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Search Strategy................................................................................................................................................ iii 1. The New Tax Accounting Rules on Deducting or Capitalizing Tangible Property........................................ 1 Bibliography...................................................................................................................................................... 12

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The New Tax Accounting Rules on Deducting or Capitalizing Tangible Property

Author: Maydew, Gary L Publication info: Taxes 90.10 (Oct 2012): 23-30+. ProQuest document link Abstract: In December 2011, the Treasury issued new temporary regulations governing the capitalization and expense rules for: materials and supplies; repairs; the acquisition and production of tangible property, and expenditures incurred for the improvement of tangible property. These temporary regulations expire on December 23, 2014. The new regulations generally appear to make it considerably more difficult to expense repairs. The facts-and-circumstances test to be applied to betterments, for example, will enable an examining agent to challenge many expenditures that businesses may consider to constitute repairs expense. The rules for rotable supplies and temporary supplies, as evidenced by examples, seem especially harsh. In addition the safe harbor for routine maintenance seems to be a rather narrow safe harbor. Further, the de minimis test, while helpful in establishing a bright line, could have been more useful had the amounts designated as de minimis been made more generous. Finally, the requirement that applicable financial statements must be present in order to utilize the de minimis rule could prevent some small businesses from benefiting from the rule. One should also remember that these regulations are temporary, and could yet again be revised before issued as final regulations. Links: Check for full text via FindIt! Full text: Gary L. Maydew discusses the new regulations covering capitalization and repairs of tangible property and provides examples to illustrate the application of these detailed new rules. The selection and application of accounting methods for tax accounting purposes is important in determining when an item of income, expense or credit enters into the computation of the taxpayer's income tax. The rules that apply to deducting (expensing), capitalizing and, where applicable, depreciating tangible property constitute an important part of the body of law, regulations and other authority governing tax accounting methods. Therefore, the recently issued (late 201 1 ) regulations concerning capitalization and repairs of tangible property are highly relevant to those in tax practice. The purpose of this article is to discuss the new regulations and to provide examples to illustrate the application of these detailed new rules. New Capitalization Rules Background In December 2011 the Treasury issued new temporary regulations governing the capitalization and expense rules for: materials and supplies; repairs; the acquisition and production of tangible property, and expenditures incurred for the improvement of tangible property. These temporary regulations expire on December 23, 2014 (they also serve as proposed regulations). They generally apply to tax years beginning on or after January 1, 2012. Objective and Coverage of the New Regulations The temporary regulations1 were designed to do the following: * Clarify and expand the standards provided by the regulations that govern repairs expenses (Code Sec. 162(a)) and capital expenditures (Code Sec. 263(a)). * Provide certain bright-line tests for applying those standards (e.g., de minimis rules). * Provide guidance on accounting for, and disposing of, property under the ACRS system of Code Sec. 1 68. * Amend the general asset account regulations of Code Sec. 168(i)(4). General Rules for Capital Expenditures

