Page 55

TITLE 26-INTERNAL REVENUE CODE (c) Qualified investment (1) In general For purposes of this subpart, the term "qualified investment" means, with respect to any taxable year, the aggregate of- (A) the applicable percentage of the basis of each new section 38 property (as defined in section 48(b)) placed in service by the taxpayer during such taxable year, plus (B) the applicable percentage of the cost of each used section 38 property (as defined in section 48(c)(1)) placed in service by the taxpayer during such taxable year. (2) Applicable percentage For purposes of paragraph (1), the applica- ble percentage for any property shall be de- termined under the following table: The applic- If the useful life is- able percent- age is- 3 years or more but less than 5 years ............................... 33 Va 5 years or more but less than 7 years ................................. 66% 7 years or m ore ....................................................................... 100 For purposes of this subpart, the useful life of any property shall be the useful life used in computing the allowance for depreciation under section 167 for the taxable year in which the property is placed in service. (3) Public utility property (A) To the extent that subsection (a)(2)(C) applies to property which is public utility property, the amount of the quali- fied investment shall be 4 of the amount determined under paragraph (1). (B) For purposes of subparagraph (A), the term "public utility property" means prop- erty used predominantly in the trade or business of the furnishing or sale of- (I) electrical energy, water, or sewage disposal services, (ii) gas through a local distribution system, or (iii) telephone service, telegraph service by means of domestic telegraph oper- ations (as defined in section 222(a)(5) of the Communications Act of 1934, as amended; 47 U.S.C. 222(a)(5)), or other communication services (other than inter- national telegraph service), if the rates for such furnishing or sale, as the case may be, have been established or approved by a State or political subdivision thereof, by an agency or instrumentality of the United States, or by a public service or public utility commission or other similar body of any State or political subdivision thereof. Such term also means communica- tion property of the type used by persons engaged in providing telephone or micro- wave communication services to which clause (ii) applies, if such property is used predominantly for communication pur- poses. (C) In the case of any interest in a subma- rine cable circuit used to furnish telegraph service between the United States and a point outside the United States of a taxpay- er engaged in furnishing international tele- graph service (if the rates for such furnish- ing have been established or approved by a governmental unit, agency, instrumentality, commission, or similar body described in subparagraph (B)), the qualified investment shall not exceed the qualified investment attributable to so much of the interest of the taxpayer in the circuit as does not exceed 50 percent of all interests in the cir- cuit. (4) Coordination with subsection (d) The amount which would (but for this para- graph) be treated as qualified investment under this subsection with respect to any property shall be reduced (but not below zero) by any amount treated by the taxpayer or a predecessor of the taxpayer (or, in the case of a sale and leaseback described in sec- tion 47(a)(3)(C), by the lessee) as qualified in- vestment with respect to such property under subsection (d), to the extent the amount so treated has not been required to be recap- tured by reason of section 47(a)(3). (5) Applicable percentage in the case of certain pol- lution control facilities Notwithstanding subsection (c)(2), in the case of property- (A) with respect to which an election under section 169 applies, and (B) the useful life of which (determined without regard to section 169) is not less than 5 years, 50 percent shall be the applicable percentage for purposes of applying paragraph (1) with respect to so much of the adjusted basis of the property as (after the application of sec- tion 169f)) constitutes the amortizable basis for purposes of section 169. (d) Qualified progress expenditures (1) In general In the case of any taxpayer who has made an election under paragraph (6), the amount of his qualified investment for the taxable year (determined under subsection (c) with- out regard to this subsection) shall be in- creased by an amount equal to his aggregate qualified progress expenditures for the tax- able year with respect to progress expendi- ture property. (2) Progress expenditure property defined (A) In general For purposes of this subsection, the term "progress expenditure property" means any property which is being constructed by or for the taxpayer and which- (I) has a normal construction period of two years or more, and (ii) it is reasonable to believe will be new section 38 property having a useful life of 7 years or more in the hands of the tax- payer when it is placed i service. Clauses (1) and (ii) of the preceding sen- tence shall be applied on the basis of facts known at the close of the taxable year of the taxpayer In which construction begins (or, if later, at the close of the first taxable Page 55