What Was Section 187 of the Internal Revenue Code?

This article addresses Section 187, a now-repealed provision of the United States Internal Revenue Code that concerned the amortization of certified coal mine safety equipment. Enacted as part of the Tax Reform Act of 1969, its purpose was to provide a financial incentive for coal mine operators to invest in equipment that improved the health and safety of miners. The provision allowed for an accelerated deduction, a departure from standard depreciation rules of the time. Understanding this former law offers insight into how tax policy has been used to encourage specific business investments.

Amortization for Coal Mine Safety Equipment

Former Internal Revenue Code (IRC) Section 187 provided a special tax deduction for investments in certified coal mine safety equipment. The rule permitted a taxpayer to amortize, or write off, the cost of this equipment over a 60-month period. This allowed mine operators to recover the cost of their investment much faster than through typical depreciation schedules. The taxpayer could elect to begin this 60-month period either in the month following the equipment’s placement in service or at the start of the next taxable year.

This accelerated deduction applied to the adjusted basis of the equipment, which is its cost minus any prior depreciation or amortization taken. The provision was designed to lower the financial barrier for acquiring new, safer technology mandated by federal law.

The types of property that qualified were defined as “certified coal mine safety equipment.” This included electric face equipment, such as cutting machinery and drills, required to meet the standards of the Federal Coal Mine Health and Safety Act of 1969. It also covered property used to convert existing equipment into a permissible state, treating those conversion costs as a separate item of qualifying property.

Equipment Certification and Requirements

Before a mine operator could claim the accelerated amortization deduction under Section 187, the equipment had to be formally certified. This certification was not granted by the IRS but by the Secretary of the Interior or an authorized representative. The certification confirmed that the property was a type of electric face equipment deemed permissible under Section 305 of the Federal Coal Mine Health and Safety Act.

To secure this certification, a taxpayer had to provide evidence that the equipment met federal standards. This involved maintaining detailed records showing the equipment’s specifications and its compliance with the legal requirements. The process was designed to ensure the tax incentive was tied to assets that genuinely enhanced miner safety.

The taxpayer was also responsible for keeping documentation, including proof of purchase, the date the equipment was placed in service, and its adjusted basis. This created a paper trail that allowed the IRS to verify the legitimacy of the deduction claimed.

Claiming the Amortization Deduction

Once a mine operator had certified equipment, the amortization deduction was claimed on their annual income tax return. The process involved making a formal election to use the 60-month amortization period. This election was made by attaching a statement to the tax return for the year the taxpayer chose to begin the deduction, which described the equipment and the date it was placed in service.

The total deduction for a given tax year was the sum of the monthly amortization amounts for each month of the 60-month period that fell within that year. This deduction was reported as a business expense, directly reducing the taxpayer’s taxable income.

A taxpayer who elected to take the amortization deduction could also choose to discontinue it for the remainder of the 60-month period. This election to stop the accelerated deduction was irrevocable and required filing a written statement with the IRS. After discontinuing the Section 187 amortization, any remaining basis in the equipment would then be recovered through standard depreciation methods under IRC Section 167.

Repeal and Current Depreciation Rules

Section 187 was repealed as part of the Tax Reform Act of 1986. This legislation aimed to simplify the Internal Revenue Code by eliminating many specialized deductions and credits. The repeal was part of a broader movement to create a more uniform system for cost recovery, treating different types of business assets in a more consistent manner.

With the repeal of Section 187, the primary method for deducting the cost of business equipment is now the Modified Accelerated Cost Recovery System (MACRS). MACRS applies to most tangible depreciable property placed in service after 1986. It assigns assets to specific property classes with pre-determined depreciation periods and methods.

Under MACRS, coal mine safety equipment is treated as 7-year property. This means its cost is depreciated over a seven-year period using a method that allows for larger deductions in the earlier years of the asset’s life. While not as rapid as the 60-month amortization offered by Section 187, MACRS still provides an accelerated depreciation schedule compared to a straight-line method. This system remains the standard for recovering the cost of business machinery and equipment today.