A DEPRECIATION BONUS issue is causing controversy.

Some tax counsel worry that all power plants must be put into service by the end of this year to qualify for a bonus. Long- lived assets were supposed to have until the end of 2005 to be completed.

The depreciation bonus is a limited-time offer by the US government. Companies that invest in new plant and equipment during a “window period” that runs from September 11, 2001 through 2004 or 2005 — depending on the investment — can deduct either 30% or 50% of the cost of the equipment immediately. The remaining cost is deducted over the normal depreciation period. The plant or equipment must be put into service by the end of the window period to qualify.

Companies were supposed to have until the end of 2005 to complete long-lived investments like power plants, transmission upgrades and gas pipelines. However, some tax counsel read the statute granting this extra time to say that equipment qualifies only if it is subject to section 263A of the US tax code “by reason of” two clauses in that section. Energy projects are already subject to that section for other reasons. 

US Treasury officials say this is one possible reading of the statute. Brian Meighan on the staff of the Joint Committee on Taxation in Congress said flatly that energy projects qualify for the extra year. “I wrote that; I know what was intended,” Meighan said. Clarifying language has been added to a list for when Congress gets around to making technical corrections to the statute.