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Firm Seeks Additional Guidance to Improve Clarity of Proposed 'Repair' Regs

APR. 24, 2012

Firm Seeks Additional Guidance to Improve Clarity of Proposed 'Repair' Regs

DATED APR. 24, 2012
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April 24, 2012

 

 

CC:PA:LPD:PR (REG-168745-03)

 

Department of Treasury

 

Internal Revenue Service

 

PO Box 7604

 

Ben Franklin Station, Room 5203

 

Washington, DC 20044

 

 

RE: Proposed and Temporary Regulations TD 9564 REG-168745-03, 12/23/11

Dear Ladies and Gentlemen:

 

This letter is in response to your request for comments regarding Treasury and Internal Revenue Service temporary and proposed Regulations as published in Treasury Decision 9564. Our comments pertain to the rules outlining the deduction or capitalization of amounts paid to acquire, produce, improve or repair tangible property. These comments and requests are based on the views of Dixon Hughes Goodman LLP in interpreting the needs of the clients we serve. While we applaud the Service in its extensive and insightful approach in drafting these Regulations, we recognize that adhering to these Regulations may be burdensome to many taxpayers that have followed many years of previous guidance and historical case law on these issues. We therefore request that the Service make the implementation process as explicit as possible by addressing the following uncertain aspects as presented to us by numerous taxpayers.

 

Comment #1 -- Guidance with respect to a reasonable method for determining cost for a replaced component of a building:

As published in Regulation § 1.168(i)-8T(h) example 5 (ii),

 

"On June 30, 2012, D replaces one of the building's elevators. Because D cannot identify the cost of the structural components of the building from its records, D uses a reasonable method that is consistently applied to all of the structural components of the office building to determine the cost of the elevator."

 

The term reasonable method is not defined within the regulation nor elsewhere under § 168 or applicable regulations of this section. What may seem reasonable and consistent to a taxpayer may not be interpreted as such by a field examiner. We request that guidance be established to provide a safe harbor for "reasonable method" that would allow the use of industry standards or similar methods to avoid lengthy and potentially costly future examination resolutions.

Comment #2 -- Guidance with respect to what constitutes Applicable Financial Statement:

As published in Regulation § 1.263(a)-2T(g)(6) the definition of an applicable financial statement for purposes of the de minimis election is,

 

"(i) A financial statement required to be filed with the Securities and Exchange Commission (SEC) (the 10-K or the Annual Statement to Shareholders);

(ii) A certified audited financial statement that is accompanied by the report of an independent CPA (or in the case of a foreign entity, by the report of a similarly qualified independent professional), that is used for --

 

(A) Credit purposes;

(B) Reporting to shareholders, partners, or similar persons; or

(C) Any other substantial non-tax purpose; or

 

(iii) A financial statement (other than a tax return) required to be provided to the federal or a state government or any federal or state agencies (other than the SEC or the Internal Revenue Service)."

 

A large number of business taxpayers may issue financial statements that are unaudited. The financial statements may be compiled or reviewed by an independent CPA, but not audited in accordance with GAAP or IFRS guidelines. These taxpayers under your current guidance would not be afforded the protection of a safe harbor by following the same principles with regard to expensing for financial statement purposes a de minimis amount of repairs as would be granted other taxpayers that prepare audited financial statements. We find the current definition to be too restrictive for application to certain taxpayers that are similarly being affected by the overall changes in the Regulation. We therefore request additional guidance with respect to a safe harbor method for these taxpayers. We appreciate the opportunity to comment on this important matter and look forward to your response. We would be pleased to discuss our concerns and recommendations with you. I can be reached directly at (704) 367-5863 or by email at jim.fowler@dhgllp.com for comment.
Sincerely,

 

 

James A Fowler Jr., CPA

 

Partner

 

Dixon Hughes Goodman LLP

 

Charlotte, NC

 

CC:

 

Alan S Williams

 

Office of Associate Chief Counsel

 

Internal Revenue Service

 

1111 Constitution Ave NW

 

Washington, DC 20224

 

 

Merrill D Feldstein

 

Office of Associate Chief Counsel

 

Internal Revenue Service

 

1111 Constitution Ave NW

 

Washington, DC 20224

 

 

Kathleen Reed

 

Office of Associate Chief Counsel

 

Internal Revenue Service

 

1111 Constitution Ave NW

 

Washington, DC 20224

 

 

Patrick Clinton

 

Office of Associate Chief Counsel

 

Internal Revenue Service

 

1111 Constitution Ave NW

 

Washington, DC 20224
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