, the TCJA made certain changes to other Code sections that will affect a company’s ability to utilize cost-saving provisions fully. For example, the TCJA repealed the corporate alternative minimum tax (AMT), but the former section 168(k)(4) allowed corporate taxpayers to accelerate AMT credit carry-forwards instead of taking bonus depreciation. This change may affect a firm’s ability to use all of its remaining credits. 

During the accelerated drafting and signing of the TCJA before 2017 year-end, a number of issues arose from the amendments made to section 168(k). As previously mentioned, the Treasury and the IRS have attempted to remedy a number of these issues in the proposed regulations. The following reflects an analysis of the open issues created because of the amendments to section 168(k) and the extent to which the proposed regulations have addressed these issues.

How the Proposed Regulations Address Issues Arising under Section 168(k)

Legislative Inconsistencies Regarding QIP Recovery Period

As noted, the TCJA eliminated the separate definitions of qualified leasehold improvement, qualified restaurant and qualified retail improvement property from section 168(e)(3). The amendment compensates by consolidating the three property types into a redefined QIP category, and QIP was moved from section 168(k) into section 168(e)(6). Further, the amended section 168(e) failed to assign a 15-year recovery period to QIP, which would render QIP ineligible for full expensing under section 168(k)(2). Instead, QIP is depreciated using a straight-line method over the standard 39 years. However, the Joint Explanatory Statement accompanying the TCJA’s Conference Report clearly stated that QIP placed in service after December 31, 2017, would be eligible for 15-year MACRS depreciation.¹⁸

This discrepancy has created substantial uncertainty about the application of the new QIP provisions, and both taxpayers and practitioners have requested resolution. Unfortunately, the Treasury and the IRS have indicated publicly that the issue will not be resolved administratively arguing that the matter should be resolved through technical corrections. It is possible for the Treasury and the IRS to ameliorate the confusion with an administrative safe harbor, which allows either bonus depreciation or a 15-year recovery. Such treatment would be consistent with the unambiguous intent of Congress. 

Not surprisingly, the proposed regulations do not take this approach. It is interesting, however, that the preamble to the proposed regulations failed to explicitly address the QIP issue quagmire or to articulate why the Treasury and the IRS chose not to resolve the issue. The proposed regulations do clarify that at least for the 2017 return filing season, taxpayers may apply the full expensing provisions to QIP. The preamble specifically states that because of the effective date of the TCJA (property placed in service after December 31, 2017), the proposed regulations provide that MACRS property with a recovery period of 20 years or less (and, therefore, eligible for full expensing) includes QIP that is acquired by the taxpayer after September 27, 2017, construction of which commenced after September 27, 2017, and placed in service by the taxpayer after September 27, 2017, and before January 1, 2018.

In addition to resolving the QIP recovery period for the 2017 tax year, the proposed regulations also provide taxpayers with the ability to elect out of the additional first year depreciation deduction, or to elect to deduct 50%, instead of 100%, of additional first year depreciation for qualified property acquired after September 27, 2017. Similar to issues created by the statutory text of section 168(e) regarding QIP, the drafting of section 168(k)(10) also resulted in an unanticipated adverse consequence to taxpayers potentially considering electing 50% as opposed to 100% bonus depreciation for certain classes of assets. While section 168(k)(7) allows a taxpayer to elect out of bonus depreciation fully for qualified property on a class-by-class basis, section 168(k)(10), as amended by the TCJA, does not state that the election may be made “with respect to any class of property.” For this reason, the proposed regulations specify that the election under section 168(k)(10) must apply to all qualified property thereby limiting a taxpayer’s ability to pick and choose which classes of property for which it may elect 50% as opposed to 100% additional first year depreciation.

