[Code of Federal Regulations]
[Title 26, Volume 1]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.188-1]

[Page 255-259]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.188-1  Amortization of certain expenditures for qualified 
on-the-job training and child care facilities.

    (a) Allowance of deduction--(1) In general. Under section 188, at 
the election of the taxpayer, any eligible expenditure (as defined in 
paragraph (d)(1) of this section) made by such taxpayer to acquire, 
construct, reconstruct, or rehabilitate section 188 property (as defined 
in paragraph (d)(2) of this section) shall be allowable as a deduction 
ratably over a period of 60 months. Such 60-month period shall begin 
with the month in which such property is placed in service. For rules 
for making the election, see paragraph (b) of this section. For rules 
relating to the termination of an election, see paragraph (c) of this 
section.
    (2) Amount of deduction--(i) In general. For each eligible 
expenditure attributable to an item of section 188 property the 
amortization deduction shall be an amount, with respect to each month of 
the 60-month amortization period which falls within the taxable year, 
equal to the elgible expenditure divided by 60. The total amortization 
deduction with respect to each item of section 188 property for a 
particular taxable year is the sum of the amortization deductions 
allowable for each month of the 60-month period which falls within such 
taxable year. The total amortization deduction under section 188 for a 
particular taxable year is the sum of the amortization deductions 
allowable with respect to each item of section 188 property for that 
taxable year.
    (ii) Separate amortization period for each expenditure. Each 
eligible expenditure attributable to an item of section 188 property to 
which an election relates shall be amortized over a 60-month period 
beginning with the month in which the item of section 188 property is 
placed in service. Thus, if a taxpayer makes an eligible expenditure for 
an addition to, or improvement of, section 188 property, such 
expenditure must be amortized over a separate 60-month period beginning 
with the month in which the section 188 property is placed in service.
    (iii) Separate items. The determination of what constitutes a 
separate item of section 188 property is to be made on the basis of the 
facts and circumstances of each individual case. Additions or 
improvements to an existing item of section 188 property are treated as 
a separate item of section 188 property. In general, each item of 
personal property is a separate item of

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property and each building, or separate element or structural component 
thereof, is a separate item of property. For purposes of subdivisions 
(i) and (ii) of this subparagraph, two or more items of property may be 
treated as a single item of property if such items (A) are placed in 
service within the same month of the taxable year, (B) have same 
estimated useful life, and (C) are to be used in a functionally related 
manner in the operation of a qualified on-the-job training or child care 
facility or are integrally related facilities (described in paragraph 
(d) (3) or (4) of this section.
    (iv) Disposition of property or termination of election. If an item 
of section 188 property is sold or exchanged or otherwise disposed of 
(or if the item of property ceases to be used as section 188 property by 
the taxpayer) during a particular month, then the amortization deduction 
(if any) allowable to the taxpayer in respect of that item for that 
month shall be an amount which bears the same ratio to the amount to 
which the taxpayer would be entitled for a full month as the number of 
days in such month during which the property was held by him (or used by 
him as section 188 property) bears to the total number of days in such 
month.
    (3) Effect on other deductions. The amortization deduction provided 
by section 188(a) with respect to any month shall be in lieu of any 
depreciation deduction which would otherwise be allowable under sections 
167 or 179 with respect to that portion of the adjusted basis of the 
property attributable to an adjustment under section 1016(a)(1) made on 
account of an eligible expenditure.
    (4) Depreciation with respect to property ceasing to be used as 
section 188 property. A taxpayer is entitled to a deduction for the 
depreciation (to the extent allowable under section 167) of property 
with respect to which the election under section 188 is terminated under 
the provisions of paragraph (c) of this section. The deduction for 
depreciation shall begin with the date of such termination and shall be 
computed on the adjusted basis of the property as of such date. The 
depreciation deduction shall be based upon the estimated remaining 
useful life and salvage value authorized under section 167 for the 
property as of the termination date.
    (5) Investment credit not to be allowed. Any property with respect 
to which an election has been made under section 188(a) shall not be 
treated as section 38 property within the meaning of section 48(a).
    (6) Special rules--(i) Life estates. In the case of section 188 
property held by one person for life with the remainder to another 
person, the amortization deduction under section 188(a) shall be 
computed as if the life tenant were the absolute owner of the property 
and shall be allowable to the life tenant during his life.
    (ii) Certain corporate acquistions. If the assets of a corporation 
which has elected to take the amortization deduction under section 
188(a) are acquired by another corporation in a transaction to which 
section 381(a) (relating to carryovers in certain corporate 
acquisitions) applies, the acquiring corporation is to be treated as if 
it were the distributor or transferor corporation for purposes of this 
section.
    (iii) Estates and trusts. For the allowance of the amortization 
deduction in the case of estates and trusts, see section 642(f) and 
Sec. 1.642(f)-(1).
    (iv) Partnerships. For the allowance of the amortization deduction 
in the case of partnerships, see section 703 and Sec. 1.703-1.
    (b) Time and manner of making election--(1) In general. Except as 
otherwise provided in subparagraph (2) of this paragraph, an election to 
amortize an eligible expenditure under section 188 shall be made by 
attaching, to the taxpayer's income tax return for the taxable period 
for which the deduction is first allowable to such taxpayer, a written 
statement containing:
    (i) A description clearly identifying each item of property (or two 
or more items of property treated as a single item) forming a part of a 
qualified on-the-job training or child care facility to which the 
election relates. e.g., building, classroom equipment, etc.;
    (ii) The date on which the eligible expenditure was made for such 
item of property (or the period during which eligible expenditures were 
made for

