Preparing for Revised Tangible Property Regulations

Earlier this year, the IRS’ Large Business & International (LB&I) Division issued a Directive (Revised Directive) instructing its field agents to discontinue examinations of capitalization and repair costs issues. The Revised Directive follows amendments made to temporary Tangible Property Regulations that delayed those regulations’ effective date to tax years beginning on or after January 1, 2014. Final Tangible Property Regulations are expected to be released this summer.

With final regulations coming soon, companies have the perfect opportunity to examine how their businesses will be affected. The regulations will have a very broad application, affecting all taxpayers that acquire, produce, or improve tangible property. While the IRS expects some modifications when the final version of the regulations is published, many of the provisions from the temporary version will remain.

The Revised Directive extends a grace period that arose from a prior Directive, which instructed field agents to stand down on exam issues associated with maintenance, repair, or tangible property improvement costs. The extension provides relief to taxpayers currently under exam for repair expenditures and dispositions issues. The additional time allows them, as well as other taxpayers who may have audit exposure on these issues, to review and determine the proper treatment of these items and make necessary changes. For taxpayers not currently under exam, an assessment should be made to determine whether the filing of Form 3115 is warranted to adopt the temporary or final regulations, once issued. Many taxpayers will discover that early adoption of the regulations can prove beneficial.

Cherry Bekaert can assist you in determining how best to comply with these complex regulations. Additional details are available here in our Preparing for Tangible Property Regulations white paper (in the Resources section). For more information, contact your Cherry Bekaert Tax Professional.