Used Property Eligible for Bonus Depreciation

Claiming bonus depreciation for used property is now available because of the TCJA amendments to section 168(k). With respect to used property, the proposed regulations follow the statutory requirements and specify that used property may satisfy the definition of qualified property eligible for bonus depreciation as long as the taxpayer did not use the “property at any time prior to [its] acquisition.”¹⁹ Additionally, the statute requires that a taxpayer acquire the used property by purchasing it in an arm’s-length transaction from an unrelated party. The property cannot be acquired from a related party or be property whose basis will be determined by reference to the adjusted basis of such property in the hands of the transferor (i.e., carry-over basis).²⁰ Although the statute sets forth general rules of application for used property, ambiguity persists with more specific issues such as leased property, previously owned property and treatment by consolidated groups. 

The proposed regulations provide that property is treated as used by the taxpayer or a predecessor at any time before its acquisition only if the taxpayer or the predecessor had a depreciable interest in the property prior to the acquisition, regardless of whether the taxpayer or predecessor claimed such depreciation deductions. Thus, if a taxpayer is leasing property and does not obtain a depreciable interest in such property, upon subsequent purchase, the property would satisfy the definition of used property and be eligible for full expensing. 

The proposed regulations also allow previously leased property to qualify for full expensing irrespective of improvements made by the lessee for which it had a depreciable interest; upon subsequent purchase of the property, the amount eligible for full expensing would be the unadjusted basis of the property, less the unadjusted depreciable basis attributed to the improvements. Beyond bifurcating improvements and underlying property, the proposed regulations also allow taxpayers to bifurcate portions of property for depreciable interest purposes, i.e., if a taxpayer initially acquires a depreciable interest in a portion of property and subsequently acquires an additional depreciable interest in the same property, the proposed regulations provide that such additional depreciable interest is not treated as previously owned by the taxpayer.

With respect to consolidated groups and transactions among related parties, the proposed regulations essentially treat the group as a single taxpayer. Thus, the proposed regulations provide that additional first year depreciation is not available to individual members of a consolidated group when property is disposed of by one member of a consolidated group and then subsequently acquired by another member of the group. The preamble indicates that permitting such a deduction would not clearly reflect the group’s income tax liability. Therefore, the regulations treat all members of a consolidated group as having a previously depreciable interest in all property in which the consolidated group has a previous depreciable interest. For transactions within a group or between related parties, the preamble indicates that the Treasury and the IRS are focused on a “substance over form” position indicating that the ordering of steps or the use of an unrelated intermediary in a series of related transactions should not control. In the case of a series of related transactions, the proposed regulations provide that the transfer of property will be treated as transferred from the original transferor to the ultimate transferee, with the relation between the original transferor and the ultimate transferee being tested immediately after the last transaction in the series. 

Effect of Binding Contracts on Acquisition Date Determinations

The acquisition date is critical to determining a property’s eligibility for full expensing; specifically, only property acquired and placed in service after September 27, 2017, is eligible for bonus depreciation. Previous IRS guidance provided that generally “acquisition” occurs “when the taxpayer pays or incurs the cost of the property.”²¹ Yet under the proposed regulations, when a taxpayer acquires property pursuant to a written binding contract, the acquisition date is the date of the contract.²² In other words, property is not treated as acquired after the date on which a written binding contact is executed for such acquisition, even if the taxpayer does not receive the property on that date. The statute fails to define written binding contract, which is generally controlled by commercial law. As a result, when property becomes subject to a legally binding contract, the date of such contract may alter the acquisition date of the property for purposes of bonus depreciation. Taxpayers and practitioners questioned how the binding contract provisions would be applied, especially with respect to self-constructed property and its components. 

Former section 168(k)(2)(E), as supplemented by Treas. Reg. § 1.168(k)-1(b)(4)(iii) and Rev. Proc. 2011-26, treated a taxpayer that manufactures, produces or constructs property for itself as acquiring the property when the taxpayer began production of that asset, or when the cost of production exceeded a “safe harbor” threshold—i.e., when the taxpayer began “work of a significant nature,” or incurred expenses greater than 10% of the total cost. The new section 168(k)(2)(E) maintains that the acquisition requirement will be satisfied if manufacturing begins before the qualified property placed-in-service period ends (i.e., January 1, 2027). Prior to the release of the proposed regulations, it was uncertain whether the previous rules for determining when production begins would continue to apply. 