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two or more items of property treated as a single item of property);
    (iii) The date on which such item of property was ``placed in 
service'' (see paragraph (d)(5) of this section);
    (iv) The amount of the eligible expenditure of such item of property 
(or the total amount of expenditures for two or more items of property 
treated as a single item); and
    (v) The annual amortization deduction claimed with respect to such 
item of property.

If the taxpayer does not file a timely return (taking into account 
extensions of the time for filing) for the taxable year for which the 
election is first to be made, the election shall be filed at the time 
the taxpayer files his first return for that year. The election may be 
made with an amended return only if such amended return is filed no 
later than the time prescribed by law (including extensions thereof) for 
filing the return for the taxable year of election.
    (2) Special rule. With respect to any return filed before (90 days 
after the date on which final regulations are filed with the Office of 
the Federal Register), the election to amortize an eligible expenditure 
for section 188 property shall be made by a statement on, or attached 
to, the income tax return (or an amended return) for the taxable year, 
indicating that an election is being made under section 188 and setting 
forth information to identify the election and the facility or 
facilities to which it applies. An election made under the provisions of 
this subparagraph, must be made not later than (i) the time, including 
extensions thereof, prescribed by law for filing the income tax return 
for the first taxable year for which the election is being made or (ii) 
before (90 days after the date on which final regulations under section 
188 are filed with the Office of the Federal Register), whichever is 
later. Nothing in this subparagraph shall be construed as extending the 
time specified in section 6511 within which a claim for credit or refund 
may be filed.
    (3) No other method of making election. No method for making the 
election under section 188(a) other than the method prescribed in this 
paragraph shall be permitted. If an election to amortize section 188 
property is not made within the time and in the manner prescribed in 
this paragraph, no election may be made (by the filing of an amended 
return or in any other manner) with respect to such section 188 
property.
    (4) Effect of election. An election once made may not be revoked by 
a taxpayer with respect to any item of section 188 property to which the 
election relates. The election of the amortization deducted for an item 
of section 188 property shall not affect the taxpayer's right to elect 
or not to elect the amortization deduction as to other items of section 
188 property even though the items are part of the same facility. For 
rules relating to the termination of an election other than by 
revocation by the taxpayer, see paragraph (c) of this section.
    (c) Termination of election. If the specific use of an item of 
section 188 property in connection with a qualified on-the-job training 
or child care facility is discontinued, the election made with respect 
to that item of property shall be terminated. The termination shall be 
effective with respect to such item of property as of the earliest date 
on which the taxpayer's specific use of the item is no longer in 
connection with the operation of a qualified on-the-job training or 
child care facility. If a facility ceases to meet the applicable 
requirements of paragraph (d)(3) of this section, relating to qualified 
on-the-job training facilities, or paragraph (d)(4) of this section, 
relating to qualified child care facilities, the election or elections 
made with respect to the items of section 188 property comprising such 
facility shall be terminated. The termination shall be effective with 
respect to such items of poperty as of the earliest date on which the 
facility is no longer qualified under the applicable rules. For rules 
relating to depreciation with respect to property ceasing to be used as 
section 188 property, see paragraph (a)(4) of this section.
    (d) Definitions and special requirements--(1) Eligible expenditure. 
For purposes of this section, the term eligible expenditure means an 
expenditure:
    (i) Chargeable to capital account;

