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IRS Releases Tangible Property Repair Regulations - A Mixed Bag


At the end of 2011, the IRS released new temporary regulations addressing the treatment of expenditures for tangible property. The regulations provide some certainty and help with some administrative concerns, but generally, however, raise new questions and add more complexity into the system. The changes in the new regulations from the prior versions are significant and will warrant consideration in your company's tax provision and uncertain tax position determinations in the quarter that includes the effective date of the new regulations (1 January 2012). Taxand US assesses the new regulations and how they will affect virtually every bussiness Taxpayer with tangible property in the US.

De Minimis Rule
The temporary regulations change several aspects of the de minimis rule from the 2008 proposed regulations. The convoluted "no distortion requirement" is replaced with an overall ceiling that generally limits the total expenses taxpayers can deduct under the de minimis rule. The new "ceiling rule" provides that the aggregate of amounts paid and not capitalised under the de minimis rule for the taxable year must be less than or equal to the greater of (1) 0.1 percent of gross receipts for the taxable year, or (2) 2 percent of depreciation and amortisation expense for the taxable year as determined in the taxpayer's applicable financial statement (AFS). Under the new regulations, a taxpayer can elect not to apply the de minimis rule, and the exceptions from the proposed de minimis rule for property acquired for repairs and improvements are eliminated. However, the de minimis rule does not apply to amounts paid for labour and overheads incurred in repairing or improving property.

Taxand US considers the new Tangible Property Regulations in greater detail

Taxand's Take

Much will be said about these new regulations over the forthcoming weeks, since they affect most business taxpayers. If your company or business has opted to conform to the 2008 proposed regulations, especially for expenditures for buildings and their structural components, a thorough review of your capitalisation policy in light of these new temporary and proposed regulations is in order. A likely scenario could be that your company will be required to file for an accounting method change in order to comply with these new regulations. Additionally, companies will need to be mindful of these regulations in completing your tax provision and uncertain tax position computations effective with the quarter that includes 1 January 2012.

Your Taxand contacts for further queries are:
Gregory Gunderson
T. +1 214 438 8410

Paul Helderman
T. +1 212 406 9059

Taxand's Take Author