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In general, no deduction is allowed for the fol lowing:2 * Amounts paid for new buildings * Permanent improvements or betterments made to increase the value of any property or estate * Any amounts paid to restore property * Any amounts to make good the exhaustion thereof for which an allowance has been made These regulations are coordinated with the UNICAP rules of Code Sec. 2 63 A, i.e., Code Sec. 2 63 A contains the rules for capitalizing property produced by the taxpayer and property acquired for resale. Examples of Capital Expenditures Examples of capital expenditures provided by the regulations include the following amounts:3 * Paid to acquire or produce a unit of real or personal tangible property * Paid to improve a unit of real or personal tangible property * Paid to acquire or create intangibles * Paid or incurred to facilitate the acquisition of a trade or business, a change in capital structure of a business entity and certain other transactions as enumerated in Reg. 1 .263(a)-5 * Faid to acquire an interest in land (e.g., easements, mineral interests) * Assessed and paid by bondholders or stockholders in connection with a reorganization * Paid by a holding company to carry out a guaranty of dividends in certain circumstances where the purpose is to secure new capital Amounts paid to sell property such as commissions and other transaction costs generally must be capitalized. However, such costs incurred by dealers are treated as ordinary expenses. Capitalized amounts are treated as a reduction in the sales price. These selling costs are generally taken into account in the tax year of sale. If the sale is abandoned, the costs are deducted in such year if a loss deduction is permitted.4 Example.5 Drayage, Inc. decides in December 2012 to sell 20 of its trucks. The company pays $600 in December to get the trucks appraised. Not satisfied with the likely sales price indicated by the appraisal, the company takes the trucks off the market in early 201 3 and resumes using them in the trucking business. The appraisal fee must be capitalized in 2012. However, the appraisal fee may be deducted under Code Sec. 1 65 in 2013, the year of abandonment of the sale. Materials and Supplies Materials and supplies as well as rotables and temporary spare parts are covered in Temporary Reg. 1.1 623T. However, the de minimis rules of Temporary Reg. 1.263(a)-2T(g) also apply, and are covered later in the article. The new temporary regulations for materials and supplies contain the following: * A distinction, in the accounting treatment, between incidental and nonincidental materials and supplies * Detailed definitions of: materials and supplies, "rotable" and temporary spare parts, "economic useful life, "economic useful life," and "applicable financial statements" * A provision to elect the de minimis rule of Temporary Reg. 1.263(a)2T(g) * The required treatment of their sale or other disposition Incidental vs. Nonincidental Material and Supplies A distinction is made in the accounting treatment of incidental and nonincidental materials and supplies. Incidental materials and supplies are generally deductible in the tax year in which the amounts are paid.6 Thus, an inventory need not be maintained for incidental materials and supplies. Nonincidental materials and supplies generally must be deducted in the year in which they are used or consumed.7 However, there are two exceptions: * Taxpayers can elect to capitalize and then depreciate materials and supplies. However, the election is not available for materials and supplies that will be components of a unit of materials or supplies that itself is not capitalized.8 30 August 2013 Page 2 of 12 ProQuest

* Taxpayers may elect the de minimis rule of Temporary Reg. 1 .263(a)-2T(g), described below. Rotable supplies and temporary spare parts are accounted for differently than are materials and supplies. Generally, rotables and spare parts are not considered used or consumed until the tax year in which the taxpayer disposes of the parts.9 However, see the discussion below of the optional method to account for rotables. Note that the materials and supplies regulations do not override the requirements of Code Sec. 2 63 A to capitalize direct and allocable indirect costs of property produced or acquired for resale , nor do they change the treatment of expend itu res that fol low under Code Sec. 162(a) or Code Sec. 212. 10 Example." Western Machinery, LLC owns a number of precision-cutting machines. In 2012 the company purchases spare parts for the machines. The spare parts are not rotable or temporary spare parts that would otherwise be deductible as materials and supplies in 201 3, the year used. However, amounts paid to "improve" tangible property must be capitalized (as discussed in the section in the article below entitled "Capitalization of Improvements-When is it Required)" Therefore, the spare costs must be capitalized unless the optional method is adopted. Relevant Definitions Materials and supplies are defined as tangible property (not including inventory) that is used or consumed in the taxpayer's operations that is any of the following:12 * A component acquired for maintenance, repair or improvement of a unit of tangible property that is owned, leased or serviced by the taxpayer (However, the component must not be acquired as part of a unit of tangible property [in which case such component would be capitalized or otherwise accounted for].) * Fuel, lubricants, water and similar items, if consumption is expected within 12 months after first being used in the operations * A unit of property that either has an economic useful life of 12 months or is acquired or produced for not more than $100 * Is identified in publications by the IRS as materials and supplies "Rotable Spare Parts" and Temporary Supplies "Rotable spare parts" are materials and supplies acquired for installation on a unit of property. They must be removable, generally repaired or improved, and either reinstalled or stored for later installation. Temporary spare parts are as the phraseology implies, i.e., parts that are used until a permanent part can be installed.13 Optional Method for Rotables and Temporary Spare Parts As stated above, generally rotables are not expensed until the tax year of disposal. However, taxpayers may choose an optional method of accounting for rotables. The optional method does constitute an accounting method under Code Sec. 446(a). Furthermore, taxpayers who use the optional method must use the method for all its rotables and spare parts. 14The optional method for rotables provides how to account for five occurrences relevant to rotables:15 * Initial installation. The cost of acquiring or producing the rotables is deducted in the first tax year of installation. * Removal. The FMV of the part removed is included in income, and both the FMV of the part and the cost to remove are included in the basis of the part. * Repair or improvement. The cost is not deducted, but rather capitalized as part of the basis. * Reinstallation. The amounts paid to reinstall and those amounts included in the basis of the part are deducted to the extent that they have not been previously deducted. * Disposal. The amounts included in basis are deducted (to the extent not previously deducted). Example.16 Cheap Cars, Inc. is in the car rental business. In 2012 they acquire used rental fleets, they also purchase replacement tires fitting the types of autos purchased. The tires cost the company $70 each. The company has chosen not to use the optional method of accounting for rotable spare parts. In 2013 the company 30 August 2013 Page 3 of 12 ProQuest