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    (ii) Made after December 31, 1971, and before January 1, 1982, to 
acquire, construct, reconstruct, or rehabilitate section 188 property 
which is a qualified child care center facility (or, made after December 
31, 1971, and before January 1, 1977, to acquire, construct, 
reconstruct, or rehabilitate section 188 property which is a qualified 
on-the-job training facility); and
    (iii) For which, but only to the extent that, a grant or other 
reimbursement excludable from gross income is not, directly or 
indirectly, payable to, or for the benefit of, the taxpayer with respect 
to such expenditure under any job training or child care program 
established or funded by the United States, a State, or any 
instrumentality of the foregoing, or the District of Columbia.

For purposes of this subparagraph, an expenditure is considered to be 
made when actually paid by a taxpayer who computes his taxable income 
under the cash receipts and disbursements method or when the obligation 
therefore is incurred by a taxpayer who computes his taxable income 
under the accrual method. See subparagraph (5) of this paragraph for the 
determination of when section 188 property is placed in service for 
purposes of beginning the 60-month amortization period.
    (2) Section 188 property. Section 188 property is tangible property 
which is:
    (i) Of a character subject to depreciation;
    (ii) Located within the United States; and
    (iii) Specifically used as an integral part of a qualified on-the-
job training facility (as defined in subparagraph (3) of this paragraph) 
or as an integral part of a qualified child care center facility (as 
defined in subparagraph (4) of this paragraph.)
    (3) Qualified on-the-job training facility. A qualified on-the-job 
training facility is a facility specifically used by an employer as an 
on-the-job training facility in connection with an occupational training 
program for his employees or prospective employees provided that with 
respect to such program:
    (i) All of the following requirements are met:
    (A) There is offered at the training facility a systematic program 
comprised of work and training and related instruction;
    (B) The occupation, together with a listing of its basic skills, and 
the estimated schedule of time for accomplishments of such skills, are 
clearly identified;
    (C) The content of the training is adequate to qualify the employee, 
or prospective employee, for the occupation for which the individual is 
being trained;
    (D) The skills are to be imparted by competent instructors;
    (E) Upon completion of the training, placement is to be based 
primarily upon the skills learned through the training program;
    (F) The period of training is not less than the time necessary to 
acquire minimum job skills nor longer than the usual period of training 
for the same occupation; and
    (G) There is reasonable certainty that employment will be available 
with the employer in the occupation for which the training is provided; 
or
    (ii) The employer has entered into an agreement with the United 
States, or a State agency, under the provisions of the Manpower 
Development and Training Act of 1962, as amended and supplemented (42 
U.S.C. 2571 et seq.), the Economic Opportunity Act of 1964, as amended 
and supplemented (42 U.S.C. 2701 et seq.), section 432(b)(1) of the 
Social Security Act, as amended and supplemented (42 U.S.C. 632(b)(1)), 
the National Apprenticeship Act of 1937, as amended and supplemented (29 
U.S.C. 50 et seq.), or other similar Federal statute.