The previous regulations also provided an exception to the standard acquisition rule for certain components of self-constructed property. Rev. Proc. 2011-26 allowed bonus depreciation for components acquired within the applicable placed-in-service period, even when the larger self-constructed property to which such components attached were acquired prior to the effective date and therefore ineligible for bonus depreciation.²³ Thus, a taxpayer could elect to fully expense the eligible components that met the qualified property requirements even though the larger project commenced prior to the bonus depreciation effective date. Again, prior to the proposed regulations, it was unclear whether the previous rule for components acquired under a written binding contract would be extended to the new bonus depreciation provisions. 

With respect to written binding contracts, the proposed regulations specify that the property must be acquired by the taxpayer pursuant to a written binding contract entered into by the taxpayer after September 27, 2017, thereby confirming the statutory rule. The preamble further states that due to the TCJA’s unambiguous rule regarding written binding contracts, the proposed regulations provide that property that is manufactured, constructed or produced for the taxpayer by another person under a written binding contract that is entered into prior to the manufacture, construction or production of the property for use by the taxpayer in its trade or business or for its production of income is acquired pursuant to a written binding contract. Previously, property manufactured, constructed or produced under a binding contract that would have been self-constructed property if manufactured, constructed or produced by the taxpayer was treated as self-constructed property. The “conversion” of property previously treated as self-constructed property under the new binding contract rule will come as a surprise to many. As previously noted, the acquisition date is the date when the contract is entered into, even if the contract includes a series of other dates, (e.g., completion, delivery, etc.).

For self-constructed property, the proposed regulations provide that the acquisition rules of the statute are met if the taxpayer begins manufacturing, constructing or producing the property after September 27, 2017. The preamble provides that the proposed regulations provide similar rules for determining when manufacturing, construction or production begins, including the safe harbor.

The Impact (or Lack Thereof) of the Proposed Regulations on Amendments to Section 168(k) Regarding Certain Corporate Issues

Two key corporate issues that arise from the TCJA amendments to section 168(k) include: (1) the effect that claiming bonus depreciation for used property will have on transactions involving section 338 and section 336(e) elections; and (2) the discrepancy in effective dates between section 168(k) and section 163(j) concerning property excluded from the definition of qualified property. 

As discussed, the ability to claim bonus depreciation for used property expands the scope of assets that are characterized as qualified property for bonus depreciation purposes. Prior to the TCJA, section 168(k) bonus depreciation was not available for a stock purchase treated as an asset acquisition as a result of a section 338 election or a stock disposition treated as an asset transfer as a result of a section 336(e) election. Such transactions would not have satisfied the original use requirement. 

In a section 338 transaction, the target corporation holds and uses its assets before the transaction, the former target is deemed to transfer the assets, and the New Co Target is deemed to acquire those assets and then continue to hold and use such assets. Similarly, in a section 336(e) transaction, assets are deemed to have been acquired by a New Co Target when the election is made. When the original use requirement in section 168(k) was modified by the TCJA, bonus depreciation became available for a stock transaction treated as an asset transaction because of a section 338 or a section 336(e) election. 

To qualify for bonus depreciation in this context, several requirements must be met: (1) the transaction must be taxable as provided in section 179(d)(2); (2) the parties (transferee and transferor) cannot be related as provided in section 179(d)(3); and (3) the transferee cannot have used the property at any time prior to the acquisition. Due to the similarities between section 338 elections and section 336(e) elections, the proposed regulations also modified Treas. Reg. § 1.179-4(c)(2), which addresses the treatment of a section 338 election, to include property deemed to have been acquired by a new target corporation as a result of a section 336(e) election. The preamble to the proposed regulations notes that while both the Treasury and the IRS interpreted the former regulation as applying to both a section 338 and a section 336(e) election, to remove any doubt, the language was modifie