replaces tires on several of the autos, using the tires purchased in 2012. In 2014 the tires, showing some wear, are taken out of service. At that time the FMV of the tires is $25 each, and the cost of removal is $3 each. In 201 5 the tires are reinstalled on the autos at a cost of $2 each. By 201 6 the tires are worn out and are sold for scrap. The cost of the tires is deducted in 201 6, the year of disposal. Example.17 Assume the same facts as in the previous example, except that Cheap Cars, Inc. uses the optional method of accounting for rotables. The cost of the tires is deducted in 201 3, the year first installed. In 201 4 the $25 FMV of the tires is taken into gross income. The amount to be capitalized is $28 (the $25 FMV plus the $3 cost of removal). In 2015, when the tires are reinstalled, the amount of $30 is deducted (the capitalized cost of $28 plus the $2 cost of reinstallation. Because in 2016, the year of disposal, there is no capitalized basis, there is no additional cost to be deducted (there is no offset or deduction against the revenue from their sale as scrap). "Economic Userai Life" Rather than being the inherent useful life, the "economic useful life" of a unit of property is defined as the period of time in which the un it of property can reasonably be expected to be useful to the taxpayer. For relevant factors to consider in estimating useful life, the taxpayer is referred to Reg. 1.1 67(a)-! (b) (the pre-ACRS regulations discussing depreciation).18 However, certain taxpayers may use a default rule in applying the definition of economic useful life. In general, taxpayers who generate "applicable financial statements" as defined below, may treat the depreciable life used in those financial statements as being the economic useful life. This default rule cannot be used however, if the taxpayer does not depreciate the un it of property, or expenses it because the amount falls below the level at which they begin capitalizing items. "Applicable Financial Statements" The "applicable financial statement" for a given taxpayer is the financial statement prepared that has the highest priority. The financial statements are listed below in descending priority:19 * One required to be filed with the SEC * One that is a certified, audited statement containing a report by an independent CPA (or their equivalent for a foreign entity) that is used for any of the following: * Credit purposes * Reporting to owners * Any other substantial nontax purpose * One that is required to be provided to a government or government agency other than the SEC or IRS How to Elect to Capitalize and Depreciate Materials and Supplies The election to capitalize and depreciate requires no formal election. Instead the taxpayer makes the election on a timely filed return by capitalizing the asset and beginning to recover the cost through depreciation. Passthrough entities make the election rather than the owners. The De minimus Rule Taxpayers who meet the following four requirement of the de minimis rule can elect to expense materials and supplies: 20 * Taxpayers must generate an "applicable financial statement." * At the beginning of the tax year there must be written accounting procedures that charge to expense amounts that cost less than a certain amount. * Such amounts must be expensed on the financial statements in accordance with the written accounting procedures. * The total amount expensed during the tax year must be less than or equal to the greater of: * one-tenth of one percent of the gross receipts for federal income tax purposes for the tax year; or * two percent of the total depreciation and amortization for the tax year as determined in the applicable financial statements. 30 August 2013 Page 4 of 12 ProQuest

