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operating authority so described. Such portion

shall be an amount which bears the same ratio to

$5,000,000 as the adjusted basis of such authority bears to the aggregate adjusted basis of all bus operating authorities so described.

(2) EQUIVALENT BENEFIT WHERE

CONSOLI

DATED RETURN FILED.-For purposes of paragraph (1), a corporation which is a member of an affiliated group (within the meaning of section 1504) shall be treated as a separate taxpayer.

(c) DEFINITION OF BUS OPERATING AUTHORITY. 12 For purposes of this section, the term "bus operating author

13 ity" means

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(1) a certificate or permit held by a motor common or contract carrier of passengers and issued

pursuant to subchapter II of chapter 109 of title 49 of the United States Code, and

(2) a certificate or permit held by a motor carrier

19 authorizing the transportation of passengers, as a

common carrier, over regular routes, in intrastate com21 merce, and issued by the appropriate State agency.

(1) ADJUSTED BASIS.-For purposes of the Internal Revenue Code of 1954, proper adjustments shall be

made in the adjusted basis of any bus operating author

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1 ity for the amounts allowable as a deduction under this

section.

(2) CERTAIN STOCK ACQUISITIONS.

(A) IN GENERAL.-Under regulations prescribed by the Secretary of the Treasury or his delegate, and at the election of the holder of the authority, in any case in which a corporation

(i) on or before November 19, 1982 (or after such date pursuant to a binding contract in effect on such date), acquired stock in a corporation which held, directly or indirectly, any bus operating authority at the time of such acquisition, and

(ii) would have been able to allocate to the basis of such authority that portion of the acquiring corporation's cost basis in such stock attributable to such authority if the acquiring corporation had received such authority in the liquidation of the acquired corporation immediately following such acquisition and such allocation would have been proper

under section 334(b)(2) of such Code,

the holder of the authority may, for purposes of

this section, allocate a portion of the basis of the

acquiring corporation in the stock of the acquired

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corporation to the basis of such authority in such manner as the Secretary may prescribe in such

regulations. The preceding sentence shall not apply if an election under section 338 of such Code is in effect with respect to the corporation described in clause (i).

(B) TREATMENT OF CERTAIN NONCORPORATE TAXPAYERS.-Under regulations prescribed by the Secretary of the Treasury or his delegate, and at the election of the holder of the authority,

in any case in which—

(i) a noncorporate taxpayer or group of

noncorporate taxpayers on or before Novem

ber 19, 1982, acquired in one purchase stock

in a corporation which held, directly or indirectly, any bus operating authority at the time of such acquisition, and

(ii) the acquisition referred to in clause (i) would have satisfied the requirements of

subparagraph (A) if the stock had been ac

quired by a corporation,

then, for purposes of subparagraphs (A) and (C), the noncorporate taxpayer or group of noncorpo

rate taxpayers referred to in clause (i) shall be

treated as a corporation. The preceding sentence

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shall apply only if such noncorporate taxpayer (or

group of noncorporate taxpayers) on November 19, 1982, held stock constituting control (within

the meaning of section 368(c) of the Internal Rev

enue Code of 1954) of the corporation holding (directly or indirectly) the bus operating authority.

(C) ADJUSTMENT TO BASIS.-Under regulations prescribed by the Secretary of the Treasury or his delegate, proper adjustment shall be made to the basis of the stock or other assets in the

manner provided by such regulations to take into

account any allocation under subparagraph (A).

(3) SECTION 381 OF THE INTERNAL REVENUE CODE OF 1954 TO APPLY.-For purposes of section 381 of the Internal Revenue Code of 1954, any item

described in this section shall be treated as an item de

scribed in subsection (c) of such section 381.

(e) EFFECTIVE DATE. The provisions of this section

19 shall apply to taxable years ending after November 18, 1982.

HR 3284 IH

SUMMARY AND DESCRIPTION

BACKGROUND

Prior to enactment of the Bus Regulatory Reform Act of 1982, intercity bus operators were required to obtain a bus operating authority before providing service on a particular route. Only a limited number of bus operating authorities were issued. Persons wishing to enter a route often purchased an existing business that already owned an operating authority, and substantial amounts were paid for these operating authorities. Thus, the value of bus operating rights constituted a substantial part of a bus operator's assets and a source of loan collateral.

The 1982 statute, in deregulating intercity buses, allows intercity bus operators to enter on, expand, drop, or change routes, free of Federal barriers. As a result of the relative ease of entry into the intercity bus business, the value of bus operating authorities has diminished significantly.

The owners of bus operating authorities state that their situation is similar to that faced by owners of motor carrier operating authorities after enactment of the Motor Carrier Act of 1980. That statute deregulated the trucking industry; as a result, motor carrier operating authorities lost significant value. In the Economic Recovery Tax Act of 1981, the Congress enacted a provision allowing trucking companies an ordinary deduction ratably over five years for loss in value of motor carrier operating authorities (sec. 266 of the 1981 Act).

PRESENT LAW

A deduction is allowed for any loss incurred in a trade or business during the taxable year, if the loss is not compensated for by insurance or otherwise (Code sec. 165(a)). In general, the amount of the deduction equals the adjusted basis of the property giving rise to the loss (sec. 165(b)). Treasury regulations provide that, to be deductible, a loss must be evidenced by a closed and completed transaction (i.e., must be "realized"), and must be fixed by an identifiable event (Treas. Reg. sec. 1.165-1(b)).

As a general rule, no deduction is allowed for a decline in value of property absent a sale, abandonment, or other disposition. Thus, for a loss to be allowed as a deduction, generally the business must be discontinued or the property must be abandoned (Treas. Reg. sec. 1.165-2)). Further, if the property is a capital asset and is sold or exchanged at a loss, the deduction of the resulting capital loss is subject to limitations (secs. 1212, 1211, and 165(f)).

The courts have denied a loss deduction where the value of an operating permit or license decreased as the result of legislation expanding the number of licenses or permits that could be issued. In the view of several courts,' the diminution in the value of a license or permit does not constitute an event giving rise to a deductible loss if the license or permit continues to have value as a right to carry on a busi

ness.

EXPLANATION OF THE BILL

The bill would allow an ordinary deduction ratably over a 60-month period for taxpayers who held one or more bus operating authorities on November 19, 1982 (the date of enactment of the Bus Regulatory Reform Act of 1982). The amount of the deduction would be the aggregate adjusted bases of all bus operating authorities that were held by the taxpayer on November 19, 1982, or acquired after that date under a contract that was binding on that date.

The maximum amount of basis that could be taken into account with respect to all bus operating authorities held by a taxpayer would be limited to $5 million.

The 60-month period would begin with the later of the month of November, 1982, or, at the taxpayer's election, the first month of the taxpayer's first taxable year beginning after that date. The bill would require that adjustments be made to the bases of authorities to reflect amount allowable as deductions under the bill.

Under regulations to be prescribed by the Treasury, a taxpayer (whether corporate or noncorporate) holding an eligible bus operating authority would be able to elect to allocate to the authority a portion of the cost to the taxpayer of stock in an

1 See, e.g., Consolidated Freight Lines, Inc. v. Comm'r, 37 B.T.A. 576 (1938), aff'd 101 F.2d 813 (9th Cir.), cert. denied, 308 U.S. 562 (1939) (denial of loss deduction attributable to loss of monopoly due to State deregulation of the intrastate motor carrier industry); Monroe W. Beatty, 46 T.C. 835 (1966) (no deduction allowed for diminution in value of liquor license resulting from change in State law limiting grant of such licenses).