Unlike the attention given to section 338 and section 336(e) elections, it is disappointing that the Treasury and the IRS decided not to address a rather critical issue for certain taxpayers concerning the discrepancy in effective dates between section 168(k)(9) and section 163(j). Section 168(k)(9) excludes from the definition of qualified property certain property used in trades or businesses exempt from the interest limitations under section 163(j), namely property used in the trade or business of furnishing energy by regulated companies. The definition of qualified property also excludes property used in a trade or business that has floor plan financing indebtedness, if section 163(j)’s interest limitations do not apply to the indebtedness. During the expedited drafting process of the TCJA, an oversight occurred, thereby providing the effective date for section 168(k) (generally, September 27, 2017) to fall before the effective date for section 163(j) (beginning after December 31, 2017).

Section 168(k) and Partnership Issues: Interaction with Sections 743(b), 734(b), and 704(c)

In certain circumstances, such as in connection with the acquisition of a partnership interest or the distribution of partnership property, the basis of partnership property is permitted to be adjusted, and the amount of the adjustment generally is treated as newly purchased property for depreciation purposes. Under section 168(k) prior to amendment by the TCJA, the Treasury and the IRS viewed these partnership basis adjustments as ineligible for bonus depreciation because the adjustments were made with respect to previously used partnership property and thus failed to satisfy the original use requirement. As noted above, the TCJA amended section 168(k) to allow bonus depreciation for certain used property in addition to new property, which raises the issue of whether these partnership basis adjustments are now eligible for bonus depreciation. 

Under the proposed regulations, partnership basis adjustments under section 743(b), which generally are permitted in connection with a person’s acquisition of a partnership interest from a partner, may be considered used property that is eligible for bonus depreciation, depending on the facts and circumstances. The proposed regulations reach this result by applying an aggregate view of partnership taxation (under which each partner is considered to have an undivided interest in the partnership’s assets and operations), because the 743(b) adjustment is maintained by the partnership for the sole benefit of the acquirer of the partnership interest and thus is a “partner specific” basis adjustment to the partnership property. Consistent with the aggregate view, the proposed regulations provide that, in determining whether a partnership basis adjustment under section 743(b) meets the used property requirements of section 168(k)(2)(E)(ii), each partner is treated as having owned and used the partner’s proportionate share of the partnership property.

In contrast to section 743(b) adjustments, the proposed regulations take the position that partnership basis adjustments under section 734(b), which generally are permitted in connection with partnership distributions to a partner (including distributions in complete or partial liquidation of the partner’s partnership interest) are not eligible for bonus depreciation. Unlike a section 743(b) adjustment, a section 734(b) adjustment is maintained by the partnership for the benefit of all of the its partners, i.e., the adjustment is on a non-partner specific basis. For this reason, in the case of partnership basis adjustments under section 734(b), the proposed regulations apply an entity view (under which the partnership is considered an entity separate from its partners). Based on the entity view, the proposed regulations conclude that the partnership basis adjustment under section 734(b) cannot meet the used property requirements of section 168(k)(2)(E)(ii) because the partnership used the property prior to the event giving rise to the section 734(b) adjustment. Similarly, the proposed regulations take the position that remedial allocations under section 704(c) with respect to depreciable property, which is contributed to the partnership or revalued on the partnership’s books in connection with a partnership contribution or distribution, can result in depreciation deductions that are similar to depreciation deductions allowed with respect to partnership basis adjustments, and are not eligible for bonus depreciation.

Film, Theatrical and Television Productions: The Impact of Combined Section 168(k) and Section 181 

As mentioned, section 168(k) expanded qualified property to include film, television and live theatrical productions, as those terms are defined in section 181. Section 181 allowed companies to immediately expense up to either $15 or $20 million of certain qualified film, theatrical and television production costs, depending on the geographic location in which the costs of production were incurred.²⁵ At first, the effect of the interaction of these two provisions seemed straightforward, since section 181’s incentives would have expired at the end of 2016; therefore, section 168(k) would essentially replace section 181. However, the Bipartisan Budget Act of 2018, enacted in February of this year, extended section 181(g)’s sunset provision to December 31, 2017.²⁶ Thus, qualified productions commencing between September 27 and December 31, 2017, are subject to both provisions. As such, there was a question about whether the proposed regulations would impose an ordering rule or limit available bonus depreciation to amounts above such as deductible amounts. 