Example. Legal Beagles, LLC in the current year had gross receipts for federal tax purposes of $40 million, and depreciation and amortization on its financial statements of $1.5 million. The company wishes to elect the de minimis rule to expense materials and supplies totaling $25,000, each unit of which costs less than the company's written statement specifies as the level to be expensed. The de minimis amount is the greater of $40,000 ($40,000,000 x 0.001) or $30,000 ($1,500,000 x 0.02). Since the $25,000 they wish to expense does not exceed $40,000, the requirements to apply the de minimis rule are met. Sale or Disposition of Materials and Supplies Materials and supplies are not al lowed capital asset or Code Sec. 1231 treatment upon their sale. Therefore, sale or disposition results in ordinary income or loss. However, if the materials and supplies are capitalized under the election discussed below, they are not treated as materials and supplies.21 Capitalization of ImprovementsWhen Is It Required? Temporary Reg. 1 .2 63(a)-3T provides conceptual and rules-based requirements on amounts paid to improve tangible property. Included in the regulation are: explanation of coordination with other Code sections; the requirements to capitalize certain expenditures; rules for determining the appropriate un it of property; and rules for determining improvement costs in special contexts. The regulations also contain a safe harbor for routine maintenance costs and rules for determining whether expenditures fit a particu lar kind of improvement. In addition, the regulations provide for an optional regulatory accounting method as well as rules for a repair allowance. Coordination with Other Code Sections In general, this regulation is not designed to change the treatment of any expenditure that is specifically provided for in the Code or the regulations other than Code Sec. 1 62(a) or Code Sec. 212 and the regulations thereto. However, materials and supplies that improve a unit of tangible property are subject to those regulations, rather than Temporary Reg. 1 .1 62-3T (discussed above). Also amounts that fall under the de minimis rules of Temporary Reg. 1 .263 are not required to be capitalized even if they constitute improvements and would otherwise be required to be capitalized.22 When Capitalization Is Required Taxpayers are generally required to capitalize "improvements" to property. A unit of property is deemed improved if the expenditure either:23 * results in a "betterment," * "restores" the unit of property, or * "adapts" the u ? it of properly to a new or d ifferent use. Betterments An expenditure results in the betterment of a unit of property if the expenditure does any of the following:24 * Generally ameliorates a material condition or defect that was either in existence prior to purchase or arose during its production (Capitalization is required whether or not the taxpayer was aware of the problem at the time of acquisition or production.) * Results in a material addition (e.g., physical enlargement, expansion, or extension) * Results in a material increase in capacity, productivity, efficiency, strength or quality to either the unit or to what the unit produces How to Apply the Betterment Criterion Taxpayers are supposed to apply a facts and circumstances test to determine whether the betterment criterion has been met. Factors to be considered include the following:25 * The physical nature of the work performed * The effect of the expenditure on the unit of property * How the expenditure is accounted for on the applicable financial statements It is noted that the unavailability of a replacement part of the same type, necessitating its replacement with a 30 August 2013 Page 5 of 12 ProQuest

