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First Do No Harm: The Senate Staff Discussion Draft on Cost Recovery

8 Pages Posted: 14 Feb 2014 Last revised: 21 Mar 2014

Calvin H. Johnson

University of Texas at Austin - School of Law

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Date Written: February 3, 2014


The Article analyzes the recent Senate Finance Committee staff discussion draft on cost recovery and accounting. The discussion draft took significant steps forward on cost recovery by amortizing research and development, half of advertising, and oil and gas drilling costs over five years; and repealing percentage depletion, and last-in, first-out and lower-of-cost-or-market accounting methods for inventory; extending real estate lives to 43 years; and ending bonus and accelerated depreciation for equipment.

The draft did not go as far as it should have in extending the life for intangible assets attached to a business as a whole; businesses and real estate should both have a 43-year tax life. The draft also should have ended the complicated section 1231 treatment, and it should have capitalized more costs.

On the other side, the discussion draft would harm the tax system by moving to depreciation pools and allowing immediate expensing of material amounts of inventory and equipment. Allowing expensing of material amounts of costs creates a caste system under which “small business” is tax exempt, even for rich owners, whereas salary bears normal ordinary income tax.

Suggested Citation

Johnson, Calvin H., First Do No Harm: The Senate Staff Discussion Draft on Cost Recovery (February 3, 2014). Tax Notes, Vol. 142, No. 549, 2014; U of Texas Law, Public Law Research Paper No. 550. Available at SSRN:

Calvin Harsha Johnson (Contact Author)

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States
512-232-1306 (Phone)
512-232-2399 (Fax)

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