Additionally, section 181 expenses were deductible based on when and where they were incurred, not when they were placed in service. Section 168(k)(2) makes clear that only productions placed in service after September 27, 2017, will be eligible for bonus depreciation. Section 168(k)(2)(H) states that productions are placed in service on the date of initial release, broadcast or stage performance. Therefore, companies will have to pay special attention to when they released the production to determine whether any costs above the expense cap will be deductible. 

The proposed regulations provide that a qualified film or television production is treated as placed in service at the time of the initial release or broadcast, and a qualified live theatrical production is treated as placed in service at the time of the initial live staged performance, i.e., the first commercial exhibition of a production to an audience. The proposed regulations provide that an initial live staged performance does not include limited exhibition, prior to commercial exhibition to general audiences, if the limited exhibition is primarily for the purposes of publicity, determining the need for further production activity, or raising funds for the completion of the project.

In addition to the placed in service guidance, the proposed regulations provided that a qualified film or television production is treated as acquired on the date principal photography commences, and a qualified live theatrical production is treated as acquired on the date when all of the necessary elements for producing the live theatrical production are secured.

Conclusion

Commentators and taxpayers agree that the difficulties in applying the new section 168(k) are numerous. While these proposed regulations address many of these issues, as is the case with the QIP recovery period resolution, not all solutions are permanent. Whether through technical corrections or additional guidance, the Treasury and the IRS will certainly have to continue to assist taxpayers in implementing the amendments to section 168(k). For the time being, the proposed regulations appear to be a step in the right direction to providing taxpayers with additional clarity, which sometimes is not necessarily taxpayer-favorable.
_____
  
¹ Economic Recovery Act of 1981, Pub.L. 97–34, 95 Stat. 172 (1981), http://www.legisworks.org/GPO/STATUTE-95-Pg172.pdf (not only did the Act encourage economic growth, but it also addressed criticisms of prior depreciation rules, whose high degree of subjectivity often led to disagreements between taxpayers and the IRS. By establishing the Accelerated Cost Recovery System (ACRS), the 1981 Act streamlined depreciation efforts by taxpayers, but also increased tax deductions for depreciation of property, thereby increasing cash flow available for businesses to make capital investments).
  
² Tax Reform Act of 1986, Pub. L. No. 99-514, § 2(a), 100 Stat. 2085 (1986), https://www.govtrack.us/congress/bills/99/hr3838/text. With the 1981 Act, the Treasury and the IRS eliminated the need for taxpayers to estimate useful lives or salvage values by establishing ACRS; in the 1986 Act, Congress revised ACRS to create MACRS (Modified Accelerated Cost Recovery System). Similar to ACRS, MACRS divides assets into broad specified classes, provides recovery periods for each class, and provides the appropriate depreciation method to calculate the relevant deductions. MACRS differs from ACRS because MACRS uses longer recovery periods, and established two different depreciation methods, the General Depreciation System (GDS) and the Accelerated Depreciation System (ADS), to guide taxpayers’ depreciation calculations.
  
³ Job Creation and Worker Assistance Act of 2002, Pub. L. 107–147, 101, 116 Stat 21, https://www.congress.gov/107/plaws/publ147/PLAW-107publ147.pdf (in which Congress provided a special additional depreciation allowance equal to 30% of a company’s adjusted basis in qualified property, intending to provide assistance for the post-2001 recession and the economic aftermath of September 11, 2001).
  
⁴ Gary Guenther, Cong. Research Serv., The Section 179 and Section 168(k) Expensing Allowances: Current Law and Economic Effects 8, 10 (2018), https://fas.org/sgp/crs/misc/RL31852.pdf. 
  