comparable, though improved part does not necessarily require capitalization as betterment.26 Such a statement of the obvious in the regulations does not lead to reassurance that the IRS will be flexible in applying the betterment criterion. In general, whether a given expenditure constitutes a betterment is determined by comparing the condition of the unit of property immediately before and immediately after the expenditure. If the cause of the expenditure is to correct normal wear and tear, the condition of the unit of property after the expenditure should be compared with the condition the last time the property was repaired, or if not previously repaired, the condition when first placed into service.27 Example.28 Open All ? ite, Inc., an operator of convenience stores, acquires a parcel of land for a new store site. Unbeknown to the company, the land had significant contaminants in the soil which the company then had to remove. The remediation costs result in a betterment because a material condition or defect existed prior to the company's acquisition of the land. Example.29 Bob Builders, Inc. purchased a used crane for use in its construction business. The manufacturer recommends a scheduled maintenance on the crane that involves inspection and replacement of minor parts every two years. At the time of purchase, the last maintenance had been done 21 months ago. Therefore, the company paid for the schedule maintenance shortly after the acquisition. The expenditure does not qualify for the routine maintenance safe harbor (discussed below), because the cost mainly results from the prior owner's use. However, under the facts and circumstances test, the expenditure does not constitute a betterment and therefore need not be capitalized. Example.30 Von Hingren Stores, a retail chain of department stores, purchases a building previously used as a small home improvement center. The company incurs significant costs to remodel the building to make it suitable for its intended use. The costs include moving walls, putting acoustical tiles in the ceiling, tiles and carpeting on the formerly cement floor, as well as new and improved lighting. On its financial statements, the company capitalizes the cost. The expenditures constitute a betterment and must be capitalized. Example.31 Metal Products, Inc. operates a machine that produces plastic molds. To achieve more precision in the process, the company decides to move the machine to a better location where it can accommodate the attachment of a laser. Because installation of the laser results in a material increase in the capacity of the machine, the expenditures to disassemble, reassemble and install the laser, as well as the cost of the laser, all constitute a betterment and thus must be capitalized. Restoration of the Unit of Property Expenditures are considered to restore a unit of property only if the expenditure meets any of the following:32 * Is for the replacement of a component of a unit of property and the taxpayer has properly: * deducted a loss (other than a casualty loss); * taken into account its basis in realizing gain or loss for its sale or exchange; or * taken a basis adjustment as a resu It of damage due to a casualty loss * Returnstheunittoitsordinarilyefficientoperating condition if its deterioration has left it no longer functional for its intended use * Rebuilds the property to a like-new condition after the end of its class life * Replaces either a major component or a substantial structural part of a unit of property A unit is considered rebuilt to a like-new condition if it is brought to the status of new, rebuilt, reman ufa ctu red or similar status under any federal regulatory guideline or to the manufacturer's original specifications. The facts-and-circumstances test is to be used to determine whether a major component or substantial structural part has been replaced. A major component or part includes a part or combination of parts that either comprise a large portion of the physical structure, or perform a discrete and critical function in the operation of the unit of property.33 Example.34 Good Brew-skis, Inc., a mini-brewer, has a walk-in freezer that is Code Sec. 1245 property. The compressor begins to fail, and the company replaces the freezer and deducts a loss from the 30 August 2013 Page 6 of 12 ProQuest

