IRC 263(a): New Finalized Repair Regulations for Return Preparers Applying Revisions to Accurately Capitalize Costs Under the New Rules WEDNESDAY, NOVEMBER 20, 2013,1:00-2:30 pm Eastern IMPORTANT INFORMATION This program is approved for 1.5 CPE credit hours . To earn credit you must: • Participate in the program on your own computer connection and phone line (no sharing) – if you need to register additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford accepts American Express, Visa, MasterCard, Discover . Respond to verification codes presented throughout the seminar . If you have not printed out the “Official Record of • Attendance”, please print it now . (see “Handouts” tab in “Conference Materials” box on left -hand side of your computer screen). To earn Continuing Education credits, you must write down the verification codes in the corresponding spaces found on the Official Record of Attendance form . Complete and submit the “Official Record of Attendance for Continuing Education Credits,” which is available on the • program page along with the presentation materials. Instructions on how to return it are included on the form. • To earn full credit, you must remain on the line for the entire program. WHOM TO CONTACT For Additional Registrations : -Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10) For Assistance During the Program : - On the web, use the chat box at the bottom left of the screen - On the phone, press *0 (“star” zero) If you get disconnected during the program, you can simply call or log in using your original instructions and PIN.
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IRC 263(a): New Finalized Repair Regulations for Return Preparers Nov. 20, 2013 Rich Shevak, Grant Thornton Ellen McElroy, Pepper Hamilton rich.shevak@us.gt.com mcelroye@pepperlaw.com
Today’s Program General Overview of Regulations Slide 7 – Slide 13 [Ellen McElroy] Acquisition and Production of Property Slide 14 – Slide 19 [Ellen McElroy] Materials and Supplies Slide 20 – Slide 24 [Ellen McElroy] Improvements to Property Slide 25 – Slide 70 [Ellen McElroy and Rich Shevak Disposition of Assets Slide 71 – Slide 85 [Rich Shevak] Practical Implications and Next Steps Slide 86 – Slide 88 [Ellen McElroy and Rich Shevak]
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. 6
General Overview of Regulations Ellen McElroy
General Overview of Regulations • Results-driven case law created ambiguous legal standards for capitalization caused decades of disputes • IRS attempted patchwork of informal guidance (PLRs/TAMs/RR) but unable to fully address issues • In 2004, IRS and Treasury announce intention to issue regulatory guidance to resolve myriad of questions • Previously-published regulations include: − Proposed Regulations issued in 2006; − Proposed Regulations issued in 2008; − Temporary and Proposed Regulations issued in 2012 8
General Overview of Regulations Treatment of Dispositions of Materials and Tangible Property: Supplies: Prop. Treas. Reg. Treas. Reg. § 1.162-3 §§ 1.168(i)-1 and -8 Acquisition or Improvement of Production of Tangible Property: Tangible Property: Treas. Reg. Treas. Reg. §§ § 1.263(a)-3 1.263(a)-1 /2 9
General Overview of Regulations • 2013 Regulations retain much of the 2011 Regulations • Improved De Minimis Safe Harbor for Acquisitions • Added Routine Maintenance Safe Harbor for buildings • Eliminated the mandatory rule for partial disposals; provided clarification regarding General Asset Accounts • Limited revisions to Improvements provisions; continued reliance on factual determinations • 2013 Regulations reflect significant flexibility but require careful consideration in implementation 10
General Overview of Regulations • Generally, changes to the final rules are to be effected with an accounting method change • TPs may adopt Final Regulations in 2012, 2013, or 2014 • TPs failing to make certain elections available under the final rules on timely-filed returns for 2012 or 2013 − are permitted to make elections with amended returns − returns must be filed on or before 180 days from the due date (including extensions) 11
General Overview of Regulations 2013 Final Regulations 2013 Proposed Regulations • Effective for tax years beginning on or • Effective for tax years beginning on after 1/1/14 or after 1/1/14 • 2012 and 2013 Tax Years • May be relied on for 2012 or 2013 − Early adopt 2013 Final Regulations; or − Use current methods; or − Use the 2011 Temporary Regulations • Most changes require Form 3115 and Section 481(a) adjustment • Certain items required on a cut-off basis • Amended returns available for certain elections 12
General Overview of Regulations • Procedural guidance expected to be issued in mid-December regarding implementation of 2013 Final Regulations • Guidance is expected to provide: − Details regarding accounting method change requirements − Automatic consent to change − Audit protection − Section 481(a) adjustment • May reduce the number of accounting method changes required for regulations 13
Acquisition and Production of Property Ellen McElroy
Acquisition/Production of Property Treas. Reg. §§ 1.263(a)-1 and 2 • acquire or produce a unit of Capitalization property, required for • defend or protect title to a unit of amount paid property, or • facilitate the acquisition or to: production of a unit of property • amounts subject to the de minimis Does not rule apply to: • materials and supplies 15
Acquisition/Production of Property Treas. Reg. §§ 1.263(a)-1 and 2 Inherently Facilitative Costs • Transportation costs (shipping fees and moving costs) • Appraisal or valuation services • Negotiation fees or tax advice on an acquisition • Application, permit and title validation fees • Sales and transfer taxes • Brokers commissions • Architectural, engineering and inspection fees • Intermediary or facilitator fees in conjunction with a §1031 exchange 16
Acquisition / Production of Property: De minimis safe harbor Treas. Reg. § 1.263(a)-1(f) • Rule allows immediate deduction of certain “de minimis” costs • Abandons “ceiling” from 2011 temporary regulations • TP must have a written accounting procedures expensing threshold amounts at the beginning of the year that addresses − Amounts paid for property costing less than threshold, and − Amounts paid for property with economic useful life of 12 months or less • TP must treat the amounts paid during the year as an expense in AFS or accordance procedures − TPs with AFS, property cannot exceed $5,000 (per item or per invoice) − TPs w/o AFS, property cannot exceed $500 17
Acquisition/Production of Property: De minimis safe harbor • Transaction and addition costs (e.g., delivery or installation) are included in de minimis amount if included on the same invoice as the property • If elected, then the de minimis safe harbor must be used with respect to M&S • Annual election – statement required • Taxpayers without a stand-alone AFS, but included in the AFS of a group of entities, may use group’s AFS and written accounting to meet the de minimis rule 18
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