⁵ Tax Relief, Unemployment Compensation Reauthorization, and Job Creation Act of 2010, Pub. L. 111-312, 124 Stat 3296, https://www.gpo.gov/fdsys/pkg/PLAW-111publ312/pdf/PLAW-111publ312.pdf (in which Congress increased the bonus depreciation allowance to 100% as part of major new economic stimulus measures, heralded as the Tax Relief Act).
  
⁶ An Act To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, Pub. L. No. 115-97, 131 Stat 2054 (2017) https://www.congress.gov/115/bills/hr1/BILLS-115hr1enr.pdf. 
  
⁷ I.R.C. § 168(k)(7).
  
⁸ I.R.C. § 168(k)(10).
  
⁹ I.R.C. § 168(k)(2)(A)(i)(IV).
  
¹⁰ I.R.C. § 181(d). 
  
¹¹ I.R.C. § 168(k)(10).
  
¹² I.R.C. §§ 168(k)(2)(A)(ii) and (k)(2)(E)(ii)(II), 179(d)(2)–(3).
  
¹³ I.R.C. §§ 168(k)(9), 163(j) (excluding any property which is primarily used in a trade or business described in § 163(j)(7)(A)(iv), which concerns furnishing or sale of electrical energy, water, or sewage disposal services, locally-distributed gas or steam, or pipeline transportation of gas or steam regulated by local, state, or federal officials, and excluding any property used in a trade or business that has had floor plan financing indebtedness as defined in § 163(j)(9), which is used to acquire motor vehicles held for sale or lease).
  
¹⁴ U.S. House and Senate Conference Committee, Joint Explanatory Statement of the Committee of Conference 199–206 (2017), https://docs.house.gov/billsthisweek/20171218/Joint%20Explanatory%20Statement.pdf.
  
¹⁵ Protecting Americans from Tax Hikes Act of 2015, Pub. L. No. 114-113, 129 Stat. 3040 (2015) https://www.gpo.gov/fdsys/pkg/PLAW-114publ113/pdf/PLAW-114publ113.pdf. 
  
¹⁶ Joint Explanatory Statement of the Committee of Conference at 204–05.
  
¹⁷ I.R.C. § 168(e)(6)(A).
  
¹⁸ Joint Explanatory Statement of the Committee of Conference at 205.
  
¹⁹ I.R.C. § 168(k)(2)(E)(ii)(I).
  
²⁰ I.R.C. § 168(k)(2)(E)(ii)(II) (cross-referencing §§ 179(d)(3), (2)(C), (2)(B), and (2)(A), which in turn references §§ 267 and 707).
  
²¹ Rev. Proc. 2011-26, at § 3.02, https://www.irs.gov/pub/irs-drop/rp-11-26.pdf. See also I.R.C. § 168(k)(1)(E)(ii) (“An acquisition of property meets the requirements of this clause if . . . the acquisition of such property meets the requirements of paragraphs (2)(A), (2)(B), (2)(C), and (3) of section 179(d)”), § 179(d)(2) (“the term ‘purchase’ means any acquisition of property”).
  
²² Treas. Reg. § 1.168(k)-1(b)(4).
  
²³ Rev. Proc. 2011-26. The Treasury will likely issue updated regulations on this section soon, but, in the absence of new guidance, the old guidance ostensibly still applies to I.R.C. § 168(k)(2)(E)(i). 
  
²⁴ For example, will the section 163(j) proposed regulations adopt a de minimis rule for assets not used in the predominant trade or business? Will unregulated (e.g., wholesale) electricity sales be treated as part of the trade or business of providing regulated electric service?
  
²⁵ I.R.C. § 181(a) (A taxpayer may deduct up to $15 million of the aggregate cost of the film or television production, but the threshold increases to $20 million if a significant amount of the production expenditures are incurred in areas eligible for designation as a low-income community or eligible for designation by the Delta Regional Authority as a distressed county or isolated area of distress.).
  
²⁶ Bipartisan Budget Act of 2018, Pub. L. No. 115-123 (2018), https://www.congress.gov/115/bills/hr1892/BILLS-115hr1892enr.pdf.

[View source.]