abandonment of the freezer. Therefore, expenditures to acquire and install the new freezer must be capitalized as an improvement (a restoration). Example.35 Purple Cabs, Inc. has a fleet of taxis that are severely damaged in a hail storm. As a result, the company takes a Code Sec. 165 casualty loss deduction of $125,000 and reduces its basis in the cabs by that amount. The company hires a body shop to repair the hail damage and spends $125,000 to repair the hail dents and broken windows. The amount paid to the body shop must be capitalized as an improvement (a restoration). Example.36 High Country Farms, Co. owns and operates a large cattle ranch. A hay storage building on the ranch has not been used for years. The company decides to begin harvesting hay on some irrigated fields and needs to use the building for storage purposes. The company incurs expenditures to replace the roof and shore up the foundation. The expenditures are necessary to restore the building to its intended use. The expenditures must be capitalized as an improvement (a restoration). Example.37 Three years after purchasing a drill press for use in its machine shop. Valley Machine Works discovered that that the power switch assembly in the drill press stopped working. The company incurred expenditures to remove and replace the power switch, replacing it with comparable parts. The switch constitutes a small component of the drill press and was easily replaced. Because the replacement itself is not a major component of the drill press, the expenditure does not constitute an improvement. However, the UNICAP rules of Code Sec. 263A should be considered. Adaptation of the Unit of Property In general, an expenditure will be considered an adaptation if it results in the usage of a unit of property for a purpose that is not consistent with the use at the time it was placed into service.38 A similar definition is provided for expenditures on buildings and building systems.39 Example.40 Dister Bution, Ltd has a small warehouse adjacent to their showroom. Needing more space to show their products, they decide to convert the warehouse to additional showroom space. Because the new use is not consistent with the original use, the expenditures constitute an adaptation and are therefore capitalized as a betterment. Example.41 Mountain Development owns a building consisting of 10 retail spaces. After deciding to sell the building, the company incurs expenditures to repaint the interior walls and refinish the hardwood floors. Preparing the building for sale does not constitute an adaptation. Therefore, the expenditures do not result in an improvement that is required to be capitalized. Example.42 Great Plains Machine Co. discontinued its manufacturing operation at a site, razed the building and listed the land for sale. The purchaser intends to build apartment buildings on the site. Great Plains incurred costs to clean up toxic wastes that were produced over the years in its manufacturing operation. The company also incurred costs to grade the land so that it was su itable for the construction of apartment buildings. The cost of cleaning up the toxic wastes does not adapt the land to a different use. However, the costs of grading the land do adapt the land to a different use, and thus constitute an adaptation that must be capitalized as an improvement. Optional Regulatory Accounting Method If a taxpayer chooses to use the optional regulatory accounting method, the general principles of Code Sees. 1 62, 212 and 263(a) do not apply in deciding whether a given expenditure is to be capitalized or expensed. Neither does the safe harbor for routine maintenance (discussed below).43 In order to use the optional method, a taxpayer must be in an industry subject to the regulatory rules of either the Federal Energy Regulatory Commission (FERC), the Federal Communications Commission (FCC), or the Surface Transportation Board (STB).44 Taxpayers who use the optional regulatory method also use such method for federal income tax purposes, i.e., expenditures capitalized under regulatory accounting are also capitalized for federal income tax purposes, and expenditures that are expensed under regulatory accounting are also expensed for income tax purposes. However, the method does not apply to any tangible property that is not subject to regulatory 30 August 2013 Page 7 of 12 ProQuest

accounting rules.45 Example.46 North Central Power Co. operates a natural gas distribution system that is subject to the regulatory accounting rules of the FERC. The company chooses to use the optional regulatory accounting method. For regulatory accounting purposes, the company does not capitalize repairs on its gas transmission lines. Therefore, such repairs will also not be capitalized for federal income tax purposes. Example.47 Rocky Mountain Rail is subject to the regulatory accounting rules of the STB. The company chooses to use the optional regulatory accounting method. The company capitalizes the cost of rebuilding its locomotive. The company also must capitalize the rebuilding costs for federal income tax purposes. Safe Harbor for Routine Maintenance Temporary Reg. 1.263(a)-3T generally requires capitalization of expenditures to improve tangible property. As previously discussed, an improvement of tangible property is achieved if such expenditure either:48 * results in a betterment to the unit of property; * restores the unit of property; or * adapts the unit of property to a new or different use. However, a safe harbor is provided for routine maintenance, i.e., such maintenance is not deemed to improve the property.49 Routine maintenance is defined as the recurring activities a taxpayer expects to perform to keep the property in its ordinarily efficient operating condition.50 Examples include the inspection, cleaning and testing of the unit of property. The replacement of parts with comparable commercially available parts also would constitute routine maintenance. However, routine maintenance does not include any of the following:51 * The cost of a replacement of a component whereby the taxpayer has either: * properly deducted a loss for the component; or * properly taken into account its adjusted basis in computing gain or loss on its sale * The cost of repair of damage to the component for which a casualty loss deduction is taken * The cost of returning a unit of property to its ordinarily efficient operating condition where deterioration in the property has rendered it no longer functional for its intended use * The cost of rotable and temporary spare parts to which the taxpayer has applied the optional method of accounting provided in Temporary Reg. 1.162-3T(e) Note that necessary repairs and maintenance incurred in connection with the acquisition of capital assets, even if routine in nature, are likely required to be capitalized under this regulation. Example.52 Nebr. Industries, Inc. acquired a fiveyear old milling machine in March 2012. The manufacturer recommends a comprehensive maintenance every 30 months. As a result, in May 2012 the company schedules and pays for the maintenance. Because the expenditure resulted from prior use of the machine, the expenditure does not qualify as routine maintenance for purposes of the safe harbor. Therefore, because the expenditure constitutes either a betterment or an improvement, the expenditure likely must be capitalized. Example.53 Assume the same facts as in the previous example, and that in late 201 3, because of heavy use, the company scheduled and paid for the second maintenance. This expenditure should qualify as routine maintenance and thus meet the safe harbor exception. However, the expenditure may nonetheless be required to be capitalized as a Code Sec. 263A expenditure if it either directly benefits, or is incurred by, production activities. Example.54 Crow Chemical Co. places raw materials into lined containers. A chemical reaction then converts the raw materials to a finished product. Each container has a class life of 12 years. The lining is a substantial structural part of the container. The lining has to be replaced every three to four years. Three years after putting into service some containers the company replaces the liners. The expenditure to replace the liners falls within the routine maintenance safe harbor. Therefore, the liners need not be capitalized as an improvement. However, the UNICAP rules of Code Sec. 2 63 A may apply. Conclusion 30 August 2013 Page 8 of 12 ProQuest

