AICPA Provides More Detailed Critique of Complex IRS Capitalization Rules

July 19, 2012 /

Temporary regulations proposed by the Internal Revenue Service governing the deduction and capitalization of tangible property expenditures would be unnecessarily complex and burdensome for many taxpayers, barring substantive changes, Patricia Thompson, chair of the American Institute of CPAs’ Tax Executive Committee, said in a comment letter to the agency.

“The AICPA is concerned that the overall approach in the temporary regulations relies too heavily on a ‘facts and circumstances’ based approach and contains too few bright-line tests and safe harbors to alleviate administrative burden and complexity in the capitalization area,” Thompson wrote. In fact, she added, additional burdens would be imposed on taxpayers – particularly small businesses – without elimination of “the often controversial aspects of applying general capitalization principles.”

This letter came following the AICPA’s initial comment letter on April 17, 2012, but provides greater specificity in a number of areas.

For instance, the AICPA believes the IRS should provide illustrative examples to guide taxpayers on the interrelationship of some of the temporary regulations, particularly the disposition provisions, general asset account (GAA) elections, and improvement provisions, Thompson wrote.

Providing one or two examples would “enable taxpayers to avoid unintentional missed elections in their efforts to comply with the regulations,” she said.

The letter offers new recommendations on the treatment of improvements, as well as materials and supplies, under the temporary regulations. The AICPA also expanded its previous comments on dispositions/GAA elections, Method Change Guidance and acquisition costs. In the latter case, the AICPA believes the de minimis rule in the regulations, which requires an annual financial statement that meets the definition of an Applicable Financial Statement (AFS), discriminates against smaller taxpayers. While it proposes several fixes in this area, the AICPA also suggests an alternative to expand the definition of an AFS to include a financial statement that has been reviewed by a certified public accountant.

 

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