A facility consists of a building or any portion of a building and its 
structural components in which training is conducted, and equipment or 
other personal property necessary to teach a trainee the basic skills 
required for satisfactory performance in the occupation for which the 
training is being given. A facility also includes a building or portion 
of a building which provides essential services for trainees during the 
course of the training program, such as a dormitory or dining hall. For 
purposes of this section, a facility is considered to be specifically 
used as an on-the-job training facility if such facility is actually 
used for such

[[Page 259]]

purposes and is not used in a significant manner for any purpose other 
than job training or the furnishing of essential services for trainees 
such as meals and lodging. For purposes of the preceding sentence if a 
facility is used 20 percent of the time for a purpose other than on-the-
job training or providing trainees with essential services, it would not 
satisfy the significant use test. Thus, a production facility is not an 
on-the-job training facility for purposes of section 188 simply because 
new employees receive training on the machines they will be using as 
fully productive employees. A facility is considered to be used by an 
employer in connection with an occupational training program for his 
employees or prospective employees if at least 80 percent of the 
trainees participating in the program are employees or prospective 
employees. For purposes of this section, a prospective employee is a 
trainee with respect to whom it is reasonably expected that the trainee 
will be employed by the employer upon successful completion of the 
training program.
    (4) Qualified child care facility. A qualified child care facility 
is a facility which is:
    (i) Particulary suited to provide child care services and 
specifically used by an employer to provide such services primarily for 
his employees' children;
    (ii) Operated as a licensed or approved facility under applicable 
local law, if any, relating to the day care of children; and
    (iii) If directly or indirectly funded to any extent by the United 
States, established and operated in compliance with the requirements 
contained in Part 71 of Title 45 of the Code of Federal Regulations, 
relating to Federal Interagency Day Care Requirements. For purposes of 
this subparagraph, a facility consists of the buildings, or portions or 
structural components thereof, in which children receive such personal 
care protection, and supervision in the absence of their parents as may 
be required to meet their needs, and the equipment or other personal 
property necessary to render such services. Whether or not a facility, 
or any component property thereof, is particularly suited for the needs 
of the children being cared for depends upon the facts and circumstances 
of each individual case. Generally, a building and its structural 
component, or a room therein, and equipment are particulary suitable for 
furnishing child care service if they are designed or adapted for such 
use or satisfy requirements under local law for such use as a condition 
to granting a license for the operation of the facility. For example, 
such property includes special kitchen or toilet facilities connected to 
the building or room in which the services are rendered and equipment 
such as children's desks, chairs, and play or instructional equipment. 
Such property would not include general purpose rooms used for many 
purposes (for example, a room used as an employee recreation center 
during the evening) nor would it include a room or a part of a room 
which is simply screened off for use by children during the day. For 
purposes of this section, a facility is considered to be specifically 
used as a child care facility if such facility is actually used for such 
purpose and is not used in a significant manner for any purpose other 
than child care. For purposes of this subparagraph, a child care 
facility is used by an employer to provide child care services primarily 
for children of employees of the employer if, for any month, no more 
than 20 percent of the average daily enrolled or attending children for 
such month are other than children of such employees.
    (5) Placed in service. For purposes of section 188 and this section, 
the term placed in service shall have the meaning assigned to such term 
in paragraph (d) of Sec. 1.46-3.
    (6) Employees. For purposes of section 188 and this section, the 
terms employees and prospective employees include employees and 
prospective employees of a member of a controlled group of corporations 
(within the meaning of section 1563) of which the taxpayer is a member.
    (e) Effective date. The provisions of section 188 and this section 
apply to taxable years ending after December 31, 1971.

[T.D. 7599, 44 FR 14549, Mar. 13, 1979]

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