The new regulations generally appear to make it considerably more difficult to expense repairs. The facts-andcircumstances test to be applied to betterments, for example, will enable an examining agent to challenge many expenditures that businesses may consider to constitute repairs expense. The rules for rotable supplies and temporary supplies, as evidenced by examples, seem especially harsh. In addition the safe harbor for routine maintenance seems to be a rather narrow safe harbor. Further, the de minimistest, while helpful in establishing a bright line, could have been more useful had the amounts designated as de minimis been made more generous. Finally, the requirement that applicable financial statements must be present in order to utilize the de minimis rule could prevent some small businesses from benefiting from the rule. One should also remember that these regulations are temporary, and could yet again be revised before issued as final regulations. Despite these lengthy and detailed regulations, the issue of capitalization and expensing of tangible seems destined to remain a cloudy and much litigated area of taxation. Footnote ENDNOTES 1 T.D. 9564, IRB 2012-14, 614, Dec. 23, 2011 (corrected Mar. 27, 2012). 2 Temporary Reg. 1 .263(a)-1T(a). 3 Temporary Reg. 1 .263(a)-1T(c). 4 Temporary Reg. 1 .263(a)-1T(d). 5 Adapted from Temporary Reg. 1.263(a)-1T(d), Example 5. 6 Temporary Reg. 1.1 62-3 T(a)(1). 7 Temporary Reg. 1.1 62 -3T(a)(2). 8 Temporary Reg. 1.1 62 -3T(d). 9 Temporary Reg. 1.1 62 -3T(a)(3). 10 Temporary Reg. 1 .162-3T(b). 11 Adapted from Temporary Reg. 1.1 62-3T(h), Example 9. 12 Temporary Reg. 1.162-3T(c)(1). 13 Temporary Reg. 1.162-3T(c)(2). 14 Temporary Reg. 1.162-3T(e)(1). 15 Temporary Reg. 1.162-3T(e)(2). 16 Adapted from Temporary Reg. 1.1 62-3T(h), Example 2. 17 Adapted from Temporary Reg. 1.1 62-3T(h), Example 3. 18 Temporary Reg. 1.162-3T(c)(3)(i). 19 Temporary Reg. 1.162-3T(c)(3)(iii). 20 Temporary Reg. 1.263(a)-2T(g). 21 Temporary Reg. 1.162-3T(g). 22 Temporary Reg. 1.263(a)-3T(c). 23 Temporary Reg. 1.263(a)-3T(d). 24 Temporary Reg. 1.263(a)-3T(h)(1). 25 Temporary Reg. 1.263(a)-3T(h)(3)(i). 26 Temporary Reg. 1.263(a)-3T(h)(3)(ii). 27 Temporary Reg. 1.263(a)-3T(h)(3)(ii). 28 Adapted from Temporary Reg. 1.263(a)-3T(h)(3)(iii), Example 1. 29 Adapted from Temporary Reg. 1.263(a)-3T(h)(3)(iii), Example 3. 30 Adapted from Temporary Reg. 1.263(a)-3T(h)(3)(iii), Example 8. 31 Adapted from Temporary Reg. 1.263(a)-3T(h)(3)(iii), Example 10. 32 Temporary Reg. 1.263(a)-3T(i)(1). 33 Temporary Reg. 1.263(a)-3T(i)(3) and (4). 30 August 2013 Page 9 of 12 ProQuest

34 Adapted from Temporary Reg. 1.263(a)-3T(i), Example 1 . 35 Adapted from Temporary Reg. 1.263(a)-3T(i), Example 3. 36 Adapted from Temporary Reg. 1.263(a)-3T(i), Example 5. 37 Adapted from Temporary Reg. 1.263(a)-3T(i), Example 1 1. 38 Temporary Reg. 1.263(a)-3T(j)(1). 39 Temporary Reg. 1.263(a)-3T(j)(2). 40 Adapted from Temporary Reg. 1.263(a)-3T(j), Example 1 . 41 Adapted from Temporary Reg. 1 .263(a)-3T(j), Example 3. 42 Adapted from Temporary Reg. 1 .263(a)-3T(j), Example 4. 43 Temporary Reg. 1.263(a)-3T(k)(1). 44 Temporary Reg. 1.263(a)-3T(k)(2). 45 Temporary Reg. 1.263(a)-3T(k)(3). 46 Adapted from Temporary Reg. 1 .263(a)-3T(k) (4), Example 1. 47 Adapted from Temporary Reg. 1.263(a)-3T(k) (4), Example 4. 48 Temporary Reg. 1.263(a)-3T(d). 49 Temporary Reg. 1.263(a)-3T(g)(1). 50 Id. 51 Temporary Reg. 1.263(a)-3T(g)(3). 52 Adapted fromTemporary Reg. 1 .1 62-3(T)(g), Example 4. 53 Adapted fromTemporary Reg. 1 .1 62-3(T)(g), Example 5. 54 Adapted fromTemporary Reg. 1 .1 62-3(T)(g), Example 6. AuthorAffiliation By Gary L. Maydew* AuthorAffiliation Gary L. Maydew, Ph.D., CPA, is a retired Professor of Accounting at Iowa State University, Ames. AuthorAffiliation This article is based on a CCH continuing education course to be published later this year. Subject: Temporary tax regulations; Repair & maintenance; Capitalization; Tax deductions Location: United States--US Publication title: Taxes Volume: 90 Issue: 10 Pages: 23-30+ Number of pages: 9 Publication year: 2012 Publication date: Oct 2012 Year: 2012 Publisher: CCH INCORPORATED Place of publication: Riverwoods Country of publication: United States

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Publication subject: Business And Economics--Accounting, Business And Economics--Public Finance, Taxation ISSN: 00400181 Source type: Trade Journals Language of publication: English Document type: Feature ProQuest document ID: 1220476378 Document URL: http://search.proquest.com.ezproxylocal.library.nova.edu/docview/1220476378?accountid=6579 Copyright: Copyright CCH INCORPORATED Oct 2012 Last updated: 2013-01-16 Database: ProQuest Research Library: Business,Accounting & Tax

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Bibliography
Citation style: APA 6th - American Psychological Association, 6th Edition Gary, L. M. (2012). The new tax accounting rules on deducting or capitalizing tangible property. Taxes, 90(10), 23-30+. Retrieved from http://search.proquest.com.ezproxylocal.library.nova.edu/docview/1220476378?accountid=6579

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30 August 2013

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